SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN A PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Under Rule 14a-12
RYDEX VARIABLE TRUST
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
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RYDEX VARIABLE TRUST
Dear Shareholder:
On June 28, 2007, Security Benefit Corporation and Security Benefit Life
Insurance Company (together, "Security Benefit") entered into a Purchase and
Sale Agreement with Rydex NV, Inc., ICT Holdings, LLC, Rydex Holdings, Inc.
("Rydex Holdings"), and Investment Capital Technologies, LLC ("ICT" and together
with Rydex Holdings, "Rydex") pursuant to which PADCO Advisors, Inc. and PADCO
Advisors II, Inc., d/b/a Rydex Investments, (the "Advisor"), the investment
adviser to the Rydex family of mutual funds, together with several other Rydex
entities, will be acquired by Security Benefit (the "Transaction"). Security
Benefit is a financial services firm that provides a broad variety of retirement
plan and other financial products to customers in the advisor, banking,
education, government, institutional, and qualified plan markets. Upon
completion of the Transaction, the Advisor, Rydex Distributors, Inc., the Rydex
Funds' distributor, and Rydex Fund Services, Inc., the administrator and
transfer agent for Rydex Series Funds, Rydex Dynamic Funds and Rydex Variable
Trust, will be wholly-owned subsidiaries of Security Benefit. Although the
Transaction is not expected to have any material impact on the Rydex Funds or
their shareholders, it will result in a change of control of the Advisor. Under
the requirements of the Investment Company Act of 1940, this change of control
will cause the automatic termination of each of the investment advisory
agreements between the Advisor and each of the Rydex Funds, including each
series of the Rydex Variable Trust (the "Funds"), as well as the investment
sub-advisory agreement between the Advisor and CLS Investment Firm, LLC ("CLS"),
which serves as the sub-adviser to three of the Funds. Accordingly, by this
proxy statement, we are requesting that the shareholders of the Funds vote on
whether to approve new investment advisory and sub-advisory agreements to take
the place of the current investment advisory and sub-advisory agreements that
will be terminated, so that the Advisor and CLS may continue to manage the
Funds, as applicable.
A Special Joint Meeting of Shareholders (the "Meeting") of each of the
Funds, which are listed in the Notice of Special Joint Meeting of Shareholders
on page 1, has been scheduled for Thursday, October 4, 2007. If you are a
shareholder of record of any of the Funds as of the close of business on August
6, 2007 you are entitled to vote at the Meeting and any adjournment of the
Meeting.
At the Meeting, you will be asked to approve new investment advisory
agreements with the Advisor, as well as a new investment sub-advisory agreement
between the Advisor and CLS under terms that are the same in all material
respects to those of the previous investment advisory and investment
sub-advisory agreements. NO FEE INCREASE IS EXPECTED TO RESULT FROM APPROVING
THE NEW INVESTMENT ADVISORY AND INVESTMENT SUB-ADVISORY AGREEMENTS.
I'm sure that you, like most people, lead a busy life and are tempted to
put this proxy aside for another day. Please don't. The failure to return
proxies could delay the
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Meeting and the approval of new investment advisory and sub-advisory agreements.
YOUR VOTE IS IMPORTANT TO US. PLEASE TAKE A FEW MINUTES TO REVIEW THIS PROXY
STATEMENT AND VOTE YOUR SHARES TODAY.
While you are, of course, welcome to join us at the Meeting and vote in
person, it is not necessary to do so. As a convenience, we have created three
other options by which to vote your shares:
o BY INTERNET: Follow the instructions located on your proxy card and
make sure this option is available at the time you plan to vote.
o BY PHONE: The phone number is located on your proxy card. Be sure
you have your control number, which is located on your proxy card,
available at the time you call.
o BY MAIL: Simply execute your proxy card and enclose it in the
postage paid envelope found in this proxy package.
Whether or not you plan to attend the Meeting, we need your vote. Please
do not hesitate to call 1-877-256-6082 if you have any questions about the
proposals under consideration. Thank you for taking the time to consider these
important proposals and for your investment in the Funds.
EVERY VOTE IS IMPORTANT
NO MATTER HOW MANY SHARES YOU OWN
The Advisor has engaged the services of Broadridge Financial Solutions,
Inc. ("Broadridge"), as the professional proxy solicitation agent, to assist
shareholders through the voting process. As the Meeting approaches, if you have
not yet voted, Broadridge may contact you to remind you to vote your shares in
order to be represented at the Meeting. If you have any questions about the
Proxy Statement or the execution of your vote, please contact Broadridge at
1-877-256-6082. They will be happy to assist you. Please see your proxy card for
additional information on how to cast your vote.
We appreciate your time and consideration.
Sincerely,
/s/ Carl G. Verboncoeur
Carl G. Verboncoeur
President
PROMPT EXECUTION AND RETURN OF THE ENCLOSED PROXY CARD IS REQUESTED. A
SELF-ADDRESSED, POSTAGE-PAID ENVELOPE IS ENCLOSED FOR YOUR CONVENIENCE, ALONG
WITH INSTRUCTIONS ON HOW TO VOTE OVER THE INTERNET OR BY TELEPHONE SHOULD YOU
PREFER TO VOTE BY ONE OF THOSE METHODS.
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VERY IMPORTANT NEWS FOR SHAREHOLDERS
We recommend that you read the complete Proxy Statement. For your
convenience, we have provided a brief overview of the proposals to be voted on
at the Meeting.
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 these important proposals concerning your investment in the Funds. Each
of the proposals relates to actions that need to be taken in response to
the impending change in control of Rydex Investments (the "Advisor"), the
investment adviser to the Funds.
Q. WHY AM I BEING ASKED TO VOTE ON NEW INVESTMENT ADVISORY AGREEMENTS?
A. The Investment Company Act of 1940, as amended (the "1940 Act"), the law
that regulates mutual funds, including the Funds, requires that an
investment advisory agreement between an investment adviser and a fund
terminate whenever there is a change in control of the investment adviser.
After such investment advisory agreement terminates, a new investment
advisory agreement between the investment adviser and the fund must be
approved by the shareholders of the fund in order for the investment
adviser to continue to manage the fund's investments.
The Advisor is a wholly-owned subsidiary of Rydex Holdings, Inc., which is
a wholly-owned subsidiary of Rydex NV, Inc. Rydex NV, Inc. is owned by
various trusts controlled by the Viragh family (the "Viragh Family
Trust"). On June 28, 2007, Security Benefit Corporation and Security
Benefit Life Insurance Company (together, "Security Benefit") entered into
a Purchase and Sale Agreement with Rydex NV, Inc., ICT Holdings, LLC,
Rydex Holdings, Inc. ("Rydex Holdings") and Investment Capital
Technologies, LLC ("ICT" and together with Rydex Holdings, "Rydex")
pursuant to which Security Benefit will acquire 100% of the outstanding
shares of common stock of Rydex Holdings and 100% of the outstanding
limited liability company interests of ICT (the "Transaction"). Once
completed, the Transaction will result in a change of control of Rydex
Holdings and, ultimately, the Advisor. The change of control of the
Advisor, in turn, will result in the termination of each of the investment
advisory agreements between the Advisor and the Funds, as well as the
investment sub-advisory agreement between the Advisor and CLS Investment
Firm, LLC ("CLS"), the sub-adviser to three of the Funds: the CLS
AdvisorOne Amerigo Fund, CLS AdvisorOne Berolina Fund, and CLS AdvisorOne
Clermont Fund (the "Sub-Advised Funds") (each, a "Current Agreement" and
collectively, the "Current Agreements").
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At a Special Meeting of the Board of Trustees of Rydex Variable Trust (the
"Board") held on July 10, 2007, and subsequently, during the Board's
regular quarterly meeting held on August 27, 2007, the Board considered
and voted in favor of new investment advisory agreements for Rydex
Variable Trust, and a new investment sub-advisory agreement between the
Advisor and CLS for the Sub-Advised Funds, (each, a "New Agreement" and
collectively, the "New Agreements") pursuant to which, subject to each New
Agreement's approval by each Fund's shareholders, as applicable, the
Advisor will continue to serve as investment adviser to each Fund, and CLS
will continue to serve as investment sub-adviser to the Sub-Advised Funds,
after the completion of the Transaction. The Advisor's fees for its
services to the Funds under each New Agreement will be the same as its
fees under the corresponding Current Agreement (the Advisor is responsible
for the payment of fees to CLS for services it performs for the
Sub-Advised Funds). The other terms of the New Agreements will also be the
same in all material respects to those of the Current Agreements.
Q. HOW WILL THE CHANGE IN CONTROL OF THE ADVISOR AFFECT ME?
A. Other than the change in the ownership, the operations of the Advisor, the
fees payable to the Advisor and the persons responsible for the day-to-day
investment management of the Funds are expected to remain unchanged.
Security Benefit and the current management of the Advisor have assured
the Board that there will be no reduction in the nature or quality of the
investment advisory services provided to each Fund as a result of the
change in ownership.
Q. HOW DOES THE BOARD SUGGEST THAT I VOTE?
A. After careful consideration, the Board voted unanimously to recommend 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.
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 their
Fund(s). Additionally, your immediate response on the enclosed proxy card
will help save the costs of any further solicitations.
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Q. I'M A VARIABLE CONTRACT OWNER. HOW WILL MY VOTE BE COUNTED?
A. As a variable contract owner of record at the close of business on the
record date, you have the right to instruct the life insurance company
that issued your contract as to how the shares of the Fund(s) attributable
to your contract should be voted. If no voting instructions are received,
the life insurance company will vote the shares attributable to your
contract in proportion ("for" or "withhold authority") to those shares for
which instructions are received. As a result, a small number of contract
owners could determine the outcome of the vote if other contract owners
fail to vote.
Q. I'M A SMALL INVESTOR. WHY SHOULD I BOTHER TO VOTE?
A. Every vote is important. If numerous shareholders just like you fail to
vote, the Funds may not receive enough votes to go forward with the
Special Joint Meeting of Shareholders (the "Meeting"). If this happens,
the Funds will need to solicit votes again. This may delay the Meeting and
the approval of the New Agreements.
Q. HOW DO I PLACE MY VOTE?
A. You may provide a Fund with your vote by mail, by Internet, by telephone,
or in person. You may use the enclosed postage-paid envelope to mail your
proxy card. Please follow the enclosed instructions to utilize any of
these voting methods. If you need more information on how to vote, or if
you have any questions, please call the Funds' proxy solicitation agent.
Q. WHOM DO I CALL IF I HAVE QUESTIONS?
A. We will be happy to answer your questions about this proxy solicitation.
Please call the Funds' proxy solicitation agent, Broadridge, at
1-877-256-6082 between 9:30 a.m. and 9:00 p.m., Eastern Time, Monday
through Friday, and between 10:00 a.m. and 6:00 p.m., Eastern Time on
Saturday.
PROMPT EXECUTION AND RETURN OF THE ENCLOSED PROXY CARD IS REQUESTED. A
SELF-ADDRESSED, POSTAGE-PAID ENVELOPE IS ENCLOSED FOR YOUR CONVENIENCE, ALONG
WITH INSTRUCTIONS ON HOW TO VOTE OVER THE INTERNET OR BY TELEPHONE SHOULD YOU
PREFER TO VOTE BY ONE OF THOSE METHODS.
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RYDEX VARIABLE TRUST
9601 Blackwell Road, Suite 500
Rockville, Maryland 20850
NOTICE OF SPECIAL JOINT MEETING OF SHAREHOLDERS
TO BE HELD ON THURSDAY, OCTOBER 4, 2007
Notice is hereby given that a Special Joint Meeting of Shareholders (the
"Meeting") of Rydex Variable Trust (the "Trust") and each of its series (each a
"Fund" and collectively, the "Funds") listed below will be held at the offices
of Rydex Investments, 9601 Blackwell Road, Suite 500, Rockville, Maryland 20850
on Thursday, October 4, 2007 at 4:30 p.m. Eastern Time.
RYDEX VARIABLE TRUST
Absolute Return Strategies Inverse Dow 2x Strategy Fund Mid-Cap Value Fund
Fund (Formerly, Inverse Dynamic
Dow Fund) Multi-Cap Core Equity Fund
Banking Fund
Inverse Government Long Bond Nova Fund
Basic Materials Fund Strategy Fund (Formerly,
Inverse Government Long Bond OTC 2x Strategy Fund
Biotechnology Fund Fund) (Formerly, Dynamic OTC Fund)
CLS AdvisorOne Amerigo Fund Inverse High Yield Strategy
Fund OTC Fund
CLS AdvisorOne Berolina Fund
Inverse Mid-Cap Strategy Fund Precious Metals Fund
CLS AdvisorOne Clermont (Formerly, Inverse Mid-Cap
Fund Fund) Real Estate Fund
Commodities Strategy Fund Inverse OTC 2x Strategy Fund Retailing Fund
(Formerly, Commodities Fund) (Formerly, Inverse Dynamic
OTC Fund) Russell 2000(R) 1.5x Strategy
Consumer Products Fund Fund (Formerly, Russell 2000(R)
Inverse OTC Strategy Fund Advantage Fund)
Dow 2x Strategy Fund (Formerly, Inverse OTC Fund)
(Formerly, Dynamic Dow Fund) Russell 2000(R) 2x Strategy Fund
Inverse Russell 2000(R) 2x (Formerly, Dynamic Russell
Electronics Fund Strategy Fund (Formerly, 2000(R) Fund)
Inverse Dynamic Russell 2000(R)
Energy Fund Fund) Russell 2000(R) Fund
Energy Services Fund Inverse Russell 2000(R) Strategy S&P 500 2x Strategy Fund
Fund (Formerly, Inverse Russell (Formerly, Dynamic S&P 500
Essential Portfolio Aggressive 2000(R) Fund) Fund)
Fund
Inverse S&P 500 2x Strategy S&P 500 Fund
Essential Portfolio Conservative Fund (Formerly, Inverse
Fund Dynamic S&P 500 Fund) Sector Rotation Fund
Essential Portfolio Moderate Inverse S&P 500 Strategy Fund Small-Cap Growth Fund
Fund (Formerly, Inverse S&P 500
Fund) Small-Cap Value Fund
Europe 1.25x Strategy Fund
(Formerly, Europe Advantage Japan 1.25x Strategy Fund Strengthening Dollar 2x
Fund) (Formerly, Japan Advantage Strategy Fund (Formerly,
Fund) Dynamic Strengthening Dollar
Financial Services Fund Fund)
Government Long Bond 1.2x Large-Cap Growth Fund
Strategy Fund (Formerly, Technology Fund
Government Long Bond Large-Cap Value Fund
Advantage Fund) Telecommunications Fund
Leisure Fund
Health Care Fund Mid-Cap 1.5x Strategy Fund Transportation Fund
(Formerly, Mid-Cap Advantage
Hedged Equity Fund Fund) U.S. Government Money
Market Fund
High Yield Strategy Fund Mid-Cap Growth Fund
Utilities Fund
Internet Fund
Weakening Dollar 2x Strategy
Fund (Formerly, Dynamic
Weakening Dollar Fund)
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At the Meeting, shareholders of record (the "Shareholders") will be asked
to consider and act on the following proposals (each, a "Proposal"):
DESCRIPTION OF PROPOSAL: FUNDS SOLICITED:
1. THE APPROVAL OF A NEW INVESTMENT All Funds (Except the Absolute Return
ADVISORY AGREEMENT BETWEEN RYDEX Strategies Fund and Hedged Equity
VARIABLE TRUST AND PADCO Fund)
ADVISORS II, INC.*
2. THE APPROVAL OF A NEW INVESTMENT Absolute Return Strategies Fund
ADVISORY AGREEMENT BETWEEN RYDEX Hedged Equity Fund
VARIABLE TRUST AND PADCO
ADVISORS II, INC.*
3. THE APPROVAL OF A NEW INVESTMENT CLS AdvisorOne Amerigo Fund
SUB-ADVISORY AGREEMENT BETWEEN CLS AdvisorOne Berolina Fund
PADCO ADVISORS II, INC.* AND CLS CLS AdvisorOne Clermont Fund
INVESTMENT FIRM, LLC.
4. ANY OTHER BUSINESS PROPERLY
BROUGHT BEFORE THE MEETING.
* PADCO Advisors, Inc. and PADCO Advisors II, Inc. collectively do business as
Rydex Investments.
Your vote is important no matter how many shares you own, and all
Shareholders are cordially invited to attend the Meeting and vote in person.
However, if you are unable to attend the Meeting, you are requested to mark,
sign and date the enclosed proxy card and return it promptly by mail in the
enclosed, postage-paid envelope so that the Meeting may be held and a maximum
number of shares may be voted. In addition, you can vote easily and quickly by
Internet or by telephone. You may change or revoke your vote even though a proxy
has already been returned by written notice to the Trust, by submitting a
subsequent proxy by mail, by Internet, by telephone, or by voting in person at
the Meeting.
Shareholders of record at the close of business on August 6, 2007 are
entitled to notice of and to vote at the Meeting or any adjournment thereof.
FOR A FREE COPY OF THE FUNDS' MOST RECENT ANNUAL AND SEMI-ANNUAL REPORTS,
SHAREHOLDERS MAY CALL 1-800-820-0888, OR WRITE TO THE FUNDS AT 9601 BLACKWELL
ROAD, SUITE 500, ROCKVILLE, MARYLAND 20850. In addition, the Funds are required
by federal law to file reports, proxy statements and other information with the
U.S. Securities and Exchange Commission (the "SEC"). The SEC maintains a website
that contains information about the Funds (www.sec.gov). You can inspect and
copy the proxy material, reports and other information at the public reference
facilities of the SEC located at 100 F Street, N.E., Room 1580, Washington, D.C.
20549. You can also obtain copies of these materials from the SEC Office of
Freedom of Information and Privacy Act Operations, Operations Center, 6432
General Green Way, Alexandria, VA 22313-2413, at prescribed rates.
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By Order of the Board of Trustees
/s/ Carl G. Verboncoeur
Carl G. Verboncoeur
President
September 6, 2007
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RYDEX VARIABLE TRUST
9601 Blackwell Road, Suite 500
Rockville, Maryland 20850
PROXY STATEMENT
SPECIAL JOINT MEETING OF SHAREHOLDERS
TO BE HELD ON THURSDAY, OCTOBER 4, 2007
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Trustees of Rydex Variable Trust (the "Trust") and each
of its series (each a "Fund" and collectively, the "Funds"):
RYDEX VARIABLE TRUST
Absolute Return Strategies Internet Fund Mid-Cap Growth Fund
Fund
Inverse Dow 2x Strategy Fund Mid-Cap Value Fund
Banking Fund (Formerly, Inverse Dynamic
Dow Fund) Multi-Cap Core Equity Fund
Basic Materials Fund
Inverse Government Long Bond Nova Fund
Biotechnology Fund Strategy Fund (Formerly,
Inverse Government Long Bond OTC 2x Strategy Fund
CLS AdvisorOne Amerigo Fund Fund) (Formerly, Dynamic OTC Fund)
CLS AdvisorOne Berolina Fund Inverse High Yield Strategy OTC Fund
Fund
CLS AdvisorOne Clermont Precious Metals Fund
Fund Inverse Mid-Cap Strategy Fund
(Formerly, Inverse Mid-Cap Real Estate Fund
Commodities Strategy Fund Fund)
(Formerly, Commodities Fund) Retailing Fund
Inverse OTC 2x Strategy Fund
Consumer Products Fund (Formerly, Inverse Dynamic Russell 2000(R) 1.5x Strategy
OTC Fund) Fund (Formerly, Russell 2000(R)
Dow 2x Strategy Fund Advantage Fund)
(Formerly, Dynamic Dow Fund) Inverse OTC Strategy Fund
(Formerly, Inverse OTC Fund) Russell 2000(R) 2x Strategy Fund
Electronics Fund (Formerly, Dynamic Russell
Inverse Russell 2000(R) 2x 2000(R) Fund)
Energy Fund Strategy Fund (Formerly,
Inverse Dynamic Russell 2000(R) Russell 2000(R) Fund
Energy Services Fund Fund)
S&P 500 2x Strategy Fund
Essential Portfolio Aggressive Inverse Russell 2000(R) Strategy (Formerly, Dynamic S&P 500
Fund Fund (Formerly, Inverse Russell Fund)
2000(R) Fund)
Essential Portfolio Conservative S&P 500 Fund
Fund Inverse S&P 500 2x Strategy
Fund (Formerly, Inverse Sector Rotation Fund
Essential Portfolio Moderate Dynamic S&P 500 Fund)
Fund Small-Cap Growth Fund
Inverse S&P 500 Strategy Fund
Europe 1.25x Strategy Fund (Formerly, Inverse S&P 500 Small-Cap Value Fund
(Formerly, Europe Advantage Fund)
Fund) Strengthening Dollar 2x
Japan 1.25x Strategy Fund Strategy Fund (Formerly,
Financial Services Fund (Formerly, Japan Advantage Dynamic Strengthening Dollar
Fund) Fund)
Government Long Bond 1.2x
Strategy Fund (Formerly, Large-Cap Growth Fund Technology Fund
Government Long Bond
Advantage Fund) Large-Cap Value Fund Telecommunications Fund
Health Care Fund Leisure Fund Transportation Fund
Hedged Equity Fund Mid-Cap 1.5x Strategy Fund U.S. Government Money
(Formerly, Mid-Cap Advantage Market Fund
High Yield Strategy Fund Fund)
Utilities Fund
Weakening Dollar 2x Strategy
Fund (Formerly, Dynamic
Weakening Dollar Fund)
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INTRODUCTION AND GENERAL INFORMATION
GENERAL INFORMATION. As used in this Proxy Statement, the Trust's Board of
Trustees is referred to as the "Board," and the term "Trustee" includes each
member of the Board. A Trustee that is an interested person of the Trust is
referred to in this Proxy Statement as an "Interested Trustee." A Trustee may be
an interested person of the Trust because he or she is affiliated with the
Trust's investment adviser, PADCO Advisors II, Inc., the Trust's principal
underwriter or any of their affiliates. Together with PADCO Advisors, Inc.,
PADCO Advisors II, Inc. operates as Rydex Investments (the "Advisor"). Trustees
that are not interested persons of the Trust are referred to in this Proxy
Statement as "Independent Trustees."
