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 SERIES FUNDS
RYDEX DYNAMIC FUNDS
(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:
RYDEX SERIES FUNDS
RYDEX DYNAMIC FUNDS
Dear Shareholder:
As most of you are already aware, Albert P. "Skip" Viragh, Jr. died of
cancer in December, 2003. Mr. Viragh was the founder and controlling shareholder
of Rydex Investments (the "Advisor"), the investment adviser to the Rydex family
of mutual funds. Upon Mr. Viragh's death, ownership of Mr. Viragh's interest in
the Advisor transferred to certain beneficiaries of his estate. This transaction
resulted in a change of control at the Advisor, which in turn caused the
termination of each of the investment advisory agreements between the Advisor
and each of the Rydex funds.
As a result, a Special Meeting of Shareholders (the "Meeting") of each of
the funds of the Rydex family of mutual funds, including the Rydex Series Funds
and Rydex Dynamic Funds (each a "Trust," and collectively, the "Trusts"), has
been scheduled for Friday, April 30, 2004. Since you are a shareholder of record
of one or more series of the Trusts (the "Funds") as of the close of business on
March 2, 2004 you are entitled to vote at the Shareholder Meeting.
At the Meeting, you are being asked to approve new advisory agreements with
the Advisor under substantially the same terms as the previous advisory
agreements. No fee increase will result from approving the new advisory
agreements. In addition, you are being asked to approve the election of trustees
to the Board of Trustees of each Trust, as well as several other items of
business to certain Funds of the Trusts as further described in the attached
proxy statement.
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. Your vote is important to
us. Please take a few minutes to review this proxy statement and vote your
shares today. The current Board of Trustees has unanimously approved each of the
proposals and recommends a vote "For" each.
While you are, of course, welcome to join us at the meeting, it is not
necessary. As a convenience we have created several options by which to vote
your shares:
o The Internet: Follow the instructions located on your proxy card and make
sure it is available at the time you plan to vote
o Touch-Tone Phone: The phone number is located on your proxy card and be
sure you have your control number on the card at the time of the call.
o By Mail: Simply execute your card and enclose it in the postage paid
envelope found in this proxy package.
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EVERY VOTE IS IMPORTANT NO MATTER
HOW MANY SHARES YOU OWN
The Funds have engaged the services of Investor Connect(TM), a professional
proxy solicitation agent, to assist shareholders through the voting process. As
the Meeting approaches and you have not yet voted, Investor Connect(TM) may
contact you to remind you to vote your shares in order to be represented at the
Meeting. If you should have any questions about the proxy statement or the
execution of your vote, please contact Investor Connect(TM) at 800-870-0089.
They will be happy to assist you.
We appreciate your time and consideration.
Sincerely,
Carl G. Verboncoeur
President, Rydex Series Funds and
Rydex Dynamic Funds
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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 a proxy card -- because you have the right to vote on these
important proposals concerning your investment in the Funds. The majority of
these proposals relate to actions that need to be taken in response to the
recent death of Albert P. "Skip" Viragh, Jr., the founder and controlling
shareholder of Rydex Investments (the "Advisor") the investment adviser to
the Rydex Funds.
Q. Why am I being asked to vote on new advisory agreements?
A. The Investment Company Act of 1940 (the "1940 Act"), the law that regulates
mutual funds, requires an investment advisory agreement between an
investment adviser and a fund to terminate whenever there is a change in
control of the investment adviser. After an investment advisory agreement
terminates, shareholders are required to approve a new agreement between an
investment adviser and the fund.
The Advisor is owned entirely by the 2003 Dynamic Irrevocable Trust (the
"Viragh Family Trust"). Prior to his death on December 11, 2003, Mr. Viragh
controlled the Viragh Family Trust. Upon Mr. Viragh's death, there was a
change of control of the Viragh Family Trust. This change of control of the
Viragh Family Trust resulted in a change of control of the Advisor, which in
turn resulted in the termination of each of the investment advisory
agreements between the Advisor and the Trusts (each, an "Old Agreement").
On February 13, 2004, the Board approved a new advisory agreement for each
Trust (each, a "New Agreement") under which, subject to its approval by each
Fund's shareholders, the Advisor will continue serve as investment adviser
to each Fund. The Advisor's fee rates for its services to the Funds under
each New Agreement is the same as its fee rates under the corresponding Old
Agreement. The other terms of the New Agreements are similar to those of the
Old Agreements.
Q. How does 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 remain unchanged. The current management
of the
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Advisor has assured the Board that there will be no reduction or other
significant change in the nature or quality of the investment advisory
services to each Fund as a result of the change in ownership.
Q. Who has been managing the Funds since the termination of the Old Agreements?
A. During the period between the termination of the Old Agreements and the
approval of the New Agreements by shareholders (the "Interim Period"), the
Advisor has continued to provide investment advisory services to the Funds
pursuant to interim agreements between the Advisor and each Trust that were
approved by the Board at a special meeting it held shortly after Mr.
Viragh's death (each an "Interim Agreement" and collectively, the "Interim
Agreements"). Each Interim Agreement is identical in all respects --
including fees to be paid to the Advisor -- to its corresponding Old
Agreement, except for the time periods covered by the agreements. With
respect to each Fund, the New Agreement will replace the Interim Agreement
upon approval by shareholders.
Q. What happens if the New Agreements are not approved?
A. If the shareholders of one or more Funds do not approve a New Agreement with
the Advisor, the Board will take such further action as it deems in the best
interests of the shareholders of the Fund.
Q. What is happening to the Trusts' Board of Trustees?
A. The Trusts are seeking to add Carl G. Verboncoeur, Mr. Viragh's successor as
Chief Executive Officer of the Advisor, to the Board of Trustees (the
"Board") of each Trust to fill the vacancy created by Mr. Viragh's death.
Similar to Mr. Viragh's former status, Mr. Verboncoeur is considered an
"interested person" (as that term is defined in the 1940 Act) of the Trust
because of his employment by the Advisor. In addition to Mr. Verboncoeur,
the current members of the Board additionally have been proposed for
reelection to the Board (together with Mr. Verboncoeur, the "Proposed
Trustees"). With the exception of Mr. Verboncoeur, each of the Proposed
Trustees would be considered an "Independent Trustee" of the Trust.
Q. Why am I being asked to vote on the election of the Proposed Trustees?
A. Appointments to the Board generally are made by existing Trustees. However,
the 1940 Act provides that trustees may not fill vacancies unless thereafter
at least two-thirds of the trustees have been elected by shareholders.
Because two of the five current members of the Rydex Series Funds' Board
have not been elected by shareholders, the Board could not appoint Mr.
Verboncoeur to the Rydex Series Funds' Board. Since a shareholder vote is
required to elect
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Mr. Verboncoeur to the Rydex Series Funds' Board, the Board has proposed
that shareholders elect all of the Proposed Trustees. The Board believes
that it is in shareholders' best interests to provide the Board with the
flexibility to appoint additional trustees in the future, without the costs
and delays associated with holding a special shareholders' meeting to do so.
Q. What are the other Proposals?
A. The Board is recommending that shareholders approve proposals to change the
investment objective of certain series of the Funds from a fundamental
policy to a non-fundamental policy. Under the 1940 Act, "fundamental"
investment restrictions may be changed or eliminated only if shareholders
approve such action. Non-fundamental policies may be changed by a vote of a
majority of the Board, and do not require shareholder approval. Currently,
the investment objective of each of the Rydex Series Funds' Nova Fund, Nova
Master Fund, Ursa Fund, Ursa Master Fund, OTC Fund, U.S. Government Bond
Fund, Juno Fund and Juno Master Fund, including the benchmarks of the Nova
Fund, Nova Master Fund, Ursa Fund and Ursa Master Fund, are fundamental. The
Board believes that it is in shareholders' best interests to provide the
Board with the flexibility to change these Funds investment objectives (or
benchmarks) in the future, without the costs and delays associated with
holding a special shareholders' meeting to do so.
Q. How will this change regarding the investment objective affect these Funds?
A. There is no current intention by the Board to change the investment
objective or benchmark of any of these Funds. Each Fund will continue to be
managed in accordance with the Trust's prospectus as filed with the
Securities and Exchange Commission and as amended from time to time.
Q. How do the current Trustees suggest that I vote?
A. After careful consideration, the Trustees unanimously recommended that you
vote "FOR" all of the proposals contained in the Proxy Statement. Please see
"Board Recommendations" with respect to each proposal for a discussion of
the Board's considerations in making such recommendations.
Q. Will my vote make a difference?
A. Yes. Your vote is needed to ensure that the proposals can be acted upon. We
encourage all shareholders to participate in the governance of their
Fund(s). Additionally, your immediate response on the enclosed proxy card
will help save the costs of any further solicitations.
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Q. I'm a 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 meeting.
If this happens, the Funds will need to solicit votes again.
Q. How do I place my vote?
A. You may provide the Trust with your vote via 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.
Q. Whom do I call if I have questions?
A. We will be happy to answer your questions about this proxy solicitation.
Please call Investor Connect(TM) at 1-800-870-0089 between 9:00 a.m. and
10:00 p.m., Eastern Time, Monday through Friday.
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.
vi
RYDEX SERIES FUNDS
RYDEX DYNAMIC FUNDS
9601 Blackwell Road, Suite 500
Rockville, MD 20850
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON FRIDAY, APRIL 30, 2004
Notice is hereby given that a Special Meeting of Shareholders (the
"Meeting") of each of the Rydex Series Funds' Nova, Nova Master, Ursa, Ursa
Master, OTC, Arktos, Arktos Master, Medius, Mekros, U.S. Government Bond, Juno,
Juno Master, Large-Cap Europe, Large-Cap Japan, Banking, Basic Materials,
Biotechnology, Consumer Products, Electronics, Energy, Energy Services,
Financial Services, Health Care, Internet, Leisure, Precious Metals, Retailing,
Technology, Telecommunications, Transportation, Utilities, Sector Rotation, Core
Equity and U.S. Government Money Market Funds (each a "Series Fund" and
collectively, the "Series Funds") and the Rydex Dynamic Funds' Titan 500, Titan
500 Master, Tempest 500, Tempest 500 Master, Velocity 100, Velocity 100 Master,
Venture 100 and Venture 100 Master Funds (each a "Dynamic Fund" and
collectively, the "Dynamic Funds") (Rydex Series Funds and Rydex Dynamic Funds
are each a "Trust," and collectively, the "Trusts") (the Series Funds and
Dynamic Funds are collectively the "Funds" or the "Rydex Funds") will be held at
the offices of Rydex Investments, 9601 Blackwell Road, Suite 500, Rockville, MD
20850 on Friday, April 30, 2004 at 4:30 p.m. Eastern Time.
At the Meeting, shareholders of record (the "Shareholders") will be asked
to consider and act on the following proposals:
Description of proposal: Trust/Funds solicited:
- ---------------------------------------------- -----------------------
1. To consider and vote on the election of Rydex Series Funds:
Corey A. Colehour, J. Kenneth Dalton, All Funds
John O. Demaret, Patrick T. McCarville, Rydex Dynamic Funds:
Roger Somers and Carl G. Verboncoeur All Funds
as trustees of the Trust.
2. The approval of a new investment advisory Rydex Series Funds:
Rydex Series Funds: agreement between All Funds
Rydex Series Funds and All Funds PADCO
Advisors, Inc.
3. The approval of a new investment advisory Rydex Dynamic Funds:
Rydex Dynamic Funds: agreement between All Funds
Rydex Dynamic Funds All Funds and PADCO
Advisors, Inc.
1
Description of proposal: Trust/Funds solicited:
- ---------------------------------------------- -----------------------
4. The approval of the change of investment Rydex Series Funds:
objective from a fundamental to a non- Nova Fund, Nova
fundamental policy (includes separate Master Fund, Ursa
sub-proposals 4(a) -- 4(j) relating to the Fund, Ursa Master
investment objective of each of the Funds Fund, OTC Fund,
in the opposite column). U.S. Government
Bond Fund, Juno
Fund and Juno
Master Fund
5. Any other business properly brought
before the Meeting.
All Shareholders are cordially invited to attend the Meeting. However, if
you are unable to attend the Meeting, you can vote quickly and easily by mail,
by internet, by telephone or in person 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 mail, by Internet, by telephone or in person. Your vote is important
no matter how many shares you own. You may change your vote even though a proxy
has already been returned by written notice to the Trust, by submitting a
subsequent proxy using the mail, by Internet, by telephone or by voting in
person at the Meeting.
Shareholders of record at the close of business on March 2, 2004 are
entitled to notice of and to vote at the Meeting or any adjournment thereof.
By Order of the Board of Trustees
Carl G. Verboncoeur
President, Rydex Series Funds and Rydex
Dynamic Funds
March 8, 2004
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RYDEX SERIES FUNDS
RYDEX DYNAMIC FUNDS
9601 Blackwell Road, Suite 500
Rockville, MD 20850
PROXY STATEMENT
SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON FRIDAY, APRIL 30, 2004
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Trustees of Rydex Series Funds and Rydex Dynamic Funds
(each a "Trust," and collectively, the "Trusts") for use at the Special Meeting
of Shareholders to be held on April 30, 2004 at 4:30 p.m. Eastern Time at the
offices of Rydex Investments, 9601 Blackwell Road, Suite 500, Rockville, MD
20850, and at any adjourned session thereof (such Special Meeting and any
adjournment thereof are hereinafter referred to as the "Meeting"). Shareholders
of each of the Rydex Series Funds' Nova, Nova Master, Ursa, Ursa Master, OTC,
Arktos, Arktos Master, Medius, Mekros, U.S. Government Bond, Juno, Juno Master,
Large-Cap Europe, Large-Cap Japan, Banking, Basic Materials, Biotechnology,
Consumer Products, Electronics, Energy, Energy Services, Financial Services,
Health Care, Internet, Leisure, Precious Metals, Retailing, Technology,
Telecommunications, Transportation, Utilities, Sector Rotation, Core Equity and
U.S. Government Money Market Funds (each a "Series Fund" and collectively, the
"Series Funds"), and the Rydex Dynamic Funds' Titan 500, Titan 500 Master,
Tempest 500, Tempest 500 Master, Velocity 100, Velocity 100 Master, Venture 100
and Venture 100 Master Funds (each a "Dynamic Fund" and collectively, the
"Dynamic Funds") (the Series Funds and Dynamic Funds are collectively, the
"Funds" or the "Rydex Funds") of record at the close of business on March 2,
2004 ("Shareholders") are entitled to vote at the Meeting. The proxy card and
this Proxy Statement are being mailed to Shareholders on or about March 8, 2004.
As of March 2, 2004, the Funds had the following units of beneficial
interest ("shares") issued and outstanding:
Shares Issued
Rydex Series Funds and Outstanding
- --------------------------- --------------------
Nova .................. 14,253,054.13
Nova Master ........... n/a
Ursa .................. 38,521,359.63
Ursa Master ........... n/a
OTC ................... 97,570,562.82
Arktos ................ 7,101,236.42
Arktos Master ......... n/a
Medius ................ 4,661,096.59
3
Shares Issued
Rydex Series Funds and Outstanding
- ------------------------------------------ --------------------
Mekros ............................... 9,314,036.06
U.S. Government Bond ................. 7,006,697.46
Juno ................................. 59,658,372.58
Juno Master .......................... n/a
Large-Cap Europe ..................... 4,108,935.17
Large-Cap Japan ...................... 1,508,469.88
Banking .............................. 2,086,275.74
Basic Materials ...................... 1,726,942.21
Biotechnology ........................ 8,036,268.94
Consumer Products .................... 2,091,300.07
Electronics .......................... 4,428,822.44
Energy ............................... 8,498,669.66
Energy Services ...................... 5,022,078.23
Financial Services ................... 6,273,924.19
Health Care .......................... 5,118,883.47
Internet ............................. 655,046.38
Leisure .............................. 1,802,382.87
Precious Metals ...................... 5,211,038.62
Retailing ............................ 3,870,140.23
Technology ........................... 3,378,608.23
Telecommunications ................... 2,845,363.97
Transportation ....................... 315,328.68
Utilities ............................ 1,103,507.91
U.S. Government Money Market ......... 1,419,797,552.00
Sector Rotation ...................... 13,437,372.62
Core Equity .......................... 5,261,354.33
Aggregate Shares ..................... 1,744,664,681.51
Shares Issued
Rydex Dynamic Funds and Outstanding
- --------------------------------- ---------------------
Titan 500 ................... 12,035,331.63
Titan 500 Master ............ n/a
Tempest 500 ................. 6,492,025.27
Tempest 500 Master .......... n/a
Velocity 100 ................ 30,541,987.55
Velocity 100 Master ......... n/a
Venture 100 ................. 15,152,613.14
Venture 100 Master .......... n/a
Aggregate Shares ............ 64,221,957.59
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INTRODUCTION AND GENERAL INFORMATION
General Information. As used in this proxy statement, the Trusts' Board of
Trustees is referred to as the "Board," and the term "Trustee" includes each
trustee of the Trusts. A Trustee that is an interested person of the Trusts 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
Trusts' investment adviser, PADCO Advisors, Inc., the Trusts' principal
underwriter or any of their affiliates. PADCO Advisors, Inc., together with
PADCO Advisors II, Inc., operate as Rydex Investments (the "Advisor"). Trustees
that are not interested persons of the Trust are referred to in this proxy
statement as "Independent Trustees."
Each of the Trusts is organized as a Delaware statutory trust and, as such,
is not required to hold annual meetings of Shareholders. The Board has called
the Meeting in order to permit the Shareholders to consider and vote on the
Proposals set forth in the foregoing notice. If you wish to participate in the
Meeting you may submit the proxy card included with this proxy statement or
attend in person. Your vote is important no matter how many shares you own. You
can vote easily and quickly by mail, by Internet, by telephone or in person. At
any time before the Meeting, you may change your vote, even though a proxy has
already been returned, by written notice to the Trust at 9601 Blackwell Road,
Suite 500, Rockville, MD 20850 or by submitting a subsequent proxy, by mail, by
Internet, by telephone or by voting in person at the meeting.
The Trusts have engaged the services of Investor Connect(TM), a
professional proxy solicitation agent, to solicit proxies for the Meeting.
Investor Connect(TM) is responsible for, among other things, soliciting brokers,
custodians, nominees and fiduciaries and performing other proxy solicitation
services. The anticipated cost of these services is approximately $40,000 plus
any reasonable expenses. These costs will be borne proportionately by the
Trusts. Should Shareholders require additional information regarding any of the
proposals contained in the Proxy Statement, or replacement proxy cards, they may
contact Investor Connect(TM) at 1-800-870-0089.
In addition to the solicitation of proxies by mail, the Board and officers
of the Trusts, as well as employees of Investor Connect(TM), 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. 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.
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Quorum and Meeting Adjournments. Each whole share is entitled to one vote,
and each fractional share is entitled to a proportionate fractional vote on each
matter as to which such shares are to be voted at the Meeting. One-third
(33-1/3%) of a Trust's (or Fund's, as applicable) shares entitled to vote on a
proposal constitutes a quorum. For purposes of determining the presence of a
quorum, abstentions or broker non-votes will be counted as present; however,
they will have the effect of a vote against the 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 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,
the following represents the votes required for the approval of the Proposals.
With respect to Proposal 1, a plurality of a Trust's shares voted shall elect a
Trustee with respect to that Trust. With respect to the remainder of the
Proposals (2, 3 and Sub-Proposals 4(a) -- 4(j)), the approval of such Proposal
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.
