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 SERIES FUNDS
(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.:
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(4) Date Filed:
RYDEX SERIES FUNDS
Dear Shareholder:
I am writing you on important matters relating to the Rydex|SGI International
Opportunity Fund, a series of Rydex Series Funds (the "Fund"). On February 16,
2010, Security Benefit Mutual Holding Company ("SBHC"), the parent company of
PADCO Advisors, Inc., the Fund's 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 led by Guggenheim Partners, LLC
(the "Purchaser"). Under the agreements, the Purchaser 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 Fund or any increase in fees. For example, your
daily experience in dealing with the Fund should remain unchanged. However, for
legal reasons, this transaction will have the effect of terminating the Fund's
investment advisory agreement with the Investment Adviser. Accordingly, by this
proxy statement, we are requesting that you vote to approve a substantially
identical investment advisory agreement so that the Investment Adviser may
continue to manage the Fund.
In addition, the Investment Adviser recently recommended, and the Fund's Board
of Trustees approved, a new set of principal investment strategies pursuant to
which the Fund will invest its assets according to an international long/short
strategy. The Investment Adviser also recommended that the Fund change its name
to the "International Equity Long-Short Fund." These changes do not require
shareholder approval. However, in order to fully implement the new investment
strategies, you are being asked to approve a new sub-advisory agreement with
Security Global Investors, LLC ("SGI"), an affiliate of the Investment Adviser,
so that SGI can replace Valu-Trac Investment Management Limited, the Fund's
current sub-adviser. We believe that SGI has a talented and capable team of
portfolio managers and research analysts with substantial experience in managing
assets in accordance with an international equity mandate. Accordingly, by this
proxy statement, we are requesting that you vote to approve the new sub-advisory
agreement with SGI so that SGI may manage the Fund's assets as the Fund's new
sub-adviser.
We are also requesting that you vote to approve a change to the Fund's
"fundamental investment policy" on borrowing money, which currently is more
prohibitive than necessary.
A Special Meeting of Shareholders (the "Meeting") of the Fund has been scheduled
for April 23, 2010 to vote on these matters. If you are a shareholder of record
of the Fund 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.
Please note that you may receive similar materials if you own shares of another
fund in the Rydex|SGI fund complex. You are being asked to approve proposals for
the Fund, as listed above, in addition to any other proposals contained in other
proxy statements of funds in the Rydex|SGI fund complex that you may receive.
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. Shareholder meetings of the Fund do not generally occur with great
frequency, so we ask that you take the time to carefully consider these
proposals and vote on these important proposals. 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.
2
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 proxy statement to shareholders ("Proxy Statement").
QUESTIONS AND ANSWERS
Q. WHY AM I RECEIVING THIS PROXY STATEMENT?
A. You are receiving these proxy materials -- a booklet that includes the Proxy
Statement and your proxy card -- because you have the right to vote on four
important proposals concerning your investment in the Rydex|SGI International
Opportunity Fund, a series of Rydex Series Funds (the "Fund").
Proposal 1 relates to actions that need to be taken in response to an impending
change in control of PADCO Advisors, Inc., the Fund's investment adviser that
operates under the name Rydex Investments (the "Investment Adviser"). This
change in control affects the Fund's advisory agreement with the Investment
Adviser.
Proposal 2 relates to the replacement of the Fund's current sub-adviser,
Valu-Trac Investment Management Limited ("Valu-Trac"), with Security Global
Investors, LLC ("SGI"), an affiliate of the Investment Adviser. Proposal 2 is
part of a larger plan, which does not require shareholder approval, to implement
new principal investment strategies and change the Fund's name.
Proposal 3 relates to the approval of Valu-Trac as the sub-adviser to the Fund
in the event that shareholder approval is not obtained with respect to the new
sub-advisory agreement with SGI or SGI is otherwise not appointed as
sub-adviser. This is necessary because the impending change in control, if
implemented, would terminate any sub-advisory agreement then in effect, which
would be the sub-advisory agreement with Valu-Trac if Proposal 2 is not approved
and SGI is not appointed prior to the change in control.
And lastly, Proposal 4 relates to a proposed change in the Fund's ability to
borrow money. The 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, Proposal 4 seeks to amend the current
fundamental investment policy on borrowing money in order to provide the Fund
with the maximum possible amount of flexibility to engage in borrowing activity,
consistent with current law and with the Fund's 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 Fund, requires that a fund's investment advisory
agreement terminate whenever there is deemed to be a change in control of the
investment adviser. (In this context, the term "investment adviser" applies to
both an investment adviser and a sub-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 a new investment
advisory agreement for the Fund.
Security Benefit Mutual Holding Company ("SBHC"), the parent company of the
Investment Adviser and SGI, and certain of SBHC's affiliates have entered into
agreements with an investor group led by Guggenheim Partners, LLC (the
"Purchaser"). Guggenheim Partners, LLC is a global, independent,
3
privately-held, diversified financial services firm with more than $100 billion
in assets under supervision. Under the agreements, the Purchaser will acquire
control of the Investment Adviser, SGI and affiliates (the "Transaction").
The Transaction should not result in material changes to the day-to-day
management and operations of the Fund 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 agreement between the Investment Adviser and the
Fund (the "Current Investment Advisory Agreement"). In addition, the transaction
will result in the termination of the current sub-advisory agreement between the
Investment Adviser and Valu-Trac, with respect to the Fund (the "Current
Valu-Trac Sub-Advisory Agreement" and, together with the Current Investment
Advisory Agreement, the "Current Agreements").
At Special Meetings of the Board of Trustees of Rydex Series Funds (the "Board")
held on January 28, 2010 and February 12, 2010, the Board considered and voted
in favor of a new investment advisory agreement between the Investment Adviser
and the Fund (the "New Investment Advisory Agreement"), as well as new
sub-advisory agreements between the Investment Adviser and SGI (the "New SGI
Sub-Advisory Agreement"), in order to effect the changes to the Fund's name and
investment strategies, and between the Investment Adviser and Valu-Trac, in case
the New SGI Sub-Advisory Agreement is not approved by shareholders or SGI is
otherwise not appointed as sub-adviser (the "New Valu-Trac Sub-Advisory
Agreement" and, together with the New Investment Advisory Agreement and New SGI
Sub-Advisory Agreement, the "New Agreements"), pursuant to which, subject to
their approval by the Fund's shareholders, the Investment Adviser will continue
to serve as investment adviser to the Fund and either SGI or Valu-Trac will
serve as sub-adviser.
With respect to Proposal 4, the 1940 Act requires shareholder approval to amend
"fundamental investment policies" adopted by the Fund. The Fund currently has in
place a fundamental investment policy on its ability to borrow money. The 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 Fund, the Board has reviewed
the 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 Fund the maximum flexibility to engage in borrowing activity
consistent with current applicable law and with the Fund's investment strategies
and objectives. The proposal to amend the 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 operations of
the Fund are expected to remain unchanged as a result of the Transaction. The
Board has been assured that there will be no reduction in the nature or quality
of the investment advisory services provided to the Fund due to the change in
control. However, as part of a larger plan unrelated to the Transaction, the
Board is seeking the approval of SGI to replace Valu-Trac, which would result in
changes to the operations and day-to-day management of the investments of the
Fund, if the New SGI Sub-Advisory Agreement is approved.
Q. WILL THERE BE ANY CHANGES TO THE FUND'S OTHER SERVICE PROVIDERS?
A. The Purchaser will also acquire control of certain of the Fund's other
service providers ("Affiliated Service Providers") as a result of the
Transaction. The Affiliated Service Providers include Rydex Distributors, Inc.,
which serves as the principal underwriter/distributor to the Fund, and Rydex
Fund
4
Services, Inc., which provides general administrative, shareholder,
dividend disbursement, transfer agent and registrar services to the Fund. Under
the 1940 Act, shareholder approval is not required in order for such Affiliated
Service Providers to continue providing services to the Fund 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 Affiliated
Service Providers to the Fund due to the change in control.
Q. WHY IS THE BOARD SOLICITING APPROVAL OF SECURITY GLOBAL INVESTORS, LLC TO
SERVE AS SUB-ADVISER TO THE FUND?
A. The Investment Adviser recently recommended, and the Board approved, new
principal investment strategies pursuant to which the Fund will invest its
assets according to an international long/short strategy. The Investment Adviser
also recommended that the Fund change its name to the "International Equity
Long-Short Fund." These changes do not require shareholder approval. However, in
order to fully implement the new investment strategies, you are being asked to
approve the New SGI Sub-Advisory Agreement, so that SGI can replace Valu-Trac as
sub-adviser and implement this new investment program.
The Investment Adviser and the Board believe that implementing this new
investment program and thus retaining SGI to serve as the sub-adviser to the
Fund in the place of Valu-Trac is in the best interests of the Fund and its
shareholders. Thus, at a Special Meeting of the Board held on February 12, 2010,
the Board considered and voted in favor of the New SGI Sub-Advisory Agreement.
The 1940 Act requires shareholder approval before a fund enters into an
investment advisory or sub-advisory agreement. Accordingly, shareholder approval
is required to approve the New SGI Sub-Advisory Agreement.
Although we are proposing SGI as a new sub-adviser to the Fund, we are also
requesting that you vote to approve the New Valu-Trac Sub-Advisory Agreement, so
that Valu-Trac may continue to serve as sub-adviser to the Fund after the
Transaction in the event that shareholder approval is not obtained with respect
to the New SGI Sub-Advisory Agreement or SGI is otherwise not appointed as
sub-adviser. In other words, Valu-Trac will not be retained as the sub-adviser
to the Fund, even if approved by shareholders, so long as shareholders approve
the proposal to retain SGI as the sub-adviser to the Fund.
Q. HOW WILL THE FUND'S NEW INVESTMENT PROGRAM AFFECT ME?
Although the Fund's new investment program differs in many respects from the
Fund's current program, the Fund's investment objective of long-term capital
appreciation will not be changing. For example, the Fund currently attempts to
achieve its investment objective by investing in exchange-traded funds and other
financial instruments that provide exposure to, or closely correlate with, the
performance of certain foreign countries included in the MSCI EAFE (Europe,
Australasia and Far East) Index (the "Index") and have the potential to generate
returns, before fees and expenses, in excess to those of the Index. If the new
investment strategies are implemented, the Fund will pursue its investment
strategies by holding long (purchasing) foreign common stocks or convertible
stocks of companies SGI believes will outperform the market and by selling short
those securities believed to be overvalued or expected to underperform the
market.
It is important to note that if shareholders approve the New Valu-Trac
Sub-Advisory Agreement, so that Valu-Trac continues to serve as the Fund's
sub-adviser, but shareholder approval is not obtained with respect to the New
SGI Sub-Advisory Agreement, the Fund's new investment strategies will not be
implemented and the Fund's current investment strategies will remain unchanged
until further consideration by the Investment Adviser and the Board.
5
Q. WILL THE FUND'S FEES FOR INVESTMENT ADVISORY AND SUB-ADVISORY SERVICES
INCREASE?
A. No. The fee rates under the New Investment Advisory and New Valu-Trac
Sub-Advisory Agreements are identical to those under the Current Agreements. In
addition, if the New SGI Sub-Advisory Agreement is adopted, the fee rates
thereunder will be the same as the sub-advisory fee rates under the New
Valu-Trac Sub-Advisory Agreement. The other terms of the New Investment Advisory
and New Valu-Trac Sub-Advisory Agreements will also be the same in all material
respects to those of the Current Agreements.
Q. WHAT EFFECT WILL THE PROPOSED CHANGE TO THE FUND'S FUNDAMENTAL INVESTMENT
POLICY ON BORROWING MONEY HAVE ON THE FUND?
A. While this proposal is intended to provide the Investment Adviser and SGI or
Valu-Trac, as applicable, with greater flexibility in managing the Fund's
borrowing activity, the 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.
Importantly, the Investment Adviser, SGI and Valu-Trac do not intend to
materially increase the borrowing level of the Fund in the near future, and
therefore believe that the proposed changes will not materially affect the
investment risks currently associated with the Fund.
Should the 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. I OWN SHARES OF OTHER FUNDS IN THE RYDEX|SGI FUND COMPLEX AND RECEIVED
SIMILAR SOLICITATION MATERIALS REGARDING THOSE FUNDS. AM I ALSO BEING ASKED TO
APPROVE THE PROPOSALS CONTAINED IN THIS PROXY STATEMENT?
A. Yes. You are being asked to approve the proposals contained in this Proxy
Statement, in addition to any other proposals contained in other proxy
statements of funds in the Rydex|SGI fund complex that you may receive.
Q. WHO IS ASKING FOR MY VOTE?
A. The enclosed proxy is being solicited by the Board for use at the Special
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" all of the proposals contained in the 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 recommendations.
6
Q. WHAT VOTE IS REQUIRED TO APPROVE THE PROPOSALS?
A. To be approved, each proposal must be approved by a vote of a majority of the
outstanding voting securities of the 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 the 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 proposals can be acted upon. We
encourage all shareholders to participate in the governance of the Fund.
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 Fund may not receive enough votes to go forward
with the Meeting. If this happens, the Fund will need to solicit votes again.
This may delay the Meeting and the approval of each proposal.
Q. HOW DO I PLACE MY VOTE?
A. You may provide the 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 Fund's 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.
7
RYDEX SERIES FUNDS
9601 Blackwell Road, Suite 500
Rockville, Maryland 20850
1-800-820-0888
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON APRIL 23, 2010
Notice is hereby given that a Special Meeting of Shareholders (the "Meeting") of
Rydex|SGI International Opportunity Fund (the "Fund"), a series of Rydex Series
Funds (the "Trust"), 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:
- --------- ----------------------------------------------------------------------
PROPOSALS
- --------- ----------------------------------------------------------------------
1. THE APPROVAL OF A NEW INVESTMENT ADVISORY AGREEMENT BETWEEN THE TRUST
AND PADCO ADVISORS, INC., WITH RESPECT TO THE FUND
- --------- ----------------------------------------------------------------------
2. THE APPROVAL OF A NEW SUB-ADVISORY AGREEMENT BETWEEN PADCO ADVISORS,
INC. AND SECURITY GLOBAL INVESTORS, LLC, WITH RESPECT TO THE FUND
- --------- ----------------------------------------------------------------------
3. THE APPROVAL OF A NEW SUB-ADVISORY AGREEMENT BETWEEN PADCO ADVISORS,
INC. AND VALU-TRAC INVESTMENT MANAGEMENT LIMITED, WITH RESPECT TO THE
FUND
- --------- ----------------------------------------------------------------------
4. THE APPROVAL OF A CHANGE TO THE FUND'S FUNDAMENTAL INVESTMENT POLICY
ON BORROWING MONEY
- --------- ----------------------------------------------------------------------
5. 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" each of the Proposals.
