UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No.)
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] 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 Pursuant to [SEC]240.14a-12
(Name of Registrant as Specified In Its Charter)
RYDEX VARIABLE TRUST
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on
which the filing fee is calculated and state how it was
determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
RYDEX VARIABLE TRUST
Dear Insurance Product Owner and Shareholder:
I am writing you on an important matter relating to the Rydex family of
funds (the "Funds"). On February 16, 2010, Security Benefit Mutual Holding
Company ("SBHC"), the parent company of PADCO Advisors II, Inc., the Funds'
investment adviser that operates under the name Rydex Investments (the
"Investment Adviser"), and certain of SBHC's affiliates entered into agreements
with an investor group led by Guggenheim Partners, LLC (the "Purchaser"). Under
the agreements, the Purchaser will acquire control of the Investment Adviser and
affiliates. Guggenheim Partners, LLC is a global, independent, privately-held,
diversified financial services firm with more than $100 billion in assets under
supervision.
This transaction should not result in material changes to the day-to-day
management and operations of the Funds or any increase in fees. For example,
the portfolio managers of the Funds are expected to remain the same and your
daily experience in dealing with the Funds should remain unchanged. However, for
legal reasons, this transaction will have the effect of terminating the Funds'
investment advisory agreements with the Investment Adviser and any sub-advisory
agreement.
Accordingly, by this joint proxy statement, we are requesting that you vote
to approve substantially identical investment advisory agreements and, as
applicable, sub-advisory agreements to take the place of the current agreements,
so that the Investment Adviser and, as applicable, any sub-adviser may continue
to manage the Funds.
In addition, we are requesting that you vote to approve a change to each
Fund's "fundamental investment policy" on borrowing money, which currently is
more prohibitive than necessary.
The Funds are available as investment options under variable annuity
contracts and variable life insurance policies ("insurance products").
A Special Joint Meeting of Shareholders (the "Meeting") of each of the
Funds, which are listed in an attachment to the Notice of Special Joint Meeting
of Shareholders, has been scheduled for April 23, 2010 to vote on these matters.
If you are an insurance product owner or shareholder of record of any of the
Funds as of the close of business on February 24, 2010, you are entitled to vote
at the Meeting and any adjournment of the Meeting, even if you no longer own an
insurance product or Fund shares.
Pursuant to these materials, you are being asked to approve proposals for
the Funds, as listed above. Please note that you may receive similar materials
if you own shares of other funds in the Rydex|SGI fund complex asking you to
approve proposals for the other funds.
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You can vote in one of four ways:
o By mail with the enclosed proxy card -- be sure to sign, date and return
it in the enclosed postage-paid envelope,
o Through the web site listed in the proxy voting instructions,
o By telephone using the toll-free number listed in the proxy voting
instructions, or
o In person at the shareholder meeting on April 23, 2010.
We encourage you to vote over the Internet or by telephone, using the voting
control number that appears on your proxy card. Your vote is extremely
important. Shareholder meetings of the Funds do not generally occur with great
frequency, so we ask that you take the time to carefully consider these
proposals and vote on these important proposals. Please read the enclosed
information carefully before voting. If you have questions, please call The
Altman Group at 1-877-864-5058.
Proxies may be revoked prior to the Meeting by timely executing and
submitting a revised proxy (following the methods noted above), by giving
written notice of revocation to Rydex Variable Trust prior to the Meeting, or by
voting in person at the Meeting.
We appreciate your participation and prompt response in this matter and
thank you for your continued support.
Sincerely,
/s/ Richard M. Goldman
Richard M. Goldman
President
PROMPT EXECUTION AND RETURN OF THE ENCLOSED PROXY CARD IS REQUESTED. A
SELF-ADDRESSED, POSTAGE-PAID ENVELOPE IS ENCLOSED FOR YOUR CONVENIENCE,
ALONG WITH INSTRUCTIONS ON HOW TO VOTE OVER THE INTERNET OR BY TELEPHONE
SHOULD YOU PREFER TO VOTE BY ONE OF THOSE METHODS.
ii
VERY IMPORTANT NEWS FOR SHAREHOLDERS
By its very nature, the following "Questions and Answers" section is a
summary and is not intended to be as detailed as the discussion found later in
the proxy materials. For that reason, the information is qualified in its
entirety by reference to the enclosed joint proxy statement to shareholders
("Joint Proxy Statement").
QUESTIONS AND ANSWERS
Q. WHY AM I RECEIVING THIS JOINT PROXY STATEMENT?
A. You are receiving these proxy materials -- a booklet that includes the Joint
Proxy Statement and your proxy card -- because you have the right to vote on
important proposals concerning your investment in the Rydex family of funds
(the "Funds").
The first two proposals relate to actions that need to be taken in response
to an impending change in control of PADCO Advisors II, Inc., which
operates under the name Rydex Investments, the investment adviser to each
of the Funds (the "Investment Adviser"). This change in control affects the
Funds' advisory agreement with the Investment Adviser and the Investment
Adviser's sub-advisory agreement with CLS Investments, LLC ("CLS"), the
sub-adviser to certain Funds.
The third proposal relates to a proposed change in each Fund's ability to
borrow money. Each Fund has a "fundamental investment policy" on borrowing
that is more prohibitive than necessary and than applicable law requires.
Thus, the third proposal seeks to amend the current fundamental investment
policy on borrowing money in order to provide the Funds with the maximum
possible amount of flexibility to engage in borrowing activity, including
borrowing for investment purposes (a certain type of leverage), consistent
with current law and with the Funds' investment strategies and objectives.
Q. WHY AM I BEING ASKED TO VOTE?
A. The Investment Company Act of 1940 (the "1940 Act"), the law that regulates
mutual funds, including the Funds, requires that a fund's investment
advisory agreement terminate whenever there is deemed to be a change in
control of the investment adviser. (In this context, the term "investment
adviser" applies to both an investment adviser and a sub-adviser.) Before
an investment advisory agreement terminates, a new investment advisory
agreement must be in effect in order for the investment adviser to continue
to manage the fund's investments. For that reason, we are seeking
shareholder approval of new investment advisory agreements for the Funds.
Security Benefit Mutual Holding Company ("SBHC"), the parent company of the
Investment Adviser, and certain of SBHC's affiliates have entered into
agreements with an investor group led by Guggenheim Partners, LLC (the
"Purchaser"). Guggenheim Partners, LLC is a global, independent, privately-
held, diversified financial services firm with more than $100 billion in
assets
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under supervision. Under the agreements, the Purchaser will acquire control
of the Investment Adviser and affiliates (the "Transaction").
The Transaction should not result in material changes to the day-to-day
management and operations of the Funds or any increase in fees. However, the
Transaction will result in a change in control of the Investment Adviser
within the meaning of the 1940 Act. This will, in turn, result in the
termination of the current investment advisory agreements between the
Investment Adviser and each of the Funds (the "Current Investment Advisory
Agreements"). In addition, the transaction will result in the termination of
each of the current sub-advisory agreements between the Investment Adviser
and CLS, with respect to certain Funds (the "Current Sub-Advisory
Agreements" and, together with the Current Investment Advisory Agreements,
the "Current Agreements").
At a Special Meeting of the Board of Trustees of Rydex Variable Trust (the
"Board") held on January 28, 2010, the Board considered and voted in favor
of new investment advisory agreements between the Investment Adviser and
each of the Funds (the "New Investment Advisory Agreements"), as well as
new sub-advisory agreements between the Investment Adviser and CLS, with
respect to certain Funds (the "New Sub-Advisory Agreements" and, together
with the New Investment Advisory Agreements, the "New Agreements"),
pursuant to which, subject to their approval by each Fund's shareholders,
as applicable, the Investment Adviser will continue to serve as investment
adviser to each Fund and CLS will continue to serve as sub-adviser to
certain Funds after the completion of the Transaction. The fees charged by
each of the Investment Adviser and CLS (collectively, the "Advisers") for
their services to the Funds under each New Agreement will be the same as
their fees under the corresponding Current Agreement. The other terms of
the New Agreements will also be the same in all material respects to those
of the Current Agreements.
With respect to the third proposal, the 1940 Act requires shareholder
approval to amend "fundamental investment policies" adopted by the Funds.
Each Fund currently has in place a fundamental investment policy on its
ability to borrow money. Borrowed money can be used to cover large and
unexpected redemption orders or to leverage a Fund's portfolio, thereby
potentially amplifying its gains and losses. Each Fund's current
fundamental investment policy on borrowing money, however, is more
prohibitive than the 1940 Act requires, unnecessarily limiting investment
strategies. Upon a request from management of the Funds, the Board has
reviewed each Fund's fundamental investment policy on borrowing money and
has recommended a change intended to simplify and modernize the policy. In
general, the proposed change provides the Funds the maximum flexibility to
engage in borrowing activity, including borrowing for investment purposes,
consistent with current applicable law and with the Funds' investment
strategies and objectives. The proposal to amend each Fund's fundamental
investment policy on borrowing money is unrelated to the Transaction.
iv
Q. WILL THE PROPOSED TRANSACTION AFFECT ME?
A. No. The operations of the Advisers, the fees payable to the Advisers and
the persons responsible for the day-to-day investment management of the
Funds are expected to remain unchanged. The Board has been assured that
there will be no reduction in the nature or quality of the investment
advisory and sub-advisory services provided to each Fund, as applicable,
due to the change in control.
Q. WILL THERE BE ANY CHANGES TO THE FUNDS' OTHER SERVICE PROVIDERS?
A. The Purchaser will also acquire control of certain of the Funds' other
service providers ("Affiliated Service Providers") as a result of the
Transaction. The Affiliated Service Providers include Rydex Distributors,
Inc., which serves as the principal underwriter/distributor to the Funds,
and Rydex Fund Services, Inc., which provides general administrative,
shareholder, dividend disbursement, transfer agent and registrar services
to the Funds. Under the 1940 Act, shareholder approval is not required in
order for such Affiliated Service Providers to continue providing services
to the Funds after the closing of the Transaction. The Board has been
assured that there will be no material change in the nature or quality of
the services provided by the Affiliated Service Providers to each Fund due
to the change in control.
Q. WILL MY FUND'S FEES FOR INVESTMENT ADVISORY AND SUB-ADVISORY SERVICES
INCREASE?
A. No. The fee rates under the New Agreements are identical to those under the
Current Agreements.
Q. WHAT EFFECT WILL THE PROPOSED CHANGE TO EACH FUND'S FUNDAMENTAL INVESTMENT
POLICY ON BORROWING MONEY HAVE ON THE FUNDS?
A. While this proposal is intended to provide the Investment Adviser and CLS,
as applicable, with greater flexibility in managing each Fund's borrowing
activity, a Fund would continue to be managed subject to limitations
imposed by the 1940 Act and the rules and interpretive guidance provided
thereunder, as well as the investment objectives, strategies, and policies
expressed in the Fund's registration statement.
Although the change would expand the ability of the Funds to borrow for
investment purposes, the Advisers do not intend to materially increase the
borrowing level of any Fund in the near future, and therefore believe that
the proposed changes will not materially affect the investment risks
currently associated with any Fund. To the extent a Fund expands its level
of borrowing for investment purposes, which could be done without
additional shareholder approval if the proposal is approved, the value of
the Fund's shares may be more volatile than if the Fund did not borrow.
Should a Fund's shareholders not approve the proposal to amend the Fund's
fundamental investment policy on borrowing money, the Fund's current
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fundamental investment policy on borrowing money would continue to apply
unchanged.
Q. I OWN SHARES OF OTHER FUNDS IN THE RYDEX|SGI FUND COMPLEX AND RECEIVED
SIMILAR SOLICITATION MATERIALS REGARDING THOSE FUNDS. AM I ALSO BEING ASKED
TO APPROVE THE PROPOSALS CONTAINED IN THIS PROXY STATEMENT?
A. Yes. You are being asked to approve the proposals contained in this Proxy
Statement, in addition to any other proposals contained in other proxy
statements that you may receive for funds in the Rydex|SGI fund complex.
Q. WHO IS ASKING FOR MY VOTE?
The enclosed proxy is being solicited by the Board of your Fund for use at
the Special Joint Meeting of Shareholders to be held on April 23, 2010 (the
"Meeting"), and, if the Meeting is adjourned or postponed, at any later
meetings, for the purposes stated in the Notice of Meeting.
Q. HOW DOES THE BOARD SUGGEST THAT I VOTE?
A. After careful consideration, the Board unanimously recommends that you vote
"FOR" all of the proposals contained in the Joint Proxy Statement. Please
see the section entitled "Board Recommendation" with respect to each
proposal for a discussion of the Board's considerations in making such
recommendations.
Q. WHY AM I RECEIVING INFORMATION ABOUT FUNDS I DO NOT OWN?
A. The proposals are similar for each Fund, and management of the Funds has
concluded that it is cost-effective to hold the Meeting for all of the
Funds. You will be asked to vote separately on the proposals with respect
to the Fund(s) that you own. An unfavorable vote on a proposal by the
shareholders of one Fund will not affect the implementation of a comparable
proposal by another Fund if such proposal is approved by shareholders of
that Fund assuming that the Transaction is completed.
Q. WHAT VOTE IS REQUIRED TO APPROVE THE PROPOSALS?
A. To be approved with respect to a particular Fund, each proposal must be
approved by a vote of a majority of the outstanding voting securities of
that Fund. The "vote of a majority of the outstanding voting securities"
is defined in the 1940 Act as the lesser of the vote of (i) 67% or more of
the voting securities of a Fund entitled to vote thereon present at the
Meeting or represented by proxy, if more than 50% of the Fund's outstanding
voting securities are present or represented by proxy; or (ii) more than
50% of the outstanding voting securities of the Fund entitled to vote
thereon.
Q. WILL MY VOTE MAKE A DIFFERENCE?
A. Yes! We encourage all shareholders to participate in the governance of
their Fund(s). Additionally, your immediate response on the enclosed proxy
card, on the Internet or over the phone will help save the costs of any
further solicitations.
vi
Q. I'M AN INSURANCE PRODUCT OWNER. HOW WILL MY VOTE BE COUNTED?
A. As a variable annuity contract or variable life insurance policy owner of
record at the close of business on the record date, you have the right to
instruct the life insurance company that issued your product as to how the
shares of the Fund(s) attributable to your product should be voted. If no
voting instructions are received, the life insurance company will vote the
shares attributable to your product in proportion ("for" or "withhold
authority") to those shares for which instructions are received. As a
result, a small number of product owners could determine the outcome of the
vote if other product owners fail to vote.
Q. HOW DO I PLACE MY VOTE?
A. You may provide a Fund with your vote by mail with the enclosed proxy card,
by Internet by following the instructions in the proxy voting instructions,
by telephone using the toll-free number listed in the proxy voting
instructions, or in person at the Meeting. You may use the enclosed
postage-paid envelope to mail your proxy card. Please follow the enclosed
instructions to utilize any of these voting methods. If you need more
information on how to vote, or if you have any questions, please call the
Funds' proxy solicitation agent at the telephone number below.
Q. WHOM DO I CALL IF I HAVE QUESTIONS?
A. We will be happy to answer your questions about this proxy solicitation. If
you have questions, please call The Altman Group at 1-877-864-5058.
Proxies may be revoked prior to the Meeting by timely executing and
submitting a revised proxy (following the methods noted above), by giving
written notice of revocation to Rydex Variable Trust prior to the Meeting,
or by voting in person at the Meeting.
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.
vii
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viii
RYDEX VARIABLE TRUST
9601 Blackwell Road, Suite 500
Rockville, Maryland 20850
1-800-820-0888
NOTICE OF SPECIAL JOINT MEETING OF SHAREHOLDERS
TO BE HELD ON APRIL 23, 2010
Notice is hereby given that a Special Joint Meeting of Shareholders (the
"Meeting") of Rydex Variable Trust (the "Trust") and each of its respective
series listed on the attached list (each, a "Fund" and collectively, the
"Funds") will be held at the Trust's offices at 9601 Blackwell Road, Suite 500,
Rockville, Maryland 20850 on April 23, 2010 at 1:00 p.m. ET for the purposes
listed below:
PROPOSAL SHAREHOLDERS SOLICITED TO VOTE
1. THE APPROVAL OF A NEW INVESTMENT ALL FUNDS
ADVISORY AGREEMENT BETWEEN THE TRUST
AND PADCO ADVISORS II, INC., WITH RESPECT
TO EACH FUND
2. THE APPROVAL OF A NEW SUB-ADVISORY AMERIGO FUND
AGREEMENT BETWEEN PADCO ADVISORS II, BEROLINA FUND
INC. AND CLS INVESTMENTS, LLC, WITH CLERMONT FUND
RESPECT TO CERTAIN FUNDS
3. THE APPROVAL OF A CHANGE TO THE ALL FUNDS
FUNDAMENTAL INVESTMENT POLICY ON
BORROWING MONEY, WITH RESPECT TO
EACH FUND
4. TO TRANSACT SUCH OTHER BUSINESS AS MAY
PROPERLY COME BEFORE THE MEETING
After careful consideration, the Board of Trustees of the Trust unanimously
recommends that shareholders vote "FOR" Proposal 1, "FOR" Proposal 2, and "FOR"
Proposal 3.
Variable annuity contract or variable life insurance policy ("insurance
products") owners or shareholders of record at the close of business on February
24, 2010 are entitled to notice of, and to vote at, the Meeting, even if such
insurance product owners or shareholders no longer own such products or shares.
You are invested in a Fund through the insurance products that you own.
We call your attention to the accompanying Joint Proxy Statement. You are
requested to complete, date, and sign the enclosed proxy card and return it
promptly in the envelope provided for that purpose. Your proxy card also
provides instructions for voting via telephone or the Internet if you wish to
take advantage of these voting options. Proxies may be revoked prior to the
Meeting by timely executing and submitting a revised proxy (following the
methods noted above), by giving written
ix
notice of revocation to the Trust prior to the Meeting, or by voting in person
at the Meeting.
By Order of the Board of Trustees,
/s/ Richard M. Goldman
Richard M. Goldman
President
YOUR VOTE IS VERY IMPORTANT TO US REGARDLESS OF THE NUMBER OF VOTES YOU HOLD.
SHAREHOLDERS WHO DO NOT EXPECT TO ATTEND THE MEETING ARE REQUESTED TO COMPLETE,
SIGN, DATE AND RETURN THE ACCOMPANYING PROXY CARD IN THE ENCLOSED ENVELOPE,
WHICH NEEDS NO POSTAGE IF MAILED IN THE UNITED STATES. IT IS IMPORTANT THAT YOUR
PROXY CARD BE RETURNED PROMPTLY.
FOR YOUR CONVENIENCE, YOU MAY ALSO VOTE BY TELEPHONE OR INTERNET BY FOLLOWING
THE ENCLOSED INSTRUCTIONS. IF YOU VOTE BY TELEPHONE OR VIA THE INTERNET, PLEASE
DO NOT RETURN YOUR PROXY CARD UNLESS YOU ELECT TO CHANGE YOUR VOTE.
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FUNDS PARTICIPATING IN THE MEETING
ON APRIL 23, 2010
All-Cap Opportunity Fund Government Long Bond 1.2x Real Estate Fund
Strategy Fund Retailing Fund
Alternative Strategies Allocation Russell 2000(R) 1.5x Strategy
Fund Health Care Fund Fund
Amerigo Fund Internet Fund
Banking Fund Inverse Dow 2x Strategy Fund Russell 2000(R) 2x Strategy Fund
Basic Materials Fund Inverse Government Long Bond S&P 500 2x Strategy Fund
Berolina Fund Strategy Fund S&P 500 Pure Growth Fund
Biotechnology Fund Inverse Mid-Cap Strategy Fund S&P 500 Pure Value Fund
Clermont Fund Inverse NASDAQ-100(R) Strategy S&P MidCap 400 Pure Growth
Fund Fund
Commodities Strategy Fund Inverse Russell 2000(R) Strategy S&P MidCap 400 Pure Value
Consumer Products Fund Fund Fund
Dow 2x Strategy Fund Inverse S&P 500 Strategy S&P SmallCap 600 Pure
Electronics Fund Fund Growth Fund
Energy Fund Japan 2x Strategy Fund S&P SmallCap 600 Pure Value
Energy Services Fund Leisure Fund Fund
All-Asset Aggressive Strategy Managed Futures Strategy Strengthening Dollar 2x
Fund (formerly, Essential Fund Strategy Fund
Portfolio Aggressive Fund)
All-Asset Conservative Strategy Mid-Cap 1.5x Strategy Fund Technology Fund
Fund (formerly, Essential Multi-Cap Core Equity Fund Telecommunications Fund
Portfolio Conservative Fund) Multi-Hedge Strategies Fund Transportation Fund
All-Asset Moderate Strategy NASDAQ-100(R) 2x Strategy U.S. Government Money
Fund (formerly, Essential Fund Market Fund
Portfolio Moderate Fund) NASDAQ-100(R) Fund Utilities Fund
Europe 1.25x Strategy Fund Nova Fund Weakening Dollar 2x Strategy
Financial Services Fund Precious Metals Fund Fund
xi
TABLE OF CONTENTS
OVERVIEW OF THE PROPOSALS .................................................... 3
Approval of New Investment Advisory and Sub-Advisory Agreements
(Proposals 1 - 2) ........................................................ 3
Approval of a Change to the Funds' Fundamental Investment Policy on
Borrowing (Proposal 3) ................................................... 3
Information Regarding the Change in Control of the Investment Adviser .... 4
Section 15(f) of the 1940 Act ............................................ 6
Approval of the New Agreements by the Board .............................. 6
Board Considerations in Approving the New Agreements ..................... 7
New Investment Advisory Agreements ....................................... 8
New Sub-Advisory Agreements .............................................. 11
PROPOSAL 1 - THE APPROVAL OF NEW INVESTMENT ADVISORY AGREEMENTS .............. 14
The Investment Adviser ................................................... 14
Material Terms of the New Investment Advisory Agreements ................. 15
BOARD RECOMMENDATION ON PROPOSAL 1 ........................................... 16
PROPOSAL 2 - THE APPROVAL OF NEW SUB-ADVISORY AGREEMENTS ..................... 18
Information About CLS .................................................... 19
Material Terms of the CLS Sub-Advisory Agreement ......................... 19
BOARD RECOMMENDATION ON PROPOSAL 2 ........................................... 20
PROPOSAL 3 - THE APPROVAL OF A CHANGE TO THE
FUNDAMENTAL INVESTMENT POLICY ON BORROWING MONEY ............................. 21
Proposed New Fundamental Investment Policy ............................... 21
Discussion of Proposed Modification ...................................... 23
BOARD RECOMMENDATION ON PROPOSAL 3 ........................................... 24
OTHER BUSINESS ............................................................... 25
ADDITIONAL INFORMATION ....................................................... 25
Administrator, Principal Underwriter and Transfer Agent ................... 25
Affiliations and Affiliated Brokerage ..................................... 25
Other Information ......................................................... 25
Voting Information ........................................................ 25
Shareholder Proposals ..................................................... 28
xii
APPENDICES
Appendix A FORM OF INVESTMENT ADVISORY AGREEMENT ......................... A-1
Appendix B INFORMATION REGARDING THE INVESTMENT
ADVISORY AGREEMENTS AND FEES PAID TO THE
INVESTMENT ADVISER AND AFFILIATES ............................. B-1
Appendix C DIRECTORS/TRUSTEES/MANAGERS AND OFFICERS ...................... C-1
Appendix D-1 ADVISORY FEE RATES OF FUNDS WITH SIMILAR
INVESTMENT OBJECTIVES ADVISED BY PADCO
ADVISORS, INC. AND PADCO ADVISORS II, INC. .................... D-1-1
Appendix D-2 ADVISORY FEE RATES OF FUNDS WITH SIMILAR
INVESTMENT OBJECTIVES ADVISED OR
SUB-ADVISED BY CLS INVESTMENTS, LLC ........................... D-2-1
Appendix E FORM OF SUB-ADVISORY AGREEMENT
WITH CLS INVESTMENTS, LLC ..................................... E-1
Appendix F INFORMATION REGARDING THE SUB-ADVISORY
AGREEMENT WITH CLS INVESTMENTS, LLC AND
FEES PAID TO THE SUB-ADVISER .................................. F-1
Appendix G OUTSTANDING SHARES ............................................ G-1
Appendix H BENEFICIAL OWNERS OF MORE THAN 5%
OF EACH FUND .................................................. H-1
xiii
RYDEX VARIABLE TRUST
9601 Blackwell Road, Suite 500
Rockville, Maryland 20850
1-800-820-0888
JOINT PROXY STATEMENT
SPECIAL JOINT MEETING OF SHAREHOLDERS
TO BE HELD ON APRIL 23, 2010
This joint proxy statement ("Joint Proxy Statement") and enclosed notice and
proxy card are being furnished in connection with the solicitation of proxies by
the Board of Trustees (the "Board") of Rydex Variable Trust (the "Trust"). The
proxies are being solicited for use at a special joint meeting of shareholders
of the Trust to be held at the Trust's offices at 9601 Blackwell Road, Suite
500, Rockville, Maryland 20850 on April 23, 2010 at 1:00 p.m. ET, and at any and
all adjournments or postponements thereof (the "Meeting").
