UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No.)
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss.240.14a-12
(Name of Registrant as Specified In Its Charter)
RYDEX ETF TRUST
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
RYDEX ETF TRUST
Dear Shareholder:
I am writing you on an important matter relating to the Rydex family of funds
(the "Funds"). On February 16, 2010, Security Benefit Mutual Holding Company
("SBHC"), the parent company of PADCO Advisors II, Inc., the Funds' investment
adviser that operates under the name Rydex Investments (the "Investment
Adviser"), and certain of SBHC's affiliates entered into agreements with an
investor group (the "Investors") led by Guggenheim Partners, LLC. Under the
agreements, the Investors will acquire control of the Investment Adviser and
affiliates. Guggenheim Partners, LLC is a global, independent, privately held,
diversified financial services firm with more than $100 billion in assets under
supervision.
This transaction should not result in material changes to the day-to-day
management and operations of the Funds or any increase in fees. For example, the
portfolio managers of the Funds are expected to remain the same and your daily
experience in dealing with the Funds should remain unchanged. However, for legal
reasons, this transaction will have the effect of terminating the Funds'
investment advisory agreements with the Investment Adviser.
Accordingly, by this joint proxy statement, we are requesting that you vote to
approve substantially identical investment advisory agreements, so that the
Investment Adviser may continue to manage the Funds.
In addition, we are requesting that you vote to approve a change to each Fund's
"fundamental investment policy" on borrowing money, which currently is more
prohibitive than necessary.
A Special Joint Meeting of Shareholders (the "Meeting") of each of the Funds,
which are listed in an attachment to the Notice of Special Joint Meeting of
Shareholders, has been scheduled for April 23, 2010 to vote on these matters. If
you are a shareholder of record of any of the Funds as of the close of business
on February 24, 2010, you are entitled to vote at the Meeting and any
adjournment of the Meeting, even if you, as a shareholder, have since sold those
shares.
You can vote in one of [four] ways:
o By mail with the enclosed proxy card - be sure to sign, date and return it
in the enclosed postage-paid envelope,
o Through the web site listed in the proxy voting instructions,
o By telephone using the toll-free number listed in the proxy voting
instructions, or
o In person at the shareholder meeting on April 23, 2010.
We encourage you to vote over the Internet or by telephone, using the voting
control number that appears on your proxy card. Your vote is extremely
important. Please read the enclosed information carefully before voting. If you
have questions, please call The Altman Group at [INSERT PROXY SOLICITOR'S
TELEPHONE NUMBER].
We appreciate your participation and prompt response in this matter and thank
you for your continued support.
Sincerely,
/s/ Richard M. Goldman
Richard M. Goldman
President
PROMPT EXECUTION AND RETURN OF THE ENCLOSED PROXY CARD IS REQUESTED. A
SELF-ADDRESSED, POSTAGE-PAID ENVELOPE IS ENCLOSED FOR YOUR CONVENIENCE, ALONG
WITH INSTRUCTIONS ON HOW TO VOTE OVER THE INTERNET OR BY TELEPHONE SHOULD YOU
PREFER TO VOTE BY ONE OF THOSE METHODS.
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VERY IMPORTANT NEWS FOR SHAREHOLDERS
By its very nature, the following "Questions and Answers" section is a summary
and is not intended to be as detailed as the discussion found later in the proxy
materials. For that reason, the information is qualified in its entirety by
reference to the enclosed joint proxy statement to shareholders ("Joint Proxy
Statement").
QUESTIONS AND ANSWERS
Q. WHY AM I RECEIVING THIS JOINT PROXY STATEMENT?
A. You are receiving these proxy materials -- a booklet that includes the Joint
Proxy Statement and your proxy card -- because you have the right to vote on
important proposals concerning your investment in the Rydex family of funds (the
"Funds").
The first proposal relates to actions that need to be taken in response to an
impending change in control of PADCO Advisors II, Inc., which operates under the
name Rydex Investments, the investment adviser to each of the Funds (the
"Investment Adviser"). This change in control affects the Funds' advisory
agreement with the Investment Adviser.
The second proposal relates to a proposed change in each Fund's ability to
borrow money. Each Fund has a "fundamental investment policy" on borrowing that
is more prohibitive than necessary and than applicable law requires. The current
policy limits investment strategies. Thus, the second proposal seeks to amend
the current fundamental investment policy on borrowing money in order to provide
the Funds with the maximum possible amount of flexibility to engage in borrowing
activity, consistent with current law and with the Funds' investment strategies
and objectives.
Q. WHY AM I BEING ASKED TO VOTE?
A. The Investment Company Act of 1940 (the "1940 Act"), the law that regulates
mutual funds, including the Funds, requires that a fund's investment advisory
agreement terminate whenever there is deemed to be a change in control of the
investment adviser. Before an investment advisory agreement terminates, a new
investment advisory agreement must be in effect in order for the investment
adviser to continue to manage the fund's investments. For that reason, we are
seeking shareholder approval of new investment advisory agreements for the
Funds.
Security Benefit Mutual Holding Company ("SBHC"), the parent company of the
Investment Adviser, and certain of SBHC's affiliates have entered into
agreements with an investor group (the "Investors") led by Guggenheim Partners,
LLC, which is a global, independent, privately held, diversified financial
services firm with more than $100 billion in assets under supervision. Under the
agreements, the Investors will acquire control of the Investment Adviser and
affiliates (the "Transaction").
The Transaction should not result in material changes to the day-to-day
management and operations of the Funds or any increase in fees. However, the
Transaction will result in a change in control of the Investment Adviser within
the meaning of the 1940 Act. This will, in turn, result in the termination of
the current investment advisory agreements between the Investment Adviser and
each of the Funds (the "Current Investment Advisory Agreements").
At a Special Meeting of the Board of Trustees (the "Board") of Rydex ETF Trust
held on January 28, 2010, the Board considered and voted in favor of new
investment advisory agreements between the
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Investment Adviser and each of the Funds (the "New Investment Advisory
Agreements"), pursuant to which, subject to their approval by each Fund's
shareholders, the Investment Adviser will continue to serve as investment
adviser to each Fund after the completion of the Transaction. The fees charged
by the Investment Adviser for its services to the Funds under the New Investment
Advisory Agreements will be the same as its fees under the Current Investment
Advisory Agreements. The other terms of the New Investment Advisory Agreements
will also be the same in all material respects to those of the Current
Investment Advisory Agreements.
With respect to the second proposal, the 1940 Act requires shareholder approval
to amend "fundamental investment policies" adopted by the Funds. Each Fund
currently has in place a fundamental investment policy on its ability to borrow
money. Each Fund's current fundamental investment policy on borrowing money,
however, is more prohibitive than the 1940 Act requires, unnecessarily limiting
investment strategies. Upon a request from management of the Funds, the Board
has reviewed each Fund's fundamental investment policy on borrowing money and
has recommended a change intended to simplify and modernize the policy. In
general, the proposed change provides the Funds the maximum possible amount of
flexibility to engage in borrowing activity consistent with current law and with
the Funds' investment strategies and objectives. The proposal to amend each
Fund's fundamental investment policy on borrowing money is unrelated to the
Transaction.
Q. WILL THE PROPOSED TRANSACTION AFFECT ME?
A. No. The operations of the Investment Adviser, the fees payable to the
Investment Adviser and the persons responsible for the day-to-day investment
management of the Funds are expected to remain unchanged. The Board has been
assured that there will be no reduction in the nature or quality of the
investment advisory services provided to each Fund due to the change in control.
Q. WILL THERE BE ANY CHANGES TO THE FUNDS' OTHER SERVICE PROVIDERS?
A. The Investors will also acquire control of the Funds' principal
underwriter/distributor, Rydex Distributors, Inc. (the "Distributor"), an
affiliate of the Investment Adviser, as a result of the Transaction. Under the
1940 Act, shareholder approval is not required in order for the Distributor to
continue providing services to the Funds after the closing of the Transaction.
The Board has been assured that there will be no material change in the nature
or quality of the services provided by the Distributor to each Fund due to the
changes in control.
Q. WILL MY FUND'S FEES FOR INVESTMENT ADVISORY SERVICES INCREASE?
A. No. The fee rates under the New Investment Advisory Agreements are identical
to those under the Current Investment Advisory Agreements.
Q. WHAT EFFECT WILL THE PROPOSED CHANGE TO EACH FUND'S FUNDAMENTAL INVESTMENT
POLICY ON BORROWING MONEY HAVE ON THE FUNDS?
A. While this proposal is intended to provide the Investment Adviser with
greater flexibility in managing each Fund's borrowing activity, a Fund would
continue to be managed subject to limitations imposed by the 1940 Act and the
rules and interpretive guidance provided thereunder, as well as the investment
objectives, strategies, and policies expressed in the Fund's registration
statement.
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Importantly, the Investment Adviser does not intend to materially increase the
borrowing level of any Fund in the near future, and therefore believes that the
proposed changes will not materially affect the investment risks currently
associated with any Fund.
Should a Fund's shareholders not approve the proposal to amend the Fund's
fundamental investment policy on borrowing money, the Fund's current fundamental
investment policy on borrowing money would continue to apply unchanged.
Q. WHO IS ASKING FOR MY VOTE?
A. The enclosed proxy is being solicited by the Board of your Fund for use at
the Special Joint Meeting of Shareholders to be held on April 23, 2010 (the
"Meeting"), and, if the Meeting is adjourned or postponed, at any later
meetings, for the purposes stated in the Notice of Meeting.
Q. HOW DOES THE BOARD SUGGEST THAT I VOTE?
A. After careful consideration, the Board unanimously recommends that you vote
"FOR" the proposals contained in the Joint Proxy Statement. Please see the
section entitled "Board Recommendation" with respect to each proposal for a
discussion of the Board's considerations in making such recommendation.
Q. WHY AM I RECEIVING INFORMATION ABOUT FUNDS I DO NOT OWN?
A. The proposal is similar for each Fund, and management of the Funds has
concluded that it is cost-effective to hold the Meeting for all of the Funds.
You will be asked to vote separately on the proposal with respect to the Fund(s)
that you own. An unfavorable vote on the proposal by the shareholders of one
Fund will not affect the implementation of the proposal by another Fund if such
proposal is approved by shareholders of that Fund assuming that the Transaction
is completed.
Q. WHAT VOTE IS REQUIRED TO APPROVE THE PROPOSAL?
A. To be approved with respect to a particular Fund, each proposal must be
approved by a vote of a majority of the outstanding voting securities of that
Fund. The "vote of a majority of the outstanding voting securities" is defined
in the 1940 Act as the lesser of the vote of (i) 67% or more of the voting
securities of a Fund entitled to vote thereon present at the Meeting or
represented by proxy, if more than 50% of the Fund's outstanding voting
securities are present or represented by proxy; or (ii) more than 50% of the
outstanding voting securities of the Fund entitled to vote thereon.
Q. WILL MY VOTE MAKE A DIFFERENCE?
A. Yes! Your vote is needed to ensure that the proposal can be acted upon. We
encourage all shareholders to participate in the governance of their Fund(s).
Additionally, your immediate response on the enclosed proxy card, on the
Internet or over the phone will help save the costs of any further
solicitations.
Q. IF I AM A SMALL INVESTOR, WHY SHOULD I BOTHER TO VOTE?
A. You should vote because every vote is important. If numerous shareholders
just like you fail to vote, the Funds may not receive enough votes to go forward
with the Meeting. If this happens, the Funds will need to solicit votes again.
This may delay the Meeting and the approval of the New Investment Advisory
Agreements.
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Q. HOW DO I PLACE MY VOTE?
A. You may provide a Fund with your vote by mail with the enclosed proxy card,
by Internet by following the instructions in the proxy voting instructions, by
telephone using the toll-free number listed in the proxy voting instructions, or
in person at the Meeting. You may use the enclosed postage-paid envelope to mail
your proxy card. Please follow the enclosed instructions to utilize any of these
voting methods. If you need more information on how to vote, or if you have any
questions, please call the Funds' proxy solicitation agent at the telephone
number below.
Q. WHOM DO I CALL IF I HAVE QUESTIONS?
A. We will be happy to answer your questions about this proxy solicitation. If
you have questions, please call The Altman Group at [INSERT PROXY SOLICITOR'S
TELEPHONE NUMBER].
PROMPT EXECUTION AND RETURN OF THE ENCLOSED PROXY CARD IS REQUESTED. A
SELF-ADDRESSED, POSTAGE-PAID ENVELOPE IS ENCLOSED FOR YOUR CONVENIENCE, ALONG
WITH INSTRUCTIONS ON HOW TO VOTE OVER THE INTERNET OR BY TELEPHONE SHOULD YOU
PREFER TO VOTE BY ONE OF THOSE METHODS.
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RYDEX ETF TRUST
9601 Blackwell Road, Suite 500
Rockville, Maryland 20850
1-800-820-0888
NOTICE OF SPECIAL JOINT MEETING OF SHAREHOLDERS
TO BE HELD ON APRIL 23, 2010
Notice is hereby given that a Special Joint Meeting of Shareholders (the
"Meeting") of Rydex ETF Trust (the "Trust") and each of its respective series
listed on the attached list (each, a "Fund" and collectively, the "Funds") will
be held at the Trust's offices at 9601 Blackwell Road, Suite 500, Rockville,
Maryland 20850 on April 23, 2010 at 1:00 p.m. ET for the purposes listed below:
--- ---------------------------------- -----------------------------------------
PROPOSAL SHAREHOLDERS SOLICITED TO VOTE
--- ---------------------------------- -----------------------------------------
1. THE APPROVAL OF A NEW INVESTMENT ALL FUNDS
ADVISORY AGREEMENT BETWEEN THE
TRUST AND PADCO ADVISORS II,
INC., WITH RESPECT TO EACH FUND
--- ---------------------------------- -----------------------------------------
2. THE APPROVAL OF A CHANGE TO THE ALL FUNDS
FUNDAMENTAL INVESTMENT POLICY ON
BORROWING MONEY, WITH RESPECT TO
EACH FUND
--- ----------------------------------------------------------------------------
3. TO TRANSACT SUCH OTHER BUSINESS
AS MAY PROPERLY COME BEFORE
THE MEETING
After careful consideration, the Board of Trustees of the Trust unanimously
recommends that shareholders vote "FOR" Proposal 1 and "FOR" Proposal 2.
Shareholders of record at the close of business on February 24, 2010 are
entitled to notice of, and to vote at, the Meeting, even if such shareholders
have since sold those shares.
We call your attention to the accompanying Joint Proxy Statement. You are
requested to complete, date, and sign the enclosed proxy card and return it
promptly in the envelope provided for that purpose. Your proxy card also
provides instructions for voting via telephone or the Internet if you wish to
take advantage of these voting options. Proxies may be revoked at any time by
executing and submitting a revised proxy, by giving written notice of revocation
to the Trust, or by voting in person at the Meeting.
By Order of the Board of Trustees,
/s/ Richard M. Goldman
Richard M. Goldman
President
YOUR VOTE IS VERY IMPORTANT TO US REGARDLESS OF THE NUMBER OF VOTES YOU HOLD.
SHAREHOLDERS WHO DO NOT EXPECT TO ATTEND THE MEETING ARE
1
REQUESTED TO COMPLETE, SIGN, DATE AND RETURN THE ACCOMPANYING PROXY CARD IN THE
ENCLOSED ENVELOPE, WHICH NEEDS NO POSTAGE IF MAILED IN THE UNITED STATES. IT IS
IMPORTANT THAT YOUR PROXY CARD BE RETURNED PROMPTLY.
FOR YOUR CONVENIENCE, YOU MAY ALSO VOTE BY TELEPHONE OR INTERNET BY FOLLOWING
THE ENCLOSED INSTRUCTIONS. IF YOU VOTE BY TELEPHONE OR VIA THE INTERNET, PLEASE
DO NOT RETURN YOUR PROXY CARD UNLESS YOU ELECT TO CHANGE YOUR VOTE.
