SUB-ADVISORY AGREEMENT
PADCO Advisors, Inc.
d/b/a Rydex Investments
0000 Xxxxxxxxx Xxxx, Xxxxx 000
Xxxxxxxxx, XX 00000
Ladies and Gentlemen:
Xxxxx Family of Real Estate Funds (the "Trust"), an Ohio business trust, is
a diversified open-end management investment company registered under the
Investment Company Act of 1940, as amended (the "Act"), and is subject to the
rules and regulations promulgated thereunder. The Trust currently offers one
series of shares to investors, the Xxxxx S&P REIT Index Fund (the "Fund"). Each
share of the Fund represents an undivided interest in the assets, subject to the
liabilities, of the Fund.
Xxxxx Asset Management, Inc. (the "Adviser") acts as the investment adviser
to the Fund pursuant to the terms of an Advisory Agreement. The Adviser shall
have overall supervisory responsibility for the general management and
investment of the Fund's assets and portfolio securities. However, specific
portfolio purchases and sales for the investment portfolio of the Fund are to be
made by advisory organizations recommended by the Adviser and approved by the
Board of Trustees of the Trust and the shareholders of the Fund.
1. APPOINTMENT AS SUB-ADVISER. The Trust being duly authorized hereby
appoints and employs PADCO Advisors, Inc., d/b/a Rydex Investments (the
"Sub-Adviser") as the discretionary portfolio manager of the Fund, on the terms
and conditions set forth herein.
2. ACCEPTANCE OF APPOINTMENT; STANDARD OF PERFORMANCE. The Sub-Adviser
accepts the appointment as the discretionary portfolio manager and agrees to use
its best professional judgment to make investment decisions for the Fund in
accordance with the provisions of this agreement.
3. PORTFOLIO MANAGEMENT SERVICES OF SUB-ADVISER. The Sub-Adviser is hereby
employed and authorized to select portfolio securities for investment by the
Fund, to purchase and sell securities of the Fund, and upon making any purchase
or sale decision, to place orders for the execution of such portfolio
transactions in accordance with paragraphs 5 and 6 hereof. In providing
portfolio management services to the Fund, the Sub-Adviser shall be subject to
such investment restrictions as are set forth in the Act and the rules
thereunder, the Internal Revenue Code of 1986, applicable state securities laws,
the supervision and control of the Board of Trustees of the Trust, such specific
instructions as the Board of Trustees may adopt and communicate to the
Sub-Adviser, the investment objectives, policies and restrictions of the Fund
furnished pursuant to paragraph 4 and the provisions of Schedule A hereto. The
Sub-Adviser is not authorized by the Trust to take any action, including the
purchase or sale of securities for the Fund, in contravention of any
restriction, limitation, objective, policy or instruction described in the
previous sentence. The Sub-Adviser shall maintain on behalf of the Fund the
records listed in Schedule A hereto (as amended from time to time). At the
Trust's reasonable request, the Sub-Adviser will consult with the Adviser with
respect to any decision made by it with respect to the investments of the Fund.
4. INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS. The Trust will provide
the Sub-Adviser with the statement of investment objectives, policies and
restrictions applicable to the Fund as contained in the Fund's registration
statement under the Act and
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the Securities Act of 1933, and any instructions adopted by the Board of
Trustees supplemental thereto. The Trust will provide the Sub-Adviser with such
further information concerning the investment objectives, policies and
restrictions applicable thereto as the Sub-Adviser may from time to time
reasonably request. The Trust retains the right, on sixty (60) days written
notice to the Sub-Adviser from the Trust or the Adviser, to modify any such
objectives, policies or restrictions in any manner.
5. ALLOCATION OF BROKERAGE. The Sub-Adviser shall have the authority and
discretion to select brokers and dealers to execute portfolio transactions
initiated by the Sub-Adviser and to select the markets on or in which the
transactions will be executed.