The Board has called the Meeting and is soliciting proxies from shareholders
of each series of the Trust listed in the accompanying notice to this Joint
Proxy Statement (each, a "Fund" and collectively, the "Funds") with respect to
the following proposals (the "Proposals") as follows:
PROPOSAL SHAREHOLDERS SOLICITED TO VOTE
1. THE APPROVAL OF A NEW INVESTMENT ALL FUNDS
ADVISORY AGREEMENT BETWEEN THE TRUST
AND PADCO ADVISORS II, INC., WITH RESPECT
TO EACH FUND
2. THE APPROVAL OF A NEW SUB-ADVISORY AMERIGO FUND
AGREEMENT BETWEEN PADCO ADVISORS II, BEROLINA FUND
INC. AND CLS INVESTMENTS, LLC, WITH CLERMONT FUND
RESPECT TO CERTAIN FUNDS
3. THE APPROVAL OF A CHANGE TO THE ALL FUNDS
FUNDAMENTAL INVESTMENT POLICY ON
BORROWING MONEY, WITH RESPECT TO
EACH FUND
4. TO TRANSACT SUCH OTHER BUSINESS AS MAY
PROPERLY COME BEFORE THE MEETING
This Joint Proxy Statement and the accompanying notice and the proxy card
are being first mailed to shareholders on or about March 22, 2010.
The Board has determined that the use of this Joint Proxy Statement for the
Meeting is in the best interests of each Fund and its shareholders in light of
the similar matters being considered and voted on by the shareholders of the
other Funds.
1
You are entitled to vote at the Meeting of each Fund of which you are a
variable annuity contract or variable life insurance policy ("insurance
products") owner or shareholder as of the close of business on February 24, 2010
(the "Record Date"). Shares of the Funds are available primarily for insurance
products. The Trust is soliciting voting instructions from insurance product
owners and shareholders invested in each Fund in connection with the Proposals,
as applicable. For ease of reference, throughout this Joint Proxy Statement,
insurance product owners may be referred to as "shareholders" of a Fund.
If you have any questions about the Proposals or about voting, please call
The Altman Group, the Funds' proxy solicitor, at 1-877-864-5058.
IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY
MATERIALS FOR THE MEETING TO BE HELD ON APRIL 23, 2010
This Joint Proxy Statement is available at www.proxyonline.com/docs/
rydexSGI4.pdf. In addition, shareholders can find important information about
each Fund in the Fund's annual report, dated December 31, 2009, including
financial reports for the fiscal year ended December 31, 2009, and in any recent
semi-annual report succeeding such annual report, if any. You may obtain copies
of these reports without charge by writing to the Trust, or by calling the
telephone number shown on the front page of this Joint Proxy Statement.
2
OVERVIEW OF THE PROPOSALS
APPROVAL OF NEW INVESTMENT ADVISORY AND SUB-ADVISORY AGREEMENTS
(PROPOSALS 1 - 2)
The Proposals 1 and 2 relate to actions that need to be taken in response to
an impending change in control of PADCO Advisors II, Inc., which operates under
the name Rydex Investments, the investment adviser to each of the Funds (the
"Investment Adviser"). In addition, the transaction affects the sub-advisory
agreements with CLS Investments, LLC ("CLS"), the sub-adviser to certain Funds.
For purposes of this Joint Proxy Statement, the term "Advisers" collectively
refers to the Investment Adviser and CLS.
The Investment Company Act of 1940, as amended (the "1940 Act"), the law
that regulates mutual funds, such as the Funds, requires that a fund's
investment advisory agreement terminate whenever there is deemed to be a change
in control of the investment adviser. (In this context, the term "investment
adviser" applies to both an investment adviser and a sub-adviser.) Before an
investment advisory agreement terminates, a new investment advisory agreement
must be in effect in order for the investment adviser to continue to manage the
fund's investments. For that reason, we are seeking shareholder approval of new
investment advisory agreements for the Funds.
Upon completion of a transaction involving the Investment Adviser, which is
discussed in more detail below, the Funds' current investment advisory
agreements with the Investment Adviser will be terminated. In addition, the
transaction will result in the termination of the current sub-advisory
agreements between the Investment Adviser and CLS, with respect to Amerigo Fund,
Berolina Fund and Clermont Fund (the "Sub-Advised Funds"). Accordingly, Proposal
1 relates to the approval by shareholders of new investment advisory agreements
between the Investment Adviser and the Funds (the "New Investment Advisory
Agreements"). Similarly, Proposal 2 relates to the approval by shareholders of
new sub-advisory agreements between the Investment Adviser and CLS, with respect
to the Sub-Advised Funds (the "New Sub-Advisory Agreements" and, together with
the New Investment Advisory Agreements, the "New Agreements").
APPROVAL OF A CHANGE TO THE FUNDS' FUNDAMENTAL INVESTMENT POLICY ON
BORROWING (PROPOSAL 3)
In addition to considering the New Agreements in Proposals 1 and 2,
shareholders of the Funds also are being asked to consider the approval of a
change to each Fund's current fundamental investment policy on borrowing money.
The 1940 Act requires that a fund adopt a fundamental investment policy on
borrowing. Under the 1940 Act, any change to a fundamental investment policy
must be approved by shareholders of the fund. Each Fund's current fundamental
investment policy on borrowing money is more restrictive than the 1940 Act
requires, unnecessarily limiting investment strategies. Accordingly, Proposal 3
seeks approval of a change to
3
each Fund's fundamental investment policy on borrowing money in order to permit
a Fund to engage in borrowing money consistent with applicable law. Proposal 3
is unrelated to Proposals 1 and 2.
FOR THE REASONS DISCUSSED BELOW, THE BOARD RECOMMENDS THAT SHAREHOLDERS VOTE
"FOR" THE APPROVAL OF THE NEW AGREEMENTS AND CHANGE TO THE FUNDAMENTAL
INVESTMENT POLICY ON BORROWING MONEY.
INFORMATION REGARDING THE CHANGE IN CONTROL OF THE INVESTMENT ADVISER
On February 16, 2010, Security Benefit Mutual Holding Company ("SBHC"), the
parent company of the Investment Adviser, and certain of SBHC's affiliates
(collectively, "SecBen") entered into agreements with Guggenheim SBC Holdings
LLC ("Purchaser"), a special purpose entity managed by Guggenheim Partners, LLC
("Guggenheim"), which is a global, independent, privately-held, diversified
financial services firm with more than $100 billion in assets under supervision
and 800 dedicated professionals. Headquartered in Chicago and New York, the firm
operates through offices in 20 cities in the U.S., Europe and Asia. Guggenheim
operates businesses in investment management, capital markets, wealth management
and merchant banking. Within the investment and wealth management businesses,
Guggenheim specializes in fixed income and alternative investments, and in
providing sophisticated wealth advisory and family office services. Within
capital markets, it specializes in providing debt financing and structured
finance solutions to clients. Merchant banking activities include its portfolio
of investments in funds managed by it, joint venture business investments, and
new business launch activities not integrated into other primary operating
businesses. Guggenheim is a wholly-owned subsidiary of Guggenheim Capital, LLC,
227 West Monroe Street, 48th Floor, Chicago, Illinois 60606. Sage Assets, Inc.,
5949 Sherry Lane, Suite 1900, Dallas, Texas 75225, a wholly-owned subsidiary of
Sammons Enterprises, Inc., 5949 Sherry Lane, Suite 1900, Dallas, Texas 75225, is
a control person of Guggenheim as a result of its equity ownership in excess of
25% (but less than 50%) of Guggenheim Capital, LLC. Under the agreements, the
Purchaser will acquire control of the Investment Adviser and affiliates (the
"Transaction").
The final form of the Purchaser's controlling stake in the Investment
Adviser and affiliates will depend upon whether certain conditions are
satisfied. In the Transaction, the Purchaser will either receive: (a) a 100%
ownership stake in Security Benefit Corporation ("SBC"), a wholly-owned
subsidiary of SBHC and the parent company of the Investment Adviser and
affiliates (the "Purchase Transaction"); or, (b) if the Purchase Transaction is
terminated for any reason other than a breach of the related agreement by the
Purchaser or the failure to meet a specific closing condition relating to
execution of employment agreements by certain employees of the SBC group of
companies, a 100% ownership stake in SBC's asset management business, which
includes the Investment Adviser and certain affiliates (the "Contingent Asset
Management Purchase and Sale").
4
In anticipation of the Transaction, the parties have entered into an interim
recapitalization transaction in which the Purchaser has made a secured loan to
SBC. Upon the closing of the Purchase Transaction, the Purchaser will make a
capital contribution to SBC and the secured loan will convert into equity in SBC
and SBHC will transfer all of the issued and outstanding shares of capital stock
of SBC to the Purchaser. The Purchase Transaction is conditioned on the approval
of a corporate restructuring called a demutualization pursuant to which the
insurance policyholders who presently own SBHC are expected to receive cash
payments or policy credits in connection with the cancellation of their
ownership interests. In the event that the Contingent Asset Management Purchase
and Sale occurs following termination of the Purchase Transaction, SBC will
receive a senior unsecured note from the Purchaser and have certain debt
extinguished, and the Purchaser will receive all of the issued and outstanding
membership interests of each entity in SBC's asset management business, which
includes the Investment Adviser and certain affiliates.
The Transaction should not result in material changes to the day-to-day
management and operations of the Funds. For example, the portfolio managers of
the Funds are expected to remain the same and your daily experience in dealing
with the Funds should remain unchanged. However, the Transaction will result in
a "change in control" of the Investment Adviser within the meaning of the 1940
Act. This will automatically terminate each of the current investment advisory
agreements between the Investment Adviser and the Funds (each, a "Current
Investment Advisory Agreement" and collectively, the "Current Investment
Advisory Agreements") and the current sub-advisory agreements between the
Investment Adviser and CLS, with respect to the Sub-Advised Funds (each, a
"Current Sub-Advisory Agreement" and collectively, the "Current Sub-Advisory
Agreements") (together, the Current Investment Advisory and Current Sub-Advisory
Agreements are referred to as the "Current Agreements").
In addition, the Purchaser will acquire control of certain of the Funds'
other service providers ("Affiliated Service Providers") as a result of the
Transaction. The Affiliated Service Providers include Rydex Distributors, Inc.,
which serves as the principal underwriter/distributor to the Funds, and Rydex
Fund Services, Inc., which provides general administrative, shareholder,
dividend disbursement, transfer agent and registrar services to the Funds. Under
the 1940 Act, shareholder approval is not required in order for such Affiliated
Service Providers to continue providing services to the Funds after the closing
of the Transaction.
Completion of the Transaction will be subject to certain closing conditions,
including: (a) the receipt of approvals required for the assignment or
replacement of investment advisory contracts relating to 80% or more of the
total net assets under management by the Investment Adviser and certain
affiliates that will be controlled by the Purchaser; and, (b) with respect to
the Purchase Transaction only, the approval of the members of SBHC to the extent
required by applicable law in order to effect the demutualization transaction
described above.
5
While the parties expect the Transaction to be completed by May 31, 2010, it
is subject to various conditions, and may be delayed or even terminated due to
unforeseen circumstances. If for some reason the Transaction does not occur, the
Current Agreements will not automatically terminate and will remain in effect,
and the New Agreements will not be entered into, even if they have been approved
by Fund shareholders. If Proposal 1 is not approved by shareholders of any Fund,
the Board will evaluate other short-and long-term options permitted by law,
which include interim investment advisory agreements with the Investment Adviser
and reorganization or liquidation of the Fund(s).
SECTION 15(f) OF THE 1940 ACT
Section 15(f) of the 1940 Act provides that, when a change in control of an
investment adviser occurs, the investment adviser or any of its affiliated
persons may receive any amount or benefit in connection with the change in
control as long as two conditions are met. The first condition specifies that no
"unfair burden" may be imposed on the fund as a result of a transaction relating
to the change in control, or any express or implied terms, conditions or
understandings. The term "unfair burden," as defined in the 1940 Act, includes
any arrangement during the two-year period after the change in control
transaction whereby the investment adviser (or predecessor or successor
adviser), or any "interested person" (as defined in the 1940 Act) of any such
investment adviser, receives or is entitled to receive any compensation,
directly or indirectly, from the investment company or its security holders
(other than fees for bona fide investment advisory or other services), or from
any person in connection with the purchase or sale of securities or other
property to, from, or on behalf of the fund (other than fees for bona fide
principal underwriting services), which could limit the ability of the Funds to
engage in brokerage transactions with certain broker-dealers, although such
limits are not expected to cause any Fund to change its brokerage relationships.
The second condition specifies that, during the three-year period immediately
following consummation of the change in control transaction, at least 75% of the
fund's board of trustees must not be "interested persons" (as defined in the
1940 Act) of the investment adviser or predecessor adviser.
Consistent with the conditions of Section 15(f), SecBen and the Purchaser
have agreed that they will not take any action that would have the effect,
directly or indirectly, of causing any requirement of the provisions of Section
15(f) to be violated with respect to the Transaction. The Investment Adviser
represented to the Board that no unfair burden would be imposed on the Funds as
a result of the Transaction.
APPROVAL OF THE NEW AGREEMENTS BY THE BOARD
At a Special Meeting of the Board held on January 28, 2010 (the "January
2010 Meeting"), at which a majority of the members of the Board (the
"Trustees"), including a majority of the Trustees who are not "interested
persons" (as defined under the 1940 Act) of the Trust and who are not interested
persons of any party to the New Agreements (the "Independent Trustees"), were
present, the Board
6
considered and voted in favor of the New Agreements, pursuant to which, subject
to their approval by each Fund's shareholders, as applicable, the Advisers will
continue to serve each Fund, as applicable, after the completion of the
Transaction. Each Adviser's rate of fees for its services to each Fund under a
New Agreement, as applicable, will be the same as its fees under the Current
Agreement. The other terms of the New Agreements will also be the same in all
material respects to those of the Current Agreements. As a result, in reviewing
the New Agreements at the January 2010 Meeting, the Board also considered its
review of relevant materials relating to the Current Agreements at the annual
renewal meeting on August 25, 2009 (the "2009 Renewal Meeting").
BOARD CONSIDERATIONS IN APPROVING THE NEW AGREEMENTS
Prior to the January 2010 Meeting, representatives of SecBen informed the
Board that it was in discussions with Guggenheim regarding a potential
arrangement pursuant to which an investor group led by Guggenheim would acquire
control of the Investment Adviser and affiliates. With respect to the
Transaction, the Board reviewed materials received from SecBen and Guggenheim,
including information relating to the terms of the Transaction. The Board also
reviewed information regarding Guggenheim, including, but not limited to: (a)
certain representations concerning Guggenheim's financial condition, (b)
information regarding Guggenheim's affiliated investment advisers, (c)
information regarding Guggenheim's litigation and regulatory matters, including
representations that there were no material matters, and (d) potential conflicts
of interest. SecBen and Guggenheim also provided the Board with presentations
that discussed the Transaction and intentions for the business, operations and
personnel of the Investment Adviser after the closing of the Transaction.
In considering the New Agreements at the January 2010 Meeting, the Board
determined that the New Agreements would enable shareholders of the Funds to
continue to obtain high quality services at a cost that is appropriate,
reasonable, and in the best interests of their shareholders. The Board,
including the Independent Trustees, unanimously approved the New Agreements. In
reaching their decision, the Trustees carefully considered information that they
had received throughout the year as part of their regular oversight of the
Funds, including, in particular, information from the Investment Adviser and CLS
that was provided in connection with the 2009 Renewal Meeting. The Trustees
noted that, at the 2009 Renewal Meeting, they had obtained and reviewed a wide
variety of information, including certain comparative information regarding
performance of the Funds relative to performance of other comparable mutual
funds.
At the 2009 Renewal Meeting, the Trustees, including the Independent
Trustees, evaluated a number of considerations, including among others: (a) the
quality of the Advisers' investment advisory and other services; (b) the
Advisers' investment management personnel; (c) the Advisers' operations and
financial condition; (d) the Advisers' brokerage practices (including any soft
dollar arrangements) and
7
investment strategies; (e) the level of the fees that the Advisers charge
compared with the fees charged to comparable mutual funds or accounts; (f) each
Fund's overall fees and operating expenses compared with similar mutual funds;
(g) the level of the Advisers' profitability from their Fund-related operations;
(h) the Advisers' compliance systems; (i) the Advisers' policies on and
compliance procedures for personal securities transactions; (j) the Advisers'
reputation, expertise and resources in the financial markets; and (k) Fund
performance compared with similar mutual funds. Certain of these considerations
are discussed in more detail below. In its deliberations at the 2009 Renewal
Meeting, the Board did not identify any single piece of information that was
all-important or controlling. Based on the Board's deliberations and its
evaluation of the information referenced above and described in more detail
below, the Board, including all of the Independent Trustees, unanimously: (a)
concluded that terms of the New Agreements are fair and reasonable; (b)
concluded that the Advisers' fees were reasonable in light of the services that
they provide to the Funds; and (c) agreed to approve the New Agreements, subject
to shareholder approval.
In approving the New Agreements, the Trustees also considered information
and representations made about the Guggenheim organization and its personnel and
the ongoing role that Guggenheim would play with the Purchaser and its other
non-managing members. The Trustees considered these representations and the
financial stability the Transaction was expected to bring to the Investment
Adviser and the Affiliated Service Providers in the context of the current
financial challenges facing certain SBHC affiliates. The Trustees also
considered representations by Guggenheim regarding additional resources that
could be made available to the Investment Adviser and the Affiliated Service
Providers if beneficial to their operations.
NEW INVESTMENT ADVISORY AGREEMENTS
NATURE, EXTENT AND QUALITY OF SERVICES PROVIDED BY THE INVESTMENT ADVISER.
At the 2009 Renewal Meeting, the Board reviewed the scope of services to be
provided by the Investment Adviser under the Current Investment Advisory
Agreements. At the January 2010 Meeting, the Board noted that there would be no
significant differences between the scope of services required to be provided by
the Investment Adviser under the Current Investment Advisory Agreements and the
scope of services required to be provided by the Investment Adviser under the
New Investment Advisory Agreements. In reviewing the scope of services provided
to the Funds by the Investment Adviser, the Board reviewed and discussed at the
2009 Renewal Meeting the Investment Adviser's investment experience, noting that
the Investment Adviser and its affiliates have committed significant resources
over time to the support of the Funds. The Board also considered the Investment
Adviser's compliance programs and its compliance record with respect to the
Funds. In that regard, the Board noted that the Investment Adviser provides
information regarding the portfolio management and compliance to the Board on a
periodic basis in connection with regularly scheduled meetings of the Board. In
addition to the above
8
considerations, the Board reviewed and considered the Investment Adviser's
investment processes and strategies, and matters related to the Investment
Adviser's portfolio transaction policies and procedures. Based on this review,
the Board concluded at the 2009 Renewal Meeting that the nature, extent, and
quality of services to be provided by the Investment Adviser to the Funds under
the Current Investment Advisory Agreements were appropriate and continued to
support the Board's original selection of the Investment Adviser as the
investment adviser to the Funds.
At the January 2010 Meeting, the Board noted that most of the key investment
and management personnel of the Investment Adviser servicing the Funds are
expected to remain with the Investment Adviser following the Transaction and
that the services provided to the Funds by the Investment Adviser are not
expected to materially change. The Trustees also considered SecBen's and
Guggenheim's representations to the Board that the Investment Adviser would
continue to provide investment and related services that were of materially the
same quality and quantity as services provided to the Funds in the past, and
that these services are appropriate in scope and extent in light of the Funds'
operations, the competitive landscape of the investment company business and
investor needs. Based on this review, the Board concluded that the range and
quality of services provided by the Investment Adviser to the Funds were
expected to continue under the New Investment Advisory Agreements at comparable
levels.
FUND EXPENSES AND PERFORMANCE OF THE FUNDS AND THE INVESTMENT ADVISER. At
the 2009 Renewal Meeting, the Board reviewed statistical information prepared by
the Investment Adviser regarding the expense ratio components, including actual
advisory fees, waivers/reimbursements, and gross and net total expenses of each
Fund in comparison with the same information for other funds registered under
the 1940 Act determined by the Investment Adviser to comprise each Fund's
applicable peer group. Because few funds seek to provide unlimited exchange
privileges similar to those of the majority of the Funds, each Fund's applicable
peer group is generally limited to the funds of two unaffiliated mutual fund
families. In addition, at the 2009 Renewal Meeting, the Board reviewed
statistical information prepared by the Investment Adviser relating to the
performance of each Fund, as well as each Fund's ability to successfully track
its benchmark over time (as applicable to those Funds which track a benchmark),
and a comparison of each Fund's performance to funds with similar investment
objectives for the same periods and to appropriate indices/benchmarks, in light
of total return, yield and market trends. The Board further noted that despite
the lack of a sizeable peer group for certain of the Funds, the peer fund
information presented to the Board was meaningful because the peer funds'
investment objectives and strategies were closely aligned with those of the
Funds. The Board also noted that the investment advisory fees for the Funds
generally were equivalent to those of their peers and that the overall expenses
for the Funds were only slightly higher than the total expenses of the peer
funds, due in part to differing share classes and distribution fees. Based on
the review at the 2009 Renewal Meeting, the Board concluded that the investment
advisory fees and expense levels
9
and the historical performance of the Funds, as compared to the investment
advisory fees and expense levels and performance of the peer funds, were
satisfactory for the purposes of approving the continuance of the Current
Investment Advisory Agreements. Based on the representations made by SecBen and
Guggenheim at the January 2010 Meeting that the Investment Adviser would
continue to operate following the closing of the Transaction in much the same
manner as it operates today, the Board concluded that the investment performance
of the Investment Adviser was not expected to be affected by the Transaction.
COSTS OF SERVICES PROVIDED TO THE FUNDS AND PROFITS REALIZED BY THE
INVESTMENT ADVISER AND ITS AFFILIATES. At the 2009 Renewal Meeting, the Board
reviewed information about the profitability of the Funds to the Investment
Adviser based on the advisory fees payable under the Current Investment Advisory
Agreements for the last calendar year. The Investment Adviser also presented the
Board with material discussing its methodology for determining the level of
advisory fees assessable to the Funds. The Board analyzed the Funds' expenses,
including the investment advisory fees paid to the Investment Adviser. The Board
also reviewed information regarding direct revenue received by the Investment
Adviser and ancillary revenue received by the Investment Adviser and/or its
affiliates in connection with the services provided to the Funds by the
Investment Adviser (as discussed below) and/or its affiliates. The Board also
discussed the Investment Adviser's profit margin as reflected in the Investment
Adviser's profitability analysis and reviewed information regarding economies of
scale (as discussed below). Based on this review at the 2009 Renewal Meeting,
the Board concluded that the profits to be realized by the Investment Adviser
and its affiliates under the Current Investment Advisory Agreements and from
other relationships between the Funds and the Investment Adviser and/or its
affiliates, if any, were within the range the Board considered reasonable and
appropriate.
At the January 2010 Meeting, the Board considered the fact that the fee
rates payable to the Investment Adviser would be the same under each Fund's New
Investment Advisory Agreement as they are under such Fund's Current Investment
Advisory Agreement. The Board also noted that the Funds' applicable fee
waiver/expense limitations agreements with the Investment Adviser would remain
in effect, if the New Investment Advisory Agreements are approved by
shareholders and the Transaction is completed. With respect to anticipated
profitability, the Board noted that it was too early to predict how the
Transaction would affect the Investment Adviser's profitability with respect to
the Funds, but noted that this matter would be given further consideration on an
ongoing basis. Overall, the Board concluded that the fees to be paid under the
Current Investment Advisory Agreements and under the New Investment Advisory
Agreements are reasonable.
ECONOMIES OF SCALE. In connection with its review of the Funds'
profitability analysis at the 2009 Renewal Meeting, the Board reviewed
information regarding economies of scale or other efficiencies that may result
from increases in the Funds' asset levels. The Board noted that the Current
Investment Advisory Agreements did
10
not provide for any breakpoints in the investment advisory fees as a result of
increases in the asset levels of the Funds. The Board also noted that, though
the Investment Adviser's assets under management were significant, the amount is
spread among many Funds. Further limiting the realization of economies of scale,
is the ability of shareholders of many of the Funds to engage in unlimited
trading. The Board also reviewed and considered the Investment Adviser's
historic profitability as investment adviser to the Funds and determined that
reductions in advisory fees or additions of breakpoints were not warranted at
the time of the 2009 Renewal Meeting. At the January 2010 Meeting, the Trustees
noted that the fees would not change under the New Investment Advisory
Agreements, and they will have the opportunity to again review the
appropriateness of the fee payable to the Investment Adviser under the
Agreements when the next renewal of these Agreements comes before the Board.
OTHER BENEFITS TO THE INVESTMENT ADVISER AND/OR ITS AFFILIATES. At the 2009
Renewal Meeting, in addition to evaluating the services provided by the
Investment Adviser, the Board considered the nature, extent, quality and cost of
the administrative, distribution, and shareholder services performed by the
Affiliated Service Providers under separate agreements. The Board noted that the
Investment Adviser reports its use of soft dollars to the Board on a quarterly
basis, as well as any portfolio transactions on behalf of the Funds placed
through an affiliate of the Funds or the Investment Adviser pursuant to Rule
17e-1 under the 1940 Act. Based on its review at its 2009 Renewal Meeting, the
Board concluded that the nature and quality of the services provided by the
Investment Adviser's affiliates to each Fund will benefit the Funds'
shareholders, and that any ancillary benefits would not be disadvantageous to
the Funds' shareholders, particularly in light of the Board's view that the
Funds' shareholders benefit from investing in a fund that is part of a large
family of funds offering a variety of investment strategies and services. The
Board also considered the terms of the Transaction and the financial benefits
that it brings to the parent company of the Investment Adviser and noted that
those financial benefits are available, in part, because of the involvement of
the Investment Adviser in the Transaction. The Board also noted that the
Transaction is expected to put the Investment Adviser on strong financial
footing, enhancing its ability to provide continuous services to the Funds.
