RYDEX VARIABLE TRUST, 497, 1999-05-05

RYDEX VARIABLE TRUST
497, 1999-05-05

Previous: MATHY CORP, 10KSB, 1999-05-05

Next: TUMBLEWEED INC, POS AM, 1999-05-05

<PAGE>
PROSPECTUS

<TABLE>
<C> <S>
1 INTRODUCTION
---

2 NOVA FUND
---

4 URSA FUND
---

6 OTC FUND
---

8 PRECIOUS METALS FUND
---

10 U.S. GOVERNMENT BOND FUND
---

12 JUNO FUND
---

14 MORE INFORMATION ABOUT RISK
---

17 PURCHASING AND REDEEMING SHARES
---

18 MANAGEMENT
---

20 DIVIDENDS, DISTRIBUTIONS AND TAXES
---

21 FINANCIAL HIGHLIGHTS
---

26 BENCHMARK INFORMATION
---

BC ADDITIONAL INFORMATION
---
</TABLE>

MAY 1, 1999

RYDEX VARIABLE TRUST

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

6116 Executive Boulevard, Suite 400, Rockville, Maryland 20852
301-468-8520

Rydex Variable Trust (the "Trust") is a mutual fund complex with twenty-two
separate investment portfolios (the "Rydex Variable Funds"), six of which are
described in this Prospectus (the "Funds"). Shares of the Funds are available
exclusively for variable annuity and variable life insurance products. Variable
life and variable annuity account investors should also review the separate
account prospectus prepared by their insurance company.

THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THE
TRUST'S SHARES OR PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
PROSPECTUS 1
--------

INTRODUCTION

The Funds' objectives are to match, exceed or perform the opposite of the
performance of a specific index or market indicator. The benchmark used by each
Fund is set forth below:

<TABLE>
<CAPTION>
FUND BENCHMARK
<S> <C>
NOVA FUND 150% OF THE PERFORMANCE OF THE S&P 500 COMPOSITE STOCK PRICE
INDEX-TM- (SPX)
URSA FUND INVERSE (OPPOSITE) OF THE S&P 500 COMPOSITE STOCK PRICE INDEX-TM-
(SPX)
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 a capitalization-weighted index 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 modified
capitalization-weighted index composed of 100 of the largest non-financial
companies listed on the National Association of Securities Dealers Automated
Quotations System.

THE 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.
ALL FUNDS:

- are not federally insured

- are not guaranteed by any government agency

- are not bank deposits

- are not guaranteed to achieve their objectives

INVESTING IN ANY OF THE FUNDS INVOLVES RISKS THAT MAY ADVERSELY AFFECT THE
FUNDS' NET ASSET VALUE, YIELD, AND TOTAL RETURN. YOU MAY LOSE MONEY. Each Fund
is non-diversified. Non-diversified funds 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.
<PAGE>
- ------
2 PROSPECTUS

FUND INFORMATION -- NOVA FUND

FUND OBJECTIVE

The Nova Fund seeks to provide investment returns that are 150% of the S&P
500 Index.

PORTFOLIO INVESTMENTS

Unlike a traditional index fund, as its primary investment strategy, the
Fund invests to a significant extent in futures contracts and options on:
securities, futures contracts, and stock indexes. On a day-to-day basis, the
Fund holds U.S. Government securities to collateralize these futures and options
contracts. Futures and options contracts, if used properly, may enable the Fund
to meet its objective without investing directly in the securities included in
the Index. The Fund also may purchase equity securities and enter into
repurchase agreements.

RISK CONSIDERATIONS

The Nova Fund is subject to a number of risks that will affect the value of
its shares, including:

- EQUITY RISK -- The equity markets are volatile, and the value of the
Fund's futures and options contracts and other securities may fluctuate
drastically from day-to-day.

- LEVERAGING RISK -- The Fund invests a percentage of its assets in
leveraged instruments, such as certain futures and options contracts. The
more the Fund invests in these leveraged instruments, the more this
leverage will magnify the Fund's gains or losses on those investments.

- TRACKING ERROR RISK -- The Advisor may not be able to match the
performance of the Fund's benchmark.

If the Fund meets its objective, the value of the Fund's shares will tend to
increase by 150% of the value of any increase in 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 150% of the value of any decrease in the Index.
<PAGE>
PROSPECTUS 3
--------

FUND PERFORMANCE INFORMATION

NOVA 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. For periods prior
to November 1998, the Fund's performance reflected insurance related charges
that had the effect of reducing returns. The variability of performance over
time provides an indication of the risks of investing in the Fund. Of course,
this past performance does not necessarily indicate how the Fund will perform in
the future.

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

DURING THE PERIOD SHOWN IN THE BAR CHART, THE HIGHEST RETURN FOR A QUARTER WAS
31.57% (QUARTER ENDED 12/31/98) AND THE LOWEST RETURN FOR A QUARTER WAS -17.16%
(QUARTER ENDED 9/30/98).

<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN (FOR PERIODS ENDING DECEMBER 31, 1998)(1)
NOVA FUND S&P 500 INDEX(2)
--------------------------------------
<S> <C> <C>
Past One Year 30.06% 26.67%
Since Inception (05/07/97) 32.30% 28.18%
</TABLE>

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
Unlike a traditional index fund, the Fund's benchmark is to perform exactly
opposite the S&P 500 Index, and the Fund will generally not own the securities
included in the Index. Instead, as its primary investment strategy, the Fund
invests to a significant extent in futures contracts and options on: securities,
futures contracts, and stock indexes. On a day-to-day basis, the Fund holds U.S.
Government securities to collateralize these futures and options contracts. The
Fund also may enter into repurchase agreements and sell securities short.

RISK CONSIDERATIONS
The Ursa Fund is subject to a number of risks that will affect the value of
its shares, including:
- EQUITY RISK -- The equity markets are volatile, and the value of the
Fund's futures and options contracts and other securities may fluctuate
drastically from day-to-day.
- TRACKING ERROR RISK -- The Advisor may not be able to match the
performance of the Fund's benchmark.
If the Fund meets its objective, the value of the Fund's shares will tend to
increase during times when the value of the S&P 500 Index is decreasing. When
the value of the S&P 500 Index is increasing, however, the value of the Fund's
shares should decrease 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%).
<PAGE>
PROSPECTUS 5
--------

FUND PERFORMANCE INFORMATION

URSA 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. For periods prior
to November 1998, the Fund's performance reflected insurance related charges
that had the effect of reducing returns. The variability of performance over
time provides an indication of the risks of investing in the Fund. Of course,
this past performance does not necessarily indicate how the Fund will perform in
the future.

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

DURING THE PERIOD SHOWN IN THE BAR CHART, THE HIGHEST RETURN FOR A QUARTER WAS
9.11% (QUARTER ENDED 9/30/98) AND THE LOWEST RETURN FOR A QUARTER WAS -17.22%
(QUARTER ENDED 12/31/98).

<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN (FOR PERIODS ENDING DECEMBER 31, 1998)(1)
URSA FUND S&P 500 INDEX(2)
--------------------------------------
<S> <C> <C>
Past One Year -21.93% 26.67%
Since Inception of Continuous Operations (06/10/97)(3) -22.43% 25.26%
</TABLE>

(1) THESE FIGURES ASSUME THE REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS
DISTRIBUTIONS.
(2) THE S&P 500 INDEX IS AN UNMANAGED INDEX THAT IS A WIDELY RECOGNIZED
INDICATOR OF GENERAL STOCK MARKET PERFORMANCE.
(3) THE FUND COMMENCED CONTINUOUS OPERATIONS ON JUNE 10, 1997. PRIOR TO THAT
TIME, DUE TO THE NATURE OF THE FUND'S INVESTMENT ACTIVITY, THE FUND
EXPERIENCED PERIODS WITH ZERO NET ASSETS. PERIODS OF OPERATION, INCLUDING
RETURNS FOR EACH DISCRETE PERIOD, WERE AS FOLLOWS: MAY 7, 1997 TO MAY 21,
1997 -3.70%; AND MAY 24, 1997 TO JUNE 3, 1997 0.10%.
<PAGE>
- ------
6 PROSPECTUS

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

RISK CONSIDERATIONS
The OTC Fund is subject to a number of risks that will affect the value of
its shares, including:
- EQUITY RISK -- The equity markets are volatile, and the value of the
Fund's securities and futures and options contracts may fluctuate
drastically from day-to-day.
- TRACKING ERROR RISK -- The Advisor may not be able to match the
performance of the Fund's benchmark.
If the Fund meets its objective, the value of the Fund's shares will tend to
increase by the amount of the increase in value of the NASDAQ 100 Index-TM-.
However, when the value of the NASDAQ 100 Index-TM- declines, the value of the
Fund's shares should also decrease by the amount of the decrease in value of the
Index-TM-.
<PAGE>
PROSPECTUS 7
--------

FUND PERFORMANCE INFORMATION

OTC 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. For periods prior
to November 1998, the Fund's performance reflected insurance related charges
that had the effect of reducing returns. The variability of performance over
time provides an indication of the risks of investing in the Fund. Of course,
this past performance does not necessarily indicate how the Fund will perform in
the future.

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

DURING THE PERIOD SHOWN IN THE BAR CHART, THE HIGHEST RETURN FOR A QUARTER WAS
35.27% (QUARTER ENDED 12/31/98) AND THE LOWEST RETURN FOR A QUARTER WAS .77%
(QUARTER ENDED 9/30/98).

<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN (FOR PERIODS ENDING DECEMBER 31, 1998)(1)
NASDAQ 100 INDEX-TM-
OTC FUND (2)
-----------------------------------------
<S> <C> <C>
Past One Year 83.76% 85.31%
Since Inception (05/07/97) 50.14% 53.01%
</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.
<PAGE>
- ------
8 PROSPECTUS

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 Index.

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 U.S. Government securities, and enter into repurchase
agreements. The Fund may also invest a portion of its assets in securities of
foreign issuers.

RISK CONSIDERATIONS
The Precious Metals Fund is subject to a number of risks that will affect
the value of the Fund's shares, including:
- CONCENTRATION RISK -- The risk that the relatively few securities of
issuers in the same industry (e.g., mining) that the Fund purchases will
underperform the market as a whole. To the extent that the Fund's
investments are concentrated in issuers conducting business in the same
industry, the Fund is subject to legislative or regulatory changes,
adverse market conditions and/or increased competition affecting that
industry, as well as to the volatility of global prices for precious
metals. The prices of precious metals may fluctuate widely due to changes
in inflation or inflation expectations, currency fluctuations,
speculation, worldwide demand and political developments in precious
metals producing countries.
- EQUITY RISK -- The equity markets are volatile, and the value of the
Fund's securities and futures and options contracts may fluctuate
drastically from day-to-day.
- TRACKING ERROR RISK -- The Advisor may not be able to match the
performance of the Fund's benchmark.
If the Fund meets its objective, the value of the Fund's shares will tend to
increase by the amount of the increase in value of the XAU Index. However, when
the value of the XAU Index declines, the value of the Fund's shares should also
decrease by the amount of the decrease in value of the Index.
<PAGE>
PROSPECTUS 9
--------

FUND PERFORMANCE INFORMATION

PRECIOUS METALS 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. For the
periods prior to November 1998, the Fund's performance reflected insurance
related charges that had the effect of reducing returns. The variability of
performance over time provides an indication of the risks of investing in the
Fund. Of course, this past performance does not necessarily indicate how the
Fund will perform in the future.

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

<TABLE>
<CAPTION>
PRECIOUS METALS FUND
<S> <C>
1998 -17.24%
</TABLE>

DURING THE PERIOD SHOWN IN THE BAR CHART, THE HIGHEST RETURN FOR A QUARTER WAS
9.07% (QUARTER ENDED 3/31/98) AND THE LOWEST RETURN FOR A QUARTER WAS -13.66%
(QUARTER ENDED 12/31/98).

<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN (FOR PERIODS ENDING DECEMBER 31, 1998)(1)
PRECIOUS METALS FUND S&P 500 INDEX(2) XAU INDEX(3)
-------------------------------------------------------
<S> <C> <C> <C>
Past One Year -17.24% 26.67% -12.43%
Since Inception (05/29/97) -28.90% 26.64% -26.56%
</TABLE>

(1) THESE FIGURES ASSUME THE REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS
DISTRIBUTIONS.
(2) THE S&P 500 INDEX IS AN UNMANAGED INDEX THAT IS A WIDELY RECOGNIZED
INDICATOR OF GENERAL STOCK MARKET PERFORMANCE.
(3) THE XAU INDEX IS AN UNMANAGED INDEX THAT IS A WIDELY RECOGNIZED INDICATOR OF
PRECIOUS METALS SECTOR PERFORMANCE.
<PAGE>
- ------
10 PROSPECTUS

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, futures
contracts, and options. Some of the Fund's U.S. Government securities will be
used to collateralize these futures and options. Futures and options contracts,
if used properly, may enable the Fund to meet its objective by increasing the
Fund's exposure to the securities included in its benchmark. In addition, the
Fund may enter into transactions involving zero coupon U.S. Treasury bonds and
repurchase agreements.

RISK CONSIDERATIONS
The U.S. Government Bond Fund is subject to a number of risks that will
affect the value of its shares, including:
- FIXED INCOME RISK -- The Fund's fixed income investments will change in
value in response to interest rate changes and other factors. In addition,
the value of securities with longer maturities will fluctuate more in
response to interest rate changes.
- LEVERAGING RISK -- The Fund invests a percentage of its assets in
leveraged instruments, such as certain futures and options contracts. The
more the Fund invests in these leveraged instruments, the more this
leverage will magnify the Fund's gains or losses on those investments.
- TRACKING ERROR RISK -- The Advisor may not be able to match the
performance of the Fund's benchmark.

If the Fund meets its objective, the value of the Fund's shares should
increase by 120% of any price increase by the Long Treasury Bond. In contrast,
when the price of the Long Treasury Bond declines, the value of the Fund's
shares should decline by 120% of any price decline of the Long Treasury Bond.
<PAGE>
PROSPECTUS 11
--------

FUND PERFORMANCE INFORMATION

U.S. GOVERNMENT BOND 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.
For periods prior to November 1998, the Fund's performance reflected insurance
related charges that had the effect of reducing returns. The variability of
performance over time provides an indication of the risks of investing in the
Fund. Of course, this past performance does not necessarily indicate how the
Fund will perform in the future.

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

<TABLE>
<CAPTION>
U.S. GOVERNMENT BOND FUND
<S> <C>
1998 12.86%
</TABLE>

DURING THE PERIOD SHOWN IN THE BAR CHART, THE HIGHEST RETURN FOR A QUARTER WAS
10.07% (QUARTER ENDED 9/30/98) AND THE LOWEST RETURN FOR A QUARTER WAS -2.58%
(QUARTER ENDED 12/31/98).

