-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KVFfnQJ0DudssTRIh8FLmyHc6TgECYCAKlvX4gVhidiDqyk0mXuPRaM+PecvmoAb yYjV1QNfuBpqcR6Nd4wung== 0000935069-06-000442.txt : 20091105 0000935069-06-000442.hdr.sgml : 20091105 20060223203813 ACCESSION NUMBER: 0000935069-06-000442 CONFORMED SUBMISSION TYPE: N-14 PUBLIC DOCUMENT COUNT: 8 FILED AS OF DATE: 20060224 DATE AS OF CHANGE: 20080627 FILER: COMPANY DATA: COMPANY CONFORMED NAME: RYDEX SERIES FUNDS CENTRAL INDEX KEY: 0000899148 IRS NUMBER: 521820225 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: N-14 SEC ACT: 1933 Act SEC FILE NUMBER: 333-132021 FILM NUMBER: 06640866 BUSINESS ADDRESS: STREET 1: 9601 BLACKWELL ROAD STREET 2: SUITE 500 CITY: ROCKVILLE STATE: MD ZIP: 20850 BUSINESS PHONE: 301-296-5100 MAIL ADDRESS: STREET 1: 9601 BLACKWELL ROAD STREET 2: SUITE 500 CITY: ROCKVILLE STATE: MD ZIP: 20850 FORMER COMPANY: FORMER CONFORMED NAME: RYDEX SERIES TRUST DATE OF NAME CHANGE: 19930714 CENTRAL INDEX KEY: 0000899148 CENTRAL INDEX KEY: 0001210353 N-14 1 g21101_sphinxn14.txt RYDEX CAPITAL PARTNERS SPHINX FUND As Filed with the U.S. Securities and Exchange Commission On February 23, 2006 File No. 033- U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-14 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933(X) RYDEX SERIES FUNDS (Exact Name of Registrant as Specified in Charter) 9601 Blackwell Road, Suite 500, Rockville, Maryland 20850 (Address of Principal Executive Offices) (Zip Code) (301)296-5100 (Registrant's Telephone Number, Including Area Code) Carl G. Verboncoeur 9601 Blackwell Road Suite 500 Rockville, Maryland 20850 (Name and Address of Agent for Service of Process) Copies to: W. John McGuire Morgan, Lewis & Bockius LLP 1111 Pennsylvania Avenue, N.W. Washington, D.C. 20004 It is proposed that this filing will become effective on March 27, 2006. No filing fee is required because an indefinite number of shares has previously been registered pursuant to Rule 24f-2 under the Investment Company Act of 1940. RYDEX CAPITAL PARTNERS SPHINX FUND 9601 BLACKWELL ROAD, SUITE 500, ROCKVILLE, MARYLAND 20850 Dear Shareholder: I am writing to all shareholders of the Rydex Capital Partners SPhinX Fund (the "Fund" or "SPhinX") to inform you of an upcoming special meeting of shareholders to be held on [May 1, 2006] (the "Special Meeting"). If you are a shareholder of record of the Fund as of the close of business on March 1, 2006, you are entitled to vote at the Special Meeting, and any adjournment of the Special Meeting. The accompanying Combined Proxy Statement/Prospectus describes a proposal to reorganize the Fund. To avoid having the Fund incur the expense and delay of further solicitations, we ask you to give your prompt attention to this proposal and vote by sending in the enclosed proxy card. This material addresses a matter of great importance to all of the shareholders of the Fund. The Fund appreciates the confidence that you have placed in it and in the investment adviser and has sought to earn your support. However, the Board of Trustees of the Fund (the "SPhinX Board") has come to believe that the shareholders' best interests would be better served if the Fund combined with and became a part of the Absolute Return Strategies Fund (the "ARS Fund"), a series of Rydex Series Funds (the "Trust"), an open-end investment management company registered under the Investment Company Act of 1940, as amended (the "1940 Act"). The SPhinX Board is recommending that the shareholders of the Fund consider and approve an Agreement and Plan of Reorganization (the "Reorganization Agreement"). A copy of the Reorganization Agreement is attached to the Combined Proxy Statement/Prospectus as Exhibit A. The attached Combined Proxy Statement/Prospectus describes the Reorganization Agreement involving SPhinX and the ARS Fund, and explains the similarities and differences between the two Funds. If the reorganization is approved and completed as proposed in the Reorganization Agreement, substantially all of the assets and certain stated liabilities of SPhinX will be transferred to the ARS Fund, and you will receive H-Class Shares of the ARS Fund in exchange for your SPhinX shares. Immediately following the reorganization, the dollar value of your account will be the same as it was immediately before the reorganization. As soon as practicable after the reorganization occurs, SPhinX will be de-registered under the 1940 Act and will be dissolved under state law. If you would prefer to redeem your remaining interest in the Fund instead of participating in the proposed reorganization, you may tender your Fund shares in the "Special Repurchase Offer" by completing the repurchase offer materials accompanying the attached Combined Proxy Statement/Prospectus and returning them to Citigroup Fund Services, LLC, P.O. Box 446, Portland, ME 04112. For additional information about the repurchase offer please see the accompanying Special Repurchase Offer. I am sure that, like most people, you lead a busy life and are tempted to put this proxy aside for another day. Please don't. When shareholders do not return their proxies, additional expenses are incurred to pay for follow-up mailings and telephone calls. YOUR VOTE IS IMPORTANT TO US. PLEASE READ THE ENCLOSED COMBINED PROXY STATEMENT/PROSPECTUS CAREFULLY AND CAST YOUR VOTE TODAY. EVEN IF YOU PLAN TO PARTICIPATE IN THE SPECIAL REPURCHASE OFFER, IT IS IMPORTANT THAT YOU VOTE. THE SPHINX BOARD HAS UNANIMOUSLY APPROVED THE REORGANIZATION OF SPhinX INTO THE ARS FUND AND RECOMMENDS A VOTE "FOR" THE PROPOSAL. While you are, of course, welcome to join us at the Special Meeting, it is not necessary to do so. As a convenience we have created several options by which to vote your shares: >> THE INTERNET: Follow the instructions located on your proxy card and make sure it is available at the time you plan to vote. >> TOUCH-TONE PHONE: The phone number is located on your proxy card and be sure you have your control number on the card at the time of the call. >> BY MAIL: Simply execute your card and enclose it in the postage paid envelope found in this proxy package. Whether or not you plan to attend the Special Meeting, we need your vote. Please mark, sign, and date the enclosed proxy card and return it promptly in the enclosed postage-paid envelope so that the maximum number of shares may be voted. Please do not hesitate to call 1-888-59-RYDEX (1-888-597-9339) if you have any questions about the Proposal under consideration. Thank you for taking the time to consider this important Proposal and for your investment in the Fund. EVERY VOTE IS IMPORTANT NO MATTER HOW MANY SHARES YOU OWN The Fund has engaged the services of D.F. King & Co., Inc. ("D.F. King"), as the professional proxy solicitation agent, to assist shareholders through the voting process. As the Special Meeting approaches and you have not yet voted, D.F. King may contact you to remind you to vote your shares in order to be represented at the Special Meeting. If you should have any questions about the Combined Proxy Statement/Prospectus or the execution of your vote, please contact D.F. King at 1-800-628-8528. They will be happy to assist you. We appreciate your time and consideration. Sincerely, - ---------------- Michael P. Byrum President and Trustee, Rydex Capital Partners SPhinX Fund PROMPT EXECUTION AND RETURN OF THE ENCLOSED PROXY CARD IS REQUESTED. A SELF-ADDRESSED, POSTAGE-PAID ENVELOPE IS ENCLOSED FOR YOUR CONVENIENCE, ALONG WITH INSTRUCTIONS ON HOW TO VOTE OVER THE INTERNET OR BY TELEPHONE SHOULD YOU PREFER TO VOTE BY ONE OF THOSE METHODS. ii RYDEX CAPITAL PARTNERS SPHINX FUND 9601 BLACKWELL ROAD, SUITE 500 ROCKVILLE, MARYLAND 20850 ---------------------------- NOTICE OF SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON [MAY 1, 2006] Notice is hereby given that a Special Meeting of Shareholders of Rydex Capital Partners SPhinX Fund (the "Fund" or "SPhinX") will be held at the offices of Rydex Capital Partners I, LLC, 9601 Blackwell Road, Suite 500, Rockville, Maryland 20850, on [May 1, 2006] at 4:00 P.M. Eastern Time (the "Special Meeting"). The Special Meeting is being called for the following reasons: 1. To consider and vote on a proposal to approve an Agreement and Plan of Reorganization providing for: (a) the transfer of substantially all of the assets and certain stated liabilities of SPhinX to the Absolute Return Strategies Fund (the "ARS Fund), a series of Rydex Series Funds (the "Trust"), an open-end investment management company registered under the Investment Company Act of 1940, as amended (the "1940 Act"), in exchange for H-Class Shares of the ARS Fund; (b) the distribution of such H-Class Shares of the ARS Fund to the shareholders of SPhinX; and (c) the dissolution under state law and the de-registration under the 1940 Act of SPhinX (the "Proposal"). 2. To transact any other business as may properly come before the Special Meeting or any adjournment thereof. The reorganization contemplated by the Agreement and Plan of Reorganization is described in the attached Combined Proxy Statement/Prospectus. A copy of the Agreement and Plan of Reorganization is attached as Exhibit A. A prospectus for the ARS Fund H-Class Shares accompanies this Combined Proxy Statement/Prospectus. Only shareholders of the Fund at the close of business on March 1, 2006 ("Shareholders") are entitled to notice of, and to vote at, the Special Meeting or any adjournment thereof. All Shareholders are cordially invited to attend the Special Meeting. However, if you are unable to attend the Special Meeting, you are requested to mark, sign and date the enclosed proxy card and return it promptly in the enclosed, postage-paid envelope so that the Special Meeting may be held and a maximum number of shares may be voted. You may also vote easily and quickly by telephone or through the Internet as described in the enclosed proxy card. To do so, please follow the instructions included on your enclosed proxy card. Your vote is important no matter how many shares you own. Shareholders may revoke their proxies at any time prior to the time they are voted by giving written notice to the Fund, submitting a subsequently dated proxy, or attending and voting at the Special Meeting. For a free copy of the Fund's most recent Annual and Semi-Annual Reports, Shareholders may call 1-888-59-RYDEX (1-888-597-9339) or write to the Fund at 9601 Blackwell Road, Suite 500, Rockville, MD 20850. In addition, the Fund is required by federal law to file reports, proxy statements and other information with the Securities and Exchange Commission (the "SEC"). The SEC maintains a website that contains information about the Fund (www.sec.gov). You can inspect and copy the proxy material, reports and other information at the public reference facilities of the SEC located at 100 F Street, N.E., Room 1580, Washington, D.C. 20549. You can also obtain copies of these materials from the SEC Office of Freedom of Information and Privacy Act Operations, Operations Center, 6432 General Green Way, Alexandria, VA 22313-2413, at prescribed rates. By Order of the Rydex Capital Partners SPhinX Fund Board of Trustees iii ---------------- Michael P. Byrum President and Trustee Dated: [March __, 2006] iv RYDEX CAPITAL PARTNERS SPHINX FUND 9601 BLACKWELL ROAD, SUITE 500 ROCKVILLE, MARYLAND 20850 -------------------------- COMBINED PROXY STATEMENT/PROSPECTUS This Combined Proxy Statement/Prospectus is furnished by the Board of Trustees of Rydex Capital Partners SPhinX Fund (the "Fund" or "SPhinX"), a closed-end management investment company registered under the Investment Company Act of 1940, in connection with the solicitation of proxies for use at the Special Meeting of Shareholders of the Fund to be held on [Monday, May 1, 2006], at 4:00 P.M., or at any adjournment thereof, at the offices of Rydex Capital Partners I, LLC, 9601 Blackwell Road, Suite 500, Rockville, Maryland 20850 (the "Special Meeting"). It is expected that the Notice of Special Meeting, this Combined Proxy Statement/Prospectus, and a proxy card will be mailed to Shareholders on or about March __, 2006. The purpose of the Special Meeting is to consider and vote on a proposal to approve an Agreement and Plan of Reorganization (the "Reorganization Agreement") involving the Fund and the Absolute Return Strategies Fund (the "ARS Fund"), a series of Rydex Series Funds (the "Trust"), an open-end investment management company. A copy of the Reorganization Agreement is attached hereto as Exhibit A. Pursuant to the Reorganization Agreement, the ARS Fund will acquire all of the assets and certain stated liabilities of the Fund. In exchange, the ARS Fund will issue to the Fund, H-Class Shares of the ARS Fund having an aggregate net asset value equal to the aggregate value of the Fund assets so transferred, less the Fund liabilities so assumed. The H-Class Shares of the ARS Fund received by the Fund in the reorganization will then be distributed pro rata to the Shareholders of the Fund, and the Fund's operations will be discontinued. Following the distribution of assets, the Fund then will be permanently dissolved. It is expected that the dollar value of each SPhinX Shareholder's account in the ARS Fund immediately after this proposed reorganization (the "Reorganization") will be the same as the dollar value of such Shareholder's account in the Fund immediately prior to the Reorganization. However, because certain assets of the Fund may be restricted (as discussed below) those restricted assets would not transfer to the ARS Fund. In that event, the dollar value of each SPhinX Shareholder's account in the ARS Fund immediately after the Reorganization will be the value of such shareholder's account in the Fund immediately prior to the Reorganization, less the value of the restricted assets. Any assets that are restricted on the date of the reorganization will be retained by the Fund and held in trust pending the removal of any restrictions placed on the assets. Once any restrictions are removed, the retained assets will be liquidated and distributed to the Fund's Shareholders. No sales charge, commission, or redemption fee will be imposed upon the ARS Fund shares issued, or on the Fund shares surrendered, in the Reorganization. In addition, the H-Class Shares of the ARS Fund that shareholders of the Fund receive in exchange for their shares of the Fund will not be subject to any deferred sales charge upon their redemption. The principal executive office of both the Fund and the ARS Fund is located at 9601 Blackwell Road, Suite 500, Rockville, Maryland 20850; telephone number: 1-888-59-RYDEX (1-888-597-9339). The ARS Fund currently offers three classes of shares: A-Class Shares, C-Class Shares, and H-Class Shares; however, only the ARS Fund H-Class Shares are participating in the Reorganization. Upon Shareholder approval of the Reorganization, Shareholders of the Fund will receive H-Class Shares of the ARS Fund. The ARS Fund is currently conducting investment operations as described in this Combined Proxy Statement/Prospectus. This Combined Proxy Statement/Prospectus sets forth concisely information that the Fund's Shareholders should know before voting on the Reorganization Agreement and the Reorganization. It also constitutes an offering of the H-Class Shares of the ARS Fund. Please read this Combined Proxy Statement/Prospectus carefully and retain it for future reference. v A Statement of Additional Information dated March __, 2006 relating to this Combined Proxy Statement/Prospectus (the "Reorganization SAI") has been filed with the U.S. Securities and Exchange Commission (the "SEC" or the "Commission") and is incorporated herein by reference. Copies of the Reorganization SAI may be obtained without charge by writing to or calling the Fund at the address or phone number shown above. The Rydex Series Funds H-Class Shares Prospectus and Statement of Additional Information for the ARS Fund and Hedged Equity Fund, dated September 1, 2005 (the "ARS Prospectus" and the "ARS SAI," respectively) and the Trust's Annual Report to Shareholders for the fiscal year ended March 31, 2005 and Semi-Annual Report for the period ended September 30, 2005, have been filed with the SEC and are incorporated by reference herein. The ARS Prospectus accompanies this Combined Proxy Statement/Prospectus. The ARS SAI may be obtained without charge by writing to or calling the Trust at the above address or telephone number. The Fund's Prospectus and Statement of Additional Information, each dated August 1, 2005 (the "SPhinX Prospectus" and the "SPhinX SAI," respectively), and the Fund's Annual Report to Shareholders for the fiscal year ended March 31, 2005 and Semi-Annual Report for the period ended September 30, 2005 have been filed with the SEC and are incorporated by reference herein. The SPhinX Prospectus accompanies this Combined Proxy Statement/Prospectus. Each of these documents may be obtained without charge by writing or calling the Fund at the address and phone number shown above. YOUR VOTE