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:
[X] Preliminary Proxy Statement
[ ] CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY (AS PERMITTED BY RULE
14A-6(E)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to [SEC]240.14a-12
(Name of Registrant as Specified In Its Charter)
RYDEX VARIABLE TRUST
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
RYDEX VARIABLE TRUST
RYDEX SERIES FUNDS
RYDEX DYNAMIC FUNDS
Dear Insurance Product Owner and Shareholder:
I am writing to you on an important matter relating to the Rydex|SGI
family of funds (the "Funds"). On September 21, 2011, Security Investors, LLC,
the Funds' investment adviser, that operates under the name Rydex Investments
(the "Investment Adviser"), an indirect wholly-owned subsidiary of an entity
that is managed by a subsidiary of Guggenheim Capital, LLC ("Guggenheim
Capital"), announced a transaction whereby Guggenheim Capital will acquire 100%
of the Investment Adviser and certain affiliated businesses. This transaction
is expected to be completed in late 2011 or early 2012.
This transaction will not result in material changes to the day-to-day
management and operations of the Funds or any increase in fees. For example,
the portfolio managers of the Funds will remain the same and your daily
experience in dealing with the Funds will remain unchanged. However, for legal
reasons, the transaction could be deemed to terminate the Funds' investment
advisory agreements with the Investment Adviser and any sub-advisory agreements
unless you approve new, substantially identical, agreements.
Accordingly, by this joint proxy statement, we are requesting that you
vote to approve investment advisory agreements and, as applicable, sub-advisory
agreements to take the place of the current agreements, so that the Investment
Adviser, and, as applicable, any sub-adviser, may continue to manage the Funds
after the transaction is completed in a manner that is substantially similar to
the current management of the Funds.
With respect to Rydex Variable Trust, the Funds are available as
investment options under variable annuity contracts and variable life insurance
policies ("insurance products").
In addition, you will be asked to consider and approve: (i) the
election of nine individuals to the Boards of Trustees of Rydex Variable Trust,
Rydex Series Funds and Rydex Dynamic Funds; and (ii) a "manager of managers"
arrangement for each of the Funds to permit the Investment Adviser, subject to
prior approval by the Board of Trustees, to retain sub-advisers or amend the
terms of an existing sub-advisory agreement without shareholder approval where
the sub-adviser is not affiliated with the Investment Adviser, subject to
certain conditions set forth in an order previously granted to the Investment
Adviser by the U.S. Securities and Exchange Commission.
If you are a shareholder of the Rydex Series Funds U.S. Government
Money Market Fund or the Rydex Variable Trust U.S. Government Money Market Fund
(together, the "Money Market Funds"), we are also requesting that you vote to
approve the elimination of each Money Market Fund's fundamental investment
policy on investing in other investment companies.
A Special Joint Meeting of Shareholders (the "Meeting") of each of the
Funds, including the Funds listed in an attachment to the Notice of Special
Joint Meeting of Shareholders, has been scheduled for November 22, 2011 to vote
on these matters. If you are a shareholder (or with respect to Rydex Variable
Trust, an insurance product owner) of record of any of the Funds as of the close
of business on October 3, 2011, you are entitled to vote at the Meeting and any
adjournment of the Meeting, even if you no longer own Fund shares or an
insurance product.
Pursuant to these materials, you are being asked to approve proposals
for the Funds of Rydex Variable Trust, Rydex Series Funds and Rydex Dynamic
Funds, as noted 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 November 22, 2011.
We encourage you to vote over the Internet or by telephone, using the
voting control number that appears on your proxy card. Your vote is extremely
important. Shareholder meetings of the Funds do not generally occur with great
frequency, so we ask that you take the time to carefully consider 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 the Fund(s) 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,
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
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OVER THE INTERNET OR BY TELEPHONE SHOULD YOU PREFER TO VOTE BY ONE OF THOSE
METHODS.
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VERY IMPORTANT NEWS FOR SHAREHOLDERS
By its very nature, the following "Questions and Answers" section is a
summary and is not intended to be as detailed as the discussion found later in
the proxy materials. For that reason, the information is qualified in its
entirety by reference to the enclosed joint proxy statement to shareholders
("Joint Proxy Statement").
QUESTIONS AND ANSWERS
Q. WHY AM I RECEIVING THIS JOINT PROXY STATEMENT?
A. You are receiving these proxy materials -- a booklet that includes the
Joint Proxy Statement and your proxy card -- because you have the right
to vote on important proposals concerning the Rydex|SGI family of
funds (the "Funds").
Proposals 1 through 4 relate to actions that need to be taken in light
of a transaction (the "Transaction") involving a change in the
corporate ownership structure of Security Investors, LLC, which
operates under the name Rydex Investments, the investment adviser to
each of the Funds (the "Investment Adviser"). Guggenheim Capital, LLC
("Guggenheim Capital") currently manages the Investment Adviser and
certain of its affiliates through an indirect subsidiary. Pursuant to
the Transaction, Guggenheim Capital has agreed to acquire the
Investment Adviser and certain affiliated businesses. The Transaction
could be deemed to terminate the Funds' current investment advisory
agreements with the Investment Adviser (the "Current Investment
Advisory Agreements") and the Investment Adviser's sub-advisory
agreements with CLS Investments, LLC ("CLS"), the sub-adviser to
certain Funds (the "Current CLS Agreements"), Dorsey, Wright &
Associates, Inc. ("DWA"), the sub-adviser to certain Funds (the
"Current DWA Agreements") and American Independence Financial
Services, LLC ("AIFS"), the sub-adviser to the Long Short Interest
Rate Strategy Fund (the "Current AIFS Agreement") (collectively, the
"Current Agreements") unless you approve new substantially identical
agreements (attached hereto as Appendix B).
Proposal 5 relates to the election of nine individuals to the Boards
of Trustees (collectively, the "Board") of Rydex Variable Trust, Rydex
Series Funds and Rydex Dynamic Funds (the "Trusts"). The Board
proposes the election of the following nominees: Donald C.
Cacciapaglia, Corey A. Colehour, J. Kenneth Dalton, John O. Demaret,
Richard M. Goldman, Werner E. Keller, Thomas F. Lydon, Patrick T.
McCarville and Roger Somers. Each of the nominees, other than Mr.
Cacciapaglia, currently serves as a Trustee. In connection with the
Transaction, the Board believes that expanding the Board to include
Mr. Cacciapaglia, who is a member of senior management of Guggenheim's
investment management business, and who would serve on other boards in
the Rydex|SGI family of funds, would be appropriate.
Proposal 6 relates to the approval of a "manager of managers"
arrangement for each of the Funds to permit the Investment Adviser,
subject to prior approval by the Board and certain other conditions
set forth in an order previously granted to the Investment Adviser
i
by the U.S. Securities and Exchange Commission (the "SEC"), to retain
sub-advisers or amend the terms of an existing sub-advisory agreement
without shareholder approval where the sub-adviser is not affiliated
with the Investment Adviser. Currently, the Investment Adviser must
obtain shareholder approval of any sub-advisory agreement with a new
sub-adviser that it wishes to retain to manage a Fund, as well as any
material changes to an existing sub-advisory agreement. As discussed
in more detail below, a manager of managers arrangement would permit
the Investment Adviser to avoid the expense and delays associated with
obtaining shareholder approval.
Proposal 7 only concerns shareholders of Rydex Series Funds U.S.
Government Money Market Fund and Rydex Variable Trust U.S. Government
Money Market Fund (the "Money Market Funds"). Investors in other Funds
are not asked to vote on the seventh proposal. The seventh proposal
relates to the proposed elimination of the fundamental investment
policy on investing in other investment companies to permit the Money
Market Funds to make changes to their investment program as discussed
in more detail below. The Money Market Funds' current policies on
investing in other investment companies is not required and is more
prohibitive than applicable law requires. The Money Market Funds will
continue to invest in compliance with strict regulatory requirements
applicable to money market funds.
Q. WHY AM I BEING ASKED TO VOTE?
A. The Investment Company Act of 1940 (the "1940 Act"), the law that
regulates mutual funds, including the Funds, provides that a mutual
fund's investment advisory agreement terminates whenever there is 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.) The change in the corporate ownership structure of the
Investment Adviser contemplated by the Transaction could potentially
be deemed to constitute a "change in control" (as this term is used
for regulatory purposes) of the Investment 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 mutual fund's investments. For that reason, we
are seeking shareholder approval of new investment advisory agreements
for the Funds (the "New Investment Advisory Agreements"), as well as
new sub-advisory agreements between the Investment Adviser and CLS
with respect to certain Funds (the "New CLS Agreements"), new
sub-advisory agreements between the Investment Adviser and DWA with
respect to certain Funds (the "New DWA Agreements"), and a new
sub-advisory agreement between the Investment Adviser and AIFS with
respect to the Rydex Series Funds--Long Short Interest Rate Strategy
Fund (the "New AIFS Agreements") (collectively, the "New Agreements").
The Transaction will not result in material changes to the day-to-day
management and operations of the Funds or any increase in fees. The
personnel, officers and managers of the Investment Adviser will remain
the same. Upon completion of the Transaction, Guggenheim Capital will
be the parent company of the Investment Adviser. Guggenheim Capital
currently manages the Investment Adviser and certain of its affiliates
through an indirect subsidiary.
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The Boards of Trustees (collectively, the "Board") of Rydex Variable
Trust, Rydex Series Funds and Rydex Dynamic Funds (the "Trusts")
considered the Transaction and voted in favor of the New Agreements,
pursuant to which, subject to their approval by each Fund's respective
shareholders, the Investment Adviser will continue to serve as
investment adviser to the Funds, and CLS, DWA and AIFS will continue
to serve as sub-adviser to certain Funds after the completion of the
Transaction. The fees charged by the each of the Investment Adviser,
CLS, DWA and AIFS (collectively, the "Advisers") for their services to
the Funds under each New Agreement will be the same as their fees
under the corresponding Current Agreement. The other terms of the New
Agreements will also be the same in all material respects to those of
the Current Agreements.
With respect to the fifth proposal, you are being asked to vote for
the election of board members ("Trustees") because the Board believes
it would be appropriate, in light of the Transaction, to subject the
current Trustees to a shareholder vote and to ask shareholders to vote
to add a new Trustee who is affiliated with Guggenheim Capital. The
Board believes that it is in shareholders' best interest to have a
Board that is composed entirely of elected Trustees.
With respect to the sixth proposal, the 1940 Act makes it unlawful for
any person to act as an investment adviser (including a sub-adviser)
to a fund except pursuant to a written contract that has been approved
by a fund's board of trustees/directors as well as its shareholders.
The Investment Adviser and certain affiliated Funds of the Trusts have
previously received an exemptive order from the SEC pursuant to which
the Investment Adviser is permitted to retain sub-advisers and amend
the terms of existing sub-advisory agreements with unaffiliated
sub-advisers without shareholder approval. This type of arrangement,
which gives more flexibility to appoint investment sub-advisers to
manage a fund, is commonly referred to as a fund "manager of managers"
arrangement. The SEC's order permitting the Investment Adviser to use
a manager of managers arrangement requires that before a Fund may rely
on the order, the Fund must obtain shareholder approval (among other
conditions). Therefore, in order to provide the Investment Adviser
with flexibility (subject to Board approval) to retain sub-advisers
and amend sub-advisory agreements, you are being asked to approve of
the use of the manager of managers arrangement for the Funds.
[Shareholders should note, however, that the Investment Adviser and
the Board have no intent to make an extensive use of this arrangement
in the foreseeable future.]
With respect to the seventh proposal, the 1940 Act requires the Money
Market Funds' shareholders to approve a change to the applicable Money
Market Fund's fundamental investment policy, with respect to investing
in other investment companies. Each Money Market Fund's current
fundamental investment policy prohibits investing in other investment
companies, which unnecessarily limits investment strategies. Upon a
request from the Investment Adviser to make changes to the Money
Market Funds' policy to be able to invest a portion of the Money
Market Funds' assets in other funds, the Board has reviewed the Money
Market Funds' fundamental investment policies on investing in other
investment companies and has recommended the elimination of the
policies. The proposal is unrelated to the Transaction and only
concerns shareholders of the Money Market Funds.
iii
Q. WILL THE PROPOSED TRANSACTION AFFECT ME?
A. No. The operations of the Advisers, the fees payable to the Advisers,
and the persons responsible for the day-to-day investment management
of the Funds will remain unchanged. The Board has been assured that
there will be no reduction in the nature or quality of the investment
advisory and sub-advisory services provided to each Fund, as
applicable, due to the Transaction.
Q. WILL THERE BE ANY CHANGES TO THE FUNDS' OTHER SERVICE PROVIDERS?
A. The Transaction could also be deemed to affect the control of certain
of the Funds' other servicer providers ("Affiliated Service
Providers") as a result of the Transaction. The Affiliated Service
Providers include Rydex Distributors, LLC which serves as the Funds'
principal underwriter/distributor (the "Distributor"), and Rydex Fund
Services, Inc., which provides general administrative, shareholder,
dividend disbursement, transfer agent and registrar services to the
Funds. The Affiliated Service Providers and the Investment Adviser
are commonly held. Under the 1940 Act, shareholder approval is not
required in order for the Affiliated Service Providers to continue
providing services to the Funds after the closing of the Transaction.
The Board has also been assured that there will be no material change
in the nature or quality of the services provided by the Affiliated
Service Providers to each Fund due to the Transaction.
Q. WILL MY FUND'S FEES FOR INVESTMENT ADVISORY AND SUB-ADVISORY SERVICES
INCREASE?
A. No. The fee rates under the New Agreements are identical to those
under the Current Agreements. Services also will remain substantially
the same.
Q. WILL THE PROPOSED CHANGES TO THE BOARD RESULT IN HIGHER FUND EXPENSES?
A. No. Only "non-interested" Trustees (as that term is defined in the 1940
Act) receive compensation from the Funds they oversee. The proposed
additional Trustee would be an "interested" Trustee because of his
affiliation with Guggenheim Capital. Because interested Trustees do not
receive compensation from the Funds, the cost of this additional
Trustee would not be borne by the Funds.
Q. FOR SHAREHOLDERS OF THE MONEY MARKET FUNDS ONLY. WHAT EFFECT WILL THE
PROPOSED ELIMINATION OF THE MONEY MARKET FUNDS' FUNDAMENTAL INVESTMENT
POLICIES ON INVESTING IN OTHER INVESTMENT COMPANIES HAVE ON THE MONEY
MARKET FUNDS?
A. While this proposal is intended to provide the Money Market Funds with
flexibility to invest in other funds, the Money Market Funds would
continue to be managed subject to the limitations on investing in
other investment companies imposed by the 1940 Act, as interpreted or
modified by regulatory authority having jurisdiction from time to
time, as well as the investment objectives, strategies, and policies
expressed in the Money Market Funds' registration statements as may be
changed by the Board from time to time, and regulations that apply to
money market funds.
iv
If the proposal is approved by shareholders, the Money Market Funds
would be permitted to invest in the shares of other investment
companies (that are money market funds). As a shareholder of another
investment company, a Money Market Fund would bear, along with other
shareholders, its pro rata portion of the other investment company's
expenses, including advisory fees, and would be exposed to the risks
attributable to investing in the selected funds. These expenses would
be in addition to the advisory and other expenses that the Money Market
Fund bears directly in connection with its own operations.
Notwithstanding the proposed elimination, at all times, the Money
Market Funds will comply with the provisions of the 1940 Act that apply
to investments in other investment companies and Securities and
Exchange Commission Rule 2a-7, which strictly prescribes the type of
investments that money market funds can invest in. The Money Market
Funds will continue to seek to maintain a stable $1.00 price per share
as permitted by current Rule 2a-7.
Should a Money Market Fund's shareholders not approve the proposal to
eliminate the Money Market Fund's fundamental investment policy on
investing in other investment companies, the Fund's current fundamental
investment policy on investing in investment companies would continue
to apply unchanged and the Board would decide whether to make other
changes to the Money Market Fund's investment program.
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 of your Fund for use
at the Special Joint Meeting of Shareholders to be held on November 22,
2011 (the "Meeting"), and, if the Meeting is adjourned or postponed, at
any later meetings, for the purposes stated in the Notice of Special
Joint Meeting.
Q. HOW DOES THE BOARD SUGGEST THAT I VOTE?
A. After careful consideration, the Board unanimously recommends that you
vote "FOR" all of the proposals contained in the Joint Proxy Statement.
Please see the section entitled "Board Recommendation" with respect to
each proposal for a discussion of the Board's considerations in making
such recommendations.
Q. WHY AM I RECEIVING INFORMATION ABOUT FUNDS I DO NOT OWN?
A. The proposals are similar for each Fund, and management of the Funds
has concluded that it is cost-effective to hold the Meeting
concurrently for all of the Funds. You will be asked to vote separately
on the proposals with respect to the Fund(s) that you own. Assuming
that the requisite levels of aggregate shareholder consent are
attained, an
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unfavorable vote on a proposal by the shareholders of one Fund will not
affect the implementation of a comparable proposal by another Fund if
such proposal is approved by shareholders of that Fund.
Q. WHAT VOTE IS REQUIRED TO APPROVE THE PROPOSALS?
A. To be approved with respect to a particular Fund, each proposal, other
than Proposal 5, must be approved by a vote of a majority of the
outstanding voting securities of that Fund. In addition, with respect
to the Money Market Funds, the proposed elimination of the Money Market
Funds' fundamental investment policies on investing in other investment
companies also must be approved by a vote of a majority of the
outstanding voting securities of each Money Market Fund. The "vote of a
majority of the outstanding voting securities" is defined in the 1940
Act as the lesser of the vote of (i) 67% or more of the voting
securities of a Fund entitled to vote thereon present at the Meeting or
represented by proxy, if more than 50% of the Fund's outstanding voting
securities are present or represented by proxy; or (ii) more than 50%
of the outstanding voting securities of the Fund entitled to vote
thereon. With respect to Proposal 5, a plurality of the shares voting
is required to elect each individual nominated as a Trustee.
Q. WILL MY VOTE MAKE A DIFFERENCE?
A. Yes! Your vote is needed to ensure that the proposals can be acted
upon. We encourage all shareholders to participate in the governance
of their Fund(s). Additionally, your immediate response on the enclosed
proxy card, 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 Funds may not receive
enough votes to go forward with the Meeting. If this happens, the Funds
will need to solicit votes again. This may delay the Meeting and the
approval of the proposals and generate unnecessary costs.
Q. I'M A RYDEX VARIABLE TRUST INSURANCE PRODUCT OWNER. HOW WILL MY VOTE BE
COUNTED?
A. As a variable annuity contract or variable life insurance policy owner
of record at the close of business on the record date, you have the
right to instruct the life insurance company that issued your product
as to how the shares of the Rydex Variable Trust Fund(s) attributable
to your product should be voted. If no voting instructions are
received, the life insurance company will vote the shares attributable
to your product in proportion ("for" or "withhold authority") to those
Rydex Variable Trust shares for which instructions are received. As a
result, a small number of product owners could determine the outcome of
the vote if other product owners fail to vote.
Q. HOW DO I PLACE MY VOTE?
A. You may provide a Fund with your vote by mail with the enclosed proxy
card, by Internet by following the instructions in the proxy voting
instructions, by telephone using
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the toll-free number listed in the proxy voting instructions, or in
person at the Meeting. You may use the enclosed postage-paid envelope
to mail your proxy card. Please follow the enclosed instructions to
utilize any of these voting methods. If you need more information on
how to vote, or if you have any questions, please call the Funds' proxy
solicitation agent at the telephone number below.
Q. WHOM DO I CALL IF I HAVE QUESTIONS?
A. We will be happy to answer your questions about this proxy
solicitation. If you have questions, please call The Altman Group at
1-877-864-5058.
Proxies may be revoked prior to the Meeting by timely executing and
submitting a revised proxy (following the methods noted above), by
giving written notice of revocation to the Fund(s) prior to the
Meeting, or by voting in person at the Meeting.
PROMPT EXECUTION AND RETURN OF THE ENCLOSED PROXY CARD IS REQUESTED. A
SELF-ADDRESSED, POSTAGE-PAID ENVELOPE IS ENCLOSED FOR YOUR CONVENIENCE, ALONG
WITH INSTRUCTIONS ON HOW TO VOTE OVER THE INTERNET OR BY TELEPHONE SHOULD YOU
PREFER TO VOTE BY ONE OF THOSE METHODS.
vii
RYDEX VARIABLE TRUST
RYDEX SERIES FUNDS
RYDEX DYNAMIC FUNDS
805 King Farm Boulevard, Suite 600
Rockville, Maryland 20850
(800) 820-0888
NOTICE OF SPECIAL JOINT MEETING OF SHAREHOLDERS
TO BE HELD ON NOVEMBER 22, 2011
Notice is hereby given that a Special Joint Meeting of Shareholders
(the "Meeting") of Rydex Variable Trust, Rydex Series Funds and Rydex Dynamic
Funds (each, a "Trust" and collectively, the "Trusts") and each of their
respective series listed on the attached list (each, a "Fund" and collectively,
the "Funds") will be held at the Trusts' offices at 805 King Farm Boulevard,
Suite 600, Rockville, Maryland 20850 on November 22, 2011 at 1:00 p.m. Eastern
Time for the purposes listed below:
PROPOSAL SHAREHOLDERS SOLICITED TO VOTE
1. THE APPROVAL OF A NEW INVESTMENT ALL FUNDS
ADVISORY AGREEMENT BETWEEN EACH TRUST
AND SECURITY INVESTORS, LLC, WITH RESPECT
TO EACH FUND
2. THE APPROVAL OF A NEW SUB-ADVISORY RYDEX VARIABLE TRUST--
AGREEMENT BETWEEN SECURITY INVESTORS, AMERIGO FUND
LLC AND CLS INVESTMENTS, LLC, WITH CLERMONT FUND
RESPECT TO CERTAIN FUNDS SELECT ALLOCATION FUND
3. THE APPROVAL OF A NEW SUB-ADVISORY RYDEX VARIABLE TRUST--
AGREEMENT BETWEEN SECURITY INVESTORS, DWA FLEXIBLE ALLOCATION FUND
LLC AND DORSEY, WRIGHT & ASSOCIATES, DWA SECTOR ROTATION FUND
INC., WITH RESPECT TO CERTAIN FUNDS
4. THE APPROVAL OF A NEW SUB-ADVISORY RYDEX SERIES FUNDS--
AGREEMENT BETWEEN SECURITY INVESTORS, LONG SHORT INTEREST RATE STRATEGY FUND
LLC AND AMERICAN INDEPENDENCE
FINANCIAL SERVICES, LLC, WITH RESPECT TO
LONG SHORT INTEREST RATE STRATEGY FUND
5 THE APPROVAL OF THE ELECTION OF NOMINEES ALL FUNDS
TO THE BOARD OF TRUSTEES
6. THE APPROVAL OF A "MANAGER OF ALL FUNDS
MANAGERS" ARRANGEMENT FOR EACH OF THE
FUNDS
viii
7. THE APPROVAL OF THE ELIMINATION OF THE RYDEX SERIES FUNDS--
FUNDAMENTAL INVESTMENT POLICY ON U.S. GOVERNMENT MONEY MARKET FUND
INVESTING IN OTHER INVESTMENT COMPANIES
RYDEX VARIABLE TRUST--
U.S. GOVERNMENT MONEY MARKET FUND
8. TO TRANSACT SUCH OTHER BUSINESS AS MAY
PROPERLY COME BEFORE THE MEETING
After careful consideration, the Boards of Trustees of the Trusts
unanimously recommend that shareholders vote "FOR" Proposals 1, 2, 3, 4, 5, 6
and 7.
Shareholders (or, with respect to Rydex Variable Trust, variable
annuity contract or variable life insurance policy ("insurance products")
owners) of record at the close of business on October 3, 2011 are entitled to
notice of, and to vote at, the Meeting, even if such shareholders or insurance
product owners no longer own such shares or products. With respect to Rydex
Variable Trust, you are invested in a Fund through the insurance products that
you own.
We call your attention to the accompanying Joint Proxy Statement. You
are requested to complete, date, and sign the enclosed proxy card and return it
promptly in the envelope provided for that purpose. Your proxy card also
provides instructions for voting via telephone or the Internet if you wish to
take advantage of these voting options. Proxies may be revoked prior to the
Meeting by timely executing and submitting a revised proxy (following the
methods noted above), by giving written notice of revocation to the Fund(s)
prior to the Meeting, or by voting in person at the Meeting.
By Order of the Boards of Trustees,
Richard M. Goldman
President
YOUR VOTE IS VERY IMPORTANT TO US REGARDLESS OF THE NUMBER OF VOTES YOU HOLD.
SHAREHOLDERS WHO DO NOT EXPECT TO ATTEND THE MEETING ARE REQUESTED TO COMPLETE,
SIGN, DATE AND RETURN THE ACCOMPANYING PROXY CARD IN THE ENCLOSED ENVELOPE,
WHICH NEEDS NO POSTAGE IF MAILED IN THE UNITED STATES. IT IS IMPORTANT THAT YOUR
PROXY CARD BE RETURNED PROMPTLY.
FOR YOUR CONVENIENCE, YOU MAY ALSO VOTE BY TELEPHONE OR INTERNET BY FOLLOWING
THE ENCLOSED INSTRUCTIONS. IF YOU VOTE BY TELEPHONE OR VIA THE INTERNET, PLEASE
DO NOT RETURN YOUR PROXY CARD UNLESS YOU ELECT TO CHANGE YOUR VOTE.
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FUNDS PARTICIPATING IN THE MEETING
ON NOVEMBER 22, 2011
RYDEX VARIABLE TRUST
All-Asset Aggressive Strategy Fund Health Care Fund Russell 2000(R) 2x Strategy Fund
All-Asset Conservative Strategy Fund Internet Fund S&P 500 2x Strategy Fund
All-Asset Moderate Strategy Fund Inverse Dow 2x Strategy Fund S&P 500 Pure Growth Fund
Alternative Strategies Allocation Fund Inverse Government Long Bond Strategy Fund S&P 500 Pure Value Fund
Amerigo Fund Inverse Mid-Cap Strategy Fund S&P MidCap 400 Pure Growth Fund
Banking Fund Inverse NASDAQ-100(R) Strategy Fund S&P MidCap 400 Pure Value Fund
Basic Materials Fund Inverse Russell 2000(R) Strategy Fund S&P SmallCap 600 Pure Growth Fund
Biotechnology Fund Inverse S&P 500 Strategy Fund S&P SmallCap 600 Pure Value Fund
Clermont Fund Japan 2x Strategy Fund Select Allocation Fund
Commodities Strategy Fund Leisure Fund Strengthening Dollar 2x Strategy Fund
Consumer Products Fund Managed Futures Strategy Fund Technology Fund
Dow 2x Strategy Fund Mid-Cap 1.5x Strategy Fund Telecommunications Fund
DWA Flexible Allocation Fund Multi-Hedge Strategies Fund Transportation Fund
DWA Sector Rotation Fund NASDAQ-100(R) 2x Strategy Fund U.S. Government Money Market Fund
Electronics Fund NASDAQ-100(R) Fund U.S. Long Short Momentum Fund
Energy Fund Nova Fund Utilities Fund
Energy Services Fund Precious Metals Fund Weakening Dollar 2x Strategy Fund
Europe 1.25x Strategy Fund Real Estate Fund
Financial Services Fund Retailing Fund
Government Long Bond 1.2x Russell 2000(R) 1.5x Strategy Fund
Strategy Fund
x
RYDEX SERIES FUNDS
All-Asset Aggressive Strategy Fund Internet Fund Retailing Fund
All-Asset Conservative Strategy Fund Inverse Emerging Markets 2x Strategy Fund Russell 2000(R) 1.5x Strategy Fund
All-Asset Moderate Strategy Fund Inverse Government Long Bond Strategy Fund Russell 2000(R) Fund
Alternative Strategies Fund Inverse High Yield Strategy Fund S&P 500 Fund
Alternative Strategies Allocation Fund Inverse Mid-Cap Strategy Fund S&P 500 Pure Growth Fund
Banking Fund Inverse NASDAQ-100(R) Strategy Fund S&P 500 Pure Value Fund
Basic Materials Fund Inverse Russell 2000(R) Strategy Fund S&P MidCap 400 Pure Growth Fund
Biotechnology Fund Inverse S&P 500 Strategy Fund S&P MidCap 400 Pure Value Fund
Commodities Strategy Fund Japan 2x Strategy Fund S&P SmallCap 600 Pure Growth Fund
Consumer Products Fund Leisure Fund S&P SmallCap 600 Pure Value Fund
Electronics Fund Long/Short Commodities Strategy Fund Strengthening Dollar 2x Strategy Fund
Emerging Markets 2x Strategy Fund Long Short Equity Strategy Fund Technology Fund
Energy Fund Long Short Interest Rate Strategy Fund Telecommunications Fund
Energy Services Fund Managed Futures Strategy Fund Transportation Fund
Europe 1.25x Strategy Fund Mid-Cap 1.5x Strategy Fund U.S. Government Money Market Fund
Event Driven and Distressed Strategies Fund Multi-Hedge Strategies Fund U.S. Long Short Momentum Fund
Financial Services Fund NASDAQ-100(R) Fund Utilities Fund
Government Long Bond 1.2x Strategy Fund Nova Fund Weakening Dollar 2x Strategy Fund
Health Care Fund Precious Metals Fund
High Yield Strategy Fund Real Estate Fund
xi
RYDEX DYNAMIC FUNDS
Dow 2x Strategy Fund Inverse S&P 500 2x Strategy Fund
Inverse Dow 2x Strategy Fund NASDAQ-100(R) 2x Strategy Fund
Inverse NASDAQ-100(R) 2x Strategy Fund Russell 2000(R) 2x Strategy Fund
Inverse Russell 2000(R) 2x Strategy Fund S&P 500 2x Strategy Fund
xii
TABLE OF CONTENTS
OVERVIEW OF THE PROPOSALS............................................................. [ ]
PROPOSALS 1-4: Approval of the New Agreements .................................... [ ]
Information Regarding the Transaction ....................................... [ ]
Section 15(f) of the 1940 Act................................................ [ ]
Approval of the New Agreements by the Board.................................. [ ]
Board Considerations in Approving the New Agreements......................... [ ]
New Agreements............................................................... [ ]
PROPOSAL 5: Approval of the Election of Trustees ................................. [ ]
PROPOSAL 6: Approval of a "Manager of Managers" Arrangement....................... [ ]
PROPOSAL 7: Money Market Funds only--Approval of the Elimination of each
Fund's Fundamental Investment Policy on Investing in Other Investment
Companies ................................................................... [ ]
PROPOSAL 1--THE APPROVAL OF NEW INVESTMENT ADVISORY
AGREEMENTS WITH RESPECT TO ALL FUNDS ............................................. [ ]
The Investment Adviser ........................................................... [ ]
Material Terms of the New Investment Advisory Agreements ......................... [ ]
BOARD RECOMMENDATION ON PROPOSAL 1.................................................... [ ]
PROPOSAL 2--THE APPROVAL OF NEW SUB-ADVISORY AGREEMENTS ............................. [ ]
Information About CLS ............................................................ [ ]
Material Terms of the CLS Sub-Advisory Agreements ................................ [ ]
BOARD RECOMMENDATION ON PROPOSAL 2.................................................... [ ]
PROPOSAL 3--THE APPROVAL OF NEW SUB-ADVISORY AGREEMENTS ............................. [ ]
Information About DWA............................................................. [ ]
Material Terms of the DWA Sub-Advisory Agreements ................................ [ ]
BOARD RECOMMENDATION ON PROPOSAL 3.................................................... [ ]
PROPOSAL 4--THE APPROVAL OF A NEW SUB-ADVISORY AGREEMENT ............................. [ ]
Information About AIFS............................................................ [ ]
Material Terms of the AIFS Sub-Advisory Agreement................................. [ ]
BOARD RECOMMENDATION ON PROPOSAL 4.................................................... [ ]
PROPOSAL 5--THE APPROVAL OF THE ELECTION OF TRUSTEES FOR THE TRUST ................... [ ]
Information Regarding the Nominees................................................ [ ]
Board's Consideration of Each Nominee's Qualifications, Experience, Attributes
or Skills ................................................................... [ ]
Principal Officers of the Funds .................................................. [ ]
Nominee Ownership of Portfolio Shares ............................................ [ ]
Board Compensation................................................................ [ ]
Committees and Meetings of the Board.............................................. [ ]
Independent Registered Public Accounting Firm .................................... [ ]
BOARD RECOMMENDATION ON PROPOSAL 5.................................................... [ ]
PROPOSAL 6--THE APPROVAL OF A "MANAGER OF MANAGERS"
ARRANGEMENT WITH RESPECT TO ALL FUNDS ............................................ [ ]
"Manager of Managers" Arrangement................................................. [ ]
Conditions of the Exemptive Relief................................................ [ ]
Board Considerations in Approving the "Manager of Managers" Arrangement .......... [ ]
xiii
BOARD RECOMMENDATION ON PROPOSAL 6.................................................... [ ]
PROPOSAL 7 - THE APPROVAL OF A CHANGE TO THE FUNDAMENTAL
INVESTMENT POLICY ON INVESTING IN OTHER INVESTMENT
COMPANIES WITH RESPECT TO THE MONEY MARKET FUNDS ................................. [ ]
Proposed Fundamental Investment Policy............................................ [ ]
Current Fundamental Investment Policy ............................................ [ ]
Discussion of Proposed Modification............................................... [ ]
BOARD RECOMMENDATION ON PROPOSAL 7.................................................... [ ]
OTHER BUSINESS ....................................................................... [ ]
ADDITIONAL INFORMATION................................................................ [ ]
Administrator, Principal Underwriter and Transfer Agent .......................... [ ]
Affiliations and Affiliated Brokerage ............................................ [ ]
Other Information ................................................................ [ ]
Voting Information ............................................................... [ ]
Shareholder Proposals............................................................. [ ]
xiv
APPENDICES
Appendix A CORPORATE STRUCTURE OF THE INVESTMENT ADVISER.................................. A-1
Appendix B FORMS OF NEW INVESTMENT ADVISORY AGREEMENTS.................................... B-1
Appendix C INFORMATION REGARDING THE INVESTMENT ADVISORY
AGREEMENTS AND FEES PAID TO THE INVESTMENT ADVISER AND AFFILIATES.............. C-1
Appendix D DIRECTORS/TRUSTEES/MANAGERS AND OFFICERS OF THE INVESTMENT ADVISER ............ D-1
Appendix E ADVISORY FEE RATES OF FUNDS WITH SIMILAR INVESTMENT
OBJECTIVES ADVISED BY SECURITY INVESTORS, LLC ................................. E-1
Appendix F FORM OF NEW SUB-ADVISORY AGREEMENT WITH CLS INVESTMENTS, LLC .................. F-1
Appendix G INFORMATION REGARDING THE SUB-ADVISORY AGREEMENT
WITH CLS INVESTMENTS, LLC AND FEES PAID TO THE SUB-ADVISER .................... G-1
Appendix H DIRECTORS/TRUSTEES/MANAGERS AND OFFICERS OF CLS INVESTMENTS, LLC .............. H-1
Appendix I ADVISORY FEE RATES OF FUNDS WITH SIMILAR INVESTMENT
OBJECTIVES ADVISED BY CLS INVESTMENTS, LLC.. .................................. I-1
Appendix J FORM OF NEW SUB-ADVISORY AGREEMENT WITH DORSEY,
WRIGHT & ASSOCIATES, INC. ..................................................... J-1
Appendix K INFORMATION REGARDING THE SUB-ADVISORY AGREEMENT
WITH DORSEY, WRIGHT & ASSOCIATES, INC. AND FEES PAID TO
THE SUB-ADVISER ............................................................... K-1
Appendix L DIRECTORS/TRUSTEES/MANAGERS AND OFFICERS OF DORSEY,
WRIGHT & ASSOCIATES, INC. ..................................................... L-1
Appendix M ADVISORY FEE RATES OF FUNDS WITH SIMILAR INVESTMENT
OBJECTIVES ADVISED BY DORSEY, WRIGHT & ASSOCIATES, INC......................... M-1
Appendix N FORM OF NEW SUB-ADVISORY AGREEMENT WITH AMERICAN
INDEPENDENCE FINANCIAL SERVICES, LLC .......................................... N-1
xv
Appendix O INFORMATION REGARDING THE SUB-ADVISORY AGREEMENT
WITH AMERICAN INDEPENDENCE FINANCIAL SERVICES, LLC AND
FEES PAID TO THE SUB-ADVISER................................................... O-1
Appendix P DIRECTORS/TRUSTEES/MANAGERS AND OFFICERS OF AMERICAN
INDEPENDENCE FINANCIAL SERVICES, LLC .......................................... P-1
Appendix Q ADVISORY FEE RATES OF FUNDS WITH SIMILAR INVESTMENT
OBJECTIVES ADVISED BY AMERICAN INDEPENDENCE FINANCIAL SERVICES, LLC. .......... Q-1
Appendix R OUTSTANDING SHARES............................................................. R-1
Appendix S BENEFICIAL OWNERS OF MORE THAN 5% OF A CLASS OF EACH FUND ..................... S-1
Appendix T NOMINATING COMMITTEE CHARTERS ................................................. T-1
xvi
RYDEX VARIABLE TRUST
RYDEX SERIES FUNDS
RYDEX DYNAMIC FUNDS
805 King Farm Boulevard, Suite 600
Rockville, Maryland 20850
(800) 820-0888
JOINT PROXY STATEMENT
SPECIAL JOINT MEETING OF SHAREHOLDERS
TO BE HELD ON NOVEMBER 22, 2011
This joint proxy statement ("Joint Proxy Statement") and enclosed
notice and proxy card are being furnished in connection with the solicitation of
proxies by the Boards of Trustees (collectively, the "Board") of Rydex Variable
Trust, Rydex Series Funds and Rydex Dynamic Funds (each, a "Trust" and
collectively, the "Trusts"). The proxies are being solicited for use at a
special joint meeting of shareholders of the Trusts to be held at the Trusts'
offices at 805 King Farm Boulevard, Suite 600, Rockville, Maryland 20850 on
November 22, 2011 at 1:00 p.m. Eastern Time, and at any and all adjournments or
postponements thereof (the "Meeting").
The Board has called the Meeting and is soliciting proxies from
shareholders of each series of the Trusts listed in the accompanying notice to
this Joint Proxy Statement (each, a "Fund" and collectively, the "Funds") for
the purposes listed below:
PROPOSAL SHAREHOLDERS SOLICITED TO VOTE
1. THE APPROVAL OF A NEW INVESTMENT ALL FUNDS
ADVISORY AGREEMENT BETWEEN EACH TRUST
AND SECURITY INVESTORS, LLC, WITH RESPECT
TO EACH FUND ("PROPOSAL 1")
2. THE APPROVAL OF A NEW SUB-ADVISORY RYDEX VARIABLE TRUST--
AGREEMENT BETWEEN SECURITY INVESTORS, AMERIGO FUND
LLC AND CLS INVESTMENTS, LLC, WITH CLERMONT FUND
RESPECT TO CERTAIN FUNDS ("PROPOSAL 2") SELECT ALLOCATION FUND
3. THE APPROVAL OF A NEW SUB-ADVISORY RYDEX VARIABLE TRUST--
AGREEMENT BETWEEN SECURITY INVESTORS, DWA FLEXIBLE ALLOCATION FUND
LLC AND DORSEY, WRIGHT & ASSOCIATES, DWA SECTOR ROTATION FUND
INC., WITH RESPECT TO CERTAIN FUNDS
("PROPOSAL 3")
4. THE APPROVAL OF A NEW SUB-ADVISORY RYDEX SERIES FUNDS--
AGREEMENT BETWEEN SECURITY INVESTORS, LONG SHORT INTEREST RATE STRATEGY FUND
LLC AND AMERICAN INDEPENDENCE
FINANCIAL SERVICES, LLC, WITH RESPECT TO
LONG SHORT INTEREST RATE STRATEGY FUND
("PROPOSAL 4")
5. THE APPROVAL OF THE ELECTION OF NOMINEES ALL FUNDS
TO THE BOARD OF TRUSTEES ("PROPOSAL 5")
6. THE APPROVAL OF A "MANAGER OF ALL FUNDS
MANAGERS" ARRANGEMENT FOR EACH OF THE
FUNDS ("PROPOSAL 6")
7. THE APPROVAL OF THE ELIMINATION OF THE RYDEX SERIES FUNDS--
FUNDAMENTAL INVESTMENT POLICY ON U.S. GOVERNMENT MONEY MARKET FUND
INVESTING IN OTHER INVESTMENT COMPANIES
("PROPOSAL 7") RYDEX VARIABLE TRUST--
U.S. GOVERNMENT MONEY MARKET FUND
8. TO TRANSACT SUCH OTHER BUSINESS AS MAY
PROPERLY COME BEFORE THE MEETING
This Joint Proxy Statement and the accompanying notice and the proxy
card are being first mailed to shareholders on or about October 13, 2011.
The Board has determined that the use of this Joint Proxy Statement
for the Meeting is in the best interests of each Fund and its shareholders in
light of the similar matters being considered and voted on by the shareholders
of the other Funds.
You are entitled to vote at the Meeting of each Fund of which you are
a shareholder (with respect to each series of Rydex Variable Trust, a variable
annuity contract or variable life insurance policy ("insurance products") owner)
as of the close of business on October 3, 2011 (the "Record Date"). Shares of
each series of Rydex Variable Trust are available primarily for insurance
products. Rydex Variable Trust is soliciting voting instructions from insurance
product owners and shareholders invested in each Fund in connection with the
Proposals, as applicable. For ease of reference, throughout this Joint Proxy
Statement, insurance product owners may be referred to as "shareholders" of a
Fund.
If you have any questions about the Proposals or about voting, please
call The Altman Group, the Funds' proxy solicitor, at 1-877-864-5058.
IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS
FOR THE MEETING TO BE HELD ON NOVEMBER 22, 2011
This Joint Proxy Statement is available at www.proxyonline.us/rydexsgi.
In addition, with respect to Rydex Variable Trust, Rydex Dynamic Funds, and
Rydex Series Funds (Commodities Strategy Fund, Long/Short Commodities Strategy
Fund, Managed Futures Strategy Fund and Multi-Hedge Strategies Fund only)
shareholders can find important information about each Fund in the Fund's annual
report, dated December 31, 2010, including financial reports for the fiscal year
ended December 31, 2010, and in any recent semi-annual
2
report succeeding such annual report, if any. With respect to Rydex Series Funds
(except for those Funds listed above), shareholders can find important
information about each Fund in the Fund's annual report, dated March 31, 2011,
including financial reports for the fiscal year ended March 31, 2011, 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 a Trust, by calling the
telephone number shown on the front page of this Joint Proxy Statement or at
www.rydex-sgi.com.
3
OVERVIEW OF THE PROPOSALS
PROPOSALS 1 - 4
APPROVAL OF THE NEW AGREEMENTS
Proposals 1 through 4 relate to actions that need to be taken in
response to an impending transaction (the "Transaction") involving Securities
Investors, LLC, which operates under the name Rydex Investments, the investment
adviser to each of the Funds (the "Investment Adviser").
The Investment Company Act of 1940 (the "1940 Act"), the law that
regulates mutual funds, such as the Funds, provides that a mutual fund's
investment advisory agreement terminates whenever there is a "change in control"
of the investment adviser. Pursuant to the Transaction, it is possible that
there could be a deemed "change in control" of the Investment Adviser. In that
case, in order for the Investment Adviser to continue to advise the Funds and
manage their investments, a new investment advisory agreement must be in effect
upon the consummation of the Transaction. For that reason, we are seeking
shareholder approval of new investment advisory agreements for the Funds.
In addition, the Transaction will result in the termination of the
current sub-advisory agreements between: (i) the Investment Adviser and CLS
Investments, LLC ("CLS") with respect to the Rydex Variable Trust Amerigo Fund,
Clermont Fund and Select Allocation Fund (the "CLS Funds"); (ii) the Investment
Adviser and Dorsey, Wright & Associates, Inc. ("DWA") with respect to the Rydex
Variable Trust DWA Flexible Allocation Fund and DWA Sector Rotation Fund (the
"DWA Funds"); and (iii) the Investment Adviser and American Independence
Financial Services, LLC ("AIFS") with respect to the Rydex Series Funds Long
Short Interest Rate Strategy Fund (the "AIFS Fund"). Accordingly, Proposal 1
relates to the approval by shareholders of new investment advisory agreements
between the Investment Adviser and the Funds (the "New Investment Advisory
Agreements"). Similarly, Proposal 2 relates to the approval by shareholders of
new sub-advisory agreements between the Investment Adviser and CLS with respect
to the CLS Funds (the "New CLS Agreements"), Proposal 3 relates to the approval
by shareholders of new sub-advisory agreements between the Investment Adviser
and DWA with respect to the DWA Funds (the "New DWA Agreements") and Proposal 4
relates to the approval by shareholders of a new sub-advisory agreement between
the Investment Adviser and AIFS with respect to the AIFS Fund (the "New AIFS
Agreement") (together with the New Investment Advisory Agreements, the "New
Agreements").
FOR THE REASONS DISCUSSED BELOW, THE BOARD RECOMMENDS
THAT SHAREHOLDERS VOTE "FOR" THE APPROVAL OF THE NEW
AGREEMENTS.
INFORMATION REGARDING THE TRANSACTION
Summary Discussion--Currently, the Investment Adviser is a part of a
large group of companies that also includes businesses such as Security Benefit
Life Insurance Company. The
4
Investment Adviser is managed by an indirect wholly-owned subsidiary of
Guggenheim Capital, LLC ("Guggenheim Capital"). Guggenheim Capital wishes to
purchase the Investment Adviser and certain affiliated businesses. This
Transaction will be effected by Guggenheim Capital buying 100% of the equity of
the holding company that owns the Investment Adviser. After the Transaction,
Guggenheim Capital will control the Investment Adviser (through one or more of
its subsidiaries), and it is expected that the services rendered to the Funds by
the Investment Adviser will not change.
Detailed Discussion--On September 20, 2011, Guggenheim Capital agreed
to purchase the indirect holding company of the Investment Adviser. Guggenheim
Capital's subsidiary, Guggenheim Partners, LLC ("Guggenheim") is a global,
independent, privately-held, diversified financial services firm with more than
1,500 dedicated professionals. Headquartered in Chicago and New York, the firm
operates through offices in 25 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. Its merchant banking activities include a
portfolio of investments in funds managed by it, joint venture business
investments, and new business launch activities not integrated into other
primary operating businesses. Detailed information on the effect of the
Transaction on the ownership structure of the Investment Adviser is set forth in
Appendix A to this Joint Proxy Statement.
