<PAGE>
As Filed with the Securities and Exchange Commission On July 28, 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. 39 (X)
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940(X)
Amendment No. 40 (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
---
X on (August 1, 2000) pursuant to paragraph (b)(1)(v) of rule 485
---
60 days after filing pursuant to paragraph (a)(1) of rule 485
---
on (date) pursuant to paragraph (a)(1) of rule 485
---
75 days after filing pursuant to paragraph (a)(2) of rule 485
---
on (date) pursuant to paragraph (a)(2) of rule 485
---
If appropriate, check the following box:
This post-effective amendment designates a new effective date for a
previously-filed post-effective amendment.
<PAGE>
[GRAPHIC]
THE RYDEX
SERIES FUNDS
INVESTOR CLASS SHARES
[LOGO]
RYDEX-Registered Trademark-
---------------------------
TOOLS THAT POWER PORTFOLIOS
<PAGE>
"RYDEX established itself as a market innovator when it introduced the first
successful, targeted leveraged portfolio in 1993. Rydex offers an objective,
quantitative approach to investing with funds that are designed to correlate to
specific benchmarks or market segments and are not subject to the market
predictions typically utilized by actively managed funds."
-SKIP VIRAGH, FOUNDER AND PRESIDENT
NOT PART OF THE PROSPECTUS
<PAGE>
i
[GRAPHIC]
AN INDUSTRY
LEADER
Rydex has set itself apart in the financial services industry by offering
innovative products and services requested by the investment community. In 1993
we launched the first successful leveraged benchmark-based fund, the Rydex Nova
Fund. Since then, we have added five more benchmark based funds, 17 sector
funds, two international funds, and a government money market fund.
Today, Rydex Series Funds are among the fastest growing in the industry.*
*STRATEGIC INSIGHT, MAY 2000
NOT PART OF THE PROSPECTUS
<PAGE>
ii
[GRAPHIC]
RYDEX
SERIES FUNDS
The Rydex Series Funds offers flexibility and variety to sophisticated
investors. Rydex employs a quantitative investment style. Our objective is to
deliver market exposure that will effectively accommodate a broad range of asset
allocation investment disciplines including:
- Strategic asset allocation
- Tactical asset allocation
- Sector rotation
- Market timing
NOT PART OF THE PROSPECTUS
<PAGE>
RYDEX SERIES FUNDS iii
[GRAPHIC]
TOOLS THAT
POWER
PORTFOLIOS
The Rydex Series Funds, which seek to be fully invested at all times, provide
knowledgeable investors from all disciplines the flexibility to benefit from
market upturns and downturns. In addition, they permit investors to conduct
trades daily at no extra charge and without minimum holding periods.
- The benchmark funds seek to provide investment returns that correlate to the
performance of a specific benchmark. With certain funds, we promote the concept
of consistently applied leverage within a passive framework. We believe that if
leverage is applied consistently over a period of time, the benefits of
geometric compounding will be enhanced.
- The team-managed sector funds employ a quantitative model of investing
involving screening stocks based on market capitalization, liquidity, and
correlation relative to the entire industry sector.
- The international funds are benchmarked to published indices. They allow an
investor to take advantage of more of the world's equity market capitalization.
NOT PART OF THE PROSPECTUS
<PAGE>
iv
[GRAPHIC]
REASONS TO INVEST WITH THE
RYDEX
SERIES FUNDS
Rydex offers a high level of customer service and the administrative features
knowledgeable investors need:
- Trading flexibility with no transaction and redemption fees
- User-friendly client applications
- Monthly statements
- Systematic withdrawal plans
- Accommodation of all retirement accounts and qualified assets
- Dedicated Retirement Specialist Team
NOT PART OF THE PROSPECTUS
<PAGE>
RYDEX SERIES FUNDS v
[GRAPHIC]
ONLINE
FEATURES
Rydex offers quality administrative features on our interactive Web site,
www.rydexfunds.com:
- Online account access
- Daily fund performance with comparisons to indices
- Weekly updates on fund holdings
- Daily NAVs
- Easy-to-download applications, prospectuses, and marketing material
- Account trading
NOT PART OF THE PROSPECTUS
<PAGE>
vi
[GRAPHIC]
THE RYDEX
SERIES FUNDS
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------
BENCHMARK FUNDS FUND OBJECTIVE SYMBOLS
------------------------------------------------------------------------------------------
<S> <C> <C>
NOVA To provide investment returns that RYNVX (INVESTOR)
correspond to 150% of the daily RYNAX (ADVISOR)
performance of the S&P 500 Index.
URSA To provide investment returns that RYURX (INVESTOR)
correspond to the inverse RYUAX (ADVISOR)
(opposite) of the daily performance
of the S&P 500 Index.
OTC To provide investment returns that RYOCX (INVESTOR)
correspond to the performance of RYAOX (ADVISOR)
the NASDAQ 100 Index.
ARKTOS To provide investment returns that RYAIX (INVESTOR)
correspond to the inverse
(opposite) of the daily performance
of the NASDAQ 100 Index.
U.S. GOV'T BOND To provide investment returns that RYGBX (INVESTOR)
correspond to 120% of the daily
performance of the current 30-year
U.S. Treasury Bond.
JUNO To provide investment returns that RYJUX (INVESTOR)
correspond to the inverse (opposite)
of the daily performance of the
current 30-year U.S. Treasury Bond.
------------------------------------------------------------------------------------------
SECTOR FUNDS FUND OBJECTIVE SYMBOLS
------------------------------------------------------------------------------------------
BANKING To provide capital appreciation by RYKIX (INVESTOR)
investing in companies involved in RYKAX (ADVISOR)
the banking sector.
BASIC MATERIALS To provide capital appreciation by RYBIX (INVESTOR)
investing in the mining, RYBAX (ADVISOR)
manufacture, or sale of basic
materials.
BIOTECHNOLOGY To provide capital appreciation by RYOIX (INVESTOR)
investing in companies involved in RYOAX (ADVISOR)
research and development, genetic
or other biological engineering,
and in the design, manufacture, or
sale of related biotechnology
products and services.
CONSUMER PRODUCTS To provide capital appreciation by RYCIX (INVESTOR)
investing in companies engaged in RYCAX (ADVISOR)
manufacturing finished goods and
services.
ELECTRONICS To provide capital appreciation by RYSIX (INVESTOR)
investing in companies that include RYsAX (ADVISOR)
semiconductor manufactures and
distributors, and makers and
vendors of other electronic
components and devices.
ENERGY To provide capital appreciation by RYEIX (INVESTOR)
investing in companies involved in RYEAX (ADVISOR)
the exploration, production, and
development of oil, gas, coal, and
alternative sources of energy.
ENERGY SERVICES To provide capital appreciation by RYVIX (INVESTOR)
investing in companies that provide RYVAX (ADVISOR)
services and equipment in the areas
of coal, oil, and gas exploration
and production.
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NOT PART OF THE PROSPECTUS
<PAGE>
RYDEX SERIES FUNDS vii
------------------------------------------------------------------------------------------
SECTOR FUNDS FUND OBJECTIVE SYMBOLS
------------------------------------------------------------------------------------------
FINANCIAL SERVICES To provide capital appreciation by RYFIX (INVESTOR)
investing in companies involved in RYFAX (ADVISOR)
the financial services sector.
HEALTH CARE To provide capital appreciation by RYHIX (INVESTOR)
investing in companies involved in RYHAX (ADVISOR)
the health care industry.
INTERNET To provide capital appreciation by RYiIX (INVESTOR)
investing in companies that provide
products or services designed for
or related to the Internet.
LEISURE To provide capital appreciation by RYLIX (INVESTOR)
investing in companies engaged in RYLAX (ADVISOR)
leisure and entertainment
businesses.
PRECIOUS METALS To provide capital appreciation by RYPMX (INVESTOR)
investing in companies involved in
the precious metals sector.
RETAILING To provide capital appreciation by RYRIX (INVESTOR)
investing in department stores, RYRAX (ADVISOR)
restaurant franchises, mail order
operations, and other companies
involved in selling products to
consumers.
TECHNOLOGY To provide capital appreciation by RYTIX (INVESTOR)
investing in companies including RYTAX (ADVISOR)
computer software and service
companies, semiconductor
manufacturers, networking and
telecommunications equipment
manufacturers, PC hardware and
peripherals companies.
TELECOMMUNICATIONS To provide capital appreciation by RYMIX (INVESTOR)
investing in companies engaged in RYMAX (ADVISOR)
the development, manufacture, or
sale of communications services or
communications equipment.
TRANSPORTATION To provide capital appreciation by RYPIX (INVESTOR)
investing in companies engaged in RYPAX (ADVISOR)
the design, manufacture, distribution,
or sale of transportation equipment.
UTILITIES To provide capital appreciation by RYUIX (INVESTOR)
investing in companies that operate
public utilities.
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INTERNATIONAL FUNDS FUND OBJECTIVE SYMBOLS
------------------------------------------------------------------------------------------
LARGE-CAP EUROPE To provide investment results that RYEUX
correlate to 125% of the Dow Jones
Stoxx 50 Index.
LARGE-CAP JAPAN To provide investment results that RYJPX
correlate to 125% of the Topix 100
Index.
------------------------------------------------------------------------------------------
MONEY MARKET FUND FUND OBJECTIVE SYMBOLS
------------------------------------------------------------------------------------------
U.S. GOV'T MONEY MARKET To provide security of principal, RYMXX (INVESTOR)
current income, and liquidity by RYDXX (ADVISOR)
investing in securities issued by
the U.S. Government and U.S.
Government agencies.
------------------------------------------------------------------------------------------
</TABLE>
NOT PART OF THE PROSPECTUS
<PAGE>
Design: VCG/New York City
<PAGE>
[GRAPHIC]
[LOGO]
RYDEX-Registered Trademark
--------------------------
TOOLS THAT POWER PORTFOLIOS
6116 Executive Boulevard, Suite 400
Rockville, Maryland 20852
www.rydexfunds.com
<PAGE>
OPENING
AN ACCOUNT AT RYDEX
Investors who wish to open an account directly with Rydex will find an easy and
efficient process. Simply complete and sign an account application and send a
check to Rydex. If you wish to open your account by bank wire transfer, you may
do so as well. Please review the Shareholder Information section of the
Prospectus for further details regarding initial purchases including minimum
account requirements.
INVESTING IN THE FUNDS INVOLVES CERTAIN RISKS, WHICH MAY INCLUDE INCREASED
VOLATILITY DUE TO CONCENTRATION IN A SPECIFIC ECONOMIC SECTOR OR GEOGRAPHIC
LOCATION. IN ADDITION, THERE MAY BE INCREASED VOLATILITY DUE TO THE USE OF
OPTIONS OR FUTURES.
THIS MATERIAL MUST BE PRECEDED OR ACCOMPANIED BY A CURRENT PROSPECTUS FOR THE
RYDEX SERIES FUNDS. PLEASE READ THE PROSPECTUS CAREFULLY BEFORE YOU INVEST OR
SEND MONEY.
RYDEX DISTRIBUTORS, INC.
NOT PART OF THE PROSPECTUS
<PAGE>
AUGUST 1, 2000
RYDEX SERIES FUNDS
PROSPECTUS INVESTOR CLASS SHARES
BENCHMARK FUNDS FINANCIAL SERVICES
NOVA HEALTH CARE
URSA INTERNET
OTC LEISURE
ARKTOS PRECIOUS METALS
U.S. GOVERNMENT BOND RETAILING
JUNO TECHNOLOGY
SECTOR FUNDS TELECOMMUNICATIONS
BANKING TRANSPORTATION
BASIC MATERIALS UTILITIES
BIOTECHNOLOGY INTERNATIONAL FUNDS
CONSUMER PRODUCTS LARGE-CAP EUROPE
ELECTRONICS LARGE-CAP JAPAN
ENERGY MONEY MARKET FUND
ENERGY SERVICES U.S. GOVERNMENT MONEY MARKET
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.
[LOGO]
RYDEX-Registered Trademark-
---------------------------
TOOLS THAT POWER PORTFOLIOS
<PAGE>
2
INVESTOR CLASS SHARES
RYDEX SERIES FUNDS
6116 Executive Boulevard, Suite 400
Rockville, Maryland 20852
1.800.820.0888
301.468.8520
BENCHMARK FUNDS
SECTOR FUNDS
INTERNATIONAL FUNDS
MONEY MARKET FUND
Rydex Series Funds (the "Trust") is a no-load mutual fund complex with thirty
separate investment portfolios (the "Funds"). This prospectus describes
twenty-six Funds, which are grouped into four categories:
BENCHMARK FUNDS - Nova Fund, Ursa Fund, OTC Fund, Arktos Fund, U.S. Government
Bond Fund and Juno Fund.
SECTOR FUNDS - Banking Fund, Basic Materials Fund, Biotechnology Fund, Consumer
Products Fund, Electronics Fund, Energy Fund, Energy Services Fund, Financial
Services Fund, Health Care Fund, Internet Fund, Leisure Fund, Precious Metals
Fund, Retailing Fund, Technology Fund, Telecommunications Fund, Transportation
Fund and Utilities Fund.
INTERNATIONAL FUNDS - Large-Cap Europe Fund and Large-Cap Japan Fund
MONEY MARKET FUND - U.S. Government Money Market Fund
Investor Class Shares of the Benchmark Funds, Sector Funds, and Money Market
Fund are sold principally to professional money managers and to investors who
take part in certain strategic and tactical asset-allocation investment
programs. Shares of the International Funds 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 Funds through the
Rydex Internet Web site -- www.rydexfunds.com -- and over the phone.
<PAGE>
PROSPECTUS 3
TABLE OF CONTENTS
RYDEX BENCHMARK FUNDS
5 COMMON RISK/RETURN INFORMATION
6 NOVA FUND
8 URSA FUND
10 OTC FUND
12 ARKTOS FUND
14 U.S. GOVERNMENT BOND FUND
16 JUNO FUND
RYDEX SECTOR FUNDS
19 COMMON RISK/RETURN INFORMATION
20 BANKING
22 BASIC MATERIALS
24 BIOTECHNOLOGY
26 CONSUMER PRODUCTS
28 ELECTRONICS
30 ENERGY
32 ENERGY SERVICES
34 FINANCIAL SERVICES
36 HEALTH CARE
38 INTERNET
40 LEISURE
42 PRECIOUS METALS
44 RETAILING
46 TECHNOLOGY
48 TELECOMMUNICATIONS
50 TRANSPORTATION
52 UTILITIES
RYDEX INTERNATIONAL FUNDS
55 COMMON RISK/RETURN INFORMATION
56 LARGE-CAP EUROPE FUND
58 LARGE-CAP JAPAN FUND
MONEY MARKET FUND
60 U.S. GOVERNMENT MONEY MARKET FUND
62 MORE INFORMATION ABOUT FUND INVESTMENTS AND RISK
69 INVESTING WITH RYDEX: SHAREHOLDER INFORMATION
77 RYDEX ACCOUNT POLICIES FOR ALL SHAREHOLDERS
80 DISTRIBUTION PLAN
80 DIVIDENDS AND DISTRIBUTIONS
81 TAX INFORMATION
82 MANAGEMENT OF THE FUNDS
84 FINANCIAL HIGHLIGHTS
99 BENCHMARK INFORMATION
BC ADDITIONAL INFORMATION
<PAGE>
4
This page intentionally left blank.
<PAGE>
PROSPECTUS 5
RYDEX BENCHMARK FUNDS
NOVA FUND
URSA FUND
OTC FUND
ARKTOS FUND
U.S. GOVERNMENT BOND FUND
JUNO FUND
COMMON RISK/RETURN INFORMATION
INVESTMENT OBJECTIVES
Each Benchmark Fund seeks to provide investment results that match the
performance of a specific benchmark.
PRINCIPAL RISKS
MARKET RISK - The Funds' value may fluctuate from day to day. Due to market
conditions, Fund shares may decline in value causing you to lose money.
TRACKING ERROR RISK - The Advisor may not be able to cause the Funds'
performance to match that of the Funds' benchmark, either on a daily or
aggregate basis. Tracking error may cause the Funds' performance to be less than
you expect.
<PAGE>
6
NOVA FUND
FUND INFORMATION
FUND OBJECTIVE
The Nova Fund seeks to provide investment results that match the performance of
a specific benchmark on a daily basis. The Fund's current benchmark is 150% of
the performance of the S&P 500 Index-TM- (the "S&P 500 Index").
If the Fund meets its objective, the value of the Fund's shares will tend to
increase on a daily basis by 150% of the value of any increase in the S&P 500
Index. When the value of the S&P 500 Index declines, the value of the Fund's
shares should also decrease on a daily basis by 150% of the value of any
decrease in the Index (e.g., if the S&P 500 Index goes down by 5%, the value of
the Fund's shares should go down by 7.5% on that day).
PORTFOLIO INVESTMENT STRATEGY
Unlike a traditional index fund, as its primary investment strategy, the Fund
invests to a significant extent in leveraged instruments, such as futures
contracts and options on securities, futures contracts, and stock indices, as
well as equity securities. Futures and options contracts enable the Fund to
pursue its objective without investing directly in the securities included in
the benchmark, or in the same proportion that those securities are represented
in that benchmark. On a day-to-day basis, to collateralize these futures and
options contracts, the Fund holds U.S. Government securities or cash
equivalents. The Fund also may enter into repurchase agreements.
RISK CONSIDERATIONS
In addition to the risks common to investing in any Benchmark Fund, the Nova
Fund is subject to a number of other risks that will affect the value of its
shares, including:
EQUITY RISK - The equity markets are volatile, and the value of the Fund's
futures and options contracts and other securities may fluctuate significantly
from day to day. This volatility may cause the value of your investment in the
Fund to decrease.
LEVERAGING RISK - The more the Fund invests in leveraged instruments, the more
this leverage will magnify any losses on those investments.
PERFORMANCE
The bar chart and table on the following page show the performance of the Nova
Fund both year-by-year and as an average over different periods of time. The
variability of performance over time provides an indication of the risks of
investing in the Fund. Of course, this past performance does not necessarily
indicate how the Fund will perform in the future.
<PAGE>
PROSPECTUS 7
NOVA FUND
FUND PERFORMANCE AND FEE INFORMATION
[CHART]
* THE YEAR-TO-DATE RETURN FOR THE PERIOD FROM JANUARY 1, 2000 THROUGH JUNE 30,
2000 IS -4.35%.
DURING THE PERIOD SHOWN IN THE BAR CHART, THE HIGHEST RETURN FOR A QUARTER WAS
31.69% (QUARTER ENDED DECEMBER 31, 1998) AND THE LOWEST RETURN FOR A QUARTER WAS
-16.87% (QUARTER ENDED SEPTEMBER 30, 1998).
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN (FOR PERIODS ENDING DECEMBER 31, 1999)(1)
INVESTOR CLASS SHARES S&P 500 INDEX(2)
----------------------------------------------------------------------------
<S> <C> <C>
PAST ONE YEAR 24.00% 19.53%
PAST FIVE YEARS 36.49% 26.18%
SINCE INCEPTION (07/12/93) 26.80% 20.10%
</TABLE>
(1) THESE FIGURES ASSUME THE REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS
DISTRIBUTIONS.
(2) THE S&P 500 INDEX IS AN UNMANAGED INDEX THAT IS A WIDELY RECOGNIZED
INDICATOR OF GENERAL STOCK MARKET PERFORMANCE.
FEES AND EXPENSES OF THE FUND
This table describes the fees and expenses that you may pay if you buy and hold
Investor Class Shares of the Nova Fund.
<TABLE>
<S> <C>
SHAREHOLDER FEES* ................................................................... NONE
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
MANAGEMENT FEES ................................................................... .75%
DISTRIBUTION (12b-1) FEES ......................................................... NONE
OTHER EXPENSES .................................................................... .43%
TOTAL ANNUAL FUND OPERATING EXPENSES ................................................ 1.18%
</TABLE>
* THE FUND MAY IMPOSE A WIRE TRANSFER CHARGE OF $15 ON CERTAIN REDEMPTIONS UNDER
$5,000.
EXAMPLE
This Example is intended to help you compare the cost of investing in the
Investor Class Shares of the Nova Fund with the cost of investing in other
mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time period
indicated and then redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your cost would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$120 $375 $649 $1,432
</TABLE>
<PAGE>
8
URSA FUND
FUND INFORMATION
FUND OBJECTIVE
The Ursa Fund seeks to provide investment results that will inversely correlate
to the performance of the S&P 500 Index.
If the Fund meets its objective, the value of the Fund's shares will tend to
increase during times when the value of the S&P 500 Index is decreasing. When
the value of the S&P 500 Index is increasing, however, the value of the Fund's
shares should decrease on a daily basis by an inversely proportionate amount
(e.g., if the S&P 500 Index goes up by 5%, the value of the Fund's shares should
go down by 5% on that day).
PORTFOLIO INVESTMENT STRATEGY
The Fund pursues its investment objective through what is sometimes referred to
as a "master-feeder arrangement." The Fund invests all of its assets in the Ursa
Master Fund, a separate series of the Trust with an identical investment
objective.
Unlike a traditional index fund, the Ursa Master Fund's benchmark is to perform
exactly opposite the S&P 500 Index, and the Ursa Master Fund will not own the
securities included in the index. Instead, as its primary investment strategy,
the Ursa Master Fund invests to a significant extent in futures contracts and
options on securities, futures contracts, and stock indices. On a day-to-day
basis, the Ursa Master Fund holds U.S. Government securities or cash equivalents
to collateralize these futures and options contracts. The Ursa Master Fund also
may enter into repurchase agreements and sell securities short.
RISK CONSIDERATIONS
In addition to the risks common to investing in any Benchmark Fund, the Ursa
Master Fund is subject to a number of other risks that will affect the value of
its shares, including:
EQUITY RISK - The equity markets are volatile, and the value of the Fund's
futures and options contracts and other securities may fluctuate drastically
from day to day. Equity market volatility may also negatively affect the Fund's
short sales of securities. This volatility may cause the value of your
investment in the Fund to decrease.
PERFORMANCE
The bar chart and table on the following page show the performance of the Ursa
Fund both year-by-year and as an average over different periods of time. The
variability of performance over time provides an indication of the risks of
investing in the Fund. Of course, this past performance does not necessarily
indicate how the Fund will perform in the future.
<PAGE>
PROSPECTUS 9
URSA FUND
FUND PERFORMANCE AND FEE INFORMATION
[CHART]
* THE YEAR-TO-DATE RETURN FOR THE PERIOD FROM JANUARY 1, 2000 THROUGH JUNE 30,
2000 IS 3.34%.
DURING THE PERIOD SHOWN IN THE BAR CHART, THE HIGHEST RETURN FOR
A QUARTER WAS -10.86% (QUARTER ENDEDSEPTEMBER 30, 1998) AND THE LOWEST RETURN
FOR A QUARTER WAS -17.06% (QUARTER ENDED DECEMBER 31, 1998).
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN (FOR PERIODS ENDING DECEMBER 31, 1999)(1)
INVESTOR CLASS SHARES S&P 500 INDEX(2)
----------------------------------------------------------------------------
<S> <C> <C>
PAST ONE YEAR -12.40% 19.53%
PAST FIVE YEARS -17.03% 26.18%
SINCE INCEPTION (01/07/94) -13.92% 20.99%
</TABLE>
(1) THESE FIGURES ASSUME THE REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS
DISTRIBUTIONS.
(2) THE S&P 500 INDEX IS AN UNMANAGED INDEX THAT IS A WIDELY RECOGNIZED
INDICATOR OF GENERAL STOCK MARKET PERFORMANCE.
FEES AND EXPENSES OF THE FUND
This table describes the fees and expenses that you may pay if you buy and hold
Investor Class Shares of the Ursa Fund.
<TABLE>
<S> <C>
SHAREHOLDER FEES* ................................................................... NONE
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)**
MANAGEMENT FEES ................................................................... .90%
DISTRIBUTION (12b-1) FEES ......................................................... NONE
OTHER EXPENSES .................................................................... .41%
TOTAL ANNUAL FUND OPERATING EXPENSES ................................................ 1.31%
</TABLE>
* THE FUND MAY IMPOSE A WIRE TRANSFER CHARGE OF $15 ON CERTAIN REDEMPTIONS UNDER
$5,000.
** THIS TABLE AND THE EXAMPLE INCLUDE BOTH THE FEES PAID BY THE FUND AND ITS
SHARE OF THE FEES OF THE URSA MASTER FUND.
EXAMPLE
This Example is intended to help you compare the cost of investing in the
Investor Class Shares of the Ursa Fund with the cost of investing in other
mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time period
indicated and then redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your cost would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$133 $415 $718 $1,579
</TABLE>
<PAGE>
10
OTC FUND
FUND INFORMATION
FUND OBJECTIVE
The OTC Fund seeks to provide investment results that correspond to a benchmark
for over-the-counter securities. The Fund's current benchmark is the NASDAQ 100
Index-TM- (the "NASDAQ 100 Index").
If the Fund meets its objective, the value of the Fund's shares should increase
on a daily basis by the amount of any increase in the value of the benchmark
(the NASDAQ 100 Index). However, when the value of the NASDAQ 100 Index
declines, the value of the Fund's shares should also decrease on a daily basis
by the amount of the decrease in value of the Index.
PORTFOLIO INVESTMENT STRATEGY
The Fund invests principally in securities of companies included in the NASDAQ
100 Index. It also may invest in other instruments whose performance is expected
to correspond to that of the Index, and may engage in futures and options
transactions. The Fund may also purchase U.S. Government securities and enter
into repurchase agreements.
RISK CONSIDERATIONS
In addition to the risks common to investing in any Benchmark Fund, the OTC Fund
is subject to a number of other risks that will affect the value of its shares,
including:
EQUITY RISK - The equity markets are volatile, and the value of the Fund's
securities and futures and options contracts may fluctuate drastically from day
to day. This volatility may cause the value of your investment in the Fund to
decrease.
CONCENTRATION RISK - To the extent that the NASDAQ 100 Index is currently
concentrated in issuers conducting business in the technology sector, the Fund's
investments in those issuers are subject to legislative or regulatory changes,
adverse market conditions and/or increased competition affecting that economic
sector. The prices of the securities of technology companies may fluctuate
widely due to competitive pressures, increased sensitivity to short product
cycles and aggressive pricing, problems relating to bringing their products to
market, very high price/earnings ratios, and high personnel turnover due to
severe labor shortages for skilled technology professionals.
PERFORMANCE
The bar chart and table on the following page show the performance of the OTC
Fund both year-by-year and as an average over different periods of time. The
variability of performance over time provides an indication of the risks of
investing in the Fund. Of course, this past performance does not necessarily
indicate how the Fund will perform in the future.
<PAGE>
PROSPECTUS 11
OTC FUND
FUND PERFORMANCE AND FEE INFORMATION
[CHART]
* THE YEAR-TO-DATE RETURN FOR THE PERIOD FROM JANUARY 1, 2000 THROUGH JUNE 30,
2000 IS 0.91%.
DURING THE PERIOD SHOWN IN THE BAR CHART, THE HIGHEST RETURN FOR A QUARTER WAS
53.00% (QUARTER ENDED DECEMBER 31, 1999) AND THE LOWEST RETURN FOR A QUARTER WAS
-9.67% (QUARTER ENDED DECEMBER 31, 1997).
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN (FOR PERIODS ENDING DECEMBER 31, 1999)(1)
INVESTOR CLASS SHARES NASDAQ 100 INDEX(2)
--------------------------------------------------------------------------------
<S> <C> <C>
PAST ONE YEAR 100.65% 101.95%
PAST FIVE YEARS 56.65% 55.77%
SINCE INCEPTION (02/14/94) 45.78% 45.73%
</TABLE>
(1) THESE FIGURES ASSUME THE REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS
DISTRIBUTIONS.
(2) THE NASDAQ 100 INDEX IS AN UNMANAGED INDEX THAT IS A WIDELY
RECOGNIZED INDICATOR OF OVER-THE-COUNTER MARKET PERFORMANCE.
FEES AND EXPENSES OF THE FUND
This table describes the fees and expenses that you may pay if you buy and hold
Investor Class Shares of the OTC Fund.
<TABLE>
<S> <C>
SHAREHOLDER FEES* ................................................................... NONE
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
MANAGEMENT FEES ................................................................... .75%
DISTRIBUTION (12b-1) FEES ......................................................... NONE
OTHER EXPENSES .................................................................... .40%
TOTAL ANNUAL FUND OPERATING EXPENSES ................................................ 1.15%
</TABLE>
* THE FUND MAY IMPOSE A WIRE TRANSFER CHARGE OF $15 ON CERTAIN REDEMPTIONS UNDER
$5,000.
EXAMPLE
This Example is intended to help you compare the cost of investing in the
Investor Class Shares of the OTC Fund with the cost of investing in other mutual
funds.
The Example assumes that you invest $10,000 in the Fund for the time period
indicated and then redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your cost would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$117 $365 $633 $1,398
</TABLE>
<PAGE>
12
ARKTOS FUND
FUND INFORMATION
FUND OBJECTIVE
The Arktos Fund seeks to provide investment results that will match the
performance of a specific benchmark. The Fund's current benchmark is the inverse
of the performance of the NASDAQ 100 Index. The investment objective of the
Arktos Fund is non-fundamental and may be changed without shareholder approval.
If the Fund meets its objective, the value of the Fund's shares will tend to
increase during times when the value of the NASDAQ 100 Index is decreasing. When
the value of the NASDAQ 100 Index is increasing, however, the value of the
Fund's shares should decrease on a daily basis by an inversely proportionate
amount (e.g., if the NASDAQ 100 Index goes up by 5%, the value of the Fund's
shares should go down by 5% on that day).
PORTFOLIO INVESTMENT STRATEGY
The Fund pursues its investment objective through what is sometimes referred to
as a "master-feeder arrangement." The Fund invests all of its assets in the
Arktos Master Fund, a separate series of the Trust with an identical investment
objective.
Unlike a traditional index fund, the Arktos Master Fund's benchmark is to
perform exactly opposite the NASDAQ 100 Index, and the Arktos Master Fund will
not own the securities included in the Index. Instead, as its primary investment
strategy, the Arktos Master Fund engages to a significant extent in short sales
of securities, futures contracts and options on securities, futures contracts,
and stock indices. On a day-to-day basis, the Arktos Master Fund holds U.S.
Government securities or cash equivalents to collateralize these futures and
options contracts. The Arktos Master Fund also may enter into repurchase
agreements.
RISK CONSIDERATIONS
In addition to the risks common to investing in any Benchmark Fund, the Arktos
Master Fund is subject to a number of other risks that will affect the value of
its shares, including:
EQUITY RISK - The equity markets are volatile, and the value of the Fund's
futures and options contracts and other securities may fluctuate drastically
from day to day. Equity market volatility may also negatively affect the Fund's
short sales of securities. This volatility may cause the value of your
investment in the Fund to decrease.
CONCENTRATION RISK - To the extent that the NASDAQ 100 Index is currently
concentrated in issuers conducting business in the technology sector, the Fund's
investments in those issuers are subject to legislative or regulatory changes,
adverse market conditions and/or increased competition affecting that economic
sector. The prices of the securities of technology companies may fluctuate
widely due to competitive pressures, increased sensitivity to short product
cycles and aggressive pricing, problems relating to bringing their products to
market, very high price/earnings ratios, and high personnel turnover due to
severe labor shortages for skilled technology professionals.
<PAGE>
PROSPECTUS 13
ARKTOS FUND
FUND PERFORMANCE AND FEE INFORMATION
PERFORMANCE
The bar chart and table below show the performance of the Arktos Fund both
year-by-year and as an average over different periods of time. The variability
of performance over time provides an indication of the risks of investing in the
Fund. Of course, this past performance does not necessarily indicate how the
Fund will perform in the future.
[CHART]
* THE YEAR-TO-DATE RETURN FOR THE PERIOD FROM JANUARY 1, 2000 THROUGH JUNE 30,
2000 IS -15.51%.
DURING THE PERIOD SHOWN IN THE BAR CHART, THE HIGHEST RETURN
FOR A QUARTER WAS -5.68% (QUARTER ENDED SEPTEMBER 30, 1999) AND THE LOWEST
RETURN FOR A QUARTER WAS -36.08% (QUARTER ENDED DECEMBER 31, 1999).
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN (FOR PERIODS ENDING DECEMBER 31, 1999)(1)
INVESTOR CLASS SHARES NASDAQ 100 INDEX(2)
--------------------------------------------------------------------------------
<S> <C> <C>
PAST ONE YEAR -54.31% 101.95%
SINCE INCEPTION (09/03/98) -60.63% 132.83%
</TABLE>
(1) THESE FIGURES ASSUME THE REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS
DISTRIBUTIONS.
(2) THE NASDAQ 100 INDEX IS AN UNMANAGED INDEX THAT IS A WIDELY
RECOGNIZED INDICATOR OF OVER-THE-COUNTER MARKET PERFORMANCE.
FEES AND EXPENSES OF THE FUND
This table describes the fees and expenses that you may pay if you buy and
hold Investor Class Shares of the Arktos Fund.
<TABLE>
<S> <C>
SHAREHOLDER FEES* ................................................................... NONE
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)**
MANAGEMENT FEES ................................................................... .90%
DISTRIBUTION (12b-1) FEES ......................................................... NONE
OTHER EXPENSES .................................................................... .56%
TOTAL ANNUAL FUND OPERATING EXPENSES ................................................ 1.46%
</TABLE>
* THE FUND MAY IMPOSE A WIRE TRANSFER CHARGE OF $15 ON CERTAIN REDEMPTIONS UNDER
$5,000.
** THIS TABLE AND THE EXAMPLE BELOW INCLUDE BOTH THE FEES PAID BY THE FUND AND
ITS SHARE OF THE FEES OF THE ARKTOS MASTER FUND.
EXAMPLE
This Example is intended to help you compare the cost of investing in the
Investor Class Shares of the Arktos Fund with the cost of investing in other
mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time period
indicated and then redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your cost would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$149 $462 $797 $1,746
</TABLE>
<PAGE>
14
U.S. GOVERNMENT BOND FUND
FUND INFORMATION
FUND OBJECTIVE
The U.S. Government Bond Fund seeks to provide investment results that
correspond to a benchmark for U.S. Government securities. The Fund's current
benchmark is 120% of the price movement of the Long Treasury Bond.
If the Fund meets its objective, the value of the Fund's shares should increase
on a daily basis by 120% of any price increase by the Long Treasury Bond. In
contrast, when the price of the Long Treasury Bond declines, the value of the
Fund's shares should decline on a daily basis by 120% of any price decline of
the Long Treasury Bond.
PORTFOLIO INVESTMENT STRATEGY
The Fund invests principally in U.S. Government securities and in leveraged
instruments, such as certain futures and options contracts. Some of the Fund's
U.S. Government securities, or cash equivalents, will be used to collateralize
these futures and options. Futures and options contracts, if used properly, may
enable the Fund to meet its objective by increasing the Fund's exposure to the
securities included in its benchmark. In addition, the Fund may enter into
transactions involving zero coupon U.S. Treasury bonds and repurchase
agreements.
RISK CONSIDERATIONS
In addition to the risks common to investing in any Benchmark Fund, the U.S.
Government Bond Fund is subject to a number of other risks that will affect the
value of its shares, including:
FIXED INCOME RISK - The Fund's fixed income investments will change in value in
response to interest rate changes and other factors. In addition, the value of
securities with longer maturities will fluctuate more in response to interest
rate changes.
LEVERAGING RISK - The more the Fund invests in leveraged instruments, the more
this leverage will magnify any losses on those investments.
PERFORMANCE
The bar chart and table on the following page show the performance of the U.S.
Government Bond Fund both year-by-year and as an average over different periods
of time. The variability of performance over time provides an indication of the
risks of investing in the Fund. Of course, this past performance does not
necessarily indicate how the Fund will perform in the future.
<PAGE>
PROSPECTUS 15
U.S. GOVERNMENT BOND FUND
FUND PERFORMANCE AND FEE INFORMATION
[CHART]
* THE YEAR-TO-DATE RETURN FOR THE PERIOD FROM JANUARY 1, 2000 THROUGH JUNE 30,
2000 IS 9.90%.
DURING THE PERIOD SHOWN IN THE BAR CHART, THE HIGHEST RETURN FOR A QUARTER WAS
13.90% (QUARTER ENDED JUNE 30, 1995) AND THE LOWEST RETURN FOR A QUARTER WAS
-10.68% (QUARTER ENDED MARCH 31, 1996).
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN (FOR PERIODS ENDING DECEMBER 31, 1999)(1)
INVESTOR CLASS SHARES LEHMAN LONG TREASURY BOND INDEX(2)
--------------------------------------------------------------------------------------------
<S> <C> <C>
PAST ONE YEAR -19.08% -8.65%
PAST FIVE YEARS 6.71% 8.73%
SINCE INCEPTION (01/03/94) 2.14% 5.84%
</TABLE>
(1) THESE FIGURES ASSUME THE REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS
DISTRIBUTIONS.
(2) THE LEHMAN LONG TREASURY BOND INDEX IS AN UNMANAGED INDEX THAT IS A WIDELY
RECOGNIZED INDICATOR OF U.S. GOVERNMENT BOND PERFORMANCE.
FEES AND EXPENSES OF THE FUND
This table describes the fees and expenses that you may pay if you buy or hold
Investor Class Shares of the U.S. Government Bond Fund.
<TABLE>
<S> <C>
SHAREHOLDER FEES* ................................................................... NONE
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
MANAGEMENT FEES ................................................................... .50%
DISTRIBUTION (12b-1) FEES ......................................................... NONE
OTHER EXPENSES .................................................................... .42%
TOTAL ANNUAL FUND OPERATING EXPENSES ................................................ .92%
</TABLE>
* THE FUND MAY IMPOSE A WIRE TRANSFER CHARGE OF $15 ON CERTAIN REDEMPTIONS UNDER
$5,000.
EXAMPLE
This Example is intended to help you compare the cost of investing in the
Investor Class Shares of the U.S. Government Bond Fund with the cost of
investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time period
indicated and then redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your cost would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$94 $293 $509 $1,131
</TABLE>
<PAGE>
16
JUNO FUND
FUND INFORMATION
FUND OBJECTIVE
The Juno Fund seeks to provide total returns that will inversely correlate to
the price movements of a benchmark for U.S. Treasury debt instruments or futures
contract on a specified debt instrument. The Fund's current benchmark is the
inverse of the daily price movement of the Long Treasury Bond.
If the Fund meets its objective, the value of the Fund's shares will increase on
a daily basis when the price of the Long Treasury Bond decreases. When the price
of the Long Treasury Bond increases, however, the value of the Fund's shares
should decrease on a daily basis by an inversely proportionate amount (e.g., if
the price of the Long Treasury Bond increases by 2%, the value of the Fund's
shares should go down by 2% on that day).
PORTFOLIO INVESTMENT STRATEGY
The Fund pursues its investment objective through what is sometimes referred to
as a "master-feeder arrangement." The Fund invests all of its assets in the Juno
Master Fund, a separate series of the Trust with an identical investment
objective.
Unlike a traditional index fund, the Juno Master Fund's benchmark is to perform
exactly opposite the Long Treasury Bond. As its primary investment strategy, the
Juno Master Fund enters into short sales and engages in futures and options
transactions. On a day-to-day basis, the Juno Master Fund holds U.S. Government
securities or cash equivalents to collateralize these obligations. The Juno
Master Fund also may enter into repurchase agreements.
RISK CONSIDERATIONS
In addition to the risks common to investing in any Benchmark Fund, the Juno
Master Fund is subject to a number of other risks that will affect the value of
its shares, including:
FIXED INCOME RISK - The Fund's fixed income investments will change in value in
response to interest rate changes and other factors. In addition, the value of
securities with longer maturities will fluctuate more in response to interest
rate changes.
PERFORMANCE
The bar chart and table on the following page show the performance of Juno Fund
both year-by-year and as an average over different periods of time. The
variability of performance over time provides an indication of the risks of
investing in the Fund. Of course, this past performance does not necessarily
indicate how the Fund will perform in the future.
<PAGE>
PROSPECTUS 17
JUNO FUND
FUND PERFORMANCE AND FEE INFORMATION
[CHART]
* THE YEAR-TO-DATE PERFORMANCE FOR THE PERIOD FROM JANUARY 1, 2000 THROUGH JUNE
30, 2000 IS -7.02%.
DURING THE PERIOD SHOWN IN THE BAR CHART, THE HIGHEST RETURN FOR A QUARTER
WAS 8.29% (QUARTER ENDED MARCH 31, 1996) AND THE LOWEST RETURN FOR A QUARTER
WAS -5.69% (QUARTER ENDED SEPTEMBER 30, 1998).
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN (FOR PERIODS ENDING DECEMBER 31, 1999)(1)
INVESTOR CLASS SHARES LEHMAN LONG TREASURY BOND INDEX(2)
--------------------------------------------------------------------------------------------
<S> <C> <C>
PAST ONE YEAR 20.36% -8.65%
SINCE INCEPTION (03/03/95) 0.03% 8.06%
</TABLE>
(1) THESE FIGURES ASSUME THE REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS
DISTRIBUTIONS.
(2) THE LEHMAN LONG TREASURY BOND INDEX IS AN UNMANAGED INDEX THAT IS A WIDELY
RECOGNIZED INDICATOR OF U.S. GOVERNMENT BOND PERFORMANCE.
FEES AND EXPENSES OF THE FUND
This table describes the fees and expenses that you may pay if you buy and hold
Investor Class Shares of the Juno Fund.
<TABLE>
<S> <C>
SHAREHOLDER FEES* ................................................................... NONE
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)**
MANAGEMENT FEES ................................................................... .90%
DISTRIBUTION (12b-1) FEES ......................................................... NONE
OTHER EXPENSES .................................................................... .57%
TOTAL ANNUAL FUND OPERATING EXPENSES ................................................ 1.47%
</TABLE>
* THE FUND MAY IMPOSE A WIRE TRANSFER CHARGE OF $15 ON CERTAIN REDEMPTIONS UNDER
$5,000.
** THIS TABLE AND THE EXAMPLE INCLUDE BOTH THE FEES PAID BY THE FUND AND ITS
SHARE OF THE FEES OF THE JUNO MASTER FUND.
EXAMPLE
This Example is intended to help you compare the cost of investing in the
Investor Class Shares of the Juno Fund with the cost of investing in other
mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time period
indicated and then redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your cost would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$150 $465 $803 $1,757
</TABLE>
<PAGE>
18
This page intentionally left blank.
<PAGE>
PROSPECTUS 19
RYDEX SECTOR FUNDS
BANKING INTERNET
BASIC MATERIALS LEISURE
BIOTECHNOLOGY PRECIOUS METALS
CONSUMER PRODUCTS RETAILING
ELECTRONICS TECHNOLOGY
ENERGY TELECOMMUNICATIONS
ENERGY SERVICES TRANSPORTATION
FINANCIAL SERVICES UTILITIES
HEALTH CARE
COMMON RISK/RETURN INFORMATION
INVESTMENT OBJECTIVES
Each Sector Fund seeks capital appreciation by investing in companies that
operate in a specific economic sector. The investment objective of each Sector
Fund is non-fundamental and may be changed without shareholder approval.
PRINCIPAL RISKS
MARKET RISK - The Funds' value may fluctuate from day to day. Due to market
conditions, Fund shares may decline in value causing you to lose money.
EQUITY RISK - The equity markets are volatile, and the value of the Funds'
securities and futures and options contracts may fluctuate drastically from day
to day. This volatility may cause the value of your investment in a Sector Fund
to decrease.
<PAGE>
20
BANKING FUND
FUND INFORMATION
FUND OBJECTIVE
The Banking Fund seeks to provide capital appreciation by investing in companies
that are involved in the banking sector, including commercial banks (and their
holding companies) and savings and loan institutions ("Banking Companies").
PORTFOLIO INVESTMENT STRATEGY
The Fund invests substantially all of its assets in equity securities of Banking
Companies that are traded in the United States. Banking Companies are engaged in
accepting deposits and making commercial and principally non-mortgage consumer
loans and include state chartered banks, savings and loan institutions, and
banks that are members of the Federal Reserve System. The Fund may also engage
in futures and options transactions, purchase ADRs and U.S. Government
securities, and enter into repurchase agreements.
RISK CONSIDERATIONS
In addition to the risks common to investing in any Sector Fund, the Banking
Fund is subject to a number of other risks that will affect the value of its
shares, including:
BANKING SECTOR CONCENTRATION RISK - The risk that the securities of Banking
Companies that the Fund purchases will underperform the market as a whole. To
the extent that the Fund's investments are concentrated in Banking Companies,
the Fund is subject to legislative or regulatory changes, adverse market
conditions and/or increased competition affecting Banking Companies. The prices
of the securities of Banking Companies may fluctuate widely due to the
broadening of regional and national interstate banking powers, the reduction in
the number of publicly-traded Banking Companies, and general economic conditions
that could create exposure to credit losses.
PERFORMANCE
The bar chart and table on the following page show the performance of the
Banking Fund both year-by-year and as an average over different periods of time.
The variability of performance over time provides an indication of the risks of
investing in the Fund. Of course, this past performance does not necessarily
indicate how the Fund will perform in the future.
ctrl+kp_6<PAGE>
PROSPECTUS 21
BANKING FUND
FUND PERFORMANCE AND FEE INFORMATION
[CHART]
* THE YEAR-TO-DATE RETURN FOR THE PERIOD FROM JANUARY 1, 2000 THROUGH JUNE 30,
2000 IS -9.54%.
DURING THE PERIOD SHOWN IN THE BAR CHART, THE HIGHEST RETURN FOR A QUARTER WAS
3.99% (QUARTER ENDED JUNE 30, 1999) AND THE LOWEST RETURN FOR A QUARTER WAS
-18.20% (QUARTER ENDED SEPTEMBER 30, 1999).
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN (FOR PERIODS ENDING DECEMBER 31, 1999)(1)
INVESTOR CLASS SHARES S&P 500 INDEX(2)
--------------------------------------------------------------------------------
<S> <C> <C>
PAST ONE YEAR -18.86% 19.53%
SINCE INCEPTION (04/01/98) -16.91% 17.48%
</TABLE>
(1) THESE FIGURES ASSUME THE REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS
DISTRIBUTIONS.
(2) THE S&P 500 INDEX IS AN UNMANAGED INDEX THAT IS A WIDELY RECOGNIZED
INDICATOR OF GENERAL STOCK MARKET PERFORMANCE.
FEES AND EXPENSES OF THE FUND
This table describes the fees and expenses that you may pay if you buy and hold
Investor Class Shares of the Banking Fund.
<TABLE>
<S> <C>
SHAREHOLDER FEES* ................................................................... NONE
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
MANAGEMENT FEES ................................................................... .85%
DISTRIBUTION (12b-1) FEES ......................................................... NONE
OTHER EXPENSES .................................................................... .72%
TOTAL ANNUAL FUND OPERATING EXPENSES ................................................ 1.57%
</TABLE>
* THE FUND MAY IMPOSE A WIRE TRANSFER CHARGE OF $15 ON CERTAIN REDEMPTIONS UNDER
$5,000.
EXAMPLE
This Example is intended to help you compare the cost of investing in the
Investor Class Shares of the Banking Fund with the cost of investing in other
mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time period
indicated and then redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your cost would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
---------------------------------------------------------------------------
<S> <C> <C> <C>
$160 $496 $855 $1,867
</TABLE>
<PAGE>
22
BASIC MATERIALS FUND
FUND INFORMATION
FUND OBJECTIVE
The Basic Materials Fund seeks capital appreciation by investing in companies
engaged in the mining, manufacture, or sale of basic materials, such as lumber,
steel, iron, aluminum, concrete, chemicals and other basic building and
manufacturing materials ("Basic Materials Companies").
PORTFOLIO INVESTMENT STRATEGY
The Fund invests substantially all of its assets in equity securities of Basic
Materials Companies that are traded in the United States. Basic Materials
Companies are engaged in the manufacture, mining, processing, or distribution of
raw materials and intermediate goods used in the industrial sector, and may be
involved in the production of metals, textiles, and wood products, including
equipment suppliers and railroads. The Fund may also engage in futures and
options transactions, purchase ADRs and U.S. Government securities, and enter
into repurchase agreements.
RISK CONSIDERATIONS
In addition to the risks common to investing in any Sector Fund, the Basic
Materials Fund is subject to a number of other risks that will affect the value
of its shares, including:
BASIC MATERIALS SECTOR CONCENTRATION RISK - The risk that the securities of
issuers in the basic materials sector that the Fund purchases will underperform
the market as a whole. To the extent that the Fund's investments are
concentrated in issuers conducting business in the same economic sector, the
Fund is subject to legislative or regulatory changes, adverse market conditions
and/or increased competition affecting that economic sector. The prices of the
securities of Basic Materials Companies may fluctuate widely due to the level
and volatility of commodity prices, the exchange value of the dollar, import
controls, worldwide competition, liability for environmental damage, depletion
of resources, and mandated expenditures for safety and pollution control
devices.
PERFORMANCE
The bar chart and table on the following page show the performance of the Basic
Materials Fund both year-by-year and as an average over different periods of
time. The variability of performance over time provides an indication of the
risks of investing in the Fund. Of course, this past performance does not
necessarily indicate how the Fund will perform in the future.
<PAGE>
PROSPECTUS 23
BASIC MATERIALS FUND
FUND PERFORMANCE AND FEE INFORMATION
[CHART]
* THE YEAR-TO-DATE RETURN FOR THE PERIOD FROM JANUARY 1, 2000 THROUGH JUNE 30,
2000 IS -29.31%.
DURING THE PERIOD SHOWN IN THE BAR CHART, THE HIGHEST RETURN FOR A QUARTER WAS
18.84% (QUARTER ENDED JUNE 30, 1999) AND THE LOWEST RETURN FOR A QUARTER WAS
-8.58% (QUARTER ENDED SEPTEMBER 30, 1999).
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN (FOR PERIODS ENDING DECEMBER 31, 1999)(1)
INVESTOR CLASS SHARES S&P 500 INDEX(2)
--------------------------------------------------------------------------------
<S> <C> <C>
PAST ONE YEAR 21.90% 19.53%
SINCE INCEPTION (04/01/98) -2.77% 17.48%
</TABLE>
(1) THESE FIGURES ASSUME THE REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS
DISTRIBUTIONS.
(2) THE S&P 500 INDEX IS AN UNMANAGED INDEX THAT IS A WIDELY RECOGNIZED
INDICATOR OF GENERAL STOCK MARKET PERFORMANCE.
FEES AND EXPENSES OF THE FUND
This table describes the fees and expenses that you may pay if you buy and hold
Investor Class Shares of the Basic Materials Fund.
<TABLE>
<S> <C>
SHAREHOLDER FEES* ................................................................... NONE
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
MANAGEMENT FEES ................................................................... .85%
DISTRIBUTION (12b-1) FEES ......................................................... NONE
OTHER EXPENSES .................................................................... .68%
TOTAL ANNUAL FUND OPERATING EXPENSES ................................................ 1.53%
</TABLE>
* THE FUND MAY IMPOSE A WIRE TRANSFER CHARGE OF $15 ON CERTAIN REDEMPTIONS UNDER
$5,000.
EXAMPLE
This Example is intended to help you compare the cost of investing in the
Investor Class Shares of the Basic Materials Fund with the cost of investing in
other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time period
indicated and then redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your cost would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
---------------------------------------------------------------------------
<S> <C> <C> <C>
$156 $483 $834 $1,824
</TABLE>
<PAGE>
24
BIOTECHNOLOGY FUND
FUND INFORMATION
FUND OBJECTIVE
The Biotechnology Fund seeks capital appreciation by investing in companies that
are involved in the biotechnology industry, including companies involved in
research and development, genetic or other biological engineering, and in the
design, manufacture, or sale of related biotechnology products or services
("Biotechnology Companies").
PORTFOLIO INVESTMENT STRATEGY
The Fund invests substantially all of its assets in equity securities of
Biotechnology Companies that are traded in the United States. Biotechnology
Companies are engaged in the research, development, and manufacture of various
biotechnological products, services, and processes; manufacture and/or
distribute biotechnological and biomedical products, including devices and
instruments; provide or benefit significantly from scientific and technological
advances in biotechnology; or provide processes or services instead of, or in
addition to, products. The Fund may also engage in futures and options
transactions, purchase ADRs and U.S. Government securities, and enter into
repurchase agreements.
RISK CONSIDERATIONS
In addition to the risks common to investing in any Sector Fund, the
Biotechnology Fund is subject to a number of other risks that will affect the
value of its shares, including:
BIOTECHNOLOGY SECTOR CONCENTRATION RISK - The risk that the securities of
issuers in the biotechnology sector that the Fund purchases will underperform
the market as a whole. To the extent that the Fund's investments are
concentrated in issuers conducting business in the same economic sector, the
Fund is subject to legislative or regulatory changes, adverse market conditions
and/or increased competition affecting that economic sector. The prices of the
securities of Biotechnology Companies may fluctuate widely due to patent
considerations, intense competition, rapid technological change and
obsolescence, and regulatory requirements of the Food and Drug Administration,
the Environmental Protection Agency, state and local governments, and foreign
regulatory authorities.
SMALL ISSUER RISK - Many Biotechnology Companies are relatively small and have
thinly traded equity securities, may not yet offer products or offer a single
product, and may have persistent losses during a new product's transition from
development to production or erratic revenue patterns.
PERFORMANCE
The bar chart and table on the following page show the performance of the
Biotechnology Fund both year-by-year and as an average over different periods of
time. The variability of performance over time provides an indication of the
risks of investing in the Fund. Of course, this past performance does not
necessarily indicate how the Fund will perform in the future.
<PAGE>
PROSPECTUS 25
BIOTECHNOLOGY FUND
FUND PERFORMANCE AND FEE INFORMATION
[CHART]
* THE YEAR-TO-DATE RETURN FOR THE PERIOD FROM JANUARY 1, 2000 THROUGH JUNE 30,
2000 IS 38.39%.
DURING THE PERIOD SHOWN IN THE BAR CHART, THE HIGHEST RETURN FOR A QUARTER WAS
46.37% (QUARTER ENDED DECEMBER 31, 1999) AND THE LOWEST RETURN FOR A QUARTER WAS
6.95% (QUARTER ENDED JUNE 30, 1999).
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN (FOR PERIODS ENDING DECEMBER 31, 1999)(1)
INVESTOR CLASS SHARES S&P 500 INDEX(2)
---------------------------------------------------------------------------------------------------
<S> <C> <C>
PAST ONE YEAR 96.24% 19.53%
SINCE INCEPTION (04/01/98) 61.78% 17.48%
</TABLE>
(1) THESE FIGURES ASSUME THE REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS
DISTRIBUTIONS.
(2) THE S&P 500 INDEX IS AN UNMANAGED INDEX THAT IS A WIDELY RECOGNIZED
INDICATOR OF GENERAL STOCK MARKET PERFORMANCE.
FEES AND EXPENSES OF THE FUND
This table describes the fees and expenses that you may pay if you buy and hold
Investor Class Shares of the Biotechnology Fund.
<TABLE>
<S> <C>
SHAREHOLDER FEES* ................................................................... NONE
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
MANAGEMENT FEES ................................................................... .85%
DISTRIBUTION (12b-1) FEES ......................................................... NONE
OTHER EXPENSES .................................................................... .56%
TOTAL ANNUAL FUND OPERATING EXPENSES ................................................ 1.41%
</TABLE>
* THE FUND MAY IMPOSE A WIRE TRANSFER CHARGE OF $15 ON CERTAIN REDEMPTIONS UNDER
$5,000.
EXAMPLE
This Example is intended to help you compare the cost of investing in the
Investor Class Shares of the Biotechnology Fund with the cost of investing in
other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time period
indicated and then redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your cost would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
---------------------------------------------------------------------------
<S> <C> <C> <C>
$144 $446 $771 $1,691
</TABLE>
<PAGE>
26
CONSUMER PRODUCTS FUND
FUND INFORMATION
FUND OBJECTIVE
The Consumer Products Fund seeks capital appreciation by investing in companies
engaged in manufacturing finished goods and services both domestically and
internationally ("Consumer Products Companies").
PORTFOLIO INVESTMENT STRATEGY
The Fund invests substantially all of its assets in equity securities of
Consumer Products Companies that are traded in the United States. Consumer
Products Companies include companies that manufacture, wholesale or retail
durable goods such as major appliances and personal computers, or that retail
non-durable goods such as beverages, tobacco, health care products, household
and personal care products, apparel, and entertainment products (e.g., books,
magazines, TV, cable, movies, music, gaming, sports), as well as companies that
provide consumer products and services such as lodging, child care, convenience
stores, and car rentals. The Fund may also engage in futures and options
transactions, purchase ADRs and U.S. Government securities, and enter into
repurchase agreements.
RISK CONSIDERATIONS
In addition to the risks common to investing in any Sector Fund, the Consumer
Products Fund is subject to a number of other risks that will affect the value
of its shares, including:
CONSUMER PRODUCTS SECTOR CONCENTRATION RISK - The risk that the securities of
issuers in the consumer products sector that the Fund purchases will
underperform the market as a whole. To the extent that the Fund's investments
are concentrated in issuers conducting business in the same economic sector, the
Fund is subject to legislative or regulatory changes, adverse market conditions
and/or increased competition affecting that economic sector. The performance of
Consumer Products Companies has historically been closely tied to the
performance of the overall economy, and is also affected by interest rates,
competition, consumer confidence and relative levels of disposable household
income and seasonal consumer spending. Changes in demographics and consumer
tastes can also affect the demand for, and success of, consumer products in the
marketplace.
PERFORMANCE
The bar chart and table on the following page show the performance of the
Consumer Products Fund both year-by-year and as an average over different
periods of time. The variability of performance over time provides an indication
of the risks of investing in the Fund. Of course, this past performance does not
necessarily indicate how the Fund will perform in the future.
<PAGE>
PROSPECTUS 27
CONSUMER PRODUCTS FUND
FUND PERFORMANCE AND FEE INFORMATION
[CHART]
* THE YEAR-TO-DATE RETURN FOR THE PERIOD FROM JANUARY 1, 2000 THROUGH JUNE 30,
2000 IS -18.71%.
DURING THE PERIOD SHOWN IN THE BAR CHART, THE HIGHEST RETURN FOR A QUARTER WAS
15.68% (QUARTER ENDED DECEMBER 31, 1999) AND THE LOWEST RETURN FOR A QUARTER WAS
-14.13% (QUARTER ENDED SEPTEMBER 30, 1999).
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN (FOR PERIODS ENDING DECEMBER 31, 1999)(1)
INVESTOR CLASS SHARES S&P 500 INDEX(2)
-------------------------------------------------------------------------------
<S> <C> <C>
PAST ONE YEAR 2.32% 19.53%
SINCE INCEPTION (07/06/98) -3.49% 17.40%
</TABLE>
(1) THESE FIGURES ASSUME THE REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS
DISTRIBUTIONS.
(2) THE S&P 500 INDEX IS AN UNMANAGED INDEX THAT IS A WIDELY RECOGNIZED
INDICATOR OF GENERAL STOCK MARKET PERFORMANCE.
FEES AND EXPENSES OF THE FUND
This table describes the fees and expenses that you may pay if you buy and hold
Investor Class Shares of the Consumer Products Fund.
<TABLE>
<S> <C>
SHAREHOLDER FEES* ................................................................... NONE
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
MANAGEMENT FEES ................................................................... .85%
DISTRIBUTION (12b-1) FEES ......................................................... NONE
OTHER EXPENSES .................................................................... .51%
TOTAL ANNUAL FUND OPERATING EXPENSES ................................................ 1.36%
</TABLE>
* THE FUND MAY IMPOSE A WIRE TRANSFER CHARGE OF $15 ON CERTAIN REDEMPTIONS UNDER
$5,000.
EXAMPLE
This Example is intended to help you compare the cost of investing in the
Investor Class Shares of the Consumer Products Fund with the cost of investing
in other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time period
indicated and then redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your cost would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
---------------------------------------------------------------------------
<S> <C> <C> <C>
$138 $431 $745 $1,635
</TABLE>
<PAGE>
28
ELECTRONICS FUND
FUND INFORMATION
FUND OBJECTIVE
The Electronics Fund seeks capital appreciation by investing in companies that
are involved in the electronics sector, including semiconductor manufacturers
and distributors, and makers and vendors of other electronic components and
devices ("Electronics Companies").
PORTFOLIO INVESTMENT STRATEGY
The Fund invests substantially all of its assets in equity securities of
Electronics Companies that are traded in the United States. Electronics
Companies include companies involved in the manufacture and development of
semiconductors, connectors, printed circuit boards and other components;
equipment vendors to electronic component manufacturers; electronic component
distributors; electronic instruments and electronic systems vendors; and also
include companies involved in all aspects of the electronics business and in new
technologies or specialty areas such as defense electronics, advanced design and
manufacturing technologies, or lasers. The Fund may also engage in futures and
options transactions, purchase ADRs and U.S. Government securities, and enter
into repurchase agreements.
RISK CONSIDERATIONS
In addition to the risks common to investing in any Sector Fund, the Electronics
Fund is subject to a number of other risks that will affect the value of its
shares, including:
ELECTRONICS SECTOR CONCENTRATION RISK - The risk that the securities of issuers
in the electronics sector that the Fund purchases will underperform the market
as a whole. To the extent that the Fund's investments are concentrated in
issuers conducting business in the same economic sector, the Fund is subject to
legislative or regulatory changes, adverse market conditions and/or increased
competition affecting that economic sector. The prices of the securities of
Electronics Companies may fluctuate widely due to risks of rapid obsolescence of
products, intense competition, the economic performance of their customers, high
technology and research costs (especially in light of decreased defense spending
by the U.S. Government), and may face competition from subsidized foreign
competitors with lower production costs.
SMALL ISSUER RISK - Many Electronics Companies are relatively small and have
thinly traded securities, may offer only one or a limited number of rapidly
obsolescing products, and may have persistent losses during a new product's
transition from development to production.
PERFORMANCE
The bar chart and table on the following page show the performance of the
Electronics Fund both year-by-year and as an average over different periods of
time. The variability of performance over time provides an indication of the
risks of investing in the Fund. Of course, this past performance does not
necessarily indicate how the Fund will perform in the future.
<PAGE>
PROSPECTUS 29
ELECTRONICS FUND
FUND PERFORMANCE AND FEE INFORMATION
[CHART]
* THE YEAR-TO-DATE RETURN FOR THE PERIOD FROM JANUARY 1, 2000 THROUGH JUNE 30,
2000 IS 38.05%.
DURING THE PERIOD SHOWN IN THE BAR CHART, THE HIGHEST RETURN FOR A QUARTER
WAS 48.46% (QUARTER ENDED DECEMBER 31, 1999) AND THE LOWEST RETURN FOR A
QUARTER WAS 11.18% (QUARTER ENDED MARCH 31, 1999).
AVERAGE ANNUAL TOTAL RETURN (FOR PERIODS ENDING DECEMBER 31, 1999)(1)
<TABLE>
<CAPTION>
INVESTOR CLASS SHARES S&P 500 INDEX(2)
---------------------------------------------------------------------------------------------------
<S> <C> <C>
PAST ONE YEAR 121.57% 19.53%
SINCE INCEPTION (04/01/98) 79.84% 17.48%
</TABLE>
(1) THESE FIGURES ASSUME THE REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS
DISTRIBUTIONS.
(2) THE S&P 500 INDEX IS AN UNMANAGED INDEX THAT IS A WIDELY RECOGNIZED
INDICATOR OF GENERAL STOCK MARKET PERFORMANCE.
FEES AND EXPENSES OF THE FUND
This table describes the fees and expenses that you may pay if you buy and hold
Investor Class Shares of the Electronics Fund.
<TABLE>
<S> <C>
SHAREHOLDER FEES* ................................................................... NONE
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
MANAGEMENT FEES ................................................................ 85%
DISTRIBUTION (12b-1) FEES ...................................................... NONE
OTHER EXPENSES ................................................................. .43%
TOTAL ANNUAL FUND OPERATING EXPENSES ............................................... 1.28%
</TABLE>
* THE FUND MAY IMPOSE A WIRE TRANSFER CHARGE OF $15 ON CERTAIN REDEMPTIONS UNDER
$5,000.
EXAMPLE
This Example is intended to help you compare the cost of investing in the
Investor Class Shares of the Electronics Fund with the cost of investing in
other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time period
indicated and then redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your cost would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------------------------------------------------
<S> <C> <C> <C>
$130 $406 $702 $1,545
</TABLE>
<PAGE>
30
ENERGY FUND
FUND INFORMATION
FUND OBJECTIVE
The Energy Fund seeks capital appreciation by investing in companies involved in
the energy field, including the exploration, production, and development of oil,
gas, coal and alternative sources of energy ("Energy Companies").
PORTFOLIO INVESTMENT STRATEGY
The Fund invests substantially all of its assets in equity securities of Energy
Companies that are traded in the United States. Energy Companies are involved in
all aspects of the energy industry, including the conventional areas of oil,
gas, electricity, and coal, and alternative sources of energy such as nuclear,
geothermal, oil shale, and solar power, and include companies that produce,
transmit, market, distribute or measure energy; companies involved in providing
products and services to companies in the energy field; and companies involved
in the exploration of new sources of energy, conservation, and energy-related
pollution control. The Fund may also engage in futures and options transactions,
purchase ADRs and U.S. Government securities, and enter into repurchase
agreements.
RISK CONSIDERATIONS
In addition to the risks common to investing in any Sector Fund, the Energy Fund
is subject to a number of other risks that will affect the value of its shares,
including:
ENERGY SECTOR CONCENTRATION RISK - The risk that the securities of issuers in
the energy sector that the Fund purchases will underperform the market as a
whole. To the extent that the Fund's investments are concentrated in issuers
conducting business in the same economic sector, the Fund is subject to
legislative or regulatory changes, adverse market conditions and/or increased
competition affecting that economic sector. The prices of the securities of
Energy Companies may fluctuate widely due to changes in value and dividend
yield, which depend largely on the price and supply of energy fuels,
international political events relating to oil producing countries, energy
conservation, the success of exploration projects, and tax and other
governmental regulatory policies.
PERFORMANCE
The bar chart and table on the following page show the performance of the Energy
Fund both year-by-year and as an average over different periods of time. The
variability of performance over time provides an indication of the risks of
investing in the Fund. Of course, this past performance does not necessarily
indicate how the Fund will perform in the future.
<PAGE>
PROSPECTUS 31
ENERGY FUND
FUND PERFORMANCE AND FEE INFORMATION
[CHART]
* THE YEAR-TO-DATE RETURN FOR THE PERIOD FROM JANUARY 1, 2000 THROUGH JUNE 30,
2000 IS 12.31%.
DURING THE PERIOD SHOWN IN THE BAR CHART, THE HIGHEST RETURN FOR A QUARTER
WAS 12.01% (QUARTER ENDED JUNE 30, 1999) AND THE LOWEST RETURN FOR A QUARTER
WAS -0.99% (QUARTER ENDED SEPTEMBER 30, 1999).
AVERAGE ANNUAL TOTAL RETURN (FOR PERIODS ENDING DECEMBER 31, 1999)(1)
<TABLE>
<CAPTION>
INVESTOR CLASS SHARES S&P 500 INDEX(2)
---------------------------------------------------------------------------------------------------
<S> <C> <C>
PAST ONE YEAR 18.68% 19.53%
SINCE INCEPTION (04/21/98) -.53% 16.97%
</TABLE>
(1)THESE FIGURES ASSUME THE REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS
DISTRIBUTIONS.
(2)THE S&P 500 INDEX IS AN UNMANAGED INDEX THAT IS A WIDELY RECOGNIZED INDICATOR
OF GENERAL STOCK MARKET PERFORMANCE.
FEES AND EXPENSES OF THE FUND
This table describes the fees and expenses that you may pay if you buy and hold
Investor Class Shares of the Energy Fund.
<TABLE>
<S> <C>
SHAREHOLDER FEES* ................................................................... NONE
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
MANAGEMENT FEES ................................................................... .85%
DISTRIBUTION (12b-1) FEES ......................................................... NONE
OTHER EXPENSES .................................................................... .72%
TOTAL ANNUAL FUND OPERATING EXPENSES ................................................ 1.57%
</TABLE>
* THE FUND MAY IMPOSE A WIRE TRANSFER CHARGE OF $15 ON CERTAIN REDEMPTIONS UNDER
$5,000.
EXAMPLE
This Example is intended to help you compare the cost of investing in the
Investor Class Shares of the Energy Fund with the cost of investing in other
mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time period
indicated and then redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your cost would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------------------------------------------------
<S> <C> <C> <C>
$160 $496 $855 $1,867
</TABLE>
<PAGE>
32
ENERGY SERVICES FUND
FUND INFORMATION
FUND OBJECTIVE
The Energy Services Fund seeks capital appreciation by investing in companies
that are involved in the energy services field, including those that provide
services and equipment in the areas of oil, coal, and gas exploration and
production ("Energy Services Companies").
PORTFOLIO INVESTMENT STRATEGY
The Fund invests substantially all of its assets in equity securities of Energy
Services Companies that are traded in the United States. Energy Services
Companies are engaged in one or more businesses in the energy service field,
including those that provide services and equipment to companies engaged in the
production, refinement or distribution of oil, gas, electricity, and coal;
companies involved with the production and development of newer sources of
energy such as nuclear, geothermal, oil shale, and solar power; companies
involved with onshore or offshore drilling; companies involved in production and
well maintenance; companies involved in exploration engineering, data and
technology; companies involved in energy transport; and companies involved in
equipment and plant design or construction. The Fund may also engage in futures
and options transactions, purchase ADRs and U.S. Government securities, and
enter into repurchase agreements.
RISK CONSIDERATIONS
In addition to the risks common to investing in any Sector Fund, the Energy
Services Fund is subject to a number of other risks that will affect the value
of its shares, including:
ENERGY SERVICES SECTOR CONCENTRATION RISK - The risk that the securities of
issuers in the energy services sector that the Fund purchases will underperform
the market as a whole. To the extent that the Fund's investments are
concentrated in issuers conducting business in the same economic sector, the
Fund is subject to legislative or regulatory changes, adverse market conditions
and/or increased competition affecting that economic sector. The prices of the
securities of Energy Services Companies may fluctuate widely due to the supply
and demand both for their specific products or services and for energy products
in general, the price of oil and gas, exploration and production spending,
governmental regulation and environmental issues, and world events and economic
conditions generally affecting energy supply companies.
PERFORMANCE
The bar chart and table on the following page show the performance of the Energy
Services Fund both year-by-year and as an average over different periods of
time. The variability of performance over time provides an indication of the
risks of investing in the Fund. Of course, this past performance does not
necessarily indicate how the Fund will perform in the future.
<PAGE>
PROSPECTUS 33
ENERGY SERVICES FUND
FUND PERFORMANCE AND FEE INFORMATION
[CHART]
* THE YEAR-TO-DATE RETURN FOR THE PERIOD FROM JANUARY 1, 2000 THROUGH JUNE 30,
2000 IS 37.66%.
DURING THE PERIOD SHOWN IN THE BAR CHART, THE HIGHEST RETURN FOR A QUARTER
WAS 24.38% (QUARTER ENDED MARCH 31, 1999) AND THE LOWEST RETURN FOR A QUARTER
WAS -2.88% (QUARTER ENDED SEPTEMBER 30, 1999).
AVERAGE ANNUAL TOTAL RETURN (FOR PERIODS ENDING DECEMBER 31, 1999)(1)
<TABLE>
<CAPTION>
INVESTOR CLASS SHARES S&P 500 INDEX(2)
---------------------------------------------------------------------------------------------------
<S> <C> <C>
PAST ONE YEAR 44.83% 19.53%
SINCE INCEPTION (04/01/98) -18.37% 17.48%
</TABLE>
(1)THESE FIGURES ASSUME THE REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS
DISTRIBUTIONS.
(2)THE S&P 500 INDEX IS AN UNMANAGED INDEX THAT IS A WIDELY RECOGNIZED INDICATOR
OF GENERAL STOCK MARKET PERFORMANCE.
FEES AND EXPENSES OF THE FUND
This table describes the fees and expenses that you may pay if you buy and hold
Investor Class Shares of the Energy Services Fund.
<TABLE>
<S> <C>
SHAREHOLDER FEES* ................................................................... NONE
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
MANAGEMENT FEES ................................................................... .85%
DISTRIBUTION (12b-1) FEES ......................................................... NONE
OTHER EXPENSES .................................................................... .72%
TOTAL ANNUAL FUND OPERATING EXPENSES ................................................ 1.57%
</TABLE>
* THE FUND MAY IMPOSE A WIRE TRANSFER CHARGE OF $15 ON CERTAIN REDEMPTIONS UNDER
$5,000.
EXAMPLE
This Example is intended to help you compare the cost of investing in the
Investor Class Shares of the Energy Services Fund with the cost of investing in
other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time period
indicated and then redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your cost would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------------------------------------------------
<S> <C> <C> <C>
$160 $496 $855 $1,867
</TABLE>
<PAGE>
34
FINANCIAL SERVICES FUND
FUND INFORMATION
FUND OBJECTIVE
The Financial Services Fund seeks capital appreciation by investing in companies
that are involved in the financial services sector ("Financial Services
Companies").
PORTFOLIO INVESTMENT STRATEGY
The Fund invests substantially all of its assets in equity securities of
Financial Services Companies that are traded in the United States. Financial
Service Companies include commercial banks, savings and loan associations,
insurance companies and brokerage companies. The Fund may also engage in futures
and options transactions, purchase ADRs and U.S. Government securities, and
enter into repurchase agreements. Under SEC regulations, the Fund may not invest
more than 5% of its total assets in the equity securities of any company that
derives more than 15% of its revenues from brokerage or investment management
activities.
RISK CONSIDERATIONS
In addition to the risks common to investing in any Sector Fund, the Financial
Services Fund is subject to a number of other risks that will affect the value
of its shares, including:
FINANCIAL SERVICES SECTOR CONCENTRATION RISK - The risk that the securities of
issuers in the financial services sector that the Fund purchases will
underperform the market as a whole. To the extent that the Fund's investments
are concentrated in issuers conducting business in the same economic sector, the
Fund is subject to legislative or regulatory changes, adverse market conditions
and/or increased competition affecting that economic sector. Financial Services
Companies are subject to extensive governmental regulation, which may limit both
the amounts and types of loans and other financial commitments they can make,
and the rates and fees they can charge. Profitability is largely dependent on
the availability and cost of capital, and can fluctuate significantly when
interest rates change. Credit losses resulting from financial difficulties of
borrowers also can negatively impact the sector.
PERFORMANCE
The bar chart and table on the following page show the performance of the
Financial Services Fund both year-by-year and as an average over different
periods of time. The variability of performance over time provides an indication
of the risks of investing in the Fund. Of course, this past performance does not
necessarily indicate how the Fund will perform in the future.
<PAGE>
PROSPECTUS 35
FINANCIAL SERVICES FUND
FUND PERFORMANCE AND FEE INFORMATION
[CHART]
* THE YEAR-TO-DATE RETURN FOR THE PERIOD FROM JANUARY 1, 2000 THROUGH JUNE 30,
2000 IS -1.63%.
DURING THE PERIOD SHOWN IN THE BAR CHART, THE HIGHEST RETURN FOR A QUARTER
WAS 7.23% (QUARTER ENDED DECEMBER 31, 1999) AND THE LOWEST RETURN FOR A
QUARTER WAS -16.88% (QUARTER ENDED SEPTEMBER 30, 1999).
AVERAGE ANNUAL TOTAL RETURN (FOR PERIODS ENDING DECEMBER 31, 1999)(1)
<TABLE>
<CAPTION>
INVESTOR CLASS SHARES S&P 500 INDEX(2)
---------------------------------------------------------------------------------------------------
<S> <C> <C>
PAST ONE YEAR -1.46% 19.53%
SINCE INCEPTION (04/02/98) -4.40% 16.80%
</TABLE>
(1)THESE FIGURES ASSUME THE REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS
DISTRIBUTIONS.
(2)THE S&P 500 INDEX IS AN UNMANAGED INDEX THAT IS A WIDELY RECOGNIZED INDICATOR
OF GENERAL STOCK MARKET PERFORMANCE.
FEES AND EXPENSES OF THE FUND
This table describes the fees and expenses that you may pay if you buy and hold
Investor Class Shares of the Financial Services Fund.
<TABLE>
<S> <C>
SHAREHOLDER FEES* ................................................................... NONE
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
MANAGEMENT FEES .................................................................. .85%
DISTRIBUTION (12b-1) FEES ........................................................ NONE
OTHER EXPENSES ................................................................... .86%
TOTAL ANNUAL FUND OPERATING EXPENSES ................................................ 1.71%
</TABLE>
* THE FUND MAY IMPOSE A WIRE TRANSFER CHARGE OF $15 ON CERTAIN REDEMPTIONS UNDER
$5,000.
EXAMPLE
This Example is intended to help you compare the cost of investing in the
Investor Class Shares of the Financial Services Fund with the cost of investing
in other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time period
indicated and then redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your cost would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------------------------------------------------
<S> <C> <C> <C>
$174 $539 $928 $2,019
</TABLE>
<PAGE>
36
HEALTH CARE FUND
FUND INFORMATION
FUND OBJECTIVE
The Health Care Fund seeks capital appreciation by investing in companies that
are involved in the health care industry ("Health Care Companies").
PORTFOLIO INVESTMENT STRATEGY
The Fund invests substantially all of its assets in equity securities of Health
Care Companies that are traded in the United States. Health Care Companies
include pharmaceutical companies, companies involved in research and development
of pharmaceutical products and services, companies involved in the operation of
health care facilities, and other companies involved in the design, manufacture,
or sale of health care-related products or services. The Fund may also engage in
futures and options transactions, purchase ADRs and U.S. Government securities,
and enter into repurchase agreements.
RISK CONSIDERATIONS
In addition to the risks common to investing in any Sector Fund, the Health Care
Fund is subject to a number of other risks that will affect the value of its
shares, including:
HEALTH CARE SECTOR CONCENTRATION RISK - The risk that the securities of issuers
in the health care sector that the Fund purchases will underperform the market
as a whole. To the extent that the Fund's investments are concentrated in
issuers conducting business in the same economic sector, the Fund is subject to
legislative or regulatory changes, adverse market conditions and/or increased
competition affecting that economic sector. The prices of the securities of
Health Care Companies may fluctuate widely due to government regulation and
approval of their products and services, which can have a significant effect on
their price and availability. Furthermore, the types of products or services
produced or provided by these companies may quickly become obsolete. Moreover,
liability for products that are later alleged to be harmful or unsafe may be
substantial, and may have a significant impact on a Health Care Company's market
value and/or share price.
PERFORMANCE
The bar chart and table on the following page show the performance of the Health
Care Fund both year-by-year and as an average over different periods of time.
The variability of performance over time provides an indication of the risks of
investing in the Fund. Of course, this past performance does not necessarily
indicate how the Fund will perform in the future.
<PAGE>
PROSPECTUS 37
HEALTH CARE FUND
FUND PERFORMANCE AND FEE INFORMATION
[CHART]
* THE YEAR-TO-DATE RETURN FOR THE PERIOD FROM JANUARY 1, 2000 THROUGH JUNE 30,
2000 IS 19.68%.
DURING THE PERIOD SHOWN IN THE BAR CHART, THE HIGHEST RETURN FOR A QUARTER
WAS 4.76% (QUARTER ENDED DECEMBER 31, 1999) AND THE LOWEST RETURN FOR A
QUARTER WAS -10.49% (QUARTER ENDED SEPTEMBER 30, 1999).
AVERAGE ANNUAL TOTAL RETURN (FOR PERIODS ENDING DECEMBER 31, 1999)(1)
<TABLE>
<CAPTION>
INVESTOR CLASS SHARES S&P 500 INDEX(2)
---------------------------------------------------------------------------------------------------
<S> <C> <C>
PAST ONE YEAR -13.06% 19.53%
SINCE INCEPTION (04/17/98) 0.09% 17.07%
</TABLE>
(1)THESE FIGURES ASSUME THE REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS
DISTRIBUTIONS.
(2)THE S&P 500 INDEX IS AN UNMANAGED INDEX THAT IS A WIDELY RECOGNIZED INDICATOR
OF GENERAL STOCK MARKET PERFORMANCE.
FEES AND EXPENSES OF THE FUND
This table describes the fees and expenses that you may pay if you buy and hold
Investor Class Shares of the Health Care Fund.
