Exhibit 99.D2
INVESTMENT SUB-ADVISORY AGREEMENT
AGREEMENT made this 30th day of April, 2004, by and between PADCO ADVISORS
II, INC., a Maryland corporation (the "Adviser"), and XXXXXX XXXXXX XXXXXX
INVESTMENT FIRM, LLC, a Nebraska limited liability company (the "Sub-Adviser").
WHEREAS, Rydex Variable Trust, a Delaware statutory trust (the "Trust") is
an open-end management investment company registered under the Investment
Company Act of 1940, as amended (the "1940 Act");
WHEREAS, the Adviser has entered into an Interim Investment Advisory
Agreement dated April 30, 2004, as amended (the "Advisory Agreement") with the
Trust, pursuant to which the Adviser will act as the investment adviser to the
separate series of the Trust set forth therein; and
WHEREAS, the Adviser, with the approval of the Trust, desires to retain the
Sub-Adviser as its agent to furnish sub-investment advisory services to the
Adviser in connection with the management of the separate series of the Trust
set forth on SCHEDULE A of this Investment Sub-Advisory Agreement (each a
"Fund"), and the Sub-Adviser is willing to render such investment advisory
services.
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
the parties hereto agree as follows:
1. APPOINTMENT. The Adviser hereby appoints the Sub-Adviser to provide
certain sub-investment advisory services to each Fund for the period and on the
terms set forth in this Agreement. The Sub-Adviser hereby accepts such
appointment and agrees to furnish the services herein set forth for the
compensation herein provided.
2. DELIVERY OF DOCUMENTS. The Sub-Adviser hereby acknowledges receipt
of properly certified or authenticated copies of each of the following:
(a) The Trust's Agreement and Declaration of Trust, as filed with the
Secretary of State of the State of Delaware, and all amendments
thereto or restatements thereof (such Declaration, as presently
in effect and as it shall from time to time be amended or
restated, is herein called the "Declaration of Trust");
(b) The Trust's By-Laws and amendments thereto;
(c) Resolutions of the Trust's Board of Trustees authorizing the
appointment of the Sub-Adviser and approving this Agreement;
(d) The Trust's Notification of Registration on Form N-8A under the
1940 Act as filed with the Securities and Exchange Commission
(the "SEC") and all amendments thereto;
(e) The Trust's Registration Statement on Form N-1A under the
Securities Act of 1933, as amended (the "1933 Act") and under the
1940 Act as filed with the SEC and all amendments thereto insofar
as such Registration Statement and such amendments relate to each
Fund; and
(f) The Trust's most recent prospectus and Statement of Additional
Information for each Fund (such prospectus and Statement of
Additional Information, as presently in effect, and all
amendments and supplements thereto are herein collectively called
the "Prospectus").
The Adviser will furnish the Sub-Adviser from time to time with copies
of all amendments of or supplements to the foregoing.
3. MANAGEMENT. Subject always to the supervision of the Trust's Board of
Trustees and the Adviser, the Sub-Adviser will furnish, direct, and administer
an investment program in respect of, and make investment and reinvestment
decisions for, all assets of each Fund and place all orders for the purchase and
sale of securities, all on behalf of each Fund. In the performance of its
duties, the Sub-Adviser will satisfy its fiduciary duties to each Fund, and will
monitor each Fund's investments, and will comply with the provisions of the
Trust's Declaration of Trust and By-Laws, as amended from time to time, any
policies or restrictions imposed by the Adviser and/or the Trust, and the stated
investment objectives, policies and restrictions of each Fund as provided in
each Fund's prospectus and statement of additional information, as amended from
time to time. The Sub-Adviser and the Adviser will each make its officers and
employees available to the other from time to time at reasonable times to review
investment policies of each Fund and to consult with each other regarding the
investment affairs of each Fund. The Sub-Adviser shall also make itself
reasonably available to the Board of Trustees at such times as the Board of
Trustees shall request.
The Sub-Adviser represents and warrants that it is in compliance with all
applicable rules and regulations of the SEC pertaining to its investment
advisory activities and agrees that it:
(a) will use the same skill and care in providing such services as it
uses in providing services to fiduciary accounts for which it has
investment responsibilities;
(b) will conform with all applicable rules and regulations of the SEC
pertaining to its investment advisory activities;
(c) will place orders pursuant to its investment determinations for
each Fund either directly with the issuer or with any broker or
dealer. In placing orders with brokers or dealers, the
Sub-Adviser will attempt to obtain the best combination of prompt
execution of orders in an effective manner and at the most
favorable price consistent with its "best execution" obligation.
