RYDEX VARIABLE TRUST, 485APOS, 2000-04-05

RYDEX VARIABLE TRUST
485APOS, 2000-04-05

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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON April 5, 2000

FILE NO. 333-57017
FILE NO. 811-08821

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

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 (X)

POST-EFFECTIVE AMENDMENT NO. 3

and

REGISTRATION STATEMENT UNDER THE INVESTMENT ACT OF 1940 (X)

AMENDMENT NO. 4 (X)

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

c/o 6116 Executive Boulevard, Suite 400
Rockville, Maryland 20852
(Address of Principal Executive Offices, Zip Code)

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

Albert P. Viragh, Jr.
Rydex
6116 Executive Boulevard, Suite 400
Rockville, Maryland 20852
(Name and Address of Agent for Service)

Copies to:

W. John McGuire John H. Grady, Jr., Esq.
Morgan, Lewis & Bockius LLP Morgan, Lewis & Bockius LLP
1800 M Street, N.W. 1701 Market Street
Washington, D.C. 20036 Philadelphia, PA 19103

It is proposed that this filing will become effective (check appropriate box):

Immediately upon filing pursuant to paragraph (b)
- -----
On April 30, 1999 pursuant to paragraph (b)
- -----
X 60 days after filing pursuant to paragraph (a)(1)
- -----
On (date) pursuant to paragraph (a)(1)
- -----
75 days after filing pursuant to paragraph (a)(2)
- -----
On (date) pursuant to paragraph (a)(2) of Rule 485.
- -----
If appropriate, check the following box:
This post-effective amendment designates a new effective date
- ----- for a previously filed post-effective amendment.
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PROSPECTUS

RYDEX VARIABLE TRUST

LARGE-CAP EUROPE FUND
LARGE-CAP JAPAN FUND

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

Rydex Variable Trust (the "Trust") is a no-load mutual fund complex with thirty
separate investment portfolios (the "Rydex Funds"), two of which are described
in this Prospectus (the "Funds" or the "International Funds"). Shares of the
Funds are available exclusively for variable annuity and variable life insurance
products, as well as for certain pension, profit sharing and other retirement
plans. If you are investing in these Funds through a variable life or variable
annuity account, you should also review the separate account prospectus prepared
by your 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.

, 2000

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RISK/RETURN INFORMATION COMMON TO THE FUNDS

THE FUNDS' INVESTMENT OBJECTIVES

Each Fund has a separate investment objective. THE INVESTMENT OBJECTIVE OF
EACH FUND IS NON-FUNDAMENTAL AND MAY BE CHANGED WITHOUT SHAREHOLDER
APPROVAL.

RISKS OF INVESTING IN THE FUNDS

The value of the Funds may fluctuate. In addition, Fund shares:

- - MAY DECLINE IN VALUE, AND YOU MAY LOSE MONEY
- - ARE NOT FEDERALLY INSURED
- - ARE NOT BANK DEPOSITS
- - ARE NOT GUARANTEED BY ANY GOVERNMENT AGENCY
- - ARE NOT GUARANTEED TO ACHIEVE THEIR OBJECTIVES

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FUND INFORMATION -- LARGE-CAP EUROPE FUND

FUND OBJECTIVE
The Large-Cap Europe Fund seeks to provide investment results that
correlate to the performance of a specific benchmark. The Fund's current
benchmark is the Dow Jones Stoxx 50-SM- Index ("Stoxx 50 Index").

PORTFOLIO INVESTMENT STRATEGY
The Fund invests principally in securities of companies included on the
Stoxx 50 Index and in leveraged instruments, such as futures contracts and
options on securities, futures contracts, and stock indices. Futures and
options contracts, if used properly, may enable the Fund to meet its
objective by increasing the Fund's exposure to the securities included in
its benchmark or to securities whose performance is highly correlated to
its benchmark. The Fund's investment advisor will attempt to consistently
apply leverage to increase the Fund's exposure to 125% of the Stoxx 50
Index. The Fund holds U.S. Government securities or cash equivalents to
collateralize these futures and options contracts. The Fund also may enter
into equity swap transactions and repurchase agreements.

RISK CONSIDERATIONS
The Large-Cap Europe Fund is subject to a number of risks that will affect
the value of its shares, including:

- - TRACKING ERROR RISK -- The Advisor may not be able to cause the Fund's
performance to match that of the Fund's benchmark, either on a daily or
aggregate basis. The combined effects of leverage, high portfolio turnover
and the time difference between the close of the European markets and the
time the Fund prices its shares, may prevent the Fund from achieving close
correlation to the Stoxx 50 Index.

- - LEVERAGING RISK -- The more the Fund invests in leveraged instruments, the
more this leverage will magnify any losses on those investments. Since the
Fund's investment strategy involves consistently applied leverage, the
value of the Fund's shares will tend to decrease by 125% of the value of
any decrease in the Stoxx 50 Index. For example, if the Stoxx 50 Index
goes down by 4%, the value of the Fund's shares should go down by 5%.

- - EQUITY RISK -- The equity markets are volatile, and the value of the
Fund's equity securities and any futures and options contracts may
fluctuate significantly from day to day. This volatility may cause the
value of your investment in the Fund to decrease.

- - FOREIGN INVESTING RISK -- Investments in securities of foreign companies
can be more volatile than investments in U.S. companies. Diplomatic,
political, or economic developments could adversely effect investment in
foreign countries. Foreign companies generally are not subject to
accounting, auditing, and financial reporting standards comparable to
those applicable to U.S. companies.

- - CURRENCY RISK --Under normal circumstances, the Fund does not plan to
hedge against the risk of currency exchange rate fluctuations. As a
result, the value of the Fund's assets measured in U.S.

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dollars will be affected by changes in the exchange rates of currencies in
which the Fund's securities are denominated.

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FUND PERFORMANCE AND FEE INFORMATION

LARGE-CAP EUROPE FUND PERFORMANCE
The Large-Cap Europe Fund is new and therefore does not have a performance
history for a full calendar year.

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FUND INFORMATION -- LARGE-CAP JAPAN FUND

FUND OBJECTIVE
The Large-Cap Japan Fund seeks to provide investment results that
correlate to the performance of a specific benchmark. The Fund's current
benchmark is the Topix 100 Index.

PORTFOLIO INVESTMENT STRATEGY
The Fund invests principally in securities of companies included on the
Topix 100 Index and in leveraged instruments, such as futures contracts
and options on securities, futures contracts, and stock indices. Futures
and options contracts, if used properly, may enable the Fund to meet its
objective by increasing the Fund's exposure to the securities included in
its benchmark or to securities whose performance is highly correlated to
its benchmark. The Fund's investment advisor will attempt to consistently
apply leverage to increase the Fund's exposure to 125% of the Topix 100
Index. The Fund holds U.S. Government securities or cash equivalents to
collateralize these futures and options contracts. The Fund also may enter
into equity swap transactions and repurchase agreements.

RISK CONSIDERATIONS
The Large-Cap Japan Fund is subject to a number of risks that will affect
the value of its shares, including:

- - TRACKING ERROR RISK -- The Advisor may not be able to cause the Fund's
performance to match that of the Fund's benchmark, either on a daily or
aggregate basis. The combined effects of leverage, high portfolio turnover
and the time difference between the close of the Japanese market and the
time the Fund prices its shares, may prevent the Fund from achieving close
correlation to the Topix 100 Index.

- - LEVERAGING RISK -- The more the Fund invests in leveraged instruments, the
more this leverage will magnify any losses on those investments. Since the
Fund's investment strategy involves consistently applied leverage, the
value of the Fund's shares will tend to decrease by 125% of the value of
any decrease in the Topix 100 Index. For example, if the Topix 100 Index
goes down by 4%, the value of the Fund's shares should go down by 5%.

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- - CURRENCY RISK --Under normal circumstances, the Fund does not plan to
hedge against the risk of currency exchange rate fluctuations. As a
result, the value of the Fund's assets measured in U.S. dollars will be
affected by changes in the exchange rates the Japanese yen.

- - GEOGRAPHIC CONCENTRATION IN JAPAN-- Targeting Japan could hurt the Fund's
performance if Japan's economy performs poorly as a result of political
and economic conditions that affect the Japanese market. The Fund may be
more volatile than a more geographically diversified equity fund.

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FUND PERFORMANCE AND FEE INFORMATION

LARGE-CAP JAPAN FUND PERFORMANCE
The Large-Cap Japan Fund is new and therefore does not have a performance
history for a full calendar year.

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MORE INFORMATION ABOUT FUND INVESTMENTS AND RISK

THE INTERNATIONAL FUNDS' INVESTMENT OBJECTIVES
Each Fund's objective is to provide investment results that correlate to
the performance of a specific benchmark. The investment objective of each Fund
is non-fundamental and may be changed without shareholder approval. The current
benchmark used by each Fund is set forth below:

- ----------------------------- --------------------------------------------------
FUND BENCHMARK
- ----------------------------- --------------------------------------------------
Large-Cap Europe Dow Jones Stoxx 50-SM- Index
Fund
- ----------------------------- --------------------------------------------------
Large-Cap Japan Topix 100 Index
Fund
- ----------------------------- --------------------------------------------------

A BRIEF GUIDE TO THE BENCHMARKS.

THE DOW JONES STOXX 50-SM- INDEX (STOXX 50 INDEX). The Stoxx 50 Index is a
capitalization-weighted index composed of 50 European blue chip stocks. Index
members are chosen by Stoxx Ltd. from 16 countries under criteria designed to
identify highly liquid companies that are leaders in their sectors.

THE TOPIX 100 INDEX. The Topix 100 Index is an index designed to measure
performance of the 100 most liquid stocks with largest market capitalization
that are members of the broader Topix Index. The Topix and Topix 100 Indices are
published by the Tokyo Stock Exchange.

ADVISOR'S INVESTMENT METHODOLOGY
In managing the Funds, the Advisor uses a "passive" investment strategy to
manage each Fund's portfolio, meaning that the Advisor does not attempt to
select securities based on their individual potential to perform better than the
market. The Advisor's primary objective is to match the performance of each
Fund's benchmark as closely as possible on a daily basis. The Advisor uses
quantitative analysis techniques to structure each Fund to obtain the highest
correlation to its particular benchmark. The Advisor does not engage in
temporary defensive investing, keeping each Fund's assets fully invested in all
market environments. The Advisor monitors each Fund on an ongoing basis, and
makes adjustments to its portfolio, as necessary, to minimize tracking error and
to maximize liquidity. The Advisor will regularly utilize futures and options
contracts to leverage a Fund's investment exposure.

RISKS OF INVESTING IN THE INTERNATIONAL FUNDS
As indicated below, the Funds are subject to a number of risks that may affect
the value of Fund shares.

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EQUITY RISK -- The Funds invest primarily in equity securities as well as
instruments that attempt to track the price movement of equity indices.
Investments in equity securities and equity derivatives are subject to market
risks that cause their prices to fluctuate over time. Fluctuations in the value
of equity securities in which the Funds invest will cause the net asset value of
the Funds to fluctuate. Historically, the equity markets have moved in cycles,
and the value of the Funds' securities may fluctuate considerably from day to
day. This price volatility is the principal risk of investing in equity
securities. Because of their link to the equity markets, an investment in the
Funds may be more suitable for long-term investors who can bear the risk of
short-term principal fluctuations.

FOREIGN SECURITIES RISK -- Investing in securities of foreign companies may
involve risks not typically associated with investing in U.S. companies. The
value of securities denominated in foreign currencies, and of dividends from
such securities, can change significantly when foreign currencies strengthen or
weaken relative to the U.S. dollar. Foreign securities markets generally have
less trading volume and less liquidity than U.S. markets, and prices in some
foreign markets can be extremely volatile. Many foreign countries lack
accounting and disclosure standards comparable to those that apply to U.S.
companies, and it may be more difficult to obtain reliable information regarding
a foreign issuer's financial condition and operations. Transaction costs and
costs associated with custody services are generally higher for foreign
securities than they are for U.S. securities. Some foreign governments levy
withholding taxes against dividend and interest income. Although in some
countries a portion of these taxes are recoverable, the non-recovered portion
will reduce the income received by the Funds.

FOREIGN CURRENCY RISK-- The Funds' investments in securities denominated in
foreign currencies are subject to currency risk. Currency risks include the
following:

- The value of a Fund's assets measured in U.S. dollars may be affected
by changes in currency exchange rates and exchange control regulations.

- A Fund may incur transaction costs in connection with conversions
between various currencies.

Under normal circumstances, the Funds do not plan to engage in hedging against
the risks of variation in currency exchange rates relative to the U.S. dollar.
As a result, the value of securities denominated in foreign currencies can
change significantly when foreign currencies strengthen or weaken relative to
the U.S. dollar.

FUTURES AND OPTIONS RISK -- The Funds will invest a percentage of their assets
in futures and options contracts. The Funds may use futures contracts and
related options for bona fide hedging purposes to offset changes in the value of
securities held or expected to be acquired. They may also be used to gain
exposure to a particular market or instrument, to create a synthetic money
market position or for certain other tax-related purposes. The Funds may enter
into futures contracts traded on a national futures exchange or board of trade
or in the over-the-counter market. Futures and options contracts are described
in more detail below:

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FUTURES CONTRACTS -- Futures contracts and options on futures contracts
provide for the sale by one party and purchase by another party of a
specified amount of a security at a specified future time and price. An
option on a futures contract gives the purchaser the right, in exchange
for a premium, to assume a position in a futures contract at a specified
exercise price during the term of the option. Index futures are futures
contracts whose value is determined, in part, by the value of the
securities in the designated index. Index futures for various indices are
traded on registered securities exchanges.

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

The risks associated with the Funds' use of futures and options contracts
include:

- There may be an imperfect correlation between the changes in market
value of the securities held by a Fund and the prices of futures and
options on futures.

- A Fund experiencing losses over certain ranges in the market that
exceed losses experienced by a Fund that does not use futures
contracts and options.

- There may not always be a liquid secondary market for a futures
contract. As a result, the Funds may be unable to close out their
futures contracts at an advantageous time.

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

- Because option premiums paid or received by the 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.

SWAPS -- The Funds may enter into equity index or interest rate swap agreements
for purposes of attempting to gain exposure to a particular group of stocks or
to an index of stocks without actually purchasing those stocks, or to hedge a
position. The Funds will use short-term swap agreements to exchange the returns
(or differentials in rates of return) earned or realized in particular
predetermined investments or instruments. A Fund will not enter into any swap
agreement unless the Advisor believes that the other party to the transaction is
creditworthy. The use of equity swaps involves risks that are different from
those associated with ordinary portfolio securities transactions. Swap
agreements may be considered to be illiquid. A Fund bears the risk of loss of
the amount expected to be received

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under a swap agreement in the event of the default or bankruptcy of a swap
agreement counterparty.

GEOGRAPHIC CONCENTRATION IN JAPAN RISK (LARGE-CAP JAPAN FUND) -- Political and
economic conditions and changes in regulatory, tax or economic policy in Japan
could significantly affect the market value of Japanese securities. Economic
growth is dependent on international trade, reform of the financial services
sector and other troubled sectors, and consistent government policy. The risk of
concentrating the Large-Cap Japan Fund's investments in a single country --
Japan -- is that the country's economy will perform poorly as a whole, and the
Fund will be negatively impacted by that poor performance.

PORTFOLIO TURNOVER RATE RISK -- The Trust anticipates that investors who are
part of a tactical or strategic asset-allocation strategy will frequently redeem
or exchange shares, which will cause the Funds to experience high portfolio
turnover. A higher portfolio turnover rate may result in a Fund paying higher
levels of transaction costs.