<TABLE>
<S> <C>
SHAREHOLDER FEES* ................................................................... NONE
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
MANAGEMENT FEES .................................................................. .85%
DISTRIBUTION (12b-1) FEES ........................................................ NONE
OTHER EXPENSES ................................................................... .56%
TOTAL ANNUAL FUND OPERATING EXPENSES ................................................ 1.41%
</TABLE>
* THE FUND MAY IMPOSE A WIRE TRANSFER CHARGE OF $15 ON CERTAIN REDEMPTIONS UNDER
$5,000.
EXAMPLE
This Example is intended to help you compare the cost of investing in the
Investor Class Shares of the Health Care Fund with the cost of investing in
other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time period
indicated and then redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your cost would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------------------------------------------------
<S> <C> <C> <C>
$144 $446 $771 $1,691
</TABLE>
<PAGE>
38
INTERNET FUND
FUND INFORMATION
FUND OBJECTIVE
The Internet Fund seeks capital appreciation by investing in companies that
provide products or services designed for or related to the Internet ("Internet
Companies").
PORTFOLIO INVESTMENT STRATEGY
The Fund invests substantially all of its assets in equity securities of
Internet Companies that are traded in the United States. Internet Companies are
involved in all aspects of research, design development, manufacturing or
distribution of products or services for use with the Internet or
Internet-related businesses. Such companies may provide information or
entertainment services over the Internet; sell or distribute goods and services
over the Internet; provide infrastructure systems or otherwise provide hardware,
software or support which impacts Internet commerce; or provide Internet access
to consumers and businesses. Internet companies may also include companies that
provide Intranet and Extranet services. The Fund will maintain an adequate
representation of the various industries in the Internet sector. The Fund may
also engage in futures and options transactions, purchase ADRs and U.S.
Government securities, and enter into repurchase agreements.
RISK CONSIDERATIONS
In addition to the risks common to investing in any Sector Fund, the Internet
Fund is subject to a number of other risks that will affect the value of its
shares, including:
INTERNET SECTOR CONCENTRATION RISK - The risk that the securities of issuers in
the Internet sector that the Fund purchases will underperform the market as a
whole. To the extent that the Fund's investments are concentrated in issuers
conducting business in the same economic sector, the Fund is subject to
legislative or regulatory changes, adverse market conditions and/or increased
competition affecting that economic sector. The prices of the securities of
Internet Companies may fluctuate widely due to competitive pressures, increased
sensitivity to short product cycles and aggressive pricing, problems relating to
bringing their products to market and rapid obsolescence of products.
SMALLER COMPANY RISK - Although securities of large and well-established
companies in the Internet sector will be held in the Fund's portfolio, the Fund
also will invest in medium, small and/or newly-public companies which may be
subject to greater share price fluctuations and declining growth, particularly
in the event of rapid changes in technology and/or increased competition.
Securities of those smaller and/or less seasoned companies may therefore expose
shareholders of the Fund to above-average risk.
<PAGE>
PROSPECTUS 39
INTERNET FUND
FUND PERFORMANCE AND FEE INFORMATION
PERFORMANCE
The Internet Fund commenced operations on April 6, 2000. Therefore, it does not
have a performance history for a full calendar year.
FEES AND EXPENSES OF THE FUND
This table describes the fees and expenses that you may pay if you buy and hold
Investor Class Shares of the Internet Fund. This table does not, however,
include any separate account or contract expenses, fees or charges.
<TABLE>
<S> <C>
SHAREHOLDER FEES* ................................................................... NONE
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
MANAGEMENT FEES .................................................................. .85%
DISTRIBUTION (12b-1) FEES ........................................................ NONE
OTHER EXPENSES** ................................................................. .75%
TOTAL ANNUAL FUND OPERATING EXPENSES ................................................ 1.60%
</TABLE>
* THE FUND MAY IMPOSE A WIRE TRANSFER CHARGE OF $15 ON CERTAIN REDEMPTIONS UNDER
$5,000.
** OTHER EXPENSES ARE ESTIMATED.
EXAMPLE
This Example is intended to help you compare the cost of investing in the
Investor Class Shares of the Internet Fund with the cost of investing in other
mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time period
indicated and then redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that the
Fund's estimated operating expenses remain the same. Although your actual costs
may be higher of lower, based on these assumptions your cost would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS
--------------------------------------------------------------------------------
<S> <C>
$163 $505
</TABLE>
<PAGE>
40
LEISURE FUND
FUND INFORMATION
FUND OBJECTIVE
The Leisure Fund seeks capital appreciation by investing in companies engaged in
leisure and entertainment businesses ("Leisure Companies").
PORTFOLIO INVESTMENT STRATEGY
The Fund invests substantially all of its assets in equity securities of Leisure
Companies that are traded in the United States. Leisure Companies are engaged in
the design, production, or distribution of goods or services in the leisure
industries. Leisure Companies include hotels and resorts, casinos, radio and
television broadcasting and advertising, motion picture production, toys and
sporting goods manufacture, musical recordings and instruments, alcohol and
tobacco, and publishing. The Fund may also engage in futures and options
transactions, purchase ADRs and U.S. Government securities, and enter into
repurchase agreements.
RISK CONSIDERATIONS
In addition to the risks common to investing in any Sector Fund, the Leisure
Fund is subject to a number of other risks that will affect the value of its
shares, including:
LEISURE SECTOR CONCENTRATION RISK - The risk that the securities of issuers in
the leisure sector that the Fund purchases will underperform the market as a
whole. To the extent that the Fund's investments are concentrated in issuers
conducting business in the same economic sector, the Fund is subject to
legislative or regulatory changes, adverse market conditions and/or increased
competition affecting that economic sector. Securities of Leisure Companies may
be considered speculative, and generally exhibit greater volatility than the
overall market. The prices of the securities of Leisure Companies may fluctuate
widely due to unpredictable earnings, due in part to changing consumer tastes
and intense competition, strong reaction to technological developments and to
the threat of increased government regulation, particularly in the gaming arena.
PERFORMANCE
The bar chart and table on the following page show the performance of the
Leisure Fund both year-by-year and as an average over different periods of time.
The variability of performance over time provides an indication of the risks of
investing in the Fund. Of course, this past performance does not necessarily
indicate how the Fund will perform in the future.
<PAGE>
PROSPECTUS 41
LEISURE FUND
FUND PERFORMANCE AND FEE INFORMATION
[CHART]
* THE YEAR-TO-DATE RETURN FOR THE PERIOD FROM JANUARY 1, 2000 THROUGH JUNE 30,
2000 IS -7.99%.
DURING THE PERIOD SHOWN IN THE BAR CHART, THE HIGHEST RETURN FOR A QUARTER
WAS 16.73% (QUARTER ENDED DECEMBER 31, 1999) AND THE LOWEST RETURN FOR A
QUARTER WAS -7.43% (QUARTER ENDED SEPTEMBER 30, 1999).
AVERAGE ANNUAL TOTAL RETURN (FOR PERIODS ENDING DECEMBER 31, 1999)(1)
<TABLE>
<CAPTION>
INVESTOR CLASS SHARES S&P 500 INDEX(2)
---------------------------------------------------------------------------------
<S> <C> <C>
PAST ONE YEAR 9.37% 19.53%
SINCE INCEPTION (04/01/98) 8.98% 17.48%
</TABLE>
(1) THESE FIGURES ASSUME THE REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS
DISTRIBUTIONS.
(2) THE S&P 500 INDEX IS AN UNMANAGED INDEX THAT IS A WIDELY RECOGNIZED
INDICATOR OF GENERAL STOCK MARKET PERFORMANCE.
FEES AND EXPENSES OF THE FUND
This table describes the fees and expenses that you may pay if you buy and hold
Investor Class Shares of the Leisure Fund.
<TABLE>
<S> <C>
SHAREHOLDER FEES* ............................................................... NONE
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
MANAGEMENT FEES ............................................................... .85%
DISTRIBUTION (12b-1) FEES ..................................................... NONE
OTHER EXPENSES ................................................................ .73%
TOTAL ANNUAL FUND OPERATING EXPENSES ............................................1.58%
</TABLE>
* THE FUND MAY IMPOSE A WIRE TRANSFER CHARGE OF $15 ON CERTAIN REDEMPTIONS
UNDER $5,000.
EXAMPLE
This Example is intended to help you compare the cost of investing in the
Investor Class Shares of the Leisure Fund with the cost of investing in other
mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time period
indicated and then redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your cost would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------------------------------------------------
<S> <C> <C> <C>
$161 $499 $860 $1,878
</TABLE>
<PAGE>
42
PRECIOUS METALS FUND
FUND INFORMATION
FUND OBJECTIVE
The Precious Metals Fund seeks to provide capital appreciation by investing in
U.S. and foreign companies that are involved in the precious metals sector,
including exploration, mining, production and development, and other precious
metals-related services ("Precious Metals Companies").
PORTFOLIO INVESTMENT STRATEGY
The Fund invests substantially all of its assets in equity securities of
Precious Metals Companies that are traded in the United States and foreign
countries. Precious metals include gold, silver, platinum and other precious
metals. Precious Metals Companies include precious metal manufacturers;
distributors of precious metal products, such as jewelry, metal foil or bullion;
mining and geological exploration companies; and companies which provide
services to Precious Metals Companies. The Fund may also engage in futures and
options transactions, purchase ADRs and U.S. Government securities, and enter
into repurchase agreements.
RISK CONSIDERATIONS
In addition to the risks common to investing in any Sector Fund, the Precious
Metals Fund is subject to a number of other risks that will affect the value of
its shares, including:
PRECIOUS METALS CONCENTRATION RISK - The risk that the relatively few securities
of issuers in the mining industry that the Fund purchases will underperform the
market as a whole. To the extent that the Fund's investments are concentrated in
issuers conducting business in the same industry, the Fund is subject to
legislative or regulatory changes, adverse market conditions and/or increased
competition affecting that industry, as well as to the volatility of global
prices for precious metals. The prices of precious metals may fluctuate widely
due to changes in inflation or inflation expectations, currency fluctuations,
speculation, worldwide demand and political developments in precious metals
producing countries.
FOREIGN INVESTMENT RISK - Investments in securities of foreign companies can be
more volatile than investments in U.S. companies. Diplomatic, political, or
economic developments could effect investment in foreign countries. Foreign
companies generally are not subject to uniform accounting, auditing, and
financial reporting standards comparable to those applicable to U.S.
domestic companies.
PERFORMANCE
The bar chart and table on the following page show the performance of the
Precious Metals Fund both year-by-year and as an average over different periods
of time. The variability of performance over time provides an indication of the
risks of investing in the Fund. Of course, this past performance does not
necessarily indicate how the Fund
<PAGE>
PROSPECTUS 43
PRECIOUS METALS FUND
FUND PERFORMANCE AND FEE INFORMATION
-------------------------------------------------------------------------------
will perform in the future. Prior to October 1, 1999, the Precious Metals Fund's
objective was to provide investment results that corresponded to a benchmark for
precious metalsrelated securities.
[CHART]
* THE YEAR-TO-DATE RETURN FOR THE PERIOD FROM JANUARY 1, 2000 THROUGH JUNE 30,
2000 IS -14.92%. DURING THE PERIOD SHOWN IN THE BAR CHART, THE HIGHEST RETURN
FOR A QUARTER WAS 19.23% (QUARTER ENDED MARCH 31, 1996) AND THE LOWEST RETURN
FOR A QUARTER WAS -32.91% (QUARTER ENDED DECEMBER 31, 1997).
AVERAGE ANNUAL TOTAL RETURN (FOR PERIODS ENDING DECEMBER 31, 1999)(1)
<TABLE>
<CAPTION>
INVESTOR CLASS SHARES S&P 500 INDEX(2)
------------------------------------------------------------------------------------------
<S> <C> <C>
PAST ONE YEAR 0.00% 19.53%
PAST FIVE YEARS -10.33% 26.18%
SINCE INCEPTION (12/01/93) -11.95% 20.95%
</TABLE>
(1) THESE FIGURES ASSUME THE REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS
DISTRIBUTIONS.
(2) THE S&P 500 INDEX IS AN UNMANAGED INDEX THAT IS A WIDELY RECOGNIZED
INDICATOR OF GENERAL STOCK MARKET PERFORMANCE.
FEES AND EXPENSES OF THE FUND
This table describes the fees and expenses that you may pay if you buy and hold
Investor Class Shares of the Precious Metals Fund.
<TABLE>
<S> <C>
SHAREHOLDER FEES*.............................................................. NONE
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
MANAGEMENT FEES........................................................... .75%
DISTRIBUTION (12b-1) FEES................................................. NONE
OTHER EXPENSES............................................................ .48%
TOTAL ANNUAL FUND OPERATING EXPENSES........................................... 1.23%
</TABLE>
* THE FUND MAY IMPOSE A WIRE TRANSFER CHARGE OF $15 ON CERTAIN REDEMPTIONS UNDER
$5,000.
EXAMPLE
This Example is intended to help you compare the cost of investing in the
Investor Class Shares of the Precious Metals Fund with the cost of investing in
other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time period
indicated and then redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your cost would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------------------------------------------------------------------------------
<S> <C> <C> <C>
$125 $390 $676 $1,489
</TABLE>
<PAGE>
44
RETAILING FUND
FUND INFORMATION
FUND OBJECTIVE
The Retailing Fund seeks capital appreciation by investing in companies engaged
in merchandising finished goods and services, including department stores,
restaurant franchises, mail order operations and other companies involved in
selling products to consumers ("Retailing Companies").
PORTFOLIO INVESTMENT STRATEGY
The Fund invests substantially all of its assets in equity securities of
Retailing Companies that are traded in the United States. Retailing Companies
include drug and department stores; suppliers of goods and services for
homes, home improvements and yards; clothing, jewelry, electronics and
computer retailers; franchise restaurants; motor vehicle and marine dealers;
warehouse membership clubs; mail order operations; and companies involved in
alternative selling methods. The Fund may also engage in futures and options
transactions, purchase ADRs and U.S. Government securities, and enter into
repurchase agreements.
RISK CONSIDERATIONS
In addition to the risks common to investing in any Sector Fund, the Retailing
Fund is subject to a number of other risks that will affect the value of its
shares, including:
RETAILING SECTOR CONCENTRATION RISK - The risk that the securities of issuers in
the retailing sector that the Fund purchases will underperform the market as a
whole. To the extent that the Fund's investments are concentrated in issuers
conducting business in the same economic sector, the Fund is subject to
legislative or regulatory changes, adverse market conditions and/or increased
competition affecting that economic sector. The prices of the securities of
Retailing Companies may fluctuate widely due to consumer spending, which is
affected by general economic conditions and consumer confidence levels. The
retailing industry is highly competitive, and a Retailing Company's success is
often tied to its ability to anticipate and react to changing consumer tastes.
Many Retailing Companies are thinly capitalized, and are dependent upon a
relatively few number of business days to achieve their overall results.
PERFORMANCE
The bar chart and table on the following page show the performance of the
Retailing Fund both year-by-year and as an average over different periods of
time. The variability of performance over time provides an indication of the
risks of investing in the Fund. Of course, this past performance does not
necessarily indicate how the Fund will perform in the future.
<PAGE>
PROSPECTUS 45
RETAILING FUND
FUND PERFORMANCE AND FEE INFORMATION
[CHART]
* THE YEAR-TO-DATE RETURN FOR THE PERIOD FROM JANUARY 1, 2000 THROUGH JUNE 30,
2000 IS -20.03%.
DURING THE PERIOD SHOWN IN THE BAR CHART, THE HIGHEST RETURN FOR A QUARTER
WAS 15.62% (QUARTER ENDED DECEMBER 31, 1999) AND THE LOWEST RETURN FOR A
QUARTER WAS -10.56% (QUARTER ENDED SEPTEMBER 30, 1999).
AVERAGE ANNUAL TOTAL RETURN (FOR PERIODS ENDING DECEMBER 31, 1999)(1)
<TABLE>
<CAPTION>
INVESTOR CLASS SHARES S&P 500 INDEX(2)
-----------------------------------------------------------------------------------
<S> <C> <C>
PAST ONE YEAR 12.91% 19.53%
SINCE INCEPTION (04/01/98) 21.19% 17.48%
</TABLE>
(1) THESE FIGURES ASSUME THE REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS
DISTRIBUTIONS.
(2) THE S&P 500 INDEX IS AN UNMANAGED INDEX THAT IS A WIDELY RECOGNIZED
INDICATOR OF GENERAL STOCK MARKET PERFORMANCE.
FEES AND EXPENSES OF THE FUND
This table describes the fees and expenses that you may pay if you buy and hold
Investor Class Shares of the Retailing Fund.
<TABLE>
<S> <C>
SHAREHOLDER FEES*................................................................ NONE
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
MANAGEMENT FEES.............................................................. .85%
DISTRIBUTION (12B-1) FEES.................................................... NONE
OTHER EXPENSES............................................................... .59%
TOTAL ANNUAL FUND OPERATING EXPENSES............................................. 1.44%
</TABLE>
* THE FUND MAY IMPOSE A WIRE TRANSFER CHARGE OF $15 ON CERTAIN REDEMPTIONS UNDER
$5,000.
EXAMPLE
This Example is intended to help you compare the cost of investing in the
Investor Class Shares of the Retailing Fund with the cost of investing in other
mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time period
indicated and then redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your cost would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------------------------------------------------------------------------------
<S> <C> <C> <C>
$147 $456 $787 $1,724
</TABLE>
<PAGE>
46
TECHNOLOGY FUND
FUND INFORMATION
FUND OBJECTIVE
The Technology Fund seeks capital appreciation by investing in companies that
are involved in the technology sector, including computer software and service
companies, semiconductor manufacturers, networking and telecommunications
equipment manufacturers, PC hardware and peripherals companies ("Technology
Companies").
PORTFOLIO INVESTMENT STRATEGY
The Fund invests substantially all of its assets in equity securities of
Technology Companies that are traded in the United States. Technology Companies
are companies that the Advisor believes have, or will develop, products,
processes, or services that will provide technological advances and
improvements. These companies may include, for example, companies that develop,
produce or distribute products or services in the computer, semiconductor,
electronics, communications, health care, and biotechnology sectors. The Fund
may also engage in futures and options transactions, purchase ADRs and U.S.
Government securities, and enter into repurchase agreements.
RISK CONSIDERATIONS
In addition to the risks common to investing in any Sector Fund, the Technology
Fund is subject to a number of other risks that will affect the value of its
shares, including:
TECHNOLOGY SECTOR CONCENTRATION RISK - The risk that the securities of issuers
in the technology sector that the Fund purchases will underperform the market as
a whole. To the extent that the Fund's investments are concentrated in issuers
conducting business in the same economic sector, the Fund is subject to
legislative or regulatory changes, adverse market conditions and/or increased
competition affecting that economic sector. The prices of the securities of
Technology Companies may fluctuate widely due to competitive pressures,
increased sensitivity to short product cycles and aggressive pricing, problems
relating to bringing their products to market, very high price/earnings ratios,
and high personnel turnover due to severe labor shortages for skilled technology
professionals.
PERFORMANCE
The bar chart and table on the following page show the performance of the
Technology Fund both year-by-year and as an average over different periods of
time. The variability of performance over time provides an indication of the
risks of investing in the Fund. Of course, this past performance does not
necessarily indicate how the Fund will perform in the future.
<PAGE>
PROSPECTUS 47
TECHNOLOGY FUND
FUND PERFORMANCE AND FEE INFORMATION
[CHART]
* THE YEAR-TO-DATE RETURN FOR THE PERIOD FROM JANUARY 1, 2000 THROUGH JUNE 30,
2000 IS 2.41%.
DURING THE PERIOD SHOWN IN THE BAR CHART, THE HIGHEST RETURN FOR A QUARTER
WAS 39.65% (QUARTER ENDED DECEMBER 31, 1999) AND THE LOWEST RETURN FOR A
QUARTER WAS 4.63% (QUARTER ENDED SEPTEMBER 30, 1999).
AVERAGE ANNUAL TOTAL RETURN (FOR PERIODS ENDING DECEMBER 31, 1999)(1)
<TABLE>
<CAPTION>
INVESTOR CLASS SHARES S&P 500 INDEX(2)
---------------------------------------------------------------------------------------------------
<S> <C> <C>
PAST ONE YEAR 81.16% 19.53%
SINCE INCEPTION (04/14/98) 81.47% 17.41%
</TABLE>
(1) THESE FIGURES ASSUME THE REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS
DISTRIBUTIONS.
(2) THE S&P 500 INDEX IS AN UNMANAGED INDEX THAT IS A WIDELY RECOGNIZED
INDICATOR OF GENERAL STOCK MARKET PERFORMANCE.
FEES AND EXPENSES OF THE FUND
This table describes the fees and expenses that you may pay if you buy and hold
Investor Class Shares of the Technology Fund.
<TABLE>
<S> <C>
SHAREHOLDER FEES*................................................................ NONE
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
MANAGEMENT FEES.............................................................. .85%
DISTRIBUTION (12B-1) FEES.................................................... NONE
OTHER EXPENSES............................................................... .55%
TOTAL ANNUAL FUND OPERATING EXPENSES............................................. 1.40%
</TABLE>
* THE FUND MAY IMPOSE A WIRE TRANSFER CHARGE OF $15 ON CERTAIN REDEMPTIONS UNDER
$5,000.
EXAMPLE
This Example is intended to help you compare the cost of investing in the
Investor Class Shares of the Technology Fund with the cost of investing in other
mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time period
indicated and then redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your cost would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
----------------------------------------------------------------------------------
<S> <C> <C> <C>
$143 $443 $766 $1,680
</TABLE>
<PAGE>
48
TELECOMMUNICATIONS FUND
FUND INFORMATION
FUND OBJECTIVE
The Telecommunications Fund seeks capital appreciation by investing in companies
engaged in the development, manufacture, or sale of communications services or
communications equipment ("Telecommunications Companies").
PORTFOLIO INVESTMENT STRATEGY
The Fund invests substantially all of its assets in equity securities of
Telecommunications Companies that are traded in the United States.
Telecommunications Companies range from traditional local and long-distance
telephone services or equipment providers, to companies involved in developing
technologies such as cellular telephone or paging services, Internet equipment
and service providers, and fiber-optics. The Fund may also engage in futures and
options transactions, purchase ADRs and U.S. Government securities, and enter
into repurchase agreements. Although many established Telecommunications
Companies pay an above-average dividend, the Fund's investment decisions are
primarily based on growth potential and not on income.
RISK CONSIDERATIONS
In addition to the risks common to investing in any Sector Fund, the
Telecommunications Fund is subject to a number of other risks that will affect
the value of its shares, including:
TELECOMMUNICATIONS SECTOR CONCENTRATION RISK - The risk that the securities of
issuers in the telecommunications sector that the Fund purchases will
underperform the market as a whole. To the extent that the Fund's investments
are concentrated in issuers conducting business in the same economic sector, the
Fund is subject to legislative or regulatory changes, adverse market conditions
and/or increased competition affecting that economic sector. The prices of the
securities of Telecommunications Companies may fluctuate widely due to both
federal and state regulations governing rates of return and services that may be
offered, fierce competition for market share, and competitive challenges in the
U.S. from foreign competitors engaged in strategic joint ventures with U.S.
companies, and in foreign markets from both U.S. and foreign competitors. In
addition, recent industry consolidation trends may lead to increased regulation
of Telecommunications Companies in their primary markets.
PERFORMANCE
The bar chart and table on the following page show the performance of the
Telecommunications Fund both year-by-year and as an average over different
periods of time. The variability of performance over time provides an indication
of the risks of investing in the Fund. Of course, this past performance does not
necessarily indicate how the Fund will perform in the future.
<PAGE>
PROSPECTUS 49
TELECOMMUNICATIONS FUND
FUND PERFORMANCE AND FEE INFORMATION
[CHART]
* THE YEAR-TO-DATE RETURN FOR THE PERIOD FROM JANUARY 1, 2000 THROUGH JUNE 30,
2000 IS -5.94%.
DURING THE PERIOD SHOWN IN THE BAR CHART, THE HIGHEST RETURN FOR A QUARTER
WAS 35.75% (QUARTER ENDED DECEMBER 31, 1999) AND THE LOWEST RETURN FOR A
QUARTER WAS -4.03% (QUARTER ENDED SEPTEMBER 30, 1999).
AVERAGE ANNUAL TOTAL RETURN (FOR PERIODS ENDING DECEMBER 31, 1999)(1)
<TABLE>
<CAPTION>
INVESTOR CLASS SHARES S&P 500 INDEX(2)
---------------------------------------------------------------------------------------------------
<S> <C> <C>
PAST ONE YEAR 58.59% 19.53%
SINCE INCEPTION (04/01/98) 47.28% 17.48%
</TABLE>
(1) THESE FIGURES ASSUME THE REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS
DISTRIBUTIONS.
(2) THE S&P 500 INDEX IS AN UNMANAGED INDEX THAT IS A WIDELY
RECOGNIZED INDICATOR OF GENERAL STOCK MARKET PERFORMANCE.
FEES AND EXPENSES OF THE FUND
This table describes the fees and expenses that you may pay if you buy and hold
Investor Class Shares of the Telecommunications Fund.
<TABLE>
<S> <C>
SHAREHOLDER FEES*.............................................................. NONE
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
MANAGEMENT FEES............................................................ .85%
DISTRIBUTION (12B-1) FEES.................................................. NONE
OTHER EXPENSES............................................................. .64%
TOTAL ANNUAL FUND OPERATING EXPENSES........................................... 1.49%
</TABLE>
* THE FUND MAY IMPOSE A WIRE TRANSFER CHARGE OF $15 ON CERTAIN REDEMPTIONS UNDER
$5,000.
EXAMPLE
This Example is intended to help you compare the cost of investing in the
Investor Class Shares of the Telecommunications Fund with the cost of investing
in other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time period
indicated and then redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your cost would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------------------------------------------------
<S> <C> <C> <C>
$152 $471 $813 $1,779
</TABLE>
<PAGE>
50
TRANSPORTATION FUND
FUND INFORMATION
FUND OBJECTIVE
The Transportation Fund seeks capital appreciation by investing in companies
engaged in providing transportation services or companies engaged in the design,
manufacture, distribution, or sale of transportation equipment ("Transportation
Companies").
PORTFOLIO INVESTMENT STRATEGY
The Fund invests substantially all of its assets in equity securities of
Transportation Companies that are traded in the United States. Transportation
Companies may include, for example, companies involved in the movement of
freight or people, such as airline, railroad, ship, truck and bus companies;
equipment manufacturers (including makers of trucks, automobiles, planes,
containers, railcars or other modes of transportation and related products);
parts suppliers; and companies involved in leasing, maintenance, and
transportation-related services. The Fund may also engage in futures and options
transactions, purchase ADRs and U.S. Government securities, and enter into
repurchase agreements.
RISK CONSIDERATIONS
In addition to the risks common to investing in any Sector Fund, the
Transportation Fund is subject to a number of other risks that will affect the
value of its shares, including:
TRANSPORTATION SECTOR CONCENTRATION RISK - The risk that the securities of
issuers in the transportation sector that the Fund purchases will underperform
the market as a whole. To the extent that the Fund's investments are
concentrated in issuers conducting business in the same economic sector, the
Fund is subject to legislative or regulatory changes, adverse market conditions
and/or increased competition affecting that economic sector. The prices of the
securities of Transportation Companies may fluctuate widely due to their
cyclical nature, occasional sharp price movements which may result from changes
in the economy, fuel prices, labor agreements, and insurance costs, the recent
trend of government deregulation, and increased competition from foreign
companies, many of which are partially funded by foreign governments and which
may be less sensitive to short-term economic pressures.
PERFORMANCE
The bar chart and table on the following page show the performance of the
Transportation Fund both year-by-year and as an average over different periods
of time. The variability of performance over time provides an indication of the
risks of investing in the Fund. Of course, this past performance does not
necessarily indicate how the Fund will perform in the future.
<PAGE>
PROSPECTUS 51
TRANSPORTATION FUND
FUND PERFORMANCE AND FEE INFORMATION
[CHART]
* THE YEAR-TO-DATE RETURN FOR THE PERIOD FROM JANUARY 1, 2000 THROUGH JUNE 30,
2000 IS -11.70%.
DURING THE PERIOD SHOWN IN THE BAR CHART, THE HIGHEST RETURN FOR A QUARTER
WAS 7.51% (QUARTER ENDED JUNE 30, 1999) AND THE LOWEST RETURN FOR A QUARTER
WAS -19.91% (QUARTER ENDED SEPTEMBER 30, 1999).
AVERAGE ANNUAL TOTAL RETURN (FOR PERIODS ENDING DECEMBER 31, 1999)(1)
<TABLE>
<CAPTION>
INVESTOR CLASS SHARES S&P 500 INDEX(2)
---------------------------------------------------------------------------------------------------
<S> <C> <C>
PAST ONE YEAR -18.36% 19.53%
SINCE INCEPTION (04/02/98) -21.29% 16.80%
</TABLE>
(1) THESE FIGURES ASSUME THE REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS
DISTRIBUTIONS.
(2) THE S&P 500 INDEX IS AN UNMANAGED INDEX THAT IS A WIDELY RECOGNIZED
INDICATOR OF GENERAL STOCK MARKET PERFORMANCE.
FEES AND EXPENSES OF THE FUND
This table describes the fees and expenses that you may pay if you buy and hold
Investor Class Shares of the Transportation Fund.
<TABLE>
<S> <C>
SHAREHOLDER FEES*.............................................................. NONE
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
MANAGEMENT FEES............................................................ .85%
DISTRIBUTION (12b-1) FEES.................................................. NONE
OTHER EXPENSES............................................................. 1.11%
TOTAL ANNUAL FUND OPERATING EXPENSES........................................... 1.96%
</TABLE>
* THE FUND MAY IMPOSE A WIRE TRANSFER CHARGE OF $15 ON CERTAIN REDEMPTIONS UNDER
$5,000.
EXAMPLE
This Example is intended to help you compare the cost of investing in the
Investor Class Shares of the Transportation Fund with the cost of investing in
other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time period
indicated and then redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your cost would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
---------------------------------------------------------------------------------
<S> <C> <C> <C>
$199 $615 $1,057 $2,285
</TABLE>
<PAGE>
52
UTILITIES FUND
FUND INFORMATION
FUND OBJECTIVE
The Utilities Fund seeks capital appreciation by investing in companies that
operate public utilities ("Utilities Companies").
PORTFOLIO INVESTMENT STRATEGY
The Fund invests substantially all of its assets in equity securities of
Utilities Companies that are traded in the United States. Utilities Companies
may include companies involved in the manufacturing, production, generation,
transmission, distribution or sales of gas or electric energy; water supply,
waste and sewage disposal; and companies that receive a majority of their
revenues from their public utility operations. The Fund may also engage in
futures and options transactions, purchase ADRs and U.S. Government securities,
and enter into repurchase agreements.
RISK CONSIDERATIONS
In addition to the risks common to investing in any Sector Fund, the Utilities
Fund is subject to a number of other risks that will affect the value of its
shares, including:
UTILITIES SECTOR CONCENTRATION RISK - The risk that the securities of issuers in
the Utilities sector that the Fund purchases will underperform the market as a
whole. To the extent that the Fund's investments are concentrated in issuers
conducting business in the same economic sector, the Fund is subject to
legislative or regulatory changes, adverse market conditions and/or increased
competition affecting that economic sector. The prices of the securities of
Utilities Companies may fluctuate widely due to government regulation; the
effect of interest rates on capital financing; competitive pressures due to
deregulation in the utilities industry; supply and demand for services;
increased sensitivity to the cost of natural resources required for energy
production; and environmental factors such as conservation of natural resources.
<PAGE>
PROSPECTUS 53
UTILITIES FUND
FUND PERFORMANCE AND FEE INFORMATION
PERFORMANCE
The Utilities Fund commenced operations on April 3, 2000. Therefore, it does not
have a performance history for a full calendar year.
FEES AND EXPENSES OF THE FUND
This table describes the fees and expenses that you may pay if you buy and hold
Investor Class Shares of the Utilities Fund. This table does not, however,
include any separate account or contract expenses, fees or charges.
<TABLE>
<S> <C>
SHAREHOLDER FEES*............................................................. NONE
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
MANAGEMENT FEES........................................................... .85%
DISTRIBUTION (12b-1) FEES................................................. NONE
OTHER EXPENSES**.......................................................... .75%
TOTAL ANNUAL FUND OPERATING EXPENSES.......................................... 1.60%
</TABLE>
* THE FUND MAY IMPOSE A WIRE TRANSFER CHARGE OF $15 ON CERTAIN REDEMPTIONS
UNDER $5,000.
** OTHER EXPENSES ARE ESTIMATED.
EXAMPLE
This Example is intended to help you compare the cost of investing in the
Investor Class Shares of the Utilities Fund with the cost of investing in other
mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time period
indicated and then redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that the
Fund's estimated operating expenses remain the same. Although your actual costs
may be higher of lower, based on these assumptions your cost would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS
------------------------------------------------------------------------
<S> <C>
$163 $505
</TABLE>
<PAGE>
54
This page intentionally left blank.
<PAGE>
PROSPECTUS 55
RYDEX INTERNATIONAL FUNDS
LARGE-CAP EUROPE FUND
LARGE-CAP JAPAN FUND
COMMON RISK/RETURN INFORMATION
-------------------------------------------------------------------------------
INVESTMENT OBJECTIVES
Each International Fund seeks to provide investment results that correlate to
the performance of a specific benchmark. The investment objective of each
International Fund is non-fundamental and may be changed without shareholder
approval.
PRINCIPAL RISKS
Equity Risk - The equity markets are volatile, and the value of an International
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 an International Fund to decrease.
FOREIGN INVESTING RISK - Investments in securities of foreign companies can be
more volatile than investments in U.S. companies. Diplomatic, political, or
economic developments could adversely effect investment in foreign countries.
Foreign companies generally are not subject to accounting, auditing, and
financial reporting standards comparable to those applicable to U.S.
companies.
CURRENCY RISK - Under normal circumstances, the International Funds do not plan
to hedge against the risk of currency exchange rate fluctuations. As a result,
the value of the Funds' assets measured in U.S. dollars will be affected by
changes in the exchange rates of currencies in which the Funds' securities are
denominated.
<PAGE>
56
LARGE-CAP EUROPE FUND
FUND INFORMATION
FUND OBJECTIVE
The Large-Cap Europe Fund seeks to provide investment results that correlate to
the performance of a specific benchmark. The Fund's current benchmark is the Dow
Jones Stoxx 50-SM- Index (the "Stoxx 50 Index").
PORTFOLIO INVESTMENT STRATEGY
The Fund invests principally in securities of companies included on the Stoxx 50
Index and in leveraged instruments, such as equity swap agreements, futures
contracts and options on securities, futures contracts, and stock indices.
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 125% of the Stoxx 50 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
In addition to the risks common to investing in any International Fund, the
Large-Cap Europe Fund is subject to a number of other 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
aggregate basis. The combined effects of leverage, high portfolio turnover and
the time difference between the close of the European markets and the time the
Fund prices its shares, may prevent the Fund from achieving close correlation to
the Stoxx 50 Index.
LEVERAGING RISK - The more the Fund invests in leveraged instruments, the more
this leverage will magnify any gains or losses on those investments. Since the
Fund's investment strategy involves consistently applied leverage, the value of
the Fund's shares will tend to increase or decrease by 125% of the value of any
decrease in the Stoxx 50 Index. For example, if the Stoxx 50 Index goes down by
4%, the value of the Fund's shares should go down by 5%.
SWAPCOUNTERPARTY CREDIT RISK - The Fund is subject to credit risk on the amount
it expects to receive from swap agreement counterparties. If a swap counterparty
defaults on its payment obligations to the Fund, this default will cause the
value of your investment in the Fund to decrease.
<PAGE>
PROSPECTUS 57
LARGE-CAP EUROPE FUND
FUND PERFORMANCE AND FEE INFORMATION
PERFORMANCE
The Large-Cap Europe Fund commenced operations on May 8, 2000. Therefore, it
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 LARGE-CAP EUROPE FUND.
<TABLE>
<S> <C>
SHAREHOLDER FEES*.............................................................. NONE
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
MANAGEMENT FEES.............................................................. .90%
DISTRIBUTION (12b-1) FEES.................................................... .25%
OTHER EXPENSES**............................................................. .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
Large-Cap Europe 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>
<PAGE>
58
LARGE-CAP JAPAN FUND
FUND INFORMATION
FUND OBJECTIVE
The Large-Cap Japan Fund seeks to provide investment results that correlate to
the performance of a specific benchmark. The Fund's current benchmark is the
Topix 100 Index (the "Topix 100 Index").
PORTFOLIO INVESTMENT STRATEGY
The Fund invests principally in securities of companies included on the Topix
100 Index and in leveraged instruments, such as equity swap agreements, futures
contracts and options on securities, futures contracts, and stock indices.
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 125% of the Topix 100 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
In addition to the risks common to investing in any International Fund, the
Large-Cap Japan Fund is subject to a number of other 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
aggregate basis. The combined effects of leverage, high portfolio turnover and
the time difference between the close of the Japanese market and the time the
Fund prices its shares, may prevent the Fund from achieving close correlation to
the Topix 100 Index.
LEVERAGING RISK - The more the Fund invests in leveraged instruments, the more
this leverage will magnify any gains or losses on those investments. Since the
Fund's investment strategy involves consistently applied leverage, the value of
the Fund's shares will tend to increase or decrease by 125% of the value of any
decrease in the Topix 100 Index. For example, if the Topix 100 Index goes down
by 4%, the value of the Fund's shares should go down by 5%.
GEOGRAPHIC CONCENTRATION IN JAPAN - Targeting Japan could hurt the Fund's
performance if Japan's economy performs poorly as a result of political and
economic conditions that affect the Japanese market. Japanese economic growth
has weakened after the sharp collapse of the stock market in the 1990's and the
current economic condition remains uncertain. Japanese stocks tend to be more
volatile than their U.S. counterparts, for reasons ranging from political and
economic uncertainties, to a higher risk that essential information may be
incomplete or wrong. The Fund may be more volatile than a more geographically
diversified equity fund.
<PAGE>
PROSPECTUS 59
LARGE-CAP JAPAN FUND
FUND INFORMATION
SWAPCOUNTERPARTY CREDIT RISK - The Fund is subject to credit risk on the amount
it expects to receive from swap agreement counterparties. If a swap counterparty
defaults on its payment obligations to the Fund, this default will cause the
value of your investment in the Fund to decrease.
LARGE-CAP JAPAN FUND
FUND PERFORMANCE AND FEE INFORMATION
------------------------------------------------------------------------------
PERFORMANCE
The Large-Cap Japan Fund commenced operations on May 8, 2000. Therefore, it 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 Large-Cap Japan Fund.
<TABLE>
<S> <C>
SHAREHOLDER FEES*............................................................... NONE
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
MANAGEMENT FEES........................................................... .90%
DISTRIBUTION (12b-1) FEES................................................. .25%
OTHER EXPENSES**.......................................................... .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
Large-Cap Japan 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 or lower, based on these assumptions your cost would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS
-------------------------------------------------------------------------
<S> <C>
$178 $551
</TABLE>
<PAGE>
60
U.S. GOVERNMENT MONEY MARKET FUND
FUND INFORMATION
FUND OBJECTIVE
The U.S. Government Money Market Fund seeks to provide security of principal,
high current income, and liquidity.
PORTFOLIO INVESTMENT STRATEGY
The U.S. Government Money Market Fund invests primarily in money market
instruments issued or guaranteed as to principal and interest by the U.S.
Government, its agencies or instrumentalities, and enters into repurchase
agreements fully collateralized by U.S. Government securities. The Fund operates
under SEC rules, which impose certain liquidity, maturity and diversification
requirements. All securities purchased by the Fund must have remaining
maturities of 397 days or less, and must be found by the Advisor to represent
minimal credit risk and be of eligible quality.
RISK CONSIDERATIONS
The U.S. Government Money Market Fund is subject to the following risks that
will potentially affect the value of its shares:
INTEREST RATE RISK - Interest Rate Risk involves the potential for decline in
the rate of dividends the Fund pays in the event of declining interest rates.
STABLE PRICE PER SHARE RISK - The Fund's assets are valued using the amortized
cost method, which enables the Fund to maintain a stable price of $1.00 per
share. ALTHOUGH THE FUND IS MANAGED TO MAINTAIN A STABLE PRICE PER SHARE OF
$1.00, THERE IS NO GUARANTEE THAT THE PRICE WILL BE CONSTANTLY MAINTAINED, AND
IT IS POSSIBLE TO LOSE MONEY. THE FUND IS NOT A BANK DEPOSIT AND IS NOT
FEDERALLY INSURED OR GUARANTEED BY ANY GOVERNMENT AGENCY OR GUARANTEED TO
ACHIEVE ITS OBJECTIVE.
PERFORMANCE
The bar chart and table below show the performance of the U.S. Government Money
Market Fund both year-by-year and as an average over different periods of time.
The variability of performance over time provides an indication of the risks of
investing in the Fund. Of course, this past performance does not necessarily
indicate how the Fund will perform in the future.
<PAGE>
PROSPECTUS 61
U.S. GOVERNMENT MONEY MARKET FUND
FUND PERFORMANCE AND FEE INFORMATION
[CHART]
* THE YEAR-TO-DATE RETURN FOR THE PERIOD FROM JANUARY 1, 2000 THROUGH JUNE 30,
2000 IS 2.51%.
DURING THE PERIOD SHOWN IN THE BAR CHART, THE HIGHEST RETURN FOR
A QUARTER WAS 1.27% (QUARTER ENDED JUNE 30, 1995) AND THE LOWEST RETURN FOR A
QUARTER WAS .50% (QUARTER ENDED MARCH 31, 1994).
AVERAGE ANNUAL TOTAL RETURN (FOR PERIODS ENDING DECEMBER 31, 1999)(1)
<TABLE>
<CAPTION>
INVESTOR CLASS SHARES 90-DAY TREASURY COMPOSITE(2)
---------------------------------------------------------------------------------------------------
<S> <C> <C>
PAST ONE YEAR 4.25% 4.64%
PAST FIVE YEARS 4.60% 5.00%
SINCE INCEPTION (12/03/93) 4.31% 4.84%
</TABLE>
(1)THESE FIGURES ASSUME THE REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS
DISTRIBUTIONS.
(2)THE 90-DAY TREASURY COMPOSITE INDEX IS AN UNMANAGED INDEX THAT IS A WIDELY
RECOGNIZED INDICATOR OF GENERAL MONEY MARKET PERFORMANCE.
YIELD - CALL (800) 820-0888 OR VISIT WWW.RYDEXFUNDS.COM FOR THE FUND'S CURRENT
YIELD.
FEES AND EXPENSES OF THE FUND
This table describes the fees and expenses that you may pay if you buy and hold
Investor Class Shares of the U.S. Government Money Market Fund.
<TABLE>
<S> <C>
SHAREHOLDER FEES* .................................................................. NONE
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
MANAGEMENT FEES .................................................. .50%
DISTRIBUTION (12b-1) FEES ........................................ NONE
OTHER EXPENSES ................................................... .38%
TOTAL ANNUAL FUND OPERATING EXPENSES ............................................... .88%
</TABLE>
* THE FUND MAY IMPOSE A WIRE TRANSFER CHARGE OF $15 ON CERTAIN REDEMPTIONS UNDER
$5,000.
EXAMPLE
This Example is intended to help you compare the cost of investing in the
Investor Class Shares of the U.S. Government Money Market Fund with the cost of
investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time period
indicated and then redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your cost would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------------------------------------------------------------------------------
<S> <C> <C> <C>
$90 $281 $488 $1,084
</TABLE>
<PAGE>
62
MORE INFORMATION ABOUT FUND
INVESTMENTS AND RISK
THE BENCHMARK AND INTERNATIONAL FUNDS' INVESTMENT OBJECTIVES
Each Benchmark Fund's objective is to provide investment results that MATCH the
performance of a specific benchmark on a daily basis. Each International Fund's
objective is to provide investment results that CORRELATE to the performance of
a specific benchmark over time. The current benchmark used by each Fund is set
forth below:
<TABLE>
<CAPTION>
FUND BENCHMARK
------------------------------------------------------------------------------------------------
<S> <C>
NOVA FUND 150% OF THE PERFORMANCE OF THE S&P 500 INDEX-TM-
URSA FUND INVERSE (OPPOSITE) OF THE PERFORMANCE OF THE
S&P 500 INDEX-TM-
OTC FUND 100% OF THE PERFORMANCE OF THE NASDAQ 100 INDEX-TM-
ARKTOS FUND INVERSE (OPPOSITE) OF THE PERFORMANCE OF THE
NASDAQ 100 INDEX-TM-
U.S. GOVERNMENT BOND FUND 120% OF THE PRICE MOVEMENT OF THE LONG TREASURY BOND
JUNO FUND INVERSE (OPPOSITE) OF THE PRICE MOVEMENT OF THE LONG
TREASURY BOND
LARGE-CAP EUROPE FUND DOW JONES STOXX 50-TM- INDEX
LARGE-CAP JAPAN FUND TOPIX 100 INDEX
</TABLE>
A BRIEF GUIDE TO THE BENCHMARKS.
THE S&P 500 INDEX. The S&P 500 Index is a capitalization-weighted index composed
of 500 common stocks, which are chosen by the Standard & Poor's Corporation
(S&P) on a statistical basis.
THE NASDAQ 100 INDEX. The NASDAQ 100 Index is a modified capitalization-weighted
index composed of 100 of the largest non-financial companies listed on the
National Association of Securities Dealers Automated Quotations System.
THE LONG TREASURY BOND. The Long Treasury Bond is the current U.S. Treasury bond
with the longest maturity. Currently, the longest maturity of a U.S. Treasury
Bond is 30 years.
DOW JONES STOXX 50-TM- INDEX. The Stoxx 50 Index is a capitalization-weighted
index composed of 50 European blue chip stocks. Index members are chosen by
Stoxx Ltd. from 16 countries under criteria designed to identify highly liquid
companies that are leaders in their sectors.
TOPIX 100 INDEX. The Topix 100 Index is an index designed to measure performance
of the 100 most liquid stocks with largest market capitalization that are
members of the broader Topix Index. The Topix and Topix 100 Indexes are
published by the Tokyo Stock Exchange.
<PAGE>
PROSPECTUS 63
ADVISOR'S INVESTMENT METHODOLOGY
BENCHMARK AND INTERNATIONAL FUNDS. In managing the Benchmark and International
Funds, the Advisor uses a "quantitative" investment strategy to manage each
Fund's portfolio. The Advisor uses quantitative analysis techniques to structure
each Fund to obtain the highest correlation to its particular benchmark, but
does not attempt to select securities based on their individual potential to
perform better than the market. The Advisor's primary objective for the
Benchmark Funds is to MATCH the performance of each Fund's benchmark as closely
as possible on a daily basis. The Advisor's primary objective for the
International Funds is to CORRELATE to the performance of each International
Fund's benchmark as closely as possible over time. The Advisor does not engage
in temporary defensive investing, keeping each Fund's assets fully invested in
all market environments. The Advisor monitors each Fund on an ongoing basis, and
makes adjustments to its portfolio, as necessary, to minimize tracking error and
to maximize liquidity.
The Advisor may pursue the Funds' investment objectives by utilizing leveraged
instruments, such as futures contracts and options on securities, futures
contracts, and stock indices. For the International Funds, the Advisor will
regularly employ a program of consistently applied leverage in pursuing the
International Funds' investment objectives. The use of leverage will result in
each Fund being exposed to its respective benchmark with more than 100% of its
total assets. In addition, the Advisor will regularly utilize short selling
techniques designed to help the Ursa Fund's, the Arktos Fund's, and the Juno
Fund's performance to inversely correlate to the performance of the S&P 500
Index, the NASDAQ 100 Index, and the Long Treasury Bond, respectively.
SECTOR FUNDS. In managing the Sector Funds, the Advisor's investment team
employs a quantitative model that considers a number of factors. To develop a
liquid portfolio of stocks that adequately represents a particular market
sector, the Advisor applies filters to the broad universe of stocks of issuers
that are "principally engaged" in business activities in each industry sector.
Specifically, the Advisor's investment process screens stocks primarily based on
liquidity, market capitalization, and correlation relative to the entire
industry sector. The Advisor also may consider other factors.
The Advisor monitors the Sector Funds' portfolios on an ongoing basis, and
adjusts holdings within the portfolios as needed.
After constructing a portfolio for each Sector Fund, the Advisor may utilize
futures contracts and options to leverage a Fund's exposure to the relevant
business sector. The use of leverage will result in each Fund being exposed to
its relevant business sector with more than 100% of its total assets.
Each business sector typically consists of numerous industries. For purposes of
the Advisor's investment methodology and the policies for each Fund, a company
is considered to be "principally engaged" in a designated business activity in a
particular economic sector if at least 50% of its assets, gross income, or net
profits are committed to, or derived
<PAGE>
64
from, that activity. If a question exists as to whether a company meets these
standards, the Advisor will determine whether the company's primary business is
within the business sector designated for investment by that Fund.
MASTER-FEEDER INVESTMENT STRUCTURE
As discussed in their respective "Fund Information" sections, the Ursa, Arktos,
and Juno Funds now pursue their respective investment objectives indirectly by
investing through what is sometimes referred to as a "master-feeder
arrangement." This was accomplished by the Funds selling all of their assets and
liablities to Ursa Master, Artkos Master, and Juno Master Funds on April 3,
2000. Under a master-feeder arrangement, a Fund's investment portfolio is
composed solely of shares of a "master fund," a separate mutual fund that has an
identical investment objective, e.g., the Ursa Fund would act as a "feeder
fund," holding shares of its master fund as its only investment. As a result,
the Fund has an indirect interest in all of the securities owned by the master
fund. Because of this indirect interest, the Fund's investment returns should be
the same as those of the master fund, adjusted for Fund expenses.
The Advisor may choose to discontinue investing through the master-feeder
arrangement and manage the Fund directly if the Trust determines that doing so
is in the best interests of shareholders.
RISKS OF INVESTING IN THE FUNDS
As indicated below, the Funds are subject to a number of risks that may affect
the value of Fund shares.
EQUITY RISK (ALL FUNDS EXCEPT JUNO, U.S. GOVERNMENT BOND, AND U.S. GOVERNMENT
MONEY MARKET FUNDS) - The Funds may invest in public and privately issued equity
securities, including common and preferred stocks, warrants, and rights, as well
as instruments that attempt to track the price movement of equity indices.
Investments in equity securities and equity derivatives in general are subject
to market risks that may cause their prices to fluctuate over time. The value of
securities convertible into equity securities, such as warrants or convertible
debt, is also affected by prevailing interest rates, the credit quality of the
issuer and any call provision. Fluctuations in the value of equity securities in
which the Funds invest will cause the net asset value of the Funds to fluctuate.
Historically, the equity markets have moved in cycles, and the value of the
Fund's equity securities and equity derivatives may fluctuate drastically from
day to day. Because of their link to the equity markets, an investment in the
Funds may be more suitable for long-term investors who can bear the risk of
short-term principal fluctuations.
NON-DIVERSIFICATION RISK (ALL FUNDS EXCEPT U.S. GOVERNMENT MONEY MARKET FUND) -
Since each Fund is non-diversified, each Fund may invest in the securities of a
limited number of issuers. To the extent that a Fund invests a significant
percentage of its assets in a limited number of issuers, the Fund is subject to
the risks of investing in those few issuers, and may be more susceptible to a
single adverse economic or regulatory occurrence.
<PAGE>
PROSPECTUS 65
INDUSTRY CONCENTRATION RISK (OTC, ARKTOS, AND SECTOR FUNDS) - None of the
Benchmark or International Funds will invest 25% or more of the value of the
Fund's total assets in the securities of one or more issuers conducting their
principal business activities in the same industry; except that, to the extent
the index underlying a Fund's benchmark is concentrated in a particular
industry, a Fund will necessarily be concentrated in that industry. Currently,
the index underlying the OTC Fund's and the Arktos Fund's benchmark -- the
NASDAQ 100 Index -- is concentrated in technology companies. The Sector Funds
invest in the securities of a limited number of issuers conducting business in a
specific industry and therefore are concentrated in that industry. The risk of
concentrating Fund investments in a limited number of issuers conducting
business in the same industry is that a Fund will be more susceptible to the
risks that are associated with those issuers (or that industry) than a fund that
does not concentrate its investments.
FIXED INCOME RISK (JUNO AND U.S. GOVERNMENT BOND FUNDS) - The market value of
fixed income investments will change in response to interest rate changes and
other factors. During periods of falling interest rates, the values of
outstanding fixed income securities generally rise. Conversely, during periods
of rising interest rates, the values of such securities generally decline.
Moreover, while securities with longer maturities tend to produce higher yields,
the prices of longer maturity securities are also subject to greater market
fluctuations as a result of changes in interest rates.
TRACKING ERROR RISK (BENCHMARK AND INTERNATIONAL FUNDS) - Factors such as Fund
expenses, imperfect correlation between the Funds' investments and those of
their benchmarks, rounding of share prices, changes to the benchmark, regulatory
policies, high portfolio turnover rate and leverage all contribute to tracking
error.
For the Benchmark Funds, tracking error risk refers to the risk that the
Benchmark Funds' returns may not match the returns of their respective
benchmarks. While the Benchmark Funds do not expect returns to deviate
significantly from their respective benchmarks on a daily basis, the cumulative
effect of the above factors may over time cause the Benchmark Funds' returns to
deviate from their respective benchmarks on an aggregate basis.
For the International Funds, tracking error risk refers to the risk that the
International Funds' returns may not correlate to the returns of their
respective benchmarks. In addition to the other factors which contribute to
tracking error, the risk of tracking error for the International Funds is
compounded by the Funds' use of leverage and the time difference between the
close of the foreign securities markets underlying the Funds' respective
benchmarks and the time the Funds price their shares at the close of the NYSE.
The combined effects of these and the above factors may prevent the
International Funds' returns from correlating to their respective benchmarks on
either a daily or aggregate basis.
TRADING HALT RISK (ALL FUNDS EXCEPT U.S. GOVERNMENT MONEY MARKET FUND) - The
Funds typically may hold short-term options and futures contracts. The major
exchanges on which these contracts are traded, such as the Chicago Mercantile
Exchange (CME), have established
<PAGE>
66
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.
FOREIGN SECURITIES RISK (INTERNATIONAL AND SECTOR FUNDS) - Investing
in securities of foreign companies may involve risks not typically associated
with investing in U.S. companies. The value of securities denominated in foreign
currencies, and of dividends from such securities, can change significantly when
foreign currencies strengthen or weaken relative to the U.S. dollar. Foreign
securities markets generally have less trading volume and less liquidity than
U.S. markets, and prices in some foreign markets can be extremely volatile. Many
foreign countries lack accounting and disclosure standards comparable to those
that apply to U.S. companies, and it may be more difficult to obtain reliable
information regarding a foreign issuer's financial condition and operations.
Transaction costs and costs associated with custody services are generally
higher for foreign securities than they are for U.S. securities. Some foreign
governments levy withholding taxes against dividend and interest income.
Although in some countries portions of these taxes are recoverable, the
non-recovered portion will reduce the income received by the Funds.
FOREIGN CURRENCY RISK (INTERNATIONAL AND SECTOR FUNDS) - The Funds' investments
in securities denominated in foreign currencies are subject to currency risk.
Currency risks include the following:
- The value of a Fund's assets measured in U.S. dollars may be affected by
changes in currency exchange rates and exchange control regulations.
- A Fund may incur transaction costs in connection with conversions between
various currencies.
Under normal circumstances, the Funds do not plan to hedge against the risks of
variation in currency exchange rates relative to the U.S. dollar. As a result,
the value of securities denominated in foreign currencies can change
significantly when foreign currencies strengthen or weaken relative to the U.S.
dollar.
SWAP COUNTERPARTY CREDIT RISK (INTERNATIONAL FUNDS) - The Funds 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 Funds 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. A Fund will not enter into any swap 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
ordi-
<PAGE>
PROSPECTUS 67
nary portfolio securities transactions. Swap agreements may be considered to
be illiquid. A Fund bears the risk of loss of the amount expected to be received
under a swap agreement in the event of the default or bankruptcy of a swap
agreement counterparty.
GEOGRAPHIC CONCENTRATION IN JAPAN RISK (LARGE-CAP JAPAN FUND) - Political and
economic conditions and changes in regulatory, tax or economic policy in Japan
could significantly affect the market value of Japanese securities. Economic
growth is dependent on international trade, reform of the financial services
sector and other troubled sectors, and consistent government policy. The risk of
concentrating the Large-Cap Japan Fund's investments in a single country - Japan
- is that the country's economy will perform poorly as a whole, and the Fund
will be negatively impacted by that poor performance.
FUTURES AND OPTIONS RISK (ALL FUNDS EXCEPT U.S. GOVERNMENT MONEY MARKET FUND) -
The Funds will invest a percentage of their assets in futures and options
contracts. The Funds may use futures contracts and related options for bona fide
hedging purposes to offset changes in the value of securities held or expected
to be acquired. They may also be used to gain exposure to a particular market or
instrument, to create a synthetic money market position, and for certain other
tax-related purposes. The Funds will only enter into futures contracts traded on
a national futures exchange or board of trade. Futures and options contracts are
described in more detail below:
FUTURES CONTRACTS - Futures contracts and options on futures contracts
provide for the future sale by one party and purchase by another party of a
specified amount of a specific security at a specified future time and at a
specified price. An option on a futures contract gives the purchaser the
right, in exchange for a premium, to assume a position in a futures contract
at a specified exercise price during the term of the option. Index futures
are futures contracts for various indices that are traded on registered
securities exchanges.
OPTIONS - The buyer of an option acquires the right to buy (a call option) or
sell (a put option) a certain quantity of a security (the underlying
security) or instrument at a certain price up to a specified point in time.
The seller or writer of an option is obligated to sell (a call option) or buy
(a put option) the underlying security. When writing (selling) call options
on securities, the Funds may cover its position by owning the underlying
security on which the option is written or by owning a call option on the
underlying security. Alternatively, the Funds may cover its position by
maintaining in a segregated account cash or liquid securities equal in value
to the exercise price of the call option written by the Funds.
The risks associated with the Funds' use of futures and options contracts
include:
- A Fund experiencing losses over certain ranges in the market that exceed
losses experienced by a Fund that does not use futures contracts and
options.
- There may be an imperfect correlation between the changes in market value
of the securities held by a Fund and the prices of futures and options on
futures.
<PAGE>
68
- Although the Funds will only purchase exchange-traded futures, due to
market conditions there may not always be a liquid secondary market for a
futures contract or option. As a result, the Funds may be unable to close
out their futures contracts at a time that is advantageous.
- Trading restrictions or limitations may be imposed by an exchange, and
government regulations may restrict trading in futures contracts and
options.
- Because option premiums paid or received by the Funds are small in
relation to the market value of the investments underlying the options,
buying and selling put and call options can be more speculative than
investing directly in securities.
PORTFOLIO TURNOVER RATE RISK (ALL FUNDS EXCEPT U.S. GOVERNMENT MONEY MARKET
FUND) - The Trust anticipates that investors that are part of a tactical
asset-allocation strategy will frequently redeem or exchange shares of a Fund,
which will cause that Fund to experience high portfolio turnover. A higher
portfolio turnover rate may result in a Fund paying higher levels of transaction
costs and generating greater tax liabilities for shareholders.
EARLY CLOSING RISK (OTC, ARKTOS, AND SECTOR FUNDS) - The normal close of trading
of securities listed on the National Association of Securities Dealers Automated
Quotations system ("NASDAQ") and the New York Stock Exchange ("NYSE") is 4:00
p.m., Eastern Time. Unanticipated early closings may result in a Fund being
unable to sell or buy securities on that day. If an exchange closes early on a
day when one or more of the Funds needs to execute a high volume of securities
trades late in a trading day, a Fund might incur substantial trading losses.
SHORT SALES RISK (URSA, ARKTOS, AND JUNO FUNDS) - Short sales are transactions
in which a Fund sells a security it does not own. To complete the transaction,
the Fund must borrow the security to make delivery to the buyer. The Fund is
then obligated to replace the security borrowed by purchasing the security at
the market price at the time of replacement. The price at such time may be
higher or lower than the price at which the security was sold by the Fund. If
the underlying security goes down in price between the time the Fund sells the
security and buys it back, the Fund will realize a gain on the transaction.
Conversely, if the underlying security goes up in price during the period, the
Fund will realize a loss on the transaction. The risk of such price increases is
the principal risk of engaging in short sales.
SMALL ISSUER RISK (BIOTECHNOLOGY, ELECTRONICS, AND INTERNET FUNDS) - Small and
medium capitalization companies may be more vulnerable than larger, more
established organizations to adverse business or economic developments. In
particular, small capitalization companies may have limited product lines,
markets, and financial resources and may be dependent upon a relatively small
management group. These securities may trade over-the-counter or listed on an
exchange and may or may not pay dividends.
<PAGE>
PROSPECTUS 69
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.
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. Rydex, at its discretion, may accept lesser
amounts in certain circumstances.
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
JOINT ROLLOVER IRA
GIFT OR TRANSFER TO MINOR (UGMA/UTMA) SEP IRA
TRUST ROTH IRA APPLICATION
TRUSTEE/CUSTODIAL ROTH IRA
CORPORATION ROTH CONVERSION IRA
PARTNERSHIP 403 (B) APPLICATION
SELF-DIRECTED RETIREMENT PLANS 403 (B)
QUALIFIED RETIREMENT
PLAN APPLICATION
MONEY PURCHASE PLAN
PROFIT SHARING PLAN
</TABLE>
<PAGE>
70
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 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.
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
Tips to Ensure Successful Completion of your IRA Account Application
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, 401k, 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.
<PAGE>
PROSPECTUS 71
IRA DIRECT ROLLOVER AND IRA TRANSFER REQUEST FORMS
- Include all of 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
transferring
- Call your current custodian to determine if they require a signature
guarantee
SIGNATURE GUARANTEES HELP TO PROTECT YOUR ACCOUNT AGAINST FRAUD. YOU CAN OBTAIN
A SIGNATURE GUARANTEE AT MOST BANKS AND BROKERAGES HOUSES.
A NOTARY PUBLIC CANNOT PROVIDE A SIGNATURE GUARANTEE.
BUYING FUND SHARES
--------------------------------------------------------------------------------
Shares of the Rydex Funds are offered continuously. Investors may buy shares on
any day that the NYSE is open for business and, for the International Funds, the
index underlying a Fund's benchmark is published (a "Business Day"). You may buy
shares by any of the methods described below:
BY MAIL
INITIAL PURCHASE
Complete the account application that corresponds to the type of account you are
opening.
- Make sure to indicate your initial investment selection.
- Make sure your investment meets the Minimum Investment Requirement.
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.
SUBSEQUENT PURCHASES
Complete the "deposit ticket" included on your confirmation statement or send a
letter of instruction that includes your name, shareholder account number and
the Fund designation for your investment.
- There are no minimum requirements for subsequent 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.
<PAGE>
72
Mail your application (for initial purchases) or your deposit ticket or other
instructions (for subsequent purchases) and check to:
Rydex Series Funds
Attn: Ops. Dept
6116 Executive Blvd, Suite 400
Rockville, MD 20852
BY WIRE
Obtain an account number by completing the account application that corresponds
to the type of account you are opening and faxing or mailing it to Rydex.
Rydex's fax number is (301) 468-8585. Then wire funds using the instructions
below.
- Make sure your investment meets the Minimum Investment Requirement.
- There are no minimum requirements for subsequent purchases.
To obtain "same-day credit" (to get that Business Day's share price) for your
purchase, you MUST call Rydex at (800) 820-0888 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 IN YOUR WIRE INSTRUCTIONS, 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.
<PAGE>
PROSPECTUS 73
GENERAL INFORMATION ABOUT BUYING SHARES
Initial applications and investments, as well as subsequent investments, in the
Funds must be received by the Funds' transfer agent, on any Business Day, before
the cutoff times (shown below) to be processed at that Business Day's NAV. The
cutoff times allow the Funds' 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.
<TABLE>
<CAPTION>
FUND CUT-OFF TIME (ET)
----------------------------------------------------------------------
<S> <C>
U.S. GOVERNMENT MONEY MARKET 1:00 P.M. AND 4:00 P.M.
ALL SECTOR FUNDS 3:30 P.M.*
NOVA 3:45 P.M.
URSA 3:45 P.M.
OTC 3:45 P.M.
ARKTOS 3:45 P.M.
INTERNATIONAL FUNDS 3:45 P.M.
JUNO 2:45 P.M.
U.S. GOVERNMENT BOND 2:45 P.M.
</TABLE>
*FOR INTERNET TRANSACTIONS IN THE SECTOR FUNDS, THE CUT-OFF TIME IS 3:45 P.M.
SEE ELECTRONIC (WEB) TRANSACTIONS.
You may also make investments in the Funds through intermediaries or securities
dealers who have the responsibility to transmit orders promptly. Intermediaries
may charge fees for services provided in connection with buying, selling or
exchanging shares. Each intermediary also may have its own rules about share
transactions and may have earlier cutoff times for purchases. For more
information about how to purchase shares through an intermediary, you should
contact that intermediary directly.
<PAGE>
74
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:
HOW TO REDEEM BY LETTER
Send a letter of instruction that includes:
- Your name
- Your account number
- The Fund name
- The dollar amount or number of shares you would like to sell
- Method of payment (Check or Wire)
- Signature of account owner(s)
INDICATE WHETHER OR NOT YOU WOULD LIKE TAXES WITHHELD FROM YOUR DISTRIBUTION
(RETIREMENT ACCOUNTS ONLY).
You may send a redemption request by:
- Mail - Fax
Rydex Series Funds (301) 468-8585
Attn: Ops. Dept
6116 Executive Blvd, Suite 400
Rockville, MD 20852
HOW TO REDEEM BY PHONE
- Call Rydex at (800) 820-0888 or (301) 468-8520 prior to the above specified
cut-off times. Rydex is open on each Business Day from 8:30 a.m. to 5:30
p.m., Eastern Time.
- Give the representative the following information:
- Your name
- Your account number
- The Fund name
- The dollar amount or number of shares you would like to sell
- Method of payment (check or wire)
THE REPRESENTATIVE WILL PROVIDE YOU A CONFIRMATION NUMBER FOR YOUR REDEMPTION.
PLEASE RETAIN IT FOR YOUR RECORDS.
<PAGE>
PROSPECTUS 75
THINGS TO KNOW
- You may redeem all or any portion of your Fund shares at the next determined
NAV after the transfer agent processes and the Fund receives your redemption
request.
- 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. All redemptions from IRA, Roth IRA and
403(b) Accounts must be in writing.
- A redemption may not reduce your total account balance below the minimum
account requirement.
- All redemptions will be mailed to the address of record or wired to the
account of record.
- If you request payment of 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.
- REDEMPTION REQUESTS MAY ONLY BE MADE BY THE REGISTERED OWNER OR BY AN
INDIVIDUAL WHO HAS BEEN GIVEN WRITTEN AUTHORIZATION (BY THE OWNER) TO TRADE
THE ACCOUNT.
- Your redemption proceeds normally will be sent within five Business Days of
the transfer agent receiving your request.
FOR INVESTMENTS 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.
<PAGE>
76
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 SEC.
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.
<PAGE>
PROSPECTUS 77
- 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 below will be processed and communicated to the
Funds in time for that Business 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
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.
For most Rydex Funds, NAV is calculated each Business Day after the close of the
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 CBOT (normally 3:00 p.m., Eastern Time). The NAV of the U.S.
Government Money Market Fund is determined twice each Business Day first at 1:00
p.m., Eastern Time and again at 4:00 p.m., Eastern Time. To receive the current
Business Day's dividend, the transfer agent must receive your purchase order for
shares of the U.S. Government Money Market Fund before 1:00 p.m., Eastern Time.
The International Funds value their assets using procedures approved by the
Board of Trustees because of the time difference between the close of the
relevant foreign exchanges and the time the International Funds price their
shares at the close of the NYSE.
<PAGE>
78
As such, the value assigned to an International Fund's securities may not be the
quoted or published prices of those securities on their primary markets or
exchanges. When calculating the NAV of the International Funds, this procedure
is susceptible to the unavoidable risk that the valuation may be higher or lower
than the price at which the securities might actually trade if their relevant
foreign exchanges were open.
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.
<PAGE>
PROSPECTUS 79
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
intermediaries 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.
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 all communications (such as trade confirmations,
prospectuses and shareholder reports, etc.) from the Funds 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.
<PAGE>
80
- $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 International Funds have adopted a Distribution Plan (the "Plan") that
allows the Funds to pay distribution fees to Rydex Distributors, Inc. (the
"Distributor") and other firms that provide distribution services ("Service
Providers"). If a Service Provider provides distribution services, the Funds
will pay distribution fees to the Distributor at an annual rate not to exceed
.25% of average daily net assets, pursuant to Rule 12b-1 of the Investment
Company Act of 1940. 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 and DISTRIBUTIONS
Income dividends, if any, are paid at least annually by each of the Funds,
except the U.S. Government Money Market and Bond Funds, which declare dividends
daily and pay them monthly. If you own Fund shares on a Fund's record date, you
will be entitled to receive the dividend. The Funds may declare and pay
dividends on the same date. The Funds make distributions of capital gains, if
any, at least annually. The Trust, however, may declare a special capital gains
distribution if the Trustees believe that such a distribution would be in the
best interest of the shareholders of a Fund.
DIVIDEND 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.
<PAGE>
PROSPECTUS 81
TAX INFORMATION
The following is a summary of some important tax issues that affect the Funds
and their shareholders. The summary is based on current tax laws, which may be
changed by legislative, judicial or administrative action. The Trust has not
tried to present a detailed explanation of the tax treatment of the Funds, or
the tax consequences of an investment in the Funds. MORE INFORMATION ABOUT TAXES
IS LOCATED IN THE STATEMENT OF ADDITIONAL INFORMATION (SAI). YOU ARE URGED TO
CONSULT YOUR TAX ADVISOR REGARDING SPECIFIC QUESTIONS AS TO FEDERAL, STATE AND
LOCAL INCOME TAXES.
TAX STATUS OF EACH FUND
Each Fund is treated as a separate entity for federal tax purposes, and intends
to qualify for the special tax treatment afforded regulated investment
companies. As long as a Fund qualifies as a regulated investment company, it
pays no federal income tax on the earnings it distributes to shareholders.
TAX STATUS OF DISTRIBUTIONS
- Each Fund will distribute substantially all of its income. THE INCOME
DIVIDENDS YOU RECEIVE FROM THE FUNDS WILL BE TAXED AS ORDINARY INCOME
WHETHER YOU RECEIVE THE DIVIDENDS IN CASH OR IN ADDITIONAL SHARES.
- Corporate shareholders may be entitled to a dividends-received deduction
for the portion of dividends they receive that are attributable to
dividends received by a fund from U.S. corporations.
- Capital gains distributions will result from gains on the sale or exchange
of capital assets held for more than one year.
- Distributions paid in January but declared by a Fund in October, November
or December of the previous year may be taxable to you in the previous
year.
TAX STATUS OF SHARE TRANSACTIONS
EACH SALE, EXCHANGE, OR REDEMPTION OF FUND SHARES IS A TAXABLE EVENT TO YOU. You
should consider the tax consequences of any redemption or exchange before making
such a request, especially with respect to redemptions, if you invest in the
Funds through a tax-qualified retirement plan.
STATE TAX CONSIDERATIONS
A Fund is not liable for any income or franchise tax in Delaware as long as it
qualifies as a regulated investment company for federal income tax purposes. 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.
<PAGE>
82
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 Funds and
continuously reviews, supervises, and administers each Fund's investment
program. The Trustees of the Trust supervise the Advisor and establish policies
that the Advisor must follow in its day-to-day management activities. Under an
investment advisory agreement between the Trust and the Advisor, the Funds paid
the Advisor a fee at an annualized rate for the fiscal year period ended March
31, 2000, based on the average daily net assets for each Fund, as set forth
below:
<TABLE>
<CAPTION>
FUND ADVISORY FEE
-------------------------------------------------------------------
<S> <C>
NOVA .75%
URSA .90%
OTC .75%
ARKTOS .90%
U.S. GOVERNMENT BOND .50%
JUNO .90%
SECTOR FUNDS (EXCEPT PRECIOUS METALS) .85%
PRECIOUS METALS .75%
U.S. GOVERNMENT MONEY MARKET .50%
INTERNATIONAL FUNDS* .90%
</TABLE>
The Advisor bears all of its own costs associated with providing these advisory
services and the expenses of the Trustees that 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 INTERNATIONAL FUNDS HAD NOT COMMENCED OPERATIONS AS OF MARCH 31, 2000.
FIGURE REPRESENTS CONTRACTUAL FEE AMOUNT FOR CURRENT FISCAL YEAR.
<PAGE>
PROSPECTUS 83
<TABLE>
<CAPTION>
PORTFOLIO MANAGERS
FUND MANAGER BIOGRAPHY
----------------------------------------------------------------------------------
<S> <C> <C>
OTC Mike Byrum, CFA Part of the original Rydex investment
team when the Advisor was founded in
1993. He was named Vice President in
1998. Prior to joining Rydex he was
associated in a brokerage capacity with
Money Management Associates, the
investment advisor to the Rushmore
Funds.
NOVA Tom Michael Joined Rydex in 1994 as the portfolio
manager of Nova. He was named Senior
Portfolio Manager in 1999. Prior to
joining Rydex he was a Derivatives
Strategist at Cedar Street Investment
Management in Chicago, Ill. He also
served as Director of Research at
Chicago based Chronometrics.
U.S. GOVERNMENT Anne Ruff Joined Rydex in 1996 as the portfolio
MONEY MARKET manager for the U.S. Government Money
U.S. GOVERNMENT Market Fund. She is also editor of Rydex
BOND Today, a newsletter for investment
advisors. Prior to joining Rydex she
served as the Assistant Vice President
and Portfolio Manager of a fixed-income
portfolio for United Services Life
Insurance Companies.
JUNO Team Managed Each of these Funds is managed by a team
URSA of investment professionals and no one
ARKTOS person is responsible for making
investment decisions for a Fund.
INTERNATIONAL FUNDS Team Managed Each of the International Funds is
managed by a team of investment
professionals and no one person is
responsible for making investment
decisions. Chuck Tennes has group
leadership over the International Funds.
Chuck joined Rydex in 1999 as senior
portfolio manager with extensive
experience in international finance. He
served as Chief Investment Officer at
GIT Investment Funds in Arlington,
Virginia where he managed an emerging
markets equity fund that invested in
more than 30 countries.
SECTOR FUNDS Team Managed Each of the Sector Funds is managed by a
team of investment professionals and no
one person is responsible for making
investment decisions for a Fund. Dan
Gillespie has group leadership over the
17 Rydex Sector Funds management teams.
Dan joined Rydex in 1997 and was named
Senior Portfolio Manager in 1998. Prior
to joining Rydex, he was a portfolio
manager at GIT Investment Funds in
Arlington, Virginia and at Rushmore
Funds in Bethesda, Maryland.
</TABLE>
<PAGE>
84
NOVA FUND
FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout Each Period)
The financial highlights table is intended to help you understand the Fund's
financial performance for the past five years. Certain information reflects
financial results for a single Nova Fund Investor Class Share. The total returns
in the table represent the rate that an investor would have earned (or lost) on
an investment in the Fund (assuming reinvestment of all dividends and
distributions). This information has been audited by Deloitte & Touche LLP,
whose report, along with the financial statements and related notes, appears in
the Trust's 2000 Annual Report. The annual report is available by telephoning us
at (800) 820-0888 or (301) 468-8520. The Annual Report is incorporated by
reference in the SAI.
<TABLE>
<CAPTION>
YEAR YEAR YEAR PERIOD YEAR
ENDED ENDED ENDED ENDED ENDED
MARCH 31, MARCH 31, MARCH 31, MARCH 31, JUNE 30,
2000 1999 1998 ***1997 1996
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:+
NET ASSET VALUE--
BEGINNING OF PERIOD $ 34.87 $ 29.82 $ 17.89 $ 15.68 $ 11.81
---------- ---------- --------- --------- ---------
Net Investment Income .47 .45 .59 .35 .56
Net Realized and Unrealized
Gains on Securities 6.60 5.01 11.39 2.19 3.31
---------- ---------- --------- --------- ---------
Net Increase in Net Asset Value
Resulting from Operations 7.07 5.46 11.98 2.54 3.87
Distributions to Shareholders from:
Net Investment Income (.01) (.41) -- -- --
Net Realized Capital Gain -- -- (.05) (.33) --
---------- ---------- --------- --------- ---------
Net Increase in Net Asset Value 7.06 5.05 11.93 2.21 3.87
---------- ---------- --------- --------- ---------
NET ASSET VALUE--END OF PERIOD $ 41.93 $ 34.87 $ 29.82 $ 17.89 $ 15.68
========== ========== ========= ========= =========
TOTAL INVESTMENT RETURN 20.29% 18.54% 67.02% 20.92%* 32.77%
RATIOS TO AVERAGE NET ASSETS
Gross Expenses 1.18% 1.19% 1.13% 1.19%*
Net Expenses 1.18% 1.19% 1.11% 1.16%* 1.31%
Net Investment Income 1.26% 1.47% 2.42% 2.69%* 3.14%
SUPPLEMENTARY DATA:
Portfolio Turnover Rate** 311% 445% -- -- --
Net Assets, End of Year
(000's omitted) $ 748,147 $ 655,275 $ 986,247 $ 181,930 $ 224,541
----------------------------------------------------------------------------------------------------------
</TABLE>
+ CALCULATED USING THE AVERAGE DAILY SHARES OUTSTANDING FOR THE YEAR.
* ANNUALIZED
** PORTFOLIO TURNOVER RATIO IS CALCULATED WITHOUT REGARD TO SHORT-TERM
SECURITIES HAVING A MATURITY OF LESS THAN ONE YEAR. FOR THE YEARS ENDED MARCH
31, 1998 AND PRIOR, THE NOVA FUND TYPICALLY HELD MOST OF ITS INVESTMENTS IN
OPTIONS AND FUTURES CONTRACTS WHICH ARE DEEMED SHORT-TERM SECURITIES.
*** DURING 1997, THE TRUST CHANGED ITS FISCAL YEAR END FROM JUNE 30 TO MARCH 31.
ACCORDINGLY, THE PERIOD ENDED MARCH 31, 1997 REFLECTS NINE MONTHS OF ACTIVITY.
<PAGE>
PROSPECTUS 85
URSA FUND
FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout Each Period)
The financial highlights table is intended to help you understand the Fund's
financial performance for the past five years. Certain information reflects
financial results for a single Ursa Fund Investor Class Share. The total returns
in the table represent the rate that an investor would have earned (or lost) on
an investment in the Fund (assuming reinvestment of all dividends and
distributions). This information has been audited by Deloitte & Touche LLP,
whose report, along with the financial statements and related notes, appears in
the Trust's 2000 Annual Report. The 2000 Annual Report is available by
telephoning us at (800) 820-0888 or (301) 468-8520. The Annual Report is
incorporated by reference in the SAI.
<TABLE>
<CAPTION>
YEAR YEAR YEAR PERIOD YEAR
ENDED ENDED ENDED ENDED ENDED
MARCH 31, MARCH 31, MARCH 31, MARCH 31, JUNE 30,
2000 1999 1998++ ***1997++ 1996++
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:+
NET ASSET VALUE--
BEGINNING OF PERIOD $ 8.66 $ 9.92 $ 14.04 $ 15.10 $ 17.58
----------- ----------- ----------- ----------- -----------
Net Investment Income .32 .25 .38 .34 .60
Net Realized and Unrealized
Losses on Securities (1.24) (1.48) (4.46) (1.36) (3.08)
----------- ----------- ----------- ----------- -----------
Net Decrease in Net Asset Value
Resulting from Operations (.92) (1.23) (4.08) (1.02) (2.48)
Distributions to Shareholders from:
Net Investment Income (.06) (.03) (.04) (.04) --
----------- ----------- ----------- ----------- -----------
Net Decrease in Net Asset Value (.98) (1.26) (4.12) (1.06) (2.48)
----------- ----------- ----------- ----------- -----------
NET ASSET VALUE--END OF PERIOD $ 7.68 $ 8.66 $ 9.92 $ 14.04 $ 15.10
=========== =========== =========== =========== ===========
TOTAL INVESTMENT RETURN (10.64)% (12.47)% (29.06)% (8.98)%* (14.11)%
RATIOS TO AVERAGE NET ASSETS
Gross Expenses 1.32% 1.39% 1.36% 1.36%*
Net Expenses 1.31% 1.38% 1.34% 1.34%* 1.39%
Net Investment Income 3.81% 3.29% 3.18% 3.21%* 3.38%
SUPPLEMENTARY DATA:
Portfolio Turnover Rate** -- -- -- -- --
Net Assets, End of Year
(000's omitted) $ 288,218 $ 482,340 $ 254,225 $ 582,288 $ 192,553
---------------------------------------------------------------------------------------------------------------------------
</TABLE>
+ CALCULATED USING THE AVERAGE DAILY SHARES OUTSTANDING FOR THE YEAR.