IS IMPORTANT. PLEASE CALL 1-888-59-RYDEX (1-888-597-9339) IF YOU HAVE ANY QUESTIONS ABOUT THIS COMBINED PROXY STATEMENT/PROSPECTUS OR THE ENCLOSED PROXY. YOU MAY VOTE BY MAIL, IN PERSON, OR BY PHONE BY CALLING D.F. KING AT 1-800-628-8528. THE U.S. SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THE ARS FUND H-CLASS SHARES TO BE ISSUED IN THE REORGANIZATION OR DETERMINED IF THIS COMBINED PROXY STATEMENT/PROSPECTUS IS TRUTHFUL OR COMPLETE. TO STATE OTHERWISE IS A CRIME. vi VERY IMPORTANT NEWS FOR RYDEX CAPITAL PARTNERS SPHINX FUND ("SPHINX") SHAREHOLDERS We recommend that you read the complete Combined Proxy Statement/Prospectus. For your convenience, we have provided a brief overview of the Proposal to be voted on at the Special Meeting. QUESTIONS AND ANSWERS Q. WHY AM I RECEIVING THIS COMBINED PROXY STATEMENT/PROSPECTUS? A. You are receiving these proxy materials - a booklet that includes the Combined Proxy Statement/Prospectus and a proxy card - because shareholders of SPhinX are being asked to approve an Agreement and Plan of Reorganization (the "Reorganization Agreement") for the transfer of substantially all of the assets and certain stated liabilities of SPhinX to the Rydex Absolute Return Strategies Fund (the "ARS Fund"), a series of Rydex Series Funds, an open-end investment company registered under the Investment Company Act of 1940 in exchange for H-Class Shares of the ARS Fund. After carefully reviewing the proposal, SPhinX's Board of Trustees (the "Board") has determined that the reorganization and the Reorganization Agreement are in the best interests of SPhinX and its shareholders. Therefore, the Board recommends that you vote "FOR" the approval of the Reorganization Agreement. Q. ARE THE INVESTMENT OBJECTIVES AND STRATEGIES OF THE SPHINX FUND AND THE RYDEX SERIES FUNDS ABSOLUTE RETURN STRATEGIES FUND (THE "ARS FUND") THE SAME? A. The investment objectives and strategies of the SPhinX Fund and the ARS Fund are similar, but have some important differences. Both Funds seek absolute returns produced by well-established investment strategies used by hedge funds. However, the investment programs employed by the Funds are different. SPhinX pursues its investment objective by investing its assets primarily in private investment funds and other investment vehicles ("portfolio funds") that are managed by the managers selected by Standard & Poor's for inclusion in the S&P Hedge Fund Index (the "Index"). SPhinX may also invest in financial instruments that provide investment returns that are linked to the performance of the Index. The portfolio managers of the portfolio funds typically use a variety of sophisticated investment techniques that include, among others, short sales of securities, use of leverage and transactions in derivative securities. In contrast, the ARS Fund pursues its investment objective by allocating capital to gain exposure to a combination of directional and non-directional positions including, but not limited to, portfolios of equities, commodities, and market neutral value securities. The ARS Fund's use of internal investment controls and directional and non-directional positions result in a portfolio of assets designed to provide appropriate hedge fund portfolio characteristics as well as risk diversification. Q. WHAT IS THE DIFFERENCE BETWEEN A CLOSED-END AND AN OPEN-END INVESTMENT COMPANY? A. Closed-end investment companies, like SPhinX, generally do not redeem their outstanding shares or engage in the continuous sale of new shares. In order to provide its shareholders with a limited degree of liquidity, SPhinX offers to repurchase its shares from time to time pursuant to written tender offers and offers its shares for purchase on a monthly basis. Open-end investment companies, like the ARS Fund, issue shares that generally can be redeemed or sold back to the fund, on a daily basis, at the fund's current net asset value per share (less any applicable redemption fee). In addition, whereas closed-end funds may invest without limitation in illiquid securities, open-end funds may 1 not invest more than 15% of their net assets in illiquid securities. Moreover, open-end investment companies issue new shares at the fund's offering price, which is net asset value per share plus any applicable sales charge, on a daily basis. Q. WHY HAS THIS PROPOSAL BEEN MADE FOR SPHINX? A. Consideration of the proposed reorganization was prompted by three reasons in particular. First, the expense ratio of the ARS Fund is lower than that of SPhinX. Second, the ARS Fund offers increased liquidity. Third, the operations of the ARS Fund are not dependent on services provided by an unaffiliated third party. Further, the Board believes that the reorganization and the Reorganization Agreement are in the best interest of SPhinX and that the interests of the existing shareholders of SPhinX will not be diluted as a result of the reorganization. Q. WILL I HAVE TO PAY TAXES AS A RESULT OF THE REORGANIZATION? A. The reorganization is not designed to be tax-free. Thus, SPhinX shareholders who become shareholders of the ARS Fund may realize a gain or loss for federal income tax purposes. However, any such tax liability should be mitigated by SPhinX's recent dividend distribution to shareholders and the expectation that any capital gains incurred as a result of the reorganization will be minimal. Further, in the event that the reorganization is not approved, the potential liquidation and subsequent termination of SPhinX could also result in a gain or loss for federal income tax purposes. For more information about the tax consequences of owning shares of the ARS Fund, please see the accompanying ARS Prospectus. Q. AFTER THE REORGANIZATION, WILL I OWN THE SAME NUMBER OF SHARES? A. As a result of the reorganization, each SPhinX shareholder will receive a number of full and fractional H-Class Shares of the ARS Fund equal in value to each shareholder's pro rata interest in the net assets transferred to the ARS Fund in the reorganization. It is expected that the value of each SPhinX shareholder's account in the ARS Fund immediately after the reorganization will be the same as the value of that shareholder's SPhinX account immediately prior to the reorganization, less the value of any assets or liabilities of SPhinX that are not transferred to the ARS Fund. Q. WHY WOULD ASSETS NOT BE TRANSFERRED TO THE ARS FUND? A. Currently, approximately 11% of the assets of SPhinX remain frozen (non-transferable) as a result of a court ruling related to the bankruptcy of Refco, Inc., a large commodities futures merchant. Pending a final ruling from the bankruptcy court, these assets will remain frozen, and will not be transferred as part of the reorganization ("Retained Assets"). If, in a final ruling prior to the reorganization, the court removes the restriction on these assets, all of the assets of SPhinX will be transferred to the ARS Fund. For further information regarding the Refco bankruptcy, please see the Supplement, dated December 30, 2005, to the Rydex Capital Partners SPhinX Fund Prospectus, dated August 1, 2005. Q. WHAT WILL HAPPEN TO ANY RETAINED ASSETS? A. Retained Assets will be held in trust by the SPhinX Fund, pending a final ruling from the bankruptcy court. Once the court has made a final ruling, the Retained Assets will be liquidated and distributed to SPhinX shareholders. Q. DOES THE REORGANIZATION POSE ANY RISKS TO THE COMBINED FUND? A. If a significant number of former SPhinX shareholders redeem their shares in the ARS Fund immediately or soon after the reorganization, the ARS Fund could be adversely affected because of lost economies of scale and portfolio management disruption. A significant decrease in net assets could result in less diversification or in smaller portfolio positions in investments, which could adversely affect the ARS Fund's 2 total return performance. The sale of securities to fund these redemptions would result in increased brokerage expenses and could also have adverse tax consequences. Nonetheless, as discussed below, a redemption fee will be charged on any redemption of H-Class Shares of the ARS Fund held for less than 30 days, which should mitigate any increased expenses or adverse tax consequences. Q. WILL I HAVE ANOTHER OPPORTUNITY TO TENDER MY SPHINX SHARES IN A REPURCHASE OFFER BEFORE THE REORGANIZATION? A. Yes. SPhinX is offering to repurchase up to 100 percent (100%) of its outstanding shares in a Special Repurchase Offer that will be issued on [March 21, 2006] and will expire at 12:00 midnight Eastern time on [April 18, 2006], unless extended (the "Expiration Date"). The repurchase price for any shares tendered and accepted will be an amount equal to the net asset value of SPhinX shares as of the close of the regular trading session of the New York Stock Exchange on [April 24, 2006] (the "Net Asset Value Determination Date"). The Special Repurchase Offer provides you with the option of redeeming your remaining interest in SPhinX instead of participating in the proposed reorganization. You may tender your SPhinX shares in the Special Repurchase Offer by completing the repurchase offer materials accompanying the attached Combined Proxy Statement/Prospectus and returning them to Citigroup Fund Services, LLC, P.O. Box 446, Portland, ME 04112. For additional information about the repurchase offer please see the accompanying Special Repurchase Offer. Q. WILL MY SPHINX SHARES BE SUBJECT TO A REDEMPTION FEE IN CONNECTION WITH THE REORGANIZATION OR THE SPECIAL REPURCHASE OFFER? A. No, SPhinX has decided to waive the redemption fee that normally applies to a repurchase of shares if the valuation date for the repurchase is less than one-year after the date the shares were purchased. Q. WILL THE H-CLASS SHARES OF THE ARS FUND THAT I RECEIVE IN THE REORGANIZATION BE SUBJECT TO A REDEMPTION FEE? A. Yes, subject to limited exceptions, the H-Class Shares of the ARS Fund are subject to a redemption fee that applies to redemptions of shares held for less than 30 days. For more information about the redemption fee, please see the ARS Prospectus that accompanies this Combined Proxy Statement/Prospectus. Q. WHEN WOULD THE REORGANIZATION TAKE PLACE? A. If approved, the reorganization would occur on or about [May __, 2006] or as soon as reasonably practicable after shareholder approval is obtained. Shortly after the distribution of H-Class Shares of the ARS Fund to SPhinX shareholders, SPhinX will liquidate and distribute any of its remaining assets and satisfy any of its liabilities that are not assumed by the ARS Fund, and its operations will be discontinued. SPhinX will be de-registered under the Investment Company Act of 1940 as soon thereafter as practicable and will be dissolved under Delaware State law. Q. WHAT VOTE IS REQUIRED TO APPROVE THE REORGANIZATION AGREEMENT? A. The approval of the Reorganization Agreement requries the affirmative vote of a majority of the shares present and entitled to vote at the Special Meeting or represented by proxy. The Reorganization Agreement is not subject to approval by the ARS Fund's Shareholders. Q.WHAT VOTE IS REQUIRED TO APROVE THE REORGANIZATION AGREEMENT? A. The approval of the Reorganization Agreement requires the affirmative vote of a majority of the shares present and entitled to vote at the Special Meeting or represented by proxy. The Reorganization Agreement is not subject to approval by the ARB Fund's Shareholders. Q. WHAT WILL HAPPEN IF THE REORGANIZATION AGREEMENT IS NOT APPROVED? A. If the Reorganization Agreement is not approved by SPhinX shareholders, the Board will likely consider several alternatives including a second proxy solicitation or the liquidation of SPhinX. Q. HOW DO THE TRUSTEES SUGGEST THAT I VOTE? A. After careful consideration, the Board unanimously recommends that you vote "FOR" the approval of the Reorganization Agreement. Q. WILL MY VOTE MAKE A DIFFERENCE? A. Yes. Your vote is needed to ensure that the proposal can be acted upon. Additionally, your immediate response on the enclosed proxy card will help save the costs of any further solicitations. 3 Q. I'M A SMALL INVESTOR. WHY SHOULD I BOTHER TO VOTE? A. Every vote is important. If numerous shareholders just like you fail to vote, SPhinX may not receive enough votes to go forward with the Special Meeting. If this happens, SPhinX will need to solicit votes again. Q. IF I PARTICIPATE IN THE SPECIAL REPURCHASE OFFER, DO I STILL NEED TO VOTE? A. Yes, even if you tender all of your shares in the Special Repurchase Offer, you remain a shareholder of SPhinX as of the record date. Q. HOW DO I PLACE MY VOTE? A. You may provide SPhinX with your vote via mail, by Internet, by telephone, or in person. You may use the enclosed postage-paid envelope to mail your proxy card. Please follow the enclosed instructions to utilize any of these voting methods. Q. WHOM DO I CALL IF I HAVE QUESTIONS? A. We will be happy to answer your questions about this proxy solicitation. Please call D.F. King at 1-800-628-8528 between 8:00 a.m. and 10:00 p.m., Eastern Time, Monday through Friday and between 11:00 a.m. and 6:00 p.m., Eastern Time on Saturday. PROMPT EXECUTION AND RETURN OF THE ENCLOSED PROXY CARD IS REQUESTED. A SELF-ADDRESSED, POSTAGE-PAID ENVELOPE IS ENCLOSED FOR YOUR CONVENIENCE, ALONG WITH INSTRUCTIONS ON HOW TO VOTE OVER THE INTERNET OR BY TELEPHONE SHOULD YOU PREFER TO VOTE BY ONE OF THOSE METHODS. 4 TABLE OF CONTENTS Page SUMMARY...................................................................... 2 INTRODUCTION................................................................. 2 THE REORGANIZATION AND THE REORGANIZATION AGREEMENT.......................... 2 REASONS FOR THE PROPOSED REORGANIZATION...................................... 3 APPROVAL OF THE REORGANIZATION AGREEMENT..................................... 4 FEDERAL TAX CONSEQUENCES..................................................... 4 CAPITALIZATION............................................................... 5 COMPARISON OF THE FUNDS...................................................... 6 COMPARISON OF FUND PERFORMANCE.............................................. 10 COMPARATIVE FEE AND EXPENSE TABLES.......................................... 10 COMPARISON OF FUND DISTRIBUTIONS, PURCHASE AND REDEMPTION PROCEDURES AND EXCHANGE RIGHTS.................................................... 12 FUND ORGANIZATION AND MANAGEMENT............................................ 13 SPHINX AND RCP..................................................... 13 THE ARS FUND AND RYDEX INVESTMENTS................................. 14 ADDITIONAL INFORMATION...................................................... 15 OTHER SERVICE PROVIDERS............................................ 15 VOTING INFORMATION.......................................................... 15 VOTE REQUIRED TO APPROVE PROPOSAL.................................. 16 QUORUM AND MEETING ADJOURNMENTS.................................... 16 METHOD OF SOLICITATION AND EXPENSE OF PROXIES...................... 16 OWNERSHIP OF FUND SHARES.................................................... 17 MISCELLANEOUS............................................................... 17 SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE............ 17 SHAREHOLDERS SHARING THE SAME ADDRESS.............................. 17 FINANCIAL STATEMENTS AND EXPERTS................................... 17 EXPENSES OF THE TRANSACTION........................................ 18 LITIGATION......................................................... 18 SHAREHOLDER INQUIRIES.............................................. 18 SHAREHOLDER PROPOSALS.............................................. 18 AVAILABLE INFORMATION.............................................. 