The Transaction will not result in material changes to the day-to-day
management and operations of the Funds. The personnel, officers and managers of
the Investment Adviser will remain the same. Guggenheim Capital will be the
parent company of the Investment Adviser.
In addition, as a result of the Transaction, Guggenheim Capital will
acquire control of the Funds' principal underwriter/distributor, Rydex
Distributors, LLC (the "Distributor"), an affiliate of the Investment Adviser.
Under the 1940 Act, shareholder approval is not required in order for the
Distributor to continue providing services to the Funds after the closing of the
Transaction.
While the parties expect the Transaction to be completed in late 2011
or early 2012, it is subject to various conditions (including a condition that
80% or more of the Funds' assets managed by the Investment Adviser approve the
New Investment Advisory Agreements), and may be delayed or even terminated due
to unforeseen circumstances. If for some reason the Transaction does not occur,
the current investment advisory agreements between the Investment Adviser and
the Funds (each, a "Current Investment Advisory Agreement" and collectively, the
"Current Investment Advisory Agreements"), the current sub-advisory agreements
between the
5
Investment Adviser and CLS with respect to the CLS Funds (the "Current CLS
Agreements"), the current sub-advisory agreements between the Investment Adviser
and DWA with respect to the DWA Funds (the "Current DWA Agreements") and the
current sub-advisory agreement between the Investment Adviser and AIFS with
respect to the AIFS Fund (the "Current AIFS Agreement") (collectively, the
"Current Agreements") will not terminate and will remain in effect, and the New
Agreements will not be entered into, even if they have been approved by Fund
shareholders. If Proposal 1 is not approved by shareholders of any Fund, the
Board will evaluate other short- and long-term options permitted by law, which
could include interim investment advisory agreements with the Investment
Adviser, or maintaining the current ownership structure pending further
discussions.
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, including 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 any fund to change its brokerage relationships.
The second condition specifies that, during the three-year period immediately
following consummation of the change in control transaction, at least 75% of the
fund's board of trustees must not be "interested persons" (as defined in the
1940 Act) of the investment adviser or predecessor adviser.
Consistent with the conditions of Section 15(f), Guggenheim Capital
has agreed that it will not take any action that would have the effect, directly
or indirectly, of causing any requirement of the provisions of Section 15(f) to
be violated with respect to the Transaction. The Investment Adviser has
represented to the Board that no unfair burden would be imposed on the Funds as
a result of the Transaction.
APPROVAL OF THE NEW AGREEMENTS BY THE BOARD
At a Special Meeting of the Board held on August 16, 2011 (the "August
Special Board Meeting"), at which a majority of the members of the Board (the
"Trustees"), including a majority of the Trustees who are not "interested
persons" (as defined under the 1940 Act) of the Trust and who are not interested
persons of any party to the New Investment Advisory Agreements (the "Independent
Trustees"), were present, the Board considered the New Investment Advisory
Agreements, pursuant to which, subject to their approval by each Fund's
shareholders, the Investment Adviser will continue to serve each Fund as
investment adviser
6
after the completion of the Transaction. At a Special Meeting of the Board held
on September 14, 2011 (the "September Special Board Meeting", and together with
the August Special Board Meeting, the "Special Board Meetings") at which a
majority of the Trustees, including a majority of the Independent Trustees, were
present, the Board considered further information about the Transaction and
voted in favor of the New Investment Advisory Agreements.
The Investment Adviser's rate of fees for its services to each Fund
under each applicable New Investment Advisory Agreement will be the same as its
fees under the corresponding Current Investment Advisory Agreement. The other
terms of each New Investment Advisory Agreement will also be the same in all
material respects to those of the corresponding Current Investment Advisory
Agreement. As a result, in reviewing the New Investment Advisory Agreements at
the Special Board Meetings, the Board also considered its review of relevant
materials relating to the Current Investment Advisory Agreements at the Board's
contract review meeting on August 11, 2011 and contract renewal meeting on
August 17, 2011 (together, the "2011 Renewal Meeting").
BOARD CONSIDERATIONS IN APPROVING THE NEW AGREEMENTS
Prior to the Special Board Meetings, representatives of Guggenheim
Capital informed the Board of the Transaction. With respect to the Transaction,
the Board reviewed materials received from Guggenheim Capital, including
information relating to the terms of the Transaction. The Board also reviewed
information regarding Guggenheim Capital, including, but not limited to:
(a) certain representations concerning Guggenheim Capital's financial condition,
(b) information regarding the new proposed ownership structure and its possible
effect on shareholders, (c) information regarding the consideration to be paid
by Guggenheim Capital, and (d) potential conflicts of interest.
In considering the New Agreements, the Board determined that the New
Agreements would enable shareholders of the Funds to continue to obtain high
quality services at a cost that is appropriate, reasonable, and in the best
interests of their shareholders. The Board, including the Independent Trustees,
unanimously approved the New Agreements. In reaching their decision, the
Trustees carefully considered information that they had received throughout the
year as part of their regular oversight of the Funds, including, in particular,
information from the Investment Adviser, CLS, DWA and AIFS (collectively, the
"Advisers") that the Board had received relating to the Current Agreements at
the Board's 2011 Renewal Meeting. The Trustees noted that, at the 2011 Renewal
Meeting, they had obtained and reviewed a wide variety of information, including
certain comparative information regarding performance of the Funds relative to
performance of other comparable mutual funds. They also considered the
evolution of the Rydex|SGI family of funds and the Investment Adviser since the
change in control of the Investment Adviser in 2010 and Guggenheim Capital's
commitment to the success of the Investment Adviser and the Funds.
In addition, as a part of their required consideration of the renewal
of the Current Agreements at the 2011 Renewal Meeting, the Trustees, including
the Independent Trustees, had 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
7
(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) each Fund's overall fees and operating
expenses compared with similar mutual funds; (g) the level of the Advisers'
profitability from its 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. Based on the Board's deliberations at the 2011 Renewal Meeting, and its
evaluation of the information regarding the Transaction and the fact that the
Transaction is not expected to change the level and quality of services rendered
by the Advisers to any of the Funds, the Board, including all of the Independent
Trustees, unanimously: (a) concluded that terms of the New Agreements are fair
and reasonable; (b) concluded that the Advisers' fees were reasonable in light
of the services that they provide to the Funds; and (c) agreed to approve the
New Agreements, subject to shareholder approval.
NEW AGREEMENTS
NATURE, EXTENT AND QUALITY OF SERVICES PROVIDED BY THE ADVISERS. At
the 2011 Renewal Meeting, the Board reviewed the scope of services to be
provided by the Investment Adviser under the Current Investment Advisory
Agreements, by CLS under the Current CLS Agreements, by DWA under the Current
DWA Agreements and by AIFS under the Current AIFS Agreement, and, at the Special
Board Meetings, noted that there would be no significant differences between the
scope of services required to be provided by the Advisers under the Current
Agreements (which had been recently approved by shareholders and renewed by the
Board at the 2011 Renewal Meeting) and the scope of services required to be
provided by the Advisers under the New Agreements. The Board noted that the key
investment and management personnel of the Investment Adviser servicing the
Funds, the management personnel of CLS servicing the CLS Funds, the management
personnel of DWA servicing the DWA Funds and the management personnel of AIFS
servicing the AIFS Fund are expected to remain the same following the
Transaction. The Trustees also considered Guggenheim Capital's representations
to the Board that the Investment Adviser would continue to provide investment
and related services that were of materially the same quality and quantity as
services provided to the Funds in the past, and that these services are
appropriate in scope and extent in light of the Funds' operations, the
competitive landscape of the investment company business and investor needs.
The Board also noted that CLS, DWA and AIFS were not involved in the Transaction
and that the approval of the New CLS Agreements with CLS, the New DWA Agreements
with DWA and the New AIFS Agreement with AIFS was required due to the proposed
assignment of the Current Investment Advisory Agreements with the Investment
Adviser.
FUND EXPENSES AND PERFORMANCE OF THE FUNDS AND THE ADVISERS. At the
2011 Renewal Meeting, the Board had reviewed statistical information prepared by
the Advisers regarding the expense ratio components and performance of each
Fund. Based on the representations made by Guggenheim Partners at the August
Special Board Meeting that the Investment Adviser would continue to operate
following the closing of the Transaction in much the same manner as it currently
operates, the Board concluded that the investment performance of the Investment
Adviser was not expected to be affected by the Transaction. The Board also
concluded that CLS, DWA and AIFS would continue to operate following the closing
of the
8
Transaction in much the same manner as they operate today and, as a result, the
Board concluded that the investment performance of CLS, DWA and AIFS were not
expected to be affected by the Transaction.
COSTS OF SERVICES PROVIDED TO THE FUNDS AND PROFITS REALIZED BY THE
ADVISERS AND THEIR AFFILIATES. At the 2011 Renewal Meeting, the Board had
reviewed information about the profitability of the Funds to the Investment
Adviser based on the advisory fees payable under the Current Investment Advisory
Agreements. At that meeting, the Board had also analyzed the Funds' expenses,
including the investment advisory fees paid to the Investment Adviser. The
Board also had reviewed reports comparing the expense ratios and sub-advisory
fees to those of other comparable mutual funds and concluded that CLS', DWA's
and AIFS' sub-advisory fees were reasonable and the result of arm's length
negotiation. At the Special Board Meetings, the Board considered the fact that
the fee rates payable to each of the Advisers would be the same under each
Fund's New Agreements as they are under such Fund's Current Agreements. At that
meeting, the Board had also concluded that, in the near future, the profits to
be realized by CLS and its affiliates under the New CLS Agreements, DWA and its
affiliates under the DWA Agreements, AIFS and its affiliates under the New AIFS
Agreement, and from other relationships between the Funds and CLS, DWA and AIFS
and their affiliates, if any, should remain within the range the Board
previously considered reasonable and appropriate. With respect to anticipated
profitability, the Board noted that it was too early to predict how the
Transaction would affect the Advisers' profitability with respect to the Funds,
but noted that this matter would be given further consideration on an ongoing
basis.
ECONOMIES OF SCALE. In connection with its review of the Funds'
profitability analysis at the 2011 Renewal Meeting, the Board reviewed
information regarding economies of scale or other efficiencies that may result
from increases in the Funds' asset levels. The Trustees noted that the fees
would not change under the New Agreements, and that they will have the
opportunity to again review the appropriateness of the fees payable to the
Advisers under the New Agreements when the renewal of the New Agreements comes
before the Board.
OTHER BENEFITS TO THE ADVISERS AND/OR ITS AFFILIATES. In addition to
evaluating the services provided by the Investment Adviser, the Board had
considered the nature, extent, quality and cost of the distribution services
performed by the Distributor under a separate agreement at the 2011 Renewal
Meeting. At the Special Board Meetings, the Board reviewed information regarding
potential economies of scale arising from the integration of the asset
management businesses of Guggenheim Capital. The Board also considered the
terms of the Transaction and the changes to the corporate ownership structure of
the Investment Adviser, noting that the Investment Adviser would no longer be a
subsidiary of SBC. In this regard, the Board noted that, under the corporate
structure after the Transaction, the Investment Adviser would be more closely
controlled by Guggenheim Capital, which could benefit Guggenheim Capital. The
Board also noted that the costs associated with the Transaction would be borne
by Guggenheim Capital (or its affiliates) and not the Funds.
With respect to the New CLS Agreements, New DWA Agreements and New
AIFS Agreement, at the 2011 Renewal Meeting, the Board received and considered
information regarding the character and amount of other incidental benefits CLS,
DWA and AIFS might receive as a result of its relationship with the CLS Funds,
DWA Funds and AIFS Fund,
9
respectively, including their soft dollar practices, if any. The Board concluded
that, taking into account any incidental benefits CLS, DWA and AIFS might
receive, the terms of the Current CLS Agreements, the Current DWA Agreements and
the Current AIFS Agreement, including the compensation to be paid thereunder,
were reasonable. At its Special Board Meetings, the Board considered other
benefits to CLS, DWA, AIFS and their affiliates expected to be derived from
their relationships with the Funds as a result of the Transaction and noted that
no additional benefits were expected because CLS, DWA and AIFS were not parties
to the Transaction.
PROPOSAL 5
ELECTION OF TRUSTEES
Proposal 5 relates to the election of the following nine individuals to
the Board: Donald C. Cacciapaglia, Corey A. Colehour, J. Kenneth Dalton, John O.
Demaret, Richard M. Goldman, Werner E. Keller, Thomas F. Lydon, Patrick T.
McCarville and Roger Somers. All of the nominees, except for Mr. Cacciapaglia,
currently serve on the Board. If elected, the terms of the nominees will begin
shortly after the shareholder vote and each nominee will serve as Trustee for
the life of the Trusts or until retirement, removal, or his office is terminated
pursuant to the Trusts' Declarations of Trust. Unless and until such new terms
begin, the existing Trustees will continue to serve their current terms. In
connection with the Transaction, the Board believes that expanding the Board to
include Mr. Cacciapaglia, who is a member of senior management of Guggenheim's
investment management business, and who is proposed to serve on the other boards
in the Rydex|SGI family of funds. If elected by shareholders, Mr. Cacciapaglia's
term as Trustee would commence shortly after the shareholder vote.
The Board believes that it is in shareholders' best interest to have a
Board that is composed entirely of elected trustees (and to comply with certain
legal requirements regarding the proportion of board members that need to have
been elected by shareholders). Because a shareholder vote is required to approve
the New Investment Advisory Agreements, the Board has proposed that shareholders
elect all of the nominees during the same shareholder meeting, which would avoid
the expense of preparing and mailing another proxy statement solely for the
election of Trustees.
PROPOSAL 6
APPROVAL OF A "MANAGER OF MANAGERS" ARRANGEMENT
Shareholders of the Funds also are being asked to consider the
approval of a "manager of mangers" arrangement for each of the Funds to permit
the Investment Adviser, subject to prior approval by the Board, to retain
sub-advisers or amend the terms of an existing sub-advisory agreement without
shareholder approval where the sub-adviser is not affiliated with the Investment
Adviser. The 1940 Act makes it unlawful for any person to act as an investment
adviser (including a sub-adviser) to a fund except pursuant to a written
contract that has been approved by the fund's board as well as shareholders.
Therefore, the Investment Adviser is generally required to obtain shareholder
approval prior to retaining a new sub-adviser, which can be costly.
The Investment Adviser and certain affiliated funds have previously
obtained an exemptive order from the U.S. Securities and Exchange Commission
("SEC"), pursuant to which the Investment Adviser may retain a new sub-adviser
to manage a fund, or amend the terms of an existing sub-advisory agreement
without prior shareholder approval, subject to certain
10
conditions, including a requirement to send information to shareholders with
respect to the appointment of a new sub-adviser (the "Manager of Managers
Order"). In addition to the other conditions imposed by the Manager of Managers
Order, before the arrangement may be relied upon for a Fund, shareholders of the
Fund must approve the arrangement. Although no sub-advisers currently serve the
Funds, because shareholder approval is being solicited for other proposals, you
are being asked to approve the reliance by the Investment Adviser and the Funds
on the Manager of Managers Order. If approved, the Manager of Managers Order
would allow the Investment Adviser, subject to Board review and approval, to
retain or replace sub-advisers without the delay and expenses associated with
soliciting shareholder approval. Shareholders should note, however, that the
Investment Adviser and the Board have no intent to make an extensive use of this
arrangement for the funds in the foreseeable future.
PROPOSAL 7
MONEY MARKET FUNDS ONLY--APPROVAL OF THE ELIMINATION OF THE FUNDS'
FUNDAMENTAL INVESTMENT POLICY ON INVESTING IN OTHER INVESTMENT COMPANIES
In addition to considering the New Investment Advisory Agreements in
Proposals 1 through 4, shareholders of the Rydex Series Funds U.S. Government
Money Market Fund and the Rydex Variable Trust U.S. Government Money Market
Fund (the "Money Market Funds") also are being asked to consider the approval of
the elimination of the Money Market Funds' current fundamental investment
policies on investing in other investment companies. Under the 1940 Act, any
change to a fundamental investment policy must be approved by shareholders of
the fund. The 1940 Act does not require that a fund adopt a fundamental
investment policy on investing in other investment companies. Therefore, the
Money Market Funds' current fundamental investment policies on investing in
other investment companies is unnecessary. This proposal is motivated by the
decision to change the Money Market Funds' investment strategies in order to
invest in other investment companies when the Investment Adviser deems such an
investment in the best interests of the Money Market Funds. The Money Market
Funds' current policies restrict unnecessarily the Money Market Funds' ability
to invest in other investment companies so the Investment Adviser proposed, and
the Board agreed, to eliminate each Fund's policy on investing in other
investment companies. Accordingly, Proposal 5 seeks approval of the elimination
of each Money Market Fund's fundamental investment policy on investing in other
investment companies in order to permit the Money Market Funds to invest in
other investment companies. Proposal 5 is unrelated to Proposals 1 through 4.
The Investment Adviser believes that it could be appropriate, when market
conditions warrant, for the Money Market Funds to invest in other money market
funds. The Investment Adviser also believes that this change could improve
yield and could permit the Funds to have exposure to new attractive investment
opportunities. The Money Market Funds will remain subject to strict regulatory
requirements that apply to money market funds.
11
THE BOARD, INCLUDING THE INDEPENDENT TRUSTEES,
UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE
"FOR" THE APPROVAL OF THE NEW AGREEMENTS, "FOR" THE ELECTION OF
EACH NOMINEE, "FOR" THE APPROVAL OF THE A MANAGER OF MANAGERS
ARRANGEMENT AND "FOR" THE ELIMINATION OF THE FUNDAMENTAL
INVESTMENT POLICY ON INVESTING IN OTHER INVESTMENT COMPANIES
FOR EACH MONEY MARKET FUND. UNMARKED, PROPERLY SIGNED
AND DATED PROXIES WILL BE SO VOTED.
12
PROPOSAL 1--THE APPROVAL OF NEW INVESTMENT ADVISORY
AGREEMENTS WITH RESPECT TO ALL FUNDS
As discussed above, Proposal 1 relates to the approval by shareholders
of the New Investment Advisory Agreements between the Investment Adviser and
each of the Funds. You are being asked to vote separately on Proposal 1 solely
with respect to the Fund(s) that you own. Forms of the New Investment Advisory
Agreements are attached in Appendix B.
The terms of the New Investment Advisory Agreements are substantially
identical to those of the Current Investment Advisory Agreements, which were
recently approved by shareholders, except with respect to the date of execution.
Consequently, upon shareholder approval, the Investment Adviser will continue to
render substantially the same services to the Funds under the New Investment
Advisory Agreements that it currently renders to the Funds under the Current
Investment Advisory Agreements.
The Current Investment Advisory Agreements will remain in place until
the completion of the Transaction, at which time, as a result of the deemed
change in the control of the Investment Adviser, the Current Investment Advisory
Agreements will terminate. If for any reason the Transaction does not occur,
the Current Investment Advisory Agreements will not terminate and will remain in
effect, and the New Investment Advisory Agreements will not be entered into,
even if they have been approved by Fund shareholders.
THE INVESTMENT ADVISER
Security Investors, LLC, which operates under the name Rydex
Investments, is located at 805 King Farm Boulevard, Suite 600, Rockville,
Maryland 20850, and currently serves as investment adviser to the Funds pursuant
to the Current Investment Advisory Agreements. Information regarding the
Current Investment Advisory Agreements, including (a) the date of the
agreements, (b) the date on which they were last approved by shareholders and
(c) the rate of compensation to the Investment Adviser, is provided in Appendix
C. If the New Investment Advisory Agreements are approved by shareholders, they
will continue for an initial term of two years and for subsequent one-year terms
so long as they are renewed annually in accordance with their terms (see
discussion under "Term and Continuance" below).
Information regarding the name(s), address(es) and principal
occupation(s) of the principal executive officer(s) and director(s) of the
Investment Adviser is set forth in Appendix D. A list of the Trustees and
officers of the Trusts who hold positions with the Investment Adviser also is
set forth in Appendix D. In addition, set forth in Appendix E is a list of other
registered investment companies with similar investment objectives as each Fund,
for which the Investment Adviser acts as investment manager, adviser or
sub-adviser. (As previously noted, the ownership structure of the Investment
Adviser is set forth in Appendix A.)
MATERIAL TERMS OF THE NEW INVESTMENT ADVISORY AGREEMENTS
The following summary of the New Investment Advisory Agreements
summarizes the material terms of the New Investment Advisory Agreements and is
qualified in its entirety by
13
reference to the New Investment Advisory Agreements, a form of which is attached
in Appendix B.
DUTIES OF THE INVESTMENT ADVISER. Under the Current Investment
Advisory Agreements and the New Investment Advisory Agreements (each, an
"Advisory Agreement" and collectively, the "Advisory Agreements"), the
Investment Adviser is required to:
o provide the Funds with investment research, advice and supervision
and furnish continuously an investment program for the Funds,
consistent with the respective investment objectives and policies
of each Fund;
o determine, in its discretion and without prior consultation, what
securities shall be purchased for the Funds, what securities shall
be held or sold by the Funds and what portion of the Funds' assets
shall be held uninvested in cash, subject always to the provisions
of each Trust's Declaration of Trust, By-Laws and registration
statement on file with the SEC;
o discharge its responsibilities subject to the control of the
officers and the Board, and in compliance with the objectives,
policies, and limitations set forth in the Funds' prospectus(es)
and applicable laws and regulations;
o vote any proxies for Fund securities;
o provide the Trust, and any other agent designated by the Trust,
with records concerning the Investment Adviser's activities which
each Fund is required to maintain; and
o provide other reports reasonably requested by the Trust's officers
and Board concerning the Investment Adviser's discharge of the
foregoing responsibilities.
INDEMNITY OBLIGATION. Under the Advisory Agreements, the Investment
Adviser shall indemnify and hold harmless the Trust and all affiliated persons
thereof (within the meaning of Section 2(a)(3) of the 1940 Act) and all
controlling persons (as described in Section 15 of the Securities Act of 1933)
against any and all losses, claims, damages, liabilities or litigation
(including reasonable legal and other expenses) by reason of or arising out of:
(a) the Investment Adviser being in material violation of any applicable federal
or state law, rule or regulation or any investment policy or restriction set
forth in the Funds' registration statement or any written guidelines or
instruction provided in writing by the Board; (b) a Fund's failure to satisfy
the diversification or source of income requirements of Subchapter M of the
Internal Revenue Code; or (c) the Investment Adviser's willful misfeasance, bad
faith or gross negligence generally in the performance of its duties or its
reckless disregard of its obligations and duties under the Advisory Agreements.
TERM AND CONTINUANCE. Each Advisory Agreement provides that unless
terminated as provided therein, the Advisory Agreement shall continue for an
initial term of two years. Thereafter, the Advisory Agreement shall continue in
effect for successive annual periods provided such continuance is specifically
approved at least annually (a) by the vote of the
14
Trustees or by a vote of the shareholders; and (b) by the vote of a majority of
the Independent Trustees, cast in person at a meeting called for the purpose of
voting on such approval.
Each Advisory Agreement may be terminated with respect to a Fund at
any time without payment of any penalty, by a Fund upon the vote of either the
Board or by a majority of the outstanding voting securities of the Fund. The
Investment Adviser may also, by not more than sixty (60) days' nor less than
thirty (30) days' written notice, terminate the Advisory Agreements. Each
Advisory Agreement will terminate automatically in the event of its "assignment"
(as that term is defined under the 1940 Act).
BOARD RECOMMENDATION ON PROPOSAL 1
THE TRUSTEES UNANIMOUSLY RECOMMEND THAT
SHAREHOLDERS OF THE FUNDS VOTE "FOR" PROPOSAL 1
15
PROPOSAL 2--THE APPROVAL OF NEW SUB-ADVISORY AGREEMENTS
WITH RESPECT TO:
AMERIGO FUND
CLERMONT FUND
SELECT ALLOCATION FUND
As discussed above, Proposal 2 relates to the approval by shareholders
of the New CLS Agreements between the Investment Adviser and CLS with respect to
Amerigo Fund, Clermont Fund and Select Allocation Fund. You are being asked to
vote separately on Proposal 2 solely with respect to the CLS Fund(s) that you
own. A form of the New CLS Agreements is attached in Appendix F.
The terms of the New CLS Agreements are identical to those of the
corresponding Current CLS Agreements, which were recently approved by
shareholders, except with respect to the date of execution. Consequently, upon
shareholder approval, CLS will continue to render substantially the same
services to the CLS Funds under the New CLS Agreements that it currently renders
to the CLS Funds under the Current CLS Agreements.
The Current CLS Agreements will remain in place until the completion
of the Transaction, at which time, as a result of the change in the control of
the Investment Adviser, the Current CLS Agreements will terminate. Thereafter,
subject to shareholder approval, the New CLS Agreements will go into effect. If
for some reason the Transaction does not occur, the Current CLS Agreements will
not automatically terminate and will remain in effect, and the New CLS
Agreements will not be entered into, even if they have been approved by Fund
shareholders.
The effectiveness of Proposal 2 is also contingent on the approval of
Proposal 1 by shareholders of the corresponding CLS Funds.
INFORMATION ABOUT CLS
CLS Investments, LLC, located at 4020 South 147th Street, Omaha,
Nebraska, 68137, currently serves as sub-adviser to each of Amerigo Fund,
Clermont Fund and Select Allocation Fund pursuant to the Current CLS Agreement.
Information regarding the Current CLS Agreement, including (a) the date of the
agreement, (b) the date on which it was last approved by shareholders and (c)
the rate of compensation to CLS, is provided in Appendix G. If the New CLS
Agreement is approved by shareholders, it will continue for an initial term of
two years and for subsequent one-year terms so long as it is renewed annually in
accordance with its terms (see discussion under "Term and Continuance" below).
Information regarding the name(s), address(es) and principal
occupation(s) of the principal executive officer(s) and managing member(s) of
CLS is set forth in Appendix H. A list of the Trustees and officers of the Trust
who hold positions with CLS also is set forth in Appendix H. In addition, set
forth in Appendix I is a list of other registered investment companies with
similar investment objectives as the CLS Funds, for which CLS acts as investment
manager, adviser or sub-adviser.
16
CLS is a wholly-owned subsidiary of Northstar Financial Services
Group, LLC ("Northstar"), a Nevada limited liability company. NorthStar is
owned 50% by W. Patrick Clarke and 50% by Michael Miola, both of whom serve as a
manager of CLS.
MATERIAL TERMS OF THE CLS SUB-ADVISORY AGREEMENT
The following summary of the New CLS Agreement between the Investment
Adviser and CLS summarizes its material terms and is qualified in its entirety
by reference to such New CLS Agreement, a form of which is attached in Appendix
F.
DUTIES OF CLS. Under the Current CLS Agreement and the New CLS
Agreement, each between the Investment Adviser and CLS (collectively, the "CLS
Sub-Advisory Agreements"), CLS, subject to the supervision of the Investment
Adviser and the Board, is responsible for managing the assets of each of the CLS
Funds, including making investment decisions and placing orders to purchase and
sell securities for such Funds, all in accordance with the investment objective
and policies of such Funds as reflected in their current prospectus and
statement of additional information and as may be adopted from time to time by
the Board. In accordance with applicable requirements, CLS will also maintain
all books and records relating to the transactions it executes or that are
otherwise required, and render to the Trust and the Investment Adviser such
periodic and special reports at any time upon reasonable request.
INDEMNITY OBLIGATION. The CLS Sub-Advisory Agreements provide that
each of the Investment Adviser and CLS agrees to indemnify each other against
any claim, loss or liability (including reasonable attorney's fees) arising as a
result of the failure to meet the standard of care (generally the care, skill,
prudence and diligence under the circumstances then prevailing that a prudent
person acting in a like capacity and familiar with such matters would use) set
forth in the CLS Sub-Advisory Agreements. Furthermore, the Investment Adviser
and CLS each agrees to indemnify each other against any claim, loss or liability
(including reasonable attorney's fees) arising or as a result of willful
misfeasance, bad faith or gross negligence in the performance of its duties, or
by reason of reckless disregard of its obligation and duties thereunder.
TERM AND CONTINUANCE. Under their terms, the CLS Sub-Advisory
Agreements will remain in full force and effect for a period of up to two years
from the date of their execution, and will continue thereafter as long as their
continuance is approved at least annually by the Board or by vote of a majority
of the outstanding shares of a CLS Fund, as well as by a majority of the
Independent Trustees by vote cast in person at a meeting called for that
purpose. However, the CLS Sub-Advisory Agreements may be terminated with respect
to a CLS Fund, at any time upon 60 days' written notice without the payment of
any penalty, either by the Investment Adviser or CLS. Additionally, each CLS
Sub-Advisory Agreement will terminate immediately in the event of its assignment
or upon the termination of the corresponding Investment Advisory Agreement.
BOARD RECOMMENDATION ON PROPOSAL 2
THE TRUSTEES UNANIMOUSLY RECOMMEND THAT SHAREHOLDERS
OF THE CLS FUNDS VOTE "FOR" PROPOSAL 2
17
PROPOSAL 3--THE APPROVAL OF NEW SUB-ADVISORY AGREEMENTS
WITH RESPECT TO:
DWA FLEXIBLE ALLOCATION FUND
DWA SECTOR ROTATION FUND
As discussed above, Proposal 3 relates to the approval by shareholders
of the New DWA Agreements between the Investment Adviser and DWA with respect to
DWA Flexible Allocation Fund and DWA Sector Rotation Fund. You are being asked
to vote separately on Proposal 3 solely with respect to the DWA Fund(s) that you
own. A form of the New DWA Agreements is attached in Appendix J.
The terms of the New DWA Agreements are identical to those of the
corresponding Current DWA Agreements except with respect to the date of
execution. Consequently, upon shareholder approval, DWA will continue to render
substantially the same services to the DWA Funds under the New DWA Agreements
that it currently renders to the DWA Funds under the Current DWA Agreements.
The Current DWA Agreements will remain in place until the completion
of the Transaction, at which time, as a result of the change in the control of
the Investment Adviser, the Current DWA Agreements will terminate. Thereafter,
subject to shareholder approval, the New DWA Agreements will go into effect. If
for some reason the Transaction does not occur, the Current DWA Agreements will
not automatically terminate and will remain in effect, and the New DWA
Agreements will not be entered into, even if they have been approved by Fund
shareholders.
The effectiveness of Proposal 3 is also contingent on the approval of
Proposal 1 by shareholders of the corresponding DWA Funds.
INFORMATION ABOUT DWA
Dorsey, Wright & Associates, Inc., located at 9201 Forest Hill Avenue,
Suite 100, Richmond, VA 23235, currently serves as sub-adviser to each of DWA
Flexible Allocation Fund and DWA Sector Rotation Fund pursuant to the Current
DWA Agreement. Information regarding the Current DWA 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 DWA, is provided in Appendix K.
If the New DWA 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
DWA is set forth in Appendix L. A list of the Trustees and officers of the Trust
who hold positions with DWA also is set forth in Appendix L. In addition, set
forth in Appendix M is a list of other registered investment companies with
similar investment objectives as the DWA Funds, for which DWA acts as investment
manager, adviser or sub-adviser. DWA has announced that they may undergo a
18
change of ownership in the upcoming months which is expected to result in a
"change of control" and thus would terminate the New DWA Agreements. It is
anticipated that if Proposal 6 of this proxy statement (i.e., the proposal to
approve a manager of managers arrangement) is approved by shareholders, the New
DWA Agreements would be renewed without shareholder approval, as permitted under
the arrangement, in order to avoid the expense of an additional solicitation.
MATERIAL TERMS OF THE DWA SUB-ADVISORY AGREEMENT
The following summary of the New DWA Agreements between the Investment
Adviser and DWA summarizes its material terms and is qualified in its entirety
by reference to such New DWA Agreements, a form of which is attached in Appendix
J.
DUTIES OF DWA. Under the Current DWA Agreements and the New DWA
Agreements, each between the Investment Adviser and DWA (collectively, the "DWA
Sub-Advisory Agreements"), DWA, subject to the supervision of the Investment
Adviser and the Board, is responsible for holding and selling investments for
the account of each of the DWA Funds. In accordance with applicable
requirements, DWA will also maintain all books and records relating to the
transactions it executes or that are otherwise required, and render to the Trust
and the Investment Adviser such periodic and special reports at any time upon
reasonable request.
INDEMNITY OBLIGATION. The DWA Sub-Advisory Agreements provide that
each of the Investment Adviser and DWA agrees to indemnify each other against
any losses, claims, damages, liabilities or litigation (including legal and
other expenses) incurred or suffered as a result of error of judgment or mistake
of law, unless such losses, claims, damages, liabilities or litigation arise out
of or are based on (i) any willful misconduct, bad faith, reckless disregard or
gross negligence of the either party in the performance of any of its duties or
obligations under the DWA Sub-Advisory Agreements or (ii) any untrue statement
of a material fact contained in the prospectus, proxy materials, reports,
advertisements, sales literature, or other materials pertaining to a Fund or the
omission to state therein a material fact therein. Unless otherwise obligated
under applicable law, the Investment Adviser and DWA will not be liable for
consequential or indirect damages even if the Investment Adviser and DWA have
been advised of the possibility or likelihood of the occurrence of such damages.
TERM AND CONTINUANCE. Under their terms, the DWA Sub-Advisory
Agreements will remain in full force and effect for a period of up to two years
from the date of their execution, and will continue thereafter as long as their
continuance is approved at least annually by the Board or by vote of a majority
of the outstanding shares of a DWA 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 DWA Sub-Advisory Agreements may be terminated with respect
to a DWA Fund, at any time upon 60 days' written notice without the payment of
any penalty, either by the Investment Adviser or DWA. Additionally, each DWA
Sub-Advisory Agreement will terminate immediately in the event of its assignment
or upon the termination of the corresponding Investment Advisory Agreement.
19
BOARD RECOMMENDATION ON PROPOSAL 3
THE TRUSTEES UNANIMOUSLY RECOMMEND THAT SHAREHOLDERS
OF THE DWA FUNDS VOTE "FOR" PROPOSAL 3
20
PROPOSAL 4--THE APPROVAL OF NEW SUB-ADVISORY AGREEMENT
WITH RESPECT TO:
LONG SHORT INTEREST RATE STRATEGY FUND
As discussed above, Proposal 4 relates to the approval by shareholders
of the New AIFS Agreement between the Investment Adviser and AIFS with respect
to Long Short Interest Rate Strategy Fund. You are being asked to vote
separately on Proposal 4 solely if you own the AIFS Fund. A form of the New AIFS
Agreement is attached in Appendix N.
The terms of the New AIFS Agreement are identical to those of the
Current AIFS Agreement, except with respect to the date of execution.
Consequently, upon shareholder approval, AIFS will continue to render
substantially the same services to the AIFS Fund under the New AIFS Agreement
that it currently renders to the AIFS Fund under the Current AIFS Agreement.
The Current AIFS 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 AIFS Agreement will terminate. Thereafter,
subject to shareholder approval, the New AIFS Agreement will go into effect. If
for some reason the Transaction does not occur, the Current AIFS Agreement will
not automatically terminate and will remain in effect, and the New AIFS
Agreement will not be entered into, even if it has been approved by Fund
shareholders.
The effectiveness of Proposal 4 is also contingent on the approval of
Proposal 1 by shareholders of the AIFS Fund.
INFORMATION ABOUT AIFS
American Independence Financial Services, LLC, located at 335 Madison
Avenue, Mezzanine, New York, New York 10017, currently serves as sub-adviser to
Long Short Interest Rate Strategy Fund pursuant to the Current AIFS Agreement.
Information regarding the Current AIFS 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 AIFS, is provided in Appendix O. If the New CLS
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
AIFS is set forth in Appendix P. A list of the Trustees and officers of the
Trust who hold positions with AIFS also is set forth in Appendix P. In addition,
set forth in Appendix Q is a list of other registered investment companies with
similar investment objectives as the AIFS Fund, for which AIFS acts as
investment manager, adviser or sub-adviser.
21
MATERIAL TERMS OF THE AIFS SUB-ADVISORY AGREEMENT
The following summary of the New AIFS Agreement between the Investment
Adviser and AIFS summarizes its material terms and is qualified in its entirety
by reference to such New AIFS Agreement, a form of which is attached in Appendix
N.
DUTIES OF AIFS. Under the Current AIFS Agreement and the New AIFS
Agreement, each between the Investment Adviser and AIFS (collectively, the "AIFS
Sub-Advisory Agreements"), AIFS, subject to the supervision of the Investment
Adviser and the Board, acts as research provider for and provides certain
investment advice for the management of the assets of the AIFS Fund, all in
accordance with the investment objective and policies of such Fund as reflected
in the current prospectus and statement of additional information as may be
adopted from time to time by the Board. In accordance with applicable
requirements, AIFS will also maintain all books and records relating to the
transactions it executes or that are otherwise required, and render to the Trust
and the Investment Adviser such periodic and special reports at any time upon
reasonable request.
INDEMNITY OBLIGATION. The AIFS Sub-Advisory Agreements provide that
AIFS shall indemnify the Investment Adviser and the Trust, and their respective
officers and trustees, for any liability and expenses, including reasonable
attorneys' fees, which may be sustained as a result of AIFS' willful
misfeasance, bad faith or gross negligence, or the reckless disregard of its
obligations and duties under the AIFS Sub-Advisory Agreements. The AIFS
Sub-Advisory Agreements also provide that the Investment Adviser shall indemnify
AIFS and its officers and members for any liability and expenses, including
reasonable attorneys' fees, which may be sustained as a result of the AIFS'
performance of its obligations hereunder, except where such liability or expense
results from the AIFS' willful misfeasance, bad faith or gross negligence, or
the reckless disregard of the its obligations and duties under the AIFS
Sub-Advisory Agreements.
TERM AND CONTINUANCE. Under their terms, the AIFS 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 AIFS 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 AIFS Sub-Advisory Agreements may be terminated with
respect to the AIFS Fund, at any time without the payment of any penalty upon
30-60 days' written notice, either by the Investment Adviser or the Trust, or
upon 60 days' written notice by AIFS. Additionally, each AIFS Sub-Advisory
Agreement will terminate immediately in the event of its assignment or upon the
termination of the corresponding Investment Advisory Agreement.
BOARD RECOMMENDATION ON PROPOSAL 4
THE TRUSTEES UNANIMOUSLY RECOMMEND THAT SHAREHOLDERS
OF THE AIFS FUNDS VOTE "FOR" PROPOSAL 4
22
PROPOSAL 5--THE APPROVAL OF THE ELECTION OF TRUSTEES FOR ALL FUNDS
Proposal 5 relates to the election of Trustees for the Board. The
Board proposes the election of the following nominees: Donald C. Cacciapaglia,
Corey A. Colehour, J. Kenneth Dalton, John O. Demaret, Richard M. Goldman,
Werner E. Keller, Thomas F. Lydon, Patrick T. McCarville and Roger Somers.
Each nominee has indicated a willingness to serve if elected. If elected, each
nominee will hold office for the life of a Trust or until retirement, removal,
or their office is terminated pursuant to the Trusts' Declarations of Trust. A
Trustee may be removed either by: (i) the vote or written consent of at least
two-thirds of the Trustees prior to such removal or (ii) the vote or written
consent of Shareholders owning at least than two-thirds of a Trust's outstanding
shares.
In connection with the Transaction, the Board believes that expanding
the Board to include Mr. Cacciapaglia, who is a senior member of management of
Guggenheim's investment management business, and who is proposed to serve on
other boards in the Rydex|SGI family of funds, would be appropriate. If elected,
Mr. Cacciapaglia would be an Interested Trustee due to the position he holds
with Guggenheim Capital.
The Board believes that it is in shareholders' best interest to have a
Board that is composed entirely of elected trustees. The Board also believes
that good governance practices involve having a majority of its members be
Independent Trustees. If all of the nominees are elected, the Board will
consist of seven trustees who are not considered to be "interested persons" of
the Funds as defined in the 1940 Act and two trustees who are considered to be
"interested persons" of the Funds as defined in the 1940 Act.
The Trusts' Nominating Committee, which is responsible for
identifying, evaluating and nominating individuals to serve as trustees of the
Trusts, recommended that the Board expand in size to nine members, and include a
trustee who is affiliated with the Investment Adviser's parent company,
Guggenheim Capital. The Board considered the long-term ability of the Rydex|SGI
family of funds to operate in an efficient and cohesive manner and determined
that expanding the size of the Board to include a representative of the parent
of the Investment Adviser would benefit the Funds. The Nominating Committee
also considered Mr. Cacciapaglia's skills and background, and noted that his
past and current experience in various aspects of banking and finance would make
him a strong addition to the Board. At a meeting held on September 16, 2011,
the Board approved the Nominating Committee's recommendation that the nine
nominees stand for election.
INFORMATION REGARDING THE NOMINEES
The following table lists the nominees for Trustee, including the
current Trustees, their ages, current position(s) held with the Trusts, length
of time served, principal occupations during the past five years, number of
funds overseen within the fund complex and other directorships/trusteeships held
outside of the fund complex. For the new Trustee nominee, the table shows the
number of funds the nominee will oversee if elected. The fund complex consists
of Rydex ETF Trust, Rydex Variable Trust, Rydex Series Funds, Rydex Dynamic
Funds, Security Equity Fund, Security Income Fund, Security Large Cap Value
Fund, Security Mid Cap Growth Fund and SBL Fund. The mailing address of each
nominee is 805 King Farm Boulevard, Suite 600, Rockville, Maryland 20850.
23
---------------------------------------------------------------------------------------------------------------------------------
NUMBER OF
PORTFOLIOS
POSITION(S) HELD WITH IN FUND
THE TRUSTS, TERM OF COMPLEX OTHER
NAME, ADDRESS OFFICE AND LENGTH OF PRINCIPAL OCCUPATION(S) OVERSEEN DIRECTORSHIPS
AND AGE OF TRUSTEE TIME SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE
---------------------------------------------------------------------------------------------------------------------------------
INTERESTED TRUSTEES*
---------------------------------------------------------------------------------------------------------------------------------
Donald C. Nominee Guggenheim Investments: [ ] None
Cacciapaglia ([age])* President and Chief Administrative Officer
from February 2010 to present
Channel Capital Group Inc.: Chairman and
CEO from [month] 2002 to [ ]
---------------------------------------------------------------------------------------------------------------------------------
Richard M. Goldman Trustee and President Security Benefit Corporation: Senior [ ] None
(50)** from 2009 to present Vice President from March 2007 to present
Security Benefit Asset Management
Holdings, LLC: Chief Executive Officer
from October 2010 to present
Rydex Holdings, LLC: Chief Executive
Officer & Manager from January 2009 to
present
Security Investors, LLC: President, CEO &
Member Representative from August 2007
to present
Rydex Distributors, LLC: President, Chief
Executive Officer and Manager from
January 2009 to present
Rydex Fund Services, LLC: Manager from
July 2009 to present
SBL Fund, Security Equity Fund, Security
Income Fund, Security Large Cap Value
Fund and Security Mid Cap Growth Fund:
President from May 2008 to present
First Security Benefit Life and Annuity
Insurance Company of New York: Director
from September 2007 to September 2010
Rydex Advisors, LLC: Director and Chief
Executive Officer from January 2009 to
January 2010
Rydex Advisors II, LLC: Director and Chief
Executive Officer from January 2009 to
January 2010
---------------------------------------------------------------------------------------------------------------------------------
24
---------------------------------------------------------------------------------------------------------------------------------
NUMBER OF
PORTFOLIOS
POSITION(S) HELD WITH IN FUND
THE TRUSTS, TERM OF COMPLEX OTHER
NAME, ADDRESS OFFICE AND LENGTH OF PRINCIPAL OCCUPATION(S) OVERSEEN DIRECTORSHIPS
AND AGE OF TRUSTEE TIME SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE
---------------------------------------------------------------------------------------------------------------------------------
Security Global Investors, LLC: Manager
and President from May 2007 to January
2010
Security Distributors, Inc.: Director from
March 2007 to 2009
R.M. Goldman Partner, LLC: Managing
Member from February 2006 to February
2007
---------------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
---------------------------------------------------------------------------------------------------------------------------------
Corey A. Colehour Rydex Variable Trust: Retired; President and Senior Vice [ ] None
(65) Trustee from 2003 to President of Schield Management Company
present; Member of the (registered investment adviser) from 2003
Audit Committee from to 2006
2003 to present; and
Member of the
Governance and
Nominating Committees
from 2005 to present
Rydex Series Funds:
Trustee from 1993 to
present; and Member
of the Audit and
Governance and
Nominating Committees
from 1995 to present
Rydex Dynamic Funds:
Trustee and Member of
the Audit, Governance
and Nominating
Committees from 1999
to present
---------------------------------------------------------------------------------------------------------------------------------
J. Kenneth Dalton Rydex Variable Trust: Retired [ ] Trustee of
(70) Trustee from 2003 to Epiphany Funds
present; Member and since 2009
Chairman of the Audit
Committee from 2003
to present; Member of
the Governance and
Nominating Committees
from 2005 to present;
and Member of the Risk
Oversight Committee
from 2010 to present
Rydex Series Funds:
Trustee from 1995 to
present; Member of
the Governance and
Nominating Committees
from 1995 to present;
Chairman of the Audit
Committee from 1997
to present; and
Member of the Risk
Oversight Committee
from 2010 to present
Rydex Dynamic Funds:
Trustee and Member of
the Governance and
Nominating Committees
from 1999 to present;
Chairman of the Audit
Committee from 2006 to
present; and Member of
the Risk Oversight
Committee from 2010
to present
---------------------------------------------------------------------------------------------------------------------------------
John O. Demaret (71) Rydex Variable Trust: Retired [ ] None
Trustee from 2003 to
present; Chairman of
the Board from 2006
to present; Member of
the Audit Committee
from 2003 to present;
and Member of the Risk
Oversight Committee
from 2010 to present
Rydex Series Funds:
Trustee from 1997 to
present; Chairman of
the Board from 2006
to present; Member
of the Audit Committee
from 1997 to present;
and Member of the Risk
Oversight Committee
from 2010 to present
Rydex Dynamic Funds:
Chairman of the Board
from 2006 to present;
Trustee and Member of
the Audit Committee
from 1999 to present;
and Member of Risk
Oversight Committee
from 2010 to present
---------------------------------------------------------------------------------------------------------------------------------
Werner E. Keller (71) Rydex Variable Trust: Founder and President of Keller Partners, [ ] None
Vice Chairman of the LLC (registered investment adviser) from
Board of Trustee from 2005 to present; and Retired from 2001 to
2010 to present; 2005
Trustee and Member
of the Audit and
Governance and
Nominating Committees
from 2005 to present;
and Chairman and
Member of Risk
Oversight Committee
from 2010 to present
Rydex Series Funds:
Vice Chairman of the
Board of Trustees
from 2010 to present;
Trustee and Member
of the Audit and
Governance and
Nominating
---------------------------------------------------------------------------------------------------------------------------------
25
---------------------------------------------------------------------------------------------------------------------------------
NUMBER OF
PORTFOLIOS
POSITION(S) HELD WITH IN FUND
THE TRUSTS, TERM OF COMPLEX OTHER
NAME, ADDRESS OFFICE AND LENGTH OF PRINCIPAL OCCUPATION(S) OVERSEEN DIRECTORSHIPS
AND AGE OF TRUSTEE TIME SERVED DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE
---------------------------------------------------------------------------------------------------------------------------------
Committees from
2005 to present and
Chairman and Member
of the Risk Oversight
Committee from 2010
to present
Rydex Dynamic Funds:
Vice Chairman of the
Board of Trustee from
2010 to present and
Trustee since 2005;
Member of the Audit,
Governance, and
Nominating Committees
from 2005 to present;
and Chairman and
Member of the Risk
Oversight Committee
from 2010 to present
---------------------------------------------------------------------------------------------------------------------------------
Thomas F. Lydon Rydex Variable Trust: President of Global Trends Investments [ ] Board of
(51) Trustee and Member of (registered investment adviser) from 1996 Directors of US
the Audit and to present Global Investors
Governance and (GROW) since
Nominating Committees April 1995
from 2005 to present
Rydex Series Funds:
Trustee and Member
of the Audit,
Governance and
Nominating Committees
from 2005 to present.