Voting by Master Funds. As described in their respective registration
statements on file with the U.S. Securities and Exchange Commission (the
"Commission"), each of the Nova, Ursa and Juno Fund of the Rydex Series Funds
and each of the Titan 500, Tempest 500, Velocity 100 and Venture 100 Fund of the
Rydex Dynamic Funds pursues its investment objective through a "master-feeder
arrangement" whereby each Fund acts as a "feeder fund" and invests all of its
assets in a corresponding "master fund," a separate series of the Trust with an
identical investment objective. Each of the above Funds is the only feeder fund
investing in its respective master fund. Each of the Nova Master, Ursa Master
and Juno Master Funds of the Rydex Series Funds and each of the Titan 500
Master, Tempest 500 Master, Velocity 100 Master and Venture 100 Master Funds of
the Rydex Dynamic Funds will "echo" vote its outstanding shares for each of the
Proposals in this Proxy Statement in the same proportionate percentage as the
shares voted by the Shareholders of each corresponding feeder Fund. By virtue of
this arrangement, any
6
Proposal approved by a feeder Fund will be similarly approved by its
corresponding master fund.
DISCUSSION OF PROPOSAL 1: ELECTION OF BOARD OF TRUSTEES
Proposal 1. TO CONSIDER AND VOTE ON THE ELECTION OF COREY A. COLEHOUR, J.
KENNETH DALTON, JOHN O. DEMARET, PATRICK T. MCCARVILLE, ROGER
SOMERS AND CARL G. VERBONCOEUR AS TRUSTEES OF THE TRUST.
Trusts/Funds Voting on Proposal 1: Rydex Series Funds:
All Funds
Rydex Dynamic Funds:
All Funds
It is proposed that Corey A. Colehour, J. Kenneth Dalton, John O. Demaret,
Patrick T. McCarville, Roger Somers and Carl G. Verboncoeur (the "Proposed
Trustees") be elected at the Meeting to serve as Trustees of each Trust. With
the exception of Mr. Verboncoeur, each of the Proposed Trustees is currently on
the Board of each Trust. Each Trust is seeking to add Mr. Verboncoeur, Mr.
Viragh's successor as Chief Executive Officer of the Advisor, to its Board to
fill the vacancy created by Mr. Viragh's death.
Similar to Mr. Viragh's former status, Mr. Verboncoeur is considered an
"interested person" (as that term is defined in the 1940 Act) of the Trusts
because of his employment with the Advisor. With the exception of Mr.
Verboncoeur, each of the other Proposed Trustees would be considered an
"Independent Trustee" of the Trusts. Together, the Proposed Trustees will
comprise the entire Board of each Trust and serve until their successors have
been duly elected or appointed, as applicable, or until their earlier
resignation or removal. The names and ages of the Proposed Trustees, their
principal occupations during the past five years and certain of their other
affiliations are provided below. Mr. Verboncoeur currently serves as President
of each Trust, and would continue to serve in such capacity if elected at the
Meeting. No other Proposed Trustee will serve as an officer of any Trust. Each
of the Proposed Trustees has agreed to serve if elected at the Meeting. It is
the intention of the persons designated as proxies, unless otherwise directed
therein, to vote at the Meeting for the election of the Proposed Trustees named
below. If any Proposed Trustee is unable or unavailable to serve, the persons
named as proxies will vote for such other person(s) as the Board may recommend.
The Board has overall responsibility to manage and control the business
affairs of each Trust, including the complete and exclusive authority to oversee
and to establish policies regarding the management, conduct and operation of the
Trust's business. The Trustees serve on the Board for terms of indefinite
duration. A Trustee's position in that capacity will terminate if he or she is
removed, resigns or is subject to various disabling events such as death or
incapacity. In the event of any vacancy
7
in the position of a Trustee, the remaining Trustees may appoint an individual
to serve as a Trustee, subject to the provisions of the 1940 Act. A Trustee may
be removed either by (a) the vote or written consent of at least two-thirds of
the Trustees not subject to the removal vote or (b) the vote or written consent
of Shareholders holding not less than two-thirds of a Trust's outstanding
shares.
The Board held four regular meetings, and one special meeting, during each
Trust's most recent fiscal year. Each Trustee then in office attended at least
75% of the aggregate of the total number of meetings of the Board and the total
number of meetings held by all committees of the Board on which the Trustee
served.
Information about the Proposed Trustees
Listed below, for each Proposed Trustee, are their names and ages, as well
as their positions and length of service with the Trusts, principal occupations
during the past five years, the number of portfolios in the Rydex fund complex
that they oversee, and any other directorships held by the Proposed Trustee. The
business address of each Proposed Trustee is 9601 Blackwell Road, Suite 500,
Rockville, Maryland 20850.
8
Independent Proposed Trustees:
Number of
Funds in
Rydex Fund
Principal Occupation(s) Complex Other
Name and Age Position Length of Time Served During Past 5 Years Overseen* Directorships
- --------------- ---------- -------------------------- ----------------------------------------- ---------- ------------------------
Corey A. Trustee Rydex Series Funds (1993 Senior Vice President of Marketing of 80 Trustee, Rydex
Colehour (58) to present); Rydex Dynamic Schield Management Company, a Variable Trust (1998
Funds, (1999 to present) registered investment advisor (1985 to present)(+); Trustee,
to present). Rydex ETF Trust
(2003 to present)
J. Kenneth Trustee Rydex Series Funds (1995 Mortgage Banking Consultant and 80 Trustee, Rydex
Dalton (63) to present); Rydex Dynamic Investor, The Dalton Group, a real Variable Trust (1998
Funds, (1999 to present) estate company (1995 to present). to present)(+); Trustee,
Rydex ETF Trust
(2003 to present)
John O. Trustee Rydex Series Funds (1997 Founder and Chief Executive Officer, 81 Trustee, Rydex
Demaret (64) to present); Rydex Dynamic Health Cost Controls America, Chicago, Variable Trust (1998
Funds, (1999 to present) Illinois (1987 to 1996) sole practitioner to present)(+); Trustee,;
as an attorney, Chicago, Illinois (1984 Rydex ETF Trust (2003
to 1987); General Counsel for the Chicago to present); Trustee,
Transit Authority (1981 to 1984); Senior Rydex Capital Partners
Partner, O'Halloran, LaVarre & Demaret, Sphinx Fund
Northbrook, Illinois (1978 to 1981).
Patrick T. Trustee Rydex Series Funds (1997 Founder and Chief Executive Officer, 80 Trustee, Rydex
McCarville (61) to present); Rydex Dynamic Par Industries, Inc., Northbrook, Variable Trust (1998
Funds, (1999 to present) Illinois (1977 to present). to present)(+); Trustee,
Rydex ETF Trust
(2003 to present)
9
Number of
Funds in
Rydex Fund
Principal Occupation(s) Complex Other
Name and Age Position Length of Time Served During Past 5 Years Overseen* Directorships
- --------------- ---------- -------------------------- ----------------------------------------- ---------- ------------------------
Roger Somers Trustee Rydex Series Funds (1997 President, Arrow Limousine (1963 80 Trustee, Rydex
(59) to present); Rydex Dynamic to present). Variable Trust (1998
Funds, (1999 to present) to present)+; Trustee,
Rydex ETF Trust
(2003 to present)
Interested Proposed Trustee:
Number of
Funds in
Rydex Fund
Principal Occupation(s) Complex Other
Name and Age Position Length of Time Served During Past 5 Years Overseen* Directorships
- --------------- ---------- -------------------------- ----------------------------------------- ---------- ------------------------
Carl G. President Rydex Series Funds (2003 Chief Executive Officer of Rydex 80 None
Verboncoeur and to present); Rydex Dynamic Fund Services, Inc., PADCO Advisors,
(51) ** Proposed Funds, (2003 to present) Inc., PADCO Advisors II, Inc., Rydex
Trustee Distributors, Inc. (2003 to present);
Executive Vice President of Rydex
Fund Services, Inc. (2000 to 2003)
and Rydex Capital Partners (2003
to present); Vice President of
Rydex Fund Services, Inc., Rydex
Distributors, Inc., (1997 to 2003) and
Rydex Capital Partners Sphinx Fund
(2003 to present).
(+) Each Trustee had previously served on the board of the Rydex Advisor
Variable Annuity Account, the predecessor to the Rydex Variable Trust.
* The number of Funds is based on each currently operating series of the
registered investment companies within the Rydex fund complex that a Trustee
currently oversees, or that a Proposed Trustee would oversee if elected.
These Funds are all advised by the Advisor, and also share a common
principal underwriter.
** Mr. Verboncoeur would be considered an "interested person" (as that term is
defined in the 1940 Act) of the Trust because of his employment as Chief
Executive Officer of the Advisor and principal underwriter.
10
Fund Shares Owned by Proposed Trustees. The following table shows the
dollar amount range of each Trustee's "beneficial ownership" of shares by Fund
and in the aggregate across all Funds as of December 31, 2003. Dollar amount
ranges disclosed are set forth as established by the Commission. "Beneficial
ownership" is determined in accordance with Rule 16a-1(a)(2) under the
Securities Exchange Act of 1934 ("1934 Act").
Independent Proposed Trustees:
Aggregate Dollar Range
for all Funds Overseen by
Name Dollar Range by Fund Proposed Trustee
- ----------------------- --------------------------------------------- --------------------------
Corey A. Colehour $10,001-$50,000 -- Electronics Fund $50,001-$100,000
$10,001-$50,000 -- Technology Fund
$10,001-$50,000 -- Energy Services Fund
$10,001-$50,000 -- Financial Services Fund
J. Kenneth Dalton $0 $0
John O. Demaret $50,001-$100,000 -- Energy Fund over $100,000
$50,001-$100,000 -- Basic Materials Fund
Patrick T. McCarville $10,001-50,000 -- Nova Fund $50,001-$100,000
$1-$10,000 -- OTC Fund
$10,001-$50,000 -- Sector Rotation
Fund
Roger Somers $10,001-$50,000 -- Mekros Fund over $100,000
$50,001-$100,000 -- Medius Fund
$1-$10,000 -- Juno Fund
$50,001-$100,000 -- Nova Fund
$50,001-$100,000 -- Velocity Fund
$10,001-$50,000 -- Biotechnology Fund
Interested Proposed Trustees:
Aggregate Dollar Range
for all Funds Overseen by
Name Dollar Range by Fund Proposed Trustee
- --------------------- ------------------------------------- --------------------------
Carl G. Verboncoeur $10,001-$50,000 -- Mekros Fund $50,001-$100,000
$1-$10,000 -- US Gov't Money Market
$1-$10,000 -- Juno Fund
$1-$10,000 -- OTC Fund
$1-$10,000 -- Titan 500 Fund
$1-$10,000 -- Velocity 100 Fund
$1-$10,000 -- Sector Rotation Fund
$10,001-$50,000 -- Core Equity Fund
$1-$10,000 -- Nova Fund
$1-$10,000 -- Health Care Fund
$1-$10,000 -- Biotechnology Fund
11
Board Compensation. The aggregate compensation paid by each Trust to each
of its Trustees serving during the most recently completed Trust fiscal year, is
set forth in the table below. No pension or retirement benefits are accrued as
part of Fund expenses. Interested Trustees receive no compensation from the
Trusts for service as a Trustee.
Independent Proposed Trustees:
Aggregate Aggregate
Compensation from Compensation from Total Compensation
Rydex Series Rydex Dynamic from Fund
Name Funds* Funds** Complex++
- ------------------------------- ------------------- ------------------- -------------------
Corey A. Colehour ............. $31,000 $15,000 $65,500
J. Kenneth Dalton ............. $31,000 $15,000 $65,500
Roger Somers .................. $31,000 $15,000 $65,500
John O. Demaret ............... $31,000 $15,000 $65,500
Patrick T. McCarville ......... $31,000 $15,000 $65,500
- -----------
* Represents compensation for fiscal year ended March 31, 2003.
** Represents compensation for fiscal year ended December 31, 2003.
++ Represents total compensation from the Trusts and, with respect to Mr.
Demaret, compensation for service as Trustee of the Rydex Capital Partners
SPhinX Fund.
Board Standing Committees
Audit Committee. The Board of each Trust has a standing Audit Committee
that is composed of each of the Independent Trustees of the Trust. Mr. Dalton
currently serves as chairman of the Audit Committee and Messrs. Colehour,
Demaret, McCarville, and Somers currently serve as members of the Audit
Committee. The Audit Committee operates under a written charter approved by the
Board. The Audit Committee is responsible for the selection of the Trusts'
independent auditors, including evaluating their independence and meeting with
such auditors to consider and review matters relating to the Trusts' financial
reports and internal accounting. The Audit Committee meets periodically, as
necessary, and met four times during the Trusts' most recently completed fiscal
year.
Nominating Committee. The Board currently does not have a standing
nominating committee. The Board is generally responsible for the nomination of
persons for election to the Board, with the selection and nomination of the
Trustees who are not "interested persons" of the Trusts committed to the
discretion of the Independent Trustees. The Board does not believe that is
necessary to have a separate nominating committee at this time, given the fact
that all of the current members of the Board are Independent Trustees. The Board
will, however, consider establishing
12
a nominating committee in the future. If the Board establishes a nominating
committee, it would determine whether to, among other things, prepare a written
charter for the committee, identify the process to be followed by the committee
in identifying and evaluating nominees (including those recommended by
Shareholders), and specify minimum qualifications for any committee-recommended
nominees.
Communications with the Board
Shareholders wishing to submit written communications to the Board should
send their communications c/o Rydex Investments, 9601 Blackwell Road, Suite 500,
Rockville, MD 20850. Any such communications received will be reviewed by the
Board at its next regularly scheduled meeting.
Board Recommendation on Proposal 1
Each of the Proposed Trustees who currently served on the Board have had
distinguished careers in accounting, finance, marketing and other areas and have
during their current tenure as Trustees brought, and expect to continue to
bring, a wide range of expertise to the Board and the oversight of the Trusts.
In its deliberations regarding the nomination of Mr. Verboncoeur, the Board
considered various matters related to the management and long-term welfare of
the Trusts. The Board considered, among other factors, the benefits that a Board
member who understands the operations of the Trusts and is exposed to the wide
variety of issues that arise from overseeing the Funds on a day-to-day basis
would bring to the Board. The Board gave considerable weight to its expectation
that the Trusts will benefit from Mr. Verboncoeur's experience. At its meeting
on December 16, 2003, based on its deliberations on and evaluation of the
Proposed Trustees, the Board, including all of the independent Trustees,
unanimously agreed to nominate Corey A. Colehour, J. Kenneth Dalton, John O.
Demaret, Patrick T. McCarville, Roger Somers and Carl G. Verboncoeur to serve as
Trustees of each Trust and to recommend the approval of each of the Proposed
Trustees to shareholders.
THE TRUSTEES UNANIMOUSLY RECOMMEND THAT SHAREHOLDERS VOTE "FOR" EACH OF THE
PROPOSED TRUSTEES SET FORTH IN PROPOSAL 1.
13
INTRODUCTION TO PROPOSALS 2 AND 3: APPROVAL OF NEW INVESTMENT AGREEMENTS
Proposals 2 and 3 relate to the approval by Shareholders of new investment
advisory agreements for the Trusts. The 1940 Act, which regulates investment
companies such as the Trusts, 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 an
investment advisory agreement terminates, shareholders are required to approve a
new agreement between an investment adviser and the investment company. For the
reasons discussed below, the Board recommends that Shareholders vote "FOR" the
approval of each of the new agreements.
Information Regarding the Change in Control of the Advisor
The Advisor is owned entirely by the 2003 Dynamic Irrevocable Trust (the
"Viragh Family Trust"). Prior to his death on December 11, 2003, Mr. Viragh
controlled the Viragh Family Trust. Upon Mr. Viragh's death, control of the
Viragh Family Trust transferred to its trustees, Mark S. Viragh, Katherine A.
Viragh and Roger E. Young. This change in control of the Viragh Family Trust
resulted in a change in control of the Advisor, which in turn resulted in the
termination of each of the investment advisory agreements between the Advisor
and the Trusts (each, an "Old Agreement").
The Interim Advisory Agreements
During the period between the termination of the Old Agreements and the
approval of the new agreements by shareholders (the "Interim Period"), the
Advisor has continued to provide investment advisory services to the Funds
pursuant to interim agreements between the Advisor and each Trust that were
approved by the Board at a special meeting it held shortly after Mr. Viragh's
death (each an "Interim Agreement" and collectively, the "Interim Agreements").
Each Interim Agreement is identical in all respects -- including fees to be paid
to the Advisor -- to its corresponding Old Agreement, except for the time
periods covered by the agreements. Each interim agreement provides for a
termination date no greater that 150 days from the date of the termination of
the Old Agreement, or upon approval of a new advisory agreement by shareholders,
whichever is shorter.
The New Advisory Agreements
On February 13, 2004, the Board approved a new advisory agreement for each
Trust (each, a "New Agreement"), under which, subject to its approval by each
Fund's shareholders, the Advisor will continue serve as investment adviser to
each Fund. The Advisor's fee rates for its services to the Funds under each New
Agreement is the same as its fee rates under the corresponding Old Agreement.
More detailed
14
information regarding fee rates under each New Agreement is contained in the
discussion below with respect to each Proposal.
Board Considerations in Approving the Advisory Agreements. The Old
Agreements had been in place between each Trust and the Advisor since the time
of each Trust's original creation and organization. Each Old Agreement had an
initial term of two years, after which the continuance of the Old 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. Since the expiration of the initial term, each year the
Board has called and held a meeting to decide whether to renew each Old
Agreement for an additional year. In preparation for its most recent renewal
meeting on August 25, 2003, 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 (if any); (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.
At the meeting, representatives from the Advisor presented additional oral
and written information to the Board to help the Board evaluate the Advisor's
fee and other aspects of the Old Agreements. In addition, Mr. Viragh discussed
in executive session the plans for the continuation of the Advisors' business
and operations following his death, including (i) the planned transfer of his
interest in the Viragh Family Trust and the impact of the resulting change in
control; (ii) information regarding the individuals who would be named as
trustees of the Viragh Family Trust and who would subsequently control the
Advisor; (iii) his intention to appoint Mr. Verboncoeur to succeed him as Chief
Executive Officer of the Advisor and its affiliates; and (iv) other related
matters of interest to the Board. Other Fund service providers also provided the
Board with additional information at the meeting. The Trustees then discussed
the written materials that the Board received before the meeting and the
Advisor's oral presentation and any other information that the Board received at
the meeting, and deliberated on the renewal of each Old Agreement in light of
this information. In its deliberations, 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 described above, the Board,
including all of the independent Trustees, unanimously: (a) concluded that terms
of the Old Agreements were fair and reasonable; (b) concluded that the Advisor's
fees
15
were reasonable in light of the services that the Advisor provides to the Fund;
and (c) agreed to renew each Old Agreement for an additional one-year term.
At its meeting on February 13, 2004, the Advisor affirmed that there were
no material changes to the information that was provided to the Board at its
last advisory contract renewal meeting, and provided updated additional
information regarding the Advisor's operations and services provided to the
Funds. The Board also requested and received information regarding the terms of
the New Agreements, and were satisfied that the terms of the New Agreements set
forth materially similar rights, duties and obligations on the Advisor with
regard to its services to the Trusts and provided at least the same level of
protection to Trust and shareholders as the Old Agreements. The Board also
considered the fact that the Advisor's fee rates for its services to the Funds
under each New Agreement would be the same as its fee rates under the
corresponding Old Agreement. Based on the Board's deliberations and its
evaluation of the information described above, the Board, including all of the
independent Trustees, unanimously: (a) concluded that terms of the New
Agreements are fair and reasonable; (b) concluded that the Advisor's fees are
reasonable in light of the services that the Advisor provides to the Fund; and
(c) agreed to approve the New Agreements for an initial term of two years,
subject to the approval of the New Agreements by shareholders, and to recommend
the approval of the New Agreements to shareholders.
Description of the Terms of the New Agreements. A form of each New
Agreement is attached to this proxy statement as Exhibits A and B. Each New
Agreement provides that the Advisor's fee rate with respect to each Fund will
remain unchanged from the fee rate contained in its corresponding Old Agreement.
With respect to duration of each New 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.
Each New Agreement provides for automatic termination, without the payment of
any penalty, in the event of its assignment (as defined by the 1940 Act).