19 1 SUMMARY This Combined Proxy Statement/Prospectus is being furnished to the Shareholders of the Fund in connection with the solicitation of proxies by the Board of Trustees of the Fund to be used at the Fund's Special Meeting. The Special Meeting will be held on [May 1, 2006] at 4:00 P.M. Eastern Time at the offices of Rydex Capital Partners I, LLC, located at 9601 Blackwell Road, Suite 500, Rockville, Maryland 20850. The purpose of the Special Meeting is to consider and vote on the proposed Reorganization Agreement and the Reorganization it describes. The following is a summary of certain information contained elsewhere in this Combined Proxy Statement/Prospectus (including the Reorganization Agreement attached hereto as Exhibit A), as well as in the ARS Prospectus and SPhinX Prospectus, which accompany this Combined Proxy Statement/Prospectus and which are incorporated by reference herein. The ARS Prospectus describes the investment objective, principal strategies and risks of the ARS Fund and provides information about the shareholder fees and operating expenses of, management and other services provided to, and the procedures for the purchase and redemption of H-Class Shares of the ARS Fund. The SPhinX Prospectus describes the investment objective, principal strategies and risks of the Fund and provides information about the shareholder fees and operating expenses of, management and other services provided to, and the procedures for the purchase and tender of shares of the Fund. This summary is not intended to be complete and is qualified in all respects by reference to the more detailed information appearing elsewhere in this Combined Proxy Statement/Prospectus, the Reorganization Agreement and the ARS and SPhinX Prospectuses. INTRODUCTION Shareholders of the Fund will be asked at the Special Meeting to approve the Reorganization Agreement and the Reorganization it describes, as discussed in more detail in this Combined Proxy Statement/Prospectus. If approved, the Reorganization is expected to be completed as of the close of business on or about [May __, 2006], or such other date as the parties may determine (the "Closing Date"), assuming that all conditions to closing have been satisfied. The ARS Fund, which commenced operations on September 19, 2005, is a series of the Trust, a Delaware statutory trust organized on February 11, 1993. The Trust is an open-end management investment company registered under the Investment Company Act of 1940, as amended (the "1940 Act"). The investment adviser for the ARS Fund is PADCO Advisors, Inc. ("Rydex Investments") and its distributor is Rydex Distributors, Inc. (the "Distributor"). The Fund is a closed-end management investment company registered under the 1940 Act and organized as a Delaware statutory trust on December 4, 2002. The investment adviser for the Fund is Rydex Capital Partners I, LLC ("RCP"), an affiliate of Rydex Investments. RCP is responsible for developing and implementing an investment strategy and program designed to achieve the Fund's investment objective. Shares of the Fund are distributed by the Distributor. THE REORGANIZATION AND THE REORGANIZATION AGREEMENT The Reorganization Agreement describes the essential terms of the proposed Reorganization. A complete copy of the Form of Reorganization Agreement is attached as Exhibit A. Pursuant to the Reorganization Agreement, the ARS Fund will acquire substantially all of SPhinX's assets and certain stated liabilities that are referenced in SPhinX's statement of assets and liabilities ("Statement of Assets and Liabilities"). In exchange, the ARS Fund will issue to SPhinX H-Class Shares of the ARS Fund having an aggregate net asset value equal to the aggregate value of SPhinX's assets so acquired. SPhinX will then immediately make a pro rata distribution of such ARS Fund H-Class Shares to SPhinX's Shareholders. Any assets of SPhinX that are not transferred to the ARS Fund pursuant to the Reorganization Agreement will be held in trust by SPhinX for the sole benefit of SPhinX's Shareholders. Any of SPhinX's assets that are subject to legal restrictions will not be included in the Statement of Assets and Liabilities and shall not be transferred to the ARS Fund. In addition, any obligations of SPhinX to pay current or former shareholders any tender proceeds from assets that are subject to legal restrictions will not be included in the Statement of Assets and Liabilities and, thus, will not be transferred 2 to the ARS Fund. Finally, any and all obligations that arise out of any action, proceeding, arbitration, or regulatory examination or investigation, whenever commenced, to the extent such obligations arise in connection with assets of SPhinX that are subject to pre-existing legal restrictions will not be included in the Statement of Assets and Liabilities or transferred to the ARS Fund. As a result of the Reorganization, each of SPhinX's Shareholders will receive the number of full and fractional H-Class Shares of the ARS Fund that are equal in value to that Shareholder's pro rata interest in the net assets transferred to the ARS Fund as of the close of business on the Closing Date. As a result, SPhinX's Shareholders will become shareholders of the ARS Fund. It is expected that the value of each SPhinX Shareholder's account in the ARS Fund immediately after the Reorganization will be the same as the value of that Shareholder's SPhinX account immediately prior to the Reorganization, less the value of any assets or liabilities of SPhinX that are not included in the Statement of Assets and Liabilities. SPhinX's Shareholders will not pay any sales load or sales commissions on the ARS Fund H-Class Shares they receive in the Reorganization or on the SPhinX shares they surrender in the Reorganization. At or following the distribution of the ARS Fund H-Class Shares to SPhinX's Shareholders, SPhinX will liquidate and distribute any of its assets and satisfy any of its liabilities that are not assumed by the ARS Fund, and its operations will be discontinued. SPhinX will be de-registered under the 1940 Act as soon as practicable following the Reorganization and will be dissolved under Delaware State law. The completion of the Reorganization is subject to certain conditions set forth in the Reorganization Agreement, including the following: o The Reorganization Agreement must have been approved by the Fund's Shareholders; o Notwithstanding approval by the Fund's Shareholders, the Reorganization may be terminated at any time prior to the Closing Date; o By either party upon a misrepresentation, breach of warranty or failure to perform any agreement or covenant by the other party in any of its representations, warranties, agreements or covenants set forth in the Reorganization Agreement; or o By the Board of Trustees of the Trust or the SPhinX Board if circumstances should develop that, in the good faith opinion of such Board, make proceeding with the Reorganization not in the best interests of the shareholders of the ARS Fund or the Fund, respectively. o Any authority from the SEC as may be necessary to permit the parties to carry out the transactions contemplated by the Reorganization Agreement shall have been received. REASONS FOR THE PROPOSED REORGANIZATION The Boards of the Trustees of the Fund and the Trust, including all of the Trustees who are not "interested persons" of the Fund or the Trust (as that term is defined in the 1940 Act), unanimously approved the Reorganization and the Reorganization Agreement after concluding that the Reorganization is in the best interest of each Fund and that the interests of the existing shareholders of each Fund will not be diluted as a result of the Reorganization. Consideration of the proposed Reorganization was prompted by three reasons in particular. First, the expense ratio of the ARS Fund is lower than that of the Fund. The Fund's annual total operating expenses (expressed as a percentage of average net assets) before any waivers, reimbursements or expense offsets ("Gross Expense Ratio") is 2.23%. The ARS Fund's Gross Expense Ratio is 1.70%. After fee waivers, reimbursements and expense offsets, the Actual Expense Ratio (net of waivers and reimbursements) was 1.70% for the ARS Fund and 1.95% for the Fund. Second, the ARS Fund offers increased liquidity. Because the Fund is structured as a closed-end fund, the Fund's Shareholders do not have the right to redeem their shares on a daily basis. Instead, in order to provide 3 for a limited degree of liquidity, the Fund offers to repurchase its shares from time to time pursuant to written tenders by the Fund's Shareholders. In addition, the Fund's shares are offered and may be purchased on a monthly basis only. In contrast, the ARS Fund is structured as an open-end fund, which permits shareholders of the ARS Fund to purchase or redeem shares on a daily basis. Third, the operations of the ARS Fund are not dependent on services provided by an unaffiliated third party. The Fund and RCP depend upon information and other services provided by PlusFunds Group Inc. ("PlusFunds") and others under the terms of a licensing agreement. Not only does the licensing agreement provide for the right of the Fund to invest in the underlying portfolio funds, which are the vehicles from which the performance of the S&P Hedge Fund Index (the "Index") is determined, but it also outlines certain services to be provided by PlusFunds to the Fund and RCP. For example, pursuant to the terms of the licensing agreement, PlusFunds is responsible for reporting daily pricing information and providing information regarding the holdings of certain underlying portfolio funds and the weightings of the Index components on a regular basis. As disclosed in the Fund's Prospectus, the Fund's investment performance could be adversely affected if: (i) the information provided by PlusFunds or others is inaccurate; (ii) the specified services are not provided or are inadequate; (iii) the Fund cannot invest in the portfolio funds based upon which the performance of the Index is determined; or (iv) the licensing agreement is terminated. Moreover, RCP may have little or no means of independently verifying information relating to the investment activities of the underlying portfolio funds and thus, may need to rely on PlusFunds or others to ascertain whether the portfolio managers of the underlying portfolio funds are adhering to their disclosed investment strategies or their investment or risk management policies. In addition to the aforementioned benefits of the Reorganization, RCP and the Board believe that the Fund and the ARS Fund are particularly well suited for the Reorganization because of the number of similarities between the Funds. Foremost, the investment objectives, policies and restrictions of the Fund and the ARS Fund are substantially similar. The ARS Fund seeks capital appreciation consistent with the return and risk characteristics of the hedge fund universe. Similarly, the Fund seeks investment returns that substantially correlate with the performance of the Index, which is designed to be representative of the broad range of major strategies that hedge funds employ. Consequently, both Funds seek returns produced by well-established investment strategies used by hedge funds. Both Funds are also organized as Delaware statutory trusts, ensuring that each Fund's shareholders are equally protected under Delaware law from any shareholder liability. The Board of Trustees of the Trust also believes that the increase in the current asset base of the ARS Fund resulting from the Reorganization, taken together with anticipated future growth, will present the opportunity for economies of scale that in turn may lower the annual fund operating expenses of the ARS Fund in the future. THE SPHINX BOARD RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" APPROVAL OF THE REORGANIZATION AGREEMENT. APPROVAL OF THE REORGANIZATION AGREEMENT The SPhinX Board recommends that the Fund's Shareholders vote to approve the Reorganization Agreement and the Reorganization that it describes. The SPhinX Board has approved the Reorganization Agreement based on its belief that the Reorganization is in the best interests of the Fund's Shareholders. At any time prior to the completion of the reorganization, the Board of either Fund, or an appropriate officer of either Fund, may terminate the agreement if circumstances develop that, in the opinion of the Board or officer, make proceeding with the reorganization inadvisable. FEDERAL TAX CONSEQUENCES The Reorganization is not designed to be tax-free. Thus, when Shareholders of the Fund become shareholders of the ARS Fund, they may realize a gain or loss for federal income tax purposes. However, in the event the Reorganization is not approved, the Fund and its Board may consider other alternatives to terminate the Fund such as liquidating the Fund. The liquidation and subsequent termination of the Fund could also result in a gain or loss for federal income tax purposes. 4 When you sell (tender) shares of the Fund, you may have a capital gain or loss. For tax purposes, an exchange of your shares of the Fund for shares of the ARS Fund is the same as a sale. The individual tax rate on any gain from the sale or exchange of your shares depends on how long you have held your shares. For more information about the tax consequences of owning shares of the ARS Fund, please see the accompanying ARS Prospectus. CAPITALIZATION The following table sets forth as of December 31, 2005: (i) the capitalization of the Fund; (ii) the capitalization of the H-Class Shares of the ARS Fund; and (iii) the pro forma combined capitalization of the H-Class Shares of the ARS Funds as adjusted to give effect to the proposed Reorganization. There is, of course, no assurance that the Reorganization will be consummated. Moreover, if consummated, the capitalizations of the Fund and the ARS Fund are likely to be different at the Closing Date as a result of Fund Shares being tendered, fluctuations in the value of portfolio securities, and ARS Fund daily share purchase and redemption activity.
- ----------------------------------------------------------------------------------------------------------------------------- CAPITALIZATION TABLES OF SPHINX AND THE ARS FUND AS OF DECEMBER 31, 2005 - ----------------------------------------------------------------------------------------------------------------------------- FUND NET ASSETS NET ASSET VALUE PER SHARE NUMBER OF SHARES OUTSTANDING - -------------------------------- ------------------------------ ------------------------------ ------------------------------ SPhinX $174,787,785 $103.81 1,683,709 - -------------------------------- ------------------------------ ------------------------------ ------------------------------ ARS Fund - -------------------------------- ------------------------------ ------------------------------ ------------------------------ H-Class Shares $9,898,852 $24.90 397,564 - -------------------------------- ------------------------------ ------------------------------ ------------------------------ C-Class Shares $2,049,677 $24.85 82,497 - -------------------------------- ------------------------------ ------------------------------ ------------------------------ A-Class Shares $1,686,640 $24.89 67,752 ------ - -------------------------------- ------------------------------ ------------------------------ ------------------------------ Total ARS Shares 547,813 Outstanding - -------------------------------- ------------------------------ ------------------------------ ------------------------------ REDUCTION IN NET ASSETS AND DECREASE IN NET ASSET VALUES PER SHARE TO REFLECT THE ESTIMATED EXPENSES OF THE REORGANIZATION: - -------------------------------- ------------------------------ ------------------------------ ------------------------------ SPhinX* N/A N/A N/A - -------------------------------- ------------------------------ ------------------------------ ------------------------------ ARS Fund** N/A N/A N/A - -------------------------------- ------------------------------ ------------------------------ ------------------------------ - -------------------------------- ------------------------------ ------------------------------ ------------------------------ COMBINED PRO-FORMA OF SPHINX AND THE ARS FUND: - -------------------------------- ------------------------------ ------------------------------ ------------------------------ ARS Fund - -------------------------------- ------------------------------ ------------------------------ ------------------------------ H-Class Shares*** $93,140,870 $24.90 3,740,617 - -------------------------------- ------------------------------ ------------------------------ ------------------------------ C-Class Shares $2,049,677 $24.85 82,497 - -------------------------------- ------------------------------ ------------------------------ ------------------------------ A-Class Shares $1,686,640 $24.89 67,752 ------ - -------------------------------- ------------------------------ ------------------------------ ------------------------------ Total ARS Shares 3,890,866 Outstanding - ----------------------------------------------------------------------------------------------------------------------------- Notes: - ------ *Because the Fund's expenses have been capped at 1.95%, the cost of the reorganization will be borne by RCP. **Any and all obligations that arise out of any action, proceeding, arbitration, or regulatory examination or investigation, whenever commenced, to the extent such obligations arise in connection with assets of the Fund that are subject to pre-existing legal restrictions, will not be included in the Statement of Assets and Liabilities or transferred to the ARS Fund. ***The amount of assets to be transferred to the ARS Fund is based on the net assets of the Fund as of December 31, 2005, which was $174,787,785, less the tender requests received for the March 31, 2006 tender period, which equaled $81,257,428, and a potential holdback of 11% of all remaining assets equal to $10,288,339 due to a court ruling related to the bankruptcy of Refco, Inc. For further information regarding the Refco bankruptcy, please see the Supplement, dated December 30, 2005, to the SPhinX Prospectus.