Rydex Dynamic Funds:
Trustee and Member
of the Audit,
Governance, and
Nominating Committees
from 2005 to present
---------------------------------------------------------------------------------------------------------------------------------
Patrick T. McCarville Rydex Variable Trust: Retired. Chief Executive Officer of Par [ ] None
(69) Trustee from 2003 to Industries, Inc., d/b/a Par Leasing from
present; Member of 1977 to 2010
the Audit Committee
from 2003 to present;
and Chairman of the
Governance and
Nominating Committees
from 2005 to present
Rydex Series Funds:
Trustee from 1997 to
present; Chairman of
the Governance and
Nominating Committees
from 1997 to present;
and Member of the Audit
Committee from 1997
to present.
Rydex Dynamic Funds:
Trustee, Chairman of
the Governance and
Nominating Committees
and Member of the
Audit Committee from
1999 to present
---------------------------------------------------------------------------------------------------------------------------------
Roger Somers (67) Rydex Variable Trust: Founder and Chief Executive Officer of [ ] None
Trustee from 2003 to Arrow Limousine from 1965 to present
present; Member of
the Audit Committee
from 2003 to present;
and Member of the
Governance and
Nominating Committees
from 2005 to present
Rydex Series Funds:
Trustee from 1993 to
present; and Member
of the Audit and
Governance and
Nominating Committees
from 1995 to present.
Rydex Dynamic Funds:
Trustee and Member
of the Audit,
Governance, and
Nominating Committees
from 1999 to present
---------------------------------------------------------------------------------------------------------------------------------
* Mr. Cacciapaglia is an "interested" person of the Trust, as that term is
defined in the 1940 Act by virtue of his affiliation with the Investment
Adviser's parent company.
** Mr. Goldman is an "interested" person of the Trust, as that term is defined
in the 1940 Act by virtue of his affiliation with the Funds' Investment
Adviser.
The Chairman of the Board, John O. Demaret, is an Independent Trustee.
The Trusts have determined its leadership structure is appropriate given the
specific characteristics and circumstances of the Trusts. The Trusts made this
determination in consideration of, among other things, the fact that the
Chairman of the Board is an Independent Trustee; the fact that only two of the
proposed nominees are "interested persons" of the Trusts; the fact that the
chairperson of each Committee of the Board is an Independent Trustee; the amount
of assets under management in the Trusts; and the number of Funds (and classes
of shares) overseen by the Board. The Board also believes that its leadership
structure facilitates the orderly and efficient flow of information to the
Independent Trustees from Fund management.
26
BOARD'S CONSIDERATION OF EACH NOMINEE'S QUALIFICATIONS, EXPERIENCE,
ATTRIBUTES OR SKILLS
The Board has concluded that each of the nominees should serve on the
Board because of his ability to review and understand information about the
Trusts and the Funds provided to him by management; to identify and request
other information he may deem relevant to the performance of his duties; to
question management and other service providers regarding material factors
bearing on the management and administration of the Funds; and to exercise his
business judgment in a manner that serves the best interests of the Funds'
shareholders. The Board has concluded that each of the nominees should serve as
a Trustee based on his experience, qualifications, attributes and skills as
described below.
The Board has concluded that Donald C. Cacciapaglia should serve as
Trustee because of his prior experience working in the investment banking and
financial services industries. He is President and Chief Operating Officer of
Guggenheim's investment management business. Most recently he was chairman and
CEO of Channel Capital Group Inc. and its subsidiary broker-dealer Channel
Capital Group LLC, an affiliate of Guggenheim Capital, from 2002 through [ ].
From 1996 until 2002 when he joined Channel Capital Group, Mr. Cacciapaglia held
the position of Managing Director and Chief Operating Officer of the Investment
Banking Group at PaineWebber. Additionally, in 1998, he started PaineWebber's
Private Equity Group and assumed responsibility for the coverage of leveraged
buyout firms and the Investment Bank's Business Development Group. Before that,
Mr. Cacciapaglia was Chief Operating Officer of the Short and Intermediate
Trading Group at CS First Boston (1995-1996). From his experience as President
and COO of Guggenheim, and from his prior work experience, Mr. Cacciapaglia has
extensive knowledge of the financial services industry and mutual fund business.
The Board has concluded that Richard M. Goldman should serve as
Trustee because of the experience he has gained as a Trustee of each Trust since
2009 and his experience working in the financial services and mutual fund
industries. Mr. Goldman has gained valuable knowledge and experience from
holding multiple roles with Security Global Investors, LLC and Security Benefit
Corporation. Mr. Goldman also serves as a director for First Security Benefit
Life and Annuity Insurance Company of New York and previously served as a
director of Security Distributors, Inc. Prior to working for Security Benefit,
Mr. Goldman was the President and CEO of ForstmannLeff Associates, an
investment management firm. From his experience as CEO of the Investment
Adviser, as a Trustee, and from his prior work experience, Mr. Goldman has
extensive knowledge of the financial services industry and mutual fund business.
The Board has concluded that Corey A. Colehour should serve as Trustee
because of the experience he has gained as a Trustee of each Trust and his prior
experience working in the financial services industry. Mr. Colehour has served
as a Trustee of Rydex Series Funds since 1993, Rydex Variable Trust since 1998,
Rydex Dynamic Funds since 1999, and Rydex ETF Trust since 2003. Mr. Colehour
also has served as a member of the Audit and Nominating and Governance
Committees of each Trust. In addition to his experience as a Trustee for the
Funds and his extensive institutional knowledge of the fund complex, Mr.
Colehour acquired valuable knowledge about the operations of a registered
investment adviser in his role as President and Senior Vice-President of Schield
Management Company, an SEC registered investment adviser. Mr. Colehour's
significant tenure as a Trustee and his extensive knowledge of the financial
services industry qualify Mr. Colehour to serve as Trustee.
27
The Board has concluded that J. Kenneth Dalton should serve as Trustee
because of his role as a Trustee of each Trust and his extensive knowledge of
the banking and financial services industry. Mr. Dalton has served as a Trustee
of Rydex Series Funds since 1995, Rydex Variable Trust since 1998, Rydex Dynamic
Funds since 1999, and Rydex ETF Trust since 2003. Mr. Dalton also has served as
a member and Chairman of the Audit Committee of Rydex Series Funds since 1997,
Rydex Variable Trust since 1998, Rydex Dynamic Funds since 2006, and Rydex ETF
Trust since 2003; and as a member of the Nominating, Governance and Risk
oversight Committees of each Trust since 2005 and as a member of the Risk
Oversight Committee since 2010. The expertise Mr. Dalton developed during his
more than thirty years in the mortgage and banking industries, including
positions as President of CRAM Mortgage Group, Inc. and as the founder of the
Dalton Group, a mortgage banking consulting firm, serves as a valuable resource
for the Board when evaluating certain of the Funds' investments and the
conditions of the banking and mortgage industries in general, and complements
the other Trustees' areas of expertise. Mr. Dalton's service as a trustee for
another mutual fund company also provides invaluable experience and perspective
to the Board and has contributed to Mr. Dalton's knowledge of the mutual fund
business.
The Board has concluded that John O. Demaret should serve as Trustee
and Chairman of the Board because of the experience he has gained as a Trustee
of each Trust and his experience as Chairman of the Board since 2006. Mr.
Demaret has served as a Trustee of Rydex Series Funds since 1997, Rydex Variable
Trust since 1998, Rydex Dynamic Funds since 1999, and Rydex ETF Trust since
2003. Mr. Demaret also has served as a member of the Audit and Risk oversight
Committees of each Trust. As Chairman of the Board, Mr. Demaret has experience
working with all of the Trustees, Officers and management to effectively lead
and communicate with the Board. In addition to his experience as a Trustee for
the Rydex Funds, Mr. Demaret also was Founder and CEO of Health Costs Controls
America and served as General Counsel of the Chicago Transit Authority, and as a
senior partner in a private legal practice. Based on his prior work experience
and his experience serving as a Trustee and Chairman of the Board, Mr. Demaret
has extensive knowledge of the mutual fund business and financial services
industry.
The Board has concluded that Werner E. Keller, CFA should serve as
Trustee because of the experience he has gained as a Trustee of each Trust since
2005 and his prior experience working in the financial services industry. Mr.
Keller also served as a trustee of the Rydex Capital Partners Sphinx Fund from
2003 to 2007. Mr. Keller has served as a member of the Audit, Governance and
Nominating Committees of each Trust. In addition, Mr. Keller has served as the
Chairman of the Risk Oversight Committee of each Trust since 2010. Mr. Keller
serves as the Financial Expert of the Audit Committee. In addition to his
experience as a Trustee for the Funds, Mr. Keller acquired understanding about
the operations of a registered investment adviser during his tenure as Founder
and President of Centurion Capital Management, an SEC-registered investor
adviser. He also held the position of Director of Research for three NYSE member
firms and taught courses in portfolio management and investment analysis at UCLA
Extension. In addition, he has published several academic articles on
quantitative investment topics. Mr. Keller's service as a Trustee for five
years, specialized prior work experience, and knowledge of the financial
services industry and mutual fund business qualify Mr. Keller to serve as a
Trustee of the Funds.
The Board has concluded that Thomas F. Lydon should serve as Trustee
because of the experience he has gained as a Trustee of each Trust since 2005
and his prior work experience in the financial services industry. Mr. Lydon also
served as a trustee of the Rydex Capital Partners Sphinx Fund from 2003 to 2007.
Mr. Lydon has served as a member of the Audit, Governance and Nominating
Committees of each Trust. In addition to his experience as a Trustee for the
Funds, Mr. Lydon is currently President of Global Trends Investments, an SEC
registered investment
28
adviser, where he has served since 1996. Mr. Lydon has also served on the board
of U.S. Global Investors, Inc. (GROW), the investment adviser and transfer agent
to thirteen open-end investment companies, since April 1995, and is the editor
of ETF Trends, a website specializing in daily news and commentary about the ETF
industry. He has also authored two books about ETFs. Based on his experience as
a Trustee for five years, his experience serving on another board, and his
related work experience, Mr. Lydon has extensive knowledge of the mutual fund
business and the financial services industry.
The Board has concluded that Patrick T. McCarville should serve as
Trustee because of the experience and institutional knowledge he has gained in
his role as Trustee of each Trust. Mr. McCarville has served a Trustee of Rydex
Series Funds since 1997, Rydex Variable Trust since 1998, Rydex Dynamic Funds
since 1999, and Rydex ETF Trust since 2003. Mr. McCarville also has served as a
member of the Audit, Governance and Nominating Committees of each Trust. Mr.
McCarville contributes a wealth of business and management experience to the
Board having founded Par Industries, Inc., a well-established equipment leasing
business, and serving as its Chief Executive Officer for more than thirty years.
Mr. McCarville continues to be active in the manufacturing industry and serves
as a Director of Tomco Equipment Co., a manufacturer of cylinders for CO2
distribution. Based on his extensive business experience and experience serving
as a Trustee, Mr. McCarville has extensive knowledge of the financial services
industry.
The Board has concluded that Roger Somers should serve as Trustee
because of the experience and institutional knowledge he has gained in his role
as Trustee of each Trust. Mr. Somers has served as a Trustee of Rydex Series
Funds since 1993, Rydex Variable Trust since 1998, Rydex Dynamic Funds since
1999, and Rydex ETF Trust since 2003. Mr. Somers also has served as a member of
the Audit, Governance and Nominating Committees of each Trust. Mr. Somers has
extensive business experience as the founder and president of a transportation
company. Due to his business experience and experience serving as a Trustee, Mr.
Somers is very knowledgeable about the financial services industry.
If the nominees are elected, Mr. Demaret would remain the Chairman of
the Board.
PRINCIPAL OFFICERS OF THE FUNDS
Officers of the Funds are appointed by the Board and serve at the
pleasure of the Board. The following table shows information about the
principal officers, including their ages, their positions with the Trust and
their principal occupations during the past five years. The mailing address of
each officer is 805 King Farm Boulevard, Suite 600, Rockville, Maryland 20850.
Each officer will hold office until his or her successor has been duly elected
or appointed or until his or her earlier death, resignation or removal.
-----------------------------------------------------------------------------------------------------------------------
NUMBER OF
PORTFOLIOS
POSITION(S) HELD WITH IN FUND
NAME, ADDRESS THE TRUST, TERM OF COMPLEX
AND AGE OF OFFICE AND LENGTH OF PRINCIPAL OCCUPATION(S) OVERSEEN
TRUSTEE/OFFICER TIME SERVED DURING PAST 5 YEARS BY OFFICER
-----------------------------------------------------------------------------------------------------------------------
Richard M. Goldman President from 2009 Current: Senior Vice President, Security Benefit [ ]
(50) to present Corporation; CEO, Security Benefit Asset Management
Holdings, LLC; CEO, President & Manager Representative,
Security Investors, LLC; CEO & Manager,
-----------------------------------------------------------------------------------------------------------------------
29
-----------------------------------------------------------------------------------------------------------------------
NUMBER OF
PORTFOLIOS
POSITION(S) HELD WITH IN FUND
NAME, ADDRESS THE TRUST, TERM OF COMPLEX
AND AGE OF OFFICE AND LENGTH OF PRINCIPAL OCCUPATION(S) OVERSEEN
TRUSTEE/OFFICER TIME SERVED DURING PAST 5 YEARS BY OFFICER
-----------------------------------------------------------------------------------------------------------------------
Rydex Holdings, LLC; CEO, President, & Manager, Rydex
Distributors, LLC; Manager, Rydex Fund Services, LLC;
and President, Rydex Series Funds, Rydex ETF Trust,
Rydex Dynamic Funds and Rydex Variable Trust
Previous: Director, First Security Benefit Life Insurance
Company (2007-2010); President & Director, Security
Global Investors (2010-2011); CEO & Director, Rydex
Advisors, LLC & Rydex Advisor II, LLC (2010); Director,
Security Distributors, Inc. (2007-2009); and Managing
Member, RM Goldman Partners, LLC (2006-2007).
-----------------------------------------------------------------------------------------------------------------------
Michael P. Byrum Rydex Variable Trust: Current: President, Security Benefit Asset Management [ ]
(41) Trustee from 2005 to Holdings, LLC; Senior Vice President, Security Investors,
2009; Vice President LLC; President & Chief Investment Officer, Rydex
from 2003 to present. Holdings, LLC; Director & Chairman of the Board, Advisor
Research Center, Inc.; and Manager, Rydex Specialized
Rydex Series Funds: Products, LLC.
Vice President from
1999 to present; Previous: Rydex Distributors, LLC (f/k/a Rydex
Trustee from 2005 to Distributors, Inc.), Vice President (2009); Rydex Fund
2009 Services, LLC, Director (2009-2010), Secretary (2002-
2010), Executive Vice President (2002-2006); Rydex
Rydex Dynamic Funds: Advisors, LLC (f/k/a PADCO Advisors, Inc.), Director
Vice President from (2008-2010), Chief Investment Officer (2006-2010),
2005 to present; President (2004-2010); Secretary (2002-2010); Rydex
Trustee from 2005 Advisors II, LLC (f/k/a PADCO Advisors II, Inc.),
to 2009 Director (2008-2010), Chief Investment Officer (2006-
2010), President (2004-2010), Secretary (2002-2010);
Rydex Capital Partners, LLC, (President & Secretary
2003-2007); Rydex Capital Partners II, LLC, (2003-2007);
Rydex Holdings, LLC (f/k/a Rydex Holdings, Inc.),
Secretary 2005-2008), Executive Vice President (2005-
2006); Advisor Research Center, Inc., Secretary (2006-
2009), Executive Vice President (2006); and Rydex
Specialized Products, LLC, Secretary (2005-2008).
-----------------------------------------------------------------------------------------------------------------------
Nick Bonos (47) Rydex Variable Trust: Current: Senior Vice President, Security Investors, LLC; [ ]
Vice President and Chief Executive Officer & Manager, Rydex Specialized
Treasurer from 2003 Products, LLC; Chief Executive Officer & President,
to present Rydex Fund Services, LLC; Vice President, Rydex
Holdings, LLC; Treasurer, SBL Fund; Security Equity
Rydex Series Funds: Fund; Security Income Fund; Security Large Cap Value
Vice President and Fund & Security Mid Cap Growth Fund; and Vice
Treasurer from 2003 President, Security Benefit Asset Management Holdings,
to present. LLC.
Rydex Dynamic Funds: Previous: Security Global Investors, LLC, Senior Vice
Vice President and President (2010-2011); Rydex Advisors, LLC (f/k/a
Treasurer from 2003
to present
-----------------------------------------------------------------------------------------------------------------------
30
-----------------------------------------------------------------------------------------------------------------------
NUMBER OF
PORTFOLIOS
POSITION(S) HELD WITH IN FUND
NAME, ADDRESS THE TRUST, TERM OF COMPLEX
AND AGE OF OFFICE AND LENGTH OF PRINCIPAL OCCUPATION(S) OVERSEEN
TRUSTEE/OFFICER TIME SERVED DURING PAST 5 YEARS BY OFFICER
-----------------------------------------------------------------------------------------------------------------------
PADCO Advisors, Inc.) Senior Vice President (2006-
2011); Rydex Fund Services, LLC (f/k/a Rydex Fund
Services, Inc.), Director (2009) & Senior Vice President
(2003-2006); and Rydex Specialized Products, LLC, Chief
Financial Officer (2005-2009).
-----------------------------------------------------------------------------------------------------------------------
Joanna M. Haigney Rydex Variable Trust: Current: Chief Compliance Officer & Secretary, SBL [ ]
(44) Chief Compliance Fund; Security Equity Fund; Security Income Fund;
Officer from 2004 Security Large Cap Value Fund & Security Mid Cap
to present; and Growth Fund; Vice President, Rydex Holdings, LLC; Vice
Secretary from 2003 President, Security Benefit Asset Management Holdings,
to present LLC; and Senior Vice President & Chief Compliance
Officer, Security Investors, LLC
Rydex Series Funds:
Chief Compliance Previous: Security Global Investors, LLC, Senior Vice
Officer from 2004 to President (2010-2011); Rydex Advisors, LLC (f/k/a
present; and Secretary PADCO Advisors, Inc.) and Rydex Advisors II, LLC (f/k/a
from 2000 to present. PADCO Advisors II, Inc.), Chief Compliance Officer and
Senior Vice President (2010-2011); Rydex Capital Partners
Rydex Dynamic Funds: I, LLC & Rydex Capital Partners II, LLC, Chief
Chief Compliance Compliance Officer (2006-2007); and Rydex Fund
Officer from 2004 Services, LLC (f/k/a Rydex Fund Services, Inc.), Vice
to present; and President (2001-2006).
Secretary from 2000
to present
-----------------------------------------------------------------------------------------------------------------------
Joseph Arruda (44) Rydex Variable Trust: Current: Assistant Treasurer, SBL Fund; Security Equity [ ]
Assistant Treasurer Fund; Security Income Fund; Security Large Cap Value
from 2006 to present Fund & Security Mid Cap Growth Fund; Vice President,
Security Investors, LLC; and Chief Financial Officer &
Rydex Series Funds: Manager, Rydex Specialized Products, LLC.
Assistant Treasurer
from 2006 to present. Previous: Security Global Investors, LLC, Vice President
(2010-2011); and Rydex Advisors, LLC (f/k/a PADCO
Rydex Dynamic Funds: Advisors, Inc.) & Rydex Advisors II, LLC (f/ka/ PADCO
Assistant Treasurer Advisors II, Inc.), Vice President (2004-2011).
from 2006 to present.
-----------------------------------------------------------------------------------------------------------------------
Keith Fletcher (53) Rydex Variable Trust: Current: Senior Vice President, Security Investors, LLC; [ ]
Vice President from Vice President, Rydex Holdings, LLC; Vice President,
2009 to present Rydex Specialized Products, LLC; Vice President, Rydex
Distributors, LLC; Vice President, Rydex Fund Services,
Rydex Series Funds: LLC; Vice President and Director, Advisor Research
Vice President from Center, Inc.; and Vice President, SBL Fund; Security
2009 to present Equity Fund; Security Income Fund; Security Large Cap
Value Fund & Security Mid Cap Growth Fund.
Rydex Dynamic Funds:
Vice President from Previous: Security Global Investors, LLC, Vice President
2009 to present (2010-2011); Rydex Advisors, LLC (f/ka/ PADCO
Advisors, Inc.) & Rydex Advisors II, LLC (f/k/a PADCO
Advisors II, Inc.), Vice President (2009-2011); Lyster
Watson and Company, Managing Director (2007-2008);
-----------------------------------------------------------------------------------------------------------------------
31
-----------------------------------------------------------------------------------------------------------------------
NUMBER OF
PORTFOLIOS
POSITION(S) HELD WITH IN FUND
NAME, ADDRESS THE TRUST, TERM OF COMPLEX
AND AGE OF OFFICE AND LENGTH OF PRINCIPAL OCCUPATION(S) OVERSEEN
TRUSTEE/OFFICER TIME SERVED DURING PAST 5 YEARS BY OFFICER
-----------------------------------------------------------------------------------------------------------------------
and Fletcher Financial Group, Inc., Chief Executive
Officer (2004-2007).
-----------------------------------------------------------------------------------------------------------------------
Amy Lee (49) Rydex Variable Trust: Current: Senior Vice President & Secretary, Security [ ]
Vice President and Investors, LLC; Secretary & Chief Compliance Officer,
Assistant Secretary Security Distributors, Inc.; Vice President, Associate
from 2009 to present General Counsel & Assistant Secretary, Security Benefit
Life Insurance Company and Security Benefit Corporation;
Rydex Series Funds: Associate General Counsel, First Security Benefit Life
Vice President and Insurance and Annuity of New York; Vice President &
Assistant Secretary Secretary, SBL Fund; Security Equity Fund; Security
from 2009 to present Income Fund; Security Large Cap Value Fund & Security
Mid Cap Growth Fund; Vice President & Secretary, Rydex
Rydex Dynamic Funds: Holdings, LLC Secretary, Advisor Research Center, Inc.,
Vice President and Rydex Specialized Products, LLC, Rydex Distributors,
Assistant Secretary LLC and Rydex Fund Services, LLC; and Assistant
from 2009 to present Secretary, Security Benefit Clinic and Hospital
Previous: Security Global Investors, LLC, Senior Vice
President & Secretary (2007-2011); Rydex Advisors, LLC
(f/ka/ PADCO Advisors, Inc.) & Rydex Advisors II, LLC
(f/k/a PADCO Advisors II, Inc.), Senior Vice President &
Secretary (2010-2011); and Brecek & Young Advisors,
Inc., Director (2004-2008).
-----------------------------------------------------------------------------------------------------------------------
NOMINEE OWNERSHIP OF PORTFOLIO SHARES
The following table shows the dollar amount range of each Nominee's beneficial
ownership of shares of the Funds and all Funds that the nominee would oversee in
the family of funds as of the end of the most recently completed calendar year.
Dollar amount ranges disclosed are established by the SEC.
--------------------------------------------------------------------------------------------------------------------------
AGGREGATE DOLLAR
RANGE OF SHARES IN ALL
DOLLAR RANGE OF FUNDS OVERSEEN BY
NAME FUND NAME FUND SHARES(1) NOMINEE (1,2)
--------------------------------------------------------------------------------------------------------------------------
INTERESTED NOMINEES
-------------------------------------------------------------------------------------------------------------------------
Donald C. Cacciapaglia None None None
-------------------------------------------------------------------------------------------------------------------------
Richard Goldman None None None
-------------------------------------------------------------------------------------------------------------------------
INDEPENDENT NOMINEES
-------------------------------------------------------------------------------------------------------------------------
Corey A. Colehour Rydex Series Funds--Managed Futures Strategy Fund $1 - $10,000 $50,001 - $100,000
----------------------------------------------------------------------------
Rydex Series Funds--Long/Short Commodities $10,001 - $50,000
Strategy Fund
----------------------------------------------------------------------------
Rydex Series Funds--U.S. Long Short Momentum Fund $1 - $10,000
----------------------------------------------------------------------------
Rydex Series Funds--All-Asset Moderate Strategy Fund $10,001 - 50,000
-------------------------------------------------------------------------------------------------------------------------
32
--------------------------------------------------------------------------------------------------------------------------
AGGREGATE DOLLAR
RANGE OF SHARES IN ALL
DOLLAR RANGE OF FUNDS OVERSEEN BY
NAME FUND NAME FUND SHARES(1) NOMINEE (1,2)
--------------------------------------------------------------------------------------------------------------------------
J. Kenneth Dalton Rydex Series Funds--U.S. Government Money $10,001 - $50,000 $10,001 - $50,000
Market Fund
-------------------------------------------------------------------------------------------------------------------------
John O. Demaret Rydex Series Funds--Energy Fund $10,001 - $50,000 Over $100,000
----------------------------------------------------------------------------
Rydex Series Funds--Financial Services Fund $50,001 - $100,000
----------------------------------------------------------------------------
Rydex Series Funds--Utilities Fund $10,001 - $50,000
-------------------------------------------------------------------------------------------------------------------------
Thomas F. Lydon, Jr. None None None
-------------------------------------------------------------------------------------------------------------------------
Werner E. Keller Rydex Dynamic Funds--NASDAQ(R) 2x Strategy Fund $1 - $10,000 Over $100,000
----------------------------------------------------------------------------
Rydex Dynamic Funds--Russell 2000(R) 2x $1 - $10,000
Strategy Fund
----------------------------------------------------------------------------
Rydex Series Funds--U.S. Government Money Over $100,000
Market Fund
-------------------------------------------------------------------------------------------------------------------------
Patrick T. McCarville Rydex Series Funds--Nova Fund $10,001 - $50,000 $50,001 - $100,000
---------------------------------------------------------------------------------------------------
Rydex Series Funds--U.S. Long Short Momentum Fund $50,001 - $100,000
-------------------------------------------------------------------------------------------------------------------------
Roger J. Somers Rydex Dynamic Funds--NASDAQ(R) 2x Strategy Fund $50,001 - $100,000 Over $100,000
----------------------------------------------------------------------------
Rydex Dynamic Funds--NASDAQ-100(R) 2x $50,001 - $100,000
Strategy Fund
----------------------------------------------------------------------------
Rydex Series Funds--Commodities Strategy Fund $10,001 - $50,000
----------------------------------------------------------------------------
Rydex Series Funds--Russell 2000(R) 1.5x $50,001 - $100,000
Strategy Fund
----------------------------------------------------------------------------
Rydex Series Funds--Mid-Cap 1.5x Strategy Fund Over $100,000
----------------------------------------------------------------------------
Rydex Series Funds--Nova Fund $50,001 - $100,000
----------------------------------------------------------------------------
Rydex Series Funds--Energy Fund $50,001 - $100,000
----------------------------------------------------------------------------
Rydex Series Funds--Financial Services Fund $50,001 - $100,000
----------------------------------------------------------------------------
Rydex Series Funds--Basic Materials Fund $50,001 - $100,000
----------------------------------------------------------------------------
Rydex Series Funds--Energy Services Fund Over $100,000
----------------------------------------------------------------------------
Rydex Series Funds--S&P MidCap 400 Pure $10,001 - $50,000
Growth Fund
----------------------------------------------------------------------------
Rydex Series Funds--U.S. Long Short Momentum Fund $10,001 - $50,000
-------------------------------------------------------------------------------------------------------------------------
1 Information provided is as of December 31, 2010.
2 Includes the Trust, Rydex Series Funds, Rydex Variable Trust, Rydex Dynamic
Funds, [Security Equity Fund, Security Large Cap Value Fund, Security Mid Cap
Growth Fund, Security Income Fund and SBL Fund], as applicable.
None of the nominees who would be Independent Trustees or their
immediate family members had any interest in the Investment Adviser or
Distributor, or any person controlling, controlled by or under common control
with such persons. For this purpose, "immediate family member" includes the
Nominee's spouse, children residing the in the Nominee's household and
dependents of the Nominee.
As of October 3, 2011, the Trustees and officers as a group owned less
than 1% of the outstanding shares of each Fund. [Please confirm.]
33
BOARD COMPENSATION
The following table sets forth compensation paid by Rydex Variable
Trust for the fiscal year ended December 31, 2010.
-----------------------------------------------------------------------------------------------------------
PENSION OR
RETIREMENT ESTIMATED TOTAL
AGGREGATE BENEFITS ACCRUED ANNUAL COMPENSATION
COMPENSATION AS PART OF TRUST'S BENEFITS UPON FROM FUND
NAME OF TRUSTEE FROM TRUST EXPENSES RETIREMENT COMPLEX *
-----------------------------------------------------------------------------------------------------------
INTERESTED TRUSTEE
-----------------------------------------------------------------------------------------------------------
Richard Goldman** $0 $0 $0 $0
-----------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
-----------------------------------------------------------------------------------------------------------
Corey A. Colehour $19,900 $0 $0 $162,000
-----------------------------------------------------------------------------------------------------------
J. Kenneth Dalton $21,100 $0 $0 $174,000
-----------------------------------------------------------------------------------------------------------
John O. Demaret $24,700 $0 $0 $202,000
-----------------------------------------------------------------------------------------------------------
Werner E. Keller $20,000 $0 $0 $163,500
-----------------------------------------------------------------------------------------------------------
Thomas F. Lydon $19,800 $0 $0 $161,000
-----------------------------------------------------------------------------------------------------------
Patrick T. McCarville $20,400 $0 $0 $168,000
-----------------------------------------------------------------------------------------------------------
Roger J. Somers $19,900 $0 $0 $162,000
-----------------------------------------------------------------------------------------------------------
* Represents total compensation for service as Trustee of Rydex ETF Trust,
Rydex Series Funds, Rydex Variable Trust and Rydex Dynamic Funds.
** Mr. Goldman is an Interested Trustee, as that term is defined in the 1940
Act by virtue of his affiliation with the Advisor. He does not receive
compensation from the Funds.
The following table sets forth compensation paid by Rydex Dynamic Funds
for the fiscal year ended December 31, 2010.
-----------------------------------------------------------------------------------------------------------
PENSION OR
RETIREMENT ESTIMATED TOTAL
AGGREGATE BENEFITS ACCRUED ANNUAL COMPENSATION
COMPENSATION AS PART OF TRUST'S BENEFITS UPON FROM FUND
NAME OF TRUSTEE FROM TRUST EXPENSES RETIREMENT COMPLEX *
-----------------------------------------------------------------------------------------------------------
INTERESTED TRUSTEE
-----------------------------------------------------------------------------------------------------------
Richard Goldman** $0 $0 $0 $0
-----------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
-----------------------------------------------------------------------------------------------------------
Corey A. Colehour $9,900 $0 $0 $162,000
-----------------------------------------------------------------------------------------------------------
J. Kenneth Dalton $10,600 $0 $0 $174,000
-----------------------------------------------------------------------------------------------------------
John O. Demaret $12,300 $0 $0 $202,000
-----------------------------------------------------------------------------------------------------------
Werner E. Keller $9,900 $0 $0 $163,500
-----------------------------------------------------------------------------------------------------------
Thomas F. Lydon $9,800 $0 $0 $161,000
-----------------------------------------------------------------------------------------------------------
Patrick T. McCarville $10,200 $0 $0 $168,000
-----------------------------------------------------------------------------------------------------------
Roger J. Somers $9,900 $0 $0 $162,000
-----------------------------------------------------------------------------------------------------------
* Represents total compensation for service as Trustee of Rydex ETF Trust,
Rydex Series Funds, Rydex Variable Trust and Rydex Dynamic Funds.
** Mr. Goldman is an Interested Trustee, as that term is defined in the 1940
Act by virtue of his affiliation with the Advisor. He does not receive
compensation from the Funds.
34
With respect to Long/Short Commodities Strategy Fund, Managed Futures
Strategy Fund, Multi-Hedge Strategies Fund and Commodities Strategy Fund, the
following table sets forth compensation paid by Rydex Series Funds for the
fiscal year ended December 31, 2010.
-----------------------------------------------------------------------------------------------------------
PENSION OR
RETIREMENT ESTIMATED TOTAL
AGGREGATE BENEFITS ACCRUED ANNUAL COMPENSATION
COMPENSATION AS PART OF TRUST'S BENEFITS UPON FROM FUND
NAME OF TRUSTEE FROM TRUST EXPENSES RETIREMENT COMPLEX *
-----------------------------------------------------------------------------------------------------------
INTERESTED TRUSTEES
-----------------------------------------------------------------------------------------------------------
Richard Goldman** $0 $0 $0 $0
-----------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
-----------------------------------------------------------------------------------------------------------
Corey A. Colehour $[ ] $0 $0 $162,000
-----------------------------------------------------------------------------------------------------------
J. Kenneth Dalton $[ ] $0 $0 $174,000
-----------------------------------------------------------------------------------------------------------
John O. Demaret $[ ] $0 $0 $202,000
-----------------------------------------------------------------------------------------------------------
Werner E. Keller $[ ] $0 $0 $163,500
-----------------------------------------------------------------------------------------------------------
Thomas F. Lydon $[ ] $0 $0 $161,000
-----------------------------------------------------------------------------------------------------------
Patrick T. McCarville $[ ] $0 $0 $168,000
-----------------------------------------------------------------------------------------------------------
Roger J. Somers $[ ] $0 $0 $162,000
-----------------------------------------------------------------------------------------------------------
* Represents total compensation for service as Trustee of Rydex Series Funds,
Rydex ETF Trust, Rydex Dynamic Funds, and Rydex Variable Trust.
** Mr. Goldman is an Interested Trustee, as that term is defined in the 1940
Act by virtue of his affiliation with the Advisor. He does not receive
compensation from the Funds.
With respect to all other series of Rydex Series Funds, the following
table sets forth compensation paid by Rydex Series Funds for the fiscal year
ended March 31, 2011.
-----------------------------------------------------------------------------------------------------------
PENSION OR
RETIREMENT ESTIMATED TOTAL
AGGREGATE BENEFITS ACCRUED ANNUAL COMPENSATION
COMPENSATION AS PART OF TRUST'S BENEFITS UPON FROM FUND
NAME OF TRUSTEE FROM TRUST EXPENSES RETIREMENT COMPLEX *
-----------------------------------------------------------------------------------------------------------
INTERESTED TRUSTEES
-----------------------------------------------------------------------------------------------------------
Richard Goldman** $0 $0 $0 $0
-----------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
-----------------------------------------------------------------------------------------------------------
Corey A. Colehour $[ ] $0 $0 $147,000
-----------------------------------------------------------------------------------------------------------
J. Kenneth Dalton $[ ] $0 $0 $159,000
-----------------------------------------------------------------------------------------------------------
John O. Demaret $[ ] $0 $0 $187,000
-----------------------------------------------------------------------------------------------------------
Werner E. Keller $[ ] $0 $0 $150,000
-----------------------------------------------------------------------------------------------------------
Thomas F. Lydon $[ ] $0 $0 $147,000
-----------------------------------------------------------------------------------------------------------
Patrick T. McCarville $[ ] $0 $0 $153,000
-----------------------------------------------------------------------------------------------------------
Roger J. Somers $[ ] $0 $0 $147,000
-----------------------------------------------------------------------------------------------------------
* Represents total compensation for service as Trustee of Rydex Series Funds,
Rydex ETF Trust, Rydex Dynamic Funds, and Rydex Variable Trust.
** Mr. Goldman is an Interested Trustee, as that term is defined in the 1940
Act by virtue of his affiliation with the Advisor. He does not receive
compensation from the Funds.
35
COMMITTEES AND MEETINGS OF THE BOARD
The Board has overall responsibility to manage and control the business
affairs of the Trust, including the complete and exclusive authority to oversee
and to establish policies regarding the management, conduct and operation of the
Trusts' business. The Board held 4 regular meetings, and 2 special meetings,
during the Trusts' most recent fiscal year. Each Trustee then in office attended
at least 75% of the aggregate of the total number of meetings of the Board and
the total number of meetings held by all committees of the Board on which the
Trustee served. The Trusts currently do not have a policy with respect to
Trustees' attendance at shareholder meetings. Shareholders wishing to
communicate with the Board or individual directors should send such
correspondence to the Board at the Trust's offices. Shareholder communications
will be sent directly to the applicable Board member(s). The Board has
established the following standing committees:
AUDIT COMMITTEE. The Board has a standing Audit Committee that is
composed of each of the non-interested trustees of the Trusts. The Audit
Committee operates pursuant to a written charter approved by the Board. The
principal responsibilities of the Audit Committee include: recommending which
firm to engage as the Trusts' independent registered public accounting firm and
whether to terminate this relationship; reviewing the independent registered
public accounting firm's compensation, the proposed scope and terms of its
engagement, and the firm's independence; serving as a channel of communication
between the independent registered public accounting firm and the Board;
reviewing the results of each external audit, including any qualifications in
the independent registered public accounting firm's opinion, any related
management letter, management's responses to recommendations made by the
independent registered public accounting firm in connection with the audit, if
any, reports submitted to the Committee by the Trusts' service providers that
are material to the Trusts as a whole, and management's responses to any such
reports; reviewing the Trusts' audited financial statements and considering any
significant disputes between the Trusts' management and the independent
registered public accounting firm that arose in connection with the preparation
of those financial statements; considering, in consultation with the independent
registered public accounting firm and the Trusts' senior internal accounting
executive, the independent registered public accounting firm's report on the
adequacy of the Trusts' internal financial controls; reviewing, in consultation
with the Trusts' independent registered public accounting firm, major changes
regarding auditing and accounting principles and practices to be followed when
auditing the Trusts' financial statements; and other audit related matters.
Messrs. Colehour, Dalton, Demaret, Keller, Lydon, McCarville and Somers serve as
members of the Audit Committee. The Audit Committee met four times in the most
recently completed fiscal year.
GOVERNANCE COMMITTEE. The Board has a standing Governance Committee
that operates under a written charter approved by the Board. The role of the
Governance Committee is to assist the Board in assuring the effective governance
of the Trusts, including: (i) monitoring and making recommendations regarding
committees of the Board, including the responsibilities of those committees as
reflected in written committee charters, and committee assignments; (ii) making
recommendations regarding the term limits and retirement policies applicable to
the Independent Trustees of the Trusts; (iii) considering and making
recommendations to the Board concerning the compensation of the Independent
Trustees, the Independent Chairman of the
36
Board, including any special compensation for serving as chairman of a member of
a committee of the Board, and expense reimbursement policies applicable to the
Independent Trustees; (iv) periodically reviewing and making recommendations
regarding the size and composition of the Board, including recommendations to
the Board concerning the need to increase or decrease the size of the Board or
to add individuals with special knowledge, skill sets or backgrounds to the
Board; (v) overseeing the orientation and education processes for new
Independent Trustees and continuing education of incumbent Independent Trustees;
(vi) monitoring the independence and performance of legal counsel to the
Independent Trustees and making recommendations to the Independent Trustees
regarding the selection of independent counsel to the Independent Trustees;
(vii) overseeing the process regarding the Board's periodic self-assessments and
making recommendations to the Board concerning that process; and (viii) making
recommendations to the Board concerning all other matters pertaining to the
functioning of the Board and committees of the Board and pertaining generally to
the governance of the Trusts. Messrs. Keller, Lydon, and McCarville serve as
members of the Governance Committee. For the most recently completed fiscal
year, the Governance Committee met once.
NOMINATING COMMITTEE. The Board has a separate standing Nominating
Committee that operates under a written charter approved by the Board, attached
hereto as Appendix T. The role of the Nominating Committee is to identify,
evaluate and nominate individuals to serve as trustees of the Trusts including,
shareholder recommendations for nominations to fill vacancies on the Board. The
Nominating Committee does not currently have specific procedures in place to
consider nominees recommended by shareholders, but would consider such nominees
if submitted in accordance with Rule 14a-8 of the Securities Exchange Act of
1934 in conjunction with a shareholder meeting to consider the election of Board
members. Messrs. Keller, Lydon, and McCarville serve as members of the
Nominating Committee. For the most recently completed fiscal year, the
Nominating Committee met once.
RISK OVERSIGHT COMMITTEE. The Board has a separate standing Risk
Oversight Committee that operates under a written charter approved by the Board.
The role of the Risk Oversight Committee is to assist the Board in fulfilling
its responsibility to oversee risk management activities applicable to the
Funds, including systems failure, disaster recovery, business continuity and
other operational risks; counterparty credit, liquidity, valuation, leverage and
other market and investment risks; and legal and compliance risks. Messrs.
Demaret, Keller, and Dalton, serve as members of the Risk Oversight Committee.
For the most recently completed fiscal year, the Risk Oversight Committee met
three times.
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The firm of Ernst & Young LLP ("Ernst & Young") has been selected as
independent auditors of the Trusts for the current fiscal year. Ernst & Young
has confirmed to the Audit Committee that they are independent auditors with
respect to the Trusts. Representatives of Ernst & Young are not expected to be
present at the Meeting, but will have the opportunity to make a statement if
they wish, and will be available should any matter arise requiring their
presence.
Certain information concerning the fees and services provided by Ernst
& Young to the Trusts and to the Investment Adviser and its affiliates for the
two most recently completed fiscal years of the Trusts is provided below. The
Audit Committee is responsible for the engagement,
37
compensation, and oversight of Ernst & Young. The Audit Committee is required to
pre-approve all audit and permitted non-audit services performed by Ernst &
Young for the Funds in accordance with the Audit Committee Charter and the 1940
Act and makes a determination with respect to Ernst & Young's independence each
year. For the two most recent fiscal years for each if the Funds, none of the
services provided to the Trusts or described under "Audit-Related Fees," "Tax
Fees," and "All Other Fees" were approved by the Audit Committee pursuant to the
de minimis exception to the pre-approval requirements.
The following table sets forth the aggregate fees billed by Ernst &
Young for professional services rendered to the Trusts during the two most
recent fiscal years.
-----------------------------------------------------------------------------------------------------------
RYDEX VARIABLE RYDEX DYNAMIC RYDEX SERIES RYDEX SERIES
TRUST FUNDS FUNDS-- FUNDS--ALL OTHER
LONG/SHORT FUNDS
COMMODITIES
STRATEGY, MANAGED
FUTURES STRATEGY,
MULTI-HEDGE
STRATEGIES AND
COMMODITIES
STRATEGY FUNDS
-----------------------------------------------------------------------------------------------------------
AUDIT FEES 12/31/10: $984,960 12/31/10: $146,000 12/31/10: $71,123 3/31/11: $960,156
12/31/09: $991,250 12/31/09: $150,000 12/31/09: $80,155 3/31/10: $935,845
-----------------------------------------------------------------------------------------------------------
AUDIT-RELATED FEES 12/31/10: $21,465 12/31/10: $2,961 12/31/10: $1,480 3/31/11: $20,899
12/31/09: $35,625 12/31/09: $5,000 12/31/09: $2,500 3/31/10: $31,875
-----------------------------------------------------------------------------------------------------------
TAX FEES 12/31/10: $0 12/31/10: $0 12/31/10: $0 3/31/11: $0
12/31/09: $0 12/31/09: $0 12/31/09: $0 3/31/10: $0
-----------------------------------------------------------------------------------------------------------
ALL OTHER FEES 12/31/10: $0 12/31/10: $0 12/31/10: $0 3/31/11: $0
12/31/09: $0 12/31/09: $0 12/31/09: $0 3/31/10: $0
-----------------------------------------------------------------------------------------------------------
AGGREGATE NON- 12/31/10: $0 12/31/10: $0 12/31/10: $3,241 3/31/11: $43,759
AUDIT FEES 12/31/09: $0 12/31/09: $0 12/31/09: $5,172 3/31/10: $69,828
-----------------------------------------------------------------------------------------------------------
AUDIT FEES. The aggregate fees billed by Ernst & Young for audit of the
annual financial statements in connection with statutory and regulatory filings.
AUDIT-RELATED FEES. The aggregate fees billed by Ernst & Young for
assurance and related services reasonably related to the performance of the
annual audit or review of the Trust's financial statements (and not reported
above).
TAX FEES. The aggregate tax fees billed by Ernst & Young for
professional services rendered for tax compliance, tax advice, and tax planning,
including preparation of tax returns and distribution assistance.
ALL OTHER FEES. The aggregate fees billed by Ernst & Young for products
and services provided by Ernst & Young to the Funds, other than the services
reported above.
38
AGGREGATE NON-AUDIT FEES. The aggregate non-audit fees were for tax
fees billed by Ernst & Young for professional services rendered for tax
compliance, tax advice, and tax planning, including preparation of tax returns
and distribution assistance. All non-audit services rendered were pre-approved
by the Audit Committee. As such, the Audit Committee has considered these
services in maintaining Ernst & Young's independence.