<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN (FOR PERIODS ENDING DECEMBER 31, 1998)(1)
LEHMAN LONG TREASURY
U.S. GOVERNMENT BOND FUND INDEX(2)
------------------------------------------------------
<S> <C> <C>
Past One Year 12.86% 13.49%
Since Inception of Continuous Operations
(08/18/97)(3) 17.46% 16.54%
</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.
(3) THE FUND COMMENCED CONTINUOUS OPERATIONS ON AUGUST 18, 1997. PRIOR TO THAT
TIME, DUE TO THE NATURE OF THE FUND'S INVESTMENT ACTIVITY, THE FUND
EXPERIENCED PERIODS WITH ZERO NET ASSETS. PERIODS OF OPERATION, INCLUDING
RETURNS FOR EACH DISCRETE PERIOD, WERE AS FOLLOWS: MAY 29, 1997 TO JUNE 5,
1997 1.50%; JUNE 24, 1997 TO JULY 14, 1997 2.20%; AND JULY 29, 1997 TO
AUGUST 12, 1997 -3.30%.
<PAGE>
- ------
12 PROSPECTUS

FUND INFORMATION -- JUNO FUND

FUND OBJECTIVE

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

PORTFOLIO INVESTMENTS

Unlike a traditional fund, the Fund's benchmark is to perform exactly
opposite the Long Treasury Bond. As its primary investment strategy, the Fund
enters into short sales and engages in futures and options transactions. On a
day-to-day basis, the Fund holds U.S. Government securities to collateralize
these obligations. The Fund also may enter into repurchase agreements.

RISK CONSIDERATIONS

The Juno Fund is subject to a number of risks that will affect the value of
its shares, including:

- FIXED INCOME RISK -- The Fund's fixed income investments will change in
value in response to interest rate changes and other factors. In addition,
the value of securities with longer maturities will fluctuate more in
response to interest rate changes.

- TRACKING ERROR RISK -- The Advisor may not be able to match the
performance of the Fund's benchmark.

If the Fund meets its objective, the value of the Fund's shares will tend to
increase during periods when the price of the Long Treasury Bond decreases. When
the price of the Long Treasury Bond increases, however, the value of the Fund's
shares should decrease 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%).
<PAGE>
- ------
14 PROSPECTUS

MORE INFORMATION ABOUT RISK

As indicated below, the Funds are subject to a number of risks that may
affect the value of Fund shares.

EQUITY RISK (NOVA, URSA, OTC, AND PRECIOUS METALS FUNDS) -- The Funds may invest
in public and privately issued equity securities, including common and preferred
stocks, warrants, and rights, as well as instruments that attempt to track the
price movement of equity indexes. Investments in equity securities and equity
derivatives in general are subject to market risks that may cause their prices
to fluctuate over time. The value of securities convertible into equity
securities, such as warrants or convertible debt, is also affected by prevailing
interest rates, the credit quality of the issuer and any call provision.
Fluctuations in the value of equity securities in which the Funds invest will
cause the net asset value of the Funds to fluctuate. An investment in the Funds
may be more suitable for long-term investors who can bear the risk of short-term
principal fluctuations.

FIXED INCOME RISK (U.S. GOVERNMENT BOND AND JUNO FUNDS) -- The market value of
fixed income investments will change in response to interest rate changes and
other factors. During periods of falling interest rates, the values of
outstanding fixed income securities generally rise. Conversely, during periods
of rising interest rates, the values of such securities generally decline.
Moreover, while securities with longer maturities tend to produce higher yields,
the prices of longer maturity securities are also subject to greater market
fluctuations as a result of changes in interest rates.

TRACKING ERROR RISK (ALL FUNDS) -- While the 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 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 perfect
correlation. The magnitude of any tracking error may be affected by a higher
portfolio turnover rate.

TRADING HALT RISK (NOVA, URSA, U.S. GOVERNMENT BOND AND JUNO FUNDS) -- The Funds
typically will hold short-term options and futures contracts. The major
exchanges on which these contracts are traded, such as the Chicago Mercantile
Exchange ("CME"), have established limits on how much an option or futures
contract may decline over various time periods within a day. If an option or
futures contract's price declines more than the established limits, trading on
the exchange is halted on that instrument. If a trading halt occurs at the close
of a trading day, a Fund may not be able to purchase or sell options or futures
contracts. In such an event, a Fund also may be required to use a "fair-value"
method to price its outstanding contracts.
<PAGE>
PROSPECTUS 15
--------

LEVERAGING RISK (NOVA AND U.S. GOVERNMENT BOND FUNDS) -- Leveraging activities
include, among other things, borrowing and the use of certain types of short
sales, options and futures. There are risks associated with leveraging
activities, including:

- A Fund experiencing losses over certain ranges in the market that exceed
losses experienced by a non-leveraged Fund.

- 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.

In addition, the following instruments may involve leverage and are subject to
certain specific risks:

FUTURES RISK -- 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.

The Funds may use futures contracts and related options for bona fide
hedging purposes to offset changes in the value of securities held or
expected to be acquired. They may also be used to gain exposure to a
particular market or instrument, to create a synthetic money market
position, and for certain other tax-related purposes. The Fund will only
enter into futures contracts traded on a national futures exchange or board
of trade.

OPTIONS RISK -- The buyer of an option acquires the right to buy (a call
option) or sell (a put option) a certain quantity of a security (the
underlying security) or instrument at a certain price up to a specified
point in time. The seller or writer of an option is obligated to sell (a
call option) or buy (a put option) the underlying security. When writing
(selling) call options on securities, the Funds may cover its position by
owning the underlying security on which the option is written or by owning a
call option on the underlying security. Alternatively, the Funds may cover
its position by maintaining in a segregated account cash or liquid
securities equal in value to the exercise price of the call option written
by the Funds.
<PAGE>
- ------
16 PROSPECTUS

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

SHORT SALES RISK -- In certain short sales transactions, a Fund sells a
security it does not own. To complete the transaction, the Fund must borrow
the security to make delivery to the buyer. The Fund is then obligated to
replace the security borrowed by purchasing the security at the market price
at the time of replacement. The price at such time may be more or less than
the price at which the security was sold by the Fund. In another type of
short sale, a short sale "against the box," a Fund sells a security it owns
or has the right to acquire.

PORTFOLIO TURNOVER RATE RISK (PRECIOUS METALS, OTC AND U.S. GOVERNMENT BOND
FUNDS) -- The Trust anticipates that investors that are part of a tactical or
strategic asset-allocation strategy will frequently redeem or exchange shares of
a Fund, which will cause that Fund to experience high portfolio turnover. A
higher portfolio turnover rate may result in a Fund paying higher levels of
transaction costs and generating greater tax liabilities for shareholders.

CONCENTRATION RISK (PRECIOUS METALS FUND) -- Since the Fund invests in the
securities of a limited number of issuers conducting business in the precious
metals industry, it is subject to the risk that those issuers (or that industry)
will perform poorly, and the Fund will be negatively impacted by that poor
performance. The prices of precious metals may fluctuate widely due to changes
in inflation or inflation expectations, currency fluctuations, speculation,
worldwide demand and political developments in precious metals-producing
countries. None of the Funds will invest 25% or more of the value of the Fund's
total assets in the securities of one or more issuers conducting their principal
business activities in the same industry; EXCEPT THAT, to the extent the
benchmark selected for a particular Fund is concentrated in a particular
industry, the Fund will necessarily be concentrated in that industry. This
limitation does not apply to investments or obligations of the U.S. Government
or any of its agencies or instrumentalities.

EARLY CLOSING RISK (OTC FUND) -- The normal close of trading of securities
listed on the National Association of Securities Dealers Automated Quotations
system ("NASDAQ") and the New York Stock Exchange ("NYSE") is 4:00 P.M., Eastern
Time. Unanticipated early closings may result in a Fund being unable to sell or
buy securities on that day. If an exchange closes early on a day when one or
more of the Funds needs to execute a high volume of securities trades late in a
trading day, a Fund might incur substantial trading losses.

year 2000 and the year 1900. The Trust has asked their service providers whether
they expect to have their computer systems adjusted for the year 2000
transition, and received assurances from all that they are devoting significant
resources to prevent material adverse consequences to the Funds. The Funds and
their respective 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 Funds do business.

FOREIGN COMPANY RISKS (PRECIOUS METALS FUND) -- Investments in securities of
foreign companies can be more volatile than investments in U.S. companies.
Diplomatic, political, or economic developments could affect investments in
foreign countries. Foreign companies generally are not subject to uniform
accounting, auditing, and financial reporting standards comparable to those
applicable to U.S. domestic companies.

PURCHASING AND REDEEMING SHARES

Shares are offered continuously, and may be purchased on any day that the
NYSE is open for business (a "Business Day"). On any day that the New York Fed
or the NYSE closes early, the principal government securities and corporate bond
markets close early (such as on days in advance of holidays generally observed
by participants in these markets), or as permitted by the Securities and
Exchange Commission ("SEC"), the right is reserved to advance the time on that
day by which purchase and redemption orders must be received.

Shares of each Fund can be purchased only by insurance companies for their
separate accounts to fund variable life insurance and variable annuity
contracts. All orders for the purchase of shares are subject to acceptance or
rejection by the Trust. An insurance company purchases and redeems shares of
each Fund based on, among other things, the amount of net Contract premiums or
purchase payments allocated to a separate account investment division, transfers
to or from a separate account investment division, contract loans and
repayments, contract withdrawals and surrenders, and benefit payments, 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 Investment Company Act of 1940 (the "1940 Act"), for any
period during which the NYSE, NASDAQ, CME, the Chicago Board Options Exchange
("CBOE") or the Chicago Board of Trade ("CBOT"), as appropriate, is closed or
during which trading is restricted by the SEC, or the SEC declares that an
emergency exists. Redemptions may also be suspended during other periods
permitted by the SEC for the protection of the Trust's investors.

NET ASSET VALUE

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). The NAV of the U.S.
Government Bond Fund and the Juno Fund is determined each Business Day as of the
close of normal trading on the CBOT (normally 3:00 P.M., Eastern Time). 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 PURCHASE
OR REDEMPTION ORDERS BEFORE 3:45 P.M., EASTERN TIME, FOR THE NOVA, URSA, AND OTC
FUNDS, 3:30 P.M., EASTERN TIME, FOR THE PRECIOUS METALS FUND, AND 2:45 P.M.,
EASTERN TIME, FOR THE U.S. GOVERNMENT BOND AND JUNO FUNDS. HOWEVER, YOUR
INSURANCE COMPANY MAY HAVE EARLIER CUTOFF TIMES. VARIABLE LIFE AND VARIABLE
ANNUITY ACCOUNT INVESTORS SHOULD CONSULT THEIR SEPARATE ACCOUNT PROSPECTUS.

MANAGEMENT

THE ADVISOR'S INVESTMENT METHODOLOGY

In managing the 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 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 options contracts to leverage
a Fund's investment exposure. In addition, some Funds may require short selling
techniques designed to inversely correlate to the performance of an index or
benchmark.

MANAGEMENT OF THE FUNDS

THE INVESTMENT ADVISOR -- PADCO Advisors II, 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.

Under an investment advisory agreement between the Trust and the Advisor, the
Funds pay the Advisor a fee at an annualized rate, based on the average daily
net assets for each Fund, as set forth below:

<TABLE>
<CAPTION>
CONTRACTUAL ADVISORY FEES
FUND ADVISORY FEE RECEIVED 1998
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Nova .75% .71%
Ursa .90% .73%
OTC .75% .72%
Precious Metals .75% .59%
U.S. Government Bond .50% .50%
Juno .90% .51%
</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

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

The portfolio manager of the Nova Fund and the Juno Fund is Thomas Michael,
who joined the Advisor as a portfolio manager in March 1994. From 1992 to
February 1994, Mr. Michael was a financial markets analyst at Cedar Street
Investment Management Co., of Chicago, Illinois, an institutional consulting
firm specializing in developing hedging and speculative strategies in stock
index futures contracts and U.S. Treasury bond futures contracts.

The portfolio manager of the Precious Metals Fund is T. Daniel Gillespie,
who joined the Advisor as a portfolio manager 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 he 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 Fund, Inc., where he
managed over $900 million in mutual fund assets.

The portfolio manager of the U.S. Government Bond Fund is Anne H. Ruff, who
joined the Advisor as a portfolio manager in August 1996. From 1989 to 1995, Ms.
Ruff worked as a portfolio
<PAGE>
- ------
20 PROSPECTUS

manager for United Services Life Insurance Company in Arlington, Virginia, where
she managed $2.5 billion in fixed-income portfolios.

DIVIDENDS, DISTRIBUTIONS AND TAXES

DIVIDENDS AND DISTRIBUTIONS

Income dividends and capital gain distributions are paid at least annually
by each of the Funds, except the U.S. Government Bond Fund, which declares and
pays dividends daily 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.

TAXES

Each Fund is treated as a separate entity for federal tax purposes, and
intends to qualify for the special tax treatment afforded regulated investment
companies. As long as a Fund qualifies as a regulated investment company, it
pays no federal income tax on the earnings it distributes to Shareholders. A
Fund is not liable for any income or franchise tax in Delaware as long as it
qualifies as a regulated investment company for federal income tax purposes.

In addition to qualifying for special tax treatment as a regulated
investment company, the Funds intend to meet special diversification
requirements of the Internal Revenue Code (the "Code") in order to assure
insurance companies that their variable annuity and variable life contracts
qualify as insurance under the Code.
<PAGE>
PROSPECTUS 21
--------

FINANCIAL HIGHLIGHTS

The financial highlights table is intended to help you understand the Funds'
financial performance for the period of each Fund's (and its predecessor's)
operations. Certain information reflects financial results for a single Fund
share. The total returns in the table represent the rate that an investor would
have earned (or lost) on an investment in the Fund (assuming reinvestment of all
dividends and distributions). On November 2, 1998, the Trust acquired all of the
assets and liabilities (other than liabilities relating to insurance charges) of
Rydex Advisor Variable Annuity Account (the "Separate Account") and the
subaccounts of the Separate Account (the "Subaccounts"). The information
provided below for periods ending prior to and including December 31, 1997,
which relates to the Subaccounts, has been audited by PricewaterhouseCoopers
LLP. The information for the period ended December 31, 1998, which relates to
the Funds, has been audited by Deloitte & Touche LLP. The Reports of Independent
Accountants for each such period along with the Funds' financial statements and
related notes, are included in the Annual Reports to Shareholders for such
periods. Our 1998 Annual Report is available upon request and without charge by
calling 1-301-468-8520 collect. The 1998 Annual Report is incorporated by
reference in the SAI.

