EXHIBIT 4
Investment Advisory Agreement Between
Rydex Advisor Variable Annuity Account and
PADCO Advisors II, Inc.
INVESTMENT ADVISORY AGREEMENT
BETWEEN
THE RYDEX ADVISOR VARIABLE ANNUITY ACCOUNT
AND
PADCO ADVISORS II, INC.
THIS INVESTMENT ADVISORY AGREEMENT (the "Agreement"),
dated as of November 1, 1996, is entered into by and between
THE RYDEX ADVISOR VARIABLE ANNUITY ACCOUNT (the "Separate
Account"), a managed separate account of Great American
Reserve Insurance Company ("Great American Reserve")
established under the laws of the State of Texas on April 15,
1996, and PADCO ADVISORS II, INC. (the "Advisor"), a company
incorporated under the laws of the State of Maryland on July
5, 1994.
W I T N E S S E T H:
WHEREAS, the Separate Account is registered with the
Securities and Exchange Commission (the "Commission") as a
diversified open-end management investment company pursuant to
the provisions of the Investment Company Act of 1940, as
amended (the "1940 Act");
WHEREAS, the Advisor is an investment adviser registered
as such with the Commission pursuant to the provisions of the
Investment Advisers Act of 1940, and is engaged in the
b u siness of rendering investment advice and investment
management services as an independent contractor;
WHEREAS, the assets of the Separate Account may be
segregated by eligible investments, thus establishing a series
of eligible investment portfolios (or "Subaccounts") within
the Separate Account pursuant to the laws of the State of
Texas and the 1940 Act;
WHEREAS, the variable annuity contracts proposed to be
sold by Great American Reserve and to be funded by the
Separate Account (the "Contracts") are designed for use by
purchasers of the Contracts (the "Contract Owners") who intend
to utilize an
asset-allocation or market-timing investment strategy and are
advised by professional money managers ("Financial Advisors");
WHEREAS, the board of managers of the Separate Account
(the "Managers"), pursuant to Article III, Section 2.m.,
"Board of Managers; Powers," of the rules and regulations of
the Separate Account, dated June 26, 1996 (the "Separate
Account Rules"), have created the following Subaccounts of the
Separate Account: The Nova Subaccount, The Ursa Subaccount,
The OTC Subaccount, The Precious Metals Subaccount, The Juno
Subaccount, The U.S. Government Bond Subaccount, The Money
Market I Subaccount, and The Money Market II Subaccount
(collectively, the "Subaccounts");
WHEREAS, the accounting unit of measure used to compute
the value of a Contract Owner's interest in a Subaccount is
the "Accumulation Unit," and the current market value of the
Accumulation Units of a Subaccount is the "Accumulation Unit
Value;"
WHEREAS, the Separate Account wishes to engage the
Advisor, and the Advisor wishes to be engaged, to manage the
investment portfolios of the Subaccounts of the Separate
Account with respect to the investment and reinvestment of the
assets of the Subaccounts of the Separate Account, and to act
in such capacity in accordance with the terms, conditions, and
other provisions of this Agreement; and
WHEREAS, the Separate Account wishes to engage the
Advisor, and the Advisor wishes to be engaged, to manage the
investment portfolios of all Subaccounts of the Separate
Account which are created subsequent to this Agreement with
respect to the investment and reinvestment of the assets of
such future Subaccounts of the Separate Account, and to act in
such capacity in accordance with the terms, conditions, and
other provisions of this Agreement.