BOARD RECOMMENDATION ON PROPOSAL 5
THE TRUSTEES UNANIMOUSLY RECOMMEND THAT
SHAREHOLDERS OF THE FUNDS VOTE "FOR" THE
ELECTION OF EACH NOMINEE
39
PROPOSAL 6--THE APPROVAL OF A "MANAGER OF MANAGERS"
ARRANGEMENT WITH RESPECT TO ALL FUNDS
The Board has approved a "manager of managers" arrangement for the
Funds and voted to recommend its approval to the Fund's shareholders. The 1940
Act generally requires that a written sub-advisory agreement be approved by the
affirmative vote of a majority of the outstanding shares of a fund. The
appointment of a new sub-adviser or material modification of an existing
sub-advisory agreement must also be presented for approval by a fund's
shareholders under the 1940 Act. The SEC has previously issued an order
permitting the Investment Adviser, for a fund for which it serves as investment
adviser, to enter into a new sub-advisory agreement or materially amend an
existing sub-advisory agreement with an unaffiliated sub-adviser, subject to
approval by the Board (including a majority of the Independent Trustees), but
without obtaining shareholder approval (the "Manager of Managers Order").
Each Fund may rely upon the Manager of Managers Order only if, among
other things, the Fund's shareholders have approved the arrangement.
Shareholders of each Fund are therefore being asked to approve the manager of
managers arrangement to permit the Investment Adviser, subject to prior approval
by the Board, to retain sub-advisers or amend the terms of an existing
sub-advisory agreement without approval by shareholders. The manager of managers
arrangement has previously been implemented by other funds managed by the
Investment Adviser.
"MANAGER OF MANAGERS" ARRANGEMENT
On January 12, 2000, the SEC issued the Manager of Managers Order
permitting the Investment Adviser, with the approval of the Board, to enter into
or materially modify sub-advisory agreements with unaffiliated sub-advisers
without requiring shareholder approval. The Investment Adviser anticipates that
this relief would benefit shareholders to the extent that it will give the
Investment Adviser additional flexibility to implement sub-adviser changes or
materially modify sub-advisory agreements with unaffiliated sub-advisers when
needed, and to avoid expensive proxy solicitations. The Fund would obtain
shareholder approval of a sub-advisory agreement (or a material amendment
thereto) with a sub-adviser considered to be an "affiliated person," as defined
in the 1940 Act, of the Fund or the Investment Adviser, other than by reason of
serving as a sub-adviser to the Fund.
The Investment Adviser believes that the Manager of Managers Order
would enable the Funds to operate with greater efficiency by allowing the
Investment Adviser to employ sub-advisers best suited to the needs of a Fund,
without incurring the expense and delays associated with obtaining shareholder
approval of sub-advisers or material amendments to sub-advisory agreements with
sub-advisers that are not affiliated with the Investment Adviser.
The Investment Adviser provides management services to the Funds,
including overall supervisory responsibility for the general management and
investment of each Fund. If the proposal is approved, the Investment Adviser,
subject to the review and approval by the Board, would, in connection with the
appointment of an investment sub-adviser for a Fund: (a) set the Fund's overall
investment strategies; (b) evaluate, select and recommend sub-advisers to manage
all or a part of the Fund's assets; (c) when appropriate, allocate and
reallocate a Fund's assets among multiple sub-adviser(s); (d) monitor and
evaluate the investment performance of the
40
Fund's sub-adviser(s); and (e) implement procedures reasonably designed to
ensure that the Fund's sub-adviser(s) comply with the relevant Fund's investment
objectives, policies, and restrictions.
CONDITIONS OF THE EXEMPTIVE RELIEF
Under the terms of the Manager of Managers Order, the Investment
Adviser and the Funds are, and would continue to be, subject to several
conditions imposed by the SEC. In addition, the Board and the Investment Adviser
would not be able to enter into or materially amend a sub-advisory agreement
with an affiliated sub-adviser without complying with the 1940 Act and
applicable regulations governing shareholder approval of advisory agreements.
In order to rely on the Manager of Managers Order, a majority of the
Board must consist of Independent Trustees, and the nomination of new or
additional Independent Trustees must be at the discretion of the then existing
Independent Trustees. In addition, within 90 days of the appointment of any new
sub-adviser, the Investment Adviser is required to provide the Fund's
shareholders with all information about the new sub-adviser that would be
included in a proxy statement, including any changes caused by the addition of
the new sub-adviser. A Fund relying on the Manager of Managers Order must
disclose in its prospectus the existence, substance and effect of the Manager of
Managers Order and must prominently disclose that the Investment Adviser has
ultimate responsibility to oversee the sub-advisers and recommend their hiring,
termination and replacement.
If shareholders of a Fund do not approve the manager of managers
arrangement, it will not be implemented and that Fund will continue to be
required to obtain shareholder approval of the retention of a sub-adviser of the
Fund or any material changes to a sub-advisory agreement. The Investment
Adviser anticipates that, if this proposal is approved by shareholders, it would
rely on the order to enter into a new sub-advisory agreement with respect to the
two Funds sub-advised by DWA shortly after the approval of this proposal as
there may also be a change in control transaction relating to DWA in the
upcoming months.
BOARD CONSIDERATIONS IN APPROVING THE "MANAGER OF MANAGERS" ARRANGEMENT
In determining whether to approve a "manager of managers" arrangement
for the Funds and to recommend approval of such arrangements to shareholders,
the Board, including the Independent Trustees, considered certain information
and representations provided by the Investment Adviser.
The Board noted that it would continue to review and approve each
sub-adviser selected by the Investment Adviser under the manager of managers
arrangement, and would evaluate and consider for approval all new or amended
sub-advisory agreements. The Board also considered that shareholder approval of
Proposal 6 would not result in changes to the investment advisory fees paid by a
Fund to the Investment Adviser. The Board also noted that fees paid to a
sub-adviser would be negotiated between the Investment Adviser and the
sub-adviser, subject to Board approval, and that any increase in the investment
advisory fee paid to the Investment Adviser by the Fund pursuant to the
investment advisory agreement would continue to require shareholder approval.
41
The Board concluded that it is appropriate and in the interests of the
Fund's shareholders to provide the Investment Adviser and the Board with maximum
flexibility to enter into or materially modify sub-advisory agreements without
incurring the unnecessary delay or expense of obtaining shareholder approval.
This process will allow the Funds to operate more efficiently.
BOARD RECOMMENDATION ON PROPOSAL 6
THE TRUSTEES UNANIMOUSLY RECOMMEND THAT
SHAREHOLDERS OF THE FUNDS VOTE "FOR" PROPOSAL 6
42
PROPOSAL 7--THE APPROVAL OF THE ELIMINATION OF THE FUNDAMENTAL
INVESTMENT POLICY ON INVESTING IN OTHER INVESTMENT COMPANIES
WITH RESPECT TO THE MONEY MARKET FUNDS
Proposal 7 relates to the elimination of the fundamental investment
policy on investing in other investment companies for each Money Market Fund.
The 1940 Act requires that each fund adopt "fundamental" investment policies
with respect to several types of activities. However, the 1940 Act does not
require that a fund adopt a fundamental investment policy on investing in other
investment companies. Therefore, the Money Market Funds' current fundamental
investment policies on investing in other investment companies is unnecessary.
PROPOSED FUNDAMENTAL INVESTMENT POLICY
It is proposed that each Money Market Fund's fundamental investment restriction
on investing in other investment companies be eliminated in its entirety.
CURRENT FUNDAMENTAL INVESTMENT POLICY
The current fundamental investment policy on investing in other investment
companies for each Money Market Fund reads:
The Money Market Fund shall not:
Invest in securities of other investment companies, except as these
securities may be acquired as part of a merger, consolidation, acquisition of
assets, or plan of reorganization.
DISCUSSION OF PROPOSED MODIFICATION
The Investment Adviser believes that under certain market conditions,
it may be beneficial for the Money Market Funds to invest in other money market
funds (a type of investment company investment permitted under Securities and
Exchange Commission ("SEC") Rule 2a-7, the SEC rule that strictly regulates
money market funds and their investments). These investments could permit
specific investment opportunities or expertise, which could help improve the
Money Market Funds' yield and performance.
As a shareholder of another investment company, each Money Market Fund
would bear, along with other shareholders, its pro rata portion of the other
investment company's expenses, including advisory fees. These expenses would be
in addition to the advisory and other expenses that the Money Market Fund bears
directly in connection with its own operations. Notwithstanding this greater
freedom to invest in other investment companies, each Money Market Fund would
continue to comply with other provisions of the 1940 Act relating to investments
in other investment companies. In addition, each Money Market Fund would be
subject to the risks of investing in the underlying money market funds.
However, the Money Market Fund as well as the underlying money market
funds would be subject to SEC Rule 2a-7 and would invest in compliance with the
strict requirements included in the rule. These requirements include stringent
portfolio quality, maturity and
43
liquidity requirements and other risk-limiting conditions intended to enhance
(but not guarantee) a money market fund's ability to maintain a stable $1.00
price per share. Among other things, Rule 2a-7 limits portfolio holdings to
short-term securities (i) that are denominated in U.S. dollars, (ii) that pose
minimal credit risk to a fund and meet stringent credit quality requirements,
and (iii) that are "Eligible Securities" as defined in Rule 2a-7 under the 1940
Act. Each Money Market Fund will continue to seek to maintain a stable $1.00
price per share, as permitted by current Rule 2a-7.
Should a Money Market Fund's shareholders not approve the proposal to
eliminate the Money Market Fund's fundamental investment policy on investing in
other investment companies, the Money Market Fund's current fundamental
investment policy on investing in other investment companies would continue to
apply unchanged and the Board would decide whether to consider other changes to
the Money Market Fund's investment program.
BOARD RECOMMENDATION ON PROPOSAL 7
THE TRUSTEES UNANIMOUSLY RECOMMEND THAT SHAREHOLDERS
OF EACH MONEY MARKET FUND VOTE "FOR" PROPOSAL 7
44
OTHER BUSINESS
The Trustees do not know of any matters to be presented at the Meeting
other than those set forth in this Joint Proxy Statement. If other business
should properly come before the Meeting, proxies will be voted in accordance
with the judgment of the persons named in the accompanying proxy.
ADDITIONAL INFORMATION
ADMINISTRATOR, PRINCIPAL UNDERWRITER AND TRANSFER AGENT
The principal underwriter/distributor of the Trusts is Rydex
Distributors, LLC, located at 805 King Farm Boulevard, Suite 600, Rockville,
Maryland 20850, an affiliate of the Investment Adviser because it is commonly
held with the Investment Adviser (and will remain under common control after the
Transaction). Rydex Fund Services, LLC (the "Administrator"), also an affiliate
of the Investment Adviser, is located at 805 King Farm Boulevard, Suite 600,
Rockville, Maryland 20850 and provides general administrative, shareholder,
dividend disbursement, transfer agent and registrar services to the Funds.
Information regarding the fees paid by each Fund to the Distributor and the
Administrator during the previous fiscal year is provided in Appendix C.
The Transaction could also be deemed to affect the control of the
Distributor and the Administrator because they are commonly held with the
Investment Adviser. However, shareholder approval is not required in order for
the Distributor and the Administrator to continue providing services to the
Funds after the closing of the Transaction. The Board has been assured that
there will be no material change in the nature or quality of the services
provided by the Distributor and the Administrator to each Fund due to the change
in control.
AFFILIATIONS AND AFFILIATED BROKERAGE
During the Funds' most recent fiscal year, the Funds paid no
commissions on portfolio brokerage transactions to brokers who may be deemed to
be affiliated persons of the Funds, the Investment Adviser, or affiliated
persons of such persons ("Affiliated Brokers").
OTHER INFORMATION
Proxy materials, reports and other information filed by the Funds can
be inspected and copied at the Public Reference Facilities maintained by the SEC
at 100 F Street, NE, Washington, DC 20549. The SEC maintains an Internet web
site (at http://www.sec.gov), which contains other information about the Funds.
VOTING INFORMATION
PROXY SOLICITATION. The principal solicitation of proxies will be by
the mailing of this Joint Proxy Statement on or about October 13, 2011, but
proxies may also be solicited by telephone and/or in person by representatives
of the Trusts, regular employees of the Investment Adviser or its affiliate(s),
or The Altman Group, a private proxy services firm. If we have not received your
vote as the date of the Meeting approaches, you may receive a telephone call
from
45
these parties to ask for your vote. Arrangements will be made with brokerage
houses and other custodians, nominees, and fiduciaries to forward proxies and
proxy materials to their principals.
COST OF THE MEETING. The cost of the Meeting, including the costs of
retaining The Altman Group, preparing and mailing of the notice, proxy statement
and proxy, and the solicitation of proxies, including reimbursement to
broker-dealers and others who forwarded proxy materials to their clients, will
be borne by Guggenheim Capital or its affiliates, and not the Funds. The
estimated cost of retaining The Altman Group is approximately $963,183.
SHAREHOLDER VOTING. Shareholders of the Funds who own shares at the
close of business on the Record Date will be entitled to notice of, and to vote
at, the Meeting. Each whole share is entitled to one vote, and each fractional
share is entitled to a proportionate fractional vote on each matter as to which
such shares are to be voted at the Meeting. One-third (331/3%) of a Trust's
shares entitled to vote on a Proposal constitutes a quorum. With respect to
Rydex Variable Trust, shares of the Funds are available primarily for insurance
products. Life insurance companies will vote shares attributable to insurance
products for which no voting instructions are received in proportion ("for" or
"withhold authority") to those shares for which instructions are received. As a
result, a small number of insurance product owners could determine the outcome
of the vote if other owners fail to vote.
In addition, abstentions and broker non-votes will not be counted for
or against the Proposals, but will be counted for purposes of determining
whether a quorum is present. "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. Because the affirmative vote of a majority of the
outstanding voting securities of each Fund, as defined below, is required to
approve each Proposal (other than Proposal 5), abstentions and broker non-votes
will effectively be a vote against those Proposals. Abstentions and broker
non-votes will have no effect on Proposal 5, for which the required vote is a
plurality of a Trust's shares voting.
If a quorum is not present at the Meeting, or if a quorum is present at
the Meeting but sufficient votes to approve 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" a Proposal in favor of such an adjournment, and
will vote those proxies required to be voted "AGAINST" a Proposal, against such
an adjournment.
Information regarding the number of issued and outstanding shares of
each Fund as of the Record Date is provided in Appendix R, representing the same
number of votes for each of such Funds. The persons who are known to have owned
beneficially 5% or more of each Fund's outstanding shares as of the Record Date
are listed in Appendix S.
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
46
will be voted "FOR" the Proposal. The duly appointed proxies may, in their
discretion, vote upon such other matters as may properly come before the
Meeting.
In order that your shares may be represented at the Meeting, you are
requested to vote your shares by mail, Internet or telephone by following the
enclosed instructions. IF YOU VOTE BY TELEPHONE OR INTERNET, PLEASE DO NOT
RETURN YOUR PROXY CARD, UNLESS YOU LATER ELECT TO CHANGE YOUR VOTE. You may
revoke your proxy: (a) at any time prior to its exercise by written notice of
its revocation to the secretary of the Trust prior to the Meeting; (b) by the
subsequent execution and timely return of another proxy prior to the Meeting
(following the methods noted above); or (c) by being present and voting in
person at the Meeting and giving oral notice of revocation to the chair of the
Meeting. However, attendance in-person at the Meeting, by itself, will not
revoke a previously-tendered proxy.
REQUIRED VOTE. Approval of each Proposal (other than Proposal 5)
requires the vote of a "majority of the outstanding voting securities" of a
Fund, which means the vote of 67% or more of the shares that are present at the
Meeting, provided that 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. With respect to Proposal 5, a plurality
of a Trust's shares voting is required to elect a Trustee with respect to that
Trust.
The Current Agreements will remain in place until the completion of the
Transaction, at which time, the Current Agreements will terminate and, subject
to shareholder approval, the New Agreements will go into effect. As a result, if
for some reason the Transaction does not occur, the Current Agreements will not
automatically terminate and will remain in effect, and the New Agreements will
not be entered into, even if they have been approved by Fund shareholders.
If Proposals 1 through 4 are not approved by shareholders of any Fund,
the Board will evaluate other short- and long-term options, as previously
discussed. If the nominees are not elected, the current Trustees will continue
their current terms. New Trustees could be appointed in compliance with
applicable law. With respect to Proposal 6, should shareholders of a Fund not
approve the manager of managers arrangement, it will not be implemented and that
Fund will continue to be required to obtain shareholder approval of the
retention of an unaffiliated sub-adviser of the Fund or any material changes to
a sub-advisory agreements. With respect to Proposal 7, should shareholders of
one of the Money Market Fund not approve the proposal to amend the Money Market
Fund's fundamental policy on investing in other investment companies, the Money
Market Fund's fundamental investment policy on investing in other investment
companies would continue to apply unchanged.
SHAREHOLDERS SHARING THE SAME ADDRESS. As permitted by law, only one
copy of this Joint Proxy Statement may be delivered to shareholders residing at
the same address, unless such shareholders have notified the Trusts of their
desire to receive multiple copies of the shareholder reports and proxy
statements that each Trust sends. If you would like to receive an additional
copy, please contact the Trusts by writing to the Trusts' address, or by calling
the telephone number shown on the front page of this Joint Proxy Statement. The
Trusts will then promptly deliver, upon request, a separate copy of this Joint
Proxy Statement to any shareholder residing at an address to which only one copy
was mailed. Shareholders wishing to receive separate
47
copies of the Trusts' 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 Trusts are organized as statutory trusts under the laws of
Delaware. As such, the Trusts are not required to, and do 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 each Trust's Declaration of Trust and By-Laws.
Shareholders who wish to present a proposal for action at a future meeting
should submit a written proposal to the Secretary of the Trust, c/o Rydex
Variable Trust, Rydex Series Funds or Rydex Dynamic Funds, 805 King Farm
Boulevard, Suite 600, Rockville, Maryland 20850 for inclusion in a future proxy
statement. Shareholder proposals to be presented at any future meeting of a
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 Boards of Trustees,
Sincerely,
Richard M. Goldman
President
48
APPENDIX A
CORPORATE STRUCTURE OF THE INVESTMENT ADVISER
The following sets forth the name and business address of each parent company of
the Investment Adviser, and the basis of each parent company's control the
Investment Adviser as of September [ ], 2011.
The Investment Adviser is an indirect wholly-owned subsidiary of an entity that
is managed by Guggenheim Partners, LLC ("Guggenheim Partners"). Guggenheim
Partners is a wholly-owned subsidiary of Guggenheim Capital, LLC ("Guggenheim
Capital"), 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 Partners as a result of its
equity ownership in excess of 25% (but less than 50%) of Guggenheim Capital.
Following the Transaction, the Investment Adviser will be an indirect
wholly-owned subsidiary of Guggenheim Capital.
A-1
APPENDIX B
FORMS OF NEW INVESTMENT ADVISORY AGREEMENT
ADVISORY AGREEMENT
ADVISORY AGREEMENT made as of this [ ] day of [ ], 2011 by and between
RYDEX VARIABLE TRUST (the "Trust"), a Delaware statutory trust registered as an
investment company under the Investment Company Act of 1940, as amended (the
"1940 Act"), and SECURITY INVESTORS, LLC, a Kansas limited liability company,
with its principal place of business at 805 King Farm Boulevard, Suite 600,
Rockville, Maryland 20850 (the "Adviser").
W I T N E S S E T H
WHEREAS, the Board of Trustees (the "Board") of the Trust has selected
the Adviser to act as investment adviser to the Trust on behalf of the series
set forth on Schedule A to this Agreement (each a "Fund" and, collectively, the
"Funds"), as such Schedule may be amended from time to time upon mutual
agreement of the parties, and to provide certain related services, as more fully
set forth below, and to perform such services under the terms and conditions
hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual covenants and benefits
set forth herein, the Trust and the Adviser do hereby agree as follows:
1. THE ADVISER'S SERVICES.
(a) Discretionary Investment Management Services. The Adviser shall
act as investment adviser with respect to the Funds. In such capacity,
the Adviser shall, subject to the supervision of the Board, regularly
provide the Funds with investment research, advice and supervision and
shall furnish continuously an investment program for the Funds,
consistent with the respective investment objectives and policies of
each Fund. The Adviser shall determine, from time to time, what
securities shall be purchased for the Funds, what securities shall be
held or sold by the Funds and what portion of the Funds' assets shall
be held uninvested in cash, subject always to the provisions of the
Trust's Declaration of Trust, By-Laws and its registration statement on
Form N-1A (the "Registration Statement") under the 1940 Act, and under
the Securities Act of 1933, as amended (the "1933 Act"), covering Fund
shares, as filed with the Securities and Exchange Commission (the
"Commission"), and to the investment objectives, policies and
restrictions of the Funds, as each of the same shall be from time to
time in effect. To carry out such obligations, the Adviser shall
exercise full discretion and act for the Funds in the same manner and
with the same force and effect as the Funds themselves might or could
do with respect to purchases, sales or other transactions, as well as
with respect to all other such things necessary or incidental to the
furtherance or conduct of such purchases, sales or other transactions.
No reference in this Agreement to the Adviser having full discretionary
authority over each Fund's investments shall in any way limit the right
of the Board, in its sole discretion, to establish or revise policies
in connection with the management of a Fund's assets or to otherwise
exercise its right to control the overall management of a Fund.
B-1
(b) Compliance. The Adviser agrees to comply with the requirements
of the 1940 Act, the Investment Advisers Act of 1940 (the "Advisers
Act"), the 1933 Act, the Securities Exchange Act of 1934, as amended
(the "1934 Act"), the Commodity Exchange Act and the respective rules
and regulations thereunder, as applicable, as well as with all other
applicable federal and state laws, rules, regulations and case law that
relate to the services and relationships described hereunder and to the
conduct of its business as a registered investment adviser. The Adviser
also agrees to comply with the objectives, policies and restrictions
set forth in the Registration Statement, as amended or supplemented, of
the Funds, and with any policies, guidelines, instructions and
procedures approved by the Board and provided to the Adviser. In
selecting each Fund's portfolio securities and performing the Adviser's
obligations hereunder, the Adviser shall cause the Fund to comply with
the diversification and source of income requirements of Subchapter M
and Section 817(h) of the Internal Revenue Code of 1986, as amended
(the "Code"), for qualification as a regulated investment company. The
Adviser shall maintain compliance procedures that it reasonably
believes are adequate to ensure its compliance with the foregoing. No
supervisory activity undertaken by the Board shall limit the Adviser's
full responsibility for any of the foregoing.
(c) Proxy Voting. The Board has the authority to determine how
proxies with respect to securities that are held by the Funds shall be
voted, and the Board has initially determined to delegate the authority
and responsibility to vote proxies for the Funds' securities to the
Adviser. So long as proxy voting authority for the Funds has been
delegated to the Adviser, the Adviser shall exercise its proxy voting
responsibilities. The Adviser shall carry out such responsibility in
accordance with any instructions that the Board shall provide from time
to time, and at all times in a manner consistent with Rule 206(4)-6
under the Advisers Act and its fiduciary responsibilities to the Trust.
The Adviser shall provide periodic reports and keep records relating to
proxy voting as the Board may reasonably request or as may be necessary
for the Funds to comply with the 1940 Act and other applicable law. Any
such delegation of proxy voting responsibility to the Adviser may be
revoked or modified by the Board at any time.
(d) Recordkeeping. The Adviser shall not be responsible for the
provision of administrative, bookkeeping or accounting services to the
Funds, except as otherwise provided herein or as may be necessary for
the Adviser to supply to the Trust or its Board the information
required to be supplied under this Agreement.
The Adviser shall maintain separate books and detailed records of all
matters pertaining to Fund assets advised by the Adviser required by Rule 31a-1
under the 1940 Act (other than those records being maintained by any
administrator, custodian or transfer agent appointed by the Funds) relating to
its responsibilities provided hereunder with respect to the Funds, and shall
preserve such records for the periods and in a manner prescribed therefore by
Rule 31a-2 under the 1940 Act (the "Fund Books and Records"). The Fund Books and
Records shall be available to the Board at any time 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
B-2
from time to time with whatever information the Adviser believes is
appropriate for this purpose. The Adviser agrees to immediately notify
the Trust if the Adviser reasonably believes that the value of any
security held by a Fund may not reflect fair value. The Adviser agrees
to provide any pricing information of which the Adviser is aware to the
Trust, its Board and/or any Fund pricing agent to assist in the
determination of the fair value of any Fund holdings for which market
quotations are not readily available or as otherwise required in
accordance with the 1940 Act or the Trust's valuation procedures for
the purpose of calculating the Fund net asset value in accordance with
procedures and methods established by the Board.
(f) Cooperation with Agents of the Trust. The Adviser agrees to
cooperate with and provide reasonable assistance to the Trust, any
Trust custodian or foreign sub-custodians, any Trust pricing agents and
all other agents and representatives of the Trust, such information
with respect to the Funds as they may reasonably request from time to
time in the performance of their obligations, provide prompt responses
to reasonable requests made by such persons and establish appropriate
interfaces with each so as to promote the efficient exchange of
information and compliance with applicable laws and regulations.
2. CODE OF ETHICS. The Adviser has adopted a written code of ethics
that it reasonably believes complies with the requirements of Rule 17j-1 under
the 1940 Act, which it will provide to the Trust. The Adviser shall ensure that
its Access Persons (as defined in the Adviser's Code of Ethics) comply in all
material respects with the Adviser's Code of Ethics, as in effect from time to
time. Upon request, the Adviser shall provide the Trust with a (i) a copy of the
Adviser's current Code of Ethics, as in effect from time to time, and (ii)
certification that it has adopted procedures reasonably necessary to prevent
Access Persons from engaging in any conduct prohibited by the Adviser's Code of
Ethics. Annually, the Adviser shall furnish a written report, which complies
with the requirements of Rule 17j-1, concerning the Adviser's Code of Ethics to
the Trust. The Adviser shall respond to requests for information from the Trust
as to violations of the Code of Ethics by Access Persons and the sanctions
imposed by the Adviser. The Adviser shall immediately notify the Trust of any
material violation of the Code of Ethics, whether or not such violation relates
to a security held by any Fund.
3. INFORMATION AND REPORTING. The Adviser shall provide the Trust
and its respective officers with such periodic reports concerning the
obligations the Adviser has assumed under this Agreement as the Trust may from
time to time reasonably request.
(a) Notification of Breach/Compliance Reports. The Adviser shall
notify the Trust immediately upon detection of (i) any material failure
to manage any Fund in accordance with its investment objectives and
policies or any applicable law; or (ii) any material breach of the
Funds' or the Adviser's policies, guidelines or procedures. In
addition, the Adviser shall provide a quarterly report regarding each
Fund's compliance with its investment objectives and policies,
applicable law, including, but not limited to the 1940 Act and
Subchapter M and Section 817(h) of the Code, and the Fund's policies,
guidelines or procedures as applicable to the Adviser's obligations
under this Agreement. The Adviser agrees to correct any such failure
promptly and to take any action that the Board may reasonably request
in connection with any such breach. Upon request, the Adviser shall
also provide the officers of the Trust with supporting certifications
in
B-3
connection with such certifications of Fund financial statements and
disclosure controls pursuant to the Sarbanes-Oxley Act. The Adviser
will promptly notify the Trust in the event (i) the Adviser is served
or otherwise receives notice of any action, suit, proceeding, inquiry
or investigation, at law or in equity, before or by any court, public
board, or body, involving the affairs of the Trust (excluding class
action suits in which a Fund is a member of the plaintiff class by
reason of the Fund's ownership of shares in the defendant) or the
compliance by the Adviser with the federal or state securities laws or
(ii) an actual change in control of the Adviser resulting in an
"assignment" (as defined in the 1940 Act) has occurred or is otherwise
proposed to occur.
(b) Board and Filings Information. The Adviser will also provide the
Trust with any information reasonably requested regarding its
management of the Funds required for any meeting of the Board, or for
any shareholder report, amended registration statement, proxy
statement, or prospectus supplement to be filed by the Trust with the
Commission. The Adviser will make its officers and employees available
to meet with the Board from time to time on due notice to review its
investment management services to the Funds in light of current and
prospective economic and market conditions and shall furnish to the
Board such information as may reasonably be necessary in order for the
Board to evaluate this Agreement or any proposed amendments thereto.
(c) Transaction Information. The Adviser shall furnish to the Trust
such information concerning portfolio transactions as may be necessary
to enable the Trust or its designated agent to perform such compliance
testing on the Funds and the Adviser's services as the Trust may, in
its sole discretion, determine to be appropriate. The provision of such
information by the Adviser to the Trust or its designated agent in no
way relieves the Adviser of its own responsibilities under this
Agreement.
4. BROKERAGE.
(a) Principal Transactions. In connection with purchases or sales of
securities for the account of a Fund, neither the Adviser nor any of
its directors, officers 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
B-4
may be useful to the Adviser in connection with its or its affiliates'
services to other clients.
(c) Aggregated Transactions. On occasions when the Adviser deems the
purchase or sale of a security to be in the best interest of a Fund as
well as other clients of the Adviser, the Adviser may, to the extent
permitted by applicable law and regulations, aggregate the order for
securities to be sold or purchased. In such event, the Adviser will
allocate securities or futures contracts so purchased or sold, as well
as the expenses incurred in the transaction, in the manner the Adviser
reasonably considers to be equitable and consistent with its fiduciary
obligations to the Fund and to such other clients under the
circumstances.
(d) Affiliated Brokers. The Adviser or any of its affiliates may act
as broker in connection with the purchase or sale of securities or
other investments for a Fund, subject to: (a) the requirement that the
Adviser seek to obtain best execution and price within the policy
guidelines determined by the Board and set forth in the Fund's current
prospectus and SAI; (b) the provisions of the 1940 Act; (c) the
provisions of the Advisers Act; (d) the provisions of the 1934 Act; and
(e) other provisions of applicable law. These brokerage services are
not within the scope of the duties of the Adviser under this Agreement.
Subject to the requirements of applicable law and any procedures
adopted by the Board, the Adviser or its affiliates may receive
brokerage commissions, fees or other remuneration from a Fund for these
services in addition to the Adviser's fees for services under this
Agreement.
5. CUSTODY. Nothing in this Agreement shall permit the Adviser to
take or receive physical possession of cash, securities or other investments of
a Fund.
6. ALLOCATION OF CHARGES AND EXPENSES. The Adviser will bear its
own costs of providing services hereunder. Other than as herein specifically
indicated, the Adviser 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 Strategy, All Asset Moderate Strategy, All Asset Aggressive
Strategy, and Alternative Strategies Allocation Funds, the Adviser will bear its
own costs of providing services hereunder. In addition, the Adviser agrees to
pay all expenses incurred by the foregoing Funds except for acquired fund fees
and expenses, interest, taxes, brokerage and other expenses incurred in placing
orders for the purchase and sale of securities and other investment instruments,
extraordinary expenses, and distribution fees and expenses paid by the Funds
under any distribution plan adopted pursuant to Rule 12b-1 under the 1940 Act.
Notwithstanding the foregoing paragraphs, with respect to the
Multi-Hedge Strategies Fund, the Adviser will bear its own costs of providing
services hereunder. The Adviser agrees to pay all expenses incurred by the
foregoing Fund except for interest, taxes, brokerage and other expenses incurred
in placing orders for the purchase and sale of securities and other investment
instruments, extraordinary expenses, distribution fees, investors services fees,
and expenses paid
B-5
by the Fund under any distribution plan adopted pursuant to Rule 12b-1 under the
1940 Act or investor services plan.
7. REPRESENTATIONS, WARRANTIES AND COVENANTS.
(a) Properly Registered. The Adviser is registered as an investment
adviser under the Advisers Act, and will remain so registered for the
duration of this Agreement. The Adviser is not prohibited by the
Advisers Act or the 1940 Act from performing the services contemplated
by this Agreement, and to the best knowledge of the Adviser, there is
no proceeding or investigation that is reasonably likely to result in
the Adviser being prohibited from performing the services contemplated
by this Agreement. The Adviser agrees to promptly notify the Trust of
the occurrence of any event that would disqualify the Adviser from
serving as an investment adviser to an investment company. The Adviser
is in compliance in all material respects with all applicable federal
and state law in connection with its investment management operations.
(b) ADV Disclosure. The Adviser has provided the Trust with a copy
of its Form ADV as most recently filed with the Commission and will,
promptly after filing any amendment to its Form ADV with the
Commission, furnish a copy of such amendment(s) to the Trust. The
information contained in the Adviser's Form ADV is accurate and
complete in all material respects and does not omit to state any
material fact necessary in order to make the statements made, in light
of the circumstances under which they were made, not misleading.
(c) Fund Disclosure Documents. The Adviser has reviewed and will in
the future review, the Registration Statement, and any amendments or
supplements thereto, the annual or semi-annual reports to shareholders,
other reports filed with the Commission and any marketing material of
the Funds (collectively the "Disclosure Documents") and represents and
warrants that with respect to disclosure about the Adviser, the manner
in which the Adviser manages the Funds or information relating directly
or indirectly to the Adviser, such Disclosure Documents contain or will
contain, as of the date thereof, no untrue statement of any material
fact and does not omit any statement of material fact which was
required to be stated therein or necessary to make the statements
contained therein not misleading.
(d) Use Of The Name "Rydex". The Adviser has the right to use the
name "Rydex" in connection with its services to the Trust and that,
subject to the terms set forth in Section 8 of this Agreement, the
Trust shall have the right to use the name "Rydex" in connection with
the management and operation of the Funds. The Adviser is not aware of
any threatened or existing actions, claims, litigation or proceedings
that would adversely affect 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
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provide the Trust with any information it may reasonably require
concerning the amount of or scope of such insurance.
(f) No Detrimental Agreement. The Adviser represents and warrants
that it has no arrangement or understanding with any party, other than
the Trust, that would influence the decision of the Adviser with
respect to its selection of securities for a Fund, and that all
selections shall be done in accordance with what is in the best
interest of the Fund.
(g) Conflicts. The Adviser shall act honestly, in good faith and in
the best interests of the Trust including requiring any of its
personnel with knowledge of Fund activities to place the interest of
the Funds first, ahead of their own interests, in all personal trading
scenarios that may involve a conflict of interest with the Funds,
consistent with its fiduciary duties under applicable law.
(h) Representations. The representations and warranties in this
Section 7 shall be deemed to be made on the date this Agreement is
executed and at the time of delivery of the quarterly compliance report
required by Section 3(a), whether or not specifically referenced in
such report.
8. THE NAME "RYDEX". The Adviser grants to the Trust a sublicense
to use the name "Rydex" (the "Name") as part of the name of any Fund. The
foregoing authorization by the Adviser to the Trust to use the Name as part of
the name of any Fund is not exclusive of the right of the Adviser itself to use,
or to authorize others to use, the Name; the Trust acknowledges and agrees that,
as between the Trust and the Adviser, the Adviser has the right to use, or
authorize others to use, the Name. The Trust shall (1) only use the Name in a
manner consistent with uses approved by the Adviser; (2) use its best efforts to
maintain the quality of the services offered using the Name; (3) adhere to such
other specific quality control standards as the Adviser may from time to time
promulgate. At the request of the Adviser, the Trust will (a) submit to Adviser
representative samples of any promotional materials using the Name; and (b)
change the name of any Fund within three months of its receipt of the Adviser's
request, or such other shorter time period as may be required under the terms of
a settlement agreement or court order, so as to eliminate all reference to the
Name and will not thereafter transact any business using the Name in the name of
any Fund; provided, however, that the Trust may continue to use beyond such date
any supplies of prospectuses, marketing materials and similar documents that the
Trust had 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
B-7
adjustment based on the number of days elapsed in the current month as a
percentage of the total number of days in such month.
10. INDEPENDENT CONTRACTOR. In the performance of its duties
hereunder, the Adviser is and shall be an independent contractor and, unless
otherwise expressly provided herein or otherwise authorized in writing, shall
have no authority to act for or represent the Trust or any Fund in any way or
otherwise be deemed to be an agent of the Trust or any Fund. If any occasion
should arise in which the Adviser gives any advice to its clients concerning the
shares of a Fund, the Adviser will act solely as investment counsel for such
clients and not in any way on behalf of the Fund.
11. ASSIGNMENT AND AMENDMENTS. This Agreement shall automatically
terminate, without the payment of any penalty, in the event of its assignment
(as defined in section 2(a)(4) of the 1940 Act); provided that such termination
shall not relieve the Adviser of any liability incurred hereunder.
This Agreement may not be added to or changed orally and may not be
modified or rescinded except by a writing signed by the parties hereto and in
accordance with the 1940 Act, when applicable.
12. DURATION AND TERMINATION.
(a) This Agreement shall become effective as of the date executed
and shall remain in full force and effect continually thereafter,
subject to renewal as provided in Section 12(d) and unless terminated
automatically as set forth in Section 11 hereof or until terminated as
follows:
(b) The Trust may cause this Agreement to terminate either (i) by
vote of its Board or (ii) with respect to any Fund, upon the
affirmative vote of a majority of the outstanding voting securities of
the Fund; or
(c) The Adviser may at any time terminate this Agreement by not more
than sixty (60) days' nor less than thirty (30) days' written notice
delivered or mailed by registered mail, postage prepaid, to the Trust;
or
(d) This Agreement shall automatically terminate two years from the
date of its execution unless its renewal is specifically approved at
least annually thereafter by (i) a majority vote of the Trustees,
including a majority vote of such Trustees who are not interested
persons of the Trust or the Adviser, at a meeting 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.
B-8
In the event of termination of this Agreement for any reason, the
Adviser shall, immediately upon notice of termination or on such later date as
may be specified in such notice, cease all activity on behalf of the Funds and
with respect to any of their assets, except as otherwise required by any
fiduciary duties of the Adviser under applicable law. In addition, the Adviser
shall deliver the Fund Books and Records to the Trust by such means and in
accordance with such schedule as the Trust shall direct and shall otherwise
cooperate, as reasonably directed by the Trust, in the transition of portfolio
asset management to any successor of the Adviser.
13. CERTAIN DEFINITIONS. For the purposes of this Agreement:
(a) "Affirmative vote of a majority of the outstanding voting
securities of the Fund" shall have the meaning as set forth in the 1940
Act, subject, however, to such exemptions as may be granted by the
Commission under the 1940 Act or any interpretations of the Commission
staff.
(b) "Interested persons" and "Assignment" shall have their
respective meanings as set forth in the 1940 Act, subject, however, to
such exemptions as may be granted by the Commission under the 1940 Act
or any interpretations of the Commission staff.
14. LIABILITY OF THE ADVISER. The Adviser shall indemnify and hold
harmless the Trust and all affiliated persons thereof (within the meaning of
Section 2(a)(3) of the 1940 Act) and all controlling persons (as described in
Section 15 of the 1933 Act) (collectively, the "Adviser Indemnitees") against
any and all losses, claims, damages, liabilities or litigation (including
reasonable legal and other expenses) by reason of or arising out of: (a) the
Adviser being in material violation of any applicable federal or state law, rule
or regulation or any investment policy or restriction set forth in the Funds'
Registration Statement or any written guidelines or instruction provided in
writing by the Board, (b) a Fund's failure to satisfy the diversification or
source of income requirements of Subchapter M of the Code, or (c) the Adviser's
willful misfeasance, bad faith or gross negligence generally in the performance
of its duties hereunder or its reckless disregard of its obligations and duties
under this Agreement.
15. ENFORCEABILITY. Any term or provision of this Agreement which is
invalid or unenforceable in any jurisdiction shall, as to such jurisdiction be
ineffective to the 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.
B-9
17. JURISDICTION. This Agreement shall be governed by and construed
in accordance with the substantive laws of state of Delaware and the Adviser
consents to the jurisdiction of courts, both state or federal, in Delaware, with
respect to any dispute under this Agreement.
18. PARAGRAPH HEADINGS. The headings of paragraphs contained in this
Agreement are provided for convenience only, form no part of this Agreement and
shall not affect its construction.
19. COUNTERPARTS. This Agreement may be executed simultaneously in
two or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be signed on their behalf by their duly authorized officers as of the date first
above written.
RYDEX VARIABLE TRUST, on behalf of each
Fund listed on Schedule A
By: _______________________________
Name: Richard M. Goldman
Title: President
SECURITY INVESTORS, LLC
By: _______________________________
Name: Richard M. Goldman
Title: Chief Executive Officer
B-10
SCHEDULE A
TO THE
ADVISORY AGREEMENT
DATED [ ], 2011 BETWEEN
RYDEX VARIABLE TRUST
AND
SECURITY INVESTORS, LLC
The Trust will pay to the Adviser as compensation for the Adviser's
services rendered, a fee, computed daily at an annual rate based on the average
daily net assets of the respective Fund in accordance the following fee
schedule:
FUND RATE FUND RATE
----------------------------------------------- --------------------------------------------
Nova 0.75% Banking 0.85%
Inverse S&P 500 Strategy 0.90% Basic Materials 0.85%
NASDAQ-100(R) 0.75% Biotechnology 0.85%
Inverse NASDAQ-100(R) Strategy 0.90% Consumer Products 0.85%
Mid-Cap 1.5x Strategy 0.90% Electronics 0.85%
Russell 2000(R) 1.5x Strategy 0.90% Energy 0.85%
Government Long Bond 1.2x Strategy 0.50% Energy Services 0.85%
Inverse Government Long Bond Strategy 0.90% Financial Services 0.85%
Europe 1.25x Strategy 0.90% Health Care 0.85%
Japan 2x Strategy 0.75% Internet 0.85%
S&P 500 Pure Value 0.75% Leisure 0.85%
S&P 500 Pure Growth 0.75% Precious Metals 0.75%
S&P MidCap 400 Pure Value 0.75% Real Estate 0.85%
S&P MidCap 400 Pure Growth 0.75% Retailing 0.85%
Inverse Mid-Cap Strategy 0.90% Technology 0.85%
S&P SmallCap 600 Pure Value 0.75% Telecommunications 0.85%
S&P SmallCap 600 Pure Growth 0.75% Transportation 0.85%
Inverse Russell 2000(R) Strategy 0.90% Utilities 0.85%
Strengthening Dollar 2x Strategy 0.90% Commodities Strategy 0.75%
Weakening Dollar 2x Strategy 0.90% U.S. Long Short Momentum 0.90%
U.S. Government Money Market 0.50% S&P 500* 0.75%
High Yield Strategy* 0.75% Russell 2000(R)* 0.75%
Inverse High Yield Strategy* 0.75% Inverse Dow 2x Strategy 0.90%
Dow 2x Strategy 0.90% Inverse Russell 2000(R) 2x Strategy* 0.90%
NASDAQ-100(R) 2x Strategy 0.90% CLS AdvisorOne Amerigo 0.90%
Russell 2000(R) 2x Strategy 0.90% CLS AdvisorOne Select Allocation 0.90%
S&P 500 2x Strategy 0.90% All-Asset Moderate Strategy 0.00%
Inverse NASDAQ-100(R) 2x Strategy* 0.90% All-Asset Conservative Strategy 0.00%
Inverse S&P 500 2x Strategy* 0.90% All-Asset Aggressive Strategy 0.00%
CLS AdvisorOne Clermont 0.90% Alternative Strategies Allocation 0.00%
Managed Futures Strategy 0.90% DWA Sector Rotation Fund 1.00%
Long/Short Commodities Strategy* 0.90%
B-11
FUND RATE FUND RATE
----------------------------------------------- --------------------------------------------
Multi-Hedge Strategies 1.15% DWA Flexible Allocation Fund 1.00%
* Denotes Funds that have not yet commenced operations.
B-12
ADVISORY AGREEMENT
ADVISORY AGREEMENT made as of this [ ] day of [ ], 2011 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 SECURITY INVESTORS, LLC, a Kansas limited liability company,
with its principal place of business at 805 King Farm Boulevard, Suite 600,
Rockville, Maryland 20850 (the "Adviser").
W I T N E S S E T H
WHEREAS, the Board of Trustees (the "Board") of the Trust has selected
the Adviser to act as investment adviser to the Trust on behalf of the series
set forth on Schedule A to this Agreement (each a "Fund" and, collectively, the
"Funds"), as such Schedule may be amended from time to time upon mutual
agreement of the parties, and to provide certain related services, as more fully
set forth below, and to perform such services under the terms and conditions
hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual covenants and benefits
set forth herein, the Trust and the Adviser do hereby agree as follows:
1. THE ADVISER'S SERVICES.
(a) Discretionary Investment Management Services. The Adviser
shall act as investment adviser with respect to the Funds. In such
capacity, the Adviser shall, subject to the supervision of the Board,
regularly provide the Funds with investment research, advice and
supervision and shall furnish continuously an investment program for
the Funds, consistent with the respective investment objectives and
policies of each Fund. The Adviser shall determine, from time to time,
what securities shall be purchased for the Funds, what securities shall
be held or sold by the Funds and what portion of the Funds' assets
shall be held uninvested in cash, subject always to the provisions of
the Trust's Declaration of Trust, By-Laws and its registration
statement on Form N-1A (the "Registration Statement") under the 1940
Act, and under the Securities Act of 1933, as amended (the "1933 Act"),
covering Fund shares, as filed with the Securities and Exchange
Commission (the "Commission"), and to the investment objectives,
policies and restrictions of the Funds, as each of the same shall be
from time to time in effect. To carry out such obligations, the Adviser
shall exercise full discretion and act for the Funds in the same manner
and with the same force and effect as the Funds themselves might or
could do with respect to purchases, sales or other transactions, as
well as with respect to all other such things necessary or incidental
to the furtherance or conduct of such purchases, sales or other
transactions. No reference in this Agreement to the Adviser having full
discretionary authority over each Fund's investments shall in any way
limit the right of the Board, in its sole discretion, to establish or
revise policies in connection with the management of a Fund's assets or
to otherwise exercise its right to control the overall management of a
Fund.
(b) 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
B-13
Securities Exchange Act of 1934, as amended (the "1934 Act"), the
Commodity Exchange Act and the respective rules and regulations
thereunder, as applicable, as well as with all other applicable federal
and state laws, rules, regulations and case law that relate to the
services and relationships described hereunder and to the conduct of
its business as a registered investment adviser. The Adviser also
agrees to comply with the objectives, policies and restrictions set
forth in the Registration Statement, as amended or supplemented, of the
Funds, and with any policies, guidelines, instructions and procedures
approved by the Board and provided to the Adviser. In selecting each
Fund's portfolio securities and performing the Adviser's obligations
hereunder, the Adviser shall cause the Fund to comply with the
diversification and source of income requirements of Subchapter M of
the Internal Revenue Code of 1986, as amended (the "Code"), for
qualification as a regulated investment company. The Adviser shall
maintain compliance procedures that it reasonably believes are adequate
to ensure its compliance with the foregoing. No supervisory activity
undertaken by the Board shall limit the Adviser's full responsibility
for any of the foregoing.