5 COMPARISON OF THE FUNDS
- --------------------------------------------------------------------------------------------------------------------------------- SPHINX ARS FUND - --------------------------------------------------------------------------------------------------------------------------------- INVESTMENT OBJECTIVES: - --------------------------------------------------------------------------------------------------------------------------------- To seek investment returns that substantially To seek to provide capital appreciation consistent with the return correlate with the performance of the Standard and risk characteristics of the hedge fund universe. The & Poor's(R) Hedge Fund Index (the "Index") secondary objective is to achieve these returns with low (before Fund expenses). correlation to and less volatility than equity indices. - --------------------------------------------------------------------------------------------------------------------------------- INVESTMENT STRATEGIES: - --------------------------------------------------------------------------------------------------------------------------------- The Fund pursues its investment objective by The ARS Fund employs a proprietary quantitative style investing its assets primarily in private analysis to drive an investment strategy designed to investment funds and other investment vehicles provide investment returns similar to the returns produced ("Portfolio Funds") that are managed by the by well-established investment strategies widely employed managers selected by Standard & Poor's by hedge funds. ("Portfolio Managers") or by investing in financial instruments that provide investment The Fund pursues its investment objective by allocating returns that are linked to the performance of capital to gain exposure to a combination of directional the Index (or to one or more components of the and non-directional positions including, but not limited Index) ("Index Derivatives"). To the extent to, those listed below. The Fund will predominately have a practicable, Rydex intends to implement the long exposure to directional and non-directional positions. Fund's investment program by investing the There may be times that the Fund will have a short exposure Fund's assets in Portfolio Funds, the to one or more of the directional and/or non-directional performance of which is reflected in the positions listed below. Index. The Fund may decide to invest in Index --------------------------------------------------------------------------- Derivatives when deemed necessary in order to, DIRECTIONAL NON-DIRECTIONAL among other things, satisfy the source of POSITIONS POSITIONS income requirements imposed under the Internal (Market neutral investment Revenue Code of 1986, or overcome certain strategies) regulatory limitations, such as rules that --------------------------------------------------------------------------- restrict investments by the Fund in Portfolio o Equities - a portfolio o Market - an equity Funds. The Fund normally invests at least 80% consisting of Neutral portfolio consisting of the value of its net assets (plus the amount a basket of Value of value stocks and of any borrowings for investment purposes) in stocks or short positions in Portfolio Funds that are managed by the index futures non-value stocks Portfolio Managers and Index Derivatives. --------------------------------------------------------------------------- o Fixed - a portfolio o Market - an equity The investment programs used by the Portfolio Income consisting of Neutral portfolio consisting Managers typically involve use of a variety of U.S. Government Growth of growth stocks and sophisticated investment techniques that securities or short positions in include, among others, short sales of bond futures non-growth stocks securities, use of leverage (I.E., borrowing --------------------------------------------------------------------------- money for investment purposes) and transactions o Commodities - a portfolio o Market - an equity in derivative securities and other financial consisting of Neutral portfolio consisting instruments such as stock options, index instruments Momentum of stocks that options, futures contracts and options on with commodity exhibit strong price futures. Portfolio Managers' use of these exposure momentum and short techniques is an integral part of their positions in stocks investment programs, and involves significant that exhibit weak risks to the Fund. price momentum --------------------------------------------------------------------------- o Currencies - a portfolio o Market - an equity consisting of Neutral portfolio a basket of Capitalization consisting foreign of small-cap currencies stocks and short positions in large-cap stocks --------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------------
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- --------------------------------------------------------------------------------------------------------------------------------- SPHINX ARS FUND - --------------------------------------------------------------------------------------------------------------------------------- o Covered - a portfolio of o Merger - an equity Call short call options Arbitrage portfolio Options which are fully Spreads consisting of covered by holdings acquired stocks of the underlying and short security positions in acquiring stocks --------------------------------------------------------------------------- o Long - a portfolio o Duration - a bond portfolio Options of call or put Neutral consisting of options Term 10-year U.S. Spreads Government securities and short positions in 2-year U.S. Government securities --------------------------------------------------------------------------- o Duration - a bond portfolio Neutral consisting of Default corporate bonds and Spreads short positions in U.S. Government securities of a similar duration --------------------------------------------------------------------------- The Fund may use moderate leverage subject to internally imposed investment constraints that are more restrictive than those imposed by the federal securities laws and designed to limit the amount of loss resulting from such leverage. The Fund's use of directional and non-directional positions and internal investment controls result in a portfolio of assets designed to provide appropriate hedge fund portfolio characteristics as well as providing risk diversification. The Fund may be long or short in a broad mix of financial assets including U.S. and foreign equities of any capitalization range, currencies, commodities, futures, options, swap agreements, high yield securities, and corporate debt. The Fund may hold U.S. Government securities or cash equivalents to collateralize its derivative positions. The investment objective of the Fund is non-fundamental and may be changed without shareholder approval. - --------------------------------------------------------------------------------------------------------------------------------- PRINCIPAL RISKS: - --------------------------------------------------------------------------------------------------------------------------------- An investment in the Fund involves substantial The ARS Fund is subject to a number of risks that may risks and special considerations. These risks affect the value of its shares, including: and special considerations include the following: FOREIGN CURRENCY RISK - The ARS Fund's exposure to foreign currencies subject the ARS Fund to the risk that those o Investing in the Fund can result in currencies will decline in value relative to the U.S. a loss of capital invested. Dollar, or, in the case of short positions, that the U.S. Dollar will decline in value relative to the currency being o Various risks are associated with hedged. Currency rates in foreign countries may fluctuate the securities and other instruments in which significantly over short periods of time for a number of Portfolio Managers invest and the specialized reasons, including changes in interest investment - ---------------------------------------------------------------------------------------------------------------------------------
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- --------------------------------------------------------------------------------------------------------------------------------- SPHINX ARS FUND - --------------------------------------------------------------------------------------------------------------------------------- techniques they use, including the use of rates and the imposition of currency controls or other leverage and short sales (which are considered political developments in the U.S. or abroad. As a result, to be speculative practices) and the use the ARS Fund's exposure to foreign currency may reduce of derivatives (which also involves risks). the returns of the ARS Fund. o The investment performance of the MARKET RISK - The ARS Fund's value may fluctuate from day Fund may fail to track closely the performance to day. Due to market conditions, ARS Fund shares may of the Index due to various factors, including, decline in value causing you to lose money. but not limited to: the impact of the fees and expenses borne by the Fund, including EQUITY RISK - The equity markets are volatile, and the transaction costs; the inability of the Fund to value of the ARS Fund's equity securities and equity gain access to one or more Portfolio Funds or derivatives, such as futures and options contracts, may Portfolio Managers; and limitations on the fluctuate significantly from day to day. This volatility Fund's investments resulting from the need to may cause the value of your investment in the ARS Fund to comply with the Fund's investment restrictions decrease. or policies, or with regulatory or tax law requirements. FIXED INCOME RISK - The ARS Fund's fixed income investments will change in value in response to interest rate changes o Shares of the Fund have only and other factors. In addition, the value of securities limited liquidity. with longer maturities will fluctuate more in response to interest rate changes. o The Fund is a non-diversified fund and invests in Portfolio Funds that may not HIGH YIELD RISK - The ARS Fund's investments in high yield have diversified investment portfolios and may, securities and unrated securities of similar credit quality in some cases, concentrate their investments (commonly known as "junk bonds") may be subject to greater in a single industry or group of related levels of interest rate, credit and liquidity risk than industries. funds that do not invest in such securities. These securities are considered predominately speculative with o Certain Portfolio Managers invest respect to the issuer's continuing ability to make in the securities of companies having small principal and interest payments. An economic downturn or market capitalizations, which involve greater period of rising interest rates could adversely affect the risks than would be involved in investing in market for these securities and reduce the ARS Fund's securities of companies having larger market ability to sell these securities (liquidity risk). If the capitalizations. issuer of a security is in default with respect to interest or principal payments, the ARS Fund may lose its entire o Each Portfolio Manager generally investment. charges its Portfolio Fund an asset-based management fee and a performance-based FOREIGN SECURITIES RISK - Investments in securities of allocation. Such fees are borne indirectly by foreign companies can be more volatile than investments in the Fund and are in addition to the Advisory U.S. companies. Diplomatic, political, or economic Fee and the Administration Fee paid by the Fund. developments could adversely affect investment in foreign countries. Foreign companies generally are not subject to o The right to receive a accounting, auditing, and financial reporting standards performance-based allocation may create an comparable to those applicable to U.S. companies. incentive for a Portfolio Manager to make risky investments and may be payable by a DERIVATIVES RISK - The ARS Fund's use of equity derivatives Portfolio Fund, and thus, indirectly by the such as futures, options and swap agreements to pursue its Fund, to its Portfolio Manager even if the investment objectives may expose the ARS Fund to additional Fund's overall returns are negative. risks that it would not be subject to if it invested directly in the securities underlying those derivatives. o Rydex and the Portfolio Managers These risks may cause the ARS Fund to experience higher may have conflicts of interest, including losses than a fund that does not use derivatives. conflicts relating to the allocation of investment opportunities between the Fund or a LEVERAGING RISK - The more the ARS Fund invests in Portfolio Fund and other advised accounts. leveraged instruments, the more this leverage will magnify any losses on those investments. o Portfolio Managers pursue their investment programs independently and one SWAP COUNTERPARTY CREDIT RISK - The ARS Fund is subject to Portfolio Manager may enter into transactions credit risk on the amount it expects to receive from that offset the transactions of another Portfolio - ---------------------------------------------------------------------------------------------------------------------------------
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- --------------------------------------------------------------------------------------------------------------------------------- SPHINX ARS FUND - --------------------------------------------------------------------------------------------------------------------------------- Manager. This may result in the Fund bearing swap agreement counterparties. If a swap counterparty defaults transaction costs without obtaining any benefit. on its payment obligations to the ARS Fund, this default will cause the value of your investment in the ARS Fund to o Portfolio Funds will not be decrease. registered as investment companies under the Investment Company Act and therefore the Fund, SMALL AND MEDIUM ISSUER RISK - Small and medium as an investor in Portfolio Funds, will not capitalization companies may be more vulnerable than have the benefit of the protections afforded by larger, more established organizations to adverse business the Investment Company Act. or economic developments. In particular, small capitalization companies may have limited product lines, o Rydex may have little or no means markets, and financial resources and may be dependent upon of independently verifying information a relatively small management group. These securities may relating to the investment activities of the trade over-the-counter or listed on an exchange and may or Portfolio Funds and thus, may need to rely on may not pay dividends. PlusFunds or others to ascertain whether Portfolio Managers are adhering to their SHORT SALES RISK - Short sales are transactions in which disclosed investment strategies or their the ARS Fund sells a security it does not own. If the investment or risk management policies. security the ARS Fund sold short goes down in price between the time the ARS Fund sells the security and closes its o The Fund and RCP depend upon short position, the ARS Fund will realize a gain on the information and other services provided by transaction. Conversely, if the security goes up in price PlusFunds and others under the terms of a during the period, the ARS Fund will realize a loss on the licensing agreement. In addition, the transaction. The risk of such price increases is the licensing agreement provides the right for the principal risk of engaging in short sales. Fund to invest in the Portfolio Funds which are the vehicles from which the performance of the NON-DIVERSIFICATION RISK - The ARS Fund is considered Index is determined. The Fund's investment non-diversified and can invest a greater portion of its performance could be adversely affected if: assets in securities of individual issuers than a the information provided by PlusFunds or others diversified fund. As a result, changes in the market value is inaccurate; those services are not provided of a single security could cause greater fluctuations in or are inadequate; it cannot invest in the the value of ARS Fund shares than would occur in a Portfolio Funds based upon which the diversified fund. performance of the Index is determined or if the licensing agreement is terminated. PORTFOLIO TURNOVER RISK - Due to its investment strategy, the ARS Fund may buy and sell securities frequently. Higher o The Fund relies primarily on portfolio turnover may result in higher transactional costs information provided by PlusFunds and others and short-term capital gains that will be treated as in valuing its investments in Portfolio Funds ordinary income for tax purposes. As a result, portfolio and determining the value of the Fund's turnover may have a negative effect on the ARS Fund's shares. There is a risk that inaccurate performance. valuations could adversely affect investors who purchase Fund shares or whose shares are repurchased by the Fund, or existing shareholders. o Investors bear fees and expenses at the Fund level and also indirectly bear fees, expenses and performance-based allocations that are imposed at the Portfolio Fund level. o The Fund may make additional investments in or effect withdrawals from Portfolio Funds only at specified times and in connection with withdrawals, the Fund may receive securities that are illiquid or difficult to value. o A Portfolio Fund is an unregistered investment company managed by one (or more) of - ---------------------------------------------------------------------------------------------------------------------------------
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- --------------------------------------------------------------------------------------------------------------------------------- SPHINX ARS FUND - --------------------------------------------------------------------------------------------------------------------------------- the Portfolio Managers identified by Standard & Poor's. These unregistered funds are typically majority owned, administered by PlusFunds and advised by the Portfolio Managers. The Portfolio Funds are the underlying components of the Index as determined by Standard & Poors. - ---------------------------------------------------------------------------------------------------------------------------------
COMPARISON OF FUND PERFORMANCE The ARS Fund is new and therefore does not have a performance history for a full calendar year. The ARS Prospectus accompanies this Combined Proxy Statement/Prospectus. Performance information for SPhinX is contained in the SPhinX Prospectus, which has been filed with the SEC and also accompanies this Combined Proxy Statement/Prospectus. COMPARATIVE FEE AND EXPENSE TABLES The table below shows: (i) information regarding the fees and expenses paid by SPhinX during its most recent fiscal year ended March 31, 2005; (ii) information regarding the fees and expenses of the ARS Fund; and (iii) estimated fees and expenses on a pro forma basis giving effect to the proposed Reorganization. While actual expenses may be greater or less than those shown, the expenses of the H-Class Shares of the ARS Fund are not expected to change materially as a result of the proposed Reorganization. The table shows that the total operating expenses of the H-Class Shares of the ARS Fund are lower than the total operating expenses of SPhinX.
