RYDEX VARIABLE TRUST, N-1A, 1998-06-17

RYDEX VARIABLE TRUST
N-1A, 1998-06-17

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<PAGE>

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 17, 1998

FILE NO.
FILE NO.

- - --------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM N-1A

REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933

and

REGISTRATION STATEMENT UNDER THE INVESTMENT ACT OF 1940

RYDEX VARIABLE TRUST
(Exact Name of Registrant as Specified in Charter)

C/O 6116 EXECUTIVE BOULEVARD, SUITE 400
ROCKVILLE, MARYLAND 20852
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, ZIP CODE)

Registrant's Telephone Number, including Area Code (301) 468-8520

ALBERT P. VIRAGH, JR.
RYDEX
6116 EXECUTIVE BOULEVARD, SUITE 400
ROCKVILLE, MARYLAND 20852
(Name and Address of Agent for Service)

Copies to:

JOHN H. GRADY, Jr., ESQUIRE
Morgan, Lewis & Bockius LLP
1800 M STREET, N.W.
WASHINGTON, D.C. 20036

- - --------------------------------------------------------------------------------

/X/ Approximate date of Proposed Public Offering:
As soon as practicable after the
effective date of this Registration Statement

- - --------------------------------------------------------------------------------

Registrant hereby amends this Registration Statement on such date or dates as
may be necessary to delay its effective date until the Registrant shall file a
further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission acting pursuant to said Section 8(a)
may determine.

<PAGE>

- - -----------------------------------------------------------------------------
RYDEX-Registered Trademark-
INVESTMENT FLEXIBILITY
FOR INSTITUTIONAL MONEY MANAGERS
- - -----------------------------------------------------------------------------

RYDEX VARIABLE TRUST
6116 Executive Boulevard, Suite 400, Rockville, Maryland 20852
1-800-820-0888 301-468-8520

BENCHMARK FUNDS

NOVA FUND
URSA FUND
OTC FUND
PRECIOUS METALS FUND
U.S. GOVERNMENT BOND FUND
JUNO FUND

MONEY MARKET FUND

U.S. GOVERNMENT MONEY MARKET 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
LEISURE FUND
RETAILING FUND
TECHNOLOGY FUND
TELECOMMUNICATIONS FUND
TRANSPORTATION FUND

Rydex Variable Trust (the "Trust") is a mutual fund complex with twenty-one
separate investment portfolios (the "Rydex Variable Funds"), all of which are
described in this Prospectus (the "Funds"). Shares of the Funds are available
exclusively for variable annuity and variable life insurance products sold to
investors who utilize professional money managers to take part in certain
strategic and tactical asset-allocation investment programs.

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.

September 1, 1998
PROSPECTUS

<PAGE>

TABLE OF CONTENTS

Risk/Return Summary. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment Summaries. . . . . . . . . . . . . . . . . . . . . . . . . .
Investment Strategies . . . . . . . . . . . . . . . . . . . . . . . . .
Risk Considerations . . . . . . . . . . . . . . . . . . . . . . . . . .
Fund Performance and Fee Information . . . . . . . . . . . . . . . . . . . .
Nova Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Ursa Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
OTC Fund. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Precious Metals Fund. . . . . . . . . . . . . . . . . . . . . . . . . .
U.S. Government Bond Fund . . . . . . . . . . . . . . . . . . . . . . .
Juno Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Banking Fund. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Basic Materials Fund. . . . . . . . . . . . . . . . . . . . . . . . . .
Biotechnology Fund. . . . . . . . . . . . . . . . . . . . . . . . . . .
Consumer Products Fund. . . . . . . . . . . . . . . . . . . . . . . . .
Electronics Fund. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Energy Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Energy Services Fund. . . . . . . . . . . . . . . . . . . . . . . . . .
Financial Services Fund . . . . . . . . . . . . . . . . . . . . . . . .
Health Care Fund. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Leisure Fund. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retailing Fund. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Technology Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Telecommunications Fund . . . . . . . . . . . . . . . . . . . . . . . .
Transportation Fund . . . . . . . . . . . . . . . . . . . . . . . . . .
U.S. Government Money Market Fund . . . . . . . . . . . . . . . . . . .
Additional Risk Information . . . . . . . . . . . . . . . . . . . . . .
Purchasing and Redeeming Shares. . . . . . . . . . . . . . . . . . . . . . .
Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends, Distributions and Taxes . . . . . . . . . . . . . . . . . . . . .
Financial Highlights . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Benchmark Information. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additional Information . . . . . . . . . . . . . . . . . . . . . .Back Cover

2
<PAGE>

RISK/RETURN SUMMARY

INVESTMENT SUMMARIES

BENCHMARK FUNDS

Most of the Benchmark Funds seek to match or exceed the performance of a
specific benchmark or index. The benchmark or index used by each Benchmark Fund
is set forth below:

<TABLE>
<CAPTION>
- - --------------------------------------------------------------------------------
FUND BENCHMARK/INDEX
- - --------------------------------------------------------------------------------
<S> <C>
Nova Fund 150% of the performance of the S&P 500 Composite
Stock Price Index-TM- (SPX)
- - --------------------------------------------------------------------------------
URSA FUND INVERSE (OPPOSITE) OF THE S&P 500 COMPOSITE STOCK
PRICE INDEX-TM-
- - --------------------------------------------------------------------------------
OTC Fund NASDAQ 100 Index-TM- (NDX)
- - --------------------------------------------------------------------------------
PRECIOUS METALS FUND PHILADELPHIA STOCK EXCHANGE GOLD/SILVER INDEX-TM-
(XAU)
- - --------------------------------------------------------------------------------
U.S. Government Bond Fund 120% of the price movement of the Long Treasury
Bond
- - --------------------------------------------------------------------------------
JUNO FUND INVERSE (OPPOSITE) OF THE PRICE MOVEMENT OF THE
LONG TREASURY BOND
- - --------------------------------------------------------------------------------
</TABLE>

A BRIEF GUIDE TO THE BENCHMARKS.
- - --------------------------------------------------------------------------------
THE S&P 500 COMPOSITE STOCK PRICE INDEX-TM- (S&P 500 INDEX). The S&P 500 Index
is composed of 500 common stocks, which are chosen by the Standard & Poor's
Corporation ("S&P"), on a statistical basis to be included in the S&P 500 Index.

THE NASDAQ 100 INDEX-TM-. The NASDAQ 100 Index-TM- is a capitalization-weighted
index composed of 100 of the largest non-financial securities listed on the
National Association of Securities Dealers Automated Quotations System.

THE PHILADELPHIA STOCK EXCHANGE GOLD/SILVER INDEX-TM- (XAU INDEX). The XAU
Index is a capitalization-weighted index featuring securities of ten widely-held
companies in the gold and silver mining and production industry or companies
that invest in such mining and production companies.

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.
- - --------------------------------------------------------------------------------

3
<PAGE>

EQUITY BENCHMARK FUNDS
The NOVA FUND'S investment objective is to provide investment returns that
correspond to 150% of the performance of the S&P 500 Index.

The URSA FUND'S investment objective is to provide investment results that will
inversely correlate to the performance of the S&P 500 Index.

The OTC FUND'S investment objective is to provide investment results that
correspond to a benchmark for over-the-counter securities.

The PRECIOUS METALS FUND'S ("Metals Fund") investment objective is to provide
investment results that correspond to a benchmark primarily for metals-related
securities.

FIXED INCOME BENCHMARK FUNDS
The U.S. GOVERNMENT BOND FUND'S (the "Bond Fund") investment objective is to
provide investment results that correspond to a benchmark for U.S. Government
securities.

The JUNO FUND'S investment objective is to provide total returns that inversely
correlates to the price movements of a benchmark for U.S. Treasury debt
instruments or futures contract on a specified debt instrument.

MONEY MARKET FUND
The U.S. GOVERNMENT MONEY MARKET FUND'S ("Money Market Fund") investment
objective is to provide security of principal, high current income, and
liquidity.
SECTOR FUNDS

Each Sector Fund seeks to match the performance of a particular economic sector
by purchasing a sampling of securities of relevant sector that meet certain
liquidity, market capitalization and correlation requirements.

The BANKING FUND seeks capital appreciation by investing in companies that are
involved in the banking sector, including commercial banks (and their holding
companies) and savings and loan institutions.

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.

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.

The CONSUMER PRODUCTS FUND seeks capital appreciation by investing in companies
engaged in manufacturing finished goods and services both domestically and
internationally.

4
<PAGE>

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.

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.

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.

The FINANCIAL SERVICES FUND seeks capital appreciation by investing in companies
that are involved in the financial services sector, including commercial banks,
savings and loan associations, insurance companies, brokerage companies, and
real estate and leasing companies.

The HEALTH CARE FUND seeks capital appreciation by investing in companies that
are involved in the health care industry.

The LEISURE FUND seeks capital appreciation by investing in companies engaged in
leisure and entertainment businesses, including hotels and resorts, casinos,
radio and television broadcasting and advertising, motion picture production,
toys and sporting goods manufacture, musical recordings and instruments, alcohol
and tobacco, and publishing.

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.

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.

The TELECOMMUNICATIONS FUND seeks capital appreciation by investing in companies
engaged in the development, manufacture, or sale of communications services or
communications equipment.

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.

THE INVESTMENT OBJECTIVE OF EACH SECTOR FUND IS NON-FUNDAMENTAL AND MAY BE
CHANGED WITHOUT SHAREHOLDER APPROVAL.

5
<PAGE>

INVESTMENT STRATEGIES

BENCHMARK FUNDS

PADCO Advisors, Inc. (the "Advisor") primarily uses statistical and quantitative
analysis to select investments. While the Advisor attempts to minimize any
"tracking error" (the difference between the investment results of a Benchmark
Fund and the Fund's benchmark), a Fund's investment results may vary from that
of its benchmark. It is the policy of the Benchmark Funds to pursue their
investment objectives regardless of market conditions, to remain nearly fully
invested, and not to take defensive positions.

EQUITY BENCHMARK FUNDS
The NOVA FUND primarily invests in equity stock index futures contracts, options
on stock index futures contracts, and options on securities and stock indexes.

The URSA FUND engages primarily in certain transactions in stock index futures
contracts, options on stock index future contracts, and options on securities
and stock indexes.

The OTC FUND invests principally in securities in its current benchmark, the
NASDAQ 100 Index-TM-. The OTC Fund may also purchase other instruments which
are expected to provide returns that correspond to those of the NASDAQ 100
Index-TM-. The OTC Fund may engage in transactions on stock index futures
contracts, options on stock index futures contracts, and options on securities
and stock indexes.

The METALS FUND invests principally in securities included in its current
benchmark, the XAU Index. In addition, the Fund may invest in other securities
that are expected to track the performance of the XAU Index. The Fund may
invest in securities of foreign issuers.

FIXED INCOME BENCHMARK FUNDS
The BOND FUND invests primarily in U.S. Government Securities to achieve returns
that correlate to 120% of the price movement of the Long Treasury Bond. The
Fund may engage in transactions in futures contracts on U.S. Treasury bonds.
The Fund may invest in zero coupon U.S. Treasury bonds.

The JUNO FUND engages primarily in transactions in futures contracts and options
on U.S. Government Securities to achieve returns that inversely correlate to the
price movement of the Long Treasury Bond.

MONEY MARKET FUND
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 enters into repurchase agreements fully collateralized by
U.S. Government Securities.

6
<PAGE>

SECTOR FUNDS

The Advisor uses a quantitative model to select securities for each Sector Fund.
Each Sector Fund invests substantially all of its assets in a portfolio of
equity securities, including common stocks, preferred stocks, warrants, rights,
and securities convertible into common stock, of issuers doing business in the
business sector that is included in the Fund's name. The Sector Funds may also
engage in futures and options and short sale transactions.

RISK CONSIDERATIONS

The Funds are designed for professional money managers and knowledgeable
investors who intend to invest in the Rydex Variable Funds as part of a
strategic or tactical asset-allocation investment strategy under variable
insurance contracts.

The Funds:

- are not federally insured
- are not guaranteed by any government agency
- are not bank deposits
- are not guaranteed to achieve their objectives

Although the Money Market Fund seeks to preserve the value of your investment at
$1.00 per share, it is possible to lose money by investing in the Fund.

In addition, one or more of the Funds may be subject to the following risks:

TRACKING ERROR RISK - While the Benchmark Funds do not expect returns to deviate
from their respective benchmarks by more than ten percent, factors such as Fund
expenses, imperfect correlation between the Benchmark 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
correlation. The magnitude of any tracking error may be affected by a higher
portfolio turnover rate.

LEVERAGING RISK - Leveraging activities include, among other things, borrowing
and the use of short sales, options and futures. There are risks associated
with leveraging activities, including:

- - - Leveraging may result in a Fund experiencing losses over certain ranges in
the market that exceed the Fund's investment in the instrument.
- - - There may be an imperfect or no correlation between the changes in market
value of the securities held by a Fund and the prices of futures and
options on futures.
- - - Although the Funds will only purchase exchange-traded futures and options,
due to market conditions, there may not be a liquid secondary market for a
futures contract or option. As a result, the Funds may be unable to close
out their futures or options contracts at a time which is advantageous.
- - - Trading restrictions or limitations may be imposed by an exchange, and
government regulations may restrict trading in futures contracts and
options.

7
<PAGE>

NON-DIVERSIFICATION RISK - Since each Fund (except the Money Market Fund) is
non-diversified, each Fund may invest in the securities of a relatively few
number of issuers. If the assets of a Fund are invested in a limited number of
issuers, the Fund may be more susceptible to a single adverse economic or
regulatory occurrence.

TRADING HALT RISK - The Funds (other than the Money Market Fund) typically will
hold short-term options and futures contracts. The major exchanges on which
these contracts are traded, such as the Chicago Board of Trade ("CBOT"), 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.

EARLY CLOSING RISK - 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.

PORTFOLIO TURNOVER RATE RISK - The Trust anticipates that investors that are
part of asset-allocation strategies 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 more brokerage
commissions and generating greater tax liabilities for shareholders.

SECTOR RISK - The risk that the economic sector in which a Sector Fund focuses
its investments will underperform the market as a whole. To the extent that a
Sector Fund's investments are concentrated in issuers conducting business in the
same economic sector, the Fund is subject to the risks of investing in that
sector, including legislative or regulatory changes, adverse market conditions
and/or increased competition.

CONCENTRATION RISK - None of the Benchmark Funds will invest 25% or more of the
value of its 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 index selected for a particular Benchmark Fund is
concentrated in a particular industry, the Fund will 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.

The Advisor will endeavor to ensure that each Sector Fund remains fully invested
in its economic sector at all times. However, since the Advisor may not be able
to achieve sufficient exposure to an economic sector at low asset levels, if the
assets of any Sector Fund fall below approximately $250,000, the Trust reserves
the right to liquidate the Fund's portfolio securities and invest the Fund's
assets in cash or other liquid, short-term obligations until such time as the
assets of the Fund exceed $250,000.

8
<PAGE>

FUND PERFORMANCE AND FEE INFORMATION

FUND PERFORMANCE

The bar chart and table below show the performance of the Nova Fund both
year-by-year and as an average over different periods of time. The variability
of performance over time provides an indication of the risks of investing in the
Fund. Of course, this past performance does not necessarily indicate how the
Fund will perform in the future.

[BAR CHART - PRIOR SUBACCOUNT PERFORMANCE]*

*The year-to-date return for the period from January 1, 1998 through June 30,
1998 is _____%.

During the period shown in the bar chart, the highest return for a quarter was
___% (quarter ended _________, 19____) and the lowest return for a quarter
was - ___% (quarter ended_____________, 19____).

AVERAGE ANNUAL TOTAL RETURN (FOR PERIODS ENDING DECEMBER 31, 1997)(1)

Investor Class Shares S&P 500(2)
--------------------------------------
<S> <C> <C>
Past One Year _____% _____%
Since Inception _____% (__/__/__) _____%
</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 NOVA FUND.
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>

<S> <C>
SHAREHOLDER FEES
Redemption Fees* None

ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE
DEDUCTED FROM NET ASSETS)
Management Fees .75%
Distribution (12b-1) Fees None
Other Expenses %
-------
Total Annual Fund Operating Expenses** %
</TABLE>

* THE FUND MAY IMPOSE A WIRE TRANSFER CHARGE OF $15 ON CERTAIN REDEMPTIONS
UNDER $5,000.

** THE ADVISOR HAS VOLUNTARILY AGREED TO WAIVE ITS FEES AND/OR REIMBURSE
EXPENSES TO KEEP TOTAL ANNUAL FUND OPERATING EXPENSES FROM EXCEEDING 2.20%.

EXAMPLE
THIS EXAMPLE IS INTENDED TO HELP YOU COMPARE THE COST OF INVESTING IN 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:

1 YEAR 3 YEARS 5 YEARS 10 YEARS
- - ------ ------- ------- --------
<S> <C> <C> <C>
$______ $_______ $_______ $_______
</TABLE>

9
<PAGE>

FUND INFORMATION

NOVA FUND

FUND OBJECTIVE

The NOVA FUND seeks to provide investment returns are one and one-half times
that of the S&P 500 Index.

PORTFOLIO INVESTMENTS

The Fund invests to a significant extent in futures contracts and options on
securities, futures contracts, and indexes. These instruments, if properly
utilized, may enable the Fund to meet its objective without investing directly
in the securities included in the benchmark index. The Fund also may purchase
equity securities and enter into repurchase agreements.

RISK CONSIDERATIONS

The Nova Fund is subject to Leveraging Risk, Tracking Error Risk, and Trading
Halt Risk, as described in the "RISK CONSIDERATIONS" section.

The value of the Fund's shares will tend to increase by one and one-half times
the value of the S&P 500 Index. However, when the value of the S&P 500 Index
declines, the value of the Fund's shares should also decrease by one and
one-half times the value of any decrease in the Index.

10
<PAGE>

FUND PERFORMANCE AND FEE INFORMATION

FUND PERFORMANCE

The bar chart and table below show the performance of the Ursa Fund both
year-by-year and as an average over different periods of time. The variability
of performance over time provides an indication of the risks of investing in the
Fund. Of course, this past performance does not necessarily indicate how the
Fund will perform in the future.

[BAR CHART - PRIOR SUBACCOUNT PERFORMANCE]*

*The year-to-date return for the period from January 1, 1998 through June 30,
1998 is _____%.

During the period shown in the bar chart, the highest return for a quarter
was ______% (quarter ended _________, 19____) and the lowest return for a
quarter was -_______% (quarter ended _________, 19____).

AVERAGE ANNUAL TOTAL RETURN (FOR PERIODS ENDING DECEMBER 31, 1997)(1)

Investor Class Shares S&P 500(2)
--------------------------------------------
<S> <C> <C>
Past One Year _____% _____%
Since Inception _____ (__/__/__) _____%
</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 FUND.
- - -------------------------------------------------------------------------------

<S> <C>
SHAREHOLDER FEES
Redemption Fees* None

ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED
FROM NET ASSETS)
Management Fees .90%
Distribution (12b-1) Fees None
Other Expenses %
-------
Total Annual Fund Operating Expenses** %
</TABLE>

* THE FUND MAY IMPOSE A WIRE TRANSFER CHARGE OF $15 ON CERTAIN REDEMPTIONS
UNDER $5,000.

** THE ADVISOR HAS VOLUNTARILY AGREED TO WAIVE ITS FEES AND/OR REIMBURSE
EXPENSES TO KEEP TOTAL ANNUAL FUND OPERATING EXPENSES FROM EXCEEDING 2.30%.

EXAMPLE

THIS EXAMPLE IS INTENDED TO HELP YOU COMPARE THE COST OF INVESTING IN THE URSA
FUND WITH THE COST OF INVESTING IN OTHER MUTUAL FUNDS.

1 YEAR 3 YEARS 5 YEARS 10 YEARS
- - ------ ------- ------- --------
<S> <C> <C> <C>
$______ $_______ $_______ $_______
</TABLE>

11
<PAGE>

FUND INFORMATION

URSA FUND

FUND OBJECTIVE

The URSA FUND seeks to provide investment results that will inversely correlate
to the performance of the S&P 500 Index.

PORTFOLIO INVESTMENTS

The Fund invests, to a significant extent, in futures contracts and options on
securities, futures contracts, and indexes. These instruments, if properly
utilized, may enable the Fund to meet its objective without investing directly
in the securities included in the benchmark index. The Fund also may enter into
repurchase agreements.

RISK CONSIDERATIONS

The Ursa Fund is subject to Trading Error Risk and Trading Halt Risk, as
described in the "RISK CONSIDERATIONS" section.

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 by an
inversely proportionate amount (E.G., if the S&P 500 Index goes up by 10%, the
value of the Fund's shares should go down by 10%).

12
<PAGE>

FUND PERFORMANCE AND FEE INFORMATION

FUND PERFORMANCE

The bar chart and table below show the performance of the OTC Fund both
year-by-year and as an average over different periods of time. The variability
of performance over time provides an indication of the risks of investing in the
Fund. Of course, this past performance does not necessarily indicate how the
Fund will perform in the future.

[BAR CHART - PRIOR SUBACCOUNT PERFORMANCE]*

*The year-to-date return for the period from January 1, 1998 through June 30,
1998 is _____%.

During the period shown in the bar chart, the highest return for a quarter
was ______% (quarter ended __________, 19____) and the lowest return for a
quarter was -______% (quarter ended ________, 19_____).

AVERAGE ANNUAL TOTAL RETURN (FOR PERIODS ENDING DECEMBER 31, 1997)(1)

Investor Class Shares NASDAQ 100 Index-TM-
-----------------------------------------------
<S> <C> <C>
Past One Year _____% _____%
Since Inception _____ (__/__/__) _____%
</TABLE>

- - ---------------

(1) These figures assume the reinvestment of dividends and capital gains
distributions.

(2) The NASDAQ 100 Index-TM- is an unmanaged index that is a widely recognized
indicator of OTC market performance.

FEES AND EXPENSES OF THE FUND

This table describes the fees and expenses that you may pay if you buy and hold
Shares of the OTC FUND.
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>

<S> <C>
SHAREHOLDER FEES
Redemption Fees* None

ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED
FROM NET ASSETS)
Management Fees .75%
Distribution (12b-1) Fees None
Other Expenses %
-------
Total Annual Fund Operating Expenses** %
</TABLE>

* THE FUND MAY IMPOSE A WIRE TRANSFER CHARGE OF $15 ON CERTAIN REDEMPTIONS
UNDER $5,000.

** THE ADVISOR HAS VOLUNTARILY AGREED TO WAIVE ITS FEES AND/OR REIMBURSE
EXPENSES TO KEEP TOTAL ANNUAL FUND OPERATING EXPENSES FROM EXCEEDING 2.20%.

EXAMPLE

THIS EXAMPLE IS INTENDED TO HELP YOU COMPARE THE COST OF INVESTING IN THE OTC
FUND WITH THE COST OF INVESTING IN OTHER MUTUAL FUNDS.

1 YEAR 3 YEARS 5 YEARS 10 YEARS
- - ------ ------- ------- --------
<S> <C> <C> <C>
$______ $_______ $_______ $_______
</TABLE>

13
<PAGE>

FUND INFORMATION

OTC FUND

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-.

PORTFOLIO INVESTMENTS

The Fund invests principally in the securities of companies included in the
NASDAQ 100 Index.-TM- It also may invest in other instruments whose performance
is expected to correspond to that of the Index and may engage in futures and
options transactions. The Fund may also enter into repurchase agreements.

RISK CONSIDERATIONS

The OTC Fund is subject to a number of risks, including Early Closing Risk,
Tracking Error Risk, and Portfolio Turnover Risk, as described in the "RISK
CONSIDERATIONS" section.

14
<PAGE>

FUND PERFORMANCE AND FEE INFORMATION

FUND PERFORMANCE

The bar chart and table below show the performance of the Precious Metals Fund
both year-by-year and as an average over different periods of time. The
variability of performance over time provides an indication of the risks of
investing in the Fund. Of course, this past performance does not necessarily
indicate how the Fund will perform in the future.

[BAR CHART - PRIOR SUBACCOUNT PERFORMANCE]*

*The year-to-date return for the period from January 1, 1998 through June 30,
1998 is _____%.

During the period shown in the bar chart, the highest return for a quarter
was ______% (quarter ended __________, 19___) and the lowest return for a
quarter was -______% (quarter ended __________, 19___).

AVERAGE ANNUAL TOTAL RETURN (FOR PERIODS ENDING DECEMBER 31, 1997)(1)

Investor Class Shares XAU Index(2)
---------------------------------------
<S> <C> <C>
Past One Year _____% _____%
Since Inception _____ (__/__/__) _____%
</TABLE>

- - --------------

(1) These figures assume the reinvestment of dividends and capital gains
distributions.
(2) The XAU Index is an unmanaged index that is a widely recognized indicator
of Precious Metals Sector performance.

FEES AND OPERATING EXPENSES OF THE FUND

This table describes the fees and expenses that you may pay if you buy and hold
Shares of the PRECIOUS METALS FUND.
- - --------------------------------------------------------------------------------

<S> <C>
SHAREHOLDER FEES
Redemption Fees* None

ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED
FROM NET ASSETS)
Management Fees .75%
Distribution (12b-1) Fees None
Other Expenses %
------
Total Annual Fund Operating Expenses** %
</TABLE>

* THE FUND MAY IMPOSE A WIRE TRANSFER CHARGE OF $15 ON CERTAIN REDEMPTIONS
UNDER $5,000.

** THE ADVISOR HAS VOLUNTARILY AGREED TO WAIVE ITS FEES AND/OR REIMBURSE
EXPENSES TO KEEP TOTAL ANNUAL FUND OPERATING EXPENSES FROM EXCEEDING 2.20%.

EXAMPLE

THIS EXAMPLE IS INTENDED TO HELP YOU COMPARE THE COST OF INVESTING IN THE
PRECIOUS METALS FUNDS WITH THE COST OF INVESTING IN OTHER MUTUAL FUNDS.

1 YEAR 3 YEARS 5 YEARS 10 YEARS
- - ------ ------- ------- --------
<S> <C> <C> <C>
$______ $_______ $_______ $_______

</TABLE>

15
<PAGE>

FUND INFORMATION

PRECIOUS METALS FUND

FUND OBJECTIVE

The PRECIOUS METALS FUND seeks to provide investment results that correspond to
a benchmark primarily for metals-related securities. The Fund's current
benchmark is the XAU Fund.

PORTFOLIO INVESTMENTS

The Fund invests in securities of companies included in the XAU Index, as well
as securities whose performance is expected to track the performance of the XAU
Index. The Fund also may engage in futures and options transactions, purchase
ADRs and other securities of foreign issuers, and enter into repurchase
agreements.

RISK CONSIDERATIONS

The Precious Metals Fund is subject to a number of risks, including Sector Risk
and Tracking Error Risk, as described in the "RISK CONSIDERATIONS" section.
Sector Risk is the risk that the economic sector in which a Fund focuses its
investments will underperform the market as a whole. To the extent that the
Fund's investments are concentrated in issuers conducting business in the
Precious Metals sector, the Fund is subject to the risks of investing in that
sector, including legislative or regulatory changes, adverse market conditions
and/or increased competition.

The Fund is also subject to Foreign Company Risks, including:
- - - VOLATILITY - Investments in securities of foreign companies can be more
volatile than investments in U.S. companies. Diplomatic, political, or
economic developments could affect investments in foreign countries.
- - - REGULATORY ENVIRONMENT - Foreign companies generally are not subject to
uniform accounting, auditing, and financial reporting standards comparable
to those applicable to U.S. domestic companies. At present, there
generally is less government regulation of listed companies abroad than in
the U.S.

16
<PAGE>

FUND PERFORMANCE AND FEE INFORMATION

FUND PERFORMANCE

The bar chart and table below show the performance of the U.S. Government Bond
Fund both year-by-year and as an average over different periods of time. The
variability of performance over time provides an indication of the risks of
investing in the Fund. Of course, this past performance does not necessarily
indicate how the Fund will perform in the future.

[BAR CHART - PRIOR SUBACCOUNT PERFORMANCE]*

*The year-to-date return for the period from January 1, 1998 through June 30,
1998 is _____%.

During the period shown in the bar chart, the highest return for a quarter
was _____% (quarter ended ___________, 19____) and the lowest return for a
quarter was -_____% (quarter ended _________, 19____).

AVERAGE ANNUAL TOTAL RETURN (FOR PERIODS ENDING DECEMBER 31, 1997)(1)

Investor Class Shares Lehman Long Treasury(2)
-------------------------------------------------------
<S> <C> <C>
Past One Year _____% _____%
Since Inception _____ (__/__/__) _____%
</TABLE>

- - -----------

(1) These figures assume the reinvestment of dividends and capital gains
distributions.
(2) The Lehman Long Treasury Index is an unmanaged index that is a widely
recognized indicator of U.S. government bond performance.