(c) Proxy Voting. The Board has the authority to determine
how proxies with respect to securities that are held by the Funds shall
be voted, and the Board has initially determined to delegate the
authority and responsibility to vote proxies for the Funds' securities
to the Adviser. So long as proxy voting authority for the Funds has
been delegated to the Adviser, the Adviser shall exercise its proxy
voting responsibilities. The Adviser shall carry out such
responsibility in accordance with any instructions that the Board shall
provide from time to time, and at all times in a manner consistent with
Rule 206(4)-6 under the Advisers Act and its fiduciary responsibilities
to the Trust. The Adviser shall provide periodic reports and keep
records relating to proxy voting as the Board may reasonably request or
as may be necessary for the Funds to comply with the 1940 Act and other
applicable law. Any such delegation of proxy voting responsibility to
the Adviser may be revoked or modified by the Board at any time.
(d) Recordkeeping. The Adviser shall not be responsible for
the provision of administrative, bookkeeping or accounting services to
the Funds, except as otherwise provided herein or as may be necessary
for the Adviser to supply to the Trust or its Board the information
required to be supplied under this Agreement.
The Adviser shall maintain separate books and detailed records
of all matters pertaining to Fund assets advised by the Adviser
required by Rule 31a-1 under the 1940 Act (other than those records
being maintained by any administrator, custodian or transfer agent
appointed by the Funds) relating to its responsibilities provided
hereunder with respect to the Funds, and shall preserve such 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
B-14
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.
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
B-15
such certifications of Fund financial statements and disclosure
controls pursuant to the Sarbanes-Oxley Act. The Adviser will promptly
notify the Trust in the event (i) the Adviser is served or otherwise
receives notice of any action, suit, proceeding, inquiry or
investigation, at law or in equity, before or by any court, public
board, or body, involving the affairs of the Trust (excluding class
action suits in which a Fund is a member of the plaintiff class by
reason of the Fund's ownership of shares in the defendant) or the
compliance by the Adviser with the federal or state securities laws or
(ii) an actual change in control of the Adviser resulting in an
"assignment" (as defined in the 1940 Act) has occurred or is otherwise
proposed to occur.
(b) Board and Filings Information. The Adviser will also
provide the Trust with any information reasonably requested regarding
its management of the Funds required for any meeting of the Board, or
for any shareholder report, amended registration statement, proxy
statement, or prospectus supplement to be filed by the Trust with the
Commission. The Adviser will make its officers and employees available
to meet with the Board from time to time on due notice to review its
investment management services to the Funds in light of current and
prospective economic and market conditions and shall furnish to the
Board such information as may reasonably be necessary in order for the
Board to evaluate this Agreement or any proposed amendments thereto.
(c) Transaction Information. The Adviser shall furnish to the
Trust such information concerning portfolio transactions as may be
necessary to enable the Trust or its designated agent to perform such
compliance testing on the Funds and the Adviser's services as the Trust
may, in its sole discretion, determine to be appropriate. The provision
of such information by the Adviser to the Trust or its designated agent
in no way relieves the Adviser of its own responsibilities under this
Agreement.
4. BROKERAGE.
(a) Principal Transactions. In connection with purchases or
sales of securities for the account of a Fund, neither the Adviser nor
any of its directors, officers 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
B-16
may be useful to the Adviser in connection with its or its affiliates'
services to other clients.
(c) Aggregated Transactions. On occasions when the Adviser
deems the purchase or sale of a security to be in the best interest of
a Fund as well as other clients of the Adviser, the Adviser may, to the
extent permitted by applicable law and regulations, aggregate the order
for securities to be sold or purchased. In such event, the Adviser will
allocate securities or futures contracts so purchased or sold, as well
as the expenses incurred in the transaction, in the manner the Adviser
reasonably considers to be equitable and consistent with its fiduciary
obligations to the Fund and to such other clients under the
circumstances.
(d) Affiliated Brokers. The Adviser or any of its affiliates
may act as broker in connection with the purchase or sale of securities
or other investments for a Fund, subject to: (a) the requirement that
the Adviser seek to obtain best execution and price within the policy
guidelines determined by the Board and set forth in the Fund's current
prospectus and SAI; (b) the provisions of the 1940 Act; (c) the
provisions of the Advisers Act; (d) the provisions of the 1934 Act; and
(e) other provisions of applicable law. These brokerage services are
not within the scope of the duties of the Adviser under this Agreement.
Subject to the requirements of applicable law and any procedures
adopted by the Board, the Adviser or its affiliates may receive
brokerage commissions, fees or other remuneration from a Fund for these
services in addition to the Adviser's fees for services under this
Agreement.
5. CUSTODY. Nothing in this Agreement shall permit the Adviser to
take or receive physical possession of cash, securities or other investments of
a Fund.
6. ALLOCATION OF CHARGES AND EXPENSES. The Adviser will bear its
own costs of providing services hereunder. Other than as herein specifically
indicated, the Adviser 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 Strategy, All Asset Moderate Strategy, All Asset Aggressive
Strategy, 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.
B-17
7. REPRESENTATIONS, WARRANTIES AND COVENANTS.
(a) Properly Registered. The Adviser is registered as an
investment adviser under the Advisers Act, and will remain so
registered for the duration of this Agreement. The Adviser is not
prohibited by the Advisers Act or the 1940 Act from performing the
services contemplated by this Agreement, and to the best knowledge of
the Adviser, there is no proceeding or investigation that is reasonably
likely to result in the Adviser being prohibited from performing the
services contemplated by this Agreement. The Adviser agrees to promptly
notify the Trust of the occurrence of any event that would disqualify
the Adviser from serving as an investment adviser to an investment
company. The Adviser is in compliance in all material respects with all
applicable federal and state law in connection with its investment
management operations.
(b) ADV Disclosure. The Adviser has provided the Trust with a
copy of its Form ADV as most recently filed with the Commission and
will, promptly after filing any amendment to its Form ADV with the
Commission, furnish a copy of such amendment(s) to the Trust. The
information contained in the Adviser's Form ADV is accurate and
complete in all material respects and does not omit to state any
material fact necessary in order to make the statements made, in light
of the circumstances under which they were made, not misleading.
(c) Fund Disclosure Documents. The Adviser has reviewed and
will in the future review, the Registration Statement, and any
amendments or supplements thereto, the annual or semi-annual reports to
shareholders, other reports filed with the Commission and any marketing
material of the Funds (collectively the "Disclosure Documents") and
represents and warrants that with respect to disclosure about the
Adviser, the manner in which the Adviser manages the Funds or
information relating directly or indirectly to the Adviser, such
Disclosure Documents contain or will contain, as of the date thereof,
no untrue statement of any material fact and does not omit any
statement of material fact which was required to be stated therein or
necessary to make the statements contained therein not misleading.
(d) Use of The Name "Rydex". The Adviser has the right to use
the name "Rydex" in connection with its services to the Trust and that,
subject to the terms set forth in Section 8 of this Agreement, the
Trust shall have the right to use the name "Rydex" in connection with
the management and operation of the Funds. The Adviser is not aware of
any threatened or existing actions, claims, litigation or proceedings
that would adversely aeffect 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.
B-18
(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 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
B-19
adjustment based on the number of days elapsed in the current month as a
percentage of the total number of days in such month.
10. INDEPENDENT CONTRACTOR. In the performance of its duties
hereunder, the Adviser is and shall be an independent contractor and, unless
otherwise expressly provided herein or otherwise authorized in writing, shall
have no authority to act for or represent the Trust or any Fund in any way or
otherwise be deemed to be an agent of the Trust or any Fund. If any occasion
should arise in which the Adviser gives any advice to its clients concerning the
shares of a Fund, the Adviser will act solely as investment counsel for such
clients and not in any way on behalf of the Fund.
11. ASSIGNMENT AND AMENDMENTS. This Agreement shall automatically
terminate, without the payment of any penalty, in the event of its assignment
(as defined in section 2(a)(4) of the 1940 Act); provided that such termination
shall not relieve the Adviser of any liability incurred hereunder.
This Agreement may not be added to or changed orally and may not be
modified or rescinded except by a writing signed by the parties hereto and in
accordance with the 1940 Act, when applicable.
12. DURATION AND TERMINATION.
(a) This Agreement shall become effective as of the date
executed and shall remain in full force and effect continually
thereafter, subject to renewal as provided in Section 12(d) and unless
terminated automatically as set forth in Section 11 hereof or until
terminated as follows:
(b) The Trust may cause this Agreement to terminate either
(i) by vote of its Board or (ii) with respect to any Fund, upon the
affirmative vote of a majority of the outstanding voting securities of
the Fund; or
(c) The Adviser may at any time terminate this Agreement by
not more than sixty (60) days' nor less than thirty (30) days' written
notice delivered or mailed by registered mail, postage prepaid, to the
Trust; or
(d) This Agreement shall automatically terminate two years
from the date of its execution unless its renewal is specifically
approved at least annually thereafter by (i) a majority vote of the
Trustees, including a majority vote of such Trustees who are not
interested persons of the Trust or the Adviser, at a meeting 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.
B-20
In the event of termination of this Agreement for any reason, the
Adviser shall, immediately upon notice of termination or on such later date as
may be specified in such notice, cease all activity on behalf of the Funds and
with respect to any of their assets, except as otherwise required by any
fiduciary duties of the Adviser under applicable law. In addition, the Adviser
shall deliver the Fund Books and Records to the Trust by such means and in
accordance with such schedule as the Trust shall direct and shall otherwise
cooperate, as reasonably directed by the Trust, in the transition of portfolio
asset management to any successor of the Adviser.
13. CERTAIN DEFINITIONS. For the purposes of this Agreement:
(a) "Affirmative vote of a majority of the outstanding voting
securities of the Fund" shall have the meaning as set forth in the 1940
Act, subject, however, to such exemptions as may be granted by the
Commission under the 1940 Act or any interpretations of the Commission
staff.
(b) "Interested persons" and "Assignment" shall have their
respective meanings as set forth in the 1940 Act, subject, however, to
such exemptions as may be granted by the Commission under the 1940 Act
or any interpretations of the Commission staff.
14. LIABILITY OF THE ADVISER. The Adviser shall indemnify and hold
harmless the Trust and all affiliated persons thereof (within the meaning of
Section 2(a)(3) of the 1940 Act) and all controlling persons (as described in
Section 15 of the 1933 Act) (collectively, the "Adviser Indemnitees") against
any and all losses, claims, damages, liabilities or litigation (including
reasonable legal and other expenses) by reason of or arising out of: (a) the
Adviser being in material violation of any applicable federal or state law, rule
or regulation or any investment policy or restriction set forth in the Funds'
Registration Statement or any written guidelines or instruction provided in
writing by the Board, (b) a Fund's failure to satisfy the diversification or
source of income requirements of Subchapter M of the Code, or (c) the Adviser's
willful misfeasance, bad faith or gross negligence generally in the performance
of its duties hereunder or its reckless disregard of its obligations and duties
under this Agreement.
15. ENFORCEABILITY. Any term or provision of this Agreement which is
invalid or unenforceable in any jurisdiction shall, as to such jurisdiction be
ineffective to the 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.
B-21
17. JURISDICTION. This Agreement shall be governed by and construed
in accordance with the substantive laws of state of Delaware and the Adviser
consents to the jurisdiction of courts, both state or federal, in Delaware, with
respect to any dispute under this Agreement.
18. PARAGRAPH HEADINGS. The headings of paragraphs contained in this
Agreement are provided for convenience only, form no part of this Agreement and
shall not affect its construction.
19. COUNTERPARTS. This Agreement may be executed simultaneously in
two or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be signed on their behalf by their duly authorized officers as of the date first
above written.
RYDEX SERIES FUNDS, on behalf of each Fund
listed on Schedule A
By: _______________________________
Name: Richard M. Goldman
Title: President
SECURITY INVESTORS, LLC
By: _______________________________
Name: Richard M. Goldman
Title: Chief Executive Officer
B-22
SCHEDULE A
TO THE
ADVISORY AGREEMENT
DATED [ ], 2011 BETWEEN
RYDEX SERIES FUNDS
AND
SECURITY INVESTORS, LLC
The Trust will pay to the Adviser as compensation for the Adviser's
services rendered, a fee, computed daily at an annual rate based on the average
daily net assets of the respective Fund in accordance the following fee
schedule:
FUND RATE FUND RATE
-------------------------------------------------------------------------------------------------
Nova 0.75% Consumer Products 0.85%
-------------------------------------------------------------------------------------------------
Inverse S&P 500 Strategy 0.90% Electronics 0.85%
-------------------------------------------------------------------------------------------------
NASDAQ-100(R) 0.75% Energy Services 0.85%
-------------------------------------------------------------------------------------------------
Inverse NASDAQ-100(R) Strategy 0.90% Financial Services 0.85%
-------------------------------------------------------------------------------------------------
Mid-Cap 1.5x Strategy 0.90% Health Care 0.85%
-------------------------------------------------------------------------------------------------
Russell 2000(R) 1.5x Strategy 0.90% Internet 0.85%
-------------------------------------------------------------------------------------------------
Government Long Bond 1.2x Strategy 0.50% Leisure 0.85%
-------------------------------------------------------------------------------------------------
Europe 1.25x Strategy 0.90% Precious Metals 0.75%
-------------------------------------------------------------------------------------------------
S&P 500 Pure Value 0.75% Real Estate 0.85%
-------------------------------------------------------------------------------------------------
S&P 500 Pure Growth 0.75% Retailing 0.85%
-------------------------------------------------------------------------------------------------
S&P Mid-Cap 400 Pure Value 0.75% Technology 0.85%
-------------------------------------------------------------------------------------------------
S&P Mid-Cap 400 Pure Growth 0.75% Telecommunications 0.85%
-------------------------------------------------------------------------------------------------
Inverse Mid-Cap Strategy 0.90% Transportation 0.85%
-------------------------------------------------------------------------------------------------
S&P Small-Cap 600 Pure Value 0.75% Utilities 0.85%
-------------------------------------------------------------------------------------------------
S&P Small-Cap 600 Pure Growth 0.75% Commodities Strategy 0.75%
-------------------------------------------------------------------------------------------------
Inverse Russell 2000(R) Strategy 0.90% U.S. Long Short Momentum 0.90%
-------------------------------------------------------------------------------------------------
Strengthening Dollar 2x Strategy 0.90% S&P 500 0.75%
-------------------------------------------------------------------------------------------------
Weakening Dollar 2x Strategy 0.90% Russell 2000(R) 0.75%
-------------------------------------------------------------------------------------------------
U.S. Government Money Market 0.50% Inverse International 2x Strategy* 0.75%
-------------------------------------------------------------------------------------------------
High Yield Strategy 0.75% All-Asset Moderate Strategy 0.00%
-------------------------------------------------------------------------------------------------
International 2x Strategy* 0.75% All-Asset Aggressive Strategy 0.00%
-------------------------------------------------------------------------------------------------
Long/Short Commodities Strategy 0.90% Alternative Strategies Allocation 0.00%
-------------------------------------------------------------------------------------------------
Event Driven and Distressed
Multi-Hedge Strategies 1.15% Strategies 0.90%
-------------------------------------------------------------------------------------------------
Banking 0.85% Alternative Strategies 0.90%
-------------------------------------------------------------------------------------------------
Basic Materials 0.85% Long Short Equity Strategy 0.90%
-------------------------------------------------------------------------------------------------
Biotechnology 0.85% Long Short Interest Rate Strategy 0.75%
-------------------------------------------------------------------------------------------------
Managed Futures Strategy 0.90% Japan 2x Strategy 0.75%
-------------------------------------------------------------------------------------------------
Inverse High Yield Strategy 0.75% Emerging Markets 2x Strategy 0.90%
-------------------------------------------------------------------------------------------------
Energy 0.85% Inverse Emerging Markets 2x 0.90%
-------------------------------------------------------------------------------------------------
B-23
FUND RATE FUND RATE
-------------------------------------------------------------------------------------------------
Strategy
-------------------------------------------------------------------------------------------------
Inverse Government Long Bond Strategy 0.90% Global Managed Futures
-------------------------------------------------------------------------------------------------
All-Asset Conservative Strategy 0.00% Strategy Fund* [1.00%]
-------------------------------------------------------------------------------------------------
* Denotes Funds that have not yet commenced operations.
B-24
ADVISORY AGREEMENT
ADVISORY AGREEMENT made as of this [ ] day of [ ], 2011 by and between
RYDEX DYNAMIC FUNDS (the "Trust"), a Delaware statutory trust registered as an
investment company under the Investment Company Act of 1940, as amended (the
"1940 Act"), and SECURITY INVESTORS, LLC, a Kansas limited liability company,
with its principal place of business at 805 King Farm Boulevard, Suite 600,
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 U.S. Securities and Exchange
Commission (the "Commission"), and to the investment objectives,
policies and restrictions of the Funds, as each of the same shall be
from time to time in effect. To carry out such obligations, the Adviser
shall exercise full discretion and act for the Funds in the same manner
and with the same force and effect as the Funds themselves might or
could do with respect to purchases, sales or other transactions, as
well as with respect to all other such things necessary or incidental
to the furtherance or conduct of such purchases, sales or other
transactions. No reference in this Agreement to the Adviser having full
discretionary authority over each Fund's investments shall in any way
limit the right of the Board, in its sole discretion, to establish or
revise policies in 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
B-25
Securities Exchange Act of 1934, as amended (the "1934 Act"), the
Commodity Exchange Act and the respective rules and regulations
thereunder, as applicable, as well as with all other applicable federal
and state laws, rules, regulations and case law that relate to the
services and relationships described hereunder and to the conduct of
its business as a registered investment adviser. The Adviser also
agrees to comply with the objectives, policies and restrictions set
forth in the Registration Statement, as amended or supplemented, of the
Funds, and with any policies, guidelines, instructions and procedures
approved by the Board and provided to the Adviser. In selecting each
Fund's portfolio securities and performing the Adviser's obligations
hereunder, the Adviser shall cause the Fund to comply with the
diversification and source of income requirements of Subchapter M of
the Internal Revenue Code of 1986, as amended (the "Code"), for
qualification as a regulated investment company. The Adviser shall
maintain compliance procedures that it reasonably believes are adequate
to ensure its compliance with the foregoing. No supervisory activity
undertaken by the Board shall limit the Adviser's full responsibility
for any of the foregoing.
(c) Proxy Voting. The Board has the authority to determine
how proxies with respect to securities that are held by the Funds shall
be voted, and the Board has initially determined to delegate the
authority and responsibility to vote proxies for the Funds' securities
to the Adviser. So long as proxy voting authority for the Funds has
been delegated to the Adviser, the Adviser shall exercise its proxy
voting responsibilities. The Adviser shall carry out such
responsibility in accordance with any instructions that the Board shall
provide from time to time, and at all times in a manner consistent with
Rule 206(4)-6 under the Advisers Act and its fiduciary responsibilities
to the Trust. The Adviser shall provide periodic reports and keep
records relating to proxy voting as the Board may reasonably request or
as may be necessary for the Funds to comply with the 1940 Act and other
applicable law. Any such delegation of proxy voting responsibility to
the Adviser may be revoked or modified by the Board at any time.
(d) Recordkeeping. The Adviser shall not be responsible for
the provision of administrative, bookkeeping or accounting services to
the Funds, except as otherwise provided herein or as may be necessary
for the Adviser to supply to the Trust or its Board the information
required to be supplied under this Agreement.
The Adviser shall maintain separate books and detailed records
of all matters pertaining to Fund assets advised by the Adviser
required by Rule 31a-1 under the 1940 Act (other than those records
being maintained by any administrator, custodian or transfer agent
appointed by the Funds) relating to its responsibilities provided
hereunder with respect to the Funds, and shall preserve such 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
B-26
for this purpose. The Adviser agrees to immediately notify the Trust if
the Adviser reasonably believes that the value of any security held by
a Fund may not reflect fair value. The Adviser agrees to provide any
pricing information of which the Adviser is aware to the Trust, its
Board and/or any Fund pricing agent to assist in the determination of
the fair value of any Fund holdings for which market quotations are not
readily available or as otherwise required in accordance with the 1940
Act or the Trust's valuation procedures for the purpose of calculating
the Fund net asset value in accordance with procedures and methods
established by the Board.
(f) Cooperation with Agents of the Trust. The Adviser agrees
to cooperate with and provide reasonable assistance to the Trust, any
Trust custodian or foreign sub- custodians, any Trust pricing agents
and all other agents and representatives of the Trust, such information
with respect to the Funds as they may reasonably request from time to
time in the performance of their obligations, provide prompt responses
to reasonable requests made by such persons and establish appropriate
interfaces with each so as to promote the efficient exchange of
information and compliance with applicable laws and regulations.
2. CODE OF ETHICS. The Adviser has adopted a written code of ethics
that it reasonably believes complies with the requirements of Rule 17j-1 under
the 1940 Act, which it will provide to the Trust. The Adviser shall ensure that
its Access Persons (as defined in the Adviser's Code of Ethics) comply in all
material respects with the Adviser's Code of Ethics, as in effect from time to
time. Upon request, the Adviser shall provide the Trust with a (i) a copy of the
Adviser's current Code of Ethics, as in effect from time to time, and (ii)
certification that it has adopted procedures reasonably necessary to prevent
Access Persons from engaging in any conduct prohibited by the Adviser's Code of
Ethics. Annually, the Adviser shall furnish a written report, which complies
with the requirements of Rule 17j-1, concerning the Adviser's Code of Ethics to
the Trust. The Adviser shall respond to requests for information from the Trust
as to violations of the Code of Ethics by Access Persons and the sanctions
imposed by the Adviser. The Adviser shall immediately notify the Trust of any
material violation of the Code of Ethics, whether or not such violation relates
to a security held by any Fund.
3. INFORMATION AND REPORTING. The Adviser shall provide the Trust
and its respective officers with such periodic reports concerning the
obligations the Adviser has assumed under this Agreement as the Trust may from
time to time reasonably request.
(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
B-27
such certifications of Fund financial statements and disclosure
controls pursuant to the Sarbanes-Oxley Act. The Adviser will promptly
notify the Trust in the event (i) the Adviser is served or otherwise
receives notice of any action, suit, proceeding, inquiry or
investigation, at law or in equity, before or by any court, public
board, or body, involving the affairs of the Trust (excluding class
action suits in which a Fund is a member of the plaintiff class by
reason of the Fund's ownership of shares in the defendant) or the
compliance by the Adviser with the federal or state securities laws or
(ii) an actual change in control of the Adviser resulting in an
"assignment" (as defined in the 1940 Act) has occurred or is otherwise
proposed to occur.
(b) Board and Filings Information. The Adviser will also
provide the Trust with any information reasonably requested regarding
its management of the Funds required for any meeting of the Board, or
for any shareholder report, amended registration statement, proxy
statement, or prospectus supplement to be filed by the Trust with the
Commission. The Adviser will make its officers and employees available
to meet with the Board from time to time on due notice to review its
investment management services to the Funds in light of current and
prospective economic and market conditions and shall furnish to the
Board such information as may reasonably be necessary in order for the
Board to evaluate this Agreement or any proposed amendments thereto.
(c) Transaction Information. The Adviser shall furnish to the
Trust such information concerning portfolio transactions as may be
necessary to enable the Trust or its designated agent to perform such
compliance testing on the Funds and the Adviser's services as the Trust
may, in its sole discretion, determine to be appropriate. The provision
of such information by the Adviser to the Trust or its designated agent
in no way relieves the Adviser of its own responsibilities under this
Agreement.
4. BROKERAGE.
(a) Principal Transactions. In connection with purchases or
sales of securities for the account of a Fund, neither the Adviser nor
any of its directors, officers 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
B-28
may be useful to the Adviser in connection with its or its affiliates'
services to other clients.
(c) Aggregated Transactions. On occasions when the Adviser
deems the purchase or sale of a security to be in the best interest of
a Fund as well as other clients of the Adviser, the Adviser may, to the
extent permitted by applicable law and regulations, aggregate the order
for securities to be sold or purchased. In such event, the Adviser will
allocate securities or futures contracts so purchased or sold, as well
as the expenses incurred in the transaction, in the manner the Adviser
reasonably considers to be equitable and consistent with its fiduciary
obligations to the Fund and to such other clients under the
circumstances.
(d) Affiliated Brokers. The Adviser or any of its affiliates
may act as broker in connection with the purchase or sale of securities
or other investments for a Fund, subject to: (a) the requirement that
the Adviser seek to obtain best execution and price within the policy
guidelines determined by the Board and set forth in the Fund's current
prospectus and SAI; (b) the provisions of the 1940 Act; (c) the
provisions of the Advisers Act; (d) the provisions of the 1934 Act; and
(e) other provisions of applicable law. These brokerage services are
not within the scope of the duties of the Adviser under this Agreement.
Subject to the requirements of applicable law and any procedures
adopted by the Board, the Adviser or its affiliates may receive
brokerage commissions, fees or other remuneration from a Fund for these
services in addition to the Adviser's fees for services under this
Agreement.
5. CUSTODY. Nothing in this Agreement shall permit the Adviser to
take or receive physical possession of cash, securities or other investments of
a Fund.
6. ALLOCATION OF CHARGES AND EXPENSES. The Adviser will bear its
own costs of providing services hereunder. Other than as herein specifically
indicated, the Adviser shall not be responsible for a Fund's expenses, including
brokerage and other expenses incurred in placing orders for the purchase and
sale of securities and other investment instruments.
7. REPRESENTATIONS, WARRANTIES AND COVENANTS.
(a) Properly Registered. The Adviser is registered as an
investment adviser under the Advisers Act, and will remain so
registered for the duration of this Agreement. The Adviser is not
prohibited by the Advisers Act or the 1940 Act from performing the
services contemplated by this Agreement, and to the best knowledge of
the Adviser, there is no proceeding or investigation that is reasonably
likely to result in the Adviser being prohibited from performing the
services contemplated by this Agreement. The Adviser agrees to promptly
notify the Trust of the occurrence of any event that would disqualify
the Adviser from serving as an investment adviser to an investment
company. The Adviser is in compliance in all material respects with all
applicable federal and state law in connection with its investment
management operations.
(b) ADV Disclosure. The Adviser has provided the Trust with a
copy of its Form ADV as most recently filed with the Commission and
will, promptly after filing
B-29
any amendment to its Form ADV with the Commission, furnish a copy of
such amendment(s) to the Trust. The information contained in the
Adviser's Form ADV is accurate and complete in all material respects
and does not omit to state any material fact necessary in order to make
the statements made, in light of the circumstances under which they
were made, not misleading.
(c) Fund Disclosure Documents. The Adviser has reviewed and
will in the future review, the Registration Statement, and any
amendments or supplements thereto, the annual or semi-annual reports to
shareholders, other reports filed with the Commission and any marketing
material of the Funds (collectively the "Disclosure Documents") and
represents and warrants that with respect to disclosure about the
Adviser, the manner in which the Adviser manages the Funds or
information relating directly or indirectly to the Adviser, such
Disclosure Documents contain or will contain, as of the date thereof,
no untrue statement of any material fact and does not omit any
statement of material fact which was required to be stated therein or
necessary to make the statements contained therein not misleading.
(d) Use of The Name "Rydex". The Adviser has the right to use
the name "Rydex" in connection with its services to the Trust and that,
subject to the terms set forth in Section 8 of this Agreement, the
Trust shall have the right to use the name "Rydex" in connection with
the management and operation of the Funds. The Adviser is not aware of
any threatened or existing actions, claims, litigation or proceedings
that would adversely affect 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
B-30
of the quarterly compliance report required by Section 3(a), whether or
not specifically referenced in such report.
8. THE NAME "RYDEX". The Adviser grants to the Trust a license to
use the name "Rydex" (the "Name") as part of the name of any Fund. The foregoing
authorization by the Adviser to the Trust to use the Name as part of the name of
any Fund is not exclusive of the right of the Adviser itself to use, or to
authorize others to use, the Name; the Trust acknowledges and agrees that, as
between the Trust and the Adviser, the Adviser has the right to use, or
authorize others to use, the Name. The Trust shall (1) only use the Name in a
manner consistent with uses approved by the Adviser; (2) use its best efforts to
maintain the quality of the services offered using the Name; (3) adhere to such
other specific quality control standards as the Adviser may from time to time
promulgate. At the request of the Adviser, the Trust will (a) submit to Adviser
representative samples of any promotional materials using the Name; and (b)
change the name of any Fund within three months of its receipt of the Adviser's
request, or such other shorter time period as may be required under the terms of
a settlement agreement or court order, so as to eliminate all reference to the
Name and will not thereafter transact any business using the Name in the name of
any Fund; provided, however, that the Trust may continue to use beyond such date
any supplies of prospectuses, marketing materials and similar documents that the
Trust had 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.
B-31
This Agreement may not be added to or changed orally and may not be
modified or rescinded except by a writing signed by the parties hereto and in
accordance with the 1940 Act, when applicable.
12. DURATION AND TERMINATION.
(a) This Agreement shall become effective as of the date
executed and shall remain in full force and effect continually
thereafter, subject to renewal as provided in Section 12(d) and unless
terminated automatically as set forth in Section 11 hereof or until
terminated as follows:
(b) The Trust may cause this Agreement to terminate either
(i) by vote of its Board or (ii) with respect to any Fund, upon the
affirmative vote of a majority of the outstanding voting securities of
the Fund; or
(c) The Adviser may at any time terminate this Agreement by
not more than sixty (60) days' nor less than thirty (30) days' written
notice delivered or mailed by registered mail, postage prepaid, to the
Trust; or
(d) This Agreement shall automatically terminate two years
from the date of its execution unless its renewal is specifically
approved at least annually thereafter by (i) a majority vote of the
Trustees, including a majority vote of such Trustees who are not
interested persons of the Trust or the Adviser, at a meeting called for
the purpose of voting on such approval; or (ii) the vote of a majority
of the outstanding voting securities of each Fund; provided, however,
that if the continuance of this Agreement is submitted to the
shareholders of the Funds for their approval and such shareholders fail
to approve such continuance of this Agreement as provided herein, the
Adviser may continue to serve hereunder as to the Funds in a manner
consistent with the 1940 Act and the rules and regulations thereunder;
and
Termination of this Agreement pursuant to this Section shall be without payment
of any penalty. In the event of termination of this Agreement for any reason,
the Adviser shall, immediately upon notice of termination or on such later date
as may be specified in such notice, cease all activity on behalf of the Funds
and with respect to any of their assets, except as otherwise required by any
fiduciary duties of the Adviser under applicable law. In addition, the Adviser
shall deliver the Fund Books and Records to the Trust by such means and in
accordance with such schedule as the Trust shall direct and shall otherwise
cooperate, as reasonably directed by the Trust, in the transition of portfolio
asset management to any successor of the Adviser.
13. CERTAIN DEFINITIONS. For the purposes of this Agreement:
(a) "Affirmative vote of a majority of the outstanding voting
securities of the Fund" shall have the meaning as set forth in the 1940
Act, subject, however, to such exemptions as may be granted by the
Commission under the 1940 Act or any interpretations of the Commission
staff.
(b) "Interested persons" and "Assignment" shall have their
respective meanings as set forth in the 1940 Act, subject, however, to
such exemptions as may be
B-32
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 and/or federal, in Delaware,
with respect to any dispute under this Agreement.
18. PARAGRAPH HEADINGS. The headings of paragraphs contained in this
Agreement are provided for convenience only, form no part of this Agreement and
shall not affect its construction.
19. COUNTERPARTS. This Agreement may be executed simultaneously in
two or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
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.
B-33
RYDEX DYNAMIC FUNDS, on behalf of each
Fund listed on Schedule A
By: _______________________________
Name: Richard M. Goldman
Title: President
SECURITY INVESTORS, LLC
By: _______________________________
Name: Richard M. Goldman
Title: Chief Executive Officer
B-34
SCHEDULE A
TO THE
ADVISORY AGREEMENT
DATED [ ], 2011 BETWEEN
RYDEX DYNAMIC FUNDS
AND
SECURITY INVESTORS, LLC
The Trust will pay to the Adviser as compensation for the Adviser's
services rendered, a fee, computed daily at an annual rate based on the average
daily net assets of the respective Fund in accordance the following fee
schedule:
Fund Rate
S&P 500 2x Strategy..................................................... 0.90%
Inverse S&P 500 2x Strategy ............................................ 0.90%
NASDAQ-100(R) 2x Strategy .............................................. 0.90%
Inverse NASDAQ-100(R) 2x Strategy ...................................... 0.90%
Dow 2x Strategy ........................................................ 0.90%
Inverse Dow 2x Strategy................................................. 0.90%
Russell 2000(R) 2x Strategy ............................................ 0.90%
Inverse Russell 2000(R) 2x Strategy..................................... 0.90%
B-35
APPENDIX C
INFORMATION REGARDING THE INVESTMENT ADVISORY
AGREEMENTS AND FEES PAID TO THE INVESTMENT ADVISER
AND AFFILIATES
Security Investors, LLC, a Kansas limited liability company (the
"Investment Adviser") currently serves as investment adviser to all series
(collectively, the "Funds") of Rydex Variable Trust ("RVT"), Rydex Series Funds
("RSF") and Rydex Dynamic Funds ("RDF") (collectively, the "Trusts") pursuant to
investment advisory agreements between each of the Trusts, on behalf of its
series, and the Investment Adviser. Rydex Fund Services, Inc. ("RFS") serves as
the administrator, transfer agent and accounting services agent for the Funds.
Rydex Distributors, LLC ("RDL") serves as principal underwriter to the Funds.
RFS and RDL are affiliates of the Investment Adviser. The table below provides
the following information:
(i) the date on which each Fund's shareholders last approved the
Fund's investment advisory agreement;
(ii) the annual rate of management fees paid by each Fund to the
Investment Adviser, stated as a percentage of that Fund's
average daily net assets;
(iii) the aggregate amount of management fees paid by each Fund to
the Investment Adviser for the Fund's fiscal year ended
March 31, 2011 for RSF (except as noted) and December 31, 2010
for RVT, RDF, and RSF (except as noted);
(iv) the amount of fees paid by each Fund to the Administrator for
administrative and transfer agency services for the Fund during
the Fund's fiscal year ended March 31, 2011 for RSF (except as
noted) and December 31, 2010 for RVT, RDF, and RSF (except as
noted);
(v) the amount of accounting service fees paid by each Fund to the
Administrator for accounting services for the Fund during the
Fund's fiscal year ended March 31, 2011 for RSF (except as
noted) and December 31, 2010 for RVT, RDF and RSF (except as
noted);
(vi) the amount of investor service fees paid by each RVT Fund to RDL
during the Fund's fiscal year ended December 31, 2010 for RDL's
services to owners of variable annuity and variable life
insurance contracts who indirectly through insurance company
separate accounts invest in shares of the Fund, pursuant to the
Fund's investor services agreement with RDL; and
(vii) the amount of distribution (12b-1) fees paid by each RSF and RDF
Fund during the Fund's fiscal year ended March 31, 2011 for RSF
(except as noted) and December 31, 2010 for RDF and RSF (except
as noted).
C-1
RYDEX VARIABLE TRUST
MANAGEMENT INVESTOR
DATE OF LAST FEES PAID TO ADMINISTRATIVE ACCOUNTING SERVICES FEES
SHAREHOLDER MANAGEMENT INVESTMENT SERVICE FEES SERVICE FEES PAID TO
SERIES NAME APPROVAL FEES ADVISER PAID TO RFS PAID TO RFS RDL
-----------------------------------------------------------------------------------------------------------------------------
All-Asset Aggressive
Strategy Fund 5/21/2010 0.00%* $0* $ 0*** $ 0*** $ 0***
All-Asset Conservative
Strategy Fund 5/21/2010 0.00%* $0* $ 0*** $ 0*** $ 0***
All-Asset Moderate
Strategy Fund 5/21/2010 0.00%* $0* $ 0*** $ 0*** $ 0***
Alternative Strategies
Allocation Fund 5/21/2010 0.00%* $0* $ 0** $ 0** $ 0**
Amerigo Fund 5/21/2010 0.90% $1,739,703 $483,250 $193,299 $ 483,250
Banking Fund 5/21/2010 0.85% $ 59,715 $ 17,563 $ 7,025 $ 17,563
Basic Materials Fund 5/21/2010 0.85% $ 292,758 $ 86,105 $ 34,442 $ 86,105
Biotechnology Fund 5/21/2010 0.85% $ 140,356 $ 41,281 $ 16,512 $ 41,281
Clermont Fund 5/21/2010 0.90% $ 621,802 $172,723 $ 69,089 $ 172,723
Commodities Strategy Fund 5/21/2010 0.75% $ 116,557 $ 38,872 $ 15,549 $ 38,872
Consumer Products Fund 5/21/2010 0.85% $ 154,395 $ 45,410 $ 18,164 $ 45,410
Dow 2x Strategy Fund 5/21/2010 0.90% $ 107,390 $ 29,830 $ 11,932 $ 29,830
DWA Flexible Allocation Fund 2/11/2010 1.00% $ 109,019 $ 27,255 $ 10,902 $ 27,255
DWA Sector Rotation Fund 2/11/2010 1.00% $ 196,928 $ 49,232 $ 19,693 $ 49,232
Electronics Fund 5/21/2010 0.85% $ 106,064 $ 31,195 $ 12,478 $ 31,195
Energy Fund 5/21/2010 0.85% $ 283,935 $ 83,510 $ 33,404 $ 83,510
Energy Services Fund 5/21/2010 0.85% $ 263,946 $ 77,631 $ 31,052 $ 77,631
Europe 1.25x Strategy Fund 5/21/2010 0.90% $ 102,282 $ 28,412 $ 11,365 $ 28,412
Financial Services Fund 5/21/2010 0.85% $ 93,973 $ 27,639 $ 11,056 $ 27,639
Government Long Bond 1.2x
Strategy Fund 5/21/2010 0.50% $ 222,136 $ 88,855 $ 44,427 $ 111,068
Health Care Fund 5/21/2010 0.85% $ 162,740 $ 47,865 $ 19,146 $ 47,865
Internet Fund 5/21/2010 0.85% $ 126,734 $ 37,275 $ 14,910 $ 37,275
Inverse Dow 2x Strategy Fund 5/21/2010 0.90% $ 156,064 $ 43,351 $ 17,340 $ 43,351
Inverse Government Long Bond
Strategy Fund 5/21/2010 0.90% $ 167,762 $ 46,601 $ 18,640 $ 46,601
C-2
MANAGEMENT INVESTOR
DATE OF LAST FEES PAID TO ADMINISTRATIVE ACCOUNTING SERVICES FEES
SHAREHOLDER MANAGEMENT INVESTMENT SERVICE FEES SERVICE FEES PAID TO
SERIES NAME APPROVAL FEES ADVISER PAID TO RFS PAID TO RFS RDL
-----------------------------------------------------------------------------------------------------------------------------
Inverse Mid-Cap Strategy Fund 5/21/2010 0.90% $ 35,256 $ 9,793 $ 3,917 $ 9,793
Inverse NASDAQ-100(R)
Strategy Fund 5/21/2010 0.90% $ 132,852 $ 36,903 $ 14,761 $ 36,903
Inverse Russell 2000(R)
Strategy Fund 5/21/2010 0.90% $ 86,045 $ 23,901 $ 9,560 $ 23,901
Inverse S&P 500 Strategy Fund 5/21/2010 0.90% $ 347,532 $ 96,537 $ 38,614 $ 96,537
Japan 2x Strategy Fund 5/21/2010 0.75% $ 50,491 $ 16,830 $ 6,732 $ 16,830
Leisure Fund 5/21/2010 0.85% $ 113,298 $ 33,323 $ 13,329 $ 33,323
Managed Futures Strategy Fund 5/21/2010 0.90% $ 195,175 $ 54,215 $ 21,686 $ 54,215
Mid-Cap 1.5x Strategy Fund 5/21/2010 0.90% $ 129,055 $ 35,849 $ 14,339 $ 35,849
Multi-Hedge Strategies Fund 5/21/2010 1.15% $ 248,052 $ 0** $ 0** $ 0**
NASDAQ-100(R) 2x
Strategy Fund 5/21/2010 0.90% $ 237,057 $ 65,849 $ 26,339 $ 65,849
NASDAQ-100(R) Fund 5/21/2010 0.75% $ 358,536 $119,512 $ 47,804 $ 119,512
Nova Fund 5/21/2010 0.75% $ 301,873 $100,624 $ 40,249 $ 100,624
Precious Metals Fund 5/21/2010 0.75% $ 624,743 $208,248 $ 83,298 $ 208,248
Real Estate Fund 5/21/2010 0.85% $ 283,233 $ 83,304 $ 33,321 $ 83,304
Retailing Fund 5/21/2010 0.85% $ 102,838 $ 30,246 $ 12,098 $ 30,246
Russell 2000(R) 1.5x
Strategy Fund 5/21/2010 0.90% $ 128,598 $ 35,722 $ 14,289 $ 35,722
Russell 2000(R) 2x
Strategy Fund 5/21/2010 0.90% $ 34,262 $ 9,517 $ 3,807 $ 9,517
S&P 500 2x Strategy Fund 5/21/2010 0.90% $ 162,720 $ 45,200 $ 18,080 $ 45,200
S&P 500 Pure Growth Fund 5/21/2010 0.75% $ 226,170 $ 75,390 $ 30,156 $ 75,390
S&P 500 Pure Value Fund 5/21/2010 0.75% $ 209,873 $ 69,958 $ 27,983 $ 69,958
S&P MidCap 400 Pure
Growth Fund 5/21/2010 0.75% $ 283,208 $ 94,403 $ 37,761 $ 94,403
S&P MidCap 400 Pure
Value Fund 5/21/2010 0.75% $ 184,951 $ 61,650 $ 24,660 $ 61,650
S&P SmallCap 600 Pure
Growth Fund 5/21/2010 0.75% $ 114,125 $ 38,042 $ 15,216 $ 38,042
S&P SmallCap 600 Pure
Value Fund 5/21/2010 0.75% $ 163,053 $ 54,351 $ 21,741 $ 54,351
Select Allocation Fund 5/21/2010 0.90% $ 371,393 $103,165 $ 41,265 $ 103,165
Strengthening Dollar 2x
Strategy Fund 5/21/2010 0.90% $ 92,729 $ 25,758 $ 10,303 $ 25,758
C-3
MANAGEMENT INVESTOR
DATE OF LAST FEES PAID TO ADMINISTRATIVE ACCOUNTING SERVICES FEES
SHAREHOLDER MANAGEMENT INVESTMENT SERVICE FEES SERVICE FEES PAID TO
SERIES NAME APPROVAL FEES ADVISER PAID TO RFS PAID TO RFS RDL
-----------------------------------------------------------------------------------------------------------------------------
Technology Fund 5/21/2010 0.85% $ 202,492 $ 59,556 $ 23,822 $ 59,556
Telecommunications Fund 5/21/2010 0.85% $ 57,519 $ 16,917 $ 6,767 $ 16,917
Transportation Fund 5/21/2010 0.85% $ 102,720 $ 30,212 $ 12,085 $ 30,211
U.S. Government Money
Market Fund 5/21/2010 0.50% $ 0 $ 6,541 $240,422 $ 0
U.S. Long Short Momentum Fund 5/21/2010 0.90% $ 533,432 $ 148,175 $ 59,270 $ 148,175
Utilities Fund 5/21/2010 0.85% $ 150,518 $ 44,270 $ 17,707 $ 44,270
Weakening Dollar 2x
Strategy Fund 5/21/2010 0.90% $ 32,220 $ 8,950 $ 3,580 $ 8,950
* The Advisor receives an investment advisory fee for managing the Underlying
Funds. The Underlying Funds pay a monthly investment advisory fee to the
Advisor for its services. The fee is based on the average daily net assets
of each Underlying Fund and calculated at an annual rate for each
Underlying Fund. For more information regarding the Underlying Funds'
investment advisory fees and expense limitations, please see the Prospectus
and applicable sections of the Statement of Additional Information. The
Funds benefit from the investment advisory services provided to the
Underlying Funds and, as shareholders of those Underlying Funds, indirectly
bear a proportionate share of those Underlying Funds' advisory fees.
** The Advisor has contractually agreed to pay all operating expenses of the
Fund, excluding interest expense and taxes (expected to be de minimis),
brokerage commissions and other expenses connected with the execution of
portfolio transactions, short dividend expenses, and extraordinary
expenses.
*** The Advisor has contractually agreed to pay all other expenses of the Fund,
excluding Acquired Fund fees and expenses, interest expense and taxes
(expected to be de minimis), brokerage commissions and other expenses
connected with the execution of portfolio transactions and extraordinary
expenses.
