<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 24, 1999
FILE NO. 333-84797
FILE NO. 811-09525
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 (X)
PRE-EFFECTIVE AMENDMENT NO. 1
and
REGISTRATION STATEMENT UNDER THE INVESTMENT ACT OF 1940 (X)
AMENDMENT NO. 1 (X)
RYDEX DYNAMIC FUNDS
(Exact Name of Registrant as Specified in Charter)
C/O 6116 EXECUTIVE BOULEVARD, SUITE 400
ROCKVILLE, MARYLAND 20852
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, ZIP CODE)
Registrant's Telephone Number, including Area Code (301) 468-8520
ALBERT P. VIRAGH, JR.
RYDEX
6116 EXECUTIVE BOULEVARD, SUITE 400
ROCKVILLE, MARYLAND 20852
(Name and Address of Agent for Service)
Copies to:
W. JOHN McGUIRE, ESQUIRE JOHN H. GRADY, JR., ESQUIRE
Morgan, Lewis & Bockius LLP Morgan, Lewis & Bockius LLP
1800 M STREET, N.W. 1701 MARKET STREET
WASHINGTON, D.C. 20036 PHILADELPHIA, PA 19103-2921
- -------------------------------------------------------------------------------
/X/Approximate date of Proposed Public Offering:
As soon as practicable after the
effective date of this Registration Statement
- -------------------------------------------------------------------------------
Registrant hereby amends this Registration Statement on such date or dates as
may be necessary to delay its effective date until the Registrant shall file a
further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission acting pursuant to said Section 8(a)
may determine.
<PAGE>
PROSPECTUS
RYDEX DYNAMIC FUNDS
Titan 500 Fund
Tempest 500 Fund
Velocity 100 Fund
Venture 100 Fund
Titan 500 Master Fund
Tempest 500 Master Fund
Velocity 100 Master Fund
Venture 100 Master Fund
6116 Executive Boulevard, Suite 400, Rockville, Maryland 20852
1-800-820-0888 301-468-8520
Rydex Dynamic Funds (the "Trust") is a no-load mutual fund complex with eight
separate investment portfolios (the "Funds"), each of which is described in this
Prospectus (the "Funds"). Shares of the Funds are sold principally to
professional money managers and to investors who take part in certain strategic
and tactical asset-allocation investment programs. Shares of the Funds are
designed to be sold to investors through the Trust's Internet Web site --
www.rydexfunds.com.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THE
TRUST'S SHARES OR PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
1
<PAGE>
RISK/RETURN INFORMATION COMMON TO THE FUNDS
THE FUNDS' INVESTMENT OBJECTIVES
Each Fund has a separate investment objective. THE INVESTMENT OBJECTIVE OF
EACH FUND IS NON-FUNDAMENTAL AND MAY BE CHANGED WITHOUT SHAREHOLDER
APPROVAL.
RISKS OF INVESTING IN THE FUNDS
- The value of the Funds may fluctuate in value from day to day.
- Fund shares may decline in value, and you may lose money.
2
<PAGE>
FUND INFORMATION -- Titan 500 Fund
FUND OBJECTIVE
Titan 500 Fund seeks to provide investment results that match the
performance of a specific benchmark on a daily basis. The Fund's current
benchmark is 200% of the performance of the S&P 500 Index.
If the Fund meets its objective, the value of the Fund's shares will tend
to increase on a daily basis by 200% of the value of any increase in the
S&P 500 Index. When the value of the S&P 500 Index declines, the value of
the Fund's shares should also decrease on a daily basis by 200% of the
value of any decrease in the Index (e.g., if the S&P 500 Index goes down
by 5%, the value of the Fund's shares should go down by 10% on that day).
PORTFOLIO INVESTMENT STRATEGY
The Fund employs as its investment strategy a program of investing in
leveraged instruments, such as futures contracts and options on securities,
futures contracts, and stock indices. Futures and options contracts enable
the Fund to pursue its objective without investing directly in the
securities included in the benchmark, or in the same proportion that those
securities are represented in that benchmark. On a day-to-day basis, the
Fund holds U.S. Government securities or cash equivalents to collateralize
these futures and options contracts. The Fund also may purchase equity
securities and enter into repurchase agreements.
RISK CONSIDERATIONS
Titan 500 Fund is subject to a number of risks that will affect the value
of its shares, including:
- Equity Risk -- The equity markets are volatile, and the value of the
Fund's futures and options contracts and other securities may
fluctuate significantly from day to day. This volatility may cause the
value of your investment in the Fund to decrease.
- Leveraging Risk -- The more the Fund invests in leveraged instruments,
the more this leverage will magnify any losses on those investments.
- Tracking Error Risk -- The Advisor may not be able to cause the Fund's
performance to match that of the Fund's benchmark, either on a daily
or aggregate basis. Tracking Error may cause the Fund's performance to
be less than you expect.
- Trading Halt Risk -- If a trading halt occurs, the Fund may
temporarily be unable to purchase or sell options or futures
contracts. Such a trading halt near the time the Fund prices its
shares may limit the Fund's ability to use leverage and may prevent
the Fund from achieving its investment objective.
INVESTOR PROFILE
Investors who expect the S&P 500 Index to go up and want highly accelerated
investment gains when the Index does so. These investors must also be
willing to bear the risk of equally accelerated losses if the S&P 500 Index
goes down.
3
<PAGE>
FUND PERFORMANCE AND FEE INFORMATION
TITAN 500 FUND PERFORMANCE
Titan 500 Fund commenced operations on ____________, 2000, and therefore
did not have a performance history for a full calendar year.
FEES AND EXPENSES OF THE FUND
This table describes the fees and expenses that you may pay if you buy and
hold shares of Titan 500 Fund.
SHAREHOLDER FEES
Exchange Fees* None
Redemption Fees* None
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM NET ASSETS)
Management Fees 1.00%
Distribution (12b-1) Fees .25%
Other Expenses** .85%
------
Total Annual Fund Operating Expenses 2.10%
* THE FUND MAY IMPOSE A PROCESSING CHARGE OF $50 ON TRANSACTIONS MADE OTHER
THAN BY INTERNET THROUGH THE TRUST'S WEB SITE - WWW.RYDEXFUNDS.COM. IN
ADDITION, THE FUND MAY IMPOSE A WIRE TRANSFER CHARGE OF $15 ON CERTAIN
REDEMPTIONS UNDER $5,000.
** OTHER EXPENSES ARE ESTIMATED.
EXAMPLE
This Example is intended to help you compare the cost of investing in Titan
500 Fund with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time period
indicated and then redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that the
Fund's estimated operating expenses remain the same. Although your actual costs
may be higher of lower, based on these assumptions your cost would be:
1 Year 3 Years
--------------------------------------------
$ 213 $ 658
4
<PAGE>
FUND INFORMATION -- TEMPEST 500 FUND
FUND OBJECTIVE
Tempest 500 Fund seeks to provide investment results that will match the
performance of a specific benchmark on a daily basis. The Fund's current
benchmark is 200% of the inverse (opposite) performance of the S&P 500
Index.
If the Fund meets its objective, the value of the Fund's shares will tend
to increase on a daily basis by 200% of the value of any decrease in the
S&P 500 Index (e.g., if the S&P 500 Index goes down by 5%, the value of the
Fund's shares should go up by 10% on that day). When the value of the S&P
500 Index increases, the value of the Fund's shares should decrease on a
daily basis by 200% of the value of any increase in the Index (e.g., if the
S&P 500 Index goes up by 5%, the value of the Fund's shares should go down
by 10% on that day).
PORTFOLIO INVESTMENT STRATEGY
The Fund employs as its investment strategy a program of engaging in short
sales of securities and investing in leveraged instruments, such as futures
contracts and options on securities, futures contracts, and stock indices.
Short sales and futures and options contracts enable the Fund to pursue its
objective without investing directly in the securities included in the
benchmark. On a day-to-day basis, the Fund holds U.S. Government securities
or cash equivalents to collateralize these futures and options contracts.
The Fund also may enter into repurchase agreements.
RISK CONSIDERATIONS
Tempest 500 Fund is subject to a number of risks that will affect the value
of its shares, including:
- EQUITY RISK -- The equity markets are volatile, and the value of the
Fund's futures and options contracts and other securities may
fluctuate significantly from day to day. Equity market volatility may
also negatively affect the Fund's short sales of securities. This
volatility may cause the value of your investment in the Fund to
decrease.
- LEVERAGING RISK -- The more the Fund invests in leveraged instruments,
the more this leverage will magnify any losses on those investments.
- Tracking Error Risk -- The Advisor may not be able to cause the Fund's
performance to match that of the Fund's benchmark, either on a daily
or aggregate basis. Tracking Error may cause the Fund's performance to
be less than you expect.
- TRADING HALT RISK -- If a trading halt occurs, the Fund may
temporarily be unable to purchase or sell options or futures
contracts. Such a trading halt near the time the Fund prices its
shares may limit the Fund's ability to use leverage and may prevent
the Fund from achieving its investment objective.
5
<PAGE>
INVESTOR PROFILE
Investors who expect the S&P 500 Index to go down and want highly
accelerated investment gains when the Index does so. These investors must
also be willing to bear the risk of equally accelerated losses if the S&P
500 Index goes up.
FUND PERFORMANCE AND FEE INFORMATION
TEMPEST 500 FUND PERFORMANCE
Tempest 500 Fund Commenced Operations on ____________, 2000, and therefore
did not have a performance history for a full calendar year.
FEES AND EXPENSES OF THE FUND
This table describes the fees and expenses that you may pay if you buy and
hold shares of Tempest 500 Fund.
SHAREHOLDER FEES
Exchange Fees* None
Redemption Fees* None
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM NET ASSETS)
Management Fees 1.00%
Distribution (12b-1) Fees .25%
Other Expenses** .85%
------
Total Annual Fund Operating Expenses 2.10%
* THE FUND MAY IMPOSE A PROCESSING CHARGE OF $50 ON TRANSACTIONS MADE OTHER
THAN BY INTERNET THROUGH THE TRUST'S WEB SITE - WWW.RYDEXFUNDS.COM. IN
ADDITION, THE FUND MAY IMPOSE A WIRE TRANSFER CHARGE OF $15 ON CERTAIN
REDEMPTIONS UNDER $5,000.
** OTHER EXPENSES ARE ESTIMATED.
EXAMPLE
This Example is intended to help you compare the cost of investing in
Tempest 500 Fund with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time period
indicated and then redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that the
Fund's estimated operating expenses remain the same. Although your actual costs
may be higher or lower, based on these assumptions your cost would be:
1 Year 3 Years
----------------------------------
$213 $658
6
<PAGE>
FUND INFORMATION -- VELOCITY 100 FUND
FUND OBJECTIVE
Velocity 100 Fund seeks to provide investment results that will match the
performance of a specific benchmark on a daily basis. The Fund's current
benchmark is 200% of the performance of the NASDAQ 100 Index-TM-.
If the Fund meets its objective, the value of the Fund's shares will tend
to increase on a daily basis by 200% of the value of any increase in the
NASDAQ 100 Index-TM-. When the value of the NASDAQ 100
Index-TM- declines, the value of the Fund's shares should also decrease
on a daily basis by 200% of the value of any decrease in the Index
(e.g., if the NASDAQ 100 Index-TM- goes down by 5%, the value of the
Fund's shares should go down by 10% on that day).
PORTFOLIO INVESTMENT STRATEGY
The Fund employs as its investment strategy a program of investing in
leveraged instruments, such as futures contracts and options on securities,
futures contracts, and stock indices. Futures and options contracts enable
the Fund to pursue its objective without investing directly in the
securities included in the benchmark, or in the same proportion that those
securities are represented in that benchmark. On a day-to-day basis, the
Fund holds U.S. Government securities or cash equivalents to collateralize
these futures and options contracts. The Fund also may purchase equity
securities and enter into repurchase agreements.
RISK CONSIDERATIONS
Velocity 100 Fund is subject to a number of risks that will affect the
value of its shares, including:
- EQUITY RISK -- The equity markets are volatile, and the value of the
Fund's futures and options contracts and other securities may
fluctuate significantly from day to day. This volatility may cause the
value of your investment in the Fund to decrease.
- LEVERAGING RISK -- The more the Fund invests in leveraged instruments,
the more this leverage will magnify any losses on those investments.
- TRACKING ERROR RISK -- The Advisor may not be able to cause the Fund's
performance to match that of the Fund's benchmark, either on a daily
or aggregate basis. Tracking Error may cause the Fund's performance to
be less than you expect.
- TRADING HALT RISK -- If a trading halt occurs, the Fund may
temporarily be unable to purchase or sell options or futures
contracts. Such a trading halt near the time the Fund prices its
shares may limit the Fund's ability to use leverage and may prevent
the Fund from achieving its investment objective.
INVESTOR PROFILE
Investors who expect the NASDAQ 100 Index-TM- to go up and want highly
accelerated investment gains when the Index does so. These investors must
also be willing to bear the risk of equally accelerated losses if the
NASDAQ 100 Index-TM- goes down.
7
<PAGE>
FUND PERFORMANCE AND FEE INFORMATION
VELOCITY 100 FUND PERFORMANCE
Velocity 100 Fund Commenced Operations on ____________, 2000, and
therefore did not have a performance history for a full calendar year.
FEES AND EXPENSES OF THE FUND
This table describes the fees and expenses that you may pay if you buy and
hold shares of Velocity 100 Fund.
SHAREHOLDER FEES
Exchange Fees* None
Redemption Fees* None
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM NET ASSETS)
Management Fees 1.00%
Distribution (12b-1) Fees .25%
Other Expenses** .85%
------
Total Annual Fund Operating Expenses 2.10%
* THE FUND MAY IMPOSE A PROCESSING CHARGE OF $50 ON TRANSACTIONS MADE OTHER
THAN BY INTERNET THROUGH THE TRUST'S WEB SITE - WWW.RYDEXFUNDS.COM. IN
ADDITION, THE FUND MAY IMPOSE A WIRE TRANSFER CHARGE OF $15 ON CERTAIN
REDEMPTIONS UNDER $5,000.
** OTHER EXPENSES ARE ESTIMATED.
EXAMPLE
This Example is intended to help you compare the cost of investing in
Velocity 100 Fund with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time period
indicated and then redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that the
Fund's estimated operating expenses remain the same. Although your actual costs
may be higher or lower, based on these assumptions your cost would be:
1 Year 3 Years
----------------------------------
$213 $658
8
<PAGE>
FUND INFORMATION -- VENTURE 100 FUND
FUND OBJECTIVE
Venture 100 Fund seeks to provide investment results that will match the
performance of a specific benchmark on a daily basis. The Fund's current
benchmark is 200% of the inverse (opposite) performance of the NASDAQ 100
Index-TM-.
If the Fund meets its objective, the value of the Fund's shares will tend
to increase on a daily basis by 200% of the value of any decrease in the
NASDAQ 100 Index-TM- (e.g., if the NASDAQ 100 Index-TM- goes down by 5%,
the value of the Fund's shares should go up by 10% on that day). When
the value of the NASDAQ 100 Index-TM- increases, the value of the Fund's
shares should decrease on a daily basis by 200% of the value of any
increase in the Index (e.g., if the NASDAQ 100 Index-TM- goes up by 5%,
the value of the Fund's shares should go down by 10% on that day).
PORTFOLIO INVESTMENT STRATEGY
The Fund employs as its investment strategy a program of engaging in short
sales of securities and investing in leveraged instruments, such as futures
contracts and options on securities, futures contracts, and stock indices.
On a day-to-day basis, the Fund holds U.S. Government securities or cash
equivalents to collateralize these futures and options contracts. Short
sales and futures and options contracts enable the Fund to pursue its
objective without investing directly in the securities included in the
benchmark. The Fund also may enter into repurchase agreements.
RISK CONSIDERATIONS
Venture 100 Fund is subject to a number of risks that will affect the value
of its shares, including:
- EQUITY RISK -- The equity markets are volatile, and the value of the
Fund's futures and options contracts and other securities may
fluctuate significantly from day to day. Equity market volatility may
also negatively affect the Fund's short sales of securities. This
volatility may cause the value of your investment in the Fund to
decrease.
- LEVERAGING RISK -- The more the Fund invests in leveraged instruments,
the more this leverage will magnify any losses on those investments.
- TRACKING ERROR RISK -- The Advisor may not be able to cause the Fund's
performance to match that of the Fund's benchmark, either on a daily
or aggregate basis. Tracking Error may cause the Fund's performance to
be less than you expect.
- TRADING HALT RISK -- If a trading halt occurs, the Fund may
temporarily be unable to purchase or sell options or futures
contracts. Such a trading halt near the time the Fund prices its
shares may limit the Fund's ability to use leverage and may prevent
the Fund from achieving its investment objective.
9
<PAGE>
INVESTOR PROFILE
Investors who expect the NASDAQ 100 Index-TM- to go down and want highly
accelerated investment gains when the Index does so. These investors must also
be willing to bear the risk of equally accelerated losses if the NASDAQ 100
Index-TM- goes up.
FUND PERFORMANCE AND FEE INFORMATION
VENTURE 100 FUND PERFORMANCE
Venture 100 Fund commenced operations on ____________, 2000, and therefore
did not have a performance history for a full calendar year.
FEES AND EXPENSES OF THE FUND
This table describes the fees and expenses that you may pay if you buy and
hold shares of Venture 100 Fund.
SHAREHOLDER FEES
Exchange Fees* None
Redemption Fees* None
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM NET ASSETS)
Management Fees 1.00%
Distribution (12b-1) Fees .25%
Other Expenses** .85%
------
Total Annual Fund Operating Expenses 2.10%
* THE FUND MAY IMPOSE A PROCESSING CHARGE OF $50 ON TRANSACTIONS MADE OTHER
THAN BY INTERNET THROUGH THE TRUST'S WEB SITE - WWW.RYDEXFUNDS.COM. IN
ADDITION, THE FUND MAY IMPOSE A WIRE TRANSFER CHARGE OF $15 ON CERTAIN
REDEMPTIONS UNDER $5,000.
** OTHER EXPENSES ARE ESTIMATED.
EXAMPLE
This Example is intended to help you compare the cost of investing in
Venture 100 Fund with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time period
indicated and then redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that the
Fund's estimated operating expenses remain the same. Although your actual costs
may be higher or lower, based on these assumptions your cost would be:
1 Year 3 Years
$213 $658
10
<PAGE>
FUND INFORMATION -- Titan 500 Master Fund
FUND OBJECTIVE
Titan 500 Master Fund seeks to provide investment results that match the
performance of a specific benchmark on a daily basis. The Fund's current
benchmark is 200% of the performance of the S&P 500 Index.
If the Fund meets its objective, the value of the Fund's shares will tend
to increase on a daily basis by 200% of the value of any increase in the
S&P 500 Index. When the value of the S&P 500 Index declines, the value of
the Fund's shares should also decrease on a daily basis by 200% of the
value of any decrease in the Index (e.g., if the S&P 500 Index goes down
by 5%, the value of the Fund's shares should go down by 10% on that day).
PORTFOLIO INVESTMENT STRATEGY
The Fund employs as its investment strategy a program of investing in
leveraged instruments, such as futures contracts and options on securities,
futures contracts, and stock indices. Futures and options contracts enable
the Fund to pursue its objective without investing directly in the
securities included in the benchmark, or in the same proportion that those
securities are represented in that benchmark. On a day-to-day basis, the
Fund holds U.S. Government securities or cash equivalents to collateralize
these futures and options contracts. The Fund also may purchase equity
securities and enter into repurchase agreements.
RISK CONSIDERATIONS
Titan 500 Master Fund is subject to a number of risks that will affect the
value of its shares, including:
- EQUITY RISK -- The equity markets are volatile, and the value of the
Fund's futures and options contracts and other securities may
fluctuate significantly from day to day. This volatility may cause the
value of your investment in the Fund to decrease.
- LEVERAGING RISK -- The more the Fund invests in leveraged instruments,
the more this leverage will magnify any losses on those investments.
- TRACKING ERROR RISK -- The Advisor may not be able to cause the Fund's
performance to match that of the Fund's benchmark, either on a daily
or aggregate basis. Tracking Error may cause the Fund's performance to
be less than you expect.
- TRADING HALT RISK -- If a trading halt occurs, the Fund may
temporarily be unable to purchase or sell options or futures
contracts. Such a trading halt near the time the Fund prices its
shares may limit the Fund's ability to use leverage and may prevent
the Fund from achieving its investment objective.
11
<PAGE>
INVESTOR PROFILE
Investors who expect the S&P 500 Index to go up and want highly accelerated
investment gains when the Index does so. These investors must also be
willing to bear the risk of equally accelerated losses if the S&P 500 Index
goes down.
FUND PERFORMANCE AND FEE INFORMATION
TITAN 500 Master FUND PERFORMANCE
Titan 500 Master Fund commenced operations on ____________, 2000, and
therefore did not have a performance history for a full calendar year.
FEES AND EXPENSES OF THE FUND
This table describes the fees and expenses that you may pay if you buy and
hold shares of Titan 500 Master Fund.
SHAREHOLDER FEES
Exchange Fees None
Redemption Fees None
Annual Fund Operating Expenses (expenses that are deducted from net assets)
Management Fees 1.00%
Distribution (12b-1) Fees None
Other Expenses* .10%
----
Total Annual Fund Operating Expenses 1.10%
* OTHER EXPENSES ARE ESTIMATED.
EXAMPLE
This Example is intended to help you compare the cost of investing in Titan
500 Master Fund with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time period
indicated and then redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that the
Fund's estimated operating expenses remain the same. Although your actual costs
may be higher of lower, based on these assumptions your cost would be:
1 Year 3 Years
--------------------------------------------
$112 $350
12
<PAGE>
FUND INFORMATION -- TEMPEST 500 MASTER FUND
FUND OBJECTIVE
Tempest 500 Master Fund seeks to provide investment results that will match
the performance of a specific benchmark on a daily basis. The Fund's
current benchmark is 200% of the inverse (opposite) performance of the S&P
500 Index.
If the Fund meets its objective, the value of the Fund's shares will tend
to increase on a daily basis by 200% of the value of any decrease in the
S&P 500 Index (e.g., if the S&P 500 Index goes down by 5%, the value of the
Fund's shares should go up by 10% on that day). When the value of the S&P
500 Index increases, the value of the Fund's shares should decrease on a
daily basis by 200% of the value of any increase in the Index (e.g., if the
S&P 500 Index goes up by 5%, the value of the Fund's shares should go down
by 10% on that day).
PORTFOLIO INVESTMENT STRATEGY
The Fund employs as its investment strategy a program of engaging in short
sales of securities and investing in leveraged instruments, such as futures
contracts and options on securities, futures contracts, and stock indices.
Short sales and futures and options contracts enable the Fund to pursue its
objective without investing directly in the securities included in the
benchmark. On a day-to-day basis, the Fund holds U.S. Government securities
or cash equivalents to collateralize these futures and options contracts.
The Fund also may enter into repurchase agreements.
RISK CONSIDERATIONS
Tempest 500 Master Fund is subject to a number of risks that will affect
the value of its shares, including:
- EQUITY RISK -- The equity markets are volatile, and the value of the
Fund's futures and options contracts and other securities may
fluctuate significantly from day to day. Equity market volatility may
also negatively affect the Fund's short sales of securities. This
volatility may cause the value of your investment in the Fund to
decrease.
- LEVERAGING RISK -- The more the Fund invests in leveraged instruments,
the more this leverage will magnify any losses on those investments.
- TRACKING ERROR RISK -- The Advisor may not be able to cause the Fund's
performance to match that of the Fund's benchmark, either on a daily
or aggregate basis. Tracking Error may cause the Fund's performance to
be less than you expect.
- TRADING HALT RISK -- If a trading halt occurs, the Fund may
temporarily be unable to purchase or sell options or futures
contracts. Such a trading halt near the time the Fund prices its
shares may limit the Fund's ability to use leverage and may prevent
the Fund from achieving its investment objective.
13
<PAGE>
INVESTOR PROFILE
Investors who expect the S&P 500 Index to go down and want highly
accelerated investment gains when the Index does so. These investors must
also be willing to bear the risk of equally accelerated losses if the S&P
500 Index goes up.
FUND PERFORMANCE AND FEE INFORMATION
TEMPEST 500 MASTER FUND PERFORMANCE
Tempest 500 Master Fund commenced operations on ____________, 2000, and
therefore did not have a performance history for a full calendar year.
FEES AND EXPENSES OF THE FUND
This table describes the fees and expenses that you may pay if you buy and
hold shares of Tempest 500 Master Fund.
SHAREHOLDER FEES
Exchange Fees None
Redemption Fees None
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM NET ASSETS)
Management Fees 1.00%
Distribution (12b-1) Fees None
Other Expenses* .10%
----
Total Annual Fund Operating Expenses 1.10%
* OTHER EXPENSES ARE ESTIMATED.
EXAMPLE
This Example is intended to help you compare the cost of investing in
Tempest 500 Master Fund with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time period
indicated and then redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that the
Fund's estimated operating expenses remain the same. Although your actual costs
may be higher or lower, based on these assumptions your cost would be:
1 Year 3 Years
----------------------------------
$112 $350
14
<PAGE>
FUND INFORMATION -- Velocity 100 Master Fund
FUND OBJECTIVE
Velocity 100 Master Fund seeks to provide investment results that will
match the performance of a specific benchmark on a daily basis. The Fund's
current benchmark is 200% of the performance of the NASDAQ 100 Index-TM-.
If the Fund meets its objective, the value of the Fund's shares will tend
to increase on a daily basis by 200% of the value of any increase in the
NASDAQ 100 Index-TM-. When the value of the NASDAQ 100
Index-TM- declines, the value of the Fund's shares should also decrease
on a daily basis by 200% of the value of any decrease in the Index
(e.g., if the NASDAQ 100 Index-TM- goes down by 5%, the value of the
Fund's shares should go down by 10% on that day).
PORTFOLIO INVESTMENT STRATEGY
The Fund employs as its investment strategy a program of investing in
leveraged instruments, such as futures contracts and options on securities,
futures contracts, and stock indices. Futures and options contracts enable
the Fund to pursue its objective without investing directly in the
securities included in the benchmark, or in the same proportion that those
securities are represented in that benchmark. On a day-to-day basis, the
Fund holds U.S. Government securities or cash equivalents to collateralize
these futures and options contracts. The Fund also may purchase equity
securities and enter into repurchase agreements.
RISK CONSIDERATIONS
Velocity 100 Master Fund is subject to a number of risks that will affect
the value of its shares, including:
- EQUITY RISK -- The equity markets are volatile, and the value of the
Fund's futures and options contracts and other securities may
fluctuate significantly from day to day. This volatility may cause the
value of your investment in the Fund to decrease.
- LEVERAGING RISK -- The more the Fund invests in leveraged instruments,
the more this leverage will magnify any losses on those investments.
- TRACKING ERROR RISK -- The Advisor may not be able to cause the Fund's
performance to match that of the Fund's benchmark, either on a daily
or aggregate basis. Tracking Error may cause the Fund's performance to
be less than you expect.
- TRADING HALT RISK -- If a trading halt occurs, the Fund may
temporarily be unable to purchase or sell options or futures
contracts. Such a trading halt near the time the Fund prices its
shares may limit the Fund's ability to use leverage and may prevent
the Fund from achieving its investment objective.
15
<PAGE>
INVESTOR PROFILE
Investors who expect the NASDAQ 100 Index-TM- to go up and want highly
accelerated investment gains when the Index does so. These investors must
also be willing to bear the risk of equally accelerated losses if the
NASDAQ 100 Index-TM- goes down.
FUND PERFORMANCE AND FEE INFORMATION
VELOCITY 100 MASTER FUND PERFORMANCE
The Velocity 100 Master Fund commenced operations on ____________, 2000,
and therefore did not have a performance history for a full calendar year.
SHAREHOLDER FEES
Exchange Fees None
Redemption Fees None
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM NET ASSETS)
Management Fees 1.00%
Distribution (12b-1) Fees None
Other Expenses* .10%
----
Total Annual Fund Operating Expenses 1.10%
* OTHER EXPENSES ARE ESTIMATED.
EXAMPLE
This Example is intended to help you compare the cost of investing in
Velocity 100 Master Fund with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time period
indicated and then redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that the
Fund's estimated operating expenses remain the same. Although your actual costs
may be higher or lower, based on these assumptions your cost would be:
1 Year 3 Years
----------------------------------
$112 $350
16
<PAGE>
FUND INFORMATION -- VENTURE 100 MASTER FUND
FUND OBJECTIVE
Venture 100 Master Fund seeks to provide investment results that will match
the performance of a specific benchmark on a daily basis. The Fund's
current benchmark is 200% of the inverse (opposite) performance of the
NASDAQ 100 Index-TM-.
If the Fund meets its objective, the value of the Fund's shares will tend
to increase on a daily basis by 200% of the value of any decrease in the
NASDAQ 100 Index-TM- (e.g., if the NASDAQ 100 Index-TM- goes down by 5%,
the value of the Fund's shares should go up by 10% on that day). When
the value of the NASDAQ 100 Index-TM- increases, the value of the Fund's
shares should decrease on a daily basis by 200% of the value of any
increase in the Index (e.g., if the NASDAQ 100 Index-TM- goes up by 5%,
the value of the Fund's shares should go down by 10% on that day).
PORTFOLIO INVESTMENT STRATEGY
The Fund employs as its investment strategy a program of engaging in short
sales of securities and investing in leveraged instruments, such as futures
contracts and options on securities, futures contracts, and stock indices.
On a day-to-day basis, Fund holds U.S. Government securities or cash
equivalents to collateralize these futures and options contracts. Short
sales and futures and options contracts enable the Fund to pursue its
objective without investing directly in the securities included in the
benchmark. The Fund also may enter into repurchase agreements.
RISK CONSIDERATIONS
Venture 100 Master Fund is subject to a number of risks that will affect
the value of its shares, including:
- EQUITY RISK -- The equity markets are volatile, and the value of the
Fund's futures and options contracts and other securities may
fluctuate significantly from day to day. Equity market volatility may
also negatively affect the Fund's short sales of securities. This
volatility may cause the value of your investment in the Fund to
decrease.
- LEVERAGING RISK -- The more the Fund invests in leveraged instruments,
the more this leverage will magnify any losses on those investments.
- TRACKING ERROR RISK -- The Advisor may not be able to cause the Fund's
performance to match that of the Fund's benchmark, either on a daily
or aggregate basis. Tracking Error may cause the Fund's performance to
be less than you expect.
- TRADING HALT RISK -- If a trading halt occurs, the Fund may
temporarily be unable to purchase or sell options or futures
contracts. Such a trading halt near the time the Fund prices its
shares may limit the Fund's ability to use leverage and may prevent
the Fund from achieving its investment objective.
17
<PAGE>
INVESTOR PROFILE
Investors who expect the NASDAQ 100 Index-TM- to go down and want highly
accelerated investment gains when the Index does so. These investors must
also be willing to bear the risk of equally accelerated losses if the
NASDAQ 100 Index-TM- goes up.
FUND PERFORMANCE AND FEE INFORMATION
VENTURE 100 MASTER FUND PERFORMANCE
The Venture 100 Master Fund Commenced Operations on ____________, 2000, and
therefore did not have a performance history for a full calendar year.
SHAREHOLDER FEES
Exchange Fees None
Redemption Fees None
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM NET ASSETS)
Management Fees 1.00%
Distribution (12b-1) Fees None
Other Expenses* .10%
----
Total Annual Fund Operating Expenses 1.10%
* OTHER EXPENSES ARE ESTIMATED.
EXAMPLE
This Example is intended to help you compare the cost of investing in
Venture 100 Master Fund with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time period
indicated and then redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that the
Fund's estimated operating expenses remain the same. Although your actual costs
may be higher or lower, based on these assumptions your cost would be:
1 Year 3 Years
$112 $350
18
<PAGE>
MORE INFORMATION ABOUT FUND INVESTMENTS AND RISK
THE FUNDS' INVESTMENT OBJECTIVES
Each Fund's objective is to provide investment results that match the
performance of a specific benchmark. The current benchmark used by each Fund is
set forth below:
<TABLE>
<CAPTION>
- ---------------------------------------- -----------------------------------------------------------------------------------------
FUND (TICKER SYMBOL) BENCHMARK
- ---------------------------------------- -----------------------------------------------------------------------------------------
<S> <C>
Titan 500 Fund & Titan 500 Master Fund 200% of the performance, measured on a daily basis, of the S&P 500 Composite Stock
Price Index-TM- (SPX)
- ---------------------------------------- -----------------------------------------------------------------------------------------
Tempest 500 Fund & Tempest 500 Master 200% of the inverse (opposite) performance, measured on a daily basis, of the S&P 500
Fund Composite Stock Price Index-TM- (SPX)
- ---------------------------------------- -----------------------------------------------------------------------------------------
Velocity 100 Fund & Velocity 100 200% of the performance, measured on a daily basis, of the NASDAQ 100 Index-TM- (NDX)
Master Fund
- ---------------------------------------- -----------------------------------------------------------------------------------------
Venture 100 Fund & Venture 100 Master 200% of the inverse (opposite) performance, measured on a daily basis, of the NASDAQ
Fund 100 Index-TM- (NDX)
- ---------------------------------------- -----------------------------------------------------------------------------------------
</TABLE>
A BRIEF GUIDE TO THE BENCHMARKS.
THE S&P 500 COMPOSITE STOCK PRICE INDEX-TM- (S&P 500 INDEX). The S&P 500
Index is a capitalization-weighted index composed of 500 common stocks, which
are chosen by the Standard & Poor's Corporation ("S&P") on a statistical
basis.
THE NASDAQ 100 INDEX-TM-. The NASDAQ 100 Index-TM- is a modified
capitalization-weighted index composed of 100 of the largest non-financial
companies listed on the National Association of Securities Dealers Automated
Quotations System.
ADVISOR'S INVESTMENT STRATEGY IN MANAGING THE FUNDS
In managing the Funds, the Advisor uses a "passive" investment strategy to
manage each Fund's portfolio, meaning that the Advisor does not attempt to
select securities based on their individual potential to perform better than the
market. The Advisor's primary objective is to match the performance of each
Fund's benchmark as closely as possible on a daily basis. The Advisor uses
quantitative analysis techniques to structure each Fund to obtain the highest
correlation to its particular benchmark. The Advisor does not engage in
temporary defensive investing, keeping each Fund's assets fully invested in all
market environments. The Advisor monitors each Fund on an ongoing basis, and
makes adjustments to its portfolio, as necessary, to minimize tracking error and
to maximize liquidity.
The Advisor pursues the Funds' investment objectives by regularly
utilizing leveraged instruments, such as futures contracts and options on
securities, futures contracts, and stock indices. In addition, the Advisor will
regularly utilize short selling techniques designed to help the Tempest 500
Fund's and the Venture 100 Fund's performance to inversely correlate to the
performance of the S&P 500 Index and the NASDAQ 100 Index, respectively.
19
<PAGE>
MASTER-FEEDER INVESTMENT STRUCTURE
Each Fund anticipates that it will pursue its investment objective
directly by following the investment strategy previously described in its
respective "FUND INFORMATION" section. However, each Fund reserves the right to
pursue its investment objective indirectly by investing through what is
sometimes referred to as a "master-feeder arrangement." A FUND IS PERMITTED TO
CHANGE ITS INVESTMENT STRATEGY TO PURSUE ITS INVESTMENT OBJECTIVE THROUGH A
MASTER-FEEDER ARRANGEMENT WITHOUT SHAREHOLDER APPROVAL IF THE TRUST DETERMINES
THAT DOING SO WOULD BE IN THE BEST INTERESTS OF SHAREHOLDERS.
Under a master-feeder arrangement, a Fund's investment portfolio is
composed solely of shares of a "master fund," a separate mutual fund that has an
identical investment objective, e.g., the Titan 500 Fund would act as a "feeder
fund," holding shares of the Titan 500 Master Fund as its only investment. As a
result, the Fund has an indirect interest in all of the securities owned by the
master fund. Because of this indirect interest, the Fund's investment returns
should be the same as those of the master fund, adjusted for Fund expenses.
If a Fund pursues its investment objective through master-feeder
arrangement, the Advisor would manage the investment portfolios of both the Fund
and its corresponding master fund. Under such an arrangement, the Advisor would
adjust its fees so as to avoid any "layering" of fees, e.g., a Fund's Total
Annual Operating Expenses would not increase as a result of investing through a
master-feeder arrangement. In addition, the Advisor may choose to discontinue
investing through the master-feeder arrangement and resume managing the Fund
directly if it determines that doing so would be in the best interests of
shareholders.
RISKS OF INVESTING IN THE FUNDS
As indicated below, the Funds are subject to a number of risks that may
affect the value of Fund shares.
EQUITY RISK -- The Funds invest primarily in instruments that attempt to track
the price movement of equity indices as well as equity securities, including
common stocks. Investments in equity securities and equity derivatives in
general are subject to market risks that may cause their prices to fluctuate
over time. Fluctuations in the value of equity securities in which the Funds
invest will cause the net asset value of the Funds to fluctuate. Historically,
the equity markets have moved in cycles, and the value of the Funds' equity
securities and equity derivatives may fluctuate drastically from day to day.
This price volatility is the principal risk of investing in equity securities.
Because of their link to the equity markets, an investment in the Funds may be
more suitable for long-term investors who can bear the risk of short-term
principal fluctuations.
NON-DIVERSIFICATION RISK -- Since each Fund is non-diversified, each Fund may
invest in the securities of a limited number of issuers. To the extent that a
Fund invests a significant percentage of its assets in a limited number of
issuers, the Fund is subject to the risks of
20
<PAGE>
investing in those few issuers, and may be more susceptible to a single adverse
economic or regulatory occurrence.
INDUSTRY CONCENTRATION RISK -- None of the Funds will invest 25% or more of
the value of the Fund's total assets in the securities of one or more issuers
conducting their principal business activities in the same industry; EXCEPT
THAT, to the extent a Fund's benchmark is concentrated in a particular
industry, the Funds will necessarily be concentrated in that industry.
Currently, the index underlying the Velocity 100 Fund and the Venture 100
Fund's benchmark - the NASDAQ 100 Index-TM- - is concentrated in technology
companies. The risk of concentrating Fund investments in a limited number of
issuers conducting business in the same industry is that those issuers (or
that industry) will perform poorly, and the Fund will be negatively impacted
by that poor performance.
TRACKING ERROR RISK -- While the Funds do not expect returns to deviate
significantly from their respective benchmarks on a daily basis, factors such as
Fund expenses, imperfect correlation between the Funds' investments and those of
their benchmarks, rounding of share prices, changes to the benchmark, regulatory
policies, and leverage, may affect their ability to achieve close correlation.
The cumulative effect of these factors may over time cause the Funds' returns to
deviate from their respective benchmarks on an aggregate basis. The magnitude of
any tracking error may be affected by a higher portfolio turnover rate.
TRADING HALT RISK -- The Funds typically will hold short-term options and
futures contracts. The major exchanges on which these contracts are traded, such
as the Chicago Mercantile Exchange ("CME"), have established limits on how much
an option or futures contract may decline over various time periods within a
day. If an option or futures contract's price declines more than the established
limits, trading on the exchange is halted on that instrument. If a trading halt
occurs, the Fund may temporarily be unable to purchase or sell options or
futures contracts. Such a trading halt near the time the Fund prices its shares
may limit the Fund's ability to use leverage and may prevent the Fund from
achieving its investment objective. In such an event, a Fund also may be
required to use a "fair-value" method to price its outstanding contracts.
FUTURES AND OPTIONS RISK -- The Funds will invest a percentage of their assets
in futures and options contracts. The Funds may use futures contracts and
related options for bona fide hedging purposes to offset changes in the value of
securities held or expected to be acquired. They may also be used to gain
exposure to a particular market or instrument, to create a synthetic money
market position, and for certain other tax-related purposes. The Funds will only
enter into futures contracts traded on a national futures exchange or board of
trade. Futures and options contracts are described in more detail below:
FUTURES CONTRACTS -- Futures contracts and options on futures contracts
provide for the future sale by one party and purchase by another party of
a specified amount of a specific security at a specified future time and
at a specified price. An option on a futures contract gives the purchaser
the right, in exchange for a premium, to assume a position in a futures
contract at a specified exercise price during the term of the option.
Index futures are futures contracts for various indices that are traded on
registered securities exchanges.
OPTIONS -- The buyer of an option acquires the right to buy (a call
option) or sell (a put option) a certain quantity of a security (the
underlying security) or instrument at a certain price up to a specified
point in time. The seller or writer of an option is obligated to sell (a
call option) or buy (a put option) the underlying security. When writing
(selling) call options on securities, the Funds may cover its position by
owning the underlying security on which the option is written or by owning
a call option on the underlying security. Alternatively, the Funds may
cover its position by maintaining in a segregated account cash or liquid
securities equal in value to the exercise price of the call option written
by the Funds.
21
<PAGE>
The risks associated with the Funds' use of futures and options contracts
include:
- A Fund experiencing losses over certain ranges in the market that
exceed losses experienced by a Fund that does not use futures contracts
and options.
- There may be an imperfect correlation between the changes in market
value of the securities held by a Fund and the prices of futures and
options on futures.
- Although the Funds will only purchase exchange-traded futures, due to
market conditions there may not always be a liquid secondary market for
a futures contract. As a result, the Funds may be unable to close out
their futures contracts at a time which is advantageous.
- Trading restrictions or limitations may be imposed by an exchange, and
government regulations may restrict trading in futures contracts and
options.
- Because option premiums paid or received by the Funds are small in
relation to the market value of the investments underlying the options,
buying and selling put and call options can be more speculative than
investing directly in securities.
