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 SERIES FUNDS
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on
which the filing fee is calculated and state how it was
determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
RYDEX SERIES FUNDS
Dear Shareholder:
I am writing you on important matters relating to the Rydex|SGI International
Opportunity Fund, a series of Rydex Series Funds (the "Fund"). On February 16,
2010, Security Benefit Mutual Holding Company ("SBHC"), the parent company of
PADCO Advisors, Inc., the Fund's investment adviser that operates under the name
Rydex Investments (the "Investment Adviser"), and certain of SBHC's affiliates
entered into agreements with an investor group led by Guggenheim Partners, LLC
(the "Purchaser"). Under the agreements, the Purchaser will acquire control of
the Investment Adviser and affiliates. Guggenheim Partners, LLC is a global,
independent, privately-held, diversified financial services firm with more than
$100 billion in assets under supervision.
This transaction should not result in material changes to the day-to-day
management and operations of the Fund. For example, your daily experience in
dealing with the Fund should remain unchanged. However, for legal reasons, this
transaction will have the effect of terminating the Fund's investment advisory
agreement with the Investment Adviser. Accordingly, by this proxy statement, we
are requesting that you vote to approve a substantially identical investment
advisory agreement so that the Investment Adviser may continue to manage the
Fund.
In addition, the Investment Adviser recently recommended, and the Fund's
Board of Trustees approved, a new set of principal investment strategies
pursuant to which the Fund will invest its assets according to an international
long/short strategy. The Investment Adviser also recommended that the Fund
change its name to the "International Long Short Select Fund." These changes do
not require shareholder approval. However, in order to fully implement the new
investment strategies, you are being asked to approve a new sub-advisory
agreement with Security Global Investors, LLC ("SGI"), an affiliate of the
Investment Adviser, so that SGI can replace Valu-Trac Investment Management
Limited, the Fund's current sub-adviser. We believe that SGI has a talented and
capable team of portfolio managers and research analysts with substantial
experience in managing assets in accordance with an international long/short
strategy mandate. Accordingly, by this proxy statement, we are requesting that
you vote to approve the new sub-advisory agreement with SGI so that SGI may
manage the Fund's assets as the Fund's new sub-adviser. Shareholders should
refer to the enclosed proxy statement materials for important information about
this new investment program (including important information about Fund
operating expenses, which could increase as a result of these new strategies).
We are also requesting that you vote to approve a change to the Fund's
"fundamental investment policy" on borrowing money, which currently is more
prohibitive than necessary.
A Special Meeting of Shareholders (the "Meeting") of the Fund has been
scheduled for April 23, 2010 to vote on these matters. If you are a shareholder
of
i
record of the Fund as of the close of business on February 24, 2010, you are
entitled to vote at the Meeting and any adjournment of the Meeting, even if you
no longer own Fund shares.
Pursuant to these materials, you are being asked to approve proposals for the
Fund, 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.
You can vote in one of four ways:
o By mail with the enclosed proxy card - be sure to sign, date and return it
in the enclosed postage-paid envelope,
o Through the web site listed in the proxy voting instructions,
o By telephone using the toll-free number listed in the proxy voting
instructions, or
o In person at the shareholder meeting on April 23, 2010.
We encourage you to vote over the Internet or by telephone, using the voting
control number that appears on your proxy card. Your vote is extremely
important. Shareholder meetings of the Fund do not generally occur with great
frequency, so we ask that you take the time to carefully consider these
proposals and vote on these important proposals. Please read the enclosed
information carefully before voting. If you have questions, please call The
Altman Group at 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 Series Funds 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 proxy statement to shareholders ("Proxy
Statement").
QUESTIONS AND ANSWERS
Q. WHY AM I RECEIVING THIS PROXY STATEMENT?
A. You are receiving these proxy materials -- a booklet that includes the Proxy
Statement and your proxy card -- because you have the right to vote on four
important proposals concerning your investment in the Rydex|SGI International
Opportunity Fund, a series of Rydex Series Funds (the "Fund").
Proposal 1 relates to actions that need to be taken in response to an
impending change in control of PADCO Advisors, Inc., the Fund's investment
adviser that operates under the name Rydex Investments (the "Investment
Adviser"). This change in control affects the Fund's advisory agreement with
the Investment Adviser.
Proposal 2 relates to the replacement of the Fund's current sub-adviser,
Valu-Trac Investment Management Limited ("Valu-Trac"), with Security Global
Investors, LLC ("SGI"), an affiliate of the Investment Adviser. Proposal 2 is
part of a larger plan, which does not require shareholder approval, to
implement new principal investment strategies and change the Fund's name.
Proposal 3 relates to the approval of Valu-Trac as the sub-adviser to the
Fund in the event that shareholder approval is not obtained with respect to
the new sub-advisory agreement with SGI or SGI is otherwise not appointed as
sub-adviser. This is necessary because the impending change in control, if
implemented, would terminate any sub-advisory agreement then in effect, which
would be the sub-advisory agreement with Valu-Trac if Proposal 2 is not
approved and SGI is not appointed prior to the change in control.
And lastly, Proposal 4 relates to a proposed change in the Fund's ability to
borrow money. The Fund has a "fundamental investment policy" on borrowing
that is more prohibitive than necessary and than applicable law requires.
Thus, Proposal 4 seeks to amend the current fundamental investment policy on
borrowing money in order to provide the Fund with the maximum possible amount
of flexibility to engage in borrowing activity, including borrowing for
investment purposes (a certain type of leverage), consistent with current law
and with the Fund's investment strategies and objectives.
Q. WHY AM I BEING ASKED TO VOTE?
A. The Investment Company Act of 1940 (the "1940 Act"), the law that regulates
mutual funds, including the Fund, requires that a fund's investment advisory
iii
agreement terminate whenever there is deemed to be a change in control of the
investment adviser. (In this context, the term "investment adviser" applies
to both an investment adviser and a sub-adviser.) Before an investment
advisory agreement terminates, a new investment advisory agreement must be in
effect in order for the investment adviser to continue to manage the fund's
investments. For that reason, we are seeking shareholder approval of a new
investment advisory agreement for the Fund.
Security Benefit Mutual Holding Company ("SBHC"), the parent company of the
Investment Adviser and SGI, and certain of SBHC's affiliates have entered
into agreements with an investor group led by Guggenheim Partners, LLC (the
"Purchaser"). Guggenheim Partners, LLC is a global, independent,
privately-held, diversified financial services firm with more than $100
billion in assets under supervision. Under the agreements, the Purchaser will
acquire control of the Investment Adviser, SGI and affiliates (the
"Transaction").
The Transaction should not result in material changes to the day-to-day
management and operations of the Fund. However, the Transaction will result
in a change in control of the Investment Adviser within the meaning of the
1940 Act. This will, in turn, result in the termination of the current
investment advisory agreement between the Investment Adviser and the Fund
(the "Current Investment Advisory Agreement"). In addition, the transaction
will result in the termination of the current sub-advisory agreement between
the Investment Adviser and Valu-Trac, with respect to the Fund (the "Current
Valu- Trac Sub-Advisory Agreement" and, together with the Current Investment
Advisory Agreement, the "Current Agreements").
At Special Meetings of the Board of Trustees of Rydex Series Funds (the
"Board") held on January 28, 2010 and February 12, 2010, the Board considered
and voted in favor of a new investment advisory agreement between the
Investment Adviser and the Fund (the "New Investment Advisory Agreement"), as
well as new sub-advisory agreements between the Investment Adviser and SGI
(the "New SGI Sub-Advisory Agreement"), in order to effect the changes to the
Fund's name and investment strategies, and between the Investment Adviser and
Valu-Trac, in case the New SGI Sub-Advisory Agreement is not approved by
shareholders or SGI is otherwise not appointed as sub-adviser (the "New Valu-
Trac Sub-Advisory Agreement" and, together with the New Investment Advisory
Agreement and New SGI Sub-Advisory Agreement, the "New Agreements"), pursuant
to which, subject to their approval by the Fund's shareholders, the
Investment Adviser will continue to serve as investment adviser to the Fund
and either SGI or Valu-Trac will serve as sub-adviser.
With respect to Proposal 4, the 1940 Act requires shareholder approval to
amend "fundamental investment policies" adopted by the Fund. The Fund
currently has in place a fundamental investment policy on its ability to
borrow money. Borrowed money can be used to cover large and unexpected
redemption
iv
orders or to leverage the Fund's portfolio, thereby potentially amplifying
its gains and losses. The Fund's current fundamental investment policy on
borrowing money, however, is more prohibitive than the 1940 Act requires,
unnecessarily limiting investment strategies. Upon a request from management
of the Fund, the Board has reviewed the Fund's fundamental investment policy
on borrowing money and has recommended a change intended to simplify and
modernize the policy. In general, the proposed change provides the Fund the
maximum flexibility to engage in borrowing activity, including borrowing for
investment purposes, consistent with current applicable law and with the
Fund's investment strategies and objectives. The proposal to amend the Fund's
fundamental investment policy on borrowing money is unrelated to the
Transaction.
Q. WILL THE PROPOSED TRANSACTION AFFECT ME?
A. No. The operations of the Investment Adviser, the fees payable to the
Investment Adviser and the persons responsible for the day-to-day operations
of the Fund are expected to remain unchanged as a result of the Transaction.
The Board has been assured that there will be no reduction in the nature or
quality of the investment advisory services provided to the Fund due to the
change in control. However, as part of a larger plan unrelated to the
Transaction, the Board is seeking the approval of SGI to replace Valu-Trac,
which would result in changes to the operations and day-to-day management of
the investments of the Fund, if the New SGI Sub-Advisory Agreement is
approved.
Q. WILL THERE BE ANY CHANGES TO THE FUND'S OTHER SERVICE PROVIDERS?
A. The Purchaser will also acquire control of certain of the Fund's other
service providers ("Affiliated Service Providers") as a result of the
Transaction. The Affiliated Service Providers include Rydex Distributors,
Inc., which serves as the principal underwriter/distributor to the Fund, and
Rydex Fund Services, Inc., which provides general administrative,
shareholder, dividend disbursement, transfer agent and registrar services to
the Fund. Under the 1940 Act, shareholder approval is not required in order
for such Affiliated Service Providers to continue providing services to the
Fund after the closing of the Transaction. The Board has been assured that
there will be no material change in the nature or quality of the services
provided by the Affiliated Service Providers to the Fund due to the change in
control.
Q. WHY IS THE BOARD SOLICITING APPROVAL OF SECURITY GLOBAL INVESTORS, LLC TO
SERVE AS SUB-ADVISER TO THE FUND?
A. The Investment Adviser recently recommended, and the Board approved, new
principal investment strategies pursuant to which the Fund will invest its
assets according to an international long/short strategy. The Investment
Adviser also recommended that the Fund change its name from the
"International Opportunity Fund" to the "International Long Short Select
Fund." These changes
v
do not require shareholder approval. However, in order to fully implement the
new investment strategies, you are being asked to approve the New SGI Sub-
Advisory Agreement, so that SGI can replace Valu-Trac as sub-adviser and
implement this new investment program.
The Investment Adviser and the Board believe that implementing this new
investment program and thus retaining SGI to serve as the sub-adviser to the
Fund in the place of Valu-Trac is in the best interests of the Fund and its
shareholders. Thus, at a Special Meeting of the Board held on February 12,
2010, the Board considered and voted in favor of the New SGI Sub-Advisory
Agreement. The 1940 Act requires shareholder approval before a fund enters
into an investment advisory or sub-advisory agreement. Accordingly,
shareholder approval is required to approve the New SGI Sub-Advisory
Agreement.
Although we are proposing SGI as a new sub-adviser to the Fund, we are also
requesting that you vote to approve the New Valu-Trac Sub-Advisory Agreement,
so that Valu-Trac may continue to serve as sub-adviser to the Fund after the
Transaction in the event that shareholder approval is not obtained with
respect to the New SGI Sub-Advisory Agreement or SGI is otherwise not
appointed as sub-adviser. In other words, Valu-Trac will not be retained as
the sub-adviser to the Fund, even if approved by shareholders, so long as
shareholders approve the proposal to retain SGI as the sub-adviser to the
Fund.
Q. HOW WILL THE FUND'S NEW INVESTMENT PROGRAM AFFECT ME?
A. Although the Fund's new investment program differs in many respects from the
Fund's current program, the Fund's investment objective of long-term capital
appreciation will not be changing. For example, the Fund currently attempts
to achieve its investment objective by investing in exchange-traded funds
and other financial instruments that provide exposure to, or closely
correlate with, the performance of certain foreign countries included in the
MSCI EAFE (Europe, Australasia and Far East) Index (the "Index") and have
the potential to generate returns, before fees and expenses, in excess to
those of the Index. If the new investment program is implemented, the Fund
will pursue an international long/short strategy by purchasing foreign
common and preferred stocks or convertible stocks of companies SGI believes
will outperform the market and by selling short those foreign common and
preferred stocks believed to be overvalued or expected to underperform the
market.
Because the Fund will engage in short sales to a greater degree under the
new investment program, the Fund's overall expenses are expected to
increase, if shareholders approve the New SGI Sub-Advisory Agreement and the
new investment program is implemented. This is because there are certain
additional costs associated with short selling, as discussed in more detail
in the Proxy Statement.
vi
It is important to note that if shareholders approve the New Valu-Trac
Sub-Advisory Agreement, so that Valu-Trac continues to serve as the Fund's
subadviser, but shareholder approval is not obtained with respect to the New
SGI Sub-Advisory Agreement, the Fund's new investment strategies will not be
implemented and the Fund's current investment strategies will remain
unchanged until further consideration by the Investment Adviser and the
Board.
Q. WILL THE FUND'S FEES FOR INVESTMENT ADVISORY AND SUB-ADVISORY SERVICES
INCREASE?
A. No. The fee rates under the New Investment Advisory and New Valu-Trac
Sub-Advisory Agreements are identical to those under the Current Agreements.
The other terms of the New Investment Advisory and New Valu-Trac
Sub-Advisory Agreements will also be the same in all material respects to
those of the Current Agreements. In addition, if the New SGI Sub-Advisory
Agreement is adopted, the fee rates thereunder will be the same as the
sub-advisory fee rates under the New Valu-Trac Sub-Advisory Agreement.
However, if shareholders approve the New SGI Sub-Advisory Agreement, the
Fund's overall expenses are expected to increase as a result of the
implementation of the new investment program and the additional expenses
associated with short selling.
Q. WHAT EFFECT WILL THE PROPOSED CHANGE TO THE FUND'S FUNDAMENTAL INVESTMENT
POLICY ON BORROWING MONEY HAVE ON THE FUND?
A. While this proposal is intended to provide the Investment Adviser and SGI or
Valu-Trac, as applicable, with greater flexibility in managing the Fund's
borrowing activity, the Fund would continue to be managed subject to
limitations imposed by the 1940 Act and the rules and interpretive guidance
provided thereunder, as well as the investment objectives, strategies, and
policies expressed in the Fund's registration statement.
Although the change would expand the ability of the Fund to borrow for
investment purposes, the Investment Adviser, SGI and Valu-Trac do not intend
to materially increase the borrowing level of the Fund in the near future,
and therefore believe that the proposed changes will not materially affect
the investment risks currently associated with the Fund. To the extent the
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 the Fund's shareholders not approve the proposal to amend the Fund's
fundamental investment policy on borrowing money, the Fund's current
fundamental investment policy on borrowing money would continue to apply
unchanged.
vii
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?
A. The enclosed proxy is being solicited by the Board for use at the Special
Meeting of Shareholders to be held on April 23, 2010 (the "Meeting"), and, if
the Meeting is adjourned or postponed, at any later meetings, for the
purposes stated in the Notice of Meeting.
Q. HOW DOES THE BOARD SUGGEST THAT I VOTE?
A. After careful consideration, the Board unanimously recommends that you vote
"FOR" all of the proposals contained in the Proxy Statement. Please see the
section entitled "Board Recommendation" with respect to each proposal for a
discussion of the Board's considerations in making such recommendations.
Q. WHAT VOTE IS REQUIRED TO APPROVE THE PROPOSALS?
A. To be approved, each proposal must be approved by a vote of a majority of the
outstanding voting securities of the Fund. The "vote of a majority of the
outstanding voting securities" is defined in the 1940 Act as the lesser of
the vote of (i) 67% or more of the voting securities of the Fund entitled to
vote thereon present at the Meeting or represented by proxy, if more than 50%
of the Fund's outstanding voting securities are present or represented by
proxy; or (ii) more than 50% of the outstanding voting securities of the Fund
entitled to vote thereon.
Q. WILL MY VOTE MAKE A DIFFERENCE?
A. Yes! Your vote is needed to ensure that the proposals can be acted upon. We
encourage all shareholders to participate in the governance of the Fund.
Additionally, your immediate response on the enclosed proxy card, on the
Internet or over the phone will help save the costs of any further
solicitations.
Q. IF I AM A SMALL INVESTOR, WHY SHOULD I BOTHER TO VOTE?
A. You should vote because every vote is important. If numerous shareholders
just like you fail to vote, the Fund may not receive enough votes to go
forward with the Meeting. If this happens, the Fund will need to solicit
votes again. This may delay the Meeting and the approval of each proposal.
Q. HOW DO I PLACE MY VOTE?
A. You may provide the Fund with your vote by mail with the enclosed proxy card,
by Internet by following the instructions in the proxy voting instructions,
by
viii
telephone using the toll-free number listed in the proxy voting
instructions, or in person at the Meeting. You may use the enclosed
postage-paid envelope to mail your proxy card. Please follow the enclosed
instructions to utilize any of these voting methods. If you need more
information on how to vote, or if you have any questions, please call the
Fund's proxy solicitation agent at the telephone number below.
Q. WHOM DO I CALL IF I HAVE QUESTIONS?
A. We will be happy to answer your questions about this proxy solicitation. If
you have questions, please call The Altman Group at 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 Series Funds 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.
ix
This page intentionally left blank.
x
RYDEX SERIES FUNDS
9601 Blackwell Road, Suite 500
Rockville, Maryland 20850
1-800-820-0888
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON APRIL 23, 2010
Notice is hereby given that a Special Meeting of Shareholders (the "Meeting")
of Rydex|SGI International Opportunity Fund (the "Fund"), a series of Rydex
Series Funds (the "Trust"), will be held at the Trust's offices at 9601
Blackwell Road, Suite 500, Rockville, Maryland 20850 on April 23, 2010 at 1:00
p.m. ET for the purposes listed below:
PROPOSALS
1. THE APPROVAL OF A NEW INVESTMENT ADVISORY AGREEMENT BETWEEN THE TRUST AND
PADCO ADVISORS, INC., WITH RESPECT TO THE FUND
2. THE APPROVAL OF A NEW SUB-ADVISORY AGREEMENT BETWEEN PADCO ADVISORS, INC. AND
SECURITY GLOBAL INVESTORS, LLC, WITH RESPECT TO THE FUND
3. THE APPROVAL OF A NEW SUB-ADVISORY AGREEMENT BETWEEN PADCO ADVISORS, INC. AND
VALU-TRAC INVESTMENT MANAGEMENT LIMITED, WITH RESPECT TO THE FUND
4. THE APPROVAL OF A CHANGE TO THE FUND'S FUNDAMENTAL INVESTMENT POLICY ON
BORROWING MONEY
5. TO TRANSACT SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING
After careful consideration, the Board of Trustees of the Trust unanimously
recommends that shareholders vote "FOR" each of the Proposals.
Shareholders of record at the close of business on February 24, 2010 are
entitled to notice of, and to vote at, the Meeting, even if such shareholders no
longer own such shares.
We call your attention to the accompanying Proxy Statement. You are requested
to complete, date, and sign the enclosed proxy card and return it promptly in
the envelope provided for that purpose. Your proxy card also provides
instructions for voting via telephone or the Internet if you wish to take
advantage of these voting options. Proxies may be revoked prior to the Meeting
by timely executing and submitting a revised proxy (following the methods noted
above), by giving written notice of revocation to the Trust prior to the
Meeting, or by voting in person at the Meeting.
xi
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.
xii
TABLE OF CONTENTS
OVERVIEW OF THE PROPOSALS ................................................ 3
Approval of New Investment Advisory and Sub-Advisory Agreements
(Proposals 1 - 3) ...................................................... 3
Approval of a Change to the Fund's Fundamental Investment Policy on
Borrowing (Proposal 4) ................................................. 4
Information Regarding the Change in Control of the Investment Adviser .. 5
Section 15(f) of the 1940 Act .......................................... 7
Approval of the New Agreements by the Board ............................ 7
Board Considerations in Approving the New Agreements ................... 8
New Investment Advisory Agreement ...................................... 9
New Valu-Trac Sub-Advisory Agreement ................................... 12
New SGI Sub-Advisory Agreement ......................................... 14
PROPOSAL 1 - THE APPROVAL OF THE NEW INVESTMENT ADVISORY AGREEMENT ....... 16
The Investment Adviser ................................................. 16
Material Terms of the New Investment Advisory Agreement ................ 17
BOARD RECOMMENDATION ON PROPOSAL 1 ....................................... 18
PROPOSAL 2 - THE APPROVAL OF THE NEW SGI SUB-ADVISORY AGREEMENT .......... 19
Overview of the Investment Strategies to be Implemented by SGI ......... 19
Information About SGI .................................................. 21
Material Terms of the New SGI Sub-Advisory Agreement ................... 22
Fund Fees and Expenses ................................................. 24
BOARD RECOMMENDATION ON PROPOSAL 2 ....................................... 27
PROPOSAL 3 - THE APPROVAL OF THE NEW VALU-TRAC SUB-ADVISORY AGREEMENT .... 28
Information About Valu-Trac ............................................ 29
Material Terms of the Valu-Trac Sub-Advisory Agreement ................. 29
BOARD RECOMMENDATION ON PROPOSAL 3 ....................................... 31
PROPOSAL 4 - THE APPROVAL OF A CHANGE TO THE FUND'S FUNDAMENTAL
INVESTMENT POLICY ON BORROWING MONEY ..................................... 32
Proposed New Fundamental Investment Policy ............................. 32
Current Fundamental Investment Policy .................................. 32
Discussion of Proposed Modification .................................... 32
xiii
BOARD RECOMMENDATION ON PROPOSAL 4 ....................................... 33
OTHER BUSINESS ........................................................... 34
ADDITIONAL INFORMATION ................................................... 34
Administrator, Principal Underwriter and Transfer Agent ................ 34
Affiliations and Affiliated Brokerage .................................. 34
Other Information ...................................................... 34
Voting Information ..................................................... 34
Shareholder Proposals .................................................. 37
xiv
APPENDICES
Appendix A FORM OF INVESTMENT ADVISORY AGREEMENT ................... A-1
Appendix B INFORMATION REGARDING THE INVESTMENT
ADVISORY AGREEMENT AND FEES PAID TO
THE INVESTMENT ADVISER AND AFFILIATES ................... B-1
Appendix C DIRECTORS/TRUSTEES/MANAGERS AND OFFICERS ................ C-1
Appendix D-1 ADVISORY FEE RATES OF FUNDS WITH SIMILAR
INVESTMENT OBJECTIVES ADVISED BY PADCO
ADVISORS, INC. AND PADCO ADVISORS II, INC. .............. D-1-1
Appendix D-2 ADVISORY FEE RATES OF FUNDS WITH SIMILAR
INVESTMENT OBJECTIVES SUB-ADVISED BY
SECURITY GLOBAL INVESTORS, LLC .......................... D-2-1
Appendix D-3 ADVISORY FEE RATES OF FUNDS WITH SIMILAR
INVESTMENT OBJECTIVES SUB-ADVISED BY
VALU-TRAC INVESTMENT MANAGEMENT LIMITED ................. D-3-1
Appendix E-1 FORM OF SUB-ADVISORY AGREEMENT WITH
SECURITY GLOBAL INVESTORS, LLC .......................... E-1-1
Appendix E-2 FORM OF SUB-ADVISORY AGREEMENT WITH
VALU-TRAC INVESTMENT MANAGEMENT LIMITED ................. E-2-1
Appendix F INFORMATION REGARDING THE SUB-ADVISORY
AGREEMENT WITH VALU-TRAC INVESTMENT
MANAGEMENT LIMITED AND FEES PAID TO THE
SUB-ADVISER ............................................. F-1
Appendix G OUTSTANDING SHARES ...................................... G-1
Appendix H BENEFICIAL OWNERS OF MORE THAN 5% OF A
CLASS OF THE FUND ....................................... H-1
xv
RYDEX SERIES FUNDS
9601 Blackwell Road, Suite 500
Rockville, Maryland 20850
1-800-820-0888
PROXY STATEMENT
SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON APRIL 23, 2010
This proxy statement ("Proxy Statement") and enclosed notice and proxy card
are being furnished in connection with the solicitation of proxies by the Board
of Trustees (the "Board") of Rydex Series Funds (the "Trust"). The proxies are
being solicited for use at a special meeting of shareholders of the Trust to be
held at the Trust's offices at 9601 Blackwell Road, Suite 500, Rockville,
Maryland 20850 on April 23, 2010 at 1:00 p.m. ET, and at any and all
adjournments or postponements thereof (the "Meeting").
