Exhibit 99.B(D)(6)
INTERIM INVESTMENT ADVISORY AGREEMENT
BETWEEN
THE RYDEX VARIABLE TRUST
AND
PADCO ADVISORS II, INC.
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THIS INTERIM INVESTMENT ADVISORY AGREEMENT (the "Agreement"), dated as of
December 12, 2003 is entered into by and between RYDEX VARIABLE TRUST (the
"Trust"), a Delaware business trust established on June 11, 1998 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 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 separate portfolio series of the Trust (each a "Fund" and collectively, the
"Funds") set forth on Schedule A of this Agreement;
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:
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,
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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 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
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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 Section 2, a fee at an annual
rate applied to the daily net assets of a Fund in accordance with
Schedule A of this Agreement.
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
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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 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 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).
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
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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 for a period no
greater than 150 days from December 11, 2003.
b. This Agreement may be terminated on ten (10) 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 terminated by the Advisor on ten (10)
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
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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 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
0000 Xxxxxxxxx Xxxx
Xxxxx 000
0
Xxxxxxxxx, XX 00000
ATTENTION: President
If to the Advisor: PADCO Advisors, Inc.
0000 Xxxxxxxxx Xxxx
Xxxxx 000
Xxxxxxxxx, XX 00000
ATTENTION: President
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.
IN WITNESS WHEREOF, the Trust and the Advisor have caused this Agreement to
be executed on the date first above written.
RYDEX VARIABLE TRUST
By: /s/ Xxxx X. Xxxxxxxxxxx
------------------------
PADCO ADVISORS II, INC.
8
By: /s/ Xxxx X. Xxxxxxxxxxx
------------------------
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SCHEDULE A
TO THE
INTERIM INVESTMENT ADVISORY AGREEMENT
DATED DECEMBER 12, 2003 BETWEEN
RYDEX VARIABLE TRUST
AND
PADCO ADVISORS II, INC.
The Fund 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
---- ----
Nova 0.75%
Ursa 0.90%
OTC 0.75%
Arktos 0.90%
Medius 0.90%
Mekros 0.90%
Titan 500 0.90%
Tempest 500 0.90%
Velocity 100 0.90%
Venture 100 0.90%
U.S. Government Bond 0.50%
Juno 0.90%
Long Dynamic Dow 30 0.90%
Inverse Dynamic Dow 30 0.90%
Large-Cap Value 0.75%
Large-Cap Growth 0.75%
Mid-Cap Value 0.75%
Mid-Cap Growth 0.75%
Inverse Mid-Cap 0.90%
Small-Cap Value 0.75%
Small-Cap Growth 0.75%
Banking 0.85%
Basic Materials 0.85%
Biotechnology 0.85%
Consumer Products 0.85%
Electronics 0.85%
Energy 0.85%
Energy Services 0.85%
Financial Services 0.85%
Health Care 0.85%
Internet 0.85%
Leisure 0.85%
Precious Metals 0.75%
Real Estate 0.85%
Retailing 0.85%
Technology 0.85%
Telecommunications 0.85%
Transportation 0.85%
Utilities 0.85%
Sector Rotation 0.90%
Core Equity* 0.70%
A-1
FUND RATE
---- ----
Inverse Small-Cap 0.90%
Large-Cap Europe 0.90%
Large-Cap Japan 0.90%
U.S. Government Money Market 0.50%
CLS AdvisorOne Xxxxxxx VT 0.90%
CLS AdvisorOne Clermont VT 0.90%
* 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 Share of the Fund and the performance of the
Index over the most recent 12-month period. The performance of one 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:
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
A-2
FOR THE ROLLING 12-MONTH FUND'S INVESTMENT INDEX'S FUND'S PERFORMANCE
PERFORMANCE PERIOD PERFORMANCE CUMULATIVE CHANGE RELATIVE TO THE INDEX
------------------------- ----------------- ----------------- ---------------------
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:
- 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.
- 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%.
- 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.
- 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". The Trustees have initially designated the Xxxxxxx 3000
Index as the index to be used for purposes of determining the Performance
Adjustment (referred to herein as the "Index"). 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 that another securities index is a more appropriate
benchmark than the Index for purposes of evaluating the performance of the Fund
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. 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.
A-3