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 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.
1
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 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
TABLE OF CONTENTS
OVERVIEW OF THE PROPOSALS.........................................................................................3
Approval of New Investment Advisory and Sub-Advisory Agreements (Proposals 1 - 3)..............................3
Approval of a Change to the Fund's Fundamental Investment Policy on Borrowing (Proposal 4).....................4
Information Regarding the Change in Control of the Investment Adviser..........................................4
Section 15(f) of the 1940 Act..................................................................................6
Approval of the New Agreements by the Board....................................................................6
Board Considerations in Approving the New Agreements...........................................................7
New Investment Advisory Agreement..............................................................................8
New Valu-Trac Sub-Advisory Agreement..........................................................................11
New SGI Sub-Advisory Agreement................................................................................12
PROPOSAL 1 - THE APPROVAL OF THE NEW INVESTMENT ADVISORY AGREEMENT...............................................14
The Investment Adviser........................................................................................14
Material Terms of the New Investment Advisory Agreement.......................................................15
BOARD RECOMMENDATION ON PROPOSAL 1...............................................................................16
PROPOSAL 2 - THE APPROVAL OF THE NEW SGI SUB-ADVISORY AGREEMENT..................................................17
Overview of the Investment Strategies to be Implemented by SGI................................................17
Information About SGI.........................................................................................19
Material Terms of the New SGI Sub-Advisory Agreement..........................................................19
BOARD RECOMMENDATION ON PROPOSAL 2...............................................................................20
PROPOSAL 3 - THE APPROVAL OF THE NEW VALU-TRAC SUB-ADVISORY AGREEMENT............................................21
Information About Valu-Trac...................................................................................22
Material Terms of the Valu-Trac Sub-Advisory Agreement........................................................22
BOARD RECOMMENDATION ON PROPOSAL 3...............................................................................23
PROPOSAL 4 - THE APPROVAL OF A CHANGE TO THE FUND'S FUNDAMENTAL INVESTMENT POLICY ON BORROWING MONEY.............24
Proposed New Fundamental Investment Policy....................................................................24
Current Fundamental Investment Policy.........................................................................24
Discussion of Proposed Modification...........................................................................24
BOARD RECOMMENDATION ON PROPOSAL 4...............................................................................25
OTHER BUSINESS...................................................................................................26
ADDITIONAL INFORMATION...........................................................................................26
Administrator, Principal Underwriter and Transfer Agent.......................................................26
Affiliations and Affiliated Brokerage.........................................................................26
Other Information.............................................................................................26
Voting Information............................................................................................26
Shareholder Proposals.........................................................................................28
i
APPENDICES
Appendix A FORM OF INVESTMENT ADVISORY AGREEMENT........................................................A-1
Appendix B INFORMATION REGARDING THE INVESTMENT ADVISORY AGREEMENT AND FEES PAID TO THE
INVESTMENT ADVISER AND AFFILIATES............................................................B-1
Appendix C DIRECTORS/TRUSTEES/MANAGERS AND OFFICERS.....................................................C-1
Appendix D-1 ADVISORY FEE RATES OF FUNDS WITH SIMILAR INVESTMENT OBJECTIVES ADVISED BY PADCO ADVISORS,
INC. AND PADCO ADVISORS II, INC........................................................... D-1-1
Appendix D-2 ADVISORY FEE RATES OF FUNDS WITH SIMILAR INVESTMENT OBJECTIVES SUB-ADVISED BY SECURITY
GLOBAL INVESTORS, LLC......................................................................D-2-1
Appendix D-3 ADVISORY FEE RATES OF FUNDS WITH SIMILAR INVESTMENT OBJECTIVES SUB-ADVISED BY VALU-TRAC
INVESTMENT MANAGEMENT LIMITED..............................................................D-3-1
Appendix E-1 FORM OF SUB-ADVISORY AGREEMENT WITH SECURITY GLOBAL INVESTORS, LLC.........................E-1-1
Appendix E-2 FORM OF SUB-ADVISORY AGREEMENT WITH VALU-TRAC INVESTMENT MANAGEMENT LIMITED................E-2-1
Appendix F INFORMATION REGARDING THE SUB-ADVISORY AGREEMENT WITH VALU-TRAC INVESTMENT MANAGEMENT
LIMITED AND FEES PAID TO THE SUB-ADVISER.....................................................F-1
Appendix G OUTSTANDING SHARES...........................................................................G-1
Appendix H BENEFICIAL OWNERS OF MORE THAN 5% OF A CLASS OF THE FUND.....................................H-1
ii
RYDEX SERIES FUNDS
9601 Blackwell Road, Suite 500
Rockville, Maryland 20850
1-800-820-0888
PROXY STATEMENT
SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON APRIL 23, 2010
This proxy statement ("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 Series Funds (the "Trust"). The proxies are
being solicited for use at a special 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
the Rydex|SGI International Opportunity Fund (the "Fund") with respect to the
following proposals (the "Proposals") as follows:
- --------- ----------------------------------------------------------------------
PROPOSALS
- --------- ----------------------------------------------------------------------
1. THE APPROVAL OF A NEW INVESTMENT ADVISORY AGREEMENT BETWEEN THE TRUST
AND PADCO ADVISORS, INC., WITH RESPECT TO THE FUND
- --------- ----------------------------------------------------------------------
2. THE APPROVAL OF A NEW SUB-ADVISORY AGREEMENT BETWEEN PADCO ADVISORS,
INC. AND SECURITY GLOBAL INVESTORS, LLC, WITH RESPECT TO THE FUND
- --------- ----------------------------------------------------------------------
3. THE APPROVAL OF A NEW SUB-ADVISORY AGREEMENT BETWEEN PADCO ADVISORS,
INC. AND VALU-TRAC INVESTMENT MANAGEMENT LIMITED, WITH RESPECT TO THE
FUND
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4. THE APPROVAL OF A CHANGE TO THE FUND'S FUNDAMENTAL INVESTMENT POLICY
ON BORROWING MONEY
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5. TO TRANSACT SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE
MEETING
This Proxy Statement and the accompanying notice and the proxy card are being
first mailed to shareholders on or about [INSERT MAILING DATE].
You are entitled to vote at the Meeting if 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 Fund's proxy solicitor, at [INSERT PROXY SOLICITOR'S PHONE
NUMBER].
1
IMPORTANT NOTICE REGARDING THE AVAILABILITY OF
PROXY MATERIALS FOR THE MEETING TO BE HELD ON APRIL 23, 2010
This Proxy Statement is available at [INSERT WEBSITE ADDRESS]. In addition,
shareholders can find important information about the Fund in the Fund's annual
report, dated March 31, 2009, including financial reports for the fiscal year
ended March 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 Proxy Statement.
2
OVERVIEW OF THE PROPOSALS
APPROVAL OF NEW INVESTMENT ADVISORY AND SUB-ADVISORY AGREEMENTS (PROPOSALS 1 -
3)
Proposal 1 relates to actions that need to be taken in response to an impending
change in control of PADCO Advisors, Inc., the Fund's investment adviser that
operates under the name Rydex Investments (the "Investment Adviser").
Proposal 2 relates to the replacement of the Fund's current sub-adviser,
Valu-Trac Investment Management Limited ("Valu-Trac"), with Security Global
Investors, LLC ("SGI"), an affiliate of the Investment Adviser. Proposal 2 is
part of a larger plan, which does not require shareholder approval, to implement
new principal investment strategies and change the Fund's name. The Investment
Adviser recently recommended, and the Board approved, new principal investment
strategies pursuant to which the Fund will invest its assets according to an
international long/short strategy. The Investment Adviser also recommended that
the Fund change its name to the "International Equity Long-Short Fund." In order
to fully implement the new investment strategies, you are being asked to approve
the new sub-advisory agreement with SGI so that SGI can replace Valu-Trac as
sub-adviser and implement this new investment program.
The Investment Adviser will continue to serve as the Fund's investment adviser
and will oversee SGI's day-to-day management of the Fund. The Board believes
that retaining SGI to serve as the sub-adviser to the Fund in the place of
Valu-Trac is in the best interests of the Fund and its shareholders.
In addition, Proposal 3 relates to the approval of Valu-Trac as the sub-adviser
to the Fund in the event that shareholder approval is not obtained with respect
to the new sub-advisory agreement with SGI or SGI is otherwise not appointed as
sub-adviser. This is necessary because the impending change in control, if
implemented, would terminate any sub-advisory agreement then in effect, which
would be the sub-advisory agreement with Valu-Trac if Proposal 2 is not approved
and SGI is not appointed prior to the change in control.
For purposes of this Proxy Statement, the term "Advisers" collectively refers to
the Investment Adviser, SGI and Valu-Trac.
The Investment Company Act of 1940, as amended (the "1940 Act"), the law that
regulates mutual funds, such as the Fund, requires that a fund's investment
advisory agreement terminate whenever there is deemed to be a change in control
of the investment adviser. (In this context, the term "investment adviser"
applies to both an investment adviser and a sub-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. Similarly, the 1940 Act requires shareholder approval before a fund
enters into an initial investment advisory agreement. For those reasons, we are
seeking shareholder approval of new investment advisory and sub-advisory
agreements for the Fund.
Upon completion of a transaction involving the Investment Adviser, which is
discussed in more detail below, the Fund's current investment advisory agreement
with the Investment Adviser will be terminated. In addition, the transaction
will result in the termination of the current sub-advisory agreement between the
Investment Adviser and Valu-Trac, with respect to the Fund. Accordingly,
Proposal 1 relates to the approval by shareholders of a new investment advisory
agreement between the Investment Adviser and the Fund (the "New Investment
Advisory Agreement"). Similarly, Proposal 3 relates to the approval by
shareholders of a new sub-advisory
3
agreement between the Investment Adviser and Valu-Trac, with respect to the Fund
(the "New Valu-Trac Sub-Advisory Agreement").
However, as an alternative to approving the New Valu-Trac Sub-Advisory Agreement
as discussed in Proposal 3, Proposal 2 relates to the replacement of Valu-Trac
with SGI with the approval of a new sub-advisory agreement between the
Investment Adviser and SGI, with respect to the Fund (the "New SGI Sub-Advisory
Agreement" and, together with the New Investment Advisory Agreement and New
Valu-Trac Sub-Advisory Agreement, the "New Agreements"). Subject to shareholder
approval and as discussed in more detail below, the New Valu-Trac Sub-Advisory
Agreement will only be consummated if shareholder approval is not obtained with
respect to the New SGI Sub-Advisory Agreement or SGI is otherwise not appointed
as sub-adviser.
Although the change in control of the Investment Adviser, if consummated after
the appointment of SGI, also would terminate the New SGI Sub-Advisory Agreement,
approval by shareholders of both Proposal 1 and Proposal 2 will be deemed to
constitute approval of a new sub-advisory agreement with SGI with terms
identical to those of the New SGI Sub-Advisory Agreement approved pursuant to
Proposal 2 and in place immediately before the change in control.
APPROVAL OF A CHANGE TO THE FUND'S FUNDAMENTAL INVESTMENT POLICY ON BORROWING
(PROPOSAL 4)
In addition to considering the New Agreements in Proposals 1, 2 and 3,
shareholders of the Fund also are being asked to consider the approval of a
change to the 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. The Fund's current fundamental
investment policy on borrowing money is more restrictive than the 1940 Act
requires, unnecessarily limiting investment strategies. Accordingly, Proposal 4
seeks approval of a change to the Fund's fundamental investment policy on
borrowing money in order to permit the Fund to engage in borrowing money
consistent with applicable law. Proposal 4 is unrelated to Proposals 1, 2 and 3.
FOR THE REASONS DISCUSSED BELOW, THE BOARD RECOMMENDS THAT
SHAREHOLDERS VOTE "FOR" THE APPROVAL OF THE NEW 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 SGI, and certain of SBHC's
affiliates (collectively, "SecBen") entered into agreements with Guggenheim SBC
Holdings LLC ("Purchaser"), a 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, and in providing sophisticated wealth advisory and family office
services. Within capital markets, it specializes in
4
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, the Purchaser will
acquire control of the Investment Adviser, SGI and affiliates (the
"Transaction").
The final form of the Purchaser's controlling stake in the Investment Adviser,
SGI and affiliates will depend upon whether certain conditions are satisfied. In
the Transaction, the Purchaser will either receive: (a) a 100% ownership stake
in Security Benefit Corporation ("SBC"), a wholly-owned subsidiary of SBHC and
the parent company of the Investment Adviser, SGI 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 Purchaser or the failure to
meet a specific closing condition relating to execution of employment agreements
by certain employees of the SBC group of companies, a 100% ownership stake in
SBC's asset management business, which includes the Investment Adviser, SGI 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 the Purchaser has made a secured loan to
SBC. Upon the closing of the Purchase Transaction, the Purchaser will make a
capital contribution to SBC and the secured loan will convert into equity in SBC
and SBHC will transfer 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, SGI and certain affiliates.
The Transaction should not result in material changes to the day-to-day
management and operations of the Fund. For example, your daily experience in
dealing with the Fund 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 the current
investment advisory agreement between the Investment Adviser and the Fund (the
"Current Investment Advisory Agreement") and any sub-advisory agreement then in
place between the Investment Adviser and either SGI or Valu-Trac, with respect
to the Fund (the "Current Valu-Trac Sub-Advisory Agreement" and, together with
the Current Investment Advisory Agreement, the "Current Agreements").
