<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
RYDEX ADVISOR VARIABLE ANNUITY
ACCOUNT
SEMI-ANNUAL REPORT
June 30, 1997
6116 Executive Boulevard, Suite 400
Rockville, MD 20852
LOGO
301/468-8520 888/667-4936
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Dear Policy Owners,
In our first letter to Rydex Advisor Variable Annuity policy owners, we would
like to take this opportunity to again welcome you to the Rydex family. It is
our continuing goal to provide our advisors with innovative investment vehicles
that offer you flexibility to take advantage of market fluctuations.
You'll notice that this first report on the Rydex Advisor Variable Annuity
covers a shorter period than usual--only 54 days--because the annuity was
introduced in May and our standard reporting period ends June 30. Although
brief, this period did experience the volatility that has characterized
financial markets in recent quarters.
The market pullback that began at the end of the first quarter ended in mid-
April as the indexes returned to their ascent. Stock prices were propelled by
low inflation, corporate share buybacks and strong earnings growth. By late
June, the Dow Jones, the S&P 500 and the Nasdaq 100 all reached record highs.
The climb was interrupted when Japanese Prime Minister Ryutaro Hashimoto
remarked that if the U.S. did not attempt to maintain exchange rate stability,
the Japanese would be tempted to sell off U.S. Treasury bills. Traders
interpreted his remarks as a threat that the Japanese might begin a large scale
sell-off of U.S. Treasury bonds and U.S. equities. This triggered the second
largest decline in points ever as the Dow Jones industrial average lost 192.25
points. In June, wholesale prices fell for the sixth consecutive month. This
was the longest streak of producer-price deflation since the government started
measuring these figures 50 years ago. These new signs of low inflation were
welcomed by the financial markets and both stocks and bonds continued their
upward trend.
On June 30, investors closed the books on the best stock market quarter in a
decade with the Dow up 16.55%, the S&P 500 up 16.91%, and the technology laden
Nasdaq 100 gaining 20.14%. The precious metals index did not fare as well due
to several negative factors including scandals involving a junior exploration
company, continued European Central bank selling, and low inflation which
caused precious metal stocks to continue their downward trend. The XAU Index
closed the 2nd quarter down 8.04%.
<PAGE>
The economic environment of moderate growth and low inflation also proved to
be good for bonds as the yield on the benchmark 30-year U.S. Treasury bond
dropped from 7.07% to 6.78% causing bond prices to rise during the quarter.
Once again, thank you for investing with Rydex. If you need additional
information, please call us at (888) 667-4936.
Sincerely,
/s/ Albert P. Viragh, Jr.
- -------------------------
Albert P. Viragh, Jr.
Chairman of the Board
2
<PAGE>
RYDEX ADVISOR VARIABLE ANNUITY ACCOUNT
NOVA SUBACCOUNT
SCHEDULE OF INVESTMENTS (Unaudited)
- --------------------------------------------------------------------------------
June 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market
Value
Shares (Note 1)
---------- ----------
<S> <C> <C>
COMMON STOCKS 23.6%
Standard & Poor's Depository Receipts (Cost
$1,074,636) 12,520 $1,105,672
----------
<CAPTION>
Contracts
----------
<S> <C> <C>
OPTIONS PURCHASED 16.9%
Call Options on:
S&P 500 Index Expiring July 1997 at 760 6 792,800
----------
Total Call Options (Cost $849,660) 792,800
----------
<CAPTION>
Face
Amount
----------
<S> <C> <C>
REPURCHASE AGREEMENT 59.5%
Repurchase Agreement through a joint account
collateralized by U.S. Treasury Obligations--
5.95% 7/01/97 $2,784,664 2,784,664
----------
Total Investments 100% (Cost $4,708,960) $4,683,136
==========
</TABLE>
See Notes to Financial Statements
3
<PAGE>
RYDEX ADVISOR VARIABLE ANNUITY ACCOUNT
URSA SUBACCOUNT
SCHEDULE OF INVESTMENTS (Unaudited)
- --------------------------------------------------------------------------------
June 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market
Value
Face Amount (Note 1)
----------- --------
<S> <C> <C>
REPURCHASE AGREEMENT 100%
Repurchase Agreement through a joint account
collateralized by U.S. Treasury Obligations--
5.95% 7/01/97 $50,863 $ 50,863
--------
Total Investments 100% (Cost $50,863) $ 50,863
========
- -------------------------------------------------------------------------------
<CAPTION>
Market
Value
Shares (Note 1)
----------- --------
<S> <C> <C>
COMMON STOCK SOLD SHORT
Standard & Poor's Depository Receipts (Proceeds $
217,175)................................................ 2,450 $216,366
========
</TABLE>
See Notes to Financial Statements
4
<PAGE>
RYDEX ADVISOR VARIABLE ANNUITY ACCOUNT
OVER-THE-COUNTER SUBACCOUNT
SCHEDULE OF INVESTMENTS (Unaudited)
- --------------------------------------------------------------------------------
June 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market
Value
Contracts (Note 1)
----------- --------
<S> <C> <C>
OPTIONS PURCHASED 2.1%
Call Options on:
NASDAQ 100 Index Expiring July 1997 at 950 1 $ 3,025
NASDAQ 100 Index Expiring July 1997 at 980 6 9,375
--------
Total Call Options Purchased (Cost $26,858) $ 12,400
--------
<CAPTION>
Face Amount
-----------
<S> <C> <C>
REPURCHASE AGREEMENT 97.9%
Repurchase Agreement through a joint account
collateralized by U.S.