NON-DIVERSIFICATION RISK -- Since each Fund is non-diversified, each Fund may
invest in the securities of a limited number of issuers. To the extent that a
Fund invests a significant percentage of its assets in a limited number of
issuers, the Fund is subject to the risks of investing in those few issuers, and
may be more susceptible to a single adverse economic or regulatory occurrence.

TRACKING ERROR RISK -- While the Funds do not expect returns to deviate
significantly from their respective benchmarks on a daily basis, factors such as
Fund expenses, imperfect correlation between the Funds' investments and those of
their benchmarks, rounding of share prices, changes to the benchmark, regulatory
policies, leverage, and the time difference between the close of the Funds'
respective benchmarks and the time the Funds price their shares at the close of
the New York Stock Exchange ("NYSE") may affect their ability to achieve close
correlation. The cumulative effect of these factors may over time cause the
Funds' returns to deviate from their respective benchmarks on an aggregate
basis. The magnitude of any tracking error may be affected by a higher portfolio
turnover rate.

TRADING HALT RISK -- The Funds typically will hold short-term options and
futures contracts. The major exchanges on which these contracts are traded have
established limits on how much an option or futures contract may decline over
various time periods within a day. If an option or futures contract's price
declines more than the established limits, trading on the exchange is halted on
that instrument. If a trading halt occurs, the Fund may temporarily be unable to
purchase or sell options or futures contracts. Such a trading halt near the time
the Fund prices its shares may limit the Fund's ability to use leverage and may
prevent the Fund from achieving its investment objective. In such an event, a
Fund also may be required to use a "fair-value" method to price its outstanding
contracts.

EARLY CLOSING RISK -- Unanticipated early closings of the equity markets may
result in a Fund being unable to sell or buy securities on that day. If an
exchange closes early on a day when one or both of the Funds needs to execute a
high volume of securities trades late in a trading day, a Fund might incur
substantial trading losses.

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PURCHASING AND REDEEMING SHARES

Shares are offered continuously, and may be purchased on any day that both the
NYSE is open for business and the index underlying a Funds' benchmark is
published (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
and by certain pension, profit sharing and other retirement plans. 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. With respect to each Fund, and as
permitted by the SEC, the right of redemption may be suspended, or the date of
payment postponed: (1) for any period during which the NYSE is closed (other
than customary weekend or holiday closings) or trading on the NYSE is
restricted; (2) for any period during which an emergency exists so that disposal
of Fund investments or the determination of net asset value per share ("NAV") is
not reasonably practicable; or (3) for such other periods as the SEC, by order,
may permit for protection of fund investors. In cases where NASDAQ, the CME,
Chicago Board Options Exchange ("CBOE") or the CBOT, as appropriate, is closed
or trading is restricted, a Fund may ask the SEC to permit the right of
redemption to be suspended.

NET ASSET VALUE
The price per share (the offering price) will be the NAV next determined
after your purchase order is received by the Trust. You may also redeem all or
any portion of your Fund shares at the next determined NAV after receipt of the
redemption request. 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).

The Funds will value their assets using procedures approved by the Board
of Trustees because of the time difference between the close of the relevant
foreign exchanges and the time the Funds price their shares at the close of the
NYSE. As such, the value assigned to a

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Fund's securities may not be the quoted or published prices of those securities
on their primary markets or exchanges. This procedure is susceptible to the
unavoidable risk that the valuation may be higher or lower than the price at
which the securities might actually trade if their relevant foreign exchanges
were open.

Because the Funds have portfolio securities that are listed on foreign
exchanges which may trade on weekends or other days when the Funds do not price
their shares, the NAV of the Funds' shares may change on days when shareholders
will not be able to purchase or redeem the Funds' shares.

TO RECEIVE THE CURRENT BUSINESS DAY'S NAV, THE TRUST MUST RECEIVE PURCHASE
OR REDEMPTION ORDERS BEFORE 4:00 P.M., EASTERN TIME. HOWEVER, YOUR INSURANCE
COMPANY OR RETIREMENT PLAN SPONSOR MAY HAVE EARLIER CUTOFF TIMES. VARIABLE LIFE
AND VARIABLE ANNUITY ACCOUNT INVESTORS SHOULD CONSULT THEIR SEPARATE ACCOUNT
PROSPECTUS.

MANAGEMENT OF THE FUNDS

THE INVESTMENT ADVISOR
Rydex Global Advisors (the "Advisor"), at 6116 Executive Boulevard, Suite
400, Rockville, Maryland 20852, serves as investment advisor and manager of the
Funds. Albert P. Viragh, Jr., the Chairman of the Board and the President of the
Advisor, owns a controlling interest in the Advisor. From 1985 until the
incorporation of the Advisor, Mr. Viragh was a Vice President of Money
Management Associates ("MMA"), a Maryland-based registered investment advisor.
From 1992 to June 1993, Mr. Viragh was the portfolio manager of The Rushmore
Nova Portfolio, a series of The Rushmore Fund, Inc., an investment company
managed by MMA.

The Advisor makes investment decisions for the assets of the Funds and
continuously reviews, supervises, and administers each Fund's investment
program. The Trustees of the Trust supervise the Advisor and establish policies
that the Advisor must follow in its day-to-day management activities. Under an
investment advisory agreement between the Trust and the Advisor, the Funds pay
the Advisor a fee at an annualized rate, based on the average daily net assets
for each Fund, as set forth below:

- ----------------------------------- --------------------------------------------
FUND ADVISORY FEE

- ----------------------------------- --------------------------------------------
Large-Cap Europe .90%

- ----------------------------------- --------------------------------------------
Large-Cap Japan .90%

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

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

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payments from its own resources to broker-dealers and other financial
institutions in connection with the sale of Fund shares.

The International Funds are managed by Charles J. Tennes. Mr. Tennes
joined the Advisor in April, 1999. From 1985 to 1997, he was affiliated with GIT
Investment Funds, and from 1993 managed GIT's equity funds, including the
Worldwide Growth Portfolio, an emerging markets fund which invested in more than
thirty countries. From 1997 to 1999, Mr. Tennes worked for US-AID and other
contractors as a consultant on equity investment in developing nations.

DIVIDENDS, DISTRIBUTIONS AND TAXES

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

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

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BENCHMARK INFORMATION

The Large-Cap Europe Fund is not sponsored, endorsed, sold, or promoted by Dow
Jones, Inc. ("Dow Jones") or Stoxx Ltd. ("Stoxx") or any affiliate of Dow Jones
or Stoxx; and the Large-Cap Japan Fund is not sponsored, endorsed, sold, or
promoted by the Tokyo Stock Exchange ("TSE"), the publisher of the Topix 100
Index.

Neither Dow Jones, Stoxx nor TSE 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 Stoxx 50-SM-
Index or the Topix 100 Index to track general European or Japanese stock market
performance.

Neither Dow Jones, Stoxx nor TSE guarantees the accuracy or the completeness of
the Stoxx 50-SM- Index and the Topix 100 Index, respectively, or any data
included therein.

Neither the Stoxx 50-SM- Index nor the Topix 100 Index 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 Stoxx 50-SM-
Index or the Topix 100 Index, respectively, or any data included therein.

Neither the Stoxx 50-SM- Index nor the Topix 100 Index makes any express or
implied warranties of merchantability or fitness for a particular purpose for
use with respect to the Stoxx 50-SM- Index or the Topix 100 Index, respectively,
or any data included therein.

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Additional information about the Funds is included in a Statement of Additional
Information dated , 2000 (the "SAI"), which contains more detailed
information about the Funds. The SAI has been filed with the Securities and
Exchange Commission ("SEC") and is incorporated by reference into this
Prospectus and, therefore, legally forms a part of this Prospectus. The SEC
maintains a Web site ("http://www.sec.gov") that contains the SAI, material
incorporated by reference, and other information regarding registrants that file
electronically with the SEC. You may also review and copy documents at the SEC
Public Reference Room in Washington, D.C. (for information 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. 20549-0102. You may also obtain information,
upon payment of a duplicating fee, by e-mailing the SEC at the following
address: [email protected].

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

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

The Fund's SEC registration number is 811-08821.

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STATEMENT OF ADDITIONAL INFORMATION

RYDEX VARIABLE TRUST

6116 EXECUTIVE BOULEVARD, SUITE 400
ROCKVILLE, MARYLAND 20852

1-800-820-0888
301-468-8520

WWW.RYDEXFUNDS.COM

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

LARGE-CAP EUROPE FUND
LARGE-CAP JAPAN FUND

This SAI is not a prospectus. It should be read in conjunction with the Trust's
Prospectus, dated , 2000. A copy of the Trust's Prospectus is available,
without charge, upon request to the Trust at the address above or by telephoning
the Trust at the telephone number above.

The date of this SAI is , 2000.

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STATEMENT OF ADDITIONAL INFORMATION

TABLE OF CONTENTS

PAGE

GENERAL INFORMATION ABOUT THE TRUST..........................................3

INVESTMENT POLICIES, TECHNIQUES AND RISK FACTORS.............................3

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

PORTFOLIO TRANSACTIONS AND BROKERAGE........................................17

MANAGEMENT OF THE TRUST.....................................................19

DETERMINATION OF NET ASSET VALUE............................................24

PERFORMANCE INFORMATION.....................................................26

CALCULATION OF RETURN QUOTATIONS............................................26

PURCHASE AND REDEMPTION OF SHARES...........................................27

DIVIDENDS, DISTRIBUTIONS, AND TAXES.........................................28

OTHER INFORMATION...........................................................31

COUNSEL.....................................................................31

AUDITORS AND CUSTODIAN......................................................32

APPENDIX....................................................................33

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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 thirty 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 only to shares of the Large-Cap Europe Fund
and Large-Cap Japan Fund, which are offered without class designation
(collectively the "International Funds" or the "Funds").

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.

INVESTMENT POLICIES, TECHNIQUES AND RISK FACTORS

GENERAL
Each Fund's investment objective and principal investment strategies are
described in the Prospectus. The following information supplements, and should
be read in conjunction with, those sections of the Prospectus.

Portfolio management is provided to each Fund by the Trust's investment adviser,
PADCO Advisors II, Inc., a Maryland corporation with offices at 6116 Executive
Boulevard, Suite 400, Rockville, Maryland 20852. PADCO Advisors II, Inc.
operates under the name Rydex Global Advisors (the "Advisor"). The investment
strategies of the Funds discussed below and in the Prospectus may be used by a
Fund if, in the opinion of the Advisor, these strategies will be advantageous to
that Fund. A Fund is free to reduce or eliminate its activity in any of those
areas without changing the Fund's fundamental investment policies. There is no
assurance that any of these strategies or any other strategies and methods of
investment available to a Fund will result in the achievement of that Fund's
objectives.

BORROWING
The Funds may borrow money, including borrowing for investment purposes.
Borrowing for investment is known as leveraging. Leveraging investments, by
purchasing securities with borrowed money, is a speculative technique which
increases investment risk, but also increases investment opportunity. Since
substantially all of a Fund's assets will fluctuate in value, whereas the
interest obligations on borrowings may be fixed, the net asset value per share
("NAV") 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

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Funds might have to sell portfolio securities to meet interest or principal
payments at a time when investment considerations would not favor such sales.
The Funds intend to use leverage during periods when the Advisor believes that a
Fund's investment objective would be furthered.

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.

CURRENCY TRANSACTIONS
Although the Funds do not currently expect to engage in currency hedging,
currency transactions may be used in order to hedge the value of portfolio
holdings denominated in particular currencies against fluctuations in relative
value. Currency transactions include forward currency contracts, exchange listed
currency futures and options thereon, exchange listed and OTC options on
currencies, and currency swaps. A forward currency contract involves a privately
negotiated obligation to purchase or sell (with delivery generally required) a
specific currency at a future date, which may be any fixed number of days from
the date of the contract agreed upon by the parties, at a price set at the time
of the contract. These contracts are traded in the interbank market conducted
directly between currency traders (usually large, commercial banks) and their
customers. A forward foreign currency contract generally has no deposit
requirement, and no commissions are charged at any stage for trades. A currency
swap is an agreement to exchange cash flows based on the notional difference
among two or more currencies and operates similarly to an interest rate swap,
which is described below. A Fund may enter into currency transactions with
counterparties which have received (or the guarantors of the obligations of
which have received) a credit rating of A-1 or P-1 by S&P or Moody's,
respectively, or that have an equivalent rating from an NRSRO or (except for OTC
currency options) are determined to be of equivalent credit quality by the
Advisor.

A Fund's dealings in forward currency contracts and other currency transactions
such as futures, options on futures, options on currencies and swaps will be
limited to hedging involving either specific transactions ("Transaction
Hedging") or portfolio positions ("Position Hedging"). Transaction Hedging is
entering into a currency transaction with respect to specific assets or
liabilities of a Fund, which will generally arise in connection with the
purchase or sale of its portfolio securities or the receipt of income therefrom.
A Fund may enter into Transaction Hedging out of a desire to preserve the U.S.
dollar price of a security when it

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enters into a contract for the purchase or sale of a security denominated in a
foreign currency. A Fund will be able to protect itself against possible losses
resulting from changes in the relationship between the U.S. dollar and foreign
currencies during the period between the date the security is purchased or sold
and the date on which payment is made or received by entering into a forward
contract for the purchase or sale, for a fixed amount of dollars, of the amount
of the foreign currency involved in the underlying security transactions.

Position Hedging is entering into a currency transaction with respect to
portfolio security positions denominated or generally quoted in that currency. A
Fund may use Position Hedging when the Advisor, believes that the currency of a
particular foreign country may suffer a substantial decline against the U.S.
dollar. A Fund may enter into a forward foreign currency contract to sell, for a
fixed amount of dollars, the amount of foreign currency approximating the value
of some or all of its portfolio securities denominated in such foreign currency.
The precise matching of the forward foreign currency contract amount and the
value of the portfolio securities involved may not have a perfect correlation
since the future value of the securities hedged will change as a consequence of
the market between the date the forward contract is entered into and the date it
matures. The projection of short-term currency market movement is difficult, and
the successful execution of this short-term hedging strategy is uncertain.

A Fund will not enter into a transaction to hedge currency exposure to an extent
greater, after netting all transactions intended wholly or partially to offset
other transactions, than the aggregate market value (at the time of entering
into the transaction) of the securities held in its portfolio that are
denominated or generally quoted in or currently convertible into such currency,
other than with respect to proxy hedging as described below.

A Fund may also cross-hedge currencies by entering into transactions to purchase
or sell one or more currencies that are expected to decline in value relative to
other currencies to which that Fund has or in which that Fund expects to have
portfolio exposure.

To reduce the effect of currency fluctuations on the value of existing or
anticipated holdings of portfolio securities, a Fund may also engage in proxy
hedging. Proxy hedging is often used when the currency to which a Fund's
portfolio is exposed is difficult to hedge or to hedge against the dollar. Proxy
hedging entails entering into a forward contract to sell a currency whose
changes in value are generally considered to be linked to a currency or
currencies in which some or all of the Fund's portfolio securities are or are
expected to be denominated, and to buy U.S. dollars. The amount of the contract
would not exceed the value of the Fund's securities denominated in linked
currencies. For example, if the Advisor considers that the Swedish krone is
linked to the Euro, the Fund holds securities denominated in krone and the
Advisor believes that the value of the krone will decline against the U.S.
dollar, the Advisor may enter into a contract to sell Euros and buy dollars.
Currency hedging involves some of the same risks and considerations as other
transactions with similar instruments. Currency transactions can result in
losses to a Fund if the currency being hedged fluctuates in value to a degree in
a direction that is not anticipated. Furthermore, there is risk that the
perceived linkage between various currencies may not be present or may not be
present during the particular time that a Fund is engaging in proxy hedging. If
a Fund enters into a currency hedging transaction, the Fund will "cover" its
position so as not to create a "senior security" as defined in Section 18 of the
1940 Act.