In addition, the Purchaser will acquire control of certain of the Fund's other
service providers ("Affiliated Service Providers") as a result of the
Transaction. The Affiliated Service Providers include Rydex Distributors, Inc.,
which serves as the principal underwriter/distributor to the Fund, and Rydex
Fund Services, Inc., which provides general administrative, shareholder,
dividend disbursement, transfer agent and registrar services to the Fund. Under
the 1940 Act,
5
shareholder approval is not required in order for such Affiliated Service
Providers to continue providing services to the Fund 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 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 Agreements will not automatically terminate and will remain in effect,
and the New Investment Advisory and New Valu-Trac Sub-Advisory Agreements will
not be entered into, even if they have been approved by Fund shareholders. If
Proposal 2 is approved by shareholders, the New SGI Sub-Advisory Agreement will
be entered into, the new investment strategies and Fund name change will be
implemented, and SGI will serve as the Fund's new sub-adviser in the place of
Valu-Trac, irrespective of whether the Transaction is completed. If Proposal 1
is not approved by shareholders of the Fund, the Board will evaluate other
short- and long-term options permitted by law, which include an interim
investment advisory agreement 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 Advisers represented to the
Board that no unfair burden would be imposed on the respective Fund as a result
of the Transaction.
APPROVAL OF THE NEW AGREEMENTS BY THE BOARD
At Special Meetings of the Board held on January 28, 2010 and February 12, 2010
(the "2010 Meetings"), at which a majority of the members of the Board (the
"Trustees"), including a
6
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 Agreements (the "Independent Trustees"), were present, the Board considered
and voted in favor of the New Agreements, pursuant to which, subject to their
approval by the Fund's shareholders, the Investment Adviser will continue to
serve the Fund after the completion of the Transaction, new investment
strategies will be implemented and SGI will be appointed as sub-adviser to
replace Valu-Trac (and if SGI is not appointed, Valu-Trac would continue as
sub-adviser after the change in control and the Fund's strategies would remain
unchanged until the long-term future of the Fund is further considered in light
of the vote of shareholders). When considering the Current Agreements, the Board
noted that each of the Investment Adviser's and Valu-Trac's rate of fees for its
services to the Fund under a New Agreement, as applicable, will be the same as
its fees under the corresponding Current Agreement, but the fee paid by the
Investment Adviser to SGI would be higher than the fee paid by the Investment
Adviser to Value-Trac. The other terms of the New Investment Advisory and New
Sub-Advisory Agreements will also be the same in all material respects to those
of the Current Agreements. As a result, in reviewing the New Investment Advisory
and New Valu-Trac Sub-Advisory Agreements at the 2010 Meetings, the Board also
considered its review of relevant materials relating to the Current Agreements
at the annual renewal meeting on August 25, 2009 (the "2009 Renewal Meeting").
BOARD CONSIDERATIONS IN APPROVING THE NEW AGREEMENTS
Prior to the 2010 Meetings, 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 Guggenheim would acquire control of the
Investment Adviser, SGI 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 and SGI after the closing of the Transaction.
In considering the New Agreements at the 2010 Meetings, the Board determined
that the New Agreements would enable shareholders of the Fund to obtain (or
continue to obtain with respect to the New Investment Advisory and New Valu-Trac
Sub-Advisory Agreements) 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 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 Fund,
including, in particular, information from the Investment Adviser and Valu-Trac
that was provided in connection with the 2009 Renewal Meeting and information
received about SGI, which serves as sub-adviser to other funds within the
Rydex|SGI fund complex and is affiliated with the Investment Adviser. 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 Fund relative to performance of other comparable
mutual funds. The Board considered similar information at the February 12, 2010
Meeting with respect to the New SGI Sub-Advisory Agreement.
7
At the 2009 Renewal Meeting and the 2010 Meetings, as applicable, the Trustees,
including the Independent Trustees, evaluated a number of considerations,
including among others: (a) the quality of the Advisers' investment advisory and
other services; (b) the Advisers' investment management personnel; (c) the
Advisers' operations and financial condition; (d) the Advisers' brokerage
practices (including any soft dollar arrangements) and investment strategies;
(e) the level of the fees that the Advisers charge compared with the fees
charged to comparable mutual funds or accounts; (f) the Fund's overall fees and
operating expenses compared with similar mutual funds; (g) the level of the
Advisers' profitability (or anticipated profitability with respect to SGI) from
their Fund-related operations; (h) the Advisers' compliance systems; (i) the
Advisers' policies on and compliance procedures for personal securities
transactions; (j) the Advisers' reputation, expertise and resources in the
financial markets; and (k) Fund performance compared with similar mutual funds
and accounts. Certain of these considerations are discussed in more detail
below. In its deliberations at the 2009 Renewal Meeting and the 2010 Meetings,
as applicable, 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 Agreements are fair and reasonable; (b)
concluded that the Advisers' fees were reasonable in light of the services that
they provide or are expected to be provided to the Fund; and (c) agreed to
approve the New Agreements, subject to shareholder approval.
In approving the New 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 the Purchaser and its other
non-managing members. The Trustees considered these representations and the
financial stability the Transaction was expected to bring to the Investment
Adviser, SGI and Affiliated Service Providers 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, SGI and Affiliated Service
Providers if beneficial to their operations.
NEW INVESTMENT ADVISORY AGREEMENT
Nature, Extent and Quality of Services Provided by the Investment Adviser. At
the 2009 Renewal Meeting, the Board reviewed the scope of services to be
provided by the Investment Adviser under the Current Investment Advisory
Agreement. At the 2010 Meetings, 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 Agreement and the
scope of services required to be provided by the Investment Adviser under the
New Investment Advisory Agreement. In reviewing the scope of services provided
to the Fund by the Investment Adviser, the Board 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 Fund. The Board also considered the Investment
Adviser's compliance programs and its compliance record with respect to the
Fund. 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 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 noted that the Fund has consistently met its investment objective
since its inception date. Based on this review, the Board concluded at the 2009
Renewal Meeting that the nature, extent, and quality of services to be provided
by the Investment Adviser to the Fund under the
8
Current Investment Advisory Agreement were appropriate and continued to support
the Board's original selection of the Investment Adviser as the investment
adviser to the Fund.
At the 2010 Meetings, the Board noted that most of the key investment and
management personnel of the Investment Adviser servicing the Fund are expected
to remain with the Investment Adviser following the Transaction and that the
services provided to the Fund 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 Fund in the past, and that these
services are appropriate in scope and extent in light of the Fund's 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 Fund were expected to continue under
the New Investment Advisory Agreement at comparable levels.
Fund Expenses and Performance of the Fund and the Investment Adviser. At the
2009 Renewal Meeting, the Board reviewed statistical information prepared by the
Investment Adviser regarding the expense ratio components, including actual
advisory fees, waivers/reimbursements, and gross and net total expenses of the
Fund in comparison with the same information for other funds registered under
the 1940 Act determined by the Investment Adviser to comprise the Fund's
applicable peer group. Because few funds seek to provide unlimited exchange
privileges similar to those of the Fund, the Fund's peer group is limited to the
funds of two unaffiliated mutual fund families. In addition, at the 2009 Renewal
Meeting, the Board reviewed statistical information prepared by the Investment
Adviser relating to the performance of the Fund and a comparison of the Fund's
performance to funds with similar investment objectives for the same periods and
to appropriate indices/benchmarks, in light of total return, yield and market
trends. The Board further noted that despite the unique nature of the Fund, the
peer fund information presented to the Board was meaningful because the peer
funds' investment objectives and strategies were closely aligned with those of
the Fund. The Board noted that the Fund performed in line with its peer funds
over relevant periods. The Board also noted that the investment advisory fees
for the Fund were equivalent to those of its peers and that the overall expenses
for the Fund were only slightly higher than the total expenses of the peer
funds, due in part to differing share classes and distribution fees. Based on
the review at the 2009 Renewal Meeting, the Board concluded that the investment
advisory fees and expense levels and the historical performance of the Fund, 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 Agreement. Based on the representations made
by SecBen and Guggenheim at the 2010 Meetings 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 Fund and Profits Realized by the Investment
Adviser and its Affiliates. At the 2009 Renewal Meeting, the Board reviewed
information about the profitability of the Fund to the Investment Adviser based
on the advisory fees payable under the Current Investment Advisory Agreement for
the last calendar year. The Investment Adviser also presented the Board with
material discussing its methodology for determining the level of advisory fees
assessable to the Fund. The Board analyzed the Fund's expenses, including the
investment advisory fees paid to the Investment Adviser. The Board also 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 Fund
9
by the Investment Adviser (as discussed below) and/or its affiliates. The Board
also discussed the Investment Adviser's profit margin as reflected in the
Investment Adviser's profitability analysis and reviewed information regarding
economies of scale (as discussed below). Based on this review at the 2009
Renewal Meeting, the Board concluded that the profits to be realized by the
Investment Adviser and its affiliates under the Current Investment Advisory
Agreement and from other relationships between the Fund and the Investment
Adviser and/or its affiliates, if any, were within the range the Board
considered reasonable and appropriate.
At the 2010 Meetings, the Board considered the fact that the fee rates payable
to the Investment Adviser would be the same under the Fund's New Investment
Advisory Agreement as they are under the Fund's Current Investment Advisory
Agreement. The Board also noted that the Fund's applicable fee waiver/expense
limitations agreements with the Investment Adviser would be renewed, if the New
Investment Advisory Agreement is approved by shareholders and the Transaction is
completed. With respect to anticipated profitability, the Board noted that it
was too early to predict how the Transaction may affect the Investment Adviser's
profitability with the Fund, 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 Agreement and under the New
Investment Advisory Agreement are reasonable.
Economies of Scale. In connection with its review of the Fund's profitability
analysis at the 2009 Renewal Meeting, the Board reviewed information regarding
economies of scale or other efficiencies that may result from increases in the
Fund's asset levels. The Board noted that the Current Investment Advisory
Agreement did not provide for any breakpoints in the investment advisory fees as
a result of increases in the asset levels of the Fund. The Board also noted
that, though the Investment Adviser's assets under management were significant,
the amount is spread among many funds, including the Fund. Further limiting the
realization of economies of scale, is the ability of shareholders of the Fund to
engage in unlimited trading. The Board also reviewed and considered the
Investment Adviser's historic profitability as investment adviser to the Fund
and determined that reductions in advisory fees or additions of breakpoints were
not warranted at the time of the 2009 Renewal Meeting. At the 2010 Meetings, the
Trustees noted that the fees would not change under the New Investment Advisory
Agreement, and they will have the opportunity to again review the
appropriateness of the fee payable to the Investment Adviser under the Agreement
when the next renewal of this Agreement 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 considered the nature, extent, quality and cost of
the administrative, distribution, and shareholder services performed by the
Affiliated Service Providers under separate agreements. Based on its review at
its 2009 Renewal Meeting, the Board concluded that the nature and quality of the
services provided by the Investment Adviser's affiliates to the Fund will
benefit the Fund's shareholders, and that any ancillary benefits would not be
disadvantageous to the Fund's shareholders, particularly in light of the Board's
view that the Fund's 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
Fund.
10
NEW VALU-TRAC SUB-ADVISORY AGREEMENT
Nature, Extent and Quality of Services to be Provided by Valu-Trac. At the 2009
Renewal Meeting, the Board reviewed the scope of services to be provided by
Valu-Trac under the Current Valu-Trac Sub-Advisory Agreement. At the 2010
Meetings, the Board noted that there would be no significant differences between
the scope of services required to be provided by Valu-Trac under the Current
Valu-Trac Sub-Advisory Agreement and the scope of services required to be
provided by Valu-Trac under the New Valu-Trac Sub-Advisory Agreement if it is
implemented. In reviewing the scope of services provided by Valu-Trac, the Board
reviewed and discussed Valu-Trac's investment experience, noting that Valu-Trac
and its affiliates have committed significant resources over time to the support
of the Fund. At the 2009 Renewal Meeting, the Board also considered Valu-Trac's
compliance program and its compliance record with respect to the Fund. In that
regard, the Board noted that Valu-Trac provides information regarding the
portfolio management and compliance to the Board on a periodic basis in
connection with regularly scheduled meetings of the Board. In addition to the
above considerations, the Board reviewed and considered Valu-Trac's investment
processes and strategies. The Board further noted that the Fund has met its
investment objectives consistently since Valu-Trac began sub-advising the Fund.
At the 2010 Meetings, the Board noted that key investment and management
personnel of Valu-Trac servicing the Fund and services provided to the Fund are
not expected change as a result of the Transaction. Based on this review, the
Board concluded that the nature, extent and quality of services to be provided
by Valu-Trac to the Fund under the New Valu-Trac Sub-Advisory Agreement would be
appropriate. The Board also noted that Valu-Trac was not involved in the
Transaction and that the approval of the New Valu-Trac Sub-Advisory Agreement
was required due to the possible assignment of the Current Investment Advisory
Agreement with the Investment Adviser if shareholders disapprove the appointment
of SGI or SGI is otherwise not approved as sub-adviser.
Fund Expenses and Performance of the Fund and Valu-Trac. At the 2009 Renewal
Meeting, the Board reviewed statistical information prepared by Valu-Trac and
the Investment Adviser regarding the expense ratio components, including actual
sub-advisory fees and total expenses to the Fund. In addition, the Board
reviewed statistical information prepared by Valu-Trac relating to the
performance of the Fund and a comparison of the Fund's performance to
appropriate indices/benchmarks, in light of total return, yield and market
trends. Based on this review at the 2009 Renewal Meeting, the Board concluded
that the investment sub-advisory fees and expense levels and the historical
performance of the Fund were satisfactory for the purposes of approving the
Current Valu-Trac Sub-Advisory Agreement. At the 2010 Meetings, the Board
concluded Valu-Trac would continue to operate following the closing of the
Transaction in much the same manner as it operates today and, as a result, the
Board concluded that the investment performance of Valu-Trac was not expected to
be affected by the Transaction.
