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 ETF 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 ETF 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 ETF Trust (the "Funds"). Accordingly, by this proxy
statement, we are requesting that the shareholders of the Funds vote on whether
to approve a new investment advisory agreement to take the place of the current
investment advisory agreement that will be terminated, so that the Advisor may
continue to manage the Funds.
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 a new investment advisory
agreement with the Advisor under terms that are the same in all material
respects to those of the previous investment advisory agreement. NO FEE INCREASE
IS EXPECTED TO RESULT FROM APPROVING THE NEW INVESTMENT ADVISORY AGREEMENT.
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 Meeting and the approval of new investment advisory
agreement. YOUR VOTE IS IMPORTANT TO US. PLEASE TAKE A FEW MINUTES TO REVIEW
THIS PROXY STATEMENT AND VOTE YOUR SHARES TODAY.
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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.
Proposal 1, as described in the Notice of Special Joint Meeting of
Shareholders on page 1 ("Proposal 1"), 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 A NEW INVESTMENT ADVISORY AGREEMENT?
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 the investment
advisory agreement between the Advisor and Rydex ETF Trust (the "Current
Agreement").
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At a Special Meeting of the Board of Trustees of Rydex ETF 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 a new investment advisory agreement for Rydex ETF
Trust (the "New Agreement") pursuant to which, subject to its approval by
each Fund's shareholders, the Advisor will continue to serve as investment
adviser to each Fund after the completion of the Transaction. The
Advisor's fees for its services to the Funds under the New Agreement will
be the same as its fees under the Current Agreement. The other terms of
the New Agreement will also be the same in all material respects to those
of the Current Agreement.
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" Proposal 1 contained in the Proxy Statement. Please see the
section entitled "Board Recommendation" with respect to Proposal 1 for a
discussion of the Board's considerations in making such recommendation.
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.
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 Agreement.
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.
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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 ETF 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 ETF 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 ETF TRUST
Rydex Russell Top 50 ETF Rydex S&P Equal Weight Rydex S&P 500 Pure
Health Care ETF Value ETF
Rydex S&P Equal Weight ETF
Rydex S&P Equal Weight Rydex S&P MidCap 400 Pure
Rydex S&P Equal Weight Industrials ETF Growth ETF
Consumer Discretionary ETF
Rydex S&P Equal Weight Rydex S&P MidCap 400 Pure
Rydex S&P Equal Weight Materials ETF Value ETF
Consumer Staples ETF
Rydex S&P Equal Weight Rydex S&P SmallCap 600
Rydex S&P Equal Weight Technology ETF Pure Growth ETF
Energy ETF
Rydex S&P Equal Weight Rydex S&P SmallCap 600
Rydex S&P Equal Weight Utilities ETF Pure Value ETF
Financials ETF
Rydex S&P 500 Pure
Growth ETF
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
ADVISORY AGREEMENT BETWEEN RYDEX
ETF TRUST AND PADCO ADVISORS II,
INC.*
2. 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
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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, VISIT THE FUNDS' WEB SITE AT
WWW.RYDEXINVESTMENTS.COM, 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.
By Order of the Board of Trustees
/s/ Carl G. Verboncoeur
Carl G. Verboncoeur
President
September 6, 2007
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RYDEX ETF 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 ETF Trust (the "Trust") and each of
its series (each a "Fund" and collectively, the "Funds"):
RYDEX ETF TRUST
Rydex Russell Top 50 ETF Rydex S&P Equal Weight Rydex S&P 500 Pure
Health Care ETF Value ETF
Rydex S&P Equal Weight ETF
Rydex S&P Equal Weight Rydex S&P MidCap 400 Pure
Rydex S&P Equal Weight Industrials ETF Growth ETF
Consumer Discretionary ETF
Rydex S&P Equal Weight Rydex S&P MidCap 400 Pure
Rydex S&P Equal Weight Materials ETF Value ETF
Consumer Staples ETF
Rydex S&P Equal Weight Rydex S&P SmallCap 600
Rydex S&P Equal Weight Technology ETF Pure Growth ETF
Energy ETF
Rydex S&P Equal Weight Rydex S&P SmallCap 600
Rydex S&P Equal Weight Utilities ETF Pure Value ETF
Financials ETF
Rydex S&P 500 Pure
Growth ETF
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,
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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
(331/3%) of a Fund's shares entitled to vote on a proposal constitutes a quorum.
Abstentions and broker non-votes will not be counted for or against a proposal,
but will be counted for purposes of determining whether a quorum is present.
Because the affirmative vote of a majority of the outstanding voting securities
of each Fund, as defined below, is required to approve a proposal, abstentions
and broker non-votes will effectively be a vote against a proposal.
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,
Proposal 1 requires 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.
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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 described above);
or (iii) by attending the Meeting, requesting return of any previously delivered
proxy, and voting in person.
DISCUSSION OF PROPOSAL 1:
APPROVAL OF NEW INVESTMENT ADVISORY AGREEMENT
Proposal 1 relates to the approval by Shareholders of a new investment
advisory agreement 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 THE NEW INVESTMENT ADVISORY AGREEMENT.
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
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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 the investment advisory
agreement between the Advisor and the Trust (the "Current Agreement"). 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 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
agreement.
THE APPROVAL OF THE NEW AGREEMENT. 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 a new investment advisory agreement for the Trust (the
"New Agreement") pursuant to which, subject to its approval by each Fund's
Shareholders, the Advisor will continue to serve as investment adviser to each
Fund after the completion of the Transaction. The Advisor's fees for its
services to the Funds under the New Agreement will be the same as its fees under
the Current Agreement. The other terms of the New Agreement will also be the
same in all material respects to those of the Current Agreement. In reviewing
the New Agreement, the Board considered its review of relevant materials
relating to the Current Agreement 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 Agreement. In reviewing the New Agreement, 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 Agreement will not automatically
terminate and will remain in effect, and the New Agreement will not be entered
into, even if it has been approved by Fund shareholders.
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THE CURRENT AGREEMENT
The Current Agreement has 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 Agreement for the Trust 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 Agreement is substantially similar to the
investment advisory agreement that was approved at the time of the Trust's
original creation and organization, and has been revised only to the extent
necessary to incorporate non-material changes required by regulation or new
industry standards. The Current Agreement had an initial term of two years,
after which the continuance of the 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 Agreement has been
renewed by the Board on an annual basis following its initial approval.
BOARD CONSIDERATIONS IN APPROVING THE NEW AGREEMENT AND
THE CONTINUATION OF THE CURRENT AGREEMENT
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
Agreement and New Agreement 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 the Current Agreement for an
additional one-year term; and (d) agreed to approve the New Agreement for an
initial term of two years.
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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 THE ADVISOR. At the
2007 Renewal Meeting, the Board reviewed the scope of services to be provided by
the Advisor under the 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, 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. 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 Agreement 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 exchange-traded funds registered
under the 1940 Act determined by the Advisor to comprise each Fund's applicable
peer group. 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 exchange-traded funds with similar investment objectives
for the same periods and to appropriate indices/benchmarks, in light of total
return, yield and market trends. Based on 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 Agreement.
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
8
under the Current Agreement 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 Agreement 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 Agreement nor the New Agreement for the Funds provided for any
breakpoints in the investment advisory fees as a result of increases in the
asset levels of the Funds. However, the Board also considered that at the time
the Funds were formed, possible future economies of scale had been taken into
consideration by fixing the investment advisory fees at rates at the lower end
of the marketplace, effectively giving Fund shareholders, from inception, the
benefits of the lower average fee shareholders would have received from a fee
structure with declining breakpoints where the initial fee was higher. 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 distribution
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.