Currency transactions are subject to risks different from those of other
portfolio transactions. Because currency control is of great importance to the
issuing governments and influences economic planning and

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policy, purchase and sales of currency and related instruments can be negatively
affected by government exchange controls, blockages, and manipulations or
exchange restrictions imposed by governments. These can result in losses to a
Fund if it is unable to deliver or receive currency or funds in settlement of
obligations and could also cause hedges it has entered into to be rendered
useless, resulting in full currency exposure as well as incurring transaction
costs. Buyers and sellers of currency futures are subject to the same risks that
apply to the use of futures generally. Further, settlement of a currency futures
contract for the purchase of most currencies must occur at a bank based in the
issuing nation. Trading options on currency futures is relatively new, and the
ability to establish and close out positions on such options is subject to the
maintenance of a liquid market which may not always be available. Currency
exchange rates may fluctuate based on factors extrinsic to that country's
economy. Although forward foreign currency contracts and currency futures tend
to minimize the risk of loss due to a decline in the value of the hedged
currency, at the same time they tend to limit any potential gain which might
result should the value of such currency increase.

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

Investing in foreign companies may involve risks not typically associated with
investing in United States companies. The value of securities denominated in
foreign currencies, and of dividends from such securities, can change
significantly when foreign currencies strengthen or weaken relative to the U.S.
dollar. Foreign securities markets generally have less trading volume and less
liquidity than United States markets, and prices in some foreign markets can be
very volatile. Many foreign countries lack uniform accounting and disclosure
standards comparable to those that apply to United States companies, and it may
be more difficult to obtain reliable information regarding a foreign issuer's
financial condition and operations. In addition, the costs of foreign investing,
including withholding taxes, brokerage commissions, and custodial fees,
generally are higher than for United States investments.

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

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ILLIQUID SECURITIES

Each Fund may purchase illiquid securities, including securities that are not
readily marketable and securities that are not registered ("restricted
securities") under the Securities Act of 1933, as amended (the "1933 Act"), but
which can be offered and sold to "qualified institutional buyers" under Rule
144A under the 1933 Act. A Fund will not invest more than 15% of the Fund's net
assets in illiquid securities. Each Fund will adhere to a more restrictive
limitation on the Fund's investment in illiquid securities as required by the
securities laws of those jurisdictions where shares of the Fund are registered
for sale. The term "illiquid securities" for this purpose means securities that
cannot be disposed of within seven days in the ordinary course of business at
approximately the amount at which the Fund has valued the securities. Under the
current guidelines of the staff of the Securities and Exchange Commission (the
"Commission"), illiquid securities also are considered to include, among other
securities, purchased over-the-counter options, certain cover for
over-the-counter options, repurchase agreements with maturities in excess of
seven days, and certain securities whose disposition is restricted under the
federal securities laws. The Fund may not be able to sell illiquid securities
when the Advisor considers it desirable to do so or may have to sell such
securities at a price that is lower than the price that could be obtained if the
securities were more liquid. In addition, the sale of illiquid securities also
may require more time and may result in higher dealer discounts and other
selling expenses than does the sale of securities that are not illiquid.
Illiquid securities also may be more difficult to value due to the
unavailability of reliable market quotations for such securities, and investment
in illiquid securities may have an adverse impact on net asset value.

Institutional markets for restricted securities have developed as a result of
the promulgation of Rule 144A under the 1933 Act, which provides a "safe harbor"
from 1933 Act registration requirements for qualifying sales to institutional
investors. When Rule 144A restricted securities present an attractive investment
opportunity and meet other selection criteria, a Fund may make such investments
whether or not such securities are "illiquid" depending on the market that
exists for the particular security. The trustees of the Trust (the "Trustees")
have delegated the responsibility for determining the liquidity of Rule 144A
restricted securities which may be invested in by a Fund to the Advisor.

INVESTMENTS IN OTHER INVESTMENT COMPANIES

The Funds presently may invest in the securities of other investment companies
to the extent that such an investment would be consistent with the requirements
of Section 12(d)(1) of the 1940 Act. A Fund, therefore, may invest in the
securities of another investment company (the "acquired company") provided that
the Fund, immediately after such purchase or acquisition, does not own in the
aggregate: (i) more than 3% of the total outstanding voting stock of the
acquired company; (ii) securities issued by the acquired company having an
aggregate value in excess of 5% of the value of the total assets of the Fund; or
(iii) securities issued by the acquired company and all other investment
companies (other than Treasury stock of the Fund) having an aggregate value in
excess of 10% of the value of the total assets of the Fund.

If a Fund invests in, and, thus, is a shareholder of, another investment
company, the Fund's shareholders will indirectly bear the Fund's proportionate
share of the fees and expenses paid by such other investment company, including
advisory fees, in addition to both the management fees payable directly by the
Fund to the Fund's own investment adviser and the other expenses that the Fund
bears directly in connection with the Fund's own operations.

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LENDING OF PORTFOLIO SECURITIES

Subject to the investment restrictions set forth below, each of the Funds may
lend portfolio securities to brokers, dealers, and financial institutions,
provided that cash equal to at least 100% of the market value of the securities
loaned is deposited by the borrower with the Fund and is maintained each
business day in a segregated account pursuant to applicable regulations. While
such securities are on loan, the borrower will pay the lending Fund any income
accruing thereon, and the Fund may invest the cash collateral in portfolio
securities, thereby earning additional income. A Fund will not lend its
portfolio securities if such loans are not permitted by the laws or regulations
of any state in which the Fund's shares are qualified for sale, and the Funds
will not lend more than 33% of the value of the Fund's total assets. Loans
would be subject to termination by the lending Fund on four business days'
notice, or by the borrower on one day's notice. Borrowed securities must be
returned when the loan is terminated. Any gain or loss in the market price of
the borrowed securities which occurs during the term of the loan inures to the
lending Fund and that Fund's shareholders. A lending Fund may pay reasonable
finders, borrowers, administrative, and custodial fees in connection with a
loan.

OPTIONS TRANSACTIONS

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

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

OPTIONS ON SECURITY INDICES. The Funds may purchase call options and write put
options on stock indices listed on national securities exchanges or traded in
the over-the-counter market as an investment vehicle for the purpose of
realizing the Fund's investment objective.

Options on indices are settled in cash, not in delivery of securities. The
exercising holder of an index option receives, instead of a security, cash equal
to the difference between the closing price of the securities index and the
exercise price of the option. When a Fund writes a covered option on an index,
the Fund will be required to deposit and maintain with a custodian cash or
liquid securities equal in value to the aggregate exercise price of a put or
call option pursuant to the requirements and the rules of the applicable
exchange.

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If, at the close of business on any day, the market value of the deposited
securities falls below the contract price, the Fund will deposit with the
custodian cash or liquid securities equal in value to the deficiency.

OPTIONS ON FUTURES CONTRACTS. Under Commodities Futures Trading Commission
("CFTC") Regulations, a Fund may engage in futures transactions, either for
"bona fide hedging" purposes, as this term is defined in the CFTC Regulations,
or for non-hedging purposes to the extent that the aggregate initial margins and
option premiums required to establish such non-hedging positions do not exceed
5% of the liquidation value of the Fund's portfolio. In the case of an option on
futures contracts that is "in-the-money" at the time of purchase (I.E., the
amount by which the exercise price of the put option exceeds the current market
value of the underlying security, or the amount by which the current market
value of the underlying security exceeds the exercise price of the call option),
the in-the-money amount may be excluded in calculating this 5% limitation.

When a Fund purchases or sells a stock index futures contract, or sells an
option thereon, the Fund "covers" its position. To cover its position, a Fund
may maintain with its custodian bank (and marked-to-market on a daily basis), a
segregated account consisting of cash or liquid securities that, when added to
any amounts deposited with a futures commission merchant as margin, are equal to
the market value of the futures contract or otherwise "cover" its position. If
the Fund continues to engage in the described securities trading practices and
properly segregates assets, the segregated account will function as a practical
limit on the amount of leverage which the Fund may undertake and on the
potential increase in the speculative character of the Fund's outstanding
portfolio securities. Additionally, such segregated accounts will generally
assure the availability of adequate funds to meet the obligations of the Fund
arising from such investment activities.

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

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

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also cover its sale of a put option by taking positions in instruments with
prices which are expected to move relatively consistently with the put option.

SWAPS
The Funds may enter into equity index or interest rate swap agreements for
purpose of attempting to gain exposure to the stocks making up an index of
securities in a market without actually purchasing those stocks, or to hedge a
position. Swap agreements are two-party contracts entered into primarily by
institutional investors for periods ranging from a day to more than one year. In
a standard "swap" transaction, two parties agree to exchange the returns (or
differentials in rates of return) earned or realized on particular predetermined
investments or instruments. The gross returns to be exchanged or "swapped"
between the parties are calculated with respect to a "notional amount," i.e.,
the return on or increase in value of a particular dollar amount invested in a
"basket" of securities representing a particular index. Forms of swap agreements
include interest rate caps, under which, in return for a premium, one party
agrees to make payments to the other to the extent that interest rates exceed a
specified rate, or "cap"; interest rate floors, under which, in return for a
premium, one party agrees to make payments to the other to the extent that
interest rates fall below a specified level, or "floor"; and interest rate
dollars, under which a party sells a cap and purchases a floor or vice versa in
an attempt to protect itself against interest rate movements exceeding given
minimum or maximum levels.

Most swap agreements entered into by the Funds calculate the obligations of the
parties to the agreement on a "net basis." Consequently, a Fund's current
obligations (or rights) under a swap agreement will generally be equal only to
the net amount to be paid or received under the agreement based on the relative
values of the positions held by each party to the agreement (the "net amount").

A Fund's current obligations under a swap agreement will be accrued daily
(offset against any amounts owing to the Fund) and any accrued by unpaid net
amounts owed to a swap counterparty will be covered by segregating assets
determined to be liquid. Obligations under swap agreements so covered will not
be construed to be "senior securities" for purposes of a Fund's investment
restriction concerning senior securities. Because they are two party contracts
and because they may have terms of greater than seven days, swap agreements may
be considered to be illiquid for the Fund illiquid investment limitations. A
Fund will not enter into any swap agreement unless the Advisor believes that the
other party to the transaction is creditworthy. A Fund bears the risk of loss of
the amount expected to be received under a swap agreement in the event of the
default or bankruptcy of a swap agreement counterparty.

Each Fund may enter into swap agreements to invest in a market without owning or
taking physical custody of securities in circumstances in which direct
investment is restricted for legal reasons or is otherwise impracticable. The
counterparty to any swap agreement will typically be a bank, investment banking
firm or broker/dealer. The counterparty will generally agree to pay the Fund the
amount, if any, by which the notional amount of the swap agreement would have
increased in value had it been invested in the particular stocks, plus the
dividends that would have been received on those stocks. The Fund will agree to
pay to the counterparty a floating rate of interest on the notional amount of
the swap agreement plus the amount, if any, by which the notional amount would
have decreased in value had it been invested in such stocks. Therefore, the
return to the Fund on any swap agreement should be the gain or loss on the
notional amount plus dividends on the stocks less the interest paid by the Fund
on the notional amount.

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Swap agreements typically are settled on a net basis, which means that the two
payment streams are netted out, with the Fund receiving or paying, as the case
may be, only the net amount of the two payments. Payments may be made at the
conclusion of a swap agreement or periodically during its term. Swap agreements
do not involve the delivery of securities or other underlying assets.
Accordingly, the risk of loss with respect to swap agreements is limited to the
net amount of payments that a Fund is contractually obligated to make. If the
other party to a swap agreement defaults, a Fund's risk of loss consists of the
net amount of payments that such Fund is contractually entitled to receive, if
any. The net amounts of the excess, if any, of a Fund's obligations over its
entitlements with respect to each equity swap will be accrued on a daily basis
and an amount of cash or liquid assets, having an aggregate net asset value at
least equal to such accrued excess will be maintained in a segregated account by
a Fund's custodian. Inasmuch as these transactions are entered into for hedging
purposes or are offset by segregated cash or liquid assets, as permitted by
applicable law, the Funds and their Advisor believe that transactions do not
constitute senior securities under the 1940 Act and, accordingly, will not treat
them as being subject to a Fund's borrowing restrictions.

The swap market has grown substantially in recent years with a large number of
banks and investment banking firms acting both as principals and as agents
utilizing standardized swap documentation. As a result, the swap market has
become relatively liquid in comparison with the markets for other similar
instruments which are traded in the over-the-counter market. The Advisor, under
the supervision of the Board of Trustees, are responsible for determining and
monitoring the liquidity of Fund transactions in swap agreements.

The use of equity swaps is a highly specialized activity which involves
investment techniques and risks different from those associated with ordinary
portfolio securities transactions.

PORTFOLIO TURNOVER
As discussed in the Trust's prospectus, the Trust anticipates that investors in
the Funds, as part of an asset allocation investment strategy, will frequently
purchase and/or redeem shares of the Funds. The nature of the Funds as asset
allocation tools will cause the Funds to experience substantial portfolio
turnover. (See "More Information About Fund Investments and Risk" in the Trust's
Prospectus). Because each Fund's portfolio turnover rate to a great extent will
depend on the purchase, redemption, and exchange activity of the Fund's
investors, it is very difficult to estimate what the Fund's actual turnover rate
will be in the future. However, the Trust expects that the portfolio turnover
experienced by the Funds will be substantial.

REPURCHASE AGREEMENTS
As discussed in the Trust's Prospectus, each of the Funds may enter into
repurchase agreements with financial institutions. The Funds each follow certain
procedures designed to minimize the risks inherent in such agreements. These
procedures include effecting repurchase transactions only with large,
well-capitalized and well-established financial institutions whose condition
will be continually monitored by the Advisor. In addition, the value of the
collateral underlying the repurchase agreement will always be at least equal to
the repurchase price, including any accrued interest earned on the repurchase
agreement. In the event of a default or bankruptcy by a selling financial
institution, a Fund will seek to liquidate such collateral. However, the
exercising of each Fund's right to liquidate such collateral could involve
certain costs or delays and, to the extent that proceeds from any sale upon a
default of the obligation to repurchase

11
<PAGE>

were less than the repurchase price, the Fund could suffer a loss. It is the
current policy of each of the Funds not to invest in repurchase agreements that
do not mature within seven days if any such investment, together with any other
illiquid assets held by the Fund, amounts to more than 15% of the Fund's total
assets. The investments of each of the Funds in repurchase agreements, at times,
may be substantial when, in the view of the Advisor, liquidity or other
considerations so warrant.

RISK FACTORS REGARDING EUROPE
The Large-Cap Europe Fund seeks to provide investment results, which correlate
to the performance of a specific benchmark. The Fund's current benchmark is the
Dow Jones Stoxx 50-SM- Index (the "Stoxx 50 Index"). The Stoxx 50 Index is a
capitalization-weighted index composed of 50 European blue chip stocks. Index
members are chosen by Stoxx Ltd. from 16 countries under criteria designed to
identify highly liquid companies that are market leaders in their sectors. The
16 countries include the 15 western European countries which comprise the
European Union (EU) and Switzerland.