Treasury Obligations--
5.95% 7/01/97 $568,642 568,642
--------
Total Investments 100% (Cost $595,500) $581,042
========
- -------------------------------------------------------------------
<CAPTION>
Market
Value
Contracts (Note 1)
----------- --------
<S> <C> <C>
WRITTEN OPTIONS CONTRACTS
Put Options On:
NASDAQ 100 Index Expiring July 1997 at 950 1 $ 2,050
NASDAQ 100 Index Expiring July 1997 at 980 6 21,150
--------
Total Put Options Written (Proceeds $19,178) $ 23,200
========
</TABLE>
See Notes to Financial Statements
5
<PAGE>
RYDEX ADVISOR VARIABLE ANNUITY ACCOUNT
PRECIOUS METALS SUBACCOUNT
SCHEDULE OF INVESTMENTS (Unaudited)
- --------------------------------------------------------------------------------
June 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market
Value
Shares (Note1)
----------- --------
<S> <C> <C>
COMMON STOCKS 98.3%
Mining and Precious Metals Stocks
Barrick Gold Corp., Class A 2,000 $ 44,000
Newmont Mining Corp. 800 31,200
Placer Dome, Inc. 1,300 21,288
Homestake Mining Co. 800 10,450
Battle Mountain Gold Co. 1,200 6,825
TVX Gold, Inc.* 870 4,622
Echo Bay Mines, Ltd. 700 4,025
ASA Limited 100 3,063
Hecla Mining Co.* 300 1,612
Coeur D'Alene Mines 120 1,552
Pegasus Gold, Inc.* 200 1,225
--------
Total Common Stocks (Cost $136,750) $129,862
--------
<CAPTION>
Market
Value
Face Amount (Note 1)
----------- --------
<S> <C> <C>
REPURCHASE AGREEMENT 1.7%
Repurchase Agreement through a joint account
collateralized by U.S.
Treasury Obligations--
5.95% 7/01/97 2,228 2,228
--------
Total Investments 100% (Cost $138,978) $132,090
========
</TABLE>
* Non-Income Producing Securities.
See Notes to Financial Statements
6
<PAGE>
RYDEX ADVISOR VARIABLE ANNUITY ACCOUNT
MONEY MARKET I SUBACCOUNT
SCHEDULE OF INVESTMENTS (Unaudited)
- --------------------------------------------------------------------------------
June 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Face Amount
-----------
<S> <C> <C>
REPURCHASE AGREEMENT 100%
Repurchase Agreement through a joint account
collateralized by U.S.
Treasury Obligations--
5.95% 7/01/97 $1,976,045 $1,976,045
----------
Total Investments 100% (Cost $1,976,045) $1,976,045
==========
</TABLE>
See Notes to Financial Statements
7
<PAGE>
RYDEX ADVISOR VARIABLE ANNUITY ACCOUNT
U.S. GOVERNMENT BOND SUBACCOUNT
SCHEDULE OF INVESTMENTS (Unaudited)
- --------------------------------------------------------------------------------
June 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market
Value
Face Amount (Note1)
----------- -------
<S> <C> <C>
U.S. TREASURY OBLIGATIONS 98.8%
U.S. Treasury Bond 6.625% due 02/15/2027 (Cost $53,596) $54,000 $52,819
-------
REPURCHASE AGREEMENT 1.2%
Repurchase Agreement through a joint account
collateralized by U.S.
Treasury Obligations--
5.95% due 7/01/97 657 657
-------
Total Investments 100.0% (Cost $54,253) $53,476
=======
</TABLE>
See Notes to Financial Statements
8
<PAGE>
RYDEX ADVISOR VARIABLE ANNUITY ACCOUNT
JUNO SUBACCOUNT
SCHEDULE OF INVESTMENTS (Unaudited)
- --------------------------------------------------------------------------------
June 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market
Value
Contracts (Note 1)
---------- ----------
<S> <C> <C>
OPTIONS PURCHASED 0.4 %
Put options on:
U.S. Treasury Bond Futures Contracts Expiring September
1997 at 112 (Cost $4,779) 3 $ 5,625
----------
<CAPTION>
Face
Amount
----------
<S> <C> <C>
REPURCHASE AGREEMENT 99.6%
Repurchase Agreement through a joint account
collateralized by U.S. Treasury Obligations--
5.95% 7/01/97 $1,396,557 1,396,557
----------
Total Investments 100% (Cost $1,401,336) $1,402,182
==========
- ------------------------------------------------------------------------------
<CAPTION>
Unrealized
Contracts Gain
---------- ----------
<S> <C> <C>
FUTURES CONTRACTS
U.S. Treasury Bond Futures Contract Expiring September
1997
(Underlying Face Amount at Market Value $1,332,750) 12 $ 11,136
==========
</TABLE>
See Notes to Financial Statements
9
<PAGE>
RYDEX ADVISOR VARIABLE ANNUITY ACCOUNT
STATEMENT OF ASSETS AND LIABILITIES (Unaudited)
- --------------------------------------------------------------------------------
June 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Money Money
Nova Ursa Market I Market II
Subaccount Subaccount Subaccount Subaccount
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
ASSETS
Securities at Value (Note 1)--See
Accompanying Schedules $4,683,136 $ 50,863 $1,976,045 $ 0
Receivable for Securities Sold 17,702 217,174 0 0
Receivable from Advisor 1,048 2,506 149 0
Investment Income Receivable 459 0 327 0
Cash in Custodian Bank 0 166,283 0 0
Receivable for Units Purchased 0 0 11,158 0
Unamortized Organization Costs
(Note 1) 92,364 92,364 4,586 5,000
Other Assets 0 11 580 0
---------- -------- ---------- ------
Total Assets 4,794,709 529,201 1,992,845 5,000
---------- -------- ---------- ------
LIABILITIES
Short Sale at Market 0 216,366 0 0
Investment Advisory Fee 2,111 126 5,076 0
Transfer Agent Fee 756 36 2,536 0
Organization Expense Payable to
Advisor 95,180 95,180 5,000 5,000
Amounts due to GARCO 4,013 198 20,602 0
Other Liabilities 347 0 99 0
---------- -------- ---------- ------
Total Liabilities 102,407 311,906 33,313 5,000
---------- -------- ---------- ------
NET ASSETS $4,692,302 $217,295 $1,959,532 $ 0
========== ======== ========== ======
Units Outstanding 427,743 23,715 193,123 0
========== ======== ========== ======
Unit Value $10.97 $9.16 $10.15 $0
====== ===== ====== ==
</TABLE>
See Notes to Financial Statements.