2
FUNDS PARTICIPATING IN THE MEETING
ON APRIL 23, 2010
Rydex 2x Russell 2000(R) ETF (RRY) Rydex S&P Equal Weight Consumer Discretionary ETF (RCD)
Rydex 2x S&P 500 ETF (RSU) Rydex S&P Equal Weight Consumer Staples ETF (RHS)
Rydex 2x S&P MidCap 400 ETF (RMM) Rydex S&P Equal Weight Energy ETF (RYE)
Rydex 2x S&P Select Sector Energy ETF (REA) Rydex S&P Equal Weight ETF (RSP)
Rydex 2x S&P Select Sector Financial ETF (RFL) Rydex S&P Equal Weight Financial ETF (RYF)
Rydex 2x S&P Select Sector Health Care ETF (RHM) Rydex S&P Equal Weight Health Care ETF (RYH)
Rydex 2x S&P Select Sector Technology ETF (RTG) Rydex S&P Equal Weight Industrials ETF (RGI)
Rydex Inverse 2x Russell 2000(R) ETF (RRZ) Rydex S&P Equal Weight Materials ETF (RTM)
Rydex Inverse 2x S&P 500 ETF (RSW) Rydex S&P Equal Weight Technology ETF (RYT)
Rydex Inverse 2x S&P MidCap 400 ETF (RMS) Rydex S&P Equal Weight Utilities ETF (RYU)
Rydex Inverse 2x S&P Select Sector Energy ETF (REC) Rydex S&P MidCap 400 Pure Growth ETF (RFG)
Rydex Inverse 2x S&P Select Sector Financial ETF (RFN) Rydex S&P MidCap 400 Pure Value ETF (RFV)
Rydex Inverse 2x S&P Select Sector Health Care ETF (RHO) Rydex S&P 500 Pure Growth ETF (RPG)
Rydex Inverse 2x S&P Select Sector Technology ETF (RTW) Rydex S&P 500 Pure Value ETF (RPV)
Rydex Russell Top 50(R) ETF (XLG) Rydex S&P SmallCap 600 Pure Growth ETF (RZG)
Rydex S&P SmallCap 600 Pure Value ETF (RZV)
3
TABLE OF CONTENTS
OVERVIEW OF THE PROPOSALS...........................................................................3
Approval of New Investment Advisory Agreements (Proposal 1)......................................3
Approval of a Change to the Funds' Fundamental Investment Policy on Borrowing (Proposal 2).......3
Information Regarding the Change in Control of the Investment Adviser............................3
Section 15(f) of the 1940 Act....................................................................5
Approval of the New Investment Advisory Agreements by the Board..................................5
Board Considerations in Approving the New Investment Advisory Agreements.........................6
New Investment Advisory Agreements...............................................................7
PROPOSAL 1 - THE APPROVAL OF NEW INVESTMENT ADVISORY AGREEMENTS....................................10
The Investment Adviser..........................................................................10
Material Terms of the New Investment Advisory Agreements........................................11
BOARD RECOMMENDATION ON PROPOSAL 1.................................................................12
PROPOSAL 2 - THE APPROVAL OF A CHANGE TO THE FUNDAMENTAL INVESTMENT POLICY ON BORROWING MONEY......13
Proposed New Fundamental Investment Policy......................................................13
Current Fundamental Investment Policy...........................................................13
Discussion of Proposed Modification.............................................................13
BOARD RECOMMENDATION ON PROPOSAL 2.................................................................14
OTHER BUSINESS.....................................................................................15
ADDITIONAL INFORMATION.............................................................................15
Administrator, Principal Underwriter, Custodian and Transfer Agent..............................15
Affiliations and Affiliated Brokerage...........................................................15
Other Information...............................................................................15
Voting Information..............................................................................15
Shareholder Proposals...........................................................................17
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APPENDICES
Appendix A FORM OF INVESTMENT ADVISORY AGREEMENT........................................................A-1
Appendix B INFORMATION REGARDING THE INVESTMENT ADVISORY AGREEMENTS AND FEES PAID TO THE INVESTMENT
ADVISER AND AFFILIATES.......................................................................B-1
Appendix C DIRECTORS/TRUSTEES/MANAGERS AND OFFICERS.....................................................C-1
Appendix D ADVISORY FEE RATES OF FUNDS WITH SIMILAR INVESTMENT OBJECTIVES ADVISED BY PADCO ADVISORS, INC.
AND PADCO ADVISORS II, INC...................................................................D-1
Appendix E OUTSTANDING SHARES...........................................................................E-1
Appendix F BENEFICIAL OWNERS OF MORE THAN 5% OF A CLASS OF EACH FUND....................................F-1
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RYDEX ETF TRUST
9601 Blackwell Road, Suite 500
Rockville, Maryland 20850
1-800-820-0888
JOINT PROXY STATEMENT
SPECIAL JOINT MEETING OF SHAREHOLDERS
TO BE HELD ON APRIL 23, 2010
This joint proxy statement ("Joint Proxy Statement") and enclosed notice and
proxy card are being furnished in connection with the solicitation of proxies by
the Board of Trustees (the "Board") of Rydex ETF Trust (the "Trust"). The
proxies are being solicited for use at a special joint meeting of shareholders
of the Trust to be held at the Trust's offices at 9601 Blackwell Road, Suite
500, Rockville, Maryland 20850 on April 23, 2010 at 1:00 p.m. ET, and at any and
all adjournments or postponements thereof (the "Meeting").
The Board has called the Meeting and is soliciting proxies from shareholders of
each series of the Trust listed in the accompanying notice to this Joint Proxy
Statement (each, a "Fund" and collectively, the "Funds") with respect to the
following proposals (the "Proposals") as follows:
--- ---------------------------------------- -----------------------------------
PROPOSAL SHAREHOLDERS SOLICITED TO VOTE
--- ---------------------------------------- -----------------------------------
1. THE APPROVAL OF A NEW INVESTMENT ALL FUNDS
ADVISORY AGREEMENT BETWEEN THE TRUST
AND PADCO ADVISORS II, INC., WITH
RESPECT TO EACH FUND
--- ---------------------------------------- -----------------------------------
2. THE APPROVAL OF A CHANGE TO THE ALL FUNDS
FUNDAMENTAL INVESTMENT POLICY ON
BORROWING MONEY, WITH RESPECT TO
EACH FUND
--- ----------------------------------------------------------------------------
3. TO TRANSACT SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING
This Joint Proxy Statement and the accompanying notice and the proxy card are
being first mailed to shareholders on or about [INSERT MAILING DATE].
The Board has determined that the use of this Joint Proxy Statement for the
Meeting is in the best interests of each Fund and its shareholders in light of
the similar matters being considered and voted on by the shareholders of the
other Funds.
You are entitled to vote at the Meeting of each Fund of which you are a
shareholder as of the close of business on February 24, 2010 (the "Record
Date").
If you have any questions about the Proposals or about voting, please call The
Altman Group, the Funds' proxy solicitor, at [INSERT PROXY SOLICITOR'S PHONE
NUMBER].
IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS
FOR THE MEETING TO BE HELD ON APRIL 23, 2010
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This Joint Proxy Statement is available at [INSERT WEBSITE ADDRESS]. In
addition, shareholders can find important information about each Fund in the
Fund's annual report, dated October 31, 2009, including financial reports for
the fiscal year ended October 31, 2009, and in any recent semi-annual report
succeeding such annual report, if any. You may obtain copies of these reports
without charge by writing to the Trust, or by calling the telephone number shown
on the front page of this Joint Proxy Statement.
2
OVERVIEW OF THE PROPOSALS
APPROVAL OF NEW INVESTMENT ADVISORY AGREEMENTS (PROPOSAL 1)
Proposal 1 relates to actions that need to be taken in response to an impending
change in control of PADCO Advisors II, Inc., which operates under the name
Rydex Investments, the investment adviser to each of the Funds (the "Investment
Adviser").
The Investment Company Act of 1940, as amended (the "1940 Act"), the law that
regulates mutual funds, such as the Funds, requires that a fund's investment
advisory agreement terminate whenever there is deemed to be a change in control
of the investment adviser. Before an investment advisory agreement terminates, a
new investment advisory agreement must be in effect in order for the investment
adviser to continue to manage the fund's investments. For that reason, we are
seeking shareholder approval of new investment advisory agreements for the
Funds.
Upon completion of a transaction involving the Investment Adviser, which is
discussed in more detail below, the Funds' current investment advisory
agreements with the Investment Adviser will be terminated. Accordingly, Proposal
1 relates to the approval by shareholders of new investment advisory agreements
between the Investment Adviser and the Funds (the "New Investment Advisory
Agreements").
APPROVAL OF A CHANGE TO THE FUNDS' FUNDAMENTAL INVESTMENT POLICY ON BORROWING
(PROPOSAL 2)
In addition to considering the New Agreements in Proposal 1, shareholders of the
Funds also are being asked to consider the approval of a change to each Fund's
current fundamental investment policy on borrowing money. The 1940 Act requires
that a fund adopt a fundamental investment policy on borrowing. Under the 1940
Act, any change to a fundamental investment policy must be approved by
shareholders of the fund. Each Fund's current fundamental investment policy on
borrowing money is more restrictive than the 1940 Act requires, unnecessarily
limiting investment strategies. Accordingly, Proposal 2 seeks approval of a
change to each Fund's fundamental investment policy on borrowing money in order
to permit a Fund to engage in borrowing money consistent with applicable law.
Proposal 2 is unrelated to Proposal 1.
FOR THE REASONS DISCUSSED BELOW, THE BOARD RECOMMENDS THAT SHAREHOLDERS VOTE
"FOR" THE APPROVAL OF THE NEW INVESTMENT ADVISORY AGREEMENTS AND CHANGE
TO THE FUNDAMENTAL INVESTMENT POLICY ON BORROWING MONEY.
INFORMATION REGARDING THE CHANGE IN CONTROL OF THE INVESTMENT ADVISER
On February 16, 2010, Security Benefit Mutual Holding Company ("SBHC"), the
parent company of the Investment Adviser, and certain of SBHC's affiliates
(collectively, "SecBen") entered into agreements with Guggenheim SBC Holdings
LLC ("Purchaser"), to special purpose entity managed by Guggenheim Partners, LLC
("Guggenheim"), which is a global independent, privately held, diversified
financial services firm with more than $100 billion in assets under supervision
and 800 dedicated professionals. Headquartered in Chicago and New York, the firm
operates through offices in 20 cities in the U.S., Europe and Asia. Guggenheim
operates businesses in investment management, capital markets, wealth management
and merchant banking. Within the investment and wealth management businesses,
Guggenheim specializes in fixed income and alternative investments,
3
and in providing sophisticated wealth advisory and family office services.
Within capital markets, it specializes in providing debt financing and
structured finance solutions to clients. Merchant banking activities include its
portfolio of investments in funds managed by it, joint venture business
investments, and new business launch activities not integrated into other
primary operating businesses. Guggenheim is a wholly-owned subsidiary of
Guggenheim Capital, LLC, 227 West Monroe Street, 48th Floor, Chicago, Illinois
60606. Sage Assets, Inc., 5949 Sherry Lane, Suite 1900, Dallas, Texas 75225, a
wholly-owned subsidiary of Sammons Enterprises, Inc., 5949 Sherry Lane, Suite
1900, Dallas, Texas 75225, is a control person of Guggenheim as a result of its
equity ownership in excess of 25% (but less than 50%) of Guggenheim Capital,
LLC. Under the agreements, Purchaser will acquire control of the Investment
Adviser and affiliates (the "Transaction").
The final form of the Purchaser's controlling stake in the Investment Adviser
and affiliates will depend upon whether certain conditions are satisfied. In the
Transaction, Purchaser will either receive: (a) a 100% ownership stake in
Security Benefit Corporation ("SBC"), the parent company of the Investment
Adviser and affiliates (the "Purchase Transaction"); or, (b) if the Purchase
Transaction is terminated for any reason other than a breach of the related
agreement by the Investors, a 100% ownership stake in SBC's asset management
business, which includes the Investment Adviser and certain affiliates (the
"Contingent Asset Management Purchase and Sale").
In anticipation of the Transaction, the parties have entered into an interim
recapitalization transaction in which made a secured loan to SBC. Upon the
closing of the Purchase Transaction, the Purchaser will make a capital
contribution to SEC and the secured loans will convert into equity in SBC will
transger all of the issued and outstanding shares of capital stock of SBC to the
Purchaser. The Purchase Transaction is conditioned on the approval of a
corporate restructuring called a demutualization pursuant to which the insurance
policyholders who presently own SBHC are expected to receive cash payments or
policy credits in connection with the cancellation of their ownership interests.
In the event that the Contingent Asset Management Purchase and Sale occurs
following termination of the Purchase Transaction, SBC will receive a senior
unsecured note and have certain debt extinguished, and the Purchaser will
receive all of the issued and outstanding membership interests of each entity in
SBC's asset management business, which includes the Investment Adviser and
certain affiliates.
The Transaction should not result in material changes to the day-to-day
management and operations of the Funds. For example, the portfolio managers of
the Funds are expected to remain the same and your daily experience in dealing
with the Funds should remain unchanged. However, the Transaction is expected to
result in a "change in control" of the Investment Adviser within the meaning of
the 1940 Act. This will automatically terminate each of the current investment
advisory agreements between the Investment Adviser and the Funds (each, a
"Current Investment Advisory Agreement" and collectively, the "Current
Investment Advisory Agreements").
In addition, the Purchaser will acquire control of the Funds' principal
underwriter/distributor, Rydex Distributors, Inc. (the "Distributor"), an
affiliate of the Investment Adviser, as a result of the Transaction. Under the
1940 Act, shareholder approval is not required in order for the Distributor to
continue providing services to the Funds after the closing of the Transaction.
Completion of the Transaction will be subject to certain closing conditions,
including: (a) the receipt of approvals required for the assignment or
replacement of investment advisory contracts relating to 80% or more of the
total net assets under management by the Investment Adviser and
4
certain affiliates that will be controlled by the Purchaser; and, (b) with
respect to the Purchase Transaction only, the approval of the members of SBHC to
the extent required by applicable law in order to effect the demutualization
transaction described above.
While the parties expect the Transaction to be completed by May 31, 2010, it is
subject to various conditions, and may be delayed or even terminated due to
unforeseen circumstances. If for some reason the Transaction does not occur, the
Current Investment Advisory Agreements will not automatically terminate and will
remain in effect, and the New Investment Advisory Agreements will not be entered
into, even if they have been approved by Fund shareholders. If Proposal 1 is not
approved by shareholders of any Fund, the Board will evaluate other short- and
long-term options permitted by law, which include interim investment advisory
agreements and reorganization or liquidation of the Fund.
SECTION 15(F) OF THE 1940 ACT
Section 15(f) of the 1940 Act provides that, when a change in control of an
investment adviser occurs, the investment adviser or any of its affiliated
persons may receive any amount or benefit in connection with the change in
control as long as two conditions are met. The first condition specifies that no
"unfair burden" may be imposed on the fund as a result of a transaction relating
to the change in control, or any express or implied terms, conditions or
understandings. The term "unfair burden," as defined in the 1940 Act, includes
any arrangement during the two-year period after the change in control
transaction whereby the investment adviser (or predecessor or successor
adviser), or any "interested person" (as defined in the 1940 Act) of any such
investment adviser, receives or is entitled to receive any compensation,
directly or indirectly, from the investment company or its security holders
(other than fees for bona fide investment advisory or other services) or from
any person in connection with the purchase or sale of securities or other
property to, from, or on behalf of the fund (other than fees for bona fide
principal underwriting services). The second condition specifies that, during
the three-year period immediately following consummation of the change in
control transaction, at least 75% of the fund's board of trustees must not be
"interested persons" (as defined in the 1940 Act) of the investment adviser or
predecessor adviser.
Consistent with the conditions of Section 15(f), SecBen and the Purchaser, have
agreed that they will not take any action that would have the effect, directly
or indirectly, of causing any requirement of the provisions of Section 15(f) to
be violated with respect to the Transaction. The Investment Adviser represented
to the Board that no unfair burden would be imposed on the Funds as a result of
the Transaction.
APPROVAL OF THE NEW INVESTMENT ADVISORY AGREEMENTS BY THE BOARD
At a Special Meeting of the Board held on January 28, 2010 (the "January 2010
Meeting"), at which a majority of the members of the Board (the "Trustees"),
including a majority of the Trustees who are not "interested persons" (as
defined under the 1940 Act) of the Trust and who are not interested persons of
any party to the New Investment Advisory Agreements (the "Independent
Trustees"), were present, the Board considered and voted in favor of the New
Investment Advisory Agreements, pursuant to which, subject to their approval by
each Fund's shareholders, the Investment Adviser will continue to serve each
Fund as investment adviser after the completion of the Transaction. The
Investment Adviser's rate of fees for its services to each Fund under the New
Investment Advisory Agreements will be the same as its fees under the Current
Investment Advisory Agreements. The other terms of the New Investment Advisory
Agreements will also be the same in all material respects to those of the
Current Investment
5
Advisory Agreements. As a result, in reviewing the New Investment Advisory
Agreements at the January 2010 Meeting, the Board also considered its review of
relevant materials relating to the Current Investment Advisory Agreements at the
annual renewal meeting on August 25, 2009 (the "2009 Renewal Meeting").