ADDITIONAL CONSIDERATIONS IN APPROVING THE NEW AGREEMENT
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
9
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 Agreement. The
Advisor presented its response to the Board's request for additional information
prior to and at a Special Meeting of the Board 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 Agreement, and informed the Board that the contractual rate
of the Advisor's fees will not change under the New Agreement. The Advisor also
affirmed that the terms of the New Agreement were the same in all material
respects to those of the Current Agreement.
The Trustees deliberated on the approval of the New Agreement in light of
the information provided. The Board determined that the terms of the New
Agreement set forth materially similar rights, duties and obligations on the
Advisor 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 Agreement. The Board also noted that the Advisor's
fees for its services to the Funds under the New Agreement would be the same as
its fees under the Current Agreement. The Board further noted that all
considerations, determinations and findings related to the approval of the
continuation of the Current Agreement, as discussed above, were equally relevant
to their approval of the New Agreement, along with the additional factors
relevant to the proposed change of 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, 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 were appropriate and were expected to continue under
the New Agreement, and that there was no reason to expect the consummation of
the Transaction to have any adverse effect on the services provided by the
Advisor and its affiliates or the future performance of the Funds.
10
FUND EXPENSES. The Board also considered the fact that the fees payable to
the Advisor and other expenses of the Funds would be the same under the New
Agreement as they are under the Current Agreement, and on this basis, the Board
concluded that these fees and expenses continued to be satisfactory for the
purposes of approving the New Agreement. More detailed information regarding the
fees under the New Agreement is contained in the discussion below with respect
to Proposal 1.
COSTS OF SERVICES PROVIDED TO THE FUNDS AND PROFITS REALIZED BY THE
ADVISOR AND ITS AFFILIATES. Because the Advisor's fees under the New Agreement
are the same as those assessed under the Current Agreement, the Board concluded
that the profits to be realized by the Advisor and its respective affiliates
under the New Agreement and from other relationships between the Funds and the
Advisor, 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 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 AGREEMENT. A form of New Agreement is
attached to this proxy statement as Appendix B. The form of New Agreement
provides that the Advisor's fees with respect to each Fund will remain unchanged
from the fees contained in the Current Agreement. The New Agreement provides
that unless 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.
The New Agreement provides for automatic termination, without the payment of any
penalty, in the event of its assignment (as defined by the 1940 Act).
Pursuant to the New Agreement, the Advisor will act as investment adviser
to each Fund. The New Agreement 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 Agreement and Declaration of Trust,
11
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.
The 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.
Under the terms of the 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. The
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
12
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 Found-
ation; 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 Voting Trustee of ICT
Holdings, LLC; Manager, President, Secretary and
Treasurer of 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
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.
13
NAME TITLE PRINCIPAL OCCUPATION
----------------------------------------------------------------------------------------------
Carl G. Verboncoeur* Chief Executive Chief Executive Officer, PADCO Advisors, Inc. and
Officer and PADCO Advisors II, Inc.; Chief Executive Officer,
Treasurer President and Treasurer, Rydex Fund Services, Inc.
and Rydex Distributors, Inc.; President and
Treasurer, Rydex Holdings, Inc.
Michael P. Byrum* Chief Investment Chief Investment Officer, President and Secretary,
Officer, President PADCO Advisors, Inc. and PADCO Advisors II,
and Secretary Inc.; Secretary, Rydex Holdings, Inc.
Joanna M. Haigney Chief Compliance Chief Compliance Officer, PADCO Advisors, Inc.
Officer and PADCO Advisors II, Inc.
* Messrs. Verboncoeur and Byrum also serve as Interested Trustees of the Trust.
PROPOSAL 1. THE APPROVAL OF A NEW INVESTMENT ADVISORY AGREEMENT BETWEEN RYDEX
ETF TRUST AND PADCO ADVISORS II, INC.
The Current Agreement between the Advisor and the Trust 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,
including fees, are identical, with the exception of the date and term, to the
terms of the Current Agreement. A form of the New Agreement is included as
Appendix B 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 October 31, 2006; and (iii)
amounts paid by the Advisor to State Street Bank and Trust Company for
administration, custody and transfer agency services for the Trust's most
recently completed fiscal year ended October 31, 2006. For the fiscal year ended
October 31, 2006, the Trust's Funds did not pay any brokerage commissions to the
Distributor. Each Fund has adopted a Distribution Plan pursuant to which the
Distributor, or designated service providers, may receive up to 0.25% of a
Fund's assets attributable to shares as compensation for distribution services
pursuant to Rule 12b-1 of the 1940 Act. However, for the fiscal year ended
October 31, 2006, the Funds did not pay the Distributor any fees for services
provided pursuant to the terms of the Distribution Plan.
14
CUSTODY,
ADMINISTRATION
AND TRANSFER
CURRENT AND ADVISORY FEES AGENCY EXPENSES
ANTICIPATED PAID TO ADVISOR PAID DURING THE
ADVISORY FOR FISCAL YEAR FISCAL YEAR
FUND FEE RATE* ENDED 2006 ENDED 2006
------------------------------------------------------------------------------------------
Rydex Russell Top 50 ETF 0.20% $ 326,403 $ 59,541
Rydex S&P Equal Weight ETF 0.40% $6,067,717 $ 550,815
Rydex S&P Equal Weight Consumer
Discretionary ETF 0.50% ** **
Rydex S&P Equal Weight Consumer
Staples ETF 0.50% ** **
Rydex S&P Equal Weight Energy ETF 0.50% ** **
Rydex S&P Equal Weight Financials ETF 0.50% ** **
Rydex S&P Equal Weight Health Care ETF 0.50% ** **
Rydex S&P Equal Weight Industrials ETF 0.50% ** **
Rydex S&P Equal Weight Materials ETF 0.50% ** **
Rydex S&P Equal Weight Technology ETF 0.50% ** **
Rydex S&P Equal Weight Utilities ETF 0.50% ** **
Rydex S&P 500 Pure Growth ETF 0.35% $ 32,115*** $ 12,700***
Rydex S&P 500 Pure Value ETF 0.35% $ 28,282*** $ 9,649***
Rydex S&P MidCap 400 Pure Growth ETF 0.35% $ 42,331*** $ 12,575***
Rydex S&P MidCap 400 Pure Value ETF 0.35% $ 27,406*** $ 6,628***
Rydex S&P SmallCap 600 Pure Growth ETF 0.35% $ 16,689*** $ 11,868***
Rydex S&P SmallCap 600 Pure Value ETF 0.35% $ 13,382*** $ 14,681***
* The Advisor has contractually agreed to pay all operating expenses of each
Rydex ETF Trust Fund, excluding interest expense and taxes (expected to be
de minimis), brokerage commissions and other expenses connected with the
execution of portfolio transactions, any future distribution fees or
expenses, and extraordinary expenses.
** Not in operation for the period indicated. The Fund commenced operations
on November 1, 2006.
*** Since the commencement of operations on March 1, 2006.
BOARD RECOMMENDATION ON PROPOSAL 1.
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 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 Agreement for an initial term of two years and
to recommend the approval of the New Agreement to Shareholders.
15
THE TRUSTEES UNANIMOUSLY RECOMMEND THAT
SHAREHOLDERS OF THE FUNDS VOTE "FOR" PROPOSAL 1.
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.