A. In doing so, the Sub-Adviser will give primary consideration to securing
the best execution, taking into account such factors as price (including the
applicable brokerage commission or dealer spread), the execution capability,
financial responsibility and responsiveness of the broker or dealer and the
brokerage and research services provided by the broker or dealer. Consistent
with this policy, the Sub-Adviser may select brokers or dealers who also provide
brokerage and research services (as those terms are defined in Section 28 (e) of
the Securities Exchange Act of 1934) to the other accounts over which it
exercises investment discretion. It is understood that it is desirable for the
Fund that the Sub-Adviser have access to supplemental investment and market
research and security and economic analyses provided by certain brokers who may
execute brokerage transactions at a higher commission to the Fund than may
result when allocating brokerage to other brokers on the basis of seeking the
lowest commission. Therefore, the Sub-Adviser is authorized to place orders for
the purchase and sale of securities for the Fund with such certain brokers,
subject to review by the Trust's Board of Trustees from time to time with
respect to the extent and continuation of
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this practice, provided that the Sub-Adviser determines in good faith that the
amount of the commission is reasonable in relation to the value of the brokerage
and research services provided by the executing broker and dealer. The
determination may be viewed in terms of either a particular transaction or the
Sub-Adviser's overall responsibilities with respect to the Fund and to the other
accounts over which it exercises investment discretion. It is understood that
although the information may be useful to the Trust and the Sub-Adviser, it is
not possible to place a dollar value on such information. Consistent with the
Conduct Rules of the National Association of Securities Dealers, Inc., and
subject to seeking best execution, the Sub-Adviser may give consideration to
sales of shares of the Fund as a factor in its selection of brokers and dealers
to execute portfolio transactions of the Fund.
On occasions when the Sub-Adviser deems the purchase or sale of a security
to be in the best interest of the Fund as well as other clients, the
Sub-Adviser, to the extent permitted by applicable laws and regulations, may,
but shall be under no obligation to, aggregate the securities to be sold or
purchased in order to obtain the most favorable price or lower brokerage
commissions and efficient execution. In such event, allocation of the securities
so purchased or sold, as well as expenses incurred in the transaction, will be
made by the Sub-Adviser in the manner it considers to be the most equitable and
consistent with its fiduciary obligations to the Trust and to such other
clients.
For each fiscal quarter of the Trust, the Sub-Adviser shall prepare and
render reports to the Adviser and the Trust's Board of Trustees of the total
brokerage business placed and the manner in which the allocation has been
accomplished. Such reports shall set forth at a minimum the information required
to be maintained by Rule 31a-1(b) (9) under the Act.
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B. The Sub-Adviser agrees that it will not execute any portfolio
transactions for the Fund's account with a broker or dealer which is an
"affiliated person" (as defined in the Act) of the Trust, the Adviser, the
Sub-Adviser or any portfolio manager of the Trust without the prior written
approval of the Adviser. The Adviser agrees that it will provide the Sub-Adviser
with a list of brokers and dealers which are "affiliated persons" of the Trust,
the Adviser or the Sub-Adviser.
6. TRANSACTION PROCEDURES. All transactions will be consummated by payment
to or delivery by the Fund's custodian (the "Custodian"), or such depositories
or agents as may be designated by the Custodian in writing, as custodian for the
Fund, of all cash and/or securities due to or from the Fund, and the Sub-Adviser
shall not have possession or custody thereof. The Sub-Adviser shall advise the
Custodian and confirm in writing to the Trust all investment orders for the Fund
placed by it with brokers and dealers. The Sub-Adviser shall issue to the
Custodian such instructions as may be appropriate in connection with the
settlement of any transaction initiated by the Sub-Adviser. It shall be the
responsibility of the Sub-Adviser to take appropriate action if the Custodian
fails to confirm in writing proper execution of the instructions.
7. PROXIES. The Sub-Adviser will vote all proxies solicited by or with
respect to the issuers of securities in which assets of the Fund may be invested
from time to time. Such proxies will be voted in a manner deemed by the
Sub-Adviser, in good faith, to be in the best interests of the Fund.
8. REPORTS TO THE SUB-ADVISER. The Trust will provide the Sub-Adviser with
such periodic reports concerning the status of the Fund as the Sub-Adviser may
reasonably request.
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9. FEES FOR SERVICES. For the services provided to the Fund, the Adviser
(not the Fund) shall pay the Sub-Adviser a monthly fee equal to the annual rate
of .20% of the value of the Fund's average daily net assets up to $100,000,000,
..15% of such assets from $100,000,000 to $500,000,000 and .10% of such assets in
excess of $500,000,000; provided however, that the minimum fee is $10,000 per
month. Pursuant to the provisions of the Advisory Agreement between the Trust
and the Adviser, the Adviser is solely responsible for the payment of fees to
the Sub-Adviser, and the Sub-Adviser agrees to seek payment of the Sub-Adviser's
fees solely from the Adviser. The Sub-Adviser agrees to pay the compensation of
any persons rendering any services to the Fund who are officers, directors or
employees of the Sub-Adviser.