Cost of Services Provided to the Sub-Advised Funds, Profits Realized by
Valu-Trac and its Affiliates and Economies of Scale. At the 2009 Renewal
Meeting, the Trustees reviewed reports comparing the expense ratios and
sub-advisory fees to those of other comparable mutual funds and concluded that
the sub-advisory fees were reasonable and the result of arm's length
negotiations, and the sub-advisory fees were comparable to those peer funds. At
its 2010 Meetings, the Board concluded that, in the near future, the profits to
be realized by Valu-Trac and its affiliates under the New Valu-Trac Sub-Advisory
Agreement and from other relationships between the Funds and Valu-Trac and its
affiliates, if any, should remain within the range the Board previously
considered reasonable and appropriate. The Board further noted at the 2010
11
Meetings that it is not possible to predict with accuracy how the Transaction
may affect Valu-Trac's future profitability with the Funds if Valu-Trac still
serves as the sub-adviser at that time, but that this matter would be given
further consideration on an ongoing basis.
Other Benefits to Valu-Trac. At the 2009 Renewal Meeting, the Board received and
considered information regarding the character and amount of other incidental
benefits Valu-Trac might receive as a result of its relationship with the Fund.
The Board concluded that, taking into account any incidental benefits Valu-Trac
might receive, the terms of the Current Valu-Trac Sub-Advisory Agreement,
including the compensation to be paid thereunder, were reasonable. At its 2010
Meetings, the Board considered other benefits to Valu-Trac and its affiliates
expected to be derived from their relationships with the Fund as a result of the
Transaction and noted that no additional benefits were expected because
Valu-Trac was not a party to the Transaction.
NEW SGI SUB-ADVISORY AGREEMENT
Nature, Extent and Quality of Services to be Provided by SGI. At the February
12, 2010 Meeting, in considering the nature, extent and quality of the services
to be provided by SGI, the Board reviewed the portfolio management services to
be provided by SGI to the Fund. Among other things, the Board considered the
quality of SGI's portfolio management personnel. SGI's registration form and
current Code of Ethics were provided to the Board, as was the response of SGI to
a detailed series of questions which included, among other things, information
about the background and experience of the portfolio managers who would be
primarily responsible for the day-to-day management of the Fund. The Board
considered whether SGI has the capabilities and resources to implement the
Fund's investment strategies and, in this regard, took into account SGI's
substantial experience managing assets in accordance with an international
equity mandate. The Board also considered SGI's diverse client base, which
includes mutual funds, and the amount of assets the firm has under management.
The Trustees also considered other services to be provided to the Fund by SGI,
such as selecting broker-dealers for executing portfolio transactions,
monitoring adherence to the Fund's investment restrictions, and monitoring
compliance with various Fund policies and procedures and with applicable
securities regulations. Based on the factors above, as well as those discussed
below, the Board concluded that it was satisfied with the nature, extent and
quality of the services to be provided to the Fund by SGI.
Cost of Services Provided to the Fund, Profits Realized by SGI and its
Affiliates and Economies of Scale. At the February 12, 2010 Meeting, the
Trustees reviewed reports comparing the expense ratios and sub-advisory fees to
those of other comparable mutual funds and concluded that the sub-advisory fees
were reasonable and the result of arm's length negotiations, and the
sub-advisory fees were comparable to those of peer funds. Because it was not
possible to determine the profitability that SGI might achieve with respect to
the Fund, the Trustees did not make any conclusions regarding SGI's
profitability. For the same reason, the Board did not make any conclusions
regarding the extent to which economies of scale would be realized by SGI as the
assets of the Fund grows. In this regard, during future considerations of the
New SGI Sub-Advisory Agreement, the Board will consider whether any economies of
scale are being realized by SGI and, if so, an appropriate mechanism for sharing
the benefits of such economies of scale.
Other Benefits to SGI. At the February 12, 2010 Meeting, the Board received and
considered information regarding the character and amount of other incidental
benefits SGI might receive as a result of its relationship with the Fund,
including SGI's soft dollar practices. The Board also took into account that SGI
is an affiliate of the Investment Adviser. The Board concluded that,
12
taking into account any incidental benefits SGI might receive, the terms of the
New SGI Sub-Advisory Agreement, including the compensation to be paid
thereunder, were reasonable.
THE BOARD, INCLUDING THE INDEPENDENT TRUSTEES, UNANIMOUSLY
RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" THE APPROVAL OF THE
NEW AGREEMENTS AND CHANGE TO THE FUNDAMENTAL INVESTMENT
POLICY ON BORROWING MONEY. UNMARKED, PROPERLY SIGNED AND
DATED PROXIES WILL BE SO VOTED.
13
PROPOSAL 1
THE APPROVAL OF THE NEW INVESTMENT ADVISORY AGREEMENT
As discussed above, Proposal 1 relates to the approval by shareholders of the
New Investment Advisory Agreement between the Investment Adviser and the Fund.
The Trust, on behalf of the Fund, has executed an investment advisory agreement
with the Investment Adviser in connection with advisory services to the Fund. A
form of the New Investment Advisory Agreement is attached in Appendix A.
The terms of the New Investment Advisory Agreement are substantially identical
to those of the Current Investment Advisory Agreement, 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 Fund
under the New Investment Advisory Agreement that it currently renders to the
Fund under the Current Investment Advisory Agreement.
As discussed above, at the 2010 Meetings, the Board unanimously approved the New
Investment Advisory Agreement and recommends the approval of the New Investment
Advisory Agreement to shareholders. For information regarding the Board's
considerations in approving the New Investment Advisory Agreement, please see
the section above entitled "Board Considerations in Approving the New
Agreements."
The Current Investment Advisory Agreement 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 Agreement
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 Purchaser; 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 Agreement will
not automatically terminate and will remain in effect, and the New Investment
Advisory Agreement will not be entered into, even if it has been approved by
Fund shareholders.
THE INVESTMENT ADVISER
PADCO Advisors, 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 Fund pursuant to the Current
Investment Advisory Agreement. Information regarding the Current Investment
Advisory Agreement, 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 Agreement is approved by shareholders, it will continue for an initial
term of two years and for subsequent one-year terms so long as it is renewed
annually in accordance with its 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-1 is a list of other registered
14
investment companies with similar investment objectives as the 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 Purchaser will either receive: (a) a 100% ownership stake
in SBC, the parent company of the Investment Adviser, SGI and affiliates; or (b)
a 100% ownership stake in SBC's asset management business, which includes the
Investment Adviser, SGI 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 AGREEMENT
The following summary of the New Investment Advisory Agreement summarizes the
material terms of the New Investment Advisory Agreement and is qualified in its
entirety by reference to such New Investment Advisory Agreement, a form of which
is attached in Appendix A.
Duties of the Investment Adviser. Under the Current Investment Advisory
Agreement and the New Investment Advisory Agreement (each, an "Advisory
Agreement" and collectively, the "Advisory Agreements"), the Investment Adviser
is required to:
o provide the Fund with investment research, advice and supervision and
shall furnish continuously an investment program for the Fund,
consistent with the respective investment objectives and policies of the
Fund;
o determine, in its discretion and without prior consultation, what
securities shall be purchased for the Fund, what securities shall be
held or sold by the Fund and what portion of the Fund's assets shall be
held uninvested in cash, subject always to the provisions of the Trust's
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 Fund's 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 the 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 Fund's
registration statement or any written
15
guidelines or instruction provided in writing by the Board; (b) the 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 at any time without payment of any
penalty, by the 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 the 2010 Meetings, 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 Agreement 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 Fund; and (c) agreed to approve the New Investment
Advisory Agreement for an initial term of two years and to recommend the
approval of the New Investment Advisory Agreement to shareholders.
THE TRUSTEES UNANIMOUSLY RECOMMEND THAT
SHAREHOLDERS OF THE FUND VOTE "FOR" PROPOSAL 1
16
PROPOSAL 2
THE APPROVAL OF THE NEW SGI SUB-ADVISORY AGREEMENT
As discussed above, Proposal 2 relates to the replacement of the Fund's current
sub-adviser, Valu-Trac, with SGI, an affiliate of the Investment Adviser.
Proposal 2 is part of a larger plan, which does not require shareholder
approval, to implement new principal investment strategies and change the Fund's
name. The Investment Adviser recently recommended, and the Board approved, new
principal investment strategies pursuant to which the Fund will invest its
assets according to an international long/short strategy. The Investment Adviser
also recommended that the Fund change its name to the "International Equity
Long-Short Fund." In order to fully implement the new investment strategies, you
are being asked to approve the New SGI Sub-Advisory Agreement so that SGI can
replace Valu-Trac as sub-adviser and implement this new investment program. A
form of the New SGI Sub-Advisory Agreement is attached in Appendix E-1.
OVERVIEW OF THE INVESTMENT STRATEGIES TO BE IMPLEMENTED BY SGI
The Fund will pursue its new principal investment strategy by holding long
(purchasing) foreign common stocks or convertible stocks of companies SGI
believes will outperform the market and by selling short those securities
believed to be overvalued or expected to underperform the market. SGI will use
both quantitative and qualitative techniques to identify long and short
investment opportunities.
In connection with the new principal investment strategy, SGI will consider
initiating exposure to a security that is not currently held in the Fund's
portfolio when the security candidate has passed through the research process
and SGI believes that there is a potential for positive return over the
following year with a return to risk ratio that meets SGI's criteria. In the
case of a security already held in the Fund's portfolio, SGI will consider
adding to the position in the event the price action in the security has been
contrary to expectations based on SGI's analysis and if SGI continues to believe
that the one year price objective is valid. SGI will consider eliminating
exposure to a security if the security reaches its price objective or if SGI
believes that the price objective is no longer valid. SGI may also reduce a
position in its portfolio with respect to a security if the position approaches
its price objective and the risk/return is deteriorating. SGI will make
additions and reductions in the Fund's portfolio and will buy and sell
securities frequently.
The implementation of these new strategies would subject the Fund to these
additional risks:
o EMERGING MARKETS RISK. Investments in emerging markets securities are
generally subject to a greater level of those risks associated with
investing in foreign securities, as emerging markets are considered less
developed and developing countries.
o EQUITY SECURITIES RISK. Stocks and other equity securities, and
securities convertible into stocks, generally fluctuate in value more
than bonds. The Fund could lose all of its investment in a company's
stock.
o FOREIGN SECURITIES RISK. Foreign securities carry additional risks when
compared to U.S. securities, including currency fluctuations, adverse
political and economic developments, unreliable or untimely information,
less liquidity, limited legal recourse and higher transactional costs.
17
o GROWTH STOCKS RISK. Growth stocks typically invest a high portion of
their earnings back into their business and may lack the dividend yield
that could cushion their decline in a market downturn. Growth stocks may
be more volatile than other stocks because they are more sensitive to
investor perceptions regarding the growth potential of the issuing
company.
o LIQUIDITY RISK. Investments are subject to liquidity risk when they are
difficult to purchase or sell.
o MANAGEMENT RISK. The Fund is actively managed. There is no guarantee
that the investment strategies will be successful.
o OVERWEIGHTING RISK. Overweighting investments in certain sectors or
industries of the stock market increases the risk that the Fund will
suffer a loss because of general declines in the prices of stocks in
those sectors or industries.
o SMALLER COMPANIES RISK. The securities of smaller companies are subject
to greater volatility, especially during periods of economic
uncertainty. These risks are likely to be greater for micro-cap
companies.
o VALUE STOCKS RISK. Value stocks are subject to the risk that the
intrinsic value of the stock may never be realized by the market or that
the price goes down.
The Investment Adviser will continue to serve as the Fund's investment adviser
and will oversee SGI's day-to-day management of the Fund. The Board believes
that retaining SGI to serve as the sub-adviser to the Fund in the place of
Valu-Trac is in the best interests of the Fund and its shareholders.
As discussed above, at the February 12, 2010 Meeting, the Board unanimously
approved the New SGI Sub-Advisory Agreement, and recommends the approval of the
New SGI Sub-Advisory Agreement to shareholders. For information regarding the
Board's considerations in approving the New SGI Sub-Advisory Agreement, please
see the section above entitled "Board Considerations in Approving the New
Agreements."
The terms of the New SGI Sub-Advisory Agreement are described below. Upon
shareholder approval, SGI will render services to the Fund under the New SGI
Sub-Advisory Agreement.
It is important to note that the Fund's new principal investment strategy will
not be implemented unless shareholders approve the New SGI Sub-Advisory
Agreement. As previously noted, although the change in control of the Investment
Adviser, if consummated after the appointment of SGI, also would terminate the
New SGI Sub-Advisory Agreement, approval by shareholders of both Proposal 1 and
Proposal 2 will be deemed to constitute approval of a new sub-advisory agreement
with SGI with terms identical to those of the New SGI Sub-Advisory Agreement
approved pursuant to Proposal 2 and in place immediately before the change in
control.
Furthermore, if approved by shareholders, the implementation of the New SGI
Sub-Advisory Agreement, as well as the change to the Fund's name and investment
strategies, may occur at a later date after the Meeting, at the discretion of
the Investment Adviser.
18
INFORMATION ABOUT SGI
Security Global Investors, LLC is located at 801 Montgomery Street, 2nd Floor,
San Francisco, CA 94133-5164. If the New SGI Sub-Advisory Agreement is approved
by shareholders, it will continue for an initial term of two years and for
subsequent one-year terms so long as it is renewed annually in accordance with
its 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 managing member(s) of SGI is set forth in
Appendix C. A list of the Trustees and officers of the Trust who hold positions
with SGI also is set forth in Appendix C. In addition, set forth in Appendix D-2
is a list of other registered investment companies with similar investment
objectives as the Fund, for which SGI acts as investment manager, adviser or
sub-adviser.
Currently, SGI is a wholly-owned subsidiary of SBC. SBC is a wholly-owned
subsidiary of SBHC, located at One Security Benefit Place, Topeka, Kansas
66636-0001. Upon completion of the Transaction, the Purchaser will either
receive: (a) a 100% ownership stake in SBC, the parent company of the Investment
Adviser, SGI and affiliates; or (b) a 100% ownership stake in SBC's asset
management business, which includes the Investment Adviser, SGI 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 SGI SUB-ADVISORY AGREEMENT
The following summary of the New SGI Sub-Advisory Agreement between the
Investment Adviser and SGI summarizes its material terms and is qualified in its
entirety by reference to such New SGI Sub-Advisory Agreement, a form of which is
attached in Appendix E-1. Except for the names of the parties, the terms of the
New SGI Sub-Advisory Agreement are substantially similar to the terms of the New
Valu-Trac Sub-Advisory Agreement.
