<PAGE>
PROSPECTUS
<TABLE>
<C> <S>
1 INTRODUCTION
---
2 NOVA FUND
---
4 URSA FUND
---
6 OTC FUND
---
8 PRECIOUS METALS FUND
---
10 U.S. GOVERNMENT BOND FUND
---
12 U.S. GOVERNMENT MONEY MARKET FUND
---
14 MORE INFORMATION ABOUT RISK
---
19 PURCHASING AND REDEEMING SHARES
---
20 MANAGEMENT
---
21 DIVIDENDS, DISTRIBUTIONS AND TAXES
---
23 FINANCIAL HIGHLIGHTS
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26 BENCHMARK INFORMATION
---
BC ADDITIONAL INFORMATION
---
</TABLE>
APRIL 1, 2000
RYDEX VARIABLE TRUST
NOVA FUND
URSA FUND
OTC FUND
PRECIOUS METALS FUND
U.S. GOVERNMENT BOND FUND
U.S. GOVERNMENT MONEY MARKET FUND
6116 Executive Boulevard, Suite 400, Rockville, Maryland 20852
301-468-8520
Rydex Variable Trust (the "Trust") is a mutual fund complex with twenty-two
separate investment portfolios (the "Rydex Variable Funds"). This prospectus
describes six Funds which are grouped into three categories:
- BENCHMARK FUNDS -- Nova Fund, Ursa Fund, OTC Fund, and U.S. Government
Bond Fund
- SECTOR FUND -- Precious Metals Fund
- MONEY MARKET FUND -- U.S. Government Money Market Fund
Shares of the Funds are available exclusively for variable annuity and variable
life insurance products. Variable life and variable annuity account investors
should also review the separate account prospectus prepared by their insurance
company.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THE
TRUST'S SHARES OR PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
PROSPECTUS 1
--------
RISK/RETURN INFORMATION COMMON TO THE FUNDS
THE FUNDS' INVESTMENT OBJECTIVES
Each Fund has a separate investment objective. THE INVESTMENT OBJECTIVE OF
EACH SECTOR FUND IS NON-FUNDAMENTAL AND MAY BE CHANGED WITHOUT SHAREHOLDER
APPROVAL. A general description of the Funds' investment objectives are set
forth below:
- BENCHMARK FUNDS -- Each Benchmark Fund seeks to provide investment results
that match the performance of a specific benchmark.
- SECTOR FUNDS -- The Precious Metals Fund seeks capital appreciation by
investing in companies which operate in the precious metals sector.
- MONEY MARKET FUND -- The U.S. Government Money Market Fund seeks to
provide security of principal, high current income and liquidity.
RISKS OF INVESTING IN THE FUNDS
- The value of the Funds may fluctuate in value from day to day.
- Fund shares may decline in value, and you may lose money.
THE FUNDS:
- Are not federally insured;
- Are not guaranteed by any government agency;
- Are not bank deposits; and
- Are not guaranteed to achieve their objectives.
<PAGE>
- ------
2 PROSPECTUS
FUND INFORMATION -- NOVA FUND
FUND OBJECTIVE
The Precious Metals Fund seeks to provide investment results that correspond
to a benchmark primarily for metals-related securities. The Fund's current
benchmark is the XAU Index.
PORTFOLIO INVESTMENTS
The Fund invests in securities of companies included in the XAU Index, as
well as securities whose performance is expected to track the performance of the
XAU Index. The Fund also may engage in futures and options transactions,
purchase ADRs and U.S. Government securities, and enter into repurchase
agreements. The Fund may also invest a portion of its assets in securities of
foreign issuers.
RISK CONSIDERATIONS
The Nova Fund is subject to a number of risks that will affect the value of
its shares, including:
- EQUITY RISK -- The equity markets are volatile, and the value of the
Fund's futures and options contracts and other securities may fluctuate
drastically from day-to-day.
- LEVERAGING RISK -- The Fund invests a percentage of its assets in
leveraged instruments, such as certain futures and options contracts. The
more the Fund invests in these leveraged instruments, the more this
leverage will magnify the Fund's gains or losses on those investments.
- TRACKING ERROR RISK -- The Advisor may not be able to match the
performance of the Fund's benchmark.
If the Fund meets its objective, the value of the Fund's shares will tend to
increase by 150% of the value of any increase in the S&P 500 Index. However,
when the value of the S&P 500 Index declines, the value of the Fund's shares
should also decrease by 150% of the value of any decrease in the Index.
<PAGE>
PROSPECTUS 3
--------
FUND PERFORMANCE INFORMATION
NOVA FUND PERFORMANCE
The bar chart and table below show the performance of the Nova Fund both
year-by-year and as an average over different periods of time. For periods prior
to November 1998, the Fund's performance reflected insurance related charges
that had the effect of reducing returns. The variability of performance over
time provides an indication of the risks of investing in the Fund. Of course,
this past performance does not necessarily indicate how the Fund will perform in
the future.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
NOVA FUND
<S> <C>
1998 30.06%
</TABLE>
DURING THE PERIOD SHOWN IN THE BAR CHART, THE HIGHEST RETURN FOR A QUARTER WAS
31.57% (QUARTER ENDED 12/31/98) AND THE LOWEST RETURN FOR A QUARTER WAS -17.16%
(QUARTER ENDED 9/30/98).
<TABLE>
AVERAGE ANNUAL TOTAL RETURN (FOR PERIODS ENDING DECEMBER 31, 1998)(1)
S&P 500
NOVA FUND INDEX(2)
------------------------------------
<S> <C> <C>
Past One Year 30.06% 26.67%
Since Inception (05/07/97) 32.30% 28.18%
</TABLE>
(1) THESE FIGURES ASSUME THE REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS
DISTRIBUTIONS.
(2) THE S&P 500 INDEX IS AN UNMANAGED INDEX THAT IS A WIDELY RECOGNIZED
INDICATOR OF GENERAL STOCK MARKET PERFORMANCE.
<PAGE>
- ------
4 PROSPECTUS
FUND INFORMATION -- URSA FUND
FUND OBJECTIVE
The Ursa Fund seeks to provide investment results that will inversely
correlate to the performance of the S&P 500 Index.
PORTFOLIO INVESTMENTS
Unlike a traditional index fund, the Fund's benchmark is to perform exactly
opposite the S&P 500 Index, and the Fund will generally not own the securities
included in the Index. Instead, as its primary investment strategy, the Fund
invests to a significant extent in futures contracts and options on: securities,
futures contracts, and stock indexes. On a day-to-day basis, the Fund holds U.S.
Government securities to collateralize these futures and options contracts. The
Fund also may enter into repurchase agreements and sell securities short.
RISK CONSIDERATIONS
The Ursa Fund is subject to a number of risks that will affect the value of
its shares, including:
- EQUITY RISK -- The equity markets are volatile, and the value of the
Fund's futures and options contracts and other securities may fluctuate
drastically from day-to-day.
- TRACKING ERROR RISK -- The Advisor may not be able to match the
performance of the Fund's benchmark.