The New Agreements are substantially similar to each other, with the
exception of the parties to the agreement. Pursuant to each New Agreement, the
Advisor will act as investment adviser to each Fund. Each of the New Agreements
require the Advisor to:
o provide the Funds with investment research, advice and supervision and
furnish continuously an investment program for the Funds, consistent with
the respective investment objectives and policies of each Fund;
16
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 Trusts'
Agreement and Declaration of Trust, By-Laws and its registration
statement on file with the Commission;
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 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 Trusts' officers and
Board concerning the Advisor's discharge of the foregoing
responsibilities.
Each New Agreement also authorizes the Advisor to select the brokers or
dealers that will execute the purchases and sales of securities of each Fund and
directs the Advisor to use its best efforts to obtain the best available price
and most favorable execution. Subject to policies established by the Board, the
Advisor also may effect individual securities transactions at commission rates
in excess of the minimum commission rates available, if the Advisor determines
in good faith that such amount of commission is reasonable in relation to the
value of the brokerage or research services provided by such broker or dealer,
viewed in terms of either that particular transaction or the Advisor's overall
responsibilities with respect to each Fund.
Under the terms of each New Agreement, the Advisor agrees to render its
services and to provide, at its own expense, the office space, furnishings,
equipment and personnel required by it to perform the services on the terms and
for the compensation provided therein, as discussed in further detail below.
Each New Agreement provides that the Adviser shall indemnify and hold harmless
the Trust against losses by reason of or arising out of the Advisor 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, or 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.
Differences Between the Old Agreements and the New Agreements. The Old
Agreements were created in 1993 at the time of the organization of the Rydex
Series Funds. The Old Agreement for the Rydex Dynamic Trust, created in 2000, is
identical in all material respects to that of the 1993 form of agreement. The
primary rationale for using the 1993 form of agreement was to have a consistent
agreement, with materially equivalent contractual obligations, across all of the
Trusts.
17
Since 1993, industry best practices and regulatory requirements have
evolved, as has the course of dealing between the Board, on behalf of the
Trusts, and the Advisor. The New Agreements are designed to memorialize these
practices and regulatory requirements. The following bullet points summarize the
material differences between the New Agreements and the Old Agreements:
o Incorporation of a single comprehensive schedule that sets forth each
Fund covered by the agreement and the advisory fees payable for each
under the agreement.
o Restatement and expansion of the Advisor's duties as investment adviser
to the Trusts, including specific requirements with respect to
compliance, proxy voting, recordkeeping and Board reporting.
o Restatement and expansion of the Advisor's duties and obligations with
respect to fund portfolio transactions, best execution and affiliated
brokerage transactions.
o Inclusion of specific representations and warranties made by the Advisor
to the Trusts, designed to contractually obligate the Advisor to do the
things it is required to do by law (however, none of these
representations or warranties represent a change in conduct or create
additional duties on the Advisor);
o Inclusion of a license to the Trusts to use the name "Rydex" in any fund
name. The name "Rydex" is a protected mark registered to the PADCO
Advisors, Inc.
o Change in jurisdiction of governing law from Maryland to Delaware.
Because the Trusts are organized as Delaware statutory trusts,
interpreting the agreements under Delaware law ensures that the key
protections of the Delaware statutory trust law (i.e., limitations on
liability for the Board and shareholders, treatment of each Fund as a
separate entity with respect to assets and liabilities) would be enforced
in the event of litigation.
The Board, on behalf of the Trusts, determined after reasonable
consideration that the differences between the New Agreements and the Old
Agreements do not materially change the current arrangements between the Advisor
and the Trusts. Furthermore, the Board believes that the differences,
particularly the change in jurisdiction, may provide the Trusts and their
shareholders with additional protections.
Information About the Advisor. PADCO Advisors, Inc. serves as the
investment adviser to the Rydex Series Funds and Rydex Dynamic Funds. PADCO
Advisors, Inc., together with its affiliate PADCO Advisors II, Inc., operates as
Rydex Investments. PADCO Advisors, Inc. is organized as a Maryland corporation
with its principal place of business at 9601 Blackwell Road, Suite 500,
Rockville, Maryland 20850. The Viragh Family Trust owns a controlling interest
in PADCO Advisors, Inc., as its sole shareholder.
18
The name, address and principal occupation of the principal executive
officers of PADCO Advisors, Inc. are listed below:
Name Title Principal Occupation
- --------------------- ------------------- -----------------------------------------
Carl G. Verboncoeur President, Chief President, Chief Executive Officer and
Executive Officer Treasurer, PADCO Advisors, Inc.; PADCO
and Treasurer Advisors II, Inc.; Rydex Fund Services,
Inc.; and Rydex Distributors, Inc.
Executive Vice President and Treasurer,
Rydex Capital Partners I and Rydex
Capital Partners II.
Michael P. Byrum Executive Vice Executive Vice President and Chief
President, Chief Operating Officer, PADCO Advisors, Inc.;
Operating Officer PADCO Advisors II, Inc.; Rydex Fund
and Secretary Services, Inc.; and Rydex Distributors,
Inc. President and Secretary, Rydex
Capital Partners I and Rydex Capital
Partners II.
Robert M. Steele Executive Vice Executive Vice President, PADCO
President Advisors, Inc.; PADCO Advisors II, Inc.;
Rydex Distributors, Inc.; Rydex Fund
Services; Rydex Capital Partners I and
Rydex Capital Partners II
The address for each of the above individuals is c/o Rydex Investments,
9601 Blackwell Road, Suite 500, Rockville, Maryland 20850.
Proposal 2. THE APPROVAL OF A NEW INVESTMENT ADVISORY AGREEMENT BETWEEN
RYDEX SERIES FUNDS AND PADCO ADVISORS, INC.
Trusts/Funds Voting on Proposal 2: Rydex Series Funds:
All Funds
The Old Agreement between the Advisor and the Trust was dated May 7, 1993
and was approved by the sole shareholder of the Trust in conjunction with the
Trust's original creation and organization. The Old Agreement had been in effect
from that date through its termination upon the change in control of the Advisor
on December 11, 2003, subject to its annual renewal by the Board as discussed
above. The terms of the New Agreement, other than compensation, which is
discussed below, are described in the section above entitled "Description of the
Terms of the New Agreements." A form of the New Agreement is included as Exhibit
A to this Proxy Statement.
The table below provides, with respect to each of the Trust's Funds, (i)
the Advisor's annual rate of compensation under the New Agreement, stated as a
percentage of the Fund's assets; (ii) the amount of advisory fees paid to the
Advisor
19
pursuant to the Old Agreement for the Trust's most recently completed fiscal
year ended March 31, 2003; (iii) amounts paid by the Funds to Rydex Fund
Services, Inc. (the "Servicer"), an affiliate of the Advisor, for administration
services for the Trust's most recently completed fiscal year ended March 31,
2003; (iv) amounts paid by the Funds to the Servicer for accounting services for
the Trust's most recently completed fiscal year ended March 31, 2003; and (v)
amounts paid by the Funds to Rydex Distributors, Inc. (the "Distributor"), an
affiliate of the Advisor, for services provided pursuant to the Funds'
distribution and shareholder services plans for the Trust's most recently
completed fiscal year ended March 31, 2003. There were no brokerage commissions
paid to the Distributor (or any other affiliate of the Advisor) during the
Trust's most recently completed fiscal year ended March 31, 2003.
Fees Paid to Fees Paid to
Advisory Fees Paid to Servicer Servicer Fees Paid to
Fund Fee Rate Adviser (Administration) (Accounting) Distributor
- --------------------------- ------------ -------------- ------------------ -------------- -------------
Nova ...................... 0.75%* $ 0 $ 479,921 $191,427 $272,455
Nova Master ............... 0.75% $1,439,326 $ 0 $ 0 n/a
Ursa ...................... 0.90%* $ 0 $1,110,714 $383,247 $254,494
Ursa Master ............... 0.90% $3,997,936 $ 0 $ 0 n/a
OTC ....................... 0.75% $4,004,889 $1,335,851 $447,781 $157,164
Arktos .................... 0.90%* $1,367,917 $ 379,917 $151,916 $ 27,635
Arktos Master ............. 0.90% $ 349,631 $ 0 $ 0 n/a
Medius .................... 0.90% $ 0 $ 97,202 $ 38,848 $125,660
Mekros .................... 0.90% $ 533,595 $ 148,344 $ 59,288 $222,884
U.S. Government Bond ...... 0.50% $ 259,870 $ 103,996 $ 51,974 $ 14,139
Juno ...................... 0.90%* $ 0 $ 190,896 $ 76,345 $136,625
Juno Master ............... 0.90% $ 686,240 $ 0 $ 0 n/a
Large-Cap Europe .......... 0.90% $ 130,445 $ 36,248 $ 14,494 $ 39,073
Large-Cap Japan ........... 0.90% $ 149,901 $ 41,678 $ 16,656 $ 42,360
Banking ................... 0.85% $ 235,472 $ 69,322 $ 27,703 $ 53,036
Basic Materials ........... 0.85% $ 174,818 $ 51,486 $ 20,567 $ 37,661
Biotechnology ............. 0.85% $1,281,682 $ 377,194 $150,780 $ 93,797
Consumer Products ......... 0.85% $ 264,410 $ 77,847 $ 31,107 $ 99,205
Electronics ............... 0.85% $ 404,121 $ 118,950 $ 47,544 $ 38,570
Energy .................... 0.85% $ 193,050 $ 56,823 $ 22,712 $ 60,475
Energy Services ........... 0.85% $ 284,470 $ 83,751 $ 33,467 $ 69,587
Financial Services ........ 0.85% $ 330,898 $ 97,398 $ 38,929 $115,578
Health Care ............... 0.85% $ 381,970 $ 112,414 $ 44,938 $130,986
Internet .................. 0.85% $ 95,955 $ 28,226 $ 11,289 $ 30,204
Leisure ................... 0.85% $ 92,939 $ 27,374 $ 10,934 $ 18,482
Precious Metals ........... 0.75% $ 592,246 $ 197,508 $ 78,966 $ 20,670
Retailing ................. 0.85% $ 203,991 $ 60,069 $ 23,999 $ 62,937
Technology ................ 0.85% $ 291,573 $ 85,797 $ 34,303 $101,131
Telecommunications ........ 0.85% $ 170,536 $ 50,170 $ 20,063 $ 37,375
Transportation ............ 0.85% $ 88,445 $ 26,066 $ 10,405 $ 14,527
20
Fees Paid to Fees Paid to
Advisory Fees Paid to Servicer Servicer Fees Paid to
Fund Fee Rate Adviser (Administration) (Accounting) Distributor
- ------------------------- ------------- -------------- ------------------ -------------- -------------
Utilities ............... 0.85% $ 145,230 $ 42,752 $ 17,086 $ 26,026
Sector Rotation ......... 0.90% $ 631,572 $ 175,485 $ 70,175 $ 290,026
Core Equity ............. 0.70%** $ 73,449 $ 20,403 $ 8,161 $ 33,587
U.S. Government Money
Market ................ 0.50% $8,267,843 $3,303,268 $830,951 $2,431,533
- -----------
* The Agreement provides that the fee shall be 0.00% for any period during
which the Fund invests through a master-feeder structure.
** The Agreement provides that the Core Equity Fund pays the Advisor a
management fee that is comprised of two components: the first component is an
annual basic fee (the "basic fee") equal to 0.70% of the Core Equity Fund's
average daily net assets, and the second component is a performance fee
adjustment. The Core Equity Fund's basic fee is subject to upward or downward
adjustment depending on whether, and to what extent, the investment
performance of the Fund for the relevant performance period exceeds, or is
exceeded by, the investment record (the "record") of the index determined by
the Fund to be appropriate over the same period. The Trustees have designated
the Russell 3000(RegTM) Index (the "Index") for this purpose. The Index
measures the performance of the 3,000 largest U.S. companies based on total
market capitalization, which represents approximately 98% of the investable
U.S. equity market. The performance period consists of a rolling 12-month
period, and will be calculated and applied at the end of each month. Each
0.0375% of difference will result in a performance rate adjustment of 0.01%.
The maximum annualized performance rate adjustment is +/- 0.20%. A percentage
of this rate (based on the number of days in the current month) is then
multiplied by the average daily net assets of the Core Equity Fund over the
entire performance period, giving the dollar amount that will be added to (or
subtracted from) the basic fee. The monthly performance adjustment will be
further adjusted to the extent necessary to insure that the total of such
adjustments to the basic fee does not exceed +/- 0.20% of average daily net
assets for that year.
Board Recommendation on Proposal 2
At its meeting on February 13, 2004, based on its deliberations on and
evaluation of the information described above, the Board, including all of the
independent Trustees, unanimously: (a) concluded that 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 provides 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.
THE TRUSTEES UNANIMOUSLY RECOMMEND THAT SHAREHOLDERS OF EACH FUND VOTE "FOR"
PROPOSAL 2.
21
Proposal 3. THE APPROVAL OF A NEW INVESTMENT ADVISORY AGREEMENT BETWEEN
RYDEX DYNAMIC FUNDS AND PADCO ADVISORS, INC.
Trusts/Funds Voting on Proposal 3: Rydex Dynamic Funds:
All Funds
The Old Agreement between the Advisor and the Trust was dated May 1, 2000
and was approved by the sole shareholder of the Trust in conjunction with the
Trust's original creation and organization. The Old Agreement had been in effect
from that date through its termination upon the change in control of the Advisor
on December 11, 2003, subject to its annual renewal by the Board as discussed
above. The terms of the New Agreement, other than compensation, which is
discussed below, are described in the section above entitled "Description of the
Terms of the New Agreements." A form of the New Agreement between the Trust and
the Advisor is included as Exhibit B to this Proxy Statement.
The table below provides, with respect to each of the Trust's Funds, (i)
the Advisor's annual rate of compensation under the New Agreement, stated as a
percentage of the Fund's assets; (ii) the amount of advisory fees paid to the
Advisor pursuant to the Old Agreement (and the Interim Agreement) for the
Trust's most recently completed fiscal year ended December 31, 2003; (iii)
amounts paid by the Funds to the Servicer for administration services for the
Trust's most recently completed fiscal year ended December 31, 2003; (iv)
amounts paid by the Funds to the Servicer for accounting services for the
Trust's most recently completed fiscal year ended December 31, 2003; and (v)
amounts paid by the Funds to the Distributor for services provided pursuant to
the Trust's investor services plan for the Trust's most recently completed
fiscal year ended December 31, 2003. There were no brokerage commissions paid to
the Distributor (or any other affiliate of the Advisor) during the Trust's most
recently completed fiscal year ended December 31, 2003.
Fees Paid to Fees Paid to
Advisory Fees Paid to Servicer Servicer Fees Paid to
Fund Fee Rate Adviser (Administration) (Accounting) Distributor
- ---------------------------- ---------- -------------- ------------------ -------------- -------------
Titan 500* ................. 0.90% $ 0 $ 500,481 $268,284 $ 782,218
Titan 500 Master ........... 0.90% $1,802,976 $ 0 $ 0 n/a
Tempest 500* ............... 0.90% $ 0 $1,255,496 $620,017 $1,534,327
Tempest 500 Master ......... 0.90% $4,522,173 $ 0 $ 0 n/a
Velocity 100* .............. 0.90% $ 0 $ 853,679 $463,424 $1,136,688
Velocity 100 Master ........ 0.90% $3,079,740 $ 0 $ 0 n/a
Venture 100* ............... 0.90% $ 0 $3,572,128 $485,036 $1,189,320
Venture 100 Master ......... 0.90% $3,466,909 $ 0 $ 0 n/a
- -----------
* The Agreement provides that the fee shall be 0.00% for any period during
which the Fund invests through a master-feeder structure.
22
Board Recommendation on Proposal 3
At its meeting on February 13, 2004, based on its deliberations on and
evaluation of the information described above, the Board, including all of the
independent Trustees, unanimously: (a) concluded that 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 provides 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.
THE TRUSTEES UNANIMOUSLY RECOMMEND THAT SHAREHOLDERS OF EACH FUND VOTE "FOR"
PROPOSAL 3.
DISCUSSION OF PROPOSAL 4: CHANGE IN FUNDAMENTAL POLICIES
Proposal 4. THE APPROVAL OF THE CHANGE OF INVESTMENT OBJECTIVE FROM A
FUNDAMENTAL TO A NON-FUNDAMENTAL POLICY (THIS PROPOSAL INVOLVES
SEPARATE VOTES ON SUB-PROPOSALS 4(a) -- 4(e)).
The Board is recommending that shareholders approve proposals to change the
investment objective of certain of the Rydex Series Funds from a fundamental
policy to a non-fundamental policy. Under the 1940 Act, "fundamental" investment
restrictions may be changed or eliminated only if shareholders approve such
action. Non-fundamental policies may be changed by a vote of a majority of the
Board, and do not require shareholder approval.
Currently, the investment objective of each of the Rydex Series Funds' Nova
Fund, Nova Master Fund, Ursa Fund, Ursa Master Fund, OTC Fund, U.S. Government
Bond Fund, Juno Fund and Juno Master Fund, including the benchmarks of the Nova
Fund, Nova Master Fund, Ursa Fund and Ursa Master Fund, are fundamental. With
the exception of the aforementioned Funds included in this Proposal, the
remainder of the Funds' investment objectives are non-fundamental policies. The
Board believes that it is in shareholders' best interests to provide the Board
with the flexibility to change these Funds investment objectives (or benchmarks)
in the future, without the costs and delays associated with holding a special
shareholders' meeting to do so. However, there is no current intention by the
Board to change the investment objective or benchmark of any of the Funds
included in this Proposal. Each Fund will continue to be managed in accordance
with the Trust's prospectus as filed with the Commission and as amended from
time to time.
Shareholders are requested to vote separately, as applicable, on each
Sub-Proposal in Proposal 4. Any Sub-Proposal that is approved by shareholders of
the Fund(s) will be effective for that Fund as of the date of the supplement to
the Fund's registration statement reflecting such shareholder approval to change
certain of the
23
Fund's fundamental policy, which is anticipated to be shortly after the date of
shareholder approval. The Board of Directors unanimously recommends a vote "FOR"
each Sub-Proposal.
Sub-Proposal 4(a). The approval of the change of Rydex Series Funds' Nova Fund
and Nova Master Fund investment objective from a
fundamental to a non-fundamental policy.
The current investment objective of each of the Nova Fund and Nova Master
Fund is to seek to provide investment results that match the performance of a
specific benchmark on a daily basis. The Funds' current benchmark is 150% of the
performance of the S&P 500 Index. This investment objective and the benchmark
are fundamental policies of the Funds. The Board and the Advisor believe that
the Advisor's ability to manage Fund assets in a changing investment environment
will be enhanced because the Fund will have greater investment management
flexibility to respond to market, industry, regulatory or technical changes by
seeking Board approval only when necessary to revise its investment objective or
benchmark, without the costs and delays associated with holding a special
shareholders' meeting to do so. If approved by Shareholders, each Fund's
investment objective and benchmark will be non-fundamental policies.
THE TRUSTEES UNANIMOUSLY RECOMMEND THAT FUND SHAREHOLDERS VOTE "FOR"
SUB-PROPOSAL 4(a).
Sub-Proposal 4(b). The approval of the change of Rydex Series Funds' Ursa Fund
and Ursa Master Fund investment objective from a
fundamental to a non-fundamental policy.
The current investment objective of each of the Ursa Fund and Ursa Master
Fund is to seek to provide investment results that will inversely correlate to
the performance of the S&P 500 Index. This investment objective and the
benchmark are fundamental policies of the Funds. The Board and the Advisor
believe that the Advisor's ability to manage Fund assets in a changing
investment environment will be enhanced because the Fund will have greater
investment management flexibility to respond to market, industry, regulatory or
technical changes by seeking Board approval only when necessary to revise its
investment objective or benchmark, without the costs and delays associated with
holding a special shareholders' meeting to do so. If approved by Shareholders,
each Fund's investment objective and benchmark will be non-fundamental policies.
THE TRUSTEES UNANIMOUSLY RECOMMEND THAT FUND SHAREHOLDERS VOTE "FOR"
SUB-PROPOSAL 4(b).