++ PER SHARE AMOUNTS FOR THE PERIODS ENDED JUNE 30, 1995 THROUGH MARCH 31, 1998
HAVE BEEN RESTATED TO REFLECT A 1:2 REVERSE STOCK SPLIT EFFECTIVE AUGUST 14,
1998.
* ANNUALIZED
** PORTFOLIO TURNOVER RATIO IS CALCULATED WITHOUT REGARD TO SHORT-TERM
SECURITIES HAVING A MATURITY OF LESS THAN ONE YEAR. THE URSA FUND TYPICALLY
HOLDS MOST OF ITS INVESTMENTS IN OPTIONS AND FUTURES CONTRACTS WHICH ARE DEEMED
SHORT-TERM SECURITIES.
*** DURING 1997, THE TRUST CHANGED ITS FISCAL YEAR END FROM JUNE 30 TO MARCH 31.
ACCORDINGLY, THE PERIOD ENDED MARCH 31, 1997 REFLECTS NINE MONTHS OF ACTIVITY.
<PAGE>
86
OTC FUND
FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout Each Period)
The financial highlights table is intended to help you understand the Fund's
financial performance for the past five years. Certain information reflects
financial results for a single OTC Fund Investor Class Share. The total returns
in the table represent the rate that an investor would have earned (or lost) on
an investment in the Fund (assuming reinvestment of all dividends and
distributions). This information has been audited by Deloitte & Touche LLP,
whose report, along with the financial statements and related notes, appears in
the Trust's 2000 Annual Report. The 2000 Annual Report is available by
telephoning us at (800) 820-0888 or (301) 468-8520. The Annual Report is
incorporated by reference in the SAI.
<TABLE>
<CAPTION>
YEAR YEAR YEAR PERIOD YEAR
ENDED ENDED ENDED ENDED ENDED
MARCH 31, MARCH 31, MARCH 31, MARCH 31, JUNE 30,
2000 1999 1998 ***1997 1996
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:+
NET ASSET VALUE--
BEGINNING OF PERIOD $ 47.70 $ 27.68 $ 17.93 $ 15.16 $ 12.22
------------- ------------- ----------- ---------- ----------
Net Investment Income (Loss) (.67) (.36) (.14) .01 .06
Net Realized and Unrealized
Gains on Securities 50.64 20.65 9.99 2.84 3.24
------------- ------------- ----------- ---------- ----------
Net Increase in Net Asset Value
Resulting from Operations 49.97 20.29 9.85 2.85 3.30
Distributions to Shareholders from:
Net Investment Income -- -- -- (.07) --
Net Realized Capital Gain (.47) (.27) (.10) (.01) (.36)
------------- ------------- ----------- ---------- ----------
Net Increase in Net Asset Value 49.50 20.02 9.75 2.77 2.94
------------- ------------- ----------- ---------- ----------
NET ASSET VALUE--END OF PERIOD $ 97.20 $ 47.70 $ 27.68 $ 17.93 $ 15.16
============= ============= =========== ========== ==========
TOTAL INVESTMENT RETURN 105.32% 73.73% 55.05% 24.77%* 26.44%
RATIOS TO AVERAGE NET ASSETS
Gross Expenses 1.15% 1.15% 1.13% 1.27%*
Net Expenses 1.15% 1.15% 1.13% 1.27%* 1.33%
Net Investment Income (Loss) (1.01)% (0.97)% (0.58)% 0.08%* 0.44%
SUPPLEMENTARY DATA:
Portfolio Turnover Rate** 385% 773% 972% 1,140% 2,579%
Net Assets, End of Year
(000's omitted) $3,762,540 $1,277,571 $ 449,794 $ 52,278 $ 48,716
-----------------------------------------------------------------------------------------------------------------------
</TABLE>
+CALCULATED USING THE AVERAGE DAILY SHARES OUTSTANDING FOR THE YEAR.
*ANNUALIZED
**PORTFOLIO TURNOVER RATIO IS CALCULATED WITHOUT REGARD TO SHORT-TERM SECURITIES
HAVING A MATURITY OF LESS THAN ONE YEAR.
*** DURING 1997, THE TRUST CHANGED ITS FISCAL YEAR END FROM JUNE 30 TO MARCH 31.
ACCORDINGLY, THE PERIOD ENDED MARCH 31, 1997 REFLECTS NINE MONTHS OF ACTIVITY.
<PAGE>
PROSPECTUS 87
ARKTOS FUND
FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout Each Period)
The financial highlights table is intended to help you understand the Fund's
financial performance for the period of the Fund's operations. Certain
information reflects financial results for a single Arktos Fund Investor Class
Share. The total returns in the table represent the rate that an investor would
have earned (or lost) on an investment in the Fund (assuming reinvestment of all
dividends and distributions). This information has been audited by Deloitte &
Touche LLP, whose report, along with the financial statements and related notes,
appears in the Trust's 2000 Annual Report. The 2000 Annual Report is available
by telephoning us at (800) 820-0888 or (301) 468-8520. The Annual Report is
incorporated by reference in the SAI.
<TABLE>
<CAPTION>
YEAR PERIOD
ENDED ENDED
MARCH 31, MARCH 31,
2000 1999*
----------------------------------------------------------------------------------------------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE:+
NET ASSET VALUE--
BEGINNING OF PERIOD $8.04 $15.00
------ ------
Net Investment Income .15 .13
Net Realized and Unrealized Losses on Securities (4.68) (7.08)
------ ------
Net Decrease in Net Asset Value Resulting from Operations (4.53) (6.95)
Distributions to Shareholders from Net Investment Income (.02) (.01)
------ ------
Net Decrease in Net Asset Value (4.55) (6.96)
------ ------
NET ASSET VALUE--END OF PERIOD $3.49 $8.04
====== ======
TOTAL INVESTMENT RETURN (56.39)% (46.35)%
RATIOS TO AVERAGE NET ASSETS
Gross Expenses 1.46% 1.38%**
Net Expenses 1.46% 1.37%**
Net Investment Income 2.67% 2.20%**
SUPPLEMENTARY DATA:
Portfolio Turnover Rate*** 1,157% 1,332%
Net Assets, End of Year
(000's omitted) $103,160 $118,622
---------------------------------------------------------------------------------------------------
</TABLE>
+CALCULATED USING THE AVERAGE DAILY SHARES OUTSTANDING FOR THE YEAR.
*COMMENCEMENT OF OPERATIONS: SEPTEMBER 3, 1998
**ANNUALIZED
***PORTFOLIO TURNOVER RATIO IS CALCULATED WITHOUT REGARD TO SHORT-TERM
SECURITIES HAVING A MATURITY OF LESS THAN ONE YEAR.
<PAGE>
88
U.S. GOVERNMENT BOND FUND
FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout Each Period)
The financial highlights table is intended to help you understand the Fund's
financial performance for the past five years. Certain information reflects
financial results for a single U.S. Government Bond Fund Investor Class Share.
The total returns in the table represent the rate that an investor would have
earned (or lost) on an investment in the Fund (assuming reinvestment of all
dividends and distributions). This information has been audited by Deloitte &
Touche LLP, whose report, along with the financial statements and related notes,
appears in the Trust's 2000 Annual Report. The 2000 Annual Report is available
by telephoning us at (800) 820-0888 or (301) 468-8520. The Annual Report is
incorporated by reference in the SAI.
<TABLE>
<CAPTION>
YEAR YEAR YEAR PERIOD YEAR
ENDED ENDED ENDED ENDED ENDED
MARCH 31, MARCH 31, MARCH 31, MARCH 31, JUNE 30,
2000 1999 1998 ***1997 1996
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:+
NET ASSET VALUE--
BEGINNING OF PERIOD $ 10.05 $ 10.04 $ 8.52 $ 8.97 $ 9.55
---------- ---------- ---------- --------- ----------
Net Investment Income .46 .42 .45 .34 .46
Net Realized and Unrealized
Gains (Losses) on Securities (.71) .02 1.50 (.45) (.45)
---------- ---------- ---------- --------- ----------
Net Increase (Decrease) in Net Asset
Value Resulting from Operations (.25) .44 1.95 (.11) .01
Distribution to Shareholders from:
Net Investment Income (.46) (.42) (.43) (.34) (.46)
Net Realized Capital Gain -- (.01) -- -- (.13)
---------- ---------- ---------- --------- ----------
Net Increase (Decrease) in
Net Asset Value (.71) .01 1.52 (.45) (.58)
---------- ---------- ---------- --------- ----------
Net Asset Value--End Of Period $ 9.34 $ 10.05 $ 10.04 $ 8.52 $ 8.97
========== ========== ========== ========= ==========
TOTAL INVESTMENT RETURN (2.26)% 4.24% 24.72% (0.46)%* (1.48)%
RATIOS TO AVERAGE NET ASSETS
Gross Expenses 0.93% 0.97% 1.13% 1.51%*
Net Expenses 0.92% 0.96% 1.11% 1.49%* 1.26%
Net Investment Income 5.01% 3.88% 4.65% 5.06%* 4.73%
SUPPLEMENTARY DATA:
Portfolio Turnover Rate** 890% 1,339% 1,496% 962% 780%
Net Assets, End of Year
(000's omitted) $ 28,105 $ 27,623 $ 20,508 $ 3,302 $ 18,331
--------------------------------------------------------------------------------------------------------------------------
</TABLE>
+ CALCULATED USING THE AVERAGE DAILY SHARES OUTSTANDING FOR THE YEAR.
* ANNUALIZED
** PORTFOLIO TURNOVER RATIO IS CALCULATED WITHOUT REGARD TO SHORT-TERM
SECURITIES HAVING A MATURITY OF LESS THAN ONE YEAR.
*** DURING 1997, THE TRUST CHANGED ITS FISCAL YEAR END FROM JUNE 30 TO MARCH 31.
ACCORDINGLY, THE PERIOD ENDED MARCH 31, 1997 REFLECTS NINE MONTHS OF ACTIVITY.
<PAGE>
PROSPECTUS 89
JUNO FUND
FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout Each Period)
The financial highlights table is intended to help you understand the Fund's
financial performance for the past five years. Certain information reflects
financial results for a single Juno Fund Investor Class Share. The total returns
in the table represent the rate that an investor would have earned (or lost) on
an investment in the Fund (assuming reinvestment of all dividends and
distributions). This information has been audited by Deloitte & Touche LLP,
whose report, along with the financial statements and related notes, appears in
the Trust's 2000 Annual Report. The 2000 Annual Report is available by
telephoning us at (800) 820-0888 or (301) 468-8520. The Annual Report is
incorporated by reference in the SAI.
<TABLE>
<CAPTION>
YEAR YEAR YEAR PERIOD YEAR
ENDED ENDED ENDED ENDED ENDED
MARCH 31, MARCH 31, MARCH 31, MARCH 31, JUNE 30,
2000 1999 1998 ****1997 1996
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:+
NET ASSET VALUE--
BEGINNING OF PERIOD $ 8.70 $ 8.65 9.69 $ 9.47 $ 9.08
--------- ---------- ---------- ---------- ----------
Net Investment Income .31 .27 .16 .25 .34
Net Realized and Unrealized
Gains (Losses) on Securities .04 (.20) (1.12) -- .05
--------- ---------- ---------- ---------- ----------
Net Increase (Decrease) in Net Asset
Value Resulting from Operations .35 .07 (.96) .25 .39
Distributions to Shareholders from
Net Investment Income (.05) (.02) (.08) (.03) --
--------- ---------- ---------- ---------- ----------
Net Increase (Decrease) in
Net Asset Value .30 .05 (1.04) .22 .39
--------- ---------- ---------- ---------- ----------
NET ASSET VALUE--END OF PERIOD $ 9.00 $ 8.70 $ 8.65 $ 9.69 $ 9.47
========= ========== ========== ========== ==========
TOTAL INVESTMENT RETURN 3.97% 0.78% (9.92)% 3.75%** 4.30%
RATIOS TO AVERAGE NET ASSETS
Gross Expenses 1.47% 1.57% 1.61% 1.60%**
Net Expenses 1.47% 1.56% 1.59% 1.58%** 1.64%
Net Investment Income 3.39% 3.25% 3.55% 3.51%** 3.63%
SUPPLEMENTARY DATA:
Portfolio Turnover Rate*** -- -- -- -- --
Net Assets, End of Year
(000's omitted) $ 9,941 $ 12,789 $ 12,887 $ 32,577 $ 18,860
------------------------------------------------------------------------------------------------------------------
</TABLE>
+ CALCULATED USING THE AVERAGE DAILY SHARES OUTSTANDING FOR THE YEAR.
* COMMENCEMENT OF OPERATIONS: MARCH 3, 1995.
** ANNUALIZED
*** PORTFOLIO TURNOVER RATIO IS CALCULATED WITHOUT REGARD TO SHORT-TERM
SECURITIES HAVING A MATURITY OF LESS THAN ONE YEAR. THE JUNO FUND TYPICALLY
HOLDS MOST OF ITS INVESTMENTS IN OPTIONS AND FUTURES CONTRACTS WHICH ARE DEEMED
SHORT-TERM SECURITIES.
**** DURING 1997, THE TRUST CHANGED ITS FISCAL YEAR END FROM JUNE 30 TO MARCH
31. ACCORDINGLY, THE PERIOD ENDED MARCH 31, 1997 REFLECTS NINE MONTHS OF
ACTIVITY.
<PAGE>
90
ENERGY FUND & FINANCIAL SERVICES FUND
FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout Each Period)
The financial highlights table is intended to help you understand each Fund's
financial performance for the period of each Fund's operations. Certain
information reflects financial results for a single Sector Fund Investor Class
Share. The total returns in the table represent the rate that an investor would
have earned (or lost) on an investment in each Fund (assuming reinvestment of
all dividends and distributions). This information has been audited by Deloitte
& Touche LLP, whose report, along with the financial statements and related
notes, appears in the Trust's 2000 Annual Report. The 2000 Annual Report is
available by telephoning us at (800) 820-0888 or (301) 468-8520. The Annual
Report is incorporated by reference in the SAI.
<TABLE>
<CAPTION>
FINANCIAL
ENERGY FUND SERVICES FUND
------------------------------------------------------------------------------------------------------------
YEAR PERIOD YEAR PERIOD
ENDED ENDED ENDED ENDED
MARCH 31, MARCH 31, MARCH 31, MARCH 31,
2000 1999* 2000 1999*
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:+
NET ASSET VALUE--
BEGINNING OF PERIOD $ 8.99 $ 10.00 $ 9.99 $ 10.00
---------- ---------- ----------- ----------
Net Investment Income (Loss) .08 .05 (.01) (.01)
Net Realized and Unrealized Gains (Losses)
on Securities 1.80 (1.06) (.49) 0.00
---------- ---------- ----------- ----------
Net Increase (Decrease) in Net Asset Value
Resulting From Operations 1.88 (1.01) (.50) (.01)
Distributions to Shareholders from
Net Realized Capital Gain -- -- (.01) --
---------- ---------- ----------- ----------
Net Increase (Decrease) in Net Asset Value 1.88 (1.01) (.51) (.01)
---------- ---------- ----------- ----------
NET ASSET VALUE--END OF PERIOD $ 10.87 $ 8.99 $ 9.48 $ 9.99
========== ========== =========== ==========
TOTAL INVESTMENT RETURN 20.91% (10.10)% (4.97)% (0.10)%
RATIOS TO AVERAGE NET ASSETS:
Gross Expenses 1.58% 1.62%** 1.72% 1.58%**
Net Expenses 1.57% 1.62%** 1.71% 1.57%**
Net Investment Income (Loss) 0.83% 0.69%** (0.15)% (0.07)%**
SUPPLEMENTARY DATA:
Portfolio Turnover Rate*** 2,854% 6,070% 2,770% 7,269%
Net Assets, End of Period
(000's omitted) $ 13,980 $ 17,442 $ 145,449 $ 22,165
------------------------------------------------------------------------------------------------------------
</TABLE>
+ CALCULATED USING THE AVERAGE DAILY SHARES OUTSTANDING FOR THE PERIOD.
* SINCE THE COMMENCEMENT OF OPERATIONS: APRIL 21, 1998--ENERGY FUND; APRIL 2,
1998--FINANCIAL SERVICES FUND.
** ANNUALIZED
*** PORTFOLIO TURNOVER RATE IS CALCULATED WITHOUT REGARD TO SHORT-TERM
SECURITIES HAVING A MATURITY OF LESS THAN ONE YEAR.
<PAGE>
PROSPECTUS 91
HEALTH CARE FUND & TECHNOLOGY FUND
FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout Each Period)
The financial highlights table is intended to help you understand each Fund's
financial performance for the period of each Fund's operations. Certain
information reflects financial results for a single Sector Fund Investor Class
Share. The total returns in the table represent the rate that an investor would
have earned (or lost) on an investment in each Fund (assuming reinvestment of
all dividends and distributions). This information has been audited by Deloitte
& Touche LLP, whose report, along with the financial statements and related
notes, appears in the Trust's 2000 Annual Report. The 2000 Annual Report is
available by telephoning us at (800) 820-0888 or (301) 468-8520. The Annual
Report is incorporated by reference in the SAI.
<TABLE>
<CAPTION>
HEALTH CARE FUND TECHNOLOGY FUND
------------------------------------------------------------------------------------------------------------------
YEAR PERIOD YEAR PERIOD
ENDED ENDED ENDED ENDED
MARCH 31, MARCH 31, MARCH 31, MARCH 31,
2000 1999* 2000 1999*
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:+
NET ASSET VALUE--
BEGINNING OF PERIOD $ 11.45 $ 10.00 $ 17.02 $ 10.00
---------- ---------- ---------- ----------
Net Investment Loss (.04) (.02) (.19) (.16)
Net Realized and Unrealized Gains (Losses)
on Securities (1.15) 1.47 14.76 7.18
---------- ---------- ---------- ----------
Net Increase (Decrease) in Net Asset Value
Resulting from Operations (1.19) 1.45 14.57 7.02
Distributions to Shareholders from
Net Realized Capital Gain (.01) -- -- --
---------- ---------- ---------- ----------
Net Increase (Decrease) in Net Asset Value (1.20) 1.45 14.57 7.02
---------- ---------- ---------- ----------
NET ASSET VALUE--END OF PERIOD $ 10.25 $ 11.45 $ 31.59 $ 17.02
========== ========== ========== ==========
TOTAL INVESTMENT RETURN (10.44)% 14.50% 85.61% 70.20%
RATIOS TO AVERAGE NET ASSETS:
Gross Expenses 1.41% 1.44%** 1.41% 1.39%**
Net Expenses 1.41% 1.43%** 1.40% 1.39%**
Net Investment Loss (0.36) (0.21)%** (0.85)% (1.23)%**
SUPPLEMENTARY DATA:
Portfolio Turnover Rate*** 4,850% 4,465% 4,929% 4,598%
Net Assets, End of Period
(000's omitted) $ 30,729 $ 14,016 $ 90,002 $ 24,400
------------------------------------------------------------------------------------------------------------------
</TABLE>
+ CALCULATED USING THE AVERAGE DAILY SHARES OUTSTANDING FOR THE PERIOD.
* SINCE THE COMMENCEMENT OF OPERATIONS: APRIL 17, 1998--HEALTH CARE FUND; APRIL
14, 1998--TECHNOLOGY FUND.
** ANNUALIZED
*** PORTFOLIO TURNOVER RATE IS CALCULATED WITHOUT REGARD TO SHORT-TERM
SECURITIES HAVING A MATURITY OF LESS THAN ONE YEAR.
<PAGE>
92
BASIC MATERIALS FUND & CONSUMER PRODUCTS FUND
FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout Each Period)
The financial highlights table is intended to help you understand each Fund's
financial performance for the period of each Fund's operations. Certain
information reflects financial results for a single Sector Fund Investor Class
Share. The total returns in the table represent the rate that an investor would
have earned (or lost) on an investment in each Fund (assuming reinvestment of
all dividends and distributions). This information has been audited by Deloitte
& Touche LLP, whose report, along with the financial statements and related
notes, appears in the Trust's 2000 Annual Report. The 2000 Annual Report is
available by telephoning us at (800) 820-0888 or (301) 468-8520. The Annual
Report is incorporated by reference in the SAI.
<TABLE>
<CAPTION>
BASIC CONSUMER
MATERIALS FUND PRODUCTS FUND
-----------------------------------------------------------------------------------------------------------
YEAR PERIOD YEAR PERIOD
ENDED ENDED ENDED ENDED
MARCH 31, MARCH 31, MARCH 31, MARCH 31,
2000 1999* 2000 1999*
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:+
NET ASSET VALUE--
BEGINNING OF PERIOD $ 7.75 $ 10.00 $ 9.71 $ 10.00
---------- --------- --------- ---------
Net Investment Income .20 -- .04 --
Net Realized and Unrealized Gains (Losses)
on Securities .02 (2.25) (1.84) (.29)
---------- --------- --------- ---------
Net Increase (Decrease) in Net Asset Value
Resulting from Operations .22 (2.25) (1.80) (.29)
Distributions to Shareholders from
Net Realized Capital Gain -- -- (.35) --
---------- --------- --------- ---------
Net Increase (Decrease) in Net Asset Value .22 (2.25) (2.15) (.29)
---------- --------- --------- ---------
NET ASSET VALUE--END OF PERIOD $ 7.97 $ 7.75 $ 7.56 $ 9.71
========== ========= ========= =========
TOTAL INVESTMENT RETURN 2.84% (22.50)% (19.20)% (2.90)%
RATIOS TO AVERAGE NET ASSETS:
Gross Expenses 1.54% 1.62%** 1.37% 1.55%**
Net Expenses 1.53% 1.61%** 1.36% 1.54%**
Net Investment Income (Loss) 2.21% (0.02)%** 0.49% (0.03)%**
SUPPLEMENTARY DATA:
Portfolio Turnover Rate*** 3,641% 5,704% 5,466% 1,255%
Net Assets, End of Period
(000's omitted) $ 16,851 $ 2,179 $ 9,181 $ 1,280
-----------------------------------------------------------------------------------------------------------
</TABLE>
+ CALCULATED USING THE AVERAGE DAILY SHARES OUTSTANDING FOR THE PERIOD.
* SINCE THE COMMENCEMENT OF OPERATIONS: APRIL 1, 1998--BASIC MATERIALS FUND;
JULY 6, 1998--CONSUMER PRODUCTS FUND.
** ANNUALIZED
*** PORTFOLIO TURNOVER RATE IS CALCULATED WITHOUT REGARD TO SHORT-TERM
SECURITIES HAVING A MATURITY OF LESS THAN ONE YEAR.
<PAGE>
PROSPECTUS 93
LEISURE FUND & RETAILING FUND
FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout Each Period)
The financial highlights table is intended to help you understand each Fund's
financial performance for the period of each Fund's operations. Certain
information reflects financial results for a single Sector Fund Investor Class
Share. The total returns in the table represent the rate that an investor would
have earned (or lost) on an investment in each Fund (assuming reinvestment of
all dividends and distributions). This information has been audited by Deloitte
& Touche LLP, whose report, along with the financial statements and related
notes, appears in the Trust's 2000 Annual Report. The 2000 Annual Report is
available by telephoning us at (800) 820-0888 or (301) 468-8520. The Annual
Report is incorporated by reference in the SAI.
<TABLE>
<CAPTION>
LEISURE FUND RETAILING FUND
--------------------------------------------------------------------------------------------------------------------------
YEAR PERIOD YEAR PERIOD
ENDED ENDED ENDED ENDED
MARCH 31, MARCH 31, MARCH 31, MARCH 31,
2000 1999* 2000 1999*
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:+
NET ASSET VALUE--
BEGINNING OF PERIOD $ 11.21 $ 10.00 $ 13.54 $ 10.00
--------- --------- ---------- ----------
Net Investment Income (Loss) .03 (.08) .02 (.10)
Net Realized and Unrealized Gains (Losses)
on Securities (.04) 1.29 (.23) 3.64
--------- --------- ---------- ----------
Net Increase (Decrease) in Net Asset Value
Resulting from Operations (.01) 1.21 (.21) 3.54
Distributions to Shareholders from
Net Realized Capital Gain (.10) -- (.11) --
--------- --------- ---------- ----------
Net Increase (Decrease) in Net Asset Value (.11) 1.21 (.32) 3.54
--------- --------- ---------- ----------
NET ASSET VALUE--END OF PERIOD $ 11.10 $ 11.21 $ 13.22 $ 13.54
========= ========= ========== ==========
TOTAL INVESTMENT RETURN (0.07)% 12.10% (1.51)% 35.40%
RATIOS TO AVERAGE NET ASSETS:
Gross Expenses 1.58% 1.59%** 1.44% 1.42%**
Net Expenses 1.58% 1.59%** 1.44% 1.42%**
Net Investment Income (Loss) 0.30% (0.76)%** 0.16% (0.81)%**
SUPPLEMENTARY DATA:
Portfolio Turnover Rate*** 5,734% 5,581% 2,537% 3,243%
Net Assets, End of Period
(000's omitted) $ 5,563 $ 4,796 $ 81,097 $ 45,219
--------------------------------------------------------------------------------------------------------------------------
</TABLE>
+ CALCULATED USING THE AVERAGE DAILY SHARES OUTSTANDING FOR THE PERIOD.
* SINCE THE COMMENCEMENT OF OPERATIONS: APRIL 1, 1998--LEISURE FUND AND
RETAILING FUND.
** ANNUALIZED
*** PORTFOLIO TURNOVER RATE IS CALCULATED WITHOUT REGARD TO SHORT-TERM
SECURITIES HAVING A MATURITY OF LESS THAN ONE YEAR.
<PAGE>
94
TELECOMMUNICATIONS FUND & TRANSPORTATION FUND
FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout Each Period)
The financial highlights table is intended to help you understand each Fund's
financial performance for the period of each Fund's operations. Certain
information reflects financial results for a single Sector Fund Investor Class
Share. The total returns in the table represent the rate that an investor would
have earned (or lost) on an investment in each Fund (assuming reinvestment of
all dividends and distributions). This information has been audited by Deloitte
& Touche LLP, whose report, along with the financial statements and related
notes, appears in the Trust's 2000 Annual Report. The 2000 Annual Report is
available by telephoning us at (800) 820-0888 or (301) 468-8520. The Annual
Report is incorporated by reference in the SAI.
<TABLE>
<CAPTION>
TELECOMMUNICATIONS TRANSPORTATION
FUND FUND
---------------------------------------------------------------------------------------------------------------
YEAR PERIOD YEAR PERIOD
ENDED ENDED ENDED ENDED
MARCH 31, MARCH 31, MARCH 31, MARCH 31,
2000 1999* 2000 1999*
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:+
NET ASSET VALUE--
BEGINNING OF PERIOD $ 13.03 $ 10.00 $ 7.99 $ 10.00
---------- ---------- ---------- ---------
Net Investment Loss (.10) (.04) (.07) (.03)
Net Realized and Unrealized Gains (Losses)
on Securities 7.47 3.07 (1.68) (1.98)
---------- ---------- ---------- ---------
Net Increase (Decrease) in Net Asset Value
Resulting from Operations 7.37 3.03 (1.75) (2.01)
Distributions to Shareholders from Net
Realized Capital Gain (.01) -- -- --
---------- ---------- ---------- ---------
Net Increase (Decrease) in Net Asset Value 7.36 3.03 (1.75) (2.01)
---------- ---------- ---------- ---------
NET ASSET VALUE--END OF PERIOD $ 20.39 $ 13.03 $ 6.24 $ 7.99
========== ========== ========== =========
TOTAL INVESTMENT RETURN 56.54% 30.30% (21.90)% (20.10)%
RATIOS TO AVERAGE NET ASSETS:
Gross Expenses 1.50% 1.56%** 1.97% 1.58%**
Net Expenses 1.49% 1.55%** 1.96% 1.58%**
Net Investment Loss (0.59)% (0.34)%** (0.92)% (0.36)%**
SUPPLEMENTARY DATA:
Portfolio Turnover Rate*** 1,555% 2,788% 1,970% 7,583%
Net Assets, End of Period
(000's omitted) $ 66,904 $ 12,300 $ 18,501 $ 3,014
---------------------------------------------------------------------------------------------------------------
</TABLE>
+ CALCULATED USING THE AVERAGE DAILY SHARES OUTSTANDING FOR THE PERIOD.
* SINCE THE COMMENCEMENT OF OPERATIONS: APRIL 1, 1998--TELECOMMUNICATIONS FUND;
APRIL 2, 1998--TRANSPORTATION FUND.
** ANNUALIZED
*** PORTFOLIO TURNOVER RATE IS CALCULATED WITHOUT REGARD TO SHORT-TERM
SECURITIES HAVING A MATURITY OF LESS THAN ONE YEAR.
<PAGE>
PROSPECTUS 95
ENERGY SERVICES FUND & BANKING FUND
FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout Each Period)
The financial highlights table is intended to help you understand each Fund's
financial performance for the period of each Fund's operations. Certain
information reflects financial results for a single Sector Fund Investor Class
Share. The total returns in the table represent the rate that an investor would
have earned (or lost) on an investment in each Fund (assuming reinvestment of
all dividends and distributions). This information has been audited by Deloitte
& Touche LLP, whose report, along with the financial statements and related
notes, appears in the Trust's 2000 Annual Report. The 2000 Annual Report is
available by telephoning us at (800) 820-0888 or (301) 468-8520. The Annual
Report is incorporated by reference in the SAI.
<TABLE>
<CAPTION>
ENERGY SERVICES FUND BANKING FUND
-------------------------------------------------------------------------------------------------
YEAR PERIOD YEAR PERIOD
ENDED ENDED ENDED ENDED
MARCH 31, MARCH 31, MARCH 31, MARCH 31,
2000 1999* 2000 1999*
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:+
NET ASSET VALUE--
BEGINNING OF PERIOD $6.02 $10.00 $ 8.77 $10.00
------ ------ ------ ------
Net Investment Income (Loss) (.06) (.07) .07 .01
Net Realized and Unrealized Gains (Losses)
on Securities 3.35 (3.91) (1.53) (1.24)
------ ------ ------ ------
Net Increase (Decrease) in Net Asset Value
Resulting from Operations 3.29 (3.98) (1.46) (1.23)
Distributions to Shareholders -- -- -- --
------ ------ ------ ------
Net Increase (Decrease) in Net Asset Value 3.29 (3.98) (1.46) (1.23)
------ ------ ------ ------
NET ASSET VALUE--END OF PERIOD $9.31 $6.02 $7.31 $8.77
====== ====== ====== ======
TOTAL INVESTMENT RETURN 54.65% (39.80)% (16.65)% (12.30)%
RATIOS TO AVERAGE NET ASSETS:
Gross Expenses 1.58% 1.58%** 1.58% 1.58%**
Net Expenses 1.57% 1.57%** 1.57% 1.57%**
Net Investment Income (Loss) (0.81)% (1.14)%** 0.87% 0.13%**
SUPPLEMENTARY DATA:
Portfolio Turnover Rate*** 1,794% 3,170% 3,829% 11,211%
Net Assets, End of Period
(000's omitted) $54,609 $74,135 $39,546 $7,827
-------------------------------------------------------------------------------------------------
</TABLE>
+ CALCULATED USING THE AVERAGE DAILY SHARES OUTSTANDING FOR THE PERIOD.
* SINCE THE COMMENCEMENT OF OPERATIONS: APRIL 1, 1998--ENERGY SERVICES FUND AND
BANKING FUND.
** ANNUALIZED
*** PORTFOLIO TURNOVER RATE IS CALCULATED WITHOUT REGARD TO SHORT-TERM
SECURITIES HAVING A MATURITY OF LESS THAN ONE YEAR.
<PAGE>
96
BIOTECHNOLOGY FUND & ELECTRONICS FUND
FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout Each Period)
The financial highlights table is intended to help you understand each Fund's
financial performance for the period of each Fund's operations. Certain
information reflects financial results for a single Sector Fund Investor Class
Share. The total returns in the table represent the rate that an investor would
have earned (or lost) on an investment in each Fund (assuming reinvestment of
all dividends and distributions). This information has been audited by Deloitte
& Touche LLP, whose report, along with the financial statements and related
notes, appears in the Trust's 2000 Annual Report. The 2000 Annual Report is
available by telephoning us at (800) 820-0888 or (301) 468-8520. The Annual
Report is incorporated by reference in the SAI.
<TABLE>
<CAPTION>
BIOTECHNOLOGY FUND ELECTRONICS FUND
-------------------------------------------------------------------------------------------------
YEAR PERIOD YEAR PERIOD
ENDED ENDED ENDED ENDED
MARCH 31, MARCH 31, MARCH 31, MARCH 31,
2000 1999* 2000 1999*
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:+
NET ASSET VALUE--
BEGINNING OF PERIOD $12.81 $10.00 $14.02 $10.00
------ ------ ------ ------
Net Investment Loss (.34) (.16) (.30) (.15)
Net Realized and Unrealized Gains on Securities 16.45 2.97 26.38 4.17
------ ------ ------ ------
Net Increase in Net Asset Value
Resulting from Operations 16.11 2.81 26.08 4.02
Distributions to Shareholders from Net
Realized Capital Gain (.04) -- -- --
------ ------ ------ ------
Net Increase in Net Asset Value 16.07 2.81 26.08 4.02
------ ------ ------ ------
NET ASSET VALUE--END OF PERIOD $28.88 $12.81 $40.10 $14.02
====== ====== ====== ======
TOTAL INVESTMENT RETURN 125.98% 28.10% 186.02% 40.20%
RATIOS TO AVERAGE NET ASSETS:
Gross Expenses 1.42% 1.56%** 1.29% 1.57%**
Net Expenses 1.41% 1.55%** 1.28% 1.56%**
Net Investment Loss (1.29)% (1.52)%** (1.14)% (1.23)%**
SUPPLEMENTARY DATA:
Portfolio Turnover Rate*** 699% 2,670% 1,162% 3,011%
Net Assets, End of Period
(000's omitted) $456,303 $38,205 $274,554 $12,814
---------------------------------------------------------------------------------------------------
</TABLE>
+ CALCULATED USING THE AVERAGE DAILY SHARES OUTSTANDING FOR THE PERIOD.
* SINCE THE COMMENCEMENT OF OPERATIONS: APRIL 1, 1998--BIOTECHNOLOGY FUND AND
ELECTRONICS FUND.
** ANNUALIZED
*** PORTFOLIO TURNOVER RATE IS CALCULATED WITHOUT REGARD TO SHORT-TERM
SECURITIES HAVING A MATURITY OF LESS THAN ONE YEAR.
<PAGE>
PROSPECTUS 97
PRECIOUS METALS FUND
FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout Each Period)
The financial highlights table is intended to help you understand the Fund's
financial performance for the past five years. Certain information reflects
financial results for a single Precious Metal Fund Investor Class Share. The
total returns in the table represent the rate that an investor would have earned
(or lost) on an investment in the Fund (assuming reinvestment of all dividends
and distributions). This information has been audited by Deloitte & Touche LLP,
whose report, along with the financial statements and related notes, appears in
the Trust's 2000 Annual Report. The 2000 Annual Report is available by
telephoning us at (800) 820-0888 or (301) 468-8520. The Annual Report is
incorporated by reference in the SAI.
<TABLE>
<CAPTION>
YEAR PERIOD YEAR PERIOD YEAR
ENDED ENDED ENDED ENDED ENDED
MARCH 31, MARCH 31, MARCH 31, MARCH 31, JUNE 30,
2000 1999 1998 ***1997 1996
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:
NET ASSET VALUE--
BEGINNING OF PERIOD $4.19 $5.82 $7.64 $9.05 $8.73
------ ------ ------ ------ ------
Net Investment Income (Loss)+ (.02) (.03) -- -- --
Net Realized and Unrealized
Gains (Losses) on Securities (.41) (1.60) (1.82) (1.41) .32
------ ------ ------ ------ ------
Net Increase (Decrease) in Net Asset
Value Resulting from Operations (.43) (1.63) (1.82) (1.41) .32
Distributions to Shareholders from
Net Investment Income -- -- -- -- --
------ ------ ------ ------ ------
Net Increase (Decrease) in
Net Asset Value (.43) (1.63) (1.82) (1.41) .32
------ ------ ------ ------ ------
NET ASSET VALUE--END OF PERIOD $3.76 $4.19 $5.82 $7.64 $9.05
====== ====== ====== ====== ======
TOTAL INVESTMENT RETURN (10.26)% (28.01)% (23.82)% (20.77)%* 3.67%
RATIOS TO AVERAGE NET ASSETS
Gross Expenses 1.23% 1.37% 1.42% 1.49%*
Net Expenses 1.23% 1.36% 1.41% 1.45%* 1.33%
Net Investment Income (Loss) (0.34)% (0.69)% 0.05% 0.00%* (0.01)%
SUPPLEMENTARY DATA:
Portfolio Turnover Rate** 1,004% 1,191% 752% 743% 1,036%
Net Assets, End of Year
(000's omitted) $37,780 $26,823 $34,538 $23,680 $36,574
--------------------------------------------------------------------------------------------------------------
</TABLE>
+ CALCULATED USING THE AVERAGE DAILY SHARES OUTSTANDING FOR THE YEAR.
* ANNUALIZED
** PORTFOLIO TURNOVER RATE IS CALCULATED WITHOUT REGARD TO SHORT-TERM SECURITIES
HAVING A MATURITY OF LESS THAN ONE YEAR.
*** DURING 1997, THE TRUST CHANGED ITS FISCAL YEAR END FROM JUNE 30 TO MARCH 31.
ACCORDINGLY, THE PERIOD ENDED MARCH 31, 1997 REFLECTS NINE MONTHS OF ACTIVITY.
<PAGE>
98
U.S. GOVERNMENT MONEY MARKET FUND
FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout Each Period)
The financial highlights table is intended to help you understand the Fund's
financial performance for the past five years. Certain information reflects
financial results for a single U.S. Money Market Fund Investor Class Share. The
total returns in the table represent the rate that an investor would have earned
(or lost) on an investment in the Fund (assuming reinvestment of all dividends
and distributions). This information has been audited by Deloitte & Touche LLP,
whose report, along with the financial statements and related notes, appears in
the Trust's 2000 Annual Report. The 2000 Annual Report is available by
telephoning us at (800)820-0888 or (301) 468-8520. The Annual Report is
incorporated by reference in the SAI.
<TABLE>
<CAPTION>
YEAR YEAR YEAR PERIOD YEAR
ENDED ENDED ENDED ENDED ENDED
MARCH 31, MARCH 31, MARCH 31, MARCH 31, JUNE 30,
2000 1999 1998 **1997 1996
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:+
NET ASSET VALUE--
BEGINNING OF PERIOD $1.00 $1.00 $1.00 $1.00 $1.00
------ ------ ------ ------ ------
Net Investment Income .04 .04 .04 .03 .04
------ ------ ------ ------ ------
Net Increase in Net Asset Value
Resulting from Operations .04 .04 .04 .03 .04
Distributions to Shareholders from
Net Investment Income (.04) (.04) (.04) (.03) (.04)
------ ------ ------ ------ ------
Net Increase in Net Asset Value .00 .00 .00 .00 .00
------ ------ ------ ------ ------
NET ASSET VALUE--END OF PERIOD $1.00 $1.00 $1.00 $1.00 $1.00
====== ====== ====== ====== ======
TOTAL INVESTMENT RETURN 4.48% 4.55% 4.69% 4.39%* 4.60%
RATIOS TO AVERAGE NET ASSETS
Gross Expenses 0.89% 0.84% 0.89% 0.86%* --
Net Expenses 0.88% 0.83% 0.89% 0.86%* 0.99%
Net Investment Income 4.36% 4.37% 4.37% 4.06%* 4.18%
SUPPLEMENTARY DATA:
Net Assets, End of Year
(000's omitted) $686,198 $949,802 $253,295 $283,553 $153,925
--------------------------------------------------------------------------------------------------------------
</TABLE>
+ CALCULATED USING THE AVERAGE DAILY SHARES OUTSTANDING FOR THE YEAR.
* ANNUALIZED
** DURING 1997, THE TRUST CHANGED ITS FISCAL YEAR END FROM JUNE 30 TO MARCH 31.
ACCORDINGLY, THE PERIOD ENDED MARCH 31, 1997 REFLECTS NINE MONTHS OF ACTIVITY.
<PAGE>
PROSPECTUS 99
BENCHMARK INFORMATION
NEITHER THE NOVA FUND NOR THE URSA FUND IS SPONSORED, ENDORSED, SOLD, OR
PROMOTED BY STANDARD AND POOR'S CORP. (S&P); AND THE OTC FUND IS NOT SPONSORED,
ENDORSED, SOLD, OR PROMOTED BY NASDAQ OR ANY OF NASDAQ'S AFFILIATES (NASDAQ AND
ITS AFFILIATES HEREINAFTER COLLECTIVELY REFERRED TO AS "NASDAQ").
NEITHER S&P NOR NASDAQ MAKE ANY REPRESENTATION OR WARRANTY, IMPLIED OR EXPRESS,
TO THE INVESTORS IN THE FUNDS, OR ANY MEMBER OF THE PUBLIC, REGARDING THE
ADVISABILITY OF INVESTING IN INDEX FUNDS OR THE ABILITY OF THE S&P 500 INDEX OR
THE NASDAQ 100 INDEX, RESPECTIVELY, TO TRACK GENERAL STOCK MARKET PERFORMANCE.
NEITHER S&P NOR NASDAQ GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE S&P
500 INDEX AND THE NASDAQ 100 INDEX, RESPECTIVELY, OR ANY DATA INCLUDED THEREIN.
NEITHER S&P NOR NASDAQ MAKE ANY WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO
BE OBTAINED BY ANY OF THE FUNDS. THE INVESTORS IN THE FUNDS, OR ANY PERSON OR
ENTITY FROM THE USE OF THE S&P 500 INDEX OR THE NASDAQ 100 INDEX, RESPECTIVELY,
OR ANY DATA INCLUDED THEREIN.
NEITHER S&P NOR NASDAQ MAKE ANY EXPRESS OR IMPLIED WARRANTIES OF MERCHANTABILITY
OR FITNESS FOR A PARTICULAR PURPOSE FOR USE WITH RESPECT TO THE S&P 500 INDEX OR
THE NASDAQ 100 INDEX, RESPECTIVELY, OR ANY DATA INCLUDED THEREIN.
<PAGE>
Additional information about the Funds is included in a Statement of Additional
Information dated August 1, 2000 (the "SAI"), which contains more detailed
information about the Funds. The SAI has been filed with the Securities and
Exchange Commission ("SEC") and is incorporated by reference into this
Prospectus and, therefore, legally forms a part of this Prospectus. The SEC
maintains the EDGAR database on its Web site ("http://www.sec.gov") that
contains the SAI, material incorporated by reference, and other information
regarding registrants that file electronically with the SEC. You may also review
and copy documents at the SEC Public Reference Room in Washington, D.C. (for
information on the operation of the Public Reference Room, call (202)942-8090).
You may request documents by mail from the SEC, upon payment of a duplication
fee, by writing to: Securities and Exchange Commission, Public Reference
Section, Washington, D.C. 20549-0102. You may also obtain this information, upon
payment of a duplicating fee, by e-mailing the SEC at the following address:
[email protected].
You may obtain a copy of the SAI or the annual or semi-annual reports, without
charge by calling 800-820-0888 or by writing to Rydex Series Funds, at 6116
Executive Boulevard, Suite 400, Rockville, Maryland 20852. Additional
information about the Funds' investments is available in the annual and
semi-annual reports. Also, in the Funds' annual report, you will find a
discussion of the market conditions and investment strategies that significantly
affected the Funds' performance during its last fiscal year.
NO ONE HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS OR IN THE TRUST'S SAI IN
CONNECTION WITH THE OFFERING OF FUND SHARES. DO NOT RELY ON ANY SUCH INFORMATION
OR REPRESENTATIONS AS HAVING BEEN AUTHORIZED BY THE TRUST OR RYDEX GLOBAL
ADVISORS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE TRUST IN ANY
JURISDICTION WHERE SUCH AN OFFERING IS NOT LAWFUL.
The Fund's SEC registration number is 811-7584.
<PAGE>
[GRAPHIC]
THE RYDEX
SERIES FUNDS
ADVISOR CLASS SHARES
[LOGO]
RYDEX-Registered Trademark-
---------------------------
TOOLS THAT POWER PORTFOLIOS
<PAGE>
[GRAPHIC]
"RYDEX established itself as a market innovator when it introduced the first
successful, targeted leveraged portfolio in 1993. Rydex offers an objective,
quantitative approach to investing with funds that are designed to correlate to
specific benchmarks or market segments and are not subject to the market
predictions typically utilized by actively managed funds."
-SKIP VIRAGH, FOUNDER AND PRESIDENT
NOT PART OF THE PROSPECTUS
<PAGE>
i
[GRAPHIC]
AN INDUSTRY
LEADER
Rydex has set itself apart in the financial services industry by offering
innovative products and services requested by the investment community. In 1993
we launched the first successful leveraged benchmark-based fund, the Rydex Nova
Fund. Since then, we have added five more benchmark based funds, 17 sector
funds, two international funds, and a government money market fund.
Today, Rydex Series Funds are among the fastest growing in the industry.*
*STRATEGIC INSIGHT, MAY 2000
NOT PART OF THE PROSPECTUS
<PAGE>
ii
[GRAPHIC]
RYDEX
SERIES FUNDS
The Rydex Series Funds offers flexibility and variety to sophisticated
investors. Rydex employs a quantitative investment style. Our objective is to
deliver market exposure that will effectively accommodate a broad range of asset
allocation investment disciplines including:
- Strategic asset allocation
- Tactical asset allocation
- Sector rotation
- Market timing
NOT PART OF THE PROSPECTUS
<PAGE>
RYDEX SERIES FUNDS iii
[GRAPHIC]
TOOLS THAT
POWER
PORTFOLIOS
The Rydex Series Funds, which seek to be fully invested at all times, provide
knowledgeable investors from all disciplines the flexibility to benefit from
market upturns and downturns. In addition, they permit investors to conduct
trades daily at no extra charge and without minimum holding periods.
- The benchmark funds seek to provide investment returns that correlate to
the performance of a specific benchmark. With certain funds, we promote the
concept of consistently applied leverage within a passive framework. We
believe that if leverage is applied consistently over a period of time, the
benefits of geometric compounding will be enhanced.
- The team-managed sector funds employ a quantitative model of investing
involving screening stocks based on market capitalization, liquidity, and
correlation relative to the entire industry sector.
- The international funds are benchmarked to published indices. They allow an
investor to take advantage of more of the world's equity market
capitalization.
NOT PART OF THE PROSPECTUS
<PAGE>
iv
[GRAPHIC]
REASONS TO INVEST WITH THE
RYDEX
SERIES FUNDS
Rydex offers a high level of customer service and the administrative features
knowledgeable investors need:
- Trading flexibility with no transaction and redemption fees
- User-friendly client applications
- Monthly statements
- Systematic withdrawal plans
- Accommodation of all retirement accounts and qualified assets
- Dedicated Retirement Specialist Team
NOT PART OF THE PROSPECTUS
<PAGE>
[GRAPHIC]
RYDEX SERIES FUNDS v
ONLINE
FEATURES
Rydex offers quality administrative features on our interactive Web site,
www.rydexfunds.com:
- Online account access
- Daily fund performance with comparisons to indices
- Weekly updates on fund holdings
- Daily NAVs
- Easy-to-download applications, prospectuses, and marketing material
- Account trading
NOT PART OF THE PROSPECTUS
<PAGE>
vi
[GRAPHIC]
THE RYDEX
SERIES FUNDS
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------
BENCHMARK FUNDS FUND OBJECTIVE SYMBOLS
-----------------------------------------------------------------------------------------------
<S> <C> <C>
NOVA To provide investment returns that RYNVX (investor)
correspond to 150% of the daily RYNAX (advisor)
performance of the S&P 500 Index.
URSA To provide investment returns that RYURX (investor)
correspond to the inverse RYUAX (advisor)
(opposite) of the daily performance
of the S&P 500 Index.
OTC To provide investment returns that RYOCX (investor)
correspond to the performance of RYAOX (advisor)
the NASDAQ 100 Index.
ARKTOS To provide investment returns that RYAIX (investor)
correspond to the inverse
(opposite) of the daily performance
of the NASDAQ 100 Index.
U.S. GOV'T BOND To provide investment returns that RYGBX (investor)
correspond to 120% of the daily
performance of the current 30-year
U.S. Treasury Bond.
JUNO To provide investment returns that RYJUX (investor)
correspond to the inverse
(opposite) of the daily performance
of the current 30-year U.S.
Treasury Bond.
-----------------------------------------------------------------------------------------------
SECTOR FUNDS FUND OBJECTIVE SYMBOLS
-----------------------------------------------------------------------------------------------
BANKING To provide capital appreciation by RYKIX (investor)
investing in companies involved in RYKAX (advisor)
the banking sector.
BASIC MATERIALS To provide capital appreciation by RYBIX (investor)
investing in the mining, RYBAX (advisor)
manufacture, or sale of basic
materials.
BIOTECHNOLOGY To provide capital appreciation by RYOIX (investor)
investing in companies involved in RYOAX (advisor)
research and development, genetic
or other biological engineering,
and in the design, manufacture, or
sale of related biotechnology
products and services.
CONSUMER PRODUCTS To provide capital appreciation by RYCIX (investor)
investing in companies engaged in RYCAX (advisor)
manufacturing finished goods and
services.
ELECTRONICS To provide capital appreciation by RYSIX (investor)
investing in companies that include RYSAX (advisor)
semiconductor manufactures and
distributors, and makers and
vendors of other electric components
and devices.
ENERGY To provide capital appreciation by RYEIX (investor)
investing in companies involved in RYEAX (advisor)
the exploration, production, and
development of oil, gas, coal, and
alternative sources of energy.
ENERGY SERVICES To provide capital appreciation by RYVIX (investor)
investing in companies that provide RYVAX (advisor)
services and equipment in the areas
of coal, oil, and gas exploration
and production.
-----------------------------------------------------------------------------------------------
NOT PART OF THE PROSPECTUS
<PAGE>
RYDEX SERIES FUNDS vii
[GRAPHIC]
<CAPTION>
-----------------------------------------------------------------------------------------------
SECTOR FUNDS FUND OBJECTIVE SYMBOLS
-----------------------------------------------------------------------------------------------
<S> <C> <C>
FINANCIAL SERVICES To provide capital appreciation by RYFIX (investor)
investing in companies involved in RYFAX (advisor)
the financial services sector.
HEALTH CARE To provide capital appreciation by RYHIX (investor)
investing in companies involved in RYHAX (advisor)
the health care industry.
INTERNET To provide capital appreciation by RYIIX (investor)
investing in companies that provide
products or services designed for
or related to the Internet.
LEISURE To provide capital appreciation by RYLIX (investor)
investing in companies engaged in RYLAX (advisor)
leisure and entertainment
businesses.
PRECIOUS METALS To provide capital appreciation by RYPMX (investor)
investing in companies involved in
the precious metals sector.
RETAILING To provide capital appreciation by RYRIX (investor)
investing in department stores, RYRAX (advisor)
restaurant franchises, mail order
operations, and other companies
involved in selling products to
consumers.
TECHNOLOGY To provide capital appreciation by RYTIX (investor)
investing in companies including RYTAX (advisor)
computer software and service
companies, semiconductor
manufacturers, networking and
telecommunications equipment
manufacturers, PC hardware and
peripherals companies.
TELECOMMUNICATIONS To provide capital appreciation by RYMIX (investor)
investing in companies engaged in RYMAX (advisor)
the development, manufacture, or
sale of communications services or
communications equipment.
TRANSPORTATION To provide capital appreciation by RYPIX (investor)
investing in companies engaged in RYPAX (advisor)
the design, manufacture,
distribution, or sale of
transportation equipment.
UTILITIES To provide capital appreciation by RYUIX (investor)
investing in companies that operate
public utilities.
-----------------------------------------------------------------------------------------------
INTERNATIONAL FUNDS FUND OBJECTIVE SYMBOLS
-----------------------------------------------------------------------------------------------
LARGE-CAP EUROPE To provide investment results that RYEUX
correlate to 125% of the Dow Jones
Stoxx 50 Index.
LARGE-CAP JAPAN To provide investment results that RYJPX
correlate to 125% of the Topix 100
Index.
-----------------------------------------------------------------------------------------------
MONEYMARKET FUND FUND OBJECTIVE SYMBOLS
-----------------------------------------------------------------------------------------------
U.S. GOV'T MONEY MARKET To provide security of principal, RYMXX (investor)
current income, and liquidity by RYDXX (advisor)
investing in securities issued by
the U.S. Government and U.S.
Government agencies.
-----------------------------------------------------------------------------------------------
</TABLE>
NOT PART OF THE PROSPECTUS
<PAGE>
viii
[GRAPHIC]
OPENING
AN ACCOUNT AT RYDEX
Investors who wish to open an account directly with Rydex will find an easy and
efficient process. Simply complete and sign an account application and send a
check to Rydex. If you wish to open your account by bank wire transfer, you may
do so as well. Please review the Shareholder Information section of the
Prospectus for further details regarding initial purchases including minimum
account requirements.
INVESTING IN THE FUNDS INVOLVES CERTAIN RISKS, WHICH MAY INCLUDE INCREASED
VOLATILITY DUE TO CONCENTRATION IN A SPECIFIC ECONOMIC SECTOR OR GEOGRAPHIC
LOCATION. IN ADDITION, THERE MAY BE INCREASED VOLATILITY DUE TO THE USE OF
OPTIONS OR FUTURES.
THIS MATERIAL MUST BE PRECEDED OR ACCOMPANIED BY A CURRENT PROSPECTUS FOR THE
RYDEX SERIES FUNDS. PLEASE READ THE PROSPECTUS CAREFULLY BEFORE YOU INVEST OR
SEND MONEY.
RYDEX DISTRIBUTORS, INC.
NOT PART OF THE PROSPECTUS
<PAGE>
Design: VCG/New York City
<PAGE>
[GRAPHIC]
[LOGO]
RYDEX-Registered Trademark-
---------------------------
TOOLS THAT POWER PORTFOLIOS
6116 Executive Boulevard, Suite 400
Rockville, Maryland 20852
www.rydexfunds.com
<PAGE>
AUGUST 1, 2000
RYDEX SERIES FUNDS
PROSPECTUS
ADVISOR CLASS SHARES
BENCHMARK FUNDS ENERGY SERVICES
NOVA FINANCIAL SERVICES
URSA HEALTH CARE
OTC INTERNET
SECTOR FUNDS LEISURE
BANKING RETAILING
BASIC MATERIALS TECHNOLOGY
BIOTECHNOLOGY TELECOMMUNICATIONS
CONSUMER PRODUCTS TRANSPORTATION
ELECTRONICS UTILITIES
ENERGY MONEY MARKET FUND
U.S. GOVERNMENT MONEY MARKET
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.
[LOGO]
RYDEX-Registered Trademark-
---------------------------
TOOLS THAT POWER PORTFOLIOS
<PAGE>
2
ADVISOR CLASS SHARES
RYDEX SERIES FUNDS
6116 Executive Boulevard, Suite 400
Rockville, Maryland 20852
1.800.820.0888
301.468.8520
BENCHMARK FUNDS
SECTOR FUNDS
MONEY MARKET FUND
Rydex Series Funds (the "Trust") is a no-load mutual fund complex with thirty
separate investment portfolios (the "Funds"). This prospectus describes
twenty Funds, which are grouped into three categories:
BENCHMARK FUNDS -- Nova Fund, Ursa Fund, OTC Fund.
SECTOR FUNDS -- Banking Fund, Basic Materials Fund, Biotechnology Fund, Consumer
Products Fund, Electronics Fund, Energy Fund, Energy Services Fund, Financial
Services Fund, Health Care Fund, Internet Fund, Leisure Fund, Retailing Fund,
Technology Fund, Telecommunications Fund, Transportation Fund and Utilities
Fund.
MONEY MARKET FUND -- U.S. Government Money Market Fund
Advisor Class Shares of the Funds are sold principally through broker-dealers
and other financial institutions whose clients take part in certain strategic
and tactical asset-allocation investment programs. Investors may exchange and
redeem shares of the Funds through the Rydex Internet Web site --
www.rydexfunds.com -- and over the phone.
<PAGE>
PROSPECTUS 3
TABLE OF CONTENTS
RYDEX BENCHMARK FUNDS
5 COMMON RISK/RETURN INFORMATION
6 NOVA FUND
8 URSA FUND
10 OTC FUND
RYDEX SECTOR FUNDS
13 COMMON RISK/RETURN INFORMATION
14 BANKING FUND
16 BASIC MATERIALS FUND
18 BIOTECHNOLOGY FUND
20 CONSUMER PRODUCTS FUND
22 ELECTRONICS FUND
24 ENERGY FUND
26 ENERGY SERVICES FUND
28 FINANCIAL SERVICES FUND
30 HEALTH CARE FUND
32 INTERNET FUND
34 LEISURE FUND
36 RETAILING FUND
38 TECHNOLOGY FUND
40 TELECOMMUNICATIONS FUND
42 TRANSPORTATION FUND
44 UTILITIES FUND
MONEY MARKET FUND
46 U.S. GOVERNMENT MONEY MARKET FUND
48 MORE INFORMATION ABOUT FUND INVESTMENTS AND RISK
53 INVESTING WITH RYDEX: SHAREHOLDER INFORMATION
62 RYDEX ACCOUNT POLICIES FOR ALL SHAREHOLDERS
64 DISTRIBUTION AND SHAREHOLDER SERVICES PLAN
64 DIVIDENDS AND DISTRIBUTIONS
65 TAX INFORMATION
66 MANAGEMENT OF THE FUNDS
68 FINANCIAL HIGHLIGHTS
77 BENCHMARK INFORMATION
BC ADDITIONAL INFORMATION
<PAGE>
4
This page intentionally left blank.
<PAGE>
PROSPECTUS 5
RYDEX BENCHMARK FUNDS
NOVA FUND
URSA FUND
OTC FUND
COMMON RISK/RETURN INFORMATION
INVESTMENT OBJECTIVES
Each Benchmark Fund seeks to provide investment results that match the
performance of a specific benchmark.
PRINCIPAL RISKS
MARKET RISK -- The Funds' value may fluctuate from day to day. Due to market
conditions, Fund shares may decline in value causing you to lose money.
TRACKING ERROR RISK -- The Advisor may not be able to cause the Funds'
performance to match that of the Funds' benchmark, either on a daily or
aggregate basis. Tracking error may cause the Funds' performance to be less than
you expect.
<PAGE>
6
NOVA FUND
FUND INFORMATION
FUND OBJECTIVE
The Nova Fund seeks to provide investment results that match the performance of
a specific benchmark on a daily basis. The Fund's current benchmark is 150% of
the performance of the S&P 500 Index-TM-(the "S&P 500 Index").
If the Fund meets its objective, the value of the Fund's shares will tend to
increase on a daily basis by 150% of the value of any increase in the S&P 500
Index. When the value of the S&P 500 Index declines, the value of the Fund's
shares should also decrease on a daily basis by 150% of the value of any
decrease in the Index (e.g., if the S&P 500 Index goes down by 5%, the value of
the Fund's shares should go down by 7.5% on that day).
PORTFOLIO INVESTMENT STRATEGY
Unlike a traditional index fund, as its primary investment strategy, the Fund
invests to a significant extent in leveraged instruments, such as futures
contracts and options on securities, futures contracts, and stock indices, as
well as equity securities. Futures and options contracts enable the Fund to
pursue its objective without investing directly in the securities included in
the benchmark, or in the same proportion that those securities are represented
in that benchmark. On a day-to-day basis, to collateralize these futures and
options contracts, the Fund holds U.S. Government securities or cash
equivalents. The Fund also may enter into repurchase agreements.
RISK CONSIDERATIONS
In addition to the risks common to investing in any Benchmark Fund, the Nova
Fund is subject to a number of other risks that will affect the value of its
shares, including:
EQUITY RISK - The equity markets are volatile, and the value of the Fund's
futures and options contracts and other securities may fluctuate significantly
from day to day. This volatility may cause the value of your investment in the
Fund to decrease.
LEVERAGING RISK - The more the Fund invests in leveraged instruments, the more
this leverage will magnify any losses on those investments.
PERFORMANCE
The bar chart and table on the following page show the performance of the Nova
Fund both year-by-year and as an average over different periods of time. Periods
prior to October 15, 1998 represent the performance of Investor Class Shares of
the Fund, which are not offered in this Prospectus. The performance of Investor
Class Shares has been adjusted to reflect Advisor Class Shares' higher expenses.
The variability of performance over time provides an indication of the risks of
investing in the Fund. Of course, this past performance does not necessarily
indicate how the Fund will perform in the future.
<PAGE>
PROSPECTUS 7
NOVA FUND
FUND PERFORMANCE AND FEE INFORMATION
[CHART]
* THE YEAR-TO-DATE RETURN FOR THE PERIOD FROM JANUARY 1, 2000 THROUGH JUNE 30,
2000 IS -4.54%.
DURING THE PERIOD SHOWN IN THE BAR CHART, THE HIGHEST RETURN FOR A QUARTER WAS
31.69% (QUARTER ENDED DECEMBER 31, 1998) AND THE LOWEST RETURN FOR A QUARTER WAS
-16.87% (QUARTER ENDED SEPTEMBER 30, 1998).
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN (FOR PERIODS ENDING DECEMBER 31, 1999)(1)
ADVISOR CLASS SHARES S&P 500 INDEX(2)
--------------------------------------------------------------------------------
<S> <C> <C>
PAST ONE YEAR 23.44% 19.53%
PAST FIVE YEARS 34.10% 26.18%
SINCE INCEPTION (07/12/93)(3) 25.66% 32.24%
</TABLE>
(1) THESE FIGURES ASSUME THE REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS
DISTRIBUTIONS.
(2) THE S&P 500 INDEX IS AN UNMANAGED INDEX THAT IS A WIDELY RECOGNIZED
INDICATOR OF GENERAL STOCK MARKET PERFORMANCE.
(3) INCEPTION DATE REFLECTS COMMENCEMENT OF FUND OPERATIONS. ADVISOR CLASS
SHARES WERE OFFERED BEGINNING OCTOBER 15, 1998.
FEES AND EXPENSES OF THE FUND
This table describes the fees and expenses that you may pay if you buy and hold
Advisor Class Shares of the Nova Fund.
<TABLE>
<S> <C>
SHAREHOLDER FEES* ................................................. NONE
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
MANAGEMENT FEES ................................................. .75%
DISTRIBUTION (12b-1) FEES ....................................... .25%
OTHER EXPENSES .................................................. .70%
TOTAL ANNUAL FUND OPERATING EXPENSES .............................. 1.70%
</TABLE>
* THE FUND MAY IMPOSE A WIRE TRANSFER CHARGE OF $15 ON CERTAIN REDEMPTIONS UNDER
$5,000.
EXAMPLE
This Example is intended to help you compare the cost of investing in the
Advisor Class Shares of the Nova Fund with the cost of investing in other mutual
funds.
The Example assumes that you invest $10,000 in the Fund for the time period
indicated and then redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your cost would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------------------------------------------------
<S> <C> <C> <C>
$173 $536 $923 $2,009
</TABLE>
<PAGE>
8
URSA FUND
FUND INFORMATION
FUND OBJECTIVE
The Ursa Fund seeks to provide investment results that will inversely correlate
to the performance of the S&P 500 Index.
If the Fund meets its objective, the value of the Fund's shares will tend to
increase during times when the value of the S&P 500 Index is decreasing. When
the value of the S&P 500 Index is increasing, however, the value of the Fund's
shares should decrease on a daily basis by an inversely proportionate amount
(e.g., if the S&P 500 Index goes up by 5%, the value of the Fund's shares should
go down by 5% on that day).
PORTFOLIO INVESTMENT STRATEGY
The Fund pursues its investment objective through what is sometimes referred to
as a "master-feeder arrangement." The Fund invests all of its assets in the Ursa
Master Fund, a separate series of the Trust with an identical investment
objective.
Unlike a traditional index fund, the Ursa Master Fund's benchmark is to perform
exactly opposite the S&P 500 Index, and the Ursa Master Fund will not own the
securities included in the index. Instead, as its primary investment strategy,
the Ursa Master Fund invests to a significant extent in futures contracts and
options on securities, futures contracts, and stock indices. On a day-to-day
basis, the Ursa Master Fund holds U.S. Government securities or cash equivalents
to collateralize these futures and options contracts. The Ursa Master Fund also
may enter into repurchase agreements and sell securities short.
RISK CONSIDERATIONS
In addition to the risks common to investing in any Benchmark Fund, the Ursa
Master Fund is subject to a number of other risks that will affect the value of
its shares.
EQUITY RISK - The equity markets are volatile, and the value of the Fund's
futures and options contracts and other securities may fluctuate drastically
from day to day. Equity market volatility may also negatively affect the Fund's
short sales of securities. This volatility may cause the value of your
investment in the Fund to decrease.
PERFORMANCE
The bar chart and table on the following page show the performance of the Ursa
Fund both year-by-year and as an average over different periods of time. Periods
prior to August 5, 1998 represent the performance of Investor Class Shares of
the Fund, which are not offered in this Prospectus. The performance of Investor
Class Shares has been adjusted to reflect Advisor Class Shares' higher expenses.
The variability of performance over time provides an indication of the risks of
investing in the Fund. Of course, this past performance does not necessarily
indicate how the Fund will perform in the future.
<PAGE>
PROSPECTUS 9
URSA FUND
FUND PERFORMANCE AND FEE INFORMATION
[CHART]
* THE YEAR-TO-DATE RETURN FOR THE PERIOD FROM JANUARY 1, 2000 THROUGH JUNE 30,
2000 IS 2.98%.
DURING THE PERIOD SHOWN IN THE BAR CHART, THE HIGHEST RETURN FOR A QUARTER WAS
-10.86% (QUARTER ENDED SEPTEMBER 30, 1998) AND THE LOWEST RETURN FOR A QUARTER
WAS -17.06% (QUARTER ENDED DECEMBER 31, 1998).
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN (FOR PERIODS ENDING DECEMBER 31, 1999)(1)
ADVISOR CLASS SHARES S&P 500 INDEX(2)
--------------------------------------------------------------------------------
<S> <C> <C>
PAST ONE YEAR -12.89% 19.53%
FIVE YEAR -17.57% 26.18%
SINCE INCEPTION (01/07/94)(3) -14.45% 20.99%
</TABLE>
(1) THESE FIGURES ASSUME THE REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS
DISTRIBUTIONS.
(2) THE S&P 500 INDEX IS AN UNMANAGED INDEX THAT IS A WIDELY
RECOGNIZED INDICATOR OF GENERAL STOCK MARKET PERFORMANCE.
(3) INCEPTION DATE REFLECTS COMMENCEMENT OF FUND OPERATIONS. ADVISOR CLASS
SHARES WERE OFFERED BEGINNING AUGUST 5, 1998.
FEES AND EXPENSES OF THE FUND
This table describes the fees and expenses that you may pay if you buy and hold
Advisor Class Shares of the Ursa Fund.
<TABLE>
<S> <C>
SHAREHOLDER FEES* ................................................. NONE
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)**
MANAGEMENT FEES ................................................. .90%
DISTRIBUTION (12b-1) FEES ....................................... .25%
OTHER EXPENSES .................................................. .68%
TOTAL ANNUAL FUND OPERATING EXPENSES .............................. 1.83%
</TABLE>
* THE FUND MAY IMPOSE A WIRE TRANSFER CHARGE OF $15 ON CERTAIN REDEMPTIONS UNDER
$5,000.
** THIS TABLE AND THE EXAMPLE INCLUDE BOTH THE FEES PAID BY THE FUND AND ITS
SHARE OF THE FEES OF THE URSA MASTER FUND.
EXAMPLE
This Example is intended to help you compare the cost of investing in the
Advisor Class Shares of the Ursa Fund with the cost of investing in other mutual
funds.
The Example assumes that you invest $10,000 in the Fund for the time period
indicated and then redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your cost would be:
<TABLE>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------------------------------------------------
<S> <C> <C> <C>
$186 $576 $990 $2,148
</TABLE>
<PAGE>
10
OTC FUND
FUND INFORMATION
FUND OBJECTIVE
The OTC Fund seeks to provide investment results that correspond to a benchmark
for over-the-counter securities. The Fund's current benchmark is the NASDAQ 100
Index-TM- (the "NASDAQ 100 Index").
If the Fund meets its objective, the value of the Fund's shares should increase
on a daily basis by the amount of the increase in value of the NASDAQ 100 Index.
However, when the value of the NASDAQ 100 Index declines, the value of the
Fund's shares should also decrease on a daily basis by the amount of the
decrease in value of the Index.
PORTFOLIO INVESTMENT STRATEGY
The Fund invests principally in securities of companies included in the NASDAQ
100 Index. It also may invest in other instruments whose performance is expected
to correspond to that of the Index, and may engage in futures and options
transactions. The Fund may also purchase U.S. Government securities and enter
into repurchase agreements.
RISK CONSIDERATIONS
In addition to the risks common to investing in any Benchmark Fund, the OTC Fund
is subject to a number of other risks that will affect the value of its shares,
including:
EQUITY RISK - The equity markets are volatile, and the value of the Fund's
securities and futures and options contracts may fluctuate drastically from day
to day. This volatility may cause the value of your investment in the Fund to
decrease.
TECHNOLOGY SECTOR CONCENTRATION RISK - The risk that the securities of issuers
in the technology sector that the Fund purchases will under perform the market
as a whole. To the extent that the Fund's investments are concentrated in
issuers conducting business in the same economic sector, the Fund is subject to
legislative or regulatory changes, adverse market conditions and/or increased
competition affecting that economic sector. The prices of the securities of
Technology Companies may fluctuate widely due to competitive pressures,
increased sensitivity to short product cycles and aggressive pricing, problems
relating to bringing their products to market, very high price/earnings ratios,
and high personnel turnover due to severe labor shortages for skilled technology
professionals.
PERFORMANCE
The bar chart and table on the following page show the performance of the OTC
Fund both year-by-year and as an average over different periods of time. Periods
prior to September 22, 1998 represent the performance of Investor Class Shares
of the Fund, which are not offered in this Prospectus. The performance of
Investor Class Shares has been adjusted to reflect Advisor Class Shares' higher
expenses. The variability of performance over time provides an indication of the
risks of investing in the Fund. Of course, this past performance does not
necessarily indicate how the Fund will perform in the future.
<PAGE>
PROSPECTUS 11
OTC FUND
FUND PERFORMANCE AND FEE INFORMATION
[CHART]
* THE YEAR-TO-DATE RETURN FOR THE PERIOD FROM JANUARY 1, 2000 THROUGH JUNE 30,
2000 IS 0.67%.
DURING THE PERIOD SHOWN IN THE BAR CHART, THE HIGHEST RETURN FOR A QUARTER WAS
51.63% (QUARTER ENDED DECEMBER 31, 1999) AND THE LOWEST RETURN FOR A QUARTER WAS
-9.67% (QUARTER ENDED DECEMBER 31, 1997).
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN (FOR PERIODS ENDING DECEMBER 31, 1999)(1)
ADVISOR CLASS SHARES NASDAQ 100 INDEX-TM-(2)
--------------------------------------------------------------------------------------
<S> <C> <C>
PAST ONE YEAR 99.56% 101.95%
FIVE YEAR 55.87% 55.77%
SINCE INCEPTION (02/14/94)(3) 45.06% 45.73%
</TABLE>
(1) THESE FIGURES ASSUME THE REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS
DISTRIBUTIONS.
(2) THE NASDAQ 100 INDEX IS AN UNMANAGED INDEX THAT IS A WIDELY RECOGNIZED
INDICATOR OF OVER-THE-COUNTER MARKET PERFORMANCE.
(3) INCEPTION DATE REFLECTS COMMENCEMENT OF FUND OPERATIONS. ADVISOR CLASS
SHARES WERE OFFERED BEGINNING SEPTEMBER 22, 1998.
FEES AND EXPENSES OF THE FUND
This table describes the fees and expenses that you may pay if you buy and hold
Advisor Class Shares of the OTC Fund.
<TABLE>
<S> <C>
SHAREHOLDER FEES* ................................................. NONE
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
MANAGEMENT FEES ................................................. .75%
DISTRIBUTION (12b-1) FEES ....................................... .25%
OTHER EXPENSES .................................................. .61%
TOTAL ANNUAL FUND OPERATING EXPENSES .............................. 1.61%
</TABLE>
* THE FUND MAY IMPOSE A WIRE TRANSFER CHARGE OF $15 ON CERTAIN REDEMPTIONS UNDER
$5,000.
EXAMPLE
This Example is intended to help you compare the cost of investing in the
Advisor Class Shares of the OTC Fund with the cost of investing in other mutual
funds.
The Example assumes that you invest $10,000 in the Fund for the time period
indicated and then redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your cost would be:
<TABLE>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$164 $508 $876 $1,911
</TABLE>
<PAGE>
12
This page intentionally left blank.
<PAGE>
PROSPECTUS 13
RYDEX SECTOR FUNDS
BANKING HEALTH CARE
BASIC MATERIALS INTERNET
BIOTECHNOLOGY LEISURE
CONSUMER PRODUCTS RETAILING
ELECTRONICS TECHNOLOGY
ENERGY TELECOMMUNICATIONS
ENERGY SERVICES TRANSPORTATION
FINANCIAL SERVICES UTILITIES
COMMON RISK/RETURN INFORMATION
INVESTMENT OBJECTIVES
Each sector fund seeks capital appreciation by investing in companies that
operate in a specific economic sector. The investment objective of each Sector
Fund is non-fundamental and may be changed without shareholder approval.
PRINCIPAL RISKS
MARKET RISK - The Funds' value may fluctuate from day to day. Due to market
conditions, Fund shares may decline in value causing you to lose money.
EQUITY RISK - The equity markets are volatile, and the value of the Funds'
securities and futures and options contracts may fluctuate drastically from day
to day. This volatility may cause the value of your investment in the Fund to
decrease.
<PAGE>
14
BANKING FUND
FUND INFORMATION
FUND OBJECTIVE
The Banking Fund seeks to provide capital appreciation by investing in companies
that are involved in the banking sector, including commercial banks (and their
holding companies) and savings and loan institutions ("Banking Companies").
PORTFOLIO INVESTMENT STRATEGY
The Fund invests substantially all of its assets in equity securities of Banking
Companies that are traded in the United States. Banking Companies are engaged in
accepting deposits and making commercial and principally non-mortgage consumer
loans and include state chartered banks, savings and loan institutions, and
banks that are members of the Federal Reserve System. The Fund may also engage
in futures and options transactions, purchase ADRs and U.S. Government
securities, and enter into repurchase agreements.
RISK CONSIDERATIONS
In addition to the risks common to investing in any Sector Fund, the Banking
Fund is subject to a number of other risks that will affect the value of its
shares, including:
BANKING SECTOR CONCENTRATION RISK - The risk that the securities of Banking
Companies that the Fund purchases will under perform the market as a whole. To
the extent that the Fund's investments are concentrated in Banking Companies,
the Fund is subject to legislative or regulatory changes, adverse market
conditions and/or increased competition affecting Banking Companies. The prices
of the securities of Banking Companies may fluctuate widely due to the
broadening of regional and national interstate banking powers, the reduction in
the number of publicly-traded Banking Companies, and general economic conditions
which could create exposure to credit losses.
PERFORMANCE
The bar chart and table on the following page show the performance of Advisor
Class Shares of the Banking Fund both year-by-year and as an average over
different periods of time. The variability of performance over time provides an
indication of the risks of investing in the Fund. Of course, this past
performance does not necessarily indicate how the Fund will perform in the
future.
<PAGE>
PROSPECTUS 15
BANKING FUND
FUND PERFORMANCE AND FEE INFORMATION
[CHART]
* THE YEAR-TO-DATE RETURN FOR THE PERIOD FROM JANUARY 1, 2000 THROUGH JUNE 30,
2000 IS -10.01%.
DURING THE PERIOD SHOWN IN THE BAR CHART, THE HIGHEST RETURN FOR A QUARTER WAS
4.23% (QUARTER ENDED JUNE 30, 1999) AND THE LOWEST RETURN FOR A QUARTER WAS
-18.44% (QUARTER ENDED SEPTEMBER 30, 1999).
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN (FOR PERIODS ENDING DECEMBER 31, 1999)(1)
ADVISOR CLASS SHARES S&P 500 INDEX(2)
--------------------------------------------------------------------------------
<S> <C> <C>
PAST ONE YEAR -19.12% 19.53%
SINCE INCEPTION (04/01/98) -17.17% 17.48%
</TABLE>
(1) THESE FIGURES ASSUME THE REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS
DISTRIBUTIONS.
(2) THE S&P 500 INDEX IS AN UNMANAGED INDEX THAT IS A WIDELY RECOGNIZED
INDICATOR OF GENERAL STOCK MARKET PERFORMANCE.
FEES AND EXPENSES OF THE FUND
This table describes the fees and expenses that you may pay if you buy and hold
Advisor Class Shares of the Banking Fund.
<TABLE>
<S> <C>
SHAREHOLDER FEES* ................................................. NONE
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
MANAGEMENT FEES ................................................. .85%
DISTRIBUTION (12b-1) FEES ....................................... .25%
OTHER EXPENSES .................................................. .95%
TOTAL ANNUAL FUND OPERATING EXPENSES .............................. 2.05%
</TABLE>
* THE FUND MAY IMPOSE A WIRE TRANSFER CHARGE OF $15 ON CERTAIN REDEMPTIONS UNDER
$5,000.
EXAMPLE
This Example is intended to help you compare the cost of investing in the
Advisor Class Shares of the Banking Fund with the cost of investing in other
mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time period
indicated and then redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your cost would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$208 $643 $1,103 $2,379
</TABLE>
<PAGE>
16
BASIC MATERIALS FUND
FUND INFORMATION
FUND OBJECTIVE
The Basic Materials Fund seeks capital appreciation by investing in companies
engaged in the mining, manufacture, or sale of basic materials, such as lumber,
steel, iron, aluminum, concrete, chemicals and other basic building and
manufacturing materials ("Basic Materials Companies").
PORTFOLIO INVESTMENT STRATEGY
The Fund invests substantially all of its assets in equity securities of Basic
Materials Companies that are traded in the United States. Basic Materials
Companies are engaged in the manufacture, mining, processing, or distribution of
raw materials and intermediate goods used in the industrial sector, and may be
involved in the production of metals, textiles, and wood products, including
equipment suppliers and railroads. The Fund may also engage in futures and
options transactions, purchase ADRs and U.S. Government securities, and enter
into repurchase agreements.
RISK CONSIDERATIONS
In addition to the risks common to investing in any Sector Fund, the Basic
Materials Fund is subject to a number of other risks that will affect the value
of its shares, including:
BASIC MATERIALS SECTOR CONCENTRATION RISK - The risk that the securities of
issuers in the basic materials sector that the Fund purchases will under perform
the market as a whole. To the extent that the Fund's investments are
concentrated in issuers conducting business in the same economic sector, the
Fund is subject to legislative or regulatory changes, adverse market conditions
and/or increased competition affecting that economic sector. The prices of the
securities of Basic Materials Companies may fluctuate widely due to the level
and volatility of commodity prices, the exchange value of the dollar, import
controls, worldwide competition, liability for environmental damage, depletion
of resources, and mandated expenditures for safety and pollution control
devices.
PERFORMANCE
The bar chart and table on the following page show the performance of Advisor
Class Shares of the Basic Materials Fund both year-by-year and as an average
over different periods of time. The variability of performance over time
provides an indication of the risks of investing in the Fund. Of course, this
past performance does not necessarily indicate how the Fund will perform in the
future.
<PAGE>
PROSPECTUS 17
BASIC MATERIALS FUND
FUND PERFORMANCE AND FEE INFORMATION
[CHART]
* THE YEAR-TO-DATE RETURN FOR THE PERIOD FROM JANUARY 1, 2000 THROUGH JUNE 30,
2000 IS -29.32%.
DURING THE PERIOD SHOWN IN THE BAR CHART, THE HIGHEST RETURN FOR A QUARTER WAS
18.52% (QUARTER ENDED JUNE 30, 1999) AND THE LOWEST RETURN FOR A QUARTER WAS
-8.63% (QUARTER ENDED SEPTEMBER 30, 1999).