Duties of SGI. Under the New SGI Sub-Advisory Agreement between the Investment
Adviser and SGI, SGI, subject to the supervision of the Investment Adviser and
the Board, will be responsible for managing the assets of the Fund, including
making investment decisions and placing orders to purchase and sell securities
for the Fund, all in accordance with the investment objective and policies of
the Fund as reflected in its current prospectus(es) and statement(s) of
additional information and as may be adopted from time to time by the Board. In
accordance with applicable requirements, SGI will also maintain, and provide the
Investment Adviser with, all books and records relating to the transactions it
executes or that are otherwise required, and render to the Fund and the
Investment Adviser such periodic and special reports at any time upon reasonable
request.
Indemnity Obligation. Under the New SGI Sub-Advisory Agreement, SGI 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 their respective
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) SGI being in material violation of any applicable federal or state law, rule
or regulation or any investment policy or restriction set forth in registration
statement of the Fund or any written guidelines or instruction provided in
writing by the Board; (b) the Fund's failure to satisfy the diversification or
source of income requirements of Subchapter M of the Internal Revenue Code; or
(c) SGI's
19
misfeasance or negligence generally in the performance of its duties thereunder
or its negligent disregard of its obligations and duties thereunder.
Compensation. Under the New SGI Sub-Advisory Agreement, the Investment Adviser
will pay SGI a fee calculated and paid monthly, based on an annual percentage
rate of 0.35% of the average daily net assets of the Fund. The Fund will have no
responsibility for any fee payable to SGI.
Term and Continuance. Under its terms, the New SGI Sub-Advisory Agreement will
remain in full force and effect for a period of up to two years from the date of
its execution, and will continue thereafter as long as its continuance is
approved at least annually by the Board or by vote of a majority of the
outstanding shares of the Fund, as well as by a majority of the Independent
Trustees by vote cast in person at a meeting called for that purpose. However,
the New SGI Sub-Advisory Agreement may be terminated at any time upon 60 days'
written notice without the payment of any penalty, either by vote of a majority
of the Board, by vote of a majority of the outstanding shares of the Fund, or by
the Investment Adviser. The Investment Adviser may terminate the New SGI
Sub-Advisory Agreement upon breach by SGI of its representations or warranties,
which shall not have been cured within 20 days of receipt of written notice of
such breach, or SGI becoming unable to discharge its duties and obligations
under such New SGI Sub-Advisory Agreement. Additionally, the New SGI
Sub-Advisory Agreement will terminate immediately in the event of its assignment
or upon the termination of the corresponding Investment Advisory Agreement. SGI
may terminate the New SGI Sub-Advisory Agreement on 120 days' written notice to
the Investment Adviser and the Fund.
BOARD RECOMMENDATION ON PROPOSAL 2
At the February 12, 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 SGI Sub-Advisory
Agreement are fair and reasonable; (b) concluded that SGI's fees are reasonable
in light of the services that it will provide to the Fund; and (c) agreed to
approve the New SGI Sub-Advisory Agreement for an initial term of two years and
to recommend the approval of the New SGI Sub-Advisory Agreement to shareholders.
THE TRUSTEES UNANIMOUSLY RECOMMEND THAT
SHAREHOLDERS OF THE FUND VOTE "FOR" PROPOSAL 2
20
PROPOSAL 3
THE APPROVAL OF THE NEW VALU-TRAC SUB-ADVISORY AGREEMENT
As discussed above, Proposal 3 relates to the approval by shareholders of the
New Valu-Trac Sub-Advisory Agreement between the Investment Adviser and
Valu-Trac in the event that shareholder approval is not obtained with respect to
the New SGI Sub-Advisory Agreement or SGI is otherwise not appointed as
sub-adviser. This is necessary because the Transaction, if implemented, would
terminate any sub-advisory agreement then in effect, which would be the Current
Valu-Trac Sub-Advisory Agreement if Proposal 2 is not approved and SGI is not
appointed prior to the change in control.
However, the New Valu-Trac Sub-Advisory Agreement will only be consummated if
shareholder approval is not obtained with respect to New SGI Sub-Advisory
Agreement. In other words, Valu-Trac will not be retained as the sub-adviser to
the Fund, even if approved by shareholders, so long as shareholders approve
Proposal 2 relating to the retention of SGI as the sub-adviser to the Fund.
The terms of the New Valu-Trac Sub-Advisory Agreement are substantially
identical to those of the Current Valu-Trac Sub-Advisory Agreement, except with
respect to the date of execution. A form of the New Valu-Trac Sub-Advisory
Agreement is attached in Appendix E-2. Consequently, upon shareholder approval,
Valu-Trac will continue to render substantially the same services to the Fund
under the New Valu-Trac Sub-Advisory Agreement that it currently renders to the
Fund under the Current Valu-Trac Sub-Advisory Agreement, if shareholder approval
is not obtained with respect to New SGI Sub-Advisory Agreement.
As discussed above, at the 2010 Meetings, the Board unanimously approved the New
Valu-Trac Sub-Advisory Agreement, and recommends the approval of the New
Valu-Trac Sub-Advisory Agreement to shareholders. For information regarding the
Board's considerations in approving the New Valu-Trac Sub-Advisory Agreement,
please see the section above entitled "Board Considerations in Approving the New
Agreements."
The Current Valu-Trac Sub-Advisory Agreement will remain in place until the
earlier of (a) the completion of the Transaction, at which time, as a result of
the change in the control of the Investment Adviser, the Current Valu-Trac
Sub-Advisory Agreement will terminate; or (b) the implementation of the New SGI
Sub-Advisory Agreement (which is subject to shareholder approval).
The completion of the Transaction, which would result in the termination of the
Current Valu-Trac Sub-Advisory Agreement if it is still in effect, 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
Purchaser; 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 and the New SGI Sub-Advisory
Agreement is not in effect, the Current Valu-Trac Sub-Advisory Agreement would
not automatically terminate and would remain in effect, and the New Valu-Trac
Sub-Advisory Agreement would not be entered into, even if it has been approved
by Fund shareholders. The effectiveness of Proposal 3 is also contingent on the
approval of Proposal 1 by shareholders of the Fund.
21
If Proposal 2 is approved by shareholders, the New SGI Sub-Advisory Agreement
will be entered into and SGI may be appointed as the Fund's new sub-adviser in
the place of Valu-Trac, irrespective of whether the Transaction is completed.
INFORMATION ABOUT VALU-TRAC
Valu-Trac Investment Management Limited, located at Mains of Orton, Fochabers,
Moray, Scotland IV32 7QE, currently serves as sub-adviser to the Fund pursuant
to the Current Valu-Trac Sub-Advisory Agreement. Information regarding the
Current Valu-Trac Sub-Advisory Agreement, 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 Valu-Trac, is provided in Appendix F-1. If the New
Valu-Trac Sub-Advisory Agreement is approved by shareholders, it will continue
for an initial term of two years and for subsequent one-year terms so long as it
is renewed annually in accordance with its 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 directors(s) of Valu-Trac is set forth in
Appendix C. A list of the Trustees and officers of the Trust who hold positions
with Valu-Trac also is set forth in Appendix C. In addition, set forth in
Appendix D-3 is a list of other registered investment companies with similar
investment objectives as the Fund, for which Valu-Trac acts as investment
manager, adviser or sub-adviser.
Valu-Trac, a limited liability company formed in England, is a wholly-owned
subsidiary of Valu-Trac Limited, located at Mains of Orton, Fochabers, Moray,
Scotland IV32 7QE.
MATERIAL TERMS OF THE VALU-TRAC SUB-ADVISORY AGREEMENT
The following summary of the New Valu-Trac Sub-Advisory Agreement between the
Investment Adviser and Valu-Trac summarizes its material terms and is qualified
in its entirety by reference to such New Valu-Trac Sub-Advisory Agreement, a
form of which is attached in Appendix E-2.
Duties of Valu-Trac. Under the Current Valu-Trac Sub-Advisory Agreement and the
New Valu-Trac Sub-Advisory Agreement, each between the Investment Adviser and
Valu-Trac (collectively, the "Valu-Trac Sub-Advisory Agreements"), Valu-Trac,
subject to the supervision of the Investment Adviser and the Board, is
responsible for the development and on-going maintenance of the investment
strategy utilized by the Fund, all in accordance with the investment objective
and policies of the Fund as reflected in its current prospectus(es) and
statement(s) of additional information and as may be adopted from time to time
by the Board. Under the Valu-Trac Sub-Advisory Agreements, Valu-Trac will
construct and provide the Investment Adviser with a model investment portfolio.
In accordance with applicable requirements, Valu-Trac will also maintain all
books and records that are required, and render to the Board and the Investment
Adviser such periodic and special reports at any time upon reasonable request.
Limitation of Liability. The Valu-Trac Sub-Advisory Agreements provide that
Valu-Trac shall not be liable for, and Investment Adviser will not take any
action against Valu-Trac to hold Valu-Trac liable for, any error of judgment or
mistake of law or for any loss suffered by the Fund (including, without
limitation, by reason of the purchase, sale or retention of any security) in
connection with the performance of Valu-Trac's duties under the Valu-Trac
Sub-Advisory Agreements, except for a loss resulting from willful misfeasance,
bad faith or gross negligence on
22
the part of Valu-Trac in the performance of its duties thereunder, or by reason
of its reckless disregard of its obligations and duties thereunder.
Term and Continuance. Under their terms, the Valu-Trac Sub-Advisory Agreements
will remain in full force and effect for a period of up to two years from the
date of their execution, and will continue thereafter as long as their
continuance is approved at least annually by the Board or by vote of a majority
of the outstanding shares of the Fund, as well as by a majority of the
Independent Trustees by vote cast in person at a meeting called for that
purpose. The Valu-Trac Sub-Advisory Agreements may be terminated at any time
upon 60 days' written notice without the payment of any penalty, either by the
Investment Adviser or Valu-Trac. The Valu-Trac Sub-Advisory Agreements may also
be terminated at any time upon 60 days' written notice, either by the Board or
by vote of a majority of the outstanding shares of the Fund. Additionally, the
Valu-Trac Sub-Advisory Agreements will terminate immediately in the event of
their assignment. Finally, each Valu-Trac Sub-Advisory Agreement may be
terminated at any time without the payment of any penalty by the Investment
Adviser, the Board or by vote of a majority of the outstanding voting securities
of the Fund, in the event that it shall have been established by a court of
competent jurisdiction that Valu-Trac or any officer or director of Valu-Trac
has taken any action that results in a breach of the representations forth in
such Valu-Trac Sub-Advisory Agreement.
BOARD RECOMMENDATION ON PROPOSAL 3
At the 2010 Meetings, 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 Valu-Trac
Sub-Advisory Agreement are fair and reasonable; (b) concluded that Valu-Trac's
fees are reasonable in light of the services that it will provide to the Fund;
and (c) agreed to approve the New Valu-Trac Sub-Advisory Agreement for an
initial term of two years and to recommend the approval of the New Valu-Trac
Sub-Advisory Agreement to shareholders.
THE TRUSTEES UNANIMOUSLY RECOMMEND THAT
SHAREHOLDERS OF THE FUND VOTE "FOR" PROPOSAL 3
23
PROPOSAL 4
THE APPROVAL OF A CHANGE TO THE FUND'S
FUNDAMENTAL INVESTMENT POLICY ON BORROWING MONEY
Proposal 4 relates to a change to the "fundamental investment policy" on
borrowing for the Fund. The 1940 Act requires that the 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. The 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 4 is intended to provide
the Fund the maximum possible amount of flexibility to engage in borrowing
activity consistent with current law and with the Fund's investment strategies
and objectives.
PROPOSED NEW FUNDAMENTAL INVESTMENT POLICY
If Proposal 3 is approved by shareholders, the fundamental investment policy
regarding borrowing for the 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 Fund
reads:
[The Fund shall not] borrow money in an amount exceeding 33(1)/3% of
the value of its total assets, provided that, for the 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 (such investment strategies are only
limited by the Fund's ability to purchase securities or segregate
assets equal to the Fund's investment). 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 the Fund's fundamental investment policy on
borrowing money (including any interpretation provided in the Fund's
registration statement) would allow the Fund 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 the 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 Fund maintains the maximum possible
24
amount of flexibility to engage in borrowing activity, without incurring the
additional expenses necessary to further amend the Fund's fundamental investment
policies.
The proposed modification would expand the ability of the Fund to borrow.
Currently, the 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 the Fund to borrow to the extent permitted by the 1940
Act. However, borrowing by the Fund would occur only if consistent with the
Fund's disclosure in its registration statement.
The Investment Adviser, SGI and Valu-Trac do not presently intend to materially
increase the borrowing level of the Fund, and believe that the proposed change
will not materially affect the investment risks currently associated with the
Fund. To the extent that any borrowing by the 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 the 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 4
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 FUND VOTE "FOR" PROPOSAL 4
25
OTHER BUSINESS
The Trustees do not know of any matters to be presented at the Meeting other
than those set forth in this 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 AND TRANSFER AGENT
The principal underwriter/distributor of the Trust is Rydex Distributors, Inc.
("Rydex Distributors"), located at 9601 Blackwell Road, Suite 500, Rockville,
Maryland 20850, an affiliate of the Investment Adviser and SGI. Rydex Fund
Services, Inc. ("Rydex Fund Services"), also an affiliate of the Investment
Adviser and SGI, is located at 9601 Blackwell Road, Suite 500, Rockville,
Maryland 20850 and provides general administrative, shareholder, dividend
disbursement, transfer agent and registrar services to the Fund. Information
regarding the fees paid by the Fund to each of Rydex Distributors and Rydex Fund
Services during the previous fiscal year is provided in Appendix B.
Although the Purchaser will acquire control of the Affiliated Service Providers
as a result of the Transaction, shareholder approval is not required in order
for the Affiliated Service Providers to continue providing services to the Fund
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
Affiliated Service Providers to the Fund due to the changes in control.