ADMINISTRATOR. State Street Bank and Trust Company 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 BY SHIPS
AND AGE OF LENGTH OF PRINCIPAL OCCUPATION(S) TRUSTEE/ HELD BY
TRUSTEE/OFFICER TIME SERVED DURING PAST 5 YEARS OFFICER TRUSTEE
-------------------------------------------------------------------------------------------------------
Carl G. Trustee from PADCO ADVISORS, INC.: 138 None.
Verboncoeur 2004 to Chief Executive Officer
(54) present; from October 2003 to present;
President Executive Vice President from
from 2003 December 2002 to October 2003;
to Present; President from October 2003 to May 2004;
Vice and Treasurer from
president December 2002 to present
from 1997 to
present; and PADCO ADVISORS II, INC.:
Treasurer Chief Executive Officer from
from 1997 December 2003 to present; Executive Vice
to 2003. 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
16
POSITION(S) NUMBER
HELD WITH OF PORTFOLIOS
THE TRUST, IN FUND OTHER
TERM OF COMPLEX DIRECTOR-
NAME, ADDRESS OFFICE AND OVERSEEN BY SHIPS
AND AGE OF LENGTH OF PRINCIPAL OCCUPATION(S) TRUSTEE/ HELD BY
TRUSTEE/OFFICER TIME SERVED DURING PAST 5 YEARS OFFICER TRUSTEE
-------------------------------------------------------------------------------------------------------
Carl G. RYDEX ADVISORY SERVICES:
Verboncoeur Chief Executive Officer from
(continued) 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
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 PADCO ADVISORS, INC.: 138 None.
(36) from 2005 Chief Investment Officer from August
to present. 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:
17
POSITION(S) NUMBER
HELD WITH OF PORTFOLIOS
THE TRUST, IN FUND OTHER
TERM OF COMPLEX DIRECTOR-
NAME, ADDRESS OFFICE AND OVERSEEN BY SHIPS
AND AGE OF LENGTH OF PRINCIPAL OCCUPATION(S) TRUSTEE/ HELD BY
TRUSTEE/OFFICER TIME SERVED DURING PAST 5 YEARS OFFICER TRUSTEE
-------------------------------------------------------------------------------------------------------
Michael P. Byrum President from August 2004 to present
(continued)
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
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 Vice Senior Vice President of Fund 138 Not
(43) President Services of PADCO Advisors, Inc. from Applicable.
and August 2006 to present; Senior Vice
Treasurer President of Rydex Fund Services, Inc.
from 2003 from December 2003 to August 2006;
to present. 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
18
POSITION(S) NUMBER
HELD WITH OF PORTFOLIOS
THE TRUST, IN FUND OTHER
TERM OF COMPLEX DIRECTOR-
NAME, ADDRESS OFFICE AND OVERSEEN BY SHIPS
AND AGE OF LENGTH OF PRINCIPAL OCCUPATION(S) TRUSTEE/ HELD BY
TRUSTEE/OFFICER TIME SERVED DURING PAST 5 YEARS OFFICER TRUSTEE
-------------------------------------------------------------------------------------------------------
Joanna M. Chief Chief Compliance Officer of PADCO 138 Not
Haigney Compliance Advisors, Inc. and PADCO Advisors II, Inc. Applicable.
(40) Officer from from May 2005 to present and Rydex Capital
2004 to Partners I, LLC and Rydex Capital Partners
present; and II, LLC from August 2006 to April 2007;
Secretary Vice President of Compliance of PADCO
from 2000 Advisors, Inc. from August 2006 to
to present. 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
Joseph Arruda Assistant Vice President of PADCO Advisors, 138 Not
(40) Treasurer Inc. and PADCO Advisors II, Inc. from 2004 Applicable.
from 2006 to present; Director of Accounting of
to present. 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 Director of Fund Administration of 138 Not
(33) from 2006 PADCO Advisors, Inc. and PADCO Applicable.
to present. Advisors II, 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
19
Record Date. It also identifies holders, as of the Record Date, of more than 5%
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 Agreement and Declaration of Trust and By-Laws.
Shareholders who wish to present a proposal for action at a future meeting
should submit a written proposal to the Secretary of Rydex ETF 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.
20
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.
21
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
--------------------------------------------------------------------------------
Russell Top 50 ETF 5,550,025.0000
S&P Equal Weight ETF 48,460,180.0000
S&P Equal Weight Consumer Discretionary ETF 1,050,000.0000
S&P Midcap 400 Pure Growth ETF 250,008.0000
S&P Midcap 400 Pure Value ETF 650,042.0000
S&P Equal Weight Industrials ETF 150,000.0000
S&P Equal Weight Consumer Staples ETF 150,000.0000
S&P 500 Pure Growth ETF 1,550,025.0000
S&P 500 Pure Value ETF 1,350,095.0000
S&P Equal Weight Materials ETF 150,000.0000
S&P Equal Weight Energy ETF 150,000.0000
S&P Equal Weight Financial ETF 100,000.0000
S&P Equal Weight Health Care ETF 650,000.0000
S&P Equal Weight Technology ETF 250,000.0000
S&P Equal Weight Utilities ETF 150,000.0000
S&P Smallcap 600 Pure Growth ETF 250,001.0000
S&P Smallcap 600 Pure Value ETF 650,017.0000
A-1
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
------------------------------------------------------------------------------------------------------------------
Rydex Russell Merrill Lynch, Pierce 101 Hudson Street 846,427 15.25%
Top 50 ETF Fenner & Smith World Financial Center -
North Tower
New York, NY 10281
Rydex Russell Citigroup Global Markets 333 W. 34th Street 804,897 14.50%
Top 50 ETF New York, NY 10001
Rydex Russell Charles Schwab & Co. 101 Montgomery Street 616,522 11.11%
Top 50 ETF San Francisco, CA 94104
Rydex Russell JP Morgan Chase Bank, 14201 Dallas Parkway 462,633 8.34%
Top 50 ETF NA Suite 121
Dallas, TX 75254
Rydex Russell National Financial 200 Liberty Street 387,789 6.99%
Top 50 ETF Services FS LLC New York, NY 10281
Rydex Russell Northern Trust Company 801 South Canal C-IN 365,397 6.58%
Top 50 ETF Chicago, IL
Rydex S&P 500 Morgan Stanley DW Inc 51 Mercedes Way 379,190 24.46%
Pure Growth ETF Edgewood, NY
Rydex S&P 500 Pershing 1 Pershing Plaza 144,636 9.33%
Pure Growth ETF Jersey City, NJ 07399
Rydex S&P 500 Charles Schwab & Co. 101 Montgomery Street 143,560 9.26%
Pure Growth ETF San Francisco, CA 94104
Rydex S&P 500 Brown Bros. Harriman 525 Washington Blvd. 133,000 8.58%