The Trust is organized as a Delaware statutory trust and, as such, is not
required to hold annual meetings of Shareholders. The Board has called the
Special Joint Meeting of Shareholders (the "Meeting") in order to permit the
Funds' shareholders of record as of August 6, 2007 (the "Record Date" and the
"Shareholders") to consider and vote on the Proposals described in the foregoing
notice.
Your vote is important no matter how many shares you own. If you wish to
participate in the Meeting you may submit the proxy card included with this
Proxy Statement or attend in person. You can vote easily and quickly by mail, by
Internet, by telephone or in person. At any time before the Meeting, you may
revoke your vote, even though a proxy has already been returned, by written
notice to the Trust at 9601 Blackwell Road, Suite 500, Rockville, Maryland 20850
or by submitting a subsequent proxy, by mail, by Internet, by telephone or by
voting in person at the Meeting. Should you require additional information
regarding any of the proposals contained in this Proxy Statement, or replacement
proxy cards, you may contact the Funds' proxy solicitation agent at
1-877-256-6082.
In addition to the solicitation of proxies by mail, the Board and officers
of the Trust, as well as employees of any proxy soliciting firm engaged by the
Board and the officers of the Trust, may solicit proxies in person or by
telephone. Persons holding shares as nominees will, upon request, be reimbursed
for their reasonable expenses incurred in sending soliciting materials to their
principals. Security Benefit, as defined below, and the Advisor, together with
its affiliates, have agreed to bear the costs of the Meeting and the production
and dissemination of the proxy materials. The proxy card and this Proxy
Statement are being mailed to Shareholders on or about September 6, 2007.
QUORUM AND MEETING ADJOURNMENTS. Each whole share is entitled to one vote,
and each fractional share is entitled to a proportionate fractional vote on each
matter as to which such shares are to be voted at the Meeting. One-third
(33 1/3%) of a Fund's shares entitled to vote on a proposal constitutes a
quorum. Abstentions and broker non-votes will not be counted for or against a
proposal, but will be counted for purposes of determining whether a quorum is
present. Because the affirmative vote of a majority of the outstanding voting
securities of each Fund, as defined below, is required to
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approve a proposal, abstentions and broker non-votes will effectively be a vote
against a proposal. Life insurance companies will vote shares attributable to
variable contracts for which no voting instructions are received in proportion
("for" or "withhold authority") to those shares for which instructions are
received. As a result, a small number of contract owners could determine the
outcome of the vote if other owners fail to vote.
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.
VOTE REQUIRED TO APPROVE PROPOSALS. If a quorum is present at the Meeting,
Proposals 1, 2, and 3 require the affirmative vote of a "majority of the
outstanding voting securities" of each Fund to approve the Proposal with respect
to that Fund. Under the Investment Company Act of 1940, as amended (the "1940
Act"), the vote of a "majority of the outstanding voting securities" of a Fund
means the affirmative vote of the lesser of (a) 67% or more of the voting
securities present at the meeting or represented by proxy if the holders of more
than 50% of the outstanding voting securities are present or represented by
proxy or (b) more than 50% of the outstanding voting securities.
VOTING PROCESS. You can vote in any one of the following four ways:
o BY INTERNET: Follow the instructions located on your proxy card and
make sure this option is available at the time you plan to vote.
o BY TELEPHONE: Use a touch-tone telephone to call the toll-free phone
number located on your proxy card. Be sure you have your control
number, which is located on your proxy card, available at the time
of the call.
o BY MAIL: Simply execute your proxy card and enclose it in the
postage paid envelope found in this proxy package.
o IN PERSON: Vote your shares in person at the Meeting.
Shares represented by duly executed proxies will be voted in accordance
with the instructions given. All proxy cards solicited that are properly
executed and received in time to be voted at the Meeting will be voted at the
Meeting or any adjournment thereof according to the instructions on the proxy
card. If no specification is made on a proxy card, it will be voted FOR the
matters specified on the proxy card. At any time before it has been voted, your
proxy may be revoked in one of the following ways: (i) by sending a signed,
written letter of revocation to the Secretary of the Trust; (ii) by properly
executing a later-dated proxy (by any of the methods of voting
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described above); or (iii) by attending the Meeting, requesting return of any
previously delivered proxy, and voting in person.
DISCUSSION OF PROPOSALS 1 - 3:
APPROVAL OF NEW INVESTMENT ADVISORY AGREEMENTS
Proposals 1, 2, and 3 all relate to the approval by Shareholders of new
investment advisory agreements for the Trust. The 1940 Act, which regulates
investment companies such as the Trust, requires an investment advisory
agreement between an investment adviser and an investment company to terminate
whenever there is a change in control of the investment company's investment
adviser. After such investment advisory agreement terminates, a new investment
advisory agreement must be approved by shareholders of the investment company in
order for the investment adviser to continue to manage the investment company's
investments. FOR THE REASONS DISCUSSED BELOW, THE BOARD RECOMMENDS THAT
SHAREHOLDERS VOTE "FOR" THE APPROVAL OF EACH OF THE NEW INVESTMENT ADVISORY
AGREEMENTS.
INFORMATION REGARDING THE CHANGE IN CONTROL OF THE ADVISOR
INFORMATION REGARDING THE TRANSACTION. The Advisor is a wholly-owned
subsidiary of Rydex Holdings, Inc. ("Rydex Holdings"), which is a wholly-owned
subsidiary of Rydex NV, Inc. Rydex NV, Inc. is owned by various trusts
controlled by the Viragh family (the "Viragh Family Trusts"). On June 28, 2007,
Security Benefit Corporation and Security Benefit Life Insurance Company
(together, "Security Benefit") entered into a Purchase and Sale Agreement with
Rydex NV, Inc., ICT Holdings LLC, Rydex Holdings and Investment Capital
Technologies, LLC ("ICT" and together with Rydex Holdings, "Rydex") pursuant to
which Security Benefit will acquire 100% of the outstanding shares of common
stock of Rydex Holdings and 100% of the outstanding limited liability company
interests of ICT (the "Transaction"). Once completed, the Transaction will
result in a change of control of Rydex Holdings and, ultimately, the Advisor.
The change of control of the Advisor, in turn, will result in the termination of
each of the investment advisory agreements between the Advisor and the Trust, as
well as the investment sub-advisory agreement between the Advisor and CLS
Investment Firm, LLC ("CLS"), the sub-adviser to the CLS AdvisorOne Amerigo
Fund, CLS AdvisorOne Berolina Fund, and CLS AdvisorOne Clermont Fund (the
"Sub-Advised Funds") (each, a "Current Agreement" and collectively, the "Current
Agreements"). The Transaction is not expected to result in a change in the
persons responsible for the day-to-day management of the Funds, or in the
operations of the Funds or in any changes in the investment approach of the
Advisor with respect to the Funds.
INTEREST OF CERTAIN PERSONS IN THE TRANSACTION. Certain executive officers
and both of the Interested Trustees of the Trust are participants in the Rydex
Holdings, Inc. Amended and Restated Value Participation Plan established to
reward certain key executives of Rydex for the increase in value of Rydex over
time. Upon the Closing of the Transaction, which is valued at approximately
$752,000,000, subject to adjustment in accordance with the Purchase and Sale
Agreement, and at certain defined times
7
thereafter, certain of these executive officers and Interested Trustees will be
entitled to receive payments thereunder. As a result of this direct and indirect
interest in the Transaction and the Advisor, and any future employment
arrangements with Security Benefit, these executive officers and Interested
Trustees may be deemed to have a substantial interest in shareholder approval of
the new investment advisory agreements.
THE APPROVAL OF THE NEW AGREEMENTS. At a Special Meeting of the Board of
Trustees held on July 10, 2007 (the "July Board Meeting"), the Board considered
and voted in favor of new investment advisory agreements for the Trust, and a
new investment sub-advisory agreement between the Advisor and CLS for the
Sub-Advised Funds, (each, a "New Agreement" and collectively, the "New
Agreements") pursuant to which, subject to their approval by each Fund's
Shareholders, as applicable, the Advisor will continue to serve as investment
adviser to each Fund, and CLS will continue to serve as investment sub-adviser
to the Sub-Advised Funds, after the completion of the Transaction. The Advisor's
fees for its services to the Funds under each New Agreement will be the same as
its fees under the corresponding Current Agreement (the Advisor is responsible
for the payment of fees to CLS for services it performs for the Sub-Advised
Funds). The other terms of the New Agreements will also be the same in all
material respects to those of the Current Agreements. In reviewing the New
Agreements, the Board considered its review of relevant materials relating to
the Current Agreements at the previous annual renewal meeting on August 27,
2006. At the Board's most recent annual renewal meeting on August 27, 2007 (the
"2007 Renewal Meeting"), the Board reconsidered and again voted in favor of the
New Agreements. In reviewing the New Agreements, the Board considered all of the
relevant materials relating to both the Current and New Agreements that were
presented to the Board at the July Board Meeting and 2007 Renewal Meeting.
While Rydex expects the Transaction to be completed by the end of the
fourth quarter of 2007, 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 Agreements will not be entered
into, even if they have been approved by Fund shareholders.
THE CURRENT AGREEMENTS
With the exception of the Trust's investment advisory agreement relating
to the Absolute Return Strategies Fund and Hedged Equity Fund, which were formed
in 2005, the Current Agreements have been in place between the Trust and the
Advisor since April 30, 2004. On April 30, 2004, a Special Meeting of
Shareholders was held to approve the Current Agreements for the Trust and the
Current Agreement between the Advisor and CLS following a change of control of
the Advisor resulting from the passing of Mr. Albert P. "Skip" Viragh, Jr., who
was previously the controlling shareholder of the Advisor (the "2004 Special
Meeting"). The Current Agreements are substantially similar to the investment
advisory agreements that were approved at the time of the Trust's original
creation and organization, and have been revised only to
8
the extent necessary to incorporate non-material changes required by regulation
or new industry standards. Each Current Agreement had an initial term of two
years, after which the continuance of each Current Agreement must be
specifically approved at least annually: (i) by the vote of the Trustees or by a
vote of the shareholders; and (ii) 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. In accordance with the Board's best practices, the Current Agreements
have been renewed by the Board on an annual basis following each Current
Agreement's initial approval.
BOARD CONSIDERATIONS IN APPROVING THE NEW INVESTMENT ADVISORY AGREEMENTS AND THE
CONTINUATION OF THE CURRENT INVESTMENT ADVISORY AGREEMENTS
In preparation for the 2007 Renewal Meeting, the Board requested and
received written materials from the Advisor about: (a) the quality of the
Advisor's investment management and other services; (b) the Advisor's investment
management personnel; (c) the Advisor's operations and financial condition; (d)
the Advisor's brokerage practices (including any soft dollar arrangements) and
investment strategies; (e) the level of the advisory fees that the Advisor
charges the Funds compared with the fees it charges to comparable mutual funds
or accounts; (f) each Fund's overall fees and operating expenses compared with
similar mutual funds; (g) the level of the Advisor's profitability from its
Fund-related operations; (h) the Advisor's compliance systems; (i) the Advisor's
policies on and compliance procedures for personal securities transactions; (j)
the Advisor's reputation, expertise and resources in domestic financial markets;
and (k) Fund performance compared with similar mutual funds. Certain of these
considerations are discussed in more detail below.
In its deliberations at the 2007 Renewal Meeting, the Board did not
identify any single piece of information that was all-important or controlling.
Based on the Board's deliberations and its evaluation of the information
referenced above and described in more detail below, the Board, including all of
the Independent Trustees, unanimously: (a) concluded that terms of the Current
Agreements and New Agreements were fair and reasonable; (b) concluded that the
Advisor's fees were reasonable in light of the services that the Advisor
provides to the Funds; (c) agreed to renew each Current Agreement for an
additional one-year term; and (d) agreed to approve the New Agreements for an
initial term of two years. In approving the New Agreements and the continuation
of the Current Agreements at the 2007 Renewal Meeting, the Board, including the
Independent Trustees, advised by independent counsel, considered the factors
discussed below.
NATURE, EXTENT, AND QUALITY OF SERVICES PROVIDED BY THE ADVISOR. At the
2007 Renewal Meeting, the Board reviewed the scope of services to be provided by
the Advisor under each Current Agreement and noted that there would be no
significant differences between the scope of services required to be provided by
the Advisor for the past year and the scope of services required to be provided
by the Advisor for the upcoming year. In reviewing the scope of services
provided to the Funds by the Advisor, the Board reviewed and discussed the
Advisor's investment experience,
9
noting that the Advisor and its affiliates have committed significant resources
over time to the support of the Funds. The Board also considered the Advisor's
compliance program and its compliance record with respect to the Funds. In that
regard, the Board noted that the Advisor 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 Advisor's investment
processes and strategies, and matters related to the Advisor's portfolio
transaction policies and procedures. In particular, the Board noted the
substantial volume of portfolio trades and shareholder transaction activity, in
general, processed by the Advisor due to the unlimited exchange policy of the
majority of the Funds. The Board further noted that the Funds have consistently
met their investment objectives since their respective inception dates. Based on
this review, the Board concluded that the nature, extent, and quality of
services to be provided by the Advisor to the Funds under the Current Agreements
were appropriate and continued to support the Board's original selection of the
Advisor as investment adviser to the Funds.
FUND EXPENSES AND PERFORMANCE OF THE FUNDS AND THE ADVISOR. At the 2007
Renewal Meeting, the Board reviewed statistical information prepared by the
Advisor regarding the expense ratio components, including actual advisory fees,
waivers/reimbursements, and gross and net total expenses of each Fund in
comparison with the same information for other funds registered under the 1940
Act determined by the Advisor to comprise each Fund's applicable peer group.
Because few funds seek to provide unlimited exchange privileges similar to those
of the majority of the Funds, each Fund's applicable peer group is generally
limited to the funds of two unaffiliated mutual fund families. In addition, the
Board reviewed statistical information prepared by the Advisor relating to the
performance of each Fund, as well as each Fund's ability to successfully track
its benchmark over time, and a comparison of each Fund's performance to funds
with similar investment objectives for the same periods and to appropriate
indices/benchmarks, in light of total return, yield and market trends. The Board
further noted that despite the unique nature of the Funds, the peer fund
information presented to the Board was meaningful because the peer funds'
investment objectives and strategies were closely aligned with those of the
Funds. The Board noted that most of the Funds either outperformed their peer
funds or performed in line with them over relevant periods. The Board also noted
that the investment advisory fees for the Funds were equivalent to those of
their peers and that the overall expenses for the Funds were only slightly
higher than the total expenses of the peer funds, due in part to differing share
classes and distribution fees. Based on this review, the Board concluded that
the investment advisory fees and expense levels and the historical performance
of the Funds, as managed by the Advisor, as compared to the investment advisory
fees and expense levels and performance of the peer funds, were satisfactory for
the purposes of approving the continuance of the Current Agreements.
10
COSTS OF SERVICES PROVIDED TO THE FUNDS AND PROFITS REALIZED BY THE
ADVISOR AND ITS AFFILIATES. At the 2007 Renewal Meeting, the Board reviewed
information about the profitability of the Funds to the Advisor based on the
advisory fees payable under the Current Agreements for the last calendar year.
The Advisor also presented the Board with material discussing its methodology
for determining the level of advisory fees assessable to the Funds. The Board
analyzed the Funds' expenses, including the investment advisory fees paid to the
Advisor. The Board also reviewed information regarding direct revenue received
by the Advisor and ancillary revenue received by the Advisor and/or its
affiliates in connection with the services provided to the Funds by the Advisor
(as discussed below) and/or its affiliates. The Board also discussed the
Advisor's profit margin as reflected in the Advisor's profitability analysis and
reviewed information regarding economies of scale (as discussed below). Based on
this review, the Board concluded that the profits to be realized by the Advisor
and its affiliates under the Current Agreements and from other relationships
between the Funds and the Advisor and/or its affiliates, if any, were within the
range the Board considered reasonable and appropriate.
ECONOMIES OF SCALE. In connection with its review of the Funds'
profitability analysis at the 2007 Renewal Meeting, the Board reviewed
information regarding economies of scale or other efficiencies that may result
from increases in the Funds' asset levels. The Board noted that neither the
Current Agreements nor the New Agreements for the Funds provided for any
breakpoints in the investment advisory fees as a result of increases in the
asset levels of the Funds. The Board also noted that though the Advisor's assets
under management were significant, the amount is spread among more than 100
Funds. Further limiting the realization of economies of scale, is the ability of
shareholders of many of the Funds to engage in unlimited trading. The Board also
reviewed and considered the Advisor's historic profitability as investment
adviser to the Funds and determined that reductions in advisory fees or
additions of breakpoints were not warranted at this juncture. Based on this
review, the Board, recognizing its responsibility to consider this issue at
least annually, determined that the economies of scale, if any, were de minimis.
OTHER BENEFITS TO THE ADVISOR AND/OR ITS AFFILIATES. At the 2007 Renewal
Meeting, in addition to evaluating the services provided by the Advisor, the
Board also considered the nature, extent, quality and cost of the
administrative, distribution, and shareholder services performed by the
Advisor's affiliates under separate agreements. The Board noted that the Advisor
reports its use of soft dollars to the Board on a quarterly basis, as well as
any portfolio transactions on behalf of the Funds placed through an affiliate of
the Funds or the Advisor pursuant to Rule 17e-1 under the 1940 Act. Based on its
review, the Board concluded that the nature and quality of the services provided
by the Advisor's affiliates to the Trust will benefit the Funds' shareholders,
and that any ancillary benefits would not be disadvantageous to the Funds'
shareholders, particularly in light of the Board's view that the Funds'
shareholders benefit from investing in a fund that is part of a large family of
funds offering a variety of investment strategies and services.
11
BOARD CONSIDERATIONS IN APPROVING THE NEW INVESTMENT SUB-ADVISORY AGREEMENT AND
THE CONTINUATION OF THE CURRENT INVESTMENT SUB-ADVISORY AGREEMENT
In preparation for the 2007 Renewal Meeting, the Board requested and
received written materials from the Advisor and CLS about: (a) the quality of
CLS's investment management and other services; (b) CLS's investment management
personnel; (c) CLS's operations and financial condition; (d) CLS's investment
strategies; (e) the level of the sub-advisory fees that CLS charges the
Sub-Advised Funds compared with the fees it charges to comparable mutual funds
or accounts; (f) each Sub-Advised Fund's overall fees and operating expenses
compared with similar mutual funds; (g) the level of CLS's profitability from
its Sub-Advised Fund-related operations; (h) CLS's compliance systems; (i) CLS's
policies on and compliance procedures for personal securities transactions; (j)
CLS's reputation, expertise, and resources in domestic financial markets; and
(k) Sub-Advised Fund performance compared with similar mutual funds. Certain of
these considerations are discussed in more detail below.
In its deliberations at the 2007 Renewal Meeting, the Board did not
identify any single piece of information that was all-important or controlling.
Based on the Board's deliberations and its evaluation of the information
referenced above and described in more detail below, the Board, including all of
the Independent Trustees, unanimously: (a) concluded that terms of the Current
Agreement and New Agreement were fair and reasonable; (b) concluded that CLS's
fees were reasonable in light of the services that CLS provides to the
Sub-Advised Funds; (c) agreed to renew the Current Agreement for an additional
one-year term; and (d) agreed to approve the New Agreement for an initial term
of two years. In approving the New Agreement and the continuation of the Current
Agreement at the 2007 Renewal Meeting, the Board, including the Independent
Trustees, advised by independent counsel, considered the factors discussed
below.
NATURE, EXTENT AND QUALITY OF SERVICES PROVIDED BY CLS. At the 2007
Renewal Meeting, the Board reviewed the scope of services to be provided by CLS
under the Current Agreement and noted that there would be no significant
differences between the scope of services required to be provided by CLS for the
past year and the scope of services required to be provided by CLS for the
upcoming year. In reviewing the scope of services provided to the Sub-Advised
Funds by CLS, the Board reviewed and discussed CLS's investment experience,
noting that CLS and its affiliates have committed significant resources over
time to the support of the Sub-Advised Funds. The Board also considered CLS's
compliance program and its compliance record with respect to the Sub-Advised
Funds. In that regard, the Board noted that CLS provides information regarding
the portfolio management and compliance to the Board on a periodic basis in
connection with regularly scheduled meetings of the Board. In addition to the
above considerations, the Board reviewed and considered CLS's investment
processes and strategies, and matters related to CLS's portfolio transaction
policies and procedures. The Board further noted that the Sub-Advised
12
Funds have met their investment objectives consistently since their respective
inception dates. Based on this review, the Board concluded that the nature,
extent and quality of services to be provided by CLS to the Sub-Advised Funds
under the Current Agreement were appropriate and continued to support the
Board's original selection of CLS as investment sub-adviser to the Sub-Advised
Funds.