FINANCIAL HIGHLIGHTS

<TABLE>
<CAPTION>
URSA
NOVA --------------------------------------------------------
--------------------------- YEAR
YEAR PERIOD ENDED JUNE 10, MAY 24, MAY 7,
ENDED ENDED DECEMBER 1997 TO 1997 TO 1997 TO
DECEMBER 31, DECEMBER 31, 31, DECEMBER 31, JUNE 3, MAY 21,
1998 1997* 1998 1997+ 1997+ 1997+*
------------ ------------ ----------- ------------ ------------ ------------
Per Share Operating Performance:++
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value -- Beginning of
Period................................. $ 12.21 $ 10.00 $ 8.07 $ 9.36 $ 9.57 $ 10.00
------------ ------------ ----------- ------ ------ ------------
Net Investment Income (Loss).......... .04 .07 .06 (.01) .00 (.04)
Net Realized and Unrealized Gains
(Losses) on Securities............... 3.63 2.14 (1.83) (1.28) .01 (.33)
Dividends to Shareholders from Net
Investment Income.................... .00 .00 .00 .00 .00 .00
Distributions (from capital gains).... .00 .00 .00 .00 .00 .00
------------ ------------ ----------- ------ ------ ------------
Net Increase (Decrease) in Net Asset
Value................................ 3.67 2.21 (1.77) (1.29) .01 (.37)
------------ ------------ ----------- ------ ------ ------------
Net Asset Value -- End of Period........ $ 15.88 $ 12.21 $ 6.30 $ 8.07 $ 9.58 $ 9.63
------------ ------------ ----------- ------ ------ ------------
------------ ------------ ----------- ------ ------ ------------
Total Investment Return................. 30.06% (21.93)%
Ratios to Average Net Assets
Gross Expenses........................ 3.26% 9.09%** 3.76% 9.21%** 85.10%** 13.62%**
Net Expenses.......................... 3.22% 2.80%** 3.59% 2.90%** 2.90%** 2.90%**
Net Investment Income (Loss).......... 0.27% 0.91%** 0.89% (0.27)%** 2.76%** (10.05)%**
Supplementary Data:
Portfolio Turnover Rate***.............. 0% 178.34% 0% 0% 0% 0%
Net Assets, End of Period (000's
omitted)............................... $29,258 $10,448 $5,509 $2,879 $ -- $ --
</TABLE>

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

* COMMENCEMENT OF OPERATIONS: NOVA AND URSA -- MAY 7, 1997

** ANNUALIZED

*** PORTFOLIO TURNOVER RATIO IS CALCULATED WITHOUT REGARD TO SHORT-TERM
SECURITIES HAVING A MATURITY OF LESS THAN ONE YEAR.

+ DUE TO THE NATURE OF THE INVESTMENT ACTIVITY, THE FUND EXPERIENCED PERIODS
WITH ZERO NET ASSETS. FINANCIAL HIGHLIGHTS ARE PRESENTED ONLY FOR PERIODS
WITH NET ASSETS GREATER THAN ZERO.

++ THE PER SHARE DATA OF THE FINANCIAL HIGHLIGHTS TABLE IS CALCULATED USING
THE AVERAGE DAILY SHARES OUTSTANDING FOR THE YEAR.
<PAGE>
- ------
22 PROSPECTUS

FINANCIAL HIGHLIGHTS

<TABLE>
<CAPTION>
OTC PRECIOUS METALS
--------------------------- ---------------------------
YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1997* 1998 1997*
------------ ------------- ------------ -------------
Per Share Operating Performance:++
<S> <C> <C> <C> <C>
Net Asset Value -- Beginning of Period..................... $ 10.65 $ 10.00 $ 7.02 $ 10.00
------------ ------------- ------------ -------------
Net Investment Income (Loss)............................... (.40) (.09) (.16) (.11)
Net Realized and Unrealized Gains (Losses) on
Securities.............................................. 9.32 .74 (1.05) (2.87)
------------ ------------- ------------ -------------
Net Increase (Decrease) in Net Asset Value Resulting from
Operations.............................................. 8.92 .65 (1.21) (2.98)
Dividends to Shareholders from Net Investment Income..... .00 .00 .00 .00
Distributions (from capital gains)....................... .00 .00 .00 .00
Adjustment due to Reorganization......................... .00 .00 .00 .00
------------ ------------- ------------ -------------
Net Increase (Decrease) in Net Asset Value............... 8.92 .65 (1.21) (2.98)
------------ ------------- ------------ -------------
Net Asset Value -- End of Period........................... $ 19.57 $ 10.65 $ 5.81 $ 7.02
------------ ------------- ------------ -------------
------------ ------------- ------------ -------------
Total Investment Return.................................... 83.76% (17.24)%
Ratios to Average Net Assets
Gross Expenses........................................... 2.96% 9.07 %** 3.39% 9.76 %**
Net Expenses............................................. 2.96% 2.80 %** 3.23% 2.80 %**
Net Investment Income (Loss)............................. (2.67 )% (1.22 %** (2.31 )% (2.19 )%**
Supplementary Data:
Portfolio Turnover Rate***............................... 1077.49% 449.91% 1739.23% 913.83%
Net Assets, End of Period (000's omitted)................ $ 22,038 $ 2,367 $ 2,695 $ 518
</TABLE>

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

* COMMENCEMENT OF OPERATIONS: OTC -- MAY 7, 1997; PRECIOUS METALS -- MAY 29,
1997

** ANNUALIZED

*** PORTFOLIO TURNOVER RATIO IS CALCULATED WITHOUT REGARD TO SHORT-TERM
SECURITIES HAVING A MATURITY OF LESS THAN ONE YEAR.

++ THE PER SHARE DATA OF THE FINANCIAL HIGHLIGHTS TABLE IS CALCULATED USING
THE AVERAGE DAILY SHARES OUTSTANDING FOR THE YEAR.
<PAGE>
PROSPECTUS 23
--------

FINANCIAL HIGHLIGHTS

<TABLE>
<CAPTION>
U.S. GOVERNMENT BOND
------------------------------------------------------------------
AUGUST 18, JULY 29, JUNE 24, MAY 29,
YEAR ENDED 1997 TO 1997 TO 1997 TO 1997 TO
DECEMBER 31, DECEMBER 31, AUGUST 12, JULY 14, JUNE 5,
1998 1997+ 1997+ 1997+ 1997+*
------------ ------------- ----------- ----------- -----------
Per Share Operating Performance:++
<S> <C> <C> <C> <C> <C>
Net Asset Value -- Beginning of Period................ $ 11.82 $ 10.70 $ 10.92 $ 10.44 $ 10.00
------------ ------------- ----------- ----------- -----------
Net Investment Income............................... .24 .15 .02 .10 .00
Net Realized and Unrealized Gains (Losses) on
Securities......................................... 1.28 .97 (.38) .13 .15
------------ ------------- ----------- ----------- -----------
Net Increase (Decrease) in Net Asset Value Resulting
from Operations.................................... 1.52 1.12 (.36) .23 .15
Dividends to Shareholders from Net Investment
Income............................................. (.06) .00 .00 .00 .00
Distributions (from capital gains).................. .00 .00 .00 .00 .00
------------ ------------- ----------- ----------- -----------
Net Increase (Decrease) in Net Asset Value.......... 1.46 1.12 (.36) .23 .15
------------ ------------- ----------- ----------- -----------
Net Asset Value -- End of Period...................... $ 13.28 $ 11.82 $ 10.56 $ 10.67 $ 10.15
------------ ------------- ----------- ----------- -----------
------------ ------------- ----------- ----------- -----------
Total Investment Return............................... 12.86%
Ratios to Average Net Assets
Gross Expenses...................................... 2.71% 8.47%** 49.63 %** 12.68 %** 5.43 %**
Net Expenses........................................ 2.71% 2.40 %** 2.40 %** 2.40 %** 2.40 %**
Net Investment Income............................... 1.92% 3.49 %** 3.80 %** 7.94 %** 1.86 %**
Supplementary Data:
Portfolio Turnover Rate***.......................... 1462.79% 760.78% 0% 0% 0%
Net Assets, End of Period (000's omitted)........... $ 4,973 $ 892 $ -- $ -- $ --
</TABLE>

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

* COMMENCEMENT OF OPERATIONS: U. S. GOVERNMENT BOND -- MAY 29, 1997

** ANNUALIZED

*** PORTFOLIO TURNOVER RATIO IS CALCULATED WITHOUT REGARD TO SHORT-TERM
SECURITIES HAVING A MATURITY OF LESS THAN ONE YEAR.

+ DUE TO THE NATURE OF THE INVESTMENT ACTIVITY, THE FUND EXPERIENCED PERIODS
WITH ZERO NET ASSETS. FINANCIAL HIGHLIGHTS ARE PRESENTED ONLY FOR PERIODS
WITH NET ASSETS GREATER THAN ZERO.

++ THE PER SHARE DATA OF THE FINANCIAL HIGHLIGHTS TABLE IS CALCULATED USING
THE AVERAGE DAILY SHARES OUTSTANDING FOR THE YEAR.
<PAGE>
- ------
24 PROSPECTUS

FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
JUNO
-------------------------------------------------------------
MARCH 3, MARCH 1, FEBRUARY 22, FEBRUARY 1,
1998 TO 1998 TO 1998 TO 1998 TO
DECEMBER 31, MARCH 2, FEBRUARY 24, FEBRUARY 2,
1998+ 1998+ 1998+ 1998+
--------------- ------------- --------------- ------------
<S> <C> <C> <C> <C>
Per Share Operating Performance:++
Net Asset Value -- Beginning of Period................. $ 9.20 $ 9.09 $ 9.03 $ 8.98
------ ----- ----- ------------
Net Investment Income (Loss)......................... (.05) .00 .00 .00
Net Realized and Unrealized Gains (Losses) on
Securities.......................................... (.75) .08 .11 .04
Dividends to Shareholders from Net Investment
Income.............................................. .00 .00 .00 .00
Distributions (from capital gains)................... .00 .00 .00 .00
------ ----- ----- ------------
Net Increase (Decrease) in Net Asset Value........... (.80) .08 .11 .04
------ ----- ----- ------------
Net Asset Value -- End of Period....................... $ 8.40 $ 9.17 $ 9.14 $ 9.02
------ ----- ----- ------------
------ ----- ----- ------------
Total Investment Return................................ (8.70)% 0.88% 1.22% 0.45%
Ratios to Average Net Assets
Gross Expenses....................................... 5.72 %** 13.10 %** 4.39 %** 4.42%**
Net Expenses......................................... 3.52 %** 11.01 %** 3.68 %** 3.68%**
Net Investment Income (Loss)......................... (1.10 %** (5.32 %** 1.60 %** 1.92%**
Supplementary Data:
Portfolio Turnover Rate***........................... 0% 0% 0% 0%
Net Assets, End of Period (000's omitted)............ $ 69 $ -- $ -- $ --

JANUARY 19,
1998 TO
JANUARY 25,
1998+
-------------
<S> <C>
Per Share Operating Performance:++
Net Asset Value -- Beginning of Period................. $ 8.88
-----
Net Investment Income (Loss)......................... .00
Net Realized and Unrealized Gains (Losses) on
Securities.......................................... .26
Dividends to Shareholders from Net Investment
Income.............................................. .00
Distributions (from capital gains)................... .00
-----
Net Increase (Decrease) in Net Asset Value........... .26
-----
Net Asset Value -- End of Period....................... $ 9.14
-----
-----
Total Investment Return................................ 2.93%
Ratios to Average Net Assets
Gross Expenses....................................... 4.42 %**
Net Expenses......................................... 3.67 %**
Net Investment Income (Loss)......................... 1.73 %**
Supplementary Data:
Portfolio Turnover Rate***........................... 0%
Net Assets, End of Period (000's omitted)............ $ --
</TABLE>

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

** ANNUALIZED

*** PORTFOLIO TURNOVER RATIO IS CALCULATED WITHOUT REGARD TO SHORT-TERM
SECURITIES HAVING A MATURITY OF LESS THAN ONE YEAR.

+ DUE TO THE NATURE OF THE INVESTMENT ACTIVITY, THE FUND EXPERIENCED PERIODS
WITH ZERO NET ASSETS. FINANCIAL HIGHLIGHTS ARE PRESENTED ONLY FOR PERIODS
WITH NET ASSETS GREATER THAN ZERO.

++ THE PER SHARE DATA OF THE FINANCIAL HIGHLIGHTS TABLE IS CALCULATED USING
THE AVERAGE DAILY SHARES OUTSTANDING FOR THE YEAR.
<PAGE>
PROSPECTUS 25
--------

FINANCIAL HIGHLIGHTS

<TABLE>
<CAPTION>
JUNO
---------------------------------------------------------------------------------
OCTOBER 22, AUGUST 26, JULY 24, JUNE 16, MAY 7,
1997 TO 1997 TO 1997 TO 1997 TO 1997 TO
DECEMBER 11, OCTOBER 19, AUGUST 11, JULY 7, JULY 2, JUNE 3,
1997+ 1997+ 1997+ 1997+ 1997+ 1997+*
------------ ----------- ---------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating
Performance:++
Net Asset Value -- Beginning
of Period.................... $ 9.50 $ 9.72 $ 9.41 $ 9.59 $9.71 $10.00
------ ----- ----- ------- -------- --------
Net Investment Income....... .11 .01 .01 .00 .00 .00
Net Realized and Unrealized
Gains (Losses) on
Securities................. (.60) (.21) .26 (.05) (.03) (.14)
Dividends to Shareholders
from Net Investment
Income..................... .00 .00 .00 .00 .00 .00
Distributions (from capital
gains)..................... .00 .00 .00 .00 .00 .00
------ ----- ----- ------- -------- --------
Net Increase (Decrease) in
Net Asset Value............ (.49) (.20) .27 (.05) (.03) (.14)
------ ----- ----- ------- -------- --------
Net Asset Value -- End of
Period....................... $ 9.01 $ 9.52 $ 9.68 $ 9.54 $9.68 $9.86
------ ----- ----- ------- -------- --------
------ ----- ----- ------- -------- --------
Ratios to Average Net Assets
Gross Expenses.............. 19.73%** 7.88%** 3.23%** 111.10%** 5.71%** 6.13%
Net Expenses................ 2.90%** 2.90%** 2.90%** 2.90%** 2.90%** 2.90%
Net Investment Income
(Loss)..................... 8.68%** 0.80%** 1.50%** 0.74%** 1.29%** (0.37)%
Supplementary Data:
Portfolio Turnover
Rate***.................... 0% 0% 0% % 0 0% 0%
Net Assets, End of Period
(000's omitted)............ $ -- $ -- $ -- $ -- $ -- $ --
</TABLE>

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

* COMMENCEMENT OF OPERATIONS: JUNO -- MAY 7, 1997

** ANNUALIZED

*** PORTFOLIO TURNOVER RATIO IS CALCULATED WITHOUT REGARD TO SHORT-TERM
SECURITIES HAVING A MATURITY OF LESS THAN ONE YEAR.

+ DUE TO THE NATURE OF THE INVESTMENT ACTIVITY, THE FUND EXPERIENCED PERIODS
WITH ZERO NET ASSETS. FINANCIAL HIGHLIGHTS ARE PRESENTED ONLY FOR PERIODS
WITH NET ASSETS GREATER THAN ZERO.

++ THE PER SHARE DATA OF THE FINANCIAL HIGHLIGHTS TABLE IS CALCULATED USING
THE AVERAGE DAILY SHARES OUTSTANDING FOR THE YEAR.
<PAGE>
- -------
26 PROSPECTUS

THIS PAGE INTENTIONALLY LEFT BLANK
<PAGE>
PROSPECTUS 27
--------

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
PRECIOUS 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.
<PAGE>
Additional information about the Funds is included in a Statement of Additional
Information dated May 1, 1999 (the "SAI"), which contains more detailed
information about the Funds. The SAI has been filed with the Securities and
Exchange Commission ("SEC") and is incorporated by reference into this
Prospectus and, therefore, legally forms a part of this Prospectus. The SEC
maintains 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 Funds' SEC registration number is 811-08821.

You may obtain a copy of the SAI or the annual or semi-annual reports of the
Trust without charge by calling 1-301-468-8520 collect or by writing to PADCO
Service Company, Inc., at 6116 Executive Boulevard, Suite 400, Rockville,
Maryland 20852. Additional information about the investments of the Funds is
available in the annual and semi-annual reports. Also, in the annual report of
the Funds, you will find a discussion of the market conditions and investment
strategies that significantly affected performance during the last fiscal year.

