THIS INVESTMENT ADVISORY AGREEMENT (the "Agreement"), dated as of
is entered into by and between THE RYDEX DYNAMIC FUNDS (the
"Trust"), a Delaware business trust established on August 6, 1999 and PADCO
ADVISORS, INC. (the "Advisor"), a company incorporated under the laws of the
State of Maryland.
W I T N E S S E T H:
WHEREAS, the Trust is registered with the Securities and Exchange
Commission (the "Commission") as an 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 business of rendering investment advice and
investment management services as an independent contractor;
WHEREAS, the Agreement and Declaration of Trust of the Trust (the
"Trust Declaration") authorizes the Trustees of the Trust to create an unlimited
number of series of shares of the Trust;
WHEREAS, the board of trustees of the Trust (the "Trustees") have
created the following Funds of the Trust: Titan 500 Fund, Tempest 500 Fund,
Velocity 100 Fund, Venture 100 Fund, Titan 500 Master Fund, Tempest 500
Master Fund, Velocity 100 Master Fund, and Venture 100 Master Fund
(collectively, the "Funds");
WHEREAS, the Trust wishes to engage the Advisor, and the Advisor wishes
to be engaged, to manage the investment portfolios of the Funds of the Trust
with respect to the investment and reinvestment of the assets of the Funds of
the Trust, and to act in such capacity in accordance with the terms, conditions,
and other provisions of this Agreement; and
WHEREAS, the Trust wishes to engage the Advisor, and the Advisor wishes
to be engaged, to manage the investment portfolios of the Funds of the Trust
which were created subsequent to this Agreement with respect to the investment
and reinvestment of the assets of such future Funds of the Trust, 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 of which are hereby acknowledged, the parties
hereto, intending to be legally bound, agree and promise as follows:
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1. SERVICES TO BE PROVIDED
a. EMPLOYMENT. The Trust hereby employs the Advisor to manage the
investment and reinvestment of the assets of the Funds, including
each of the Funds, comprising the Trust in accordance with the
investment objectives and policies as set forth in the Trust's
registration statement filed pursuant to the Securities Act of 1933,
as amended (the "1933 Act"), and the 1940 Act (the "Registration
Statement"), and subject to the direction and control of the
officers and the Board of Trustees of the Trust, 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 hereby agrees to use its best judgment and
efforts to rendering the advice and services with respect to the
Funds 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 Funds, in the preparation of
reports and information, and in the management of the respective
assets of each Fund, 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 and 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 connection with the
management of the investment and reinvestment of the portfolio assets of each
Fund, except that each Fund assumes and shall pay all broker's commissions and
transfer taxes chargeable to the Fund in connection with securities transactions
to which the Fund is a party.
3. AUTHORITY OF THE ADVISOR
a. In connection with the investment and reinvestment of the assets of
each of the Funds, the Advisor is authorized on behalf of the Fund,
to place orders for the execution of the Fund's portfolio
transactions in accordance with the applicable policies of the Fund
as set forth in the Trust's Registration Statement, as such
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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 Fund's securities trades, it is recognized
that the Advisor will give primary consideration to securing the
most favorable price and efficient execution, so that the Fund'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 Fund of the Trust
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 Fund 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 Fund may be made with brokers who
provide such research and analysis, subject to review by the
Trustees from time to time with respect to the extent and
continuation of this practice to determine whether the Fund
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 Fund'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 Fund, 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 to obtain 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 it considers to be the most equitable and
consistent with its fiduciary obligations to the Fund and to such
other clients.
4. COMPENSATION
a. ADVISORY FEE. In exchange for the rendering of advice and services
pursuant hereto, the Trust 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 and paid by the Advisor as provided in
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Section 2, a fee at an annual rate applied to the daily net assets
of a Fund in accordance with the following schedule:
Titan 500 Fund ...............................1.00%
Tempest 500 Fund .............................1.00%
Velocity 100 Fund ............................1.00%
Venture 100 Fund .............................1.00%
Titan 500 Master Fund ........................ %
Tempest 500 Master Fund ...................... %
Velocity 100 Master Fund ..................... %
Venture 100 Master Fund ...................... %
b. PAYMENT. The fee will be accrued daily by each Fund and paid to the
Advisor monthly not later than the fifth (5th) business day of the
month following the month for which services have been provided. In
the event of termination of this Agreement, the fee shall be
computed on the basis of the period ending on the last business day
on which this Agreement is in effect subject to a pro rata
adjustment based on the number of days elapsed in the current 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 Fund. For purposes of calculating the Advisor's
fee, the value of the net assets of each respective Fund of the
Trust shall be determined in the same manner as the Fund uses to
compute the value of the Fund's net assets in connection with the
determination of the Net Asset Value of the Fund, all as set forth
more fully in the current Prospectus and Statement of Additional
Information for the Funds included in the Registration Statement.