FUND EXPENSES AND PERFORMANCE OF THE SUB-ADVISED FUNDS AND CLS. At the
2007 Renewal Meeting, the Board reviewed statistical information prepared by CLS
and the Advisor regarding the expense ratio components, including actual
sub-advisory fees, waivers/reimbursements, and gross and net total expenses of
each Sub-Advised Fund. In addition, the Board reviewed statistical information
prepared by CLS relating to the performance of each Sub-Advised Fund, as well as
each Sub-Advised Fund's ability to successfully track its benchmark over time,
and a comparison of each Sub-Advised Fund's performance to appropriate
indices/benchmarks, in light of total return, yield and market trends. Based on
this review, the Board concluded that the investment sub-advisory fees and
expense levels and the historical performance of the Sub-Advised Funds, as
managed by CLS, were satisfactory for the purposes of approving the continuance
of the current investment sub-advisory agreement.
COSTS OF SERVICES PROVIDED TO THE SUB-ADVISED FUNDS AND PROFITS REALIZED
BY CLS AND ITS AFFILIATES. At the 2007 Renewal Meeting, the Board reviewed
information about the profitability of the Sub-Advised Funds to CLS based on the
sub-advisory fees payable under the current investment sub-advisory agreement
for the last calendar year. CLS also presented the Board with material
discussing its methodology for determining the level of its expenses allocable
to the Sub-Advised Funds. The Board analyzed the Sub-Advised Funds' expenses,
including the investment advisory and sub-advisory fees paid to the Advisor and
CLS, respectively. The Board also reviewed information regarding direct revenue
received by CLS and ancillary revenue received by CLS and/or its affiliates in
connection with the services provided to the Sub-Advised Funds by CLS (as
discussed below). The Board also discussed CLS's profit margin as reflected in
CLS's profitability analysis and reviewed information regarding economies of
scale (as discussed below). Based on this review, the Board concluded that the
profits to be realized by CLS under the Current Agreement and from other
relationships between the Sub-Advised Funds and CLS were within the range the
Board considered reasonable and appropriate.
ECONOMIES OF SCALE. In connection with its review of the Sub-Advised Funds
profitability analysis at the 2007 Renewal Meeting, the Board reviewed
information regarding economies of scale or other efficiencies that may result
from increases in the Sub-Advised Funds' asset levels. The Board noted that
neither the Current Agreement nor the New Agreement for the Sub-Advised Funds
provided for any breakpoints in the investment advisory fees as a result of
increases in the asset levels of the Sub-Advised Funds. The Board also noted
that the Sub-Advised Funds still had relatively low assets. The Board also
reviewed and considered CLS's historic
13
profitability as investment sub-adviser to the Sub-Advised Funds and determined
that reductions in the sub-advisory fees or additions of breakpoints were not
warranted at this juncture. Based on this review, the Board, recognizing its
responsibility to consider this issue at least annually, determined that the
economies of scale, if any, were de minimis.
OTHER BENEFITS TO CLS AND/OR ITS AFFILIATES. At the 2007 Renewal Meeting,
the Board noted that CLS did not use soft dollars and did not engage in any
portfolio transactions on behalf of the Sub-Advised Funds through an affiliate
of the Sub-Advised Funds, the Advisor or CLS pursuant to Rule 17e-1 under the
1940 Act. The Board concluded there were no ancillary benefits that would be
disadvantageous to the Sub-Advised Funds' shareholders.
ADDITIONAL CONSIDERATIONS IN APPROVING THE NEW AGREEMENTS
On June 18, 2007, the Trustees met with representatives of Security
Benefit and the management of the Advisor for the purpose of learning more about
Security Benefit and the proposed Transaction. Immediately following the
announcement that Rydex and Security Benefit entered into a purchase and sale
agreement, the Trustees requested that the Advisor provide the Board with
additional information pertaining to the effect of the proposed change of
control on the Advisor's personnel and operations and the terms of the New
Agreements. The Advisor presented its response to the Board's request for
additional information prior to and at a Special Meeting of the Boards of
Trustees held on July 10, 2007. The Advisor provided the Board with oral and
written information to help the Board evaluate the impact of the change of
control on the Advisor, the Advisor's ability to continue to provide investment
advisory services to the Funds under the New Agreements, and informed the Board
that the contractual rate of the Advisor's fees will not change under the New
Agreements. The Advisor also affirmed that the terms of the New Agreements were
the same in all material respects to those of the Current Agreements.
The Trustees deliberated on the approval of each New Agreement in light of
the information provided. The Board determined that the terms of the New
Agreements set forth materially similar rights, duties and obligations on the
Advisor and CLS with regard to the services to be provided to the Trust, and
provided at least the same level of protection to the Trust, the Funds and the
Funds' shareholders as the Current Agreements. The Board also noted that the
Advisor's and CLS's fees for their services to the Funds and Sub-Advised Funds
under each New Agreement would be the same as their fees under the corresponding
Current Agreement. The Board further noted that all considerations,
determinations and findings related to the approval of the continuation of the
Current Agreements, as discussed above, were equally relevant to their approval
of the New Agreements along with the additional factors relevant to the proposed
change in control discussed below.
NATURE, EXTENT AND QUALITY OF SERVICES PROVIDED BY THE ADVISOR;
PERFORMANCE OF THE FUNDS. The Board noted that the Advisor was taking
appropriate steps to maintain its associates through the closing of the
Transaction by, in part,
14
keeping them informed of the potential Transaction and awarding key personnel
with incentives to emphasize their value to the Advisor. As a result of these
efforts, it is anticipated that the key investment and management personnel
servicing the Funds will remain with the Advisor following the Transaction and
that the investment and management services provided to the Funds by the Advisor
will not change. The Board also considered the Advisor's and Security Benefit's
representations to the Board that Security Benefit intends for the Advisor to
continue to operate following the closing of the Transaction in much the same
manner as it operates today, and that the Transaction should have no impact on
the day-to-day operations of the Advisor, or the persons responsible for the
management of the Funds. Based on this review, the Board concluded that the
range and quality of services provided by the Advisor to the Funds and by CLS to
the Sub-Advised Funds were appropriate and were expected to continue under the
New Agreements, and that there was no reason to expect the consummation of the
Transaction to have any adverse effect on the services provided by the Advisor
and its affiliates, CLS or its affiliates, or the future performance of the
Funds, including the Sub-Advised Funds.
FUND EXPENSES. The Board also considered the fact that the fees payable to
the Advisor and Sub-Advisor and other expenses of the Funds would be the same
under the New Agreements as they are under the Current Agreements, and on this
basis, the Board concluded that these fees and expenses continued to be
satisfactory for the purposes of approving the New Agreements. More detailed
information regarding the fees under each New Agreement is contained in the
discussion below with respect to Proposal 1, 2, and 3.
COSTS OF SERVICES PROVIDED TO THE FUNDS AND PROFITS REALIZED BY THE
ADVISOR, CLS AND THEIR AFFILIATES. Because the Advisor's and CLS's fees under
the New Agreements are the same as those assessed under the Current Agreements,
the Board concluded that the profits to be realized by the Advisor, CLS and
their respective affiliates under the New Agreements and from other
relationships between the Funds and the Advisor, CLS and/or their respective
affiliates, if any, should remain within the range the Board considered
reasonable and appropriate. The Board further noted that, although it is not
possible to predict how the Transaction may affect the Advisor's or CLS's future
profitability from its relationship with the Funds, this matter would be given
further consideration on an annual basis going forward.
ECONOMIES OF SCALE. The Board further considered the potential economies
of scale that may result from the Transaction, and concluded that the extent of
such economies of scale could not be predicted in advance of the closing of the
Transaction.
DESCRIPTION OF THE TERMS OF THE NEW AGREEMENTS. A form of each New
Agreement is attached to this proxy statement as Appendices B through D. Each
form of New Agreement provides that the Advisor's and CLS's fees with respect to
each Fund and Sub-Advised Fund will remain unchanged from the fees contained in
its corresponding Current Agreement. Each New Agreement provides that unless
15
terminated as provided therein, the New Agreement shall continue for an initial
term of two years. Thereafter, the New Agreement shall continue in effect for
successive annual periods provided such continuance is specifically approved at
least annually (i) by the vote of the Trustees or by a vote of the shareholders;
and (ii) 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 New
Agreement provides for automatic termination, without the payment of any
penalty, in the event of its assignment (as defined by the 1940 Act).
The New Agreements are substantially similar to each other, with the
exception of the parties to the agreement. Pursuant to each New Agreement, the
Advisor will act as investment adviser to each Fund. Each of the New Agreements
will require the Advisor to:
o provide the Funds with investment research, advice and supervision
and shall furnish continuously an investment program for the Funds,
consistent with the respective investment objectives and policies of
each Fund;
o determine, in its discretion and without prior consultation, what
securities shall be purchased for the Funds, what securities shall
be held or sold by the Funds and what portion of the Funds' assets
shall be held uninvested in cash, subject always to the provisions
of the Trust's Declaration of Trust, By-Laws and its registration
statement on file with the U.S. Securities and Exchange Commission
(the "SEC");
o discharge its responsibilities subject to the control of the
officers and the Board, and in compliance with the objectives,
policies, and limitations set forth in the Funds' prospectus(es) and
applicable laws and regulations;
o vote any proxies for Fund securities;
o provide the Trust, and any other agent designated by the Trust, with
records concerning the Advisor's activities which each Fund is
required to maintain; and
o provide other reports reasonably requested by the Trust's officers
and Board concerning the Advisor's discharge of the foregoing
responsibilities.
Each New Agreement also authorizes the Advisor to select the brokers or
dealers that will execute the purchases and sales of securities of each Fund and
directs the Advisor to use its best efforts to obtain the best available price
and most favorable execution. Subject to policies established by the Board, the
Advisor also may effect individual securities transactions at commission rates
in excess of the minimum commission rates available, if the Advisor determines
in good faith that such amount of commission is reasonable in relation to the
value of the brokerage or research services provided by such broker or dealer,
viewed in terms of either that particular transaction or the Advisor's overall
responsibilities with respect to each Fund.
16
Under the terms of each New Agreement, the Advisor agrees to render its
services and to provide, at its own expense, the office space, furnishings,
equipment and personnel required by it to perform the services on the terms and
for the compensation provided therein, as discussed in further detail below.
Each New Agreement provides that the Advisor shall indemnify and hold harmless
the Trust against losses by reason of or arising out of: (i) the Advisor being
in material violation of (A) any applicable federal or state law, rule, or
regulation, (B) any investment policy or restriction set forth in the Funds'
Registration Statement, or (C) any written guidelines or instruction provided in
writing by the Board; or (ii) the Advisor's willful misfeasance, bad faith or
gross negligence generally in the performance of its duties under, or its
reckless disregard of, its obligations and duties.
INFORMATION ABOUT THE ADVISOR. PADCO Advisors II, Inc. serves as the
investment adviser to the Trust. Together with PADCO Advisors, Inc., PADCO
Advisors II, Inc. operates as Rydex Investments. PADCO Advisors II, Inc. is
organized as a Maryland corporation with its principal place of business located
at 9601 Blackwell Road, Suite 500, Rockville, Maryland 20850. Rydex Holdings is
the sole shareholder of PADCO Advisors II, Inc. Rydex Holdings is a wholly-owned
subsidiary of Rydex NV, Inc. The Viragh Family Trust currently owns a
controlling interest in Rydex NV, Inc. These companies may, prior to or after
consummation of the Transaction, be merged into limited liability companies.
Such merger will not be considered a change in control of the Advisor.
The name and principal occupation of each director and principal executive
officer of PADCO Advisors II, Inc. are listed below. Unless otherwise noted, the
business address of each director and officer is c/o Rydex Investments, 9601
Blackwell Road, Suite 500, Rockville, Maryland 20850. Following the closing of
the Transaction, Messrs. Viragh and Mses. Dahl and Viragh will relinquish their
positions as directors of the Advisor and may be replaced by directors elected
by the Advisor's shareholders.
NAME TITLE PRINCIPAL OCCUPATION
------------------------------------------------------------------------------------------------------------------------------
Jean M. Dahl Director Director of Rydex NV, Inc., Rydex Holdings, Inc., PADCO Advisors, Inc., PADCO
Advisors II, Inc., Rydex Fund Services, Inc., Rydex Distributors, Inc.
and Advisor Research Center, Inc.; Vice President of Rydex NV, Inc.; Director
of Viragh Family Foundation; and Employee of Dynamic Holdings, Inc.
Katherine A. Viragh Director Director of Rydex NV, Inc., Rydex Holdings, Inc., PADCO Advisors, Inc., PADCO
Advisors II, Inc., Rydex Fund Services, Inc., Rydex Distributors, Inc.
and Advisor Research Center, Inc.; Treasurer of Rydex NV, Inc.; Manager and
Trustee of ICT Holdings, LLC; Manager, President, Secretary and Treasurer of
Voting Investment Capital Technologies, LLC; Director and Treasurer of Viragh
Family Foundation; Director and Employee of Dynamic Holdings, Inc.; Trustee of
Spring Hill College; Trustee of 2003 Dynamic Irrevocable Trust, 2003 Irrevocable
Trust for Family of Skip Viragh and other family trusts
17
NAME TITLE PRINCIPAL OCCUPATION
---------------------------------------------------------------------------------------------------------------------------------
Mark S. Viragh Director Director of Rydex NV, Inc., Rydex Holdings, Inc., PADCO Advisors, Inc., PADCO
Advisors II, Inc., Rydex Fund Services, Inc., Rydex Distributors, Inc.
and Advisor Research Center, Inc.; Secretary of Rydex NV, Inc.; Director
and President of Viragh Family Foundation; Director and President of The
Skip Viragh Foundation, Inc.; Director and President of Nova Foundation,
Inc.; Director and Employee of Dynamic Holdings, Inc.; Trustee of 2003
Dynamic Irrevocable Trust, 2003 Irrevocable Trust for Family of Skip Viragh and
other family trusts
Robert J. Viragh Director Director and Chairman of the Board of Rydex NV, Inc., Rydex Holdings, Inc.,
PADCO Advisors, Inc., PADCO Advisors II, Inc., Rydex Fund Services, Inc.,
Rydex Distributors, Inc. and Advisor Research Center, Inc.; President of Rydex NV,
Inc.; Director of Viragh Family Foundation; Employee of Dynamic Holdings, Inc.
Carl G. Verboncoeur* Chief Executive Chief Executive Officer, PADCO Advisors, Inc. and PADCO Advisors II, Inc.;
Officer and Chief Executive Officer, President and Treasurer, Rydex Fund Services, Inc. and Rydex
Treasurer Distributors, Inc.; President and Treasurer, Rydex Holdings, Inc.
Michael P. Byrum* Chief Investment Chief Investment Officer, President and Secretary, PADCO Advisors, Inc. and
Officer, President PADCO Advisors II, Inc.; Secretary, Rydex Holdings, Inc.
and Secretary
Joanna M. Haigney Chief Compliance Chief Compliance Officer, PADCO Advisors, Inc. and PADCO Advisors II, Inc.
Officer
* Messrs. Verboncoeur and Byrum also serve as Interested Trustees of the Trust.
PROPOSALS 1 AND 2. THE APPROVAL OF NEW INVESTMENT ADVISORY AGREEMENTS
BETWEEN RYDEX VARIABLE TRUST AND PADCO ADVISORS II,
INC.
FUNDS VOTING ON ALL FUNDS (EXCEPT FOR THE ABSOLUTE RETURN STRATEGIES
PROPOSAL 1: FUND AND HEDGED EQUITY FUND)
FUNDS VOTING ON ABSOLUTE RETURN STRATEGIES FUND AND HEDGED EQUITY FUND
PROPOSAL 2: ONLY
The Current Agreement between the Advisor and the Trust with respect to
all of the Trust's Funds, except for the Absolute Return Strategies Fund and
Hedged Equity Fund, is dated April 30, 2004, and was approved by the
shareholders of the Trust at the 2004 Special Meeting. The Current Agreement
between the Advisor and the Trust for the Absolute Return Strategies Fund and
Hedged Equity Fund was approved by the Board and each Fund's Sole Shareholder on
May 23, 2005 following the formation and
18
registration of the Funds with the SEC. In accordance with the Board's best
practices, both Current Agreements have been renewed by the Board on an annual
basis following each Current Agreement's initial approval. The Current
Agreements will remain in place until the completion of the Transaction at which
time, as a result of the change in the control of the Advisor, the Current
Agreements will terminate and, subject to shareholder approval, the New
Agreements will go into effect. The terms of the New Agreements, including fees,
are identical, with the exception of the date and term, to the terms of the
Current Agreements. Forms of the New Agreements are included as Appendix B and
Appendix C to this Proxy Statement.
The tables that follow provide, with respect to each of the Trust's Funds:
(i) the Advisor's annual rate of compensation under the Current and New
Agreements, stated as a percentage of the Fund's assets; (ii) the amount of
advisory fees paid to the Advisor pursuant to the Current Agreement for the
Trust's most recently completed fiscal year ended December 31, 2006; (iii)
amounts paid by the Funds to the Administrator for the Trust's most recently
completed fiscal year ended December 31, 2006; (iv) amounts paid by the Funds to
the Administrator for accounting services for the Trust's most recently
completed fiscal year ended December 31, 2006; and (v) amounts paid by the Funds
to the Distributor for services provided pursuant to the Funds' investor
services plan for the Trust's most recently completed fiscal year ended December
31, 2006. For the fiscal year ended December 31, 2006, the Trust's Funds did not
pay any brokerage commissions to the Distributor (or any other affiliate of the
Advisor).
ADMINISTRATIVE ACCOUNTING
ADVISORY SERVICE FEES SERVICE
FEES PAID TO PAID TO FEES PAID TO
CURRENT AND ADVISOR ADMINISTRATOR ADMINISTRATOR
ANTICIPATED FOR FISCAL FOR FISCAL FOR FISCAL YEAR
ADVISORY FEE YEAR ENDED YEAR ENDED ENDED
FUND RATE 2006 2006 2006
-------------------------------------------------------------------------------------------------------
Absolute Return Strategies Fund 1.15% $122,492 $ 0**** $ 0****
Banking Fund 0.85% $146,468 $ 43,079 $ 17,231
Basic Materials Fund 0.85% $342,886 $100,849 $ 40,339
Biotechnology Fund 0.85% $220,641 $ 64,894 $ 25,958
Commodities Strategy Fund 0.75% $181,709 $ 60,570 $ 24,228
Consumer Products Fund 0.85% $295,176 $ 86,816 $ 34,727
Dow 2x Strategy Fund 0.90% $184,675 $ 51,298 $ 20,519
Electronics Fund 0.85% $184,321 $ 54,212 $ 21,685
Energy Fund 0.85% $671,196 $197,410 $ 78,964
Energy Services Fund 0.85% $658,963 $193,813 $ 77,525
Essential Portfolio Aggressive Fund 0.00%* $ 0 $ 0**** $ 0****
Essential Portfolio Conservative Fund 0.00%* $ 0 $ 0**** $ 0****
19
ADMINISTRATIVE ACCOUNTING
ADVISORY SERVICE FEES SERVICE
FEES PAID TO PAID TO FEES PAID TO
CURRENT AND ADVISOR ADMINISTRATOR ADMINISTRATOR
ANTICIPATED FOR FISCAL FOR FISCAL FOR FISCAL YEAR
ADVISORY FEE YEAR ENDED YEAR ENDED ENDED
FUND RATE 2006 2006 2006
-------------------------------------------------------------------------------------------------------
Essential Portfolio Moderate Fund 0.00%* $ 0 $ 0**** $ 0****
Europe 1.25x Strategy Fund 0.90% $480,072 $133,353 $ 53,342
Financial Services Fund 0.85% $309,488 $ 91,026 $ 36,410
Government Long Bond 1.2x
Strategy Fund 0.50% $319,322 $159,661 $ 63,864
Health Care Fund 0.85% $393,117 $115,622 $ 46,249
Hedged Equity Fund 1.15% $ 75,596 $ 0**** $ 0****
High Yield Strategy Fund 0.75% ** ** **
Internet Fund 0.85% $ 83,765 $ 24,637 $ 9,855
Inverse Dow 2x Strategy Fund 0.90% $ 92,982 $ 25,828 $ 10,331
Inverse Government Long Bond
Strategy Fund 0.90% $269,763 $ 74,934 $ 29,974
Inverse High Yield Strategy Fund 0.75% ** ** **
Inverse Mid-Cap Strategy Fund 0.90% $ 39,155 $ 10,876 $ 4,351
Inverse OTC 2x Strategy Fund 0.90% ** ** **
Inverse OTC Strategy Fund 0.90% $279,479 $ 77,633 $ 31,053
Inverse Russell 2000(R) 2x Strategy
Fund 0.90% ** ** **
Inverse Russell 2000(R) Strategy Fund 0.90% $142,308 $ 39,530 $ 15,812
Inverse S&P 500 2x Strategy Fund 0.90% ** ** **
Inverse S&P 500 Strategy Fund 0.90% $311,192 $ 86,442 $ 34,577
Japan 1.25x Strategy Fund 0.90% $314,810 $ 87,447 $ 34,979
Large-Cap Growth Fund 0.75% $134,823 $ 44,941 $ 17,976
Large-Cap Value Fund 0.75% $324,187 $108,062 $ 43,224
Leisure Fund 0.85% $175,172 $ 51,521 $ 20,608
Mid-Cap 1.5x Strategy Fund 0.90% $359,173 $ 99,770 $ 39,908
Mid-Cap Growth Fund 0.75% $140,820 $ 46,940 $ 18,776
Mid-Cap Value Fund 0.75% $157,298 $ 52,433 $ 20,973
Multi-Cap Core Equity Fund 0.90%*** $ 36,256 $ 13,232 $ 5,293
Nova Fund 0.75% $631,818 $210,606 $ 84,243
OTC 2x Strategy Fund 0.90% $327,744 $ 91,040 $ 36,416
20
ADMINISTRATIVE ACCOUNTING
ADVISORY SERVICE FEES SERVICE
FEES PAID TO PAID TO FEES PAID TO
CURRENT AND ADVISOR ADMINISTRATOR ADMINISTRATOR
ANTICIPATED FOR FISCAL FOR FISCAL FOR FISCAL YEAR
ADVISORY FEE YEAR ENDED YEAR ENDED ENDED
FUND RATE 2006 2006 2006
-------------------------------------------------------------------------------------------------------
OTC Fund 0.75% $ 588,233 $ 196,077 $ 78,431
Precious Metals Fund 0.75% $ 565,415 $ 188,472 $ 75,388
Real Estate Fund 0.85% $ 473,372 $ 139,227 $ 55,691
Retailing Fund 0.85% $ 175,095 $ 51,499 $ 20,600
Russell 2000(R) 1.5x Strategy Fund 0.90% $ 529,924 $ 147,201 $ 58,880
Russell 2000(R) 2x Strategy Fund 0.90% $ 7,410 $ 2,058 $ 824
Russell 2000(R) Fund 0.75% ** ** **
S&P 500 2x Strategy Fund 0.90% $ 248,992 $ 69,164 $ 27,666
S&P 500 Fund 0.75% ** ** **
Sector Rotation Fund 0.90% $ 730,431 $ 202,898 $ 81,159
Small-Cap Growth Fund 0.75% $ 125,195 $ 41,732 $ 16,692
Small-Cap Value Fund 0.75% $ 204,933 $ 68,311 $ 27,324
Strengthening Dollar 2x Strategy
Fund 0.90% $ 22,043 $ 6,123 $ 2,449
Technology Fund 0.85% $ 179,474 $ 52,787 $ 21,114
Telecommunications Fund 0.85% $ 225,010 $ 66,179 $ 26,472
Transportation Fund 0.85% $ 346,981 $ 102,053 $ 40,821
U.S. Government Money Market
Fund 0.50% $1,271,093 $ 635,547 $ 247,164
Utilities Fund 0.85% $ 392,767 $ 115,520 $ 46,208
Weakening Dollar 2x Strategy Fund 0.90% $ 70,784 $ 19,662 $ 7,865
* Currently, the Advisor receives an investment advisory fee for managing the
underlying funds in which the Fund invests. The underlying funds pay a monthly
investment advisory fee to the Advisor for its services. The fee is based on the
average daily net assets of each underlying fund and calculated at an annual
rate for each underlying fund. The Fund benefits from the investment advisory
services provided to the underlying funds and, as shareholders of those
underlying funds, indirectly bear a proportionate share of those underlying
funds' advisory fees.