AFFILIATIONS AND AFFILIATED BROKERAGE
During the Fund's most recent fiscal years, the Fund paid no commissions on
portfolio brokerage transactions to brokers who may be deemed to be affiliated
persons of the Fund, the Investment Adviser, SGI or Valu-Trac, or affiliated
persons of such persons ("Affiliated Brokers").
OTHER INFORMATION
Proxy materials, reports and other information filed by the Fund 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 Fund.
VOTING INFORMATION
Proxy Solicitation. The principal solicitation of proxies will be by the mailing
of this 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 SGI or their 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,
26
including reimbursement to broker-dealers and others who forwarded proxy
materials to their clients, will be borne by SecBen. The estimated cost of
retaining The Altman Group is approximately $[ ].
Shareholder Voting. Shareholders of the Fund 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 the 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 the Fund, as defined
below, is required to approve Proposals 1 - 4, abstentions and broker non-votes
will effectively be a vote against Proposals 1 - 4. "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 the Fund as
of the Record Date is provided in Appendix G, representing the same number of
votes for the Fund. The persons who are known to have owned beneficially 5% or
more of the Fund's outstanding shares as of the Record Date are listed in
Appendix H. [As of the Record Date, the Trustees and officers, as a group, owned
less than 1% of the outstanding shares of the Fund. As of the Record Date, there
were no persons who were known to control the 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"
Proposals 1 - 4. 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 Proposals 1 - 4 requires the vote of a "majority of
the outstanding voting securities" of the 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
27
represented by proxy, or the vote of more than 50% of the Fund's outstanding
shares, whichever is less.
The Current Investment Advisory Agreement 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 Agreement
will terminate and, subject to shareholder approval, the New Investment Advisory
Agreement 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 Agreement will not automatically terminate and will remain
in effect. If Proposal 2 is approved by shareholders, the New SGI Sub-Advisory
Agreement will be entered into, the new investment strategies and Fund name
change will be implemented, and SGI will serve as the Fund's new sub-adviser in
the place of Valu-Trac, irrespective of whether the Transaction is completed. If
Proposals 1 - 3 are not approved by shareholders of the Fund, the Board will
evaluate other short- and long-term options.
With respect to Proposal 4, should the 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 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 Proxy Statement. The Trust will then promptly
deliver, upon request, a separate copy of this 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 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 Series Funds, 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.
28
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.
By Order of the Board of Trustees,
Sincerely,
/s/ Richard M. Goldman
Richard M. Goldman
President
29
APPENDIX A
FORM OF INVESTMENT ADVISORY AGREEMENT
1
ADVISORY AGREEMENT
ADVISORY AGREEMENT made as of this [ ] day of [ ], 2010 by and between RYDEX
SERIES FUNDS (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, 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 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 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 Adviser also agrees to comply with the
A-2
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.
A-3
(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 subcustodians, 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
A-4
registration statement, proxy statement, or prospectus supplement to
be filed by the Trust with the Commission. The Adviser 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
A-5
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 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. Other than as herein specifically
indicated, the Adviser shall not be responsible for a Fund's expenses, including
brokerage and other expenses incurred in placing orders for the purchase and
sale of securities and other investment instruments.
Notwithstanding the foregoing paragraph, with respect to the All Asset
Conservative, All Asset Moderate, All Asset Aggressive, and Alternative
Strategies Allocation Funds, the Adviser will bear its own costs of providing
services hereunder. In addition, the Adviser agrees to pay all expenses incurred
by the foregoing Funds, except for acquired fund fees and expenses, interest,
taxes, brokerage 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 Funds under any distribution plan
adopted pursuant to Rule 12b-1 under the 1940 Act.
Notwithstanding the foregoing paragraphs, with respect to the
Multi-Hedge Strategies Fund, the Adviser will bear its own costs of providing
services hereunder. The Adviser agrees to pay all expenses incurred by the
foregoing Fund, except for interest, taxes, brokerage 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 Fund 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.
A-6
(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.
(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 license 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
A-7
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 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
A-8
(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
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.
A-9
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 Declaration of Trust
describe in detail the respective responsibilities and limitations on liability
of the Trustees, officers, and holders of shares of beneficial interest.
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 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 SERIES FUNDS, on behalf of
each Fund listed on Schedule A
By:
--------------------------------
Name: Richard M. Goldman
Title: President
PADCO ADVISORS, INC.
By:
--------------------------------
Name: Richard M. Goldman
Title: Chief Executive Officer
A-11
SCHEDULE A
TO THE
ADVISORY AGREEMENT
DATED [ ], 2010 BETWEEN
RYDEX SERIES FUNDS
AND
PADCO ADVISORS, INC.
[LIST OF FUNDS AND FEES.]
A-12
APPENDIX B
INFORMATION REGARDING THE INVESTMENT ADVISORY AGREEMENT
AND FEES PAID TO THE INVESTMENT ADVISER AND AFFILIATES
PADCO Advisors, Inc. (the "Investment Adviser") currently serves as investment
adviser to the Rydex|SGI International Opportunity Fund (the "Fund"), a series
of Rydex Series Funds ("RSF"), pursuant to an investment advisory agreement
between RSF, on behalf of the Fund, and the Investment Adviser, made January 18,
2008, as amended. Rydex Fund Services, Inc. ("RFS") serves as the administrator,
transfer agent and accounting services agent for the Fund. Rydex Distributors,
Inc. ("RDI") serves as principal underwriter to the Fund. RFS and RDI are
affiliates of the Investment Adviser. The tables below provide the following
information:
(i) the date on which the Fund's shareholders last approved the Fund's
investment advisory agreement;
(ii) the annual rate of management fees paid by the Fund to the Investment
Adviser, stated as a percentage of the Fund's average daily net assets;
(iii) the aggregate amount of management fees paid by the Fund to the
Investment Adviser for the Fund's most recently completed fiscal year
(ended March 31, 2009);
(iv) the amount of fees paid by the Fund to RFS for RFS' administrative and
transfer agent services for the Fund during the Fund's most recently
completed fiscal year;
(v) the amount of accounting service fees paid by the Fund to RFS for RFS'
services as the accounting services agent for the Fund during the
Fund's most recently completed fiscal year; and
(vi) the amount of distribution fees paid by the Fund to RDI for RDI's
services as principal underwriter to the Fund pursuant to the Fund's
distribution and shareholder services plans during the Fund's most
recently completed fiscal year.
The Fund did not pay any brokerage commissions to RDI or its affiliates during
the Fund's most recently completed fiscal year.
B-1
MANAGEMENT, ADMINISTRATIVE, AND ACCOUNTING FEES PAID BY THE FUND:
- ----------------------------------------- --------------- ---------- --------------------- ---------------------- ------------------
DATE OF LAST MANAGEMENT FEES ADMINISTRATIVE
RYDEX SERIES FUNDS SHAREHOLDER MANAGEMENT PAID TO INVESTMENT SERVICE FEES PAID ACCOUNTING SERVICE
SERIES NAME APPROVAL FEES ADVISER TO RFS FEES PAID TO RFS
- ----------------------------------------- --------------- ---------- --------------------- ---------------------- ------------------
Rydex|SGI International Opportunity Fund 8/27/2007 0.90% $206,511 $57,364 $22,946
- ----------------------------------------- --------------- ---------- --------------------- ---------------------- ------------------
DISTRIBUTION FEES PAID BY THE FUND*:
(*For A-Class, C-Class, H-Class and Advisor Class shares. Investor Class shares
and Investor2 Class shares were not subject to distribution fees.)
- ----------------------------------------------- ------------ ---------------- --------------- --------------------
RYDEX SERIES FUNDS A-CLASS C-CLASS H-CLASS ADVISOR CLASS
SERIES NAME
- ---- ------------------------------------------ ------------ ---------------- --------------- --------------------
Rydex|SGI International Opportunity Fund $32,818 $25,733 $18,112 N/A
- ---- ------------------------------------------ ------------ ---------------- --------------- --------------------
B-2
APPENDIX C
DIRECTORS/TRUSTEES/MANAGERS AND OFFICERS
DIRECTORS AND PRINCIPAL EXECUTIVE OFFICERS OF PADCO ADVISORS, INC. The business
address of the directors and principal executive officers is 9601 Blackwell
Road, Suite 500, Rockville, Maryland 20850.
- ------------------------------ ------------------------- --------------------------------------------------
NAME POSITION HELD WITH OTHER PRINCIPAL OCCUPATION/POSITION
PADCO ADVISORS, 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 II, Inc.; Director,
Rydex Fund Services, Inc.; President and
Manager, Security Global Investors, LLC
- ------------------------------ ------------------------- --------------------------------------------------
Michael P. Byrum Director, Chief Director, Chief Investment Officer, President,
Investment Officer, and Secretary, PADCO Advisors II, Inc.;
President, and Secretary Secretary, Rydex Funds Services, Inc.; Chief
Investment Officer, Rydex Holdings, LLC;
Manager, Rydex Specialized Products, LLC
- ------------------------------ ------------------------- --------------------------------------------------
MANAGERS AND PRINCIPAL EXECUTIVE OFFICERS OF SECURITY GLOBAL INVESTORS, LLC. The
business address of the managers and principal executive officers is 801
Montgomery Street, 2nd Floor, San Francisco, California 94133.
- ------------------------------ ------------------------- --------------------------------------------------
NAME POSITION HELD WITH OTHER PRINCIPAL OCCUPATION/POSITION
SECURITY GLOBAL
INVESTORS, LLC
- ------------------------------ ------------------------- --------------------------------------------------
Richard M. Goldman President and Manager Senior Vice President, Security Benefit
Corporation; Director, First Security Benefit
Life Insurance and Annuity Company of New York;
President and Manager Representative, Security
Investors, LLC; CEO, President, & Director,
Rydex Distributors, Inc.; President & CEO, Rydex
Holdings, LLC; CEO & Director, PADCO Advisors,
Inc., CEO & Director, PADCO Advisors II, Inc.;
Director, Rydex Fund Services, Inc.
- ------------------------------ ------------------------- --------------------------------------------------
C-1
DIRECTOR AND PRINCIPAL EXECUTIVE OFFICERS OF VALU-TRAC INVESTMENT MANAGEMENT
LIMITED. The business address of the managers and principal executive officers
is Mains of Orton, Fochabers, Moray, Scotland, IV32 7QE.
- ------------------------------ ------------------------- --------------------------------------------------
NAME POSITION HELD WITH OTHER PRINCIPAL OCCUPATION/POSITION
VALU-TRAC INVESTMENT
MANAGEMENT LIMITED
- ------------------------------ ------------------------- --------------------------------------------------
Robert P.W. Millar Chief Executive Officer [ ]
- ------------------------------ ------------------------- --------------------------------------------------
Malcolm G. Strang Steel Director [ ]
- ------------------------------ ------------------------- --------------------------------------------------
TRUSTEES/OFFICERS OF THE FUNDS WHO HOLD POSITION(S) WITH PADCO ADVISORS, INC.,
SECURITY GLOBAL INVESTORS, LLC, OR VALU-TRAC INVESTMENT MANAGEMENT LIMITED. 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 INVESTMENT ADVISER OR
FUNDS SUB-ADVISER
- ------------------------------ ------------------------- --------------------------------------------------
Richard M. Goldman Trustee and President Director and Chief Executive Officer, PADCO
Advisors, Inc.
President and Manager, Security Global
Investors, LLC
- ------------------------------ ------------------------- --------------------------------------------------
Michael P. Byrum Vice President Director, Chief Investment Officer, President,
and Secretary, PADCO Advisors, Inc.
- ------------------------------ ------------------------- --------------------------------------------------
Joanna M. Haigney Chief Compliance Officer Chief Compliance Officer and Secretary, PADCO
Advisors, Inc.
- ------------------------------ ------------------------- --------------------------------------------------
Keith Fletcher Vice President Vice President, PADCO Advisors, Inc.
- ------------------------------ ------------------------- --------------------------------------------------
C-2
APPENDIX D-1
ADVISORY FEE RATES OF FUNDS WITH SIMILAR INVESTMENT OBJECTIVES ADVISED OR
SUB-ADVISED BY PADCO ADVISORS, INC. AND PADCO ADVISORS II, INC.
The table below lists the names of other mutual funds advised by PADCO Advisors,
Inc. or PADCO Advisors II, Inc. (collectively, the "Investment Adviser") with
similar investment objectives as the Fund, and information concerning the Fund's
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
ADVISER (AS A PERCENTAGE OF AVERAGE (IN MILLIONS)
Fund(s) with Similar Objective DAILY NET ASSETS)
- --------------------------------------------------- --------------------------------------- ---------------
RYDEX|SGI INTERNATIONAL OPPORTUNITY FUND 0.90% $35.61
- --------------------------------------------------- --------------------------------------- ---------------
Rydex|SGI International Opportunity Fund, 0.90% $21.94
a series of Rydex Variable Trust
- --------------------------------------------------- --------------------------------------- ---------------
D-1-1
APPENDIX D-2
ADVISORY FEE RATES OF FUNDS WITH SIMILAR INVESTMENT OBJECTIVES SUB-
ADVISED BY OF SECURITY GLOBAL INVESTORS, LLC
The table below lists the names of other mutual funds sub-advised by Security
Global Investors, LLC (the "Sub-Adviser") with similar investment objectives as
the Fund, and information concerning the Fund's and such other funds' net assets
as of December 31, 2009 and the rate of compensation for the Sub-Adviser for its
services to the Fund and such other funds.
- --------------------------------------------------- --------------------------------------- ---------------
FUND NAME ANNUAL COMPENSATION TO THE NET ASSETS
SUB-ADVISER (AS A PERCENTAGE OF (IN MILLIONS)
Fund(s) with Similar Objective AVERAGE DAILY NET ASSETS)
- --------------------------------------------------- --------------------------------------- ---------------
RYDEX|SGI INTERNATIONAL OPPORTUNITY FUND 0.35% $35.61
- --------------------------------------------------- --------------------------------------- ---------------
Rydex|SGI International Opportunity Fund, 0.35% $21.94
a series of Rydex Variable Trust
- --------------------------------------------------- --------------------------------------- ---------------
Rydex|SGI Alpha Opportunity Fund, 1.45%(1) $14.65
a series of Security Equity Fund
- --------------------------------------------------- --------------------------------------- ---------------
Series Z (Alpha Opportunity Series), 1.45%(1) $22.63
a series of SBL Fund
- --------------------------------------------------- --------------------------------------- ---------------
- ---------------------------------------
(1) These annual fees are stated as a percentage of a portion of the Fund's net
assets managed by the Sub-Adviser. Another portion of the Fund's assets is
managed by Mainstream Investment Advisers, LLC, which is not affiliated
with the Fund.