The Board has called the Meeting and is soliciting proxies from shareholders
of the Rydex|SGI International Opportunity Fund (the "Fund") with respect to the
following proposals (the "Proposals") as follows:
PROPOSALS
1. THE APPROVAL OF A NEW INVESTMENT ADVISORY AGREEMENT BETWEEN THE TRUST AND
PADCO ADVISORS, INC., WITH RESPECT TO THE FUND
2. THE APPROVAL OF A NEW SUB-ADVISORY AGREEMENT BETWEEN PADCO ADVISORS, INC. AND
SECURITY GLOBAL INVESTORS, LLC, WITH RESPECT TO THE FUND
3. THE APPROVAL OF A NEW SUB-ADVISORY AGREEMENT BETWEEN PADCO ADVISORS, INC. AND
VALU-TRAC INVESTMENT MANAGEMENT LIMITED, WITH RESPECT TO THE FUND
4. THE APPROVAL OF A CHANGE TO THE FUND'S FUNDAMENTAL INVESTMENT POLICY ON
BORROWING MONEY
5. TO TRANSACT SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING
This Proxy Statement and the accompanying notice and the proxy card are being
first mailed to shareholders on or about April 2, 2010.
You are entitled to vote at the Meeting if you are a shareholder as of the
close of business on February 24, 2010 (the "Record Date").
If you have any questions about the Proposals or about voting, please call
The Altman Group, the Fund's proxy solicitor, at 1-877-864-5058.
1
IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY
MATERIALS FOR THE MEETING TO BE HELD ON APRIL 23, 2010
This Proxy Statement is available at www.proxyonline.com/docs/rydexSGI5.pdf.
In addition, shareholders can find important information about the Fund in the
Fund's annual report, dated March 31, 2009, including financial reports for the
fiscal year ended March 31, 2009, and in any recent semi-annual report
succeeding such annual report, if any. You may obtain copies of these reports
without charge by writing to the Trust, or by calling the telephone number shown
on the front page of this Proxy Statement.
2
OVERVIEW OF THE PROPOSALS
APPROVAL OF NEW INVESTMENT ADVISORY AND SUB-ADVISORY AGREEMENTS
(PROPOSALS 1 - 3)
Proposal 1 relates to actions that need to be taken in response to an
impending change in control of PADCO Advisors, Inc., the Fund's investment
adviser that operates under the name Rydex Investments (the "Investment
Adviser").
Proposal 2 relates to the replacement of the Fund's current sub-adviser,
Valu-Trac Investment Management Limited ("Valu-Trac"), with Security Global
Investors, LLC ("SGI"), an affiliate of the Investment Adviser. Proposal 2 is
part of a larger plan, which does not require shareholder approval, to implement
new principal investment strategies and change the Fund's name. The Investment
Adviser recently recommended, and the Board approved, new principal investment
strategies pursuant to which the Fund will invest its assets according to an
international long/short strategy. The Investment Adviser also recommended that
the Fund change its name to the "International Long Short Select Fund." In order
to fully implement the new investment strategies, you are being asked to approve
the new sub-advisory agreement with SGI so that SGI can replace Valu-Trac as
sub-adviser and implement this new investment program.
The Investment Adviser will continue to serve as the Fund's investment
adviser and will oversee SGI's day-to-day management of the Fund. The Board
believes that retaining SGI to serve as the sub-adviser to the Fund in the place
of Valu-Trac is in the best interests of the Fund and its shareholders.
In addition, Proposal 3 relates to the approval of Valu-Trac as the
sub-adviser to the Fund in the event that shareholder approval is not obtained
with respect to the new sub-advisory agreement with SGI or SGI is otherwise not
appointed as sub-adviser. This is necessary because the impending change in
control, if implemented, would terminate any sub-advisory agreement then in
effect, which would be the sub-advisory agreement with Valu-Trac if Proposal 2
is not approved and SGI is not appointed prior to the change in control.
For purposes of this Proxy Statement, the term "Advisers" collectively refers
to the Investment Adviser, SGI and Valu-Trac.
The Investment Company Act of 1940, as amended (the "1940 Act"), the law that
regulates mutual funds, such as the Fund, requires that a fund's investment
advisory agreement terminate whenever there is deemed to be a change in control
of the investment adviser. (In this context, the term "investment adviser"
applies to both an investment adviser and a sub-adviser.) Before an investment
advisory agreement terminates, a new investment advisory agreement must be in
effect in order for the investment adviser to continue to manage the fund's
investments. Similarly, the 1940 Act requires shareholder approval before a fund
enters into an initial investment advisory agreement. For those reasons, we are
seeking shareholder approval of new investment advisory and sub-advisory
agreements for the Fund.
3
Upon completion of a transaction involving the Investment Adviser, which is
discussed in more detail below, the Fund's current investment advisory agreement
with the Investment Adviser will be terminated. In addition, the transaction
will result in the termination of the current sub-advisory agreement between the
Investment Adviser and Valu-Trac, with respect to the Fund. Accordingly,
Proposal 1 relates to the approval by shareholders of a new investment advisory
agreement between the Investment Adviser and the Fund (the "New Investment
Advisory Agreement"). Similarly, Proposal 3 relates to the approval by
shareholders of a new sub-advisory agreement between the Investment Adviser and
Valu-Trac, with respect to the Fund (the "New Valu-Trac Sub-Advisory
Agreement").
However, as an alternative to approving the New Valu-Trac Sub-Advisory
Agreement as discussed in Proposal 3, Proposal 2 relates to the replacement
of Valu-Trac with SGI with the approval of a new sub-advisory agreement between
the Investment Adviser and SGI, with respect to the Fund (the "New SGI
Sub-Advisory Agreement" and, together with the New Investment Advisory Agreement
and New Valu-Trac Sub-Advisory Agreement, the "New Agreements"). Subject to
shareholder approval and as discussed in more detail below, the New Valu-Trac
Sub-Advisory Agreement will only be consummated if shareholder approval is not
obtained with respect to the New SGI Sub-Advisory Agreement or SGI is otherwise
not appointed as sub-adviser.
Although the change in control of the Investment Adviser, if consummated
after the appointment of SGI, also would terminate the New SGI Sub-Advisory
Agreement, approval by shareholders of both Proposal 1 and Proposal 2 will be
deemed to constitute approval of a new sub-advisory agreement with SGI with
terms identical to those of the New SGI Sub-Advisory Agreement approved pursuant
to Proposal 2 and in place immediately before the change in control.
APPROVAL OF A CHANGE TO THE FUND'S FUNDAMENTAL INVESTMENT POLICY ON
BORROWING (PROPOSAL 4)
In addition to considering the New Agreements in Proposals 1, 2 and 3,
shareholders of the Fund also are being asked to consider the approval of a
change to the Fund's current fundamental investment policy on borrowing money.
The 1940 Act requires that a fund adopt a fundamental investment policy on
borrowing. Under the 1940 Act, any change to a fundamental investment policy
must be approved by shareholders of the fund. The Fund's current fundamental
investment policy on borrowing money is more restrictive than the 1940 Act
requires, unnecessarily limiting investment strategies. Accordingly, Proposal 4
seeks approval of a change to the Fund's fundamental investment policy on
borrowing money in order to permit the Fund to engage in borrowing money
consistent with applicable law. Proposal 4 is unrelated to Proposals 1, 2 and 3.
FOR THE REASONS DISCUSSED BELOW, THE BOARD
RECOMMENDS THAT SHAREHOLDERS VOTE "FOR"
THE APPROVAL OF THE NEW AGREEMENTS AND
CHANGE TO THE FUNDAMENTAL INVESTMENT
POLICY ON BORROWING MONEY.
4
INFORMATION REGARDING THE CHANGE IN CONTROL OF THE INVESTMENT ADVISER
On February 16, 2010, Security Benefit Mutual Holding Company ("SBHC"), the
parent company of the Investment Adviser and SGI, and certain of SBHC's
affiliates (collectively, "SecBen") entered into agreements with Guggenheim SBC
Holdings LLC ("Purchaser"), a special purpose entity managed by Guggenheim
Partners, LLC ("Guggenheim"), which is a global, independent, privately-held,
diversified financial services firm with more than $100 billion in assets under
supervision and 800 dedicated professionals. Headquartered in Chicago and New
York, the firm operates through offices in 20 cities in the U.S., Europe and
Asia. Guggenheim operates businesses in investment management, capital markets,
wealth management and merchant banking. Within the investment and wealth
management businesses, Guggenheim specializes in fixed income and alternative
investments, and in providing sophisticated wealth advisory and family office
services. Within capital markets, it specializes in providing debt financing and
structured finance solutions to clients. Merchant banking activities include its
portfolio of investments in funds managed by it, joint venture business
investments, and new business launch activities not integrated into other
primary operating businesses. Guggenheim is a wholly-owned subsidiary of
Guggenheim Capital, LLC, 227 West Monroe Street, 48th Floor, Chicago, Illinois
60606. Sage Assets, Inc., 5949 Sherry Lane, Suite 1900, Dallas, Texas 75225, a
wholly-owned subsidiary of Sammons Enterprises, Inc., 5949 Sherry Lane, Suite
1900, Dallas, Texas 75225, is a control person of Guggenheim as a result of its
equity ownership in excess of 25% (but less than 50%) of Guggenheim Capital,
LLC. Under the agreements, the Purchaser will acquire control of the Investment
Adviser, SGI and affiliates (the "Transaction").
The final form of the Purchaser's controlling stake in the Investment
Adviser, SGI and affiliates will depend upon whether certain conditions are
satisfied. In the Transaction, the Purchaser will either receive: (a) a 100%
ownership stake in Security Benefit Corporation ("SBC"), a wholly-owned
subsidiary of SBHC and the parent company of the Investment Adviser, SGI and
affiliates (the "Purchase Transaction"); or, (b) if the Purchase Transaction is
terminated for any reason other than a breach of the related agreement by the
Purchaser or the failure to meet a specific closing condition relating to
execution of employment agreements by certain employees of the SBC group of
companies, a 100% ownership stake in SBC's asset management business, which
includes the Investment Adviser, SGI and certain affiliates (the "Contingent
Asset Management Purchase and Sale").
In anticipation of the Transaction, the parties have entered into an interim
recapitalization transaction in which the Purchaser has made a secured loan to
SBC. Upon the closing of the Purchase Transaction, the Purchaser will make a
capital contribution to SBC and the secured loan will convert into equity in SBC
and SBHC will transfer all of the issued and outstanding shares of capital stock
of SBC to the Purchaser. The Purchase Transaction is conditioned on the approval
of a corporate restructuring called a demutualization pursuant to which the
insurance policyholders
5
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, SGI and certain affiliates.
The Transaction should not result in material changes to the day-to-day
management and operations of the Fund. For example, your daily experience in
dealing with the Fund should remain unchanged. However, the Transaction will
result in a "change in control" of the Investment Adviser within the meaning of
the 1940 Act. This will automatically terminate the current investment advisory
agreement between the Investment Adviser and the Fund (the "Current Investment
Advisory Agreement") and any sub-advisory agreement then in place between the
Investment Adviser and either SGI or Valu-Trac, with respect to the Fund (the
"Current Valu-Trac Sub-Advisory Agreement" and, together with the Current
Investment Advisory Agreement, the "Current Agreements").
In addition, the Purchaser will acquire control of certain of the Fund's
other service providers ("Affiliated Service Providers") as a result of the
Transaction. The Affiliated Service Providers include Rydex Distributors, Inc.,
which serves as the principal underwriter/distributor to the Fund, and Rydex
Fund Services, Inc., which provides general administrative, shareholder,
dividend disbursement, transfer agent and registrar services to the Fund. Under
the 1940 Act, shareholder approval is not required in order for such Affiliated
Service Providers to continue providing services to the Fund after the closing
of the Transaction.
Completion of the Transaction will be subject to certain closing conditions,
including: (a) the receipt of approvals required for the assignment or
replacement of investment advisory contracts relating to 80% or more of the
total net assets under management by the Investment Adviser and certain
affiliates that will be controlled by the Purchaser; and, (b) with respect to
the Purchase Transaction only, the approval of the members of SBHC to the extent
required by applicable law in order to effect the demutualization transaction
described above.
While the parties expect the Transaction to be completed by May 31, 2010, it
is subject to various conditions, and may be delayed or even terminated due to
unforeseen circumstances. If for some reason the Transaction does not occur, the
Current Agreements will not automatically terminate and will remain in effect,
and the New Investment Advisory and New Valu-Trac Sub-Advisory Agreements will
not be entered into, even if they have been approved by Fund shareholders. If
Proposal 2 is approved by shareholders, the New SGI Sub-Advisory Agreement will
be entered into, the new investment strategies and Fund name change will be
implemented, and SGI will serve as the Fund's new sub-adviser in the place of
Valu-Trac, irrespective of whether the Transaction is completed. If Proposal 1
is not approved by
6
shareholders of the Fund, the Board will evaluate other short- and long-term
options permitted by law, which include an interim investment advisory agreement
with the Investment Adviser and reorganization or liquidation of the Fund.
SECTION 15(f) OF THE 1940 ACT
Section 15(f) of the 1940 Act provides that, when a change in control of an
investment adviser occurs, the investment adviser or any of its affiliated
persons may receive any amount or benefit in connection with the change in
control as long as two conditions are met. The first condition specifies that no
"unfair burden" may be imposed on the fund as a result of a transaction relating
to the change in control, or any express or implied terms, conditions or
understandings. The term "unfair burden," as defined in the 1940 Act, includes
any arrangement during the two-year period after the change in control
transaction whereby the investment adviser (or predecessor or successor
adviser), or any "interested person" (as defined in the 1940 Act) of any such
investment adviser, receives or is entitled to receive any compensation,
directly or indirectly, from the investment company or its security holders
(other than fees for bona fide investment advisory or other services), or from
any person in connection with the purchase or sale of securities or other
property to, from, or on behalf of the fund (other than fees for bona fide
principal underwriting services), which could limit the ability of the Fund to
engage in brokerage transactions with certain broker-dealers, although such
limits are not expected to cause the 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 Advisers represented
to the Board that no unfair burden would be imposed on the Fund as a result of
the Transaction.
APPROVAL OF THE NEW AGREEMENTS BY THE BOARD
At Special Meetings of the Board held on January 28, 2010 and February 12,
2010 (the "2010 Meetings"), at which a majority of the members of the Board (the
"Trustees"), including a majority of the Trustees who are not "interested
persons" (as defined under the 1940 Act) of the Trust and who are not interested
persons of any party to the New Agreements (the "Independent Trustees"), were
present, the Board considered and voted in favor of the New Agreements, pursuant
to which, subject to their approval by the Fund's shareholders, the Investment
Adviser will continue to serve the Fund after the completion of the Transaction,
new investment strategies will be implemented and SGI will be appointed as
sub-adviser to replace Valu-Trac (and if SGI is not appointed, Valu-Trac would
continue as sub-adviser after the change in
7
control and the Fund's strategies would remain unchanged until the long-term
future of the Fund is further considered in light of the vote of shareholders).
When considering the Current Agreements, the Board noted that each of the
Investment Adviser's and Valu-Trac's rate of fees for its services to the Fund
under a New Agreement, as applicable, will be the same as its fees under the
corresponding Current Agreement. The other terms of the New Investment Advisory
and New Sub-Advisory Agreements will also be the same in all material respects
to those of the Current Agreements. As a result, in reviewing the New Investment
Advisory and New Valu-Trac Sub-Advisory Agreements at the 2010 Meetings, the
Board also considered its review of relevant materials relating to the Current
Agreements at the annual renewal meeting on August 25, 2009 (the "2009 Renewal
Meeting").
BOARD CONSIDERATIONS IN APPROVING THE NEW AGREEMENTS
Prior to the 2010 Meetings, representatives of SecBen informed the Board that
it was in discussions with Guggenheim regarding a potential arrangement pursuant
to which an investor group led by Guggenheim would acquire control of the
Investment Adviser, SGI and affiliates. With respect to the Transaction, the
Board reviewed materials received from SecBen and Guggenheim, including
information relating to the terms of the Transaction. The Board also reviewed
information regarding Guggenheim, including, but not limited to: (a) certain
representations concerning Guggenheim's financial condition, (b) information
regarding Guggenheim's affiliated investment advisers, (c) information regarding
Guggenheim's litigation and regulatory matters, including representations that
there were no material matters, and (d) potential conflicts of interest. SecBen
and Guggenheim also provided the Board with presentations that discussed the
Transaction and intentions for the business, operations and personnel of the
Investment Adviser and SGI after the closing of the Transaction.
In considering the New Agreements at the 2010 Meetings, the Board determined
that the New Agreements would enable shareholders of the Fund to obtain (or
continue to obtain with respect to the New Investment Advisory and New Valu-Trac
Sub-Advisory Agreements) high quality services at a cost that is appropriate,
reasonable, and in the best interests of their shareholders. The Board,
including the Independent Trustees, unanimously approved the New Agreements. In
reaching their decision, the Trustees carefully considered information that they
had received throughout the year as part of their regular oversight of the Fund,
including, in particular, information from the Investment Adviser and Valu-Trac
that was provided in connection with the 2009 Renewal Meeting and information
received about SGI, which serves as sub-adviser to other funds within the
Rydex|SGI fund complex and is affiliated with the Investment Adviser. The
Trustees noted that, at the 2009 Renewal Meeting, they had obtained and reviewed
a wide variety of information, including certain comparative information
regarding performance of the Fund relative to performance of other comparable
mutual funds. The Board considered similar information at the February 12, 2010
Meeting with respect to the New SGI Sub-Advisory Agreement.
8
At the 2009 Renewal Meeting and the 2010 Meetings, as applicable, the
Trustees, including the Independent Trustees, evaluated a number of
considerations, including among others: (a) the quality of the Advisers'
investment advisory and other services; (b) the Advisers' investment management
personnel; (c) the Advisers' operations and financial condition; (d) the
Advisers' brokerage practices (including any soft dollar arrangements) and
investment strategies; (e) the level of the fees that the Advisers charge
compared with the fees charged to comparable mutual funds or accounts; (f) the
Fund's overall fees and operating expenses compared with similar mutual funds;
(g) the level of the Advisers' profitability (or anticipated profitability with
respect to SGI) from their Fund-related operations; (h) the Advisers' compliance
systems; (i) the Advisers' policies on and compliance procedures for personal
securities transactions; (j) the Advisers' reputation, expertise and resources
in the financial markets; and (k) Fund performance compared with similar mutual
funds and accounts. Certain of these considerations are discussed in more detail
below. In its deliberations at the 2009 Renewal Meeting and the 2010 Meetings,
as applicable, the Board did not identify any single piece of information that
was all-important or controlling. Based on the Board's deliberations and its
evaluation of the information referenced above and described in more detail
below, the Board, including all of the Independent Trustees, unanimously: (a)
concluded that terms of the New Agreements are fair and reasonable; (b)
concluded that the Advisers' fees were reasonable in light of the services that
they provide or are expected to be provided to the Fund; and (c) agreed to
approve the New Agreements, subject to shareholder approval.
In approving the New Agreements, the Trustees also considered information and
representations made about the Guggenheim organization and its personnel and the
ongoing role that Guggenheim would play with the Purchaser and its other non-
managing members. The Trustees considered these representations and the
financial stability the Transaction was expected to bring to the Investment
Adviser, SGI and Affiliated Service Providers in the context of the current
financial challenges facing certain SBHC affiliates. The Trustees also
considered representations by Guggenheim regarding additional resources that
could be made available to the Investment Adviser, SGI and Affiliated Service
Providers if beneficial to their operations.
NEW INVESTMENT ADVISORY AGREEMENT
NATURE, EXTENT AND QUALITY OF SERVICES PROVIDED BY THE INVESTMENT ADVISER.
At the 2009 Renewal Meeting, the Board reviewed the scope of services to be
provided by the Investment Adviser under the Current Investment Advisory
Agreement. At the 2010 Meetings, the Board noted that there would be no
significant differences between the scope of services required to be provided by
the Investment Adviser under the Current Investment Advisory Agreement and the
scope of services required to be provided by the Investment Adviser under the
New Investment Advisory Agreement. In reviewing the scope of services provided
to the Fund by the Investment Adviser, the Board reviewed and discussed at the
2009 Renewal Meeting the Investment Adviser's investment experience, noting that
the Investment Adviser and its affiliates have committed significant resources
over time to the support of the Fund. The Board also
9
considered the Investment Adviser's compliance programs and its compliance
record with respect to the Fund. In that regard, the Board noted that the
Investment Adviser provides information regarding the portfolio management and
compliance to the Board on a periodic basis in connection with regularly
scheduled meetings of the Board. In addition to the above considerations, the
Board reviewed and considered the Investment Adviser's investment processes and
strategies, and matters related to the Investment Adviser's portfolio
transaction policies and procedures. The Board further noted that the Fund has
consistently met its investment objective since its inception date. Based on
this review, the Board concluded at the 2009 Renewal Meeting that the nature,
extent, and quality of services to be provided by the Investment Adviser to the
Fund under the Current Investment Advisory Agreement were appropriate and
continued to support the Board's original selection of the Investment Adviser as
the investment adviser to the Fund.
At the 2010 Meetings, the Board noted that most of the key investment and
management personnel of the Investment Adviser servicing the Fund are expected
to remain with the Investment Adviser following the Transaction and that the
services provided to the Fund by the Investment Adviser are not expected to
materially change. The Trustees also considered SecBen's and Guggenheim's
representations to the Board that the Investment Adviser would continue to
provide investment and related services that were of materially the same quality
and quantity as services provided to the Fund in the past, and that these
services are appropriate in scope and extent in light of the Fund's operations,
the competitive landscape of the investment company business and investor needs.
Based on this review, the Board concluded that the range and quality of services
provided by the Investment Adviser to the Fund were expected to continue under
the New Investment Advisory Agreement at comparable levels.
