DECEMBER 31, 2007
RYDEX VARIABLE TRUST
CLS ADVISORONE FUNDS ANNUAL REPORT
AMERIGO FUND
CLERMONT FUND
BEROLINA FUND
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TABLE OF CONTENTS
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2
ABOUT SHAREHOLDERS’ FUND EXPENSES
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3
PERFORMANCE REPORTS AND FUND PROFILES
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8
STATEMENTS OF ASSETS AND LIABILITIES
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
12
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
13
STATEMENTS OF CHANGES IN NET ASSETS
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
14
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
16
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
17
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
. . . . . . . . . . . . . . . . . . . . . . . . . . . .
25
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
26
INFORMATION ON BOARD OF TRUSTEES AND OFFICERS
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
33
THE RYDEX VARIABLE TRUST ANNUAL REPORT
|
1
DEAR SHAREHOLDER:
By the last three months of 2007 the stock market gains of summer and fall seemed like a distant memory.
The intertwined crises in the nation’s housing and credit markets had, by the fourth quarter, led to huge
drops in stock prices and unprecedented volatility. Despite the end of year turmoil, stocks actually turned in
a respectable performance in 2007 with the bellwether Dow Jones Industrial AverageSM and S&P 500® indexes
up, 8.88% and 5.49%, respectively, on a total return basis. The tech-heavy Nasdaq 100 Index® , which was up
19.24%, showed that investors had a robust appetite for risk for much of the year. Despite the fact that
calendar year returns were strong, 2007 will in all likelihood be remembered for the housing debacle that
hammered stocks and sent the economy to the brink of recession.
The unfolding housing crisis began to ripple through the world’s financial markets as far back as July, but it
was in the fourth quarter that both the U.S. economy and global financial markets lost momentum—with the
contagion effects of the subprime debt crisis reaching deeper into the global financial system. The credit crunch
that began in the third quarter enveloped the G-7 economies as traditional sources of credit dried up. As asset
values plummeted, financial institutions throughout the developed world found themselves suddenly undercap-
italized. With a full-blown financial crisis unfolding, central banks moved into crisis prevention mode by pumping
capital into their respective financial systems and slashing interest rates. In perhaps one of the most important
developments of the year, the outlines of a coordinated, global easing campaign began to emerge.
In this uncertain environment fears grew that the Federal Reserve (“Fed”) was “behind the curve,” adding to
the volatility in stock prices. In fact, the Fed’s initial responses to the unfolding crisis were tempered by
inflationary concerns as high energy and commodity prices and a weak U.S. dollar drove inflation significantly
higher towards year end.
Risk appetites that had been running high disappeared, and the avoidance of risk became the dominant theme
as investors fled financial, consumer discretionary, value and small-cap stocks. The small-cap Russell 2000®
Index fell 1.57%, confirming the rotation away from small caps that began to unfold early in the year. Value
stocks also underperformed in 2007 with the S&P 500/Citigroup Pure Value Index underperforming its growth
counterpart by more than 10 points. Both of these trends dovetailed in the S&P SmallCap 600/Citigroup Pure
Value Index which dropped nearly 18.61%, vastly underperforming all other “style-box” exposures.
Predictably, defensive sectors such as utilities and consumer staples were favored. And, reflecting the
“decoupling” theory—which assumes growth in the developing world can continue in the face of slowing
growth elsewhere—energy, materials and technology stocks rose stratospherically as the respective S&P 500
sector indices rose 34.41%, 22.53% and 16.30%.
Returns for U.S. investors in international stock markets were also boosted by the ongoing decline in the
exchange value of the U.S. dollar, which fell 8.31% against a basket of the world’s major currencies. The
currency effect helped to propel full-year gains for the MSCI EAFE and Emerging Market indices to 11.66%
and 38.79%, respectively.
With the flight-to-quality trade fully in motion, interest rates declined and the yield curve steepened.
We think that, as we move into the early months of 2008, stock market volatility will remain a fact of life.
Defensive exposures that performed well should continue to do so, at least on a relative basis until recession
fears abate. Uncorrelated investment strategies, such as absolute return, long/short, commodity, managed
futures and the like, should also provide refuge in a challenging investment climate.
We appreciate the trust you have placed in our firm’s quality and integrity by investing with us.
Sincerely,
David C. Reilly, CFA
Director, Portfolio Strategies
2
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THE RYDEX VARIABLE TRUST ANNUAL REPORT
ABOUT SHAREHOLDERS’ FUND EXPENSES (Unaudited)
All mutual funds have operating expenses and it is important for our shareholders to understand the
impact of costs on their investments. Shareholders of a Fund incur two types of costs: (i) transaction costs,
including sales charges (loads) on purchase payments, reinvested dividends, or other distributions;
redemption fees; and exchange fees; and (ii) ongoing costs, including management fees, administrative
services, and shareholder reports, among others. These ongoing costs, or operating expenses, are
deducted from a fund’s gross income and reduce the investment return of the fund.
A fund’s expenses are expressed as a percentage of its average net assets, which is known as the expense
ratio. The following examples are intended to help investors understand the ongoing costs (in dollars) of
investing in a Fund and to compare these costs with the ongoing costs of investing in other mutual funds.
The examples are based on an investment of $1,000 made at the beginning of the period and held for the
entire six-month period beginning June 30, 2007 and ending December 31, 2007.
The following tables illustrate a Fund’s costs in two ways:
Table 1. Based on actual Fund return. This section helps investors estimate the actual expenses paid over
the period. The “Ending Account Value” shown is derived from the Fund’s actual return, and the fourth
column shows the dollar amount that would have been paid by an investor who started with $1,000 in
the Fund. Investors may use the information here, together with the amount invested, to estimate the
expenses paid over the period. Simply divide the Fund’s account value by $1,000 (for example, an
$8,600 account value divided by $1,000 = 8.6), then multiply the result by the number provided under
the heading “Expenses Paid During Period.”
Table 2. Based on hypothetical 5% return. This section is intended to help investors compare a Fund’s
cost with those of other mutual funds. The table provides information about hypothetical account
values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of
return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account
values and expenses may not be used to estimate the actual ending account balance or expenses paid
during the period. The example is useful in making comparisons because the U.S. Securities and
Exchange Commission (the “SEC”) requires all mutual funds to calculate expenses based on the 5%
return. Investors can assess a Fund’s costs by comparing this hypothetical example with the hypothetical
examples that appear in shareholder reports of other funds.
The calculations above assume no shares were bought or sold during the period. Actual costs may have
been higher or lower, depending on the amount of investment and the timing of any purchases or
redemptions.
Note that the expenses shown in the table are meant to highlight and help compare ongoing costs only
and do not reflect any transactional costs which may be incurred by a Fund.
More information about a Fund’s expenses, including annual expense ratios for the past five years, can be
found in the Financial Highlights section of this report. For additional information on operating expenses
and other shareholder costs, please refer to the appropriate Fund prospectus.
THE RYDEX VARIABLE TRUST ANNUAL REPORT
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3
ABOUT SHAREHOLDERS’ FUND EXPENSES (Unaudited) (concluded)
Beginning
Ending
Expenses
Expense
Account Value
Account Value
Paid During
Ratio†
June 30, 2007
December 31, 2007
Period*
Table 1. Based on actual Fund return
Amerigo Fund
1.65%
$1,000.00
$1,039.90
$8.48
Clermont Fund
1.67%
1,000.00
1,012.20
8.47
Berolina Fund
1.65%
1,000.00
1,053.10
8.54
Table 2. Based on hypothetical 5% return
Amerigo Fund
1.65%
1,000.00
1,016.78
8.42
Clermont Fund
1.67%
1,000.00
1,016.68
8.52
Berolina Fund
1.65%
1,000.00
1,016.78
8.42
* Expenses are equal to the Fund’s annualized expense ratio, multiplied by the average account value over the period, multiplied by the number
of days in the most recent fiscal half-year, then divided by 365. Expenses shown do not include fees charged by insurance companies.
† Annualized
4
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THE RYDEX VARIABLE TRUST ANNUAL REPORT
PERFORMANCE REPORTS AND FUND PROFILES (Unaudited)
AMERIGO FUND
Cumulative Fund Performance:
July 1, 2003 – December 31, 2007
OBJECTIVE: Seeks long-term growth of capital
without regard to current income.
AMERIGO FUND
S&P 500 INDEX
$20,000
Inception:
July 1, 2003
$17,997
In 2007 Amerigo Fund was up 13.77%, outpacing the
$16,229
$15,000
S&P 500 Index which had a total return of 5.49%.
Although Amerigo Fund declined 0.84% in the fourth
$10,000
quarter, it still bested its S&P 500 benchmark, which
declined 3.36%.
$5,000
During the fourth quarter, the Fund’s single country
exposure to Europe and Asia was significantly reduced
as it shifted its focus more toward Latin America. As
$0
the year came to a close, approximately 34% of
07/01/03
12/31/03
12/31/04
12/31/05
12/31/06
12/31/07
Amerigo Fund’s portfolio was invested in international
securities. The Fund also trimmed its positions in gold and silver through profit taking activities. At the sector level, purchases dur-
ing the fourth quarter were concentrated in biotech, capital markets and large-cap growth in general.
The investment theme that Amerigo Fund continued to utilize as 2007 ended was to overweight those asset classes and sectors
that are more closely linked to global economic growth in general—China’s growth in particular. As a result, Amerigo Fund
remained overweight international securities, large capitalization companies and the “growth” asset class. Each was a positive
contributor to Amerigo Fund’s performance.
AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIOD ENDED 12/31/07
SINCE
ONE
INCEPTION
YEAR
(07/01/03)
AMERIGO FUND
13.77%
13.95%
S&P 500 INDEX
5.49%
11.36%
The returns presented above do not reflect the effects of taxes. Past performance is no guarantee of future results. The S&P 500 Index is an unman-
aged stock index and, unlike the Fund, has no management fees or other operating expenses to reduce its reported returns. Returns are historical
and include changes in principal and reinvested dividends and capital gains.
Industry Diversification (Market Exposure as % of Net Assets)
Ten Largest Holdings (% of Total Net Assets)
iShares Russell 1000 Growth
Index Fund
10.5%
100%
iShares MSCI Emerging Markets
Mutual Funds
Index Fund
9.2%
iShares MSCI EAFE Index Fund
7.7%
80%
Powershares QQQ
7.6%
iShares S&P Latin America 40
Index Fund
6.8%
60%
Exchange Traded
Vanguard Mid-Cap ETF
5.6%
Funds
iShares Russell Midcap Growth
40%
Index Fund
5.5%
SPDR Trust, Series 1
4.1%
Industrial Select Sector SPDR Fund
3.6%
20%
iShares Russell Midcap Index Fund
3.6%
Common
Top Ten Total
64.2%
Stock
0%
“Ten Largest Holdings” exclude any temporary
Amerigo Fund
cash or derivative investments.
“Industry Diversification (Market Exposure as % of Net Assets)” excludes
any temporary cash investments.
THE RYDEX VARIABLE TRUST ANNUAL REPORT
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5
PERFORMANCE REPORTS AND FUND PROFILES (Unaudited) (continued)
CLERMONT FUND
Cumulative Fund Performance:
July 1, 2003 – December 31, 2007
OBJECTIVE: Seeks a combination of current income
and growth of capital.
CLERMONT FUND
S&P 500 INDEX
$20,000
Inception:
July 1, 2003
In 2007 Clermont Fund gained 6.23% edging out its
$16,229
$15,000
45% equity/55% bond benchmark which rose 6.17%.
$13,702
Clermont Fund declined 0.93% during the fourth quar-
$10,000
ter of 2007, underperforming its performance bench-
mark which declined 0.32%.
$5,000
Trading activity during the fourth quarter of 2007 was
modest. On the equity side, portfolio adjustments had
the net impact of increasing Clermont Fund’s emerg-
$0
07/01/03
12/31/03
12/31/04
12/31/05
12/31/06
12/31/07
ing market exposure to approximately 9% of its port-
folio. Reductions were made to mid-cap blend and
large-cap value asset classes. The reductions had the impact of further reducing Clermont Fund’s exposure to the consumer dis-
cretionary and financial sectors of the U.S. equity market. Clermont Fund’s overall equity holdings’ market cap continued to
increase during the fourth quarter. As the quarter came to a close, Clermont Fund continued to overweight equities in its portfolio
allocation. With respect to Clermont Fund’s fixed-income holdings, portfolio duration was unchanged at approximately 4.7 years.
AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIOD ENDED 12/31/07
SINCE
ONE
INCEPTION
YEAR
(07/01/03)
CLERMONT FUND
6.23%
7.25%
S&P 500 INDEX
5.49%
11.36%
SYNTHETIC BALANCED BENCHMARK*
6.17%
9.35%
The returns presented above do not reflect the effects of taxes. Past performance is no guarantee of future results. The S&P 500 Index is an unman-
aged stock index and, unlike the Fund, has no management fees or other operating expenses to reduce its reported returns. Returns are historical
and include changes in principal and reinvested dividends and capital gains.
* Benchmark reflects a 45/55 ratio of the performance of the S&P 500 Index and the Lehman Brothers 1-5 Year Government Credit Index.
Industry Diversification (Market Exposure as % of Net Assets)
Ten Largest Holdings (% of Total Net Assets)
iShares Lehman Aggregate
Structured
Bond Fund
13.5%
Note
iShares MSCI EAFE Index Fund
9.7%
100%
SPDR Trust, Series 1
8.7%
Vanguard Total Bond Market ETF
6.3%
Mutual Funds
iShares Russell 1000 Growth
80%
Index Fund
5.9%
DIAMONDS Trust, Series I
4.9%
60%
iShares Lehman 7-10 Year
Exchange Traded
Treasury Bond Fund
3.8%
Funds
Vanguard Mid-Cap ETF
3.4%
40%
Vanguard Emerging Markets ETF
3.4%
iShares S&P Global Telecommunications
20%
Sector Index Fund
3.1%
Top Ten Total
62.7%
Common
Stock
"Ten Largest Holdings" exclude any temporary
0%
Clermont Fund
cash or derivative investments.