D-2-1
APPENDIX D-3
ADVISORY FEE RATES OF FUNDS WITH SIMILAR INVESTMENT OBJECTIVES SUB-
ADVISED BY VALU-TRAC INVESTMENT MANAGEMENT LIMITED
The table below lists the names of other mutual funds sub-advised by Valu-Trac
Investment Management Limited (the "Sub-Adviser") with similar investment
objectives as the Fund, and information concerning the Fund's and such other
funds' net assets as of December 31, 2009 and the rate of compensation for the
Sub-Adviser for its services to the Fund and such other funds.
- --------------------------------------------------- --------------------------------------- ---------------
FUND NAME ANNUAL COMPENSATION TO THE NET ASSETS
SUB-ADVISER (AS A PERCENTAGE OF (IN MILLIONS)
Fund(s) with Similar Objective AVERAGE DAILY NET ASSETS)
- --------------------------------------------------- --------------------------------------- ---------------
RYDEX|SGI INTERNATIONAL OPPORTUNITY FUND 0.35% $35.61
- --------------------------------------------------- --------------------------------------- ---------------
Rydex|SGI International Opportunity Fund, 0.35% $21.94
a series of Rydex Variable Trust
- --------------------------------------------------- --------------------------------------- ---------------
D-3-1
APPENDIX E-1
FORM OF SUB-ADVISORY AGREEMENT WITH SECURITY GLOBAL INVESTORS, LLC
[TO BE INSERTED.]
E-1-1
APPENDIX E-2
FORM OF SUB-ADVISORY AGREEMENT WITH
VALU-TRAC INVESTMENT MANAGEMENT LIMITED
E-2-1
INVESTMENT SUB-ADVISORY AGREEMENT
AGREEMENT made as of this [ ] day of [ ], 2010 by and between PADCO Advisors,
Inc., a Maryland corporation and a federally registered investment adviser
("Advisor"), and Valu-Trac Investment Management Limited, a limited liability
company incorporated in England and a federally registered investment adviser
("Sub-Advisor").
WHEREAS, Rydex Series Funds, a Delaware statutory trust (the "Trust") is an
open-end management investment company registered under the Investment Company
Act of 1940, as amended (the "1940 Act");
WHEREAS, Advisor serves as the investment adviser to the International
Opportunity Fund, a series of the Trust (the "Fund"), pursuant to an Investment
Advisory Agreement between Advisor and the Trust (as such agreement may be
modified from time to time, the "Advisory Agreement"); and
WHEREAS, Advisor desires to retain Sub-Advisor to furnish investment advisory
services to the Advisor in connection with the management of the Fund, upon the
terms and conditions hereafter set forth, and the Sub-Advisor is willing to
render such investment advisory services;
NOW, THEREFORE, in consideration of the mutual covenants herein contained, the
parties hereto agree as follows:
1. Appointment. Advisor hereby appoints Sub-Advisor to provide certain
sub-investment advisory services to the Fund for the period and on the terms set
forth in this Agreement. Sub-Advisor accepts such appointment and agrees to
furnish the services herein set forth for the compensation herein provided.
2. Services to be Performed. Subject always to the supervision of the
Trust's Board of Trustees and Advisor, Sub-Advisor will be responsible for the
development and on-going maintenance of the investment management strategy
utilized by the Fund as described in the Fund's initial registration statement
on Form N-1A as declared effective by the U. S. Securities and Exchange
Commission (the "SEC"), consistent with the investment objectives and
restrictions of the Fund described therein and as they may subsequently be
changed by the Fund's Board of Trustees and publicly described and as
Sub-Advisor is notified of such changes. Sub-Advisor will furnish such service
by constructing and providing Advisor with a model investment portfolio which
shall consist of percentage allocations to country equity markets together with
currency hedge allocations, according to Guidelines provided by Advisor ("Model
Portfolio").
Sub-Advisor will inform Advisor of the Model Portfolio in a report
("Portfolio Report"). Sub-Advisor will monitor the composition and performance
of the Model Portfolio on a continuous basis and will advise Advisor of any
changes to the Model Portfolio that Sub-Advisor believes are advisable in light
of changes in market conditions or other developments that have occurred since
the date of the most recent Portfolio Report. Sub-Advisor will immediately
deliver to Advisor an updated/revised Portfolio Report that reflects all changes
in the Model Portfolio that are recommended by Sub-Advisor. It is understood and
agreed by the parties hereto that Sub-Advisor is only providing the Model
Portfolio. Advisor understands and accepts that it will implement the Model
Portfolio on a best endeavor's basis. While Advisor intends to implement the
Model Portfolio as provided by Sub-Advisor, Sub-Advisor understands that Advisor
will review all Model Portfolio recommendations and may deviate from a
recommendation if, in the discretion of Advisor, the deviation is necessary to
comply with investment policies and/or restrictions and any applicable
regulatory requirements. In such circumstances the
E-2-2
Advisor will promptly notify the Sub-Advisor of any deviations from the Model
Portfolio and the reasons therof.
All Portfolio Reports and updates thereto will be transmitted to
Advisor via electronic mail or such other form of communication as the parties
mutually agree. Sub-Advisor shall maintain policies and procedures to monitor
for signal errors and shall promptly report any such errors to the daily
Portfolio Department Contact and the Fund's Chief Compliance Officer ("CCO").
Sub-Advisor shall inform Advisor of any material changes to
Sub-Advisor's investment process as it relates to the Fund prior to implementing
such material change.
Sub-Advisor shall provide monthly commentary about the performance of
the Fund, general market conditions as they relate to the Fund, and securities
allocations. To the extent Advisor wishes to use this material in marketing
material for the Fund, Sub-Advisor will keep all required data and records to
back-up this information, which will be provided to Advisor upon request.
With regard to country-specific public holidays that the Sub-Advisor
may observe and the Advisor may not, or vice versa, best efforts will be made to
notify the other party and to appropriately plan for and meet the requirements
contained herein during such times.
In the performance of its duties, Sub-Advisor will satisfy its
fiduciary duties to the Fund and will ensure that the Model Portfolio complies
with Guidelines provided by the Advisor and that its recommendations comply with
the provisions of the Fund's Declaration of Trust and By-laws, as amended from
time to time, and the investment objectives, policies and restrictions of the
Fund, to the extent Sub-Advisor has been notified of such objectives, policies
and restrictions. Advisor will provide Sub-Advisor with current copies of the
Fund's Declaration of Trust, By-laws, Registration Statement on Form N-1A and
any amendments thereto insofar as such as amendments relate to the Fund, and any
written objectives, policies, procedures or limitations not appearing therein as
they may be relevant to Sub-Advisor's performance under this Agreement.
Sub-Advisor shall not be responsible for reviewing proxy solicitation
materials or voting and handling proxies in relation to the securities held as
assets in the Fund. If Sub-Advisor receives a misdirected proxy, it shall
promptly forward such misdirected proxy to Advisor. Sub-Advisor agrees to make
itself reasonably available to Advisor for consultation regarding particular
proxies.
Sub-Advisor further agrees that it:
(a) will use the same degree of skill and care in providing such
services as it uses in providing services to all fiduciary accounts for which it
has investment responsibilities;
(b) will conform to all applicable laws, Rules and Regulations of
the SEC, and any other regulatory entity that oversees the investment advisory
activities of Sub-Advisor (together, "Applicable Laws"), in all material
respects and in addition will conduct its activities under this Agreement in
accordance with any applicable regulations of any governmental authority
pertaining to its investment advisory activities;
(c) will report regularly to Advisor and to the Board of Trustees
of the Fund and will make appropriate persons available for the purpose of
reviewing with representatives of Advisor and the Board of Trustees on a regular
basis at reasonable times as agreed by both parties the general investment
strategies of the Fund, the performance of the Fund's investment portfolio in
relation to standard industry
E-2-3
indices and general conditions affecting the marketplace and will provide
various other reports from time to time as reasonably requested by Advisor;
(d) will monitor the pricing of portfolio securities, and events
relating to the issuers of those securities and the markets in which the
securities trade in the ordinary course of providing recommendations about the
portfolio securities of the Fund, and, if known, will notify Advisor promptly of
any issuer-specific or market events or other situations that occur
(particularly those that may occur after the close of a market in which the
securities may primarily trade but before the time at which the Fund's
securities are priced on a given day) that may materially impact the pricing of
one or more securities in the portfolio. In addition, Sub-Advisor will assist
Advisor in evaluating the impact that such an event may have on the net asset
value of the Fund and in determining a recommended fair value of the affected
security or securities;
(e) will prepare and maintain such books and records required to
be maintained pursuant to Rule 204-2 under the Investment Advisers Act of 1940,
as amended (the "Advisers Act") and Rule 31a-3 under the 1940 Act with respect
to the Fund, as applicable, and agrees that all records which it maintains for
the Fund, on behalf of the Trust are the property of the Trust and further
agrees to surrender promptly to the Trust any such records upon the Trust's
request. Sub-Advisor further agrees to preserve for the periods prescribed by
Rule 31a-2 under the 1940 Act the records required to be maintained pursuant to
Rule 204-2 under the Advisers Act and Rule 31a-3 under the 1940 Act, as
applicable. In addition, Sub-Advisor will furnish Advisor and the Fund's Board
of Trustees such periodic and special reports as the Board or Advisor may
reasonably request;
(f) agrees that all proprietary rights relating to the performance
resulting from Advisor's implementation of the recommendations inherent in the
Model Portfolio are and will remain the property of Advisor. Prior to use,
Sub-Advisor further agrees that it shall provide Advisor for its review and
written approval copies of all informational materials mentioning the Fund,
including, but not limited to, advertisements, brochures and promotional and any
other similar materials (the "Informational Materials"), and that such
Informational Materials shall conform with, and be disseminated in accordance
with, Applicable Laws. Such Informational Materials must also contain disclosure
clarifying the relationship between Sub-Advisor and Advisor and disclaiming
Advisor's responsibility for any content as provided by Rydex. In addition,
Sub-Advisor shall have no right to use the name, trade name, trademarks, service
marks, logos or other indicia of identity or origin of Advisor or the Fund or
any other affiliate of or investment company managed by Advisor (each, a "Mark")
for any commercial purposes, including, without limitation, in or on any
advertising or promotional materials, press releases or web sites, without the
prior written consent of Advisor, which Advisor may not unreasonably withhold
and may withdraw upon five (5) days' notice to Sub-Advisor. Once Informational
Materials have been approved by Advisor, Sub-Advisor may revise subsequent
Informational Materials to update performance numbers, holdings information and
asset levels without Advisor's prior review and approval. However, a final copy
of such factually updated Informational Materials must be provided to Advisor.
Notwithstanding the foregoing, Sub-Advisor may include the name of the
Fund and/or the amount of Fund assets under management on any list of clients it
publicly distributes. At such time as this Agreement shall no longer be in
effect between Advisor and Sub-Advisor, or Advisor is no longer a licensee of a
Mark, Sub-Advisor shall (to the extent that, and as soon as, it lawfully can)
cease to use the Marks. In no event shall Sub-Advisor use a Mark or any other
name or mark confusingly similar thereto (including, but not limited to, any
name or mark that includes the name "Rydex") if this Agreement is terminated.
(g) has adopted and implemented and will maintain, in accordance
with Rule 206(4)-7 under the Advisers Act, Sub-Advisor written policies and
procedures reasonably designed to prevent
E-2-4
violation by Sub-Advisor and its supervised persons (as such term is defined in
the Advisers Act) of the Advisers Act and the rules the SEC has adopted under
the Advisers Act with respect to its U.S. clients;
(h) to the extent that Sub-Advisor's activities or services could
affect the Fund, Sub-Advisor has adopted and implemented and will maintain
written policies and procedures that are reasonably designed to prevent
violation of the "federal securities laws" (as such term is defined in Rule
38a-1 under the 1940 Act) by the Fund and Sub-Advisor;
(i) shall have and maintain policies and procedures to safeguard
and restrict improper access to the Model Portfolio and communications about the
Model Portfolio;
(j) shall promptly provide to the Fund's CCO the following
documents:
(i) copies of all SEC or other regulatory entity examination
correspondence, including correspondence regarding books and records
examinations and "sweep" examinations, issued during the term of this
Agreement, in which the SEC or other regulatory entity identified any
concerns, issues or matters (such correspondence are commonly referred
to as "deficiency letters") relating to any aspect of Sub-Advisor's
investment advisory business and Sub-Advisor's responses thereto;
(ii) a report of any material violations of Applicable Laws,
Sub-Advisor's compliance program or any "material compliance matters"
(as such term is defined in Rule 38a-1 under the 1940 Act) that have
occurred with respect to Sub-Advisor's compliance program;
(iii) a report of any material changes to the policies and
procedures that comprise Sub-Advisor's compliance program;
(iv) a copy of Sub-Advisor's chief compliance officer's report
(or similar document(s) which serve the same purpose) regarding his or
her annual review of Sub-Advisor's compliance program, as required by
Rule 206(4)-7 under the Advisers Act; and
(v) an annual (or more frequently as the Fund's CCO may
reasonably request) representation regarding the Sub-Advisor's
compliance with these sub-paragraphs g) through i) of this Agreement;
and
(k) shall provide the Fund's CCO with:
(i) reasonable access to the testing, analyses, reports and
other documentation, or summaries thereof, that Sub-Advisor's chief
compliance officer relies upon to monitor the effectiveness of the
implementation of Sub-Advisor's compliance program and Applicable Laws;
and
(ii) reasonable access, during normal business hours, to
Sub-Advisor's facilities for the purpose of conducting pre-arranged
on-site compliance related due diligence meetings with personnel of
Sub-Advisor.
