Exhibit 99.D
INVESTMENT SUB-ADVISORY AGREEMENT
BETWEEN PADCO ADVISORS II, INC. AND
XXXXXX XXXXXX XXXXXX INVESTMENT FIRM, LLC
DATED JUNE 20, 2003
INVESTMENT SUB-ADVISORY AGREEMENT
AGREEMENT made this 20th day of June, 2003, by and between PADCO Advisors
II, Inc., d/b/a Rydex Global Advisors, a Maryland corporation (the "Advisor"),
and Xxxxxx Xxxxxx Xxxxxx Investment Firm, LLC, a Nebraska limited liability
company (the "Sub-Advisor").
WHEREAS, Rydex Variable Trust, a Delaware business trust (the "Trust") is
an open-end management investment company registered under the Investment
Company Act of 1940, as amended (the "1940 Act");
WHEREAS, the Advisor has entered into an Investment Advisory Agreement
dated August 11, 1998, as amended (the "Advisory Agreement") with the Trust,
pursuant to which the Advisor will act as the investment adviser to the separate
series of the Trust set forth therein; and
WHEREAS, the Advisor, with the approval of the Trust, desires to retain the
Sub-Advisor as its agent to furnish sub-investment advisory services to the
Advisor in connection with the management of the separate series of the Trust
set forth on SCHEDULE A of this Investment Sub-Advisory Agreement (each a
"Fund"), and the Sub-Advisor is willing to render such investment advisory
services.
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
the parties hereto agree as follows:
1. APPOINTMENT. The Advisor hereby appoints the Sub-Advisor to provide
certain sub-investment advisory services to each Fund for the period and on the
terms set forth in this Agreement. The Sub-Advisor hereby accepts such
appointment and agrees to furnish the services herein set forth for the
compensation herein provided.
2. DELIVERY OF DOCUMENTS. The Sub-Advisor hereby acknowledges receipt of
properly certified or authenticated copies of each of the following:
(a) The Trust's Agreement and Declaration of Trust, as filed with the
Secretary of State of the State of Delaware, and all amendments
thereto or restatements thereof (such Declaration, as presently
in effect and as it shall from time to time be amended or
restated, is herein called the "Declaration of Trust");
(b) The Trust's By-Laws and amendments thereto;
(c) Resolutions of the Trust's Board of Trustees authorizing the
appointment of the Sub-Advisor and approving this Agreement;
(d) The Trust's Notification of Registration on Form N-8A under the
1940 Act as filed with the Securities and Exchange Commission
(the "SEC") and all amendments thereto;
(e) The Trust's Registration Statement on Form N-1A under the
Securities Act of 1933, as amended (the "1933 Act") and under the
1940 Act as filed
2
with the SEC and all amendments thereto insofar as such
Registration Statement and such amendments relate to each Fund;
and
(f) The Trust's most recent prospectus and Statement of Additional
Information for each Fund (such prospectus and Statement of
Additional Information, as presently in effect, and all
amendments and supplements thereto are herein collectively called
the "Prospectus").
The Advisor will furnish the Sub-Advisor from time to time with copies
of all amendments of or supplements to the foregoing.
3. MANAGEMENT. Subject always to the supervision of the Trust's Board of
Trustees and the Advisor, the Sub-Advisor will furnish, direct, and administer
an investment program in respect of, and make investment and reinvestment
decisions for, all assets of each Fund and place all orders for the purchase and
sale of securities, all on behalf of each Fund. In the performance of its
duties, the Sub-Advisor will satisfy its fiduciary duties to each Fund, and will
monitor each Fund's investments, and will comply with the provisions of the
Trust's Declaration of Trust and By-Laws, as amended from time to time, any
policies or restrictions imposed by the Advisor and/or the Trust, and the stated
investment objectives, policies and restrictions of each Fund as provided in
each Fund's prospectus and statement of additional information, as amended from
time to time. The Sub-Advisor and the Advisor will each make its officers and
employees available to the other from time to time at reasonable times to review
investment policies of each Fund and to consult with each other regarding the
investment affairs of each Fund. The Sub-Advisor shall also make itself
reasonably available to the Board of Trustees at such times as the Board of
Trustees shall request.