EARLY CLOSING RISK -- The normal close of trading of securities listed on the
National Association of Securities Dealers Automated Quotations system
("NASDAQ") and the New York Stock Exchange ("NYSE") is 4:00 P.M., Eastern Time.
Unanticipated early closings may result in a Fund being unable to sell or buy
securities on that day. If an exchange closes early on a day when one or more of
the Funds needs to execute a high volume of securities trades late in a trading
day, a Fund might incur substantial trading losses.
SHORT SALES RISK (TEMPEST 500 FUND AND VENTURE 100 FUND) -- Short sales are
transactions in which a Fund sells a security it does not own. To complete the
transaction, the Fund must borrow the security to make delivery to the buyer.
The Fund is then obligated to replace the security borrowed by purchasing the
security at the market price at the time of replacement. The price at such time
may be higher or lower than the price at which the security was sold by the
Fund. If the underlying security goes down in price between the time the Fund
sells the security and buys it back, the Fund will realize a gain on the
transaction. Conversely, if the underlying security goes up in price during the
period, the Fund will realize a loss on the transaction. The risk of such price
increases is the principal risk of engaging in short sales.
22
<PAGE>
SHAREHOLDER INFORMATION
HOW TO INVEST IN THE FUNDS
PURCHASING SHARES BY EXCHANGE TRANSACTIONS
Shares of the Funds are available solely through exchanges. You can
acquire shares through exchange transactions among the Funds of the Trust or
with the Rydex Series Trust U.S. Government Money Market Fund (the "Money
Market Fund"), a separate mutual fund offered through a separate prospectus.
You may obtain a prospectus for the Money Market Fund from the Trust's Web
site -- www.rydexfunds.com -- or by calling 800-820-0888 or 301-468-8520.
Investors may make exchanges and purchase shares of the Money Market Fund on
any day that the New York Stock Exchange ("NYSE") is open for business (a
"Business Day"). Procedures for subsequent exchanges from the Money Market
Fund into the Funds are discussed in more detail in the "EXCHANGES" section.
After obtaining and reading the Money Market Fund's prospectus, you may
purchase shares of the Money Market Fund (and make any subsequent exchanges into
the Funds) by following the directions on the Trust's Web site --
www.rydexfunds.com. You can also make exchange transactions involving shares of
the Funds by mail, telephone or fax, but you may be charged a processing fee by
the Trust's transfer agent if you do not meet certain minimum account balance
requirements. The minimum account balance requirements are discussed in more
detail in the "MINIMUM INVESTMENT" section.
You may also make investments in the Money Market Fund and exchanges into
the Funds through intermediaries or securities dealers who have the
responsibility to transmit orders promptly. Intermediaries may charge fees for
services provided in connection with buying, selling or exchanging shares. Each
intermediary also may have its own rules about share transactions. For more
information about how to purchase and exchange shares through an intermediary,
you should contact that intermediary directly.
DETERMINATION OF NET ASSET VALUE
The price per share (the offering price) will be the net asset value
per share ("NAV") next determined after your purchase order or exchange
request is received by the Trust. No sales charges are imposed on initial or
subsequent investments in a Fund. NAV is calculated by (1) taking the current
market value of a Fund's total assets, (2) subtracting the liabilities, and
(3) dividing the amount by the total number of shares owned by shareholders.
The Funds calculate NAV twice each Business Day, first in the morning
and again in the afternoon. The morning NAV is calculated at 10:30 a.m.,
Eastern Time and the afternoon NAV is calculated at the close of the New York
Stock Exchange (currently 4:00 p.m., Eastern Time). The Money Market Fund
calculates its NAV twice each Business Day, first at midday and again in the
afternoon. The midday NAV is calculated at 1:00 p.m., Eastern Time and the
afternoon NAV is calculated at the close of the New York Stock Exchange
(currently 4:00 p.m., Eastern Time).
23
<PAGE>
If the exchange or market where a Fund's securities or other investments
are primarily traded closes early, NAV may be calculated earlier. To receive the
current NAV, the Trust must receive your purchase order before the cutoff times
specified below for each method of investing. INTERMEDIARIES MAY HAVE EARLIER
CUTOFF TIMES. IN ADDITION, INTERMEDIARIES MAY NOT OFFER INTRA-DAY TRADING OR
PRICING REGARDLESS OF WHEN YOU PLACE YOUR ORDER WITH YOUR INTERMEDIARY.
MINIMUM INVESTMENT
The minimum initial investment in the Funds is $25,000. However, the Trust
will waive this minimum for the shareholders that invest at least $10,000 and
agree to interact with the Funds solely by means of the Trust's Web site
("Electronic Investors"). Electronic Investors must:
- Consent to receiving all communications (such as trade confirmations;
prospectuses and shareholder reports; etc.) from the Funds through the
Trust's Web site;
- Consent to send all communications (such as requests for exchanges or
redemptions; account balance inquiries; requests for additional
information; etc.) to the Funds through the Trust's Web site;
- Have and maintain access to the Trust's Web site;
- Provide the Trust with a valid and current e-mail address;
- Notify the Trust immediately if they no longer have access to the
Trust's Web site, change their e-mail address or wish to revoke their
consent to receive all communications from the Funds through the
Trust's Web site; and
- Agree to be subject to a $50 processing fee for any communications or
requests that could otherwise be made or obtained through the Trust's
Web site.
The minimums stated above also apply to retirement plan accounts. The
Trust, at its discretion, may accept lesser amounts in certain circumstances.
There is no minimum amount for subsequent investments in the Funds. The Trust
reserves the right to modify its minimum investment requirements at any time.
The Trust also reserves the right to reject or refuse, at the Trust's
discretion, any order for the purchase of a Fund's shares in whole or in part.
INVESTING BY INTERNET -- www.rydexfunds.com
Investing by Internet (or "Electronic Investing") means that all of the
communications between you and the Funds will take place over the Internet,
through the use of the Trust's Web site.
Initial applications and investments, as well as subsequent investments,
in the Money Market Fund made by Internet must be received in good form by the
Trust, on any Business Day, at or prior to 1:00 p.m., Eastern Time in order to
be processed at that Business Day's midday NAV and at or prior to 3:50 p.m.,
Eastern Time in order to be processed for that Business Day's afternoon NAV. YOU
MAY ONLY PURCHASE SHARES OF THE FUNDS BY EXCHANGE AT ANY BUSINESS DAY'S
AFTERNOON NAV IF YOUR INVESTMENT IN THE MONEY MARKET FUND IS PROCESSED AT THAT
BUSINESS DAY'S MIDDAY NAV. Procedures for other purchases made by exchange are
discussed in more detail in the "EXCHANGES" section.
An initial application that is sent to the Trust does not constitute a
purchase order until the application has been processed and correct payment by
check or wire transfer has been received by the Trust. Intermediaries may have
earlier cutoff times for purchases. For more information about how to purchase
through an intermediary, you should contact that intermediary directly.
You will receive electronic confirmation of your investments or any other
transactions you may request. You may print a copy of the electronic
confirmation you receive for your records. IF YOUR ACCOUNT BALANCE IS LESS THAN
$25,000 AND YOU REQUEST A PAPER COPY OF ANY TRADE CONFIRMATION TO BE MAILED TO
YOU, THE TRUST MAY CHARGE YOU A $50 PROCESSING FEE.
24
<PAGE>
SENDING YOUR PURCHASE PAYMENT BY BANK WIRE TRANSFER
First, fill out the Account Application Agreement located on the
Trust's Web site and send the completed application, along with a request
for a shareholder account number, to the Trust by following the procedures
described on the Trust's Web site. You do not need to fill out an Account
Application Agreement to make subsequent investments in the Money Market
Fund. Then, request that your bank wire transfer the purchase amount to
our custodian, along with the following instructions:
Firstar
Cincinnati, Ohio
Routing Number: 0420-00013
For Account of: Rydex Series Trust Money Market Fund
Account Number: __________
[Your Name]
[Your Shareholder Account Number]
AFTER INSTRUCTING YOUR BANK TO TRANSFER MONEY BY WIRE FOR BOTH INITIAL
AND SUBSEQUENT PURCHASES INTO THE MONEY MARKET FUND, YOU MUST CONTACT THE
TRUST BY TELEPHONE AT 800-820-0888 AND INFORM THE TRUST AS TO THE AMOUNT
THAT YOU HAVE TRANSFERRED AND THE NAME OF THE BANK SENDING THE TRANSFER IN
ORDER TO OBTAIN SAME-DAY OR MIDDAY PRICING OR CREDIT. FOR INITIAL
PURCHASES, YOU MUST ALSO SUPPLY THE TIME THE WIRE WAS SENT AND THE FED
WIRE REFERENCE NUMBER. IF THE PURCHASE IS CANCELED BECAUSE YOUR WIRE
TRANSFER IS NOT RECEIVED, YOU MAY BE LIABLE FOR ANY LOSS THAT THE TRUST
INCURS.
SENDING YOUR PURCHASE PAYMENT BY MAIL
First, fill out the Account Application Agreement located on the
Trust's Web site and send the completed application, along with a request
for a shareholder account number, to the Trust by following the procedures
described on the Trust's Web site. Then mail your check, along with the
application to:
Rydex Series Trust Money Market Fund
6116 Executive Boulevard, Suite 400
Attn: Ops. Dept.
Rockville, Maryland 20852
The Trust will not process your request until it receives your check.
You may avoid a delay in processing your purchase request by purchasing
shares by wire.
IN ADDITION TO CHARGES DESCRIBED ELSEWHERE IN THIS PROSPECTUS, THE
TRUST ALSO MAY CHARGE $25 FOR CHECKS RETURNED FOR INSUFFICIENT OR
UNCOLLECTIBLE FUNDS.
INVESTING BY MAIL OR FAX
25
<PAGE>
Alternatively, investors may make initial and subsequent investments in
the Money Market Fund by printing out the Account Application Agreement located
on the Trust's Web site, completing it offline and sending it by mail or fax to
the Trust. You may also obtain an Account Application Agreement by calling
800-820-0888 or 301-468-8520. Investors must also make arrangements for payment
by either bank wire transfer or check using the procedures described above.
Investments by mail or fax for both initial investments and subsequent
investments in the Money Market Fund must be received in good form at the Trust,
on any Business Day, at or prior to 1:00 p.m. to be processed at that Business
Day's midday NAV and at or prior to 3:50 p.m. to be processed at that Business
Day's afternoon NAV. Intermediaries may have earlier cutoff times for purchases.
For more information about how to purchase through an intermediary, you should
contact that intermediary directly.
TAX-QUALIFIED RETIREMENT PLANS
Investors may purchase shares of the Money Market Fund (and make
subsequent exchanges) through any of the following types of tax-qualified
retirement plans:
Individual Retirement Accounts (IRAs, including Roth IRAs)
Keogh Accounts -- Defined Contribution Plans (Profit Sharing Plans)
Keogh Accounts -- Pension Plans (Money Purchase Plans)
Internal Revenue Code Section 403(b) Plans
Retirement plans are charged an annual $15.00 maintenance fee and a $15.00
account closing fee. Additional information regarding these accounts, including
the annual maintenance fee, may be obtained by calling 800-820-0888 or
301-468-8520.
EXCHANGES
You may exchange shares of any Fund of the Trust for shares of any other
Fund of the Trust that currently offers shares on the basis of the respective
net asset values of the shares involved. You may also acquire shares of the
Funds through exchanges with the Rydex Series Trust U.S. Government Money Market
Fund, a separate fund that is offered in a separate prospectus. Exchanges may be
made subject to the procedures set forth below.
To exchange your shares, you need to provide certain information,
including the name on the account, the account number (or your taxpayer
identification number), the number or dollar value of shares (or the percentage
of the total value of your account) you want to exchange, and the names of the
Funds involved in the exchange transaction. Investors should review the
"Exchange Request Form" on the Trust's Web site for more information. The cutoff
times for exchange requests are as follows:
26
<PAGE>
<TABLE>
<CAPTION>
FUND(S) MORNING CUT OFF TIME AFTERNOON CUT OFF TIME
- -------------------------------------------------------------------------------------
<S> <C> <C>
Titan 500 Fund
Tempest 500 Fund
Velocity 100 Fund 10:15 a.m. 3:50 p.m.
Venture 100 Fund
- -------------------------------------------------------------------------------------
</TABLE>
Exchanges between the Funds and the Money Market Fund can be made on the
basis of either that Business Day's morning or afternoon NAV. Exchange requests
received after a Fund's cutoff time will receive the next determined NAV (i.e.,
if your exchange request is received after the morning cutoff time, you will
receive that Business Day's afternoon NAV). The exchange privilege may be
modified or discontinued at any time.
REDEEMING FUND SHARES
GENERAL
You may redeem all or any portion of your Fund shares at the next
determined NAV after receipt of the redemption request (subject to applicable
account minimums). You may redeem your shares by Internet by following the
procedures set forth on the Trust's Web site. Your redemption proceeds normally
will be sent within five Business Days of the Trust receiving your request. For
investments made by check, payment on redemption requests may be delayed until
the Trust's transfer agent is reasonably satisfied that payment has been
collected by the Trust (which may require up to 10 Business Days). If you invest
by check, you may not wire out any redemption proceeds for the 30 calendar days
following the purchase. You may avoid a delay in receiving redemption proceeds
by purchasing shares by wire. Telephone redemptions will be sent only to your
address or your bank account (as listed in the Trust's records). The Trust may
charge $15.00 for certain wire transfers of redemption proceeds.
You may also redeem your shares by letter or by telephone subject to the
procedures and fees set forth in "PROCEDURES FOR REDEMPTIONS AND EXCHANGES."
The proceeds of redemption requests will be sent directly to your address
(as listed in the Trust's records). If you request payment of redemption
proceeds to a third party or to a location other than your address or your bank
account (as listed in the Trust's records), this request must be in writing,
must include a signature guarantee. SHAREHOLDERS WITH AN ACCOUNT BALANCE OF LESS
THAN $25,000, MAY BE SUBJECT TO A $50 PROCESSING FEE FOR REQUESTING REDEMPTION
PROCEEDS BE SENT TO A THIRD PARTY OR TO A LOCATION OTHER THAN YOUR ADDRESS OR
YOUR BANK ACCOUNT. You may have to transmit your redemption request to your
intermediary at an earlier time in order for your redemption to be effective
that Business Day. Please contact your intermediary to find out their specific
requirements for written and telephone requests for redemptions and signature
guarantees.
INVOLUNTARY REDEMPTIONS
Because of the administrative expense of handling small accounts, any
request for a redemption when your account balance (a) is below the currently
applicable minimum
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investment, or (b) would be below that minimum as a result of the redemption,
will be treated as a request for the complete redemption of that account. If,
due to withdrawals or transfers, your account balance across all Funds advised
by the Advisor drops below the required minimum, the Trust reserves the right to
redeem your remaining shares without any additional notification to you.
SUSPENSION OF REDEMPTIONS
With respect to each Fund, and as permitted by the Securities and Exchange
Commission ("Commission"), the right of redemption may be suspended, or the date
of payment postponed: (i) for any period during which the NYSE, the Federal
Reserve Bank of New York (the "New York Fed"), NASDAQ, the CME or the Chicago
Board Options Exchange ("CBOE") as appropriate, is closed (other than customary
weekend or holiday closings) or trading on the NYSE, NASDAQ, the CME or the CBOE
as appropriate, is restricted; (ii) for any period during which an emergency
exists so that disposal of Fund investments or the determination of NAV is not
reasonably practicable; or (iii) for such other periods as the Commission, by
order, may permit for protection of fund investors. On any day that the New York
Fed or the NYSE closes early, the principal government securities and corporate
bond markets close early (such as on days in advance of holidays generally
observed by participants in these markets), or as permitted by the Commission,
the right is reserved to advance the time on that day by which purchase and
redemption orders must be received.
PROCEDURES FOR EXCHANGES AND REDEMPTIONS
You should follow the procedures described above and on the Trust's Web
site for all exchanges and redemptions, made by Internet or otherwise. The Trust
anticipates that most shareholders will make exchange and redemption requests by
Internet through the Trust's Web site. The Trust reserves the right to suspend
the right of redemption in the section above.
You may also request redemptions and exchanges by mail or telephone.
Written requests for redemptions and exchanges should be sent to Rydex Dynamic
Funds, 6116 Executive Boulevard, Suite 400, Attn: Ops. Dept., Rockville,
Maryland 20852, and should be signed by the record owner or owners. Telephone
redemption and exchange requests may be made by calling 1-800-820-0888 or
301-468-8520 by the cutoff time specified above for exchanges between Funds, on
any Business Day. The Trust's offices are open between 8:30 a.m. and 5:30 p.m.,
Eastern Time on each Business Day.
IF YOUR ACCOUNT BALANCE IS LESS THAN $25,000, IN ADDITION TO CHARGES
DESCRIBED ELSEWHERE IN THIS PROSPECTUS, THE TRUST MAY ALSO CHARGE A PER
TRANSACTION FEE OF $50 FOR EACH EXCHANGE OR REDEMPTION REQUEST THAT IS NOT
TRANSMITTED BY INTERNET.
If you own shares that are registered in your intermediary's name, and you
want to transfer the registration to another intermediary or want the shares
registered in your name, then you should contact your intermediary for
instructions to make this change.
TRANSACTIONS OVER THE INTERNET
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Internet redemption and exchange transactions are extremely convenient,
but are not risk-free. To ensure that your Internet transactions are safe,
secure, and as risk-free as possible, the Trust has instituted certain
safeguards and procedures for determining the identity of Web site users and
authenticity of instructions. As a result, neither the Trust nor its transfer
agent will be responsible for any loss, liability, cost, or expense for
following Internet or wire instructions they reasonably believe to be genuine.
If you or your intermediary make exchange or redemption requests by Internet,
you will generally bear the risk of any loss. If you are unable to reach the
Trust by Internet, you may want to try to reach the Trust by other means.
MANAGEMENT OF THE FUNDS
THE INVESTMENT ADVISOR -- PADCO Advisors, Inc., a Maryland corporation with
offices at 6116 Executive Boulevard, Suite 400, Rockville, Maryland 20852,
serves as investment serves as investment advisor and manager of the Funds.
Albert P. Viragh, Jr., the Chairman of the Board and the President of the
Advisor, owns a controlling interest in the Advisor. From 1985 until the
incorporation of the Advisor, Mr. Viragh was a Vice President of Money
Management Associates ("MMA"), a Maryland-based registered investment advisor.
From 1992 to June 1993, Mr. Viragh was the portfolio manager of The Rushmore
Nova Portfolio, a series of The Rushmore Fund, Inc., an investment company
managed by MMA.
The Advisor makes investment decisions for the assets of the Funds and
continuously reviews, supervises, and administers each Fund's investment
program. The Trustees of the Trust supervise the Advisor and establish policies
that the Advisor must follow in its day-to-day management activities. Under an
investment advisory agreement between the Trust and the Advisor, the Funds pay
the Advisor a fee at an annualized rate, based on the average daily net assets
for each fund, as set forth below:
<TABLE>
<CAPTION>
FUND ADVISORY FEE
<S> <C>
Titan 500 Fund 1.00%
Tempest 500 Fund 1.00%
Velocity 100 Fund 1.00%
Venture 100 Fund 1.00%
</TABLE>
Each Fund is managed by a team and no one person is responsible for making
investment decisions for a Fund.
The Advisor bears all of its own costs associated with providing these
advisory services and the expenses of the Trustees which are affiliated with the
Advisor. The Advisor may make payments from its own resources to broker-dealers
and other financial institutions in connection with the sale of fund shares.
The Advisor has voluntarily agreed to maintain the actual Total Annual
Operating Expenses of the Funds at an "expense cap" of 2.10%. This means that
the Advisor will reimburse certain expenses of the Funds so that expenses do not
exceed 2.10%. Because the Advisor's agreement
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<PAGE>
to maintain an expense cap is voluntary, the Advisor may discontinue all or part
of its reimbursements at any time. In addition, if at any point during the first
three years of Fund operations it becomes unnecessary for the Advisor to make
reimbursements, the Advisor may retain the difference between the Total Annual
Operating Expenses of any Fund and 2.10% to offset any of its prior
reimbursements.
DISTRIBUTION PLAN
The Funds have adopted a Distribution Plan (the "Plan") that allows the
Funds to pay distribution fees to PADCO Financial Services, Inc. (the
"Distributor") and other firms that provide distribution services ("Service
Providers"). The Funds will pay distribution fees to the Distributor at an
annual rate not to exceed .25% of average daily net assets, pursuant to Rule
12b-1 of the 1940 Act. If a Service Provider provides distribution services, the
Distributor will, in turn, pay the Service Provider out of its fees. Because the
Funds pay these fees out of assets on an ongoing basis, over time these fees may
cost you more than other types of sales charges.
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS
Income dividends, if any, are paid at least annually by each of the Funds.
If you own Fund shares on a Fund's record date, you will be entitled to receive
the dividend. The Funds may declare and pay dividends on the same date. The
Funds make distributions of capital gains, if any, at least annually. The Trust,
however, may declare a special capital gains distribution if the Trustees
believe that such a distribution would be in the best interest of the
shareholders of a Fund.
You will receive dividends and distributions in the form of additional
fund shares unless you have elected to receive payment in cash. If you have not
already elected to receive cash payments on your application, you must notify
the Trust in writing prior to the date of distribution. Your election will
become effective for dividends paid after the Trust receives your written
notice. To cancel your election, simply send written notice to the Trust.
Dividends and distributions from a Fund are taxable to you whether they
are reinvested in additional shares of the Fund or are received in cash. You
will receive an account statement at least quarterly.
TAX INFORMATION
The following is a summary of some important tax issues that affect the
Funds and their shareholders. The summary is based on current tax laws, which
may be changed by legislative, judicial or administrative action. The Trust has
not tried to present a detailed explanation of the tax treatment of the Funds,
or the tax consequences of an investment in the Funds. MORE INFORMATION ABOUT
TAXES IS LOCATED IN THE STATEMENT OF ADDITIONAL INFORMATION (SAI). YOU ARE URGED
TO CONSULT YOUR TAX ADVISOR REGARDING SPECIFIC QUESTIONS AS TO FEDERAL, STATE
AND LOCAL INCOME TAXES.
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<PAGE>
TAX STATUS OF EACH FUND
Each Fund is treated as a separate entity for federal tax purposes, and
intends to qualify for the special tax treatment afforded regulated investment
companies. As long as a Fund qualifies as a regulated investment company, it
pays no federal income tax on the earnings it distributes to Shareholders.
TAX STATUS OF DISTRIBUTIONS
- Each Fund will distribute substantially all of its income. THE INCOME
DIVIDENDS YOU RECEIVE FROM THE FUNDS WILL BE TAXED AS ORDINARY INCOME
WHETHER YOU RECEIVE THE DIVIDENDS IN CASH OR IN ADDITIONAL SHARES.
- Corporate shareholders may be entitled to a dividends-received
deduction for the portion of dividends they receive which are
attributable to dividends received by a fund from U.S. corporations.
- Capital gains distributions will result from gains on the sale or
exchange of capital assets held for more than one year.
- Distributions paid in January but declared by a Fund in October,
November or December of the previous year, may be taxable to you in the
previous year.
TAX STATUS OF SHARE TRANSACTIONS
EACH SALE, EXCHANGE, OR REDEMPTION OF FUND SHARES IS A TAXABLE EVENT TO
YOU. YOU SHOULD CONSIDER THE TAX CONSEQUENCES OF ANY REDEMPTION OR EXCHANGE
BEFORE MAKING SUCH A REQUEST, ESPECIALLY WITH RESPECT TO REDEMPTIONS, IF YOU
INVEST IN THE FUNDS THROUGH A TAX-QUALIFIED RETIREMENT PLAN.
STATE TAX CONSIDERATIONS
A Fund is not liable for any income or franchise tax in Delaware as long
as it qualifies as a regulated investment company for Federal income tax
purposes.
Distributions by the Funds may be subject to state and local taxation. You
should verify your tax liability with your tax advisor.
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<PAGE>
BENCHMARK INFORMATION
NEITHER THE TITAN 500 FUND NOR THE TEMPEST 500 FUND IS SPONSORED, ENDORSED,
SOLD, OR PROMOTED BY STANDARD & POOR'S CORP. (S&P); AND NEITHER THE VELOCITY 100
FUND NOR THE VENTURE 100 FUND IS SPONSORED, ENDORSED, SOLD, OR PROMOTED BY
NASDAQ OR ANY OF NASDAQ'S AFFILIATES (NASDAQ AND ITS AFFILIATES HEREINAFTER
COLLECTIVELY REFERRED TO AS "NASDAQ").
NEITHER S&P NOR NASDAQ MAKE ANY REPRESENTATION OR WARRANTY, IMPLIES OR EXPRESS,
TO THE INVESTORS IN THE FUNDS, OR ANY MEMBER OF THE PUBLIC, REGARDING THE
ADVISABILITY OF INVESTING IN INDEX FUNDS OR THE ABILITY OF THE S&P 500 INDEX OR
THE NASDAQ 100 INDEX-TM-, RESPONSIBILITY, TO TRACK GENERAL STOCK MARKET
PERFORMANCE.
NEITHER S&P NOR NASDAQ GUARANTEES THE ACCURACY AND/OR THE COMPLETENESS OF THE
S&P 500 INDEX AND NASDAQ 100 INDEX-TM-, RESPECTIVELY, OR ANY DATA INCLUDED
THEREIN.
NEITHER S&P NOR NASDAQ MAKE ANY WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO
BE OBTAINED BY ANY OF THE FUNDS, THE INVESTORS IN THE FUNDS, OR ANY PERSON OR
ENTITY FROM THE USE OF THE S&P 500 INDEX OR THE NASDAQ 100 INDEX-TM-,
RESPECTIVELY, OR ANY DATA INCLUDED THEREIN.
NEITHER S&P NOR NASDAQ MAKES ANY EXPRESS OR IMPLIED WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE FOR USE WITH RESPECT TO THE
S&P 500 INDEX OR THE NASDAQ 100 INDEX-TM-, RESPECTIVELY, OR ANY DATA INCLUDED
THEREIN.
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<PAGE>
Additional information about the Funds is included in a Statement of Additional
Information dated ______________, 2000 (the "SAI"), which contains more detailed
information about the Funds. The SAI has been filed with the Securities and
Exchange Commission ("SEC") and is incorporated by reference into this
Prospectus and, therefore, legally forms a part of this Prospectus. The SEC
maintains the EDGAR database on its Web site ("http://www.sec.gov") that
contains the SAI, material incorporated by reference, and other information
regarding registrants that file electronically with the SEC. You may also review
and copy documents at the SEC Public Reference room in Washington, D.C. (for
information on the operation of the Public Reference Room, call 1-202-942-8090).
You may request documents by mail from the SEC, upon payment of a duplication
fee, by writing to: Securities and Exchange Commission, Public Reference
Section, Washington, D.C. 20549-0102. You may also obtain this information, upon
payment of a duplicating fee, by e-mailing the SEC at the following address:
[email protected]. The Funds' SEC registration number is 811-09525
You may obtain a copy of the SAI or the annual or semi-annual reports, without
charge by calling 800-820-0888 or by writing to Rydex Dynamic Funds, at 6116
Executive Boulevard, Suite 400, Rockville, Maryland 20852. Additional
information about the Funds' investments is available in the annual and
semi-annual reports. Also, in the Funds' annual report, you will find a
discussion of the market conditions and investment strategies that
significantly affected the Funds' performance during its last fiscal year.
NO ONE HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS OR IN THE TRUST'S SAI IN
CONNECTION WITH THE OFFERING OF FUND SHARES. DO NOT RELY ON ANY SUCH
INFORMATION OR REPRESENTATIONS AS HAVING BEEN AUTHORIZED BY THE TRUST OR PADCO
ADVISORS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE TRUST IN
ANY JURISDICTION WHERE SUCH AN OFFERING IS NOT LAWFUL.
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<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
RYDEX DYNAMIC FUNDS
6116 EXECUTIVE BOULEVARD, SUITE 400,
ROCKVILLE, MARYLAND 20852
1-800-820-0888
301-468-8520
WWW.RYDEXFUNDS.COM
Rydex Dynamic Funds (the "Trust") is a no-load mutual fund complex with eight
separate investment portfolios (the "Funds"). This Statement of Additional
Information ("SAI") relates to shares of the following portfolios:
TITAN 500 FUND
TEMPEST 500 FUND
VELOCITY 100 FUND
VENTURE 100 FUND
TITAN 500 MASTER FUND
TEMPEST 500 MASTER FUND
VELOCITY 100 MASTER FUND
VENTURE 100 MASTER FUND
This SAI is not a prospectus. It should be read in conjunction with the Trust's
Prospectus, dated January__, 2000. A copy of the Trust's Prospectus is
available, without charge, upon request to the Trust at the address above or by
telephoning the Trust at the telephone number above.
The date of this SAI is January , 2000.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
PAGE
----
GENERAL INFORMATION ABOUT THE TRUST........................................... 3
INVESTMENT POLICIES, TECHNIQUES AND RISK FACTORS ............................. 3
INVESTMENT RESTRICTIONS ..................................................... 10
PORTFOLIO TRANSACTIONS AND BROKERAGE ........................................ 12
MANAGEMENT OF THE TRUST ..................................................... 13
DETERMINATION OF NET ASSET VALUE ............................................ 16
PERFORMANCE INFORMATION ..................................................... 17
CALCULATION OF RETURN QUOTATIONS ............................................ 18
PURCHASE AND REDEMPTION OF SHARES ........................................... 18
DIVIDENDS, DISTRIBUTIONS, AND TAXES ......................................... 19
OTHER INFORMATION ........................................................... 21
COUNSEL ..................................................................... 22
AUDITORS AND CUSTODIAN ...................................................... 22
FINANCIAL STATEMENTS. ....................................................... 22
2
<PAGE>
GENERAL INFORMATION ABOUT THE TRUST
The Trust was organized as a Delaware business trust on August 6, 1999. The
Trust is permitted to offer separate portfolios and different classes of shares.
The Trust currently offers one class of shares. Additional Funds and/or classes
may be created from time to time.
Currently, the Trust has eight separate series. All payments received by the
Trust for shares of any Fund belong to that Fund. Each Fund has its own assets
and liabilities.
INVESTMENT POLICIES, TECHNIQUES AND RISK FACTORS
GENERAL
Each Fund's investment objective and principal investments are described in the
Prospectuses. The following information supplements, and should be read in
conjunction with, those sections of the Prospectuses.
Portfolio management is provided to each Fund by the Trust's investment adviser,
PADCO Advisors, Inc. (the "Advisor"). The investment strategies of the Funds
discussed below and in the Prospectuses may be used by a Fund if, in the opinion
of the Advisor, these strategies will be advantageous to that Fund. A Fund is
free to reduce or eliminate its activity in any of those areas without changing
the Fund's fundamental investment policies. There is no assurance that any of
these strategies or any other strategies and methods of investment available to
a Fund will result in the achievement of that Fund's objectives.
BORROWING
The Funds may borrow money, including borrowing for investment purposes.
Borrowing for investment is known as leveraging. Leveraging investments, by
purchasing securities with borrowed money, is a speculative technique which
increases investment risk, but also increases investment opportunity. Since
substantially all of a Fund's assets will fluctuate in value, whereas the
interest obligations on borrowings may be fixed, the net asset value per share
of the Fund will increase more when the Fund's portfolio assets increase in
value and decrease more when the Fund's portfolio assets decrease in value than
would otherwise be the case. Moreover, interest costs on borrowings may
fluctuate with changing market rates of interest and may partially offset or
exceed the returns on the borrowed funds. Under adverse conditions, the Funds
might have to sell portfolio securities to meet interest or principal payments
at a time investment considerations would not favor such sales. The Funds intend
to use leverage during periods when the Advisor believes that the respective
Fund's investment objective would be furthered.
Each Fund may also borrow money to facilitate management of the Fund's portfolio
by enabling the Fund to meet redemption requests when the liquidation of
portfolio instruments would be inconvenient or disadvantageous. Such borrowing
is not for investment purposes and will be repaid by the borrowing Fund
promptly.
As required by the 1940 Act, a Fund must maintain continuous asset coverage
(total assets, including assets acquired with borrowed funds, less liabilities
exclusive of borrowings) of 300% of all amounts borrowed. If, at any time, the
value of the Fund's assets should fail to meet this 300% coverage test, the
Fund, within three days (not including Sundays and holidays), will reduce the
amount of the Fund's borrowings to the extent necessary to meet this 300%
coverage. Maintenance of this percentage limitation may result in the sale of
portfolio securities at a time when investment considerations otherwise indicate
that it would be disadvantageous to do so.
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<PAGE>
In addition to the foregoing, the Funds are authorized to borrow money as a
temporary measure for extraordinary or emergency purposes in amounts not in
excess of 5% of the value of the Fund's total assets. This borrowing is not
subject to the foregoing 300% asset coverage requirement The Funds are
authorized to pledge portfolio securities as the Advisor deems appropriate in
connection with any borrowings.
ILLIQUID SECURITIES
While none of the Funds anticipates doing so, each Fund may purchase illiquid
securities, including securities that are not readily marketable and securities
that are not registered ("restricted securities") under the Securities Act of
1933, as amended (the "1933 Act"), but which can be offered and sold to
"qualified institutional buyers" under Rule 144A under the 1933 Act. A Fund will
not invest more than 15% of the Fund's net assets in illiquid securities. If the
percentage of a Fund's net assets invested in illiquid securities exceeds 15%
due to market activity, the Fund will take appropriate measures to reduce its
holdings of illiquid securities. Each Fund will adhere to a more restrictive
limitation on the Fund's investment in illiquid securities as required by the
securities laws of those jurisdictions where shares of the Fund are registered
for sale. The term "illiquid securities" for this purpose means securities that
cannot be disposed of within seven days in the ordinary course of business at
approximately the amount at which the Fund has valued the securities. Under the
current guidelines of the staff of the Securities and Exchange Commission (the
"Commission"), illiquid securities also are considered to include, among other
securities, purchased over-the-counter options, certain cover for
over-the-counter options, repurchase agreements with maturities in excess of
seven days, and certain securities whose disposition is restricted under the
Federal securities laws. The Fund may not be able to sell illiquid securities
when the Advisor considers it desirable to do so or may have to sell such
securities at a price that is lower than the price that could be obtained if the
securities were more liquid. In addition, the sale of illiquid securities also
may require more time and may result in higher dealer discounts and other
selling expenses than does the sale of securities that are not illiquid.
Illiquid securities also may be more difficult to value due to the
unavailability of reliable market quotations for such securities, and investment
in illiquid securities may have an adverse impact on net asset value.
Institutional markets for restricted securities have developed as a result of
the promulgation of Rule 144A under the 1933 Act, which provides a "safe harbor"
from 1933 Act registration requirements for qualifying sales to institutional
investors. When Rule 144A restricted securities present an attractive investment
opportunity and meet other selection criteria, a Fund may make such investments
whether or not such securities are "illiquid" depends on the market that exists
for the particular security. The trustees of the Trust (the "Trustees") have
delegated the responsibility for determining the liquidity of Rule 144A
restricted securities which may be invested in by a Fund to the Advisor.
INVESTMENTS IN OTHER INVESTMENT COMPANIES
The Funds presently may invest in the securities of other investment companies
to the extent that such an investment would be consistent with the requirements
of Section 12(d)(1) of the 1940 Act. A Fund, therefore, may invest in the
securities of another investment company (the "acquired company") provided that
the Fund, immediately after such purchase or acquisition, does not own in the
aggregate: (i) more than 3% of the total outstanding voting stock of the
acquired company; (ii) securities issued by the acquired company having an
aggregate value in excess of 5% of the value of the total assets of the Fund; or
(iii) securities issued by the acquired company and all other investment
companies (other than Treasury stock of the Fund) having an aggregate value in
excess of 10% of the value of the total assets of the Fund. A Fund may also
invest in the securities of other investment companies if such securities are
the only investment securities held by the Fund, such as through a Master-Feeder
arrangement.
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<PAGE>
If a Fund invests in, and, thus, is a shareholder of, another investment
company, the Fund's shareholders will indirectly bear the Fund's proportionate
share of the fees and expenses paid by such other investment company, including
advisory fees, in addition to both the management fees payable directly by the
Fund to the Fund's own investment adviser and the other expenses that the Fund
bears directly in connection with the Fund's own operations.
LENDING OF PORTFOLIO SECURITIES
Subject to the investment restrictions set forth below, each of the Funds may
lend portfolio securities to brokers, dealers, and financial institutions,
provided that cash equal to at least 100% of the market value of the securities
loaned is deposited by the borrower with the Fund and is maintained each
business day in a segregated account pursuant to applicable regulations. While
such securities are on loan, the borrower will pay the lending Fund any income
accruing thereon, and the Fund may invest the cash collateral in portfolio
securities, thereby earning additional income. A Fund will not lend its
portfolio securities if such loans are not permitted by the laws or regulations
of any state in which the Fund's shares are qualified for sale, and the Funds
will not lend more than 33 1/3% of the value of the Fund's total assets. Loans
would be subject to termination by the lending Fund on four business days'
notice, or by the borrower on one day's notice. Borrowed securities must be
returned when the loan is terminated. Any gain or loss in the market price of
the borrowed securities which occurs during the term of the loan inures to the
lending Fund and that Fund's shareholders. A lending Fund may pay reasonable
finders, borrowers, administrative, and custodial fees in connection with a
loan.
OPTIONS TRANSACTIONS
OPTIONS ON SECURITIES. The Titan 500 Fund, Titan 500 Master Fund, Velocity 100
Fund, and Velocity 100 Master Fund may buy call options and write (sell) put
options on securities, and the Tempest 500 Fund, Tempest 500 Master Fund,
Venture 100 Fund, and Venture 100 Master Fund may buy put options and write call
options on securities for the purpose of realizing the Fund's investment
objective. By writing a call option on securities, a Fund becomes obligated
during the term of the option to sell the securities underlying the option at
the exercise price if the option is exercised. By writing a put option, a Fund
becomes obligated during the term of the option to purchase the securities
underlying the option at the exercise price if the option is exercised.
During the term of the option, the writer may be assigned an exercise notice by
the broker-dealer through whom the option was sold. The exercise notice would
require the writer to deliver, in the case of a call, or take delivery of, in
the case of a put, the underlying security against payment of the exercise
price. This obligation terminates upon expiration of the option, or at such
earlier time that the writer effects a closing purchase transaction by
purchasing an option covering the same underlying security and having the same
exercise price and expiration date as the one previously sold. Once an option
has been exercised, the writer may not execute a closing purchase transaction.
To secure the obligation to deliver the underlying security in the case of a
call option, the writer of a call option is required to deposit in escrow the
underlying security or other assets in accordance with the rules of the Option
Clearing Corporation (the "OCC"), an institution created to interpose itself
between buyers and sellers of options. The OCC assumes the other side of every
purchase and sale transaction on an exchange and, by doing so, gives its
guarantee to the transaction.
A Fund may purchase and write options on an exchange or over-the-counter.
Over-the-counter options ("OTC options") differ from exchange-traded options in
several respects. They are transacted directly with dealers and not with a
clearing corporation, and therefore entail the risk of non-performance by the
dealer. OTC options are available for a greater variety of securities and for a
wider range of expiration dates and exercise
5
<PAGE>
prices than are available for exchange-traded options. Because OTC options are
not traded on an exchange, pricing is done normally by reference to information
from a market maker. It is the position of the SEC that OTC options are
illiquid.
OPTIONS ON SECURITY INDEXES. The Titan 500 Fund, Titan 500 Master Fund, Velocity
100 Fund, and Velocity 100 Master Fund may purchase call options and write put
options, and the Tempest 500 Fund, Tempest 500 Master Fund, Venture 100 Fund,
and Venture 100 Master Fund may purchase put options and write call options, on
stock indexes listed on national securities exchanges or traded in the
over-the-counter market as an investment vehicle for the purpose of realizing
the Fund's investment objective.
Options on indexes are settled in cash, not in delivery of securities. The
exercising holder of an index option receives, instead of a security, cash equal
to the difference between the closing price of the securities index and the
exercise price of the option. When a Fund writes a covered option on an index,
the Fund will be required to deposit and maintain with a custodian cash or
liquid securities equal in value to the aggregate exercise price of a put or
call option pursuant to the requirements and the rules of the applicable
exchange. If, at the close of business on any day, the market value of the
deposited securities falls below the contract price, the Fund will deposit with
the custodian cash or liquid securities equal in value to the deficiency.
OPTIONS ON FUTURES CONTRACTS. Under Commodities Futures Trading Commission
("CFTC") Regulations, a Fund may engage in futures transactions, either for
"bona fide hedging" purposes, as this term is defined in the CFTC Regulations,
or for non-hedging purposes to the extent that the aggregate initial margins and
option premiums required to establish such non-hedging positions do not exceed
5% of the liquidation value of the Fund's portfolio. In the case of an option on
futures contracts that is "in-the-money" at the time of purchase (i.e., the
amount by which the exercise price of the put option exceeds the current market
value of the underlying security, or the amount by which the current market
value of the underlying security exceeds the exercise price of the call option),
the in-the-money amount may be excluded in calculating this 5% limitation.
When a Fund purchases or sells a stock index futures contract, or sells an
option thereon, the Fund "covers" its position. To cover its position, a Fund
may maintain with its custodian bank (and marked-to-market on a daily basis), a
segregated account consisting of cash or liquid securities that, when added to
any amounts deposited with a futures commission merchant as margin, are equal to
the market value of the futures contract or otherwise "cover" its position. If
the Fund continues to engage in the described securities trading practices and
properly segregates assets, the segregated account will function as a practical
limit on the amount of leverage which the Fund may undertake and on the
potential increase in the speculative character of the Fund's outstanding
portfolio securities. Additionally, such segregated accounts will generally
assure the availability of adequate funds to meet the obligations of the Fund
arising from such investment activities.
