INTERIM INVESTMENT ADVISORY AGREEMENT
BETWEEN
RYDEX DYNAMIC FUNDS
AND
PADCO ADVISORS, 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 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:
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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
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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 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
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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 a 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 a 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 a Fund, as well as in
the interests 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.
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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).
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
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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
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.
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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 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.
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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
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 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 Trust and the Advisor have caused this
Agreement to be executed on the date first above written.
RYDEX DYNAMIC FUNDS
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By: /S/ Xxxx X. Xxxxxxxxxxx
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PADCO ADVISORS, INC.
By: /S/ Xxxx X. Xxxxxxxxxxx
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SCHEDULE A
TO THE
INTERIM INVESTMENT ADVISORY AGREEMENT
DATED DECEMBER 12, 2003 BETWEEN
RYDEX DYNAMIC 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
---- ----
Titan 500* .............................. 0.90%
Titan 500 Master ........................ 0.90%
Tempest 500* ............................ 0.90%
Tempest 500 Master ...................... 0.90%
Velocity 100* ........................... 0.90%
Velocity 100 Master ..................... 0.90%
Venture 100* ............................ 0.90%
Venture 100 Master ...................... 0.90%
Long Dynamic Dow 30* .................... 0.90%
Long Dynamic Dow 30 Master .............. 0.90%
Inverse Dynamic Dow 30* ................. 0.90%
Inverse Dynamic Dow 30 Master ........... 0.90%
* The fee will be reduced to 0.00% for any period during which the Fund
invests through a master-feeder structure.
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