NOW, THEREFORE, in consideration of the premises and the
mutual covenants herein contained, and for other good and
valuable consideration, the receipt, sufficiency, and adequacy
o f which are hereby acknowledged, the parties hereto,
intending to be legally bound, agree and promise as follows:
1. Services To Be Provided
a. Employment. The Separate Account hereby employs the
Advisor to manage the investment and reinvestment of the
assets of the Subaccounts, including each of the Subaccounts,
comprising the Separate Account in accordance with the
investment objectives and policies as set forth in the
Separate Account's registration statement filed pursuant to
the Securities Act of 1933, as amended (the "1933 Act"), and
2
the 1940 Act (the "Registration Statement"), and subject to
the direction and control of the officers and the Board of
Managers of the Separate Account, for the period and on the
terms set forth in this Agreement. The Advisor hereby accepts
such employment and agrees to render the services and to
assume the obligations herein set forth, for the compensation
herein provided.
b. Best Efforts. The Advisor xxxxxx agrees to use its
best judgment and efforts in rendering the advice and services
with respect to the Subaccounts as contemplated by this
Agreement. The Advisor further agrees to use its best efforts
in the furnishing of such advice and recommendations with
respect to the Subaccounts, in the preparation of reports and
information, and in the management of the respective assets of
each Subaccount, all pursuant to this Agreement, and for this
purpose the Advisor shall, at its own expense, maintain such
staff and employ or retain such personnel and consult with
such other persons that the Advisor shall from time to time
determine to be necessary to the performance of the Advisor's
obligations under this Agreement. Without limiting the
generality of the foregoing, the staff and personnel of the
Advisor shall be deemed to include persons employed or
retained by the Advisor to furnish statistical, research, and
other factual information, advice regarding economic factors
a n d trends, information with respect to technical and
scientific developments, and such other information, advice,
and assistance as the Advisor may desire and request.
2. Payment of Fees and Expenses
The Advisor assumes and shall pay all expenses in
c o n nection with the management of the investment and
reinvestment of the portfolio assets of each Subaccount,
except that each Subaccount assumes and shall pay all broker's
commissions and transfer taxes chargeable to the Subaccount in
c o n n ection with securities transactions to which the
Subaccount is a party.
3. Authority of the Advisor
a. In connection with the investment and reinvestment
of the assets of each of the Subaccounts, the Advisor is
authorized on behalf of the Subaccount, to place orders for
the execution of the Subaccount's portfolio transactions in
accordance with the applicable policies of the Subaccount as
set forth in the Separate Account's Registration Statement, as
such Registration Statement may be amended from time to time.
The Advisor shall place orders for the purchase or sale of
securities either directly with the issuer or with a broker or
dealer selected by the Advisor. In placing the Subaccount's
securities trades, it is recognized that the Advisor will give
3
primary consideration to securing the most favorable price and
efficient execution, so that the Subaccount's total cost or
proceeds in each transaction will be the most favorable under
all circumstances. Within the framework of this policy, the
Advisor may consider the financial responsibility, research
and investment information, and other services provided by
brokers or dealers who may effect or be a party to any such
transaction or other transactions to which other clients of
the Advisor may be a party.
b. It is understood that it is desirable for each
Subaccount of the Separate Account that the Advisor have
access to investment and market research and securities and
economic analyses provided by brokers and others. It is also
understood that brokers providing such services may execute
brokerage transactions at a higher cost to the Subaccount than
might result from the allocation of brokerage to other brokers
purely based on seeking the most favorable price. Therefore,
the purchase and sale of securities for the Subaccount may be
made with brokers who provide such research and analysis,
subject to review by the Managers from time to time with
respect to the extent and continuation of this practice to
d e termine whether the Subaccount benefits, directly or
indirectly, from such practice. It is understood by both
parties that the Advisor may select broker-dealers for their
execution of the Subaccount's portfolio transactions who
provide research and analysis as the Advisor may lawfully and
appropriately use in its investment management and advisory
capacities, whether or not such research and analysis also may
be useful to the Advisor in connection with its services to
other clients.
c. On occasions when the Advisor deems the purchase or
sale of a security to be in the best interests of the
Subaccount, as well as of other clients, the Advisor to the
extent permitted by applicable laws and regulations, may
aggregate the securities to be so purchased or sold in order
t o o btain the most favorable price, lower brokerage
commissions, and the most efficient execution. In such event,
allocation of the securities so purchased or sold, as well as
the expenses incurred in the transaction, will be made by the
Advisor in the manner its considers to be the most equitable
a n d consistent with its fiduciary obligations to the
Subaccount and to such other clients.
