ADVISORY AGREEMENT
ADVISORY AGREEMENT made as of this 30th day of April, 2004 by and between
RYDEX SERIES FUNDS (the "Trust"), a Delaware statutory trust registered as an
investment company under the Investment Company Act of 1940, as amended (the
"1940 Act"), and PADCO ADVISORS, INC., a Maryland corporation with its principal
place of business at 0000 Xxxxxxxxx Xxxx, Xxxxx 000, Xxxxxxxxx, Xxxxxxxx 00000
(the "Adviser").
W I T N E S S E T H
WHEREAS, the Board of Trustees (the "Board") of the Trust has selected the
Adviser to act as investment adviser to the Trust on behalf of the series set
forth on Schedule A to this Agreement (each a "Fund" and, collectively, the
"Funds"), as such Schedule may be amended from time to time upon mutual
agreement of the parties, and to provide certain related services, as more fully
set forth below, and to perform such services under the terms and conditions
hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual covenants and benefits set
forth herein, the Trust and the Adviser do hereby agree as follows:
1. THE ADVISER'S SERVICES.
(a) Discretionary Investment Management Services. The Adviser shall
act as investment adviser with respect to the Funds. In such capacity, the
Adviser shall, subject to the supervision of the Board, regularly provide
the Funds with investment research, advice and supervision and shall
furnish continuously an investment program for the Funds, consistent with
the respective investment objectives and policies of each Fund. The
Adviser shall determine, from time to time, what securities shall be
purchased for the Funds, what securities shall be held or sold by the
Funds and what portion of the Funds' assets shall be held uninvested in
cash, subject always to the provisions of the Trust's Agreement and
Declaration of Trust, By-Laws and its registration statement on Form N-1A
(the "Registration Statement") under the 1940 Act, and under the
Securities Act of 1933, as amended (the "1933 Act"), covering Fund shares,
as filed with the Securities and Exchange Commission (the "Commission"),
and to the investment objectives, policies and restrictions of the Funds,
as each of the same shall be from time to time in effect. To carry out
such obligations, the Adviser shall exercise full discretion and act for
the Funds in the same manner and with the same force and effect as the
Funds themselves might or could do with respect to purchases, sales or
other transactions, as well as with respect to all other such things
necessary or incidental to the furtherance or conduct of such purchases,
sales or other transactions. No reference in this Agreement to the Adviser
having full discretionary authority over each Fund's investments shall in
any way limit 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.
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(b) Compliance. The Adviser agrees to comply with the requirements
of the 1940 Act, the Investment Advisers Act of 1940 (the "Advisers Act"),
the 1933 Act, the Securities Exchange Act of 1934, as amended (the "1934
Act"), the Commodity Exchange Act and the respective rules and regulations
thereunder, as applicable, as well as with all other applicable federal
and state laws, rules, regulations and case law that relate to the
services and relationships described hereunder and to the conduct of its
business as a registered investment adviser. The Adviser also agrees to
comply with the objectives, policies and restrictions set forth in the
Registration Statement, as amended or supplemented, of the Funds, and with
any policies, guidelines, instructions and procedures approved by the
Board and provided to the Adviser. In selecting each Fund's portfolio
securities and performing the Adviser's obligations hereunder, the Adviser
shall cause the Fund to comply with the diversification and source of
income requirements of Subchapter M of the Internal Revenue Code of 1986,
as amended (the "Code"), for qualification as a regulated investment
company. The Adviser shall maintain compliance procedures that it
reasonably believes are adequate to ensure the its compliance with the
foregoing. No supervisory activity undertaken by the Board shall limit the
Adviser's full responsibility for any of the foregoing.
(c) Proxy Voting. The Board has the authority to determine how
proxies with respect to securities that are held by the Funds shall be
voted, and the Board has initially determined to delegate the authority
and responsibility to vote proxies for the Fund's securities to the
Adviser. So long as proxy voting authority for the Fund has been delegated
to the Adviser, the Adviser shall exercise its proxy voting
responsibilities Adviser shall carry out such responsibility in accordance
with any instructions that the Board shall provide from time to time, and
at all times in a manner consistent with Rule 206(4)-6 under the Advisers
Act and its fiduciary responsibilities to the Trust. The Adviser shall
provide periodic reports and keep records relating to proxy voting as the
Board may reasonably request or as may be necessary for the Funds to
comply with the 1940 Act and other applicable law. Any such delegation of
proxy voting responsibility to the Adviser may be revoked or modified by
the Board at any time.
(d) Recordkeeping. The Adviser shall not be responsible for the
provision of administrative, bookkeeping or accounting services to the
Fund, except as otherwise provided herein or as may be necessary for the
Adviser to supply to the Trust or its Board the information required to be
supplied under this Agreement.
The Adviser shall maintain separate books and detailed records of
all matters pertaining to Fund assets advised by the Adviser required by
Rule 31a-1 under the 1940 Act (other than those records being maintained
by any 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.
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(e) Holdings Information and Pricing. The Adviser shall provide
regular reports regarding Fund holdings, and shall, on its own initiative,
furnish the Trust and its Board from time to time with whatever
information the Adviser believes is appropriate for this purpose. The
Adviser agrees to immediately notify the Trust if the Adviser reasonably
believes that the value of any security held by a Fund may not reflect
fair value. The Adviser agrees to provide any pricing information of which
the Adviser is aware to the Trust, its Board and/or any Fund pricing agent
to assist in the determination of the fair value of any Fund holdings for
which market quotations are not readily available or as otherwise required
in accordance with the 1940 Act or the Trust's valuation procedures for
the purpose of calculating the Fund net asset value in accordance with
procedures and methods established by the Board.
(f) Cooperation with Agents of the Trust. The Adviser agrees to
cooperate with and provide reasonable assistance to the Trust, any Trust
custodian or foreign sub-custodians, any Trust pricing agents and all
other agents and representatives of the Trust, such information with
respect to the Funds as they may reasonably request from time to time in
the performance of their obligations, provide prompt responses to
reasonable requests made by such persons and establish appropriate
interfaces with each so as to promote the efficient exchange of
information and compliance with applicable laws and regulations.
2. CODE OF ETHICS. The Adviser has adopted a written code of ethics that
it reasonably believes complies with the requirements of Rule 17j-1 under the
1940 Act, which it will provide to the Trust. The Adviser shall ensure that its
Access Persons (as defined in the Adviser's Code of Ethics) comply in all
material respects with the Adviser's Code of Ethics, as in effect from time to
time. Upon request, the Adviser shall provide the Trust with a (i) a copy of the
Adviser's current Code of Ethics, as in effect from time to time, and (ii)
certification that it has adopted procedures reasonably necessary to prevent
Access Persons from engaging in any conduct prohibited by the Adviser's Code of
Ethics. Annually, the Adviser shall furnish a written report, which complies
with the requirements of Rule 17j-1, concerning the Adviser's Code of Ethics to
the Trust. The Adviser shall respond to requests for information from the Trust
as to violations of the Code by Access Persons and the sanctions imposed by the
Adviser. The Adviser shall immediately notify the Trust of any material
violation of the Code, whether or not such violation relates to an security held
by any Fund.
3. INFORMATION AND REPORTING. The Adviser shall provide the Trust and its
respective officers with such periodic reports concerning the obligations the
Adviser has assumed under this Agreement as the Trust may from time to time
reasonably request.
(a) Notification of Breach / Compliance Reports. The Adviser shall
notify the Trust immediately upon detection of (i) any material failure to
manage any Fund in accordance with its investment objectives and policies
or any applicable law; or (ii) any material breach of any of the Funds' or
the Adviser's policies, guidelines or procedures. In addition, the Adviser
shall provide a quarterly report regarding each Fund's compliance with its
investment objectives and policies, applicable law, including, but not
limited to the 1940 Act and Subchapter M of the Code, and the Fund's
policies,
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guidelines or procedures as applicable to the Adviser's obligations under
this Agreement. The Adviser agrees to correct any such failure promptly
and to take any action that the Board may reasonably request in connection
with any such breach. Upon request, the Adviser shall also provide the
officers of the Trust with supporting certifications in connection with
such certifications of Fund financial statements and disclosure controls
pursuant to the Xxxxxxxx-Xxxxx 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
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than may result when allocating brokerage to other brokers, consistent
with section 28(e) of the 1934 Act and any Commission staff
interpretations thereof. Therefore, the Adviser is authorized to place
orders for the purchase and sale of securities for a Fund with such
brokers, subject to review by the Board from time to time with respect to
the extent and continuation of this practice. It is understood that the
services provided by such brokers may be useful to the Adviser in
connection with its or its affiliates' services to other clients.
(c) Aggregated Transactions. On occasions when the Adviser deems the
purchase or sale of a security to be in the best interest of a Fund as
well as other clients of the Adviser, the Adviser may, to the extent
permitted by applicable law and regulations, aggregate the order for
securities to be sold or purchased. In such event, the Adviser will
allocate securities or futures contracts so purchased or sold, as well as
the expenses incurred in the transaction, in the manner the Adviser
reasonably considers to be equitable and consistent with its fiduciary
obligations to the Fund and to such other clients under the circumstances.
(d) Affiliated Brokers. The Adviser or any of its affiliates may act
as broker in connection with the purchase or sale of securities or other
investments for a Fund, subject to: (a) the requirement that the Adviser
seek to obtain best execution and price within the policy guidelines
determined by the Board and set forth in the Fund's current prospectus and
SAI; (b) the provisions of the 1940 Act; (c) the provisions of the
Advisers Act; (d) the provisions of the 1934 Act; and (e) other provisions
of applicable law. These brokerage services are not within the scope of
the duties of the Adviser under this Agreement. Subject to the
requirements of applicable law and any procedures adopted by the Board,
the Adviser or its affiliates may receive brokerage commissions, fees or
other remuneration from a Fund for these services in addition to the
Adviser's fees for services under this Agreement.
5. CUSTODY. Nothing in this Agreement shall permit the Adviser to take or
receive physical possession of cash, securities or other investments of a Fund.
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
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the Adviser from serving as an investment adviser to an investment
company. The Adviser is in compliance in all material respects with all
applicable federal and state law in connection with its investment
management operations.
(b) ADV Disclosure. The Adviser has provided the Trust with a copy
of its Form ADV as most recently filed with the SEC and will, promptly
after filing any amendment to its Form ADV with the SEC, furnish a copy of
such amendments to the Trust. The information contained in the Adviser's
Form ADV is accurate and complete in all material respects and does not
omit to state any material fact necessary in order to make the statements
made, in light of the circumstances under which they were made, not
misleading.
(c) Fund Disclosure Documents. The Adviser has reviewed and will in
the future review, the Registration Statement, and any amendments or
supplements thereto, the annual or semi-annual reports to shareholders,
other reports filed with the Commission and any marketing material of a
Fund (collectively the "Disclosure Documents") and represents and warrants
that with respect to disclosure about the Adviser, the manner in which the
Adviser manages the Fund or information relating directly or indirectly to
the Adviser, such Disclosure Documents contain or will contain, as of the
date thereof, no untrue statement of any material fact and does not omit
any statement of material fact which was required to be stated therein or
necessary to make the statements contained therein not misleading.
(d) Use Of The Name "Rydex". The Adviser has the right to use the
name "Rydex" in connection with its services to the Trust and that,
subject to the terms set forth in Section 8 of this Agreement, the Trust
shall have the right to use the name "Rydex" in connection with the
management and operation of the Funds. The Adviser is not aware of any
threatened or existing actions, claims, litigation or proceedings that
would adversely effect or prejudice the rights of the Adviser or the Trust
to use the name "Rydex".
(e) Insurance. The Adviser maintains errors and omissions insurance
coverage in an appropriate amount and shall provide prior written notice
to the Trust (i) of any material changes in its insurance policies or
insurance coverage; or (ii) if any material claims will be made on its
insurance policies. Furthermore, the Adviser shall upon reasonable request
provide the Trust with any information it may reasonably require
concerning the amount of or scope of such insurance.
(f) No Detrimental Agreement. The Adviser represents and warrants
that it has no arrangement or understanding with any party, other than the
Trust, that would influence the decision of the Adviser with respect to
its selection of securities for a Fund, and that all selections shall be
done in accordance with what is in the best interest of the Fund.
(g) Conflicts. The Adviser shall act honestly, in good faith and in
the best interests of the Trust including requiring any of its personnel
with knowledge of Fund
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activities to place the interest of the Fund first, ahead of their own
interests, in all personal trading scenarios that may involve a conflict
of interest with the Funds, consistent with its fiduciary duties under
applicable law.
(h) Representations. The representations and warranties in this
Section 7 shall be deemed to be made on the date this Agreement is
executed and at the time of delivery of the quarterly compliance report
required by Section 3(a), whether or not specifically referenced in such
report.
8. THE NAME "RYDEX". The Adviser grants to the Trust a license to use the
name "Rydex" (the "Name") as part of the name of any Fund. The foregoing
authorization by the Adviser to the Trust to use the Name as part of the name of
any Fund is not exclusive of the right of the Adviser itself to use, or to
authorize others to use, the Name; the Trust acknowledges and agrees that, as
between the Trust and the Adviser, the Adviser has the right to use, or
authorize others to use, the Name. The Trust shall (1) only use the Name in a
manner consistent with uses approved by the Adviser; (2) use its best efforts to
maintain the quality of the services offered using the Name; (3) adhere to such
other specific quality control standards as the Adviser may from time to time
promulgate. At the request of the Adviser, the Trust will (a) submit to Adviser
representative samples of any promotional materials using the Name; and (b)
change the name of any Fund within three months of its receipt of the Adviser's
request, or such other shorter time period as may be required under the terms of
a settlement agreement or court order, so as to eliminate all reference to the
Name and will not thereafter transact any business using the Name in the name of
any Fund; provided, however, that the Trust may continue to use beyond such date
any supplies of prospectuses, marketing materials and similar documents that the
Trust had on had at the date of such name change in quantities not exceeding
those historically produced and used in connection with such Fund.
9. ADVISER'S COMPENSATION. The Funds shall pay to the Adviser, as
compensation for the Adviser's services hereunder, a fee, determined as
described in Schedule A that is attached hereto and made a part hereof. Such fee
shall be computed daily and paid not less than monthly in arrears by the Funds.
The method for determining net assets of a Fund for purposes hereof shall
be the same as the method for determining net assets for purposes of
establishing the offering and redemption prices of Fund shares as described in
the Fund's prospectus. In the event of termination of this Agreement, the fee
provided in this Section shall be computed on the basis of the period ending on
the last business day on which this Agreement is in effect subject to a pro rata
adjustment based on the number of days elapsed in the current month as a
percentage of the total number of days in such month.
10. INDEPENDENT CONTRACTOR. In the performance of its duties hereunder,
the Adviser is and shall be an independent contractor and, unless otherwise
expressly provided herein or otherwise authorized in writing, shall have no
authority to act for or represent the Trust or any Fund in any way or otherwise
be deemed to be an agent of the Trust or any Fund. If any occasion should arise
in which the Adviser gives any advice to its clients concerning the shares
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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.
In the event of termination of this Agreement for any reason, the Adviser
shall, immediately upon notice of termination or on such later date as may be
specified in such notice, cease all activity on behalf of the Fund and with
respect to any of its assets, except as otherwise required by any fiduciary
duties of the Adviser under applicable law. In addition, the Adviser shall
deliver the Fund Books and Records to the Trust by such means and in accordance
with
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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 0000 Xxx) 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 Agreement and Declaration of Trust describe
in detail the respective responsibilities and limitations on liability of the
Trustees, officers, and holders of shares of beneficial interest.
17. JURISDICTION. This Agreement shall be governed by and construed in
accordance with the substantive laws of state of Delaware and the Adviser
consents to the jurisdiction of courts, both state or federal, in Delaware, with
respect to any dispute under this Agreement.
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18. PARAGRAPH HEADINGS. The headings of paragraphs contained in this
Agreement are provided for convenience only, form no part of this Agreement and
shall not affect its construction.
19. COUNTERPARTS. This Agreement may be executed simultaneously in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
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IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
signed on their behalf by their duly authorized officers as of the date first
above written.
RYDEX SERIES FUNDS, on behalf of each Fund listed
on Schedule A
By: /s/ Xxxx X. Xxxxxxxxxxx
--------------------------------
Name: Xxxx X. Xxxxxxxxxxx
Title: President
PADCO ADVISORS, INC.
By: /s/ Xxxx X. Xxxxxxxxxxx
--------------------------------
Name: Xxxx X. Xxxxxxxxxxx
Title: Chief Executive Officer
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SCHEDULE A
TO THE
ADVISORY AGREEMENT
DATED APRIL 30, 2004 BETWEEN
RYDEX SERIES FUNDS
AND
PADCO ADVISORS, INC.
The Trust will pay to the Adviser as compensation for the Adviser's services
rendered, a fee, computed daily at an annual rate based on the average daily net
assets of the respective Fund in accordance the following fee schedule:
FUND RATE FUND RATE
---- ---- ---- ----
Nova* ........................... 0.75% Banking ................... 0.85%
Nova Master ..................... 0.75% Basic Materials ........... 0.85%
Ursa*............................ 0.90% Biotechnology ............. 0.85%
Ursa Master ..................... 0.90% Consumer Products ......... 0.85%
OTC* ............................ 0.75% Electronics ............... 0.85%
OTC Master ...................... 0.75% Energy .................... 0.85%
Arktos* ......................... 0.90% Energy Services ........... 0.85%
Arktos Master ................... 0.90% Financial Services ........ 0.85%
Medius* ......................... 0.90% Health Care ............... 0.85%
Medius Master ................... 0.90% Internet .................. 0.85%
Mekros .......................... 0.90% Leisure ................... 0.85%
U.S. Government Bond ............ 0.50% Precious Metals ........... 0.75%
Juno* ........................... 0.90% Real Estate ............... 0.85%
Juno Master ..................... 0.90% Retailing ................. 0.85%
Large-Cap Value ................. 0.75% Technology ................ 0.85%
Large-Cap Growth ................ 0.75% Telecommunications ........ 0.85%
Mid-Cap Value ................... 0.75% Transportation ............ 0.85%
Mid-Cap Growth .................. 0.75% Utilities* ................ 0.85%
Inverse Mid-Cap ................. 0.90% Utilities Master........... 0.85%
Small-Cap Value ................. 0.75%
Small-Cap Growth ................ 0.75% Sector Rotation ........... 0.90%
Inverse Small-Cap ............... 0.90% Core Equity** ............. 0.70%
A-1
FUND RATE FUND RATE
---- ---- ---- ----
Large-Cap Europe ................ 0.90%
Large-Cap Japan ................. 0.90%
U.S. Government Money Market..... 0.50%
* The fee will be reduced to 0.00% for any period during which the Fund invests
through a master-feeder structure.
** The management fee with respect to the Core Equity Fund (the "Fund") is
comprised of a basic fee (the "Basic Fee") at the annual rate of 0.70% of the
Fund's average daily net assets and a performance adjustment (the "Performance
Adjustment") as discussed below.
A. CALCULATING THE PERFORMANCE ADJUSTMENT. The performance adjustment
shall be calculated monthly by:
(i) Determining the difference in performance (the "Performance
Difference") between the Fund and the Xxxxxxx 3000 Index (the
"Index"), as described in paragraph C;
(ii) Using the Performance Difference calculated under paragraph
B(ii) to determine the performance adjustment ( the
"Performance Adjustment"), as illustrated in paragraph D; and
(iii) Adding the Performance Adjustment to the Basic Fee to
determine the management fee for the applicable month.
B. COMPUTING THE PERFORMANCE DIFFERENCE. The Performance Difference is
calculated monthly, and is determined by measuring the percentage difference
between the performance of one H-Class Share of the Fund and the performance of
the Index over the most recent 12-month period. The performance of one H-Class
Share of the Fund shall be measured by computing the percentage difference,
carried to five decimal places, between the net asset value as of the last
business day of the period selected for comparison and the net asset value of
such share as of the last business day of the prior period, adjusted for
dividends or capital gain distributions treated as reinvested immediately. The
performance of the Index will be established by measuring the percentage
difference, carried to five decimal places, between the beginning and ending
values of the Index for the comparison period, with dividends or capital gain
distributions on the securities that comprise the Index being treated as
reinvested immediately.
C. DETERMINING THE PERFORMANCE ADJUSTMENT. For every 0.0375% in
Performance Difference, the Adviser's fee will be adjusted upwards or downwards
by 0.01%. The maximum adjustment rate is 0.20% per year, resulting in a minimum
possible annual fee of 0.50% and a maximum possible annual fee of 0.90%.
D. PERFORMANCE ADJUSTMENT EXAMPLE. The following example illustrates the
application of the Performance Adjustment:
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For the rolling 12-month Fund's investment Index's Fund's performance
performance period performance cumulative change relative to the Index
------------------ ----------- ----------------- ---------------------
January 1 $50.00 100.00
December 31 $55.25 110.20
Absolute change + $ 5.25 + $10.20
Actual change + 10.50% + 10.20% +0.30%
Based on these assumptions, the Fund calculates the Adviser's management fee
rate for the month-ended December 31 as follows:
o The portion of the annual basic fee rate of 0.70% applicable to that month
is multiplied by the Fund's average daily net assets for the month. This
results in the dollar amount of the basic fee.
o The +0.30% difference between the performance of the Fund and the record
of the Index is divided by 3.75, producing a rate of 0.08%.
o The 0.08% rate (adjusted for the number of days in the month) is
multiplied by the Fund's average daily net assets for the performance
period. This results in the dollar amount of the performance adjustment.
o The dollar amount of the performance adjustment is added to the dollar
amount of the basic fee, producing the adjusted management fee.
PERFORMANCE PERIODS. For the period from July 1, 2003 through May 31, 2004, the
Adviser will be paid at the Base Rate, without regard to any Performance
Adjustment. For the month ending June 30, 2004, the Adviser will begin applying
the Performance Adjustment as described herein, based upon the performance of
the Fund relative to the performance of the Index during the 12-month period
from July 1, 2003 through June 30, 2004. The 12-month comparison period will
roll over with each succeeding month, so that it will always equal 12 months,
ending with the month for which the performance incentive adjustment is being
computed.
CHANGES TO THE "INDEX" OR THE "CLASS". The Trustees have initially designated
the Xxxxxxx 3000 Index and the H-Class Shares as the index and class to be used
for purposes of determining the Performance Adjustment (referred to herein as
the "Index" and the "Class," respectively). From time to time, to the extent
permitted by the 1940 Act, the Trustees may, by a vote of the Trustees of the
Trust voting in person, including a majority of the Trustees who are not parties
to this Agreement or "interested persons" (as defined in the 0000 Xxx) of any
such parties, determine (i) that another securities index is a more appropriate
benchmark than the Index for purposes of evaluating the performance of the Fund;
and/or (ii) that a different class of shares of the Trust representing interests
in the Fund other than the Class is most appropriate for use in calculating the
Performance Adjustment. After ten days' written notice to the Adviser, a
different index (the "Successor Index") may be substituted for the Index in
prospectively calculating the Performance Adjustment, and/or a different class
of shares (the "Successor Class") may be substituted in calculating the
Performance Adjustment. However, the calculation of that portion of the
Performance Adjustment attributable to any portion of the performance period
prior to the adoption of the Successor Index will still be based upon the Fund's
performance compared to the Index. The use of a Successor Class of shares for
purposes of calculating the Performance Adjustment shall apply to the entire
performance period so long as such Successor Class was outstanding at the
beginning of such period. In the event that such Successor Class of shares was
not outstanding for all or a portion of the Performance Period, it may only be
used in calculating that portion of the Performance adjustment attributable to
the period during which such Successor Class was outstanding and any prior
portion of the Performance Period shall be calculated using the Class of shares
previously designated.
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