24
Sub-Proposal 4(c). The approval of the change of Rydex Series Funds' OTC Fund
investment objective from a fundamental to a
non-fundamental policy.
The current investment objective of the OTC Fund is to seek to provide
investment results that correspond to a benchmark for over-the-counter
securities. The Fund's current benchmark is the Nasdaq 100 Index. This
investment objective is a fundamental policy of the Fund. The Board and the
Advisor believe that the Advisor's ability to manage Fund assets in a changing
investment environment will be enhanced because the Fund will have greater
investment management flexibility to respond to market, industry, regulatory or
technical changes by seeking Board approval only when necessary to revise its
investment objective or benchmark, without the costs and delays associated with
holding a special shareholders' meeting to do so. If approved by Shareholders,
the Fund's investment objective will be a non-fundamental policy.
THE TRUSTEES UNANIMOUSLY RECOMMEND THAT FUND SHAREHOLDERS VOTE "FOR"
SUB-PROPOSAL 4(c).
Sub-Proposal 4(d). The approval of the change of Rydex Series Funds'
U.S. Government Bond Fund investment objective from a
fundamental to a non-fundamental policy.
The current investment objective of the U.S. Government Bond Fund is to
seek to provide investment results that correspond to a benchmark for U.S.
Government securities. The Fund's current benchmark is 120% of the price
movement of the current U.S. Treasury Bond with the longest maturity (the "Long
Treasury Bond"). This investment objective is a fundamental policy of the Fund.
The Board and the Advisor believe that the Advisor's ability to manage Fund
assets in a changing investment environment will be enhanced because the Fund
will have greater investment management flexibility to respond to market,
industry, regulatory or technical changes by seeking Board approval only when
necessary to revise its investment objective or benchmark, without the costs and
delays associated with holding a special shareholders' meeting to do so. If
approved by Shareholders, the Fund's investment objective will be a
non-fundamental policy.
THE TRUSTEES UNANIMOUSLY RECOMMEND THAT FUND SHAREHOLDERS VOTE "FOR"
SUB-PROPOSAL 4(d).
Sub-Proposal 4(e). The approval of the change of Rydex Series Funds'
Juno Fund and Juno Master Fund investment objective from a
fundamental to a non-fundamental policy.
The current investment objective of each of the Juno Fund and Juno Master
Fund is to seek to provide total returns that will inversely correlate to the
price movements
25
of a benchmark for U.S. Treasury debt instruments or futures contract on a debt
instrument. The Funds' current benchmark is the inverse of the daily price
movement of the Long Treasury Bond. This investment objective is a fundamental
policy of the Funds. The Board and the Advisor believe that the Advisor's
ability to manage Fund assets in a changing investment environment will be
enhanced because the Fund will have greater investment management flexibility to
respond to market, industry, regulatory or technical changes by seeking Board
approval only when necessary to revise its investment objective or benchmark,
without the costs and delays associated with holding a special shareholders'
meeting to do so. If approved by Shareholders, each Fund's investment objective
and benchmark will be non-fundamental policies.
THE TRUSTEES UNANIMOUSLY RECOMMEND THAT FUND SHAREHOLDERS VOTE "FOR"
SUB-PROPOSAL 4(e).
GENERAL INFORMATION ABOUT THE TRUSTS
AND OTHER MATTERS
Information about Trust Officers and Service Providers
Principal Underwriter. Rydex Distributors, Inc., 9601 Blackwell Road,
Suite 500, Rockville, MD 20850, serves as distributor and principal underwriter
to the Trusts.
Administrator. Rydex Fund Services, Inc., 9601 Blackwell Road, Suite 500,
Rockville, MD 20850, serves as administrator to the Trusts.
Trust Officers. Set forth below are the names, ages, position with the
Trusts, 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
Trusts. The business address of each officer is 9601 Blackwell Road, Suite 500,
Rockville, Maryland 20850. None of the officers receive compensation from the
Trusts for their services.
Principal Occupation(s)
Name and Age Position Length of Time Served During Past 5 Years
- --------------------- ----------- ----------------------- ------------------------------
Carl G. Verboncoeur President Rydex Series Funds Chief Executive Officer of
(51) (2003 to present); Rydex Fund Services, Inc.,
Rydex Dynamic PADCO Advisors, Inc.,
Funds, (2003 to PADCO Advisors II, Inc.
present); and Rydex Distributors, Inc.
(2003 to present); Executive
Vice President of Rydex
Fund Services, Inc. (2000 to
2003); Vice President of
Rydex Fund Services, Inc.
and Rydex Distributors, Inc.,
(1997 to 2003).
26
Principal Occupation(s)
Name and Age Position Length of Time Served During Past 5 Years
- ----------------------- ----------- ----------------------- -----------------------------
Nick Bonos (40) Vice Rydex Series Funds Senior Vice President of
President (2003 to present); Rydex Fund Services, Inc.
and Rydex Dynamic (2003 to present); Vice
Treasurer Funds, (2003 to President of Accounting of
present) Rydex Fund Services,
Inc. (2000 to 2002);
Vice President--Mutual
Fund Services, State
Street Corp. (1997
to 1999).
Robert M. Steele (45) Vice Rydex Series Funds Executive Vice President of
President (1994 to present); PADCO Advisors, Inc.,
and Rydex Dynamic PADCO Advisors II, Inc.,
Secretary Funds, (1999 to and Rydex Fund Services
present) (2000 to present); Executive
(2000 to present); Vice
President of Rydex
Distributors, Inc. (1996 to
present); Vice President of
The Boston Company, Inc.,
an institutional money
management firm (1987
to 1994).
Michael P. Byrum Vice Rydex Series Funds Chief Operating Officer and
(33) President (1997 to present) Executive Vice President of
Rydex Dynamic PADCO Advisors, Inc.,
Funds, (1999 to PADCO Advisors II, Inc.,
present) Rydex Fund Services and
Rydex Distributors, Inc.
(2003 to present); Executive
Vice President and Senior
Portfolio Manager of
PADCO Advisors, Inc. and
PADCO Advisors II, Inc.
(1993 to 2003); Secretary of
Rydex Distributors, Inc.
(1996 to present).
Joanna M. Haigney Assistant Rydex Series Funds Vice President of
(37) Secretary (2000 to present); Compliance of Rydex Fund
Rydex Dynamic Services, Inc. (2000 to
Funds, (2000 to present); Vice President
present) Fund Administration, Chase
Global Funds Services Co., a
division of Chase Manhattan
Bank N.A. (1994 to 1999).
27
Information about the Audit Committee
Audit Committee Responsibilities. The principal responsibilities of the
Audit Committee include: recommending which firm to engage as the Trusts'
independent auditor and whether to terminate this relationship; reviewing the
independent auditors' compensation, the proposed scope and terms of its
engagement, and the firm's independence; serving as a channel of communication
between the independent auditor and the Trustees; reviewing the results of each
external audit, including any qualifications in the independent auditors'
opinion, any related management letter, management's responses to
recommendations made by the independent auditors in connection with the audit,
reports submitted to the Audit Committee by the internal auditing department of
the Trusts' service providers that are material to the Trusts as a whole, if
any, and management's responses to any such reports; reviewing the Trusts'
audited financial statements and considering any significant disputes between
the Trusts' management and the independent auditor that arose in connection with
the preparation of those financial statements; considering, in consultation with
the independent auditors and the Trusts' senior internal accounting executive,
if any, the independent auditors' report on the adequacy of the Trusts' internal
financial controls; reviewing, in consultation with the Trusts' independent
auditors, major changes regarding auditing and accounting principles and
practices to be followed when preparing the Trusts' financial statements; and
other audit related matters.
Selection of Independent Auditors. The Audit Committee and the Board
selected the firm of PricewaterhouseCoopers LLP ("PwC") as independent auditors
of each Trust for the current fiscal year. Representatives of PwC are not
expected to be present at the Meeting, but will have the opportunity to make a
statement if they wish, and will be available should any matter arise requiring
their presence. The firm of Deloitte & Touche LLP ("Deloitte") previously served
as independent auditors of Rydex Series Funds for its most recently completed
fiscal year ended March 31, 2003. The decision to engage PwC to replace Deloitte
as independent auditors of Rydex Series Funds was made by the Audit Committee,
based on its belief that consolidating the Trusts' audit services with one audit
firm may result in the achievement of certain efficiencies and cost savings to
the Trusts over time. Deloitte's report on the Rydex Series Funds financial
statements for each of the past two fiscal years did not contain any adverse
opinion or disclaimer of opinion, nor was it qualified or modified as to
uncertainty, audit scope or accounting principles. In addition, during the Rydex
Series Funds two most recent fiscal years, there were no disagreements with
Deloitte on any matter of accounting principles or practices, financial
statement disclosure or auditing scope of procedure.
Audit Fees. The aggregate fees paid to PwC for professional services
rendered by PwC for the audit of the Rydex Dynamic Funds' annual financial
statements or for services that are normally provided by PwC in connection with
statutory and regulatory filings or engagements were $72,000 and $89,000 for
Rydex Dynamic Funds' fiscal years ended December 31, 2003 and 2002,
respectively. The aggregate
28
fees paid to Deloitte for professional services rendered by Deloitte for the
audit of the Rydex Series Funds' annual financial statements or for services
that are normally provided by Deloitte in connection with statutory and
regulatory filings or engagements were $510,000 and $452,200 for Rydex Series
Funds' fiscal years ended March 31, 2003 and 2002, respectively.
Audit-Related Fees. PwC did not render any assurance or related services to
Rydex Dynamic Funds for the two most recently completed fiscal years. Deloitte
did not render any assurance or related services to Rydex Series Funds for the
two most recently completed fiscal years.
Tax Fees. PwC did not render any tax compliance, tax advice or tax planning
services to the Trusts for the two most recently completed fiscal years. PwC did
not render any such tax services to the Advisor and certain entities controlled
by, or under common control with the Advisor that provide ongoing services to
the Trusts, which engagements relate directly to the operations and financial
reporting of the Funds for the two most recently completed fiscal years.
All Other Fees. PwC did not bill for other products and services, other
than the services reported above, for the two most recently completed fiscal
years. PwC did not render other services to the Advisor and certain entities
controlled by, or under common control with the Advisor that provide ongoing
services to the Trusts, which engagements relate directly to the operations and
financial reporting of the Funds for the two most recently completed fiscal
years.
Audit Committee Pre-Approval Policies and Procedures. As of the date of
this proxy statement, the Audit Committee has not adopted pre-approval policies
and procedures. As a result, all services provided by PwC must be directly
pre-approved by the Audit Committee.
Aggregate Non-Audit Fees. The aggregate non-audit fees paid to PwC for
professional services rendered by PwC were $52,000 and $59,400 for the fiscal
years ended December 31, 2003 and 2002, respectively for Rydex Dynamic Funds.
The aggregate non-audit fees paid to PwC for professional services rendered by
PwC to the Advisor and certain entities controlled by, or under common control
with the Advisor that provide ongoing services to the Trusts, which engagements
relate directly to the operations and financial reporting of the Funds, were
$16,000 and $63,220 for the two most recently completed fiscal years.
29
Shareholders Sharing the Same Address
If two or more Shareholders share the same address, only one copy of this
proxy statement is being delivered to that address, unless the Trusts have
received contrary instructions from one or more of the Shareholders at that
shared address. Upon written or oral request, the Trusts will deliver promptly a
separate copy of this proxy statement to a shareholder at a shared address.
Please call 1-800-820-0888 or forward a written request to the Trust at 9601
Blackwell Road, Suite 500, Rockville, MD 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.
Beneficial Ownership Information
As of March 2, 2004, the following persons were the only persons who were
record owners or, to the knowledge of the Trusts, were beneficial owners of 5%
or more of the shares of a Fund.
30
Percentage
Number of of Fund Name and Address of
Class Fund Shares Shares Beneficial Owner
- --------- ------------------------------ ---------------- ----------- ---------------------------------------
Advisor U.S. Government Money Market 20755685.50 11.54 THE APPALACHIAN TRAILS LP
30 TOWER LANE
AVON, CT 06001
U.S. Government Money Market 57478651.81 31.97 NATIONAL FINANCIAL SERVICES, LLC.
FOR THE EXCLUSIVE BENEFIT OF:
OUR CUSTOMERS
ATTN.: MUTUAL FUND DEPT. (5TH FLR)
200 LIBERTY STREET
1 WORLD FINANCIAL CENTER
NEW YORK, NY 10281
U.S. Government Bond 1650617.87 91.05 TRUST COMPANY OF AMERICA
FBO: 75P O BOX 6503
ENGLEWOOD, CO 80112
Juno 92645.10 6.26 PIPER JAFFRAY & CO.A/C 5419-5510
800 NICOLLET MALL
Nova 240487.32 7.83 NATIONAL INVESTOR SERVICES FBO
097-50000-1955 WATER STREET,32ND FLOOR
NEW YORK NY 10041
31
Percentage
Number of of Fund Name and Address of
Class Fund Shares Shares Beneficial Owner
- ------- ----------------- -------------- ----------- ----------------------------------
Nova 401121.76 13.06 NATIONAL FINANCIAL SVCS CORP
FOR EXCLUSIVE BENEFIT OF OUR
CUSTOMERS
RUSS LENNON
200 LIBERTY STREET
NEW YORK, NY 10281
Precious Metals 5289.98 8.11 CHRISTENSEN TRUST
SCOTT & DIANE L CHRISTENSEN TTEES
DTD 04/05/1988
15019 SE 138TH PL
RENTON, WA 98059
Precious Metals 4006.38 6.14 DANIEL A ZAK
HOMESTREET BANK PLEDGE ACCOUNT
16425 104TH AVE NE
BOTHELL, WA 98011
Precious Metals 4642.37 7.12 RICHARD E RUSSELL (IRA)
26037 MARINE VIEW DR
DES MOINES, WA 98198
Precious Metals 21243.64 32.56 TRUST COMPANY OF AMERICA
FBO: 75
P O BOX 6503
ENGLEWOOD, CO 80112
32
Percentage
Number of of Fund Name and Address of
Class Fund Shares Shares Beneficial Owner
- ------- ------ -------------- ----------- -----------------------------------
Ursa 192725.28 5.68 UBS FINANCIAL SERVICES INC. FBO
SOUTHERN FAMILY INSURANCE CO.
INSIGHTONE ACCOUNT
TWO HARBOUR PLACE STE 700302
KNIGHTS RUN AVENUE TAMPA, FL 33602
Ursa 550659.44 16.22 CITIGROUP GLOBAL MARKETS INC.
333 WEST 34TH STREET--3RD FLOOR
NEW YORK, NEW YORK 10001
Ursa 355347.80 10.47 NATIONAL INVESTOR SERVICES
FBO 097-50000-19
55 WATER STREET,32ND FLOOR
NEW YORK NY 10041
OTC 1240678.94 31.32 NATIONWIDE TRUST COMPANY, FSB
C/O: IPO PORTFOLIO ACCOUNTING
P.O. BOX 182029
COLUMBUS, OH 43218-2029
OTC 469556.74 11.85 NATIONAL INVESTOR SERVICES
FBO 097-50000-19
55 WATER STREET,32ND FLOOR
NEW YORK NY 10041
33
Percentage
Number of of Fund Name and Address of
Class Fund Shares Shares Beneficial Owner
- ------- -------- ------------- ----------- --------------------------------
Arktos 75500.19 17.94 SOUTHERN FAMILY INSURANCE CO
ATTN CHARLES POE
302 KNIGHTS RUN AVENUE
TAMPA, FL 33602
Arktos 37750.09 8.97 ATLANTIC PREFERRED INSURANCE CO
ATTN CHARLES POE
302 KNIGHTS RUN AVENUE
TAMPA, FL 33607
Arktos 97147.60 23.08 FTC & CO
Account # 00266
DATALYNX
PO BOX 173736
DENVER, CO 80217-3736
Energy 70779.99 12.75 NATIONWIDE TRUST COMPANY, FSB
C/O: IPO PORTFOLIO ACCOUNTING
P.O. BOX 182029
COLUMBUS, OH 43218-2029
Energy 90742.58 16.34 NATIONAL FINANCIAL SVCS CORP
FOR EXCLUSIVE BENEFIT OF OUR
CUSTOMERS
RUSS LENNON
200 LIBERTY STREET
NEW YORK, NY 10281
34
Percentage
Number of of Fund Name and Address of
Class Fund Shares Shares Beneficial Owner
- ------- -------------------- ------------- ----------- ------------------------------
Energy 75748.05 13.64 TRUST COMPANY OF AMERICA
FBO: 75
P O BOX 6503
ENGLEWOOD, CO 80112
Financial Services 858278.73 23.52 NATIONWIDE TRUST COMPANY, FSB
C/O: IPO PORTFOLIO ACCOUNTING
P.O. BOX 182029
COLUMBUS, OH 43218-2029
Financial Services 1928179.45 52.84 GE Financial Trust /B/O
OMNIBUS/CENTURION CAPITAL
MANAGMENT
3200 N CENTRAL AVENUE
6TH FLOOR
PHOENIX, AZ 85012
Financial Services 228584.81 6.26 TRUST COMPANY OF AMERICA
FBO: 75
P O BOX 6503
ENGLEWOOD, CO 80112
Health Care 780265.15 33.28 NATIONWIDE TRUST COMPANY, FSB
C/O: IPO PORTFOLIO ACCOUNTING
P.O. BOX 182029
COLUMBUS, OH 43218-2029
35
Percentage
Number of of Fund Name and Address of
Class Fund Shares Shares Beneficial Owner
- ------- ------------------- --------------- ----------- ------------------------------
Health Care 1032880.76 44.05 GE Financial Trust /B/O
OMNIBUS/CENTURION CAPITAL
MANAGMENT
3200 N CENTRAL AVENUE
6TH FLOOR
PHOENIX, AZ 85012
Health Care 139483.50 5.95 NATIONAL FINANCIAL SVCS CORP
FOR EXCLUSIVE BENEFIT OF OUR
CUSTOMERS
RUSS LENNON
Technology 1442921.66 85.30 GE Financial Trust /B/O
OMNIBUS/CENTURION CAPITAL
MANAGMENT
3200 N CENTRAL AVENUE
6TH FLOOR
PHOENIX, AZ 85012
Basic Materials 112585.73 55.78 NATIONWIDE TRUST COMPANY, FSB
C/O: IPO PORTFOLIO ACCOUNTING
Consumer Products 565036.85 91.64 GE Financial Trust /B/O
OMNIBUS/CENTURION CAPITAL
MANAGMENT
3200 N CENTRAL AVENUE
6TH FLOOR
PHOENIX, AZ 85012
36
Percentage
Number of of Fund Name and Address of
Class Fund Shares Shares Beneficial Owner
- ------- ----------- -------------- ----------- ------------------------------
Leisure 540289.85 50.76 NATIONWIDE TRUST COMPANY, FSB
C/O: IPO PORTFOLIO ACCOUNTING
P.O. BOX 182029
COLUMBUS, OH 43218-2029
Leisure 163660.98 15.38 GE Financial Trust /B/O
OMNIBUS/CENTURION CAPITAL
MANAGMENT
3200 N CENTRAL AVENUE
6TH FLOOR
PHOENIX, AZ 85012
Leisure 157695.97 14.81 NATIONAL FINANCIAL SVCS CORP
FOR EXCLUSIVE BENEFIT OF OUR
CUSTOMERS
RUSS LENNON
200 LIBERTY STREET
NEW YORK, NY 10281
Retailing 1712165.63 59.44 NATIONWIDE TRUST COMPANY, FSB
C/O: IPO PORTFOLIO ACCOUNTING
P.O. BOX 182029
COLUMBUS, OH 43218-2029
37
Percentage
Number of of Fund Name and Address of
Class Fund Shares Shares Beneficial Owner
- ------- -------------------- --------------- ----------- -----------------------------
Retailing 1040623.59 36.13 GE Financial Trust /B/O
OMNIBUS/CENTURION CAPITAL
MANAGMENT
3200 N CENTRAL AVENUE
6TH FLOOR
PHOENIX, AZ 85012
Telecommunications 129370.77 19.12 FTC & CO
Account # 00216
DATALYNX
PO BOX 173736
DENVER, CO 80217-3736-3736
Telecommunications 313597.46 46.36 NATIONAL FINANCIAL SVCS CORP
FOR EXCLUSIVE BENEFIT OF OUR
CUSTOMERS
RUSS LENNON
200 LIBERTY STREET
NEW YORK, NY 10281
Telecommunications 53491.22 7.91 TRUST COMPANY OF AMERICA
FBO: 75
P O BOX 6503
ENGLEWOOD, CO 80112
38
Percentage
Number of of Fund Name and Address of
Class Fund Shares Shares Beneficial Owner
- ------- ---------------- ----------- ----------- ----------------------------------
Transportation 1054.23 7.34 A G EDWARDS & SONS INC C/F
JOHN G BENT
ROLLOVER IRA ACCOUNT
A/C 0370-224897
ONE NORTH JEFFERSON-2287
Transportation 2138.48 14.88 NATIONWIDE TRUST COMPANY, FSB
C/O: IPO PORTFOLIO ACCOUNTING
P.O. BOX 182029
COLUMBUS, OH 43218-2029
Transportation 755.25 5.26 SKRAP INVESTMENTS LTD PARTNERSHIP
ATTN DON & PAT PARKS
7310 N OLD CORNFIELD LANE
PRESCOTT, AZ 86305
Transportation 1375.14 9.57 BEAR STEARNS SECURITIES CORP.