FUND EXPENSES AND PERFORMANCE OF THE FUND AND THE INVESTMENT ADVISER. At the
2009 Renewal Meeting, the Board reviewed statistical information prepared by the
Investment Adviser regarding the expense ratio components, including actual
advisory fees, waivers/reimbursements, and gross and net total expenses of the
Fund in comparison with the same information for other funds registered under
the 1940 Act determined by the Investment Adviser to comprise the Fund's
applicable peer group. Because few funds seek to provide unlimited exchange
privileges similar to those of the Fund, the Fund's peer group is limited to the
funds of two unaffiliated mutual fund families. In addition, at the 2009 Renewal
Meeting, the Board reviewed statistical information prepared by the Investment
Adviser relating to the performance of the Fund and a comparison of the Fund's
performance to funds with similar investment objectives for the same periods and
to appropriate indices/benchmarks, in light of total return, yield and market
trends. The Board further noted that despite the unique nature of the Fund, the
peer fund information presented to the Board was meaningful because the peer
funds' investment objectives and strategies were closely aligned with those of
the Fund. The Board noted that the Fund performed in line with its peer funds
over relevant periods. The Board also noted that the investment advisory fees
for the Fund were equivalent to those of its
10
peers and that the overall expenses for the Fund were only slightly higher than
the total expenses of the peer funds, due in part to differing share classes and
distribution fees. Based on the review at the 2009 Renewal Meeting, the Board
concluded that the investment advisory fees and expense levels and the
historical performance of the Fund, as compared to the investment advisory fees
and expense levels and performance of the peer funds, were satisfactory for the
purposes of approving the continuance of the Current Investment Advisory
Agreement. Based on the representations made by SecBen and Guggenheim at the
2010 Meetings that the Investment Adviser would continue to operate following
the closing of the Transaction in much the same manner as it operates today, the
Board concluded that the investment performance of the Investment Adviser was
not expected to be affected by the Transaction.
COSTS OF SERVICES PROVIDED TO THE FUND AND PROFITS REALIZED BY THE INVESTMENT
ADVISER AND ITS AFFILIATES. At the 2009 Renewal Meeting, the Board reviewed
information about the profitability of the Fund to the Investment Adviser based
on the advisory fees payable under the Current Investment Advisory Agreement for
the last calendar year. The Investment Adviser also presented the Board with
material discussing its methodology for determining the level of advisory fees
assessable to the Fund. The Board analyzed the Fund's expenses, including the
investment advisory fees paid to the Investment Adviser. The Board also reviewed
information regarding direct revenue received by the Investment Adviser and
ancillary revenue received by the Investment Adviser and/or its affiliates in
connection with the services provided to the Fund by the Investment Adviser (as
discussed below) and/or its affiliates. The Board also discussed the Investment
Adviser's profit margin as reflected in the Investment Adviser's profitability
analysis and reviewed information regarding economies of scale (as discussed
below). Based on this review at the 2009 Renewal Meeting, the Board concluded
that the profits to be realized by the Investment Adviser and its affiliates
under the Current Investment Advisory Agreement and from other relationships
between the Fund and the Investment Adviser and/or its affiliates, if any, were
within the range the Board considered reasonable and appropriate.
At the 2010 Meetings, the Board considered the fact that the fee rates
payable to the Investment Adviser would be the same under the Fund's New
Investment Advisory Agreement as they are under the Fund's Current Investment
Advisory Agreement. The Board also noted that the Fund's applicable fee
waiver/expense limitations agreements with the Investment Adviser would be
renewed, if the New Investment Advisory Agreement is approved by shareholders
and the Transaction is completed. With respect to anticipated profitability, the
Board noted that it was too early to predict how the Transaction may affect the
Investment Adviser's profitability with the Fund, but noted that this matter
would be given further consideration on an ongoing basis. Overall, the Board
concluded that the fees to be paid under the Current Investment Advisory
Agreement and under the New Investment Advisory Agreement are reasonable.
11
ECONOMIES OF SCALE. In connection with its review of the Fund's profitability
analysis at the 2009 Renewal Meeting, the Board reviewed information regarding
economies of scale or other efficiencies that may result from increases in the
Fund's asset levels. The Board noted that the Current Investment Advisory
Agreement did not provide for any breakpoints in the investment advisory fees as
a result of increases in the asset levels of the Fund. The Board also noted
that, though the Investment Adviser's assets under management were significant,
the amount is spread among many funds, including the Fund. Further limiting the
realization of economies of scale, is the ability of shareholders of the Fund to
engage in unlimited trading. The Board also reviewed and considered the
Investment Adviser's historic profitability as investment adviser to the Fund
and determined that reductions in advisory fees or additions of breakpoints were
not warranted at the time of the 2009 Renewal Meeting. At the 2010 Meetings, the
Trustees noted that the fees would not change under the New Investment Advisory
Agreement, and they will have the opportunity to again review the
appropriateness of the fee payable to the Investment Adviser under the Agreement
when the next renewal of this Agreement comes before the Board.
OTHER BENEFITS TO THE INVESTMENT ADVISER AND/OR ITS AFFILIATES. At the 2009
Renewal Meeting, in addition to evaluating the services provided by the
Investment Adviser, the Board considered the nature, extent, quality and cost of
the administrative, distribution, and shareholder services performed by the
Affiliated Service Providers under separate agreements. Based on its review at
its 2009 Renewal Meeting, the Board concluded that the nature and quality of the
services provided by the Investment Adviser's affiliates to the Fund will
benefit the Fund's shareholders, and that any ancillary benefits would not be
disadvantageous to the Fund's shareholders, particularly in light of the Board's
view that the Fund's shareholders benefit from investing in a fund that is part
of a large family of funds offering a variety of investment strategies and
services. The Board also considered the terms of the Transaction and the
financial benefits that it brings to the parent company of the Investment
Adviser and noted that those financial benefits are available, in part, because
of the involvement of the Investment Adviser in the Transaction. The Board also
noted that the Transaction is expected to put the Investment Adviser on strong
financial footing, enhancing its ability to provide continuous services to the
Fund.
NEW VALU-TRAC SUB-ADVISORY AGREEMENT
NATURE, EXTENT AND QUALITY OF SERVICES TO BE PROVIDED BY VALU-TRAC. At the
2009 Renewal Meeting, the Board reviewed the scope of services to be provided by
Valu-Trac under the Current Valu-Trac Sub-Advisory Agreement. At the 2010
Meetings, the Board noted that there would be no significant differences between
the scope of services required to be provided by Valu-Trac under the Current
Valu-Trac Sub-Advisory Agreement and the scope of services required to be
provided by Valu-Trac under the New Valu-Trac Sub-Advisory Agreement if it is
implemented. In reviewing the scope of services provided by Valu-Trac, the Board
reviewed and discussed Valu-Trac's investment experience, noting that Valu-Trac
and its affiliates
12
have committed significant resources over time to the support of the Fund. At
the 2009 Renewal Meeting, the Board also considered Valu-Trac's compliance
program and its compliance record with respect to the Fund. In that regard, the
Board noted that Valu-Trac provides information regarding the portfolio
management and compliance to the Board on a periodic basis in connection with
regularly scheduled meetings of the Board. In addition to the above
considerations, the Board reviewed and considered Valu-Trac's investment
processes and strategies. The Board further noted that the Fund has met its
investment objectives consistently since Valu-Trac began sub-advising the Fund.
At the 2010 Meetings, the Board noted that key investment and management
personnel of Valu-Trac servicing the Fund and services provided to the Fund are
not expected change as a result of the Transaction. Based on this review, the
Board concluded that the nature, extent and quality of services to be provided
by Valu-Trac to the Fund under the New Valu-Trac Sub-Advisory Agreement would be
appropriate. The Board also noted that Valu-Trac was not involved in the
Transaction and that the approval of the New Valu-Trac Sub-Advisory Agreement
was required due to the possible assignment of the Current Investment Advisory
Agreement with the Investment Adviser if shareholders disapprove the appointment
of SGI or SGI is otherwise not approved as sub-adviser.
FUND EXPENSES AND PERFORMANCE OF THE FUND AND VALU-TRAC. At the 2009 Renewal
Meeting, the Board reviewed statistical information prepared by Valu-Trac and
the Investment Adviser regarding the expense ratio components, including actual
sub-advisory fees and total expenses to the Fund. In addition, the Board
reviewed statistical information prepared by Valu-Trac relating to the
performance of the Fund and a comparison of the Fund's performance to
appropriate indices/benchmarks, in light of total return, yield and market
trends. Based on this review at the 2009 Renewal Meeting, the Board concluded
that the investment sub-advisory fees and expense levels and the historical
performance of the Fund were satisfactory for the purposes of approving the
Current Valu-Trac Sub-Advisory Agreement. At the 2010 Meetings, the Board
concluded Valu-Trac would continue to operate following the closing of the
Transaction in much the same manner as it operates today and, as a result, the
Board concluded that the investment performance of Valu-Trac was not expected to
be affected by the Transaction.
COST OF SERVICES PROVIDED TO THE SUB-ADVISED FUNDS, PROFITS REALIZED BY
VALU-TRAC AND ITS AFFILIATES AND ECONOMIES OF SCALE. At the 2009 Renewal
Meeting, the Trustees reviewed reports comparing the expense ratios and
sub-advisory fees to those of other comparable mutual funds and concluded that
the sub-advisory fees were reasonable and the result of arm's length
negotiations, and the sub-advisory fees were comparable to those peer funds. At
its 2010 Meetings, the Board concluded that, in the near future, the profits to
be realized by Valu-Trac and its affiliates under the New Valu-Trac Sub-Advisory
Agreement and from other relationships between the Funds and Valu-Trac and its
affiliates, if any, should remain within the range the Board previously
considered reasonable and appropriate. The Board further noted at the 2010
13
Meetings that it is not possible to predict with accuracy how the Transaction
may affect Valu-Trac's future profitability with the Funds if Valu-Trac still
serves as the sub-adviser at that time, but that this matter would be given
further consideration on an ongoing basis.
OTHER BENEFITS TO VALU-TRAC. At the 2009 Renewal Meeting, the Board received
and considered information regarding the character and amount of other
incidental benefits Valu-Trac might receive as a result of its relationship with
the Fund. The Board concluded that, taking into account any incidental benefits
Valu-Trac might receive, the terms of the Current Valu-Trac Sub-Advisory
Agreement, including the compensation to be paid thereunder, were reasonable. At
its 2010 Meetings, the Board considered other benefits to Valu-Trac and its
affiliates expected to be derived from their relationships with the Fund as a
result of the Transaction and noted that no additional benefits were expected
because Valu-Trac was not a party to the Transaction.
NEW SGI SUB-ADVISORY AGREEMENT
NATURE, EXTENT AND QUALITY OF SERVICES TO BE PROVIDED BY SGI. At the February
12, 2010 Meeting, in considering the nature, extent and quality of the services
to be provided by SGI, the Board reviewed the portfolio management services to
be provided by SGI to the Fund. Among other things, the Board considered the
quality of SGI's portfolio management personnel. SGI's registration form and
current Code of Ethics were provided to the Board, as was the response of SGI to
a detailed series of questions which included, among other things, information
about the background and experience of the portfolio managers who would be
primarily responsible for the day-to-day management of the Fund. The Board
considered whether SGI has the capabilities and resources to implement the
Fund's investment strategies and, in this regard, took into account SGI's
substantial experience managing assets in accordance with an international
long/short strategy mandate. The Board also considered SGI's diverse client
base, which includes mutual funds, and the amount of assets the firm has under
management.
The Trustees also considered other services to be provided to the Fund by
SGI, such as selecting broker-dealers for executing portfolio transactions,
monitoring adherence to the Fund's investment restrictions, and monitoring
compliance with various Fund policies and procedures and with applicable
securities regulations. Based on the factors above, as well as those discussed
below, the Board concluded that it was satisfied with the nature, extent and
quality of the services to be provided to the Fund by SGI.
COST OF SERVICES PROVIDED TO THE FUND, PROFITS REALIZED BY SGI AND ITS
AFFILIATES AND ECONOMIES OF SCALE. At the February 12, 2010 Meeting, the
Trustees noted that they had reviewed at their 2009 Renewal Meeting reports,
prepared by the Investment Adviser, comparing the expense ratios and
sub-advisory fees charged by Valu-Trac to those of other comparable mutual funds
and concluded that the sub-advisory fees were reasonable and the result of arm's
length negotiations, and the
14
sub-advisory fees were comparable to those of peer funds. The Trustees noted
that SGI proposed the same sub-advisory fee as the fee charged by Valu-Trac.
Because it was not possible to determine the profitability that SGI might
achieve with respect to the Fund, the Trustees did not make any conclusions
regarding SGI's profitability. For the same reason, the Board did not make any
conclusions regarding the extent to which economies of scale would be realized
by SGI as the assets of the Fund grows. In this regard, during future
considerations of the New SGI Sub-Advisory Agreement, the Board will consider
whether any economies of scale are being realized by SGI and, if so, an
appropriate mechanism for sharing the benefits of such economies of scale.
OTHER BENEFITS TO SGI. At the February 12, 2010 Meeting, the Board received
and considered information regarding the character and amount of other
incidental benefits SGI might receive as a result of its relationship with the
Fund, including SGI's soft dollar practices. The Board also took into account
that SGI is an affiliate of the Investment Adviser. The Board concluded that,
taking into account any incidental benefits SGI might receive, the terms of the
New SGI Sub-Advisory Agreement, including the compensation to be paid
thereunder, were reasonable.
THE BOARD, INCLUDING THE INDEPENDENT TRUSTEES,
UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE "FOR"
THE APPROVAL OF THE NEW AGREEMENTS AND CHANGE TO THE
FUNDAMENTAL INVESTMENT POLICY ON BORROWING MONEY.
UNMARKED, PROPERLY SIGNED AND DATED PROXIES WILL BE SO
VOTED.
15
PROPOSAL 1
THE APPROVAL OF THE NEW INVESTMENT ADVISORY AGREEMENT
As discussed above, Proposal 1 relates to the approval by shareholders of the
New Investment Advisory Agreement between the Investment Adviser and the Fund.
The Trust, on behalf of the Fund, has executed an investment advisory agreement
with the Investment Adviser in connection with advisory services to the Fund. A
form of the New Investment Advisory Agreement is attached in Appendix A.
The terms of the New Investment Advisory Agreement are identical to those of
the Current Investment Advisory Agreement, except with respect to the date of
execution. Consequently, upon shareholder approval, the Investment Adviser will
continue to render substantially the same services to the Fund under the New
Investment Advisory Agreement that it currently renders to the Fund under the
Current Investment Advisory Agreement.
As discussed above, at the 2010 Meetings, the Board unanimously approved the
New Investment Advisory Agreement and recommends the approval of the New
Investment Advisory Agreement to shareholders. For information regarding the
Board's considerations in approving the New Investment Advisory Agreement,
please see the section above entitled "Board Considerations in Approving the New
Agreements."
The Current Investment Advisory Agreement will remain in place until the
completion of the Transaction, at which time, as a result of the change in the
control of the Investment Adviser, the Current Investment Advisory Agreement
will terminate. However, completion of the Transaction will be subject to
certain closing conditions, including: (a) the receipt of approvals required for
the assignment or replacement of investment advisory contracts relating to 80%
or more of the total net assets under management by the Investment Adviser and
certain affiliates that will be controlled by the Purchaser; and, (b) with
respect to the Purchase Transaction only, the approval of a corporate
restructuring called a demutualization by the insurance policyholders who
presently own SBHC, to the extent required by applicable law. If for some reason
the Transaction does not occur, the Current Investment Advisory Agreement will
not automatically terminate and will remain in effect, and the New Investment
Advisory Agreement will not be entered into, even if it has been approved by
Fund shareholders.
THE INVESTMENT ADVISER
PADCO Advisors, Inc., which operates under the name Rydex Investments, is
located at 9601 Blackwell Road, Suite 500, Rockville, Maryland 20850 and
currently serves as investment adviser to the Fund pursuant to the Current
Investment Advisory Agreement. Information regarding the Current Investment
Advisory Agreement, including (a) the date of the agreement, (b) the date on
which it was last approved by shareholders and (c) the rate of compensation to
the Investment Adviser, is provided in Appendix B. If the New Investment
Advisory Agreement is approved by shareholders, it will continue for an initial
term of two years and for subsequent
16
one-year terms so long as it is renewed annually in accordance with its terms
(see discussion under "Term and Continuance" below).
Information regarding the name(s), address(es) and principal occupation(s) of
the principal executive officer(s) and director(s) of the Investment Adviser is
set forth in Appendix C. A list of the Trustees and officers of the Trust who
hold positions with the Investment Adviser also is set forth in Appendix C. In
addition, set forth in Appendix D-1 is a list of other registered investment
companies with similar investment objectives as the Fund, for which the
Investment Adviser acts as investment manager, adviser or sub-adviser.
Currently, the Investment Adviser is a wholly-owned subsidiary of Rydex
Holdings, LLC, which is a wholly-owned subsidiary of SBC. SBC is wholly owned by
SBHC, One Security Benefit Place, Topeka, Kansas 66636-0001. Upon completion of
the Transaction, the Purchaser will either receive: (a) a 100% ownership stake
in SBC, the parent company of the Investment Adviser, SGI and affiliates; or (b)
a 100% ownership stake in SBC's asset management business, which includes the
Investment Adviser, SGI and certain affiliates. For more information on the
Transaction, please see the section above entitled "Information Regarding the
Change in Control of the Investment Adviser."
MATERIAL TERMS OF THE NEW INVESTMENT ADVISORY AGREEMENT
The following summary of the New Investment Advisory Agreement summarizes the
material terms of the New Investment Advisory Agreement and is qualified in its
entirety by reference to such New Investment Advisory Agreement, a form of which
is attached in Appendix A.
DUTIES OF THE INVESTMENT ADVISER. Under the Current Investment Advisory
Agreement and the New Investment Advisory Agreement (each, an "Advisory
Agreement" and collectively, the "Advisory Agreements"), the Investment Adviser
is required to:
o provide the Fund with investment research, advice and supervision and shall
furnish continuously an investment program for the Fund, consistent with
the respective investment objectives and policies of the Fund;
o determine, in its discretion and without prior consultation, what
securities shall be purchased for the Fund, what securities shall be held
or sold by the Fund and what portion of the Fund's assets shall be held
uninvested in cash, subject always to the provisions of the Trust's
Declaration of Trust, By-Laws and registration statement on file with the
U.S. Securities and Exchange Commission (the "SEC");
o discharge its responsibilities subject to the control of the officers and
the Board, and in compliance with the objectives, policies, and limitations
set forth in the Fund's prospectus(es) and applicable laws and regulations;
o vote any proxies for Fund securities;
17
o provide the Trust, and any other agent designated by the Trust, with
records concerning the Investment Adviser's activities which the Fund is
required to maintain; and
o provide other reports reasonably requested by the Trust's officers and
Board concerning the Investment Adviser's discharge of the foregoing
responsibilities.
INDEMNITY OBLIGATION. Under the Advisory Agreements, the Investment Adviser
shall indemnify and hold harmless the Trust and all affiliated persons thereof
(within the meaning of Section 2(a)(3) of the 1940 Act) and all controlling
persons (as described in Section 15 of the Securities Act of 1933) against any
and all losses, claims, damages, liabilities or litigation (including reasonable
legal and other expenses) by reason of or arising out of: (a) the Investment
Adviser being in material violation of any applicable federal or state law, rule
or regulation or any investment policy or restriction set forth in the Fund's
registration statement or any written guidelines or instruction provided in
writing by the Board; (b) the Fund's failure to satisfy the diversification or
source of income requirements of Subchapter M of the Internal Revenue Code; or
(c) the Investment Adviser's willful misfeasance, bad faith or gross negligence
generally in the performance of its duties or its reckless disregard of its
obligations and duties under the Advisory Agreements.
TERM AND CONTINUANCE. Each Advisory Agreement provides that unless terminated
as provided therein, the Advisory Agreement shall continue for an initial term
of two years. Thereafter, the Advisory Agreement shall continue in effect for
successive annual periods provided such continuance is specifically approved at
least annually (a) by the vote of the Trustees or by a vote of the shareholders;
and (b) by the vote of a majority of the Independent Trustees, cast in person at
a meeting called for the purpose of voting on such approval.
Each Advisory Agreement may be terminated at any time without payment of any
penalty, by the Fund upon the vote of either the Board or by a majority of the
outstanding voting securities of the Fund. The Investment Adviser may also, by
not more than sixty (60) days' nor less than thirty (30) days' written notice,
terminate the Advisory Agreements. Each Advisory Agreement will terminate
automatically in the event of its "assignment" (as that term is defined under
the 1940 Act).
BOARD RECOMMENDATION ON PROPOSAL 1
At the 2010 Meetings, based on its deliberations on and evaluation of the
information described above, the Board, including all of the Independent
Trustees, unanimously: (a) concluded that the terms of the New Investment
Advisory Agreement are fair and reasonable; (b) concluded that the Investment
Adviser's fees are reasonable in light of the services that the Investment
Adviser will provide to the Fund; and (c) agreed to approve the New Investment
Advisory Agreement for an initial term of two years and to recommend the
approval of the New Investment Advisory Agreement to shareholders.
THE TRUSTEES UNANIMOUSLY RECOMMEND THAT
SHAREHOLDERS OF THE FUND VOTE "FOR" PROPOSAL 1
18
PROPOSAL 2
THE APPROVAL OF THE NEW SGI SUB-ADVISORY AGREEMENT
As discussed above, Proposal 2 relates to the replacement of the Fund's
current sub-adviser, Valu-Trac, with SGI, an affiliate of the Investment
Adviser. Proposal 2 is part of a larger plan, which does not require shareholder
approval, to implement new principal investment strategies and change the Fund's
name. The Investment Adviser recently recommended, and the Board approved, new
principal investment strategies pursuant to which the Fund will invest its
assets according to an international long/short strategy. The Investment Adviser
also recommended that the Fund change its name from the "International
Opportunity Fund" to the "International Long Short Select Fund." In order to
fully implement the new investment strategies, you are being asked to approve
the New SGI Sub-Advisory Agreement so that SGI can replace Valu-Trac as
sub-adviser and implement this new investment program. A form of the New SGI
Sub-Advisory Agreement is attached in Appendix E-1.
OVERVIEW OF THE INVESTMENT STRATEGIES TO BE IMPLEMENTED BY SGI
The Fund will pursue an international long/short strategy by purchasing
foreign common and preferred stocks or convertible stocks of companies SGI
believes will outperform the market and by selling short those foreign common
and preferred stocks believed to be overvalued or expected to underperform the
market. SGI may invest in emerging market countries. SGI uses both quantitative
and qualitative techniques to identify long and short investment opportunities.
SGI's universe of securities begins with the largest publicly traded
companies internationally. Through quantitative screening and fundamental
analysis, SGI narrows the universe of securities to a list of long and short
investment opportunities. SGI then builds a portfolio of securities designed to
maximize the absolute returns of the portfolio from SGI's selection methodology
while working to maintain prudent risk controls. SGI will consider buying a
security that is not currently held in the Fund's portfolio when the security
candidate has passed through the research process and SGI believes that there is
a potential for upside price movement over the following year with a return to
risk ratio that meets SGI's criteria. In the case of a security already held in
the Fund's portfolio, SGI will consider adding to the position in the event the
security has been unusually weak in the market based on SGI's analysis and SGI
continues to believe that the one year price objective is valid. SGI will
consider selling a security if SGI believes that the price objective is no
longer valid. SGI also may reduce a position in its portfolio with respect to a
security if the position approaches its price objective and the risk/return is
deteriorating. SGI will make additions and reductions in the Fund's portfolio
and will buy and sell securities frequently.
When the Fund engages in a short sale of a security, it will sell a stock
that it does not own and settle the sale by borrowing the same stock from a
lender. To close out
19
the short position, the Fund must purchase the same stock in the market and
return it to the lender. The Fund may be subject to additional expenses related
to short sales that are not typically associated with investing in securities
directly, such as costs of borrowing and margin account maintenance costs
associated with the Fund's open short positions, if shareholders approve the New
SGI Sub-Advisory Agreement. These expenses negatively impact the performance of
the Fund.
Because short sales expose the Fund to additional expenses, the new
investment program is expected to increase the Fund's overall expenses. As a
result, by approving the New SGI Sub-Advisory Agreement, shareholders will also
be approving an investment program that is likely to result in additional
expenses, including those associated with short selling, under the new
investment program. In order to assist shareholders in comparing the estimated
expenses of the new investment program, a comparison of the Fund's current fees
and expenses (i.e., the fees and expenses under the Current Valu-Trac
Sub-Advisory Agreement) and those estimated under the new investment program
(i.e., the fees and expenses under the New SGI Sub-Advisory Agreement) is
provided in the section below entitled "Fund Fees and Expenses."
The implementation of these new strategies would subject the Fund to these
additional risks:
ACTIVE TRADING RISK. Active trading, also called "high portfolio turnover"
may result in higher brokerage costs or mark-up charges, which may negatively
affect Fund performance and result in short-term capital gains, which have a
negative tax effect. Large movements of assets into and out of the Fund due to
active trading also may adversely affect the Fund's ability to achieve its
investment objective.
EMERGING MARKETS RISK. Certain of the Fund's investments may be in emerging
markets. Emerging markets can be subject to greater social, economic,
regulatory, and political uncertainties and can be extremely volatile because
they are countries or markets with low- to middle-income economies as classified
by the World Bank, and other countries or markets with similar characteristics
as determined by SGI. As a result, the securities of emerging market issuers may
present market, credit, currency, liquidity, legal, political and other risks
different from, or greater than, the risks of investing in securities of
developed countries or regions.
GROWTH STOCKS RISK. Growth stocks typically invest a high portion of their
earnings back into their business and may lack the dividend yield that could
cushion their decline in a market downturn. Growth stocks may be more volatile
than other stocks because they are more sensitive to investor perceptions
regarding the growth potential of the issuing company.
SMALL-CAPITALIZATION SECURITIES RISK. The Fund is subject to the risk that
small-capitalization stocks may underperform other segments of the equity market
or the equity market as a whole. In comparison to securities of companies with
larger capitalizations, securities of small-capitalization companies may have
more price
20
volatility, greater spreads between their bid and ask prices, significantly
lower trading volumes, and cyclical or static growth prospects.
VALUE STOCKS RISK. Value stocks are subject to the risk that the intrinsic
value of the stock may never be realized by the market or that the price goes
down.
The Investment Adviser will continue to serve as the Fund's investment
adviser and will oversee SGI's day-to-day management of the Fund. The Board
believes that retaining SGI to serve as the sub-adviser to the Fund in the place
of Valu-Trac is in the best interests of the Fund and its shareholders.
As discussed above, at the February 12, 2010 Meeting, the Board unanimously
approved the New SGI Sub-Advisory Agreement, and recommends the approval of the
New SGI Sub-Advisory Agreement to shareholders. For information regarding the
Board's considerations in approving the New SGI Sub-Advisory Agreement, please
see the section above entitled "Board Considerations in Approving the New
Agreements."
The terms of the New SGI Sub-Advisory Agreement are described below. Upon
shareholder approval, SGI will render services to the Fund under the New SGI
Sub-Advisory Agreement.
It is important to note that the Fund's new principal investment strategy
will not be implemented unless shareholders approve the New SGI Sub-Advisory
Agreement. As previously noted, although the change in control of the Investment
Adviser, if consummated after the appointment of SGI, also would terminate the
New SGI Sub-Advisory Agreement, approval by shareholders of both Proposal 1 and
Proposal 2 will be deemed to constitute approval of a new sub-advisory agreement
with SGI with terms identical to those of the New SGI Sub-Advisory Agreement
approved pursuant to Proposal 2 and in place immediately before the change in
control.
Furthermore, if approved by shareholders, the implementation of the New SGI
Sub-Advisory Agreement, as well as the change to the Fund's name and investment
strategies, may occur at a later date after the Meeting, at the discretion of
the Investment Adviser. If shareholder approval is not obtained with respect to
the New SGI Sub-Advisory Agreement, the Fund's new investment strategies will
not be implemented and the Fund's current investment strategies will remain
unchanged until further consideration by the Investment Adviser and the Board.
INFORMATION ABOUT SGI
Security Global Investors, LLC is located at 801 Montgomery Street, 2nd
Floor, San Francisco, CA 94133-5164. If the New SGI Sub-Advisory Agreement is
approved by shareholders, it will continue for an initial term of two years and
for subsequent one-year terms so long as it is renewed annually in accordance
with its terms (see discussion under "Term and Continuance" below).
Information regarding the name(s), address(es) and principal occupation(s) of
the principal executive officer(s) and managing member(s) of SGI is set forth in
21
Appendix C. A list of the Trustees and officers of the Trust who hold positions
with SGI also is set forth in Appendix C. In addition, set forth in Appendix D-2
is a list of other registered investment companies with similar investment
objectives as the Fund, for which SGI acts as investment manager, adviser or
sub-adviser.
Currently, SGI is a wholly-owned subsidiary of SBC. SBC is a wholly-owned
subsidiary of SBHC, located at One Security Benefit Place, Topeka, Kansas
66636-0001. Upon completion of the Transaction, the Purchaser will either
receive: (a) a 100% ownership stake in SBC, the parent company of the Investment
Adviser, SGI and affiliates; or (b) a 100% ownership stake in SBC's asset
management business, which includes the Investment Adviser, SGI and certain
affiliates. For more information on the Transaction, please see the section
above entitled "Information Regarding the Change in Control of the Investment
Adviser."
MATERIAL TERMS OF THE NEW SGI SUB-ADVISORY AGREEMENT
The following summary of the New SGI Sub-Advisory Agreement between the
Investment Adviser and SGI summarizes its material terms and is qualified in its
entirety by reference to such New SGI Sub-Advisory Agreement, a form of which is
attached in Appendix E-1.
If the New SGI Sub-Advisory Agreement is adopted, the fee rates thereunder
will be the same as the sub-advisory fee rates under the Current and New
Valu-Trac Sub-Advisory Agreements. The other terms of the New SGI Sub-Advisory
Agreement are similar in several respects to the terms of the Current and New
Valu-Trac Sub-Advisory Agreements. However, under the Current and New Valu-Trac
Sub-Advisory Agreements, Valu-Trac is only required to construct and provide the
Investment Adviser with a model investment portfolio, whereas under the New SGI
Sub-Advisory Agreement, SGI will be responsible for managing the assets of the
Fund, including making investment decisions and placing orders to purchase and
sell securities for the Fund. In addition, as discussed in the summaries below,
the New SGI Sub-Advisory Agreement and Current and New Valu-Trac Sub-Advisory
Agreements impose different indemnity obligations/liability provisions. For
additional information regarding the other terms of the Current and New
Valu-Trac Sub-Advisory Agreements, please see the section below entitled
"Material Terms of the Valu-Trac Sub-Advisory Agreement" contained within
Proposal 3, which provides a similar summary of material terms for comparative
purposes.
Although the sub-advisory fee rates under the New SGI Sub-Advisory Agreement
would be the same as the sub-advisory fee rates under the Current and New
Valu-Trac Sub-Advisory Agreements, the Fund's overall expenses are expected to
increase as a result of the Fund's new investment program if shareholders
approve the New SGI Sub-Advisory Agreement. This is because the Fund will engage
in short sales to a greater degree under the new investment program, which is
expected to increase the Fund's expenses. A comparison of the Fund's fees and
expenses under the New SGI Sub-Advisory Agreement and Current Valu-Trac
Sub-Advisory Agreement is provided in the section below entitled "Fund Fees and
Expenses."
22
DUTIES OF SGI. Under the New SGI Sub-Advisory Agreement between the
Investment Adviser and SGI, SGI, subject to the supervision of the Investment
Adviser and the Board, will be responsible for managing the assets of the Fund,
including making investment decisions and placing orders to purchase and sell
securities for the Fund, all in accordance with the investment objective and
policies of the Fund as reflected in its current prospectus(es) and statement(s)
of additional information and as may be adopted from time to time by the Board.
In accordance with applicable requirements, SGI will also maintain, and provide
the Investment Adviser with, all books and records relating to the transactions
it executes or that are otherwise required, and render to the Fund and the
Investment Adviser such periodic and special reports at any time upon reasonable
request.
INDEMNITY OBLIGATION. Under the New SGI Sub-Advisory Agreement, SGI shall
indemnify and hold harmless the Trust and all affiliated persons thereof (within
the meaning of Section 2(a)(3) of the 1940 Act) and all their respective
controlling persons (as described in Section 15 of the Securities Act of 1933)
against any and all losses, claims, damages, liabilities or litigation
(including reasonable legal and other expenses) by reason of or arising out of:
(a) SGI being in material violation of any applicable federal or state law, rule
or regulation or any investment policy or restriction set forth in registration
statement of the Fund or any written guidelines or instruction provided in
writing by the Board; (b) the Fund's failure to satisfy the diversification or
source of income requirements of Subchapter M of the Internal Revenue Code; or
(c) SGI's misfeasance or negligence generally in the performance of its duties
thereunder or its negligent disregard of its obligations and duties thereunder.
COMPENSATION. Under the New SGI Sub-Advisory Agreement, the Investment
Adviser will pay SGI a fee calculated and paid monthly, based on an annual
percentage rate of 0.35% of the average daily net assets of the Fund. The Fund
will have no responsibility for any fee payable to SGI.
TERM AND CONTINUANCE. Under its terms, the New SGI Sub-Advisory Agreement
will remain in full force and effect for a period of up to two years from the
date of its execution, and will continue thereafter as long as its continuance
is approved at least annually by the Board or by vote of a majority of the
outstanding shares of the Fund, as well as by a majority of the Independent
Trustees by vote cast in person at a meeting called for that purpose. However,
the New SGI Sub-Advisory Agreement may be terminated at any time upon 60 days'
written notice without the payment of any penalty, either by vote of a majority
of the Board, by vote of a majority of the outstanding shares of the Fund, or by
the Investment Adviser. The Investment Adviser may terminate the New SGI
Sub-Advisory Agreement upon breach by SGI of its representations or warranties,
which shall not have been cured within 20 days of receipt of written notice of
such breach, or SGI becoming unable to discharge its duties and obligations
under such New SGI Sub-Advisory Agreement. Additionally, the New SGI
Sub-Advisory Agreement will terminate
23
immediately in the event of its assignment or upon the termination of the
corresponding Investment Advisory Agreement. SGI may terminate the New SGI
Sub-Advisory Agreement on 120 days' written notice to the Investment Adviser and
the Fund.
FUND FEES AND EXPENSES
Although the sub-advisory fee rates under the New SGI Sub-Advisory Agreement
would be the same as the sub-advisory fee rates under the Current and New
Valu-Trac Sub-Advisory Agreements, the Fund's overall expenses are expected to
increase as a result of dividend and interest expenses associated with
short-selling and certain other expenses relating to the new investment program.
These expenses are incidental to SGI implementing the new investment program of
the Fund, if the New SGI Sub-Advisory Agreement is approved. More information
regarding short dividend and interest expenses is provided at the end of this
section.
The following tables set forth for each class of shares of the Fund for the
fiscal year ended March 31, 2009 the following information: shareholder
transaction fees (which would remain unchanged if the New SGI Sub-Advisory
Agreement is approved and the new strategies are implemented); annual fund
operating expenses under the Current Valu-Trac Sub-Advisory Agreement; and
estimated fees and expenses of the Fund assuming the New SGI Sub-Advisory
Agreement had been in effect for the fiscal year ending March 31, 2009.
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
A-CLASS SHARES C-CLASS SHARES H-CLASS SHARES
---------------------------------------------------------------------------------------
CURRENT VALU- CURRENT VALU- CURRENT VALU-
TRAC SUB- NEW SGI TRAC SUB- NEW SGI TRAC SUB- NEW SGI
ADVISORY SUB-ADVISORY ADVISORY SUB-ADVISORY ADVISORY SUB-ADVISORY
AGREEMENT AGREEMENT AGREEMENT AGREEMENT AGREEMENT AGREEMENT
---------------------------------------------------------------------------------------------------------------------------------
Maximum Sales Charge (Load)
Imposed On Purchases (as a
percentage of initial purchase price) 4.75% 4.75% None None None None
Maximum Deferred Sales Charge
(Load) (as a percentage of initial
purchase price or current market
value, whichever is less) None None 1.00% 1.00% None None
Redemption Fee on Shares
Redeemed Within 30 Days
of Purchase (as a percentage
of amount redeemed, if applicable) 1.00% 1.00% 1.00% 1.00% 1.00% 1.00%
24
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT YOU PAY EACH YEAR AS A PERCENTAGE
OF THE VALUE OF YOUR INVESTMENT)
A-CLASS SHARES C-CLASS SHARES H-CLASS SHARES
---------------------------------------------------------------------------------------
CURRENT VALU- NEW SGI CURRENT VALU- NEW SGI CURRENT VALU- NEW SGI
TRAC SUB- SUB-ADVISORY TRAC SUB- SUB-ADVISORY TRAC SUB- SUB-ADVISORY
ADVISORY AGREEMENT ADVISORY AGREEMENT ADVISORY AGREEMENT
AGREEMENT (PRO FORMA)* AGREEMENT (PRO FORMA)* AGREEMENT (PRO FORMA)*
---------------------------------------------------------------------------------------------------------------------------------
Management Fees 0.90% 0.90% 0.90% 0.90% 0.90% 0.90%
Distribution And/Or Shareholder
Service (12b-1) Fees 0.25% 0.25% 1.00% 1.00% 0.25% 0.25%
Total Other Expenses 0.53% 2.89% 0.53% 2.89% 0.53% 2.89%
Short Dividend Expense None 1.22% None 1.22% None 1.22%
Short Interest Expense None 0.77% None 0.77% None 0.77%
Remaining Other Expenses 0.53% 0.90% 0.53% 0.90% 0.53% 0.90%
Acquired Fund Fees and Expenses 0.07%(1) 0.00% 0.07%(1) 0.00% 0.07%(1) 0.00%
Total Annual Fund Operating Expenses 1.75% 4.04% 2.50% 4.79% 1.75% 4.04%
_______________________
* Pro forma fees and expenses reflect estimated fees and expenses of the Fund
assuming the New SGI Sub-Advisory Agreement had been in effect for the
fiscal year ending March 31, 2009. Pro forma numbers are estimated in good
faith and are hypothetical.
(1) As a shareholder in certain funds (the "Acquired Funds"), the Fund will
indirectly bear its proportionate share of the fees and expenses of the
Acquired Funds. "Acquired Fund Fees and Expenses" are based upon (i) the
approximate allocation of the Fund's assets among the Acquired Funds and
the (ii) net expenses (excluding interest, taxes and extraordinary
expenses) of the Acquired Funds during their most recently completed fiscal
year. "Acquired Fund Fees and Expenses" will vary with changes in the
expenses of the Acquired Funds, as well as allocation of the Fund's assets,
and may be higher or lower than those shown.
EXAMPLES. The Examples that follow are intended to help you compare the
cost of investing in A-Class, C-Class and H-Class Shares of the Fund under the
Current Valu-Trac Sub-Advisory Agreement and investment strategies and if the
New SGI Sub-Advisory Agreement and new investment strategies are implemented.
The Examples assume that you invest $10,000 in the Fund for the time
periods indicated and then redeem all of your shares at the end of those
periods. The Examples also assume that your investment has a 5% return each year
and that the Fund's operating expenses remain the same. Although your actual
costs may be higher or lower, the Examples reflect your costs based on these
assumptions.
25
1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------------------------------------------------------------
A-CLASS SHARES
Current Valu-Trac Sub-Advisory
Agreement and investment strategies $644 $1,000 $1,379 $2,439
New SGI Sub-Advisory Agreement and
new investment strategies (Pro Forma)* $862 $1,646 $2,446 $4,513
C-CLASS SHARES
If you sell your shares at the end
of the period
Current Valu-Trac Sub-Advisory
Agreement and investment strategies $353 $779 $1,331 $2,836
New SGI Sub-Advisory Agreement and
new investment strategies (Pro Forma)* $580 $1,442 $2,408 $4,841
If you do not sell your shares at
the end of the period
Current Valu-Trac Sub-Advisory
Agreement and investment strategies $253 $779 $1,331 $2,836
New SGI Sub-Advisory Agreement and
new investment strategies (Pro Forma)* $480 $1,442 $2,408 $4,841
H-CLASS SHARES
Current Valu-Trac Sub-Advisory
Agreement and investment strategies $178 $551 $949 $2,062
New SGI Sub-Advisory Agreement and
new investment strategies (Pro Forma)* $406 $1,230 $2,069 $4,239
* Pro forma examples reflect estimated fees and expenses of the Fund assuming
the New SGI Sub-Advisory Agreement had been in effect for the fiscal year
ending March 31, 2009. Pro forma numbers are estimated in good faith and are
hypothetical. If the New SGI Sub-Advisory Agreement is not approved by Fund
shareholders, the Fund's new investment program will not be implemented and
shareholders are not expected to incur these expenses.
ADDITIONAL INFORMATION REGARDING SHORT DIVIDEND AND SHORT INTEREST EXPENSES.
Short dividend expense occurs because the Fund short-sells an equity security to
gain the inverse exposure necessary to meet its investment objective. The Fund
must pay out the dividend rate of the equity security to the lender of the
securities sold short and records this as an expense of the Fund and reflects
the expense in its financial statements. However, any such dividend on a
security sold short generally has the effect of reducing the market value of the
shorted security - thus increasing the Fund's unrealized gain or reducing the
Fund's unrealized loss on its short sale transaction. Short dividend expense is
not a fee charged to the shareholder by the Investment Adviser, SGI or other
service provider. Rather it is more similar to the transaction costs or capital
expenditures associated with the day-to-day management of any mutual fund.
Short interest expense occurs because the Fund short-sells various securities
to gain the inverse exposure necessary to meet its investment objective. The
Fund must pay out the coupon rate of the security sold short to the purchaser
and records this as an expense. This expense is offset - in its entirety or in
part - by the income derived
26
from the short sale and/or by earnings on the proceeds of the short sale. Short
interest expense is not a fee charged to the shareholder by the Investment
Adviser, SGI or other service provider. Rather it is more similar to the
transaction costs or capital expenditures associated with the day-to-day
management of any mutual fund.
BOARD RECOMMENDATION ON PROPOSAL 2
At the February 12, 2010 Meeting, based on its deliberations on and
evaluation of the information described above, the Board, including all of the
Independent Trustees, unanimously: (a) concluded that the terms of the New SGI
Sub-Advisory Agreement are fair and reasonable; (b) concluded that SGI's fees
are reasonable in light of the services that it will provide to the Fund; and
(c) agreed to approve the New SGI Sub-Advisory Agreement for an initial term of
two years and to recommend the approval of the New SGI Sub-Advisory Agreement to
shareholders.
THE TRUSTEES UNANIMOUSLY RECOMMEND THAT
SHAREHOLDERS OF THE FUND VOTE "FOR" PROPOSAL 2
27
PROPOSAL 3
THE APPROVAL OF THE NEW VALU-TRAC SUB-ADVISORY
AGREEMENT
As discussed above, Proposal 3 relates to the approval by shareholders of the
New Valu-Trac Sub-Advisory Agreement between the Investment Adviser and
Valu-Trac in the event that shareholder approval is not obtained with respect to
the New SGI Sub-Advisory Agreement or SGI is otherwise not appointed as
sub-adviser. This is necessary because the Transaction, if implemented, would
terminate any sub-advisory agreement then in effect, which would be the Current
Valu-Trac Sub-Advisory Agreement if Proposal 2 is not approved and SGI is not
appointed prior to the change in control.
However, the New Valu-Trac Sub-Advisory Agreement will only be consummated if
shareholder approval is not obtained with respect to New SGI Sub-Advisory
Agreement. In other words, Valu-Trac will not be retained as the sub-adviser to
the Fund, even if approved by shareholders, so long as shareholders approve
Proposal 2 relating to the retention of SGI as the sub-adviser to the Fund.
The terms of the New Valu-Trac Sub-Advisory Agreement are identical to those
of the Current Valu-Trac Sub-Advisory Agreement, except with respect to the date
of execution. A form of the New Valu-Trac Sub-Advisory Agreement is attached in
Appendix E-2. Consequently, upon shareholder approval, Valu-Trac will continue
to render substantially the same services to the Fund under the New Valu-Trac
Sub-Advisory Agreement that it currently renders to the Fund under the Current
Valu-Trac Sub-Advisory Agreement, if shareholder approval is not obtained with
respect to New SGI Sub-Advisory Agreement.
As discussed above, at the 2010 Meetings, the Board unanimously approved the
New Valu-Trac Sub-Advisory Agreement, and recommends the approval of the New
Valu-Trac Sub-Advisory Agreement to shareholders. For information regarding the
Board's considerations in approving the New Valu-Trac Sub-Advisory Agreement,
please see the section above entitled "Board Considerations in Approving the New
Agreements."
The Current Valu-Trac Sub-Advisory Agreement will remain in place until the
earlier of (a) the completion of the Transaction, at which time, as a result of
the change in the control of the Investment Adviser, the Current Valu-Trac
Sub-Advisory Agreement will terminate; or (b) the implementation of the New SGI
Sub-Advisory Agreement (which is subject to shareholder approval).
The completion of the Transaction, which would result in the termination of
the Current Valu-Trac Sub-Advisory Agreement if it is still in effect, will be
subject to certain closing conditions, including: (a) the receipt of approvals
required for the assignment or replacement of investment advisory contracts
relating to 80% or more of the total net assets under management by the
28
Investment Adviser and certain affiliates that will be controlled by the
Purchaser; and, (b) with respect to the Purchase Transaction only, the approval
of a corporate restructuring called a demutualization by the insurance
policyholders who presently own SBHC, to the extent required by applicable law.
If for some reason the Transaction does not occur and the New SGI Sub-Advisory
Agreement is not in effect, the Current Valu-Trac Sub-Advisory Agreement would
not automatically terminate and would remain in effect, and the New Valu-Trac
Sub-Advisory Agreement would not be entered into, even if it has been approved
by Fund shareholders. The effectiveness of Proposal 3 is also contingent on the
approval of Proposal 1 by shareholders of the Fund.
If Proposal 2 is approved by shareholders, the New SGI Sub-Advisory Agreement
will be entered into and SGI may be appointed as the Fund's new sub-adviser in
the place of Valu-Trac, irrespective of whether the Transaction is completed.