The EU consists of 15 countries of western Europe: Austria, Belgium, Denmark,
Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands,
Portugal, Spain, Sweden and the United Kingdom. The EU's primary goal is the
creation of a single, unified market through which goods, people and capital
could move freely.

A second component of the EU is the establishment of a single currency - the
Euro, to replace each member country's domestic currencies. On May 3, 1998 the
European Council of Ministers formally announced the "first wave" of European
Economic Monetary Union (the "EMU") participants. They are: Austria, Belgium,
Finland, France, Germany, Ireland, Italy, Luxembourg, the Netherlands, Portugal
and Spain. On January 1, 1999, the Euro became a currency, while the bank notes
used by the EMU's eleven members remain legal tender. After a three-year
transition period, the Euro will begin circulating on January 1, 2002. Six
months later, the currency used by the EMU's eleven members will cease to exist.

Europe may experience difficulty with the transition to the Euro. For example,
different national economies must adjust to a unified monetary system, the
absence of exchange rate flexibility and the loss of economic sovereignty. The
Continent's economies are diverse, its governments are decentralized and its
cultures differ widely. Unemployment is relatively high from a historical
perspective and could pose a political risk that one or more countries might
exit the union placing the currency and banking system in jeopardy.

RISK FACTORS REGARDING JAPAN
The Large-Cap Japan Fund seeks to provide investment results, which correlate to
the performance of a specific benchmark. The Fund's current benchmark is Japan's
Topix 100 Index. The Topix 100 Index is an index designed to measure performance
of the 100 most liquid stocks with the largest market capitalization that are
members of the broader Topix Index. The Topix and Topix 100 Indices are
published by the Tokyo Stock Exchange ("TSE").

The Japanese stock market was established in 1878 as the Tokyo Stock Exchange
Company Ltd. Japanese stock exchanges are located in eight cities in Tokyo,
Osaka, Nagoya, Kyoto, Hiroshima, Fukuoka, Niigata and Sapporo. The Tokyo Stock
Exchange (TSE) is the largest of the eight exchanges in Japan. There are three
distinct sections on the main Japanese stock exchanges. The First Section trades
in over 1,100 of the largest and most active stocks, which account for over 95%
of total market capitalization. The Second

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<PAGE>

Section consists of over 400 issues with lower turnover than the First Section,
which are newly quoted on the exchange or which are not listed and would
otherwise be traded over-the-counter. The Third Section consists of foreign
stocks which are traded over-the-counter. Securities are denominated in the
official unit of currency, the Japanese Yen.

Although some Japanese reporting, accounting and auditing practices are based
substantially on U.S. principles, they are not identical to U.S. standards in
some important respects, particularly with regard to unconsolidated subsidiaries
and related structures. In general, Japanese corporations are not required to
provide all of the disclosure required by U.S. law and accounting practice, and
such disclosure may be less timely and less frequent than that required of U.S.
corporations.

The Japanese agricultural industry is small and largely protected. Japan
subsidizes its agricultural industry and is only 50% self-sufficient in food
production. Accordingly, it is highly dependent on agricultural imports. Japan
has developed a strong heavy industrial sector and is highly dependent on
international trade for commodities. Strong domestic industries are automotive,
electronics, and metals. Needed imports revolve around raw materials such as
oil, forest products, and iron ore. Subsequently, Japan is sensitive to
fluctuations in commodity prices.

While the United States is Japan's largest single trading partner, close to half
of Japan's trade is conducted with developing nations, almost all of which are
in southeast Asia. As the largest economy trading in southeast Asia, external
events such as the economic trials of Japan's neighbors continue to raise
concerns over profit levels for the big Japanese exporters. As many of the
governments of Southeast Asia frequently face domestic discontent, and as many
of these countries are Japanese trading partners and investment recipients,
their internal stability and its impact on regional security are of importance
to Japan.

Japanese unemployment levels are high and have been an area of increasing
concern. The Japanese financial sector is in need of reform involving
overhauling the nation's financial institutions and securing public support for
taxpayer-funded bailouts. Banks, in particular, must dispose of bad loans and
trim their balance sheets in preparation for greater competition from foreign
financial institutions as more areas of the financial sector are opened.
Successful financial sector reform could allow Japan's financial institutions to
act as a catalyst for economic recovery at home and across the troubled Asian
region. A large factor in determining the pace and scope of recovery is the
government's handling of deregulation programs.

Also of concern are Japan's trade surpluses. As a trade-dependent nation long
used to high levels of government protection, it is unclear how the Japanese
economy will react to the potential adoption of the trade liberalization
measures which are constantly promoted by their trading partners. Japan's heavy
dependence on international trade has been adversely affected by trade tariffs
and other protectionist measures, as well as the economic condition of its
trading partners. Japan's high volume of exports, such as automobiles, machine
tools and semiconductors, has caused trade tensions, particularly with the
United States. The relaxing of official and de facto barriers to imports, or
hardships created by any pressures brought by trading partners, could adversely
affect Japan's economy. Additionally, the strength of the yen itself may prove
an impediment to strong continued exports and economic recovery, because it
makes Japanese goods sold in other countries more expensive and reduces the
value of foreign earnings repatriated to Japan. Since the Japanese economy is so
dependent on exports, any fall off in exports may be seen as a sign of economic
weakness, which may adversely affect the market.

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, board of trade, or in the over the
counter market. A stock index futures contract is a contract to buy or sell
units of an index at a specified future date at a price agreed upon when the
contract is made. The stock index futures contract specifies that no delivery of
the actual stocks making up the index will take place. Instead, settlement in
cash must occur upon the termination of the contract, with the settlement being
the difference between the contract price and the actual level of the stock
index at the expiration of the contract.

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

TRACKING ERROR
While Funds which seek to duplicate the performance of their respective
benchmarks on a daily basis, as discussed in the Prospectus, do not expect that
the aggregate 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) fluctuations in currency exchange
rates; (2) Fund expenses, including brokerage (which may be increased by high
portfolio turnover); (3) 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; (4) an imperfect correlation between the performance of instruments held
by a Fund, such as futures contracts and options, and the performance of the
underlying securities in the market; (5) bid-ask spreads (the effect of which
may be increased by portfolio turnover); (6) a Fund holds instruments traded in
a market that has become illiquid or disrupted; (7) Fund share prices being
rounded to the nearest cent; (8) changes to the benchmark index that are not
disseminated in advance; (9) the need to conform a Fund's portfolio holdings to
comply with investment restrictions or policies or regulatory or tax law
requirements; (10) the time difference between the close of the Funds'
respective benchmark and the time the Funds price their shares at the close of
the New York Stock Exchange ("NYSE"); or (11) market movements that run counter
to a leveraged Fund's investments. Market movements that run counter to a
leveraged Fund's investments will cause some divergence between the Fund and its
benchmark over time due to the mathematical effects of leveraging. The magnitude
of the divergence is dependent upon the magnitude of the market movement, its
duration, and the degree to which the Fund is leveraged. The tracking error of a
leveraged Fund is generally small during a well-defined uptrend or downtrend in
the market when measured from price peak to price peak, absent a market decline
and subsequent recovery, however, the deviation of the Fund from its benchmark
may be significant. As a result of fair value pricing, the day-to-day
correlation of the Funds' performance may tend to vary from the closing
performance of the Funds' respective benchmarks. However,

14
<PAGE>

the Funds' performance attempts to correlate highly with the movement in their
respective benchmarks over time.

U.S. GOVERNMENT SECURITIES
The Funds may invest in U.S. Government Securities. Securities issued or
guaranteed by the U.S. Government or its agencies or instrumentalities include
U.S. Treasury securities, which are backed by the full faith and credit of the
U.S. Treasury and which differ only in their interest rates, maturities, and
times of issuance. U.S. Treasury bills have initial maturities of one year or
less; U.S. Treasury notes have initial maturities of one to ten years; and U.S.
Treasury bonds generally have initial maturities of greater than ten years.
Certain U.S. Government Securities are issued or guaranteed by agencies or
instrumentalities of the U.S. Government including, but not limited to,
obligations of U.S. Government agencies or instrumentalities such as Fannie Mae,
the Government National Mortgage Association, the Small Business Administration,
the Federal Farm Credit Administration, the Federal Home Loan Banks, Banks for
Cooperatives (including the Central Bank for Cooperatives), the Federal Land
Banks, the Federal Intermediate Credit Banks, the Tennessee Valley Authority,
the Export-Import Bank of the United States, the Commodity Credit Corporation,
the Federal Financing Bank, the Student Loan Marketing Association, and the
National Credit Union Administration.

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

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

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<PAGE>

INVESTMENT RESTRICTIONS

FUNDAMENTAL POLICIES
The following investment limitations (and those set forth in the Prospectus) are
fundamental policies of the Funds which cannot be changed with respect to a Fund
without the consent of the holders of a majority of that Fund's outstanding
shares. The term "majority of the outstanding shares" means the vote of (i) 67%
or more of a Fund's shares present at a meeting, if more than 50% of the
outstanding shares of that Fund are present or represented by proxy, or (ii)
more than 50% of that Fund's outstanding shares, whichever is less.

An International Fund shall not:

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

2. Make loans if, as a result, more than 33 1/3% of its total
assets would be lent to other parties, except that the Fund
may (i) purchase or hold debt instruments in accordance with
its investment objective and policies; (ii) enter into
repurchase agreements; and (iii) lend its securities.

3. Purchase or sell real estate, physical commodities, or
commodities contracts, except that the Fund may purchase (i)
marketable securities issued by companies which own or invest
in real estate (including real estate investment trusts),
commodities, or commodities contracts; and (ii) commodities
contracts relating to financial instruments, such as financial
futures contracts and options on such contracts.

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

5. Act as an underwriter of securities of other issuers except as
it may be deemed an underwriter in selling a portfolio
security.

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

7. Invest 25% or more of the value of the Fund's total assets in
the securities of one or more issuers conducting their
principal business activities in the same industry; except
that, to the extent the benchmark selected for a particular
Fund is concentrated in a particular industry, the Fund will
necessarily be concentrated in that industry. This limitation
does not apply

16
<PAGE>

to investments or obligations of the U.S. Government or any of
its agencies or instrumentalities.

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

Each International Fund may not:

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

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

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

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

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

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

17
<PAGE>

main factors considered by the Advisor in making such allocations among the
Funds and other client accounts of the Advisor are the respective investment
objectives, the relative size of portfolio holdings of the same or comparable
securities, the availability of cash for investment, the size of investment
commitments generally held, and the opinions of the person(s) responsible, if
any, for managing the portfolios of the Funds and the other client accounts.

The policy of each Fund regarding purchases and sales of securities for the
Fund's portfolio is that primary consideration will be given to obtaining the
most favorable prices and efficient executions of transactions. Consistent with
this policy, when securities transactions are effected on a stock exchange, each
Fund's policy is to pay commissions which are considered fair and reasonable
without necessarily determining that the lowest possible commissions are paid in
all circumstances. Each Fund believes that a requirement always to seek the
lowest possible commission cost could impede effective portfolio management and
preclude the Fund and the Advisor from obtaining a high quality of brokerage and
research services. In seeking to determine the reasonableness of brokerage
commissions paid in any transaction, the Advisor relies upon its experience and
knowledge regarding commissions generally charged by various brokers and on its
judgment in evaluating the brokerage and research services received from the
broker effecting the transaction. Such determinations are necessarily subjective
and imprecise, as in most cases an exact dollar value for those services is not
ascertainable.

Purchases and sales of U.S. Government securities are normally transacted
through issuers, underwriters or major dealers in U.S. Government securities
acting as principals. Such transactions are made on a net basis and do not
involve payment of brokerage commissions. The cost of securities purchased from
an underwriter usually includes a commission paid by the issuer to the
underwriters; transactions with dealers normally reflect the spread between bid
and asked prices.

In managing the investment portfolios of the Funds, the Advisor effects
transactions with those brokers and dealers who the Advisor believes provide the
most favorable prices and are capable of providing efficient executions. If the
Advisor believes such prices and executions are obtainable from more than one
broker or dealer, the Advisor may give consideration to placing portfolio
transactions with those brokers and dealers who also furnish research and other
services to the Fund or the Advisor. In addition, Section 28(e) of the
Securities Exchange Act of 1934 permits the Advisor to cause a Fund to pay
commission rates in excess of those another dealer or broker would have charged
for effecting the same transaction, if the Advisor determines, in good faith,
that the commission paid is reasonable in relation to the value of brokerage and
research services provided. While the Advisor currently does not intend to pay
higher commissions to dealers and brokers who supply it with brokerage and
research services, in the event such higher payments would be made or are deemed
to have been made, such higher payments would be in accordance with Section
28(e).

Such research services may include information on the economy, industries,
groups of securities, individual companies, statistical information, accounting
and tax law interpretations, political developments, legal developments
affecting portfolio securities, technical market action, pricing and appraisal
services, credit analysis, risk measurement analysis, performance analysis,
analysis of corporate responsibility issues or in the form of access to various
computer-generated data, computer hardware and software. Such research may be
provided by brokers and dealers in the form of written reports, telephone
contacts and personal meetings with security analysts, corporate and industry
spokespersons, economists, academicians, and government

18
<PAGE>

representatives. Brokerage services and equipment may facilitate the execution
and monitoring of securities transactions, for example, by providing rapid
communications with financial markets and brokers or dealers, or by providing
real-time tracking of orders, settlements, investment positions and relevant
investment criteria and restrictions applicable to the execution of securities
transactions. In some cases, brokerage and research services are generated by
third parties but are provided to the Advisor by or through brokers and dealers.
The Advisor may allocate brokerage for research services that are also available
for cash, where appropriate and permitted by law. The Advisor may also pay cash
for certain research services received from external sources.

In addition, the information and services received by the Advisor from brokers
and dealers may not in all cases benefit a Fund directly. For example, such
information and services received by the Advisor as a result of the brokerage
allocation of one of the Funds may be of benefit to the Advisor in the
management of other accounts of the Advisor, including other Funds of the Trust
and other investment companies advised by the Advisor. While the receipt of such
information and services is useful in varying degrees and would generally reduce
the amount of research or services otherwise performed by the Advisor and
thereby reduce the Advisor's expenses, this information and these services are
of indeterminable value and the management fee paid to the Advisor is not
reduced by any amount that may be attributable to the value of such information
and services.

MANAGEMENT OF THE TRUST

The Trustees are responsible for the general supervision of the Trust's
business. The day-to-day operations of the Trust are the responsibilities of the
Trust's officers. The names and addresses (and ages) of the Trustees and the
officers of the Trust and the officers of the Advisor, together with information
as to their principal business occupations during the past five years, are set
forth below. Fees and expenses for non-interested Trustees will be paid by the
Trust.

19
<PAGE>

TRUSTEES

*ALBERT P. VIRAGH, JR. (58)

Chairman of the Board of Trustees and President of Rydex Series Funds,
a registered mutual fund, 1993 to present; Chairman of the Board of
Trustees and President of Rydex Variable Trust, a registered mutual
fund, 1998 to present; Chairman of the Board of Trustees and President
of Rydex Dynamic Funds, a registered mutual fund, 1999 to present;
Chairman of the Board of Directors, President, and Treasurer of PADCO
Advisors, Inc., investment adviser, 1993 to present; Chairman of the
Board of Directors, President, and Treasurer of PADCO Service Company,
Inc., shareholder and transfer agent servicer, 1993 to present;
Chairman of the Board of Directors, President, and Treasurer of PADCO
Advisors II, Inc., investment adviser, 1998 to present; Chairman of the
Board of Directors, President, and Treasurer of Rydex Distributors,
Inc., a registered broker-dealer firm, 1996 to present; Vice President
of Rushmore Investment Advisors Ltd., a registered investment adviser,
1985 to 1993. Address: 6116 Executive Boulevard, Suite 400, Rockville,
Maryland 20852.