Pure Growth ETF & Co. Jersey City, NJ 07302
Rydex S&P 500 Merrill Lynch, Pierce 101 Hudson Street 120,534 7.78%
Pure Growth ETF Fenner & Smith World Financial Center -
North Tower
New York, NY 10281
Rydex S&P 500 TD Ameritrade 4211 South 102nd Street 118,859 7.67%
Pure Growth ETF Omaha, NE 68127
Rydex S&P 500 First Clearing LLC 901 East Byrd Street 87,789 5.66%
Pure Growth ETF Richmond, VA 23219
Rydex S&P 500 Charles Schwab & Co. 101 Montgomery Street 313,423 23.21%
Pure Value ETF San Francisco, CA 94104
Rydex S&P 500 Bank of New York (The) One Wall Street 170,786 12.65%
Pure Value ETF 5th Floor
New York, NY 10286
A-2
PERCENTAGE
OF FUND
NAME OF ADDRESS OF NUMBER OF SHARES
FUND BENEFICIAL OWNER BENEFICIAL OWNER SHARES OWNED OUTSTANDING
-------------------------------------------------------------------------------------------------------------------
Rydex S&P 500 TD Ameritrade 4211 South 102nd Street 143,474 10.63%
Pure Value ETF Omaha, NE 68127
Rydex S&P 500 JP Morgan Chase Bank, 14201 Dallas Parkway 131,887 9.77%
Pure Value ETF NA Suite 121
Dallas, TX 75254
Rydex S&P 500 First Clearing LLC 901 East Byrd Street 118,796 8.80%
Pure Value ETF Richmond, VA 23219
Rydex S&P 500 National Financial 200 Liberty Street 106,259 7.87%
Pure Value ETF Services FS LLC New York, NY 10281
Rydex S&P Equal Charles Schwab & Co. 101 Montgomery Street 7,873,933 16.38%
Weight ETF San Francisco, CA 94104
Rydex S&P Equal National Financial 200 Liberty Street 5,312,347 11.05%
Weight ETF Services FS LLC New York, NY 10281
Rydex S&P Equal Citigroup Global Markets 333 W. 34th Street 3,854,459 8.02%
Weight ETF New York, NY 10001
Rydex S&P Equal Merrill Lynch, Pierce 101 Hudson Street 3,595,592 7.48%
Weight ETF Fenner & Smith World Financial Center -
North Tower
New York, NY 10281
Rydex S&P Equal Pershing 1 Pershing Place 3,421,312 7.12%
Weight ETF Jersey City, NJ 07399
Rydex S&P Equal Citigroup Global Markets 333 W. 34th Street 854,980 65.77%
Weight Consumer New York, NY 10001
Discretionary ETF
Rydex S&P Equal Timber Hill LLC Two Pickwick Plaza 204,529 15.73%
Weight Consumer Greenwich, CT 06830
Discretionary ETF
Rydex S&P Equal Morgan Stanley DW Inc 51 Mercedes Way 115,400 8.88%
Weight Consumer Edgewood, NY
Discretionary ETF
Rydex S&P Equal Timber Hill LLC Two Pickwick Plaza 65,626 43.75%
Weight Consumer Greenwich, CT 06830
Staples ETF
Rydex S&P Equal Goldman Sachs & Co. 180 Maiden Lane 63,716 42.48%
Weight Consumer New York, NY 10038
Staples ETF
Rydex S&P Equal Timber Hill LLC Two Pickwick Plaza 63,216 42.14%
Weight Energy ETF Greenwich, CT 06830
A-3
PERCENTAGE
OF FUND
NAME OF ADDRESS OF NUMBER OF SHARES
FUND BENEFICIAL OWNER BENEFICIAL OWNER SHARES OWNED OUTSTANDING
-------------------------------------------------------------------------------------------------------------------
Rydex S&P Equal National Financial 200 Liberty Street 21,114 14.08%
Weight Energy ETF Services FS LLC New York, NY 10281
Rydex S&P Equal Charles Schwab & Co. 101 Montgomery Street 11,336 7.56%
Weight Energy ETF San Francisco, CA 94104
Rydex S&P Equal First Clearing LLC 901 East Byrd Street 9,798 6.53%
Weight Energy ETF Richmond, VA 23219
Rydex S&P Equal TD Ameritrade 4211 South 102nd Street 9,162 6.11%
Weight Energy ETF Omaha, NE 68127
Rydex S&P Equal Timber Hill LLC Two Pickwick Plaza 75,091 75.09%
Weight Financials Greenwich, CT 06830
ETF
Rydex S&P Equal National Financial 200 Liberty Street 5,842 5.84%
Weight Financials Services FS LLC New York, NY 10281
ETF
Rydex S&P Equal Bear, Stearns Securities One Metrotech Center 5,100 5.10%
Weight Financials Corp North
ETF 4th Floor
Brooklyn, NY
Rydex S&P Equal Northern Trust Company 801 South Canal C-IN 276,302 42.51%
Weight Health Care Chicago, IL
ETF
Rydex S&P Equal Timber Hill LLC Two Pickwick Plaza 121,516 18.69%
Weight Health Care Greenwich, CT 06830
ETF
Rydex S&P Equal Citigroup Global Markets 333 W. 34th Street 63,000 9.69%
Weight Health Care New York, NY 10001
ETF
Rydex S&P Equal Merrill Lynch, Pierce 101 Hudson Street 42,794 6.58%
Weight Health Care Fenner & Smith World Financial Center -
ETF North Tower
New York, NY 10281
Rydex S&P Equal Charles Schwab & Co. 101 Montgomery Street 41,617 6.40%
Weight Health Care San Francisco, CA 94104
ETF
Rydex S&P Equal Timber Hill LLC Two Pickwick Plaza 65,364 43.58%
Weight Industrials Greenwich, CT 06830
ETF
A-4
PERCENTAGE
OF FUND
NAME OF ADDRESS OF NUMBER OF SHARES
FUND BENEFICIAL OWNER BENEFICIAL OWNER SHARES OWNED OUTSTANDING
------------------------------------------------------------------------------------------------------------------
Rydex S&P Equal National Financial 200 Liberty Street 19,640 13.09%
Weight Industrials Services FS LLC New York, NY 10281
ETF
Rydex S&P Equal UBS Financial Services 1000 Harbor Boulevard 13,133 8.76%
Weight Industrials Inc. Weehawken, NJ 07086
ETF
Rydex S&P Equal Citigroup Global Markets 333 W. 34th Street 12,581 8.39%
Weight Industrials New York, NY 10001
ETF
Rydex S&P Equal TD Ameritrade 4211 South 102nd Street 11,730 7.82%
Weight Industrials Omaha, NE 68127
ETF
Rydex S&P Equal Charles Schwab & Co. 101 Montgomery Street 10,808 7.21%
Weight Industrials San Francisco, CA 94104
ETF
Rydex S&P Equal Charles Schwab & Co. 101 Montgomery Street 90,198 60.13%
Weight Materials San Francisco, CA 94104
ETF
Rydex S&P Equal First Clearing LLC 901 East Byrd Street 12,136 8.09%
Weight Materials Richmond, VA 23219
ETF
Rydex S&P Equal Timber Hill LLC Two Pickwick Plaza 10,256 6.84%
Weight Materials Greenwich, CT 06830
ETF
Rydex S&P Equal Timber Hill LLC Two Pickwick Plaza 134,788 53.92%
Weight Technology Greenwich, CT 06830
ETF
Rydex S&P Equal National Financial 200 Liberty Street 34,686 13.87%
Weight Technology Services FS LLC New York, NY 10281
ETF
Rydex S&P Equal Charles Schwab & Co. 101 Montgomery Street 17,578 7.03%
Weight Technology San Francisco, CA 94104
ETF
Rydex S&P Equal Goldman Sachs & Co. 180 Maiden Lane 16,479 6.59%
Weight Technology New York, NY 10038
ETF
Rydex S&P Equal Timber Hill LLC Two Pickwick Plaza 78,805 52.54%
Weight Utilities ETF Greenwich, CT 06830
Rydex S&P Equal Bear Hunter 40 Wall Street, 44th Floor 54,397 36.26%
Weight Utilities ETF New York, NY
A-5
PERCENTAGE
OF FUND
NAME OF ADDRESS OF NUMBER OF SHARES
FUND BENEFICIAL OWNER BENEFICIAL OWNER SHARES OWNED OUTSTANDING