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

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

- --------------------------------------------------------------------------------
<PAGE>
PROSPECTUS

<TABLE>
<C> <S>
1 INTRODUCTION
---

2 NOVA FUND
---

4 URSA FUND
---

6 OTC FUND
---

8 PRECIOUS METALS FUND
---

10 U.S. GOVERNMENT BOND FUND
---

12 JUNO FUND
---

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

16 MORE INFORMATION ABOUT RISK
---

19 PURCHASING AND REDEEMING SHARES
---

20 MANAGEMENT
---

22 DIVIDENDS, DISTRIBUTIONS AND TAXES
---

23 FINANCIAL HIGHLIGHTS
---

28 BENCHMARK INFORMATION
---

BC ADDITIONAL INFORMATION
---
</TABLE>

MAY 1, 1999

RYDEX VARIABLE TRUST

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

6116 Executive Boulevard, Suite 400, Rockville, Maryland 20852
301-468-8520

Rydex Variable Trust (the "Trust") is a mutual fund complex with twenty-two
separate investment portfolios (the "Rydex Variable Funds"), seven of which are
described in this Prospectus (the "Funds"). Shares of the Funds are available
exclusively for variable annuity and variable life insurance products. Variable
life and variable annuity account investors should also review the separate
account prospectus prepared by their insurance company.

INTRODUCTION

The Funds' objectives (except the U.S. Government Money Market Fund) are to
match, exceed or perform the opposite of the performance of a specific index or
market indicator. The benchmark used by each Fund is set forth below:

A BRIEF GUIDE TO THE BENCHMARKS.

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.
ALL FUNDS:

- are not federally insured

- are not guaranteed by any government agency

- are not bank deposits

- are not guaranteed to achieve their objectives

INVESTING IN ANY OF THE FUNDS INVOLVES RISKS THAT MAY ADVERSELY AFFECT THE
FUNDS' NET ASSET VALUE, YIELD, AND TOTAL RETURN. YOU MAY LOSE MONEY. Each Fund
(except the U.S. Government Money Market Fund) is non-diversified. Non-
diversified funds 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.
<PAGE>
- ------
2 PROSPECTUS

FUND INFORMATION -- NOVA FUND

FUND OBJECTIVE

The Nova Fund seeks to provide investment returns that are 150% of the S&P
500 Index.

PORTFOLIO INVESTMENTS

RISK CONSIDERATIONS

The Nova Fund is subject to a number of risks that will affect the value of
its shares, including:

- EQUITY RISK -- The equity markets are volatile, and the value of the
Fund's futures and options contracts and other securities may fluctuate
drastically from day-to-day.

- TRACKING ERROR RISK -- The Advisor may not be able to match the
performance of the Fund's benchmark.

FUND PERFORMANCE INFORMATION

NOVA FUND PERFORMANCE

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

DURING THE PERIOD SHOWN IN THE BAR CHART, THE HIGHEST RETURN FOR A QUARTER WAS
31.57% (QUARTER ENDED 12/31/98) AND THE LOWEST RETURN FOR A QUARTER WAS -17.16%
(QUARTER ENDED 9/30/98).

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.

FUND PERFORMANCE INFORMATION

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

DURING THE PERIOD SHOWN IN THE BAR CHART, THE HIGHEST RETURN FOR A QUARTER WAS
9.11% (QUARTER ENDED 9/30/98) AND THE LOWEST RETURN FOR A QUARTER WAS -17.22%
(QUARTER ENDED 12/31/98).

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-.

FUND PERFORMANCE INFORMATION

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

DURING THE PERIOD SHOWN IN THE BAR CHART, THE HIGHEST RETURN FOR A QUARTER WAS
35.27% (QUARTER ENDED 12/31/98) AND THE LOWEST RETURN FOR A QUARTER WAS .77%
(QUARTER ENDED 9/30/98).

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 Index.

FUND PERFORMANCE INFORMATION

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

<TABLE>
<CAPTION>
PRECIOUS METALS FUND
<S> <C>
1998 -17.24%
</TABLE>

DURING THE PERIOD SHOWN IN THE BAR CHART, THE HIGHEST RETURN FOR A QUARTER WAS
9.07% (QUARTER ENDED 3/31/98) AND THE LOWEST RETURN FOR A QUARTER WAS -13.66%
(QUARTER ENDED 12/31/98).

(1) THESE FIGURES ASSUME THE REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS
DISTRIBUTIONS.
(2) THE S&P 500 INDEX IS AN UNMANAGED INDEX THAT IS A WIDELY RECOGNIZED
INDICATOR OF GENERAL STOCK MARKET PERFORMANCE.
(3) THE XAU INDEX IS AN UNMANAGED INDEX THAT IS A WIDELY RECOGNIZED INDICATOR OF
PRECIOUS METALS SECTOR PERFORMANCE.
<PAGE>
- ------
10 PROSPECTUS

FUND INFORMATION -- U.S. GOVERNMENT BOND FUND

FUND PERFORMANCE INFORMATION

U.S. GOVERNMENT BOND FUND PERFORMANCE

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

<TABLE>
<CAPTION>
U.S. GOVERNMENT BOND FUND
<S> <C>
1998 12.86%
</TABLE>

DURING THE PERIOD SHOWN IN THE BAR CHART, THE HIGHEST RETURN FOR A QUARTER WAS
10.07% (QUARTER ENDED 9/30/98) AND THE LOWEST RETURN FOR A QUARTER WAS -2.58%
(QUARTER ENDED 12/31/98).

FUND INFORMATION -- JUNO FUND

FUND OBJECTIVE

PORTFOLIO INVESTMENTS

RISK CONSIDERATIONS

The Juno Fund is subject to a number of risks that will affect the value of
its shares, including:

- TRACKING ERROR RISK -- The Advisor may not be able to match the
performance of the Fund's benchmark.

THIS PAGE INTENTIONALLY LEFT BLANK
<PAGE>
- ------
14 PROSPECTUS

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

RISK CONSIDERATIONS

The U.S. Government Money Market Fund is subject to the following risk that
will potentially affect the value of its shares:

- INTEREST RATE RISK -- The Fund's securities are subject to Interest Rate
Risk, which is the potential for decline in the price of the Fund's
securities due to rising interest rates.

In addition, the U.S. Government 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.
<PAGE>
PROSPECTUS 15
--------

FUND PERFORMANCE INFORMATION

U.S. GOVERNMENT MONEY MARKET 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. For periods prior to November 1998, the Fund's performance reflected
insurance related charges that had the effect of reducing returns. The
variability of performance over time provides an indication of the risks of
investing in the Fund. Of course, this past performance does not necessarily
indicate how the Fund will perform in the future.

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

<TABLE>
<CAPTION>
U.S. GOVERNMENT MONEY MARKET FUND
<S> <C>
1998 2.22%
</TABLE>

DURING THE PERIOD SHOWN IN THE BAR CHART, THE HIGHEST RETURN FOR A QUARTER WAS
.68% (QUARTER ENDED 3/31/98) AND THE LOWEST RETURN FOR A QUARTER WAS .58%
(QUARTER ENDED 6/30/98).

<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN (FOR PERIODS ENDING DECEMBER 31, 1998)(1)
U.S. GOVERNMENT MONEY MARKET FUND
-------------------------------------
<S> <C>
Past One Year 2.22%
Since Inception (05/07/97) 2.34%
</TABLE>

(1) THESE FIGURES ASSUME THE REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS
DISTRIBUTIONS.

YIELD - As of December 31, 1998, the current yield of the Fund was 2.85%.
<PAGE>
- ------
16 PROSPECTUS

MORE INFORMATION ABOUT RISK

As indicated below, the Funds are subject to a number of risks that may
affect the value of Fund shares.

TRACKING ERROR RISK (ALL FUNDS EXCEPT U.S. GOVERNMENT MONEY MARKET FUND) --
While the 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 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 perfect correlation. The magnitude
of any tracking error may be affected by a higher portfolio turnover rate.

- A Fund experiencing losses over certain ranges in the market that exceed
losses experienced by a non-leveraged Fund.

- 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.

- Trading restrictions or limitations may be imposed by an exchange, and
government regulations may restrict trading in futures contracts and
options.

In addition, the following instruments may involve leverage and are subject to
certain specific risks:

PURCHASING AND REDEEMING SHARES

NET ASSET VALUE

TO RECEIVE THE CURRENT BUSINESS DAY'S NAV, THE TRUST MUST RECEIVE PURCHASE
OR REDEMPTION ORDERS BEFORE 3:45 P.M., EASTERN TIME, FOR THE NOVA, URSA, AND OTC
FUNDS, 3:30 P.M., EASTERN TIME, FOR THE PRECIOUS METALS FUND, 2:45 P.M., EASTERN
TIME, FOR THE U.S. GOVERNMENT BOND AND JUNO FUNDS, AND 1:00 P.M., EASTERN TIME,
FOR THE MONEY MARKET FUND. HOWEVER, YOUR INSURANCE COMPANY MAY HAVE EARLIER
CUTOFF TIMES. VARIABLE LIFE AND VARIABLE ANNUITY ACCOUNT INVESTORS SHOULD
CONSULT THEIR SEPARATE ACCOUNT PROSPECTUS.

MANAGEMENT

THE ADVISOR'S INVESTMENT METHODOLOGY

MANAGEMENT OF THE FUNDS

PORTFOLIO MANAGEMENT

manager for United Services Life Insurance Company in Arlington, Virginia, where
she managed $2.5 billion in fixed-income portfolios.

DIVIDENDS, DISTRIBUTIONS AND TAXES

DIVIDENDS AND DISTRIBUTIONS

Income dividends and capital gain distributions are paid at least annually
by each of the Funds, except the U.S. Government Money Market and the U.S.
Government Bond Funds, which declare and pay dividends daily 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.

TAXES

FINANCIAL HIGHLIGHTS

<TABLE>
<CAPTION>
NOVA URSA
----------------------------- ---------------------------------------------------------------
YEAR PERIOD YEAR JUNE 10, MAY 24, MAY 7,
ENDED ENDED ENDED 1997 TO 1997 TO 1997 TO
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, JUNE 3, MAY 21,
1998 1997* 1998 1997+ 1997+ 1997+*
------------ ------------ ------------ ------------ ------------ ------------
Per Share Operating
Performance:++
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value -- Beginning
of Period.................. $ 12.21 $ 10.00 $ 8.07 $ 9.36 $ 9.57 $ 10.00
------------ ------------ ------ ------ ------ ------------
Net Investment Income
(Loss)................... .04 .07 .06 (.01) .00 (.04)
Net Realized and
Unrealized Gains (Losses)
on Securities............ 3.63 2.14 (1.83) (1.28) .01 (.33)
Dividends to Shareholders
from Net Investment
Income................... .00 .00 .00 .00 .00 .00
Distributions (from
capital gains)........... .00 .00 .00 .00 .00 .00
------------ ------------ ------ ------ ------ ------------
Net Increase (Decrease) in
Net Asset Value.......... 3.67 2.21 (1.77) (1.29) .01 (.37)
------------ ------------ ------ ------ ------ ------------
Net Asset Value -- End of
Period..................... $ 15.88 $ 12.21 $ 6.30 $ 8.07 $ 9.58 $ 9.63
------------ ------------ ------ ------ ------ ------------
------------ ------------ ------ ------ ------ ------------
Total Investment Return..... 30.06% (21.93)%
Ratios to Average Net Assets
Gross Expenses............ 3.26% 9.09%** 3.76% 9.21%** 85.10%** 13.62%**
Net Expenses.............. 3.22% 2.80%** 3.59% 2.90%** 2.90%** 2.90%**
Net Investment Income
(Loss)................... 0.27% 0.91%** 0.89% (0.27)%** 2.76%** (10.05)%**
Supplementary Data:
Portfolio Turnover
Rate***.................... 0% 178.34% 0% 0% 0% 0%
Net Assets, End of Period
(000's omitted)............ $29,258 $10,448 $5,509 $2,879 $ -- $ --
</TABLE>

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

* COMMENCEMENT OF OPERATIONS: NOVA AND URSA -- MAY 7, 1997

** ANNUALIZED

*** PORTFOLIO TURNOVER RATIO IS CALCULATED WITHOUT REGARD TO SHORT-TERM
SECURITIES HAVING A MATURITY OF LESS THAN ONE YEAR.

+ DUE TO THE NATURE OF THE INVESTMENT ACTIVITY, THE FUND EXPERIENCED PERIODS
WITH ZERO NET ASSETS. FINANCIAL HIGHLIGHTS ARE PRESENTED ONLY FOR PERIODS
WITH NET ASSETS GREATER THAN ZERO.

++ THE PER SHARE DATA OF THE FINANCIAL HIGHLIGHTS TABLE IS CALCULATED USING
THE AVERAGE DAILY SHARES OUTSTANDING FOR THE YEAR.
<PAGE>
- ------
24 PROSPECTUS

FINANCIAL HIGHLIGHTS

<TABLE>
<CAPTION>
U.S. GOVERNMENT
MONEY MARKET OTC PRECIOUS METALS
--------------------------- --------------------------- ---------------------------
YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1997* 1998 1997* 1998 1997*
------------ ------------ ------------ ------------ ------------ ------------
Per Share Operating Performance:++
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value -- Beginning of
Period............................ $ 10.32 $ 10.00 $ 10.65 $ 10.00 $ 7.02 $ 10.00
------------ ------------ ------------ ------------ ------------ ------------
Net Investment Income (Loss)....... .08 .31 (.40) (.09) (.16) (.11)
Net Realized and Unrealized Gains
(Losses) on Securities.......... .00 .01 9.32 .74 (1.05) (2.87)
------------ ------------ ------------ ------------ ------------ ------------
Net Increase (Decrease) in Net
Asset Value Resulting from
Operations...................... .08 .32 8.92 .65 (1.21) (2.98)
Dividends to Shareholders from
Net Investment Income........... (.01) .00 .00 .00 .00 .00
Distributions (from capital
gains).......................... .00 .00 .00 .00 .00 .00
Adjustment due to
Reorganization.................. (9.39) .00 .00 .00 .00 .00
------------ ------------ ------------ ------------ ------------ ------------
Net Increase (Decrease) in Net
Asset Value..................... (9.32) .32 8.92 .65 (1.21) (2.98)
------------ ------------ ------------ ------------ ------------ ------------
Net Asset Value -- End of Period... $ 1.00 $ 10.32 $ 19.57 $ 10.65 $ 5.81 $ 7.02
------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------
Total Investment Return............ 2.22% 83.76% (17.24)%
Ratios to Average Net Assets
Gross Expenses................... 2.99% 6.82%** 2.96% 9.07%** 3.39% 9.76%**
Net Expenses..................... 2.67% 2.20%** 2.96% 2.80%** 3.23% 2.80%**
Net Investment Income (Loss)..... 2.61% 3.34%** (2.67)% (1.22)%** (2.31)% (2.19)%**
Supplementary Data:
Portfolio Turnover Rate***....... 0% 0% 1077.49% 449.91% 1739.23% 913.83%
Net Assets, End of Period (000's
omitted)........................ $40,971 $17,903 $ 22,038 $ 2,367 $ 2,695 $ 518
</TABLE>

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

* COMMENCEMENT OF OPERATIONS: U.S. GOVERNMENT MONEY MARKET AND OTC -- MAY 7,
1997; PRECIOUS METALS -- MAY 29, 1997

** ANNUALIZED

*** PORTFOLIO TURNOVER RATIO IS CALCULATED WITHOUT REGARD TO SHORT-TERM
SECURITIES HAVING A MATURITY OF LESS THAN ONE YEAR.