“Industry Diversification (Market Exposure as % of Net Assets)” excludes
any temporary cash investments.
6
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THE RYDEX VARIABLE TRUST ANNUAL REPORT
PERFORMANCE REPORTS AND FUND PROFILES (Unaudited) (concluded)
BEROLINA FUND
Cumulative Fund Performance:
November 10, 2006 – December 31, 2007
OBJECTIVE: Seeks to provide growth of capital
and total return.
BEROLINA FUND
S&P 500 INDEX
$13,000
Inception: November 10, 2006
In 2007 Berolina Fund rose 14.91%, easily outpacing
$12,000
its 75% equity/25% bond benchmark which gained
$11,832
5.92%. For the fourth quarter of 2007, Berolina Fund
$11,000
declined 0.88%, again outperforming its performance
$10,867
benchmark which declined 1.98%.
$10,000
Berolina Fund’s strong performance for the year was
driven by the Fund’s exposure to emerging market
equities, particularly Latin America. Berolina Fund
$9,000
11/10/06
12/31/06
03/31/07
06/30/07
09/30/07
12/31/07
continues to overweight growth relative to value at
the asset class level as well as large caps with respect
to market capitalization.
The portfolio’s bond duration was shortened slightly to enable the Fund to take a more aggressive tactical stance toward
emerging market equities.
AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIOD ENDED 12/31/07
SINCE
ONE
INCEPTION
YEAR
(11/10/06)
BEROLINA FUND
14.91%
15.90%
S&P 500 INDEX
5.49%
7.57%
SYNTHETIC BALANCED BENCHMARK*
5.92%
2.39%
The returns presented above do not reflect the effects of taxes. Past performance is no guarantee of future results. The S&P 500 Index is an unman-
aged stock index and, unlike the Fund, has no management fees or other operating expenses to reduce its reported returns. Returns are historical
and include changes in principal and reinvested dividends and capital gains.
* Benchmark reflects a 75/25 ratio of the performance of the S&P 500 Index and the Lehman Brothers 1-5 Year Government Credit Index.
Industry Diversification (Market Exposure as % of Net Assets)
Ten Largest Holdings (% of Total Net Assets)
iShares MSCI Emerging Markets
Index Fund
8.8%
Structured
First American Prime
100%
Notes
Obligations Fund
8.3%
Mutual Funds
iShares S&P Latin America 40
80%
Index Fund
7.0%
DIAMONDS Trust, Series I
5.9%
iShares MSCI Pacific ex-Japan
Index Fund
4.9%
60%
Exchange Traded
Funds
Consumer Staples Select Sector
40%
SPDR Fund
3.9%
Vanguard Pacific ETF
3.3%
KBW Capital Markets ETF
3.2%
20%
Vanguard Emerging Markets ETF
2.8%
Barclays Bank PLC ETF Plus Note
2.7%
Common
Top Ten Total
0%
Stocks
50.8%
Berolina Fund
“Ten Largest Holdings” exclude any temporary
cash or derivative investments.
“Industry Diversification (Market Exposure as % of Net Assets)” excludes
any temporary cash investments.
THE RYDEX VARIABLE TRUST ANNUAL REPORT
|
7
SCHEDULE OF INVESTMENTS
December 31, 2007
December 31, 2007
AMERIGO FUND
MARKET
MARKET
VALUE
VALUE
SHARES
(NOTE 1)
SHARES
(NOTE 1)
COMMON STOCKS 1.2%
Utilities Select Sector SPDR Fund†
35,000
$
1,481,550
iShares MSCI Japan Index Fund
100,000
1,323,000
Berkshire Hathaway, Inc. —
SPDR S&P International
Class A*
32
$
4,531,200
Small Cap ETF†
9,000
309,960
Total Common Stocks
Total Exchange Traded Funds
(Cost $3,122,136)
4,531,200
(Cost $299,192,425)
353,629,820
EXCHANGE TRADED FUNDS 97.0%
MUTUAL FUNDS 1.3%
iShares Russell 1000 Growth
First American Prime Obligations
Index Fund
632,000
38,412,960
Fund
4,547,794
4,547,794
iShares MSCI Emerging Markets
Total Mutual Funds
Index Fund†
224,000
33,667,200
(Cost $4,547,794)
4,547,794
iShares MSCI EAFE Index Fund
358,000
28,103,000
Powershares QQQ†
541,000
27,720,840
FACE
iShares S&P Latin America 40
AMOUNT
Index Fund†
99,000
24,628,230
SECURITIES LENDING COLLATERAL 37.4%
Vanguard Mid-Cap ETF†
270,000
20,447,100
Investment in Securities Lending Short Term
iShares Russell Midcap Growth
Investment Portfolio Held by
Index Fund†
177,000
20,133,750
U.S. Bank (Note 7)
$136,437,589
136,437,589
SPDR Trust, Series 1†
102,000
14,913,420
Total Securities Lending Collateral
Industrial Select Sector
(Cost $136,437,589)
136,437,589
SPDR Fund†
338,000
13,236,080
iShares Russell Midcap
Total Investments 136.9%
Index Fund†
125,000
12,975,000
(Cost $443,299,944)
$ 499,146,403
DIAMONDS Trust, Series I†
94,000
12,459,700
Liabilities in Excess of
Vanguard Pacific ETF
163,000
11,043,250
Other Assets – (36.9)%
$(134,453,592)
iShares Russell 2000 Index Fund†
141,000
10,738,560
Net Assets – 100.0%
$ 364,692,811
Materials Select Sector
SPDR Fund†
205,000
8,548,500
SPDR S&P Biotech ETF†
141,000
8,416,290
Energy Select Sector
SPDR Fund†
98,000
7,776,300
iShares MSCI Brazil Index Fund†
94,000
7,577,340
Vanguard Total Stock
Market ETF†
48,000
6,954,240
iShares FTSE/Xinhua China 25
Index Fund†
35,000
5,973,100
iShares MSCI Mexico Index Fund†
94,000
5,286,560
Vanguard Value ETF†
71,000
4,711,560
KBW Capital Markets ETF†
70,000
4,701,900
streetTracks Gold Trust*
47,000
3,870,920
iShares Silver Trust*†
26,000
3,821,220
SPDR MSCI ACWI ex-US ETF
70,000
2,888,200
iShares Russell 1000 Value
Index Fund
35,000
2,812,250
Vanguard Emerging Markets ETF†
26,000
2,711,800
Consumer Staples Select Sector
SPDR Fund†
79,000
2,275,200
iShares S&P Global
Telecommunications Sector
Index Fund†
28,000
2,168,040
iShares MSCI Pacific ex-Japan
Index Fund
10,000
1,542,800
* Non-Income Producing Security.
† All or a portion of this security is on loan at December 31, 2007 — See Note 7.
8
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THE RYDEX VARIABLE TRUST ANNUAL REPORT
See Notes to Financial Statements.
SCHEDULE OF INVESTMENTS
December 31, 2007
CLERMONT FUND
MARKET
MARKET
VALUE
VALUE
SHARES
(NOTE 1)
SHARES
(NOTE 1)
COMMON STOCKS 1.4%
Eaton Vance Floating-Rate
Income Trust
17,000
$
265,370
Berkshire Hathaway, Inc. —
Technology Select Sector
Class A*
6
$
849,600
SPDR Fund†
9,000
239,940
Total Common Stocks
BlackRock Corporate High Yield
(Cost $513,712)
849,600
Fund VI, Inc.
17,000
200,090
BlackRock Corporate High Yield
EXCHANGE TRADED FUNDS 95.9%
Fund V, Inc.
17,000
198,900
iShares Lehman Aggregate Bond
Nuveen Floating Rate Income
Fund†
83,000
8,397,110
Opportunity Fund
17,000
195,840
iShares MSCI EAFE Index Fund
77,000
6,044,500
Nuveen Floating Rate
SPDR Trust, Series 1†
37,000
5,409,770
Income Fund
17,000
195,670
Vanguard Total Bond Market ETF†
51,000
3,927,000
Vanguard Intermediate-Term
iShares Russell 1000 Growth Index
Bond ETF†
2,000
154,420
Fund
60,000
3,646,800
Eaton Vance Senior Income Trust
17,000
121,380
DIAMONDS Trust, Series I†
23,000
3,048,650
BlackRock Corporate High Yield
iShares Lehman 7-10 Year Treasury
Fund, Inc.†
17,000
119,680
Bond Fund†
27,000
2,343,600
BlackRock Corporate High Yield
Vanguard Mid-Cap ETF†
28,000
2,120,440
Fund III, Inc.†
17,000
117,470
Vanguard Emerging Markets ETF
20,000
2,086,000
Dreyfus High Yield Strategies Fund
17,000
63,580
iShares S&P Global
Total Exchange Traded Funds
Telecommunications Sector
(Cost $54,697,475)
59,687,840
Index Fund†
25,000
1,935,750
Powershares QQQ†
36,000
1,844,640
MUTUAL FUNDS 1.5%
iShares S&P Latin America 40
First American Prime Obligations
Index Fund
7,000
1,741,390
Fund
964,947
964,947
iShares MSCI Emerging Markets
Total Mutual Funds
Index Fund†
11,000
1,653,300
(Cost $964,947)
964,947
KBW Capital Markets ETF†
23,000
1,544,910
Vanguard Pacific ETF
20,000
1,355,000
FACE
SPDR S&P Biotech ETF†
21,000
1,253,490
AMOUNT
Vanguard Consumer Staples
STRUCTURED NOTES†† 0.6%
VIPERs
17,000
1,203,430
Barclays Bank PLC
Van Kampen Senior Income Trust†
153,000
1,064,880
ETF Plus Notes at 2.15%
SPDR S&P International Small
due 10/06/08
$
400,000
402,280
Cap ETF†
29,000
998,760
Total Structured Notes
Vanguard Utilities ETF
9,000
789,390
(Cost $399,700)
402,280
Industrial Select Sector SPDR
Fund†
19,000
744,040
SECURITIES LENDING COLLATERAL 36.8%
SPDR MSCI ACWI ex-US ETF†
18,000
742,680
Investment in Securities Lending Short Term
Vanguard Short-Term Bond ETF†
9,000
693,450
Investment Portfolio Held by
iShares Russell 2000 Index Fund†
9,000
685,440
U.S. Bank (Note 7)
22,928,134
22,928,134
Utilities Select Sector SPDR Fund†
15,000
634,950
Total Securities Lending Collateral
Vanguard Small-Cap ETF
9,000
613,980
(Cost $22,928,134)
22,928,134
iShares Russell 1000 Value Index
Fund
6,000
482,100
Total Investments 136.2%
BlackRock Floating Rate Income
(Cost $79,503,968)
$
84,832,801
Strategies Fund Inc
17,000
271,660
Liabilities in Excess of
BlackRock Floating Rate Income
Other Assets – (36.2)%
$ (22,569,030)
Strategies Fund II Inc
17,000
269,280
Pioneer Floating Rate Trust
17,000
269,110
Net Assets – 100.0%
$
62,263,771
* Non-Income Producing Security.
† All or a portion of this security is on loan at December 31, 2007 — See Note 7.
†† Variable rate coupon linked to the iShares MSCI Emerging Markets Index Fund.
See Notes to Financial Statements.
THE RYDEX VARIABLE TRUST ANNUAL REPORT
|
9
SCHEDULE OF INVESTMENTS
SCHEDULE OF INVESTMENTS
December 31, 2007
December 31, 2007
BEROLINA FUND
MARKET
MARKET
VALUE
VALUE
SHARES
(NOTE 1)
SHARES
(NOTE 1)
COMMON STOCKS 2.1%
iShares Dow Jones US Oil
Equipment & Services
Berkshire Hathaway, Inc. —
Index Fund†
17,000
$
1,094,120
Class A*
7
$
991,200
Vanguard Large-Cap ETF†
16,000
1,052,320
Altria Group, Inc.
1,700
128,486
Vanguard Growth ETF
16,000
1,033,280
American States Water Co.
3,300
124,344
iShares Silver Trust*†
7,000
1,028,790
UST, Inc.†
2,200
120,560
iShares Lehman Aggregate
California Water Service Group†
3,200
118,464
Bond Fund†
10,000
1,011,700
British American Tobacco PLC —
KBW Insurance ETF†
19,000
1,006,620
SP ADR†
1,500
117,840
Energy Select Sector SPDR Fund†
12,000
952,200
Aqua America, Inc.†
5,400
114,480
SPDR S&P Oil & Gas Equipment
Fortune Brands, Inc.
1,300
94,068
& Services ETF†
23,000
933,800
Total Common Stocks
Technology Select Sector
(Cost $1,775,364)
1,809,442
SPDR Fund†
34,000
906,440
iShares MSCI Brazil Index Fund†
9,000
725,490
EXCHANGE TRADED FUNDS 87.6%
Vanguard FTSE All-World ex-US
iShares MSCI Emerging Markets
Index ETF
12,000
704,040
Index Fund†
50,000
7,515,000
SPDR S&P China ETF
6,000
539,100
iShares S&P Latin America 40
BlackRock Floating Rate Income
Index Fund†
24,000
5,970,480
Strategies Fund Inc
33,000
527,340
DIAMONDS Trust, Series I†
38,000
5,036,900
SPDR S&P Emerging Asia
iShares MSCI Pacific ex-Japan
Pacific ETF
6,000
524,580
Index Fund†
27,000
4,165,560
BlackRock Floating Rate Income
Consumer Staples Select Sector
Strategies Fund II Inc
33,000
522,720
SPDR Fund†
114,000
3,283,200
Pioneer Floating Rate Trust
33,000
522,390
Vanguard Pacific ETF†
41,000
2,777,750
Eaton Vance Floating-Rate
KBW Capital Markets ETF†
40,000
2,686,800
Income Trust
33,000
515,130
Vanguard Emerging Markets ETF†
23,000
2,398,900
BlackRock Corporate High Yield
Powershares QQQ†
41,000
2,100,840
Fund VI, Inc.†
33,000
388,410
SPDR S&P Biotech ETF
35,000
2,089,150
BlackRock Corporate High Yield
SPDR MSCI ACWI ex-US ETF†
39,000
1,609,140
Fund V, Inc.