** Not in operation for the period indicated.
*** The Multi-Cap Core Equity Fund pays the Advisor a management fee that is
comprised of two components: the first component is an annual basic fee (the
"basic fee") equal to 0.70% of the Multi-Cap Core Equity Fund's average daily
net assets, and the second component is a performance fee adjustment. The
performance fee adjustment may cause the basic fee to increase to a maximum of
0.90% or decrease to a minimum of 0.50%, depending on the investment performance
of the Multi-Cap Core Equity Fund relative to the Russell 3000(R) Index (the
"Index"). The performance comparison will be made for a rolling 12-month period,
with performance adjustments made at the end of each month beginning June 30,
2004. The 12-month comparison period will roll over with each succeeding month,
so that it will always equal
21
12 months, ending with the month for which the performance adjustment is being
computed. For every 0.0375% of difference between the performance of the Fund
and the performance of the Index, the Advisor's fee will be adjusted upwards or
downwards by 0.01%. The maximum annualized performance adjustment is +/-.20%.
**** The Advisor has contractually agreed to pay all other expenses of the Fund,
excluding the fees and expenses of any underlying fund that the Fund may be
invested in (an "Acquired Fund"), interest expense and taxes (expected to be de
minimis), brokerage commissions and other expenses connected with the execution
of portfolio transactions, short dividend expenses, and extraordinary expenses.
INVESTOR SERVICE INVESTOR SERVICE
FEES PAID (%) FOR FISCAL FEES PAID ($) FOR FISCAL
FUND YEAR ENDED 2006 YEAR ENDED 2006
---------------------------------------------------------------------------------------------
Absolute Return Strategies Fund* 0.25% $ 0
Banking Fund 0.25% $ 43,079
Basic Materials Fund 0.25% $ 100,849
Biotechnology Fund 0.25% $ 64,894
Commodities Strategy Fund 0.25% $ 60,570
Consumer Products Fund 0.25% $ 86,816
Dow 2x Strategy Fund 0.25% $ 51,298
Electronics Fund 0.25% $ 54,212
Energy Fund 0.25% $ 197,410
Energy Services Fund 0.25% $ 193,813
Essential Portfolio Aggressive Fund* 0.25% $ 0
Essential Portfolio Conservative Fund* 0.25% $ 0
Essential Portfolio Moderate Fund* 0.25% $ 0
Europe 1.25x Strategy Fund 0.25% $ 133,353
Financial Services Fund 0.25% $ 91,026
Government Long Bond 1.2x Strategy Fund 0.25% $ 127,729
Health Care Fund 0.25% $ 115,622
Hedged Equity Fund* 0.25% $ 0
High Yield Strategy Fund ** **
Internet Fund 0.25% $ 24,637
Inverse Dow 2x Strategy Fund 0.25% $ 25,828
Inverse Government Long Bond Strategy Fund 0.25% $ 74,934
Inverse High Yield Strategy Fund ** **
Inverse Mid-Cap Strategy Fund 0.25% $ 10,876
Inverse OTC 2x Strategy Fund *** ***
Inverse OTC Strategy Fund 0.25% $ 77,633
Inverse Russell 2000(R) 2x Strategy Fund *** ***
Inverse Russell 2000(R) Strategy Fund 0.25% $ 39,530
Inverse S&P 500 2x Strategy Fund *** ***
Inverse S&P 500 Strategy Fund 0.25% $ 86,442
22
INVESTOR SERVICE INVESTOR SERVICE
FEES PAID (%) FOR FISCAL FEES PAID ($) FOR FISCAL
FUND YEAR ENDED 2006 YEAR ENDED 2006
---------------------------------------------------------------------------------------------
Japan 1.25x Strategy Fund 0.25% $ 87,447
Large-Cap Growth Fund 0.25% $ 44,941
Large-Cap Value Fund 0.25% $ 108,062
Leisure Fund 0.25% $ 51,521
Mid-Cap 1.5x Strategy Fund 0.25% $ 99,770
Mid-Cap Growth Fund 0.25% $ 46,940
Mid-Cap Value Fund 0.25% $ 52,433
Multi-Cap Core Equity Fund 0.25% $ 13,232
Nova Fund 0.25% $ 210,606
OTC 2x Strategy Fund 0.25% $ 91,040
OTC Fund 0.25% $ 196,077
Precious Metals Fund 0.25% $ 188,472
Real Estate Fund 0.25% $ 139,227
Retailing Fund 0.25% $ 51,499
Russell 2000(R) 1.5x Strategy Fund 0.25% $ 147,201
Russell 2000(R) 2x Strategy Fund 0.25% $ 2,058
Russell 2000(R) Fund *** ***
S&P 500 2x Strategy Fund 0.25% $ 69,164
S&P 500 Fund *** ***
Sector Rotation Fund 0.25% $ 202,898
Small-Cap Growth Fund 0.25% $ 41,732
Small-Cap Value Fund 0.25% $ 68,311
Strengthening Dollar 2x Strategy Fund 0.25% $ 6,123
Technology Fund 0.25% $ 52,787
Telecommunications Fund 0.25% $ 66,179
Transportation Fund 0.25% $ 102,053
U.S. Government Money Market Fund 0.25% $ 508,437
Utilities Fund 0.25% $ 115,520
Weakening Dollar 2x Strategy Fund 0.25% $ 19,662
* The Advisor has contractually agreed to pay all other expenses of the Fund,
excluding Acquired Fund fees (if applicable) and expenses, interest expense and
taxes (expected to be de minimis), brokerage commissions and other expenses
connected with the execution of portfolio transactions, short dividend expenses,
and extraordinary expenses.
** Not in operation for the period indicated.
*** The Fund has not yet commenced operations.
23
BOARD RECOMMENDATION ON PROPOSALS 1 AND 2.
At its meeting on August 27, 2007, 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
Agreements are fair and reasonable; (b) concluded that the Advisor's fees are
reasonable in light of the services that the Advisor will provide to the Funds;
and (c) agreed to approve the New Agreements for an initial term of two years
and to recommend the approval of the New Agreements to Shareholders.
THE TRUSTEES UNANIMOUSLY RECOMMEND THAT
SHAREHOLDERS OF THE FUNDS VOTE "FOR"
PROPOSALS 1 AND 2.
PROPOSAL 3. THE APPROVAL OF A NEW INVESTMENT SUB-ADVISORY AGREEMENT
BETWEEN PADCO ADVISORS II, INC. AND CLS INVESTMENT FIRM, LLC.
FUNDS CLS ADVISORONE AMERIGO FUND, CLS ADVISORONE BEROLINA FUND AND CLS
VOTING ON ADVISORONE CLERMONT FUND ONLY
PROPOSAL 3:
THE APPROVAL OF PROPOSAL 3 IS CONTINGENT ON THE APPROVAL OF PROPOSAL 2 BY
SHAREHOLDERS OF THE CLS ADVISORONE AMERIGO FUND, CLS ADVISORONE BEROLINA FUND
AND CLS ADVISORONE CLERMONT FUND.
The Current Agreement between the Advisor and CLS is dated April 30, 2004,
and was approved by the shareholders of the Trust at the 2004 Special Meeting.
In accordance with the Board's best practices, the Current Agreement has been
renewed by the Board on an annual basis following its initial approval. The
Current 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 Advisor, the
Current Agreement will terminate and, subject to shareholder approval, the New
Agreement will go into effect. The terms of the New Agreement with respect to
the Sub-Advised Funds, including fees, are identical, with the exception of the
date and term, to the terms of the Current Agreement with respect to the
Sub-Advised Funds. A form of the New Agreement is included as Appendix D to this
Proxy Statement.
The tables below provide, with respect to each Sub-Advised Fund: (i) the
Advisor's annual rate of compensation under the Current and New Agreements,
stated as a percentage of the Fund's assets; (ii) the amount of advisory fees
paid to the Advisor pursuant to the Current Agreement for the Trust's most
recently completed fiscal year ended December 31, 2006; (iii) CLS's anticipated
annual rate of compensation under the New Agreement, stated as a percentage of
each Sub-Advised Fund's assets; (iv) the amount of sub-advisory fees paid to CLS
by the Advisor pursuant to the Current Agreement for the Trust's most recently
completed fiscal year ended December 31, 2006; (v) amounts paid by the
Sub-Advised Funds to the
24
Administrator for the Trust's most recently completed fiscal year ended December
31, 2006; (vi) amounts paid by the Sub-Advised Funds to the Administrator for
accounting services for the Trust's most recently completed fiscal year ended
December 31, 2006; (vii) amounts paid by the Sub-Advised Funds to the
Distributor for services provided pursuant to the Funds' distribution and
investor services plans for the Trust's most recently completed fiscal year
ended December 31, 2006; and (viii) aggregate brokerage commissions paid to the
Distributor for the most recently completed fiscal year ended December 31, 2006.
Compensation paid to CLS, under both the Current Agreement and the New
Agreement, is and will continue to be, paid by the Advisor.
ADVISORY
ADVISORY FEES FEES PAID
CURRENT AND PAID TO CURRENT AND TO CLS BY THE
ANTICIPATED ADVISOR FOR ANTICIPATED ADVISOR FOR
ADVISORY FEE FISCAL YEAR SUB-ADVISORY FISCAL YEAR
FUND RATE ENDED 2006 FEE RATE* ENDED 2006
--------------------------------------------------------------------------------------------
CLS AdvisorOne Amerigo Fund 0.90% $ 2,106,722 0.40% $ 937,554
CLS AdvisorOne Berolina Fund 0.90% $ 12,234** 0.40% $ 5,296**
CLS AdvisorOne Clermont Fund 0.90% $ 1,032,384 0.40% $ 460,120
* The New Agreement's compensation terms provide that the Advisor will have no
obligation to compensate CLS for its services with respect to a Sub-Advised Fund
for any quarter in which such Fund's assets average less than $10,000,000 during
that quarter.
** Since the commencement of operations on November 10, 2006.
ADMINISTRATIVE ACCOUNTING DISTRIBUTION INVESTOR
SERVICE FEES SERVICE FEES PLAN SERVICE PLAN
PAID TO PAID TO FEES PAID FEES PAID ($)
ADMINISTRATOR ADMINISTRATOR ($) FOR FISCAL FOR FISCAL
FOR FISCAL YEAR FOR FISCAL YEAR YEAR ENDED YEAR ENDED
FUND ENDED 2006 ENDED 2006 2006 2006
---------------------------------------------------------------------------------------------------
CLS AdvisorOne Amerigo Fund $ 585,201 $ 232,834 $ 0 $ 585,201
CLS AdvisorOne Berolina Fund $ 3,398* $ 1,360* $ 0* $ 3,398*
CLS AdvisorOne Clermont Fund $ 286,773 $ 114,709 $ 0 $ 286,773
* Since the commencement of operations on November 10, 2006.
AGGREGATE PERCENTAGE PERCENTAGE OF TOTAL
BROKERAGE OF TOTAL BROKERAGE TRANSACTIONS,
COMMISSIONS PAID BROKERAGE INVOLVING PAYMENT OF
TO DISTRIBUTOR COMMISSIONS COMMISSIONS, EFFECTED
FOR FISCAL YEAR PAID TO AFFILIATED THROUGH AFFILIATED
FUND ENDED 2006 BROKER IN 2006 BROKERS IN 2006
-----------------------------------------------------------------------------------------------
CLS AdvisorOne Amerigo Fund $ 218,984 100% 60.79%
CLS AdvisorOne Berolina Fund $ 4,551* 100%* 84.14%*
CLS AdvisorOne Clermont Fund $ 39,585 100% 48.57%
* Since the commencement of operations on November 10, 2006.
25
INFORMATION ABOUT CLS. CLS is organized as a Nebraska limited liability
company with its principal place of business located at 4020 S. 147th Street,
Omaha, Nebraska 68137. CLS is a wholly-owned subsidiary of Northstar Financial
Services Group, LLC ("Northstar"), a Nevada limited liability company. Northstar
is owned 50% by W. Patrick Clarke, who serves as Chief Executive Officer and
Manager of CLS, and 50% by Michael Miola, who serves as a Manager of CLS.
The name and principal occupation of each principal executive officer of
CLS are listed below. Unless otherwise noted, the business address of each
officer is c/o CLS Investment Firm LLC, 4020 S. 147th Street, Omaha, Nebraska
68137.
NAME TITLE PRINCIPAL OCCUPATION
--------------------------------------------------------------------------------
W. Patrick Clarke Chief Executive Manager, CLS; Co-Owner,
Officer and NorthStar Financial Services Group, LLC
Manager
Michael Miola Chief Executive Manager, CLS; Co-Owner, NorthStar
Officer and Financial Services Group, LLC
Manager
Robert M. Jergovic Chief Investment Chief Investment Officer, CLS
Officer
Todd Clarke President President, CLS
Scott R. Kubie Vice President Vice President and Director of
Research, CLS
Brian Nielson General Counsel/ General Counsel/Chief Compliance
Chief Compliance Officer, CLS; General Counsel,
Officer NorthStar Financial Services Group,
LLC
BOARD RECOMMENDATION ON PROPOSAL 3.
At its meeting on August 27, 2007, 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
Agreement are fair and reasonable; (b) concluded that CLS's fees are reasonable
in light of the services that CLS will provide to the Sub-Advised Funds; and (c)
agreed to approve the New Agreement for an initial term of two years and to
recommend the approval of the New Agreement to Shareholders.
THE TRUSTEES UNANIMOUSLY RECOMMEND THAT
SHAREHOLDERS OF THE SUB-ADVISED FUNDS VOTE "FOR"
PROPOSAL 3.
GENERAL INFORMATION ABOUT THE TRUST AND OTHER MATTERS
INFORMATION ABOUT TRUST OFFICERS AND SERVICE PROVIDERS
PRINCIPAL UNDERWRITER. Rydex Distributors, Inc., located at 9601 Blackwell
Road, Suite 500, Rockville, Maryland 20850, serves as the distributor and
principal underwriter to the Trust.
26
ADMINISTRATOR. Rydex Fund Services, Inc., 9601 Blackwell Road, Suite 500,
Rockville, Maryland 20850, serves as the administrator for the Trust.
TRUST OFFICERS. Set forth below are the names, ages, position with the
Trust, length of term of office, and the principal occupations for a minimum of
the last five years of each of the persons currently serving as officers of the
Trust. The business address of each officer is 9601 Blackwell Road, Suite 500,
Rockville, Maryland 20850. None of the officers, other than the Chief Compliance
Officer, receives compensation from the Trust for their services.
POSITION(S) NUMBER
HELD WITH OF PORTFOLIOS
THE TRUST, IN FUND OTHER
TERM OF COMPLEX DIRECTOR-
NAME, ADDRESS OFFICE AND OVERSEEN SHIPS
AND AGE OF LENGTH OF PRINCIPAL OCCUPATION(S) BY TRUSTEE/ HELD BY
TRUSTEE/OFFICER TIME SERVED DURING PAST 5 YEARS OFFICER TRUSTEE
-------------------------------------------------------------------------------------------------------------
Carl G. Trustee from 2004 PADCO ADVISORS, INC.: 138 None.
Verboncoeur (54) to present; Chief Executive Officer from October
President from 2003 to present; Executive Vice President
2003 to present; from December 2002 to October 2003;
Vice President President from October 2003 to May
from 1997 to 2004; and Treasurer from December 2002
present; and to present
Treasurer from
1997 to 2003. PADCO ADVISORS II, INC.:
Chief Executive Officer from December
2003 to present; Executive Vice President
from December 2002 to December 2003;
President from December 2002 to May 2004
and Treasurer from December 2003 to
present
RYDEX CAPITAL PARTNERS I, LLC:
Treasurer from October 2003 to April
2007, and Executive Vice President from
October 2003 to August 2006
RYDEX CAPITAL PARTNERS II, LLC:
Treasurer from October 2003 to April
2007, and Executive Vice President from
October 2003 to August 2006
RYDEX ADVISORY SERVICES:
Chief Executive Officer from August 2004
to present
RYDEX DISTRIBUTORS, INC.:
President and Chief Executive Officer
from December 2003 to present; Treasurer
from December 2002 to present; Executive
Vice President from December 2002 to
December 2003; and Vice President from
December 2001 to December 2002
27
POSITION(S) NUMBER
HELD WITH OF PORTFOLIOS
THE TRUST, IN FUND OTHER
TERM OF COMPLEX DIRECTOR-
NAME, ADDRESS OFFICE AND OVERSEEN SHIPS
AND AGE OF LENGTH OF PRINCIPAL OCCUPATION(S) BY TRUSTEE/ HELD BY
TRUSTEE/OFFICER TIME SERVED DURING PAST 5 YEARS OFFICER TRUSTEE
-------------------------------------------------------------------------------------------------------------
RYDEX FUND SERVICES, INC.:
Chief Executive Officer from December
2003 to present; President and Treasurer
from December 2002 to present; and
Executive Vice President from December
2001 to December 2002
RYDEX HOLDINGS, INC.:
Chief Executive Officer, President and
Treasurer from December 2005 to present
ADVISOR RESEARCH CENTER, INC.:
Chief Executive Officer, President and
Treasurer from May 2006 to present
RYDEX SPECIALIZED PRODUCTS, LLC:
Chief Executive Officer, Director and
Treasurer from September 2005 to present
Michael P. Byrum Trustee from PADCO ADVISORS, INC.: 138 None.
(36) 2005 to present. Chief Investment Officer from August
2006 to present; Chief Operating Officer
from October 2003 to May 2004;
Executive Vice President from December
2002 to May 2004; President from May
2004 to present; and Secretary from
December 2002 to present
PADCO ADVISORS II, INC.:
Chief Investment Officer from August
2006 to present; Chief Operating Officer
from December 2003 to May 2004;
Executive Vice President from December
2002 to May 2004; President from May
2004 to present; and Secretary from
December 2002 to present
RYDEX ADVISORY SERVICES:
President from August 2004 to present
RYDEX CAPITAL PARTNERS I, LLC:
President and Secretary from October
2003 to April 2007
RYDEX CAPITAL PARTNERS II, LLC:
President and Secretary from October
2003 to April 2007
28
POSITION(S) NUMBER
HELD WITH OF PORTFOLIOS
THE TRUST, IN FUND
TERM OF COMPLEX OTHER
NAME, ADDRESS OFFICE AND OVERSEEN DIRECTOR-
AND AGE OF LENGTH OF PRINCIPAL OCCUPATION(S) BY TRUSTEE/ SHIPS HELD
TRUSTEE/OFFICER TIME SERVED DURING PAST 5 YEARS OFFICER BY TRUSTEE
-------------------------------------------------------------------------------------------------------------
RYDEX DISTRIBUTORS, INC.:
Secretary from December 2001 to May
2004; Executive Vice President from
December 2002 to May 2004; and Chief
Operating Officer from December 2003
to May 2004
RYDEX FUND SERVICES, INC.:
Secretary from December 2002 to present;
Executive Vice President from December
2002 to August 2006; and Chief Operating
Officer from December 2003 to May 2004
RYDEX HOLDINGS, INC.:
Secretary from December 2005 to present
and Executive Vice President from
December 2005 to August 2006
ADVISOR RESEARCH CENTER, INC.:
Secretary from May 2006 to present and
Executive Vice President from May 2006
to August 2006
RYDEX SPECIALIZED PRODUCTS, LLC:
Director and Secretary from September
2005 to present
Nick Bonos (43) Vice President Senior Vice President of Fund Services 138 Not
and Treasurer of PADCO Advisors, Inc. from August 2006 Applicable.
from 2003 to to present; Senior Vice President of
present. Rydex Fund Services, Inc. from December
2003 to August 2006; Vice President of
Accounting, Rydex Fund Services, Inc.
from 2001 to 2003; and Chief Financial
Officer and Manager of Rydex Specialized
Products, LLC from September 2005 to
present
Joanna M. Chief Compliance Chief Compliance Officer of PADCO 138 Not
Haigney (40) Officer from Advisors, Inc. and PADCO Advisors II, Applicable.