5. AFFILIATIONS OF PARTIES; CHANGE IN OWNERSHIP OR CONTROL OF THE ADVISOR
Subject to and in accordance with the Trust Declaration, the By-Laws and
Articles of Incorporation of the Advisor, and the 1940 Act, the Trustees,
officers, agents, and shareholders of the Trust are or may be interest 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 Trust as Trustees, officers, agents, shareholders, or otherwise, and the
Advisor or its affiliates may be interested persons of the Trust, and such
relationships shall be governed by said governing instruments and the applicable
provisions of the 1940 Act. The Advisor shall notify the Trust of any change in
ownership or control of PADCO Advisors, 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 Trust could
not rely on Rule 15a-4 under the 1940 Act (or such shorter period approved by a
majority of the Trustees who are not interested persons of the Trust).
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6. FURNISHING OF INFORMATION
During the term of this Agreement, the Trust agrees:
a. to provide the Advisor with copies of all prospectuses, statements
of additional information, proxy statements, registration
statements, reports to Shareholders, sales literature, and other
material prepared for distribution to Shareholders of the Funds of
the Trust 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
Trust shall not use such material, if the Advisor reasonably objects
in writing within five (5) business days (or within such 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 Trust's Registration Statement
(including any prospectus and statement of additional information
included therein) or the Trust Declaration 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 Trustees which
affect the Advisor's investment management responsibilities
hereunder, and (ii) a list of every natural person or entity deemed
by the Trust to be an "affiliated person" of, or "promoter" of, or
"principal underwriter" for the Trust, 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 Trust 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 Fund on
the date first above written, and continue in effect until two (2)
years from the date hereof, and thereafter only so long as such
continuance is approved with respect to the Fund at least annually
by (i) a vote of a majority of the Trustees, and (ii) a vote of a
majority of the Trustees 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 Funds without
penalty either by vote of the Trustees or by vote of a majority of
the outstanding voting securities of the Fund(s). This Agreement
shall automatically terminate in the event of its assignment (within
the meaning of the 1940 Act). This Agreement may be
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terminated by the Advisor on sixty (60) days prior written notice to
the Trust. Any notice under this Agreement shall be given as
provided in Section 12 below.
8. NON-TRANSFERABILITY
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
Trust.
9. OTHER ACTIVITIES OF THE ADVISOR
The services of the Advisor to the Trust 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 Trust, including any of the
Funds of the Trust, in any way or otherwise be deemed an agent of the Trust, or
the Funds of the Trust.
10. STANDARD OF CARE; INDEMNIFICATION
a. No provisions of this Agreement shall be deemed to protect the
Advisor against any liability to the Trust, the Funds of the Trust,
or the Shareholders of the Funds to which the Advisor otherwise
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
Trustee or officer of the Trust against any such liability to which
said Trustee or officer might otherwise be subject by reason of any
willful misfeasance, bad faith, or gross negligence in the
performance of the Trustee's or officer's respective duties or the
reckless disregard of the Trustee'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 subject to liability to the
Trust, to the Funds, or to any Shareholder of the Funds 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 Fund. 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 Trustee, who may be or become an officer, director,
trustee, partner, employee, or agent of the Trust, shall be deemed
when rendering such services to the Trust or
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acting on any business of the Trust to be rendering such services to
or acting solely for the Trust and not as the Trustee's officer,
director, trustee, partner, employee, or agent or as one under the
Trustee's control or direction even though paid by the Trustee.
11. REPRESENTATIONS AND WARRANTIES OF THE TRUST
The Trust represents and warrants that the Trust 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 Trust under the 1933 Act and the 1940 Act, to permit the public offering of,
and to consummate the sale of, the shares of the Trust pursuant to the current
prospectus of the Trust.
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 Trust: Rydex Dynamic Funds
ATTENTION: President
If to the Advisor: PADCO Advisors, Inc.
ATTENTION: President
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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
This Agreement shall 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.
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IN WITNESS WHEREOF, the Trust and the Advisor have caused this Agreement
to be executed on the date first above written.
RYDEX DYNAMIC FUNDS
By:
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PADCO ADVISORS, INC.
By:
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