NEW SUB-ADVISORY AGREEMENTS
NATURE, EXTENT AND QUALITY OF SERVICES TO BE PROVIDED BY CLS. At the 2009
Renewal Meeting, the Board reviewed the scope of services to be provided by CLS
under the Current Sub-Advisory Agreements. At the January 2010 Meeting, the
Board noted that there would be no significant differences between the scope of
services required to be provided by CLS under the Current Sub-Advisory
Agreements and the scope of services required to be provided by CLS under the
New Sub-Advisory Agreements. In reviewing the scope of services provided by CLS,
the Board reviewed and discussed CLS' investment experience, noting that CLS and
its affiliates have committed significant resources over time to the support of
the Sub-Advised Funds.
11
At the 2009 Renewal Meeting, the Board also considered CLS' compliance program
and its compliance record with respect to each Sub-Advised Fund. In that regard,
the Board noted that CLS provides information regarding the portfolio management
and compliance to the Board on a periodic basis in connection with regularly
scheduled meetings of the Board. In addition to the above considerations, the
Board reviewed and considered CLS' investment processes and strategies, and
matters related to CLS' portfolio transaction policies and procedures. The Board
further noted that each Sub-Advised Fund has met its investment objectives
consistently since CLS began sub-advising the Fund.
At the January 2010 Meeting, the Board noted that key investment and
management personnel of CLS servicing the Sub-Advised Funds and services
provided to the Sub-Advised Funds are not expected change as a result of the
Transaction. Based on this review, the Board concluded that the nature, extent
and quality of services to be provided by CLS to the Sub-Advised Funds under the
New Sub-Advisory Agreements were appropriate and continued to support the
Board's original selection of CLS as investment sub-adviser to the Sub-Advised
Funds. The Board also noted that CLS was not involved in the Transaction and
that the approval of the New Sub-Advisory Agreements with CLS was required due
to the proposed assignment of the Current Investment Advisory Agreements with
the Investment Adviser.
FUND EXPENSES AND PERFORMANCE OF THE SUB-ADVISED FUNDS AND CLS. At the 2009
Renewal Meeting, the Board reviewed statistical information prepared by CLS and
the Investment Adviser regarding the expense ratio components, including actual
sub-advisory fees, waivers/reimbursements, and gross and net total expenses to
each Sub-Advised Fund. In addition, the Board reviewed statistical information
prepared by CLS relating to the performance of each Sub-Advised Fund and a
comparison of each Sub-Advised Fund's performance to appropriate
indices/benchmarks, in light of total return, yield and market trends. Based on
this review at the 2009 Renewal Meeting, the Board concluded that the investment
sub-advisory fees and expense levels and the historical performance of the
Sub-Advised Funds were satisfactory for the purposes of approving the Current
Sub-Advisory Agreements. At the January 2010 Meeting, the Board concluded that
CLS would continue to operate following the closing of the Transaction in much
the same manner as it operates today and, as a result, the Board concluded that
the investment performance of CLS was not expected to be affected by the
Transaction.
COST OF SERVICES PROVIDED TO THE SUB-ADVISED FUNDS, PROFITS REALIZED BY CLS
AND ITS AFFILIATES AND ECONOMIES OF SCALE. At the 2009 Renewal Meeting, the
Trustees reviewed reports comparing the expense ratios and sub-advisory fees to
those of other comparable mutual funds and concluded that the sub-advisory fees
were reasonable and the result of arm's length negotiation. At its January 2010
Meeting, the Board concluded that, in the near future, the profits to be
realized by CLS and its affiliates under the New Sub-Advisory Agreements and
from other relationships between the Funds and CLS and its affiliates, if any,
should remain
12
within the range the Board previously considered reasonable and appropriate. The
Board further noted at the January 2010 Meeting that it is not possible to
predict with accuracy how the Transaction may affect CLS' future profitability
with the Funds, but that this matter would be given further consideration on an
ongoing basis.
Other Benefits to CLS. At the 2009 Renewal Meeting, the Board received and
considered information regarding the character and amount of other incidental
benefits CLS might receive as a result of its relationship with the Sub-Advised
Funds, including CLS' soft dollar practices, if any. The Board concluded that,
taking into account any incidental benefits CLS might receive, the terms of the
Current Sub-Advisory Agreements, including the compensation to be paid
thereunder, were reasonable. At its January 2010 Meeting, the Board considered
other benefits to CLS and its affiliates expected to be derived from their
relationships with the Funds as a result of the Transaction and noted that no
additional benefits were expected because CLS was not a party to the
Transaction.
THE BOARD, INCLUDING THE INDEPENDENT TRUSTEES, UNANIMOUSLY RECOMMENDS THAT
SHAREHOLDERS VOTE "FOR" THE APPROVAL OF THE NEW AGREEMENTS AND CHANGE TO THE
FUNDAMENTAL INVESTMENT POLICY ON BORROWING MONEY. UNMARKED, PROPERLY SIGNED AND
DATED PROXIES WILL BE SO VOTED.
13
PROPOSAL 1
THE APPROVAL OF NEW INVESTMENT ADVISORY AGREEMENTS
WITH RESPECT TO ALL FUNDS
As discussed above, Proposal 1 relates to the approval by shareholders of
the New Investment Advisory Agreements between the Investment Adviser and each
of the Funds. You are being asked to vote separately on Proposal 1 solely with
respect to the Fund(s) that you own. A form of the New Investment Advisory
Agreements is attached in Appendix A.
The terms of each New Investment Advisory Agreement are identical to those
of the corresponding Current Investment Advisory Agreement, except with respect
to the date of execution. Consequently, upon shareholder approval, the
Investment Adviser will continue to render substantially the same services to
the Funds under the New Investment Advisory Agreements that it currently renders
to the Funds under the Current Investment Advisory Agreements.
As discussed above, the Board unanimously approved the New Investment
Advisory Agreements and recommends the approval of the New Investment Advisory
Agreements to shareholders. For information regarding the Board's considerations
in approving the New Investment Advisory Agreements, please see the section
above entitled "Board Considerations in Approving the New Agreements."
The Current Investment Advisory Agreements will remain in place until the
completion of the Transaction, at which time, as a result of the change in the
control of the Investment Adviser, the Current Investment Advisory Agreements
will terminate. However, completion of the Transaction will be subject to
certain closing conditions, including: (a) the receipt of approvals required for
the assignment or replacement of investment advisory contracts relating to 80%
or more of the total net assets under management by the Investment Adviser and
certain affiliates that will be controlled by the Purchaser; and, (b) with
respect to the Purchase Transaction only, the approval of a corporate
restructuring called a demutualization by the insurance policyholders who
presently own SBHC, to the extent required by applicable law. If for some reason
the Transaction does not occur, the Current Investment Advisory Agreements will
not automatically terminate and will remain in effect, and the New Investment
Advisory Agreements will not be entered into, even if they have been approved by
Fund shareholders.
THE INVESTMENT ADVISER
PADCO Advisors II, Inc., which operates under the name Rydex Investments, is
located at 9601 Blackwell Road, Suite 500, Rockville, Maryland 20850 and
currently serves as investment adviser to the Funds pursuant to the Current
Investment Advisory Agreements. Information regarding the Current Investment
Advisory Agreements, including (a) the date of the agreement, (b) the date on
which it was last approved by shareholders and (c) the rate of compensation to
the
14
Investment Adviser, is provided in Appendix B. If the New Investment Advisory
Agreements are approved by shareholders, they will continue for an initial term
of two years and for subsequent one-year terms so long as they are renewed
annually in accordance with their terms (see discussion under "Term and
Continuance" below).
Information regarding the name(s), address(es) and principal occupation(s)
of the principal executive officer(s) and director(s) of the Investment Adviser
is set forth in Appendix C. A list of the Trustees and officers of the Trust who
hold positions with the Investment Adviser also is set forth in Appendix C. In
addition, set forth in Appendix D-1 is a list of other registered investment
companies with similar investment objectives as each Fund, for which the
Investment Adviser acts as investment manager, adviser or sub-adviser.
Currently, the Investment Adviser is a wholly-owned subsidiary of Rydex
Holdings, LLC, which is a wholly-owned subsidiary of SBC. SBC is wholly owned by
SBHC, One Security Benefit Place, Topeka, Kansas 66636-0001. Upon completion of
the Transaction, the Purchaser will either receive: (a) a 100% ownership stake
in SBC, the parent company of the Investment Adviser and affiliates; or (b) a
100% ownership stake in SBC's asset management business, which includes the
Investment Adviser and certain affiliates. For more information on the
Transaction, please see the section above entitled "Information Regarding the
Change in Control of the Investment Adviser."
MATERIAL TERMS OF THE NEW INVESTMENT ADVISORY AGREEMENTS
The following summary of the New Investment Advisory Agreements summarizes
the material terms of the New Investment Advisory Agreements and is qualified in
its entirety by reference to the New Investment Advisory Agreements, a form of
which is attached in Appendix A.
DUTIES OF THE INVESTMENT ADVISER. Under the Current Investment Advisory
Agreements and the New Investment Advisory Agreements (each, an "Advisory
Agreement" and collectively, the "Advisory Agreements"), the Investment Adviser
is required to:
o provide the Funds with investment research, advice and supervision and
shall furnish continuously an investment program for the Funds, consistent
with the respective investment objectives and policies of each Fund;
o determine, in its discretion and without prior consultation, what
securities shall be purchased for the Funds, what securities shall be held
or sold by the Funds and what portion of the Funds' assets shall be held
uninvested in cash, subject always to the provisions of the Trust's
Declaration of Trust, By-Laws and registration statement on file with the
U.S. Securities and Exchange Commission (the "SEC");
15
o discharge its responsibilities subject to the control of the officers and
the Board, and in compliance with the objectives, policies, and
limitations set forth in the Funds' prospectus(es) and applicable laws
and regulations;
o vote any proxies for Fund securities;
o provide the Trust, and any other agent designated by the Trust, with
records concerning the Investment Adviser's activities which each Fund is
required to maintain; and
o provide other reports reasonably requested by the Trust's officers and
Board concerning the Investment Adviser's discharge of the foregoing
responsibilities.
INDEMNITY OBLIGATION. Under the Advisory Agreements, the Investment Adviser
shall indemnify and hold harmless the Trust and all affiliated persons thereof
(within the meaning of Section 2(a)(3) of the 1940 Act) and all controlling
persons (as described in Section 15 of the Securities Act of 1933) against any
and all losses, claims, damages, liabilities or litigation (including reasonable
legal and other expenses) by reason of or arising out of: (a) the Investment
Adviser being in material violation of any applicable federal or state law, rule
or regulation or any investment policy or restriction set forth in the Funds'
registration statement or any written guidelines or instruction provided in
writing by the Board; (b) a Fund's failure to satisfy the diversification or
source of income requirements of Subchapter M of the Internal Revenue Code; or
(c) the Investment Adviser's willful misfeasance, bad faith or gross negligence
generally in the performance of its duties or its reckless disregard of its
obligations and duties under the Advisory Agreements.
TERM AND CONTINUANCE. Each Advisory Agreement provides that unless
terminated as provided therein, the Advisory Agreement shall continue for an
initial term of two years. Thereafter, the Advisory Agreement shall continue in
effect for successive annual periods provided such continuance is specifically
approved at least annually (a) by the vote of the Trustees or by a vote of the
shareholders; and (b) by the vote of a majority of the Independent Trustees,
cast in person at a meeting called for the purpose of voting on such approval.
Each Advisory Agreement may be terminated with respect to a Fund at any time
without payment of any penalty, by a Fund upon the vote of either the Board or
by a majority of the outstanding voting securities of the Fund. The Investment
Adviser may also, by not more than sixty (60) days' nor less than thirty (30)
days' written notice, terminate the Advisory Agreements. Each Advisory Agreement
will terminate automatically in the event of its "assignment" (as that term is
defined under the 1940 Act).
BOARD RECOMMENDATION ON PROPOSAL 1
At its January 2010 Meeting, based on its deliberations on and evaluation of
the information described above, the Board, including all of the Independent
Trustees,
16
unanimously: (a) concluded that the terms of the New Investment Advisory
Agreements are fair and reasonable; (b) concluded that the Investment Adviser's
fees are reasonable in light of the services that the Investment Adviser will
provide to the Funds; and (c) agreed to approve the New Investment Advisory
Agreements for an initial term of two years and to recommend the approval of the
New Investment Advisory Agreements to shareholders.
THE TRUSTEES UNANIMOUSLY RECOMMEND THAT
SHAREHOLDERS OF THE FUNDS VOTE "FOR" PROPOSAL 1
17
PROPOSAL 2
THE APPROVAL OF NEW SUB-ADVISORY AGREEMENTS
WITH RESPECT TO:
AMERIGO FUND
BEROLINA FUND
CLERMONT FUND
As discussed above, Proposal 2 relates to the approval by shareholders of
the New Sub-Advisory Agreements between the Investment Adviser and CLS with
respect to Amerigo Fund, Berolina Fund and Clermont Fund. You are being asked to
vote separately on Proposal 2 solely with respect to the Sub-Advised Fund(s)
that you own. A form of the New Sub-Advisory Agreements is attached in
Appendix E.
The terms of each New Sub-Advisory Agreement are identical to those of the
corresponding Current Sub-Advisory Agreement, except with respect to the date of
execution. Consequently, upon shareholder approval, CLS will continue to render
substantially the same services to the Sub-Advised Funds under the New
Sub-Advisory Agreements that it currently renders to the Sub-Advised Funds under
the Current Sub-Advisory Agreements.
As discussed above, the Board unanimously approved the New Sub-Advisory
Agreements and recommends the approval of the New Sub-Advisory Agreements to
shareholders. For information regarding the Board's considerations in approving
the New Sub-Advisory Agreements, please see the section above entitled "Board
Considerations in Approving the New Agreements."
The Current Sub-Advisory Agreements will remain in place until the
completion of the Transaction, at which time, as a result of the change in the
control of the Investment Adviser, the Current Sub-Advisory Agreements will
terminate. Thereafter, subject to shareholder approval, the New Sub-Advisory
Agreements will go into effect.
However, completion of the Transaction will be subject to certain closing
conditions, including: (a) the receipt of approvals required for the assignment
or replacement of investment advisory contracts relating to 80% or more of the
total net assets under management by the Investment Adviser and certain
affiliates that will be controlled by the Purchaser; and, (b) with respect to
the Purchase Transaction only, the approval of a corporate restructuring called
a demutualization by the insurance policyholders who presently own SBHC, to the
extent required by applicable law. If for some reason the Transaction does not
occur, the Current Sub-Advisory Agreements will not automatically terminate and
will remain in effect, and the New Sub-Advisory Agreements will not be entered
into, even if they have been approved by Fund shareholders.
The effectiveness of Proposal 2 is also contingent on the approval of
Proposal 1 by shareholders of the corresponding Sub-Advised Funds.
18
INFORMATION ABOUT CLS
CLS Investments, LLC, located at 4020 South 147th Street, Omaha, Nebraska,
68137, currently serves as sub-adviser to each of Amerigo Fund, Berolina Fund
and Clermont Fund pursuant to the Current Sub-Advisory Agreement. Information
regarding the Current Sub-Advisory Agreement, including (a) the date of the
agreement, (b) the date on which it was last approved by shareholders and (c)
the rate of compensation to CLS, is provided in Appendix F. If the New
Sub-Advisory Agreement is approved by shareholders, it will continue for an
initial term of two years and for subsequent one-year terms so long as it is
renewed annually in accordance with its terms (see discussion under "Term and
Continuance" below).
Information regarding the name(s), address(es) and principal occupation(s)
of the principal executive officer(s) and managing member(s) of CLS is set forth
in Appendix C. A list of the Trustees and officers of the Trust who hold
positions with CLS also is set forth in Appendix C. In addition, set forth in
Appendix D-2 is a list of other registered investment companies with similar
investment objectives as the Sub-Advised Funds, for which CLS acts as investment
manager, adviser or sub-adviser.
CLS is a wholly-owned subsidiary of Northstar Financial Services Group, LLC
("Northstar"), a Nevada limited liability company. NorthStar is owned 50% by W.
Patrick Clarke and 50% by Michael Miola, both of whom serve as a manager of CLS.
MATERIAL TERMS OF THE CLS SUB-ADVISORY AGREEMENT
The following summary of the New Sub-Advisory Agreement between the
Investment Adviser and CLS summarizes its material terms and is qualified in its
entirety by reference to such New Sub-Advisory Agreement, a form of which is
attached in Appendix E.
DUTIES OF CLS. Under the Current Sub-Advisory Agreement and the New
Sub-Advisory Agreement, each between the Investment Adviser and CLS
(collectively, the "CLS Sub-Advisory Agreements"), CLS, subject to the
supervision of the Investment Adviser and the Board, is responsible for managing
the assets of each of the Sub-Advised Funds, including making investment
decisions and placing orders to purchase and sell securities for such Funds, all
in accordance with the investment objective and policies of such Funds as
reflected in their current prospectus and statement of additional information
and as may be adopted from time to time by the Board. In accordance with
applicable requirements, CLS will also maintain all books and records relating
to the transactions it executes or that are otherwise required, and render to
the Trust and the Investment Adviser such periodic and special reports at any
time upon reasonable request.
INDEMNITY OBLIGATION. The CLS Sub-Advisory Agreements provide that each of
the Investment Adviser and CLS agrees to indemnify each other against any claim,
loss or liability (including reasonable attorney's fees) arising as a result of
the failure to meet the standard of care (generally the care, skill, prudence
and diligence under the circumstances then prevailing that a prudent person
acting in a like capacity and
19
familiar with such matters would use) set forth in the CLS Sub-Advisory
Agreements. Furthermore, the Investment Adviser and CLS each agrees to indemnify
each other against any claim, loss or liability (including reasonable attorney's
fees) arising or as a result of willful misfeasance, bad faith or gross
negligence in the performance of its duties, or by reason of reckless disregard
of its obligation and duties thereunder.
TERM AND CONTINUANCE. Under their terms, the CLS Sub-Advisory Agreements
will remain in full force and effect for a period of up to two years from the
date of their execution, and will continue thereafter as long as their
continuance is approved at least annually by the Board or by vote of a majority
of the outstanding shares of a Sub-Advised Fund, as well as by a majority of the
Independent Trustees by vote cast in person at a meeting called for that
purpose. However, the CLS Sub-Advisory Agreements may be terminated with
respect to a Sub-Advised Fund, at any time upon 60 days' written notice without
the payment of any penalty, either by the Investment Adviser or CLS.
Additionally, each CLS Sub-Advisory Agreement will terminate immediately in the
event of its assignment or upon the termination of the corresponding Investment
Advisory Agreement.
BOARD RECOMMENDATION ON PROPOSAL 2
At its January 2010 Meeting, based on its deliberations on and evaluation of
the information described above, the Board, including all of the Independent
Trustees, unanimously: (a) concluded that the terms of the New Sub-Advisory
Agreements are fair and reasonable; (b) concluded that CLS' fees are reasonable
in light of the services that it will provide to the Sub-Advised Funds; and (c)
agreed to approve the New Sub-Advisory Agreements for an initial term of two
years and to recommend the approval of the New Sub-Advisory Agreements to
shareholders.
THE TRUSTEES UNANIMOUSLY RECOMMEND THAT SHAREHOLDERS
OF THE SUB-ADVISED FUNDS VOTE "FOR" PROPOSAL 2
20
PROPOSAL 3
THE APPROVAL OF A CHANGE TO THE FUNDAMENTAL INVESTMENT
POLICY ON BORROWING MONEY WITH RESPECT TO ALL FUNDS
Proposal 3 relates to a change to the "fundamental investment policy" on
borrowing for the Funds. The 1940 Act requires that each Fund adopt a
"fundamental" investment policy with respect to several types of activities,
including borrowing money. Borrowed money can be used to cover large and
unexpected redemption orders or to leverage a Fund's portfolio, thereby
potentially amplifying its gains and losses. Under the 1940 Act, an investment
policy that is "fundamental" may only be modified with the approval of
shareholders. Each Fund currently has in place a fundamental investment policy
on its ability to borrow money that is more prohibitive than the 1940 Act
requires, unnecessarily limiting investment strategies. In general, Proposal 3
is intended to provide the Funds the maximum possible amount of flexibility to
engage in borrowing activity, including borrowing for investment purposes,
consistent with current law and with the Funds' investment strategies and
objectives.
PROPOSED NEW FUNDAMENTAL INVESTMENT POLICY
If Proposal 3 is approved by shareholders, the fundamental investment policy
regarding borrowing for each Fund would read:
[The Fund] shall not borrow money, except as permitted under the Investment
Company Act of 1940, and as interpreted or modified by regulatory authority
having jurisdiction from time to time.
CURRENT FUNDAMENTAL INVESTMENT POLICY FOR ALL FUNDS OTHER THAN THE INVERSE
NASDAQ-100(R) STRATEGY, INVERSE S&P 500 STRATEGY, NOVA, NASDAQ-100(R), PRECIOUS
METALS, GOVERNMENT LONG BOND 1.2X STRATEGY, INVERSE GOVERNMENT LONG BOND
STRATEGY AND U.S. GOVERNMENT MONEY MARKET FUNDS
The current fundamental investment policy regarding borrowing money for all
Funds other than the Inverse NASDAQ-100(R) Strategy, Inverse S&P 500 Strategy,
Nova, NASDAQ-100(R), Precious Metals, Government Long Bond 1.2x Strategy,
Inverse Government Long Bond Strategy and U.S. Government Money Market Funds
reads:
[Each Fund shall not] borrow money in an amount exceeding 331/3% of the
value of its total assets, provided that, for the purposes of this
limitation, investment strategies which either obligate the Fund to purchase
securities or require the Fund to segregate assets are not considered to be
borrowing (such investment strategies are only limited by the Fund's ability
to purchase securities or segregate assets equal to the Fund's investment).
Asset coverage of at least 300% is required for all borrowing, except where
the Fund has borrowed money for temporary purposes in amounts not exceeding
5% of its total assets. The Fund will not purchase securities while its
borrowing exceeds 5% of its total assets.
21
CURRENT FUNDAMENTAL INVESTMENT POLICY FOR THE INVERSE NASDAQ-100(R)
STRATEGY, INVERSE S&P 500 STRATEGY, NOVA, NASDAQ-100(R), PRECIOUS METALS,
GOVERNMENT LONG BOND 1.2X STRATEGY AND INVERSE GOVERNMENT LONG BOND STRATEGY
FUNDS
The current fundamental investment policy regarding borrowing money for the
Inverse NASDAQ-100(R) Strategy, Inverse S&P 500 Strategy, Nova, NASDAQ-100(R),
Precious Metals, Government Long Bond 1.2x Strategy and Inverse Government Long
Bond Strategy Funds reads:
[Each Fund shall not] borrow money, except (i) as a temporary measure for
extraordinary or emergency purposes and then only in amounts not in excess
of 5% of the value of the Fund's total assets from a bank or (ii) in an
amount up to one-third of the value of the Fund's total assets, including
the amount borrowed, in order to meet redemption requests without
immediately selling portfolio instruments. This provision is not for
investment leverage but solely to facilitate management of the portfolio by
enabling the Fund to meet redemption requests when the liquidation of
portfolio instruments would be inconvenient or disadvantageous.
The Nova Fund and the Government Long Bond 1.2x Strategy Fund may borrow
money, subject to the conditions of [the paragraph above], for the
purpose of investment leverage.
The Inverse Government Long Bond Strategy Fund may borrow money, subject
to the conditions of [the paragraph above], but shall not make purchases
while borrowing in excess of 5% of the value of its assets. For purposes
of this subparagraph, Fund assets invested in reverse repurchase
agreements are included in the amounts borrowed.
CURRENT FUNDAMENTAL INVESTMENT POLICY FOR THE U.S. GOVERNMENT
MONEY MARKET FUND
The current fundamental investment policy regarding borrowing money for the
U.S. Government Money Market Fund reads:
[The Fund may borrow] money to facilitate management of the Fund's portfolio
by enabling the Fund to meet redemption requests when the liquidation of
portfolio instruments would be inconvenient or disadvantageous. Such
borrowing is not for investment purposes and will be repaid by [the Fund]
promptly.
As required by the 1940 Act, [the] Fund must maintain continuous asset
coverage (total assets, including assets acquired with borrowed funds, less
liabilities exclusive of borrowings) of 300% of all amounts borrowed. If, at
any time, the value of [the] Fund's assets should fail to meet this 300%
coverage test, the Fund, within three days (not including Sundays and
holidays), will reduce the amount of the Fund's borrowings to the extent
necessary to meet this 300% coverage
22
requirement. Maintenance of this percentage limitation may result in the
sale of portfolio securities at a time when investment considerations
otherwise indicate that it would be disadvantageous to do so.