2004 to present; Inc. from May 2005 to present and Rydex
and Secretary Capital Partners I, LLC and Rydex
from 2000 to Capital Partners II, LLC from August
present. 2006 to April 2007; Vice President of
Compliance of PADCO Advisors, Inc. from
August 2006 to present; Assistant
Secretary of Rydex Distributors, Inc.
from December 2001 to December 2003; and
Vice President of Rydex Distributors,
Inc. from December 2003 to May 2004 and
Rydex Fund Services, Inc. from December
2001 to August 2006
29
POSITION(S) NUMBER
HELD WITH OF PORTFOLIOS
THE TRUST, IN FUND OTHER
TERM OF COMPLEX DIRECTOR-
NAME, ADDRESS OFFICE AND OVERSEEN SHIPS
AND AGE OF LENGTH OF PRINCIPAL OCCUPATION(S) BY TRUSTEE/ HELD BY
TRUSTEE/OFFICER TIME SERVED DURING PAST 5 YEARS OFFICER TRUSTEE
-------------------------------------------------------------------------------------------------------------
Joseph Arruda Assistant Vice President of PADCO Advisors, Inc. 138 Not
(40) Treasurer from and PADCO Advisors II, Inc. from 2004 to Applicable.
2006 to present. present; Director of Accounting of PADCO
Advisors, Inc. and PADCO Advisors II,
Inc. from 2003 to 2004; Vice President
of Mutual Funds, State Street Bank &
Trust from 2000 to 2003.
Paula Billos Controller from Director of Fund Administration of PADCO 138 Not
(33) 2006 to present. Advisors, Inc. and PADCO Advisors II, Applicable.
Inc. from 2001 to present.
SHAREHOLDERS SHARING THE SAME ADDRESS
If two or more Shareholders share the same address, only one copy of this
Proxy Statement will be delivered to that address, unless a Fund has received
contrary instructions from one or more of the Shareholders at that shared
address. Upon written or oral request, a Fund will deliver promptly a separate
copy of this Proxy Statement to a Shareholder at a shared address. Please note
that each Shareholder will receive a separate proxy card, regardless of whether
he or she resides at a shared address. Please call the Funds' proxy solicitation
agent at 1-877-256-6082 or forward a written request to a Fund c/o Rydex
Investments, 9601 Blackwell Road, Suite 500, Rockville, Maryland 20850 if you
would like to: (1) receive a separate copy of this Proxy Statement; (2) receive
your annual reports or proxy statements separately in the future; or (3) request
delivery of a single copy of annual reports or proxy statements if you are
currently receiving multiple copies at a shared address.
OUTSTANDING SHARES AND SIGNIFICANT SHAREHOLDERS
Shareholders of record on the Record Date are entitled to notice of and to
vote at the Meeting and any adjournments or postponements thereof. Appendix A to
this Proxy Statement lists for each Fund the total number of shares outstanding
as of the Record Date for each class of each Fund's shares. It also identifies
holders, as of the Record Date, of more than 5% of any class of shares of each
Fund.
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
30
proposal for action at a future meeting should submit a written proposal to the
Secretary of Rydex Variable Trust, c/o Rydex Investments, 9601 Blackwell Road,
Suite 500, Rockville, Maryland 20850 for inclusion in a future proxy statement.
Shareholder proposals to be presented at any future meeting of the Trust must be
received by the Trust in writing within a reasonable amount of time before the
Trust solicits proxies for that meeting, in order to be considered for inclusion
in the proxy materials for that meeting. Whether a proposal is submitted 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.
OTHER MATTERS
The Trustees know of no other business to be brought before the Meeting.
However, if any other matters properly come before the Meeting, it is their
intention that proxies which do not contain specific restrictions to the
contrary will be voted on such matters in accordance with the judgment of the
persons named in the enclosed proxy.
ANNUAL AND SEMI-ANNUAL REPORTS TO SHAREHOLDERS
For a free copy of the Trust's most recent Annual Report (and most recent
Semi-Annual Report succeeding the Annual Report, if any), Shareholders may call
1-800-820-0888, visit the Funds' web site at www.rydexinvestments.com, or write
to the Trust at 9601 Blackwell Road, Suite 500, Rockville, Maryland 20850.
OTHER BUSINESS
The Board does not intend to present any other business at the Meeting. If
any other matter may properly come before the Meeting, or any adjournment
thereof, the persons named in the accompanying proxy card(s) intend to vote,
act, or consent thereunder in accordance with their best judgment at that time
on such matters. No annual or other special meeting is currently scheduled for
the Trust. Mere submission of a shareholder proposal does not guarantee the
inclusion of the proposal in the proxy statement or presentation of the proposal
at the Meeting because inclusion and presentation are subject to compliance with
certain federal regulations.
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. YOU MAY ALSO ATTEND THE MEETING AND VOTE
IN PERSON.
31
APPENDIX A
OUTSTANDING SHARES AND SIGNIFICANT SHAREHOLDERS
I. OUTSTANDING SHARES
As of the Record Date, the total number of shares outstanding for each
Fund is set forth in the table below:
FUND TOTAL SHARES OUTSTANDING
--------------------------------------------------------------------------------
Absolute Return Strategies 1,637,058.3990
Banking 212,682.3040
Basic Materials 2,090,221.7260
Biotechnology 359,389.5270
CLS AdvisorOne Amerigo 8,113,127.1270
CLS AdvisorOne Berolina 2,878,781.7620
CLS AdvisorOne Clermont 1,739,085.3010
Commodities Strategy 1,182,224.1810
Consumer Products 775,445.2230
Dow 2x Strategy 1,117,691.4120
Electronics 930,933.7490
Energy 2,278,413.1560
Energy Services 2,631,877.3370
Essential Portfolio Aggressive 183,144.9510
Essential Portfolio Conservative 103,825.8000
Essential Portfolio Moderate 278,480.9630
Europe 1.25x Strategy 2,365,460.2060
Financial Services 903,545.9050
Government Long Bond 1.2x Strategy 4,386,053.8520
Health Care 1,553,843.7820
Hedged Equity 751,758.2720
Internet 690,513.8510
Inverse Dow 2x Strategy 580,570.5920
Inverse Government Long Bond Strategy 1,000,118.1010
Inverse Mid Cap Strategy 82,311.6750
Inverse OTC Strategy 882,684.4580
Inverse Russell 2000 Strategy 410,658.3520
A-1
FUND TOTAL SHARES OUTSTANDING
--------------------------------------------------------------------------------
Inverse S&P 500 Strategy 447,057.7290
Japan 1.25x Strategy 806,169.1900
Large-Cap Growth 762,890.3610
Large-Cap Value 1,181,664.4130
Leisure 715,052.7730
Mid-Cap 1.5x Strategy 1,635,091.3670
Mid-Cap Growth 752,996.2070
Mid-Cap Value 1,052,920.7560
Multi-Cap Core Equity 252,756.5610
Nova 8,429,830.3430
OTC 3,992,600.2630
OTC 2x Strategy 2,207,530.4480
Precious Metals 3,936,466.8970
Real Estate 754,256.7900
Retailing 545,495.6610
Russell 2000(R) 1.5x Strategy 539,828.0700
Russell 2000(R) 2x Strategy 242,204.1560
S&P 500 2x Strategy 1,284,608.9020
Sector Rotation 6,280,022.6090
Small-Cap Growth 458,169.0480
Small-Cap Value 540,249.7550
Strengthening Dollar 2x Strategy 145,057.3170
Technology 2,838,015.3440
Telecommunication 2,435,372.2040
Transportation 630,625.4260
U.S. Government Money Market 333,353,611.5800
Utilities 1,977,487.6210
Weakening Dollar 2x Strategy 352,377.7400
A-2
II. SIGNIFICANT SHAREHOLDERS
As of the Record Date, the following persons were the only persons who
were record owners or, to the best knowledge of the Trust, were beneficial
owners of 5% or more of the shares of a Fund.
PERCENTAGE
OF FUND
NAME OF ADDRESS OF NUMBER OF SHARES
FUND BENEFICIAL OWNER BENEFICIAL OWNER SHARES OWNED OUTSTANDING
-----------------------------------------------------------------------------------------------------------------------
Absolute Return Nationwide Insurance c/o IPO Portfolio Accounting, 1,052,736.878 64.31%
Strategies P.O. Box 182029,
Columbus, OH 43218-2029
Absolute Return Security Benefit One Security Benefit Place, 409,429.323 25.01%
Strategies Topeka, KS 66636-0001
Banking Nationwide Insurance c/o IPO Portfolio Accounting, 144,390.557 67.89%
P.O. Box 182029, Columbus,
OH 43218-2029
Banking Security Benefit One Security Benefit Place, 60,136.835 28.28%
Topeka, KS 66636-0001
Basic Materials Security Benefit One Security Benefit Place, 108,647.519 5.20%
Topeka, KS 66636-0001
Basic Materials Nationwide Insurance c/o IPO Portfolio Accounting, 1,071,715.159 51.27%
P.O. Box 182029,
Columbus, OH 43218-2029
Basic Materials Security Benefit One Security Benefit Place, 772,663.210 36.97%
Topeka, KS 66636-0001
Basic Materials Jefferson National 9920 Corporate Campus, 126,483.203 6.05%
Suite 1000,
Louisville, IN 40223
Biotechnology Nationwide Insurance c/o IPO Portfolio Accounting, 237,404.911 66.06%
P.O. Box 182029,
Columbus, OH 43218-2029
Biotechnology Security Benefit One Security Benefit Place, 89,999.089 25.04%
Topeka, KS 66636-0001
CLS Advisorone Security Benefit One Security Benefit Place, 6,106,516.994 75.27%
Amerigo Topeka, KS 66636-0001
CLS Advisorone Security Benefit Life One Security Benefit Place, 1,435,330.087 17.69%
Amerigo Topeka, KS 66636-0001
CLS Advisorone Security Benefit One Security Benefit Place, 2,712,481.745 94.22%
Berolina Topeka, KS 66636-0001
CLS Advisorone Security Benefit One Security Benefit Place, 1,280,267.384 73.62%
Clermont Topeka, KS 66636-0001
CLS Advisorone Security Benefit Life One Security Benefit Place, 302,187.584 17.38%
Clermont Topeka, KS 66636-0001
A-3
PERCENTAGE
OF FUND
NAME OF ADDRESS OF NUMBER OF SHARES
FUND BENEFICIAL OWNER BENEFICIAL OWNER SHARES OWNED OUTSTANDING
-----------------------------------------------------------------------------------------------------------------------
Commodities Nationwide Insurance c/o IPO Portfolio Accounting, 873,958.020 73.92%
Strategy P.O. Box 182029,
Columbus, OH 43218-2029
Commodities Security Benefit One Security Benefit Place, 222,344.790 18.81%
Strategy Topeka, KS 66636-0001
Consumer Products Security Benefit One Security Benefit Place, 56,674.660 7.31%
Topeka, KS 66636-0001
Consumer Products Nationwide Insurance c/o IPO Portfolio Accounting, 442,665.749 57.09%
P.O. Box 182029, Columbus,
OH 43218-2029
Consumer Products Security Benefit One Security Benefit Place, 235,600.055 30.38%
Topeka, KS 66636-0001
Dow 2x Strategy Nationwide Insurance c/o IPO Portfolio Accounting, 463,364.991 41.46%
P.O. Box 182029,
Columbus, OH 43218-2029
Dow 2x Strategy Security Benefit One Security Benefit Place, 483,942.545 43.30%
Topeka, KS 66636-0001
Dow 2x Strategy Jefferson National 9920 Corporate Campus, 97,992.783 8.77%
Suite 1000,
Louisville, IN 40223
Electronics Nationwide Insurance c/o IPO Portfolio Accounting, 421,232.071 45.25%
P.O. Box 182029, Columbus,
OH 43218-2029
Electronics Security Benefit One Security Benefit Place, 395,538.675 42.49%
Topeka, KS 66636-0001
Electronics Jefferson National 9920 Corporate Campus, 101,933.106 10.95%
Suite 1000,
Louisville, IN 40223
Energy Nationwide Insurance c/o IPO Portfolio Accounting, 1,079,471.212 47.38%
P.O. Box 182029,
Columbus, OH 43218-2029
Energy Security Benefit One Security Benefit Place, 797,709.365 35.01%
Topeka, KS 66636-0001
Energy Jefferson National 9920 Corporate Campus, 177,538.832 7.79%
Suite 1000,
Louisville, IN 40223
Energy Services Security Benefit One Security Benefit Place, 133,411.539 5.07%
Topeka, KS 66636-0001
A-4
PERCENTAGE
OF FUND
NAME OF ADDRESS OF NUMBER OF SHARES
FUND BENEFICIAL OWNER BENEFICIAL OWNER SHARES OWNED OUTSTANDING
-----------------------------------------------------------------------------------------------------------------------
Energy Services Nationwide Insurance c/o IPO Portfolio Accounting, 1,216,173.421 46.21%
P.O. Box 182029,
Columbus, OH 43218-2029
Energy Services Security Benefit One Security Benefit Place, 978,010.268 37.16%
Topeka, KS 66636-0001
Energy Services Jefferson National 9920 Corporate Campus, 251,690.701 9.56%
Suite 1000,
Louisville, IN 40223
Essential Portfolio Security Benefit One Security Benefit Place, 25,057.865 13.68%
Aggressive Topeka, KS 66636-0001
Essential Portfolio Security Benefit Life One Security Benefit Place, 34,028.724 18.58%
Aggressive Topeka, KS 66636-0001
Essential Portfolio Security Benefit One Security Benefit Place, 121,044.898 66.09%
Aggressive Topeka, KS 66636-0001
Essential Portfolio Security Benefit One Security Benefit Place, 88,184.859 84.94%
Conservative Topeka, KS 66636-0001
Essential Portfolio Security Benefit Life One Security Benefit Place, 11,451.424 11.03%
Conservative Topeka, KS 66636-0001
Essential Portfolio Security Benefit One Security Benefit Place, 165,163.758 59.31%
Moderate Topeka, KS 66636-0001
Essential Portfolio Security Benefit Life One Security Benefit Place, 102,629.913 36.85%
Moderate Topeka, KS 66636-0001
Europe 1.25x Nationwide Insurance c/o IPO Portfolio Accounting, 967,369.629 40.90%
Strategy P.O. Box 182029,
Columbus, OH 43218-2029
Europe 1.25x Security Benefit One Security Benefit Place, 1,170,069.281 49.46%
Strategy Topeka, KS 66636-0001
Europe 1.25x Jefferson National 9920 Corporate Campus, 119,870.001 5.07%
Strategy Suite 1000,
Louisville, IN 40223
Financial Services Security Benefit One Security Benefit Place, 59,704.471 6.61%
Topeka, KS 66636-0001
Financial Services Nationwide Insurance c/o IPO Portfolio Accounting, 652,967.030 72.27%
P.O. Box 182029,
Columbus, OH 43218-2029
Financial Services Security Benefit One Security Benefit Place, 161,114.384 17.83%
Topeka, KS 66636-0001
A-5
PERCENTAGE
OF FUND
NAME OF ADDRESS OF NUMBER OF SHARES
FUND BENEFICIAL OWNER BENEFICIAL OWNER SHARES OWNED OUTSTANDING
-----------------------------------------------------------------------------------------------------------------------
Health Care Nationwide Insurance c/o IPO Portfolio Accounting, 936,541.282 60.27%
P.O. Box 182029,
Columbus, OH 43218-2029
Health Care Security Benefit One Security Benefit Place, 396,854.128 25.54%
Topeka, KS 66636-0001
Health Care Jefferson National 9920 Corporate Campus, 100,243.764 6.45%
Suite 1000,
Louisville, IN 40223
Hedged Equity Nationwide Insurance c/o IPO Portfolio Accounting, 633,920.943 84.33%
P.O. Box 182029,
Columbus, OH 43218-2029
Hedged Equity Jefferson National 9920 Corporate Campus, 59,724.954 7.94%
Suite 1000,
Louisville, IN 40223
Internet Nationwide Insurance c/o IPO Portfolio Accounting, 427,327.689 61.89%
P.O. Box 182029,
Columbus, OH 43218-2029
Internet Security Benefit One Security Benefit Place, 221,237.943 32.04%
Topeka, KS 66636-0001
Inverse Dow 2x Nationwide Insurance c/o IPO Portfolio Accounting, 183,898.907 31.68%
Strategy P.O. Box 182029,
Columbus, OH 43218-2029
Inverse Dow 2x Midland Life 4601 Westown Pkwy, 68,113.423 11.73%
Strategy Suite 300,
West Des Moines, IA
50266-1071
Inverse Dow 2x Security Benefit One Security Benefit Place, 200,406.477 34.52%
Strategy Topeka, KS 66636-0001
Inverse Dow 2x Jefferson National 9920 Corporate Campus, 105,118.382 18.11%
Strategy Suite 1000,
Louisville, IN 40223
Inverse Government Phoenix (PHLVIC) 31 Tech Valley Dr, 170,228.978 17.02%
Long Bond Strategy East Greenbush, NY 12061
Inverse Government Nationwide Insurance c/o IPO Portfolio Accounting, 389,527.680 38.95%
Long Bond Strategy P.O. Box 182029,
Columbus, OH 43218-2029
Inverse Government Security Benefit One Security Benefit Place, 298,924.013 29.89%
Long Bond Strategy Topeka, KS 66636-0001
A-6
PERCENTAGE
OF FUND
NAME OF ADDRESS OF NUMBER OF SHARES
FUND BENEFICIAL OWNER BENEFICIAL OWNER SHARES OWNED OUTSTANDING
-----------------------------------------------------------------------------------------------------------------------
Inverse Mid-Cap Nationwide Insurance c/o IPO Portfolio Accounting, 41,284.344 50.16%
Strategy P.O. Box 182029,
Columbus, OH 43218-2029
Inverse Mid-Cap Security Benefit One Security Benefit Place, 22,261.529 27.05%
Strategy Topeka, KS 66636-0001
Inverse Mid-Cap Security Benefit Life One Security Benefit Place, 5,787.226 7.03%
Strategy Topeka, KS 66636-0001
Inverse Mid-Cap Jefferson National 9920 Corporate Campus, 10,935.649 13.29%
Strategy Suite 1000,
Louisville, IN 40223
Inverse OTC Strategy Nationwide Insurance c/o IPO Portfolio Accounting, 430,248.039 48.74%
P.O. Box 182029,
Columbus, OH 43218-2029
Inverse OTC Strategy Nationwide Insurance c/o IPO Portfolio Accounting, 91,466.962 10.36%
P.O. Box 182029,
Columbus, OH 43218-2029
Inverse OTC Strategy Midland Life 4601 Westown Pkwy, 68,589.104 7.77%
Suite 300,
West Des Moines, IA
50266-1071
Inverse OTC Strategy Security Benefit One Security Benefit Place, 242,360.073 27.46%
Topeka, KS 66636-0001
Inverse Nationwide Insurance c/o IPO Portfolio Accounting, 187,084.986 45.56%
Russell 2000(R) P.O. Box 182029,
Strategy Columbus, OH 43218-2029
Inverse Security Benefit One Security Benefit Place, 137,967.147 33.60%
Russell 2000(R) Topeka, KS 66636-0001
Strategy
Inverse Jefferson National 9920 Corporate Campus, 60,410.160 14.71%
Russell 2000(R) Suite 1000,
Strategy Louisville, IN 40223
Inverse S&P 500 Nationwide Insurance c/o IPO Portfolio Accounting, 198,971.689 44.51%
Strategy P.O. Box 182029,
Columbus, OH 43218-2029
Inverse S&P 500 Nationwide Insurance c/o IPO Portfolio Accounting, 24,448.114 5.47%
Strategy P.O. Box 182029,
Columbus, OH 43218-2029
A-7
PERCENTAGE
OF FUND
NAME OF ADDRESS OF NUMBER OF SHARES
FUND BENEFICIAL OWNER BENEFICIAL OWNER SHARES OWNED OUTSTANDING
-----------------------------------------------------------------------------------------------------------------------
Inverse S&P 500 Midland Life 4601 Westown Pkwy, 29,375.657 6.57%
Strategy Suite 300,
West Des Moines, IA
50266-1071
Inverse S&P 500 Ameritas P.O. Box 81889, 24,234.183 5.42%
Strategy Lincoln, NE 68501
Inverse S&P 500 Security Benefit One Security Benefit Place, 126,760.253 28.35%
Strategy Topeka, KS 66636-0001
Inverse S&P 500 Jefferson National 9920 Corporate Campus, 25,060.421 5.61%
Strategy Suite 1000,
Louisville, IN 40223
Japan 1.25x Nationwide Insurance c/o IPO Portfolio Accounting, 419,768.046 52.07%
Strategy P.O. Box 182029,
Columbus, OH 43218-2029
Japan 1.25x Security Benefit One Security Benefit Place, 247,442.725 30.69%
Strategy Topeka, KS 66636-0001
Large-Cap Growth Nationwide Insurance c/o IPO Portfolio Accounting, 273,018.565 35.79%
P.O. Box 182029,
Columbus, OH 43218-2029
Large-Cap Growth Security Benefit One Security Benefit Place, 325,188.294 42.63%
Topeka, KS 66636-0001
Large-Cap Growth Jefferson National 9920 Corporate Campus, 104,463.623 13.69%
Suite 1000,
Louisville, IN 40223
Large-Cap Value Nationwide Insurance c/o IPO Portfolio Accounting, 333,958.107 28.26%
P.O. Box 182029,
Columbus, OH 43218-2029
Large-Cap Value Security Benefit One Security Benefit Place, 669,812.965 56.68%
Topeka, KS 66636-0001
Large-Cap Value Jefferson National 9920 Corporate Campus, 106,814.085 9.04%
Suite 1000,
Louisville, IN 40223
Leisure Security Benefit One Security Benefit Place, 71,756.797 10.04%