10. OTHER INVESTMENT ACTIVITIES OF THE SUB-ADVISER. The Trust acknowledges
that the Sub-Adviser or one or more of its affiliates may have investment
responsibilities or render investment advice to or perform other investment
advisory services for other individuals or entities and that the Sub-Adviser,
its affiliates or any of its or their directors, officers, agents or employees
may buy, sell or trade in any securities for its or their respective accounts
("Affiliated Accounts"). Subject to the provisions of paragraph 2 hereof, the
Trust agrees that the Sub-Adviser or its affiliates may give advice or exercise
investment responsibility and take such other action with respect to other
Affiliated Accounts which may differ from the timing or nature of action taken
with respect to the Fund, provided that the Sub-Adviser acts in good faith, and
provided further, that it is the Sub-Adviser's policy to allocate, within its
reasonable discretion, investment opportunities to the Fund over a period of
time on a fair and equitable basis relative to the Affiliated Accounts, taking
into account the investment objectives and policies of the Fund and any specific
investment restrictions applicable thereto. The
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Trust acknowledges that one or more of the Affiliated Accounts may at the time
hold, acquire, increase, decrease, dispose of or otherwise deal with positions
in investments in which the Fund may have an interest from time to time, whether
in transactions which involve the Fund or otherwise. The Sub-Adviser shall have
no obligation to acquire for the Fund a position in any investment which any
Affiliated Account may acquire, and the Trust shall have no first refusal,
co-investment or other rights in respect of any such investment, either for the
Fund or otherwise.
11. CERTIFICATE OF AUTHORITY. The Trust, the Adviser and the Sub-Adviser
shall furnish to each other from time to time certified copies of the
resolutions of their Board of Trustees or Board of Directors or executive
committees, as the case may be, evidencing the authority of officers and
employees who are authorized to act on behalf of the Trust, the Fund, the
Adviser and/or the Sub-Adviser.
12. INDEMNIFICATION.
A. The Adviser and the Trust, on behalf of the Fund, will indemnify the
Sub-Adviser and its directors, officers, employees and agents ("Sub-Adviser
Parties") against and hold the Sub-Adviser Parties harmless from any and all
losses, claims, damages, liabilities or expenses (including reasonable counsel
fees and expenses) arising from any claim, demand, action, or suit which results
from any action taken, omitted or suffered to be taken by the Sub-Adviser
Parties in their reasonable judgment, in good faith and believed by them to be
authorized or within the discretion or rights or powers conferred upon them by
this Agreement, or in accordance with (or in the absence of) specific directions
or instructions from the Trust or the Adviser, provided however that such acts
or omissions shall not have resulted from the Sub-Adviser Parties' willful
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misfeasance, bad faith, gross negligence or reckless disregard of the
Sub-Adviser's obligations and duties under this Agreement.
B. The Sub-Adviser will indemnify the Trust, on behalf of the Fund, and the
Adviser and each of its directors, trustees, officers, employees and agents
("Fund Parties") against and hold the Fund Parties harmless from any and all
losses, claims, damages, liabilities or expenses (including reasonable counsel
fees and expenses) arising from any claim, demand, action or suit which results
from the Sub-Adviser Parties' willful misfeasance, bad faith, gross negligence
or reckless disregard of the Sub-Adviser's obligations and duties under this
Agreement.
C. The obligations of the parties under this paragraph shall survive the
termination of this Agreement. Nothing in this paragraph 12 shall be construed
in a manner inconsistent with Sections 17(h) and (i) of the Act.
13. CONFIDENTIALITY. Subject to the duty of the Sub-Adviser, the Adviser
and the Trust to comply with applicable law, including any demand of any
regulatory or taxing authority having jurisdiction, the parties hereto shall
treat as confidential all information pertaining to the Fund and the actions of
the Sub-Adviser and the Trust in respect thereof.
14. ASSIGNMENT. No assignment of this Agreement shall be made by the
Sub-Adviser, and this Agreement shall terminate automatically in the event of
such assignment. The Sub-Adviser shall notify the Trust and the Adviser in
writing sufficiently in advance of any proposed change of control, as defined in
Section 2 (a) (9) of the Act, as will enable the Trust and the Adviser to
consider whether an assignment will occur, and to take the steps necessary to
enter into a new contract with the Sub-Adviser.