4. Compensation
a. Advisory Fee. In exchange for the rendering of
advice and services pursuant hereto, the Separate Account
shall pay the Advisor, and the Advisor shall accept as full
compensation for the services to be rendered and as full
reimbursement for all the charges and expenses to be assumed
4
and paid by the Advisor as provided in Section 2, a fee at an
annual rate applied to the daily net assets of a Subaccount in
accordance with the following schedule:
The Nova Subaccount 0.75% (75/100's of one
percent)
The Ursa Subaccount 0.90% (90/100's of one
percent)
The OTC Subaccount 0.75% (75/100's of one
percent)
The Precious Metals
Subaccount 0.75% (75/100's of one
percent)
The U.S. Government Bond
Subaccount 0.50% (50/100's of one
percent)
The Juno Subaccount 0.90% (90/100's of one
percent)
The Money Market I
Subaccount 0.50% (50/100's of one
percent)
The Money Market II
Subaccount 0.25% (25/100's of one
percent)
5
b. Payment. The fee will be accrued daily by each
Subaccount and paid to the Advisor monthly not later than the
fifth (5th) business day of the month following the month for
w h ich services have been provided. In the event of
termination of this Agreement, the fee shall be computed on
the basis of the period ending on the last business day on
which this Agreement is in effect subject to a pro rata
adjustment based on the number of days elapsed in the current
month as a percentage of the total number of days in such
month, and such fee shall be payable on the date of
termination of this Agreement with respect to the Subaccount.
For purposes of calculating the Advisor's fee, the value of
the net assets of each respective Subaccount of the Separate
Account shall be determined in the same manner as the
Subaccount uses to compute the value of the Subaccount's net
a s s e t s in connection with the determination of the
Accumulation Unit Value of the Subaccount, all as set forth
more fully in the current Prospectus and Statement of
Additional Information for the Subaccounts included in the
Registration Statement.
c. Reimbursement for Certain Expenses. Through June
30, 1997, the Advisor shall reimburse each Subaccount for
certain "Reimbursable Expenses" (i.e., expenses other than the
advisory fee, the Subaccount administration fee, mortality and
expense risk charges, the administrative fee or the asset
allocation advisory fee) in excess of the amounts listed
below. The amount of any expense reimbursement shall be the
a m o unt by which the Reimbursable Expenses exceed the
following:
The Nova Subaccount 0 . 40% (40/100's of one
percent);
The Ursa Subaccount 0 . 35% (35/100's of one
percent);
The OTC Subaccount 0 . 45% (45/100's of one
percent);
The Precious Metals
Subaccount 0 . 45% (45/100's of one
percent);
The U.S. Government
Bond Subaccount 0 . 30% (30/100's of one
percent);
The Juno Subaccount 0 . 35% (35/100's of one
percent);
The Money Market I
Subaccount 0 . 10% (10/100's of one
percent);
The Money Market II
Subaccount 0 . 10% (10/100's of one
percent);
6
7
provided, that no expense reimbursement will exceed the amount
of the applicable Subaccount's advisory fee for the period of
the reimbursement.
5. Affiliations of Parties; Change in Ownership or Control
of the Advisor
Subject to and in accordance with the Separate Account
Rules, the Bylaws and Articles of Incorporation of the
Advisor, and the 1940 Act, the Managers, officers, agents, and
Contract Owners of the Separate Account are or may be
interested persons of the Advisor or its affiliates (or any
successor thereof) as shareholders or officers, directors,
agents, or otherwise, and directors, officers, agents, or
shareholders of the Advisor or its affiliates are or may be
interested persons of the Separate Account as Managers,
officers, agents, Contract Owners, or otherwise, and the
Advisor or its affiliates may be interested persons of the
Separate Account, and such relationships shall be governed by
said governing instruments and the applicable provisions of
the 1940 Act. The Advisor shall notify the Separate Account
of any change in ownership or control of PADCO Advisors II,
Inc., that could cause an "assignment" of this Agreement (as
the term "assignment" is defined in the 1940 Act and the rules
and regulations promulgated thereunder) as soon as
practicable. In the case of a voluntary assignment, notice
will be provided at least 90 days prior to the voluntary
assignment if the circumstances are such that the Separate
Account could not rely on Rule 15a-4 under the 1940 Act (or
such shorter period approved by a majority of the Managers who
are not interested persons of the Separate Account).