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN (FOR PERIODS ENDING DECEMBER 31, 1999)(1)
ADVISOR CLASS SHARES S&P 500 INDEX(2)
--------------------------------------------------------------------------------
<S> <C> <C>
PAST ONE YEAR 21.69% 19.53%
SINCE INCEPTION (04/14/98) -6.10% 17.41%
</TABLE>
(1) THESE FIGURES ASSUME THE REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS
DISTRIBUTIONS.
(2) THE S&P 500 INDEX IS AN UNMANAGED INDEX THAT IS A WIDELY RECOGNIZED
INDICATOR OF GENERAL STOCK MARKET PERFORMANCE.
FEES AND EXPENSES OF THE FUND
This table describes the fees and expenses that you may pay if you buy and hold
Advisor Class Shares of the Basic Materials Fund.
<TABLE>
<S> <C>
SHAREHOLDER FEES* ................................................. NONE
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
MANAGEMENT FEES ................................................. .85%
DISTRIBUTION (12b-1) FEES ....................................... .25%
OTHER EXPENSES .................................................. .90%
TOTAL ANNUAL FUND OPERATING EXPENSES .............................. 2.00%
</TABLE>
* THE FUND MAY IMPOSE A WIRE TRANSFER CHARGE OF $15 ON CERTAIN REDEMPTIONS UNDER
$5,000.
EXAMPLE
This Example is intended to help you compare the cost of investing in the
Advisor Class Shares of the Basic Materials Fund with the cost of investing in
other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time period
indicated and then redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your cost would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$203 $627 $1,078 $2,327
</TABLE>
<PAGE>
18
BIOTECHNOLOGY FUND
FUND INFORMATION
FUND OBJECTIVE
The Biotechnology Fund seeks capital appreciation by investing in companies that
are involved in the biotechnology industry, including companies involved in
research and development, genetic or other biological engineering, and in the
design, manufacture, or sale of related biotechnology products or services
("Biotechnology Companies").
PORTFOLIO INVESTMENT STRATEGY
The Fund invests substantially all of its assets in equity securities of
Biotechnology Companies that are traded in the United States. Biotechnology
Companies are engaged in the research, development, and manufacture of various
biotechnological products, services, and processes; manufacture and/or
distribute biotechnological and biomedical products, including devices and
instruments; provide or benefit significantly from scientific and technological
advances in biotechnology; or provide processes or services instead of, or in
addition to, products. The Fund may also engage in futures and options
transactions, purchase ADRs and U.S. Government securities, and enter into
repurchase agreements.
RISK CONSIDERATIONS
In addition to the risks common to investing in any Sector Fund, the
Biotechnology Fund is subject to a number of other risks that will affect the
value of its shares, including:
BIOTECHNOLOGY SECTOR CONCENTRATION RISK - The risk that the securities of
issuers in the biotechnology sector that the Fund purchases will under perform
the market as a whole. To the extent that the Fund's investments are
concentrated in issuers conducting business in the same economic sector, the
Fund is subject to legislative or regulatory changes, adverse market conditions
and/or increased competition affecting that economic sector. The prices of the
securities of Biotechnology Companies may fluctuate widely due to patent
considerations, intense competition, rapid technological change and
obsolescence, and regulatory requirements of the Food and Drug Administration,
the Environmental Protection Agency, state and local governments, and foreign
regulatory authorities.
SMALL ISSUER RISK - Many Biotechnology Companies are relatively small and have
thinly traded equity securities, may not yet offer products or offer a single
product, and may have persistent losses during a new product's transition from
development to production or erratic revenue patterns.
PERFORMANCE
The bar chart and table on the following page show the performance of Advisor
Class Shares of the Biotechnology Fund both year-by-year and as an average over
different periods of time. The variability of performance over time provides an
indication of the risks of investing in the Fund. Of course, this past
performance does not necessarily indicate how the Fund will perform in the
future.
<PAGE>
PROSPECTUS 19
BIOTECHNOLOGY FUND
FUND PERFORMANCE AND FEE INFORMATION
[CHART]
* THE YEAR-TO-DATE RETURN FOR THE PERIOD FROM JANUARY 1, 2000 THROUGH JUNE 30,
2000 IS 38.01%.
DURING THE PERIOD SHOWN IN THE BAR CHART, THE HIGHEST RETURN FOR A QUARTER WAS
46.14% (QUARTER ENDED DECEMBER 31, 1999) AND THE LOWEST RETURN FOR A QUARTER WAS
7.11% (QUARTER ENDED JUNE 30, 1999).
AVERAGE ANNUAL TOTAL RETURN (FOR PERIODS ENDING DECEMBER 31, 1999)(1)
<TABLE>
<CAPTION>
ADVISOR CLASS SHARES S&P 500 INDEX(2)
--------------------------------------------------------------------------------
<S> <C> <C>
PAST ONE YEAR 95.52% 19.53%
SINCE INCEPTION (04/01/98) 60.58% 17.48%
</TABLE>
(1) THESE FIGURES ASSUME THE REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS
DISTRIBUTIONS.
(2) THE S&P 500 INDEX IS AN UNMANAGED INDEX THAT IS A WIDELY RECOGNIZED
INDICATOR OF GENERAL STOCK MARKET PERFORMANCE.
This table describes the fees and expenses that you may pay if you buy and hold
Advisor Class Shares of the Biotechnology Fund.
<TABLE>
<S> <C>
SHAREHOLDER FEES* ................................................ NONE
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM
FUND ASSETS)
MANAGEMENT FEES ................................................ .85%
DISTRIBUTION (12b-1) FEES ...................................... .25%
OTHER EXPENSES ................................................. .82%
TOTAL ANNUAL FUND OPERATING EXPENSES ............................. 1.92%
</TABLE>
* THE FUND MAY IMPOSE A WIRE TRANSFER CHARGE OF $15 ON CERTAIN REDEMPTIONS UNDER
$5,000.
EXAMPLE
This Example is intended to help you compare the cost of investing in the
Advisor Class Shares of the Biotechnology Fund with the cost of investing in
other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time period
indicated and then redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your cost would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------------------------------------------------
<S> <C> <C> <C>
$195 $603 $1,037 $2,243
</TABLE>
<PAGE>
20
CONSUMER PRODUCTS FUND
FUND INFORMATION
FUND OBJECTIVE
The Consumer Products Fund seeks capital appreciation by investing in companies
engaged in manufacturing finished goods and services both domestically and
internationally ("Consumer Products Companies").
PORTFOLIO INVESTMENT STRATEGY
The Fund invests substantially all of its assets in equity securities of
Consumer Products Companies that are traded in the United States. Consumer
Products Companies include companies that manufacture, wholesale or retail
durable goods such as major appliances and personal computers, or that retail
non-durable goods such as beverages, tobacco, health care products, household
and personal care products, apparel, and entertainment products (e.g., books,
magazines, TV, cable, movies, music, gaming, sports), as well as companies that
provide consumer products and services such as lodging, child care, convenience
stores, and car rentals. The Fund may also engage in futures and options
transactions, purchase ADRs and U.S. Government securities, and enter into
repurchase agreements.
RISK CONSIDERATIONS
In addition to the risks common to investing in any Sector Fund, the Consumer
Products Fund is subject to a number of other risks that will affect the value
of its shares, including:
CONSUMER PRODUCTS SECTOR CONCENTRATION RISK - The risk that the securities of
issuers in the consumer products sector that the Fund purchases will under
perform the market as a whole. To the extent that the Fund's investments are
concentrated in issuers conducting business in the same economic sector, the
Fund is subject to legislative or regulatory changes, adverse market conditions
and/or increased competition affecting that economic sector. The performance of
Consumer Products Companies has historically been closely tied to the
performance of the overall economy, and is also affected by interest rates,
competition, consumer confidence and relative levels of disposable household
income and seasonal consumer spending. Changes in demographics and consumer
tastes can also affect the demand for, and success of, consumer products in the
marketplace.
PERFORMANCE
The bar chart and table on the following page show the performance of Advisor
Class Shares of the Consumer Products Fund both year-by-year and as an average
over different periods of time. The variability of performance over time
provides an indication of the risks of investing in the Fund. Of course, this
past performance does not necessarily indicate how the Fund will perform in the
future.
<PAGE>
PROSPECTUS 21
CONSUMER PRODUCTS FUND
FUND PERFORMANCE AND FEE INFORMATION
[CHART]
* THE YEAR-TO-DATE RETURN FOR THE PERIOD FROM JANUARY 1, 2000 THROUGH JUNE 30,
2000 IS -18.94%.
DURING THE PERIOD SHOWN IN THE BAR CHART, THE HIGHEST RETURN FOR A QUARTER WAS
15.52% (QUARTER ENDED DECEMBER 31, 1999) AND THE LOWEST RETURN FOR A QUARTER WAS
-14.66% (QUARTER ENDED SEPTEMBER 30, 1999).
AVERAGE ANNUAL TOTAL RETURN (FOR PERIODS ENDING DECEMBER 31, 1999)(1)
<TABLE>
<CAPTION>
ADVISOR CLASS SHARES S&P 500 INDEX(2)
--------------------------------------------------------------------------------
<S> <C> <C>
PAST ONE YEAR 1.54% 19.53%
SINCE INCEPTION (08/17/98) 5.72% 24.83%
</TABLE>
(1) THESE FIGURES ASSUME THE REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS
DISTRIBUTIONS.
(2) THE S&P 500 INDEX IS AN UNMANAGED INDEX THAT IS A WIDELY RECOGNIZED
INDICATOR OF GENERAL STOCK MARKET PERFORMANCE.
FEES AND EXPENSES OF THE FUND
This table describes the fees and expenses that you may pay if you buy and hold
Advisor Class Shares of the Consumer Products Fund.
<TABLE>
<S> <C>
SHAREHOLDER FEES* ................................................. NONE
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM
FUND ASSETS)
MANAGEMENT FEES ................................................. .85%
DISTRIBUTION (12b-1) FEES ....................................... .25%
OTHER EXPENSES .................................................. 1.03%
TOTAL ANNUAL FUND OPERATING EXPENSES .............................. 2.13%
</TABLE>
* THE FUND MAY IMPOSE A WIRE TRANSFER CHARGE OF $15 ON CERTAIN REDEMPTIONS UNDER
$5,000.
EXAMPLE
This Example is intended to help you compare the cost of investing in the
Advisor Class Shares of the Consumer Products Fund with the cost of investing in
other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time period
indicated and then redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your cost would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------------------------------------------------
<S> <C> <C> <C>
$216 $667 $1,144 $2,462
</TABLE>
<PAGE>
22
ELECTRONICS FUND
FUND INFORMATION
FUND OBJECTIVE
The Electronics Fund seeks capital appreciation by investing in companies that
are involved in the electronics sector, including semiconductor manufacturers
and distributors, and makers and vendors of other electronic components and
devices ("Electronics Companies").
PORTFOLIO INVESTMENT STRATEGY
The Fund invests substantially all of its assets in equity securities of
Electronics Companies that are traded in the United States. Electronics
Companies include companies involved in the manufacture and development of
semiconductors, connectors, printed circuit boards and other components;
equipment vendors to electronic component manufacturers; electronic component
distributors; electronic instruments and electronic systems vendors; and also
include companies involved in all aspects of the electronics business and in new
technologies or specialty areas such as defense electronics, advanced design and
manufacturing technologies, or lasers. The Fund may also engage in futures and
options transactions, purchase ADRs and U.S. Government securities, and enter
into repurchase agreements.
RISK CONSIDERATIONS
In addition to the risks common to investing in any Sector Fund, the Electronics
Fund is subject to a number of other risks that will affect the value of its
shares, including:
ELECTRONICS SECTOR CONCENTRATION RISK - The risk that the securities of issuers
in the electronics sector that the Fund purchases will under perform the market
as a whole. To the extent that the Fund's investments are concentrated in
issuers conducting business in the same economic sector, the Fund is subject to
legislative or regulatory changes, adverse market conditions and/or increased
competition affecting that economic sector. The prices of the securities of
Electronics Companies may fluctuate widely due to risks of rapid obsolescence of
products, intense competition, the economic performance of their customers, high
technology and research costs (especially in light of decreased defense spending
by the U.S. Government), and may face competition from subsidized foreign
competitors with lower production costs.
SMALL ISSUER RISK - Many Electronics Companies are relatively small and have
thinly traded securities, may offer only one or a limited number of rapidly
obsolescing products, and may have persistent losses during a new product's
transition from development to production.
PERFORMANCE
The bar chart and table on the following page show the performance of Advisor
Class Shares of the Electronics Fund both year-by-year and as an average over
different periods of time. The variability of performance over time provides an
indication of the risks of investing in the Fund. Of course, this past
performance does not necessarily indicate how the Fund will perform in the
future.
<PAGE>
PROSPECTUS 23
ELECTRONICS FUND
FUND PERFORMANCE AND FEE INFORMATION
[CHART]
* THE YEAR-TO-DATE RETURN FOR THE PERIOD FROM JANUARY 1, 2000 THROUGH JUNE 30,
2000 IS 37.64%.
DURING THE PERIOD SHOWN IN THE BAR CHART, THE HIGHEST RETURN FOR A QUARTER WAS
48.34% (QUARTER ENDED DECEMBER 31, 1999) AND THE LOWEST RETURN FOR A QUARTER WAS
11.06% (QUARTER ENDED MARCH 30, 1999).
AVERAGE ANNUAL TOTAL RETURN (FOR PERIODS ENDING DECEMBER 31, 1999)(1)
<TABLE>
<CAPTION>
ADVISOR CLASS SHARES S&P 500 INDEX(2)
--------------------------------------------------------------------------------
<S> <C> <C>
PAST ONE YEAR 120.21% 19.53%
SINCE INCEPTION (04/02/98) 79.25% 16.80%
</TABLE>
(1) THESE FIGURES ASSUME THE REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS
DISTRIBUTIONS.
(2) THE S&P 500 INDEX IS AN UNMANAGED INDEX THAT IS A WIDELY RECOGNIZED
INDICATOR OF GENERAL STOCK MARKET PERFORMANCE.
FEES AND EXPENSES OF THE FUND
This table describes the fees and expenses that you may pay if you buy and hold
Advisor Class Shares of the Electronics Fund.
<TABLE>
<S> <C>
SHAREHOLDER FEES* ................................................. NONE
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM
FUND ASSETS)
MANAGEMENT FEES ................................................. .85%
DISTRIBUTION (12b-1) FEES ....................................... .25%
OTHER EXPENSES .................................................. .65%
TOTAL ANNUAL FUND OPERATING EXPENSES .............................. 1.75%
</TABLE>
* THE FUND MAY IMPOSE A WIRE TRANSFER CHARGE OF $15 ON CERTAIN REDEMPTIONS UNDER
$5,000.
EXAMPLE
This Example is intended to help you compare the cost of investing in the
Advisor Class Shares of the Electronics Fund with the cost of investing in other
mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time period
indicated and then redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your cost would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------------------------------------------------
<S> <C> <C> <C>
$178 $551 $949 $2,062
</TABLE>
<PAGE>
24
ENERGY FUND
FUND INFORMATION
FUND OBJECTIVE
The Energy Fund seeks capital appreciation by investing in companies involved in
the energy field, including the exploration, production, and development of oil,
gas, coal and alternative sources of energy ("Energy Companies").
PORTFOLIO INVESTMENT STRATEGY
The Fund invests substantially all of its assets in equity securities of Energy
Companies that are traded in the United States. Energy Companies are involved in
all aspects of the energy industry, including the conventional areas of oil,
gas, electricity, and coal, and alternative sources of energy such as nuclear,
geothermal, oil shale, and solar power, and include companies that produce,
transmit, market, distribute or measure energy; companies involved in providing
products and services to companies in the energy field; and companies involved
in the exploration of new sources of energy, conservation, and energy-related
pollution control. The Fund may also engage in futures and options transactions,
purchase ADRs and U.S. Government securities, and enter into repurchase
agreements.
RISK CONSIDERATIONS
In addition to the risks common to investing in any Sector Fund, the Energy Fund
is subject to a number of other risks that will affect the value of its shares,
including:
Energy Sector Concentration Risk - The risk that the securities of issuers in
the energy sector that the Fund purchases will under perform the market as a
whole. To the extent that the Fund's investments are concentrated in issuers
conducting business in the same economic sector, the Fund is subject to
legislative or regulatory changes, adverse market conditions and/or increased
competition affecting that economic sector. The prices of the securities of
Energy Companies may fluctuate widely due to changes in value and dividend
yield, which depend largely on the price and supply of energy fuels,
international political events relating to oil producing countries, energy
conservation, the success of exploration projects, and tax and other
governmental regulatory policies.
PERFORMANCE
The bar chart and table on the following page show the performance of Advisor
Class Shares of the Energy Fund both year-by-year and as an average over
different periods of time. The variability of performance over time provides an
indication of the risks of investing in the Fund. Of course, this past
performance does not necessarily indicate how the Fund will perform in the
future.
<PAGE>
PROSPECTUS 25
ENERGY FUND
FUND PERFORMANCE AND FEE INFORMATION
[CHART]
* THE YEAR-TO-DATE RETURN FOR THE PERIOD FROM JANUARY 1, 2000 THROUGH JUNE 30,
2000 IS 12.03%.
DURING THE PERIOD SHOWN IN THE BAR CHART, THE HIGHEST RETURN FOR A QUARTER WAS
11.88% (QUARTER ENDED JUNE 30, 1999) AND THE LOWEST RETURN FOR A QUARTER WAS
-1.29% (QUARTER ENDED SEPTEMBER 30, 1999).
AVERAGE ANNUAL TOTAL RETURN (FOR PERIODS ENDING DECEMBER 31, 1999)(1)
<TABLE>
<CAPTION>
ADVISOR CLASS SHARES S&P 500 INDEX(2)
--------------------------------------------------------------------------------
<S> <C> <C>
PAST ONE YEAR 18.02% 19.53%
SINCE INCEPTION (05/05/98) -1.08% 18.07%
</TABLE>
(1) THESE FIGURES ASSUME THE REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS
DISTRIBUTIONS.
(2) THE S&P 500 INDEX IS AN UNMANAGED INDEX THAT IS A WIDELY RECOGNIZED
INDICATOR OF GENERAL STOCK MARKET PERFORMANCE.
FEES AND EXPENSES OF THE FUND
This table describes the fees and expenses that you may pay if you buy and hold
Advisor Class Shares of the Energy Fund.
<TABLE>
<S> <C>
SHAREHOLDER FEES* ................................................. NONE
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM
FUND ASSETS)
MANAGEMENT FEES ................................................. .85%
DISTRIBUTION (12b-1) FEES ....................................... .25%
OTHER EXPENSES .................................................. .95%
TOTAL ANNUAL FUND OPERATING EXPENSES .............................. 2.05%
</TABLE>
* THE FUND MAY IMPOSE A WIRE TRANSFER CHARGE OF $15 ON CERTAIN REDEMPTIONS UNDER
$5,000.
EXAMPLE
This Example is intended to help you compare the cost of investing in the
Advisor Class Shares of the Energy Fund with the cost of investing in other
mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time period
indicated and then redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your cost would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------------------------------------------------
<S> <C> <C> <C>
$208 $643 $1,103 $2,379
</TABLE>
<PAGE>
26
ENERGY SERVICES FUND
FUND INFORMATION
FUND OBJECTIVE
The Energy Services Fund seeks capital appreciation by investing in companies
that are involved in the energy services field, including those that provide
services and equipment in the areas of oil, coal, and gas exploration and
production ("Energy Services Companies").
PORTFOLIO INVESTMENT STRATEGY
The Fund invests substantially all of its assets in equity securities of Energy
Services Companies that are traded in the United States. Energy Services
Companies are engaged in one or more businesses in the energy service field,
including those that provide services and equipment to companies engaged in the
production, refinement or distribution of oil, gas, electricity, and coal;
companies involved with the production and development of newer sources of
energy such as nuclear, geothermal, oil shale, and solar power; companies
involved with onshore or offshore drilling; companies involved in production and
well maintenance; companies involved in exploration engineering, data and
technology; companies involved in energy transport; and companies involved in
equipment and plant design or construction. The Fund may also engage in futures
and options transactions, purchase ADRs and U.S. Government securities, and
enter into repurchase agreements.
RISK CONSIDERATIONS
In addition to the risks common to investing in any Sector Fund, the Energy
Services Fund is subject to a number of other risks that will affect the value
of its shares, including:
ENERGY SERVICES SECTOR CONCENTRATION RISK - The risk that the securities of
issuers in the energy services sector that the Fund purchases will under perform
the market as a whole. To the extent that the Fund's investments are
concentrated in issuers conducting business in the same economic sector, the
Fund is subject to legislative or regulatory changes, adverse market conditions
and/or increased competition affecting that economic sector. The prices of the
securities of Energy Services Companies may fluctuate widely due to the supply
and demand both for their specific products or services and for energy products
in general, the price of oil and gas, exploration and production spending,
governmental regulation and environmental issues, and world events and economic
conditions generally affecting energy supply companies.
PERFORMANCE
The bar chart and table on the following page show the performance of Advisor
Class Shares of the Energy Services Fund both year-by-year and as an average
over different periods of time. The variability of performance over time
provides an indication of the risks of investing in the Fund. Of course, this
past performance does not necessarily indicate how the Fund will perform in the
future.
<PAGE>
PROSPECTUS 27
ENERGY SERVICES FUND
FUND PERFORMANCE AND FEE INFORMATION
[CHART]
* THE YEAR-TO-DATE RETURN FOR THE PERIOD FROM JANUARY 1, 2000 THROUGH JUNE 30,
2000 IS 37.11%.
DURING THE PERIOD SHOWN IN THE BAR CHART, THE HIGHEST RETURN FOR A QUARTER WAS
24.17% (QUARTER ENDED MARCH 31, 1999) AND THE LOWEST RETURN FOR A QUARTER WAS
-3.03% (QUARTER ENDED SEPTEMBER 30, 1999).
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN (FOR PERIODS ENDING DECEMBER 31, 1999)(1)
ADVISOR CLASS SHARES S&P 500 INDEX(2)
--------------------------------------------------------------------------------
<S> <C> <C>
PAST ONE YEAR 44.21% 19.53%
SINCE INCEPTION (04/02/98) -17.93% 16.80%
</TABLE>
(1) THESE FIGURES ASSUME THE REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS
DISTRIBUTIONS.
(2) THE S&P 500 INDEX IS AN UNMANAGED INDEX THAT IS A WIDELY RECOGNIZED
INDICATOR OF GENERAL STOCK MARKET PERFORMANCE.
FEES AND EXPENSES OF THE FUND
This table describes the fees and expenses that you may pay if you buy and hold
Advisor Class Shares of the Energy Services Fund.
<TABLE>
<S> <C>
SHAREHOLDER FEES* ................................................. NONE
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
MANAGEMENT FEES ................................................. .85%
DISTRIBUTION (12b-1) FEES ....................................... .25%
OTHER EXPENSES .................................................... 1.10%
TOTAL ANNUAL FUND OPERATING EXPENSES .............................. 2.20%
</TABLE>
* THE FUND MAY IMPOSE A WIRE TRANSFER CHARGE OF $15 ON CERTAIN REDEMPTIONS UNDER
$5,000.
EXAMPLE
This Example is intended to help you compare the cost of investing in the
Advisor Class Shares of the Energy Services Fund with the cost of investing in
other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time period
indicated and then redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your cost would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------------------------------------------------
<S> <C> <C> <C>
$223 $688 $1,180 $2,534
</TABLE>
<PAGE>
28
FINANCIAL SERVICES FUND
FUND INFORMATION
FUND OBJECTIVE
The Financial Services Fund seeks capital appreciation by investing in companies
that are involved in the financial services sector ("Financial Services
Companies").
PORTFOLIO INVESTMENT STRATEGY
The Fund invests substantially all of its assets in equity securities of
Financial Services Companies that are traded in the United States. Financial
Service Companies include commercial banks, savings and loan associations,
insurance companies and brokerage companies. The Fund may also engage in futures
and options transactions, purchase ADRs and U.S. Government securities, and
enter into repurchase agreements. Under SEC regulations, the Fund may not invest
more than 5% of its total assets in the equity securities of any company that
derives more than 15% of its revenues from brokerage or investment management
activities.
RISK CONSIDERATIONS
In addition to the risks common to investing in any Sector Fund, the Financial
Services Fund is subject to a number of other risks that will affect the value
of its shares, including:
FINANCIAL SERVICES SECTOR CONCENTRATION RISK - The risk that the securities of
issuers in the financial services sector that the Fund purchases will under
perform the market as a whole. To the extent that the Fund's investments are
concentrated in issuers conducting business in the same economic sector, the
Fund is subject to legislative or regulatory changes, adverse market conditions
and/or increased competition affecting that economic sector. Financial Services
Companies are subject to extensive governmental regulation, which may limit both
the amounts and types of loans and other financial commitments they can make,
and the rates and fees they can charge. Profitability is largely dependent on
the availability and cost of capital, and can fluctuate significantly when
interest rates change. Credit losses resulting from financial difficulties of
borrowers also can negatively impact the sector.
PERFORMANCE
The bar chart and table on the following page show the performance of Advisor
Class Shares of the Financial Services Fund both year-by-year and as an average
over different periods of time. The variability of performance over time
provides an indication of the risks of investing in the Fund. Of course, this
past performance does not necessarily indicate how the Fund will perform in the
future.
<PAGE>
PROSPECTUS 29
FINANCIAL SERVICES FUND
FUND PERFORMANCE AND FEE INFORMATION
[CHART]
* THE YEAR-TO-DATE RETURN FOR THE PERIOD FROM JANUARY 1, 2000 THROUGH JUNE 30,
2000 IS -1.74%.
DURING THE PERIOD SHOWN IN THE BAR CHART, THE HIGHEST RETURN FOR A QUARTER WAS
7.14% (QUARTER ENDED DECEMBER 31, 1999) AND THE LOWEST RETURN FOR A QUARTER WAS
-16.84% (QUARTER ENDED SEPTEMBER 30, 1999).
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN (FOR PERIODS ENDING DECEMBER 31, 1999)(1)
ADVISOR CLASS SHARES S&P 500 INDEX(2)
--------------------------------------------------------------------------------
<S> <C> <C>
PAST ONE YEAR -1.46% 19.53%
SINCE INCEPTION (04/06/98) -7.16% 16.83%
</TABLE>
(1) THESE FIGURES ASSUME THE REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS
DISTRIBUTIONS.
(2) THE S&P 500 INDEX IS AN UNMANAGED INDEX THAT IS A WIDELY RECOGNIZED
INDICATOR OF GENERAL STOCK MARKET PERFORMANCE.
FEES AND EXPENSES OF THE FUND
This table describes the fees and expenses that you may pay if you buy and hold
Advisor Class Shares of the Financial Services Fund.
<TABLE>
<S> <C>
SHAREHOLDER FEES* ................................................. NONE
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
MANAGEMENT FEES ................................................. .85%
DISTRIBUTION (12b-1) FEES ....................................... .25%
OTHER EXPENSES .................................................. 1.18%
TOTAL ANNUAL FUND OPERATING EXPENSES .............................. 2.28%
</TABLE>
* THE FUND MAY IMPOSE A WIRE TRANSFER CHARGE OF $15 ON CERTAIN REDEMPTIONS UNDER
$5,000.
EXAMPLE
This Example is intended to help you compare the cost of investing in the
Advisor Class Shares of the Financial Services Fund with the cost of investing
in other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time period
indicated and then redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your cost would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------------------------------------------------
<S> <C> <C> <C>
$231 $712 $1,220 $2,615
</TABLE>
<PAGE>
30
HEALTH CARE FUND
FUND INFORMATION
FUND OBJECTIVE
The Health Care Fund seeks capital appreciation by investing in companies that
are involved in the health care industry ("Health Care Companies").
PORTFOLIO INVESTMENT STRATEGY
The Fund invests substantially all of its assets in equity securities of Health
Care Companies that are traded in the United States. Health Care Companies
include pharmaceutical companies, companies involved in research and development
of pharmaceutical products and services, companies involved in the operation of
health care facilities, and other companies involved in the design, manufacture,
or sale of health care-related products or services. The Fund may also engage in
futures and options transactions, purchase ADRs and U.S. Government securities,
and enter into repurchase agreements.
RISK CONSIDERATIONS
In addition to the risks common to investing in any Sector Fund, the Health Care
Fund is subject to a number of other risks that will affect the value of its
shares, including:
HEALTH CARE SECTOR CONCENTRATION RISK - The risk that the securities of issuers
in the health care sector that the Fund purchases will under perform the market
as a whole. To the extent that the Fund's investments are concentrated in
issuers conducting business in the same economic sector, the Fund is subject to
legislative or regulatory changes, adverse market conditions and/or increased
competition affecting that economic sector. The prices of the securities of
Health Care Companies may fluctuate widely due to government regulation and
approval of their products and services, which can have a significant effect on
their price and availability. Furthermore, the types of products or services
produced or provided by these companies may quickly become obsolete. Moreover,
liability for products that are later alleged to be harmful or unsafe may be
substantial, and may have a significant impact on a Health Care Company's market
value and/or share price.
PERFORMANCE
The bar chart and table on the following page show the performance of Advisor
Class Shares of the Health Care Fund both year-by-year and as an average over
different periods of time. The variability of performance over time provides an
indication of the risks of investing in the Fund. Of course, this past
performance does not necessarily indicate how the Fund will perform in the
future.
<PAGE>
PROSPECTUS 31
HEALTH CARE FUND
FUND PERFORMANCE AND FEE INFORMATION
[CHART]
* THE YEAR-TO-DATE RETURN FOR THE PERIOD FROM JANUARY 1, 2000 THROUGH JUNE 30,
2000 IS 19.27%.
DURING THE PERIOD SHOWN IN THE BAR CHART, THE HIGHEST RETURN FOR A QUARTER WAS
4.70% (QUARTER ENDED DECEMBER 31, 1999) AND THE LOWEST RETURN FOR A QUARTER WAS
-10.74% (QUARTER ENDED SEPTEMBER 30, 1999).
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN (FOR PERIODS ENDING DECEMBER 31, 1999)(1)
ADVISOR CLASS SHARES S&P 500 INDEX(2)
--------------------------------------------------------------------------------
<S> <C> <C>
PAST ONE YEAR -13.56% 19.53%
SINCE INCEPTION (05/11/98) -0.09% 18.85%
</TABLE>
(1) THESE FIGURES ASSUME THE REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS
DISTRIBUTIONS.
(2) THE S&P 500 INDEX IS AN UNMANAGED INDEX THAT IS A WIDELY RECOGNIZED
INDICATOR OF GENERAL STOCK MARKET PERFORMANCE.
FEES AND EXPENSES OF THE FUND
This table describes the fees and expenses that you may pay if you buy and hold
Advisor Class Shares of the Health Care Fund.
<TABLE>
<S> <C>
SHAREHOLDER FEES* ................................................. NONE
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
MANAGEMENT FEES ................................................. .85%
DISTRIBUTION (12b-1) FEES ....................................... .25%
OTHER EXPENSES .................................................. 1.05%
TOTAL ANNUAL FUND OPERATING EXPENSES .............................. 2.15%
</TABLE>
* THE FUND MAY IMPOSE A WIRE TRANSFER CHARGE OF $15 ON CERTAIN REDEMPTIONS UNDER
$5,000.
EXAMPLE
This Example is intended to help you compare the cost of investing in the
Advisor Class Shares of the Health Care Fund with the cost of investing in other
mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time period
indicated and then redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your cost would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------------------------------------------------
<S> <C> <C> <C>
$218 $673 $1,154 $2,483
</TABLE>
<PAGE>
32
INTERNET FUND
FUND INFORMATION
FUND OBJECTIVE
The Internet Fund seeks capital appreciation by investing in companies that
provide products or services designed for or related to the Internet ("Internet
Companies").
PORTFOLIO INVESTMENT STRATEGY
The Fund invests substantially all of its assets in equity securities of
Internet Companies that are traded in the United States. Internet Companies are
involved in all aspects of research, design development, manufacturing or
distribution of products or services for use with the Internet or
Internet-related businesses. Such companies may provide information or
entertainment services over the Internet; sell or distribute goods and services
over the Internet; provide infrastructure systems or otherwise provide hardware,
software or support which impacts Internet commerce; or provide Internet access
to consumers and businesses. Internet companies may also include companies that
provide Intranet and Extranet services. The Fund will maintain an adequate
representation of the various industries in the Internet sector. The Fund may
also engage in futures and options transactions, purchase ADRs and U.S.
Government securities, and enter into repurchase agreements.
RISK CONSIDERATIONS
In addition to the risks common to investing in any Sector Fund, the Internet
Fund is subject to a number of other risks that will affect the value of its
shares, including:
INTERNET SECTOR CONCENTRATION RISK - The risk that the securities of issuers in
the Internet sector that the Fund purchases will under perform the market as a
whole. To the extent that the Fund's investments are concentrated in issuers
conducting business in the same economic sector, the Fund is subject to
legislative or regulatory changes, adverse market conditions and/or increased
competition affecting that economic sector. The prices of the securities of
Internet Companies may fluctuate widely due to competitive pressures, increased
sensitivity to short product cycles and aggressive pricing, problems relating to
bringing their products to market and rapid obsolescence of products.
SMALLER COMPANY RISK - Although securities of large and well-established
companies in the Internet sector will be held in the Fund's portfolio, the Fund
also will invest in medium, small and/or newly-public companies which may be
subject to greater share price fluctuations and declining growth, particularly
in the event of rapid changes in technology and/or increased competition.
Securities of those smaller and/or less seasoned companies may therefore expose
shareholders of the Fund to above-average risk.
<PAGE>
PROSPECTUS 33
INTERNET FUND
FUND PERFORMANCE AND FEE INFORMATION
PERFORMANCE
The Internet Fund commenced operations on April 6, 2000. Therefore, it does not
have a performance history for a full calendar year.
FEES AND EXPENSES OF THE FUND
This table describes the fees and expenses that you may pay if you buy and hold
Advisor Class Shares of the Internet Fund. This table does not, however, include
any separate account or contract expenses, fees or charges.
<TABLE>
<S> <C>
SHAREHOLDER FEES* ................................................. NONE
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
MANAGEMENT FEES ................................................. .85%
DISTRIBUTION (12b-1) FEES ....................................... .25%
OTHER EXPENSES** ................................................ 1.00%
TOTAL ANNUAL FUND OPERATING EXPENSES .............................. 2.10%
</TABLE>
* THE FUND MAY IMPOSE A WIRE TRANSFER CHARGE OF $15 ON CERTAIN REDEMPTIONS UNDER
$5,000.
** OTHER EXPENSES ARE ESTIMATED.
EXAMPLE
This Example is intended to help you compare the cost of investing in the
Advisor Class Shares of the Internet Fund with the cost of investing in other
mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time period
indicated and then redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that the
Fund's estimated operating expenses remain the same. Although your actual costs
may be higher of lower, based on these assumptions your cost would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS
-------------------------------------------------------------------------------
<S> <C>
$213 $658
</TABLE>
<PAGE>
34
LEISURE FUND
FUND INFORMATION
FUND OBJECTIVE
The Leisure Fund seeks capital appreciation by investing in companies engaged in
leisure and entertainment businesses ("Leisure Companies").
PORTFOLIO INVESTMENT STRATEGY
The Fund invests substantially all of its assets in equity securities of Leisure
Companies that are traded in the United States. Leisure Companies are engaged in
the design, production, or distribution of goods or services in the leisure
industries. Leisure Companies include hotels and resorts, casinos, radio and
television broadcasting and advertising, motion picture production, toys and
sporting goods manufacture, musical recordings and instruments, alcohol and
tobacco, and publishing. The Fund may also engage in futures and options
transactions, purchase ADRs and U.S. Government securities, and enter into
repurchase agreements.
RISK CONSIDERATIONS
In addition to the risks common to investing in any Sector Fund, the Leisure
Fund is subject to a number of other risks that will affect the value of its
shares, including:
LEISURE SECTOR CONCENTRATION RISK - The risk that the securities of issuers in
the leisure sector that the Fund purchases will under perform the market as a
whole. To the extent that the Fund's investments are concentrated in issuers
conducting business in the same economic sector, the Fund is subject to
legislative or regulatory changes, adverse market conditions and/or increased
competition affecting that economic sector. Securities of Leisure Companies may
be considered speculative, and generally exhibit greater volatility than the
overall market. The prices of the securities of Leisure Companies may fluctuate
widely due to unpredictable earnings, due in part to changing consumer tastes
and intense competition, strong reaction to technological developments and to
the threat of increased government regulation, particularly in the gaming arena.
PERFORMANCE
The bar chart and table on the following page show the performance of Advisor
Class Shares of the Leisure Fund both year-by-year and as an average over
different periods of time. The variability of performance over time provides an
indication of the risks of investing in the Fund. Of course, this past
performance does not necessarily indicate how the Fund will perform in the
future.
<PAGE>
PROSPECTUS 35
LEISURE FUND
FUND PERFORMANCE AND FEE INFORMATION
[GRAPH]
* THE YEAR-TO-DATE RETURN FOR THE PERIOD FROM JANUARY 1, 2000 THROUGH JUNE 30,
2000 IS -8.26%.
DURING THE PERIOD SHOWN IN THE BAR CHART, THE HIGHEST RETURN FOR A QUARTER WAS
16.61% (QUARTER ENDED DECEMBER 31, 1999) AND THE LOWEST RETURN FOR A QUARTER WAS
-8.71% (QUARTER ENDED SEPTEMBER 30, 1999).
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN (FOR PERIODS ENDING DECEMBER 31, 1999)(1)
ADVISOR CLASS SHARES S&P 500 INDEX(2)
--------------------------------------------------------------------------------
<S> <C> <C>
PAST ONE YEAR 8.36% 19.53%
SINCE INCEPTION (06/03/98) 13.92% 21.34%
</TABLE>
(1) THESE FIGURES ASSUME THE REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS
DISTRIBUTIONS.
(2) THE S&P 500 INDEX IS AN UNMANAGED INDEX THAT IS A WIDELY RECOGNIZED
INDICATOR OF GENERAL STOCK MARKET PERFORMANCE.
FEES AND EXPENSES OF THE FUND
This table describes the fees and expenses that you may pay if you buy and hold
Advisor Class Shares of the Leisure Fund.
<TABLE>
<S> <C>
SHAREHOLDER FEES* .................................................. NONE
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
MANAGEMENT FEES .................................................. .85%
DISTRIBUTION (12b-1) FEES .......................................... .25%
OTHER EXPENSES ..................................................... .98%
TOTAL ANNUAL FUND OPERATING EXPENSES ............................... 2.08%
</TABLE>
* THE FUND MAY IMPOSE A WIRE TRANSFER CHARGE OF $15 ON CERTAIN REDEMPTIONS UNDER
$5,000.
EXAMPLE
This Example is intended to help you compare the cost of investing in the
Advisor Class Shares of the Leisure Fund with the cost of investing in other
mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time period
indicated and then redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your cost would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------------------------------------------------
<S> <C> <C> <C>
$211 $652 $1,119 $2,410
</TABLE>
<PAGE>
36
RETAILING FUND
FUND INFORMATION
FUND OBJECTIVE
The Retailing Fund seeks capital appreciation by investing in companies engaged
in merchandising finished goods and services, including department stores,
restaurant franchises, mail order operations and other companies involved in
selling products to consumers ("Retailing Companies").
PORTFOLIO INVESTMENT STRATEGY
The Fund invests substantially all of its assets in equity securities of
Retailing Companies that are traded in the United States. Retailing Companies
include drug and department stores; suppliers of goods and services for homes,
home improvements and yards; clothing, jewelry, electronics and computer
retailers; franchise restaurants; motor vehicle and marine dealers; warehouse
membership clubs; mail order operations; and companies involved in alternative
selling methods. The Fund may also engage in futures and options transactions,
purchase ADRs and U.S. Government securities, and enter into repurchase
agreements.
RISK CONSIDERATIONS
In addition to the risks common to investing in any Sector Fund, the Retailing
Fund is subject to a number of other risks that will affect the value of its
shares, including:
RETAILING SECTOR CONCENTRATION RISK - The risk that the securities of issuers in
the retailing sector that the Fund purchases will under perform the market as a
whole. To the extent that the Fund's investments are concentrated in issuers
conducting business in the same economic sector, the Fund is subject to
legislative or regulatory changes, adverse market conditions and/or increased
competition affecting that economic sector. The prices of the securities of
Retailing Companies may fluctuate widely due to consumer spending, which is
affected by general economic conditions and consumer confidence levels. The
retailing industry is highly competitive, and a Retailing Company's success is
often tied to its ability to anticipate and react to changing consumer tastes.
Many Retailing Companies are thinly capitalized, and are dependent upon a
relatively few number of business days to achieve their overall results.
PERFORMANCE
The bar chart and table on the following page show the performance of Advisor
Class Shares of the Retailing Fund both year-by-year and as an average over
different periods of time. The variability of performance over time provides an
indication of the risks of investing in the Fund. Of course, this past
performance does not necessarily indicate how the Fund will perform in the
future.
<PAGE>
PROSPECTUS 37
RETAILING FUND
FUND PERFORMANCE AND FEE INFORMATION
[GRAPH]
* THE YEAR-TO-DATE RETURN FOR THE PERIOD FROM JANUARY 1, 2000 THROUGH JUNE 30,
2000 IS -20.65%.
DURING THE PERIOD SHOWN IN THE BAR CHART, THE HIGHEST RETURN FOR A QUARTER WAS
15.65% (QUARTER ENDED DECEMBER 31, 1998) AND THE LOWEST RETURN FOR A QUARTER WAS
-10.52% (QUARTER ENDED SEPTEMBER 30, 1998).
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN (FOR PERIODS ENDING DECEMBER 31, 1999)(1)
ADVISOR CLASS SHARES S&P 500 INDEX(2)
--------------------------------------------------------------------------------
<S> <C> <C>
PAST ONE YEAR 12.76% 19.53%
SINCE INCEPTION (04/21/98) 21.72% 16.97%
</TABLE>
(1) THESE FIGURES ASSUME THE REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS
DISTRIBUTIONS.
(2) THE S&P 500 INDEX IS AN UNMANAGED INDEX THAT IS A WIDELY RECOGNIZED
INDICATOR OF GENERAL STOCK MARKET PERFORMANCE.
FEES AND EXPENSES OF THE FUND
This table describes the fees and expenses that you may pay if you buy and hold
Advisor Class Shares of the Retailing Fund.
<TABLE>
<S> <C>
SHAREHOLDER FEES* .......................................................... NONE
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
MANAGEMENT FEES .......................................................... .85%
DISTRIBUTION (12b-1) FEES ................................................ .25%
OTHER EXPENSES ........................................................... .99%
TOTAL ANNUAL FUND OPERATING EXPENSES ....................................... 2.09%
</TABLE>
* THE FUND MAY IMPOSE A WIRE TRANSFER CHARGE OF $15 ON CERTAIN REDEMPTIONS UNDER
$5,000.
EXAMPLE
This Example is intended to help you compare the cost of investing in the
Advisor Class Shares of the Retailing Fund with the cost of investing in other
mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time period
indicated and then redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your cost would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------------------------------------------------
<S> <C> <C> <C>
$212 $655 $1,124 $2,421
</TABLE>
<PAGE>
38
TECHNOLOGY FUND
FUND INFORMATION
FUND OBJECTIVE
The Technology Fund seeks capital appreciation by investing in companies that
are involved in the technology sector, including computer software and service
companies, semiconductor manufacturers, networking and telecommunications
equipment manufacturers, PC hardware and peripherals companies ("Technology
Companies").
PORTFOLIO INVESTMENT STRATEGY
The Fund invests substantially all of its assets in equity securities of
Technology Companies that are traded in the United States. Technology Companies
are companies which the Advisor believes have, or will develop, products,
processes, or services that will provide technological advances and
improvements. These companies may include, for example, companies that develop,
produce or distribute products or services in the computer, semiconductor,
electronics, communications, health care, and biotechnology sectors. The Fund
may also engage in futures and options transactions, purchase ADRs and U.S.
Government securities, and enter into repurchase agreements.
RISK CONSIDERATIONS
In addition to the risks common to investing in any Sector Fund, the Technology
Fund is subject to a number of other risks that will affect the value of its
shares, including:
TECHNOLOGY SECTOR CONCENTRATION RISK - The risk that the securities of issuers
in the technology sector that the Fund purchases will under perform the market
as a whole. To the extent that the Fund's investments are concentrated in
issuers conducting business in the same economic sector, the Fund is subject to
legislative or regulatory changes, adverse market conditions and/or increased
competition affecting that economic sector. The prices of the securities of
Technology Companies may fluctuate widely due to competitive pressures,
increased sensitivity to short product cycles and aggressive pricing, problems
relating to bringing their products to market, very high price/earnings ratios,
and high personnel turnover due to severe labor shortages for skilled technology
professionals.
PERFORMANCE
The bar chart and table on the following page show the performance of Advisor
Class Shares of the Technology Fund both year-by-year and as an average over
different periods of time. The variability of performance over time provides an
indication of the risks of investing in the Fund. Of course, this past
performance does not necessarily indicate how the Fund will perform in the
future.
<PAGE>
PROSPECTUS 39
TECHNOLOGY FUND
FUND PERFORMANCE AND FEE INFORMATION
[GRAPH]
* THE YEAR-TO-DATE RETURN FOR THE PERIOD FROM JANUARY 1, 2000 THROUGH JUNE 30,
2000 IS 2.15%.
DURING THE PERIOD SHOWN IN THE BAR CHART,
THE HIGHEST RETURN FOR A QUARTER WAS 39.30%
(QUARTER ENDED DECEMBER 31, 1999) AND THE LOWEST RETURN FOR A QUARTER WAS 4.56%
(QUARTER ENDED SEPTEMBER 30, 1999).
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN (FOR PERIODS ENDING DECEMBER 31, 1999)(1)
ADVISOR CLASS SHARES S&P 500 INDEX(2)
--------------------------------------------------------------------------------
<S> <C> <C>
PAST ONE YEAR 80.13% 19.53%
SINCE INCEPTION (04/29/98) 74.28% 19.22%
</TABLE>
(1) THESE FIGURES ASSUME THE REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS
DISTRIBUTIONS.
(2) THE S&P 500 INDEX IS AN UNMANAGED INDEX THAT IS A WIDELY RECOGNIZED
INDICATOR OF GENERAL STOCK MARKET PERFORMANCE.
FEES AND EXPENSES OF THE FUND
This table describes the fees and expenses that you may pay if you buy and hold
Advisor Class Shares of the Technology Fund.
<TABLE>
<S> <C>
SHAREHOLDER FEES* ........................................................ NONE
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
MANAGEMENT FEES ........................................................ .85%
DISTRIBUTION (12b-1) FEES .............................................. .25%
OTHER EXPENSES ......................................................... .79%
TOTAL ANNUAL FUND OPERATING EXPENSES ..................................... 1.89%
</TABLE>
* THE FUND MAY IMPOSE A WIRE TRANSFER CHARGE OF $15 ON CERTAIN REDEMPTIONS UNDER
$5,000.
EXAMPLE
This Example is intended to help you compare the cost of investing in the
Advisor Class Shares of the Technology Fund with the cost of investing in other
mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time period
indicated and then redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your cost would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------------------------------------------------
<S> <C> <C> <C>
$192 $594 $1,021 $2,212
</TABLE>
<PAGE>
40
TELECOMMUNICATIONS FUND
FUND INFORMATION
FUND OBJECTIVE
The Telecommunications Fund seeks capital appreciation by investing in companies
engaged in the development, manufacture, or sale of communications services or
communications equipment ("Telecommunications Companies").
PORTFOLIO INVESTMENT STRATEGY
The Fund invests substantially all of its assets in equity securities of
Telecommunications Companies that are traded in the United States.
Telecommunications Companies range from traditional local and long-distance
telephone services or equipment providers, to companies involved in developing
technologies such as cellular telephone or paging services, Internet equipment
and service providers, and fiber-optics. The Fund may also engage in futures and
options transactions, purchase ADRs and U.S. Government securities, and enter
into repurchase agreements. Although many established Telecommunications
Companies pay an above-average dividend, the Fund's investment decisions are
primarily based on growth potential and not on income.
RISK CONSIDERATIONS
In addition to the risks common to investing in any Sector Fund, the
Telecommunications Fund is subject to a number of other risks that will affect
the value of its shares, including:
TELECOMMUNICATIONS SECTOR CONCENTRATION RISK - The risk that the securities of
issuers in the telecommunications sector that the Fund purchases will under
perform the market as a whole. To the extent that the Fund's investments are
concentrated in issuers conducting business in the same economic sector, the
Fund is subject to legislative or regulatory changes, adverse market conditions
and/or increased competition affecting that economic sector. The prices of the
securities of Telecommunications Companies may fluctuate widely due to both
federal and state regulations governing rates of return and services that may be
offered, fierce competition for market share, and competitive challenges in the
U.S. from foreign competitors engaged in strategic joint ventures with U.S.
companies, and in foreign markets from both U.S. and foreign competitors. In
addition, recent industry consolidation trends may lead to increased regulation
of Telecommunications Companies in their primary markets.
PERFORMANCE
The bar chart and table on the following page show the performance of Advisor
Class Shares of the Telecommunications Fund both year-by-year and as an average
over different periods of time. The variability of performance over time
provides an indication of the risks of investing in the Fund. Of course, this
past performance does not necessarily indicate how the Fund will perform in the
future.
<PAGE>
PROSPECTUS 41
TELECOMMUNICATIONS FUND
FUND PERFORMANCE AND FEE INFORMATION
[GRAPH]
* THE YEAR-TO-DATE RETURN FOR THE PERIOD FROM JANUARY 1, 2000 THROUGH JUNE 30,
2000 IS -6.17%.
DURING THE PERIOD SHOWN IN THE BAR CHART, THE HIGHEST RETURN FOR A QUARTER WAS
35.59% (QUARTER ENDED DECEMBER 31, 1999) AND THE LOWEST RETURN FOR A QUARTER WAS
-4.14% (QUARTER ENDED SEPTEMBER 30, 1999).
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN (FOR PERIODS ENDING DECEMBER 31, 1999)(1)
ADVISOR CLASS SHARES S&P 500 INDEX(2)
--------------------------------------------------------------------------------
<S> <C> <C>
PAST ONE YEAR 57.93% 19.53%
SINCE INCEPTION (04/01/98) 46.26% 17.48%
</TABLE>
(1) THESE FIGURES ASSUME THE REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS
DISTRIBUTIONS.
(2) THE S&P 500 INDEX IS AN UNMANAGED INDEX THAT IS A WIDELY RECOGNIZED
INDICATOR OF GENERAL STOCK MARKET PERFORMANCE.
FEES AND EXPENSES OF THE FUND
This table describes the fees and expenses that you may pay if you buy and hold
Advisor Class Shares of the Telecommunications Fund.
<TABLE>
<S> <C>
SHAREHOLDER FEES* ........................................................... NONE
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
MANAGEMENT FEES ........................................................... .85%
DISTRIBUTION (12b-1) FEES ................................................. .25%
OTHER EXPENSES ............................................................ .95%
TOTAL ANNUAL FUND OPERATING EXPENSES ........................................ 2.05%
</TABLE>
* THE FUND MAY IMPOSE A WIRE TRANSFER CHARGE OF $15 ON CERTAIN REDEMPTIONS UNDER
$5,000.
EXAMPLE
This Example is intended to help you compare the cost of investing in the
Advisor Class Shares of the Telecommunications Fund with the cost of investing
in other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time period
indicated and then redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your cost would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------------------------------------------------
<S> <C> <C> <C>
$208 $643 $1,103 $2,379
</TABLE>
<PAGE>
42
TRANSPORTATION FUND
FUND INFORMATION
FUND OBJECTIVE
The Transportation Fund seeks capital appreciation by investing in companies
engaged in providing transportation services or companies engaged in the design,
manufacture, distribution, or sale of transportation equipment ("Transportation
Companies").
PORTFOLIO INVESTMENT STRATEGY
The Fund invests substantially all of its assets in equity securities of
Transportation Companies that are traded in the United States. Transportation
Companies may include, for example, companies involved in the movement of
freight or people, such as airline, railroad, ship, truck and bus companies;
equipment manufacturers (including makers of trucks, automobiles, planes,
containers, railcars or other modes of transportation and related products);
parts suppliers; and companies involved in leasing, maintenance, and
transportation-related services. The Fund may also engage in futures and options
transactions, purchase ADRs and U.S. Government securities, and enter into
repurchase agreements.
RISK CONSIDERATIONS
In addition to the risks common to investing in any Sector Fund, the
Transportation Fund is subject to a number of other risks that will affect the
value of its shares, including:
TRANSPORTATION SECTOR CONCENTRATION RISK - The risk that the securities of
issuers in the transportation sector that the Fund purchases will under perform
the market as a whole. To the extent that the Fund's investments are
concentrated in issuers conducting business in the same economic sector, the
Fund is subject to legislative or regulatory changes, adverse market conditions
and/or increased competition affecting that economic sector. The prices of the
securities of Transportation Companies may fluctuate widely due to their
cyclical nature, occasional sharp price movements which may result from changes
in the economy, fuel prices, labor agreements, and insurance costs, the recent
trend of government deregulation, and increased competition from foreign
companies, many of which are partially funded by foreign governments and which
may be less sensitive to short-term economic pressures.
PERFORMANCE
The bar chart and table on the following page show the performance of Advisor
Class Shares of the Transportation Fund both year-by-year and as an average over
different periods of time. The variability of performance over time provides an
indication of the risks of investing in the Fund. Of course, this past
performance does not necessarily indicate how the Fund will perform in the
future.
<PAGE>
PROSPECTUS 43
TRANSPORTATION FUND
FUND PERFORMANCE AND FEE INFORMATION
[CHART]
* THE YEAR-TO-DATE RETURN FOR THE PERIOD FROM JANUARY 1, 2000 THROUGH JUNE 30,
2000 IS -13.67%.
DURING THE PERIOD SHOWN IN THE BAR CHART, THE HIGHEST RETURN FOR A QUARTER WAS
7.04% (QUARTER ENDED JUNE 30, 1999) AND THE LOWEST RETURN FOR A QUARTER WAS
-19.98% (QUARTER ENDED SEPTEMBER 30, 1999).
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN (FOR PERIODS ENDING DECEMBER 31, 1999)(1)
ADVISOR CLASS SHARES S&P 500 INDEX(2)
--------------------------------------------------------------------------------
<S> <C> <C>
PAST ONE YEAR -18.83% 19.53%
SINCE INCEPTION (06/09/98) -20.20% 19.09%
</TABLE>
(1) THESE FIGURES ASSUME THE REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS
DISTRIBUTIONS.
(2) THE S&P 500 INDEX IS AN UNMANAGED INDEX THAT IS A WIDELY RECOGNIZED
INDICATOR OF GENERAL STOCK MARKET PERFORMANCE.
FEES AND EXPENSES OF THE FUND
This table describes the fees and expenses that you may pay if you buy and hold
Advisor Class Shares of the Transportation Fund.
<TABLE>
<S> <C>
SHAREHOLDER FEES* .......................................................... NONE
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
MANAGEMENT FEES .......................................................... .85%
DISTRIBUTION (12b-1) FEES ................................................ .25%
OTHER EXPENSES ........................................................... .23%
TOTAL ANNUAL FUND OPERATING EXPENSES ....................................... 1.33%
</TABLE>
* THE FUND MAY IMPOSE A WIRE TRANSFER CHARGE OF $15 ON CERTAIN REDEMPTIONS UNDER
$5,000.
EXAMPLE
This Example is intended to help you compare the cost of investing in the
Advisor Class Shares of the Transportation Fund with the cost of investing in
other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time period
indicated and then redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your cost would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------------------------------------------------
<S> <C> <C> <C>
$135 $421 $729 $1,601
</TABLE>
<PAGE>
44
UTILITIES FUND
FUND INFORMATION
FUND OBJECTIVE
The Utilities Fund seeks capital appreciation by investing in companies that
operate public utilities ("Utilities Companies").
PORTFOLIO INVESTMENT STRATEGY
The Fund invests substantially all of its assets in equity securities of
Utilities Companies that are traded in the United States. Utilities Companies
may include companies involved in the manufacturing, production, generation,
transmission, distribution or sales of gas or electric energy; water supply,
waste and sewage disposal; and companies that receive a majority of their
revenues from their public utility operations. The Fund may also engage in
futures and options transactions, purchase ADRs and U.S. Government securities,
and enter into repurchase agreements.
RISK CONSIDERATIONS
In addition to the risks common to investing in any Sector Fund, the Utilities
Fund is subject to a number of other risks that will affect the value of its
shares, including:
UTILITIES SECTOR CONCENTRATION RISK - The risk that the securities of issuers in
the Utilities sector that the Fund purchases will under perform the market as a
whole. To the extent that the Fund's investments are concentrated in issuers
conducting business in the same economic sector, the Fund is subject to
legislative or regulatory changes, adverse market conditions and/or increased
competition affecting that economic sector. The prices of the securities of
Utilities Companies may fluctuate widely due to government regulation; the
effect of interest rates on capital financing; competitive pressures due to
deregulation in the utilities industry; supply and demand for services;
increased sensitivity to the cost of natural resources required for energy
production; and environmental factors such as conservation of natural resources.
<PAGE>
PROSPECTUS 45
UTILITIES FUND
FUND PERFORMANCE AND FEE INFORMATION
PERFORMANCE
The Utilities Fund commenced operations on April 3, 2000. Therefore, it does not
have a performance history for a full calendar year.
FEES AND EXPENSES OF THE FUND
This table describes the fees and expenses that you may pay if you buy and hold
Advisor Class Shares of the Utilities Fund. This table does not, however,
include any separate account or contract expenses, fees or charges.
<TABLE>
<S> <C>
SHAREHOLDER FEES* .......................................................... NONE
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
MANAGEMENT FEES .......................................................... .85%
DISTRIBUTION (12b-1) FEES ................................................ .25%
OTHER EXPENSES** ......................................................... 1.00%
TOTAL ANNUAL FUND OPERATING EXPENSES ....................................... 2.10%
</TABLE>
* THE FUND MAY IMPOSE A WIRE TRANSFER CHARGE OF $15 ON CERTAIN REDEMPTIONS UNDER
$5,000.
** OTHER EXPENSES ARE ESTIMATED.
EXAMPLE
This Example is intended to help you compare the cost of investing in the
Advisor Class Shares of the Utilities Fund with the cost of investing in other
mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time period
indicated and then redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that the
Fund's estimated operating expenses remain the same. Although your actual costs
may be higher of lower, based on these assumptions your cost would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS
--------------------------------------------------------------------------------
<S> <C>
$213 $658
</TABLE>
<PAGE>
46
U.S. GOVERNMENT MONEY MARKET FUND
FUND INFORMATION
FUND OBJECTIVE
The U.S. Government Money Market Fund seeks to provide security of principal,
high current income, and liquidity.
PORTFOLIO INVESTMENT STRATEGY
The U.S. Government Money Market Fund invests primarily in money market
instruments issued or guaranteed as to principal and interest by the U.S.
Government, its agencies or instrumentalities, and enters into repurchase
agreements fully collateralized by U.S. Government securities. The Fund operates
under SEC rules which impose certain liquidity, maturity and diversification
requirements. All securities purchased by the Fund must have remaining
maturities of 397 days or less, and must be found by the Advisor to represent
minimal credit risk and be of eligible quality.
RISK CONSIDERATIONS
The U.S. Government Money Market Fund is subject to the following risks that
will potentially affect the value of its shares:
INTEREST RATE RISK - Interest Rate Risk involves the potential for decline in
the rate of dividends the Fund pays in the event of declining interest rates.
STABLE PRICE PER SHARE RISK - The Fund's assets are valued using the amortized
cost method, which enables the Fund to maintain a stable price of $1.00 per
share. ALTHOUGH THE FUND IS MANAGED TO MAINTAIN A STABLE PRICE PER SHARE OF
$1.00, THERE IS NO GUARANTEE THAT THE PRICE WILL BE CONSTANTLY MAINTAINED, AND
IT IS POSSIBLE TO LOSE MONEY. THE FUND IS NOT A BANK DEPOSIT AND IS NOT
FEDERALLY INSURED OR GUARANTEED BY ANY GOVERNMENT AGENCY OR GUARANTEED TO
ACHIEVE ITS OBJECTIVE.
PERFORMANCE
The bar chart and table below show the performance of the U.S. Government Money
Market Fund both year-by-year and as an average over different periods of time.
Periods prior to April 1, 1998 represent the performance of Investor Class
Shares of the Fund, which are not offered in this Prospectus. The performance of
Investor Class Shares has been adjusted to reflect Advisor Class Shares' higher
expenses. The variability of performance over time provides an indication of the
risks of investing in the Fund. Of course, this past performance does not
necessarily indicate how the Fund will perform in the future.
<PAGE>
PROSPECTUS 47
U.S. GOVERNMENT MONEY MARKET
FUND PERFORMANCE AND FEE INFORMATION
[CHART]
* THE YEAR-TO-DATE RETURN FOR THE PERIOD FROM JANUARY 1, 2000 THROUGH JUNE 30,
2000 IS 2.25%.
DURING THE PERIOD SHOWN IN THE BAR CHART, THE HIGHEST RETURN FOR A QUARTER WAS
1.27% (QUARTER ENDED JUNE 30, 1995) AND THE LOWEST RETURN FOR A QUARTER WAS .50%
(QUARTER ENDED MARCH 31, 1994).
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN (FOR PERIODS ENDING DECEMBER 31,1999)(1)
ADVISOR CLASS SHARES 90-DAY TREASURY COMPOSITE(1)
------------------------------------------------------------------------------------
<S> <C> <C>
PAST ONE YEAR 3.73% 4.64%
PAST FIVE YEARS 4.41% 5.00%
SINCE INCEPTION (12/03/93)(3) 4.21% 4.84%
</TABLE>
(1) THESE FIGURES ASSUME THE REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS
DISTRIBUTIONS.
(2) THE 90-DAY TREASURY COMPOSITE INDEX IS AN UNMANAGED INDEX THAT IS A WIDELY
RECOGNIZED INDICATOR OF GENERAL MONEY MARKET PERFORMANCE.
(3) INCEPTION DATE REFLECTS COMMENCEMENT OF FUND OPERATIONS. ADVISOR CLASS
SHARES WERE OFFERED BEGINNING APRIL 1, 1998.
YIELD - Call (800) 820-0888 or visit www.rydexfunds.com for the Fund's current
yield.
FEES AND EXPENSES OF THE FUND
This table describes the fees and expenses that you may pay if you buy and hold
Advisor Class Shares of the U.S. Government Money Market Fund.
<TABLE>
<S> <C>
SHAREHOLDER FEES* .......................................................... NONE
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
MANAGEMENT FEES .......................................................... .50%
DISTRIBUTION (12b-1) FEES ................................................ .25%
OTHER EXPENSES ........................................................... .65%
TOTAL ANNUAL FUND OPERATING EXPENSES ....................................... 1.40%
</TABLE>
* THE FUND MAY IMPOSE A WIRE TRANSFER CHARGE OF $15 ON CERTAIN REDEMPTIONS UNDER
$5,000.
EXAMPLE
This Example is intended to help you compare the cost of investing in the
Advisor Class Shares of the U.S. Government Money Market Fund with the cost of
investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time period
indicated and then redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your cost would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------------------------------------------------
<S> <C> <C> <C>
$143 $443 $766 $1,680
</TABLE>
<PAGE>
48
MORE INFORMATION ABOUT FUND
INVESTMENTS AND RISK
THE BENCHMARK FUNDS' INVESTMENT OBJECTIVES
Each Benchmark Fund's objective is to provide investment results that match the
performance of a specific benchmark on a daily basis. The current benchmark used
by each Fund is set forth below:
FUND BENCHMARK
--------------------------------------------------------------------------------
NOVA FUND 150% OF THE PERFORMANCE OF THE S&P 500 COMPOSITE STOCK PRICE
INDEX-TM- (SPX)
URSA FUND INVERSE (OPPOSITE) OF THE PERFORMANCE OF THE S&P 500 COMPOSITE
STOCK PRICE INDEX-TM- (SPX)
OTC FUND 100% OF THE PERFORMANCE OF THE NASDAQ 100 INDEX-TM- (NDX)
A BRIEF GUIDE TO THE BENCHMARKS.
THE S&P 500 INDEX. The S&P 500 Index is a capitalization-weighted index composed
of 500 common stocks, which are chosen by the Standard & Poor's Corporation
(S&P) on a statistical basis.
THE NASDAQ 100 INDEX. The NASDAQ 100 Index is a modified capitalization-weighted
index composed of 100 of the largest non-financial companies listed on the
National Association of Securities Dealers Automated Quotations System.
ADVISOR'S INVESTMENT STRATEGY IN MANAGING THE FUNDS
BENCHMARK FUNDS. In managing the Benchmark Funds, the Advisor uses a
"quantitative" investment strategy to manage each Fund's portfolio. The Advisor
uses quantitative analysis techniques to structure each Fund to obtain the
highest correlation to its particular benchmark, but does not attempt to select
securities based on their individual potential to perform better than the
market. The Advisor's primary objective is to match the performance of each
Fund's benchmark as closely as possible on a daily basis. The Advisor does not
engage in temporary defensive investing, keeping each Fund's assets fully
invested in all market environments. The Advisor monitors each Fund on an
ongoing basis, and makes adjustments to its portfolio, as necessary, to minimize
tracking error and to maximize liquidity.
The Advisor may pursue the Funds' investment objectives by utilizing leveraged
instruments, such as futures contracts and options on securities, futures
contracts, and stock indices. In addition, the Advisor will regularly utilize
short selling techniques designed to help the Ursa Fund's performance to
inversely correlate to the performance of the S&P 500 Index.
SECTOR FUNDS. In managing the Sector Funds, the Advisor's investment team
employs a quantitative model that considers a number of factors. To develop a
liquid portfolio of stocks that adequately represents a particular market
sector, the Advisor applies filters to the broad universe of stocks of issuers
that are "principally engaged" in business activities in
<PAGE>
PROSPECTUS 49
each industry sector. Specifically, the Advisor's investment process screens
stocks primarily based on liquidity, market capitalization, and correlation
relative to the entire industry sector. The Advisor also may consider other
factors.
The Advisor monitors the Sector Funds' portfolios on an ongoing basis, and adds
or deletes stocks from the portfolios as needed.
After constructing a portfolio for each Sector Fund, the Advisor may utilize
futures contracts and options to leverage a Fund's exposure to the relevant
business sector. The use of leverage will result in each Fund being exposed to
its relevant business sector with more than 100% of its total assets.
Each business sector typically consists of numerous industries. For purposes of
the Advisor's investment methodology and the policies for each Fund, a company
is considered to be "principally engaged" in a designated business activity in a
particular economic sector if at least 50% of its assets, gross income, or net
profits are committed to, or derived from, that activity. If a question exists
as to whether a company meets these standards, the Advisor will determine
whether the company's primary business is within the business sector designated
for investment by that Fund.
MASTER-FEEDER INVESTMENT STRUCTURE
As discussed in its "Fund Information" section, the Ursa Fund now pursues its
investment objective indirectly by investing through what is sometimes referred
to as a "master-feeder arrangement." This was accomplished by the Fund selling
all of its assets and liabilities to the Ursa Master Fund on April 3, 2000.
Under a master-feeder arrangement, a Fund's investment portfolio is composed
solely of shares of a "master fund," a separate mutual fund that has an
identical investment objective, e.g., the Ursa Fund would act as a "feeder
fund," holding shares of its master fund as its only investment. As a result,
the Fund has indirect interest in all of the securities owned by the master
fund. Because of this indirect interest, the Fund's investment returns should be
the same as those of the master fund, adjusted for Fund expenses.
The Advisor may choose to discontinue investing through the master-feeder
arrangement and manage the Fund directly if the Trust determines that doing so
would be in the best interests of the shareholders.
RISKS OF INVESTING IN THE FUNDS
As indicated below, the Funds are subject to a number of risks that may affect
the value of Fund shares.
EQUITY RISK (ALL FUNDS EXCEPT U.S. GOVERNMENT MONEY MARKET FUND) - The Funds may
invest in public and privately issued equity securities, including common and
preferred stocks, warrants, and rights, as well as instruments that attempt to
track the price movement of equity indices. Investments in equity securities and
equity derivatives in general are subject to
<PAGE>
50
market risks that may cause their prices to fluctuate over time. The value of
securities convertible into equity securities, such as warrants or convertible
debt, is also affected by prevailing interest rates, the credit quality of the
issuer and any call provision. Fluctuations in the value of equity securities in
which the Funds invest will cause the net asset value of the Funds to fluctuate.
Historically, the equity markets have moved in cycles, and the value of the
Fund's equity securities and equity derivatives may fluctuate drastically from
day to day. Because of their link to the equity markets, an investment in the
Funds may be more suitable for long-term investors who can bear the risk of
short-term principal fluctuations.
NON-DIVERSIFICATION RISK (ALL FUNDS EXCEPT U.S. GOVERNMENT MONEY MARKET FUND) -
Since each Fund is non-diversified, each Fund may invest in the securities of a
limited number of issuers. To the extent that a Fund invests a significant
percentage of its assets in a limited number of issuers, the Fund is subject to
the risks of investing in those few issuers, and may be more susceptible to a
single adverse economic or regulatory occurrence.
INDUSTRY CONCENTRATION RISK (OTC AND SECTOR FUNDS) - None of the Benchmark Funds
will invest 25% or more of the value of the Fund's total assets in the
securities of one or more issuers conducting their principal business activities
in the same industry; except that, to the extent the index underlying a Fund's
benchmark is concentrated in a particular industry, a Fund will necessarily be
concentrated in that industry. Currently, the index underlying the OTC Fund's
benchmark -- the NASDAQ 100 Index -- is concentrated in technology companies.
The Sector Funds invest in the securities of a limited number of issuers
conducting business in a specific industry and therefore are concentrated in
that industry. The risk of concentrating Fund investments in a limited number of
issuers conducting business in the same industry is that a Fund will be more
susceptible to the risks that are associated with those issuers (or that
industry) than a fund that does not concentrate its investments.
TRACKING ERROR RISK (BENCHMARK FUNDS) - Factors such as Fund expenses, imperfect
correlation between the Funds' investments and those of their benchmarks,
rounding of share prices, changes to the benchmark, regulatory policies, high
portfolio turnover rate and leverage all contribute to tracking error.
For the Benchmark Funds, tracking error risk refers to the risk that the
Benchmark Funds' returns may not match the returns of their respective
benchmarks. While the Benchmark Funds do not expect returns to deviate
significantly from their respective benchmarks on a daily basis, the cumulative
effect of the above factors may over time cause the Benchmark Funds' returns to
deviate from their respective benchmarks on an aggregate basis.
TRADING HALT RISK (ALL FUNDS EXCEPT U.S. GOVERNMENT MONEY MARKET FUND) - The
Funds typically will hold short-term options and futures contracts. The major
exchanges on which these contracts are traded, such as the Chicago Mercantile
Exchange (CME), have established limits on how much an option or futures
contract may decline over various time periods within a day. If an option or
futures contract's price declines more than the established limits, trading on
the exchange is halted on that instrument. If a trading halt occurs, at the
close of a trading day, a Fund may not be able to purchase or sell options or
futures contracts. In such an event, a
<PAGE>
PROSPECTUS 51
Fund also may be required to use a "fair-value" method to price its outstanding
contracts.
FUTURES AND OPTIONS RISK (ALL FUNDS EXCEPT U.S. GOVERNMENT MONEY MARKET FUND) -
The Funds may invest a percentage of their assets in leveraged instruments such
as futures and options contracts. The Funds may use futures contracts and
related options for bona fide hedging purposes to offset changes in the value of
securities held or expected to be acquired. They may also be used to gain
exposure to a particular market or instrument, to create a synthetic money
market position, and for certain other tax-related purposes. The Funds will only
enter into futures contracts traded on a national futures exchange or board of
trade. Futures and options contracts are described in more detail below:
FUTURES CONTRACTS - Futures contracts and options on futures contracts provide
for the future sale by one party and purchase by another party of a specified
amount of a specific security at a specified future time and at a specified
price. An option on a futures contract gives the purchaser the right, in
exchange for a premium, to assume a position in a futures contract at a
specified exercise price during the term of the option. Index futures are
futures contracts for various indices that are traded on registered securities
exchanges.
OPTIONS - The buyer of an option acquires the right to buy (a call option) or
sell (a put option) a certain quantity of a security (the underlying security)
or instrument at a certain price up to a specified point in time. The seller
or writer of an option is obligated to sell (a call option) or buy (a put
option) the underlying security. When writing (selling) call options on
securities, the Funds may cover its position by owning the underlying security
on which the option is written or by owning a call option on the underlying
security. Alternatively, the Funds may cover its position by maintaining in a
segregated account cash or liquid securities equal in value to the exercise
price of the call option written by the Funds.
The risks associated with the Funds' use of futures and options contracts
include:
- A Fund experiencing losses over certain ranges in the market that exceed
losses experienced by a Fund that does not use futures contracts and
options.
- There may be an imperfect correlation between the changes in market value of
the securities held by a Fund and the prices of futures and options on
futures.
- Although the Funds will only purchase exchange-traded futures, due to market
conditions there may not always be a liquid secondary market for a futures
contract or option. As a result, the Funds may be unable to close out their
futures contracts at a time which is advantageous.
- Trading restrictions or limitations may be imposed by an exchange, and
government regulations may restrict trading in futures contracts and
options.
- Because option premiums paid or received by the Funds are small in relation
to the market value of the investments underlying the options, buying and
selling put and call options can be more speculative than investing directly
in securities.
<PAGE>
52
PORTFOLIO TURNOVER RATE RISK (ALL FUNDS EXCEPT U.S. GOVERNMENT MONEY MARKET
FUND) - The Trust anticipates that investors that are part of a tactical
asset-allocation strategy will frequently redeem or exchange shares of a Fund,
which will cause that Fund to experience high portfolio turnover. A higher
portfolio turnover rate may result in a Fund paying higher levels of
transaction costs and generating greater tax liabilities for shareholders.
EARLY CLOSING RISK (OTC AND SECTOR FUNDS) - The normal close of trading of
securities listed on the National Association of Securities Dealers Automated
Quotations system ("NASDAQ") and the New York Stock Exchange ("NYSE") is 4:00
p.m., Eastern Time. Unanticipated early closings may result in a Fund being
unable to sell or buy securities on that day. If an exchange closes early on a
day when one or more of the Funds needs to execute a high volume of securities
trades late in a trading day, a Fund might incur substantial trading losses.
SHORT SALES RISK (URSA FUND) - Short sales are transactions in which a Fund
sells a security it does not own. To complete the transaction, the Fund must
borrow the security to make delivery to the buyer. The Fund is then obligated
to replace the security borrowed by purchasing the security at the market
price at the time of replacement. The price at such time may be higher or
lower than the price at which the security was sold by the Fund. If the
underlying security goes down in price between the time the Fund sells the
security and buys it back, the Fund will realize a gain on the transaction.
Conversely, if the underlying security goes up in price during the period, the
Fund will realize a loss on the transaction. The risk of such price increases
is the principal risk of engaging in short sales.
FOREIGN COMPANY RISKS (SECTOR FUNDS) - Investments in securities of foreign
companies can be more volatile than investments in U.S. companies. Diplomatic,
political, or economic developments could affect investments in foreign
countries. Foreign companies generally are not subject to uniform accounting,
auditing, and financial reporting standards comparable to those applicable to
U.S. domestic companies.
SMALL ISSUER RISK (BIOTECHNOLOGY, ELECTRONICS, AND INTERNET FUNDS) - Small and
medium capitalization companies may be more vulnerable than larger, more
established organizations to adverse business or economic developments. In
particular, small capitalization companies may have limited product lines,
markets, and financial resources and may be dependent upon a relatively small
management group. These securities may trade over-the-counter or listed on an
exchange and may or may not pay dividends.
<PAGE>
PROSPECTUS 53
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.
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. Rydex, at its discretion, may accept lesser
amounts in certain circumstances.
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.
REGULAR ACCOUNTS RETIREMENT ACCOUNTS
--------------------------------------------------------------------------------
ACCOUNT APPLICATION IRA ACCOUNT APPLICATION
INDIVIDUAL REGULAR IRA
JOINT ROLLOVER IRA
GIFT OR TRANSFER TO MINOR (UGMA/UTMA) SEP IRA
TRUST ROTH IRA APPLICATION
TRUSTEE/CUSTODIAL ROTH IRA
CORPORATION ROTH CONVERSION IRA
PARTNERSHIP 403 (B) APPLICATION
SELF-DIRECTED RETIREMENT PLANS 403 (B)
QUALIFIED RETIREMENT
PLAN APPLICATION
MONEY PURCHASE PLAN
PROFIT SHARING PLAN
<PAGE>
54
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 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.
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
TIPS TO ENSURE SUCCESSFUL COMPLETION OF YOUR IRA ACCOUNT APPLICATION
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, 401k, 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
<PAGE>
PROSPECTUS 55
- 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 of 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
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 NYSE is open for business (a "Business Day"). You may buy
shares by any of the methods described below:
BY MAIL
INITIAL PURCHASE
Complete the account application that corresponds to the type of account you are
opening.
- Make sure to indicate your initial investment selection.
- Make sure your investment meets the Minimum Investment Requirement.
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.
SUBSEQUENT PURCHASES
Complete the "deposit ticket" included on your confirmation statement or send a
letter of instruction that includes your name, shareholder account number and
the Fund designation for your investment.
- There are no minimum requirements for subsequent 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.
<PAGE>
56
Mail your application (for initial purchases) or your deposit ticket or other
instructions (for subsequent purchases) and check to:
Rydex Series Funds
Attn: Ops. Dept
6116 Executive Blvd, Suite 400
Rockville, MD 20852
BY WIRE
Obtain an account number by completing the account application that corresponds
to the type of account you are opening and faxing or mailing it to Rydex.
Rydex's fax number is (301) 468-8585. Then wire funds using the instructions
below.
- Make sure your investment meets the Minimum Investment Requirement.
- There are no minimum requirements for subsequent purchases.
To obtain "same-day credit" (to get that Business Day's share price) for your
purchase, you MUST call Rydex at (800) 820-0888 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 IN YOUR WIRE INSTRUCTIONS, 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.
<PAGE>
PROSPECTUS 57
GENERAL INFORMATION ABOUT BUYING SHARES
Initial applications and investments, as well as subsequent investments, in the
Funds must be received by the Funds' transfer agent, on any Business Day, before
the cutoff times (shown below) to be processed at that Business Day's NAV. The
cutoff times allow the Funds' 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.
FUND CUT-OFF TIME (ET)
--------------------------------------------------------------------------------
U.S. GOVERNMENT MONEY MARKET 1:00 P.M. AND 4:00 P.M.
ALL SECTOR FUNDS 3:30 P.M.*
NOVA 3:45 P.M.
URSA 3:45 P.M.
OTC 3:45 P.M.
* FOR INTERNET TRANSACTIONS IN THE SECTOR FUNDS, THE CUT-OFF TIME IS 3:45 P.M.
SEE ELECTRONIC (WEB) TRANSACTIONS.
Investments in Advisor Class Shares of the Funds may be made only through
intermediaries or securities dealers who have the responsibility to transmit
orders promptly. Intermediaries may charge fees for services provided in
connection with buying, selling or exchanging shares. Each intermediary also may
have its own rules about share transactions and may have earlier cutoff times
for purchases. For more information about how to purchase shares through an
intermediary, you should contact that intermediary directly.
<PAGE>
58
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:
HOW TO REDEEM BY LETTER
Send a letter of instruction that includes:
- Your name
- Your account number
- The Fund name
- The dollar amount or number of shares you would like to sell
- Method of payment (Check or Wire)
- Signature of account owner(s)
INDICATE WHETHER OR NOT YOU WOULD LIKE TAXES WITHHELD FROM YOUR DISTRIBUTION
(RETIREMENT ACCOUNTS ONLY).
You may send a redemption request by:
- Mail - Fax
Rydex Series Funds (301) 468-8585
Attn: Ops. Dept
6116 Executive Blvd, Suite 400
Rockville, MD 20852
HOW TO REDEEM BY PHONE
- Call Rydex at (800) 820-0888 or (301) 468-8520 prior to the above specified
cut-off times. Rydex is open on each Business Day from 8:30 a.m. to 5:30 p.m.,
Eastern Time.