INFORMATION ABOUT VALU-TRAC
Valu-Trac Investment Management Limited, located at Mains of Orton,
Fochabers, Moray, Scotland IV32 7QE, currently serves as sub-adviser to the Fund
pursuant to the Current Valu-Trac Sub-Advisory Agreement. Information regarding
the Current Valu-Trac Sub-Advisory Agreement, including (a) the date of the
agreement, (b) the date on which it was last approved by shareholders and (c)
the rate of compensation to Valu-Trac, is provided in Appendix F-1. If the New
Valu-Trac Sub-Advisory Agreement is approved by shareholders, it will continue
for an initial term of two years and for subsequent one-year terms so long as it
is renewed annually in accordance with its terms (see discussion under "Term and
Continuance" below).
Information regarding the name(s), address(es) and principal occupation(s) of
the principal executive officer(s) and directors(s) of Valu-Trac is set forth in
Appendix C. A list of the Trustees and officers of the Trust who hold positions
with Valu-Trac also is set forth in Appendix C. In addition, set forth in
Appendix D-3 is a list of other registered investment companies with similar
investment objectives as the Fund, for which Valu-Trac acts as investment
manager, adviser or sub-adviser.
Valu-Trac, a limited liability company formed in England, is a wholly-owned
subsidiary of Valu-Trac Limited, located at Mains of Orton, Fochabers, Moray,
Scotland IV32 7QE.
MATERIAL TERMS OF THE VALU-TRAC SUB-ADVISORY AGREEMENT
The following summary of the New Valu-Trac Sub-Advisory Agreement between the
Investment Adviser and Valu-Trac summarizes its material terms and is qualified
in its entirety by reference to such New Valu-Trac Sub-Advisory Agreement, a
form of which is attached in Appendix E-2.
29
DUTIES OF VALU-TRAC. Under the Current Valu-Trac Sub-Advisory Agreement and
the New Valu-Trac Sub-Advisory Agreement, each between the Investment Adviser
and Valu-Trac (collectively, the "Valu-Trac Sub-Advisory Agreements"),
Valu-Trac, subject to the supervision of the Investment Adviser and the Board,
is responsible for the development and on-going maintenance of the investment
strategy utilized by the Fund, all in accordance with the investment objective
and policies of the Fund as reflected in its current prospectus(es) and
statement(s) of additional information and as may be adopted from time to time
by the Board. Under the Valu-Trac Sub-Advisory Agreements, Valu-Trac will
construct and provide the Investment Adviser with a model investment portfolio.
In accordance with applicable requirements, Valu-Trac will also maintain all
books and records that are required, and render to the Board and the Investment
Adviser such periodic and special reports at any time upon reasonable request.
LIMITATION OF LIABILITY. The Valu-Trac Sub-Advisory Agreements provide that
Valu-Trac shall not be liable for, and Investment Adviser will not take any
action against Valu-Trac to hold Valu-Trac liable for, any error of judgment or
mistake of law or for any loss suffered by the Fund (including, without
limitation, by reason of the purchase, sale or retention of any security) in
connection with the performance of Valu-Trac's duties under the Valu-Trac
Sub-Advisory Agreements, except for a loss resulting from willful misfeasance,
bad faith or gross negligence on the part of Valu-Trac in the performance of
its duties thereunder, or by reason of its reckless disregard of its obligations
and duties thereunder.
TERM AND CONTINUANCE. Under their terms, the Valu-Trac Sub-Advisory
Agreements will remain in full force and effect for a period of up to two years
from the date of their execution, and will continue thereafter as long as their
continuance is approved at least annually by the Board or by vote of a majority
of the outstanding shares of the Fund, as well as by a majority of the
Independent Trustees by vote cast in person at a meeting called for that
purpose. The Valu-Trac Sub-Advisory Agreements may be terminated at any time
upon 60 days' written notice without the payment of any penalty, either by the
Investment Adviser or Valu-Trac. The Valu-Trac Sub-Advisory Agreements may also
be terminated at any time upon 60 days' written notice, either by the Board or
by vote of a majority of the outstanding shares of the Fund. Additionally, the
Valu-Trac Sub-Advisory Agreements will terminate immediately in the event of
their assignment. Finally, each Valu-Trac Sub-Advisory Agreement may be
terminated at any time without the payment of any penalty by the Investment
Adviser, the Board or by vote of a majority of the outstanding voting securities
of the Fund, in the event that it shall have been established by a court of
competent jurisdiction that Valu-Trac or any officer or director of Valu-Trac
has taken any action that results in a breach of the representations forth in
such Valu-Trac Sub-Advisory Agreement.
30
BOARD RECOMMENDATION ON PROPOSAL 3
At the 2010 Meetings, based on its deliberations on and evaluation of the
information described above, the Board, including all of the Independent
Trustees, unanimously: (a) concluded that the terms of the New Valu-Trac
Sub-Advisory Agreement are fair and reasonable; (b) concluded that Valu-Trac's
fees are reasonable in light of the services that it will provide to the Fund;
and (c) agreed to approve the New Valu-Trac Sub-Advisory Agreement for an
initial term of two years and to recommend the approval of the New Valu-Trac
Sub-Advisory Agreement to shareholders.
THE TRUSTEES UNANIMOUSLY RECOMMEND THAT
SHAREHOLDERS OF THE FUND VOTE "FOR" PROPOSAL 3
31
PROPOSAL 4
THE APPROVAL OF A CHANGE TO THE FUND'S FUNDAMENTAL
INVESTMENT POLICY ON BORROWING MONEY
Proposal 4 relates to a change to the "fundamental investment policy" on
borrowing for the Fund. The 1940 Act requires that the Fund adopt a
"fundamental" investment policy with respect to several types of activities,
including borrowing money. Borrowed money can be used to cover large and
unexpected redemption orders or to leverage the 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. The Fund currently has in place a fundamental investment policy on
its ability to borrow money that is more prohibitive than the 1940 Act requires,
unnecessarily limiting investment strategies. In general, Proposal 4 is intended
to provide the Fund the maximum possible amount of flexibility to engage in
borrowing activity, including borrowing for investment purposes, consistent with
current law and with the Fund's investment strategies and objectives.
PROPOSED NEW FUNDAMENTAL INVESTMENT POLICY
If Proposal 3 is approved by shareholders, the fundamental investment policy
regarding borrowing for the Fund would read:
[The Fund] shall not borrow money, except as permitted under the Investment
Company Act of 1940, and as interpreted or modified by regulatory authority
having jurisdiction from time to time.
CURRENT FUNDAMENTAL INVESTMENT POLICY
The current fundamental investment policy regarding borrowing money for the
Fund reads:
[The Fund shall not] borrow money in an amount exceeding 33 1/3% of the value
of its total assets, provided that, for the purposes of this limitation,
investment strategies which either obligate the Fund to purchase securities
or require the Fund to segregate assets are not considered to be borrowing
(such investment strategies are only limited by the Fund's ability to
purchase securities or segregate assets equal to the Fund's investment).
Asset coverage of at least 300% is required for all borrowing, except where
the Fund has borrowed money for temporary purposes in amounts not exceeding
5% of its total assets. The Fund will not purchase securities while its
borrowing exceeds 5% of its total assets.
DISCUSSION OF PROPOSED MODIFICATION
The proposed modification to the Fund's fundamental investment policy on
borrowing money (including any interpretation provided in the Fund's
registration statement) would allow the Fund to borrow to the extent permitted
by the 1940 Act. The 1940 Act currently permits a fund to borrow from banks for
any purpose, in an amount up to 33 1/3% of the fund's assets, including the
amount borrowed. Under the
32
1940 Act, a fund may also issue a note evidencing a temporary loan (i.e., one
that must be repaid within 60 days), as long as it does not exceed 5% of the
fund's total assets.
The proposed modification would also allow the Fund's borrowing policy to
conform to future changes in the 1940 Act--and interpretations
thereunder--without further Board or shareholder action. The modification would
therefore ensure that the Fund maintains the maximum possible amount of
flexibility to engage in borrowing activity, without incurring the additional
expenses necessary to further amend the Fund's fundamental investment policies.
The proposed modification would expand the ability of the Fund to borrow for
investment purposes. Currently, the Fund's fundamental investment policy limits
the ability of the Fund to borrow except subject to certain restrictions (e.g.,
limitation on purchasing securities when borrowing exceeds 5% of total assets).
If approved, the change would permit the Fund to borrow to the extent permitted
by the 1940 Act. However, borrowing by the Fund would occur only if consistent
with the Fund's disclosure in its registration statement.
The Investment Adviser, SGI and Valu-Trac do not presently intend to
materially increase the borrowing level of the Fund, and believe that the
proposed change will not materially affect the investment risks currently
associated with the Fund. To the extent that any borrowing by the Fund involves
leveraging, however, the Fund's net asset value may be subject to increased
volatility. This is because borrowing can magnify the effect of an increase or
decrease in the value of the 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 the Fund's shareholders not approve the proposal to amend the Fund's
fundamental investment policy on borrowing money, the Fund's current fundamental
investment policy on borrowing money (including any interpretation provided in
the Fund's registration statement) would continue to apply unchanged.
BOARD RECOMMENDATION ON PROPOSAL 4
At its January 2010 Meeting, based on its deliberations on and evaluation of
the information described above and such other information deemed relevant, the
Board, including all of the Independent Trustees, unanimously agreed to approve
the proposed new fundamental investment policy on borrowing money and to
recommend the approval of the proposed new fundamental investment policy on
borrowing money to shareholders.
THE TRUSTEES UNANIMOUSLY RECOMMEND THAT
SHAREHOLDERS OF THE FUND VOTE "FOR" PROPOSAL 4
33
OTHER BUSINESS
The Trustees do not know of any matters to be presented at the Meeting other
than those set forth in this Proxy Statement. If other business should properly
come before the Meeting, proxies will be voted in accordance with the judgment
of the persons named in the accompanying proxy.
ADDITIONAL INFORMATION
ADMINISTRATOR, PRINCIPAL UNDERWRITER AND TRANSFER AGENT
The principal underwriter/distributor of the Trust is Rydex Distributors,
Inc. ("Rydex Distributors"), located at 9601 Blackwell Road, Suite 500,
Rockville, Maryland 20850, an affiliate of the Investment Adviser and SGI.
Rydex Fund Services, Inc. ("Rydex Fund Services"), also an affiliate of the
Investment Adviser and SGI, is located at 9601 Blackwell Road, Suite 500,
Rockville, Maryland 20850 and provides general administrative, shareholder,
dividend disbursement, transfer agent and registrar services to the Fund.
Information regarding the fees paid by the Fund to each of Rydex Distributors
and Rydex Fund Services during the previous fiscal year is provided in
Appendix B.
Although the Purchaser will acquire control of the Affiliated Service
Providers as a result of the Transaction, shareholder approval is not required
in order for the Affiliated Service Providers to continue providing services to
the Fund after the closing of the Transaction. The Board has been assured that
there will be no material change in the nature or quality of the services
provided by the Affiliated Service Providers to the Fund due to the changes in
control.
AFFILIATIONS AND AFFILIATED BROKERAGE
During the Fund's most recent fiscal years, the Fund paid no commissions on
portfolio brokerage transactions to brokers who may be deemed to be affiliated
persons of the Fund, the Investment Adviser, SGI or Valu-Trac, or affiliated
persons of such persons ("Affiliated Brokers").
OTHER INFORMATION
Proxy materials, reports and other information filed by the Fund can be
inspected and copied at the Public Reference Facilities maintained by the SEC at
100 F Street, NE, Washington, DC 20549. The SEC maintains an Internet web site
(at http://www.sec.gov) which contains other information about the Fund.
VOTING INFORMATION
PROXY SOLICITATION. The principal solicitation of proxies will be by the
mailing of this Proxy Statement on or about April 2, 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 SGI or their affiliate(s), or The
Altman Group, a private proxy services firm. If we have not received your vote
as the date of the Meeting approaches, you may receive a telephone call from
these parties to ask for your vote.
34
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 $7,332.
SHAREHOLDER VOTING. Shareholders of the Fund who own shares at the close of
business on the Record Date will be entitled to notice of, and vote at, the
Meeting. Each whole share is entitled to one vote, and each fractional share is
entitled to a proportionate fractional vote on each matter as to which such
shares are to be voted at the Meeting. One-third (33 1/3%) of the Fund's shares
entitled to vote on a Proposal constitutes a quorum. Abstentions and broker
non-votes will not be counted for or against a Proposal, but will be counted for
purposes of determining whether a quorum is present. Because the affirmative
vote of a majority of the outstanding voting securities of the Fund, as defined
below, is required to approve Proposals 1 - 4, abstentions and broker non-votes
will effectively be a vote against Proposals 1 - 4. "Broker non-votes" are
shares held by a broker or nominee as to which instructions have not been
received from the beneficial owners or persons entitled to vote, and the broker
or nominee does not have discretionary voting power.
If a quorum is not present at the Meeting, or if a quorum is present at the
Meeting but sufficient votes to approve one or more of the proposals are not
received, or if other matters arise requiring shareholder attention, the persons
named as proxy agents may propose one or more adjournments of the Meeting to
permit further solicitation of proxies. Any such adjournment will require the
affirmative vote of a majority of those shares present at the Meeting or
represented by proxy. The persons named as proxies will vote those proxies that
they are entitled to vote "FOR" such proposal in favor of such an adjournment,
and will vote those proxies required to be voted "AGAINST" such proposal,
against such an adjournment.
Information regarding the number of issued and outstanding shares of the Fund
as of the Record Date is provided in Appendix G, representing the same number of
votes for the Fund. The persons who are known to have owned beneficially 5% or
more of the Fund's outstanding shares as of the Record Date are listed in
Appendix H. As of the Record Date, the Trustees and officers, as a group, owned
less than 1% of the outstanding shares of the Fund. As of the Record Date, there
were no persons who were known to control the Fund.
The person(s) named as proxies on the enclosed proxy card will vote in
accordance with your directions, if your proxy is received properly executed. If
we receive your proxy, and it is executed properly, but you give no voting
instructions with respect to any proposal, your shares will be voted "FOR"
Proposals 1 - 4. The
35
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 Proposals 1 - 4 requires the vote of a "majority
of the outstanding voting securities" of the Fund, which means the vote of 67%
or more of the shares that are present at the Meeting, if the holders of more
than 50% of the outstanding shares are present or represented by proxy, or the
vote of more than 50% of the Fund's outstanding shares, whichever is less.
The Current Investment Advisory Agreement will remain in place until the
completion of the Transaction, at which time, as a result of the change in the
control of the Investment Adviser, the Current Investment Advisory Agreement
will terminate and, subject to shareholder approval, the New Investment Advisory
Agreement will go into effect. As discussed in the section above entitled
"Information Regarding the Change in Control of the Investment Adviser,"
completion of the Transaction will be subject to certain closing conditions. As
a result, if for some reason the Transaction does not occur, the Current
Investment Advisory Agreement will not automatically terminate and will remain
in effect. If Proposal 2 is approved by shareholders, the New SGI Sub-Advisory
Agreement will be entered into, the new investment strategies and Fund name
change will be implemented, and SGI will serve as the Fund's new sub-adviser in
the place of Valu-Trac, irrespective of whether the Transaction is completed.
If Proposals 1 - 3 are not approved by shareholders of the Fund, the Board will
evaluate other short- and long-term options.
With respect to Proposal 4, should the Fund's shareholders not approve the
proposal to amend the Fund's fundamental investment policy on borrowing money,
the Fund's current fundamental investment policy on borrowing money would
continue to apply unchanged.
SHAREHOLDERS SHARING THE SAME ADDRESS. As permitted by law, only one copy of
this Proxy Statement may be delivered to shareholders residing at the same
address, unless such shareholders have notified the Trust of their desire to
receive multiple copies of the shareholder reports and proxy statements that the
Trust sends.
36
If you would like to receive an additional copy, please contact the Trust by
writing to the Trust's address, or by calling the telephone number shown on the
front page of this Proxy Statement. The Trust will then promptly deliver, upon
request, a separate copy of this Proxy Statement to any shareholder residing at
an address to which only one copy was mailed. Shareholders wishing to receive
separate copies of the Trust's shareholder reports and proxy statements in the
future, and shareholders sharing an address that wish to receive a single copy
if they are receiving multiple copies, should also send a request as indicated.
SHAREHOLDER PROPOSALS
The Trust is organized as a statutory trust under the laws of Delaware. As
such, the Trust is not required to, and does not, hold annual shareholder
meetings. Nonetheless, the Board may call a special meeting of shareholders for
action by shareholder vote as may be required by the 1940 Act or as required or
permitted by the Trust's Declaration of Trust and By-Laws. Shareholders who wish
to present a proposal for action at a future meeting should submit a written
proposal to the Secretary of the Trust, c/o Rydex Series Funds, 9601 Blackwell
Road, Suite 500, Rockville, Maryland 20850 for inclusion in a future proxy
statement. Shareholder proposals to be presented at any future meeting of the
Trust must be received by the Trust in writing within a reasonable amount of
time before the Trust solicits proxies for that meeting, in order to be
considered for inclusion in the proxy materials for that meeting. Whether a
proposal is included in a proxy statement will be determined in accordance with
applicable federal and state laws. Shareholders retain the right to request that
a meeting of the shareholders be held for the purpose of considering matters
requiring shareholder approval.
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
37
APPENDIX A
FORM OF INVESTMENT ADVISORY AGREEMENT
ADVISORY AGREEMENT
ADVISORY AGREEMENT made as of this [ ] day of [ ], 2010 by and between RYDEX
SERIES FUNDS (the "Trust"), a Delaware statutory trust registered as an
investment company under the Investment Company Act of 1940, as amended (the
"1940 Act"), and PADCO ADVISORS, INC., a Maryland corporation with its principal
place of business at 9601 Blackwell Road, Suite 500, Rockville, Maryland 20850
(the "Adviser").
W I T N E S S E T H
WHEREAS, the Board of Trustees (the "Board") of the Trust has selected the
Adviser to act as investment adviser to the Trust on behalf of the series set
forth on Schedule A to this Agreement (each a "Fund" and, collectively, the
"Funds"), as such Schedule may be amended from time to time upon mutual
agreement of the parties, and to provide certain related services, as more fully
set forth below, and to perform such services under the terms and conditions
hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual covenants and benefits set
forth herein, the Trust and the Adviser do hereby agree as follows:
1. THE ADVISER'S SERVICES.
(a) Discretionary Investment Management Services. The Adviser shall act
as investment adviser with respect to the Funds. In such capacity, the
Adviser shall, subject to the supervision of the Board, regularly provide the
Funds with investment research, advice and supervision and shall furnish
continuously an investment program for the Funds, consistent with the
respective investment objectives and policies of each Fund. The Adviser shall
determine, from time to time, what securities shall be purchased for the
Funds, what securities shall be held or sold by the Funds and what portion of
the Funds' assets shall be held uninvested in cash, subject always to the
provisions of the Trust's Declaration of Trust, By-Laws and its registration
statement on Form N-1A (the "Registration Statement") under the 1940 Act, and
under the Securities Act of 1933, as amended (the "1933 Act"), covering Fund
shares, as filed with the Securities and Exchange Commission (the
"Commission"), and to the investment objectives, policies and restrictions of
the Funds, as each of the same shall be from time to time in effect. To carry
out such obligations, the Adviser shall exercise full discretion and act for
the Funds in the same manner and with the same force and effect as the Funds
themselves might or could do with respect to purchases, sales or other
transactions, as well as with respect to all other such things necessary or
incidental to the furtherance or conduct of such purchases, sales or other
transactions. No reference in this Agreement to the Adviser having full
discretionary authority over each Fund's investments shall in any way limit
the
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 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
A-2
administrator, custodian or transfer agent appointed by the Funds) relating
to its responsibilities provided hereunder with respect to the Funds, and
shall preserve such records for the periods and in a manner prescribed
therefore by Rule 31a-2 under the 1940 Act (the "Fund Books and Records").
The Fund Books and Records shall be available to the Board at any time upon
request, shall be delivered to the Trust upon the termination of this
Agreement and shall be available without delay during any day the Trust is
open for business.
(e) Holdings Information and Pricing. The Adviser shall provide
regular reports regarding Fund holdings, and shall, on its own initiative,
furnish the Trust and its Board from time to time with whatever information
the Adviser believes is appropriate for this purpose. The Adviser agrees to
immediately notify the Trust if the Adviser reasonably believes that the
value of any security held by a Fund may not reflect fair value. The Adviser
agrees to provide any pricing information of which the Adviser is aware to
the Trust, its Board and/or any Fund pricing agent to assist in the
determination of the fair value of any Fund holdings for which market
quotations are not readily available or as otherwise required in accordance
with the 1940 Act or the Trust's valuation procedures for the purpose of
calculating the Fund net asset value in accordance with procedures and
methods established by the Board.
(f) Cooperation with Agents of the Trust. The Adviser agrees to
cooperate with and provide reasonable assistance to the Trust, any Trust
custodian or foreign subcustodians, any Trust pricing agents and all other
agents and representatives of the Trust, such information with respect to the
Funds as they may reasonably request from time to time in the performance of
their obligations, provide prompt responses to reasonable requests made by
such persons and establish appropriate interfaces with each so as to promote
the efficient exchange of information and compliance with applicable laws and
regulations.
2. CODE OF ETHICS. The Adviser has adopted a written code of ethics that it
reasonably believes complies with the requirements of Rule 17j-1 under the 1940
Act, which it will provide to the Trust. The Adviser shall ensure that its
Access Persons (as defined in the Adviser's Code of Ethics) comply in all
material respects with the Adviser's Code of Ethics, as in effect from time to
time. Upon request, the Adviser shall provide the Trust with a (i) a copy of the
Adviser's current Code of Ethics, as in effect from time to time, and (ii)
certification that it has adopted procedures reasonably necessary to prevent
Access Persons from engaging in any conduct prohibited by the Adviser's Code of
Ethics. Annually, the Adviser shall furnish a written report, which complies
with the requirements of Rule 17j-1, concerning the Adviser's Code of Ethics to
the Trust. The Adviser shall respond to requests for information from the Trust
as to violations of the Code of Ethics by Access Persons and the sanctions
imposed by the Adviser. The Adviser shall immediately notify the Trust of any
material violation of the Code of Ethics, whether or not such violation relates
to a security held by any Fund.
A-3
3. INFORMATION AND REPORTING. The Adviser shall provide the Trust and its
respective officers with such periodic reports concerning the obligations the
Adviser has assumed under this Agreement as the Trust may from time to time
reasonably request.
(a) Notification of Breach/Compliance Reports. The Adviser shall
notify the Trust immediately upon detection of (i) any material failure to
manage any Fund in accordance with its investment objectives and policies or
any applicable law; or (ii) any material breach of the Funds' or the
Adviser's policies, guidelines or procedures. In addition, the Adviser shall
provide a quarterly report regarding each Fund's compliance with its
investment objectives and policies, applicable law, including, but not
limited to the 1940 Act and Subchapter M of the Code, and the Fund's
policies, guidelines or procedures as applicable to the Adviser's obligations
under this Agreement. The Adviser agrees to correct any such failure promptly
and to take any action that the Board may reasonably request in connection
with any such breach. Upon request, the Adviser shall also provide the
officers of the Trust with supporting certifications in connection with such
certifications of Fund financial statements and disclosure controls pursuant
to the Sarbanes-Oxley Act. The Adviser will promptly notify the Trust in the
event (i) the Adviser is served or otherwise receives notice of any action,
suit, proceeding, inquiry or investigation, at law or in equity, before or by
any court, public board, or body, involving the affairs of the Trust
(excluding class action suits in which a Fund is a member of the plaintiff
class by reason of the Fund's ownership of shares in the defendant) or the
compliance by the Adviser with the federal or state securities laws or (ii)
an actual change in control of the Adviser resulting in an "assignment" (as
defined in the 1940 Act) has occurred or is otherwise proposed to occur.