COREY A. COLEHOUR (53)

Trustee of Rydex Series Funds, 1993 to present; Trustee of Rydex
Variable Trust, 1998 to present; Trustee of Rydex Dynamic Funds, 1999
to present; Senior Vice President of Marketing of Schield Management
Company, a registered investment adviser, 1985 to present. Address:
6116 Executive Boulevard, Suite 400, Rockville, Maryland 20852.

J. KENNETH DALTON (58)

Trustee of Rydex Series Funds, 1995 to present; Trustee of Rydex
Variable Trust, 1998 to present; Trustee of Rydex Dynamic Funds, 1999
to present; Mortgage Banking Consultant and Investor, The Dalton Group,
a real estate company, 1995 to present; President, CRAM Mortgage Group,
Inc., 1966 to 1995. Address: 6116 Executive Boulevard, Suite 400,
Rockville, Maryland 20852.

JOHN O. DEMARET (59)

Trustee of Rydex Series Funds, 1997 to present; Trustee of Rydex
Variable Trust, 1998 to present; Trustee of Rydex Dynamic Funds, 1999
to present; Founder and Chief Executive Officer, Health Cost Controls
America, Chicago, Illinois, 1987 to 1996; Sole Practitioner, Chicago,
Illinois, 1984 to 1987; General Counsel for the Chicago Transit
Authority, 1981 to 1984; Senior Partner, O'Halloran, LaVarre & Demaret,
Northbrook, Illinois, 1978 to 1981. Address: 6116 Executive Boulevard,
Suite 400, Rockville, Maryland 20852.

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

20
<PAGE>

PATRICK T. MCCARVILLE (57)

Trustee of Rydex Series Funds, 1997 to present; Trustee of Rydex
Variable Trust, 1998 to present; Trustee of Rydex Dynamic Funds, 1999
to present; Founder and Chief Executive Officer, Par Industries, Inc.,
Northbrook, Illinois, 1977 to present; President and Chief Executive
Officer, American Health Resources, Northbrook, Illinois, 1984 to 1986.
Address: 6116 Executive Boulevard, Suite 400, Rockville, Maryland
20852.

ROGER SOMERS (54)

Trustee of Rydex Series Funds, 1993 to present; Trustee of Rydex
Variable Trust, 1998 to present; Trustee of Rydex Dynamic Funds, 1999
to present; President, Arrow Limousine, 1963 to present. Address: 6116
Executive Boulevard, Suite 400, Rockville, Maryland 20852.

OFFICERS

ROBERT M. STEELE (41)

Secretary and Vice President of Rydex Series Funds, 1994 to present;
Secretary and Vice President of Rydex Variable Trust, 1998 to present;
Secretary and Vice President of Rydex Dynamic Funds, 1999 to present;
Vice President of Rydex Distributors, Inc., 1996 to present; Vice
President of The Boston Company, Inc., an institutional money
management firm, 1987 to 1994. Address: 6116 Executive Boulevard, Suite
400, Rockville, Maryland 20852.

CARL G. VERBONCOEUR (47)

Vice President and Treasurer of Rydex Series Funds, 1997 to present;
Vice President and Treasurer of the Rydex Variable Trust, 1998 to
present; Vice President and Treasurer of Rydex Dynamic Funds, 1999 to
present; Vice President of Rydex Distributors, Inc., 1997 to present;
Senior Vice President, Crestar Bank, 1995 to 1997; Senior Vice
President, Crestar Asset Management Company, a registered investment
adviser, 1993 to 1995; Vice President of Perpetual Savings Bank, 1987
to 1993. Address: 6116 Executive Boulevard, Suite 400, Rockville,
Maryland 20852.

MICHAEL P. BYRUM (29)

Vice President and Assistant Secretary of Rydex Series Funds, 1997 to
present; Vice President and Assistant Secretary of the Rydex Variable
Trust, 1998 to present; Vice President and Assistant Secretary of the
Rydex Dynamic Funds, 1999 to present; Vice President and Senior
Portfolio Manager of PADCO Advisors, Inc., investment adviser, 1993 to
present; Vice President and Senior Portfolio Manager of PADCO Advisors
II Inc., investment adviser, 1996 to present; Secretary of Rydex
Distributors, Inc., 1996 to present; Investment Representative, Money
Management Associates, a registered investment adviser, 1992 to 1993.
Address: 6116 Executive Boulevard, Suite 400, Rockville, Maryland
20852.

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<PAGE>

JOHN FRANGOS (42)

Vice President of Rydex Series Funds, Rydex Variable Trust, and Rydex
Dynamic Funds from 1999 to present; Vice President of Operations of
PADCO Service Company, Inc., 1998 to present; Vice President of Rydex
Distributors, Inc., 1999 to present; Manager and Assistant Vice
President, PFPC, Inc., a mutual fund service company, 1994 to 1998.
Address: 6116 Executive Boulevard, Suite 400, Rockville, Maryland
20852.

The aggregate compensation paid by the Trust to each of its Trustees serving
during the fiscal year ended DECEMBER 31, 1999, is set forth in the table below:

<TABLE>
<CAPTION>
- ------------------------------- ------------------- ---------------------- -------------------- --------------------
- ------------------------------- ------------------- ---------------------- -------------------- --------------------
AGGREGATE PENSION OR ESTIMATED ANNUAL TOTAL COMPENSATION
NAME OF PERSON, POSITION COMPENSATION FROM RETIREMENT BENEFITS BENEFITS UPON FROM FUND COMPLEX
TRUST ACCRUED AS PART OF RETIREMENT FOR SERVICE ON
TRUST'S EXPENSES THREE BOARDS**
- ------------------------------- ------------------- ---------------------- -------------------- --------------------
<S> <C> <C> <C> <C>
Albert P. Viragh, Jr.*, $0 $0 $0 $0
CHAIRMAN AND PRESIDENT
- ------------------------------- ------------------- ---------------------- -------------------- --------------------

Corey A. Colehour, $7,500 $0 $0 $27,500
TRUSTEE
- ------------------------------- ------------------- ---------------------- -------------------- --------------------

J. Kenneth Dalton, $7,500 $0 $0 $27,500
TRUSTEE
- ------------------------------- ------------------- ---------------------- -------------------- --------------------

Roger Somers, $7,500 $0 $0 $27,500
TRUSTEE

John O. Demaret, $7,500 $0 $0 $27,500
TRUSTEE
- ------------------------------- ------------------- ---------------------- -------------------- --------------------

Patrick T. McCarville, $7,500 $0 $0 $27,500
TRUSTEE
- ------------------------------- ------------------- ---------------------- -------------------- --------------------
- ------------------------------- ------------------- ---------------------- -------------------- --------------------
</TABLE>
*Denotes an "interested person" of the Trust.

22
<PAGE>

**Each member of the Board of Trustees also serves as a Trustee to Rydex Series
Funds and Rydex Dynamic Funds.

THE ADVISORY AGREEMENT
Under an investment advisory agreement, the Advisor serves as the investment
adviser for each series of the Trust and provides investment advice to the Funds
and oversees the day-to-day operations of the Funds, subject to direction and
control by the Trustees and the officers of the Trust. As of March 31, 2000, net
assets under management of the Advisor and its affiliates were approximately
$8.5 billion. Pursuant to the advisory agreement with the Advisor, the Funds pay
the Advisor according to the fees set forth in the prospectus.

The Advisor manages the investment and the reinvestment of the assets of each of
the Funds, in accordance with the investment objectives, policies, and
limitations of the Fund, subject to the general supervision and control of the
Trustees and the officers of the Trust. The Advisor bears all costs associated
with providing these advisory services and the expenses of the Trustees of the
Trust who are affiliated with or interested persons of the Advisor. The Advisor,
from its own resources, including profits from advisory fees received from the
Funds, provided such fees are legitimate and not excessive, may make payments to
broker-dealers and other financial institutions for their expenses in connection
with the distribution of Fund shares, and otherwise currently pay all
distribution costs for Fund shares.

The Advisor's office is located at 6116 Executive Boulevard, Suite 400,
Rockville, Maryland 20852. PADCO Advisors II, Inc. 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. The Servicer is wholly-owned by Albert P. Viragh, Jr., who is
the Chairman of the Board and the President of the Trust and the sole
controlling person and majority owner of the Advisor.

Under the service agreement, the Servicer provides the Trust and each Fund with
all required general administrative services, including, without limitation,
office space, equipment, and personnel; clerical and general back office
services; bookkeeping, internal accounting, and secretarial services; the
determination of net asset values; and the preparation and filing of all
reports, registration statements, proxy statements, and all other materials
required to be filed or furnished by the Trust and each Fund under federal and
state securities laws. The Servicer also maintains the shareholder account
records for each Fund, disburses dividends and distributions payable by each
Fund, and produces statements with respect to account activity for each Fund and
each Fund's shareholders. The Servicer pays all fees and expenses that are
directly related to the services provided by the Servicer to each Fund; each
Fund reimburses the Servicer for all fees and expenses incurred by the Servicer
which are not directly related to the services the Servicer provides to the Fund
under the service agreement.

23
<PAGE>

Pursuant to an Accounting Services Agreement, the Servicer serves as Accounting
Services Agent and performs certain record keeping and accounting functions.

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.

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

24
<PAGE>

securities plus the values of its other assets, less all liabilities, by the
number of outstanding shares of the Fund. If market quotations are not readily
available, a security will be valued at fair value by the Board of Trustees or
by the Advisor using methods established or ratified by the Board of Trustees.

The Funds will generally value their assets at fair value because of the time
difference between the close of the relevant foreign exchanges and the time the
Funds price their shares at the close of the NYSE. Such valuation will attempt
to reflect the U.S. financial markets' perceptions and trading activity related
to the Funds' assets since the calculation of the closing level of the Funds'
respective benchmarks. The Topix 100 Index is determined in the early morning
(2:00 or 3:00 a.m., depending on daylight savings time) U.S. Eastern Standard
Time ("EST"), prior to the opening of the NYSE. The Stoxx 50 Index is determined
in the mid-morning (approximately 10:30 a.m.) U.S. EST, prior to the closing of
the NYSE. Under fair value pricing, the values assigned to a Fund's securities
may not be the quoted or published prices of those securities on their primary
markets or exchanges.

Options on securities and indices purchased by a Fund generally are valued at
their last bid price in the case of exchange-traded options or, in the case of
options traded in the over-the-counter ("OTC") market, the average of the last
bid price as obtained from two or more dealers unless there is only one dealer,
in which case that dealer's price is used. Futures contracts generally are
valued based upon the unrealized gain or loss on the contract determined with
reference to the first price reported by established futures exchnages after the
close of a Fund pricing cycle, or alternatively, with reference to the average
price at which futures are bought and sold by a Fund. Options on futures
contracts generally are valued with reference to the underlying futures
contract. If the market makes a limit move with respect to a particular
commodity, the commodity will be valued at fair value by the Advisor using
methods established or ratified by the Board of Trustees.

OTC securities held by a Fund shall be valued at the last sales price or, if no
sales price is reported, the mean of the last bid and asked price is used. The
portfolio securities of a Fund that are listed on national and international
exchanges are taken at the last sales price of such securities on such exchange;
if no sales price is reported, the mean of the last bid and asked price is used.

For valuation purposes, all assets and liabilities initially expressed in
foreign currency values will be converted into U.S. dollar values at the mean
between the bid and the offered quotations of such currencies against U.S.
dollars as last quoted by any recognized dealer at the time NAV is determined.
If such quotations are not available, the rate of exchange will be determined in
good faith by the Advisor based on guidelines adopted by the Trustees. Dividend
income and other distributions are recorded on the ex-dividend date, except for
certain dividends from foreign securities which are recorded as soon as the
Trust is informed after the ex-dividend date.

Illiquid securities, securities for which reliable quotations or pricing
services are not readily available, and all other assets will be valued at their
respective fair value as determined in good faith by, or under procedures
established by, the Trustees, which procedures may include the delegation of
certain responsibilities regarding valuation to the Advisor or the officers of
the Trust. The officers of the Trust report, as necessary, to the Trustees
regarding portfolio valuation determination. The Trustees, from time to time,
will review these methods of valuation and will recommend changes which may be
necessary to assure that the investments of the Funds are valued at fair value.

25
<PAGE>

PERFORMANCE INFORMATION

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

Performance information for each of the Funds contained in reports to
shareholders or prospective shareholders, advertisements, and other promotional
literature may be compared to the record of various unmanaged indices.

Such unmanaged indices may assume the reinvestment of dividends, but
generally do not reflect deductions for operating costs and expenses. In
addition, a Fund's total return may be compared to the performance of broad
groups of comparable mutual funds with similar investment goals, as such
performance is tracked and published by such independent organizations as
Lipper Analytical Services, Inc. ("Lipper"), and CDA Investment Technologies,
Inc., among others. When Lipper's tracking results are used, the Fund will be
compared to Lipper's appropriate fund category, that is, by fund objective
and portfolio holdings. Performance figures are based on historical results
and are not intended to indicate future performance.

In addition, rankings, ratings, and comparisons of investment performance and/or
assessments of the quality of shareholder service appear in numerous financial
publications such as MONEY, FORBES, KIPLINGER'S MAGAZINE, PERSONAL INVESTOR,
MORNINGSTAR, INC., and similar sources.

CALCULATION OF RETURN QUOTATIONS

For purposes of quoting and comparing the performance of a Fund to that of other
mutual funds and to other relevant market indices in advertisements or in
reports to shareholders, performance for the Fund may be stated in terms of
total return. Under the rules of the Securities and Exchange Commission ("SEC
Rules"), Funds advertising performance must include total return quotes
calculated according to the following formula:

n
P(1+T) = ERV

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

T = average annual total return;

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

26
<PAGE>

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

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

PURCHASE AND REDEMPTION OF SHARES

SUSPENSION OF THE RIGHT OF REDEMPTION
With respect to each Fund, and as permitted by the Securities and Exchange
Commission (the "Commission"), the right of redemption may be suspended, or the
date of payment postponed: (i) for any period during which the NYSE is closed
(other than customary weekend or holiday closings), or trading is restricted;
(ii) for any period during which an emergency exists so that disposal of a
Fund's investments or the determination of NAV is not reasonably practicable; or
(iii) for such other periods as the Commission, by order, may permit for
protection of Fund investors. In cases where NASDAQ, the CME or Chicago Board
Options Exchange, or any foreign market where the Funds' securities trade is
closed or trading is restricted, a Fund may ask the Commission to permit the
right of redemption to be suspended. On any day that any of the securities
exchanges on which the Fund's securities trade close early (such as on days in
advance of holidays generally observed by participants in these markets), or as
permitted by the Commission, the right is reserved to advance the time on that
day by which purchase and redemption orders must be received.

HOLIDAYS
The NYSE, the Federal Reserve Bank of New York, the NASDAQ, the CME, the CBOT,
and other U.S. exchanges are closed on weekends and on the following holidays:
(i) New Year's Day, Martin Luther King Jr.'s Birthday, President's Day, Good
Friday, Memorial Day, 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.

The national Japanese holidays affecting the relevant securities markets in
Japan are as follows: New Year's Day; Coming-of-Age Day; National Foundation
Day; Vernal Equinox Day; Greenery Day; Constitution Memorial Day; Children's
Day; Marine Day; Respect-of-the-Aged Day; Autumnal Equinox Day; Health-Sports
Day; Culture Day; Labor Thanksgiving Day; and Emperor's Birthday. Although the
Trust expects this same holiday schedule to be observed in the future, the
Japanese exchange may modify its holiday schedule at any time.