In addition to the foregoing, the [Fund is] authorized to borrow money as a
temporary measure for extraordinary or emergency purposes in amounts not in
excess of 5% of the value of [the] Fund's total assets. Borrowings for
extraordinary or emergency purposes are not subject to the foregoing 300%
asset coverage requirement. The [Fund is] authorized to pledge portfolio
securities as the [Investment Adviser] deems appropriate in connection with
any borrowings for extraordinary or emergency purposes.
DISCUSSION OF PROPOSED MODIFICATION
The proposed modification to each Fund's fundamental investment policy on
borrowing money (including any interpretation provided in the Fund's
registration statement) would allow the Funds to borrow to the extent permitted
by the 1940 Act. The 1940 Act currently permits a fund to borrow from banks for
any purpose, in an amount up to 331/3% of the fund's assets, including the
amount borrowed. Under the 1940 Act, a fund may also issue a note evidencing a
temporary loan (i.e., one that must be repaid within 60 days), as long as it
does not exceed 5% of the fund's total assets.
The proposed modification would also allow each Fund's borrowing policy to
conform to future changes in the 1940 Act -- and interpretations thereunder --
without further Board or shareholder action. The modification would therefore
ensure that the Funds maintain the maximum possible amount of flexibility to
engage in borrowing activity, without incurring the additional expenses
necessary to further amend the Funds' fundamental investment policies.
The proposed modification would expand the ability of the Funds to borrow
for investment purposes. Currently, each Fund's fundamental investment policy
limits the ability of the Fund to borrow except subject to certain restrictions
(e.g., limitation on purchasing securities when borrowing exceeds 5% of total
assets) or under certain circumstances (e.g., to meet redemption requests). If
approved, the change would permit each Fund to borrow for any purpose. However,
borrowing by a Fund would occur only if consistent with the Fund's disclosure in
its registration statement.
The Investment Adviser and CLS, as applicable, do not presently intend to
materially increase the borrowing level of any Fund, and believe that the
proposed change will not materially affect the investment risks currently
associated with any Fund. To the extent that any borrowing by a Fund involves
leveraging, however, the Fund's net asset value may be subject to increased
volatility. This is because borrowing can magnify the effect of an increase or
decrease in the value of a Fund's holdings. In addition, any money borrowed will
be subject to interest and other costs, which may exceed the gain on securities
purchased with borrowed money.
Should a Fund's shareholders not approve the proposal to amend the Fund's
fundamental investment policy on borrowing money, the Fund's current fundamental
23
investment policy on borrowing money (including any interpretation provided in
the Fund's registration statement) would continue to apply unchanged.
BOARD RECOMMENDATION ON PROPOSAL 3
At its January 2010 Meeting, based on its deliberations on and evaluation of
the information described above and such other information deemed relevant, the
Board, including all of the Independent Trustees, unanimously agreed to approve
the proposed new fundamental investment policy on borrowing money and to
recommend the approval of the proposed new fundamental investment policy on
borrowing money to shareholders.
THE TRUSTEES UNANIMOUSLY RECOMMEND THAT SHAREHOLDERS
OF THE FUNDS VOTE "FOR" PROPOSAL 3
24
OTHER BUSINESS
The Trustees do not know of any matters to be presented at the Meeting other
than those set forth in this Joint Proxy Statement. If other business should
properly come before the Meeting, proxies will be voted in accordance with the
judgment of the persons named in the accompanying proxy.
ADDITIONAL INFORMATION
ADMINISTRATOR, PRINCIPAL UNDERWRITER AND TRANSFER AGENT
The principal underwriter/distributor of the Trust is Rydex Distributors,
Inc. ("Rydex Distributors"), located at 9601 Blackwell Road, Suite 500,
Rockville, Maryland 20850, an affiliate of the Investment Adviser. Rydex Fund
Services, Inc. ("Rydex Fund Services"), also an affiliate of the Investment
Adviser, is located at 9601 Blackwell Road, Suite 500, Rockville, Maryland 20850
and provides general administrative, shareholder, dividend disbursement,
transfer agent and registrar services to the Funds. Information regarding the
fees paid by each Fund to each of Rydex Distributors and Rydex Fund Services
during the previous fiscal year is provided in Appendix B.
Although the Purchaser will acquire control of the Affiliated Service
Providers as a result of the Transaction, shareholder approval is not required
in order for the Affiliated Service Providers to continue providing services to
the Funds after the closing of the Transaction. The Board has been assured that
there will be no material change in the nature or quality of the services
provided by the Affiliated Service Providers to each Fund due to the changes in
control.
AFFILIATIONS AND AFFILIATED BROKERAGE
During the Funds' most recent fiscal years, the Funds paid no commissions on
portfolio brokerage transactions to brokers who may be deemed to be affiliated
persons of the Funds, the Investment Adviser or CLS, or affiliated persons of
such persons ("Affiliated Brokers"), except as provided in Exhibit B.
OTHER INFORMATION
Proxy materials, reports and other information filed by the Funds can be
inspected and copied at the Public Reference Facilities maintained by the SEC at
100 F Street, NE, Washington, DC 20549. The SEC maintains an Internet web site
(at http://www.sec.gov) which contains other information about the Funds.
VOTING INFORMATION
PROXY SOLICITATION. The principal solicitation of proxies will be by the
mailing of this Joint Proxy Statement on or about March 22, 2010, but proxies
may also be solicited by telephone and/or in person by representatives of the
Trust, regular employees of the Investment Adviser or its affiliate(s), or The
Altman Group, a private proxy services firm. If we have not received your vote
as the date of the Meeting approaches, you may receive a telephone call from
these parties to ask for
25
your vote. Arrangements will be made with brokerage houses and other custodians,
nominees, and fiduciaries to forward proxies and proxy materials to their
principals.
COST OF THE MEETING. The cost of the Meeting, including the costs of
retaining The Altman Group, preparing and mailing of the notice, proxy statement
and proxy, and the solicitation of proxies, including reimbursement to
broker-dealers and others who forwarded proxy materials to their clients, will
be borne by SecBen. The estimated cost of retaining The Altman Group is
approximately $427,491.
SHAREHOLDER VOTING. Shareholders of the Funds who own shares at the close of
business on the Record Date will be entitled to notice of, and vote at, the
Meeting. Each whole share is entitled to one vote, and each fractional share is
entitled to a proportionate fractional vote on each matter as to which such
shares are to be voted at the Meeting. One-third (331/3%) of a Fund's shares
entitled to vote on a Proposal constitutes a quorum. Shares of the Funds are
available primarily for insurance products. Life insurance companies will vote
shares attributable to insurance products for which no voting instructions are
received in proportion ("for" or "withhold authority") to those shares for which
instructions are received. As a result, a small number of insurance product
owners could determine the outcome of the vote if other owners fail to vote. In
addition, abstentions are counted as shares eligible to vote at the Meeting in
determining whether a quorum is present. Because the affirmative vote of a
majority of the outstanding voting securities of each Fund, as defined below, is
required to approve Proposals 1, 2 and 3, abstentions have the effect of a
negative vote on Proposals 1, 2 and 3.
If a quorum is not present at the Meeting, or if a quorum is present at the
Meeting but sufficient votes to approve one or more of the proposals are not
received, or if other matters arise requiring shareholder attention, the persons
named as proxy agents may propose one or more adjournments of the Meeting to
permit further solicitation of proxies. Any such adjournment will require the
affirmative vote of a majority of those shares present at the Meeting or
represented by proxy. The persons named as proxies will vote those proxies that
they are entitled to vote "FOR" such proposal in favor of such an adjournment,
and will vote those proxies required to be voted "AGAINST" such proposal,
against such an adjournment.
Information regarding the number of issued and outstanding shares of each
Fund as of the Record Date is provided in Appendix G, representing the same
number of votes for each of such Funds. The persons who are known to have owned
beneficially 5% or more of each Fund's outstanding shares as of the Record Date
are listed in Appendix H. As of the Record Date, the Trustees and officers, as a
group, owned less than 1% of the outstanding shares of each Fund. As of the
Record Date, there were no persons who were known to control each Fund.
The person(s) named as proxies on the enclosed proxy card will vote in
accordance with your directions, if your proxy is received properly executed. If
we receive your proxy, and it is executed properly, but you give no voting
instructions with respect to any proposal, your shares will be voted "FOR"
Proposal 1, "FOR"
26
Proposal 2, and "FOR" Proposal 3. The duly appointed proxies may, in their
discretion, vote upon such other matters as may properly come before the
Meeting.
In order that your shares may be represented at the Meeting, you are
requested to vote your shares by mail, Internet or telephone by following the
enclosed instructions. IF YOU VOTE BY TELEPHONE OR INTERNET, PLEASE DO NOT
RETURN YOUR PROXY CARD, UNLESS YOU LATER ELECT TO CHANGE YOUR VOTE. You may
revoke your proxy: (a) at any time prior to its exercise by written notice of
its revocation to the secretary of the Trust prior to the Meeting; (b) by the
subsequent execution and timely return of another proxy prior to the Meeting
(following the methods noted above); or (c) by being present and voting in
person at the Meeting and giving oral notice of revocation to the chair of the
Meeting. However, attendance in-person at the Meeting, by itself, will not
revoke a previously-tendered proxy.
REQUIRED VOTE. Approval of each Proposal requires the vote of a "majority of
the outstanding voting securities" of a Fund, which means the vote of 67% or
more of the shares that are present at the Meeting, if the holders of more than
50% of the outstanding shares are present or represented by proxy, or the vote
of more than 50% of the Fund's outstanding shares, whichever is less.
The Current Agreements will remain in place until the completion of the
Transaction, at which time, as a result of the change in the control of the
Investment Adviser, the Current Agreements will terminate and, subject to
shareholder approval, the New Agreements will go into effect. As discussed in
the section above entitled "Information Regarding the Change in Control of the
Investment Adviser," completion of the Transaction will be subject to certain
closing conditions. As a result, if for some reason the Transaction does not
occur, the Current Agreements will not automatically terminate and will remain
in effect, and the New Agreements will not be entered into, even if they have
been approved by Fund shareholders. If Proposal 1 and/or Proposal 2 are not
approved by shareholders of any Fund, the Board will evaluate other short-and
long-term options.
With respect to Proposal 3, should a Fund's shareholders not approve the
proposal to amend the Fund's fundamental investment policy on borrowing money,
the Fund's current fundamental investment policy on borrowing money would
continue to apply unchanged.
SHAREHOLDERS SHARING THE SAME ADDRESS. As permitted by law, only one copy of
this Joint Proxy Statement may be delivered to shareholders residing at the same
address, unless such shareholders have notified the Trust of their desire to
receive multiple copies of the shareholder reports and proxy statements that the
Trust sends. If you would like to receive an additional copy, please contact
the Trust by writing to the Trust's address, or by calling the telephone number
shown on the front page of this Joint Proxy Statement. The Trust will then
promptly deliver, upon request, a separate copy of this Joint Proxy Statement to
any shareholder residing at an address to which only one copy was mailed.
Shareholders wishing to receive separate copies
27
of the Trust's shareholder reports and proxy statements in the future, and
shareholders sharing an address that wish to receive a single copy if they are
receiving multiple copies, should also send a request as indicated.
SHAREHOLDER PROPOSALS
The Trust is organized as a statutory trust under the laws of Delaware. As
such, the Trust is not required to, and does not, hold annual shareholder
meetings. Nonetheless, the Board may call a special meeting of shareholders for
action by shareholder vote as may be required by the 1940 Act or as required or
permitted by the Trust's Declaration of Trust and By-Laws. Shareholders who wish
to present a proposal for action at a future meeting should submit a written
proposal to the Secretary of the Trust, c/o Rydex Variable Trust, 9601 Blackwell
Road, Suite 500, Rockville, Maryland 20850 for inclusion in a future proxy
statement. Shareholder proposals to be presented at any future meeting of the
Trust must be received by the Trust in writing within a reasonable amount of
time before the Trust solicits proxies for that meeting, in order to be
considered for inclusion in the proxy materials for that meeting. Whether a
proposal is included in a proxy statement will be determined in accordance with
applicable federal and state laws. Shareholders retain the right to request that
a meeting of the shareholders be held for the purpose of considering matters
requiring shareholder approval.
TO ENSURE THE PRESENCE OF A QUORUM AT THE SPECIAL MEETING, PROMPT EXECUTION AND
RETURN OF THE ENCLOSED PROXY IS REQUESTED. A SELF-ADDRESSED, POSTAGE-PAID
ENVELOPE IS ENCLOSED FOR YOUR CONVENIENCE, ALONG WITH INSTRUCTIONS ON HOW TO
VOTE OVER THE INTERNET OR BY TELEPHONE SHOULD YOU PREFER TO VOTE BY ONE OF THOSE
METHODS.
By Order of the Board of Trustees,
Sincerely,
/s/ Richard M. Goldman
Richard M. Goldman
President
28
APPENDIX A
FORM OF INVESTMENT ADVISORY AGREEMENT
ADVISORY AGREEMENT
ADVISORY AGREEMENT made as of this [ ] day of [ ], 2010 by and between
RYDEX VARIABLE TRUST (the "Trust"), a Delaware statutory trust registered as an
investment company under the Investment Company Act of 1940, as amended (the
"1940 Act"), and PADCO ADVISORS II, INC., a Maryland corporation with its
principal place of business at 9601 Blackwell Road, Suite 500, Rockville,
Maryland 20850 (the "Adviser").
W I T N E S S E T H
WHEREAS, the Board of Trustees (the "Board") of the Trust has selected the
Adviser to act as investment adviser to the Trust on behalf of the series set
forth on Schedule A to this Agreement (each a "Fund" and, collectively, the
"Funds"), as such Schedule may be amended from time to time upon mutual
agreement of the parties, and to provide certain related services, as more fully
set forth below, and to perform such services under the terms and conditions
hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual covenants and benefits set
forth herein, the Trust and the Adviser do hereby agree as follows:
1. THE ADVISER'S SERVICES.
(a) Discretionary Investment Management Services. The Adviser shall act
as investment adviser with respect to the Funds. In such capacity, the
Adviser shall, subject to the supervision of the Board, regularly provide
the Funds with investment research, advice and supervision and shall
furnish continuously an investment program for the Funds, consistent with
the respective investment objectives and policies of each Fund. The Adviser
shall determine, from time to time, what securities shall be purchased for
the Funds, what securities shall be held or sold by the Funds and what
portion of the Funds' assets shall be held uninvested in cash, subject
always to the provisions of the Trust's Declaration of Trust, By-Laws and
its registration statement on Form N-1A (the "Registration Statement")
under the 1940 Act, and under the Securities Act of 1933, as amended (the
"1933 Act"), covering Fund shares, as filed with the Securities and
Exchange Commission (the "Commission"), and to the investment objectives,
policies and restrictions of the Funds, as each of the same shall be from
time to time in effect. To carry out such obligations, the Adviser shall
exercise full discretion and act for the Funds in the same manner and with
the same force and effect as the Funds themselves might or could do with
respect to purchases, sales or other transactions, as well as with respect
to all other such things necessary or incidental to the furtherance or
conduct of such purchases, sales or other transactions. No reference in
this Agreement to the Adviser having full discretionary authority over each
Fund's investments shall in any way limit the
A-1
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 and Section 817(h) of the Internal Revenue Code of 1986, as
amended (the "Code"), for qualification as a regulated investment company.
The Adviser shall maintain compliance procedures that it reasonably
believes are adequate to ensure its compliance with the foregoing. No
supervisory activity undertaken by the Board shall limit the Adviser's full
responsibility for any of the foregoing.
(c) Proxy Voting. The Board has the authority to determine how proxies
with respect to securities that are held by the Funds shall be voted, and
the Board has initially determined to delegate the authority and
responsibility to vote proxies for the Funds' securities to the Adviser. So
long as proxy voting authority for the Funds has been delegated to the
Adviser, the Adviser shall exercise its proxy voting responsibilities. The
Adviser shall carry out such responsibility in accordance with any
instructions that the Board shall provide from time to time, and at all
times in a manner consistent with Rule 206(4)-6 under the Advisers Act and
its fiduciary responsibilities to the Trust. The Adviser shall provide
periodic reports and keep records relating to proxy voting as the Board may
reasonably request or as may be necessary for the Funds to comply with the
1940 Act and other applicable law. Any such delegation of proxy voting
responsibility to the Adviser may be revoked or modified by the Board at
any time.
(d) Recordkeeping. The Adviser shall not be responsible for the
provision of administrative, bookkeeping or accounting services to the
Funds, except as otherwise provided herein or as may be necessary for the
Adviser to supply to the Trust or its Board the information required to be
supplied under this Agreement.
The Adviser shall maintain separate books and detailed records of all
matters pertaining to Fund assets advised by the Adviser required by Rule 31a-1
under the 1940 Act (other than those records being maintained by any
administrator, custodian
A-2
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 of Ethics by Access Persons and the sanctions
imposed by the Adviser. The Adviser shall immediately notify the Trust of any
material violation of the Code of Ethics, whether or not such violation relates
to a security held by any Fund.
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3. INFORMATION AND REPORTING. The Adviser shall provide the Trust and its
respective officers with such periodic reports concerning the obligations the
Adviser has assumed under this Agreement as the Trust may from time to time
reasonably request.
(a) Notification of Breach/Compliance Reports. The Adviser shall notify
the Trust immediately upon detection of (i) any material failure to manage
any Fund in accordance with its investment objectives and policies or any
applicable law; or (ii) any material breach of the Funds' or the Adviser's
policies, guidelines or procedures. In addition, the Adviser shall provide
a quarterly report regarding each Fund's compliance with its investment
objectives and policies, applicable law, including, but not limited to the
1940 Act and Subchapter M and Section 817(h) of the Code, and the Fund's
policies, guidelines or procedures as applicable to the Adviser's
obligations under this Agreement. The Adviser agrees to correct any such
failure promptly and to take any action that the Board may reasonably
request in connection with any such breach. Upon request, the Adviser shall
also provide the officers of the Trust with supporting certifications in
connection with such certifications of Fund financial statements and
disclosure controls pursuant to the Sarbanes-Oxley Act. The Adviser will
promptly notify the Trust in the event (i) the Adviser is served or
otherwise receives notice of any action, suit, proceeding, inquiry or
investigation, at law or in equity, before or by any court, public board,
or body, involving the affairs of the Trust (excluding class action suits
in which a Fund is a member of the plaintiff class by reason of the Fund's
ownership of shares in the defendant) or the compliance by the Adviser with
the federal or state securities laws or (ii) an actual change in control of
the Adviser resulting in an "assignment" (as defined in the 1940 Act) has
occurred or is otherwise proposed to occur.
(b) Board and Filings Information. The Adviser will also provide the
Trust with any information reasonably requested regarding its management
of the Funds required for any meeting of the Board, or for any shareholder
report, amended registration statement, proxy statement, or prospectus
supplement to be filed by the Trust with the Commission. The Adviser will
make its officers and employees available to meet with the Board from time
to time on due notice to review its investment management services to the
Funds in light of current and prospective economic and market conditions
and shall furnish to the Board such information as may reasonably be
necessary in order for the Board to evaluate this Agreement or any proposed
amendments thereto.
(c) Transaction Information. The Adviser shall furnish to the Trust
such information concerning portfolio transactions as may be necessary to
enable the Trust or its designated agent to perform such compliance testing
on the Funds and the Adviser's services as the Trust may, in its sole
discretion, determine to be appropriate. The provision of such information
by the Adviser to the Trust or its designated agent in no way relieves the
Adviser of its own responsibilities under this Agreement.
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.
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.
A-5
6. ALLOCATION OF CHARGES AND EXPENSES. The Adviser will bear its own costs
of providing services hereunder. Other than as herein specifically indicated,
the Adviser shall not be responsible for a Fund's expenses, including brokerage
and other expenses incurred in placing orders for the purchase and sale of
securities and other investment instruments.
Notwithstanding the foregoing paragraph, with respect to the All Asset
Conservative, All Asset Moderate, All Asset Aggressive, and Alternative
Strategies Allocation Funds, the Adviser will bear its own costs of providing
services hereunder. In addition, the Adviser agrees to pay all expenses
incurred by the foregoing Funds except for acquired fund fees and expenses,
interest, taxes, brokerage and other expenses incurred in placing orders for the
purchase and sale of securities and other investment instruments, extraordinary
expenses, and distribution fees and expenses paid by the Funds under any
distribution plan adopted pursuant to Rule 12b-1 under the 1940 Act.
Notwithstanding the foregoing paragraphs, with respect to the Multi-Hedge
Strategies Fund, the Adviser will bear its own costs of providing services
hereunder. The Adviser agrees to pay all expenses incurred by the foregoing
Fund except for interest, taxes, brokerage and other expenses incurred in
placing orders for the purchase and sale of securities and other investment
instruments, extraordinary expenses, distribution fees, investors services fees,
and expenses paid by the Fund under any distribution plan adopted pursuant to
Rule 12b-1 under the 1940 Act or investor services plan.
7. REPRESENTATIONS, WARRANTIES AND COVENANTS.
(a) Properly Registered. The Adviser is registered as an investment
adviser under the Advisers Act, and will remain so registered for the
duration of this Agreement. The Adviser is not prohibited by the Advisers
Act or the 1940 Act from performing the services contemplated by this
Agreement, and to the best knowledge of the Adviser, there is no proceeding
or investigation that is reasonably likely to result in the Adviser being
prohibited from performing the services contemplated by this Agreement. The
Adviser agrees to promptly notify the Trust of the occurrence of any event
that would disqualify the Adviser from serving as an investment adviser to
an investment company. The Adviser is in compliance in all material
respects with all applicable federal and state law in connection with its
investment management operations.
(b) ADV Disclosure. The Adviser has provided the Trust with a copy of
its Form ADV as most recently filed with the Commission and will, promptly
after filing any amendment to its Form ADV with the Commission, furnish a
copy of such amendment(s) to the Trust. The information contained in the
Adviser's Form ADV is accurate and complete in all material respects and
does not omit to state any material fact necessary in order to make the
statements made, in light of the circumstances under which they were made,
not misleading.
A-6
(c) Fund Disclosure Documents. The Adviser has reviewed and will in
the future review, the Registration Statement, and any amendments or
supplements thereto, the annual or semi-annual reports to shareholders,
other reports filed with the Commission and any marketing material of the
Funds (collectively the "Disclosure Documents") and represents and warrants
that with respect to disclosure about the Adviser, the manner in which the
Adviser manages the Funds or information relating directly or indirectly to
the Adviser, such Disclosure Documents contain or will contain, as of the
date thereof, no untrue statement of any material fact and does not omit
any statement of material fact which was required to be stated therein or
necessary to make the statements contained therein not misleading.
(d) Use Of The Name "Rydex". The Adviser has the right to use the name
"Rydex" in connection with its services to the Trust and that, subject to
the terms set forth in Section 8 of this Agreement, the Trust shall have
the right to use the name "Rydex" in connection with the management and
operation of the Funds. The Adviser is not aware of any threatened or
existing actions, claims, litigation or proceedings that would adversely
effect or prejudice the rights of the Adviser or the Trust to use the name
"Rydex".
(e) Insurance. The Adviser maintains errors and omissions insurance
coverage in an appropriate amount and shall provide prior written notice to
the Trust (i) of any material changes in its insurance policies or
insurance coverage; or (ii) if any material claims will be made on its
insurance policies. Furthermore, the Adviser shall upon reasonable request
provide the Trust with any information it may reasonably require concerning
the amount of or scope of such insurance.
(f) No Detrimental Agreement. The Adviser represents and warrants that
it has no arrangement or understanding with any party, other than the
Trust, that would influence the decision of the Adviser with respect to its
selection of securities for a Fund, and that all selections shall be done
in accordance with what is in the best interest of the Fund.
(g) Conflicts. The Adviser shall act honestly, in good faith and in the
best interests of the Trust including requiring any of its personnel with
knowledge of Fund activities to place the interest of the Funds first,
ahead of their own interests, in all personal trading scenarios that may
involve a conflict of interest with the Funds, consistent with its
fiduciary duties under applicable law.
(h) Representations. The representations and warranties in this
Section 7 shall be deemed to be made on the date this Agreement is executed
and at the time of delivery of the quarterly compliance report required by
Section 3(a), whether or not specifically referenced in such report.
8. THE NAME "RYDEX". The Adviser grants to the Trust a sublicense to use
the name "Rydex" (the "Name") as part of the name of any Fund. The foregoing
authorization by the Adviser to the Trust to use the Name as part of the name of
any
A-7
Fund is not exclusive of the right of the Adviser itself to use, or to authorize
others to use, the Name; the Trust acknowledges and agrees that, as between the
Trust and the Adviser, the Adviser has the right to use, or authorize others to
use, the Name. The Trust shall (1) only use the Name in a manner consistent with
uses approved by the Adviser; (2) use its best efforts to maintain the quality
of the services offered using the Name; (3) adhere to such other specific
quality control standards as the Adviser may from time to time promulgate. At
the request of the Adviser, the Trust will (a) submit to Adviser representative
samples of any promotional materials using the Name; and (b) change the name of
any Fund within three months of its receipt of the Adviser's request, or such
other shorter time period as may be required under the terms of a settlement
agreement or court order, so as to eliminate all reference to the Name and will
not thereafter transact any business using the Name in the name of any Fund;
provided, however, that the Trust may continue to use beyond such date any
supplies of prospectuses, marketing materials and similar documents that the
Trust had at the date of such name change in quantities not exceeding those
historically produced and used in connection with such Fund.