C-4
RYDEX DYNAMIC FUNDS
MANAGEMENT, ADMINISTRATIVE, AND ACCOUNTING FEES
MANAGEMENT
DATE OF LAST FEES PAID TO ADMINISTRATIVE ACCOUNTING
SHAREHOLDER MANAGEMENT INVESTMENT SERVICE FEES SERVICE FEES
SERIES NAME APPROVAL FEES ADVISER PAID TO RFS PAID TO RFS
-------------------------------------------------------------------------------------------------------------------------
Dow 2x Strategy Fund 6/18/2010 0.90% $ 270,950 $ 75,264 $ 45,159
Inverse Dow 2x Strategy Fund 6/18/2010 0.90% $ 415,717 $ 115,477 $ 69,286
NASDAQ-100(R) 2x Strategy Fund 6/18/2010 0.90% $1,837,754 $ 510,487 $ 306,293
Inverse NASDAQ-100(R) 2x Strategy Fund 6/18/2010 0.90% $ 722,564 $ 200,712 $ 120,428
Russell 2000(R) 2x Strategy Fund 6/18/2010 0.90% $ 355,211 $ 98,669 $ 59,208
Inverse Russell 2000(R) 2x Strategy Fund 6/18/2010 0.90% $ 365,162 $ 101,434 $ 60,861
S&P 500 2x Strategy Fund 6/18/2010 0.90% $1,369,680 $ 380,467 $ 228,281
Inverse S&P 500 2x Strategy Fund 6/18/2010 0.90% $1,820,386 $ 505,662 $ 303,399
DISTRIBUTION FEES
A-CLASS C-CLASS H-CLASS
SERIES NAME (0.25% 12b-1 FEE) (0.25% 12b-1 FEE) (0.25% 12b-1 FEE)
---------------------------------------------------------------------------------------------------------
Dow 2x Strategy Fund $ 9,956 $ 36,394 $ 56,210
Inverse Dow 2x Strategy Fund $ 5,155 $ 21,294 $ 104,998
NASDAQ-100(R) 2x Strategy Fund $ 19,905 $ 180,450 $ 445,470
Inverse NASDAQ-100(R) 2x Strategy Fund $ 4,299 $ 55,020 $ 182,658
Russell 2000(R) 2x Strategy Fund $ 6,387 $ 21,168 $ 86,990
Inverse Russell 2000(R) 2x Strategy Fund $ 4,103 $ 35,926 $ 88,350
S&P 500 2x Strategy Fund $ 28,293 $ 168,115 $ 310,145
Inverse S&P 500 2x Strategy Fund $ 24,930 $ 115,314 $ 451,904
C-5
RYDEX SERIES FUNDS
MANAGEMENT, ADMINISTRATIVE, AND ACCOUNTING FEES
MANAGEMENT
DATE OF LAST FEES PAID TO ADMINISTRATIVE ACCOUNTING
SHAREHOLDER MANAGEMENT INVESTMENT SERVICE FEES SERVICE FEES
SERIES NAME APPROVAL FEES ADVISER PAID TO RFS PAID TO RFS
-------------------------------------------------------------------------------------------------------------------------
All-Asset Aggressive Strategy Fund 6/18/2010 0.00%(1) $ 0(1) $ 0(2) $ 0(2)
All-Asset Conservative Strategy Fund 6/18/2010 0.00%(1) $ 0(1) $ 0(2) $ 0(2)
All-Asset Moderate Strategy Fund 6/18/2010 0.00%(1) $ 0(1) $ 0(2) $ 0(2)
Alternative Strategies Fund 5/19/2010 0.90% $ 24,707 $ 8,645 $ 3,458
Alternative Strategies Allocation Fund 6/18/2010 0.00%(1) $ 01 $ 02 $ 02
Banking Fund 6/18/2010 0.85% $ 163,421 $ 48,065 $ 19,226
Basic Materials Fund 6/18/2010 0.85% $ 885,645 $ 260,483 $ 104,192
Biotechnology Fund 6/18/2010 0.85% $ 535,192 $ 157,409 $ 62,963
Commodities Strategy Fund* 6/18/2010 0.75%(3) $ 263,603 $ 87,909 $ 35,163
Consumer Products Fund 6/18/2010 0.85% $ 735,452 $ 216,309 $ 86,523
Electronics Fund 6/18/2010 0.85% $ 254,842 $ 74,953 $ 29,981
Emerging Markets 2x Strategy Fund 8/25/2010 0.90% $ 12,414 $ 3,940 $ 1,576
Energy Fund 6/18/2010 0.85% $ 654,649 $ 192,543 $ 77,017
Energy Services Fund 6/18/2010 0.85% $ 929,437 $ 273,363 $ 109,345
Event Driven and Distressed Strategies Fund 5/19/2010 0.90% $ 70,815 $ 23,201 $ 9,280
Europe 1.25x Strategy Fund 6/18/2010 0.90% $ 185,738 $ 51,594 $ 20,637
Financial Services Fund 6/18/2010 0.85% $ 144,677 $ 42,552 $ 17,021
Government Long Bond 1.2x Strategy Fund 6/18/2010 0.50% $ 798,132 $ 319,256 $ 150,545
Health Care Fund 6/18/2010 0.85% $ 235,238 $ 69,188 $ 27,675
High Yield Strategy Fund 6/18/2010 0.75% $1,407,964 $ 469,321 $ 181,818
Internet Fund 6/18/2010 0.85% $ 808,473 $ 237,785 $ 95,113
Inverse Emerging Markets 2x Strategy Fund 5/19/2010 0.90% $ 9,183 $ 2,912 $ 1,164
Inverse Government Long Bond Strategy Fund 6/18/2010 0.90% $5,382,826 $ 1,495,228 $ 486,317
Inverse High Yield Strategy Fund 6/18/2010 0.75% $ 142,467 $ 47,489 $ 18,995
Inverse Mid-Cap Strategy Fund 6/18/2010 0.90% $ 37,641 $ 10,456 $ 4,182
Inverse NASDAQ-100(R) Strategy Fund 6/18/2010 0.90% $ 241,086 $ 66,968 $ 26,787
C-6
MANAGEMENT
DATE OF LAST FEES PAID TO ADMINISTRATIVE ACCOUNTING
SHAREHOLDER MANAGEMENT INVESTMENT SERVICE FEES SERVICE FEES
SERIES NAME APPROVAL FEES ADVISER PAID TO RFS PAID TO RFS
-------------------------------------------------------------------------------------------------------------------------
Inverse Russell 2000(R) Strategy Fund 6/18/2010 0.90% $ 243,647 $ 67,680 $ 27,072
Inverse S&P 500 Strategy Fund 6/18/2010 0.90% $ 2,256,839 $ 626,899 $ 242,404
Japan 2x Strategy Fund 6/18/2010 0.75% $ 49,039 $ 16,347 $ 6,538
Leisure Fund 6/18/2010 0.85% $ 121,173 $ 35,639 $ 14,256
Long/Short Commodities Strategy Fund* 6/18/2010 0.90%(3) $ 1,542,411 $ 428,444 $ 170,624
Long Short Equity Strategy Fund 5/19/2010 0.90% $ 19,377 $ 6,424 $ 2,570
Long Short Interest Rate Strategy Fund 5/19/2010 0.75% $ 298,378 $ 99,459 $ 39,783
Managed Futures Strategy Fund* 6/18/2010 0.90%(3) $20,164,468 $5,567,658 $1,006,871
Mid-Cap 1.5x Strategy Fund 6/18/2010 0.90% $ 317,193 $ 88,109 $ 35,243
Multi-Hedge Strategies Fund* 6/18/2010 1.15%(3) $ 1,014,214 $ 0(2) $ 0(2)
NASDAQ-100(R) Fund 6/18/2010 0.75% $ 4,575,228 $1,525,076 $ 492,437
Nova Fund 6/18/2010 0.75% $ 529,891 $ 176,630 $ 70,651
Precious Metals Fund 6/18/2010 0.75% $ 1,785,811 $ 595,270 $ 234,116
Real Estate Fund 6/18/2010 0.85% $ 352,791 $ 103,762 $ 41,504
Retailing Fund 6/18/2010 0.85% $ 104,867 $ 30,843 $ 12,337
Russell 2000(R) 1.5x Strategy Fund 6/18/2010 0.90% $ 234,264 $ 65,073 $ 26,029
Russell 2000(R) Fund 6/18/2010 0.75% $ 174,718 $ 58,239 $ 23,296
S&P 500 Fund 6/18/2010 0.75% $ 1,209,099 $ 403,033 $ 160,721
S&P 500 Pure Growth Fund 6/18/2010 0.75% $ 372,809 $ 124,270 $ 49,707
S&P 500 Pure Value Fund 6/18/2010 0.75% $ 388,056 $ 129,352 $ 51,740
S&P MidCap 400 Pure Growth Fund 6/18/2010 0.75% $ 850,218 $ 283,406 $ 112,276
S&P MidCap 400 Pure Value Fund 6/18/2010 0.75% $ 514,279 $ 171,426 $ 68,562
S&P SmallCap 600 Pure Growth Fund 6/18/2010 0.75% $ 358,410 $ 119,470 $ 47,788
S&P SmallCap 600 Pure Value Fund 6/18/2010 0.75% $ 603,267 $ 201,089 $ 79,365
Strengthening Dollar 2x Strategy Fund 6/18/2010 0.90% $ 410,155 $ 113,932 $ 45,572
Technology Fund 6/18/2010 0.85% $ 365,317 $ 107,446 $ 42,978
Telecommunications Fund 6/18/2010 0.85% $ 111,533 $ 32,804 $ 13,121
Transportation Fund 6/18/2010 0.85% $ 195,474 $ 57,492 $ 22,997
U.S. Long Short Momentum Fund 6/18/2010 0.90% $ 1,546,882 $ 429,689 $ 171,874
U.S. Government Money Market Fund 6/18/2010 0.50% $ 6,592 $ 136,432 $ 423,667
C-7
MANAGEMENT
DATE OF LAST FEES PAID TO ADMINISTRATIVE ACCOUNTING
SHAREHOLDER MANAGEMENT INVESTMENT SERVICE FEES SERVICE FEES
SERIES NAME APPROVAL FEES ADVISER PAID TO RFS PAID TO RFS
-------------------------------------------------------------------------------------------------------------------------
Utilities Fund 6/18/2010 0.85% $ 388,077 $ 114,140 $ 45,656
Weakening Dollar 2x Strategy Fund 6/18/2010 0.90% $ 321,462 $ 89,295 $ 35,718
* The Fund has a fiscal year end of December 31.
(1) The Fund invests primarily in underlying funds (the "Underlying Funds").
The Investment Adviser receives an investment advisory fee for managing the
Underlying Funds. The Underlying Funds pay a monthly investment advisory
fee to the Investment Adviser for its services. The fee is based on the
average net daily assets of each Underlying Fund and calculated at an
annual rate for each Underlying Fund. For more information regarding the
Underlying funds' investment advisory fees and expense limitations, please
see the Prospectus and applicable sections of the Statement of Additional
Information. The Funds benefit from the investment advisory services
provided to the Underlying Funds and, as shareholders of those Underlying
Funds, indirectly bear a proportionate share of those Underlying Funds'
advisory fees.
(2) The Investment Adviser has contractually agreed to pay all other expenses
of the Fund, excluding Acquired Fund fees and expenses, interest expense
and taxes (expected to be de minimis), brokerage commissions and other
expenses connected with the execution of portfolio transactions and
extraordinary expenses.
(3) The Fund may invest up to 25% of its total assets in a wholly-owned and
controlled Cayman Islands subsidiary (the "Subsidiary"). The Subsidiary has
entered into a separate advisory agreement with the Investment Adviser for
the management of the Subsidiary's portfolio pursuant to which the
Subsidiary pays the Investment Adviser a management fee at the same rate
that the Fund pays the Investment Adviser for services provided to the
Fund. The Investment Adviser has contractually agreed to waive the
management fee it receives from the Fund in an amount equal to the
management fee paid to the Investment Adviser by the Subsidiary. This
undertaking will continue in effect for so long as the Fund invests in the
Subsidiary, and may not be terminated by the Investment Adviser unless the
Investment Adviser first obtains the prior approval of the Fund's Board of
Trustees for such termination. The management fees included in the table
reflect the net management fees paid to the Investment Adviser by the Fund
after the fee waiver.
C-8
DISTRIBUTION FEES*
(*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.)
SERIES NAME A-CLASS C-CLASS H-CLASS ADVISOR CLASS
All-Asset Aggressive Strategy Fund $ 0 $ 49,896 $ 0 $ -
All-Asset Conservative Strategy Fund $ 0 $ 70,417 $ 0 $ -
All-Asset Moderate Strategy Fund $ 0 $ 135,183 $ 0 $ -
Alternative Strategies Fund $ 5,878 $ 329 $ 2,666 $ -
Alternative Strategies Allocation Fund $ 0 $ 35,385 $ 0 $ -
Banking Fund $ 6,369 $ 34,655 $ - $ 6,108
Basic Materials Fund $ 28,273 $ 101,719 $ - $ 40,795
Biotechnology Fund $ 5,853 $ 35,685 $ - $ 28,557
Commodities Strategy Fund* $ 16,612 $ 49,430 $ 58,940 N/A
Consumer Products Fund $ 13,922 $ 40,974 $ - $ 27,343
Electronics Fund $ 2,886 $ 16,184 $ - $ 6,934
Emerging Markets 2x Strategy Fund $ 83 $ 1,068 $ 3,591 $ -
Energy Fund $ 13,430 $ 145,036 $ - $ 38,484
Energy Services Fund $ 33,636 $ 112,250 $ - $ 41,040
Europe 1.25x Strategy Fund $ 4,490 $ 10,296 $ 44,530 $ -
Event Driven and Distressed Strategies Fund $ 15,805 $ 4,697 $ 6,189 $ -
Financial Services Fund $ 3,528 $ 14,905 $ - $ 13,615
Government Long Bond 1.2x Strategy Fund $ 9,683 $ 109,419 $ - $ 155,455
Health Care Fund $ 3,883 $ 37,766 $ - $ 11,608
High Yield Strategy Fund $ 21,622 $ 67,617 $ 430,795 $ -
Internet Fund $ 3,250 $ 15,527 $ - $ 13,006
Inverse Emerging Markets 2x Strategy Fund $ 25 $ 938 $ 2,652 $ -
Inverse Government Long Bond Strategy Fund $ 178,979 $ 1,147,960 $ - $ 280,127
Inverse High Yield Strategy Fund $ 8,146 $ 18,869 $ 34,625 $ -
Inverse Mid-Cap Strategy Fund $ 1,109 $ 4,501 $ 8,221 $ -
Inverse NASDAQ-100(R) Strategy Fund $ 2,654 $ 17,199 $ - $ 3,618
Inverse Russell 2000(R) Strategy Fund $ 4,429 $ 19,066 $ 58,484 $ -
Inverse S&P 500 Strategy Fund $ 49,444 $ 159,338 $ - $ 92,097
Japan 2x Strategy Fund $ 2,093 $ 2,685 $ 13,582 $ -
Leisure Fund $ 2,867 $ 9,954 $ - $ 6,081
C-9
SERIES NAME A-CLASS C-CLASS H-CLASS ADVISOR CLASS
Long/Short Commodities Strategy Fund* $ 92,942 $ 103,403 $ 256,324 N/A
Long Short Equity Strategy Fund $ 3,962 $ 892 $ 2,210 $ -
Long Short Interest Rate Strategy Fund $ 37,242 $ 38,587 $ 40,934 $ -
Managed Futures Strategy Fund* $ 1,599,233 $ 1,904,728 $ 3,228,581 N/A
Mid-Cap 1.5x Strategy Fund $ 2,934 $ 47,851 $ 73,212 $ -
Multi-Hedge Strategies Fund* $ 41,486 $ 178,187 $ 132,545 N/A
NASDAQ-100(R) Fund $ 28,678 $ 114,350 $ - $ 203,173
Nova Fund $ 8,415 $ 88,347 $ - $ 36,333
Precious Metals Fund $ 34,882 $ 334,166 $ - $ 114,807
Real Estate Fund $ 12,351 $ 21,400 $ 86,061 $ -
Retailing Fund $ 2,290 $ 18,366 $ - $ 6,611
Russell 2000(R) 1.5x Strategy Fund $ 4,834 $ 23,921 $ 54,259 $ -
Russell 2000(R) Fund $ 2,625 $ 49,787 $ 43,168 $ -
S&P 500 Fund $ 40,436 $ 94,788 $ 338,900 $ -
S&P 500 Pure Growth Fund $ 10,741 $ 70,910 $ 95,802 $ -
S&P 500 Pure Value Fund $ 8,834 $ 29,168 $ 113,226 $ -
S&P MidCap 400 Pure Growth Fund $ 18,395 $ 55,052 $ 251,248 $ -
S&P MidCap 400 Pure Value Fund $ 12,275 $ 18,508 $ 154,524 $ -
S&P SmallCap 600 Pure Growth Fund $ 5,454 $ 17,888 $ 109,544 $ -
S&P SmallCap 600 Pure Value Fund $ 15,508 $ 47,650 $ 173,668 $ -
Strengthening Dollar 2x Strategy Fund $ 21,163 $ 64,252 $ 76,706 $ -
Technology Fund $ 5,342 $ 33,675 $ - $ 50,828
Telecommunications Fund $ 2,211 $ 17,421 $ - $ 3,831
Transportation Fund $ 4,973 $ 20,861 $ - $ 10,722
U.S. Government Money Market Fund $ 74,815 $ 659,962 $ - $ 1,252,940
U.S. Long Short Momentum Fund $ 73,421 $ 541,342 $ 220,933 $ -
Utilities Fund $ 6,079 $ 52,973 $ - $ 15,681
Weakening Dollar 2x Strategy Fund $ 13,612 $ 45,282 $ 64,362 $ -
_________________
* The Fund has a fiscal year end of December 31.
C-10
APPENDIX D
TRUSTEES/MANAGERS AND OFFICERS OF
THE INVESTMENT ADVISER
MEMBER REPRESENTATIVE AND PRINCIPAL EXECUTIVE OFFICER OF SECURITY INVESTORS, LLC
The business address of the member representative and principal executive
officer is 805 King Farm Boulevard, Suite 600, Rockville, Maryland 20850.
NAME POSITION HELD WITH OTHER PRINCIPAL
SECURITY INVESTORS, LLC OCCUPATION/POSITION
------------------------------------------------------------------------------------------------------------
Richard M. Goldman President, Chief Executive Officer Senior Vice President, Security Benefit
and Member Representative Corporation; CEO, Security Benefit Asset
Management Holdings, LLC; CEO, President
and Manager Representative, Security Investors,
LLC; CEO and Manager, Rydex Holdings, LLC;
CEO, President, and Manager, Rydex
Distributors, LLC; Manager, Rydex Fund
Services, LLC; President and Trustee,
Rydex Series Funds, Rydex ETF Trust, Rydex
Dynamic Funds and Rydex Variable Trust; and
President, Director and Chairman of the Board,
Security Equity Fund, Security Income Fund,
Security Large Cap Value Fund, Security Mid Cap
Growth Fund and SBL Fund
TRUSTEES/OFFICERS OF THE FUNDS WHO HOLD POSITION(S) WITH SECURITY INVESTORS,
LLC. The business address of each of the following persons is 805 King Farm
Boulevard, Suite 600, Rockville, Maryland 20850.
NAME POSITION HELD WITH THE FUNDS POSITION HELD WITH SECURITY INVESTORS, LLC
------------------------------------------------------------------------------------------------------------
Richard M. Goldman Trustee and President President, Chief Executive Officer and Member
Representative
Michael P. Byrum Vice President Senior Vice President
Nick Bonos Vice President and Treasurer Senior Vice President
Joanna M. Haigney Chief Compliance Officer and Senior Vice President and Chief Compliance
Secretary Officer
Joseph Arruda Assistant Treasurer Vice President
Keith Fletcher Vice President Senior Vice President
Amy Lee Vice President and Assistant Senior Vice President and Secretary
Secretary
D-1
APPENDIX E
ADVISORY FEE RATES OF FUNDS WITH SIMILAR INVESTMENT
OBJECTIVES ADVISED BY SECURITY INVESTORS, LLC
Each of the tables below lists the names of other mutual funds advised
by Security Investors, LLC (the "Investment Adviser") with similar investment
objectives as the Funds, and information concerning the Funds' and such other
funds' net assets as of April 30, 2011 and the rate of compensation for the
Investment Adviser for its services to the Funds and such other funds.
SERIES OF RYDEX VARIABLE TRUST:
-------------------------------
ANNUAL COMPENSATION
TO THE INVESTMENT
ADVISER (AS A
NAME OF FUND SUBJECT TO THIS PROXY STATEMENT PERCENTAGE OF AVERAGE NET ASSETS (IN
Name(s) of Other Fund(s) with Similar Objectives DAILY NET ASSETS) MILLIONS)
-----------------------------------------------------------------------------------------------------------------------
ALL-ASSET AGGRESSIVE STRATEGY FUND, A SERIES OF RYDEX VARIABLE TRUST 0.00%(1) $7.63
All-Asset Aggressive Strategy Fund, a series of Rydex Series Funds 0.00%(1) $17.58
ALL-ASSET CONSERVATIVE STRATEGY FUND, A SERIES OF RYDEX VARIABLE TRUST 0.00%(1) $11.13
All-Asset Conservative Strategy Fund, a series of Rydex Series Funds 0.00%(1) $14.32
ALL-ASSET MODERATE STRATEGY FUND, A SERIES OF RYDEX VARIABLE TRUST 0.00%(1) $23.85
All-Asset Moderate Strategy Fund, a series of Rydex Series Funds 0.00%(1) $31.18
ALTERNATIVE STRATEGIES ALLOCATION FUND, A SERIES OF RYDEX VARIABLE TRUST 0.00%(1) $7.44
Alternative Strategies Allocation Fund, a series of Rydex Series Funds 0.00%(1) $21.01
AMERIGO FUND, A SERIES OF RYDEX VARIABLE TRUST 0.90% $189.35
None N/A N/A
BANKING FUND, A SERIES OF RYDEX VARIABLE TRUST 0.85% $5.36
Banking Fund, a series of Rydex Series Funds 0.85% $15.87
BASIC MATERIALS FUND, A SERIES OF RYDEX VARIABLE TRUST 0.85% $40.65
Basic Materials Fund, a series of Rydex Series Funds 0.85% $124.08
BIOTECHNOLOGY FUND, A SERIES OF RYDEX VARIABLE TRUST 0.85% $17.99
Biotechnology Fund, a series of Rydex Series Funds 0.85% $105.50
CLERMONT FUND, A SERIES OF RYDEX VARIABLE TRUST 0.90% $83.56
None N/A N/A
COMMODITIES STRATEGY FUND, A SERIES OF RYDEX VARIABLE TRUST 0.75%(2) $23.60
E-1
ANNUAL COMPENSATION
TO THE INVESTMENT
ADVISER (AS A
NAME OF FUND SUBJECT TO THIS PROXY STATEMENT PERCENTAGE OF AVERAGE NET ASSETS (IN
Name(s) of Other Fund(s) with Similar Objectives DAILY NET ASSETS) MILLIONS)
-----------------------------------------------------------------------------------------------------------------------
Commodities Strategy Fund, a series of Rydex Series Funds 0.75%(2) $109.21
CONSUMER PRODUCTS FUND, A SERIES OF RYDEX VARIABLE TRUST 0.85% $18.55
Consumer Products Fund, a series of Rydex Series Funds 0.85% $74.07
DOW 2X STRATEGY FUND, A SERIES OF RYDEX VARIABLE TRUST 0.90% $18.14
Dow 2x Strategy Fund, a series of Rydex Dynamic Funds 0.90% $39.19
DWA FLEXIBLE ALLOCATION FUND, A SERIES OF RYDEX VARIABLE TRUST 1.00% $25.03
None N/A N/A
DWA SECTOR ROTATION FUND, A SERIES OF RYDEX VARIABLE TRUST 1.00% $35.55
None N/A N/A
ELECTRONICS FUND, A SERIES OF RYDEX VARIABLE TRUST 0.85% $10.86
Electronics Fund, a series of Rydex Series Funds 0.85% $14.92
ENERGY FUND, A SERIES OF RYDEX VARIABLE TRUST 0.85% $57.17
Energy Fund, a series of Rydex Series Funds 0.85% $128.46
ENERGY SERVICES FUND, A SERIES OF RYDEX VARIABLE TRUST 0.85% $55.34
Energy Services Fund, a series of Rydex Series Funds 0.85% $224.73
EUROPE 1.25x STRATEGY FUND, A SERIES OF RYDEX VARIABLE TRUST 0.90% $12.19
Europe 1.25x Strategy Fund, a series of Rydex Series Funds 0.90% $32.84
FINANCIAL SERVICES FUND, A SERIES OF RYDEX VARIABLE TRUST 0.85% $8.15
Financial Services Fund, a series of Rydex Series Funds 0.85% $12.08
GOVERNMENT LONG BOND 1.2x STRATEGY FUND, A SERIES OF RYDEX VARIABLE TRUST 0.50% $15.66
Government Long Bond 1.2x Strategy Fund, a series of Rydex Series Funds 0.50% $102.39
HEALTH CARE FUND, A SERIES OF RYDEX VARIABLE TRUST 0.85% $19.25
Health Care Fund, a series of Rydex Series Funds 0.85% $65.66
INTERNET FUND, A SERIES OF RYDEX VARIABLE TRUST 0.85% $11.34
Internet Fund, a series of Rydex Series Funds 0.85% $28.70
INVERSE DOW 2X STRATEGY FUND, A SERIES OF RYDEX VARIABLE TRUST 0.90% $8.50
Inverse Dow 2x Strategy Fund, a series of Rydex Dynamic Funds 0.90% $37.93
E-2
ANNUAL COMPENSATION
TO THE INVESTMENT
ADVISER (AS A
NAME OF FUND SUBJECT TO THIS PROXY STATEMENT PERCENTAGE OF AVERAGE NET ASSETS (IN
Name(s) of Other Fund(s) with Similar Objectives DAILY NET ASSETS) MILLIONS)
------------------------------------------------------------------------------------------------------------------------------
INVERSE GOVERNMENT LONG BOND STRATEGY FUND, A SERIES OF RYDEX VARIABLE TRUST 0.90% $18.71
Inverse Government Long Bond Strategy Fund, a series of Rydex Series Funds 0.90% $617.94
INVERSE MID-CAP STRATEGY FUND, A SERIES OF RYDEX VARIABLE TRUST 0.90% $1.17
Inverse Mid-Cap Strategy Fund, a series of Rydex Series Funds 0.90% $2.28
INVERSE NASDAQ-100(R) STRATEGY FUND, A SERIES OF RYDEX VARIABLE TRUST 0.90% $5.73
Inverse NASDAQ-100(R) Strategy Fund, a series of Rydex Series Funds 0.90% $14.17
INVERSE RUSSELL 2000(R) STRATEGY FUND, A SERIES OF RYDEX VARIABLE TRUST 0.90% $3.15
Inverse Russell 2000(R) Strategy Fund, a series of Rydex Series Funds 0.90% $9.22
INVERSE S&P 500 STRATEGY FUND 0.90% $14.23
Inverse S&P 500 Strategy Fund, a series of Rydex Series Funds 0.90% $136.53
JAPAN 2X STRATEGY FUND, A SERIES OF RYDEX VARIABLE TRUST 0.75% $6.29
Japan 2x Strategy Fund, a series of Rydex Series Funds 0.75% $13.84
LEISURE FUND, A SERIES OF RYDEX VARIABLE TRUST 0.85% $9.26
Leisure Fund, a series of Rydex Series Funds 0.85% $6.11
MANAGED FUTURES STRATEGY FUND, A SERIES OF RYDEX VARIABLE TRUST 0.90%(2) $16.67
Managed Futures Strategy Fund, a series of Rydex Series Funds 0.90%(2) $2,583.87
MID-CAP 1.5X STRATEGY FUND, A SERIES OF RYDEX VARIABLE TRUST 0.90% $23.70
Mid-Cap 1.5x Strategy Fund, a series of Rydex Series Funds 0.90% $56.79
MULTI-HEDGE STRATEGIES FUND, A SERIES OF RYDEX VARIABLE TRUST 1.15% $17.49
Multi-Hedge Strategies Fund, a series of Rydex Series Funds 1.15%(2) $73.92
NASDAQ-100(R) 2X STRATEGY FUND, A SERIES OF RYDEX VARIABLE TRUST 0.90% $33.22
NASDAQ-100(R) 2x Strategy Fund, a series of Rydex Dynamic Funds 0.90% $288.39
NASDAQ-100(R) FUND, A SERIES OF RYDEX VARIABLE TRUST 0.75% $52.92
NASDAQ-100(R) Fund, a series of Rydex Series Funds 0.75% $648.00
NOVA FUND, A SERIES OF RYDEX VARIABLE TRUST 0.75% $33.31
Nova Fund, a series of Rydex Series Funds 0.75% $85.58
PRECIOUS METALS FUND, A SERIES OF RYDEX VARIABLE TRUST 0.75% $109.52
E-3
ANNUAL COMPENSATION
TO THE INVESTMENT
ADVISER (AS A
NAME OF FUND SUBJECT TO THIS PROXY STATEMENT PERCENTAGE OF AVERAGE NET ASSETS (IN
Name(s) of Other Fund(s) with Similar Objectives DAILY NET ASSETS) MILLIONS)
------------------------------------------------------------------------------------------------------------------------------
Precious Metals Fund, a series of Rydex Series Funds 0.75% $243.13
REAL ESTATE FUND, A SERIES OF RYDEX VARIABLE TRUST 0.85% $26.88
Real Estate Fund, a series of Rydex Series Funds 0.85% $24.86
RETAILING FUND, A SERIES OF RYDEX VARIABLE TRUST 0.85% $5.81
Retailing Fund, a series of Rydex Series Funds 0.85% $11.76
RUSSELL 2000(R) 1.5x STRATEGY FUND, A SERIES OF RYDEX VARIABLE TRUST 0.90% $19.74
Russell 2000(R) 1.5x Strategy Fund, a series of Rydex Series Funds 0.90% $41.23
RUSSELL 2000(R) 2X STRATEGY FUND, A SERIES OF RYDEX VARIABLE TRUST 0.90% $6.35
Russell 2000(R) 2x Strategy Fund, a series of Rydex Dynamic Funds 0.90% $68.85
S&P 500 2X STRATEGY FUND, A SERIES OF RYDEX VARIABLE TRUST 0.90% $23.55
S&P 500 2x Strategy Fund, a series of Rydex Dynamic Funds 0.90% $151.74
RYDEX 2X S&P 500 ETF, a series of Rydex ETF Trust 0.70% $94.29
S&P 500 PURE GROWTH FUND, A SERIES OF RYDEX VARIABLE TRUST 0.75% $58.57
S&P 500 Pure Growth Fund, a series of Rydex Series Funds 0.75% $47.33
Rydex S&P 500 Pure Growth ETF, a series of Rydex ETF Trust 0.35% $264.65
S&P 500 PURE VALUE FUND, A SERIES OF RYDEX VARIABLE TRUST 0.75% $41.06
S&P 500 Pure Value Fund, a series of Rydex Series Funds 0.75% $58.06
Rydex S&P 500 Pure Value ETF, a series of Rydex ETF Trust 0.35% $112.93
S&P MIDCAP 400 PURE GROWTH FUND, A SERIES OF RYDEX VARIABLE TRUST 0.75% $61.75
S&P MidCap 400 Pure Growth Fund, a series of Rydex Series Funds 0.75% $286.18
Rydex S&P MidCap 400 Pure Growth ETF, a series of Rydex ETF Trust 0.35% $670.63
S&P MIDCAP 400 PURE VALUE FUND, A SERIES OF RYDEX VARIABLE TRUST 0.75% $24.09
S&P MidCap 400 Pure Value Fund, a series of Rydex Series Funds 0.75% $61.56
Rydex S&P Midcap 400 Pure Value ETF, a series of Rydex ETF Trust 0.35% $60.16
S&P SMALLCAP 600 PURE GROWTH FUND, A SERIES OF RYDEX VARIABLE TRUST 0.75% $32.10
S&P SmallCap 600 Pure Growth Fund, a series of Rydex Series Funds 0.75% $145.49
Rydex S&P SmallCap 600 Pure Growth ETF, a series of Rydex ETF Trust 0.35% $35.19
S&P SMALLCAP 600 PURE VALUE FUND, A SERIES OF RYDEX VARIABLE TRUST 0.75% $17.31
E-4
ANNUAL COMPENSATION
TO THE INVESTMENT
ADVISER (AS A
NAME OF FUND SUBJECT TO THIS PROXY STATEMENT PERCENTAGE OF AVERAGE NET ASSETS (IN
Name(s) of Other Fund(s) with Similar Objectives DAILY NET ASSETS) MILLIONS)
----------------------------------------------------------------------------------------------------------------------------------
S&P SmallCap 600 Pure Value Fund, a series of Rydex Series Funds 0.75% $26.90
Rydex S&P SmallCap 600 Pure Value ETF, a series of Rydex ETF Trust 0.35% $90.18
SELECT ALLOCATION FUND, A SERIES OF RYDEX VARIABLE TRUST 0.90% $42.73
None N/A N/A
STRENGTHENING DOLLAR 2X STRATEGY FUND, A SERIES OF RYDEX VARIABLE TRUST 0.90% $2.77
Strengthening Dollar 2x Strategy Fund, a series of Rydex Series Funds 0.90% $26.71
TECHNOLOGY FUND, A SERIES OF RYDEX VARIABLE TRUST 0.85% $19.90
Technology Fund, a series of Rydex Series Funds 0.85% 82.93
TELECOMMUNICATIONS FUND, A SERIES OF RYDEX VARIABLE TRUST 0.85% $5.76
Telecommunications Fund, a series of Rydex Series Funds 0.85% $12.85
TRANSPORTATION FUND, A SERIES OF RYDEX VARIABLE TRUST 0.85% $7.81
Transportation Fund, a series of Rydex Series Funds 0.85% $15.35
U.S. GOVERNMENT MONEY MARKET FUND, A SERIES OF RYDEX VARIABLE TRUST 0.50% $162.92
U.S. Government Money Market Fund, a series of Rydex Series Funds 0.50% $868.15
U.S. LONG SHORT MOMENTUM FUND, A SERIES OF RYDEX VARIABLE TRUST 0.90% $53.25
U.S. Long Short Momentum Fund, a series of Rydex Series Funds 0.90% $164.99
UTILITIES FUND, A SERIES OF RYDEX VARIABLE TRUST 0.85% $14.74
Utilities Fund, a series of Rydex Series Funds 0.85% $21.87
WEAKENING DOLLAR 2X STRATEGY FUND, A SERIES OF RYDEX VARIABLE TRUST 0.90% $6.05
Weakening Dollar 2x Strategy Fund, a series of Rydex Series Funds 0.90% $38.23
E-5
SERIES OF RYDEX DYNAMIC FUNDS:
------------------------------
ANNUAL COMPENSATION TO
THE INVESTMENT ADVISER
NAME OF FUND SUBJECT TO THIS PROXY STATEMENT (AS A PERCENTAGE OF AVERAGE DAILY
Name(s) of Other Fund(s) with Similar Objectives NET ASSETS) NET ASSETS (IN MILLIONS)
----------------------------------------------------------------------------------------------------------------------------
DOW 2X STRATEGY FUND, A SERIES OF RYDEX DYNAMIC FUNDS 0.90% $39.19
Dow 2x Strategy Fund, a series of Rydex Variable Trust 0.90% $18.14
INVERSE DOW 2X STRATEGY FUND, A SERIES OF RYDEX DYNAMIC FUNDS 0.90% $37.93
Inverse Dow 2x Strategy Fund, a series of Rydex Variable Trust 0.90% $8.50
INVERSE NASDAQ-100 2X STRATEGY FUND, A SERIES OF RYDEX
DYNAMIC FUNDS 0.90% $47.83
None N/A N/A
INVERSE RUSSELL 2000 2X STRATEGY FUND, A SERIES OF RYDEX DYNAMIC FUNDS 0.90% $23.82
DYNAMIC FUNDS
None N/A N/A
INVERSE S&P 500 2X STRATEGY FUND, A SERIES OF RYDEX 0.90% $108.79
DYNAMIC FUNDS
Rydex Inverse 2x S&P 500 ETF, a series of Rydex ETF Trust 0.70% 51.05
NASDAQ-100 2X STRATEGY FUND, A SERIES OF RYDEX 0.90% $288.39
DYNAMIC FUNDS
NASDAQ-100 2x Strategy Fund, a series of Rydex Variable 0.90% $33.22
Trust
RUSSELL 2000 2X STRATEGY FUND, A SERIES OF RYDEX DYNAMIC 0.90% $68.85
FUNDS
Russell 2000 2x Strategy Fund, a series of Rydex Variable 0.90% $6.35
Trust
S&P 500 2X STRATEGY FUND, A SERIES OF RYDEX DYNAMIC 0.90% $151.74
FUNDS
S&P 500 2x Strategy Fund, a series of Rydex Variable Trust 0.90% $23.55
Rydex 2x S&P 500 ETF, a series of Rydex ETF Trust 0.70% $94.29
E-6
SERIES OF RYDEX SERIES FUNDS:
-----------------------------
ANNUAL COMPENSATION TO
THE INVESTMENT ADVISER
NAME OF FUND SUBJECT TO THIS PROXY STATEMENT (AS A PERCENTAGE OF AVERAGE DAILY
Name(s) of Other Fund(s) with Similar Objectives NET ASSETS) NET ASSETS (IN MILLIONS)
----------------------------------------------------------------------------------------------------------------------------
ALL-ASSET AGGRESSIVE STRATEGY FUND, A SERIES OF RYDEX 0.00%(1) $17.58
SERIES FUNDS
All-Asset Aggressive Strategy Fund, a series of Rydex 0.00%(1) $7.63
Variable Trust
ALL-ASSET CONSERVATIVE STRATEGY FUND, A SERIES OF RYDEX 0.00%(1) $14.32
SERIES FUNDS
All-Asset Conservative Strategy Fund, a series of Rydex 0.00%(1) $11.13
Variable Trust
ALL-ASSET MODERATE STRATEGY FUND, A SERIES OF RYDEX 0.00%(1) $31.18
SERIES FUNDS
All-Asset Moderate Strategy Fund, a series of Rydex 0.00%(1) $23.85
Variable Trust
ALTERNATIVE STRATEGIES FUND, A SERIES OF RYDEX SERIES 0.90% $4.04
FUNDS
None N/A N/A
ALTERNATIVE STRATEGIES ALLOCATION FUND, A SERIES OF RYDEX 0.00%(1) $21.01
SERIES FUNDS
Alternative Strategies Allocation Fund, a series of Rydex 0.00%(1) $7.44
Variable Trust
BANKING FUND, A SERIES OF RYDEX SERIES FUNDS 0.85% $15.87
Banking Fund, a series of Rydex Variable Trust 0.85% $5.36
BASIC MATERIALS FUND, A SERIES OF RYDEX SERIES FUNDS 0.85% $124.08
Basic Materials Fund, a series of Rydex Variable Trust 0.85% $40.65
BIOTECHNOLOGY FUND, A SERIES OF RYDEX SERIES FUNDS 0.85% $105.50
Biotechnology Fund, a series of Rydex Variable Trust 0.85% $17.99
COMMODITIES STRATEGY FUND, A SERIES OF RYDEX SERIES 0.75%(2) $109.21
FUNDS
Commodities Strategy Fund, a series of Rydex Variable Trust 0.75%(2) $23.60
CONSUMER PRODUCTS FUND, A SERIES OF RYDEX SERIES FUNDS 0.85% $74.07
Consumer Products Fund, a series of Rydex Variable Trust 0.85% $18.55
ELECTRONICS FUND, A SERIES OF RYDEX SERIES FUNDS 0.85% $14.92
Electronics Fund, a series of Rydex Variable Trust 0.85% $10.86
EMERGING MARKETS 2X STRATEGY FUND, A SERIES OF RYDEX 0.90% $4.77
SERIES FUNDS
None N/A N/A
E-7
ANNUAL COMPENSATION TO
THE INVESTMENT ADVISER
NAME OF FUND SUBJECT TO THIS PROXY STATEMENT (AS A PERCENTAGE OF AVERAGE DAILY
Name(s) of Other Fund(s) with Similar Objectives NET ASSETS) NET ASSETS (IN MILLIONS)
----------------------------------------------------------------------------------------------------------------------------
ENERGY FUND, A SERIES OF RYDEX SERIES FUNDS 0.85% $128.46
Energy Fund, a series of Rydex Variable Trust 0.85% $57.17
ENERGY SERVICES FUND, A SERIES OF RYDEX SERIES FUNDS 0.85% $224.73
Energy Services Fund, a series of Rydex Variable Trust 0.85% $55.34
EUROPE 1.25X STRATEGY FUND, A SERIES OF RYDEX SERIES 0.90% $32.84
FUNDS
Europe 1.25x Strategy Fund, a series of Rydex Variable Trust 0.90% $12.19
EVENT DRIVEN AND DISTRESSED STRATEGIES FUND, A SERIES 0.90% $22.37
RYDEX SERIES FUNDS
None N/A N/A
FINANCIAL SERVICES FUND, A SERIES OF RYDEX SERIES FUNDS 0.85% $12.08
Financial Services Fund, a series of Rydex Variable Trust 0.85% $8.15
GOVERNMENT LONG BOND 1.2X STRATEGY FUND, A SERIES OF 0.50% $102.39
RYDEX SERIES FUNDS
Government Long Bond 1.2x Strategy Fund, a series of Rydex 0.50% $15.66
Variable Trust
HEALTH CARE FUND, A SERIES OF RYDEX SERIES FUNDS 0.85% $65.66
Health Care Fund, a series of Rydex Variable Trust 0.85% $19.25
HIGH YIELD STRATEGY FUND, A SERIES OF RYDEX SERIES FUNDS 0.75% $307.52
None N/A N/A
INTERNET FUND, A SERIES OF RYDEX SERIES FUNDS 0.85% $28.70
Internet Fund, a series of Rydex Variable Trust 0.85% $11.34
INVERSE EMERGING MARKETS 2X STRATEGY FUND, A SERIES OF 0.90% $2.79
RYDEX SERIES FUNDS
None N/A N/A
INVERSE GOVERNMENT LONG BOND STRATEGY FUND, A SERIES 0.90% $617.94
OF RYDEX SERIES FUNDS
Inverse Government Long Bond Strategy Fund, a series of 0.90% $18.71
Rydex Variable Trust
INVERSE HIGH YIELD STRATEGY FUND, A SERIES OF RYDEX 0.75% $11.31
SERIES FUNDS
None N/A N/A
E-8
ANNUAL COMPENSATION TO
THE INVESTMENT ADVISER
NAME OF FUND SUBJECT TO THIS PROXY STATEMENT (AS A PERCENTAGE OF AVERAGE DAILY
Name(s) of Other Fund(s) with Similar Objectives NET ASSETS) NET ASSETS (IN MILLIONS)
----------------------------------------------------------------------------------------------------------------------------
INVERSE MID-CAP STRATEGY FUND, A SERIES OF RYDEX SERIES 0.90% $2.28
FUNDS
Inverse Mid-Cap Strategy Fund, a series of Rydex Variable 0.90% $1.17
Trust
INVERSE NASDAQ-100 STRATEGY FUND, A SERIES OF RYDEX 0.90% $14.17
SERIES FUNDS
Inverse NASDAQ-100 Strategy Fund, a series of Rydex 0.90% $5.73
Variable Trust
INVERSE RUSSELL 2000 STRATEGY FUND, A SERIES OF RYDEX 0.90% $9.22
SERIES FUNDS
Inverse Russell 2000 Strategy Fund, a series of Rydex 0.90% $3.15
Variable Trust
INVERSE S&P 500 STRATEGY FUND, A SERIES OF RYDEX SERIES 0.90% $136.53
FUNDS
Inverse S&P 500 Strategy Fund, a series of Rydex Variable 0.90% $14.23
Trust
JAPAN 2X STRATEGY FUND, A SERIES OF RYDEX SERIES FUNDS 0.75% $13.84
Japan 2x Strategy Fund, a series of Rydex Variable Trust 0.75% $6.29
LEISURE FUND, A SERIES OF RYDEX SERIES FUNDS 0.85% $6.11
Leisure Fund, a series of Rydex Variable Trust 0.85% $9.26
LONG/SHORT COMMODITIES STRATEGY FUND, A SERIES OF 0.90%(2) $380.59
RYDEX SERIES FUNDS
None N/A N/A
LONG SHORT EQUITY STRATEGY FUND, A SERIES OF RYDEX 0.90% $7.23
SERIES FUNDS
None N/A N/A
LONG SHORT INTEREST RATE STRATEGY FUND, A SERIES OF RYDEX 0.75% $164.33
SERIES FUNDS
None N/A N/A
MANAGED FUTURES STRATEGY FUND, A SERIES OF RYDEX SERIES 0.90%(2) $2,583.87
FUNDS
Managed Futures Strategy Fund, a series of Rydex Variable 0.90%(2) $16.67
Trust
MID-CAP 1.5X STRATEGY FUND, A SERIES OF RYDEX SERIES 0.90% $56.79
FUNDS
E-9
ANNUAL COMPENSATION TO
THE INVESTMENT ADVISER
NAME OF FUND SUBJECT TO THIS PROXY STATEMENT (AS A PERCENTAGE OF AVERAGE DAILY
Name(s) of Other Fund(s) with Similar Objectives NET ASSETS) NET ASSETS (IN MILLIONS)
----------------------------------------------------------------------------------------------------------------------------
Mid-Cap 1.5x Strategy Fund, a series of Rydex Variable 0.90% $23.70
Trust
MULTI-HEDGE STRATEGIES FUND, A SERIES OF RYDEX SERIES 1.15% $73.92
FUNDS
Multi-Hedge Strategies Fund, a series of Rydex Variable 1.15%(2) $17.49
Trust
NASDAQ-100 FUND, A SERIES OF RYDEX SERIES FUNDS 0.75% $648.00
NASDAQ-100 Fund, a series of Rydex Variable Trust 0.75% $52.92
NOVA FUND, A SERIES OF RYDEX SERIES FUNDS 0.75% $85.58
Nova Fund, a series of Rydex Variable Trust 0.75% $33.31
PRECIOUS METALS FUND, A SERIES OF RYDEX SERIES FUNDS 0.75% $243.13
Precious Metals Fund, a series of Rydex Variable Trust 0.75% $109.52
REAL ESTATE FUND, A SERIES OF RYDEX SERIES FUNDS 0.85% $24.86
Real Estate Fund, a series of Rydex Variable Trust 0.85% $26.88
RETAILING FUND, A SERIES OF RYDEX SERIES FUNDS 0.85% $11.76
Retailing Fund, a series of Rydex Variable Trust 0.85% $5.81
RUSSELL 2000 1.5X STRATEGY FUND, A SERIES OF RYDEX SERIES 0.90% $41.23
FUNDS
Russell 2000 1.5x Strategy Fund, a series of Rydex Variable 0.90% $19.74
Trust
RUSSELL 2000 FUND, A SERIES OF RYDEX SERIES FUNDS 0.75% $31.63
None N/A N/A
S&P 500 FUND, A SERIES OF RYDEX SERIES FUNDS 0.75% $177.93
None N/A N/A
S&P 500 PURE GROWTH FUND, A SERIES OF RYDEX SERIES 0.75% $47.33
FUNDS
S&P 500 Pure Growth Fund, a series of Rydex Variable 0.75% $58.57
Trust
Rydex S&P 500 Pure Growth ETF, a series of Rydex ETF 0.35% $264.65
Trust
S&P 500 PURE VALUE FUND, A SERIES OF RYDEX SERIES FUNDS 0.75% $58.06
S&P 500 Pure Value Fund, a series of Rydex Variable Trust 0.75% $41.06
E-10
ANNUAL COMPENSATION TO
THE INVESTMENT ADVISER
NAME OF FUND SUBJECT TO THIS PROXY STATEMENT (AS A PERCENTAGE OF AVERAGE DAILY
Name(s) of Other Fund(s) with Similar Objectives NET ASSETS) NET ASSETS (IN MILLIONS)
----------------------------------------------------------------------------------------------------------------------------
Rydex S&P 500 Pure Value ETF, a series of Rydex ETF 0.35% $112.93
Trust
S&P MIDCAP 400 PURE GROWTH FUND, A SERIES OF RYDEX 0.75% $286.18
SERIES FUNDS
S&P MidCap 400 Pure Growth Fund, a series of Rydex 0.75% $61.75
Variable Trust
Rydex S&P MidCap 400 Pure Growth ETF, a series of Rydex 0.35% $670.63
ETF Trust
S&P MIDCAP 400 PURE VALUE FUND, A SERIES OF RYDEX 0.75% $61.56
SERIES FUNDS
S&P MidCap 400 Pure Value Fund, a series of Rydex 0.75% $24.09
Variable Trust
Rydex S&P MidCap 400 Pure Value ETF, a series of Rydex 0.35% $60.16
ETF Trust
S&P SMALLCAP 600 PURE GROWTH FUND, A SERIES OF RYDEX 0.75% $145.49
SERIES FUNDS
S&P SmallCap 600 Pure Growth Fund, a series of Rydex 0.75% $32.10
Variable Trust
Rydex S&P SmallCap 600 Pure Growth ETF, a series of 0.35% $35.19
Rydex ETF Trust
S&P SMALLCAP 600 PURE VALUE FUND, A SERIES OF RYDEX 0.75% $26.90
SERIES FUNDS
S&P SmallCap 600 Pure Value Fund, a series of Rydex 0.75% $17.31
Variable Trust
Rydex S&P SmallCap 600 Pure Value ETF, a series of Rydex 0.35% $90.18
ETF Trust
STRENGTHENING DOLLAR 2X STRATEGY FUND, A SERIES OF RYDEX 0.90% $26.71
SERIES FUNDS
Strengthening Dollar 2x Strategy Fund, a series of Rydex 0.90% $2.77
Variable Trust
TECHNOLOGY FUND, A SERIES OF RYDEX SERIES FUNDS 0.85% $82.93
Technology Fund, a series of Rydex Variable Trust 0.85% $19.90
TELECOMMUNICATIONS FUND, A SERIES OF RYDEX SERIES FUNDS 0.85% $12.85
Telecommunications Fund, a series of Rydex Variable Trust 0.85% $5.76
TRANSPORTATION FUND, A SERIES OF RYDEX SERIES FUNDS 0.85% $15.35
Transportation Fund, a series of Rydex Variable Trust 0.85% $7.81
E-11
ANNUAL COMPENSATION TO
THE INVESTMENT ADVISER
NAME OF FUND SUBJECT TO THIS PROXY STATEMENT (AS A PERCENTAGE OF AVERAGE DAILY
Name(s) of Other Fund(s) with Similar Objectives NET ASSETS) NET ASSETS (IN MILLIONS)
----------------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT MONEY MARKET FUND, A SERIES OF RYDEX 0.50% $868.15
SERIES FUNDS
U.S. Government Money Market Fund, a series of Rydex 0.50% $162.92
Variable Trust
U.S. LONG SHORT MOMENTUM FUND, A SERIES OF RYDEX 0.90% $164.99
SERIES FUNDS
U.S. Long Short Momentum Fund, a series of Rydex Variable 0.90% $53.25
Trust
UTILITIES FUND, A SERIES OF RYDEX SERIES FUNDS 0.85% $21.87
Utilities Fund, a series of Rydex Variable Trust 0.85% $14.74
WEAKENING DOLLAR 2X STRATEGY FUND, A SERIES OF RYDEX 0.90% $38.23
SERIES FUNDS
Weakening Dollar 2x Strategy Fund, a series of Rydex 0.90% $6.05
Variable Trust
The Investment Adviser did not reduce or waive its investment advisory fees for
the period indicated.