10
<PAGE>
RYDEX ADVISOR VARIABLE ANNUITY ACCOUNT
STATEMENT OF ASSETS AND LIABILITIES (Unaudited)
- --------------------------------------------------------------------------------
June 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Over-the- Precious U.S.
Counter Metals Government
Subaccount Subaccount Bond Subaccount Juno Subaccount
---------- ---------- --------------- ---------------
<S> <C> <C> <C> <C>
ASSETS
Securities at Value
(Note 1)--See
Accompanying Schedules $581,042 $132,090 $53,476 $1,402,182
Receivable for Futures
Contracts Settlement 0 0 0 6,750
Receivable from Advisor 694 986 1,555 1,497
Investment Income
Receivable 94 0 1,344 230
Cash on Deposit with
Broker 120,086 0 0 29,160
Unamortized Organization
Costs (Note 1) 92,364 93,511 93,511 92,364
-------- -------- ------- ----------
Total Assets 794,280 226,587 149,886 1,532,183
-------- -------- ------- ----------
LIABILITIES
Written Options at
Market Value 23,200 0 0 0
Investment Advisory Fee 842 79 73 761
Transfer Agent Fee 225 21 29 211
Organization Expense
Payable to Advisor 95,180 95,180 95,180 95,180
Amounts due to GARCO 1,572 147 205 1,184
Other Liabilities 8 0 1,581 14
-------- -------- ------- ----------
Total Liabilities 121,027 95,427 97,068 97,350
-------- -------- ------- ----------
NET ASSETS $673,253 $131,160 $52,818 $1,434,833
======== ======== ======= ==========
Units Outstanding 64,764 14,795 5,126 146,687
======== ======== ======= ==========
Unit Value $10.40 $8.87 $10.30 $9.78
====== ===== ====== =====
</TABLE>
See Notes to Financial Statements.
11
<PAGE>
RYDEX ADVISOR VARIABLE ANNUITY ACCOUNT
STATEMENT OF OPERATIONS (Unaudited)
- -------------------------------------------------------------------------------
Period Ended June 30, 1997
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Money
Nova Ursa Market I
Subaccount* Subaccount* Subaccount*
----------- ----------- -----------
<S> <C> <C> <C>
INVESTMENT INCOME
Interest $ 4,696 $ 409 $81,614
-------- ------- -------
Total Income 4,696 409 81,614
-------- ------- -------
EXPENSES
Advisory Fees (Note 7) 2,150 127 7,359
Transfer Agent Fees (Note 7) 717 35 2,944
Mortality and Expense Risk Fee (Note 5) 3,583 176 18,397
Organizational Expenses 2,816 2,816 414
Administration Fees 430 21 2,208
Custodian Fees 800 471 2,362
Miscellaneous 347 2 222
-------- ------- -------
Total Expenses 10,843 3,648 33,906
Less Expenses Waived and Reimbursed by
Investment Advisor 1,048 2,510 1,113
-------- ------- -------
Net Expenses 9,795 1,138 32,793
-------- ------- -------
NET INVESTMENT INCOME (LOSS) (5,099) (729) 48,821
-------- ------- -------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Net Realized Gain (Loss) on:
Investment Securities 100,843 0 0
Securities Sold Short 0 (9,200) 0
-------- ------- -------
Total Net Realized Gain (Loss) 100,843 (9,200) 0
Net Change in Unrealized Appreciation
(Depreciation)
On Investments, Options and Futures
Contracts (25,824) 809 0
-------- ------- -------
Net Gain (Loss) on Investments 75,019 (8,391) 0
-------- ------- -------
Net Increase (Decrease) in Net Assets
from Operations $ 69,920 $(9,120) $48,821
======== ======= =======
</TABLE>
* Commencement of Operations, May 7, 1997--Nova Subaccount and Ursa
Subaccount, January 27, 1997--Money Market I Subaccount
See Note to Financial Statements
12
<PAGE>
RYDEX ADVISOR VARIABLE ANNUITY ACCOUNT
STATEMENT OF OPERATIONS (Unaudited)
- -------------------------------------------------------------------------------
Period Ended June 30, 1997
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
U.S.