FEES AND EXPENSES OF THE FUND

This table describes the fees and expenses that you may pay if you buy or hold
Shares of the U.S. GOVERNMENT BOND FUND.
- - ------------------------------------------------------------------------------
<TABLE>
<CAPTION>

<S> <C>
SHAREHOLDER FEES
Redemption Fees* None

ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED
FROM NET ASSETS)
Management Fees .50%
Distribution (12b-1) Fees None
Other Expenses %
-------
Total Annual Fund Operating Expenses** %
</TABLE>

* THE FUND MAY IMPOSE A WIRE TRANSFER CHARGE OF $15 ON CERTAIN REDEMPTIONS
UNDER $5,000.

** THE ADVISOR HAS VOLUNTARILY AGREED TO WAIVE ITS FEES AND/OR REIMBURSE
EXPENSES TO KEEP TOTAL ANNUAL FUND OPERATING EXPENSES FROM EXCEEDING 1.80%.

EXAMPLE

THIS EXAMPLE IS INTENDED TO HELP YOU COMPARE THE COST OF INVESTING IN THE U.S.
GOVERNMENT BOND FUND WITH THE COST OF INVESTING IN OTHER MUTUAL FUNDS.

1 YEAR 3 YEARS 5 YEARS 10 YEARS
- - ------ ------- ------- --------
<S> <C> <C> <C>
$______ $_______ $_______ $_______
</TABLE>

17
<PAGE>

FUND INFORMATION

U.S. GOVERNMENT BOND FUND

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.

PORTFOLIO INVESTMENTS

The Fund invests principally in U.S. Government Securities, including zero
coupon U.S. Treasury Bonds. In addition, the Fund may enter into transactions
involving futures contracts and options, and may enter into repurchase
agreements.

RISK CONSIDERATIONS

The U.S. Government Bond Fund is subject to a number of risks, including
Leveraging Risk and Trading Halt Risk, as described in the "RISK CONSIDERATIONS"
section. The Fund is also subject to Interest Rate Risk, which is the potential
for decline in the price of fixed income securities due to rising interest
rates.

The value of the Fund's shares should increase by 120% of any price increased 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 by 120% of any price
decline of the Long Treasury Bond.

18
<PAGE>

FUND PERFORMANCE AND FEE INFORMATION

FUND PERFORMANCE

The bar chart and table below show the performance of the 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.

[BAR CHART - PRIOR SUBACCOUNT PERFORMANCE]*

*The year-to-date return for the period from January 1, 1998 through June 30,
1998 is _____%.

During the period shown in the bar chart, the highest return for a quarter
was _____% (quarter ended _________, 19____) and the lowest return for a quarter
was -_____% (quarter ended __________, 19____).

AVERAGE ANNUAL TOTAL RETURN (FOR PERIODS ENDING DECEMBER 31, 1997)(1)

Investor Class Shares Lehman Long Treasury(2)
------------------------------------------------------
<S> <C> <C>
Past One Year _____% _____%
Since Inception _____ (__/__/__) _____%
</TABLE>

- - --------------

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 FUND.
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>

<S> <C>
SHAREHOLDER FEES
Redemption Fees* None

ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED
FROM NET ASSETS)
Management Fees .90%
Distribution (12b-1) Fees None
Other Expenses %
------
Total Annual Fund Operating Expenses** %
</TABLE>

* THE FUND MAY IMPOSE A WIRE TRANSFER CHARGE OF $15 ON CERTAIN REDEMPTIONS
UNDER $5,000.

** THE ADVISOR HAS VOLUNTARILY AGREED TO WAIVE ITS FEES AND/OR REIMBURSE
EXPENSES TO KEEP TOTAL ANNUAL FUND OPERATING EXPENSES FROM EXCEEDING 2.30%.

EXAMPLE

THIS EXAMPLE IS INTENDED TO HELP YOU COMPARE THE COST OF INVESTING IN THE JUNO
FUND WITH THE COST OF INVESTING IN OTHER MUTUAL FUNDS.

1 YEAR 3 YEARS 5 YEARS 10 YEARS
- - ------ ------- ------- --------
<S> <C> <C> <C>
$______ $_______ $_______ $_______

</TABLE>

19
<PAGE>

FUND INFORMATION

JUNO FUND

FUND OBJECTIVE

The JUNO FUND seeks to provide returns that will inversely correlate to the
price movements of a benchmark for U.S. Treasury debt instruments or futures
contract on a specified debt instrument. The Fund's current benchmark is the
inverse of the price movement of the Long Treasury Bond.

PORTFOLIO INVESTMENTS

The Fund enters into short sales and engages in futures and options
transactions. These techniques, if properly utilized, may enable the Fund to
meet its objective without investing directly in the securities included in the
benchmark index.

The Fund also may enter into repurchase agreements.

RISK CONSIDERATIONS

The Juno Fund is subject to Trading Halt Risk, as described in the "RISK
CONSIDERATIONS" section. The Fund is also subject to Interest Rate Risk, which
is the potential for an increase in the price of fixed income securities due to
falling interest rates.

The value of the Fund's shares will tend to increase during periods when the
price of the Long Treasury Bond decreases. When the price of the Long Treasury
Bond increases, however, the value of the Fund's shares should decrease 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%).

20
<PAGE>

FUND PERFORMANCE AND FEE INFORMATION

FUND PERFORMANCE

As a new Fund, the Banking Fund does not yet have a performance history.

FUND EXPENSE INFORMATION

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 BANKING FUND
- - -------------------------------------------------------------------------------
<TABLE>
<CAPTION>

<S> <C>
SHAREHOLDER FEES
Redemption Fees* None

ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM
NET ASSETS)
Management Fees .85%
Distribution (12b-1) Fees None
Other Expenses %
-------
Total Annual Fund Operating Expenses** %
</TABLE>

* THE FUND MAY IMPOSE A WIRE TRANSFER CHARGE OF $15 ON CERTAIN REDEMPTIONS
UNDER $5,000.

** THE ADVISOR HAS VOLUNTARILY AGREED TO WAIVE ITS FEES AND/OR REIMBURSE
EXPENSES TO KEEP TOTAL ANNUAL FUND OPERATING EXPENSES FROM EXCEEDING 2.30%.

EXAMPLE

THIS EXAMPLE IS INTENDED TO HELP YOU COMPARE THE COST OF INVESTING IN THE
BANKING FUND WITH THE COST OF INVESTING IN OTHER MUTUAL FUNDS.

1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C>
$______ $_______ $_______ $_______
</TABLE>

21
<PAGE>

FUND INFORMATION

BANKING FUND

FUND OBJECTIVE

PORTFOLIO INVESTMENTS

The Fund may invest any remaining assets in ADRs, enter into repurchase
agreements, purchase money market instruments, and engage in certain investment
practices, including various leveraging strategies.

RISK CONSIDERATIONS

As the services offered by Banking Companies expand, banks are becoming more
exposed to well-established competitors such as insurance companies and
investment advisory companies. This exposure has also increased due to the
erosion of historical distinctions between banks and other financial
institutions. Increased competition may result from the broadening of regional
and national interstate banking powers, which has already reduced the number of
publicly-traded banks. Legislation is currently being considered by Congress
which would reduce the separation between commercial and investment banking
businesses. If enacted, this could significantly impact the industry and the
Fund. In addition, general economic conditions are important to Banking
Companies, which face exposure to credit losses and are dependent to a greater
or lesser extent on interest rate activity.

The Banking Fund is also subject to Leveraging Risk, Sector Risk, and Trading
Halt Risk, as described in the "RISK CONSIDERATIONS" section.

22
<PAGE>

FUND PERFORMANCE AND FEE INFORMATION

FUND PERFORMANCE

As a new Fund, the Basic Materials Fund does not yet have a performance history.

FUND EXPENSE INFORMATION

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 BASIC MATERIALS FUND
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>

<S> <C>
SHAREHOLDER FEES
Redemption Fees* None

* THE FUND MAY IMPOSE A WIRE TRANSFER CHARGE OF $15 ON CERTAIN REDEMPTIONS
UNDER $5,000.

** THE ADVISOR HAS VOLUNTARILY AGREED TO WAIVE ITS FEES AND/OR REIMBURSE
EXPENSES TO KEEP TOTAL ANNUAL FUND OPERATING EXPENSES FROM EXCEEDING 2.30%.

EXAMPLE

THIS EXAMPLE IS INTENDED TO HELP YOU COMPARE THE COST OF INVESTING IN THE BASIC
MATERIALS FUND WITH THE COST OF INVESTING IN OTHER MUTUAL FUNDS.

1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C>
$______ $_______ $_______ $_______
</TABLE>

23
<PAGE>

FUND INFORMATION

BASIC MATERIALS FUND

FUND OBJECTIVE

PORTFOLIO INVESTMENTS

RISK CONSIDERATIONS

Many Basic Materials Companies are significantly affected by the level and
volatility of commodity prices, the exchange value of the dollar, import
controls, and worldwide competition. At times, worldwide production of
industrial materials has exceeded demand as a result of over-building or
economic downturns, leading to poor investment returns or losses for Basic
Materials Companies. Other risks may include liability for environmental
damage, depletion of resources, and mandated expenditures for safety and
pollution control devices.

The Basic Materials Fund is also subject to Leveraging Risk, Sector Risk, and
Trading Halt Risk, as described in the "RISK CONSIDERATIONS" section.

24
<PAGE>

FUND PERFORMANCE AND FEE INFORMATION

FUND PERFORMANCE

As a new Fund, the Biotechnology Fund does not yet have a performance history.

FUND EXPENSE INFORMATION

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 BIOTECHNOLOGY FUND
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>

<S> <C>
SHAREHOLDER FEES
Redemption Fees* None

* THE FUND MAY IMPOSE A WIRE TRANSFER CHARGE OF $15 ON CERTAIN REDEMPTIONS
UNDER $5,000.

** THE ADVISOR HAS VOLUNTARILY AGREED TO WAIVE ITS FEES AND/OR REIMBURSE
EXPENSES TO KEEP TOTAL ANNUAL FUND OPERATING EXPENSES FROM EXCEEDING 2.30%.

EXAMPLE

THIS EXAMPLE IS INTENDED TO HELP YOU COMPARE THE COST OF INVESTING IN THE
BIOTECHNOLOGY FUND WITH THE COST OF INVESTING IN OTHER MUTUAL FUNDS.

1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C>
$______ $_______ $_______ $_______
</TABLE>

25
<PAGE>

FUND INFORMATION

BIOTECHNOLOGY FUND

FUND OBJECTIVE

PORTFOLIO INVESTMENTS

The Fund invests substantially all (80% or more) of its assets in a portfolio of
equity securities, including common stocks, preferred stock, warrants, rights,
and securities convertible into common stock, of Biotechnology Companies that
are traded in the United States, as well as in futures and options contracts.
Biotechnology Companies are engaged in the research, development, and
manufacture of various biotechnological products, services, and processes. The
Fund may invest in companies that manufacture and/or distribute biotechnological
and biomedical products, including devices and instruments, and in companies
that provide or benefit significantly from scientific and technological advances
in biotechnology, as well as in Biotechnology Companies that provide processes
or services instead of, or in addition to, products. Biotechnology Companies
also include companies involved in applications and developments affecting such
areas as human health care, pharmaceuticals, agricultural and veterinary
applications, chemicals, and medical/surgical.

RISK CONSIDERATIONS

Biotechnology Companies are affected by patent considerations, intense
competition, rapid technological change and obsolescence, and regulatory
requirements of the Food and Drug Administration, the Environmental Protection
Agency, state and legal governments, and foreign regulatory authorities. In
addition, many of these companies are relatively small and have thinly traded
securities, may not yet offer products or offer a single product, and may have
persistent losses during a new product's transition from development to
production or erratic revenue patterns. Moreover, stock prices of Biotechnology
Companies are very volatile, particularly during periods where their products
are up for regulatory approval and/or under regulatory scrutiny.

The Biotechnology Fund is also subject to Leveraging Risk, Sector Risk, and
Trading Halt Risk, as described in the "RISK CONSIDERATIONS" section.

26
<PAGE>

FUND PERFORMANCE AND FEE INFORMATION

FUND PERFORMANCE

As a new Fund, the Consumer Products Fund does not yet have a performance
history.

FUND EXPENSE INFORMATION

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 CONSUMER PRODUCTS FUND
- - -------------------------------------------------------------------------------
<TABLE>
<CAPTION>

<S> <C>
SHAREHOLDER FEES
Redemption Fees* None

ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED
FROM NET ASSETS)
Management Fees .85%
Distribution (12b-1) Fees None
Other Expenses %
-------
Total Annual Fund Operating Expenses** %
</TABLE>

* THE FUND MAY IMPOSE A WIRE TRANSFER CHARGE OF $15 ON CERTAIN REDEMPTIONS
UNDER $5,000.

** THE ADVISOR HAS VOLUNTARILY AGREED TO WAIVE ITS FEES AND/OR REIMBURSE
EXPENSES TO KEEP TOTAL ANNUAL FUND OPERATING EXPENSES FROM EXCEEDING 2.30%.

EXAMPLE

THIS EXAMPLE IS INTENDED TO HELP YOU COMPARE THE COST OF INVESTING IN THE
CONSUMER PRODUCTS FUND WITH THE COST OF INVESTING IN OTHER MUTUAL FUNDS.

1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C>
$______ $_______ $_______ $_______
</TABLE>

27
<PAGE>

FUND INFORMATION

CONSUMER PRODUCTS FUND

FUND OBJECTIVE

The CONSUMER PRODUCTS FUND seeks capital appreciation by investing in companies
engaged in manufacturing finished goods and services both domestically and
internationally, ("Consumer Products Companies").

PORTFOLIO INVESTMENTS

The Fund invests substantially all (80% or more) of its assets in a portfolio of
equity securities, including common stocks, preferred stock, warrants, rights,
and securities convertible into common stock, of Consumer Products Companies
that are traded in the United States, as well as in futures and options
contracts. Consumer Products Companies are engaged in the manufacture of goods
and services to consumers both domestically and internationally. Consumer
Products Companies include companies that manufacture durable goods such as
major appliances and personal computers. Such companies also include companies
that manufacture, wholesale, or retail non-durable goods such as beverages,
tobacco, health care products, household and personal care products, apparel,
and entertainment products (E.G., books, magazines, TV, cable, movies, music,
gaming, sports), and companies that provide consumer products and services such
as lodging, child care, convenience stores, and car rentals.

RISK CONSIDERATIONS

The performance of Consumer Products Companies has historically been closely
tied to the performance of the overall economy, and is also affected by interest
rates, competition, and consumer confidence. The success of Consumer Products
Companies also depends heavily on relative levels of disposable household
income and seasonal consumer spending. Changes in demographics and consumer
tastes can also affect the demand for, and success of, consumer products in the
marketplace.

The Consumer Products Fund is also subject to Leveraging Risk, Sector Risk, and
Trading Halt Risk, as described in the "RISK CONSIDERATIONS" section.

28
<PAGE>

FUND PERFORMANCE AND FEE INFORMATION

FUND PERFORMANCE

As a new Fund, the Electronics Fund does not yet have a performance history.

FUND EXPENSE INFORMATION

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 ELECTRONICS FUND
- - -------------------------------------------------------------------------------

<S> <C>
SHAREHOLDER FEES
Redemption Fees* None

ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM NET
ASSETS)
Management Fees .85%
Distribution (12b-1) Fees None
Other Expenses %
-------
Total Annual Fund Operating Expenses** %
</TABLE>

* THE FUND MAY IMPOSE A WIRE TRANSFER CHARGE OF $15 ON CERTAIN REDEMPTIONS
UNDER $5,000.

** THE ADVISOR HAS VOLUNTARILY AGREED TO WAIVE ITS FEES AND/OR REIMBURSE
EXPENSES TO KEEP TOTAL ANNUAL FUND OPERATING EXPENSES FROM EXCEEDING 2.30%.

EXAMPLE

THIS EXAMPLE IS INTENDED TO HELP YOU COMPARE THE COST OF INVESTING IN THE
ELECTRONICS FUND WITH THE COST OF INVESTING IN OTHER MUTUAL FUNDS.

1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C>
$______ $_______ $_______ $_______
</TABLE>

29
<PAGE>

FUND INFORMATION

ELECTRONICS FUND

FUND OBJECTIVE

PORTFOLIO INVESTMENTS

The Fund invests substantially all (80% or more) of its assets in a portfolio of
equity securities, including common stocks, preferred stock, warrants, rights,
and securities convertible into common stock, of Electronics Companies that are
traded in the United States, as well as in futures and options contracts.
Electronics Companies are engaged in the design, manufacture, or sale of
electronic components. Electronics Companies include companies involved in the
manufacture and development of semiconductors, connectors, printed circuit
boards and other components; equipment vendors to electronic component
manufacturers; electronic component distributors; and electronic instruments and
electronic systems vendors. Electronics Companies also include companies
involved in all aspects of the electronics business and in new technologies or
specialty areas such as defense electronics, advanced design and manufacturing
technologies, or lasers.

RISK CONSIDERATIONS

Many of the products offered by Electronics Companies are subject to risks of
rapid obsolescence and intense competition. As suppliers of many technology
companies, Electronics Companies are often subject to the fortunes of their
customers, which may vary wildly. Electronics Companies also face high
technology and research costs especially in light of decreased defense spending
by the U.S. Government, and may face competition from subsidized foreign
competitors with lower production costs.

The Electronics Fund is also subject to Leveraging Risk, Sector Risk, and
Trading Halt Risk, as described in the "RISK CONSIDERATIONS" section.

30
<PAGE>

FUND PERFORMANCE AND FEE INFORMATION

FUND PERFORMANCE

As a new Fund, the Energy Fund does not yet have a performance history.

FUND EXPENSE INFORMATION

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 ENERGY FUND
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>

<S> <C>
SHAREHOLDER FEES
Redemption Fees* None

* THE FUND MAY IMPOSE A WIRE TRANSFER CHARGE OF $15 ON CERTAIN REDEMPTIONS
UNDER $5,000.

** THE ADVISOR HAS VOLUNTARILY AGREED TO WAIVE ITS FEES AND/OR REIMBURSE
EXPENSES TO KEEP TOTAL ANNUAL FUND OPERATING EXPENSES FROM EXCEEDING 2.30%.

EXAMPLE

THIS EXAMPLE IS INTENDED TO HELP YOU COMPARE THE COST OF INVESTING IN THE ENERGY
FUND WITH THE COST OF INVESTING IN OTHER MUTUAL FUNDS.

1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C>
$______ $_______ $_______ $_______
</TABLE>

31
<PAGE>

FUND INFORMATION

ENERGY FUND

FUND OBJECTIVE

PORTFOLIO INVESTMENTS

The Fund invests substantially all (80% or more) of its assets in a portfolio of
equity securities, including common stocks, preferred stock, warrants, rights,
and securities convertible into common stock, of Energy Companies that are
traded in the United States, as well as in futures and options contracts.
Energy Companies are involved in all aspects of the energy industry, including
the conventional areas of oil, gas, electricity, and coal, and alternative
sources of energy such as nuclear, geothermal, oil shale, and solar power. The
Fund may invest in companies that produce, transmit, market, distribute or
measure energy; companies involved in providing products and services to
companies in the energy field; and companies involved in the exploration of new
sources of energy, conservation, and energy-related pollution control.

RISK CONSIDERATIONS

Securities of Energy Companies are subject to changes in value and dividend
yield which depend largely on the price and supply of energy fuels. Swift price
and supply fluctuations may be caused by events relating to international
politics, energy conservation, the success of exploration projects, and tax and
other governmental regulatory policies.

The Energy Fund is also subject to Leveraging Risk, Sector Risk, and Trading
Halt Risk, as described in the "RISK CONSIDERATIONS" section.

32
<PAGE>

FUND PERFORMANCE AND FEE INFORMATION

FUND PERFORMANCE

As a new Fund, the Energy Services Fund does not yet have a performance history.

FUND EXPENSE INFORMATION

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 ENERGY SERVICES FUND
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>

<S> <C>
SHAREHOLDER FEES
Redemption Fees* None

* THE FUND MAY IMPOSE A WIRE TRANSFER CHARGE OF $15 ON CERTAIN REDEMPTIONS
UNDER $5,000.

** THE ADVISOR HAS VOLUNTARILY AGREED TO WAIVE ITS FEES AND/OR REIMBURSE
EXPENSES TO KEEP TOTAL ANNUAL FUND OPERATING EXPENSES FROM EXCEEDING 2.30%.

EXAMPLE

THIS EXAMPLE IS INTENDED TO HELP YOU COMPARE THE COST OF INVESTING IN THE ENERGY
SERVICES FUND WITH THE COST OF INVESTING IN OTHER MUTUAL FUNDS.

1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C>
$______ $_______ $_______ $_______
</TABLE>

33
<PAGE>

FUND INFORMATION

ENERGY SERVICES FUND

FUND OBJECTIVE

PORTFOLIO INVESTMENTS

The Fund invests substantially all (80% or more) of its assets in a portfolio of
equity securities, including common stocks, preferred stock, warrants, rights,
and securities convertible into common stock, of Energy Services Companies that
are traded in the United States, as well as in futures and options contracts.
Energy Services Companies are engaged in one or more businesses in the energy
service field, including those that provide services and equipment to companies
engaged in the production, refinement or distribution of oil, gas, electricity,
and coal, and to companies involved with the production and development of newer
sources of energy such as nuclear, geothermal, oil shale, and solar power.
Energy Services Companies include those providing services such as onshore or
offshore drilling; companies involved in production and well maintenance;
companies involved in exploration engineering, data and technology; companies
involved in energy transport; and companies involved in equipment and plant
design or construction. In addition, Energy Services Companies include
companies that provide products and services to these other companies.

RISK CONSIDERATIONS

Energy Services Companies are affected by the supply and demand both for their
specific products or services and for energy products in general. The price of
oil and gas, exploration and production spending, governmental regulation and
environmental issues, world events and economic conditions will likewise affect
the performance of Energy Services Companies. In addition, Energy Services
Companies may be affected by economic conditions generally affecting energy
supply companies.

The Energy Services Fund is also subject to Leveraging Risk, Sector Risk, and
Trading Halt Risk, as described in the "RISK CONSIDERATIONS" section.

34
<PAGE>

FUND PERFORMANCE AND FEE INFORMATION

FUND PERFORMANCE

As a new Fund, the Financial Services Fund does not yet have a performance
history.

FUND EXPENSE INFORMATION

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 FINANCIAL SERVICES FUND
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>

<S> <C>
SHAREHOLDER FEES
Redemption Fees* None

* THE FUND MAY IMPOSE A WIRE TRANSFER CHARGE OF $15 ON CERTAIN REDEMPTIONS
UNDER $5,000.

** THE ADVISOR HAS VOLUNTARILY AGREED TO WAIVE ITS FEES AND/OR REIMBURSE
EXPENSES TO KEEP TOTAL ANNUAL FUND OPERATING EXPENSES FROM EXCEEDING 2.30%.

EXAMPLE

THIS EXAMPLE IS INTENDED TO HELP YOU COMPARE THE COST OF INVESTING IN THE
FINANCIAL SERVICES FUND WITH THE COST OF INVESTING IN OTHER MUTUAL FUNDS.

1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C>
$______ $_______ $_______ $_______
</TABLE>

35
<PAGE>

FUND INFORMATION

FINANCIAL SERVICES FUND

FUND OBJECTIVE

PORTFOLIO INVESTMENTS

The Fund invests substantially all (80% or more) of its assets in a portfolio of
equity securities, including common stocks, preferred stocks, warrants, rights,
and securities convertible into common stock, of Financial Services Companies
that are traded in the United States, as well as in futures and options
contracts. Financial Services Companies provide financial services to consumers
and industry. Financial Services Companies include commercial and investment
banks, savings and loan associations, brokerage companies, insurance companies,
real estate and leasing companies, and companies that span across these
segments. Under SEC regulations, the Fund may not invest more than 5% of its
total assets in the equity securities of any company that derives more than 15%
of its revenues from brokerage or investment management activities.

RISK CONSIDERATIONS

Financial Services Companies are subject to extensive governmental regulation,
which may limit both the amounts and types of loans and other financial
commitments they can make, and the interest rates and fees they can charge.
Profitability is largely dependent on the availability and cost of capital, and
can fluctuate significantly when interest rates change. Credit losses resulting
from financial difficulties of borrowers also can negatively impact the sector.
Insurance companies may be subject to severe price competition. Legislation is
currently being considered which would further reduce the separation between
commercial and investment banking businesses, and between the banking and
insurance businesses. If enacted these changes could significantly impact the
sector and the Fund.

The Financial Services Fund is also subject to Leveraging Risk, Sector Risk, and
Trading Halt Risk, as described in the "RISK CONSIDERATIONS" section.

36
<PAGE>

FUND PERFORMANCE AND FEE INFORMATION

FUND PERFORMANCE

As a new Fund, the Health Care Fund does not yet have a performance history.

FUND EXPENSE INFORMATION

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 HEALTH CARE FUND
- - --------------------------------------------------------------------------------

<S> <C>
SHAREHOLDER FEES
Redemption Fees* None

* THE FUND MAY IMPOSE A WIRE TRANSFER CHARGE OF $15 ON CERTAIN REDEMPTIONS
UNDER $5,000.

** THE ADVISOR HAS VOLUNTARILY AGREED TO WAIVE ITS FEES AND/OR REIMBURSE
EXPENSES TO KEEP TOTAL ANNUAL FUND OPERATING EXPENSES FROM EXCEEDING 2.30%.

EXAMPLE

THIS EXAMPLE IS INTENDED TO HELP YOU COMPARE THE COST OF INVESTING IN THE HEALTH
CARE FUND WITH THE COST OF INVESTING IN OTHER MUTUAL FUNDS.

1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C>
$______ $_______ $_______ $_______
</TABLE>

37
<PAGE>

FUND INFORMATION

HEALTH CARE FUND

FUND OBJECTIVE

The HEALTH CARE FUND seeks capital appreciation by investing in companies that
are involved in the health care industry ("Health Care Companies").

PORTFOLIO INVESTMENTS

The Fund invests substantially all (80% or more) of its assets in a portfolio of
equity securities, including common stocks, preferred stocks, warrants, rights
and securities convertible into common stock, of Health Care Companies that are
traded in the United States, as well as in futures and options contracts.
Health Care Companies are engaged in the design, manufacture, or sale of
products or services used for or in connection with health care or medicine.
Health Care Companies include pharmaceutical companies, companies involved in
research and development of pharmaceutical products and services, companies
involved in the operation of health care facilities, and other companies
involved in the design, manufacture, or sale of health care-related products or
services.

RISK CONSIDERATIONS

Health Care Companies are subject to government regulation and approval of their
products and services, which can have a significant effect on their price and
availability. Furthermore, the types of products or services produced or
provided by these companies may quickly become obsolete. Moreover, liability
for products that are later alleged to be harmful or unsafe may be substantial,
and may have a significant impact on a Health Care Company's market value and/or
share price.

The Health Care Fund is also subject to Leveraging Risk, Sector Risk, and
Trading Halt Risk, as described in the "RISK CONSIDERATIONS" section.

38
<PAGE>

FUND PERFORMANCE AND FEE INFORMATION

FUND PERFORMANCE

As a new Fund, the Leisure Fund does not yet have a performance history.

FUND EXPENSE INFORMATION

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 LEISURE FUND
- - --------------------------------------------------------------------------------

<S> <C>
SHAREHOLDER FEES
Redemption Fees* None

ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED
FROM NET ASSETS)
Management Fees .85%
Distribution (12b-1) Fees None
Other Expenses %
-------
Total Annual Fund Operating Expenses** %
</TABLE>

* THE FUND MAY IMPOSE A WIRE TRANSFER CHARGE OF $15 ON CERTAIN REDEMPTIONS
UNDER $5,000.

** THE ADVISOR HAS VOLUNTARILY AGREED TO WAIVE ITS FEES AND/OR REIMBURSE
EXPENSES TO KEEP TOTAL ANNUAL FUND OPERATING EXPENSES FROM EXCEEDING 2.30%.

EXAMPLE

THIS EXAMPLE IS INTENDED TO HELP YOU COMPARE THE COST OF INVESTING IN THE
LEISURE FUND WITH THE COST OF INVESTING IN OTHER MUTUAL FUNDS.

1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C>
$______ $_______ $_______ $_______
</TABLE>

39
<PAGE>

FUND INFORMATION

LEISURE FUND

FUND OBJECTIVE

PORTFOLIO INVESTMENTS

The Fund invests substantially all (80% or more) of its assets in a portfolio of
equity securities, including common stocks, preferred stocks, warrants, rights
and securities convertible into common stock, of Leisure Companies that are
traded in the United States, as well as in futures and options contracts.
Leisure Companies are engaged in the design, production, or distribution of
goods or services in the leisure industries. Leisure Companies provide,
manufacture or produce goods and services such as television and radio broadcast
or manufacture (including cable television); motion pictures and photography;
recordings and musical instruments; publishing, including newspapers and
magazines; sporting goods and camping and recreational equipment; and sports
arenas. Other goods and services provided by Leisure Companies include toys and
games (including video and other electronic games), amusement and theme parks,
travel and travel-related services, hotels and motels, leisure apparel or
footwear, tobacco products and gaming casinos.