- --------------------------------------------------------------------------------------------------------------------------- SHAREHOLDER TRANSACTION EXPENSES (FEES PAID DIRECTLY FROM YOUR INVESTMENT) - --------------------------------------------------------------------------------------------------------------------------- ARS FUND PRO-FORMA SPHINX H-CLASS SHARES COMBINED - --------------------------------------------------------------------------------------------------------------------------- Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price) 3.00%(1) None None - --------------------------------------------------------------------------------------------------------------------------- Maximum Deferred Sales Charge (Load) None None None - --------------------------------------------------------------------------------------------------------------------------- Maximum Sales Charge (Load) Imposed on Reinvested Dividends None None None - --------------------------------------------------------------------------------------------------------------------------- Redemption Fees (as a percentage of amount redeemed, if applicable) 1.00%(2) 1.00%(3) 1.00%(3) - --------------------------------------------------------------------------------------------------------------------------- Exchange Fees None None None - --------------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------------- ANNUAL OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS) - --------------------------------------------------------------------------------------------------------------------------- Management Fee (4) 1.75% 1.15% 1.15% - --------------------------------------------------------------------------------------------------------------------------- Distribution (12b-1) and Service Fees -- 0.25% 0.25% - --------------------------------------------------------------------------------------------------------------------------- Other Expenses 0.28% -- -- - --------------------------------------------------------------------------------------------------------------------------- Short Dividend Expenses -- 0.30%(5) 0.30%(5) - --------------------------------------------------------------------------------------------------------------------------- Administration Fee 0.20% -- - --------------------------------------------------------------------------------------------------------------------------- Total Annual Fund Operating Expenses 2.23% 1.70% 1.70% - --------------------------------------------------------------------------------------------------------------------------- Less Fee Waiver and/or Expense Reimbursements (0.28)%(6) -- -- - --------------------------------------------------------------------------------------------------------------------------- NET EXPENSES 1.95%(7) 1.70% 1.70% - --------------------------------------------------------------------------------------------------------------------------- Reorganization Expenses (8) N/A 0.00% N/A - --------------------------------------------------------------------------------------------------------------------------- TOTAL EXPENSES (INCLUDING REORGANIZATION EXPENSES) 1.95% 0.00% 1.70% - ---------------------------------------------------------------------------------------------------------------------------
10 (1) Shares are sold subject to the following sales loads: - -------------------------------------------------------------------------------- SALES LOAD INVESTMENT (AS A PERCENTAGE OF PUBLIC OFFERING PRICE) - -------------------------------------------------------------------------------- Less than $150,000 3.00% - -------------------------------------------------------------------------------- $150,000 to less than $500,000 2.00% - -------------------------------------------------------------------------------- $500,000 or more 1.00% - -------------------------------------------------------------------------------- Under a right of accumulation offered by the Fund, the amount of each additional investment in the Fund by an investor will be aggregated with the amount of the investor's initial investment and any other additional previous investments in the Fund by the investor in determining the applicable sales load at the time of the subsequent investment. The sales load is waived for certain types of investors. (2) The redemption fee normally applies to a repurchase of shares if the valuation date for the repurchase is less than one-year after the date the shares were purchased. Nonetheless, this fee is currently being waived. (3) The redemption fee applies to redemptions of shares held for less than 30 days. (4) Rydex Investments (the "Advisor") has agreed to pay all operating expenses of the ARS Fund, excluding interest expense and taxes (expected to be de minimis), brokerage commissions and other expenses connected with the execution of portfolio transactions, short dividend expenses, and extraordinary expenses. (5) Short dividend expenses are estimated. Short Dividend Expense occurs because the ARS Fund short-sells the equity security to gain the inverse exposure necessary to meet its investment objective. The ARS Fund must pay out the dividend rate of the equity security to the purchaser and records this as an expense. However, any such dividend on a security sold short generally reduces the market value of the shorted security - thus increasing the ARS Fund's unrealized gain or reducing the ARS Fund's unrealized loss on its short sale transaction. Short Dividend Expense is not a fee charged to the shareholder by the Advisor or other service provider. Rather it is more similar to the transaction costs or capital expenditures associated with the day-to-day management of any mutual fund. If these costs had been treated as transaction costs or capital items rather than as expenses, the expense ratio for H-Class Shares would have equaled 1.40%. (6) Through July 31, 2025, RCP has contractually agreed to waive its fees or to pay or absorb the ordinary operating expenses of SPhinX to the extent necessary to limit the ordinary operating expenses of the Fund (but excluding interest expenses, brokerage commissions, indirect fees associated with the Fund's investment in portfolio funds and extraordinary expenses) to not more than 1.95% per annum of the average monthly net assets of the Fund (the "Expense Limitation"). The Expense Limitation may not be modified or eliminated, except with the approval of the Board. (7) Repurchase fees, if any, received by SPhinX in connection with repurchase offers will be deemed to offset Fund expenses for purposes of the Expense Limitation. Thus, the Fund's ordinary operating expenses may exceed the Expense Limitation by an amount equal to the amount of repurchase fees the Fund receives. As a result, Annual Expenses After Waiver will be 1.95% as a percentage of net assets, plus the amount of repurchase fees received by the Fund. The Fund's actual operating expense ratio after repurchase fees was 1.96% for the fiscal year ended March 31, 2005. (8) Due to SPhinX's expense cap of 1.95%, the cost of the reorganization will be borne by RCP. EXAMPLE: The following example is intended to help you compare the cost of investing in SPhinX and the ARS Fund, respectively, (and investing in the combined fund on a pro-forma basis given effect to the Reorganization) with the cost of investing in other mutual funds. 11 This example assumes that you invest $10,000 in SPhinX and the ARS Fund, respectively (and in the combined fund on a pro forma basis given effect to the Reorganization) for the time periods indicated. The Example also assumes that your investment has a 5% return each year and that SPhinX's and the ARS Fund's operating expenses, respectively, (and the combined fund on a pro forma basis given effect to the Reorganization) remain the same. Although actual costs may be higher or lower, based upon these assumptions your costs would be: - -------------------------------------------------------------------------------- 1 YEAR 3 YEARS 5 YEARS 10 YEARS - -------------------------------------------------------------------------------- SPHINX* $514 $991 $1,544 $3,313 - -------------------------------------------------------------------------------- ARS FUND $179 $553 -- -- - -------------------------------------------------------------------------------- PRO-FORMA COMBINED $179 $553 -- -- - -------------------------------------------------------------------------------- * The example included in the SPhinX Prospectus assumes that you invest $1,000 in the Fund and that your investment has a 5% return each year. Based on those assumptions your costs would be: 1 year--$49; 3 years--$89; 5 years--$132; and 10 years--$251. COMPARISON OF FUND DISTRIBUTIONS, PURCHASE AND REDEMPTION PROCEDURES AND EXCHANGE RIGHTS THE ARS FUND. The ARS Fund is presently authorized to offer three classes of shares - A-Class, C-Class and H-Class Shares. Only H-Class Shares will be issued in the Reorganization. H-Class Shares are offered directly through Rydex shareholder services and also through authorized securities brokers and other financial intermediaries. Transaction orders to buy, sell or exchange H-Class Shares of the ARS Fund may be submitted on any day that the New York Stock Exchange is open for business (a "Business Day"). H-Class Shares of the ARS Fund may be exchanged for H-Class, Investor Class, or Advisor Class Shares of any other Rydex Fund, on any Business Day on the basis of the respective net asset values of the shares involved. The minimum amount for an exchange is either $1,000 or 100% of the Fund position from which the exchange is coming, whichever is less. The ARS Fund's H-Class Shares are not subject to a front-end sales charge or deferred sales charge, but are subject to an annual 12b-1 fee of 0.25% of the ARS Fund's average net assets attributable to H-Class Shares. H-Class Shares of the ARS Fund are also subject to a 1.00% redemption fee on redemptions of shares that have been held for less than 30 days. The ARS Fund reserves the right to waive the redemption fee in its discretion where the ARS Fund believes such waiver is in the best interests of the Fund. The minimum initial investment amount and minimum account balance for H-Class Shares are: $25,000 for self-directed accounts (including retirement accounts) and $15,000 for accounts managed by financial professionals. There are no minimum amounts for subsequent investments in the ARS Fund. The Advisor reserves the right to modify its minimum account requirements at any time, with or without prior notice to you. For more information regarding the ARS Fund's distribution arrangements, please refer to the ARS Prospectus, which accompanies this Combined Proxy Statement/Prospectus, and is incorporated herein by reference. The ARS Fund will declare and pay any dividends from net investment income annually. The ARS Fund also intends to distribute any net capital gains annually. Distributions will automatically be reinvested in additional shares of the ARS Fund, unless a shareholder elects to have the distributions paid in cash. SPHINX. The Fund offers only one class of shares to "Eligible Investors" only. The term "Eligible Investor" includes, among others, an individual who: (i) had income in excess of $200,000 (or joint income with the investor's spouse in excess of $300,000) in each of the two preceding years and has a reasonable expectation of reaching the same income level in the current year; (ii) has a net worth (or joint net worth with the investor's spouse) in excess of $1 million; or (iii) has an account managed by an investment adviser registered under the Investment Advisers Act of 1940, as amended (the "Advisers Act") and the adviser is subscribing for shares in a fiduciary capacity on behalf of the account. For additional information about the Fund's investor eligibility requirements, please see the SPhinX Prospectus accompanying this Combined Proxy Statement/Prospectus. The Fund's shares are offered for sale by the Distributor and through brokers or dealers that have entered into selling 12 agreements with the Distributor. Shares are offered and may be purchased on a monthly basis (or at such other times as may be determined by the SPhinX Board). No shareholder of the Fund has a right to require the Fund to redeem its shares. To provide limited liquidity, the Fund offers to repurchase its shares pursuant to written tenders by shareholders from time to time. Repurchase offers are made at the discretion of the SPhinX Board and are generally offers to repurchase a specified amount of the Fund's outstanding shares. RCP has recommended to the SPhinX Board that the Fund make repurchase offers four times each year, as of the last business day of March, June, September and December. In the event that a repurchase offer is oversubscribed by shareholders who tender their shares for repurchase, the Fund will repurchase only a pro-rata portion of the shares tendered by each shareholder. The Fund's shares are subject to a 3.00% maximum sales load on an investment of less than $150,000. The Fund's shares are also subject to a repurchase fee equal to 1.00% of the value of shares repurchased by the Fund, if the date as of which the shares are valued for purposes of repurchase is less than one-year following the date of the shareholder's purchase of the shares (for this purposes, the first shares purchased by a shareholder will be deemed to be the first shares sold by the shareholder). The Fund's repurchase fee will be waived for all Fund Shareholders in connection with the Reorganization and/or Special Repurchase Offer, as described in the accompanying repurchase offer materials. The minimum initial investment amount is $25,000, including the applicable sales load. Subsequent investments must be at least $5,000, including the applicable sales load. A shareholder who tenders only a portion of his or her shares will be required to maintain a minimum balance of $15,000 of shares as of the repurchase date. The Fund reserves the right to modify the required minimum amounts from time to time. For more information regarding the Fund's distribution arrangements, please refer to the SPhinX Prospectus, which accompanies this Combined Proxy Statement/Prospectus, and is incorporated herein by reference. The Fund pays dividends to shareholders at least annually in aggregate amounts representing substantially all of the Fund's net investment income, if any, earned during the year. The Fund's long-term capital gains, if any, are also distributed annually. All dividends and other distributions are reinvested in additional shares of the Fund unless a shareholder elects to receive payment in cash. FUND ORGANIZATION AND MANAGEMENT SPHINX AND RCP The Fund was organized as a Delaware statutory trust on December 4, 2002 and is registered as a non-diversified, closed-end management investment company under the 1940 Act. The Fund commenced operations on June 30, 2003. Rydex Capital Partners I, LLC, located at 9601 Blackwell Road, Suite 500, Rockville, Maryland 20850, serves as the Fund's investment adviser. RCP is a Delaware limited liability company and is registered as an investment adviser under the Advisers Act. The managing member of RCP is Rydex Partners I, LLC, a Delaware limited liability company which in turn is wholly-owned by PADCO Advisors II, Inc., a Maryland corporation that is a registered investment adviser under the Advisers Act. RCP is affiliated with PADCO Advisors, Inc. and PADCO Advisors II, Inc., which conduct their businesses under the name Rydex Investments. Pursuant to an investment advisory agreement with the Fund (the "Investment Advisory Agreement"), RCP is responsible for developing, implementing and supervising the Fund's investment program and providing day-to-day investment management services to the Fund. In consideration for the investment advisory services provided by RCP, the Fund pays RCP a fee (the "Advisory Fee") calculated and paid monthly in arrears at the annual rate of 1.75% of the value of the Fund's net assets, determined as of the beginning of each month. The Advisory Fee is in addition to the fees and expenses borne by the Fund as an investor in the underlying portfolio funds. A pro-rata refund of a portion of the Advisory Fee will be made to the Fund in the event that the Investment Advisory Agreement is terminated at any time other than the end of a month. 