Topeka, KS 66636-0001
Leisure Nationwide Insurance c/o IPO Portfolio Accounting, 499,395.293 69.84%
P.O. Box 182029,
Columbus, OH 43218-2029
Leisure Security Benefit One Security Benefit Place, 96,232.887 13.46%
Topeka, KS 66636-0001
A-8
PERCENTAGE
OF FUND
NAME OF ADDRESS OF NUMBER OF SHARES
FUND BENEFICIAL OWNER BENEFICIAL OWNER SHARES OWNED OUTSTANDING
-----------------------------------------------------------------------------------------------------------------------
Leisure Jefferson National 9920 Corporate Campus, 43,566.927 6.09%
Suite 1000,
Louisville, IN 40223
Mid-Cap 1.5x Nationwide Insurance c/o IPO Portfolio Accounting, 684,286.848 41.85%
Strategy P.O. Box 182029,
Columbus, OH 43218-2029
Mid-Cap 1.5x Security Benefit One Security Benefit Place, 797,127.245 48.75%
Strategy Topeka, KS 66636-0001
Mid-Cap 1.5x Jefferson National 9920 Corporate Campus, 107,628.099 6.58%
Strategy Suite 1000,
Louisville, IN 40223
Mid-Cap Growth Nationwide Insurance c/o IPO Portfolio Accounting, 274,051.654 36.39%
P.O. Box 182029,
Columbus, OH 43218-2029
Mid-Cap Growth Security Benefit One Security Benefit Place, 366,127.693 48.62%
Topeka, KS 66636-0001
Mid-Cap Growth Jefferson National 9920 Corporate Campus, 53,454.589 7.10%
Suite 1000,
Louisville, IN 40223
Mid-Cap Value Nationwide Insurance c/o IPO Portfolio Accounting, 298,799.168 28.38%
P.O. Box 182029,
Columbus, OH 43218-2029
Mid-Cap Value Security Benefit One Security Benefit Place, 625,062.811 59.36%
Topeka, KS 66636-0001
Mid-Cap Value Jefferson National 9920 Corporate Campus, 76,572.506 7.27%
Suite 1000,
Louisville, IN 40223
Multi-Cap Core Nationwide Insurance c/o IPO Portfolio Accounting, 189,817.256 75.10%
Equity P.O. Box 182029,
Columbus, OH 43218-2029
Multi-Cap Core Rydex Distributors 9601 Blackwell Rd, 34,864.363 13.79%
Equity Suite 500,
Rockville, MD 20850
Nova Skandia (SAB) One Corporate Drive, 588,901.250 6.99%
P.O. Box 883
Shelton, CT 06484-0883
Nova Security Benefit One Security Benefit Place, 825,750.519 9.80%
Topeka, KS 66636-0001
A-9
PERCENTAGE
OF FUND
NAME OF ADDRESS OF NUMBER OF SHARES
FUND BENEFICIAL OWNER BENEFICIAL OWNER SHARES OWNED OUTSTANDING
-----------------------------------------------------------------------------------------------------------------------
Nova Nationwide Insurance c/o IPO Portfolio Accounting, 3,558,898.674 42.22%
P.O. Box 182029,
Columbus, OH 43218-2029
Nova Security Benefit One Security Benefit Place, 1,996,520.443 23.68%
Topeka, KS 66636-0001
Nova Jefferson National 9920 Corporate Campus, 609,951.864 7.24%
Suite 1000,
Louisville, IN 40223
OTC Skandia (SAB) One Corporate Drive, P.O. 1,291,229.152 32.34%
Box 883,
Shelton, CT 06484-0883
OTC Nationwide Insurance c/o IPO Portfolio Accounting, 586,431.810 14.69%
P.O. Box 182029,
Columbus, OH 43218-2029
OTC Security Benefit One Security Benefit Place, 375,693.618 9.41%
Topeka, KS 66636-0001
OTC GE Life & Annuity 6610 West Broad Street, 580,276.254 14.53%
Richmond, VA 23230
OTC Jefferson National 9920 Corporate Campus, 392,993.880 9.84%
Suite 1000,
Louisville, IN 40223
OTC 2x Strategy Nationwide Insurance c/o IPO Portfolio Accounting, 818,428.505 37.07%
P.O. Box 182029,
Columbus, OH 43218-2029
OTC 2x Strategy Security Benefit One Security Benefit Place, 775,435.169 35.13%
Topeka, KS 66636-0001
OTC 2x Strategy Jefferson National 9920 Corporate Campus, 414,193.269 18.76%
Suite 1000,
Louisville, IN 40223
Precious Metals Nationwide Insurance c/o IPO Portfolio Accounting, 1,604,603.547 40.76%
P.O. Box 182029,
Columbus, OH 43218-2029
Precious Metals Ameritas P.O. Box 81889, 310,466.750 7.89%
Lincoln, NE 68501
Precious Metals Security Benefit One Security Benefit Place, 1,418,332.716 36.03%
Topeka, KS 66636-0001
Precious Metals Jefferson National 9920 Corporate Campus, 347,855.682 8.84%
Suite 1000,
Louisville, IN 40223
A-10
PERCENTAGE
OF FUND
NAME OF ADDRESS OF NUMBER OF SHARES
FUND BENEFICIAL OWNER BENEFICIAL OWNER SHARES OWNED OUTSTANDING
-----------------------------------------------------------------------------------------------------------------------
Real Estate Nationwide Insurance c/o IPO Portfolio Accounting, 413,531.177 54.83%
P.O. Box 182029,
Columbus, OH 43218-2029
Real Estate Security Benefit One Security Benefit Place, 281,510.842 37.32%
Topeka, KS 66636-0001
Retailing Security Benefit One Security Benefit Place, 53,651.907 9.84%
Topeka, KS 66636-0001
Retailing Nationwide Insurance c/o IPO Portfolio Accounting, 399,579.936 73.25%
P.O. Box 182029,
Columbus, OH 43218-2029
Retailing Security Benefit One Security Benefit Place, 46,427.063 8.51%
Topeka, KS 66636-0001
Retailing Sage Life 969 High Ridge Rd, 41,185.449 7.55%
Ste 200,
Stamford, CT 06905
Russell 2000(R) 1.5x Nationwide Insurance c/o IPO Portfolio Accounting, 269,288.409 49.88%
Strategy P.O. Box 182029,
Columbus, OH 43218-2029
Russell 2000(R) 1.5x Security Benefit One Security Benefit Place, 175,004.390 32.42%
Strategy Topeka, KS 66636-0001
Russell 2000(R) 1.5x Jefferson National 9920 Corporate Campus, 44,383.967 8.22%
Strategy Suite 1000,
Louisville, IN 40223
Russell 2000(R) 2x Security Benefit One Security Benefit Place, 119,176.082 49.20%
Strategy Topeka, KS 66636-0001
Russell 2000(R) 2x Rydex Distributors 9601 Blackwell Rd, 119,854.235 49.48%
Strategy Suite 500
Attn: Joanne Haigney
Rockville, MD 20850
S&P 500 2x Nationwide Insurance c/o IPO Portfolio Accounting, 495,432.102 38.57%
Strategy P.O. Box 182029,
Columbus, OH 43218-2029
S&P 500 2x Security Benefit One Security Benefit Place, 604,983.894 47.09%
Strategy Topeka, KS 66636-0001
S&P 500 2x Jefferson National 9920 Corporate Campus, 88,951.882 6.92%
Strategy Suite 1000,
Louisville, IN 40223
Sector Rotation Nationwide Insurance c/o IPO Portfolio Accounting, 1,806,286.564 28.76%
P.O. Box 182029,
Columbus, OH 43218-2029
A-11
PERCENTAGE
OF FUND
NAME OF ADDRESS OF NUMBER OF SHARES
FUND BENEFICIAL OWNER BENEFICIAL OWNER SHARES OWNED OUTSTANDING
-----------------------------------------------------------------------------------------------------------------------
Sector Rotation Security Benefit One Security Benefit Place, 1,012,140.267 16.12%
Topeka, KS 66636-0001
Sector Rotation Security Benefit One Security Benefit Place, 1,296,617.761 20.65%
Topeka, KS 66636-0001
Sector Rotation Security Benefit One Security Benefit Place, 336,746.749 5.36%
Topeka, KS 66636-0001
Small-Cap Growth Nationwide Insurance c/o IPO Portfolio Accounting, 119,715.843 26.13%
P.O. Box 182029,
Columbus, OH 43218-2029
Small-Cap Growth Security Benefit One Security Benefit Place, 241,537.536 52.72%
Topeka, KS 66636-0001
Small-Cap Growth Jefferson National 9920 Corporate Campus, 63,234.420 13.80%
Suite 1000,
Louisville, IN 40223
Small-Cap Value Nationwide Insurance c/o IPO Portfolio Accounting, 206,935.208 38.30%
P.O. Box 182029,
Columbus, OH 43218-2029
Small-Cap Value Security Benefit One Security Benefit Place, 250,890.391 46.44%
Topeka, KS 66636-0001
Small-Cap Value Jefferson National 9920 Corporate Campus, 51,162.521 9.47%
Suite 1000,
Louisville, IN 40223
Strengthening Nationwide Insurance c/o IPO Portfolio Accounting, 17,236.356 11.88%
Dollar 2x Strategy P.O. Box 182029,
Columbus, OH 43218-2029
Strengthening Security Benefit One Security Benefit Place 81,845.629 56.42%
Dollar 2x Strategy Topeka, KS 66636-0001
Strengthening Rydex Distributors 9601 Blackwell Rd, 40,812.122 28.14%
Dollar 2x Strategy Suite 500,
Rockville, MD 20850
Technology Nationwide Insurance c/o IPO Portfolio Accounting, 1,687,935.758 59.48%
P.O. Box 182029,
Columbus, OH 43218-2029
Technology Security Benefit One Security Benefit Place, 942,459.738 33.21%
Topeka, KS 66636-0001
Technology Jefferson National 9920 Corporate Campus, 165,855.626 5.84%
Suite 1000,
Louisville, IN 40223
A-12
PERCENTAGE
OF FUND
NAME OF ADDRESS OF NUMBER OF SHARES
FUND BENEFICIAL OWNER BENEFICIAL OWNER SHARES OWNED OUTSTANDING
-----------------------------------------------------------------------------------------------------------------------
Telecommunications Security Benefit One Security Benefit Place, 169,213.381 6.95%
Topeka, KS 66636-0001
Telecommunications Nationwide Insurance c/o IPO Portfolio Accounting, 1,393,158.445 57.21%
P.O. Box 182029,
Columbus, OH 43218-2029
Telecommunications Security Benefit One Security Benefit Place, 771,802.165 31.69%
Topeka, KS 66636-0001
Transportation Security Benefit One Security Benefit Place, 47,781.091 7.58%
Topeka, KS 66636-0001
Transportation Nationwide Insurance c/o IPO Portfolio Accounting, 462,201.388 73.29%
P.O. Box 182029,
Columbus, OH 43218-2029
Transportation Security Benefit One Security Benefit Place, 73,223.829 11.61%
Topeka, KS 66636-0001
U.S. Government Security Benefit One Security Benefit Place, 234,962.396 5.36%
Long Bond 1.2x Topeka, KS 66636-0001
Strategy
U.S. Government Nationwide Insurance c/o IPO Portfolio Accounting, 2,144,638.803 48.90%
Long Bond 1.2x P.O. Box 182029,
Strategy Columbus, OH 43218-2029
U.S. Government Security Benefit One Security Benefit Place, 1,381,629.866 31.50%
Long Bond 1.2x Topeka, KS 66636-0001
Strategy
U.S. Government Jefferson National 9920 Corporate Campus, 298,581.407 6.81%
Long Bond 1.2x Suite 1000,
Strategy Louisville, IN 40223
U.S. Government Security Benefit One Security Benefit Place, 264,002,689.340 79.20%
Money Market Topeka, KS 66636-0001
U.S. Government Jefferson National 9920 Corporate Campus, 48,120,119.880 14.44%
Money Market Suite 1000,
Louisville, IN 40223
Utilities Security Benefit One Security Benefit Place, 106,924.512 5.41%
Topeka, KS 66636-0001
Utilities Nationwide Insurance c/o IPO Portfolio Accounting, 957,858.742 48.44%
P.O. Box 182029,
Columbus, OH 43218-2029
Utilities Security Benefit One Security Benefit Place, 738,702.201 37.36%
Topeka, KS 66636-0001
A-13
PERCENTAGE
OF FUND
NAME OF ADDRESS OF NUMBER OF SHARES
FUND BENEFICIAL OWNER BENEFICIAL OWNER SHARES OWNED OUTSTANDING
-----------------------------------------------------------------------------------------------------------------------
Utilities Jefferson National 9920 Corporate Campus, 154,325.730 7.80%
Suite 1000,
Louisville, IN 40223
Weakening Nationwide Insurance c/o IPO Portfolio Accounting, 191,887.347 54.46%
Dollar 2x Strategy P.O. Box 182029,
Columbus, OH 43218-2029
Weakening Security Benefit One Security Benefit Place 139,567.305 39.61%
Dollar 2x Strategy Topeka, KS 66636-0001
A-14
APPENDIX B
ADVISORY AGREEMENT
ADVISORY AGREEMENT made as of this __th day of _______________, 2007 by
and between RYDEX VARIABLE TRUST (the "Trust"), a Delaware statutory trust
registered as an investment company under the Investment Company Act of 1940, as
amended (the "1940 Act"), and PADCO ADVISORS II, INC., a Maryland corporation
with its principal place of business at 9601 Blackwell Road, Suite 500,
Rockville, Maryland 20850 (the "Adviser").
W I T N E S S E T H
WHEREAS, the Board of Trustees (the "Board") of the Trust has selected the
Adviser to act as investment adviser to the Trust on behalf of the series set
forth on Schedule A to this Agreement (each a "Fund" and, collectively, the
"Funds"), as such Schedule may be amended from time to time upon mutual
agreement of the parties, and to provide certain related services, as more fully
set forth below, and to perform such services under the terms and conditions
hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual covenants and benefits set
forth herein, the Trust and the Adviser do hereby agree as follows:
1. THE ADVISER'S SERVICES.
(a) DISCRETIONARY INVESTMENT MANAGEMENT SERVICES. The Adviser shall
act as investment adviser with respect to the Funds. In such capacity, the
Adviser shall, subject to the supervision of the Board, regularly provide
the Funds with investment research, advice and supervision and shall
furnish continuously an investment program for the Funds, consistent with
the respective investment objectives and policies of each Fund. The
Adviser shall determine, from time to time, what securities shall be
purchased for the Funds, what securities shall be held or sold by the
Funds and what portion of the Funds' assets shall be held uninvested in
cash, subject always to the provisions of the Trust's 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-1
(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 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 and Section 817(h) 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
B-2
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.
(f) COOPERATION WITH AGENTS OF THE TRUST. The Adviser agrees to
cooperate with and provide reasonable assistance to the Trust, any Trust
custodian or foreign sub-custodians, any Trust pricing agents and all
other agents and representatives of the Trust, such information with
respect to the Funds as they may reasonably request from time to time in
the performance of their obligations, provide prompt responses to
reasonable requests made by such persons and establish appropriate
interfaces with each so as to promote the efficient exchange of
information and compliance with applicable laws and regulations.
2. CODE OF ETHICS. The Adviser has adopted a written code of ethics that
it reasonably believes complies with the requirements of Rule 17j-1 under the
1940 Act, which it will provide to the Trust. The Adviser shall ensure that its
Access Persons (as defined in the Adviser's Code of Ethics) comply in all
material respects with the Adviser's Code of Ethics, as in effect from time to
time. Upon request, the Adviser shall provide the Trust with a (i) a copy of the
Adviser's current Code of Ethics, as in effect from time to time, and (ii)
certification that it has adopted procedures reasonably necessary to prevent
Access Persons from engaging in any conduct prohibited by the Adviser's Code of
Ethics. Annually, the Adviser shall furnish a written report, which complies
with the requirements of Rule 17j-1, concerning the Adviser's Code of Ethics to
the Trust. The Adviser shall respond to requests for information from the Trust
as to violations of the Code of Ethics by Access Persons and the sanctions
imposed by the Adviser. The Adviser shall immediately notify the Trust of any
material violation of the Code of Ethics, whether or not such violation relates
to a security held by any Fund.
3. INFORMATION AND REPORTING. The Adviser shall provide the Trust and its
respective officers with such periodic reports concerning the obligations the
Adviser has assumed under this Agreement as the Trust may from time to time
reasonably request.
B-3
(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 and Section 817(h) of the Code,
and the Fund's policies, guidelines or procedures as applicable to the
Adviser's obligations under this Agreement. The Adviser agrees to correct
any such failure promptly and to take any action that the Board may
reasonably request in connection with any such breach. Upon request, the
Adviser shall also provide the officers of the Trust with supporting
certifications in connection with such certifications of Fund financial
statements and disclosure controls pursuant to the Sarbanes-Oxley Act. The
Adviser will promptly notify the Trust in the event (i) the Adviser is
served or otherwise receives notice of any action, suit, proceeding,
inquiry or investigation, at law or in equity, before or by any court,
public board, or body, involving the affairs of the Trust (excluding class
action suits in which a Fund is a member of the plaintiff class by reason
of the Fund's ownership of shares in the defendant) or the compliance by
the Adviser with the federal or state securities laws or (ii) an actual
change in control of the Adviser resulting in an "assignment" (as defined
in the 1940 Act) has occurred or is otherwise proposed to occur.
(b) BOARD AND FILINGS INFORMATION. The Adviser will also provide the
Trust with any information reasonably requested regarding its management
of the Funds required for any meeting of the Board, or for any shareholder
report, amended registration statement, proxy statement, or prospectus
supplement to be filed by the Trust with the Commission. The Adviser 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, offi-
B-4
cers or employees will act as a principal or agent or receive any
commission except as permitted by the 1940 Act.
(b) PLACEMENT OF ORDERS. The Adviser shall arrange for the placing
of all orders for the purchase and sale of securities for a Fund's account
with brokers or dealers selected by the Adviser. In the selection of such
brokers or dealers and the placing of such orders, the Adviser is directed
at all times to seek for the Fund the most favorable execution and net
price available under the circumstances. It is also understood that it is
desirable for the Fund that the Adviser have access to brokerage and
research services provided by brokers who may execute brokerage
transactions at a higher cost to the Fund than may result when allocating
brokerage to other brokers, consistent with section 28(e) of the 1934 Act
and any Commission staff interpretations thereof. Therefore, the Adviser
is authorized to place orders for the purchase and sale of securities for
a Fund with such brokers, subject to review by the Board from time to time
with respect to the extent and continuation of this practice. It is
understood that the services provided by such brokers may be useful to the
Adviser in connection with its or its affiliates' services to other
clients.
(c) AGGREGATED TRANSACTIONS. On occasions when the Adviser deems the
purchase or sale of a security to be in the best interest of a Fund as
well as other clients of the Adviser, the Adviser may, to the extent
permitted by applicable law and regulations, aggregate the order for
securities to be sold or purchased. In such event, the Adviser will
allocate securities or futures contracts so purchased or sold, as well as
the expenses incurred in the transaction, in the manner the Adviser
reasonably considers to be equitable and consistent with its fiduciary
obligations to the Fund and to such other clients under the circumstances.
(d) AFFILIATED BROKERS. The Adviser or any of its affiliates may act
as broker in connection with the purchase or sale of securities or other
investments for a Fund, subject to: (a) the requirement that the Adviser
seek to obtain best execution and price within the policy guidelines
determined by the Board and set forth in the Fund's current prospectus and
SAI; (b) the provisions of the 1940 Act; (c) the provisions of the
Advisers Act; (d) the provisions of the 1934 Act; and (e) other provisions
of applicable law. These brokerage services are not within the scope of
the duties of the Adviser under this Agreement. Subject to the
requirements of applicable 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
B-5
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.