Over-the- Precious Government
Counter Metals Bond Juno
Subaccount* Subaccount* Subaccount* Subaccount*
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Interest $ 5,198 $ 102 $ 987 $ 4,518
Dividends 0 48 0 0
-------- -------- ------ -------
Total Income 5,198 150 987 4,518
-------- -------- ------ -------
EXPENSES
Advisory Fees (Note 7) 842 78 73 761
Transfer Agent Fees (Note 7) 225 21 29 211
Mortality and Expense Risk Fee
(Note 5) 1,404 130 183 1,057
Organizational Expenses 2,816 1,669 1,669 2,816
Administration Fees 168 16 22 127
Custodian Fees 510 216 230 508
Miscellaneous 9 2 0 15
-------- -------- ------ -------
Total Expenses 5,974 2,132 2,206 5,495
Less Expenses Reimbursed by
Investment Advisor 694 985 1,556 1,497
-------- -------- ------ -------
Net Expenses 5,280 1,147 650 3,998
-------- -------- ------ -------
Net Investment Income (Loss) (82) (997) 337 520
-------- -------- ------ -------
REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS
Net Realized Gain (Loss) on:
Investment Securities 21,078 (7,935) 9,930 (1,736)
Written Options 24,885 0 0 0
Futures Contracts 0 0 0 (3,728)
-------- -------- ------ -------
Total Net Realized Gain (Loss) 45,963 (7,935) 9,930 (5,464)
Net Change in Unrealized
Appreciation/(Depreciation) on
Investments, Options and
Futures Contracts (18,480) (6,888) (777) 11,982
-------- -------- ------ -------
27,483 (14,823) 9,153 6,518
-------- -------- ------ -------
Net Increase (Decrease) in Net
Assets from Operations $ 27,401 $(15,820) $9,490 $ 7,038
======== ======== ====== =======
</TABLE>
* Commencement of Operations: May 7, 1997--OTC Subaccount, May 29, 1997--
Precious Metals Subaccount, May 29, 1997--U.S. Government Bond Subaccount,
May 7, 1997--Juno Subaccount
See Notes to Financial Statements.
13
<PAGE>
RYDEX ADVISOR VARIABLE ANNUITY ACCOUNT
STATEMENT OF CHANGES IN NET ASSETS (Unaudited)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Nova Subaccount Ursa Subaccount
--------------- ---------------
Period Ended Period Ended
June 30,1997* June 30,1997*
--------------- ---------------
<S> <C> <C>
Changes from Operations
Net Investment Income (Loss) $ (5,099) $ (729)
Net Realized Gain (Loss) on Investments 100,843 (9,200)
Net Change in Unrealized Appreciation
(Depreciation) of Investments (25,824) 809
----------- ---------
Net Increase (Decrease) in Net Assets from
Operations 69,920 (9,120)
----------- ---------
Changes from Principal Transactions
Contract purchase payments less sales and
administration expenses and applicable
premium taxes 8,135,805 557,641
Contract terminations (3,513,423) (331,226)
----------- ---------
Net Increase (Decrease) in Net Assets derived
from Principal Transactions 4,622,382 226,415
----------- ---------
Net Increase in Net Assets 4,692,302 217,295
----------- ---------
NET ASSETS--Beginning of Period 0 0
----------- ---------
NET ASSETS--End of Period $ 4,692,302 $ 217,295
=========== =========
</TABLE>
* Commencement Of Operations: May 7, 1997--Nova Subaccount and Ursa Subaccount
See Notes to Financial Statements.
14
<PAGE>
RYDEX ADVISOR VARIABLE ANNUITY ACCOUNT
STATEMENT OF CHANGES IN NET ASSETS (Unaudited)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Money Market I
Subaccount
--------------
Period Ended
June 30,1997*
--------------
<S> <C>
Changes from Operations
Net Investment Income (Loss) $ 48,821
Net Realized Gain (Loss) on Investments 0
Net Change in Unrealized Appreciation (Depreciation) of
Investments 0
------------
Net Increase (Decrease) in Net Assets from Operations 48,821
------------
Changes from Principal Transactions
Contract purchase payments less sales and administrative
expenses
and applicable premium taxes 15,553,063
Contract termination (13,642,352)
------------
Net Increase (Decrease) in Net Assets derived from Principal
Transactions 1,910,711
------------
Net Increase in Net Assets 1,959,532
------------
NET ASSETS--Beginning of Period 0
------------
NET ASSETS--End of Period $ 1,959,532
============
</TABLE>
* Commencement Of Operations: January 27, 1997--Money Market I Subaccount
See Notes to Financial Statements.