FBO 493-91618-18
1 METROTECH CENTER NORTH
BROOKLYN NY 11201-3859-3859
Transportation 932.38 6.49 CIRCLE TRUST COMPANY
CUSTODIAN FBO
FTJFC QUALIFIED OMNIBUS ACCOUNT
METRO CENTER, ONE STATION PLACE
STAMFORD, CT 06902
39
Percentage
Number of of Fund Name and Address of
Class Fund Shares Shares Beneficial Owner
- ------- ----------------- -------------- ----------- -------------------------------
Energy Services 426535.66 27.17 NATIONWIDE TRUST COMPANY, FSB
C/O: IPO PORTFOLIO ACCOUNTING
P.O. BOX 182029
COLUMBUS, OH 43218-2029
Energy Services 198951.89 12.67 GE Financial Trust /B/O
OMNIBUS/CENTURION CAPITAL
MANAGEMENT
Energy Services 156152.04 9.95 NATIONAL INVESTOR SERVICES FBO
097-50000-19
55 WATER STREET,32ND FLOOR
NEW YORK, NY 10041
Energy Services 465846.73 29.67 NATIONAL FINANCIAL SVCS CORP
FOR EXCLUSIVE BENEFIT OF OUR
CUSTOMERS
RUSS LENNON
Banking 100876.06 26.46 NATIONAL FINANCIAL SVCS CORP
FOR EXCLUSIVE BENEFIT OF OUR
CUSTOMERS
RUSS LENNON
200 LIBERTY STREET
NEW YORK, NY 10281
40
Percentage
Number of of Fund Name and Address of
Class Fund Shares Shares Beneficial Owner
- ------- --------------- ------------- ----------- --------------------------------
Banking 30116.65 7.90 TRUSTLYNX & CO
Account # 00M20
TRUSTLYNX
PO BOX 173736
DENVER,CO 80217-3736
Biotechnology 35230.00 5.18 UBS FINANCIAL SERVICES INC. FBO
TSAI FOO CHONG
84 HUNG TO ROAD 4/FL
KWUN TONG
Biotechnology 45106.73 6.63 NATIONWIDE TRUST COMPANY, FSB
C/O: IPO PORTFOLIO ACCOUNTING
P.O. BOX 182029
COLUMBUS, OH 43218-2029
Biotechnology 120539.08 17.71 NATIONAL INVESTOR SERVICES FBO
097-50000-19
55 WATER STREET,32ND FLOOR
NEW YORK NY 10041
Biotechnology 147145.65 21.62 NATIONAL FINANCIAL SVCS CORP
FOR EXCLUSIVE BENEFIT OF OUR
CUSTOMERS
RUSS LENNON
200 LIBERTY STREET
NEW YORK, NY 10281
41
Percentage
Number of of Fund Name and Address of
Class Fund Shares Shares Beneficial Owner
- ------- ------------- ------------- ------------ -------------------------------
Electronics 19290.12 7.40 AMERITRADE INC FBO 1605023241
PO BOX 2226
OMAHA, NE 68103-2226
Electronics 48691.84 18.68 NATIONWIDE TRUST COMPANY, FSB
C/O: IPO PORTFOLIO ACCOUNTING
P.O. BOX 182029
COLUMBUS, OH 43218-2029
Electronics 22108.34 8.48 NATIONAL INVESTOR SERVICES FBO
097-50000-19
55 WATER STREET,32ND FLOOR
NEW YORK, NY 10041
Electronics 16168.21 6.20 NATIONAL FINANCIAL SVCS CORP
FOR EXCLUSIVE BENEFIT OF OUR
CUSTOMERS
RUSS LENNON
200 LIBERTY STREET
NEW YORK, NY 10281
Internet 105628.46 44.63 NATIONAL FINANCIAL SVCS CORP
FOR EXCLUSIVE BENEFIT OF OUR
CUSTOMERS
RUSS LENNON
200 LIBERTY STREET
NEW YORK, NY 10281
42
Percentage
Number of of Fund Name and Address of
Class Fund Shares Shares Beneficial Owner
- --------- ------------------ ------------- ----------- ----------------------------------
Utilities 45533.93 53.62 NATIONAL INVESTOR SERVICES FBO
097-50000-19
55 WATER STREET,32ND FLOOR
NEW YORK, NY 10041
C-Class Large-Cap Europe 9572.57 5.05 MCNAUGHTON DEVELOPMENT
11900 SOUTHWEST HWY
PALOS PARK, IL 60464
Large-Cap Japan 4528.41 5.55 DEAN WITTER FOR THE BENEFIT OF
AJINOMOTO U.S.A INC PENSION PLAN
PO BOX 250 CHURCH STREET STATION
NEW YORK, NY 10008-0250
Large-Cap Japan 9654.56 11.83 RBC DAIN RAUSCHER CUSTODIAN
SUE B REAMER
A/C #6713-6336
INDIVIDUAL RETIREMENT ACCOUNT
70 CIRCUIT ROAD-1828
Mekros 105473.15 5.71 CUSTODIAL TRUST COMPANY
C/F API MULTIPLE INDEX TRUST FUND
101 CARNEGIE CENTER, 3RD FLR
ATTN: CAROLINE SAMUEL ACCT/CTRL
PRINCETON, NJ 08540
43
Percentage
Number of of Fund Name and Address of
Class Fund Shares Shares Beneficial Owner
- ------- ---------------------- -------------- ----------- ----------------------------------
Mekros 113958.97 6.17 SUMMIT EQUITIES INC, TRUSTEE OF
COLLATERAL ACCT FBO KENNETH SEGAL
4 CAMPUS DRIVE
PARSIPPANY, NJ 07054
Medius 32035.04 5.62 TRUST COMPANY OF AMERICA
FBO 98
PO BOX 6503
ENGLEWOOD, CO 80155
U.S. Government Bond 26174.13 6.43 RBC DAIN RAUSCHER CUSTODIAN
EDWARD A FAUSTI IRA
INDIVIDUAL RETIREMENT ACCOUNT
DTD 8/4/99
MARIETTA,GA 30067-4749
U.S. Government Bond 22261.52 5.47 NFSC FEBO # R9H-000736
NFS/FMTC ROLLOVER IRA
FBO BURTON D RIGDON
644 MARK TRAIL
WOODSTOCK, GA 30188
Precious Metals 41793.21 11.58 FAHNESTOCK & CO. INC. FBO
A054437387
ALAN LEE MITTELSDORF REV TRUST
125 BROAD STREET
NEW YORK, NY 10004
44
Percentage
Number of of Fund Name and Address of
Class Fund Shares Shares Beneficial Owner
- ------- -------- -------------- ----------- ------------------------------
Ursa 186693.44 5.35 FISERV SECURITIES, INC.
FAO 58900014
ATTN: MUTUAL FUNDS
ONE COMMERCE SQUARE
2005 MARKET STREET SUITE 1200
PHILADELPHIA, PA 19103
OTC 247928.29 10.66 THE JOHN S DELEEUW REV TRUST
JOHN S DELEEUW TTEE
DTD 04/26/02
C/O TIDEWATER TRADING POST
PO BOX 1383
CHESAPEAKE, VA 23327-1383
OTC 134188.97 5.77 MILLENNIUM TRUST COMPANY LLC
FBO WALLCO WGOII-PS
820 JORIE BLVD
SUITE 420
OAKBROOK, IL 60523
Arktos 127418.99 16.87 N MATTH INC.
YITZCHOK KAHAN
452 FIFTH AVENUE
NEW YORK, NY 10018
45
Percentage
Number of of Fund Name and Address of
Class Fund Shares Shares Beneficial Owner
- ------- -------------------- ------------- ----------- ---------------------------------
Energy 33931.41 6.99 NFSC FEBO # AK3-292001
STEVEN PAUL SMITH IRREVOCABLE TR
CHRISTOPHER G SMITH
U/A 12/17/93
PO BOX 291
Basic Materials 9047.37 5.87 GARY M DENISON (RIRA)
8796 MULVANEY DR
SAN DIEGO, CA 92119
Leisure 2570.60 8.98 ROBERT E BEHNKEN (IRA)
475 ARLINGTON RD
BROOKVILLE, OH 45309
Telecommunications 20627.06 9.87 NFSC FEBO # AK3-292001
STEVEN PAUL SMITH IRREVOCABLE TR
CHRISTOPHER G SMITH
U/A 12/17/93
PO BOX 291
Transportation 1365.71 6.96 A G EDWARDS & SONS INC FBO
ALICE B PAULS TTEE
ALICE B PAULS TRUST
A/C 0087-371301
ONE NORTH JEFFERSON
ST LOUIS MO 63103-2287-2287
46
Percentage
Number of of Fund Name and Address of
Class Fund Shares Shares Beneficial Owner
- ------- ----------------- ----------- ----------- ------------------------------
Transportation 7684.10 39.18 SHIRLEY J KIRSHNER
6800 W. CENTRAL AVE G-2
TOLEDO, OH 43617-1164
Energy Services 36788.00 10.77 TRUST COMPANY OF AMERICA
FBO 98
PO BOX 6503
ENGLEWOOD, CO 80112
Energy Services 22830.61 6.68 TRUST COMPANY OF AMERICA CUST
FBO 98
PO BOX 6503
ENGLEWOOD, CO 80155
Biotechnology 21673.43 11.20 TRUST COMPANY OF AMERICA CUST
FBO 98
PO BOX 6503
ENGLEWOOD, CO 80155
Internet 4380.14 10.44 WEDBUSH MORGAN SECURITIES
A/C 1463-9222
1000 WILSHIRE BLVD.
LOS ANGELES, CA 90017
47
Percentage
Number of of Fund Name and Address of
Class Fund Shares Shares Beneficial Owner
- --------- ------------------ -------------- ----------- ----------------------------------
Core Equity 87915.68 5.15 RBC DAIN RAUSCHER CUSTODIAN
WILLIAM R GREENE A/C #3556-4083
SEGREGATED ROLLOVER/IRA
2227 EDGEWOOD DRIVE-9502
H-Class Large-Cap Europe 1477400.29 37.63 NATIONAL FINANCIAL SVCS CORP
FOR EXCLUSIVE BENEFIT OF OUR
CUSTOMERS
RUSS LENNON
200 LIBERTY STREET
NEW YORK, NY 10281-9999
Large-Cap Europe 419449.65 10.68 FTC & CO
Account # 00040
DATALYNX
PO BOX 173736
DENVER, CO 80217-3736
Large-Cap Japan 97369.95 7.17 MERRILL LYNCH FENNER & SMITH
FINANCIAL DATA SERVICES
4800 DEER LAKE DRIVE E, 3RD FLOOR
JACKSONVILLE, FL 32246
48
Percentage
Number of of Fund Name and Address of
Class Fund Shares Shares Beneficial Owner
- ------- ----------------- ------------- ----------- -------------------------------
Large-Cap Japan 88786.42 6.54 SCHWAB
SPECIAL CUSTODY ACCOUNT--REINV
FOR BENEFIT OF CUSTOMERS
ATTN: MUTUAL FUNDS TEAM E
101 MONTGOMERY STREET
SAN FRANCISCO, CA 94104-4122
Large-Cap Japan 256042.76 18.86 NATIONAL FINANCIAL SVCS CORP
FOR EXCLUSIVE BENEFIT OF OUR
CUSTOMERS
RUSS LENNON
200 LIBERTY STREET
NEW YORK, NY 10281-9999
Mekros 550424.71 7.12 NATIONWIDE TRUST COMPANY, FSB
C/O: IPO PORTFOLIO ACCOUNTING
P.O. BOX 182029
COLUMBUS, OH 43218-2029
Mekros 551231.10 7.13 SCHWAB
SPECIAL CUSTODY ACCOUNT--REINV
FOR BENEFIT OF CUSTOMERS
ATTN: MUTUAL FUNDS TEAM E
101 MONTGOMERY STREET
SAN FRANCISCO, CA 94104-4122
49
Percentage
Number of of Fund Name and Address of
Class Fund Shares Shares Beneficial Owner
- ------- -------- --------------- ----------- -------------------------------
Mekros 1353630.04 17.50 NATIONAL FINANCIAL SVCS CORP
FOR EXCLUSIVE BENEFIT OF OUR
CUSTOMERS
RUSS LENNON
200 LIBERTY STREET
NEW YORK, NY 10281-9999
Medius 550647.74 14.67 NATIONWIDE TRUST COMPANY, FSB
C/O: IPO PORTFOLIO ACCOUNTING
P.O. BOX 182029
COLUMBUS, OH 43218-2029
Medius 287638.81 7.66 SCHWAB
SPECIAL CUSTODY ACCOUNT--REINV
FOR BENEFIT OF CUSTOMERS
ATTN: MUTUAL FUNDS TEAM E
101 MONTGOMERY STREET
SAN FRANCISCO, CA 94104-4122
Medius 766177.68 20.42 NATIONAL FINANCIAL SVCS CORP
FOR EXCLUSIVE BENEFIT OF OUR
CUSTOMERS
RUSS LENNON
200 LIBERTY STREET
NEW YORK, NY 10281-9999
50
Percentage
Number of of Fund Name and Address of
Class Fund Shares Shares Beneficial Owner
- ------- ------------- -------------- ----------- ----------------------------------
Medius 212692.59 5.67 FTC & CO
Account # 00040
DATALYNX
PO BOX 173736
DENVER, CO 80217-3736
Titan 500 1384813.70 14.73 SCHWAB
SPECIAL CUSTODY ACCOUNT--REINV
FOR BENEFIT OF CUSTOMERS
ATTN: MUTUAL FUNDS TEAM E
101 MONTGOMERY STREET
SAN FRANCISCO, CA 94104-4122
Titan 500 1568024.53 16.67 NATIONAL FINANCIAL SVCS CORP
FOR EXCLUSIVE BENEFIT OF OUR
CUSTOMERS
RUSS LENNON
200 LIBERTY STREET
NEW YORK, NY 10281-9999
Tempest 500 447576.47 7.68 MERRILL LYNCH FENNER & SMITH
FINANCIAL DATA SERVICES
4800 DEER LAKE DRIVE E, 3RD FLOOR
JACKSONVILLE, FL 32246
51
Percentage
Number of of Fund Name and Address of
Class Fund Shares Shares Beneficial Owner
- ------- -------------- --------------- ----------- -------------------------------
Tempest 500 1042670.03 17.89 SCHWAB
SPECIAL CUSTODY ACCOUNT--REINV
FOR BENEFIT OF CUSTOMERS
ATTN: MUTUAL FUNDS TEAM E
101 MONTGOMERY STREET
SAN FRANCISCO, CA 94104-4122
Tempest 500 851302.04 14.61 NATIONAL FINANCIAL SVCS CORP
FOR EXCLUSIVE BENEFIT OF OUR
CUSTOMERS
RUSS LENNON
200 LIBERTY STREET
NEW YORK, NY 10281-9999
Tempest 500 399348.62 6.85 NATIONAL INVESTOR SERVICES FBO
097-50000-19
55 WATER STREET,32ND FLOOR
NEW YORK NY 10041
Velocity 100 4279002.90 15.77 SCHWAB
SPECIAL CUSTODY ACCOUNT--REINV
FOR BENEFIT OF CUSTOMERS
ATTN: MUTUAL FUNDS TEAM E
101 MONTGOMERY STREET
SAN FRANCISCO, CA 94104-4122
52
Percentage
Number of of Fund Name and Address of
Class Fund Shares Shares Beneficial Owner
- ------- -------------- --------------- ----------- -------------------------------
Velocity 100 4163844.84 15.35 NATIONAL FINANCIAL SVCS CORP
FOR EXCLUSIVE BENEFIT OF OUR
CUSTOMERS
RUSS LENNON
200 LIBERTY STREET
NEW YORK, NY 10281-9999
Velocity 100 1719158.09 6.34 NATIONAL INVESTOR SERVICES
FBO
097-50000-19
55 WATER STREET,32ND FLOOR
NEW YORK NY 10041
Venture 100 2204927.40 15.94 SCHWAB
SPECIAL CUSTODY ACCOUNT--REINV
FOR BENEFIT OF CUSTOMERS
ATTN: MUTUAL FUNDS TEAM E
101 MONTGOMERY STREET
SAN FRANCISCO, CA 94104-4122
Venture 100 2175338.95 15.73 NATIONAL FINANCIAL SVCS CORP
FOR EXCLUSIVE BENEFIT OF OUR
CUSTOMERS
RUSS LENNON
53
Percentage
Number of of Fund Name and Address of
Class Fund Shares Shares Beneficial Owner
- ------- ----------------- -------------- ----------- -------------------------------
Venture 100 759144.98 5.49 NATIONAL INVESTOR SERVICES FBO
097-50000-19
55 WATER STREET,32ND FLOOR
NEW YORK NY 10041
Sector Rotation 1376272.93 17.75 SCHWAB
SPECIAL CUSTODY ACCOUNT--REINV
FOR BENEFIT OF CUSTOMERS
ATTN: MUTUAL FUNDS TEAM E
101 MONTGOMERY STREET
SAN FRANCISCO, CA 94104-4122
Sector Rotation 853466.86 11.01 NATIONAL FINANCIAL SVCS CORP
FOR EXCLUSIVE BENEFIT OF OUR
CUSTOMERS
RUSS LENNON
200 LIBERTY STREET
NEW YORK, NY 10281-9999
Sector Rotation 398335.26 5.14 NATIONAL INVESTOR SERVICES FBO
097-50000-19
55 WATER STREET,32ND FLOOR
NEW YORK NY 10041
54
Percentage
Number of of Fund Name and Address of
Class Fund Shares Shares Beneficial Owner
- ------- ----------------- -------------- ----------- -------------------------------
Core Equity 270084.13 7.60 SCHWAB
SPECIAL CUSTODY ACCOUNT--REINV
FOR BENEFIT OF CUSTOMERS
ATTN: MUTUAL FUNDS TEAM E
101 MONTGOMERY STREET
SAN FRANCISCO, CA 94104-4122
Core Equity 191945.48 5.40 NATIONAL FINANCIAL SVCS CORP
FOR EXCLUSIVE BENEFIT OF OUR
CUSTOMERS
RUSS LENNON
200 LIBERTY STREET
NEW YORK, NY 10281-9999
Core Equity 236357.57 6.65 NATIONAL INVESTOR SERVICES FBO
097-50000-19
55 WATER STREET,32ND FLOOR
NEW YORK NY 10041
55
Percentage
Number of of Fund Name and Address of
Class Fund Shares Shares Beneficial Owner
- --------------- ------------------------------ -------------- ----------- -------------------------------
Institutional U.S. Government Money Market 50000000.00 100.00 BROWN BROTHERS HARRIMAN & CO
Class 525 WASHINGTON BLVD
JERSEY CITY, NJ 07310
Investor U.S. Government Money Market 61046033.10 5.75 NATIONAL FINANCIAL SVCS CORP
Class FOR EXCLUSIVE BENEFIT OF OUR
CUSTOMERS
RUSS LENNON
200 LIBERTY STREET
NEW YORK, NY 10281-9999
U.S. Government Bond 2088321.26 43.60 NATIONAL FINANCIAL SVCS CORP
FOR EXCLUSIVE BENEFIT OF OUR
CUSTOMERS
RUSS LENNON
200 LIBERTY STREET
NEW YORK, NY 10281-9999
U.S. Government Bond 412394.19 8.61 RSBCO & CO
ATTN: OPERATIONS
107 N TRENTON ST
RUSTON LA 71270-4321
56
Percentage
Number of of Fund Name and Address of
Class Fund Shares Shares Beneficial Owner