(l) agrees that Advisor and its affiliates shall be exclusively
responsible for the marketing and distribution of shares of the Fund in the
United States.
E-2-5
3. Representations of Advisor. Advisor hereby represents that it:
(a) is registered as an investment adviser under the Advisers Act
and will continue to be so registered for so long as this Agreement remains in
effect;
(b) is not prohibited by the 1940 Act or the Advisers Act from
performing investment advisory services to the Fund;
(c) has met, and will continue to meet for so long as this
Agreement remains in effect, any applicable federal or state requirements, or
the applicable requirements of any regulatory or industry self regulatory
agency, or the applicable licensing requirements for the use of any trademarks
necessary to be met in order to perform investment advisory services for the
Fund; and
(d) will immediately notify Sub-Advisor of the occurrence of any event
that would disqualify Advisor from serving as an investment adviser of an
investment company pursuant to Section 9(a) of the 1940 Act or otherwise.
4. Representations of Sub-Advisor. Sub-Advisor hereby represents that
it:
(a) is registered as an investment adviser under the Advisers Act
and will continue to be so registered for so long as this Agreement remains in
effect;
(b) is not prohibited by the 1940 Act, the Advisers Act, or
Applicable Laws from performing investment advisory services to the Fund;
(c) has met, and will continue to meet for so long as this
Agreement remains in effect, any applicable federal or state requirements, or
the applicable requirements of any regulatory or industry self-regulatory agency
necessary to be met in order to perform investment advisory services for the
Fund;
(d) will maintain an insurance policy in the event of any errors
or omissions that may occur in the construction or communication of the Model
Portfolio to the Advisor; and
(e) will immediately notify Advisor of the occurrence of any event
that would disqualify Sub-Advisor from serving as an investment adviser of an
investment company pursuant to Section 9(a) of the 1940 Act or otherwise.
5. Expenses. During the term of this Agreement, Sub-Advisor will pay
all expenses incurred by it in connection with its activities under this
Agreement, including the compensation and expenses of all its directors,
officers and employees.
6. Compensation. For the services provided and the expenses assumed
pursuant to this Agreement, Advisor will pay Sub-Advisor, and Sub-Advisor agrees
to accept as full compensation therefor, a fee at an annual rate applied to the
daily net assets of the Fund in accordance with Schedule A of this Agreement.
The fee will be paid quarterly not later than the fifteenth (15th)
business day of the month following the quarter for which services have been
provided. In the event of termination of this Agreement, the fee 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 quarter as a percentage of the total number of
days in such quarter, and such fee shall be payable
E-2-6
on the date of termination of this Agreement with respect to the Fund. For
purposes of calculating Sub-Advisor's fee, the value of the net assets of the
Fund shall be determined in the same manner as the Fund uses to compute the
value of its net assets in connection with the determination of the net asset
value of its shares, all as set forth more fully in the Fund's Prospectus and
Statement of Additional Information, as they may be supplemented or updated from
time to time.
For the month and quarter in which this Agreement becomes effective or
terminates, there shall be an appropriate proration on the basis of the number
of days that the Agreement is in effect during the month and quarter,
respectively.
7. Services to Others. Advisor understands, and has advised the Fund's
Board of Trustees, that Sub-Advisor now acts, or may in the future act, as an
investment adviser to other investment portfolios including investment
companies. In addition, Advisor understands, and has advised the Fund's Board of
Trustees, that the persons employed by Sub-Advisor to assist in Sub-Advisor's
duties under this Agreement will not devote their full such efforts and service
to the Fund. It is also agreed that Sub-Advisor may use any supplemental
research obtained for the benefit of the Fund in providing investment advice to
its other investment advisory accounts or for managing its own accounts.
8. Limitation of Liability. Sub-Advisor shall not be liable for, and
Advisor will not take any action against Sub-Advisor to hold Sub-Advisor liable
for, any error of judgment or mistake of law or for any loss suffered by the
Fund (including, without limitation, by reason of the purchase, sale or
retention of any security) in connection with the performance of Sub-Advisor's
duties under this Agreement, except for a loss resulting from willful
misfeasance, bad faith or gross negligence on the part of Sub-Advisor in the
performance of its duties under this Agreement, or by reason of its reckless
disregard of its obligations and duties under this Agreement.
Advisor shall not be liable for, and Sub-Advisor will not take any
action against Advisor to hold Advisor liable for, any error of judgment or
mistake of law or for any loss suffered by the Fund (including, without
limitation, by reason of the purchase, sale or retention of any security) in
connection with the performance of Advisor's duties under this Agreement, except
for a loss resulting from willful misfeasance, bad faith or gross negligence on
the part of Advisor in the performance of its duties under this Agreement, or by
reason of its reckless disregard of its obligations and duties under this
Agreement.
The federal securities laws impose liabilities under certain
circumstances on persons who act in good faith, and therefore nothing herein
shall in any way constitute a waiver or limitation of any rights which each
party may have against the other under any federal securities laws based on
negligence and which cannot be modified in advance by contract.
9. Term; Termination; Amendment. This Agreement shall become effective
with respect to the Fund on the date first above written, provided that it has
been approved by a vote of a majority of the outstanding voting securities of
the Fund in accordance with the requirements of the 1940 Act, and shall remain
in full force unless terminated as hereinafter provided. This Agreement shall
continue in force for two years and from year to year thereafter, but only as
long as such continuance is specifically approved for the Fund at least annually
in the manner required by the 1940 Act and the rules and regulations thereunder;
provided, however, that if the continuation of this Agreement is not approved
for the Fund, Sub-Advisor may continue to serve in such capacity for the Fund in
the manner and to the extent permitted by the 1940 Act and the rules and
regulations thereunder, such as pursuant to an interim sub-advisory agreement in
accordance with Rule 15(a)(4) under the 1940 Act.
This Agreement shall automatically terminate in the event of its
assignment and may be terminated at any time without the payment of any penalty
by Advisor on no less than sixty (60) days'
E-2-7
written notice to Sub-Advisor. This Agreement may be terminated at any time
without the payment of any penalty by Sub-Advisor on no less than sixty (60)
days' written notice to Advisor. This Agreement may also be terminated by the
Fund with respect to the Fund by action of the Board of Trustees or by a vote of
a majority of the outstanding voting securities of the Fund on no less than
sixty (60) days' written notice to Sub-Advisor by the Fund.
This Agreement may be terminated with respect to the Fund at any time
without the payment of any penalty by Advisor, the Board of Trustees or by vote
of a majority of the outstanding voting securities of the Fund in the event that
it shall have been established by a court of competent jurisdiction that
Sub-Advisor or any officer or director of Sub-Advisor has taken any action that
results in a breach of the representations of Sub-Advisor set forth herein.
The terms "assignment" and "vote of a majority of the outstanding
voting securities" shall have the meanings set forth in the 1940 Act and the
rules and regulations thereunder.
Termination of this Agreement shall not affect the right of Sub-Advisor
to receive payments on any unpaid balance of the compensation described in
Section 6 earned prior to the effective date of such termination. This Agreement
shall automatically terminate in the event the Advisory Agreement between
Advisor and the Fund is terminated, assigned, or not renewed.
10. Notice. All notices or other communications required or permitted
to be given hereunder shall be in writing and shall be delivered or sent by
prepaid, first-class letter posted to the following addresses, or to such other
address as shall be designated in a notice given in accordance with this
section, and such notice shall be deemed to have been given at the time of
delivery of, if sent by post, five (5) week days after posting by airmail.
If to Advisor:
PADCO Advisors, Inc.
9601 Blackwell Road
Suite 500
Rockville, MD 20850
ATTENTION: President
If to Sub-Advisor:
Valu-Trac Investment Management Limited
Mains of Orton, Fochabers
Moray, Scotland
IV32 7QE
United Kingdom
ATTENTION: Chief Executive Officer
or such address as each such party may designate for the receipt of such notice.
11. Limitations on Liability. All parties hereto are expressly put on
notice of the Fund's Declaration of Trust and all amendments thereto, and the
limitation of shareholder and trustee liability contained therein. The
obligations of the Fund entered in the name or on behalf thereof by any of the
Trustees, representatives or agents are made not individually but only in such
capacities and are not binding upon any of the Trustees, officers, or
shareholders of the Fund individually but are binding upon
E-2-8
only the assets and property of the Fund, and persons dealing with the Fund must
look solely to the assets of the Fund and those assets belonging to the subject
Fund, for the enforcement of any claims.
12. Miscellaneous. The captions in this Agreement are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. If any
provision of this Agreement is held or made invalid by a court decision,
statute, rule or otherwise, the remainder of this Agreement will not be affected
thereby. This Agreement will be binding upon and shall inure to the benefit of
the parties hereto and their respective successors.
13. Applicable Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of Maryland applicable to contracts
between Maryland residents to be entered into and performed entirely within the
State of Maryland.
E-2-9
IN WITNESS WHEREOF, Advisor and Sub-Advisor have caused this Agreement to be
executed as of the day and year first above written.
PADCO ADVISORS, INC.,
a Maryland corporation
By:
-----------------------------------------
Title: Chief Executive Officer
VALU-TRAC INVESTMENT MANAGEMENT LIMITED,
a limited liability company incorporated in England,
By:
-----------------------------------------
Title:
E-2-10
Schedule A
Rydex Series Funds
- ------------------
International Opportunity Fund 0.35% per annum
(based on average daily net assets as calculated at the completion of each
calendar quarter)
E-2-11
APPENDIX F
INFORMATION REGARDING THE SUB-ADVISORY AGREEMENT WITH
VALU-TRAC INVESTMENT MANAGEMENT LIMITED AND FEES PAID TO THE SUB-ADVISER
Valu-Trac Investment Management Limited (the "Sub-Adviser") currently serves as
sub-adviser to the Rydex|SGI International Opportunity Fund (the "Fund"), a
series of Rydex Series Funds, pursuant to the investment sub-advisory agreement
between PADCO Advisors, Inc., the Fund's investment adviser (the "Investment
Adviser"), and the Sub-Adviser. The table below provides the following
information:
(i) the date of the Sub-Advisory Agreement;
(ii) the date on which the Fund's shareholders last approved the Fund's
Sub-Advisory Agreement;
(iii) the annual rate of sub-advisory fees paid by the Investment Adviser to
the Sub-Adviser for the Sub-Adviser's sub-advisory services to the
Fund; and
(iv) the aggregate amount of advisory fees paid by the Investment Adviser to
the Sub-Adviser for the Sub-Adviser's sub-advisory services to the Fund
during the Fund's most recently completed fiscal year (ended March 31,
2009).
- ---------------------------------------- ----------------------- -------------------------- -------------- -------------------------
FUND DATE OF SUB-ADVISORY DATE OF LAST SHAREHOLDER SUB-ADVISORY SUB-ADVISORY FEES PAID
AGREEMENT APPROVAL FEES TO SUB-ADVISER
- ---------------------------------------- ----------------------- -------------------------- -------------- -------------------------
Rydex|SGI International Opportunity Fund 8/29/2007 8/29/2007 0.35% [ ]
- ---------------------------------------- ----------------------- -------------------------- -------------- -------------------------
F-1
APPENDIX G
OUTSTANDING SHARES
As of February 24, 2010, the total number of shares outstanding for the Fund is
set forth in the table below:
- ---------------------------------- ------------------------------------------------------------------------
FUND SHARES OUTSTANDING
- ---------------------------------- ----------- ------------ ----------- ----------- ----------- -----------
A-CLASS C-CLASS H-CLASS ADVISOR INVESTOR TOTAL
CLASS CLASS
- ---------------------------------- ----------- ------------ ----------- ----------- ----------- -----------
Rydex|SGI International [ ] [ ] [ ] [ ] [ ] [ ]
Opportunity Fund
- ---------------------------------- ----------- ------------ ----------- ----------- ----------- -----------
G-1
APPENDIX H
BENEFICIAL OWNERS OF MORE THAN 5% OF A CLASS OF THE FUND
[As of February 24, 2010, the following persons owned, of record and
beneficially (unless otherwise indicated), 5% or more of a class of the Fund's
outstanding securities:]
- --------------------------------------------- -------------------------- ------------------ ---------------
RYDEX SERIES FUNDS: NAME AND ADDRESS OF THE AMOUNT OF SHARES PERCENTAGE OF
A-CLASS BENEFICIAL OWNER OWNED THE CLASS
- --------------------------------------------- -------------------------- ------------------ ---------------
Rydex|SGI International Opportunity Fund
- --------------------------------------------- -------------------------- ------------------ ---------------
- --------------------------------------------- -------------------------- ------------------ ---------------
RYDEX SERIES FUNDS: NAME AND ADDRESS OF THE AMOUNT OF SHARES PERCENTAGE OF
C-CLASS BENEFICIAL OWNER OWNED THE CLASS
- --------------------------------------------- -------------------------- ------------------ ---------------
Rydex|SGI International Opportunity Fund
- --------------------------------------------- -------------------------- ------------------ ---------------
- --------------------------------------------- -------------------------- ------------------ ---------------
RYDEX SERIES FUNDS: NAME AND ADDRESS OF THE AMOUNT OF SHARES PERCENTAGE OF
H-CLASS BENEFICIAL OWNER OWNED THE CLASS
- --------------------------------------------- -------------------------- ------------------ ---------------
Rydex|SGI International Opportunity Fund
- --------------------------------------------- -------------------------- ------------------ ---------------
H-1
[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.
V FOLD AND DETACH HERE V
[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, Inc.
FOR AGAINST ABSTAIN
| | | | | |
2. To approve a new investment sub-advisory agreement between PADCO
Advisors, Inc. and Security Global Investors, LLC for the Fund.
FOR AGAINST ABSTAIN
| | | | | |
3. To approve a new investment sub-advisory agreement between PADCO
Advisors, Inc. and Valu-Trac Investment Management Limited for the
Fund.
FOR AGAINST ABSTAIN
| | | | | |
4. 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.
V FOLD AND DETACH HERE V
- --------------------------------------------------------------------------------
Questions?
We urge you to spend time reviewing your proxy statement and the proposals
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