++ THE PER SHARE DATA OF THE FINANCIAL HIGHLIGHTS TABLE IS CALCULATED USING
THE AVERAGE DAILY SHARES OUTSTANDING FOR THE YEAR.
<PAGE>
PROSPECTUS 25
--------

FINANCIAL HIGHLIGHTS

<TABLE>
<CAPTION>
U.S. GOVERNMENT BOND
---------------------------------------------------------------------
AUGUST 18, JULY 29, JUNE 24, MAY 29,
YEAR ENDED 1997 TO 1997 TO 1997 TO 1997 TO
DECEMBER 31, DECEMBER 31, AUGUST 12, JULY 14, JUNE 5,
1998 1997+ 1997+ 1997+ 1997+*
------------ ------------ ---------- -------- -------
Per Share Operating Performance:++
<S> <C> <C> <C> <C> <C>
Net Asset Value -- Beginning of Period.......... $ 11.82 $ 10.70 $10.92 $10.44 $10.00
------------ ------------ ---------- -------- -------
Net Investment Income......................... .24 .15 .02 .10 .00
Net Realized and Unrealized Gains (Losses) on
Securities................................... 1.28 .97 (.38) .13 .15
------------ ------------ ---------- -------- -------
Net Increase (Decrease) in Net Asset Value
Resulting from Operations.................... 1.52 1.12 (.36) .23 .15
Dividends to Shareholders from Net Investment
Income....................................... (.06) .00 .00 .00 .00
Distributions (from capital gains)............ .00 .00 .00 .00 .00
------------ ------------ ---------- -------- -------
Net Increase (Decrease) in Net Asset Value.... 1.46 1.12 (.36) .23 .15
------------ ------------ ---------- -------- -------
Net Asset Value -- End of Period................ $ 13.28 $ 11.82 $10.56 $10.67 $10.15
------------ ------------ ---------- -------- -------
------------ ------------ ---------- -------- -------
Total Investment Return......................... 12.86%
Ratios to Average Net Assets
Gross Expenses................................ 2.71% 8.47%** 49.63%** 12.68%** 5.43%**
Net Expenses.................................. 2.71% 2.40%** 2.40%** 2.40%** 2.40%**
Net Investment Income......................... 1.92% 3.49%** 3.80%** 7.94%** 1.86%**
Supplementary Data:
Portfolio Turnover Rate***.................... 1462.79% 760.78% 0% 0% 0%
Net Assets, End of Period (000's omitted)..... $ 4,973 $ 892 $ -- $ -- $ --
</TABLE>

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

* COMMENCEMENT OF OPERATIONS: U. S. GOVERNMENT BOND -- MAY 29, 1997

** ANNUALIZED

*** PORTFOLIO TURNOVER RATIO IS CALCULATED WITHOUT REGARD TO SHORT-TERM
SECURITIES HAVING A MATURITY OF LESS THAN ONE YEAR.

+ DUE TO THE NATURE OF THE INVESTMENT ACTIVITY, THE FUND EXPERIENCED PERIODS
WITH ZERO NET ASSETS. FINANCIAL HIGHLIGHTS ARE PRESENTED ONLY FOR PERIODS
WITH NET ASSETS GREATER THAN ZERO.

++ THE PER SHARE DATA OF THE FINANCIAL HIGHLIGHTS TABLE IS CALCULATED USING
THE AVERAGE DAILY SHARES OUTSTANDING FOR THE YEAR.
<PAGE>
- ------
26 PROSPECTUS

FINANCIAL HIGHLIGHTS

<TABLE>
<CAPTION>
JUNO
-----------------------------------------------------------------------------
MARCH 3, MARCH 1, FEBRUARY 22, FEBRUARY 1, JANUARY 19,
1998 TO 1998 TO 1998 TO 1998 TO 1998 TO
DECEMBER 31, MARCH 2, FEBRUARY 24, FEBRUARY 2, JANUARY 25,
1998+ 1998+ 1998+ 1998+ 1998+
------------ ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance:++
Net Asset Value -- Beginning of
Period................................. $ 9.20 $9.09 $9.03 $ 8.98 $8.88
------ ----- ----- ----------- -----
Net Investment Income (Loss).......... (.05) .00 .00 .00 .00
Net Realized and Unrealized Gains
(Losses) on Securities............... (.75) .08 .11 .04 .26
Dividends to Shareholders from Net
Investment Income.................... .00 .00 .00 .00 .00
Distributions (from capital gains).... .00 .00 .00 .00 .00
------ ----- ----- ----------- -----
Net Increase (Decrease) in Net Asset
Value................................ (.80) .08 .11 .04 .26
------ ----- ----- ----------- -----
Net Asset Value -- End of Period........ $ 8.40 $9.17 $9.14 $ 9.02 $9.14
------ ----- ----- ----------- -----
------ ----- ----- ----------- -----
Total Investment Return................. (8.70)% 0.88% 1.22% 0.45% 2.93%
Ratios to Average Net Assets
Gross Expenses........................ 5.72%** 13.10%** 4.39%** 4.42%** 4.42%**
Net Expenses.......................... 3.52%** 11.01%** 3.68%** 3.68%** 3.67%**
Net Investment Income (Loss).......... (1.10)%** (5.32)%** 1.60%** 1.92%** 1.73%**
Supplementary Data:
Portfolio Turnover Rate***............ 0% 0% 0% 0% 0%
Net Assets, End of Period (000's
omitted)............................. $ 69 $ -- $ -- $ -- $ --
</TABLE>

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

** ANNUALIZED

*** PORTFOLIO TURNOVER RATIO IS CALCULATED WITHOUT REGARD TO SHORT-TERM
SECURITIES HAVING A MATURITY OF LESS THAN ONE YEAR.

+ DUE TO THE NATURE OF THE INVESTMENT ACTIVITY, THE FUND EXPERIENCED PERIODS
WITH ZERO NET ASSETS. FINANCIAL HIGHLIGHTS ARE PRESENTED ONLY FOR PERIODS
WITH NET ASSETS GREATER THAN ZERO.

++ THE PER SHARE DATA OF THE FINANCIAL HIGHLIGHTS TABLE IS CALCULATED USING
THE AVERAGE DAILY SHARES OUTSTANDING FOR THE YEAR.
<PAGE>
PROSPECTUS 27
--------

FINANCIAL HIGHLIGHTS

<TABLE>
<CAPTION>
JUNO
--------------------------------------------------------------------------------
OCTOBER 22, AUGUST 26, JULY 24, JUNE 16, MAY 7,
1997 TO 1997 TO 1997 TO 1997 TO 1997 TO
DECEMBER 11, OCTOBER 19, AUGUST 11, JULY 7, JULY 2, JUNE 3,
1997+ 1997+ 1997+ 1997+ 1997+ 1997+*
------------ ----------- ---------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance:++
Net Asset Value -- Beginning of
Period............................ $ 9.50 $9.72 $9.41 $ 9.59 $9.71 $10.00
------ ----- ----- ------- -------- --------
Net Investment Income............ .11 .01 .01 .00 .00 .00
Net Realized and Unrealized Gains
(Losses) on Securities.......... (.60) (.21) .26 (.05) (.03) (.14)
Dividends to Shareholders from
Net Investment Income........... .00 .00 .00 .00 .00 .00
Distributions (from capital
gains).......................... .00 .00 .00 .00 .00 .00
------ ----- ----- ------- -------- --------
Net Increase (Decrease) in Net
Asset Value..................... (.49) (.20) .27 (.05) (.03) (.14)
------ ----- ----- ------- -------- --------
Net Asset Value -- End of Period... $ 9.01 $9.52 $9.68 $ 9.54 $9.68 $ 9.86
------ ----- ----- ------- -------- --------
------ ----- ----- ------- -------- --------
Ratios to Average Net Assets
Gross Expenses................... 19.73%** 7.88%** 3.23%** 111.10%** 5.71%** 6.13%
Net Expenses..................... 2.90%** 2.90%** 2.90%** 2.90%** 2.90%** 2.90%
Net Investment Income (Loss)..... 8.68%** 0.80%** 1.50%** 0.74%** 1.29%** (0.37)%
Supplementary Data:
Portfolio Turnover Rate***....... 0% 0% 0% 0% 0% 0%
Net Assets, End of Period (000's
omitted)........................ $ -- $ -- $ -- $ -- $ -- $ --
</TABLE>

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

* COMMENCEMENT OF OPERATIONS: JUNO -- MAY 7, 1997

** ANNUALIZED

*** PORTFOLIO TURNOVER RATIO IS CALCULATED WITHOUT REGARD TO SHORT-TERM
SECURITIES HAVING A MATURITY OF LESS THAN ONE YEAR.

+ DUE TO THE NATURE OF THE INVESTMENT ACTIVITY, THE FUND EXPERIENCED PERIODS
WITH ZERO NET ASSETS. FINANCIAL HIGHLIGHTS ARE PRESENTED ONLY FOR PERIODS
WITH NET ASSETS GREATER THAN ZERO.

++ THE PER SHARE DATA OF THE FINANCIAL HIGHLIGHTS TABLE IS CALCULATED USING
THE AVERAGE DAILY SHARES OUTSTANDING FOR THE YEAR.
<PAGE>
- -------
28 PROSPECTUS

BENCHMARK INFORMATION

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.

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

- --------------------------------------------------------------------------------
<PAGE>
PROSPECTUS

<TABLE>
<C> <S>
1 INTRODUCTION
---

2 NOVA FUND
---

4 URSA FUND
---

6 OTC FUND
---

8 MORE INFORMATION ABOUT RISK
---

10 PURCHASING AND REDEEMING SHARES
---

11 MANAGEMENT
---

12 DIVIDENDS, DISTRIBUTIONS AND TAXES
---

14 FINANCIAL HIGHLIGHTS
---

16 BENCHMARK INFORMATION
---

BC ADDITIONAL INFORMATION
---
</TABLE>

MAY 1, 1999

RYDEX VARIABLE TRUST

NOVA FUND
URSA FUND
OTC FUND

6116 Executive Boulevard, Suite 400, Rockville, Maryland 20852
301-468-8520

Rydex Variable Trust (the "Trust") is a mutual fund complex with twenty-two
separate investment portfolios (the "Rydex Variable Funds"), three of which are
described in this Prospectus (the "Funds"). Shares of the Funds are available
exclusively for variable annuity and variable life insurance products. Variable
life and variable annuity account investors should also review the separate
account prospectus prepared by their insurance company.

INTRODUCTION

The Funds' objectives are to match, exceed or perform the opposite of the
performance of a specific index or market indicator. The benchmark used by each
Fund is set forth below:

A BRIEF GUIDE TO THE BENCHMARKS.

ALL FUNDS:

- are not federally insured

- are not guaranteed by any government agency

- are not bank deposits

- are not guaranteed to achieve their objectives

FUND INFORMATION -- NOVA FUND

FUND OBJECTIVE

The Nova Fund seeks to provide investment returns that are 150% of the S&P
500 Index.

PORTFOLIO INVESTMENTS

RISK CONSIDERATIONS

The Nova Fund is subject to a number of risks that will affect the value of
its shares, including:

- EQUITY RISK -- The equity markets are volatile, and the value of the
Fund's futures and options contracts and other securities may fluctuate
drastically from day-to-day.

- TRACKING ERROR RISK -- The Advisor may not be able to match the
performance of the Fund's benchmark.

FUND PERFORMANCE INFORMATION

NOVA FUND PERFORMANCE

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

DURING THE PERIOD SHOWN IN THE BAR CHART, THE HIGHEST RETURN FOR A QUARTER WAS
31.57% (QUARTER ENDED 12/31/98) AND THE LOWEST RETURN FOR A QUARTER WAS -17.16%
(QUARTER ENDED 9/30/98).

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.

FUND PERFORMANCE INFORMATION

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

DURING THE PERIOD SHOWN IN THE BAR CHART, THE HIGHEST RETURN FOR A QUARTER WAS
9.11% (QUARTER ENDED 9/30/98) AND THE LOWEST RETURN FOR A QUARTER WAS -17.22%
(QUARTER ENDED 12/31/98).

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-.

FUND PERFORMANCE INFORMATION

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

DURING THE PERIOD SHOWN IN THE BAR CHART, THE HIGHEST RETURN FOR A QUARTER WAS
35.27% (QUARTER ENDED 12/31/98) AND THE LOWEST RETURN FOR A QUARTER WAS .77%
(QUARTER ENDED 9/30/98).

MORE INFORMATION ABOUT RISK

As indicated below, the Funds are subject to a number of risks that may
affect the value of Fund shares.

EQUITY RISK (ALL FUNDS) -- The Funds may invest in public and privately issued
equity securities, including common and preferred stocks, warrants, and rights,
as well as instruments that attempt to track the price movement of equity
indexes. Investments in equity securities and equity derivatives in general are
subject to market risks that may cause their prices to fluctuate over time. The
value of securities convertible into equity securities, such as warrants or
convertible debt, is also affected by prevailing interest rates, the credit
quality of the issuer and any call provision. Fluctuations in the value of
equity securities in which the Funds invest will cause the net asset value of
the Funds to fluctuate. An investment in the Funds may be more suitable for
long-term investors who can bear the risk of short-term principal fluctuations.

TRADING HALT RISK (NOVA AND URSA FUNDS) -- The Funds typically will hold
short-term options and futures contracts. The major exchanges on which these
contracts are traded, such as the Chicago Mercantile Exchange ("CME"), have
established limits on how much an option or futures contract may decline over
various time periods within a day. If an option or futures contract's price
declines more than the established limits, trading on the exchange is halted on
that instrument. If a trading halt occurs at the close of a trading day, a Fund
may not be able to purchase or sell options or futures contracts. In such an
event, a Fund also may be required to use a "fair-value" method to price its
outstanding contracts.

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

- A Fund experiencing losses over certain ranges in the market that exceed
losses experienced by a non-leveraged Fund.

- 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.

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.

In addition, the following instruments may involve leverage and are subject to
certain specific risks:

PORTFOLIO TURNOVER RATE RISK (OTC FUND) -- The Trust anticipates that investors
that are part of a tactical or strategic asset-allocation strategy will
frequently redeem or exchange shares of the OTC Fund, which will cause that Fund
to experience high portfolio turnover. A higher portfolio turnover rate may
result in a Fund paying higher levels of transaction costs and generating
greater tax liabilities for shareholders.

YEAR 2000 RISK (ALL FUNDS) -- The Funds depend on the smooth functioning of
computer systems in almost every aspect of their business. Like other mutual
funds, businesses and individuals around the world, the Funds 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 their service providers whether they
expect to have their computer systems adjusted for the year 2000 transition, and
received assurances from all that they are devoting significant resources to
prevent material adverse consequences to the Funds. The Funds and their
respective 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 Funds do business.

PURCHASING AND REDEEMING SHARES

NET ASSET VALUE

The price per share (the offering price) will be the net asset value per
share ("NAV") next determined after your purchase order is received by the
Trust. NAV is calculated by (1) taking the current market value of a Fund's
total assets, (2) subtracting the liabilities, and (3) dividing that amount by
the total number of shares owned by shareholders. For each Fund the NAV is
calculated once each Business Day after the close of the NYSE (currently, 4:00
p.m., Eastern Time). If the exchange or market where a Fund's securities or
other investments are primarily traded closes early, the NAV may be calculated
earlier in accordance with the policies set forth in the Funds' SAI.