27
<PAGE>

National holidays in the various European countries will also affect the
relevant European securities markets. Due to the variety of holidays in each EU
country as well as Switzerland, those holidays are not listed here.

REDEMPTIONS IN-KIND
The Trust intends to pay redemption proceeds in cash. However, under unusual
conditions that make the payment in cash unwise (and for the protection of the
remaining shareholders of the Fund) the Trust reserves the right to pay all, or
part, of your redemption proceeds in liquid securities with a market value equal
to the redemption price (redemption in-kind). Although it is highly unlikely
that your shares would ever actually be redeemed in kind, you would probably
have to pay brokerage costs to sell the securities distributed to you.

DIVIDENDS, DISTRIBUTIONS, AND TAXES

DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income and any distributions of net realized
capital gains from each of the Funds will be distributed as described in the
Trust's Prospectus under "Dividends and Distributions." All such distributions
of a Fund normally automatically will be reinvested without charge in additional
shares of the same Fund.

REGULATED INVESTMENT COMPANY ("RIC") STATUS
As a RIC, a Fund would not be subject to federal income taxes on the net
investment income and capital gains that the Fund distributes to the Fund's
shareholders.

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.

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

28
<PAGE>

to tax on the excess (if any) of the fair market of the Fund's assets over the
Fund's basis in such assets, as of the day immediately before the first taxable
year for which the Fund seeks to requalify as a RIC.

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

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

Under the Code, special rules are provided for certain transactions in a foreign
currency other than the taxpayer's functional currency (I.E., unless certain
special rules apply, currencies other than the U.S. dollar). In general, foreign
currency gains or losses from forward contracts, from futures contracts that are
not "regulated futures contracts," and from unlisted options will be treated as
ordinary income or loss under the Code. Also, certain foreign exchange gains
derived with respect to foreign fixed-income securities are also subject to
special treatment. In general, any such gains or losses will increase or
decrease the amount of a Fund's investment company taxable income available to
be distributed to shareholders as ordinary income, rather than increasing or
decreasing the amount of a Fund's net capital gain. Additionally, if such losses
exceed other investment company taxable income during a taxable year, a Fund
would not be able to make any ordinary dividend distributions.

The Funds may incur a liability for dividend withholding tax as a result of
investment in stock or securities of foreign corporations. If, at any year-end,
more than 50% of the assets of a Fund are comprised of stock or securities of
foreign corporations, the Fund may elect to "pass through" to shareholders the
amount of foreign taxes paid by that Fund. The Fund will make such an election
only if that Fund deems this to be in the best interests of its shareholders. If
the Fund does not qualify to make this election or does qualify, but does not
choose to do so, the imposition of such taxes would directly reduce the return
to an investor from an investment in that Fund.

29
<PAGE>

OPTIONS TRANSACTIONS BY THE FUNDS
If a call option written by a Fund expires, the amount of the premium received
by the Fund for the option will be short-term capital gain to the Fund. If such
an option is closed by a Fund, any gain or loss realized by the Fund as a result
of the closing purchase transaction will be short-term capital gain or loss. If
the holder of a call option exercises the holder's right under the option, any
gain or loss realized by the Fund upon the sale of the underlying security or
underlying futures contract pursuant to such exercise will be short-term or
long-term capital gain or loss to the Fund depending on the Fund's holding
period for the underlying security or underlying futures contract.

With respect to call options purchased by a Fund, the Fund will realize
short-term or long-term capital gain or loss if such option is sold and will
realize short-term or long-term capital loss if the option is allowed to expire
depending on the Fund's holding period for the call option. If such a call
option is exercised, the amount paid by the Fund for the option will be added to
the basis of the stock or futures contract so acquired.

The Funds will utilize options on stock indices in their operations. Options on
"broad based" stock indices are classified as "nonequity options" under the
Code. Gains and losses resulting from the expiration, exercise, or closing of
such nonequity options, as well as gains and losses resulting from futures
contract transactions, will be treated as long-term capital gain or loss to the
extent of 60% thereof and short-term capital gain or loss to the extent of 40%
thereof (hereinafter, "blended gain or loss"). In addition, any nonequity option
and futures contract 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 Funds involving nonequity options on stock
indices may constitute "straddle" transactions. "Straddles" may affect the
taxation of such instruments and may cause the postponement of recognition of
losses incurred in certain closing transactions. Each the Funds will also have
available to the Fund a number of elections under the Code concerning the
treatment of option transactions for tax purposes. Each such Fund will utilize
the tax treatment that, in the Fund's judgment, will be most favorable to a
majority of investors in the Fund. Taxation of these transactions will vary
according to the elections made by the Fund. These tax considerations may have
an impact on investment decisions made by the Fund.

A Fund's transactions in options, under some circumstances, could preclude the
Fund's qualification for the special tax treatment available to investment
companies meeting the requirements of Subchapter M of the Code. However, it is
the intention of each Fund's portfolio management to limit gains from such
investments to less than 10% of the gross income of the Fund during any fiscal
year in order to maintain this qualification.

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.

30
<PAGE>

Shareholders are urged to consult their own tax advisors regarding the
application of the provisions of tax law described in this Statement of
Additional Information in light of the particular tax situations of the
shareholders and regarding specific questions as to federal, state, or local
taxes.

OTHER INFORMATION

VOTING RIGHTS
You receive one vote for every full Fund share owned. Each Fund or class of a
Fund will vote separately on matters relating solely to that Fund or class. All
shares of the Funds are freely transferable.

As a Delaware business trust, the Trust is not required to hold annual
Shareholder meetings unless otherwise required by the 1940 Act. However, a
meeting may be called by Shareholders owning at least 10% of the outstanding
shares of the Trust. If a meeting is requested by Shareholders, the Trust will
provide appropriate assistance and information to the Shareholders who requested
the meeting. Shareholder inquiries can be made by calling 1-800-820-0888 or
301-468-8520, or by writing to the Trust at 6116 Executive Boulevard, Suite 400,
Rockville, Maryland 20852.

CODE OF ETHICS
The Board of Trustees of the Trust has adopted a Combined Code of Ethics (the
"Code") pursuant to Rule 17j-1 under the Investment Company Act of 1940. The
Advisor, Servicer and Distributor are also covered by the Code. The Code applies
to the personal investing activities of trustees, directors, officers and
certain employees ("access persons"). Rule 17j-1 and the Code is designed to
prevent unlawful practices in connection with the purchase or sale of securities
by access persons. Under the Code, access persons are permitted to engage in
personal securities transactions, but are required to report their personal
securities transactions for monitoring purposes. In addition, certain access
persons are required to obtain approval before investing in initial public
offerings or private placements. The Code is on file with the Securities and
Exchange Commission, and is available to the public.

REPORTING
You will receive the Trust's unaudited financial information and audited
financial statements. In addition, the Trust will send you proxy statements and
other reports. If you are a customer of a financial institution that has
purchased shares of a Fund for your account, you may, depending upon the nature
of your account, receive all or a portion of this information directly from your
financial institution.

SHAREHOLDER INQUIRIES
You may visit the Trust's Web site at www.rydexfunds.com or call 1-800-820-0888
or 301-468-8520 to obtain information on account statements, procedures, and
other related information.

COUNSEL

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

31
<PAGE>

AUDITORS AND CUSTODIAN

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

32
<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

33
<PAGE>

to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.

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

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.

34
<PAGE>

PART C

OTHER INFORMATION

ITEM 23. EXHIBITS

(a)(1) Certificate of Trust of Rydex Variable Trust is incorporated by
reference to Exhibit (a) of the Initial Registration Statement, filed
on June 17, 1998.

(a)(2) Declaration of Trust of Rydex Variable Trust is incorporated by
reference to Exhibit (a) of the Initial Registration Statement, filed
on June 17, 1998.

(b) By-Laws are incorporated by reference to Exhibit (b) of the Initial
Registration Statement, filed on June 17, 1998.

(d) Investment Advisory Agreement between the Registrant and PADCO
Advisors II, Inc. is incorporated herein by reference to Exhibit (d)
of the Post-Effective Amendment No. 1 to this Registration Statement,
filed on April 16, 1999.

(e)(1) Distribution Agreement between the Registrant and PADCO Financial
Services, Inc. is incorporated herein by reference to Exhibit (e)(1)
of the Post-Effective Amendment No. 1 to this Registration Statement,
filed on April 16, 1999.

(e)(2) Participation Agreement between the Registrant and PADCO Financial
Services, Inc. is herein incorporated by reference to Pre-Effective
Amendment No. 1 as filed on October 14, 1998.

(e)(3) Investor Service Agreement and Plan are incorporated herein by
reference to Exhibit (e)(3) of the Post-Effective Amendment No. 1 to
this Registration Statement, filed on April 16, 1999.

(f) Not Applicable.

(g) Custodian Agreement between the Registrant and Star Bank, N.A. is
herein incorporated by reference to Pre-Effective Amendment No. 1 as
filed on October 14, 1998.
<PAGE>

(h)(1) Service Agreement between the Registrant and PADCO Service Company,
Inc. is incorporated herein by reference to Exhibit (h)(1) of the
Post-Effective Amendment No. 1 to this Registration Statement, filed
on April 16, 1999.

(h)(2) Accounting Services Agreement between the Registrant and PADCO Service
Company, Inc. is incorporated herein by reference to Exhibit (h)(2) of
the Post-Effective Amendment No. 1 to this Registration Statement,
filed on April 16, 1999.

(i) Legal Opinion of Morgan, Lewis & Bockius LLP is incorporated herein by
reference to Exhibit (i) of the Post-Effective Amendment No. 1 to this
Registration Statement, filed on April 16, 1999.

(j) Not Applicable.

(k) Not Applicable.

(l) Not Applicable.

(m) Not Applicable.

(n) Not Applicable.

(o) Not Applicable.

(p) Combined Code of Ethics for Rydex Series Funds, Rydex Variable Trust,
Rydex Dynamic Funds, PADCO Advisors, Inc. d/b/a Rydex Global Advisors,
PADCO Advisors II, Inc. d/b/a Rydex Global Advisors, Rydex
Distributors, Inc., PADCO Service Company, Inc. is filed herewith.

(q) Powers of Attorney for Albert P. Viragh, Jr., Carl G. Verboncoeur,
Corey A. Colehour, J. Kenneth Dalton, John O. Demaret, Patrick T.
McCarville, and Roger Somers are herein incorporated by reference to
Exhibit (p) to Pre-Effective Amendment No. 1 as filed October 14,
1998.

ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE FUND

Not Applicable.

iii
<PAGE>

ITEM 25. INDEMNIFICATION

The Registrant is organized as a Delaware business trust and is operated
pursuant to a Declaration of Trust, dated as of June 11, 1998 (the "Declaration
of Trust"), that permits the Registrant to indemnify its trustees and officers
under certain circumstances. Such indemnification, however, is subject to the
limitations imposed by the Securities Act of 1933, as amended, and the
Investment Company Act of 1940, as amended. The Declaration of Trust of the
Registrant provides that officers and trustees of the Trust shall be indemnified
by the Trust against liabilities and expenses of defense in proceedings against
them by reason of the fact that they each serve as an officer or trustee of the
Trust or as an officer or trustee of another entity at the request of the
entity. This indemnification is subject to the following conditions:

(a) no trustee or officer of the Trust is indemnified against any
liability to the Trust or its security holders which was the
result of any willful misfeasance, bad faith, gross
negligence, or reckless disregard of his duties;

(b) officers and trustees of the Trust are indemnified only for
actions taken in good faith which the officers and trustees
believed were in or not opposed to the best interests of the
Trust; and

(c) expenses of any suit or proceeding will be paid in advance
only if the persons who will benefit by such advance undertake
to repay the expenses unless it subsequently is determined
that such persons are entitled to indemnification.

The Declaration of Trust of the Registrant provides that if indemnification is
not ordered by a court, indemnification may be authorized upon determination by
shareholders, or by a majority vote of a quorum of the trustees who were not
parties to the proceedings or, if this quorum is not obtainable, if directed by
a quorum of disinterested trustees, or by independent legal counsel in a written
opinion, that the persons to be indemnified have met the applicable standard.

ITEM 26. BUSINESS AND OTHER CONNECTIONS OF THE INVESTMENT ADVISER

ADVISER
PADCO Advisors II, Inc., d/b/a Rydex Global Advisors, (the "Advisor") is the
investment advisor for the Trust. The principal address of the Advisor is 6116
Executive Drive, Rockville, Maryland. The Advisor is an investment adviser
registered under the Advisers Act.

The officers and directors of the Advisor, including information as to any other
business profession, vocation or employment of substantial nature engaged in by
such officers and directors during the past two years, are as follows:

iv
<PAGE>

Name Position
---- --------
Albert P. Viragh, Jr. Chairman and President
Albert P. Viragh, Jr. Treasurer
Amanda C. Viragh Secretary
Amanda C. Viragh Assistant Treasurer

ITEM 27. PRINCIPAL UNDERWRITERS

(a) Rydex Distributors, Inc. (formerly, PADCO Financial Services, Inc.)
serves as the principal underwriter for shares of the Registrant,
Advisor Class Shares and International Funds Shares of Rydex Series
Funds, and shares of Rydex Dynamic Funds.

(b) The following information is furnished with respect to the directors
and officers of Rydex Distributors, Inc.

<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITIONS AND OFFICES WITH POSITIONS AND OFFICES
BUSINESS ADDRESS* UNDERWRITER WITH REGISTRANT
- ----------------- -------------------------- -----------------------
<S> <C> <C>
Albert P. Viragh, Jr. Chairman of the Board of Directors, Chairman of the Board
President and Treasurer of Trustees and President

Amanda C. Viragh Director None

Carl G. Verboncoeur Vice President Vice President
</TABLE>

ITEM 28. LOCATION OF ACCOUNTS AND RECORDS

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

All accounts, books, and records required to be maintained and preserved by
Section 31(a) of the Investment Company Act of 1940, as amended, and Rules 31a-1
and 31a-2 thereunder, will be kept by the Registrant at 6116 Executive
Boulevard, Rockville, Maryland 20852.

ITEM 29. MANAGEMENT SERVICES

Not Applicable.

ITEM 30. UNDERTAKINGS

Not Applicable.

v
<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this
Post-Effective Amendment No. 3 to the Registration Statement (File No.
811-08821) to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Rockville, State of Maryland on this 31st day of
March, 2000.

Rydex Variable Trust

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

Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 3 to the Registration Statement has been signed
below by the following persons in the capacity and on the dates indicated.

<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/Albert P. Viragh, Jr. Chairman of the Board of Trustees, March 31, 2000
- ----------------------------- Principal Executive Officer, and
Albert P. Viragh, Jr. President

* Member of the Board of Trustees March 31, 2000
- -----------------------------
Corey A. Colehour

* Member of the Board of Trustees March 31, 2000
- -----------------------------
J. Kenneth Dalton

* Member of the Board of Trustees March 31, 2000
- -----------------------------
John O. Demaret

* Member of the Board of Trustees March 31, 2000
- -----------------------------
Roger Somers

* Member of the Board of Trustees March 31, 2000
- -----------------------------
Patrick T. McCarville

/s/Carl G. Verboncoeur Vice President and Treasurer March 31, 2000
- --------------------------
Carl G. Verboncoeur
</TABLE>

/s/ Albert P. Viragh, Jr.
- ---------------------------------------
Albert P. Viragh, Jr., Attorney in Fact
*Powers of Attorney previously filed

vi
<PAGE>

EXHIBIT INDEX

(a)(1) Certificate of Trust of Rydex Variable Trust is incorporated by
reference to Exhibit (a) of the Initial Registration Statement, filed
on June 17, 1998.