The Sub-Advisor represents and warrants that it is in compliance with all
applicable rules and regulations of the SEC pertaining to its investment
advisory activities and agrees that it:
(a) will use the same skill and care in providing such services as it
uses in providing services to fiduciary accounts for which it has
investment responsibilities;
(b) will conform with all applicable rules and regulations of the SEC
pertaining to its investment advisory activities;
(c) will place orders pursuant to its investment determinations for
each Fund either directly with the issuer or with any broker or
dealer. In placing orders with brokers or dealers, the
Sub-Advisor will attempt to obtain the best combination of prompt
execution of orders in an effective manner and at the most
favorable price consistent with its "best execution" obligation.
Consistent with this obligation, when the execution and price
offered by two or more brokers or dealers are comparable, the
Sub-Advisor may, in its discretion, purchase and sell portfolio
securities to and from brokers and dealers who provide the
Sub-Advisor with research advice and other services (as those
terms are defined in Section 28(e) of the Securities Act of
1934). In no instance will portfolio securities be purchased from
or
3
sold to the Advisor, the Sub-Advisor, Rydex Distributors, Inc. or
any affiliated person of either the Trust, the Advisor, the
Sub-Advisor or Rydex Distributors, Inc., except as may be
permitted under the 1940 Act;
(d) will report regularly to the Advisor and will make appropriate
persons available for the purpose of reviewing at reasonable
times with representatives of the Advisor and the Board of
Trustees the management of each Fund, including, without
limitation, review of the general investment strategy of each
Fund, the performance of each Fund in relation to standard
industry indices, interest rate considerations and general
conditions affecting the marketplace and will provide various
other reports from time to time as reasonably requested by the
Advisor;
(e) will maintain books and records required to be maintained by Rule
31a-3 under the 1940 Act with respect to the Trust's securities
transactions and will furnish the Advisor and the Trust's Board
of Trustees such periodic and special reports as the Board of
Trustees or the Advisor may request;
(f) will act upon instructions from the Advisor not inconsistent with
the fiduciary duties hereunder; and
(g) will treat confidentially and as proprietary information of the
Trust all such records and other information relative to the
Trust maintained by the Sub-Advisor, and will not use such
records and information for any purpose other than performance of
its responsibilities and duties hereunder, except after prior
notification to and approval in writing by the Trust, which
approval shall not be unreasonably withheld and may not be
withheld where the Sub-Advisor may be exposed to civil or
criminal contempt proceedings for failure to comply, when
requested to divulge such information by duly constituted
authorities, or when so requested by the Trust.
4. PROXY VOTING; CORPORATE ACTIONS. The Sub-Advisor shall execute and
deliver, or cause its nominee to execute and deliver, all proxy votes, notices
of meetings and other notices affecting or relating to the securities of each
Fund during the term of this Agreement. The Sub-Advisor shall maintain and
preserve written proxy voting procedures, and shall provide a copy of such
voting procedures, along with a record of its actual proxy votes relating to the
securities of each Fund, to the Advisor or the Trust upon request. The Advisor
and Sub-Advisor understand that the Funds may pursue their investment objectives
by investing in other investment companies that are not affiliated "underlying
funds" and specific proxy rules are applicable under the 1940 Act to this type
of relationship. In particular the Sub-Advisor will vote all proxies received
from the underlying funds in the same proportion that all shares of the
underlying funds are voted, or in accordance with instructions received from
fund shareholders, pursuant to Section 12(d)(1)(F) of the 1940 Act. Beginning
July 1, 2003, the Sub-Adviser shall maintain records regarding proxy voting on
behalf of the Portfolio in order that the Portfolio may complete the annual Form
N-PX filing.