TO RECEIVE THE CURRENT BUSINESS DAY'S NAV, THE TRUST MUST RECEIVE PURCHASE
OR REDEMPTION ORDERS BEFORE 3:45 P.M., EASTERN TIME. HOWEVER, YOUR INSURANCE
COMPANY MAY HAVE EARLIER CUTOFF TIMES. VARIABLE LIFE AND VARIABLE ANNUITY
ACCOUNT INVESTORS SHOULD CONSULT THEIR SEPARATE ACCOUNT PROSPECTUS.

MANAGEMENT

THE ADVISOR'S INVESTMENT METHODOLOGY

MANAGEMENT OF THE FUNDS

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:

PORTFOLIO MANAGEMENT

The portfolio manager of the Nova Fund is Thomas Michael, who joined the
Advisor as a portfolio manager in March 1994. From 1992 to February 1994, Mr.
Michael was a financial markets analyst at Cedar Street Investment Management
Co., of Chicago, Illinois, an institutional consulting firm specializing in
developing hedging and speculative strategies in stock index futures contracts
and U.S. Treasury bond futures contracts.

DIVIDENDS, DISTRIBUTIONS AND TAXES

DIVIDENDS AND DISTRIBUTIONS

Income dividends and capital gain distributions are paid to the insurance
company at least annually by each of the Funds. The Trust may declare a special
capital gains distribution if Trustees believe that such a distribution would be
in the best interest of the shareholders of a Fund.
<PAGE>
PROSPECTUS 13
--------

TAXES

FINANCIAL HIGHLIGHTS

The financial highlights table is intended to help you understand the Funds'
financial performance for the period of each Fund's (and its predecessor's)
operations. Certain information reflects financial results for a single Fund
share. The total returns in the table represent the rate that an investor would
have earned (or lost) on an investment in the Fund (assuming reinvestment of all
dividends and distributions). On November 2, 1998, the Trust acquired all of the
assets and liabilities (other than liabilities relating to insurance charges) of
Rydex Advisor Variable Annuity Account (the "Separate Account") and the
subaccounts of the Separate Account (the "Subaccounts"). The information
provided below for periods ending prior to and including December 31, 1997,
which relates to the Subaccounts, has been audited by PricewaterhouseCoopers
LLP. The information for the year ended December 31, 1998, which relates to the
Funds, has been audited by Deloitte & Touche LLP. The Reports of Independent
Accountants for each such period along with the Funds' financial statements and
related notes, are included in the Annual Reports to Shareholders for such
periods. Our 1998 Annual Report is available upon request and without charge by
calling 1-301-468-8520 collect. The 1998 Annual Report is incorporated by
reference in the SAI.

FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
NOVA URSA
------------------------------ -------------------------------------------------
YEAR PERIOD YEAR ENDED JUNE 10, MAY 24,
ENDED ENDED ENDED 1997 TO 1997 TO
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, JUNE 3,
1998 1997* 1998 1997+ 1997+
-------------- -------------- --------------- --------------- ---------------
Per Share Operating Performance:++
<S> <C> <C> <C> <C> <C>
Net Asset Value -- Beginning of Period...... $ 12.21 $ 10.00 $ 8.07 $ 9.36 $ 9.57
------- ------- ------ ------ ------
Net Investment Income (Loss).............. .04 .07 .06 (.01) .00
Net Realized and Unrealized Gains (Losses)
on Securities............................ 3.63 2.14 (1.83) (1.28) .01
Dividends to Shareholders from Net
Investment Income........................ .00 .00 .00 .00 .00
Distributions (from capital gains)........ .00 .00 .00 .00 .00
------- ------- ------ ------ ------
Net Increase (Decrease) in Net Asset
Value.................................... 3.67 2.21 (1.77) (1.29) .01
------- ------- ------ ------ ------
Net Asset Value -- End of Period............ $ 15.88 $ 12.21 $ 6.30 $ 8.07 $ 9.58
------- ------- ------ ------ ------
------- ------- ------ ------ ------
Total Investment Return..................... 30.06% (21.93)%
Ratios to Average Net Assets
Gross Expenses............................ 3.26% 9.09 %** 3.76% 9.21 %** 85.10 %**
Net Expenses.............................. 3.22% 2.80 %** 3.59% 2.90 %** 2.90 %**
Net Investment Income (Loss).............. 0.27% 0.91 %** 0.89% (0.27 %** 2.76 %**
Supplementary Data:
Portfolio Turnover Rate***.................. 0% 178.34% 0% 0% 0%
Net Assets, End of Period (000's omitted)... $ 29,258 $ 10,448 $ 5,509 $ 2,879 $ --

MAY 7,
1997 TO
MAY 21,
1997+*
--------------
Per Share Operating Performance:++
<S> <C>
Net Asset Value -- Beginning of Period...... $ 10.00
-------
Net Investment Income (Loss).............. (.04)
Net Realized and Unrealized Gains (Losses)
on Securities............................ (.33)
Dividends to Shareholders from Net
Investment Income........................ .00
Distributions (from capital gains)........ .00
-------
Net Increase (Decrease) in Net Asset
Value.................................... (.37)
-------
Net Asset Value -- End of Period............ $ 9.63
-------
-------
Total Investment Return.....................
Ratios to Average Net Assets
Gross Expenses............................ 13.62 %**
Net Expenses.............................. 2.90 %**
Net Investment Income (Loss).............. (10.05 )%**
Supplementary Data:
Portfolio Turnover Rate***.................. 0%
Net Assets, End of Period (000's omitted)... $ --
</TABLE>

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

* COMMENCEMENT OF OPERATIONS: NOVA AND URSA -- MAY 7, 1997

** ANNUALIZED

*** PORTFOLIO TURNOVER RATIO IS CALCULATED WITHOUT REGARD TO SHORT-TERM
SECURITIES HAVING A MATURITY OF LESS THAN ONE YEAR.

+ DUE TO THE NATURE OF THE INVESTMENT ACTIVITY, THE FUND EXPERIENCED PERIODS
WITH ZERO NET ASSETS. FINANCIAL HIGHLIGHTS ARE PRESENTED ONLY FOR PERIODS
WITH NET ASSETS GREATER THAN ZERO.

++ THE PER SHARE DATA OF THE FINANCIAL HIGHLIGHTS TABLE IS CALCULATED USING
THE AVERAGE DAILY SHARES OUTSTANDING FOR THE YEAR.
<PAGE>
PROSPECTUS 15
--------

FINANCIAL HIGHLIGHTS

<TABLE>
<CAPTION>
OTC
---------------------------
YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31,
1998 1997*
------------ -------------
Per Share Operating Performance:++
<S> <C> <C>
Net Asset Value -- Beginning of Period.................................................... $ 10.65 $ 10.00
------------ -------------
Net Investment Income (Loss).............................................................. (.40) (.09)
Net Realized and Unrealized Gains (Losses) on Securities................................ 9.32 .74
------------ -------------
Net Increase (Decrease) in Net Asset Value Resulting from Operations.................... 8.92 .65
Dividends to Shareholders from Net Investment Income.................................... .00 .00
Distributions (from capital gains)...................................................... .00 .00
Adjustment due to Reorganization........................................................ .00 .00
------------ -------------
Net Increase (Decrease) in Net Asset Value.............................................. 8.92 .65
------------ -------------
Net Asset Value -- End of Period.......................................................... $ 19.57 $ 10.65
------------ -------------
------------ -------------
Total Investment Return................................................................... 83.76%
Ratios to Average Net Assets
Gross Expenses.......................................................................... 2.96% 9.07%**
Net Expenses............................................................................ 2.96% 2.80 %**
Net Investment Income (Loss)............................................................ (2.67 )% (1.22 )%**
Supplementary Data:
Portfolio Turnover Rate***.............................................................. 1077.49% 449.91%
Net Assets, End of Period (000's omitted)............................................... $ 22,038 $ 2,367
</TABLE>

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

* COMMENCEMENT OF OPERATIONS: OTC -- MAY 7, 1997

** ANNUALIZED

*** PORTFOLIO TURNOVER RATIO IS CALCULATED WITHOUT REGARD TO SHORT-TERM
SECURITIES HAVING A MATURITY OF LESS THAN ONE YEAR.

++ THE PER SHARE DATA OF THE FINANCIAL HIGHLIGHTS TABLE IS CALCULATED USING
THE AVERAGE DAILY SHARES OUTSTANDING FOR THE YEAR.
<PAGE>
- -------
16 PROSPECTUS

BENCHMARK INFORMATION

NEITHER THE NOVA FUND NOR THE URSA FUND IS SPONSORED, ENDORSED, SOLD, OR
PROMOTED BY STANDARD & POOR'S CORP. (S&P); AND THE OTC FUND IS NOT SPONSORED,
ENDORSED, SOLD, OR PROMOTED BY NASDAQ OR ANY OF NASDAQ'S AFFILIATES (NASDAQ AND
ITS AFFILIATES HEREINAFTER COLLECTIVELY REFERRED TO AS "NASDAQ").

NEITHER S&P NOR NASDAQ MAKE ANY REPRESENTATION OR WARRANTY, IMPLIED OR EXPRESS,
TO THE INVESTORS IN THE FUNDS, OR ANY MEMBER OF THE PUBLIC, REGARDING THE
ADVISABILITY OF INVESTING IN INDEX FUNDS OR THE ABILITY OF THE S&P 500 INDEX AND
NASDAQ 100 INDEX-TM-, RESPECTIVELY, TO TRACK GENERAL STOCK MARKET PERFORMANCE.

NEITHER S&P NOR NASDAQ GUARANTEES THE ACCURACY AND/OR THE COMPLETENESS OF THE
S&P 500 INDEX OR NASDAQ 100 INDEX-TM-, RESPECTIVELY, OR ANY DATA INCLUDED
THEREIN.

NEITHER S&P NOR NASDAQ MAKE ANY WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO
BE OBTAINED BY ANY OF THE FUNDS, THE INVESTORS IN THE FUNDS, OR ANY PERSON OR
ENTITY FROM THE USE OF THE S&P 500 INDEX OR THE NASDAQ 100 INDEX-TM-,
RESPECTIVELY OR ANY DATA INCLUDED THEREIN.

NEITHER S&P NOR NASDAQ MAKE ANY EXPRESS OR IMPLIED WARRANTIES OF MERCHANTABILITY
OR FITNESS FOR A PARTICULAR PURPOSE FOR USE WITH RESPECT TO THE S&P 500 INDEX OR
THE NASDAQ 100 INDEX-TM- RESPECTIVELY, OR ANY DATA INCLUDED THEREIN.
<PAGE>
Additional information about the Funds is included in a Statement of Additional
Information dated May 1, 1999 (the "SAI"), which contains more detailed
information about the Funds. The SAI has been filed with the Securities and
Exchange Commission ("SEC") and is incorporated by reference into this
Prospectus and, therefore, legally forms a part of this Prospectus. The SEC
maintains 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 Funds' SEC
registration number is 811-08821.

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

- --------------------------------------------------------------------------------
<PAGE>

STATEMENT OF ADDITIONAL INFORMATION

RYDEX VARIABLE TRUST

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

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

NOVA FUND
URSA FUND
OTC FUND
ARKTOS FUND*
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

This SAI is not a prospectus. It should be read in conjunction with the Trust's
Prospectus, dated May 1, 1999. A copy of the Trust's Prospectus is available,
without charge, upon request to the Trust at the address above or by telephoning
the Trust at the telephone number above.

*AS OF THE DATE OF THIS SAI, SHARES OF THESE FUNDS ARE NOT BEING OFFERED OR
SOLD.

The date of this SAI is May 1, 1999.

<PAGE>
STATEMENT OF ADDITIONAL INFORMATION

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
<S> <C>
GENERAL INFORMATION ABOUT THE TRUST. . . . . . . . . . . . . . . . . . . . . . 3

ADDITIONAL INFORMATION ABOUT THE SECTOR FUNDS. . . . . . . . . . . . . . . . . 3

DESCRIPTION OF THE MONEY MARKET FUND . . . . . . . . . . . . . . . . . . . . . 7

INVESTMENT POLICIES, TECHNIQUES AND RISK FACTORS . . . . . . . . . . . . . . . 7

INVESTMENT RESTRICTIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . .16

PORTFOLIO TRANSACTIONS AND BROKERAGE . . . . . . . . . . . . . . . . . . . . .20

MANAGEMENT OF THE TRUST. . . . . . . . . . . . . . . . . . . . . . . . . . . .21

PRINCIPAL HOLDERS OF SECURITIES. . . . . . . . . . . . . . . . . . . . . . . .27

DETERMINATION OF NET ASSET VALUE . . . . . . . . . . . . . . . . . . . . . . .27

PERFORMANCE INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . .29

CALCULATION OF RETURN QUOTATIONS . . . . . . . . . . . . . . . . . . . . . . .30

INFORMATION ON COMPUTATION OF YIELD. . . . . . . . . . . . . . . . . . . . . .31

PURCHASE AND REDEMPTION OF SHARES. . . . . . . . . . . . . . . . . . . . . . .33

DIVIDENDS, DISTRIBUTIONS, AND TAXES. . . . . . . . . . . . . . . . . . . . . .34

OTHER INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .37

COUNSEL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .38

AUDITORS AND CUSTODIAN . . . . . . . . . . . . . . . . . . . . . . . . . . . .38

FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . .38

APPENDIX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1
</TABLE>

2
<PAGE>
GENERAL INFORMATION ABOUT THE TRUST

The Trust, an open-end management investment company, was organized as a
Delaware business trust on June 11, 1998. The Trust is permitted to offer
separate portfolios of shares. Shares of the Funds are available through
certain deferred variable annuity and variable insurance contracts ("Contracts")
offered through insurance companies, as well as to certain retirement plan
investors. Additional Funds and/or classes may be created from time to time.

Currently, the Trust has twenty-two 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 Arktos 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 Advisor Variable Annuity Account (the
"Separate Account"), 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 was
transferred to the respective Funds of the Trust in connection with the
commencement of operations of the Trust. To obtain historical financial
information about the Rydex Subaccounts, please call, collect, 1-301-468-8520.

ADDITIONAL INFORMATION ABOUT THE SECTOR FUNDS

BANKING FUND

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

BASIC MATERIALS FUND

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

BIOTECHNOLOGY FUND

The Fund may invest in companies engaged in the research, development, sale, and
manufacture of various biotechnological products, services and processes. These
include companies involved with developing or experimental technologies such as
generic engineering, hybridoma

3
<PAGE>

and recombinant DNA techniques and monoclonal antibodies. The Fund may also
invest in companies that manufacture and/or distribute biotechnological and
biomedical products, including devices and instruments, and that provide or
benefit significantly from scientific and technological advances in
biotechnology. Some biotechnology companies may provide processes or services
instead of, or in addition to, products.