13 RCP has entered into a licensing agreement with PlusFunds to obtain the right to offer shares of a registered investment company that pursues an investment program that seeks to track the Index and to obtain information and assistance from PlusFunds to facilitate the operations of the Fund. Fees payable to PlusFunds under this agreement are paid by RCP and not by the Fund. The Fund is managed by a team of investment professionals. The following portfolio manager, who is a member of Rydex Investments' Investment Leadership Team, is primarily responsible for the day-to-day management of the Fund and has final portfolio management decision-making authority. MICHAEL P. BYRUM, CFA, President of Rydex Capital Partners I, LLC. Mr. Byrum was named Chief Operating Officer of Rydex Investments in 2003 and has served as Chief Investment Officer of Rydex Investments since 2000. He has been associated with Rydex Investments and its affiliates since 1993 and during this time, has played a key role in the development of the firm's investment strategies and product offerings. As Senior Portfolio Manager, Mr. Byrum was instrumental in the launch of the OTC, Precious Metals, U.S. Government Bond, Ursa and Arktos Funds, and helped to create the Rydex Sector Funds. He was named Vice President of Portfolio for Rydex Investments in 1998, and Executive Vice President in 2000. Prior to joining Rydex Investments, Mr. Byrum worked for Money Management Associates, the investment adviser for Rushmore Funds, Inc. He holds a degree in finance from Miami University of Ohio. Mr. Byrum has managed the Fund since its inception. Additional information about Mr. Byrum's compensation, other accounts managed by him, and his ownership of securities in the Fund is available in the SPhinX SAI, which is incorporated herein. A discussion regarding the basis for the SPhinX Board's approval of the investment advisory agreement is available in the Trust's Semi-Annual Report to Shareholders for the period ended September 30, 2005. THE ARS FUND AND RYDEX INVESTMENTS Rydex Investments, 9601 Blackwell Road, Suite 500, Rockville, Maryland 20850, serves as the investment adviser and manager of the ARS Fund. Rydex Investments has served as the investment adviser of the Trust since its inception in 1993, and also serves as sub-adviser to several other mutual funds. Rydex Investments makes investment decisions for the assets of the ARS Fund and continuously reviews, supervises, and administers the Fund's investment program. The Trust's Board of Trustees supervises Rydex Investment and establishes policies that Rydex Investments must follow in its day-to-day management activities. Pursuant to the investment advisory agreement between the Trust and Rydex Investments, the ARS Fund pays Rydex Investments an annualized rate of 1.15% based on the average daily net assets of the ARS Fund. Rydex Investments bears all of its own costs associated with providing these advisory services and the expenses of the members of the Trust's Board of Trustees who are affiliated with Rydex Investments. As part of its agreement with the Trust, Rydex Investments will pay all expenses of the ARS Fund, including the cost of transfer agency, custody, fund administration, legal, audit and other services, except interest expense, taxes (expected to be de minimis), brokerage commissions and other expenses connected with execution of portfolio transactions, short dividend expenses, and extraordinary expenses. The ARS Fund is managed by a team of investment professionals. Mr. James R. King, CFA, and Mr. Byrum, whose biographical information is included above, are jointly and primarily responsible for the day-to-day management of the ARS Fund. Mr. King is also a member of Rydex Investments' Investment Leadership Team and together with Mr. Byrum, they share final portfolio management decision-making authority. Mr. King's biographical information follows: JAMES R. KING, CFA, joined Rydex Investments in 1996 and was promoted to assistant portfolio manager in 1997. In 1998, he became a portfolio manager and was promoted in 2001 to senior portfolio manager and currently serves as director of portfolio management. Mr. King has served as an interim director of equity trading and investment operations. Currently, Mr. King's team manages all of the Rydex Investments leveraged and inverse funds, as well as Rydex Sector Rotation Fund. Mr. King is a member of Rydex Investments' 14 Investment Leadership Team, which determines investment policy for all Rydex Funds. Prior to joining Rydex Investments, he worked as a registered representative at DMG Securities. He holds a degree in finance from the University of Maryland. Mr. King has co-managed the ARS Fund since its inception. Additional information about the Mr. King's compensation, other accounts managed by him, and his ownership of securities in the ARS Fund is available in the ARS SAI, which is incorporated by reference herein. A discussion regarding the basis for approval of the investment advisory agreement by the Board of Trustees of the Trust is available in the Trust's Semi-Annual Report to Shareholders for the period ended September 30, 2005. ADDITIONAL INFORMATION OTHER SERVICE PROVIDERS The following firms serve in the indicated capacities for the Fund and the ARS Fund pursuant to contractual relationships: - -------------------------------------------------------------------------------- SPHINX ARS FUND - -------------------------------------------------------------------------------- DISTRIBUTOR Rydex Distributors, Inc. 9601 Blackwell Road Suite 500 Rockville, Maryland 20850 - -------------------------------------------------------------------------------- ADMINISTRATOR Rydex Capital Partners I, LLC Rydex Fund Services, Inc. 9601 Blackwell Road 9601 Blackwell Road Suite 500 Suite 500 Rockville, Maryland 20850 Rockville, Maryland 20850 Sub-Administrator: Citigroup Fund Services, LLC Two Portland Square Portland, Maine 04101 - -------------------------------------------------------------------------------- VOTING INFORMATION As a Delaware statutory trust, the Fund is not required to hold annual meetings of Shareholders. The Fund, however, may hold shareholder meetings from time to time on important matters. Shareholders also have the right to call a meeting to remove a Trustee or to take other action described in the Fund's organizing documents. Also, if at any time, less than a majority of the Trustees holding office has been elected by the Shareholders of the Fund, the Trustees then in office will promptly call a shareholders' meeting for the purpose of electing Trustees to the Fund. The SPhinX Board has called the Special Meeting in order to permit the Shareholders to consider and vote on the Proposal set forth in the foregoing notice. If you wish to participate in the Special Meeting you may submit the proxy card included with this Combined Proxy Statement/Prospectus or attend in person. Your vote is important no matter how many shares you own. You can vote easily and quickly by mail, by Internet, by telephone or in person. At any time before the Special Meeting, you may change your vote, even though a proxy has already been returned, by written notice to the Fund at 9601 Blackwell Road, Suite 500, Rockville, Maryland 20850 or by submitting a subsequent proxy, by mail, by Internet, by telephone or by voting in person at the Special Meeting. Should Shareholders require additional information regarding the Proposal contained in the Combined Proxy Statement/Prospectus, they may contact D.F. King at 1-800-628-8528. 15 As of March 1, 2006, the Fund had [XXXXXXX] units of beneficial interest ("shares") issued and outstanding. Only shareholders of the Fund at the close of business on March 1, 2006 are entitled to notice of, and to vote at, the Special Meeting or any adjournment thereof. VOTE REQUIRED TO APPROVE PROPOSAL If a quorum is present at the Special Meeting, the affirmative vote of a majority of the shares present and entitled to vote at the Special Meeting or represented by proxy will be required to approve the Proposal. Shares represented by duly executed proxies will be voted in accordance with the instructions given. All proxy cards solicited that are properly executed and received in time to be voted at the Special Meeting will be voted at the Special Meeting or any adjournment thereof according to the instructions on the proxy card. The persons named as attorneys-in-fact in the enclosed proxy have advised the Fund that if no specification is made on a proxy card, it will be voted FOR the matters specified on the proxy card. Abstentions and broker non-votes will not be counted for or against the Proposal, but will be counted for purposes of determining whether a quorum is present. The Fund believes that brokers who hold shares as record owners for beneficial owners have the authority under the rules of the various stock exchanges to vote those shares with respect to the Proposal when they have not received instructions from beneficial owners. QUORUM AND MEETING ADJOURNMENTS Each whole share is entitled to one vote, and each fractional share is entitled to a proportionate fractional vote on each matter as to which such shares are to be voted at the Special Meeting. The presence of forty percent (40%) of the Fund's shares entitled to vote on a proposal constitutes a quorum. Abstentions or broker non-votes will be counted as present for purposes of determining the presence of a quorum. If a quorum is not present at the Special Meeting, or if a quorum is present at the Special Meeting, but sufficient votes to approve the Proposal are not received, or if other matters arise requiring Shareholder attention, the persons named as proxy agents may propose one or more adjournments of the Special Meeting to permit further solicitation of proxies. Any such adjournment will require the affirmative vote of a majority of those shares present at the Special Meeting or represented by proxy. The persons named as proxies will vote those proxies that they are entitled to vote FOR such Proposal in favor of such an adjournment, and will vote those proxies required to be voted AGAINST such Proposal, against such an adjournment. METHOD OF SOLICITATION AND EXPENSE OF PROXIES In addition to the solicitation of proxies by mail, the Board and officers of the Fund, as well as employees of D.F. King, may solicit proxies in person or by telephone. Persons holding shares as nominees will, upon request, be reimbursed for their reasonable expenses incurred in sending soliciting materials to their principals. The Fund will bear the costs of the Shareholders' Special Meeting, proxy materials and any proxy solicitation, which are expected to be approximately [$25,000] plus any reasonable expenses incurred throughout the solicitation process. No business other than the matter described above is expected to come before the Special Meeting, but should any matter incident to the conduct of the Special Meeting or any question as to an adjournment of the Special Meeting arise, the persons named in the enclosed proxy will vote thereon according to their best judgment in the interest of the Fund. 16 OWNERSHIP OF FUND SHARES THE ARS FUND: As of March 1, 2006, the following persons owned of record or beneficially 5% or more of the shares of the ARS Fund in the following amounts: - -------------------------------------------------------------------------------- Name and Address Percentage of Class of Shares - -------------------------------------------------------------------------------- H-Class Shares C-Class Shares - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- To the knowledge of the ARS Fund, the ARS Fund is not "controlled" (as defined in the 1940 Act) by any person. To the knowledge of the Trust, the beneficial ownership of shares of the ARS Funds by the officers and Trustees of the Trust as a group constitute less than 1% of the outstanding shares of the ARS Fund. SPHINX: As of March 1, 2006, no persons owned of record or beneficially 5% or more of the Fund's shares. The Fund is not "controlled" (as defined in the 1940 Act) by any person. To the knowledge of the Fund, the beneficial ownership of shares of the Fund by the officers and Trustees the Fund as a group constitute less than 1% of the outstanding shares of the Fund. MISCELLANEOUS SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE Section 16(a) of the 1934 Act and Section 30(h) of the 1940 Act, as applied to the Fund, require the Fund's and the Fund's officers, Trustees, Adviser, affiliates of the investment adviser ("Fund Insiders"), and persons who beneficially own more than 10% of the Fund's outstanding securities ("Reporting Persons"), to file reports of ownership of the Fund's securities and changes in such ownership with the SEC, the New York Stock Exchange, the American Stock Exchange and the Chicago Board Options Exchange. The Fund believes that during the calendar year ended December 31, 2005, there were no Reporting Persons that were required to comply with the applicable filing requirements. SHAREHOLDERS SHARING THE SAME ADDRESS If two or more Shareholders share the same address, only one copy of this Combined Proxy Statement/Prospectus is being delivered to that address, unless the Fund has received contrary instructions from one or more of the Shareholders at that shared address. Upon written or oral request, the Fund will deliver promptly a separate copy of this Combined Proxy Statement/Prospectus to a Shareholder at a shared address. Please note that each Shareholder will receive a separate proxy card, regardless of whether he or she resides at a shared address. Please call 1-888-59-RYDEX (1-888-597-9339) or forward a written request to the Fund c/o Rydex Capital Partners I, LLC, 9601 Blackwell Road, Suite 500, Rockville, Maryland 20850 if you would like to (1) receive a separate copy of this Combined Proxy Statement/Prospectus; (2) receive your annual reports or proxy statements separately in the future; or (3) request delivery of a single copy of annual reports or proxy statements if you are currently receiving multiple copies at a shared address. FINANCIAL STATEMENTS AND EXPERTS PricewaterhouseCoopers LLP ("PwC"), located at Two Commerce Square, Suite 1700, 2001 Market Street, Philadelphia, PA 19103, serves as the independent registered public accounting firm of the ARS Fund and the Fund. 17 Representatives of PwC are not expected to be present at the Special Meeting, but will be available by telephone should questions arise. The financial highlights and financial statements for the Fund for its fiscal year ended March 31, 2005 are contained in the Fund's Annual Report dated March 31, 2005, and in the Fund's Prospectus and SAI, each of which is dated August 1, 2005. The Fund's Annual Report, Prospectus and SAI are each incorporated by reference into this Combined Proxy Statement/Prospectus. The audited financial statements of the Fund for its fiscal year ended March 31, 2005 contained in its Annual Report and incorporated by reference into this Combined Proxy Statement/Prospectus, have been incorporated herein in reliance on the report of PwC, given upon the authority of such firm as experts in accounting and auditing. The ARS Fund commenced operations on September 19, 2005 and therefore is not included in the Trust's most recent Annual Report to Shareholders for the fiscal year ended March 31, 2005. However, the unaudited financial highlights and financial statements for the H-Class Shares of the ARS Fund for the period ended September 30, 2005 are contained in the Trust's Semi-Annual Report dated September 30, 2005. The ARS Fund's Semi-Annual Report, Prospectus and SAI are each incorporated by reference into this Combined Proxy Statement/Prospectus. The financial statements of the ARS Fund for the period ended September 30, 2005 are contained in its Semi-Annual Report and incorporated by reference into this Combined Proxy Statement/Prospectus. EXPENSES OF THE TRANSACTION The Fund and the ARS Fund shall each bear their own expenses incurred in connection with entering into and consummating the Reorganization contemplated by the Reorganization Agreement. The estimated expenses for the Reorganization will be borne entirely by the Fund and will be approximately $40,000. The expenses of the Special Meeting will be borne by the Fund. The solicitation of proxies will be largely by mail, but may include telephonic, Internet or oral communication by officers and service providers of the Fund. LITIGATION As of the date of this Combined Proxy Statement/Prospectus, neither the Fund nor the ARS Fund is involved in any litigation which would have any material adverse effect upon either the Fund or the ARS Fund or prevent in any material respect the consummation of the Reorganization. SHAREHOLDER INQUIRIES Shareholder inquiries may be addressed to the Fund in writing at 9601 Blackwell Road, Suite 500, Rockville, MD 20850 or Shareholders may call 1-888-59-RYDEX (1-888-597-9339). SHAREHOLDER PROPOSALS The Fund is organized as a statutory trust under the laws of Delaware. As such, the Fund is not required to, and does not, have annual meetings. Nonetheless, the Board may call a special meeting of shareholders for action by shareholder vote as may be required by the 1940 Act or as required or permitted by the Declaration of Trust and By-Laws of the Fund. Shareholders who wish to present a proposal for action at a future meeting should submit a written proposal to the Fund for inclusion in a future proxy statement. Shareholders retain the right to request that a meeting of the shareholders be held for the purpose of considering matters requiring shareholder approval. 18 AVAILABLE INFORMATION Additional information about the ARS Fund and its H-Class Shares is included in the Rydex Series Funds Prospectus and SAI for the Absolute Return Strategies Fund and Hedged Equity Fund dated September 1, 2005, which have been filed with the SEC and which are incorporated herein by reference. A copy of the ARS Prospectus accompanies this Combined Proxy Statement/Prospectus. Copies of the ARS SAI may be obtained without charge by calling (800) 820-0888. Information about the Fund is included in this Combined Proxy Statement/Prospectus and the Reorganization SAI related to this Combined Proxy Statement/Prospectus. The Trust and the Fund are subject to the requirements of the 1940 Act and, in accordance with such requirements, file reports and other information with the SEC. You can copy and review information about the Trust and/or the Fund at the SEC's Public Reference Room in Washington, D.C. You may obtain information about the operation of the Public Reference Room by calling the SEC at (202) 551-8090. Reports and other information about the Trust and the Fund are available on the EDGAR Database on the SEC's internet site at http://www.sec.gov. You may obtain copies of this information, after paying a duplicating fee, by electronic request at the following E-mail address: publicinfo@sec.gov, or by writing the SEC's Public Reference Section, Washington, D.C. 20549-0102. NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS COMBINED PROXY STATEMENT/PROSPECTUS AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY RYDEX SERIES FUNDS OR SPHINX. THIS COMBINED PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL SECURITIES IN ANY STATE OR OTHER JURISDICTION TO ANY PERSON TO WHOM IT WOULD BE UNLAWFUL TO MAKE THE OFFER IN THAT STATE OR JURISDICTION. 