9. ADVISER'S COMPENSATION. The Funds shall pay to the Adviser, as
compensation for the Adviser's services hereunder, a fee, determined as
described in Schedule A that is attached hereto and made a part hereof. Such fee
shall be computed daily and paid not less than monthly in arrears by the Funds.
The method for determining net assets of a Fund for purposes hereof shall
be the same as the method for determining net assets for purposes of
establishing the offering and redemption prices of Fund shares as described in
the Funds' prospectus(es). In the event of termination of this Agreement, the
fee provided in this Section shall be computed on the basis of the period ending
on the last business day on which this Agreement is in effect subject to a pro
rata adjustment based on the number of days elapsed in the current month as a
percentage of the total number of days in such month.
10. INDEPENDENT CONTRACTOR. In the performance of its duties hereunder, the
Adviser is and shall be an independent contractor and, unless otherwise
expressly provided herein or otherwise authorized in writing, shall have no
authority to act for or represent the Trust or any Fund in any way or otherwise
be deemed to be an agent of the Trust or any Fund. If any occasion should arise
in which the Adviser gives any advice to its clients concerning the shares of a
Fund, the Adviser will act solely as investment counsel for such clients and not
in any way on behalf of the Fund.
11. ASSIGNMENT AND AMENDMENTS. This Agreement shall automatically
terminate, without the payment of any penalty, in the event of its assignment
(as defined in section 2(a)(4) of the 1940 Act); provided that such termination
shall not relieve the Adviser of any liability incurred hereunder.
This Agreement may not be added to or changed orally and may not be
modified or rescinded except by a writing signed by the parties hereto and in
accordance with the 1940 Act, when applicable.
A-8
12. DURATION AND TERMINATION.
(a) This Agreement shall become effective as of the date executed and
shall remain in full force and effect continually thereafter, subject to
renewal as provided in Section 12(d) and unless terminated automatically as
set forth in Section 11 hereof or until terminated as follows:
(b) The Trust may cause this Agreement to terminate either (i) by vote
of its Board or (ii) with respect to any Fund, upon the affirmative vote of
a majority of the outstanding voting securities of the Fund; or
(c) The Adviser may at any time terminate this Agreement by not more
than sixty (60) days' nor less than thirty (30) days' written notice
delivered or mailed by registered mail, postage prepaid, to the Trust; or
(d) This Agreement shall automatically terminate two years from the
date of its execution unless its renewal is specifically approved at least
annually thereafter by (i) a majority vote of the Trustees, including a
majority vote of such Trustees who are not interested persons of the Trust
or the Adviser, at a meeting called for the purpose of voting on such
approval; or (ii) the vote of a majority of the outstanding voting
securities of each Fund; provided, however, that if the continuance of this
Agreement is submitted to the shareholders of the Funds for their approval
and such shareholders fail to approve such continuance of this Agreement as
provided herein, the Adviser may continue to serve hereunder as to the
Funds in a manner consistent with the 1940 Act and the rules and
regulations thereunder; and
Termination of this Agreement pursuant to this Section shall be without
payment of any penalty.
In the event of termination of this Agreement for any reason, the
Adviser shall, immediately upon notice of termination or on such later date as
may be specified in such notice, cease all activity on behalf of the Funds and
with respect to any of their assets, except as otherwise required by any
fiduciary duties of the Adviser under applicable law. In addition, the Adviser
shall deliver the Fund Books and Records to the Trust by such means and in
accordance with such schedule as the Trust shall direct and shall otherwise
cooperate, as reasonably directed by the Trust, in the transition of portfolio
asset management to any successor of the Adviser.
13. CERTAIN DEFINITIONS. For the purposes of this Agreement:
(a) "Affirmative vote of a majority of the outstanding voting
securities of the Fund" shall have the meaning as set forth in the 1940
Act, subject, however, to such exemptions as may be granted by the
Commission under the 1940 Act or any interpretations of the Commission
staff.
(b) "Interested persons" and "Assignment" shall have their respective
meanings as set forth in the 1940 Act, subject, however, to such exemptions
as
A-9
may be granted by the Commission under the 1940 Act or any interpretations
of the Commission staff.
14. LIABILITY OF THE ADVISER. The Adviser shall indemnify and hold harmless
the Trust and all affiliated persons thereof (within the meaning of Section
2(a)(3) of the 1940 Act) and all controlling persons (as described in Section 15
of the 1933 Act) (collectively, the "Adviser Indemnitees") against any and all
losses, claims, damages, liabilities or litigation (including reasonable legal
and other expenses) by reason of or arising out of: (a) the Adviser being in
material violation of any applicable federal or state law, rule or regulation or
any investment policy or restriction set forth in the Funds' Registration
Statement or any written guidelines or instruction provided in writing by the
Board, (b) a Fund's failure to satisfy the diversification or source of income
requirements of Subchapter M of the Code, or (c) the Adviser's willful
misfeasance, bad faith or gross negligence generally in the performance of its
duties hereunder or its reckless disregard of its obligations and duties under
this Agreement.
15. ENFORCEABILITY. Any term or provision of this Agreement which is
invalid or unenforceable in any jurisdiction shall, as to such jurisdiction be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms or provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction.
16. LIMITATION OF LIABILITY. The parties to this Agreement acknowledge and
agree that all litigation arising hereunder, whether direct or indirect, and of
any and every nature whatsoever shall be satisfied solely out of the assets of
the affected Fund and that no Trustee, officer or holder of shares of beneficial
interest of the Fund shall be personally liable for any of the foregoing
liabilities. The Trust's Certificate of Trust, as amended from time to time, is
on file in the Office of the Secretary of State of the State of Delaware. Such
Certificate of Trust and the Trust's 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.
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IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
signed on their behalf by their duly authorized officers as of the date first
above written.
RYDEX VARIABLE TRUST, on behalf of each Fund listed
on Schedule A
By: ____________________________________________________
Name: Richard M. Goldman
Title: President
PADCO ADVISORS II, INC.
By: ____________________________________________________
Name: Richard M. Goldman
Title: Chief Executive Officer
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SCHEDULE A
TO THE
ADVISORY AGREEMENT
DATED [ ], 2010 BETWEEN
RYDEX VARIABLE TRUST
AND
PADCO ADVISORS II, INC.
The Trust will pay to the Adviser as compensation for the Adviser's
services rendered, a fee, computed daily at an annual rate based on the average
daily net assets of the respective Fund in accordance the following fee
schedule:
FUND RATE
--------------------------------------------------------------------------------
Nova Fund................................................................ 0.75%
Inverse S&P 500 Strategy................................................. 0.90%
NASDAQ-100(R) Strategy................................................... 0.75%
Inverse NASDAQ-100(R) Strategy........................................... 0.90%
Mid-Cap 1.5x Strategy.................................................... 0.90%
Russell 2000(R) 1.5x Strategy............................................ 0.90%
Government Long Bond 1.2x Strategy....................................... 0.50%
Inverse Government Long Bond Strategy.................................... 0.90%
Europe 1.25x Strategy.................................................... 0.90%
Japan 2x Strategy........................................................ 0.75%
S&P 500 Pure Value (formerly Large-Cap Value)............................ 0.75%
S&P 500 Pure Growth (formerly Large-Cap Growth).......................... 0.75%
S&P MidCap 400 Pure Value (formerly Mid-Cap Value)....................... 0.75%
S&P MidCap 400 Pure Growth (formerly Mid-Cap Growth)..................... 0.75%
Inverse Mid-Cap Strategy................................................. 0.90%
S&P SmallCap 600 Pure Value (formerly Small-Cap Value)................... 0.75%
S&P SmallCap 600 Pure Growth (formerly Small-Cap Growth)................. 0.75%
Inverse Russell 2000(R) Strategy......................................... 0.90%
Strengthening Dollar 2x Strategy......................................... 0.90%
Weakening Dollar 2x Strategy............................................. 0.90%
U.S. Government Money Market............................................. 0.50%
Dow 2x Strategy Fund..................................................... 0.90%
NASDAQ-100(R) 2x Strategy Fund (formerly OTC 2x Strategy)................ 0.90%
Russell 2000(R) 2x Strategy.............................................. 0.90%
S&P 500 2x Strategy...................................................... 0.90%
Banking.................................................................. 0.85%
Basic Materials.......................................................... 0.85%
Biotechnology............................................................ 0.85%
Consumer Products........................................................ 0.85%
Electronics.............................................................. 0.85%
Energy................................................................... 0.85%
Energy Services.......................................................... 0.85%
Financial Services....................................................... 0.85%
Health Care.............................................................. 0.85%
Internet................................................................. 0.85%
Leisure.................................................................. 0.85%
Precious Metals.......................................................... 0.75%
Real Estate.............................................................. 0.85%
Retailing................................................................ 0.85%
Technology.............................................................. 0.85%
Telecommunications....................................................... 0.85%
Transportation........................................................... 0.85%
Utilities................................................................ 0.85%
Commodities Strategy..................................................... 0.75%
All-Cap Opportunity (formerly Sector Rotation)........................... 0.90%
Multi-Cap Core Equity*................................................... 0.70%
Inverse Dow 2x Strategy.................................................. 0.90%
CLS AdvisorOne Amerigo VT................................................ 0.90%
CLS AdvisorOne Berolina.................................................. 0.90%
A-12
FUND RATE
--------------------------------------------------------------------------------
All-Asset Moderate Strategy (formerly Essential Portfolio Moderate)...... 0.00%
CLS AdvisorOne Clermont VT............................................... 0.90%
Managed Futures Strategy................................................. 0.90%
Multi-Hedge Strategies Fund.............................................. 1.15%
All-Asset Conservative Strategy (formerly Essential
Portfolio Conservative).................................................. 0.00%
All-Asset Aggressive Strategy (formerly Essential Portfolio Aggressive).. 0.00%
Alternative Strategies Allocation........................................ 0.00%
-------------------
* The management fee with respect to the Multi-Cap Core Equity Fund (the
"Fund") is comprised of a basic fee (the "Basic Fee") at the annual rate of
0.70% of the Fund's average daily net assets and a performance adjustment
(the "Performance Adjustment") as discussed below.
A-13
APPENDIX B
INFORMATION REGARDING THE INVESTMENT ADVISORY
AGREEMENTS AND FEES PAID TO THE INVESTMENT ADVISER
AND AFFILIATES
PADCO Advisors II, Inc. (the "Investment Adviser") currently serves as
investment adviser to all series (collectively, the "Funds") of Rydex Variable
Trust ("RVT") pursuant to an investment advisory agreement between RVT, on
behalf of its Funds, and the Investment Adviser made January 18, 2008, as
amended. Rydex Fund Services, Inc. ("RFS") serves as the administrator, transfer
agent and accounting services agent for the Funds. Rydex Distributors, Inc.
("RDI") serves as principal underwriter to the Funds. RFS and RDI are affiliates
of the Investment Adviser. The table below provides the following information:
(i) the date on which a Fund's shareholders last approved the Fund's
investment advisory agreement;
(ii) the annual rate of management fees paid by each Fund to the
Investment Adviser, stated as a percentage of that Fund's average
daily net assets;
(iii) the aggregate amount of management fees paid by each Fund to the
Investment Adviser for the Fund's most recently completed fiscal year
(ended December 31, 2009);
(iv) the amount of fees paid by each Fund to RFS for RFS' administrative
and transfer agent services for the Fund during the Fund's most
recently completed fiscal year;
(v) the amount of accounting service fees paid by each Fund to RFS for
RFS' services as the accounting services agent for the Fund during
the Fund's most recently completed fiscal year; and
(vi) the amount of investor service fees paid by each Fund to RDI during
the Fund's fiscal year ended December 31, 2009 for RDI's services to
owners of variable annuity and variable life insurance contracts who
indirectly through insurance company separate accounts invest in
shares of the Fund, pursuant to the Fund's investor services
agreement with RDI.
B-1
RYDEX VARIABLE TRUST
DATE OF LAST MANAGEMENT FEES ADMINISTRATIVE ACCOUNTING
SHAREHOLDER MANAGEMENT PAID TO INVESTMENT SERVICE FEES SERVICE FEES DISTRIBUTION
SERIES NAME APPROVAL FEES ADVISER PAID TO RFS PAID TO RFS FEES PAID TO RDI
---------------------------------------------------------------------------------------------------------------------------------
All-Cap Opportunity Fund 10/4/2007 0.90% $ 616,303 $171,195 $ 68,478 $ 171,195
Alternative Strategies
Allocation Fund 3/7/2008 0.00%(1) None(1) $ 0 $ 0 $ 0
Amerigo Fund 10/4/2007 0.90% $1,822,131 $506,148 $202,458 $ 506,148(2)
Banking Fund 10/4/2007 0.85% $ 96,778 $ 28,464 $ 11,386 $ 28,464
Basic Materials Fund 10/4/2007 0.85% $ 286,779 $ 84,347 $ 33,738 $ 84,347
Berolina Fund 10/4/2007 0.90% $ 381,604 $106,001 $ 42,400 $ 106,001(2)
Biotechnology Fund 10/4/2007 0.85% $ 183,356 $ 53,928 $ 21,571 $ 53,928
Clermont Fund 10/4/2007 0.90% $ 488,864 $135,796 $ 54,318 $ 135,796(2)
Commodities Strategy Fund 10/4/2007 0.75%(3) $ 156,034 $ 50,679 $ 20,272 $ 50,679
Consumer Products Fund 10/4/2007 0.85% $ 145,110 $ 42,680 $ 17,072 $ 42,680
Dow 2x Strategy Fund 10/4/2007 0.90% $ 139,160 $ 38,656 $ 15,462 $ 38,656
Electronics Fund 10/4/2007 0.85% $ 145,587 $ 42,820 $ 17,128 $ 42,820
Energy Fund 10/4/2007 0.85% $ 307,681 $ 96,495 $ 36,198 $ 90,495
Energy Services Fund 10/4/2007 0.85% $ 303,857 $ 89,370 $ 35,748 $ 89,370
All-Asset Aggressive
Strategy Fund
(formerly, Essential Portfolio
Aggressive Fund) 10/4/2007 0.00%(1) None(1) $ 0 $ 0 $ 0
All-Asset Conservative
Strategy Fund
(formerly, Essential Portfolio
Conservative Fund) 10/4/2007 0.00%(1) None(1) $ 0 $ 0 $ 0
B-2
DATE OF LAST MANAGEMENT FEES ADMINISTRATIVE ACCOUNTING
SHAREHOLDER MANAGEMENT PAID TO INVESTMENT SERVICE FEES SERVICE FEES DISTRIBUTION
SERIES NAME APPROVAL FEES ADVISER PAID TO RFS PAID TO RFS FEES PAID TO RDI
---------------------------------------------------------------------------------------------------------------------------------
All-Asset Moderate Strategy Fund
(formerly, Essential
Portfolio Moderate Fund) 10/4/2007 0.00%(1) None(1) $ 0 $ 0 $ 0
Europe 1.25x Strategy Fund 10/4/2007 0.90% $ 137,420 $ 38,174 $ 15,270 $ 38,174
Financial Services Fund 10/4/2007 0.85% $ 112,120 $ 32,976 $ 13,191 $ 32,976
Government Long Bond 1.2x
Strategy Fund 10/4/2007 0.50% $ 179,542 $ 71,812 $ 35,908 $ 89,771
Health Care Fund 10/4/2007 0.85% $ 207,629 $ 61,067 $ 24,427 $ 61,067
Internet Fund 10/4/2007 0.85% $ 150,059 $ 44,135 $ 17,654 $ 44,135
Inverse Dow 2x Strategy Fund 10/4/2007 0.90% $ 208,102 $ 57,806 $ 23,122 $ 57,806
Inverse Government Long Bond
Strategy Fund 10/4/2007 0.90% $ 183,318 $ 50,922 $ 20,369 $ 50,922
Inverse Mid-Cap Strategy Fund 10/4/2007 0.90% $ 35,728 $ 9,924 $ 3,970 $ 9,924
Inverse NASDAQ-100(R) Strategy Fund 10/4/2007 0.90% $ 145,277 $ 40,355 $ 16,142 $ 40,355
Inverse Russell 2000(R)
Strategy Fund 10/4/2007 0.90% $ 88,854 $ 24,682 $ 9,873 $ 24,681
Inverse S&P 500 Strategy Fund 10/4/2007 0.90% $ 365,060 $101,406 $ 40,562 $ 101,406
Japan 2x Strategy Fund 10/4/2007 0.75% $ 73,291 $ 23,234 $ 9,294 $ 23,234
Leisure Fund 10/4/2007 0.85% $ 55,164 $ 16,225 $ 6,490 $ 16,225
Managed Futures Strategy Fund 11/7/2008 0.90%(3) $ 242,964 $ 59,549 $ 23,819 $ 59,549
Mid-Cap 1.5x Strategy Fund 10/4/2007 0.90% $ 87,211 $ 24,225 $ 9,690 $ 24,225
Multi-Cap Core Equity Fund 10/4/2007 0.70%(4) $ 12,483 $ 5,666 $ 2,266 $ 5,666
Multi-Hedge Strategies Fund 10/4/2007 1.15% $ 291,513 $ 0 $ 0 $ 0
B-3
DATE OF LAST MANAGEMENT FEES ADMINISTRATIVE ACCOUNTING
SHAREHOLDER MANAGEMENT PAID TO INVESTMENT SERVICE FEES SERVICE FEES DISTRIBUTION
SERIES NAME APPROVAL FEES ADVISER PAID TO RFS PAID TO RFS FEES PAID TO RDI
---------------------------------------------------------------------------------------------------------------------------------
NASDAQ-100(R) 2x Strategy Fund 10/4/2007 0.90% $ 247,769 $ 68,825 $ 27,530 $ 68,825
NASDAQ-100(R) Fund 10/4/2007 0.75% $ 369,751 $123,251 $ 49,300 $ 123,251
Nova Fund 10/4/2007 0.75% $ 292,811 $ 97,604 $ 39,401 $ 97,604
Precious Metals Fund 10/4/2007 0.75% $ 546,938 $182,312 $ 72,925 $ 182,312
Real Estate Fund 10/4/2007 0.85% $ 174,059 $ 51,194 $ 20,477 $ 51,194
Retailing Fund 10/4/2007 0.85% $ 119,034 $ 35,010 $ 14,004 $ 35,010
Russell 2000(R) 1.5x Strategy Fund 10/4/2007 0.90% $ 106,256 $ 29,516 $ 11,806 $ 29,516
Russell 2000(R) 2x Strategy Fund 10/4/2007 0.90% $ 27,945 $ 7,763 $ 3,105 $ 7,763
S&P 500 2x Strategy Fund 10/4/2007 0.90% $ 190,936 $ 53,038 $ 21,215 $ 53,038
S&P 500 Pure Growth Fund 10/4/2007 0.75% $ 155,126 $ 51,709 $ 20,683 $ 51,709
S&P 500 Pure Value Fund 10/4/2007 0.75% $ 118,283 $ 39,427 $ 15,771 $ 39,427
S&P MidCap 400 Pure Growth Fund 10/4/2007 0.75% $ 200,022 $ 66,674 $ 26,670 $ 66,674
S&P MidCap 400 Pure Value Fund 10/4/2007 0.75% $ 118,630 $ 39,543 $ 26,670 $ 39,543
S&P SmallCap 600 Pure Growth Fund 10/4/2007 0.75% $ 104,648 $ 34,883 $ 13,953 $ 34,883
S&P SmallCap 600 Pure Value Fund 10/4/2007 0.75% $ 147,825 $ 49,275 $ 19,710 $ 49,275
Strengthening Dollar 2x Strategy Fund 10/4/2007 0.90% $ 53,579 $ 14,883 $ 5,953 $ 14,883
Technology Fund 10/4/2007 0.85% $ 203,578 $ 59,876 $ 23,950 $ 59,876
Telecommunications Fund 10/4/2007 0.85% $ 52,511 $ 15,444 $ 6,178 $ 15,444
B-4
DATE OF LAST MANAGEMENT FEES ADMINISTRATIVE ACCOUNTING
SHAREHOLDER MANAGEMENT PAID TO INVESTMENT SERVICE FEES SERVICE FEES DISTRIBUTION
SERIES NAME APPROVAL FEES ADVISER PAID TO RFS PAID TO RFS FEES PAID TO RDI
---------------------------------------------------------------------------------------------------------------------------------
Transportation Fund 10/4/2007 0.85% $ 51,785 $ 15,231 $ 6,092 $ 15,231
U.S. Government Money Market Fund 10/4/2007 0.50% $1,506,829 $602,734 $287,178 $ 753,415
Utilities Fund 10/4/2007 0.85% $ 175,535 $ 51,628 $ 20,651 $ 51,628
Weakening Dollar 2x Strategy Fund 10/4/2007 0.90% $ 67,794 $ 18,832 $ 7,532 $ 18,832
-------------------
(1) The Fund invests principally in underlying funds (the "Underlying Funds").
The Investment Adviser receives an investment advisory fee for managing the
Underlying Funds. The Underlying Funds pay a monthly investment advisory
fee to the Investment Adviser for its services. The fee is based on the
average net daily assets of each Underlying Fund and calculated at an annual
rate for each Underlying Fund. For more information regarding the Underlying
funds' investment advisory fees and expense limitations, please see the
Prospectus and applicable sections of the Statement of Additional
Information. The Funds benefit from the investment advisory services
provided to the Underlying Funds and, as shareholders of those Underlying
Funds, indirectly bear a proportionate share of those Underlying Funds'
advisory fees.
(2) For the fiscal year ended December 31, 2009, Amerigo Fund, Berolina Fund and
Clermont Fund also paid $60,746, $19,656 and $14,940, respectively, in
brokerage commissions to RDI, which represented 100% of each Fund's total
brokerage commissions. Other series of the RVT did not pay any brokerage
commissions to RDI or its affiliates.
(3) The Fund may invest in a wholly-owned and controlled Cayman Islands
subsidiary (the "Subsidiary"). The Subsidiary has entered into a separate
advisory agreement with the Investment Adviser for the management of the
Subsidiary's portfolio pursuant to which the Subsidiary pays the Investment
Adviser a management fee at the same rate that the Fund pays the Investment
Adviser for services provided to the Fund. The Investment Adviser has
contractually agreed to waive the management fee it receives from the Fund
in an amount equal to the management fee paid to the Investment Adviser by
the Subsidiary. This undertaking will continue in effect for so long as the
Fund invests in the Subsidiary, and may not be terminated by the Investment
Adviser unless the Investment Adviser first obtains the prior approval of
the Fund's Board of Trustees for such termination. The management fees
included in the table reflect the net management fees paid to the Investment
Adviser by the Fund after the fee waiver.
(4) The Multi-Cap Core Equity Fund pays the Investment Adviser a fee that is
comprised of two components: the first component is an annual basic fee (the
"basic fee") equal to 0.70% of the Multi-Cap Core Equity Fund's average
daily net assets, and the second component is a performance fee adjustment.
The Multi-Cap 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(R) 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
Multi-Cap Core Equity Fund over the entire performance period, giving the
dollar amount that will be added to (or subtracted from) the basic fee.
B-5
APPENDIX C
DIRECTORS/TRUSTEES/MANAGERS AND OFFICERS
DIRECTORS AND PRINCIPAL EXECUTIVE OFFICERS OF PADCO ADVISORS II, INC. The
business address of the directors and principal executive officers is 9601
Blackwell Road, Suite 500, Rockville, Maryland 20850.
POSITION HELD WITH
NAME PADCO ADVISORS II, INC. OTHER PRINCIPAL OCCUPATION/POSITION
--------------------------------------------------------------------------------------------------
Richard M. Goldman Director and Chief Senior Vice President, Security Benefit
Executive Officer Corporation; Director, First Security Benefit
Life Insurance and Annuity Company of New
York; President, Security Investors, LLC;
CEO, President, & Director, Rydex
Distributors, Inc.; President & CEO, Rydex
Holdings, LLC; CEO & Director, PADCO
Advisors, Inc.; Director, Rydex Fund
Services, Inc.; President and Manager,
Security Global Investors, LLC
Michael P. Byrum Director, Chief Investment Director, Chief Investment Officer, President,
Officer, President, and and Secretary, PADCO Advisors, Inc.; Secretary,
Secretary Rydex Funds Services, Inc.; Chief Investment
Officer, Rydex Holdings, LLC; Manager,
Rydex Specialized Products, LLC
MANAGERS AND PRINCIPAL EXECUTIVE OFFICERS OF CLS INVESTMENTS, LLC. The business
address of the managers and principal executive officers is 4020 South 147th
Street, Omaha, Nebraska 68137.
POSITION HELD WITH
NAME CLS INVESTMENTS, LLC OTHER PRINCIPAL OCCUPATION/POSITION
--------------------------------------------------------------------------------------------------
W. Patrick Clarke Manager Manager, NorthStar Financial Services Group,
LLC; Manager, Gemini Fund Services, LLC;
Manager, Orion Advisor Services, LLC;
Manager, Northern Lights Distributors, LLC;
Manager, Forum Financial Consultants LLC;
Manager, Gemcom, LLC; Manager, Northern
Lights Compliance Services, LLC; Director,
Constellation Trust Company; and President,
AdvisorOne Funds
Michael Miola Manager Manager, NorthStar Financial Services Group,
LLC; Manager, Orion Advisor Services, LLC;
Manager, Gemcom, LLC; Manager, Northern
Lights Compliance Services, LLC; Director,
Constellation Trust Company; Manager,
Gemini Fund Services, LLC; and Chairman of
the Board of Trustees, AdvisorOne Funds
Todd P. Clarke President, Manager N/A
C-1
TRUSTEES/OFFICERS OF THE FUNDS WHO HOLD POSITION(S) WITH PADCO ADVISORS II, INC.