- ------- ------ --------------- ----------- ----------------------------------
Juno 2090792.13 5.61 MERRILL LYNCH FENNER & SMITH
FINANCIAL DATA SERVICES
4800 DEER LAKE DRIVE E, 3RD FLOOR
JACKSONVILLE, FL 32246
Juno 8539678.11 22.91 SCHWAB
SPECIAL CUSTODY ACCOUNT--REINV
FOR BENEFIT OF CUSTOMERS
ATTN: MUTUAL FUNDS TEAM E
101 MONTGOMERY STREET
SAN FRANCISCO, CA 94104-4122
Juno 6568987.98 17.63 NATIONAL FINANCIAL SVCS CORP
FOR EXCLUSIVE BENEFIT OF OUR
CUSTOMERS
RUSS LENNON
200 LIBERTY STREET
NEW YORK, NY 10281-9999
Nova 1118987.93 12.00 SCHWAB
SPECIAL CUSTODY ACCOUNT--REINV
FOR BENEFIT OF CUSTOMERS
ATTN: MUTUAL FUNDS TEAM E
101 MONTGOMERY STREET
SAN FRANCISCO, CA 94104-4122
57
Percentage
Number of of Fund Name and Address of
Class Fund Shares Shares Beneficial Owner
- ------- ----------------- --------------- ----------- -------------------------------
Nova 1869075.56 20.05 NATIONAL FINANCIAL SVCS CORP
FOR EXCLUSIVE BENEFIT OF OUR
CUSTOMERS
RUSS LENNON
200 LIBERTY STREET
NEW YORK, NY 10281-9999
Nova 527286.52 5.66 NATIONAL INVESTOR SERVICES FBO
097-50000-19
55 WATER STREET,32ND FLOOR
NEW YORK NY 10041
Precious Metals 915666.43 18.86 NATIONAL FINANCIAL SVCS CORP
FOR EXCLUSIVE BENEFIT OF OUR
CUSTOMERS
RUSS LENNON
200 LIBERTY STREET
NEW YORK, NY 10281-9999
Precious Metals 710517.48 14.63 NATIONAL INVESTOR SERVICES FBO
097-50000-19
55 WATER STREET,32ND FLOOR
NEW YORK NY 10041
58
Percentage
Number of of Fund Name and Address of
Class Fund Shares Shares Beneficial Owner
- ------- ------ --------------- ----------- -------------------------------
Ursa 6989713.89 22.11 SCHWAB
SPECIAL CUSTODY ACCOUNT--REINV
FOR BENEFIT OF CUSTOMERS
ATTN: MUTUAL FUNDS TEAM E
101 MONTGOMERY STREET
SAN FRANCISCO, CA 94104-4122
Ursa 5252491.21 16.61 NATIONAL FINANCIAL SVCS CORP
FOR EXCLUSIVE BENEFIT OF OUR
CUSTOMERS
RUSS LENNON
200 LIBERTY STREET
NEW YORK, NY 10281-9999
OTC 29590482.92 32.42 SCHWAB
SPECIAL CUSTODY ACCOUNT--REINV
FOR BENEFIT OF CUSTOMERS
ATTN: MUTUAL FUNDS TEAM E
101 MONTGOMERY STREET
SAN FRANCISCO, CA 94104-4122
OTC 15369604.05 16.84 NATIONAL FINANCIAL SVCS CORP
FOR EXCLUSIVE BENEFIT OF OUR
CUSTOMERS
RUSS LENNON
200 LIBERTY STREET
NEW YORK, NY 10281-9999
59
Percentage
Number of of Fund Name and Address of
Class Fund Shares Shares Beneficial Owner
- ------- -------- --------------- ----------- -------------------------------
OTC 6375596.64 6.98 GE Financial Trust /B/O
OMNIBUS/CENTURION CAPITAL
MANAGMENT
3200 N CENTRAL AVENUE
6TH FLOOR
PHOENIX, AZ 85012
Arktos 999723.27 16.87 SCHWAB
SPECIAL CUSTODY ACCOUNT--REINV
FOR BENEFIT OF CUSTOMERS
ATTN: MUTUAL FUNDS TEAM E
101 MONTGOMERY STREET
SAN FRANCISCO, CA 94104-4122
Arktos 1158023.77 19.54 NATIONAL FINANCIAL SVCS CORP
FOR EXCLUSIVE BENEFIT OF OUR
CUSTOMERS
RUSS LENNON
200 LIBERTY STREET
NEW YORK, NY 10281-9999
Arktos 398925.64 6.73 NATIONAL INVESTOR SERVICES FBO
097-50000-19
55 WATER STREET,32ND FLOOR
NEW YORK NY 10041
60
Percentage
Number of of Fund Name and Address of
Class Fund Shares Shares Beneficial Owner
- ------- -------------------- --------------- ----------- ----------------------------------
Energy 1881611.28 25.35 SCHWAB
SPECIAL CUSTODY ACCOUNT--REINV
FOR BENEFIT OF CUSTOMERS
ATTN: MUTUAL FUNDS TEAM E
101 MONTGOMERY STREET
SAN FRANCISCO, CA 94104-4122
Energy 1817841.85 24.49 NATIONAL FINANCIAL SVCS CORP
FOR EXCLUSIVE BENEFIT OF OUR
CUSTOMERS
RUSS LENNON
200 LIBERTY STREET
NEW YORK, NY 10281-9999
Financial Services 115244.50 5.02 MERRILL LYNCH FENNER & SMITH
FINANCIAL DATA SERVICES
4800 DEER LAKE DRIVE E, 3RD FLOOR
JACKSONVILLE, FL 32246
Financial Services 809847.98 35.26 SCHWAB
SPECIAL CUSTODY ACCOUNT--REINV
FOR BENEFIT OF CUSTOMERS
ATTN: MUTUAL FUNDS TEAM E
101 MONTGOMERY STREET
SAN FRANCISCO, CA 94104-4122
61
Percentage
Number of of Fund Name and Address of
Class Fund Shares Shares Beneficial Owner
- ------- -------------------- -------------- ----------- -------------------------------
Financial Services 220299.89 9.59 NATIONAL FINANCIAL SVCS CORP
FOR EXCLUSIVE BENEFIT OF OUR
CUSTOMERS
RUSS LENNON
200 LIBERTY STREET
NEW YORK, NY 10281-9999
Financial Services 300975.40 13.10 FTC & CO
Account # 00035
DATALYNX
PO BOX 173736
DENVER, CO 80217-3736
Health Care 641253.47 26.57 SCHWAB
SPECIAL CUSTODY ACCOUNT--REINV
FOR BENEFIT OF CUSTOMERS
ATTN: MUTUAL FUNDS TEAM E
101 MONTGOMERY STREET
SAN FRANCISCO, CA 94104-4122
Health Care 409378.79 16.96 NATIONAL FINANCIAL SVCS CORP
FOR EXCLUSIVE BENEFIT OF OUR
CUSTOMERS
RUSS LENNON
200 LIBERTY STREET
NEW YORK, NY 10281-9999
62
Percentage
Number of of Fund Name and Address of
Class Fund Shares Shares Beneficial Owner
- ------- ------------- -------------- ----------- -------------------------------
Health Care 191610.79 7.94 FTC & CO
Account # 00300
DATALYNX
PO BOX 173736
DENVER CO 80217-3736
Health Care 161257.36 6.68 FTC & CO
Account # 00035
DATALYNX
PO BOX 173736
DENVER CO 80217-3736
Technology 544028.18 34.07 SCHWAB
SPECIAL CUSTODY ACCOUNT--REINV
FOR BENEFIT OF CUSTOMERS
ATTN: MUTUAL FUNDS TEAM E
101 MONTGOMERY STREET
SAN FRANCISCO, CA 94104-4122
Technology 216210.95 13.54 NATIONAL FINANCIAL SVCS CORP
FOR EXCLUSIVE BENEFIT OF OUR
CUSTOMERS
RUSS LENNON
200 LIBERTY STREET
NEW YORK, NY 10281-9999
63
Percentage
Number of of Fund Name and Address of
Class Fund Shares Shares Beneficial Owner
- ------- ----------------- ------------- ----------- -------------------------------
Basic Materials 89218.05 6.48 SCHWAB
SPECIAL CUSTODY ACCOUNT--REINV
FOR BENEFIT OF CUSTOMERS
ATTN: MUTUAL FUNDS TEAM E
101 MONTGOMERY STREET
SAN FRANCISCO, CA 94104-4122
Basic Materials 112195.58 8.15 NATIONAL FINANCIAL SVCS CORP
FOR EXCLUSIVE BENEFIT OF OUR
CUSTOMERS
RUSS LENNON
200 LIBERTY STREET
NEW YORK, NY 10281-9999
Basic Materials 108004.41 7.85 FTC & CO
Account # 00292
DATALYNX
PO BOX 173736
DENVER CO 80217-3736-3736
Basic Materials 191403.85 13.91 FTC & CO
Account # 00266
DATALYNX
PO BOX 173736
DENVER, CO 80217-3736
64
Percentage
Number of of Fund Name and Address of
Class Fund Shares Shares Beneficial Owner
- ------- ------------------- -------------- ----------- -------------------------------
Consumer Products 109933.65 8.19 SCHWAB
SPECIAL CUSTODY ACCOUNT--REINV
FOR BENEFIT OF CUSTOMERS
ATTN: MUTUAL FUNDS TEAM E
101 MONTGOMERY STREET
SAN FRANCISCO, CA 94104-4122
Consumer Products 290813.25 21.66 NATIONAL FINANCIAL SVCS CORP
FOR EXCLUSIVE BENEFIT OF OUR
CUSTOMERS
RUSS LENNON
200 LIBERTY STREET
NEW YORK, NY 10281-9999
Consumer Products 119282.77 8.89 FTC & CO
Account # 00040
DATALYNX
PO BOX 173736
DENVER CO 80217-3736
Consumer Products 190340.18 14.18 NATIONAL INVESTOR SERVICES FBO
097-50000-19
55 WATER STREET,32ND FLOOR
NEW YORK NY 10041
Consumer Products 109965.05 8.19 FTC & CO
Account # 00300
DATALYNX
65
Percentage
Number of of Fund Name and Address of
Class Fund Shares Shares Beneficial Owner
- ------- ------------------- ------------- ----------- -------------------------------
Consumer Products 80852.26 6.02 FTC & CO
Account # 00613
DATALYNX
PO BOX 173736
DENVER CO 80217-3736
Leisure 33775.88 5.60 SCHWAB
SPECIAL CUSTODY ACCOUNT--REINV
FOR BENEFIT OF CUSTOMERS
ATTN: MUTUAL FUNDS TEAM E
101 MONTGOMERY STREET
SAN FRANCISCO, CA 94104-4122
Leisure 109663.59 18.19 NATIONAL FINANCIAL SVCS CORP
FOR EXCLUSIVE BENEFIT OF OUR
CUSTOMERS
RUSS LENNON
200 LIBERTY STREET
NEW YORK, NY 10281-9999
Leisure 72956.45 12.10 MESIROW FINANCIAL INC
A/C 2221-9214
CAPITAL PRESERVATION FUND LP
350 NORTH CLARK STREET
CHICAGO IL 60610-4796
66
Percentage
Number of of Fund Name and Address of
Class Fund Shares Shares Beneficial Owner
- ------- ----------- ------------- ----------- -------------------------------
Leisure 36218.76 6.01 MESIROW FINANCIAL INC
A/C 2127-4871
CHARLES C SORSBY
350 NORTH CLARK STREET
CHICAGO IL 60610-4796
Retailing 46341.78 5.34 ROBERT M SHAW OR
HEIDI E SONEN
1535 MINT SPRINGS ROAD
CROZET, VA 22932
Retailing 65399.00 7.54 SCHWAB
SPECIAL CUSTODY ACCOUNT--REINV
FOR BENEFIT OF CUSTOMERS
ATTN: MUTUAL FUNDS TEAM E
101 MONTGOMERY STREET
SAN FRANCISCO, CA 94104-4122
Retailing 88490.97 10.20 NATIONAL FINANCIAL SVCS CORP
FOR EXCLUSIVE BENEFIT OF OUR
CUSTOMERS
RUSS LENNON
200 LIBERTY STREET
NEW YORK, NY 10281-9999
67
Percentage
Number of of Fund Name and Address of
Class Fund Shares Shares Beneficial Owner
- ------- -------------------- ------------- ----------- -------------------------------
Retailing 48122.80 5.55 MESIROW FINANCIAL INC
A/C 8897-3558
DELAWARE CHARTER GTY TRUST TR
CHARLES C SORSBY IRA
350 NORTH CLARK STREET
CHICAGO IL 60610-4796
Retailing 85324.23 9.84 MESIROW FINANCIAL INC
A/C 2221-9214
CAPITAL PRESERVATION FUND LP
350 NORTH CLARK STREET
CHICAGO IL 60610-4796
Telecommunications 477337.66 24.35 SCHWAB
SPECIAL CUSTODY ACCOUNT--REINV
FOR BENEFIT OF CUSTOMERS
ATTN: MUTUAL FUNDS TEAM E
101 MONTGOMERY STREET
SAN FRANCISCO, CA 94104-4122
Telecommunications 502383.70 25.62 NATIONAL FINANCIAL SVCS CORP
FOR EXCLUSIVE BENEFIT OF OUR
CUSTOMERS
RUSS LENNON
200 LIBERTY STREET
NEW YORK, NY 10281-9999
68
Percentage
Number of of Fund Name and Address of
Class Fund Shares Shares Beneficial Owner
- ------- -------------------- -------------- ----------- -------------------------------
Telecommunications 117723.51 6.00 TRUST COMPANY OF AMERICA CUST
FBO 25
P O BOX 6503
ENGLEWOOD, CO 80155-6053
Transportation 37066.47 13.17 NATIONAL FINANCIAL SVCS CORP
FOR EXCLUSIVE BENEFIT OF OUR
CUSTOMERS
RUSS LENNON
200 LIBERTY STREET
NEW YORK, NY 10281-9999
Energy Services 560985.39 18.04 SCHWAB
SPECIAL CUSTODY ACCOUNT--REINV
FOR BENEFIT OF CUSTOMERS
ATTN: MUTUAL FUNDS TEAM E
101 MONTGOMERY STREET
SAN FRANCISCO, CA 94104-4122
Energy Services 784432.70 25.23 NATIONAL FINANCIAL SVCS CORP
FOR EXCLUSIVE BENEFIT OF OUR
CUSTOMERS
RUSS LENNON
200 LIBERTY STREET
NEW YORK, NY 10281-9999
69
Percentage
Number of of Fund Name and Address of
Class Fund Shares Shares Beneficial Owner
- ------- --------- -------------- ----------- -------------------------------
Banking 151553.24 9.81 FTC & CO
Account # 00A79
DATALYNX
PO BOX 173736
DENVER CO 80217-3736
Banking 160881.80 10.41 SCHWAB
SPECIAL CUSTODY ACCOUNT--REINV
FOR BENEFIT OF CUSTOMERS
ATTN: MUTUAL FUNDS TEAM E
101 MONTGOMERY STREET
SAN FRANCISCO, CA 94104-4122
Banking 245861.50 15.91 NATIONAL FINANCIAL SVCS CORP
FOR EXCLUSIVE BENEFIT OF OUR
CUSTOMERS
RUSS LENNON
200 LIBERTY STREET
NEW YORK, NY 10281-9999
Banking 275666.67 17.84 FTC & CO
Account # 00155
DATALYNX
PO BOX 173736
DENVER CO 80217-3736
70
Percentage
Number of of Fund Name and Address of
Class Fund Shares Shares Beneficial Owner
- ------- --------------- --------------- ----------- -------------------------------
Biotechnology 1975732.72 27.59 SCHWAB
SPECIAL CUSTODY ACCOUNT--REINV
FOR BENEFIT OF CUSTOMERS
ATTN: MUTUAL FUNDS TEAM E
101 MONTGOMERY STREET
SAN FRANCISCO, CA 94104-4122
Biotechnology 2123912.24 29.66 NATIONAL FINANCIAL SVCS CORP
FOR EXCLUSIVE BENEFIT OF OUR
CUSTOMERS
RUSS LENNON
200 LIBERTY STREET
NEW YORK, NY 10281-9999
Electronics 487291.61 12.03 SCHWAB
SPECIAL CUSTODY ACCOUNT--REINV
FOR BENEFIT OF CUSTOMERS
ATTN: MUTUAL FUNDS TEAM E
101 MONTGOMERY STREET
SAN FRANCISCO, CA 94104-4122
Electronics 760244.95 18.76 NATIONAL FINANCIAL SVCS CORP
FOR EXCLUSIVE BENEFIT OF OUR
CUSTOMERS
RUSS LENNON
200 LIBERTY STREET
NEW YORK, NY 10281-9999
71
Percentage
Number of of Fund Name and Address of
Class Fund Shares Shares Beneficial Owner
- ------- ------------- -------------- ----------- -------------------------------
Electronics 370452.20 9.14 NATIONAL INVESTOR SERVICES FBO
097-50000-19
55 WATER STREET,32ND FLOOR
NEW YORK NY 10041
Electronics 469459.92 11.59 PECONIC OFFSHORE FND CORP C/O
FORTIS FUNDS SVCS (CAYMAN) LTD
PO BOX 2003GT
GRAND PAVILION COMM CENTRE
BOUGAINVILLEA WAY 802 W BAY RD
GRAND CAYMAN,CAYMAN ISLANDS
Internet 19136.45 5.08 THE DARWIN FUND, L.P.
C/O DARWIN INC
32 BAYSHORE DRIVE
NEWTOWN, PA 18940
Internet 98825.14 26.23 NATIONAL FINANCIAL SVCS CORP
FOR EXCLUSIVE BENEFIT OF OUR
CUSTOMERS
RUSS LENNON
200 LIBERTY STREET
NEW YORK, NY 10281-9999
72
Percentage
Number of of Fund Name and Address of
Class Fund Shares Shares Beneficial Owner
- ------- ----------- -------------- ----------- -----------------------------
Utilities 198988.33 23.97 NATIONAL FINANCIAL SVCS CORP
FOR EXCLUSIVE BENEFIT OF OUR
CUSTOMERS
RUSS LENNON
200 LIBERTY STREET
NEW YORK, NY 10281-9999
73
Shareholder Proposals
The Trusts are not required to hold annual shareholder meetings.
Shareholders wishing to submit proposals for inclusion or presentation in a
proxy statement for a subsequent meeting should send their written proposals to
the Secretary of the Trust c/o Rydex Investments, 9601 Blackwell Road, Suite
500, Rockville, MD 20850.
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 a 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 or write to the Funds at 9601 Blackwell Road, Suite 500,
Rockville, MD 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 Trusts. Mere submission of a shareholder proposal does not guarantee the
inclusion of the proposal in the proxy statement or presentation of the proposal
at the Meeting because inclusion and presentation are subject to compliance with
certain federal regulations.