7. REPRESENTATIONS, WARRANTIES AND COVENANTS.
(a) PROPERLY REGISTERED. The Adviser is registered as an investment
adviser under the Advisers Act, and will remain so registered for the
duration of this Agreement. The Adviser is not prohibited by the Advisers
Act or the 1940 Act from performing the services contemplated by this
Agreement, and to the best knowledge of the Adviser, there is no
proceeding or investigation that is reasonably likely to result in the
Adviser being prohibited from performing the services contemplated by this
Agreement. The Adviser agrees to promptly notify the Trust of the
occurrence of any event that would disqualify the Adviser from serving as
an investment adviser to an investment company. The Adviser is in
compliance in all material respects with all applicable federal and state
law in connection with its investment management operations.
(b) ADV DISCLOSURE. The Adviser has provided the Trust with a copy
of its Form ADV as most recently filed with the Commission and will,
promptly after filing any amendment to its Form ADV with the Commission,
furnish a copy of such amendment(s) to the Trust. The information
contained in the Adviser's Form ADV is accurate and complete in all
material respects and does not omit to state any material fact necessary
in order to make the statements made, in light of the circumstances under
which they were made, not misleading.
(c) FUND DISCLOSURE DOCUMENTS. The Adviser has reviewed and will in
the future review, the Registration Statement, and any amendments or
supplements thereto, the annual or semi-annual reports to shareholders,
other reports filed with the Commission and any marketing material of the
Funds (collectively the "Disclosure Documents") and represents and
warrants that with respect to disclosure about the Adviser, the manner in
which the Adviser manages the Funds or information relating directly or
indirectly to the Adviser, such Disclosure Documents contain or will
contain, as of the date thereof, no untrue statement of any material fact
and does not omit any statement of material fact which was required to be
stated therein or necessary to make the statements contained therein not
misleading.
(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".
B-6
(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 Name "Rydex". The Adviser grants to the Trust a
sublicense to use the name "Rydex" (the "Name") as part of the name of any Fund.
The foregoing authorization by the Adviser to the Trust to use the Name as part
of the name of any Fund is not exclusive of the right of the Adviser itself to
use, or to authorize others to use, the Name; the Trust acknowledges and agrees
that, as between the Trust and the Adviser, the Adviser has the right to use, or
authorize others to use, the Name. The Trust shall (1) only use the Name in a
manner consistent with uses approved by the Adviser; (2) use its best efforts to
maintain the quality of the services offered using the Name; (3) adhere to such
other specific quality control standards as the Adviser may from time to time
promulgate. At the request of the Adviser, the Trust will (a) submit to Adviser
representative samples of any promotional materials using the Name; and (b)
change the name of any Fund within three months of its receipt of the Adviser's
request, or such other shorter time period as may be required under the terms of
a settlement agreement or court order, so as to eliminate all reference to the
Name and will not thereafter transact any business using the Name in the name of
any Fund; provided, however, that the Trust may continue to use beyond such date
any supplies of prospectuses, marketing materials and similar documents that the
Trust had at the date of such name change in quantities not exceeding those
historically produced and used in connection with such Fund.
9. ADVISER'S COMPENSATION. The Funds shall pay to the Adviser, as
compensation for the Adviser's services hereunder, a fee, determined as
described in Schedule
B-7
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
(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
B-8
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.
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
B-9
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.
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 VARIABLE TRUST, on behalf of each
Fund listed on Schedule A
By: ______________________________________
Name: Carl G. Verboncoeur
Title: President
PADCO ADVISORS II, INC.
By: _____________________________________
Name: Carl G. Verboncoeur
Title: Chief Executive Officer
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SCHEDULE A
TO THE
ADVISORY AGREEMENT
DATED _____________, 2007 BETWEEN
RYDEX VARIABLE TRUST
AND
PADCO ADVISORS II, INC.
The Trust will pay to the Adviser as compensation for the Adviser's
services rendered, a fee, computed daily at an annual rate based on the average
daily net assets of the respective Fund in accordance the following fee
schedule:
FUND RATE
--------------------------------------------------------------------------------
Nova Fund .............................................................. 0.75%
Inverse S&P 500 Strategy ............................................... 0.90%
OTC .................................................................... 0.75%
Inverse OTC Strategy ................................................... 0.90%
Mid-Cap 1.5x Strategy .................................................. 0.90%
Russell 2000(R) 1.5x Strategy .......................................... 0.90%
Government Long Bond 1.2x Strategy ..................................... 0.50%
Inverse Government Long Bond Strategy .................................. 0.90%
Europe 1.25x Strategy .................................................. 0.90%
Japan 1.25x Strategy ................................................... 0.90%
Large-Cap Value ........................................................ 0.75%
Large-Cap Growth ....................................................... 0.75%
Mid-Cap Value .......................................................... 0.75%
Mid-Cap Growth ......................................................... 0.75%
Inverse Mid-Cap Strategy ............................................... 0.90%
Small-Cap Value ........................................................ 0.75%
Small-Cap Growth ....................................................... 0.75%
Inverse Russell 2000(R) Strategy ....................................... 0.90%
Strengthening Dollar 2x Strategy ....................................... 0.90%
Weakening Dollar 2x Strategy ........................................... 0.90%
U.S. Government Money Market ........................................... 0.50%
High Yield Strategy .................................................... 0.75%
Inverse High Yield Strategy ............................................ 0.75%
Dow 2x Strategy Fund ................................................... 0.90%
OTC 2x Strategy Fund ................................................... 0.90%
Russell 2000(R) 2x Strategy ............................................ 0.90%
S&P 500 2x Strategy .................................................... 0.90%
Inverse OTC 2x Strategy ................................................ 0.90%
Inverse S&P 500 2x Strategy ............................................ 0.90%
CLS AdvisorOne Clermont VT ............................................. 0.90%
FUND RATE
--------------------------------------------------------------------------------
Banking ................................................................ 0.85%
Basic Materials ........................................................ 0.85%
Biotechnology .......................................................... 0.85%
Consumer Products ...................................................... 0.85%
Electronics ............................................................ 0.85%
Energy ................................................................. 0.85%
Energy Services ........................................................ 0.85%
Financial Services ..................................................... 0.85%
Health Care ............................................................ 0.85%
Internet ............................................................... 0.85%
Leisure ................................................................ 0.85%
Precious Metals ........................................................ 0.75%
Real Estate ............................................................ 0.85%
Retailing .............................................................. 0.85%
Technology ............................................................. 0.85%
Telecommunications ..................................................... 0.85%
Transportation ......................................................... 0.85%
Utilities .............................................................. 0.85%
Commodities Strategy ................................................... 0.75%
Sector Rotation ........................................................ 0.90%
Multi-Cap Core Equity* ................................................. 0.70%
S&P 500 ................................................................ 0.75%
Russell 2000(R) ........................................................ 0.75%
Essential Portfolio Moderate ........................................... 0.00%
Essential Portfolio Conservative ....................................... 0.00%
Essential Portfolio Aggressive ......................................... 0.00%
Inverse Dow 2x Strategy ................................................ 0.90%
Inverse Russell 2000(R) 2x Strategy .................................... 0.90%
CLS AdvisorOne Amerigo VT .............................................. 0.90%
CLS AdvisorOne Berolina ................................................ 0.90%
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ADDITIONS ARE NOTED IN BOLD.
* The management fee with respect to the Multi-Cap Core Equity Fund (the "Fund")
is comprised of a basic fee (the "Basic Fee") at the annual rate of 0.70% of the
Fund's average daily net assets and a performance adjustment (the "Performance
Adjustment") as discussed below.
A. CALCULATING THE PERFORMANCE ADJUSTMENT.
The performance adjustment shall be calculated monthly by:
(i) Determining the difference in performance (the "Performance
Difference") between the Fund and the Russell 3000(R) Index (the
"Index"), as described in paragraph C;
(ii) Using the Performance Difference calculated under paragraph B (ii)
to determine the performance adjustment (the "Performance
Adjustment"), as illustrated in paragraph D; and
(iii) Adding the Performance Adjustment to the Basic Fee to determine the
management fee for the applicable month.
B. COMPUTING THE PERFORMANCE DIFFERENCE.
The Performance Difference is calculated monthly, and is determined by
measuring the percentage difference between the performance of one Share of the
Fund and the performance of the Index over the most recent 12-month period. The
performance of one Share of the Fund shall be measured by computing the
percentage difference, carried to five decimal places, between the net asset
value as of the last business day of the period selected for comparison and the
net asset value of such share as of the last business day of the prior period,
adjusted for dividends or capital gain distributions treated as reinvested
immediately. The performance of the Index will be established by measuring the
percentage difference, carried to five decimal places, between the beginning and
ending values of the Index for the comparison period, with dividends or capital
gain distributions on the securities that comprise the Index being treated as
reinvested immediately.
C. DETERMINING THE PERFORMANCE ADJUSTMENT.
For every 0.0375% in Performance Difference, the Adviser's fee will be
adjusted upwards or downwards by 0.01%. The maximum adjustment rate is 0.20% per
year, resulting in a minimum possible annual fee of 0.50% and a maximum possible
annual fee of 0.90%.
B-12
D. PERFORMANCE ADJUSTMENT EXAMPLE.
The following example illustrates the application of the Performance
Adjustment:
FUND'S INDEX'S FUND'S
FOR THE ROLLING 12-MONTH INVESTMENT CUMULATIVE PERFORMANCE RELATIVE
PERFORMANCE PERIOD PERFORMANCE CHANGE TO THE INDEX
------------------------------------------------------------------------
January 1 $ 50.00 100.00
December 31 $ 55.25 110.20
Absolute change + $ 5.25 +$ 10.20
Actual change + 10.50% + 10.20% +0.30%
Based on these assumptions, the Fund calculates the Adviser's management fee
rate for the month-ended December 31 as follows:
o The portion of the annual basic fee rate of 0.70% applicable to that
month is multiplied by the Fund's average daily net assets for the
month. This results in the dollar amount of the basic fee.
o The +0.30% difference between the performance of the Fund and the
record of the Index is divided by 3.75, producing a rate of 0.08%.
o The 0.08% rate (adjusted for the number of days in the month) is
multiplied by the Fund's average daily net assets for the
performance period. This results in the dollar amount of the
performance adjustment.
o The dollar amount of the performance adjustment is added to the
dollar amount of the basic fee, producing the adjusted management
fee.
2. PERFORMANCE PERIODS
For the period from July 1, 2003 through May 31, 2004, the Adviser will be paid
at the Base Rate, without regard to any Performance Adjustment. For the month
ending June 30, 2004, the Adviser will begin applying the Performance Adjustment
as described herein, based upon the performance of the Fund relative to the
performance of the Index during the 12-month period from July 1, 2003 through
June 30, 2004. The 12-month comparison period will roll over with each
succeeding month, so that it will always equal 12 months, ending with the month
for which the performance incentive adjustment is being computed.
3. CHANGES TO THE "INDEX" OR THE "CLASS"
The Trustees have initially designated the Russell 3000(R) Index as the index to
be used for purposes of determining the Performance Adjustment (referred to
herein as the "Index"). From time to time, to the extent permitted by the 1940
Act, the Trustees may, by a vote of the Trustees of the Trust voting in person,
including a majority of the Trustees who are not parties to this Agreement or
"interested persons" (as defined in the 1940 Act) of any such parties, determine
that another securities index is a more appropriate benchmark than the Index for
purposes of evaluating the performance of the Fund in calculating the
Performance Adjustment. After ten days' written notice to the Adviser, a
different index (the "Successor Index") may be substituted for the
B-13
Index in prospectively calculating the Performance Adjustment. However, the
calculation of that portion of the Performance Adjustment attributable to any
portion of the performance period prior to the adoption of the Successor Index
will still be based upon the Fund's performance compared to the Index.
B-14
APPENDIX C
ADVISORY AGREEMENT
ADVISORY AGREEMENT made as of this __th day of _______________, 2007 by
and between RYDEX VARIABLE TRUST (the "Trust"), a Delaware statutory trust
registered as an investment company under the Investment Company Act of 1940, as
amended (the "1940 Act"), and PADCO ADVISORS II, INC., a Maryland corporation
with its principal place of business at 9601 Blackwell Road, Suite 500,
Rockville, Maryland 20850 (the "Adviser").
W I T N E S S E T H
WHEREAS, the Board of Trustees (the "Board") of the Trust has selected the
Adviser to act as investment adviser to the Trust on behalf of the series set
forth on Schedule A to this Agreement (each a "Fund" and, collectively, the
"Funds"), as such Schedule may be amended from time to time upon mutual
agreement of the parties, and to provide certain related services, as more fully
set forth below, and to perform such services under the terms and conditions
hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual covenants and benefits set
forth herein, the Trust and the Adviser do hereby agree as follows:
1. THE ADVISER'S SERVICES.
(a) DISCRETIONARY INVESTMENT MANAGEMENT SERVICES. The Adviser shall
act as investment adviser with respect to the Funds. In such capacity, the
Adviser shall, subject to the supervision of the Board, regularly provide
the Funds with investment research, advice and supervision and shall
furnish continuously an investment program for the Funds, consistent with
the respective investment objectives and policies of each Fund. The
Adviser shall determine, from time to time, what securities shall be
purchased for the Funds, what securities shall be held or sold by the
Funds and what portion of the Funds' assets shall be held uninvested in
cash, subject always to the provisions of the Trust's 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.
C-1
(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 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 and Section 817(h) 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
C-2
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.
(f) COOPERATION WITH AGENTS OF THE TRUST. The Adviser agrees to
cooperate with and provide reasonable assistance to the Trust, any Trust
custodian or foreign sub-custodians, any Trust pricing agents and all
other agents and representatives of the Trust, such information with
respect to the Funds as they may reasonably request from time to time in
the performance of their obligations, provide prompt responses to
reasonable requests made by such persons and establish appropriate
interfaces with each so as to promote the efficient exchange of
information and compliance with applicable laws and regulations.
2. CODE OF ETHICS. The Adviser has adopted a written code of ethics that
it reasonably believes complies with the requirements of Rule 17j-1 under the
1940 Act, which it will provide to the Trust. The Adviser shall ensure that its
Access Persons (as defined in the Adviser's Code of Ethics) comply in all
material respects with the Adviser's Code of Ethics, as in effect from time to
time. Upon request, the Adviser shall provide the Trust with a (i) a copy of the
Adviser's current Code of Ethics, as in effect from time to time, and (ii)
certification that it has adopted procedures reasonably necessary to prevent
Access Persons from engaging in any conduct prohibited by the Adviser's Code of
Ethics. Annually, the Adviser shall furnish a written report, which complies
with the requirements of Rule 17j-1, concerning the Adviser's Code of Ethics to
the Trust. The Adviser shall respond to requests for information from the Trust
as to violations of the Code of Ethics by Access Persons and the sanctions
imposed by the Adviser. The Adviser shall immediately notify the Trust of any
material violation of the Code of Ethics, whether or not such violation relates
to a security held by any Fund.
3. INFORMATION AND REPORTING. The Adviser shall provide the Trust and its
respective officers with such periodic reports concerning the obligations the
Adviser has assumed under this Agreement as the Trust may from time to time
reasonably request.
C-3
(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 any 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 and Section 817(h) of the Code,
and the Fund's policies, guidelines or procedures as applicable to the
Adviser's obligations under this Agreement. The Adviser agrees to correct
any such failure promptly and to take any action that the Board may
reasonably request in connection with any such breach. Upon request, the
Adviser shall also provide the officers of the Trust with supporting
certifications in connection with such certifications of Fund financial
statements and disclosure controls pursuant to the Sarbanes-Oxley Act. The
Adviser will promptly notify the Trust in the event (i) the Adviser is
served or otherwise receives notice of any action, suit, proceeding,
inquiry or investigation, at law or in equity, before or by any court,
public board, or body, involving the affairs of the Trust (excluding class
action suits in which a Fund is a member of the plaintiff class by reason
of the Fund's ownership of shares in the defendant) or the compliance by
the Adviser with the federal or state securities laws or (ii) an actual
change in control of the Adviser resulting in an "assignment" (as defined
in the 1940 Act) has occurred or is otherwise proposed to occur.
(b) BOARD AND FILINGS INFORMATION. The Adviser will also provide the
Trust with any information reasonably requested regarding its management
of the Funds required for any meeting of the Board, or for any shareholder
report, amended registration statement, proxy statement, or prospectus
supplement to be filed by the Trust with the Commission. The Adviser 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
C-4
or employees will act as a principal or agent or receive any commission
except as permitted by the 1940 Act.
(b) PLACEMENT OF ORDERS. The Adviser shall arrange for the placing
of all orders for the purchase and sale of securities for a Fund's account
with brokers or dealers selected by the Adviser. In the selection of such
brokers or dealers and the placing of such orders, the Adviser is directed
at all times to seek for the Fund the most favorable execution and net
price available under the circumstances. It is also understood that it is
desirable for the Fund that the Adviser have access to brokerage and
research services provided by brokers who may execute brokerage
transactions at a higher cost to the Fund than may result when allocating
brokerage to other brokers, consistent with section 28(e) of the 1934 Act
and any Commission staff interpretations thereof. Therefore, the Adviser
is authorized to place orders for the purchase and sale of securities for
a Fund with such brokers, subject to review by the Board from time to time
with respect to the extent and continuation of this practice. It is
understood that the services provided by such brokers may be useful to the
Adviser in connection with its or its affiliates' services to other
clients.
(c) AGGREGATED TRANSACTIONS. On occasions when the Adviser deems the
purchase or sale of a security to be in the best interest of a Fund as
well as other clients of the Adviser, the Adviser may, to the extent
permitted by applicable law and regulations, aggregate the order for
securities to be sold or purchased. In such event, the Adviser will
allocate securities or futures contracts so purchased or sold, as well as
the expenses incurred in the transaction, in the manner the Adviser
reasonably considers to be equitable and consistent with its fiduciary
obligations to the Fund and to such other clients under the circumstances.
(d) AFFILIATED BROKERS. The Adviser or any of its affiliates may act
as broker in connection with the purchase or sale of securities or other
investments for a Fund, subject to: (a) the requirement that the Adviser
seek to obtain best execution and price within the policy guidelines
determined by the Board and set forth in the Fund's current prospectus and
SAI; (b) the provisions of the 1940 Act; (c) the provisions of the
Advisers Act; (d) the provisions of the 1934 Act; and (e) other provisions
of applicable law. These brokerage services are not within the scope of
the duties of the Adviser under this Agreement. Subject to the
requirements of applicable 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.
C-5
6. ALLOCATION OF CHARGES AND EXPENSES. The Adviser will bear its own costs
of providing services hereunder. The Adviser agrees to pay all expenses incurred
by the Trust except for interest, taxes, brokerage and other expenses incurred
in placing orders for the purchase and sale of securities and other investment
instruments, extraordinary expenses, distribution fees, investors services fees,
and expenses paid by the Trust under any distribution plan adopted pursuant to
Rule 12b-1 under the 1940 Act or investor services plan.
7. REPRESENTATIONS, WARRANTIES AND COVENANTS.
(a) PROPERLY REGISTERED. The Adviser is registered as an investment
adviser under the Advisers Act, and will remain so registered for the
duration of this Agreement. The Adviser is not prohibited by the Advisers
Act or the 1940 Act from performing the services contemplated by this
Agreement, and to the best knowledge of the Adviser, there is no
proceeding or investigation that is reasonably likely to result in the
Adviser being prohibited from performing the services contemplated by this
Agreement. The Adviser agrees to promptly notify the Trust of the
occurrence of any event that would disqualify the Adviser from serving as
an investment adviser to an investment company. The Adviser is in
compliance in all material respects with all applicable federal and state
law in connection with its investment management operations.
(b) ADV DISCLOSURE. The Adviser has provided the Trust with a copy
of its Form ADV as most recently filed with the Commission and will,
promptly after filing any amendment to its Form ADV with the Commission,
furnish a copy of such amendment(s) to the Trust. The information
contained in the Adviser's Form ADV is accurate and complete in all
material respects and does not omit to state any material fact necessary
in order to make the statements made, in light of the circumstances under
which they were made, not misleading.
(c) FUND DISCLOSURE DOCUMENTS. The Adviser has reviewed and will in
the future review, the Registration Statement, and any amendments or
supplements thereto, the annual or semi-annual reports to shareholders,
other reports filed with the Commission and any marketing material of the
Funds (collectively the "Disclosure Documents") and represents and
warrants that with respect to disclosure about the Adviser, the manner in
which the Adviser manages the Funds or information relating directly or
indirectly to the Adviser, such Disclosure Documents contain or will
contain, as of the date thereof, no untrue statement of any material fact
and does not omit any statement of material fact which was required to be
stated therein or necessary to make the statements contained therein not
misleading.
(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
C-6
or proceedings that would adversely effect or prejudice the rights of the
Adviser or the Trust to use the name "Rydex".
(e) INSURANCE. The Adviser maintains errors and omissions insurance
coverage in an appropriate amount and shall provide prior written notice
to the Trust (i) of any material changes in its insurance policies or
insurance coverage; or (ii) if any material claims will be made on its
insurance policies. Furthermore, the Adviser shall upon reasonable request
provide the Trust with any information it may reasonably require
concerning the amount of or scope of such insurance.
(f) NO DETRIMENTAL AGREEMENT. The Adviser represents and warrants
that it has no arrangement or understanding with any party, other than the
Trust, that would influence the decision of the Adviser with respect to
its selection of securities for a Fund, and that all selections shall be
done in accordance with what is in the best interest of the Fund.