A Fund may cover its long position in a futures contract by purchasing a put
option on the same futures contract with a strike price (I.E., an exercise
price) as high or higher than the price of the futures contract. In the
alternative, if the strike price of the put is less than the price of the
futures contract, the Fund will maintain in a segregated account cash or liquid
securities equal in value to the difference between the strike price of the put
and the price of the futures contract. A Fund may also cover its long position
in a futures contract by taking a short position in the instruments underlying
the futures contract, or by taking positions in instruments with prices which
are expected to move relatively consistently with the futures contract. A Fund
may cover its short position in a futures contract by taking a long position in
the instruments underlying the futures contracts, or by taking positions in
instruments with prices which are expected to move relatively consistently with
the futures contract.
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A Fund may cover its sale of a call option on a futures contract by taking a
long position in the underlying futures contract at a price less than or equal
to the strike price of the call option. In the alternative, if the long position
in the underlying futures contracts is established at a price greater than the
strike price of the written (sold) call, the Fund will maintain in a segregated
account cash or liquid securities equal in value to the difference between the
strike price of the call and the price of the futures contract. A Fund may also
cover its sale of a call option by taking positions in instruments with prices
which are expected to move relatively consistently with the call option. A Fund
may cover its sale of a put option on a futures contract by taking a short
position in the underlying futures contract at a price greater than or equal to
the strike price of the put option, or, if the short position in the underlying
futures contract is established at a price less than the strike price of the
written put, the Fund will maintain in a segregated account cash or liquid
securities equal in value to the difference between the strike price of the put
and the price of the futures contract. A Fund may also cover its sale of a put
option by taking positions in instruments with prices which are expected to move
relatively consistently with the put option.
PORTFOLIO TURNOVER
The Trust anticipates that investors in the Funds, as part of an asset
allocation investment strategy, will frequently purchase and/or redeem shares of
the Funds . The nature of the Funds as asset allocation tools will cause the
Funds to experience substantial portfolio turnover. Because each Fund's
portfolio turnover rate to a great extent will depend on the purchase,
redemption, and exchange activity of the Fund's investors, it is very difficult
to estimate what the Fund's actual turnover rate will be in the future.
"Portfolio Turnover Rate" is defined under the rules of the SEC as the value of
the securities purchased or securities sold, excluding all securities whose
maturities at the time of acquisition were one year or less, divided by the
average monthly value of such securities owned during the year. Based on this
definition, instruments with remaining maturities of less than one year are
excluded from the calculation of the portfolio turnover rate. Instruments
excluded from the calculation of portfolio turnover generally would include the
futures contracts and option contracts in which the Funds invest since such
contracts generally have remaining maturity of less than one year. The Funds
expect to hold most of their investments in short-term options and futures
contracts, which are excluded for purposes of computing portfolio turnover.
Therefore, based on the above formula, each Fund expects a portfolio turnover
rate of approximately 0%.
REPURCHASE AGREEMENTS
Each of the Funds may enter into repurchase agreements with financial
institutions. The Funds each follow certain procedures designed to minimize the
risks inherent in such agreements. These procedures include effecting repurchase
transactions only with large, well-capitalized and well-established financial
institutions whose condition will be continually monitored by the Advisor. In
addition, the value of the collateral underlying the repurchase agreement will
always be at least equal to the repurchase price, including any accrued interest
earned on the repurchase agreement. In the event of a default or bankruptcy by a
selling financial institution, a Fund will seek to liquidate such collateral.
However, the exercising of each Fund's right to liquidate such collateral could
involve certain costs or delays and, to the extent that proceeds from any sale
upon a default of the obligation to repurchase were less than the repurchase
price, the Fund could suffer a loss. It is the current policy of each of the
Funds not to invest in repurchase agreements that do not mature within seven
days if any such investment, together with any other illiquid assets held by the
Fund, amounts to more than 15% of the Fund's total assets. The investments of
each of the Funds in repurchase agreements, at times, may be substantial when,
in the view of the Advisor, liquidity or other considerations so warrant.
REVERSE REPURCHASE AGREEMENTS
The Tempest 500 Fund, Tempest 500 Master Fund, Venture 100 Fund, and Venture 100
Master Fund may
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use reverse repurchase agreements as part of that Fund's investment strategy.
Reverse repurchase agreements involve sales by a Fund of portfolio assets
concurrently with an agreement by the Fund to repurchase the same assets at a
later date at a fixed price. Generally, the effect of such a transaction is that
the Fund can recover all or most of the cash invested in the portfolio
securities involved during the term of the reverse repurchase agreement, while
the Fund will be able to keep the interest income associated with those
portfolio securities. Such transactions are advantageous only if the interest
cost to the Fund of the reverse repurchase transaction is less than the cost of
obtaining the cash otherwise. Opportunities to achieve this advantage may not
always be available, and the Funds intend to use the reverse repurchase
technique only when this will be to the Fund's advantage to do so. Each Fund
will establish a segregated account with the Trust's custodian bank in which the
Fund will maintain cash or cash equivalents or other portfolio securities equal
in value to the Fund's obligations in respect of reverse repurchase agreements.
SHORT SALES
The Tempest 500 Fund, Tempest 500 Master Fund, Venture 100 Fund, and Venture 100
Master Fund also may engage in short sales transactions under which the Fund
sells a security it does not own. To complete such a transaction, the Fund must
borrow the security to make delivery to the buyer. The Fund then is obligated to
replace the security borrowed by purchasing the security at the market price at
the time of replacement. The price at such time may be more or less than the
price at which the security was sold by the Fund. Until the security is
replaced, the Fund is required to pay to the lender amounts equal to any
dividends or interest which accrue during the period of the loan. To borrow the
security, the Fund also may be required to pay a premium, which would increase
the cost of the security sold. The proceeds of the short sale will be retained
by the broker, to the extent necessary to meet the margin requirements, until
the short position is closed out.
Until the Tempest 500 Fund, Tempest 500 Master Fund, Venture 100 Fund, or the
Venture 100 Master Fund closes its short position or replaces the borrowed
security, the Fund will: (a) maintain a segregated account containing cash or
liquid securities at such a level that (i) the amount deposited in the account
plus the amount deposited with the broker as collateral will equal the current
value of the security sold short and (ii) the amount deposited in the segregated
account plus the amount deposited with the broker as collateral will not be less
than the market value of the security at the time the security was sold short;
or (b) otherwise cover the Fund's short position. Each of the Funds may use up
to 100% of its portfolio to engage in short sales transactions and collateralize
its open short positions.
The Titan 500 Fund, Titan 500 Master Fund, Velocity 100 Fund, and Velocity 100
Master Fund each may engage in short sales if, at the time of the short sale,
the Fund owns or has the right to acquire an equal amount of the security being
sold at no additional cost. These Funds may make a short sale when the Fund
wants to sell the security the Fund owns at a current attractive price, in order
to hedge or limit the exposure of the Fund's position.
STOCK INDEX FUTURES CONTRACTS
A Fund may buy and sell stock index futures contracts with respect to any stock
index traded on a recognized stock exchange or board of trade. A stock index
futures contract is a contract to buy or sell units of an index at a specified
future date at a price agreed upon when the contract is made. The stock index
futures contract specifies that no delivery of the actual stocks making up the
index will take place. Instead, settlement in cash must occur upon the
termination of the contract, with the settlement being the difference between
the contract price and the actual level of the stock index at the expiration of
the contract.
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At the time a Fund purchases a futures contract, an amount of cash, U.S.
Government securities or other liquid securities equal to the market value of
the futures contract will be deposited in a segregated account with the Fund's
custodian. When writing a futures contract, the Fund will maintain with its
custodian liquid assets that, when added to the amounts deposited with a futures
commission merchant or broker as margin, are equal to the market value of the
instruments underlying the contract. Alternatively, a Fund may "cover" its
position by owning the instruments underlying the contract (or, in the case of
an index futures contract, a portfolio with a volatility substantially similar
to that of the index on which the futures contract is based), or holding a call
option permitting the Fund to purchase the same futures contract at a price no
higher than the price of the contract written by the Fund (or at a higher price
if the difference is maintained in liquid assets with the Fund's custodian).
TRACKING ERROR
The Funds do not expect that the returns over a year will deviate adversely from
their respective benchmarks by more than ten percent. But several factors may
affect their ability to achieve this correlation. Among these are: (1) Fund
expenses, including brokerage (which may be increased by high portfolio
turnover); (2) less than all of the securities in the benchmark being held by a
Fund and securities not included in the benchmark being held by a Fund; (3) an
imperfect correlation between the performance of instruments held by a Fund,
such as futures contracts and options, and the performance of the underlying
securities in the market; (4) bid-ask spreads (the effect of which may be
increased by portfolio turnover); (5) a Fund holds instruments traded in a
market that has become illiquid or disrupted; (6) Fund share prices being
rounded to the nearest cent; (7) changes to the benchmark index that are not
disseminated in advance; (8) the need to conform a Fund's portfolio holdings to
comply with investment restrictions or policies or regulatory or tax law
requirements; or (9) market movements that run counter to a leveraged Fund's
investments (which will cause divergence between the Fund and its benchmark over
time due to the mathematical effects of leveraging). Market movements that run
counter to a leveraged Fund's investments will cause some divergence between the
Fund and its benchmark over time due to the mathematical effects of leveraging.
The magnitude of the divergence is dependent upon the magnitude of the market
movement, its duration, and the degree to which the Fund is leveraged. The
tracking error of a leveraged Fund is generally small during a well-defined up
trend or downtrend in the market when measured from price peak to price peak,
access a market decline and subsequent recovery, however, the deviation of the
Fund from its benchmark may be significant.
U.S. GOVERNMENT SECURITIES
The Funds may invest in U.S. Government Securities. Securities issued or
guaranteed by the U.S. Government or its agencies or instrumentalities include
U.S. Treasury securities, which are backed by the full faith and credit of the
U.S. Treasury and which differ only in their interest rates, maturities, and
times of issuance. U.S. Treasury bills have initial maturities of one year or
less; U.S. Treasury notes have initial maturities of one to ten years; and U.S.
Treasury bonds generally have initial maturities of greater than ten years.
Certain U.S. Government Securities are issued or guaranteed by agencies or
instrumentalities of the U.S. Government including, but not limited to,
obligations of U.S. Government agencies or instrumentalities such as Fannie Mae,
the Government National Mortgage Association, the Small Business Administration,
the Federal Farm Credit Administration, the Federal Home Loan Banks, Banks for
Cooperatives (including the Central Bank for Cooperatives), the Federal Land
Banks, the Federal Intermediate Credit Banks, the Tennessee Valley Authority,
the Export-Import Bank of the United States, the Commodity Credit Corporation,
the Federal Financing Bank, the Student Loan Marketing Association, and the
National Credit Union Administration.
Some obligations issued or guaranteed by U.S. Government agencies and
instrumentalities, including, for example, Government National Mortgage
Association pass-through certificates, are supported by the full faith and
credit of the U.S. Treasury. Other obligations issued by or guaranteed by
Federal agencies, such as those
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securities issued by Fannie Mae, are supported by the discretionary authority of
the U.S. Government to purchase certain obligations of the Federal agency, while
other obligations issued by or guaranteed by Federal agencies, such as those of
the Federal Home Loan Banks, are supported by the right of the issuer to borrow
from the U.S. Treasury, while the U.S. Government provides financial support to
such U.S. Government-sponsored Federal agencies, no assurance can be given that
the U.S. Government will always do so, since the U.S. Government is not so
obligated by law. U.S. Treasury notes and bonds typically pay coupon interest
semi-annually and repay the principal at maturity.
WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES
Each Fund, from time to time, in the ordinary course of business, may purchase
securities on a when-issued or delayed-delivery basis (I.E., delivery and
payment can take place between a month and 120 days after the date of the
transaction). These securities are subject to market fluctuation and no interest
accrues to the purchaser during this period. At the time a Fund makes the
commitment to purchase securities on a when-issued or delayed-delivery basis,
the Fund will record the transaction and thereafter reflect the value of the
securities, each day, of such security in determining the Fund's net asset
value. A Fund will not purchase securities on a when-issued or delayed-delivery
basis if, as a result, more than 15% of the Fund's net assets would be so
invested. At the time of delivery of the securities, the value of the securities
may be more or less than the purchase price. The Fund will also establish a
segregated account with the Fund's custodian bank in which the Fund will
maintain cash or liquid securities equal to or greater in value than the Fund's
purchase commitments for such when-issued or delayed-delivery securities. The
Trust does not believe that a Fund's net asset value or income will be adversely
affected by the Fund's purchase of securities on a when-issued or
delayed-delivery basis.
INVESTMENT RESTRICTIONS
FUNDAMENTAL POLICIES
The following investment limitations (and those set forth in the Prospectuses)
are fundamental policies of the Funds which cannot be changed with respect to a
Fund without the consent of the holders of a majority of that Fund's outstanding
shares. The term "majority of the outstanding shares" means the vote of (i) 67%
or more of a Fund's shares present at a meeting, if more than 50% of the
outstanding shares of that Fund are present or represented by proxy, or (ii)
more than 50% of that Fund's outstanding shares, whichever is less.
A Fund shall not:
1. Borrow money in an amount exceeding 33 1/3% of the value of its
total assets, provided that, for purposes of this limitation,
investment strategies which either obligate the Fund to purchase
securities or require that Fund to segregate assets are not
considered to be borrowing. Asset coverage of a least 300% is
required for all borrowing, except where the Fund has borrowed money
for temporary purposes in amounts not exceeding 5% of its total
assets. The Fund will not purchase securities while its borrowing
exceeds 5% of its total assets.
2. Make loans if, as a result, more than 33 1/3% of its total assets
would be lent to other parties, except that the Fund may (i)
purchase or hold debt instruments in accordance with its investment
objective and policies; (ii) enter into repurchase agreements; and
(iii) lend its securities.
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3. Act as an underwriter of securities of other issuers except as it
may be deemed an underwriter in selling a portfolio security.
4. Invest in interests in oil, gas, or other mineral exploration or
development programs and oil, gas or mineral leases.
5. Issue senior securities (as defined in the 1940 Act) except as
permitted by rule, regulation or order of the SEC.
6. Purchase or sell real estate, physical commodities, or commodities
contracts, except that the Fund may purchase (i) marketable
securities issued by companies which own or invest in real estate
(including real estate investment trusts), commodities, or
commodities contracts; and (ii) commodities contracts relating to
financial instruments, such as financial futures contracts and
options on such contracts.
7. Invest 25% or more of the value of the Fund's total assets in the
securities of one or more issuers conducting their principal
business activities in the same industry; except that, to the extent
the benchmark selected for a particular Fund is concentrated in a
particular industry, the Fund will necessarily be concentrated in
that industry. This limitation does not apply to investments or
obligations of the U.S. Government or any of its agencies or
instrumentalities.
NON-FUNDAMENTAL POLICIES
The following investment limitations are non-fundamental policies of the Funds
and may be changed with respect to any Fund by the Board of Trustees.
Each Fund may not:
1. Invest in warrants.
2. Invest in real estate limited partnerships.
3. Invest in mineral leases.
4. Pledge, mortgage or hypothecate assets except to secure borrowing
permitted by the Fund's fundamental limitation on borrowing.
5. Invest in companies for the purpose of exercising control.
6. Purchase securities on margin or effect short sales, except that a
Fund may (i) obtain short-term credits as necessary for the
clearance of security transactions; (ii) provide initial and
variation margin payments in connection with transactions involving
futures contracts and options on such contracts; and (iii) make
short sales "against the box" or in compliance with the SEC's
position regarding the asset segregation requirements imposed by
Section 18 of the 1940 Act.
7. Invest its assets in securities of any investment company, except as
permitted by the 1940 Act or any rule, regulation or order of the
SEC.
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8. Purchase or hold illiquid securities, I.E., securities that cannot
be disposed of for their approximate carrying value in seven days or
less (which term includes repurchase agreements and time deposits
maturing in more than seven days) if, in the aggregate, more than
15% of its net assets would be invested in illiquid securities.
The foregoing percentages are: (i) based on total assets (except for the
limitation on illiquid securities, which is based on net assets); (ii) will
apply at the time of the purchase of a security; and (iii) shall not be
considered violated unless an excess or deficiency occurs or exists immediately
after and as a result of a purchase of such security.
PORTFOLIO TRANSACTIONS AND BROKERAGE
Subject to the general supervision by the Trustees, the Advisor is responsible
for decisions to buy and sell securities for each of the Funds, the selection of
brokers and dealers to effect the transactions, and the negotiation of brokerage
commissions, if any. The Advisor expects that the Funds may execute brokerage or
other agency transactions through registered broker-dealers, for a commission,
in conformity with the 1940 Act, the Securities Exchange Act of 1934, as
amended, and the rules and regulations thereunder.
The Advisor may serve as an investment manager to a number of clients, including
other investment companies. It is the practice of the Advisor to cause purchase
and sale transactions to be allocated among the Funds and others whose assets
the Advisor manages in such manner as the Advisor deems equitable. The main
factors considered by the Advisor in making such allocations among the Funds and
other client accounts of the Advisor are the respective investment objectives,
the relative size of portfolio holdings of the same or comparable securities,
the availability of cash for investment, the size of investment commitments
generally held, and the opinions of the person(s) responsible, if any, for
managing the portfolios of the Funds and the other client accounts.
The policy of each Fund regarding purchases and sales of securities for the
Fund's portfolio is that primary consideration will be given to obtaining the
most favorable prices and efficient executions of transactions. Consistent with
this policy, when securities transactions are effected on a stock exchange, each
Fund's policy is to pay commissions which are considered fair and reasonable
without necessarily determining that the lowest possible commissions are paid in
all circumstances. Each Fund believes that a requirement always to seek the
lowest possible commission cost could impede effective portfolio management and
preclude the Fund and the Advisor from obtaining a high quality of brokerage and
research services. In seeking to determine the reasonableness of brokerage
commissions paid in any transaction, the Advisor relies upon its experience and
knowledge regarding commissions generally charged by various brokers and on its
judgment in evaluating the brokerage and research services received from the
broker effecting the transaction. Such determinations are necessarily subjective
and imprecise, as in most cases an exact dollar value for those services is not
ascertainable.
Purchases and sales of U.S. Government securities are normally transacted
through issuers, underwriters or major dealers in U.S. Government securities
acting as principals. Such transactions are made on a net basis and do not
involve payment of brokerage commissions. The cost of securities purchased from
an underwriter usually includes a commission paid by the issuer to the
underwriters; transactions with dealers normally reflect the spread between bid
and asked prices.
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In managing the investment portfolios of the Funds, the Advisor effects
transactions with those brokers and dealers who the Advisor believes provide the
most favorable prices and are capable of providing efficient executions. If the
Advisor believes such prices and executions are obtainable from more than one
broker or dealer, the Advisor may give consideration to placing portfolio
transactions with those brokers and dealers who also furnish research and other
services to the Fund or the Advisor. In addition, Section 28(e) of the
Securities Exchange Act of 1934 permits the Advisor to cause a Fund to pay
commission rates in excess of those another dealer or broker would have charged
for effecting the same transaction, if the Advisor determines, in good faith,
that the commission paid is reasonable in relation to the value of brokerage and
research services provided. While the Advisor currently does not intend to pay
higher commissions to dealers and brokers who supply it with brokerage and
research services, in the event such higher payments would be made or are deemed
to have been made, such higher payments would be in accordance with
Section 28(e).
Such research services may include information on the economy, industries,
groups of securities, individual companies, statistical information, accounting
and tax law interpretations, political developments, legal developments
affecting portfolio securities, technical market action, pricing and appraisal
services, credit analysis, risk measurement analysis, performance analysis,
analysis of corporate responsibility issues or in the form of access to various
computer-generated data, computer hardware and software. Such research may be
provided by brokers and dealers in the form of written reports, telephone
contacts and personal meetings with security analysts, corporate and industry
spokespersons, economists, academicians, and government representatives.
Brokerage services and equipment may facilitate the execution and monitoring of
securities transactions, for example, by providing rapid communications with
financial markets and brokers or dealers, or by providing real-time tracking of
orders, settlements, investment positions and relevant investment criteria and
restrictions applicable to the execution of securities transactions. In some
cases, brokerage and research services are generated by third parties but are
provided to the Advisor by or through brokers and dealers. The Advisor may
allocate brokerage for research services that are also available for cash, where
appropriate and permitted by law. The Advisor may also pay cash for certain
research services received from external sources.
In addition, the information and services received by the Advisor from brokers
and dealers may not in all cases benefit a Fund directly. For example, such
information and services received by the Advisor as a result of the brokerage
allocation of one of the Funds may be of benefit to the Advisor in the
management of other accounts of the Advisor, including other Funds of the Trust
and other investment companies advised by the Advisor. While the receipt of such
information and services is useful in varying degrees and would generally reduce
the amount of research or services otherwise performed by the Advisor and
thereby reduce the Advisor's expenses, this information and these services are
of indeterminable value and the management fee paid to the Advisor is not
reduced by any amount that may be attributable to the value of such information
and services.
MANAGEMENT OF THE TRUST
The Trustees are responsible for the general supervision of the Trust's
business. The day-to-day operations of the Trust are the responsibilities of the
Trust's officers. The names and addresses (and ages) of the Trustees and the
officers of the Trust and the officers of the Advisor, together with information
as to their principal business occupations during the past five years, are set
forth below. Fees and expenses for non-interested Trustees will be paid by the
Trust.
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TRUSTEES
(1)ALBERT P. VIRAGH, JR. (58)
Chairman of the Board of Trustees and President of the Trust, 1999 to
present; Chairman of the Board, President, and Treasurer of PADCO
Advisors, Inc., investment adviser to the Trust, 1993 to present;
Chairman of the Board, President, and Treasurer of PADCO Service
Company, Inc., shareholder and transfer agent servicer to the Trust,
1993 to present; Chairman of the Board of Trustees of Rydex Series
Trust, a registered mutual fund, 1993 to present; Chairman of the Board
of Trustees of Rydex Variable Trust, a registered mutual fund, 1996 to
present; Chairman of the Board, President, and Treasurer of PADCO
Advisors II, Inc., investment adviser to Rydex Variable Trust, 1996 to
present; Chairman of the Board, President, and Treasurer of PADCO
Financial Services, Inc., a registered broker-dealer firm, 1996 to
present; Vice President of Rushmore Investment Advisors Ltd., a
registered investment adviser, 1985 to 1993. Address: 6116 Executive
Boulevard, Suite 400, Rockville, Maryland 20852.
COREY A. COLEHOUR (53)
Trustee of the Trust, 1999 to present; Trustee of Rydex Series Trust,
1993 to present; Trustee of Rydex Variable Trust, 1996 to present;
Senior Vice President of Marketing of Schield Management Company, a
registered investment adviser, 1985 to present. Address: 6116 Executive
Boulevard, Suite 400, Rockville, Maryland 20852.
J. KENNETH DALTON (58)
Trustee of the Trust, 1999 to present; Trustee of Rydex Series Trust,
1995 to present; Trustee of Rydex Variable Trust, 1996 to present;
Mortgage Banking Consultant and Investor, The Dalton Group, April 1995
to present; President, CRAM Mortgage Group, Inc. 1966 to April 1995.
Address: 6116 Executive Boulevard, Suite 400, Rockville, Maryland
20852.
JOHN O. DEMARET (58)
Trustee of the Trust, 1999 to present; Trustee of Rydex Series Trust
and Rydex Variable Trust, 1996 to present; Founder and Chief Executive
Officer, Health Cost Controls America, Chicago, Illinois, 1987 to 1996;
sole practitioner, Chicago, Illinois, 1984 to 1987; General Counsel for
the Chicago Transit Authority, 1981 to 1984; Senior Partner,
O'Halloran, LaVarre & Demaret, Northbrook, Illinois, 1978 to 1981.
Address: 6116 Executive Boulevard, Suite 400, Rockville, Maryland
20852.
PATRICK T. MCCARVILLE (56)
Trustee of the Trust, 1999 to present; Trustee of Rydex Series Trust
and Rydex Variable Trust, 1997 to present; Founder and Chief Executive
Officer, Par Industries, Inc., Northbrook, Illinois, 1977 to
- --------------------------------
(1) This trustee is deemed to be an "interested person" of the Trust,
within the meaning of Section 2(a)(19) of the 1940 Act, inasmuch as
this person is affiliated with the Advisor, as described herein.
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present; President and Chief Executive Officer, American Health
Resources, Northbrook, Illinois, 1984 to 1986. Address: 6116 Executive
Boulevard, Suite 400, Rockville, Maryland 20852.
ROGER SOMERS (54)
Trustee of the Trust, 1999 to present; Trustee of Rydex Series Trust,
1993 to present, and Trustee of Rydex Variable Trust, 1996 to present;
President, Arrow Limousine, 1963 to present. Address: 6116 Executive
Boulevard, Suite 400, Rockville, Maryland 20852.
THE ADVISORY AGREEMENT
Under an investment advisory agreement the Advisor serves as the investment
adviser for each series of the Trust and provides investment advice to the Funds
and oversees the day-to-day operations of the Funds, subject to direction and
control by the Trustees and the officers of the Trust. As of _________, 1999,
net assets under management of the Advisor were approximately _________.
The Advisor manages the investment and the reinvestment of the assets of each of
the Funds, in accordance with the investment objectives, policies, and
limitations of the Fund, subject to the general supervision and control of the
Trustees and the officers of the Trust. The Advisor bears all costs associated
with providing these advisory services and the expenses of the Trustees of the
Trust who are affiliated with or interested persons of the Advisor. The Advisor,
from its own resources, including profits from advisory fees received from the
Funds, provided such fees are legitimate and not excessive, may make payments to
broker-dealers and other financial institutions for their expenses in connection
with the distribution of Fund shares, and otherwise currently pay all
distribution costs for Fund shares.
The Advisor is entitled to a fee, which is calculated daily and paid monthly, at
an annual rate of 1.00% of the average daily net assets of each Fund. The
Advisor may, from time to time reimburse certain expenses of the Funds in order
to limit the Funds' operating expenses as described in the prospectus.
THE SERVICE AGREEMENT
General administrative, shareholder, dividend disbursement, transfer agent, and
registrar services are provided to the Trust and the Funds by PADCO Service
Company, Inc., (the "Servicer"), 6116 Executive Boulevard, Suite 400, Rockville,
Maryland 20852, subject to the general supervision and control of the Trustees
and the officers of the Trust, pursuant to a service agreement between the Trust
and the Administrator.
Under the service agreement, the Servicer provides the Trust and each Fund with
all required general administrative services, including, without limitation,
office space, equipment, and personnel; clerical and general back office
services; bookkeeping, internal accounting, and secretarial services; the
determination of net asset values; and the preparation and filing of all
reports, registration statements, proxy statements, and all other materials
required to be filed or furnished by the Trust and each Fund under Federal and
state securities laws. The Servicer also maintains the shareholder account
records for each Fund, disburses dividends and distributions payable by each
Fund, and produces statements with respect to account activity for each Fund and
each Fund's shareholders. The Servicer pays all fees and expenses that are
directly related to the services provided by the Servicer to each Fund; each
Fund reimburses the Servicer for all fees and expenses incurred by the Servicer
which are not directly related to the services the Servicer provides to the Fund
under the service agreement.
In consideration for its services, the Servicer is entitled to a fee, which is
calculated daily and paid monthly, at an annual rate of .45% of the average
daily net assets of each Fund.
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DISTRIBUTION
Pursuant to the Distribution Agreement adopted by the Trust, PADCO Financial
Services, Inc. (the "Distributor"), 6116 Executive Boulevard, Suite 400,
Rockville, Maryland 20852, acts as distributor for the Shares of the Trust under
the general supervision and control of the Trustees and the officers of the
Trust.
Under a Distribution Plan, the Distributor may use its fees for: (i)
compensation for its services in connection with distribution assistance; or
(ii) payments to financial institutions and intermediaries such as banks,
savings and loan associations, insurance companies and investment counselors,
broker-dealers, mutual fund supermarkets and the Distributor's affiliates and
subsidiaries as compensation for services or reimbursement of expenses incurred
in connection with distribution assistance. The Distributor may, at its
discretion, retain a portion of such payments to compensate itself for
distribution services and distribution related expenses such as the costs of
preparation, printing, mailing or otherwise disseminating sales literature,
advertising, and prospectuses (other than those furnished to current
shareholders of the Fund), promotional and incentive programs, and such other
marketing expenses that the Distributor may incur.
COSTS AND EXPENSES
Each Fund bears all expenses of its operations other than those assumed by the
Advisor or the Servicer. Fund expenses include: the management fee; the
servicing fee (including administrative, transfer agent, and shareholder
servicing fees); custodian and accounting fees and expenses; legal and auditing
fees; securities valuation expenses; fidelity bonds and other insurance
premiums; expenses of preparing and printing prospectuses, confirmations, proxy
statements, and shareholder reports and notices; registration fees and expenses;
proxy and annual meeting expenses, if any; all Federal, state, and local taxes
(including, without limitation, stamp, excise, income, and franchise taxes);
organizational costs; non-interested Trustees' fees and expenses; the costs and
expenses of redeeming shares of the Fund; fees and expenses paid to any
securities pricing organization; dues and expenses associated with membership in
any mutual fund organization; and costs for incoming telephone WATTS lines. In
addition, each of the Funds pays an equal portion of the Trustee fees and
expenses for attendance at Trustee meetings for the Trustees of the Trust who
are not affiliated with or interested persons of the Advisor.
DETERMINATION OF NET ASSET VALUE
The net asset value of a Fund serves as the basis for the purchase and
redemption price of that Fund's shares. The net asset value per share of a Fund
is calculated by dividing the market value of the Fund's securities plus the
values of its other assets, less all liabilities, by the number of outstanding
shares of the Fund. If market quotations are not readily available, a security
will be valued at fair value by the Board of Trustees or by the Advisor using
methods established or ratified by the Board of Trustees.
For purposes of determining net asset value per share of a Fund. Options on
securities and indices purchased by a Fund generally are valued at their last
bid price in the case of exchange-traded options or, in the case of options
traded in the over-the-counter ("OTC") market, the average of the last bid price
as obtained from two or more dealers unless there is only one dealer, in which
case that dealer's price is used. The value of a futures contract equals the
unrealized gain or loss on the contract settlement price for a like contract
acquired on the day on which the futures contract is being valued. The value of
options on futures contracts is determined based upon the current settlement
price for a like option acquired on the day on which the option is being valued.
A settlement price may not be used for the foregoing purposes if the market
makes a limit move with respect to a particular commodity.
16
<PAGE>
On days when the CBOT is closed during its usual business hours, but the shares
of a Fund have been purchased, redeemed, and/or exchanged, the portfolio
securities held by a Fund which are traded on the CBOT are valued at the earlier
of (i) the time of the execution of the last trade of the day for a Fund in
those CBOT-traded portfolio securities and (ii) the time of the close of the
CBOT Evening Session. On days when the CBOT is closed during its usual business
hours and there is no need for a Fund to execute trades on the CBOT, the value
of the CBOT-traded portfolio securities held by a Fund will be the mean of the
bid and asked prices for those CBOT-traded portfolio securities at the open of
the CBOT Evening Session.
OTC securities held by a Fund shall be valued at the last sales price or, if no
sales price is reported, the mean of the last bid and asked price is used. The
portfolio securities of a Fund that are listed on national exchanges are taken
at the last sales price of such securities on such exchange; if no sales price
is reported, the mean of the last bid and asked price is used. For valuation
purposes, all assets and liabilities initially expressed in foreign currency
values will be converted into U.S. dollar values at the mean between the bid and
the offered quotations of such currencies against U.S. dollars as last quoted by
any recognized dealer. If such quotations are not available, the rate of
exchange will be determined in good faith by the Advisor based on guidelines
adopted by the Trustees. Dividend income and other distributions are recorded on
the ex-dividend date, except for certain dividends from foreign securities which
are recorded as soon as the Trust is informed after the ex-dividend date.
Illiquid securities, securities for which reliable quotations or pricing
services are not readily available, and all other assets will be valued at their
respective fair value as determined in good faith by, or under procedures
established by, the Trustees, which procedures may include the delegation of
certain responsibilities regarding valuation to the Advisor or the officers of
the Trust. The officers of the Trust report, as necessary, to the Trustees
regarding portfolio valuation determination. The Trustees, from time to time,
will review these methods of valuation and will recommend changes which may be
necessary to assure that the investments of the Funds are valued at fair value.
PERFORMANCE INFORMATION
From time to time, each of the Funds may include the Fund's total return in
advertisements or reports to shareholders or prospective shareholders.
Quotations of average annual total return for a Fund will be expressed in terms
of the average annual compounded rate of return on a hypothetical investment in
the Fund over a period of at least one, five, and ten years (up to the life of
the Fund) (the ending date of the period will be stated). Total return of a Fund
is calculated from two factors: the amount of dividends earned by each Fund
share and by the increase or decrease in value of the Fund's share price. See
"Calculation of Return Quotations."
Performance information for each of the Funds contained in reports to
shareholders or prospective shareholders, advertisements, and other promotional
literature may be compared to the record of various unmanaged indexes.
Performance information for the Funds may be compared to various unmanaged
indexes, including, but not limited to, the S&P 500 Index or the Dow Jones
Industrial Average, the NASDAQ 100 Index-TM-, and the NASDAQ Composite
Index-TM-.
Such unmanaged indexes may assume the reinvestment of dividends, but generally
do not reflect deductions for operating costs and expenses. In addition, a
Fund's total return may be compared to the performance of broad groups of
comparable mutual funds with similar investment goals, as such performance is
tracked and published by such independent organizations as Lipper Analytical
Services, Inc. ("Lipper"), and CDA Investment Technologies, Inc., among others,
when Lipper's tracking results are used, the Fund will be
17
<PAGE>
compared to Lipper's appropriate fund category, that is, by fund objective and
portfolio holdings. Performance figures are based on historical results and are
not intended to indicate future performance.
In addition, rankings, ratings, and comparisons of investment performance and/or
assessments of the quality of shareholder service appear in numerous financial
publications such as MONEY, FORBES, KIPLINGER's MAGAZINE, PERSONAL INVESTOR,
MORNINGSTAR, INC., and similar sources.
CALCULATION OF RETURN QUOTATIONS
For purposes of quoting and comparing the performance of a Fund to that of other
mutual funds and to other relevant market indexes in advertisements or in
reports to shareholders, performance for the Fund may be stated in terms of
total return. Under the rules of the Securities and Exchange Commission ("SEC
Rules"), Funds advertising performance must include total return quotes
calculated according to the following formula:
n
P(1+T) = ERV
Where: P = a hypothetical initial payment of $1,000;
T = average annual total return;
n = number of years (1, 5 or 10); and
ERV = ending redeemable value of a hypothetical $1,000
payment, made at the beginning of the 1, 5 or 10 year
periods, at the end of the 1, 5, or 10 year periods
(or fractional portion thereof).
Under the foregoing formula, the time periods used in advertising will be based
on rolling calendar quarters, updated to the last day of the most recent quarter
prior to submission of the advertising for publication, and will cover 1, 5, and
10 year periods or a shorter period dating from the effectiveness of the
Registration Statement of the Trust. In calculating the ending redeemable value,
all dividends and distributions by a Fund are assumed to have been reinvested at
net asset value as described in the Trust's Prospectus on the reinvestment dates
during the period. Total return, or `T' in the formula above, is computed by
finding the average annual compounded rates of return over the 1, 5, and 10 year
periods (or fractional portion thereof) that would equate the initial amount
invested to the ending redeemable value.
PURCHASE AND REDEMPTION OF SHARES
MINIMUM INVESTMENT REQUIREMENTS
Shareholders will be informed of any increase in the minimum investment
requirements by a new prospectus or a prospectus supplement, in which the new
minimum is disclosed. Any request for a redemption (including pursuant to check
writing privileges) by an investor whose account balance is (a) below the
currently applicable minimum investment, or (b) would be below that minimum as a
result of the redemption, will be treated as a request by the investor of a
complete redemption of that account. In addition, the Trust may redeem an
account whose balance (due in whole or in part to redemptions since the time of
last purchase) has fallen below the minimum investment amount applicable at the
time of the shareholder's most recent purchase of Fund shares (unless the
shareholder brings his or her account value up to the currently applicable
minimum investment).
18
<PAGE>
TAX CONSEQUENCES
Note that in the case of tax-qualified retirement plans, a redemption from such
a plan may have adverse tax consequences. A shareholder contemplating such a
redemption should consult his or her own tax advisor. Other shareholders should
consider the tax consequences of any redemption.
SUSPENSION OF THE RIGHT OF REDEMPTION
The Funds may suspend the right of redemption or the date of payment: (i) for
any period during which the NYSE, the Federal Reserve Bank of New York, the
NASDAQ, the Chicago Mercantile Exchange ("CME"), the CBOT, or any other
exchange, as appropriate, is closed (other than customary weekend or holiday
closings), or trading on the NYSE, the NASDAQ, the CME, the CBOT, or any other
exchange, as appropriate, is restricted; (ii) for any period during which an
emergency exists so that sales of a Fund's investments or the determination of
its NAV is not reasonably practicable; or (iii) for such other periods as the
SEC may permit for the protection of a Fund's investors.
HOLIDAYS
The NYSE, the Federal Reserve Bank of New York, the NASDAQ, the CME, the CBOT,
and other U.S. exchanges are closed on weekends and on the following holidays:
(i) New Year's Day, Martin Luther King Jr.'s Birthday, President's Day, Good
Friday, Memorial Day, July Fourth, Labor Day, Columbus Day, Thanksgiving Day,
and Christmas Day; and (ii) the preceding Friday if any of these holidays falls
on a Saturday, or the subsequent Monday if any of these holidays falls on a
Sunday. Although the Trust expects the same holiday schedules to be observed in
the future, each of the aforementioned exchanges may modify its holiday schedule
at any time.
REDEMPTIONS IN-KIND
The Trust intends to pay your redemption proceeds in cash. However, under
unusual conditions that make the payment in cash unwise (and for the protection
of the remaining shareholders of the Fund) the Trust reserves the right to pay
all, or part, of your redemption proceeds in liquid securities with a market
value equal to the redemption price (redemption in-kind). Although it is highly
unlikely that your shares would ever actually be redeemed in kind, you would
probably have to pay brokerage costs to sell the securities distributed to you.
DIVIDENDS, DISTRIBUTIONS, AND TAXES
DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income and any distributions of net realized
capital gains from each of the Funds will be distributed as described in the
Trust's Prospectus under "Dividends and Distributions." All such distributions
of a Fund normally automatically will be reinvested without charge in additional
shares of the same Fund.
REGULATED INVESTMENT COMPANY ("RIC") Status
As a Regulated Investment Company, a Fund would not be subject to Federal income
taxes on the net investment income and capital gains that the Fund distributes
to the Fund's shareholders. The distribution of net investment income and
capital gains will be taxable to Fund shareholders regardless of whether the
shareholder elects to receive these distributions in cash or in additional
shares. Distributions reported to Fund shareholders as long-term capital gains
shall be taxable as such, regardless of how long the shareholder has owned the
shares. Fund shareholders will be notified annually by the Fund as to the
Federal tax status of all distributions made by the Fund. Distributions may be
subject to state and local taxes.
19
<PAGE>
Each of the Funds will seek to qualify for treatment as a RIC under the Code.
Provided that a Fund (i) is a RIC and (ii) distributes at least 90% of the
Fund's net investment income (including, for this purpose, net realized
short-term capital gains), the Fund itself will not be subject to Federal income
taxes to the extent the Fund's net investment income and the Fund's net realized
long- and short-term capital gains, if any, are distributed to the Fund's
shareholders. To avoid an excise tax on its undistributed income, each Fund
generally must distribute at least 98% of its taxable ordinary income for the
year, at least 98% of the excess of its realized capital gains over its realized
capital losses, and 100% of any taxable ordinary income and the excess of
realized capital gains over realized capital losses for the prior year that was
not distributed during such year and on which the Fund paid no federal income
tax. One of several requirements for RIC qualification is that the Fund must
receive at least 90% of its gross income each year from dividends, interest,
payments with respect to securities loans, gains from the sale or other
disposition of securities or foreign currencies, or other income derived with
respect to the Fund's investments in stock, securities, and foreign currencies
(the "90% Income Test").
In the event of a failure by a Fund to quality as a RIC, the Fund's
distributions, to the extent such distributions are derived from the Fund's
current or accumulated earnings and profits, would constitute dividends that
would be taxable to the shareholders of the fund as ordinary income and would be
eligible for the dividends received deduction for corporate shareholders. This
treatment would also apply to any portion of the distributions that might have
been treated in the shareholder's hands as long-term capital gains, as discussed
below, had the Fund qualified as a RIC.
If a Fund were to fail to qualify as a RIC for one or more taxable years, the
Fund could then qualify (or requalify) as a RIC for a subsequent taxable year
only if the Fund had distributed to the Fund's shareholders a taxable dividend
equal to the full amount of any earnings or profits (less the interest charge
mentioned below, if applicable) attributable to such period. The Fund might also
be required to pay to the U.S. Internal Revenue Service interest on 50% of such
accumulated earnings and profits. In addition, pursuant to the Code and an
interpretative notice issued by the IRS, if the Fund should fail to qualify as a
RIC and should thereafter seek to requalify as a RIC, the Fund may be subject to
tax on the excess (if any) of the fair market of the Fund's assets over the
Fund's basis in such assets, as of the day immediately before the first taxable
year for which the Fund seeks to requalify as a RIC.