15
<PAGE>
RYDEX ADVISOR VARIABLE ANNUITY ACCOUNT
STATEMENT OF CHANGES IN NET ASSETS (Unaudited)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Over-the- Precious Metals
Counter Subaccount Subaccount
------------------ ---------------
Period Ended Period Ended
June 30,1997* June 30,1997*
------------------ ---------------
<S> <C> <C>
Changes from Operations
Net Investment Income (Loss) $ (82) $ (997)
Net Realized Gain (Loss) on Investments 45,963 (7,935)
Net Change in Unrealized Appreciation
(Depreciation) of Investments (18,480) (6,888)
----------- --------
Net Increase (Decrease) in Net Assets from
Operations 27,401 (15,820)
----------- --------
Changes from Principal Transactions
Contract purchase payments less sales and
administrative expenses and applicable
premium taxes 2,586,825 238,933
Contract terminations (1,940,973) (91,953)
----------- --------
Net Increase (Decrease) in Net Assets
derived from Principal Transactions 645,852 146,980
----------- --------
Net Increase in Net Assets 673,253 131,160
----------- --------
NET ASSETS--Beginning of Period 0 0
----------- --------
NET ASSETS--End of Period $ 673,253 $131,160
=========== ========
</TABLE>
* Commencement Of Operations: May 7, 1997--OTC Subaccount, May 29, 1997--
Precious Metals Subaccount
See Notes to Financial Statements.
16
<PAGE>
RYDEX ADVISOR VARIABLE ANNUITY ACCOUNT
STATEMENT OF CHANGES IN NET ASSETS (Unaudited)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
U.S. Government Juno
Bond Subaccount Subaccount
--------------- -------------
Period Ended Period Ended
June 30,1997* June 30,1997*
--------------- -------------
<S> <C> <C>
Changes from Operations
Net Investment Income (Loss) $ 337 $ 520
Net Realized Gain (Loss) on Investments 9,930 (5,464)
Net Change in Unrealized Appreciation
(Depreciation) of Investments (777) 11,982
--------- -----------
Net Increase (Decrease) in Net Assets from
Operations 9,490 7,038
--------- -----------
Changes from Principal Transactions
Contract purchase payments less sales and
administrative expenses and applicable premium
taxes 757,382 2,772,633
Contract terminations (714,054) (1,344,838)
--------- -----------
Net Increase (Decrease) in Net Assets derived
from Principal Transactions 43,328 1,427,795
--------- -----------
Net Increase in Net Assets 52,818 1,434,833
--------- -----------
NET ASSETS--Beginning of Period 0 0
--------- -----------
NET ASSETS--End of Period $ 52,818 $ 1,434,833
========= ===========
</TABLE>
* Commencement Of Operations: May 29, 1997--U.S. Government Bond Subaccount,
May 7, 1997--Juno Subaccount
See Notes to Financial Statements.
17
<PAGE>
RYDEX ADVISOR VARIABLE ANNUITY ACCOUNT
SUPPLEMENTARY INFORMATION (Unaudited)
- -------------------------------------------------------------------------------
Period Ended June 30, 1997
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Money
Nova Ursa Market I
Subaccount* Subaccount* Subaccount*
----------- ----------- -----------
<S> <C> <C> <C>
Per Unit Data:
Net Asset Value--Beginning of Period $10.00 $10.00 $10.00
------ ------ ------
Net Investment Income (.03) (.07) .14
Net Realized and Unrealized
Gains (Losses) on Securities 1.00 (.77) .01
------ ------ ------
Net Increase (Decrease) in Net Asset
Value Resulting from Operations .97 (.84) .15
Dividends to Shareholders .00 .00 .00
Distributions to Shareholders From
Net Realized Capital Gain .00 .00 .00
------ ------ ------
Net Increase (Decrease) in Net Asset
Value .97 (.84) .15
------ ------ ------
Net Asset Value--End of Period $10.97 $ 9.16 $10.15
====== ====== ======
Total Investment Return** 65.56% (56.8%) 3.56%
Ratios to Average Net Assets** +
Expenses 3.41% 8.11% 2.23%
Net Investment Income (1.77%) (5.20%) 3.32%
Supplementary Data:
Portfolio Turnover Rate*** 101.18% 0% 0%
Net Assets,
End of Period (000's omitted) $4,692 $ 217 $1,959
</TABLE>
* Commencement of Operations: May 7, 1997--Nova Subaccount and Ursa
Subaccount, January 27, 1997--Money Market I Subaccount
** Annualized
*** Portfolio turnover ratio is calculated without regard to short-term
securities having a maturity of less than one year.
+ Ratios are net of voluntarily expense waiver/reimbursed made by Padco
Advisors II, Inc. as described in footnote 1.
See Notes to Financial Statements.
18
<PAGE>
RYDEX ADVISOR VARIABLE ANNUITY ACCOUNT
SUPPLEMENTARY INFORMATION (Unaudited)
- -------------------------------------------------------------------------------
Period Ended June 30, 1997
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
U.S.