If the Fund meets its objective, the value of the Fund's shares will tend to
increase during times when the value of the S&P 500 Index is decreasing. When
the value of the S&P 500 Index is increasing, however, the value of the Fund's
shares should decrease by an inversely proportionate amount (e.g., if the S&P
500 Index goes up by 10%, the value of the Fund's shares should go down by 10%).
<PAGE>
PROSPECTUS 5
--------
FUND PERFORMANCE INFORMATION
URSA FUND PERFORMANCE
The bar chart and table below show the performance of the Ursa Fund both
year-by-year and as an average over different periods of time. For periods prior
to November 1998, the Fund's performance reflected insurance related charges
that had the effect of reducing returns. The variability of performance over
time provides an indication of the risks of investing in the Fund. Of course,
this past performance does not necessarily indicate how the Fund will perform in
the future.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
URSA FUND
<S> <C>
1998 -21.93%
</TABLE>
DURING THE PERIOD SHOWN IN THE BAR CHART, THE HIGHEST RETURN FOR A QUARTER WAS
9.11% (QUARTER ENDED 9/30/98) AND THE LOWEST RETURN FOR A QUARTER WAS -17.22%
(QUARTER ENDED 12/31/98).
<TABLE>
AVERAGE ANNUAL TOTAL RETURN (FOR PERIODS ENDING DECEMBER 31, 1998)(1)
S&P 500
URSA FUND INDEX(2)
------------------------------------
<S> <C> <C>
Past One Year -21.93% 26.67%
Since Inception of Continuous Operations (06/10/97)(3) -22.43% 25.26%
</TABLE>
(1) THESE FIGURES ASSUME THE REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS
DISTRIBUTIONS.
(2) THE S&P 500 INDEX IS AN UNMANAGED INDEX THAT IS A WIDELY RECOGNIZED
INDICATOR OF GENERAL STOCK MARKET PERFORMANCE.
(3) THE FUND COMMENCED CONTINUOUS OPERATIONS ON JUNE 10, 1997. PRIOR TO THAT
TIME, DUE TO THE NATURE OF THE FUND'S INVESTMENT ACTIVITY, THE FUND
EXPERIENCED PERIODS WITH ZERO NET ASSETS. PERIODS OF OPERATION, INCLUDING
RETURNS FOR EACH DISCRETE PERIOD, WERE AS FOLLOWS: MAY 7, 1997 TO MAY 21,
1997 -3.70%; AND MAY 24, 1997 TO JUNE 3, 1997 0.10%.
<PAGE>
- ------
6 PROSPECTUS
FUND INFORMATION -- OTC FUND
FUND OBJECTIVE
The OTC Fund seeks to provide investment results that correspond to a
benchmark for over-the-counter securities. The Fund's current benchmark is the
NASDAQ 100 Index-TM-.
PORTFOLIO INVESTMENTS
The Fund invests principally in securities of companies included in the
NASDAQ 100 Index-TM-. It also may invest in other instruments whose performance
is expected to correspond to that of the Index, and may engage in futures and
options transactions. The Fund may also purchase U.S. Government securities and
enter into repurchase agreements.
RISK CONSIDERATIONS
The OTC Fund is subject to a number of risks that will affect the value of
its shares, including:
- EQUITY RISK -- The equity markets are volatile, and the value of the
Fund's securities and futures and options contracts may fluctuate
drastically from day-to-day.
- TRACKING ERROR RISK -- The Advisor may not be able to match the
performance of the Fund's benchmark.
If the Fund meets its objective, the value of the Fund's shares will tend to
increase by the amount of the increase in value of the NASDAQ 100 Index-TM-.
However, when the value of the NASDAQ 100 Index-TM- declines, the value of the
Fund's shares should also decrease by the amount of the decrease in value of the
Index-TM-.
<PAGE>
PROSPECTUS 7
--------
FUND PERFORMANCE INFORMATION
OTC FUND PERFORMANCE
The bar chart and table below show the performance of the OTC Fund both
year-by-year and as an average over different periods of time. For periods prior
to November 1998, the Fund's performance reflected insurance related charges
that had the effect of reducing returns. The variability of performance over
time provides an indication of the risks of investing in the Fund. Of course,
this past performance does not necessarily indicate how the Fund will perform in
the future.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
OTC FUND
<S> <C>
1998 83.76%
</TABLE>
DURING THE PERIOD SHOWN IN THE BAR CHART, THE HIGHEST RETURN FOR A QUARTER WAS
35.27% (QUARTER ENDED 12/31/98) AND THE LOWEST RETURN FOR A QUARTER WAS .77%
(QUARTER ENDED 9/30/98).
<TABLE>
AVERAGE ANNUAL TOTAL RETURN (FOR PERIODS ENDING DECEMBER 31, 1998)(1)
NASDAQ 100 INDEX-TM-
OTC FUND (2)
----------------------------------------
<S> <C> <C>
Past One Year 83.76% 85.31 %
Since Inception (05/07/97) 50.14% 53.01 %
</TABLE>
(1) THESE FIGURES ASSUME THE REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS
DISTRIBUTIONS.
(2) THE NASDAQ 100 INDEX-TM- IS AN UNMANAGED INDEX THAT IS A WIDELY RECOGNIZED
INDICATOR OF OTC MARKET PERFORMANCE.
<PAGE>
- ------
8 PROSPECTUS
FUND INFORMATION -- PRECIOUS METALS FUND
FUND OBJECTIVE
The Precious Metals Fund seeks to provide capital appreciation by investing
in U.S. and foreign companies that are involved in the precious metals sector,
including exploration, mining, production and development, and other precious
metals-related services ("Precious Metals Companies").
PORTFOLIO INVESTMENTS
The Fund invests substantially all of its assets in equity securities of
Precious Metals Companies that are traded in the United States and foreign
countries. Precious metals include gold, silver, platinum and other precious
metals. Precious Metals Companies include precious metal manufacturers;
distributors of precious metal products, such as jewelry, metal foil or bullion;
mining and geological exploration companies; and companies which provide
services to Precious Metals Companies. The Fund may also engage in futures and
options transactions, purchase ADRs and U.S. Government securities, and enter
into repurchase agreements.
RISK CONSIDERATIONS
The Precious Metals Fund is subject to a number of risks that will affect
the value of the Fund's shares, including:
- CONCENTRATION RISK -- The risk that the relatively few securities of
issuers in the same industry (e.g., mining) that the Fund purchases will
underperform the market as a whole. To the extent that the Fund's
investments are concentrated in issuers conducting business in the same
industry, the Fund is subject to legislative or regulatory changes,
adverse market conditions and/or increased competition affecting that
industry, as well as to the volatility of global prices for precious
metals. The prices of precious metals may fluctuate widely due to changes
in inflation or inflation expectations, currency fluctuations,
speculation, worldwide demand and political developments in precious
metals producing countries.
- EQUITY RISK -- The equity markets are volatile, and the value of the
Fund's securities and futures and options contracts may fluctuate
drastically from day-to-day.