33,000
386,100
Vanguard Mid-Cap ETF
21,000
1,590,330
Nuveen Floating Rate Income
Vanguard Total Bond Market ETF†
20,000
1,540,000
Opportunity Fund†
33,000
380,160
iShares FTSE/Xinhua China 25
Nuveen Floating Rate Income
Index Fund†
9,000
1,535,940
Fund
33,000
379,830
Industrial Select Sector SPDR
iPath Dow Jones-AIG Commodity
Fund†
39,000
1,527,240
Index Total Return ETN*
5,600
314,832
iShares Russell 2000 Index Fund†
20,000
1,523,200
Van Kampen Senior Income Trust†
40,000
278,400
iShares MSCI Mexico Index Fund†
24,000
1,349,760
Eaton Vance Senior Income Trust†
33,000
235,620
iShares Russell 1000 Growth
BlackRock Corporate High Yield
Index Fund†
22,000
1,337,160
Fund, Inc.†
33,000
232,320
iShares MSCI EAFE Index Fund
17,000
1,334,500
BlackRock Corporate High Yield
Materials Select Sector SPDR
Fund III, Inc.†
33,000
228,030
Fund†
32,000
1,334,400
iShares Dow Jones U.S.
streetTracks Gold Trust*†
16,000
1,317,760
Transportation Index Fund†
2,000
162,500
SPDR S&P BRIC 40 ETF†
41,000
1,316,100
Dreyfus High Yield Strategies
SPDR S&P International Small
Fund†
33,000
123,420
Cap ETF†
35,000
1,205,400
Total Exchange Traded Funds
iShares S&P Global
(Cost $67,840,329)
74,416,642
Telecommunications Sector
Index Fund†
15,000
1,161,450
10
|
THE RYDEX VARIABLE TRUST ANNUAL REPORT
See Notes to Financial Statements.
SCHEDULE OF INVESTMENTS (concluded)
December 31, 2007
BEROLINA FUND
MARKET
VALUE
SHARES
(NOTE 1)
MUTUAL FUNDS 8.3%
First American Prime Obligations
Fund
7,017,058
$
7,017,058
Total Mutual Funds
(Cost $7,017,058)
7,017,058
FACE
AMOUNT
STRUCTURED NOTES†† 2.7%
Barclays Bank PLC
ETF Plus Notes at 2.10%
due 09/08/08
$ 1,100,000
1,234,310
Barclays Bank PLC
ETF Plus Notes at 2.00%
due 11/08/08
1,150,000
1,033,850
Total Structured Notes
(Cost $2,249,000)
2,268,160
SECURITIES LENDING COLLATERAL 37.2%
Investment in Securities Lending Short Term
Investment Portfolio Held by
U.S. Bank (Note 7)
31,595,456
31,595,456
Total Securities Lending Collateral
(Cost $31,595,456)
31,595,456
Total Investments 137.9%
(Cost $110,477,207)
$ 117,106,758
Liabilities in Excess of
Other Assets – (37.9)%
$ (32,185,386)
Net Assets – 100.0%
$
84,921,372
* Non-Income Producing Security.
† All or a portion of this security is on loan at December 31, 2007 — See Note 7.
†† Variable rate coupon linked to the iShares MSCI Emerging Markets Index Fund.
ADR — American Depository Receipt.
THE RYDEX VARIABLE TRUST ANNUAL REPORT
|
11
STATEMENTS OF ASSETS AND LIABILITIES
December 31, 2007
Amerigo
Clermont
Berolina
Fund
Fund
Fund
ASSETS
Investment Securities* (Notes 1, 2 and 7)
$499,146,403
$84,832,801
$117,106,758
Cash
51,194
25,486
127,435
Receivable for Fund Shares Sold
46,526
53,179
—
Investment Income Receivable (Note 1)
2,640,715
431,017
776,850
Total Assets
501,884,838
85,342,483
118,011,043
LIABILITIES
Payable upon Return of Securities Loaned (Note 7)
136,437,589
22,928,134
31,595,456
Payable for Securities Purchased (Note 1)
—
—
1,332,140
Payable for Fund Shares Redeemed
64,301
9,854
16,181
Investment Advisory Fees Payable (Note 3)
268,794
46,558
63,205
Transfer Agent and Administrative Fees Payable (Note 3)
74,665
12,933
17,557
Distribution and Service Fees Payable (Note 3)
74,665
12,933
17,557
Portfolio Accounting Fees Payable (Note 3)
27,536
5,173
7,023
Custody Fees Payable
8,960
2,410
2,107
Other Liabilities
235,517
60,717
38,445
Total Liabilities
137,192,027
23,078,712
33,089,671
NET ASSETS
$364,692,811
$62,263,771
$
84,921,372
NET ASSETS CONSIST OF
Paid-In Capital
$304,434,010
$55,712,652
$
76,634,647
Undistributed Net Investment Income
957,147
650,300
828,032
Accumulated Net Realized Gain on Investments
3,455,195
571,986
829,142
Net Unrealized Appreciation on Investments
55,846,459
5,328,833
6,629,551
NET ASSETS
$364,692,811
$62,263,771
$
84,921,372
SHARES OUTSTANDING
9,320,234
2,323,989
2,930,270
NET ASSET VALUES
$39.13
$26.79
$28.98
* The cost of investments is $443,299,944, $79,503,968, and $110,477,207, respectively.
12
|
THE RYDEX VARIABLE TRUST ANNUAL REPORT
See Notes to Financial Statements.
Year Ended December 31, 2007
Amerigo
Clermont
Berolina
Fund
Fund
Fund
INVESTMENT INCOME
Interest (Note 1)
$
—
$
7,385
$
40,295
Income from Securities Lending, net (Note 7)
980,252
163,910
227,796
Dividends, Net of Foreign Tax Withheld* (Note 1)
5,084,175
2,032,731
1,655,592
Total Income
6,064,427
2,204,026
1,923,683
EXPENSES
Investment Advisory Fees (Note 3)
2,836,796
594,407
620,680
Transfer Agent and Administrative Fees (Note 3)
787,999
165,113
172,411
Portfolio Accounting Fees (Note 3)
298,899
66,045
68,964
Trustees’ Fees**
24,429
7,398
3,583
Service Fees (Note 3)
787,999
165,113
172,411
Custody Fees
82,436
21,966
19,647
Miscellaneous
309,919
62,232
64,775
Total Expenses
5,128,477
1,082,274
1,122,471
Net Investment Income
935,950
1,121,752
801,212
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (NOTE 1)
Net Realized Gain on:
Investment Securities
15,584,666
8,438,619
1,941,896
Realized Gain Distributions Received from Underlying Funds
50,631
21,373
39,009
Securities Sold Short
—
—
2
Total Net Realized Gain
15,635,297
8,459,992
1,980,907
Net Change in Unrealized Appreciation (Depreciation) on:
Investment Securities
22,707,195
(5,100,549)
6,601,470
Net Change in Unrealized Appreciation (Depreciation)
22,707,195
(5,100,549)
6,601,470
Net Gain on Investments
38,342,492
3,359,443
8,582,377
Net Increase in Net Assets from Operations
$ 39,278,442
$
4,481,195
$
9,383,589
* Foreign tax withheld of $0, $0, and $1,071 respectively.
** Relates to Trustees not deemed "interested persons" within the meaning of Section 2(a)(19) of the 1940 Act.
See Notes to Financial Statements.
THE RYDEX VARIABLE TRUST ANNUAL REPORT
|
13
STATEMENTS OF CHANGES IN NET ASSETS
Amerigo Fund
Clermont Fund
Year
Year
Year
Year
Ended
Ended
Ended
Ended
December 31,
December 31,
December 31,
December 31,
2007
2006
2007
2006
FROM OPERATIONS
Net Investment Income
$
935,950
$
1,327,025
$
1,121,752
$
1,737,368
Net Realized Gain (Loss) on Investments
15,635,297
18,537,047
8,459,992
3,172,515
Net Change in Unrealized Appreciation
(Depreciation) on Investments
22,707,195
8,752,483
(5,100,549)
4,410,733
Net Increase in Net Assets from Operations
39,278,442
28,616,555
4,481,195
9,320,616
Distributions to Shareholders from: (Note 1)**
Net Investment Income
(1,267,780)
(246,208)
(1,188,265)
(2,136,199)
Realized Gain on Investments
(13,487,428)
(22,917,409)
(8,572,083)
(4,371,169)
Total Distributions to Shareholders
(14,755,208)
(23,163,617)
(9,760,348)
(6,507,368)
SHARE TRANSACTIONS
Proceeds from Shares Purchased
110,973,073
81,902,262
38,517,427
26,167,078
Value of Shares Purchased through
Dividend Reinvestment
14,755,208
23,163,617
9,760,348
6,507,368
Cost of Shares Redeemed
(64,968,711)
(27,601,568)
(80,543,715)
(44,346,226)
Net Increase (Decrease) in Net Assets
From Share Transactions
60,759,570
77,464,311
(32,265,940)
(11,671,780)
Net Increase (Decrease) in Net Assets
85,282,804
82,917,249
(37,545,093)
(8,858,532)
NET ASSETS—BEGINNING OF PERIOD
279,410,007
196,492,758
99,808,864
108,667,396
NET ASSETS—END OF PERIOD
$ 364,692,811
$ 279,410,007
$ 62,263,771
$
99,808,864
Undistributed Net Investment Income—
End of Period
$
957,147
$
1,327,583
$
650,300
$
724,615
* Since the commencement of operations: November 10, 2006.
** For financial reporting purposes, certain distributions from net investment income for federal income tax purposes have been reclassified to
distributions from realized gains.
14
|
THE RYDEX VARIABLE TRUST ANNUAL REPORT
See Notes to Financial Statements.
Berolina Fund
Year
Year
Ended
Ended
December 31,
December 31,
2007
2006*
$
801,212
$
144,792
1,980,907
(98)
6,601,470
28,081
9,383,589
172,775
—
(146,400)
(1,124,847)
—
(1,124,847)
(146,400)
69,340,664
20,302,822
1,124,848
146,400
(13,791,956)
(486,523)
56,673,556
19,962,699
64,932,298
19,989,074
19,989,074
—
$ 84,921,372
$19,989,074
$
828,032
$
—
See Notes to Financial Statements.
THE RYDEX VARIABLE TRUST ANNUAL REPORT
|
15
This table is presented to show selected data for a share outstanding throughout each period, and to assist shareholders in evaluating a Fund’s performance for the periods presented.
RATIOS TO
AVERAGE NET ASSETS:
Net Realized
Net Increase
NET ASSET
and
in Net Asset
Distributions
Distributions
Net Increase
NET ASSET
Net Assets,
VALUE,
Net
Unrealized
Value
from Net
from Net
(Decrease) in
VALUE,
Total
Net
Portfolio
End of
BEGINNING
Investment
Gains
Resulting from
Investment
Realized
Total
Net Asset
END OF
Investment
Total
Investment
Turnover
Period (000’s
Year Ended
OF PERIOD
Income†
on Securities
Operations
Income§
Gains§
Distributions
Value
PERIOD
Return†††
Expenses***
Income
Rate
omitted)
Amerigo Fund
December 31, 2007
$35.83
$ .12
$ 4.85
$ 4.97
$ (.14)
$ (1.53)
$ (1.67)
$ 3.30
$39.13
13.77%
1.63%
0.32%
88%
$ 364,693
December 31, 2006
34.78
.21
4.06
4.27
(.03)
(3.19)
(3.22)
1.05
35.83
12.30%
1.64%
0.57%
299%
279,410
December 31, 2005
32.18
.05
2.94
2.99
(.04)
(.35)
(.39)
2.60
34.78
9.35%
1.64%
0.15%
82%
196,493
December 31, 2004
28.99
.08
3.13
3.21
(.02)
—
(.02)
3.19
32.18
11.09%
1.63%
0.27%
149%
127,059
December 31, 2003*
25.00
.07
3.92
3.99
—
—
—
3.99
28.99
15.96%
1.71%**
0.53%**
63%
45,839
Clermont Fund
December 31, 2007
29.90
.53
1.40
1.93
(.61)
(4.43)
(5.04)
(3.11)
26.79
6.23%
1.64%
1.73%
163%
62,264
December 31, 2006
29.41
.46
1.98
2.44
(.64)
(1.31)
(1.95)
.49
29.90
8.34%
1.63%
1.51%
197%
99,809
December 31, 2005
28.57
.33
.78
1.11
(.17)
(.10)
(.27)
.84
29.41
3.92%
1.64%
1.15%
129%
108,667
December 31, 2004
27.05
.32
1.27
1.59
(.07)
—
(.07)
1.52
28.57
5.89%
1.63%
1.17%
124%
91,092
December 31, 2003*
25.00
.29
1.76
2.05
—
—
—
2.05
27.05
8.20%
1.71%**
2.29%**
113%
22,277
Berolina Fund
December 31, 2007
25.55
.34
3.48
3.82
—
(.39)
(.39)
3.43
28.98
14.91%
1.62%
1.22%
171%
84,921
December 31, 2006*
25.00
.40
0.34
0.74
(.19)
—
(.19)
0.55
25.55
2.96%
1.63%**
10.65%**††
13%
19,989
* Since the commencement of operations:
July 1, 2003 — Amerigo Fund and Clermont Fund;
November 10, 2006 — Berolina Fund.
** Annualized
*** Does not include expenses of the underlying funds in which the Funds invest.
† Calculated using the average daily shares outstanding for the year.
†† Income ratios for the year ended December 31, 2006 were calculated for an abbreviated time frame and are not indicative of future class performance.
††† Total investment return does not reflect the impact of any additional fees charged by insurance companies and has not been annualized.
§ For financial reporting purposes, certain distributions from net investment income for federal income tax purposes have been reclassified to distributions from realized gains.
1. Organization and Significant Accounting Policies
by marking the contracts to their current realized settlement
Organization
prices. Financial futures contracts are valued at the last
The Rydex Variable Trust (the “Trust”), a Delaware business
quoted sales price, usually as of 4:00 p.m. on the valuation
trust, is registered with the SEC under the Investment
date. In the event that the exchange for a specific futures
Company Act of 1940 (the “1940 Act”) as a non-diversified,
contract closes earlier than 4:00 p.m., the futures contract is
open-ended investment company and is authorized to issue
valued at the Official Settlement Price of the exchange.
an unlimited number of no par value shares. The Trust offers
However, the underlying securities from which the futures
shares of the Funds to insurance companies for their
contract value is derived are monitored until 4:00 p.m. to
variable annuity and variable life insurance contracts.
determine if fair valuation would provide a more accurate
valuation. Short-term securities, if any, are valued at
At December 31, 2007, the Trust consisted of fifty-five
amortized cost, which approximates market value.
separate Funds: twenty-three Benchmark Funds, one Money
Market Fund, eight Alternative Strategy Funds, seventeen
The value of domestic equity index swap agreements
Sector Funds, three Essential Portfolio Funds and three CLS
entered into by the Funds is accounted for using the
AdvisorOne Funds. This report covers the CLS AdvisorOne
unrealized gain or loss on the agreements that is
Funds (the “Funds”), while the Benchmark Funds, the
determined by marking the agreements to the last quoted
Money Market Fund, the Alternative Strategy Funds, the
value of the index that the swap pertains to at the close of
Sector Funds, and Essential Portfolio Funds are contained in
the NYSE, usually 4:00 p.m. The swap’s market value is then
separate reports.
adjusted to include dividends accrued, financing charges
and/or interest associated with the swap agreements.
Each Fund invests primarily in ETFs (“underlying funds”),
acting similar to a “fund of funds”. The Funds seek to
Investments for which market quotations are not readily
achieve their investment objectives by investing in
available are valued at fair value as determined in good faith
underlying funds, in conjunction with a sparse amount of
by Rydex Investments, under direction of the Board of
additional securities.
Trustees using methods established or ratified by the Board
of Trustees. These methods include, but are not limited to:
Rydex Investments provides advisory, transfer agent and
(i) general information as to how these securities and assets
administrative services, and accounting services to the Trust.
trade; (ii) in connection with futures contracts and options
Rydex Distributors, Inc. (the “Distributor”) acts as principal
thereupon, and other derivative investments, information as
underwriter for the Trust. Both Rydex Investments and the
to how (a) these contracts and other derivative investments
Distributor are affiliated entities.
trade in the futures or other derivative markets, respectively,
Clarke Lanzen Skalla Investment Firm, LLC serves as
and (b) the securities underlying these contracts and other
investment sub-advisor to the Funds and is responsible for
derivative investments trade in the cash market; and (iii)
the day-to-day management of each Fund’s portfolio.
other information and considerations, including current
values in related markets.
Significant Accounting Policies
The following significant accounting policies are in
B. Securities transactions are recorded on the trade date for
conformity with U.S. generally accepted accounting
financial reporting purposes.Realized gains and losses from
principles and are consistently followed by the Trust. All
securities transactions are recorded using the identified cost
time references are based on Eastern Time. The
basis. Proceeds from lawsuits related to investment holdings
information contained in these notes may not apply to
are recorded as realized gains in the respective Fund.
every Fund in the Trust.
Dividend income is recorded on the ex-dividend date, net
of applicable taxes withheld by foreign countries. Interest
A. Traditional open-end investment companies (“Mutual
income, including amortization of premiums and accretion
Funds”) are valued at their Net Asset Value (the “NAV”) as
of discount, is accrued on a daily basis.
of the close of business, usually 4:00 p.m. on the valuation
date. Exchange Traded Funds (“ETFs”) and closed-end
C. Distributions of net investment income and net realized
investment companies (“closed-end funds”) are valued at
capital gains are recorded on the ex-dividend date and are
the last quoted sales price.
determined in accordance with income tax regulations
which may differ from U.S. generally accepted accounting
Equity securities listed on an exchange (New York Stock
principles. These differences are primarily due to differing
Exchange (“NYSE”) or American Stock Exchange) are
treatments for items such as deferral of wash sales and
valued at the last quoted sales price as of close of business
post-October losses and regulated futures contracts and
on the NYSE, usually 4:00 p.m. on the valuation date. Equity
options. Net investment income and loss, net realized gains
securities listed on the Nasdaq market system are valued at
and losses, and net assets are not affected by these
the Nasdaq Official Closing Price, usually as of 4:00 p.m. on
differences.
the valuation date. Over-the-Counter options held by the
Trust are valued using the average bid price obtained from
D. When a Fund engages in a short sale of an equity or
one or more security dealers. The value of futures contracts
fixed income security, an amount equal to the proceeds is
purchased and sold by the Trust is accounted for using the
reflected as an asset and an equivalent liability. The amount
unrealized gain or loss on the contracts that is determined
of the liability is subsequently marked-to-market to reflect
the market value of the short sale. The Fund maintains a
THE RYDEX VARIABLE TRUST ANNUAL REPORT
|
17
NOTES TO FINANCIAL STATEMENTS (continued)
segregated account of cash and/or securities as collateral
or the change in market value of a different equity security,
for short sales. The Fund is exposed to market risk based on
basket of equity securities, equity index or domestic
the amount, if any, that the market value of the security
currency index. Swap agreements are used to obtain
exceeds the market value of the securities in the
exposure to an equity or market without owning or taking
segregated account. Fees, if any, paid to brokers to borrow
physical custody of securities. The swap agreements are
securities in connection with short sales are considered part
marked-to-market daily based upon quotations from market
of the cost of short sale transactions. In addition, the Fund
makers and the change, if any, is recorded as unrealized
must pay out the dividend rate of the equity or coupon rate
gain or loss. Payments received or made as a result of an
of the treasury obligation to the lender and records this as
agreement or termination of the agreement are recognized
an expense. Short dividends or interest expense is a cost
as realized gains or losses.
associated with the investment objective of short sales
The Trust may enter into credit default swap agreements
transactions, rather than an operational cost associated with
where one party, the protection buyer, makes an upfront or
the day-to-day management of any mutual fund.
periodic payment to counterparty, the protection seller, in
E. Upon the purchase of an option by a Fund, the premium
exchange for the right to receive a contingent payment.
paid is recorded as an investment, the value of which is
The maximum amount of the payment may equal the
marked-to-market daily. When a purchased option expires,
notional amount, at par, of the underlying index or security
that Fund will realize a loss in the amount of the cost of the
as a result of a related credit event. Upfront payments
option. When a Fund enters into a closing sale transaction,
received or made by a Fund, are amortized over the
that Fund will realize a gain or loss depending on whether
expected life of the agreement. Periodic payments received
the proceeds from the closing sale transaction are greater
or paid by a Fund are recorded as realized gains or losses.
or less than the cost of the option. When a Fund exercises a
The credit default contracts are marked-to-market daily
put option, that Fund will realize a gain or loss from the sale
based upon quotations from market makers and the
of the underlying security and the proceeds from such sale
change, if any, is recorded as unrealized gain or loss.
will be decreased by the premium originally paid. When a
Payments received or made as a result of a credit event or
Fund exercises a call option, the cost of the security
termination of the contract are recognized, net of a
purchased by that Fund upon exercise will be increased by
proportional amount of the upfront payment, as realized
the premium originally paid. When a Fund writes (sells) an
gains or losses.
option, an amount equal to the premium received is
H. The Trust may invest in structured notes, which are over-
entered in that Fund’s accounting records as an asset and
the-counter contracts linked to the performance of an
equivalent liability. The amount of the liability is
underlying benchmark such as interest rates, equity
subsequently marked-to-market to reflect the current value
markets, equity indices, commodities indices, corporate
of the option written. When a written option expires, or if a
credits or foreign exchange markets. A structured note is a
Fund enters into a closing purchase transaction, that Fund
type of bond in which an issuer borrows money from
realizes a gain (or loss if the cost of a closing purchase
investors and pays back the principal, adjusted for
transaction exceeds the premium received when the option
performance of the underlying benchmark, at a specified
was sold).
maturity date. In addition, the contract may require periodic
F. The Trust may enter into stock and bond index futures
interest payments. Structured notes are used to obtain
contracts and options on such futures contracts. Futures
exposure to a market without owning or taking physical
contracts are contracts for delayed delivery of securities at a
custody of securities or commodities. Fluctuations in value
specified future delivery date and at a specific price. Upon
of the structured notes are recorded as unrealized gains and
entering into a contract, a Fund deposits and maintains as
losses in the accompanying financial statements. Coupon
collateral such initial margin as required by the exchange on
payments are recorded as income while net payments are
which the transaction is effected. Pursuant to the contract,
recorded as net realized gains or losses.
the Fund agrees to receive from or pay to the broker an
I. Investment securities and other assets and liabilities
amount of cash equal to the daily fluctuation in value of the
denominated in foreign currencies are translated into U.S.
contract. Such receipts or payments are known as variation
dollar amounts at the date of valuation. Purchases and sales
margin and are recorded by the Fund as unrealized gains or
of investment securities and income and expense items
losses. When the contract is closed, the Fund records a
denominated in foreign currencies are translated into U.S.
realized gain or loss equal to the difference between the
dollar amounts on the respective dates of such transactions.
value of the contract at the time it was opened and the
The Trust does not isolate that portion of the results of
value at the time it was closed.
operations resulting from changes in foreign exchange rates
G. The Trust may enter into domestic equity index and
on investments from the fluctuations arising from changes in
domestic currency index swap agreements, which are over-
market prices of securities held. Such fluctuations are
the-counter contracts in which one party agrees to make
included with the net realized and unrealized gain and loss
periodic payments based on the change in market value of
from investments.
a specified equity security, basket of equity securities,
Reported net realized foreign exchange gains or losses arise
equity index or domestic currency index, in return for
from sales of foreign currencies and currency gains or losses
periodic payments based on a fixed or variable interest rate
18
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THE RYDEX VARIABLE TRUST ANNUAL REPORT
NOTES TO FINANCIAL STATEMENTS (continued)
realized between the trade and settlement dates on
made against the Funds and/or their affiliates that have not
investment transactions. Net unrealized exchange gains and
yet occurred. However, based on experience, the Funds
losses arise from changes in the fair values of assets and
expect the risk of loss to be remote.
liabilities other than investments in securities at the fiscal
Short sales are transactions in which a Fund sells an equity
period end, resulting from changes in exchange rates.
or fixed income security it does not own. If the security sold
J. The Trust may enter into forward currency contracts
short decreases in price between the time the Fund sells the
primarily to hedge against foreign currency exchange rate
security and closes its short position, that Fund will realize a
risks on its non-U.S. dollar denominated investment
gain on the transaction. Conversely, if the security increases
securities. When entering into a forward currency contract, a
in price during the period, that Fund will realize a loss on
Fund agrees to receive or deliver a fixed quantity of foreign
the transaction. The risk of such price increases is the
currency for an agreed-upon price on an agreed future date.
principal risk of engaging in short sales.
These contracts are valued daily and the corresponding
The risk associated with purchasing options is limited to the
unrealized gain or loss on the contracts, as measured by the
premium originally paid. The risk in writing a covered call
difference between the forward foreign exchange rates at
option is that a Fund may forego the opportunity for profit
the dates of entry into the contracts and the forward rates at
if the market price of the underlying security increases and
the reporting date, is included in the Statement of Assets
the option is exercised. The risk in writing a covered put
and Liabilities. Realized and unrealized gains and losses are
option is that a Fund may incur a loss if the market price of
included in the Statement of Operations.
the underlying security decreases and the option is
K. The Funds may also purchase American Depository
exercised. In addition, there is the risk that a Fund may not
Receipts, U.S. Government securities, and enter into
be able to enter into a closing transaction because of an
repurchase agreements.
illiquid secondary market or, for over-the-counter options,
L. The Funds may leave cash overnight in their cash account
because of the counterparty’s inability to perform.
with the custodian, U.S. Bank. Periodically, a Fund may have
There are several risks in connection with the use of futures
cash due to the custodian bank as an overdraft balance. A
contracts. Risks may be caused by an imperfect correlation
fee is incurred on this overdraft, calculated by multiplying
between movements in the price of the instruments and the
the overdraft by a rate based on the federal funds rate.
price of the underlying securities. In addition, there is the
Segregated cash with the broker is held as collateral for
risk that a Fund may not be able to enter into a closing
investments in derivative instruments such as futures
transaction because of an illiquid secondary market.
contracts and index swap agreements.
There are several risks associated with the use of structured
M. Certain U.S. Government and Agency Obligations are
notes. Structured securities are leveraged, thereby
traded on a discount basis; the interest rates shown on the
providing an exposure to the underlying benchmark of
Schedules of Investments reflect the discount rates paid at
three times the face amount and increasing the volatility of
the time of purchase by the Funds. Other securities bear
each note relative to the change in the underlying linked
interest at the rates shown, payable at fixed dates through
financial instrument. A highly liquid secondary market may
maturity.
not exist for the structured notes a Fund invests in, which
N. The preparation of financial statements in conformity
may make it difficult for that Fund to sell the structured
with U.S. generally accepted accounting principles requires
notes it holds at an acceptable price or to accurately value
management to make estimates and assumptions that affect
them. In addition, structured notes are subject to the risk
the reported amount of assets and liabilities and disclosure
that the counterparty to the instrument, or issuer, might not
of contingent assets and liabilities at the date of the
pay interest when due or repay principal at maturity of the
financial statements and the reported amounts of revenues
obligation. Although the Trust will not invest in any
and expenses during the reporting period. Actual results
structured notes unless Rydex Investments believes that the
could differ from these estimates.
issuer is creditworthy, a Fund does bear the risk of loss of
the amount expected to be received in the event of the
2. Financial Instruments
default or bankruptcy of the issuer.
As part of its investment strategy, the Funds, as well as the
There are several risks associated with the use of swap
underlying funds they invest in may utilize short sales and a
agreements that are different from those associated with
variety of derivative instruments, including options, futures,
ordinary portfolio securities transactions, due to the fact
options on futures, structured notes, and swap agreements.
that they could be considered illiquid. Although the Trust
These investments involve, to varying degrees, elements of
will not enter into any swap agreement unless Rydex
market risk and risks in excess of the amounts recognized in
Investments believes that the other party to the transaction
the Statements of Assets and Liabilities.
is creditworthy, the Funds bear the risk of loss of the
Throughout the normal course of business, the Funds enter
amount expected to be received under a swap agreement
into contracts that contain a variety of representations and
in the event of the default or bankruptcy of the agreement
warranties which provide general indemnifications. The
counterparty.
Funds’ maximum exposure under these arrangements is
unknown, as this would involve future claims that may be
THE RYDEX VARIABLE TRUST ANNUAL REPORT
|
19
NOTES TO FINANCIAL STATEMENTS (continued)
There are several risks associated with credit default swaps.
next $250 million of the average daily net assets, 0.05% on
0.03% on the average daily net assets over $750 million of
the next $250 million of the average daily net assets, and
Credit default swaps involve the exchange of a fixed-rate
each of the Funds.
premium for protection against the loss in value of an
Rydex Investments engages external service providers to
underlying debt instrument in the event of a defined credit
perform other necessary services for the Trust, such as
event (such as payment default or bankruptcy). Under the
auditing services, legal services, printing and mailing, etc., on
terms of the swap, one party acts as a “guarantor,”
a pass-through basis. Such expenses vary from Fund to Fund
receiving a periodic payment that is a fixed percentage
and are allocated to the Funds based on relative net assets.
applied to a notional principal amount. In return, the party
agrees to purchase the notional amount of the underlying
The Trust has adopted a Distribution Plan for which the
instrument, at par, if a credit event occurs during the term of
Distributor, and other firms that provide shareholder services
the swap. A Fund may enter into credit default swaps in
(“Service Providers”) may receive compensation. The Trust
which that Fund or its counterparty acts as guarantor. By
will pay fees to the Distributor at an annual rate not to
acting as the guarantor of a swap, that Fund assumes the
exceed 0.25% of average daily net assets. The Distributor in
market and credit risk of the underlying instrument,
turn, will compensate Service Providers for providing such
including liquidity and loss of value.
services, while retaining a portion of such payments to
compensate itself for shareholder services it performs.
In conjunction with the use of short sales, options, futures,
options on futures, and swap agreements, the Funds are
In addition, at an Organization Meeting on February 14,
required to maintain collateral in various forms. The Funds
2003, the Board approved the use of a Distribution Plan for
use, where appropriate, depending on the financial
which the Distributor and other Service Providers may
instrument utilized and the broker involved, margin deposits
receive compensation. If a Service Provider provides
at the broker, cash and/or securities segregated at the
distribution services, the Trust will pay distribution fees to
custodian bank, discount notes, or the repurchase
the Distributor at an annual rate not to exceed 0.25% of
agreements allocated to each Fund.
average daily net assets, pursuant to Rule 12b-1 of the 1940
Act. The Distributor, in turn, will pay the Service Provider
The risks inherent in the use of short sales, options, futures
out of its fees. The Distributor may, at its discretion, retain a
contracts, options on futures contracts, structured notes,
portion of such payments to compensate itself for
and swap agreements, include i) adverse changes in the
distribution services. Although approved, at December 31,
value of such instruments; ii) imperfect correlation between
2007, this plan was not being utilized.
the price of the instruments and movements in the price of
the underlying securities, indices, or futures contracts; iii) the
Certain officers and trustees of the Trust are also officers of
possible absence of a liquid secondary market for any
Rydex Investments.
particular instrument at any time; and iv) the potential of
4. Federal Income Tax Information
counterparty default.
The Funds intend to comply with the provisions of
The Trust has established strict counterparty credit
Subchapter M of the Internal Revenue Code applicable to
guidelines and enters into transactions only with financial
regulated investment companies and will distribute
institutions of investment grade or better.
substantially all net investment income and capital gains to
3. Fees And Other Transactions With Affiliates
shareholders. Therefore, no Federal income tax provision
has been recorded.
Under the terms of an investment advisory contract, the
Trust pays Rydex Investments investment advisory fees
Income and capital gain distributions are determined in
calculated at an annual percentage rate of 0.90% of the
accordance with Federal income tax regulations, which may
average daily net assets of the Funds.
differ from U.S. generally accepted accounting principles.
These differences are primarily due to differing treatments
Rydex Investments pays the Sub-Advisor out of the advisory
for derivatives, foreign currency transactions, losses deferred
fees it receives. In addition, Rydex Investments bears all of
due to wash sales, losses deferred due to post-October
its own costs associated with providing these services and
losses, and excise tax regulations.
the expenses of the Trustees that are affiliated with Rydex
Investments. Rydex Investments may make payments from
Permanent book and tax basis differences, if any, relating to
its own resources to broker-dealers and other financial
shareholder distributions will result in reclassifications to
institutions in connection with the sale of Fund shares.
paid-in capital. This includes net operating losses not utilized
during the current period and capital loss carry forward
Rydex Investments provides transfer agent and
expired. These reclassifications have no effect on net assets
administrative services to the Funds calculated at an
or net asset values per share. Any taxable gain remaining at
annual percentage rate of 0.25% of the average daily net
fiscal year end is distributed in the following year.
assets of the Funds.
Rydex Investments also provides accounting services to the
Trust calculated at an annualized rate of 0.10% on the first
$250 million of the average daily net assets, 0.075% on the
20
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THE RYDEX VARIABLE TRUST ANNUAL REPORT
NOTES TO FINANCIAL STATEMENTS (continued)
The Fund’s tax basis capital gains and losses are determined only at the end of each fiscal year. Tax basis capital losses in excess
of capital gains are carried forward to offset future net capital gains. For the year ended December 31, 2007, the following Funds
offset net realized capital gains with capital losses from previous years:
Fund
Amount
Berolina Fund
$98
The tax character of distributions paid during 2007 was as follows:
Ordinary
Long-Term
Total
Fund
Income
Capital Gain
Distributions
Amerigo Fund
$10,211,488
$4,543,720
$14,755,208
Clermont Fund
4,731,756
5,028,592
9,760,348
Berolina Fund
1,124,847
—
1,124,847
The tax character of distributions paid during 2006 was as follows:
Ordinary
Long-Term
Return of
Total
Fund
Income
Capital Gain
Capital
Distributions
Amerigo Fund
$3,695,821
$19,467,796
$
—
$23,163,617
Clermont Fund
3,425,542
3,081,826
—
6,507,368
Berolina Fund
144,792
—
1,608
146,400
The tax character of distributable earnings/(accumulated losses) at December 31, 2007, was as follows:
Undistributed
Undistributed
Ordinary
Long-Term
Net Unrealized
Capital Loss
Fund
Income
Capital Gain
Appreciation
Carryforward
Amerigo Fund
$2,709,404
$2,650,401
$54,898,996
$
—
Clermont Fund
650,300
909,727
4,991,092
—
Berolina Fund
1,535,329
12,645
6,738,751
—
At December 31, 2007, the cost of securities for Federal income tax purposes, the aggregate gross unrealized gain for all
securities for which there was an excess of value over tax cost and the aggregate gross unrealized loss for all securities for which
there was an excess of tax cost over value, were as follows:
Tax
Tax
Net
Tax
Unrealized
Unrealized
Unrealized
Fund
Cost
Gain
Loss
Gain
Amerigo Fund
$444,247,407
$55,552,208
$
(653,212)
$54,898,996
Clermont Fund
79,841,709
5,835,596
(844,504)
4,991,092
Berolina Fund
110,368,007
8,056,498
(1,317,747)
6,738,751
5. Securities Transactions
During the year ended December 31, 2007, the cost of purchases and proceeds from sales of investment securities, excluding
short-term and temporary cash investments, were:
Amerigo
Clermont
Berolina
Fund
Fund
Fund
Purchases
$324,023,944
$111,258,860
$172,150,107
Sales
$278,499,047
$152,423,911
$115,169,553
THE RYDEX VARIABLE TRUST ANNUAL REPORT
|
21
NOTES TO FINANCIAL STATEMENTS (continued)
6. Share Transactions
The Trust is authorized to distribute an unlimited number of no par value shares. Transactions in shares for the years presented were:
Purchased through
Net Shares
Shares Purchased
Dividend Reinvestment
Shares Redeemed
Purchased (Redeemed)
Year Ended
Year Ended
Year Ended
Year Ended
Year Ended
Year Ended
Year Ended
Year Ended
December 31,
December 31,
December 31,
December 31,
December 31,
December 31,
December 31,
December 31,
2007
2006
2007
2006
2007
2006
2007
2006
Amerigo Fund
2,858,045
2,261,660
369,897
648,478
(1,706,648)
(761,470)
1,521,294
2,148,668
Clermont Fund
1,233,260
870,074
359,365
218,368
(2,607,229)
(1,445,292)
(1,014,604)
(356,850)
Berolina Fund
2,609,248
795,434*
37,950
5,791*
(499,164)
(18,989)*
2,148,034
782,236*
* Since the commencement of operations: November 10, 2006
NOTES TO FINANCIAL STATEMENTS (continued)
7. Portfolio Securities Loaned
The Trust may lend its securities to approved brokers to earn additional income. Security lending income shown on the statement
of operations is shown net of rebates paid to borrowers and earnings on cash collateral investments shared with the lending
agent. Within this arrangement, the Trust acts as the lender, U.S. Bank acts as the agent, and other approved registered broker
dealers act as the borrowers. The Trust receives cash collateral, valued at 100% of the value of the securities on loan, which is
initially held in a segregated account at U.S. Bank. Under the terms of the Trust’s securities lending agreement with U.S. Bank,
cash collateral may be invested by U.S. Bank in certain high quality, liquid investments. At December 31, 2007, the cash collateral
investments consisted of mutual funds. Collateral is maintained over the life of the loan in an amount not less than the value of
loaned securities, as determined at the close of fund business each day; any additional collateral required due to changes in
security values is delivered to the Fund the next business day. Although the collateral mitigates risk, the Trust could experience a
delay in recovering its securities and a possible loss of income or value if the borrower fails to return the securities. The Trust has
the right under the securities lending agreement to recover the securities from the borrower on demand.
The following represents a breakdown of the collateral, its rates, and maturities:
MUTUAL FUND
Issuer
Shares
Market Value
Mount Vernon Securities Lending Trust
190,961,179
$ 190,961,179
Total Mutual Fund
$ 190,961,179
At December 31, 2007, the following Funds participated in securities lending and received cash collateral:
Fund
Cash Collateral
Value of Securities Loaned
Amerigo Fund
$136,437,589
$131,883,392
Clermont Fund
22,928,134
22,229,798
Berolina Fund
31,595,456
30,542,009
8. New Accounting Pronouncements
On July 13, 2006, the Financial Accounting Standards Board (FASB) released FASB Interpretation No. 48 “Accounting for
Uncertainty in Income Taxes” (FIN 48). FIN 48 provides guidance for how uncertain tax positions should be recognized, measured,
presented and disclosed in the financial statements. FIN 48 requires the evaluation of tax positions taken or expected to be taken
in the course of preparing the Fund’s tax returns to determine whether the tax positions are “more-likely-than-not” of being
sustained by the applicable tax authority. Tax positions not deemed to meet the more-likely-than-not threshold would be
recorded as a tax benefit or expense in the current year. Adoption of FIN 48 is required for fiscal years beginning after December
15, 2006 and is to be applied to all open tax years as of the effective date. Recent SEC guidance allows implementing FIN 48 in
fund net asset value calculations as late as a fund’s last net asset value calculation in the first required financial statement reporting
period. Management adopted FIN 48 on June 29, 2007. There is no material impact to the financial statements or disclosures
thereto as a result of the adopting of this pronouncement.
The Funds file U.S. federal income tax returns and returns in various foreign jurisdictions in which it invests. While the statute of
limitations remains open to examine the Fund’s U.S. federal income tax returns filed for the fiscal years 2004 to 2007, no
examinations are in progress or anticipated at this time. The Funds are not aware of any tax positions for which it is reasonably
possible that the total amounts of unrecognized tax benefits will significantly change in the next twelve months.
On September 15, 2006, the FASB released Statement of Financial Accounting Standard No. 157 (“FAS 157”) Fair Value
Measurement which provided enhanced guidance for using fair value to measure assets and liabilities. The standard requires
companies to provide expanded information about the assets and liabilities measured at fair value and the potential effect of
these fair valuations on an entity’s financial performance. The standard does not expand the use of fair value in any new
circumstances, but provides clarification on acceptable fair valuation methods and applications. Adoption of FAS 157 is required
for fiscal years beginning after November 15, 2007. The standard is not expected to materially impact the Funds’ financial
statements.
9. Acquisition of Rydex Investments and the Distributor
At the close of business on January 17, 2008, Rydex NV, Inc., comprised of Rydex Investments, together with several other Rydex
entities, was acquired by Security Benefit Corporation (“Security Benefit”), a financial services firm that provides a broad variety of
financial programs to investors in the advisor, banking, education, government, institutional, and qualified plan markets (the
“Transaction”). As a result of the Transaction’s completion, Rydex Investments and the Distributor are wholly-owned subsidiaries of
Security Benefit. While the Transaction has no material impact on the Funds or their shareholders, it resulted in a change of
control of Rydex Investments, which in turn caused the termination of the investment advisory agreement between Rydex
Investments and the Funds.
THE RYDEX VARIABLE TRUST ANNUAL REPORT
|
23
NOTES TO FINANCIAL STATEMENTS (concluded)
A new investment advisory agreement between Rydex Investments and the Funds was approved under substantially the same
terms as the previous investment advisory agreement (the “New Agreement”). This New Agreement was approved by
shareholders, via proxy, and took effect upon the closing of the Transaction.
The Transaction has no impact on the day-to-day operations of Rydex Investments, the fees payable to Rydex Investments under
the New Agreement, or the persons responsible for the management of the Funds.
24
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THE RYDEX VARIABLE TRUST ANNUAL REPORT
REPORT OF INDEPENDENT REGISTERED PUBLIC
To the Board of Trustees and Shareholders
of Rydex Variable Trust:
In our opinion, the accompanying statements of assets and liabilities, including the schedules of investments, and the related
statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the
financial position of Amerigo Fund, Clermont Fund and Berolina Fund (three series of Rydex Variable Trust, hereafter referred to
as the “Funds”) at December 31, 2007, the results of each of their operations for the year then ended, and the changes in each of
their net assets and the financial highlights for the periods presented, in conformity with accounting principles generally accepted
in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”)
are the responsibility of the Funds’ management; our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable
assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at December 31, 2007 by correspondence with the custodian and brokers,
provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Baltimore, Maryland
February 25, 2008
THE RYDEX VARIABLE TRUST ANNUAL REPORT
|
25
Tax Information
This information is being provided as required by the Internal Revenue Code. Amounts shown may differ from those elsewhere in
the report because of differences in tax and financial reporting practice.
The Funds’ distributions to shareholders, as finally determined, included:
Amerigo
Clermont
Berolina
Fund
Fund
Fund
From short-term capital gains:
$8,884,463
$3,521,540
$1,124,847
From long-term capital gains,
subject to the 15% rate gains category:
4,543,720
5,028,592
—
Proxy Voting Information
A description of the policies and procedures that the Trust uses to determine how to vote proxies relating to securities held in the
Funds’ portfolios is available, without charge and upon request, by calling 1-800-820-0888. This information is also available from
the EDGAR database on the SEC’s website at http://www.sec.gov.
Information regarding how the Funds voted proxies relating to portfolio securities during the most recent 12-month period
ended June 30 is available without charge, upon request, by calling 1-800-820-0888. This information is also available from the
EDGAR database on the SEC’s website at http://www.sec.gov.
Quarterly Portfolio Schedules Information
The Trust files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form
N-Q, which is available on the SEC’s website at http://www.sec.gov. The Funds’ Forms N-Q may be reviewed and copied at the
SEC’s Public Reference Room in Washington, DC, and that information on the operation of the Public Reference Room may be
obtained by calling 1-800-SEC-0330. Copies of the portfolio holdings are also available to shareholders, without charge and upon
request, by calling 1-800-820-0888.
Rydex Investments Board Review and Approval of the Investment Advisory Agreement
The Investment Company Act of 1940 (the “1940 Act”) requires that the initial approval of, as well as the continuation of, a fund’s
investment advisory agreement be specifically approved by the vote of a majority of the trustees who are not parties to the
investment advisory agreement or “interested persons” of any party (the “Independent Trustees”), cast in person at a meeting
called for the purpose of voting on such approval. In connection with such approvals, the fund’s trustees must request and
evaluate, and the investment adviser is required to furnish, such information as may be reasonably necessary to evaluate the
terms of the advisory agreement. In addition, the Securities and Exchange Commission (the “SEC”) takes the position that, as
part of their fiduciary duties with respect to fund fees, fund boards are required to evaluate the material factors applicable to a
decision to approve an investment advisory agreement.
Consistent with these responsibilities, the Rydex Variable Trust Board of Trustees (the “Board”) generally calls and holds one
meeting each year that is dedicated to considering whether to renew the investment advisory agreements between Rydex
Variable Trust (the “Trust”) and PADCO Advisors II, Inc., which does business under the name Rydex Investments (“Rydex
Investments”), (the “Current Agreements”) with respect to existing funds in the Trust, including the funds discussed in this Annual
Report (each a “Fund” and collectively, the “Funds”), and to reviewing certain other agreements pursuant to which Rydex
Investments provides investment advisory services to certain other registered investment companies. In preparation for the
meeting, the Board requests and reviews a wide variety of materials provided by Rydex Investments, including information about
Rydex Investments’ affiliates, personnel and operations. The Board also receives data provided by third parties. This information is
in addition to the detailed information about the Funds that the Board reviews during the course of each year, including
information that relates to Fund operations and performance. The Board also receives a memorandum from Fund counsel
regarding the responsibilities of the Board for the approval of investment advisory agreements. In addition, the Independent
Trustees receive advice from independent counsel to the Independent Trustees, meet in executive session outside the presence
of fund management, and participate in question and answer sessions with representatives of Rydex Investments.
At a Special Meeting of the Board held on July 10, 2007, and subsequently, during the Board’s regular quarterly meeting held on
August 27 and 28, 2007 (the “Annual Renewal Meeting” and together with the July 10, 2007 Meeting, the “Meetings”), the
Board considered and voted in favor of new investment advisory agreements for Rydex Variable Trust (each, a “New Agreement”
and collectively, the “New Agreements”), which, subject to their approval by each Fund’s shareholders, will enable Rydex
Investments to continue to serve as investment adviser to each Fund after the completion of the acquisition of Rydex
Investments’ parent, Rydex Holdings, Inc. (the “Transaction”). During the Annual Renewal Meeting, the Board also considered
and approved the selection of Rydex Investments and the continuance of the Current Agreements for an additional one-year
period or until the closing of the Transaction, based on its review of qualitative and quantitative information provided by Rydex
Investments.
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THE RYDEX VARIABLE TRUST ANNUAL REPORT
OTHER INFORMATION (Unaudited) (continued)
Board Considerations in Approving the New Investment Advisory Agreements and the Continuation of the Current
Investment Advisory Agreements
In preparation for the Annual Renewal Meeting, the Board requested and received written materials from Rydex Investments
about: (a) the quality of Rydex Investments’ investment management and other services; (b) Rydex Investments’ investment
management personnel; (c) Rydex Investments’ operations and financial condition; (d) Rydex Investments’ brokerage practices
(including any soft dollar arrangements) and investment strategies; (e) the level of the advisory fees that Rydex Investments
charges the Funds compared with the fees it charges to comparable mutual funds or accounts; (f) each Fund’s overall fees and
operating expenses compared with similar mutual funds; (g) the level of Rydex Investments’ profitability from its Fund-related
operations; (h) Rydex Investments’ compliance systems; (i) Rydex Investments’ policies on and compliance procedures for
personal securities transactions; (j) Rydex Investments’ reputation, expertise and resources in domestic financial markets; and (k)
Fund performance compared with similar mutual funds. Certain of these considerations are discussed in more detail below.
In its deliberations at the Annual Renewal Meeting, the Board did not identify any single piece of information that was all-
important or controlling. Based on the Board’s deliberations and its evaluation of the information referenced above and
described in more detail below, the Board, including all of the Independent Trustees, unanimously: (a) concluded that terms of
the Current Agreements and New Agreements were fair and reasonable; (b) concluded that Rydex Investments’ fees were
reasonable in light of the services that Rydex Investments provides to the Funds; (c) agreed to renew each Current Agreement for
an additional one-year term; and (d) agreed to approve the New Agreements for an initial term of two years. In approving the
New Agreements and the continuation of the Current Agreements at the Annual Renewal Meeting, the Board, including the
Independent Trustees, advised by independent counsel, considered the factors discussed below.
Nature, Extent and Quality of Services Provided by Rydex Investments
At the Annual Renewal Meeting, the Board reviewed the scope of services to be provided by Rydex Investments under each
Current Agreement and noted that there would be no significant differences between the scope of services required to be
provided by Rydex Investments for the past year and the scope of services required to be provided by Rydex Investments
for the upcoming year. In reviewing the scope of services provided to the Funds by Rydex Investments, the Board reviewed
and discussed Rydex Investments’ investment experience, noting that Rydex Investments and its affiliates have committed
significant resources over time to the support of the Funds. The Board also considered Rydex Investments’ compliance
program and its compliance record with respect to the Funds. In that regard, the Board noted that Rydex Investments
provides information regarding the portfolio management and compliance to the Board on a periodic basis in connection
with regularly scheduled meetings of the Board. In addition to the above considerations, the Board reviewed and considered
Rydex Investments’ investment processes and strategies, and matters related to Rydex Investments’ portfolio transaction
policies and procedures. With respect to those Funds that invest in unaffiliated ETFs in reliance on exemptive orders
pursuant to Section 12(d)(1), the Board considered and determined that the advisory fees charged under the Current
Agreements are based on services provided that will be in addition to, rather than duplicative of, the services provides under
the investment advisory agreement of any ETF in which the Funds are invested. In particular, the Board recognized that
Rydex Investments must manage a Fund’s investment in an unaffiliated ETF in the same manner as other investments in the
Fund’s portfolio in order to ensure that the Fund achieves its investment objective. Thus, a Fund’s investment in an
unaffiliated ETF does not alleviate Rydex Investments’ duties and responsibilities as investment adviser to the Fund. The
Board also noted the substantial volume of portfolio trades and shareholder transaction activity, in general, processed by
Rydex Investments due to the unlimited exchange policy of the majority of the Funds. The Board further noted that the
Funds have consistently met their investment objectives since their respective inception dates. Based on this review, the
Board concluded that the nature, extent, and quality of services to be provided by Rydex Investments to the Funds under
the Current Agreements were appropriate and continued to support the Board’s original selection of Rydex Investments as
investment adviser to the Funds.
Fund Expenses and Performance of the Funds and Rydex Investments
At the Annual Renewal Meeting, the Board reviewed statistical information prepared by Rydex Investments regarding the
expense ratio components, including actual advisory fees, waivers/reimbursements, and gross and net total expenses of each
Fund in comparison with the same information for other funds registered under the 1940 Act determined by Rydex
Investments to comprise each Fund’s applicable peer group. Because few funds seek to provide unlimited exchange
privileges similar to those of the majority of the Funds, each Fund’s applicable peer group is generally limited to the funds of
two unaffiliated mutual fund families. In addition, the Board reviewed statistical information prepared by Rydex Investments
relating to the performance of each Fund, as well as each Fund’s ability to successfully track its benchmark over time, and a
comparison of each Fund’s performance to funds with similar investment objectives for the same periods and to appropriate
indices/benchmarks, in light of total return, yield and market trends. The Board further noted that despite the unique nature
of the Funds, the peer fund information presented to the Board was meaningful because the peer funds’ investment
objectives and strategies were closely aligned with those of the Funds. The Board noted that most of the Funds either
outperformed their peer funds or performed in line with them over relevant periods. The Board also noted that the
THE RYDEX VARIABLE TRUST ANNUAL REPORT
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OTHER INFORMATION (Unaudited) (continued)
investment advisory fees for the Funds were equivalent to those of their peers and that the overall expenses for the Funds
were only slightly higher than the total expenses of the peer funds, due in part to differing share classes and distribution fees.
Based on this review, the Board concluded that the investment advisory fees and expense levels and the historical
performance of the Funds, as managed by Rydex Investments, as compared to the investment advisory fees and expense
levels and performance of the peer funds, were satisfactory for the purposes of approving the continuance of the Current
Agreements.
Costs of Services Provided to the Funds and Profits Realized by Rydex Investments and its Affiliates
At the Annual Renewal Meeting, the Board reviewed information about the profitability of the Funds to Rydex Investments
based on the advisory fees payable under the Current Agreements for the last calendar year. Rydex Investments also
presented the Board with material discussing its methodology for determining the level of advisory fees assessable to the
Funds. The Board analyzed the Funds’ expenses, including the investment advisory fees paid to Rydex Investments. The
Board also reviewed information regarding direct revenue received by Rydex Investments and ancillary revenue received by
Rydex Investments and/or its affiliates in connection with the services provided to the Funds by Rydex Investments (as
discussed below) and/or its affiliates. The Board also discussed Rydex Investments’ profit margin as reflected in Rydex
Investments’ profitability analysis and reviewed information regarding economies of scale (as discussed below). Based on this
review, the Board concluded that the profits to be realized by Rydex Investments and its affiliates under the Current
Agreements and from other relationships between the Funds and Rydex Investments and/or its affiliates, if any, were within
the range the Board considered reasonable and appropriate.
Economies of Scale
In connection with its review of the Funds’ profitability analysis at the Annual Renewal Meeting, the Board reviewed
information regarding economies of scale or other efficiencies that may result from increases in the Funds’ asset levels. The
Board noted that neither the Current Agreements nor the New Agreements for the Funds provided for any breakpoints in
the investment advisory fees as a result of increases in the asset levels of the Funds. The Board also noted that though Rydex
Investments’ assets under management were significant, the amount is spread among more than 100 Funds. Further limiting
the realization of economies of scale, is the ability of shareholders of many of the Funds to engage in unlimited trading. The
Board also reviewed and considered Rydex Investments’ historic profitability as investment adviser to the Funds and
determined that reductions in advisory fees or additions of breakpoints were not warranted at this juncture. Based on this
review, the Board, recognizing its responsibility to consider this issue at least annually, determined that the economies of
scale, if any, were de minimis.
Other Benefits to Rydex Investments and/or its Affiliates
At the Annual Renewal Meeting, in addition to evaluating the services provided by Rydex Investments, the Board also
considered the nature, extent, quality and cost of the administrative, distribution, and shareholder services performed by
Rydex Investments’ affiliates under separate agreements. The Board noted that Rydex Investments reports its use of soft
dollars to the Board on a quarterly basis, as well as any portfolio transactions on behalf of the Funds placed through an
affiliate of the Funds or Rydex Investments pursuant to Rule 17e-1 under the 1940 Act. Based on its review, the Board
concluded that the nature and quality of the services provided by Rydex Investments’ affiliates to the Trust will benefit the
Funds’ shareholders, and that any ancillary benefits would not be disadvantageous to the Funds’ shareholders, particularly in
light of the Board’s view that the Funds’ shareholders benefit from investing in a fund that is part of a large family of funds
offering a variety of investment strategies and services.
Additional Considerations in Approving the New Agreements
On June 18, 2007, the Trustees met with representatives of Security Benefit and the management of Rydex Investments for the
purpose of learning more about Security Benefit and the proposed Transaction. Immediately following the announcement that
Rydex and Security Benefit entered into a purchase and sale agreement, the Trustees requested that Rydex Investments provide
the Board with additional information pertaining to the effect of the proposed change of control on Rydex Investments’ personnel
and operations and the terms of the New Agreements. Rydex Investments presented its response to the Board’s request for
additional information prior to and at a Special Meeting of the Boards of Trustees held on July 10, 2007. Rydex Investments
provided the Board with oral and written information to help the Board evaluate the impact of the change of control on Rydex
Investments, Rydex Investments’ ability to continue to provide investment advisory services to the Funds under the New
Agreements, and informed the Board that the contractual rate of Rydex Investments’ fees will not change under the New
Agreements. Rydex Investments also affirmed that the terms of the New Agreements were the same in all material respects to
those of the Current Agreements.
The Trustees deliberated on the approval of each New Agreement in light of the information provided. The Board determined
that the terms of the New Agreements set forth materially similar rights, duties and obligations on Rydex Investments with regard
to the services to be provided to the Trust, and provided at least the same level of protection to the Trust, the Funds and the
Funds’ shareholders as the Current Agreements. The Board also noted that Rydex Investments’ fees for their services to the Funds
under each New Agreement would be the same as their fees under the corresponding Current Agreement. The Board further
28
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THE RYDEX VARIABLE TRUST ANNUAL REPORT
OTHER INFORMATION (Unaudited) (continued)
noted that all considerations, determinations and findings related to the approval of the continuation of the Current Agreements,
as discussed above, were equally relevant to their approval of the New Agreements along with the additional factors relevant to
the proposed change in control discussed below.
Nature, Extent and Quality of Services Provided by Rydex Investments; Performance of the Funds
The Board noted that Rydex Investments was taking appropriate steps to maintain its associates through the closing of the
Transaction by, in part, keeping them informed of the potential Transaction and awarding key personnel with incentives to
emphasize their value to Rydex Investments. As a result of these efforts, it is anticipated that the key investment and
management personnel servicing the Funds will remain with Rydex Investments following the Transaction and that the
investment and management services provided to the Funds by Rydex Investments will not change. The Board also
considered Rydex Investments’ and Security Benefit’s representations to the Board that Security Benefit intends for Rydex
Investments to continue to operate following the closing of the Transaction in much the same manner as it operates today,
and that the Transaction should have no impact on the day-to-day operations of Rydex Investments, or the persons
responsible for the management of the Funds. Based on this review, the Board concluded that the range and quality of
services provided by Rydex Investments to the Funds were appropriate and were expected to continue under the New
Agreements, and that there was no reason to expect the consummation of the Transaction to have any adverse effect on the
services provided by Rydex Investments and its affiliates or the future performance of the Funds.
Fund Expenses
The Board also considered the fact that the fees payable to Rydex Investments and other expenses of the Funds would be
the same under the New Agreements as they are under the Current Agreements, and on this basis, the Board concluded that
these fees and expenses continued to be satisfactory for the purposes of approving the New Agreements. More detailed
information regarding the fees under the New Agreements is contained in the Proxy Statement and accompanying materials
dated September 6, 2007.
Costs of Services Provided to the Funds and Profits Realized by Rydex Investments and its Affiliates
Because Rydex Investments’ fees under the New Agreements are the same as those assessed under the Current
Agreements, the Board concluded that the profits to be realized by Rydex Investments and its affiliates under the New
Agreements and from other relationships between the Funds and Rydex Investments and/or its affiliates, if any, should remain
within the range the Board considered reasonable and appropriate. The Board further noted that, although it is not possible
to predict how the Transaction may affect Rydex Investments’ future profitability from its relationship with the Funds, this
matter would be given further consideration on an annual basis going forward.
Economies of Scale
The Board further considered the potential economies of scale that may result from the Transaction, and concluded that the
extent of such economies of scale could not be predicted in advance of the closing of the Transaction.
CLS Investment Firm, LLC
Board Review and Approval of the Investment Sub-Advisory Agreement
The Investment Company Act of 1940 (the “1940 Act”) requires that the initial approval of, as well as the continuation of, a fund’s
investment advisory agreement be specifically approved by the vote of a majority of the trustees who are not parties to the
investment advisory agreement or “interested persons” of any party (the “Independent Trustees”), cast in person at a meeting
called for the purpose of voting on such approval. In connection with such approvals, the fund’s trustees must request and
evaluate, and the investment adviser is required to furnish, such information as may be reasonably necessary to evaluate the terms
of the advisory agreement. In addition, the Securities and Exchange Commission (the “SEC”) takes the position that, as part of
their fiduciary duties with respect to fund fees, fund boards are required to evaluate the material factors applicable to a decision
to approve an investment advisory agreement.
Consistent with these responsibilities, the Rydex Variable Trust Board of Trustees (the “Board”) generally calls and holds one
meeting each year that is dedicated, in part, to considering whether to renew the investment sub-advisory agreement between
PADCO Advisors II, Inc., which does business under the name Rydex Investments (“Rydex Investments”), and CLS Investment
Firm, LLC (“CLS”) (the “Current Agreement”) with respect to the Rydex Variable Trust (the “Trust”) VA Amerigo Fund, VA Berolina
Fund, and VA Clermont Fund (each a “Sub-Advised Fund” and collectively, the “Sub-Advised Funds”), and to reviewing certain
other agreements pursuant to which Rydex Investments provides investment advisory services to certain other registered
investment companies. In preparation for the meeting, the Board requests and reviews a wide variety of materials provided by
Rydex Investments and CLS, including information about Rydex Investments’ and CLS’s affiliates, personnel and operations. The
Board also receives data provided by third parties. This information is in addition to the detailed information about the Sub-
Advised Funds that the Board reviews during the course of each year, including information that relates to Fund operations and
performance. The Board also receives a memorandum from Fund counsel regarding the responsibilities of the Board for the
approval of investment advisory agreements. In addition, the Independent Trustees receive advice from independent counsel to
the Independent Trustees, meet in executive session outside the presence of fund management, and participate in question and
answer sessions with representatives of Rydex Investments.
THE RYDEX VARIABLE TRUST ANNUAL REPORT
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OTHER INFORMATION (Unaudited) (continued)
At a Special Meeting of the Board held on July 10, 2007, and subsequently, during the Board’s regular quarterly meeting held on
August 27 and 28, 2007 (the “Annual Renewal Meeting” and together with the July 10, 2007 Meeting, the “Meetings”), the
Board considered and voted in favor of new investment sub-advisory agreement for Rydex Variable Trust (the “New Agreement”),
which, subject to its approval by each Sub-Advised Fund’s shareholders, will enable CLS to continue to serve as investment sub-
adviser to each Sub-Advised Fund after the completion of the acquisition of Rydex Investments’ parent, Rydex Holdings, Inc. (the
“Transaction”). During the Annual Renewal Meeting, the Board also considered and approved the selection of CLS and the
continuance of the Current Agreement for an additional one-year period or until the closing of the Transaction, based on its
review of qualitative and quantitative information provided by Rydex Investments and CLS.
Board Considerations in Approving the New Investment Sub-Advisory Agreement and the Continuation of the Current
Investment Sub-Advisory Agreement
In preparation for the Annual Renewal Meeting, the Board requested and received written materials from Rydex Investments and
CLS about: (a) the quality of CLS’s investment management and other services; (b) CLS’s investment management personnel;
(c) CLS’s operations and financial condition; (d) CLS’s investment strategies; (e) the level of the sub-advisory fees that CLS charges
the Sub-Advised Funds compared with the fees it charges to comparable mutual funds or accounts; (f) each Sub-Advised Fund’s
overall fees and operating expenses compared with similar mutual funds; (g) the level of CLS’s profitability from its Sub-Advised
Fund-related operations; (h) CLS’s compliance systems; (i) CLS’s policies on and compliance procedures for personal securities
transactions; (j) CLS’s reputation, expertise, and resources in the financial markets; and (k) Sub-Advised Fund performance
compared with similar mutual funds. Certain of these considerations are discussed in more detail below.
In its deliberations at the Annual Renewal Meeting, the Board did not identify any single piece of information that was all-
important or controlling. Based on the Board’s deliberations and its evaluation of the information referenced above and
described in more detail below, the Board, including all of the Independent Trustees, unanimously: (a) concluded that terms of
the Current Agreement and New Agreement were fair and reasonable; (b) concluded that CLS’s fees were reasonable in light of
the services that CLS provides to the Sub-Advised Funds; (c) agreed to renew the Current Agreement for an additional one-year
term; and (d) agreed to approve the New Agreement for an initial term of two years.
In approving the New Agreement and the continuation of the Current Agreement at the Annual Renewal Meeting, the
Board, including the Independent Trustees, advised by independent counsel, considered the factors discussed below.
Nature, Extent and Quality of Services Provided by CLS
At the Annual Renewal Meeting, the Board reviewed the scope of services to be provided by CLS under the Current
Agreement and noted that there would be no significant differences between the scope of services required to be provided
by CLS for the past year and the scope of services required to be provided by CLS for the upcoming year. In reviewing the
scope of services provided to the Sub-Advised Funds by CLS, the Board reviewed and discussed CLS’s investment
experience, noting that CLS and its affiliates have committed significant resources over time to the support of the Sub-
Advised Funds. The Board also considered CLS’s compliance program and its compliance record with respect to the
Sub-Advised Funds. In that regard, the Board noted that CLS provides information regarding the portfolio management and
compliance to the Board on a periodic basis in connection with regularly scheduled meetings of the Board. In addition to the
above considerations, the Board reviewed and considered CLS’s investment processes and strategies, and matters related to
CLS’s portfolio transaction policies and procedures. The Board further considered and determined that the advisory fees
charged under the Current Agreement are based on services provided that will be in addition to, rather than duplicative of,
the services provides under the investment advisory agreement of any ETF in which the Sub-Advised Funds invest in reliance
on exemptive orders pursuant to Section 12(d)(1). In particular, the Board recognized that CLS must manage a Sub-Advised
Fund’s investment in an unaffiliated ETF in the same manner as other investments in the Sub-Advised Fund’s portfolio in
order to ensure that the Sub-Advised Fund achieves its investment objective. Thus, a Sub-Advised Fund’s investment in an
unaffiliated ETF does not alleviate CLS’s duties and responsibilities as investment sub-adviser to the Sub-Advised Fund. The
Board also noted that the Sub-Advised Funds have met their investment objectives consistently since their respective
inception dates. Based on this review, the Board concluded that the nature, extent and quality of services to be provided by
CLS to the Sub-Advised Funds under the Current Agreement were appropriate and continued to support the Board’s
original selection of CLS as investment sub-adviser to the Sub-Advised Funds.
Fund Expenses and Performance of the Sub-Advised Funds and CLS
At the Annual Renewal Meeting, the Board reviewed statistical information prepared by CLS and Rydex Investments
regarding the expense ratio components, including actual sub-advisory fees, waivers/reimbursements, and gross and net
total expenses of each Sub-Advised Fund. In addition, the Board reviewed statistical information prepared by CLS relating to
the performance of each Sub-Advised Fund, as well as each Sub-Advised Fund’s ability to successfully track its benchmark
over time, and a comparison of each Sub-Advised Fund’s performance to appropriate indices/benchmarks, in light of total
return, yield and market trends. Based on this review, the Board concluded that the investment sub-advisory fees and
expense levels and the historical performance of the Sub-Advised Funds, as managed by CLS, were satisfactory for the
purposes of approving the continuance of the current investment sub-advisory agreement.
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THE RYDEX VARIABLE TRUST ANNUAL REPORT
OTHER INFORMATION (Unaudited) (continued)
Costs of Services Provided to the Sub-Advised Funds and Profits Realized By CLS and Its Affiliates
At the Annual Renewal Meeting, the Board reviewed information about the profitability of the Sub-Advised Funds to CLS
based on the sub-advisory fees payable under the current investment sub-advisory agreement for the last calendar year. CLS
also presented the Board with material discussing its methodology for determining the level of its expenses allocable to the
Sub-Advised Funds. The Board analyzed the Sub-Advised Funds’ expenses, including the investment advisory and sub-
advisory fees paid to Rydex Investments and CLS, respectively. The Board also reviewed information regarding direct revenue
received by CLS and ancillary revenue received by CLS and/or its affiliates in connection with the services provided to the
Sub-Advised Funds by CLS (as discussed below). The Board also discussed CLS’s profit margin as reflected in CLS’s
profitability analysis and reviewed information regarding economies of scale (as discussed below). Based on this review, the
Board concluded that the profits to be realized by CLS under the Current Agreement and from other relationships between
the Sub-Advised Funds and CLS were within the range the Board considered reasonable and appropriate.
Economies of Scale
In connection with its review of the Sub-Advised Funds profitability analysis at the Annual Renewal Meeting, the Board
reviewed information regarding economies of scale or other efficiencies that may result from increases in the Sub-Advised
Funds’ asset levels. The Board noted that neither the Current Agreement nor the New Agreement for the Sub-Advised Funds
provided for any breakpoints in the investment advisory fees as a result of increases in the asset levels of the Sub-Advised
Funds. The Board also noted that the Sub-Advised Funds still had relatively low assets. The Board also reviewed and
considered CLS’s historic profitability as investment sub-adviser to the Sub-Advised Funds and determined that reductions in
the sub-advisory fees or additions of breakpoints were not warranted at this juncture. Based on this review, the Board,
recognizing its responsibility to consider this issue at least annually, determined that the economies of scale, if any, were de
minimis.
Other Benefits to CLS and/or Its Affiliates
At the Annual Renewal Meeting, the Board noted that CLS did not use soft dollars and did not engage in any portfolio
transactions on behalf of the Sub-Advised Funds through an affiliate of the Sub-Advised Funds, Rydex Investments or CLS
pursuant to Rule 17e-1 under the 1940 Act. The Board concluded there were no ancillary benefits that would be
disadvantageous to the Sub-Advised Funds’ shareholders.
Additional Considerations in Approving the New Agreement
On June 18, 2007, the Trustees met with representatives of Security Benefit and the management of Rydex Investments for the
purpose of learning more about Security Benefit and the proposed Transaction. Immediately following the announcement that
Rydex and Security Benefit entered into a purchase and sale agreement, the Trustees requested that Rydex Investments provide
the Board with additional information pertaining to the effect of the proposed change of control on Rydex Investments’ personnel
and operations and the terms of the New Agreement. Rydex Investments presented its response to the Board’s request for
additional information prior to and at a Special Meeting of the Boards of Trustees held on July 10, 2007. Rydex Investments
provided the Board with oral and written information to help the Board evaluate the impact of the change of control on Rydex
Investments, CLS’s ability to continue to provide investment sub-advisory services to the Sub-Advised Funds under the New
Agreement, and informed the Board that the contractual rate of CLS’s fees will not change under the New Agreement. Rydex
Investments also affirmed that the terms of the New Agreement were the same in all material respects to those of the Current
Agreement.
The Trustees deliberated on the approval of the New Agreement in light of the information provided. The Board determined that
the terms of the New Agreement set forth materially similar rights, duties and obligations on CLS with regard to the services to
be provided to the Trust, and provided at least the same level of protection to the Trust, the Sub-Advised Funds and the Sub-
Advised Funds’ shareholders as the Current Agreement. The Board also noted that Rydex Investments’ and CLS’s fees for their
services to the Sub-Advised Funds under the New Agreement would be the same as their fees under the Current Agreement. The
Board further noted that all considerations, determinations and findings related to the approval of the continuation of the Current
Agreement, as discussed above, were equally relevant to their approval of the New Agreement along with the additional factors
relevant to the proposed change in control discussed below.
Nature, Extent and Quality of Services Provided by CLS; Performance of the SUB-ADVISED Funds
The Board noted that Rydex Investments was taking appropriate steps to maintain its associates through the closing of the
Transaction by, in part, keeping them informed of the potential Transaction and awarding key personnel with incentives to
emphasize their value to Rydex Investments. As a result of these efforts, it is anticipated that the key investment and
management personnel servicing the Sub-Advised Funds will remain with Rydex Investments following the Transaction and
that the investment and management services provided to the Sub-Advised Funds by Rydex Investments will not change.
The Board also considered Rydex Investments’ and Security Benefit’s representations to the Board that Security Benefit
intends for Rydex Investments to continue to operate following the closing of the Transaction in much the same manner as it
operates today, and that the Transaction should have no impact on the day-to-day operations of Rydex Investments, or the
persons responsible for the management of the Sub-Advised Funds. Based on this review, the Board concluded that the
THE RYDEX VARIABLE TRUST ANNUAL REPORT
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OTHER INFORMATION (Unaudited) (concluded)
range and quality of services provided by Rydex Investments and CLS to the Sub-Advised Funds were appropriate and were
expected to continue under the New Agreement, and that there was no reason to expect the consummation of the
Transaction to have any adverse effect on the services provided by Rydex Investments and its affiliates, CLS or its affiliates, or
the future performance of the Sub-Advised Funds.
Fund Expenses
The Board also considered the fact that the fees payable to Rydex Investments and CLS and other expenses of the Sub-
Advised Funds would be the same under the New Agreement as they are under the Current Agreement, and on this basis,
the Board concluded that these fees and expenses continued to be satisfactory for the purposes of approving the New
Agreement. More detailed information regarding the fees under the New Agreement is contained in the Proxy Statement
and accompanying materials dated September 6, 2007.
Costs of Services Provided to the Sub-Advised Funds and Profits Realized by Rydex Investments, CLS and their Affiliates
Because Rydex Investments’ and CLS’s fees under the New Agreement are the same as those assessed under the Current
Agreement, the Board concluded that the profits to be realized by Rydex Investments, CLS and their respective affiliates
under the New Agreement and from other relationships between the Sub-Advised Funds and Rydex Investments, CLS
and/or their respective affiliates, if any, should remain within the range the Board considered reasonable and appropriate.
The Board further noted that, although it is not possible to predict how the Transaction may affect Rydex Investments’ or
CLS’s future profitability from its relationship with the Sub-Advised Funds, this matter would be given further consideration
on an annual basis going forward.
Economies of Scale
The Board further considered the potential economies of scale that may result from the Transaction, and concluded that the
extent of such economies of scale could not be predicted in advance of the closing of the Transaction.
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THE RYDEX VARIABLE TRUST ANNUAL REPORT
INFORMATION ON BOARD OF TRUSTEES AND OFFICERS (Unaudited)
A Board of Trustees oversees all Rydex Investments, in which its members have no stated term of service, and continue to serve
after election until resignation. The Statement of Additional Information includes further information about Fund Trustees and
Officers, and can be obtained without charge by calling 1-800-820-0888.
All Trustees and Officers may be reached c/o Rydex Investments, 9601 Blackwell Rd., Suite 500, Rockville, MD 20850.
TRUSTEES AND OFFICERS
Length of Service
Name, Position and
As Trustee
Number of
Year of Birth
(Year Began)
Funds Overseen
–––––––––––––––––––––––––
––––––––––––––––––––––––––––––
––––––––––——––––––
Carl G. Verboncoeur*
Rydex Series Funds – 2004
147
Trustee, President (1952)
Rydex Variable Trust – 2004
Rydex Dynamic Funds – 2004
Rydex ETF Trust – 2004
Principal Occupations During Past Five Years: Chief Executive Officer and Treasurer of Rydex Specialized Products, LLC (2005 to
present); Chief Executive Officer of Rydex Investments and Rydex Distributors, Inc. (2003 to present); Executive Vice President of
Rydex Investments (2000 to 2003)
Michael P. Byrum*
Rydex Series Funds – 2005
147
Trustee, Vice President
Rydex Variable Trust – 2005
(1970)
Rydex Dynamic Funds – 2005
Rydex ETF Trust – 2005
Principal Occupations During Past Five Years: Secretary of Rydex Specialized Products, LLC (2005 to present); Vice President of
Rydex Series Funds (1997 to present); Vice President of Rydex Variable Trust (1998 to present); Vice President of Rydex Dynamic
Funds (1999 to present); Vice President of Rydex ETF Trust (2002 to present); President and Trustee of Rydex Capital Partners
SPhinX Fund (2003 to 2006); President of Rydex Investments (2004 to present); Chief Operating Officer of Rydex Investments and
Rydex Distributors, Inc. (2003 to 2004)
INDEPENDENT TRUSTEES
Length of Service
Name, Position and
As Trustee
Number of
Year of Birth
(Year Began)
Funds Overseen
–––––––––––––––––––––––––
––––––––––––––––––––––––––––––––
––––––––––——––––––
John O. Demaret
Rydex Series Funds – 1997
139
Trustee, Chairman of the
Rydex Variable Trust – 1998
Board (1940)
Rydex Dynamic Funds – 1999
Rydex ETF Trust – 2003
Principal Occupations During Past Five Years: Retired
Corey A. Colehour
Rydex Series Funds – 1993
139
Trustee (1945)
Rydex Variable Trust – 1998
Rydex Dynamic Funds – 1999
Rydex ETF Trust – 2003
Principal Occupations During Past Five Years: Retired (2006 to present); Owner and President of Schield Management
Company, registered investment adviser (2005 to 2006); Senior Vice President of Marketing and Co-Owner of Schield
Management Company, registered investment adviser (1985 to 2005)
J. Kenneth Dalton
Rydex Series Funds – 1995
139
Trustee (1941)
Rydex Variable Trust – 1998
Rydex Dynamic Funds – 1999
Rydex ETF Trust – 2003
Principal Occupations During Past Five Years: Mortgage Banking Consultant and Investor, The Dalton Group
THE RYDEX VARIABLE TRUST ANNUAL REPORT
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33
INFORMATION ON BOARD OF TRUSTEES AND OFFICERS (Unaudited) (concluded)
Length of Service
Name, Position and
As Trustee
Number of
Year of Birth
(Year Began)
Funds Overseen
–––––––––––––––––––––––––
––––––––––––––––––––––––––––––––
––––––––––——––––––
Werner E. Keller
Rydex Series Funds – 2005
139
Trustee (1940)
Rydex Variable Trust – 2005
Rydex Dynamic Funds – 2005
Rydex ETF Trust – 2005
Principal Occupations During Past Five Years: Retired (2001 to present); Chairman, Centurion Capital Management (1991 to 2001)
Thomas F. Lydon, Jr.
Rydex Series Funds – 2005
139
Trustee (1960)
Rydex Variable Trust – 2005
Rydex Dynamic Funds – 2005
Rydex ETF Trust – 2005
Principal Occupations During Past Five Years: President, Global Trends Investments
Patrick T. McCarville
Rydex Series Funds – 1997
139
Trustee (1942)
Rydex Variable Trust – 1998
Rydex Dynamic Funds – 1999
Rydex ETF Trust – 2003
Principal Occupations During Past Five Years: Founder and Chief Executive Officer, Par Industries, Inc.
Roger Somers
Rydex Series Funds – 1993
139
Trustee (1944)
Rydex Variable Trust – 1998
Rydex Dynamic Funds – 1999
Rydex ETF Trust – 2003
Principal Occupations During Past Five Years: Owner, Arrow Limousine
EXECUTIVE OFFICERS
Name, Position and
Principal Occupations
Year of Birth
During Past Five Years
–––––––––––––––––––––––––––
–––––––––––––––––––––––
Nick Bonos*
Chief Financial Officer of Rydex Specialized Products, LLC (2005 to
Vice President and Treasurer (1963)
present); Vice President and Treasurer of Rydex Series Funds,
Rydex Variable Trust, Rydex Dynamic Funds, and Rydex ETF Trust
(2003 to present); Senior Vice President of Rydex Investments
(2003 to present); Vice President and Treasurer of Rydex Capital
Partners SPhinX Fund (2003 to 2006); Vice President of Accounting
of Rydex Investments (2000 to 2003)
Joanna M. Haigney*
Chief Compliance Officer of Rydex Series Funds, Rydex Variable
Chief Compliance Officer and
Trust, and Rydex Dynamic Funds (2004 to present); Secretary of
Secretary (1966)
Rydex Series Funds, Rydex Variable Trust, and Rydex Dynamic
Funds (2000 to present); Secretary of Rydex ETF Trust (2002 to
present); Vice President of Compliance of Rydex Investments
(2000 to present); Secretary of Rydex Capital Partners SPhinX
Fund (2003 to 2006)
Joseph Arruda*
Assistant Treasurer of Rydex Series Funds, Rydex Variable Trust,
Assistant Treasurer (1966)
Rydex Dynamic Funds, Rydex ETF Trust (2006 to present); Vice
President of Rydex Investments (2004 to present); Director of
Accounting of Rydex Investments (2003 to 2004); Vice President of
Mutual Funds, State Street Bank & Trust (2000 to 2003)
Paula Billos*
Controller of Rydex Series Funds, Rydex Variable Trust, Rydex
Controller (1974)
Dynamic Funds, Rydex ETF Trust (2006 to present); Director of
Fund Administration of Rydex Investments (2001 to present)
* Officers of the Fund are deemed to be “interested persons” of the Trust, within the meaning of Section 2(a)(19) of the 1940 Act, inasmuch as
this person is affiliated with Rydex Investments.
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THE RYDEX VARIABLE TRUST ANNUAL REPORT
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9601 Blackwell Road, Suite 500
Rockville, MD 20850
www.rydexinvestments.com
800.820.0888
RVAAO-2-1207x1208