RISK CONSIDERATIONS

Securities of Leisure Companies may be considered speculative, and generally
exhibit greater volatility than the overall market. Many Leisure Companies have
unpredictable earnings, due in part to changing consumer tastes and intense
competition. Leisure Companies have reacted strongly to technological
developments and to the threat of increased government regulation, particularly
in the gaming arena.

The Leisure Fund is also subject to Leveraging Risk, Sector Risk, and Trading
Halt Risk, as described in the "RISK CONSIDERATIONS" section.

40
<PAGE>

FUND PERFORMANCE AND FEE INFORMATION

FUND PERFORMANCE

As a new Fund, the Retailing Fund does not yet have a performance history.

FUND EXPENSE INFORMATION

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 RETAILING FUND
- - --------------------------------------------------------------------------------

<S> <C>
SHAREHOLDER FEES
Redemption Fees* None

ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED
FROM NET ASSETS)
Management Fees .85%
Distribution (12b-1) Fees None
Other Expenses %
-------
Total Annual Fund Operating Expenses** %
</TABLE>

* THE FUND MAY IMPOSE A WIRE TRANSFER CHARGE OF $15 ON CERTAIN REDEMPTIONS
UNDER $5,000.

** THE ADVISOR HAS VOLUNTARILY AGREED TO WAIVE ITS FEES AND/OR REIMBURSE
EXPENSES TO KEEP TOTAL ANNUAL FUND OPERATING EXPENSES FROM EXCEEDING 2.30%.

EXAMPLE

THIS EXAMPLE IS INTENDED TO HELP YOU COMPARE THE COST OF INVESTING IN THE
RETAILING FUND WITH THE COST OF INVESTING IN OTHER MUTUAL FUNDS.

1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C>
$______ $_______ $_______ $_______
</TABLE>

41
<PAGE>
FUND INFORMATION

RETAILING FUND

FUND OBJECTIVE

PORTFOLIO INVESTMENTS

The Fund invests substantially all (80% or more) of its assets in a portfolio of
equity securities, including common stocks, preferred stocks, warrants, rights,
and securities convertible into common stock, of Retailing Companies that are
traded in the United States, as well as in futures and options contracts.
Retailing Companies are engaged in merchandising finished goods and services
primarily to individual consumers. Retailing Companies include drug and
department stores; suppliers of goods and services for homes, home improvements
and yards; clothing, jewelry, electronics and computer retailers; franchise
restaurants; motor vehicle and marine dealers; warehouse membership clubs; mail
order operations; and companies involved in alternative selling methods.

RISK CONSIDERATIONS

The success of Retailing Companies is closely tied to consumer spending, which
is affected by general economic conditions and consumer confidence levels. The
retailing industry is highly competitive, and a Retailing Company's success is
often tied to its ability to anticipate and react to changing consumer tastes.
Many Retailing Companies are thinly capitalized, and are dependent upon a
relatively few number of business days to achieve their overall results.

The Retailing Fund is also subject to Leveraging Risk, Sector Risk, and Trading
Halt Risk, as described in the "RISK CONSIDERATIONS" section.

42
<PAGE>

FUND PERFORMANCE AND FEE INFORMATION

FUND PERFORMANCE

As a new Fund, the Technology Fund does not yet have a performance history.

FUND EXPENSE INFORMATION

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 TECHNOLOGY FUND
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>

<S> <C>
SHAREHOLDER FEES
Redemption Fees* None

ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED
FROM NET ASSETS)
Management Fees .85%
Distribution (12b-1) Fees None
Other Expenses %
------
Total Annual Fund Operating Expenses** %
</TABLE>

* THE FUND MAY IMPOSE A WIRE TRANSFER CHARGE OF $15 ON CERTAIN REDEMPTIONS
UNDER $5,000.

** THE ADVISOR HAS VOLUNTARILY AGREED TO WAIVE ITS FEES AND/OR REIMBURSE
EXPENSES TO KEEP TOTAL ANNUAL FUND OPERATING EXPENSES FROM EXCEEDING 2.30%.

EXAMPLE

THIS EXAMPLE IS INTENDED TO HELP YOU COMPARE THE COST OF INVESTING IN THE
TECHNOLOGY FUND WITH THE COST OF INVESTING IN OTHER MUTUAL FUNDS.

1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C>
$______ $_______ $_______ $_______
</TABLE>

43
<PAGE>

FUND INFORMATION

TECHNOLOGY FUND

FUND OBJECTIVE

PORTFOLIO INVESTMENTS

The Fund invests substantially all (80% or more) of its assets in a portfolio of
equity securities, including common stocks, preferred stocks, warrants, rights,
and securities convertible into common stock, of Technology Companies that are
traded in the United States, as well as in futures and options contracts.
Technology Companies are companies which the Advisor believes have, or will
develop, products, processes, or services that will provide or will benefit
significantly from technological advances and improvements. These companies may
include, for example, companies that develop, produce or distribute products or
services in the computer, semiconductor, electronics, communications, health
care, and biotechnology sectors.

RISK CONSIDERATIONS

Competitive pressures may have a significant effect on the financial condition
of Technology Companies. For example, if technology continues to advance at an
accelerated rate, and the number of companies and product offerings continues to
expand, these companies could become increasingly sensitive to short product
cycles and aggressive pricing. In addition, many Technology Companies sell
stock before they have a commercially viable product, and may be acutely
susceptible to problems relating to bringing their products to market. In
addition, many small Technology Companies have very high price/earnings ratios,
high price volatility, and high personnel turnover due to severe labor shortages
for skilled technology professionals.

The Technology Fund is also subject to Leveraging Risk, Sector Risk, and Trading
Halt Risk, as described in the "RISK CONSIDERATIONS" section.

44
<PAGE>

FUND PERFORMANCE AND FEE INFORMATION

FUND PERFORMANCE

As a new Fund, the Telecommunications Fund does not yet have a performance
history.

FUND EXPENSE INFORMATION

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 TELECOMMUNICATIONS FUND
- - --------------------------------------------------------------------------------

<S> <C>
SHAREHOLDER FEES
Redemption Fees* None

ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED
FROM NET ASSETS)
Management Fees .85%
Distribution (12b-1) Fees None
Other Expenses %
-------
Total Annual Fund Operating Expenses** %
</TABLE>

* THE FUND MAY IMPOSE A WIRE TRANSFER CHARGE OF $15 ON CERTAIN REDEMPTIONS
UNDER $5,000.

** THE ADVISOR HAS VOLUNTARILY AGREED TO WAIVE ITS FEES AND/OR REIMBURSE
EXPENSES TO KEEP TOTAL ANNUAL FUND OPERATING EXPENSES FROM EXCEEDING 2.30%.

EXAMPLE

THIS EXAMPLE IS INTENDED TO HELP YOU COMPARE THE COST OF INVESTING IN THE
TELECOMMUNICATIONS FUND WITH THE COST OF INVESTING IN OTHER MUTUAL FUNDS.

1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C>
$______ $_______ $_______ $_______
</TABLE>

45
<PAGE>

FUND INFORMATION

TELECOMMUNICATIONS FUND

FUND OBJECTIVE

The TELECOMMUNICATIONS FUND seeks capital appreciation by investing in companies
engaged in the development, manufacture, or sale of communications services or
communications equipment ("Telecommunications Companies").

PORTFOLIO INVESTMENTS

The Fund invests substantially all (80% or more) of its assets in a portfolio of
equity securities, including common stocks, preferred stocks, warrants, rights,
and securities convertible into common stock, of Telecommunications Companies
that are traded in the United States, as well as in futures and options
contracts. Telecommunications Companies are engaged in the development,
manufacture, or sale of communications services or communications equipment.
Telecommunications Companies range from traditional local and long-distance
telephone services or equipment providers, to companies involved in developing
technologies such as cellular telephone or paging services, Internet equipment
and service providers, and fiber-optics.

RISK CONSIDERATIONS

Telephone operating companies are subject to both federal and state regulations
governing rates of return and services that may be offered. Many
Telecommunications Companies compete fiercely for market share and,
increasingly, face competitive challenges in the U.S. from foreign competitors
engaged in strategic joint ventures with U.S. companies, and in foreign markets
from both U.S. and foreign competitors. In addition, recent industry
consolidation trends may lead to increased regulation of Telecommunications
Companies in their primary markets. Although many established
Telecommunications Companies pay an above-average dividend, the Fund's
investment decisions are primarily based on growth potential and not on income.

The Telecommunications Fund is also subject to Leveraging Risk, Sector Risk, and
Trading Halt Risk, as described in the "RISK CONSIDERATIONS" section.

46
<PAGE>

FUND PERFORMANCE AND FEE INFORMATION

FUND PERFORMANCE

As a new Fund, the Transportation Fund does not yet have a performance history.

FUND EXPENSE INFORMATION

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 TRANSPORTATION FUND
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>

<S> <C>
SHAREHOLDER FEES
Redemption Fees* None

* THE FUND MAY IMPOSE A WIRE TRANSFER CHARGE OF $15 ON CERTAIN REDEMPTIONS
UNDER $5,000.

** THE ADVISOR HAS VOLUNTARILY AGREED TO WAIVE ITS FEES AND/OR REIMBURSE
EXPENSES TO KEEP TOTAL ANNUAL FUND OPERATING EXPENSES FROM EXCEEDING 2.30%.

EXAMPLE

THIS EXAMPLE IS INTENDED TO HELP YOU COMPARE THE COST OF INVESTING IN THE
TRANSPORTATION FUND WITH THE COST OF INVESTING IN OTHER MUTUAL FUNDS.

1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C>
$______ $_______ $_______ $_______
</TABLE>

47
<PAGE>

FUND INFORMATION

TRANSPORTATION FUND

FUND OBJECTIVE

PORTFOLIO INVESTMENTS

The Fund invests substantially all (80% or more) of its assets in a portfolio of
equity securities, including common stocks, preferred stocks, warrants, rights,
and securities convertible into common stock, of Transportation Companies that
are traded in the United States, as well as in futures and options contracts.
Transportation Companies are engaged in providing transportation services or
engaged in the design manufacture, distribution, or sale of transportation
equipment. Transportation Companies may include, for example, companies
involved in the movement of freight or people, such as airline, railroad, ship,
truck and bus companies; equipment manufacturers (including makers of trucks,
automobiles, planes, containers, railcars or other modes of transportation and
related products); parts suppliers; and companies involved in leasing,
maintenance, and transportation-related services.

RISK CONSIDERATIONS

Transportation Company stocks are cyclical and have occasional sharp price
movements which may result from changes in the economy, fuel prices, labor
agreements, and insurance costs. The United States has been deregulating these
industries, but it is uncertain whether this trend will continue and what its
effect will be. In addition, Transportation Companies, including airlines and
automobile, truck and aircraft manufacturers, are facing increased competition
from foreign companies, many of which are partially funded by foreign
governments and which may be less sensitive to short-term economic pressures.

The Transportation Fund is also subject to Leveraging Risk, Sector Risk, and
Trading Halt Risk, as described in the "RISK CONSIDERATIONS" section.

48
<PAGE>

FUND PERFORMANCE AND FEE INFORMATION

FUND 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.

[BAR CHART - PRIOR SUBACCOUNT PERFORMANCE]*

*The year-to-date return for the period from January 1, 1998 through June 30,
1998 is _______%.

During the period shown in the bar chart, the highest return for a quarter
was ___% (quarter ended ___________, 19____) and the lowest return for a quarter
was -______% (quarter ended __________, 19____).

AVERAGE ANNUAL TOTAL RETURN (FOR PERIODS ENDING DECEMBER 31, 1997)(1)

Investor Class Shares 90-Day Treasury Composite(2)
---------------------------------------------------------
<S> <C> <C>
Past One Year _____% _____%
Since Inception _____ (__/__/__) _____%
</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 market performance.

AS OF MARCH 31, 1998, THE CURRENT YIELD OF THE FUND WAS _____% AND THE EFFECTIVE
YIELD WAS _____%.

FUND EXPENSE INFORMATION

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 U.S. GOVERNMENT MONEY MARKET FUND.
- - --------------------------------------------------------------------------------

<S> <C>
SHAREHOLDER FEES
Redemption Fees* None

* THE FUND MAY IMPOSE A WIRE TRANSFER CHARGE OF $15 ON CERTAIN REDEMPTIONS
UNDER $5,000.

** THE ADVISOR HAS VOLUNTARILY AGREED TO WAIVE ITS FEES AND/OR REIMBURSE
EXPENSES TO KEEP TOTAL ANNUAL FUND OPERATING EXPENSES FROM EXCEEDING 1.60%.

EXAMPLE
THIS EXAMPLE IS INTENDED TO HELP YOU COMPARE THE COST OF INVESTING IN OTHER
MUTUAL FUNDS.

1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C>
$______ $_______ $_______ $_______
</TABLE>

49
<PAGE>

FUND INFORMATION

U.S. GOVERNMENT MONEY MARKET FUND

FUND OBJECTIVE

The U.S. GOVERNMENT MONEY MARKET FUND seeks to provide security of principal,
high current income, and liquidity.

PORTFOLIO INVESTMENTS

The Money Market Fund invests primarily in money market instruments issued or
guaranteed as to principal and interest by the U.S. Government, its agencies or
instrumentalities, and enters into repurchase agreements fully collateralized by
U.S. Government Securities.

RISK CONSIDERATIONS

The Money Market Fund is subject to Interest Rate Risk, which is the potential
for a decline in the price of government securities due to rising interest
rates. This risk will be greater for longer-term government securities than for
shorter-term government securities.

The Money Market Fund is governed by 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. 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.

50
<PAGE>

ADDITIONAL RISK INFORMATION

Certain of the Funds may enter into the following types of transactions:

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. An index futures contract obligates the seller
to deliver (and the purchaser to take) an amount of cash equal to a specific
dollar amount times a pre-determined multiplier and times the difference between
the value of a specific index at the close of the last trading day of the
contract and the price at which the agreement is made.

A Fund may use futures contracts, and related options, for bona fide hedging
purposes, to offset changes in the value of securities held or expected to be
acquired. They may also be used to gain exposure to a particular market or
instrument, to create a synthetic money market position, and for certain other
tax-related purposes. A Fund will minimize the risk that it will be unable to
close out a futures contract by only entering into futures contracts which are
traded on a national futures exchange or board of trade.

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 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. With respect to put options written (sold) by
the Fund, the Fund will establish a segregated account with its custodian bank
consisting of cash or liquid securities in an amount equal to the amount the
Fund would be required to pay upon exercise of the put option.

Because option premiums paid or received by a Fund are small in relation to the
market value of the investments underlying the options, buying and selling put
and call options can be more speculative than investing directly in securities.

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 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.

51
<PAGE>

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 Commission, 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 insurance companies for their
separate accounts to fund variable life insurance contracts. The insurance
company purchases and redeems Shares of each Fund based on, among other things,
the amount of net Contract premiums or purchase payments transferred to the
separate accounts, transfers to or from a separate account investment division,
policy loans, loan repayments, and benefit payments to the terms of the
Contracts, 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 redemption, if
permitted by the 1940 Act, for any period during which the NYSE, NASDAQ, the
Chicago Mercantile Exchange ("CME"), the Chicago Board Options Exchange ("CBOE")
or the CBOT, as appropriate, is closed or during which trading is restricted by
the Securities and Exchange Commission ("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 most Funds, the NAV is calculated
once each Business Day after the close of the NYSE (currently, 4:00 p.m.,
Eastern Time) and the settlement time for the Funds' futures and options
contracts, if any (typically, 4:15 p.m., Eastern Time). The NAV of the Bond
Fund and the Juno Fund is determined each day on which the CBOT is open for
trading futures contracts on U.S. Treasury bonds 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 Funds' SAI. To receive the current Business Day's NAV, the
Trust must receive your purchase order before 3:30 p.m., Eastern Time (1:00
p.m., Eastern Time, for the Money Market Fund).

52
<PAGE>

MANAGEMENT

THE ADVISOR'S INVESTMENT METHODOLOGY - BENCHMARK FUNDS

In managing the Benchmark Funds, the Advisor's primary objective is to match the
performance of each Fund's benchmark as closely as possible. Through the use of
quantitative analysis techniques, each Benchmark Fund is structured to match the
risk and return characteristics of the appropriate benchmark, while remaining
fully invested in all market environments. The Advisor monitors each Fund on an
ongoing basis, and makes adjustments, as necessary, to minimize tracking error
and to maximize liquidity. The Advisor may utilize futures contracts and
options to leverage a Fund's investment exposure. In addition, some Benchmark
Funds may require short selling techniques designed to inversely correlate to
the performance of an index or benchmark.

THE ADVISOR'S INVESTMENT METHODOLOGY - 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 represent a particular market sector, the
Advisor applies filters to the broad universe of stocks of issuers that are
"principally engaged" in business activities in each industry sector.
Specifically, the Advisor's investment process screens stocks primarily based on
liquidity, market capitalization, and correlation relative to the entire
industry sector. The Advisor also may consider other factors.

The Advisor monitors the 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 Sector 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 Sector 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 Sector Fund.

MANAGEMENT OF THE FUNDS

53
<PAGE>

THE INVESTMENT ADVISOR

PADCO Advisors, Inc., a Maryland corporation 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.

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:

- - ------------------------------------------------------------------------
FUND ADVISORY FEE
- - ------------------------------------------------------------------------
<S> <C>
Nova .75%
- - ------------------------------------------------------------------------
Ursa .90%

- - ------------------------------------------------------------------------
OTC .75%
- - ------------------------------------------------------------------------
Precious Metals .75%
- - ------------------------------------------------------------------------
U.S. Government Bond .50%
- - ------------------------------------------------------------------------
Juno .90%
- - ------------------------------------------------------------------------
U.S. Government Money Market .50%
- - ------------------------------------------------------------------------
Sector Funds .85%
- - ------------------------------------------------------------------------
</TABLE>

The Advisor bears all of its own costs associated with providing these advisory
services and the expenses of the Trustees who are affiliated with the Advisor.
The Advisor may make payments from its own resources to broker-dealers and other
financial institutions in connection with the sale of Fund shares.

PORTFOLIO MANAGEMENT - BENCHMARK FUNDS:

The portfolio manager of the Ursa Fund and the OTC Fund is Michael P. Byrum, who
is the Advisor's senior portfolio manager. Prior to joining the Advisor in July
1993, Mr. Byrum worked as an investor representative with MMA. Mr. Byrum
received his

54
<PAGE>

bachelor's degree in Business Administration from Miami University at Oxford,
Ohio, in 1992.

The portfolio manager of the Nova Fund and the Juno Fund is Thomas Michael, who
joined the Advisor in March 1994. From 1992 to February 1994, Mr. Michael was a
financial markets analyst at Cedar Street Investment Management Co., of Chicago,
Illinois, an institutional consulting firm specializing in developing hedging
and speculative strategies in stock index futures contracts and U.S. Treasury
bond futures contracts. Mr. Michael received his bachelor of arts degree in
Geology from Colgate University, at Hamilton, New York, in 1974.

The portfolio manager of the Metals Fund is T. Daniel Gillespie, who joined the
Advisor in January 1997. From July 1994 to January 1997, Mr. Gillespie was a
portfolio manager for GIT Investment Funds, a registered investment company in
Arlington, Virginia, where Mr. Gillespie managed over $160 million in equity,
bond, and money market mutual fund assets. From 1991 to 1994, Mr. Gillespie
worked as a portfolio manager to The Rushmore Funds, Inc., in Bethesda,
Maryland, a registered investment company, where Mr. Gillespie managed over $900
million in mutual fund assets.

The portfolio manager of the Bond Fund is Anne H. Ruff, who joined the Advisor
in August 1996. From 1989 to 1995, Ms. Ruff worked as a portfolio manager for
United Services Life Insurance Company in Arlington, Virginia, where Ms. Ruff
managed $2.5 billion in fixed-income portfolios.

PORTFOLIO MANAGEMENT - SECTOR FUNDS:

Each Sector Fund is managed by a team and no one person is responsible for
making investment decisions.

55
<PAGE>

DIVIDENDS AND DISTRIBUTIONS

Income dividends and capital gain distributions are paid at least annually by
each of the Funds, except the Money Market and the Bond Funds, which declares
dividends daily and pays them monthly, to the insurance company. The Trust 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.

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.

56
<PAGE>
FINANCIAL HIGHLIGHTS

On _______________, 1998, the Trust acquired all of the assets and liabilities
of the Rydex Advisors Variable Annuity Account (the "Separate Account") and the
subaccounts of the Separate Account (the "Subaccounts"). The information prior
to that date relates to the Subaccounts. The financial statements of the
Subaccounts were audited by _______________ as indicated in their report dated
______________, 1998 on the Subaccounts' financial statements as of December 31,
1997. This table should be read in conjunction with the Subaccounts' financial
statements and notes thereto which are incorporated by reference to the Trust's
Statement of Additional Information under "Financial Information." Additional
performance is contained in the Separate Account's 1998 Semi-Annual Report and
is available upon request and without charge by calling 1-888-667-4936.

<TABLE>
<CAPTION>
PER ACCUMULATION UNIT INCOME PERFORMANCE*
-----------------------------------------------------------------------------------
NET
REALIZED NET
AND INCREASE ACCUMULATION
ACCUMULATION UNREALIZED (DECREASE) UNIT
UNIT VALUE NET GAINS IN VALUE
AT INVESTMENT (LOSSES) ACCUMULATION AT END
BEGINNING INVESTMENT INCOME ON UNIT OF
OF PERIOD INCOME EXPENSES (LOSS) SECURITIES VALUE PERIOD
<S> <C> <C> <C> <C> <C> <C> <C>
- - --------------------------------------------------------------------------------------------------------------
THE NOVA SUBACCOUNT
FOR THE PERIOD FROM
MAY 7, 1997, TO
DECEMBER 31, 1997 $ 10.00 $ 0.29 $ 0.22 $ 0.07 $ 2.14 $ 2.21 $12.21
JANUARY 1, 1998 TO
JUNE 30, 1998
THE URSA SUBACCOUNT
FOR THE DISCRETE PERIODS
FROM
MAY 7, 1997, TO MAY 21,
1997 10.00 0.01 0.05 (0.04) (0.33) (0.37) 9.63
MAY 24, 1997, TO JUNE
3, 1997 9.57 0.01 0.01 0.00 0.01 0.01 9.58
JUNE 10, 1997, TO
DECEMBER 31, 1997 9.36 0.12 0.13 (0.01) (1.28) (1.29) 8.07
JANUARY 1, 1998 TO
JUNE 30, 1998
THE OTC SUBACCOUNT
FOR THE PERIOD FROM
MAY 7, 1997, TO
DECEMBER 31, 1997 10.00 0.12 0.21 (0.09) 0.74 0.65 10.65
JANUARY 1, 1998 TO
JUNE 30, 1998
THE PRECIOUS METALS
SUBACCOUNT
FOR THE PERIOD FROM
MAY 29, 1997, TO
DECEMBER 31, 1997 10.00 0.03 0.14 (0.11) (2.87) (2.98) 7.02
JANUARY 1, 1998 TO
JUNE 30, 1998
THE U.S. GOVERNMENT BOND
SUBACCOUNT
FOR THE DISCRETE PERIODS
FROM
MAY 29, 1997, TO JUNE
5, 1997 10.00 0.01 0.01 0.00 0.15 0.15 10.15
JUNE 24, 1997, TO JULY
14, 1997 10.44 0.13 0.03 0.10 0.13 0.23 10.67
JULY 29, 1997, TO
AUGUST 12, 1997 10.92 0.03 0.01 0.02 (0.38) (0.36) 10.56
AUGUST 18, 1997, TO
DECEMBER 31, 1997 10.70 0.24 0.09 0.15 0.97 1.12 11.82
JANUARY 1, 1998 TO
JUNE 30, 1998
THE JUNO SUBACCOUNT
FOR THE DISCRETE PERIODS
FROM
MAY 7, 1997, TO JUNE 3,
1997 10.00 0.04 0.04 0.00 (0.14) (0.14) 9.86
JUNE 16, 1997 TO JULY
2, 1997 9.71 0.02 0.02 0.00 (0.03) (0.03) 9.68
JULY 7, 1997 9.59 0.00 0.00 0.00 (0.05) (0.05) 9.54
JULY 24, 1997, TO
AUGUST 11, 1997 9.41 0.03 0.02 0.01 0.26 0.27 9.68
AUGUST 26, 1997, TO
OCTOBER 19, 1997 9.72 0.07 0.06 0.01 (0.21) (0.20) 9.52
OCTOBER 22, 1997, TO
DECEMBER 11, 1997 9.50 0.07 (0.04) 0.11 (0.60) (0.49) 9.01
JANUARY 1, 1998 TO
JUNE 30, 1998
THE MONEY MARKET
SUBACCOUNT
FOR THE PERIOD FROM
MAY 7, 1997, TO
DECEMBER 31, 1997 10.00 0.52 0.21 0.31 0.01 0.32 10.32
JANUARY 1, 1998 TO
JUNE 30, 1998

- - --------------------------------------------------------------------------------------------------------------

- - ---------------------------------------------------------------------------------------------------
<CAPTION>

SUPPLEMENTARY DATA
RATIOS TO AVERAGE NET -----------------------------------------
NET
ASSETS** AVERAGE NUMBER OF ASSETS
----------------------------- COMMISSION ACCUMULATION AT END
NET RATE PAID UNITS OF
INVESTMENT ON PORTFOLIO OUTSTANDING PERIOD
GROSS NET INCOME EQUITY TURNOVER AT END OF (000'S
EXPENSES EXPENSES+ (LOSS) SECURITIES RATE*** PERIOD OMITTED)
<S> <C> <C> <C> <C> <C> <C> <C>
- - ---------------------------------------------------------------------------------------------------
THE NOVA SUBACCOUNT
FOR THE PERIOD FROM
MAY 7, 1997, TO
DECEMBER 31, 1997 9.09% 2.80% 0.91% -- 178.34% 855,862 $10,448
JANUARY 1, 1998 TO
JUNE 30, 1998
THE URSA SUBACCOUNT
FOR THE DISCRETE PERIODS
FROM
MAY 7, 1997, TO MAY 21,
1997 13.62 2.90 (10.05) -- 0 0 0
MAY 24, 1997, TO JUNE
3, 1997 85.10 2.90 2.76 -- 0 0 0
JUNE 10, 1997, TO
DECEMBER 31, 1997 9.21 2.90 (0.27) -- 0 356,784 2,879
JANUARY 1, 1998 TO
JUNE 30, 1998
THE OTC SUBACCOUNT
FOR THE PERIOD FROM
MAY 7, 1997, TO
DECEMBER 31, 1997 9.07 2.80 (1.22) -- 449.91 222,217 2,367
JANUARY 1, 1998 TO
JUNE 30, 1998
THE PRECIOUS METALS
SUBACCOUNT
FOR THE PERIOD FROM
MAY 29, 1997, TO
DECEMBER 31, 1997 9.76 2.80 (2.19) $ 0.0381 913.83 73,827 518
JANUARY 1, 1998 TO
JUNE 30, 1998
THE U.S. GOVERNMENT BOND
SUBACCOUNT
FOR THE DISCRETE PERIODS
FROM
MAY 29, 1997, TO JUNE
5, 1997 5.43 2.40 1.86 -- 0 0 0
JUNE 24, 1997, TO JULY
14, 1997 12.68 2.40 7.94 -- 0 0 0
JULY 29, 1997, TO
AUGUST 12, 1997 49.63 2.40 3.80 -- 0 0 0
AUGUST 18, 1997, TO
DECEMBER 31, 1997 8.47 2.40 3.49 -- 760.78 75,493 892
JANUARY 1, 1998 TO
JUNE 30, 1998
THE JUNO SUBACCOUNT
FOR THE DISCRETE PERIODS
FROM
MAY 7, 1997, TO JUNE 3,
1997 6.13 2.90 (0.37) -- 0 0 0
JUNE 16, 1997 TO JULY
2, 1997 5.71 2.90 1.29 -- 0 0 0
JULY 7, 1997 111.10 2.90 0.74 -- 0 0 0
JULY 24, 1997, TO
AUGUST 11, 1997 3.23 2.90 1.50 -- 0 0 0
AUGUST 26, 1997, TO
OCTOBER 19, 1997 7.88 2.90 0.80 -- 0 0 0
OCTOBER 22, 1997, TO
DECEMBER 11, 1997 19.73 2.90 8.68 -- 0 0 0
JANUARY 1, 1998 TO
JUNE 30, 1998
THE MONEY MARKET
SUBACCOUNT
FOR THE PERIOD FROM
MAY 7, 1997, TO
DECEMBER 31, 1997 6.82 2.20 3.34 -- 0 1,734,974 17,903
JANUARY 1, 1998 TO
JUNE 30, 1998

- - ---------------------------------------------------------------------------------------------------

+ This expense information has been adjusted to reflect the current fees and
expenses of the Subaccounts (as of April 13, 1998) that would have been
applicable had these fees and expenses been in effect during the Separate
Account's previous fiscal year.
* Due to the nature of the investment activity, certain Subaccounts may
experience periods with zero net assets. Financial highlights are presented
for periods with net assets greater than zero only. "Per Accumulation Unit"
amounts are calculated using average outstanding units.
** Annualized.
*** Portfolio turnover rate is calculated without regard to short-term
securities having a maturity of less than one year. Each of the Nova, Ursa,
and Juno Subaccounts typically holds most of its investments in options and
futures contracts which are deemed short-term securities.