OR CLS INVESTMENTS, LLC. The business address of each of the following persons
is 9601 Blackwell Road, Suite 500, Rockville, Maryland 20850.
POSITION HELD WITH POSITION HELD WITH INVESTMENT ADVISER OR
NAME THE FUNDS SUB-ADVISER
--------------------------------------------------------------------------------------------------
Richard M. Goldman Trustee and President Director and Chief Executive Officer, PADCO
Advisors II, Inc.
Michael P. Byrum Vice President Director, Chief Investment Officer, President,
and Secretary, PADCO Advisors II, Inc.
Joanna M. Haigney Chief Compliance Officer Chief Compliance Officer and Secretary,
PADCO Advisors II, Inc.
Keith Fletcher Vice President Vice President, PADCO Advisors II, Inc.
C-2
APPENDIX D-1
ADVISORY FEE RATES OF FUNDS WITH SIMILAR INVESTMENT
OBJECTIVES ADVISED BY PADCO ADVISORS AND PADCO ADVISORS II, INC.
Each of the tables below lists the names of other mutual funds advised by
PADCO Advisors, Inc. or PADCO Advisors II, Inc. (collectively, the "Investment
Adviser") with similar investment objectives as the Funds, and information
concerning the Funds' and such other funds' net assets as of December 31, 2009
and the rate of compensation for the Investment Adviser for its services to the
Funds and such other funds.
ANNUAL COMPENSATION
NAME OF FUND SUBJECT TO THIS PROXY STATEMENT TO THE INVESTMENT ADVISER
(AS A PERCENTAGE OF NET ASSETS
Name(s) of Other Fund(s) with Similar Objectives AVERAGE DAILY NET ASSETS) (IN MILLIONS)
-----------------------------------------------------------------------------------------------------
ALL-CAP OPPORTUNITY FUND, A SERIES OF 0.90% $ 68.36
RYDEX VARIABLE TRUST
Rydex|SGI All-Cap Opportunity Fund, a series of 0.90% $ 200.23
Rydex Series Funds
ALTERNATIVE STRATEGIES ALLOCATION FUND, 0.00%(1) $ 5.12
A SERIES OF RYDEX VARIABLE TRUST
Rydex|SGI Alternative Strategies Allocation Fund, 0.00%(1) $ 38.43
a series of Rydex Series Funds
AMERIGO FUND, A SERIES OF RYDEX VARIABLE TRUST 0.90% $ 213.10
None N/A N/A
BANKING FUND, A SERIES OF RYDEX VARIABLE TRUST 0.85% $ 4.64
Rydex Banking Fund, a series of Rydex Series Funds 0.85% $ 7.21
BASIC MATERIALS FUND, A SERIES OF 0.85% $ 46.53
RYDEX VARIABLE TRUST
Rydex Basic Materials Fund, a series of 0.85% $ 85.79
Rydex Series Funds
BEROLINA FUND, A SERIES OF RYDEX VARIABLE TRUST 0.90% $ 43.55
None N/A N/A
BIOTECHNOLOGY FUND, A SERIES OF RYDEX VARIABLE TRUST 0.85% $ 13.15
Rydex Biotechnology Fund, a series of Rydex Series Funds 0.85% $ 58.30
CLERMONT FUND, A SERIES OF RYDEX VARIABLE TRUST 0.90% $ 66.81
None N/A N/A
COMMODITIES STRATEGY FUND, A SERIES OF 0.75%(2) $ 21.39
RYDEX VARIABLE TRUST
Rydex Commodities Strategy Fund, a series of 0.75%(2) $ 46.76
Rydex Series Funds
CONSUMER PRODUCTS FUND, A SERIES OF 0.85% $ 21.26
RYDEX VARIABLE TRUST
Rydex Consumer Products Fund, a series of 0.85% $ 182.58
Rydex Series Funds
D-1-1
ANNUAL COMPENSATION
NAME OF FUND SUBJECT TO THIS PROXY STATEMENT TO THE INVESTMENT ADVISER
(AS A PERCENTAGE OF NET ASSETS
Name(s) of Other Fund(s) with Similar Objectives AVERAGE DAILY NET ASSETS) (IN MILLIONS)
-----------------------------------------------------------------------------------------------------
DOW 2x STRATEGY FUND, A SERIES OF RYDEX VARIABLE TRUST 0.90% $ 19.86
Dow 2x Strategy Fund, a series of Rydex Dynamic Funds 0.90% $ 51.87
ELECTRONICS FUND, A SERIES OF RYDEX VARIABLE TRUST 0.85% $ 25.03
Rydex Electronics Fund, a series of Rydex Series Funds 0.85% $ 95.78
ENERGY FUND, A SERIES OF RYDEX VARIABLE TRUST 0.85% $ 39.36
Rydex Energy Fund, a series of Rydex Series Funds 0.85% $ 65.87
ENERGY SERVICES FUND, A SERIES OF RYDEX VARIABLE TRUST 0.85% $ 41.51
Rydex Energy Services Fund, a series of Rydex Series Funds 0.85% $ 87.15
ALL-ASSET AGGRESSIVE STRATEGY FUND 0.00%(1) $ 16.25
(FORMERLY, ESSENTIAL PORTFOLIO AGGRESSIVE FUND),
A SERIES OF RYDEX VARIABLE TRUSt
Rydex|SGI All-Asset Aggressive Strategy Fund, 0.00%(1) $ 7.97
a series of Rydex Series Funds
ALL-ASSET CONSERVATIVE STRATEGY FUND 0.00%(1) $ 8.17
(FORMERLY, ESSENTIAL PORTFOLIO CONSERVATIVE FUND),
A SERIES OF RYDEX VARIABLE TRUST
Rydex|SGI All-Asset Conservative Strategy Fund, 0.00%(1) $ 15.76
a series of Rydex Series Funds
ALL-ASSET MODERATE STRATEGY FUND 0.00%(1) $ 18.68
(FORMERLY, ESSENTIAL PORTFOLIO MODERATE FUND),
A SERIES OF RYDEX VARIABLE TRUST
Rydex|SGI All-Asset Moderate Strategy Fund, a series of 0.00%(1) $ 37.19
Rydex Series Funds
EUROPE 1.25x STRATEGY FUND, A SERIES OF 0.90% $ 22.46
RYDEX VARIABLE TRUST
Rydex Europe 1.25x Strategy Fund, a series of 0.90% $ 18.99
Rydex Series Funds
FINANCIAL SERVICES FUND, A SERIES OF 0.85% $ 17.17
RYDEX VARIABLE TRUST
Rydex Financial Services Fund, a series of 0.85% $ 26.44
Rydex Series Funds
GOVERNMENT LONG BOND 1.2x STRATEGY 0.50% $ 24.09
FUND, A SERIES OF RYDEX VARIABLE TRUST
Rydex Government Long Bond 1.2x Strategy Fund, 0.50% $ 75.45
a series of Rydex Series Funds
HEALTH CARE FUND, A SERIES OF RYDEX VARIABLE TRUST 0.85% $ 26.90
Rydex Health Care Fund, a series of Rydex Series Funds 0.85% $ 192.12
INTERNET FUND, A SERIES OF RYDEX VARIABLE TRUST 0.85% $ 30.36
Rydex Internet Fund, a series of Rydex Series Funds 0.85% $ 26.46
D-1-2
ANNUAL COMPENSATION
NAME OF FUND SUBJECT TO THIS PROXY STATEMENT TO THE INVESTMENT ADVISER
(AS A PERCENTAGE OF NET ASSETS
Name(s) of Other Fund(s) with Similar Objectives AVERAGE DAILY NET ASSETS) (IN MILLIONS)
-----------------------------------------------------------------------------------------------------
INVERSE DOW 2x STRATEGY FUND, A SERIES OF 0.90% $ 18.02
RYDEX VARIABLE TRUST
Inverse Dow 2x Strategy Fund, a series of 0.90% $ 39.51
Rydex Dynamic Funds
INVERSE GOVERNMENT LONG BOND STRATEGY 0.90% $ 27.96
FUND, A SERIES OF RYDEX VARIABLE TRUST
Rydex Inverse Government Long Bond Strategy 0.90% $ 595.79
Fund, a series of Rydex Series Funds
INVERSE MID-CAP STRATEGY FUND, A SERIES OF 0.90% $ 4.68
RYDEX VARIABLE TRUST
Rydex Inverse Mid-Cap Strategy Fund, a series of 0.90% $ 4.55
Rydex Series Funds
INVERSE NASDAQ-100(R) STRATEGY FUND, A SERIES OF 0.90% $ 14.31
RYDEX VARIABLE TRUST
Rydex Inverse NASDAQ-100(R) Strategy Fund, a series of 0.90% $ 22.32
Rydex Series Funds
INVERSE RUSSELL 2000(R) STRATEGY FUND, A SERIES OF 0.90% $ 11.43
RYDEX VARIABLE TRUST
Rydex Inverse Russell 2000(R) Strategy Fund, a series of 0.90% $ 21.41
Rydex Series Funds
INVERSE S&P 500 STRATEGY FUND 0.90% $ 22.97
Rydex Inverse S&P 500 Strategy Fund, a series of 0.90% $ 243.51
Rydex Series Funds
JAPAN 2X STRATEGY FUND, A SERIES OF 0.75% $ 8.41
RYDEX VARIABLE TRUSt
Rydex Japan 2x Strategy Fund, a series of 0.75% $ 5.54
Rydex Series Funds
LEISURE FUND, A SERIES OF RYDEX VARIABLE TRUST 0.85% $ 11.72
Rydex Leisure Fund, a series of Rydex Series Funds 0.85% $ 3.93
MANAGED FUTURES STRATEGY FUND, A SERIES OF
RYDEX VARIABLE TRUST 0.90%(2) $ 28.64
Rydex|SGI Managed Futures Strategy Fund, a series of 0.90%(2) $2,330.56
Rydex Series Funds
MID-CAP 1.5X STRATEGY FUND, A SERIES OF 0.90% $ 14.38
RYDEX VARIABLE TRUST
Rydex Mid-Cap 1.5x Strategy Fund, a series of 0.90% $ 27.71
Rydex Series Funds
MULTI-CAP CORE EQUITY FUND, A SERIES OF 0.70%(3) $ 2.38
RYDEX VARIABLE TRUST
None N/A N/A
D-1-3
ANNUAL COMPENSATION
NAME OF FUND SUBJECT TO THIS PROXY STATEMENT TO THE INVESTMENT ADVISER
(AS A PERCENTAGE OF NET ASSETS
Name(s) of Other Fund(s) with Similar Objectives AVERAGE DAILY NET ASSETS) (IN MILLIONS)
-----------------------------------------------------------------------------------------------------
MULTI-HEDGE STRATEGIES FUND, A SERIES OF 1.15% $ 25.56
RYDEX VARIABLE TRUST
Rydex|SGI Multi-Hedge Strategies Fund, a series of 1.15%2 $ 117.87
Rydex Series Funds
NASDAQ-100(R) 2x STRATEGY FUND, A SERIES OF 0.90% $ 36.12
RYDEX VARIABLE TRUST
NASDAQ-100(R) 2x Strategy Fund, a series of 0.90% $ 228.51
Rydex Dynamic Funds
NASDAQ-100(R) FUND, A SERIES OF 0.75% $ 57.55
RYDEX VARIABLE TRUST
Rydex NASDAQ-100(R) Fund, a series of 0.75% $ 589.36
Rydex Series Funds
NOVA FUND, A SERIES OF RYDEX VARIABLE TRUST 0.75% $ 50.57
Rydex Nova Fund, a series of Rydex Series Funds 0.75% $ 77.74
PRECIOUS METALS FUND, A SERIES OF 0.75% $ 86.29
RYDEX VARIABLE TRUST
Rydex Precious Metals Fund, a series of 0.75% $ 313.27
Rydex Series Funds
REAL ESTATE FUND, A SERIES OF RYDEX VARIABLE TRUST 0.85% $ 33.88
Rydex Real Estate Fund, a series of Rydex Series Funds 0.85% $ 35.66
RETAILING FUND, A SERIES OF RYDEX VARIABLE TRUST 0.85% $ 15.49
Rydex Retailing Fund, a series of Rydex Series Funds 0.85% $ 7.61
RUSSELL 2000(R) 1.5x STRATEGY FUND, A SERIES OF 0.90% $ 10.59
RYDEX VARIABLE TRUST
Rydex Russell 2000(R) 1.5x Strategy Fund, a series of 0.90% $ 21.28
Rydex Series Funds
RUSSELL 2000(R) 2x STRATEGY FUND, A SERIES OF 0.90% $ 3.65
RYDEX VARIABLE TRUSt
Russell 2000(R) 2x Strategy Fund, a series of 0.90% $ 28.69
Rydex Dynamic Series
Rydex 2x Russell 2000 ETF, a series of Rydex ETF Trust 0.70% $ 26.73
S&P 500 2x STRATEGY FUND, A SERIES OF 0.90% $ 28.88
RYDEX VARIABLE TRUST
S&P 500 2x Strategy Fund, a series of 0.90% $ 326.21
Rydex Dynamic Funds
Rydex 2x S&P 500 ETF, a series of Rydex ETF Trust 0.70% $ 104.67
RYDEX S&P 500 PURE GROWTH, A SERIES OF 0.75% $ 34.48
RYDEX VARIABLE TRUST
Rydex S&P 500 Pure Growth Fund, a series of 0.75% $ 54.32
Rydex Series Funds
S&P MidCap 500 Pure Growth ETF, a series of 0.35% $ 58.16
Rydex ETF Trust
D-1-4
ANNUAL COMPENSATION
NAME OF FUND SUBJECT TO THIS PROXY STATEMENT TO THE INVESTMENT ADVISER
(AS A PERCENTAGE OF NET ASSETS
Name(s) of Other Fund(s) with Similar Objectives AVERAGE DAILY NET ASSETS) (IN MILLIONS)
-----------------------------------------------------------------------------------------------------
RYDEX S&P 500 PURE VALUE, A SERIES OF 0.75% $ 27.85
RYDEX VARIABLE TRUST
Rydex S&P 500 Pure Value Fund, a series of 0.75% $ 25.14
Rydex Series Funds
S&P MidCap 500 Pure Value ETF, a series of 0.35% $ 34.31
Rydex ETF Trust
S&P MIDCAP 400 PURE GROWTH FUND, A SERIES OF 0.75% $ 44.92
RYDEX VARIABLE TRUST
Rydex S&P MidCap 400 Pure Growth Fund, a series of 0.75% $ 48.37
Rydex Series Funds
Rydex S&P MidCap 400 Pure Growth ETF, a series of 0.35% $ 101.76
Rydex ETF Trust
S&P MIDCAP 400 PURE VALUE FUND, 0.75% $ 29.51
A SERIES OF RYDEX VARIABLE TRUST
Rydex S&P MidCap 400 Pure Value Fund, a series of 0.75% $ 36.50
Rydex Series Funds
Rydex S&P MidCap 400 Pure Value ETF, a series of 0.35% $ 25.24
Rydex ETF Trust
S&P SMALLCAP 600 PURE GROWTH FUND, A SERIES OF 0.75% $ 13.56
RYDEX VARIABLE TRUST
Rydex S&P SmallCap 600 Pure Growth Fund, a series of 0.75% $ 22.73
Rydex Series Funds
Rydex S&P SmallCap 600 Pure Growth ETF, a series of 0.35% $ 13.10
Rydex ETF Trust
S&P SMALLCAP 600 PURE VALUE FUND, A SERIES OF 0.75% $ 13.56
RYDEX VARIABLE TRUST
Rydex S&P SmallCap 600 Pure Value Fund, a series of 0.75% $ 26.56
Rydex Series Funds
Rydex S&P SmallCap 600 Pure Value ETF, a series of 0.35% $ 84.91
Rydex ETF Trust
STRENGTHENING DOLLAR 2x STRATEGY FUND, A SERIES OF 0.90% $ 7.53
RYDEX VARIABLE TRUST
Rydex Strengthening Dollar 2x Strategy Fund, a series of 0.90% $ 71.00
Rydex Series Funds
TECHNOLOGY FUND, A SERIES OF RYDEX VARIABLE TRUST 0.85% $ 15.49
Rydex Technology Fund, a series of Rydex Series Funds 0.85% $ 39.97
TELECOMMUNICATIONS FUND, A SERIES OF 0.85% $ 5.75
RYDEX VARIABLE TRUST
Rydex Telecommunications Fund, a series of 0.85% $ 70.49
Rydex Series Funds
TRANSPORTATION FUND, A SERIES OF RYDEX VARIABLE TRUST 0.85% $ 8.46
Rydex Transportation Fund, a series of 0.85% $ 76.79
Rydex Series Funds
D-1-5
ANNUAL COMPENSATION
NAME OF FUND SUBJECT TO THIS PROXY STATEMENT TO THE INVESTMENT ADVISER
(AS A PERCENTAGE OF NET ASSETS
Name(s) of Other Fund(s) with Similar Objectives AVERAGE DAILY NET ASSETS) (IN MILLIONS)
-----------------------------------------------------------------------------------------------------
U.S. GOVERNMENT MONEY MARKET FUND, A SERIES OF 0.50% $ 231.44
RYDEX VARIABLE TRUST
Rydex U.S. Government Money Market Fund, a series of 0.50% $1,341.27
Rydex Series Funds
UTILITIES FUND, A SERIES OF RYDEX VARIABLE TRUST 0.85% $ 15.82
Rydex Utilities Fund, a series of Rydex Series Funds 0.85% $ 55.62
WEAKENING DOLLAR 2x STRATEGY FUND, A SERIES OF 0.90% $ 4.91
RYDEX VARIABLE TRUST
Rydex Weakening Dollar 2x Strategy Fund, a series of 0.90% $ 63.15
Rydex Series Funds
The Investment Adviser did not reduce or waive its investment advisory fees for
the period indicated, except as disclosed below.
(1) The Fund invests primarily in underlying funds (the "Underlying Funds"). The
Investment Adviser receives an investment advisory fee for managing the
Underlying Funds. The Underlying Funds pay a monthly investment advisory fee
to the Investment Adviser for its services. The fee is based on the average
net daily assets of each Underlying Fund and calculated at an annual rate
for each Underlying Fund. For more information regarding the Underlying
funds' investment advisory fees and expense limitations, please see the
Prospectus and applicable sections of the Statement of Additional
Information. The Funds benefit from the investment advisory services
provided to the Underlying Funds and, as shareholders of those Underlying
Funds, indirectly bear a proportionate share of those Underlying Funds'
advisory fees.
(2) The Fund may invest in a wholly-owned and controlled Cayman Islands
subsidiary (the "Subsidiary"). The Subsidiary has entered into a separate
advisory agreement with the Investment Adviser for the management of the
Subsidiary's portfolio pursuant to which the Subsidiary pays the Investment
Adviser a management fee at the same rate that the Fund pays the Investment
Adviser for services provided to the Fund. The Investment Adviser has
contractually agreed to waive the management fee it receives from the Fund
in an amount equal to the management fee paid to the Investment Adviser by
the Subsidiary. This undertaking will continue in effect for so long as the
Fund invests in the Subsidiary, and may not be terminated by the Investment
Adviser unless the Investment Adviser first obtains the prior approval of
the Fund's Board of Trustees for such termination. The management fees
included in the table reflect the net management fees paid to the Investment
Adviser by the Fund after the fee waiver.
(3) The Multi-Cap Core Equity Fund pays the Investment Adviser a fee that is
comprised of two components: the first component is an annual basic fee (the
"basic fee") equal to 0.70% of the Multi-Cap Core Equity Fund's average
daily net assets, and the second component is a performance fee adjustment.
The Multi-Cap 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(R) 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
Multi-Cap Core Equity Fund over the entire performance period, giving the
dollar amount that will be added to (or subtracted from) the basic fee.
D-1-6
APPENDIX D-2
ADVISORY FEE RATES OF FUNDS WITH SIMILAR INVESTMENT
OBJECTIVES ADVISED OR SUB-ADVISED BY CLS INVESTMENTS, LLC
Each of the tables below lists the names of other mutual funds advised or
sub-advised by CLS Investments, LLC ("CLS") with similar investment objectives
as the Sub-Advised Funds, and information concerning the Sub-Advised Funds' and
such other funds'net assets and the rate of compensation for CLS for its
services to the Sub-Advised Funds and such other funds.
ANNUAL
COMPENSATION
TO CLS (AS A
NAME OF FUND SUBJECT TO THIS PROXY STATEMENT PERCENTAGE OF
AVERAGE DAILY NET ASSETS FEES WAIVED
Name(s) of Other Fund(s) with Similar Objectives NET ASSETS) (IN MILLIONS) BY CLS
-----------------------------------------------------------------------------------------------------------
AMERIGO FUND, A SERIES OF RYDEX VARIABLE TRUST 0.40% $213.10** $ 0
Amerigo Fund, a series of AdvisorOne Funds* 1.00% $520.77*** $ 0
BEROLINA FUND, A SERIES OF RYDEX VARIABLE TRUST 0.40% $ 43.55** $ 0
Select Allocation Fund (formerly known as
Berolina Fund), a series of AdvisorOne Funds* 1.00% $120.36*** $190,957****
CLERMONT FUND, A SERIES OF RYDEX VARIABLE TRUST 0.40% $ 66.81** $ 0
Clermont Fund, a series of AdvisorOne Funds* 1.00% $126.29*** $151,770****
-------------------
* CLS is the investment adviser to the fund.
** As of the fiscal year ending December 31, 2009.
*** As of the fiscal year ending April 30, 2009.
**** Reflects the amount of advisory fees waived by CLS for the fiscal year
ending April 30, 2009. The advisory fee waiver agreement limits total
operating expenses at least through August 30, 2010, so that direct
expenses (not including expenses relating to dividends on short sales,
interest expense, indirect fees and expenses of underlying funds and
extraordinary or non-recurring expenses) do not exceed 1.15% of average
daily net assets.
D-2-1
APPENDIX E
FORM OF SUB-ADVISORY AGREEMENT WITH CLS INVESTMENTS, LLC
INVESTMENT SUB-ADVISORY AGREEMENT
AGREEMENT made this [ ] day of [ ], 2010, by and between PADCO Advisors II,
Inc., d/b/a Rydex Investments, a Maryland corporation (the "Adviser"), and CLS
Investment Firm, LLC, a Nebraska limited liability company (the "Sub-Adviser").
WHEREAS, Rydex Variable Trust, a Delaware statutory trust (the "Trust") is
an open-end management investment company registered under the Investment
Company Act of 1940, as amended (the "1940 Act");
WHEREAS, the Adviser has entered into an Investment Advisory Agreement dated
[ ], 2010, as amended (the "Advisory Agreement") with the Trust, pursuant to
which the Adviser will act as the investment adviser to the separate series of
the Trust set forth therein; and
WHEREAS, the Adviser, with the approval of the Trust, desires to retain the
Sub-Adviser as its agent to furnish sub-investment advisory services to the
Adviser in connection with the management of the separate series of the Trust
set forth on SCHEDULE A of this Investment Sub-Advisory Agreement (each a "Fund"
and together, the "Funds"), and the Sub-Adviser is willing to render such
sub-investment advisory services.
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
the parties hereto agree as follows:
1. APPOINTMENT. The Adviser hereby appoints the Sub-Adviser to provide
certain sub-investment advisory services to each Fund for the period and on
the terms set forth in this Agreement (the "Sub-Advisory Agreement"). The
Sub-Adviser hereby accepts such appointment and agrees to furnish the
services herein set forth for the compensation herein provided.
2. DELIVERY OF DOCUMENTS. The Sub-Adviser hereby acknowledges receipt of
properly certified or authenticated copies of each of the following:
(a) The Trust's Declaration of Trust and all amendments thereto or
restatements thereof (such Declaration, as presently in effect and as
it shall from time to time be amended or restated, is herein called
the "Declaration of Trust");
(b) The Trust's By-Laws and amendments thereto;
(c) Resolutions of the Trust's Board of Trustees authorizing the
appointment of the Sub-Adviser and approving this Agreement;
(d) The Trust's Notification of Registration on Form N-8A under the 1940
Act as filed with the U.S. Securities and Exchange Commission (the
"SEC") and all amendments thereto;
E-1
(e) The Trust's Registration Statement on Form N-1A under the Securities
Act of 1933, as amended (the "1933 Act") and under the 1940 Act as
filed with the SEC and all amendments thereto insofar as such
Registration Statement and such amendments relate to each Fund; and
(f) The Trust's most recent prospectus and Statement of Additional
Information for each Fund (such prospectus and Statement of Additional
Information, as presently in effect, and all amendments and supplements
thereto are herein collectively called the "Prospectus").
The Adviser will furnish the Sub-Adviser from time to time with copies of
all amendments of or supplements to the foregoing.