Over-the- Precious Government
Counter Metals Bond Juno
Subaccount* Subaccount* Subaccount* Subaccount*
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Per Unit Data:
Net Asset Value--Beginning of
Period $10.00 $ 10.00 $10.00 $ 10.00
------ -------- ------ --------
Net Investment Income .00 (.08) .02 .00
Net Realized and Unrealized
Gains (Losses) on Securities .40 (1.05) .28 (.22)
------ -------- ------ --------
Net Increase (Decrease) in
Net Asset
Value Resulting from
Operations .40 (1.13) .30 (.22)
Dividends to Shareholders .00 .00 .00 .00
Distributions to Shareholders
From
Net Realized Capital Gain .00 .00 .00 .00
------ -------- ------ --------
Net Increase (Decrease) in
Net Asset
Value .40 (1.13) .30 (.22)
------ -------- ------ --------
Net Asset Value--End of
Period $10.40 $ 8.87 $10.30 $ 9.78
====== ======== ====== ========
Total Investment Return** 27.04% (100.00%) 34.22% (14.870%)
Ratios to Average Net Assets**+
Expenses 4.69% 10.75% 4.43% 4.73%
Net Investment Income (0.07%) (9.35%) 2.30% 0.62%
Supplementary Data:
Portfolio Turnover Rate*** 0% 97.10% 189.73% 0%
Net Assets,
End of Period (000's
omitted) $ 673 $ 131 $ 53 $ 1,435
</TABLE>
* Commencement of Operations: May 7, 1997--OTC Subaccount, May 29, 1997--
Precious Metals Subaccount, May 29, 1997--U.S. Government Bond Subaccount,
May 7, 1997--Juno Subaccount
** Annualized
*** Portfolio turnover ratio is calculated without regard to short-term
securities having a maturity of less than one year.
+ Ratios are net of voluntarily expense waiver/reimbursed made by Padco
Advisors II, Inc. as described in footnote 1.
See Notes to Financial Statements.
19
<PAGE>
RYDEX ADVISOR VARIABLE ANNUITY ACCOUNT
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
The Rydex Advisor Variable Annuity Account (the "Account") is registered with
the Securities and Exchange Commission under the Investment Company Act of 1940
as a non-diversified, open-ended investment company. The Trust consists of
eight Subaccounts, the Nova Subaccount, the Ursa Subaccount, the Money Market I
Subaccount, the Money Market II Subaccount, the Over-the-Counter Subaccount,
the Precious Metals Subaccount, the U.S. Government Bond Subaccount, and the
Juno Subaccount and is managed by Padco Advisors II Inc. Padco Financial
Services Inc. ("Padco") acts as principal underwriter only for the Account. The
following significant accounting policies are in conformity with generally
accepted accounting principles and are consistently followed by the Account in
the preparation of its financial statements.
The Account was established as a segregated investment account for individual
variable annuity contracts issued by Great American Reserve Insurance Company
("Garco"). Garco is an indirect wholly owned subsidiary of Conseco, Inc., a
publicly-held specialized financial services company listed on the New York
Stock Exchange.
Securities listed on an exchange are valued at the latest quoted sales prices
as of 4:00 P.M. on the valuation date. Securities not traded on an exchange are
valued at their last sales price. Listed options held by the Account are valued
at their last bid price. Over-the-counter options and U.S. Government
obligations held by the Account are valued using the average bid price obtained
from one or more security dealers. The value of futures contracts purchased and
sold by the Account are accounted for using the unrealized gain or loss on the
contracts that is determined by marking the contracts to their current realized
settlement prices. Short term securities with less than sixty days to maturity
are valued at amortized cost, which approximates market. Security and assets
for which market quotations are not readily available are valued at fair value
as determined in good faith by or under direction of the Board of Trustees.
Securities transactions are recorded on a trade date plus one basis (the
following business day the order to buy or sell is executed). Realized gains
and losses from securities transactions are recorded on the identified cost
basis. Dividend income is recorded on the ex-dividend date. Interest income and
expenses are accrued on a daily basis.
Deferred organization and initial offering costs represent expenses incurred by
GARCO and PADCO in connection with this offering and will be amortized on a
straight line basis over five years commencing on the effective date of the
Separate Account's initial prospectus. These costs have been allocated to the
subaccounts based on estimates of expenses incurred. The Separate Account has
agreed to reimburse GARCO and PADCO for the organization expenses advanced by
GARCO and PADCO, respectively. The advances are repayable on demand but must be
fully repaid within five years. The proceeds realized by
20
<PAGE>
RYDEX ADVISOR VARIABLE ANNUITY ACCOUNT
NOTES TO FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
GARCO upon withdrawal during the amortization period of any of the accumulation
units constituting initial capital will be reduced by a proportionate amount of
the unamortized deferred organization expenses which the number of initial
units redeemed bears to the number of initial units then outstanding. At,
June 30, 1997, accrued organizational expenses payable to GARCO and PADCO were
$195,435 and $385,645, respectively.
A Subaccount is considered active when the first unit is purchased. There were
no units of the Money Market II Subaccount purchased for the period ended June
30, 1997. The Money Market II Subaccount was not active for this period and,
therefore, the Statement of Operations, Statement of Changes, and Supplementary
Information was not prepared for this Subaccount. The Money Market II
Subaccount has an asset and an offsetting liability of $5,000 related to
organization cost.
Padco Advisors II, Inc. has voluntarily agreed to waive advisory fees for any
subaccount for expenses in excess of the specified expense limitations (up to
the amount of the applicable Advisory Fee). In addition, Padco Advisors II,
Inc. at its discretion may reimburse additional expenses.
2. INVESTMENT TRANSACTIONS
Consistent with its investment objective, the Account engages in the following
practices to manage exposure to certain risks or enhance performance. The
investment objective, policies, program, and risk factors of the Account are
described more fully in the Account's prospectus and Statement of Additional
Information.