- 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 effect investment in foreign
countries. Foreign companies generally are not subject to uniform
accounting, auditing, and financial reporting standards comparable to
those applicable to U.S. domestic companies.
<PAGE>
PROSPECTUS 9
--------
FUND PERFORMANCE INFORMATION
PRECIOUS METALS FUND PERFORMANCE
The bar chart and table below show the performance of the Precious Metals
Fund both year-by-year and as an average over different periods of time. For the
periods prior to November 1998, the Fund's performance reflected insurance
related charges that had the effect of reducing returns. The variability of
performance over time provides an indication of the risks of investing in the
Fund. Of course, this past performance does not necessarily indicate how the
Fund will perform in the future. Prior to October 1, 1999, the Precious Metals
Fund's objective was to provide investment results that corresponded to a
benchmark for precious metals-related securities.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
PRECIOUS METALS FUND
<S> <C>
1998 -17.24%
</TABLE>
DURING THE PERIOD SHOWN IN THE BAR CHART, THE HIGHEST RETURN FOR A QUARTER WAS
9.07% (QUARTER ENDED 3/31/98) AND THE LOWEST RETURN FOR A QUARTER WAS -13.66%
(QUARTER ENDED 12/31/98).
<TABLE>
AVERAGE ANNUAL TOTAL RETURN (FOR PERIODS ENDING DECEMBER 31, 1998)(1)
PRECIOUS METALS S&P 500 XAU
FUND INDEX(2) INDEX(3)
<S> <C> <C> <C>
--------------------------------------------------
Past One Year -17.24% 26.67% -12.43%
Since Inception (05/29/97) -28.90% 26.64% -26.56%
</TABLE>
(1) THESE FIGURES ASSUME THE REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS
DISTRIBUTIONS.
(2) THE S&P 500 INDEX IS AN UNMANAGED INDEX THAT IS A WIDELY RECOGNIZED
INDICATOR OF GENERAL STOCK MARKET PERFORMANCE.
(3) THE XAU INDEX IS AN UNMANAGED INDEX THAT IS A WIDELY RECOGNIZED INDICATOR OF
PRECIOUS METALS SECTOR PERFORMANCE.
<PAGE>
- ------
10 PROSPECTUS
FUND INFORMATION -- U.S. GOVERNMENT BOND FUND
FUND OBJECTIVE
The U.S. Government Bond Fund seeks to provide investment results that
correspond to a benchmark for U.S. Government securities. The Fund's current
benchmark is 120% of the price movement of the Long Treasury Bond.
PORTFOLIO INVESTMENTS
The Fund invests principally in U.S. Government securities, futures
contracts, and options. Some of the Fund's U.S. Government securities will be
used to collateralize these futures and options. Futures and options contracts,
if used properly, may enable the Fund to meet its objective by increasing the
Fund's exposure to the securities included in its benchmark. In addition, the
Fund may enter into transactions involving zero coupon U.S. Treasury bonds and
repurchase agreements.
RISK CONSIDERATIONS
The U.S. Government Bond Fund is subject to a number of risks that will
affect the value of its shares, including:
- FIXED INCOME RISK -- The Fund's fixed income investments will change in
value in response to interest rate changes and other factors. In addition,
the value of securities with longer maturities will fluctuate more in
response to interest rate changes.
- LEVERAGING RISK -- The Fund invests a percentage of its assets in
leveraged instruments, such as certain futures and options contracts. The
more the Fund invests in these leveraged instruments, the more this
leverage will magnify the Fund's gains or losses on those investments.
- TRACKING ERROR RISK -- The Advisor may not be able to match the
performance of the Fund's benchmark.
If the Fund meets its objective, the value of the Fund's shares should
increase by 120% of any price increase by the Long Treasury Bond. In contrast,
when the price of the Long Treasury Bond declines, the value of the Fund's
shares should decline by 120% of any price decline of the Long Treasury Bond.
<PAGE>
PROSPECTUS 11
--------
FUND PERFORMANCE INFORMATION
U.S. GOVERNMENT BOND FUND PERFORMANCE
The bar chart and table below show the performance of the U.S. Government
Bond Fund both year-by-year and as an average over different periods of time.
For periods prior to November 1998, the Fund's performance reflected insurance
related charges that had the effect of reducing returns. The variability of
performance over time provides an indication of the risks of investing in the
Fund. Of course, this past performance does not necessarily indicate how the
Fund will perform in the future.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
U.S. GOVERNMENT BOND FUND
<S> <C>
1998 12.86%
</TABLE>
DURING THE PERIOD SHOWN IN THE BAR CHART, THE HIGHEST RETURN FOR A QUARTER WAS
10.07% (QUARTER ENDED 9/30/98) AND THE LOWEST RETURN FOR A QUARTER WAS -2.58%
(QUARTER ENDED 12/31/98).
<TABLE>
AVERAGE ANNUAL TOTAL RETURN (FOR PERIODS ENDING DECEMBER 31, 1998)(1)
LEHMAN LONG TREASURY
U.S. GOVERNMENT BOND FUND INDEX(2)
-------------------------------------------------------
<S> <C> <C>
Past One Year 12.86% 13.49%
Since Inception of Continuous Operations
(08/18/97)(3) 17.46% 16.54%
</TABLE>
(1) THESE FIGURES ASSUME THE REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS
DISTRIBUTIONS.
(2) THE LEHMAN LONG TREASURY INDEX IS AN UNMANAGED INDEX THAT IS A WIDELY
RECOGNIZED INDICATOR OF U.S. GOVERNMENT BOND PERFORMANCE.
(3) THE FUND COMMENCED CONTINUOUS OPERATIONS ON AUGUST 18, 1997. PRIOR TO THAT
TIME, DUE TO THE NATURE OF THE FUND'S INVESTMENT ACTIVITY, THE FUND
EXPERIENCED PERIODS WITH ZERO NET ASSETS. PERIODS OF OPERATION, INCLUDING
RETURNS FOR EACH DISCRETE PERIOD, WERE AS FOLLOWS: MAY 29, 1997 TO JUNE 5,
1997 1.50%; JUNE 24, 1997 TO JULY 14, 1997 2.20%; AND JULY 29, 1997 TO
AUGUST 12, 1997 -3.30%.
<PAGE>
- ------
12 PROSPECTUS
FUND INFORMATION -- U.S. GOVERNMENT MONEY MARKET FUND
FUND OBJECTIVE
The U.S. Government Money Market Fund seeks to provide security of
principal, high current income, and liquidity.
PORTFOLIO INVESTMENTS
The U.S. Government Money Market Fund invests primarily in money market
instruments issued or guaranteed as to principal and interest by the U.S.
Government, its agencies or instrumentalities, and enters into repurchase
agreements fully collateralized by U.S. Government securities.
RISK CONSIDERATIONS
The U.S. Government Money Market Fund is subject to the following risk that
will potentially affect the value of its shares:
- INTEREST RATE RISK -- The Fund's securities are subject to Interest Rate
Risk, which is the potential for decline in the price of the Fund's
securities due to rising interest rates.