(b) Board and Filings Information. The Adviser will also provide the
Trust with any information reasonably requested regarding its management of
the Funds required for any meeting of the Board, or for any shareholder
report, amended registration statement, proxy statement, or prospectus
supplement to be filed by the Trust with the Commission. The Adviser will
make its officers and employees available to meet with the Board from time to
time on due notice to review its investment management services to the Funds
in light of current and prospective economic and market conditions and shall
furnish to the Board such information as may reasonably be necessary in order
for the Board to evaluate this Agreement or any proposed amendments thereto.
(c) Transaction Information. The Adviser shall furnish to the Trust
such information concerning portfolio transactions as may be necessary to
enable the Trust or its designated agent to perform such compliance testing
on the Funds and the Adviser's services as the Trust may, in its sole
discretion, determine to be appropriate. The provision of such information by
the Adviser to the Trust or its designated agent in no way relieves the
Adviser of its own responsibilities under this Agreement.
A-4
4. BROKERAGE.
(a) Principal Transactions. In connection with purchases or sales of
securities for the account of a Fund, neither the Adviser nor any of its
directors, officers or employees will act as a principal or agent or receive
any commission except as permitted by the 1940 Act.
(b) Placement of Orders. The Adviser shall arrange for the placing of
all orders for the purchase and sale of securities for a Fund's account with
brokers or dealers selected by the Adviser. In the selection of such brokers
or dealers and the placing of such orders, the Adviser is directed at all
times to seek for the Fund the most favorable execution and net price
available under the circumstances. It is also understood that it is desirable
for the Fund that the Adviser have access to brokerage and research services
provided by brokers who may execute brokerage transactions at a higher cost
to the Fund than may result when allocating brokerage to other brokers,
consistent with section 28(e) of the 1934 Act and any Commission staff
interpretations thereof. Therefore, the Adviser is authorized to place orders
for the purchase and sale of securities for a Fund with such brokers, subject
to review by the Board from time to time with respect to the extent and
continuation of this practice. It is understood that the services provided by
such brokers may be useful to the Adviser in connection with its or its
affiliates' services to other clients.
(c) Aggregated Transactions. On occasions when the Adviser deems the
purchase or sale of a security to be in the best interest of a Fund as well
as other clients of the Adviser, the Adviser may, to the extent permitted by
applicable law and regulations, aggregate the order for securities to be sold
or purchased. In such event, the Adviser will allocate securities or futures
contracts so purchased or sold, as well as the expenses incurred in the
transaction, in the manner the Adviser reasonably considers to be equitable
and consistent with its fiduciary obligations to the Fund and to such other
clients under the circumstances.
(d) Affiliated Brokers. The Adviser or any of its affiliates may act
as broker in connection with the purchase or sale of securities or other
investments for a Fund, subject to: (a) the requirement that the Adviser seek
to obtain best execution and price within the policy guidelines determined by
the Board and set forth in the Fund's current prospectus and SAI; (b) the
provisions of the 1940 Act; (c) the provisions of the Advisers Act; (d) the
provisions of the 1934 Act; and (e) other provisions of applicable law. These
brokerage services are not within the scope of the duties of the Adviser
under this Agreement. Subject to the requirements of applicable law and any
procedures adopted by the Board, the Adviser or its affiliates may receive
brokerage commissions, fees or other remuneration from a Fund for these
services in addition to the Adviser's fees for services under this Agreement.
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, and distribution fees and expenses paid by
the Fund under any distribution plan adopted pursuant to Rule 12b-1 under the
1940 Act.
7. REPRESENTATIONS, WARRANTIES AND COVENANTS.
(a) Properly Registered. The Adviser is registered as an investment
adviser under the Advisers Act, and will remain so registered for the
duration of this Agreement. The Adviser is not prohibited by the Advisers Act
or the 1940 Act from performing the services contemplated by this Agreement,
and to the best knowledge of the Adviser, there is no proceeding or
investigation that is reasonably likely to result in the Adviser being
prohibited from performing the services contemplated by this Agreement. The
Adviser agrees to promptly notify the Trust of the occurrence of any event
that would disqualify the Adviser from serving as an investment adviser to an
investment company. The Adviser is in compliance in all material respects
with all applicable federal and state law in connection with its investment
management operations.
(b) ADV Disclosure. The Adviser has provided the Trust with a copy of
its Form ADV as most recently filed with the Commission and will, promptly
after filing any amendment to its Form ADV with the Commission, furnish a
copy of such amendment(s) to the Trust. The information contained in the
Adviser's Form ADV is accurate and complete in all material respects and does
not omit to state any material fact necessary in order to make the statements
made, in light of the circumstances under which they were made, not
misleading.
(c) Fund Disclosure Documents. The Adviser has reviewed and will in
the future review, the Registration Statement, and any amendments or
supplements
A-6
thereto, the annual or semi-annual reports to shareholders, other reports
filed with the Commission and any marketing material of the Funds
(collectively the "Disclosure Documents") and represents and warrants that
with respect to disclosure about the Adviser, the manner in which the Adviser
manages the Funds or information relating directly or indirectly to the
Adviser, such Disclosure Documents contain or will contain, as of the date
thereof, no untrue statement of any material fact and does not omit any
statement of material fact which was required to be stated therein or
necessary to make the statements contained therein not misleading.
(d) Use Of The Name "Rydex". The Adviser has the right to use the name
"Rydex" in connection with its services to the Trust and that, subject to the
terms set forth in Section 8 of this Agreement, the Trust shall have the
right to use the name "Rydex" in connection with the management and operation
of the Funds. The Adviser is not aware of any threatened or existing actions,
claims, litigation or proceedings that would adversely effect or prejudice
the rights of the Adviser or the Trust to use the name "Rydex".
(e) Insurance. The Adviser maintains errors and omissions insurance
coverage in an appropriate amount and shall provide prior written notice to
the Trust (i) of any material changes in its insurance policies or insurance
coverage; or (ii) if any material claims will be made on its insurance
policies. Furthermore, the Adviser shall upon reasonable request provide the
Trust with any information it may reasonably require concerning the amount of
or scope of such insurance.
(f) No Detrimental Agreement. The Adviser represents and warrants that
it has no arrangement or understanding with any party, other than the Trust,
that would influence the decision of the Adviser with respect to its
selection of securities for a Fund, and that all selections shall be done in
accordance with what is in the best interest of the Fund.
(g) Conflicts. The Adviser shall act honestly, in good faith and in
the best interests of the Trust including requiring any of its personnel with
knowledge of Fund activities to place the interest of the Funds first, ahead
of their own interests, in all personal trading scenarios that may involve a
conflict of interest with the Funds, consistent with its fiduciary duties
under applicable law.
(h) Representations. The representations and warranties in this
Section 7 shall be deemed to be made on the date this Agreement is executed
and at the time of delivery of the quarterly compliance report required by
Section 3(a), whether or not specifically referenced in such report.
8. THE NAME "RYDEX". The Adviser grants to the Trust a license to use the
name "Rydex" (the "Name") as part of the name of any Fund. The foregoing
authorization by the Adviser to the Trust to use the Name as part of the name of
any Fund is not exclusive of the right of the Adviser itself to use, or to
authorize others to use, the Name; the Trust acknowledges and agrees that, as
between the Trust and the
A-7
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.
A-10
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
signed on their behalf by their duly authorized officers as of the date first
above written.
RYDEX SERIES FUNDS, on behalf of each Fund
listed on Schedule A
By: ____________________________________
Name: Richard M. Goldman
Title: President
PADCO ADVISORS, INC.
By: ____________________________________
Name: Richard M. Goldman
Title: Chief Executive Officer
A-11
SCHEDULE A
TO THE
ADVISORY AGREEMENT
DATED [ ], 2010 BETWEEN
RYDEX SERIES FUNDS
AND
PADCO ADVISORS, INC.
FUND RATE
Rydex|SGI International Opportunity Fund 0.90%
A-12
APPENDIX B
INFORMATION REGARDING THE INVESTMENT ADVISORY
AGREEMENT AND FEES PAID TO THE INVESTMENT ADVISER AND
AFFILIATES
PADCO Advisors, Inc. (the "Investment Adviser") currently serves as
investment adviser to the Rydex|SGI International Opportunity Fund (the "Fund"),
a series of Rydex Series Funds ("RSF"), pursuant to an investment advisory
agreement between RSF, on behalf of the Fund, and the Investment Adviser, made
January 18, 2008, as amended. Rydex Fund Services, Inc. ("RFS") serves as the
administrator, transfer agent and accounting services agent for the Fund. Rydex
Distributors, Inc. ("RDI") serves as principal underwriter to the Fund. RFS and
RDI are affiliates of the Investment Adviser. The tables below provide the
following information:
(i) the date on which the Fund's shareholders last approved the Fund's
investment advisory agreement;
(ii) the annual rate of management fees paid by the Fund to the Investment
Adviser, stated as a percentage of the Fund's average daily net assets;
(iii) the aggregate amount of management fees paid by the Fund to the
Investment Adviser for the Fund's most recently completed fiscal year
(ended March 31, 2009);
(iv) the amount of fees paid by the Fund to RFS for RFS' administrative and
transfer agent services for the Fund during the Fund's most recently
completed fiscal year;
(v) the amount of accounting service fees paid by the Fund to RFS for RFS'
services as the accounting services agent for the Fund during the
Fund's most recently completed fiscal year; and
(vi) the amount of distribution fees paid by the Fund to RDI for RDI's
services as principal underwriter to the Fund pursuant to the Fund's
distribution and shareholder services plans during the Fund's most
recently completed fiscal year.
The Fund did not pay any brokerage commissions to RDI or its affiliates
during the Fund's most recently completed fiscal year.
B-1
MANAGEMENT, ADMINISTRATIVE, AND ACCOUNTING FEES PAID BY THE FUND:
-----------------------------------------------------------------
RYDEX SERIES FUNDS DATE OF LAST MANAGEMENT FEES ADMINISTRATIVE ACCOUNTING
SHAREHOLDER MANAGEMENT PAID TO INVESTMENT SERVICE FEES SERVICE FEES
SERIES NAME APPROVAL FEES ADVISER PAID TO RFS PAID TO RFS
---------------------------------------------------------------------------------------------------------------
Rydex|SGI International
Opportunity Fund 8/27/2007 0.90% $206,511 $57,364 $22,946
DISTRIBUTION FEES PAID BY THE FUND*:
------------------------------------
RYDEX SERIES FUNDS
SERIES NAME A-CLASS C-CLASS H-CLASS ADVISOR CLASS
---------------------------------------------------------------------------------------------------------------
Rydex|SGI International
Opportunity Fund $32,818 $25,733 $18,112 N/A
-----------------
(*For A-Class, C-Class, H-Class and Advisor Class shares. Investor Class shares
and Investor 2 Class shares were not subject to distribution fees.)
B-2
APPENDIX C
DIRECTORS/TRUSTEES/MANAGERS AND OFFICERS
DIRECTORS AND PRINCIPAL EXECUTIVE OFFICERS OF PADCO ADVISORS, INC. The
business address of the directors and principal executive officers is 9601
Blackwell Road, Suite 500, Rockville, Maryland 20850.
POSITION HELD WITH
NAME PADCO ADVISORS, INC. OTHER PRINCIPAL OCCUPATION/POSITION
-----------------------------------------------------------------------------------------------------------
Richard M. Goldman Director and Chief Executive Senior Vice President, Security Benefit
Officer Corporation; Director, First Security Benefit
Life Insurance and Annuity Company of
New York; President, Security Investors,
LLC; CEO, President, & Director, Rydex
Distributors, Inc.; President & CEO, Rydex
Holdings, LLC; CEO & Director, PADCO
Advisors II, Inc.; Director, Rydex Fund
Services, Inc.; President and Manager,
Security Global Investors, LLC
Michael P. Byrum Director, Chief Investment Director, Chief Investment Officer, President,
Officer, President, and and Secretary, PADCO Advisors II, Inc.;
Secretary Secretary, Rydex Funds Services, Inc.; Chief
Investment Officer, Rydex Holdings, LLC;
Manager, Rydex Specialized Products, LLC
MANAGERS AND PRINCIPAL EXECUTIVE OFFICERS OF SECURITY GLOBAL INVESTORS, LLC.
The business address of the managers and principal executive officers is 801
Montgomery Street, 2nd Floor, San Francisco, California 94133.
POSITION HELD WITH
SECURITY GLOBAL
NAME INVESTORS, LLC OTHER PRINCIPAL OCCUPATION/POSITION
-----------------------------------------------------------------------------------------------------------
Richard M. Goldman President and Manager Senior Vice President, Security Benefit
Corporation; Director, First Security
Benefit Life Insurance and Annuity
Company of New York; President and
Manager Representative, Security Investors,
LLC; CEO, President, & Director, Rydex
Distributors, Inc.; President & CEO, Rydex
Holdings, LLC; CEO & Director, PADCO
Advisors, Inc., CEO & Director, PADCO
Advisors II, Inc.; Director, Rydex Fund
Services, Inc.
C-1
DIRECTOR AND PRINCIPAL EXECUTIVE OFFICERS OF VALU-TRAC INVESTMENT MANAGEMENT
LIMITED. The business address of the managers and principal executive officers
is Mains of Orton, Fochabers, Moray, Scotland, IV32 7QE.
POSITION HELD WITH
VALU-TRAC INVESTMEN
NAME MANAGEMENT LIMITED OTHER PRINCIPAL OCCUPATION/POSITION
-----------------------------------------------------------------------------------------------------------
R. Peter W. Millar Chief Executive Officer Chief Executive Officer of Valu-Trac
Investment Research Limited; Sole Proprietor
of Valu-Trac Research, Orton Estate, and
Orton Farms; Executive Director of Valu-Trac
Master Fund SPC, Valu-Trac Strategic Fund
SPC, Valu-Trac Strategic Fund LLC, Valu-
Trac Funds PLC, and Spey Fishing Trust
Ltd.; Non-Executive Director of Pahlson
Moller Ltd. and Gordonstoun Foundation
Ltd.; and Trustee of R.P.W. Millar 1998
Discretionary Trust.
Malcolm G. Strang Steel Non-Executive Director Partner of Turcan Connell, Solicitors; Partner
of Greenhead Farm; and Non-Executive
Director of Gleneagles Farms, Ltd., Hope
Sixteen (Properties) Ltd., Hope Sixteen
(Trustees) Ltd., Logie Enterprises Ltd.,
Princes Exchange (Nominees) Ltd., Princes
Exchange (Trustees) Ltd., Prospero Trustees,
Ltd., Relugas Farms Ltd., TC Nominees (No.
1) Ltd., TC Nominess (No. 2), TC Nominees
(No. 3) Ltd., TC Nominees (No. 4) Ltd., TC
Nominess (No. 5) Ltd., Turcan Connell (PEP
Nominess) Ltd., Turcan Connell (Trustees)
Ltd. and Valu-Trac Investment Research Ltd.
TRUSTEES/OFFICERS OF THE FUNDS WHO HOLD POSITION(S) WITH PADCO ADVISORS,
INC., SECURITY GLOBAL INVESTORS, LLC, OR VALU-TRAC INVESTMENT MANAGEMENT
LIMITED. The business address of each of the following persons is 9601 Blackwell
Road, Suite 500, Rockville, Maryland 20850.
POSITION HELD WITH POSITION HELD WITH INVESTMENT ADVISER
NAME THE FUNDS OR SUB-ADVISER
-----------------------------------------------------------------------------------------------------------
Richard M. Goldman Trustee and President Director and Chief Executive Officer,
PADCO Advisors, Inc. President and
Manager, Security Global Investors, LLC
Michael P. Byrum Vice President Director, Chief Investment Officer, President,
and Secretary, PADCO Advisors, Inc.
Joanna M. Haigney Chief Compliance Officer Chief Compliance Officer and Secretary,
PADCO Advisors, Inc.
Keith Fletcher Vice President Vice President, PADCO Advisors, Inc.
C-2
APPENDIX D-1
ADVISORY FEE RATES OF FUNDS WITH SIMILAR INVESTMENT
OBJECTIVES ADVISED BY PADCO ADVISORS, INC. AND PADCO
ADVISORS II, INC.
The table below lists the names of other mutual funds advised by PADCO
Advisors, Inc. or PADCO Advisors II, Inc. (collectively, the "Investment
Adviser") with similar investment objectives as the Fund, and information
concerning the Fund's and such other funds' net assets as of December 31, 2009
and the rate of compensation for the Investment Adviser for its services to the
Funds and such other funds.
ANNUAL COMPENSATION TO
THE INVESTMENT ADVISER
NAME OF FUND SUBJECT TO THIS (AS A PERCENTAGE OF AVERAGE NET ASSETS
PROXY STATEMENT DAILY NET ASSETS) (IN MILLIONS)
Name(s) of Other fund(s)
with Similar Objectives
---------------------------------------------------------------------------------------------------
RYDEX|SGI INTERNATIONAL OPPORTUNITY FUND,
A SERIES OF RYDEX SERIES FUNDS 0.90% $35.61
Rydex|SGI International Opportunity
Fund, a series of Rydex Variable Trust 0.90% $21.94
The Investment Adviser did not reduce or waive its investment advisory fees
for the period indicated.
D-1-1
APPENDIX D-2
ADVISORY FEE RATES OF FUNDS WITH SIMILAR INVESTMENT
OBJECTIVES SUB-ADVISED BY OF SECURITY GLOBAL INVESTORS,
LLC
The table below lists the names of other mutual funds sub-advised by Security
Global Investors, LLC (the "Sub-Adviser") with similar investment objectives as
the Fund, and information concerning the Fund's and such other funds' net assets
as of December 31, 2009 and the rate of compensation for the Sub-Adviser for its
services to the Fund and such other funds.
ANNUAL COMPENSATION TO
THE SUB-ADVISER
NAME OF FUND SUBJECT TO THIS (AS A PERCENTAGE OF AVERAGE NET ASSETS
PROXY STATEMENT DAILY NET ASSETS) (IN MILLIONS)
Name(s) of Other Fund(s)
with Similar Objectives
-----------------------------------------------------------------------------------------------------
RYDEX|SGI INTERNATIONAL OPPORTUNITY FUND,
A SERIES OF RYDEX SERIES FUNDS 0.35% $35.61
Rydex|SGI International Opportunity
Fund, a series of Rydex Variable Trust 0.35% $21.94
Rydex|SGI Alpha Opportunity
Fund, a series of Security Equity Fund 1.45%(1) $14.65
Series Z (Alpha Opportunity
Series), a series of SBL Fund 1.45%(1) $22.63
The Sub-Adviser did not reduce or waive its investment advisory fees for the
period indicated.
----------------
(1) These annual fees are stated as a percentage of a portion of the Fund's net
assets managed by the Sub-Adviser. Another portion of the Fund's assets is
managed by Mainstream Investment Advisers, LLC, which is not affiliated with
the Fund.
D-2-1
APPENDIX D-3
ADVISORY FEE RATES OF FUNDS WITH SIMILAR INVESTMENT
OBJECTIVES SUB-ADVISED BY VALU-TRAC INVESTMENT
MANAGEMENT LIMITED
The table below lists the names of other mutual funds sub-advised by
Valu-Trac Investment Management Limited (the "Sub-Adviser") with similar
investment objectives as the Fund, and information concerning the Fund's and
such other funds' net assets as of December 31, 2009 and the rate of
compensation for the Sub-Adviser for its services to the Fund and such other
funds.
ANNUAL COMPENSATION TO THE
NAME OF FUND SUBJECT TO THIS SUB-ADVISER (AS A PERCENTAGE NET ASSETS
PROXY STATEMENT OF AVERAGE DAILY NET ASSETS) (IN MILLIONS)
Name(s) of Other Fund(s)
with Similar Objectives
-----------------------------------------------------------------------------------------------------
RYDEX|SGI INTERNATIONAL OPPORTUNITY FUND,
A SERIES OF RYDEX SERIES FUNDS 0.35% $35.61
Rydex|SGI International Opportunity
Fund, a series of Rydex Variable Trust 0.35% $21.94
The Sub-Adviser did not reduce or waive its investment advisory fees for the
period indicated.
D-3-1
APPENDIX E-1
FORM OF SUB-ADVISORY AGREEMENT WITH SECURITY GLOBAL
INVESTORS, LLC
SUBADVISORY AGREEMENT
THIS AGREEMENT is made and entered into as of the close of business on the
___ day of ______________, 2010 between PADCO Advisors, Inc. (the "Adviser"), a
Maryland corporation, registered under the Investment Advisers Act of 1940, as
amended (the "Investment Advisers Act"), and Security Global Investors, LLC (the
"Subadviser"), a Kansas limited liability company registered under the
Investment Advisers Act.
W I T N E S S E T H
WHEREAS, Rydex Series Funds ("RSF"), a Delaware business trust, is registered
with the U.S. Securities and Exchange Commission (the "Commission") as an
open-end management investment company under the Investment Company Act of 1940,
as amended (the "Investment Company Act");
WHEREAS, RSF is authorized to issue shares of each series of the Trust listed
on Schedule A to this Agreement (each a "Fund" and, collectively, the "Funds"),
as such Schedule may be amended from time to time;
WHEREAS, RSF has, pursuant to an Advisory Agreement with the Adviser (the
"Advisory Agreement"), retained the Adviser to act as investment adviser for and
to manage the Funds' assets;
WHEREAS, the Advisory Agreement permits the Adviser to delegate certain of
its duties under the Advisory Agreement to other investment advisers, subject to
the requirements of the Investment Company Act; and
WHEREAS, the Adviser, with the approval of the Trust, desires to retain the
Subadviser as subadviser to act as investment adviser for and to manage the
Funds' Investments (as defined below) and the Subadviser desires to render such
services.
NOW, THEREFORE, the Adviser and Subadviser do mutually agree and promise as
follows:
1. APPOINTMENT AS SUBADVISER. The Adviser hereby retains the Subadviser to
act as investment adviser for and to manage certain assets of the Funds subject
to the supervision of the Adviser and the Board of Trustees of RSF and subject
to the terms of this Subadvisory Agreement; and the Subadviser hereby accepts
such employment. In such capacity, the Subadviser shall be responsible for the
Funds' Investments (defined below).
2. DUTIES OF SUBADVISER.
(a) Investments. The Subadviser is hereby authorized and directed and
hereby agrees, subject to the stated investment policies and restrictions of
the
E-1-1
Funds as set forth in each Fund's current prospectus and statement of
additional information as currently in effect and as supplemented or amended
from time to time (collectively referred to hereinafter as the "Prospectus")
and subject to the directions of the Adviser and the Funds' Board to
purchase, hold and sell investments for the account of the Funds (hereinafter
"Investments") and to monitor on a continuous basis the performance of such
Investments. The Subadviser shall give the Funds the benefit of its best
efforts in rendering its services as Subadviser.
The Subadviser acknowledges that the Funds may engage in certain
transactions in reliance on exemptions under Rule 10f-3, Rule 12d3-1, Rule
17a-10 and Rule 17e-1 under the Investment Company Act. Accordingly, the
Subadviser hereby agrees that it will not consult with any other subadviser
of the Funds, or an affiliated person of such other subadviser, concerning
transactions for the Funds in securities or other fund assets. The Subadviser
shall be limited to providing investment advice with respect to only the
discrete portion of each Fund's portfolio as may be determined from
time-to-time by the Adviser, and shall not consult with any other subadviser
as to any other portion of a Fund's portfolio concerning transactions for the
Fund in securities or other assets.