When the Account engages in a short sale, an amount equal to the proceeds
received by the Account is reflected as an asset and an equivalent liability.
The amount of the liability is subsequently marked to market to reflect the
market value of the short sale. The Account maintains a segregated account of
securities as collateral for the short sales. The Account is exposed to market
risk based on the amount, if any, that the market value of the stock exceeds
the market value of the securities in the segregated account.
When the Account writes (sells) an option, an amount equal to the premium
received is entered in the Account's accounting records as an asset and
equivalent liability. The amount of the liability is subsequently marked to
market to reflect the current value of the option written. When an option
expires, or if the Account enters into a closing purchase transaction, the
Account realizes a gain (or loss if the cost of a closing purchase transaction
exceeds the premium received when the option was sold).
The Account may purchase or sell stock index futures contracts and options on
such futures contracts. Futures contracts are contracts for delayed delivery of
securities at a specified future delivery date and at a specific price. Upon
entering into a contract, the Account deposits and maintains as collateral such
initial margin as required by the exchange on which the transaction is
effected. Pursuant to the contract, the Account agrees to receive from or pay
to the broker an amount of cash equal to the daily fluctuation in value of the
contract. Such receipts or payments are known as variation margin and are
recorded by
21
<PAGE>
RYDEX ADVISOR VARIABLE ANNUITY ACCOUNT
NOTES TO FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
the Account as unrealized gains or losses. When the contract is closed, the
Account records a realized gain or loss equal to the difference between the
value of the contract at the time it was opened and the value at the time it
was closed.
Futures contracts and written options involve to varying degrees, elements of
market risk and risks in excess of the amount recognized in the Statements of
Assets and Liabilities. The face or contract amounts reflect the extent of the
involvement each subaccount has in the particular classes of instruments. Risks
may be caused by an imperfect correlation between movements in the price of the
instruments and the price of the underlying securities.
3. FEDERAL INCOME TAXES
No provision for federal income taxes has been made in the accompanying
financial statements because the operations of the Account are included in the
operations of Garco, which is treated as a life insurance company for federal
income tax purposes under the Internal Revenue Code. Net investment income and
net realized gains (losses) are retained in the Account and are not taxable
until received by the contract owner or beneficiary in the form of annuity
payments or other distributions.
4. USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amount of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
5. DEDUCTIONS AND EXPENSES
Although periodic retirement payments to contract owners vary according to the
investment performance of the portfolios, such expenses are not affected by
expense or mortality experience because Garco assumes the mortality risk and
the expense risk under the contracts.
The mortality risk assumed by Garco results from the life annuity payment
option in the contracts in which Garco agrees to make annuity payments
regardless of how long a particular annuitant or other payee lives. The annuity
payments are determined in accordance with annuity purchase rate provisions
established at the time the contracts are issued. Based on the actual
determination of expected mortality, Garco is required to fund any deficiency
in the annuity payment reserves from its general account assets.
A fee, which is equal on an annual basis to 1.25% of the daily value of the
account, is deducted on a daily basis from each account for assuming the
mortality and expense risks. These fees were $24,930 for the period ended June
30, 1997.
An administrative charge, which is equal on an annual basis to .15% of the
daily value of the Account, is deducted on a daily basis from each account for
contract administrative charges. These fees were $2,992 for the period ended
June 30, 1997.
22
<PAGE>
RYDEX ADVISOR VARIABLE ANNUITY ACCOUNT
NOTES TO FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
6. REPURCHASE AGREEMENTS
The Account transfers uninvested cash balances into a single joint account, the
daily aggregate balance of which is invested a repurchase agreement
collateralized by Federal agency obligations. Collateral is in the possession
of the account's custodian and it is evaluated daily to ensure that its market
value exceeds the delivery value of the repurchase agreements at maturity. As
of June 30,1997 the repurchase agreement with Fuji Securities in the joint
account and the collateral therefore was as follows:
<TABLE>
<CAPTION>
Security Type Rates Par Value Market Value
- ------------- ----- ---------- ------------
<S> <C> <C> <C>
United States Treasury Notes 5.95% $6,680,000 $6,779,656
</TABLE>
7. INVESTMENT ADVISORY AND TRANSFER AGENT SERVICES
Under the terms of an investment advisory contract, the Account pays PADCO
Advisors II, Inc. investment advisory fees calculated at an annual percentage
rate of one half of one percent (0.50%) of the net assets of the Money Market I
Subaccount and the U.S. Government Bond Subaccount, three-quarters of one
percent (0.75%) of the net assets of the Nova Subaccount, the Precious Metals
Fund, and the Over-the-Counter Subaccount, and nine-tenths of one percent
(0.90%) of the net assets of the Ursa Subaccount and the Juno Subaccount.
Garco provides transfer agent service to the Trust at an annual rate of two-
tenths of one percent (0.20%) of the net assets of the Money Market I
Subaccount, U.S. Government Bond Subaccount, Precious Metals Subaccount, and
the Over-the-Counter Subaccount; and at annual rate of one-quarter of one
percent (0.25%) of the Nova Subaccount, the Ursa Subaccount, and the Juno
Subaccount.