- - ---------------------------------------------------------------------------------------------------
</TABLE>

57
<PAGE>

BENCHMARK INFORMATION

NEITHER THE NOVA FUND NOR THE URSA FUND IS SPONSORED, ENDORSED, SOLD, OR
PROMOTED BY STANDARD & POOR'S CORP. (S&P); 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"); AND THE METALS
FUND IS NOT SPONSORED, ENDORSED, SOLD, OR PROMOTED BY THE PHILADELPHIA STOCK
EXCHANGE ("PHLX") SPONSOR OF THE XAU INDEX.

NONE OF S&P, NASDAQ, AND PHLX 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, NASDAQ 100 INDEX-TM-, AND THE XAU INDEX, RESPECTIVELY, TO TRACK GENERAL
STOCK MARKET PERFORMANCE.

NONE OF S&P, NASDAQ, AND PHLX GUARANTEES THE ACCURACY AND/OR THE COMPLETENESS OF
THE S&P 500 INDEX, NASDAQ 100 INDEX-TM-, AND THE XAU INDEX, RESPECTIVELY, OR ANY
DATA INCLUDED THEREIN.

NONE OF S&P, NASDAQ, AND PHLX 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, THE NASDAQ 100 INDEX-TM-,
THE XAU INDEX, RESPECTIVELY, OR ANY DATA INCLUDED THEREIN.

NONE OF S&P, NASDAQ, AND PHLX MAKE ANY EXPRESS OR IMPLIED WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE FOR USE WITH RESPECT TO THE
S&P 500 INDEX, THE NASDAQ 100 INDEX-TM-, THE XAU INDEX, RESPECTIVELY, OR ANY
DATA INCLUDED THEREIN.

58
<PAGE>

Additional information about the Funds is included in a Statement of Additional
Information dated August 1, 1998 (the "SAI"), which contains more detailed
information about the Funds. The SAI has been filed with the Securities &
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 call 1-800-SEC-0330).
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. 20549-6009. To help you to obtain additional
information, the Fund's SEC registration number is 811-_____.

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 PADCO Service Company, Inc.,
at 6116 Executive Boulevard, Suite 400, Rockville, Maryland 20852.

- - --------------------------------------------------------------------------------

NO ONE HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS OR IN THE TRUST'S SAI IN
CONNECTION WITH THE OFFERING OF FUND SHARES. DO NOT RELY ON ANY SUCH
INFORMATION OR REPRESENTATIONS AS HAVING BEEN AUTHORIZED BY THE TRUST OR PADCO
ADVISORS, INC. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE TRUST IN
ANY JURISDICTION WHERE SUCH AN OFFERING IS NOT LAWFUL.

RYDEX VARIABLE TRUST

------------------------------------------------------------
RYDEX-Registered Trademark-
INVESTMENT FLEXIBILITY
FOR INSTITUTIONAL MONEY MANAGERS
------------------------------------------------------------

59
<PAGE>

STATEMENT OF ADDITIONAL INFORMATION

RYDEX VARIABLE TRUST

6116 EXECUTIVE BOULEVARD, SUITE 400
ROCKVILLE, MARYLAND 20852
800/820-0888
301/468-8520

Rydex Variable Trust (the "Trust") is a no-load mutual fund complex with
twenty-one separate investment portfolios (the "Funds"). This Statement of
Additional Information ("SAI") relates to Shares of following portfolios:

NOVA FUND
URSA FUND
OTC FUND
PRECIOUS METALS FUND
U.S. GOVERNMENT BOND FUND
JUNO FUND
U.S. GOVERNMENT MONEY MARKET FUND
BANKING FUND
BASIC MATERIALS FUND
BIOTECHNOLOGY FUND
CONSUMER PRODUCTS FUND
ELECTRONICS FUND
ENERGY FUND
ENERGY SERVICES FUND
FINANCIAL SERVICES FUND
HEALTH CARE FUND
LEISURE FUND
RETAILING FUND
TECHNOLOGY FUND
TELECOMMUNICATIONS FUND
TRANSPORTATION FUND

This Statement of Additional Information is not a prospectus. It should be read
in conjunction with the Trust's Prospectus, dated September 1, 1998. 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 numbers above.

The date of this Statement of Additional Information is September 1, 1998.

<PAGE>

STATEMENT OF ADDITIONAL INFORMATION

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
<S> <C>
GENERAL INFORMATION ABOUT THE TRUST. . . . . . . . . . . . . . . . . . . . . . . . .

ADDITIONAL INFORMATION ABOUT THE SECTOR FUNDS. . . . . . . . . . . . . . . . . . . .

DESCRIPTION OF THE MONEY MARKET FUND . . . . . . . . . . . . . . . . . . . . . . . .

INVESTMENT POLICIES, TECHNIQUES AND RISK FACTORS . . . . . . . . . . . . . . . . . .

INVESTMENT RESTRICTIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

PORTFOLIO TRANSACTIONS AND BROKERAGE . . . . . . . . . . . . . . . . . . . . . . . .

MANAGEMENT OF THE TRUST. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

PRINCIPAL HOLDERS OF SECURITIES. . . . . . . . . . . . . . . . . . . . . . . . . . .

DETERMINATION OF NET ASSET VALUE . . . . . . . . . . . . . . . . . . . . . . . . . .

PERFORMANCE INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

CALCULATION OF RETURN QUOTATIONS . . . . . . . . . . . . . . . . . . . . . . . . . .

INFORMATION ON COMPUTATION OF YIELD. . . . . . . . . . . . . . . . . . . . . . . . .

PURCHASE AND REDEMPTION OF SHARES. . . . . . . . . . . . . . . . . . . . . . . . . .

DIVIDENDS, DISTRIBUTIONS, AND TAXES. . . . . . . . . . . . . . . . . . . . . . . . .

OTHER INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

COUNSEL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

AUDITORS AND CUSTODIAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

APPENDIX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
</TABLE>

2
<PAGE>

GENERAL INFORMATION ABOUT THE TRUST

The Trust was organized as a Delaware business trust on _____________, 1998.
The Trust is permitted to offer separate portfolios of shares. Shares of the
Funds are available only through certain deferred variable annuity contracts
("Contracts") offered through insurance companies and are sold principally to
professional money managers and to investors who take part in certain
asset-allocation investment strategies. Additional Funds and/or classes may be
created from time to time.

Currently, the Trust has twenty-one separate series. All payments received by
the Trust for shares of any fund belong to that fund. Each fund has its own
assets and liabilities. This SAI relates to shares of the Nova Fund, the Ursa
Fund, the OTC Fund, the Precious Metals Fund (the "Metals Fund"), the U.S.
Government Bond Fund (the "Bond Fund"),the Juno Fund, the U.S. Government Money
Market Fund (the "Money Market Fund") and fourteen "Sector Funds" (collectively
the "Funds"). The Trust offers shares in the following 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, Leisure Fund, Retailing Fund, Technology Fund,
Telecommunications Fund, and Transportation Fund.

The Trust is a successor to the Rydex Advisors Variable Annuity Account (the
"Separate Account"), a managed separate account of Great American Reserve
Insurance Company ("Great American") and the subaccounts of the Separate Account
(the "Rydex Subaccounts"). The Rydex Subaccounts were divided into the Nova
Subaccount, the Ursa Subaccount, the Juno Subaccount, the OTC Subaccount, the
Precious Metals Subaccount, the U.S. Government Bond Subaccount and the Money
Market Subaccount. A substantial portion of the assets of each of the Rydex
Subaccounts were transferred to the respective Funds of the Trust in connection
with the commencement of operations of the Trust.

ADDITIONAL INFORMATION ABOUT THE SECTOR FUNDS

BANKING FUND
As discussed in the Prospectus, the Fund may invest in companies engaged in
accepting deposits and making commercial and principally non-mortgage consumer
loans. In addition, these companies may offer services such as merchant
banking, consumer and commercial finance, discount brokerage, leasing and
insurance. These companies may concentrate their operations within a specific
part of the country rather than operating predominantly on a national or
international scale.

BASIC MATERIALS FUND
As discussed in the Prospectus, the Fund may invest in companies engaged in the
manufacture, mining, processing, or distribution of raw materials and
intermediate goods used in the industrial sector. The Fund may invest in
companies handling products such as chemicals, lumber, paper, cooper, iron ore,
nickel, steel, aluminum, textiles, cement, and gypsum. The Fund may also invest
in the securities of mining, processing, transportation, and distribution
companies, including equipment suppliers and railroads.

BIOTECHNOLOGY FUND
As discussed in the Prospectus, the Fund may invest in companies engaged in the
research, development, sale, and manufacture of various biotechnological
products, services and processes. These include companies involved with
developing or experimental technologies such as generic engineering, hybridoma
and recombinant DNA techniques and monoclonal antibodies. The Fund may also
invest in companies that manufacture and/or distribute biotechnological and
biomedical products, including devices and instruments, and that provide or
benefit

3
<PAGE>

significantly from scientific and technological advances in biotechnology. Some
biotechnology companies may provide processes or services instead of, or in
addition to, products.

The description of the biotechnology sector may be interpreted broadly to
include applications and developments in such areas as human health care
(cancer, infectious disease, diagnostics and therapeutics); pharmaceuticals (new
drug development and production); agricultural and veterinary applications
(improved seed varieties, animal growth hormones); chemicals (enzymes, toxic
waste treatment); medical/surgical (epidermal growth factor, in vivo
imaging/therapeutics); and industry (biochips, fermentation, enhanced mineral
recovery).

CONSUMER PRODUCTS FUND
As discussed in the Prospectus, 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
As discussed in the Prospectus, the Fund may invest in companies engaged in the
design, manufacture, or sale of electronic components (semiconductors,
connectors, printed circuit boards and other components); equipment vendors to
electronic component manufactures; electronic component distributors; and
electronic instruments and electronic systems vendors. In addition, the Fund
may invest in companies in the fields of defense electronics, medical
electronics, consumer electronics, advanced manufacturing technologies
(computer-aided design and computer-aided manufacturing computer-aided
engineering, and robotics), lasers and electro-optics, and other developing
electronics technologies.

ENERGY FUND
As discussed in the Prospectus, the Fund may invest in companies in the energy
field, including the conventional areas of oil, gas, electricity and coal, and
alternative sources of energy such as nuclear, geothermal, oil shale and solar
power. The business activities of companies in which the Fund may invest
include production, generation, transmission, refining, marketing, control,
distribution or measurement of energy or energy fuels such as petrochemicals;
providing component parts or services to companies engaged in the above
activities; energy research or experimentation; and environmental activities
related to pollution control. Companies participating in new activities
resulting from technological advances or research discoveries in the energy
field may also be considered for this Fund.

ENERGY SERVICES FUND
As discussed in the Prospectus, the Fund may invest in companies in the energy
service field, including those that provide services and equipment to the
conventional areas of oil, gas, electricity and coal, and alternative sources of
energy such as nuclear, geothermal, oil shale and solar power. The Fund may
invest in companies involved in providing services and equipment for drilling
processes such as offshore and onshore drilling, drill bits, drilling rig
equipment, drilling string equipment, drilling fluids, tool joints and wireline
logging. Many energy service companies are engaged in production and well
maintenance, providing such products and services as packers, perforating
equipment, pressure pumping, downhole equipment, valves, pumps, compression
equipment, and well completion equipment and service. Certain companies supply
energy providers with exploration technology such as seismic data, geological
and geophysical services, and interpretation of this data. The Fund may also
invest in

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companies with a variety of underwater well services, helicopter services,
geothermal plant design or construction, electric and nuclear plant design or
construction, energy related capital equipment, mining related equipment or
services, and high technology companies serving these industries.

FINANCIAL SERVICES FUND
As discussed in the Prospectus, the Fund may invest in companies that are
involved in the financial sector, including commercial and investment banks,
savings and loan associations, consumer and industrial finance companies,
securities brokerage companies, real estate-related companies, leasing
companies, and a variety of firms in all segments of the insurance industry such
as multi-line, property and casualty, and life insurance.

The financial services sector is currently undergoing relatively rapid change as
existing distinctions between financial service segments become less clear. For
instance, recent business combinations have included insurance, finance, and
securities brokerage under single ownership. Some primarily retail corporations
have expanded into securities and insurance industries. Moreover, the federal
laws generally separating commercial and investment banking are currently being
studied by Congress.

Securities and Exchange Commission ("SEC") regulations provide that the Fund may
not invest more than 5% of its total assets in the securities of any one
company that derives more than 15% of its revenues from brokerage or investment
management activities. These companies, as well as those deriving more than 15%
of profits from brokerage and investment management activities, will be
considered to be "principally engaged" in this Fund's business activity. Rule
12d3-1 under the Investment Company Act of 1940 (the "1940 Act"), allows
investment portfolios such as this Fund, to invest in companies engaged in
securities-related activities subject to certain conditions. Purchases of
securities of a company that derived 15% or less of gross revenues during its
most recent fiscal year from securities-related activities (I.E., broker/dealer,
underwriting, or investment advisory activities) are subject only to the same
percentage limitations as would apply to any other security the Fund may
purchase. The Fund may purchase securities of an issuer that derived more than
15% of it gross revenues in its most recent fiscal year from securities-related
activities, subject to the following conditions:

a. the purchase cannot cause more than 5% of the Fund's total assets to
be invested in securities of that issuer;

b. for any equity security, the purchase cannot result in the Fund owing
more than 5% of the issuer's outstanding securities in that class;

c. for a debt security, the purchase cannot result in the fund owing more
than 10% of the outstanding principal amount of the issuer's debt
securities.

In applying the gross revenue test, an issuer's own securities-related
activities must be combined with its ratable share of securities-related
revenues from enterprises in which it owns a 20% or greater voting or equity
interest. All of the above percentage limitations, as well as the issuer's
gross revenue test, are applicable at the time of purchase. With respect to
warrants, rights, and convertible securities, a determination of compliance with
the above limitations shall be made as though such warrant, right, or conversion
privilege had been exercised. The Fund will not be required to divest its
holding of a particular issuer when circumstances subsequent to the purchase
cause one of the above conditions to not be met. The purchase of a general
partnership interest in a securities-related business is prohibited.

HEALTH CARE FUND

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As discussed in the Prospectus, the Fund may invest in companies that are
involved in the health care industry including companies engaged in the design,
manufacture, or sale of products or services used for or in connection with
health care or medicine. Companies in the health care sector may include
pharmaceutical companies; firms that design, manufacture, sell, or supply
medical, dental, and optical products, hardware or services; companies involved
in biotechnology, medical diagnostic, and biochemical research and development,
as well as companies involved in the operation of health care facilities.

LEISURE FUND
As discussed in the Prospectus, the Fund may invest in companies engaged in the
design, production, or distribution of goods or services in the leisure
industries including television and radio broadcasting or manufacturing
(including cable television); motion pictures and photography; recordings and
musical instruments; publishing, including newspapers and magazines; sporting
goods and camping and recreational equipment; and sports arenas. Other goods
and services may include toys and games (including video and other electronic
games), amusement and theme parks, travel and travel-related services, hotels
and motels, leisure apparel or footwear, tobacco products, and gaming casinos.

RETAILING FUND
As discussed in the Prospectus, the Fund may invest in companies that are
involved in the retailing sector including companies engaged in merchandising
finished goods and services primarily to individual consumers. Companies in
which the Fund may invest include general merchandise retailers, department
stores, restaurant franchises, drug stores, motor vehicle and marine dealers,
and any specialty retailers selling a single category of merchandise such as
apparel, toys, jewelry, consumer electronics, or home improvement products. The
Fund may also invest in companies engaged in selling goods and services through
alternative means such as direct telephone marketing, mail order, membership
warehouse clubs, computer, or video based electronic systems.

TECHNOLOGY FUND
As discussed in the Prospectus, the Fund may invest in companies that are
involved in the technology sector including companies which the Advisor
believes have, or will develop, products, processes or services that will
provide or will benefit significantly from technological advances and
improvements. These may include, for example, companies that develop, produce,
or distribute products or services in the computer, semiconductor, electronics,
communications, health care, and biotechnology sectors.

TELECOMMUNICATIONS FUND
As discussed in the Prospectus, the Fund may invest in companies that are
involved in the telecommunications sector including companies engaged in the
development, manufacture, or sale of communications services and/or equipment.
Companies in the telecommunications field offer a variety of services and
products, including local and long-distance telephone service; cellular, paging,
local and wide-area product networks; satellite, microwave and cable television;
Internet access; and equipment used to provide these products and services.
Long-distance telephone companies may also have interests in developing
technologies, such as fiber optics and data transmission. Certain types of
companies in which the Fund may invest are engaged in fierce competition for a
share of the market for goods or services such as private and local area
networks, or are engaged in the sale of telephone set equipment.

TRANSPORTATION FUND
As discussed in the Prospectus, 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

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<PAGE>

involved in the movement of freight and/or people such as airline, railroad,
ship, truck, and bus companies. Other service companies include those that
provide leasing and maintenance for automobiles, trucks, containers, rail cars,
and planes. Equipment manufacturers include makers of trucks, automobiles,
planes, containers, rail cars, or any other mode of transportation and their
related products. In addition, the Fund may invest in companies that sell
fuel-saving devices to the transportation industries and those that sell
insurance and software developed primarily for transportation companies.

DESCRIPTION OF THE MONEY MARKET FUND

As discussed in the Prospectus, 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 Market Fund
is managed to maintain a stable price per share of $1.00, there is no guarantee
that the price will be constantly maintained.

INVESTMENT POLICIES, TECHNIQUES AND RISK FACTORS

GENERAL
Each Fund's investment objective and permitted investments are described in the
Prospectuses under the headings "RISK/RETURN SUMMARY" and "FUND PERFORMANCE AND
FEE INFORMATION". 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 II, Inc., a Maryland corporation with offices at 6116 Executive
Boulevard, Suite 400, Rockville, Maryland 20852 (the "Advisor"). The investment
strategies of the Funds discussed below and in the Prospectuses may be used by a
Fund if, in the opinion of the Advisor, these strategies will be advantageous to
that Fund. A Fund is free to reduce 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 , the Bond Fund and the Sector Funds may borrow money, including
borrowing for investment purposes. Borrowing for investment is known as
leveraging. Leveraging investments, by purchasing securities with borrowed
money, is a speculative technique which increases investment risk, but also
increases investment opportunity. Since substantially all of a 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 , the Bond Fund, or the Sector Funds
might have to sell portfolio securities to meet interest or principal payments
at a time investment considerations would not favor such sales. The Nova Fund,
the Bond Fund and the Sector

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<PAGE>

Funds intend to use leverage during periods when the Advisor believes that the
respective Fund's investment objective would be furthered.

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 from a
bank 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 Metals Fund and the Sector Funds may invest in issuers located outside the
United States. The Metals Fund and the Sector Funds may purchase American
Depository 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 ve
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-

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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.

With regard to the Metals Fund, at the present time, five countries are the
major producers and processors of gold bullion and other precious metals and
minerals. In order of magnitude, these producers and processors are: the
Republic of South Africa, the former republics of the former Soviet Union,
Canada, the United States, and Australia. Political and economic conditions in
South Africa and the former republics of the former Soviet Union may have a
direct effect on the mining, distribution, and price of precious metals and
minerals, and on the sales of central bank gold holdings. South African mining
stocks represent a special risk in view of the history of political unrest in
that country. Besides that factor, various government bodies such as the South
African Ministry of Mines and the Reserve Bank of South Africa exercise
regulatory authority over mining activity and the sale of gold. The policies of
these South African government bodies in the future could be detrimental to the
Metals Fund's ability to achieve its objectives.

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. 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 other meet selection criteria, a Fund may make such
investments. whether or not such securities are "illiquid" depends on the market
that exists for the particular security. The 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, the Money Market Fund, and the Sector
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

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<PAGE>

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.
The Bond Fund, the Money Market Fund and the Sector Funds 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.

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 Nova Fund, the OTC Fund, the Metals Fund and the
Sector Funds may buy call options and write (sell) put options on securities,
and the Ursa Fund may buy put options and write call options on securities for
the purpose of realizing the Fund's investment objective. By wiring 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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<PAGE>

sellers of options. The OCC assumes the other side of every purchase and sale
transaction on an exchange and, by doing so, gives its guarantee to the
transaction.

OPTIONS ON SECURITY INDEXES. The Nova Fund, the OTC Fund, the Metals Fund and
the Sector Funds may purchase call options and write put options, and the Ursa
Fund may purchase put options and write call options, on stock indexes listed on
national securities exchanges or traded in the over-the-counter market as an
investment vehicle for the purpose of realizing the Fund's investment objective.

Options on indexes are settled in cash, not in delivery of securities. The
exercising holder of an index option receives, instead of a security, cash equal
to the difference between the closing price of the securities index and the
exercise price of the option. When a Fund writes a covered option on an index,
the Fund will be required to deposit and maintain with a custodian cash or
liquid securities equal in value to the aggregate exercise price of a put or
call option pursuant to the requirements and the rules of the applicable
exchange. If, at the close of business on any day, the market value of the
deposited securities falls below the contract price, the Fund will deposit with
the custodian cash or liquid securities equal in value to the deficiency.

OPTIONS ON FUTURES CONTRACTS. Under Commodities Futures Trading Commission
("CFTC") Regulations, a Fund (other than the Money Market Fund) may engage in
futures transactions, either for "bona fide hedging" purposes, as this term is
defined in the CFTC Regulations, or for non-hedging purposes to the extent that
the aggregate initial 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

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<PAGE>

the underling futures contracts is established at a price greater than the
strike price of the written (sold) call, the Fund will maintain in a segregated
account cash or liquid securities equal in value to the difference between the
strike price of the call and the price of the futures contract. A Fund may also
cover its sale of a call option by taking positions in instruments with prices
which are expected to move relatively consistently with the call option. A Fund
may cover its sale of a put option on a futures contract by taking a short
position in the underlying futures contract at a price greater than or equal to
the strike price of the put option, or, if the short position in the underlying
futures contract is established at a price less than the strike price of the
written put, the Fund will maintain in a segregated account cash or liquid
securities equal in value to the difference between the strike price of the put
and the price of the futures contract. A Fund may also cover its sale of a put
option by taking positions in instruments with prices which are expected to move
relatively consistently with the put option.

PORTFOLIO TURNOVER
As discussed in the 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 "Risk Considerations" 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, 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, the Juno Fund, and the 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 to the Fund's advantage to do so. Each Fund will establish a segregated
account with the Trust's custodian bank in which the Fund will maintain cash or
cash equivalents or

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other portfolio securities equal in value to the Fund's obligations in respect
of reverse repurchase agreements.

SHORT SALES
The Ursa Fund and the Juno 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.

Until the Ursa Fund or Juno 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.

The Nova Fund, the OTC Fund, the Metals Fund and the Sector Funds 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 the Fund 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).

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TRACKING ERROR
Funds which seek to duplicate the performance of their respective benchmarks, as
discussed in the Prospectus, do not expect that the returns over a year will
deviate adversely from their respective benchmarks by more than ten percent,
several factors may affect their ability to achieve this correlation. Among
these are: (1) Fund expenses, including brokerage (which may, be increased by
high portfolio turnover); (2) less than all of the securities in the benchmark
being held by a Fund and securities not included in the benchmark being held by
a Fund; (3) an imperfect correlation between the performance of instruments held
by a Fund, such as futures contracts and options, and the dance of the
underlying securities in the cash market; (4) bid-ask spreads (the effect of
which may be increased by portfolio turnover); (5) a Fund holds instruments
traded in a market that has become illiquid or disrupted; (6) Fund share prices
being rounded to the nearest cent; (7) changes to the benchmark index that are
not disseminated in advance; (8) the need to conform a Fund's portfolio holdings
to comply with investment restrictions or policies or regulatory or tax law
requirements; or (9) market movements that run counter to a leveraged Fund's
investments (which will cause divergence between the Fund and its benchmark over
time due to the mathematical effects of leveraging). 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,
access 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 also may invest in U.S. Government Securities. The Juno 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

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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 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.

YEAR 2000
The Trust depends on the smooth functioning of computer systems in almost every
aspect of its business. Like other mutual funds, businesses and individuals
around the world, the Trust could be adversely affected if the computer systems
used by its service providers do not properly process dates on and after January
1, 2000 and distinguish between the year 2000 and the year 1900. The Trust has
asked its service providers whether they expect to have their computer systems
adjusted for the year 2000 transition, and received assurances from each from
each that its system is expected to accommodate the year 2000 without material
adverse consequences to the Trust. The Trust and its shareholders may
experience losses if these assurances prove to be incorrect or as a result of
year 2000 computer difficulties experienced by issuers of portfolio securities
or third parties, such as custodians, banks, broker-dealers or others with which
the Trust does business.

ZERO COUPON BONDS
The Bond Fund and the Juno 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

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<PAGE>

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 Fund shall not:

1. Lend any security or make any other loan if, as a result, more than
33 1/3% of the value of the Fund's total assets would be lent to other
parties, except (i) through the purchase of a portion of an issue of
debt securities in accordance with the Fund's investment objective,
policies, and limitations, or (ii) by engaging in repurchase
agreements with respect to portfolio securities, or (iii) through the
loans of portfolio securities provided the borrower maintains
collateral equal to at least 100% of the value of the borrowed
security and marked-to-market daily.

2. Underwrite securities of any other issuer.

3. Purchase, hold, or deal in real estate or oil and gas interests,
although the Fund may purchase and sell securities that are secured by
real estate or interests therein and may purchase mortgage-related
securities and may hold and sell real estate acquired for the Fund as
a result of the ownership of securities.

4. Issue any senior security (as such term is defined in Section 18(f) of
the 1940 Act) (including the amount of senior securities issued but
excluding liabilities and indebtedness not constituting senior
securities), except that the Fund may issue senior securities in
connection with transactions in options, futures, options on futures,
and other similar investments, and except as otherwise permitted
herein and in Investment Restriction Nos. 5, 7, 8, and 9, as
applicable to the Fund.

5. Pledge, mortgage, or hypothecate the Fund's assets, except to the
extent necessary to secure permitted borrowings and to the extent
related to the deposit of assets in escrow in connection with (i) the
writing of covered put and call options, (ii) the purchase of
securities on a forward-commitment or delayed-delivery basis, and
(iii) collateral and initial or variation margin arrangements with
respect to currency transactions, options, futures contracts,
including those relating to indexes, and options on futures contracts
or indexes.

6. Invest in commodities except that the Fund may purchase and sell
futures contracts, including those relating to securities, currencies,
indexes, and options on futures contracts or indexes 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 METALS FUND MAY (a) TRADE IN FUTURES CONTRACTS AND OPTIONS ON
FUTURES

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<PAGE>

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 METALS FUND WILL INVEST 25% OR MORE OF THE VALUE OF THE ITS
TOTAL ASSETS IN THE SECURITIES IN THE METALS-RELATED AND
MINERALS-RELATED INDUSTRIES.

8. Borrow money, except (i) as a temporary measure for extraordinary or
emergency purposes and then only in amounts not in excess of 5% of the
value of the Fund's total assets from a bank or (ii) in an amount up
to one-third of the value of the Fund's total assets, including the
amount borrowed, in order to meet redemption requests without
immediately selling portfolio instruments. This provision is not for
investment leverage but solely to facilitate management of the
portfolio by enabling the Fund to meet redemption requests when the
liquidation of portfolio instruments would be inconvenient or
disadvantageous.

8.1 THE NOVA FUND AND THE 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 AND THE JUNO 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 APPLICABLE TO THE MONEY MARKET FUND
The Money Market Fund shall not:

10. Make loans to others except through the purchase of qualified debt
obligations, loans of portfolio securities and entry into repurchase
agreements.

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<PAGE>

11. 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.

12. Issue senior securities, except as permitted by the Money Market
Fund's investment objectives and policies.

13. Write or purchase put or call options.

14. 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.

15. 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.

16. 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.

FUNDAMENTAL POLICIES OF THE SECTOR FUNDS

A Sector Fund may not:

17. Borrow money in an amount exceeding 33 1/3% of the value of its total
assets, provided that, for purposes of this limitation, investment
strategies which either obligate the Fund to purchase securities or
require that Fund to segregate assets are not considered to be
borrowing. Asset coverage of a least 300% is required for all
borrowing, except where the Fund has borrowed money for temporary
purposes in amounts not exceeding 5% of its total assets. The Fund
will not purchase securities while its borrowing exceed 5% of its
total assets.

18. 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.

19. 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. Issue senior securities (as defined in the 1940 Act) except as
permitted by rule, regulation or order of the SEC.

21. Act as an underwriter of securities of other issuers except as it may
be deemed an underwriter

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<PAGE>

in selling a portfolio security.

22. Invest in interests in oil, gas, or other mineral exploration or
development programs and oil, gas or mineral leases.

NON-FUNDAMENTAL POLICIES
The following investment limitations are non-fundamental policies of the Funds
and may be changed with respect to any Fund by the Board of Trustees.

Each Fund may not:

1. Invest in warrants.

2. Invest in real estate limited partnerships.

3. Invest in mineral leases.

Each Sector Fund may not:

4. Pledge, mortgage or hypothecate assets except to secure borrowing
permitted by the Fund's fundamental limitation on borrowing.