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15. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE TRUST. The Trust
represents, warrants and agrees that:
A. The Sub-Adviser has been duly appointed by the Board of Trustees of the
Trust to provide investment services to the Fund as contemplated hereby.
B. The Trust will deliver to the Sub-Adviser a true and complete copy of
its then current prospectus and statement of additional information as effective
from time to time and such other documents or instruments governing the
investments of the Fund and such other information as is necessary for the
Sub-Adviser to carry out its obligations under this Agreement.
C. The Trust is currently in compliance and shall at all times comply with
the requirements imposed upon the Trust by applicable laws and regulations.
16. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE SUB-ADVISER. The
Sub-Adviser represents, warrants and agrees that:
A. The Sub-Adviser is registered as an "investment adviser" under the
Investment Advisers Act of 1940.
B. The Sub-Adviser will maintain, keep current and preserve on behalf of
the Trust, in the manner and for the time periods required or permitted by the
Act, the records identified in Schedule A. The Sub-Adviser agrees that such
records are the property of the Trust, and will be surrendered to the Trust
promptly upon request.
C. The Sub-Adviser will complete such reports concerning purchases or sales
of securities on behalf of the Fund as the Adviser or the Trust may from time to
time require to ensure compliance with the Act, the Internal Revenue Code of
1986 and applicable state securities laws.
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D. The Sub-Adviser has adopted a written code of ethics complying with the
requirements of Rule 17j-1 under the Act and will provide the Trust with a copy
of the code of ethics and evidence of its adoption. Within forty-five (45) days
of the end of the last calendar quarter of each year while this Agreement is in
effect, the President or a Vice President of the Sub-Adviser shall certify to
the Trust that the Sub-Adviser has complied with the requirements of Rule 17j-1
during the previous year and that there has been no violation of the
Sub-Adviser's code of ethics or, if such a violation has occurred, that
appropriate action was taken in response to such violation. Upon the written
request of the Trust, the Sub-Adviser shall submit to the Trust the reports
required to be made to the Sub-Adviser by Rule 17j-1 (c) (1).
E. The Sub-Adviser will immediately notify the Trust and the Adviser of the
occurrence of any event which would disqualify the Sub-Adviser from serving as
an investment adviser of an investment company pursuant to Section 9 (a) of the
Act or otherwise.
17. AMENDMENT. This Agreement may be amended at any time, but only by
written agreement between the Sub-Adviser, the Adviser and the Trust, which
amendment, other than amendments to Schedule A, is subject to the approval of
the Board of Trustees and the shareholders of the Fund in the manner required by
the Act and the rules thereunder, subject to any applicable exemptive order of
the Securities and Exchange Commission modifying the provisions of the Act with
respect to approval of amendments to this Agreement.
18. EFFECTIVE DATE; TERM. This Agreement shall become effective on the date
of its execution and shall remain in full force and effect for two (2) years
from the date hereof, and from year to year thereafter but only so long as such
continuance is
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specifically approved at least annually by the vote of a majority of the
Trustees who are not interested persons of the Trust, the Adviser or the
Sub-Adviser, cast in person at a meeting called for the purpose of voting on
such approval, and by a vote of the Board of Trustees or of a majority of the
outstanding voting securities of the Fund. The aforesaid requirement that this
Agreement may be continued "annually" shall be construed in a manner consistent
with the Act and the rules and regulations thereunder.
19. TERMINATION. This Agreement may be terminated by any party hereto,
without the payment of any penalty, immediately upon written notice to the other
in the event of a breach of any provision thereof by the party so notified, or
otherwise upon sixty (60) days' written notice to the other, but any such
termination shall not affect the status, obligations or liabilities of any party
hereto to the other. In the event that in connection with the termination of
this Agreement, a successor to any of Sub-Adviser's duties or responsibilities
under this Agreement is designated by written notice to Sub-Adviser, Sub-Adviser
shall promptly transfer all records maintained by Sub-Adviser under this
Agreement and shall cooperate in the transfer of such duties and
responsibilities, including providing for assistance from Sub-Adviser's
cognizant personnel in the establishment of books, records and other data by
such successor.