In addition, the U.S. Government Money Market Fund is governed by SEC rules
which impose certain liquidity, maturity and diversification requirements. All
securities purchased by the Fund must have remaining maturities of 397 days or
less. The Fund's assets are valued using the amortized cost method, which
enables the Fund to maintain a stable price of $1.00 per share. ALTHOUGH THE
FUND IS MANAGED TO MAINTAIN A STABLE PRICE PER SHARE OF $1.00, THERE IS NO
GUARANTEE THAT THE PRICE WILL BE CONSTANTLY MAINTAINED.
<PAGE>
PROSPECTUS 13
--------
FUND PERFORMANCE INFORMATION
U.S. GOVERNMENT MONEY MARKET FUND PERFORMANCE
The bar chart and table below show the performance of the U.S. Government
Money Market Fund both year-by-year and as an average over different periods of
time. For periods prior to November 1998, the Fund's performance reflected
insurance related charges that had the effect of reducing returns. The
variability of performance over time provides an indication of the risks of
investing in the Fund. Of course, this past performance does not necessarily
indicate how the Fund will perform in the future.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
U.S. GOVERNMENT MONEY MARKET FUND
<S> <C>
1998 2.22%
</TABLE>
DURING THE PERIOD SHOWN IN THE BAR CHART, THE HIGHEST RETURN FOR A QUARTER WAS
.68% (QUARTER ENDED 3/31/98) AND THE LOWEST RETURN FOR A QUARTER WAS .58%
(QUARTER ENDED 6/30/98).
<TABLE>
AVERAGE ANNUAL TOTAL RETURN (FOR PERIODS ENDING DECEMBER 31, 1998)(1)
U.S. GOVERNMENT MONEY MARKET FUND
<S> <C>
----
Past One Year 2.22%
Since Inception (05/07/97) 2.34%
</TABLE>
(1) THESE FIGURES ASSUME THE REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS
DISTRIBUTIONS.
YIELD - As of December 31, 1998, the current yield of the Fund was 2.85%.
<PAGE>
- ------
14 PROSPECTUS
MORE INFORMATION ABOUT FUND INVESTMENTS AND RISK
THE BENCHMARK FUNDS' INVESTMENT OBJECTIVES
Each Benchmark Fund's objective is to provide investment results that match
the performance of a specific benchmark. The current benchmark used by each Fund
is set forth below:
<TABLE>
FUND (TICKER SYMBOL) BENCHMARK
<S> <C>
NOVA FUND (RYNVX) 150% OF THE PERFORMANCE OF THE S&P 500 COMPOSITE STOCK PRICE
INDEX-TM- (SPX)
URSA FUND (RYURX) INVERSE (OPPOSITE) OF THE PERFORMANCE OF THE S&P 500
COMPOSITE STOCK PRICE INDEX-TM- (SPX)
OTC FUND (RYOCX) 100% OF THE PERFORMANCE OF THE NASDAQ 100 INDEX-TM- (NDX)
U.S. GOVERNMENT BOND FUND (RYGBX) 120% OF THE PRICE MOVEMENT OF THE LONG TREASURY BOND
</TABLE>
A BRIEF GUIDE TO THE BENCHMARKS.
THE S&P 500 COMPOSITE STOCK PRICE INDEX-TM- (S&P 500 INDEX). The S&P 500 Index
is a capitalization-weighted index composed of 500 common stocks, which are
chosen by the Standard & Poor's Corporation ("S&P") on a statistical basis.
THE NASDAQ 100 INDEX-TM-. The NASDAQ 100 Index-TM- is a modified
capitalization-weighted index composed of 100 of the largest non-financial
companies listed on the National Association of Securities Dealers Automated
Quotations System.
THE LONG TREASURY BOND. The Long Treasury Bond is the current U.S. Treasury bond
with the longest maturity. Currently, the longest maturity of a U.S. Treasury
Bond is 30 years.
ADVISOR'S INVESTMENT STRATEGY IN MANAGING THE FUNDS
BENCHMARK FUNDS. In managing the Benchmark 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 may pursue the Funds' investment objectives by utilizing leveraged
instruments, such as futures contracts and options on securities, futures
contracts, and stock indices. In addition, the Advisor will regularly utilize
short selling techniques designed to help the Ursa Fund's performance to
inversely correlate to the performance of the S&P 500 Index.
<PAGE>
PROSPECTUS 15
--------
SECTOR FUNDS. In managing the Precious Metals Fund, the Advisor's investment
team employs a quantitative model that considers a number of factors. To develop
a liquid portfolio of stocks that adequately represents a precious metals market
sector, the Advisor applies filters to the broad universe of stocks of issuers
that are "principally engaged" in business activities in that industry sector.
Specifically, the Advisor's investment process screens stocks primarily based on
liquidity, market capitalization, and correlation relative to the entire
industry sector. The Advisor also may consider other factors.
The Advisor monitors the Sector Funds' portfolios on an ongoing basis, and adds
or deletes stocks from the portfolios as needed.
After constructing a portfolio for the Precious Metals Fund, the Advisor may
utilize futures contracts and options to leverage the Fund's exposure to the
relevant business sector. The use of leverage will result in the Fund being
exposed to its relevant business sector with more than 100% of its total assets.
Each business sector typically consists of numerous industries. For purposes of
the Advisor's investment methodology and the policies for the Fund, a company is
considered to be "principally engaged" in a designated business activity in a
particular economic sector if at least 50% of its assets, gross income, or net
profits are committed to, or derived from, that activity. If a question exists
as to whether a company meets these standards, the Advisor will determine
whether the company's primary business is within the business sector designated
for investment by the Fund.
RISKS OF INVESTING IN THE FUNDS
As indicated below, the Funds are subject to a number of risks that may
affect the value of Fund shares.
EQUITY RISK (NOVA, URSA, OTC, AND PRECIOUS METALS FUNDS) -- The Funds may invest
in public and privately issued equity securities, including common and preferred
stocks, warrants, and rights, as well as instruments that attempt to track the
price movement of equity indexes. Investments in equity securities and equity
derivatives in general are subject to market risks that may cause their prices
to fluctuate over time. The value of securities convertible into equity
securities, such as warrants or convertible debt, is also affected by prevailing
interest rates, the credit quality of the issuer and any call provision.
Fluctuations in the value of equity securities in which the Funds invest will
cause the net asset value of the Funds to fluctuate. An investment in the Funds
may be more suitable for long-term investors who can bear the risk of short-term
principal fluctuations.
FIXED INCOME RISK (U.S. GOVERNMENT BOND FUND) -- The market value of fixed
income investments will change in response to interest rate changes and other
factors. During periods of falling interest rates, the values of outstanding
fixed income securities generally rise. Conversely, during periods of rising
interest rates, the values of such securities generally decline. Moreover, while
<PAGE>
- ------
16 PROSPECTUS
securities with longer maturities tend to produce higher yields, the prices of
longer maturity securities are also subject to greater market fluctuations as a
result of changes in interest rates.