------------------------------------------------------------------------------------------------------------------
Rydex S&P MidCap Morgan Stanley DW Inc 51 Mercedes Way 49,400 19.76%
400 Pure Growth ETF Edgewood, NY
Rydex S&P MidCap Goldman Sachs & Co. 180 Maiden Lane 48,060 19.22%
400 Pure Growth ETF New York, NY 10038
Rydex S&P MidCap Citigroup Global Markets 333 W. 34th Street 39,722 15.89%
400 Pure Growth ETF New York, NY 10001
Rydex S&P MidCap Timber Hill LLC Two Pickwick Plaza 26,000 10.40%
400 Pure Growth ETF Greenwich, CT 06830
Rydex S&P MidCap TD Ameritrade 4211 South 102nd Street 21,698 8.68%
400 Pure Growth ETF Omaha, NE 68127
Rydex S&P MidCap Pershing 1 Pershing Plaza 17,451 6.98%
400 Pure Growth ETF Jersey City, NJ 07399
Rydex S&P MidCap Timber Hill LLC Two Pickwick Plaza 100,860 15.52%
400 Pure Value ETF Greenwich, CT 06830
Rydex S&P MidCap Morgan Stanley DW Inc 51 Mercedes Way 97,826 15.05%
400 Pure Value ETF Edgewood, NY
Rydex S&P MidCap Goldman Sachs & Co. 180 Maiden Lane 92,848 14.28%
400 Pure Value ETF New York, NY 10038
Rydex S&P MidCap National Financial 200 Liberty Street 64,369 9.90%
400 Pure Value ETF Services FS LLC New York, NY 10281
Rydex S&P MidCap Charles Schwab & Co. 101 Montgomery Street 60,587 9.32%
400 Pure Value ETF San Francisco, CA 94104
Rydex S&P MidCap Pershing 1 Pershing Plaza 52,741 8.11%
400 Pure Value ETF Jersey City, NJ 07399
Rydex S&P MidCap TD Ameritrade 4211 South 102nd Street 48,547 7.47%
400 Pure Value ETF Omaha, NE 68127
Rydex S&P MidCap RBC Dain Rauscher 510 Marquette Ave South 32,615 5.02%
400 Pure Value ETF Minneapolis, MN
Rydex S&P Morgan Stanley DW Inc 51 Mercedes Way 65,700 26.28%
SmallCap 600 Pure Edgewood, NY
Growth ETF
Rydex S&P Timber Hill LLC Two Pickwick Plaza 58,900 23.56%
SmallCap 600 Pure Greenwich, CT 06830
Growth ETF
Rydex S&P Bear Hunter 40 Wall Street, 44th Floor 20,771 8.31%
SmallCap 600 Pure New York, NY
Growth ETF
A-6
PERCENTAGE
OF FUND
NAME OF ADDRESS OF NUMBER OF SHARES
FUND BENEFICIAL OWNER BENEFICIAL OWNER SHARES OWNED OUTSTANDING
------------------------------------------------------------------------------------------------------------------
Rydex S&P Citigroup Global Markets 333 W. 34th Street 19,952 7.98%
SmallCap 600 New York, NY 10001
Pure Growth ETF
Rydex S&P National Financial 200 Liberty Street 15,164 6.07%
SmallCap 600 Services FS LLC New York, NY 10281
Pure Growth ETF
Rydex S&P Goldman Sachs & Co. 180 Maiden Lane 13,561 5.42%
SmallCap 600 New York, NY 10038
Pure Growth ETF
Rydex S&P Pershing 1 Pershing Plaza 13,153 5.26%
SmallCap 600 Jersey City, NJ 07399
Pure Growth ETF
Rydex S&P Pershing 1 Pershing Plaza 119,556 18.39%
SmallCap 600 Jersey City, NJ 07399
Pure Value ETF
Rydex S&P TD Ameritrade 4211 South 102nd Street 108,883 16.75%
SmallCap 600 Omaha, NE 68127
Pure Value ETF
Rydex S&P Morgan Stanley DW Inc 51 Mercedes Way 97,500 15.00%
SmallCap 600 Edgewood, NY
Pure Value ETF
Rydex S&P National Financial 200 Liberty Street 68,200 10.49%
SmallCap 600 Services FS LLC New York, NY 10281
Pure Value ETF
Rydex S&P Charles Schwab & Co. 101 Montgomery Street 62,165 9.56%
SmallCap 600 San Francisco, CA 94104
Pure Value ETF
Rydex S&P Timber Hill LLC Two Pickwick Plaza 38,356 5.90%
SmallCap 600 Greenwich, CT 06830
Pure Value ETF
A-7
APPENDIX B
ADVISORY AGREEMENT
ADVISORY AGREEMENT made as of this __th day of __________, 2007 by and
between RYDEX ETF TRUST (the "Trust"), a Delaware statutory trust registered as
an investment company under the Investment Company Act of 1940, as amended (the
"1940 Act"), and PADCO ADVISORS II, INC., a Maryland corporation with its
principal place of business at 9601 Blackwell Road, Suite 500, Rockville,
Maryland 20850 (the "Adviser").
WITNESSETH
WHEREAS, the Board of Trustees (the "Board") of the Trust has selected the
Adviser to act as investment adviser to the Trust on behalf of the series set
forth on Schedule A to this Agreement (each a "Fund" and, collectively, the
"Funds"), as such Schedule may be amended from time to time upon mutual
agreement of the parties, and to provide certain related services, as more fully
set forth below, and to perform such services under the terms and conditions
hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual covenants and benefits set
forth herein, the Trust and the Adviser do hereby agree as follows:
1. THE ADVISER'S SERVICES.
(a) DISCRETIONARY INVESTMENT MANAGEMENT SERVICES. The Adviser shall
act as investment adviser with respect to the Funds. In such capacity, the
Adviser shall, subject to the supervision of the Board, regularly provide
the Funds with investment research, advice and supervision and shall
furnish continuously an investment program for the Funds, consistent with
the respective investment objectives and policies of each Fund. The
Adviser shall determine, from time to time, what securities shall be
purchased for the Funds, what securities shall be held or sold by the
Funds and what portion of the Funds' assets shall be held uninvested in
cash, subject always to the provisions of the Trust's Agreement and
Declaration of Trust, By-Laws and its registration statement on Form N-1A
(the "Registration Statement") under the 1940 Act, and under the
Securities Act of 1933, as amended (the "1933 Act"), covering Fund shares,
as filed with the U.S. Securities and Exchange Commission (the
"Commission"), and to the investment objectives, policies and restrictions
of the Funds, as each of the same shall be from time to time in effect. To
carry out such obligations, the Adviser shall exercise full discretion and
act for the Funds in the same manner and with the same force and effect as
the Funds themselves might or could do with respect to purchases, sales or
other transactions, as well as with respect to all other such things
necessary or incidental to the furtherance or conduct of such purchases,
sales or other transactions. No reference in this Agreement to the Adviser
having full discretionary authority over each Fund's investments shall in
any way limit the right of the Board, in its sole discretion, to establish
or revise policies in con-
B-1
nection with the management of a Fund's assets or to otherwise exercise
its right to control the overall management of a Fund.