(a)(2) Declaration of Trust of Rydex Variable Trust is incorporated by
reference to Exhibit (a) of the Initial Registration Statement, filed
on June 17, 1998.

(b) By-Laws are incorporated by reference to Exhibit (b) of the Initial
Registration Statement, filed on June 17, 1998.

(e)(2) Participation Agreement between the Registrant and PADCO Financial
Services, Inc. is herein incorporated by reference to Pre-Effective
Amendment No. 1 as filed on October 14, 1998.

(e)(3) Investor Service Agreement and Plan are incorporated herein by
reference to Exhibit (e)(3) of the Post-Effective Amendment No. 1 to
this Registration Statement, filed on April 16, 1999.

(f) Not Applicable.

(g) Custodian Agreement between the Registrant and Star Bank, N.A. is
herein incorporated by reference to Pre-Effective Amendment No. 1 as
filed on October 14, 1998.

vii
<PAGE>

(i) Legal Opinion of Morgan, Lewis & Bockius LLP is incorporated herein by
reference to Exhibit (i) of the Post-Effective Amendment No. 1 to this
Registration Statement, filed on April 16, 1999.

(j) Not Applicable.

(k) Not Applicable.

(l) Not Applicable.

(m) Not Applicable.

(n) Not Applicable.

(o) Not Applicable.

viii

<PAGE>

COMBINED CODE OF ETHICS
ADOPTED UNDER RULE 17j-1
COVERING THE FOLLOWING COMPANIES:

RYDEX DYNAMIC FUNDS
RYDEX SERIES FUNDS
RYDEX VARIABLE TRUST
PADCO ADVISORS, INC.
PADCO ADVISORS II, INC.
PADCO FINANCIAL SERVICES, INC.
PADCO SERVICE COMPANY, INC.

EFFECTIVE JANUARY 1, 1999
AS REVISED FEBRUARY 25, 2000

Rydex Dynamic Funds, Rydex Series Funds, Rydex Variable Trust, PADCO
Advisors, Inc., PADCO Advisors II, Inc., PADCO Financial Services, Inc. and
PADCO Service Company, Inc. (the "Companies") are confident that their officers,
trustees, directors and employees act with integrity and good faith. The
Companies recognize, however, that personal interests may conflict with a
Company's interests where officers, directors, trustees or employees:

- Know about present or future portfolio transactions or

- Have the power to influence portfolio transactions; and

- Engage in personal transactions in securities.

In an effort to prevent these conflicts from arising and in accordance
with Rule 17j-1(b)(1) under the Investment Company Act of 1940 (the "1940 Act"),
the Companies have adopted this Code of Ethics (the "Code") to prohibit
transactions that create, may create, or appear to create conflicts of interest,
and to establish reporting requirements and enforcement procedures. Each
officer, director, trustee and employee of the Companies should carefully read
and review this Code.

I. ABOUT THE RYDEX FUNDS.

Rydex Dynamic Funds, Rydex Series Funds, and Rydex Variable Trust (the
"Trusts") are separately registered open-end management investment companies.
Each Trust consists of multiple investment portfolios (the "Rydex Funds"). The
Rydex Funds may be grouped primarily into two broad categories: (1) Benchmark
Funds and (2) Sector Funds. In addition, there is a Money Market Fund. Each
Benchmark Fund seeks to provide investment results that match the performance of
a specific benchmark. Each Sector Fund seeks capital appreciation by investing
in companies which operate in a specific economic sector. The Money Market Fund
seeks to provide security of principal,

<PAGE>

high current income and liquidity by investing primarily in money market
instruments issued by the U.S. Government or its agencies.

PADCO Advisors, Inc. and PADCO Advisors II, Inc. (the "Advisors") are
each investment advisers. PADCO Advisors, Inc. is the investment adviser for
Rydex Dynamic Funds and for Rydex Series Funds and PADCO Advisors II, Inc. is
the investment adviser for Rydex Variable Trust. Both Advisors employ the same
investment methodology in managing the Rydex Funds. The Advisors' objective is
to match the performance of each of the Rydex Fund's benchmarks or particular
market sectors as closely as possible, whether that performance is positive or
negative. In buying and selling securities for the Trusts, the Advisors employ
the same quantitative model that screens stocks primarily based on liquidity,
market capitalization and correlation relative to the applicable benchmark or
market sector. In other words, the Advisors will recommend and purchase a
security for a fund because it is highly liquid and has a history of "good
correlation," not necessarily good performance. Because of this investment
methodology, the personal securities activities of the trustees, officers or
employees of the Companies are less likely to create a conflict of interest than
they may in investment companies that employ a research-driven investment
methodology. Consequently, the Companies have considered, but not adopted, many
of the recommendations of the Investment Company Institute's Advisory Group on
Personal Trading.

II. ABOUT THIS CODE OF ETHICS.

(1) TRANSACTION-RELATED AND REPORTING PROVISIONS.

This Code sets forth specific prohibitions relating to SECURITIES
transactions and also sets out certain reporting requirements. They cover the
persons identified below:

- All Company officers and directors;
- Portfolio Management Persons, Fund Accounting Persons and
all other employees who regularly obtain information concerning
recommendations made to a Fund about the PURCHASE OR SALE of a
security (herein called ACCESS EMPLOYEES);
- All Trustees of the Trusts, both INTERESTED and INDEPENDENT;
and
- Natural persons in a CONTROL relationship with a Company who
obtain information concerning recommendations made to a Fund
about the PURCHASE OR SALE of a SECURITY AND ARE NOT
SPECIFICALLY COVERED BY ANY OTHER SECTION OF THE CODE.

For the prohibitions and reporting requirements that apply to you, please
refer to Parts A-D, as indicated below. (Definitions of UNDERLINED terms are
included in Appendix A; Quarterly Transaction Report forms are in Appendix B.)

- Independent Trustees of the Trusts Part A

- Interested Trustees Part B

<PAGE>

- Company officers, directors and Part C
ACCESS EMPLOYEES
- Natural CONTROL persons Part D

(2) OTHER PROVISIONS.

The remainder of this Code sets forth general principles (Section III),
required course of conduct (Section IV), reporting obligations (Section V), the
Companies' review, enforcement and recordkeeping responsibilities (Sections VI,
VII and VIII) and miscellaneous information (Section IX).

III. STATEMENT OF GENERAL PRINCIPLES.

In recognition of the trust and confidence placed in the Companies by
shareholders of the Trusts, and because the Companies believe that their
operations should benefit shareholders, the Companies have adopted the following
universally applicable principles.

(1) Shareholders' interests are paramount. You must place shareholder
interests before your own.

(2) You must accomplish all personal SECURITIES transactions in a
manner that avoids even the appearance of a conflict of your
personal interests with those of a Trust and its shareholders.

(3) You must avoid actions or activities that allow (or appear to
allow) you or your family to profit or benefit from your position
with a Company, or that bring into question your independence or
judgment.

IV. REQUIRED COURSE OF CONDUCT.

(1) PROHIBITION AGAINST FRAUD, DECEIT AND MANIPULATION.

You cannot, in connection with the PURCHASE OR SALE, directly or
indirectly, of a SECURITY HELD OR TO BE ACQUIRED by any Fund:

(A) employ any device, scheme or artifice to defraud the Fund;

(B) make to the Fund any untrue statement of a material fact or
omit to state to the Fund a material fact necessary in
order to make the statements made, in light of the
circumstances under which they are made, not misleading;

<PAGE>

(D) engage in any manipulative practice with respect to the
Fund.

Two of the most common risks associated with personal SECURITIES
transactions are front-running and trading opposite a Fund. For
example, front-running would include the purchase of a SECURITY
any time within seven days ahead of when a Fund purchases the same
SECURITY or the sale of a SECURITY any time within seven days
ahead of when a Fund sells the same SECURITY. An example of
trading opposite a Fund would include the sale of a SECURITY any
time within seven days after a Fund purchases the same SECURITY or
the purchase of a security any time within seven days after a Fund
sells the same SECURITY.

(2) LIMITS ON ACCEPTING OR RECEIVING GIFTS.

Officers of the Advisors and Portfolio Management Personnel cannot
accept or receive any gift of more than DE MINIMIS value from any
person or entity that does business with or on behalf of a
Company. THIS PROVISION DOES NOT INCLUDE:

- occasional meals, tickets to a sporting event or the
theater, or normal business entertainment; and

- any payment or reimbursement for professional
training or educational meetings.

V. REPORTING OBLIGATIONS.

See Parts A, B, C or D as appropriate, for your specific reporting
obligations.

VI. REVIEW AND ENFORCEMENT OF THE CODE.

Each Company shall appoint a Compliance Officer. However, with respect to
the Trusts, the Compliance Officer shall be the President of the Trust or his
designee.

(1) COMPLIANCE OFFICER. The Compliance Officer will perform the
following duties:

(A) The Compliance Officer will, on a quarterly basis, compare all
reported personal SECURITIES transactions with the Trusts'
completed portfolio transactions and a list of securities being
considered for purchase or sale by the Advisors to determine
whether a Code violation may have occurred. The Compliance Officer
may request additional information or take any other appropriate
measure that the Compliance Officer decides is necessary to aid in
this determination. Before determining that a person has violated
the Code, the Compliance Officer must give the person an
opportunity to supply explanatory material.

<PAGE>

(B) If the Compliance Officer determines that a Code violation may
have occurred, the Compliance Officer must submit the
determination, together with the confidential quarterly report and
any explanatory material provided by the person, to the President
and fund counsel. The President of the Trusts and counsel to the
Rydex Funds (the "Fund Counsel") will independently determine
whether the person violated the Code.

(C) No person is required to participate in a determination of
whether he or she has committed a Code violation or of the
imposition of any sanction against himself or herself. If a
securities transaction of the President is under consideration, a
Vice President will act for the President for purposes of this
Section VI.

(2) SANCTIONS.

If the President and Fund Counsel find that the person violated
the Code, the President will impose upon the person sanctions that
the President deems appropriate and will report the violation and
the sanction imposed to the Board of Trustees of the Rydex Funds
at the next regularly scheduled board meeting unless, in the sole
discretion of the Trusts' President, circumstances warrant an
earlier report.

(3) EXCEPTIONS.

The Compliance Officer, in his or her discretion, may exempt any
person from any specific provision of the Code, if the Compliance
Officer determines that (a) the services of the person are
valuable to the Rydex Funds; (b) the failure to grant this
exemption will result in an undue burden on the person or prevent
the person from being able to render services to the Rydex Funds;
and (c) granting the exemption does not detrimentally affect the
shareholders of the Rydex Funds. The Compliance Officer will
prepare a report documenting the nature of any exemption granted,
the persons involved and the reasons for granting such exemption.

Any person granted an exemption with respect to a particular
transaction must furnish the Compliance Officer with a written
report concerning that transaction within three (3) days of the
transaction.

VII. ANNUAL WRITTEN REPORT TO THE BOARD.

At least once a year, the Compliance Officer, on behalf of each Company,
will provide the Board of Trustees of each Trust a WRITTEN report that includes:

(1) ISSUES ARISING UNDER THE CODE.

The Report will describe any issue(s) that arose during the
previous year under the Code, including any material Code
violations, and any resulting sanctions.

<PAGE>

(2) CERTIFICATION.

The Report will certify to the Board of Trustees that each Company
has adopted measures reasonably necessary to prevent its personnel
from violating the Code currently and in the future.

VIII. RECORDKEEPING.

The Companies will maintain records as set forth below. These records
will be maintained in accordance with Rule 31a-2 under the 1940 Act and will be
available for examination by representatives of the Securities and Exchange
Commission.

(1) A copy of this Code and any other code which is, or at any time
within the past five years has been, in effect will be preserved
in an easily accessible place;

(2) A list of all persons who are, or within the past five years have
been, required to submit reports under this Code will be
maintained in an easily accessible place;

(3) A copy of each report made by a person under this Code will be
preserved for a period of not less than five years from the end of
the fiscal year in which it is made, the first two years in an
easily accessible place;

(4) A record of any Code violation and of any sanctions taken will be
preserved in an easily accessible place for a period of not less
than five years following the end of the fiscal year in which the
violation occurred;

(5) A copy of each annual report to the Board of Trustees will be
maintained for at least five years from the end of the fiscal year
in which it is made, the first two years in an easily accessible
place; and

(6) The Companies will maintain a record of any decision, and the
reasons supporting the decision, to approve the acquisition of
SECURITIES in an INITIAL PUBLIC OFFERING ("IPO") or a PRIVATE
PLACEMENT, for at least five years after the end of the fiscal
year in which the approval is granted.

IX. MISCELLANEOUS.

(1) CONFIDENTIALITY. All personal SECURITIES transactions reports and
any other information filed with a Company under this Code will be
treated as confidential, provided that such reports and related
information may be produced to the Securities and Exchange
Commission and other regulatory agencies.

<PAGE>

(2) INTERPRETATION OF PROVISIONS. The Board of Trustees of the Trusts
may from time to time adopt such interpretations of this Code as
it deems appropriate.

(3) PERIODIC REVIEW AND REPORTING. The Compliance Officer or President
of the Trust (or his or her designee) will report to the Board of
Trustees at least annually as to the operation of this Code and
will address in any such report the need (if any) for further
changes or modifications to this Code.

(4) ANNUAL ACKNOWLEDGMENT. All Trustees, officers and employees of the
Companies will be given a copy of the Code and must complete the
Acknowledgment included as Appendix C and submit an Acknowledgment
to the Compliance Officer each year.

Adopted December 11, 1998
Revised February 25, 2000

<PAGE>

PART A
PROCEDURES FOR INDEPENDENT TRUSTEES

GENERAL OBLIGATIONS.

(1) REQUIRED TRANSACTION REPORTS.

(A) On a quarterly basis you must report any SECURITIES
transactions, as well as any SECURITIES accounts
established. You must submit your report to the Compliance
Officer no later than 10 calendar days after the end of the
calendar quarter in which the transaction to which the
report relates was effected. A Quarterly Personal
Securities Transactions Report is included as Appendix B.

(B) If you had no reportable transactions or did not open any
SECURITIES accounts during the quarter, you are not
required to submit a report.

(C) Reports of individual SECURITIES transactions are required
only if you KNEW at the time of the transaction or, in the
ordinary course of fulfilling your official duties as a
Trustee, SHOULD HAVE KNOWN, that during the 15-calendar day
period immediately preceding or following the date of your
transaction, the same SECURITY was PURCHASED OR SOLD, or
was BEING CONSIDERED FOR PURCHASE OR SALE, by a Fund.

NOTE: The "SHOULD HAVE KNOWN" standard does not:

- imply a duty of inquiry;

- presume you should have deduced or extrapolated from
discussions or memoranda dealing with the Fund's
investment strategies; or

- impute knowledge from your prior knowledge of the
Fund's portfolio holdings, market considerations, or
investment policies, objectives and restrictions.

(2) WHAT SECURITIES ARE COVERED UNDER YOUR QUARTERLY REPORTING
OBLIGATION?

If the transaction is reportable because it came within paragraph
(1), above, you must report all transactions in SECURITIES that:
(i) you directly or indirectly BENEFICIALLY OWN or (ii) because of
the transaction, you acquire direct or indirect BENEFICIAL
OWNERSHIP. The report must also contain any account you
established in which any SECURITIES were held during the quarter.