6. Furnishing of Information
During the term of this Agreement, the Separate Account
agrees:
a. to provide the Advisor with copies of all
prospectuses, statements of additional
information, proxy statements, registration
statements, reports to Contract Owners, sales
literature, and other material prepared for
d i s t ribution to Contract Owners of the
Subaccounts of the Separate Account or the
public that refer in any way to the Advisor, no
later than ten (10) business days before the
date such material is first distributed to the
public, or sooner if practicable, and the
Separate Account shall not use such material,
or shall discontinue the use of such material,
if the Advisor reasonably objects in writing
within five (5) business days (or within such
8
other time as may be mutually agreed to by the
parties) after the Advisor's receipt thereof;
b. to provide the Advisor with true and correct
copies of each amendment or supplement to the
Separate Account's Registration Statement
(including any prospectus and statement of
additional information included therein) or the
Separate Account Rules not later than the date
such material is first distributed to the
public, or sooner if practicable; and
c. to provide the Advisor with (i) written notice
of any resolutions, policies, restrictions, or
procedures adopted by the Managers which affect
t h e Advisor's investment management
responsibilities hereunder, and (ii) a list of
every natural person or entity deemed by the
Separate Account to be an "affiliated person"
o f , or "promoter" of, or "principal
underwriter" for the Separate Account, or "an
affiliated person of such person," as these
terms are defined or used in Sections 2(a)(3),
2(a)(30), and 2(a)(29), respectively, of the
1940 Act, and the Separate Account shall
promptly notify the Advisor of any additions or
deletions to such list.
7. Term of Agreement; Termination
a. This Agreement shall become effective with respect to
each Subaccount on the date first above written, and continue
in effect until two years from the date hereof, and thereafter
only so long as such continuance is approved with respect to
the Subaccount at least annually by (i) a vote of a majority
of the Managers, and (ii) the vote of a majority of the
Managers 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 such approval.
b. This Agreement may be terminated on sixty (60) days
prior written notice to the Advisor with respect to any or all
Subaccounts without penalty either by vote of the Managers or
by vote of a majority of the outstanding voting securities of
t h e Subaccount(s). This Agreement shall automatically
terminate in the event of its assignment (within the meaning
of the 1940 Act). This Agreement may be terminated by the
Advisor on sixty-days (60) prior written notice to the
Separate Account. Any notice under this Agreement shall be
given as provided in Section 12 below.
8. Non-Transferability
9
This Agreement may not be transferred, assigned, sold or
in any manner hypothecated or pledged without the affirmative
vote or prior written consent of the holders of a majority of
the outstanding voting securities of the Separate Account.
9. Other Activities of the Advisor
The services of the Advisor to the Separate Account
hereunder are not to be deemed exclusive, and the Advisor and
each of its affiliates shall be free to render similar
services to others so long as the Advisor's services hereunder
are not impaired thereby. The Advisor, for purposes herein,
shall be deemed to be an independent contractor and, unless
otherwise expressly provided or authorized, shall have no
authority to act for or represent the Separate Account,
including any of the Subaccounts of the Separate Account, in
any way or otherwise be deemed an agent of the Separate
Account, or the Subaccounts of the Separate Account.