- Give the representative the following information:
- Your name
- Your account number
- The Fund name
- The dollar amount or number of shares you would like to sell
- Method of payment (check or wire)
THE REPRESENTATIVE WILL PROVIDE YOU A CONFIRMATION NUMBER FOR YOUR REDEMPTION.
PLEASE RETAIN IT FOR YOUR RECORDS.
<PAGE>
PROSPECTUS 59
THINGS TO KNOW
- You may redeem all or any portion of your Fund shares at the next determined
NAV after the transfer agent processes and the Fund receives your redemption
request.
- 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. All redemptions from IRA, Roth IRA and 403(b)
Accounts must be in writing.
- A redemption may not reduce your total account balance below the minimum
account requirement.
- All redemptions will be mailed to the address of record or wired to the
account of record.
- If you request payment of 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.
- REDEMPTION REQUESTS MAY ONLY BE MADE BY THE REGISTERED OWNER OR BY AN
INDIVIDUAL WHO HAS BEEN GIVEN WRITTEN AUTHORIZATION (BY THE OWNER) TO TRADE
THE ACCOUNT.
Your redemption proceeds normally will be sent within five Business Days of the
transfer agent receiving your request.
FOR INVESTMENTS 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.
<PAGE>
60
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 SEC.
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 Advisor Class Shares of any Rydex Fund for Advisor Class
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.
<PAGE>
PROSPECTUS 61
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 below will be processed and communicated to the Funds in
time for that Business 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.
<PAGE>
62
RYDEX ACCOUNT POLICIES
FOR ALL SHAREHOLDERS
NAV DETERMINATION
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.
For most Rydex Funds, NAV is calculated each Business Day after the close of the
NYSE (currently, 4:00 p.m., Eastern Time). The NAV of the U.S. Government Money
Market Fund is determined twice each Business Day first at 1:00 p.m., Eastern
Time and again at 4:00 p.m., Eastern Time. To receive the current Business Day's
dividend, the transfer agent must receive your purchase order for shares of the
U.S. Government Money Market Fund before 1:00 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.
<PAGE>
PROSPECTUS 63
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.
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 all communications (such as trade confirmations,
prospectuses and shareholder reports, etc.) from the Funds 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.
<PAGE>
64
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 AND SHAREHOLDER
--------------------------------------------------------------------------------
SERVICES PLAN
The Funds have adopted a Distribution and Shareholder Services Plan (the "Plan")
applicable to Advisor Class Shares that allows the Funds to pay distribution and
service fees to Rydex Distributors, Inc. (the "Distributor") and other firms
that provide distribution and shareholder services ("Service Providers"). If a
Service Provider provides distribution services, the Funds will pay distribution
fees to the Distributor at an annual rate not to exceed .25% of average daily
net assets, pursuant to Rule 12b-1 of the Investment Company Act of 1940. If a
Service Provider provides shareholder services, the Funds will pay service fees
to the Distributor at an annual rate not to exceed .25% of the average daily net
assets of a Fund. The Distributor will, in turn, pay the Service Provider out of
its fees. Because the Funds pay these fees out of assets on an ongoing basis,
over time these fees may cost you more than other types of sales charges.
DIVIDENDS AND DISTRIBUTIONS
--------------------------------------------------------------------------------
Income dividends, if any, are paid at least annually by each of the Funds,
except the U.S. Government Money Market and Bond Funds, which declare dividends
daily and pay them monthly. If you own Fund shares on a Fund's record date, you
will be entitled to receive the dividend. The Funds may declare and pay
dividends on the same date. The Funds make distributions of capital gains, if
any, at least annually. The Trust, however, may declare a special capital gains
distribution if the Trustees believe that such a distribution would be in the
best interest of the shareholders of a Fund.
<PAGE>
PROSPECTUS 65
DIVIDEND 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 Funds
and their shareholders. The summary is based on current tax laws, which may be
changed by legislative, judicial or administrative action. The Trust has not
tried to present a detailed explanation of the tax treatment of the Funds, or
the tax consequences of an investment in the Funds. MORE INFORMATION ABOUT TAXES
IS LOCATED IN THE STATEMENT OF ADDITIONAL INFORMATION (SAI). YOU ARE URGED TO
CONSULT YOUR TAX ADVISOR REGARDING SPECIFIC QUESTIONS AS TO FEDERAL, STATE AND
LOCAL INCOME TAXES.
TAX STATUS OF EACH FUND
Each Fund is treated as a separate entity for federal tax purposes, and intends
to qualify for the special tax treatment afforded regulated investment
companies. As long as a Fund qualifies as a regulated investment company, it
pays no federal income tax on the earnings it distributes to shareholders.
TAX STATUS OF DISTRIBUTIONS
- Each Fund will distribute substantially all of its income. THE INCOME
DIVIDENDS YOU RECEIVE FROM THE FUNDS WILL BE TAXED AS ORDINARY INCOME WHETHER
YOU RECEIVE THE DIVIDENDS IN CASH OR IN ADDITIONAL SHARES.
- Corporate shareholders may be entitled to a dividends-received deduction for
the portion of dividends they receive which are attributable to dividends
received by a fund from U.S. corporations.
- Capital gains distributions will result from gains on the sale or exchange of
capital assets held for more than one year.
- Distributions paid in January but declared by a Fund in October, November or
December of the previous year may be taxable to you in the previous year.
TAX STATUS OF SHARE TRANSACTIONS
EACH SALE, EXCHANGE, OR REDEMPTION OF FUND SHARES IS A TAXABLE EVENT TO YOU. You
should consider the tax consequences of any redemption or exchange before making
such a request, especially with respect to redemptions, if you invest in the
Funds through a tax-qualified retirement plan.
<PAGE>
66
STATE TAX CONSIDERATIONS
A Fund is not liable for any income or franchise tax in Delaware as long as it
qualifies as a regulated investment company for federal income tax purposes.
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.
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 Funds and
continuously reviews, supervises, and administers each Fund's investment
program. The Trustees of the Trust supervise the Advisor and establish policies
that the Advisor must follow in its day to day management activities. Under an
investment advisory agreement between the Trust and the Advisor, the Funds paid
the Advisor a fee at an annualized rate for the fiscal year period ended
March 31, 2000, based on the average daily net assets for each Fund, as set
forth below:
FUND ADVISORY FEE
--------------------------------------------------------------------------------
NOVA .75%
URSA .90%
OTC .75%
SECTOR FUNDS .85%
U.S. GOVERNMENT MONEY MARKET .50%
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.
<PAGE>
PROSPECTUS 67
<TABLE>
<CAPTION>
PORTFOLIO MANAGERS
FUND MANAGER BIOGRAPHY
------------------------------------------------------------------------------------------
<S> <C> <C>
OTC Mike Byrum, CFA Part of the original Rydex investment team
when the Advisor was founded in 1993.
He was named Vice President in 1998.
Prior to joining Rydex he was associated
in a brokerage capacity with Money
Management Associates, the investment
advisor to the Rushmore Funds.
NOVA Tom Michael Joined Rydex in 1994 as the portfolio
manager of Nova. He was named Senior
Portfolio Manager in 1999. Prior to joining
Rydex he was a Derivatives Strategist at
Cedar Street Investment Management in
Chicago, Ill. He also served as Director of
Research at Chicago based Chronometrics.
U.S. GOVERNMENT Anne Ruff Joined Rydex in 1996 as the portfolio
MONEY MARKET manager for the U.S. Government Money
U.S. GOVERNMENT Market Fund. She is also editor of Rydex
BOND Today, a newsletter for investment advisors.
Prior to joining Rydex she served as the
Assistant Vice President and Portfolio
Manager of a fixed-income portfolio for
United Services Life Insurance Companies.
URSA Team Managed Each of these Funds is managed by a team of
investment professionals and no one person
is responsible for making investment
decisions for a Fund.
SECTOR FUNDS Team Managed Each of the Sector Funds is managed by a
team of investment professionals and no one
person is responsible for making investment
decisions for a Fund. Dan Gillespie has
group leadership over the 17 Rydex Sector
Funds management teams. Dan joined Rydex
in 1997 and was named Senior Portfolio
Manager in 1998. Prior to joining Rydex, he
was a portfolio manager at GIT Investment
Funds in Arlington, Virginia and at Rushmore
Funds in Bethesda, Maryland.
</TABLE>
<PAGE>
68
NOVA FUND & URSA FUND
FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout Each Period)
The financial highlights table is intended to help you understand the Fund's
financial performance for the past two years. Certain information reflects
financial results for a single Nova Fund or Ursa Fund Advisor Class Share. The
total returns in the table represent the rate that an investor would have earned
(or lost) on an investment in the Fund (assuming reinvestment of all dividends
and distributions). This information has been audited by Deloitte & Touche LLP,
whose report, along with the financial statements and related notes, appears in
the Trust's 2000 Annual Report. The annual report is available by telephoning us
at (800) 820-0888 or (301) 468-8520. The Annual Report is incorporated by
reference in the SAI.
<TABLE>
<CAPTION>
NOVA FUND URSA FUND
-------------------------------------------------------------------------------------------------
YEAR PERIOD YEAR PERIOD
ENDING ENDING ENDING ENDING
MARCH 31, MARCH 31, MARCH 31, MARCH 31,
2000 1999* 2000 1999*
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:+
NET ASSET VALUE--
BEGINNING OF PERIOD $34.78 $26.91 $8.62 $10.25
------ ------ ------ ------
Net Investment Income (Loss) .31 (.11) .30 .21
Net Realized and Unrealized Gains (Losses)
on Securities 6.55 8.39 (1.25) (1.81)
------ ------ ------ ------
Net Increase (Decrease) in Net Asset
Value Resulting from Operations 6.86 8.28 (.95) (1.60)
Distributions to Shareholders from:
Net Investment Income (.01) -- (.06) (0.03)
In Excess of Current Period
Net Investment Income -- (.41) -- --
------ ------ ------ ------
Net Increase (Decrease) in
Net Asset Value 6.85 7.87 (1.01) (1.63)
------ ------ ------ ------
NET ASSET VALUE--END OF PERIOD $41.63 $34.78 $7.61 $8.62
====== ====== ====== ======
TOTAL INVESTMENT RETURN 19.74% 31.03% (11.03)% (15.68)%
RATIOS TO AVERAGE NET ASSETS:
Gross Expenses 1.71% 1.60%** 1.84% 1.86%**
Net Expenses 1.70% 1.58%** 1.83% 1.85%**
Net Investment Income (Loss) 0.87% (0.70)%** 3.51% 2.96%**
SUPPLEMENTARY DATA:
Portfolio Turnover Rate*** 311% 445% -- --
Net Assets, End of Year
(000's omitted) $113,248 $36,187 $4,553 $3,073
-------------------------------------------------------------------------------------------------
</TABLE>
+ CALCULATED USING THE AVERAGE DAILY SHARES OUTSTANDING FOR THE YEAR.
* SINCE THE COMMENCEMENT OF OPERATIONS: OCTOBER 15, 1998--NOVA FUND; AUGUST 5,
1998--URSA FUND,
** ANNUALIZED
*** PORTFOLIO TURNOVER RATIO IS CALCULATED WITHOUT REGARD TO SHORT-TERM
SECURITIES HAVING A MATURITY OF LESS THAN ONE YEAR. THE URSA FUND TYPICALLY
HOLDS MOST OF ITS INVESTMENTS IN OPTIONS AND FUTURES CONTRACTS WHICH ARE DEEMED
SHORT-TERM SECURITIES.
<PAGE>
PROSPECTUS 69
U.S. GOVERNMENT MONEY MARKET FUND & OTC FUND
FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout Each Period)
The financial highlights table is intended to help you understand the Fund's
financial performance for the past two years. Certain information reflects
financial results for a single U.S. Government Money Market Fund or OTC Fund
Advisor Class Share. The total returns in the table represent the rate that an
investor would have earned (or lost) on an investment in the Fund (assuming
reinvestment of all dividends and distributions). This information has been
audited by Deloitte & Touche LLP, whose report, along with the financial
statements and related notes, appears in the Trust's 2000 Annual Report. The
2000 Annual Report is available by telephoning us at (800) 820-0888 or (301)
468-8520. The Annual Report is incorporated by reference in the SAI.
<TABLE>
<CAPTION>
U.S. GOVERNMENT MONEY MARKET FUND OTC FUND
-------------------------------------------------------------------------------------------------
YEAR PERIOD YEAR PERIOD
ENDING ENDING ENDING ENDING
MARCH 31, MARCH 31, MARCH 31, MARCH 31,
2000 1999* 2000 1999*
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:+
NET ASSET VALUE--
BEGINNING OF PERIOD $1.00 $1.00 $47.59 $30.52
------ ------ ------ ------
Net Investment Income (Loss) .04 .04 (.98) (.31)
Net Realized and Unrealized Gains on Securities -- -- 50.33 17.65
------ ------ ------ ------
Net Increase in Net Asset Value
Resulting from Operations .04 .04 49.35 17.34
Distributions to Shareholders from:
Net Investment Income (.04) (.04) -- --
Net Realized Capital Gain -- -- (.47) (.27)
------ ------ ------ ------
Net Increase in Net Asset Value .00 .00 48.88 17.07
------ ------ ------ ------
NET ASSET VALUE--END OF PERIOD $1.00 $1.00 $96.47 $47.59
====== ====== ====== ======
TOTAL INVESTMENT RETURN 3.94% 4.02% 104.26% 57.20%
RATIOS TO AVERAGE NET ASSETS:
Gross Expenses 1.41% 1.34%** 1.62% 1.49%**
Net Expenses 1.40% 1.33%** 1.61% 1.47%**
Net Investment Income (Loss) 3.85% 3.83%** (1.47)% (1.31)%**
SUPPLEMENTARY DATA:
Portfolio Turnover Rate*** -- -- 385% 773%
Net Assets, End of Year
(000's omitted) $212,181 $321,581 $113,948 $6,893
-------------------------------------------------------------------------------------------------
</TABLE>
+ CALCULATED USING THE AVERAGE DAILY SHARES OUTSTANDING FOR THE YEAR.
* SINCE THE COMMENCEMENT OF OPERATIONS: SEPTEMBER 22, 1998--OTC FUND; APRIL 1,
1998--U.S. GOVERNMENT MONEY MARKET FUND.
** ANNUALIZED
*** PORTFOLIO TURNOVER RATIO IS CALCULATED WITHOUT REGARD TO SHORT-TERM
SECURITIES HAVING A MATURITY OF LESS THAN ONE YEAR.
<PAGE>
70
ENERGY FUND & FINANCIAL SERVICES FUND
FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout Each Period)
The financial highlights table is intended to help you understand each Fund's
financial performance for the period of each Fund's operations. Certain
information reflects financial results for a single Sector Fund Investor Class
Share. The total returns in the table represent the rate that an investor would
have earned (or lost) on an investment in each Fund (assuming reinvestment of
all dividends and distributions). This information has been audited by Deloitte
& Touche LLP, whose report, along with the financial statements and related
notes, appears in the Trust's 2000 Annual Report. The 2000 Annual Report is
available by telephoning us at (800) 820-0888 or (301) 468-8520. The Annual
Report is incorporated by reference in the SAI.
<TABLE>
<CAPTION>
FINANCIAL
ENERGY FUND SERVICES FUND
-------------------------------------------------------------------------------------------------
YEAR PERIOD YEAR PERIOD
ENDING ENDING ENDING ENDING
MARCH 31, MARCH 31, MARCH 31, MARCH 31,
2000 1999* 2000 1999*
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:+
NET ASSET VALUE--
BEGINNING OF PERIOD $9.01 $10.07 $9.95 $10.47
------ ------ ------ ------
Net Investment Income (Loss) .15 (.14) (.05) (.05)
Net Realized and Unrealized Gains (Losses)
on Securities 1.68 (.92) (.47) (.47)
------ ------ ------ ------
Net Increase (Decrease) in Net Asset Value
Resulting from Operations 1.83 (1.06) (.52) (.52)
Distributions to Shareholders from
Net Realized Capital Gain -- -- (.01) --
------ ------ ------ ------
Net Increase (Decrease) in Net Asset Value 1.83 (1.06) (.53) (.52)
------ ------ ------ ------
NET ASSET VALUE--END OF PERIOD $10.84 $ 9.01 $9.42 $ 9.95
====== ====== ====== ======
TOTAL INVESTMENT RETURN 20.31% (10.53)% (5.19)% (4.97)%
RATIOS TO AVERAGE NET ASSETS:
Gross Expenses 2.06% 1.99%** 2.29% 2.13%**
Net Expenses 2.05% 1.98%** 2.28% 2.12%**
Net Investment Income (Loss) 1.45% (1.75)%** (0.64)% (0.60)%**
SUPPLEMENTARY DATA:
Portfolio Turnover Rate*** 2,854% 6,070% 2,770% 7,269%
Net Assets, End of Period
(000's omitted) $4,432 $609 $129,760 $21,387
-------------------------------------------------------------------------------------------------
</TABLE>
+ CALCULATED USING THE AVERAGE DAILY SHARES OUTSTANDING FOR THE PERIOD.
* SINCE THE COMMENCEMENT OF OPERATIONS: MAY 5, 1998--ENERGY FUND; APRIL 6,
1998--FINANCIAL SERVICES FUND.
** ANNUALIZED
*** PORTFOLIO TURNOVER RATE IS CALCULATED WITHOUT REGARD TO SHORT-TERM
SECURITIES HAVING A MATURITY OF LESS THAN ONE YEAR.
<PAGE>
PROSPECTUS 71
HEALTH CARE FUND & TECHNOLOGY FUND
FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout Each Period)
The financial highlights table is intended to help you understand each Fund's
financial performance for the period of each Fund's operations. Certain
information reflects financial results for a single Sector Fund Investor Class
Share. The total returns in the table represent the rate that an investor would
have earned (or lost) on an investment in each Fund (assuming reinvestment of
all dividends and distributions). This information has been audited by Deloitte
& Touche LLP, whose report, along with the financial statements and related
notes, appears in the Trust's 2000 Annual Report. The 2000 Annual Report is
available by telephoning us at (800) 820-0888 or (301) 468-8520. The Annual
Report is incorporated by reference in the SAI.
<TABLE>
<CAPTION>
HEALTH CARE FUND TECHNOLOGY FUND
-------------------------------------------------------------------------------------------------
YEAR PERIOD YEAR PERIOD
ENDED ENDED ENDED ENDED
MARCH 31, MARCH 31, MARCH 31, MARCH 31,
2000 1999* 2000 1999*
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:+
NET ASSET VALUE--
BEGINNING OF PERIOD $11.37 $ 9.93 $16.90 $10.84
------ ------ ------ ------
Net Investment Loss (.15) (.18) (.37) (.20)
Net Realized and Unrealized Gains (Losses)
on Securities (1.09) 1.62 14.67 6.26
------ ------ ------ ------
Net Increase (Decrease) in Net Asset Value
Resulting from Operations (1.24) 1.44 14.30 6.06
Distributions to Shareholders from
Net Realized Capital Gain (.01) -- -- --
------ ------ ------ ------
Net Increase (Decrease) in Net Asset Value (1.25) 1.44 14.30 6.06
------ ------ ------ ------
NET ASSET VALUE--END OF PERIOD $10.12 $11.37 $31.20 $16.90
====== ====== ====== ======
TOTAL INVESTMENT RETURN (10.95)% 14.50% 84.62% 55.90%
RATIOS TO AVERAGE NET ASSETS:
Gross Expenses 2.16% 2.24%** 1.89% 2.18%**
Net Expenses 2.15% 2.23%** 1.89% 2.17%**
Net Investment Loss (1.51)% (1.96)%** (1.60)% (1.78)%**
SUPPLEMENTARY DATA:
Portfolio Turnover Rate*** 4,850% 4,465% 4,929% 4,598%
Net Assets, End of Period
(000's omitted) $1,741 $24 $32,537 $2,269
-------------------------------------------------------------------------------------------------
</TABLE>
+ CALCULATED USING THE AVERAGE DAILY SHARES OUTSTANDING FOR THE PERIOD.
* SINCE THE COMMENCEMENT OF OPERATIONS: MAY 11, 1998--HEALTH CARE FUND;
APRIL 29, 1998--TECHNOLOGY FUND.
** ANNUALIZED
*** PORTFOLIO TURNOVER RATE IS CALCULATED WITHOUT REGARD TO SHORT-TERM
SECURITIES HAVING A MATURITY OF LESS THAN ONE YEAR.
<PAGE>
72
BASIC MATERIALS FUND & CONSUMER PRODUCTS FUND
FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout Each Period)
The financial highlights table is intended to help you understand each Fund's
financial performance for the period of each Fund's operations. Certain
information reflects financial results for a single Sector Fund Investor Class
Share. The total returns in the table represent the rate that an investor would
have earned (or lost) on an investment in each Fund (assuming reinvestment of
all dividends and distributions). This information has been audited by Deloitte
& Touche LLP, whose report, along with the financial statements and related
notes, appears in the Trust's 2000 Annual Report. The 2000 Annual Report is
available by telephoning us at (800) 820-0888 or (301) 468-8520. The Annual
Report is incorporated by reference in the SAI.
<TABLE>
<CAPTION>
CONSUMER
BASIC MATERIALS FUND PRODUCTS FUND
-------------------------------------------------------------------------------------------------
YEAR PERIOD YEAR PERIOD
ENDED ENDED ENDED ENDED
MARCH 31, MARCH 31, MARCH 31, MARCH 31,
2000 1999* 2000 1999*
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:+
NET ASSET VALUE--
BEGINNING OF PERIOD $7.72 $10.56 $9.70 $8.73
------ ------ ------ ------
Net Investment Income (Loss) (.01) .13 (.08) (.08)
Net Realized and Unrealized Gains (Losses)
on Securities .22 (2.97) (1.77) 1.05
------ ------ ------ ------
Net Increase (Decrease) in Net Asset Value
Resulting From Operations .21 (2.84) (1.85) .97
Distributions to Shareholders from
Net Realized Capital Gain -- -- (.35) --
------ ------ ------ ------
Net Increase (Decrease) in Net Asset Value .21 (2.84) (2.20) .97
------ ------ ------ ------
NET ASSET VALUE--END OF PERIOD $7.93 $7.72 $7.50 $9.70
====== ====== ====== ======
TOTAL INVESTMENT RETURN 2.72% (26.89)% (19.76)% 11.11%
RATIOS TO AVERAGE NET ASSETS:
Gross Expenses 2.01% 1.96%** 2.13% 2.05%**
Net Expenses 2.00% 1.95%** 2.13% 2.04%**
Net Investment Income (Loss) (0.10)% 1.25%** (1.01)% (1.38)%**
SUPPLEMENTARY DATA:
Portfolio Turnover Rate*** 3,641% 5,704% 5,466% 1,255%
Net Assets, End of Period
(000's omitted) $5,082 $688 $3,135 $20,952
-------------------------------------------------------------------------------------------------
</TABLE>
+ CALCULATED USING THE AVERAGE DAILY SHARES OUTSTANDING FOR THE PERIOD.
* SINCE THE COMMENCEMENT OF OPERATIONS: APRIL 14, 1998--BASIC MATERIALS FUND;
AUGUST 17, 1998--CONSUMER PRODUCTS FUND.
** ANNUALIZED
*** PORTFOLIO TURNOVER RATE IS CALCULATED WITHOUT REGARD TO SHORT-TERM
SECURITIES HAVING A MATURITY OF LESS THAN ONE YEAR.
<PAGE>
PROSPECTUS 73
LEISURE FUND & RETAILING FUND
FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout Each Period)
The financial highlights table is intended to help you understand each Fund's
financial performance for the period of each Fund's operations. Certain
information reflects financial results for a single Sector Fund Investor Class
Share. The total returns in the table represent the rate that an investor would
have earned (or lost) on an investment in each Fund (assuming reinvestment of
all dividends and distributions). This information has been audited by Deloitte
& Touche LLP, whose report, along with the financial statements and related
notes, appears in the Trust's 2000 Annual Report. The 2000 Annual Report is
available by telephoning us at (800) 820-0888 or (301) 468-8520. The Annual
Report is incorporated by reference in the SAI.
<TABLE>
<CAPTION>
LEISURE FUND RETAILING FUND
-------------------------------------------------------------------------------------------------
YEAR PERIOD YEAR PERIOD
ENDED ENDED ENDED ENDED
MARCH 31, MARCH 31, MARCH 31, MARCH 31,
2000 1999* 2000 1999*
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:+
NET ASSET VALUE--
BEGINNING OF PERIOD $11.16 $9.35 $13.50 $10.01
------ ------ ------ ------
Net Investment Loss (.14) (.12) (.33) (.15)
Net Realized and Unrealized Gains on Securities .02 1.93 .12 3.64
------ ------ ------ ------
Net Increase (Decrease) in Net Asset Value
Resulting from Operations (.12) 1.81 (.21) 3.49
Distributions to Shareholders from
Net Realized Capital Gain (.10) -- (.11) --
------ ------ ------ ------
Net Increase (Decrease) in Net Asset Value (.22) 1.81 (.32) 3.49
------ ------ ------ ------
NET ASSET VALUE--END OF PERIOD $10.94 $11.16 $13.18 $13.50
====== ====== ====== ======
Total Investment Return (1.06)% 19.36% (1.52)% 34.87%
Ratios To Average Net Assets:
Gross Expenses 2.08% 2.23%** 2.10% 1.95%**
Net Expenses 2.08% 2.22%** 2.09% 1.94%**
Net Investment Loss (1.32)% (1.95)%** (2.69)% (1.37)%**
SUPPLEMENTARY DATA:
Portfolio Turnover Rate*** 5,734% 5,581% 2,537% 3,243%
Net Assets, End of Period
(000's omitted) $18,559 $8 $91,740 $337
-------------------------------------------------------------------------------------------------
</TABLE>
+ CALCULATED USING THE AVERAGE DAILY SHARES OUTSTANDING FOR THE PERIOD.
* SINCE THE COMMENCEMENT OF OPERATIONS: JUNE 3, 1998--LEISURE FUND; APRIL 21,
1998--RETAILING FUND.
** ANNUALIZED
*** PORTFOLIO TURNOVER RATE IS CALCULATED WITHOUT REGARD TO SHORT-TERM
SECURITIES HAVING A MATURITY OF LESS THAN ONE YEAR.
<PAGE>
74
TELECOMMUNICATIONS FUND & TRANSPORTATION FUND
FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout Each Period)
The financial highlights table is intended to help you understand each Fund's
financial performance for the period of each Fund's operations. Certain
information reflects financial results for a single Sector Fund Investor Class
Share. The total returns in the table represent the rate that an investor would
have earned (or lost) on an investment in each Fund (assuming reinvestment of
all dividends and distributions). This information has been audited by Deloitte
& Touche LLP, whose report, along with the financial statements and related
notes, appears in the Trust's 2000 Annual Report. The 2000 Annual Report is
available by telephoning us at (800) 820-0888 or (301) 468-8520. The Annual
Report is incorporated by reference in the SAI.
<TABLE>
<CAPTION>
TELECOMMUNICATIONS TRANSPORTATION
FUND FUND
-------------------------------------------------------------------------------------------------
YEAR PERIOD YEAR PERIOD
ENDED ENDED ENDED ENDED
MARCH 31, MARCH 31, MARCH 31, MARCH 31,
2000 1999* 2000 1999*
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:+
NET ASSET VALUE--
BEGINNING OF PERIOD $12.91 $10.00 $7.95 $9.26
------ ------ ------ ------
Net Investment Loss (.19) (.03) -- (.10)
Net Realized and Unrealized Gains (Losses)
on Securities 7.42 2.94 (1.79) (1.21)
------ ------ ------ ------
Net Increase (Decrease) in Net Asset Value
Resulting from Operations 7.23 2.91 (1.79) (1.31)
Distributions to Shareholders from
Net Realized Capital Gain (.01) -- -- --
------ ------ ------ ------
Net Increase (Decrease) in Net Asset Value 7.22 2.91 (1.79) (1.31)
------ ------ ------ ------
NET ASSET VALUE--END OF PERIOD $20.13 $12.91 $6.16 $7.95
====== ====== ====== ======
Total Investment Return 55.98% 29.10% (22.52)% (14.15)%
RATIOS TO AVERAGE NET ASSETS:
Gross Expenses 2.05% 2.35%** 1.34% 2.08%**
Net Expenses 2.05% 2.34%** 1.33% 2.07%**
Net Investment Loss (1.14)% (0.27)%** (0.08)% (1.38)%**
SUPPLEMENTARY DATA:
Portfolio Turnover Rate*** 1,555% 2,788% 1,970% 7,583%
Net Assets, End of Period
(000's omitted) $3,449 $1,929 $87,189 $4
-------------------------------------------------------------------------------------------------
</TABLE>
+ CALCULATED USING THE AVERAGE DAILY SHARES OUTSTANDING FOR THE PERIOD.
* SINCE THE COMMENCEMENT OF OPERATIONS: APRIL 1, 1998--TELECOMMUNICATIONS FUND;
JUNE 9, 1998--TRANSPORTATION FUND.
** ANNUALIZED
*** PORTFOLIO TURNOVER RATE IS CALCULATED WITHOUT REGARD TO SHORT-TERM
SECURITIES HAVING A MATURITY OF LESS THAN ONE YEAR.
<PAGE>
PROSPECTUS 75
ENERGY SERVICES FUND & BANKING FUND
FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout Each Period)
The financial highlights table is intended to help you understand each Fund's
financial performance for the period of each Fund's operations. Certain
information reflects financial results for a single Sector Fund Investor Class
Share. The total returns in the table represent the rate that an investor would
have earned (or lost) on an investment in each Fund (assuming reinvestment of
all dividends and distributions). This information has been audited by Deloitte
& Touche LLP, whose report, along with the financial statements and related
notes, appears in the Trust's 2000 Annual Report. The 2000 Annual Report is
available by telephoning us at (800) 820-0888 or (301) 468-8520. The Annual
Report is incorporated by reference in the SAI.
<TABLE>
<CAPTION>
ENERGY SERVICES FUND BANKING FUND
-------------------------------------------------------------------------------------------------
YEAR PERIOD YEAR PERIOD
ENDED ENDED ENDED ENDED
MARCH 31, MARCH 31, MARCH 31, MARCH 31,
2000 1999* 2000 1999*
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:+
NET ASSET VALUE--
BEGINNING OF PERIOD $6.01 $9.86 $8.74 $10.00
------ ------ ------ ------
Net Investment Income (Loss) (.11) (.09) .01 .03
Net Realized and Unrealized Gains (Losses)
on Securities 3.33 (3.76) (1.51) (1.29)
------ ------ ------ ------
Net Increase (Decrease) in Net Asset Value
Resulting from Operations 3.22 (3.85) (1.50) (1.26)
Distributions to Shareholders -- -- -- --
------ ------ ------ ------
Net Increase (Decrease) in Net Asset Value 3.22 (3.85) (1.50) (1.26)
------ ------ ------ ------
NET ASSET VALUE--END OF PERIOD $9.23 $6.01 $7.24 $8.74
====== ====== ====== ======
TOTAL INVESTMENT RETURN 53.58% (39.05)% (17.16)% (12.60)%
RATIOS TO AVERAGE NET ASSETS:
Gross Expenses 2.20% 2.05%** 2.06% 2.08%**
Net Expenses 2.20% 2.04%** 2.05% 2.08%**
Net Investment Income (Loss) (1.49%) (1.66)%** 0.07% 0.28%**
SUPPLEMENTARY DATA:
Portfolio Turnover Rate*** 1,794% 3,170% 3,829% 11,211%
Net Assets, End of Period
(000's omitted) $34,524 $22,323 $17,872 $2
-------------------------------------------------------------------------------------------------
</TABLE>
+ CALCULATED USING THE AVERAGE DAILY SHARES OUTSTANDING FOR THE PERIOD.
* SINCE THE COMMENCEMENT OF OPERATIONS: APRIL 2, 1998--ENERGY SERVICES FUND;
APRIL 1, 1998--BANKING FUND.
** ANNUALIZED
*** PORTFOLIO TURNOVER RATE IS CALCULATED WITHOUT REGARD TO SHORT-TERM
SECURITIES HAVING A MATURITY OF LESS THAN ONE YEAR.
<PAGE>
76
BIOTECHNOLOGY FUND & ELECTRONICS FUND
FINANCIAL HIGHLIGHTS
(For a Share Outstanding Throughout Each Period)
The financial highlights table is intended to help you understand each Fund's
financial performance for the period of each Fund's operations. Certain
information reflects financial results for a single Sector Fund Investor Class
Share. The total returns in the table represent the rate that an investor would
have earned (or lost) on an investment in each Fund (assuming reinvestment of
all dividends and distributions). This information has been audited by Deloitte
& Touche LLP, whose report, along with the financial statements and related
notes, appears in the Trust's 2000 Annual Report. The 2000 Annual Report is
available by telephoning us at (800) 820-0888 or (301) 468-8520. The Annual
Report is incorporated by reference in the SAI.
<TABLE>
<CAPTION>
BIOTECHNOLOGY FUND ELECTRONICS FUND
-------------------------------------------------------------------------------------------------
YEAR PERIOD YEAR PERIOD
ENDED ENDED ENDED ENDED
MARCH 31, MARCH 31, MARCH 31, MARCH 31,
2000 1999* 2000 1999*
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:+
NET ASSET VALUE--
BEGINNING OF PERIOD $12.66 $10.00 $13.96 $9.98
------ ------ ------ ------
Net Investment Income (Loss) (.44) .18 (.35) (.23)
Net Realized and Unrealized Gains on Securities 16.28 2.48 26.05 4.21
------ ------ ------ ------
Net Increase in Net Asset Value
Resulting from Operations 15.84 2.66 25.70 3.98
Distributions to Shareholders from
Net Realized Capital Gain (.04) -- -- --
------ ------ ------ ------
Net Increase in Net Asset Value 15.80 2.66 25.70 3.98
------ ------ ------ ------
NET ASSET VALUE--END OF PERIOD $28.46 $12.66 $39.66 $13.96
====== ====== ====== ======
TOTAL INVESTMENT RETURN 125.34% 26.60% 184.10% 39.88%
RATIOS TO AVERAGE NET ASSETS:
Gross Expenses 1.93% 2.16%** 1.76% 2.05%**
Net Expenses 1.92% 2.16%** 1.75% 2.04%**
Net Investment Income (Loss) (1.96)% 1.79%** (1.51)% (1.86)%**
SUPPLEMENTARY DATA:
Portfolio Turnover Rate*** 699% 2,670% 1,162% 3,011%
Net Assets, End of Period
(000's omitted) $45,757 $1,838 $25,034 $4,024
-------------------------------------------------------------------------------------------------
</TABLE>
+ CALCULATED USING THE AVERAGE DAILY SHARES OUTSTANDING FOR THE PERIOD.
* SINCE THE COMMENCEMENT OF OPERATIONS: APRIL 1, 1998--BIOTECHNOLOGY FUND;
APRIL 2, 1998--ELECTRONICS FUND.
** ANNUALIZED
*** PORTFOLIO TURNOVER RATE IS CALCULATED WITHOUT REGARD TO SHORT-TERM
SECURITIES HAVING A MATURITY OF LESS THAN ONE YEAR.
<PAGE>
PROSPECTUS 77
BENCHMARK INFORMATION
NEITHER THE NOVA FUND NOR THE URSA FUND IS SPONSORED, ENDORSED, SOLD, OR
PROMOTED BY STANDARD AND POOR's CORP. (S&P); AND THE OTC FUND IS NOT SPONSORED,
ENDORSED, SOLD, OR PROMOTED BY NASDAQ OR ANY OF NASDAQ's AFFILIATES (NASDAQ AND
ITS AFFILIATES HEREINAFTER COLLECTIVELY REFERRED TO AS "NASDAQ").
NEITHER S&P NOR NASDAQ MAKE ANY REPRESENTATION OR WARRANTY, IMPLIED OR EXPRESS,
TO THE INVESTORS IN THE FUNDS, OR ANY MEMBER OF THE PUBLIC, REGARDING THE
ADVISABILITY OF INVESTING IN INDEX FUNDS OR THE ABILITY OF THE S&P 500 INDEX OR
THE NASDAQ 100 INDEX, RESPECTIVELY, TO TRACK GENERAL STOCK MARKET PERFORMANCE.
NEITHER S&P NOR NASDAQ GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE S&P
500 INDEX AND THE NASDAQ 100 INDEX, RESPECTIVELY, OR ANY DATA INCLUDED THEREIN.
NEITHER S&P NOR NASDAQ MAKE ANY WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO
BE OBTAINED BY ANY OF THE FUNDS. THE INVESTORS IN THE FUNDS, OR ANY PERSON OR
ENTITY FROM THE USE OF THE S&P 500 INDEX OR THE NASDAQ 100 INDEX, RESPECTIVELY,
OR ANY DATA INCLUDED THEREIN.
NEITHER S&P NOR NASDAQ MAKE ANY EXPRESS OR IMPLIED WARRANTIES OF MERCHANTABILITY
OR FITNESS FOR A PARTICULAR PURPOSE FOR USE WITH RESPECT TO THE S&P 500 INDEX OR
THE NASDAQ 100 INDEX, RESPECTIVELY, OR ANY DATA INCLUDED THEREIN.
<PAGE>
Additional information about the Funds is included in a Statement of Additional
Information dated August 1, 2000 (the "SAI"), which contains more detailed
information about the Funds. The SAI has been filed with the Securities and
Exchange Commission ("SEC") and is incorporated by reference into this
Prospectus and, therefore, legally forms a part of this Prospectus. The SEC
maintains the EDGAR database on its Web site ("http://www.sec.gov") that
contains the SAI, material incorporated by reference, and other information
regarding registrants that file electronically with the SEC. You may also review
and copy documents at the SEC Public Reference Room in Washington, D.C. (for
information on the operation of the Public Reference Room, call (202) 942-8090).
You may request documents by mail from the SEC, upon payment of a duplication
fee, by writing to: Securities and Exchange Commission, Public Reference
Section, Washington, D.C. 20549-0102. You may also obtain this information, upon
payment of a duplicating fee, by e-mailing the SEC at the following address:
[email protected].
You may obtain a copy of the SAI or the annual or semi-annual reports, without
charge by calling (800) 820-0888 or by writing to Rydex Series Funds, at 6116
Executive Boulevard, Suite 400, Rockville, Maryland 20852. Additional
information about the Funds' investments is available in the annual and
semi-annual reports. Also, in the Funds' annual report, you will find a
discussion of the market conditions and investment strategies that significantly
affected the Funds' performance during its last fiscal year.
NO ONE HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS OR IN THE TRUST's SAI IN
CONNECTION WITH THE OFFERING OF FUND SHARES. DO NOT RELY ON ANY SUCH INFORMATION
OR REPRESENTATIONS AS HAVING BEEN AUTHORIZED BY THE TRUST OR RYDEX GLOBAL
ADVISORS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE TRUST IN ANY
JURISDICTION WHERE SUCH AN OFFERING IS NOT LAWFUL.
The Fund's SEC registration number is 811-7584.
<PAGE>
This page intentionally left blank.
<PAGE>
This page intentionally left blank.
<PAGE>
PROSPECTUS
<TABLE>
<C> <S>
2 URSA MASTER FUND
---
4 ARKTOS MASTER FUND
---
6 JUNO MASTER FUND
---
8 UTILITIES MASTER FUND
---
10 MORE INFORMATION ABOUT FUND INVESTMENTS
--- AND RISK
14 PURCHASING AND REDEEMING SHARES
---
14 MANAGEMENT
---
15 DIVIDENDS, DISTRIBUTIONS AND TAXES
---
16 BENCHMARK INFORMATION
---
BC ADDITIONAL INFORMATION
---
</TABLE>
AUGUST 1, 2000
RYDEX SERIES FUNDS
URSA MASTER FUND
ARKTOS MASTER FUND
JUNO MASTER FUND
UTILITIES MASTER FUND
6116 Executive Boulevard, Suite 400, Rockville, Maryland 20852
1-800-820-0888 301-468-8520
Rydex Series Funds (the "Trust") is a no-load mutual fund complex with thirty
separate investment portfolios (the "Rydex Funds"), four of which are described
in this Prospectus (the "Funds"). Shares of the Funds are available solely
through "master-feeder arrangements" with feeder funds of the Trust.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THE
TRUST'S SHARES OR PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
ICON LEGEND
[ICON]
Fund Objective
The fund's particular investment goal.
[ICON]
Portfolio Investments
The primary types of securities in which the fund invests.
[ICON]
Risk Considerations
The major risk factors associated with the fund.
[ICON]
Fund Performance and Fee Information
The overall costs incurred by an investor in the fund.
[ICON]
Financial Highlights
A table showing the fund's financial performance.
ii
<PAGE>
------
2 PROSPECTUS
FUND INFORMATION -- URSA MASTER FUND
FUND OBJECTIVE
[ICON]
The Ursa Master Fund seeks to provide investment results that will
inversely correlate to the performance of the S&P 500 Index-TM- (the "S&P 500
Index").
If the Fund meets its objective, the value of the Fund's shares will tend to
increase during times when the value of the S&P 500 Index is decreasing. When
the value of the S&P 500 Index is increasing, however, the value of the Fund's
shares should decrease on a daily basis by an inversely proportionate amount
(e.g., if the S&P 500 Index goes up by 5%, the value of the Fund's shares should
go down by 5% on that day).
PORTFOLIO INVESTMENTS
[ICON]
Unlike a traditional index fund, the Fund's benchmark is to perform
exactly opposite the S&P 500 Index, and the Fund will not own the securities
included in the index. Instead, as its primary investment strategy, the Fund
invests to a significant extent in futures contracts and options on securities,
futures contracts, and stock indices. On a day-to-day basis, the Fund holds U.S.
Government securities or cash equivalents to collateralize these futures and
options contracts. The Fund also may enter into repurchase agreements and sell
securities short.
RISK CONSIDERATIONS
[ICON]
The Ursa Master Fund is subject to a number of risks that will affect
the value of its shares, including:
- EQUITY RISK -- The equity markets are volatile, and the value of the
Fund's futures and options contracts and other securities may fluctuate
drastically from day to day. Equity market volatility may also negatively
affect the Fund's short sales of securities. This volatility may cause the
value of your investment in the Fund to decrease.
- TRACKING ERROR RISK -- The Advisor may not be able to cause the Fund's
performance to match the performance of the Fund's benchmark, either on a
daily or aggregate basis. Tracking Error may cause the Fund's performance
to be less than you expect.
<PAGE>
PROSPECTUS 3
--------
FUND PERFORMANCE AND FEE INFORMATION
URSA MASTER FUND PERFORMANCE
[ICON]
The bar chart and table below show the performance of the Ursa Master
Fund both year-by-year and as an average over different periods of
time. On April 3, 2000, the Ursa Master Fund acquired all of the assets
and liabilities of the Ursa Fund of the Trust. The performance in the
bar chart and table below represents the performance of the Investor
Class Shares of the Ursa Fund. The variability of performance over time
provides some indication of the risks of investing in the Fund by
showing the changes in the Fund's performance from year to year and by
showing how the Fund's average annual returns compare with a broad measure of
market performance. Of course, this past performance does not necessarily
indicate how the Fund will perform in the future.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
Ursa Master Fund
<TABLE>
<CAPTION>
YEARS PERCENTAGE
<S> <C>
1999 -12.40%
1998 -19.01%
1997 -20.99%
1996 -12.17%
1995 -20.14%
</TABLE>
DURING THE PERIOD SHOWN IN THE BAR CHART, THE HIGHEST RETURN FOR A QUARTER WAS
(10.86)% (QUARTER ENDED SEPTEMBER 30, 1998) AND THE LOWEST RETURN FOR A QUARTER
WAS (17.06)% (QUARTER ENDED DECEMBER 31, 1998).
<TABLE>
AVERAGE ANNUAL TOTAL RETURN (FOR PERIODS ENDING DECEMBER 31, 1999)(1)
S&P 500
URSA MASTER FUND INDEX(2)
------------------------------------
<S> <C> <C>
Past One Year -12.40 % 19.53%
Past Five Years -17.03 % 26.18%
Since Inception (01/07/94) -13.92 % 20.99%
</TABLE>
(1) THESE FIGURES ASSUME THE REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS
DISTRIBUTIONS.
(2) THE S&P 500 INDEX IS AN UNMANAGED INDEX THAT IS A WIDELY RECOGNIZED
INDICATOR OF GENERAL STOCK MARKET PERFORMANCE.
FEES AND EXPENSES OF THE FUND
This table describes the fees and expenses that you may pay if you buy and
hold shares of the Ursa Master Fund.
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
SHAREHOLDER FEES* None
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED
FROM NET ASSETS)
Management Fees .90%
Distribution (12b-1) Fees None
Other Expenses .02%
-----
Total Annual Fund Operating Expenses 0.92%
</TABLE>
* THE FUND MAY IMPOSE A WIRE TRANSFER CHARGE OF $15 ON CERTAIN REDEMPTIONS UNDER
$5,000.
EXAMPLE
--------------------------------------------------------------------------------
This Example is intended to help you compare the cost of investing in the
Ursa Master Fund with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time period
indicated and then redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your cost would be:
<TABLE>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
---------------------------------------
<S> <C> <C> <C>
$94 $293 $509 $1,131
</TABLE>
<PAGE>
------
4 PROSPECTUS
FUND INFORMATION -- ARKTOS MASTER FUND
FUND OBJECTIVE
[ICON]
The Arktos Master Fund seeks to provide investment results that will
match the performance of a specific benchmark. The Fund's current benchmark is
the inverse of the performance of the NASDAQ 100 Index-TM- (the "NASDAQ 100
Index"). The Fund's investment objective is not a fundamental policy and may be
changed without seeking shareholder approval.
If the Fund meets its objective, the value of the Fund's shares will tend to
increase during times when the value of the NASDAQ 100 Index is decreasing. When
the value of the NASDAQ 100 Index is increasing, however, the value of the
Fund's shares should decrease on a daily basis by an inversely proportionate
amount (e.g., if the NASDAQ 100 Index goes up by 5%, the value of the Fund's
shares should go down by 5% on that day).
PORTFOLIO INVESTMENTS
[ICON]
Unlike a traditional index fund, the Fund's benchmark is to perform
exactly opposite the NASDAQ 100 Index, and the Fund will not own the securities
included in the Index. Instead, as its primary investment strategy, the Fund
engages to a significant extent in short sales of securities, futures contracts
and options on securities, futures contracts, and stock indices. On a day-to-day
basis, the Fund holds U.S. Government securities or cash equivalents to
collateralize these futures and options contracts. The Fund also may enter into
repurchase agreements.
RISK CONSIDERATIONS
[ICON]
The Arktos Master Fund is subject to a number of risks that will affect
the value of its shares, including:
- EQUITY RISK -- The equity markets are volatile, and the value of the
Fund's futures and options contracts and other securities may fluctuate
drastically from day to day. Equity market volatility may also negatively
affect the Fund's short sales of securities. This volatility may cause the
value of your investment in the Fund to decrease.
- TRACKING ERROR RISK -- The Advisor may not be able to cause the Fund's
performance to match the performance of the Fund's benchmark, either on a
daily or aggregate basis. Tracking Error may cause the Fund's performance
to be less than you expect.
<PAGE>
PROSPECTUS 5
--------
FUND PERFORMANCE AND FEE INFORMATION
ARKTOS MASTER FUND PERFORMANCE
[ICON]
The bar chart and table below show the performance of the Arktos Master
Fund both year-by-year and as an average over different periods of
time. On April 3, 2000, the Arktos Master Fund acquired all of the
assets and liabilities of the Arktos Fund of the Trust. The performance
in the bar chart and table below represents the performance of the
Investor Class Shares of the Arktos Fund. The variability of
performance over time provides some indication of the risks of
investing in the Fund by showing the changes in the Fund's performance
from year to year and by showing how the Fund's average annual returns compare
with a broad measure of market performance. Of course, this past performance
does not necessarily indicate how the Fund will perform in the future.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
Arktos Master Fund
<TABLE>
<CAPTION>
YEARS PERCENTAGE
<S> <C>
1999 -54.31%
</TABLE>
DURING THE PERIOD SHOWN IN THE BAR CHART, THE HIGHEST RETURN FOR A QUARTER WAS
(5.68)% (QUARTER ENDED SEPTEMBER 30, 1999) AND THE LOWEST RETURN FOR A QUARTER
WAS (36.08)% (QUARTER ENDED DECEMBER 31, 1999).
<TABLE>
AVERAGE ANNUAL TOTAL RETURN (FOR PERIODS ENDING DECEMBER 31,1999)(1)
ARKTOS MASTER FUND NASDAQ 100 INDEX(2)
-----------------------------------------
<S> <C> <C>
Past One Year -54.31 % 101.95%
Since Inception (09/03/98) -60.63 % 132.83%
</TABLE>
(1) THESE FIGURES ASSUME THE REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS
DISTRIBUTIONS.
(2) THE NASDAQ 100 INDEX IS AN UNMANAGED INDEX THAT IS A WIDELY RECOGNIZED
INDICATOR OF OVER-THE-COUNTER MARKET PERFORMANCE.
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 Arktos Master Fund.
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
SHAREHOLDER FEES* None
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED
FROM NET ASSETS)
Management Fees .90%
Distribution (12b-1) Fees None
Other Expenses .02%
-----
Total Annual Fund Operating Expenses 0.92%
</TABLE>
* THE FUND MAY IMPOSE A WIRE TRANSFER CHARGE OF $15 ON CERTAIN REDEMPTIONS
UNDER $5,000.
EXAMPLE
--------------------------------------------------------------------------------
This Example is intended to help you compare the cost of investing in the
Arktos Master Fund with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time period
indicated and then redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your cost would be:
<TABLE>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
---------------------------------------
<S> <C> <C> <C>
$94 $293 $509 $1,131
</TABLE>
<PAGE>
------
6 PROSPECTUS
FUND INFORMATION -- JUNO MASTER FUND
FUND OBJECTIVE
[ICON]
The Juno Master Fund seeks to provide total returns that will
inversely correlate to the price movements of a benchmark for
U.S. Treasury debt instruments or futures contract on a specified debt
instrument. The Fund's current benchmark is the inverse of the daily price
movement of the Long Treasury Bond.
If the Fund meets its objective, the value of the Fund's shares will
increase on a daily basis when the price of the Long Treasury Bond decreases.
When the price of the Long Treasury Bond increases, however, the value of the
Fund's shares should decrease on a daily basis by an inversely proportionate
amount (e.g., if the price of the Long Treasury Bond increases by 2%, the value
of the Fund's shares should go down by 2% on that day).
PORTFOLIO INVESTMENTS
[ICON]
Unlike a traditional fund, the Fund's benchmark is to perform exactly
opposite the Long Treasury Bond. As its primary investment strategy, the Fund
enters into short sales and engages in futures and options transactions. On a
day-to-day basis, the Fund holds U.S. Government securities or cash equivalents
to collateralize these obligations. The Fund also may enter into repurchase
agreements.
RISK CONSIDERATIONS
[ICON]
The Juno Master Fund is subject to a number of risks that will affect
the value of its shares, including:
- FIXED INCOME RISK -- The Fund's fixed income investments will change in
value in response to interest rate changes and other factors. In addition,
the value of securities with longer maturities will fluctuate more in
response to interest rate changes.
- TRACKING ERROR RISK -- The Advisor may not be able to cause the Fund's
performance to match the performance of the Fund's benchmark, either on a
daily or aggregate basis. Tracking Error may cause the Fund's performance
to be less than you expect.
<PAGE>
PROSPECTUS 7
--------
FUND PERFORMANCE AND FEE INFORMATION
JUNO MASTER FUND PERFORMANCE
[ICON]
The bar chart and table below show the performance of Juno Master Fund
both year-by-year and as an average over different periods of time. On
April 3, 2000, the Juno Master Fund acquired all of the assets and
liabilities of the Juno Fund of the Trust. The performance in the bar
chart and table below represents the performance of the Investor Class
Shares of the Juno Fund. The variability of performance over time
provides some indication of the risks of investing in the Fund by
showing the changes in the Fund's performance from year to year and by
showing how the Fund's average annual returns compare with a broad measure of
market performance. Of course, this past performance does not necessarily
indicate how the Fund will perform in the future.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
Juno Master Fund
<TABLE>
<CAPTION>
YEARS PERCENTAGE
<S> <C>
1999 20.36%
1998 -4.58%
1997 -5.56%
1996 8.00%
</TABLE>
DURING THE PERIOD SHOWN IN THE BAR CHART, THE HIGHEST RETURN FOR A QUARTER WAS
8.29% (QUARTER ENDED MARCH 31, 1996) AND THE LOWEST RETURN FOR A QUARTER WAS
(5.69)% (QUARTER ENDED SEPTEMBER 30, 1998).
<TABLE>
AVERAGE ANNUAL TOTAL RETURN (FOR PERIODS ENDING DECEMBER 31, 1999)(1)
LEHMAN LONG TREASURY
JUNO MASTER FUND INDEX(2)
<S> <C> <C>
-------------------------------------------------
Past One Year 20.36% -8.65%
Since Inception (03/03/95) 0.03% 8.06%
</TABLE>
(1) These figures assume the reinvestment of dividends and capital gains
distributions.
(2) The Lehman Long Treasury Index is an unmanaged index that is a widely
recognized indicator of U.S. Government bond performance.
FEES AND EXPENSES OF THE FUND
This table describes the fees and expenses that you may pay if you buy and
hold shares of the Juno Master Fund.
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
SHAREHOLDER FEES* None
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED
FROM NET ASSETS)
Management Fees .90%
Distribution (12b-1) Fees None
Other Expenses .02%
-----
Total Annual Fund Operating Expenses 0.92%
</TABLE>
* THE FUND MAY IMPOSE A WIRE TRANSFER CHARGE OF $15 ON CERTAIN REDEMPTIONS UNDER
$5,000.
EXAMPLE
--------------------------------------------------------------------------------
This Example is intended to help you compare the cost of investing in the
Juno Master Fund with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time period
indicated and then redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that the
Fund's operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your cost would be:
<TABLE>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
---------------------------------------
<S> <C> <C> <C>
$94 $293 $509 $1,131
</TABLE>
<PAGE>
------
8 PROSPECTUS
FUND INFORMATION -- UTILITIES MASTER FUND
FUND OBJECTIVE
[ICON]
The Utilities Master Fund seeks capital appreciation by investing in
companies that operate public utilities ("Utilities Companies"). The
Fund's investment objective is not a fundamental policy and may be changed
without seeking shareholder approval.
PORTFOLIO INVESTMENTS
[ICON]
The Fund invests substantially all of its assets in equity securities
of Utilities Companies that are traded in the United States. Utilities
Companies may include companies involved in the manufacturing, production,
generation, transmission, distribution or sales of gas or electric energy; water
supply, waste and sewage disposal; and companies that receive a majority of
their revenues from their public utility operations. The Fund may also engage in
futures and options transactions, purchase ADRs and U.S. Government securities,
and enter into repurchase agreements.
RISK CONSIDERATIONS
[ICON]
The Utilities Master Fund is subject to a number of risks that will
affect the value of its shares, including:
- EQUITY RISK -- The equity markets are volatile, and the value of the
Fund's futures and option contracts and other securities may fluctuate
significantly from day to day. This volatility may cause the value of your
investment in the Fund to decrease.
- UTILITIES SECTOR CONCENTRATION RISK -- The risk that the securities of
issuers in the Utilities sector that the Fund purchases will underperform
the market as a whole. To the extent that the Fund's investments are
concentrated in issuers conducting business in the same economic sector,
the Fund is subject to legislative or regulatory changes, adverse market
conditions and/or increased competition affecting that economic sector.
The prices of the securities of Utilities Companies may fluctuate widely
due to government regulation; the effect of interest rates on capital
financing; competitive pressures due to deregulation in the utilities
industry; supply and demand for services; increased sensitivity to the
cost of natural resources required for energy production; and
environmental factors such as conservation of natural resources.
<PAGE>
PROSPECTUS 9
--------
FUND PERFORMANCE AND FEE INFORMATION
UTILITIES MASTER FUND PERFORMANCE
[ICON]
Utilities Master Fund had not commenced operations as of the date of
this Prospectus, 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 Utilities Fund.
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
SHAREHOLDER FEES* NONE
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED
FROM NET ASSETS)
Management Fees .85%
Distribution (12b-1) Fees NONE
Other Expenses** .02%
----
Total Annual Fund Operating Expenses .87%
</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
Utilities Master 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 or lower, based on these assumptions your cost would be:
<TABLE>
1 YEAR 3 YEARS
----------------
<S> <C>
$89 $278
</TABLE>
<PAGE>
------
10 PROSPECTUS
MORE INFORMATION ABOUT FUND INVESTMENTS AND RISK
THE BENCHMARK FUND'S INVESTMENT OBJECTIVES
The Funds are designed to provide investment results that match the
performance of a specific benchmark. The benchmark used by each Fund is set
forth below:
<TABLE>
FUND (TICKER SYMBOL) BENCHMARK
<S> <C>
Ursa Master Fund (RYURX) Inverse (opposite) of the performance of S&P 500 Composite
Stock Price Index-TM- (SPX)
Arktos Master Fund (RYAIX) Inverse (opposite) of the performance of NASDAQ 100
Index-TM- (NDX)
Juno Master Fund (RYJUX) Inverse (opposite) of the price movement of the Long
Treasury Bond
</TABLE>
A BRIEF GUIDE TO THE BENCHMARKS.
THE S&P 500 INDEX. The S&P 500 Index is a capitalization-weighted index composed
of 500 common stocks, which are chosen by the Standard & Poor's Corporation
("S&P") on a statistical basis.
THE NASDAQ 100 INDEX. The NASDAQ 100 Index-TM- is a modified
capitalization-weighted index composed of 100 of the largest non-financial
companies listed on the National Association of Securities Dealers Automated
Quotations System.
THE LONG TREASURY BOND. The Long Treasury Bond is the current U.S. Treasury bond
with the longest maturity. Currently, the longest maturity of a U.S. Treasury
bond is 30 years.
THE ADVISOR'S INVESTMENT METHODOLOGY
In managing the Ursa, Arktos, and Juno Master Funds, the Advisor's primary
objective is to match the performance of each Fund's benchmark as closely as
possible on a daily basis. Through the use of quantitative analysis techniques,
each Fund is structured to obtain the highest correlation to its particular
benchmark, while remaining fully invested in all market environments. The
Advisor monitors each Fund on an ongoing basis, and makes adjustments to its
portfolio, as necessary, to minimize tracking error and to maximize liquidity.
The Advisor may utilize options contracts to leverage a Fund's investment
exposure. In addition, the Funds may require short selling techniques designed
to inversely correlate to the performance of an index or benchmark.
In managing the Utilities Master Fund, the Advisor's investment team employs
a quantitative model that considers a number of factors. To develop a liquid
portfolio of stocks that adequately represents the utilities market sector, the
Advisor applies filters to the broad universe of stocks of
<PAGE>
PROSPECTUS 11
--------
issuers that are "principally engaged" in business activities in that industry
sector. Specifically, the Advisor's investment process screens stocks primarily
based on liquidity, market capitalization, and correlation relative to the
entire industry sector. The Advisor also may consider other factors.
The Advisor monitors the Utilities Master Fund's portfolio on an ongoing
basis, and adds or deletes stocks from the portfolios as needed.
After constructing a portfolio for the Utilities Master Fund, the Advisor
may utilize futures contracts and options to leverage the Fund's exposure to the
relevant business sector. The use of leverage will result in the Fund being
exposed to its relevant business sector with more than 100% of its total assets.
The utilities business sector typically consists of numerous industries. For
purposes of the Advisor's investment methodology and the policies for the Fund,
a company is considered to be "principally engaged" in a designated business
activity in a particular economic sector if at least 50% of its assets, gross
income, or net profits are committed to, or derived from, that activity. If a
question exists as to whether a company meets these standards, the Advisor will
determine whether the company's primary business is within the utilities
business sector.
RISKS OF INVESTING IN THE FUNDS
As indicated below, the Funds are subject to a number of risks that may
affect the value of Fund shares.
EQUITY RISK (ALL FUNDS EXCEPT JUNO MASTER FUND) -- The Funds may invest in
public and privately issued equity securities, including common and preferred
stocks, warrants, and rights, as well as instruments that attempt to track the
price movement of equity indices. Investments in equity securities and equity
derivatives in general are subject to market risks that may cause their prices
to fluctuate over time. The value of securities convertible into equity
securities, such as warrants or convertible debt, is also affected by prevailing
interest rates, the credit quality of the issuer and any call provision.
Fluctuations in the value of equity securities in which the Funds invest will
cause the net asset value of the Funds to fluctuate. An investment in the Funds
may be more suitable for long-term investors who can bear the risk of short-term
principal fluctuations.
FIXED INCOME RISK (JUNO MASTER FUND) -- The market value of fixed income
investments will change in response to interest rate changes and other factors.
During periods of falling interest rates, the values of outstanding fixed income
securities generally rise. Conversely, during periods of rising interest rates,
the values of such securities generally decline. Moreover, while securities with
longer maturities tend to produce higher yields, the prices of longer maturity
securities are also subject to greater market fluctuations as a result of
changes in interest rates.
INDUSTRY CONCENTRATION RISK (UTILITIES MASTER AND ARKTOS MASTER FUNDS) -- The
Utilities Master Fund will invest 25% or more of the value of the Fund's total
assets in the securities of one or more issuers conducting their principal
business activities in the utilities industry. In addition, to the extent the
<PAGE>
------
12 PROSPECTUS
index underlying the Arktos Master Fund's benchmark is concentrated in a
particular industry, the Fund will necessarily be concentrated in that industry.
Currently, the index underlying the Arktos Master Fund's benchmark -- the NASDAQ
100 Index -- is concentrated in technology companies. The risk of concentrating
Fund investments in a limited number of issuers conducting business in the same
industry is that the Fund will be more susceptible to the risks that are
associated with of those issuers (or that industry) than a fund that does not
concentrate its investments.
NON-DIVERSIFICATION RISK (ALL FUNDS) -- Since each Fund is non-diversified, each
Fund may invest in the securities of a limited number of issuers. To the extent
that a Fund invests a significant percentage of its assets in a limited number
of issuers, the Fund is subject to the risks of investing in these few issuers,
and may be more susceptible to a single adverse economic of regulatory
occurrence.
TRACKING ERROR RISK (ALL FUNDS EXCEPT UTILITIES MASTER FUND) -- While the Funds
do not expect returns to deviate significantly from their respective benchmarks
on a daily basis, factors such as Fund expenses, imperfect correlation between
the Funds' investments and those of their benchmarks, rounding of share prices,
changes to the benchmark, regulatory policies, and leverage, may affect their
ability to achieve close correlation. The cumulative effect of these factors may
over time cause the Fund's returns to deviate from their respective benchmarks
on an aggregate basis. The magnitude of any tracking error may be affected by a
higher portfolio turnover rate.
TRADING HALT RISK (ALL FUNDS) -- The Funds typically will hold short-term
options and futures contracts. The major exchanges on which these contracts are
traded, such as the Chicago Mercantile Exchange ("CME"), have established limits
on how much an option or futures contract may decline over various time periods
within a day. If an option or futures contract's price declines more than the
established limits, trading on the exchange is halted on that instrument. If a
trading halt occurs at the close of a trading day, a Fund may not be able to
purchase or sell options or futures contracts. In such an event, a Fund also may
be required to use a "fair-value" method to price its outstanding contracts.
FUTURES AND OPTIONS RISK (ALL FUNDS) -- The Funds may invest a percentage of
their assets in futures and options contracts. The Funds may use futures
contracts and related options for bona fide hedging purposes to offset changes
in the value of securities held or expected to be acquired. They may also be
used to gain exposure to a particular market or instrument, to create a
synthetic money market position, and for certain other tax-related purposes. The
Funds will only enter into futures contracts traded on a national futures
exchange or board of trade. Futures and options contracts are described in more
detail below:
FUTURES CONTRACTS -- Futures contracts and options on futures contracts
provide for the future sale by one party and purchase by another party of a
specified amount of a specific security at a specified future time and at a
specified price. An option on a futures contract gives the purchaser the
right, in exchange for a premium, to assume a position in a futures contract
at a specified exercise price during the term of the option. Index futures
are futures contracts for various indices that are traded on registered
securities exchanges.
<PAGE>
PROSPECTUS 13
--------
OPTIONS -- The buyer of an option acquires the right to buy (a call option)
or sell (a put option) a certain quantity of a security (the underlying
security) or instrument at a certain price up to a specified point in time.
The seller or writer of an option is obligated to sell (a call option) or
buy (a put option) the underlying security. When writing (selling) call
options on securities, a Fund may cover its position by owning the
underlying security on which the option is written 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 written by the Fund.
The risks associated with the Funds' use of futures and options contracts
include:
- A Fund experiencing losses over certain ranges in the market that exceed
losses experienced by a Fund that does not use futures and options
contracts.
- There may be an imperfect correlation between the changes in market value
of the securities held by a Fund and the prices of futures and options on
futures.
- Although the Funds will only purchase exchange-traded futures and options,
due to market conditions there may not be a liquid secondary market for a
futures contract or option. As a result, the Funds may be unable to close
out their futures or options contracts at a time which is advantageous.
- Trading restrictions or limitations may be imposed by an exchange, and
government regulations may restrict trading in futures contracts and
options.
- Because option premiums paid or received by the Funds are small in
relation to the market value of the investments underlying the options,
buying and selling put and call options can be more speculative than
investing directly in securities.
SHORT SALES RISK (ALL FUNDS EXCEPT UTILITIES MASTER FUND) -- Short sales are
transactions in which a Fund sells a security it does not own. To complete the
transaction, the Fund must borrow the security to make delivery to the buyer.
The Fund is then obligated to replace the security borrowed by purchasing the
security at the market price at the time of replacement. The price at such time
may be more or less than the price at which the security was sold by the Fund.
If the price is lower, the Fund will make money on the transaction. Conversely,
if the price is higher, the Fund will lose money on the transaction. The risk of
such price increases is the principal risk of engaging in short sales.
EARLY CLOSING RISK (ALL FUNDS EXCEPT JUNO MASTER FUND) -- The normal close of
trading of securities listed on the National Association of Securities Dealers
Automated Quotations system ("NASDAQ") and the New York Stock Exchange ("NYSE")
is 4:00 P.M., Eastern Time. Unanticipated early closings may result in a Fund
being unable to sell or buy securities on that day. If an exchange closes early
on a day when one or more of the Funds needs to execute a high volume of
securities trades late in a trading day, a Fund might incur substantial trading
losses.
<PAGE>
------
14 PROSPECTUS
PURCHASING AND REDEEMING SHARES
Shares are offered continuously, and may be purchased on any day that the
NYSE is open for business (a "Business Day"). On any day that the New York Fed
or the NYSE closes early, the principal government securities and corporate bond
markets close early (such as on days in advance of holidays generally observed
by participants in these markets), or as permitted by the Securities and
Exchange Commission ("SEC"), the right is reserved to advance the time on that
day by which purchase and redemption orders must be received.
Shares of each Fund can be purchased only by feeder funds of the Trust. All
orders for the purchase of shares are subject to acceptance or rejection by the
Trust. A feeder fund purchases and redeems shares of each Fund based on, among
other things, the amount of its net purchases or redemptions at the Fund's net
asset value per share calculated as of that same day.
All redemption requests will be processed and payment with respect thereto
will be made within seven days after tender. The Trust may suspend redemptions,
if permitted by the Investment Company Act of 1940 (the "1940 Act"), for any
period during which the NYSE is closed or during which trading is restricted by
the SEC, or the SEC declares that an emergency exists. Redemptions may also be
suspended during other periods permitted by the SEC for the protection of the
Trust's investors.
NET ASSET VALUE
The price per share (the offering price) will be the net asset value per
share ("NAV") next determined after your purchase order is received by the
Trust. NAV is calculated by (1) taking the current market value of a Fund's
total assets, (2) subtracting the liabilities, and (3) dividing that amount by
the total number of shares owned by shareholders. For each Fund (except the Juno
Master Fund) the NAV is calculated once each Business Day after the close of the
NYSE (currently, 4:00 p.m., Eastern Time). The NAV of the Juno Master Fund is
determined each Business Day as of the close of normal trading on the CBOT
(normally 3:00 p.m., Eastern Time). If the exchange or market where a Fund's
securities or other investments are primarily traded closes early, the NAV may
be calculated earlier in accordance with the policies set forth in the Fund's
SAI.
MANAGEMENT
THE INVESTMENT ADVISOR -- Rydex Global Advisors, with offices at
6116 Executive Boulevard, Suite 400, Rockville, Maryland 20852, serves as
investment advisor and manager of the Funds. Albert P. Viragh, Jr., the Chairman
of the Board and the President of the Advisor, owns a controlling interest in
the Advisor. From 1985 until the incorporation of the Advisor, Mr. Viragh was a
Vice President of Money Management Associates ("MMA"), a Maryland-based
registered investment advisor. From 1992 to June 1993, Mr. Viragh was the
portfolio manager of The Rushmore Nova Portfolio, a series of The Rushmore
Fund, Inc., an investment company managed by MMA.
<PAGE>
PROSPECTUS 15
--------
The Advisor makes investment decisions for the assets of the Funds and
continuously reviews, supervises, and administers each Fund's investment
program. The Trustees of the Trust supervise the Advisor and establish policies
that the Advisor must follow in its day-to-day management activities. Under an
investment advisory agreement between the Trust and the Advisor, the Funds pay
the Advisor a fee at an annualized rate, based on the average daily net assets
for each Fund, as set forth below:
<TABLE>
<CAPTION>
FUND ADVISORY FEE
---- ------------
<S> <C>
Ursa Master .90%
Arktos Master .90%
Juno Master .90%
Utilities Master .85%
</TABLE>
The Advisor bears all of its own costs associated with providing these
advisory services and the expenses of the Trustee who are affiliated with the
Advisor. The Advisor may make payments from its own resources to broker-dealers
and other financial institutions in connection with the sale of Fund shares.
PORTFOLIO MANAGEMENT
The Ursa Master, Arktos Master, and Juno Master Funds are managed by a team
of investment professionals and no one person is responsible for making
investment decisions for a Fund.
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS
Income dividends and capital gain distributions are paid to the feeder funds
at least annually by each of the Funds. The Trust may declare a special capital
gains distribution if Trustees believe that such a distribution would be in the
best interest of the shareholders of a Fund.
TAXES
Each Fund is treated as a separate entity for federal tax purposes, and intends
to qualify for the special tax treatment afforded regulated investment
companies. As long as a Fund qualifies as a regulated investment company, it
pays no federal income tax on the earnings it distributes to Shareholders. A
Fund is not liable for any income or franchise tax in Delaware as long as it
qualifies as a regulated investment company for federal income tax purposes.
In addition to qualifying for special tax treatment as a regulated
investment company, the Funds intend to meet special diversification
requirements of the Internal Revenue Code (the "Code") in order to assure
insurance companies that their variable annuity and variable life contracts
qualify as insurance under the Code.
<PAGE>
------
16 PROSPECTUS
RYDEX SERIES FUNDS
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Ursa Master Fund(1)
(For a Share Outstanding Throughout Each Period)
The financial highlights table is intended to help you understand the Fund's
financial performance for the past five years. Certain information reflects
financial results for a single Ursa Master Fund share. The total returns in the
table represent the rate that an investor would have earned (or lost) on an
investment in the Fund (assuming reinvestment of all dividends and
distributions). This information has been audited by Deloitte & Touche LLP,
whose report, along with the financial statements and related notes, appears in
the Trust's 2000 Annual Report. Our 2000 Annual Report is available by
telephoning us at 800-820-0888 or (301)468-8520. The Annual Report is
incorporated by reference in the SAI.
<TABLE>
<CAPTION>
URSA MASTER FUND
--------------------------------------------------------------
YEAR YEAR YEAR PERIOD YEAR YEAR
ENDED ENDED ENDED ENDED ENDED ENDED
MARCH 31, MARCH 31, MARCH 31, MARCH 31, JUNE 30, JUNE 30,
2000 1999 1998++ 1997++ 1996++ 1995++
--------- --------- --------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:+
NET ASSET VALUE--BEGINNING OF PERIOD... $8.66 $9.92 $14.04 $15.10 $17.58 $21.08
--------- --------- --------- --------- -------- --------
Net Investment Income................ .32 .25 .38 .34 .60 .70
Net Realized and Unrealized Losses on
Securities......................... (1.24) (1.48) (4.46) (1.36) (3.08) (3.56)
--------- --------- --------- --------- -------- --------
Net Decrease in Net Asset Value
Resulting from Operations.......... (.92) (1.23) (4.08) (1.02) (2.48) (2.86)
Distributions to Shareholders from
Net Investment Income.............. (.06) (.03) (.04) (.04) -- (.64)
--------- --------- --------- --------- -------- --------
Net Decrease in Net Asset Value...... (.98) (1.26) (4.12) (1.06) (2.48) (3.50)
--------- --------- --------- --------- -------- --------
NET ASSET VALUE--END OF PERIOD......... $7.68 $8.66 $9.92 $14.04 $15.10 $17.58
========= ========= ========= ========= ======== ========
TOTAL INVESTMENT RETURN................ (10.64)% (12.47)% (29.06)% (8.98)%* (14.11)% (14.08)%
RATIOS TO AVERAGE NET ASSETS
Gross Expenses....................... 1.32% 1.39% 1.36% 1.36%* -- --
Net Expenses......................... 1.31% 1.38% 1.34% 1.34%* 1.39% 1.39%
Net Investment Income................ 3.81% 3.29% 3.18% 3.21%* 3.38% 3.50%
SUPPLEMENTARY DATA:
Portfolio Turnover Rate**............ -- -- -- -- -- --
Net Assets, End of Year (000's
omitted)........................... $288,218 $482,340 $254,225 $582,288 $192,553 $127,629
</TABLE>
+ CALCULATED USING THE AVERAGE DAILY SHARES OUTSTANDING FOR THE YEAR.
++ PER SHARE AMOUNTS FOR THE PERIODS ENDED JUNE 30, 1995 THROUGH MARCH
31, 1998 HAVE BEEN RESTATED TO REFLECT A 1:2 REVERSE STOCK SPLIT
EFFECTIVE AUGUST 14, 1998.
* ANNUALIZED
** PORTFOLIO TURNOVER RATIO IS CALCULATED WITHOUT REGARD TO SHORT-TERM
SECURITIES HAVING A MATURITY OF LESS THAN ONE YEAR. THE URSA FUND
TYPICALLY HOLDS MOST OF ITS INVESTMENTS IN OPTIONS AND FUTURES
CONTRACTS WHICH ARE DEEMED SHORT-TERM SECURITIES.
(1) On April 3, 2000, the Ursa Master Fund acquired all of the assets and
liabilities of the Ursa Fund. The Ursa Master Fund was the accounting
survivor of this transaction. The basis of accounting for assets and
liabilities and its operating results for the periods prior to April
3, 2000 are those of the Ursa Fund (the predecessor).
<PAGE>
PROSPECTUS 17
--------
RYDEX SERIES FUNDS
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Arktos Master Fund(1)
(For a Share Outstanding Throughout Each Period)
The financial highlights table is intended to help you understand the Fund's
financial performance for the past five years. Certain information reflects
financial results for a single Arktos Master Fund share. The total returns in
the table represent the rate that an investor would have earned (or lost) on an
investment in the Fund (assuming reinvestment of all dividends and
distributions). This information has been audited by Deloitte & Touche LLP,
whose report, along with the financial statements and related notes, appears in
the Trust's 2000 Annual Report. Our 2000 Annual Report is available by
telephoning us at 800-820-0888 or (301)468-8520. The Annual Report is
incorporated by reference in the SAI.
<TABLE>
<CAPTION>
ARKTOS MASTER FUND
--------------------
YEAR PERIOD
ENDED ENDED
MARCH 31, MARCH 31,
2000 1999*
--------- ---------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE:+
NET ASSET VALUE--BEGINNING OF PERIOD.... $8.04 $15.00
--------- ---------
Net Investment Income................. .15 .13
Net Realized and Unrealized Losses on
Securities.......................... (4.68) (7.08)
--------- ---------
Net Decrease in Net Asset Value
Resulting from Operations........... (4.53) (6.95)
Distributions to Shareholders from Net
Investment Income................... (.02) (.01)
--------- ---------
Net Decrease in Net Asset Value....... (4.55) (6.96)
--------- ---------
NET ASSET VALUE--END OF PERIOD.......... $3.49 $8.04
========= =========
TOTAL INVESTMENT RETURN................. (56.39)% (46.35)%
RATIOS TO AVERAGE NET ASSETS
Gross Expenses........................ 1.46% 1.38%**
Net Expenses.......................... 1.46% 1.37%**
Net Investment Income................. 2.67% 2.20%**
SUPPLEMENTARY DATA:
Portfolio Turnover Rate***............ 1,157% 1,332%
Net Assets, End of Year (000's
omitted)............................ $103,160 $118,622
</TABLE>
+ CALCULATED USING THE AVERAGE DAILY SHARES OUTSTANDING FOR THE YEAR.
* COMMENCEMENT OF OPERATIONS: SEPTEMBER 3, 1998
** ANNUALIZED
*** PORTFOLIO TURNOVER RATIO IS CALCULATED WITHOUT REGARD TO SHORT-TERM
SECURITIES HAVING A MATURITY OF LESS THAN ONE YEAR.
(1) On April 3, 2000, the Arktos Master Fund acquired all of the assets
and liabilities of the Arktos Fund. The Arktos Master Fund was the
accounting survivor of this transaction. The basis of accounting for
assets and liabilities and its operating results for the periods prior
to April 3, 2000 are those of the Arktos Fund (the predecessor).
<PAGE>
------
18 PROSPECTUS
RYDEX SERIES FUNDS
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Juno Master Fund(1)
(For a Share Outstanding Throughout Each Period)
The financial highlights table is intended to help you understand the Fund's
financial performance for the past five years. Certain information reflects
financial results for a single Juno Master Fund share. The total returns in the
table represent the rate that an investor would have earned (or lost) on an
investment in the Fund (assuming reinvestment of all dividends and
distributions). This information has been audited by Deloitte & Touche LLP,
whose report, along with the financial statements and related notes, appears in
the Trust's 2000 Annual Report. Our 2000 Annual Report is available by
telephoning us at 800-820-0888 or (301)468-8520. The Annual Report is
incorporated by reference in the SAI.
<TABLE>
<CAPTION>
JUNO MASTER FUND
--------------------------------------------------------------
YEAR YEAR YEAR PERIOD YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED ENDED
MARCH 31, MARCH 31, MARCH 31, MARCH 31, JUNE 30, JUNE 30,
2000 1999 1998 1997 1996 1995*
--------- --------- --------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE:+
NET ASSET VALUE--BEGINNING OF PERIOD... $8.70 $8.65 $9.69 $9.47 $9.08 $10.00
--------- --------- --------- --------- ------- --------
Net Investment Income................ .31 .27 .16 .25 .34 .14
Net Realized and Unrealized Gains
(Losses) on Securities............. .04 (.20) (1.12) -- .05 (1.06)
--------- --------- --------- --------- ------- --------
Net Increase (Decrease) in Net Asset
Value Resulting from Operations.... .35 .07 (.96) .25 .39 (.92)
Distributions to Shareholders from
Net Investment Income.............. (.05) (.02) (.08) (.03) -- --
--------- --------- --------- --------- ------- --------
Net Increase (Decrease) in Net Asset
Value.............................. .30 .05 (1.04) .22 .39 (.92)
--------- --------- --------- --------- ------- --------
NET ASSET VALUE--END OF PERIOD......... $9.00 $8.70 $8.65 $9.69 $9.47 $9.08
========= ========= ========= ========= ======= ========
TOTAL INVESTMENT RETURN................ 3.97% 0.78% (9.92)% 3.75%** 4.30% (9.20)%
RATIOS TO AVERAGE NET ASSETS
Gross Expenses....................... 1.47% 1.57% 1.61% 1.60%** -- --
Net Expenses......................... 1.47% 1.56% 1.59% 1.58%** 1.64% 1.50%**
Net Investment Income................ 3.39% 3.25% 3.55% 3.51%** 3.63% 1.32%**
SUPPLEMENTARY DATA:
Portfolio Turnover Rate***........... -- -- -- -- -- --
Net Assets, End of Year (000's
omitted)........................... $9,941 $12,789 $12,887 $32,577 $18,860 $4,301
</TABLE>
+ CALCULATED USING THE AVERAGE DAILY SHARES OUTSTANDING FOR THE YEAR.