20. SHAREHOLDER LIABILITY. The Sub-Adviser is hereby expressly put on
notice of the limitation of shareholder liability as set forth in the
Declaration of Trust of the Trust and agrees that obligations assumed by the
Trust pursuant to this Agreement shall be limited in all cases to the Trust and
its assets. The Sub-Adviser agrees that it shall not seek satisfaction of any
such obligations from the shareholders or any individual shareholder of the
Fund, nor from the Trustees or any individual Trustee of the Trust.
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21. USE OF NAME. Neither the Adviser nor the Trust nor the Fund will use
the Sub-Adviser's name or the names of its affiliates in any sales literature or
other material in a manner not approved by the Sub-Adviser before such use;
provided however, that the Sub-Adviser hereby consents to all such uses of the
Sub-Adviser's name or the names of its affiliates which merely refer in accurate
terms to its appointment hereunder or which are required by the Securities and
Exchange Commission or a state securities commission.
22. DEFINITIONS. As used in paragraphs 14 and 18 of this Agreement, the
terms "assignment," interested person" and "vote of a majority of the
outstanding voting securities" shall have the meanings set forth in the Act and
the rules and regulations thereunder.
23. APPLICABLE LAW. To the extent that state law is not preempted by the
provisions of any law of the United States heretofore or hereafter enacted, as
the same may be amended from time to time, this Agreement shall be administered,
construed and enforced according to the laws of the State of Georgia. The
parties agree that any appropriate state court located in Xxxxxx County, Georgia
or any Federal Court located in Atlanta, Georgia shall have exclusive
jurisdiction of any case or controversy arising under or in connection with this
Agreement and shall be in a proper forum in which to adjudicate such case or
controversy. The parties hereto consent to the jurisdiction of such courts.
XXXXX ASSET MANAGEMENT, INC. XXXXX FAMILY OF REAL ESTATE
FUNDS
By: /s/ Xxx X. Xxxxx III By: /s/ Xxx X. Xxxxx III
-------------------------------- --------------------------------
Title: President Title: President
Date: April 29, 2004 Date: April 29, 2004
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ACCEPTANCE
----------
The foregoing Agreement is hereby accepted.
PADCO ADVISORS, INC.
d/b/a RYDEX INVESTMENTS
By: /s/ Xxxx X. Xxxxxxxxxxx
--------------------------------
Title: President
Date: April 29, 2004
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SCHEDULE A
RECORDS TO BE MAINTAINED BY THE SUB-ADVISER
-------------------------------------------
1. (Rule 31a-1 (b) (5) and (6)) A record of each brokerage order, and all
other portfolio purchases or sales, given by the Sub-Adviser on behalf of
the Fund for, or in connection with, the purchase or sale of securities,
whether executed or unexecuted. Such records shall include:
A. The name of the broker;
B. The terms and conditions of the order and of any modification or
cancellation thereof;
C. The time of entry or cancellation;
D. The price at which executed;
E. The time of receipt of a report of execution; and
F. The name of the person who placed the order on behalf of the Fund.
2. (Rule 31a-1 (b) (9)) A record for each fiscal quarter, completed within ten
(10) days after the end of the quarter, showing specifically the basis or
bases upon which the allocation of orders for the purchase and sale of
portfolio securities to named brokers or dealers was effected, and the
division of brokerage commissions or other compensation on such purchase
and sale orders. Such record:
A. Shall include the consideration given to:
(i) The sale of shares of the Fund by brokers or dealers.
(ii) The supplying of services or benefits by brokers or dealers to:
(a) The Trust;
(b) the Adviser;
(c) the Sub-Adviser;
(d) any other portfolio adviser of the Trust; and
(e) any person affiliated with the foregoing persons.
(iii)Any other consideration other than the technical qualifications
of the brokers and dealers as such.
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B. Shall show the nature of the services or benefits made available.
C. Shall describe in detail the application of any general or specific
formula or other determinant used in arriving at such allocation of
purchase and sale orders and such division of brokerage commissions or
other compensation.
D. The name of the person responsible for making the determination of
such allocation and such division of brokerage commissions or other
compensation.
3. Such other accounts, books and other documents as are required to be
maintained by registered investment companies by Rule 31a-1 under the Act
or by registered investment advisers by rules adopted under Section 204 of
the Investment Advisers Act of 1940, to the extent such records are
necessary or appropriate to record the Sub-Adviser's transactions with
respect to the Fund.
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