8. SECURITIES TRANSACTIONS
During the period ended June 30, 1997 purchases and sales of investment
securities were:
<TABLE>
<CAPTION>
Money
Nova Ursa Market I
Subaccount Subaccount Subaccount
---------- ---------- ----------
<S> <C> <C> <C>
Purchases $2,224,099 $ 0 $ 0
Sales $1,149,462 $ 0 $ 0
</TABLE>
<TABLE>
<CAPTION>
U.S.
Over-the- Precious Government
Counter Metals Bond Juno
Subaccount Subaccount Subaccount Subaccount
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Purchases $ 0 $240,361 $703,526 $ 0
Sales $ 0 $ 95,676 $657,793 $ 0
</TABLE>
The transactions shown above exclude short term and temporary cash investments.
23
<PAGE>
RYDEX ADVISOR VARIABLE ANNUITY ACCOUNT
NOTES TO FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
9. NET ASSETS
Net assets consisted of the following at June 30, 1997:
<TABLE>
<CAPTION>
Money
Nova Ursa Market I
Subaccount Subaccount Subaccount
---------- ---------- ----------
<S> <C> <C> <C>
Paid-In-Capital $4,622,382 $226,415 $1,910,711
Net Investment Income 0 0 48,821
Net Investment Loss (5,099) (729) 0
Accumulated Net Realized Gain
(Loss) on Investments 100,843 (9,200) 0
Net Unrealized Appreciation
(Depreciation) on Investments, Options and
Futures
Contracts (25,824) 809 0
---------- -------- ----------
Net Assets $4,692,302 $217,295 $1,959,532
========== ======== ==========
</TABLE>
<TABLE>
<CAPTION>
U.S.
Over-the- Precious Government
Counter Metals Bond Juno
Subaccount Subaccount Subaccount Subaccount
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Paid-In-Capital $645,853 $146,980 $43,328 $1,427,795
Net Investment Income 0 0 337 520
Net Investment Loss (82) (997) 0 0
Accumulated Net Realized Gain
(Loss) on Investments 45,963 (7,935) 9,930 (5,464)
Net Unrealized Appreciation
(Depreciation) on Investments,
Options and Futures
Contracts (18,481) (6,888) (777) 11,982
-------- -------- ------- ----------
Net Assets $673,253 $131,160 $52,818 $1,434,833
======== ======== ======= ==========
</TABLE>
24
<PAGE>
RYDEX ADVISOR VARIABLE ANNUITY ACCOUNT
NOTES TO FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
10. INCREASE/DECREASE IN ACCUMULATION UNITS
Transactions in units for the period ended June 30, 1997 were:
<TABLE>
<CAPTION>
Money
Nova Ursa Market I
Subaccount Subaccount Subaccount
---------- ---------- -----------
<S> <C> <C> <C>
Units Purchased 751,064 58,390 1,540,596
Units Withdrawn (323,321) (34,675) (1,347,473)
--------- -------- -----------
Net Units Purchased 427,743 23,715 193,123
========= ======== ===========
</TABLE>
<TABLE>
<CAPTION>
U.S.
Over-the- Precious Government
Counter Metals Bond Juno
Subaccount Subaccount Subaccount Subaccount
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Units Purchased 251,128 24,929 75,510 281,901
Units Withdrawn (186,364) (10,134) (70,384) (135,214)
--------- -------- -------- ---------
Net Units Purchased 64,764 14,795 5,126 146,687
========= ======== ======== =========
</TABLE>
Transactions in dollars for the period ended June 30, 1997 were:
<TABLE>
<CAPTION>
Money
Nova Ursa Market I
Subaccount Subaccount Subaccount
----------- ---------- ------------
<S> <C> <C> <C>
Units Purchased $ 8,135,805 $ 557,641 $ 15,553,063
Units Withdrawn (3,513,423) (331,226) (13,642,352)
----------- --------- ------------
Net Units Purchased $ 4,622,382 $ 226,415 $ 1,910,711
=========== ========= ============
</TABLE>
<TABLE>
<CAPTION>
U.S.
Over-the- Precious Government
Counter Metals Bond Juno
Subaccount Subaccount Subaccount Subaccount
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Units Purchased $ 2,586,825 $238,933 $ 757,381 $ 2,772,632
Units Withdrawn (1,940,972) (91,953) (714,053) (1,344,837)
----------- -------- --------- -----------
Net Units Purchased $ 645,853 $146,980 $ 43,328 $ 1,427,795
=========== ======== ========= ===========
</TABLE>
25
<PAGE>
OFFERED THROUGH
PADCO FINANCIAL SERVICES, INC.
6116 EXECUTIVE BLVD., SUITE 400
ROCKVILLE, MD 20852
888/667-4936
BY
GREAT AMERICAN RESERVE
INSURANCE COMPANY
11815 NORTH PENNSYLVANIA STREET
CARMEL, IN 46032
800/437-3506
LOGO
RYDEX ADVISOR
VARIABLE ANNUITY ACCOUNT
OF GREAT AMERICAN RESERVE
INSURANCE COMPANY
SEMI-ANNUAL REPORT
JUNE 30, 1997
NOVA SUBACCOUNT
URSA SUBACCOUNT
JUNO SUBACCOUNT
OTC SUBACCOUNT
PRECIOUS METALS SUBACCOUNT
U.S. GOVERNMENT BOND SUBACCOUNT
MONEY MARKET I SUBACCOUNT