<PAGE>

(3) WHAT SECURITIES AND TRANSACTIONS MAY BE EXCLUDED FROM YOUR REPORT?

You are not required to detail or list the following SECURITIES or
transactions on your quarterly report:

(A) PURCHASES OR SALES effected for any account over which you
have no direct or indirect influence or CONTROL.

(B) Purchases you made solely with the dividend proceeds
received in a dividend reinvestment plan or that are part
of an automatic payroll deduction plan or other similar
type of plan, where you purchase SECURITIES issued by your
employer.

(C) Purchases arising from the exercise of rights issued by an
issuer PRO RATA to all holders of a class of its
SECURITIES, as long as you acquired these rights from the
issuer, and sales of such rights so acquired.

(D) Purchases of SECURITIES issued by the U.S. Government or
its agencies, bankers' acceptances, bank certificates of
deposit, commercial paper, high quality short-term debt
instruments, including repurchase agreements, and
registered open-end mutual funds.

(E) PURCHASES OR SALES which are non-volitional on your part,
including PURCHASES OR SALES upon exercise of puts or calls
written by you and sales from a margin account to a BONA
FIDE margin call.

You may include a statement in your report that the report shall
not be construed as your admission that you have any direct or
indirect BENEFICIAL OWNERSHIP in the SECURITY included in the
report.

<PAGE>

PART B
INTERESTED TRUSTEES

GENERAL OBLIGATIONS.

(1) PROVIDING A LIST OF SECURITIES.

You must provide the Compliance Officer with a complete listing of
all securities you BENEFICIALLY OWN as of December 31 of the
previous year. Each following year, you must submit a revised list
to the Compliance Officer showing the SECURITIES you BENEFICIALLY
OWN as of December 31. You must submit the initial listing within
10 calendar days of the date you first become a Trustee, and each
update no later than 30 calendar days after the start of the year.
A form entitled "Annual List of Beneficially Owned Securities" is
provided in Appendix C.

You are NOT required to provide this list of securities if:

- you are not currently affiliated with or employed by a
Trust's investment adviser(s) or distributor.

(2) REQUIRED TRANSACTION REPORTS.

On a quarterly basis you must report any SECURITIES transactions,
as well as any SECURITIES accounts established. You must submit
your report to the Compliance Officer no later than 10 calendar
days after the end of the calendar quarter in which the
transaction to which the report relates was effected. A Quarterly
Personal Securities Transactions Report is included as Appendix B.

If you had no reportable transactions or did not open any
SECURITIES accounts during the quarter, you are still required to
submit a report. Please note on your report that you had no
reportable transactions during the quarter, and return it, signed
and dated.

(3) WHAT SECURITIES ARE COVERED UNDER YOUR QUARTERLY REPORTING
OBLIGATION?

You must report all transactions in SECURITIES that: (i) you
directly or indirectly BENEFICIALLY OWN or (ii) because of the
transaction, you acquire direct or indirect BENEFICIAL OWNERSHIP.
The report must also contain any account you established in which
any SECURITIES were held during the quarter.

(4) PRE-APPROVAL OF IPOS AND PRIVATE PLACEMENTS.

You must obtain approval from the Compliance Officer before
acquiring BENEFICIAL OWNERSHIP of any SECURITIES offered in
connection with an IPO or a PRIVATE PLACEMENT.

<PAGE>

(5) WHAT SECURITIES AND TRANSACTIONS MAY BE EXCLUDED FROM YOUR REPORT?

You are not required to detail or list the following SECURITIES or
transactions on your report:

(A) PURCHASES OR SALES effected for any account over which you
have no direct or indirect influence or CONTROL.

(E) PURCHASES OR SALES which are non-volitional on your part,
including PURCHASES OR SALES upon exercise of puts or calls
written by you and sales from a margin account to a BONA
FIDE margin call.

You may include a statement in your report that the report shall
not be construed as your admission that you have any direct or
indirect BENEFICIAL OWNERSHIP in the SECURITY included in the
report.

<PAGE>

PART C
COMPANY OFFICERS, DIRECTORS AND ACCESS EMPLOYEES

I. GENERAL OBLIGATIONS.

(1) THIRTY-DAY PROHIBITION ON SELLING SECURITIES.

You cannot sell a SECURITY within 30 calendar days of acquiring
that SECURITY.

(2) PROVIDING A LIST OF SECURITIES.

You must provide the Compliance Officer with a complete listing of
all securities you BENEFICIALLY OWN as of December 31 of the
previous year. Each following year, you must submit a revised list
to the Compliance Officer showing the SECURITIES you BENEFICIALLY
OWN as of December 31. You must submit the initial listing within
10 calendar days of the date you first become an officer or ACCESS
EMPLOYEE, and each update no later than 30 calendar days after the
start of the year. A form entitled "Annual List of Beneficially
Owned Securities" is provided in Appendix C.

You are NOT required to provide this list of securities if:

- you are not currently affiliated with or employed by a
Trust's investment adviser(s) or distributor.

(3) REQUIRED TRANSACTION REPORTS.

On a quarterly basis you must report transactions in SECURITIES,
as well as any SECURITIES accounts established. You must submit
your report to the Compliance Officer no later than 10 calendar
days after the end of the calendar quarter in which the
transaction to which the report relates was effected. A Quarterly
Personal Securities Transactions Report is included as Appendix B.

(4) WHAT SECURITIES ARE COVERED UNDER YOUR QUARTERLY REPORTING
OBLIGATION?

You must report all transactions in SECURITIES that: (i) you
directly or indirectly BENEFICIALLY OWN or (ii) because of the
transaction, you acquire direct or indirect BENEFICIAL OWNERSHIP.
The report must contain any account you established in which any
SECURITIES were held during the quarter.

<PAGE>

(5) PRE-APPROVAL OF IPOS AND PRIVATE PLACEMENTS.

You must obtain approval from the Compliance Officer before
acquiring BENEFICIAL OWNERSHIP of any SECURITIES offered in
connection with an IPO or a PRIVATE PLACEMENT.

(6) WHAT SECURITIES AND TRANSACTIONS MAY BE EXCLUDED FROM YOUR REPORT?

You are not required to detail or list the following SECURITIES or
transactions on your report.

(A) PURCHASES OR SALES effected for any account over which you
have no direct or indirect influence or CONTROL.

(E) PURCHASES OR SALES which are non-volitional on your part,
including PURCHASES OR SALES upon exercise of puts or calls
written by you and sales from a margin account to a BONA
FIDE margin call.

You may include a statement in your report that the report shall
not be construed as your admission that you have any direct or
indirect BENEFICIAL OWNERSHIP in the SECURITY included in the
report.

(7) SEVEN-DAY BLACKOUT PERIOD ON PERSONAL SECURITIES TRANSACTIONS.

You cannot PURCHASE OR SELL, directly or indirectly, any SECURITY
in which you had (or by reason of such transaction acquire) any
BENEFICIAL OWNERSHIP at any time within seven calendar days before
or after the time that the same (or a related) SECURITY IS BEING
PURCHASED OR SOLD by any Fund. This provision will only apply if
you obtain specific information regarding the PURCHASE OR SALE of
a SECURITY by a Fund.

(A) EXCEPTION TO BLACKOUT PERIOD. The seven-day blackout period
does not apply to the PURCHASE OR SALE of any SECURITY (i)
of a company with a market

<PAGE>

capitalization in excess of $500 million, (ii) included in
either the S&P 500 Composite Index or the NASDAQ 100 Index,
and (iii) made in dollar amounts less than $10,000.

<PAGE>

PART D
NATURAL CONTROL PERSONS

GENERAL OBLIGATIONS.

(1) PROVIDING A LIST OF SECURITIES.

You must provide the Compliance Officer with a complete listing of
all SECURITIES you BENEFICIALLY OWN as of December 31 of the
previous year. Each following year, you must submit a revised list
to the Compliance Officer showing the SECURITIES you BENEFICIALLY
OWN as of December 31. You must submit the initial listing within
10 calendar days of the date you first become a natural CONTROL
person, and each update no later than 30 calendar days after the
start of the year. A form entitled "Annual List of Beneficially
Owned Securities" is provided in Appendix C.

You are NOT required to provide this list of securities if:

- you are not currently affiliated with or employed by the
Trusts' investment adviser(s) or distributor.

(2) REQUIRED TRANSACTION REPORTS.

(3) WHAT SECURITIES ARE COVERED UNDER YOUR QUARTERLY OBLIGATION?

You must report all transactions in SECURITIES that: (i) you
directly or indirectly BENEFICIALLY OWN or (ii) because of the
transaction, you acquire direct or indirect BENEFICIAL OWNERSHIP.
The report must also include any account you established in which
SECURITIES were held during the quarter.

(4) PRE-APPROVAL OF IPOS AND PRIVATE PLACEMENTS.

You must obtain approval from the Compliance Officer before
acquiring BENEFICIAL OWNERSHIP of any SECURITIES offered in
connection with an IPO or a PRIVATE PLACEMENT.

<PAGE>

(5) WHAT SECURITIES AND TRANSACTIONS ARE EXCLUDED FROM YOUR REPORTING
OBLIGATION?

You are not required to detail or list the following SECURITIES or
transactions on your report:

(A) PURCHASES OR SALES effected for any account over which you
have no direct or indirect influence or CONTROL.

(B) Purchases you made solely with the dividend proceeds
received in a dividend reinvestment plan or that are part
of an automatic payroll deduction plan, where you purchase
SECURITIES issued by your employer.

(E) PURCHASES OR SALES which are non-volitional on your part,
including PURCHASES OR SALES upon exercise of puts or calls
written by you and sales from a margin account to a BONA
FIDE margin call.

You may include a statement in your report that the report shall
not be construed as your admission that you have any direct or
indirect BENEFICIAL OWNERSHIP in the SECURITY included in the
report.

<PAGE>

APPENDIX A
DEFINITIONS

ACCESS EMPLOYEE includes any director or officer of a Trust or of a Trust's
investment adviser, or an employee of a Trust's investment adviser who, in
connection with his or her regular functions or duties, participates in the
selection of a Trust's portfolio SECURITIES or who has access to information
regarding a Trust's future purchases or sales of portfolio SECURITIES.

BENEFICIAL OWNERSHIP means the same as under Section 16 of the Securities
Exchange Act of 1934 and Rule 16a-1(a)(2) thereunder. You should generally
consider yourself the beneficial owner of any SECURITIES in which you have a
direct or indirect pecuniary interest. In addition, you should consider yourself
the beneficial owner of SECURITIES held by your spouse, your minor children, a
relative who shares your home, or other persons by reason of any contract,
arrangement, understanding or relationship that provides you with sole or shared
voting or investment power.

CONTROL means the same as that under Section 2(a)(9) of the 1940 Act. Section
2(a)(9) provides that "control" means the power to exercise a controlling
influence over the management or policies of a company, unless such power is
solely the result of an official position with such company. Ownership of 25% or
more of a company's outstanding voting SECURITIES is presumed to give the holder
of such SECURITIES control over the company. This presumption may be countered
by the facts and circumstances of a given situation.

INDEPENDENT TRUSTEE means a trustee of a Trust who is not an "interested person"
of the Trust within the meaning of Section 2(a)(19) of the 1940 Act. As of
February 25, 2000, the Trusts' INDEPENDENT TRUSTEES are:

Corey A. Colehour
J. Kenneth Dalton
Roger Somers
John O. Demaret
Patrick T. McCarville

INITIAL PUBLIC OFFERING ("IPO") means an offering of SECURITIES registered under
the Securities Act of 1933, the issuer of which, immediately before
registration, was not subject to the reporting requirements of Section 13 or
Section 15(d) of the Securities Exchange Act of 1934.

INTERESTED TRUSTEE means a trustee of a Trust who is an "interested person" of
the Trust within the meaning of Section 2(a)(19) of the 1940 Act. As of February
25, 2000, the Trusts' only INTERESTED trustee is:

Albert P. Viragh, Jr.

PRIVATE PLACEMENT means an offering that is exempt from registration under the
Securities Act of 1933 pursuant to Section 4(2) or Section 4(6) in the
Securities Act of 1933.

<PAGE>

PURCHASE OR SALE OF A SECURITY includes, among other things, the writing of an
option to purchase or sell a SECURITY.

SECURITY means the same as that set forth in Section 2(a)(36) of the 1940 Act,
except that it does not include securities issued by the U.S. Government or its
agencies, bankers' acceptances, bank certificates of deposit, commercial paper,
shares of registered open-end mutual funds and high quality short-term debt
instruments, including repurchase agreements. A SECURITY does not include index
futures or other commodities.

A SECURITY HELD OR TO BE ACQUIRED by the Trust (or any Fund) means any SECURITY
which, within the most recent 15 days, (i) is or has been held by the Trust (or
any Fund) or (ii) is being or has been considered by the Trust's adviser or
sub-adviser for purchase by the Trust (or any Fund), and any option to purchase
or sell, and any SECURITY convertible into or exchangeable for any SECURITY.

A SECURITY is BEING PURCHASED OR SOLD by the Trust from the time a PURCHASE OR
SALE program has been communicated to the person who places buy and sell orders
for the Trust until the program has been fully completed or terminated.

<PAGE>

APPENDIX B
QUARTERLY PERSONAL SECURITIES TRANSACTIONS REPORT

Name of Reporting Person:
------------------
Calendar Quarter Ended:
------------------

<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Name Name of Rydex
of Date of Title of No. of Type of Broker, Fund or
Issuer Transaction Security Shares/ Transaction Price Dealer or Funds
Principal Bank That Hold
Amount Effecting Same
Transaction Security
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------

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

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

If you had no reportable transactions during the quarter, please check here. / /

If you intend to disclaim BENEFICIAL OWNERSHIP of one or more SECURITIES
reported above, please describe below and indicate which SECURITIES are at
issue.__________________________________________________________________________

________________________________________________________________________________

If you established any new securities (broker/dealer) accounts last quarter,
please provide names here.

________________________________________________________________________________

- --------------------- ----------------
Signature Date

<PAGE>

APPENDIX C
ANNUAL LIST OF BENEFICIALLY OWNED SECURITIES

Name of Reporting Person:
----------------------

If this is the first time you have provided a list of securities, please check
here. / /

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

Name of Issuer Title of Security
- -------------------------------------------------------------------------------------------------------------
<S> <C>
- -------------------------------------------------------------------------------------------------------------

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

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

If you own no securities, please check here. / /

If you intend to disclaim beneficial ownership of one or more securities listed
above, please describe below and indicate which securities are at issue.________

________________________________________________________________________________

Please provide the names of all your existing securities (broker/dealer)
accounts here. _________________________________________________________________

________________________________________________________________________________

- ---------------------- ---------
Signature Date

<PAGE>

APPENDIX D
ANNUAL ACKNOWLEDGMENT

TO: Compliance Officer

RE: Annual Acknowledgment of
Combined Code of Ethics

I CERTIFY THAT (1) I HAVE READ AND UNDERSTAND THE CODE OF ETHICS, (2) I AM AWARE
THAT I AM SUBJECT TO THE PROVISIONS OF THIS CODE, (3) I HAVE COMPLIED WITH THIS
CODE AT ALL TIMES DURING THE PREVIOUS CALENDAR YEAR, AND (4) I HAVE, DURING THE
PREVIOUS CALENDAR YEAR, REPORTED ALL HOLDINGS AND TRANSACTIONS THAT I AM
REQUIRED TO REPORT PURSUANT TO THIS CODE.

NAME (print):

POSITION:

SIGNATURE:

DATE: