SERVICE AGREEMENT
THIS SERVICE AGREEMENT (the "Agreement"), dated as of ,
is entered into by and between RYDEX DYNAMIC FUNDS, a Delaware business trust
(the "Trust"), and PADCO SERVICE COMPANY, INC., a Maryland corporation (the
"Servicer").
W I T N E S S E T H:
WHEREAS, the Trust is an investment company registered under the
Investment Company Act of 1940, as amended (the "1940 Act");
WHEREAS, the Servicer is registered as a transfer agent under the
Securities Exchange Act of 1934, as amended; and
WHEREAS, the Trust wishes to have the Servicer perform general
administrative, share holder, dividend disbursement, transfer agent, and
registrar and other services for the Trust and to act in such capacity in the
manner set forth in this Agreement, and the Servicer is willing to act in such
capacity in accordance with the 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.
In consideration of the compensation to be paid by the Trust to the
Servicer pursuant to Section 4 of this Agreement, the Servicer will:
a. Manage, supervise, and conduct the affairs and business of the
Trust and matters incidental thereto. In the performance of its
duties, the Servicer will
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comply with the Trust's Prospectus and its Statement of Additional
Information, as the same may be amended from time to time, all as
delivered to the Servicer (collectively, the "Controlling
Documents"). The Servicer will also use its best efforts to
safeguard and promote the welfare of the Trust, and to comply with
other policies which the Board of Trustees of the Trust (the
"Board") may from time to time specify. The Servicer will furnish or
provide to the Trust general administrative services as the Trust
may reasonably require in the conduct of its affairs and business,
including, without limitation, the services described on Schedule I
attached hereto.
b. Provide the Trust with all required shareholder and dividend
disbursement services, including, without limitation, those services
described on Schedule II, attached hereto. The Servicer will
maintain sufficient trained personnel and equipment and supplies to
perform such services in conformity with the Controlling Documents
and such other reasonable standards of performance as the Trust may
from time to time specify, and otherwise in an accurate, timely, and
efficient manner.
c. Provide the Trust with all required stock transfer agent and
registrar services, including, without limitation, those services
described on Schedule III attached hereto. The Servicer will
maintain sufficient trained personnel and equipment and supplies to
perform such services in conformity with the Controlling Documents
and such other reasonable standards of performance as the
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Trust may from time to time specify, and otherwise in an accurate,
timely, and efficient manner.
2. OBLIGATIONS OF THE TRUST.
The Trust will have the following obligations under this Agreement:
a. The Trust shall keep the Servicer continuously and fully
informed as to the composition of the Trust's investment portfolio
and the nature of all of the Trust's assets and liabilities, and
shall cause the investment managers of the Trust's series to
cooperate with the Servicer in all matters so as to enable the
Servicer to perform the Servicer's functions under this Agreement.
b. The Trust shall furnish the Servicer with any materials or
information which the Servicer may reasonably request to enable the
Servicer to perform the Servicer's functions under this Agreement.
c. The Trust shall turn over to the Servicer the accounts and
records previously maintained by or for the Trust. The Servicer
shall be entitled to rely exclusively on the completeness and
correctness of the accounts and records turned over to the Servicer
by the Trust; provided, that such reliance is made in good faith,
and the Trust shall indemnify and hold the Servicer harmless of and
from any and all expenses (including, without limitation, attorneys'
and accountants' fees), damages, claims, suits, liabilities,
actions, demands, and losses whatsoever arising out of or in
connection with any error, omission, inaccuracy, or other deficiency
of such accounts and records or in connection with the failure
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of the Trust to provide any portion of such accounts and records or
to provide any information to the Servicer necessary or appropriate
to perform the Servicer's functions hereunder; and provided,
further, that such accounts, records, and other information shall
belong to the Trust and be considered confidential, and shall not be
disclosed to other than Federal and state regulators without
permission from the Trust.
3. PAYMENT OF FEES AND EXPENSES.
a. The Servicer will pay all of the fees and expenses incurred by
the Servicer in providing the Trust with the services and facilities
described in this Agreement, except as otherwise provided herein.
b. Notwithstanding any other provision of this Agreement, the
Trust will pay, or reimburse the Servicer for the payment of, all
fees and expenses incurred by the Servicer not directly related to
the Servicer's providing the Trust with the services and facilities
described in this Agreement, including, but not limited to, the
following described fees and expenses of the Trust (hereinafter
called "Direct Expenses") whether or not billed to the Trust, the
Servicer, or any related entity:
i. fees and expenses relating to investment advisory services;
ii. fees and expenses of custodian and depositories and banking
services fees and costs;
iii. fees and expenses of outside legal counsel and any legal
counsel directly employed by the Trust;
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iv. fees and expenses of independent auditors and income tax
preparation and expenses of obtaining quotations for the
purpose of calculating the value of the Trust's assets;
v. fees and expenses of consultants;
vi. interest charges;
vii. all Federal, state, and local taxes (including, without
limitation, stamp, excise, income, and franchise taxes);
viii. costs of stock certificates and other expenses of issuing
and redeeming shares of the Trust ("Shares");
ix. costs incidental to or associated with shareholder meetings;
x. fees and expenses of registering or qualifying shares for
sale under Federal and state securities laws;
xi. costs (including postage) of printing and mailing
prospectuses, confirma tions, proxy statements, and other
reports and notices to shareholders and to governmental
agencies;
xii. premiums on all insurance and bonds and other expenses of
fidelity and liability insurance and bonding covering the
Trust;
xiii. fees and expenses of the disinterested Trustees and
expenses incidental to the meetings of the Board;
xiv. fees and expenses paid to any securities pricing
organization;
xv. dues and expenses associated with membership in the
Investment Company Institute and the Mutual Fund Education
Alliance;
xvi. costs for incoming telephone WATS lines; and
xvii. organizational costs.
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4. COMPENSATION.
As consideration for the services provided hereunder, the Trust will
pay the Servicer a fee on the last day of each month in which this Agreement is
in effect, at the following annual rates based on the average daily net assets
(the "Assets") of each of the Trust's series for such month:
Titan 500 Fund
[.45%] of Assets
Tempest 500 Fund
[.45%] of Assets
Velocity 100 Fund
[.45%] of Assets
Venture 100 Fund
[.45%] of Assets
Titan 500 Master Fund
[ %] of Assets
Tempest 500 Master Fund
[ %] of Assets
Velocity 100 Master Fund
[ %] of Assets
Venture 100 Master Fund
[ %] of Assets
In the event that this Agreement commences on a date other than on the
beginning of any calendar month, or if this Agreement terminates on a date other
than the end of any calendar month, the fees payable hereunder by the Trust
shall be proportionately reduced according to the number of days during such
month that services were not rendered hereunder by the Servicer.
5. REPORTS TO THE BOARD OF TRUSTEES.
The Servicer will consult with the Board at such times as the Board
reasonably requests with respect to the services provided hereunder, and the
Servicer will cause its officers to attend such meetings with the Board, and to
furnish such oral or written reports to the Board, as the Board may reasonably
request. In addition, the Servicer agrees to provide to the Board such
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reports and other information as the Board may reasonably request in order to
enable the Board to perform a review of the Servicer's performance under this
Agreement.
6. TERM OF AGREEMENT.
This Agreement is effective as on the date hereof. This Agreement will
remain in full force and effect until August ___, 2001, unless terminated
earlier in accordance with its terms, and thereafter from year to year;
PROVIDED, that: (a) such continuance is approved by (i) either a vote of the
majority of the Trustees or a vote of a "majority of the outstanding voting
securities" (as defined in the 0000 Xxx) of the Trust and (ii) a majority of the
Trustees who are not "interested persons" (as defined at Section 2(a)(19) of the
0000 Xxx); and (b) the following findings are made by a majority of the Trustees
who are not "interested persons" (as defined at Section 2(a)(19) of the 1940
Act): (i) that this Agreement is in the best interests of the Trust; (ii) that
the services to be performed pursuant to this Agreement are services required
for the operation of the Trust; (iii) that the Servicer can provide services the
nature and quality of which are at least equal to those provided by others
offering the same or similar services; and (iv) that the fees for such services
are fair and reasonable in light of the usual and customary charges made by
others for services of the same nature and quality.
7. TERMINATION.
This Agreement may be terminated, without the payment of any penalty,
by either party hereto upon at least sixty (60) days' written notice to the
other party. Any termination by the Trust will be pursuant to a vote of a
majority of the Trustees.
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8. STANDARD OF CARE.
a. Except as provided by law, the Servicer will be under no
liability or obligation to anyone with respect to any failure on the
part of the Board or any investment manager to perform any of their
obligations under the Controlling Documents, or for any error or
omission whatsoever on the part of the Board or any investment
manager.
b. The Servicer will not be liable for any error of judgment or
mistake of law or for any loss caused by the Trust in connection
with the matters to which this Agreement relates; provided, however,
that the Servicer has acted in the premises with the care, skill,
prudence, and diligence under the circumstances then prevailing that
a prudent man acting in like capacity and familiar with such matters
would use in the conduct of any enterprise of a like character and
with like aims, and in accordance with such other requirements of
law; provided, further, however, that nothing in this Agreement will
protect the Servicer against any liability to the Trust to which the
Servicer would otherwise be subject by reason of willful
misfeasance, bad faith, or gross negligence in the performance of
the Servicer's duties hereunder or by reason of the Servicer's
reckless disregard of the Servicer's obligations and duties
hereunder.
9. OTHER ACTIVITIES OF THE SERVICER.
Subject to the provisions of Section 5 of this Agreement, with respect
to advance notice of the Servicer's taking on of new clients or ventures of
material significance, nothing herein
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contained will limit or restrict the right of the Servicer to engage in any
other business or to render services of any kind to any other corporation, firm,
individual, or association.
10. SCOPE OF AUTHORITY.
a. Shares purchased by the Servicer on behalf of shareholders of
the Trust ("Shareholders") will be registered with the Servicer, as
the Trust's transfer agent, in the Servicer's name or in the name of
the Servicer's nominee. The Shareholder will be the beneficial owner
of Shares purchased and held by the Servicer in accordance with the
Shareholder's instructions and the Shareholder may exercise all
rights of a Shareholder of the Trust.
b. Neither the Servicer nor any of the Servicer's officers,
employees, agents, or assigns are authorized to make any
representations concerning the Trust or the Shares, except for those
representations contained in the Trust's then-current prospectus for
such Shares, copies of which will be supplied by the Trust to the
Servicer, or in such supplemental literature or advertising as may
be authorized by the Trust in writing.
11. AUTHORITY TO ENGAGE SUB-SERVICERS.
In providing the services and assuming the obligations set forth
herein, the Servicer may, at the sole expense of the Servicer, employ one or
more sub-servicers, or may enter into such service agreements as the Servicer
deems appropriate in connection with the performance of the Servicer's duties
and obligations hereunder. Reference herein to the duties and responsibilities
of the Servicer shall include the duties and responsibilities of any
sub-servicers employed by the
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Servicer to the extent that the Servicer shall delegate such duties and
responsibilities to such sub-servicer.
12. INDEMNIFICATION.
a. The Trust shall indemnify the Servicer and hold the Servicer
harmless from and against all actions, suits, and claims, whether
groundless or otherwise, arising directly or indirectly out of or in
connection with the Servicer's performance under this Agreement and
from and against any and all losses, damages, costs, charges,
attorneys' and accountant's fees, payments, expenses, and
liabilities incurred by the Servicer in connection with any such
action, suit, or claim unless caused by the Servicer's breach of
this Agreement, negligence, or willful misconduct. The Servicer
shall not be under any obligation to prosecute or to defend any
action, suit, or claim arising out of or in connection with the
Servicer's performance under this Agreement, which, in the opinion
of the Servicer's counsel, may involve the Servicer in expense or
liability, and the Trust shall, so often as reasonably requested,
furnish the Servicer with satisfactory indemnity against such
expense or liability, and upon request of the Servicer, the Trust
shall assume the entire defense of any action, suit, or claim
subject to the foregoing indemnity; PROVIDED, HOWEVER, that the
Servicer shall give the Trust immediate notice of any such action,
suit, or claim brought against the Servicer.
b. The Servicer shall indemnify the Trust and hold the Trust
harmless from all claims and liabilities (including reasonable
attorneys' and accountants' expenses) incurred or assessed against
the Trust arising from the Servicer's negligence, wilful misconduct,
or breach of this Agreement.
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13. NOTICES.
a. Communications to the Servicer from the Trust or the Board
shall be addressed to:
Rydex Dynamic Funds
Attention: President
b. Communications from the Servicer to the Trust shall be
addressed to: PADCO Service Company, Inc.
Attention: President
c. In the event of a change of address, communications will be
addressed to such new address as designated in a written notice from
the Trust or the Servicer, as the case may be. All communications
addressed in the above manner and by registered mail or delivered by
hand will be sufficient under this Agreement.
14. LAW GOVERNING.
This Agreement is governed by the laws of the State of Maryland
(without reference to such state's conflict of law rules).
15. COUNTERPARTS.
This Agreement may be executed in counterparts, each of which shall be
deemed an original, but which together shall constitute one and the same
instrument.
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16. BINDING EFFECT AND ASSIGNMENT.
This Agreement shall be binding upon the parties hereto and their
respective successors and assigns; PROVIDED, HOWEVER, that this Agreement shall
not be assignable by the Trust without the written consent of the Servicer, or
by the Servicer without the written consent of the Trust, in each case
authorized or approved by a resolution of the Trust's Trustees.