If a Fund determines that it will not qualify as a RIC under Subchapter M of the
Code, the Fund will establish procedures to reflect the anticipated tax
liability in its net asset value.
TRANSACTIONS BY THE FUNDS
If a call option written by a Fund expires, the amount of the premium received
by the Fund for the option will be short-term capital gain to the Fund. If such
an option is closed by a Fund, any gain or loss realized by the Fund as a result
of the closing purchase transaction will be short-term gain or loss. If the
holder of a call option exercises the holder's right under the option, any gain
or loss realized by the Fund upon the sale of the underlying security pursuant
to such exercise will be short-term or long-term capital gain or loss to the
Fund depending on the Fund's holding period for the underlying security. The
amount of the premium received by the Fund increases the amount realized upon
the sale.
With respect to call options purchased by a Fund, the Fund will realize
short-term or long-term capital gain or loss if such option is sold and will
realize short-term or long-term capital loss if the option is allowed to expire
depending on the Fund's holding period for the call option. If such a call
option is exercised, the amount paid by the Fund for the option will be added to
the basis of the stock or futures contract so acquired.
20
<PAGE>
A Fund has available to it a number of elections under the Code concerning the
treatment of option transactions for tax purposes. A Fund will utilize the tax
treatment that, in the Fund's judgment, will be most favorable to a majority of
investors in the Fund. Taxation of these transactions will vary according to the
elections made by the Fund. These tax considerations may have an impact on
investment decisions made by the Fund.
Each of the Funds in its operations also will utilize options on stock indexes.
Options on "broad based" stock indexes are classified as "nonequity options"
under the Code. Gains and losses resulting from the expiration, exercise, or
closing of such nonequity options, as well as gains and losses resulting from
futures contract transactions, will be treated as long-term capital gain or loss
to the extent of 60% thereof and short-term capital gain or loss to the extent
of 40% thereof (hereinafter, "blended gain or loss"). In addition, any nonequity
option and futures contract held by a Fund on the last day of a fiscal year will
be treated as sold for market value on that date, and gain or loss recognized as
a result of such deemed sale will be blended gain or loss.
The trading strategies of each of the Funds involving nonequity options on stock
indexes may constitute "straddle" transactions. "Straddles" may affect the
taxation of such instruments and may cause the postponement of recognition of
losses incurred in certain closing transactions. Each of these Funds will also
have available to the Fund a number of elections under the Code concerning the
treatment of option transactions for tax purposes. Each such Fund will utilize
the tax treatment that, in the Fund's judgment, will be most favorable to a
majority of investors in the Fund. Taxation of these transactions will vary
according to the elections made by the Fund. These tax considerations may have
an impact on investment decisions made by the Fund.
A Fund's transactions in options, under some circumstances, could preclude the
Fund's qualifying for the special tax treatment available to investment
companies meeting the requirements of Subchapter M of the Code. However, it is
the intention of each Fund's portfolio management to limit gains from such
investments to less than 10% of the gross income of the Fund during any fiscal
year in order to maintain this qualification.
BACK-UP WITHHOLDING
Each Fund is required to withhold and remit to the U.S. Treasury 31% of (i)
reportable taxable dividends and distributions and (ii) the proceeds of any
redemptions of Fund shares with respect to any shareholder who is not exempt
from withholding and who fails to furnish the Trust with a correct taxpayer
identification number, who fails to report fully dividend or interest income, or
who fails to certify to the Trust that the shareholder has provided a correct
taxpayer identification number and that the shareholder is not subject to
withholding. (An individual's taxpayer identification number is the individual's
social security number.) The 31% "back-up withholding tax" is not an additional
tax and may be credited against a taxpayer's regular Federal income tax
liability.
OTHER ISSUES
Each Fund may be subject to tax or taxes in certain states where the Fund does
business. Furthermore, in those states which have income tax laws, the tax
treatment of a Fund and of Fund shareholders with respect to distributions by
the Fund may differ from Federal tax treatment.
Shareholders are urged to consult their own tax advisors regarding the
application of the provisions of tax law described in this Statement of
Additional Information in light of the particular tax situations of the
shareholders and regarding specific questions as to Federal, state, or local
taxes.
OTHER INFORMATION
21
<PAGE>
VOTING RIGHTS
You receive one vote for every full Fund share owned. Each Fund will vote
separately on matters relating solely to that Fund. All shares of the Funds are
freely transferable.
As a Delaware business trust, the Trust is not required to hold annual
Shareholder meetings unless otherwise required by the Investment Company Act of
1940. However, a meeting may be called by Shareholders owning at least 10% of
the outstanding shares of the Trust. If a meeting is requested by Shareholders,
the Trust will provide appropriate assistance and information to the
Shareholders who requested the meeting. Shareholder inquiries can be made by
calling 1-800-820-0888 or 301-468-8520, or by writing to the Trust at 6116
Executive Boulevard, Suite 400, Rockville, Maryland 20852.
REPORTING
You will receive the Trust's unaudited financial information and audited
financial statements. In addition, the Trust will send you proxy statements and
other reports. If you are a customer of a financial institution that has
purchased shares of a Fund for your account, you may, depending upon the nature
of your account, receive all or a portion of this information directly from your
financial institution.
SHAREHOLDER INQUIRIES
You may visit the Trust's website at www.rydexfunds.com or call 1-800-820-0888
or 301-468-8520 to obtain information on account statements, procedures, and
other related information. Shareholders that do not meet certain account balance
requirements described in the prospectus may be charged a processing fee for
shareholder inquiries made by means other than through the Trust's website. For
more details, please refer to the prospectus section on "Minimum Investments."
COUNSEL
Morgan, Lewis & Bockius LLP, 1800 M Street, N.W., Washington, D.C. 20036, serves
as counsel to the Trust.
AUDITORS AND CUSTODIAN
Deloitte & Touche LLP, Princeton Forrestal Village, 116-300 Village Boulevard,
Princeton, New Jersey 08540, are the auditors and the independent certified
public accountants of the Trust and each of the Funds. Firstar (the
"Custodian"), Star Bank Center, 425 Walnut Street, Cincinnati, Ohio 45202,
serves as custodian for the Trust and the Funds under a custody agreement
between the Trust and the Custodian. Under the custody agreement, the Custodian
holds the portfolio securities of each Fund and keeps all necessary related
accounts and records.
FINANCIAL STATEMENTS
The Trust's financial statements, including notes thereto, and the report of
Deloitte & Touche LLP are included in this SAI.
22
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Trustees and Shareholder of
The Rydex Dynamic Funds:
We have audited the accompanying statements of assets and liabilities of the
Titan 500, Tempest 500, Velocity 100, and Venture 100 Funds of the Rydex Dynamic
Funds (the "Trust"), as of November 17, 1999. These financial statements are the
responsibility of the Trust's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amount and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of each of the respective
portfolios constituting the Rydex Dynamic Funds as of November 17, 1999 in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Princeton, New Jersey
November 22, 1999
<PAGE>
RYDEX DYNAMIC FUNDS
NOTES TO FINANCIAL STATEMENTS
NOVEMBER 17, 1999
- --------------------------------------------------------------------------------
1. ORGANIZATION
The Rydex Dynamic Funds (the "Funds") is a non-diversified, open-ended
investment company established under the laws of Delaware by Declaration of
Trust dated August 6, 1999. The Funds are authorized to issue an unlimited
number of shares. The Funds currently consist of the Titan 500 Fund, Tempest
500 Fund, Velocity 100 Fund, and Venture 100 Fund. The Funds have had no
operations other than those related to organizational matters and the sale
and issuance of initial shares (1,000 each for the Titan 500 Fund and
Velocity 100 Fund and 500 each for the Tempest 500 Fund and Venture 100 Fund)
to shareholders. All organizational expenses incurred or to be incurred in
connection with the organization and initial registration of the Funds were
paid by PADCO Advisors, Inc. (the "Advisor"), an affiliated entity. However,
the Funds will reimburse PADCO Advisors, Inc. for such costs, subject to an
expense reimbursement and recapture agreement between PADCO Advisors, Inc.
and the Funds. Organizational expenses of approximately $267,000 have been
deferred and will be expensed immediately upon commencement of operations of
each Fund.
2. FEES AND OTHER TRANSACTIONS WITH AFFILIATES
Under the terms of an investment advisory contract, the Funds pay PADCO
Advisors, Inc., an affiliated entity, investment advisory fees calculated at
an annualized rate, based on average daily net assets, of one percent (1%) of
net assets of each Fund. Certain officers of the Funds are also officers of
PADCO Advisors, Inc. See "Management of the Funds" in the Prospectus for
additional information concerning the agreement.
PADCO Service Company, Inc., a subsidiary of the investment advisor, provides
transfer agent service to the Funds at an annualized rate, based on average
daily net assets, of forty-five hundredths of one percent (0.45%) of net
assets of each Fund.
The Funds have adopted a Distribution Plan that allows the Funds to pay
distribution fees to PADCO Financial Services, Inc. (the "Distributor"), an
affiliated entity, and other firms that provide distribution services
("Service Providers"). The Funds will pay distribution fees to the
Distributor at an annual rate, based on average daily net assets, of one
quarter of one percent (0.25%) of net assets of each Fund, pursuant to Rule
12b-1 of the Investment Company Act of 1940. If a Service Provider provides
distribution services, the Distributor will, in turn, pay the Service
Provider out of its fees. See "Distribution Plan" in the Prospectus for
additional information concerning the agreement.
3. INCOME TAXES
The Funds intend to comply with the provisions of the Internal Revenue Code
applicable to regulated investment companies and will distribute all net
investment income to its shareholders. Therefore, the Funds do not expect to
be subject to federal income or excise taxes.
<PAGE>
RYDEX DYNAMIC FUNDS
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
NOVEMBER 17, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Titan 500 Tempest 500 Velocity 100 Venture 100
Fund Fund Fund Fund
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
ASSETS
Cash in Custodian Bank..................... 25,000 25,000 25,000 25,000
Deferred Organization Costs (Note 1)....... 66,791 66,791 66,791 66,791
------------- ------------- ------------- -------------
Total Assets......................... 91,791 91,791 91,791 91,791
------------- ------------- ------------- -------------
LIABILITIES
Accrued Organizational Costs (Note 1)....... 66,791 66,791 66,791 66,791
------------- ------------- ------------- -------------
Total Liabilities.................... 66,791 66,791 66,791 66,791
------------- ------------- ------------- -------------
NET ASSETS.................................... $ 25,000 $ 25,000 $ 25,000 $ 25,000
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Shares Outstanding............................ 1,000 500 1,000 500
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Net Asset Value Per Share..................... $ 25.00 $ 50.00 $ 25.00 $ 50.00
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
See Notes to Financial Statements.
<PAGE>
PART C: OTHER INFORMATION
ITEM 23. EXHIBITS:
(a)(1) Certificate of Trust of NewCo Trust is incorporated by
reference to Exhibit (a)(1) of the Initial Registration
Statement, as filed August 9, 1999.
(a)(2) Declaration of Trust of NewCo Trust is incorporated by
reference to Exhibit (a)(2) of the Initial Registration
Statement, as filed August 9, 1999.
(a)(3) Amended and Restated Certificate of Trust, dated
November 23, 1999, is filed herewith.
(a)(4) Amended and Restated Declaration of Trust, dated
November 23, 1999, is filed herewith.
(b)(1) By-Laws of Registrant are incorporated herein by reference
to Exhibit (b) of the Initial Registration Statement, as filed
August 9, 1999.
(b)(2) Amended and Restated By-Laws, dated November 23, 1999, are
filed herewith.
(c) Not Applicable
(d) Form of Investment Advisory Agreement between the Registrant
and PADCO Advisors, Inc., dated August 1999, is filed
herewith.
(e) Form of Distribution Agreement between the Registrant and
PADCO Financial Services, Inc., dated August 1999, is filed
herewith.
(f) Not Applicable
(g) Form of Custodian Agreement between the Registrant and Firstar
Bank, N.A., dated November 1999, is filed herewith.
(h)(1) Form of Service Agreement between the Registrant and PADCO
Service Company, Inc., dated August 1999, is filed herewith.
(h)(2) Form of Accounting Services Agreement between the
Registrant and PADCO Service Company, Inc., August 1999, is
filed herewith.
ii
<PAGE>
(i) Legal Opinion of Morgan, Lewis & Bockius LLP is filed
herewith.
(j) Consent of Independent Accountants Deloitte & Touche LLP is
filed herewith.
(k) Not Applicable
(l) Not Applicable
(m) Distribution and Shareholder Services Plan, dated August 1999,
is filed herewith.
(n) Not Applicable
(o) Not Applicable
(p) Not Applicable
(q) Powers of Attorney for Albert P. Viragh, Jr., Carl G.
Verboncoeur, Corey A. Colehour, J. Kenneth Dalton, John O.
Demaret, Patrick T. McCarville, and Roger Somers are filed
herewith.
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE FUND
The following persons may be deemed to be directly or indirectly controlled by
or under the common control with the Registrant, a Delaware business trust:
iii
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE OF VOTING
SECURITIES OWNED AND/OR
CONTROLLED BY THE
STATE OF ORGANIZATION AND CONTROLLING PERSON OR
RELATIONSHIP (IF ANY) TO OTHER BASIS OF COMMON
COMPANY THE REGISTRANT CONTROL
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
PADCO Advisors, Inc. (the a Maryland corporation, a 80% of the voting securities
"Advisor) registered investment of the Advisor are owned by
adviser, and the Registrant's Albert P. Viragh, Jr., the
investment adviser Chairman of the Board of
Directors, the President, and
the Treasurer of the Advisor,
and 100% of the voting
securities are controlled by
Albert P. Viragh, Jr.
PADCO Service Company, a Maryland corporation, a 100% of the voting securities
Inc. (the "Servicer") registered transfer agent, of the Servicer are owned by
and the Registrant's Albert P. Viragh, Jr., the
shareholder and transfer Chairman of the Board of
agent servicer Directors, the President, and
the Treasurer of the Servicer
PADCO Financial Services, a Maryland corporation, a 100% of the voting securities
Inc. (the "Distributor") registered broker-dealer, and of the Distributor are owned
the distributor of the shares by Albert P. Viragh, Jr., the
of the Registrant Chairman of the Board of
Directors, the President, and
the Treasurer of the
Distributor
PADCO Advisors II, Inc. a Maryland corporation and 100% of the voting securities
a registered investment are owned by Albert P.
adviser (PADCO II is not Viragh, Jr., the Chairman of
otherwise related to the the Board of Directors, the
Registrant) President, and the Treasurer
of PADCO II
Rydex Variable Trust an open-end investment the investment advisers for
company for use by the Rydex Variable Trust
insurance variable annuity and the Registrant are under
products which is organized the common control of Albert
under the laws of the State P. Viragh, Jr., the Chairman
iv
<PAGE>
of Delaware and is advised of the Board of Trustees and
by PADCO Advisors II, Inc. President of the Registrant
Rydex Series Trust an open-end investment the investment adviser for
company which is organized the Rydex Series Trust is the
under the laws of the State investment adviser of the
of Delaware and is Registrant and is under the
advised by PADCO Advisors, control of Albert P. Viragh,
Inc. Jr., the Chairman of the Board
of Trustees and President of
the Registrant
</TABLE>
ITEM 25. INDEMNIFICATION
The Registrant is organized as a Delaware business trust and is operated
pursuant to a Declaration of Trust, dated as of August 6, 1999 (the "Declaration
of Trust"), that permits the Registrant to indemnify its trustees and officers
under certain circumstances. Such indemnification, however, is subject to the
limitations imposed by the Securities Act of 1933, as amended, and the
Investment Company Act of 1940, as amended. The Declaration of Trust of the
Registrant provides that officers and trustees of the Trust shall be indemnified
by the Trust against liabilities and expenses of defense in proceedings against
them by reason of the fact that they each serve as an officer or trustee of the
Trust or as an officer or trustee of another entity at the request of the
entity. This indemnification is subject to the following conditions:
(a) no trustee or officer of the Trust is indemnified against any
liability to the Trust or its security holders which was the
result of any willful misfeasance, bad faith, gross
negligence, or reckless disregard of his duties;
(b) officers and trustees of the Trust are indemnified only for
actions taken in good faith which the officers and trustees
believed were in or not opposed to the best interests of the
Trust; and
(c) expenses of any suit or proceeding will be paid in advance
only if the persons who will benefit by such advance undertake
to repay the expenses unless it subsequently is determined
that such persons are entitled to indemnification.
The Declaration of Trust of the Registrant provides that if indemnification is
not ordered by a court, indemnification may be authorized upon determination by
shareholders, or by a majority vote of a quorum of the trustees who were not
parties to the proceedings or, if this quorum is not obtainable, if directed by
a quorum of disinterested trustees, or by independent legal counsel in a written
opinion, that the persons to be indemnified have met the applicable standard.
v
<PAGE>
ITEM 26. BUSINESS AND OTHER CONNECTIONS OF THE INVESTMENT ADVISER
Each of the directors of the Trust's investment adviser, PADCO Advisors, Inc.
(the "Advisor"), Albert P. Viragh, Jr., the Chairman of the Board of Directors,
President, and Treasurer of the Advisor, and Amanda C. Viragh, the Secretary of
the Advisors, is an employee of the Advisor at 6116 Executive Boulevard, Suite
400, Rockville, Maryland 20852. Albert P. Viragh, Jr. also has served (and
continues to serve) as: (i) the Chairman of the Board of Trustees and the
President of the Trust since the Trust's organization as a Delaware business
trust on August 6, 1999; (ii) the Chairman of the Board of Directors, the
President, and the Treasurer of PADCO Service Company, Inc. (the "Servicer"),
the Trust's registered transfer agent and shareholder servicer, since the
incorporation of the Servicer in the State of Maryland on October 6, 1993; (iii)
the Chairman of the Board of Directors, the President, and the Treasurer of
PADCO Advisors II, Inc. ("PADCO II"), a registered investment adviser, since the
incorporation of PADCO II in the State of Maryland on July 5, 1994; and (iv) the
Chairman of the Board of Directors, the President, and the Treasurer of PADCO
Financial Services, Inc. (the "Distributor"), the distributor of the shares of
the Trust, since the incorporation of the Distributor in the State of Maryland
on March 21, 1996. Amanda C. Viragh also has served (and continues to serve) as
the Secretary of the Advisor, the Servicer, and PADCO II, and also as the
Assistant Treasurer of the Servicer.
ITEM 27. PRINCIPAL UNDERWRITERS
(a) PADCO Financial Services Inc. serves as the principal underwriter for
the securities of the Registrant, Rydex Series Trust, a registered
investment company advised by PADCO Advisors, Inc., and the Rydex
Variable Trust, a registered investment company advised by PADCO
Advisors II, Inc., but does not currently serve as the principal
underwriter for the securities of any other investment company.
(b) The following information is furnished with respect to the directors
and officers of PADCO Financial Services, Inc.:
<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITIONS AND OFFICES WITH POSITIONS AND OFFICES
BUSINESS ADDRESS* UNDERWRITER WITH REGISTRANT
- ------------------ -------------------------- ---------------------
<S> <C> <C>
Albert P. Viragh, Jr. Chairman of the Board of Directors, Chairman of the Board
President and Treasurer of Trustees and President
Amanda C. Viragh Director None
Carl G. Verboncoeur Vice President Vice President
</TABLE>
vi
<PAGE>
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS
All accounts, books, and records required to be maintained and preserved by
Section 31(a) of the Investment Company Act of 1940, as amended, and Rules 31a-1
and 31a-2 thereunder, will be kept by the Registrant at 6116 Executive
Boulevard, Suite 400, Rockville, Maryland 20852.
ITEM 29. MANAGEMENT SERVICES
There are no management-related service contracts not discussed in Parts A and
B.
ITEM 30. UNDERTAKINGS
None
vii
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this
Pre-Effective Amendment No. 1 to the Registration Statement (File No. 811-09525)
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Rockville, State of Maryland on this 22nd day of November, 1999.
NewCo Trust
By: /s/ Albert P. Viragh, Jr.
----------------------------
Albert P. Viragh, Jr.
President
Pursuant to the requirements of the Securities Act of 1933, this
Pre-Effective Amendment No. 1 to the Registration Statement has been signed
below by the following persons in the capacity and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Albert P. Viragh, Jr. Chairman of the Board of Trustees, November 22, 1999
- --------------------------------------- Principal Executive Officer, and
Albert P. Viragh, Jr. President
/s/ Corey A. Colehour Member of the Board of Trustees November 22, 1999
- ---------------------------------------
Corey A. Colehour
/s/ J. Kenneth Dalton Member of the Board of Trustees November 22, 1999
- ---------------------------------------
J. Kenneth Dalton
/s/ John O. Demaret Member of the Board of Trustees November 22, 1999
- ---------------------------------------
John O. Demaret
/s/ Roger Somers Member of the Board of Trustees November 22, 1999
- ---------------------------------------
Roger Somers
/s/ Patrick T. McCarville Member of the Board of Trustees November 22, 1999
- ---------------------------------------
Patrick T. McCarville
/s/ Carl G. Verboncoeur Vice President and Treasurer November 22, 1999
- -------------------------
Carl G. Verboncoeur
</TABLE>
viii
<PAGE>
EXHIBIT INDEX
NAME EXHIBIT #
- ---- ---------
Certificate of Trust of NewCo Trust is incorporated Ex-99.a(1)
by reference to Exhibit (a)(1) of the Initial
Registration Statement, as filed August 9, 1999.
Declaration of Trust of NewCo Trust is incorporated Ex-99.a(2)
by reference to Exhibit (a)(2) of the Initial
Registration Statement, as filed August 9, 1999.
AMENDED AND RESTATED CERTIFICATE OF TRUST, DATED EX-99.a(3)
NOVEMBER 23, 1999, IS FILED HEREWITH.
AMENDED AND RESTATED DECLARATION OF TRUST, DATED EX-99.a(4)
NOVEMBER 23, 1999, IS FILED HEREWITH.
By-Laws of Registrant are incorporated by reference to Ex-99.b(1)
Exhibit (b) of the Initial Registration Statement, as filed
August 9, 1999.
AMENDED AND RESTATED BY-LAWS, DATED NOVEMBER 23, 1999, EX-99.b(2)
ARE FILED HEREWITH.
Not Applicable Ex-99.c
FORM OF INVESTMENT ADVISORY AGREEMENT BETWEEN THE EX-99.d
REGISTRANT AND PADCO ADVISORS, INC., DATED AUGUST 1999, IS
FILED HEREWITH.
FORM OF DISTRIBUTION AGREEMENT BETWEEN THE REGISTRANT EX-99.e
AND PADCO FINANCIAL SERVICES, INC., DATED AUGUST
1999, IS FILED HEREWITH.
Not Applicable Ex-99.f
FORM OF CUSTODIAN AGREEMENT BETWEEN THE REGISTRANT AND EX-99.g
FIRSTAR BANK, N.A., DATED NOVEMBER 1999, IS FILED HEREWITH.
FORM OF SERVICE AGREEMENT BETWEEN THE REGISTRANT AND PADCO EX-99.h(1)
SERVICE COMPANY, INC., DATED AUGUST 1999, IS FILED HEREWITH.
ix
<PAGE>
FORM OF ACCOUNTING SERVICES AGREEMENT BETWEEN THE REGISTRANT EX-99.h(2)
AND PADCO SERVICE COMPANY, INC., DATED AUGUST 1999, IS FILED
HEREWITH.
LEGAL OPINION OF MORGAN, LEWIS & BOCKIUS LLP IS FILED EX-99.i
HEREWITH.
CONSENT OF INDEPENDENT ACCOUNTANTS DELOITTE & TOUCHE Ex-99.j
LLP IS FILED HEREWITH.
Not Applicable Ex-99.k
Not Applicable Ex-99.l
DISTRIBUTION AND SHAREHOLDER SERVICES PLAN, DATED AUGUST EX-99.m
1999, IS FILED HEREWITH.
Not Applicable Ex-99.n
Not Applicable Ex-99.o
Not Applicable Ex-99.p
POWERS OF ATTORNEY FOR ALBERT P. VIRAGH, JR., CARL G. EX-99.q
VERBONCOEUR, COREY A. COLEHOUR, J. KENNETH DALTON, JOHN O.
DEMARET, PATRICK T. MCCARVILLE, AND ROGER SOMERS ARE FILED
HEREWITH.
x
<PAGE>
AMENDED AND RESTATED
CERTIFICATE OF TRUST
OF
NEWCO TRUST
This Amended and Restated Certificate of Trust for NewCo Trust, a business
trust registered under the Investment Company Act of 1940, incorporated in
the State of Delaware on August 6, 1999, is filed in accordance with the
provisions of the Delaware Business Trust Act (Del. Code Ann. tit.12, Section
3801 (1997)) and sets forth the following:
1. The name of the trust is:
Rydex Dynamic Funds
2. As required by 12 Del. C Section 3807 and 3810 (a)(1)b, the Rydex
Dynamic Funds business address of the registered office of the Trust
and of the registered agent of the Trust for service of process is:
The Corporation Trust Company
1209 Orange Street
Wilmington, Delaware 19801, County of New Castle
3. This certificate shall be effective upon FILING.
4. Notice is hereby given that the Trust is a series Trust. The debts,
liabilities, obligations and expenses incurred, contracted for or
otherwise existing with respect to a particular series of the Trust
shall be enforceable against the assets of such series only and not
against the assets of the Trust generally.
This certificate is executed this 23rd day of November 1999 in Washington, D.C.
upon the penalties of perjury and constitutes the oath or affirmation that the
facts stated above are true to the undersigned trustee belief or knowledge.
/s/ Albert P. Viragh
- ----------------------
Albert P. Viragh
President and Chairman of the Board of Trustees
<PAGE>
RYDEX DYNAMIC FUNDS
Dated August 6, 1999
as revised November 23, 1999
This DECLARATION OF TRUST (hereinafter "Trust Instrument") is
made August 6, 1999 (together with all other persons from time to time duly
elected, qualified and serving as Trustees in accordance with Article III
hereof, the "Trustees").
WHEREAS, the Trustees desire to establish a business trust for
the investment and reinvestment of funds contributed thereto;
NOW, THEREFORE, the Trustees declare that all money and property
contributed to the trust hereunder shall be held and managed in trust under this
Trust Instrument as herein set forth below.
ARTICLE I
NAME AND DEFINITIONS
SECTION 1.01. NAME. The name of the trust created hereby is the "Rydex Dynamic
Funds."
SECTION 1.02. DEFINITIONS. Wherever used herein, unless otherwise required by
the context or specifically provided:
(a) The term "By-Laws" means the By-Laws referred to in Article
IV, Section 4.01(e) hereof, as from time to time amended;
(b) The term "Commission" has the meaning given it in the 1940
Act (as defined below). The terms "Affiliated Person," "Assignment," "Interested
Person," and "Principal Underwriter" shall have the meanings given them in the
1940 Act, as modified by or interpreted by any applicable order or orders of the
Commission or any rules or regulations adopted by or interpretive releases of
the Commission thereunder;
(c) The term "Delaware Act" refers to Chapter 38 of Title 12 of
the Delaware Code entitled "Treatment of Delaware Business Trusts," as it may be
amended from time to time;
(d) The term "Net Asset Value" means the net asset value of each
Series (as defined below) of the Trust (as defined below) determined in the
manner provided in Article IX, Section 9.03 hereof;
(e) The term "Outstanding Shares" means those Shares (as defined
below) shown from time to time in the books of the Trust or its Transfer Agent
as then issued and outstanding, but
1
<PAGE>
shall not include Shares which have been redeemed or repurchased by the Trust
and which are at the time held in the treasury of the Trust;
(f) The term "Series" means a series of Shares of the Trust
established in accordance with the provisions of Article II, Section 2.06
hereof;
(g) The term "Shareholder" means a record owner of Outstanding
Shares of the Trust;
(h) The term "Shares" means the equal proportionate transferable
units of beneficial interest into which the beneficial interest of each Series
of the Trust or class thereof shall be divided and may include fractions of
Shares as well as whole Shares;
(i) The term "Trust" refers to the NewCo Trust and all Series of
the NewCo Trust, and reference to the Trust, when applicable to one or more
Series of the Trust, shall refer to any such Series;
(j) The term "Trustee" or "Trustees" means the person or persons
who has or have signed this Trust Instrument, so long as he or they shall
continue in office in accordance with the terms hereof, and all other persons
who may from time to time be duly qualified and serving as Trustees in
accordance with the provisions of Article III hereof and reference herein to a
Trustee or to the Trustees shall refer to the individual Trustees in their
capacity as Trustees hereunder;
(k) The term "Trust Property" means any and all property, real
or personal, tangible or intangible, which is owned or held by or for the
account of one or more of the Trust or any Series, or the Trustees on behalf of
the Trust or any Series.
(l) The term "1940 Act" refers to the Investment Company Act of
1940, as amended from time to time.
ARTICLE II
BENEFICIAL INTEREST
SECTION 2.01. SHARES OF BENEFICIAL OWNERSHIP INTEREST. The beneficial interest
in the Trust shall be divided into such transferable Shares of one or more
separate and distinct Series or classes of a Series as the Trustees shall from
time to time create and establish. The number of Shares of each Series, and
class thereof, authorized hereunder is unlimited. Each Share shall have no par
value. All Shares issued hereunder, including without limitation, Shares issued
in connection with a dividend in Shares or a split or reverse split of Shares,
shall be fully paid and nonassessable.
2
<PAGE>
SECTION 2.02. ISSUANCE OF SHARES. The Trustees in their discretion may, from
time to time, without vote of the Shareholders, issue Shares, in addition to the
then issued and outstanding Shares and Shares held in the treasury, to such
party or parties and for such amount and type of consideration, subject to
applicable law, including cash or securities, at such time or times and on such
terms as the Trustees may deem appropriate, and may in such manner acquire other
assets (including the acquisition of assets subject to, and in connection with,
the assumption of liabilities) and businesses. In connection with any issuance
of Shares, the Trustees may issue fractional Shares and Shares held in the
treasury. The Trustees from time to time may divide or combine the Shares into a
greater or lesser number without thereby changing the proportionate beneficial
interests in the Trust. Contributions to the Trust may be accepted for, and
Shares shall be redeemed as, whole Shares and/or 1/1,000th of a Share or
integral multiples thereof.
SECTION 2.03. OWNERSHIP AND TRANSFER OF SHARES. The Trust or a transfer agent
for the Trust shall maintain a register containing the names and addresses of
the Shareholders of each Series and class thereof, the number of Shares of each
Series and class held by such Shareholders, and a record of all Share transfers.
The register shall be conclusive as to the identity of Shareholders of record
and the number of Shares held by them from time to time. The Trustees may
authorize the issuance of certificates representing Shares and adopt rules
governing their use. The Trustees may make rules governing the transfer of
Shares, whether or not represented by certificates. Except as otherwise provided
by the Trustees, Shares shall be transferable on the books of the Trust only by
the record holder thereof or by his duly authorized agent upon delivery to the
Trustees or the Trust's transfer agent of a duly executed instrument of
transfer, together with a Share certificate if one is outstanding, and such
evidence or the genuineness of each such execution and authorization and of such
other matters as may be required by the Trustees. Upon such delivery, and
subject to any further requirements specified by the Trustees or contained in
the By-laws, the transfer shall be recorded on the books of the Trust. Until a
transfer is so recorded, the Shareholder of record of Shares shall be deemed to
be the holder of such Shares for all purposes hereunder and neither the Trustees
nor the Trust, nor any transfer agent or registrar or any officer, employee or
agent of the Trust, shall be affected by any notice of a proposed transfer.
SECTION 2.04. TREASURY SHARES. Shares held in the treasury shall, until
reissued pursuant to Section 2.02 hereof, not confer any voting rights on the
Trustees, nor shall such Shares be entitled to any dividends or other
distributions declared with respect to the Shares.
SECTION 2.05. ESTABLISHMENT OF SERIES. The Trust created hereby shall consist
of one or more Series and separate and distinct records shall be maintained by
the Trust of each Series and the assets associated with any such Series shall be
held and accounted for separately from the assets of the Trust or any other
Series. The Trustees shall have full power and authority, in their sole
discretion, and without obtaining any prior authorization or vote of the
Shareholders of any Series of the Trust, to establish and designate and to
change in any manner such Series of Shares or any classes of initial or
additional Series and to fix such preferences, voting powers, rights and
privileges of such Series or classes thereof as the Trustees may from time to
time determine, to divide and combine the Shares or any Series or classes
thereof into a greater or lesser number, to classify or reclassify any issued
3
<PAGE>
Shares or any Series or classes thereof into one or more Series or classes of
Shares, to abolish any one or more Series or classes of Shares or to take such
other action with respect to the Shares as the Trustees may deem desirable. The
establishment and designation of any Series shall be effective upon the adoption
of a resolution by a majority of the Trustees setting forth such establishment
and designation and the relative rights and preferences of the Shares of such
Series. A Series may issue any number of Shares and need not issue shares.
All references to Shares in this Trust Instrument shall be deemed
to be Shares of any or all Series, or classes thereof, as the context may
require. All provisions herein relating to the Trust shall apply equally to each
Series of the Trust, and each class thereof, except as the context otherwise
requires.
Each Share of a Series of the Trust shall represent an equal
beneficial interest in the net assets of such Series. Each holder of Shares of a
Series shall be entitled to receive his pro rata share of distributions of
income and capital gains, if any, made with respect to such Series. Upon
redemption of his Shares, such Shareholder shall be paid solely out of the funds
and property of such Series of the Trust.
SECTION 2.06. INVESTMENT IN THE TRUST. The Trustees shall accept investments in
any Series of the Trust from such persons and on such terms as they may from
time to time authorize. At the Trustees' discretion, such investments, subject
to applicable law, may be in the form of cash or securities in which the
affected Series is authorized to invest, valued as provided in Article IX,
Section 9.03 hereof. Investments in a Series shall be credited to each
Shareholder's account in the form of full or fractional Shares at the Net Asset
Value per Share next determined after the investment is received; provided,
however, that the Trustees may, in their sole discretion, (a) fix the Net Asset
Value per Share of the initial capital contribution or (b) impose a sales charge
upon investments in the Trust in such manner and at such time as determined by
the Trustees. The Trustees shall have the right to refuse to accept investments
in any Series at any time without any cause or reason therefor whatsoever.
SECTION 2.07. ASSETS AND LIABILITIES OF SERIES. All consideration received by
the Trust for the issue or sale of Shares of a particular Series, together with
all assets in which such consideration is invested or reinvested, all income,
earnings, profits, and proceeds thereof, including any proceeds derived from the
sale, exchange or liquidation of such assets, and any funds or payments derived
from any reinvestment of such proceeds in whatever form the same may be, shall
be held and accounted for separately from the other assets of the Trust and of
every other Series and may be referred to herein as "assets belonging to" that
Series. The assets belonging to a particular Series shall belong to that Series
for all purposes, and to no other Series, subject only to the rights of
creditors of that Series. In addition, any assets, income, earnings, profits or
funds, or payments and proceeds with respect thereto, which are not readily
identifiable as belonging to any particular Series shall be allocated by the
Trustees between and among one or more of the Series in such manner as the
Trustees, in their sole discretion, deem fair and equitable. Each such
allocation shall be conclusive and binding upon the Shareholders of all Series
for all purposes, and such assets, income,
4
<PAGE>
earnings, profits or funds, or payments and proceeds with respect thereto shall
be assets belonging to that Series. The assets belonging to a particular Series
shall be so recorded upon the books of the Trust, and shall be held by the
Trustees in trust for the benefit of the holders of Shares of that Series. The
assets belonging to each particular Series shall be charged with the liabilities
of that Series and all expenses, costs, charges, and reserves attributable to
that Series. Any general liabilities, expenses, costs, charges, or reserves of
the Trust which are not readily identifiable as belonging to a particular Series
shall be allocated and charged by the Trustees between or among any one or more
of the Series in such manner as the Trustees, in their sole discretion, deem
fair and equitable. Each such allocation shall be conclusive and binding upon
the Shareholders of all Series for all purposes.
Without limitation of the foregoing provisions of this Section
2.07, but subject to the right of the Trustees in their discretion to allocate
general liabilities, expenses, costs, charges, or reserves as herein provided,
the debts, liabilities, obligations, and expenses incurred, contracted for or
otherwise existing with respect to a particular Series shall be enforceable
against the assets of the Trust generally. Notice of this contractual limitation
on inter-Series liabilities may, in the Trustee's sole discretion, be set forth
in the certificate of trust of the Trust (whether originally or by amendment) as
filed or to be filed in the Office of the Secretary of State of the State of
Delaware pursuant to the Delaware Act, and upon the giving of such notice in the
certificate of trust, the statutory provisions of Section 3804 of the Delaware
Act relating to limitations on liabilities among Series (and the statutory
effect under Section 3804 of setting forth such notice in the certificate of
trust) shall become applicable to the Trust and each Series. Any person
extending credit to, contracting with or having any claim against any Series may
look only to the assets of that Series to satisfy or enforce any debt,
liability, obligation or expense incurred, contracted for or otherwise existing
with respect to that Series. No Shareholder or former Shareholder of any Series
shall have a claim on or any right to any assets allocated or belonging to any
other Series.
SECTION 2.08. NO PREEMPTIVE RIGHTS. Shareholders shall have no preemptive or
other right to subscribe to any additional Shares or other securities issued by
the Trust or the Trustees, whether of the same or other Series.
SECTION 2.09. PERSONAL LIABILITY OF SHAREHOLDERS. Each Shareholder of the Trust
and of each Series shall not be personally liable for debts, liabilities,
obligations and expenses incurred by, contracted for, or otherwise existing with
respect to, the Trust or by or on behalf of any Series. The Trustees shall have
no power to bind any Shareholder personally or to call upon any Shareholder for
the payment of any sum of money or assessment whatsoever other than such as the
Shareholder may at any time personally agree to pay by way of subscription for
any Shares or otherwise. Every note, bond, contract or other undertaking issued
by or on behalf of the Trust or the Trustees relating to the Trust or to a
Series shall include a recitation limiting the obligation represented thereby to
the Trust or to one or more Series and its or their assets (but the omission of
such a recitation shall not operate to bind any Shareholder or Trustee of the
Trust). Shareholders shall have the same limitation of personal liability as is
extended to shareholders of a private corporation for profit incorporated in the
State of Delaware. Every written obligation of the Trust or any Series shall
contain a statement to the effect that such obligation may only be enforced
against the assets of the appropriate Series
5
<PAGE>
or all Series; however, the omission of such statement shall not operate to bind
or create personal liability for any Shareholder or Trustee.
SECTION 2.10. ASSENT TO TRUST INSTRUMENT. Every Shareholder, by virtue of
having purchased a Share shall become a Shareholder and shall be held to have
expressly assented and agreed to be bound by the terms hereof.
ARTICLE III
THE TRUSTEES
SECTION 3.01. MANAGEMENT OF THE TRUST. The Trustees shall have exclusive and
absolute control over the Trust Property and over the business of the Trust to
the same extent as if the Trustees were the sole owners of the Trust Property
and business in their own right, but with such powers of delegation as may be
permitted by this Trust Instrument. The Trustees shall have power to conduct the
business of the Trust and carry on its operations in any and all of its branches
and maintain offices both within and without the State of Delaware, in any and
all states of the United States of America, in the District of Columbia, in any
and all commonwealths, territories, dependencies, colonies, or possessions of
the United States of America, and in any foreign jurisdiction and to do all such
other things and execute all such instruments as they deem necessary, proper or
desirable in order to promote the interests of the Trust although such things
are not herein specifically mentioned. Any determination as to what is in the
interests of the Trust made by the Trustees in good faith shall be conclusive.
In construing the provisions of this Trust Instrument, the presumption shall be
in favor of a grant of power to the Trustees.
The enumeration of any specific power in this Trust Instrument
shall not be construed as limiting the aforesaid power. The powers of the
Trustees may be exercised without order of or resort to any court.
Except for the Trustees named herein or appointed to fill
vacancies pursuant to Section 3.04 of this Article III, the Trustees shall be
elected by the Shareholders owning of record a plurality of the Shares voting at
a meeting of Shareholders. Such a meeting shall be held on a date fixed by the
Trustees. In the event that less than a majority of the Trustees holding office
have been elected by Shareholders, the Trustees then in office will call a
Shareholders' meeting for the election of Trustees.
SECTION 3.02. INITIAL TRUSTEES. The initial Trustees shall be the persons named
herein. On a date fixed by the Trustees, the Shareholders shall elect additional
Trustees subject to Section 3.06 of this Article III.
SECTION 3.03. TERM OF OFFICE OF TRUSTEES. The Trustees shall hold office during
the lifetime of this Trust, and until its termination as herein provided, except
that: (a) any Trustee may resign his trust
6
<PAGE>
by written instrument signed by him and delivered to the other Trustees, which
shall take effect upon such delivery or upon such later date as is specified
therein; (b) any Trustee may be removed at any time by a vote of at least
two-thirds of the number of Trustees prior to such removal, specifying the date
when such removal shall become effective; (c) any Trustee who requests in
writing to be retired or who has died, become physically or mentally
incapacitated by reason of disease or otherwise, or is otherwise unable to
serve, may be retired by written instrument signed by a majority of the other
Trustees, specifying the date of his retirement; and (d) a Trustee may be
removed at any meeting of the Shareholders of the Trust by a vote of
Shareholders owning at least two-thirds of the outstanding Shares.
SECTION 3.04. VACANCIES AND APPOINTMENT OF TRUSTEES. In case of the declination
to serve, death, resignation, retirement, removal, physical or mental incapacity
by reason of disease or otherwise, or a Trustee is otherwise unable to serve, or
an increase in the number of Trustees, a vacancy shall occur. Whenever a vacancy
in the Board of Trustees shall occur, until such vacancy is filled, the other
Trustees shall have all the powers hereunder and the certificate of the other
Trustees of such vacancy shall be conclusive. In the case of an existing
vacancy, the remaining Trustees shall fill such vacancy by appointing such other
person as they in their discretion shall see fit consistent with the limitations
under the 1940 Act. Such appointment shall be evidenced by a written instrument
signed by a majority of the Trustees in office or by resolution of the Trustees,
duly adopted, which shall be recorded in the minutes of a meeting of the
Trustees, whereupon the appointment shall take effect.
An appointment of a Trustee may be made by the Trustees then in
office in anticipation of a vacancy to occur by reason of retirement,
resignation or increase in number of Trustees effective at a later date,
provided that said appointment shall become effective only at or after the
effective date of said retirement, resignation or increase in number of
Trustees. As soon as any Trustee appointed pursuant to this Section 3.04 shall
have accepted this trust, the trust estate shall vest in the new Trustee or
Trustees, together with the continuing Trustees, without any further act or
conveyance, and he shall be deemed a Trustee hereunder. The power to appoint a
Trustee pursuant to this Section 3.04 is subject to the provisions of Section
16(a) of the 1940 Act.
SECTION 3.05. TEMPORARY ABSENCE OF TRUSTEE. Any Trustee may, by power of
attorney, delegate his power for a period not exceeding six months at any one
time to any other Trustee or Trustees, provided that in no case shall less than
two Trustees personally exercise the other powers hereunder except as herein
otherwise expressly provided.
SECTION 3.06. NUMBER OF TRUSTEES. The number of Trustees shall be at least
three (3), and thereafter shall be such number as shall be fixed from time to
time by a majority of the Trustees, provided, however, that the number of
Trustees shall in no event be more than fifteen (15).
SECTION 3.07. EFFECT OF DEATH, RESIGNATION, ETC., OF A TRUSTEE. The
declination to serve, death, resignation, retirement, removal, incapacity, or
inability of the Trustees, or any one of them, shall
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not operate to terminate the Trust or to revoke any existing agency created
pursuant to the terms of this Trust Instrument.
SECTION 3.08. OWNERSHIP OF ASSETS OF THE TRUST. The assets of the Trust and of
each Series shall be held separate and apart from any assets now or hereafter
held in any capacity other than as Trustee hereunder by the Trustees or any
successor Trustees. Legal title in and beneficial ownership of all of the assets
of the Trust and the right to conduct any business shall at all times be
considered as vested in the Trustees on behalf of the Trust, except that the
Trustees may cause legal title to any Trust Property to be held by, or in the
name of, the Trust, or in the name of any person as nominee. No Shareholder
shall be deemed to have a severable ownership in any individual asset of the
Trust or of any Series or any right of partition or possession thereof, but each
Shareholder shall have, except as otherwise provided for herein, a proportionate
undivided beneficial interest in the Trust or Series. The Shares shall be
personal property giving only the rights specifically set forth in this Trust
Instrument. The Trust, or at the determination of the Trustees one or more of
the Trustees or a nominee acting for and on behalf of the Trust, shall be deemed
to hold legal title and beneficial ownership of any income earned on securities
of the Trust issued by any business entities formed, organized, or existing
under the laws of any jurisdiction, including the laws of any foreign country.
Upon the resignation or removal of a Trustee, or his otherwise ceasing to be a
Trustee, he shall execute and deliver such documents as the remaining Trustees
shall require for the purpose of conveying to the Trust or the remaining
Trustees any Trust Property held in the name of the resigning or removed
Trustee. Upon the incapacity or death of any Trustee, his legal representative
shall execute and deliver on his behalf such documents as the remaining Trustees
shall require as provided in the preceding sentence.
SECTION 3.09. COMPENSATION. The Trustees as such shall be entitled to
reasonable compensation from the Trust, and they may periodically fix the amount
of such compensation. Nothing herein shall in any way prevent the employment of
any Trustee for advisory, management, legal, accounting, investment banking or
other services and payment for the same by the Trust.
ARTICLE IV
POWERS OF THE TRUSTEES
SECTION 4.01. POWERS. The Trustees in all instances shall act as principals,
and are and shall be free from the control of the Shareholders. The Trustees
shall have full power and authority to do any and all acts and to make and
execute any and all contracts and instruments that they may consider necessary
or appropriate in connection with the management of the Trust. The Trustees
shall not in any way be bound or limited by present or future laws or customs in
regard to trust investments, but shall have full authority and power to make any
and all investments which they, in their sole discretion, shall deem proper to
accomplish the purpose of this Trust without recourse to any court or other
authority. Subject to any applicable limitation in this Trust Instrument or the
By-Laws of the Trust, the Trustees shall have power and authority:
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(a) To invest and reinvest cash and other property, and to hold
cash or other property uninvested, without in any event being bound or limited
by any present or future law or custom in regard to investments by trustees, and
to sell, exchange, lend, pledge, mortgage, hypothecate, write options on and
lease any or all the assets of the Trust;
(b) To operate as and carry on the business of an investment
company, and exercise all the powers necessary and appropriate to the conduct of
such operations;
(c) To borrow money and in this connection issue notes or other
evidence of indebtedness; to secure borrowings by mortgaging, pledging or
otherwise subjecting as security the Trust Property; to endorse, guarantee, or
undertake the performance of an obligation or engagement of any other Person and
to lend Trust Property;
(d) To provide for the distribution of interests of the Trust
either through a principal underwriter in the manner hereinafter provided for or
by the Trust itself, or both, or otherwise pursuant to a plan of distribution of
any kind;
(e) To adopt By-Laws not inconsistent with this Trust Instrument
providing for the conduct of the business of the Trust and to amend and repeal
them to the extent that they do not reserve that right to the Shareholders; such
By-Laws shall be deemed incorporated and included in this Trust Instrument;
(f) To elect and remove such officers and appoint and terminate
such agents as they consider appropriate;
(g) To employ one or more banks, trust companies or companies
that are members of a national securities exchange or such other entities as the
Commission may permit as custodians of any assets of the Trust subject to any
conditions set forth in this Trust Instrument or in the By-laws;
(h) To retain one or more transfer agents and shareholder
servicing agents, or both;
(i) To set record dates in the manner provided herein or in the
By-Laws;
(j) To delegate such authority as they consider desirable to any
officers of the Trust and to any investment advisor, manager, custodian,
underwriter or other agent or independent contractor;
(k) To sell or exchange any or all of the assets of the Trust,
subject to the provisions of Article XI, Section 11.04(b) hereof;
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(l) To vote or give assent, or exercise any rights of ownership,
with respect to stock or other securities or property; and to execute and
deliver powers of attorney to such person or persons as the Trustee shall deem
proper, granting to such person or persons such power and discretion with
relation to securities or property as the Trustees shall deem proper;
(m) To exercise powers and rights of subscription or otherwise
which in any manner arise out of ownership of securities;
(n) To hold any security or property in a form not indicating
any trust, whether in bearer, book entry, unregistered or other negotiable form;
or either in the name of the Trust or in the name of a custodian or a nominee or
nominees, subject in either case to proper safeguards according to the usual
practice of Delaware business trusts or investment companies;
(o) To establish separate and distinct Series with separately
defined investment objectives and policies and distinct investment purposes in
accordance with the provisions of Article II hereof and to establish classes of
such Series having relative rights, powers and duties as they may provide
consistent with applicable law;
(p) Subject to the provisions of Section 3804 of the Delaware
Act, to allocate assets, liabilities and expenses of the Trust to a particular
Series or to apportion the same between or among two or more Series, provided
that any liabilities or expenses incurred by a particular Series shall be
payable solely out of the assets belonging to that Series as provided for in
Article II hereof;
(q) To consent to or participate in any plan for the
reorganization, consolidation or merger of any corporation or concern, any
security of which is held in the Trust; to consent to any contract, lease,
mortgage, purchase, or sale of property by such corporation or concern, and to
pay calls or subscriptions with respect to any security held in the Trust;
(r) To compromise, arbitrate, or otherwise adjust claims in
favor of or against the Trust or any matter in controversy including, but not
limited to, claims for taxes;
(s) To make distributions of income and of capital gains to
Shareholders in the manner hereinafter provided;
(t) To establish, from time to time, a minimum investment for
Shareholders in the Trust or in one or more Series or class, and to require the
redemption of the Shares of any Shareholders whose investment is less than such
minimum upon giving notice to such Shareholder;
(u) To establish one or more committees, to delegate any of the
powers of the Trustees to said committees and to adopt a committee charter
providing for such responsibilities, membership (including Trustees, officers or
other agents of the Trust therein) and any other characteristics of said
committees as the Trustees may deem proper. Notwithstanding the provisions of
this Article IV, and in addition to such provisions or any other provision of
this Trust Instrument
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or of the By-Laws, the Trustees may by resolution appoint a committee consisting
of less than the whole number of Trustees then in office, which committee may be
empowered to act for and bind the Trustees and the Trust, as if the acts of such
committee were the acts of all the Trustees then in office, with respect to the
institution, prosecution, dismissal, settlement, review or investigation of any
action, suit or proceeding which shall be pending or threatened to be brought
before any court, administrative agency or other adjudicatory body;
(v) To interpret the investment policies, practices, or
limitations of any Series;
(w) To establish a registered office and have a registered agent
in the state of Delaware;
(x) In general to carry on any other business in connection with
or incidental to any of the foregoing powers, to do everything necessary,
suitable, or proper for the accomplishment of any purpose or the attainment of
any object or the furtherance of any power hereinbefore set forth, either alone
or in association with others, and to do every other act or thing incidental or
appurtenant to or growing out of or connected with the aforesaid business or
purposes, objects or powers.
The foregoing clauses shall be construed both as objects and
power, and the foregoing enumeration of specific powers shall not be held to
limit or restrict in any manner the general powers of the Trustees. Any action
by one or more of the Trustees in their capacity as such hereunder shall be
deemed an action on behalf of the Trust or the applicable Series, and not an
action in an individual capacity.
The Trustees shall not be limited to investing in obligations
maturing before the possible termination of the Trust.
No one dealing with the Trustees shall be under any obligation to
make any inquiry concerning the authority of the Trustees, or to see to the
application of any payments made or property transferred to the Trustees or upon
their order.
SECTION 4.02. ISSUANCE AND REPURCHASE OF SHARES. The Trustees shall have the
power to issue, sell, repurchase, redeem, retire, cancel, acquire, hold, resell,
reissue, dispose of, and otherwise deal in Shares and, subject to the provisions
set forth in Article II and Article IX, to apply to any such repurchase,
redemption, retirement, cancellation, or acquisition of Shares any funds or
property of the Trust, or the particular Series of the Trust, with respect to
which such Shares are issued.
SECTION 4.03. TRUSTEES AND OFFICERS AS SHAREHOLDERS. Any Trustee, officer, or
agent of the Trust may acquire, own, and dispose of Shares to the same extent as
if he were not a Trustee, officer, or agent; and the Trustees may issue and sell
or cause to be issued and sold Shares to and buy such Shares from any such
person or any firm or company in which he is interested, subject only to the
general limitations herein contained as to the sale and purchase of such Shares;
and all subject to any restrictions which may be contained in the By-Laws.
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SECTION 4.04. ACTION BY THE TRUSTEES. The Trustees shall act by majority vote
at a meeting duly called or by written consent of a majority of the Trustees
without a meeting or by telephone meeting provided a quorum of Trustees
participate in any such telephone meeting, unless the 1940 Act requires that a
particular action be taken only at a meeting at which the Trustees are present
in person. At any meeting of the Trustees, three (3) of the Trustees shall
constitute a quorum. Meetings of the Trustees may be called orally or in writing
by the Chairman or by any two (2) other Trustees. Notice of the time, date and
place of all meetings of the Trustees shall be given by the party calling the
meeting to each Trustee by telephone, telefax, or telegram sent to his home or
business address at least twenty-four (24) hours in advance of the meeting or by
written notice mailed to his home or business address at least seventy-two (72)
hours in advance of the meeting. Notice need not be given to any Trustee who
attends the meeting without objecting to the lack of notice or who executes a
written waiver of notice with respect to the meeting. Any meeting conducted by
telephone shall be deemed to take place at the principal office of the Trust, as
determined by the By-Laws or by the Trustees. Subject to the requirements of the
1940 Act, the Trustees by majority vote may delegate to any one or more of their
number their authority to approve particular matters or take particular actions
on behalf of the Trust. Written consents or waivers of the Trustees may be
executed in one or more counterparts. Execution of a written consent or waiver
and delivery thereof to the Trust may be accomplished by telefax.
SECTION 4.05. CHAIRMAN OF THE TRUSTEES. The Trustees shall appoint one of their
number to be Chairman of the Board of Trustees. The Chairman shall preside at
all meetings of the Trustees, shall be responsible for the execution of policies
established by the Trustees and the administration of the Trust, and may be (but
is not required to be) the chief executive, financial, and/or accounting officer
of the Trust.
SECTION 4.06. PRINCIPAL TRANSACTIONS. Except to the extent prohibited by
applicable law, the Trustees, on behalf of the Trust, may, in a manner
consistent with applicable legal requirements, buy any securities from or sell
any securities to, or lend any assets of the Trust to, any Trustees or officer
of the Trust or any firm of which any such Trustee or officer is a member acting
as principal, or have any such dealings with any investment advisor, distributor
or transfer agent for the Trust or with any interested Person of such person;
and the Trust may employ any such person, or firm or company in which such
person is an Interested Person, as broker, legal counsel, registrar, investment
advisor, distributor, transfer agent, dividend disbursing agent, or custodian,
or in any other capacity upon customary terms.
ARTICLE V
EXPENSES OF THE TRUST
SECTION 5.01. PAYMENT OF EXPENSES BY THE TRUST. Subject to the provisions of
Article II, Section 2.07 hereof, the Trust or a particular Series shall pay, or
shall reimburse the Trustees from the assets belonging to all Series or the
appropriate Series for their expenses (or the expenses of a Class of such
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Series) and disbursements, including, without limitation, fees and expenses of
Trustees, interest expense, taxes, fees and commissions of every kind, expenses
of pricing Trust portfolio securities, expenses of issue, repurchase and
redemption of shares, including expenses attributable to a program of periodic
repurchases or redemptions, expenses of registering and qualifying the Trust and
its Shares under Federal and State laws and regulations or under the laws of any
foreign jurisdiction, charges of third parties, including investment advisors,
managers, custodians, transfer agents, portfolio accounting and/or pricing
agents, and registrars, expenses of preparing and setting up in type
prospectuses and statements of additional information and other related Trust
documents, expenses of printing and distributing prospectuses sent to existing
Shareholders, auditing and legal expenses, reports to Shareholders, expenses of
meetings of Shareholders and proxy solicitations therefor, insurance expenses,
association membership dues and for such non-recurring items as may arise,
including litigation to which the Trust (or a Trustee acting as such) is a
party, and for all losses and liabilities by them incurred in administering the
Trust, and for the payment of such expenses, disbursements, losses and
liabilities the Trustees shall have a lien on the assets belonging to the
appropriate Series, on the assets of each such Series, prior to any rights or
interests of the Shareholders thereto. This section shall not preclude the Trust
from directly paying any of the aforementioned fees and expenses.
SECTION 5.02. PAYMENT OF EXPENSES BY SHAREHOLDERS. The Trustee shall have the
power, as frequently as they may determine, to cause each Shareholder, or each
Shareholder of any particular Series, to pay directly, in advance or arrears,
for charges of the Trust's custodian or transfer, shareholder servicing or
similar agent, an amount fixed from time to time by the Trustees, by setting off
such charges due from such Shareholder from declared but unpaid dividends owed
such Shareholder and/or by reducing the number of Shares in the account of such
Shareholder by that number of full and/or fractional Shares which represents the
outstanding amount of such charges due from such Shareholder.
ARTICLE VI
CONTRACTS WITH SERVICE PROVIDERS
SECTION 6.01. INVESTMENT ADVISOR. The Trustees may in their discretion, from
time to time, enter into an investment advisory or management contract or
contracts with respect to the Trust or any Series; provided, however, that the
initial approval and entering into of such contract or contracts shall be
subject to a "majority shareholder vote," as defined by the 1940 Act.
Notwithstanding any other provision of this Trust Instrument, the Trustees may
authorize any investment advisor (subject to such general or specific
instructions as the Trustees from time to time may adopt) to effect purchases,
sales or exchanges of portfolio securities, other investment instruments of the
Trust, or other Trust Property on behalf of the Trustees, or may authorize any
officer, agent, or Trustee to effect such purchases, sales, or exchanges
pursuant to recommendations of the investment advisor (and all without further
action by the Trustees). Any such purchases, sales, and exchanges shall be
deemed to have been authorized by all of the Trustees.
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The Trustees may authorize, subject to applicable requirements of
the 1940 Act, including those relating to Shareholder approval, the investment
advisor to employ, from time to time, one or more sub-advisors to perform such
of the acts and services of the investment advisor, and upon such terms and
conditions, as may be agreed upon between the investment advisor and sub-
advisor. Any reference in this Trust Instrument to the investment advisor shall
be deemed to include such sub-advisors, unless the context otherwise requires.
SECTION 6.02. PRINCIPAL UNDERWRITER. The Trustees may in their discretion from
time to time enter into an exclusive or non-exclusive underwriting contract or
contracts providing for the sale of Shares, whereby the Trust may either agree
to sell Shares to the other party to the contract or appoint such other party
its sales agent for such Shares. In either case, the contract shall be on such
terms and conditions, if any, as may be prescribed in the By-Laws, and such
further terms and conditions as the Trustees may in their discretion determine
not inconsistent with the provisions of this Article VI, or of the By-Laws; and
such contract may also provide for the repurchase or sale of Shares by such
other party as principal or as agent of the Trust.
SECTION 6.03. TRANSFER AGENT. The Trustees may in their discretion from time to
time enter into one or more transfer agency and shareholder service contracts
whereby the other party or parties shall undertake to furnish the Trustees with
transfer agency and shareholder services. The contract or contracts shall be on
such terms and conditions as the Trustees may in their discretion determine not
inconsistent with the provisions of this Trust Instrument or of the By-Laws.
SECTION 6.04. ADMINISTRATION AGREEMENT. The Trustees may in their discretion
from time to time enter into an administration agreement or, if the Trustees
establish multiple Series or classes, separate administration agreements with
respect to each Series or class, whereby the other party to such agreement shall
undertake to manage the business affairs of the Trust or of a Series or class
thereof of the Trust and furnish the Trust or a Series or a class thereof with
office facilities, and shall be responsible for the ordinary clerical,
bookkeeping and recordkeeping services at such office facilities, and other
facilities and services, if any, and all upon such terms and conditions as the
Trustees may in their discretion determine.
SECTION 6.05. SERVICE AGREEMENT. The Trustees may in their discretion from time
to time enter into service agreements with respect to one or more Series or
Classes of Shares whereby the other parties to such Service Agreements will
provide administration and/or support services pursuant to administration plans
and service plans, and all upon such terms and conditions as the Trustees in
their discretion may determine.
SECTION 6.06. PARTIES TO CONTRACT. Any contract of the character described in
Sections 6.01, 6.02, 6.03, 6.04 and 6.05 of this Article VI or any contract of
the character described in Article VIII hereof may be entered into with any
corporation, firm, partnership, trust, or association, although one or more of
the Trustees or officers of the Trust may be an officer, director, trustee,
shareholder, or member of such other party to the contract, and no such contract
shall be invalidated or rendered void or voidable by reason of the existence of
any such relationship, nor shall any person holding
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such relationship be disqualified from voting on or executing the same in his
capacity as Shareholder and/or Trustee, nor shall any person holding such
relationship be liable merely by reason of such relationship for any loss or
expense to the Trust under or by reason of said contract or accountable for any
profit realized directly or indirectly therefrom, provided that the contract
when entered into was not inconsistent with the provisions of this Article VI or
Article VIII hereof or of the By-Laws. The same person (including a firm,
corporation, partnership, trust or association) may be the other party to
contracts entered into pursuant to Sections 6.01, 6.02, 6.03, 6.04 and 6.05 of
this Article VI or pursuant to Article VIII hereof, and any individual may be
financially interested or otherwise affiliated with persons who are parties to
any or all of the contracts mentioned in this Section 6.06.
SECTION 6.07. PROVISIONS AND AMENDMENTS. Any contract entered into pursuant to
Sections 6.01 or 6.02 of this Article VI shall be consistent with and subject to
the requirements of Section 15 of the 1940 Act or other applicable Act of
Congress hereafter enacted with respect to its continuance in effect, its
termination, and the method of authorization and approval of such contract or
renewal thereof, and no amendment to any contract, entered into pursuant to
Section 6.01 of this Article VI shall be effective unless assented to in a
manner consistent with the requirements of said Section 15, as modified by any
applicable rule, regulation or order of the Commission.
ARTICLE VII
SHAREHOLDERS' VOTING POWERS AND MEETINGS
SECTION 7.01. VOTING POWERS. The Shareholders shall have power to vote only (i)
for the election of Trustees as provided in Article III, Section 3.01 and 3.02
hereof, (ii) for the removal of Trustees as provided in Article III, Section
3.03(d) hereof, (iii) with respect to any investment advisory or management
contract as provided in Article VI, Sections 6.01 and 6.07 hereof, and (iv) with
respect to such additional matters relating to the Trust as may be required by
law, by this Trust Instrument, or the By-Laws or any registration of the Trust
with the Commission or any State, or as the Trustees may consider necessary or
desirable.
On any matter submitted to a vote of the Shareholders, all Shares
shall be voted separately by individual Series, except: (i) when required by the
1940 Act, Shares shall be voted in the aggregate and not by individual Series;
and (ii) when the Trustees have determined that the matter affects the interests
of more than one Series, then the Shareholders of all such affected Series shall
be entitled to vote thereon. The Trustees also may determine that a matter
affects only the interests of one (1) or more classes of a Series, in which case
any such matter shall be voted on by such class or classes. Each whole share
shall be entitled to one (1) vote as to any matter on which it is entitled to
vote, and each fractional Share shall be entitled to a proportionate fractional
vote. There shall be no cumulative voting in the election of Trustees. Shares
may be voted in person or by proxy or in any manner provided for in the By-Laws.
A proxy may be given in writing. The ByLaws may provide that proxies may also,
or may instead, be given by any electronic or
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telecommunications device or in any other manner. Notwithstanding anything else
herein or in the By-Laws, in the event a proposal by anyone other than the
officers or Trustees of the Trust is submitted to a vote of the Shareholders of
one or more Series or of the Trust, or in the event of any proxy contest or
proxy solicitation or proposal in opposition to any proposal by the officers or
Trustees of the Trust, Shares may be voted only in person or by written proxy.
Until Shares are issued, the Trustees may exercise all rights of Shareholders
and may take any action required or permitted by law, this Trust Instrument or
any of the By-Laws of the Trust to be taken by Shareholders. Meetings of
shareholders shall be called and notice thereof and record dates therefor shall
be given and set as provided in the By-Laws.
SECTION 7.02. QUORUM AND REQUIRED VOTE. One-third of Shares entitled to vote in
person or by proxy shall be a quorum for the transaction of business at a
Shareholders' meeting, except that where any provision of law or of this Trust
Instrument permits or requests that holders of any Series shall vote as a Series
(or that holders of a class shall vote as a class), then one-third of the
aggregate number of Shares of that Series (or that class) entitled to vote shall
be necessary to constitute a quorum for the transactions of business by that
Series (or that class). Any lesser number shall be sufficient for adjournments.
Any adjourned session or sessions may be held, within a reasonable time after
the date set for the original meeting, without the necessity of further notice.
Except when a larger vote is required by law or by any provision of this Trust
Instrument of the By-Laws, a majority of the Shares voted in person or by proxy
shall decide any questions and a plurality shall elect a Trustee, provided that
where any provision of law or of this Trust Instrument permits or requires that
the holders of any Series shall vote as a Series (or that the holders of any
class shall vote as a class), then a majority of the Shares present in person or
by proxy of that Series or, if required by law, subject to a "majority
shareholder vote", as defined by the 1940 Act, of that Series (or class), voted
on the matter in person or by proxy shall decide matter insofar as that Series
(or class) is concerned. Shareholders may act by unanimous written consent.
Actions taken by Series (or class) may be consented to unanimously in writing by
Shareholders of that Series.
ARTICLE VIII
CUSTODIAN
SECTION 8.01. APPOINTMENT AND DUTIES. The Trustees at all times shall employ a
bank, a company that is a member of a national securities exchange, or a trust
company, each having capital, surplus and undivided profits of at least two
million dollars ($2,000,000), or any other entity satisfying the requirements of
the 1940 Act, as custodian with authority as its agent, but subject to such
restrictions, limitations, and other requirements, if any, as may be contained
in the By-Laws of the Trust:
(1) to hold the securities and other assets of the Trust and
deliver the same upon written order or oral order confirmed
in writing;
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(2) to receive and receipt for any moneys due to the Trust and
deposit the same in its own banking department or elsewhere
as the Trustees may direct; and
(3) to disburse such funds upon orders or vouchers;
and the Trust also may employ such custodian as its agent:
(4) to keep the books and accounts of the Trust or of any Series
or class and furnish clerical and accounting services; and
(5) to compute, if authorized to do so by the Trustees, the Net
Asset Value of any Series, or class thereof, in accordance
with the provisions hereof; all upon such basis of
compensation as may be agreed upon between the Trustees and
the custodian.
The Trustees also may authorize the custodian to employ one or
more sub-custodians from time to time to perform such of the acts and services
of the custodian, and upon such terms and conditions, as may be agreed upon
between the custodian and such sub-custodian and approved by the Trustees,
provided that in every case such sub-custodian shall be a bank, a company that
is a member of a national securities exchange, a trust company or any other
entity satisfying the requirements of the 1940 Act.
SECTION 8.02. CENTRAL CERTIFICATE SYSTEM. Subject to such rules, regulations,
and orders as the Commission may adopt, the Trustees may direct the custodian to
deposit all or any part of the securities owned by the Trust in a system for the
central handling of securities established by a national securities exchange or
a national securities association registered with the Commission under the
Securities Exchange Act of 1934, as amended, or such other person as may be
permitted by the Commission, or otherwise in accordance with the 1940 Act,
pursuant to which system all securities of any particular class or series of any
issuer deposited within the system are treated as fungible and may be
transferred or pledged by bookkeeping entry without physical delivery of such
securities, provided that all such deposits shall be subject to withdrawal only
upon the order of the Trust or its custodians, sub-custodians or other agents.
ARTICLE IX
DISTRIBUTIONS AND REDEMPTIONS
SECTION 9.01. DISTRIBUTIONS.
(a) The Trustees from time to time may declare and pay dividends
or other distributions with respect to any Series. No dividend or distribution,
including, without limitation, any distribution paid upon termination of the
Trust or of any Series (or class) with respect to, nor any
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redemption or repurchase of, the Shares of any Series (or class) shall be
effected by the Trust other than from the assets held with respect to such
Series, nor shall any Shareholder of any particular Series otherwise have any
right or claim against the assets held with respect to any other Series except
to the extent that such Shareholder has such a right or claim hereunder as a
Shareholder of such other Series. The Trustees shall have full discretion to
determine which items shall be treated as income and which items as capital; and
each such determination and allocation shall be conclusive and binding upon the
Shareholders. The amount of such dividends or distributions and the payment of
them and whether they are in cash or any other Trust Property shall be wholly in
the discretion of the Trustees.
(b) Dividends and other distributions may be paid or made to the
Shareholders of record at the time of declaring a dividend or other distribution
or among the Shareholders of record at such other date or time or dates or times
as the Trustees shall determine, which dividends or distributions, at the
election of the Trustees, may be paid pursuant to a standing resolution or
resolutions adopted only once or with such frequency as the Trustees may
determine. The Trustees may adopt and offer to Shareholders such dividend
reinvestment plans, cash dividend payout plans, or related plans as the Trustees
shall deem appropriate.
(c) Anything in this Trust Instrument to the contrary
notwithstanding, the Trustees at any time may declare and distribute a stock
dividend pro rata among the Shareholders of a particular Series, or class
thereof, as of the record date of that Series fixed as provided in paragraph (b)
of this Section 9.01.
SECTION 9.02. REDEMPTIONS. Each Shareholder of a Series shall have the right at
such times as may be permitted by the Trustees to require the Series to redeem
all or any part of his Shares at a redemption price per Share equal to the Net
Asset Value per Share at such time as the Trustees shall have prescribed by
resolution, or, to the extent permitted by the 1940 Act, at such other
redemption price and at such times as the Trustees shall prescribe by
resolution. In the absence of such resolution, the redemption price per Share
shall be the Net Asset Value next determined after receipt by the Series of a
request for redemption in proper form less such charges as are determined by the
Trustees and described in the Trust's Registration Statement for that Series
under the Securities Act of 1933. The Trustees may specify conditions, prices,
and places of redemption, may specify binding requirements for the proper form
or forms of requests for redemption and may specify the amount of any deferred
sales charge to be withheld from redemption proceeds. Payment of the redemption
price may be wholly or partly in securities or other assets at the value of such
securities or assets used in such determination of Net Asset Value, or may be in
cash. Upon redemption, Shares may be reissued from time to time. The Trustees
may require Shareholders to redeem Shares for any reason under terms set by the
Trustees, including, but not limited to, the failure of a Shareholder to supply
a taxpayer identification number if required to do so, or to have the minimum
investment required, or to pay when due for the purchase of Shares issued to
him. To the extent permitted by law, the Trustees may retain the proceeds of any
redemption of Shares required by them for payment of amounts due and owing by a
Shareholder to the Trust or any Series or class or any governmental authority.
Notwithstanding the foregoing, the Trustees may postpone payment of the
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redemption price and may suspend the right of the Shareholders to require any
Series or class to redeem Shares during any period of time when and to the
extent permissible under the 1940 Act.
SECTION 9.03. DETERMINATION OF NET ASSET VALUE AND VALUATION OF PORTFOLIO
ASSETS. The term "Net Asset Value" of any Series shall mean that amount by which
the assets of that Series exceed its liabilities, all as determined by or under
the direction of the Trustees. Such value shall be determined separately for
each Series and shall be determined on such days and at such times as the
Trustees may determine. The Trustees may delegate any of their powers and duties
under this Section 9.03 with respect to valuation of assets and liabilities. The
resulting amount, which shall represent the total Net Asset Value of the
particular Series, shall be divided by the total number of shares of that Series
outstanding at the time and the quotient so obtained shall be the Net Asset
Value per Share of that Series. At any time the trustees may cause the Net Asset
Value per Share last determined to be determined again in similar manner and may
fix the time when such redetermined value shall become effective. If, for any
reason, the net income of any Series, determined at any time, is a negative
amount, the Trustees shall have the power with respect to that Series: (i) to
offset each Shareholder's pro rata share of such negative amount from the
accrued dividend account of such Shareholder; or (ii) to reduce the number of
Outstanding Shares of such Series by reducing the number of Shares in the
account of each Shareholder by a pro rata portion of the number of full and
fractional Shares which represents the amount of such excess negative net
income; or (iii) to cause to be recorded on the books of such Series an asset
account in the amount of such negative net income (provided that the same shall
thereupon become the property of such Series with respect to such Series and
shall not be paid to any Shareholder), which account may be reduced by the
amount, of dividends declared thereafter upon the Outstanding Shares of such
Series on the day such negative net income is experienced, until such asset
account is reduced to zero; or (iv) to combine the methods described in clauses
(i) and (ii) and (iii) of the sentence; or (v) to take any other action they
deem appropriate, in order to cause (or in order to assist in causing) the Net
Asset Value per Share of such Series to remain at a constant amount per
Outstanding Share immediately after each such determination and declaration. The
Trustees also shall have the power not to declare a dividend out of net income
for the purpose of causing the Net Asset Value per share to be increased. The
Trustees shall not be required to adopt, but at any time may adopt, discontinue,
or amend the practice of maintaining the Net Asset value per Share of the Series
at a constant amount. In the event that any Series are divided into classes, the
provisions of this Section 9.03, to the extent applicable as determined in the
discretion of the Trustees and consistent with applicable law, may be equally
applied to each such class.
SECTION 9.04. SUSPENSION OF THE RIGHT OF REDEMPTION. The Trustees may declare a
suspension of the right of redemption or postpone the date of payment as
permitted under the 1940 Act. Such suspension shall take effect at such time as
the Trustees shall specify but not later than the close of business on the
business day next following the declaration of suspension, and thereafter there
shall be no right of redemption or payment until the Trustees shall declare the
suspension at an end. In the case of a suspension of the right of redemption, a
Shareholder may either withdraw his request for redemption or receive payment
based on the Net Asset Value per Share next determined after the termination of
the suspension.
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ARTICLE X
LIMITATION OF LIABILITY AND INDEMNIFICATION
SECTION 10.01. LIMITATION OF LIABILITY. All persons contracting with or having
any claim against the Trust or a particular Series shall look only to the assets
of all Series or such particular Series for payment under such contract or
claim; and neither the Trustees nor, when acting in such capacity, any of the
Trust's officers, employees or agents, whether past, present or future, shall be
personally liable therefor. Every written instrument or obligation on behalf of
the Trust or any Series shall contain a statement to the foregoing effect, but
the absence of such statement shall not operate to make any Trustee or officer
of the Trust liable thereunder. Provided they have exercised reasonable care and
have acted under the reasonable belief that their actions are in the best
interest of the Trust, the Trustees and officers of the Trust shall not be
responsible or liable for any act or omission or for neglect or wrongdoing of
them or any officer, agent, employee, investment adviser or independent
contractor of the Trust, but nothing contained in this Declaration or in the
Delaware Act shall protect any Trustee or officer of the Trust against liability
to the Trust or to Shareholders to which he would otherwise be subject by reason
of willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his office.
SECTION 10.02. INDEMNIFICATION.
(a) Subject to the exceptions and limitations contained in
paragraph (b) below:
(i) every Person who is, or has been, a Trustee or
officer of the Trust (hereinafter referred to as a "Covered
Person") shall be indemnified by the Trust to the fullest
extent permitted by law against liability and against all
expenses reasonably incurred or paid by him in connection with
any claim, action, suit, or proceeding in which he becomes
involved as a party or otherwise by virtue of his being or
having been a Trustee or officer and against amounts paid or
incurred by hm in the settlement thereof; and
(ii) the words "claim," "action," "suit," or
"proceeding" shall apply to all claims, actions, suits, or
proceedings (civil, criminal, or other, including appeals),
actual or threatened, while in office or thereafter, and the
words "liability" and "expenses" shall include, without
limitation, attorney's fees, costs, judgments, amounts paid in
settlement, fines, penalties, and other liabilities.
(b) No indemnification shall be provided hereunder to a Covered
Person:
(i) who shall have been adjudicated by a court or
body before which the proceeding was brought (A) to be liable
to the Trust or its Shareholders by reason of willful
misfeasance, bad faith, gross negligence, or reckless
disregard of the duties
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involved in the conduct of his office or (B) not to have acted
in good faith in the reasonable belief that his action was in
the best interest of the Trust; or
(ii) in the event of a settlement, unless there has
been a determination that such Trustee or officer did not
engage in willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties involved in the conduct of
his office:
(A) by the court or other body approving
the settlement;
(B) by at least a majority of those Trustees
who neither are Interested Persons of the Trust nor
are parties to the matter based upon a review of
readily-available facts (as opposed to a full
trial-type inquiry); or
(C) by written opinion of independent legal
counsel based upon a review of readily-available
facts (as opposed to a full trial-type inquiry);
provided, however, that any Shareholder, by
appropriate legal proceedings, may challenge any such
determination by the Trustees or by independent
counsel.
(c) The rights of indemnification herein provided may be insured
against by policies maintained by the Trust, shall be severable, shall not be
exclusive of or affect any other rights to which any Covered Person may now or
hereafter be entitled, shall continue as to a person who has ceased to be a
Covered Person and shall inure to the benefit of the heirs, executors, and
administrators of such a person. Nothing contained herein shall affect any
rights to indemnification to which Trust personnel, other than Covered Persons,
and other persons may be entitled by contract or otherwise under law.
(d) To the maximum extent permitted by applicable law, expenses
in connection with the preparation and presentation of a defense to any claim,
action, suit, or proceeding of the character described in paragraph (a) of this
Section 10.02 may be paid by the Trust or Series from time to time prior to
final disposition thereof upon receipt of any undertaking by or on behalf of
such Covered Person that such amount will be paid over by him to the Trust or
Series if it ultimately is determined that he is not entitled to indemnification
under this Section 10.02; provided, however, that either (a) such Covered Person
shall have provided appropriate security for such undertaking; (b) the Trust is
insured against losses arising out of any such advance payments, or (c) either a
majority of the Trustees who are neither Interested Persons of the Trust nor
parties to the matter, or independent legal counsel in a written opinion, shall
have determined, based upon a review of readily-available facts (as opposed to a
trial-type inquiry or full investigation), that there is a reason to believe
that such Covered Person will be found entitled to indemnification under this
Section 10.02.
SECTION 10.03. SHAREHOLDERS. In case any Shareholder or former Shareholder of
any Series shall be held to be personally liable solely by reason of his being
or having been a Shareholder of such Series
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and not because of his acts or omissions or for some other reason, the
Shareholder or former Shareholder (or his heirs, executors, administrators, or
other legal representatives, or, in the case of a corporation or other entity,
its corporate or other general successor) shall be entitled out of the assets
belonging to the applicable Series to be held harmless from and indemnified
against all loss and expense arising from such liability. The Trust, on behalf
of the affected Series, shall assume, upon request by the Shareholder, the
defense of any claim made against the Shareholder for any act or obligation of
the Series and satisfy any judgment thereon from the assets of the Series.
SECTION 10.04. NO BOND REQUIRED OF TRUSTEES. No Trustee shall be obligated to
give any bond or other security for the performance of any of his duties
hereunder.
SECTION 10.05. NO DUTY OF INVESTIGATION; NOTICE IN TRUST INSTRUMENTS, ETC. No
purchaser, lender, transfer agent or other Person dealing with the Trustees or
any officer, employee or agent of the Trust or a Series thereof shall be bound
to make any inquiry concerning the validity of any transaction purporting to be
made by the Trustees or by said officer, employee or agent or be liable for the
application of money or property paid, loaned, or delivered to or on the order
of the Trustees or of said officer, employee or agent. Every obligation,
contract, instrument, certificate, Share, other security of the Trust or a
Series thereof or undertaking, and every other act or thing whatsoever executed
in connection with the Trust shall be conclusively presumed to have been
executed or done by the executors thereof only in their capacity as Trustees
under this Declaration or in their capacity as officers, employees or agents of
the Trust or a Series thereof. Every written obligation, contract, instrument,
certificate, Share, other security of the Trust or a Series thereof or
undertaking made or issued by the Trustees may recite that the same is executed
or made by them not individually, but as Trustees under the Declaration, and
that the obligations of the Trust or a Series thereof under any such instrument
are not binding upon any of the Trustees or Shareholders individually, but bind
only the Trust Property or the Trust Property of the applicable Series, and may
contain any further recital which they may deem appropriate, but the omission of
such recital shall not operate to bind the Trustees individually. The Trustees
shall at all times maintain insurance for the protection of the Trust Property
or the Trust Property of the applicable Series, its Shareholders, Trustees,
officers, employees and agents in such amount as the Trustees shall deem
adequate to cover possible tort liability, and such other insurance as the
Trustees in their sole judgment shall deem advisable.
SECTION 10.6. RELIANCE ON EXPERTS, ETC. Each Trustee, officer or employee of
the Trust or a Series thereof shall, in the performance of his duties, powers
and discretions hereunder be fully and completely justified and protected with
regard to any act or any failure to act resulting from reliance in good faith
upon the books of account or other records of the Trust or a Series thereof,
upon an opinion of counsel, or upon reports made to the Trust or a Series
thereof by any of its officers or employees or by the Investment Adviser, the
Administrator, the Distributor, Transfer Agent, selected dealers, accountants,
appraisers or other experts or consultants selected with reasonable care by the
Trustees, officers or employees of the Trust, regardless of whether such counsel
or expert may also be a Trustee.
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ARTICLE XI
MISCELLANEOUS
SECTION 11.01. TRUST NOT A PARTNERSHIP. It is hereby expressly declared that a
trust and not a partnership is created hereby. No Trustee hereunder shall have
any power to bind personally either the Trust's officers or any Shareholder. All
persons extending credit to, contracting with, or having any claim against the
Trust or the Trustees shall look only to the assets of the appropriate Series or
(If the Trustees shall have yet to have established the Series) the Trust for
payment under such credit, contract, or claim; and neither the Shareholders nor
the Trustees, nor any of their agents, whether past, present, or future, shall
be personally liable therefore. Nothing in this Trust Instrument shall protect a
Trustee against any liability to which the Trustee otherwise would be subject by
reason of willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of the office of Trustee
hereunder.
SECTION 11.02. TRUSTEE ACTION. The exercise by the Trustees of their powers and
discretions hereunder in good faith and with reasonable care under the
circumstances then prevailing shall be binding upon everyone interested. Subject
to the provisions of Article X hereof and to Section 11.01 of this Article XI,
the Trustees shall not be liable for errors of judgment or mistakes of fact or
law.