5. Invest in companies for the purpose of exercising control.

6. Purchase securities on margin or effect short sales, except that a
Fund may (i) obtain short-term credits as necessary for the clearance
of security transactions; (ii) provide initial and variation margin
payments in connection with transactions involving futures contracts
and options on such contracts; and (iii) make short sales "against the
box" or in compliance with the SEC's position regarding the asset
segregation requirements imposed by Section 18 of the 1940 Act.

7. Invest its assets in securities of any investment company, except as
permitted by the 1940 Act or any rule, regulation or order of the
SEC.

8. Purchase or hold illiquid securities, I.E., securities that cannot be
disposed of for their approximate carrying value in seven days or less
(which term includes repurchase agreements and time deposits maturing
in more than seven days) if, in the aggregate, more than 15% of its
net assets would be invested in illiquid securities.

The foregoing percentages 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

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<PAGE>

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 seeking to implement a Fund's policies, the Advisor effects transactions with
those brokers and dealers who the Advisor believes provide the most favorable
prices and are capable of providing efficient executions. If the Advisor
believes such prices and executions are obtainable from more than one broker or
dealer, the Advisor may give consideration to placing portfolio transactions
with those brokers and dealers who also furnish research and other services to
the Fund or the Advisor. Such services may include, but are not limited to, any
one or more of the following: information as to the availability of securities
for purchase or sale; statistical or factual information or opinions pertaining
to investment; wire services; and appraisals or evaluations of portfolio
securities. If the broker-dealer providing these additional services is acting
as a principal for its own account, no commissions would be payable. If the
broker-dealer is not a principal, a higher commission may be justified, at the
determination of the Advisor, for the additional services.

The information and services received by the Advisor from brokers and dealers
may be of benefit to the Advisor in the management of accounts of some of the
Advisor's other clients and may not in all cases benefit a Fund directly. while
the receipt of such information and services is useful in varying degrees and
would generally reduce the amount of research or services otherwise performed by
the Advisor and thereby reduce the Advisor's expenses, this information and
these services are of indeterminable value and the management fee paid to the
Advisor is not reduced by any amount that may be attributable to the value of
such information and services.

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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. (56)

Chairman of the Board of Trustees and President of the Trust; Chairman of
the Board, President, and Treasurer of PADCO Advisors, Inc., investment
adviser to the Trust, 1993 to present; Chairman of the Board, President,
and Treasurer of PADCO Service Company, Inc., shareholder and transfer
agent servicer to the Trust, 1993 to present; Chairman of the Board of
Managers of The Rydex Advisor Variable Annuity Account (the "Separate
Account"), a separate account of Great American Reserve Insurance Company,
1996 to present; Chairman of the Board, President, and Treasurer of PADCO
Advisors II, Inc., investment adviser to the Separate Account, 1996 to
present; Chairman of the Board, President, and Treasurer of PADCO Financial
Services, Inc., a registered broker-dealer firm, 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 (52)

Trustee of the Trust; Manager of the Separate Account, 1996 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 (56)

Trustee of the Trust; Manager of the Separate Account, 1996 to present;
Mortgage Banking Consultant and Investor, The Dalton Group, April 1995 to
present; President, CRAM Mortgage Group, Inc. 1966 to April 1995. Address:
6116 Executive Boulevard, Suite 400, Rockville, Maryland 20852.

JOHN O. DEMARET (57)

Trustee of the Trust; Manager of the Separate Account, 1997 to present;
Founder and Chief Executive Officer, Health Cost Controls America, Chicago,
Illinois, 1987 to 1996; sole practitioner, Chicago, Illinois, 1984 to 1987;
General Counsel for the Chicago Transit Authority, 1981 to 1984; Senior
Partner, O'Halloran, LaVarre & Demaret, Northbrook, Illinois, 1978 to 1981.
Address: 6116 Executive Boulevard, Suite 400, Rockville, Maryland 20852.

- - ------------------------------
(*) This trustee is deemed to be an "interested person" of the Trust, within
the meaning of Section 2(a)(19) of the 1940 Act, inasmuch as this person is
affiliated with the Advisor, as described herein.

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<PAGE>

PATRICK T. MCCARVILLE (55)

Trustee of the Trust; Manager of the Separate Account, 1997 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 (53)

Trustee of the Trust; Manager of the Separate Account, 1996 to present;
President, Arrow Limousine, 1963 to present. Address: 6116 Executive
Boulevard, Suite 400, Rockville, Maryland 20852.

OFFICERS

ROBERT M. STEELE (39)

Secretary and Vice President of the Trust; Vice President of PADCO
Advisors, Inc., investment adviser to the Trust, 1994 to present; Secretary
and Vice President of the Separate Account, 1996 to present; Vice President
of PADCO Advisors II, Inc., investment adviser to the Separate Account,
1996 to present; Vice President of The Boston Company, Inc., an
institutional money management firm, 1987 to 1994. Address:
6116 Executive Boulevard, Suite 400, Rockville, Maryland 20852.

CARL G. VERBONCOEUR (44)

Vice President of Operations of the Trust; Vice President of Operations of
the Separate Account, 1997 to present; Senior Vice President, Crestar Bank,
1995 to 1997; Senior Vice President, Crestar Asset Management Company, a
registered investment adviser, 1993 to 1995; Vice President Perpetual
Savings Bank, 1987 to 1993. Address; 6116 Executive Boulevard, Suite 400,
Rockville, Maryland 20852.

MICHAEL P. BYRUM (27)

Assistant Secretary of the Trust; Employee and senior portfolio manager of
PADCO Advisors, Inc., 1993 to present; portfolio manager of The Rydex OTC
Fund (since 1997) and The Rydex U.S. Government Bond Fund (since 1997),
each a series of the Trust; Assistant Secretary of the Separate Account,
1996 to present; Employee of PADCO Advisors II Inc., investment adviser to
the Separate Account; Investment Representative, Money Management
Associates, a registered investment adviser, 1992 to 1993; Student, Miami
University of Oxford, Ohio (B.A., Business Administration, 1992).
Address; 6116 Executive Boulevard, Suite 400, Rockville, Maryland 20852.

The aggregate compensation paid by the Separate Account to each of its Managers
serving during the fiscal year ended March 31, 1998, is set forth in the table
below. The compensation arrangements between the Trust and its Trustees will be
the same.

22
<PAGE>

<TABLE>
<CAPTION>
- - --------------------------------------------------------------------------------
AGGREGATE PENSION OR ESTIMATED
NAME OF PERSON, COMPENSATION RETIREMENT BENEFITS ANNUAL
POSITION FROM TRUST ACCRUED AS PART OF BENEFITS UPON
TRUST'S EXPENSES RETIREMENT
- - --------------------------------------------------------------------------------
<S> <C> <C> <C>
Albert P. Viragh, Jr.*, $0 $0 $0
CHAIRMAN AND PRESIDENT
- - --------------------------------------------------------------------------------
Corey A. Colehour, TRUSTEE $10,500 $0 $0
- - --------------------------------------------------------------------------------
J. Kenneth Dalton, TRUSTEE $10,500 $0 $0
- - --------------------------------------------------------------------------------
Roger Somers, TRUSTEE $10,500 $0 $0
- - --------------------------------------------------------------------------------
John O. Demaret, TRUSTEE $6,500** $0 $0
- - --------------------------------------------------------------------------------
Patrick T. McCarville, TRUSTEE $6,500** $0 $0
- - --------------------------------------------------------------------------------
</TABLE>
*Denotes an "interested person" of the Trust.
**Messrs. Demaret and McCarville were elected to the Board of Trustees in
December 1997.

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
1.0% of the outstanding shares of each Fund.

THE ADVISORY AGREEMENT
Under an investment advisory agreement with the Advisor, dated ____________,
1998, 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 ___________, 1998, net Trust assets under
management of the Advisor were approximately $____ 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 in the table below. The advisory fee contractual rate paid
to the Advisor by the Funds, respectively, is the same as was paid by the Rydex
Subaccounts, respectively. The aggregate advisory fees paid to the Advisor for
management of the Rydex Subaccounts since inception of the Rydex Subaccounts
(May 7, 1997) is also set forth in the table below.

<TABLE>
<CAPTION>
- - --------------------------------------------------------------------------------
ADVISORY FEES PAID
FUND/SUBACCOUNT -----------------------------------------------------------
ANNUAL ADVISORY 1996 1997 1998*
FEE CONTRACTUAL RATE
- - --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Nova Subaccount 0.75% N/A N/A
- - --------------------------------------------------------------------------------
Ursa Subaccount 0.90% N/A N/A
- - --------------------------------------------------------------------------------
OTC Subaccount 0.75% N/A N/A
- - --------------------------------------------------------------------------------
Metals Subaccount 0.75% N/A N/A
- - --------------------------------------------------------------------------------
Bond Subaccount 0.50% N/A N/A
- - --------------------------------------------------------------------------------
Juno Subaccount 0.90% N/A N/A
- - --------------------------------------------------------------------------------
Money Market Subaccount 0.50% N/A N/A
- - --------------------------------------------------------------------------------
Sector Funds(1) 0.85% N/A N/A N/A
- - --------------------------------------------------------------------------------
</TABLE>
*For period from May 7, 1997 to March 31, 1998.
(1)There were no Sector Fund equivalents among the Rydex Subaccounts.

23
<PAGE>

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, which has its office at 6116 Executive Boulevard, Suite 400,
Rockville, Maryland 20852, was incorporated in the State of Maryland on July 5,
1994. Albert P. Viragh, Jr., the Chairman of the Board of Trustees and the
President of the Advisor, owns a controlling interest in the Advisor.

THE SERVICE AGREEMENT
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, dated ___________, 1998. 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, distributes dividends and distributions payable by each
Fund, and produces statements with respect to account activity for each Fund and
each Fund's shareholders. The Servicer pays all fees and expenses that are
directly related to the services provided by the Servicer to each Fund; each
Fund reimburses the Servicer for all fees and expenses incurred by the Servicer
which are not directly related to the services the Servicer provides to the Fund
under the service agreement.

The service fee contractual rate paid to the Sevicer by the Funds, respectively,
is the same as was paid by the Rydex Subaccounts, respectively, and is set forth
in the table below. The aggregate service fees paid to the Servicer for
administration of the Rydex Subaccounts since inception of the Rydex Subaccounts
(May 7, 1997) is also set forth in the table below.

<TABLE>
<CAPTION>
- - --------------------------------------------------------------------------------
ANNUAL SERVICE FEES PAID
FUND SERVICE FEE --------------------------------
RATE 1996 1997 1998*
- - --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Nova Subaccount 0.25% N/A N/A
- - --------------------------------------------------------------------------------
Ursa Subaccount 0.25% N/A N/A
- - --------------------------------------------------------------------------------
OTC Subaccount 0.20% N/A N/A
- - --------------------------------------------------------------------------------
Metals Subaccount 0.20% N/A N/A
- - --------------------------------------------------------------------------------
Bond Subaccount 0.20% N/A N/A
- - --------------------------------------------------------------------------------
</TABLE>

24
<PAGE>

<TABLE>
<CAPTION>
- - --------------------------------------------------------------------------------
ANNUAL SERVICE FEES PAID
FUND SERVICE FEE ---------------------------------
RATE 1996 1997 1998*
- - --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Juno Subaccount 0.25% N/A N/A
- - --------------------------------------------------------------------------------
Money Market Subaccount 0.20% N/A N/A
- - --------------------------------------------------------------------------------
Sector Funds(1) 0.20% N/A N/A N/A
- - --------------------------------------------------------------------------------
</TABLE>
*For period from May 7, 1997 to March 31, 1998.
(1)There were no Sector Fund equivalents among the Rydex Subaccounts.

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 September 1, 1998, to the knowledge of the Trust, there were no beneficial
owners of 5% or more of the shares of the Funds. Upon commencement of
operation, the Trust expects Great American to become a beneficial owner of more
than 5% of the shares of the Funds.

DETERMINATION OF NET ASSET VALUE

The net asset value of a Fund serves as the basis for the purchase and
redemption price of that Fund's shares. The net asset value per share of a Fund
is calculated by dividing the market value of the Fund's securities plus the
values of its other assets, less all liabilities, by the number of outstanding
shares of the Fund. If market quotations are not readily available, a security
will be valued at fair value by the Board of Trustees or by the Advisor using
methods established or ratified by the Board of Trustees.

For purposes of determining net asset value per share of a Fund, options and
futures contracts will be valued 15 minutes after the 4:00 P.M., Eastern Time,
close of regular trading on the NYSE, except that futures contracts traded on
the Chicago Board of Trade ("CBOT") will be valued at 3:00 P.M., Eastern Time,
the close of trading of that exchange. Options on securities and indices
purchased by a Fund generally are valued at their last bid price in the case of
exchange-traded options or, in the case of options traded in the
over-the-counter ("OTC") market, the average of the last bid price as obtained
from two or more dealers unless there is only one dealer, in which case that
dealer's price is used. The value of a futures contract equals the unrealized
gain or loss on the contract settlement price for a like contract acquired on
the day on which the futures contract is being valued. The value of options on
futures contracts is determined based upon the current settlement price for a
like option acquired on the day on which the option is being valued. A
settlement price may not be used for the foregoing purposes if the

25
<PAGE>

market makes a limit move with respect to a particular commodity.

On days when the CBOT is closed during its usual business hours, but the shares
of the Bond Fund or Juno Fund have been purchased, redeemed, and/or exchanged,
the portfolio securities held by the Bond Fund or Juno 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 or Juno 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 or Juno Fund to execute trades on the CBOT, the value of the
CBOT-traded portfolio securities held by the Bond Fund or Juno 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.

AMORTIZED COST METHOD
The Money Market Fund will utilize the amortized cost method in valuing its
portfolio securities for purposes of determining the net asset value of its
shares even though the portfolio securities may increase or decrease in market
value, generally, in connection with changes in interest rates. The amortized
cost method of valuation involves valuing a security at its cost adjusted by a
constant amortization to maturity of any discount or premium, regardless of the
impact of fluctuating interest rates on the market value of the instrument while
this method provides certainty in valuation, this method may result in periods
during which value, as determined by amortized cost, is higher or lower than the
price the Money Market Fund would receive if this Fund sold the instrument.
During such periods, the yield 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

26
<PAGE>

Money Market Fund to maintain a dollar-weighted average portfolio maturity of
not more than ninety days and precludes the purchase of any instrument with a
remaining maturity of more than thirteen months.

The Money Market Fund may only purchase Eligible Securities. Eligible
Securities are securities which : (a) have remaining maturities of thirteen
months or less; (b) either (i) are rated in the two highest short-term rating
categories by any two nationally-recognized statistical rating organizations
("NSROs") that have issued a short-term rating with respect to the security or
class of debt obligations of the issuer, or (ii) if only one NSRO has issued a
short-term rating with respect to the security, then by that NSRO; (c) were
long-term securities at the time of issuance whose issuers have outstanding
short-term debt obligations which are comparable in priority and security and
has a ratings as specified in (b) above; or (d) if no rating is assigned by any
NSRO as provided in (b) and (c) above, the unrated securities are determined by
the Trustees to be of comparable quality to any rated securities.

As permitted by the Rule, the Trustees have delegated to the Advisor, subject to
the Trustees' oversight pursuant to guidelines and procedures adopted by the
Trustees, the authority to determine which securities present minimal credit
risks and which unrated securities are comparable in quality to rated
securities.

If the Trustees determine that it is no longer in the best interests of the
Money Market Fund and its shareholders to maintain a stable price of $1.00 per
share, or if the Trustees believe that maintaining such price no longer reflects
a market-based net asset value per share, the Trustees have the right to change
from an amortized cost basis of valuation to valuation based on market
quotations. The Money Market Fund will notify shareholders of any such change.

PERFORMANCE INFORMATION

From time to time, each of the Funds (other than the Money Market Fund) may
include the Fund's total return in advertisements or reports to shareholders or
prospective shareholders. Quotations of average annual total return for a Fund
will be expressed in terms of the average annual compounded rate of return on a
hypothetical investment in the Fund over a period of at least one, five, and ten
years (up to the life of the Fund) (the ending date of the period will be
stated). Total return of a Fund is calculated from two factors: the amount of
dividends earned by each Fund share and by the increase or decrease in value of
the Fund's share price. See "Calculation of Return Quotations."

Performance information for each of the Funds contained in reports to
shareholders or prospective shareholders, advertisements, and other promotional
literature may be compared to the record of various unmanaged indexes.
Performance information for the Nova Fund, the Ursa Fund, and the Metals Fund
may be compared to various unmanaged indexes, including, but not limited to, the
S&P 500 Index or the Dow Jones Industrial Average. Performance information for
the 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
indexes, including, but not limited to, its current benchmark, the NASDAQ 100
Index-TM-, and the NASDAQ Composite Index-TM-. The OTC Fund has the ability to
invest in securities not included in the NASDAQ 100 Index-TM- or the NASDAQ
Composite Index-TM-, and the OTC Fund's investment portfolio may or may not be
similar in composition to NASDAQ 100 Index-TM- or the NASDAQ Composite
Index-TM-. Performance information for the Bond Fund and the Juno Fund may be
compared to various unmanaged indexes, including, but not limited to, the
Shearson Lehman Government (LT) Index.

Such unmanaged indexes may assume the reinvestment of dividends, but generally
do not reflect deductions for

27
<PAGE>

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 (other than the
Money Market Fund) to that of other mutual funds and to other relevant market
indexes in advertisements or in reports to shareholders, performance for the
Fund may be stated in terms of total return. Under the rules of the SEC ("SEC
Rules"), Funds advertising performance must include total return quotes
calculated according to the following formula:

M
P(1+T) = ERV

Where: P = a hypothetical initial payment of $1,000;

T = average annual total return;

n = number of years (1, 5 or 10); and

ERV = ending redeemable value of a hypothetical $1,000
payment, made at the beginning of the 1, 5 or 10 year
periods, at the end of the 1, 5, or 10 year periods (or
fractional portion thereof).

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 period from the respective commencement of operations of the Subaccounts
to March 31, 1998, the

28
<PAGE>

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 in the table below. The predecessor Rydex
Subaccounts were subject to expenses to which the Funds will not necessarily be
subject. Accordingly, the performance information below has been adjusted by
applying the anticipated total expense ratio for each Fund, respectively.

FOR THE PERIOD
FROM THE
COMMENCEMENT
OF OPERATIONS(1) TO
MARCH 31, 1998
-------------------
Nova Subaccount
Ursa Subaccount
OTC Subaccount
Precious Metals Subaccount
U.S. Government Bond Subaccount
Juno Subaccount
Money Market Subaccount

- - -----------------------------
(1)Commenced operations May 7, 1997.

INFORMATION ON COMPUTATION OF YIELD

THE 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:

6
a-b
YIELD = 2 ( --- + 1 - 1)
cd

Where: a = dividends and interest earned during the period;

b = expenses accrued for the period (net of
reimbursements);

c = the average daily number of shares outstanding during
the period that were entitled to receive dividends; and

d = the maximum offering price per share on the last day of
the period.

Under this formula, interest earned on debt obligations for purposes of "a"
above, is calculated by (i) computing the yield to maturity of each obligation
held by the Bond Fund based on the market value of the obligation (including
actual accrued interest) at the close of business on the last day of each month,
or, with respect to obligations purchased during the month, the purchase price
(plus actual accrued interest), (ii) dividing that figure

29
<PAGE>

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 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 predecessor to the Bond Fund, the U.S. Government Bond Subaccount's yield,
as of March 31, 1998, based on a thirty-day base period, was approximately
____%.

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 predecesor to the Money Market Fund, the Money Market Subaccount's
annualized effective yield and annualized current yield, for the seven-day
period ended March 31, 1998, were approximately ____% and ____%, respectively.

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

30
<PAGE>

on such investments, but also on changes in the Money Market Fund's expenses
during the period.

Yield information may be useful in reviewing the performance of the Money Market
Fund and for providing a basis for comparison with other investment
alternatives. However, unlike bank deposits or other investments which
typically pay a fixed yield for a stated period of time, the Money Market Fund's
yield fluctuates.

PURCHASE AND REDEMPTION OF SHARES

SUSPENSION OF THE RIGHT OF REDEMPTION
The Funds may suspend the right of redemption or the date of payment: (i) for
any period during which the NYSE, the Federal Reserve Bank of New York, the
NASDAQ, the Chicago Mercantile Exchange ("CME"), the CBOT, or any other
exchange, as appropriate, is closed (other than customary weekend or holiday
closings), or trading on the NYSE, the NASDAQ, the CME, the CBOT, or any other
exchange, as appropriate, is restricted; (ii) for any period during which an
emergency exists so that sales of a Fund's investments or the determination of
its NAV is not reasonably practicable; or (iii) for such other periods as the
SEC may permit for the protection of a Fund's investors.

HOLIDAYS
The NYSE, the Federal Reserve Bank of New York, the NASDAQ, the CME, the CBOT,
and other U.S. exchanges are closed on weekends and on the following holidays:
(i) New Year's Day, Martin Luther King Jr.'s Birthday, President's Day, Good
Friday, Memorial Day, July Fourth, Labor Day, Columbus Day, Thanksgiving Day,
and Christmas Day; and (ii) the preceding Friday if any of these holidays falls
on a Saturday, or the subsequent Monday if any of these holidays falls on a
Sunday. Although the Trust expects the same holiday schedules to be observed in
the future, each of the aforementioned exchanges may modify its holiday schedule
at any time.

REDEMPTIONS IN-KIND
The Trust intends to pay your redemption proceeds in cash. However, under
unusual conditions that make the payment in cash unwise (and for the protection
of the remaining shareholders of the Fund) the Trust reserves the right to pay
all, or part, of your redemption proceeds in liquid securities with a market
value equal to the redemption price (redemption in-kind). 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.

31
<PAGE>

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.

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.

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.

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.

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<PAGE>

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 Metals Fund, therefore, intends to restrict its
investment in precious metals and in precious minerals to avoid a violation of
the 90% Test.

If a fund were to fail to qualify as an RIC for one or more taxable years, the
Fund could then qualify (or requalify) as an RIC for a subsequent taxable year
only if the Fund had distributed to the Fund's shareholders a taxable dividend
equal to the full amount of any earnings or profits (less the interest charge
mentioned below, if applicable) attributable to such period. The fund might
also be required to pay to the U.S. Internal Revenue Service (the "IRS")
interest on 50% of such accumulated earnings and profits. In addition, pursuant
to the Code and an interpretative notice issued by the IRS, if the Fund should
fail to qualify as an RIC and should thereafter seek to requalify as an RIC, the
Fund may be subject to tax on the excess (if any) of the fair market of the
Fund's assets over the Fund's basis in such assets, as of the day immediately
before the first taxable year for which the Fund seeks to requalify as an RIC.

If a fund determines that the fund will not qualify as an RIC under Subchapter M
of the Code, the Fund will establish procedures to reflect the anticipated tax
liability in the Fund's net asset value.

SECTION 817(h) DIVERSIFICATION
Section 817(h) of the Code requires that the assets of each Fund be adequately
diversified so that insurance companies that invest in their shares, and not
variable annuity contract owners, are considered the owners of the shares for
federal income tax purposes. Each Fund ordinarily must satisfy the
diversification requirements within one year after contract owner funds are
first allocated to the particular Fund. In order to meet the diversification
requirements of regulations issued under Section 817(h), each Fund will meet
the following test: no more than 55% of the assets will be invested in any
one investment; no more than 70% of the assets will be invested in any two
investments; no more than 80% of the assets will be invested in any three
investments; and no more than 90% will be invested in any four investments.
Each Fund must meet the above diversification requirements within 30 days of
the end of each calendar quarter.

SPECIAL CONSIDERATIONS APPLICABLE TO THE METALS FUND AND THE SECTOR FUNDS
In general, with respect to the Metals Fund and the Sector Funds, gains from
"foreign currencies" and from foreign currency options, foreign currency
futures, and forward foreign exchange contracts ("forward contracts") relating
to investments in stock, securities, or foreign currencies will be qualifying
income for purposes of determining whether the Fund qualifies as a RIC. It is
currently unclear, however, who will be treated as the issuer of a foreign
currency instrument or how foreign currency options, futures, or forward
contracts will be valued for purposes of the RIC diversification requirements
applicable to the Fund.

Under the Code, special rules are provided for certain transactions in a foreign
currency other than the taxpayer's

33
<PAGE>

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
Fund's investment company taxable income available to be distributed to
shareholders as ordinary income, rather than increasing or decreasing the amount
of the Fund's net capital gain. Additionally, if such losses exceed other
investment company taxable income during a taxable year, the Fund would not be
able to make any ordinary dividend distributions.

A Fund 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, a Fund may elect to "pass through" to shareholders the
amount of foreign taxes paid by that Fund. A Fund will make such an election
only if that Fund deems this to be in the best interests of its shareholders.
If a 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.

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 or long-term capital gain to the
Fund depending on the Fund's holding period for the underlying security or
underlying futures contract. 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 or long-term capital gain or loss depending on the Fund's holding
period for the underlying security or underlying futures contract. 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, the Ursa Fund, the OTC Fund, the Metals Fund and the
Sector Funds in its operations also will utilize options on stock indexes.
Options on "broad based" stock indexes are classified as "nonequity options"
under the Code. Gains and losses resulting from the expiration, exercise, or
closing of such nonequity options, as well as gains and losses resulting from
futures contract transactions, will be treated as long-term capital gain or loss
to the extent of 60% thereof and short-term capital gain or loss to the extent
of 40% thereof (hereinafter, "blended gain or loss"). In addition, any
nonequity option and futures contract held by a Fund on the last day of a fiscal
year will be treated as sold for market value on that date, and gain or loss
recognized as a result of such deemed sale will be blended gain or loss.

The trading strategies of each of the Nova Fund, the Ursa Fund, the OTC Fund,
the Metals Fund and the Sector Funds involving nonequity options on stock
indexes may constitute "straddle" transactions. "Straddles" may

34
<PAGE>

affect the taxation of such instruments and may cause the postponement of
recognition of losses incurred in certain closing transactions. Each of these
four 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 inthe 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.

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.

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

35
<PAGE>

purchased shares of a Fund for your account, you may, depending upon the nature
of your account, receive all or a portion of this information directly from your
financial institution.

SHAREHOLDER INQUIRIES
You may call 800-820-0888 or 301-468-8520 to obtain information on account
statements, procedures, and other related information.

COUNSEL

Morgan, Lewis & Bockius LLP, 1800 M Street, N.W., Washington, D.C. 20036, serves
as counsel to the Trust.

AUDITORS AND CUSTODIAN

Deloitte & Touche LLP, 117 Campus Drive, Princeton, New Jersey 08540, are the
auditors and the independent certified public accountants of the Trust and each
of the Funds. Star Bank, N.A. (the "Custodian"), Star Bank Center, 425 Walnut
Street, Cincinnati, Ohio 45202, serves as custodian for the Trust and the Funds
under a custody agreement between the Trust and the Custodian. Under the
custody agreement, the Custodian holds the portfolio securities of each Fund and
keeps all necessary related accounts and records.

FINANCIAL STATEMENTS

The financial statements for the for the Separate Account for the period ended
__________________, including notes thereto and the report of ________________
have been filed with the SEC and are incorporated by reference into this
Statement of Additional Information.

36
<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

A-1
<PAGE>

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.

A-2
<PAGE>

PART C: OTHER INFORMATION

Item 23. Exhibits:

(a)(1) Certificate of Trust

(a)(2) Declaration of Trust of Rydex Variable Trust

(b) By-Laws

Item 24. Persons Controlled by or under Common Control with the Fund

Not applicable.

Item 25. Indemnification

Article X, Section 10.02 of the Declaration of Trust filed as Exhibit (a)(2) to
this Registration Statement is incorporated herein by reference.

Item 26. Business and other Connections of the Investment Adviser:

ADVISER

PADCO Advisors II, Inc. (the "Advisor") is the investment advisor for the Trust.
The principal address of the Advisor is 6116 Executive Drive, Rockville,
Maryland. The Advisor is an investment advisor registered under the Advisers
Act.

The list required by this Item 28 of officers and directors of the Advisor,
together with information as to any other business profession, vocation or
employment of substantial nature engaged in by such officers and directors
during the past two years is incorporated by reference to Schedules A and D of
Form ADV filed by the Advisor to the Advisers Act (SEC File No._________).

Item 27. Principal Underwriters

(a) not applicable

Item 28. Location of Accounts and Records

Books or other documents required to be maintained by Section 31(a) of the
Investment Company Act of 1940, and the rules promulgated thereunder, are
maintained as follows:

ii
<PAGE>

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

Not applicable

Item 30. Undertakings

Not applicable

iii
<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Registration
Statement (File No._________) to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Rockville, State of Maryland on this
12th day of June, 1998.

Rydex Variable Trust

By: /s/ Albert P. Viragh, Jr.
-------------------------------------
Albert P. Viragh, Jr.
President

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacity on the dates indicated.