4
5. BOOKS AND RECORDS. In compliance with the requirements of Rule 31a-3
under the 1940 Act, the Sub-Advisor hereby agrees that all records which it
maintains for each Fund, on behalf of the Trust are the property of the Trust
and further agrees to surrender promptly to the Trust any of such records upon
the Trust's request. The Sub-Advisor further agrees to preserve for the periods
prescribed by Rule 31a-2 under the 1940 Act the records required to be
maintained by Rule 31a-1 under the 1940 Act.
6. EXPENSES. During the term of this Agreement, the Sub-Advisor will pay
all expenses incurred by it in connection with its activities under this
Agreement.
7. COMPENSATION. For the services to be provided by the Sub-Advisor
pursuant to this Agreement, the Advisor will pay the Sub-Advisor, and the
Sub-Advisor agrees to accept as full compensation therefor, a sub-advisory fee
paid at the rate specified on SCHEDULE A, which is attached hereto and made part
of this Agreement. The fee will be calculated based on the average daily net
asset value of the Assets under the Sub-Advisor's management. This fee will be
paid at least quarterly. Except as may otherwise be prohibited by law or
regulation (including any then current SEC staff interpretation), the
Sub-Advisor may, in its discretion and from time to time, waive a portion of its
fee. Sub-Advisor shall not be responsible for expenses and costs of a Fund's
operations payable by a Fund or the Advisor.
8. SERVICES TO OTHERS. The Advisor understands, and has advised the
Trust's Board of Trustees, that the Sub-Advisor now acts, and may in the future
act, as an investment adviser and fiduciary to other managed accounts, and as
investment adviser, sub-investment adviser, and/or administrator to other
investment companies. The Advisor has no objection to the Sub-Advisor's acting
in such capacities, provided that the Sub-Advisor furnishes adequate disclosure
of such possible conflicts of interest and implements procedures designed to
mitigate or eliminate such conflicts. For example, whenever a Fund and one or
more other investment companies advised by the Sub-Advisor have available funds
for investment, investments suitable and appropriate for each will be allocated
in accordance with a formula believed by the Sub-Advisor to be equitable to each
company. The Advisor recognizes, and has advised the Trust's Board of Trustees,
that in some cases the Sub-Advisor's procedures may adversely affect the size of
the position that each Fund may obtain in a particular security. In addition,
the Advisor understands, and has advised the Trust's Board of Trustees, that the
persons employed by the Sub-Advisor to assist in the Sub-Advisor's duties under
this Agreement will not devote their full time to such service and nothing
contained in this Agreement will be deemed to limit or restrict the right of the
Sub-Advisor or any of its affiliates to engage in and devote time and attention
to other businesses or to render services of whatever kind or nature.
9. STANDARD OF CARE. Each of the Advisor and Sub-Advisor shall discharge
its duties under this Agreement with the care, skill, prudence and diligence
under the circumstances then prevailing that a prudent person acting in a like
capacity and familiar with such matters would use in the conduct of an
enterprise of a like character and with like aims. The parties recognize that
the opinions, recommendations and actions of Sub-Advisor will be based on advice
and information deemed to be reliable but not guaranteed by or to Sub-Advisor.
10. INDEMNIFICATION. Each of the Advisor and Sub-Advisor agrees to
indemnify each other against any claim, loss or liability (including reasonable
attorney's fees) arising as a result
5
of the failure to meet the standard of care set forth in the first sentence of
Paragraph 9 hereof. Notwithstanding the generality of the foregoing, the Advisor
and Sub-Advisor each further agrees to indemnify each other against any claim,
loss or liability (including reasonable attorney's fees) arising or as a result
of willful misfeasance, bad faith or gross negligence in the performance of its
duties, or by reason of reckless disregard of its obligation and duties
hereunder. The federal securities laws impose liabilities under certain
circumstances on persons who act in good faith, and therefore nothing herein
shall in any way constitute a waiver or limitation of any rights which each
party may have against the other under any federal securities laws based on
negligence and which cannot be modified in advance by contract.
11. DURATION AND TERMINATION. This Agreement will become effective as of
the date hereof provided that it has been approved by vote of a majority of the
outstanding voting securities of each Fund in accordance with the requirements
under the 1940 Act, and, unless sooner terminated as provided herein, will
continue in effect for two years.