(b) Brokerage. The Subadviser is authorized, subject to the
supervision of the Adviser and the Funds' Board to establish and maintain
accounts on behalf of each Fund with, and place orders for the purchase and
sale of each Fund's Investments with or through, such persons, brokers or
dealers as the Subadviser may select and negotiate commissions to be paid on
such transactions. The Subadviser agrees that in placing such orders it shall
attempt to obtain best execution, provided that, the Subadviser may, on
behalf of each Fund, pay brokerage commissions to a broker which provides
brokerage and research services to the Subadviser in excess of the amount
another broker would have charged for effecting the transaction, provided (i)
the Subadviser determines in good faith that the amount is reasonable in
relation to the value of the brokerage and research services provided by the
executing broker in terms of the particular transaction or in terms of the
Subadviser's overall responsibilities with respect to each Fund and the
accounts as to which the Subadviser exercises investment discretion, (ii)
such payment is made in compliance with Section 28(e) of the Securities
Exchange Act of 1934, as amended, and any other applicable laws and
regulations, and (iii) in the opinion of the Subadviser, the total
commissions paid by each Fund will be reasonable in relation to the benefits
to the Fund over the long-term. It is recognized that the services provided
by such brokers may be useful to the Subadviser in connection with the
Subadviser's services to other clients. On occasions when the Subadviser
deems the purchase or sale of a security to be in the best interests of the
Funds as well as other clients of the Subadviser, the Subadviser, to the
extent permitted by applicable laws and regulations, may, but shall be under
no obligation to, aggregate the securities to
E-1-2
be sold or purchased in order to obtain the most favorable price or lower
brokerage commissions and efficient execution. In such event, allocation of
securities so sold or purchased, as well as the expenses incurred in the
transaction, will be made by the Subadviser in the manner the Subadviser
considers to be the most equitable and consistent with its fiduciary
obligations to the Funds and to such other clients. The Subadviser will
report on such allocations at the request of the Adviser, the Funds or the
Funds' Board providing such information as the number of aggregated trades to
which the Funds were a party, the broker(s) to whom such trades were directed
and the basis of the allocation for the aggregated trades.
(c) Securities Transactions. The Subadviser and any affiliated person
of the Subadviser will not purchase securities or other instruments from or
sell securities or other instruments to the Funds ("Principal Transactions");
provided, however, the Subadviser may enter into a Principal Transaction with
the Funds if (i) the transaction is permissible under applicable laws and
regulations, including, without limitation, the Investment Company Act and
the Investment Advisers Act and the rules and regulations promulgated
thereunder, and (ii) the transaction receives the express written approval of
the Adviser.
The Subadviser agrees to observe and comply with Rule 17j-1 under the
Investment Company Act and its Code of Ethics, as the same may be amended
from time to time. The Subadviser agrees to provide the Adviser and the Funds
with a copy of such Code of Ethics.
(d) Books and Records. The Subadviser will maintain all books and records
required to be maintained pursuant to the Investment Company Act and the
rules and regulations promulgated thereunder with respect to transactions
made by it on behalf of the Funds including, without limitation, the books
and records required by Subsections (b)(1), (5), (6), (7), (9), (10) and (11)
and Subsection (f) of Rule 31a-1 under the Investment Company Act and shall
timely furnish to the Adviser all information relating to the Subadviser's
services hereunder needed by the Adviser to keep such other books and records
of the Funds required by Rule 31a-1 under the Investment Company Act. The
Subadviser will also preserve all such books and records for the periods
prescribed in Rule 31a-2 under the Investment Company Act, and agrees that
such books and records shall remain the sole property of the Funds and shall
be immediately surrendered to the Funds upon request. The Subadviser further
agrees that all books and records maintained hereunder shall be made
available to the Funds or the Adviser at any time upon reasonable request,
including telecopy, during any business day.
(e) Information Concerning Investments and Subadviser. From time to time
as the Adviser or the Funds may request, the Subadviser will furnish the
requesting party reports on portfolio transactions and reports on Investments
held in the portfolio, all in such detail as the Adviser or a Fund may
reasonably
E-1-3
request. The Subadviser will make available its officers and employees to
meet with the Funds' Board of Trustees at the Funds' principal place of
business on due notice to review the Investments of the Funds.
The Subadviser will also provide such information or perform such
additional acts as are customarily performed by a subadviser and may be
required for the Funds or the Adviser to comply with their respective
obligations under applicable laws, including, without limitation, the
Internal Revenue Code of 1986, as amended (the "Code"), the Investment
Company Act, the Investment Advisers Act, the Securities Act of 1933, as
amended (the "Securities Act") and any state securities laws, and any rule or
regulation thereunder.
During the term of this Agreement, the Adviser agrees to furnish the
Subadviser at its principal office, all registration statements, proxy
statements, reports to stockholders, sales literature or other materials
prepared for distribution to stockholders of the Funds, or the public, that
refer to the Subadviser for the Subadviser's review and approval. The
Subadviser shall be deemed to have approved all such materials unless the
Subadviser reasonably objects by giving notice to the Adviser in writing
within five business days (or such other period as may be mutually agreed)
after receipt thereof. The Subadviser's right to object to such materials is
limited to the portions of such materials that expressly relate to the
Subadviser, its services and its clients. The Adviser agrees to use its best
efforts to ensure that materials prepared by its employees or agents or its
affiliates that refer to the Subadviser or its clients in any way are
consistent with those materials previously approved by the Subadviser as
referenced in this paragraph. Sales literature may be furnished to the
Subadviser by first class or overnight mail, facsimile transmission equipment
or hand delivery.
(f) Custody Arrangements. The Subadviser shall provide the Funds'
custodian, on each business day, with information relating to all
transactions concerning the Funds' assets.
(g) Compliance with Applicable Laws and Governing Documents. In all
matters relating to the performance of this Agreement, the Subadviser and its
directors, officers, partners, employees and interested persons shall act in
conformity with RSF's Agreement and Declaration of Trust, By-Laws, and
currently effective registration statement and with the written instructions
and directions of the Funds' Board and the Adviser, after receipt of such
documents from the Funds, and shall comply with the requirements of the
Investment Company Act, the Investment Advisers Act, the Commodity Exchange
Act (the "CEA"), the rules thereunder, and all other applicable federal and
state laws and regulations.
In carrying out its obligations under this Agreement, the Subadviser
shall ensure that the Funds comply with all applicable statutes and
regulations
E-1-4
necessary to qualify each Fund as a Regulated Investment Company under
Subchapter M of the Code (or any successor provision), and shall notify the
Adviser immediately upon having a reasonable basis for believing that a Fund
has ceased to so qualify or that it might not so qualify in the future.
The Subadviser further agrees that the Adviser and its affiliates
shall be exclusively responsible for the marketing and distribution of shares
of the Funds in the United States.
(h) Information Concerning the Funds. The Adviser has furnished the
Subadviser with copies of each of the following documents and will furnish
the Subadviser at its principal office all future amendments and supplements
to such documents, if any, as soon as practicable after such documents become
available: (i) RSF's Agreement and Declaration of Trust, (ii) the By-Laws of
RSF, (iii) the Funds' registration statement under the Investment Company Act
and the Securities Act of 1933, as amended, as filed with the Commission, and
(iv) any written instructions of the Funds' Board and the Adviser.
(i) Voting of Proxies. The Subadviser shall direct the custodian as to
how to vote such proxies as may be necessary or advisable in connection with
any matters submitted to a vote of shareholders of securities held by the
Funds. The Subadviser shall provide to the Adviser its applicable proxy
voting policies and procedures for inclusion in the Funds' Statement of
Additional Information.
(j) Informational Material. The Subadviser shall provide the Adviser
for its review prior to their use, copies of all informational materials
prepared by or on behalf of the Subadviser, mentioning any Fund, including
but not limited to, advertisements, brochures, and promotional and any other
similar materials (the "Informational Materials"), and that such
Informational Materials shall conform with, and be disseminated in accordance
with, applicable laws.
3. INDEPENDENT CONTRACTOR. In the performance of its duties hereunder, the
Subadviser 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 Funds or the Adviser in any way or
otherwise be deemed an agent of the Funds or the Adviser.
4. COMPENSATION. The Adviser shall pay to the Subadviser, for the services
rendered hereunder, the fees set forth in Schedule A attached hereto.
5. EXPENSES. The Subadviser shall bear all expenses incurred by it in
connection with its services under this Agreement and will, from time to time,
at its sole expense employ or associate itself with such persons as it believes
to be particularly fitted to assist it in the execution of its duties hereunder.
However, the Subadviser shall not assign or delegate any of its duties under
this Agreement without the approval of the Adviser and the Funds' Board.
E-1-5
6. REPRESENTATIONS AND WARRANTIES OF SUBADVISER. The Subadviser represents
and warrants to the Adviser and the Funds as follows:
(a) The Subadviser is registered as an investment adviser under the
Investment Advisers Act;
(b) The Subadviser will immediately notify the Adviser of the occurrence
of any event that would disqualify the Subadviser from serving as an
investment adviser of an investment company pursuant to Section 9(a) of the
Investment Company Act;
(c) The Subadviser has filed a notice of exemption pursuant to Rule 4.14
under the CEA with the Commodity and Futures Trading Commission (the "CFTC")
and the National Futures Association;
(d) The Subadviser is fully authorized under all applicable law to serve
as Subadviser to the Funds and to perform the services described under this
Agreement;
(e) The Subadviser is a limited liability company duly organized and
validly existing under the laws of the State of Kansas with the power to own
and possess its assets and carry on its business as it is now being
conducted;
(f) The execution, delivery and performance by the Subadviser of this
Agreement are within the Subadviser's powers and have been duly authorized by
all necessary action on the part of its shareholders, and no action by or in
respect of, or filing with, any governmental body, agency or official is
required on the part of the Subadviser for the execution, delivery and
performance by the Subadviser of this Agreement, and the execution, delivery
and performance by the Subadviser of this Agreement do not contravene or
constitute a default under (i) any provision of applicable law, rule or
regulation, (ii) the Subadviser's governing instruments, or (iii) any
agreement, judgment, injunction, order, decree or other instrument binding
upon the Subadviser;
(g) This Agreement is a valid and binding agreement of the Subadviser;
and
(h) The Form ADV of the Subadviser previously provided to the Adviser
is a true and complete copy of the form filed with the Commission and the
information contained therein 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;
(i) The Subadviser has adopted compliance policies and procedures
reasonably designed to prevent violations of the Investment Advisers Act and
the rules thereunder, has provided the Adviser with a copy of such compliance
policies and procedures (and will provide them with any amendments thereto),
and agrees to assist the Funds in complying with the Funds' compliance
program adopted pursuant to Rule 38a-1 under the Investment Company Act, to
the extent
E-1-6
applicable. The Subadviser understands that the Board of Trustees of the
Funds is required to approve the Subadviser's compliance policies and
procedures and acknowledges that this Agreement is conditioned upon such
Board approval; and
(j) The Subadviser shall not divert any Fund's portfolio securities
transactions to a broker or dealer in consideration of such broker or
dealer's promotion or sales of shares of the Funds, any other series of RSF,
or any other registered investment company.
7. NON-EXCLUSIVITY. The services of the Subadviser with respect to the Funds
are not deemed to be exclusive, and the Subadviser and its officers shall be
free to render investment advisory and administrative or other services to
others (including other investment companies) and to engage in other activities
so long as its duties hereunder are not impaired thereby.
8. REPRESENTATIONS AND WARRANTIES OF ADVISER. The Adviser represents and
warrants to the Subadviser as follows:
(a) The Adviser is registered as an investment adviser under the
Investment Advisers Act;
(b) The Adviser has filed a notice of exemption pursuant to Rule 4.14
under the CEA with the CFTC and the National Futures Association;
(c) The Adviser is a corporation duly organized and validly existing
under the laws of the State of Maryland with the power to own and possess its
assets and carry on its business as it is now being conducted;
(d) The execution, delivery and performance by the Adviser of this
Agreement are within the Adviser's powers and have been duly authorized by
all necessary action on the part of its members, and no action by or in
respect of, or filing with, any governmental body, agency or official is
required on the part of the Adviser for the execution, delivery and
performance by the Adviser of this Agreement, and the execution, delivery and
performance by the Adviser of this Agreement do not contravene or constitute
a default under (i) any provision of applicable law, rule or regulation, (ii)
the Adviser's governing instruments, or (iii) any agreement, judgment,
injunction, order, decree or other instrument binding upon the Adviser;
(e) This Agreement is a valid and binding agreement of the Adviser;
(f) The Form ADV of the Adviser previously provided to the Subadviser is
a true and complete copy of the form filed with the Commission and the
information contained therein 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;
(g) The Adviser acknowledges that it received a copy of the Subadviser's
Form ADV at least 48 hours prior to the execution of this Agreement.
E-1-7
9. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; DUTY TO UPDATE INFORMATION.
All representations and warranties made by the Subadviser and the Adviser
pursuant to Sections 6 and 8 hereof shall survive for the duration of this
Agreement and the parties hereto shall promptly notify each other in writing
upon becoming aware that any of the foregoing representations and warranties are
no longer true.
10. LIABILITY AND INDEMNIFICATION. The Subadviser shall indemnify and hold
harmless RSF and all affiliated persons thereof (within the meaning of Section
2(a)(3) of the 1940 Act) and all their respective controlling persons (as
described in Section 15 of the 1933 Act) 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 Subadviser 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 Subadviser's misfeasance or negligence
generally in the performance of its duties hereunder or its negligent disregard
of its obligations and duties under this Agreement.
11. DURATION AND TERMINATION.
(a) Duration. This Agreement shall become effective upon the date
first above written, provided that this Agreement shall not take effect with
respect to each of the Funds unless it has first been approved (i) by a vote
of a majority of those directors of the Funds who are not parties to this
Agreement or interested persons of any such party, cast in person at a
meeting called for the purpose of voting on such approval, and (ii) to the
extent required by applicable law, by vote of a majority of the Funds'
outstanding voting securities. This Agreement shall continue in effect for a
period of two years from the date hereof, subject thereafter to being
continued in force and effect from year to year with respect to each Fund if
specifically approved each year by either (i) the Board of Trustees of the
Funds, or (ii) by the affirmative vote of a majority of the Funds'
outstanding voting securities. In addition to the foregoing, each renewal of
this Agreement with respect to the Funds must be approved by the vote of a
majority of the Funds' directors who are not parties to this Agreement or
interested persons of any such party, cast in person at a meeting called for
the purpose of voting on such approval. Prior to voting on the renewal of
this Agreement, the Board of Trustees of the Funds may request and evaluate,
and the Subadviser shall furnish, such information as may reasonably be
necessary to enable the Funds' Board of Trustees to evaluate the terms of
this Agreement.
(b) Termination. Notwithstanding whatever may be provided herein to
the contrary, this Agreement may be terminated at any time, without payment
of any penalty:
(i) By vote of a majority of the Board of Trustees of the Funds, or
by vote of a majority of the outstanding voting securities of
the Funds,
E-1-8
or by the Adviser, in each case, upon sixty (60) days' written
notice to the Subadviser;
(ii) By the Adviser upon breach by the Subadviser of any
representation or warranty contained in Section 6 hereof, which
shall not have been cured during the notice period, upon twenty
(20) days' written notice;
(iii) By the Adviser immediately upon written notice to the
Subadviser if the Subadviser becomes unable to discharge its
duties and obligations under this Agreement; or
(iv) By the Subadviser upon 120 days' written notice to the Adviser
and the Funds.
This Agreement shall not be assigned (as such term is defined in the
Investment Company Act) without the prior written consent of the parties
hereto. This Agreement shall terminate automatically in the event of its
assignment without such consent.
12. DUTIES OF THE ADVISER. The Adviser shall continue to have responsibility
for all services to be provided to the Funds pursuant to the Advisory Agreement
and shall oversee and review the Subadviser's performance of its duties under
this Agreement.
13. AMENDMENT. This Agreement may be amended by mutual consent of the
parties, provided that the terms of each such amendment shall be approved by the
Board of Trustees of the Funds or by a vote of a majority of the outstanding
voting securities of the Funds.
14. CONFIDENTIALITY. Subject to the duties of the Adviser, the Funds and the
Subadviser to comply with applicable law, including any demand of any regulatory
or taxing authority having jurisdiction, the parties hereto shall treat as
confidential all information pertaining to the Funds and the actions of the
Subadviser, the Adviser and the Funds in respect thereof.
15. NOTICE. Any notice that is required to be given by the parties to each
other (or to the Funds) under the terms of this Agreement shall be in writing,
delivered, or mailed postpaid to the other party, or transmitted by facsimile
with acknowledgment of receipt, to the parties at the following addresses or
facsimile numbers, which may from time to time be changed by the parties by
notice to the other party:
(a) If to the Subadviser:
Security Global Investors, LLC
801 Montgomery Street, 2nd Floor
San Francisco, CA 94133
Attention: Richard Goldman, President
Facsimile: (785) 438-3080
E-1-9
With a copy to:
Security Benefit Corporation
One Security Benefit Place
Topeka, KS 66636
Attention: General Counsel
Facsimile: (785) 438-3080
(b) If to the Adviser:
PADCO Advisors, Inc.
9601 Blackwell Road, Suite 500
Rockville, MD 20850
Attention: Rich Goldman
Facsimile: (785) 438-3080
with a copy to:
PADCO Advisors, Inc.
One Security Benefit Place
Topeka, KS 66636-0001
Attention: General Counsel
Facsimile: (785) 438-3080
(c) If to RSF:
Rydex Series Funds
One Security Benefit Place
Topeka, Kansas 66636-0001
Attention: Amy J. Lee, Assistant Secretary
Facsimile: (785) 438-3080
16. GOVERNING LAW; JURISDICTION. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of Maryland.
17. COUNTERPARTS. This Agreement may be executed in one or more counterparts,
all of which shall together constitute one and the same instrument.
18. CAPTIONS. The captions herein are included for convenience of reference
only and shall be ignored in the construction or interpretation hereof.
19. SEVERABILITY. If any provision of this Agreement shall be held or made
invalid by a court decision or applicable law, the remainder of the Agreement
shall not be affected adversely and shall remain in full force and effect.
20. CERTAIN DEFINITIONS.
(a) "Business day." As used herein, business day means any customary
business day in the United States on which the New York Stock Exchange is
open.
E-1-10
(b) Miscellaneous. Any question of interpretation of any term or
provision of this Agreement having a counterpart in or otherwise derived from
a term or provision of the Investment Company Act shall be resolved by
reference to such term or provision of the Investment Company Act and to
interpretations thereof, if any, by the U.S. courts or, in the absence of any
controlling decisions of any such court, by rules, regulation or order of the
Commission validly issued pursuant to the Investment Company Act.
Specifically, as used herein, "investment company," "affiliated person,"
"interested person," "assignment," "broker," "dealer" and "affirmative vote
of the majority of the Fund's outstanding voting securities" shall all have
such meaning as such terms have in the Investment Company Act. The term
"investment adviser" shall have such meaning as such term has in the
Investment Advisers Act and the Investment Company Act, and in the event of a
conflict between such Acts, the most expansive definition shall control. In
addition, where the effect of a requirement of the Investment Company Act
reflected in any provision of this Agreement is relaxed by a rule, regulation
or order of the Commission, whether of special or general application, such
provision shall be deemed to incorporate the effect of such rule, regulation
or order.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
day and year first written above.
PADCO ADVISORS, INC.
By: ____________________________________
Name: Richard Goldman
Title: President
ATTEST:
____________________________________
Name: Michael Byrum
Title: Secretary
SECURITY GLOBAL INVESTORS, LLC
By: ____________________________________
Name:
Title:
ATTEST:
____________________________________
Name:
Title:
E-1-11
SCHEDULE A
SUBADVISORY FEE
For all services rendered by the Subadviser to each Fund listed hereunder,
the Adviser shall pay to the Subadviser an annual fee (the "Subadvisory Fee"),
as follows:
RATE
FUND (AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS)
International Long Short Select Fund 0.35%
For purposes of calculating the compensation to be paid hereunder, each
Fund's assets shall be computed in the same manner at the end of the business
day as the value of such net assets is computed in connection with the
determination of the net asset value of such Fund's shares as described in the
then current prospectus for the Fund.
The Subadvisory Fee shall be accrued for each calendar day the Subadviser
renders subadvisory services hereunder and the sum of the daily fee accruals
shall be paid monthly to the Subadviser as soon as practicable following the
last day of each month, by wire transfer if so requested by the Subadviser, but
no later than ten (10) calendar days thereafter. If this Agreement shall be
effective for only a portion of a year, then the Subadviser's fee for said year
shall be prorated for such portion.
E-1-12
APPENDIX E-2
FORM OF SUB-ADVISORY AGREEMENT WITH
VALU-TRAC INVESTMENT MANAGEMENT LIMITED
INVESTMENT SUB-ADVISORY AGREEMENT
AGREEMENT made as of this [ ] day of [ ], 2010 by and between PADCO Advisors,
Inc., a Maryland corporation and a federally registered investment adviser
("Advisor"), and Valu-Trac Investment Management Limited, a limited liability
company incorporated in England and a federally registered investment adviser
("Sub-Advisor").
WHEREAS, Rydex Series Funds, a Delaware statutory trust (the "Trust") is an
open-end management investment company registered under the Investment Company
Act of 1940, as amended (the "1940 Act");
WHEREAS, Advisor serves as the investment adviser to the International
Opportunity Fund, a series of the Trust (the "Fund"), pursuant to an Investment
Advisory Agreement between Advisor and the Trust (as such agreement may be
modified from time to time, the "Advisory Agreement"); and
WHEREAS, Advisor desires to retain Sub-Advisor to furnish investment advisory
services to the Advisor in connection with the management of the Fund, upon the
terms and conditions hereafter set forth, and the Sub-Advisor is willing to
render such investment advisory services;
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
the parties hereto agree as follows:
1. APPOINTMENT. Advisor hereby appoints Sub-Advisor to provide certain sub-
investment advisory services to the Fund for the period and on the terms set
forth in this Agreement. Sub-Advisor accepts such appointment and agrees to
furnish the services herein set forth for the compensation herein provided.
2. SERVICES TO BE PERFORMED. Subject always to the supervision of the Trust's
Board of Trustees and Advisor, Sub-Advisor will be responsible for the
development and on-going maintenance of the investment management strategy
utilized by the Fund as described in the Fund's initial registration statement
on Form N-1A as declared effective by the U. S. Securities and Exchange
Commission (the "SEC"), consistent with the investment objectives and
restrictions of the Fund described therein and as they may subsequently be
changed by the Fund's Board of Trustees and publicly described and as
Sub-Advisor is notified of such changes. Sub-Advisor will furnish such service
by constructing and providing Advisor with a model investment portfolio which
shall consist of percentage allocations to country equity markets together with
currency hedge allocations, according to Guidelines provided by Advisor ("Model
Portfolio").