By: /s/ Albert P. Viragh, Jr. President, Trustee and Chief June 12, 1998
---------------------------
Financial Officer

iv
<PAGE>

EXHIBIT INDEX

Name Exhibit Page
- - ---- ------------
Certificate of Trust EX-99B(a)(1)

Declaration of Trust of Rydex Variable Trust EX-99.B(a)(2)

By-Laws EX-99.B(b)

<PAGE>

CERTIFICATE OF TRUST
OF
RYDEX VARIABLE TRUST

This Certificate of Trust, a business trust registered under the Investment
Company Act of 1940, is filed in accordance with the provisions of the Delaware
Business Trust Act (Del. Code Ann. tit.12, Section 3801 (1997)) and sets forth
the following:

1. The name of the trust is:
Rydex Variable Trust

2. As required by 12 Del. C Section 3807 and 3810 (a) (1)b, the Rydex Variable
Trust business address of the registered office of the Trust and of the
registered agent of the Trust for service of process is:

The Corporation Trust Company
1209 Orange Street
Wilmington, Delaware 19801

3. This certificate shall be effective upon FILING.

4. Notice is hereby given that the Trust is a series Trust. The debts,
liabilities, obligations and expenses incurred, contracted for or
otherwise existing with respect to a particular series of the Trust
shall be enforceable against the assets of such series only and not
against the assets of the Trust generally.

This certificate is executed this 11th day of June 1998 in Rockville, Maryland,
upon the penalties of perjury and constitutes the oath or affirmation that the
facts stated above are true to the undersigned trustees belief or knowledge.

/s/ Albert P. Viragh, Jr.
- - -------------------------
Albert P. Viragh, Jr.

<PAGE>

RYDEX VARIABLE TRUST

DECLARATION OF TRUST

DATED JUNE 11, 1998

<PAGE>

RYDEX VARIABLE TRUST

Dated June 11, 1998

This DECLARATION OF TRUST (hereinafter "Trust Instrument") is made
June 11, 1998 by Albert P. Viragh, Jr. (together with all other persons from
time to time duly elected, qualified and serving as Trustees in accordance with
Article III hereof, the "Trustees").

WHEREAS, the Trustees desire to establish a business trust for the
investment and reinvestment of funds contributed thereto;

NOW, THEREFORE, the Trustees declare that all money and property
contributed to the trust hereunder shall be held and managed in trust under this
Trust Instrument as herein set forth below.

ARTICLE I

NAME AND DEFINITIONS

SECTION 1.01. NAME. The name of the trust created hereby is the "Rydex
Variable Trust."

SECTION 1.02. DEFINITIONS. Wherever used herein, unless otherwise required by
the context or specifically provided:

(a) The term "Bylaws" means the Bylaws referred to in Article IV,
Section 4.01(e) hereof, as from time to time amended;

(b) The term "Commission" has the meaning given it in the 1940 Act
(as defined below). The terms "Affiliated Person," "Assignment," "Interested
Person," and "Principal Underwriter" shall have the meanings given them in the
1940 Act, as modified by or interpreted by any applicable order or orders of the
Commission or any rules or regulations adopted by or interpretive releases of
the Commission thereunder;

(c) The term "Delaware Act" refers to Chapter 38 of Title 12 of the
Delaware Code entitled "Treatment of Delaware Business Trusts," as it may be
amended from time to time;

(d) The term "Net Asset Value" means the net asset value of each
Series (as defined below) of the Trust (as defined below) determined in the
manner provided in Article IX, Section 9.03 hereof;

(e) The term "Outstanding Shares" means those Shares (as defined
below) shown from time to time in the books of the Trust or its Transfer Agent
as then issued and outstanding, but

1
<PAGE>

shall not include Shares which have been redeemed or repurchased by the Trust
and which are at the time held in the treasury of the Trust;

(f) The term "Series" means a series of Shares of the Trust
established in accordance with the provisions of Article II, Section 2.06
hereof;

(g) The term "Shareholder" means a record owner of Outstanding Shares
of the Trust;

(h) The term "Shares" means the equal proportionate transferable
units of beneficial interest into which the beneficial interest of each Series
of the Trust or class thereof shall be divided and may include fractions of
Shares as well as whole Shares;

(i) The term "Trust" refers to the Rydex Variable Trust and all
Series of the Rydex Variable Trust, and reference to the Trust, when applicable
to one or more Series of the Trust, shall refer to any such Series;

(j) The term "Trustee" or "Trustees" means the person or persons who
has or have signed this Trust Instrument, so long as he or they shall continue
in office in accordance with the terms hereof, and all other persons who may
from time to time be duly qualified and serving as Trustees in accordance with
the provisions of Article III hereof and reference herein to a Trustee or to the
Trustees shall refer to the individual Trustees in their capacity as Trustees
hereunder;

(k) The term "Trust Property" means any and all property, real or
personal, tangible or intangible, which is owned or held by or for the account
of one or more of the Trust or any Series, or the Trustees on behalf of the
Trust or any Series.

(l) The term "1940 Act" refers to the Investment Company Act of 1940,
as amended from time to time.

ARTICLE II

BENEFICIAL INTEREST

SECTION 2.01. SHARES OF BENEFICIAL OWNERSHIP INTEREST. The beneficial interest
in the Trust shall be divided into such transferable Shares of one or more
separate and distinct Series or classes of a Series as the Trustees shall from
time to time create and establish. The number of Shares of each Series, and
class thereof, authorized hereunder is unlimited. Each Share shall have no par
value. All Shares issued hereunder, including without limitation, Shares issued
in connection with a dividend in Shares or a split or reverse split of Shares,
shall be fully paid and nonassessable.

2
<PAGE>

SECTION 2.02. ISSUANCE OF SHARES. The Trustees in their discretion may, from
time to time, without vote of the Shareholders, issue Shares, in addition to the
then issued and outstanding Shares and Shares held in the treasury, to such
party or parties and for such amount and type of consideration, subject to
applicable law, including cash or securities, at such time or times and on such
terms as the Trustees may deem appropriate, and may in such manner acquire other
assets (including the acquisition of assets subject to, and in connection with,
the assumption of liabilities) and businesses. In connection with any issuance
of Shares, the Trustees may issue fractional Shares and Shares held in the
treasury. The Trustees from time to time may divide or combine the Shares into
a greater or lesser number without thereby changing the proportionate beneficial
interests in the Trust. Contributions to the Trust may be accepted for, and
Shares shall be redeemed as, whole Shares and/or 1/1,000th of a Share or
integral multiples thereof.

SECTION 2.03. OWNERSHIP AND TRANSFER OF SHARES. The Trust or a transfer agent
for the Trust shall maintain a register containing the names and addresses of
the Shareholders of each Series and class thereof, the number of Shares of each
Series and class held by such Shareholders, and a record of all Share transfers.
The register shall be conclusive as to the identity of Shareholders of record
and the number of Shares held by them from time to time. The Trustees may
authorize the issuance of certificates representing Shares and adopt rules
governing their use. The Trustees may make rules governing the transfer of
Shares, whether or not represented by certificates. Except as otherwise
provided by the Trustees, Shares shall be transferable on the books of the Trust
only by the record holder thereof or by his duly authorized agent upon delivery
to the Trustees or the Trust's transfer agent of a duly executed instrument of
transfer, together with a Share certificate if one is outstanding, and such
evidence or the genuineness of each such execution and authorization and of such
other matters as may be required by the Trustees. Upon such delivery, and
subject to any further requirements specified by the Trustees or contained in
the By-laws, the transfer shall be recorded on the books of the Trust. Until a
transfer is so recorded, the Shareholder of record of Shares shall be deemed to
be the holder of such Shares for all purposes hereunder and neither the Trustees
nor the Trust, nor any transfer agent or registrar or any officer, employee or
agent of the Trust, shall be affected by any notice of a proposed transfer.

SECTION 2.04. TREASURY SHARES. Shares held in the treasury shall, until
reissued pursuant to Section 2.02 hereof, not confer any voting rights on the
Trustees, nor shall such Shares be entitled to any dividends or other
distributions declared with respect to the Shares.

SECTION 2.05. ESTABLISHMENT OF SERIES. The Trust created hereby shall consist
of one or more Series and separate and distinct records shall be maintained by
the Trust of each Series and the assets associated with any such Series shall be
held and accounted for separately from the assets of the Trust or any other
Series. The Trustees shall have full power and authority, in their sole
discretion, and without obtaining any prior authorization or vote of the
Shareholders of any Series of the Trust, to establish and designate and to
change in any manner such Series of Shares or any classes of initial or
additional Series and to fix such preferences, voting powers, rights and
privileges of such Series or classes thereof as the Trustees may from time to
time determine, to divide and combine the Shares or any Series or classes
thereof into a greater or lesser number, to classify or reclassify any issued

3
<PAGE>

Shares or any Series or classes thereof into one or more Series or classes of
Shares, to abolish any one or more Series or clases of Shares or to take such
other action with respect to the Shares as the Trustees may deem desirable. The
establishment and designation of any Series shall be effective upon the adoption
of a resolution by a majority of the Trustees setting forth such establishment
and designation and the relative rights and preferences of the Shares of such
Series. A Series may issue any number of Shares and need not issue shares.

All references to Shares in this Trust Instrument shall be deemed to
be Shares of any or all Series, or classes thereof, as the context may require.
All provisions herein relating to the Trust shall apply equally to each Series
of the Trust, and each class thereof, except as the context otherwise requires.

Each Share of a Series of the Trust shall represent an equal
beneficial interest in the net assets of such Series. Each holder of Shares of
a Series shall be entitled to receive his pro rata share of distributions of
income and capital gains, if any, made with respect to such Series. Upon
redemption of his Shares, such Shareholder shall be paid solely out of the funds
and property of such Series of the Trust.

SECTION 2.06. INVESTMENT IN THE TRUST. The Trustees shall accept investments
in any Series of the Trust from such persons and on such terms as they may from
time to time authorize. At the Trustees' discretion, such investments, subject
to applicable law, may be in the form of cash or securities in which the
affected Series is authorized to invest, valued as provided in Article IX,
Section 9.03 hereof. Investments in a Series shall be credited to each
Shareholder's account in the form of full or fractional Shares at the Net Asset
Value per Share next determined after the investment is received; provided,
however, that the Trustees may, in their sole discretion, (a) fix the Net Asset
Value per Share of the initial capital contribution or (b) impose a sales charge
upon investments in the Trust in such manner and at such time as determined by
the Trustees. The Trustees shall have the right to refuse to accept investments
in any Series at any time without any cause or reason therefor whatsoever.

SECTION 2.07. ASSETS AND LIABILITIES OF SERIES. All consideration received by
the Trust for the issue or sale of Shares of a particular Series, together with
all assets in which such consideration is invested or reinvested, all income,
earnings, profits, and proceeds thereof, including any proceeds derived from the
sale, exchange or liquidation of such assets, and any funds or payments derived
from any reinvestment of such proceeds in whatever form the same may be, shall
be held and accounted for separately from the other assets of the Trust and of
every other Series and may be referred to herein as "assets belonging to" that
Series. The assets belonging to a particular Series shall belong to that Series
for all purposes, and to no other Series, subject only to the rights of
creditors of that Series. In addition, any assets, income, earnings, profits or
funds, or payments and proceeds with respect thereto, which are not readily
identifiable as belonging to any particular Series shall be allocated by the
Trustees between and among one or more of the Series in such manner as the
Trustees, in their sole discretion, deem fair and equitable. Each such
allocation shall be conclusive and binding upon the Shareholders of all Series
for all purposes, and such assets, income,

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earnings, profits or funds, or payments and proceeds with respect thereto shall
be assets belonging to that Series. The assets belonging to a particular Series
shall be so recorded upon the books of the Trust, and shall be held by the
Trustees in trust for the benefit of the holders of Shares of that Series. The
assets belonging to each particular Series shall be charged with the liabilities
of that Series and all expenses, costs, charges, and reserves attributable to
that Series. Any general liabilities, expenses, costs, charges, or reserves of
the Trust which are not readily identifiable as belonging to a particular Series
shall be allocated and charged by the Trustees between or among any one or more
of the Series in such manner as the Trustees, in their sole discretion, deem
fair and equitable. Each such allocation shall be conclusive and binding upon
the Shareholders of all Series for all purposes.

Without limitation of the foregoing provisions of this Section 2.07, but
subject to the right of the Trustees in their discretion to allocate general
liabilities, expenses, costs, charges, or reserves as herein provided, the
debts, liabilities, obligations, and expenses incurred, contracted for or
otherwise existing with respect to a particular Series shall be enforceable
against the assets of the Trust generally. Notice of this contractual
limitation on inter-Series liabilities may, in the Trustee's sole discretion, be
set forth in the certificate of trust of the Trust (whether originally or by
amendment) as filed or to be filed in the Office of the Secretary of State of
the State of Delaware pursuant to the Delaware Act, and upon the giving of such
notice in the certificate of trust, the statutory provisions of Section 3804 of
the Delaware Act relating to limitations on liabilities among Series (and the
statutory effect under Section 3804 of setting forth such notice in the
certificate of trust) shall become applicable to the Trust and each Series. Any
person extending credit to, contracting with or having any claim against any
Series may look only to the assets of that Series to satisfy or enforce any
debt, liability, obligation or expense incurred, contracted for or otherwise
existing with respect to that Series. No Shareholder or former Shareholder of
any Series shall have a claim on or any right to any assets allocated or
belonging to any other Series.

SECTION 2.08. NO PREEMPTIVE RIGHTS. Shareholders shall have no preemptive or
other right to subscribe to any additional Shares or other securities issued by
the Trust or the Trustees, whether of the same or other Series.

SECTION 2.09. PERSONAL LIABILITY OF SHAREHOLDERS. Each Shareholder of the
Trust and of each Series shall not be personally liable for debts, liabilities,
obligations and expenses incurred by, contracted for, or otherwise existing with
respect to, the Trust or by or on behalf of any Series. The Trustees shall have
no power to bind any Shareholder personally or to call upon any Shareholder for
the payment of any sum of money or assessment whatsoever other than such as the
Shareholder may at any time personally agree to pay by way of subscription for
any Shares or otherwise. Every note, bond, contract or other undertaking issued
by or on behalf of the Trust or the Trustees relating to the Trust or to a
Series shall include a recitation limiting the obligation represented thereby to
the Trust or to one or more Series and its or their assets (but the omission of
such a recitation shall not operate to bind any Shareholder or Trustee of the
Trust). Shareholders shall have the same limitation of personal liability as is
extended to shareholders of a private corporation for profit incorporated in the
State of Delaware. Every written obligation of the Trust or any Series shall
contain a statement to the effect that such obligation may only be enforced
against the assets of the appropriate Series

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or all Series; however, the omission of such statement shall not operate to bind
or create personal liability for any Shareholder or Trustee.

SECTION 2.10. ASSENT TO TRUST INSTRUMENT. Every Shareholder, by virtue of
having purchased a Share shall become a Shareholder and shall be held to have
expressly assented and agreed to be bound by the terms hereof.

ARTICLE III

THE TRUSTEES

SECTION 3.01. MANAGEMENT OF THE TRUST. The Trustees shall have exclusive and
absolute control over the Trust Property and over the business of the Trust to
the same extent as if the Trustees were the sole owners of the Trust Property
and business in their own right, but with such powers of delegation as may be
permitted by this Trust Instrument. The Trustees shall have power to conduct
the business of the Trust and carry on its operations in any and all of its
branches and maintain offices both within and without the State of Delaware, in
any and all states of the United States of America, in the District of Columbia,
in any and all commonwealths, territories, dependencies, colonies, or
possessions of the United States of America, and in any foreign jurisdiction and
to do all such other things and execute all such instruments as they deem
necessary, proper or desirable in order to promote the interests of the Trust
although such things are not herein specifically mentioned. Any determination
as to what is in the interests of the Trust made by the Trustees in good faith
shall be conclusive. In construing the provisions of this Trust Instrument, the
presumption shall be in favor of a grant of power to the Trustees.

The enumeration of any specific power in this Trust Instrument shall
not be construed as limiting the aforesaid power. The powers of the Trustees
may be exercised without order of or resort to any court.

Except for the Trustees named herein or appointed to fill vacancies
pursuant to Section 3.04 of this Article III, the Trustees shall be elected by
the Shareholders owning of record a plurality of the Shares voting at a meeting
of Shareholders. Such a meeting shall be held on a date fixed by the Trustees.
In the event that less than a majority of the Trustees holding office have been
elected by Shareholders, the Trustees then in office will call a Shareholders'
meeting for the election of Trustees.

SECTION 3.02. INITIAL TRUSTEES. The initial Trustees shall be the persons
named herein. On a date fixed by the Trustees, the Shareholders shall elect
additional Trustees subject to Section 3.06 of this Article III.

SECTION 3.03. TERM OF OFFICE OF TRUSTEES. The Trustees shall hold office
during the lifetime of this Trust, and until its termination as herein provided,
except that: (a) any Trustee may resign his trust

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by written instrument signed by him and delivered to the other Trustees, which
shall take effect upon such delivery or upon such later date as is specified
therein; (b) any Trustee may be removed at any time by a vote of at least
two-thirds of the number of Trustees prior to such removal, specifying the date
when such removal shall become effective; (c) any Trustee who requests in
writing to be retired or who has died, become physically or mentally
incapacitated by reason of disease or otherwise, or is otherwise unable to
serve, may be retired by written instrument signed by a majority of the other
Trustees, specifying the date of his retirement; and (d) a Trustee may be
removed at any meeting of the Shareholders of the Trust by a vote of
Shareholders owning at least two-thirds of the outstanding Shares.

SECTION 3.04. VACANCIES AND APPOINTMENT OF TRUSTEES. In case of the
declination to serve, death, resignation, retirement, removal, physical or
mental incapacity by reason of disease or otherwise, or a Trustee is otherwise
unable to serve, or an increase in the number of Trustees, a vacancy shall
occur. Whenever a vacancy in the Board of Trustees shall occur, until such
vacancy is filled, the other Trustees shall have all the powers hereunder and
the certificate of the other Trustees of such vacancy shall be conclusive. In
the case of an existing vacancy, the remaining Trustees shall fill such vacancy
by appointing such other person as they in their discretion shall see fit
consistent with the limitations under the 1940 Act. Such appointment shall be
evidenced by a written instrument signed by a majority of the Trustees in office
or by resolution of the Trustees, duly adopted, which shall be recorded in the
minutes of a meeting of the Trustees, whereupon the appointment shall take
effect.

An appointment of a Trustee may be made by the Trustees then in office
in anticipation of a vacancy to occur by reason of retirement, resignation or
increase in number of Trustees effective at a later date, provided that said
appointment shall become effective only at or after the effective date of said
retirement, resignation or increase in number of Trustees. As soon as any
Trustee appointed pursuant to this Section 3.04 shall have accepted this trust,
the trust estate shall vest in the new Trustee or Trustees, together with the
continuing Trustees, without any further act or conveyance, and he shall be
deemed a Trustee hereunder. The power to appoint a Trustee pursuant to this
Section 3.04 is subject to the provisions of Section 16(a) of the 1940 Act.

SECTION 3.05. TEMPORARY ABSENCE OF TRUSTEE. Any Trustee may, by power of
attorney, delegate his power for a period not exceeding six months at any one
time to any other Trustee or Trustees, provided that in no case shall less than
two Trustees personally exercise the other powers hereunder except as herein
otherwise expressly provided.

SECTION 3.06. NUMBER OF TRUSTEES. The number of Trustees shall be at least
three (3), and thereafter shall be such number as shall be fixed from time to
time by a majority of the Trustees, provided, however, that the number of
Trustees shall in no event be more than fifteen (15).

SECTION 3.07. EFFECT OF DEATH, RESIGNATION, ETC., OF A TRUSTEE. The
declination to serve, death, resignation, retirement, removal, incapacity, or
inability of the Trustees, or any one of them, shall

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not operate to terminate the Trust or to revoke any existing agency created
pursuant to the terms of this Trust Instrument.

SECTION 3.08. OWNERSHIP OF ASSETS OF THE TRUST. The assets of the Trust and of
each Series shall be held separate and apart from any assets now or hereafter
held in any capacity other than as Trustee hereunder by the Trustees or any
successor Trustees. Legal title in and beneficial ownership of all of the
assets of the Trust and the right to conduct any business shall at all times be
considered as vested in the Trustees on behalf of the Trust, except that the
Trustees may cause legal title to any Trust Property to be held by, or in the
name of, the Trust, or in the name of any person as nominee. No Shareholder
shall be deemed to have a severable ownership in any individual asset of the
Trust or of any Series or any right of partition or possession thereof, but each
Shareholder shall have, except as otherwise provided for herein, a proportionate
undivided beneficial interest in the Trust or Series. The Shares shall be
personal property giving only the rights specifically set forth in this Trust
Instrument. The Trust, or at the determination of the Trustees one or more of
the Trustees or a nominee acting for and on behalf of the Trust, shall be deemed
to hold legal title and beneficial ownership of any income earned on securities
of the Trust issued by any business entities formed, organized, or existing
under the laws of any jurisdiction, including the laws of any foreign country.
Upon the resignation or removal of a Trustee, or his otherwise ceasing to be a
Trustee, he shall execute and deliver such documents as the remaining Trustees
shall require for the purpose of conveying to the Trust or the remaining
Trustees any Trust Property held in the name of the resigning or removed
Trustee. Upon the incapacity or death of any Trustee, his legal representative
shall execute and deliver on his behalf such documents as the remaining Trustees
shall require as provided in the preceding sentence.

SECTION 3.09. COMPENSATION. The Trustees as such shall be entitled to
reasonable compensation from the Trust, and they may periodically fix the amount
of such compensation. Nothing herein shall in any way prevent the employment of
any Trustee for advisory, management, legal, accounting, investment banking or
other services and payment for the same by the Trust.

ARTICLE IV

POWERS OF THE TRUSTEES

SECTION 4.01. POWERS. The Trustees in all instances shall act as principals,
and are and shall be free from the control of the Shareholders. The Trustees
shall have full power and authority to do any and all acts and to make and
execute any and all contracts and instruments that they may consider necessary
or appropriate in connection with the management of the Trust. The Trustees
shall not in any way be bound or limited by present or future laws or customs in
regard to trust investments, but shall have full authority and power to make any
and all investments which they, in their sole discretion, shall deem proper to
accomplish the purpose of this Trust without recourse to any court or other
authority. Subject to any applicable limitation in this Trust Instrument or the
Bylaws of the Trust, the Trustees shall have power and authority:

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(a) To invest and reinvest cash and other property, and to hold cash
or other property uninvested, without in any event being bound or limited by any
present or future law or custom in regard to investments by trustees, and to
sell, exchange, lend, pledge, mortgage, hypothecate, write options on and lease
any or all the assets of the Trust;

(b) To operate as and carry on the business of an investment company,
and exercise all the powers necessary and appropriate to the conduct of such
operations;

(c) To borrow money and in this connection issue notes or other
evidence of indebtedness; to secure borrowings by mortgaging, pledging or
otherwise subjecting as security the Trust Property; to endorse, guarantee, or
undertake the performance of an obligation or engagement of any other Person and
to lend Trust Property;

(d) To provide for the distribution of interests of the Trust either
through a principal underwriter in the manner hereinafter provided for or by the
Trust itself, or both, or otherwise pursuant to a plan of distribution of any
kind;

(e) To adopt Bylaws not inconsistent with this Trust Instrument
providing for the conduct of the business of the Trust and to amend and repeal
them to the extent that they do not reserve that right to the Shareholders; such
Bylaws shall be deemed incorporated and included in this Trust Instrument;

(f) To elect and remove such officers and appoint and terminate such
agents as they consider appropriate;

(g) To employ one or more banks, trust companies or companies that
are members of a national securities exchange or such other entities as the
Commission may permit as custodians of any assets of the Trust subject to any
conditions set forth in this Trust Instrument or in the By-laws;

(h) To retain one or more transfer agents and shareholder servicing
agents, or both;

(i) To set record dates in the manner provided herein or in the
Bylaws;

(j) To delegate such authority as they consider desirable to any
officers of the Trust and to any investment advisor, manager, custodian,
underwriter or other agent or independent contractor;

(k) To sell or exchange any or all of the assets of the Trust,
subject to the provisions of Article XI, Section 11.04(b) hereof;

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(l) To vote or give assent, or exercise any rights of ownership, with
respect to stock or other securities or property; and to execute and deliver
powers of attorney to such person or persons as the Trustee shall deem proper,
granting to such person or persons such power and discretion with relation to
securities or property as the Trustees shall deem proper;

(m) To exercise powers and rights of subscription or otherwise which
in any manner arise out of ownership of securities;

(n) To hold any security or property in a form not indicating any
trust, whether in bearer, book entry, unregistered or other negotiable form; or
either in the name of the Trust or in the name of a custodian or a nominee or
nominees, subject in either case to proper safeguards according to the usual
practice of Delaware business trusts or investment companies;

(o) To establish separate and distinct Series with separately defined
investment objectives and policies and distinct investment purposes in
accordance with the provisions of Article II hereof and to establish classes of
such Series having relative rights, powers and duties as they may provide
consistent with applicable law;

(p) Subject to the provisions of Section 3804 of the Delaware Act, to
allocate assets, liabilities and expenses of the Trust to a particular Series or
to apportion the same between or among two or more Series, provided that any
liabilities or expenses incurred by a particular Series shall be payable solely
out of the assets belonging to that Series as provided for in Article II hereof;

(q) To consent to or participate in any plan for the reorganization,
consolidation or merger of any corporation or concern, any security of which is
held in the Trust; to consent to any contract, lease, mortgage, purchase, or
sale of property by such corporation or concern, and to pay calls or
subscriptions with respect to any security held in the Trust;

(r) To compromise, arbitrate, or otherwise adjust claims in favor of
or against the Trust or any matter in controversy including, but not limited to,
claims for taxes;

(s) To make distributions of income and of capital gains to
Shareholders in the manner hereinafter provided;

(t) To establish, from time to time, a minimum investment for
Shareholders in the Trust or in one or more Series or class, and to require the
redemption of the Shares of any Shareholders whose investment is less than such
minimum upon giving notice to such Shareholder;

(u) To establish one or more committees, to delegate any of the
powers of the Trustees to said committees and to adopt a committee charter
providing for such responsibilities, membership (including Trustees, officers or
other agents of the Trust therein) and any other characteristics of said
committees as the Trustees may deem proper. Notwithstanding the provisions of
this Article IV, and in addition to such provisions or any other provision of
this Trust Instrument

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<PAGE>

or of the Bylaws, the Trustees may by resolution appoint a committee consisting
of less than the whole number of Trustees then in office, which committee may be
empowered to act for and bind the Trustees and the Trust, as if the acts of such
committee were the acts of all the Trustees then in office, with respect to the
institution, prosecution, dismissal, settlement, review or investigation of any
action, suit or proceeding which shall be pending or threatened to be brought
before any court, administrative agency or other adjudicatory body;

(v) To interpret the investment policies, practices, or limitations
of any Series;

(w) To establish a registered office and have a registered agent in
the state of Delaware;

(x) In general to carry on any other business in connection with or
incidental to any of the foregoing powers, to do everything necessary, suitable,
or proper for the accomplishment of any purpose or the attainment of any object
or the furtherance of any power hereinbefore set forth, either alone or in
association with others, and to do every other act or thing incidental or
appurtenant to or growing out of or connected with the aforesaid business or
purposes, objects or powers.

The foregoing clauses shall be construed both as objects and power,
and the foregoing enumeration of specific powers shall not be held to limit or
restrict in any manner the general powers of the Trustees. Any action by one or
more of the Trustees in their capacity as such hereunder shall be deemed an
action on behalf of the Trust or the applicable Series, and not an action in an
individual capacity.

The Trustees shall not be limited to investing in obligations maturing
before the possible termination of the Trust.

No one dealing with the Trustees shall be under any obligation to make
any inquiry concerning the authority of the Trustees, or to see to the
application of any payments made or property transferred to the Trustees or upon
their order.

SECTION 4.02. ISSUANCE AND REPURCHASE OF SHARES. The Trustees shall have the
power to issue, sell, repurchase, redeem, retire, cancel, acquire, hold, resell,
reissue, dispose of, and otherwise deal in Shares and, subject to the provisions
set forth in Article II and Article IX, to apply to any such repurchase,
redemption, retirement, cancellation, or acquisition of Shares any funds or
property of the Trust, or the particular Series of the Trust, with respect to
which such Shares are issued.

SECTION 4.03. TRUSTEES AND OFFICERS AS SHAREHOLDERS. Any Trustee, officer, or
agent of the Trust may acquire, own, and dispose of Shares to the same extent as
if he were not a Trustee, officer, or agent; and the Trustees may issue and sell
or cause to be issued and sold Shares to and buy such Shares from any such
person or any firm or company in which he is interested, subject only to the
general limitations herein contained as to the sale and purchase of such Shares;
and all subject to any restrictions which may be contained in the Bylaws.