* COMMENCEMENT OF OPERATIONS: MARCH 3, 1995
** ANNUALIZED
*** PORTFOLIO TURNOVER RATIO IS CALCULATED WITHOUT REGARD TO SHORT-TERM
SECURITIES HAVING A MATURITY OF LESS THAN ONE YEAR. THE JUNO FUND
TYPICALLY HOLDS MOST OF ITS INVESTMENTS IN OPTIONS AND FUTURES
CONTRACTS WHICH ARE DEEMED SHORT-TERM SECURITIES.
(1) On April 3, 2000, the Juno Master Fund acquired all of the assets and
liabilities of the Juno Fund. The Juno Master Fund was the accounting
survivor of this transaction. The basis of accounting for assets and
liabilities and its operating results for the periods prior to
April 3, 2000 are those of the Juno Fund (the predecessor).
<PAGE>
PROSPECTUS 19
--------
BENCHMARK INFORMATION.
THE URSA MASTER FUND IS NOT SPONSORED, ENDORSED, SOLD, OR PROMOTED BY
STANDARD & POOR'S CORP. (S&P); THE ARKTOS MASTER FUND IS NOT SPONSORED,
ENDORSED, SOLD, OR PROMOTED BY NASDAQ OR ANY OF NASDAQ'S AFFILIATES (NASDAQ AND
ITS AFFILIATES HEREINAFTER COLLECTIVELY REFERRED TO AS "NASDAQ").
NEITHER S&P NOR NASDAQ MAKE ANY REPRESENTATION OR WARRANTY, IMPLIED OR EXPRESS,
TO THE INVESTORS IN THE FUNDS, OR ANY MEMBER OF THE PUBLIC, REGARDING THE
ADVISABILITY OF INVESTING IN INDEX FUNDS OR THE ABILITY OF THE S&P 500 INDEX OR
NASDAQ 100 INDEX-TM-, RESPECTIVELY, TO TRACK GENERAL STOCK MARKET PERFORMANCE.
NEITHER S&P NOR NASDAQ GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE
S&P 500 INDEX AND THE NASDAQ 100 INDEX-TM-, RESPECTIVELY, OR ANY DATA INCLUDED
THEREIN.
NEITHER S&P NOR NASDAQ MAKE ANY WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO
BE OBTAINED BY ANY OF THE FUNDS, THE INVESTORS IN THE FUNDS, OR ANY PERSON OR
ENTITY FROM THE USE OF THE S&P 500 INDEX OR THE NASDAQ 100 INDEX-TM-,
RESPECTIVELY, OR ANY DATA INCLUDED THEREIN.
NEITHER S&P NOR NASDAQ MAKE ANY EXPRESS OR IMPLIED WARRANTIES OF MERCHANTABILITY
OR FITNESS FOR A PARTICULAR PURPOSE FOR USE WITH RESPECT TO THE S&P 500 INDEX OR
THE NASDAQ 100 INDEX-TM-, RESPECTIVELY, OR ANY DATA INCLUDED THEREIN.
<PAGE>
Additional information about the Funds is included in a Statement of Additional
Information dated August 1, 2000 (the "SAI"), which contains more detailed
information about the Funds. The SAI has been filed with the Securities and
Exchange Commission ("SEC") and is incorporated by reference into this
Prospectus and, therefore, legally forms a part of this Prospectus. The SEC
maintains a Web site ("http://www.sec.gov") that contains the SAI, material
incorporated by reference, and other information regarding registrants that file
electronically with the SEC. You may also review and copy documents at the SEC
Public Reference Room in Washington, D.C. (for information 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 1-800-820-0888 or by writing to Rydex Series Funds, at 6116
Executive Boulevard, Suite 400, Rockville, Maryland 20852. Additional
information about the Funds' investments is available in the annual and semi-
annual reports. Also, in the Funds' annual report, you will find a discussion of
the market conditions and investment strategies that significantly affected the
Funds' performance during its last fiscal year.
--------------------------------------------------------------------------------
NO ONE HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS OR IN THE TRUST'S SAI IN
CONNECTION WITH THE OFFERING OF FUND SHARES. DO NOT RELY ON ANY SUCH INFORMATION
OR REPRESENTATIONS AS HAVING BEEN AUTHORIZED BY THE TRUST OR RYDEX GLOBAL
ADVISORS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE TRUST IN ANY
JURISDICTION WHERE SUCH AN OFFERING IS NOT LAWFUL.
The Fund's SEC registration number is 811-07584.
<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 mutual fund complex with thirty separate
investment portfolios (the "Funds"). This Statement of Additional Information
("SAI") relates to shares of the following portfolios:
NOVA FUND
URSA FUND
OTC FUND
ARKTOS FUND
JUNO FUND
U.S. GOVERNMENT BOND FUND
URSA MASTER FUND
ARKTOS MASTER FUND
JUNO MASTER FUND
UTILITIES MASTER FUND
BANKING FUND
BASIC MATERIALS FUND
BIOTECHNOLOGY FUND
CONSUMER PRODUCTS FUND
ELECTRONICS FUND
ENERGY FUND
ENERGY SERVICES FUND
FINANCIAL SERVICES FUND
HEALTH CARE FUND
INTERNET FUND
LEISURE FUND
PRECIOUS METALS FUND
RETAILING FUND
TECHNOLOGY FUND
TELECOMMUNICATIONS FUND
TRANSPORTATION FUND
UTILITIES FUND
U.S. GOVERNMENT MONEY MARKET FUND
This SAI is not a prospectus. It should be read in conjunction with the Trust's
Prospectus, dated August 1, 2000. A copy of the Trust's Prospectus is available,
without charge, upon request to the Trust at the address above or by telephoning
the Trust at the telephone number above.
The date of this SAI is August 1, 2000.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
PAGE
GENERAL INFORMATION ABOUT THE TRUST.................................3
ADDITIONAL INFORMATION ABOUT THE SECTOR FUNDS.......................3
DESCRIPTION OF THE MONEY MARKET FUND................................7
INVESTMENT POLICIES, TECHNIQUES AND RISK FACTORS....................8
INVESTMENT RESTRICTIONS............................................18
PORTFOLIO TRANSACTIONS AND BROKERAGE...............................22
MANAGEMENT OF THE TRUST............................................27
PRINCIPAL HOLDERS OF SECURITIES....................................34
DETERMINATION OF NET ASSET VALUE...................................50
PERFORMANCE INFORMATION............................................52
CALCULATION OF RETURN QUOTATIONS...................................53
INFORMATION ON COMPUTATION OF YIELD................................58
PURCHASE AND REDEMPTION OF SHARES..................................60
DIVIDENDS, DISTRIBUTIONS, AND TAXES................................61
OTHER INFORMATION..................................................64
COUNSEL............................................................65
AUDITORS AND CUSTODIAN.............................................65
FINANCIAL STATEMENTS...............................................65
APPENDIX...........................................................66
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. Currently, the Trust has thirty separate series. The Nova, Ursa, OTC,
Arktos, U.S. Government Bond (the "Bond Fund"), and Juno Funds (collectively,
the "Benchmark Funds") are designed to provide investment results which match
the performance of a specific benchmark. The Large-Cap Europe and Large-Cap
Japan Funds (collectively, the "International Funds") are designed to provide
investment returns that correlate to the performance of a specific benchmark.
The Banking, Basic Materials, Biotechnology, Consumer Products, Electronics,
Energy, Energy Services, Financial Services, Health Care, Internet, Leisure,
Precious Metals, Retailing, Technology, Telecommunications, Transportation,
Utilities, and Utilities Master Funds (collectively, the "Sector Funds") are
designed to provide exposure to specific economic sectors. The Ursa Master,
Arktos Master, and Juno Master Funds (collectively, the "Master Funds") serve
as master funds in a master-feeder arrangement with the Ursa, Arktos, and
Juno Funds, respectively. The Utilities Master Fund is not currently offering
shares and at which time it does offer shares, it will only do so through a
master-feeder arrangement with the Utilities Fund. The Trust also offers
shares of the U.S. Government Money Market Fund (the "Money Market Fund").
All payments received by the Trust for shares of any Fund belong to that
Fund. Each Fund has its own assets and liabilities. The Trust currently
offers Investor Class Shares, Advisor Class Shares, and Shares of the
International Funds. Investor Class Shares are sold principally to
professional money managers and to investors who take part in certain
asset-allocation investment strategies. Advisor Class Shares are offered
through broker-dealers and other financial institutions ("intermediaries")
that have entered into arrangements with the Trust's Distributor (the
"Distributor") to sell Advisor Class Shares to their customers. Advisor Class
Shares differ from Investor Class Shares primarily in the allocation of
certain shareholder servicing and distribution expenses and in the minimum
initial investment requirement. Shares of the International Funds are
offered without class designation. Sales of shares of each Class are made
without a sales charge at each Fund's per share net asset value. Additional
Funds and/or classes may be created from time to time.
ADDITIONAL INFORMATION ABOUT THE SECTOR FUNDS
BANKING FUND
The Fund may invest in companies engaged in accepting deposits and making
commercial and principally non-mortgage consumer loans. In addition, these
companies may offer services such as merchant banking, consumer and commercial
finance, discount brokerage, leasing and insurance. These companies may
concentrate their operations within a specific part of the country rather than
operating predominantly on a national or international scale.
BASIC MATERIALS FUND
The Fund may invest in companies engaged in the manufacture, mining, processing,
or distribution of raw materials and intermediate goods used in the industrial
sector. The Fund may invest in companies handling products such as chemicals,
lumber, paper, copper, iron ore, nickel, steel, aluminum, textiles, cement, and
gypsum. The Fund may also invest in the securities of mining, processing,
transportation, and distribution companies, including equipment suppliers and
railroads.
BIOTECHNOLOGY FUND
The Fund may invest in companies engaged in the research, development, sale, and
manufacture of various biotechnological products, services and processes. These
include companies involved with
3
<PAGE>
developing or experimental technologies such as generic engineering, hybridoma
and recombinant DNA techniques and monoclonal antibodies. The Fund may also
invest in companies that manufacture and/or distribute biotechnological and
biomedical products, including devices and instruments, and that provide or
benefit significantly from scientific and technological advances in
biotechnology. Some biotechnology companies may provide processes or services
instead of, or in addition to, products.
The description of the biotechnology sector may be interpreted broadly to
include applications and developments in such areas as human health care
(cancer, infectious disease, diagnostics and therapeutics); pharmaceuticals (new
drug development and production); agricultural and veterinary applications
(improved seed varieties, animal growth hormones); chemicals (enzymes, toxic
waste treatment); medical/surgical (epidermal growth factor, in vivo
imaging/therapeutics); and industry (biochips, fermentation, enhanced mineral
recovery).
CONSUMER PRODUCTS FUND
The Fund may invest in companies engaged in the manufacture of goods to
consumers, both domestically and internationally. The Fund may invest in
companies that manufacture durable products such as furniture, major appliances,
and personal computers. The Fund also may invest in companies that manufacture,
wholesale or retail non-durable goods such as beverages, tobacco, health care
products, household and personal care products, apparel, and entertainment
products (E.G., books, magazines, TV, cable, movies, music, gaming, and sports).
In addition, the Fund may invest in consumer products and services such as
lodging, child care, convenience stores, and car rentals.
ELECTRONICS FUND
The Fund may invest in companies engaged in the design, manufacture, or sale of
electronic components (semiconductors, connectors, printed circuit boards and
other components); equipment vendors to electronic component manufacturers;
electronic component distributors; and electronic instruments and electronic
systems vendors. In addition, the Fund may invest in companies in the fields of
defense electronics, medical electronics, consumer electronics, advanced
manufacturing technologies (computer-aided design and computer-aided
manufacturing (CAD/CAM), computer-aided engineering, and robotics), lasers and
electro-optics, and other developing electronics technologies.
ENERGY FUND
The Fund may invest in companies in the energy field, including the conventional
areas of oil, gas, electricity and coal, and alternative sources of energy such
as nuclear, geothermal, oil shale and solar power. The business activities of
companies in which the Fund may invest include production, generation,
transmission, refining, marketing, control, distribution or measurement of
energy or energy fuels such as petrochemicals; providing component parts or
services to companies engaged in the above activities; energy research or
experimentation; and environmental activities related to pollution control.
Companies participating in new activities resulting from technological advances
or research discoveries in the energy field may also be considered for this
Fund.
ENERGY SERVICES FUND
The Fund may invest in companies in the energy service field, including those
that provide services and equipment to the conventional areas of oil, gas,
electricity and coal, and alternative sources of energy such as nuclear,
geothermal, oil shale and solar power. The Fund may invest in companies involved
in providing services and equipment for drilling processes such as offshore and
onshore drilling, drill bits, drilling rig equipment, drilling string equipment,
drilling fluids, tool joints and wireline logging. Many energy service companies
are engaged in production and well maintenance, providing such products and
4
<PAGE>
services as packers, perforating equipment, pressure pumping, downhole
equipment, valves, pumps, compression equipment, and well completion equipment
and service. Certain companies supply energy providers with exploration
technology such as seismic data, geological and geophysical services, and
interpretation of this data. The Fund may also invest in companies with a
variety of underwater well services, helicopter services, geothermal plant
design or construction, electric and nuclear plant design or construction,
energy related capital equipment, mining related equipment or services, and high
technology companies serving these industries.
FINANCIAL SERVICES FUND
The Fund may invest in companies that are involved in the financial sector,
including commercial and investment banks, savings and loan associations,
consumer and industrial finance companies, securities brokerage companies, and a
variety of firms in all segments of the insurance industry such as multi-line,
property and casualty, and life insurance.
The financial services sector is currently undergoing relatively rapid change as
existing distinctions between financial service segments become less clear. For
instance, recent business combinations have included insurance, finance, and
securities brokerage under single ownership. Some primarily retail corporations
have expanded into securities and insurance industries. Moreover, the federal
laws generally separating commercial and investment banking are currently being
studied by Congress.
Securities and Exchange Commission ("SEC") regulations provide that the Fund may
not invest more than 5% of its total assets in the securities of any one company
that derives more than 15% of its revenues from brokerage or investment
management activities. These companies, as well as those deriving more than 15%
of profits from brokerage and investment management activities, will be
considered to be "principally engaged" in this Fund's business activity. Rule
12d3-1 under the Investment Company Act of 1940 (the "1940 Act"), allows
investment portfolios such as this Fund, to invest in companies engaged in
securities-related activities subject to certain conditions. Purchases of
securities of a company that derived 15% or less of gross revenues during its
most recent fiscal year from securities-related activities (I.E., broker/dealer,
underwriting, or investment advisory activities) are subject only to the same
percentage limitations as would apply to any other security the Fund may
purchase. The Fund may purchase securities of an issuer that derived more than
15% of it gross revenues in its most recent fiscal year from securities-related
activities, subject to the following conditions:
a. the purchase cannot cause more than 5% of the Fund's total assets to
be invested in securities of that issuer;
b. for any equity security, the purchase cannot result in the Fund owning
more than 5% of the issuer's outstanding securities in that class;
c. for a debt security, the purchase cannot result in the fund owning more
than 10% of the outstanding principal amount of the issuer's debt
securities.
In applying the gross revenue test, an issuer's own securities-related
activities must be combined with its ratable share of securities-related
revenues from enterprises in which it owns a 20% or greater voting or equity
interest. All of the above percentage limitations, as well as the issuer's gross
revenue test, are applicable at the time of purchase. With respect to warrants,
rights, and convertible securities, a determination of compliance with the above
limitations shall be made as though such warrant, right, or conversion privilege
had been exercised. The Fund will not be required to divest its holding of a
5
<PAGE>
particular issuer when circumstances subsequent to the purchase cause one of the
above conditions to not be met. The purchase of a general partnership interest
in a securities-related business is prohibited.
HEALTH CARE FUND
The Fund may invest in companies that are involved in the health care industry
including companies engaged in the design, manufacture, or sale of products or
services used for or in connection with health care or medicine. Companies in
the health care sector may include pharmaceutical companies; firms that design,
manufacture, sell, or supply medical, dental, and optical products, hardware or
services; companies involved in biotechnology, medical diagnostic, and
biochemical research and development, as well as companies involved in the
operation of health care facilities.
INTERNET FUND
The Fund may invest in companies that are involved in the Internet sector
including companies which the Advisor believes should benefit from the
commercialization of technological advances, although they may not be directly
involved in research and development. Such companies may provide information or
entertainment services over the Internet; sell or distribute goods and services
over the Internet; provide infrastructure systems or otherwise provide hardware
or software which impacts Internet commerce; or provide Internet access to
consumers and businesses.
LEISURE FUND
The Fund may invest in companies engaged in the design, production, or
distribution of goods or services in the leisure industries including television
and radio broadcasting or manufacturing (including cable television); motion
pictures and photography; recordings and musical instruments; publishing,
including newspapers and magazines; sporting goods and camping and recreational
equipment; and sports arenas. Other goods and services may include toys and
games (including video and other electronic games), amusement and theme parks,
travel and travel-related services, hotels and motels, leisure apparel or
footwear, tobacco products, and gaming casinos.
PRECIOUS METALS FUND
The Fund may invest in the equity securities of U.S. and foreign companies that
are involved in the precious metals sector ("Precious Metals Companies").
Precious Metals Companies include precious metals manufacturers; distributors of
precious metals products, such as jewelry, metal foil or bullion; mining and
geological exploration companies; and companies which provide services to
Precious Metals Companies.
RETAILING FUND
The Fund may invest in companies that are involved in the retailing sector
including companies engaged in merchandising finished goods and services
primarily to individual consumers. Companies in which the Fund may invest
include general merchandise retailers, department stores, restaurant franchises,
drug stores, motor vehicle and marine dealers, and any specialty retailers
selling a single category of merchandise such as apparel, toys, jewelry,
consumer electronics, or home improvement products. The Fund may also invest in
companies engaged in selling goods and services through alternative means such
as direct telephone marketing, mail order, membership warehouse clubs, computer,
or video based electronic systems.
TECHNOLOGY FUND
The Fund may invest in companies that are involved in the technology sector
including companies which the Advisor believes have, or will develop, products,
processes or services that will provide or will
6
<PAGE>
benefit significantly from technological advances and improvements. These may
include, for example, companies that develop, produce, or distribute products or
services in the computer, semiconductor, electronics, communications, health
care, and biotechnology sectors.
TELECOMMUNICATIONS FUND
The Fund may invest in companies that are involved in the telecommunications
sector including companies engaged in the development, manufacture, or sale of
communications services and/or equipment. Companies in the telecommunications
field offer a variety of services and products, including local and
long-distance telephone service; cellular, paging, local and wide-area product
networks; satellite, microwave and cable television; Internet access; and
equipment used to provide these products and services. Long-distance telephone
companies may also have interests in developing technologies, such as fiber
optics and data transmission. Certain types of companies in which the Fund may
invest are engaged in fierce competition for a share of the market for goods or
services such as private and local area networks, or are engaged in the sale of
telephone set equipment.
TRANSPORTATION FUND
The Fund may invest in companies that are involved in the transportation sector,
including companies engaged in providing transportation services or companies
engaged in the design, manufacture, distribution, or sale of transportation
equipment. Transportation services may include companies involved in the
movement of freight and/or people such as airline, railroad, ship, truck, and
bus companies. Other service companies include those that provide leasing and
maintenance for automobiles, trucks, containers, rail cars, and planes.
Equipment manufacturers include makers of trucks, automobiles, planes,
containers, rail cars, or any other mode of transportation and its related
products. In addition, the Fund may invest in companies that sell fuel-saving
devices to the transportation industries and those that sell insurance and
software developed primarily for transportation companies.
UTILITIES FUND
The Fund will invest primarily in companies in the public utilities industry and
companies deriving a majority of their revenues from their public utility
operations as described in the Fund's prospectus. Such companies may include
companies involved in the manufacturing, production, generation, transmission,
distribution or sales of gas or electric energy; water supply, waste and sewage
disposal; and companies involved in the public communication field, including
telephone, telegraph, satellite, microwave and other public communication
facilities.
DESCRIPTION OF THE MONEY MARKET FUND
The Money Market Fund seeks to provide security of principal, high current
income, and liquidity. The Money Market Fund invests primarily in money market
instruments issued or guaranteed as to principal and interest by the U.S.
Government, its agencies or instrumentalities, and may invest any remaining
assets in receipts and enter into repurchase agreements fully collateralized by
U.S. Government Securities.
The Money Market Fund is governed by SEC rules which impose certain liquidity,
maturity and diversification requirements. The Money Market Fund's assets are
valued using the amortized cost method, which enables the Money Market Fund to
maintain a stable NAV. All securities purchased by the Money Market Fund must
have remaining maturities of 397 days or less. Although the Money
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Market Fund is managed to maintain a stable price per share of $1.00, there is
no guarantee that the price will be constantly maintained.
INVESTMENT POLICIES, TECHNIQUES AND RISK FACTORS
GENERAL
Each Fund's investment objective and principal investment strategies are
described in the Prospectuses. The investment objective of each Fund (except
the Sector Funds), including the benchmark of the Nova Fund and Ursa Fund are
fundamental policies of the Funds which cannot be changed with respect to a
Fund without the consent of the holders of a majority of that Fund's
outstanding shares. The following information supplements, and should be read
in conjunction with, those sections of the Prospectuses.
Portfolio management is provided to each Fund by the Trust's investment adviser,
PADCO Advisors, Inc., a Maryland corporation with offices at 6116 Executive
Boulevard, Suite 400, Rockville, Maryland 20852. PADCO Advisors, Inc. operates
under the name Rydex Global Advisors (the "Advisor"). The investment strategies
of the Funds discussed below and in the Prospectuses may be used by a Fund if,
in the opinion of the Advisor, these strategies will be advantageous to that
Fund. A Fund is free to reduce or eliminate its activity in any of those areas
without changing the Fund's fundamental investment policies. There is no
assurance that any of these strategies or any other strategies and methods of
investment available to a Fund will result in the achievement of that Fund's
objectives.
BORROWING
The Nova Fund, Bond Fund, and Sector Funds may borrow money, including borrowing
for investment purposes. Borrowing for investment is known as leveraging.
Leveraging investments, by purchasing securities with borrowed money, is a
speculative technique which increases investment risk, but also increases
investment opportunity. Since substantially all of a Fund's assets will
fluctuate in value, whereas the interest obligations on borrowings may be fixed,
the net asset value per share of the Fund will increase more when the Fund's
portfolio assets increase in value and decrease more when the Fund's portfolio
assets decrease in value than would otherwise be the case. Moreover, interest
costs on borrowings may fluctuate with changing market rates of interest and may
partially offset or exceed the returns on the borrowed funds. Under adverse
conditions, the Nova Fund, Bond Fund, or Sector Funds might have to sell
portfolio securities to meet interest or principal payments at a time investment
considerations would not favor such sales. The Nova Fund, Bond Fund, and Sector
Funds intend to use leverage during periods when the Advisor believes that the
respective Fund's investment objective would be furthered.
Each Fund may also borrow money to facilitate management of the Fund's portfolio
by enabling the Fund to meet redemption requests when the liquidation of
portfolio instruments would be inconvenient or disadvantageous. Such borrowing
is not for investment purposes and will be repaid by the borrowing Fund
promptly.
As required by the 1940 Act, a Fund must maintain continuous asset coverage
(total assets, including assets acquired with borrowed funds, less liabilities
exclusive of borrowings) of 300% of all amounts 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.
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In addition to the foregoing, the Funds are authorized to borrow money as a
temporary measure for extraordinary or emergency purposes in amounts not in
excess of 5% of the value of the Fund's total assets. This borrowing is not
subject to the foregoing 300% asset coverage requirement. The Funds are
authorized to pledge portfolio securities as the Advisor deems appropriate in
connection with any borrowings.
FOREIGN ISSUERS
The Sector Funds may invest in issuers located outside the United States. The
Sector Funds may purchase American Depositary Receipts ("ADRs"), "ordinary
shares," or "New York shares" in the United States. ADRs are dollar-denominated
receipts representing interests in the securities of a foreign issuer, which
securities may not necessarily be denominated in the same currency as the
securities into which they may be converted. ADRs are receipts typically issued
by United States banks and trust companies which evidence ownership of
underlying securities issued by a foreign corporation. Generally, ADRs in
registered form are designed for use in domestic securities markets and are
traded on exchanges or over-the-counter in the United States. Ordinary shares
are shares of foreign issuers that are traded abroad and on a United States
exchange. New York shares are shares that a foreign issuer has allocated for
trading in the United States. ADRs, ordinary shares, and New York shares all may
be purchased with and sold for U.S. dollars, which protect the Funds from the
foreign settlement risks described below.
Investing in foreign companies may involve risks not typically associated with
investing in United States companies. The value of securities denominated in
foreign currencies, and of dividends from such securities, can change
significantly when foreign currencies strengthen or weaken relative to the U.S.
dollar. Foreign securities markets generally have less trading volume and less
liquidity than United States markets, and prices in some foreign markets can be
very volatile. Many foreign countries lack uniform accounting and disclosure
standards comparable to those that apply to United States companies, and it may
be more difficult to obtain reliable information regarding a foreign issuer's
financial condition and operations. In addition, the costs of foreign investing,
including withholding taxes, brokerage commissions, and custodial fees,
generally are higher than for United States investments.
Investing in companies located abroad carries political and economic risks
distinct from those associated with investing in the United States. Foreign
investment may be affected by actions of foreign governments adverse to the
interests of United States investors, including the possibility of expropriation
or nationalization of assets, confiscatory taxation, restrictions on United
States investment, or on the ability to repatriate assets or to convert currency
into U.S. dollars. There may be a greater possibility of default by foreign
governments or foreign-government sponsored enterprises. Investments in foreign
countries also involve a risk of local political, economic, or social
instability, military action or unrest, or adverse diplomatic developments.
ILLIQUID SECURITIES
While none of the Funds anticipates doing so, each Fund may purchase illiquid
securities, including securities that are not readily marketable and securities
that are not registered ("restricted securities") under the Securities Act of
1933, as amended (the "1933 Act"), but which can be offered and sold to
"qualified institutional buyers" under Rule 144A under the 1933 Act. A Fund will
not invest more than 15% (10% with respect to the Money Market Fund) of the
Fund's net assets in illiquid securities. If the percentage of a Fund's net
assets invested in illiquid securities exceeds 15% (10% for the Money Market
Fund) due to market activity, the Fund will take appropriate measures to reduce
its holdings of illiquid
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securities. Each Fund will adhere to a more restrictive limitation on the Fund's
investment in illiquid securities as required by the securities laws of those
jurisdictions where shares of the Fund are registered for sale. The term
"illiquid securities" for this purpose means securities that cannot be disposed
of within seven days in the ordinary course of business at approximately the
amount at which the Fund has valued the securities. Under the current guidelines
of the staff of the Securities and Exchange Commission (the "Commission"),
illiquid securities also are considered to include, among other securities,
purchased over-the-counter options, certain cover for over-the-counter options,
repurchase agreements with maturities in excess of seven days, and certain
securities whose disposition is restricted under the Federal securities laws.
The Fund may not be able to sell illiquid securities when the Advisor considers
it desirable to do so or may have to sell such securities at a price that is
lower than the price that could be obtained if the securities were more liquid.
In addition, the sale of illiquid securities also may require more time and may
result in higher dealer discounts and other selling expenses than does the sale
of securities that are not illiquid. Illiquid securities also may be more
difficult to value due to the unavailability of reliable market quotations for
such securities, and investment in illiquid securities may have an adverse
impact on net asset value.
Institutional markets for restricted securities have developed as a result of
the promulgation of Rule 144A under the 1933 Act, which provides a "safe harbor"
from 1933 Act registration requirements for qualifying sales to institutional
investors. When Rule 144A restricted securities present an attractive investment
opportunity and meet other selection criteria, a Fund may make such investments
whether or not such securities are "illiquid" depending on the market that
exists for the particular security. The trustees of the Trust (the "Trustees")
have delegated the responsibility for determining the liquidity of Rule 144A
restricted securities which may be invested in by a Fund to the Advisor.
INVESTMENTS IN OTHER INVESTMENT COMPANIES
The Funds (other than the Bond Fund and Money Market Fund) presently may invest
in the securities of other investment companies to the extent that such an
investment would be consistent with the requirements of Section 12(d)(1) of the
1940 Act. A Fund, therefore, may invest in the securities of another investment
company (the "acquired company") provided that the Fund, immediately after such
purchase or acquisition, does not own in the aggregate: (i) more than 3% of the
total outstanding voting stock of the acquired company; (ii) securities issued
by the acquired company having an aggregate value in excess of 5% of the value
of the total assets of the Fund; or (iii) securities issued by the acquired
company and all other investment companies (other than Treasury stock of the
Fund) having an aggregate value in excess of 10% of the value of the total
assets of the Fund. A Fund may also invest in the securities of other investment
companies if such securities are the only investment securities held by the
Fund, such as through a master-feeder arrangement. The Ursa, Arktos and Juno
Funds pursue their respective investment goals through a master-feeder
arrangement. The Bond Fund and Money Market Fund may invest in the securities of
other investment companies only as part of a merger, reorganization, or
acquisition, subject to the requirements of the 1940 Act.
If a Fund invests in, and, thus, is a shareholder of, another investment
company, the Fund's shareholders will indirectly bear the Fund's proportionate
share of the fees and expenses paid by such other investment company, including
advisory fees, in addition to both the management fees payable directly by the
Fund to the Fund's own investment adviser and the other expenses that the Fund
bears directly in connection with the Fund's own operations.
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LENDING OF PORTFOLIO SECURITIES
Subject to the investment restrictions set forth below, each of the Funds may
lend portfolio securities to brokers, dealers, and financial institutions,
provided that cash equal to at least 100% of the market value of the securities
loaned is deposited by the borrower with the Fund and is maintained each
business day in a segregated account pursuant to applicable regulations. While
such securities are on loan, the borrower will pay the lending Fund any income
accruing thereon, and the Fund may invest the cash collateral in portfolio
securities, thereby earning additional income. A Fund will not lend its
portfolio securities if such loans are not permitted by the laws or regulations
of any state in which the Fund's shares are qualified for sale, and the Funds
will not lend more than 33 1/3% of the value of the Fund's total assets, except
that the Money Market Fund will not lend more than 10% of the value of the Money
Market Fund's total assets. Loans would be subject to termination by the lending
Fund on four business days' notice, or by the borrower on one day's notice.
Borrowed securities must be returned when the loan is terminated. Any gain or
loss in the market price of the borrowed securities which occurs during the term
of the loan inures to the lending Fund and that Fund's shareholders. A lending
Fund may pay reasonable finders, borrowers, administrative, and custodial fees
in connection with a loan.
OPTIONS TRANSACTIONS
OPTIONS ON SECURITIES. The Sector Funds, Nova Fund, OTC Fund, and Utilities
Master Fund may buy call options and write (sell) put options on securities, and
the Ursa Fund, Ursa Master Fund, Arktos Fund, and Arktos Master Fund may buy put
options and write call options on securities for the purpose of realizing the
Fund's investment objective. By writing a call option on securities, a Fund
becomes obligated during the term of the option to sell the securities
underlying the option at the exercise price if the option is exercised. By
writing a put option, a Fund becomes obligated during the term of the option to
purchase the securities underlying the option at the exercise price if the
option is exercised.
During the term of the option, the writer may be assigned an exercise notice by
the broker-dealer through whom the option was sold. The exercise notice would
require the writer to deliver, in the case of a call, or take delivery of, in
the case of a put, the underlying security against payment of the exercise
price. This obligation terminates upon expiration of the option, or at such
earlier time that the writer effects a closing purchase transaction by
purchasing an option covering the same underlying security and having the same
exercise price and expiration date as the one previously sold. Once an option
has been exercised, the writer may not execute a closing purchase transaction.
To secure the obligation to deliver the underlying security in the case of a
call option, the writer of a call option is required to deposit in escrow the
underlying security or other assets in accordance with the rules of the Option
Clearing Corporation (the "OCC"), an institution created to interpose itself
between buyers and sellers of options. The OCC assumes the other side of every
purchase and sale transaction on an exchange and, by doing so, gives its
guarantee to the transaction.
A Fund may purchase and write options on an exchange or over-the-counter.
Over-the-counter options ("OTC options") differ from exchange-traded options in
several respects. They are transacted directly with dealers and not with a
clearing corporation, and therefore entail the risk of non-performance by the
dealer. OTC options are available for a greater variety of securities and for a
wider range of expiration dates and exercise prices than are available for
exchange-traded options. Because OTC options are not traded on an exchange,
pricing is done normally by reference to information from a market maker. It is
the position of the SEC that OTC options are illiquid.
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OPTIONS ON SECURITY INDICES. The Sector Funds, Nova Fund, and OTC Fund may
purchase call options and write put options, and the Ursa Fund, Ursa Master
Fund, Arktos Fund, and Arktos Master Fund may purchase put options and write
call options, on stock indices listed on national securities exchanges or traded
in the over-the-counter market as an investment vehicle for the purpose of
realizing the Fund's investment objective.
Options on indices are settled in cash, not in delivery of securities. The
exercising holder of an index option receives, instead of a security, cash equal
to the difference between the closing price of the securities index and the
exercise price of the option. When a Fund writes a covered option on an index,
the Fund will be required to deposit and maintain with a custodian cash or
liquid securities equal in value to the aggregate exercise price of a put or
call option pursuant to the requirements and the rules of the applicable
exchange. If, at the close of business on any day, the market value of the
deposited securities falls below the contract price, the Fund will deposit with
the custodian cash or liquid securities equal in value to the deficiency.
OPTIONS ON FUTURES CONTRACTS. Under Commodities Futures Trading Commission
("CFTC") Regulations, a Fund (other than the Money Market Fund) may engage in
futures transactions, either for "bona fide hedging" purposes, as this term is
defined in the CFTC Regulations, or for non-hedging purposes to the extent that
the aggregate initial margins and option premiums required to establish such
non-hedging positions do not exceed 5% of the liquidation value of the Fund's
portfolio. In the case of an option on futures contracts that is "in-the-money"
at the time of purchase (I.E., the amount by which the exercise price of the put
option exceeds the current market value of the underlying security, or the
amount by which the current market value of the underlying security exceeds the
exercise price of the call option), the in-the-money amount may be excluded in
calculating this 5% limitation.
When a Fund purchases or sells a stock index futures contract, or sells an
option thereon, the Fund "covers" its position. To cover its position, a Fund
may maintain with its custodian bank (and marked-to-market on a daily basis), a
segregated account consisting of cash or liquid securities that, when added to
any amounts deposited with a futures commission merchant as margin, are equal to
the market value of the futures contract or otherwise "cover" its position. If
the Fund continues to engage in the described securities trading practices and
properly segregates assets, the segregated account will function as a practical
limit on the amount of leverage which the Fund may undertake and on the
potential increase in the speculative character of the Fund's outstanding
portfolio securities. Additionally, such segregated accounts will generally
assure the availability of adequate funds to meet the obligations of the Fund
arising from such investment activities.
A Fund may cover its long position in a futures contract by purchasing a put
option on the same futures contract with a strike price (I.E., an exercise
price) as high or higher than the price of the futures contract. In the
alternative, if the strike price of the put is less than the price of the
futures contract, the Fund will maintain in a segregated account cash or liquid
securities equal in value to the difference between the strike price of the put
and the price of the futures contract. A Fund may also cover its long position
in a futures contract by taking a short position in the instruments underlying
the futures contract, or by taking positions in instruments with prices which
are expected to move relatively consistently with the futures contract. A Fund
may cover its short position in a futures contract by taking a long position in
the instruments underlying the futures contracts, or by taking positions in
instruments with prices which are expected to move relatively consistently with
the futures contract.
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A Fund may cover its sale of a call option on a futures contract by taking a
long position in the underlying futures contract at a price less than or equal
to the strike price of the call option. In the alternative, if the long position
in the underlying futures contract is established at a price greater than the
strike price of the written (sold) call, the Fund will maintain in a segregated
account cash or liquid securities equal in value to the difference between the
strike price of the call and the price of the futures contract. A Fund may also
cover its sale of a call option by taking positions in instruments with prices
which are expected to move relatively consistently with the call option. A Fund
may cover its sale of a put option on a futures contract by taking a short
position in the underlying futures contract at a price greater than or equal to
the strike price of the put option, or, if the short position in the underlying
futures contract is established at a price less than the strike price of the
written put, the Fund will maintain in a segregated account cash or liquid
securities equal in value to the difference between the strike price of the put
and the price of the futures contract. A Fund may also cover its sale of a put
option by taking positions in instruments with prices which are expected to move
relatively consistently with the put option.
SWAP AGREEMENTS
The Funds may enter into equity index or interest rate swap agreements for
purposes of attempting to gain exposure to the stocks making up an index of
securities in a market without actually purchasing those stocks, or to hedge a
position. Swap agreements are two-party contracts entered into primarily by
institutional investors for periods ranging from a day to more than one year. In
a standard "swap" transaction, two parties agree to exchange the returns (or
differentials in rates of return) earned or realized on particular predetermined
investments or instruments. The gross returns to be exchanged or "swapped"
between the parties are calculated with respect to a "notional amount," i.e.,
the return on or increase in value of a particular dollar amount invested in a
"basket" of securities representing a particular index. Forms of swap agreements
include interest rate caps, under which, in return for a premium, one party
agrees to make payments to the other to the extent that interest rates exceed a
specified rate, or "cap," interest rate floors, under which, in return for a
premium, one party agrees to make payments to the other to the extent that
interest rates fall below a specified level, or "floor"; and interest rate
dollars, under which a party sells a cap and purchases a floor or vice versa in
an attempt to protect itself against interest rate movements exceeding given
minimum or maximum levels.
Most swap agreements entered into by the Funds calculate the obligations of the
parties to the agreement on a "net basis." Consequently, a Fund's current
obligations (or rights) under a swap agreement will generally be equal only to
the net amount to be paid or received under the agreement based on the relative
values of the positions held by each party to the agreement (the "net amount").
A Fund's current obligations under a swap agreement will be accrued daily
(offset against any amounts owing to the Fund) and any accrued but unpaid net
amounts owed to a swap counterparty will be covered by segregating assets
determined to be liquid. Obligations under swap agreements so covered will not
be construed to be "senior securities" for purposes of a Fund's investment
restriction concerning senior securities. Because they are two party contracts
and because they may have terms of greater than seven days, swap agreements may
be considered to be illiquid for the Fund illiquid investment limitations. A
Fund will not enter into any swap agreement unless the Advisor believes that the
other party to the transaction is creditworthy. A Fund bears the risk of loss of
the amount expected to be received under a swap agreement in the event of the
default or bankruptcy of a swap agreement counterparty.
Each Fund may enter into swap agreements to invest in a market without owning or
taking physical custody of securities in circumstances in which direct
investment is restricted for legal reasons or is
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otherwise impracticable. The counterparty to any swap agreement will typically
be a bank, investment banking firm or broker/dealer. The counterparty will
generally agree to pay the Fund the amount, if any, by which the notional amount
of the swap agreement would have increased in value had it been invested in the
particular stocks, plus the dividends that would have been received on those
stocks. The Fund will agree to pay to the counterparty a floating rate of
interest on the notional amount of the swap agreement plus the amount, if any,
by which the notional amount would have decreased in value had it been invested
in such stocks. Therefore, the return to the Fund on any swap agreement should
be the gain or loss on the notional amount plus dividends on the stocks less the
interest paid by the Fund on the notional amount.
Swap agreements typically are settled on a net basis, which means that the two
payment streams are netted out, with the Fund receiving or paying, as the case
may be, only the net amount of the two payments. Payments may be made at the
conclusion of a swap agreement or periodically during its term. Swap agreements
do not involve the delivery of securities or other underlying assets.
Accordingly, the risk of loss with respect to swap agreements is limited to the
net amount of payments that a Fund is contractually obligated to make. If the
other party to a swap agreement defaults, a Fund's risk of loss consists of the
net amount of payments that such Fund is contractually entitled to receive, if
any. The net amount of the excess, if any, of a Fund's obligations over its
entitlements with respect to each equity swap will be accrued on a daily basis
and an amount of cash or liquid assets, having an aggregate net asset value at
least equal to such accrued excess will be maintained in a segregated account by
a Fund's custodian. Inasmuch as these transactions are entered into for hedging
purposes or are offset by segregated cash of liquid assets, as permitted by
applicable law, the Funds and their Advisor believe that these transactions do
not constitute senior securities under the 1940 Act and, accordingly, will not
treat them as being subject to a Fund's borrowing restrictions.
The swap market has grown substantially in recent years with a large number of
banks and investment banking firms acting both as principals and as agents
utilizing standardized swap documentation. As a result, the swap market has
become relatively liquid in comparison with the markets for other similar
instruments which are traded in the over-the-counter market. The Advisor, under
the supervision of the Board of Trustees, is responsible for determining and
monitoring the liquidity of Fund transactions in swap agreements.
The use of equity swaps is a highly specialized activity which involves
investment techniques and risks different from those associated with ordinary
portfolio securities transactions.
PORTFOLIO TURNOVER
The Trust anticipates that investors in the Funds, as part of an asset
allocation investment strategy, will frequently purchase and/or redeem shares of
the Funds. The nature of the Funds as asset allocation tools will cause the
Funds to experience substantial portfolio turnover. (See "More Information about
Risk" in the Trust's Prospectuses). Because each Fund's portfolio turnover rate
to a great extent will depend on the purchase, redemption, and exchange activity
of the Fund's investors, it is very difficult to estimate what the Fund's actual
turnover rate will be in the future.
"Portfolio Turnover Rate" is defined under the rules of the SEC as the value of
the securities purchased or securities sold, excluding all securities whose
maturities at the time of acquisition were one year or less, divided by the
average monthly value of such securities owned during the year. Based on this
definition, instruments with remaining maturities of less than one year are
excluded from the calculation of the portfolio turnover rate. Instruments
excluded from the calculation of portfolio turnover generally
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would include the futures contracts and option contracts in which the Funds
invest since such contracts generally have remaining maturity of less than one
year.
REPURCHASE AGREEMENTS
As discussed in the Trust's Prospectus, each of the Funds may enter into
repurchase agreements with financial institutions. The Funds each follow certain
procedures designed to minimize the risks inherent in such agreements. These
procedures include effecting repurchase transactions only with large,
well-capitalized and well-established financial institutions whose condition
will be continually monitored by the Advisor. In addition, the value of the
collateral underlying the repurchase agreement will always be at least equal to
the repurchase price, including any accrued interest earned on the repurchase
agreement. In the event of a default or bankruptcy by a selling financial
institution, a Fund will seek to liquidate such collateral. However, the
exercising of each Fund's right to liquidate such collateral could involve
certain costs or delays and, to the extent that proceeds from any sale upon a
default of the obligation to repurchase were less than the repurchase price, the
Fund could suffer a loss. It is the current policy of each of the Funds, other
than the Money Market Fund, not to invest in repurchase agreements that do not
mature within seven days if any such investment, together with any other
illiquid assets held by the Fund, amounts to more than 15% (10% with respect to
the Money Market Fund) of the Fund's total assets. The investments of each of
the Funds in repurchase agreements, at times, may be substantial when, in the
view of the Advisor, liquidity or other considerations so warrant.
REVERSE REPURCHASE AGREEMENTS
The Ursa Fund, Juno Fund, Ursa Master Fund, Juno Master Fund, Bond Fund, and
Money Market Fund may use reverse repurchase agreements as part of that Fund's
investment strategy. Reverse repurchase agreements involve sales by a Fund of
portfolio assets concurrently with an agreement by the Fund to repurchase the
same assets at a later date at a fixed price. Generally, the effect of such a
transaction is that the Fund can recover all or most of the cash invested in the
portfolio securities involved during the term of the reverse repurchase
agreement, while the Fund will be able to keep the interest income associated
with those portfolio securities. Such transactions are advantageous only if the
interest cost to the Fund of the reverse repurchase transaction is less than the
cost of obtaining the cash otherwise. Opportunities to achieve this advantage
may not always be available, and the Funds intend to use the reverse repurchase
technique only when this will be advantageous to the Funds. Each Fund will
establish a segregated account with the Trust's custodian bank in which the Fund
will maintain cash or cash equivalents or other portfolio securities equal in
value to the Fund's obligations in respect of reverse repurchase agreements.
SHORT SALES
The Ursa Fund, Arktos Fund, Juno Fund, Ursa Master Fund, Arktos Master Fund, and
Juno Master Fund also may engage in short sales transactions under which the
Fund sells a security it does not own. To complete such a transaction, the Fund
must borrow the security to make delivery to the buyer. The Fund then is
obligated to replace the security borrowed by purchasing the security at the
market price at the time of replacement. The price at such time may be more or
less than the price at which the security was sold by the Fund. Until the
security is replaced, the Fund is required to pay to the lender amounts equal to
any dividends or interest which accrue during the period of the loan. To borrow
the security, the Fund also may be required to pay a premium, which would
increase the cost of the security sold. The proceeds of the short sale will be
retained by the broker, to the extent necessary to meet the margin requirements,
until the short position is closed out.
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Until the Ursa Fund, Arktos Fund, Juno Fund, Ursa Master Fund, Arktos Master
Fund, or Juno Master Fund closes its short position or replaces the borrowed
security, the Fund will: (a) maintain a segregated account containing cash or
liquid securities at such a level that (i) the amount deposited in the account
plus the amount deposited with the broker as collateral will equal the current
value of the security sold short and (ii) the amount deposited in the segregated
account plus the amount deposited with the broker as collateral will not be less
than the market value of the security at the time the security was sold short;
or (b) otherwise cover the Fund's short position. Each of the Funds may use up
to 100% of its portfolio to engage in short sales transactions and collateralize
its open short positions.
The Sector Funds, Nova Fund, and OTC Fund each may engage in short sales if, at
the time of the short sale, the Fund owns or has the right to acquire an equal
amount of the security being sold at no additional cost. These Funds may make a
short sale when the Fund wants to sell the security it owns at a current
attractive price, in order to hedge or limit the exposure of the Fund's
position.
STOCK INDEX FUTURES CONTRACTS
A Fund may buy and sell stock index futures contracts with respect to any stock
index traded on a recognized stock exchange or board of trade. A stock index
futures contract is a contract to buy or sell units of an index at a specified
future date at a price agreed upon when the contract is made. The stock index
futures contract specifies that no delivery of the actual stocks making up the
index will take place. Instead, settlement in cash must occur upon the
termination of the contract, with the settlement being the difference between
the contract price and the actual level of the stock index at the expiration of
the contract.
At the time a Fund purchases a futures contract, an amount of cash, U.S.
Government securities or other liquid securities equal to the market value of
the futures contract will be deposited in a segregated account with the Fund's
custodian. When writing a futures contract, the Fund will maintain with its
custodian liquid assets that, when added to the amounts deposited with a futures
commission merchant or broker as margin, are equal to the market value of the
instruments underlying the contract. Alternatively, a Fund may "cover" its
position by owning the instruments underlying the contract (or, in the case of
an index futures contract, a portfolio with a volatility substantially similar
to that of the index on which the futures contract is based), or holding a call
option permitting the Fund to purchase the same futures contract at a price no
higher than the price of the contract written by the Fund (or at a higher price
if the difference is maintained in liquid assets with the Fund's custodian)
TRACKING ERROR
The following factors may affect the ability of the Funds to
achieve correlation with the performance of their respective benchmarks: (1)
Fund expenses, including brokerage (which may be increased by high portfolio
turnover); (2) a Fund holding less than all of the securities in the
benchmark and/or securities not included in the benchmark; (3) an imperfect
correlation between the performance of instruments held by a Fund, such as
futures contracts and options, and the performance of the underlying
securities in the market; (4) bid-ask spreads (the effect of which may be
increased by portfolio turnover); (5) a Fund holding instruments traded in a
market that has become illiquid or disrupted; (6) Fund share prices being
rounded to the nearest cent; (7) changes to the index underlying a benchmark
that are not disseminated in advance; (8) the need to conform a Fund's
portfolio holdings to comply with investment restrictions or policies or
regulatory or tax law requirements; or (9) market movements that run counter
to a leveraged Fund's investments. Market movements that run counter to a
leveraged Fund's investments will cause
16
<PAGE>
some divergence between the Fund and its benchmark over time due to the
mathematical effects of leveraging. The magnitude of the divergence is dependent
upon the magnitude of the market movement, its duration, and the degree to which
the Fund is leveraged. The tracking error of a leveraged Fund is generally small
during a well-defined up trend or downtrend in the market when measured from
price peak to price peak, absent a market decline and subsequent recovery,
however, the deviation of the Fund from its benchmark may be significant.
U.S. GOVERNMENT SECURITIES
The Bond Fund invests primarily in U.S. Government Securities, and each of the
other Funds may invest in U.S. Government Securities. The Juno Fund and Juno
Master Fund may enter into short transactions on U.S. Government Securities.
Securities issued or guaranteed by the U.S. Government or its agencies or
instrumentalities include U.S. Treasury securities, which are backed by the full
faith and credit of the U.S. Treasury and which differ only in their interest
rates, maturities, and times of issuance. U.S. Treasury bills have initial
maturities of one year or less; U.S. Treasury notes have initial maturities of
one to ten years; and U.S. Treasury bonds generally have initial maturities of
greater than ten years. Certain U.S. Government Securities are issued or
guaranteed by agencies or instrumentalities of the U.S. Government including,
but not limited to, obligations of U.S. Government agencies or instrumentalities
such as Fannie Mae, the Government National Mortgage Association, the Small
Business Administration, the Federal Farm Credit Administration, the Federal
Home Loan Banks, Banks for Cooperatives (including the Central Bank for
Cooperatives), the Federal Land Banks, the Federal Intermediate Credit Banks,
the Tennessee Valley Authority, the Export-Import Bank of the United States, the
Commodity Credit Corporation, the Federal Financing Bank, the Student Loan
Marketing Association, and the National Credit Union Administration.
Some obligations issued or guaranteed by U.S. Government agencies and
instrumentalities, including, for example, Government National Mortgage
Association pass-through certificates, are supported by the full faith and
credit of the U.S. Treasury. Other obligations issued by or guaranteed by
Federal agencies, such as those securities issued by Fannie Mae, are supported
by the discretionary authority of the U.S. Government to purchase certain
obligations of the Federal agency, while other obligations issued by or
guaranteed by Federal agencies, such as those of the Federal Home Loan Banks,
are supported by the right of the issuer to borrow from the U.S. Treasury, while
the U.S. Government provides financial support to such U.S. Government-sponsored
Federal agencies, no assurance can be given that the U.S. Government will always
do so, since the U.S. Government is not so obligated by law. U.S. Treasury notes
and bonds typically pay coupon interest semi-annually and repay the principal at
maturity. The Bond Fund will invest in such U.S. Government Securities only when
the Advisor is satisfied that the credit risk with respect to the issuer is
minimal.
WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES
Each Fund, from time to time, in the ordinary course of business, may purchase
securities on a when-issued or delayed-delivery basis (I.E., delivery and
payment can take place between a month and 120 days after the date of the
transaction). These securities are subject to market fluctuation and no interest
accrues to the purchaser during this period. At the time a Fund makes the
commitment to purchase securities on a when-issued or delayed-delivery basis,
the Fund will record the transaction and thereafter reflect the value of the
securities, each day, of such security in determining the Fund's net asset
value. A Fund will not purchase securities on a when-issued or delayed-delivery
basis if, as a result, more than 15% (10% with respect to the Money Market Fund)
of the Fund's net assets would be so invested. At the time of delivery of the
securities, the value of the securities may be more or less than the purchase
price. The Fund will also establish a segregated account with the Fund's
custodian bank in
17
<PAGE>
which the Fund will maintain cash or liquid securities equal to or greater in
value than the Fund's purchase commitments for such when-issued or
delayed-delivery securities. The Trust does not believe that a Fund's net asset
value or income will be adversely affected by the Fund's purchase of securities
on a when-issued or delayed-delivery basis.
ZERO COUPON BONDS
The Bond Fund, Juno Fund, and Juno Master Fund may invest in U.S. Treasury
zero-coupon bonds. These securities are U.S. Treasury bonds which have been
stripped of their unmatured interest coupons, the coupons themselves, and
receipts or certificates representing interests in such stripped debt
obligations and coupons. Interest is not paid in cash during the term of these
securities, but is accrued and paid at maturity. Such obligations have greater
price volatility than coupon obligations and other normal interest-paying
securities, and the value of zero coupon securities reacts more quickly to
changes in interest rates than do coupon bonds. Since dividend income is accrued
throughout the term of the zero coupon obligation, but is not actually received
until maturity, the Fund may have to sell other securities to pay said accrued
dividends prior to maturity of the zero coupon obligation. Unlike regular U.S.
Treasury bonds which pay semi-annual interest, U.S. Treasury zero coupon bonds
do not generate semi-annual coupon payments. Instead, zero coupon bonds are
purchased at a substantial discount from the maturity value of such securities,
the discount reflecting the current value of the deferred interest; this
discount is amortized as interest income over the life of the security, and is
taxable even though there is no cash return until maturity. Zero coupon U.S.
Treasury issues originally were created by government bond dealers who bought
U.S. Treasury bonds and issued receipts representing an ownership interest in
the interest coupons or in the principal portion of the bonds. Subsequently, the
U.S. Treasury began directly issuing zero coupon bonds with the introduction of
"Separate Trading of Registered Interest and Principal of Securities" (or
"STRIPS"). While zero coupon bonds eliminate the reinvestment risk of regular
coupon issues, that is, the risk of subsequently investing the periodic interest
payments at a lower rate than that of the security held, zero coupon bonds
fluctuate much more sharply than regular coupon-bearing bonds. Thus, when
interest rates rise, the value of zero coupon bonds will decrease to a greater
extent than will the value of regular bonds having the same interest rate.
INVESTMENT RESTRICTIONS
FUNDAMENTAL POLICIES
The following investment limitations (and those set forth in the Prospectuses)
are fundamental policies of the Funds which cannot be changed with respect to a
Fund without the consent of the holders of a majority of that Fund's outstanding
shares. The term "majority of the outstanding shares" means the vote of (i) 67%
or more of a Fund's shares present at a meeting, if more than 50% of the
outstanding shares of that Fund are present or represented by proxy, or (ii)
more than 50% of that Fund's outstanding shares, whichever is less.
A Benchmark Fund, Master Fund, or Precious Metals Fund shall not:
1. Lend any security or make any other loan if, as a result, more
than 33 1/3% of the value of the Fund's total assets would be
lent to other parties, except (i) through the purchase of a
portion of an issue of debt securities in accordance with the
Fund's investment objective, policies, and limitations, or (ii)
by engaging in repurchase agreements with respect to portfolio
securities, or (iii) through the loans of portfolio securities
provided the borrower maintains collateral equal to at least 100%
of the value of the borrowed security and marked-to-market daily.
18
<PAGE>
2. Underwrite securities of any other issuer.
3. Purchase, hold, or deal in real estate or oil and gas interests,
although the Fund may purchase and sell securities that are
secured by real estate or interests therein and may purchase
mortgage-related securities and may hold and sell real estate
acquired for the Fund as a result of the ownership of securities.
4. Issue any senior security (as such term is defined in Section
18(f) of the 1940 Act) (including the amount of senior securities
issued but excluding liabilities and indebtedness not
constituting senior securities), except that the Fund may issue
senior securities in connection with transactions in options,
futures, options on futures, and other similar investments, and
except as otherwise permitted herein and in Investment
Restriction Nos. 5, 7, 8, and 9, as applicable to the Fund.
5. Pledge, mortgage, or hypothecate the Fund's assets, except to the
extent necessary to secure permitted borrowings and to the extent
related to the deposit of assets in escrow in connection with (i)
the writing of covered put and call options, (ii) the purchase of
securities on a forward-commitment or delayed-delivery basis, and
(iii) collateral and initial or variation margin arrangements
with respect to currency transactions, options, futures
contracts, including those relating to indices, and options on
futures contracts or indices.
6. Invest in commodities except that the Fund may purchase and sell
futures contracts, including those relating to securities,
currencies, indices, and options on futures contracts or indices
and currencies underlying or related to any such futures
contracts, and purchase and sell currencies (and options thereon)
or securities on a forward-commitment or delayed-delivery basis.
6.1 THE PRECIOUS METALS MAY (a) TRADE IN FUTURES CONTRACTS AND
OPTIONS ON FUTURES CONTRACTS; OR (b) INVEST IN PRECIOUS
METALS AND PRECIOUS MINERALS.
7. Invest 25% or more of the value of the Fund's total assets in the
securities of one or more issuers conducting their principal
business activities in the same industry. This limitation does
not apply to investments or obligations of the U.S. Government or
any of its agencies or instrumentalities.
7.1 THE PRECIOUS METALS FUND WILL INVEST 25% OR MORE OF THE
VALUE OF ITS TOTAL ASSETS IN THE SECURITIES IN THE
METALS-RELATED AND MINERALS-RELATED INDUSTRIES.
8. Borrow money, except (i) as a temporary measure for extraordinary
or emergency purposes and then only in amounts not in excess of
5% of the value of the Fund's total assets from a bank or (ii) in
an amount up to one-third of the value of the Fund's total
assets, including the amount borrowed, in order to meet
redemption requests without immediately selling portfolio
instruments. This provision is not for investment leverage but
solely to facilitate management of the portfolio by enabling the
Fund to meet redemption requests when the liquidation of
portfolio instruments would be inconvenient or disadvantageous.
19
<PAGE>
8.1 THE NOVA FUND AND BOND FUND MAY BORROW MONEY, SUBJECT TO THE
CONDITIONS OF PARAGRAPH 8, FOR THE PURPOSE OF INVESTMENT
LEVERAGE.
8.2 THE JUNO FUND MAY BORROW MONEY, SUBJECT TO THE CONDITIONS OF
PARAGRAPH 8, BUT SHALL NOT MAKE PURCHASES WHILE BORROWING IN
EXCESS OF 5% OF THE VALUE OF ITS ASSETS. FOR PURPOSES OF
THIS SUBPARAGRAPH, FUND ASSETS INVESTED IN REVERSE
REPURCHASE AGREEMENTS ARE INCLUDED IN THE AMOUNTS BORROWED.
9. Make short sales of portfolio securities or purchase any
portfolio securities on margin, except for such short-term
credits as are necessary for the clearance of transactions. The
deposit or payment by the Fund of initial or variation margin in
connection with futures or options transactions is not considered
to be a securities purchase on margin. The Fund may engage in
short sales if, at the time of the short sale, the Fund owns or
has the right to acquire an equal amount of the security being
sold at no additional cost ("selling against the box").
9.1 THE URSA FUND, ARKTOS FUND, JUNO FUND, URSA MASTER FUND,
ARKTOS MASTER FUND, AND JUNO MASTER FUND MAY ENGAGE IN SHORT
SALES OF PORTFOLIO SECURITIES OR MAINTAIN A SHORT POSITION
IF AT ALL TIMES WHEN A SHORT POSITION IS OPEN (i) THE FUND
MAINTAINS A SEGREGATED ACCOUNT WITH THE FUND?S CUSTODIAN TO
COVER THE SHORT POSITION IN ACCORDANCE WITH THE POSITION OF
THE SECURITIES AND EXCHANGE COMMISSION OR (ii) THE FUND OWNS
AN EQUAL AMOUNT OF SUCH SECURITIES OR SECURITIES CONVERTIBLE
INTO OR EXCHANGEABLE, WITHOUT PAYMENT OF ANY FURTHER
CONSIDERATION, FOR SECURITIES OF THE SAME ISSUE AS, AND
EQUAL IN AMOUNT TO, THE SECURITIES SOLD SHORT.
FUNDAMENTAL POLICIES OF THE SECTOR FUNDS (OTHER THAN THE PRECIOUS METALS FUND)
A Sector Fund shall not:
10. Borrow money in an amount exceeding 33 1/3% of the value of its
total assets, provided that, for purposes of this limitation,
investment strategies which either obligate the Fund to purchase
securities or require the Fund to segregate assets are not
considered to be borrowing. Asset coverage of a least 300% is
required for all borrowing, except where the Fund has borrowed
money for temporary purposes in amounts not exceeding 5% of its
total assets. The Fund will not purchase securities while its
borrowing exceeds 5% of its total assets.
11. Make loans if, as a result, more than 33 1/3% of its total assets
would be lent to other parties, except that the Fund may (i)
purchase or hold debt instruments in accordance with its
investment objective and policies; (ii) enter into repurchase
agreements; and (iii) lend its securities.
12. Purchase or sell real estate, physical commodities, or
commodities contracts, except that the Fund may purchase (i)
marketable securities issued by companies which own or invest in
real estate (including real estate investment trusts),
commodities, or commodities contracts; and (ii) commodities
contracts relating to financial instruments, such as financial
futures contracts and options on such contracts.
20
<PAGE>
13. Issue senior securities (as defined in the 1940 Act) except as
permitted by rule, regulation or order of the SEC.
14. Act as an underwriter of securities of other issuers except as it
may be deemed an underwriter in selling a portfolio security.
15. Invest in interests in oil, gas, or other mineral exploration or
development programs and oil, gas or mineral leases.
FUNDAMENTAL POLICIES APPLICABLE TO THE MONEY MARKET FUND
The Money Market Fund shall not:
16. Make loans to others except through the purchase of qualified
debt obligations, loans of portfolio securities and entry into
repurchase agreements.
17. Lend the Money Market Fund's portfolio securities in excess of
15% of the Money Market Fund's total assets. Any loans of the
Money Market Fund's portfolio securities will be made according
to guidelines established by the Board of Trustees of the Trust,
including maintenance of cash collateral of the borrower equal at
all times to the current market value of the securities loaned.
18. Issue senior securities, except as permitted by the Money Market
Fund's investment objectives and policies.
19. Write or purchase put or call options.
20. Invest in securities of other investment companies, except as
these securities may be acquired as part of a merger,
consolidation, acquisition of assets, or plan of reorganization.
21. Mortgage, pledge, or hypothecate the Money Market Fund's assets
except to secure permitted borrowings. In those cases, the Money
Market Fund may mortgage, pledge, or hypothecate assets having a
market value not exceeding the lesser of the dollar amounts
borrowed or 15% of the value of total assets of the Money Market
Fund at the time of the borrowing.
22. Make short sales of portfolio securities or purchase any
portfolio securities on margin, except for such short-term
credits as are necessary for the clearance of transactions.
NON-FUNDAMENTAL POLICIES
The following investment limitations are non-fundamental policies of the Funds
and may be changed with respect to any Fund by the Board of Trustees.
21
<PAGE>
Each Fund may not:
1. Invest in warrants.
2. Invest in real estate limited partnerships.
3. Invest in mineral leases.
Each Sector Fund may not:
4. Pledge, mortgage or hypothecate assets except to secure borrowing
permitted by the Fund's fundamental limitation on borrowing.
5. Invest in companies for the purpose of exercising control.
6. Purchase securities on margin or effect short sales, except that
a Fund may (i) obtain short-term credits as necessary for the
clearance of security transactions; (ii) provide initial and
variation margin payments in connection with transactions
involving futures contracts and options on such contracts; and
(iii) make short sales "against the box" or in compliance with
the SEC's position regarding the asset segregation requirements
imposed by Section 18 of the 1940 Act.
7. Invest its assets in securities of any investment company, except
as permitted by the 1940 Act or any rule, regulation or order of
the SEC.
8. Purchase or hold illiquid securities, I.E., securities that
cannot be disposed of for their approximate carrying value in
seven days or less (which term includes repurchase agreements and
time deposits maturing in more than seven days) if, in the
aggregate, more than 15% of its net assets would be invested in
illiquid securities.
The foregoing percentages: (i) are based on total assets (except for the
limitation on illiquid securities, which is based on net assets); (ii) will
apply at the time of the purchase of a security; and (iii) shall not be
considered violated unless an excess or deficiency occurs or exists immediately
after and as a result of a purchase of such security.
PORTFOLIO TRANSACTIONS AND BROKERAGE
Subject to the general supervision by the Trustees, the Advisor is responsible
for decisions to buy and sell securities for each of the Funds, the selection of
brokers and dealers to effect the transactions, and the negotiation of brokerage
commissions, if any. The Advisor expects that the Funds may execute brokerage or
other agency transactions through registered broker-dealers, for a commission,
in conformity with the 1940 Act, the Securities Exchange Act of 1934, as
amended, and the rules and regulations thereunder.
The Advisor may serve as an investment manager to a number of clients, including
other investment companies. It is the practice of the Advisor to cause purchase
and sale transactions to be allocated among the Funds and others whose assets
the Advisor manages in such manner as the Advisor deems equitable. The main
factors considered by the Advisor in making such allocations among the Funds and
22
<PAGE>
other client accounts of the Advisor are the respective investment objectives,
the relative size of portfolio holdings of the same or comparable securities,
the availability of cash for investment, the size of investment commitments
generally held, and the opinions of the person(s) responsible, if any, for
managing the portfolios of the Funds and the other client accounts.
The policy of each Fund regarding purchases and sales of securities for the
Fund's portfolio is that primary consideration will be given to obtaining the
most favorable prices and efficient executions of transactions. Consistent with
this policy, when securities transactions are effected on a stock exchange, each
Fund's policy is to pay commissions which are considered fair and reasonable
without necessarily determining that the lowest possible commissions are paid in
all circumstances. Each Fund believes that a requirement always to seek the
lowest possible commission cost could impede effective portfolio management and
preclude the Fund and the Advisor from obtaining a high quality of brokerage and
research services. In seeking to determine the reasonableness of brokerage
commissions paid in any transaction, the Advisor relies upon its experience and
knowledge regarding commissions generally charged by various brokers and on its
judgment in evaluating the brokerage and research services received from the
broker effecting the transaction. Such determinations are necessarily subjective
and imprecise, as in most cases an exact dollar value for those services is not
ascertainable.
Purchases and sales of U.S. Government securities are normally transacted
through issuers, underwriters or major dealers in U.S. Government securities
acting as principals. Such transactions are made on a net basis and do not
involve payment of brokerage commissions. The cost of securities purchased from
an underwriter usually includes a commission paid by the issuer to the
underwriters; transactions with dealers normally reflect the spread between bid
and asked prices.
In managing the investment portfolios of the Funds, the Advisor effects
transactions with those brokers and dealers who the Advisor believes provide the
most favorable prices and are capable of providing efficient executions. If the
Advisor believes such prices and executions are obtainable from more than one
broker or dealer, the Advisor may give consideration to placing portfolio
transactions with those brokers and dealers who also furnish research and other
services to the Fund or the Advisor. In addition, Section 28(e) of the
Securities Exchange Act of 1934 permits the Advisor to cause a Fund to pay
commission rates in excess of those another dealer or broker would have charged
for effecting the same transaction, if the Advisor determines, in good faith,
that the commission paid is reasonable in relation to the value of brokerage and
research services provided. While the Advisor currently does not intend to pay
higher commissions to dealers and brokers who supply it with brokerage and
research services, in the event such higher payments would be made or are deemed
to have been made, such higher payments would be in accordance with Section
28(e).
Such research services may include information on the economy, industries,
groups of securities, individual companies, statistical information, accounting
and tax law interpretations, political developments, legal developments
affecting portfolio securities, technical market action, pricing and appraisal
services, credit analysis, risk measurement analysis, performance analysis,
analysis of corporate responsibility issues or in the form of access to various
computer-generated data, computer hardware and software. Such research may be
provided by brokers and dealers in the form of written reports, telephone
contacts and personal meetings with security analysts, corporate and industry
spokespersons, economists, academicians, and government representatives.
Brokerage services and equipment may facilitate the execution and monitoring of
securities transactions, for example, by providing rapid communications with
financial markets and brokers or dealers, or by providing real-time tracking of
orders, settlements, investment positions and relevant investment criteria and
restrictions
23
<PAGE>
applicable to the execution of securities transactions. In some cases, brokerage
and research services are generated by third parties but are provided to the
Advisor by or through brokers and dealers. The Advisor may allocate brokerage
for research services that are also available for cash, where appropriate and
permitted by law. The Advisor may also pay cash for certain research services
received from external sources.
In addition, the information and services received by the Advisor from brokers
and dealers may not in all cases benefit a Fund directly. For example, such
information and services received by the Advisor as a result of the brokerage
allocation of one of the Funds may be of benefit to the Advisor in the
management of other accounts of the Advisor, including other Funds of the Trust
and other investment companies advised by the Advisor. While the receipt of such
information and services is useful in varying degrees and would generally reduce
the amount of research or services otherwise performed by the Advisor and
thereby reduce the Advisor's expenses, this information and these services are
of indeterminable value and the management fee paid to the Advisor is not
reduced by any amount that may be attributable to the value of such information
and services.
For the fiscal periods ended March 31, 1998, March 31, 1999, and March 31, 2000
the Funds paid the following brokerage commissions:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------
AGGREGATE BROKERAGE COMMISSIONS
--------------------------------------------------------------------------------
FUND 1998 1999 2000
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Nova Fund $836,833 $1,950,042 $1,608,026
------------------------------------------------------------------------------------------------------------------------------
Ursa Fund $284,054 $ 381,892 $ 245,791
------------------------------------------------------------------------------------------------------------------------------
OTC Fund $ 20,402 $ 4,966 $ 40,812
------------------------------------------------------------------------------------------------------------------------------
Arktos Fund n/a $ 5,446 $ 28,122
------------------------------------------------------------------------------------------------------------------------------
Juno Fund $ 40,740 $ 36,994 $ 68,266
------------------------------------------------------------------------------------------------------------------------------
U.S. Government Bond Fund $ 18,172 $ 34,498 $ 17,490
------------------------------------------------------------------------------------------------------------------------------
Banking Fund n/a $ 574,673 $ 463,436
------------------------------------------------------------------------------------------------------------------------------
Basic Materials Fund n/a $ 280,569 $ 398,702
------------------------------------------------------------------------------------------------------------------------------
Biotechnology Fund n/a $ 122,671 $ 133,642
------------------------------------------------------------------------------------------------------------------------------
Consumer Products Fund n/a $ 110, 820 $ 200,018
------------------------------------------------------------------------------------------------------------------------------
Electronics Fund n/a $ 556,126 $ 395,680
------------------------------------------------------------------------------------------------------------------------------
Energy Fund n/a $ 250,391 $ 239,526
------------------------------------------------------------------------------------------------------------------------------
Energy Services Fund n/a $1,024,957 $1,070,899
------------------------------------------------------------------------------------------------------------------------------
Financial Services Fund n/a $1,717,650 $ 835,117
------------------------------------------------------------------------------------------------------------------------------
Health Care Fund n/a $ 508,052 $ 617,493
------------------------------------------------------------------------------------------------------------------------------
Internet Fund* n/a n/a n/a
------------------------------------------------------------------------------------------------------------------------------
Leisure Fund n/a $ 213,807 $ 229,728
------------------------------------------------------------------------------------------------------------------------------
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------
AGGREGATE BROKERAGE COMMISSIONS
--------------------------------------------------------------------------------
FUND 1998 1999 2000
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Precious Metals Fund $200,264 $ 222,795 $ 306,689
------------------------------------------------------------------------------------------------------------------------------
Retailing Fund n/a $ 764,655 $ 594,934
------------------------------------------------------------------------------------------------------------------------------
Technology Fund n/a $ 475,721 $1,149,844
------------------------------------------------------------------------------------------------------------------------------
Telecommunications Fund n/a $ 232,192 $ 426,774
------------------------------------------------------------------------------------------------------------------------------
Transportation Fund n/a $ 263,982 $ 281,242
------------------------------------------------------------------------------------------------------------------------------
Utilities Fund* n/a n/a n/a
------------------------------------------------------------------------------------------------------------------------------
U.S. Government Money Market Fund n/a n/a n/a
------------------------------------------------------------------------------------------------------------------------------
</TABLE>
*The Ursa Master, Arktos Master, Juno Master, Utilities Master, Internet, and
Utilities Funds had not commenced operations as of March 31, 2000.
"Regular brokers or dealers" of the Trust are the ten brokers or dealers that,
during the most recent fiscal year, (i) received the greatest dollar amounts of
brokerage commissions from the Trust's portfolio transactions, (ii) engaged as
principal in the largest dollar amounts of portfolio transactions of the Trust,
or (iii) sold the largest dollar amounts of the Trust's shares. At March 31,
2000, the following Funds held securities of the Trust's "regular brokers or
dealers":
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------------
FUND TYPE OF SECURITY REGULAR BROKERS OR DEALERS
-----------------------------------------------------------------------------------------
SOLOMON LEHMAN PAINE WEBBER FUJI MORGAN
SMITH BROTHERS, INC. SECURITIES STANLEY
BARNEY, INC. INC. DEAN
INC. WITTER &
CO.
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Nova Repurchase Agreements $26,451,899 $18,594,129 $25,673,902 $22,507,953 n/a
---------------------------------------------------------------------------------------------------------
Equity Securities n/a $411,086 $221,716 n/a $3,281,830
-------------------------------------------------------------------------------------------------------------------------------
Ursa Repurchase Agreements $15,520,577 $10,910,053 $15,064,090 $13,206,478 n/a
-------------------------------------------------------------------------------------------------------------------------------
OTC Repurchase Agreements $16,994,589 $11,946,196 $16,494,748 $14,460,716 n/a
-------------------------------------------------------------------------------------------------------------------------------
Arktos Repurchase Agreements $21,523,665 $15,129,871 $20,890,616 $18,314,513 n/a
-------------------------------------------------------------------------------------------------------------------------------
U.S. Government Bond Repurchase Agreements $758,003 $532,831 $735,709 $644,986 n/a
-------------------------------------------------------------------------------------------------------------------------------
Juno Repurchase Agreements $2,564,242 $1,802,511 $2,488,823 $2,181,917 n/a
-------------------------------------------------------------------------------------------------------------------------------
U.S. Government Money Repurchase Agreements $81,726,770 $57,449,112 $79,323,042 $69,541,407 n/a
Market
-------------------------------------------------------------------------------------------------------------------------------
25
<PAGE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------------
FUND TYPE OF SECURITY REGULAR BROKERS OR DEALERS
-----------------------------------------------------------------------------------------
SOLOMON LEHMAN PAINE WEBBER FUJI MORGAN
SMITH BROTHERS, INC. SECURITIES STANLEY
BARNEY, INC. INC. DEAN
INC. WITTER &
CO.
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Banking Repurchase Agreements $156,935 $110,316 $152,319 $133,536 n/a
---------------------------------------------------------------------------------------------------------
Equity Securities n/a n/a n/a n/a n/a
-------------------------------------------------------------------------------------------------------------------------------
Basic Materials Repurchase Agreements $33,642 $23,648 $32,652 $28,626 n/a
-------------------------------------------------------------------------------------------------------------------------------
Biotechnology Repurchase Agreements $1,485,111 $1,043,946 $1,441,431 $1,263,683 n/a
-------------------------------------------------------------------------------------------------------------------------------
Consumer Products Repurchase Agreements $37,380 $26,276 $36,280 $31,806 n/a
-------------------------------------------------------------------------------------------------------------------------------
Electronics Repurchase Agreements $843,452 $592,897 $818,645 $717,695 n/a
-------------------------------------------------------------------------------------------------------------------------------
Energy Repurchase Agreements $34,980 $24,589 $33,951 $29,764 n/a
-------------------------------------------------------------------------------------------------------------------------------
Energy Services Repurchase Agreements $494,656 $347,714 $480,107 $420,903 n/a
-------------------------------------------------------------------------------------------------------------------------------
Financial Services Repurchase Agreements $422,008 $296,647 $409,596 $359,087 n/a
---------------------------------------------------------------------------------------------------------
Equity Securities n/a $2,284,544 n/a n/a $11,759,192
-------------------------------------------------------------------------------------------------------------------------------
Health Care Repurchase Agreements $71,041 $49,937 $68,951 $60,448 n/a
-------------------------------------------------------------------------------------------------------------------------------
Leisure Repurchase Agreements $68,733 $48,315 $66,712 $58,485 n/a
-------------------------------------------------------------------------------------------------------------------------------
Precious Metals Repurchase Agreements $54,297 $38,167 $52,700 $46,201 n/a
-------------------------------------------------------------------------------------------------------------------------------
Technology Repurchase Agreements $308,218 $216,659 $299,153 $262,263 n/a
-------------------------------------------------------------------------------------------------------------------------------
Telecommuni-cations Repurchase Agreements $220,781 $155,196 $214,288 $187,863 n/a
-------------------------------------------------------------------------------------------------------------------------------
Transportation Repurchase Agreements $229,021 $160,989 $222,285 194,875 n/a
-------------------------------------------------------------------------------------------------------------------------------
FUND TYPE OF SECURITY J.P. MORGAN & CO. INC. BB&T CORP. BEAR STEARNS COS., INC.
-------------------------------------------------------------------------------------------------------------------------------
Nova Equity Securities $805,520 $344,242 $182,728
-------------------------------------------------------------------------------------------------------------------------------
Banking Equity Securities $1,960,177 n/a n/a
-------------------------------------------------------------------------------------------------------------------------------
Financial Services Equity Securities $4,447,617 n/a n/a
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>
26
<PAGE>
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. (58)
Chairman of the Board of Trustees and President of Rydex Series Funds,
a registered mutual fund, 1993 to present; Chairman of the Board of
Trustees and President of Rydex Variable Trust, a registered mutual
fund, 1998 to present; Chairman of the Board of Trustees and President
of Rydex Dynamic Funds, a registered mutual fund, 1999 to present;
Chairman of the Board of Directors, President, and Treasurer of PADCO
Advisors, Inc., investment adviser, 1993 to present; Chairman of the
Board of Directors, President, and Treasurer of PADCO Service Company,
Inc., shareholder and transfer agent servicer, 1993 to present;
Chairman of the Board of Directors, President, and Treasurer of PADCO
Advisors II, Inc., investment adviser, 1998 to present; Chairman of the
Board of Directors, President, and Treasurer of Rydex Distributors,
Inc., a registered broker-dealer firm, 1996 to present; Vice President
of Rushmore Investment Advisors Ltd., a registered investment adviser,
1985 to 1993. Address: 6116 Executive Boulevard, Suite 400, Rockville,
Maryland 20852.
COREY A. COLEHOUR (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
-------------------------
*/ 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.
27
<PAGE>
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.
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,
28
<PAGE>
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>
---------------------------------------------------------------------------------------------------------------------------------
NAME OF PERSON, POSITION AGGREGATE PENSION OR ESTIMATED TOTAL
COMPENSATION RETIREMENT ANNUAL BENEFITS COMPENSATION
FROM TRUST BENEFITS ACCRUED UPON RETIREMENT FROM FUND
AS PART OF TRUST'S COMPLEX FOR
EXPENSES SERVICE ON
THREE BOARDS**
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Albert P. Viragh, Jr.*,
CHAIRMAN AND PRESIDENT $0 $0 $0 $0
---------------------------------------------------------------------------------------------------------------------------------
Corey A. Colehour, $23,000 $0 $0 $34,500
TRUSTEE
---------------------------------------------------------------------------------------------------------------------------------
J. Kenneth Dalton, $23,000 $0 $0 $34,500
TRUSTEE
---------------------------------------------------------------------------------------------------------------------------------
Roger Somers, $23,000 $0 $0 $34,500
TRUSTEE
---------------------------------------------------------------------------------------------------------------------------------
John O. Demaret, $23,000 $0 $0 $34,500
TRUSTEE
---------------------------------------------------------------------------------------------------------------------------------
Patrick T. McCarville, $23,000 $0 $0 $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.
As of the date of this Statement of Additional Information, the Trustees and the
officers of the Trust, as a group, owned, of record and beneficially, less than
1% of the outstanding shares of each Fund.