------------------------------
1 The Fund invests primarily in underlying funds (the "Underlying Funds").
The Investment Adviser receives an investment advisory fee for managing the
Underlying Funds. The Underlying Funds pay a monthly investment advisory
fee to the Investment Adviser for its services. The fee is based on the
average net daily assets of each Underlying Fund and calculated at an
annual rate for each Underlying Fund. For more information regarding the
Underlying funds' investment advisory fees and expense limitations, please
see the Prospectus and applicable sections of the Statement of Additional
Information. The Funds benefit from the investment advisory services
provided to the Underlying Funds and, as shareholders of those Underlying
Funds, indirectly bear a proportionate share of those Underlying Funds'
advisory fees.
2 The Fund may invest in a wholly-owned and controlled Cayman Islands
subsidiary (the "Subsidiary"). The Subsidiary has entered into a separate
advisory agreement with the Investment Adviser for the management of the
Subsidiary's portfolio pursuant to which the Subsidiary pays the Investment
Adviser a management fee at the same rate that the Fund pays the Investment
Adviser for services provided to the Fund. The Investment Adviser has
contractually agreed to waive the management fee it receives from the Fund
in an amount equal to the management fee paid to the Investment Adviser by
the Subsidiary. This undertaking will continue in effect for so long as the
Fund invests in the Subsidiary, and may not be terminated by the Investment
Adviser unless the Investment Adviser first obtains the prior approval of
the Fund's Board of Trustees for such termination. The management fees
included in the table reflect the net management fees paid to the
Investment Adviser by the Fund after the fee waiver.
E-12
APPENDIX F
FORM OF NEW SUB-ADVISORY AGREEMENT WITH CLS INVESTMENTS, LLC
AGREEMENT made this [ ] day of [ ], 2011, by and between Security
Investors, LLC, a Kansas limited liability company (the "Adviser"), and CLS
Investments, LLC, a Nebraska limited liability company (the "Sub-Adviser").
WHEREAS, Rydex Variable Trust, a Delaware statutory trust (the "Trust")
is an open-end management investment company registered under the Investment
Company Act of 1940, as amended (the "1940 Act");
WHEREAS, the Adviser has entered into an Investment Advisory Agreement
dated [ ], 2011, as amended (the "Advisory Agreement") with the Trust, pursuant
to which the Adviser will act as the investment adviser to the separate series
of the Trust set forth therein; and
WHEREAS, the Adviser, with the approval of the Trust, desires to retain
the Sub-Adviser as its agent to furnish sub-investment advisory services to the
Adviser in connection with the management of the separate series of the Trust
set forth on Schedule A of this Investment Sub-Advisory Agreement (each a "Fund"
and together, the "Funds"), and the Sub-Adviser is willing to render such
sub-investment advisory services.
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, the parties hereto agree as follows:
1. APPOINTMENT. The Adviser hereby appoints the Sub-Adviser to provide
certain sub-investment advisory services to each Fund for the period and on the
terms set forth in this Agreement (the "Sub-Advisory Agreement").
The Sub-Adviser hereby accepts such appointment and agrees to furnish the
services herein set forth for the compensation herein provided.
2. DELIVERY OF DOCUMENTS. The Sub-Adviser hereby acknowledges receipt of
properly certified or authenticated copies of each of the following:
(a) The Trust's Declaration of Trust and all amendments thereto or
restatements thereof (such Declaration, as presently in effect and
as it shall from time to time be amended or restated, is herein
called the "Declaration of Trust");
(b) The Trust's By-Laws and amendments thereto;
(c) Resolutions of the Trust's Board of Trustees authorizing the
appointment of the Sub- Adviser and approving this Agreement;
(d) The Trust's Notification of Registration on Form N-8A under the
1940 Act as filed with the U.S. Securities and Exchange Commission
(the "SEC") and all amendments thereto;
(e) The Trust's Registration Statement on Form N-1A under the
Securities Act of 1933, as amended (the "1933 Act") and under the
1940 Act as filed with the SEC and all
F-1
amendments thereto insofar as such Registration Statement and such
amendments relate to each Fund; and
(f) The Trust's most recent prospectus and Statement of Additional
Information for each Fund (such prospectus and Statement of
Additional Information, as presently in effect, and all amendments
and supplements thereto are herein collectively called the
"Prospectus").
The Adviser will furnish the Sub-Adviser from time to time with copies of
all amendments of or supplements to the foregoing.
3. MANAGEMENT. Subject always to the supervision of the Trust's Board
of Trustees and the Adviser, the Sub-Adviser will furnish, direct, and
administer an investment program in respect of, and make investment and
reinvestment decisions for, all assets of each Fund and place all orders for the
purchase and sale of securities, all on behalf of each Fund. In the performance
of its duties, the Sub- Adviser will satisfy its fiduciary duties to each Fund,
and will monitor each Fund's investments, and will comply with the provisions of
the Trust's Declaration of Trust and By-Laws, as amended from time to time, any
policies or restrictions imposed by the Adviser and/or the Trust, and the stated
investment objectives, policies and restrictions of each Fund as provided in
each Fund's prospectus and statement of additional information, as amended from
time to time. The Sub-Adviser and the Adviser will each make its officers and
employees available to the other from time to time at reasonable times to review
investment policies of each Fund and to consult with each other regarding the
investment affairs of each Fund. The Sub-Adviser shall also make itself
reasonably available to the Board of Trustees at such times as the Board of
Trustees shall request.
The Sub-Adviser represents and warrants that it is in compliance with all
applicable rules and regulations of the SEC pertaining to its investment
advisory activities and agrees that it:
(a) will use the same skill and care in providing such services as it
uses in providing services to fiduciary accounts for which it has
investment responsibilities;
(b) will conform with all applicable rules and regulations of the SEC
pertaining to its investment advisory activities;
(c) will place orders pursuant to its investment determinations for
each Fund either directly with the issuer or with any broker or
dealer. In placing orders with brokers or dealers, the Sub-Adviser
will attempt to obtain the best combination of prompt execution of
orders in an effective manner and at the most favorable price
consistent with its "best execution" obligation. Consistent with
this obligation, when the execution and price offered by two or
more brokers or dealers are comparable, the Sub-Adviser may, in
its discretion, purchase and sell portfolio securities to and from
brokers and dealers who provide the Sub-Adviser with research
advice and other services (as those terms are defined in Section
28(e) of the Securities Act of 1934). In no instance will
portfolio securities be purchased from or sold to the Adviser, the
Sub-Adviser, Rydex Distributors, Inc. or any affiliated person of
either the Trust, the Adviser, the Sub-Adviser or Rydex
Distributors, Inc., except as may be permitted under the 1940 Act;
F-2
(d) will report regularly to the Adviser and will make appropriate
persons available for the purpose of reviewing at reasonable times
with representatives of the Adviser and the Board of Trustees the
management of each Fund, including, without limitation, review of
the general investment strategy of each Fund, the performance of
each Fund in relation to standard industry indices, interest rate
considerations and general conditions affecting the marketplace
and will provide various other reports from time to time as
reasonably requested by the Adviser;
(e) will maintain books and records required to be maintained by Rule
31a-3 under the 1940 Act with respect to the Trust's securities
transactions and will furnish the Adviser and the Trust's Board of
Trustees such periodic and special reports as the Board of
Trustees or the Adviser may request;
(f) will act upon instructions from the Adviser not inconsistent with
the fiduciary duties hereunder; and
(g) will treat confidentially and as proprietary information of the
Trust all such records and other information relative to the Trust
maintained by the Sub-Adviser, and will not use such records and
information for any purpose other than performance of its
responsibilities and duties hereunder, except after prior
notification to and approval in writing by the Trust, which
approval shall not be unreasonably withheld and may not be
withheld where the Sub-Adviser may be exposed to civil or criminal
contempt proceedings for failure to comply, when requested to
divulge such information by duly constituted authorities, or when
so requested by the Trust.
4. PROXY VOTING; CORPORATE ACTIONS. The Sub-Adviser shall execute and
deliver, or cause its nominee to execute and deliver, all proxy votes, notices
of meetings and other notices affecting or relating to the securities of each
Fund during the term of this Sub-Advisory Agreement. The Sub- Adviser shall
maintain and preserve written proxy voting procedures, and shall provide a copy
of such voting procedures, along with a record of its actual proxy votes
relating to the securities of each Fund, to the Adviser or the Trust upon
request. The Adviser and Sub-Adviser understand that the Funds may pursue their
investment objectives by investing in other investment companies that are not
affiliated "underlying funds" and specific proxy rules are applicable under the
1940 Act to this type of relationship. In particular, the Sub-Adviser will vote
all proxies received from the underlying funds in the same proportion that all
shares of the underlying funds are voted, or in accordance with instructions
received from Fund shareholders, pursuant to Section 12(d)(1)(F) of the 1940
Act. Beginning July 1, 2003, the Sub-Adviser shall maintain records regarding
proxy voting on behalf of the Funds in order that the Funds may complete the
annual Form N-PX filing.
5. BOOKS AND RECORDS. In compliance with the requirements of Rule
31a-3 under the 1940 Act, the Sub-Adviser hereby agrees that all records which
it maintains for each Fund, on behalf of the Trust are the property of the Trust
and further agrees to surrender promptly to the Trust any of such records upon
the Trust's request. The Sub-Adviser further agrees to preserve for the periods
prescribed by Rule 31a-2 under the 1940 Act the records required to be
maintained by Rule 31 a-1 under the 1940 Act.
F-3
6. EXPENSES. During the term of this Agreement, the Sub-Adviser will
pay all expenses incurred by it in connection with its activities under this
Sub-Advisory Agreement.
7. COMPENSATION. For the services to be provided by the Sub-Adviser
pursuant to this Agreement, the Adviser will pay the Sub-Adviser, and the
Sub-Adviser agrees to accept as full compensation therefor, a sub-advisory fee
paid at the rate specified on Schedule A, which is attached hereto and made part
of this Agreement. The fee will be calculated based on the average daily net
asset value of the assets under the Sub-Adviser's management. This fee will be
paid at least quarterly. Except as may otherwise be prohibited by law or
regulation (including any then current SEC staff interpretation), the
Sub-Adviser may, in its discretion and from time to time, waive a portion of its
fee. The Sub-Adviser shall not be responsible for expenses and costs of a
Fund's operations payable by a Fund or the Adviser.
8. SERVICES TO OTHERS. The Adviser understands, and has advised the
Trust's Board of Trustees, that the Sub-Adviser now acts, and may in the future
act, as an investment adviser and fiduciary to other managed accounts, and as
investment adviser, sub-investment adviser, and/or administrator to other
investment companies. The Adviser has no objection to the Sub-Adviser's acting
in such capacities, provided that the Sub-Adviser furnishes adequate disclosure
of such possible conflicts of interest and implements procedures designed to
mitigate or eliminate such conflicts. For example, whenever a Fund and one or
more other investment companies advised by the Sub-Adviser have available funds
for investment, investments suitable and appropriate for each will be allocated
in accordance with a formula believed by the Sub-Adviser to be equitable to each
company. The Adviser recognizes, and has advised the Trust's Board of Trustees,
that in some cases the Sub-Adviser's procedures may adversely affect the size of
the position that each Fund may obtain in a particular security. In addition,
the Adviser understands, and has advised the Trust's Board of Trustees, that the
persons employed by the Sub-Adviser to assist in the Sub-Adviser's duties under
this Sub-Advisory Agreement will not devote their full time to such service and
nothing contained in this Sub-Advisory Agreement will be deemed to limit or
restrict the right of the Sub-Adviser or any of its affiliates to engage in and
devote time and attention to other businesses or to render services of whatever
kind or nature.
9. STANDARD OF CARE. Each of the Adviser and Sub-Adviser shall
discharge its duties under this Sub-Advisory Agreement with the care, skill,
prudence and diligence under the circumstances then prevailing that a prudent
person acting in a like capacity and familiar with such matters would use in the
conduct of an enterprise of a like character and with like aims. The parties
recognize that the opinions, recommendations and actions of the Sub-Adviser will
be based on advice and information deemed to be reliable but not guaranteed by
or to the Sub-Adviser.
10. INDEMNIFICATION. Each of the Adviser and Sub-Adviser agrees to
indemnify each other against any claim, loss or liability (including reasonable
attorney's fees) arising as a result of the failure to meet the standard of care
set forth in the first sentence of Paragraph 9 hereof, Notwithstanding the
generality of the foregoing, the Adviser and Sub-Adviser each further agrees to
indemnify each other against any claim, loss or liability (including reasonable
attorney's fees) arising or as a result of willful misfeasance, bad faith or
gross negligence in the performance of its duties, or by reason of reckless
disregard of its obligation and duties hereunder. The federal securities laws
impose liabilities under certain circumstances on persons who act in good faith,
and therefore nothing herein shall in any way
F-4
constitute a waiver or limitation of any rights which each party may have
against the other under any federal securities laws based on negligence and
which cannot be modified in advance by contract.
11. DURATION AND TERMINATION. This Sub-Advisory Agreement will become
effective as of the date hereof provided that it has been approved by vote of a
majority of the outstanding voting securities of each Fund in accordance with
the requirements under the 1940 Act, and, unless sooner terminated as provided
herein, will continue in effect for two years.
Thereafter, if not terminated, this Sub-Advisory Agreement will continue
in effect for each Fund for successive periods of 12 months, each ending on the
day preceding the anniversary of the Sub- Advisory Agreement's effective date of
each year, provided that such continuation is specifically approved at least
annually (a) by the vote of a majority of those members of the Trust's Board of
Trustees who are not interested persons of the Trust, the Sub-Adviser, or the
Adviser, cast in person at a meeting called for the purpose of voting on such
approval, and (b) by the vote of a majority of the Trust's Board of Trustees or
by the vote of a majority of all votes attributable to the outstanding shares of
each Fund. Notwithstanding the foregoing, this Sub-Advisory Agreement may be
terminated as to each Fund at any time, without the payment of any penalty, on
sixty (60) days' written notice by the Adviser or by the Sub-Adviser. This
Sub-Advisory Agreement will immediately terminate in the event of its
assignment. (As used in this Sub-Advisory Agreement, the terms "majority of the
outstanding voting securities," "interested persons" and "assignment" have the
same meaning of such terms ascribed in the 1940 Act.)
This Agreement will terminate automatically if the investment advisory
agreement between the Trust and the Adviser is terminated.
12. AMENDMENT OF THIS AGREEMENT. No provision of this Sub-Advisory
Agreement may be changed, waived, discharged or terminated orally, but only by
an instrument in writing signed by the party against which enforcement of the
change, waiver, discharge or termination is sought.
13. MULTIPLE ORIGINALS. This Sub-Advisory Agreement may be executed in
two or more counterparts, each of which when so executed shall be deemed to be
an original, but such counterparts shall together constitute but one and the
same document.
14. CUSTODY. All securities and other assets of each Fund shall be
maintained with a custodian designated by the Adviser. The Sub-Adviser shall
have no responsibility or liability with respect to any custodial function.
15. MISCELLANEOUS. The captions in this Agreement are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. If any
provision of this Agreement is held or made invalid by a court decision,
statute, rule or otherwise, the remainder of this Agreement will not be affected
thereby. This Agreement will be binding upon and shall inure to the benefit of
the parties hereto and will be governed by the internal laws of the state of
Delaware. The Sub-Adviser shall notify the Adviser of any changes in its
officers and directors within a reasonable time.
16. LIMITATION OF LIABILITY. The names "Rydex Variable Trust" and
"Trustees of the Rydex Variable Trust" refer respectively to the Trust created
by, and the Trustees, as trustees but not individually or personally, acting
from time to time under, the Declaration of Trust, to which reference
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is hereby made and a copy of which is on file at the office of the Secretary of
State of the State of Delaware and elsewhere as required by law, and to any and
all amendments thereto so filed or hereafter filed. The obligations of the Trust
entered in the name or on behalf thereof by any of the Trustees, representatives
or agents are made not individually but only in such capacities and are not
binding upon any of the Trustees, shareholders or representatives of the Trust
personally, but bind only the assets of the Trust. Persons dealing with each
Fund must look solely to the assets of the Trust belonging to each Fund for the
enforcement of any claims against the Trust.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their officers designated below as of the day and year first above
written.
SECURITY INVESTORS, LLC
By:
--------------------------------
Name: Richard M. Goldman
Title: Chief Executive Officer
CLS INVESTMENTS, LLC
By:
--------------------------------
Name:
Title:
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SCHEDULE A
TO THE
INVESTMENT SUB-ADVISORY AGREEMENT
DATED [ ], 2011
BETWEEN
SECURITY INVESTORS, LLC
AND
CLS INVESTMENTS, LLC
Pursuant to Section 7 of this Investment Sub-Advisory Agreement, the Adviser
shall pay the Sub-Adviser compensation at an annual rate as follows:
Amerigo Fund ................................................ 0.40%
Clermont Fund ............................................... 0.40%
Select Allocation Fund ...................................... 0.40%
Should either of the aforementioned Funds not average $10,000,000 in assets
over a quarter, the Sub-Adviser will not receive compensation for assets in that
Fund for that specific quarter.
F-7
APPENDIX G
INFORMATION REGARDING THE SUB-ADVISORY AGREEMENT WITH
CLS INVESTMENTS, LLC AND FEES PAID TO THE SUB-ADVISER
CLS Investments, LLC (the "Sub-Adviser") currently serves as sub-adviser to
the Amerigo Fund, the Clermont Fund and the Select Allocation Fund, each a
series of Rydex Variable Trust (collectively, the "CLS Funds"), pursuant to the
investment sub-advisory agreement between Security Investors, LLC, the CLS
Funds' investment adviser (the "Investment Adviser"), and the Sub-Adviser. The
table below provides the following information:
(i) the date of the Sub-Advisory Agreement;
(ii) the date on which the CLS Funds' shareholders last approved the Funds'
Sub-Advisory Agreement;
(iii) the annual rate of sub-advisory fees paid by the Investment Adviser
to the Sub-Adviser for the Sub-Adviser's sub-advisory services to the
CLS Funds; and
(iv) the aggregate amount of advisory fees paid by the Investment Adviser
to the Sub-Adviser for the Sub-Adviser's sub-advisory services to the
CLS Funds during the CLS Funds' fiscal year ended December 31, 2010.
DATE OF DATE OF LAST SUB-ADVISORY
SUB-ADVISORY SHAREHOLDER SUB-ADVISORY FEES PAID TO
FUND AGREEMENT APPROVAL FEES SUB-ADVISER
----------------------------------------------------------------------------------------------
Amerigo Fund 8/1/2010 5/21/2010 0.40% $1,069,290
Clermont Fund 8/1/2010 5/21/2010 0.40% $381,906
Select Allocation 8/1/2010 5/21/2010 0.40% $228,214
Fund
G-1
APPENDIX H
DIRECTORS/TRUSTEES/MANAGERS AND OFFICERS OF CLS INVESTMENTS, LLC
MANAGERS AND PRINCIPAL EXECUTIVE OFFICERS OF CLS INVESTMENTS, LLC. The business
address of the managers and principal executive officers is 4020 South 147th
Street, Omaha, Nebraska 68137.
POSITION HELD WITH CLS OTHER PRINCIPAL
NAME INVESTMENTS, LLC OCCUPATION/POSITION
------------------------------------------------------------------------------------------------
W. Patrick Clarke Manager Manager, NorthStar Financial
Services Group, LLC; Manager,
Gemini Fund Services, LLC;
Manager, Orion Advisor Services,
LLC; Manager, Northern Lights
Distributors, LLC; Manager, Forum
Financial Consultants LLC;
Manager, Gemcom, LLC; Manager,
Northern Lights Compliance
Services, LLC; Director,
Constellation Trust Company; and
President, AdvisorOne Funds
Michael Miola Manager Manager, NorthStar Financial
Services Group, LLC; Manager,
Orion Advisor Services, LLC;
Manager, Gemcom, LLC; Manager,
Northern Lights Compliance
Services, LLC; Director,
Constellation Trust Company;
Manager, Gemini Fund Services,
LLC; and Chairman of the Board of
Trustees, AdvisorOne Funds
Todd P. Clarke President, Manager N/A
There are no Trustees/Officers of the CLS Funds who hold position(s) with CLS
Investments, LLC.
H-1
APPENDIX I
ADVISORY FEE RATES OF FUNDS WITH SIMILAR INVESTMENT OBJECTIVES
ADVISED OR SUB-ADVISED BY CLS INVESTMENTS, LLC
The table below lists the names of other mutual funds advised or sub-advised
by CLS Investments, LLC ("CLS") with similar investment objectives as the
Amerigo Fund, Clermont Fund and Select Allocation Fund, each a series of Rydex
Variable Trust (the "CLS Funds"), and information concerning the CLS Funds' and
such other funds' net assets and the rate of compensation for CLS for its
services to the CLS Funds and such other funds.
ANNUAL
COMPENSATION
TO CLS (AS A
PERCENTAGE OF
NAME OF FUND SUBJECT TO THIS PROXY STATEMENT AVERAGE DAILY NET ASSETS FEES WAIVED
Name(s) of Other Fund(s) with Similar Objectives NET ASSETS) (IN MILLIONS) BY CLS
---------------------------------------------------------------------------------------------------
AMERIGO FUND, A SERIES OF RYDEX VARIABLE TRUST 0.40% $ 189.4 $ []
Amerigo Fund, a series of AdvisorOne Funds* 1.00% $ 576.5 $ []
CLERMONT FUND, A SERIES OF RYDEX VARIABLE TRUST 0.40% $ 83.6 $ []
Clermont Fund, a series of AdvisorOne Funds* 1.00% $ 256.4 $ []
SELECT ALLOCATION FUND, A SERIES OF RYDEX VARIABLE 0.40% $ 42.7 $ []
TRUST
Select Allocation Fund (formerly known as 1.00% $ 240.8 $ []
Berolina Fund), a series of AdvisorOne Funds*
* CLS is the investment adviser to the fund.
I-1
APPENDIX J
FORM OF NEW SUB-ADVISORY AGREEMENT WITH
DORSEY, WRIGHT & ASSOCIATES, INC.
THIS AGREEMENT is made and entered into as of the close of business on
the [ ] day of [ ], 2011 between Security Investors, LLC (the "Adviser"), a
Kansas limited liability company, registered under the Investment Advisers Act
of 1940, as amended (the "Investment Advisers Act"), and Dorsey Wright &
Associates, Inc. (the "Subadviser"), a Virginia corporation registered under the
Investment Advisers Act.
W I T N E S S E T H:
WHEREAS, Rydex Variable Trust, a Delaware statutory trust ("RVT" or the
"Trust"), is registered with the 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, RVT is authorized to issue shares of (a) the DWA Flexible
Allocation Fund and (b) the DWA Sector Rotation Fund, each a separate series of
RVT (referred to herein individually as the "Fund" and together the "Funds");
WHEREAS, RVT 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 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 the
Trust and to the terms of this Agreement, and consistent with its fiduciary
duties to each Fund; 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 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
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"Prospectus") and subject to the directions of the Adviser and the
Trust's 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
in managing the Funds shall give the Trust the benefit of its best
efforts in rendering its services as Subadviser. The Adviser agrees
to provide the Subadviser with such assistance as may be reasonably
requested by the Subadviser in connection with the Subadviser's
activities under this Agreement, including, without limitation,
providing information concerning each Fund, its funds available, or to
become available, for investment and generally as to the conditions of
the Fund's or the Trust's affairs.
The Subadviser acknowledges that the Trust 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 Trust, or an affiliated person of
such other subadviser, concerning transactions for the Trust in
securities or other fund assets. The Subadviser shall be limited to
providing investment advice with respect to only the Funds, and shall
not consult with any other subadviser as to any other portion of the
Trust's portfolio concerning transactions for the Trust in securities
or other assets.
(b) Brokerage. The Subadviser is authorized, subject to the
supervision of the Adviser and the Trust's Board, to establish and
maintain accounts on behalf of each Fund. In addition, the Subadviser
is authorized, again subject to the supervision of the Adviser and the
Trust's Board, to place orders for the purchase and sale of each
Fund's Investments with or through such persons, brokers or dealers as
Subadviser may select and also to 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 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 Trust or the Trust's Board, providing such
J-2
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 adopt and comply with a Code of Ethics
that complies with Rule 17j-1 under the Investment Company Act, as the
same may be amended from time to time. The Subadviser agrees to
provide the Adviser and the Trust 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 listed in Exhibit A, and shall
timely furnish to the Adviser all information relating to the
Subadviser's services hereunder requested 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 (generally 6 years, the first 2 in an easily
accessible place), and agrees that such books and records shall remain
the sole property of the Trust and shall be immediately surrendered to
the Trust upon request. The Subadviser further agrees that all books
and records maintained hereunder shall be made available to the Trust
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 Trust 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 the Trust may reasonably request. The Subadviser will
make available its officers and employees to meet with the Trust's
Board of Trustees at the Trust's 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 Trust 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
J-3
literature or other materials prepared for distribution to stockholders
of the Funds, or the public that refer to the Subadviser for
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 (5)
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, hand delivery or in electronic
format.
(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 the Trust Agreement
and Declaration of Trust, By-Laws, currently effective registration
statement, and the terms and conditions of exemptive and no-action
relief granted to the Trust as amended from time to time, and with the
written instructions and directions of the Trust's Board and the
Adviser, after receipt of such documents from the Trust, and shall
comply with the requirements of the Investment Company Act, the
Investment Advisers Act, the rules thereunder, and all other
applicable federal and state laws and regulations. Without limiting
the preceding sentence, the Adviser promptly shall notify the
Subadviser as to any act or omission of the Subadviser hereunder that
the Adviser reasonably deems to constitute or to be the basis of any
noncompliance or nonconformance with any of the Trust's Agreement and
Declaration of Trust, By-Laws, currently effective registration
statement, the instructions and directions received in writing from
the Adviser or the Trustees of the Trust, the Investment Company Act,
the Code, and all other applicable federal and state laws and
regulations. Notwithstanding the foregoing, the Adviser shall remain
responsible for ensuring the Funds' and the Trust's overall compliance
with the Investment Company Act, the Code and all other applicable
federal and state laws and regulations and the Subadviser is only
obligated to comply with this subsection (g) with respect to the
assets of each Fund. The Adviser will provide the Subadviser with
reasonable advance notice of any change in the Funds' investment
objectives, policies and restrictions as stated in its currently
effective registration statement, and the Subadviser shall, in the
performance of their duties and obligations under this Agreement,
manage the Funds' Investments consistent with such changes, provided
that the Subadviser has received prompt notice of the effectiveness of
such changes from the Trust or the Adviser. In addition to such
notice, the Adviser shall provide to the Subadviser a copy of a
modified Prospectus and SAI reflecting such changes.
The Adviser shall be responsible for ensuring that the Funds comply
with all applicable statutes and regulations necessary to qualify each
Fund as a Regulated Investment Company under Subchapter M of the Code
(or any successor provision) and the diversification provisions of
Section 817(h) of the Code (or any successor provision) and the
regulations issued thereunder relating to the diversification
requirements for variable insurance contracts and any prospective
J-4
amendments or other modifications to Section 817 or regulations
thereunder. In connection with such compliance tests, the Adviser
shall inform the Subadviser prior to a calendar quarter end if the
Subadviser Assets are out of compliance with the diversification
requirements under Subchapter M. If the Adviser notifies the
Subadviser that the Subadviser Assets are not in compliance with such
requirements noted above, the Subadviser will take prompt action to
bring the Subadviser Assets back into compliance within the time
permitted under the Code thereunder or to adequately diversify each
Fund so as to achieve compliance within the grace period afforded by
Regulation 1.817-5.
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 or the Trust
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) the Trust
Agreement and Declaration of Trust, (ii) the By-Laws of RVT, (iii) the
Funds' registration statement under the Investment Company Act and the
Securities Act 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
either 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 Trust or the Adviser in any way or
otherwise be deemed an agent of the Trust or the Adviser.
4. Compensation. The Adviser shall pay to the Subadviser, for the
services rendered hereunder, the fees set forth in Exhibit B attached hereto.
5. Expenses. The Subadviser shall bear all expenses incurred by it
in connection with its services under this Agreement. The Subadviser shall not
be responsible for the Trust's, the Funds' or Adviser's expenses.
J-5
6. Delegation. The Subadviser shall not assign or delegate any of
its duties under this Agreement without the approval of the Adviser and the
Trust's Board.
7. Non-Exclusivity. The services of the Subadviser to the Trust in
managing 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 Subadviser. The Subadviser
represents and warrants to the Adviser and the Trust 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 is fully authorized under all applicable law
to serve as Subadviser to the Trust and to perform the services
described under this Agreement;
(d) The Subadviser is a corporation duly organized and validly
existing under the laws of the Commonwealth of Virginia with the power
to own and possess its assets and carry on its business as it is now
being conducted;
(e) 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;
(f) This Agreement is a valid and binding agreement of the
Subadviser;
(g) 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;
(h) The Subadviser, in accordance with Rule 206(4)9-7 under the
Investment Advisers Act, has adopted and will maintain compliance
policies and procedures reasonably designed to prevent violation by
the Subadviser and its supervised persons (as such term is
J-6
defined by the Investment Advisers Act) 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, to the extent the Subadviser's activities
and services could affect the Funds, policies and procedures
reasonably designed to prevent violation of the federal securities
laws (as such terms is defined in Rule 38a-1 under the Investment
Company Act) by the Funds and the Subadviser. The Subadviser
understands that RVT's Board of Trustees is required to approve the
Subadviser's compliance policies and procedures and acknowledges that
this Agreement is conditioned upon such Board approval;
(i) The Subadviser shall not divert any Fund 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 RVT, or any other registered investment company; and
(j) The Subadviser agrees to maintain an appropriate level of
errors and omissions or professional liability insurance coverage.
9. 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 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;
(c) 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;
(d) This Agreement is a valid and binding agreement of the
Adviser;
(e) 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 any material fact
necessary in order to make the statements made, in light of the
circumstances under which they were made, not misleading; and
(f) 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.
J-7
10. Survival of Representations and Warranties; Duty to Update
Information. All representations and warranties made by the Subadviser and the
Adviser pursuant to Sections 8 and 9 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.
11. Liability and Indemnification.
------------------------------
(a) Except as may otherwise be provided by the Investment
Company Act or any other federal securities law, neither the Subadviser nor any
of its officers, members or employees (its "AFFILIATES") shall be liable for any
losses, claims, damages, liabilities or litigation (including legal and other
expenses) incurred or suffered by the Adviser or the Trust as a result of any
error of judgment or mistake of law by the Subadviser or its Affiliates with
respect to each Fund, except that nothing in this Agreement shall operate or
purport to operate in any way to exculpate, waive or limit the liability of the
Subadviser or its Affiliates for, and the Subadviser shall indemnify and hold
harmless the Trust, the Adviser, all affiliated persons thereof (within the
meaning of Section 2(a)(3) of the Investment Company Act) and all controlling
persons (as described in Section 15 of the Securities Act) (collectively,
"Adviser Indemnitees") against any and all losses, claims, damages, liabilities
or litigation (including reasonable legal and other expenses) to which any of
the Adviser Indemnitees may become subject under the Securities Act, the
Investment Company Act, the Investment Advisers Act, or under any other statute,
or common law or otherwise arising out of or based on (i) any willful
misconduct, bad faith, reckless disregard or gross negligence of the Subadviser
in the performance of any of its duties or obligations hereunder or (ii) any
untrue statement of a material fact contained in the Prospectus, proxy
materials, reports, advertisements, sales literature, or other materials
pertaining to each Fund or the omission to state therein a material fact known
to the Subadviser which was required to be stated therein or necessary to make
the statements therein not misleading, if such statement or omission was made in
reliance upon information furnished to the Adviser or the Trust by the
Subadviser Indemnitees (as defined below) for use therein. Unless otherwise
obligated under applicable law, neither the Subadviser nor its Affiliates will
be liable for consequential or indirect damages even if the Subadviser has been
advised of the possibility or likelihood of the occurrence of such damages.
(b) Except as may otherwise be provided by the Investment Company
Act or any other federal securities law, the Adviser and its Affiliates shall
not be liable for any losses, claims, damages, liabilities or litigation
(including legal and other expenses) incurred or suffered by the Subadviser as a
result of any error of judgment or mistake of law by the Adviser with respect to
each Fund, except that nothing in this Agreement shall operate or purport to
operate in any way to exculpate, waive or limit the liability of the Adviser
for, and the Adviser shall indemnify and hold harmless the Subadviser, all
affiliated persons thereof (within the meaning of Section 2(a)(3) of the
Investment Company Act) and all controlling persons (as described in Section 15
of the 1933 Act) (collectively, "Subadviser Indemnitees") against any and all
losses, claims, damages, liabilities or litigation (including reasonable legal
and other expenses) to which any of the Subadviser Indemnitees may become
subject under the Securities Act, the Investment Company Act, the Investment
Advisers Act, or under any other statute, at common law or otherwise arising out
of or based on (i) any willful misconduct, bad faith, reckless disregard or
gross negligence of the Adviser in the performance of any of its duties or
obligations
J-8
hereunder or (ii) any untrue statement of a material fact contained in the
Prospectus, proxy materials, reports, advertisements, sales literature, or other
materials pertaining to the Fund(s) or the omission to state therein a material
fact known to the Adviser that was required to be stated therein or necessary to
make the statements therein not misleading, unless such statement or omission
was made in reliance upon information furnished to the Adviser or the Trust by
the Subadviser Indemnitees for use therein. Unless otherwise obligated under
applicable law, neither the Adviser nor its Affiliates will be liable for
consequential or indirect damages even if the Adviser has been advised of the
possibility or likelihood of the occurrence of such damages.
12. 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, 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 sixty (60) 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.
J-9
13. 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.
14. 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.
15. 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.
16. 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:
Dorsey Wright & Associates, Inc.
9201 Forest Hill Avenue; Ste 100
Richmond, VA 23225
Attention: Watson H. Wright, Secretary/Treasurer
Facsimile: (804) 320-8577
(b) If to the Adviser:
Security Investors, LLC
805 King Farm Boulevard, Suite 600
Rockville, MD 20850
Attention: Rich Goldman
Facsimile: (785) 438-3080
with a copy to:
Security Investors, LLC
One Security Benefit Place
Topeka, KS 66636-0001
Attention: General Counsel
Facsimile: (785) 438-3080
17. Governing Law; Jurisdiction. This Agreement shall be governed
by and construed in accordance with the internal laws of the State of Kansas.
J-10
18. Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall together constitute one and the same
instrument.
19. Captions. The captions herein are included for convenience of
reference only and shall be ignored in the construction or interpretation
hereof.
20. 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.
21. 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.
(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 each
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.
SECURITY INVESTORS, LLC
By:
-------------------------------
Name: Richard Goldman
Title: President
Attest:
-------------------------------
Name: Michael Byrum
Title: Secretary
J-11
DORSEY, WRIGHT & ASSOCIATES, INC.
By:
-------------------------------
Name: Thomas J. Dorsey
Title: President
Attest:
-------------------------------
Name: Watson H. Wright
Title: Secretary
J-12
EXHIBIT A
BOOKS AND RECORDS
Pursuant to Section 2(d) of this Agr1eement, the following are a list of books
and records the Subadviser will keep pursuant to Rule 31a-1(b) and (f) under the
Investment Company Act of 1940.
b. Every registered investment company shall maintain and keep current the
following books, accounts, and other documents:
1. Journals (or other records of original entry) containing an
itemized daily record in detail of all purchases and sales of
securities (including sales and redemptions of its own
securities), all receipts and deliveries of securities (including
certificate numbers if such detail is not recorded by custodian
or transfer agent), all receipts and disbursements of cash and
all other debits and credits. Such records shall show for each
such transaction the name and quantity of securities, the unit
and aggregate purchase or sale price, commission paid, the market
on which effected, the trade date, the settlement date, and the
name of the person through or from whom purchased or received or
to whom sold or delivered. In the case of a money market fund,
also identify the provider of any Demand Feature or Guarantee (as
defined in Rule 2a-7(a)(8) or Rule 2a-7(a)(15) respectively) and
give a brief description of the nature of the Demand Feature or
Guarantee (e.g., unconditional demand feature, conditional demand
feature, letter of credit, or bond insurance) and, in a
subsidiary portfolio investment record, provide the complete
legal name and accounting and other information (including
sufficient information to calculate coupons, accruals,
maturities, puts, and calls) necessary to identify, value, and
account for each investment.
5. A record of each brokerage order given by or in behalf of the
investment company for, or in connection with, the purchase or
sale of securities, whether executed or unexecuted. Such record
shall include the name of the broker, the terms and conditions of
the order and of any modification or cancellation thereof, the
time of entry or cancellation, the price at which executed, and
the time of receipt of report of execution. The record shall
indicate the name of the person who placed the order in behalf of
the investment company.
6. A record of all other portfolio purchases or sales showing
details comparable to those prescribed in paragraph (b)(5) of this
section.
7. A record of all puts, calls, spreads, straddles, and other
options in which the investment company has any direct or
indirect interest or which the investment company has granted or
guaranteed; and a record of any contractual commitments to
purchase, sell, receive or deliver securities or other property
(but not including open orders placed with broker-dealers for the
purchase or sale of securities, which may be cancelled by the
company on notices without penalty or cost of any kind);
containing, at least, an identification of the security, the
number of units involved, the option price, the date of maturity,
the date of issuance, and the person to whom issued.
J-13
9. A record for each fiscal quarter, which shall be completed
within ten days after the end of such quarter, showing
specifically the basis or bases upon which the allocation of
orders for the purchase and sale of portfolio securities to named
brokers or dealers and the division of brokerage commissions or
other compensation on such purchase and sale orders among named
persons were made during such quarter. The record shall indicate
the consideration given to (i) sales of shares of the investment
company by brokers or dealers, (ii) the supplying of services or
benefits by brokers or dealers to the investment company, its
investment adviser or principal underwriter or any persons
affiliated therewith, and (iii) any other considerations other
than the technical qualifications of the brokers and dealers as
such. The record shall show the nature of the services or
benefits made available, and shall describe in detail the
application of any general or specific formula or other
determinant used in arriving at such allocation of purchase and
sale orders and such division of brokerage commissions or other
compensation. The record shall also include the identities of the
persons responsible for the determination of such allocation and
such division of brokerage commissions or other compensation.
10. A record in the form of an appropriate memorandum identifying
the person or persons, committees, or groups authorizing the
purchase or sale of portfolio securities. Where an authorization
is made by a committee or group, a record shall be kept of the
names of its members who participated in the authorization. There
shall be retained as part of the record required by this
paragraph any memorandum, recommendation, or instruction
supporting or authorizing the purchase or sale of portfolio
securities. The requirements of this paragraph are applicable to
the extent they are not met by compliance with the requirements
of paragraph (b)(4) of this section.
11. Files of all advisory material received from the investment
adviser, any advisory board or advisory committee, or any other
persons from whom the investment company accepts investment
advice, other than material which is furnished solely through
uniform publications distributed generally.
f. Every investment adviser not a majority-owned subsidiary of a
registered investment company shall maintain such accounts, books and other
documents as are required to be maintained by registered investment
advisers by rule adopted under section 204 of the Investment Advisers Act
of 1940, to the extent such records are necessary or appropriate to record
such person's transactions with such registered investment company.
J-14
EXHIBIT B
SUBADVISORY FEE
For all services rendered by the Subadviser hereunder, Adviser shall
pay to Subadviser an annual fee (the "Subadvisory Fee"), as follows:
An annual rate of .25% of the average daily net assets of the DWA
Flexible Allocation Fund.
An annual rate of .25% of the average daily net assets of the DWA
Sector Rotation Fund.
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 that 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.
J-15
APPENDIX K
INFORMATION REGARDING THE SUB-ADVISORY AGREEMENT WITH
DORSEY, WRIGHT & ASSOCIATES, INC. AND FEES PAID TO THE SUB-ADVISER
Dorsey, Wright & Associates, Inc. (the "Sub-Adviser") currently serves
as sub-adviser to the DWA Flexible Allocation Fund and the DWA Sector Rotation
Fund, each a series of Rydex Variable Trust (collectively, the "DWA Funds"),
pursuant to the investment sub-advisory agreement between Security Investors,
LLC, the DWA Funds' investment adviser (the "Investment Adviser"), and the Sub-
Adviser. The table below provides the following information:
(i) the date of the Sub-Advisory Agreement;
(ii) the date on which the DWA Funds' shareholders last approved the
DWA Funds' Sub-Advisory Agreement;
(iii) the annual rate of sub-advisory fees paid by the Investment
Adviser to the Sub-Adviser for the Sub-Adviser's sub-advisory
services to the DWA Funds; and
(iv) the aggregate amount of advisory fees paid by the Investment
Adviser to the Sub-Adviser for the Sub-Adviser's sub-advisory
services to the DWA Funds during the DWA Funds' fiscal year
ended December 31, 2010.
DATE OF DATE OF LAST SUB-ADVISORY
SUB-ADVISORY SHAREHOLDER SUB-ADVISORY FEES PAID TO
FUND AGREEMENT APPROVAL FEES SUB-ADVISER
----------------------------------------------------------------------------------------------------------
DWA Flexible Allocation Fund 4/26/2010 2/11/11 0.25% $27,284
DWA Sector Rotation Fund 4/26/2010 2/11/11 0.25% $49,279
K-1
APPENDIX L [CONFIRM.]
DIRECTORS/TRUSTEES/MANAGERS AND OFFICERS OF DORSEY WRIGHT &
ASSOCIATES, INC.
MANAGERS AND PRINCIPAL EXECUTIVE OFFICERS OF DORSEY, WRIGHT & ASSOCIATES, INC.
The business address of the managers and principal executive officers is 9210
Forest Hill Avenue, Suite 100, Richmond, VA 23235.
POSITION HELD WITH DORSEY, OTHER PRINCIPAL
NAME WRIGHT & ASSOCIATES, INC. OCCUPATION/POSITION
-------------------------------------------------------------------------------
Thomas J. Dorsey Director President
Watson H. Wright Director Secretary - Treasurer
Tammy F. DeRosier Director Executive Vice President
Susan L. Morrison Senior Vice President
James C. Ball Senior Vice President
Michael J. Moody Senior Vice President
Harold B. Parker, Jr. Senior Vice President
John G. Lewis Vice President
Steven T. Raymond Vice President
Paul L. Keeton Vice President
Jay M. Gragnani Vice President
There are no Trustees/Officers of the DWA Funds who hold position(s) with
Dorsey, Wright & Associates, Inc.