TRACKING ERROR RISK (ALL FUNDS EXCEPT U.S. GOVERNMENT MONEY MARKET AND PRECIOUS
METALS FUNDS) -- While the Funds do not expect returns to deviate from their
respective benchmarks by more than ten percent, factors such as Fund expenses,
imperfect correlation between the Funds' investments and those of their
benchmarks, rounding of share prices, changes to the benchmark, regulatory
policies, and leverage, may affect their ability to achieve perfect correlation.
The magnitude of any tracking error may be affected by a higher portfolio
turnover rate.
TRADING HALT RISK (NOVA, URSA, AND U.S. GOVERNMENT BOND FUNDS) -- The Funds
typically will hold short-term options and futures contracts. The major
exchanges on which these contracts are traded, such as the Chicago Mercantile
Exchange ("CME"), have established limits on how much an option or futures
contract may decline over various time periods within a day. If an option or
futures contract's price declines more than the established limits, trading on
the exchange is halted on that instrument. If a trading halt occurs at the close
of a trading day, a Fund may not be able to purchase or sell options or futures
contracts. In such an event, a Fund also may be required to use a "fair-value"
method to price its outstanding contracts.
LEVERAGING RISK (NOVA AND U.S. GOVERNMENT BOND FUNDS) -- Leveraging activities
include, among other things, borrowing and the use of certain types of short
sales, options and futures. There are risks associated with leveraging
activities, including:
- A Fund experiencing losses over certain ranges in the market that exceed
losses experienced by a non-leveraged Fund.
- There may be an imperfect or no correlation between the changes in market
value of the securities held by a Fund and the prices of futures and
options on futures.
- Although the Funds will only purchase exchange-traded futures and options,
due to market conditions there may not be a liquid secondary market for a
futures contract or option. As a result, the Funds may be unable to close
out their futures or options contracts at a time which is advantageous.
- Trading restrictions or limitations may be imposed by an exchange, and
government regulations may restrict trading in futures contracts and
options.
In addition, the following instruments may involve leverage and are subject to
certain specific risks:
FUTURES RISK -- Futures contracts and options on futures contracts provide
for the future sale by one party and purchase by another party of a
specified amount of a specific security at a specified future time and at a
specified price. An option on a futures contract gives the purchaser the
right, in exchange for a premium, to assume a position in a futures contract
at a specified
<PAGE>
PROSPECTUS 17
--------
exercise price during the term of the option. Index futures are futures
contracts for various indices that are traded on registered securities
exchanges.
The Funds may use futures contracts and related options for bona fide
hedging purposes to offset changes in the value of securities held or
expected to be acquired. They may also be used to gain exposure to a
particular market or instrument, to create a synthetic money market
position, and for certain other tax-related purposes. The Fund will only
enter into futures contracts traded on a national futures exchange or board
of trade.
OPTIONS RISK -- The buyer of an option acquires the right to buy (a call
option) or sell (a put option) a certain quantity of a security (the
underlying security) or instrument at a certain price up to a specified
point in time. The seller or writer of an option is obligated to sell (a
call option) or buy (a put option) the underlying security. When writing
(selling) call options on securities, the Funds may cover its position by
owning the underlying security on which the option is written or by owning a
call option on the underlying security. Alternatively, the Funds may cover
its position by maintaining in a segregated account cash or liquid
securities equal in value to the exercise price of the call option written
by the Funds.
Because option premiums paid or received by the Funds are small in relation
to the market value of the investments underlying the options, buying and
selling put and call options can be more speculative than investing directly
in securities.
SHORT SALES RISK -- In certain short sales transactions, a Fund sells a
security it does not own. To complete the transaction, the Fund must borrow
the security to make delivery to the buyer. The Fund is then obligated to
replace the security borrowed by purchasing the security at the market price
at the time of replacement. The price at such time may be more or less than
the price at which the security was sold by the Fund. In another type of
short sale, a short sale "against the box," a Fund sells a security it owns
or has the right to acquire.
PORTFOLIO TURNOVER RATE RISK (PRECIOUS METALS, OTC AND U.S. GOVERNMENT BOND
FUNDS) -- The Trust anticipates that investors that are part of a tactical or
strategic asset-allocation strategy will frequently redeem or exchange shares of
a Fund, which will cause that Fund to experience high portfolio turnover. A
higher portfolio turnover rate may result in a Fund paying higher levels of
transaction costs and generating greater tax liabilities for shareholders.
CONCENTRATION RISK (PRECIOUS METALS FUND) -- Since the Fund invests in the
securities of a limited number of issuers conducting business in the precious
metals industry, it is subject to the risk that those issuers (or that industry)
will perform poorly, and the Fund will be negatively impacted by that poor
performance. The prices of precious metals may fluctuate widely due to changes
in inflation or inflation expectations, currency fluctuations, speculation,
worldwide demand and political developments in precious metals-producing
countries. None of the Funds will invest 25% or more of
<PAGE>
- ------
18 PROSPECTUS
the value of the Fund's total assets in the securities of one or more issuers
conducting their principal business activities in the same industry; EXCEPT
THAT, to the extent the benchmark selected for a particular Fund is concentrated
in a particular industry, the Fund will necessarily be concentrated in that
industry. This limitation does not apply to investments or obligations of the
U.S. Government or any of its agencies or instrumentalities.
EARLY CLOSING RISK (OTC FUND) -- The normal close of trading of securities
listed on the National Association of Securities Dealers Automated Quotations
system ("NASDAQ") and the New York Stock Exchange ("NYSE") is 4:00 P.M., Eastern
Time. Unanticipated early closings may result in a Fund being unable to sell or
buy securities on that day. If an exchange closes early on a day when one or
more of the Funds needs to execute a high volume of securities trades late in a
trading day, a Fund might incur substantial trading losses.
YEAR 2000 RISK (ALL FUNDS) -- The Funds depend on the smooth functioning of
computer systems in almost every aspect of their business. Like other mutual
funds, businesses and individuals around the world, the Funds could be adversely
affected if the computer systems used by its service providers do not properly
process dates on and after January 1, 2000 and distinguish between the year 2000
and the year 1900. The Trust has asked their service providers whether they
expect to have their computer systems adjusted for the year 2000 transition, and
received assurances from all that they are devoting significant resources to
prevent material adverse consequences to the Funds. The Funds and their
respective shareholders may experience losses if these assurances prove to be
incorrect or as a result of year 2000 computer difficulties experienced by
issuers of portfolio securities or third parties, such as custodians, banks,
broker-dealers or others with which the Funds do business.
FOREIGN INVESTING RISK (PRECIOUS METALS FUND) -- Investments in securities of
foreign companies can be more volatile than investments in U.S. companies.
Diplomatic, political, or economic developments could affect investments in
foreign countries. Foreign companies generally are not subject to uniform
accounting, auditing, and financial reporting standards comparable to those
applicable to U.S. domestic companies.
PURCHASING AND REDEEMING SHARES
Shares are offered continuously, and may be purchased on any day that the
NYSE is open for business (a "Business Day"). On any day that the New York Fed
or the NYSE closes early, the principal government securities and corporate bond
markets close early (such as on days in advance of holidays generally observed
by participants in these markets), or as permitted by the Securities and
Exchange Commission ("SEC"), the right is reserved to advance the time on that
day by which purchase and redemption orders must be received.