Consistent with this obligation, when the execution and price
offered by two or more brokers or dealers are comparable, the
Sub-Adviser may, in its discretion, purchase and sell portfolio
securities to and from brokers and dealers who provide the
Sub-Adviser with research advice and other
2
services (as those terms are defined in Section 28(e) of the
Securities Act of 1934). In no instance will portfolio securities
be purchased from or sold to the Adviser, the Sub-Adviser, Rydex
Distributors, Inc. or any affiliated person of either the Trust,
the Adviser, the Sub-Adviser or Rydex Distributors, Inc., except
as may be permitted under the 1940 Act;
(d) will report regularly to the Adviser and will make appropriate
persons available for the purpose of reviewing at reasonable
times with representatives of the Adviser and the Board of
Trustees the management of each Fund, including, without
limitation, review of the general investment strategy of each
Fund, the performance of each Fund in relation to standard
industry indices, interest rate considerations and general
conditions affecting the marketplace and will provide various
other reports from time to time as reasonably requested by the
Adviser;
(e) will maintain books and records required to be maintained by Rule
31a-3 under the 1940 Act with respect to the Trust's securities
transactions and will furnish the Adviser and the Trust's Board
of Trustees such periodic and special reports as the Board of
Trustees or the Adviser may request;
(f) will act upon instructions from the Adviser not inconsistent with
the fiduciary duties hereunder; and
(g) will treat confidentially and as proprietary information of the
Trust all such records and other information relative to the
Trust maintained by the Sub-Adviser, and will not use such
records and information for any purpose other than performance of
its responsibilities and duties hereunder, except after prior
notification to and approval in writing by the Trust, which
approval shall not be unreasonably withheld and may not be
withheld where the Sub-Adviser may be exposed to civil or
criminal contempt proceedings for failure to comply, when
requested to divulge such information by duly constituted
authorities, or when so requested by the Trust.
4. PROXY VOTING; CORPORATE ACTIONS. The Sub-Adviser shall execute and
deliver, or cause its nominee to execute and deliver, all proxy votes, notices
of meetings and other notices affecting or relating to the securities of each
Fund during the term of this Agreement. The Sub-Adviser shall maintain and
preserve written proxy voting procedures, and shall provide a copy of such
voting procedures, along with a record of its actual proxy votes relating to the
securities of each Fund, to the Adviser or the Trust upon request. The Adviser
and Sub-Adviser understand that the Funds may pursue their investment objectives
by investing in other investment companies that are not affiliated "underlying
funds" and specific proxy rules are applicable under the 1940 Act to this type
of relationship. In particular the Sub-Adviser will vote all proxies received
from the underlying funds in the same proportion that all shares of the
underlying funds are voted, or in accordance with instructions received from
fund shareholders, pursuant to Section 12(d)(1)(F) of the 1940 Act. The
Sub-Adviser shall maintain records
3
regarding proxy voting on behalf of the Portfolio in order that the Portfolio
may complete the annual Form N-PX filing.
5. BOOKS AND RECORDS. In compliance with the requirements of Rule 31a-3
under the 1940 Act, the Sub-Adviser hereby agrees that all records which it
maintains for each Fund, on behalf of the Trust are the property of the Trust
and further agrees to surrender promptly to the Trust any of such records upon
the Trust's request. The Sub-Adviser further agrees to preserve for the periods
prescribed by Rule 31a-2 under the 1940 Act the records required to be
maintained by Rule 31a-1 under the 1940 Act.
6. EXPENSES. During the term of this Agreement, the Sub-Adviser will pay
all expenses incurred by it in connection with its activities under this
Agreement.
7. COMPENSATION. For the services to be provided by the Sub-Adviser
pursuant to this Agreement, the Adviser will pay the Sub-Adviser, and the
Sub-Adviser agrees to accept as full compensation therefor, a sub-advisory fee
paid at the rate specified on SCHEDULE A, which is attached hereto and made part
of this Agreement. The fee will be calculated based on the average daily net
asset value of the Assets under the Sub-Adviser's management. This fee will be
paid at least quarterly. Except as may otherwise be prohibited by law or
regulation (including any then current SEC staff interpretation), the
Sub-Adviser may, in its discretion and from time to time, waive a portion of its
fee. Sub-Adviser shall not be responsible for expenses and costs of a Fund's
operations payable by a Fund or the Adviser.
8. SERVICES TO OTHERS. The Adviser understands, and has advised the
Trust's Board of Trustees, that the Sub-Adviser now acts, and may in the future
act, as an investment adviser and fiduciary to other managed accounts, and as
investment adviser, sub-investment adviser, and/or administrator to other
investment companies. The Adviser has no objection to the Sub-Adviser's acting
in such capacities, provided that the Sub-Adviser furnishes adequate disclosure
of such possible conflicts of interest and implements procedures designed to
mitigate or eliminate such conflicts. For example, whenever a Fund and one or
more other investment companies advised by the Sub-Adviser have available funds
for investment, investments suitable and appropriate for each will be allocated
in accordance with a formula believed by the Sub-Adviser to be equitable to each
company. The Adviser recognizes, and has advised the Trust's Board of Trustees,
that in some cases the Sub-Adviser's procedures may adversely affect the size of
the position that each Fund may obtain in a particular security. In addition,
the Adviser understands, and has advised the Trust's Board of Trustees, that the
persons employed by the Sub-Adviser to assist in the Sub-Adviser's duties under
this Agreement will not devote their full time to such service and nothing
contained in this Agreement will be deemed to limit or restrict the right of the
Sub-Adviser or any of its affiliates to engage in and devote time and attention
to other businesses or to render services of whatever kind or nature.