SECTION 11.03. ESTABLISHMENT OF RECORD DATES. For the purpose of determining the
Shareholders of any Series (or class) who are entitled to receive payment of any
dividend or of any other distribution, the Trustees may from time to time fix a
date, which shall be before the date for the payment of such dividend or such
other payment, as the record date for determining the Shareholders of such
Series (or class) having the right to receive such dividend or distribution.
Without fixing a record date, the Trustees may for distribution purposes close
the register or transfer books for one or more Series (or classes) any time
prior to the payment of a distribution. Nothing in this Section shall be
construed as precluding the Trustees from setting different record dates for
different Series (or classes). The Trustees may fix in advance a date, to be
determined by the Trustees and no longer than that permitted by applicable law,
before the date of any Shareholders' meeting, or the date for the payment of any
dividends or other distributions, or the date for the allotment of rights, or
the date when any change or conversion or exchange of Shares shall go into
effect as a record date for the determination of the Shareholders entitled to
notice of, and to vote at, any such meeting, or entitled to receive payment of
such dividend or other distribution, or to receive any such allotment of rights,
or to exercise such rights in respect of any such change, conversion or exchange
of Shares.
SECTION 11.04. TERMINATION OF TRUST.
(a) This Trust shall continue without limitation of time but
subject to the provisions of paragraph (b) of this Section 11.04.
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(b) The Trustees, subject to a majority shareholder vote of each
Series affected by the matter, or, if applicable, to a majority shareholder vote
of the Trust, and subject to a vote of a majority of the Trustees, may:
(i) sell and convey all or substantially all of the assets
of the Trust or any affected Series to another trust,
partnership, association, or corporation, or to a separate series
of shares thereof, organized under the laws of any state, which
trust, partnership, association, or corporation is an open-end
management investment company as defined in the 1940 Act, or is a
series thereof, for adequate consideration which may include the
assumption of all outstanding obligations, taxes, and other
liabilities, accrued or contingent, of the Trust or any affected
Series, and which may include shares of beneficial interest,
stock, or other ownership interests of such trust, partnership,
association, or corporation or of a series thereof; or
(ii) at any time, sell and convert into money all of the
assets of the Trust or any affected series.
Upon making reasonable provision, in the determination of the
Trustees, for the payment of all such liabilities in either (i) or (ii) of this
Section 11.04(b), by such assumption or otherwise, the Trustees shall distribute
the remaining proceeds or assets (as the case may be) of each Series (or class)
ratably among the holders of Shares of that Series then outstanding.
(c) The Trustees may take any of the actions specified in this
Section 11.04(b)(i) and (ii) above without obtaining the approval of
shareholders if a majority of the Trustees determines that the continuation of
the Trust or Series (or class) is not in the best interests of the Trust, such
Series (or class), or their respective Shareholders as a result of factors or
events adversely affecting the ability of the Trust or such Series (or class) to
conduct its business and operations in an economically viable manner. Such
factors and events may include the inability of the Trust or a Series (or class)
to maintain its assets at an appropriate size, changes in laws or regulations
governing the Trust or the Series (or class) or affecting assets of the type in
which the Trust or Series (or class) invests, or economic developments or trends
having a significant adverse impact on the business or operations of the Trust
or such Series (or class).
(d) Upon completion of the distribution of the remaining
proceeds or the remaining assets as provided in paragraph (b) of this Section
11.04, the Trust or any affected Series shall terminate and the Trustees and the
Trust shall be discharged of any and all further liabilities and duties
hereunder and the right, title, and interest of all parties with respect to the
Trust or Series shall be canceled and discharged.
Upon termination of the Trust, following completion of winding up
of the Trust's business, the Trustees shall cause a certificate of cancellation
of the Trust's certificate of trust to be filed in accordance with the Delaware
Act, which certificate of cancellation may be signed by any one Trustee.
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SECTION 11.05. REORGANIZATION. Notwithstanding anything else herein, the
Trustees, in order to change the form of organization of the Trust, may, without
prior Shareholder approval, (i) cause the Trust to merge or consolidate with or
into one (1) or more trusts, partnerships, associations, or corporations so long
as the surviving or resulting entity is an open-end management investment
company under the 1940 Act, or is a series thereof, that will succeed to or
assume the Trust's registration under that Act and which is formed, organized,
or existing under the laws of a state, commonwealth, territory, possession, or
colony of the United States or (ii) cause the Trust to incorporate under the
laws of State of Delaware. Any agreement of merger or consolidation or
certificate of merger may be signed by a majority of Trustees and facsimile
signature conveyed by electronic or telecommunication means shall be valid.
Pursuant to and in accordance with the provisions of Section
3815(f) of the Delaware Act, and notwithstanding anything to the contrary
contained in this Trust Instrument, an agreement of merger or consolidation
approved by the Trustees in accordance with this Section 11.05 may effect any
amendment to the Trust Instrument or effect the adoption of a new trust
instrument of the Trust if the Trust is the surviving or resulting trust in the
merger or consolidation.
SECTION 11.06. FILING OF COPIES; REFERENCES; HEADINGS. The original or a copy of
this Trust Instrument and the original or a copy of each amendment hereof or
Trust Instrument supplemental hereto shall be kept at the office of the Trust
where it may be inspected by any Shareholder. Anyone dealing with the Trust may
rely on a certificate by an officer or Trustee of the Trust as to whether or not
any such amendments or supplements have been made and as to any matters in
connection with the Trust hereunder, and, with the same effect as if it were the
original, may rely on a copy certified by an officer or Trustee of the Trust to
be a copy of this Trust Instrument or of any such amendment or supplemental
Trust Instrument, and references to this Trust Instrument, and all expressions
such as or similar to "herein," "hereof," and "hereunder" shall be deemed to
refer to this Trust Instrument as amended or affected by any such supplemental
Trust Instrument. All expressions such as or similar to "his," "he," and "him"
shall be deemed to include the feminine and neuter, as well as masculine,
genders. Headings are placed herein for convenience of reference only and, in
case of any conflict, the text of this Trust Instrument, rather than the
headings, shall control. This Trust Instrument may be executed in any number of
counterparts each of which shall be deemed an original.
SECTION 11.07. APPLICABLE LAW. The trust set forth in this instrument is made in
the State of Delaware, and the Trust and this Trust Instrument, and the rights
and obligations of the Trustees and Shareholders hereunder, are to be governed
by and construed and administered according to the Delaware Act and the laws of
said State; provided, however, that there shall not be applicable to the trust,
the Trust, the Trustee or this Trust Instrument (a) the provisions of Section
3540 of Title 12 of the Delaware Code or (b) any provisions of he laws
(statutory or common) of the State of Delaware (other than the Delaware Act)
pertaining to trusts which relate to or regulate (i) the filing with any court
or governmental body or agency of trustee accounts or schedules of trustee fees
and charges, (ii) affirmative requirements to post bonds for trustees, officers,
agents, or employees of a trust, (iii) the necessity for obtaining court or
other governmental approval concerning the
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acquisition, holding, or disposition of real or personal property, (iv) fees or
other sums payable to trustees, officers, agents, or employees of a trust, (v)
the allocation of receipts and expenditures to income and principal, (vi)
restrictions or limitations on the permissible nature, amount, or concentration
of trust investments or requirements relating to the titling, storage, or other
manner of holding of trust assets, or (vii) the establishment of fiduciary or
other standards or responsibilities or limitations on the acts or powers of
trustees, which are inconsistent with the limitations or liabilities or
authorities and powers of the Trustees set forth or referenced in this Trust
Instrument. The Trust shall be of the type commonly called a "Delaware business
trust," and, without limiting the provisions hereof, the Trust may exercise all
powers or privileges afforded to trusts or actions that may be engaged in by
trusts under the Delaware Act, and the absence of a specific reference herein to
any such power, privilege, or action shall not imply that the Trust may not
exercise such power or privilege or take such actions.
SECTION 11.08. AMENDMENTS. Except as specifically provided herein, the Trustees,
without shareholder vote, may amend or otherwise supplement this Trust
Instrument by making an amendment, a Trust Instrument supplemental hereto, or an
amended and restated trust instrument. Shareholders shall have the right to vote
(i) on any amendment which would affect their right to vote granted in Section
7.01 of the Article VII hereof, (ii) on any amendment to this Section 11.08,
(iii) on any amendment as may be required by law or by the Trust's registration
statement filed with the Commission, and (iv) on any amendment submitted to the
Shareholders by the Trustees. Any amendment required or permitted to be
submitted to Shareholders which, as the Trustees determine, shall affect the
Shareholders of one or more Series shall be authorized by vote of the
Shareholders of each Series affected and no vote of Shareholders of a Series not
affected shall be required. Notwithstanding anything else herein, any amendment
to Article X hereof shall not limit the rights to indemnification or insurance
provided therein with respect to action or omission of Covered Persons prior to
such amendment.
SECTION 11.09. DERIVATIVE ACTIONS. In addition to the requirements set forth in
Section 3816 of the Delaware Act, a Shareholder may bring a derivative action on
behalf of the Trust only if the following conditions are met:
(a) Shareholders eligible to bring such derivative action under
the Delaware Act who hold at least 10% of the Outstanding Shares of the Trust,
or 10% of the Outstanding Shares of the Series or class to which such action
relates, shall join in the request for the Trustees to commence such action; and
(b) The Trustees must be afforded a reasonable amount of time to
consider such shareholder request and to investigate the basis of such claim.
The Trustees shall be entitled to retain counsel or other advisers in
considering the merits of the request and shall require an undertaking by the
Shareholders making such request to reimburse the Trust for the expense of any
such advisers in the event that the Trustees determine not to bring such action.
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SECTION 11.10. FISCAL YEAR. The fiscal year of the Trust shall end on a
specified date as set forth in the By-Laws, provided, however, that the
Trustees, without Shareholder approval, may change the fiscal year of the Trust.
SECTION 11.11. PROVISIONS IN CONFLICT WITH LAW. The provisions of this Trust
Instrument are severable, and if the Trustees shall determine, with the advice
of counsel, that any of such provisions is in conflict with the 1940 Act, with
the regulated investment company provisions of the Internal Revenue Code or with
other applicable laws and regulations, the conflicting provision shall be deemed
never to have constituted a part of this Trust Instrument; provided, however,
that such determination shall not affect any of the remaining provisions of this
Trust Instrument or render invalid or improper any action taken or omitted prior
to such determination. If any provision of this Trust Instrument shall be held
invalid or improper, unenforceability shall attach only to such provision in
such jurisdiction and shall not in any manner affect such provisions in any
other jurisdiction or any other provision of this Trust Instrument in any
jurisdiction.
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BY-LAWS
OF
RYDEX DYNAMIC FUNDS
Dated August 6, 1999 as revised November 23, 1999
These By-Laws of Rydex Dynamic Funds (the "Trust"), a Delaware
business trust, are subject to the Trust's Declaration of Trust, dated August
6,1999, as revised November 23, 1999, and as from time to time amended,
supplemented, or restated (the "Trust Instrument"). Capitalized terms used
herein which are defined in the Trust Instrument are used as therein defined.
ARTICLE I
PRINCIPAL OFFICE
The principal office of the Trust shall be located in Rockville,
Maryland or such other location as the Trustees, from time to time, may
determine. The Trust may establish and maintain such other offices and places of
business as the Trustees, from time to time, may determine.
ARTICLE II
OFFICERS AND THEIR ELECTION
SECTION 1. OFFICERS. The officers of the Trust shall be President, a Treasurer,
a Secretary, and such other officers as the Trustees from time to time may
elect. The Trustees may delegate to any officer or committee the power to
appoint any subordinate officers or agents. It shall not be necessary for any
Trustee or officer to be a holder of Shares in the Trust.
SECTION 2. ELECTION OF OFFICERS. The Treasurer and Secretary shall be chosen by
the Trustees. The President shall be chosen by and from the Trustees. Two (2)
or more offices may be held by a single person except the offices of President
and Secretary. Subject to the provisions of Section 3 of Article II of these
By-Laws, the President, the Treasurer, and the Secretary shall each hold office
until their successors are chosen and qualified and all other officers shall
hold office at the pleasure of the Trustees.
SECTION 3. RESIGNATIONS. Any officer of the Trust may resign, notwithstanding
Section 2 of Article II of these By-Laws, by filing a written resignation with
the President, the Trustees, or the Secretary, which resignation shall take
effect on being so filed or at such time as may be therein specified.
ARTICLE III
POWERS AND DUTIES OF OFFICERS AND TRUSTEES
SECTION 1. MANAGEMENT OF THE TRUST; GENERAL. The business and affairs of the
Trust shall be managed by, or under the direction of, the Trustees, and the
Trustees shall have all powers necessary
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and desirable to carry out their responsibilities, so far as such powers are not
inconsistent with the laws of the State of Delaware, the Trust Instrument, or
with these By-Laws.
SECTION 2. EXECUTIVE AND OTHER COMMITTEES. The Trustees may elect from their own
number an executive committee, which shall have any or all the powers of the
Trustees while the Trustees are not in session. The Trustees also may elect from
their own number other committees from time to time. The number composing such
committees and the powers conferred upon the same are to be determined by vote
of a majority of the Trustees. All members of such committees shall hold such
offices at the pleasure of the Trustees. The Trustees may abolish any such
committee at any time. Any committee to which the Trustees delegate any of their
powers or duties shall keep records of its meetings and shall report its actions
to the Trustees. The Trustees shall have power to rescind any action of any
committee, but no such rescission shall have retroactive effect.
SECTION 3. COMPENSATION. Each Trustee and each committee member may receive
such compensation for his services and reimbursement for his expenses as may be
fixed from time to time by resolution of the Trustees.
SECTION 4. CHAIRMAN OF THE TRUSTEES. The Trustees shall appoint from among their
number a Chairman who shall serve as such at the pleasure of the Trustees. When
present, he shall preside at all meetings of the Shareholders and the Trustees,
and he may appoint, subject to the approval of the Trustees, a Trustee to
preside at such meetings in his absence. He shall perform such other duties as
the Trustees from time to time may designate.
SECTION 5. PRESIDENT. The President shall be the chief executive officer of the
Trust and, subject to the direction of the Trustees, shall have general
administration of the business and policies of the Trust. Except as the Trustees
otherwise may order, the President shall have the power to grant, issue,
execute, or sign such powers of attorney, proxies, agreements, or other
documents as may be deemed advisable or necessary in the furtherance of the
interest of the Trust or any Series thereof. He also shall have the power to
employ attorneys, accountants, and other advisers and agents and counsel for the
Trust. The President shall perform such duties additional to all of the
foregoing as the Trustees from time to time may designate.
SECTION 6. TREASURER. The Treasurer shall be the principal financial and
accounting officer of the Trust. He shall deliver all funds and securities of
the Trust which may come into his hands to such company as the Trustees shall
employ as Custodian in accordance with the Trust Instrument and applicable
provisions of law. He shall make annual reports regarding the business and
condition of the Trust, which reports shall be preserved in Trust records, and
he shall furnish such other reports regarding the business and condition of the
Trust as the Trustees from time to time may require. The Treasurer shall perform
such additional duties as the Trustees from time to time may designate.
SECTION 7. SECRETARY. The Secretary shall record in books kept for the purpose
all votes and proceedings of the Trustees and the Shareholders at their
respective meetings. He shall have the
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custody of the seal of the Trust. The Secretary shall perform such additional
duties as the Trustees from time to time may designate.
SECTION 8. VICE PRESIDENT. Any Vice President of the Trust shall perform such
duties as the Trustees or the President from time to time may designate. At the
request or in the absence or disability of the President, the Vice President
(or, if there are two (2) or more Vice Presidents, then the senior of the Vice
Presidents present and able to act) may perform all the duties of the President
and, when so acting, shall have all the powers of and be subject to all the
restrictions upon the President.
SECTION 9. ASSISTANT TREASURER. Any Assistant Treasurer of the Trust shall
perform such duties as the Trustees or the Treasurer from time to time may
designate, and, in the absence of the Treasurer, the senior Assistant Treasurer,
present and able to act, may perform all the duties of the Treasurer.
SECTION 10. ASSISTANT SECRETARY. Any Assistant Secretary of the Trust shall
perform such duties as the Trustees or the Secretary from time to time may
designate, and, in the absence of the Secretary, the senior Assistant Secretary,
present and able to act, may perform all the duties of the Secretary.
SECTION 11. SUBORDINATE OFFICERS. The Trustees from time to time may appoint
such other officers or agents as the Trustees may deem advisable, each of whom
shall have such title, hold office for such period, have such authority, and
perform such duties as the Trustees may determine. The Trustees from time to
time may delegate to one (1) or more officers or committees of Trustees the
power to appoint any such subordinate officers or agents and to prescribe their
respective terms of office, authorities, and duties.
SECTION 12. SURETY BONDS. The Trustees may require any officer or agent of the
Trust to execute a bond (including, without limitation, any bond required by the
Investment Company Act of 1940, as amended ("the 1940 Act") and the rules and
regulations of the Securities and Exchange Commission ("Commission")) to the
Trust in such sum and with such surety or sureties as the Trustees may
determine, conditioned upon the faithful performance of such officer's or
agent's duties to the Trust including responsibility for negligence and for the
accounting of any of the Trust's property, funds, or securities that may come
into such officer's or agent's hands.
SECTION 13. REMOVAL. Any officer of the Trust may be removed from office
whenever in the judgment of the Trustees the best interest of the Trust will be
served thereby, by the vote of a majority of the Trustees given at any regular
meeting or any special meeting of the Trustees. In addition, any officer or
agent appointed in accordance with the provisions of Section 11 hereof may be
removed, either with or without cause, by any officer upon whom such power of
removal shall have been conferred by the Trustees.
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SECTION 14. RENUMERATION. The salaries or other compensation, if any, of the
officers of the Trust shall be fixed from time to time by resolution of the
Trustees.
ARTICLE IV
SHAREHOLDERS' MEETING
SECTION 1. SPECIAL MEETINGS. A special meeting of the Shareholders shall be
called by the Secretary whenever (i) ordered by the Trustees or (ii) requested
in writing by the holder or holders of at least ten percent (10%) of the
Outstanding Shares entitled to vote. If the Secretary, when so ordered or
requested, refuses or neglects for more than thirty (30) days to call such
special meeting, the Trustees or the Shareholders so requesting, in the name of
the Secretary, may call the meeting by giving notice thereof in the manner
required when notice is given by the Secretary. If the meeting is a meeting of
the Shareholders of one (1) or more Series or classes of Shares, but not a
meeting of all Shareholders of the Trust, then only special meetings of the
Shareholders of such one (1) or more Series or Classes shall be called and only
the Shareholders of such one (1) or more Series or Classes shall be entitled to
notice of and to vote at such meeting.
SECTION 2. NOTICES. Except as above provided, notices of any meeting of the
Shareholders shall be given by the Secretary by delivering or mailing, postage
prepaid, to each Shareholder entitled to vote at said meeting, written or
printed notification of such meeting at least fifteen (15) days before the
meeting, to such address as may be registered with the Trust by the Shareholder.
Notice of any Shareholder meeting need not be given to any Shareholder if a
written waiver of notice, executed before or after such meeting, is filed with
the record of such meeting, or to any Shareholder who shall attend such meeting
in person or by proxy. Notice of adjournment of a Shareholders' meeting to
another time or place need not be given, if such time and place are announced at
the meeting and reasonable notice is given to persons present at the meeting and
the adjourned meeting is held within a reasonable time after the date set for
the original meeting.
SECTION 3. VOTING-PROXIES. Subject to the provisions of the Trust Instrument,
Shareholders entitled to vote may vote either in person or by proxy, provided
that either (i) an instrument authorizing such proxy to act is executed by the
Shareholder in writing and dated not more than eleven (11) months before the
meeting, unless this instrument specifically provides for a longer period or
(ii) the Trustees adopt by resolution an electronic, telephonic, computerized,
or other alternative to execution of a written instrument authorizing the proxy
to act, which authorization is received no more than eleven (11) months before
the meeting. Proxies shall be delivered to the Secretary of the Trust or other
persons responsible for recording the proceedings before being voted. A proxy
with respect to Shares held in the name of two (2) or more persons shall be
valid if executed by one (1) of them unless at or prior to exercise of such
proxy the Trust receives specific written notice to the contrary from any one
(1) of them. Unless otherwise specifically limited by their terms, proxies shall
entitle the holder thereof to vote at any adjournment of a meeting. A proxy
purporting to be exercised by or on behalf of a Shareholder shall be deemed
valid unless challenged at or prior to its exercise and the burden or providing
invalidity shall rest on the challenger. At all meetings of the Shareholders,
unless the voting is conducted by inspectors, all questions relating to the
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qualifications of voters, the validity or proxies, and the acceptance or
rejection of votes shall be decided by the Chairman of the meeting. Except as
otherwise provided herein or in the Trust Instrument, as these By-Laws or such
Trust Instrument may be amended or supplemented from time to time, all matters
relating to the giving, voting, or validity or proxies shall be governed by the
General Corporation Law of the State of Delaware relating to proxies, and
judicial interpretations thereunder, as if the Trust were a Delaware corporation
and the Shareholders were shareholders of a Delaware corporation.
SECTION 4. PLACE OF MEETING. All special meetings of the Shareholders shall be
held at the principal place of business of the Trust or at such other place in
the United States as the Trustees may designate.
SECTION 5. ACTION WITHOUT A MEETING. Any action to be taken by Shareholders may
be taken without a meeting if all Shareholders entitled to vote on the matter
consent to the action in writing and the written consents are filed with the
records of meetings of Shareholders of the Trust. Such consent shall be treated
for all purposes as a vote at a meeting of the Trustees held at the principal
place of business of the Trust.
ARTICLE V
TRUSTEES' MEETINGS
SECTION 1. SPECIAL MEETINGS. Special meetings of the Trustees may be called
orally or in writing by the Chairman of the Board of Trustees or any two (2)
other Trustees.
SECTION 2. REGULAR MEETING. Regular meetings of the Trustees may be held at such
places and at such times as the Trustees from time to time may determine; each
Trustee present at such determination shall be deemed a party calling the
meeting and no call or notice will be required to such Trustee provided that any
Trustee who is absent when such determination is made shall be given notice of
the determination by the Chairman or any two (2) other Trustees, as provided for
in Section 4.04 of the Trust Instrument.
SECTION 3. QUORUM. Three (3) Trustees shall constitute a quorum for the
transaction of business and an action of a majority of the quorum shall
constitute action of the Trustees.
SECTION 4. NOTICE. Except as otherwise provided, notice of any special meeting
of the Trustees shall be given by the party calling the meeting to each Trustee,
as provided for in Section 4.04 of the Trust Instrument. A written notice may be
mailed, postage prepaid, addressed to him at his address as registered on the
books of the Trust or, if not so registered, at his last known address.
SECTION 5. PLACE OF MEETING. All special meetings of the Trustees shall be held
at the principal place of business of the Trust or such other place as the
Trustees may designate. Any meeting may adjourn to any place.
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SECTION 6. SPECIAL ACTION. When all the Trustees shall be present at any
meeting, however called or wherever held, or shall assent to the holding of the
meeting without notice, or shall sign a written assent thereto filed with the
record of such meeting, the acts of such meeting shall be valid as if such
meeting had been regularly held.
SECTION 7. ACTION BY CONSENT. Any action by the Trustees may be taken without a
meeting if a written consent thereto is signed by all the Trustees and filed
with the records of the Trustees' meeting. Such consent shall be treated, for
all purposes, as a vote at a meeting of the Trustees held at the principal place
of business of the Trustees.
SECTION 8. PARTICIPATION IN MEETINGS BY CONFERENCE TELEPHONE. Trustees may
participate in a meeting of Trustees by conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and such participation shall constitute presence in
person at such meeting. Any meeting conducted by telephone shall be deemed to
take place at and from the principal office of the Trust.
ARTICLE VI
SHARES OF BENEFICIAL INTEREST
SECTION 1. BENEFICIAL INTEREST. The beneficial interest in the Trust at all
times shall be divided into such transferable Shares of one (1) or more separate
and distinct Series, or classes thereof, as the Trustees from time to time shall
create and establish. The number of Shares is unlimited, and each Share of each
Series or class thereof shall be without par value and shall represent an equal
proportionate interest with each other Share in the Series, none having priority
or preference over another, except to the extent that such priorities or
preferences are established with respect to one (1) or more classes of shares
consistent with applicable law and any rule or order to the Commission.
SECTION 2. TRANSFER OF SHARES. The Shares of the Trust shall be transferable,
so as to affect the rights of the Trust, only by transfer recorded on the books
of the Trust, in person or by attorney.
SECTION 3. EQUITABLE INTEREST NOT RECOGNIZED. The Trust shall be entitled to
treat the holder of record of any Share or Shares of beneficial interest as the
holder in fact thereof, and shall not be bound to recognize any equitable or
other claim or interest in such Share or Shares on the part of any other person
except as otherwise may be expressly provided by law.
SECTION 4. SHARE CERTIFICATE. In lieu of issuing certificates for Shares, the
Trustees or the transfer or shareholder services agent either may issue receipts
therefor or may keep accounts upon the books of the Trust for the record holders
of such Shares, who in either case shall be deemed, for all purposes hereunder,
to be holders of certificates for such Shares as if they had accepted such
certificates and shall be held to have expressly assented and agreed to the
terms hereof.
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ARTICLE VII
OWNERSHIP OF ASSETS OF THE TRUST
The Trustees, acting for and on behalf of the Trust, shall be deemed
to hold legal and beneficial ownership of any income earned on securities held
by the Trust issued by any business entity formed, organized or existing under
the laws of any jurisdiction other than a state, commonwealth, possession,
territory, or colony of the United States or the laws of the United States.
ARTICLE VIII
INSPECTION OF BOOKS
The Trustees from time to time shall determine whether and to what
extent, and at what times and places, and under what conditions and regulations,
the accounts and books of the Trust or any of them shall be open to the
inspection of the Shareholders; and no Shareholder shall have any right to
inspect any account or book or document of the Trust except as conferred by law
or otherwise by the Trustees or by resolution of the Shareholders.
ARTICLE IX
INSURANCE OF OFFICERS, TRUSTEES, AND EMPLOYEES
The Trust may purchase and maintain insurance on behalf of any
Covered Person or employee of the Trust, including any Covered Person or
employee of the Trust who is or was serving at the request of the Trust as a
Trustee, officer, or employee of a corporation, partnership, association, joint
venture, trust, or other enterprise, against any liability asserted against him
and incurred by him in any such capacity or arising out of his status as such,
whether or not the Trustees would have the power to indemnify him against such
liability.
The Trust may not acquire or obtain a contract for insurance that
protects or purports to protect any Trustee or officer of the Trust against any
liability to the Trust or its Shareholders to which he otherwise would be
subject by reason of willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties involved in the conduct of his office.
ARTICLE X
SEAL
The seal of the Trust shall be circular in form bearing the
inscription:
"RYDEX DYNAMIC FUNDS
THE STATE OF DELAWARE"
The form of the seal shall be subject to alteration by the Trustees
and the seal may be used by causing the seal or a facsimile to be impressed or
affixed or printed or otherwise reproduced.
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Any officer or Trustee of the Trust shall have authority to affix the
seal of the Trust to any document, instrument, or other paper executed and
delivered by or on behalf of the Trust; however, unless otherwise required by
the Trustees, the seal shall not be necessary to be placed on, and the seal's
absence shall not impair the validity of, any document, instrument, or other
paper executed by or on behalf of the Trust.
ARTICLE XI
FISCAL YEAR
The fiscal year of the Trust shall end on such date as the Trustees
from time to time shall determine.
ARTICLE XII
AMENDMENTS
These By-Laws may be amended at any meeting of the Trustees of the
Trust by a majority vote.
ARTICLE XIII
REPORT TO SHAREHOLDERS
The Trustees at least semi-annually shall submit to the Shareholders
a written financial report of the Trust including financial statements which
shall be certified at least annually by independent public accountants.
ARTICLE XIV
HEADINGS
Headings are placed in these By-Laws for convenience of reference
only and, in case of any conflict, the text of these By-Laws rather than the
headings shall control.
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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:
<TABLE>
<CAPTION>
<S> <C>
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 ...................... %
</TABLE>
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:
--------------------------------
PADCO ADVISORS, INC.
By:
--------------------------------
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DISTRIBUTION AGREEMENT
RYDEX DYNAMIC FUNDS
THIS DISTRIBUTION AND SHAREHOLDER SERVICES AGREEMENT is made as of
(the "Agreement") by and between Rydex Dynamic Funds, a Delaware
business trust (the "Trust"), and PADCO Financial Services, Inc. ("PADCO"), a
Maryland corporation.
WHEREAS, the Trust is registered as an open-end investment company under
the Investment Company Act of 1940 (the "1940 Act"); and its units of beneficial
interest are registered with the Securities and Exchange Commission (the "SEC")
under the Securities Act of 1933 (the "1933 Act"); and
WHEREAS, PADCO is registered as a broker-dealer with the SEC under the
Securities Exchange Act of 1934, and is a member in good standing of the
National Association of Securities Dealers, Inc. ("NASD"); and
WHEREAS, the Trust desires to retain PADCO to: (i) distribute, or to
retain a Service Provider to distribute, the shares (the "Shares") of certain
investment portfolios of the Trust (the "Funds"); (ii) provide, pursuant to the
Distribution and Shareholder Services Plan (the "Plan") as adopted by the Trust
under Rule 12b-1 under the 1940 Act, for the sale and distribution of the Funds,
and for such additional classes or series as the Trust may issue; and (iii)
provide, or to retain a Service Provider to provide, shareholder services to
shareholders of the Trust ("Clients") who purchase Shares of the Funds; and
WHEREAS PADCO, or such other service provider as PADCO shall determine,
is prepared to provide such services commencing on the date first written above;
and
WHEREAS, the Trust and PADCO wish to enter into an agreement with each
other with respect to the continuous offering of the Trust's Shares.
NOW THEREFORE, in consideration of the premises and mutual covenants set
forth herein, PADCO and the Trust hereto agree as follows:
1. DEFINITIONS
1.1 "Recipient" shall mean any broker or dealer, administrator, investment
adviser, institution, including bank trust departments, or other person
or entity that; (i) renders, or has rendered, assistance (whether direct
and/or administrative) in the distribution of the Funds or in shareholder
services to Clients of the Funds; (ii) has, or will, furnish PADCO with
such information as PADCO has requested, or may request, to answer such
questions as may arise regarding the sale of shares of the Funds; and
(iii) has been selected by PADCO to receive payments under the Plan.
1.2 "Qualified Holdings" shall mean, as to any Recipient, all shares of the
Fund owned beneficially or of record by (i) such Recipients or (ii) such
brokerage or other customers, investment advisory or other Clients,
and/or accounts as to which such Recipient is fiduciary, co-fiduciary,
custodian or co-custodian, but in no event shall any such shares be
deemed owned by more than one Recipient.
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2. DISTRIBUTION AND SHAREHOLDER SERVICES
2.1 The Trust hereby appoints, and PADCO hereby agrees, to act as the Trust's
agent to sell and arrange for the sale of the Shares covered by the
Registration Statement under the 1933 Act.
2.2 Pursuant to the Plan, the Trust shall compensate PADCO for distribution
services and expenses incurred in promoting the sale of the Funds' Shares
at a rate not to exceed .25% per annum of the Funds' average daily net
assets attributable to shares of the Funds that were sold by or through
Recipients. The Funds shall bear their own respective costs of
distribution, and compensation shall be made from the assets of the
Funds, the Shares of which have been sold. Such costs shall be calculated
and accrued daily and paid within fifteen (15) days of the end of each
month. PADCO shall use such payments received from the Funds to
compensate Recipients for distribution services and expenses of the type
contemplated herein and reviewed from time to time by the Trustees of the
Trust, in promoting the sale of the Funds' Shares, including, but not
limited to providing distribution assistance and administrative support
services for the Funds. PADCO may, in its discretion, retain a portion of
such payments to compensate itself for distribution services and
distribution related expenses such as the costs of preparation, printing,
mailing or otherwise disseminating sales literature, advertising, and
prospectuses (other than those furnished to current shareholders of the
Funds), promotional and incentive programs, and such other marketing
expense that PADCO may incur.
2.3 Pursuant to the Plan, the Trust shall compensate PADCO for shareholder
service expenses incurred in servicing the Clients of the Funds, at a
rate not to exceed .25% per annum of the Funds' average daily net assets
attributable to Shares of the Funds. Compensation shall be made from the
assets of the Funds, the Shares of which have been sold. Such costs shall
be calculated and accrued daily and paid within fifteen (15) days of the
end of each month. PADCO shall use such payments received from the Funds
to compensate Recipients for shareholder services and shareholder
servicing expenses of the type contemplated herein and reviewed from time
to time by the Trustees of the Trust, which services may include: (i)
maintaining accounts relating to Clients that invest in Shares; (ii)
arranging for bank wires; (iii) responding to Client inquiries relating
to the services performed by Recipients; (iv) responding to inquiries
from Clients concerning their investment in Shares; (v) assisting Clients
in changing dividend options, account designations and addresses; (vi)
providing information periodically to Clients showing their position in
Shares; (vii) forwarding shareholder communications from the Funds such
as proxies, shareholder reports, annual reports, and dividend
distribution and tax notices to Clients; (viii) processing purchase
exchange and redemption requests from Clients and placing orders with the
Funds or its service providers; (ix) providing sub-accounting with
respect to Shares beneficially owned by Clients; and (x) processing
dividend payments from the Funds on behalf of Clients.
2.4 Pursuant to the Plan, PADCO shall make payments to any Recipient within
fifteen (15) days of the end of each fiscal quarter of the Trust, at an
annualized rate not to exceed .25% for (i) distribution expenses, as
listed in Section 2.2 above; and (ii) shareholder services, as listed in
Section 2.3 above. Such annualized rate shall be calculated as a
percentage of net asset value of Qualified Holdings owned beneficially or
of record by Recipients or by Recipients' Clients during such quarter.
PROVIDED, HOWEVER, that no such payments shall be made to any Recipient
for any such quarter in which the Recipient's Qualified Holdings do not
equal or exceed, at the end of such quarter, the asset
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minimum ("Minimum Qualified Holdings") to be set from time to time by
PADCO with the approval of the Trustees of the Trust.
2.5 PADCO shall comply with all applicable laws, rules and regulations,
including, without limitations, all rules and regulations made or adopted
by the SEC or by any securities association registered under the 1934
Act. PADCO shall maintain the required licenses and registrations for
itself as a broker or dealer, and for its registered representatives or
other associated persons, under the 1934 Act and applicable state
securities laws.
2.6 PADCO is not authorized by the Trust to give on behalf of the Trust any
information or to make any representations in connection with the sale of
Shares other than the information and representations contained in a
Registration Statement filed with the SEC under the 1933 Act and the 1940
Act, as such Registration Statement may be amended from time to time, or
contained in shareholder reports or other material that may be prepared
by or on behalf of the Trust for PADCO's use.
2.7 The Trust understands that PADCO is now, or may in the future be, the
distributor of the shares of several investment companies or series
(collectively, the "Investment Entities"), including Investment Entities
having investment objectives similar to those of the Trust. The Trust
further understands that investors and potential investors in the Trust
may invest in shares of such other Investment Entities. The Trust agrees
that PADCO's duties to such Investment Entities shall not be deemed in
conflict with its duties to the Trust under this Section 2.7.
2.8 PADCO shall not utilize any materials in connection with the sale or
offering of Shares except the Trust's current prospectus and statement of
additional information ("SAI") and such other materials as the Trust
shall provide or approve.
2.9 All activities by PADCO and its employees, as distributor of the Shares,
shall comply with all applicable laws, rules and regulations, including,
without limitation, all rules and regulations made or adopted by the SEC
or the National Association of Securities Dealers.
2.10 Whenever in its judgment such action is warranted by unusual market,
economic or political conditions or abnormal circumstances of any kind,
the Trust may decline to accept any orders for, or make any sales of, the
Shares until such time as the Trust deems it advisable to accept such
orders and to make such sales, and the Trust advises PADCO promptly of
such determination.
2.11 The Trust agrees to pay all costs and expenses in connection with the
registration of Shares under the Securities Act of 1933, as amended, and
all expenses in connection with maintaining facilities for the issue and
transfer of Shares and for supplying information, prices and other data
to be furnished by the Funds hereunder, and all expenses in connection
with the preparation and printing of the Funds' prospectuses and SAI for
current shareholders, for regulatory purposes and for distribution to
current shareholders.
2.12 The Trust agrees at its own expense to execute any and all documents and
to furnish any and all information and otherwise to take all actions that
may be reasonably necessary in connection with the qualification of the
Shares for sale in such states as PADCO may designate. The Trust shall
notify PADCO in writing of the states in which the Shares may be sold and
shall notify PADCO in writing of any changes to the information contained
in the previous notification.
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2.13 The Trust shall furnish from time to time, for use in connection with the
sale of the Shares, such information with respect to the Trust and the
Shares as PADCO may reasonably request. The Trust shall also furnish
PADCO upon request with: (a) audited annual statements and unaudited
semi-annual statements of a Fund's books and accounts prepared by the
Trust, (b) quarterly earnings statements prepared by the Trust, (c) a
monthly itemized list of the securities in the Funds, (d) monthly balance
sheets as soon as practicable after the end of each month, and (e) from
time to time such additional information regarding the financial
condition of the Trust as PADCO may reasonably request.
2.14 The Trust represents to PADCO that all Registration Statements and
prospectuses filed by the Trust with the SEC under the 1933 Act with
respect to the Shares have been prepared in conformity with the
requirements of the 1933 Act and the rules and regulations of the SEC
thereunder. As used in this Agreement, the term "Registration Statement"
shall mean any registration statement and any prospectus and any SAI
relating to the Trust filed with the SEC and any amendments or
supplements thereto at any time filed with the SEC. Except as to
information included in the Registration Statement in reliance upon
information provided to the Trust, PADCO or any affiliate of PADCO,
expressly for use in the Registration Statement, the Trust represents and
warrants to PADCO that any Registration Statement, when such Registration
Statement becomes effective, will contain statements required to be
stated therein in conformity with the 1933 Act and the rules and
regulations of the SEC; that all statements of fact contained in any such
Registration Statement will be true and correct when such Registration
Statement becomes effective, and that no Registration Statement when such
Registration Statement becomes effective will include an untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading to a
purchaser of the Shares. PADCO may, but shall not be obligated to,
propose from time to time such amendment or amendments to any
Registration Statement and such supplement or supplements to any
prospectus as, in the light of future developments, may, in the opinion
of the Trust's counsel, be necessary or advisable. The Trust shall
promptly notify PADCO of any advice given to it by its counsel regarding
the necessity or advisability of amending or supplementing such
Registration Statement. The Trust shall not file any amendment to any
Registration Statement or supplement to any prospectus without giving
PADCO reasonable notice thereof in advance; provided, however, that
nothing contained in this Agreement shall in any way limit the Trust's
right to file at any time such amendments to any Registration Statements
and/or supplements to any prospectus, of whatever character, as the Trust
may deem advisable, such right being in all respects absolute and
unconditional.
3. INDEMNIFICATION AND NOTIFICATION
3.1 The Trust agrees to indemnify and hold harmless PADCO, its officers,
directors, and employees, and any person who controls PADCO within the
meaning of Section 15 of the 1933 Act, free and harmless from and against
any and all claims, costs, expenses (including reasonable attorneys'
fees) losses, damages, charges, payments an liabilities of any sort or
kind which PADCO, its officers, directors, employees or any such
controlling person may incur under the 1933 Act, under any other statute,
at common law or otherwise, but only to the extent that such liability or
expense incurred by PADCO, its officers, directors, employees or any
controlling person resulting from such claims or demands arises out of
the acquisition of Shares by any person which is based upon: (i) any
untrue statement, or alleged untrue statement, of a material fact
contained in the Trust's Registration Statement, prospectus, SAI, or
sales literature (including amendments and supplements thereto), or
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(ii) any omission, or alleged omission, to state a material fact required
to be stated in the Trust's Registration Statement, prospectus, SAI or
sales literature (including amendments or supplements thereto), necessary
to make the statements therein not misleading.
Notwithstanding the foregoing, the Trust shall not be obligated to
indemnify any entity or person pursuant to this paragraph 3.1 against any
losses, claims, costs, charges, payments, damages, liabilities or
expenses (including attorneys' fees) of any sort or kind arising (i) out
of the acquisition of Shares by any person which is based upon any untrue
statement or omission or alleged untrue statement or omission made in
reliance on and in conformity with information furnished to the Trust by
PADCO or its affiliated persons for use in the Trust's Registration
Statement (including amendments or supplements thereto), prospectus, SAI
or sales literature; (ii) by reason of PADCO's willful misfeasance, bad
faith or negligence in the performance of PADCO's duties hereunder; (iii)
by reason of reckless disregard of PADCO's obligations or duties
hereunder, from reliance on information furnished to the Trust by PADCO
or its affiliates; or (iv) by reason of PADCO's refusal or failure to
comply with the terms or conditions of this Agreement.
3.2 PADCO agrees to indemnify and hold harmless the Trust, its several
officers and Trustees and each person, if any, who controls a Fund or
Funds within the meaning of Section 15 of the 1933 Act against any and
all claims, costs, expenses (including reasonable attorneys' fees),
losses, damages, charges, payments and liabilities of any sort or kind
which the Trust, its officers or Trustees, or any such controlling person
may incur under the 1933 Act, under any other statute, at common law or
otherwise, but only to the extent that such liability or expense incurred
by the Trust, its officers or Trustees, or any controlling person
resulting from such claims or demands arose (i) out of the acquisition of
any Shares by any person which may be based upon any untrue statement, or
alleged untrue statement, of a material fact contained in the Trust's
Registration Statement (including amendments and supplements thereto),
prospectus, SAI or sales literature alleged omission, to state a material
fact required to be stated therein or necessary to make the statements
therein not misleading, if such statement or omission was made in
reliance upon information furnished or confirmed in writing to the Trust
by PADCO or its affiliated persons (as defined in the 1940 Act); (ii) by
reason of PADCO's willful misfeasance, bad faith or negligence in
performance of PADCO's duties or obligations hereunder or by reason of
reckless disregard of its duties or obligations hereunder; (iii) from
reliance on information furnished to the Trust by PADCO or its
affiliates; or (iv) from PADCO's refusal or failure to comply with the
terms or conditions of this Agreement.