Thereafter, if not terminated, this Agreement will continue in effect for
each Fund for successive periods of 12 months, each ending on the day preceding
the anniversary of the Agreement's effective date of each year, provided that
such continuation is specifically approved at least annually (a) by the vote of
a majority of those members of the Trust's Board of Trustees who are not
interested persons of the Trust, the Sub-Advisor, or the Advisor, cast in person
at a meeting called for the purpose of voting on such approval, and (b) by the
vote of a majority of the Trust's Board of Trustees or by the vote of a majority
of all votes attributable to the outstanding shares of each Fund.
Notwithstanding the foregoing, this Agreement may be terminated as to each Fund
at any time, without the payment of any penalty, on sixty (60) days' written
notice by the Advisor or by the Sub-Advisor. This Agreement will immediately
terminate in the event of its assignment. (As used in this Agreement, the terms
"majority of the outstanding voting securities," "interested persons" and
"assignment" have the same meaning of such terms ascribed in the 1940 Act.)
This Agreement will terminate automatically if the investment advisory
agreement between the Trust and the Advisor is terminated.
12. AMENDMENT OF THIS AGREEMENT. No provision of this Agreement may be
changed, waived, discharged or terminated orally, but only by an instrument in
writing signed by the party against which enforcement of the change, waiver,
discharge or termination is sought.
13. MULTIPLE ORIGINALS. This Agreement may be executed in two or more
counterparts, each of which when so executed shall be deemed to be an original,
but such counterparts shall together constitute but one and the same document.
14. CUSTODY. All securities and other assets of each Fund shall be
maintained with a custodian designated by the Advisor. The Sub-Advisor shall
have no responsibility or liability with respect to any custodial function.
15. MISCELLANEOUS. The captions in this Agreement are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. If any
provision of this Agreement is held or made invalid by a court
6
decision, statute, rule or otherwise, the remainder of this Agreement will not
be affected thereby. This Agreement will be binding upon and shall inure to the
benefit of the parties hereto and will be governed by the internal laws of the
state of Delaware. The Sub-Advisor shall notify the Advisor of any changes in
its officers and directors within a reasonable time.
16. LIMITATION OF LIABILITY. The names "Rydex Variable Trust" and
"Trustees of the Rydex Variable Trust" refer respectively to the Trust created
by, and the Trustees, as trustees but not individually or personally, acting
from time to time under, the Declaration of Trust, to which reference is hereby
made and a copy of which is on file at the office of the Secretary of State of
the State of Delaware and elsewhere as required by law, and to any and all
amendments thereto so filed or hereafter filed. The obligations of the Trust
entered in the name or on behalf thereof by any of the Trustees, representatives
or agents are made not individually but only in such capacities and are not
binding upon any of the Trustees, shareholders or representatives of the Trust
personally, but bind only the assets of the Trust. Persons dealing with each
Fund must look solely to the assets of the Trust belonging to each Fund for the
enforcement of any claims against the Trust.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their officers designated below as of the day and year first above
written.
PADCO ADVISORS II, INC.
By:
----------------------------------------------
Name:
--------------------------------------------
Title:
-------------------------------------------
XXXXXX XXXXXX XXXXXX INVESTMENT FIRM, LLC
By:
----------------------------------------------
Name:
--------------------------------------------
Title:
-------------------------------------------
7
SCHEDULE A
TO THE
INVESTMENT SUB-ADVISORY AGREEMENT
BETWEEN
PADCO ADVISORS II, INC.
AND
XXXXXX XXXXXX XXXXXX INVESTMENT FIRM, LLC
Pursuant to Section 7 of this Investment Sub-Advisory Agreement, the Advisor
shall pay the Sub-Advisor compensation at an annual rate as follows:
Xxxxxxx Fund: 0.40%
Clermont Fund: 0.40%
Should either of the aforementioned Funds not average $10,000,000 in assets over
a quarter, the Sub-Advisor will not receive compensation for assets in that Fund
for that specific quarter.
8