(b) COMPLIANCE. The Adviser agrees to comply with the requirements
of the 1940 Act, the Investment Advisers Act of 1940 (the "Advisers Act"),
the 1933 Act, the Securities Exchange Act of 1934, as amended (the "1934
Act"), the Commodity Exchange Act and the respective rules and regulations
thereunder, as applicable, as well as with all other applicable federal
and state laws, rules, regulations and case law that relate to the
services and relationships described hereunder and to the conduct of its
business as a registered investment adviser. The Adviser also agrees to
comply with the objectives, policies and restrictions set forth in the
Registration Statement, as amended or supplemented, of the Funds, and with
any policies, guidelines, instructions and procedures approved by the
Board and provided to the Adviser. In selecting each Fund's portfolio
securities and performing the Adviser's obligations hereunder, the Adviser
shall cause the Fund to comply with the diversification and source of
income requirements of Subchapter M of the Internal Revenue Code of 1986,
as amended (the "Code"), for qualification as a regulated investment
company. The Adviser shall maintain compliance procedures that it
reasonably believes are adequate to ensure its compliance with the
foregoing. No supervisory activity undertaken by the Board shall limit the
Adviser's full responsibility for any of the foregoing.
(c) PROXY VOTING. The Board has the authority to determine how
proxies with respect to securities that are held by the Funds shall be
voted, and the Board has initially determined to delegate the authority
and responsibility to vote proxies for the Funds' securities to the
Adviser. So long as proxy voting authority for the Funds has been
delegated to the Adviser, the Adviser shall exercise its proxy voting
responsibilities. The Adviser shall carry out such responsibility in
accordance with any instructions that the Board shall provide from time to
time, and at all times in a manner consistent with Rule 206(4)-6 under the
Advisers Act and its fiduciary responsibilities to the Trust. The Adviser
shall provide periodic reports and keep records relating to proxy voting
as the Board may reasonably request or as may be necessary for the Funds
to comply with the 1940 Act and other applicable law. Any such delegation
of proxy voting responsibility to the Adviser may be revoked or modified
by the Board at any time.
(d) RECORDKEEPING. The Adviser shall not be responsible for the
provision of administrative, bookkeeping or accounting services to the
Funds, except as otherwise provided herein or as may be necessary for the
Adviser to supply to the Trust or its Board the information required to be
supplied under this Agreement.
The Adviser shall maintain separate books and detailed records of
all matters pertaining to Fund assets advised by the Adviser required by
Rule 31a-1 under the 1940 Act (other than those records being maintained
by any administrator, custodian or transfer agent appointed by the Funds)
relating to its responsibilities provided hereunder with respect to the
Funds, and shall preserve such
B-2
records for the periods and in a manner prescribed therefore by Rule 31a-2
under the 1940 Act (the "Fund Books and Records"). The Fund Books and
Records shall be available to the Board at any time upon request, shall be
delivered to the Trust upon the termination of this Agreement and shall be
available without delay during any day the Trust is open for business.
(e) HOLDINGS INFORMATION AND PRICING. The Adviser shall provide
regular reports regarding Fund holdings, and shall, on its own initiative,
furnish the Trust and its Board from time to time with whatever
information the Adviser believes is appropriate for this purpose. The
Adviser agrees to immediately notify the Trust if the Adviser reasonably
believes that the value of any security held by a Fund may not reflect
fair value. The Adviser agrees to provide any pricing information of which
the Adviser is aware to the Trust, its Board and/or any Fund pricing agent
to assist in the determination of the fair value of any Fund holdings for
which market quotations are not readily available or as otherwise required
in accordance with the 1940 Act or the Trust's valuation procedures for
the purpose of calculating the Fund net asset value in accordance with
procedures and methods established by the Board.
(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
B-3
has assumed under this Agreement as the Trust may from time to time reasonably
request.
(a) NOTIFICATION OF BREACH/COMPLIANCE REPORTS. The Adviser shall
notify the Trust immediately upon detection of (i) any material failure to
manage any Fund in accordance with its investment objectives and policies
or any applicable law; or (ii) any material breach of the Funds' or the
Adviser's policies, guidelines or procedures. In addition, the Adviser
shall provide a quarterly report regarding each Fund's compliance with its
investment objectives and policies, applicable law, including, but not
limited to the 1940 Act and Subchapter M of the Code, and the Fund's
policies, guidelines or procedures as applicable to the Adviser's
obligations under this Agreement. The Adviser agrees to correct any such
failure promptly and to take any action that the Board may reasonably
request in connection with any such breach. Upon request, the Adviser
shall also provide the officers of the Trust with supporting
certifications in connection with such certifications of Fund financial
statements and disclosure controls pursuant to the Sarbanes-Oxley Act. The
Adviser will promptly notify the Trust in the event (i) the Adviser is
served or otherwise receives notice of any action, suit, proceeding,
inquiry or investigation, at law or in equity, before or by any court,
public board, or body, involving the affairs of the Trust (excluding class
action suits in which a Fund is a member of the plaintiff class by reason
of the Fund's ownership of shares in the defendant) or the compliance by
the Adviser with the federal or state securities laws or (ii) an actual
change in control of the Adviser resulting in an "assignment" (as defined
in the 1940 Act) has occurred or is otherwise proposed to occur.
(b) BOARD AND FILINGS INFORMATION. The Adviser will also provide the
Trust with any information reasonably requested regarding its management
of the Funds required for any meeting of the Board, or for any shareholder
report, amended registration statement, proxy statement, or prospectus
supplement to be filed by the Trust with the Commission. The Adviser 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.
B-4
4. BROKERAGE.
(a) PRINCIPAL TRANSACTIONS. In connection with purchases or sales of
securities for the account of a Fund, neither the Adviser nor any of its
directors, officers or employees will act as a principal or agent or
receive any commission except as permitted by the 1940 Act.
(b) PLACEMENT OF ORDERS. The Adviser shall arrange for the placing
of all orders for the purchase and sale of securities for a Fund's account
with brokers or dealers selected by the Adviser. In the selection of such
brokers or dealers and the placing of such orders, the Adviser is directed
at all times to seek for the Fund the most favorable execution and net
price available under the circumstances. It is also understood that it is
desirable for the Fund that the Adviser have access to brokerage and
research services provided by brokers who may execute brokerage
transactions at a higher cost to the Fund than may result when allocating
brokerage to other brokers, consistent with section 28(e) of the 1934 Act
and any Commission staff interpretations thereof. Therefore, the Adviser
is authorized to place orders for the purchase and sale of securities for
a Fund with such brokers, subject to review by the Board from time to time
with respect to the extent and continuation of this practice. It is
understood that the services provided by such brokers may be useful to the
Adviser in connection with its or its affiliates' services to other
clients.
(c) AGGREGATED TRANSACTIONS. On occasions when the Adviser deems the
purchase or sale of a security to be in the best interest of a Fund as
well as other clients of the Adviser, the Adviser may, to the extent
permitted by applicable law and regulations, aggregate the order for
securities to be sold or purchased. In such event, the Adviser will
allocate securities or futures contracts so purchased or sold, as well as
the expenses incurred in the transaction, in the manner the Adviser
reasonably considers to be equitable and consistent with its fiduciary
obligations to the Fund and to such other clients under the circumstances.
(d) AFFILIATED BROKERS. The Adviser or any of its affiliates may act
as broker in connection with the purchase or sale of securities or other
investments for a Fund, subject to: (a) the requirement that the Adviser
seek to obtain best execution and price within the policy guidelines
determined by the Board and set forth in the Fund's current prospectus and
SAI; (b) the provisions of the 1940 Act; (c) the provisions of the
Advisers Act; (d) the provisions of the 1934 Act; and (e) other provisions
of applicable law. These brokerage services are not within the scope of
the duties of the Adviser under this Agreement. Subject to the
requirements of applicable 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.
B-5
5. CUSTODY. Nothing in this Agreement shall permit the Adviser to take or
receive physical possession of cash, securities or other investments of a Fund.