3.3 In any case in which one party hereto (the "Indemnifying Party") may be
asked to indemnify or hold the other party hereto (the "Indemnified
Party") harmless, the Indemnified Party will notify the Indemnifying
Party promptly after identifying any situation which it believes presents
or appears likely to present a claim for indemnification (an
"Indemnification Claim") against the Indemnifying Party, although the
failure to do so shall not prevent recovery by the Indemnified Party, and
shall keep the Indemnifying Party advised with respect to all
developments concerning such situation. The Indemnifying Party shall have
the option to defend the Indemnified Party against any Indemnification
Claim which may be the subject of this indemnification, and, in the event
that the Indemnifying Party so elects, such defense shall be conducted by
counsel chosen by the Indemnifying Party and satisfactory to the
Indemnified Party, whose approval shall not be unreasonably withheld. In
the event that the Indemnifying Party elects to assume the defense of any
Indemnification Claim and retains legal counsel, the Indemnified Party
shall bear the fees and expenses of any additional legal counsel retained
by it. The Indemnified Party will not confess any
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Indemnification Claim or make any compromise in any case in which the
Indemnifying Party will be asked to provide indemnification, except with
the Indemnifying Party's prior written consent. The obligations of the
parties hereto under this Section 3.3 shall survive the termination of
this Agreement.
In the event that the Indemnifying Party does not elect to assume the
defense of any such suit, or in case the Indemnified Party reasonably
does not approve of counsel chosen by the Indemnified Party, or in case
there is a conflict of interest between the Trust and PADCO, the
Indemnifying Party will reimburse the Indemnified Party, its officers,
trustees, directors and employees, or the controlling person or persons
named as defendant or defendants in such suit, for the reasonable fees
and expenses of any counsel retained by the Indemnified Party or such
defendants. The Indemnifying Party's indemnification agreement contained
in this Section 3.3 and the Indemnifying Party's representations and
warranties in this Agreement shall remain operative and in full force and
effect regardless of any investigation made by or on behalf of the
Indemnified Party, its officers, directors, trustees or employees, or any
controlling persons, and shall survive the delivery of any Shares. This
agreement of indemnity will inure exclusively to the Indemnified Party's
benefit, to the benefit of its several officers, trustees, directors and
employees, and their respective estates and to the benefit of the
controlling person(s) and their successors. The Indemnifying Party agrees
promptly to notify the Indemnified Party of the commencement of any
litigation or proceedings against the Indemnifying Party or any of its
officers, trustees or directors in connection with the issue and sale of
any Shares.
3.4 No Shares shall be offered by either PADCO or the Trust under any of the
provisions of this Agreement and no orders for the purchase or sale of
Shares hereunder shall be accepted by the Trust if and so long as
effectiveness of the Registration Statement then in effect or any
necessary amendments thereto shall be suspended under any of the
provisions of the 1933 Act, or if and so long as a current prospectus as
required by Section 5(b)(2) of the 1933 Act is not on file with the SEC;
provided, however, that nothing contained in this Section 3.4 shall in
any way restrict or have any application to or bearing upon the Trust's
obligation to redeem Shares tendered for redemption by any shareholder in
accordance with the provisions of the Trust's Registration Statement,
Declaration of Trust, or By-Laws.
3.5 The Trust agrees to advise PADCO as soon as reasonably practical by a
notice in writing delivered to PADCO:
(i) in the event of the issuance by the SEC of any stop order suspending
the effectiveness of the Registration Statement, prospectus or SAI then
in effect or the initiation by service of process on the Trust of any
proceeding for that purpose;
(ii) of any happening of any event that makes untrue any statement of a
material fact made in the Registration Statement, prospectus or SAI then
in effect or that requires the making of a change in such Registration
Statement, prospectus or SAI in order to make the statements therein not
misleading, and
(iii) of all actions of the SEC with respect to any amendments to any
Registration Statement, prospectus or SAI which may from time to time be
filed with the SEC.
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For purposes of this section, informal requests by or acts of the Staff
of the SEC shall not be deemed actions of the SEC.
4. TERM
4.1 This Agreement shall become effective on the date first written above
and, unless sooner terminated as provided herein, shall continue for an
initial two-year term and thereafter shall be renewed for successive
one-year terms in accordance with the requirements of the 1940 Act. This
Agreement is terminable without penalty, on at least sixty days' written
notice, by either party. This Agreement will also terminate automatically
in the event of its assignment (as defined in the 1940 Act and the rules
thereunder).
4.2 In the event a termination notice is given by the Trust, all reasonable
expenses associated with movement of records and materials and conversion
thereof will be borne by the Trust.
5. LIMITATION OF LIABILITY
5.1 PADCO shall at all times act in good faith and agrees to use its best
efforts, within commercially reasonable limits, to ensure the accuracy of
all services performed under this Agreement. PADCO shall not be liable to
the Trust for any error of judgment or mistake of law or for any loss
suffered by the Trust in connection with the performance of its
obligations and duties under this Agreement, except a loss resulting
from: (i) PADCO's willful misfeasance, bad faith or negligence in the
performance of such obligations and duties, or by reason of its reckless
disregard thereof; (ii) reliance on information furnished to the Trust by
PADCO or its affiliates; or (iii) PADCO's refusal or failure to comply
with the terms or conditions of this Agreement.
5.2 The Trust shall not be liable to PADCO for any error of judgment or
mistake of law or for any loss suffered by PADCO, except a loss resulting
from the Trust's willful misfeasance, bad faith or negligence in the
performance of its duties and obligations hereunder, or by reason of
reckless disregard thereof.
5.3 Each party shall have the duty to mitigate damages for which the other
party may become responsible.
6. EXCLUSION OF WARRANTIES
THIS IS A SERVICE AGREEMENT. EXCEPT AS EXPRESSLY PROVIDED IN THIS
AGREEMENT, PADCO DISCLAIMS ALL OTHER REPRESENTATIONS OR WARRANTIES,
EXPRESS OR IMPLIED, MADE TO THE TRUST, THE FUNDS OR ANY OTHER PERSON,
INCLUDING, WITHOUT LIMITATION, ANY WARRANTIES REGARDING QUALITY,
SUITABILITY, MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE OR
OTHERWISE (IRRESPECTIVE OF ANY COURSE OF DEALING, CUSTOM OR USAGE OF
TRADE) OF ANY SERVICES OR ANY GOODS PROVIDED INCIDENTAL TO SERVICES
PROVIDED UNDER THIS AGREEMENT. PADCO DISCLAIMS ANY WARRANTY OF TITLE OR
NON-INFRINGEMENT EXCEPT AS OTHERWISE SET FORTH IN THIS AGREEMENT.
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7. MODIFICATIONS AND WAIVERS
No change, termination, modification, or waiver of any term or condition
of the Agreement shall be valid unless made in writing signed by each
party. No such writing shall be effective as against PADCO unless said
writing is executed by an officer of PADCO. A party's waiver of a breach
of any term or condition in the Agreement shall not be deemed a waiver of
any subsequent breach of the same or another term or condition.
8. NO PRESUMPTION AGAINST DRAFTER
PADCO and the Trust have jointly participated in the negotiation and
drafting of this Agreement. The Agreement shall be construed as if
drafted jointly by the Trust and PADCO, and no presumptions arise
favoring any party by virtue of the authorship of any provision of this
Agreement.
9. PUBLICITY
Neither PADCO nor the Trust shall release or publish news releases,
public announcements, advertising or other publicity relating to this
Agreement or to the transactions contemplated by it without prior review
and written approval of the other party; provided, however, that either
party may make such disclosures as are required by legal, accounting or
regulatory requirements after making reasonable efforts in the
circumstances to consult in advance with the other party.
10. SEVERABILITY
The parties intend every provision of this Agreement to be severable. If
a court of competent jurisdiction determines that any term or provision
is illegal or invalid for any reason, the illegality or invalidity shall
not affect the validity of the remainder of this Agreement. In such case,
the parties shall in good faith modify or substitute such provision
consistent with the original intent of the parties. Without limiting the
generality of this paragraph, if a court determines that any remedy
stated in this Agreement has failed of its essential purpose, then all
other provisions of this Agreement, including the limitations on
liability, shall remain fully effective.
11. FORCE MAJEURE
11.1 No party shall be liable for any default or delay in the performance of
its obligations under this Agreement if and to the extent such default or
delay is caused, directly or indirectly, by (i) fire, flood, elements of
nature or other acts of God; (ii) any outbreak or escalation of
hostilities, war, riots or civil disorders in any country, (iii) any act
or omission of the other party or any governmental authority; (iv) any
labor disputes (whether or not the employees' demands are reasonable or
within the party's power to satisfy); or (v) nonperformance by a third
party or any similar cause beyond the reasonable control of such party,
including without limitation, failures or fluctuations in
telecommunications or other equipment. In any such event, the
non-performing party shall be excused from any further performance and
observance of the obligations so affected only for so long as such
circumstances prevail and such party continues to use commercially
reasonable efforts to recommence performance or observance as soon as
practicable.
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11.2 Notwithstanding any other provision in this Agreement, in the event of
equipment failures or the occurrence of events beyond PADCO's control
which render its performance under this Agreement impossible, PADCO shall
at no additional expense to the Trust take reasonable steps to minimize
service interruptions. PADCO shall develop and maintain a plan for
recovery from equipment failures which may include contractual
arrangements with appropriate third parties making reasonable provisions
for emergency use of electronic data processing equipment.
12. YEAR 2000
In addition to any other express or implied warranties made in this
Agreement, PADCO hereby represents and warrants that each and every
commercial and noncommercial hardware, software, firmware, mechanical, or
electrical product ("Product(s)") utilized, created, assembled,
manufactured, developed or modified in connection with any services
offered or provided under this Agreement shall, at no additional cost to
the Trust, be able to store and process accurately any and all date and
date-related data (including, but not limited to, calculating, comparing,
storing, processing, recording, valuing, recognizing, validating,
presenting, and sequencing) during the year 2000 and thereafter, in the
manner performed prior thereto, not withstanding the year 2000. The Trust
may, at no additional cost, require PADCO to demonstrate compliance
and/or compliance techniques and test procedures it intends to follow, or
evidence of compliance by Recipients, consistent with the date-related
representations, warranties, and obligation contained herein.
13. MISCELLANEOUS
Any notice or other instrument authorized or required by this Agreement
to be given in writing to the Trust or PADCO shall be sufficiently given
if addressed to the party and received by it at its office set forth
below or at such other place as it may from time to time designate in
writing.
To the Trust:
Rydex Dynamic Funds
[ ]
Attn:
--------------------
To PADCO:
PADCO Financial Services, Inc.
[ ]
Attn:
--------------------
14. GOVERNING LAW/VENUE. The laws of the State of Maryland, excluding the
laws on conflicts of laws, and the applicable provision of the 1940 Act
shall govern the interpretation, validity, and enforcement of this
Agreement. To the extent the provisions of Maryland law or the provisions
hereof conflict with the 1940 Act, the 1940 Act shall control. All
actions arising from or related to this Agreement shall be brought in the
state and federal courts within the State of Maryland, and PADCO and the
Trust hereby submit themselves to the exclusive jurisdiction of those
courts.
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15. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original and which
collectively shall be deemed to constitute only one instrument.
16. CAPTIONS. The captions of 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.
17. SUCCESSORS. This Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective successors and is not
intended to confer upon any other person any rights or remedies
hereunder.
18. ARBITRATION. Any claim or controversy arising out of or relating to this
Agreement, or breach hereof, shall be settled by arbitration administered
by the American Arbitration Association in accordance with its applicable
rules, except that the Federal Rules of Evidence and the Federal Rules of
Civil Procedure with respect to the discovery process shall apply. The
parties hereby agree that judgment upon the aware rendered by the
arbitrator may be entered in any court having jurisdiction.
The parties acknowledge and agree that the performance of the obligations
under this Agreement necessitates the use of instrumentalities of
interstate commerce and, notwithstanding other general choice of law
provisions in this Agreement, the parties agree that the Federal
Arbitration Act shall govern and control with respect to the provision of
this Article.
19. OBLIGATIONS OF THE TRUST
The execution and delivery of this Agreement have been authorized by the
Trustees of the Trust, and signed by an authorized officer of the Trust,
acting as such, and neither such authorization by such Trustees nor such
execution and delivery by such officer shall be deemed to have been made
by any of them or any shareholder of the Trust individually or to impose
any liability on any of them or any shareholder of the Trust personally,
but shall bind only the assets and property of the Trust as provided in
the Trust's Declaration of Trust.
20. ENTIRE AGREEMENT
This Agreement, including all Schedules hereto, constitutes the entire
agreement between the parties with respect to the subject matter hereof
and supersedes all prior and contemporaneous proposals, agreements,
contracts, representations, and understandings, whether written or oral,
between the parties with respect to the subject matter hereof.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
RYDEX DYNAMIC FUNDS
By:
------------------------------
Name:
----------------------------
Title:
---------------------------
PADCO FINANCIAL SERVICES, INC.
By:
------------------------------
Name:
----------------------------
Title:
---------------------------
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CUSTODY AGREEMENT
Agreement made as of the day of , 1999, between Rydex
Dynamic Funds, (the "Trust"), a business trust organized under the laws
of Delaware and having its office at 6116 Executive Boulevard, Suite 400,
Rockville, Maryland, 20852 acting for and on behalf of all mutual fund
portfolios as are currently authorized and issued by the Trust or may be
authorized and issued by the Trust subsequent to the date of this Agreement
(the "Funds"), which are operated and maintained by the Trust for the benefit
of the holders of shares of the Funds, and Firstar Bank, N.A. (the
"Custodian"), a national banking association having its principal office and
place of business at Firstar Bank Center, 425 Walnut Street, Cincinnati, Ohio
45202, which Agreement provides for the furnishing of custodian services to
the Funds.
WITNESSETH:
that for and in consideration of the mutual promises hereinafter set forth the
Trust, on behalf of the Funds, and the Custodian agree as follows:
ARTICLE I
DEFINITIONS
Whenever used in this Agreement, the following words and phrases,
unless the context otherwise requires, shall have the following meanings:
1. "Authorized Person" shall be deemed to include the controller,
Assistant Controller, Senior Portfolio Accountant, and Portfolio Accountant, or
any other person, whether or not any such person is an officer or employee of
the trust, duly authorized by the Board of Trustees of the Trust to give Oral
Instructions on behalf of the funds and listed in the Certificate annexed hereto
as Appendix A or such other Certificate as may be received by the Custodian from
time to time, subject in each case to any limitations on the authority of such
person as set forth in appendix A or any such Certificate.
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2. "Book-Entry System" shall mean the Federal Reserve/Treasury
book-entry system for United States and federal agency securities, its successor
or successors and its nominee or nominees, provided the Custodian has received a
certified copy of a resolution of Board of Trustees of the Trust specifically
approving deposits in the Book-Entry System.
3. "Certificate" shall mean any notice, instruction, or other
instrument in writing, authorized or required by this Agreement to be given to
the Custodian which is signed on behalf of the funds by an Officer of the Trust
and is actually received by the Custodian.
4. "Depository" shall mean The Depository Trust Company ("DTC"),
a clearing agency registered with the Securities and Exchange Commission, its
successor or successors and its nominee or nominees. The term "Depository" shall
further mean and include any other person or clearing agency authorized to act
as a depository under the Investment Company Act of 1940, its successor or
successors and its nominee or nominees, provided that the Custodian has received
a certified copy of a resolution of the board of /Trustees of the Trust
specifically approving such other person or clearing agency as a depository.
5. "Dividend and Transfer Agent" shall mean the dividend and
transfer agent active, from time to time, in such capacity pursuant to a written
agreement with the Fund, changes in which the Trust shall immediately report to
the Custodian writing.
6. "Money Market Security" shall be deemed to include, without
limitation, debt obligations issued or guaranteed as to principal and/or
interest by the government of the United States or agencies or instrumentalities
thereof, commercial paper, obligations (including certificates of deposit,
bankers' acceptances, repurchase and reverse repurchase agreements with respect
to the same) and bank time deposits of domestic banks that are members of
Federal Deposit Insurance Trust, and short-term corporate obligations where the
purchase and sale of such securities normally require settlement in federal
funds or their equivalent on the same day or such purchase or sale.
7. "Officers" shall be deemed to include the controller,
Assistant controller, Senior Portfolio Accountant, and Portfolio Accountant of
the Trust listed in the Certificate annexed hereto as Appendix A or such other
Certificate as may be received by the Custodian form time to time.
8. "Oral Instructions" shall mean oral instructions actually
received by the Custodian from an Authorized Person (or from a person which the
Custodian reasonably believes in good faith to be an Authorized Person) and
confirmed by Written Instructions from Authorized Persons in such manner so that
such Written Instructions are received by the Custodian on the next business
day.
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9. "Prospectus" or "Prospectuses" shall mean the Fund's currently
effective prospectuses and statements of additional information, as filed with
and declared effective by the Securities and Exchange Commission.
10. "Security or Securities" shall mean Money Market Securities,
common or preferred stocks, options, futures, gold, silver, bonds, debentures,
corporate debt securities, notes, mortgages or other obligations, and any
certificates, receipts, warrants or other instruments representing rights to
receive, purchase or subscribe for the same, or evidencing or representing any
other rights or interest therein, or any property assets.
11. "Written Instructions" shall mean communication actually
received by the custodian from one Authorized Person or from one person which
the Custodian reasonably believes in good faith to be an Authorized Person in
writing, telex or any other data transmission system whereby the receiver of
such communication is able to verify by codes or otherwise with a reasonable
degree of certainty the authenticity of the senders of such communication.
ARTICLE II
APPOINTMENT OF CUSTODIAN
1. The Trust, acting for and on behalf of the funds, hereby
constitutes and appoints the Custodian as custodian of all the Securities and
monies at any time owned by the Funds during the period this Agreement ("Fund
Assets").
2. The Custodian hereby accepts appointment as such Custodian and
agrees to perform the duties thereof as hereinafter set forth.
ARTICLE III
DOCUMENTS TO BE FURNISHED BY THE TRUST
The Trust hereby agrees to furnish to the Custodian the following
documents:
1. A copy of its Declaration of Trust (the "Declaration of
Trust") certified by its Secretary.
2. A copy of its By-Laws certified by its Secretary.
3. A copy of the resolution of its Board of Trustees appointing
the custodian certified by its Secretary.
4. A copy of the most recent Prospectuses of the Trust.
5. A Certificate of the President and Secretary setting forth the
names and signatures of the present Officers of the Trust.
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ARTICLE IV
CUSTODY OF CASH AND SECURITIES
1. The Trust will deliver or cause to be delivered to the
Custodian all Funds Assets, including cash received for the issuance of its
shares, at any time during the period of this Agreement. The Custodian will not
be responsible for such fund Assets until actually received by it. Upon such
receipt, the Custodian shall hold in safekeeping and physically segregate at all
times from the property of any other persons, firms or corporations all Fund
Assets received by it from or for the account of the Funds. Any credits from
third parties that are made to the Funds' account by the Custodian may be
reversed if the monies for them is not finally collected within 90 days from the
day the credits are made. The Custodian is hereby authorized by the Trust,
acting on behalf of the Funds, to actually deposit any fund Assets in the
Book-Entry System or in a Depository, provided, however, that the custodian
shall always be accountable to the Trust for the Fund Assets so deposited. Funds
Assets deposited in the Book-Entry System or the Depository will be represented
in accounts which include only assets held by the custodian for customers,
including but not limited to accounts in which the Custodian acts in a fiduciary
or representative capacity.
2. The Custodian shall credit to a separate account or accounts
in the name of each respective Fund all monies received by it for the account of
such Fund, and such disburse the same only:
(a) In payment for Securities purchases for the account of such
Fund, as provided in Article V;
(b) In payment of dividends or distributions, as provided in
Article VI hereof;
(c) In payment of original issue or other taxes, as provided in
Article VII hereof;
(d) In payment for shares of such Fund redeemed by it, as provided
in Article VII hereof;
(e) Pursuant to Certificates (i) directing payment and setting
forth the name and address of the person to whom the payment
is to be made, the amount of such payment and the purpose for
which payment is to be made (the Custodian not being required
to question such direction) or (ii) if reserve requirements
are established for the Fund by law or by valid regulation,
directing the custodian to deposit a specified amount of
collected funds in the form of U.S. dollars at a specified
Federal Reserve bank and stating the purpose of such deposit;
or
(f) In reimbursement of the expenses and liabilities of the
Custodian, as provided in paragraph 10 of Article IV hereof.
3. Promptly after the close of business on each day the funds are
open and valuing their portfolios, the Custodian shall furnish the Trust with a
detailed statement of monies held for the Fund under this Agreement and with
confirmations and a summary of all transfers to or from the account of the Funds
during said day. Where Securities are transferred to the account of the
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Fund without physical delivery, the Custodian shall also identify as belonging
to the Funds a quantity of Securities in a fungible bulk of Securities
registered in the name of the Custodian (or its nominee) or shown on the
Custodian's account on the books of the Book-Entry system or the Depository. At
least monthly and form time to time, the Custodian shall furnish the Trust with
a detailed statement of the Securities held for the Funds under this Agreement.
4. All securities held for the Funds, which are issued or
issuable only in bearer form, except such Securities as are held in the
Book-Entry System, shall be held by the Custodian in that form; all other
Securities held for the Funds may be registered nominee of the Custodian as the
Custodian may from time to time determine, or in the name of the Book-Entry
System or the Depository or their successor or successors, or their nominee or
nominees. The Trust agrees to furnish to the Custodian appropriate instruments
to enable the Custodian to hold or deliver in proper form for transfer, or to
register in the name of its registered nominee or in the name of the Book-Entry
System or the Depository, any Securities which it may hold for the account of
the Funds and which may from time to time be registered in the name of the
Funds. The Custodian shall hold all such Securities which are not held in the
Book-Entry System by the Depository or a Sub-Custodian in a separate account or
accounts in the name of the Funds segregated at all times from those of any
other fund maintained and operated by the Trust and from those of any other
person or persons.
5. Unless otherwise instructed to the contrary by a Certificate,
the Custodian shall with respect to all Securities held for the Funds in
accordance with this Agreement:
(a) Collect all income due or payable to the Funds with
respect to each fund's Assets;
(b) Present for payment and collect the amount payable
upon all Securities which may mature or be called,
redeemed, or retired, or otherwise become payable;
(c) Surrender Securities in temporary form for definitive
Securities;
(d) Execute, as Custodian, any necessary declarations or
certificates of ownership under the Federal income
tax laws or the laws or regulations of any other
taxing authority, including any foreign taxing
authority, now or hereafter in effect; and
(e) Hold directly, or through the Book-Entry System or
the Depository with respect to Securities therein
deposited, for the account of the Funds all rights
and similar securities issued with respect to any
Securities held by the Custodian hereunder.
6. Upon receipt of a Certificate and not otherwise, the Custodian
directly or through the use of the Book-Entry System or the Depository shall:
(a) Execute and deliver to such persons as may be
designated in such Certificate proxies, consents,
authorizations, and any other instruments
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whereby the authority or the fund as owner of any
Securities may be exercised;
(b) Deliver any Securities held for the funds in exchange
for other Securities or cash issued or paid in
connection with the liquidation, reorganization,
refinancing, merger, consolidation or
recapitalization of any corporation, or the exercise
of any conversion privilege;
(c) Deliver any Securities held for the account of the
Funds to any protective committee, reorganization,
refinancing, merger, consolidation, recapitalization
or sale of assets of any corporation, and received
and hold under the terms of this Agreement such
certificates of deposit, interim receipts or other
instruments or documents as may be issued to it to
evidence such delivery; and
(d) Make such transfers or exchanges of the assets of the
Funds and take such other steps as shall be stated in
said Certificate to be for the purpose of
effectuating any duly authorized plan of liquidation,
reorganization, merger, consolidation or
recapitalization of the Funds.
7. The Custodian shall promptly deliver to the Trust all notices,
proxy material and executed but unvoted proxies pertaining to shareholder
meetings of Securities held by the Funds. The Custodian shall not vote or
authorize the voting of any Securities or give any consent, waiver or approval
with respect thereto unless so directed by a Certificate or Written Instruction.
8. The Custodian shall promptly deliver to the Trust all material
received by the Custodian and pertaining to Securities held by the Funds with
respect to tender or exchange offers, calls for redemption or purchase,
expiration of rights, name changes, stock splits and stock dividends, or any
other activity involving rights in such Securities.
ARTICLE V
PURCHASE AND SALE OF INVESTMENTS OF THE FUND
1. Promptly after each purchase of Securities by the Funds, the
Trust shall deliver to the Custodian (i) with respect to each purchase of
Securities which are not Money Market Securities, a Certificate or Written
Instructions, and (ii) with respect to each purchase of Money Market Securities,
Written Instructions, a Certificate or Oral Instructions, specifying with
respect to each such purchase: (a) the name of the issuer and the title of the
Securities, (b) the principal amount purchased and accrued interest, if any, (c)
the date of purchase and settlement, (d) the purchase price per unit, (e) the
total amount payable upon such purchase and (f) the name of the person from whom
or the broker through whom the purchase was made. The Custodian shall upon
receipt of Securities purchased by or for the funds, pay out of the monies held
for the account of the Funds the total amount payable to the person from whom or
the broker through
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whom the purchase was made, provided that the same conforms to the total amount
payable as set forth in such Certificate, Written Instructions or Oral
Instructions.
2. Promptly after each sale of Securities by the Trust for the
account of the Fund, the Trust shall deliver to the Custodian (i) with
respect to each sale of Securities which are not Money Market Securities, a
Certificate or Written Instructions, and (ii) with respect to each sale of
Money Market Securities, Written Instructions, a Certificate or Oral
Instructions, specifying with respect to each such sale: (a) the name of the
issuer and the title of the Security, (b) the principal amount sold, and
accrued interest, if any, (c) the date of sale, (d) the sale price per unit,
(e) the total amount payable to the Funds upon such sale and (f) the name of
the broker through whom or the person to whom the sale was made. The
Custodian shall deliver the Securities upon receipt of the total amount
payable to the Funds upon such sale, provided that the same conforms to the
total amount payable as set forth in such Certificate, Written Instructions
or Oral Instructions. Subject to the foregoing, the Custodian may accept
payment in such form as shall be satisfactory to it, and may deliver
Securities and arrange for payment in accordance with the customs prevailing
among dealers in Securities.
3. Promptly after the time as of which the Trust, on behalf of a
Fund, either -
(a) writes an option on Securities or writes a covered
put option in respect of a Security, or
(b) notifies the Custodian that its obligations in
respect of any put or call option, as described in
the Trust's Prospectus, require that the Fund deposit
Securities or additional Securities with the
Custodian, specifying the type and value of
Securities required to be so deposited, or
(c) notifies the Custodian that its obligations in
respect of any other Security, as described in each
Fund's respective Prospectus, require that the Fund
deposit Securities or additional Securities with the
Custodian, specifying the type and value of
Securities required to be so deposited, the Custodian
will cause to be segregated or identified as
deposited, pursuant to the Fund's obligations as set
forth in such Prospectus, Securities of such kinds
and having such aggregate values as are required to
meet the Fund's obligations in respect thereof. The
Trust will provide to the Custodian, as of the end of
each trading day, the market value of each Fund's
option liability if any and the market value of its
portfolio of common stocks.
4. On contractual settlement date, the account of each respective
Fund will be charged for all purchases settling on that day, regardless of
whether or not delivery is made. On contractual settlement date, sale proceeds
will likewise be credited to the account of such fund irrespective of delivery.
In the case of "sale fails", the Custodian may request the assistance
of the Funds in making delivery of the failed Security.
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ARTICLE VI
PAYMENT OF DIVIDENDS OR DISTRIBUTIONS
1. The Trust shall furnish to the Custodian a copy of the
resolution of the Board of Trustees, certified by the Secretary, either (i)
setting forth the date of the declaration of any dividend or distribution in
respect of shares of the Funds, the date of payment thereof, the record date as
of which Funds shareholders entitled to payment shall be determined, the amount
payable per share to Funds shareholders of record as of that date and the total
amount to be paid by the Dividend and Transfer Agent of the Funds on the payment
date, or (ii) authorizing the declaration of dividends and distributions in
respect of shares of the Funds on a daily basis and authorizing the Custodian to
rely on Written Instructions or a Certificate setting forth the date of the
declaration of any such dividend or distribution, the date of payment thereof,
the record date as of which Funds shareholders entitled to payment shall be
determined, the amount payable per share to Funds shareholders of record as of
that date and the total amount to be paid by the Dividend and Transfer Agent on
the payment date.
2. Upon the payment date specified in such resolution, Written
Instructions or Certificate, as the case may be, the Custodian shall arrange for
such payments to be made by the Dividend and Transfer Agent out of monies held
for the account of the Funds.
ARTICLE VII
SALE AND REDEMPTION OF SHARES OF THE FUND
1. The Custodian shall receive and credit to the account of each
Fund such payments for shares of such Fund issued or sold from time to time as
are received from the distributor for the Fund's shares, from the Dividend and
Transfer Agent of the Fund, or from the Trust.
2. Upon receipt of Written Instructions, the Custodian shall
arrange for payment of redemption proceeds to be made by the Dividend and
Transfer Agent out of the monies held fro the account of the respective Fund in
the total amount specified in the Written Instructions.
3. Notwithstanding the above provisions regarding the redemption
of any shares of the Fund, whenever shares of the Funds are redeemed pursuant to
any check redemption privilege which may from time to time be offered by the
Funds, the Custodian, unless otherwise subsequently instructed by Written
Instructions shall, upon receipt of any Written Instructions setting forth that
the redemption is in good form for redemption in accordance with the check
redemption procedure, honor the check presented as part of such check redemption
privilege out of the money held in the account of the Funds for such purposes.
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ARTICLE VII
INDEBTEDNESS
In connection with any borrowings, the Trust, on behalf of the Funds,
will cause to be delivered to the Custodian by a bank or broker (including the
Custodian, if the borrowing is from the Custodian), requiring Securities as
collateral for such borrowings, a notice or undertaking in the form currently
employed by any such bank or broker setting forth the amount which such bank or
broker will loan to the Funds against delivery of a stated amount of collateral.
The Trust shall promptly deliver to the Custodian a Certificate specifying with
respect to each such borrowing: (a) the name of the bank or broker, (b) the
amount and terms of the borrowing, which may be set forth by incorporating by
reference an attached promissory note, duly endorsed by the Trust, acting on
behalf of the Fund, or other loan agreement, (c) the date and time, if known, on
which is to be entered into, (d) the date on which the loan becomes due and
payable, (e) the total amount payable to the Fund on the borrowing date, (f) the
market value of Securities collateralizing the loan, including the name of the
issuer, the title and the number of shares or the principal amount of any
particular Securities and (g) a statement that such loan is in conformance with
the Investment Company of 1940 and the Fund's then current Prospectus. The
Custodian shall deliver on the borrowing date specified in a Certificate the
specified collateral and the executed promissory note, if any, against delivery
by the lending bank or broker of the total amount of the loan payable provided
that the same conforms to the total amount payable as set forth in the
Certificate. The Custodian may, at the option of the lending bank or broker,
keep such collateral in its possession, but such collateral shall be subject to
all rights therein given the lending bank or broker, by virtue of any promissory
note or loan agreement. The Custodian shall deliver in the manner directed by
the Trust from time to time such Securities as additional collateral as may be
specified in a Certificate to collateralized further any transaction described
in this paragraph. The Trust shall cause all Securities released from collateral
status to be returned directly to the Custodian and the Custodian shall receive
from time to time such return of collateral as may be tendered to it. In the
event that the Trust fails to specify in a Certificate or Written Instructions
the name of the issuer, the title and number of shares or the principal amount
of any particular Securities to be delivered as collateral by the Custodian, the
Custodian shall not be under any obligation to deliver any Securities. The
Custodian may require such reasonable conditions with respect to such collateral
and its dealings with third-partly lenders as it may deem appropriate.
ARTICLE IX
CONCERNING THE CUSTODIAN
1. Except as otherwise provided herein, the Custodian shall not
be liable for any loss or damage, including counsel fees, resulting from its
action or omission to act or otherwise, except for any such loss or damage
arising out of its negligence or willful misconduct. The Trust, on behalf of the
Funds and only from Fund Assets (or insurance purchased by the Trust
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with respect to its liabilities on behalf of the Fund hereunder), shall defend,
indemnify and hold harmless the Custodian and its Trustees, Officers, Employees
and Agents with respect to any loss, claim, liability or cost (including
reasonable attorneys' fees) arising or alleged to arise from or relating to the
Trust's duties with respect to the Funds hereunder or any other action or
inaction of the Trust or its Trustees, Officers, Employees or Agents as to the
Funds, except such as may arise from the negligent action, omission or willful
misconduct of the Custodian, its Trustees, Officers, Employees or Agents. The
Custodian shall defend, indemnify and hold harmless the Trust and its Trustees,
Officers, Employees or Agents with respect to any loss, claim, liability or cost
(including reasonable attorneys' fees) arising or alleged to arise from or
relating to the Custodian's duties with respect to the Funds hereunder or any
other action of inaction of the Custodian or its Trustees, Officers, Employees,
Agents, nominees or Sub-Custodians as to the Funds, except such as may arise
from the negligent action, omission or willful misconduct of the Trust, its
Trustees, Officers, Employees or Agents. The Custodian may, with respect to
questions of law apply for and obtain the advice and opinion of counsel to the
Trust at the expense of the Funds, or of its own counsel at its own expense, and
shall be fully protected with respect to anything done or omitted by it in good
faith in conformity with the advice or opinion of counsel to the Trust, and
shall be similarly protected with respect to anything done or omitted by it in
good faith in conformity with advice or opinion of its counsel, unless counsel
to the Funds shall, within a reasonable time after being notified of legal
advice received by the Custodian, have a differing interpretation of such
question of law. The Custodian shall be liable to the Trust for any proximate
loss or damage resulting from the use of the Book-Entry System or any Depository
arising by reason of any negligence, misfeasance or misconduct on the part of
the Custodian or any of its employees, agents, nominees or Sub-Custodians but
not for any special, incidental, consequential, or punitive damages; provided,
however, that nothing contained herein shall preclude recovery by the Trust, on
behalf of the Funds, of principal and of interest to the date of recovery on,
Securities incorrectly omitted from the Fund's account or penalties imposed on
the Trust, in connection with the Funds, for any failures to deliver Securities.
In any case in which one party hereto may be asked to indemnify the
other or hold the other harmless, the party from whom indemnification is sought
(the "Indemnification Party") shall be advised of all pertinent facts concerning
the situation in question, and the party claiming a right to indemnification
(the "Indemnified Party") will use reasonable care to identify and notify the
Indemnifying Party promptly concerning any situation which presents or appears
to present a claim for indemnification against the Indemnifying Party. The
Indemnifying Party shall have the option to defend the Indemnified Party against
any claim which may be the subject of the indemnification, and in the event the
Indemnifying Party so elects, such defense shall be conducted by counsel chosen
by the Indemnifying Party and satisfactory to the Indemnified Party and the
Indemnifying Party will so notify the Indemnified Party and thereupon such
Indemnifying Party shall take over the complete defense of the claim and the
Indemnifying Party shall sustain no further legal or other expenses in such
situation for which indemnification has been sought under this paragraph, except
the expenses of any additional counsel retained by the Indemnified Party. In no
case shall any party claiming the right to indemnification confess any
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claim or make any compromise in any case in which the other party has been asked
to indemnify such party (unless such confession or compromise is made with such
other party's prior written consent).
The obligations of the parties hereto under this paragraph shall
survive the termination of this Agreement.
2. Without limiting the generality of the foregoing, the
Custodian, acting in the capacity of Custodian hereunder, shall be under no
obligation to inquire into, and shall not be liable for:
(a) The validity of the issue of any Securities purchased
by or for the account of the Funds, the legality of
the purchase thereof, or the propriety of the amount
paid therefor;
(b) The legality of the sale of any Securities by or for
the account of the Funds, or the propriety of the
amount for which the same are sold;
(c) The legality of the issue or sale of any shares of
the Funds, or the sufficiency of the amount to be
received therefor;
(d) The legality of the redemption of any shares of the
Funds, or the propriety of the amount to be paid,
therefor;
(e) The legality of the declaration or payment of any
dividend by the Trust in respect of shares of the
Funds;
(f) The legality of any borrowing by the Trust, on behalf
of the Funds, using Securities as collateral;
(g) The sufficiency of any deposit made pursuant to a
Certificate described in clause (ii) of paragraph
2(e) of Article IV hereof.
3. The Custodian shall not be liable for any money or collected
funds in U.S. dollars deposited in a Federal Reserve Bank in accordance with a
Certificate described in clause (ii) of paragraph 2(e) of Article IV hereof, nor
be liable for or considered to be the Custodian of any money, whether or not
represented by any check, draft, or other instrument for the payment of money,
received by it on behalf of the Funds until the Custodian actually receives and
collects such money directly or by the final crediting of the account
representing the Fund's interest at the Book-Entry System or Depository.
4. The Custodian shall not be under any duty or obligation to
take action to effect collection of any amount due to the Funds from the
Dividend and Transfer Agent of the Funds nor take any action to effect payment
or distribution by the Dividend and Transfer Agent of the Funds of any amount
paid by the Custodian to the Dividend and Transfer Agent of the Funds in
accordance with this Agreement.
5. Income due or payable to the Funds with respect to Funds
Assets will be credited to the account of the Funds as follows:
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(a) Dividends will be credited on the first business day
following payable date irrespective of collection.
(b) Interest on fixed rate municipal bonds and debt
securities issued or guaranteed as to principal
and/or interest by the government of the United
States or agencies or instrumentalities thereof
(excluding securities issued by the Government
National Mortgage Association) will be credited on
payable date irrespective of collection.
(c) Interest on fixed rate corporate debt securities will
be credited on the first business day following
payable date irrespective of collection.
6. Notwithstanding paragraph 5 of this Article IX, the Custodian
shall not be under any duty or obligation to take action to effect collection of
any amount, if the Securities upon which such amount is payable are in default,
or if payment is refused after due demand or presentation, unless and until (i)
it shall be directed to take such action by a Certificate and (ii) it shall be
assured to its satisfaction of reimbursement of its costs and expenses in
connection with any such action or, at the Custodian's option, prepayment.
7. The Custodian may appoint one or more financial or banking
institutions, as Depository or Depositories or as Sub-Custodian or
Sub-Custodians, including, but not limited to, the Fund, upon terms and
conditions approved in a Certificate. Current Depository(s) and Sub-
Custodian(s) are noted in Appendix B The Custodian shall not be relieved of any
obligation or liability under this Agreement in connection with the appointment
or activities of such Depositories or Sub-Custodians.
8. The Custodian shall not be under any duty or obligation to
ascertain whether any Securities at any time delivered to or held by it for the
account of the Funds are such as properly may be held by the Funds under the
provisions of the Declarations of Trust and the Trust's ByLaws.
9. The Custodian shall treat all records and other information
relating to the Trust, the Funds and the Funds' Assets as confidential and shall
not disclose any such records or information to any other person unless (a) the
Trust shall have consented thereto in writing or (b) such disclosure is
compelled by law.
10. The Custodian shall be entitled to receive and the Trust
agrees to pay to the Custodian, for the Fund's account from Fund Assets only,
such compensation as shall be determined pursuant to Appendix C attached hereto,
as shall be determined pursuant to amendments to such Appendix approved by the
Custodian and the Trust, on behalf of the Funds. The Custodian shall be entitled
to charge against any money held by it for the accounts of the Funds the amount
of any loss, damage, liability or expense, including counsel fees for which it
shall be entitled to reimbursement under the provisions of this Agreement as
determined by agreement of the Custodian and the Trust or by the final order of
any court or arbitrator having jurisdiction and as to which all rights of appeal
shall have expired. The expenses which the
12
<PAGE>
custodian may charge against the accounts of the Funds include, but are not
limited to, the expenses of Sub-Custodians incurred in settling transactions
involving the purchase and sale of Securities of the Fund.
11. The Custodian shall be entitled to rely upon any Certificate
if such reliance is made in good faith. The Custodian shall be entitled to rely
upon any Oral Instructions and any Written Instructions actually received by the
Custodian pursuant to Article IV and V hereof. The Trust agrees to forward to
the Custodian Written Instructions from Authorized Persons confirming Oral
Instructions in such manner so that such Written Instructions are received by
the Custodian, whether by hand delivery, telex or otherwise, on the first
business day following the day on which such Oral Instructions are given to the
Custodian. The Trust agrees that the fact that such confirming instructions are
not received by the Custodian shall in no way affect the validity of the
transactions or enforceability of the transactions hereby authorized by the
Trust. The Trust agrees that the Custodian shall incur no liability to the Funds
in acting upon Oral Instructions given to the Custodian hereunder concerning
such transactions.
12. The Custodian will (a) set up and maintain proper books of
account and complete records of all transactions in the amounts maintained by
the Custodian hereunder in such a manner as will meet the obligations of the
Funds under the Investment Company Act of 1940, with particular attention to
Section 31 thereof and Rules 31 a-1 and 31 a-2 thereunder, and (b) preserver for
the periods prescribed by applicable Federal statute or regulation all records
required to be so preserved. The books and records of the Custodian shall be
open to inspection and audit at reasonable times and with prior notice by
Officers and auditors employed by the Trust.
13. The Custodian and its Sub-Custodians shall promptly send to
the Trust, for the account of the Funds, any report received on the systems of
internal accounting control of the Book-Entry System or the Depository and with
such reports on their own systems of internal accounting control as the Trust
may reasonably request from time to time.
14. The Custodian performs only the services of a custodian and
shall have no responsibility for the management, investment or reinvestment of
the Securities from time to time owned by the Funds. The Custodian is not a
selling agent for shares of the Funds and performance of its duties as a
custodial agent shall not be deemed to be a recommendation to the Custodian's
depositors or others of shares of the Funds as an investment.
ARTICLE X
TERMINATION
1. Either of the parties hereto may terminate this Agreement for
any reason by giving to the other party a notice in writing specifying the date
of such termination, which shall be not less than ninety (90) days after the
date of giving of such notice. If such notice is given by
13
<PAGE>
the Trust, on behalf of the Fund, it shall be accompanied by a copy of a
resolution of the Board of Trustees of the Trust, certified by the Secretary or
any Assistant Secretary, electing to terminate this Agreement and designating a
successor custodian or custodians, each of which shall be a bank or trust
company having not less than $2,000,000 aggregate capital, surplus and undivided
profits, or any other entity satisfying the requirements of the 1940 Act. In the
event such notice is given by the Custodian, the Trust shall, on or before the
termination date, deliver to the Custodian a copy of a resolution of its Board
of Trustees, certified by the Secretary, designating a successor custodian or
custodians to act on behalf of the Funds. In the absence of such designation by
the Trust, the Custodian may designate a successor custodian which shall be a
bank or trust company having not less than $2,000,000 aggregate capital,
surplus, and undivided profits, or any other entity satisfying the requirements
of the 1940 Act. Upon the date set forth in such notice this Agreement shall
terminate, and the Custodian, provided that it has received a notice of
acceptance by the successor custodian, shall deliver, on that date, directly to
the successor custodian all Securities and monies then owned by the Funds and
held by it as Custodian. Upon termination of this agreement, the Trust shall pay
to the Custodian on behalf of the Funds such compensation as may be due as of
the date as such termination. The Trust agrees on behalf of the Funds that the
Custodian shall be reimbursed for its reasonable costs in connection with the
termination of this Agreement.
2. If a successor custodian is not designated by the Trust, on
behalf of the Funds, or by the Custodian in accordance with the preceding
paragraph, or the designated successor cannot or will not serve, the Trust shall
upon delivery by the Custodian to the Trust of all Securities (other than
Securities held in the Book-Entry System which cannot be delivered to the Trust)
and monies then owned by the Funds, other than monies deposited with a Federal
Reserve Bank pursuant to a Certificate described in clause (ii) of paragraph
2(e) of Article IV, be deemed to be the custodian for the Funds, and the
Custodian shall thereby be relieved of all duties and responsibilities pursuant
to this Agreement, other than the duty with respect to Securities held in the
Book-Entry System which cannot be delivered to the Trust to hold such Securities
hereunder in accordance with this Agreement.
ARTICLE XI
MISCELLANEOUS
1. Appendix A sets forth the names and the signatures of all
Authorized Persons. The Trust agrees to furnish to the Custodian, on behalf of
the Funds, a new Appendix A in form similar to the attached Appendix A, if any
present Authorized Person ceases to be an Authorized Person or if any other
additional Authorized Persons are elected or appointed. Until such new Appendix
A shall be received, the Custodian shall be fully protected in acting under the
provisions of this Agreement upon Oral Instructions or signatures of the present
Authorized Persons as set forth in the last delivered Appendix A.
14
<PAGE>
2. No recourse under any obligation of this Agreement or for any
claim based thereon shall be had against any organizer, shareholder, Officer,
Trustee, past, present or future as such, of the Trust or of any such
predecessor or successor, whether by virtue of any constitution, statute or rule
of law or equity, or by the enforcement of any assessment or penalty or
otherwise; it being expressly agreed and understood that this Agreement and the
obligations thereunder are enforceable solely against Fund Assets, and that no
such personal liability whatever shall attach to, or is or shall be incurred by,
the organizers, shareholders, Officers, Trustees of the Trust or of any
predecessor or successor, or any of them as such, because of the obligations
contained in this Agreement or implied therefrom and that any and all such
liability is hereby expressly waived and released by the Custodian as a
condition of, and as a consideration for, the execution of this Agreement.
3. The obligations set forth in this Agreement as having been
made by the Trust have been made by the Trustees of the Trust, acting as such
Trustees for and on behalf of the Funds, pursuant to the authority vested in
them under the laws of the State of Delaware, the Declaration of Trust and the
By-Laws of the Trust. This Agreement has been executed by Officers of the Trust
as Officers, and not individually, and the obligations contained herein are not
binding upon any of the Trustees, Officers, Agents or holders of shares,
personally, but bind only the Trust and then only to the extent of Fund Assets.
4. Such provisions of the Prospectuses of the Funds and any other
documents (including advertising material) specifically mention the Custodian
(other than merely by name and address) shall be reviewed with the Custodian by
the Trust.
5. Any notice or other instrument in writing, authorized or
required by this Agreement to be given to the Custodian, shall be sufficiently
given if addressed to the Custodian and mailed or delivered to it at its offices
at Firstar Bank Center, 425 Walnut Street, M.L. 6118, Cincinnati, Ohio 45202,
attention: Mutual Fund Custody Department, or at such other place as the
Custodian may from time to time designate in writing.
6. Any notice or other instrument in writing, authorized or
required by this Agreement to be given to the Trust shall be sufficiently given
when delivered to the Trust or on the second business day following the time
such notice is deposited in the U.S. mail postage prepaid and addressed to the
Trust at its office at 6116 Executive Boulevard, Suite 400, Rockville, Maryland
20852 or at such other place as the Trust may from time to time designate in
writing.
7. This Agreement with the exception of Appendices A & B may not
be amended or modified in any manner except by a written agreement executed by
both parties with the same formality as this Agreement, and authorized and
approved by a resolution of the Board of Trustees of the Trust.
15
<PAGE>
8. This Agreement shall extent to and 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 or by the Custodian,
and not attempted assignment by the Trust or the Custodian shall be effective
without the written consent of the other party hereto.
9. This Agreement may be executed in any number of counterparts,
each of which shall be deemed to be an original, but such counterparts shall,
together, constitute only one instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective Officers, thereunto duly authorized as of the day
and first year first above written.
ATTEST: The Rydex Dynamic Funds
BY:
- -------------------------- ------------------------------
ATTEST: Firstar Bank, N.A.
BY:
- -------------------------- ------------------------------
16
<PAGE>
APPENDIX A
AUTHORIZED PERSONS SPECIMEN SIGNATURES
Assistant Controller - Fund Administration: Scott Whaley ___________________
Assistant Controller - Accounting Operations: Linda Cahill ___________________
Senior Portfolio Accountant: Chris Schipske ___________________
Portfolio Accountant: Connie Meenehan ___________________
Director of Shareholder Services: Carol Bauroth ___________________
Supervisor of Operations: Jill Hayes ___________________
Operations Specialist: Debbie Mathis ___________________
Operations Specialist: Chuck Wagner ___________________
Operations Specialist: Terrence Barrnett ___________________
17
<PAGE>
APPENDIX B
The following Depository(s) and Sub-Custodians are employed currently by Star
Bank, N.A. for securities processing and control:
The Depository Trust Company (New York)
7 Hanover Square
New York, NY 10004
The Federal Reserve Bank
Cincinnati and Cleveland Branches
Bank of New York
New York, NY 10005
18
<PAGE>
APPENDIX C
RYDEX DYNAMIC FUNDS
STAR BANK, N.A.
DOMESTIC CUSTODY FEE SCHEDULE
Star Bank, N.A., as Custodian, will receive monthly compensation for services
according to the terms of the following Schedule:
I. PORTFOLIO TRANSACTION FEES:
<TABLE>
<S> <C>
(a) For each repurchase agreement transaction $ 7.00
(b) For each portfolio transaction processed through $ 8.00
DTC or Federal Reserve
(c) For each portfolio transaction processed through $ 25.00
Our New York custodian
(d) For each GNMA/Amortized Security Purchase $ 25.00
(e) For each GNMA Prin/Int Paydown, GNMA Sales $ 8.00
(f) For each option/future contract written, exercised $ 25.00
or expired
(g) For each Cedel/Euroclear transaction $ 100.00
(h) For each disbursement (Fund expenses only) $ 5.00
</TABLE>
A transaction is a purchase/sale of a security, free receipt/free delivery
(excludes initial conversion), maturity, tender or exchange.
II. MONTHLY BASE FEE PER FUND
<TABLE>
<S> <C>
First 4 months $100.00
Second 4 months $200.00
Third 4 months $300.00
First Year Anniversary and thereafter: $400.00
</TABLE>
19
<PAGE>
III. OUT-OF-POCKET EXPENSES
Star Bank shall be reimbursed for all out-of-pocket expenses including, but
not limited to postage, insurance, and long distance telephone charges.
IV. IRA DOCUMENTS
<TABLE>
<S> <C>
Per Shareholder/year to hold each IRA Document $ 8.00
</TABLE>
V. EARNINGS CREDITS
On a monthly basis any earnings credits generated from uninvested custody
balances will be applied against any cash management service fees. Earnings
credits are based on a cost of funds tiered earnings credit rate.
20
<PAGE>
STAR BANK, N.A.
MANAGEMENT FEE SCHEDULE
<TABLE>
<CAPTION>
BUSINESS CHECKING FEES UNIT COST MONTHLY COST
- ------------------------------------------------------------------------------
<S> <C> <C>
D.D.A. Account Maintenance $14.00
Deposits .399
Deposited Items .109
Checks Paid .159
Deposited Items Returned 6.00
International Returned Items 10.00
NSF Returned Check 25.00
Stop Payments 22.00
CASH MANAGEMENT FEES
Balance Reporting - P.C. Access $50.00 1st Acct
$35.00 each add.
ACH Transaction .095
ACH Maintenance $40.00
ACH Additions, Deletions, Changes 3.50
Issued Items .015
Deposited Items Returned 6.00
International Items Returned 10.00
NSF Returned Checks 25.00
Stop Payments 22.00
Data Transmission per account $110.00
Data Capture* .10
Invoicing for Service Charge $15.00
Wires Incoming
Domestic: 10.00
International: 10.00
Wires Outgoing
Domestic:
Repetitive 12.00
Non Repetitive 13.00
International:
Repetitive 35.00
Non Repetitive 40.00
PC - Initiated Wires
Domestic:
Repetitive 9.00
Non Repetitive 9.00
21
<PAGE>
<CAPTION>
BUSINESS CHECKING FEES UNIT COST MONTHLY COST
- ------------------------------------------------------------------------------
<S> <C> <C>
International:
Repetitive 25.00
Non Repetitive 25.00
</TABLE>
UNCOLLECTED CHARGE
Star Bank assesses a penalty of prime rate plus 4% on any combined relationship
with average uncollected balances for the month.
22
<PAGE>
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
1
<PAGE>
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
2
<PAGE>
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
3
<PAGE>
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;
4
<PAGE>
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.
5
<PAGE>
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
6
<PAGE>
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 1940 Act) of the Trust and (ii) a majority of the
Trustees who are not "interested persons" (as defined at Section 2(a)(19) of the
1940 Act); 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.
7
<PAGE>
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
8
<PAGE>
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
9
<PAGE>
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.
10
<PAGE>
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.
11
<PAGE>
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:
---------------------------------------
Name:
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Title:
---------------------------------
12
<PAGE>
PADCO SERVICE COMPANY, INC.
By:
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Name:
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Title:
---------------------------------
13
<PAGE>
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.
I-1
<PAGE>
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.
<PAGE>
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.
II-2
<PAGE>
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
<PAGE>
This Agreement, dated , made by and between the RYDEX DYNAMIC
FUNDS (the "Trust"), a business trust established under the laws of the State
of Delaware on August 6, 1999, and organized as an open-end management
investment company, and PADCO SERVICE COMPANY, INC. (the "Agent"), 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 Agent is registered with the Commission as a transfer agent
under the Securities Exchange Act of 1934, as amended;
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 desires to appoint the Agent as the Trust's Accounting
Services Agent and the Accounting Services Agent for each of the Funds and
desires to have the Agent, as said Accounting Services Agent, to perform certain
accounting and recordkeeping functions required of a duly-registered investment
company; to file certain financial reports; to maintain and preserve certain
books, accounts, and records as the basis for such reports; and to perform
certain daily functions in connection with such accounts and records; and
WHEREAS, the Agent is willing to perform such functions upon the terms and
conditions herein set forth.
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. ACCOUNTS AND RECORDS OF THE TRUST
a. The Trust shall provide to the Agent the necessary and appropriate
documents, information, instructions, accounts, and records maintained or to be
maintained by or for the Trust. The Agent shall be entitled to rely exclusively
on the completeness and correctness of the accounts
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<PAGE>
and records provided to the Agent by the Trust; provided, that such reliance is
made in good faith, and the Trust shall indemnify and hold the Agent 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 of the Trust to provide any portion of such accounts and
records or to provide any information to the Agent necessary or appropriate to
perform the Agent's functions hereunder.
b. Accounts, records, and other information shall belong to the Trust
and shall be considered confidential. Accounts, records, and other information
will not be disclosed to other than Federal and state regulators without
permission from the Trust.
2. MAINTENANCE OF ACCOUNTS AND RECORDS OF THE TRUST
a. The Agent shall examine and review the Trust's existing accounts,
records, pertinent documents, and systems in order to determine or recommend how
such accounts, records, documents, and systems shall be maintained.
b. Upon receipt of necessary and appropriate information,
instructions, accounts, records, and documents from the Trust, the Agent shall
maintain and keep current and accurate the following books, accounts, records,
journals, or other records of original entry, relating to the business of the
Trust and each of the Funds and necessary or appropriate for compliance with
applicable regulations, including Rule 31a-a and Rule 31a-2 of the 1940 Act, and
as may be mutually agreed to between the Trust and the Agent:
(1) Cash Receipts
(2) Cash Disbursements
(3) Dividend Record
(4) Purchase and sales of Portfolio Securities
(5) Subscription and Redemption Journals
(6) Security Ledger
(7) Broker Ledger
(8) General Ledger
(9) Daily Expense Accruals
(10) Daily Interest Accruals
(11) Securities and Monies borrowed or loaned and collateral
therefor
(12) Trial Balances.
c. Unless appropriate information necessary to perform the above
functions is furnished to the Agent in a timely manner, the Agent shall incur no
liability to the Trust or any other person. The Agent shall promptly notify the
Trust in writing of any discrepancy, error or non-compliance in items (1)
through (12) in Section 2 b., above, of which the Agent has knowledge.
-3-
<PAGE>
d. It shall be the responsibility of the Trust promptly to furnish the
Agent with the declaration, record and payment dates and amounts of any
dividends or income and any other special actions taken concerning the portfolio
securities of each of the Funds.
e. The Agent shall maintain all accounts and records mentioned above
as required by regulation and as agreed upon between the Trust and the Agent.
3. ACCOUNTING ENTRIES AND CONFIRMATIONS
Upon receipt by the Agent of written or oral instructions from the Trust,
the Agent shall make proper accounting entries in accordance with Generally
Accepted Accounting Principles and regulations of the Commission. The Trust
shall direct that each broker-dealer, or other person through whom a transaction
has occurred, shall send a confirmation thereof to the Agent. The Agent shall
verify this confirmation against the written or oral instructions when received
from the Trust and forward the confirmation to the Trust's custodian (the
"Custodian"). The Agent shall promptly notify the Trust of any discrepancy
between the confirmation and the Trust's written instructions when received from
the Trust but shall incur no responsibility or liability for such discrepancy.
The Trust shall cause any necessary corrections to be made and shall advise the
Agent and the Custodian accordingly.
4. CALCULATION OF NET ASSET VALUE
a. The Agent shall calculate the Trust's net assets value for each of
the Funds in accordance with the Trust's currently-effective prospectuses, once
daily.
b. The Agent shall prepare and maintain a daily evaluation of
securities for which market quotations are available by the Agent's use of
Bloomberg and ILX quotation services; all other securities shall be evaluated in
accordance with the Trust's written instructions, and the Agent shall be no
responsibility or liability for the accuracy of the information supplied by the
Trust or provided in the written instructions.
c. The Trust assumes all responsibility for computation of "amortized
cost," valuation of securities, and all valuations not ascertainable solely by
mechanical procedures.
5. STATEMENTS FROM CUSTODIAN
At the end of each month, the Agent shall obtain from the Custodian a
monthly statement of cash and portfolio transactions, which shall be reconciled
with the Agent's accounts and records maintained for the Trust. The Agent shall
report any discrepancies to the Custodian, and shall report any unreconciled
items to the Trust.
6. DAILY AND PERIODIC REPORTS
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<PAGE>
The Agent shall supply daily and periodic reports to the Trust, as required
by law or regulation, and as requested by the Trust and agreed upon the Agent.
7. REPORTS AND CONFIRMATIONS TO THE TRUST'S TRANSFER AGENT
a. The Trust shall report and confirm to the Trust's transfer agent
(the "Transfer Agent") the purchases and redemptions for each of the Funds of
which the Trust is aware. The Agent shall obtain from the Transfer Agent daily
reports of Share purchases, redemptions, and total Shares outstanding for each
of the Funds.
b. The Agent shall reconcile outstanding Shares for each of the Funds
with the Transfer Agent periodically and certify at least monthly to the Trust
the reconciled Share balance outstanding for each of the Funds.
8. REVIEW OF ACCOUNTS AND RECORDS OF THE TRUST
The accounts and records of the Trust maintained by the Agent shall be the
property of the Trust, and shall be made available to the Trust, within a
reasonable period of time, upon demand. The Agent shall assist the Trust's
independent auditors, and, upon approval of the Trust, or upon demand by any
governmental or quasi-governmental entity, assist any such entity in any
requested review of the Trust's accounts and records, but shall be reimbursed
for all expenses and employee time invested in any such review outside of
routine and normal periodic reviews. Upon receipt from the Trust of the
necessary information, the Agent shall supply the necessary data for the Trust's
completion of any necessary tax returns, questionnaires, periodic reports to
shareholders, and such other reports and information requests as the Trust and
the Agent shall agree upon from time to time.
9. UNIFORM PROCEDURES
The Agent and the Trust, from time to time, may adopt uniform or standard
procedures, and the Agent may conclusively assume that any procedure approved by
the Trust, or directed by the trust, does not conflict with or violate any
requirements of the Trust's prospectuses, the Trust ByLaws, or other governing
documents of the Trust, or any rule or regulation of any regulatory body or
governmental agency. The Trust shall be responsible to notify the Agent of any
changes in the Trust's By-Laws or in regulations or rules which might
necessitate changes in the Agent's procedures.
-5-
<PAGE>
10. RELIANCE
The Agent may rely upon the advice of the Trust and upon statements of the
Trust's accountants and other persons believed by the Agent in good faith to be
expert in matters upon which such persons are consulted, and the Agent shall not
be liable for any actions taken in good faith upon such statements.
11. INDEMNIFICATION AND LIABILITY
a. The Agent shall not be liable for any action taken in good faith
reliance upon any authorized oral instructions, any written instructions, any
certified copy of any resolution of the Trustees of the Trust, or any other
document reasonably believed by the Agent to be genuine and to have been
executed or signed by the proper person or persons. The Trust will send written
instructions to confirm oral instructions, and the Agent will compare the
written instructions against the oral instructions previously furnished. The
Agent will inform the Trust promptly of any noted discrepancy.
b. The Agent shall not be held to have notice of any change or lack of
authority of any officer, employee, or Agent of the Trust until receipt of
written notification thereof by the Trust.
c. The Trust shall indemnify the Agent and hold the Agent harmless
from and against all actions, suits, and claims whether groundless or otherwise,
arising directly or indirectly out of or in connection with the Agent's
performance under this Agreement and from and against any and all losses,
damages, costs, charges, attorneys' and accountants' fees, payments, expenses,
and liabilities incurred by the Agent in connection with any such action, suit,
or claim unless caused by the Agent's breach of this Agreement, negligence, or
willful misconduct. The Trust shall not be liable under this indemnification
provision with respect to any claim made against the Agent unless the Agent
shall have notified the Trust in writing within a reasonable time after the
summons or other first legal process giving information of the nature of the
claim shall have been served upon the Agent (or after the Agent shall have
received notice of such service on any designated Agent), but failure to notify
the Trust of any such claim shall not relieve the Trust from any liability which
the Trust may have to the Agent against whom such action is brought otherwise
than on account of this indemnification provision. In case any such action is
brought against the Agent, the Trust shall be entitled to participate, at its
own expense, in the defense of such action. The Trust also shall be entitled to
assume the defense thereof, with counsel satisfactory to the party named in the
action. After notice from the Trust to such party of the Trust's election to
assume the defense thereof, the Agent shall bear the fees and expenses of any
additional counsel retained by the Agent, and the Agent will not be liable to
such party under this Agreement for any legal or other expenses subsequently
incurred by such party independently in connection with the defense thereof
other than reasonable costs of investigation. The Agent will promptly notify the
Trust of the commencement of any litigation or proceedings against the Agent in
connection with the Shares or the operations of the Funds.
-6-
<PAGE>
d. The Agent shall indemnify the Trust and hold the Trust harmless
from all actions, suits, damages, claims, demands, losses, and liabilities
(including reasonable attorneys' and accountants' fees and expenses) incurred or
assessed against the Trust arising directly or indirectly from the Agent's
negligence, wilful misconduct, or breach of this Agreement. The Agent shall not
be liable under this indemnification provision with respect to any claim made
against the Trust unless the Trust shall have notified the Agent in writing
within a reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon the Trust (or
after the Trust shall have received notice of such service on any designated
Agent), but failure to notify the Agent of any such claim shall not relieve the
Agent from any liability which it may have to the Trust against whom such action
is brought otherwise than on account of this indemnification provision. In case
any such action is brought against the Trust, the Agent shall be entitled to
participate, at its own expense, in the defense of such action. The Agent also
shall be entitled to assume the defense hereof, with counsel satisfactory to the
party named in the action. After notice from the Agent to such party of the
Agent's election to assume the defense thereof, the Trust shall bear the fees
and expenses of any additional counsel retained by the Trust, and the Agent will
not be liable to such party under this Agreement for any legal or other expenses
subsequently incurred by such party independently in connection with the defense
thereof other than reasonable costs of investigation. The Trust will promptly
notify the Agent of the commencement of any litigation or proceedings against
the Trust in connection with the Shares or the operations of the Funds.
e. The shareholders, Trustees, officers, employees, and agents of the
Trust shall not be personally bound by or liable hereunder, nor shall resort be
had to such person's private property for the satisfaction of any obligation or
claim hereunder as provided for in the Trust's By-Laws.
12. COMPENSATION
The Trust agrees to pay the Agent compensation for its services and to
reimburse the Agent for expenses, as set forth in Schedule A attached hereto, or
as shall be set forth in amendments to such Schedule approved by the Trust and
the Agent.
13. DAYS OF BUSINESS
Nothing contained in this Agreement is intended to or shall require the
Agent, in any capacity hereunder, to perform any functions or duties on any
holiday or other day of special observance on which the New York Stock Exchange
is closed. Functions or duties normally scheduled to be performed on such days
shall be performed on, and as of, the next business day on which the New York
Stock Exchange is open for business.
-7-
<PAGE>
14. TERM OF AGREEMENT
This Agreement shall become effective as of the date the Trust commences
its investment operations and shall continue for an initial two-year term and
shall continue automatically from year-to-year thereafter unless terminated in
accordance with the provisions of Section 15 of this Agreement.
15. TERMINATION
This Agreement may be terminated, without the payment of any penalty, by
either party hereto upon at least ninety (90) days written notice to the other
party. Any termination by the Trust will be pursuant to a vote of a majority of
the Trustees.
16. NOTICES
a. Communications to the Agent shall be addressed to:
PADCO Service Company, Inc.
Attention: President
b. Communications to the Trust shall be addressed to:
Rydex Dynamic Funds
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 Agent,
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.
17. GOVERNING LAW
This Agreement is governed by the laws of the State of Maryland (without
reference to such state's conflict of law rules).
-8-
<PAGE>
18. 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.
19. 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 Agent, or by
the Agent without the written consent of the Trust, in each case authorized or
approved by a resolution of the Trustees of the Trust.
20. 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 Agent and the
Trust.
-9-
<PAGE>
IN WITNESS WHEREOF, the Agent and the Trust have executed this Agreement as
of the date first written above.
RYDEX DYNAMIC FUNDS
By: __________________________________________
Albert P. Viragh, Jr.
President
PADCO SERVICE COMPANY, INC.
By: __________________________________________
Albert P. Viragh, Jr.
President
-10-
<PAGE>
SCHEDULE A
PADCO SERVICE COMPANY, INC.
FEE SCHEDULE FOR ACCOUNTING SERVICES
RYDEX DYNAMIC FUNDS - EACH SEPARATE FUND
A. ANNUAL FEE - (Based upon average net assets - payable monthly) shall be the
greater of:
BASIS POINT FEE
10 Basis Points on first $30 million of assets
5 Basis Points on next $20 million of assets
3 Basis Points on next $50 million of assets
2 Basis Points on assets over $100 million
B. In addition, all out-of-pocket expenses shall be separately charged, shall
include but not be limited to: printed forms, postage, overnight mail and
telephone expense.
C. PADCO Service Company, Inc. warrants that the above rates of compensation
are guaranteed for a two-year period. At that time, the Trust acknowledges
that the Agent has the right to revise the Agent's compensation schedule.
<PAGE>
MORGAN, LEWIS & BOCKIUS LLP
1800 M Street, N.W.
Washington, D.C. 20036
(202) 467-7000
November 24, 1999
Rydex Dynamic Funds
6116 Executive Boulevard, Suite 400
Rockville, MD 20852
Ladies and Gentlemen:
We are furnishing this opinion with respect to the proposed offer and sale from
time to time of an indefinite number of units of beneficial interest, without
par value (the "Shares"), of Rydex Dynamic Funds (the "Trust"), a Delaware
business trust, in registration under the Securities Act of 1933 by a
Registration Statement on Form N-1A (File No. 333-84797; 811-09525) as amended
from time to time (the "Registration Statement").
We have acted as counsel to the Trust since its inception, and we are familiar
with the actions taken by its Trustees to authorize the issuance of the Shares.
We have reviewed the Declaration of Trust, the By-laws, and the minute books of
the Trust, and such other certificates, documents and opinions of counsel as we
deem necessary for the purpose of this opinion.
We have reviewed the Trust's Notification of Registration on Form N-8A under the
Investment Company Act of 1940. We have assisted in the preparation of the
Trust's Registration Statement, including all pre-effective amendments thereto,
filed or to be filed with the Securities and Exchange Commission.
In our review we have assumed the genuineness of all signatures, the
authenticity and completeness of all documents purporting to be originals
(whether reviewed by us in original or in copy form), and the conformity to the
originals of all documents purporting to be copies.
We have assumed the appropriate action will be taken to register or qualify the
sale of the Shares under any applicable state and federal laws regulating sales
and offerings of securities.
<PAGE>
Rydex Dynamic Funds
Page 2
Based upon the foregoing, we are of the opinion that:
1. The Trust is a business trust validly existing under the laws of the State
of Delaware. The Trust is authorized under its Declaration of Trust to
issue an unlimited number of Shares in series representing interests in the
eight initial series of the Trust and in such other series or classes as
the Trustees may hereafter duly authorize.
2. Upon the issuance of any Shares of any of the series or classes of the
Trust for payment therefor as described in, and in accordance with, the
Registration Statement and the Declaration of Trust and By-laws of the
Trust, the Shares so issued will be validly issued, fully paid and
non-assessable under the laws of the State of Delaware.
This opinion is intended only for your use in connection with the offering
of Shares and may not be relied upon by any other person.
We hereby consent to the inclusion of this opinion as Exhibit (i) to the
Trust's Pre-Effective Amendment No. 1 to be filed with the Securities and
Exchange Commission and to the reference to our firm under the caption
"Legal Counsel" in the Statement of Additional Information filed as part of
such Amendment.
Very truly yours,
/s/ Morgan, Lewis & Bockius LLP
Morgan, Lewis & Bockius LLP
<PAGE>
Rydex Dynamic Funds
Page 3
Prepared by:
/s/ Laura E. Flores
- ----------------------
Laura E. Flores
Reviewed by:
/s/ W. John McGuire
- ----------------------
W. John McGuire
Reviewed by:
/s/ Richard W. Grant
- ----------------------
Richard W. Grant
Signed by:
/s/ John H. Grady, Jr.
- ----------------------
John H. Grady, Jr.
<PAGE>
INDEPENDENT AUDITORS' CONSENT
The Rydex Dynamic Funds:
We consent to the use in this Pre-Effective Amendment No. 1 to Registration
Statement No. 333-84797 of the Rydex Dynamic Funds of our report dated
November 22, 1999 appearing in the Statement of Additional Information, which
is a part of such Registration Statement.
DELOITTE & TOUCHE LLP
Princeton, New Jersey
November 22, 1999
<PAGE>
DISTRIBUTION PLAN
RYDEX DYNAMIC FUNDS
WHEREAS, Rydex Dynamic Funds (the "Trust") is engaged in business
as an open-end investment company registered under the Investment Company Act
of 1940 (the "1940 Act") and the Trust desires to compensate Service Providers
who provide, the services described herein to shareholders ("Shareholders")
who from time to time beneficially own the shares (the "Shares") of any of the
Trust's Funds (the "Funds") listed on Exhibit A hereto; and
WHEREAS, the Trustees of the Trust have determined that there is a
reasonable likelihood that the following Plan will benefit the Funds of the
Trust and Shareholders of the Shares of such Funds; and
WHEREAS, pursuant to Rule 12b-1 under the 1940 Act, the Trustees of the
Trust adopt the Plan under which Service Providers will provide, pursuant to a
Distribution Agreement, the distribution services stated in Section 2 herein;
NOW, THEREFORE, the Trustees of the Trust hereby adopt this Plan.
SECTION 1. The Trust has adopted this Plan to enable the Trust to directly
or indirectly bear expenses relating to the distribution of the Shares of the
Trust.
SECTION 2. The Trust will pay Service Providers a fee up to the amount set
forth on Exhibit A for distribution services. Service Providers may use this fee
for (i) compensation for its services in connection with distribution
assistance; or (ii) payments to financial institutions and intermediaries such
as banks, savings and loan associations, insurance companies and investment
counselors, broker-dealers, mutual fund supermarkets and the Service Providers's
affiliates and subsidiaries as compensation for services or reimbursement of
expenses incurred in connection with distribution assistance.
SECTION 3. This Plan shall not take effect with respect to any Fund until
it has been approved (a) by a vote of at least a majority of the outstanding
voting securities of the Shares of such Fund; and (b) together with any related
agreements, by votes of the majority of both (i) the Trustees of the Trust and
(ii) the Qualified Trustees (as defined in Section 9 herein), cast in person at
a Board of Trustees meeting called for the purpose of voting on this Plan or
such agreement.
SECTION 4. This Plan shall continue in effect for a period of more than one
year after it takes effect, only for so long as such continuance is specifically
approved at least annually in the manner provided in Part (b) of Section 3
herein for the approval of this Plan.
SECTION 5. Any person authorized to direct the disposition of monies paid
or payable by the Trust pursuant to this Plan or any related agreement shall
provide to the Trustees of the Trust, at least quarterly, a written report of
the amounts so expended and the purposes for which such expenditures were made.
SECTION 6. This Plan may be terminated at any time by the vote of a
majority of the Qualified Trustees or by vote of a majority of the outstanding
voting securities of the Shares of the Funds.
SECTION 7. All agreements with any person relating to implementation of
this Plan shall be in
1
<PAGE>
writing, and any agreement related to this Plan shall provide (a) that such
agreement may be terminated at any time, without payment of any penalty, by the
vote of a majority of the Qualified Trustees or by the vote
of a majority of the outstanding voting securities of the Shares of the Funds,
on not more than 60 days written notice to any other party to the agreement; and
(b) that such agreement shall terminate automatically in the event of its
assignment.
SECTION 8. This Plan may not be amended to increase materially the amount
of distribution expenses permitted pursuant to Section 2 hereof without the
approval of Shareholders holding a majority of the outstanding voting securities
of the Shares of the Funds, and all material amendments to this Plan shall be
approved in the manner provided in Part (b) of Section 3 herein for the approval
of this Plan.
SECTION 9. As used in this Plan, (a) the term "Qualified Trustees" shall
mean those Trustees of the Trust who are not interested persons of the Trust,
and have no direct or indirect financial interest in the operation of this Plan
or any agreements related to it, and (b) the terms "assignment" and "interested
person" shall have the respective meanings specified in the 1940 Act and the
rules and regulations thereunder, subject to such exemptions as may be granted
by the Securities and Exchange Commission.
SECTION 10. While this Plan is in effect, the selection and nomination of
those Trustees who are not interested persons of the Trust within the meaning of
Section 2(a)(19) of the 1940 Act shall be committed to the discretion of the
Trustees then in office who are not interested persons of the Trust.
SECTION 11. This Plan shall not obligate the Trust or any other party to
enter into an agreement with any particular person.
Dated as of ______________.
2
<PAGE>
EXHIBIT A
RYDEX DYNAMIC FUNDS
DISTRIBUTION FEES
NEWCO FUNDS
Titan 500 Fund
Tempest 500 Fund
Velocity 100 Fund
Venture 100 Fund
Titan 500 Master Fund
Tempest 500 Master Fund
Velocity 100 Master Fund
Venture 100 Master Fund
DISTRIBUTION AND SHAREHOLDER SERVICE FEES
Distribution Services.......................twenty-five basis points (.25%)
CALCULATION OF FEES
Distribution fees are based on a percentage of the Funds' average daily net
assets attributable to Shares of the Funds.
<PAGE>
RYDEX SERIES TRUST
RYDEX VARIABLE TRUST
RYDEX DYNAMIC FUNDS
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned trustee of Rydex
Series Trust, Rydex Variable Trust, and Rydex Dynamic Funds each a business
trust ("Trust") organized under the laws of the State of Delaware, hereby
constitutes and appoints Albert P. Viragh, Jr. and Carl G. Verboncoeur, and
each of them singly, his true and lawful attorneys-in-fact and agents with
full power of substitution and resubstitution, to sign for him and in his
name, place and stead, and in the capacity indicated below, to sign any and
all Registration Statements and all amendments thereto relating to the
offering of the Trust's shares under the provisions of the Investment Company
Act of 1940 and/or the Securities Act of 1933, each such Act as amended, and
to file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, acting alone, full power and
authority to do and perform each and every act and thing requisite or
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming
all that said attorneys-in-fact and agents or any of them, or their substitute
or substitutes, may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal as
of the date set forth below.
/s/ Corey A. Colehour Date: November 22, 1999
- ------------------------
Corey A. Colehour
Trustee
<PAGE>
RYDEX SERIES TRUST
RYDEX VARIABLE TRUST
RYDEX DYNAMIC FUNDS
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned trustee of Rydex
Series Trust, Rydex Variable Trust, and Rydex Dynamic Funds each a business
trust ("Trust") organized under the laws of the State of Delaware, hereby
constitutes and appoints Albert P. Viragh, Jr. and Carl G. Verboncoeur, and
each of them singly, his true and lawful attorneys-in-fact and agents with
full power of substitution and resubstitution, to sign for him and in his
name, place and stead, and in the capacity indicated below, to sign any and
all Registration Statements and all amendments thereto relating to the
offering of the Trust's shares under the provisions of the Investment Company
Act of 1940 and/or the Securities Act of 1933, each such Act as amended, and
to file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, acting alone, full power and
authority to do and perform each and every act and thing requisite or
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming
all that said attorneys-in-fact and agents or any of them, or their substitute
or substitutes, may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal as
of the date set forth below.
/s/ J. Kenneth Dalton Date: November 22, 1999
- ------------------------------
J. Kenneth Dalton
Trustee
<PAGE>
RYDEX SERIES TRUST
RYDEX VARIABLE TRUST
RYDEX DYNAMIC FUNDS
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned trustee of Rydex
Series Trust, Rydex Variable Trust, and Rydex Dynamic Funds each a business
trust ("Trust") organized under the laws of the State of Delaware, hereby
constitutes and appoints Albert P. Viragh, Jr. and Carl G. Verboncoeur, and
each of them singly, his true and lawful attorneys-in-fact and agents with
full power of substitution and resubstitution, to sign for him and in his
name, place and stead, and in the capacity indicated below, to sign any and
all Registration Statements and all amendments thereto relating to the
offering of the Trust's shares under the provisions of the Investment Company
Act of 1940 and/or the Securities Act of 1933, each such Act as amended, and
to file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, acting alone, full power and
authority to do and perform each and every act and thing requisite or
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming
all that said attorneys-in-fact and agents or any of them, or their substitute
or substitutes, may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal as
of the date set forth below.
/s/ Roger Somers Date: November 22, 1999
- ----------------------------
Roger Somers
Trustee
<PAGE>
RYDEX SERIES TRUST
RYDEX VARIABLE TRUST
RYDEX DYNAMIC FUNDS
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned trustee of Rydex
Series Trust, Rydex Variable Trust, and Rydex Dynamic Funds each a business
trust ("Trust") organized under the laws of the State of Delaware, hereby
constitutes and appoints Albert P. Viragh, Jr. and Carl G. Verboncoeur, and
each of them singly, his true and lawful attorneys-in-fact and agents with
full power of substitution and resubstitution, to sign for him and in his
name, place and stead, and in the capacity indicated below, to sign any and
all Registration Statements and all amendments thereto relating to the
offering of the Trust's shares under the provisions of the Investment Company
Act of 1940 and/or the Securities Act of 1933, each such Act as amended, and
to file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, acting alone, full power and
authority to do and perform each and every act and thing requisite or
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming
all that said attorneys-in-fact and agents or any of them, or their substitute
or substitutes, may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal as
of the date set forth below.
/s/ John O. Demaret Date: November 22, 1999
- -----------------------------
John O. Demaret
Trustee
<PAGE>
RYDEX SERIES TRUST
RYDEX VARIABLE TRUST
RYDEX DYNAMIC FUNDS
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned trustee of Rydex
Series Trust, Rydex Variable Trust, and Rydex Dynamic Funds each a business
trust ("Trust") organized under the laws of the State of Delaware, hereby
constitutes and appoints Albert P. Viragh, Jr. and Carl G. Verboncoeur, and
each of them singly, his true and lawful attorneys-in-fact and agents with
full power of substitution and resubstitution, to sign for him and in his
name, place and stead, and in the capacity indicated below, to sign any and
all Registration Statements and all amendments thereto relating to the
offering of the Trust's shares under the provisions of the Investment Company
Act of 1940 and/or the Securities Act of 1933, each such Act as amended, and
to file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, acting alone, full power and
authority to do and perform each and every act and thing requisite or
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming
all that said attorneys-in-fact and agents or any of them, or their substitute
or substitutes, may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal as
of the date set forth below.
/s/ Patrick T. McCarville Date: November 22, 1999
- -----------------------------
Patrick T. McCarville
Trustee
<PAGE>
RYDEX SERIES TRUST
RYDEX VARIABLE TRUST
RYDEX DYNAMIC FUNDS
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned trustee of Rydex
Series Trust, Rydex Variable Trust, and Rydex Dynamic Funds each a business
trust ("Trust") organized under the laws of the State of Delaware, hereby
constitutes and appoints Albert P. Viragh, Jr., his true and lawful
attorney-in-fact and agent with full power of substitution and resubstitution,
to sign for him and in his name, place and stead, and in the capacity
indicated below, to sign any and all Registration Statements and all
amendments thereto relating to the offering of the Trust's shares under the
provisions of the Investment Company Act of 1940 and/or the Securities Act of
1933, each such Act as amended, and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorney-in-fact and agent, full power
and authority to do and perform each and every act and thing requisite or
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming
all that said attorney-in-fact and agent, or his substitute, may lawfully do
or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal as
of the date set forth below.
/s/ Carl G. Verboncoeur Date: November 22, 1999
- ---------------------------
Carl G. Verboncoeur
Vice President and Treasurer
<PAGE>
RYDEX SERIES TRUST
RYDEX VARIABLE TRUST
RYDEX DYNAMIC FUNDS
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned trustee of Rydex
Series Trust, Rydex Variable Trust, and Rydex Dynamic Funds each a business
trust ("Trust") organized under the laws of the State of Delaware, hereby
constitutes and appoints Carl G. Verboncoeur, his true and lawful
attorney-in-fact and agent with full power of substitution and resubstitution,
to sign for him and in his name, place and stead, and in the capacity
indicated below, to sign any and all Registration Statements and all
amendments thereto relating to the offering of the Trust's shares under the
provisions of the Investment Company Act of 1940 and/or the Securities Act of
1933, each such Act as amended, and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorney-in-fact and agent, full power
and authority to do and perform each and every act and thing requisite or
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming
all that said attorney-in-fact and agent, or his substitute, may lawfully do
or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and seal as
of the date set forth below.
/s/ Albert P. Viragh, Jr. Date: November 22, 1999
- ----------------------------
Albert P. Viragh, Jr.
President