BOARD CONSIDERATIONS IN APPROVING THE NEW INVESTMENT ADVISORY AGREEMENTS
Prior to the January 2010 Meeting, representatives of SecBen informed the Board
that it was in discussions with Guggenheim regarding a potential arrangement
pursuant to which an investor group led by Gugenheim would acquire control of
the Investment Adviser and affiliates. With respect to the Transaction, the
Board reviewed materials received from SecBen and Guggenheim, including
information relating to the terms of the Transaction. The Board also reviewed
information regarding Guggenheim, including, but not limited to: (a) certain
representations concerning Guggenheim's financial condition, (b) information
regarding Guggenheim's affiliated investment advisers, (c) information regarding
Guggenheim's litigation and regulatory matters, including representations that
there were no material matters, and (d) potential conflicts of interest. SecBen
and Guggenheim also provided the Board with presentations that discussed the
Transaction and intentions for the business, operations and personnel of the
Investment Adviser after the closing of the Transaction.
In considering the New Investment Advisory Agreements at the January 2010
Meeting, the Board determined that the New Investment Advisory Agreements would
enable shareholders of the Funds to continue to obtain high quality services at
a cost that is appropriate, reasonable, and in the best interests of their
shareholders. The Board, including the Independent Trustees, unanimously
approved the New Investment Advisory Agreements. In reaching their decision, the
Trustees carefully considered information that they had received throughout the
year as part of their regular oversight of the Funds, including, in particular,
information from the Investment Adviser that was provided in connection with the
2009 Renewal Meeting. The Trustees noted that, at the 2009 Renewal Meeting, they
had obtained and reviewed a wide variety of information, including certain
comparative information regarding performance of the Funds relative to
performance of other comparable mutual funds.
At the 2009 Renewal Meeting, the Trustees, including the Independent Trustees,
evaluated a number of considerations, including among others: (a) the quality of
the Investment Adviser's investment advisory and other services; (b) the
Investment Adviser's investment management personnel; (c) the Investment
Adviser's operations and financial condition; (d) the Investment Adviser's
brokerage practices (including any soft dollar arrangements) and investment
strategies; (e) the level of the fees that the Investment Adviser charges
compared with the fees charged to comparable mutual funds or accounts; (f) each
Fund's overall fees and operating expenses compared with similar mutual funds;
(g) the level of the Investment Adviser's profitability from its Fund-related
operations; (h) the Investment Adviser's compliance systems; (i) the Investment
Adviser's policies on and compliance procedures for personal securities
transactions; (j) the Investment Adviser's reputation, expertise and resources
in the 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 2009 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 New Investment Advisory
Agreements are fair and reasonable; (b) concluded that the Investment Adviser's
fees were reasonable in light of the services that it provides to the Funds;
6
and (c) agreed to approve the New Investment Advisory Agreements, subject to
shareholder approval.
In approving the New Investment Advisory Agreements, the Trustees also
considered information and representations made about the Guggenheim
organization and its personnel and the ongoing role that Guggenheim would play
with Investors. The Trustees considered these representations and the financial
stability the Transaction was expected to bring to the Investment Adviser and
the Distributor in the context of the current financial challenges facing
certain SBHC affiliates. The Trustees also considered representations by
Guggenheim regarding additional resources that could be made available to the
Investment Adviser and the Distributor if beneficial to their operations.
NEW INVESTMENT ADVISORY AGREEMENTS
Nature, Extent and Quality of Services Provided by the Investment Adviser. At
the 2009 Renewal Meeting, the Board had reviewed the scope of services to be
provided by the Investment Adviser under the Current Investment Advisory
Agreements. At the January 2010 Meeting, the Board noted that there would be no
significant differences between the scope of services required to be provided by
the Investment Adviser under the Current Investment Advisory Agreements and the
scope of services required to be provided by the Investment Adviser under the
New Investment Advisory Agreements. In reviewing the scope of services provided
to the Funds by the Investment Adviser, the Board had reviewed and discussed at
the 2009 Renewal Meeting the Investment Adviser's investment experience, noting
that the Investment Adviser and its affiliates have committed significant
resources over time to the support of the Funds. The Board also had considered
the Investment Adviser's compliance programs and its compliance record with
respect to the Funds. In that regard, the Board noted that the Investment
Adviser 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 had reviewed
and considered the Investment Adviser's investment processes and strategies, and
matters related to the Investment Adviser's portfolio transaction policies and
procedures. The Board further had noted that the Funds have consistently met
their investment objectives since their respective inception dates. Based on
this review, the Board had concluded at the 2009 Renewal Meeting that the
nature, extent, and quality of services to be provided by the Investment Adviser
to the Funds under the Current Investment Advisory Agreements were appropriate
and continued to support the Board's original selection of the Investment
Adviser as the investment adviser to the Funds.
At the January 2010 Meeting, the Board noted that most of the key investment and
management personnel of the Investment Adviser servicing the Funds are expected
to remain with the Investment Adviser following the Transaction and that the
services provided to the Funds by the Investment Adviser are not expected to
materially change. The Trustees also considered SecBen's and Guggenheim's
representations to the Board that the Investment Adviser would continue to
provide investment and related services that were of materially the same quality
and quantity as services provided to the Funds in the past, and that these
services are appropriate in scope and extent in light of the Funds' operations,
the competitive landscape of the investment company business and investor needs.
Based on this review, the Board concluded that the range and quality of services
provided by the Investment Adviser to the Funds were expected to continue under
the New Investment Advisory Agreements at comparable levels.
Fund Expenses and Performance of the Funds and the Investment Adviser. At the
2009 Renewal Meeting, the Board had reviewed statistical information prepared by
the Investment Adviser
7
regarding the expense ratio components, including actual advisory fees and gross
and net total expenses of each Fund in comparison with the same information for
other exchange-traded funds registered under the 1940 Act determined by the
Investment Adviser to comprise each Fund's applicable peer group. In addition,
the Board had reviewed at the 2009 Renewal Meeting statistical information
prepared by the Investment Adviser relating to the performance of each Fund, as
well as each Fund's ability to successfully track its benchmark over time (as
applicable to those Funds which track a benchmark), and a comparison of each
Fund's performance to exchange-traded funds with similar investment objectives
for the same periods and to appropriate indices/benchmarks, in light of total
return, yield and market trends. Based on the review at the 2009 Renewal
Meeting, the Board had concluded that the investment advisory fees and expense
levels and the historical performance of the Funds, 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
Investment Advisory Agreements. Based on the representations made by SecBen and
Guggenheim at the January 2010 Meeting that the Investment Adviser would
continue to operate following the closing of the Transaction in much the same
manner as it operates today, the Board concluded that the investment performance
of the Investment Adviser was not expected to be affected by the Transaction.
Costs of Services Provided to the Funds and Profits Realized by the Investment
Adviser and its Affiliates. At the 2009 Renewal Meeting, the Board had reviewed
information about the profitability of the Funds to the Investment Adviser based
on the advisory fees payable under the Current Investment Advisory Agreements
for the last calendar year. The Board had analyzed the Funds' expenses,
including the investment advisory fees paid to the Investment Adviser. The Board
also had reviewed information regarding direct revenue received by the
Investment Adviser and ancillary revenue received by the Investment Adviser
and/or its affiliates in connection with the services provided to the Funds by
the Investment Adviser (as discussed below) and/or its affiliates. The Board
also had discussed the Investment Adviser's profit margin as reflected in the
Investment Adviser's profitability analysis and had reviewed information
regarding economies of scale (as discussed below). Based on this review at the
2009 Renewal Meeting, the Board had concluded that the profits to be realized by
the Investment Adviser and its affiliates under the Current Investment Advisory
Agreements and from other relationships between the Funds and the Investment
Adviser and/or its affiliates, if any, were within the range the Board
considered reasonable and appropriate.
At the January 2010 Meeting, the Board considered the fact that the fee rates
payable to the Investment Adviser would be the same under each Fund's New
Investment Advisory Agreement as they are under such Fund's Current Investment
Advisory Agreement. With respect to anticipated profitability, the Board noted
that it was too early to predict how the Transaction would affect the Investment
Adviser's profitability with respect to the Funds, but noted that this matter
would be given further consideration on an ongoing basis. Overall, the Board
concluded that the fees to be paid under the Current Investment Advisory
Agreements and under the New Investment Advisory Agreements are reasonable.
Economies of Scale. In connection with its review of the Funds' profitability
analysis at the 2009 Renewal Meeting, the Board had reviewed information
regarding economies of scale or other efficiencies that may result from
increases in the Funds' asset levels. The Board had noted that the Current
Investment Advisory Agreements did not provide for any breakpoints in the
investment advisory fees as a result of increases in the asset levels of the
Funds. The Board had also reviewed and considered the Investment Adviser's
historic profitability as investment adviser to the Funds and determined that
reductions in advisory fees or additions of breakpoints were not warranted at
the time of the 2009 Renewal Meeting. At the January 2010 Meeting, the Trustees
8
noted that the fees would not change under the New Investment Advisory
Agreements, and they will have the opportunity to again review the
appropriateness of the fee payable to the Investment Adviser under the
Agreements when the next renewal of these Agreements comes before the Board.
Other Benefits to the Investment Adviser and/or its Affiliates. At the 2009
Renewal Meeting, in addition to evaluating the services provided by the
Investment Adviser, the Board had considered the nature, extent, quality and
cost of the distribution services performed by the Distributor under a separate
agreement. The Board had noted that the Investment Adviser 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
the Investment Adviser pursuant to Rule 17e-1 under the 1940 Act. Based on its
review at its 2009 Renewal Meeting, the Board had concluded that the nature and
quality of the services provided by the Investment Adviser's affiliates to each
Fund 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. The Board also considered the terms of the Transaction and the
financial benefits that it brings to the parent company of the Investment
Adviser and noted that those financial benefits are available, in part, because
of the involvement of the Investment Adviser in the Transaction. The Board also
noted that the Transaction is expected to put the Investment Adviser on strong
financial footing, enhancing its ability to provide continuous services to the
Funds.
THE BOARD, INCLUDING THE INDEPENDENT TRUSTEES, UNANIMOUSLY RECOMMENDS THAT
SHAREHOLDERS VOTE "FOR" THE APPROVAL OF THE NEW INVESTMENT ADVISORY AGREEMENTS
AND CHANGE TO THE FUNDAMENTAL INVESTMENT POLICY ON BORROWING MONEY. UNMARKED,
PROPERLY SIGNED AND DATED PROXIES WILL BE SO VOTED.
9
PROPOSAL 1
THE APPROVAL OF NEW INVESTMENT ADVISORY AGREEMENTS
WITH RESPECT TO ALL FUNDS
As discussed above, Proposal 1 relates to the approval by shareholders of the
New Investment Advisory Agreements between the Investment Adviser and each of
the Funds. You are being asked to vote separately on Proposal 1 solely with
respect to the Fund(s) that you own. A form of the New Investment Advisory
Agreements is attached in Appendix A.
The terms of the New Investment Advisory Agreements are substantially identical
to those of the Current Investment Advisory Agreements, except with respect to
the date of execution. Consequently, upon shareholder approval, the Investment
Adviser will continue to render substantially the same services to the Funds
under the New Investment Advisory Agreements that it currently renders to the
Funds under the Current Investment Advisory Agreements.
As discussed above, the Board unanimously approved the New Investment Advisory
Agreements and recommends the approval of the New Investment Advisory Agreements
to shareholders. For information regarding the Board's considerations in
approving the New Investment Advisory Agreements, please see the section above
entitled "Board Considerations in Approving the New Investment Advisory
Agreements."
The Current Investment Advisory Agreements will remain in place until the
completion of the Transaction, at which time, as a result of the change in the
control of the Investment Adviser, the Current Investment Advisory Agreements
will terminate. However, completion of the Transaction will be subject to
certain closing conditions, including: (a) the receipt of approvals required for
the assignment or replacement of investment advisory contracts relating to 80%
or more of the total net assets under management by the Investment Adviser and
certain affiliates that will be controlled by the Investors; and, (b) with
respect to the Purchase Transaction only, the approval of a corporate
restructuring called a demutualization by the insurance policyholders who
presently own SBHC, to the extent required by applicable law. If for some reason
the Transaction does not occur, the Current Investment Advisory Agreements will
not automatically terminate and will remain in effect, and the New Investment
Advisory Agreements will not be entered into, even if they have been approved by
Fund shareholders.
THE INVESTMENT ADVISER
PADCO Advisors II, Inc., which operates under the name Rydex Investments, is
located at 9601 Blackwell Road, Suite 500, Rockville, Maryland 20850 and
currently serves as investment adviser to the Funds pursuant to the Current
Investment Advisory Agreements. Information regarding the Current Investment
Advisory Agreements, including (a) the date of the agreement, (b) the date on
which it was last approved by shareholders and (c) the rate of compensation to
the Investment Adviser, is provided in Appendix B. If the New Investment
Advisory Agreements are approved by shareholders, they will continue for an
initial term of two years and for subsequent one-year terms so long as they are
renewed annually in accordance with their terms (see discussion under "Term and
Continuance" below).
Information regarding the name(s), address(es) and principal occupation(s) of
the principal executive officer(s) and director(s) of the Investment Adviser is
set forth in Appendix C. A list of the Trustees and officers of the Trust who
hold positions with the Investment Adviser also is set forth in Appendix C. In
addition, set forth in Appendix D is a list of other registered investment
10
companies with similar investment objectives as each Fund, for which the
Investment Adviser acts as investment manager, adviser or sub-adviser.
Currently, the Investment Adviser is a wholly-owned subsidiary of Rydex
Holdings, LLC, which is a wholly-owned subsidiary of SBC. SBC is wholly owned by
SBHC, One Security Benefit Place, Topeka, Kansas 66636-0001. Upon completion of
the Transaction, the Investors will either receive: (a) a 100% ownership stake
in SBC, the parent company of the Investment Adviser and affiliates; or (b) a
100% ownership stake in SBC's asset management business, which includes the
Investment Adviser and certain affiliates. For more information on the
Transaction, please see the section above entitled "Information Regarding the
Change in Control of the Investment Adviser."
MATERIAL TERMS OF THE NEW INVESTMENT ADVISORY AGREEMENTS
The following summary of the New Investment Advisory Agreements summarizes the
material terms of the New Investment Advisory Agreements and is qualified in its
entirety by reference to the New Investment Advisory Agreements, a form of which
is attached in Appendix A.
Duties of the Investment Adviser. Under the Current Investment Advisory
Agreements and the New Investment Advisory Agreements (each, an "Advisory
Agreement" and collectively, the "Advisory Agreements"), the Investment Adviser
is required to:
o provide the Funds with investment research, advice and supervision and
shall furnish continuously an investment program for the Funds, consistent
with the respective investment objectives and policies of each Fund;
o determine, in its discretion and without prior consultation, what
securities shall be purchased for the Funds, what securities shall be held
or sold by the Funds and what portion of the Funds' assets shall be held
uninvested in cash, subject always to the provisions of the Trust's
Agreement and Declaration of Trust, By-Laws and registration statement on
file with the U.S. Securities and Exchange Commission (the "SEC");
o discharge its responsibilities subject to the control of the officers and
the Board, and in compliance with the objectives, policies, and limitations
set forth in the Funds' prospectus(es) and applicable laws and regulations;
o vote any proxies for Fund securities;
o provide the Trust, and any other agent designated by the Trust, with
records concerning the Investment Adviser's activities which each Fund is
required to maintain; and
o provide other reports reasonably requested by the Trust's officers and
Board concerning the Investment Adviser's discharge of the foregoing
responsibilities.
Indemnity Obligation. Under the Advisory Agreements, the Investment Adviser
shall indemnify and hold harmless the Trust and all affiliated persons thereof
(within the meaning of Section 2(a)(3) of the 1940 Act) and all controlling
persons (as described in Section 15 of the Securities Act of 1933) against any
and all losses, claims, damages, liabilities or litigation (including reasonable
legal and other expenses) by reason of or arising out of: (a) the Investment
Adviser being in material violation of any applicable federal or state law, rule
or regulation or any investment policy or restriction set forth in the Funds'
registration statement or any written
11
guidelines or instruction provided in writing by the Board; (b) a Fund's failure
to satisfy the diversification or source of income requirements of Subchapter M
of the Internal Revenue Code; or (c) the Investment Adviser's willful
misfeasance, bad faith or gross negligence generally in the performance of its
duties or its reckless disregard of its obligations and duties under the
Advisory Agreements.