19 EXHIBIT A FORM OF AGREEMENT AND PLAN OF REORGANIZATION THIS AGREEMENT AND PLAN OF REORGANIZATION is dated as of [May 1, 2006] (the "Agreement"), by and between Rydex Capital Partners Sphinx Fund, a Delaware statutory trust (the "Selling Fund"), and Rydex Series Funds, a Delaware statutory trust (the "Acquiring Trust"), on behalf of its series, the Rydex Absolute Return Strategies Fund (the "Acquiring Fund"). The Selling Fund and the Acquiring Fund are sometimes referred to collectively, as the "Funds" and individually, as a "Fund." PRELIMINARY STATEMENTS The Selling Fund, a closed-end management investment company, and the Acquiring Trust, an open-end management investment company, are each registered under the Investment Company Act of 1940, as amended (the "1940 Act"). The Boards of Trustees of the Funds have determined that the Reorganization (as defined below) is in the best interests of each Fund and that the interests of the existing shareholders of each Fund would not be diluted as a result of the Reorganization. Nonetheless, certain assets held by the Selling Fund are currently the subject of a temporary restraining order ("TRO") issued by the bankruptcy court as a result of the Refco, LLC bankruptcy proceedings. Because the TRO impacts the liquidity, and could potentially impact the value, of those assets, the Boards of Trustees of the Funds have determined that, to the extent those assets remain subject to the TRO or any other legal restriction at the Effective Time (as defined in Section 9 of this Agreement), those assets will not be transferred to the Acquiring Fund. In consideration of the mutual premises contained in this Agreement, the parties hereto agree to effect the transfer of substantially all of the assets of the Selling Fund solely in exchange for (a) the assumption by the Acquiring Fund of certain stated liabilities of the Selling Fund and (b) shares of the Acquiring Fund followed by the distribution, at the Effective Time, of such shares of the Acquiring Fund to the shareholders of the Selling Fund on the terms and conditions in this Agreement in liquidation of the Selling Fund (the "Reorganization"). Any assets of the Selling Fund which are not transferred to the Acquiring Fund pursuant to this Agreement shall be held in Trust by the Selling Fund, solely for the benefit of the shareholders of the Selling Fund. Shares of the Acquiring Fund that are given in exchange for the assets of the Selling Fund are referred to as the "Acquiring Fund Shares," and the shares of the Selling Fund that are held by the holders of such shares at the Effective Time are referred to as the "Selling Fund Shares." For purposes of this Agreement, the term "Acquiring Fund Shares" refers only to the H-Class Shares of the Acquiring Fund. AGREEMENTS The parties to this Agreement covenant and agree as follows: 1. PLAN OF REORGANIZATION. At the Effective Time, the Selling Fund will assign, deliver and otherwise transfer substantially all of its assets and good and marketable title to those assets, free and clear of all liens, encumbrances and adverse claims except as provided in this Agreement, and assign the stated liabilities as set forth in a statement of assets and liabilities, to be prepared as of the Effective Time (the "Statement of Assets and Liabilities") to the Acquiring Fund. Any assets that are subject to legal restrictions shall not be included in the Statement of Assets and Liabilities and shall not be transferred to the Acquiring Fund and the value of Selling Fund Shares shall be reduced accordingly. Any obligations of the Selling Fund to pay current or former shareholders any tender proceeds from assets that are subject to the TRO shall not be included in the Statement of Assets and Liabilities and shall not be transferred to the Acquiring Fund. Any and all obligations that arise out of any action, proceeding, arbitration, or regulatory examination or investigation, whenever commenced, to 20 the extent such obligations arise in connection with assets of the Selling Fund that are subject to the TRO shall not be included in the Statement of Assets and Liabilities and shall not be transferred to the Acquiring Fund. The Acquiring Fund shall acquire all the assets, and shall assume all the liabilities, that are included in the Statement of Assets and Liabilities, in exchange for delivery to the Selling Fund by the Acquiring Fund of a number of its Acquiring Fund Shares (both full and fractional) equivalent in value to the Selling Fund Shares of the Selling Fund, less the value of any assets or liabilities of the Selling Fund that are not included in the Statement of Assets and Liabilities, outstanding immediately prior to the Effective Time. The assets and stated liabilities of the Selling Fund, as set forth in the Statement of Assets and Liabilities, shall be exclusively assigned to and assumed by the Acquiring Fund. All debts, liabilities, obligations and duties of the Selling Fund, to the extent that they exist at or after the Effective Time and are stated in the Statement of Assets and Liabilities, shall after the Effective Time, attach to the Acquiring Fund and may be enforced against the Acquiring Fund to the same extent as if the same had been incurred by the Acquiring Fund. If the Selling Fund is unable to make delivery of any of its portfolio securities listed in the Statement of Assets and Liabilities pursuant to this Section to the Acquiring Fund for the reason that any of such securities purchased by the Selling Fund have not yet been delivered to it by the Selling Fund's broker or brokers, then in lieu of such delivery, the Selling Fund shall deliver to the Acquiring Fund, with respect to these securities, executed copies of an agreement of assignment and due bills executed on behalf of said broker or brokers, together with such other documents as may be required by the Acquiring Fund, including brokers' confirmation slips. 2. TRANSFER OF ASSETS. The assets of the Selling Fund to be acquired by the Acquiring Fund shall include, without limitation, all cash, cash equivalents, securities, receivables (including interest and dividends receivable), goodwill and intangible property, and deferred or prepaid expenses as set forth in the Statement of Assets and Liabilities, as well as any claims or rights of action or rights to register shares under applicable securities laws, any books or records of the Selling Fund and other property owned by the Selling Fund at the Effective Time. The assets of the Selling Fund that are not to be acquired by the Acquiring Fund shall be limited to those assets, if any, that are subject to legal restriction, such as the TRO, as of the Effective Time and, thus, are not listed in the Statement of Assets and Liabilities. 3. LIQUIDATION, DISSOLUTION AND TERMINATION OF THE SELLING FUND. At the Effective Time, those assets that do not transfer to the Acquiring Fund will be held in Trust by the Selling Fund for the benefit of the shareholders of the Selling Fund. Following the Effective Time, the Selling Fund will begin to liquidate and the Acquiring Fund Shares (both full and fractional) received by the Selling Fund will be distributed to the shareholders of record of the Selling Fund as of the Effective Time. Each Selling Fund shareholder shall also have the right to receive any dividends or other distributions that were declared prior to the Effective Time, but unpaid at that time, with respect to the Selling Fund Shares that are held by such Selling Fund shareholders at the Effective Time. Each shareholder of the Selling Fund will receive a number of Acquiring Fund Shares equal in value to the Selling Fund Shares held by that shareholder, less the value of any assets retained by the Selling Fund. This liquidation and distribution will be accompanied by the establishment of an open account on the share records of the Acquiring Fund in the name of each shareholder of record of the Selling Fund and representing the respective number of Acquiring Fund Shares due that shareholder. After the Effective Time, the Selling Fund shall cease its business as an investment company and shall not engage in any business activities except for the purposes of winding up its business and affairs, paying any outstanding obligations, marshalling and preserving the value of any retained assets and distributing those assets to shareholders of the Selling Fund in accordance with the provisions of the Agreement. As soon as is reasonable and practicable after the Effective Time, all retained assets of the Selling Fund shall be converted to cash and distributed to the Selling Fund shareholders. Following the complete liquidation of the Selling Fund, all issued and outstanding shares of the Selling Fund shall then be cancelled on the books of the Selling Fund. Officers of the Selling Fund shall make all necessary filings with the Securities and Exchange Commission ("SEC") and other governmental entities to effectuate the termination of the Selling Fund under the 1940 Act and Delaware law. 4. REPRESENTATIONS AND WARRANTIES OF THE ACQUIRING FUND. The Acquiring Fund represents and warrants to the Selling Fund as follows: 21 (a) SHARES TO BE ISSUED UPON REORGANIZATION. The Acquiring Fund Shares to be issued in connection with the Reorganization (i) have been duly authorized and upon consummation of the Reorganization will be validly issued, fully paid and non-assessable, and (ii) will be duly registered in conformity with applicable federal and state securities laws, and no shareholder of the Acquiring Fund shall have any option, warrant, or preemptive right of subscription or purchase with respect to the Acquiring Fund's Shares. (b) LIABILITIES. There are no liabilities of the Acquiring Fund, whether or not determined or determinable, other than liabilities disclosed or provided for in the Acquiring Fund's statement of assets and liabilities, if any, and liabilities incurred in the ordinary course of business prior to the Effective Time or otherwise previously disclosed to the Selling Fund, none of which has been materially adverse to the business, assets or results of operations of the Acquiring Fund. (c) LITIGATION. Except as previously disclosed to the Selling Fund, there are no claims, actions, suits or proceedings pending or, to the actual knowledge of the Acquiring Fund, threatened which would materially adversely affect the Acquiring Fund or its assets or business or which would prevent or hinder in any material respect consummation of the transactions contemplated by this Agreement. (d) TAXES. As of the Effective Time, all federal and other tax returns and reports of the Acquiring Fund required by law to have been filed shall have been filed, and all other taxes shall have been paid so far as due, or provision shall have been made for the payment of them, and to the best of the Acquiring Fund's knowledge, no such return is currently under audit and no assessment has been asserted with respect to any of these returns. (e) FEES AND EXPENSES. As of the Effective Time, there are no brokers or finders entitled to receive any payments in connection with the transactions provided for in this Agreement. 5. REPRESENTATIONS AND WARRANTIES OF THE SELLING FUND. The Selling Fund represents and warrants to the Acquiring Fund as follows: (a) MARKETABLE TITLE TO ASSETS. The Selling Fund will have, at the Effective Time, good and marketable title to, and full right, power and authority to sell, assign, transfer and deliver, the assets to be transferred to the Acquiring Fund. Upon delivery and payment for these assets, the Acquiring Fund will have good and marketable title to the assets without restriction on the transfer of the assets free and clear of all liens, encumbrances and adverse claims. (b) LIABILITIES. There are no liabilities of the Selling Fund, whether or not determined or determinable, other than liabilities disclosed or provided for in the Selling Fund's Statement of Assets and Liabilities, and liabilities incurred in the ordinary course of business prior to the Effective Time or otherwise previously disclosed to the Acquiring Fund, none of which has been materially adverse to the business, assets or results of operations of the Selling Fund. (c) LITIGATION. Except as previously disclosed to the Acquiring Fund, there are no claims, actions, suits or proceedings pending or, to the knowledge of the Selling Fund, threatened which would materially adversely affect the Selling Fund or its assets or business or which would prevent or hinder in any material respect consummation of the transactions contemplated by this Agreement. (d) TAXES. As of the Effective Time, all federal and other tax returns and reports of the Selling Fund required by law to have been filed shall have been filed, and all other taxes shall have been paid so far as due, or provision shall have been made for the payment of them, and to the best of the Selling Fund's knowledge, no such return is currently under audit and no assessment has been asserted with respect to any of those returns. (e) FEES AND EXPENSES. As of the Effective Time, there are no brokers or finders entitled to receive any payments in connection with the transactions provided for in this Agreement. 22 6. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND. The obligations of the Acquiring Fund under this Agreement shall be subject to the following conditions: (a) All representations and warranties of the Selling Fund contained in this Agreement shall be true and correct in all material respects as of the date of this Agreement and, except as they may be affected by the transactions contemplated by this Agreement, as of the Effective Time, with the same force and effect as if made on and as of the Effective Time. (b) The Acquiring Trust shall have received an opinion of Morgan, Lewis & Bockius LLP, counsel to both Funds, regarding the transaction, in a form reasonably satisfactory to the Acquiring Trust, and dated as of the Effective Time, to the effect that: (1) the Selling Fund is a statutory trust duly organized, validly existing and in good standing under the laws of the State of Delaware; (2) the shares of the Selling Fund issued and outstanding at the Effective Time are legally issued, fully paid and non-assessable under the laws of the State of Delaware by the Selling Fund; (3) this Agreement has been duly authorized, executed and delivered by the Selling Fund and represents a valid and binding contract of the Selling Fund, enforceable in accordance with its terms, subject to the effect of bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance and transfer, and other similar laws of general applicability relating to or affecting creditors' rights and to general equity principles; provided, however, that no opinion need be expressed with respect to provisions of this Agreement relating to indemnification nor with respect to provisions of this Agreement intended to limit liability for particular matters to the Selling Fund and its assets; (4) the execution and delivery of this Agreement did not, and the consummation of the transactions contemplated by this Agreement will not, violate the Agreement and Declaration of Trust or Bylaws of the Selling Fund or any material agreement known to such counsel to which the Selling Fund is a party or by which it is bound; (5) to the knowledge of such counsel no consent, approval, authorization, or order of any court or governmental authority is required for the consummation by the Selling Fund of the transactions contemplated by this Agreement, except such as have been obtained under the Securities Act of 1933 (the "1933 Act"), state securities laws, the 1940 Act, the rules and regulations under those statutes and such as may be required under state securities laws, rules and regulations; and (6) the Selling Fund is registered as an investment company under the 1940 Act and such registration with the SEC as an investment company under the 1940 Act is in full force and effect. Such opinion: (i) shall state that while such counsel have not verified, and are not passing upon and do not assume responsibility for, the accuracy, completeness, or fairness of any portion of the Form N-14 Registration Statement relating to the Reorganization or any amendment thereof or supplement thereto, they have generally reviewed and discussed certain information included therein with respect to the Selling Fund with certain officers of the Selling Fund and that in the course of such review and discussion no facts came to the attention of such counsel which caused them to believe that, on the respective effective or clearance dates of the Form N-14 Registration Statement, and any amendment thereof or supplement thereto and only insofar as they relate to information with respect to the Selling Fund, the Form N-14 Registration Statement or any amendment thereof or supplement thereto, contained any untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary to make the statements therein not misleading; (ii) shall state that such counsel does not express any opinion or belief as to the financial statements, other financial data, statistical data, or any information relating to the Selling Fund contained or incorporated by reference in 23 the Form N-14 Registration Statement; and (iii) shall state that such opinion is solely for the benefit of the Acquiring Trust and its Board of Trustees and officers. In giving such opinion, Morgan, Lewis & Bockius LLP may rely upon officers' certificates and certificates of public officials. 