THE ADVISORY AGREEMENT
Under an investment advisory agreement the Advisor serves as the investment
adviser for each series of the Trust and provides investment advice to the Funds
and oversees the day-to-day operations of the Funds, subject to direction and
control by the Trustees and the officers of the Trust. As of June 30, 2000,
assets under management of the Advisor were approximately $8.7 billion. Pursuant
to the advisory agreement with the Advisor, the Funds pay the Advisor the
following fees at an annual rate based on the average daily net assets for each
respective Fund, as set forth below:
For the fiscal periods ended March 31, 1998, March 31, 1999 and March 31, 2000
the Advisor received the following investment advisory fees:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------------
ADVISORY FEES PAID
---------------------------------------------------------------------------------
FUND 1998 1999 2000
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Nova Fund $4,588,393 $5,775,479 $ 5,270,996
---------------------------------------------------------------------------------------------------------------------------------
Ursa Fund $4,588,393 $5,775,479 $ 4,186,918
---------------------------------------------------------------------------------------------------------------------------------
OTC Fund $2,529,352 $5,142,021 $15,907,226
---------------------------------------------------------------------------------------------------------------------------------
29
<PAGE>
---------------------------------------------------------------------------------------------------------------------------------
ADVISORY FEES PAID
---------------------------------------------------------------------------------
FUND 1998 1999 2000
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Arktos Fund n/a $ 297,921 $ 1,166,576
---------------------------------------------------------------------------------------------------------------------------------
Juno Fund $ 160,954 $ 113,091 $ 167,258
---------------------------------------------------------------------------------------------------------------------------------
U.S. Government Bond Fund $ 91,744 $ 180,288 $ 115,638
---------------------------------------------------------------------------------------------------------------------------------
Banking Fund n/a $ 98,045 $ 149,100
---------------------------------------------------------------------------------------------------------------------------------
Basic Materials Fund n/a $ 51,654 $ 122,580
---------------------------------------------------------------------------------------------------------------------------------
Biotechnology Fund n/a $ 203,735 $ 1,983,545
---------------------------------------------------------------------------------------------------------------------------------
Consumer Products Fund n/a $ 64,921 $ 102,097
---------------------------------------------------------------------------------------------------------------------------------
Electronics Fund n/a $ 287,912 $ 1,148,841
---------------------------------------------------------------------------------------------------------------------------------
Energy Fund n/a $ 56,392 $ 99,495
---------------------------------------------------------------------------------------------------------------------------------
Energy Services Fund n/a $ 147,529 $ 350,059
---------------------------------------------------------------------------------------------------------------------------------
Financial Services Fund n/a $ 224,408 $ 311,265
---------------------------------------------------------------------------------------------------------------------------------
Health Care Fund n/a $ 219,227 $ 215,917
---------------------------------------------------------------------------------------------------------------------------------
Internet Fund* n/a n/a n/a
---------------------------------------------------------------------------------------------------------------------------------
Leisure Fund n/a $ 45,641 $ 48,812
---------------------------------------------------------------------------------------------------------------------------------
Precious Metals Fund $ 185,396 $ 222,795 $ 276,528
---------------------------------------------------------------------------------------------------------------------------------
Retailing Fund n/a $ 285,542 $ 147,554
---------------------------------------------------------------------------------------------------------------------------------
Technology Fund n/a $ 342,246 $ 927,380
---------------------------------------------------------------------------------------------------------------------------------
Telecommunications Fund n/a $ 118,715 $ 586,872
---------------------------------------------------------------------------------------------------------------------------------
Transportation Fund n/a $ 41,446 $ 48,417
---------------------------------------------------------------------------------------------------------------------------------
Utilities Fund* n/a n/a n/a
---------------------------------------------------------------------------------------------------------------------------------
U.S. Government Money Market Fund $1,361,674 $3,913,720 $ 5,487,437
---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* The Ursa Master, Arktos Master, Juno Master, Utilities Master, Internet, and
Utilities Funds had not commenced operations as of March 31, 2000.
The Advisor manages the investment and the reinvestment of the assets of each of
the Funds, in accordance with the investment objectives, policies, and
limitations of the Fund, subject to the general supervision and control of the
Trustees and the officers of the Trust. The Advisor bears all costs associated
with providing these advisory services and the expenses of the Trustees of the
Trust who are affiliated with or interested persons of the Advisor. The Advisor,
from its own resources, including profits from advisory fees received from the
Funds, provided such fees are legitimate and not excessive, may make payments to
broker-dealers and other financial institutions for their expenses in connection
with the distribution of Fund shares, and otherwise currently pay all
distribution costs for Fund shares. PADCO Advisors, Inc. was incorporated in the
State of Maryland on February 5, 1993. Albert P. Viragh, Jr., the Chairman of
the Board of Trustees and President of the Advisor, owns a controlling interest
in the Advisor.
THE ADMINISTRATIVE SERVICE AGREEMENT AND ACCOUNTING SERVICE AGREEMENT
General administrative, shareholder, dividend disbursement, transfer agent, and
registrar services are provided to the Trust and the Funds by PADCO Service
Company, Inc. (the "Servicer"), 6116 Executive Boulevard, Suite 400, Rockville,
Maryland 20852, subject to the general supervision and control of the Trustees
and the officers of the Trust, pursuant to a service agreement between the Trust
and the Servicer. The Servicer is wholly-owned by Albert P. Viragh, Jr., who is
the Chairman of the Board and the President of the Trust and the sole
controlling person and majority owner of the Advisor.
30
<PAGE>
For the fiscal periods ended March 31, 1998, March 31, 1999, and March 31, 2000
the Funds paid PADCO the following service fees:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------
ADMINISTRATIVE SERVICE FEES PAID
--------------------------------------------------------------------
FUND 1998 1999 2000
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Nova Fund $1,529,464 $1,913,364 $1,756,911
--------------------------------------------------------------------------------------------------------
Ursa Fund $ 821,273 $1,367,076 $1,163,033
--------------------------------------------------------------------------------------------------------
OTC Fund $ 674,494 $1,371,206 $4,407,018
--------------------------------------------------------------------------------------------------------
Arktos Fund n/a $ 82,742 $ 323,351
--------------------------------------------------------------------------------------------------------
Juno Fund $ 44,710 $ 31,414 $ 46,461
--------------------------------------------------------------------------------------------------------
U.S. Government Bond Fund $ 36,617 $ 72,115 $ 46,255
--------------------------------------------------------------------------------------------------------
Banking Fund n/a $ 28,671 $ 43,853
--------------------------------------------------------------------------------------------------------
Basic Materials Fund n/a $ 15,293 $ 36,053
--------------------------------------------------------------------------------------------------------
Biotechnology Fund n/a $ 59,922 $ 583,396
--------------------------------------------------------------------------------------------------------
Consumer Products Fund n/a $ 19,094 $ 30,539
--------------------------------------------------------------------------------------------------------
Electronics Fund n/a $ 84,680 $ 337,892
--------------------------------------------------------------------------------------------------------
Energy Fund n/a $ 16,586 $ 27,424
--------------------------------------------------------------------------------------------------------
Energy Services Fund n/a $ 43,391 $ 102,958
--------------------------------------------------------------------------------------------------------
Financial Services Fund n/a $ 66,623 $ 91,549
--------------------------------------------------------------------------------------------------------
Health Care Fund n/a $ 64,478 $ 63,505
--------------------------------------------------------------------------------------------------------
Internet Fund* n/a n/a n/a
--------------------------------------------------------------------------------------------------------
Leisure Fund n/a $ 13,424 $ 14,356
--------------------------------------------------------------------------------------------------------
Precious Metals Fund $ 53,408 $ 59,123 $ 75,371
--------------------------------------------------------------------------------------------------------
Retailing Fund n/a $ 83,983 $ 43,398
--------------------------------------------------------------------------------------------------------
Technology Fund n/a $ 100,661 $ 272,759
--------------------------------------------------------------------------------------------------------
Telecommunications Fund n/a $ 34,916 $ 173,135
--------------------------------------------------------------------------------------------------------
Transportation Fund n/a $ 12,190 $ 14,240
--------------------------------------------------------------------------------------------------------
Utilities Fund* n/a n/a n/a
--------------------------------------------------------------------------------------------------------
U.S. Government Money Market Fund $544,706 $1,565,488 $2,194,975
--------------------------------------------------------------------------------------------------------
</TABLE>
*The Ursa Master, Arktos Master, Juno Master, Utilities Master,
Internet, and Utilities Funds had not commenced operations as of March
31, 2000.
Under the service agreement, the Servicer provides the Trust and each Fund with
all required general administrative services, including, without limitation,
office space, equipment, and personnel; clerical
31
<PAGE>
and general back office services; bookkeeping, internal accounting, and
secretarial services; the determination of net asset values; and the preparation
and filing of all reports, registration statements, proxy statements, and all
other materials required to be filed or furnished by the Trust and each Fund
under Federal and state securities laws. The Servicer also maintains the
shareholder account records for each Fund, disburses dividends and distributions
payable by each Fund, and produces statements with respect to account activity
for each Fund and each Fund's shareholders. The Servicer pays all fees and
expenses that are directly related to the services provided by the Servicer to
each Fund; each Fund reimburses the Servicer for all fees and expenses incurred
by the Servicer which are not directly related to the services the Servicer
provides to the Fund under the service agreement.
Pursuant to an Accounting Service Agreement the Servicer serves as Accounting
Services Agent and performs certain record keeping and accounting functions. The
Servicer received the following fees for the fiscal periods ended March 31,
1998, March 31, 1999, and March 31, 2000:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------
ACCOUNTING SERVICES FEES PAID
--------------------------------------------------------------------------
FUND 1998 1999 2000
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Nova Fund $140,353 $205,109 $161,882
------------------------------------------------------------------------------------------------------------------
Ursa Fund $ 93,626 $150,376 $118,877
------------------------------------------------------------------------------------------------------------------
OTC Fund $ 92,254 $182,519 $392,958
------------------------------------------------------------------------------------------------------------------
Arktos Fund n/a $ 39,764 $ 56,234
------------------------------------------------------------------------------------------------------------------
Juno Fund $ 19,703 $ 17,273 $ 17,635
------------------------------------------------------------------------------------------------------------------
U.S. Government Bond Fund $ 21,531 $ 32,901 $ 21,209
------------------------------------------------------------------------------------------------------------------
Banking Fund n/a $ 11,907 $ 12,181
------------------------------------------------------------------------------------------------------------------
Basic Materials fund n/a $ 7,487 $ 12,478
------------------------------------------------------------------------------------------------------------------
Biotechnology Fund n/a $ 22,396 $ 62,215
------------------------------------------------------------------------------------------------------------------
Consumer Products Fund n/a $ 8,750 $ 9,756
------------------------------------------------------------------------------------------------------------------
Electronics Fund n/a $ 24,166 $ 48,927
------------------------------------------------------------------------------------------------------------------
Energy Fund n/a $ 8,684 $ 10,746
------------------------------------------------------------------------------------------------------------------
Energy Services Fund n/a $ 17,085 $ 30,584
------------------------------------------------------------------------------------------------------------------
Financial Services Fund n/a $ 22,966 $ 22,325
------------------------------------------------------------------------------------------------------------------
Health Care Fund n/a $ 24,042 $ 21,141
------------------------------------------------------------------------------------------------------------------
Internet Fund* n/a n/a n/a
------------------------------------------------------------------------------------------------------------------
Leisure Fund n/a $ 7,413 $ 5,154
------------------------------------------------------------------------------------------------------------------
Precious Metals Fund $ 23,688 $ 30,681 $ 30,309
------------------------------------------------------------------------------------------------------------------
Retailing Fund n/a $ 27,688 $ 13,138
------------------------------------------------------------------------------------------------------------------
Technology Fund n/a $ 32,508 $ 49,249
------------------------------------------------------------------------------------------------------------------
Telecommunications Fund n/a $ 14,839 $ 39,353
------------------------------------------------------------------------------------------------------------------
Transportation Fund n/a $ 6,719 $ 4,552
------------------------------------------------------------------------------------------------------------------
Utilities Fund* n/a n/a n/a
------------------------------------------------------------------------------------------------------------------
U.S. Government Money Market Fund $ 82,651 $202,742 $234,105
------------------------------------------------------------------------------------------------------------------
</TABLE>
*The Ursa Master, Arktos Master, Juno Master, Utilities Master, Internet,
and Utilities Funds had not commenced operations as of March 31, 2000.
32
<PAGE>
DISTRIBUTION
Pursuant to the Distribution Agreement adopted by the Trust, Rydex Distributors,
Inc. (the "Distributor"), 6116 Executive Boulevard, Suite 400, Rockville,
Maryland 20852, acts as distributor for the Advisor Class Shares of the Trust
under the general supervision and control of the Trustees and the officers of
the Trust.
Under a Distribution and Shareholder Services Plan, Service Providers may use
their fees for: (i) compensation for its services in connection with
distribution assistance; or (ii) payments to financial institutions and
intermediaries such as banks, savings and loan associations, insurance companies
and investment counselors, broker-dealers, mutual fund supermarkets and the
Distributor's affiliates and subsidiaries as compensation for services or
reimbursement of expenses incurred in connection with distribution assistance.
The Distributor may, at its discretion, retain a portion of such payments to
compensate itself for distribution services and distribution related expenses
such as the costs of preparation, printing, mailing or otherwise disseminating
sales literature, advertising, and prospectuses (other than those furnished to
current shareholders of the Fund), promotional and incentive programs, and such
other marketing expenses that the Distributor may incur.
A Service Provider also may perform some or all of the following shareholder
services:
- maintaining accounts relating to clients that invest in shares;
- arranging for bank wires;
- responding to client inquiries relating to the services performed by the
Services Provider;
- responding to inquiries from clients concerning their investment in
shares;
- assisting clients in changing dividend options, account designations and
addresses;
- providing information periodically to clients showing their position
in shares;
- forwarding shareholder communications from the Funds such as proxies,
shareholder reports, annual reports, and dividend distribution and tax
notices to clients; and
- processing dividend payments from the Funds on behalf of clients.
These shareholder services are different from the distribution services
discussed above, and are not primarily intended to result in the sale of the
Advisor Class Shares of the Funds. Following are the fees paid under this plan
for the fiscal year ended March 31, 2000:
<TABLE>
<CAPTION>
FUND FEES PAID
---- ---------
<S> <C>
Banking Fund $ 34,222
Basic Materials Fund $ 11,658
Biotechnology Fund $ 269,568
Consumer Products Fund $ 48,466
Electronics Fund $ 188,596
Energy Fund $ 6,872
Energy Services Fund $ 40,392
Financial Services Fund $ 65,378
Health Care Fund $ 39,418
Internet Fund* n/a
Leisure Fund $ 9,582
Retailing Fund $ 32,756
Technology Fund $ 166,448
Telecommunications Fund $ 112,466
33
<PAGE>
<CAPTION>
FUND FEES PAID
---- ---------
<S> <C>
Transportation Fund $ 4,594
Utilities Fund* n/a
U.S. Government Money Market Fund $ 1,504,822
Nova Fund $ 204,626
Ursa Fund $ 27,734
OTC Fund $ 361,322
</TABLE>
*The Internet and Utilities Funds had not commenced operations as of March
31, 2000.
COSTS AND EXPENSES
Each Fund bears all expenses of its operations other than those assumed by the
Advisor or the Servicer. Fund expenses include: the management fee; the
servicing fee (including administrative, transfer agent, and shareholder
servicing fees); custodian and accounting fees and expenses; legal and auditing
fees; securities valuation expenses; fidelity bonds and other insurance
premiums; expenses of preparing and printing prospectuses, confirmations, proxy
statements, and shareholder reports and notices; registration fees and expenses;
proxy and annual meeting expenses, if any; all federal, state, and local taxes
(including, without limitation, stamp, excise, income, and franchise taxes);
organizational costs; non-interested Trustees' fees and expenses; the costs and
expenses of redeeming shares of the Fund; fees and expenses paid to any
securities pricing organization; dues and expenses associated with membership in
any mutual fund organization; and costs for incoming telephone WATTS lines. In
addition, each of the Funds pays an equal portion of the Trustee fees and
expenses for attendance at Trustee meetings for the Trustees of the Trust who
are not affiliated with or interested persons of the Advisor.
PRINCIPAL HOLDERS OF SECURITIES
As of June 22, 2000, the following persons were the only persons who were record
owners or, to the knowledge of the Trust, beneficial owners of 5% or more of the
shares of the Funds.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------
NAME AND ADDRESS # OF SHARES PERCENT
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. Government Bond Fund
--------------------------------------------------------------------------------------------------------------------------
Charles Schwab & Co., Inc. 616,489.707 16.14
Special Custody Account - REINV
Attn: Mutual Funds Team E
101 Montgomery Street
San Francisco, CA 94104-4122
--------------------------------------------------------------------------------------------------------------------------
ABN AMRO Incorporated 306,756.148 8.03
850-17002-18
Attn: Mutual Fund Operations
P.O. Box 6108
Chicago, IL 60680-6108
--------------------------------------------------------------------------------------------------------------------------
Trust Company of America 1,445,234.037 37.83
FBO: FPI
7103 S Revere Parkway
Englewood, CO 80112
--------------------------------------------------------------------------------------------------------------------------
34
<PAGE>
--------------------------------------------------------------------------------------------------------------------------
NAME AND ADDRESS # OF SHARES PERCENT
--------------------------------------------------------------------------------------------------------------------------
Juno Fund
--------------------------------------------------------------------------------------------------------------------------
FTC & Co. 125,648.637 12.47
Attn: Datalynx #410
P.O. Box 173736
Denver, CO 80217-3736
--------------------------------------------------------------------------------------------------------------------------
RSBCO 215,803.010 21.41
P.O. Drawer 1410
Ruston, LA 71273
--------------------------------------------------------------------------------------------------------------------------
Martin L. Leibowitz 129,973.315 12.90
One 5th Ave., Apt. 13-K
New York, NY 10003
--------------------------------------------------------------------------------------------------------------------------
Nova Fund - Investor Class
--------------------------------------------------------------------------------------------------------------------------
Donaldson, Lufkin & Jenrette 815,335.906 6.40
Pershing Division
P.O. Box 2052
Jersey City, NJ 07303
--------------------------------------------------------------------------------------------------------------------------
National Investor Services Corp. for the Exclusive 841,490.483 6.61
Benefit of Our Customers
55 Water Street
32nd Floor
New York, NY 10041-3299
--------------------------------------------------------------------------------------------------------------------------
National Financial Services Corp. for Exclusive 1,411,427.687 11.08
Benefit of Customers
P.O. Box 3751 Church Street Station
New York, NY 10008-3752
--------------------------------------------------------------------------------------------------------------------------
Charles Schwab & Co., Inc. 2,682,614.398 21.06
Special Custody Account - REINV
Attn: Mutual Funds Team E
101 Montgomery Street
San Francisco, CA 94104-4122
--------------------------------------------------------------------------------------------------------------------------
Ursa Fund - Investor Class
--------------------------------------------------------------------------------------------------------------------------
Trust Company of America 2,069,793.576 5.18
CUST/FBO PSI
P.O. Box 6503
Englewood, CO 80155
--------------------------------------------------------------------------------------------------------------------------
Charles Schwab & Co., Inc. 8,931,522.400 22.35
Special Custody Account - REINV
Attn: Mutual Funds Team E
101 Montgomery Street
San Francisco, CA 94101-4122
--------------------------------------------------------------------------------------------------------------------------
National Financial Services Corp. for Exclusive 3,654,816.761 9.15
Benefit of Customers
--------------------------------------------------------------------------------------------------------------------------
35
<PAGE>
--------------------------------------------------------------------------------------------------------------------------
NAME AND ADDRESS # OF SHARES PERCENT
--------------------------------------------------------------------------------------------------------------------------
P.O. Box 3751 Church Street Station
New York, NY 10008-3752
--------------------------------------------------------------------------------------------------------------------------
OTC Fund - Investor Class
--------------------------------------------------------------------------------------------------------------------------
Charles Schwab & Co., Inc. 32,701,482.663 28.72
Special Custody Account - REINV
Attn: Mutual Funds Team E
101 Montgomery Street
San Francisco, CA 94101-4122
--------------------------------------------------------------------------------------------------------------------------
Donaldson, Lufkin & Jenrette 8,984,386.825 7.89
Pershing Division
P.O. Box 2052
Jersey City, NJ 07303
--------------------------------------------------------------------------------------------------------------------------
National Financial Services Corp. for Exclusive 23,836,678.158 20.94
Benefit of Customers
P.O. Box 3751 Church Street Station
New York, NY 10008-3752
--------------------------------------------------------------------------------------------------------------------------
National Investor Services Corp. for the Exclusive 8,234,469.910 7.23
Benefit of Customers
55 Water Street
32nd Floor
New York, NY 10041-3299
--------------------------------------------------------------------------------------------------------------------------
Arktos Fund
--------------------------------------------------------------------------------------------------------------------------
Charles Schwab & Co., Inc. 893,271.340 15.75
Special Custody Account - REINV
Attn: Mutual Funds Team E
101 Montgomery Street
San Francisco, CA 94104-4122
--------------------------------------------------------------------------------------------------------------------------
National Financial Services Corp. for Exclusive 573,226.211 10.10
Benefit of Customers
P.O. Box 3751 Church Street Station
New York, NY 10008-3752
--------------------------------------------------------------------------------------------------------------------------
National Investor Services Corp. for the Exclusive 292,469.073 5.16
Benefit of Our Customers
55 Water Street
32nd Floor
New York, NY 10041-3299
--------------------------------------------------------------------------------------------------------------------------
Trust Company of America 472,864.926 8.34
CUST/FBO PSI
P.O. Box 6503
Englewood, CO 80155
--------------------------------------------------------------------------------------------------------------------------
36
<PAGE>
--------------------------------------------------------------------------------------------------------------------------
NAME AND ADDRESS # OF SHARES PERCENT
--------------------------------------------------------------------------------------------------------------------------
Banking Fund - Investor Class
--------------------------------------------------------------------------------------------------------------------------
Charles Schwab & Co., Inc. 297,183.670 11.08
Special Custody Account - REINV
Attn: Mutual Funds Team E
101 Montgomery Street
San Francisco, CA 94101-4122
--------------------------------------------------------------------------------------------------------------------------
Donaldson, Lufkin & Jenrette 191,426.091 7.14
Pershing Division
P.O. Box 2052
Jersey City, NJ 07303
--------------------------------------------------------------------------------------------------------------------------
National Financial Services Corp. for Exclusive 505,339.369 18.85
Benefit of Customers
P.O. Box 3751 Church Street Station
New York, NY 10008-3752
--------------------------------------------------------------------------------------------------------------------------
National Investor Services Corp. for the Exclusive 485,466.382 18.11
Benefit of Our Customers
55 Water Street
32nd Floor
New York, NY 10041-3299
--------------------------------------------------------------------------------------------------------------------------
Firstar Trust Company 284,289.341 10.60
AGG Growth Mutual Funds Port
C/o R. Meeder & Associates
P.O. Box 7177
Dublin, OH 43017
--------------------------------------------------------------------------------------------------------------------------
Basic Materials Fund - Investor Class
--------------------------------------------------------------------------------------------------------------------------
Charles Schwab & Co., Inc. 66,336.329 17.03
Special Custody Account--REINV
Attn: Mutual Funds Team E
101 Montgomery Street
San Francisco, CA 94104-4122
--------------------------------------------------------------------------------------------------------------------------
Donaldson, Lufkin & Jenrette 30,973.206 7.95
Pershing Division
P.O. Box 2052
Jersey City, NJ 07303
--------------------------------------------------------------------------------------------------------------------------
National Financial Services Corp. for Exclusive 78,126.059 20.06
Benefit of Customers
P.O. Box 3751 Church Street Station
New York, NY 10008-3752
--------------------------------------------------------------------------------------------------------------------------
Michael Holmes (RIRA) 20,977.623 5.39
24912 Hendon Street
Laguna Hills, CA 92651
--------------------------------------------------------------------------------------------------------------------------
Anthony M. Schultz 42,862.238 11.01
10020 Vista Montanoso
Escondido, CA 92026
--------------------------------------------------------------------------------------------------------------------------
37
<PAGE>
--------------------------------------------------------------------------------------------------------------------------
NAME AND ADDRESS # OF SHARES PERCENT
--------------------------------------------------------------------------------------------------------------------------
Biotechnology Fund - Investor Class
--------------------------------------------------------------------------------------------------------------------------
Charles Schwab & Co., Inc. 5,805,079.603 28.26
Special Custody Account - REINV
Attn: Mutual Funds Team E
101 Montgomery Street
San Francisco, CA 94104-4122
--------------------------------------------------------------------------------------------------------------------------
Donaldson, Lufkin & Jenrette 1,415,499.616 6.89
Pershing Division
P.O. Box 2052
Jersey City, NJ 07303
--------------------------------------------------------------------------------------------------------------------------
National Financial Services Corp. for Exclusive 5,057,504.725 24.62
Benefit of Customers
P.O. Box 3751 Church Street Station
New York, NY 10008-3752
--------------------------------------------------------------------------------------------------------------------------
National Investor Services Corp. for the Exclusive 1,095,452.131 5.33
Benefit of Our Customers
55 Water Street
32nd Floor
New York, NY 10041-3299
--------------------------------------------------------------------------------------------------------------------------
Consumer Products Fund - Investor Class
--------------------------------------------------------------------------------------------------------------------------
Charles Schwab & Co., Inc. 36,233.927 10.59
Special Custody Account - REINV
Attn: Mutual Funds Team E
101 Montgomery Street
San Francisco, CA 94104-4122
--------------------------------------------------------------------------------------------------------------------------
Donaldson, Lufkin & Jenrette 22,518.747 6.58
Pershing Division
P.O. Box 2052
Jersey City, NJ 07303
--------------------------------------------------------------------------------------------------------------------------
PADCO Advisors, Inc. 25,740.026 7.52
6166 Executive Blvd.
Suite 400
Rockville, MD 20852
--------------------------------------------------------------------------------------------------------------------------
National Investor Services Corp. for the Exclusive 197,845.030 57.81
Benefit of Our Customers
55 Water Street
32nd Floor
New York, NY 10041-3299
--------------------------------------------------------------------------------------------------------------------------
National Financial Services Corp. for Exclusive 19,190.326 5.61
Benefit of Customers
P.O. Box 3751 Church Street Station
New York, NY 10008-3752
--------------------------------------------------------------------------------------------------------------------------
38
<PAGE>
--------------------------------------------------------------------------------------------------------------------------
NAME AND ADDRESS # OF SHARES PERCENT
--------------------------------------------------------------------------------------------------------------------------
Electronics Fund - Investor Class
--------------------------------------------------------------------------------------------------------------------------
Charles Schwab & Co., Inc. 1,940,773.054 16.42
Special Custody Account - REINV
Attn: Mutual Funds Team E
101 Montgomery Street
San Francisco, CA 94101-4122
--------------------------------------------------------------------------------------------------------------------------
National Financial Services Corp. for Exclusive 4,510,240.028 38.15
Benefit of Customers
P.O. Box 3751 Church Street Station
New York, NY 10008-3752
--------------------------------------------------------------------------------------------------------------------------
National Investor Services Corp. for the Exclusive 669,411.347 5.66
Benefit of Our Customers
55 Water Street
32nd Floor
New York, NY 10041-3299
--------------------------------------------------------------------------------------------------------------------------
Energy Fund - Investor Class
--------------------------------------------------------------------------------------------------------------------------
FTC & Co. 252,526.298 12.64
Attn: Datalynx # A79
P.O. Box 173736
Denver, CO 80217
--------------------------------------------------------------------------------------------------------------------------
National Financial Services Corp. for Exclusive 648,717.099 32.46
Benefit of Customers
P.O. Box 3751 Church Street Station
New York, NY 10008-3752
--------------------------------------------------------------------------------------------------------------------------
FTC & Co. 389,596.025 19.49
Attn: Datalynx #184
P.O. Box 173736
Denver, CO 80217-3736
--------------------------------------------------------------------------------------------------------------------------
Star Bank, -NA CUST FBO 160,016.219 8.01
Opti-Flex Dynamic Fund
P.O. Box 640229
Cincinatti, OH 45264-0229
--------------------------------------------------------------------------------------------------------------------------
Energy Services Fund - Investor Class
--------------------------------------------------------------------------------------------------------------------------
National Financial Services Corp. for Exclusive 2,223,899.229 29.44
Benefit of Customers
P.O. Box 3751 Church Street Station
New York, NY 10008-3752
--------------------------------------------------------------------------------------------------------------------------
FTC & Co. 454,237.117 6.01
Attn: Datalynx #184
P.O. Box 173736
Denver, CO 80217-3736
--------------------------------------------------------------------------------------------------------------------------
39
<PAGE>
--------------------------------------------------------------------------------------------------------------------------
NAME AND ADDRESS # OF SHARES PERCENT
--------------------------------------------------------------------------------------------------------------------------
National Investor Services Corp. for the Exclusive 438,107.597 5.80
Benefit of Our Customers
55 Water Street
32nd Floor
New York, NY 10041-3299
--------------------------------------------------------------------------------------------------------------------------
Charles Schwab & Co., Inc. 19.17
Special Custody Account - REINV 1,448,197.024
Attn: Mutual Funds Team E
101 Montgomery Street
San Francisco, CA 94104-4122
--------------------------------------------------------------------------------------------------------------------------
Financial Services Fund - Investor Class
--------------------------------------------------------------------------------------------------------------------------
Charles Schwab & Co., Inc. 1,252,988.209 28.27
Special Custody Account - REINV
Attn: Mutual Funds Team E
101 Montgomery Street
San Francisco, CA 94104-4122
--------------------------------------------------------------------------------------------------------------------------
Donaldson, Lufkin & Jenrette 318,407.163 7.18
Pershing Division
P.O. Box 2052
Jersey City, NJ 07303
--------------------------------------------------------------------------------------------------------------------------
National Financial Services Corp. for Exclusive 1,033,577.363 23.32
Benefit of Customers
P.O. Box 3751 Church Street Station
New York, NY 10008-3752
--------------------------------------------------------------------------------------------------------------------------
National Investor Services Corp. for the Exclusive 823,378.671 18.58
Benefit of Our Customers
55 Water Street
32nd Floor
New York, NY 10041-3299
--------------------------------------------------------------------------------------------------------------------------
Health Care Fund - Investor Class
--------------------------------------------------------------------------------------------------------------------------
Nicholas Kardasis (RIRA) 511,608.669 12.09
70 Standish Circle
Wellesley, MA 02481
--------------------------------------------------------------------------------------------------------------------------
Charles Schwab & Co., Inc. 398,177.006 9.41
Special Custody Account - REINV
Attn: Mutual Funds Team E
101 Montgomery Street
San Francisco, CA 94104-4122
--------------------------------------------------------------------------------------------------------------------------
National Financial Services Corp. for Exclusive 1,411,060.983 33.34
Benefit of Customers
P.O. Box 3751 Church Street Station
New York, NY 10008-3752
--------------------------------------------------------------------------------------------------------------------------
National Investor Services Corp. for the Exclusive 240,417.860 5.68
Benefit of Our Customers
55 Water Street
--------------------------------------------------------------------------------------------------------------------------
</TABLE>
40
<PAGE>
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------
NAME AND ADDRESS # OF SHARES PERCENT
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
32nd Floor
New York, NY 10041-3299
--------------------------------------------------------------------------------------------------------------------------
FTC & Co. 321,554.115 7.60
Attn: Datalynx #379
P.O. Box 173736
Denver, CO 80017
--------------------------------------------------------------------------------------------------------------------------
Internet Fund - Investor Class
--------------------------------------------------------------------------------------------------------------------------
Randall R. Fisher (IRA) 61,804.697 6.25
750 Camino Del Codorniz
Tucson, AZ 85748
--------------------------------------------------------------------------------------------------------------------------
Thomas W. Stauss 91,787.603 9.29
127 Nottingham Lane
Ocean Pines, MD 21811
--------------------------------------------------------------------------------------------------------------------------
National Financial Services Corp. for Exclusive 138,874.680 14.05
Benefit of Customers
P.O. Box 3751 Church Street Station
New York, NY 10008-3752
--------------------------------------------------------------------------------------------------------------------------
Leisure Fund - Investor Class
--------------------------------------------------------------------------------------------------------------------------
National Financial Services Corp. for Exclusive 195,372.178 25.94
Benefit of Customers
P.O. Box 3751 Church Street Station
New York, NY 10008-3752
--------------------------------------------------------------------------------------------------------------------------
ABN AMRO Inc. 283,808.019 37.69
850-17002-18
Attn: Mutual Fund Operations
P.O. Box 6108
Chicago, IL 60680-6108
--------------------------------------------------------------------------------------------------------------------------
Trust Company of America 58,858.100 7.82
FBO LBS
P.O. Box 6503
Englewood, CO 80155
--------------------------------------------------------------------------------------------------------------------------
Precious Metals Fund
--------------------------------------------------------------------------------------------------------------------------
First Trust & Co. 171,067.503 6.89
Attn: Datalynx #026
P.O. Box 173736
Denver, CO 80217-3736
--------------------------------------------------------------------------------------------------------------------------
FTC & CO. 236,112.116 9.52
Attn: Datalynx #184
P.O. Box 173736
Denver, CO 80217-3736
--------------------------------------------------------------------------------------------------------------------------
Retailing Fund - Investor Class
--------------------------------------------------------------------------------------------------------------------------
Allon & Beth Shadmi 6,253.905 6.29
12 Brandywine Ct.
Scotch Plains, NJ 07076
--------------------------------------------------------------------------------------------------------------------------
41
<PAGE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------
NAME AND ADDRESS # OF SHARES PERCENT
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Charles Schwab & Co., Inc. 8,830.052 8.88
Special Custody Account - REINV
Attn: Mutual Funds Team E
101 Montgomery Street
San Francisco, CA 94104-4122
--------------------------------------------------------------------------------------------------------------------------
Donaldson, Lufkin & Jenrette 8,420.770 8.46
Pershing Division
P.O. Box 2052
Jersey City, NJ 07303
--------------------------------------------------------------------------------------------------------------------------
National Financial Services Corp. for Exclusive 12,049.124 12.11
Benefit of Customers
P.O. Box 3751 Church Street Station
New York, NY 10008-3752
--------------------------------------------------------------------------------------------------------------------------
Sidney E. Hall (RIRA) 6,121.987 6.15
6325 Lake Lucerne Drive
San Diego, CA 92119
--------------------------------------------------------------------------------------------------------------------------
Technology Fund - Investor Class
--------------------------------------------------------------------------------------------------------------------------
FTC & Co. 195,252.162 9.88
Attn: Datalynx #A79
P.O. Box 173736
Denver, CO 80217
--------------------------------------------------------------------------------------------------------------------------
Charles Schwab & Co., Inc. 220,040.815 11.14
Special Custody Account - REINV
Attn: Mutual Funds Team E
101 Montgomery Street
San Francisco, CA 94104-4122
--------------------------------------------------------------------------------------------------------------------------
National Financial Services Corp. for Exclusive 320,569.616 16.22
Benefit of Customers
P.O. Box 3751 Church Street Station
New York, NY 10008-3752
--------------------------------------------------------------------------------------------------------------------------
FTC & Co. 127,971.189 6.48
Attn: Datalynx #379
P.O. Box 173736
Denver, CO 80017
--------------------------------------------------------------------------------------------------------------------------
Telecommunications Fund - Investor Class
--------------------------------------------------------------------------------------------------------------------------
Charles Schwab & Co., Inc. 786,584.201 31.40
Special Custody Account - REINV
Attn: Mutual Funds Team E
101 Montgomery Street
San Francisco, CA 94104-4122
--------------------------------------------------------------------------------------------------------------------------
Donaldson, Lufkin & Jenrette 305,058.457 12.18
Pershing Division
P.O. Box 2052
Jersey City, NJ 07303
--------------------------------------------------------------------------------------------------------------------------
42
<PAGE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------
NAME AND ADDRESS # OF SHARES PERCENT
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
National Financial Services Corp. for Exclusive 260,181.245 10.39
Benefit of Customers
P.O. Box 3751 Church Street Station
New York, NY 10008-3752
--------------------------------------------------------------------------------------------------------------------------
ABN AMRO Inc. 143,787.227 5.74
850-17002-18
Attn: Mutual Fund Operations
P.O. Box 6108
Chicago, IL 60680-6108
--------------------------------------------------------------------------------------------------------------------------
Transportation Fund - Investor Class
--------------------------------------------------------------------------------------------------------------------------
Donaldson, Lufkin & Jenrette 493,394.460 27.59
Pershing Division
P.O. Box 2052
Jersey City, NJ 07303
--------------------------------------------------------------------------------------------------------------------------
National Investor Services Corp. for the Exclusive 927,178.558 51.84
Benefit of Our Customers
55 Water Street
32nd Floor
New York, NY 10041-3299
--------------------------------------------------------------------------------------------------------------------------
Utilities Fund - Investor Class
--------------------------------------------------------------------------------------------------------------------------
Berenice Gates Hopper Trust 11,267.530 5.84
DTD 3/18/69
220 Atherton Ave.
Atherton, CA 94027
--------------------------------------------------------------------------------------------------------------------------
Priscilla L. Clark (IRA) 9,689.922 5.02
58 Jennie Dugan Rd.
Concord, MA 01742
--------------------------------------------------------------------------------------------------------------------------
Donaldson, Lufkin & Jenrette 11,347.908 5.88
Pershing Division
P.O. Box 2052
Jersey City, NJ 07303
--------------------------------------------------------------------------------------------------------------------------
PADCO Services. Inc. 20,554.985 10.65
6116 Executive Blvd.
Suite 400
Rockville, MD 20852
--------------------------------------------------------------------------------------------------------------------------
Nova Fund - Advisor Class
--------------------------------------------------------------------------------------------------------------------------
National Investor Services Corp. for the Exclusive 67,313.284 7.49
Benefit of Our Customers
55 Water Street
32nd Floor
New York, NY 10041-3299
--------------------------------------------------------------------------------------------------------------------------
43
<PAGE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------
NAME AND ADDRESS # OF SHARES PERCENT
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Ursa Fund - Advisor Class
--------------------------------------------------------------------------------------------------------------------------
SBIC Income Fund 73,343.507 13.08
2220 Santiago Road
Santa Barbara, CA 93103
--------------------------------------------------------------------------------------------------------------------------
National Investor Services Corp. for the Exclusive 100,164.625 17.87
Benefit of Our Customers
55 Water Street
32nd Floor
New York, NY 10041-3299
--------------------------------------------------------------------------------------------------------------------------
Donaldson, Lufkin & Jenrette 50,207.885 8.96
Pershing Division
P.O. Box 2052
Jersey City, NJ 07303
--------------------------------------------------------------------------------------------------------------------------
National Financial Services Corp. for Exclusive 62,446.129 11.14
Benefit of Customers
P.O. Box 3751 Church Street Station
New York, NY 10008-3752
--------------------------------------------------------------------------------------------------------------------------
OTC Fund - Advisor Class
--------------------------------------------------------------------------------------------------------------------------
Mercantile-Safe Deposit & Trust Co. 377,836.354 7.26
Daily Value Account
Attn: Mutual Funds
766 Old Hammonds Ferry Road
Linthicum, MD 21090
--------------------------------------------------------------------------------------------------------------------------
National Investor Services Corp. for the Exclusive 826,116.465 15.87
Benefit of Our Customers
55 Water Street
32nd Floor
New York, NY 10041-3299
--------------------------------------------------------------------------------------------------------------------------
Donaldson, Lufkin & Jenrette 590,125.983 11.34
Pershing Division
P.O. Box 2052
Jersey City, NJ 07303
--------------------------------------------------------------------------------------------------------------------------
FTC & Co. 306,530.230 5.89
Attn: Datalynx #087
P.O. Box 173736
Denver, CO 80217
--------------------------------------------------------------------------------------------------------------------------
Trust Company of America 342,950.246 6.59
FBO: FPI
7103 S Revere Parkway
Englewood, CO 80112
--------------------------------------------------------------------------------------------------------------------------
44
<PAGE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------
NAME AND ADDRESS # OF SHARES PERCENT
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. Government Money Market Fund - Advisor Class
--------------------------------------------------------------------------------------------------------------------------
Trust Company of America 38,259,779.000 11.13
FBO: FPI
7103 S Revere Parkway
Englewood, CO 80112
--------------------------------------------------------------------------------------------------------------------------
Independent Trust Corporation 54,158,600.240 15.76
Custodian Funds 92-5
15255 S. 94th Ave.
Suite 303
Orland Park, IL 60462
--------------------------------------------------------------------------------------------------------------------------
National Financial Services Corp. for Exclusive 30,681,759.119 8.93
Benefit of Customers
P.O. Box 3751 Church Street Station
New York, NY 10008-3752
--------------------------------------------------------------------------------------------------------------------------
Independent Trust Corporation 41,974,489.230 12.21
Custodian Funds 930
15255 S. 94th Ave.
Suite 303
Orland Park, IL 60462
--------------------------------------------------------------------------------------------------------------------------
Banking Fund - Advisor Class
--------------------------------------------------------------------------------------------------------------------------
Centurion Trust Co. /B/O 9,652,647.572 98.93
Omnibus/Centurion Capital Management
2424 E Camelback Road
Suite 530
Pheonix, AZ 85016
--------------------------------------------------------------------------------------------------------------------------
Basic Materials Fund - Advisor Class
--------------------------------------------------------------------------------------------------------------------------
Bear Stearns Securities Corp. 3,280.840 18.36
FBO 657-95850-16
1 Metrotech Center North
Brooklyn, NY 11201-3859
--------------------------------------------------------------------------------------------------------------------------
National Investor Services Corp. for the Exclusive 8,827.838 49.39
Benefit of Our Customers
55 Water Street
32nd Floor
New York, NY 10041-3299
--------------------------------------------------------------------------------------------------------------------------
Donaldson, Lufkin & Jenrette 2,117.497 15.17
Pershing Division
P.O. Box 2052
Jersey City, NJ 07303
--------------------------------------------------------------------------------------------------------------------------
McDonald Investments, Inc. (FBO) 2,979.738 16.67
40690029
Suite 2100
800 Superior Ave.
Cleveland, OH 44114
--------------------------------------------------------------------------------------------------------------------------
45
<PAGE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------
NAME AND ADDRESS # OF SHARES PERCENT
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Biotechnology Fund - Advisor Class
--------------------------------------------------------------------------------------------------------------------------
Donaldson, Lufkin & Jenrette 472,075.240 19.60
Pershing Division
P.O. Box 2052
Jersey City, NJ 07303
--------------------------------------------------------------------------------------------------------------------------
National Financial Services Corp. 241,190.463 10.01
200 Liberty Street
One World Financial Center
New York, NY 10281
--------------------------------------------------------------------------------------------------------------------------
National Investor Services Corp. for the Exclusive 572,835.851 23.78
Benefit of Our Customers
55 Water Street
32nd Floor
New York, NY 10041-3299
--------------------------------------------------------------------------------------------------------------------------
Trust Company of America 577,587.200 23.98
FBO: FPI
7103 S Revere Parkway
Englewood, CO 80112
--------------------------------------------------------------------------------------------------------------------------
Consumer Products Fund - Advisor Class
--------------------------------------------------------------------------------------------------------------------------
P.J. Crescenzo 2,610.398 13.77
P.J. Crescenzo Trustee
7225 N. Oracle Road, #200
Tucson, AZ 85704
--------------------------------------------------------------------------------------------------------------------------
Centurion Trust Co. /B/O 2,171.046 11.45
Omnibus/ Centurion Capital Management
2425 E. Camelback Road
Suite 530
Pheonix, AZ 85016
--------------------------------------------------------------------------------------------------------------------------
Arlene E. Shapiro (RIRA) 1,054.079 5.56
5196 N. Via Velazquez
Tuscon, AZ 85750
--------------------------------------------------------------------------------------------------------------------------
Mark S. McLeod DDS Ltd. 1,031.206 5.44
Profit Sharing Plan
4550 E. Grant Road
Tuscon, AZ 85750
--------------------------------------------------------------------------------------------------------------------------
Gail McCartney (IRA) 1,037.377 5.47
5800 N. Kilb Road #7135
Tucson, AZ 85750
--------------------------------------------------------------------------------------------------------------------------
Electronics Fund - Advisor Class
--------------------------------------------------------------------------------------------------------------------------
FTC & Co. 248,604.531 13.69
Attn: Datalynx #087
P.O. Box 173736
Denver, CO 80217-3736
--------------------------------------------------------------------------------------------------------------------------
46
<PAGE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------
NAME AND ADDRESS # OF SHARES PERCENT
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
FTC & Co. 103,772.223 5.71
Attn: Datalynx #089
P.O. Box 173736
Denver, CO 80217-3736
--------------------------------------------------------------------------------------------------------------------------
National Investor Services Corp. for the Exclusive 180,089.900 9.92
Benefit of Our Customers
55 Water Street
32nd Floor
New York, NY 10041-3299
--------------------------------------------------------------------------------------------------------------------------
Trust Company of America 355,710.000 19.59
FBO: FPI
7103 S Revere Parkway
Englewood, CO 80112
--------------------------------------------------------------------------------------------------------------------------
IBEW Seventh District Retirement 136,357.117 7.51
Benefit Trust DTD 6/1/78
418 S. Polk
Suite 200
Amarillo, TX 79101
--------------------------------------------------------------------------------------------------------------------------
Energy Fund - Advisor Class
--------------------------------------------------------------------------------------------------------------------------
FTC & Co. 23,962.729 11.82
Attn: Datalynx #138
P.O. Box 173736
Denver, CO 80217
--------------------------------------------------------------------------------------------------------------------------
National Investor Services Corp. for the Exclusive 17,449.780 8.61
Benefit of Our Customers
55 Water Street
32nd Floor
New York, NY 10041-3299
--------------------------------------------------------------------------------------------------------------------------
Donaldson, Lufkin & Jenrette 22,577.917 11.14
Pershing Division
P.O. Box 2052
Jersey City, NJ 07303
--------------------------------------------------------------------------------------------------------------------------
Energy Services Fund - Advisor Class
--------------------------------------------------------------------------------------------------------------------------
National Investor Services Corp. for the Exclusive 81,709.589 8.56
Benefit of Our Customers
55 Water Street
32nd Floor
New York, NY 10041-3299
--------------------------------------------------------------------------------------------------------------------------
Donaldson, Lufkin & Jenrette 87,893.207 9.21
Pershing Division
P.O. Box 2052
Jersey City, NJ 07303
47
<PAGE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------
NAME AND ADDRESS # OF SHARES PERCENT
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
--------------------------------------------------------------------------------------------------------------------------
FTC & Co. 171,141.647 17.93
Attn: Datalynx #138
P.O. Box 173736
Denver, CO 80217
--------------------------------------------------------------------------------------------------------------------------
Financial Services Fund - Advisor Class
--------------------------------------------------------------------------------------------------------------------------
FTC & Co. 891,407.995 12.17
Attn: Datalynx #087
P.O. Box 173736
Denver, CO 80217
--------------------------------------------------------------------------------------------------------------------------
FTC & Co. 579,351.754 7.91
Attn: Datalynx #022
P.O. Box 173736
Denver, CO 80217
--------------------------------------------------------------------------------------------------------------------------
Centurion Trust Co. /B/O 5,542,596.921 75.65
Omnibus/ Centurion Capital Management
2425 E. Camelback Road
Suite 530
Pheonix, AZ 85016
--------------------------------------------------------------------------------------------------------------------------
Health Care Fund - Advisor Class
--------------------------------------------------------------------------------------------------------------------------
FTC & Co. 417,318.124 6.10
Attn: Datalynx #022
P.O. Box 173736
Denver, CO 80217
--------------------------------------------------------------------------------------------------------------------------
Donaldson, Lufkin & Jenrette 498,590.033 7.29
Pershing Division
P.O. Box 2052
Jersey City, NJ 07303
--------------------------------------------------------------------------------------------------------------------------
Centurion Trust Co. /B/O 5,400,254.540 78.96
Omnibus/ Centurion Capital Management
2425 E. Camelback Road
Suite 530
Pheonix, AZ 85016
--------------------------------------------------------------------------------------------------------------------------
Internet Fund - Advisor Class
--------------------------------------------------------------------------------------------------------------------------
Robert E. Behnken (IRA) 4,728.226 11.20
475 Arlington Road
Brookville, OH 45309
--------------------------------------------------------------------------------------------------------------------------
National Investor Services Corp. for the Exclusive 13,980.491 33.12
Benefit of Our Customers
55 Water Street
32nd Floor
New York, NY 10041-3299
--------------------------------------------------------------------------------------------------------------------------
48
<PAGE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------
NAME AND ADDRESS # OF SHARES PERCENT
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
P.J. Crescenzo 3,277.898 7.76
P.J. Crescenzo Trustee
7225 N. Oracle Road, #200
Tucson, AZ 85704
--------------------------------------------------------------------------------------------------------------------------
National Financial Services Corp. 5,693.665 13.49
200 Liberty Street
One World Financial Center
New York, NY 10281
--------------------------------------------------------------------------------------------------------------------------
Scott E. Behnken (RIRA) 2,839.386 6.73
475 Arlington Road
Brookville, OH 45309
--------------------------------------------------------------------------------------------------------------------------
Leisure Fund - Advisor Class
--------------------------------------------------------------------------------------------------------------------------
Centurion Trust Co. /B/O 1,467,077.007 99.70
Omnibus/ Centurion Capital Management
2425 E. Camelback Road
Suite 530
Pheonix, AZ 85016
--------------------------------------------------------------------------------------------------------------------------
Retailing Fund - Advisor Class
--------------------------------------------------------------------------------------------------------------------------
Donaldson, Lufkin & Jenrette 3,032.671 28.96
Pershing Division
P.O. Box 2052
Jersey City, NJ 07303
--------------------------------------------------------------------------------------------------------------------------
National Investor Services Corp. for the Exclusive 6,879.491 65.69
Benefit of Our Customers
55 Water Street
32nd Floor
New York, NY 10041-3299
--------------------------------------------------------------------------------------------------------------------------
Technology Fund - Advisor Class
--------------------------------------------------------------------------------------------------------------------------
Centurion Trust Co. /B/O 617,319.390 61.10
Omnibus/ Centurion Capital Management
2425 E. Camelback Road
Suite 530
Pheonix, AZ 85016
--------------------------------------------------------------------------------------------------------------------------
Trust Company of America 98,904.144 9.79
FBO: FPI
7103 S Revere Parkway
Englewood, CO 80112
--------------------------------------------------------------------------------------------------------------------------
Telecommunications Fund - Advisor Class
--------------------------------------------------------------------------------------------------------------------------
Centurion Trust Co. /B/O 885,686.397 75.27
Omnibus/ Centurion Capital Management
2425 E. Camelback Road
Suite 530
Pheonix, AZ 85016
--------------------------------------------------------------------------------------------------------------------------
49
<PAGE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------
NAME AND ADDRESS # OF SHARES PERCENT
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Donaldson, Lufkin & Jenrette 59,935.267 5.09
Pershing Division
P.O. Box 2052
Jersey City, NJ 07303
--------------------------------------------------------------------------------------------------------------------------
Trust Company of America 146,073.000 12.41
FBO: FPI
7103 S Revere Parkway
Englewood, CO 80112
--------------------------------------------------------------------------------------------------------------------------
Transportation Fund - Advisor Class
--------------------------------------------------------------------------------------------------------------------------
Donaldson, Lufkin & Jenrette 4,673.503 26.89
Pershing Division
P.O. Box 2052
Jersey City, NJ 07303
--------------------------------------------------------------------------------------------------------------------------
Centurion Trust Co. /B/O 2,606.261 14.99
Omnibus/ Centurion Capital Management
2425 E. Camelback Road
Suite 530
Pheonix, AZ 85016
--------------------------------------------------------------------------------------------------------------------------
National Investor Services Corp. for the Exclusive 5,965.169 34.32
Benefit of Our Customers
55 Water Street
32nd Floor
New York, NY 10041-3299
--------------------------------------------------------------------------------------------------------------------------
Bear Stearns Securities Corp. 4,125.413 23.73
FBO 657-95850-16
1 Metrotech Center North
Brooklyn, NY 11201-3859
--------------------------------------------------------------------------------------------------------------------------
Utilities Fund - Advisor Class
--------------------------------------------------------------------------------------------------------------------------
P.J. Crescenzo 1,954.055 6.31
P.J. Crescenzo Trustee
7225 N. Oracle Road, #200
Tucson, AZ 85704
--------------------------------------------------------------------------------------------------------------------------
FTC & Co. 19,210.619 62.05
Attn: Datalynx #089
P.O. Box 173736
Denver, CO 80217-3736
--------------------------------------------------------------------------------------------------------------------------
</TABLE>
DETERMINATION OF NET ASSET VALUE
The net asset value of a Fund serves as the basis for the purchase and
redemption price of that Fund's shares. The net asset value per share of a Fund
is calculated by dividing the market value of the Fund's securities plus the
values of its other assets, less all liabilities, by the number of outstanding
shares of the Fund. If market quotations are not readily available, a security
will be valued at fair value by the Advisor using methods established or
ratified by the Board of Trustees.
50
<PAGE>
Options on securities and indices purchased by a Fund generally are valued at
their last bid price in the case of exchange-traded options or, in the case of
options traded in the over-the-counter ("OTC") market, the average of the last
bid price as obtained from two or more dealers unless there is only one dealer,
in which case that dealer's price is used. Futures contracts generally are
valued based upon the unrealized gain or loss on the contract determined with
reference to the first price reported by established futures exchanges after the
close of a Fund pricing cycle, or alternatively, with reference to the average
price at which futures are bought and sold by a Fund. Options on futures
contracts generally are valued with reference to the underlying futures
contract. If the market makes a limit move with respect to a particular
commodity, the commodity will be valued at fair value by the Advisor using
methods established or ratified by the Board of Trustees.
On days when the CBOT is closed during its usual business hours, but the shares
of the Bond Fund, Juno Fund or Juno Master Fund have been purchased, redeemed,
and/or exchanged, the portfolio securities held by the Bond Fund, Juno Fund and
the Juno Master Fund which are traded on the CBOT are valued at the earlier of
(i) the time of the execution of the last trade of the day for the Bond Fund,
Juno Fund and Juno Master Fund in those CBOT-traded portfolio securities and
(ii) the time of the close of the CBOT Evening Session. On days when the CBOT is
closed during its usual business hours and there is no need for the Bond Fund,
Juno Fund and the Juno Master Fund to execute trades on the CBOT, the value of
the CBOT-traded portfolio securities held by the Bond Fund, Juno Fund and the
Juno Master Fund will be the mean of the bid and asked prices for those
CBOT-traded portfolio securities at the open of the CBOT Evening Session.
OTC securities held by a Fund shall be valued at the last sales price or, if no
sales price is reported, the mean of the last bid and asked price is used. The
portfolio securities of a Fund that are listed on national exchanges are taken
at the last sales price of such securities on such exchange; if no sales price
is reported, the mean of the last bid and asked price is used. For valuation
purposes, all assets and liabilities initially expressed in foreign currency
values will be converted into U.S. dollar values at the mean between the bid and
the offered quotations of such currencies against U.S. dollars as last quoted by
any recognized dealer. If such quotations are not available, the rate of
exchange will be determined in good faith by the Advisor based on guidelines
adopted by the Trustees. Dividend income and other distributions are recorded on
the ex-dividend date, except for certain dividends from foreign securities which
are recorded as soon as the Trust is informed after the ex-dividend date.
Illiquid securities, securities for which reliable quotations or pricing
services are not readily available, and all other assets will be valued at their
respective fair value as determined in good faith by, or under procedures
established by, the Trustees, which procedures may include the delegation of
certain responsibilities regarding valuation to the Advisor or the officers of
the Trust. The officers of the Trust report, as necessary, to the Trustees
regarding portfolio valuation determination. The Trustees, from time to time,
will review these methods of valuation and will recommend changes which may be
necessary to assure that the investments of the Funds are valued at fair value.
The Money Market Fund will utilize the amortized cost method in valuing its
portfolio securities for purposes of determining the net asset value of its
shares even though the portfolio securities may increase or decrease in market
value, generally, in connection with changes in interest rates. The amortized
cost method of valuation involves valuing a security at its cost adjusted by a
constant amortization to maturity of any discount or premium, regardless of the
impact of fluctuating interest rates on the market value of the instrument while
this method provides certainty in valuation, this method may result in periods
during which value, as determined by amortized cost, is higher or lower than the
price
51
<PAGE>
the Money Market Fund would receive if this Fund sold the instrument. During
such periods, the yield to investors in the Money Market Fund may differ
somewhat from that obtained in a similar company which uses mark-to-market
values for all its portfolio securities. For example, if the use of amortized
cost resulted in a lower (higher) aggregate portfolio value on a particular day,
a prospective investor in the Money Market Fund would be able to obtain a
somewhat higher (lower) yield than would result from investment in such a
similar company and existing investors would receive less (more) investment
income. The purpose of this method of calculation is to facilitate the
maintenance of a constant net asset value per share of $1.00.
The Money Market Fund's use of the amortized cost method is permitted pursuant
to Rule 2a-7 under the 1940 Act (the "Rule"). The Rule requires that the Money
Market Fund limit its investments to U.S. dollar-denominated instruments that
meet the Rule's quality, maturity and diversification requirements. The Rule
also requires the Money Market Fund to maintain a dollar-weighted average
portfolio maturity of not more than ninety days and precludes the purchase of
any instrument with a remaining maturity of more than thirteen months.
The Money Market Fund may only purchase "Eligible Securities." Eligible
Securities are securities which: (a) have remaining maturities of thirteen
months or less; (b) either (i) are rated in the two highest short-term rating
categories by any two nationally-recognized statistical rating organizations
("NSROs") that have issued a short-term rating with respect to the security or
class of debt obligations of the issuer, or (ii) if only one NRSRO has issued a
short-term rating with respect to the security, then by that NRSRO; (c) were
long-term securities at the time of issuance whose issuers have outstanding
short-term debt obligations which are comparable in priority and security and
has a ratings as specified in (b) above; or (d) if no rating is assigned by any
NRSRO as provided in (b) and (c) above, the unrated securities are determined by
the Trustees to be of comparable quality to any rated securities.
As permitted by the Rule, the Trustees have delegated to the Advisor, subject to
the Trustees' oversight pursuant to guidelines and procedures adopted by the
Trustees, the authority to determine which securities present minimal credit
risks and which unrated securities are comparable in quality to rated
securities.
If the Trustees determine that it is no longer in the best interests of the
Money Market Fund and its shareholders to maintain a stable price of $1.00 per
share, or if the Trustees believe that maintaining such price no longer reflects
a market-based net asset value per share, the Trustees have the right to change
from an amortized cost basis of valuation to valuation based on market
quotations. The Money Market Fund will notify shareholders of any such change.
PERFORMANCE INFORMATION
From time to time, each of the Funds (other than the Money Market Fund) may
include the Fund?s total return in advertisements or reports to shareholders or
prospective shareholders. Quotations of average annual total return for a Fund
will be expressed in terms of the average annual compounded rate of return on a
hypothetical investment in the Fund over a period of at least one, five, and ten
years (up to the life of the Fund) (the ending date of the period will be
stated). Total return of a Fund is calculated from two factors: the amount of
dividends earned by each Fund share and by the increase or decrease in value of
the Fund's share price. See "Calculation of Return Quotations."
52
<PAGE>
Performance information for each of the Funds contained in reports to
shareholders or prospective shareholders, advertisements, and other
promotional literature may be compared to the record of various unmanaged
indices. Performance information for the Nova Fund, Precious Metals Fund,
Ursa Fund and Ursa Master Fund may be compared to various unmanaged indices,
including, but not limited to, the S&P 500 Index or the Dow Jones Industrial
Average. Performance information for the Precious Metals Fund also may be
compared to its current benchmark, the XAU Index. Performance information for
the OTC Fund may be compared to various unmanaged indices, including, but not
limited to, its current benchmark, the NASDAQ 100 Index-Registered
Trademark-, and the NASDAQ Composite Index-Registered Trademark-. The OTC
Fund has the ability to invest in securities not included in the NASDAQ 100
Index-Registered Trademark- or the NASDAQ Composite Index-Registered
Trademark-, and the OTC Fund's investment portfolio may or may not be similar
in composition to NASDAQ 100 Index-Registered Trademark- or the NASDAQ
Composite Index . Performance information for the Bond Fund and the Juno Fund
may be compared to various unmanaged indices, including, but not limited to,
the Shearson Lehman Government (LT) Index.
Such unmanaged indices may assume the reinvestment of dividends, but generally
do not reflect deductions for operating costs and expenses. In addition, a
Fund's total return may be compared to the performance of broad groups of
comparable mutual funds with similar investment goals, as such performance is
tracked and published by such independent organizations as Lipper Analytical
Services, Inc. ("Lipper"), and CDA Investment Technologies, Inc., among others.
When Lipper's tracking results are used, the Fund will be compared to Lipper's
appropriate fund category, that is, by fund objective and portfolio holdings.
Performance figures are based on historical results and are not intended to
indicate future performance.
In addition, rankings, ratings, and comparisons of investment performance and/or
assessments of the quality of shareholder service appear in numerous financial
publications such as MONEY, FORBES, KIPLINGER'S MAGAZINE, PERSONAL INVESTOR,
MORNINGSTAR, INC., and similar sources.
CALCULATION OF RETURN QUOTATIONS
For purposes of quoting and comparing the performance of a Fund to that of other
mutual funds and to other relevant market indices in advertisements or in
reports to shareholders, performance for the Fund may be stated in terms of
total return. Under the rules of the Securities and Exchange Commission ("SEC
Rules"), Funds advertising performance must include total return quotes
calculated according to the following formula:
P(1+T)TO THE POWER OF n = 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).
53
<PAGE>
Under the foregoing formula, the time periods used in advertising will be based
on rolling calendar quarters, updated to the last day of the most recent quarter
prior to submission of the advertising for publication, and will cover 1, 5, and
10 year periods or a shorter period dating from the effectiveness of the
Registration Statement of the Trust. In calculating the ending redeemable value,
all dividends and distributions by a Fund are assumed to have been reinvested at
net asset value as described in the Trust's Prospectus on the reinvestment dates
during the period. Total return, or "T" in the formula above, is computed by
finding the average annual compounded rates of return over the 1, 5, and 10 year
periods (or fractional portion thereof) that would equate the initial amount
invested to the ending redeemable value.
For the one-year period, five-year period and period from the respective
commencement of operations of the Funds ended March 31, 2000, the average annual
compounded rate of return of the respective Funds (other than the Money Market
Fund), assuming the reinvestment of all dividends and distributions, was as
follows:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
FUND CLASS AVERAGE ANNUAL TOTAL RETURN
(Inception Date) ----------------------------------------------------------------------------------------------
ONE YEAR THREE YEARS FIVE YEARS SINCE INCEPTION AGGREGATE
TOTAL
RETURN
SINCE
INCEPTION
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Nova Fund INVESTOR 20.29% 33.54% 32.62% 26.03% 373.61%
(7/12/93) CLASS
------------------------------------------------------------------------------------------------------------------------------------
Ursa Fund (10.64)% (17.82)% (16.02)% (13.58)% (59.74)%
(1/7/94)
------------------------------------------------------------------------------------------------------------------------------------
OTC Fund 105.32% 76.84% 58.79% 47.49% 982.28%
(2/14/94)
------------------------------------------------------------------------------------------------------------------------------------
Arktos Fund (56.39) n/a n/a (60.23) (76.61)%
(9/3/98)
------------------------------------------------------------------------------------------------------------------------------------
Juno Fund 3.97% (1.91)% (1.38) (1.65)% (8.10)%
(3/3/95)
------------------------------------------------------------------------------------------------------------------------------------
U.S. Government Bond Fund (2.26)% 8.33% 7.34% 3.60% 24.74%
(1/3/94)
------------------------------------------------------------------------------------------------------------------------------------
Banking Fund (16.65)% n/a n/a (14.50)% (26.90)%
(4/1/98)
------------------------------------------------------------------------------------------------------------------------------------
Basic Materials Fund 2.84% n/a n/a (10.73)% (20.30)%
(4/1/98)
------------------------------------------------------------------------------------------------------------------------------------
54
<PAGE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
FUND CLASS AVERAGE ANNUAL TOTAL RETURN
(Inception Date) ----------------------------------------------------------------------------------------------
ONE YEAR THREE YEARS FIVE YEARS SINCE INCEPTION AGGREGATE
TOTAL
RETURN
SINCE
INCEPTION
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
------------------------------------------------------------------------------------------------------------------------------------
Biotechnology Fund 125.98% n/a n/a 70.14% 189.48%
(4/1/98)
------------------------------------------------------------------------------------------------------------------------------------
Consumer Products Fund (19.20) n/a n/a (13.04) (21.54%)
(7/6/98)
------------------------------------------------------------------------------------------------------------------------------------
Electronics Fund 186.02% n/a n/a 100.25% 301.00%
(4/1/98)
------------------------------------------------------------------------------------------------------------------------------------
Energy Fund 20.91% n/a n/a 4.38% 8.70%
(4/21/98)
------------------------------------------------------------------------------------------------------------------------------------
Financial (4.97)% n/a n/a (2.57)% (5.06)%
Services Fund
(4/2/98)
------------------------------------------------------------------------------------------------------------------------------------
Health Care Fund (10.44)% n/a n/a 1.30% 2.55%
(4/17/98)
------------------------------------------------------------------------------------------------------------------------------------
Internet Fund* n/a n/a n/a n/a n/a
(4/6/00)
------------------------------------------------------------------------------------------------------------------------------------
Leisure Fund (0.07)% n/a n/a 5.84% 12.02%
(4/1/98)
------------------------------------------------------------------------------------------------------------------------------------
Precious Metals Fund (10.26)% (21.05)% (15.60)% (14.19)% (62.08)%
(12/1/93)
------------------------------------------------------------------------------------------------------------------------------------
Retailing Fund (1.51)% n/a n/a 15.48% 33.35%
(4/1/98)
------------------------------------------------------------------------------------------------------------------------------------
Technology Fund 85.61 n/a n/a 79.60% 215.90%
(4/14/98)
------------------------------------------------------------------------------------------------------------------------------------
55
<PAGE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
FUND CLASS AVERAGE ANNUAL TOTAL RETURN
(Inception Date) ----------------------------------------------------------------------------------------------
ONE YEAR THREE YEARS FIVE YEARS SINCE INCEPTION AGGREGATE
TOTAL
RETURN
SINCE
INCEPTION
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Telecommunications Fund 56.54% n/a n/a 42.82% 103.97%
(4/1/98)
------------------------------------------------------------------------------------------------------------------------------------
Transportation Fund (21.90)% n/a n/a (21.03)% (37.60)%
(4/2/98)
------------------------------------------------------------------------------------------------------------------------------------
Utilities Fund* n/a n/a n/a n/a n/a
(4/3/00)
------------------------------------------------------------------------------------------------------------------------------------
U.S. Government Money 4.48% 4.57% 4.60% 4.33% 30.78%
Market Fund
(12/3/93)
------------------------------------------------------------------------------------------------------------------------------------
Banking Fund (17.16)% n/a n/a (14.91)% (27.60)%
(4/1/98) ADVISOR CLASS
------------------------------------------------------------------------------------------------------------------------------------
Basic Materials Fund 2.72% n/a n/a (13.57)% (24.91)%
(4/14/98)
------------------------------------------------------------------------------------------------------------------------------------
Biotechnology Fund 125.34% n/a n/a 68.90 185.28%
(4/1/98)
------------------------------------------------------------------------------------------------------------------------------------
Consumer Products Fund (19.76)% n/a n/a (6.83)% (10.84)%
(8/17/98)
------------------------------------------------------------------------------------------------------------------------------------
Electronics Fund 184.10% n/a n/a 99.54% 297.37%
(4/2/98)
------------------------------------------------------------------------------------------------------------------------------------
Energy Fund 20.31% n/a n/a 3.94% 7.65%
(5/5/98)
------------------------------------------------------------------------------------------------------------------------------------
Energy Services Fund 53.58% n/a n/a (3.25)% (6.39)%
(4/2/98)
------------------------------------------------------------------------------------------------------------------------------------
56
<PAGE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
FUND CLASS AVERAGE ANNUAL TOTAL RETURN
(Inception Date) ----------------------------------------------------------------------------------------------
ONE YEAR THREE YEARS FIVE YEARS SINCE INCEPTION AGGREGATE
TOTAL
RETURN
SINCE
INCEPTION
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Financial Services Fund (5.19)% n/a n/a (5.11)% (9.90)%
(4/6/98)
------------------------------------------------------------------------------------------------------------------------------------
Health Care Fund (10.95)% n/a n/a 1.03% 1.97%
(5/11/98)
------------------------------------------------------------------------------------------------------------------------------------
Internet Fund* n/a n/a n/a n/a n/a
(4/6/00)
------------------------------------------------------------------------------------------------------------------------------------
Leisure Fund (1.06)% n/a n/a 9.53% 18.09%
(6/3/98)
------------------------------------------------------------------------------------------------------------------------------------
Retailing Fund (1.52)% n/a n/a 15.71% 32.82%
(4/21/98)
------------------------------------------------------------------------------------------------------------------------------------
187.82%
Technology Fund 84.62% n/a n/a 73.27%
(4/29/98)
------------------------------------------------------------------------------------------------------------------------------------
101.37%
Telecommunications Fund 55.98% n/a n/a 41.90%
(4/1/98)
------------------------------------------------------------------------------------------------------------------------------------
(33.48)%
Transportation Fund (22.52)% n/a n/a (20.16)%
(6/9/98)
------------------------------------------------------------------------------------------------------------------------------------
Utilities Fund* n/a n/a n/a n/a n/a
(4/3/00)
------------------------------------------------------------------------------------------------------------------------------------
U.S. Government Money 3.94% 4.21%** 4.39%** 4.22%** 29.45%
Market Fund
(4/1/98)
------------------------------------------------------------------------------------------------------------------------------------
Nova Fund 19.74% 31.24%** 31.26%** 24.92%** 370.23%
(7/12/93)
------------------------------------------------------------------------------------------------------------------------------------
57
<PAGE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
FUND CLASS AVERAGE ANNUAL TOTAL RETURN
(Inception Date) ----------------------------------------------------------------------------------------------
ONE YEAR THREE YEARS FIVE YEARS SINCE INCEPTION AGGREGATE
TOTAL
RETURN
SINCE
INCEPTION
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Ursa Fund (11.03)% 18.24%** 16.58%** (14.13)%** (60.83)%
(1/7/94)
------------------------------------------------------------------------------------------------------------------------------------
OTC Fund 104.26% 75.98%** 58.01%** 46.77%** 974.20%
(2/14/94)
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
*The Ursa Master, Arktos Master, Juno Master, Internet, and Utilities Funds had
not commenced operations as of March 31, 2000.
** Advisor Class Shares of the U.S. Government Money Market, Ursa, Nova and OTC
Funds were offered beginning April 1, 1998, August 5, 1998, October 15, 1998,
and September 22, 1998, respectively. The prior performance shown represents
performance of the Funds' Investor Class Shares. Performance has been adjusted
to reflect the increased expense ratio of Advisor Class Shares.
INFORMATION ON COMPUTATION OF YIELD
THE U.S. GOVERNMENT BOND FUND
In addition to the total return quotations discussed above, the Bond Fund also
may advertise its yield based on a thirty-day (or one month) period ended on the
date of the most recent balance sheet included in the Trust's Registration
Statement, computed by dividing the net investment income per share of the Fund
earned during the period by the maximum offering price per Fund share on the
last day of the period, according to the following formula:
YIELD = 2[(a-b\cd)+ 1] TO THE POWER OF 6- 1
Where: a = dividends and interest earned during the period;
b = expenses accrued for the period (net of
reimbursements);
c = the average daily number of shares outstanding
during the period that were entitled to receive
dividends; and
d = the maximum offering price per share on the last
day of the period.
Under this formula, interest earned on debt obligations for purposes of "a"
above, is calculated by (i) computing the yield to maturity of each obligation
held by the Bond Fund based on the market value of the obligation (including
actual accrued interest) at the close of business on the last day of each month,
or, with respect to obligations purchased during the month, the purchase price
(plus actual accrued interest), (ii) dividing that figure by 360 and multiplying
the quotient by the market value of the obligation (including actual accrued
interest as referred to above) to determine the interest income on the
obligation that is in the Bond Fund's portfolio (assuming a month of thirty
days), and (iii) computing the total of the interest earned on all debt
obligations and all dividends accrued on all equity securities during the
thirty-day or one month period. In computing dividends accrued, dividend income
is recognized by accruing 1/360 of the stated dividend rate of a security each
day that the security is in the Fund's portfolio. Undeclared earned income,
computed in accordance with generally accepted accounting
58
<PAGE>
principles, may be subtracted from the maximum offering price calculation
required pursuant to "d" above.
The Bond Fund from time to time may also advertise its yield based on a
thirty-day period ending on a date other than the most recent balance sheet
included in the Trust's Registration Statement, computed in accordance with the
yield formula described above, as adjusted to conform with the differing period
for which the yield computation is based.
Any quotation of performance stated in terms of yield (whether based on a
thirty-day or one month period) will be given no greater prominence than the
information prescribed under SEC Rules. In addition, all advertisements
containing performance data of any kind will include a legend disclosing that
such performance data represents past performance and that the investment return
and principal value of an investment will fluctuate so that an investor's
shares, when redeemed, may be worth more or less than the original cost of such
shares.
The Bond Fund's yield, as of March 31, 2000, based on a thirty-day base period,
was approximately 4.82%.
THE MONEY MARKET FUND
The Money Market Fund's annualized current yield, as may be quoted from time to
time in advertisements and other communications to shareholders and potential
investors, is computed by determining, for a stated seven-day period, the net
change, exclusive of capital changes and including the value of additional
shares purchased with dividends and any dividends declared therefrom (which
reflect deductions of all expenses of the Money Market Fund such as management
fees), in the value of a hypothetical pre-existing account having a balance of
one share at the beginning of the period, and dividing the difference by the
value of the account at the beginning of the base period to obtain the base
period return, and then multiplying the base period return by 365 divided by 7.
The Money Market Fund's annualized effective yield, as may be quoted from time
to time in advertisements and other communications to shareholders and potential
investors, is computed by determining (for the same stated seven-day period as
the current yield) the net change, exclusive of capital changes and including
the value of additional shares purchased with dividends and any dividends
declared therefrom (which reflect deductions of all expenses of the Money Market
Fund such as management fees), in the value of a hypothetical pre-existing
account having a balance of one share at the beginning of the period, and
dividing the difference by the value of the account at the beginning of the base
period to obtain the base period return, and then compounding the base period
return by adding 1, raising the sum to a power equal to 365 divided by 7, and
subtracting 1 from the result.
The Money Market Fund's annualized effective yield and annualized current yield,
for the seven-day period ended March 31, 2000, were 5.10% and 4.90%,
respectively, for Investor Class shares and 4.57% and 4.40%, respectively, for
Advisor Class shares.
The yields quoted in any advertisement or other communication should not be
considered a representation of the yields of the Money Market Fund in the future
since the yield is not fixed. Actual yields will depend not only on the type,
quality, and maturities of the investments held by the Money Market Fund and
changes in interest rates on such investments, but also on changes in the Money
Market Fund's expenses during the period.
59
<PAGE>
Yield information may be useful in reviewing the performance of the Money Market
Fund and for providing a basis for comparison with other investment
alternatives. However, unlike bank deposits or other investments which typically
pay a fixed yield for a stated period of time, the Money Market Fund's yield
fluctuates.
PURCHASE AND REDEMPTION OF SHARES
MINIMUM INVESTMENT REQUIREMENTS
Shareholders will be informed of any increase in the minimum investment
requirements by a new prospectus or a prospectus supplement, in which the new
minimum is disclosed. Any request for a redemption (including pursuant to check
writing privileges) by an investor whose account balance is (a) below the
currently applicable minimum investment, or (b) would be below that minimum as a
result of the redemption, will be treated as a request by the investor of a
complete redemption of that account. In addition, the Trust may redeem an
account whose balance (due in whole or in part to redemptions since the time of
last purchase) has fallen below the minimum investment amount applicable at the
time of the shareholder's most recent purchase of Fund shares (unless the
shareholder brings his or her account value up to the currently applicable
minimum investment).
TAX CONSEQUENCES
Note that in the case of tax-qualified retirement plans, a redemption from such
a plan may have adverse tax consequences. A shareholder contemplating such a
redemption should consult his or her own tax advisor. Other shareholders should
consider the tax consequences of any redemption.
SUSPENSION OF THE RIGHT OF REDEMPTION
The Funds may suspend the right of redemption or the date of payment: (i) for
any period during which the NYSE, the Federal Reserve Bank of New York, the
NASDAQ, the Chicago Mercantile Exchange ("CME"), the CBOT, or any other
exchange, as appropriate, is closed (other than customary weekend or holiday
closings), or trading on the NYSE, the NASDAQ, the CME, the CBOT, or any other
exchange, as appropriate, is restricted; (ii) for any period during which an
emergency exists so that sales of a Fund's investments or the determination of
its NAV is not reasonably practicable; or (iii) for such other periods as the
SEC may permit for the protection of a Fund?s investors.
HOLIDAYS
The NYSE, the Federal Reserve Bank of New York, the NASDAQ, the CME, the
CBOT, and other U.S. exchanges are closed on weekends and on the following
holidays: (i) New Year's Day, Martin Luther King Jr. Day, President's Day,
Good Friday, Memorial Day, Independence Day, Labor Day, Columbus Day (the CBOT
and CME will have abbreviated trading schedules), Thanksgiving Day, and
Christmas Day; and (ii) the preceding Friday if any of these holidays falls
on a Saturday, or the subsequent Monday if any of these holidays falls on a
Sunday. Although the Trust expects the same holiday schedules to be observed
in the future, each of the aforementioned exchanges may modify its holiday
schedule at any time.
REDEMPTIONS IN-KIND
The Trust intends to pay your redemption proceeds in cash. However, under
unusual conditions that make the payment in cash unwise (and for the protection
of the remaining shareholders of the Fund) the Trust reserves the right to pay
all, or part, of your redemption proceeds in liquid securities with a market
value equal to the redemption price (redemption in-kind). The Trust has elected
to be governed by Rule 18f-1 of the 1940 Act under which the Trust is obligated
to redeem shares for any one shareholder in cash only up to the lesser of
$250,000 or 1% of a Fund's net asset value during any 90-day period.
60
<PAGE>
Although it is highly unlikely that your shares would ever actually be redeemed
in kind, you would probably have to pay brokerage costs to sell the securities
distributed to you.
DIVIDENDS, DISTRIBUTIONS, AND TAXES
DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income and any distributions of net realized
capital gains from each of the Funds will be distributed as described in the
Trust's Prospectus under "Dividends and Distributions." Normally, all such
distributions of a Fund will automatically be reinvested without charge in
additional shares of the same Fund.
The Money Market Fund intends to declare dividends daily from net investment
income (and net short-term capital gains, if any) and distribute such dividends
monthly. Net income, for dividend purposes, includes accrued interest and
accretion of original issue and market discount, plus or minus any short-term
gains or losses realized on sales of portfolio securities, less the amortization
of market premium and the estimated expenses of the Money Market Fund. Net
income will be calculated immediately prior to the determination of net asset
value per share of the Money Market Fund.
The Trustees may revise the dividend policy, or postpone the payment of
dividends, if the Money Market Fund should have or anticipate any large
unexpected expense, loss, or fluctuation in net assets which, in the opinion of
the Trustees, might have a significant adverse effect on shareholders of the
Money Market Fund. On occasion, in order to maintain a constant $1.00 per share
net asset value for the Money Market Fund, the Trustees may direct that the
number of outstanding shares of the Money Market Fund be reduced in each
shareholder's account. Such reduction may result in taxable income to a
shareholder of the Money Market Fund in excess of the net increase (I.E.,
dividends, less such reduction), if any, in the shareholder's account for a
period of time. Furthermore, such reduction may be realized as a capital loss
when the shares are liquidated.
With respect to the investment by the Bond Fund in U.S. Treasury zero coupon
bonds, a portion of the difference between the issue price of zero coupon
securities and the face value of such securities (the "original issue discount")
is considered to be income to the Bond Fund each year, even though the Bond Fund
will not receive cash interest payments from these securities. This original
issue discount (imputed income) will comprise a part of the investment company
taxable income of the Bond Fund which must be distributed to shareholders of the
Bond Fund in order to maintain the qualification of the Bond Fund as a regulated
investment company (a "RIC") under Subchapter M of the U.S. Internal Revenue
Code of 1986, as amended (the "Code"), as described immediately below under
"Regulated Investment Company Status," and to avoid Federal income tax at the
level of the Bond Fund. Shareholders of the Bond Fund will be subject to income
tax on such original issue discount, whether or not such shareholders elect to
receive their distributions in cash.
REGULATED INVESTMENT COMPANY STATUS
As a RIC, a Fund would not be subject to Federal income taxes on the net
investment income and capital gains that the Fund distributes to the Fund's
shareholders. The distribution of net investment income and capital gains will
be taxable to Fund shareholders regardless of whether the shareholder elects to
receive these distributions in cash or in additional shares. Distributions
reported to Fund shareholders as long-term capital gains shall be taxable as
such, regardless of how long the shareholder has owned the shares. 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.
61
<PAGE>
Shareholders of the Money Market Fund will be subject to Federal income tax on
dividends paid from interest income derived from taxable securities and on
distributions of realized net short-term capital gains. Interest and realized
net short-term capital gains distributions are taxable to a shareholder of the
Money Market Fund as ordinary dividend income regardless of whether the
shareholder receives such distributions in additional shares of the Money Market
Fund or in cash. Since the Money Market Fund's income is expected to be derived
entirely from interest rather than dividends, none of such distributions will be
eligible for the Federal dividends received deduction available to corporations.
Each of the Funds will seek to qualify for treatment as a RIC under the Code.