Term and Continuance. Each Advisory Agreement provides that unless terminated as
provided therein, the Advisory Agreement shall continue for an initial term of
two years. Thereafter, the Advisory Agreement shall continue in effect for
successive annual periods provided such continuance is specifically approved at
least annually (a) by the vote of the Trustees or by a vote of the shareholders;
and (b) by the vote of a majority of the Independent Trustees, cast in person at
a meeting called for the purpose of voting on such approval.
Each Advisory Agreement may be terminated with respect to a Fund at any time
without payment of any penalty, by a Fund upon the vote of either the Board or
by a majority of the outstanding voting securities of the Fund. The Investment
Adviser may also, by not more than sixty (60) days' nor less than thirty (30)
days' written notice, terminate the Advisory Agreements. Each Advisory Agreement
will terminate automatically in the event of its "assignment" (as that term is
defined under the 1940 Act).
BOARD RECOMMENDATION ON PROPOSAL 1
At its January 2010 Meeting, based on its deliberations on and evaluation of the
information described above, the Board, including all of the Independent
Trustees, unanimously: (a) concluded that the terms of the New Investment
Advisory Agreements are fair and reasonable; (b) concluded that the Investment
Adviser's fees are reasonable in light of the services that the Investment
Adviser will provide to the Funds; and (c) agreed to approve the New Investment
Advisory Agreements for an initial term of two years and to recommend the
approval of the New Investment Advisory Agreements to shareholders.
THE TRUSTEES UNANIMOUSLY RECOMMEND THAT SHAREHOLDERS
OF THE FUNDS VOTE "FOR" PROPOSAL 1
12
PROPOSAL 2
THE APPROVAL OF A CHANGE TO THE FUNDAMENTAL INVESTMENT POLICY ON BORROWING MONEY
WITH RESPECT TO ALL FUNDS
Proposal 2 relates to a change to the "fundamental investment policy" on
borrowing for the Funds. The 1940 Act requires that each Fund adopt a
"fundamental" investment policy with respect to several types of activities,
including borrowing money. Under the 1940 Act, an investment policy that is
"fundamental" may only be modified with the approval of shareholders. Each Fund
currently has in place a fundamental investment policy on its ability to borrow
money that is more prohibitive than the 1940 Act requires, unnecessarily
limiting investment strategies. In general, Proposal 2 is intended to provide
the Funds the maximum possible amount of flexibility to engage in borrowing
activity consistent with current law and with the Funds' investment strategies
and objectives.
PROPOSED NEW FUNDAMENTAL INVESTMENT POLICY
If Proposal 2 is approved by shareholders, the fundamental investment policy
regarding borrowing for each Fund would read:
[The Fund] shall not borrow money, except as permitted under the
Investment Company Act of 1940, and as interpreted or modified by
regulatory authority having jurisdiction from time to time.
CURRENT FUNDAMENTAL INVESTMENT POLICY
The current fundamental investment policy regarding borrowing money for the
Funds reads:
[Each Fund shall not] borrow money in an amount exceeding 33(1)/3% of
the value of its total assets, provided that, for purposes of this
limitation, investment strategies which either obligate the Fund to
purchase securities or require the Fund to segregate assets are not
considered to be borrowing. Asset coverage of at least 300% is
required for all borrowing, except where the Fund has borrowed money
for temporary purposes in amounts not exceeding 5% of its total
assets. The Fund will not purchase securities while its borrowing
exceeds 5% of its total assets.
DISCUSSION OF PROPOSED MODIFICATION
The proposed modification to each Fund's fundamental investment policy on
borrowing money (including any interpretation provided in the Fund's
registration statement) would allow the Funds to borrow to the extent permitted
by the 1940 Act. The 1940 Act currently permits a fund to borrow from banks for
any purpose, in an amount up to 33(1)/3% of the fund's assets, including the
amount borrowed. Under the 1940 Act, a fund may also issue a note evidencing a
temporary loan (i.e., one that must be repaid within 60 days), as long as it
does not exceed 5% of the fund's total assets.
The proposed modification would also allow each Fund's borrowing policy to
conform to future changes in the 1940 Act--and interpretations
thereunder--without further Board or shareholder action. The modification would
therefore ensure that the Funds maintain the maximum possible amount of
flexibility to engage in borrowing activity, without incurring the additional
expenses necessary to further amend the Funds' fundamental investment policies.
13
The proposed modification would expand the ability of the Funds to borrow.
Currently, each Fund's fundamental investment policy limits the ability of the
Fund to borrow except subject to certain restrictions (e.g., limitation on
purchasing securities when borrowing exceeds 5% of total assets). If approved,
the change would permit each Fund to borrow to the extent permitted by the 1940
Act. However, even if permitted by law, borrowing by a Fund would occur only if
consistent with the Fund's disclosure in its registration statement. Materially
increasing the borrowing level of a Fund may require an amendment to the Fund's
prospectus and Statement of Additional Information.
The Investment Adviser does not presently intend to materially increase the
borrowing level of any Fund, and believes that the proposed change will not
materially affect the investment risks currently associated with any Fund. To
the extent that any borrowing by a Fund involves leveraging, however, the Fund's
net asset value may be subject to increased volatility. In addition, any money
borrowed will be subject to interest and other costs, which may exceed the gain
on securities purchased with borrowed money.
Should a Fund's shareholders not approve the proposal to amend the Fund's
fundamental investment policy on borrowing money, the Fund's current fundamental
investment policy on borrowing money (including any interpretation provided in
the Fund's registration statement) would continue to apply unchanged.
BOARD RECOMMENDATION ON PROPOSAL 2
At its January 2010 Meeting, based on its deliberations on and evaluation of the
information described above and such other information deemed relevant, the
Board, including all of the Independent Trustees, unanimously agreed to approve
the proposed new fundamental investment policy on borrowing money and to
recommend the approval of the proposed new fundamental investment policy on
borrowing money to shareholders.
THE TRUSTEES UNANIMOUSLY RECOMMEND THAT SHAREHOLDERS
OF THE FUNDS VOTE "FOR" PROPOSAL 2
14
OTHER BUSINESS
The Trustees do not know of any matters to be presented at the Meeting other
than those set forth in this Joint Proxy Statement. If other business should
properly come before the Meeting, proxies will be voted in accordance with the
judgment of the persons named in the accompanying proxy.
ADDITIONAL INFORMATION
ADMINISTRATOR, PRINCIPAL UNDERWRITER, CUSTODIAN AND TRANSFER AGENT
The principal underwriter/distributor of the Trust is Rydex Distributors, Inc.
(the "Distributor"), located at 9601 Blackwell Road, Suite 500, Rockville,
Maryland 20850, an affiliate of the Investment Adviser. State Street Bank and
Trust Company, located at P.O. Box 5049, Boston, Massachusetts 02206, serves as
the Funds' administrator, custodian and transfer agent. Information regarding
the fees paid by each Fund to the Distributor during the previous fiscal year is
provided in Appendix B.
Although the Investors will acquire control of the Distributor as a result of
the Transaction, shareholder approval is not required in order for the
Distributor to continue providing services to the Funds after the closing of the
Transaction. The Board has been assured that there will be no material change in
the nature or quality of the services provided by the Distributor to each Fund
due to the change in control.
AFFILIATIONS AND AFFILIATED BROKERAGE
During the Funds' most recent fiscal years, the Funds paid no commissions on
portfolio brokerage transactions to brokers who may be deemed to be affiliated
persons of the Funds, the Investment Adviser, or affiliated persons of such
persons ("Affiliated Brokers").
OTHER INFORMATION
Proxy materials, reports and other information filed by the Funds can be
inspected and copied at the Public Reference Facilities maintained by the SEC at
100 F Street, NE, Washington, DC 20549. The SEC maintains an Internet web site
(at http://www.sec.gov) which contains other information about the Funds.
VOTING INFORMATION
Proxy Solicitation. The principal solicitation of proxies will be by the mailing
of this Joint Proxy Statement on or about [INSERT MAILING DATE], but proxies may
also be solicited by telephone and/or in person by representatives of the Trust,
regular employees of the Investment Adviser or its affiliate(s), or The Altman
Group, a private proxy services firm. If we have not received your vote as the
date of the Meeting approaches, you may receive a telephone call from these
parties to ask for your vote. Arrangements will be made with brokerage houses
and other custodians, nominees, and fiduciaries to forward proxies and proxy
materials to their principals.
Cost of the Meeting. The cost of the Meeting, including the costs of retaining
The Altman Group, preparing and mailing of the notice, proxy statement and
proxy, and the solicitation of proxies, including reimbursement to
broker-dealers and others who forwarded proxy materials to their clients, will
be borne by SecBen and/or the Investors. The estimated cost of retaining The
Altman Group is approximately $[o].
15
Shareholder Voting. Shareholders of the Funds who own shares at the close of
business on the Record Date will be entitled to notice of, and vote at, the
Meeting. Each whole share is entitled to one vote, and each fractional share is
entitled to a proportionate fractional vote on each matter as to which such
shares are to be voted at the Meeting. One-third (33 1/3%) of a Fund's shares
entitled to vote on a Proposal constitutes a quorum. Abstentions and broker
non-votes will not be counted for or against a Proposal, but will be counted for
purposes of determining whether a quorum is present. Because the affirmative
vote of a majority of the outstanding voting securities of each Fund, as defined
below, is required to approve Proposals 1 and 2, abstentions and broker
non-votes will effectively be a vote against Proposals 1 and 2. "Broker
non-votes" are shares held by a broker or nominee as to which instructions have
not been received from the beneficial owners or persons entitled to vote, and
the broker or nominee does not have discretionary voting power.
If a quorum is not present at the Meeting, or if a quorum is present at the
Meeting but sufficient votes to approve one or more of the proposals are not
received, or if other matters arise requiring shareholder attention, the persons
named as proxy agents may propose one or more adjournments of the Meeting to
permit further solicitation of proxies. Any such adjournment will require the
affirmative vote of a majority of those shares present at the Meeting or
represented by proxy. The persons named as proxies will vote those proxies that
they are entitled to vote "FOR" such proposal in favor of such an adjournment,
and will vote those proxies required to be voted "AGAINST" such proposal,
against such an adjournment.
Information regarding the number of issued and outstanding shares of each Fund
as of the Record Date is provided in Appendix E, representing the same number of
votes for each of such Funds. The persons who are known to have owned
beneficially 5% or more of each Fund's outstanding shares as of the Record Date
are listed in Appendix F. [As of the Record Date, the Trustees and officers, as
a group, owned less than 1% of the outstanding shares of each Fund. As of the
Record Date, there were no persons who were known to control each Fund.]
The person(s) named as proxies on the enclosed proxy card will vote in
accordance with your directions, if your proxy is received properly executed. If
we receive your proxy, and it is executed properly, but you give no voting
instructions with respect to any proposal, your shares will be voted "FOR"
Proposal 1 and "FOR" Proposal 2. The duly appointed proxies may, in their
discretion, vote upon such other matters as may properly come before the
Meeting.
In order that your shares may be represented at the Meeting, you are requested
to vote your shares by mail, Internet or telephone by following the enclosed
instructions. IF YOU VOTE BY TELEPHONE OR INTERNET, PLEASE DO NOT RETURN YOUR
PROXY CARD, UNLESS YOU LATER ELECT TO CHANGE YOUR VOTE. You may revoke your
proxy: (a) at any time prior to its exercise by written notice of its revocation
to the secretary of the Trust prior to the Meeting; (b) by the subsequent
execution and return of another proxy prior to the Meeting; or (c) by being
present and voting in person at the Meeting and giving oral notice of revocation
to the chair of the Meeting. However, attendance in-person at the Meeting, by
itself, will not revoke a previously-tendered proxy.
Required Vote. Approval of each Proposal requires the vote of a "majority of the
outstanding voting securities" of a Fund, which means the vote of 67% or more of
the shares that are present at the Meeting, if the holders of more than 50% of
the outstanding shares are present or represented by proxy, or the vote of more
than 50% of the Fund's outstanding shares, whichever is less.
16
The Current Investment Advisory Agreements will remain in place until the
completion of the Transaction, at which time, as a result of the change in the
control of the Investment Adviser, the Current Investment Advisory Agreements
will terminate and, subject to shareholder approval, the New Investment Advisory
Agreements will go into effect. As discussed in the section above entitled
"Information Regarding the Change in Control of the Investment Adviser,"
completion of the Transaction will be subject to certain closing conditions. As
a result, if for some reason the Transaction does not occur, the Current
Investment Advisory Agreements will not automatically terminate and will remain
in effect, and the New Investment Advisory Agreements will not be entered into,
even if they have been approved by Fund shareholders. If Proposal 1 is not
approved by shareholders of any Fund, the Board will evaluate other short- and
long-term options.
With respect to Proposal 2, should a Fund's shareholders not approve the
proposal to amend the Fund's fundamental investment policy on borrowing money,
the Fund's current fundamental investment policy on borrowing money would
continue to apply unchanged.
Shareholders Sharing the Same Address. As permitted by law, only one copy of
this Joint Proxy Statement may be delivered to shareholders residing at the same
address, unless such shareholders have notified the Trust of their desire to
receive multiple copies of the shareholder reports and proxy statements that the
Trust sends. If you would like to receive an additional copy, please contact the
Trust by writing to the Trust's address, or by calling the telephone number
shown on the front page of this Joint Proxy Statement. The Trust will then
promptly deliver, upon request, a separate copy of this Joint Proxy Statement to
any shareholder residing at an address to which only one copy was mailed.
Shareholders wishing to receive separate copies of the Trust's shareholder
reports and proxy statements in the future, and shareholders sharing an address
that wish to receive a single copy if they are receiving multiple copies, should
also send a request as indicated.
SHAREHOLDER PROPOSALS
The Trust is organized as a statutory trust under the laws of Delaware. As such,
the Trust is not required to, and does not, hold annual shareholder meetings.
Nonetheless, the Board may call a special meeting of shareholders for action by
shareholder vote as may be required by the 1940 Act or as required or permitted
by the Trust's Agreement and Declaration of Trust and By-Laws. Shareholders who
wish to present a proposal for action at a future meeting should submit a
written proposal to the Secretary of the Trust, c/o Rydex Investments, 9601
Blackwell Road, Suite 500, Rockville, Maryland 20850 for inclusion in a future
proxy statement. Shareholder proposals to be presented at any future meeting of
the Trust must be received by the Trust in writing within a reasonable amount of
time before the Trust solicits proxies for that meeting, in order to be
considered for inclusion in the proxy materials for that meeting. Whether a
proposal is included in a proxy statement will be determined in accordance with
applicable federal and state laws. Shareholders retain the right to request that
a meeting of the shareholders be held for the purpose of considering matters
requiring shareholder approval.
TO ENSURE THE PRESENCE OF A QUORUM AT THE SPECIAL MEETING, PROMPT EXECUTION AND
RETURN OF THE ENCLOSED PROXY IS REQUESTED. A SELF-ADDRESSED, POSTAGE-PAID
ENVELOPE IS ENCLOSED FOR YOUR CONVENIENCE, ALONG WITH INSTRUCTIONS ON HOW TO
VOTE OVER THE INTERNET OR BY TELEPHONE SHOULD YOU PREFER TO VOTE BY ONE OF THOSE
METHODS.
17
By Order of the Board of Trustees,
Sincerely,
/s/ Richard M. Goldman
Richard M. Goldman
President
18
APPENDIX A
FORM OF INVESTMENT ADVISORY AGREEMENT
1
ADVISORY AGREEMENT
ADVISORY AGREEMENT made as of this [ ] day of [ ], 2010 by and between RYDEX ETF
TRUST (the "Trust"), a Delaware statutory trust registered as an investment
company under the Investment Company Act of 1940, as amended (the "1940 Act"),
and PADCO ADVISORS II, INC., a Maryland corporation with its principal place of
business at 9601 Blackwell Road, Suite 500, Rockville, Maryland 20850 (the
"Adviser").
W I T N E S S E T H
WHEREAS, the Board of Trustees (the "Board") of the Trust has selected the
Adviser to act as investment adviser to the Trust on behalf of the series set
forth on Schedule A to this Agreement (each a "Fund" and, collectively, the
"Funds"), as such Schedule may be amended from time to time upon mutual
agreement of the parties, and to provide certain related services, as more fully
set forth below, and to perform such services under the terms and conditions
hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual covenants and benefits set forth
herein, the Trust and the Adviser do hereby agree as follows:
1. THE ADVISER'S SERVICES.
(a) Discretionary Investment Management Services. The Adviser
shall act as investment adviser with respect to the Funds. In such
capacity, the Adviser shall, subject to the supervision of the Board,
regularly provide the Funds with investment research, advice and
supervision and shall furnish continuously an investment program for
the Funds, consistent with the respective investment objectives and
policies of each Fund. The Adviser shall determine, from time to time,
what securities shall be purchased for the Funds, what securities shall
be held or sold by the Funds and what portion of the Funds' assets
shall be held uninvested in cash, subject always to the provisions of
the Trust's Agreement and Declaration of Trust, By-Laws and its
registration statement on Form N-1A (the "Registration Statement")
under the 1940 Act, and under the Securities Act of 1933, as amended
(the "1933 Act"), covering Fund shares, as filed with the U.S.
Securities and Exchange Commission (the "Commission"), and to the
investment objectives, policies and restrictions of the Funds, as each
of the same shall be from time to time in effect. To carry out such
obligations, the Adviser shall exercise full discretion and act for the
Funds in the same manner and with the same force and effect as the
Funds themselves might or could do with respect to purchases, sales or
other transactions, as well as with respect to all other such things
necessary or incidental to the furtherance or conduct of such
purchases, sales or other transactions. No reference in this Agreement
to the Adviser having full discretionary authority over each Fund's
investments shall in any way limit the right of the Board, in its sole
discretion, to establish or revise policies in connection with the
management of a Fund's assets or to otherwise exercise its right to
control the overall management of a Fund.
(b) Compliance. The Adviser agrees to comply with the
requirements of the 1940 Act, the Investment Advisers Act of 1940 (the
"Advisers Act"), the 1933 Act, the Securities Exchange Act of 1934, as
amended (the "1934 Act"), the Commodity Exchange Act and the respective
rules and regulations thereunder, as applicable, as well as with all
other applicable federal and state laws, rules, regulations and case
law that relate to the services and relationships described hereunder
and to the conduct of its business as a registered investment adviser.
The
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Adviser also agrees to comply with the objectives, policies and
restrictions set forth in the Registration Statement, as amended or
supplemented, of the Funds, and with any policies, guidelines,
instructions and procedures approved by the Board and provided to the
Adviser. In selecting each Fund's portfolio securities and performing
the Adviser's obligations hereunder, the Adviser shall cause the Fund
to comply with the diversification and source of income requirements of
Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"), for qualification as a regulated investment company. The
Adviser shall maintain compliance procedures that it reasonably
believes are adequate to ensure its compliance with the foregoing. No
supervisory activity undertaken by the Board shall limit the Adviser's
full responsibility for any of the foregoing.
(c) Proxy Voting. The Board has the authority to determine how
proxies with respect to securities that are held by the Funds shall be
voted, and the Board has initially determined to delegate the authority
and responsibility to vote proxies for the Funds' securities to the
Adviser. So long as proxy voting authority for the Funds has been
delegated to the Adviser, the Adviser shall exercise its proxy voting
responsibilities. The Adviser shall carry out such responsibility in
accordance with any instructions that the Board shall provide from time
to time, and at all times in a manner consistent with Rule 206(4)-6
under the Advisers Act and its fiduciary responsibilities to the Trust.
The Adviser shall provide periodic reports and keep records relating to
proxy voting as the Board may reasonably request or as may be necessary
for the Funds to comply with the 1940 Act and other applicable law. Any
such delegation of proxy voting responsibility to the Adviser may be
revoked or modified by the Board at any time.
(d) Recordkeeping. The Adviser shall not be responsible for
the provision of administrative, bookkeeping or accounting services to
the Funds, except as otherwise provided herein or as may be necessary
for the Adviser to supply to the Trust or its Board the information
required to be supplied under this Agreement.
The Adviser shall maintain separate books and detailed records
of all matters pertaining to Fund assets advised by the Adviser required by Rule
31a-1 under the 1940 Act (other than those records being maintained by any
administrator, custodian or transfer agent appointed by the Funds) relating to
its responsibilities provided hereunder with respect to the Funds, and shall
preserve such records for the periods and in a manner prescribed therefore by
Rule 31a-2 under the 1940 Act (the "Fund Books and Records"). The Fund Books and
Records shall be available to the Board at any time upon request, shall be
delivered to the Trust upon the termination of this Agreement and shall be
available without delay during any day the Trust is open for business.
(e) Holdings Information and Pricing. The Adviser shall
provide regular reports regarding Fund holdings, and shall, on its own
initiative, furnish the Trust and its Board from time to time with
whatever information the Adviser believes is appropriate for this
purpose. The Adviser agrees to immediately notify the Trust if the
Adviser reasonably believes that the value of any security held by a
Fund may not reflect fair value. The Adviser agrees to provide any
pricing information of which the Adviser is aware to the Trust, its
Board and/or any Fund pricing agent to assist in the determination of
the fair value of any Fund holdings for which market quotations are not
readily available or as otherwise required in accordance with the 1940
Act or the Trust's valuation procedures for the purpose of calculating
the Fund net asset value in accordance with procedures and methods
established by the Board.
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(f) Cooperation with Agents of the Trust. The Adviser agrees
to cooperate with and provide reasonable assistance to the Trust, any
Trust custodian or foreign sub- custodians, any Trust pricing agents
and all other agents and representatives of the Trust, such information
with respect to the Funds as they may reasonably request from time to
time in the performance of their obligations, provide prompt responses
to reasonable requests made by such persons and establish appropriate
interfaces with each so as to promote the efficient exchange of
information and compliance with applicable laws and regulations.
2. CODE OF ETHICS. The Adviser has adopted a written code of ethics
that it reasonably believes complies with the requirements of Rule 17j-1 under
the 1940 Act, which it will provide to the Trust. The Adviser shall ensure that
its Access Persons (as defined in the Adviser's Code of Ethics) comply in all
material respects with the Adviser's Code of Ethics, as in effect from time to
time. Upon request, the Adviser shall provide the Trust with a (i) a copy of the
Adviser's current Code of Ethics, as in effect from time to time, and (ii)
certification that it has adopted procedures reasonably necessary to prevent
Access Persons from engaging in any conduct prohibited by the Adviser's Code of
Ethics. Annually, the Adviser shall furnish a written report, which complies
with the requirements of Rule 17j-1, concerning the Adviser's Code of Ethics to
the Trust. The Adviser shall respond to requests for information from the Trust
as to violations of the Code of Ethics by Access Persons and the sanctions
imposed by the Adviser. The Adviser shall immediately notify the Trust of any
material violation of the Code of Ethics, whether or not such violation relates
to a security held by any Fund.
3. INFORMATION AND REPORTING. The Adviser shall provide the Trust and
its respective officers with such periodic reports concerning the obligations
the Adviser has assumed under this Agreement as the Trust may from time to time
reasonably request.
(a) Notification of Breach / Compliance Reports. The Adviser
shall notify the Trust immediately upon detection of (i) any material
failure to manage any Fund in accordance with its investment objectives
and policies or any applicable law; or (ii) any material breach of the
Funds' or the Adviser's policies, guidelines or procedures. In
addition, the Adviser shall provide a quarterly report regarding each
Fund's compliance with its investment objectives and policies,
applicable law, including, but not limited to the 1940 Act and
Subchapter M of the Code, and the Fund's policies, guidelines or
procedures as applicable to the Adviser's obligations under this
Agreement. The Adviser agrees to correct any such failure promptly and
to take any action that the Board may reasonably request in connection
with any such breach. Upon request, the Adviser shall also provide the
officers of the Trust with supporting certifications in connection with
such certifications of Fund financial statements and disclosure
controls pursuant to the Sarbanes-Oxley Act. The Adviser will promptly
notify the Trust in the event (i) the Adviser is served or otherwise
receives notice of any action, suit, proceeding, inquiry or
investigation, at law or in equity, before or by any court, public
board, or body, involving the affairs of the Trust (excluding class
action suits in which a Fund is a member of the plaintiff class by
reason of the Fund's ownership of shares in the defendant) or the
compliance by the Adviser with the federal or state securities laws or
(ii) an actual change in control of the Adviser resulting in an
"assignment" (as defined in the 1940 Act) has occurred or is otherwise
proposed to occur.
(b) Board and Filings Information. The Adviser will also
provide the Trust with any information reasonably requested regarding
its management of the Funds required for any meeting of the Board, or
for any shareholder report, amended registration statement, proxy
statement, or prospectus supplement to be filed by the Trust with the
Commission. The Adviser
A-4
will make its officers and employees available to meet with the Board
from time to time on due notice to review its investment management
services to the Funds in light of current and prospective economic and
market conditions and shall furnish to the Board such information as
may reasonably be necessary in order for the Board to evaluate this
Agreement or any proposed amendments thereto.
(c) Transaction Information. The Adviser shall furnish to the
Trust such information concerning portfolio transactions as may be
necessary to enable the Trust or its designated agent to perform such
compliance testing on the Funds and the Adviser's services as the Trust
may, in its sole discretion, determine to be appropriate. The provision
of such information by the Adviser to the Trust or its designated agent
in no way relieves the Adviser of its own responsibilities under this
Agreement.
4. BROKERAGE.
(a) Principal Transactions. In connection with purchases or
sales of securities for the account of a Fund, neither the Adviser nor
any of its directors, officers or employees will act as a principal or
agent or receive any commission except as permitted by the 1940 Act.
(b) Placement of Orders. The Adviser shall arrange for the
placing of all orders for the purchase and sale of securities for a
Fund's account with brokers or dealers selected by the Adviser. In the
selection of such brokers or dealers and the placing of such orders,
the Adviser is directed at all times to seek for the Fund the most
favorable execution and net price available under the circumstances. It
is also understood that it is desirable for the Fund that the Adviser
have access to brokerage and research services provided by brokers who
may execute brokerage transactions at a higher cost to the Fund than
may result when allocating brokerage to other brokers, consistent with
section 28(e) of the 1934 Act and any Commission staff interpretations
thereof. Therefore, the Adviser is authorized to place orders for the
purchase and sale of securities for a Fund with such brokers, subject
to review by the Board from time to time with respect to the extent and
continuation of this practice. It is understood that the services
provided by such brokers may be useful to the Adviser in connection
with its or its affiliates' services to other clients.
(c) Aggregated Transactions. On occasions when the Adviser
deems the purchase or sale of a security to be in the best interest of
a Fund as well as other clients of the Adviser, the Adviser may, to the
extent permitted by applicable law and regulations, aggregate the order
for securities to be sold or purchased. In such event, the Adviser will
allocate securities or futures contracts so purchased or sold, as well
as the expenses incurred in the transaction, in the manner the Adviser
reasonably considers to be equitable and consistent with its fiduciary
obligations to the Fund and to such other clients under the
circumstances.
(d) Affiliated Brokers. The Adviser or any of its affiliates
may act as broker in connection with the purchase or sale of securities
or other investments for a Fund, subject to: (a) the requirement that
the Adviser seek to obtain best execution and price within the policy
guidelines determined by the Board and set forth in the Fund's current
prospectus and SAI; (b) the provisions of the 1940 Act; (c) the
provisions of the Advisers Act; (d) the provisions of the 1934 Act; and
(e) other provisions of applicable law. These brokerage services are
not within the scope of the duties of the Adviser under this Agreement.
Subject to the requirements of applicable
A-5
law and any procedures adopted by the Board, the Adviser or its
affiliates may receive brokerage commissions, fees or other
remuneration from a Fund for these services in addition to the
Adviser's fees for services under this Agreement.
5. CUSTODY. Nothing in this Agreement shall permit the Adviser to take
or receive physical possession of cash, securities or other investments of a
Fund.
6. ALLOCATION OF CHARGES AND EXPENSES. The Adviser will bear its own
costs of providing services hereunder. The Adviser agrees to pay all expenses
incurred by the Trust, except for interest, taxes, brokerage commissions, and
other expenses incurred in placing orders for the purchase and sale of
securities and other investment instruments, extraordinary expenses, and
distribution fees and expenses paid by the Trust under any distribution plan
adopted pursuant to Rule 12b-1 under the 1940 Act.
Notwithstanding the foregoing paragraph, with respect to the ETFs
launched after August 27, 2007, the Adviser agrees to pay all expenses incurred
by the Trust, except for interest, taxes, brokerage commissions, and other
expenses incurred in placing orders for the purchase and sale of securities and
other investment instruments, expenses of the Independent Trustees (including
any Trustee's counsel fees), extraordinary expenses, and distribution fees and
expenses paid by the Trust under any distribution plan adopted pursuant to Rule
12b-1 under the 1940 Act.
7. REPRESENTATIONS, WARRANTIES AND COVENANTS.
(a) Properly Registered. The Adviser is registered as an
investment adviser under the Advisers Act, and will remain so
registered for the duration of this Agreement. The Adviser is not
prohibited by the Advisers Act or the 1940 Act from performing the
services contemplated by this Agreement, and to the best knowledge of
the Adviser, there is no proceeding or investigation that is reasonably
likely to result in the Adviser being prohibited from performing the
services contemplated by this Agreement. The Adviser agrees to promptly
notify the Trust of the occurrence of any event that would disqualify
the Adviser from serving as an investment adviser to an investment
company. The Adviser is in compliance in all material respects with all
applicable federal and state law in connection with its investment
management operations.
(b) ADV Disclosure. The Adviser has provided the Trust with a
copy of its Form ADV as most recently filed with the Commission and
will, promptly after filing any amendment to its Form ADV with the
Commission, furnish a copy of such amendment(s) to the Trust. The
information contained in the Adviser's Form ADV is accurate and
complete in all material respects and does not omit to state any
material fact necessary in order to make the statements made, in light
of the circumstances under which they were made, not misleading.
(c) Fund Disclosure Documents. The Adviser has reviewed and
will in the future review, the Registration Statement, and any
amendments or supplements thereto, the annual or semi-annual reports to
shareholders, other reports filed with the Commission and any marketing
material of the Funds (collectively the "Disclosure Documents") and
represents and warrants that with respect to disclosure about the
Adviser, the manner in which the Adviser manages the Funds or
information relating directly or indirectly to the Adviser, such
Disclosure Documents contain or will contain, as of the date thereof,
no untrue statement of any material fact and does not omit any
statement of material fact which was required to be stated therein or
necessary to make the statements contained therein not misleading.
A-6
(d) Use Of The Name "Rydex". The Adviser has the right to use
the name "Rydex" in connection with its services to the Trust and that,
subject to the terms set forth in Section 8 of this Agreement, the
Trust shall have the right to use the name "Rydex" in connection with
the management and operation of the Funds. The Adviser is not aware of
any threatened or existing actions, claims, litigation or proceedings
that would adversely effect or prejudice the rights of the Adviser or
the Trust to use the name "Rydex".
(e) Insurance. The Adviser maintains errors and omissions
insurance coverage in an appropriate amount and shall provide prior
written notice to the Trust (i) of any material changes in its
insurance policies or insurance coverage; or (ii) if any material
claims will be made on its insurance policies. Furthermore, the Adviser
shall upon reasonable request provide the Trust with any information it
may reasonably require concerning the amount of or scope of such
insurance.
(f) No Detrimental Agreement. The Adviser represents and
warrants that it has no arrangement or understanding with any party,
other than the Trust, that would influence the decision of the Adviser
with respect to its selection of securities for a Fund, and that all
selections shall be done in accordance with what is in the best
interest of the Fund.
(g) Conflicts. The Adviser shall act honestly, in good faith
and in the best interests of the Trust including requiring any of its
personnel with knowledge of Fund activities to place the interest of
the Funds first, ahead of their own interests, in all personal trading
scenarios that may involve a conflict of interest with the Funds,
consistent with its fiduciary duties under applicable law.
(h) Representations. The representations and warranties in
this Section 7 shall be deemed to be made on the date this Agreement is
executed and at the time of delivery of the quarterly compliance report
required by Section 3(a), whether or not specifically referenced in
such report.
8. THE NAME "RYDEX". The Adviser grants to the Trust a sublicense to
use the name "Rydex" (the "Name") as part of the name of any Fund. The foregoing
authorization by the Adviser to the Trust to use the Name as part of the name of
any Fund is not exclusive of the right of the Adviser itself to use, or to
authorize others to use, the Name; the Trust acknowledges and agrees that, as
between the Trust and the Adviser, the Adviser has the right to use, or
authorize others to use, the Name. The Trust shall (1) only use the Name in a
manner consistent with uses approved by the Adviser; (2) use its best efforts to
maintain the quality of the services offered using the Name; (3) adhere to such
other specific quality control standards as the Adviser may from time to time
promulgate. At the request of the Adviser, the Trust will (a) submit to Adviser
representative samples of any promotional materials using the Name; and (b)
change the name of any Fund within three months of its receipt of the Adviser's
request, or such other shorter time period as may be required under the terms of
a settlement agreement or court order, so as to eliminate all reference to the
Name and will not thereafter transact any business using the Name in the name of
any Fund; provided, however, that the Trust may continue to use beyond such date
any supplies of prospectuses, marketing materials and similar documents that the
Trust had at the date of such name change in quantities not exceeding those
historically produced and used in connection with such Fund.
9. ADVISER'S COMPENSATION. The Funds shall pay to the Adviser, as
compensation for the Adviser's services hereunder, a fee, determined as
described in Schedule A that is attached hereto and
A-7
made a part hereof. Such fee shall be computed daily and paid not less than
monthly in arrears by the Funds.
The method for determining net assets of a Fund for purposes hereof shall be the
same as the method for determining net assets for purposes of establishing the
offering and redemption prices of Fund shares as described in the Funds'
prospectus(es). In the event of termination of this Agreement, the fee provided
in this Section shall be computed on the basis of the period ending on the last
business day on which this Agreement is in effect subject to a pro rata
adjustment based on the number of days elapsed in the current month as a
percentage of the total number of days in such month.
10. INDEPENDENT CONTRACTOR. In the performance of its duties hereunder,
the Adviser is and shall be an independent contractor and, unless otherwise
expressly provided herein or otherwise authorized in writing, shall have no
authority to act for or represent the Trust or any Fund in any way or otherwise
be deemed to be an agent of the Trust or any Fund. If any occasion should arise
in which the Adviser gives any advice to its clients concerning the shares of a
Fund, the Adviser will act solely as investment counsel for such clients and not
in any way on behalf of the Fund.
11. ASSIGNMENT AND AMENDMENTS. This Agreement shall automatically
terminate, without the payment of any penalty, in the event of its assignment
(as defined in section 2(a)(4) of the 1940 Act); provided that such termination
shall not relieve the Adviser of any liability incurred hereunder.
This Agreement may not be added to or changed orally and may not be modified or
rescinded except by a writing signed by the parties hereto and in accordance
with the 1940 Act, when applicable.
12. DURATION AND TERMINATION.
(a) This Agreement shall become effective as of the date
executed and shall remain in full force and effect continually
thereafter, subject to renewal as provided in Section 12(d) and unless
terminated automatically as set forth in Section 11 hereof or until
terminated as follows:
(b) The Trust may cause this Agreement to terminate either (i)
by vote of its Board or (ii) with respect to any Fund, upon the
affirmative vote of a majority of the outstanding voting securities of
the Fund; or
(c) The Adviser may at any time terminate this Agreement by
not more than sixty (60) days' nor less than thirty (30) days' written
notice delivered or mailed by registered mail, postage prepaid, to the
Trust; or
(d) This Agreement shall automatically terminate two years
from the date of its execution unless its renewal is specifically
approved at least annually thereafter by (i) a majority vote of the
Trustees, including a majority vote of such Trustees who are not
interested persons of the Trust or the Adviser, at a meeting called for
the purpose of voting on such approval; or (ii) the vote of a majority
of the outstanding voting securities of each Fund; provided, however,
that if the continuance of this Agreement is submitted to the
shareholders of the Funds for their approval and such shareholders fail
to approve such continuance of this Agreement as provided herein, the
Adviser may continue to serve hereunder as to the Funds in a manner
consistent with the 1940 Act and the rules and regulations thereunder;
and
A-8
Termination of this Agreement pursuant to this Section shall be without
payment of any penalty.
In the event of termination of this Agreement for any reason, the
Adviser shall, immediately upon notice of termination or on such later date as
may be specified in such notice, cease all activity on behalf of the Funds and
with respect to any of their assets, except as otherwise required by any
fiduciary duties of the Adviser under applicable law. In addition, the Adviser
shall deliver the Fund Books and Records to the Trust by such means and in
accordance with such schedule as the Trust shall direct and shall otherwise
cooperate, as reasonably directed by the Trust, in the transition of portfolio
asset management to any successor of the Adviser.
13. CERTAIN DEFINITIONS. For the purposes of this Agreement:
(a) "Affirmative vote of a majority of the outstanding voting
securities of the Fund" shall have the meaning as set forth in the 1940
Act, subject, however, to such exemptions as may be granted by the
Commission under the 1940 Act or any interpretations of the Commission
staff.
(b) "Interested persons" and "Assignment" shall have their
respective meanings as set forth in the 1940 Act, subject, however, to
such exemptions as may be granted by the Commission under the 1940 Act
or any interpretations of the Commission staff.
14. LIABILITY OF THE ADVISER. The Adviser shall indemnify and hold
harmless the Trust and all affiliated persons thereof (within the meaning of
Section 2(a)(3) of the 1940 Act) and all controlling persons (as described in
Section 15 of the 1933 Act) (collectively, the "Adviser Indemnitees") against
any and all losses, claims, damages, liabilities or litigation (including
reasonable legal and other expenses) by reason of or arising out of: (a) the
Adviser being in material violation of any applicable federal or state law, rule
or regulation or any investment policy or restriction set forth in the Funds'
Registration Statement or any written guidelines or instruction provided in
writing by the Board, (b) a Fund's failure to satisfy the diversification or
source of income requirements of Subchapter M of the Code, or (c) the Adviser's
willful misfeasance, bad faith or gross negligence generally in the performance
of its duties hereunder or its reckless disregard of its obligations and duties
under this Agreement.
15. ENFORCEABILITY. Any term or provision of this Agreement which is
invalid or unenforceable in any jurisdiction shall, as to such jurisdiction be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms or provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction.
16. LIMITATION OF LIABILITY. The parties to this Agreement acknowledge
and agree that all litigation arising hereunder, whether direct or indirect, and
of any and every nature whatsoever shall be satisfied solely out of the assets
of the affected Fund and that no Trustee, officer or holder of shares of
beneficial interest of the Fund shall be personally liable for any of the
foregoing liabilities. The Trust's Certificate of Trust, as amended from time to
time, is on file in the Office of the Secretary of State of the State of
Delaware. Such Certificate of Trust and the Trust's Agreement and Declaration of
Trust describe in detail the respective responsibilities and limitations on
liability of the Trustees, officers, and holders of shares of beneficial
interest.
A-9
17. JURISDICTION. This Agreement shall be governed by and construed in
accordance with the substantive laws of state of Delaware and the Adviser
consents to the jurisdiction of courts, both state and/or federal, in Delaware,
with respect to any dispute under this Agreement.
18. PARAGRAPH HEADINGS. The headings of paragraphs contained in this
Agreement are provided for convenience only, form no part of this Agreement and
shall not affect its construction.
19. COUNTERPARTS. This Agreement may be executed simultaneously in two
or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
A-10
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be signed
on their behalf by their duly authorized officers as of the date first above
written.
RYDEX ETF TRUST, on behalf of each Fund
listed on Schedule A
By:
------------------------------------
Name: Richard M. Goldman
Title: President
PADCO ADVISORS II, INC.
By:
------------------------------------
Name: Richard M. Goldman
Title: Chief Executive Officer
A-11
SCHEDULE A
TO THE
ADVISORY AGREEMENT
DATED [ ], 2010 BETWEEN
RYDEX ETF TRUST
AND
PADCO ADVISORS II, INC.
[LIST OF FUNDS AND FEES.]
A-12
APPENDIX B
INFORMATION REGARDING THE INVESTMENT ADVISORY AGREEMENTS AND FEES
PAID TO THE INVESTMENT ADVISER AND AFFILIATES
PADCO Advisors II, Inc. (the "Investment Adviser") currently serves as
investment adviser to all series (collectively, the "Funds") of Rydex ETF Trust
("RET") pursuant to an investment advisory agreement between RET, on behalf of
its Funds, and the Investment Adviser made January 18, 2008, as amended. State
Street Bank and Trust Company serves as the administrator, custodian and
transfer agent and Rydex Distributors, Inc. ("RDI") serves as principal
underwriter to the Funds. The table below provides the following information:
(i) the date on which a Fund's shareholders last approved the Fund's
investment advisory agreement;
(ii) the annual rate of management fees paid by each Fund to the Investment
Adviser, stated as a percentage of that Fund's average daily net
assets; and
(iii) the aggregate amount of management fees paid by each Fund to the
Investment Adviser for the Fund's most recently completed fiscal year
(ended October 31, 2009 for all RET Funds).
RDI serves as principal underwriter to the Funds. Each Fund has adopted a
distribution plan pursuant to which RDI, or designated service providers, may
receive up to 0.25% of a Fund's assets attributable to shares as compensation
for distribution services pursuant to Rule 12b-1 under the Investment Company
Act of 1940. However, no distribution fees are currently charged to the Funds;
there are no plans to impose these fees, and no such fees will be charged prior
to March 1, 2010. For the fiscal year ended October 31, 2009, the Funds did not
pay RDI any distribution fees for services provided pursuant to the terms of the
distribution plan of the Funds or any brokerage commissions.
---------------------------------------------------------------------------------------------------------------
RYDEX ETF TRUST DATE OF LAST MANAGEMENT FEES
SHAREHOLDER PAID TO
SERIES NAME APPROVAL MANAGEMENT FEES(1) INVESTMENT ADVISER
---------------------------------------------------------------------------------------------------------------
Rydex 2x Russell 2000(R) ETF [ ] 0.70% $124,940
---------------------------------------------------------------------------------------------------------------
Rydex 2x S&P 500 ETF [ ] 0.70% $890,598
---------------------------------------------------------------------------------------------------------------
Rydex 2x S&P MidCap 400 ETF [ ] 0.70% $66,354
---------------------------------------------------------------------------------------------------------------
Rydex 2x S&P Select Sector Energy ETF [ ] 0.70% $52,367
---------------------------------------------------------------------------------------------------------------
Rydex 2x S&P Select Sector Financial ETF [ ] 0.70% $107,810
---------------------------------------------------------------------------------------------------------------
Rydex 2x S&P Select Sector Health Care ETF [ ] 0.70% $25,222
---------------------------------------------------------------------------------------------------------------
Rydex 2x S&P Select Sector Technology ETF [ ] 0.70% $28,755
---------------------------------------------------------------------------------------------------------------
B-1
---------------------------------------------------------------------------------------------------------------
RYDEX ETF TRUST DATE OF LAST MANAGEMENT FEES
SHAREHOLDER PAID TO
SERIES NAME APPROVAL MANAGEMENT FEES(1) INVESTMENT ADVISER
---------------------------------------------------------------------------------------------------------------
Rydex Inverse 2x Russell 2000(R) ETF [ ] 0.70% $125,146
---------------------------------------------------------------------------------------------------------------
Rydex Inverse 2x S&P 500 ETF [ ] 0.70% $694,657
---------------------------------------------------------------------------------------------------------------
Rydex Inverse 2x S&P MidCap 400 ETF [ ] 0.70% $48,602
---------------------------------------------------------------------------------------------------------------
Rydex Inverse 2x S&P Select Sector Energy ETF [ ] 0.70% $14,513
---------------------------------------------------------------------------------------------------------------
Rydex Inverse 2x S&P Select Sector Financial ETF [ ] 0.70% $43,357
---------------------------------------------------------------------------------------------------------------
Rydex Inverse 2x S&P Select Sector Health Care ETF [ ] 0.70% $31,982
---------------------------------------------------------------------------------------------------------------
Rydex Inverse 2x S&P Select Sector Technology ETF [ ] 0.70% $19,381
---------------------------------------------------------------------------------------------------------------
Rydex Russell Top 50(R) ETF [ ] 0.20% $709,919
---------------------------------------------------------------------------------------------------------------
Rydex S&P Equal Weight Consumer Discretionary ETF [ ] 0.50% $41,383
---------------------------------------------------------------------------------------------------------------
Rydex S&P Equal Weight Consumer Staples ETF [ ] 0.50% $45,835
---------------------------------------------------------------------------------------------------------------
Rydex S&P Equal Weight Energy ETF [ ] 0.50% $36,014
---------------------------------------------------------------------------------------------------------------
Rydex S&P Equal Weight ETF [ ] 0.40% $4,052,628
---------------------------------------------------------------------------------------------------------------
Rydex S&P Equal Weight Financial ETF [ ] 0.50% $54,054
---------------------------------------------------------------------------------------------------------------
Rydex S&P Equal Weight Health Care ETF [ ] 0.50% $273,366
---------------------------------------------------------------------------------------------------------------
Rydex S&P Equal Weight Industrials ETF [ ] 0.50% $55,506
---------------------------------------------------------------------------------------------------------------
Rydex S&P Equal Weight Materials ETF [ ] 0.50% $95,155
---------------------------------------------------------------------------------------------------------------
B-2
---------------------------------------------------------------------------------------------------------------
RYDEX ETF TRUST DATE OF LAST MANAGEMENT FEES
SHAREHOLDER PAID TO
SERIES NAME APPROVAL MANAGEMENT FEES(1) INVESTMENT ADVISER
---------------------------------------------------------------------------------------------------------------
Rydex S&P Equal Weight Technology ETF [ ] 0.50% $96,732
---------------------------------------------------------------------------------------------------------------
Rydex S&P Equal Weight Utilities ETF [ ] 0.50% $32,005
---------------------------------------------------------------------------------------------------------------
Rydex S&P MidCap 400 Pure Growth ETF [ ] 0.35% $116,343
---------------------------------------------------------------------------------------------------------------
Rydex S&P MidCap 400 Pure Value ETF [ ] 0.35% $39,135
---------------------------------------------------------------------------------------------------------------
Rydex S&P 500 Pure Growth ETF [ ] 0.35% $102,044
---------------------------------------------------------------------------------------------------------------
Rydex S&P 500 Pure Value ETF [ ] 0.35% $57,161
---------------------------------------------------------------------------------------------------------------
Rydex S&P SmallCap 600 Pure Growth ETF [ ] 0.35% $30,136
---------------------------------------------------------------------------------------------------------------
Rydex S&P SmallCap 600 Pure Value ETF [ ] 0.35% $177,095
---------------------------------------------------------------------------------------------------------------
------------------------------------------------
(1) The Investment Adviser has contractually agreed to pay all operating
expenses of each Fund, excluding the management fees, interest expense and
taxes (expected to be de minimis), brokerage commissions and other expenses
connected with the execution of portfolio transactions, any future
distribution fees or expenses, expenses of the Independent Trustees
(including any Trustees' counsel fees) and extraordinary expenses. Other
expenses were estimated to be less than 0.01% for the fiscal year ended
October 31, 2009.
B-3
APPENDIX C
DIRECTORS/TRUSTEES/MANAGERS AND OFFICERS
DIRECTORS AND PRINCIPAL EXECUTIVE OFFICERS OF PADCO ADVISORS II, INC. The
business address of the directors and principal executive officers is 9601
Blackwell Road, Suite 500, Rockville, Maryland 20850.
----------------------------- ---------------------------- --------------------------------------------------
NAME POSITION HELD WITH PADCO OTHER PRINCIPAL OCCUPATION/POSITION
ADVISORS II, INC.
----------------------------- ---------------------------- --------------------------------------------------
Richard M. Goldman Director and Chief Senior Vice President, Security Benefit
Executive Officer Corporation; Director, First Security Benefit
Life Insurance and Annuity Company of New York;
President, Security Investors, LLC; CEO,
President, & Director, Rydex Distributors, Inc.;
President & CEO, Rydex Holdings, LLC; CEO &
Director, PADCO Advisors, Inc.; Director, Rydex
Fund Services, Inc.; President and Manager,
Security Global Investors, LLC
----------------------------- ---------------------------- --------------------------------------------------
Michael P. Byrum Director, Chief Investment Director, Chief Investment Officer, President,
Officer, President, and and Secretary, PADCO Advisors, Inc.; Secretary,
Secretary Rydex Funds Services, Inc.; Chief Investment
Officer, Rydex Holdings, LLC; Manager, Rydex
Specialized Products, LLC
----------------------------- ---------------------------- --------------------------------------------------
TRUSTEES/OFFICERS OF THE FUNDS WHO HOLD POSITION(S) WITH PADCO ADVISORS II, INC.
The business address of each of the following persons is 9601 Blackwell Road,
Suite 500, Rockville, Maryland 20850.
----------------------------- ---------------------------- --------------------------------------------------
NAME POSITION HELD WITH THE POSITION HELD WITH PADCO ADVISORS II, INC.
FUNDS
----------------------------- ---------------------------- --------------------------------------------------
Richard M. Goldman Trustee and President Director and Chief Executive Officer
----------------------------- ---------------------------- --------------------------------------------------
Michael P. Byrum Vice President Director, Chief Investment Officer, President,
and Secretary
----------------------------- ---------------------------- --------------------------------------------------
Joanna M. Haigney Chief Compliance Officer Chief Compliance Officer and Secretary
----------------------------- ---------------------------- --------------------------------------------------
Keith Fletcher Vice President Vice President
----------------------------- ---------------------------- --------------------------------------------------
C-1
APPENDIX D
ADVISORY FEE RATES OF FUNDS WITH SIMILAR INVESTMENT OBJECTIVES ADVISED BY PADCO
ADVISORS, INC. AND PADCO ADVISORS II, INC.
Each of the tables below lists the names of other mutual funds advised by PADCO
Advisors II, Inc. or PADCO Advisors Inc. (collectively, the "Investment
Adviser") with similar investment objectives as the Funds, and information
concerning the Funds' and such other funds' net assets as of December 31, 2009
and the rate of compensation for the Investment Adviser for its services to the
Funds and such other funds.
------------------------------------------ ------------------------------------------- ----------------------
FUND NAME ANNUAL COMPENSATION TO THE INVESTMENT NET ASSETS (IN
ADVISER (AS A PERCENTAGE OF AVERAGE DAILY MILLIONS)
Fund(s) with Similar Objective NET ASSETS)
------------------------------------------ ------------------------------------------- ----------------------
RYDEX 2X RUSSELL 2000 ETF 0.70% $26.73
------------------------------------------ ------------------------------------------- ----------------------
Russell 2000 2x Strategy Fund, a series 0.90% $28.69
of Rydex Dynamic Funds
------------------------------------------ ------------------------------------------- ----------------------
Russell 2000 2x Strategy Fund, a series 0.90% $3.65
of Rydex Variable Trust
------------------------------------------ ------------------------------------------- ----------------------
------------------------------------------ ------------------------------------------- ----------------------
FUND NAME ANNUAL COMPENSATION TO THE INVESTMENT NET ASSETS (IN
ADVISER (AS A PERCENTAGE OF AVERAGE DAILY MILLIONS)
Fund(s) with Similar Objective NET ASSETS)
------------------------------------------ ------------------------------------------- ----------------------
RYDEX 2X S&P 500 ETF 0.70% $104.67
------------------------------------------ ------------------------------------------- ----------------------
S&P 500 2x Strategy Fund, a series of 0.90% $326.21
Rydex Dynamic Funds
------------------------------------------ ------------------------------------------- ----------------------
S&P 500 2x Strategy Fund, a series of 0.90% $28.88
Rydex Variable Trust
------------------------------------------ ------------------------------------------- ----------------------
------------------------------------------ ------------------------------------------- ----------------------
FUND NAME ANNUAL COMPENSATION TO THE INVESTMENT NET ASSETS (IN
ADVISER (AS A PERCENTAGE OF AVERAGE DAILY MILLIONS)
Fund(s) with Similar Objective NET ASSETS)
------------------------------------------ ------------------------------------------- ----------------------
RYDEX 2X S&P MIDCAP 400 ETF 0.70% $16.99
------------------------------------------ ------------------------------------------- ----------------------
None N/A N/A
------------------------------------------ ------------------------------------------- ----------------------
------------------------------------------ ------------------------------------------- ----------------------
FUND NAME ANNUAL COMPENSATION TO THE INVESTMENT NET ASSETS (IN
ADVISER (AS A PERCENTAGE OF AVERAGE DAILY MILLIONS)
Fund(s) with Similar Objective NET ASSETS)
------------------------------------------ ------------------------------------------- ----------------------
RYDEX S&P EQUAL WEIGHT CONSUMER 0.50% $18.24
DISCRETIONARY ETF
------------------------------------------ ------------------------------------------- ----------------------
None N/A N/A
------------------------------------------ ------------------------------------------- ----------------------
D-1
------------------------------------------ ------------------------------------------- ----------------------
FUND NAME ANNUAL COMPENSATION TO THE INVESTMENT NET ASSETS (IN
ADVISER (AS A PERCENTAGE OF AVERAGE DAILY MILLIONS)
Fund(s) with Similar Objective NET ASSETS)
------------------------------------------ ------------------------------------------- ----------------------
RYDEX S&P EQUAL WEIGHT CONSUMER STAPLES 0.50% $9.89
ETF
------------------------------------------ ------------------------------------------- ----------------------
None N/A N/A
------------------------------------------ ------------------------------------------- ----------------------
------------------------------------------ ------------------------------------------- ----------------------
FUND NAME ANNUAL COMPENSATION TO THE INVESTMENT NET ASSETS (IN
ADVISER (AS A PERCENTAGE OF AVERAGE DAILY MILLIONS)
Fund(s) with Similar Objective NET ASSETS)
------------------------------------------ ------------------------------------------- ----------------------
RYDEX S&P EQUAL WEIGHT ENERGY ETF 0.50% $17.52
------------------------------------------ ------------------------------------------- ----------------------
None N/A N/A
------------------------------------------ ------------------------------------------- ----------------------
------------------------------------------ ------------------------------------------- ----------------------
FUND NAME ANNUAL COMPENSATION TO THE INVESTMENT NET ASSETS (IN
ADVISER (AS A PERCENTAGE OF AVERAGE DAILY MILLIONS)
Fund(s) with Similar Objective NET ASSETS)
------------------------------------------ ------------------------------------------- ----------------------
RYDEX S&P EQUAL WEIGHT ETF 0.40%
------------------------------------------ ------------------------------------------- ----------------------
None N/A N/A
------------------------------------------ ------------------------------------------- ----------------------
------------------------------------------ ------------------------------------------- ----------------------
FUND NAME ANNUAL COMPENSATION TO THE INVESTMENT NET ASSETS (IN
ADVISER (AS A PERCENTAGE OF AVERAGE DAILY MILLIONS)
Fund(s) with Similar Objective NET ASSETS)
------------------------------------------ ------------------------------------------- ----------------------
RYDEX S&P EQUAL WEIGHT FINANCIAL ETF 0.50%
------------------------------------------ ------------------------------------------- ----------------------
None N/A N/A
------------------------------------------ ------------------------------------------- ----------------------
------------------------------------------ ------------------------------------------- ----------------------
FUND NAME ANNUAL COMPENSATION TO THE INVESTMENT NET ASSETS (IN
ADVISER (AS A PERCENTAGE OF AVERAGE DAILY MILLIONS)
Fund(s) with Similar Objective NET ASSETS)
------------------------------------------ ------------------------------------------- ----------------------
RYDEX S&P EQUAL WEIGHT HEALTH CARE ETF 0.50%
------------------------------------------ ------------------------------------------- ----------------------
None N/A N/A
------------------------------------------ ------------------------------------------- ----------------------
------------------------------------------ ------------------------------------------- ----------------------
FUND NAME ANNUAL COMPENSATION TO THE INVESTMENT NET ASSETS (IN
ADVISER (AS A PERCENTAGE OF AVERAGE DAILY MILLIONS)
Fund(s) with Similar Objective NET ASSETS)
------------------------------------------ ------------------------------------------- ----------------------
RYDEX S&P EQUAL WEIGHT INDUSTRIALS ETF 0.50%
------------------------------------------ ------------------------------------------- ----------------------
None N/A N/A
------------------------------------------ ------------------------------------------- ----------------------
D-2
------------------------------------------ ------------------------------------------- ----------------------
FUND NAME ANNUAL COMPENSATION TO THE INVESTMENT NET ASSETS (IN
ADVISER (AS A PERCENTAGE OF AVERAGE DAILY MILLIONS)
Fund(s) with Similar Objective NET ASSETS)
------------------------------------------ ------------------------------------------- ----------------------
RYDEX S&P EQUAL WEIGHT MATERIALS ETF 0.50%
(RTM)
------------------------------------------ ------------------------------------------- ----------------------
None N/A N/A
------------------------------------------ ------------------------------------------- ----------------------
------------------------------------------ ------------------------------------------- ----------------------
FUND NAME ANNUAL COMPENSATION TO THE INVESTMENT NET ASSETS (IN
ADVISER (AS A PERCENTAGE OF AVERAGE DAILY MILLIONS)
Fund(s) with Similar Objective NET ASSETS)
------------------------------------------ ------------------------------------------- ----------------------
RYDEX S&P EQUAL WEIGHT TECHNOLOGY ETF 0.50%
------------------------------------------ ------------------------------------------- ----------------------
None N/A N/A
------------------------------------------ ------------------------------------------- ----------------------
------------------------------------------ ------------------------------------------- ----------------------
FUND NAME ANNUAL COMPENSATION TO THE INVESTMENT NET ASSETS (IN
ADVISER (AS A PERCENTAGE OF AVERAGE DAILY MILLIONS)
Fund(s) with Similar Objective NET ASSETS)
------------------------------------------ ------------------------------------------- ----------------------
RYDEX S&P EQUAL WEIGHT UTILITIES ETF 0.50%
------------------------------------------ ------------------------------------------- ----------------------
None N/A N/A
------------------------------------------ ------------------------------------------- ----------------------
------------------------------------------ ------------------------------------------- ----------------------
FUND NAME ANNUAL COMPENSATION TO THE INVESTMENT NET ASSETS (IN
ADVISER (AS A PERCENTAGE OF AVERAGE DAILY MILLIONS)
Fund(s) with Similar Objective NET ASSETS)
------------------------------------------ ------------------------------------------- ----------------------
RYDEX 2X S&P SELECT SECTOR ENERGY ETF 0.70%
(REA)
------------------------------------------ ------------------------------------------- ----------------------
None N/A N/A
------------------------------------------ ------------------------------------------- ----------------------
------------------------------------------ ------------------------------------------- ----------------------
FUND NAME ANNUAL COMPENSATION TO THE INVESTMENT NET ASSETS (IN
ADVISER (AS A PERCENTAGE OF AVERAGE DAILY MILLIONS)
Fund(s) with Similar Objective NET ASSETS)
------------------------------------------ ------------------------------------------- ----------------------
RYDEX 2X S&P SELECT SECTOR FINANCIAL ETF 0.70%
------------------------------------------ ------------------------------------------- ----------------------
None N/A N/A
------------------------------------------ ------------------------------------------- ----------------------
------------------------------------------ ------------------------------------------- ----------------------
FUND NAME ANNUAL COMPENSATION TO THE INVESTMENT NET ASSETS (IN
ADVISER (AS A PERCENTAGE OF AVERAGE DAILY MILLIONS)
Fund(s) with Similar Objective NET ASSETS)
------------------------------------------ ------------------------------------------- ----------------------
RYDEX 2X S&P SELECT SECTOR HEALTH CARE 0.70%
ETF
------------------------------------------ ------------------------------------------- ----------------------
None N/A N/A
------------------------------------------ ------------------------------------------- ----------------------
D-3
------------------------------------------ ------------------------------------------- ----------------------
FUND NAME ANNUAL COMPENSATION TO THE INVESTMENT NET ASSETS (IN
ADVISER (AS A PERCENTAGE OF AVERAGE DAILY MILLIONS)
Fund(s) with Similar Objective NET ASSETS)
------------------------------------------ ------------------------------------------- ----------------------
RYDEX 2X S&P SELECT SECTOR TECHNOLOGY ETF 0.70%
------------------------------------------ ------------------------------------------- ----------------------
None N/A N/A
------------------------------------------ ------------------------------------------- ----------------------
------------------------------------------ ------------------------------------------- ----------------------
FUND NAME ANNUAL COMPENSATION TO THE INVESTMENT NET ASSETS (IN
ADVISER (AS A PERCENTAGE OF AVERAGE DAILY MILLIONS)
Fund(s) with Similar Objective NET ASSETS)
------------------------------------------ ------------------------------------------- ----------------------
RYDEX INVERSE 2X RUSSELL 2000 ETF 0.70% $14.57
------------------------------------------ ------------------------------------------- ----------------------
Russell 2000 2x Strategy Fund, a series 0.90% $45.30
of Rydex Dynamic Funds
------------------------------------------ ------------------------------------------- ----------------------
------------------------------------------ ------------------------------------------- ----------------------
FUND NAME ANNUAL COMPENSATION TO THE INVESTMENT NET ASSETS (IN
ADVISER (AS A PERCENTAGE OF AVERAGE DAILY MILLIONS)
Fund(s) with Similar Objective NET ASSETS)
------------------------------------------ ------------------------------------------- ----------------------
RYDEX INVERSE 2X S&P 500 ETF 0.70% $87.75
------------------------------------------ ------------------------------------------- ----------------------
S&P 500 2x Strategy Fund, a series of 0.90% $143.74
Rydex Dynamic Funds
------------------------------------------ ------------------------------------------- ----------------------
------------------------------------------ ------------------------------------------- ----------------------
FUND NAME ANNUAL COMPENSATION TO THE INVESTMENT NET ASSETS (IN
ADVISER (AS A PERCENTAGE OF AVERAGE DAILY MILLIONS)
Fund(s) with Similar Objective NET ASSETS)
------------------------------------------ ------------------------------------------- ----------------------
RYDEX INVERSE 2X S&P MIDCAP 400 ETF 0.70%
------------------------------------------ ------------------------------------------- ----------------------
None N/A N/A
------------------------------------------ ------------------------------------------- ----------------------
------------------------------------------ ------------------------------------------- ----------------------
FUND NAME ANNUAL COMPENSATION TO THE INVESTMENT NET ASSETS (IN
ADVISER (AS A PERCENTAGE OF AVERAGE DAILY MILLIONS)
Fund(s) with Similar Objective NET ASSETS)
------------------------------------------ ------------------------------------------- ----------------------
RYDEX INVERSE 2X S&P SELECT SECTOR 0.70%
ENERGY ETF
------------------------------------------ ------------------------------------------- ----------------------
None N/A N/A
------------------------------------------ ------------------------------------------- ----------------------
------------------------------------------ ------------------------------------------- ----------------------
FUND NAME ANNUAL COMPENSATION TO THE INVESTMENT NET ASSETS (IN
ADVISER (AS A PERCENTAGE OF AVERAGE DAILY MILLIONS)
Fund(s) with Similar Objective NET ASSETS)
------------------------------------------ ------------------------------------------- ----------------------
RYDEX INVERSE 2X S&P SELECT SECTOR 0.70%
FINANCIAL ETF
------------------------------------------ ------------------------------------------- ----------------------
None N/A N/A
------------------------------------------ ------------------------------------------- ----------------------
D-4
------------------------------------------ ------------------------------------------- ----------------------
FUND NAME ANNUAL COMPENSATION TO THE INVESTMENT NET ASSETS (IN
ADVISER (AS A PERCENTAGE OF AVERAGE DAILY MILLIONS)
Fund(s) with Similar Objective NET ASSETS)
------------------------------------------ ------------------------------------------- ----------------------
RYDEX INVERSE 2X S&P SELECT SECTOR 0.70%
HEALTH CARE ETF
------------------------------------------ ------------------------------------------- ----------------------
None N/A N/A
------------------------------------------ ------------------------------------------- ----------------------
------------------------------------------ ------------------------------------------- ----------------------
FUND NAME ANNUAL COMPENSATION TO THE INVESTMENT NET ASSETS (IN
ADVISER (AS A PERCENTAGE OF AVERAGE DAILY MILLIONS)
Fund(s) with Similar Objective NET ASSETS)
------------------------------------------ ------------------------------------------- ----------------------
RYDEX INVERSE 2X S&P SELECT SECTOR 0.70%
TECHNOLOGY
------------------------------------------ ------------------------------------------- ----------------------
None N/A N/A
------------------------------------------ ------------------------------------------- ----------------------
------------------------------------------ ------------------------------------------- ----------------------
FUND NAME ANNUAL COMPENSATION TO THE INVESTMENT NET ASSETS (IN
ADVISER (AS A PERCENTAGE OF AVERAGE DAILY MILLIONS)
Fund(s) with Similar Objective NET ASSETS)
------------------------------------------ ------------------------------------------- ----------------------
RYDEX RUSSELL TOP 50 ETF 0.20%
------------------------------------------ ------------------------------------------- ----------------------
None N/A N/A
------------------------------------------ ------------------------------------------- ----------------------
------------------------------------------ ------------------------------------------- ----------------------
FUND NAME ANNUAL COMPENSATION TO THE INVESTMENT NET ASSETS (IN
ADVISER (AS A PERCENTAGE OF AVERAGE DAILY MILLIONS)
Fund(s) with Similar Objective NET ASSETS)
------------------------------------------ ------------------------------------------- ----------------------
RYDEX S&P MIDCAP 400 PURE GROWTH ETF 0.35% $101.76
------------------------------------------ ------------------------------------------- ----------------------
Rydex S&P MidCap 400 Pure Growth Fund, a 0.75% $48.37
series of Rydex Series Funds
------------------------------------------ ------------------------------------------- ----------------------
S&P MidCap 400 Pure Growth Fund, a 0.75% $44.92
series of Rydex Variable Trust
------------------------------------------ ------------------------------------------- ----------------------
------------------------------------------ ------------------------------------------- ----------------------
FUND NAME ANNUAL COMPENSATION TO THE INVESTMENT NET ASSETS (IN
ADVISER (AS A PERCENTAGE OF AVERAGE DAILY MILLIONS)
Fund(s) with Similar Objective NET ASSETS)
------------------------------------------ ------------------------------------------- ----------------------
RYDEX S&P MIDCAP 400 PURE VALUE ETF 0.35% $25.24
------------------------------------------ ------------------------------------------- ----------------------
Rydex S&P MidCap 400 Pure Value Fund, a 0.75% $36.50
series of Rydex Series Funds
------------------------------------------ ------------------------------------------- ----------------------
S&P MidCap 400 Pure Value Fund, a series 0.75% $29.51
of Rydex Variable Trust
------------------------------------------ ------------------------------------------- ----------------------
D-5
------------------------------------------ ------------------------------------------- ----------------------
FUND NAME ANNUAL COMPENSATION TO THE INVESTMENT NET ASSETS (IN
ADVISER (AS A PERCENTAGE OF AVERAGE DAILY MILLIONS)
Fund(s) with Similar Objective NET ASSETS)
------------------------------------------ ------------------------------------------- ----------------------
RYDEX S&P 500 PURE GROWTH ETF 0.35% $58.16
------------------------------------------ ------------------------------------------- ----------------------
Rydex S&P 500 Pure Growth Fund, a series 0.75% $54.32
of Rydex Series Funds
------------------------------------------ ------------------------------------------- ----------------------
S&P MidCap 500 Pure Growth Fund, a 0.75% $34.48
series of Rydex Variable Trust
------------------------------------------ ------------------------------------------- ----------------------
------------------------------------------ ------------------------------------------- ----------------------
FUND NAME ANNUAL COMPENSATION TO THE INVESTMENT NET ASSETS (IN
ADVISER (AS A PERCENTAGE OF AVERAGE DAILY MILLIONS)
Fund(s) with Similar Objective NET ASSETS)
------------------------------------------ ------------------------------------------- ----------------------
RYDEX S&P 500 PURE VALUE ETF 0.35% $34.31
------------------------------------------ ------------------------------------------- ----------------------
Rydex S&P 500 Pure Value Fund, a series 0.75% $25.14
of Rydex Series Funds
------------------------------------------ ------------------------------------------- ----------------------
S&P MidCap 500 Pure Value Fund, a series 0.75% $27.85
of Rydex Variable Trust
------------------------------------------ ------------------------------------------- ----------------------
------------------------------------------ ------------------------------------------- ----------------------
FUND NAME ANNUAL COMPENSATION TO THE INVESTMENT NET ASSETS (IN
ADVISER (AS A PERCENTAGE OF AVERAGE DAILY MILLIONS)
Fund(s) with Similar Objective NET ASSETS)
------------------------------------------ ------------------------------------------- ----------------------
RYDEX S&P SMALLCAP 600 PURE GROWTH ETF 0.35% $13.10
------------------------------------------ ------------------------------------------- ----------------------
Rydex S&P SmallCap 600 Pure Growth Fund, 0.75% $22.73
a series of Rydex Series Funds
------------------------------------------ ------------------------------------------- ----------------------
S&P SmallCap 600 Pure Growth Fund, a 0.75% $13.56
series of Rydex Variable Trust
------------------------------------------ ------------------------------------------- ----------------------
------------------------------------------ ------------------------------------------- ----------------------
FUND NAME ANNUAL COMPENSATION TO THE INVESTMENT NET ASSETS (IN
ADVISER (AS A PERCENTAGE OF AVERAGE DAILY MILLIONS)
Fund(s) with Similar Objective NET ASSETS)
------------------------------------------ ------------------------------------------- ----------------------
RYDEX S&P SMALLCAP 600 PURE VALUE ETF 0.35% $84.91
------------------------------------------ ------------------------------------------- ----------------------
Rydex S&P SmallCap 600 Pure Value Fund, 0.75% $26.56
a series of Rydex Series Funds
------------------------------------------ ------------------------------------------- ----------------------
S&P SmallCap 600 Pure Value Fund, a 0.75% $13.56
series of Rydex Variable Trust
------------------------------------------ ------------------------------------------- ----------------------
D-6
APPENDIX E
OUTSTANDING SHARES
[As of February 24, 2010, the total number of shares outstanding for each Fund
is set forth in the table below:]
RYDEX ETF TRUST
------------------------------------------------------- ------------------------
FUND SHARES OUTSTANDING
------------------------------------------------------- ------------------------
Rydex 2x Russell 2000(R) ETF
------------------------------------------------------- ------------------------
Rydex 2x S&P 500 ETF
------------------------------------------------------- ------------------------
Rydex 2x S&P MidCap 400 ETF
------------------------------------------------------- ------------------------
Rydex 2x S&P Select Sector Energy ETF
------------------------------------------------------- ------------------------
Rydex 2x S&P Select Sector Financial ETF
------------------------------------------------------- ------------------------
Rydex 2x S&P Select Sector Health Care ETF
------------------------------------------------------- ------------------------
Rydex 2x S&P Select Sector Technology ETF
------------------------------------------------------- ------------------------
Rydex Inverse 2x Russell 2000(R) ETF
------------------------------------------------------- ------------------------
Rydex Inverse 2x S&P 500 ETF
------------------------------------------------------- ------------------------
Rydex Inverse 2x S&P MidCap 400 ETF
------------------------------------------------------- ------------------------
Rydex Inverse 2x S&P Select Sector Energy ETF
------------------------------------------------------- ------------------------
Rydex Inverse 2x S&P Select Sector Financial ETF
------------------------------------------------------- ------------------------
Rydex Inverse 2x S&P Select Sector Health Care ETF
------------------------------------------------------- ------------------------
Rydex Inverse 2x S&P Select Sector Technology ETF
------------------------------------------------------- ------------------------
Rydex Russell Top 50(R) ETF
------------------------------------------------------- ------------------------
Rydex S&P Equal Weight Consumer Discretionary ETF
------------------------------------------------------- ------------------------
Rydex S&P Equal Weight Consumer Staples ETF
------------------------------------------------------- ------------------------
Rydex S&P Equal Weight Energy ETF
------------------------------------------------------- ------------------------
Rydex S&P Equal Weight ETF
------------------------------------------------------- ------------------------
Rydex S&P Equal Weight Financial ETF
------------------------------------------------------- ------------------------
Rydex S&P Equal Weight Health Care ETF
------------------------------------------------------- ------------------------
E-1
------------------------------------------------------- ------------------------
Rydex S&P Equal Weight Industrials ETF
------------------------------------------------------- ------------------------
Rydex S&P Equal Weight Materials ETF
------------------------------------------------------- ------------------------
Rydex S&P Equal Weight Technology ETF
------------------------------------------------------- ------------------------
Rydex S&P Equal Weight Utilities ETF
------------------------------------------------------- ------------------------
Rydex S&P MidCap 400 Pure Growth ETF
------------------------------------------------------- ------------------------
Rydex S&P MidCap 400 Pure Value ETF
------------------------------------------------------- ------------------------
Rydex S&P 500 Pure Growth ETF
------------------------------------------------------- ------------------------
Rydex S&P 500 Pure Value ETF
------------------------------------------------------- ------------------------
Rydex S&P SmallCap 600 Pure Growth ETF
------------------------------------------------------- ------------------------
Rydex S&P SmallCap 600 Pure Value ETF
------------------------------------------------------- ------------------------
E-2
APPENDIX F
BENEFICIAL OWNERS OF MORE THAN 5% OF A CLASS OF EACH FUND
[As of February 24, 2010, the following persons owned, of record and
beneficially (unless otherwise indicated), 5% or more of each Fund's outstanding
securities:]
RYDEX ETF TRUST
---------------------------------- -------------------------- -------------------------- --------------------------
NAME OF THE FUND NAME AND ADDRESS OF THE AMOUNT OF SHARES OWNED PERCENTAGE OF THE FUND
BENEFICIAL OWNER
---------------------------------- -------------------------- -------------------------- --------------------------
Rydex 2x Russell 2000(R) ETF
---------------------------------- -------------------------- -------------------------- --------------------------
Rydex 2x S&P 500 ETF
---------------------------------- -------------------------- -------------------------- --------------------------
Rydex 2x S&P MidCap 400 ETF
---------------------------------- -------------------------- -------------------------- --------------------------
Rydex 2x S&P Select Sector
Energy ETF
---------------------------------- -------------------------- -------------------------- --------------------------
Rydex 2x S&P Select Sector
Financial ETF
---------------------------------- -------------------------- -------------------------- --------------------------
Rydex 2x S&P Select Sector
Health Care ETF
---------------------------------- -------------------------- -------------------------- --------------------------
Rydex 2x S&P Select Sector
Technology ETF
---------------------------------- -------------------------- -------------------------- --------------------------
Rydex Inverse 2x Russell 2000(R)
ETF
---------------------------------- -------------------------- -------------------------- --------------------------
Rydex Inverse 2x S&P 500 ETF
---------------------------------- -------------------------- -------------------------- --------------------------
Rydex Inverse 2x S&P MidCap 400
ETF
---------------------------------- -------------------------- -------------------------- --------------------------
Rydex Inverse 2x S&P Select
Sector Energy ETF
---------------------------------- -------------------------- -------------------------- --------------------------
Rydex Inverse 2x S&P Select
Sector Financial ETF
---------------------------------- -------------------------- -------------------------- --------------------------
Rydex Inverse 2x S&P Select
Sector Health Care ETF
---------------------------------- -------------------------- -------------------------- --------------------------
F-1
---------------------------------- -------------------------- -------------------------- --------------------------
NAME OF THE FUND NAME AND ADDRESS OF THE AMOUNT OF SHARES OWNED PERCENTAGE OF THE FUND
BENEFICIAL OWNER
---------------------------------- -------------------------- -------------------------- --------------------------
Rydex Inverse 2x S&P Select
Sector Technology ETF
---------------------------------- -------------------------- -------------------------- --------------------------
Rydex Russell Top 50(R) ETF
---------------------------------- -------------------------- -------------------------- --------------------------
Rydex S&P Equal Weight Consumer
Discretionary ETF
---------------------------------- -------------------------- -------------------------- --------------------------
Rydex S&P Equal Weight Consumer
Staples ETF
---------------------------------- -------------------------- -------------------------- --------------------------
Rydex S&P Equal Weight Energy
ETF
---------------------------------- -------------------------- -------------------------- --------------------------
Rydex S&P Equal Weight ETF
---------------------------------- -------------------------- -------------------------- --------------------------
Rydex S&P Equal Weight Financial
ETF
---------------------------------- -------------------------- -------------------------- --------------------------
Rydex S&P Equal Weight Health
Care ETF
---------------------------------- -------------------------- -------------------------- --------------------------
Rydex S&P Equal Weight
Industrials ETF
---------------------------------- -------------------------- -------------------------- --------------------------
Rydex S&P Equal Weight Materials
ETF
---------------------------------- -------------------------- -------------------------- --------------------------
Rydex S&P Equal Weight
Technology ETF
---------------------------------- -------------------------- -------------------------- --------------------------
Rydex S&P Equal Weight Utilities
ETF
---------------------------------- -------------------------- -------------------------- --------------------------
Rydex S&P MidCap 400 Pure Growth
ETF
---------------------------------- -------------------------- -------------------------- --------------------------
Rydex S&P MidCap 400 Pure Value
ETF
---------------------------------- -------------------------- -------------------------- --------------------------
Rydex S&P 500 Pure Growth ETF
---------------------------------- -------------------------- -------------------------- --------------------------
Rydex S&P 500 Pure Value ETF
---------------------------------- -------------------------- -------------------------- --------------------------
F-2
---------------------------------- -------------------------- -------------------------- --------------------------
NAME OF THE FUND NAME AND ADDRESS OF THE AMOUNT OF SHARES OWNED PERCENTAGE OF THE FUND
BENEFICIAL OWNER
---------------------------------- -------------------------- -------------------------- --------------------------
Rydex S&P SmallCap 600 Pure
Growth ETF
---------------------------------- -------------------------- -------------------------- --------------------------
Rydex S&P SmallCap 600 Pure
Value ETF
---------------------------------- -------------------------- -------------------------- --------------------------
F-3
[FORM OF PROXY CARD]
[FUND NAME PRINTS HERE]
9601 BLACKWELL ROAD, SUITE 500
ROCKVILLE, MARYLAND 20850
1-800 -820-0888
PROXY FOR A SPECIAL MEETING OF SHAREHOLDERS
APRIL 23, 2010
The undersigned hereby appoint(s) [ ], or any one of them, proxies, each of them
with full power of substitution, to vote and act with respect to all shares of
the above referenced fund (the "Fund") which the undersigned is entitled to vote
at the Special Meeting of shareholders of the Fund to be held at 9601 Blackwell
Road, Suite 500, Rockville, Maryland 20850 on April 23, 2010 at 1:00 p.m. ET,
and at any adjournment(s) or postponements thereof.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES. This proxy card will
be voted as instructed. IF NO SPECIFICATION IS MADE, THE PROXY CARD WILL BE
VOTED "FOR" THE PROPOSALS. THE PROXIES ARE AUTHORIZED, IN THEIR DISCRETION, TO
VOTE UPON SUCH MATTERS AS MAY COME BEFORE THE SPECIAL MEETING OR ANY
ADJOURNMENTS.
- FOLD AND DETACH HERE -
.................................................................................
[FUND NAME PRINTS HERE] (THE "FUND")
SPECIAL MEETING OF SHAREHOLDERS TO BE HELD APRIL 23, 2010
THE BOARD OF TRUSTEES RECOMMENDS A VOTE FOR THE FOLLOWING PROPOSALS
Please vote, date and sign this proxy card and return it promptly in the
enclosed envelope. Please indicate your vote by an "X" in the appropriate boxes
below:
1. To approve a new investment advisory agreement between the Fund and PADCO
Advisors II, Inc.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
2. To approve a new fundamental investment policy on borrowing money.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
PLEASE VOTE BY CHECKING THE [X]
APPROPRIATE BOX AS IN
THIS EXAMPLE
Signature: ______________________ Signature (if held jointly): ________________
Date: ___________________________ Date: _______________________________________
This proxy must be signed exactly as your name(s) appears hereon. If as an
attorney, executor, guardian or in some representative capacity or as an officer
of a corporation, please add titles as such. Joint owners must each sign. By
signing this proxy card, you acknowledge that you have received the proxy
statement that the proxy card accompanies.
PROXY VOTING INSTRUCTIONS
Your mailed proxy statement provides details on important issues relating to
your Fund. THE BOARD OF TRUSTEES OF THE FUND RECOMMENDS THAT YOU VOTE "FOR" THE
PROPOSALS.
To make voting faster and more convenient for you, we are offering a variety of
ways to vote your proxy. You may vote using the Internet or by telephone instead
of completing and mailing the enclosed proxy card. The Internet and telephone
are generally available 24 hours a day and your vote will be confirmed and
posted immediately. Use whichever method is most convenient for you! If you
choose to vote via the Internet or by phone, you should not mail your proxy
card.
WAYS TO VOTE YOUR SHARES
Your vote is important no matter how many shares you own. Voting your shares
early will avoid costly follow-up mail and telephone solicitation.
Online 1. Click on www.proxyonline.com.
2. Enter the 12 digit control number.
3. Follow the instructions on the Web site.
4. Once you have voted, you do not need to mail your proxy
card.
By Phone 1. Call toll-free [1-________].
2. Enter the 12 digit control number.
3. Follow the recorded instructions.
4. Once you have voted, you do not need to mail your proxy card
By Mail Complete and sign your proxy card and mail it in the postage-paid
envelope received with your shareholder mailing. To ensure
your vote is validated properly, please sign your proxy card
as described in the "Instructions for Signing Proxy Cards"
section of your proxy materials.
In Person The Shareholder Meeting will take place on April 23, 2010 at
1:00 p.m. ET, at 9601 Blackwell Road, Suite 500, Rockville,
Maryland 20850.
- FOLD AND DETACH HERE -
--------------------------------------------------------------------------------
Questions?
We urge you to spend time reviewing your proxy statement and the proposal
included in the package. Should you have any questions, we encourage you to call
[1-_______] toll-free Monday through Friday from 9:30 a.m. to 10:00 p.m. Eastern
Time. We have retained [_________] to assist our shareholders in the voting
process. If we have not received your proxy card or vote as the date of the
special meeting approaches, representatives from [_________] may call you to
remind you to exercise your vote.
YOUR PROXY VOTE IS IMPORTANT! PLEASE VOTE TODAY