17. AMENDMENT, MODIFICATION, AND WAIVER.
No term or provision of this Agreement may be amended, modified, or
waived without the affirmative vote or action by written consent of the Servicer
and the Trust effected in accordance with the 1940 Act and Section 6 of this
Agreement.
IN WITNESS WHEREOF, the Servicer and the Trust have executed this
Agreement as of the date first written above.
RYDEX DYNAMIC FUNDS
By:
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Name:
----------------------------------
Title:
---------------------------------
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PADCO SERVICE COMPANY, INC.
By:
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Name:
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Title:
---------------------------------
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SCHEDULE I
GENERAL ADMINISTRATIVE SERVICES
The Servicer agrees to provide the Trust with all required general
administrative services, including, without limitation, the following:
1. Office space, equipment, and personnel.
2. Clerical and general back office services.
3. Bookkeeping, internal accounting, secretarial, and other general
administrative services.
4. Preparation of all reports, prospectuses, statements of additional
information, proxy statements, and all other materials required to
be filed or furnished by the Trust under Federal and state
securities laws.
5. Maintaining ledgers and determining net asset values.
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SCHEDULE II
SHAREHOLDER AND DIVIDEND, DISBURSEMENT SERVICES
The Servicer agrees to provide the Trust and the Shareholders with all
required share holder and dividend disbursement services ("Services"),
including, without limitation, the following:
1. The Servicer shall provide the following services to the
Shareholders of the Trust:
a. Aggregating and processing purchases and redemption requests
for Trust Shares from Shareholders.
b. Processing dividend payments from the Trust on behalf of
Shareholders.
c. Providing information periodically to Shareholders showing
their positions in Shares.
d. Arranging for bank wires.
e. Responding to Shareholder inquiries relating to the services
performed by the Servicer.
f. Providing subaccounting with respect to Shares beneficially
owned by Shareholders.
g. As required by law, forwarding shareholder communications from
the Trust (such as proxies, shareholder reports, annual and
semi-annual financial state ments, and dividend, disbursement,
and tax notices) to Shareholders.
h. Providing such other similar services as the Trust may
reasonably request to the extent the Servicer is permitted to
do so under applicable statutes, rules, or regulations.
i. Provide to Shareholders a schedule of any fees that the
Servicer may charge directly to the Shareholders for such
Services.
2. The Servicer shall also provide the following additional Services:
a. Maintain all records required by law relating to transactions
in Shares and, upon request by the Trust, promptly make such
of these records available to the Trust as the Trust may
reasonably request in connection with the operations of the
Trust.
b. Promptly notify the Trust if the Servicer experiences any
difficulty in main taining the records described in this
Schedule II to the Agreement in an accurate and complete
manner.
c. Furnish the Trust or any designee of the Trust ("Designee")
with such information relating to the Servicer's performance
under this Agreement as the Trust or the Designee may
reasonably request (including, without limitation, periodic
certifications confirming the provision to Shareholders of the
Services described herein), and shall otherwise cooperate with
the Trust and the Trust's Designees (including, without
limitation, any auditors designated by the Trust), in
connection with the preparation of reports to the Board of
Trustees concerning this Agreement and the monies paid or
payable by the Trust pursuant hereto, as well as any other
reports or filings that may be required by law.
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SCHEDULE III
TRANSFER AGENT AND REGISTRAR SERVICES
The Servicer agrees to provide the Trust with all required transfer
agent and registrar services, including, without limitation, the following:
1. Maintaining all shareholder accounts, including processing of new
accounts.
2. Posting address changes and other file maintenance for shareholder
accounts.
3. Posting all transactions to the shareholder file, including:
- Direct purchases
- Wire order purchases
- Direct redemptions
- Wire order redemptions
- Draft redemptions
- Direct exchanges
- Transfers
4. Quality control reviewing of every transaction before the mailing of
confirma tions, checks, and/or certificates to shareholders.
5. Issuing all checks and shipping and replacing lost checks.
6. Mailing confirmations, checks, and/or certificates resulting from
transaction requests of shareholders.
7. Performing other mailings, including:
- Semi-annual and annual reports
- I.R.S. Form 1099/year-end shareholder reporting
- Systematic withdrawal plan payments
- Daily confirmations
8. Answering all service-related telephone inquiries from shareholders,
including:
- General and policy inquiries (research and resolve
problems)
- Trust yield inquiries
- Taking shareholder processing requests and account
maintenance changes
by telephone
- Submitting pending requests to correspondence
- Monitoring online statistical performance of shares
- Developing reports on telephone activity