Shares of each Fund can be purchased only by insurance companies for their
separate accounts to fund variable life insurance and variable annuity
contracts. All orders for the purchase of shares are
<PAGE>
PROSPECTUS 19
--------
subject to acceptance or rejection by the Trust. An insurance company purchases
and redeems shares of each Fund based on, among other things, the amount of net
Contract premiums or purchase payments allocated to a separate account
investment division, transfers to or from a separate account investment
division, contract loans and repayments, contract withdrawals and surrenders,
and benefit payments, at the Fund's net asset value per share calculated as of
that same day.
All redemption requests will be processed and payment with respect thereto
will be made within seven days after tender. The Trust may suspend redemption,
if permitted by the Investment Company Act of 1940 (the "1940 Act"), for any
period during which the NYSE, NASDAQ, CME, the Chicago Board Options Exchange
("CBOE") or the Chicago Board of Trade ("CBOT"), as appropriate, is closed or
during which trading is restricted by the SEC, or the SEC declares that an
emergency exists. Redemptions may also be suspended during other periods
permitted by the SEC for the protection of the Trust's investors.
NET ASSET VALUE
The price per share (the offering price) will be the net asset value per
share ("NAV") next determined after your purchase order is received by the
Trust. NAV is calculated by (1) taking the current market value of a Fund's
total assets, (2) subtracting the liabilities, and (3) dividing that amount by
the total number of shares owned by shareholders. For most Funds, the NAV is
calculated once each Business Day after the close of the NYSE (currently, 4:00
p.m., Eastern Time). The NAV of the U.S. Government Bond Fund is determined each
Business Day as of the close of normal trading on the CBOT (normally 3:00 P.M.,
Eastern Time). If the exchange or market where a Fund's securities or other
investments are primarily traded closes early, the NAV may be calculated earlier
in accordance with the policies set forth in the Funds' SAI.
TO RECEIVE THE CURRENT BUSINESS DAY'S NAV, THE TRUST MUST RECEIVE PURCHASE
OR REDEMPTION ORDERS BEFORE 3:45 P.M., EASTERN TIME, FOR THE NOVA, URSA, AND OTC
FUNDS, 3:30 P.M., EASTERN TIME, FOR THE PRECIOUS METALS FUND, 2:45 P.M., EASTERN
TIME, FOR THE U.S. GOVERNMENT BOND FUND, AND 1:00 P.M., EASTERN TIME, FOR THE
MONEY MARKET FUND. HOWEVER, YOUR INSURANCE COMPANY MAY HAVE EARLIER CUTOFF
TIMES. VARIABLE LIFE AND VARIABLE ANNUITY ACCOUNT INVESTORS SHOULD CONSULT THEIR
SEPARATE ACCOUNT PROSPECTUS.
MANAGEMENT
MANAGEMENT OF THE FUNDS
THE INVESTMENT ADVISOR -- PADCO Advisors II, Inc., a Maryland corporation with
offices at 6116 Executive Boulevard, Suite 400, Rockville, Maryland 20852,
serves as investment advisor and manager of the Funds. Albert P. Viragh, Jr.,
the Chairman of the Board and the President of the Advisor, owns a controlling
interest in the Advisor. From 1985 until the incorporation of the Advisor, Mr.
Viragh was a Vice President of Money Management Associates ("MMA"), a
Maryland-based registered investment
<PAGE>
- ------
20 PROSPECTUS
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:
<TABLE>
CONTRACTUAL ADVISORY FEES
FUND ADVISORY FEE RECEIVED 1998
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Nova .75% .71%
Ursa .90% .73%
OTC .75% .72%
Precious Metals .75% .59%
U.S. Government Bond .50% .50%
U.S. Government Money Market .50% .28%
</TABLE>
The Advisor bears all of its own costs associated with providing these
advisory services and the expenses of the Trustees who are affiliated with the
Advisor. The Advisor may make payments from its own resources to broker-dealers
and other financial institutions in connection with the sale of Fund shares.
PORTFOLIO MANAGEMENT
The portfolio manager of the Ursa Fund and the OTC Fund is Michael P. Byrum,
who is a Vice President and the Advisor's senior portfolio manager. Prior to
joining the Advisor as a portfolio manager in July 1993, Mr. Byrum worked as an
investor representative with MMA.
The portfolio manager of the Nova Fund is Thomas Michael, who joined the
Advisor as a portfolio manager in March 1994. From 1992 to February 1994, Mr.
Michael was a financial markets analyst at Cedar Street Investment Management
Co., of Chicago, Illinois, an institutional consulting firm specializing in
developing hedging and speculative strategies in stock index futures contracts
and U.S. Treasury bond futures contracts.
The Precious Metals Fund is managed by a team and no one person is
responsible for making investment decisions for the Fund.
The portfolio manager of the U.S. Government Bond Fund is Anne H. Ruff, who
joined the Advisor as a portfolio manager in August 1996. From 1989 to 1995, Ms.
Ruff worked as a portfolio
<PAGE>
PROSPECTUS 21
--------
manager for United Services Life Insurance Company in Arlington, Virginia, where
she managed $2.5 billion in fixed-income portfolios.
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS
Income dividends and capital gain distributions are paid at least annually
by each of the Funds, except the U.S. Government Money Market and the U.S.
Government Bond Funds, which declare and pay dividends daily to the insurance
company. The Trust may declare a special capital gains distribution if the
Trustees believe that such a distribution would be in the best interest of the
shareholders of a Fund.
TAXES
Each Fund is treated as a separate entity for federal tax purposes, and
intends to qualify for the special tax treatment afforded regulated investment
companies. As long as a Fund qualifies as a regulated investment company, it
pays no federal income tax on the earnings it distributes to Shareholders. A
Fund is not liable for any income or franchise tax in Delaware as long as it
qualifies as a regulated investment company for federal income tax purposes.
In addition to qualifying for special tax treatment as a regulated
investment company, the Funds intend to meet special diversification
requirements of the Internal Revenue Code (the "Code") in order to assure
insurance companies that their variable annuity and variable life contracts
qualify as insurance under the Code.
<PAGE>
- ------
22 PROSPECTUS
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the Funds'
financial performance for the period of each Fund's (and its predecessor's)
operations. Certain information reflects financial results for a single Fund
share. The total returns in the table represent the rate that an investor would
have earned (or lost) on an investment in the Fund (assuming reinvestment of all
dividends and distributions). On November 2, 1998, the Trust acquired all of the
assets and liabilities (other than liabilities relating to insurance charges) of
Rydex Advisor Variable Annuity Account (the "Separate Account") and the
subaccounts of the Separate Account (the "Subaccounts"). The information
provided below for periods ending prior to and including December 31, 1997,
which relates to the Subaccounts, has been audited by PricewaterhouseCoopers
LLP. The information for the period ended December 31, 1998, which relates to
the Funds, has been audited by Deloitte & Touche LLP. The Reports of Independent
Accountants for each such period along with the Funds' financial statements and
related notes, are included in the Annual Reports to Shareholders for such
periods. Our 1998 Annual Report is available upon request and without charge by
calling 1-301-468-8520 collect. The 1998 Annual Report is incorporated by
reference in the SAI.