6. ALLOCATION OF CHARGES AND EXPENSES. The Adviser will bear its own costs
of providing services hereunder. The Adviser agrees to pay all expenses incurred
by the Trust except for interest, taxes, brokerage and other expenses incurred
in placing orders for the purchase and sale of securities and other investment
instruments, extraordinary expenses, and distribution fees and expenses paid by
the Trust under any distribution plan adopted pursuant to Rule 12b-1 under the
1940 Act.
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
B-6
name "Rydex" in connection with the management and operation of the Funds.
The Adviser is not aware of any threatened or existing actions, claims,
litigation or proceedings that would adversely effect or prejudice the
rights of the Adviser or the Trust to use the name "Rydex".
(e) INSURANCE. The Adviser maintains errors and omissions insurance
coverage in an appropriate amount and shall provide prior written notice
to the Trust (i) of any material changes in its insurance policies or
insurance coverage; or (ii) if any material claims will be made on its
insurance policies. Furthermore, the Adviser shall upon reasonable request
provide the Trust with any information it may reasonably require
concerning the amount of or scope of such insurance.
(f) NO DETRIMENTAL AGREEMENT. The Adviser represents and warrants
that it has no arrangement or understanding with any party, other than the
Trust, that would influence the decision of the Adviser with respect to
its selection of securities for a Fund, and that all selections shall be
done in accordance with what is in the best interest of the Fund.
(g) CONFLICTS. The Adviser shall act honestly, in good faith and in
the best interests of the Trust including requiring any of its personnel
with knowledge of Fund activities to place the interest of the Funds
first, ahead of their own interests, in all personal trading scenarios
that may involve a conflict of interest with the Funds, consistent with
its fiduciary duties under applicable law.
(h) REPRESENTATIONS. The representations and warranties in this
Section 7 shall be deemed to be made on the date this Agreement is
executed and at the time of delivery of the quarterly compliance report
required by Section 3(a), whether or not specifically referenced in such
report.
8. THE NAME "RYDEX". The Adviser grants to the Trust a sublicense to use
the name "Rydex" (the "Name") as part of the name of any Fund. The foregoing
authorization by the Adviser to the Trust to use the Name as part of the name of
any Fund is not exclusive of the right of the Adviser itself to use, or to
authorize others to use, the Name; the Trust acknowledges and agrees that, as
between the Trust and the Adviser, the Adviser has the right to use, or
authorize others to use, the Name. The Trust shall (1) only use the Name in a
manner consistent with uses approved by the Adviser; (2) use its best efforts to
maintain the quality of the services offered using the Name; (3) adhere to such
other specific quality control standards as the Adviser may from time to time
promulgate. At the request of the Adviser, the Trust will (a) submit to Adviser
representative samples of any promotional materials using the Name; and (b)
change the name of any Fund within three months of its receipt of the Adviser's
request, or such other shorter time period as may be required under the terms of
a settlement agreement or court order, so as to eliminate all reference to the
Name and will not thereafter transact any business using the Name in the name of
any Fund; provided, however, that the Trust may continue to use beyond such date
any supplies of prospectuses, marketing materials and similar documents that the
Trust
B-7
had at the date of such name change in quantities not exceeding those
historically produced and used in connection with such Fund.
9. ADVISER'S COMPENSATION. The Funds shall pay to the Adviser, as
compensation for the Adviser's services hereunder, a fee, determined as
described in Schedule A that is attached hereto and made a part hereof. Such fee
shall be computed daily and paid not less than monthly in arrears by the Funds.
The method for determining net assets of a Fund for purposes hereof shall
be the same as the method for determining net assets for purposes of
establishing the offering and redemption prices of Fund shares as described in
the Funds' prospectus(es). In the event of termination of this Agreement, the
fee provided in this Section shall be computed on the basis of the period ending
on the last business day on which this Agreement is in effect subject to a pro
rata adjustment based on the number of days elapsed in the current month as a
percentage of the total number of days in such month.
10. INDEPENDENT CONTRACTOR. In the performance of its duties hereunder,
the Adviser is and shall be an independent contractor and, unless otherwise
expressly provided herein or otherwise authorized in writing, shall have no
authority to act for or represent the Trust or any Fund in any way or otherwise
be deemed to be an agent of the Trust or any Fund. If any occasion should arise
in which the Adviser gives any advice to its clients concerning the shares of a
Fund, the Adviser will act solely as investment counsel for such clients and not
in any way on behalf of the Fund.
11. ASSIGNMENT AND AMENDMENTS. This Agreement shall automatically
terminate, without the payment of any penalty, in the event of its assignment
(as defined in section 2(a)(4) of the 1940 Act); provided that such termination
shall not relieve the Adviser of any liability incurred hereunder.
This Agreement may not be added to or changed orally and may not be
modified or rescinded except by a writing signed by the parties hereto and in
accordance with the 1940 Act, when applicable.
12. DURATION AND TERMINATION.
(a) This Agreement shall become effective as of the date executed
and shall remain in full force and effect continually thereafter, subject
to renewal as provided in Section 12(d) and unless terminated
automatically as set forth in Section 11 hereof or until terminated as
follows:
(b) The Trust may cause this Agreement to terminate either (i) by
vote of its Board or (ii) with respect to any Fund, upon the affirmative
vote of a majority of the outstanding voting securities of the Fund; or
(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
B-8
(d) This Agreement shall automatically terminate two years from the
date of its execution unless its renewal is specifically approved at least
annually thereafter by (i) a majority vote of the Trustees, including a
majority vote of such Trustees who are not interested persons of the Trust
or the Adviser, at a meeting called for the purpose of voting on such
approval; or (ii) the vote of a majority of the outstanding voting
securities of each Fund; provided, however, that if the continuance of
this Agreement is submitted to the shareholders of the Funds for their
approval and such shareholders fail to approve such continuance of this
Agreement as provided herein, the Adviser may continue to serve hereunder
as to the Funds in a manner consistent with the 1940 Act and the rules and
regulations thereunder; and
Termination of this Agreement pursuant to this Section shall be without
payment of any penalty.
In the event of termination of this Agreement for any reason, the Adviser
shall, immediately upon notice of termination or on such later date as may be
specified in such notice, cease all activity on behalf of the Funds and with
respect to any of their assets, except as otherwise required by any fiduciary
duties of the Adviser under applicable law. In addition, the Adviser shall
deliver the Fund Books and Records to the Trust by such means and in accordance
with such schedule as the Trust shall direct and shall otherwise cooperate, as
reasonably directed by the Trust, in the transition of portfolio asset
management to any successor of the Adviser.
13. CERTAIN DEFINITIONS. For the purposes of this Agreement:
(a) "Affirmative vote of a majority of the outstanding voting
securities of the Fund" shall have the meaning as set forth in the 1940
Act, subject, however, to such exemptions as may be granted by the
Commission under the 1940 Act or any interpretations of the Commission
staff.
(b) "Interested persons" and "Assignment" shall have their
respective meanings as set forth in the 1940 Act, subject, however, to
such exemptions as may be granted by the Commission under the 1940 Act or
any interpretations of the Commission staff.
14. LIABILITY OF THE ADVISER. The Adviser shall indemnify and hold
harmless the Trust and all affiliated persons thereof (within the meaning of
Section 2(a)(3) of the 1940 Act) and all controlling persons (as described in
Section 15 of the 1933 Act) (collectively, the "Adviser Indemnitees") against
any and all losses, claims, damages, liabilities or litigation (including
reasonable legal and other expenses) by reason of or arising out of: (a) the
Adviser being in material violation of any applicable federal or state law, rule
or regulation or any investment policy or restriction set forth in the Funds'
Registration Statement or any written guidelines or instruction provided in
writing by the Board, (b) a Fund's failure to satisfy the diversification or
source of
B-9
income requirements of Subchapter M of the Code, or (c) the Adviser's willful
misfeasance, bad faith or gross negligence generally in the performance of its
duties hereunder or its reckless disregard of its obligations and duties under
this Agreement.