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

CONSUMER PRODUCTS FUND

The Fund may invest in companies engaged in the manufacture of goods to
consumers, both domestically and internationally. The Fund may invest in
companies that manufacture durable products such as furniture, major appliances,
and personal computers. The Fund also may invest in companies that manufacture,
wholesale or retail non-durable goods such as beverages, tobacco, health care
products, household and personal care products, apparel, and entertainment
products (E.G., books, magazines, TV, cable, movies, music, gaming, and sports).
In addition, the Fund may invest in consumer products and services such as
lodging, child care, convenience stores, and car rentals.

ELECTRONICS FUND

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

ENERGY FUND

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

ENERGY SERVICES FUND

The Fund may invest in companies in the energy service field, including those
that provide services and equipment to the conventional areas of oil, gas,
electricity and coal, and alternative sources of energy such as nuclear,
geothermal, oil shale and solar power. The Fund may invest in companies
involved in providing services and equipment for drilling processes such as
offshore and onshore drilling, drill bits, drilling rig equipment, drilling
string equipment, drilling fluids, tool joints and wireline logging. Many
energy service companies are engaged in production and well maintenance,

4
<PAGE>

providing such products and services as packers, perforating equipment, pressure
pumping, downhole equipment, valves, pumps, compression equipment, and well
completion equipment and service. Certain companies supply energy providers
with exploration technology such as seismic data, geological and geophysical
services, and interpretation of this data. The Fund may also invest in
companies with a variety of underwater well services, helicopter services,
geothermal plant design or construction, electric and nuclear plant design or
construction, energy related capital equipment, mining related equipment or
services, and high technology companies serving these industries.

FINANCIAL SERVICES FUND

The Fund may invest in companies that are involved in the financial sector,
including commercial and investment banks, savings and loan associations,
consumer and industrial finance companies, securities brokerage companies, 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 owning
more than 5% of the issuer's outstanding securities in that class;

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

In applying the gross revenue test, an issuer's own securities-related
activities must be combined with its ratable share of securities-related
revenues from enterprises in which it owns a 20% or greater voting or equity
interest. All of the above percentage limitations, as well as the issuer's
gross revenue test, are applicable at the time of purchase. With respect to
warrants, rights, and convertible securities, a

5
<PAGE>

determination of compliance with the above limitations shall be made as though
such warrant, right, or conversion privilege had been exercised. The Fund will
not be required to divest its holding of a particular issuer when circumstances
subsequent to the purchase cause one of the above conditions to not be met. The
purchase of a general partnership interest in a securities-related business is
prohibited.

HEALTH CARE FUND

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

LEISURE FUND

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

RETAILING FUND

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

TECHNOLOGY FUND

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

TELECOMMUNICATIONS FUND

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

6
<PAGE>

the Fund may invest are engaged in fierce competition for a share of the market
for goods or services such as private and local area networks, or are engaged in
the sale of telephone set equipment.

TRANSPORTATION FUND

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

DESCRIPTION OF THE MONEY MARKET FUND

The Money Market Fund seeks to provide security of principal, high current
income, and liquidity. The Money Market Fund invests primarily in money market
instruments issued or guaranteed as to principal and interest by the U.S.
Government, its agencies or instrumentalities, and may invest any remaining
assets in receipts and enter into repurchase agreements fully collateralized by
U.S. Government Securities.

The Money Market Fund is governed by SEC rules which impose certain liquidity,
maturity and diversification requirements. The Money Market Fund's assets are
valued using the amortized cost method, which enables the Money Market Fund to
maintain a stable NAV. All securities purchased by the Money Market Fund must
have remaining maturities of 397 days or less. Although the Money 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 "FUND INFORMATION" and "FUND PERFORMANCE
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

7
<PAGE>

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 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
Depositary Receipts ("ADRs"), "ordinary shares," or "New York shares" in the
United States. ADRs are dollar-denominated receipts representing interests in
the securities of a foreign issuer, which securities may not necessarily be
denominated in the same currency as the securities into which they may be
converted. ADRs are receipts typically issued by United States banks and trust
companies which evidence ownership of underlying securities issued by a foreign
corporation. Generally, ADRs in registered form are designed for use in
domestic securities markets and are traded on exchanges or over-the-counter in
the United States. Ordinary shares are shares of foreign issuers that are
traded abroad and on a United States exchange. New York shares are shares that
a foreign issuer has allocated for trading in the United States. ADRs, ordinary
shares, and New York shares all may be purchased with and sold for U.S. dollars,
which protect the Funds from the foreign settlement risks described below.

Investing in foreign companies may involve risks not typically associated with
investing in United States companies. The value of securities denominated in
foreign currencies, and of dividends from such securities, can change
significantly when foreign currencies strengthen or weaken relative to the U.S.
dollar. Foreign

8
<PAGE>

securities markets generally have less trading volume and less liquidity than
United States markets, and prices in some foreign markets can be very volatile.
Many foreign countries lack uniform accounting and disclosure standards
comparable to those that apply to United States companies, and it may be more
difficult to obtain reliable information regarding a foreign issuer's financial
condition and operations. In addition, the costs of foreign investing,
including withholding taxes, brokerage commissions, and custodial fees,
generally are higher than for United States investments.

Investing in companies located abroad carries political and economic risks
distinct from those associated with investing in the United States. Foreign
investment may be affected by actions of foreign governments adverse to the
interests of United States investors, including the possibility of expropriation
or nationalization of assets, confiscatory taxation, restrictions on United
States investment, or on the ability to repatriate assets or to convert currency
into U.S. dollars. There may be a greater possibility of default by foreign
governments or foreign-government sponsored enterprises. Investments in foreign
countries also involve a risk of local political, economic, or social
instability, military action or unrest, or adverse diplomatic developments.

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.

9
<PAGE>

Institutional markets for restricted securities have developed as a result of
the promulgation of Rule 144A under the 1933 Act, which provides a "safe harbor"
from 1933 Act registration requirements for qualifying sales to institutional
investors. When Rule 144A restricted securities present an attractive
investment opportunity and meet other selection criteria, a Fund may make such
investments whether or not such securities are "illiquid" 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 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 and the Arktos Fund may buy put

10
<PAGE>

options and write call options on securities for the purpose of realizing the
Fund's investment objective. By writing a call option on securities, a Fund
becomes obligated during the term of the option to sell the securities
underlying the option at the exercise price if the option is exercised. By
writing a put option, a Fund becomes obligated during the term of the option to
purchase the securities underlying the option at the exercise price if the
option is exercised.

During the term of the option, the writer may be assigned an exercise notice by
the broker-dealer through whom the option was sold. The exercise notice would
require the writer to deliver, in the case of a call, or take delivery of, in
the case of a put, the underlying security against payment of the exercise
price. This obligation terminates upon expiration of the option, or at such
earlier time that the writer effects a closing purchase transaction by
purchasing an option covering the same underlying security and having the same
exercise price and expiration date as the one previously sold. Once an option
has been exercised, the writer may not execute a closing purchase transaction.
To secure the obligation to deliver the underlying security in the case of a
call option, the writer of a call option is required to deposit in escrow the
underlying security or other assets in accordance with the rules of the Option
Clearing Corporation (the "OCC"), an institution created to interpose itself
between buyers and sellers of options. The OCC assumes the other side of every
purchase and sale transaction on an exchange and, by doing so, gives its
guarantee to the transaction.

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 and the Arktos 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

11
<PAGE>

amount of leverage which the Fund may undertake and on the potential increase in
the speculative character of the Fund's outstanding portfolio securities.
Additionally, such segregated accounts will generally assure the availability of
adequate funds to meet the obligations of the Fund arising from such investment
activities.

A Fund may cover its long position in a futures contract by purchasing a put
option on the same futures contract with a strike price (I.E., an exercise
price) as high or higher than the price of the futures contract. In the
alternative, if the strike price of the put is less than the price of the
futures contract, the Fund will maintain in a segregated account cash or liquid
securities equal in value to the difference between the strike price of the put
and the price of the futures contract. A Fund may also cover its long position
in a futures contract by taking a short position in the instruments underlying
the futures contract, or by taking positions in instruments with prices which
are expected to move relatively consistently with the futures contract. A Fund
may cover its short position in a futures contract by taking a long position in
the instruments underlying the futures contracts, or by taking positions in
instruments with prices which are expected to move relatively consistently with
the futures contract.

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

12
<PAGE>

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

SHORT SALES
The Ursa Fund, the Arktos 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, Arktos 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.
Each of the Funds may sell up to 100% of its portfolio short.

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.

13
<PAGE>

STOCK INDEX FUTURES CONTRACTS
A Fund may buy and sell stock index futures contracts with respect to any stock
index traded on a recognized stock exchange or board of trade. A stock index
futures contract is a contract to buy or sell units of an index at a specified
future date at a price agreed upon when the contract is made. The stock index
futures contract specifies that no delivery of the actual stocks making up the
index will take place. Instead, settlement in cash must occur upon the
termination of the contract, with the settlement being the difference between
the contract price and the actual level of the stock index at the expiration of
the contract.

At the time a Fund purchases a futures contract, an amount of cash, U.S.
Government securities or other liquid securities equal to the market value of
the futures contract will be deposited in a segregated account with the Fund's
custodian. When writing a futures contract, the Fund will maintain with its
custodian liquid assets that, when added to the amounts deposited with a futures
commission merchant or broker as margin, are equal to the market value of the
instruments underlying the contract. Alternatively, a Fund may "cover" its
position by owning the instruments underlying the contract (or, in the case of
an index futures contract, a portfolio with a volatility substantially similar
to that of the index on which the futures contract is based), or holding a call
option permitting the Fund to purchase the same futures contract at a price no
higher than the price of the contract written by the Fund (or at a higher price
if the difference is maintained in liquid assets with the Fund's custodian).

TRACKING ERROR
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

14
<PAGE>

generally have initial maturities of greater than ten years. Certain U.S.
Government Securities are issued or guaranteed by agencies or instrumentalities
of the U.S. Government including, but not limited to, obligations of U.S.
Government agencies or instrumentalities such as Fannie Mae, the Government
National Mortgage Association, the Small Business Administration, the Federal
Farm Credit Administration, the Federal Home Loan Banks, Banks for Cooperatives
(including the Central Bank for Cooperatives), the Federal Land Banks, the
Federal Intermediate Credit Banks, the Tennessee Valley Authority, the
Export-Import Bank of the United States, the Commodity Credit Corporation, the
Federal Financing Bank, the Student Loan Marketing Association, and the National
Credit Union Administration.

Some obligations issued or guaranteed by U.S. Government agencies and
instrumentalities, including, for example, Government National Mortgage
Association pass-through certificates, are supported by the full faith and
credit of the U.S. Treasury. Other obligations issued by or guaranteed by
Federal agencies, such as those securities issued by Fannie Mae, are supported
by the discretionary authority of the U.S. Government to purchase certain
obligations of the Federal agency, while other obligations issued by or
guaranteed by Federal agencies, such as those of the Federal Home Loan Banks,
are supported by the right of the issuer to borrow from the U.S. Treasury, while
the U.S. Government provides financial support to such U.S. Government-sponsored
Federal agencies, no assurance can be given that the U.S. Government will always
do so, since the U.S. Government is not so obligated by law. U.S. Treasury
notes and bonds typically pay coupon interest semi-annually and repay the
principal at maturity. The Bond Fund will invest in such U.S. Government
Securities only when the Advisor is satisfied that the credit risk with respect
to the issuer is minimal.

WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES
Each Fund, from time to time, in the ordinary course of business, may purchase
securities on a when-issued or delayed-delivery basis (I.E., delivery and
payment can take place between a month and 120 days after the date of the
transaction). These securities are subject to market fluctuation and no
interest accrues to the purchaser during this period. At the time a Fund makes
the commitment to purchase securities on a when-issued or delayed-delivery
basis, the Fund will record the transaction and thereafter reflect the value of
the securities, each day, of such security in determining the Fund's net asset
value. A Fund will not purchase securities on a when-issued or delayed-delivery
basis if, as a result, more than 15% (10% with respect to the Money Market Fund)
of the Fund's net assets would be so invested. At the time of delivery of the
securities, the value of the securities may be more or less than the purchase
price. The Fund will also establish a segregated account with the Fund's
custodian bank in 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.

15
<PAGE>

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 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.

16
<PAGE>

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 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.

17
<PAGE>

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, THE ARKTOS 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.

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.

18
<PAGE>

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 exceeds 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 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.

19
<PAGE>

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 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

20
<PAGE>

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.

For the fiscal years ended December 31, 1997 and December 31, 1998 the Funds and
their predecessor Subaccounts paid the following brokerage commissions:

<TABLE>
<CAPTION>
- ---------------------------------------------------------------------
AGGREGATE BROKERAGE COMMISSION
- ---------------------------------------------------------------------
FUND 1997 1998
- ---------------------------------------------------------------------
<S> <C> <C>
Nova Fund $ 5,912 $13,363
- ---------------------------------------------------------------------
Ursa Fund $ 5,924 $30,809
- ---------------------------------------------------------------------
OTC Fund $ 220 $ 401
- ---------------------------------------------------------------------
</TABLE>

21
<PAGE>

<TABLE>
<CAPTION>
- ---------------------------------------------------------------------
AGGREGATE BROKERAGE COMMISSION
- ---------------------------------------------------------------------
FUND 1997 1998
- ---------------------------------------------------------------------
<S> <C> <C>
Metals Fund $ 19,754 $32,985
- ---------------------------------------------------------------------
Bond Fund $ 0 $ 2,169
- ---------------------------------------------------------------------
Juno Fund $ 2,018 $ 1,074
- ---------------------------------------------------------------------
Money Market Fund $ 0 $ 0
- ---------------------------------------------------------------------
</TABLE>

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.

22
<PAGE>

- --------------------------------------------------------------------------------
NAME; ADDRESS; AGE POSITION HELD PRINCIPAL OCCUPATION(S)
WITH THE TRUST DURING THE PAST 5 YEARS
- --------------------------------------------------------------------------------
JOHN O. DEMARET (57) Trustee of the Manager of the Separate
6116 Executive Boulevard Trust Account, 1997 to November
Suite 400 1998; Trustee of the Rydex
Rockville, Maryland 20852 Series Trust, 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.
- --------------------------------------------------------------------------------
*L. GREGORY GLOECKNER (45) Trustee of the Manager of the Separate
11815 North Pennsylvania Trust Account, 1996 to November
Street 1998; Senior Vice President,
Carmel, Indiana 46032 Conseco, Inc., October 1994 to
the present; Vice President,
Continuum, August to October
1994; Vice President, Variable
Product Administrator, Monarch
Life Insurance Company and
First Variable Life Company,
1993 to 1994; self-employed
consultant from 1991 to 1993;
and Vice President, Beneficial
Standard Life Insurance
Company, 1989 to 1991.
- --------------------------------------------------------------------------------
PATRICK T. MCCARVILLE (55) Trustee of the Manager of the Separate
6116 Executive Boulevard Trust Account, 1997 to November
Suite 400 1998; Trustee of the Rydex
Rockville, Maryland 20852 Series Trust, 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.
- --------------------------------------------------------------------------------
ROGER SOMERS (53) Trustee of the Manager of the Separate
6116 Executive Boulevard Trust Account, 1996 to November
Suite 400 1998; Trustee of the Rydex
Rockville, Maryland 20852 Series Trust, 1993 to present;
President, Arrow Limousine,
1963 to present.
- --------------------------------------------------------------------------------
ROBERT M. STEELE (40) Secretary and Vice Vice President of PADCO
6116 Executive Boulevard President of the Advisors, Inc., investment
Suite 400 Trust adviser to the Rydex Series
Rockville, Maryland 20852 Trust, 1994 to present;
Secretary and Vice President
of the Separate Account, 1996
to November 1998; Vice
President of PADCO Advisors
II, Inc., investment adviser
to the Separate Account and
the Trust, 1996 to present;
Vice President of The
Boston Company, Inc., an
institutional money management
firm, 1987 to 1994.
- --------------------------------------------------------------------------------
CARL G. VERBONCOEUR (46) Vice President and Chief Financial Officer of
6116 Executive Boulevard Treasurer of the PADCO Financial Services,
Suite 400 Trust Inc., 1997 to present; Vice
Rockville, Maryland 20852 President and Treasurer of the
Rydex Series Trust, 1997 to
present; Vice President of
Operations of the Separate
Account, 1997 to November
1998; 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.
- --------------------------------------------------------------------------------

23
<PAGE>

___________________

* This trustee is deemed to be an "interested person" of the Trust.