FINANCIAL HIGHLIGHTS
<TABLE>
NOVA URSA
-------------------------- --------------------------------------------------------
YEAR PERIOD YEAR JUNE 10,
ENDED ENDED ENDED 1997 TO MAY 24, MAY 7,
DECEMBER DECEMBER DECEMBER DECEMBER 1997 TO 1997 TO
31, 31, 31, 31, JUNE 3, MAY 21,
1998 1997* 1998 1997+ 1997+ 1997+*
----------- ----------- ----------- ----------- ----------- -----------
Per Share Operating
Performance:++
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value -- Beginning
of Period.................. $ 12.21 $ 10.00 $ 8.07 $ 9.36 $ 9.57 $ 10.00
------- ------- ------ ------ ------ -------
Net Investment Income
(Loss)................... .04 .07 .06 (.01) .00 (.04)
Net Realized and
Unrealized Gains (Losses)
on Securities............ 3.63 2.14 (1.83) (1.28) .01 (.33)
Dividends to Shareholders
from Net Investment
Income................... .00 .00 .00 .00 .00 .00
Distributions (from
capital gains)........... .00 .00 .00 .00 .00 .00
------- ------- ------ ------ ------ -------
Net Increase (Decrease) in
Net Asset Value.......... 3.67 2.21 (1.77) (1.29) .01 (.37)
------- ------- ------ ------ ------ -------
Net Asset Value -- End of
Period..................... $ 15.88 $ 12.21 $ 6.30 $ 8.07 $ 9.58 $ 9.63
======= ======= ====== ====== ====== =======
Total Investment Return..... 30.06% (21.93)%
Ratios to Average Net Assets
Gross Expenses............ 3.26% 9.09%** 3.76% 9.21%** 85.10%** 13.62%**
Net Expenses.............. 3.22% 2.80%** 3.59% 2.90%** 2.90%** 2.90%**
Net Investment Income
(Loss)................... 0.27% 0.91%** 0.89% (0.27)%** 2.76%** (10.05)%**
Supplementary Data:
Portfolio Turnover
Rate***.................... 0% 178.34% 0% 0% 0% 0%
Net Assets, End of Period
(000's omitted)............ $29,258 $10,448 $5,509 $2,879 $ -- $ --
</TABLE>
- ------------
* COMMENCEMENT OF OPERATIONS: NOVA AND URSA -- MAY 7, 1997
** ANNUALIZED
*** PORTFOLIO TURNOVER RATIO IS CALCULATED WITHOUT REGARD TO SHORT-TERM
SECURITIES HAVING A MATURITY OF LESS THAN ONE YEAR.
+ DUE TO THE NATURE OF THE INVESTMENT ACTIVITY, THE FUND EXPERIENCED PERIODS
WITH ZERO NET ASSETS. FINANCIAL HIGHLIGHTS ARE PRESENTED ONLY FOR PERIODS
WITH NET ASSETS GREATER THAN ZERO.
++ THE PER SHARE DATA OF THE FINANCIAL HIGHLIGHTS TABLE IS CALCULATED USING
THE AVERAGE DAILY SHARES OUTSTANDING FOR THE YEAR.
<PAGE>
PROSPECTUS 23
--------
FINANCIAL HIGHLIGHTS
<TABLE>
U.S. GOVERNMENT
MONEY MARKET OTC PRECIOUS METALS+++
------------------------ ------------------------ ------------------------
PERIOD PERIOD PERIOD
YEAR ENDED ENDED YEAR ENDED ENDED YEAR ENDED ENDED
DECEMBER DECEMBER DECEMBER DECEMBER DECEMBER DECEMBER
31, 31, 31, 31, 31, 31,
1998 1997* 1998 1997* 1998 1997*
----------- ----------- ----------- ----------- ----------- -----------
Per Share Operating Performance:++
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value -- Beginning of
Period............................ $ 10.32 $ 10.00 $ 10.65 $ 10.00 $ 7.02 $ 10.00
------- ------- -------- ------- -------- -------
Net Investment Income (Loss)....... .08 .31 (.40) (.09) (.16) (.11)
Net Realized and Unrealized Gains
(Losses) on Securities.......... .00 .01 9.32 .74 (1.05) (2.87)
------- ------- -------- ------- -------- -------
Net Increase (Decrease) in Net
Asset Value Resulting from
Operations...................... .08 .32 8.92 .65 (1.21) (2.98)
Dividends to Shareholders from
Net Investment Income........... (.01) .00 .00 .00 .00 .00
Distributions (from capital
gains).......................... .00 .00 .00 .00 .00 .00
Adjustment due to
Reorganization.................. (9.39) .00 .00 .00 .00 .00
------- ------- -------- ------- -------- -------
Net Increase (Decrease) in Net
Asset Value..................... (9.32) .32 8.92 .65 (1.21) (2.98)
------- ------- -------- ------- -------- -------
Net Asset Value -- End of Period... $ 1.00 $ 10.32 $ 19.57 $ 10.65 $ 5.81 $ 7.02
======= ======= ======== ======= ======== =======
Total Investment Return............ 2.22% 83.76% (17.24)%
Ratios to Average Net Assets
Gross Expenses................... 2.99% 6.82%** 2.96% 9.07%** 3.39% 9.76%**
Net Expenses..................... 2.67% 2.20%** 2.96% 2.80%** 3.23% 2.80%**
Net Investment Income (Loss)..... 2.61% 3.34%** (2.67)% (1.22)%** (2.31)% (2.19)%**
Supplementary Data:
Portfolio Turnover Rate***....... 0% 0% 1077.49% 449.91% 1739.23% 913.83%
Net Assets, End of Period
(000's omitted)................. $40,971 $17,903 $ 22,038 $ 2,367 $ 2,695 $ 518
</TABLE>
- ------------
* COMMENCEMENT OF OPERATIONS: U.S. GOVERNMENT MONEY MARKET AND OTC --
MAY 7, 1997; PRECIOUS METALS -- MAY 29, 1997
** ANNUALIZED
*** PORTFOLIO TURNOVER RATIO IS CALCULATED WITHOUT REGARD TO SHORT-TERM
SECURITIES HAVING A MATURITY OF LESS THAN ONE YEAR.
++ THE PER SHARE DATA OF THE FINANCIAL HIGHLIGHTS TABLE IS CALCULATED USING
THE AVERAGE DAILY SHARES OUTSTANDING FOR THE YEAR.
+++ PRIOR TO OCTOBER 1, 1999, THE PRECIOUS METALS FUND'S OBJECTIVE WAS TO
PROVIDE INVESTMENT RESULTS THAT CORRESPONDED TO A BENCHMARK FOR PRECIOUS
METALS-RELATED SECURITIES.