PROMPT EXECUTION AND RETURN OF THE ENCLOSED PROXY CARD IS REQUESTED. A
SELF-ADDRESSED, POSTAGE-PAID ENVELOPE IS ENCLOSED FOR YOUR CONVENIENCE, ALONG
WITH INSTRUCTIONS ON HOW TO VOTE OVER THE INTERNET OR BY TELEPHONE SHOULD YOU
PREFER TO VOTE BY ONE OF THOSE METHODS.
74
Exhibit A
ADVISORY AGREEMENT
ADVISORY AGREEMENT made as of this _____th day of__________ , 2004 by and
between RYDEX SERIES FUNDS (the "Trust"), a Delaware statutory trust registered
as an investment company under the Investment Company Act of 1940, as amended
(the "1940 Act"), and PADCO ADVISORS, INC., a Maryland corporation with its
principal place of business at 9601 Blackwell Road, Suite 500, Rockville,
Maryland 20850 (the "Adviser").
W I T N E S S E T H
WHEREAS, the Board of Trustees (the "Board") of the Trust has selected the
Adviser to act as investment adviser to the Trust on behalf of the series set
forth on Schedule A to this Agreement (each a "Fund" and, collectively, the
"Funds"), as such Schedule may be amended from time to time upon mutual
agreement of the parties, and to provide certain related services, as more fully
set forth below, and to perform such services under the terms and conditions
hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual covenants and benefits set
forth herein, the Trust and the Adviser do hereby agree as follows:
1. The Adviser's Services.
(a) Discretionary Investment Management Services. The Adviser shall act
as investment adviser with respect to the Funds. In such capacity, the
Adviser shall, subject to the supervision of the Board, regularly provide
the Funds with investment research, advice and supervision and shall
furnish continuously an investment program for the Funds, consistent with
the respective investment objectives and policies of each Fund. The Adviser
shall determine, from time to time, what securities shall be purchased for
the Funds, what securities shall be held or sold by the Funds and what
portion of the Funds' assets shall be held uninvested in cash, subject
always to the provisions of the Trust's 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
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
A-1
the right of the Board, in its sole discretion, to establish or revise
policies in connection with the management of a Fund's assets or to
otherwise exercise its right to control the overall management of a Fund.
(b) Compliance. The Adviser agrees to comply with the requirements of
the 1940 Act, the Investment Advisers Act of 1940 (the "Advisers Act"), the
1933 Act, the Securities Exchange Act of 1934, as amended (the "1934 Act"),
the Commodity Exchange Act and the respective rules and regulations
thereunder, as applicable, as well as with all other applicable federal and
state laws, rules, regulations and case law that relate to the services and
relationships described hereunder and to the conduct of its business as a
registered investment adviser. The Adviser also agrees to comply with the
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 the 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 Fund's securities to the Adviser. So
long as proxy voting authority for the Fund has been delegated to the
Adviser, the Adviser shall exercise its proxy voting responsibilities
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
Fund, 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
A-2
administrator, custodian or transfer agent appointed by the Funds) relating
to its responsibilities provided hereunder with respect to the Funds, and
shall preserve such records for the periods and in a manner prescribed
therefore by Rule 31a-2 under the 1940 Act (the "Fund Books and Records").
The Fund Books and Records shall be available to the Board at any time upon
request, shall be delivered to the Trust upon the termination of this
Agreement and shall be available without delay during any day the Trust is
open for business.
(e) Holdings Information and Pricing. The Adviser shall provide regular
reports regarding Fund holdings, and shall, on its own initiative, furnish
the Trust and its Board from time to time with whatever information the
Adviser believes is appropriate for this purpose. The Adviser agrees to
immediately notify the Trust if the Adviser reasonably believes that the
value of any security held by a Fund may not reflect fair value. The
Adviser agrees to provide any pricing information of which the Adviser is
aware to the Trust, its Board and/or any Fund pricing agent to assist in
the determination of the fair value of any Fund holdings for which market
quotations are not readily available or as otherwise required in accordance
with the 1940 Act or the Trust's valuation procedures for the purpose of
calculating the Fund net asset value in accordance with procedures and
methods established by the Board.
(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 by Access Persons and the sanctions imposed by the
Adviser. The Adviser shall immediately notify the Trust of any material
violation of the Code, whether or not such violation relates to an security held
by any Fund.
A-3
3. Information and Reporting. The Adviser shall provide the Trust and its
respective officers with such periodic reports concerning the obligations the
Adviser has assumed under this Agreement as the Trust may from time to time
reasonably request.
(a) Notification of Breach / Compliance Reports. The Adviser shall
notify the Trust immediately upon detection of (i) any material failure to
manage any Fund in accordance with its investment objectives and policies
or any applicable law; or (ii) any material breach of any of the Funds' or
the Adviser's policies, guidelines or procedures. In addition, the Adviser
shall provide a quarterly report regarding each Fund's compliance with its
investment objectives and policies, applicable law, including, but not
limited to the 1940 Act and Subchapter M 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.
A-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.
A-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. Other than as herein specifically indicated,
the Adviser shall not be responsible for a Fund's expenses, including brokerage
and other expenses incurred in placing orders for the purchase and sale of
securities and other investment instruments.
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 SEC and will, promptly after
filing any amendment to its Form ADV with the SEC, furnish a copy of such
amendments 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 a
Fund (collectively the "Disclosure Documents") and represents and warrants
that with respect to disclosure about the Adviser, the manner in which the
Adviser manages the Fund or information relating directly or indirectly to
the Adviser, such Disclosure Documents contain or will contain, as of the
date thereof, no untrue statement of any material fact and does not omit
any statement of material fact which was required to be stated therein or
necessary to make the statements contained therein not misleading.
(d) Use Of The Name "Rydex". The Adviser has the right to use the name
"Rydex" in connection with its services to the Trust and that, subject to
the terms set forth in Section 8 of this Agreement, the Trust shall have
the right to use the name "Rydex" in connection with the management and
operation of the Funds.
A-6
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 Fund first, ahead
of their own interests, in all personal trading scenarios that may involve
a conflict of interest with the Funds, consistent with its fiduciary duties
under applicable law.
(h) Representations. The representations and warranties in this Section
7 shall be deemed to be made on the date this Agreement is executed and at
the time of delivery of the quarterly compliance report required by Section
3(a), whether or not specifically referenced in such report.
8. The Name "Rydex". The Adviser grants to the Trust a license to use the
name "Rydex" (the "Name") as part of the name of any Fund. The foregoing
authorization by the Adviser to the Trust to use the Name as part of the name of
any Fund is not exclusive of the right of the Adviser itself to use, or to
authorize others to use, the Name; the Trust acknowledges and agrees that, as
between the Trust and the Adviser, the Adviser has the right to use, or
authorize others to use, the Name. The Trust shall (1) only use the Name in a
manner consistent with uses approved by the Adviser; (2) use its best efforts to
maintain the quality of the services offered using the Name; (3) adhere to such
other specific quality control standards as the Adviser may from time to time
promulgate. At the request of the Adviser, the Trust will (a) submit to Adviser
representative samples of any promotional materials using the Name; and (b)
change the name of any Fund within three months of its receipt of the Adviser's
request, or such other shorter time period as may be required under the terms of
a settlement agreement or court order, so as to eliminate all reference to the
Name and will not thereafter transact any business using the Name in the name of
any Fund; provided, however, that the Trust may continue to use beyond such date
any supplies of prospectuses, marketing materials and similar documents that the
Trust had on had
A-7
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 Fund's prospectus. 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
A-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 Fund and with
respect to any of its assets, except as otherwise required by any fiduciary
duties of the Adviser under applicable law. In addition, the Adviser shall
deliver the Fund Books and Records to the Trust by such means and in accordance
with such schedule as the Trust shall direct and shall otherwise cooperate, as
reasonably directed by the Trust, in the transition of portfolio asset
management to any successor of the Adviser.
13. Certain Definitions. For the purposes of this Agreement:
(a) "Affirmative vote of a majority of the outstanding voting
securities of the Fund" shall have the meaning as set forth in the 1940
Act, subject, however, to such exemptions as may be granted by the
Commission under the 1940 Act or any interpretations of the Commission
staff.
(b) "Interested persons" and "Assignment" shall have their respective
meanings as set forth in the 1940 Act, subject, however, to such exemptions
as may be granted by the Commission under the 1940 Act or any
interpretations of the Commission staff.
14. Liability of the Adviser. The Adviser shall indemnify and hold harmless
the Trust and all affiliated persons thereof (within the meaning of Section
2(a)(3) of the 1940 Act) and all controlling persons (as described in Section 15
of the 1933 Act) (collectively, the "Adviser Indemnitees") against any and all
losses, claims, damages, liabilities or litigation (including reasonable legal
and other expenses) by reason of or arising out of: (a) the Adviser being in
material violation of any applicable federal or state law, rule or regulation or
any investment policy or restriction set forth in the Funds' Registration
Statement or any written guidelines or instruction provided in writing by the
Board, (b) a Fund's failure to satisfy the diversification or source of income
requirements of Subchapter M of the Code, or (c) the Adviser's willful
A-9
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 or federal, in Delaware, with
respect to any dispute under this Agreement.
18. Paragraph Headings. The headings of paragraphs contained in this
Agreement are provided for convenience only, form no part of this Agreement and
shall not affect its construction.
19. Counterparts. This Agreement may be executed simultaneously in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
signed on their behalf by their duly authorized officers as of the date first
above written.
RYDEX SERIES FUNDS, on behalf of each Fund
listed on Schedule A
By:
-------------------------------------------
Name: Carl G. Verboncoeur
Title: President
PADCO ADVISORS, INC.
By:
-------------------------------------------
Name: Carl G. Verboncoeur
Title: Chief Executive Officer
A-10
SCHEDULE A
to the
ADVISORY AGREEMENT
dated , 2004 between
RYDEX SERIES FUNDS
and
PADCO ADVISORS, INC.
The Trust will pay to the Adviser as compensation for the Adviser's
services rendered, a fee, computed daily at an annual rate based on the average
daily net assets of the respective Fund in accordance the following fee
schedule:
Fund Rate
- ------------------------------- --------
Nova* ......................... 0.75%
Nova Master ................... 0.75%
Ursa* ......................... 0.90%
Ursa Master ................... 0.90%
OTC* .......................... 0.75%
OTC Master .................... 0.75%
Arktos* ....................... 0.90%
Arktos Master ................. 0.90%
Medius* ....................... 0.90%
Medius Master ................. 0.90%
Mekros ........................ 0.90%
U.S. Government Bond .......... 0.50%
Juno* ......................... 0.90%
Juno Master ................... 0.90%
Large-Cap Value ............... 0.75%
Large-Cap Growth .............. 0.75%
Mid-Cap Value ................. 0.75%
Mid-Cap Growth ................ 0.75%
Inverse Mid-Cap ............... 0.90%
Small-Cap Value ............... 0.75%
Small-Cap Growth .............. 0.75%
Inverse Small-Cap ............. 0.90%
Large-Cap Europe .............. 0.90%
Large-Cap Japan ............... 0.90%
U.S. Government
Money Market .............. 0.50%
Fund Rate
- ------------------------------- --------
Banking ....................... 0.85%
Basic Materials ............... 0.85%
Biotechnology ................. 0.85%
Consumer Products ............. 0.85%
Electronics ................... 0.85%
Energy ........................ 0.85%
Energy Services ............... 0.85%
Financial Services ............ 0.85%
Health Care ................... 0.85%
Internet ...................... 0.85%
Leisure ....................... 0.85%
Precious Metals ............... 0.75%
Real Estate ................... 0.85%
Retailing ..................... 0.85%
Technology .................... 0.85%
Telecommunications ............ 0.85%
Transportation ................ 0.85%
Utilities* .................... 0.85%
Utilities Master .............. 0.85%
Sector Rotation ............... 0.90%
Core Equity** ................. 0.70%
- ------------------------
* The fee will be reduced to 0.00% for any period during which the Fund
invests through a master-feeder structure.
** The management fee with respect to the Core Equity Fund (the "Fund") is
comprised of a basic fee (the "Basic Fee") at the annual rate of 0.70% of
the Fund's average daily net assets and a performance adjustment (the
"Performance Adjustment") as discussed below.
A-i
A. Calculating the Performance Adjustment. The performance adjustment shall
be calculated monthly by:
(i) Determining the difference in performance (the "Performance
Difference") between the Fund and the Russell 3000 Index (the
"Index"), as described in paragraph C;
(ii) Using the Performance Difference calculated under paragraph B(ii)
to determine the performance adjustment (the "Performance
Adjustment"), as illustrated in paragraph D; and
(iii) Adding the Performance Adjustment to the Basic Fee to determine
the management fee for the applicable month.
B. Computing the Performance Difference. The Performance Difference is
calculated monthly, and is determined by measuring the percentage
difference between the performance of one H-Class Share of the Fund and
the performance of the Index over the most recent 12-month period. The
performance of one H-Class Share of the Fund shall be measured by
computing the percentage difference, carried to five decimal places,
between the net asset value as of the last business day of the period
selected for comparison and the net asset value of such share as of the
last business day of the prior period, adjusted for dividends or capital
gain distributions treated as reinvested immediately. The performance of
the Index will be established by measuring the percentage difference,
carried to five decimal places, between the beginning and ending values
of the Index for the comparison period, with dividends or capital gain
distributions on the securities that comprise the Index being treated as
reinvested immediately.
C. Determining the Performance Adjustment. For every 0.0375% in Performance
Difference, the Adviser's fee will be adjusted upwards or downwards by
0.01%. The maximum adjustment rate is 0.20% per year, resulting in a
minimum possible annual fee of 0.50% and a maximum possible annual fee
of 0.90%.
D. Performance Adjustment Example. The following example illustrates the
application of the Performance Adjustment:
For the rolling 12-month Fund's investment Index's Fund's performance
performance period performance cumulative change relative to the Index
- -------------------------- ------------------- ------------------- ----------------------
January 1 ................ $ 50.00 100.00
December 31 .............. $ 55.25 110.20
Absolute change .......... + $5.25 + $10.20
Actual change ............ + 10.50% + 10.20% +0.30%
A-ii
Based on these assumptions, the Fund calculates the Adviser's management
fee rate for the month-ended December 31 as follows:
o The portion of the annual basic fee rate of 0.70% applicable to that
month is multiplied by the Fund's average daily net assets for the month.
This results in the dollar amount of the basic fee.
o The +0.30% difference between the performance of the Fund and the record
of the Index is divided by 3.75, producing a rate of 0.08%.
o The 0.08% rate (adjusted for the number of days in the month) is
multiplied by the Fund's average daily net assets for the performance
period. This results in the dollar amount of the performance adjustment.
o The dollar amount of the performance adjustment is added to the dollar
amount of the basic fee, producing the adjusted management fee.
Performance Periods. For the period from July 1, 2003 through May 31, 2004,
the Adviser will be paid at the Base Rate, without regard to any Performance
Adjustment. For the month ending June 30, 2004, the Adviser will begin applying
the Performance Adjustment as described herein, based upon the performance of
the Fund relative to the performance of the Index during the 12-month period
from July 1, 2003 through June 30, 2004. The 12-month comparison period will
roll over with each succeeding month, so that it will always equal 12 months,
ending with the month for which the performance incentive adjustment is being
computed.
Changes to the "Index" or the "Class". The Trustees have initially
designated the Russell 3000 Index and the H-Class Shares as the index and class
to be used for purposes of determining the Performance Adjustment (referred to
herein as the "Index" and the "Class," respectively). From time to time, to the
extent permitted by the 1940 Act, the Trustees may, by a vote of the Trustees of
the Trust voting in person, including a majority of the Trustees who are not
parties to this Agreement or "interested persons" (as defined in the 1940 Act)
of any such parties, determine (i) that another securities index is a more
appropriate benchmark than the Index for purposes of evaluating the performance
of the Fund; and/or (ii) that a different class of shares of the Trust
representing interests in the Fund other than the Class is most appropriate for
use in calculating the Performance Adjustment. After ten days' written notice to
the Adviser, a different index (the "Successor Index") may be substituted for
the Index in prospectively calculating the Performance Adjustment, and/or a
different class of shares (the "Successor Class") may be substituted in
calculating the Performance Adjustment. However, the calculation of that portion
of the Performance Adjustment attributable to any portion of the performance
period prior to the adoption of the Successor Index will still be based upon the
Fund's performance compared to the Index. The use of a Successor Class of shares
for purposes of calculating the Performance Adjustment shall apply to the entire
performance period so long as such Successor Class was outstanding at the
beginning of such period. In the event that
A-iii
such Successor Class of shares was not outstanding for all or a portion of the
Performance Period, it may only be used in calculating that portion of the
Performance adjustment attributable to the period during which such Successor
Class was outstanding and any prior portion of the Performance Period shall be
calculated using the Class of shares previously designated.
A-iv
Exhibit B
ADVISORY AGREEMENT
ADVISORY AGREEMENT made as of this _____th day of__________, 2004 by and
between RYDEX DYNAMIC FUNDS (the "Trust"), a Delaware statutory trust registered
as an investment company under the Investment Company Act of 1940, as amended
(the "1940 Act"), and PADCO ADVISORS, INC., a Maryland corporation with its
principal place of business at 9601 Blackwell Road, Suite 500, Rockville,
Maryland 20850 (the "Adviser").
W I T N E S S E T H
WHEREAS, the Board of Trustees (the "Board") of the Trust has selected the
Adviser to act as investment adviser to the Trust on behalf of the series set
forth on Schedule A to this Agreement (each a "Fund" and, collectively, the
"Funds"), as such Schedule may be amended from time to time upon mutual
agreement of the parties, and to provide certain related services, as more fully
set forth below, and to perform such services under the terms and conditions
hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual covenants and benefits set
forth herein, the Trust and the Adviser do hereby agree as follows:
1. The Adviser's Services.
(a) Discretionary Investment Management Services. The Adviser shall act
as investment adviser with respect to the Funds. In such capacity, the
Adviser shall, subject to the supervision of the Board, regularly provide
the Funds with investment research, advice and supervision and shall
furnish continuously an investment program for the Funds, consistent with
the respective investment objectives and policies of each Fund. The Adviser
shall determine, from time to time, what securities shall be purchased for
the Funds, what securities shall be held or sold by the Funds and what
portion of the Funds' assets shall be held uninvested in cash, subject
always to the provisions of the Trust's 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
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
B-1
the right of the Board, in its sole discretion, to establish or revise
policies in connection with the management of a Fund's assets or to
otherwise exercise its right to control the overall management of a Fund.
(b) Compliance. The Adviser agrees to comply with the requirements of
the 1940 Act, the Investment Advisers Act of 1940 (the "Advisers Act"), the
1933 Act, the Securities Exchange Act of 1934, as amended (the "1934 Act"),
the Commodity Exchange Act and the respective rules and regulations
thereunder, as applicable, as well as with all other applicable federal and
state laws, rules, regulations and case law that relate to the services and
relationships described hereunder and to the conduct of its business as a
registered investment adviser. The Adviser also agrees to comply with the
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 the 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 Fund's securities to the Adviser. So
long as proxy voting authority for the Fund has been delegated to the
Adviser, the Adviser shall exercise its proxy voting responsibilities
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
Fund, 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
B-2
under the 1940 Act (other than those records being maintained by any
administrator, custodian or transfer agent appointed by the Funds) relating
to its responsibilities provided hereunder with respect to the Funds, and
shall preserve such records for the periods and in a manner prescribed
therefore by Rule 31a-2 under the 1940 Act (the "Fund Books and Records").
The Fund Books and Records shall be available to the Board at any time upon
request, shall be delivered to the Trust upon the termination of this
Agreement and shall be available without delay during any day the Trust is
open for business.
(e) Holdings Information and Pricing. The Adviser shall provide regular
reports regarding Fund holdings, and shall, on its own initiative, furnish
the Trust and its Board from time to time with whatever information the
Adviser believes is appropriate for this purpose. The Adviser agrees to
immediately notify the Trust if the Adviser reasonably believes that the
value of any security held by a Fund may not reflect fair value. The
Adviser agrees to provide any pricing information of which the Adviser is
aware to the Trust, its Board and/or any Fund pricing agent to assist in
the determination of the fair value of any Fund holdings for which market
quotations are not readily available or as otherwise required in accordance
with the 1940 Act or the Trust's valuation procedures for the purpose of
calculating the Fund net asset value in accordance with procedures and
methods established by the Board.