(g) CONFLICTS. The Adviser shall act honestly, in good faith and in
the best interests of the Trust including requiring any of its personnel
with knowledge of Fund activities to place the interest of the Funds
first, ahead of their own interests, in all personal trading scenarios
that may involve a conflict of interest with the Funds, consistent with
its fiduciary duties under applicable law.
(h) Representations. The representations and warranties in this
Section 7 shall be deemed to be made on the date this Agreement is
executed and at the time of delivery of the quarterly compliance report
required by Section 3(a), whether or not specifically referenced in such
report.
8. THE NAME "RYDEX". The Adviser grants to the Trust a sublicense to use
the name "Rydex" (the "Name") as part of the name of any Fund. The foregoing
authorization by the Adviser to the Trust to use the Name as part of the name of
any Fund is not exclusive of the right of the Adviser itself to use, or to
authorize others to use, the Name; the Trust acknowledges and agrees that, as
between the Trust and the Adviser, the Adviser has the right to use, or
authorize others to use, the Name. The Trust shall (1) only use the Name in a
manner consistent with uses approved by the Adviser; (2) use its best efforts to
maintain the quality of the services offered using the Name; (3) adhere to such
other specific quality control standards as the Adviser may from time to time
promulgate. At the request of the Adviser, the Trust will (a) submit to Adviser
representative samples of any promotional materials using the Name; and (b)
change the name of any Fund within three months of its receipt of the Adviser's
request, or such other shorter time period as may be required under the terms of
a settlement agreement or court order, so as to eliminate all reference to the
Name and will not thereafter transact any business using the Name in the name of
any Fund; provided, however, that the Trust may continue to use beyond such date
any supplies of prospectuses, marketing materials and similar documents that the
Trust had on the date of such name change in quantities not exceeding those
historically produced and used in connection with such Fund.
C-7
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
(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
C-8
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.
C-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 and 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.
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 VARIABLE TRUST, on behalf of each
Fund listed on Schedule A
By: ____________________________________
Name: Carl G. Verboncoeur
Title: President
PADCO ADVISORS II, INC.
By: ____________________________________
Name: Carl G. Verboncoeur
Title: Chief Executive Officer
C-10
SCHEDULE A
TO THE
ADVISORY AGREEMENT
DATED _______________, 2007 BETWEEN
RYDEX VARIABLE TRUST
AND
PADCO ADVISORS II, INC.
The Trust will pay to the Adviser as compensation for the Adviser's
services rendered, a fee, computed daily at an annual rate based on the average
daily net assets of the respective Fund in accordance the following fee
schedule:
FUND RATE
--------------------------------------------------------------------------------
Absolute Strategies Fund .............................................. 1.15%
Hedged Equity Fund .................................................... 1.15%
C-11
APPENDIX D
INVESTMENT SUB-ADVISORY AGREEMENT
AGREEMENT made this __th day of _________________, 2007, by and between
PADCO Advisors II, Inc., d/b/a Rydex Investments, a Maryland corporation (the
"Adviser"), and CLS Investment Firm, LLC, a Nebraska limited liability company
(the "Sub-Adviser").
WHEREAS, Rydex Variable Trust, 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, the Adviser has entered into an Investment Advisory Agreement
dated ______________, 2007, as amended (the "Advisory Agreement") with the
Trust, pursuant to which the Adviser will act as the investment adviser to the
separate series of the Trust set forth therein; and
WHEREAS, the Adviser, with the approval of the Trust, desires to retain
the Sub-Adviser as its agent to furnish sub-investment advisory services to the
Adviser in connection with the management of the separate series of the Trust
set forth on SCHEDULE A of this Investment Sub-Advisory Agreement (each a "Fund"
and together, the "Funds"), and the Sub-Adviser is willing to render such
sub-investment advisory services.
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
the parties hereto agree as follows:
1. APPOINTMENT. The Adviser hereby appoints the Sub-Adviser to provide
certain sub-investment advisory services to each Fund for the period and on the
terms set forth in this Agreement (the "Sub-Advisory Agreement"). The
Sub-Adviser hereby accepts such appointment and agrees to furnish the services
herein set forth for the compensation herein provided.
2. DELIVERY OF DOCUMENTS. The Sub-Adviser hereby acknowledges receipt of
properly certified or authenticated copies of each of the following:
(a) The Trust's Declaration of Trust and all amendments thereto or
restatements thereof (such Declaration, as presently in effect and as it
shall from time to time be amended or restated, is herein called the
"Declaration of Trust");
(b) The Trust's By-Laws and amendments thereto;
(c) Resolutions of the Trust's Board of Trustees authorizing the
appointment of the Sub-Adviser and approving this Agreement;
(d) The Trust's Notification of Registration on Form N-8A under the
1940 Act as filed with the U.S. Securities and Exchange Commission (the
"SEC") and all amendments thereto;
(e) The Trust's Registration Statement on Form N-1A under the
Securities Act of 1933, as amended (the "1933 Act") and under the 1940 Act
as filed with
D-1
the SEC and all amendments thereto insofar as such Registration Statement
and such amendments relate to each Fund; and
(f) The Trust's most recent prospectus and Statement of Additional
Information for each Fund (such prospectus and Statement of Additional
Information, as presently in effect, and all amendments and supplements
thereto are herein collectively called the "Prospectus").
The Adviser will furnish the Sub-Adviser from time to time with copies of
all amendments of or supplements to the foregoing.
3. MANAGEMENT. Subject always to the supervision of the Trust's Board of
Trustees and the Adviser, the Sub-Adviser will furnish, direct, and administer
an investment program in respect of, and make investment and reinvestment
decisions for, all assets of each Fund and place all orders for the purchase and
sale of securities, all on behalf of each Fund. In the performance of its
duties, the Sub-Adviser will satisfy its fiduciary duties to each Fund, and will
monitor each Fund's investments, and will comply with the provisions of the
Trust's Declaration of Trust and By-Laws, as amended from time to time, any
policies or restrictions imposed by the Adviser and/or the Trust, and the stated
investment objectives, policies and restrictions of each Fund as provided in
each Fund's prospectus and statement of additional information, as amended from
time to time. The Sub-Adviser and the Adviser will each make its officers and
employees available to the other from time to time at reasonable times to review
investment policies of each Fund and to consult with each other regarding the
investment affairs of each Fund. The Sub-Adviser shall also make itself
reasonably available to the Board of Trustees at such times as the Board of
Trustees shall request.
The Sub-Adviser represents and warrants that it is in compliance with all
applicable rules and regulations of the SEC pertaining to its investment
advisory activities and agrees that it:
(a) will use the same skill and care in providing such services as
it uses in providing services to fiduciary accounts for which it has
investment responsibilities;
(b) will conform with all applicable rules and regulations of the
SEC pertaining to its investment advisory activities;
(c) will place orders pursuant to its investment determinations for
each Fund either directly with the issuer or with any broker or dealer. In
placing orders with brokers or dealers, the Sub-Adviser will attempt to
obtain the best combination of prompt execution of orders in an effective
manner and at the most favorable price consistent with its "best
execution" obligation. Consistent with this obligation, when the execution
and price offered by two or more brokers or dealers are comparable, the
Sub-Adviser may, in its discretion, purchase and sell portfolio securities
to and from brokers and dealers who provide the Sub-Adviser with research
advice and other services (as those terms are defined in Section 28(e)
D-2
of the Securities Act of 1934). In no instance will portfolio securities
be purchased from or sold to the Adviser, the Sub-Adviser, Rydex
Distributors, Inc. or any affiliated person of either the Trust, the
Adviser, the Sub-Adviser or Rydex Distributors, Inc., except as may be
permitted under the 1940 Act;
(d) will report regularly to the Adviser and will make appropriate
persons available for the purpose of reviewing at reasonable times with
representatives of the Adviser and the Board of Trustees the management of
each Fund, including, without limitation, review of the general investment
strategy of each Fund, the performance of each Fund in relation to
standard industry indices, interest rate considerations and general
conditions affecting the marketplace and will provide various other
reports from time to time as reasonably requested by the Adviser;
(e) will maintain books and records required to be maintained by
Rule 31a-3 under the 1940 Act with respect to the Trust's securities
transactions and will furnish the Adviser and the Trust's Board of
Trustees such periodic and special reports as the Board of Trustees or the
Adviser may request;
(f) will act upon instructions from the Adviser not inconsistent
with the fiduciary duties hereunder; and
(g) will treat confidentially and as proprietary information of the
Trust all such records and other information relative to the Trust
maintained by the Sub-Adviser, and will not use such records and
information for any purpose other than performance of its responsibilities
and duties hereunder, except after prior notification to and approval in
writing by the Trust, which approval shall not be unreasonably withheld
and may not be withheld where the Sub-Adviser may be exposed to civil or
criminal contempt proceedings for failure to comply, when requested to
divulge such information by duly constituted authorities, or when so
requested by the Trust.
4. PROXY VOTING; CORPORATE ACTIONS. The Sub-Adviser shall execute and
deliver, or cause its nominee to execute and deliver, all proxy votes, notices
of meetings and other notices affecting or relating to the securities of each
Fund during the term of this Sub-Advisory Agreement. The Sub-Adviser shall
maintain and preserve written proxy voting procedures, and shall provide a copy
of such voting procedures, along with a record of its actual proxy votes
relating to the securities of each Fund, to the Adviser or the Trust upon
request. The Adviser and Sub-Adviser understand that the Funds may pursue their
investment objectives by investing in other investment companies that are not
affiliated "underlying funds" and specific proxy rules are applicable under the
1940 Act to this type of relationship. In particular, the Sub-Adviser will vote
all proxies received from the underlying funds in the same proportion that all
shares of the underlying funds are voted, or in accordance with instructions
received from Fund shareholders, pursuant to Section 12(d)(1)(F) of the 1940
Act. Beginning July 1, 2003, the Sub-Adviser shall maintain records regarding
proxy voting on behalf of the Funds in order that the Funds may complete the
annual Form N-PX filing.
D-3
5. BOOKS AND RECORDS. In compliance with the requirements of Rule 31a-3
under the 1940 Act, the Sub-Adviser hereby agrees that all records which it
maintains for each Fund, on behalf of the Trust are the property of the Trust
and further agrees to surrender promptly to the Trust any of such records upon
the Trust's request. The Sub-Adviser further agrees to preserve for the periods
prescribed by Rule 31a-2 under the 1940 Act the records required to be
maintained by Rule 31a-1 under the 1940 Act.
6. EXPENSES. During the term of this Agreement, the Sub-Adviser will pay
all expenses incurred by it in connection with its activities under this
Sub-Advisory Agreement.
7. COMPENSATION. For the services to be provided by the Sub-Adviser
pursuant to this Agreement, the Adviser will pay the Sub-Adviser, and the
Sub-Adviser agrees to accept as full compensation therefor, a sub-advisory fee
paid at the rate specified on SCHEDULE A, which is attached hereto and made part
of this Agreement. The fee will be calculated based on the average daily net
asset value of the assets under the Sub-Adviser's management. This fee will be
paid at least quarterly. Except as may otherwise be prohibited by law or
regulation (including any then current SEC staff interpretation), the
Sub-Adviser may, in its discretion and from time to time, waive a portion of its
fee. The Sub-Adviser shall not be responsible for expenses and costs of a Fund's
operations payable by a Fund or the Adviser.
8. SERVICES TO OTHERS. The Adviser understands, and has advised the
Trust's Board of Trustees, that the Sub-Adviser now acts, and may in the future
act, as an investment adviser and fiduciary to other managed accounts, and as
investment adviser, sub-investment adviser, and/or administrator to other
investment companies. The Adviser has no objection to the Sub-Adviser's acting
in such capacities, provided that the Sub-Adviser furnishes adequate disclosure
of such possible conflicts of interest and implements procedures designed to
mitigate or eliminate such conflicts. For example, whenever a Fund and one or
more other investment companies advised by the Sub-Adviser have available funds
for investment, investments suitable and appropriate for each will be allocated
in accordance with a formula believed by the Sub-Adviser to be equitable to each
company. The Adviser recognizes, and has advised the Trust's Board of Trustees,
that in some cases the Sub-Adviser's procedures may adversely affect the size of
the position that each Fund may obtain in a particular security. In addition,
the Adviser understands, and has advised the Trust's Board of Trustees, that the
persons employed by the Sub-Adviser to assist in the Sub-Adviser's duties under
this Sub-Advisory Agreement will not devote their full time to such service and
nothing contained in this Sub-Advisory Agreement will be deemed to limit or
restrict the right of the Sub-Adviser or any of its affiliates to engage in and
devote time and attention to other businesses or to render services of whatever
kind or nature.
9. STANDARD OF CARE. Each of the Adviser and Sub-Adviser shall discharge
its duties under this Sub-Advisory Agreement with the care, skill, prudence and
diligence under the circumstances then prevailing that a prudent person acting
in a like
D-4
capacity and familiar with such matters would use in the conduct of an
enterprise of a like character and with like aims. The parties recognize that
the opinions, recommendations and actions of the Sub-Adviser will be based on
advice and information deemed to be reliable but not guaranteed by or to the
Sub-Adviser.
10. INDEMNIFICATION. Each of the Adviser and Sub-Adviser agrees to
indemnify each other against any claim, loss or liability (including reasonable
attorney's fees) arising as a result of the failure to meet the standard of care
set forth in the first sentence of Paragraph 9 hereof. Notwithstanding the
generality of the foregoing, the Adviser and Sub-Adviser each further agrees to
indemnify each other against any claim, loss or liability (including reasonable
attorney's fees) arising or as a result of willful misfeasance, bad faith or
gross negligence in the performance of its duties, or by reason of reckless
disregard of its obligation and duties hereunder. 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.
11. DURATION AND TERMINATION. This Sub-Advisory Agreement will become
effective as of the date hereof provided that it has been approved by vote of a
majority of the outstanding voting securities of each Fund in accordance with
the requirements under the 1940 Act, and, unless sooner terminated as provided
herein, will continue in effect for two years.
Thereafter, if not terminated, this Sub-Advisory Agreement will continue
in effect for each Fund for successive periods of 12 months, each ending on the
day preceding the anniversary of the Sub-Advisory Agreement's effective date of
each year, provided that such continuation is specifically approved at least
annually (a) by the vote of a majority of those members of the Trust's Board of
Trustees who are not interested persons of the Trust, the Sub-Adviser, or the
Adviser, cast in person at a meeting called for the purpose of voting on such
approval, and (b) by the vote of a majority of the Trust's Board of Trustees or
by the vote of a majority of all votes attributable to the outstanding shares of
each Fund. Notwithstanding the foregoing, this Sub-Advisory Agreement may be
terminated as to each Fund at any time, without the payment of any penalty, on
sixty (60) days' written notice by the Adviser or by the Sub-Adviser. This
Sub-Advisory Agreement will immediately terminate in the event of its
assignment. (As used in this Sub-Advisory Agreement, the terms "majority of the
outstanding voting securities," "interested persons" and "assignment" have the
same meaning of such terms ascribed in the 1940 Act.)
This Agreement will terminate automatically if the investment advisory
agreement between the Trust and the Adviser is terminated.
12. AMENDMENT OF THIS AGREEMENT. No provision of this Sub-Advisory
Agreement may be changed, waived, discharged or terminated orally, but only by
an instrument in writing signed by the party against which enforcement of the
change, waiver, discharge or termination is sought.
D-5
13. MULTIPLE ORIGINALS. This Sub-Advisory Agreement may be executed in two
or more counterparts, each of which when so executed shall be deemed to be an
original, but such counterparts shall together constitute but one and the same
document.
14. CUSTODY. All securities and other assets of each Fund shall be
maintained with a custodian designated by the Adviser. The Sub-Adviser shall
have no responsibility or liability with respect to any custodial function.
15. 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 will be governed by the internal laws of the state of
Delaware. The Sub-Adviser shall notify the Adviser of any changes in its
officers and directors within a reasonable time.
16. LIMITATION OF LIABILITY. The names "Rydex Variable Trust" and
"Trustees of the Rydex Variable Trust" refer respectively to the Trust created
by, and the Trustees, as trustees but not individually or personally, acting
from time to time under, the Declaration of Trust, to which reference is hereby
made and a copy of which is on file at the office of the Secretary of State of
the State of Delaware and elsewhere as required by law, and to any and all
amendments thereto so filed or hereafter filed. The obligations of the Trust
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, shareholders or representatives of the Trust
personally, but bind only the assets of the Trust. Persons dealing with each
Fund must look solely to the assets of the Trust belonging to each Fund for the
enforcement of any claims against the Trust.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their officers designated below as of the day and year first above
written.
PADCO ADVISORS II, INC.
By: ____________________________________
Name: __________________________________
Title: _________________________________
CLS INVESTMENT FIRM, LLC
By: ____________________________________
Name: __________________________________
Title: _________________________________
D-6
SCHEDULE A
TO THE
INVESTMENT SUB-ADVISORY AGREEMENT
DATED ________________, 2007
BETWEEN
PADCO ADVISORS II, INC.
AND
CLS INVESTMENT FIRM, LLC
Pursuant to Section 7 of this Investment Sub-Advisory Agreement, the
Adviser shall pay the Sub-Adviser compensation at an annual rate as follows:
FUND RATE
--------------------------------------------------------------------------------
Amerigo Fund: ......................................................... 0.40%
Clermont Fund: ........................................................ 0.40%
Berolina Fund: ........................................................ 0.40%
Should either of the aforementioned Funds not average $10,000,000 in
assets over a quarter, the Sub-Adviser will not receive compensation for assets
in that Fund for that specific quarter.
D-7
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[LOGO] RYDEX INVESTMENTS
ESSENTIAL FOR MODERN MARKETS TM
------------------------- ------------------------------------ ------------------------------ ------------------------------------
VOTING VIA THE TELEPHONE VOTING VIA THE INTERNET VOTING VIA THE MAIL
------------------------- ------------------------------------ ------------------------------ ------------------------------------
STOP o Read the Proxy Statement o Read the Proxy o Read the Proxy Statement.
[Graphic Omitted] and have the Proxy Card at Statement and have o Check the appropriate
hand. the Proxy Card at boxes on the reverse side.
o Call toll-free hand. o Sign, date and return the
1-888-221-0697. o Log on to Proxy Card in the
o Follow the recorded WWW.PROXYWEB.COM. envelope provided.
instructions. o Follow the
on-line
instructions.
------------------------- ------------------------------------ ------------------------------ ------------------------------------
IF YOU VOTE BY INTERNET OR TELEPHONE, PLEASE DO NOT MAIL YOUR CARD.
999 999 999 999 99
RYDEX VARIABLE TRUST
PROXY
FUND NAME PRINTS HERE FOR SPECIAL JOINT MEETING OF SHAREHOLDERS ON OCTOBER 4, 2007 THIS PROXY IS SOLICITED ON BEHALF
OF THE BOARD OF DIRECTORS.
The undersigned hereby appoints Joanna Haigney and Michael Byrum, or either of them, proxy, with full power of substitution, to
represent and vote, as designated on the reverse side, all shares of stock the undersigned is entitled to vote at the Special
Meeting of Joint Shareholders of Rydex Funds, to be held at the offices of Rydex Investments, 9601 Blackwell Road, Suite 500,
Rockville, MD 20850 on Thursday, October 4, 2007 at 4:30 p.m. Eastern Time, or at any adjournment thereof, with respect to the
matters set forth on the reverse and described in the accompanying Notice of Special Joint Meeting and Proxy Statement, receipt of
which is hereby acknowledged.
DATED: ____________________________, 2007
-------------------------------------------------------
-------------------------------------------------------
Signature(s) (SIGN IN THE BOX)
(Please sign exactly as name appears at left)
(If stock is owned by more than one person, all owners
should sign. Persons signing as executors,
administrators, trustees or in similar capacities
should so indicate.)
RYDEX VARIABLE TRUST - PC (sc)
PLEASE FILL IN BOX(ES) AS SHOWN USING BLACK OR BLUE INK OR NUMBER 2 PENCIL. |X|
PLEASE DO NOT USE FINE POINT PENS.
WHEN PROPERLY SIGNED, SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS DIRECTED BY THE SHAREHOLDER.
IF NO DIRECTION IS SUPPLIED, THE PROXY WILL BE VOTED FOR THE PROPOSALS
THE TRUSTEES UNANIMOUSLY RECOMMEND THAT SHAREHOLDERS OF EACH FUND VOTE "FOR" PROPOSAL 1, 2 AND 3.
FOR AGAINST ABSTAIN
1. THE APPROVAL OF A NEW INVESTMENT ADVISORY AGREEMENT BETWEEN |_| |_| |_|
RYDEX VARIABLE TRUST AND PADCO ADVISORS II, INC.* (All
Rydex Variable Trust EXCEPT Absolute Return Strategies Fund
and Hedged Equity Fund)
2. THE APPROVAL OF A NEW INVESTMENT ADVISORY AGREEMENT BETWEEN |_| |_| |_|
RYDEX VARIABLE TRUST AND PADCO ADVISORS, II INC.* (Absolute
Return Strategies and Hedged Equity Fund only)
3. THE APPROVAL OF A NEW INVESTMENT SUB-ADVISORY AGREEMENT |_| |_| |_|
BETWEEN PADCO ADVISORS II, INC.* AND CLS INVESTMENT FIRM, LLC.
(CLS AdvisorOne Amerigo Fund, CLS AdvisorOne Clermont Fund and
CLS AdvisorOne Berolina Fund only)
<FN>
* PADCO Advisors, Inc. and PADCO Advisors II, Inc. collectively do business as Rydex Investments.
</FN>
PLEASE SIGN AND DATE ON THE REVERSE SIDE.
RYDEX VARIABLE TRUST - PC (sc)