<PAGE>
- ------
24 PROSPECTUS
FINANCIAL HIGHLIGHTS
<TABLE>
U.S. GOVERNMENT BOND
------------------------------------------------------------
MAY
JUNE 29,
AUGUST 18, JULY 29, 24, 1997
YEAR ENDED 1997 TO 1997 TO 1997 TO TO
DECEMBER DECEMBER AUGUST JULY JUNE
31, 31, 12, 14, 5,
1998 1997+ 1997+ 1997+ 1997+*
----------- ----------- --------- ------- ------
Per Share Operating Performance:++
<S> <C> <C> <C> <C> <C>
Net Asset Value -- Beginning of Period.......... $ 11.82 $ 10.70 $10.92 $10.44 $10.00
-------- ------- ------ ------ ------
Net Investment Income......................... .24 .15 .02 .10 .00
Net Realized and Unrealized Gains (Losses) on
Securities................................... 1.28 .97 (.38) .13 .15
-------- ------- ------ ------ ------
Net Increase (Decrease) in Net Asset Value
Resulting from Operations.................... 1.52 1.12 (.36) .23 .15
Dividends to Shareholders from Net Investment
Income....................................... (.06) .00 .00 .00 .00
Distributions (from capital gains)............ .00 .00 .00 .00 .00
-------- ------- ------ ------ ------
Net Increase (Decrease) in Net Asset Value.... 1.46 1.12 (.36) .23 .15
-------- ------- ------ ------ ------
Net Asset Value -- End of Period................ $ 13.28 $ 11.82 $10.56 $10.67 $10.15
======== ======= ====== ====== ======
Total Investment Return......................... 12.86%
Ratios to Average Net Assets
Gross Expenses................................ 2.71% 8.47%** 49.63%** 12.68%** 5.43%**
Net Expenses.................................. 2.71% 2.40%** 2.40%** 2.40%** 2.40%**
Net Investment Income......................... 1.92% 3.49%** 3.80%** 7.94%** 1.86%**
Supplementary Data:
Portfolio Turnover Rate***.................... 1462.79% 760.78% 0% 0% 0%
Net Assets, End of Period (000's omitted)..... $ 4,973 $ 892 $ -- $ -- $ --
</TABLE>
- ------------
* COMMENCEMENT OF OPERATIONS: U. S. GOVERNMENT BOND -- MAY 29, 1997
** ANNUALIZED
*** PORTFOLIO TURNOVER RATIO IS CALCULATED WITHOUT REGARD TO SHORT-TERM
SECURITIES HAVING A MATURITY OF LESS THAN ONE YEAR.
+ DUE TO THE NATURE OF THE INVESTMENT ACTIVITY, THE FUND EXPERIENCED PERIODS
WITH ZERO NET ASSETS. FINANCIAL HIGHLIGHTS ARE PRESENTED ONLY FOR PERIODS
WITH NET ASSETS GREATER THAN ZERO.
++ THE PER SHARE DATA OF THE FINANCIAL HIGHLIGHTS TABLE IS CALCULATED USING
THE AVERAGE DAILY SHARES OUTSTANDING FOR THE YEAR.
<PAGE>
- -------
26 PROSPECTUS
BENCHMARK INFORMATION
NEITHER THE NOVA FUND NOR THE URSA FUND IS SPONSORED, ENDORSED, SOLD, OR
PROMOTED BY STANDARD & POOR'S CORP. (S&P); AND THE OTC FUND IS NOT SPONSORED,
ENDORSED, SOLD, OR PROMOTED BY NASDAQ OR ANY OF NASDAQ'S AFFILIATES (NASDAQ AND
ITS AFFILIATES HEREINAFTER COLLECTIVELY REFERRED TO AS "NASDAQ").
NEITHER THE S&P NOR THE NASDAQ MAKE ANY REPRESENTATION OR WARRANTY, IMPLIED OR
EXPRESS, TO THE INVESTORS IN THE FUNDS, OR ANY MEMBER OF THE PUBLIC, REGARDING
THE ADVISABILITY OF INVESTING IN INDEX FUNDS OR THE ABILITY OF THE S&P 500 INDEX
AND THE NASDAQ 100 INDEX-TM-, RESPECTIVELY, TO TRACK GENERAL STOCK MARKET
PERFORMANCE.
NEITHER THE S&P NOR THE NASDAQ GUARANTEES THE ACCURACY AND/OR THE COMPLETENESS
OF THE S&P 500 INDEX AND THE NASDAQ 100 INDEX-TM-, RESPECTIVELY, OR ANY DATA
INCLUDED THEREIN.
NEITHER THE S&P NOR THE NASDAQ MAKE ANY WARRANTY, EXPRESS OR IMPLIED, AS TO
RESULTS TO BE OBTAINED BY ANY OF THE FUNDS, THE INVESTORS IN THE FUNDS, OR ANY
PERSON OR ENTITY FROM THE USE OF THE S&P 500 INDEX, THE NASDAQ 100 INDEX-TM-,
RESPECTIVELY, OR ANY DATA INCLUDED THEREIN.
NEITHER THE S&P NOR THE NASDAQ MAKE ANY EXPRESS OR IMPLIED WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE FOR USE WITH RESPECT TO THE
S&P 500 INDEX, THE NASDAQ 100 INDEX-TM-, RESPECTIVELY, OR ANY DATA INCLUDED
THEREIN.
<PAGE>
Additional information about the Funds is included in a Statement of Additional
Information dated May 1, 1999 (the "SAI"), which contains more detailed
information about the Funds. The SAI has been filed with the Securities and
Exchange Commission ("SEC") and is incorporated by reference into this
Prospectus and, therefore, legally forms a part of this Prospectus. The SEC
maintains a Web site ("http:// www.sec.gov") that contains the SAI, material
incorporated by reference, and other information regarding registrants that file
electronically with the SEC. You may also review and copy documents at the SEC
Public Reference Room in Washington, D.C. (for information call 1-800-SEC-0330).
You may request documents by mail from the SEC, upon payment of a duplication
fee, by writing to: Securities and Exchange Commission, Public Reference
Section, Washington, D.C. 20549-6009. To help you to obtain additional
information, the Funds' SEC registration number is 811-08821.
You may obtain a copy of the SAI or the annual or semi-annual reports of the
Trust without charge by calling 1-301-468-8520 collect or by writing to PADCO
Service Company, Inc., at 6116 Executive Boulevard, Suite 400, Rockville,
Maryland 20852. Additional information about the investments of the Funds is
available in the annual and semi-annual reports. Also, in the annual report of
the Funds, you will find a discussion of the market conditions and investment
strategies that significantly affected performance during the last fiscal year.
- --------------------------------------------------------------------------------
NO ONE HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS OR IN THE TRUST'S SAI IN
CONNECTION WITH THE OFFERING OF FUND SHARES. DO NOT RELY ON ANY SUCH INFORMATION
OR REPRESENTATIONS AS HAVING BEEN AUTHORIZED BY THE TRUST OR PADCO ADVISORS II,
INC. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE TRUST IN ANY
JURISDICTION WHERE SUCH AN OFFERING IS NOT LAWFUL.