3. MANAGEMENT. Subject always to the supervision of the Trust's Board of
Trustees and the Adviser, the Sub-Adviser will furnish, direct, and administer
an investment program in respect of, and make investment and reinvestment
decisions for, all assets of each Fund and place all orders for the purchase and
sale of securities, all on behalf of each Fund. In the performance of its
duties, the Sub-Adviser will satisfy its fiduciary duties to each Fund, and will
monitor each Fund's investments, and will comply with the provisions of the
Trust's Declaration of Trust and By-Laws, as amended from time to time, any
policies or restrictions imposed by the Adviser and/or the Trust, and the stated
investment objectives, policies and restrictions of each Fund as provided in
each Fund's prospectus and statement of additional information, as amended from
time to time. The Sub-Adviser and the Adviser will each make its officers and
employees available to the other from time to time at reasonable times to review
investment policies of each Fund and to consult with each other regarding the
investment affairs of each Fund. The Sub-Adviser shall also make itself
reasonably available to the Board of Trustees at such times as the Board of
Trustees shall request.
The Sub-Adviser represents and warrants that it is in compliance with all
applicable rules and regulations of the SEC pertaining to its investment
advisory activities and agrees that it:
(a) will use the same skill and care in providing such services as it uses
in providing services to fiduciary accounts for which it has investment
responsibilities;
(b) will conform with all applicable rules and regulations of the SEC
pertaining to its investment advisory activities;
(c) will place orders pursuant to its investment determinations for each
Fund either directly with the issuer or with any broker or dealer. In
placing orders with brokers or dealers, the Sub-Adviser will attempt to
obtain the best combination of prompt execution of orders in an
effective manner and at the most favorable price consistent with its
"best execution" obligation. Consistent with this obligation, when the
execution and price offered by two or more brokers or dealers are
comparable, the Sub-Adviser may, in its
E-2
discretion, purchase and sell portfolio securities to and from brokers
and dealers who provide the Sub-Adviser with research advice and other
services (as those terms are defined in Section 28(e) of the Securities
Act of 1934). In no instance will portfolio securities be purchased
from or sold to the Adviser, the Sub-Adviser, Rydex Distributors, Inc.
or any affiliated person of either the Trust, the Adviser, the Sub-
Adviser or Rydex Distributors, Inc., except as may be permitted under
the 1940 Act;
(d) will report regularly to the Adviser and will make appropriate persons
available for the purpose of reviewing at reasonable times with
representatives of the Adviser and the Board of Trustees the management
of each Fund, including, without limitation, review of the general
investment strategy of each Fund, the performance of each Fund in
relation to standard industry indices, interest rate considerations and
general conditions affecting the marketplace and will provide various
other reports from time to time as reasonably requested by the Adviser;
(e) will maintain books and records required to be maintained by Rule 31a-3
under the 1940 Act with respect to the Trust's securities transactions
and will furnish the Adviser and the Trust's Board of Trustees such
periodic and special reports as the Board of Trustees or the Adviser
may request;
(f) will act upon instructions from the Adviser not inconsistent with the
fiduciary duties hereunder; and
(g) will treat confidentially and as proprietary information of the Trust
all such records and other information relative to the Trust maintained
by the Sub-Adviser, and will not use such records and information for
any purpose other than performance of its responsibilities and duties
hereunder, except after prior notification to and approval in writing
by the Trust, which approval shall not be unreasonably withheld and may
not be withheld where the Sub-Adviser may be exposed to civil or
criminal contempt proceedings for failure to comply, when requested to
divulge such information by duly constituted authorities, or when so
requested by the Trust.
4. PROXY VOTING; CORPORATE ACTIONS. The Sub-Adviser shall execute and
deliver, or cause its nominee to execute and deliver, all proxy votes, notices
of meetings and other notices affecting or relating to the securities of each
Fund during the term of this Sub-Advisory Agreement. The Sub-Adviser shall
maintain and preserve written proxy voting procedures, and shall provide a copy
of such voting procedures, along with a record of its actual proxy votes
relating to the securities of each Fund, to the Adviser or the Trust upon
request. The Adviser and Sub-Adviser understand that the Funds may pursue their
investment objectives by investing in other investment companies that are not
affiliated "underlying funds" and specific proxy rules are applicable under the
1940 Act to this type of relationship. In particular, the Sub-Adviser will vote
all proxies received from the underlying funds in the same proportion that all
shares of the
E-3
underlying funds are voted, or in accordance with instructions received from
Fund shareholders, pursuant to Section 12(d)(1)(F) of the 1940 Act. Beginning
July 1, 2003, the Sub-Adviser shall maintain records regarding proxy voting on
behalf of the Funds in order that the Funds may complete the annual Form N-PX
filing.
5. BOOKS AND RECORDS. In compliance with the requirements of Rule 31a-3
under the 1940 Act, the Sub-Adviser hereby agrees that all records which it
maintains for each Fund, on behalf of the Trust are the property of the Trust
and further agrees to surrender promptly to the Trust any of such records upon
the Trust's request. The Sub-Adviser further agrees to preserve for the periods
prescribed by Rule 31a-2 under the 1940 Act the records required to be
maintained by Rule 31 a-1 under the 1940 Act.
6. EXPENSES. During the term of this Agreement, the Sub-Adviser will pay
all expenses incurred by it in connection with its activities under this
Sub-Advisory Agreement.
7. COMPENSATION. For the services to be provided by the Sub-Adviser
pursuant to this Agreement, the Adviser will pay the Sub-Adviser, and the
Sub-Adviser agrees to accept as full compensation therefor, a sub-advisory fee
paid at the rate specified on Schedule A, which is attached hereto and made part
of this Agreement. The fee will be calculated based on the average daily net
asset value of the assets under the Sub-Adviser's management. This fee will be
paid at least quarterly. Except as may otherwise be prohibited by law or
regulation (including any then current SEC staff interpretation), the
Sub-Adviser may, in its discretion and from time to time, waive a portion of its
fee. The Sub-Adviser shall not be responsible for expenses and costs of a Fund's
operations payable by a Fund or the Adviser.
8. SERVICES TO OTHERS. The Adviser understands, and has advised the Trust's
Board of Trustees, that the Sub-Adviser now acts, and may in the future act, as
an investment adviser and fiduciary to other managed accounts, and as investment
adviser, sub-investment adviser, and/or administrator to other investment
companies. The Adviser has no objection to the Sub-Adviser's acting in such
capacities, provided that the Sub-Adviser furnishes adequate disclosure of such
possible conflicts of interest and implements procedures designed to mitigate or
eliminate such conflicts. For example, whenever a Fund and one or more other
investment companies advised by the Sub-Adviser have available funds for
investment, investments suitable and appropriate for each will be allocated in
accordance with a formula believed by the Sub-Adviser to be equitable to each
company. The Adviser recognizes, and has advised the Trust's Board of Trustees,
that in some cases the Sub-Adviser's procedures may adversely affect the size of
the position that each Fund may obtain in a particular security. In addition,
the Adviser understands, and has advised the Trust's Board of Trustees, that the
persons employed by the Sub-Adviser to assist in the Sub-Adviser's duties under
this Sub-Advisory Agreement will not devote their full time to such service and
nothing contained in this Sub-Advisory Agreement will be deemed to limit or
restrict the right of the Sub-Adviser or any of its affiliates to engage in and
devote time and attention to other businesses or to render services of whatever
kind or nature.
E-4
9. STANDARD OF CARE. Each of the Adviser and Sub-Adviser shall discharge
its duties under this Sub-Advisory Agreement with the care, skill, prudence and
diligence under the circumstances then prevailing that a prudent person acting
in a like capacity and familiar with such matters would use in the conduct of an
enterprise of a like character and with like aims. The parties recognize that
the opinions, recommendations and actions of the Sub-Adviser will be based on
advice and information deemed to be reliable but not guaranteed by or to the
Sub-Adviser.
10. INDEMNIFICATION. Each of the Adviser and Sub-Adviser agrees to
indemnify each other against any claim, loss or liability (including reasonable
attorney's fees) arising as a result of the failure to meet the standard of care
set forth in the first sentence of Paragraph 9 hereof, Notwithstanding the
generality of the foregoing, the Adviser and Sub-Adviser each further agrees to
indemnify each other against any claim, loss or liability (including reasonable
attorney's fees) arising or as a result of willful misfeasance, bad faith or
gross negligence in the performance of its duties, or by reason of reckless
disregard of its obligation and duties hereunder. The federal securities laws
impose liabilities under certain circumstances on persons who act in good faith,
and therefore nothing herein shall in any way constitute a waiver or limitation
of any rights which each party may have against the other under any federal
securities laws based on negligence and which cannot be modified in advance by
contract.
11. DURATION AND TERMINATION. This Sub-Advisory Agreement will become
effective as of the date hereof provided that it has been approved by vote of a
majority of the outstanding voting securities of each Fund in accordance with
the requirements under the 1940 Act, and, unless sooner terminated as provided
herein, will continue in effect for two years.
Thereafter, if not terminated, this Sub-Advisory Agreement will continue in
effect for each Fund for successive periods of 12 months, each ending on the day
preceding the anniversary of the Sub-Advisory Agreement's effective date of each
year, provided that such continuation is specifically approved at least annually
(a) by the vote of a majority of those members of the Trust's Board of Trustees
who are not interested persons of the Trust, the Sub-Adviser, or the Adviser,
cast in person at a meeting called for the purpose of voting on such approval,
and (b) by the vote of a majority of the Trust's Board of Trustees or by the
vote of a majority of all votes attributable to the outstanding shares of each
Fund. Notwithstanding the foregoing, this Sub-Advisory Agreement may be
terminated as to each Fund at any time, without the payment of any penalty, on
sixty (60) days' written notice by the Adviser or by the Sub-Adviser, This
Sub-Advisory Agreement will immediately terminate in the event of its
assignment. (As used in this Sub-Advisory Agreement, the terms "majority of the
outstanding voting securities," "interested persons" and "assignment" have the
same meaning of such terms ascribed in the 1940 Act.)
This Agreement will terminate automatically if the investment advisory
agreement between the Trust and the Adviser is terminated.
E-5
12. AMENDMENT OF THIS AGREEMENT. No provision of this Sub-Advisory
Agreement may be changed, waived, discharged or terminated orally, but only by
an instrument in writing signed by the party against which enforcement of the
change, waiver, discharge or termination is sought.
13. MULTIPLE ORIGINALS. This Sub-Advisory Agreement may be executed in two
or more counterparts, each of which when so executed shall be deemed to be an
original, but such counterparts shall together constitute but one and the same
document.
14. CUSTODY. All securities and other assets of each Fund shall be
maintained with a custodian designated by the Adviser. The Sub-Adviser shall
have no responsibility or liability with respect to any custodial function.
15. MISCELLANEOUS. The captions in this Agreement are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. If any
provision of this Agreement is held or made invalid by a court decision,
statute, rule or otherwise, the remainder of this Agreement will not be affected
thereby. This Agreement will be binding upon and shall inure to the benefit of
the parties hereto and will be governed by the internal laws of the state of
Delaware. The Sub-Adviser shall notify the Adviser of any changes in its
officers and directors within a reasonable time.
16. LIMITATION OF LIABILITY. The names "Rydex Variable Trust" and "Trustees
of the Rydex Variable Trust" refer respectively to the Trust created by, and the
Trustees, as trustees but not individually or personally, acting from time to
time under, the Declaration of Trust, to which reference is hereby made and a
copy of which is on file at the office of the Secretary of State of the State of
Delaware and elsewhere as required by law, and to any and all amendments thereto
so filed or hereafter filed. The obligations of the Trust entered in the name or
on behalf thereof by any of the Trustees, representatives or agents are made not
individually but only in such capacities and are not binding upon any of the
Trustees, shareholders or representatives of the Trust personally, but bind only
the assets of the Trust. Persons dealing with each Fund must look solely to the
assets of the Trust belonging to each Fund for the enforcement of any claims
against the Trust.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their officers designated below as of the day and year first above
written.
PADCO ADVISORS II, INC.
By: ______________________________________
Name: Richard M. Goldman
Title: Chief Executive Officer
CLS INVESTMENT FIRM, LLC
By: ______________________________________
Name:
Title:
E-6
SCHEDULE A
TO THE
INVESTMENT SUB-ADVISORY AGREEMENT
DATED [ ], 2010
BETWEEN
PADCO ADVISORS II, INC.
AND
CLS INVESTMENT FIRM, LLC
Pursuant to Section 7 of this Investment Sub-Advisory Agreement, the
Adviser shall pay the Sub-Adviser compensation at an annual rate as follows:
Amerigo Fund ................................ 0.40%
Clermont Fund ............................... 0.40%
Berolina Fund ............................... 0.40%
Should either of the aforementioned Funds not average $10,000,000 in assets
over a quarter, the Sub-Adviser will not receive compensation for assets in that
Fund for that specific quarter.
E-7
APPENDIX F
INFORMATION REGARDING THE SUB-ADVISORY AGREEMENT WITH
CLS INVESTMENTS, LLC AND FEES PAID TO THE SUB-ADVISER
CLS Investments, LLC (the "Sub-Adviser") currently serves as sub-adviser to
the Amerigo Fund, the Berolina Fund, and the Clermont Fund, each a series of
Rydex Variable Trust (collectively, the "CLS Funds"), pursuant to the investment
sub-advisory agreement between PADCO Advisors II, Inc., the CLS Funds'
investment adviser (the "Investment Adviser"), and the Sub-Adviser. The table
below provides the following information:
(i) the date of the Sub-Advisory Agreement;
(ii) the date on which the CLS Funds' shareholders last approved the
Funds' Sub-Advisory Agreement;
(iii) the annual rate of sub-advisory fees paid by the Investment Adviser
to the Sub-Adviser for the Sub-Adviser's sub-advisory services to the
CLS Funds; and
(iv) the aggregate amount of advisory fees paid by the Investment Adviser
to the Sub-Adviser for the Sub-Adviser's sub-advisory services to the
CLS Funds during the CLS Funds' fiscal year ended December 31, 2009.
DATE OF DATE OF LAST SUB-ADVISORY
SUB-ADVISORY SHAREHOLDER SUB-ADVISORY FEES PAID TO
FUND AGREEMENT APPROVAL FEES SUB-ADVISER
---------------------------------------------------------------------------------------------
Amerigo Fund 1/18/2008 10/4/2007 0.40% $804,797
Berolina Fund 1/18/2008 10/4/2007 0.40% $170,762
Clermont Fund 1/18/2008 10/4/2007 0.40% $213,446
F-1
APPENDIX G
OUTSTANDING SHARES
As of February 24, 2010, the total number of shares outstanding for each
Fund is set forth in the table below:
RYDEX VARIABLE TRUST
FUND SHARES OUTSTANDING
---------------------------------------------------------------------------------------------
All-Cap Opportunity Fund 5,755,431.582
Alternative Strategies Allocation Fund 276,773.954
Amerigo Fund 6,821,797.989
Banking Fund 644,652.359
Basic Materials Fund 1,053,545.479
Berolina Fund 1,969,101.025
Biotechnology Fund 1,172,587.45
Clermont Fund 3,084,442.674
Commodities Strategy Fund 1,460,455.483
Consumer Products Fund 619,310.784
Dow 2x Strategy Fund 197,973.081
Electronics Fund 1,480,961.057
Energy Fund 1,348,587.467
Energy Services Fund 1,424,568.509
All-Asset Aggressive Strategy Fund
(formerly, Essential Portfolio Aggressive Fund) 338,510.575
All-Asset Conservative Strategy Fund
(formerly, Essential Portfolio Conservative Fund) 428,588.751
All-Asset Moderate Strategy Fund
(formerly, Essential Portfolio Moderate Fund) 736,633.777
Europe 1.25x Strategy Fund 836,374.348
Financial Services Fund 652,096.244
Government Long Bond 1.2x Strategy Fund 14,865,643.38
Health Care Fund 1,130,108.685
Internet Fund 816,833.213
Inverse Dow 2x Strategy Fund 1,026,393.318
Inverse Government Long Bond Strategy Fund 1,300,467.837
Inverse Mid-Cap Strategy Fund 211,414.556
Inverse NASDAQ-100(R) Strategy Fund 1,295,036.153
Inverse Russell 2000(R) Strategy Fund 387,018.379
G-1
FUND SHARES OUTSTANDING
---------------------------------------------------------------------------------------------
Inverse S&P 500 Strategy Fund 2,231,808.556
Japan 2x Strategy Fund 356,174.769
Leisure Fund 158,436.579
Managed Futures Strategy Fund 1,354,019.267
Mid-Cap 1.5x Strategy Fund 998,842.719
Multi-Cap Core Equity Fund 172,946.983
Multi-Hedge Strategies Fund 1,343,400.826
NASDAQ-100(R) 2x Strategy Fund 1,596,756.964
NASDAQ-100(R) Fund 2,994,626.603
Nova Fund 770,253.402
Precious Metals Fund 4,902,916.127
Real Estate Fund 1,166,703.223
Retailing Fund 841,262.323
Russell 2000(R) 1.5x Strategy Fund 605,079.85
Russell 2000(R) 2x Strategy Fund 27,056.602
S&P 500 2x Strategy Fund 205,136.708
S&P 500 Pure Growth Fund 1,084,933.552
S&P 500 Pure Value Fund 508,412.51
S&P MidCap 400 Pure Growth Fund 1,068,950.393
S&P MidCap 400 Pure Value Fund 547,803.523
S&P SmallCap 600 Pure Growth Fund 559,262.709
S&P SmallCap 600 Pure Value Fund 218,889.622
Strengthening Dollar 2x Strategy Fund 2,397,260.814
Technology Fund 2,665,453.4
Telecommunications Fund 453,843.717
Transportation Fund 700,048.95
U.S. Government Money Market Fund 278,397,568.98
Utilities Fund 812,367.219
Weakening Dollar 2x Strategy Fund 148,469.84
G-2
APPENDIX H
BENEFICIAL OWNERS OF MORE THAN 5% OF EACH FUND
As of February 24, 2010, the following persons owned, of record and
beneficially (unless otherwise indicated), 5% or more* of each Fund's
outstanding securities:
RYDEX VARIABLE TRUST
NAME AND ADDRESS AMOUNT OF SHARES PERCENTAGE OF
NAME OF THE FUND OF THE BENEFICIAL OWNER OWNED THE FUND
-------------------------------------------------------------------------------------------------------
All-Cap Opportunity Fund Nationwide Insurance Company 1,577,556.173 27%
P.O. Box 182029
Columbus, OH 43218-2029
Security Benefit Life Insurance Co 474,500.538 8%
SBL Variable
One Security Benefit Place
Topeka, KS 66636-0001
Security Benefit Life Insurance Co 1,292,955.731 22%
FBO Unbundled c/o Variable
Annuity Dept.
One Security Benefit Place
Topeka, KS 66636-0001
Security Benefit Life Insurance Co 473,170.075 8%
SBL Variflex 1 - Navisys
Topeka, KS 66636-0001
Alternative Strategies National Integrity Life Insurance Co 16,913.408 6%
Allocation Fund 400 Broadway Street MS #24
Cincinnati, OH 45202-3341
Nationwide Insurance Company 92,804.679 34%
P.O. Box 182029
Columbus, OH 43218-2029
Security Benefit Life Insurance Co 139,463.292 50%
FBO Unbundled c/o Variable
Annuity Dept
One Security Benefit Place
Topeka, KS 66636-0001
Integrity Life Insurance Co 19,024.394 7%
400 Broadway Street MS #24
Cincinnati, OH 45202-3341
Amerigo Fund Nationwide Insurance Company 34,7781.081 5%
P.O. Box 182029
Columbus, OH 43218-2029
Security Benefit Life Insurance Co 2,699,955.769 40%
FBO Unbundled c/o Variable
Annuity Dept.
One Security Benefit Place
Topeka, KS 66636-0001
Security Benefit Life Insurance Co 3,316,928.383 49%
SBL Variable
One Security Benefit Place
Topeka, KS 66636-0001
H-1
NAME AND ADDRESS AMOUNT OF SHARES PERCENTAGE OF
NAME OF THE FUND OF THE BENEFICIAL OWNER OWNED THE FUND
-------------------------------------------------------------------------------------------------------
Banking Fund Nationwide Insurance Company 345,170.187 54%
P.O. Box 182029
Columbus, OH 43218-2029
Security Benefit Life Insurance Co 156,270.258 24%
SBL Variable
One Security Benefit Place
Topeka, KS 66636-0001
Jefferson National Life Insurance 131,577.74 20%
Company
9920 Corporate Campus Suite 1000
Louisville, IN 40223
Basic Materials Fund Nationwide Insurance Company 490,450.647 47%
P.O. Box 182029
Columbus, OH 43218-2029
Security Benefit Life Insurance Co 422,208.441 40%
SBL Variable
One Security Benefit Place
Topeka, KS 66636-0001
Jefferson National Life Insurance 116,316.964 11%
Company
9920 Corporate Campus Suite 1000
Louisville, IN 40223
Berolina Fund FSBL Variable 108,592.967 6%
One Security Benefit Place
Topeka, KS 66636-0001
Nationwide Insurance Company 246,801.947 13%
P.O. Box 182029
Columbus, OH 43218-2029
Security Benefit Life Insurance Co 1,613,655.725 82%
SBL Variable
One Security Benefit Place
Topeka, KS 66636-0001
Biotechnology Fund FSBL Variable 76,112.422 6%
One Security Benefit Place
Topeka, KS 66636-0001
Nationwide Insurance Company 598,467.956 51%
P.O. Box 182029
Columbus, OH 43218-2029
Nationwide Insurance Company 95,350.213 8%
P.O. Box 182029
Columbus, OH 43218-2029
Security Benefit Life Insurance Co 306,592 26%
SBL Variable
One Security Benefit Place
Topeka, KS 66636-0001
Jefferson National Life Insurance 95,244.146 8%
Company
9920 Corporate Campus Suite 1000
Louisville, IN 40223
H-2
NAME AND ADDRESS AMOUNT OF SHARES PERCENTAGE OF
NAME OF THE FUND OF THE BENEFICIAL OWNER OWNED THE FUND
-------------------------------------------------------------------------------------------------------
Clermont Fund Nationwide Insurance Company 256,290.118 8%
P.O. Box 182029
Columbus, OH 43218-2029
Security Benefit Life Insurance Co 1,463,462.937 47%
SBL Variable
One Security Benefit Place
Topeka, KS 66636-0001
Security Benefit Life Insurance Co 1,130,070.044 37%
FBO Unbundled c/o Variable
Annuity Dept.