9. STANDARD OF CARE. Each of the Adviser and Sub-Adviser shall discharge
its duties under this Agreement with the care, skill, prudence and diligence
under the circumstances then prevailing that a prudent person acting in a like
capacity and familiar with such matters would use in the conduct of an
enterprise of a like character and with like aims. The parties recognize that
the opinions, recommendations and actions of Sub-Adviser will be based on advice
and information deemed to be reliable but not guaranteed by or to Sub-Adviser.
4
10. INDEMNIFICATION. Each of the Adviser and Sub-Adviser agrees to
indemnify each other against any claim, loss or liability (including reasonable
attorney's fees) arising as a result of the failure to meet the standard of care
set forth in the first sentence of Paragraph 9 hereof. Notwithstanding the
generality of the foregoing, the Adviser and Sub-Adviser each further agrees to
indemnify each other against any claim, loss or liability (including reasonable
attorney's fees) arising or as a result of willful misfeasance, bad faith or
gross negligence in the performance of its duties, or by reason of reckless
disregard of its obligation and duties hereunder. The federal securities laws
impose liabilities under certain circumstances on persons who act in good faith,
and therefore nothing herein shall in any way constitute a waiver or limitation
of any rights which each party may have against the other under any federal
securities laws based on negligence and which cannot be modified in advance by
contract.
11. DURATION AND TERMINATION. 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. Notwithstanding the
foregoing, this Agreement may be terminated as to each Fund at any time, without
the payment of any penalty, on ten (10) days' written notice by the Adviser or
by the Sub-Adviser. This Agreement will immediately terminate in the event of
its assignment. (As used in this Agreement, the terms "majority of the
outstanding voting securities," "interested persons" and "assignment" have the
same meaning of such terms ascribed in the 1940 Act.)
This Agreement will terminate automatically if the investment advisory
agreement between the Trust and the Adviser is terminated.
12. AMENDMENT OF THIS AGREEMENT. No provision of this Agreement may be
changed, waived, discharged or terminated orally, but only by an instrument in
writing signed by the party against which enforcement of the change, waiver,
discharge or termination is sought.
13. MULTIPLE ORIGINALS. This Agreement may be executed in two or more
counterparts, each of which when so executed shall be deemed to be an original,
but such counterparts shall together constitute but one and the same document.
14. CUSTODY. All securities and other assets of each Fund shall be
maintained with a custodian designated by the Adviser. The Sub-Adviser shall
have no responsibility or liability with respect to any custodial function.
15. MISCELLANEOUS. The captions in this Agreement are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. If any
provision of this Agreement is held or made invalid by a court decision,
statute, rule or otherwise, the remainder of this Agreement will not be affected
thereby. This Agreement will be binding upon and shall inure to the benefit of
the parties hereto and will be governed by the internal laws of the state of
Delaware. The Sub-Adviser shall notify the Adviser of any changes in its
officers and directors within a reasonable time.
16. LIMITATION OF LIABILITY. The names "Rydex Variable Trust" and
"Trustees of the Rydex Variable Trust" refer respectively to the Trust created
by, and the Trustees, as trustees but not individually or personally, acting
from time to time under, the Declaration of Trust, to which
5
reference is hereby made and a copy of which is on file at the office of the
Secretary of State of the State of Delaware and elsewhere as required by law,
and to any and all amendments thereto so filed or hereafter filed. The
obligations of the Trust entered in the name or on behalf thereof by any of the
Trustees, representatives or agents are made not individually but only in such
capacities and are not binding upon any of the Trustees, shareholders or
representatives of the Trust personally, but bind only the assets of the Trust.
Persons dealing with each Fund must look solely to the assets of the Trust
belonging to each Fund for the enforcement of any claims against the Trust.
6
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their officers designated below as of the day and year first above
written.
PADCO ADVISORS II, INC.
By: /s/ Xxxx X. Xxxxxxxxxxx
----------------------------
Name: Xxxx X. Xxxxxxxxxxx
--------------------------
Title: President
-------------------------
XXXXXX XXXXXX XXXXXX INVESTMENT FIRM, LLC
By: /s/ Xxxxx Xxxxx
----------------------------
Name: Xxxxx Xxxxx
--------------------------
Title: President
-------------------------
7
SCHEDULE A
TO THE
INVESTMENT SUB-ADVISORY AGREEMENT
BETWEEN
PADCO ADVISORS II, INC.
AND
XXXXXX XXXXXX XXXXXX INVESTMENT FIRM, LLC
Pursuant to Section 7 of this Investment Sub-Advisory Agreement, the Adviser
shall pay the Sub-Adviser compensation at an annual rate as follows:
Xxxxxxx Fund: 0.40%
Clermont Fund: 0.40%
Should either of the aforementioned Funds not average $10,000,000 in assets over
a quarter, the Sub-Adviser will not receive compensation for assets in that Fund
for that specific quarter.
8