Provided that a Fund (i) is a RIC and (ii) distributes at least 90% of the
Fund's net investment income (including, for this purpose, net realized
short-term capital gains), the Fund itself will not be subject to Federal income
taxes to the extent the Fund's net investment income and the Fund's net realized
long- and short-term capital gains, if any, are distributed to the Fund's
shareholders. To avoid an excise tax on its undistributed income, each Fund
generally must distribute at least 98% of its income, including its net
long-term capital gains. One of several requirements for RIC qualification is
that the Fund must receive at least 90% of the Fund's gross income each year
from dividends, interest, payments with respect to securities loans, gains from
the sale or other disposition of securities or foreign currencies, or other
income derived with respect to the Fund's investments in stock, securities, and
foreign currencies (the "90% Test"). Income from investments in precious metals
and in precious minerals will not qualify as gross income from "securities" for
purposes of the 90% Test. The Precious Metals Fund, therefore, intends to
restrict its investment in precious metals and in precious minerals to avoid a
violation of the 90% Test.
In the event of a failure by a Fund to quality as 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 a Fund were to fail to qualify as a RIC for one or more taxable years, the
Fund could then qualify (or requalify) as a RIC for a subsequent taxable year
only if the Fund had distributed to the Fund's shareholders a taxable dividend
equal to the full amount of any earnings or profits (less the interest charge
mentioned below, if applicable) attributable to such period. The fund might also
be required to pay to the U.S. Internal Revenue Service (the "IRS") interest on
50% of such accumulated earnings and profits. In addition, pursuant to the Code
and an interpretative notice issued by the IRS, if the Fund should fail to
qualify as a RIC and should thereafter seek to requalify as a RIC, the Fund
may be subject to tax on the excess (if any) of the fair market of the Fund's
assets over the Fund's basis in such assets, as of the day immediately before
the first taxable year for which the Fund seeks to requalify as a RIC.
If a Fund determines that 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.
SPECIAL TAX CONSIDERATIONS APPLICABLE TO THE SECTOR FUNDS AND THE UTILITIES
MASTER FUND In general, with respect to the Sector Funds, gains from "foreign
currencies" and from foreign currency options, foreign currency futures, and
forward foreign exchange contracts ("forward contracts") relating to
investments in stock, securities, or foreign currencies will be qualifying
income for purposes of
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determining whether the Fund qualifies as a RIC. It is currently unclear,
however, who will be treated as the issuer of a foreign currency instrument or
how foreign currency options, futures, or forward contracts will be valued for
purposes of the RIC diversification requirements applicable to a Fund.
Under the Code, special rules are provided for certain transactions in a foreign
currency other than the taxpayer's functional currency (I.E., unless certain
special rules apply, currencies other than the U.S. dollar). In general, foreign
currency gains or losses from forward contracts, from futures contracts that are
not "regulated futures contracts," and from unlisted options will be treated as
ordinary income or loss under the Code. Also, certain foreign exchange gains
derived with respect to foreign fixed-income securities are also subject to
special treatment. In general, any such gains or losses will increase or
decrease the amount of the a Fund's investment company taxable income available
to be distributed to shareholders as ordinary income, rather than increasing or
decreasing the amount of a Fund's net capital gain. Additionally, if such losses
exceed other investment company taxable income during a taxable year, a Fund
would not be able to make any ordinary dividend distributions.
The Sector Funds may incur a liability for dividend withholding tax as a result
of investment in stock or securities of foreign corporations. If, at any year
end, more than 50% of the assets of a Fund are comprised of stock or securities
of foreign corporations, the Fund may elect to "pass through" to shareholders
the amount of foreign taxes paid by that Fund. The Fund will make such an
election only if that Fund deems this to be in the best interests of its
shareholders. If the Fund does not qualify to make this election or does
qualify, but does not choose to do so, the imposition of such taxes would
directly reduce the return to an investor from an investment in that Fund.
OPTIONS TRANSACTIONS BY THE FUNDS
If a call option written by a Fund expires, the amount of the premium received
by the Fund for the option will be short-term capital gain to the Fund. If such
an option is closed by a Fund, any gain or loss realized by the Fund as a result
of the closing purchase transaction will be short-term capital gain or loss. If
the holder of a call option exercises the holder's right under the option, any
gain or loss realized by the Fund upon the sale of the underlying security or
underlying futures contract pursuant to such exercise will be short-term or
long-term capital gain or loss to the Fund depending on the Fund's holding
period for the underlying security or underlying futures contract.
With respect to call options purchased by a Fund, the Fund will realize
short-term or long-term capital gain or loss if such option is sold and will
realize short-term or long-term capital loss if the option is allowed to expire
depending on the Fund's holding period for the call option. If such a call
option is exercised, the amount paid by the Fund for the option will be added to
the basis of the stock or futures contract so acquired.
A Fund has available to it a number of elections under the Code concerning the
treatment of option transactions for tax purposes. A Fund will utilize the tax
treatment that, in the Fund's judgment, will be most favorable to a majority of
investors in the Fund. Taxation of these transactions will vary according to the
elections made by the Fund. These tax considerations may have an impact on
investment decisions made by the Fund.
Each of the Nova Fund, Ursa Fund, Ursa Master Fund, Arktos Fund, Arktos Master
Fund, and Sector Funds in its operations also will utilize options on stock
indices. Options on "broad based" stock indices are classified as "nonequity
options" under the Code. Gains and losses resulting from the expiration,
exercise, or closing of such nonequity options, as well as gains and losses
resulting from futures contract
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transactions, will be treated as long-term capital gain or loss to the extent of
60% thereof and short-term capital gain or loss to the extent of 40% thereof
(hereinafter, "blended gain or loss"). In addition, any nonequity option and
futures contract held by a Fund on the last day of a fiscal year will be treated
as sold for market value on that date, and gain or loss recognized as a result
of such deemed sale will be blended gain or loss.
The trading strategies of each of the Nova Fund, Ursa Fund, Ursa Master Fund,
Arktos Fund, Arktos Master Fund, and Sector Funds involving nonequity options on
stock indices may constitute "straddle" transactions. "Straddles" may affect the
taxation of such instruments and may cause the postponement of recognition of
losses incurred in certain closing transactions. Each of these Funds will also
have available to the Fund a number of elections under the Code concerning the
treatment of option transactions for tax purposes. Each such Fund will utilize
the tax treatment that, in the Fund's judgment, will be most favorable to a
majority of investors in the Fund. Taxation of these transactions will vary
according to the elections made by the Fund. These tax considerations may have
an impact on investment decisions made by the Fund.
A Fund's transactions in options, under some circumstances, could preclude the
Fund's qualifying for the special tax treatment available to investment
companies meeting the requirements of Subchapter M of the Code. However, it is
the intention of each Fund's portfolio management to limit gains from such
investments to less than 10% of the gross income of the Fund during any fiscal
year in order to maintain this qualification.
BACK-UP WITHHOLDING
Each Fund is required to withhold and remit to the U.S. Treasury 31% of (i)
reportable taxable dividends and distributions and (ii) the proceeds of any
redemptions of Fund shares with respect to any shareholder who is not exempt
from withholding and who fails to furnish the Trust with a correct taxpayer
identification number, who fails to report fully dividend or interest income, or
who fails to certify to the Trust that the shareholder has provided a correct
taxpayer identification number and that the shareholder is not subject to
withholding. (An individual's taxpayer identification number is the individual's
social security number.) The 31% "back-up withholding tax" is not an additional
tax and may be credited against a taxpayer's regular Federal income tax
liability.
OTHER ISSUES
Each Fund may be subject to tax or taxes in certain states where the Fund does
business. Furthermore, in those states which have income tax laws, the tax
treatment of a Fund and of Fund shareholders with respect to distributions by
the Fund may differ from Federal tax treatment.
Shareholders are urged to consult their own tax advisors regarding the
application of the provisions of tax law described in this Statement of
Additional Information in light of the particular tax situations of the
shareholders and regarding specific questions as to federal, state, or local
taxes.
OTHER INFORMATION
VOTING RIGHTS
You receive one vote for every full Fund share owned. Each Fund will vote
separately on matters relating solely to that Fund. All shares of the Funds are
freely transferable.
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As a Delaware business trust, the Trust is not required to hold annual
Shareholder meetings unless otherwise required by the 1940 Act. However, a
meeting may be called by Shareholders owning at least 10% of the outstanding
shares of the Trust. If a meeting is requested by Shareholders, the Trust will
provide appropriate assistance and information to the Shareholders who requested
the meeting. Shareholder inquiries can be made by calling 1-800-820-0888 or
301-468-8520, or by writing to the Trust at 6116 Executive Boulevard, Suite 400,
Rockville, Maryland 20852.
CODE OF ETHICS
The Board of Trustees of the Trust has adopted a Combined Code of Ethics (the
"Code") pursuant to Rule 17j-1 under the 1940 Act. The Advisor, Servicer and
Distributor are also covered by the Code. The Code applies to the personal
investing activities of trustees, directors, officers and certain employees
("access persons"). Rule 17j-1 and the Code is designed to prevent unlawful
practices in connection with the purchase or sale of securities by access
persons. Under the Code, access persons are permitted to engage in personal
securities transactions, but are required to report their personal securities
transactions for monitoring purposes. In addition, certain access persons are
required to obtain approval before investing in initial public offerings or
private placements. The Code is on file with the Securities and Exchange
Commission, and is available to the public.
REPORTING
You will receive the Trust's unaudited financial information and audited
financial statements. In addition, the Trust will send you proxy statements and
other reports. If you are a customer of a financial institution that has
purchased shares of a Fund for your account, you may, depending upon the nature
of your account, receive all or a portion of this information directly from your
financial institution.
SHAREHOLDER INQUIRIES
You may visit the Trust's web site at www.rydexfunds.com or call 1-800-820-0888
or 301-468-8520 to obtain information on account statements, procedures, and
other related information.
COUNSEL
Morgan, Lewis & Bockius LLP serves as counsel to the Trust.
AUDITORS AND CUSTODIAN
Deloitte & Touche LLP, Princeton Forrestal Village, 116-300 Village Boulevard,
Princeton, New Jersey 08540, are the auditors and the independent certified
public accountants of the Trust and each of the Funds. Firstar (the
"Custodian"), Star Bank Center, 425 Walnut Street, Cincinnati, Ohio 45202,
serves as custodian for the Trust and the Funds under a custody agreement
between the Trust and the Custodian. Under the custody agreement, the Custodian
holds the portfolio securities of each Fund and keeps all necessary related
accounts and records.
FINANCIAL STATEMENTS
The Trust's financial statements for the fiscal year ended March 31, 2000,
including notes thereto and the report of Deloitte & Touche LLP are incorporated
by reference into this SAI. A copy of the Trust's Annual Report to Shareholders
(the "Annual Report") must accompany the delivery of this Statement of
Additional Information.
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APPENDIX A
BOND RATINGS
Below is a description of Standard & Poor's Ratings Group ("Standard & Poor's")
and Moody's Investors Service, Inc. ("Moody's") bond rating categories.
STANDARD & POOR'S RATINGS
GROUP CORPORATE BOND RATINGS
AAA - This is the highest rating assigned by Standard & Poor's to a debt
obligation and indicates an extremely strong capacity to pay principal and
interest.
AA - Bonds rated "AA" also qualify as high-quality debt obligations. Capacity to
pay principal and interest is very strong, and in the majority of instances they
differ from "AAA" issues only in small degree.
A - Bonds rated "A" have a strong capacity to pay principal and interest,
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than bonds in higher rated categories.
BBB - Bonds rated "BBB" are regarded as having an adequate capability to pay
principal and interest. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay principal and interest for bonds in
this category than for bonds in higher rated categories.
BB - Bonds rated "BB" have less near-term vulnerability to default than other
speculative issues. However, they face major ongoing uncertainties or exposure
to adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments.
B - Bonds rated "B" have a greater vulnerability to default but currently have
the capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions will likely impair capacity or
willingness to pay interest and repay principal.
CCC - Bonds rated "CCC" have a currently identifiable vulnerability to default
and are dependent upon favorable business, financial, and economic conditions to
meet timely payment of interest and repayment of principal. In the event of
adverse business, financial, or economic conditions, they are not likely to have
the capacity to pay interest and repay principal.
MOODY'S INVESTORS SERVICE, INC.
CORPORATE BOND RATINGS
Aaa - Bonds rate "Aaa" are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to a "gilt-edged."
Interest payments are protected by a large or by an exceptionally stable margin,
and principal is secure. While the various protective elements are likely to
change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
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Aa - Bonds rate "Aa" are judged to be of high quality by all standards. Together
with the Aaa group, they comprise what are generally known as high grade bonds.
They are rated lower than the best bonds because margins of protections may not
be as large as in "AAA" securities or fluctuation of protective elements may be
of greater amplitude or there may be other elements present which make the long
term risk appear somewhat larger than in Aaa securities.
A - Bonds rated "A" possess many favorable investment attributes, and are to be
considered as upper medium grade obligations. Factors giving security principal
and interest are considered adequate but elements may be present which suggest a
susceptibility to impairment sometime in the future.
Baa - Bonds rated "Baa" are considered as medium grade obligations (I.E., they
are neither highly protected nor poorly secured). Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba - Bonds rated "Ba" are judged to have speculative elements. Their future
cannot be considered as well assured. Often the protection of interest and
principal payments may be very moderate and thereby not well safeguarded during
both good and bad times over the future. Uncertainty of position characterizes
bonds in this class.
B - Bonds rated "B" generally lack characteristics of the desirable investment.
Assurance of interest and principal payments or maintenance of other terms of
the contract over any longer period of time may be small.
Caa - Bonds rated "Caa" are of poor standing. Such issues may be in default or
there may be present elements of danger with respect to principal or interest.
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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 mutual fund complex with thirty separate
investment portfolios (the "Funds"). This Statement of Additional Information
("SAI") relates to shares of the following portfolios:
LARGE-CAP EUROPE FUND
LARGE-CAP JAPAN FUND
This SAI is not a prospectus. It should be read in conjunction with the Trust's
Prospectus, dated August 1, 2000. A copy of the Trust's Prospectus is available,
without charge, upon request to the Trust at the address above or by telephoning
the Trust at the telephone number above.
The date of this SAI is August 1, 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......................................................14
PORTFOLIO TRANSACTIONS AND BROKERAGE.........................................16
MANAGEMENT OF THE TRUST......................................................17
DETERMINATION OF NET ASSET VALUE.............................................22
PERFORMANCE INFORMATION......................................................22
CALCULATION OF RETURN QUOTATIONS.............................................23
PURCHASE AND REDEMPTION OF SHARES............................................24
DIVIDENDS, DISTRIBUTIONS, AND TAXES..........................................25
OTHER INFORMATION............................................................27
COUNSEL......................................................................28
AUDITORS AND CUSTODIAN.......................................................28
APPENDIX.....................................................................29
</TABLE>
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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. Currently, the Trust has thirty separate series. The Nova, Ursa, OTC,
Arktos, U.S. Government Bond (the "Bond Fund"), and Juno Funds (collectively,
the "Benchmark Funds") are designed to provide investment results which match
the performance of a specific benchmark. The Large-Cap Europe and Large-Cap
Japan Funds (collectively, the "International Funds") are designed to provide
investment returns 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.
The Trust currently offers Investor Class Shares, Advisor Class Shares, and
Shares of the International Funds. Investor Class Shares are sold principally
to professional money managers and to investors who take part in certain
asset-allocation investment strategies. Advisor Class Shares are offered
through broker-dealers and other financial institutions ("intermediaries")
that have entered into arrangements with the Trust's Distributor (the
"Distributor") to sell Advisor Class Shares to their customers. Advisor Class
Shares differ from Investor Class Shares primarily in the allocation of
certain shareholder servicing and distribution expenses and in the minimum
initial investment requirement. Sales of shares of each Class are made
without a sales charge at each Fund's per share net asset value. Additional
Funds and/or classes may be created from time to time. This SAI relates only
to shares of the Large-Cap Europe Fund and Large-Cap Japan Fund, which are
offered without class designation.
INVESTMENT POLICIES, TECHNIQUES AND RISK FACTORS
GENERAL
Each 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 each Fund by the Trust's investment adviser,
PADCO Advisors, Inc., a Maryland corporation with offices at 6116 Executive
Boulevard, Suite 400, Rockville, Maryland 20852. PADCO Advisors, Inc. operates
under the name Rydex Global Advisors (the "Advisor"). The investment strategies
of the Funds discussed below and in the Prospectus may be used by a Fund if, in
the opinion of the Advisor, these strategies will be advantageous to that Fund.
A Fund is free to reduce or eliminate its activity in any of those areas without
changing the Fund's fundamental investment policies. There is no assurance that
any of these strategies or any other strategies and methods of investment
available to a Fund will result in the achievement of that Fund's objectives.
BORROWING
The Funds may borrow money, including borrowing for investment purposes.
Borrowing for investment is known as leveraging. Leveraging investments, by
purchasing securities with borrowed money, is a speculative technique which
increases investment risk, but also increases investment opportunity. Since
substantially all of a Fund's assets will fluctuate in value, whereas the
interest obligations on borrowings may be fixed, the net asset value per share
of the Fund will increase more when the Fund's portfolio assets increase in
value and decrease more when the Fund's portfolio assets decrease in value than
would otherwise be the case. Moreover, interest costs on borrowings may
fluctuate with changing market rates of interest and may partially offset or
exceed the returns on the borrowed funds. Under adverse conditions, the Funds
might have to sell portfolio securities to meet interest or principal payments
at a time when investment considerations would not favor such sales. The Funds
intend to use leverage during periods when the Advisor believes that a Fund's
investment objective would be furthered.
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Each Fund may borrow money to facilitate management of the Fund's portfolio by
enabling the Fund to meet redemption requests when the liquidation of portfolio
instruments would be inconvenient or disadvantageous. Such borrowing is not for
investment purposes and will be repaid by the borrowing Fund promptly.
As required by the 1940 Act, a Fund must maintain continuous asset coverage
(total assets, including assets acquired with borrowed funds, less liabilities
exclusive of borrowings) of 300% of all amounts borrowed. If, at any time, the
value of the Fund's assets should fail to meet this 300% coverage test, the
Fund, within three days (not including Sundays and holidays), will reduce the
amount of the Fund's borrowings to the extent necessary to meet this 300%
coverage. Maintenance of this percentage limitation may result in the sale of
portfolio securities at a time when investment considerations otherwise indicate
that it would be disadvantageous to do so.
In addition to the foregoing, the Funds are authorized to borrow money as a
temporary measure for extraordinary or emergency purposes in amounts not in
excess of 5% of the value of the Fund's total assets. This borrowing is not
subject to the foregoing 300% asset coverage requirement The Funds are
authorized to pledge portfolio securities as the Advisor deems appropriate in
connection with any borrowings.
CURRENCY TRANSACTIONS
Although the Funds do not currently expect to engage in currency hedging,
currency transactions may be used in order to hedge the value of portfolio
holdings denominated in particular currencies against fluctuations in relative
value. Currency transactions include forward currency contracts, exchange listed
currency futures and options thereon, exchange listed and OTC options on
currencies, and currency swaps. A forward currency contract involves a privately
negotiated obligation to purchase or sell (with delivery generally required) a
specific currency at a future date, which may be any fixed number of days from
the date of the contract agreed upon by the parties, at a price set at the time
of the contract. These contracts are traded in the interbank market conducted
directly between currency traders (usually large, commercial banks) and their
customers. A forward foreign currency contract generally has no deposit
requirement, and no commissions are charged at any stage for trades. A currency
swap is an agreement to exchange cash flows based on the notional difference
among two or more currencies and operates similarly to an interest rate swap,
which is described below. A Fund may enter into currency transactions with
counterparties which have received (or the guarantors of the obligations of
which have received) a credit rating of A-1 or P-1 by S&P or Moody's,
respectively, or that have an equivalent rating from an NRSRO or (except for OTC
currency options) are determined to be of equivalent credit quality by the
Advisor.
A Fund's dealings in forward currency contracts and other currency transactions
such as futures, options on futures, options on currencies and swaps will be
limited to hedging involving either specific transactions ("Transaction
Hedging") or portfolio positions ("Position Hedging"). Transaction Hedging is
entering into a currency transaction with respect to specific assets or
liabilities of a Fund, which will generally arise in connection with the
purchase or sale of its portfolio securities or the receipt of income therefrom.
A Fund may enter into Transaction Hedging out of a desire to preserve the U.S.
dollar price of a security when it enters into a contract for the purchase or
sale of a security denominated in a foreign currency. A Fund will be able to
protect itself against possible losses resulting from changes in the
relationship between the U.S. dollar and foreign currencies during the period
between the date the security is purchased or sold and the date on which payment
is made or received by entering into a forward contract for the purchase or
sale, for a fixed amount of dollars, of the amount of the foreign currency
involved in the underlying security transactions.
Position Hedging is entering into a currency transaction with respect to
portfolio security positions denominated or generally quoted in that currency. A
Fund may use Position Hedging when the Advisor believes that the currency of a
particular foreign country may suffer a substantial decline against the U.S.
dollar. A Fund may enter into a forward foreign currency contract to sell, for a
fixed amount of dollars, the amount of foreign currency approximating the value
of some or all of its portfolio securities denominated in such foreign currency.
The precise matching of the forward foreign currency contract amount and the
value of the portfolio securities involved
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may not have a perfect correlation since the future value of the securities
hedged will change as a consequence of the market between the date the forward
contract is entered into and the date its matures. The projection of short-term
currency market movement is difficult, and the successful execution of this
short-term hedging strategy is uncertain.
A Fund will not enter into a transaction to hedge currency exposure to an extent
greater, after netting all transactions intended wholly or partially to offset
other transactions, than the aggregate market value (at the time of entering
into the transaction) of the securities held in its portfolio that are
denominated or generally quoted in or currently convertible into such currency,
other than with respect to proxy hedging as described below.
A Fund may also cross-hedge currencies by entering into transactions to purchase
or sell one or more currencies that are expected to decline in value relative to
other currencies to which that Fund has or in which that Fund expects to have
portfolio exposure.
To reduce the effect of currency fluctuations on the value of existing or
anticipated holdings of portfolio securities, a Fund may also engage in proxy
hedging. Proxy hedging is often used when the currency to which a Fund's
portfolio is exposed is difficult to hedge or to hedge against the dollar. Proxy
hedging entails entering into a forward contract to sell a currency whose
changes in value are generally considered to be linked to a currency or
currencies in which some or all of the Fund's portfolio securities are or are
expected to be denominated, and to buy U.S. dollars. The amount of the contract
would not exceed the value of the Fund's securities denominated in linked
currencies. For example, if the Advisor considers that the Swedish krone is
linked to the euro, the Fund holds securities denominated in krone and the
Advisor believes that the value of the krone will decline against the U.S.
dollar, the Advisor may enter into a contract to sell euros and buy dollars.
Currency hedging involves some of the same risks and considerations as other
transactions with similar instruments. Currency transactions can result in
losses to a Fund if the currency being hedged fluctuates in value to a degree in
a direction that is not anticipated. Furthermore, there is risk that the
perceived linkage between various currencies may not be present or may not be
present during the particular time that a Fund is engaging in proxy hedging. If
a Fund enters into a currency hedging transaction, the Fund will "cover" its
position so as not to create a "senior security" as defined in Section 18 of the
1940 Act.
Currency transactions are subject to risks different from those of other
portfolio transactions. Because currency control is of great importance to the
issuing governments and influences economic planning and policy, purchase and
sales of currency and related instruments can be negatively affected by
government exchange controls, blockages, and manipulations or exchange
restrictions imposed by governments. These can result in losses to a Fund if it
is unable to deliver or receive currency or funds in settlement of obligations
and could also cause hedges it has entered into to be rendered useless,
resulting in full currency exposure as well as incurring transaction costs.
Buyers and sellers of currency futures are subject to the same risks that apply
to the use of futures generally. Further, settlement of a currency futures
contract for the purchase of most currencies must occur at a bank based in the
issuing nation. Trading options on currency futures is relatively new, and the
ability to establish and close out positions on such options is subject to the
maintenance of a liquid market which may not always be available. Currency
exchange rates may fluctuate based on factors extrinsic to that country's
economy. Although forward foreign currency contracts and currency futures tend
to minimize the risk of loss due to a decline in the value of the hedged
currency, at the same time they tend to limit any potential gain which might
result should the value of such currency increase.
FOREIGN ISSUERS
The Funds may invest in issuers located outside the United States. The Funds may
purchase American Depositary Receipts ("ADRs"), "ordinary shares", or "New York
shares" in the United States. ADRs are dollar-denominated receipts representing
interests in the securities of a foreign issuer, which securities may not
necessarily be denominated in the same currency as the securities into which
they may be converted. ADRs are receipts typically
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issued by United States banks and trust companies which evidence ownership of
underlying securities issued by a foreign corporation. Generally, ADRs in
registered form are designed for use in domestic securities markets and are
traded on exchanges or over-the-counter in the United States. Ordinary shares
are shares of foreign issuers that are traded abroad and on a United States
exchange. New York shares are shares that a foreign issuer has allocated for
trading in the United States. ADRs, ordinary shares, and New York shares all
may be purchased with and sold for U.S. dollars, which protect the Funds from
the foreign settlement risks described below.
Investing in foreign companies may involve risks not typically associated with
investing in United States companies. The value of securities denominated in
foreign currencies, and of dividends from such securities, can change
significantly when foreign currencies strengthen or weaken relative to the U.S.
dollar. Foreign securities markets generally have less trading volume and less
liquidity than United States markets, and prices in some foreign markets can be
very volatile. Many foreign countries lack uniform accounting and disclosure
standards comparable to those that apply to United States companies, and it may
be more difficult to obtain reliable information regarding a foreign issuer's
financial condition and operations. In addition, the costs of foreign investing,
including withholding taxes, brokerage commissions, and custodial fees,
generally are higher than for United States investments.
Investing in companies located abroad carries political and economic risks
distinct from those associated with investing in the United States. Foreign
investment may be affected by actions of foreign governments adverse to the
interests of United States investors, including the possibility of expropriation
or nationalization of assets, confiscatory taxation, restrictions on United
States investment, or on the ability to repatriate assets or to convert currency
into U.S. dollars. There may be a greater possibility of default by foreign
governments or foreign-government sponsored enterprises. Investments in foreign
countries also involve a risk of local political, economic, or social
instability, military action or unrest, or adverse diplomatic developments.
ILLIQUID SECURITIES
Each Fund may purchase illiquid securities, including securities that are not
readily marketable and securities that are not registered ("restricted
securities") under the Securities Act of 1933, as amended (the "1933 Act"), but
which can be offered and sold to "qualified institutional buyers" under Rule
144A under the 1933 Act. A Fund will not invest more than 15% of the Fund's net
assets in illiquid securities. Each Fund will adhere to a more restrictive
limitation on the Fund's investment in illiquid securities as required by the
securities laws of those jurisdictions where shares of the Fund are registered
for sale. The term "illiquid securities" for this purpose means securities that
cannot be disposed of within seven days in the ordinary course of business at
approximately the amount at which the Fund has valued the securities. Under the
current guidelines of the staff of the Securities and Exchange Commission (the
"Commission"), illiquid securities also are considered to include, among other
securities, purchased over-the-counter options, certain cover for
over-the-counter options, repurchase agreements with maturities in excess of
seven days, and certain securities whose disposition is restricted under the
federal securities laws. The Fund may not be able to sell illiquid securities
when the Advisor considers it desirable to do so or may have to sell such
securities at a price that is lower than the price that could be obtained if the
securities were more liquid. In addition, the sale of illiquid securities also
may require more time and may result in higher dealer discounts and other
selling expenses than does the sale of securities that are not illiquid.
Illiquid securities also may be more difficult to value due to the
unavailability of reliable market quotations for such securities, and investment
in illiquid securities may have an adverse impact on net asset value.
Institutional markets for restricted securities have developed as a result of
the promulgation of Rule 144A under the 1933 Act, which provides a "safe harbor"
from 1933 Act registration requirements for qualifying sales to institutional
investors. When Rule 144A restricted securities present an attractive investment
opportunity and meet other selection criteria, a Fund may make such investments
whether or not such securities are "illiquid" depending on the market that
exists for the particular security. The trustees of the Trust (the "Trustees")
have
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delegated the responsibility for determining the liquidity of Rule 144A
restricted securities which may be invested in by a Fund to the Advisor.
INVESTMENTS IN OTHER INVESTMENT COMPANIES
The Funds presently may invest in the securities of other investment companies
to the extent that such an investment would be consistent with the requirements
of Section 12(d)(1) of the 1940 Act. A Fund, therefore, may invest in the
securities of another investment company (the "acquired company") provided that
the Fund, immediately after such purchase or acquisition, does not own in the
aggregate: (i) more than 3% of the total outstanding voting stock of the
acquired company; (ii) securities issued by the acquired company having an
aggregate value in excess of 5% of the value of the total assets of the Fund; or
(iii) securities issued by the acquired company and all other investment
companies (other than Treasury stock of the Fund) having an aggregate value in
excess of 10% of the value of the total assets of the Fund.
If a Fund invests in, and, thus, is a shareholder of, another investment
company, the Fund's shareholders will indirectly bear the Fund's proportionate
share of the fees and expenses paid by such other investment company, including
advisory fees, in addition to both the management fees payable directly by the
Fund to the Fund's own investment adviser and the other expenses that the Fund
bears directly in connection with the Fund's own operations.
LENDING OF PORTFOLIO SECURITIES
Subject to the investment restrictions set forth below, each of the Funds may
lend portfolio securities to brokers, dealers, and financial institutions,
provided that cash equal to at least 100% of the market value of the securities
loaned is deposited by the borrower with the Fund and is maintained each
business day in a segregated account pursuant to applicable regulations. While
such securities are on loan, the borrower will pay the lending Fund any income
accruing thereon, and the Fund may invest the cash collateral in portfolio
securities, thereby earning additional income. A Fund will not lend its
portfolio securities if such loans are not permitted by the laws or regulations
of any state in which the Fund's shares are qualified for sale, and the Funds
will not lend more than 33 1/3% of the value of the Fund's total assets. Loans
would be subject to termination by the lending Fund on four business days'
notice, or by the borrower on one day's notice. Borrowed securities must be
returned when the loan is terminated. Any gain or loss in the market price of
the borrowed securities which occurs during the term of the loan inures to the
lending Fund and that Fund's shareholders. A lending Fund may pay reasonable
finders, borrowers, administrative, and custodial fees in connection with a
loan.
OPTIONS TRANSACTIONS
OPTIONS ON SECURITIES. The Funds 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, a Fund becomes obligated
during the term of the option to sell the securities underlying the option at
the exercise price if the option is exercised. By writing a put option, a Fund
becomes obligated during the term of the option to purchase the securities
underlying the option at the exercise price if the option is exercised.
During the term of the option, the writer may be assigned an exercise notice by
the broker-dealer through whom the option was sold. The exercise notice would
require the writer to deliver, in the case of a call, or take delivery of, in
the case of a put, the underlying security against payment of the exercise
price. This obligation terminates upon expiration of the option, or at such
earlier time that the writer effects a closing purchase transaction by
purchasing an option covering the same underlying security and having the same
exercise price and expiration date as the one previously sold. Once an option
has been exercised, the writer may not execute a closing purchase transaction.
To secure the obligation to deliver the underlying security in the case of a
call option, the writer of a call option is required to deposit in escrow the
underlying security or other assets in accordance with the rules of the Option
Clearing Corporation (the "OCC"), an institution created to interpose itself
between buyers and
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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 Funds 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 a Fund writes a covered option on an index,
the Fund will be required to deposit and maintain with a custodian cash or
liquid securities equal in value to the aggregate exercise price of a put or
call option pursuant to the requirements and the rules of the applicable
exchange. If, at the close of business on any day, the market value of the
deposited securities falls below the contract price, the Fund will deposit with
the custodian cash or liquid securities equal in value to the deficiency.
OPTIONS ON FUTURES CONTRACTS. Under Commodities Futures Trading Commission
("CFTC") Regulations, a Fund may engage in futures transactions, either for
"bona fide hedging" purposes, as this term is defined in the CFTC Regulations,
or for non-hedging purposes to the extent that the aggregate initial margins and
option premiums required to establish such non-hedging positions do not exceed
5% of the liquidation value of the Fund's portfolio. In the case of an option on
futures contracts that is "in-the-money" at the time of purchase (I.E., the
amount by which the exercise price of the put option exceeds the current market
value of the underlying security, or the amount by which the current market
value of the underlying security exceeds the exercise price of the call option),
the in-the-money amount may be excluded in calculating this 5% limitation.
When a Fund purchases or sells a stock index futures contract, or sells an
option thereon, the Fund "covers" its position. To cover its position, a Fund
may maintain with its custodian bank (and marked-to-market on a daily basis), a
segregated account consisting of cash or liquid securities that, when added to
any amounts deposited with a futures commission merchant as margin, are equal to
the market value of the futures contract or otherwise "cover" its position. If
the Fund continues to engage in the described securities trading practices and
properly segregates assets, the segregated account will function as a practical
limit on the amount of leverage which the Fund may undertake and on the
potential increase in the speculative character of the Fund's outstanding
portfolio securities. Additionally, such segregated accounts will generally
assure the availability of adequate funds to meet the obligations of the Fund
arising from such investment activities.
A Fund may cover its long position in a futures contract by purchasing a put
option on the same futures contract with a strike price (I.E., an exercise
price) as high or higher than the price of the futures contract. In the
alternative, if the strike price of the put is less than the price of the
futures contract, the Fund will maintain in a segregated account cash or liquid
securities equal in value to the difference between the strike price of the put
and the price of the futures contract. A Fund may also cover its long position
in a futures contract by taking a short position in the instruments underlying
the futures contract, or by taking positions in instruments with prices which
are expected to move relatively consistently with the futures contract. A Fund
may cover its short position in a futures contract by taking a long position in
the instruments underlying the futures contracts, or by taking positions in
instruments with prices which are expected to move relatively consistently with
the futures contract.
A Fund may cover its sale of a call option on a futures contract by taking a
long position in the underlying futures contract at a price less than or equal
to the strike price of the call option. In the alternative, if the long position
in the 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. A Fund may also
cover its sale of a call option by taking positions in instruments with prices
which are expected to move relatively consistently with the call option.
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A Fund may cover its sale of a put option on a futures contract by taking a
short position in the underlying futures contract at a price greater than or
equal to the strike price of the put option, or, if the short position in the
underlying futures contract is established at a price less than the strike
price of the written put, the Fund will maintain in a segregated account cash
or liquid securities equal in value to the difference between the strike price
of the put and the price of the futures contract. A Fund may also cover its
sale of a put option by taking positions in instruments with prices which are
expected to move relatively consistently with the put option.
SWAP AGREEMENTS
The Funds may enter into equity index or interest rate swap agreements for
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 Funds calculate the obligations of the
parties to the agreement on a "net basis." Consequently, a Fund's current
obligations (or rights) under a swap agreement will generally be equal only to
the net amount to be paid or received under the agreement based on the relative
values of the positions held by each party to the agreement (the "net amount").
A Fund's current obligations under a swap agreement will be accrued daily
(offset against any amounts owing to the Fund) and any accrued 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 a Fund's investment
restriction concerning senior securities. Because they are two party contracts
and because they may have terms of greater than seven days, swap agreements may
be considered to be illiquid for the Fund illiquid investment limitations. A
Fund will not enter into any swap agreement unless the Advisor believes that the
other party to the transaction is creditworthy. A Fund bears the risk of loss of
the amount expected to be received under a swap agreement in the event of the
default or bankruptcy of a swap agreement counterparty.
Each Fund may enter into swap agreements to invest in a market without owning or
taking physical custody of securities in circumstances in which direct
investment is restricted for legal reasons or is otherwise impracticable. The
counterparty to any swap agreement will typically be a bank, investment banking
firm or broker/dealer. The counterparty will generally agree to pay the Fund the
amount, if any, by which the notional amount of the swap agreement would have
increased in value had it been invested in the particular stocks, plus the
dividends that would have been received on those stocks. The Fund will agree to
pay to the counterparty a floating rate of interest on the notional amount of
the swap agreement plus the amount, if any, by which the notional amount would
have decreased in value had it been invested in such stocks. Therefore, the
return to the Fund on any swap agreement should be the gain or loss on the
notional amount plus dividends on the stocks less the interest paid by the Fund
on the notional amount.
Swap agreements typically are settled on a net basis, which means that the two
payment streams are netted out, with the Fund receiving or paying, as the case
may be, only the net amount of the two payments. Payments
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may be made at the conclusion of a swap agreement or periodically during its
term. Swap agreements do not involve the delivery of securities or other
underlying assets. Accordingly, the risk of loss with respect to swap
agreements is limited to the net amount of payments that a Fund is
contractually obligated to make. If the other party to a swap agreement
defaults, a Fund's risk of loss consists of the net amount of payments that
such Fund is contractually entitled to receive, if any. The net amounts of
the excess, if any, of a Fund's obligations over its entitlements with respect
to each equity swap will be accrued on a daily basis and an amount of cash or
liquid assets, having an aggregate net asset value at least equal to such
accrued excess will be maintained in a segregated account by a Fund's
custodian. Inasmuch as these transactions are entered into for hedging purposes
or are offset by segregated cash or liquid assets, as permitted by applicable
law, the Funds and their Advisor believe that transactions do not constitute
senior securities under the 1940 Act and, accordingly, will not treat them as
being subject to a Fund's borrowing restrictions.
The swap market has grown substantially in recent years with a large number of
banks and investment banking firms acting both as principals and as agents
utilizing standardized swap documentation. As a result, the swap market has
become relatively liquid in comparison with the markets for other similar
instruments which are traded in the over-the-counter market. The Advisor, under
the supervision of the Board of Trustees, are 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 Trust's prospectus, the Trust anticipates that investors in
the Funds, as part of an asset allocation investment strategy, will frequently
purchase and/or redeem shares of the Funds. The nature of the Funds as asset
allocation tools will cause the Funds to experience substantial portfolio
turnover. (See "More Information About Fund Investments and Risk" in the Trust's
Prospectus). Because each Fund's portfolio turnover rate, to a great extent,
will depend on the purchase, redemption, and exchange activity of the Fund's
investors, it is very difficult to estimate what the Fund's actual turnover rate
will be in the future. However, the Trust expects that the portfolio turnover
experienced by the Funds will be substantial.
REPURCHASE AGREEMENTS
As discussed in the Trust's Prospectus, each of the Funds may enter into
repurchase agreements with financial institutions. The Funds each follow certain
procedures designed to minimize the risks inherent in such agreements. These
procedures include effecting repurchase transactions only with large,
well-capitalized and well-established financial institutions whose condition
will be continually monitored by the Advisor. In addition, the value of the
collateral underlying the repurchase agreement will always be at least equal to
the repurchase price, including any accrued interest earned on the repurchase
agreement. In the event of a default or bankruptcy by a selling financial
institution, a Fund will seek to liquidate such collateral. However, the
exercising of each Fund's right to liquidate such collateral could involve
certain costs or delays and, to the extent that proceeds from any sale upon a
default of the obligation to repurchase were less than the repurchase price, the
Fund could suffer a loss. It is the current policy of each of the Funds 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 each of the Funds
in repurchase agreements, at times, may be substantial when, in the view of the
Advisor, liquidity or other considerations so warrant.
RISK FACTORS REGARDING EUROPE
The Large-Cap Europe Fund seeks to provide investment results which match the
performance of a specific benchmark on a daily basis. The Fund's current
benchmark is the Dow Jones Stoxx 50SM Index (the "Stoxx 50 Index"). The Stoxx 50
Index is a capitalization-weighted index composed of 50 European blue chip
stocks. Index members are chosen by Stoxx Ltd. from 16 countries under criteria
designed to identify highly liquid companies
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that are market leaders in their sectors. The 16 countries include the 15
western European countries which comprise the European Union (EU) and
Switzerland.
The EU consists of 15 countries of western Europe: Austria, Belgium, Denmark,
Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands,
Portugal, Spain, Sweden and the United Kingdom. The EU's primary goal is the
creation of a single, unified market through which goods, people and capital
could move freely.
Effective January 1, 1999, 11 of the 15 member states of the European Union
introduced the "euro" as a common currency. During a three-year transitional
period, the euro will coexist with each member state's currency. By July 1,
2002, the euro will have replaced the national currencies of the following
member countries: Austria, Belgium, Finland, France, Germany, Ireland, Italy,
Luxembourg, the Netherlands, Portugal and Spain. During the transition period,
each Fund will treat the euro as a separate currency from that of any member
state.
Currently, the exchange rate of the currencies of each of these countries is
fixed to the euro. The euro trades on currency exchanges and is available for
non-cash transactions. The participating countries currently issue sovereign
debt exclusively in euro. By July 1, 2002, euro-denominated bills and coins will
replace the bills and coins of the participating countries.
The new European Central Bank has control over each country's monetary policies.
Therefore, the participating countries no longer control their own monetary
policies by directing independent interest rates for their currencies. The
national governments of the participating countries, however, have retained the
authority to set tax and spending policies and public debt levels.
The conversion may impact the trading in securities of issuers located in, or
denominated in the currencies of, the member states, as well as foreign
exchanges, payments, the settlement process, custody of assets and accounting.
The introduction of the euro is also expected to affect derivative and other
financial contracts in which the Fund may invest insofar as price sources based
upon current currencies of the member states will be replaced, and market
conventions, such as day-count fractions or settlement dates applicable to
underlying instruments may be changed to conform to the conventions applicable
to euro currency.
Europe may experience difficulty with the transition to the euro. For example,
different national economies must adjust to a unified monetary system, the
absence of exchange rate flexibility and the loss of economic sovereignty. The
Continent's economies are diverse, its governments are decentralized and its
cultures differ widely. Unemployment is relatively high from a historical
perspective and could pose a political risk that one or more countries might
exit the union placing the currency and banking system in jeopardy.
The overall impact of the transition of the member states' currencies to the
euro cannot be determined with certainty at this time. In addition to the
effects described above, it is likely that more general short- and long-term
consequences can be expected, such as changes in economic environment and change
in behavior of investors, all of which will impact each Fund's euro-denominated
investments.
RISK FACTORS REGARDING JAPAN
The Large-Cap Japan Fund seeks to provide investment results which match the
performance of a specific benchmark on a daily basis. The Fund's current
benchmark is Japan's Topix 100 Index. The Topix 100 Index is an index designed
to measure performance of the 100 most liquid stocks with the largest market
capitalization that are members of the broader Topix Index. The Topix and Topix
100 Indices are published by the Tokyo Stock Exchange.
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The Japanese stock market was established in 1878 as the Tokyo Stock Exchange
Company Ltd. Japanese stock exchanges are located in eight cities: Tokyo,
Osaka, Nagoya, Kyoto, Hiroshima, Fukuoka, Niigata and Sapporo. The Tokyo
Stock Exchange (TSE) is the largest of the eight exchanges in Japan. There
are three distinct sections on the main Japanese stock exchanges. The First
Section trades in over 1,100 of the largest and most active stocks, which
account for over 95% of total market capitalization. The Second Section
consists of over 400 issues with lower turnover than the First Section, which
are newly quoted on the exchange or which are not listed and would otherwise
be traded over-the-counter. The Third Section consists of foreign stocks,
which are traded over-the-counter. Securities are denominated in the official
unit of currency, the Japanese Yen.
Although some Japanese reporting, accounting and auditing practices are
based substantially on U.S. principles, they are not identical to U.S.
standards in some important respects, particularly with regard to
unconsolidated subsidiaries and related structures. In general, Japanese
corporations are not required to provide all of the disclosure required by
U.S. law and accounting practice, and such disclosure may be less timely
and less frequent than that required of U.S. corporations.
The Japanese agricultural industry is small and largely protected. Japan
subsidizes its agricultural industry and is only 50% self-sufficient in food
production. Accordingly, it is highly dependent on agricultural imports. Japan
has developed a strong heavy industrial sector and is highly dependent on
international trade for commodities. Strong domestic industries are automotive,
electronics, and metals. Needed imports revolve around raw materials such as
oil, forest products, and iron ore. Subsequently, Japan is sensitive to
fluctuations in commodity prices.
While the United States is Japan's largest single trading partner, close to
half of Japan's trade is conducted with developing nations, almost all of
which are in southeast Asia. As the largest economy trading in southeast Asia,
external events such as the economic trials of Japan's neighbors continue to
raise concerns over profit levels for the big Japanese exporters. As many of
the governments of Southeast Asia frequently face domestic discontent, and as
many of these countries are Japanese trading partners and investment
recipients, their internal stability and its impact on regional security are
of importance to Japan.
Japanese unemployment levels are high and have been an area of increasing
concern. The Japanese financial sector is in need of reform involving
overhauling the nation's financial institutions and securing public support for
taxpayer-funded bailouts. Banks, in particular, must dispose of bad loans and
trim their balance sheets in preparation for greater competition from foreign
financial institutions as more areas of the financial sector are opened.
Successful financial sector reform could allow Japan's financial institutions to
act as a catalyst for economic recovery at home and across the troubled Asian
region. A large factor in determining the pace and scope of recovery is the
government's handling of deregulation programs.
Also of concern are Japan's trade surpluses. As a trade-dependent nation long
used to high levels of government protection, it is unclear how the Japanese
economy will react to the potential adoption of the trade liberalization
measures which are constantly promoted by their trading partners. Japan's heavy
dependence on international trade has been adversely affected by trade tariffs
and other protectionist measures, as well as the economic condition of its
trading partners. Japan's high volume of exports, such as automobiles, machine
tools and semiconductors, has caused trade tensions, particularly with the
United States. The relaxing of official and de facto barriers to imports, or
hardships created by any pressures brought by trading partners, could adversely
affect Japan's economy. Additionally, the strength of the yen itself may prove
an impediment to strong continued exports and economic recovery, because it
makes Japanese goods sold in other countries more expensive and reduces the
value of foreign earnings repatriated to Japan. Since the Japanese economy is so
dependent on exports, any fall off in exports may be seen as a sign of economic
weakness, which may adversely affect the market.
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STOCK INDEX FUTURES CONTRACTS
A Fund may buy and sell stock index futures contracts with respect to any stock
index traded on a recognized stock exchange, 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 a Fund purchases a futures contract, an amount of cash, U.S.
Government securities or other liquid securities equal to the market value of
the futures contract will be deposited in a segregated account with the Fund's
custodian. When writing a futures contract, the Fund will maintain with its
custodian liquid assets that, when added to the amounts deposited with a futures
commission merchant or broker as margin, are equal to the market value of the
instruments underlying the contract. Alternatively, a Fund may "cover" its
position by owning the instruments underlying the contract (or, in the case of
an index futures contract, a portfolio with a volatility substantially similar
to that of the index on which the futures contract is based), or holding a call
option permitting the Fund to purchase the same futures contract at a price no
higher than the price of the contract written by the Fund (or at a higher price
if the difference is maintained in liquid assets with the Fund's custodian).
TRACKING ERROR
The following factors may affect the ability of the Funds to achieve
correlation with the performance of their respective benchmarks: (1)
fluctuations in currency exchange rates; (2) Fund expenses, including
brokerage (which may be increased by high portfolio turnover); (3) a Fund
holding less than all of the securities in the benchmark and/or securities
not included in the benchmark; (4) an imperfect correlation between the
performance of instruments held by a Fund, such as futures contracts and
options, and the performance of the underlying securities in the market; (5)
bid-ask spreads (the effect of which may be increased by portfolio turnover);
(6) a Fund holding instruments traded in a market that has become illiquid or
disrupted; (7) Fund share prices being rounded to the nearest cent; (8)
changes to the index underlying a benchmark that are not disseminated in
advance; (9) the need to conform a Fund's portfolio holdings to comply with
investment restrictions or policies or regulatory or tax law requirements;
(10) the time difference between the close of the Funds' respective benchmark
and the time the Funds price their shares at the close of the New York Stock
Exchange ("NYSE"); or (11) 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. As a result of fair value pricing, the
day-to-day correlation of the Funds' performance may tend to vary from the
closing performance of the Funds' respective benchmarks. However, the Funds
performance attempts to correlate highly with the movement in their
respective benchmarks over time.
U.S. GOVERNMENT SECURITIES
The Funds 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
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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 Funds 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
Each Fund, from time to time, in the ordinary course of business, may purchase
securities on a when-issued or delayed-delivery basis (I.E., delivery and
payment can take place between a month and 120 days after the date of the
transaction). These securities are subject to market fluctuation and no interest
accrues to the purchaser during this period. At the time a Fund makes the
commitment to purchase securities on a when-issued or delayed-delivery basis,
the Fund will record the transaction and thereafter reflect the value of the
securities, each day, of such security in determining the Fund's net asset
value. A Fund will not purchase securities on a when-issued or delayed-delivery
basis if, as a result, more than 15% of the Fund's net assets would be so
invested. At the time of delivery of the securities, the value of the securities
may be more or less than the purchase price. The Fund will also establish a
segregated account with the Fund's custodian bank in which the Fund will
maintain cash or liquid securities equal to or greater in value than the Fund's
purchase commitments for such when-issued or delayed-delivery securities. The
Trust does not believe that a Fund's net asset value or income will be adversely
affected by the Fund's purchase of securities on a when-issued or
delayed-delivery basis.
INVESTMENT RESTRICTIONS
FUNDAMENTAL POLICIES
The following investment limitations (and those set forth in the Prospectus) are
fundamental policies of the Funds which cannot be changed with respect to a Fund
without the consent of the holders of a majority of that Fund's outstanding
shares. The term "majority of the outstanding shares" means the vote of (i) 67%
or more of a Fund's shares present at a meeting, if more than 50% of the
outstanding shares of that Fund are present or represented by proxy, or (ii)
more than 50% of that Fund's outstanding shares, whichever is less.
An International 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.
14
<PAGE>
2. Make loans if, as a result, more than 33 1/3% of its total
assets would be lent to other parties, except that the Fund
may (i) purchase or hold debt instruments in accordance with
its investment objective and policies; (ii) enter into
repurchase agreements; and (iii) lend its securities.
3. Purchase or sell real estate, physical commodities, or
commodities contracts, except that the Fund may purchase (i)
marketable securities issued by companies which own or invest
in real estate (including real estate investment trusts),
commodities, or commodities contracts; and (ii) commodities
contracts relating to financial instruments, such as financial
futures contracts and options on such contracts.
4. Issue senior securities (as defined in the 1940 Act) except as
permitted by rule, regulation or order of the SEC.
5. Act as an underwriter of securities of other issuers except as
it may be deemed an underwriter in selling a portfolio
security.
6. Invest in interests in oil, gas, or other mineral exploration
or development programs and oil, gas or mineral leases.
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 Funds
and may be changed with respect to any Fund by the Board of Trustees.
Each International 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.
15
<PAGE>
The foregoing percentages are: (i) based on total assets (except for the
limitation on illiquid securities, which is based on net assets); (ii) will
apply at the time of the purchase of a security; and (iii) shall not be
considered violated unless an excess or deficiency occurs or exists immediately
after and as a result of a purchase of such security.
PORTFOLIO TRANSACTIONS AND BROKERAGE
Subject to the general supervision by the Trustees, the Advisor is responsible
for decisions to buy and sell securities for each of the Funds, the selection of
brokers and dealers to effect the transactions, and the negotiation of brokerage
commissions, if any. The Advisor expects that the Funds may execute brokerage or
other agency transactions through registered broker-dealers, for a commission,
in conformity with the 1940 Act, the Securities Exchange Act of 1934, as
amended, and the rules and regulations thereunder.
The Advisor may serve as an investment manager to a number of clients, including
other investment companies. It is the practice of the Advisor to cause purchase
and sale transactions to be allocated among the Funds and others whose assets
the Advisor manages in such manner as the Advisor deems equitable. The main
factors considered by the Advisor in making such allocations among the Funds and
other client accounts of the Advisor are the respective investment objectives,
the relative size of portfolio holdings of the same or comparable securities,
the availability of cash for investment, the size of investment commitments
generally held, and the opinions of the person(s) responsible, if any, for
managing the portfolios of the Funds and the other client accounts.
The policy of each Fund regarding purchases and sales of securities for the
Fund's portfolio is that primary consideration will be given to obtaining the
most favorable prices and efficient executions of transactions. Consistent with
this policy, when securities transactions are effected on a stock exchange, each
Fund's policy is to pay commissions which are considered fair and reasonable
without necessarily determining that the lowest possible commissions are paid in
all circumstances. Each Fund believes that a requirement always to seek the
lowest possible commission cost could impede effective portfolio management and
preclude the Fund and the Advisor from obtaining a high quality of brokerage and
research services. In seeking to determine the reasonableness of brokerage
commissions paid in any transaction, the Advisor relies upon its experience and
knowledge regarding commissions generally charged by various brokers and on its
judgment in evaluating the brokerage and research services received from the
broker effecting the transaction. Such determinations are necessarily subjective
and imprecise, as in most cases an exact dollar value for those services is not
ascertainable.
Purchases and sales of U.S. Government securities are normally transacted
through issuers, underwriters or major dealers in U.S. Government securities
acting as principals. Such transactions are made on a net basis and do not
involve payment of brokerage commissions. The cost of securities purchased from
an underwriter usually includes a commission paid by the issuer to the
underwriters; transactions with dealers normally reflect the spread between bid
and asked prices.
In managing the investment portfolios of the Funds, the Advisor effects
transactions with those brokers and dealers who the Advisor believes provide the
most favorable prices and are capable of providing efficient executions. If the
Advisor believes such prices and executions are obtainable from more than one
broker or dealer, the Advisor may give consideration to placing portfolio
transactions with those brokers and dealers who also furnish research and other
services to the Fund or the Advisor. In addition, Section 28(e) of the
Securities Exchange Act of 1934 permits the Advisor to cause a Fund to pay
commission rates in excess of those another dealer or broker would have charged
for effecting the same transaction, if the Advisor determines, in good faith,
that the commission paid is reasonable in relation to the value of brokerage and
research services provided. While the Advisor currently does not intend to pay
higher commissions to dealers and brokers who supply it with brokerage and
research services, in the 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).
16
<PAGE>
Such research services may include information on the economy, industries,
groups of securities, individual companies, statistical information, accounting
and tax law interpretations, political developments, legal developments
affecting portfolio securities, technical market action, pricing and appraisal
services, credit analysis, risk measurement analysis, performance analysis,
analysis of corporate responsibility issues or in the form of access to various
computer-generated data, computer hardware and software. Such research may be
provided by brokers and dealers in the form of written reports, telephone
contacts and personal meetings with security analysts, corporate and industry
spokespersons, economists, academicians, and government representatives.
Brokerage services and equipment may facilitate the execution and monitoring of
securities transactions, for example, by providing rapid communications with
financial markets and brokers or dealers, or by providing real-time tracking of
orders, settlements, investment positions and relevant investment criteria and
restrictions applicable to the execution of securities transactions. In some
cases, brokerage and research services are generated by third parties but are
provided to the Advisor by or through brokers and dealers. The Advisor may
allocate brokerage for research services that are also available for cash, where
appropriate and permitted by law. The Advisor may also pay cash for certain
research services received from external sources.
In addition, the information and services received by the Advisor from brokers
and dealers may not in all cases benefit a Fund directly. For example, such
information and services received by the Advisor as a result of the brokerage
allocation of one of the Funds may be of benefit to the Advisor in the
management of other accounts of the Advisor, including other Funds of the Trust
and other investment companies advised by the Advisor. While the receipt of such
information and services is useful in varying degrees and would generally reduce
the amount of research or services otherwise performed by the Advisor and
thereby reduce the Advisor's expenses, this information and these services are
of indeterminable value and the management fee paid to the Advisor is not
reduced by any amount that may be attributable to the value of such information
and services.
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. (58)
Chairman of the Board of Trustees and President of Rydex Series Funds,
a registered mutual fund, 1993 to present; Chairman of the Board of
Trustees and President of Rydex Variable Trust, a registered mutual
fund, 1998 to present; Chairman of the Board of Trustees and President
of Rydex Dynamic Funds, a registered mutual fund, 1999 to present;
Chairman of the Board of Directors, President, and Treasurer of PADCO
Advisors, Inc., investment adviser, 1993 to present; Chairman of the
Board of Directors, President, and Treasurer of PADCO Service Company,
Inc., shareholder and transfer agent servicer, 1993 to present;
Chairman of the Board of Directors, President, and Treasurer of PADCO
Advisors II, Inc., investment adviser, 1998 to
--------
*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.
17
<PAGE>
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.
18
<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>
--------------------------------------------------------------------------------------------------
Name of Person, Aggregate Pension or Estimated Annual Total
Position Compensation Retirement Benefits Benefits Upon Compensation
From Trust Accrued as Part of Retirement From Fund
Trust's Expenses Complex For
Service on Three
Boards**
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Albert P. Viragh, Jr.*, $0 $0 $0 $0
CHAIRMAN AND PRESIDENT
--------------------------------------------------------------------------------------------------
Corey A. Colehour, $23,000 $0 $0 $34,500
TRUSTEE
--------------------------------------------------------------------------------------------------
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------
Name of Person, Aggregate Pension or Estimated Annual Total
Position Compensation Retirement Benefits Benefits Upon Compensation
From Trust Accrued as Part of Retirement From Fund
Trust's Expenses Complex For
Service on Three
Boards**
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
J. Kenneth Dalton, $23,000 $0 $0 $34,500
TRUSTEE
--------------------------------------------------------------------------------------------------
Roger Somers, $23,000 $0 $0 $34,500
TRUSTEE
--------------------------------------------------------------------------------------------------
John O. Demaret, $23,000 $0 $0 $34,500
TRUSTEE
--------------------------------------------------------------------------------------------------
Patrick T. McCarville, $23,000 $0 $0 $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 Funds
and oversees the day-to-day operations of the Funds, subject to direction and
control by the Trustees and the officers of the Trust. As of June 30, 2000, net
assets under management of the Advisor were approximately $ 8.7 billion.
Pursuant to the advisory agreement with the Advisor, the Funds pay the Advisor
the following fees at an annual rate based on the average daily net assets for
each respective Fund, as set forth below:
<TABLE>
<CAPTION>
FUND ADVISORY FEE
<S> <C>
Large-Cap Europe Fund .90%
Large-Cap Japan Fund .90%
</TABLE>
The Advisor manages the investment and the reinvestment of the assets of each of
the Funds, in accordance with the investment objectives, policies, and
limitations of the Fund, subject to the general supervision and control of the
Trustees and the officers of the Trust. The Advisor bears all costs associated
with providing these advisory services and the expenses of the Trustees of the
Trust who are affiliated with or interested persons of the Advisor. The Advisor,
from its own resources, including profits from advisory fees received from the
Funds, provided such fees are legitimate and not excessive, may make payments to
broker-dealers and other financial institutions for their expenses in connection
with the distribution of Fund shares, and otherwise currently pay all
distribution costs for Fund shares.
The Advisor'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.
20
<PAGE>
THE ADMINISTRATIVE SERVICE AGREEMENT AND ACCOUNTING SERVICE AGREEMENT
General administrative, shareholder, dividend disbursement, transfer agent, and
registrar services are provided to the Trust and the Funds by PADCO Service
Company, Inc., 6116 Executive Boulevard, Suite 400, Rockville, Maryland 20852
(the "Servicer"), subject to the general supervision and control of the Trustees
and the officers of the Trust, pursuant to a service agreement between the Trust
and the Servicer. The Servicer is wholly-owned by Albert P. Viragh, Jr., who is
the Chairman of the Board and the President of the Trust and the sole
controlling person and majority owner of the Advisor.
Under the service agreement, the Servicer provides the Trust and each Fund with
all required general administrative services, including, without limitation,
office space, equipment, and personnel; clerical and general back office
services; bookkeeping, internal accounting, and secretarial services; the
determination of net asset values; and the preparation and filing of all
reports, registration statements, proxy statements, and all other materials
required to be filed or furnished by the Trust and each Fund under federal and
state securities laws. The Servicer also maintains the shareholder account
records for each Fund, disburses dividends and distributions payable by each
Fund, and produces statements with respect to account activity for each Fund and
each Fund's shareholders. The Servicer pays all fees and expenses that are
directly related to the services provided by the Servicer to each Fund; each
Fund reimburses the Servicer for all fees and expenses incurred by the Servicer
which are not directly related to the services the Servicer provides to the Fund
under the service agreement. Pursuant to an Accounting Service Agreement the
Servicer serves as Accounting Services Agent and performs certain record keeping
and accounting functions.
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 Funds 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
Each Fund bears all expenses of its operations other than those assumed by the
Advisor or the Servicer. Fund expenses include: the management fee; the
servicing fee (including administrative, transfer agent, and shareholder
servicing fees); custodian and accounting fees and expenses; legal and auditing
fees; securities valuation expenses; fidelity bonds and other insurance
premiums; expenses of preparing and printing prospectuses, confirmations, proxy
statements, and shareholder reports and notices; registration fees and expenses;
proxy and annual meeting expenses, if any; all federal, state, and local taxes
(including, without limitation, stamp, excise, income, and franchise taxes);
organizational costs; non-interested Trustees' fees and expenses; the costs and
expenses of redeeming shares of the Fund; fees and expenses paid to any
securities pricing organization; dues and expenses associated with membership in
any mutual fund organization; and costs for incoming telephone WATTS lines. In
addition, each of the Funds pays an equal portion of the Trustee fees and
expenses for attendance at Trustee meetings for the Trustees of the Trust who
are not affiliated with or interested persons of the Advisor.
21
<PAGE>
DETERMINATION OF NET ASSET VALUE
The net asset value of a Fund serves as the basis for the purchase and
redemption price of that Fund's shares. The net asset value per share of a Fund
is calculated by dividing the market value of the Fund's securities plus the
values of its other assets, less all liabilities, by the number of outstanding
shares of the Fund. If market quotations are not readily available, a security
will be valued at fair value by the Board of Trustees or by the Advisor using
methods established or ratified by the Board of Trustees. The Funds will
generally value their assets at fair value because of the time difference
between the close of the relevant foreign exchanges and the time the Funds price
their shares at the close of the NYSE. Such valuation will attempt to reflect
the U.S. financial markets' perceptions and trading activity related to the
Funds' assets since the calculation of the closing level of the Funds'
respective benchmarks. The Topix 100 Index is determined in the early morning
(2:00 or 3:00 a.m., depending on daylight savings time) U.S. Eastern Standard
Time ("EST"), prior to the opening of the NYSE. The Stoxx 50SM Index is
determined in the mid-morning (approximately 10:30 a.m.) U.S. EST, prior to the
closing of the NYSE. Under fair value pricing, the values assigned to a Fund's
securities may not be the quoted or published prices of those securities on
their primary markets or exchanges.
Options on securities and indices purchased by a Fund generally are valued at
their last bid price in the case of exchange-traded options or, in the case of
options traded in the over-the-counter ("OTC") market, the average of the last
bid price as obtained from two or more dealers unless there is only one dealer,
in which case that dealer's price is used. Futures contracts generally are
valued based upon the unrealized gain or loss on the contract determined with
reference to the first price reported by established futures exchanges after the
close of a Fund pricing cycle, or alternatively, with reference to the average
price at which futures are bought and sold by a Fund. Options on futures
contracts generally are valued with reference to the underlying futures
contract. If the market makes a limit move with respect to a particular
commodity, the commodity will be valued at fair value by the Advisor using
methods established or ratified by the Board of Trustees.
OTC securities held by a Fund shall be valued at the last sales price or,
if no sales price is reported, the mean of the last bid and asked price is
used. The portfolio securities of a Fund that are listed on national 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 Funds
are valued at fair value.
PERFORMANCE INFORMATION
From time to time, each of the Funds may include the Fund's total return in
advertisements or reports to shareholders or prospective shareholders.
Quotations of average annual total return for a Fund will be expressed
22
<PAGE>
in terms of the average annual compounded rate of return on a hypothetical
investment in the Fund over a period of at least one, five, and ten years
(up to the life of the Fund) (the ending date of the period will be stated).
Total return of a Fund is calculated from two factors: the amount of dividends
earned by each Fund share and by the increase or decrease in value of the Fund's
share price. See "Calculation of Return Quotations."
Performance information for each of the Funds contained in reports to
shareholders or prospective shareholders, advertisements, and other promotional
literature may be compared to the record of various unmanaged indices.
Performance information for the Funds 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, a
Fund's total return may be compared to the performance of broad groups of
comparable mutual funds with similar investment goals, as such performance is
tracked and published by such independent organizations as Lipper Analytical
Services, Inc. ("Lipper"), and CDA Investment Technologies, Inc., among others.
When Lipper's tracking results are used, the Fund will be compared to Lipper's
appropriate fund category, that is, by fund objective and portfolio holdings.
Performance figures are based on historical results and are not intended to
indicate future performance.
In addition, rankings, ratings, and comparisons of investment performance and/or
assessments of the quality of shareholder service appear in numerous financial
publications such as MONEY, FORBES, KIPLINGER'S MAGAZINE, PERSONAL INVESTOR,
MORNINGSTAR, INC., and similar sources.
CALCULATION OF RETURN QUOTATIONS
For purposes of quoting and comparing the performance of a Fund to that of other
mutual funds and to other relevant market indices in advertisements or in
reports to shareholders, performance for the Fund may be stated in terms of
total return. Under the rules of the Securities and Exchange Commission ("SEC
Rules"), Funds advertising performance must include total return quotes
calculated according to the following formula:
(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.
23
<PAGE>
PURCHASE AND REDEMPTION OF SHARES
MINIMUM INVESTMENT REQUIREMENTS
Shareholders will be informed of any increase in the minimum investment
requirements by a new prospectus or a prospectus supplement, in which the new
minimum is disclosed. Any request for a redemption (including pursuant to check
writing privileges) by an investor whose account balance is (a) below the
currently applicable minimum investment, or (b) would be below that minimum as a
result of the redemption, will be treated as a request by the investor of a
complete redemption of that account. In addition, the Trust may redeem an
account whose balance (due in whole or in part to redemptions since the time of
last purchase) has fallen below the minimum investment amount applicable at the
time of the shareholder's most recent purchase of Fund shares (unless the
shareholder brings his or her account value up to the currently applicable
minimum investment).
TAX CONSEQUENCES
Note that in the case of tax-qualified retirement plans, a redemption
from such a plan may have adverse tax consequences. A shareholder
contemplating such a redemption should consult his or her own tax advisor.
Other shareholders should consider the tax consequences of any redemption.
SUSPENSION OF THE RIGHT OF REDEMPTION
With respect to each Fund, and as permitted by the Securities and Exchange
Commission ("Commission"), the right of redemption may be suspended, or the date
of payment postponed: (i) for any period during which the NYSE 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 Funds' securities trade is closed or trading is
restricted, a 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, Independence Day, Labor Day, Columbus Day
(the CBOT and CME will have abbreviated trading schedules), 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.
The national Japanese holidays affecting the relevant securities markets in
Japan are as follows: New Year's Day; Coming-of-Age Day; National Foundation
Day; Vernal Equinox Day; Greenery Day; Constitution Memorial Day; Children's
Day; Marine Day; Respect-of-the-Aged Day; Autumnal Equinox Day; Health-Sports
Day; Culture Day; Labor Thanksgiving Day; and Emperor's Birthday. Although
the Trust expects this same holiday schedule to be observed in the future,
the Japanese exchange may modify its holiday schedule at any time.
National holidays in the various European countries will also affect the
relevant European securities markets. Due to the variety of holidays in each EU
country as well as Switzerland, those holidays are not listed here.
24
<PAGE>
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.
DIVIDENDS, DISTRIBUTIONS, AND TAXES
DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income and any distributions of net realized
capital gains from each of the Funds will be distributed as described in the
Trust's Prospectus under "Dividends and Distributions." All such distributions
of a Fund normally automatically will be reinvested without charge in additional
shares of the same Fund.
REGULATED INVESTMENT COMPANY ("RIC") STATUS
As a RIC, a Fund would not be subject to federal income taxes on the net
investment income and capital gains that the Fund distributes to the Fund's
shareholders. The distribution of net investment income and capital gains will
be taxable to Fund shareholders regardless of whether the shareholder elects to
receive these distributions in cash or in additional shares. Distributions
reported to Fund shareholders as long-term capital gains shall be taxable as
such, regardless of how long the shareholder has owned the shares. Fund
shareholders will be notified annually by the Fund as to the federal tax status
of all distributions made by the Fund. Distributions may be subject to state and
local taxes.
Each of the Funds will seek to qualify for treatment as a RIC under the Code.
Provided that a Fund (i) is a RIC and (ii) distributes at least 90% of the
Fund's net investment income (including, for this purpose, net realized
short-term capital gains), the Fund itself will not be subject to federal income
taxes to the extent the Fund's net investment income and the Fund's net realized
long- and short-term capital gains, if any, are distributed to the Fund's
shareholders. To avoid an excise tax on its undistributed income, each Fund
generally must distribute at least 98% of its income, including its net
long-term capital gains. One of several requirements for RIC qualification is
that the Fund must receive at least 90% of the Fund's gross income each year
from dividends, interest, payments with respect to securities loans, gains from
the sale or other disposition of securities or foreign currencies, or other
income derived with respect to the Fund's investments in stock, securities, and
foreign currencies (the "90% Test").
In the event of a failure by a Fund to qualify as a RIC, the Fund'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 a Fund were to fail to qualify as a RIC for one or more taxable years, the
Fund could then qualify (or requalify) as a RIC for a subsequent taxable year
only if the Fund had distributed to the Fund's shareholders a taxable dividend
equal to the full amount of any earnings or profits (less the interest charge
mentioned below, if applicable) attributable to such period. The fund might also
be required to pay to the U.S. Internal Revenue Service (the "IRS") interest on
50% of such accumulated earnings and profits. In addition, pursuant to the Code
and an interpretative notice issued by the IRS, if the Fund should fail to
qualify as a RIC and should thereafter seek to requalify as a RIC, the Fund may
be subject to tax on the excess (if any) of the fair market of the Fund's assets
25
<PAGE>
over the Fund's basis in such assets, as of the day immediately before the first
taxable year for which the Fund seeks to requalify as a RIC.
If a Fund determines that 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.
SPECIAL TAX CONSIDERATIONS
In general, with respect to the Funds, gains from "foreign currencies" and from
foreign currency options, foreign currency futures, and forward foreign exchange
contracts ("forward contracts") relating to investments in stock, securities, or
foreign currencies will be qualifying income for purposes of determining whether
the Fund qualifies as a RIC. It is currently unclear, however, who will be
treated as the issuer of a foreign currency instrument or how foreign currency
options, futures, or forward contracts will be valued for purposes of the RIC
diversification requirements applicable to a Fund.
Under the Code, special rules are provided for certain transactions in a foreign
currency other than the taxpayer's functional currency (I.E., unless certain
special rules apply, currencies other than the U.S. dollar). In general, foreign
currency gains or losses from forward contracts, from futures contracts that are
not "regulated futures contracts", and from unlisted options will be treated as
ordinary income or loss under the Code. Also, certain foreign exchange gains
derived with respect to foreign fixed-income securities are also subject to
special treatment. In general, any such gains or losses will increase or
decrease the amount of the a Fund's investment company taxable income available
to be distributed to shareholders as ordinary income, rather than increasing or
decreasing the amount of a Fund's net capital gain. Additionally, if such losses
exceed other investment company taxable income during a taxable year, a Fund
would not be able to make any ordinary dividend distributions.
The Funds may incur a liability for dividend withholding tax as a result of
investment in stock or securities of foreign corporations. If, at any year-end,
more than 50% of the assets of a Fund are comprised of stock or securities of
foreign corporations, the Fund may elect to "pass through" to shareholders the
amount of foreign taxes paid by that Fund. The Fund will make such an election
only if that Fund deems this to be in the best interests of its shareholders. If
the Fund does not qualify to make this election or does qualify, but does not
choose to do so, the imposition of such taxes would directly reduce the return
to an investor from an investment in that Fund.
OPTIONS TRANSACTIONS BY THE FUNDS
If a call option written by a Fund expires, the amount of the premium received
by the Fund for the option will be short-term capital gain to the Fund. If such
an option is closed by a Fund, any gain or loss realized by the Fund as a result
of the closing purchase transaction will be short-term capital gain or loss. If
the holder of a call option exercises the holder's right under the option, any
gain or loss realized by the Fund upon the sale of the underlying security or
underlying futures contract pursuant to such exercise will be short-term or
long-term capital gain or loss to the Fund depending on the Fund's holding
period for the underlying security or underlying futures contract.
With respect to call options purchased by a Fund, the Fund will realize
short-term or long-term capital gain or loss if such option is sold and will
realize short-term or long-term capital loss if the option is allowed to expire
depending on the Fund's holding period for the call option. If such a call
option is exercised, the amount paid by the Fund for the option will be added to
the basis of the stock or futures contract so acquired.
The Funds will utilize options on stock indices in their 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
26
<PAGE>
held by a Fund on the last day of a fiscal year will be treated as sold for
market value on that date, and gain or loss recognized as a result of such
deemed sale will be blended gain or loss.
The trading strategies of the Funds involving nonequity options on stock indices
may constitute "straddle" transactions. "Straddles" may affect the taxation of
such instruments and may cause the postponement of recognition of losses
incurred in certain closing transactions. Each of the Funds will also have
available to the Fund a number of elections under the Code concerning the
treatment of option transactions for tax purposes. Each such Fund will utilize
the tax treatment that, in the Fund's judgment, will be most favorable to a
majority of investors in the Fund. Taxation of these transactions will vary
according to the elections made by the Fund. These tax considerations may have
an impact on investment decisions made by the Fund.
A Fund's transactions in options, under some circumstances, could preclude the
Fund's 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 each Fund's portfolio management to limit gains from such
investments to less than 10% of the gross income of the Fund during any fiscal
year in order to maintain this qualification.
BACK-UP WITHHOLDING
Each Fund is required to withhold and remit to the U.S. Treasury 31% of (i)
reportable taxable dividends and distributions and (ii) the proceeds of any
redemptions of Fund shares with respect to any shareholder who is not exempt
from withholding and who fails to furnish the Trust with a correct taxpayer
identification number, who fails to report fully dividend or interest income, or
who fails to certify to the Trust that the shareholder has provided a correct
taxpayer identification number and that the shareholder is not subject to
withholding. (An individual's taxpayer identification number is the individual's
social security number.) The 31% "back-up withholding tax" is not an additional
tax and may be credited against a taxpayer's regular federal income tax
liability.
OTHER ISSUES
Each Fund may be subject to tax or taxes in certain states where the Fund does
business. Furthermore, in those states which have income tax laws, the tax
treatment of a Fund and of Fund shareholders with respect to distributions by
the Fund may differ from federal tax treatment.
Shareholders are urged to consult their own tax advisors regarding the
application of the provisions of tax law described in this Statement of
Additional Information in light of the particular tax situations of the
shareholders and regarding specific questions as to federal, state, or local
taxes.
OTHER INFORMATION
VOTING RIGHTS
You receive one vote for every full Fund share owned. Each Fund or class of a
Fund will vote separately on matters relating solely to that Fund or class. All
shares of the Funds are freely transferable.
As a Delaware business trust, the Trust is not required to hold annual
Shareholder meetings unless otherwise required by the 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.
27
<PAGE>
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 Trust's web site at www.rydexfunds.com or call 1-800-820-0888
or 301-468-8520 to obtain information on account statements, procedures, and
other related information.
COUNSEL
Morgan, Lewis & Bockius LLP serves as counsel to the Trust.
AUDITORS AND CUSTODIAN
Deloitte & Touche LLP, are the auditors and the independent certified public
accountants of the Trust and each of the Funds. Bank of New York (the
"Custodian"), 100 Church Street, New York, N.Y. 10286, 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.
28
<PAGE>
APPENDIX A
BOND RATINGS
Below is a description of Standard & Poor's Ratings Group ("Standard & Poor's")
and Moody's Investors Service, Inc. ("Moody's") bond rating categories.
STANDARD & POOR'S RATINGS
GROUP CORPORATE BOND RATINGS
AAA - This is the highest rating assigned by Standard & Poor's to a debt
obligation and indicates an extremely strong capacity to pay principal and
interest.
AA - Bonds rated "AA" also qualify as high-quality debt obligations. Capacity to
pay principal and interest is very strong, and in the majority of instances they
differ from "AAA" issues only in small degree.
A - Bonds rated "A" have a strong capacity to pay principal and interest,
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than bonds in higher rated categories.
BBB - Bonds rated "BBB" are regarded as having an adequate capability to pay
principal and interest. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay principal and interest for bonds in
this category than for bonds in higher rated categories.
BB - Bonds rated "BB" have less near-term vulnerability to default than other
speculative issues. However, they face major ongoing uncertainties or exposure
to adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments.
B - Bonds rated "B" have a greater vulnerability to default but currently have
the capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions will likely impair capacity or
willingness to pay interest and repay principal.
CCC - Bonds rated "CCC" have a currently identifiable vulnerability to default
and are dependent upon favorable business, financial, and economic conditions to
meet timely payment of interest and repayment of principal. In the event of
adverse business, financial, or economic conditions, they are not likely to have
the capacity to pay interest and repay principal.
MOODY'S INVESTORS SERVICE, INC.
CORPORATE BOND RATINGS
Aaa - Bonds rate "Aaa" are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to a "gilt-edged."
Interest payments are protected by a large or by an exceptionally stable margin,
and principal is secure. While the various protective elements are likely to
change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa - Bonds rate "Aa" are judged to be of high quality by all standards. Together
with the Aaa group, they comprise what are generally known as high grade bonds.
They are rated lower than the best bonds because margins of protections may not
be as large as in "Aaa" securities or fluctuation of protective elements may be
of greater amplitude or there may be other elements present which make the long
term risk appear somewhat larger than in "Aaa" securities.
29
<PAGE>
A - Bonds rated "A" possess many favorable investment attributes, and are to be
considered as upper medium grade obligations. Factors giving security principal
and interest are considered adequate but elements may be present which suggest a
susceptibility to impairment sometime in the future.
Baa - Bonds rated "Baa" are considered as medium grade obligations (i.e., they
are neither highly protected nor poorly secured). Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba - Bonds rated "Ba" are judged to have speculative elements. Their future
cannot be considered as well assured. Often the protection of interest and
principal payments may be very moderate and thereby not well safeguarded during
both good and bad times over the future. Uncertainty of position characterizes
bonds in this class.
B - Bonds rated "B" generally lack characteristics of the desirable investment.
Assurance of interest and principal payments or maintenance of other terms of
the contract over any longer period of time may be small.
Caa - Bonds rated "Caa" are of poor standing. Such issues may be in default or
there may be present elements of danger with respect to principal or interest.
30
<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.
<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 is filed herewith.
(j) Consent of Deloitte & Touche LLP is filed herewith.
(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.
<PAGE>
(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. 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.
<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.
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
Not Applicable.
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)
<PAGE>
the Chairman of the Board of Directors, the President, and the Treasurer of
PADCO Service Company, Inc. (the "Servicer"), the Trust's registered transfer
agent and shareholder servicer, since the incorporation of the Servicer in the
State of Maryland on October 6, 1993; (iii) the Chairman of the Board of
Directors, the President, and the Treasurer of PADCO Advisors II, Inc. ("PADCO
II"), a registered investment adviser, since the incorporation of PADCO II in
the State of Maryland on July 5, 1994; and (iv) the Chairman of the Board of
Directors, the President, and the Treasurer of 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.
<PAGE>
ITEM 30. UNDERTAKINGS
None.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Registration Statement pursuant to
Rule 485(b) under the Securities Act of 1933 and has duly caused this
Post-Effective Amendment No. 39 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 27th day of
July, 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. 39 to the Registration Statement has been 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, July 27, 2000
--------------------------------
Albert P. Viragh, Jr. Principal Executive Officer, and
President
* Member of the Board of Trustees July 27, 2000
--------------------------------
Corey A. Colehour
* Member of the Board of Trustees July 27, 2000
--------------------------------
J. Kenneth Dalton
* Member of the Board of Trustees July 27, 2000
--------------------------------
Roger Somers
* Member of the Board of Trustees July 27, 2000
--------------------------------
John O. Demaret
* Member of the Board of Trustees July 27, 2000
--------------------------------
Patrick T. McCarville
/s/ Carl G. Verboncoeur Vice President and Treasurer July 27, 2000
--------------------------------
Carl G. Verboncoeur
</TABLE>
/s/ Albert P. Viragh, Jr.
--------------------------------
Albert P. Viragh, Jr., Attorney in Fact
*Powers of Attorney previously filed
<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.
<PAGE>
(i) Legal Opinion of Morgan, Lewis & Bockius LLP is filed herewith.
(j) Consent of Deloitte & Touche LLP is filed herewith.
(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 (q) of Post-
<PAGE>
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.