15. ENFORCEABILITY. Any term or provision of this Agreement which is
invalid or unenforceable in any jurisdiction shall, as to such jurisdiction be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms or provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction.
16. LIMITATION OF LIABILITY. The parties to this Agreement acknowledge and
agree that all litigation arising hereunder, whether direct or indirect, and of
any and every nature whatsoever shall be satisfied solely out of the assets of
the affected Fund and that no Trustee, officer or holder of shares of beneficial
interest of the Fund shall be personally liable for any of the foregoing
liabilities. The Trust's Certificate of Trust, as amended from time to time, is
on file in the Office of the Secretary of State of the State of Delaware. Such
Certificate of Trust and the Trust's Agreement and Declaration of Trust describe
in detail the respective responsibilities and limitations on liability of the
Trustees, officers, and holders of shares of beneficial interest.
17. JURISDICTION. This Agreement shall be governed by and construed in
accordance with the substantive laws of state of Delaware and the Adviser
consents to the jurisdiction of courts, both state and/or federal, in Delaware,
with respect to any dispute under this Agreement.
18. PARAGRAPH HEADINGS. The headings of paragraphs contained in this
Agreement are provided for convenience only, form no part of this Agreement and
shall not affect its construction.
19. COUNTERPARTS. This Agreement may be executed simultaneously in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
B-10
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
signed on their behalf by their duly authorized officers as of the date first
above written.
RYDEX ETF TRUST, on behalf of each Fund listed
on Schedule A
By:
------------------------------------------
Name: Carl G. Verboncoeur
Title: President
PADCO ADVISORS II, INC.
By:
------------------------------------------
Name: Carl G. Verboncoeur
Title: Chief Executive Officer
B-11
SCHEDULE A
TO THE
ADVISORY AGREEMENT
DATED ________________, 2007 BETWEEN
RYDEX ETF 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
--------------------------------------------------------------------------------
Rydex S&P Equal Weight ETF ............................................ 0.40%
Rydex Russell Top 50 ETF .............................................. 0.20%
Rydex S&P 500 Pure Growth ETF ......................................... 0.35%
Rydex S&P 500 Pure Value ETF .......................................... 0.35%
Rydex S&P MidCap 400 Pure Growth ETF .................................. 0.35%
Rydex S&P MidCap 400 Pure Value ETF ................................... 0.35%
Rydex S&P SmallCap 600 Pure Growth ETF ................................ 0.35%
Rydex S&P SmallCap 600 Pure Value ETF ................................. 0.35%
Rydex S&P Equal Weight Consumer Discretionary ETF ..................... 0.50%
Rydex S&P Equal Weight Consumer Staples ETF ........................... 0.50%
Rydex S&P Equal Weight Energy ETF ..................................... 0.50%
Rydex S&P Equal Weight Financial ETF .................................. 0.50%
Rydex S&P Equal Weight Health Care ETF ................................ 0.50%
Rydex S&P Equal Weight Industrial ETF ................................. 0.50%
Rydex S&P Equal Weight Materials ETF .................................. 0.50%
Rydex S&P Equal Weight Technology ETF ................................. 0.50%
Rydex S&P Equal Weight Utilities ETF .................................. 0.50%
Rydex S&P 500 2x Strategy ETF ......................................... 0.70%
Rydex Inverse S&P 500 Strategy ETF .................................... 0.70%
Rydex Inverse S&P 500 2x Strategy ETF ................................. 0.70%
Rydex S&P MidCap 400 2x Strategy ETF .................................. 0.70%
Rydex Inverse S&P MidCap 400 Straetgy ETF ............................. 0.70%
Rydex Inverse S&P MidCap 400 2x Strategy ETF .......................... 0.70%
Rydex S&P SmallCap 600 2x Strategy ETF ................................ 0.70%
Rydex Inverse S&P SmallCap 600 Strategy ETF ........................... 0.70%
Rydex Inverse S&P SmallCap 600 2x Strategy ETF ........................ 0.70%
Rydex NASDAQ 100 2x Strategy ETF ...................................... 0.70%
Rydex Inverse NASDAQ 100 Strategy ETF ................................. 0.70%
Rydex Inverse NASDAQ 100 2x Strategy ETF .............................. 0.70%
B-12
FUND RATE
--------------------------------------------------------------------------------
Rydex Russell 2000(R) 2x Strategy ETF ................................. 0.70%
Rydex Inverse Russell 2000(R) Strategy ETF ............................ 0.70%
Rydex Inverse Russell 2000(R) 2x Strategy ETF ......................... 0.70%
Rydex Russell 1000(R) 2x Strategy ETF ................................. 0.70%
Rydex Inverse Russell 1000(R) Strategy ETF ............................ 0.70%
Rydex Inverse Russell 1000(R) 2x Strategy ETF ......................... 0.70%
Rydex NASDAQ Biotech 2x Strategy ETF .................................. 0.70%
Rydex Inverse NASDAQ Biotech Strategy ETF ............................. 0.70%
Rydex Inverse NASDAQ Biotech 2x Strategy ETF .......................... 0.70%
B-13
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[LOGO] RYDEX INVESTMENTS
ESSENTIAL FOR MODERN MARKETS(TM)
------------------------------------------------------------------------------------------------------------------------------------
VOTING VIA THE TELEPHONE VOTING VIA THE INTERNET VOTING VIA THE MAIL
------------------------------------------------------------------------------------------------------------------------------------
o Read the Proxy Statement and have o Read the Proxy Statement and o Read the Proxy Statement.
the Proxy Card at hand. have the Proxy Card at hand. o Check the appropriate boxes
o Call toll-free 1-800-454-8683 o Log on to WWW.PROXYWEB.COM. on the reverse side.
o Follow the recorded instructions. o Follow the on-line instructions. o Sign and date the Proxy Card.
o Return the Card in the
envelope provided.
------------------------------------------------------------------------------------------------------------------------------------
IF YOU VOTE BY INTERNET OR TELEPHONE, PLEASE DO NOT MAIL YOUR CARD.
------
----------------------------------------------------------------
STOP [Graphic Omitted] IT IS IMPORTANT THAT YOU
VOTE YOUR PROXY QUICKLY, NO
MATTER HOW MANY SHARES
YOU OWN.
----------------------------------------------------------------
999 999 999 999 99 RYDEX ETF TRUST
PROXY
FOR SPECIAL JOINT MEETING OF SHAREHOLDERS ON OCTOBER 4, 2007
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FUND/TRUST NAME PRINTS HERE
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 ETF - SD
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 PROPOSAL
---
THE TRUSTEES UNANIMOUSLY RECOMMEND THAT SHAREHOLDERS OF EACH FUND VOTE
"FOR" PROPOSAL 1.
FOR AGAINST ABSTAIN
1. THE APPROVAL OF A NEW INVESTMENT ADVISORY AGREEMENT BETWEEN |_| |_| |_|
RYDEX ETF TRUST AND PADCO ADVISORS II, INC.* (All Funds)
* PADCO Advisors, Inc. and PADCO Advisors II, Inc. collectively do business as Rydex Investments.
PLEASE SIGN AND DATE ON THE REVERSE SIDE.
RYDEX ETF - SD