10. Standard of Care; Indemnification
a. No provisions of this Agreement shall be deemed to
protect the Advisor against any liability to the Separate
Account, the Subaccounts of the Separate Account, or the
Contract Owners of the Subaccounts to which the Advisor
o t h erwise would be subject by reason of any willful
misfeasance, bad faith, or gross negligence in the performance
of the Advisor's duties or the reckless disregard of the
Advisor's obligations under this Agreement. Nor shall any
provisions hereof be deemed to protect any Manager or officer
of the Separate Account against any such liability to which
said Manager or officer might otherwise be subject by reason
of any willful misfeasance, bad faith, or gross negligence in
the performance of the Manager's or officer's respective
duties or the reckless disregard of the Manager's or officer's
respective obligations.
b. In the absence of willful misfeasance, bad faith,
gross negligence, or reckless disregard of the Advisor's
obligations or duties hereunder, the Advisor shall not be
s u bject to liability to the Separate Account, to the
Subaccounts, or to any Contract Owner of the Subaccounts for
any act or omission in the course of, or connected with,
rendering services hereunder or for any losses that may be
sustained in the purchase, holding, or sale of any security or
other property by a Subaccount. The Advisor shall not be
required to do or refrain from doing or concur in anything
which (by act or omission to act) may impose any liability on
the Advisor.
c. Any person, even though an officer, director,
partner, employee, or agent of the Manager, who may be or
10
become an officer, manager, director, trustee, partner,
employee, or agent of the Separate Account, shall be deemed
when rendering such services to the Separate Account or acting
on any business of the Separate Account to be rendering such
services to or acting solely for the Separate Account and not
as the Manager's officer, manager, director, trustee, partner,
employee, or agent or as one under the Manager's control or
direction even though paid by the Manager.
d. 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.
11. Representations and Warranties of the Separate Account
The Separate Account represents and warrants that the
Separate Account is duly registered with the Securities and
Exchange Commission under the 1940 Act, as an open-end
management investment company, and that all required action
has been taken by the Separate Account under the 1933 Act, as
amended, and the 1940 Act, to permit the public offering of,
and to consummate the sale of, the Contracts of the Separate
Account pursuant to the current prospectus of the Separate
Account.
12. Notices
All notices or other communications required or permitted
to be given hereunder shall be in writing and shall be
delivered or sent by prepaid, first-class letter posted to the
following addresses, or to such other address as shall be
designated in a notice given in accordance with this section,
and such notice shall be deemed to have been given at the time
of delivery of, if sent by post, five (5) week days after
posting by airmail.
If to the Separate Account:
Rydex Advisor Variable Annuity Account
Great American Reserve Insurance Company
00000 Xxxxx Xxxxxxxxxxxx Xxxxxx
Xxxxxx, Xxxxxxx 00000
Attention: Office of the General Counsel
with a copy to:
Rydex Advisor Variable Annuity Account
0000 Xxxxxxxxx Xxxxxxxxx
Xxxxx 000
Xxxxxxxxx, Xxxxxxxx 00000
Attention: President
11
If to the Advisor:
PADCO Advisors II, Inc.
0000 Xxxxxxxxx Xxxxxxxxx
Xxxxx 000
Xxxxxxxxx, Xxxxxxxx 00000
Attention: President
12
13. Governing Law
This Agreement shall be governed by and construed in
accordance with the laws of the State of Maryland (without
reference to such state's conflict of law rules).
14. Counterparts
T h i s Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but
which together shall constitute one and the same instrument.
15. Definitions
As used in this Agreement, the terms "interested persons"
and "vote of a majority of the outstanding securities" shall
have the respective meanings set forth in Section 2(a)(19) and
Section 2(a)(42) of the 1940 Act.
IN WITNESS WHEREOF, the Separate Account and the Advisor
have caused this Agreement to be executed on the date first
above written.
RYDEX ADVISOR VARIABLE ANNUITY ACCOUNT
By: /s/ X. Xxxxxxx Xxxxxxxxx
X. Xxxxxxx Xxxxxxxxx
Vice President
PADCO ADVISORS II, INC.
By: /s/ Xxxxxx X. Xxxxxx, Xx.
Xxxxxx X. Xxxxxx, Xx.
President
13