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<PAGE>

SECTION 4.04. ACTION BY THE TRUSTEES. The Trustees shall act by majority vote
at a meeting duly called or by written consent of a majority of the Trustees
without a meeting or by telephone meeting provided a quorum of Trustees
participate in any such telephone meeting, unless the 1940 Act requires that a
particular action be taken only at a meeting at which the Trustees are present
in person. At any meeting of the Trustees, three (3) of the Trustees shall
constitute a quorum. Meetings of the Trustees may be called orally or in
writing by the Chairman or by any two (2) other Trustees. Notice of the time,
date and place of all meetings of the Trustees shall be given by the party
calling the meeting to each Trustee by telephone, telefax, or telegram sent to
his home or business address at least twenty-four (24) hours in advance of the
meeting or by written notice mailed to his home or business address at least
seventy-two (72) hours in advance of the meeting. Notice need not be given to
any Trustee who attends the meeting without objecting to the lack of notice or
who executes a written waiver of notice with respect to the meeting. Any
meeting conducted by telephone shall be deemed to take place at the principal
office of the Trust, as determined by the Bylaws or by the Trustees. Subject to
the requirements of the 1940 Act, the Trustees by majority vote may delegate to
any one or more of their number their authority to approve particular matters or
take particular actions on behalf of the Trust. Written consents or waivers of
the Trustees may be executed in one or more counterparts. Execution of a
written consent or waiver and delivery thereof to the Trust may be accomplished
by telefax.

SECTION 4.05. CHAIRMAN OF THE TRUSTEES. The Trustees shall appoint one of
their number to be Chairman of the Board of Trustees. The Chairman shall preside
at all meetings of the Trustees, shall be responsible for the execution of
policies established by the Trustees and the administration of the Trust, and
may be (but is not required to be) the chief executive, financial, and/or
accounting officer of the Trust.

SECTION 4.06. PRINCIPAL TRANSACTIONS. Except to the extent prohibited by
applicable law, the Trustees, on behalf of the Trust, may, in a manner
consistent with applicable legal requirements, buy any securities from or sell
any securities to, or lend any assets of the Trust to, any Trustees or officer
of the Trust or any firm of which any such Trustee or officer is a member acting
as principal, or have any such dealings with any investment advisor, distributor
or transfer agent for the Trust or with any interested Person of such person;
and the Trust may employ any such person, or firm or company in which such
person is an Interested Person, as broker, legal counsel, registrar, investment
advisor, distributor, transfer agent, dividend disbursing agent, or custodian,
or in any other capacity upon customary terms.

ARTICLE V

EXPENSES OF THE TRUST

SECTION 5.01. PAYMENT OF EXPENSES BY THE TRUST. Subject to the provisions of
Article II, Section 2.07 hereof, the Trust or a particular Series shall pay, or
shall reimburse the Trustees from the assets belonging to all Series or the
appropriate Series for their expenses (or the expenses of a Class of such

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Series) and disbursements, including, without limitation, fees and expenses of
Trustees, interest expense, taxes, fees and commissions of every kind, expenses
of pricing Trust portfolio securities, expenses of issue, repurchase and
redemption of shares, including expenses attributable to a program of periodic
repurchases or redemptions, expenses of registering and qualifying the Trust and
its Shares under Federal and State laws and regulations or under the laws of any
foreign jurisdiction, charges of third parties, including investment advisors,
managers, custodians, transfer agents, portfolio accounting and/or pricing
agents, and registrars, expenses of preparing and setting up in type
prospectuses and statements of additional information and other related Trust
documents, expenses of printing and distributing prospectuses sent to existing
Shareholders, auditing and legal expenses, reports to Shareholders, expenses of
meetings of Shareholders and proxy solicitations therefor, insurance expenses,
association membership dues and for such non-recurring items as may arise,
including litigation to which the Trust (or a Trustee acting as such) is a
party, and for all losses and liabilities by them incurred in administering the
Trust, and for the payment of such expenses, disbursements, losses and
liabilities the Trustees shall have a lien on the assets belonging to the
appropriate Series, on the assets of each such Series, prior to any rights or
interests of the Shareholders thereto. This section shall not preclude the
Trust from directly paying any of the aforementioned fees and expenses.

SECTION 5.02. PAYMENT OF EXPENSES BY SHAREHOLDERS. The Trustee shall have the
power, as frequently as they may determine, to cause each Shareholder, or each
Shareholder of any particular Series, to pay directly, in advance or arrears,
for charges of the Trust's custodian or transfer, shareholder servicing or
similar agent, an amount fixed from time to time by the Trustees, by setting off
such charges due from such Shareholder from declared but unpaid dividends owed
such Shareholder and/or by reducing the number of Shares in the account of such
Shareholder by that number of full and/or fractional Shares which represents the
outstanding amount of such charges due from such Shareholder.

ARTICLE VI

CONTRACTS WITH SERVICE PROVIDERS

SECTION 6.01. INVESTMENT ADVISOR. The Trustees may in their discretion, from
time to time, enter into an investment advisory or management contract or
contracts with respect to the Trust or any Series; provided, however, that the
initial approval and entering into of such contract or contracts shall be
subject to a "majority shareholder vote," as defined by the 1940 Act.
Notwithstanding any other provision of this Trust Instrument, the Trustees may
authorize any investment advisor (subject to such general or specific
instructions as the Trustees from time to time may adopt) to effect purchases,
sales or exchanges of portfolio securities, other investment instruments of the
Trust, or other Trust Property on behalf of the Trustees, or may authorize any
officer, agent, or Trustee to effect such purchases, sales, or exchanges
pursuant to recommendations of the investment advisor (and all without further
action by the Trustees). Any such purchases, sales, and exchanges shall be
deemed to have been authorized by all of the Trustees.

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<PAGE>

The Trustees may authorize, subject to applicable requirements of the
1940 Act, including those relating to Shareholder approval, the investment
advisor to employ, from time to time, one or more sub-advisors to perform such
of the acts and services of the investment advisor, and upon such terms and
conditions, as may be agreed upon between the investment advisor and
sub-advisor. Any reference in this Trust Instrument to the investment advisor
shall be deemed to include such sub-advisors, unless the context otherwise
requires.

SECTION 6.02. PRINCIPAL UNDERWRITER. The Trustees may in their discretion from
time to time enter into an exclusive or non-exclusive underwriting contract or
contracts providing for the sale of Shares, whereby the Trust may either agree
to sell Shares to the other party to the contract or appoint such other party
its sales agent for such Shares. In either case, the contract shall be on such
terms and conditions, if any, as may be prescribed in the Bylaws, and such
further terms and conditions as the Trustees may in their discretion determine
not inconsistent with the provisions of this Article VI, or of the Bylaws; and
such contract may also provide for the repurchase or sale of Shares by such
other party as principal or as agent of the Trust.

SECTION 6.03. TRANSFER AGENT. The Trustees may in their discretion from time
to time enter into one or more transfer agency and shareholder service contracts
whereby the other party or parties shall undertake to furnish the Trustees with
transfer agency and shareholder services. The contract or contracts shall be on
such terms and conditions as the Trustees may in their discretion determine not
inconsistent with the provisions of this Trust Instrument or of the Bylaws.

SECTION 6.04. ADMINISTRATION AGREEMENT. The Trustees may in their discretion
from time to time enter into an administration agreement or, if the Trustees
establish multiple Series or classes, separate administration agreements with
respect to each Series or class, whereby the other party to such agreement shall
undertake to manage the business affairs of the Trust or of a Series or class
thereof of the Trust and furnish the Trust or a Series or a class thereof with
office facilities, and shall be responsible for the ordinary clerical,
bookkeeping and recordkeeping services at such office facilities, and other
facilities and services, if any, and all upon such terms and conditions as the
Trustees may in their discretion determine.

SECTION 6.05. SERVICE AGREEMENT. The Trustees may in their discretion from
time to time enter into service agreements with respect to one or more Series or
Classes of Shares whereby the other parties to such Service Agreements will
provide administration and/or support services pursuant to administration plans
and service plans, and all upon such terms and conditions as the Trustees in
their discretion may determine.

SECTION 6.06. PARTIES TO CONTRACT. Any contract of the character described in
Sections 6.01, 6.02, 6.03, 6.04 and 6.05 of this Article VI or any contract of
the character described in Article VIII hereof may be entered into with any
corporation, firm, partnership, trust, or association, although one or more of
the Trustees or officers of the Trust may be an officer, director, trustee,
shareholder, or member of such other party to the contract, and no such contract
shall be invalidated or rendered void or voidable by reason of the existence of
any such relationship, nor shall any person holding such relationship be
disqualified from voting on or executing the same in his capacity as Shareholder
and/or Trustee, nor shall any person holding

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such relationship be liable merely by reason of such relationship for any loss
or expense to the Trust under or by reason of said contract or accountable for
any profit realized directly or indirectly therefrom, provided that the contract
when entered into was not inconsistent with the provisions of this Article VI or
Article VIII hereof or of the Bylaws. The same person (including a firm,
corporation, partnership, trust or association) may be the other party to
contracts entered into pursuant to Sections 6.01, 6.02, 6.03, 6.04 and 6.05 of
this Article VI or pursuant to Article VIII hereof, and any individual may be
financially interested or otherwise affiliated with persons who are parties to
any or all of the contracts mentioned in this Section 6.06.

SECTION 6.07. PROVISIONS AND AMENDMENTS. Any contract entered into pursuant to
Sections 6.01 or 6.02 of this Article VI shall be consistent with and subject to
the requirements of Section 15 of the 1940 Act or other applicable Act of
Congress hereafter enacted with respect to its continuance in effect, its
termination, and the method of authorization and approval of such contract or
renewal thereof, and no amendment to any contract, entered into pursuant to
Section 6.01 of this Article VI shall be effective unless assented to in a
manner consistent with the requirements of said Section 15, as modified by any
applicable rule, regulation or order of the Commission.

ARTICLE VII

SHAREHOLDERS' VOTING POWERS AND MEETINGS

SECTION 7.01. VOTING POWERS. The Shareholders shall have power to vote only
(i) for the election of Trustees as provided in Article III, Section 3.01 and
3.02 hereof, (ii) for the removal of Trustees as provided in Article III,
Section 3.03(d) hereof, (iii) with respect to any investment advisory or
management contract as provided in Article VI, Sections 6.01 and 6.07 hereof,
and (iv) with respect to such additional matters relating to the Trust as may be
required by law, by this Trust Instrument, or the Bylaws or any registration of
the Trust with the Commission or any State, or as the Trustees may consider
necessary or desirable.

On any matter submitted to a vote of the Shareholders, all Shares
shall be voted separately by individual Series, except: (i) when required by
the 1940 Act, Shares shall be voted in the aggregate and not by individual
Series; and (ii) when the Trustees have determined that the matter affects the
interests of more than one Series, then the Shareholders of all such affected
Series shall be entitled to vote thereon. The Trustees also may determine that
a matter affects only the interests of one (1) or more classes of a Series, in
which case any such matter shall be voted on by such class or classes. Each
whole share shall be entitled to one (1) vote as to any matter on which it is
entitled to vote, and each fractional Share shall be entitled to a proportionate
fractional vote. There shall be no cumulative voting in the election of
Trustees. Shares may be voted in person or by proxy or in any manner provided
for in the Bylaws. A proxy may be given in writing. The Bylaws may provide
that proxies may also, or may instead, be given by any electronic or

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telecommunications device or in any other manner. Notwithstanding anything else
herein or in the Bylaws, in the event a proposal by anyone other than the
officers or Trustees of the Trust is submitted to a vote of the Shareholders of
one or more Series or of the Trust, or in the event of any proxy contest or
proxy solicitation or proposal in opposition to any proposal by the officers or
Trustees of the Trust, Shares may be voted only in person or by written proxy.
Until Shares are issued, the Trustees may exercise all rights of Shareholders
and may take any action required or permitted by law, this Trust Instrument or
any of the Bylaws of the Trust to be taken by Shareholders. Meetings of
shareholders shall be called and notice thereof and record dates therefor shall
be given and set as provided in the Bylaws.

SECTION 7.02. QUORUM AND REQUIRED VOTE. One-third of Shares entitled to vote in
person or by proxy shall be a quorum for the transaction of business at a
Shareholders' meeting, except that where any provision of law or of this Trust
Instrument permits or requests that holders of any Series shall vote as a Series
(or that holders of a class shall vote as a class), then one-third of the
aggregate number of Shares of that Series (or that class) entitled to vote shall
be necessary to constitute a quorum for the transactions of business by that
Series (or that class). Any lesser number shall be sufficient for adjournments.
Any adjourned session or sessions may be held, within a reasonable time after
the date set for the original meeting, without the necessity of further notice.
Except when a larger vote is required by law or by any provision of this Trust
Instrument of the Bylaws, a majority of the Shares voted in person or by proxy
shall decide any questions and a plurality shall elect a Trustee, provided that
where any provision of law or of this Trust Instrument permits or requires that
the holders of any Series shall vote as a Series (or that the holders of any
class shall vote as a class), then a majority of the Shares present in person or
by proxy of that Series or, if required by law, subject to a "majority
shareholder vote", as defined by the 1940 Act, of that Series (or class), voted
on the matter in person or by proxy shall decide matter insofar as that Series
(or class) is concerned. Shareholders may act by unanimous written consent.
Actions taken by Series (or class) may be consented to unanimously in writing by
Shareholders of that Series.

ARTICLE VIII

CUSTODIAN

SECTION 8.01. APPOINTMENT AND DUTIES. The Trustees at all times shall employ a
bank, a company that is a member of a national securities exchange, or a trust
company, each having capital, surplus and undivided profits of at least two
million dollars ($2,000,000), or any other entity satisfying the requirements of
the 1940 Act, as custodian with authority as its agent, but subject to such
restrictions, limitations, and other requirements, if any, as may be contained
in the Bylaws of the Trust:

(1) to hold the securities and other assets of the Trust and deliver
the same upon written order or oral order confirmed in writing;

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(2) to receive and receipt for any moneys due to the Trust and
deposit the same in its own banking department or elsewhere as
the Trustees may direct; and

(3) to disburse such funds upon orders or vouchers;

and the Trust also may employ such custodian as its agent:

(4) to keep the books and accounts of the Trust or of any Series or
class and furnish clerical and accounting services; and

(5) to compute, if authorized to do so by the Trustees, the Net Asset
Value of any Series, or class thereof, in accordance with the
provisions hereof; all upon such basis of compensation as may be
agreed upon between the Trustees and the custodian.

The Trustees also may authorize the custodian to employ one or more
sub-custodians from time to time to perform such of the acts and services of the
custodian, and upon such terms and conditions, as may be agreed upon between the
custodian and such sub-custodian and approved by the Trustees, provided that in
every case such sub-custodian shall be a bank, a company that is a member of a
national securities exchange, a trust company or any other entity satisfying the
requirements of the 1940 Act.

SECTION 8.02. CENTRAL CERTIFICATE SYSTEM. Subject to such rules, regulations,
and orders as the Commission may adopt, the Trustees may direct the custodian to
deposit all or any part of the securities owned by the Trust in a system for the
central handling of securities established by a national securities exchange or
a national securities association registered with the Commission under the
Securities Exchange Act of 1934, as amended, or such other person as may be
permitted by the Commission, or otherwise in accordance with the 1940 Act,
pursuant to which system all securities of any particular class or series of any
issuer deposited within the system are treated as fungible and may be
transferred or pledged by bookkeeping entry without physical delivery of such
securities, provided that all such deposits shall be subject to withdrawal only
upon the order of the Trust or its custodians, sub-custodians or other agents.

ARTICLE IX

DISTRIBUTIONS AND REDEMPTIONS

SECTION 9.01. DISTRIBUTIONS.

(a) The Trustees from time to time may declare and pay dividends or
other distributions with respect to any Series. No dividend or distribution,
including, without limitation, any distribution paid upon termination of the
Trust or of any Series (or class) with respect to, nor any

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redemption or repurchase of, the Shares of any Series (or class) shall be
effected by the Trust other than from the assets held with respect to such
Series, nor shall any Shareholder of any particular Series otherwise have any
right or claim against the assets held with respect to any other Series except
to the extent that such Shareholder has such a right or claim hereunder as a
Shareholder of such other Series. The Trustees shall have full discretion to
determine which items shall be treated as income and which items as capital; and
each such determination and allocation shall be conclusive and binding upon the
Shareholders. The amount of such dividends or distributions and the payment of
them and whether they are in cash or any other Trust Property shall be wholly in
the discretion of the Trustees.

(b) Dividends and other distributions may be paid or made to the
Shareholders of record at the time of declaring a dividend or other distribution
or among the Shareholders of record at such other date or time or dates or times
as the Trustees shall determine, which dividends or distributions, at the
election of the Trustees, may be paid pursuant to a standing resolution or
resolutions adopted only once or with such frequency as the Trustees may
determine. The Trustees may adopt and offer to Shareholders such dividend
reinvestment plans, cash dividend payout plans, or related plans as the Trustees
shall deem appropriate.

(c) Anything in this Trust Instrument to the contrary
notwithstanding, the Trustees at any time may declare and distribute a stock
dividend pro rata among the Shareholders of a particular Series, or class
thereof, as of the record date of that Series fixed as provided in paragraph (b)
of this Section 9.01.

SECTION 9.02. REDEMPTIONS. Each Shareholder of a Series shall have the right at
such times as may be permitted by the Trustees to require the Series to redeem
all or any part of his Shares at a redemption price per Share equal to the Net
Asset Value per Share at such time as the Trustees shall have prescribed by
resolution, or, to the extent permitted by the 1940 Act, at such other
redemption price and at such times as the Trustees shall prescribe by
resolution. In the absence of such resolution, the redemption price per Share
shall be the Net Asset Value next determined after receipt by the Series of a
request for redemption in proper form less such charges as are determined by the
Trustees and described in the Trust's Registration Statement for that Series
under the Securities Act of 1933. The Trustees may specify conditions, prices,
and places of redemption, may specify binding requirements for the proper form
or forms of requests for redemption and may specify the amount of any deferred
sales charge to be withheld from redemption proceeds. Payment of the redemption
price may be wholly or partly in securities or other assets at the value of such
securities or assets used in such determination of Net Asset Value, or may be in
cash. Upon redemption, Shares may be reissued from time to time. The Trustees
may require Shareholders to redeem Shares for any reason under terms set by the
Trustees, including, but not limited to, the failure of a Shareholder to supply
a taxpayer identification number if required to do so, or to have the minimum
investment required, or to pay when due for the purchase of Shares issued to
him. To the extent permitted by law, the Trustees may retain the proceeds of
any redemption of Shares required by them for payment of amounts due and owing
by a Shareholder to the Trust or any Series or class or any governmental
authority. Notwithstanding the foregoing, the Trustees may postpone payment of
the

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redemption price and may suspend the right of the Shareholders to require any
Series or class to redeem Shares during any period of time when and to the
extent permissible under the 1940 Act.

SECTION 9.03. DETERMINATION OF NET ASSET VALUE AND VALUATION OF PORTFOLIO
ASSETS. The term "Net Asset Value" of any Series shall mean that amount by
which the assets of that Series exceed its liabilities, all as determined by or
under the direction of the Trustees. Such value shall be determined separately
for each Series and shall be determined on such days and at such times as the
Trustees may determine. The Trustees may delegate any of their powers and
duties under this Section 9.03 with respect to valuation of assets and
liabilities. The resulting amount, which shall represent the total Net Asset
Value of the particular Series, shall be divided by the total number of shares
of that Series outstanding at the time and the quotient so obtained shall be the
Net Asset Value per Share of that Series. At any time the trustees may cause
the Net Asset Value per Share last determined to be determined again in similar
manner and may fix the time when such redetermined value shall become effective.
If, for any reason, the net income of any Series, determined at any time, is a
negative amount, the Trustees shall have the power with respect to that Series:
(i) to offset each Shareholder's pro rata share of such negative amount from the
accrued dividend account of such Shareholder; or (ii) to reduce the number of
Outstanding Shares of such Series by reducing the number of Shares in the
account of each Shareholder by a pro rata portion of the number of full and
fractional Shares which represents the amount of such excess negative net
income; or (iii) to cause to be recorded on the books of such Series an asset
account in the amount of such negative net income (provided that the same shall
thereupon become the property of such Series with respect to such Series and
shall not be paid to any Shareholder), which account may be reduced by the
amount, of dividends declared thereafter upon the Outstanding Shares of such
Series on the day such negative net income is experienced, until such asset
account is reduced to zero; or (iv) to combine the methods described in clauses
(i) and (ii) and (iii) of the sentence; or (v) to take any other action they
deem appropriate, in order to cause (or in order to assist in causing) the Net
Asset Value per Share of such Series to remain at a constant amount per
Outstanding Share immediately after each such determination and declaration.
The Trustees also shall have the power not to declare a dividend out of net
income for the purpose of causing the Net Asset Value per share to be increased.
The Trustees shall not be required to adopt, but at any time may adopt,
discontinue, or amend the practice of maintaining the Net Asset value per Share
of the Series at a constant amount. In the event that any Series are divided
into classes, the provisions of this Section 9.03, to the extent applicable as
determined in the discretion of the Trustees and consistent with applicable law,
may be equally applied to each such class.

SECTION 9.04. SUSPENSION OF THE RIGHT OF REDEMPTION. The Trustees may declare
a suspension of the right of redemption or postpone the date of payment as
permitted under the 1940 Act. Such suspension shall take effect at such time as
the Trustees shall specify but not later than the close of business on the
business day next following the declaration of suspension, and thereafter there
shall be no right of redemption or payment until the Trustees shall declare the
suspension at an end. In the case of a suspension of the right of redemption, a
Shareholder may either withdraw his request for redemption or receive payment
based on the Net Asset Value per Share next determined after the termination of
the suspension.

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ARTICLE X

LIMITATION OF LIABILITY AND INDEMNIFICATION

SECTION 10.01. LIMITATION OF LIABILITY. All persons contracting with or having
any claim against the Trust or a particular Series shall look only to the assets
of all Series or such particular Series for payment under such contract or
claim; and neither the Trustees nor, when acting in such capacity, any of the
Trust's officers, employees or agents, whether past, present or future, shall be
personally liable therefor. Every written instrument or obligation on behalf of
the Trust or any Series shall contain a statement to the foregoing effect, but
the absence of such statement shall not operate to make any Trustee or officer
of the Trust liable thereunder. Provided they have exercised reasonable care
and have acted under the reasonable belief that their actions are in the best
interest of the Trust, the Trustees and officers of the Trust shall not be
responsible or liable for any act or omission or for neglect or wrongdoing of
them or any officer, agent, employee, investment adviser or independent
contractor of the Trust, but nothing contained in this Declaration or in the
Delaware Act shall protect any Trustee or officer of the Trust against liability
to the Trust or to Shareholders to which he would otherwise be subject by reason
of willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his office.

SECTION 10.02. INDEMNIFICATION.

(a) Subject to the exceptions and limitations contained in paragraph
(b) below:

(i) every Person who is, or has been, a Trustee or officer of
the Trust (hereinafter referred to as a "Covered Person") shall be
indemnified by the Trust to the fullest extent permitted by law
against liability and against all expenses reasonably incurred or paid
by him in connection with any claim, action, suit, or proceeding in
which he becomes involved as a party or otherwise by virtue of his
being or having been a Trustee or officer and against amounts paid or
incurred by hm in the settlement thereof; and

(ii) the words "claim," "action," "suit," or "proceeding" shall
apply to all claims, actions, suits, or proceedings (civil, criminal,
or other, including appeals), actual or threatened, while in office or
thereafter, and the words "liability" and "expenses" shall include,
without limitation, attorney's fees, costs, judgments, amounts paid in
settlement, fines, penalties, and other liabilities.

(b) No indemnification shall be provided hereunder to a Covered
Person:

(i) who shall have been adjudicated by a court or body before
which the proceeding was brought (A) to be liable to the Trust or its
Shareholders by reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties

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<PAGE>

involved in the conduct of his office or (B) not to have acted in good
faith in the reasonable belief that his action was in the best
interest of the Trust; or

(ii) in the event of a settlement, unless there has been a
determination that such Trustee or officer did not engage in willful
misfeasance, bad faith, gross negligence, or reckless disregard of the
duties involved in the conduct of his office:

(A) by the court of other body approving the settlement;

(B) by at least a majority of those Trustees who neither
are Interested Persons of the Trust nor are parties to the matter
based upon a review of readily-available facts (as opposed to a
full trial-type inquiry); or

(C) by written opinion of independent legal counsel based
upon a review of readily-available facts (as opposed to a full
trial-type inquiry); provided, however, that any Shareholder, by
appropriate legal proceedings, may challenge any such
determination by the Trustees or by independent counsel.

(c) The rights of indemnification herein provided may be insured
against by policies maintained by the Trust, shall be severable, shall not be
exclusive of or affect any other rights to which any Covered Person may now or
hereafter be entitled, shall continue as to a person who has ceased to be a
Covered Person and shall inure to the benefit of the heirs, executors, and
administrators of such a person. Nothing contained herein shall affect any
rights to indemnification to which Trust personnel, other than Covered Persons,
and other persons may be entitled by contract or otherwise under law.

(d) To the maximum extent permitted by applicable law, expenses in
connection with the preparation and presentation of a defense to any claim,
action, suit, or proceeding of the character described in paragraph (a) of this
Section 10.02 may be paid by the Trust or Series from time to time prior to
final disposition thereof upon receipt of any undertaking by or on behalf of
such Covered Person that such amount will be paid over by him to the Trust or
Series if it ultimately is determined that he is not entitled to indemnification
under this Section 10.02; provided, however, that either (a) such Covered Person
shall have provided appropriate security for such undertaking; (b) the Trust is
insured against losses arising out of any such advance payments, or (c) either a
majority of the Trustees who are neither Interested Persons of the Trust nor
parties to the matter, or independent legal counsel in a written opinion, shall
have determined, based upon a review of readily-available facts (as opposed to a
trial-type inquiry or full investigation), that there is a reason to believe
that such Covered Person will be found entitled to indemnification under this
Section 10.02.

SECTION 10.03. SHAREHOLDERS. In case any Shareholder or former Shareholder of
any Series shall be held to be personally liable solely by reason of his being
or having been a Shareholder of such Series

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and not because of his acts or omissions or for some other reason, the
Shareholder or former Shareholder (or his heirs, executors, administrators, or
other legal representatives, or, in the case of a corporation or other entity,
its corporate or other general successor) shall be entitled out of the assets
belonging to the applicable Series to be held harmless from and indemnified
against all loss and expense arising from such liability. The Trust, on behalf
of the affected Series, shall assume, upon request by the Shareholder, the
defense of any claim made against the Shareholder for any act or obligation of
the Series and satisfy any judgment thereon from the assets of the Series.

SECTION 10.04. NO BOND REQUIRED OF TRUSTEES. No Trustee shall be obligated to
give any bond or other security for the performance of any of his duties
hereunder.

SECTION 10.05. NO DUTY OF INVESTIGATION; NOTICE IN TRUST INSTRUMENTS, ETC No
purchaser, lender, transfer agent or other Person dealing with the Trustees or
any officer, employee or agent of the Trust or a Series thereof shall be bound
to make any inquiry concerning the validity of any transaction purporting to be
made by the Trustees or by said officer, employee or agent or be liable for the
application of money or property paid, loaned, or delivered to or on the order
of the Trustees or of said officer, employee or agent. Every obligation,
contract, instrument, certificate, Share, other security of the Trust or a
Series thereof or undertaking, and every other act or thing whatsoever executed
in connection with the Trust shall be conclusively presumed to have been
executed or done by the executors thereof only in their capacity as Trustees
under this Declaration or in their capacity as officers, employees or agents of
the Trust or a Series thereof. Every written obligation, contract, instrument,
certificate, Share, other security of the Trust or a Series thereof or
undertaking made or issued by the Trustees may recite that the same is executed
or made by them not individually, but as Trustees under the Declaration, and
that the obligations of the Trust or a Series thereof under any such instrument
are not binding upon any of the Trustees or Shareholders individually, but bind
only the Trust Property or the Trust Property of the applicable Series, and may
contain any further recital which they may deem appropriate, but the omission of
such recital shall not operate to bind the Trustees individually. The Trustees
shall at all times maintain insurance for the protection of the Trust Property
or the Trust Property of the applicable Series, its Shareholders, Trustees,
officers, employees and agents in such amount as the Trustees shall deem
adequate to cover possible tort liability, and such other insurance as the
Trustees in their sole judgment shall deem advisable.

SECTION 10.6. RELIANCE ON EXPERTS, ETC. Each Trustee, officer or employee of
the Trust or a Series thereof shall, in the performance of his duties, powers
and discretions hereunder be fully and completely justified and protected with
regard to any act or any failure to act resulting from reliance in good faith
upon the books of account or other records of the Trust or a Series thereof,
upon an opinion of counsel, or upon reports made to the Trust or a Series
thereof by any of its officers or employees or by the Investment Adviser, the
Administrator, the Distributor, Transfer Agent, selected dealers, accountants,
appraisers or other experts or consultants selected with reasonable care by the
Trustees, officers or employees of the Trust, regardless of whether such counsel
or expert may also be a Trustee.