One Security Benefit Place
Topeka, KS 66636-0001
Commodities Strategy Fund Nationwide Insurance Company 1,139,117.249 78%
P.O. Box 182029
Columbus, OH 43218-2029
Security Benefit Life Insurance Co 244,020.336 17%
SBL Variable
One Security Benefit Place
Topeka, KS 66636-0001
Consumer Products Fund FSBL Variable 122,721.912 20%
One Security Benefit Place
Topeka, KS 66636-0001
Nationwide Insurance Company 278,149.191 45%
P.O. Box 182029
Columbus, OH 43218-2029
Security Benefit Life Insurance Co 170,565.145 28%
SBL Variable
One Security Benefit Place
Topeka, KS 66636-0001
Jefferson National Life Insurance 38,111.984 6%
Company
9920 Corporate Campus Suite 1000
Louisville, IN 40223
Dow 2x Strategy Fund FSBL Variable 18,006.682 9%
One Security Benefit Place
Topeka, KS 66636-0001
Nationwide Insurance Company 79,106.122 40%
P.O. Box 182029
Columbus, OH 43218-2029
Security Benefit Life Insurance Co 74,714.879 38%
SBL Variable
One Security Benefit Place
Topeka, KS 66636-0001
Jefferson National Life Insurance 23,102.244 12%
Company
9920 Corporate Campus Suite 1000
Louisville, IN 40223
H-3
NAME AND ADDRESS AMOUNT OF SHARES PERCENTAGE OF
NAME OF THE FUND OF THE BENEFICIAL OWNER OWNED THE FUND
-------------------------------------------------------------------------------------------------------
Electronics Fund Nationwide Insurance Company 1,004,340.432 68%
P.O. Box 182029
Columbus, OH 43218-2029
Security Benefit Life Insurance Co 371,766.549 25%
SBL Variable
One Security Benefit Place
Topeka, KS 66636-0001
Jefferson National Life Insurance 85,360.907 6%
Company
9920 Corporate Campus Suite 1000
Louisville, IN 40223
Energy Fund Nationwide Insurance Company 535,703.259 40%
P.O. Box 182029
Columbus, OH 43218-2029
Transamerica Life Insurance 124,070.378 9%
Company
4333 Edgewood Road Northeast
Cedar Rapids, IA 52499
Security Benefit Life Insurance Co 449,952.09 33%
SBL Variable
One Security Benefit Place
Topeka, KS 66636-0001
Jefferson National Life Insurance 188,031.291 14%
Company
9920 Corporate Campus Suite 1000
Louisville, IN 40223
Energy Services Fund Nationwide Insurance Company 707,376.378 50%
P.O. Box 182029
Columbus, OH 43218-2029
Security Benefit Life Insurance Co 436,937.406 31%
SBL Variable
One Security Benefit Place
Topeka, KS 66636-0001
Jefferson National Life Insurance 247,924.306 17%
Company
9920 Corporate Campus Suite 1000
Louisville, IN 40223
All-Asset Aggressive FSBL Variable 26,344.16 8%
Strategy Fund (formerly, One Security Benefit Place
Essential Portfolio Topeka, KS 66636-0001
Aggressive Fund)
Security Benefit Life Insurance Co 84,498.484 25%
SBL Variable
One Security Benefit Place
Topeka, KS 66636-0001
Security Benefit Life Insurance Co 209,729.792 62%
FBO Unbundled c/o Variable
Annuity Dept
One Security Benefit Place
Topeka, KS 66636-0001
H-4
NAME AND ADDRESS AMOUNT OF SHARES PERCENTAGE OF
NAME OF THE FUND OF THE BENEFICIAL OWNER OWNED THE FUND
-------------------------------------------------------------------------------------------------------
All-Asset Conservative Security Benefit Life Insurance Co 45,384.983 11%
Strategy Fund (formerly, FBO Advance Designs
Essential Portfolio One Security Benefit Place
Conservative Fund) Topeka, KS 66636-0001
Security Benefit Life Insurance Co 253,749.717 59%
FBO Unbundled c/o Variable
Annuity Dept
One Security Benefit Place
Topeka, KS 66636-0001
Security Benefit Life Insurance Co 108,945.161 25%
SBL Variable
One Security Benefit Place
Topeka, KS 66636-0001
All-Asset Moderate Strategy Security Benefit Life Insurance Co 280,461.775 38%
Fund (formerly, Essential SBL Variable
Portfolio Moderate Fund) One Security Benefit Place
Topeka, KS 66636-0001
Security Benefit Life Insurance Co 405,488.98 55%
FBO Unbundled c/o Variable
Annuity Dept
One Security Benefit Place
Topeka, KS 66636-0001
Europe 1.25x Strategy Fund Nationwide Insurance Company 271,581.282 32%
P.O. Box 182029
Columbus, OH 43218-2029
Security Benefit Life Insurance Co 494,409.941 59%
SBL Variable
One Security Benefit Place
Topeka, KS 66636-0001
Financial Services Fund Nationwide Insurance Company 493,104.88 76%
P.O. Box 182029
Columbus, OH 43218-2029
Security Benefit Life Insurance Co 126,484.1 19%
SBL Variable
One Security Benefit Place
Topeka, KS 66636-0001
Government Long Bond 1.2x Nationwide Insurance Company 7,435,117.84 50%
Strategy Fund P.O. Box 182029
Columbus, OH 43218-2029
Midland National Life Insurance Co 1,920,039.846 13%
4601 Westown Pkwy Suite 300
West Des Moines, IA 50266-1071
Security Benefit Life Insurance Co 1,851,219.367 12%
SBL Variable
One Security Benefit Place
Topeka, KS 66636-0001
Jefferson National Life Insurance 2,754,524.236 19%
Company
9920 Corporate Campus Suite 1000
Louisville, IN 40223
H-5
NAME AND ADDRESS AMOUNT OF SHARES PERCENTAGE OF
NAME OF THE FUND OF THE BENEFICIAL OWNER OWNED THE FUND
-------------------------------------------------------------------------------------------------------
Health Care Fund FSBL Variable Account A 94,252.202 8%
One Security Benefit Place
Topeka, KS 66636-0001
Nationwide Insurance Company 720,452.422 64%
P.O. Box 182029
Columbus, OH 43218-2029
Security Benefit Life Insurance Co 213,122.785 19%
SBL Variable
One Security Benefit Place
Topeka, KS 66636-0001
Jefferson National Life Insurance 68,639.474 6%
Company
9920 Corporate Campus Suite 1000
Louisville, IN 40223
Internet Fund Nationwide Insurance Company 480,053.623 59%
P.O. Box 182029
Columbus, OH 43218-2029
Security Benefit Life Insurance Co 294,445.045 36%
SBL Variable
One Security Benefit Place
Topeka, KS 66636-0001
Inverse Dow 2x Nationwide Insurance Company 561,134.759 55%
Strategy Fund P.O. Box 182029
Columbus, OH 43218-2029
Security Benefit Life Insurance Co 362,669.75 35%
SBL Variable
One Security Benefit Place
Topeka, KS 66636-0001
Jefferson National Life Insurance 92,335.381 9%
Company
9920 Corporate Campus Suite 1000
Louisville, IN 40223
Inverse Government Long Phoenix Home Life Variable 93,322.617 7%
Bond Strategy Fund Insurance Company
31 Tech Valley Dr
East Greenbush, NY 12061
Nationwide Insurance Company 689,632.011 53%
P.O. Box 182029
Columbus, OH 43218-2029
Ameritas Life Insurance Company 71,324.086 5%
P.O. Box 81889
Lincoln, NE 68501
Security Benefit Life Insurance Co 288,927.805 22%
SBL Variable
One Security Benefit Place
Topeka, KS 66636-0001
Jefferson National Life Insurance 103,390.733 8%
Company
9920 Corporate Campus Suite 1000
Louisville, IN 40223
H-6
NAME AND ADDRESS AMOUNT OF SHARES PERCENTAGE OF
NAME OF THE FUND OF THE BENEFICIAL OWNER OWNED THE FUND
-------------------------------------------------------------------------------------------------------
Inverse Mid-Cap Nationwide Insurance Company 39,716.717 19%
Strategy Fund P.O. Box 182029
Columbus, OH 43218-2029
Nationwide Insurance Company 102,536.66 49%
P.O. Box 182029
Columbus, OH 43218-2029
Security Benefit Life Insurance Co 63,689.647 30%
SBL Variable
One Security Benefit Place
Topeka, KS 66636-0001
Inverse NASDAQ-100(R) Nationwide Insurance Company 168,089.083 13%
Strategy Fund P.O. Box 182029
Columbus, OH 43218-2029
Nationwide Insurance Company 786,567.887 61%
P.O. Box 182029
Columbus, OH 43218-2029
Security Benefit Life Insurance Co 274,870.276 21%
SBL Variable
One Security Benefit Place
Topeka, KS 66636-0001
Inverse Russell 2000(R) Nationwide Insurance Company 244,464.867 63%
Strategy Fund P.O. Box 182029
Columbus, OH 43218-2029
Security Benefit Life Insurance Co 102,447.312 26%
SBL Variable
One Security Benefit Place
Topeka, KS 66636-0001
Jefferson National Life Insurance 30,224.896 8%
Company
9920 Corporate Campus Suite 1000
Louisville, IN 40223
Inverse S&P 500 Nationwide Insurance Company 1,936,707.677 87%
Strategy Fund P.O. Box 182029
Columbus, OH 43218-2029
Security Benefit Life Insurance Co 155,181.09 7%
SBL Variable
One Security Benefit Place
Topeka, KS 66636-0001
Japan 2x Strategy Fund Nationwide Insurance Company 122,469.057 34%
P.O. Box 182029
Columbus, OH 43218-2029
Security Benefit Life Insurance Co 173,292.109 49%
SBL Variable
One Security Benefit Place
Topeka, KS 66636-0001
Jefferson National Life Insurance 41,917.361 12%
Company
9920 Corporate Campus Suite 1000
Louisville, IN 40223
H-7
NAME AND ADDRESS AMOUNT OF SHARES PERCENTAGE OF
NAME OF THE FUND OF THE BENEFICIAL OWNER OWNED THE FUND
-------------------------------------------------------------------------------------------------------
Leisure Fund Nationwide Insurance Company 125,636.825 79%
P.O. Box 182029
Columbus, OH 43218-2029
Security Benefit Life Insurance Co 21,666.325 14%
SBL Variable
One Security Benefit Place
Topeka, KS 66636-0001
Managed Futures National Integrity Life Insurance Co 111,663.024 8%
Strategy Fund 400 Broadway Street
Cincinnati, OH 45202-3341
Rydex Var Alternative Strategies 83,207.444 6%
Allocation Fund
9601 Blackwell Rd, Ste 500
Rockville, MD 20850
Nationwide Insurance Company 744,604.148 55%
P.O. Box 182029
Columbus, OH 43218-2029
Security Benefit Life Insurance Co 201,886.263 15%
FBO Unbundled c/o Variable
Annuity Dept
One Security Benefit Place
Topeka, KS 66636-0001
Jefferson National Life Insurance 80,160.676 6%
Company
9920 Corporate Campus Suite 1000
Louisville, IN 40223
Mid-Cap 1.5x Strategy Fund Nationwide Insurance Company 586,200.528 59%
P.O. Box 182029
Columbus, OH 43218-2029
Security Benefit Life Insurance Co 308,210.296 31%
SBL Variable
One Security Benefit Place
Topeka, KS 66636-0001
Jefferson National Life Insurance 66,084.312 7%
Company
9920 Corporate Campus Suite 1000
Louisville, IN 40223
Multi-Cap Core Equity Fund Nationwide Insurance Company 148,088.226 86%
P.O. Box 182029
Columbus, OH 43218-2029
Security Benefit Life Insurance Co 15,908.478 9%
FBO Unbundled c/o Variable
Annuity Dept
One Security Benefit Place
Topeka, KS 66636-0001
H-8
NAME AND ADDRESS AMOUNT OF SHARES PERCENTAGE OF
NAME OF THE FUND OF THE BENEFICIAL OWNER OWNED THE FUND
-------------------------------------------------------------------------------------------------------
Multi-Hedge Strategies Nationwide Insurance Company 685,679.651 51%
Fund P.O. Box 182029
Columbus, OH 43218-2029
Security Benefit Life Insurance Co 114,528.359 9%
SBL Variable
One Security Benefit Place
Topeka, KS 66636-0001
Security Benefit Life Insurance Co 249,003.653 19%
FBO Unbundled c/o Variable
Annuity Dept
One Security Benefit Place
Topeka, KS 66636-0001
NASDAQ-100(R) 2x Nationwide Insurance Company 338,545.388 21%
Strategy Fund P.O. Box 182029
Columbus, OH 43218-2029
Security Benefit Life Insurance Co 926,150.161 58%
SBL Variable
One Security Benefit Place
Topeka, KS 66636-0001
Jefferson National Life Insurance 288,943.348 18%
Company
9920 Corporate Campus Suite 1000
Louisville, IN 40223
NASDAQ-100(R) Fund American Skandia Life Assurance Co 687,100.932 23%
P.O. Box 883
Shelton, CT 06484-0883
Nationwide Insurance Company 517,845.35 17%
P.O. Box 182029
Columbus, OH 43218-2029
Security Benefit Life Insurance Co 493,575.894 16%
SBL Variable
One Security Benefit Place
Topeka, KS 66636-0001
GE Life And Annuity Insurance Co 374,175.667 12%
6610 West Broad Street
Richmond, VA 23230
Jefferson National Life Insurance 423,363.012 14%
Company
9920 Corporate Campus Suite 1000
Louisville, IN 40223
Nova Fund Nationwide Insurance Company 272,360.586 35%
P.O. Box 182029
Columbus, OH 43218-2029
Security Benefit Life Insurance Co 336,643.126 44%
SBL Variable
One Security Benefit Place
Topeka, KS 66636-0001
Jefferson National Life Insurance 65,763.271 9%
Company
9920 Corporate Campus Suite 1000
Louisville, IN 40223
H-9
NAME AND ADDRESS AMOUNT OF SHARES PERCENTAGE OF
NAME OF THE FUND OF THE BENEFICIAL OWNER OWNED THE FUND
-------------------------------------------------------------------------------------------------------
Precious Metals Fund Nationwide Insurance Company 2,217,610.139 45%
P.O. Box 182029
Columbus, OH 43218-2029
Ameritas Life Insurance Company 410,022.364 8%
P.O. Box 81889
Lincoln, NE 68501
Security Benefit Life Insurance Co 1,450,116.329 30%
SBL Variable
One Security Benefit Place
Topeka, KS 66636-0001
Jefferson National Life Insurance 584,252.771 12%
Company
9920 Corporate Campus Suite 1000
Louisville, IN 40223
Real Estate Fund Nationwide Insurance Company 783,597.562 67%
P.O. Box 182029
Columbus, OH 43218-2029
Security Benefit Life Insurance Co 236,625.056 20%
SBL Variable
One Security Benefit Place
Topeka, KS 66636-0001
Jefferson National Life Insurance 87,837.471 8%
Company
9920 Corporate Campus Suite 1000
Louisville, IN 40223
Retailing Fund FSBL Variable 207,445.876 25%
One Security Benefit Place
Topeka, KS 66636-0001
Nationwide Insurance Company 441,297.189 52%
P.O. Box 182029
Columbus, OH 43218-2029
Security Benefit Life Insurance Co 98,773.047 12%
SBL Variable
One Security Benefit Place
Topeka, KS 66636-0001
Sage Life Assurance Company 51,792.534 6%
969 High Ridge Rd Ste 200
Stamford, CT 06905
Russell 2000(R) 1.5x Nationwide Insurance Company 313,486.003 52%
Strategy Fund P.O. Box 182029
Columbus, OH 43218-2029
Nationwide Insurance Company 64,611.833 11%
P.O. Box 182029
Columbus, OH 43218-2029
Security Benefit Life Insurance Co 148,125.76 24%
SBL Variable
One Security Benefit Place
Topeka, KS 66636-0001
Jefferson National Life Insurance 35,485.707 6%
Company
9920 Corporate Campus Suite 1000
Louisville, IN 40223
H-10
NAME AND ADDRESS AMOUNT OF SHARES PERCENTAGE OF
NAME OF THE FUND OF THE BENEFICIAL OWNER OWNED THE FUND
-------------------------------------------------------------------------------------------------------
Russell 2000(R) 2x Security Benefit Life Insurance Co 21,012.319 78%
Strategy Fund SBL Variable
One Security Benefit Place
Topeka, KS 66636-0001
Jefferson National Life Insurance 5,945.362 22%
Company
9920 Corporate Campus Suite 1000
Louisville, IN 40223
S&P 500 2x Strategy Fund Nationwide Insurance Company, 16,530.535 8%
Account 1
P.O. Box 182029
Columbus, OH 43218-2029
Nationwide Insurance Company, 78,731.8 38%
Account 2
P.O. Box 182029
Columbus, OH 43218-2029
Security Benefit Life Insurance Co 81,773.227 40%
SBL Variable
One Security Benefit Place
Topeka, KS 66636-0001
Jefferson National Life Insurance 27,116.175 13%
Company
9920 Corporate Campus Suite 1000
Louisville, IN 40223
S&P 500 Pure Growth Fund Nationwide Insurance Company 458,675.814 42%
P.O. Box 182029
Columbus, OH 43218-2029
Security Benefit Life Insurance Co 514,523.109 47%
SBL Variable
One Security Benefit Place
Topeka, KS 66636-0001
Jefferson National Life Insurance 82,027.539 8%
Company
9920 Corporate Campus Suite 1000
Louisville, IN 40223
S&P 500 Pure Value Fund FSBL Variable 28,779.827 6%
One Security Benefit Place
Topeka, KS 66636-000
Nationwide Insurance Company 288,451.063 57%
P.O. Box 182029
Columbus, OH 43218-2029
Security Benefit Life Insurance Co 139,719.848 27%
SBL Variable
One Security Benefit Place
Topeka, KS 66636-0001
Jefferson National Life Insurance 45,810.937 9%
Company
9920 Corporate Campus Suite 1000
Louisville, IN 40223
H-11
NAME AND ADDRESS AMOUNT OF SHARES PERCENTAGE OF
NAME OF THE FUND OF THE BENEFICIAL OWNER OWNED THE FUND
-------------------------------------------------------------------------------------------------------
S&P MidCap 400 Pure Nationwide Insurance Company 604,266.331 57%
Growth Fund P.O. Box 182029
Columbus, OH 43218-2029
Security Benefit Life Insurance Co 367,411.305 34%
SBL Variable
One Security Benefit Place
Topeka, KS 66636-0001
Jefferson National Life Insurance 60,718.301 6%
Company
9920 Corporate Campus Suite 1000
Louisville, IN 40223
S&P MidCap 400 Pure FSBL Variable 72,945.596 13%
Value Fund One Security Benefit Place
Topeka, KS 66636-0001
Nationwide Insurance Company 260,437.062 48%
P.O. Box 182029
Columbus, OH 43218-2029
Security Benefit Life Insurance Co 140,346.896 26%
SBL Variable
One Security Benefit Place
Topeka, KS 66636-0001
Jefferson National Life Insurance 61,852.62 11%
Company
9920 Corporate Campus Suite 1000
Louisville, IN 40223
S&P SmallCap 600 Pure Nationwide Insurance Company 169,912.206 30%
Growth Fund P.O. Box 182029
Columbus, OH 43218-2029
Security Benefit Life Insurance Co 224,482.976 40%
SBL Variable
One Security Benefit Place
Topeka, KS 66636-0001
Jefferson National Life Insurance 149,145.83 27%
Company
9920 Corporate Campus Suite 1000
Louisville, IN 40223
S&P SmallCap 600 Nationwide Insurance Company 83,743.088 38%
Pure Value Fund P.O. Box 182029
Columbus, OH 43218-2029
Security Benefit Life Insurance Co 84,494.348 39%
SBL Variable
One Security Benefit Place
Topeka, KS 66636-0001
Jefferson National Life Insurance 41,638.277 19%
Company
9920 Corporate Campus Suite 1000
Louisville, IN 40223
H-12
NAME AND ADDRESS AMOUNT OF SHARES PERCENTAGE OF
NAME OF THE FUND OF THE BENEFICIAL OWNER OWNED THE FUND
-------------------------------------------------------------------------------------------------------
Strengthening Dollar 2x Nationwide Insurance Company 1,024,355.336 43%
Strategy Fund P.O. Box 182029
Columbus, OH 43218-2029
Security Benefit Life Insurance Co 945,192.246 39%
SBL Variable
One Security Benefit Place
Topeka, KS 66636-0001
Jefferson National Life Insurance 386,138.404 16%
Company
9920 Corporate Campus Suite 1000
Louisville, IN 40223
Technology Fund Nationwide Insurance Company 1,351,276.718 51%
P.O. Box 182029
Columbus, OH 43218-2029
Security Benefit Life Insurance Co 1,155,429.441 43%
SBL Variable
One Security Benefit Place
Topeka, KS 66636-0001
Telecommunications Fund Nationwide Insurance Company 131,850.142 29%
P.O. Box 182029
Columbus, OH 43218-2029
Security Benefit Life Insurance Co 237,629.022 52%
SBL Variable
One Security Benefit Place
Topeka, KS 66636-0001
Jefferson National Life Insurance 71,138.562 16%
Company
9920 Corporate Campus Suite 1000
Louisville, IN 40223
Transportation Fund Nationwide Insurance Company 422,831.176 60%
P.O. Box 182029
Columbus, OH 43218-2029
Security Benefit Life Insurance Co 209,524.122 30%
SBL Variable
One Security Benefit Place
Topeka, KS 66636-0001
U.S. Government Money FSBL Variable 26,151,663.31 9%
Market Fund One Security Benefit Place
Topeka, KS 66636-0001
Security Benefit Life Insurance Co 185,683,437.62 67%
SBL Variable
One Security Benefit Place
Topeka, KS 66636-0001
Jefferson National Life Insurance 64,918,178.47 23%
Company
9920 Corporate Campus Suite 1000
Louisville, IN 40223
H-13
NAME AND ADDRESS AMOUNT OF SHARES PERCENTAGE OF
NAME OF THE FUND OF THE BENEFICIAL OWNER OWNED THE FUND
-------------------------------------------------------------------------------------------------------
Utilities Fund Nationwide Insurance Company 424,557.871 52%
P.O. Box 182029
Columbus, OH 43218-2029
Security Benefit Life Insurance Co 270,288.784 33%
SBL Variable
One Security Benefit Place
Topeka, KS 66636-0001
Jefferson National Life Insurance 104,072.831 13%
Company
9920 Corporate Campus Suite 1000
Louisville, IN 40223
Weakening Dollar 2x Nationwide Insurance Company 87,510.572 59%
Strategy Fund P.O. Box 182029
Columbus, OH 43218-2029
Security Benefit Life Insurance Co 52,170.15 35%
SBL Variable
One Security Benefit Place
Topeka, KS 66636-0001
_______________
* A party holding in excess of 25% of the outstanding voting securities of a
Fund is presumed to be a "control person" (as defined in the 1940 Act) of
such Fund, based on the substantial ownership interest held and the party's
resultant ability to influence voting on certain matters submitted for
shareholder consideration.
H-14
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[FORM OF PROXY CARD]
PROXY CARD FOR
[FUND NAME PRINTS HERE]
PROXY FOR A SPECIAL MEETING OF SHAREHOLDERS - APRIL 23, 2010
The undersigned hereby appoint(s) Joanna Haigney, Amy J. Lee and Brenda M.
Harwood, or any one of them, proxies, each of them with full power of
substitution, to vote and act with respect to all shares of the above referenced
fund (the "Fund") which the undersigned is entitled to vote at the Special
Meeting of shareholders of the Fund to be held at 9601 Blackwell Road, Suite
500, Rockville, Maryland 20850 on April 23, 2010 at 1:00 p.m. ET, and at any
adjournment(s) or postponements thereof. THIS PROXY IS SOLICITED ON BEHALF OF
THE BOARD OF TRUSTEES. This proxy card will be voted as instructed. If no
specification is made, the proxy card will be voted "FOR" the Proposals. The
proxies are authorized, in their discretion, to vote upon such matters as may
come before the Special Meeting or any adjournments.
QUESTIONS ABOUT THIS PROXY? Should you have any questions about the proxy
materials or regarding how to vote your shares, please contact our proxy
information line toll-free at 1-877-864-5058. Representatives are available
Monday through Friday 9:00 a.m. to 11:00 p.m. Eastern Time. We have retained
The Altman Group to assist our shareholders in the voting process. If we have
not received your proxy card or vote as the date of the special meeting
approaches, representatives from The Altman Group may call you to remind you to
exercise your vote.
IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THIS SPECIAL
MEETING OF SHAREHOLDERS TO BE HELD ON APRIL 23, 2010
THE PROXY STATEMENT FOR THIS MEETING IS AVAILABLE AT:
WWW.PROXYONLINE.COM/DOCS/RYDEXSGI4.PDF.
--------------------------------------------------------------------------------
PLEASE FOLD HERE AND RETURN THE ENTIRE BALLOT - DO NOT DETACH
PLEASE SEE THE INSTRUCTIONS BELOW IF YOU WISH TO VOTE BY PHONE (live proxy
representative or touch-tone phone), BY MAIL OR VIA THE INTERNET. Please use
whichever method is most convenient for you. If you choose to vote via the
Internet or by phone, you should not mail your proxy card. Please vote today!
PHONE: To cast your vote by phone with a proxy voting representative, call
toll-free 1-877-864-5058 and provide the representative with the
control number found on the reverse side of this proxy card.
Representatives are available to take your voting instructions Monday
through Friday 9:00 a.m. to 10:00 p.m. Eastern Time.
MAIL: To vote your proxy by mail, check the appropriate voting box on the
reverse side of this proxy card, sign and date the card and return it
in the enclosed postage-paid envelope.
Options below are available 24 hours a day / 7 days a week
PHONE: To cast your vote via a touch-tone voting line, call toll-free
1-877-864-5058 and enter the control number found on the reverse side
of this proxy card.
INTERNET: To vote via the Internet, go to WWW.PROXYONLINE.COM and enter the
control number found on the reverse side of this proxy card.
NOTE: This proxy must be signed exactly as your name(s) appears hereon. If as
an attorney, executor, guardian or in some representative capacity or as an
officer of a corporation, please add titles as such. Joint owners must each
sign. By signing this proxy card, you acknowledge that you have received the
proxy statement that the proxy card accompanies.
Shareholder sign here Date Joint owner sign here Date
IT IS IMPORTANT THAT PROXIES BE VOTED PROMPTLY. EVERY SHAREHOLDER'S VOTE IS
IMPORTANT.
IF YOU RECEIVED MORE THAN ONE BALLOT BECAUSE YOU HAVE MULTIPLE INVESTMENTS IN
THE FUNDS, PLEASE REMEMBER TO VOTE ALL OF YOUR BALLOTS!
Remember to SIGN AND DATE THE REVERSE SIDE before mailing in your vote. This
proxy card is valid only when signed and dated.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES. THIS PROXY CARD
WILL BE VOTED AS INSTRUCTED. IF NO SPECIFICATION IS MADE, THE PROXY CARD WILL
BE VOTED "FOR" THE PROPOSALS. THE PROXIES ARE AUTHORIZED, IN THEIR DISCRETION,
TO VOTE UPON SUCH MATTERS AS MAY COME BEFORE THE SPECIAL MEETING OR ANY
ADJOURNMENTS.
PLEASE FOLD HERE AND RETURN THE ENTIRE BALLOT - DO NOT DETACH
--------------------------------------------------------------------------------
TO VOTE, MARK BOXES BELOW IN BLUE OR BLACK INK AS FOLLOWS. Example: []
1. To approve a new investment advisory agreement between the Fund and PADCO
Advisors II, Inc.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
2. To approve a new investment sub-advisory agreement between PADCO Advisors
II, Inc. and CLS Investments, LLC for Amerigo Fund, Berolina Fund and
Clermont Fund.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
3. To approve a new fundamental investment policy on borrowing money.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
THANK YOU FOR VOTING