(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 by Access Persons and the sanctions imposed by the
Adviser. The Adviser shall immediately notify the Trust of
B-3
any material violation of the Code, whether or not such violation relates to an
security held by any Fund.
3. Information and Reporting. The Adviser shall provide the Trust and its
respective officers with such periodic reports concerning the obligations the
Adviser has assumed under this Agreement as the Trust may from time to time
reasonably request.
(a) Notification of Breach / Compliance Reports. The Adviser shall
notify the Trust immediately upon detection of (i) any material failure to
manage any Fund in accordance with its investment objectives and policies
or any applicable law; or (ii) any material breach of any of the Funds' or
the Adviser's policies, guidelines or procedures. In addition, the Adviser
shall provide a quarterly report regarding each Fund's compliance with its
investment objectives and policies, applicable law, including, but not
limited to the 1940 Act and Subchapter M 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
B-4
be appropriate. The provision of such information by the Adviser to the
Trust or its designated agent in no way relieves the Adviser of its own
responsibilities under this Agreement.
4. Brokerage
(a) Principal Transactions. In connection with purchases or sales of
securities for the account of a Fund, neither the Adviser nor any of its
directors, officers or employees will act as a principal or agent or
receive any commission except as permitted by the 1940 Act.
(b) Placement of Orders. The Adviser shall arrange for the placing of
all orders for the purchase and sale of securities for a Fund's account
with brokers or dealers selected by the Adviser. In the selection of such
brokers or dealers and the placing of such orders, the Adviser is directed
at all times to seek for the Fund the most favorable execution and net
price available under the circumstances. It is also understood that it is
desirable for the Fund that the Adviser have access to brokerage and
research services provided by brokers who may execute brokerage
transactions at a higher cost to the Fund than may result when allocating
brokerage to other brokers, consistent with section 28(e) of the 1934 Act
and any Commission staff interpretations thereof. Therefore, the Adviser is
authorized to place orders for the purchase and sale of securities for a
Fund with such brokers, subject to review by the Board from time to time
with respect to the extent and continuation of this practice. It is
understood that the services provided by such brokers may be useful to the
Adviser in connection with its or its affiliates' services to other
clients.
(c) Aggregated Transactions. On occasions when the Adviser deems the
purchase or sale of a security to be in the best interest of a Fund as well
as other clients of the Adviser, the Adviser may, to the extent permitted
by applicable law and regulations, aggregate the order for securities to be
sold or purchased. In such event, the Adviser will allocate securities or
futures contracts so purchased or sold, as well as the expenses incurred in
the transaction, in the manner the Adviser reasonably considers to be
equitable and consistent with its fiduciary obligations to the Fund and to
such other clients under the circumstances.
(d) Affiliated Brokers. The Adviser or any of its affiliates may act as
broker in connection with the purchase or sale of securities or other
investments for a Fund, subject to: (a) the requirement that the Adviser
seek to obtain best execution and price within the policy guidelines
determined by the Board and set forth in the Fund's current prospectus and
SAI; (b) the provisions of the 1940 Act; (c) the provisions of the Advisers
Act; (d) the provisions of the 1934 Act; and (e) other provisions of
applicable law. These brokerage services are not within the scope of the
duties of the Adviser under this Agreement. Subject to the requirements of
applicable law and any procedures adopted by the Board,
B-5
the Adviser or its affiliates may receive brokerage commissions, fees or
other remuneration from a Fund for these services in addition to the
Adviser's fees for services under this Agreement.
5. Custody. Nothing in this Agreement shall permit the Adviser to take or
receive physical possession of cash, securities or other investments of a Fund.
6. Allocation of Charges and Expenses. The Adviser will bear its own costs
of providing services hereunder. Other than as herein specifically indicated,
the Adviser shall not be responsible for a Fund's expenses, including brokerage
and other expenses incurred in placing orders for the purchase and sale of
securities and other investment instruments.
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 SEC and will, promptly after
filing any amendment to its Form ADV with the SEC, furnish a copy of such
amendments 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 a
Fund (collectively the "Disclosure Documents") and represents and warrants
that with respect to disclosure about the Adviser, the manner in which the
Adviser manages the Fund 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.
B-6
(d) Use Of The Name "Rydex". The Adviser has the right to use the name
"Rydex" in connection with its services to the Trust and that, subject to
the terms set forth in Section 8 of this Agreement, the Trust shall have
the right to use the name "Rydex" in connection with the management and
operation of the Funds. The Adviser is not aware of any threatened or
existing actions, claims, litigation or proceedings that would adversely
effect or prejudice the rights of the Adviser or the Trust to use the name
"Rydex".
(e) Insurance. The Adviser maintains errors and omissions insurance
coverage in an appropriate amount and shall provide prior written notice to
the Trust (i) of any material changes in its insurance policies or
insurance coverage; or (ii) if any material claims will be made on its
insurance policies. Furthermore, the Adviser shall upon reasonable request
provide the Trust with any information it may reasonably require concerning
the amount of or scope of such insurance.
(f) No Detrimental Agreement. The Adviser represents and warrants that
it has no arrangement or understanding with any party, other than the
Trust, that would influence the decision of the Adviser with respect to its
selection of securities for a Fund, and that all selections shall be done
in accordance with what is in the best interest of the Fund.
(g) Conflicts. The Adviser shall act honestly, in good faith and in the
best interests of the Trust including requiring any of its personnel with
knowledge of Fund activities to place the interest of the Fund first, ahead
of their own interests, in all personal trading scenarios that may involve
a conflict of interest with the Funds, consistent with its fiduciary duties
under applicable law.
(h) Representations. The representations and warranties in this Section
7 shall be deemed to be made on the date this Agreement is executed and at
the time of delivery of the quarterly compliance report required by Section
3(a), whether or not specifically referenced in such report.
8. The Name "Rydex". The Adviser grants to the Trust a license to use the
name "Rydex" (the "Name") as part of the name of any Fund. The foregoing
authorization by the Adviser to the Trust to use the Name as part of the name of
any Fund is not exclusive of the right of the Adviser itself to use, or to
authorize others to use, the Name; the Trust acknowledges and agrees that, as
between the Trust and the Adviser, the Adviser has the right to use, or
authorize others to use, the Name. The Trust shall (1) only use the Name in a
manner consistent with uses approved by the Adviser; (2) use its best efforts to
maintain the quality of the services offered using the Name; (3) adhere to such
other specific quality control standards as the Adviser may 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
B-7
Name and will not thereafter transact any business using the Name in the name of
any Fund; provided, however, that the Trust may continue to use beyond such date
any supplies of prospectuses, marketing materials and similar documents that the
Trust had on 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 Fund's
prospectus. 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
B-8
(c) The Adviser may at any time terminate this Agreement by not more
than sixty (60) days' nor less than thirty (30) days' written notice
delivered or mailed by registered mail, postage prepaid, to the Trust; or
(d) This Agreement shall automatically terminate two years from the
date of its execution unless its renewal is specifically approved at least
annually thereafter by (i) a majority vote of the Trustees, including a
majority vote of such Trustees who are not interested persons of the Trust
or the Adviser, at a meeting called for the purpose of voting on such
approval; or (ii) the vote of a majority of the outstanding voting
securities of each Fund; provided, however, that if the continuance of this
Agreement is submitted to the shareholders of the Funds for their approval
and such shareholders fail to approve such continuance of this Agreement as
provided herein, the Adviser may continue to serve hereunder as to the
Funds in a manner consistent with the 1940 Act and the rules and
regulations thereunder; and
Termination of this Agreement pursuant to this Section shall be without
payment of any penalty.
In the event of termination of this Agreement for any reason, the Adviser
shall, immediately upon notice of termination or on such later date as may be
specified in such notice, cease all activity on behalf of the Fund and with
respect to any of its 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
B-9
Funds' Registration Statement or any written guidelines or instruction provided
in writing by the Board, (b) a Fund's failure to satisfy the diversification or
source of income requirements of Subchapter M of the Code, or (c) the Adviser's
willful misfeasance, bad faith or gross negligence generally in the performance
of its duties hereunder or its reckless disregard of its obligations and duties
under this Agreement.
15. Enforceability. Any term or provision of this Agreement which is
invalid or unenforceable in any jurisdiction shall, as to such jurisdiction be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms or provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction.
16. Limitation of Liability. The parties to this Agreement acknowledge and
agree that all litigation arising hereunder, whether direct or indirect, and of
any and every nature whatsoever shall be satisfied solely out of the assets of
the affected Fund and that no Trustee, officer or holder of shares of beneficial
interest of the Fund shall be personally liable for any of the foregoing
liabilities. The Trust's Certificate of Trust, as amended from time to time, is
on file in the Office of the Secretary of State of the State of Delaware. Such
Certificate of Trust and the Trust's Agreement and Declaration of Trust describe
in detail the respective responsibilities and limitations on liability of the
Trustees, officers, and holders of shares of beneficial interest.
17. Jurisdiction. This Agreement shall be governed by and construed in
accordance with the substantive laws of state of Delaware and the Adviser
consents to the jurisdiction of courts, both state or federal, in Delaware, with
respect to any dispute under this Agreement.
18. Paragraph Headings. The headings of paragraphs contained in this
Agreement are provided for convenience only, form no part of this Agreement and
shall not affect its construction.
19. Counterparts. This Agreement may be executed simultaneously in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
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 DYNAMIC FUNDS, on behalf of each Fund
listed on Schedule A
By:
-------------------------------------------
Name: Carl G. Verboncoeur
Title: President
PADCO ADVISORS, INC.
By:
-------------------------------------------
Name: Carl G. Verboncoeur
Title: Chief Executive Officer
B-11
Exhibit E
SCHEDULE A
to the
ADVISORY AGREEMENT
dated __________ __, 2004 between
RYDEX DYNAMIC FUNDS
and
PADCO ADVISORS, 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
- ------------------------------------------------ ----------
Titan 500* ..................................... 0.90%
Titan 500 Master ............................... 0.90%
Tempest 500* ................................... 0.90%
Tempest 500 Master ............................. 0.90%
Velocity 100* .................................. 0.90%
Velocity 100 Master ............................ 0.90%
Venture 100* ................................... 0.90%
Venture 100 Master ............................. 0.90%
Long Dynamic Dow 30* ........................... 0.90%
Long Dynamic Dow 30 Master ..................... 0.90%
Inverse Dynamic Dow 30* ........................ 0.90%
Inverse Dynamic Dow 30 Master .................. 0.90%
- -----------
* The fee will be reduced to 0.00% for any period during which the Fund invests
through a master-feeder structure.
B-i
RYDEX [LOGO] ezVote(SM) Consolidated Proxy Card
P.O. BOX 9132 The top half of this form is your EzVote Consolidated
HINGHAM, MA 02043-9132 Proxy Card. It reflects all of your accounts
registered to the same Social Security or Tax I.D.
number at this address. By voting and signing the
Consolidated Proxy Card, you are voting all of these
accounts in the same manner as indicated on the
reverse side of the form.
--------------------- ------------------------------------------
XXX XXX XXX XXX XX <----- EVERY SHAREHOLDER'S VOTE IS IMPORTANT
--------------------- PLEASE VOTE YOUR PROXY...TODAY
------------------------------------------
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES
SPECIAL MEETING OF SHAREHOLDERS
APRIL 30, 2004 - 4:30 P.M. EASTERN TIME (THE "MEETING")
The undersigned appoints Joanna Haigney, Nick Bonos and Mike Byrum, and each of
them individually with power to act without the other and with the right of
substitution in each, the proxies of the undersigned to vote all shares of the
Rydex Funds (the "Funds") held by the undersigned on March 2, 2004, at the
Meeting, to be held at the offices of Rydex Investments, 9601 Blackwell Road,
Suite 500, Rockville, MD 20850 at 4:30 P.M. Eastern Time and at any
adjournment(s) or postponement(s) thereof, with all powers the undersigned would
possess if present in person. All previous proxies given with respect to the
Meeting are revoked. The undersigned acknowledges receipt of the Notice of
Special Meeting and Proxy Statement dated March 8, 2004.
[ARROW GRAPHIC] IF YOU ARE NOT VOTING BY PHONE OR INTERNET
PLEASE VOTE, DATE AND SIGN,
AND PROMPTLY RETURN THIS PROXY CARD
IN THE ENCLOSED ENVELOPE PROVIDED.
Dated:
----------------------------
------------------------------------------------
------------------------------------------------
Signature(s) (Sign in the Box)
Please sign exactly as your name or names appear
to the left. When shares are held by joint
tenants, both should sign. When signing as
attorney, executor, administrator, trustee,
guardian or in any other representative
capacity, please give full title as such. If
signing for a corporation, please sign in full
corporate name by authorized person. If a
partnership, please sign in partnership name by
authorized person.
[ARROW GRAPHIC] [ARROW GRAPHIC] RYDEX SER/DY MBD EZ
[ARROW] DETACH CONSOLIDATED PROXY CARD AT PERFORATION BELOW. [ARROW]
VOTING OPTIONS
- -----------------------------------------------------------------------------------------------------------
TO VOTE BY TELEPHONE TO VOTE BY INTERNET TO VOTE BY MAIL
1) Read the proxy statement 1) Read the proxy statement 1) Read the proxy statement.
and have this proxy card and have the proxy card 2) Check the appropriate boxes on
at hand. at hand. the reverse side.
2) Call 1-888-221-0697. 2) Go to www.proxyweb.com 3) Sign and date proxy card.
3) Follow the simple 3) Follow the simple directions. 4) Return the proxy card in the
instructions. envelope provided.
- -----------------------------------------------------------------------------------------------------------
If you vote by phone or on the Internet, please do not return your proxy card.
[GRAPHIC: STOP SIGN] IF YOU HAVE VOTED THE CONSOLIDATED PROXY CARD INDIVIDUAL BALLOTS
ABOVE, DO NOT VOTE THE INDIVIDUAL BALLOTS ON
THE REVERSE SIDE AND ANY ACCOMPANYING PAGES. On the reverse side of this form (and on accompanying
pages, if necessary) you will find individual ballots, one
for each of your accounts. If you would wish to vote each
of these accounts separately, sign in the signature box
below, mark each individual ballot to indicate your vote,
detach the form at the perforation above and return the
individual ballots portion only.
NOTE: If you elect to vote each account separately, do not
return the Consolidated Proxy Card above.
[ARROW GRAPHIC] SIGN BELOW ONLY IF YOU ARE VOTING
EACH ACCOUNT SEPARATELY.
Dated:
---------------------------------
----------------------------------------------------------
----------------------------------------------------------
Signature(s) (Sign in the Box)
Please sign exactly as your name or names appear to the
left. When shares are held by joint tenants, both should
sign. When signing as attorney, executor, administrator,
trustee, guardian or in any other representative capacity,
please give full title as such. If signing for a
corporation, please sign in full corporate name by
authorized person. If a partnership, please sign in
partnership name by authorized person.
[ARROW GRAPHIC] [ARROW GRAPHIC] RYDEX SER/DY MBD IND
Please refer to the Proxy Statement discussion of each of these matters. [LOGO] ezVote(SM) Consolidated Proxy Card
IF NO SPECIFICATION IS MADE, THE PROXY SHALL BE VOTED FOR THE PROPOSALS.
As to any other matter, said attorneys shall vote in accordance with their
best judgment. THE BOARD OF TRUSTEES RECOMMENDS A VOTE FOR EACH OF THE
FOLLOWING:
[ARROW GRAPHIC] Please fill in box(es) as shown using black or blue ink or number 2 pencil. [X] [ARROW GRAPHIC]
PLEASE DO NOT USE FINE POINT PENS.
FOR all nominees
listed (except as WITHHOLD
noted to the authority to
contrary at left) vote for all nominees
1. Consider and vote on the following as trustees of the Trust:
(01) Corey A. Colehour (02) J. Kenneth Dalton (03) John O. Demaret
(04) Patrick T. McCarville (05) Roger Somers and (06) Carl G. Verboncoeur [ ] [ ]
-----------------------------------------------------------------------------
(Instruction: To withhold authority to vote for any individual nominee(s),
write the number of the nominee(s) on the line above.)
FOR AGAINST ABSTAIN
2. Approve a new investment advisory agreement between Rydex Series Funds and [ ] [ ] [ ]
PADCO Advisors, Inc. (Series Funds Only)
3. Approve a new investment advisory agreement between Rydex Dynamic Funds and [ ] [ ] [ ]
PADCO Advisors, Inc. (Dynamic Funds Only)
4. Approve the change of investment objective from a fundamental to a
non-fundamental policy for each of the following Funds:
4(a) Nova Fund [ ] [ ] [ ]
4(b) Ursa Fund [ ] [ ] [ ]
4(c) OTC Fund [ ] [ ] [ ]
4(d) US Government Bond Fund [ ] [ ] [ ]
4(e) Juno Fund [ ] [ ] [ ]
5. Any other business properly brought before the Meeting.
PLEASE SIGN ON REVERSE SIDE
[ARROW GRAPHIC] RYDEX SER/DY MBD EZ [ARROW GRAPHIC]
[ARROW] DETACH CONSOLIDATED PROXY CARD AT PERFORATION BELOW. [ARROW]
[GRAPHIC: STOP SIGN]
IF YOU HAVE VOTED THE CONSOLIDATED PROXY CARD ABOVE, DO NOT VOTE THE INDIVIDUAL
BALLOTS.
IF YOU RETURN BOTH THE CONSOLIDATED PROXY CARD AND THE INDIVIDUAL BALLOTS, WE
WILL CAST THE INDIVIDUAL BALLOTS AS YOUR PROXY VOTE.
- ------------------------------------------------------ ------------------------------------------------------
XXX XXXXXXXXXX XXX XXX XXXXXXXXXX XXX
ACCOUNT REGISTRATION ------------------------- ACCOUNT REGISTRATION -------------------------
PRINTS HERE [ARROW] PRINTS HERE [ARROW]
------------------------- -------------------------
FUND NAME PRINTS HERE FUND NAME PRINTS HERE
FOR all nominees WITHHOLD FOR all nominees WITHHOLD
listed (except as authority to listed (except as authority to
noted to the vote for all noted to the vote for all
contrary at left) nominees contrary at left) nominees
1. Election of Trustees: [ ] [ ] 1. Election of Trustees: [ ] [ ]
(01) Colehour (01) Colehour
(02) Dalton (02) Dalton
(03) Demaret (03) Demaret
(04) McCarville (04) McCarville
(05) Somers and (05) Somers and
(06) Verboncoeur (06) Verboncoeur
** EXCEPT# ** EXCEPT#
-------------------------------- --------------------------------
FOR AGAINST ABSTAIN FOR AGAINST ABSTAIN
2. Advisory Agreement - 2. Advisory Agreement -
Series Funds Only [ ] [ ] [ ] Series Funds Only [ ] [ ] [ ]
3. Advisory Agreement - 3. Advisory Agreement -
Dynamics Funds Only [ ] [ ] [ ] Dynamics Funds Only [ ] [ ] [ ]
4a. Investment Objective - 4a. Investment Objective -
Nova Fund Only [ ] [ ] [ ] Nova Fund Only [ ] [ ] [ ]
4b. Investment Objective - 4b. Investment Objective -
Ursa Fund Only [ ] [ ] [ ] Ursa Fund Only [ ] [ ] [ ]
4c. Investment Objective - 4c. Investment Objective -
OTC Fund Only [ ] [ ] [ ] OTC Fund Only [ ] [ ] [ ]
4d. Investment Objective - 4d. Investment Objective -
Bond Fund Only [ ] [ ] [ ] Bond Fund Only [ ] [ ] [ ]
4e. Investment Objective - 4e. Investment Objective -
Juno Fund Only [ ] [ ] [ ] Juno Fund Only [ ] [ ] [ ]
RYDEX SER/DY MBD IND