The aggregate compensation paid by the Trust to each of its Trustees serving
during the fiscal year ended December 31, 1998, is set forth in the table
below.

<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
NAME OF PERSON, AGGREGATE PENSION OR ESTIMATED TOTAL
POSITION COMPENSATION RETIREMENT ANNUAL COMPENSATION
FROM TRUST BENEFITS BENEFITS FROM FUND
ACCRUED AS UPON COMPLEX FOR
PART OF RETIREMENT SERVICE ON
TRUST'S TWO BOARDS**
EXPENSES
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Albert P. Viragh, $ 0 $0 $0 $ 0
Jr.*, CHAIRMAN AND
PRESIDENT
- --------------------------------------------------------------------------------
Corey A. Colehour, $9,000 $0 $0 $33,000
TRUSTEE
- --------------------------------------------------------------------------------
J. Kenneth Dalton, $7,500 $0 $0 $27,500
TRUSTEE
- --------------------------------------------------------------------------------
Roger Somers, $7,500 $0 $0 $27,500
TRUSTEE
- --------------------------------------------------------------------------------
John O. Demaret, $9,000 $0 $0 $33,000
TRUSTEE
- --------------------------------------------------------------------------------
Patrick T. $9,000 $0 $0 $33,000
McCarville, TRUSTEE
- --------------------------------------------------------------------------------
L. Gregory $ 0 $0 $0 $ 0
Gloeckner*, TRUSTEE
- --------------------------------------------------------------------------------
</TABLE>

*Denotes an "interested person" of the Trust.

24
<PAGE>

**Each member of the Board of Trustees, except L. Gregory Gloeckner, also
serves as a Trustee to the Rydex Series Trust.

As of the date of this SAI, 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 August 11, 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 December 31, 1998, net assets under management of the
Advisor and its affiliates were approximately $3.9 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 are
set forth in the table below.

<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
ADVISORY FEES PAID (NET OF
REIMBURSEMENTS AND WAIVERS)
FUND ---------------------------
ANNUAL ADVISORY 1997* 1998*
FEE CONTRACTUAL RATE
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Nova Fund 0.75% $0 $115,892
- -------------------------------------------------------------------------------
Ursa Fund 0.90% $0 $ 41,668
- -------------------------------------------------------------------------------
OTC Fund 0.75% $0 $ 96,378
- -------------------------------------------------------------------------------
Metals Fund 0.75% $0 $ 5,891
- -------------------------------------------------------------------------------
Bond Fund 0.50% $0 $ 9,985
- -------------------------------------------------------------------------------
Juno Fund 0.90% $0 $ 906
- -------------------------------------------------------------------------------
Money Market Fund 0.50% $0 $ 79,870
- -------------------------------------------------------------------------------
Sector Funds(1) 0.85% N/A N/A
- -------------------------------------------------------------------------------
Arktos Fund(1) 0.90% N/A N/A
- -------------------------------------------------------------------------------
</TABLE>

*Fees paid for periods prior to November 1, 1998 represent fees paid by the
Rydex Subaccounts.
(1)The Sector Funds and the Arktos Fund had not commenced operations as of
December 31, 1998.

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.

25
<PAGE>

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 August 11, 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 Servicer may compensate third parties for
providing certain shareholder services on behalf of the Servicer.

The service fee contractual rate paid to the Servicer 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
Servicers are set forth in the table below.

<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
SERVICE FEES PAID (NET OF
ANNUAL SERVICE FEE REIMBURSEMENTS AND WAIVERS)
FUND RATE ---------------------------
1997* 1998*
- --------------------------------------------------------------------------------
<S> <C> <C>
Nova Fund 0.25% $0 $40,528
- --------------------------------------------------------------------------------
Ursa Fund 0.25% $0 $14,234
- --------------------------------------------------------------------------------
OTC Fund 0.20% $0 $25,701
- --------------------------------------------------------------------------------
Metals Fund 0.20% $0 $ 2,001
- --------------------------------------------------------------------------------
Bond Fund 0.20% $0 $ 3,994
- --------------------------------------------------------------------------------
Juno Fund 0.25% $0 $ 445
- --------------------------------------------------------------------------------
Money Market Fund 0.20% $0 $36,245
- --------------------------------------------------------------------------------
Arktos Fund(1) 0.25% N/A N/A
- --------------------------------------------------------------------------------
Sector Funds(1) 0.25% N/A N/A
- --------------------------------------------------------------------------------
</TABLE>

26
<PAGE>

(1)The Sector Funds and the Arktos Fund had not commenced operations as of
December 31, 1998.

*Fees paid for periods prior to November 1, 1998 represent fees paid by the
Rydex Subaccounts.

INVESTOR SERVICES PLAN
Pursuant to an Investor Services Plan dated January 1, 1999, PFS directly, or
indirectly through other service providers determined by PFS ("Service
Providers"), provides investor services to owners of Contacts who, indirectly
through insurance company separate accounts, invest in shares of the Funds
("Investors"). Investor services include some or all of the following:
printing Fund prospectuses and statements of additional information and mailing
them to Investors or to financial advisors who allocate funds for investments in
Shares of the Funds on behalf of Investors ("Financial Advisors"); forwarding
communications from the Funds to Investors or Financial Advisors, including
proxy solicitation material and annual and semiannual reports; assistance in
facilitating and processing transactions in Shares of the Funds in connection
with strategic or tactical asset allocation investing; assistance in providing
the Fund with advance information on strategic and tactical asset allocation
trends and anticipated investment activity in and among the Funds; assisting
Investors who wish or need to change Financial Advisors; and providing support
services to Financial Advisors, including, but not limited to: (a) providing
Financial Advisors with updates on policies and procedures; (b) answering
questions of Financial Advisors regarding the Funds' portfolio investments; (c)
providing performance information to Financial Advisors regarding the Funds; (d)
providing information to Financial Advisors regarding the Funds' investment
objectives; (e) providing investor account information to Financial Advisors;
and (f) redeeming Fund Shares, if necessary, for the payment of Financial
Advisor fees.

For these services, the Trust compensates PFS at an annual rate not exceeding
.25% of the Funds' average daily net assets. PFS is authorized to use its fee
to compensate Services Providers for providing Investor services. The fee will
be paid from the assets of the Funds and will be calculated and accrued daily
and paid within fifteen (15) days of the end of each month.

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.

27
<PAGE>

PRINCIPAL HOLDERS OF SECURITIES

As of April 1, 1999, Conseco Variable Insurance Company ("CVIC"), 11815 North
Pennsylvania Street, Carmel, IN 46032, was sole shareholder of each Fund.
Therefore, CVIC may be considered a control person under the Investment Company
Act of 1940.

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 at 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 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

28
<PAGE>

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 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.

29
<PAGE>

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 and
Arktos Funds 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 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

30
<PAGE>

("SEC Rules"), Funds advertising performance must include total return quotes
calculated according to the following formula:

n
P(1+T) = ERV

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

T = average annual total return;

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

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

Under the foregoing formula, the time periods used in advertising will be based
on rolling calendar quarters, updated to the last day of the most recent quarter
prior to submission of the advertising for publication, and will cover 1, 5, and
10 year periods or a shorter period dating from the effectiveness of the
Registration Statement of the Trust In calculating the ending redeemable value,
all dividends and distributions by a Fund are assumed to have been reinvested at
net asset value as described in the Trust's Prospectus on the reinvestment dates
during the period. Total return, or 'T' in the formula above, is computed by
finding the average annual compounded rates of return over the 1, 5, and 10 year
periods (or fractional portion thereof) that would equate the initial amount
invested to the ending redeemable value.

For the fiscal year ended December 31, 1998 and the period from the respective
commencement of continuous operations of the Funds to December 31, 1998, the
average annual compounded rate of return of the respective Funds (other than the
Money Market Fund), assuming the reinvestment of all dividends and
distributions, was as follows in the table below. The predecessor Rydex
Subaccounts were subject to certain insurance-related expenses to which the
Funds are not subject.

<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
SINCE COMMENCEMENT
FOR FISCAL YEAR ENDED OF OPERATIONS TO
DECEMBER 31, 1998 DECEMBER 31, 1998
- --------------------------------------------------------------------------------
<S> <C> <C>
Nova Fund(1) 30.06% 32.30%
- --------------------------------------------------------------------------------
Ursa Fund(2) (21.93)% (22.43)%
- --------------------------------------------------------------------------------
OTC Fund(1) 83.76% 50.14%
- --------------------------------------------------------------------------------
Metals Fund(3) (17.24)% (28.90)%
- --------------------------------------------------------------------------------

31
<PAGE>

- --------------------------------------------------------------------------------
Bond Fund(4) 12.86% 17.46%
- --------------------------------------------------------------------------------
Juno Fund(5) N/A N/A
- --------------------------------------------------------------------------------
</TABLE>

______________________

(1)Since commencement of continuous operations. The Nova Fund and OTC Fund
commenced operations on May 7, 1997.

(2)Since commencement of continuous operations. The Ursa Fund commenced
continuous operations on June 10, 1997. Prior to that time, due to the nature
of the investment activity, the Fund's predecessor experienced periods with zero
net assets. Periods of operation, including returns for each discrete period,
were as follows: May 7, 1997 to May 21, 1997 (-.70%); May 24, 1997 to June 3,
1997 (.10%).

(3)The Metals Fund commenced operations on May 29, 1997.

(4)Since commencement of continuous operations. The Bond Fund commenced
continuous operations on August 18, 1997. Prior to that time, due to the nature
of the investment activity, the Fund's predecessor experienced periods with zero
net assets. Periods of operation, including returns for each discrete period,
were as follows: May 29, 1997 to June 5, 1997 (1.45%); June 24, 1997 to July
14, 1997 (2.20%); July 29, 1997 to August 12, 1997 (-3.30%).

(5)The Juno Fund commenced continuous operations on March 4, 1998. Prior to
that time, due to the nature of the investment activity, the Fund's predecessor
experienced periods with zero net assets. For the period ended December 31,
1997, periods of operation, including returns for each discrete period, were as
follows: May 7, 1997 to June 3, 1997 (-1.40%); June 16, 1997 to July 2, 1997
(-.31%); July 7, 1997 (-.52%); July 24, 1997 to August 11, 1997 (2.87%); August
26, 1997 to October 19, 1997 (-2.06%); and October 22, 1997 to December 11, 1997
(-5.16%); January 19, 1998 to January 25, 1998 (2.93%); February 1, 1998 to
February 2, 1998 (0.45%); February 22, 1998 to February 24, 1998 (1.22%); and
March 1, 1998 to March 2, 1998 (0.88%).

*Not Annualized

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
YIELD = 2( a-b + 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.

32
<PAGE>

Under this formula, interest earned on debt obligations for purposes of "a"
above, is calculated by (i) computing the yield to maturity of each obligation
held by the Bond Fund based on the market value of the obligation (including
actual accrued interest) at the close of business on the last day of each month,
or, with respect to obligations purchased during the month, the purchase price
(plus actual accrued interest), (ii) dividing that figure by 360 and multiplying
the quotient by the market value of the obligation (including actual accrued
interest as referred to above) to determine the interest income on the
obligation that is in the Bond Fund's portfolio (assuming a month of thirty
days), and (iii) computing the total of the interest earned on all debt
obligations and all dividends accrued on all equity securities during the
thirty-day or one month period. In computing dividends accrued, dividend income
is recognized by accruing 1/360 of the stated dividend rate of a security each
day that the security is in the Fund's portfolio. Undeclared earned income,
computed in accordance with generally accepted accounting 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. The thirty-day yield for the Bond
Fund as of December 31, 1998 was 3.00%.

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 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 income other than investment income, in
the value of a hypothetical pre-existing account having a balance of one share
at the beginning of the period, subtracting a hypothetical charge reflecting
deductions from shareholder accounts, 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.

33
<PAGE>

The annualized current yield and annualized effective yield for the Money Market
Fund for the fiscal year ended December 31, 1998 were 2.85% and 3.18%,
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 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.

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

34
<PAGE>

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.

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 re-qualify) as an RIC for a subsequent taxable year
only if the Fund had distributed to the Fund's

35
<PAGE>

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 re-qualify 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 re-qualify 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 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

36
<PAGE>

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 Arktos 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 Arktos Fund, the Metals Fund and the Sector Funds involving nonequity
options on stock indexes may constitute "straddle" transactions. "Straddles"
may affect the taxation of such instruments and may cause the postponement of
recognition of losses incurred in certain closing transactions. Each of these
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 in the Fund. Taxation of these
transactions will vary according to the elections made by the Fund. These tax
considerations may have an impact on investment decisions made by the Fund.

A Fund's transactions in options, under some circumstances, could preclude the
Fund's qualifying for the special tax treatment available to investment
companies meeting the requirements of Subchapter M of the

37
<PAGE>

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 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
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 301-468-8520 to obtain information on account statements,
procedures, and other related information.

38
<PAGE>

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. Firstar Bank, N.A. (the "Custodian"), 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 Trust for the period ended December 31, 1998,
including notes thereto and the report of Deloitte & Touche LLP have been filed
with the SEC and are incorporated by reference into this Statement of Additional
Information.

39
<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.

A-1
<PAGE>

Aa -- Bonds rate "Aa" are judged to be of high quality by all standards.
Together with the Aaa group, they comprise what are generally known as high
grade bonds. They are rated lower than the best bonds because margins of
protections may not be as large as in "Aaa" securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long term risk appear somewhat larger than in "Aaa"
securities.

A -- Bonds rated "A" possess many favorable investment attributes, and are to be
considered as upper medium grade obligations. Factors giving security principal
and interest are considered adequate but elements may be present which suggest a
susceptibility to impairment sometime in the future.

Baa -- Bonds rated "Baa" are considered as medium grade obligations (I.E., they
are neither highly protected nor poorly secured). Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.

Ba -- Bonds rated "Ba" are judged to have speculative elements. Their future
cannot be considered as well assured. Often the protection of interest and
principal payments may be very moderate and thereby not well safeguarded during
both good and bad times over the future. Uncertainty of position characterizes
bonds in this class.

B -- Bonds rated "B" generally lack characteristics of the desirable investment.
Assurance of interest and principal payments or maintenance of other terms of
the contract over any longer period of time may be small.

Caa -- Bonds rated "Caa" are of poor standing. Such issues may be in default or
there may be present elements of danger with respect to principal or interest.

A-2