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ARTICLE XI

MISCELLANEOUS

SECTION 11.01. TRUST NOT A PARTNERSHIP. It is hereby expressly declared that a
trust and not a partnership is created hereby. No Trustee hereunder shall have
any power to bind personally either the Trust's officers or any Shareholder.
All persons extending credit to, contracting with, or having any claim against
the Trust or the Trustees shall look only to the assets of the appropriate
Series or (If the Trustees shall have yet to have established the Series) the
Trust for payment under such credit, contract, or claim; and neither the
Shareholders nor the Trustees, nor any of their agents, whether past, present,
or future, shall be personally liable therefore. Nothing in this Trust
Instrument shall protect a Trustee against any liability to which the Trustee
otherwise would be subject by reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties involved in the conduct of the
office of Trustee hereunder.

SECTION 11.02. TRUSTEE ACTION. The exercise by the Trustees of their powers and
discretions hereunder in good faith and with reasonable care under the
circumstances then prevailing shall be binding upon everyone interested.
Subject to the provisions of Article X hereof and to Section 11.01 of this
Article XI, the Trustees shall not be liable for errors of judgment or mistakes
of fact or law.

SECTION 11.03. ESTABLISHMENT OF RECORD DATES. For the purpose of determining the
Shareholders of any Series (or class) who are entitled to receive payment of any
dividend or of any other distribution, the Trustees may from time to time fix a
date, which shall be before the date for the payment of such dividend or such
other payment, as the record date for determining the Shareholders of such
Series (or class) having the right to receive such dividend or distribution.
Without fixing a record date, the Trustees may for distribution purposes close
the register or transfer books for one or more Series (or classes) any time
prior to the payment of a distribution. Nothing in this Section shall be
construed as precluding the Trustees from setting different record dates for
different Series (or classes). The Trustees may fix in advance a date, to be
determined by the Trustees and no longer than that permitted by applicable law,
before the date of any Shareholders' meeting, or the date for the payment of any
dividends or other distributions, or the date for the allotment of rights, or
the date when any change or conversion or exchange of Shares shall go into
effect as a record date for the determination of the Shareholders entitled to
notice of, and to vote at, any such meeting, or entitled to receive payment of
such dividend or other distribution, or to receive any such allotment of rights,
or to exercise such rights in respect of any such change, conversion or exchange
of Shares.

SECTION 11.04. TERMINATION OF TRUST.

(a) This Trust shall continue without limitation of time but subject
to the provisions of paragraph (b) of this Section 11.04.

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(b) The Trustees, subject to a majority shareholder vote of each
Series affected by the matter, or, if applicable, to a majority shareholder vote
of the Trust, and subject to a vote of a majority of the Trustees, may:

(i) sell and convey all or substantially all of the assets of
the Trust or any affected Series to another trust, partnership,
association, or corporation, or to a separate series of shares
thereof, organized under the laws of any state, which trust,
partnership, association, or corporation is an open-end management
investment company as defined in the 1940 Act, or is a series thereof,
for adequate consideration which may include the assumption of all
outstanding obligations, taxes, and other liabilities, accrued or
contingent, of the Trust or any affected Series, and which may include
shares of beneficial interest, stock, or other ownership interests of
such trust, partnership, association, or corporation or of a series
thereof; or

(ii) at any time, sell and convert into money all of the assets
of the Trust or any affected series.

Upon making reasonable provision, in the determination of the
Trustees, for the payment of all such liabilities in either (i) or (ii) of this
Section 11.04(b), by such assumption or otherwise, the Trustees shall distribute
the remaining proceeds or assets (as the case may be) of each Series (or class)
ratably among the holders of Shares of that Series then outstanding.

(c) The Trustees may take any of the actions specified in this
Section 11.04(b)(i) and (ii) above without obtaining the approval of
shareholders if a majority of the Trustees determines that the continuation of
the Trust or Series (or class) is not in the best interests of the Trust, such
Series (or class), or their respective Shareholders as a result of factors or
events adversely affecting the ability of the Trust or such Series (or class) to
conduct its business and operations in an economically viable manner. Such
factors and events may include the inability of the Trust or a Series (or class)
to maintain its assets at an appropriate size, changes in laws or regulations
governing the Trust or the Series (or class) or affecting assets of the type in
which the Trust or Series (or class) invests, or economic developments or trends
having a significant adverse impact on the business or operations of the Trust
or such Series (or class).

(d) Upon completion of the distribution of the remaining proceeds or
the remaining assets as provided in paragraph (b) of this Section 11.04, the
Trust or any affected Series shall terminate and the Trustees and the Trust
shall be discharged of any and all further liabilities and duties hereunder and
the right, title, and interest of all parties with respect to the Trust or
Series shall be canceled and discharged.

Upon termination of the Trust, following completion of winding up of
the Trust's business, the Trustees shall cause a certificate of cancellation of
the Trust's certificate of trust to be filed in accordance with the Delaware
Act, which certificate of cancellation may be signed by any one Trustee.

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<PAGE>

SECTION 11.05. REORGANIZATION. Notwithstanding anything else herein, the
Trustees, in order to change the form of organization of the Trust, may, without
prior Shareholder approval, (i) cause the Trust to merge or consolidate with or
into one (1) or more trusts, partnerships, associations, or corporations so long
as the surviving or resulting entity is an open-end management investment
company under the 1940 Act, or is a series thereof, that will succeed to or
assume the Trust's registration under that Act and which is formed, organized,
or existing under the laws of a state, commonwealth, territory, possession, or
colony of the United States or (ii) cause the Trust to incorporate under the
laws of State of Delaware. Any agreement of merger or consolidation or
certificate of merger may be signed by a majority of Trustees and facsimile
signature conveyed by electronic or telecommunication means shall be valid.

Pursuant to and in accordance with the provisions of Section 3815(f)
of the Delaware Act, and notwithstanding anything to the contrary contained in
this Trust Instrument, an agreement of merger or consolidation approved by the
Trustees in accordance with this Section 11.05 may effect any amendment to the
Trust Instrument or effect the adoption of a new trust instrument of the Trust
if the Trust is the surviving or resulting trust in the merger or consolidation.

SECTION 11.06. FILING OF COPIES; REFERENCES; HEADINGS. The original or a copy
of this Trust Instrument and the original or a copy of each amendment hereof or
Trust Instrument supplemental hereto shall be kept at the office of the Trust
where it may be inspected by any Shareholder. Anyone dealing with the Trust may
rely on a certificate by an officer or Trustee of the Trust as to whether or not
any such amendments or supplements have been made and as to any matters in
connection with the Trust hereunder, and, with the same effect as if it were the
original, may rely on a copy certified by an officer or Trustee of the Trust to
be a copy of this Trust Instrument or of any such amendment or supplemental
Trust Instrument, and references to this Trust Instrument, and all expressions
such as or similar to "herein," "hereof," and "hereunder" shall be deemed to
refer to this Trust Instrument as amended or affected by any such supplemental
Trust Instrument. All expressions such as or similar to "his," "he," and "him"
shall be deemed to include the feminine and neuter, as well as masculine,
genders. Headings are placed herein for convenience of reference only and, in
case of any conflict, the text of this Trust Instrument, rather than the
headings, shall control. This Trust Instrument may be executed in any number of
counterparts each of which shall be deemed an original.

SECTION 11.07. APPLICABLE LAW. The trust set forth in this instrument is made
in the State of Delaware, and the Trust and this Trust Instrument, and the
rights and obligations of the Trustees and Shareholders hereunder, are to be
governed by and construed and administered according to the Delaware Act and the
laws of said State; provided, however, that there shall not be applicable to the
trust, the Trust, the Trustee or this Trust Instrument (a) the provisions of
Section 3540 of Title 12 of the Delaware Code or (b) any provisions of he laws
(statutory or common) of the State of Delaware (other than the Delaware Act)
pertaining to trusts which relate to or regulate (i) the filing with any court
or governmental body or agency of trustee accounts or schedules of trustee fees
and charges, (ii) affirmative requirements to post bonds for trustees, officers,
agents, or employees of a trust, (iii) the necessity for obtaining court or
other governmental approval concerning the

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<PAGE>

acquisition, holding, or disposition of real or personal property, (iv) fees or
other sums payable to trustees, officers, agents, or employees of a trust, (v)
the allocation of receipts and expenditures to income and principal, (vi)
restrictions or limitations on the permissible nature, amount, or concentration
of trust investments or requirements relating to the titling, storage, or other
manner of holding of trust assets, or (vii) the establishment of fiduciary or
other standards or responsibilities or limitations on the acts or powers of
trustees, which are inconsistent with the limitations or liabilities or
authorities and powers of the Trustees set forth or referenced in this Trust
Instrument. The Trust shall be of the type commonly called a "Delaware business
trust," and, without limiting the provisions hereof, the Trust may exercise all
powers or privileges afforded to trusts or actions that may be engaged in by
trusts under the Delaware Act, and the absence of a specific reference herein to
any such power, privilege, or action shall not imply that the Trust may not
exercise such power or privilege or take such actions.

SECTION 11.08. AMENDMENTS. Except as specifically provided herein, the
Trustees, without shareholder vote, may amend or otherwise supplement this Trust
Instrument by making an amendment, a Trust Instrument supplemental hereto, or an
amended and restated trust instrument. Shareholders shall have the right to
vote (i) on any amendment which would affect their right to vote granted in
Section 7.01 of the Article VII hereof, (ii) on any amendment to this Section
11.08, (iii) on any amendment as may be required by law or by the Trust's
registration statement filed with the Commission, and (iv) on any amendment
submitted to the Shareholders by the Trustees. Any amendment required or
permitted to be submitted to Shareholders which, as the Trustees determine,
shall affect the Shareholders of one or more Series shall be authorized by vote
of the Shareholders of each Series affected and no vote of Shareholders of a
Series not affected shall be required. Notwithstanding anything else herein,
any amendment to Article X hereof shall not limit the rights to indemnification
or insurance provided therein with respect to action or omission of Covered
Persons prior to such amendment.

SECTION 11.09. DERIVATIVE ACTIONS. In addition to the requirements set forth in
Section 3816 of the Delaware Act, a Shareholder may bring a derivative action on
behalf of the Trust only if the following conditions are met:

(a) Shareholders eligible to bring such derivative action under the
Delaware Act who hold at least 10% of the Outstanding Shares of the Trust, or
10% of the Outstanding Shares of the Series or class to which such action
relates, shall join in the request for the Trustees to commence such action; and

(b) The Trustees must be afforded a reasonable amount of time to
consider such shareholder request and to investigate the basis of such claim.
The Trustees shall be entitled to retain counsel or other advisers in
considering the merits of the request and shall require an undertaking by the
Shareholders making such request to reimburse the Trust for the expense of any
such advisers in the event that the Trustees determine not to bring such action.

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SECTION 11.10. FISCAL YEAR. The fiscal year of the Trust shall end on a
specified date as set forth in the Bylaws, provided, however, that the Trustees,
without Shareholder approval, may change the fiscal year of the Trust.

SECTION 11.11. PROVISIONS IN CONFLICT WITH LAW. The provisions of this Trust
Instrument are severable, and if the Trustees shall determine, with the advice
of counsel, that any of such provisions is in conflict with the 1940 Act, with
the regulated investment company provisions of the Internal Revenue Code or with
other applicable laws and regulations, the conflicting provision shall be deemed
never to have constituted a part of this Trust Instrument; provided, however,
that such determination shall not affect any of the remaining provisions of this
Trust Instrument or render invalid or improper any action taken or omitted prior
to such determination. If any provision of this Trust Instrument shall be held
invalid or improper, unenforceability shall attach only to such provision in
such jurisdiction and shall not in any manner affect such provisions in any
other jurisdiction or any other provision of this Trust Instrument in any
jurisdiction.

IN WITNESS WHEREOF, the undersigned, being the initial Trustee of the
Trust, has executed this instrument this 11th day of June, 1998.

------------------------------------
Albert P. Viragh, Jr., as Trustee
and not individually

<PAGE>

BYLAWS
OF
RYDEX VARIABLE TRUST

These Bylaws of Rydex Variable Trust (the "Trust"), a Delaware
business trust, are subject to the Trust's Declaration of Trust, dated June 11,
1998, as from time to time amended, supplemented, or restated (the "Trust
Instrument"). Capitalized terms used herein which are defined in the Trust
Instrument are used as therein defined.

ARTICLE I
PRINCIPAL OFFICE

The principal office of the Trust shall be located in Bethesda,
Maryland or such other location as the Trustees, from time to time, may
determine. The Trust may establish and maintain such other offices and places
of business as the Trustees, from time to time, may determine.

ARTICLE II
OFFICERS AND THEIR ELECTION

SECTION 1. OFFICERS. The officers of the Trust shall be President, a
Treasurer, a Secretary, and such other officers as the Trustees from time to
time may elect. The Trustees may delegate to any officer or committee the power
to appoint any subordinate officers or agents. It shall not be necessary for
any Trustee or officer to be a holder of Shares in the Trust.

SECTION 2. ELECTION OF OFFICERS. The Treasurer and Secretary shall be chosen
by the Trustees. The President shall be chosen by and from the Trustees. Two
(2) or more offices may be held by a single person except the offices of
President and Secretary. Subject to the provisions of Section 3 of Article II
of these Bylaws, the President, the Treasurer, and the Secretary shall each hold
office until their successors are chosen and qualified and all other officers
shall hold office at the pleasure of the Trustees.

SECTION 3. RESIGNATIONS. Any officer of the Trust may resign,
notwithstanding Section 2 of Article II of these Bylaws, by filing a written
resignation with the President, the Trustees, or the Secretary, which
resignation shall take effect on being so filed or at such time as may be
therein specified.

ARTICLE III
POWERS AND DUTIES OF OFFICERS AND TRUSTEES

SECTION 1. MANAGEMENT OF THE TRUST; GENERAL. The business and affairs of
the Trust shall be managed by, or under the direction of, the Trustees, and the
Trustees shall have all powers necessary

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and desirable to carry out their responsibilities, so far as such powers are not
inconsistent with the laws of the State of Delaware, the Trust Instrument, or
with these Bylaws.

SECTION 2. EXECUTIVE AND OTHER COMMITTEES. The Trustees may elect from
their own number an executive committee, which shall have any or all the powers
of the Trustees while the Trustees are not in session. The Trustees also may
elect from their own number other committees from time to time. The number
composing such committees and the powers conferred upon the same are to be
determined by vote of a majority of the Trustees. All members of such
committees shall hold such offices at the pleasure of the Trustees. The
Trustees may abolish any such committee at any time. Any committee to which the
Trustees delegate any of their powers or duties shall keep records of its
meetings and shall report its actions to the Trustees. The Trustees shall have
power to rescind any action of any committee, but no such rescission shall have
retroactive effect.

SECTION 3. COMPENSATION. Each Trustee and each committee member may receive
such compensation for his services and reimbursement for his expenses as may be
fixed from time to time by resolution of the Trustees.

SECTION 4. CHAIRMAN OF THE TRUSTEES. The Trustees shall appoint from among
their number a Chairman who shall serve as such at the pleasure of the Trustees.
When present, he shall preside at all meetings of the Shareholders and the
Trustees, and he may appoint, subject to the approval of the Trustees, a Trustee
to preside at such meetings in his absence. He shall perform such other duties
as the Trustees from time to time may designate.

SECTION 5. PRESIDENT. The President shall be the chief executive officer of
the Trust and, subject to the direction of the Trustees, shall have general
administration of the business and policies of the Trust. Except as the
Trustees otherwise may order, the President shall have the power to grant,
issue, execute, or sign such powers of attorney, proxies, agreements, or other
documents as may be deemed advisable or necessary in the furtherance of the
interest of the Trust or any Series thereof. He also shall have the power to
employ attorneys, accountants, and other advisers and agents and counsel for the
Trust. The President shall perform such duties additional to all of the
foregoing as the Trustees from time to time may designate.

SECTION 6. TREASURER. The Treasurer shall be the principal financial and
accounting officer of the Trust. He shall deliver all funds and securities of
the Trust which may come into his hands to such company as the Trustees shall
employ as Custodian in accordance with the Trust Instrument and applicable
provisions of law. He shall make annual reports regarding the business and
condition of the Trust, which reports shall be preserved in Trust records, and
he shall furnish such other reports regarding the business and condition of the
Trust as the Trustees from time to time may require. The Treasurer shall
perform such additional duties as the Trustees from time to time may designate.

SECTION 7. SECRETARY. The Secretary shall record in books kept for the
purpose all votes and proceedings of the Trustees and the Shareholders at their
respective meetings. He shall have the

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custody of the seal of the Trust. The Secretary shall perform such additional
duties as the Trustees from time to time may designate.

SECTION 8. VICE PRESIDENT. Any Vice President of the Trust shall perform
such duties as the Trustees or the President from time to time may designate.
At the request or in the absence or disability of the President, the Vice
President (or, if there are two (2) or more Vice Presidents, then the senior of
the Vice Presidents present and able to act) may perform all the duties of the
President and, when so acting, shall have all the powers of and be subject to
all the restrictions upon the President.

SECTION 9. ASSISTANT TREASURER. Any Assistant Treasurer of the Trust shall
perform such duties as the Trustees or the Treasurer from time to time may
designate, and, in the absence of the Treasurer, the senior Assistant Treasurer,
present and able to act, may perform all the duties of the Treasurer.

SECTION 10. ASSISTANT SECRETARY. Any Assistant Secretary of the Trust shall
perform such duties as the Trustees or the Secretary from time to time may
designate, and, in the absence of the Secretary, the senior Assistant Secretary,
present and able to act, may perform all the duties of the Secretary.

SECTION 11. SUBORDINATE OFFICERS. The Trustees from time to time may appoint
such other officers or agents as the Trustees may deem advisable, each of whom
shall have such title, hold office for such period, have such authority, and
perform such duties as the Trustees may determine. The Trustees from time to
time may delegate to one (1) or more officers or committees of Trustees the
power to appoint any such subordinate officers or agents and to prescribe their
respective terms of office, authorities, and duties.

SECTION 12. SURETY BONDS. The Trustees may require any officer or agent of
the Trust to execute a bond (including, without limitation, any bond required by
the Investment Company Act of 1940, as amended ("the 1940 Act") and the rules
and regulations of the Securities and Exchange Commission ("Commission")) to the
Trust in such sum and with such surety or sureties as the Trustees may
determine, conditioned upon the faithful performance of such officer's or
agent's duties to the Trust including responsibility for negligence and for the
accounting of any of the Trust's property, funds, or securities that may come
into such officer's or agent's hands.

SECTION 13. REMOVAL. Any officer of the Trust may be removed from office
whenever in the judgment of the Trustees the best interest of the Trust will be
served thereby, by the vote of a majority of the Trustees given at any regular
meeting or any special meeting of the Trustees. In addition, any officer or
agent appointed in accordance with the provisions of Section 11 hereof may be
removed, either with or without cause, by any officer upon whom such power of
removal shall have been conferred by the Trustees.

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SECTION 14. RENUMERATION. The salaries or other compensation, if any, of the
officers of the Trust shall be fixed from time to time by resolution of the
Trustees.

ARTICLE IV
SHAREHOLDERS' MEETING

SECTION 1. SPECIAL MEETINGS. A special meeting of the Shareholders shall be
called by the Secretary whenever (i) ordered by the Trustees or (ii) requested
in writing by the holder or holders of at least ten percent (10%) of the
Outstanding Shares entitled to vote. If the Secretary, when so ordered or
requested, refuses or neglects for more than thirty (30) days to call such
special meeting, the Trustees or the Shareholders so requesting, in the name of
the Secretary, may call the meeting by giving notice thereof in the manner
required when notice is given by the Secretary. If the meeting is a meeting of
the Shareholders of one (1) or more Series or classes of Shares, but not a
meeting of all Shareholders of the Trust, then only special meetings of the
Shareholders of such one (1) or more Series or Classes shall be called and only
the Shareholders of such one (1) or more Series or Classes shall be entitled to
notice of and to vote at such meeting.

SECTION 2. NOTICES. Except as above provided, notices of any meeting of the
Shareholders shall be given by the Secretary by delivering or mailing, postage
prepaid, to each Shareholder entitled to vote at said meeting, written or
printed notification of such meeting at least fifteen (15) days before the
meeting, to such address as may be registered with the Trust by the Shareholder.
Notice of any Shareholder meeting need not be given to any Shareholder if a
written waiver of notice, executed before or after such meeting, is filed with
the record of such meeting, or to any Shareholder who shall attend such meeting
in person or by proxy. Notice of adjournment of a Shareholders' meeting to
another time or place need not be given, if such time and place are announced at
the meeting and reasonable notice is given to persons present at the meeting and
the adjourned meeting is held within a reasonable time after the date set for
the original meeting.

SECTION 3. VOTING-PROXIES. Subject to the provisions of the Trust
Instrument, Shareholders entitled to vote may vote either in person or by proxy,
provided that either (i) an instrument authorizing such proxy to act is executed
by the Shareholder in writing and dated not more than eleven (11) months before
the meeting, unless this instrument specifically provides for a longer period or
(ii) the Trustees adopt by resolution an electronic, telephonic, computerized,
or other alternative to execution of a written instrument authorizing the proxy
to act, which authorization is received no more than eleven (11) months before
the meeting. Proxies shall be delivered to the Secretary of the Trust or other
persons responsible for recording the proceedings before being voted. A proxy
with respect to Shares held in the name of two (2) or more persons shall be
valid if executed by one (1) of them unless at or prior to exercise of such
proxy the Trust receives specific written notice to the contrary from any one
(1) of them. Unless otherwise specifically limited by their terms, proxies
shall entitle the holder thereof to vote at any adjournment of a meeting. A
proxy purporting to be exercised by or on behalf of a Shareholder shall be
deemed valid unless challenged at or prior to its exercise and the burden or
providing invalidity shall rest on the challenger. At all meetings of the
Shareholders, unless the voting is conducted by inspectors, all questions
relating to the

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qualifications of voters, the validity or proxies, and the acceptance or
rejection of votes shall be decided by the Chairman of the meeting. Except as
otherwise provided herein or in the Trust Instrument, as these By-laws or such
Trust Instrument may be amended or supplemented from time to time, all matters
relating to the giving, voting, or validity or proxies shall be governed by the
General Corporation Law of the State of Delaware relating to proxies, and
judicial interpretations thereunder, as if the Trust were a Delaware corporation
and the Shareholders were shareholders of a Delaware corporation.

SECTION 4. PLACE OF MEETING. All special meetings of the Shareholders shall
be held at the principal place of business of the Trust or at such other place
in the United States as the Trustees may designate.

SECTION 5. ACTION WITHOUT A MEETING. Any action to be taken by Shareholders
may be taken without a meeting if all Shareholders entitled to vote on the
matter consent to the action in writing and the written consents are filed with
the records of meetings of Shareholders of the Trust. Such consent shall be
treated for all purposes as a vote at a meeting of the Trustees held at the
principal place of business of the Trust.

ARTICLE V
TRUSTEES' MEETINGS

SECTION 1. SPECIAL MEETINGS. Special meetings of the Trustees may be called
orally or in writing by the Chairman of the Board of Trustees or any two (2)
other Trustees.

SECTION 2. REGULAR MEETING. Regular meetings of the Trustees may be held at
such places and at such times as the Trustees from time to time may determine;
each Trustee present at such determination shall be deemed a party calling the
meeting and no call or notice will be required to such Trustee provided that any
Trustee who is absent when such determination is made shall be given notice of
the determination by the Chairman or any two (2) other Trustees, as provided for
in Section 4.04 of the Trust Instrument.

SECTION 3. QUORUM. Three (3) Trustees shall constitute a quorum for the
transaction of business and an action of a majority of the quorum shall
constitute action of the Trustees.

SECTION 4. NOTICE. Except as otherwise provided, notice of any special
meeting of the Trustees shall be given by the party calling the meeting to each
Trustee, as provided for in Section 4.04 of the Trust Instrument. A written
notice may be mailed, postage prepaid, addressed to him at his address as
registered on the books of the Trust or, if not so registered, at his last known
address.

SECTION 5. PLACE OF MEETING. All special meetings of the Trustees shall be
held at the principal place of business of the Trust or such other place as the
Trustees may designate. Any meeting may adjourn to any place.

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SECTION 6. SPECIAL ACTION. When all the Trustees shall be present at any
meeting, however called or wherever held, or shall assent to the holding of the
meeting without notice, or shall sign a written assent thereto filed with the
record of such meeting, the acts of such meeting shall be valid as if such
meeting had been regularly held.

SECTION 7. ACTION BY CONSENT. Any action by the Trustees may be taken
without a meeting if a written consent thereto is signed by all the Trustees and
filed with the records of the Trustees' meeting. Such consent shall be treated,
for all purposes, as a vote at a meeting of the Trustees held at the principal
place of business of the Trustees.

SECTION 8. PARTICIPATION IN MEETINGS BY CONFERENCE TELEPHONE. Trustees may
participate in a meeting of Trustees by conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and such participation shall constitute presence in
person at such meeting. Any meeting conducted by telephone shall be deemed to
take place at and from the principal office of the Trust.

ARTICLE VI
SHARES OF BENEFICIAL INTEREST

SECTION 1. BENEFICIAL INTEREST. The beneficial interest in the Trust at all
times shall be divided into such transferable Shares of one (1) or more separate
and distinct Series, or classes thereof, as the Trustees from time to time shall
create and establish. The number of Shares is unlimited, and each Share of each
Series or class thereof shall be without par value and shall represent an equal
proportionate interest with each other Share in the Series, none having priority
or preference over another, except to the extent that such priorities or
preferences are established with respect to one (1) or more classes of shares
consistent with applicable law and any rule or order to the Commission.

SECTION 2. TRANSFER OF SHARES. The Shares of the Trust shall be
transferable, so as to affect the rights of the Trust, only by transfer recorded
on the books of the Trust, in person or by attorney.

SECTION 3. EQUITABLE INTEREST NOT RECOGNIZED. The Trust shall be entitled
to treat the holder of record of any Share or Shares of beneficial interest as
the holder in fact thereof, and shall not be bound to recognize any equitable or
other claim or interest in such Share or Shares on the part of any other person
except as otherwise may be expressly provided by law.

SECTION 4. SHARE CERTIFICATE. In lieu of issuing certificates for Shares,
the Trustees or the transfer or shareholder services agent either may issue
receipts therefor or may keep accounts upon the books of the Trust for the
record holders of such Shares, who in either case shall be deemed, for all
purposes hereunder, to be holders of certificates for such Shares as if they had
accepted such certificates and shall be held to have expressly assented and
agreed to the terms hereof.

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ARTICLE VII
OWNERSHIP OF ASSETS OF THE TRUST

The Trustees, acting for and on behalf of the Trust, shall be deemed
to hold legal and beneficial ownership of any income earned on securities held
by the Trust issued by any business entity formed, organized or existing under
the laws of any jurisdiction other than a state, commonwealth, possession,
territory, or colony of the United States or the laws of the United States.

ARTICLE VIII
INSPECTION OF BOOKS

The Trustees from time to time shall determine whether and to what
extent, and at what times and places, and under what conditions and regulations,
the accounts and books of the Trust or any of them shall be open to the
inspection of the Shareholders; and no Shareholder shall have any right to
inspect any account or book or document of the Trust except as conferred by law
or otherwise by the Trustees or by resolution of the Shareholders.

ARTICLE IX
INSURANCE OF OFFICERS, TRUSTEES, AND EMPLOYEES

The Trust may purchase and maintain insurance on behalf of any Covered
Person or employee of the Trust, including any Covered Person or employee of the
Trust who is or was serving at the request of the Trust as a Trustee, officer,
or employee of a corporation, partnership, association, joint venture, trust, or
other enterprise, against any liability asserted against him and incurred by him
in any such capacity or arising out of his status as such, whether or not the
Trustees would have the power to indemnify him against such liability.

The Trust may not acquire or obtain a contract for insurance that
protects or purports to protect any Trustee or officer of the Trust against any
liability to the Trust or its Shareholders to which he otherwise would be
subject by reason of willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties involved in the conduct of his office.

ARTICLE X
SEAL

The seal of the Trust shall be circular in form bearing the
inscription:

"RYDEX VARIABLE TRUST
THE STATE OF DELAWARE"

The form of the seal shall be subject to alteration by the Trustees
and the seal may be used by causing the seal or a facsimile to be impressed or
affixed or printed or otherwise reproduced.

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Any officer or Trustee of the Trust shall have authority to affix the
seal of the Trust to any document, instrument, or other paper executed and
delivered by or on behalf of the Trust; however, unless otherwise required by
the Trustees, the seal shall not be necessary to be placed on, and the seal's
absence shall not impair the validity of, any document, instrument, or other
paper executed by or on behalf of the Trust.

ARTICLE XI
FISCAL YEAR

The fiscal year of the Trust shall end on such date as the Trustees
from time to time shall determine.

ARTICLE XII
AMENDMENTS

These Bylaws may be amended at any meeting of the Trustees of the
Trust by a majority vote.

ARTICLE XIII
REPORT TO SHAREHOLDERS

The Trustees at least semi-annually shall submit to the Shareholders a
written financial report of the Trust including financial statements which shall
be certified at least annually by independent public accountants.

ARTICLE XIV
HEADINGS

Headings are placed in these Bylaws for convenience of reference only
and, in case of any conflict, the text of these Bylaws rather than the headings
shall control.