E-2-1
Sub-Advisor will inform Advisor of the Model Portfolio in a report
("Portfolio Report"). Sub-Advisor will monitor the composition and performance
of the Model Portfolio on a continuous basis and will advise Advisor of any
changes to the Model Portfolio that Sub-Advisor believes are advisable in light
of changes in market conditions or other developments that have occurred since
the date of the most recent Portfolio Report. Sub-Advisor will immediately
deliver to Advisor an updated/revised Portfolio Report that reflects all changes
in the Model Portfolio that are recommended by Sub-Advisor. It is understood and
agreed by the parties hereto that Sub-Advisor is only providing the Model
Portfolio. Advisor understands and accepts that it will implement the Model
Portfolio on a best endeavor's basis. While Advisor intends to implement the
Model Portfolio as provided by Sub-Advisor, Sub-Advisor understands that
Advisor will review all Model Portfolio recommendations and may deviate from a
recommendation if, in the discretion of Advisor, the deviation is necessary to
comply with investment policies and/or restrictions and any applicable
regulatory requirements. In such circumstances the Advisor will promptly notify
the Sub-Advisor of any deviations from the Model Portfolio and the reasons
thereof.
All Portfolio Reports and updates thereto will be transmitted to Advisor via
electronic mail or such other form of communication as the parties mutually
agree. Sub-Advisor shall maintain policies and procedures to monitor for signal
errors and shall promptly report any such errors to the daily Portfolio
Department Contact and the Fund's Chief Compliance Officer ("CCO").
Sub-Advisor shall inform Advisor of any material changes to Sub-Advisor's
investment process as it relates to the Fund prior to implementing such material
change.
Sub-Advisor shall provide monthly commentary about the performance of the
Fund, general market conditions as they relate to the Fund, and securities
allocations. To the extent Advisor wishes to use this material in marketing
material for the Fund, Sub-Advisor will keep all required data and records to
back-up this information, which will be provided to Advisor upon request.
With regard to country-specific public holidays that the Sub-Advisor may
observe and the Advisor may not, or vice versa, best efforts will be made to
notify the other party and to appropriately plan for and meet the requirements
contained herein during such times.
In the performance of its duties, Sub-Advisor will satisfy its fiduciary
duties to the Fund and will ensure that the Model Portfolio complies with
Guidelines provided by the Advisor and that its recommendations comply with the
provisions of the Fund's Declaration of Trust and By-laws, as amended from time
to time, and the investment objectives, policies and restrictions of the Fund,
to the extent Sub-Advisor has been notified of such objectives, policies and
restrictions. Advisor will provide Sub-Advisor with current copies of the Fund's
Declaration of Trust, By-laws, Registration Statement on Form N-1A and any
amendments thereto insofar as such
E-2-2
as amendments relate to the Fund, and any written objectives, policies,
procedures or limitations not appearing therein as they may be relevant to
Sub-Advisor's performance under this Agreement.
Sub-Advisor shall not be responsible for reviewing proxy solicitation
materials or voting and handling proxies in relation to the securities held as
assets in the Fund. If Sub-Advisor receives a misdirected proxy, it shall
promptly forward such misdirected proxy to Advisor. Sub-Advisor agrees to make
itself reasonably available to Advisor for consultation regarding particular
proxies.
Sub-Advisor further agrees that it:
(a) will use the same degree of skill and care in providing such
services as it uses in providing services to all fiduciary accounts for which
it has investment responsibilities;
(b) will conform to all applicable laws, Rules and Regulations of the
SEC, and any other regulatory entity that oversees the investment advisory
activities of Sub-Advisor (together, "Applicable Laws"), in all material
respects and in addition will conduct its activities under this Agreement in
accordance with any applicable regulations of any governmental authority
pertaining to its investment advisory activities;
(c) will report regularly to Advisor and to the Board of Trustees of
the Fund and will make appropriate persons available for the purpose of
reviewing with representatives of Advisor and the Board of Trustees on a
regular basis at reasonable times as agreed by both parties the general
investment strategies of the Fund, the performance of the Fund's investment
portfolio in relation to standard industry indices and general conditions
affecting the marketplace and will provide various other reports from time to
time as reasonably requested by Advisor;
(d) will monitor the pricing of portfolio securities, and events
relating to the issuers of those securities and the markets in which the
securities trade in the ordinary course of providing recommendations about
the portfolio securities of the Fund, and, if known, will notify Advisor
promptly of any issuer-specific or market events or other situations that
occur (particularly those that may occur after the close of a market in which
the securities may primarily trade but before the time at which the Fund's
securities are priced on a given day) that may materially impact the pricing
of one or more securities in the portfolio. In addition, Sub-Advisor will
assist Advisor in evaluating the impact that such an event may have on the
net asset value of the Fund and in determining a recommended fair value of
the affected security or securities;
(e) will prepare and maintain such books and records required to be
maintained pursuant to Rule 204-2 under the Investment Advisers Act of 1940,
as amended (the "Advisers Act") and Rule 31a-3 under the 1940 Act with
E-2-3
respect to the Fund, as applicable, and agrees that all records which it
maintains for the Fund, on behalf of the Trust are the property of the Trust
and further agrees to surrender promptly to the Trust any such records upon
the Trust's request. Sub-Advisor further agrees to preserve for the periods
prescribed by Rule 31a-2 under the 1940 Act the records required to be
maintained pursuant to Rule 204-2 under the Advisers Act and Rule 31a-3 under
the 1940 Act, as applicable. In addition, Sub-Advisor will furnish Advisor
and the Fund's Board of Trustees such periodic and special reports as the
Board or Advisor may reasonably request;
(f) agrees that all proprietary rights relating to the performance
resulting from Advisor's implementation of the recommendations inherent in
the Model Portfolio are and will remain the property of Advisor. Prior to
use, Sub-Advisor further agrees that it shall provide Advisor for its review
and written approval copies of all informational materials mentioning the
Fund, including, but not limited to, advertisements, brochures and
promotional and any other similar materials (the "Informational Materials"),
and that such Informational Materials shall conform with, and be disseminated
in accordance with, Applicable Laws. Such Informational Materials must also
contain disclosure clarifying the relationship between Sub-Advisor and
Advisor and disclaiming Advisor's responsibility for any content as provided
by Rydex. In addition, Sub-Advisor shall have no right to use the name, trade
name, trademarks, service marks, logos or other indicia of identity or origin
of Advisor or the Fund or any other affiliate of or investment company
managed by Advisor (each, a "Mark") for any commercial purposes, including,
without limitation, in or on any advertising or promotional materials, press
releases or web sites, without the prior written consent of Advisor, which
Advisor may not unreasonably withhold and may withdraw upon five (5) days'
notice to Sub-Advisor. Once Informational Materials have been approved by
Advisor, Sub-Advisor may revise subsequent Informational Materials to update
performance numbers, holdings information and asset levels without Advisor's
prior review and approval. However, a final copy of such factually updated
Informational Materials must be provided to Advisor.
Notwithstanding the foregoing, Sub-Advisor may include the name of the
Fund and/or the amount of Fund assets under management on any list of clients
it publicly distributes. At such time as this Agreement shall no longer be in
effect between Advisor and Sub-Advisor, or Advisor is no longer a licensee of
a Mark, Sub-Advisor shall (to the extent that, and as soon as, it lawfully
can) cease to use the Marks. In no event shall Sub-Advisor use a Mark or any
other name or mark confusingly similar thereto (including, but not limited
to, any name or mark that includes the name "Rydex") if this Agreement is
terminated.
(g) has adopted and implemented and will maintain, in accordance with
Rule 206(4)-7 under the Advisers Act, Sub-Advisor written policies and
E-2-4
procedures reasonably designed to prevent violation by Sub-Advisor and its
supervised persons (as such term is defined in the Advisers Act) of the
Advisers Act and the rules the SEC has adopted under the Advisers Act with
respect to its U.S. clients;
(h) to the extent that Sub-Advisor's activities or services could
affect the Fund, Sub-Advisor has adopted and implemented and will maintain
written policies and procedures that are reasonably designed to prevent
violation of the "federal securities laws" (as such term is defined in Rule
38a-1 under the 1940 Act) by the Fund and Sub-Advisor;
(i) shall have and maintain policies and procedures to safeguard and
restrict improper access to the Model Portfolio and communications about the
Model Portfolio;
(j) shall promptly provide to the Fund's CCO the following documents:
(i) copies of all SEC or other regulatory entity examination
correspondence, including correspondence regarding books and
records examinations and "sweep" examinations, issued during
the term of this Agreement, in which the SEC or other
regulatory entity identified any concerns, issues or matters
(such correspondence are commonly referred to as "deficiency
letters") relating to any aspect of Sub-Advisor's investment
advisory business and Sub-Advisor's responses thereto;
(ii) a report of any material violations of Applicable Laws, Sub-
Advisor's compliance program or any "material compliance
matters" (as such term is defined in Rule 38a-1 under the 1940
Act) that have occurred with respect to Sub-Advisor's
compliance program;
(iii) a report of any material changes to the policies and procedures
that comprise Sub-Advisor's compliance program;
(iv) a copy of Sub-Advisor's chief compliance officer's report (or
similar document(s) which serve the same purpose) regarding his
or her annual review of Sub-Advisor's compliance program, as
required by Rule 206(4)-7 under the Advisers Act; and
(v) an annual (or more frequently as the Fund's CCO may reasonably
request) representation regarding the Sub-Advisor's compliance
with these sub-paragraphs g) through i) of this Agreement; and
(k) shall provide the Fund's CCO with:
(i) reasonable access to the testing, analyses, reports and other
documentation, or summaries thereof, that Sub-Advisor's chief
compliance officer relies upon to monitor the effectiveness of
the
E-2-5
implementation of Sub-Advisor's compliance program and
Applicable Laws; and
(ii) reasonable access, during normal business hours, to Sub-
Advisor's facilities for the purpose of conducting pre-arranged
on-site compliance related due diligence meetings with
personnel of Sub-Advisor.
(l) agrees that Advisor and its affiliates shall be exclusively
responsible for the marketing and distribution of shares of the Fund in the
United States.
3. REPRESENTATIONS OF ADVISOR. ADVISOR HEREBY REPRESENTS THAT IT:
(a) is registered as an investment adviser under the Advisers Act and
will continue to be so registered for so long as this Agreement remains in
effect;
(b) is not prohibited by the 1940 Act or the Advisers Act from
performing investment advisory services to the Fund;
(c) has met, and will continue to meet for so long as this Agreement
remains in effect, any applicable federal or state requirements, or the
applicable requirements of any regulatory or industry self regulatory agency,
or the applicable licensing requirements for the use of any trademarks
necessary to be met in order to perform investment advisory services for the
Fund; and
(d) will immediately notify Sub-Advisor of the occurrence of any event
that would disqualify Advisor from serving as an investment adviser of an
investment company pursuant to Section 9(a) of the 1940 Act or otherwise.
4. REPRESENTATIONS OF SUB-ADVISOR. SUB-ADVISOR HEREBY REPRESENTS THAT IT:
(a) is registered as an investment adviser under the Advisers Act and
will continue to be so registered for so long as this Agreement remains in
effect;
(b) is not prohibited by the 1940 Act, the Advisers Act, or Applicable
Laws from performing investment advisory services to the Fund;
(c) has met, and will continue to meet for so long as this Agreement
remains in effect, any applicable federal or state requirements, or the
applicable requirements of any regulatory or industry self-regulatory agency
necessary to be met in order to perform investment advisory services for the
Fund;
(d) will maintain an insurance policy in the event of any errors or
omissions that may occur in the construction or communication of the Model
Portfolio to the Advisor; and
(e) will immediately notify Advisor of the occurrence of any event
that would disqualify Sub-Advisor from serving as an investment adviser of an
investment company pursuant to Section 9(a) of the 1940 Act or otherwise.
E-2-6
5. EXPENSES. During the term of this Agreement, Sub-Advisor will pay all
expenses incurred by it in connection with its activities under this Agreement,
including the compensation and expenses of all its directors, officers and
employees.
6. COMPENSATION. For the services provided and the expenses assumed pursuant
to this Agreement, Advisor will pay Sub-Advisor, and Sub-Advisor agrees to
accept as full compensation therefor, a fee at an annual rate applied to the
daily net assets of the Fund in accordance with Schedule A of this Agreement.
The fee will be paid quarterly not later than the fifteenth (15th) business
day of the month following the quarter for which services have been provided. In
the event of termination of this Agreement, the fee shall be computed on the
basis of the period ending on the last business day on which this Agreement is
in effect subject to a pro rata adjustment based on the number of days elapsed
in the current quarter as a percentage of the total number of days in such
quarter, and such fee shall be payable on the date of termination of this
Agreement with respect to the Fund. For purposes of calculating Sub-Advisor's
fee, the value of the net assets of the Fund shall be determined in the same
manner as the Fund uses to compute the value of its net assets in connection
with the determination of the net asset value of its shares, all as set forth
more fully in the Fund's Prospectus and Statement of Additional Information, as
they may be supplemented or updated from time to time.
For the month and quarter in which this Agreement becomes effective or
terminates, there shall be an appropriate proration on the basis of the number
of days that the Agreement is in effect during the month and quarter,
respectively.
7. SERVICES TO OTHERS. Advisor understands, and has advised the Fund's Board
of Trustees, that Sub-Advisor now acts, or may in the future act, as an
investment adviser to other investment portfolios including investment
companies. In addition, Advisor understands, and has advised the Fund's Board of
Trustees, that the persons employed by Sub-Advisor to assist in Sub-Advisor's
duties under this Agreement will not devote their full such efforts and service
to the Fund. It is also agreed that Sub-Advisor may use any supplemental
research obtained for the benefit of the Fund in providing investment advice to
its other investment advisory accounts or for managing its own accounts.
8. LIMITATION OF LIABILITY. Sub-Advisor shall not be liable for, and Advisor
will not take any action against Sub-Advisor to hold Sub-Advisor liable for, any
error of judgment or mistake of law or for any loss suffered by the Fund
(including, without limitation, by reason of the purchase, sale or retention of
any security) in connection with the performance of Sub-Advisor's duties under
this Agreement, except for a loss resulting from willful misfeasance, bad faith
or gross negligence on the part of Sub-Advisor in the performance of its duties
under this Agreement, or by reason of its reckless disregard of its obligations
and duties under this Agreement.
Advisor shall not be liable for, and Sub-Advisor will not take any action
against Advisor to hold Advisor liable for, any error of judgment or mistake of
law or for any
E-2-7
loss suffered by the Fund (including, without limitation, by reason of the
purchase, sale or retention of any security) in connection with the performance
of Advisor's duties under this Agreement, except for a loss resulting from
willful misfeasance, bad faith or gross negligence on the part of Advisor in the
performance of its duties under this Agreement, or by reason of its reckless
disregard of its obligations and duties under this Agreement.
The federal securities laws impose liabilities under certain circumstances on
persons who act in good faith, and therefore nothing herein shall in any way
constitute a waiver or limitation of any rights which each party may have
against the other under any federal securities laws based on negligence and
which cannot be modified in advance by contract.
9. TERM; TERMINATION; AMENDMENT. This Agreement shall become effective with
respect to the Fund on the date first above written, provided that it has been
approved by a vote of a majority of the outstanding voting securities of the
Fund in accordance with the requirements of the 1940 Act, and shall remain in
full force unless terminated as hereinafter provided. This Agreement shall
continue in force for two years and from year to year thereafter, but only as
long as such continuance is specifically approved for the Fund at least annually
in the manner required by the 1940 Act and the rules and regulations thereunder;
provided, however, that if the continuation of this Agreement is not approved
for the Fund, Sub-Advisor may continue to serve in such capacity for the Fund in
the manner and to the extent permitted by the 1940 Act and the rules and
regulations thereunder, such as pursuant to an interim sub-advisory agreement in
accordance with Rule 15(a)(4) under the 1940 Act.
This Agreement shall automatically terminate in the event of its assignment
and may be terminated at any time without the payment of any penalty by Advisor
on no less than sixty (60) days' written notice to Sub-Advisor. This Agreement
may be terminated at any time without the payment of any penalty by Sub-Advisor
on no less than sixty (60) days' written notice to Advisor. This Agreement may
also be terminated by the Fund with respect to the Fund by action of the Board
of Trustees or by a vote of a majority of the outstanding voting securities of
the Fund on no less than sixty (60) days' written notice to Sub-Advisor by the
Fund.
This Agreement may be terminated with respect to the Fund at any time without
the payment of any penalty by Advisor, the Board of Trustees or by vote of a
majority of the outstanding voting securities of the Fund in the event that it
shall have been established by a court of competent jurisdiction that
Sub-Advisor or any officer or director of Sub-Advisor has taken any action that
results in a breach of the representations of Sub-Advisor set forth herein.
The terms "assignment" and "vote of a majority of the outstanding voting
securities" shall have the meanings set forth in the 1940 Act and the rules and
regulations thereunder.
E-2-8
Termination of this Agreement shall not affect the right of Sub-Advisor to
receive payments on any unpaid balance of the compensation described in Section
6 earned prior to the effective date of such termination. This Agreement shall
automatically terminate in the event the Advisory Agreement between Advisor and
the Fund is terminated, assigned, or not renewed.
10. NOTICE. All notices or other communications required or permitted to be
given hereunder shall be in writing and shall be delivered or sent by prepaid,
first-class letter posted to the following addresses, or to such other address
as shall be designated in a notice given in accordance with this section, and
such notice shall be deemed to have been given at the time of delivery of, if
sent by post, five (5) week days after posting by airmail.
If to Advisor:
PADCO Advisors, Inc.
9601 Blackwell Road
Suite 500
Rockville, MD 20850
ATTENTION: President
If to Sub-Advisor:
Valu-Trac Investment Management Limited
Mains of Orton, Fochabers
Moray, Scotland
IV32 7QE
United Kingdom
ATTENTION: Chief Executive Officer
or such address as each such party may designate for the receipt of such notice.
11. LIMITATIONS ON LIABILITY. All parties hereto are expressly put on notice
of the Fund's Declaration of Trust and all amendments thereto, and the
limitation of shareholder and trustee liability contained therein. The
obligations of the Fund entered in the name or on behalf thereof by any of the
Trustees, representatives or agents are made not individually but only in such
capacities and are not binding upon any of the Trustees, officers, or
shareholders of the Fund individually but are binding upon only the assets and
property of the Fund, and persons dealing with the Fund must look solely to the
assets of the Fund and those assets belonging to the subject Fund, for the
enforcement of any claims.
12. MISCELLANEOUS. The captions in this Agreement are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. If any
provision of this Agreement is held or made invalid by a court decision,
statute, rule or otherwise, the remainder of this Agreement will not be affected
thereby. This Agreement will be
E-2-9
binding upon and shall inure to the benefit of the parties hereto and their
respective successors.
13. APPLICABLE LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Maryland applicable to contracts
between Maryland residents to be entered into and performed entirely within the
State of Maryland.
IN WITNESS WHEREOF, Advisor and Sub-Advisor have caused this Agreement to be
executed as of the day and year first above written.
PADCO ADVISORS, INC.,
a Maryland corporation
By: ____________________________________
Title: Chief Executive Officer
VALU-TRAC INVESTMENT MANAGEMENT LIMITED,
a limited liability company incorporated in England,
By: ____________________________________
Title:
E-2-10
SCHEDULE A
RYDEX SERIES FUNDS
International Opportunity Fund 0.35% per annum
(based on average daily net assets as calculated at the completion of each
calendar quarter)
E-2-11
APPENDIX F
INFORMATION REGARDING THE SUB-ADVISORY AGREEMENT WITH
VALU-TRAC INVESTMENT MANAGEMENT LIMITED AND FEES PAID
TO THE SUB-ADVISER
Valu-Trac Investment Management Limited (the "Sub-Adviser") currently serves
as sub-adviser to the Rydex|SGI International Opportunity Fund (the "Fund"), a
series of Rydex Series Funds, pursuant to the investment sub-advisory agreement
between PADCO Advisors, Inc., the Fund's investment adviser (the "Investment
Adviser"), and the Sub-Adviser. The table below provides the following
information:
(i) the date of the Sub-Advisory Agreement;
(ii) the date on which the Fund's shareholders last approved the Fund's
Sub-Advisory Agreement;
(iii) the annual rate of sub-advisory fees paid by the Investment Adviser
to the Sub-Adviser for the Sub-Adviser's sub-advisory services to the
Fund; and
(iv) the aggregate amount of advisory fees paid by the Investment Adviser
to the Sub-Adviser for the Sub-Adviser's sub-advisory services to the
Fund during the Fund's most recently completed fiscal year (ended
March 31, 2009).
DATE OF DATE OF LAST SUB-ADVISORY
SUB-ADVISORY SHAREHOLDER SUB-ADVISORY FEES PAID TO
FUND AGREEMENT APPROVAL FEES SUB-ADVISER
-------------------------------------------------------------------------------------------------------
Rydex|SGI International 8/29/2007 8/27/2007 0.35% $79,858
Opportunity Fund
F-1
APPENDIX G
OUTSTANDING SHARES
As of February 24, 2010, the total number of shares outstanding for the Fund
is set forth in the table below:
RYDEX SERIES FUNDS
-----------------------------------------------------------------------------------
SHARES OUTSTANDING
-------------------------------------------------------
FUND A-CLASS C-CLASS H-CLASS TOTAL
-----------------------------------------------------------------------------------
Rydex|SGI International 281,744.352 83,721.15 504,783.058 870,248.56
Opportunity Fund
-----------------------------------------------------------------------------------
G-1
APPENDIX H
BENEFICIAL OWNERS OF MORE THAN 5% OF A CLASS OF THE FUND
As of February 24, 2010, the following persons owned, of record and
beneficially (unless otherwise indicated), 5% or more* of a class of the Fund's
outstanding securities:
RYDEX SERIES FUNDS - RYDEX|SGI INTERNATIONAL OPPORTUNITY FUND
CLASS A
NAME AND ADDRESS OF THE
BENEFICIAL OWNER AMOUNT OF SHARES OWNED PERCENTAGE OF THE CLASS
---------------------------------------------------------------------------------------------------------
Rydex EPT Conservative 14,972.958 5%
9601 Blackwell Road
Suite 500
Rockville, MD 20850
Rydex EPT Moderate 74,560.235 26%
9601 Blackwell Road
Suite 500
Rockville, MD 20850
Rydex EPT Aggressove 41,220.127 15%
9601 Blackwell Road
Suite 500
Rockville, MD 20850
CLASS H
NAME AND ADDRESS OF THE
BENEFICIAL OWNER AMOUNT OF SHARES OWNED PERCENTAGE OF THE CLASS
---------------------------------------------------------------------------------------------------------
National Financial Services Corp., 239,882.657 48%
For The Exclusive Benefit Of Our
Customers Russ Lennon
200 Liberty Street
New York, NY 10281-9999
Ameritrade Inc., For The Exclusive Benefit Of 39,736.162 8%
Our Customers
P.O. Box 2226
Omaha, NE 68103-2226
Schwab Special Custody Account - Reinv For 36,921.524 7%
Benefit Of Customers, Attn: Mutual Funds
Team E
101 Montgomery Street
San Francisco, CA 94104-4122
-----------------
* A party holding in excess of 25% of the outstanding voting securities of the
Fund is presumed to be a "control person" (as defined in the 1940 Act) of the
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-1
This page intentionally left blank.
This page intentionally left blank.
This page intentionally left blank.
This page intentionally left blank.
This page intentionally left blank.
This page intentionally left blank.
This page intentionally left blank.
[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/rydexsgi5.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, Inc.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
2. To approve a new investment sub-advisory agreement between PADCO Advisors,
Inc. and Security Global Investors, LLC for the Fund.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
3. To approve a new investment sub-advisory agreement between PADCO Advisors,
Inc. and Valu-Trac Investment Management Limited for the Fund.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
4. To approve a new fundamental investment policy on borrowing money.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
THANK YOU FOR VOTING