L-1
APPENDIX M
ADVISORY FEE RATES OF FUNDS WITH SIMILAR INVESTMENT OBJECTIVES
ADVISED OR SUB-ADVISED BY DORSEY WRIGHT & ASSOCIATES, INC.
The table below lists the names of other mutual funds advised or
sub-advised by Dorsey, Wright & Associates, Inc. ("DWA") with similar investment
objectives as the DWA Flexible Allocation Fund and DWA Sector Rotation Fund (the
"DWA Funds"), and information concerning the DWA Funds' and such other funds'
net assets and the rate of compensation for DWA for its services to the DWA
Funds and such other funds.
ANNUAL
COMPENSATION
TO DWA (AS A
PERCENTAGE OF
NAME OF FUND SUBJECT TO THIS PROXY STATEMENT AVERAGE DAILY NET ASSETS FEES WAIVED
Name(s) of Other Fund(s) with Similar Objectives NET ASSETS) (IN MILLIONS) BY DWA
------------------------------------------------------------------------------------------------
DWA FLEXIBLE ALLOCATION FUND, A SERIES OF RYDEX 0.25% $ 25.0 $ []
VARIABLE TRUST
[] [] $ [] $ []
DWA SECTOR ROTATION FUND, A SERIES OF RYDEX 0.25% $ 35.5 $ []
VARIABLE TRUST
[] [] $ [] $ []
M-1
APPENDIX N
FORM OF NEW SUB-ADVISORY AGREEMENT WITH AMERICAN
INDEPENDENCE FINANCIAL SERVICES, LLC
AGREEMENT made this [ ] day of [ ], 2011 by and between Security Investors, LLC
("Adviser") and American Independence Financial Services, LLC (the
"Sub-Adviser");
WHEREAS, the Rydex Series Funds (the "Trust"), a Delaware statutory trust, is an
open-end, management investment company registered under the Investment Company
Act of 1940, as amended ("1940 Act"), consisting of several series, including
the Long Short Interest Rate Strategy Fund (the "Fund"), each having its own
investment policies; and
WHEREAS, the Trust has retained the Adviser to provide the Trust with business
and asset management services, subject to the control of the Trust's Board of
Trustees;
WHEREAS, the Trust's agreement with the Adviser permits the Adviser to delegate
to other parties certain of its asset management responsibilities; and
WHEREAS, the Adviser desires to retain the Sub-Adviser to render certain
research and investment management services to the Fund, and the Sub-Adviser
desires to render such services;
NOW THEREFORE, in consideration of mutual covenants herein contained, the
parties hereto agree as follows:
1. (a) Duties of Sub-Adviser. The Adviser hereby retains the
Sub-Adviser to act as research provider for and to provide certain investment
advice for the management of the assets of the Fund, subject to the supervision
of the Adviser and the Fund's Board of Trustees (the "Board") and subject to the
terms of this Agreement. The Sub-Adviser hereby accepts such employment. In such
capacity, the Sub-Adviser shall be responsible for the duties defined below.
(i) The Sub-Adviser agrees to construct and provide the Adviser
with the Long Short Treasury Strategy model in an electronic signal, forwarded
to the Adviser on such intervals as determined by the Sub-Adviser (the
"Signal"). The signal shall contain such information necessary for the Adviser
to implement the Fund's strategy. Each Signal shall be delivered to the Adviser
via electronic mail or such other form of communication as the parties mutually
agree.
(ii) The Sub-Adviser shall continuously monitor the performance
of the Long Short Strategy model (the "Model") and will advise the Adviser of
any necessary updates to the Model via a Signal.
(iii) The Sub-Adviser will make available its officers and
employees to meet with the Board at the Trust's principal place of business once
each calendar year, on due notice to the Sub- Adviser, to review the
Sub-Adviser's advice.
(iv) The Sub-Adviser will maintain all books and records
required to be maintained pursuant to the Investment Company Act of 1940 and the
rules and regulations promulgated thereunder
N-1
and shall timely furnish to the Adviser all information relating to the
Sub-Adviser's services hereunder as reasonably requested by the Adviser. The
Sub-Adviser further agrees that all books and records maintained hereunder,
including those maintained in electronic formats, shall be made available to the
Trust or the Adviser upon reasonable request and notice.
(v) In all matters relating to the performance of this
Agreement, the Sub-Adviser and its members, officers, partners, employees and
interested persons shall act in all material respects in conformity with the
Trust's Agreement and Declaration of Trust, By-Laws, and currently effective
registration statement, and with the written instructions and directions of the
Board and the Adviser, after receipt of such documents from the Trust, and shall
comply in all material respects with the requirements of the 1940 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 Sub-Adviser
shall seek to ensure that, the Fund complies with all applicable statutes and
regulations necessary to qualify the Fund as a Regulated Investment Company
under Subchapter M of the Code (or any successor provision).
(vi) The Sub-Adviser agrees to cooperate with the Adviser and
the Fund and the Trust's officers and Trustees, including the Trust's Chief
Compliance Officer ("CCO"), with respect to (i) compliance-related matters
related to its responsibilities under this Agreement, and (ii) the Trust's
reasonable efforts to assure that each of its service providers adopts and
maintains policies and procedures that are reasonably designed to prevent
violation of the Federal Securities Laws (as that term is defined by Rule 38a-1
under the 1940 Act).
(vii) The Sub-Adviser agrees to cooperate in such marketing
efforts of the Fund, as reasonably requested by the Adviser.
(b) Duties of the Adviser.
----------------------
(i) During the term of this Agreement, the Adviser agrees to
furnish the Sub-Adviser at the Sub-Adviser's principal office all materials,
including registration statements, proxy statements, reports to stockholders,
sales literature or other materials prepared for distribution to shareholders of
the Fund or the public, that refer to the Sub-Adviser for Sub-Adviser's review
and approval. The Sub- Adviser shall be deemed to have approved any such
materials after 10 business days. 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 Sub-Adviser or its clients in any way are consistent with those
materials previously approved by the Sub-Adviser. Sales literature may be
furnished to the Sub-Adviser by first class or overnight mail, facsimile
transmission equipment, email, or hand delivery.
(ii) The Adviser has furnished the Sub-Adviser with copies of
each of the following documents and will furnish the Sub-Adviser at its
principal office all future amendments and supplements to such documents, if
any, as soon as practicable after such documents become available: (i) the
Trust's Agreement and Declaration of Trust, (ii) the Trust's By-Laws, (iii) the
Fund's registration statement under the 1940 Act and the Securities Act as filed
with the Securities and Exchange Commission (the "Commission"), and (iv) any
written instructions of the Trust's Board or the Adviser.
2. Compensation of the Sub-Adviser. For the services to be rendered
by the Sub-Adviser as provided in Section 1(a) of this Agreement, the Adviser
shall pay to the Sub-Adviser compensation at
N-2
the rate specified in Schedule A attached hereto and made a part of this
Agreement. Such compensation shall be paid to the Sub-Adviser quarterly in
arrears. For purposes of calculating the compensation to be paid hereunder, the
value of the net assets of the Fund 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 the Fund's shares as
described in the then current prospectus for the Fund.
The Sub-Adviser's compensation shall be accrued for each calendar day
the Sub-Adviser renders investment advisory services hereunder and the sum of
the daily fee accruals shall be paid quarterly to the Sub-Adviser as soon as
practicable following the last day of each calendar quarter, by wire transfer if
so requested by the Sub-Adviser, but no later than ten (10) calendar days
thereafter. If this Agreement shall be effective for only a portion of a
quarter, then the Sub-Adviser's fee for said quarter shall be prorated for such
portion.
3. Expenses. The Sub-Adviser shall bear all expenses incurred by
it in connection with its services under this Agreement and may, from time to
time, at its sole expense, employ or associate itself with such persons as it
believes to be fitted to assist it in the execution of its duties hereunder.
4. Status of Sub-Adviser. The services of the Sub-Adviser to the
Trust are not to be deemed exclusive, and the Sub-Adviser and its directors,
officers, employees and affiliates 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 services to the
Trust are not impaired thereby. The Adviser understands that the Sub-Adviser
provides investment advisory services to numerous other funds and accounts. The
Sub-Adviser shall be deemed to be an independent contractor and shall, unless
otherwise expressly provided or authorized, have no authority to act for or
represent the Adviser or the Trust in any way or otherwise be deemed an agent of
the Adviser or the Trust.
5. Representations and Warranties of Sub-Adviser. The
Sub-Adviser represents and warrants to the Adviser and the Trust as follows:
(a) The Sub-Adviser is registered with the Commission as an
investment adviser under the Investment Advisers Act;
(b) The Sub-Adviser will immediately notify the Adviser of the
occurrence of any event that would disqualify the Sub-Adviser from
serving as an investment adviser of an investment company pursuant to
Section 9(a) of the 1940 Act;
(c) The execution, delivery and performance by the Sub-Adviser of
this Agreement are within the Sub-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 Sub-Adviser for the
execution, delivery and performance by the Sub-Adviser of this
Agreement, and the execution, delivery and performance by the
Sub-Adviser of this Agreement do not contravene or constitute a
default under (i) any provision of applicable law, rule or regulation,
(ii) the Sub-Adviser's governing instruments, or (iii) any agreement,
judgment, injunction, order, decree or other instrument binding upon
the Sub-Adviser;
N-3
(d) The Sub-Adviser has filed a notice of exemption pursuant to
Rule 4.14 under the CEA with the Commodity Futures Trading Commission
(the "CFTC") and the National Futures Association (the "NFA");
(e) This Agreement is a valid and binding agreement of the
Sub-Adviser;
(f) The Form ADV of the Sub-Adviser previously provided to the
Adviser is a true and complete copy of the form as filed with the
Commission and the information contained therein is accurate and
complete in all material respects as of its filing date, 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; and
(g) The Sub-Adviser has implemented and shall maintain a
compliance program in accordance with the requirements of Rule
206(4)-7 under the Advisers Act.
6. Representations and Warranties of Adviser. The Adviser
represents and warrants to the Sub-Adviser as follows:
(a) The Adviser is registered with the Commission 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 NFA;
(c) The execution, delivery and performance by the Adviser of
this Agreement and the Advisory 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;
(d) The Form ADV of the Adviser previously provided to the
Sub-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 as of its filing date 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;
(e) This Agreement and the Advisory Agreement are valid and
binding agreements of the Adviser; and
(f) The Adviser acknowledges that it received a copy of the
Sub-Adviser's Form ADV at least 48 hours prior to the execution of this
Agreement
7. Survival of Representations and Warranties; Duty to Update
Information. All representations and warranties made by the Sub-Adviser and the
Adviser pursuant to Sections 5 and 6
N-4
hereof shall survive for the duration of this Agreement and either party hereto
shall promptly notify the other in writing upon becoming aware that any of their
foregoing representations or warranties is no longer true.
8. Liability of Sub-Adviser. No provision of this Agreement
shall be deemed to protect the Sub-Adviser against any liability to the Trust or
its shareholders to which it might otherwise be subject by reason of any willful
misfeasance, bad faith, or gross negligence in the performance of its duties or
the reckless disregard of its obligations under this Agreement. In the absence
of willful misfeasance, bad faith or gross negligence on the part of the
Sub-Adviser or reckless disregard of the Sub-Adviser's obligations and duties
hereunder, the Sub-Adviser shall not be subject to any liability to the Adviser,
to the Fund or the Trust, or any of the Fund's shareholders, for any act or
omission in the case of, or connected with, rendering services hereunder.
9. Indemnification. The Sub-Adviser shall indemnify the Adviser
and the Trust, and their respective officers and trustees, for any liability
and expenses, including reasonable attorneys' fees, which may be sustained as a
result of the Sub-Adviser's willful misfeasance, bad faith or gross negligence,
or the reckless disregard of the Sub-Adviser's obligations and duties hereunder.
The Adviser shall indemnify the Sub-Adviser and its officers and members for any
liability and expenses, including reasonable attorneys' fees, which may be
sustained as a result of the Sub-Adviser's performance of its obligations
hereunder, except where such liability or expense results from the Sub-Adviser's
willful misfeasance, bad faith or gross negligence, or the reckless disregard of
the Sub-Adviser's obligations and duties hereunder.
10. Duration and Termination. This Agreement, unless sooner
terminated as provided herein, shall continue for two years after its initial
approval and thereafter for periods of one year for so long as such continuance
thereafter is specifically approved at least annually (a) by the vote of a
majority of those Trustees of the Trust 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 (b) by the Trustees of the Trust or by
vote of a majority of the outstanding voting securities of the Fund; provided,
however, that if the shareholders of the Fund fail to approve the Agreement as
provided herein, the Sub-Adviser may continue to serve hereunder in the manner
and to the extent permitted by the 1940 Act and rules thereunder. The foregoing
requirement that continuance of this Agreement be "specifically approved at
least annually" shall be construed in a manner consistent with the 1940 Act and
the rules and regulations thereunder.
This Agreement may be terminated at any time, without the payment of
any penalty, by the Adviser, by vote of a majority of the Trustees of the Trust
or by vote of a majority of the outstanding voting securities of the Fund on not
less than 30 days' nor more than 60 days' written notice to the Sub- Adviser, or
by the Sub-Adviser at any time without the payment of any penalty, on 60 days'
written notice to the Adviser and the Trust. This Agreement will automatically
and immediately terminate in the event of its assignment, or upon termination of
the investment advisory agreement between the Adviser and the Trust. Any notice
under this Agreement shall be given in writing, addressed and delivered, or
mailed postpaid, to the other party at the primary office of such party, unless
such party has previously designated another address.
As used in this Section 10, the terms "assignment," "interested
persons," and a "vote of a majority of the outstanding voting securities" shall
have the respective meanings set forth in the 1940
N-5
Act and the rules and regulations thereunder, subject to such exemptions as may
be granted by the Commission under said Act.
11. Amendment. No provision of this Agreement may be changed,
waived, discharged, or terminated orally, but only by an instrument in writing
signed by the party against which enforcement of the change, waiver, discharge,
or termination is sought, and, no amendment of this Agreement shall be effective
until approved by the Board and, solely to the extent required by the 1940 Act,
regulations thereunder and/or interpretations thereof, the shareholders of the
Fund.
12. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware, without regard
to its conflicts of law provisions, and the 1940 Act. To the extent that the
applicable laws of the State of Delaware conflict with the applicable provisions
of the 1940 Act, the latter shall control.
13. Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall together constitute one and the same
instrument.
14. Captions. The captions herein are included for convenience of
reference only and shall be ignored in the construction or interpretation
hereof.
15. Severability. If any provision of this Agreement shall be
held or made invalid by a court decision, statute, rule or otherwise, the
remainder of this Agreement shall not be affected thereby.
16. Confidentiality.
----------------
(a) Each party agrees that it will treat confidentially all
information provided by the other party regarding such other party's
businesses and operations, including without limitation the investment
activities or holdings of the Fund ("Confidential Information"). All
Confidential Information provided by a party hereto shall be used only
by the other party hereto solely for the purposes of rendering
services pursuant to this Agreement, and shall not be disclosed to any
third party without the prior consent of the providing party, except
for any party that is under common control and except for a limited
number of employees, attorneys, accountants and other advisers of the
party receiving the information on a need-to-know basis and solely for
the purposes of rendering services under this Agreement.
(b) The foregoing Confidential Information shall not include any
information that: (i) is public when provided or thereafter becomes
public through no wrongful act of the recipient; (ii) is demonstrably
known to the recipient prior to execution of this Agreement; (iii) is
independently developed by the recipient through no wrongful act of
the recipient in the ordinary course of business outside of this
Agreement; (iv) is generally employed by the trade at the time that
recipient learns of such information or knowledge, (v) has been
rightfully and lawfully obtained by recipient from any third party; or
(vi) is legally compelled to be disclosed by any regulatory authority
in the lawful and appropriate exercise of its jurisdiction over a
party, by any auditor of the parties hereto, by judicial or
administrative process or otherwise by applicable laws, rules or
regulations.
(c) It is understood that any information or recommendation
supplied by, or produced by, the Sub-Adviser in connection with the
performance of its obligations hereunder is to be regarded by
N-6
the Adviser and the Trust as confidential and for use only by the
Adviser and the Fund. Furthermore, except as required by law
(including, but not limited to semi-annual, annual or other filings
made under the 1940 Act) or as agreed to by the Adviser and the
Sub-Adviser, the Adviser and the Trust will not disclose, in any
manner whatsoever except as expressly authorized in this Agreement,
any list of securities held by the Fund for a period of at least 30
days after month end, except that the Fund's top 10 holdings may be
disclosed 30 days after month end. In addition, the Adviser or the
Trust may disclose, earlier than 30 days after month end, a list of
the securities held by the Fund to certain third parties who have
entered into a confidentiality agreement with the Trust.
A copy of the Declaration of Trust of the Trust is on file with the Secretary of
the State of Delaware, and notice is hereby given that this instrument is not
binding upon any of the Trustees, officers, or shareholders of the Trust
individually.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
as of the day and year first written above.
SECURITY INVESTORS, LLC
By:
--------------------
Name: Richard Goldman
Title: President
Attest:
--------------------
Name: Michael Byrum
Title: Secretary
AMERICAN INDEPENDENCE FINANCIAL
SERVICES, LLC
By:
--------------------
Name:
Title: President
Attest:
--------------------
Name:
Title: Secretary
N-7
SCHEDULE A
TO THE
SUB-ADVISER AGREEMENT
BETWEEN
SECURITY INVESTORS, LLC
AND
AMERICAN INDEPENDENCE FINANCIAL SERVICES, LLC
FOR THE
LONG SHORT INTEREST RATE STRATEGY FUND
The Adviser shall pay compensation to the Sub-Adviser pursuant to section 2 of
the Sub-Adviser Agreement between said parties in accordance with the following
annual percentage rate:
Long Short Interest Rate Strategy Fund: 0.20% per annum (net of waivers
and reimbursements)
DATED: [ ]
N-8
APPENDIX O
INFORMATION REGARDING THE SUB-ADVISORY AGREEMENT WITH AMERICAN
INDEPENDENCE FINANCIAL SERVICES, LLC AND FEES PAID TO THE SUB-ADVISER
American Independence Financial Services, LLC (the "Sub-Adviser")
currently serves as sub-adviser to the Long Short Interest Rate Strategy Fund, a
series of Rydex Series Funds (the "Fund"), pursuant to the investment
sub-advisory agreement between Security Investors, LLC, 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 fiscal year ended
December 31, 2010.
DATE OF DATE OF LAST SUB-ADVISORY
SUB-ADVISORY SHAREHOLDER SUB-ADVISORY FEES PAID TO
FUND AGREEMENT APPROVAL FEES SUB-ADVISER
------------------------------------------------------------------------------------------------------------------
Long Short Interest Rate Strategy Fund 8/1/2010 [] 0.20% $[ ]
O-1
APPENDIX P
DIRECTORS/TRUSTEES/MANAGERS AND OFFICERS OF AMERICAN INDEPENDENCE
FINANCIAL SERVICES, LLC
MANAGERS AND PRINCIPAL EXECUTIVE OFFICERS OF AMERICAN INDEPENDENCE
FINANCIAL SERVICES, LLC. The business address of the managers and
principal executive officers is 335 Madison Avenue, Mezzanine, New
York, New York 10017.
POSITION HELD WITH
American Independence OTHER PRINCIPAL
NAME Financial Services, LLC OCCUPATION/POSITION
-------------------------------------------------------------------------------
[] [] []
[] [] []
[] [] []
There are no Trustees/Officers of the Fund who hold position(s) with
American Independence Financial Services, LLC.
P-1
APPENDIX Q
ADVISORY FEE RATES OF FUNDS WITH SIMILAR INVESTMENT OBJECTIVES
ADVISED BY AMERICAN INDEPENDENCE FINANCIAL SERVICES, LLC
Each of the tables below lists the names of other mutual funds advised
or sub-advised by American Independence Financial Services, LLC ("AIFS") with
similar investment objectives as the Long Short Interest Rate Strategy Fund (the
"Fund"), and information concerning the Fund's and such other funds' net assets
and the rate of compensation for AIFS for its services to the Fund and such
other funds.
ANNUAL
COMPENSATION
TO AIFS (AS A
PERCENTAGE OF
NAME OF FUND SUBJECT TO THIS PROXY STATEMENT AVERAGE DAILY NET ASSETS FEES WAIVED
Name(s) of Other Fund(s) with Similar Objectives NET ASSETS) (IN MILLIONS) BY AIFS
----------------------------------------------------------------------------------------------------------------
LONG SHORT INTEREST RATE STRATEGY FUND, A SERIES OF 0.20% $ 164.3 $ []
RYDEX SERIES FUNDS
[] [] $ [] $ []
Q-1
APPENDIX R
OUTSTANDING SHARES
As of the Record Date, the total number of shares outstanding for each
Fund is set forth in the table below:
RYDEX VARIABLE TRUST
FUND SHARES OUTSTANDING
--------------------------------------------------------------------------------
All-Asset Aggressive Strategy Fund []
All-Asset Conservative Strategy Fund []
All-Asset Moderate Strategy Fund []
Alternative Strategies Allocation Fund []
Amerigo Fund []
Banking Fund []
Basic Materials Fund []
Biotechnology Fund []
Clermont Fund []
Commodities Strategy Fund []
Consumer Products Fund []
Dow 2x Strategy Fund []
DWA Flexible Allocation Fund []
DWA Sector Rotation Fund []
Electronics Fund []
Energy Fund []
Energy Services Fund []
Europe 1.25x Strategy Fund []
Financial Services Fund []
Government Long Bond 1.2x Strategy Fund []
Health Care Fund []
High Yield Strategy Fund []
Internet Fund []
Inverse Dow 2x Strategy Fund []
Inverse Government Long Bond Strategy Fund []
Inverse High Yield Strategy Fund []
Inverse Mid-Cap Strategy Fund []
Inverse NASDAQ-100(R) Strategy Fund []
Inverse NASDAQ-100(R) 2x Strategy Fund []
Inverse Russell 2000(R) Strategy Fund []
Inverse Russell 2000(R) 2x Strategy Fund []
Inverse S&P 500 Strategy Fund []
Inverse S&P 500 2x Strategy Fund []
Japan 2x Strategy Fund []
Leisure Fund []
Long/Short Commodities Fund []
Managed Futures Strategy Fund []
Mid-Cap 1.5x Strategy Fund []
Multi-Hedge Strategies Fund []
NASDAQ-100(R) 2x Strategy Fund []
NASDAQ-100(R) Fund []
Nova Fund []
Precious Metals Fund []
Real Estate Fund []
Retailing Fund []
Russell 2000(R) Fund []
R-1
FUND SHARES OUTSTANDING
--------------------------------------------------------------------------------
Russell 2000(R) 1.5x Strategy Fund []
Russell 2000(R) 2x Strategy Fund []
S&P 500 Fund []
S&P 500 2x Strategy Fund []
S&P 500 Pure Growth Fund []
S&P 500 Pure Value Fund []
S&P MidCap 400 Pure Growth Fund []
S&P MidCap 400 Pure Value Fund []
S&P SmallCap 600 Pure Growth Fund []
S&P SmallCap 600 Pure Value Fund []
Select Allocation Fund []
Strengthening Dollar 2x Strategy Fund []
Technology Fund []
Telecommunications Fund []
Transportation Fund []
U.S. Government Money Market Fund []
U.S. Long Short Momentum Fund []
Utilities Fund []
Weakening Dollar 2x Strategy Fund []
RYDEX DYNAMIC FUNDS:
SHARES OUTSTANDING
-------------------------------------------------
FUND A-CLASS C-CLASS H-CLASS TOTAL
-----------------------------------------------------------------------------------------
Dow 2x Strategy Fund [] [] [] []
Inverse Dow 2x Strategy Fund [] [] [] []
Inverse NASDAQ-100(R) 2x Strategy Fund [] [] [] []
Inverse Russell 2000(R) 2x Strategy Fund [] [] [] []
Inverse S&P 500 2x Strategy Fund [] [] [] []
NASDAQ-100(R) 2x Strategy Fund [] [] [] []
Russell 2000(R) 2x Strategy Fund [] [] [] []
S&P 500 2x Strategy Fund [] [] [] []
RYDEX SERIES FUNDS (FOR ALL SERIES EXCEPT RYDEX
U.S. GOVERNMENT MONEY MARKET FUND)
SHARES OUTSTANDING
-----------------------------------------------------------------------------
FUND A-CLASS C-CLASS H-CLASS ADVISOR CLASS INVESTOR CLASS TOTAL
----------------------------------------------------------------------------------------------------------------------
All-Asset Aggressive Strategy Fund [] [] [] [] [] []
All-Asset Conservative Strategy Fund [] [] [] [] [] []
All-Asset Moderate Strategy Fund [] [] [] [] [] []
Alternative Strategies Fund [] [] [] [] [] []
Alternative Strategies Allocation Fund [] [] [] [] [] []
Banking Fund [] [] [] [] [] []
Basic Materials Fund [] [] [] [] [] []
Biotechnology Fund [] [] [] [] [] []
Commodities Strategy Fund [] [] [] [] [] []
Consumer Products Fund [] [] [] [] [] []
Electronics Fund [] [] [] [] [] []
Emerging Markets 2x Strategy Fund [] [] [] [] [] []
Energy Fund [] [] [] [] [] []
Energy Services Fund [] [] [] [] [] []
Europe 1.25x Strategies Fund [] [] [] [] [] []
Event Driven and Distressed Strategies Fund [] [] [] [] [] []
Financial Services Fund [] [] [] [] [] []
Government Long Bond 1.2x Strategy Fund [] [] [] [] [] []
Health Care Fund [] [] [] [] [] []
High Yield Strategy Fund [] [] [] [] [] []
R-2
SHARES OUTSTANDING
---------------------------------------------------------------------------------
FUND A-CLASS C-CLASS H-CLASS ADVISOR CLASS INVESTOR CLASS TOTAL
--------------------------------------------------------------------------------------------------------------------------
Internet Fund [] [] [] [] [] []
Inverse Emerging Markets 2x Strategy Fund [] [] [] [] [] []
Inverse Government Long Bond Strategy Fund [] [] [] [] [] []
Inverse High Yield Strategy Fund [] [] [] [] [] []
Inverse Mid-Cap Strategy Fund [] [] [] [] [] []
Inverse NASDAQ-100(R) Strategy Fund [] [] [] [] [] []
Inverse Russell 2000(R) Strategy Fund [] [] [] [] [] []
Inverse S&P 500 Strategy Fund [] [] [] [] [] []
Japan 2x Strategy Fund [] [] [] [] [] []
Leisure Fund [] [] [] [] [] []
Long/Short Commodities Strategy Fund [] [] [] [] [] []
Long Short Equity Strategy Fund [] [] [] [] [] []
Long Short Internet Rate Strategy Fund [] [] [] [] [] []
Managed Futures Strategy Fund [] [] [] [] [] []
Mid-Cap 1.5x Strategy Fund [] [] [] [] [] []
Multi-Hedge Strategies Fund [] [] [] [] [] []
NASDAQ-100(R) Fund [] [] [] [] [] []
Nova Fund [] [] [] [] [] []
Precious Metals Fund [] [] [] [] [] []
Real Estate Fund [] [] [] [] [] []
Retailing Fund [] [] [] [] [] []
Russell 2000(R) 1.5x Strategy Fund [] [] [] [] [] []
Russell 2000(R) Fund [] [] [] [] [] []
S&P 500 Fund [] [] [] [] [] []
S&P 500 Pure Growth Fund [] [] [] [] [] []
S&P 500 Pure Value Fund [] [] [] [] [] []
S&P MidCap 400 Pure Growth Fund [] [] [] [] [] []
S&P MidCap 400 Pure Value Fund [] [] [] [] [] []
S&P SmallCap 600 Pure Growth Fund [] [] [] [] [] []
S&P SmallCap 600 Pure Value Fund [] [] [] [] [] []
Strengthening Dollar 2x Strategy Fund [] [] [] [] [] []
Technology Fund [] [] [] [] [] []
Telecommunications Fund [] [] [] [] [] []
Transportation Fund [] [] [] [] [] []
Utilities Fund [] [] [] [] [] []
U.S. Long Short Momentum Fund [] [] [] [] [] []
Weakening Dollar 2x Strategy Fund [] [] [] [] [] []
RYDEX SERIES FUNDS -- RYDEX U.S. GOVERNMENT MONEY MARKET FUND
------------------------------------------------------------------------------------------------------------------
SHARES OUTSTANDING
------------------------------------------------------------------------------------------------------------------
A-CLASS C-CLASS H-CLASS ADVISOR CLASS INVESTOR CLASS INVESTOR 2 CLASS TOTAL
------------------------------------------------------------------------------------------------------------------
[] [] [] [] [] [] []
------------------------------------------------------------------------------------------------------------------
R-3
APPENDIX S
BENEFICIAL OWNERS OF MORE THAN 5% OF A CLASS OF EACH FUND
As of the Record Date, the following persons owned, of record and
beneficially (unless otherwise indicated), 5% or more* of a class of each Fund's
outstanding securities:
RYDEX VARIABLE TRUST
NAME AND ADDRESS AMOUNT OF SHARES PERCENTAGE OF
NAME OF THE FUND OF THE BENEFICIAL OWNER OWNED THE CLASS
------------------------------------------------------------------------------------------------------------------
All-Asset Aggressive Strategy Fund [] [] []
All-Asset Conservative Strategy Fund [] [] []
All-Asset Moderate Strategy Fund [] [] []
Alternative Strategies Allocation Fund [] [] []
Amerigo Fund [] [] []
Banking Fund [] [] []
Basic Materials Fund [] [] []
Biotechnology Fund [] [] []
Clermont Fund [] [] []
Commodities Strategy Fund [] [] []
Consumer Products Fund [] [] []
Dow 2x Strategy Fund [] [] []
DWA Flexible Allocation Fund [] [] []
DWA Sector Rotation Fund [] [] []
Electronics Fund [] [] []
Energy Fund [] [] []
Energy Services Fund [] [] []
Europe 1.25x Strategy Fund [] [] []
Financial Services Fund [] [] []
Government Long Bond 1.2x Strategy Fund [] [] []
Health Care Fund [] [] []
High Yield Strategy Fund [] [] []
Internet Fund [] [] []
Inverse Dow 2x Strategy Fund [] [] []
Inverse Government Long Bond Strategy Fund [] [] []
Inverse High Yield Strategy Fund [] [] []
Inverse Mid-Cap Strategy Fund [] [] []
Inverse NASDAQ-100(R) Strategy Fund [] [] []
Inverse NASDAQ-100(R) 2x Strategy Fund [] [] []
Inverse Russell 2000(R) Strategy Fund [] [] []
Inverse Russell 2000(R) 2x Strategy Fund [] [] []
Inverse S&P 500 Strategy Fund [] [] []
Inverse S&P 500 2x Strategy Fund [] [] []
Japan 2x Strategy Fund [] [] []
Leisure Fund [] [] []
Long/Short Commodities Strategy Fund [] [] []
Managed Futures Strategy Fund [] [] []
Mid-Cap 1.5x Strategy Fund [] [] []
S-1
NAME AND ADDRESS AMOUNT OF SHARES PERCENTAGE OF
NAME OF THE FUND OF THE BENEFICIAL OWNER OWNED THE CLASS
------------------------------------------------------------------------------------------------------------------
Multi-Hedge Strategies Fund [] [] []
NASDAQ-100(R) 2x Strategy Fund [] [] []
NASDAQ-100(R) Fund [] [] []
Nova Fund [] [] []
Precious Metals Fund [] [] []
Real Estate Fund [] [] []
Retailing Fund [] [] []
Russell 2000(R) Fund [] [] []
Russell 2000(R) 1.5x Strategy Fund [] [] []
Russell 2000(R) 2x Strategy Fund [] [] []
S&P 500 [] [] []
S&P 500 2x Strategy Fund [] [] []
S&P 500 Pure Growth Fund [] [] []
S&P 500 Pure Value Fund [] [] []
S&P MidCap 400 Pure Growth Fund [] [] []
S&P MidCap 400 Pure Value Fund [] [] []
S&P SmallCap 600 Pure Growth Fund [] [] []
S&P SmallCap 600 Pure Value Fund [] [] []
Select Allocation Fund [] [] []
Strengthening Dollar 2x Strategy Fund [] [] []
Technology Fund [] [] []
Telecommunications Fund [] [] []
Transportation Fund [] [] []
U.S. Government Money Market Fund [] [] []
U.S. Long Short Momentum Fund [] [] []
Utilities Fund [] [] []
Weakening Dollar 2x Strategy Fund [] [] []
RYDEX DYNAMIC FUNDS
NAME AND ADDRESS AMOUNT OF SHARES PERCENTAGE OF
NAME OF THE FUND OF THE BENEFICIAL OWNER OWNED THE CLASS
------------------------------------------------------------------------------------------------------------------
Dow 2x Strategy Fund [] [] []
Inverse Dow 2x Strategy Fund [] [] []
Inverse NASDAQ-100(R) 2x Strategy Fund [] [] []
Inverse Russell 2000(R) 2x Strategy Fund [] [] []
Inverse S&P 500 2x Strategy Fund [] [] []
NASDAQ-100 2x Strategy Fund [] [] []
Russell 2000(R) 2x Strategy Fund [] [] []
S&P 500 2x Strategy Fund
S-2
RYDEX SERIES FUNDS
NAME AND ADDRESS AMOUNT OF SHARES PERCENTAGE OF
NAME OF THE FUND OF THE BENEFICIAL OWNER OWNED THE CLASS
------------------------------------------------------------------------------------------------------------------
All-Asset Aggressive Strategy Fund [] [] []
All-Asset Conservative Strategy Fund [] [] []
All-Asset Moderate Strategy Fund [] [] []
Alternative Strategies Fund [] [] []
Alternative Strategies Allocation Fund [] [] []
Banking Fund [] [] []
Basic Materials Fund [] [] []
Biotechnology Fund [] [] []
Commodities Strategy Fund [] [] []
Consumer Products Fund [] [] []
Electronics Fund [] [] []
Emerging Markets 2x Strategy Fund [] [] []
Energy Fund [] [] []
Energy Services Fund [] [] []
Europe 1.25x Strategy Fund [] [] []
Event Driven and Distressed Strategies Fund [] [] []
Financial Services Fund [] [] []
Government Long Bond 1.2x Strategy Fund [] [] []
Health Care Fund [] [] []
High Yield Strategy Fund [] [] []
Internet Fund [] [] []
Inverse Emerging Markets 2x Strategy Fund [] [] []
Inverse Government Long Bond Strategy Fund [] [] []
Inverse High Yield Strategy Fund [] [] []
Inverse Mid-Cap Strategy Fund [] [] []
Inverse NASDAQ-100(R) Strategy Fund [] [] []
Inverse Russell 2000(R) Strategy Fund [] [] []
Inverse S&P 500 Strategy Fund [] [] []
Japan 2x Strategy Fund [] [] []
Leisure Fund [] [] []
Long/Short Commodities Strategy Fund [] [] []
Long Short Equity Strategy Fund [] [] []
Long Short Internet Rate Strategy Fund [] [] []
Managed Futures Strategy Fund [] [] []
Mid-Cap 1.5x Strategy Fund [] [] []
Multi-Hedge Strategies Fund [] [] []
NASDAQ-100(R) Fund [] [] []
Nova Fund [] [] []
Precious Metals Fund [] [] []
Real Estate Fund [] [] []
Retailing Fund [] [] []
Russell 2000(R) 1.5x Strategy Fund [] [] []
Russell 2000(R) Fund [] [] []
S&P 500 Fund [] [] []
S&P 500 Pure Growth Fund [] [] []
S&P 500 Pure Value Fund [] [] []
S&P MidCap 400 Pure Growth Fund [] [] []
S&P MidCap 400 Pure Value Fund [] [] []
S&P SmallCap 600 Pure Growth Fund [] [] []
S&P SmallCap 600 Pure Value Fund [] [] []
S-3
NAME AND ADDRESS AMOUNT OF SHARES PERCENTAGE OF
NAME OF THE FUND OF THE BENEFICIAL OWNER OWNED THE CLASS
------------------------------------------------------------------------------------------------------------------
Strengthening Dollar 2x Strategy Fund [] [] []
Technology Fund [] [] []
Telecommunications Fund [] [] []
Transportation Fund [] [] []
Utilities Fund [] [] []
U.S. Government Money Market Fund [] [] []
U.S. Long Short Momentum Fund [] [] []
Weakening Dollar 2x Strategy Fund [] [] []
--------------------------------------
* A party holding in excess of 25% of the outstanding voting securities of a
Fund is presumed to be a "control person" (as defined in the 1940 Act ) of
such Fund, based on the substantial ownership interest held and the party's
resultant ability to influence voting on certain matters submitted for
shareholder consideration.
S-4
APPENDIX T
NOMINATING COMMITTEE CHARTER
August 27, 2008
RYDEX SERIES FUNDS
RYDEX DYNAMIC FUNDS
RYDEX VARIABLE TRUST
RYDEX ETF TRUST
NOMINATING COMMITTEE CHARTER
I. THE COMMITTEE
The Nominating Committee (the "Committee") of the Rydex Series Funds,
Rydex Dynamic Funds, Rydex Variable Trust and Rydex ETF Trust (each a
"Trust" and collectively "the Trusts") shall be composed of at least
three members plus the Independent Chairman as an ex officio member
pursuant to the following sentence, each of whom is a Trustee who is
not an "interested person" of the Trusts ("Independent Trustee") as
defined in Section 2(a)(19) of the Investment Company Act of 1940, as
amended (the "1940 Act"). At any time when there is an Independent
Chairman of the Board, the Independent Chairman shall be a full, voting
member of the Committee, ex officio. The Board shall appoint the other
members of the Committee and shall designate one member of the
Committee to act as chairman of the Committee. All members of the
Committee appointed by the Board shall serve at the pleasure of the
Board. The role of the Committee shall be to assist the Board of
Trustees of the Trusts (the "Board") in identifying and nominating
individuals to serve as Independent Trustees of the Trusts.
II. COMMITTEE FUNCTIONS AND RESPONSIBILITIES
The Committee shall identify and recommend to the Independent Trustees
candidates to serve as Independent Trustees, including those to be
elected by the Shareholders or appointed by the Board to fill
vacancies. For this purpose, the Committee shall canvas, recruit,
interview and solicit candidates to serve as Independent Trustees. The
Committee shall evaluate candidates' qualifications for Board
membership in light of their background, knowledge and experience, in
order to assure that the Board as a whole represents a proper mix of
backgrounds and relevant skill sets. The Committee shall also
determine whether each such candidate qualifies as not being an
"interested person" of the Trusts in terms of both the letter and
spirit of the 1940 Act, rules and regulations of the Securities and
Exchange Commission ("SEC") adopted under said Act, and any other
applicable standards of independence. Among other things, this
determination requires the Committee to find the candidates to be
independent from the investment advisers, principal underwriters and
other principal service providers for the Trusts. The Committee shall
also consider the effect of any relationships beyond those delineated
in the 1940 Act or the rules and regulations thereunder that might
impair independence, (e.g., business, financial or family relationships
with investment advisers, principal underwriters or other service
providers). Finally, the Committee shall consider the willingness and
ability of each such candidate to devote the time and attention needed
to perform the functions of an Independent Trustee
T-1
i. The Committee also shall evaluate and report to the Board
concerning the qualifications of candidates to serve as
"interested" Trustees of the Funds.
ii. The Committee may adopt from time to time specific, minimum
qualifications that the Committee believes a candidate must
meet before being considered as a candidate for Board
membership and shall comply with any rules adopted from
time to time by the SEC regarding investment company
nominating committees and the nomination of persons to be
considered as candidates for Board membership.
iii. The Committee shall review shareholder recommendations for
nominations to fill vacancies on the Board if such
recommendations are submitted in a timely fashion in
writing and addressed to the Committee at the applicable
Trust's offices. The Committee may adopt, by resolution, a
policy regarding its procedures for considering candidates
for the Board, including any recommended by shareholders.
III. COMMITTEE PROCEDURES
A. MEETINGS
i. The Committee shall meet as needed in open or executive
session.
ii. The Committee may invite members of management, counsel to
the Independent Trustees, Fund counsel, advisers and others
to attend its meetings as it deems appropriate.
iii. A majority of the members of the Committee shall constitute
a quorum for the transaction of business at any meeting of
the Committee. The action of a majority of the members of
the Committee present at a meeting at which a quorum is
present shall be the action of the Committee. The
Committee may meet in person or by telephone, and the
Committee may act by written consent, to the extent
permitted by law and by the applicable Trust's by-laws.
The chairman, or a person designated by the chairman, shall
take minutes of all meetings of the Committee, copies of
which shall be furnished to the Board. In the event of any
inconsistency between this Charter and a Trust's
organizational documents, the provisions of the Trust's
organizational documents shall govern.
B. REPORTS TO THE BOARD
The Committee shall report its activities to the Board
and make such recommendations as are called for under this Charter
or as the Committee may otherwise deem necessary or appropriate.
T-2
C. RESOURCES
The Committee shall have the resources appropriate to
discharge its responsibilities, including the authority to consult
with counsel and to retain, at the Trusts' expense, such other
experts or advisors as the Committee deems necessary or
appropriate.
T-3
[FORM OF PROXY CARD]
[LOGO OF RYDEX | SGI] PROXY CARD FOR
RYDEX | SGI [FUND NAME PRINTS HERE]
SECURITY GLOBAL INVESTORS(SM) PROXY FOR A SPECIAL JOINT MEETING OF
SHAREHOLDERS - NOVEMBER 22, 2011
The undersigned hereby appoint(s) Joanna Haigney, Amy Lee and Beth Miller, 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 805 King Farm Boulevard, Suite 600, Rockville,
Maryland 20850 on November 22, 2011 at 1:00 p.m. ET, and at any adjournment(s)
or postponements thereof.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS. 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.
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| TAG ID: 123456 |
| |
| NA1 - RYDEX SGI - BALLOT 3 - RYDEX STATEMENT |
| NA2 - RYDEX SGI - BALLOT 3 - RYDEX STATEMENT |
| NA3 - RYDEX SGI - BALLOT 3 - RYDEX STATEMENT |
| NA4 - RYDEX SGI - BALLOT 3 - RYDEX STATEMENT |
| NA5 - RYDEX SGI - BALLOT 3 - RYDEX STATEMENT |
| NA6 - RYDEX SGI - BALLOT 3 - RYDEX STATEMENT |
| NA7 - RYDEX SGI - BALLOT 3 - RYDEX STATEMENT |
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NOTE: This proxy must be signed exactly as your name(s) appears here on. 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
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, please call toll-free 1-877-864-5058. | |
Representatives are available to take your voting instructions | CONTROL NUMBER: |
Monday through Friday 9:00 a.m. to 11:00 p.m. Eastern Time. | 123456789112 |
--------------------------------
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 IMPORTANT NOTICE REGARDING THE
and return it in the enclosed postage-paid envelope. AVAILABILITY OF PROXY MATERIALS FOR
THIS SPECIAL MEETING OF
Options below are available 24 hours a day / 7 days a week SHAREHOLDERS TO BE HELD ON
NOVEMBER 22, 2011
TOUCHTONE: To cast your vote via a touch-tone voting line, call toll-free THE PROXY STATEMENT FOR THIS
1-888-227-9349 and enter the control number to the right. MEETING IS AVAILABLE AT:
www.proxyonline.us/rydexsgi
INTERNET: To vote via the Internet, go to www.proxyonline.us and enter
the control number found to the right.
IT IS IMPORTANT THAT PROXIES BE VOTED PROMPTLY. EVERY SHAREHOLDER'S VOTE IS IMPORTANT.
[FUND NAME PRINTS HERE]
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.
TO VOTE, MARK BOXES BELOW IN BLUE OR BLACK INK AS FOLLOWS. Example: [ ]
YOU MAY VOTE ON THE PROPOSED CHANGES ON THE PROPOSALS AS A GROUP OR
INDIVIDUALLY. PLEASE USE ONLY ONE METHOD.
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TO VOTE ALL OF THE PROPOSALS IN ACCORDANCE WITH MANAGEMENT'S RECOMMENDATIONS, PLEASE FOR ALL
CHECK THE BOX TO THE RIGHT.
IF THE FOR ALL BOX ON THIS BALLOT IS MARKED, THIS VOTE WILL OVERRIDE ANY INDIVIDUAL VOTES MADE BELOW. [ ]
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FOR AGAINST ABSTAIN
1. To approve a new investment advisory agreement between each Trust
and Securities Investors, LLC. [ ] [ ] [ ]
2. To approve a new investment advisory agreement between Securities
Investors, LLC and CLS Investments, LLC for AMERIGO FUND, CLERMONT
FUND AND SELECT ALLOCATION FUND. [ ] [ ] [ ]
3. To approve a new investment advisory agreement between Securities
Investors, LLC and Dorsey, Wright & Associates, Inc. for DWA FLEXIBLE
ALLOCATION FUND AND DWA SECTOR ROTATION FUND. [ ] [ ] [ ]
4. TO APPROVE A new investment advisory agreement between Securities
Investors, LLC and American Independence Financial Services, LLC FOR
LONG SHORT INTEREST RATE STRATEGY FUND. [ ] [ ] [ ]
5. To approve the following individuals as trustees of the Trust: FOR WITHHOLD
(1) Donald C. Cacciapaglia [ ] [ ]
(2) Corey A. Colehour [ ] [ ]
(3) J. Kenneth Dalton [ ] [ ]
(4) John O. Demaret [ ] [ ]
(5) Richard M. Goldman [ ] [ ]
(6) Werner E. Keller [ ] [ ]
(7) Thomas F. Lydon [ ] [ ]
(8) Patrick T. McCarville [ ] [ ]
(9) Roger Somers [ ] [ ]
FOR AGAINST ABSTAIN
6. To approve a "manager of managers" arrangement [ ] [ ] [ ]
7. To approve the elimination of the fundamental investment policy on [ ] [ ] [ ]
investing in other investment companies for Rydex Series Funds--U.S.
GOVERNMENT MONEY MARKET FUND AND RYDEX VARIABLE TRUST--U.S.
GOVERNMENT MONEY MARKET FUND.
YOU MAY HAVE RECEIVED MORE THAN ONE BALLOT DUE TO 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. Thank you for voting.