7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE SELLING FUND. The obligations of the Selling Fund under this Agreement shall be subject to the following conditions: (a) All representations and warranties of the Acquiring Fund contained in this Agreement shall be true and correct in all material respects as of the date of this Agreement and, except as they may be affected by the transactions contemplated by this Agreement, as of the Effective Time, with the same force and effect as if made on and as of the Effective Time. (b) The Selling Fund shall have received an opinion of Morgan, Lewis & Bockius LLP, counsel to both Funds, regarding the transaction, in a form reasonably satisfactory to the Selling Fund, and dated as of the Effective Time, to the effect that: (1) the Acquiring Trust is a statutory trust duly organized, validly existing and in good standing under the laws of the State of Delaware; (2) the shares of the Acquiring Fund issued and outstanding at the Effective Time are legally issued, fully paid and non-assessable under the laws of the State of Delaware by the Acquiring Trust, and the Acquiring Fund Shares to be delivered to the Selling Fund, as provided for by this Agreement, are duly authorized and upon delivery pursuant to the terms of this Agreement, will be legally issued, fully paid and non-assessable under the laws of the State of Delaware by the Acquiring Trust, and no shareholder of the Acquiring Fund has any option, warrant or preemptive right to subscription or purchase in respect thereof based on a review of the Acquiring Trust's Agreement and Declaration of Trust and By-laws and otherwise to such counsel's knowledge; (3) the Board of Trustees of the Acquiring Trust has duly authorized the Acquiring Fund as a class of units of beneficial interest of the Acquiring Trust pursuant to the terms of the Agreement and Declaration of Trust of the Acquiring Trust; (4) this Agreement has been duly authorized, executed and delivered by the Acquiring Trust and represents a valid and binding contract of the Acquiring Trust, enforceable in accordance with its terms, subject to the effect of bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance and transfer, and other similar laws of general applicability related to or affecting creditors' rights and to general equity principles; provided, however, that no opinion need be expressed with respect to provisions of this Agreement relating to indemnification nor with respect to provisions of this Agreement intended to limit liability for particular matters to the Acquiring Fund and its assets; (5) the execution and delivery of this Agreement did not, and the consummation of the transactions contemplated by this Agreement will not, violate the Agreement and Declaration of Trust or Bylaws of the Acquiring Trust or any material agreement known to such counsel to which the Acquiring Trust is a party or by which it is bound; (6) to the knowledge of such counsel no consent, approval, authorization, or order of any court or governmental authority is required for the consummation by Acquiring Fund of the transactions contemplated by this Agreement, except such as have been obtained under the 1933 Act, state securities laws, the 1940 Act, the rules and regulations under those statutes and such as may be required under state securities laws, rules and regulations; and (7) the Acquiring Trust is registered as an investment company under the 1940 Act and such registration with the SEC as an investment company under the 1940 Act is in full force and effect. 24 Such opinion: (i) shall state that while such counsel have not verified, and are not passing upon and do not assume responsibility for, the accuracy, completeness, or fairness of any portion of the Form N-14 Registration Statement relating to the Reorganization or any amendment thereof or supplement thereto, they have generally reviewed and discussed certain information included therein with respect to the Acquiring Fund and the Acquiring Trust with certain officers of the Acquiring Trust and that in the course of such review and discussion no facts came to the attention of such counsel which caused them to believe that, on the respective effective or clearance dates of the Form N-14 Registration Statement and any amendment thereof or supplement thereto and only insofar as they relate to information with respect to the Acquiring Trust and the Acquiring Fund, the Form N-14 Registration Statement or any amendment thereof or supplement thereto contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading; (ii) shall state that such counsel does not express any opinion or belief as to the financial statements, other financial data, statistical data, or information relating to the Acquiring Trust or the Acquiring Fund contained or incorporated by reference in the Form N-14 Registration Statement; and (iii) shall state that such opinion is solely for the benefit of the Selling Fund and its Board of Trustees and officers. In giving such opinion, Morgan, Lewis & Bockius LLP may rely upon officers' certificates and certificates of public officials. 8. FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF THE SELLING FUND AND THE ACQUIRING FUND. The obligations of the Selling Fund and the Acquiring Fund to effectuate this Agreement shall be subject to the satisfaction of each of the following conditions as of the Effective Time: (a) Any authority from the SEC as may be necessary to permit the parties to carry out the transactions contemplated by this Agreement shall have been received. (b) The Registration Statement on Form N-1A of the Acquiring Fund shall be effective under the 1933 Act, and, to the best knowledge of the Acquiring Fund, no investigation or proceeding for that purpose shall have been instituted or be pending, threatened or contemplated under the 1933 Act. (c) The Acquiring Fund has filed all documents and paid all fees required to permit its shares to be offered to the public in all states of the United States, the Commonwealth of Puerto Rico and the District of Columbia (except where such qualifications are not required) so as to permit the transfer contemplated by this Agreement to be consummated. (d) A vote approving this Agreement and the Reorganization contemplated by this Agreement shall have been adopted by at least a majority of the shares of the Selling Fund present in person or by proxy and entitled to vote. (e) The Board of Trustees of the Acquiring Trust, at a meeting duly called for such purpose, shall have authorized the issuance by the Acquiring Fund of Acquiring Fund Shares at the Effective Time in exchange for the assets of the Selling Fund pursuant to the terms and provisions of this Agreement. 9. EFFECTIVE TIME OF THE REORGANIZATION. The exchange of the Selling Fund's assets for corresponding Acquiring Fund Shares shall be effective at [XX:XX P.M., EASTERN TIME ON MAY __, 2006], or at such other time and date as fixed by the mutual consent of the parties (the "Effective Time"). 10. TERMINATION. This Agreement and the transactions contemplated by this Agreement may be terminated and abandoned with respect to the Acquiring Fund and/or the Selling Fund, without penalty, by resolution of the Board of Trustees of the Acquiring Trust or Selling Fund, respectively, or at the discretion of any duly authorized officer of the Acquiring Trust or Selling Fund, at any time prior to the Effective Time, if circumstances should develop that, in the opinion of such Board or officer, make proceeding with the 25 Agreement inadvisable. In the event of any such termination, there shall be no liability for damages on the part of the Acquiring Fund, the Selling Fund or Acquiring Trust, or their respective Boards of Trustees or officers. 11. AMENDMENT AND WAIVER. This Agreement may be amended, modified or supplemented in such manner as may be mutually agreed upon in writing by the parties; pROVIDED, THAT no amendment may have the effect of changing the provisions for determining the number or value of Acquiring Fund Shares to be paid to the Selling Fund's shareholders under this Agreement to the detriment of the Selling Fund's shareholders without their further approval. Furthermore, either party may waive any breach by the other party or the failure to satisfy any of the conditions to its obligations (this waiver must be in writing and authorized by the President or any Vice President of the waiving party with or without the approval of the party's shareholders). 12. INDEMNIFICATION. (a) The Acquiring Fund shall indemnify, defend and hold harmless the Selling Fund, its trustees, officers, employees and agents against all losses, claims, demands, liabilities and expenses, including reasonable legal and other expenses incurred in defending third party claims, actions, suits or proceedings, arising from any of its representations, warranties, covenants or agreements set forth in this Agreement. (b) The Selling Fund, with respect to any claim asserted prior to the Effective Time, shall indemnify, defend and hold harmless the Acquiring Fund, its Trustees, officers, employees and agents against all losses, claims, demands, liabilities and expenses, including reasonable legal and other expenses incurred in defending third party claims, actions, suits or proceedings, arising from any of its representations, warranties, covenants or agreements set forth in this Agreement. 13. FEES AND EXPENSES. Each Fund shall be solely liable for its own expenses incurred in connection with entering into and carrying out the transactions contemplated by this Agreement, whether or not the transactions contemplated hereby are consummated. 14. HEADINGS, COUNTERPARTS, ASSIGNMENT. (a) The article and paragraph headings contained in this Agreement are for reference purposes only and shall not effect in any way the meaning or interpretation of this Agreement. (b) This Agreement may be executed in any number of counterparts, each of which shall be deemed an original. (c) This Agreement shall be binding upon and inure to the benefit of the parties and their respective successors and assigns, but no assignment or transfer of any rights or obligations shall be made by any party without the written consent of the other party. Nothing in this Agreement expressed or implied is intended nor shall be construed to confer upon or give any person, firm or corporation (other than the parties and their respective successors and assigns) any rights or remedies under or by reason of this Agreement. 15. ENTIRE AGREEMENT. The Acquiring Fund and Selling Fund agree that neither party has made any representation, warranty or covenant not set forth in this Agreement and that this Agreement constitutes the entire agreement between the parties. The representations, warranties and covenants contained in this Agreement or in any document delivered pursuant to this Agreement or in connection with this Agreement shall survive the consummation of the transactions contemplated under this Agreement. 16. FURTHER ASSURANCES. The Acquiring Fund and Selling Fund shall take such further action as may be necessary or desirable and proper to consummate the transactions contemplated by this Agreement. 17. BINDING NATURE OF AGREEMENT. As provided in the Selling Fund's and Acquiring Trust's By-laws, as amended and supplemented to date, this Agreement was authorized by the Trustees of the Selling Fund and the 26 Acquiring Trust, on behalf of the Acquiring Fund, as Trustees and not individually, and executed by the undersigned officers of the Selling Fund and the Acquiring Trust, on behalf of the Acquiring Fund, as officers and not individually. The obligations of this Agreement are not binding upon the undersigned officers, Trustees, shareholders, nominees or agents individually, but are binding only upon the assets and property of the Selling Fund and Acquiring Fund. Moreover, no class or series of the Acquiring Trust shall be liable for the obligations of any other classes or series of the Acquiring Trust. IN WITNESS WHEREOF, the parties have duly executed this Agreement, all as of the date first written above. RYDEX CAPITAL PARTNERS SPHINX FUND By: -------------------------------- Name: Michael Byrum Title: President RYDEX SERIES FUNDS on behalf of Rydex Absolute Return Strategies Fund By: -------------------------------- Name: Carl Verboncoeur Title: President 27 RYDEX CAPITAL PARTNERS SPHINX FUND 9601 BLACKWELL ROAD, SUITE 500 ROCKVILLE, MARYLAND 20850 -------------------------- PROXY SOLICITED BY THE BOARD OF TRUSTEES FOR THE SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON [MAY 1, 2006] The undersigned, hereby appoints Michael Byrum and Joanna Haigney as proxies and each of them, each with full power of substitution, to vote at the Special Meeting of Shareholders of the Rydex Capital Partners SPhinX Fund (the "Fund" or "SPhinX"), to be held at the offices of Rydex Capital Partners I, LLC, 9601 Blackwell Road, Suite 500, Rockville, Maryland 20850 on [May 1, 2006], at 4:00 P.M., and any adjournments or postponements of the Special Meeting (the "Special Meeting") all shares of beneficial interest of the Fund that the undersigned would be entitled to vote if personally present at the Special Meeting ("Shares") on the proposal set forth below, and in accordance with their own discretion, any other matters properly brought before the Special Meeting. The undersigned hereby revokes any prior proxy to vote at such meeting, and hereby ratifies and confirms all that said attorneys and proxies, or either of them, may lawfully do by virtue thereof. THE BOARD OF TRUSTEES OF THE FUND RECOMMENDS A VOTE "FOR" THE FOLLOWING PROPOSAL: To consider and vote on a proposal to approve an Agreement and Plan of Reorganization providing for: (a) the transfer of all of the assets and certain stated liabilities of SPhinX to the Absolute Return Strategies Fund (the "ARS Fund), a series of Rydex Series Funds, an open-end investment management company registered under the Investment Company Act of 1940, as amended (the "1940 Act"), in exchange for H-Class Shares of the ARS Fund; (b) the distribution of such H-Class Shares of the ARS Fund to the shareholders of SPhinX in connection with its liquidation; and (c) the dissolution under state law and the de-registration under the 1940 Act of SPhinX. FOR |_| AGAINST |_| ABSTAIN |_| THIS PROXY WILL, WHEN PROPERLY EXECUTED, BE VOTED AS DIRECTED HEREIN BY THE SIGNING SHAREHOLDER. IF NO DIRECTION IS GIVEN WHEN THE DULY EXECUTED PROXY IS RETURNED, THIS PROXY WILL BE VOTED FOR THE FOREGOING PROPOSAL AND WILL BE VOTED IN THE APPOINTED PROXIES' DISCRETION UPON SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE SPECIAL MEETING. The undersigned hereby acknowledges receipt of the Notice of Special Meeting and the Combined Proxy Statement/Prospectus dated [March __, 2006]. Your signature(s) on this proxy should be exactly as your name(s) appear on this proxy. If the shares are held jointly, each holder should sign this proxy. Attorneys-in-fact, executors, administrators, trustees or guardians should indicate the full title and capacity in which they are signing. Dated: March __, 2006 -------------------------------- Signature of Shareholder -------------------------------- Signature (Joint owners) 28 PLEASE DATE, SIGN AND RETURN PROMPTLY USING THE ENCLOSED, POSTAGE-PAID ENVELOPE WHETHER OR NOT YOU EXPECT TO ATTEND THE SPECIAL MEETING. YOU MAY VOTE IN PERSON IF YOU ATTEND THE SPECIAL MEETING. 29 RYDEX CAPITAL PARTNERS SPHINX FUND 9601 BLACKWELL ROAD, SUITE 500, ROCKVILLE, MARYLAND 20850 STATEMENT OF ADDITIONAL INFORMATION SPECIAL MEETING OF SHAREHOLDERS OF RYDEX CAPITAL PARTNERS SPHINX FUND This Statement of Additional Information ("SAI") is not a prospectus and should be read in conjunction with the Combined Proxy Statement/Prospectus dated [March __, 2006], for the Special Meeting of Shareholders of the Rydex Capital Partners SPhinX Fund (the "Fund"), to be held on [May 1, 2006]. Copies of the Combined Proxy Statement/Prospectus may be obtained at no charge by calling the Fund at 1-888-59-RYDEX (1-888-597-9339). Unless otherwise indicated, capitalized terms used herein and not otherwise defined have the same meanings as are given to them in the Combined Proxy Statement/Prospectus. Further information about the H-Class Shares of the Absolute Return Strategies Fund (the "ARS Fund"), a series of Rydex Series Funds, is contained in the Rydex Series Funds Prospectus and Statement of Additional Information for the Absolute Return Strategies Fund and Hedged Equity Fund, dated September 1, 2005. The Rydex Series Funds Statement of Additional Information for the Absolute Return Strategies Fund and Hedged Equity Fund is incorporated herein by reference. The audited financial statements, notes thereto and related independent auditor's report are contained in the Rydex Series Funds Annual Report dated March 31, 2005, and are incorporated herein by reference. No other parts of the Rydex Series Funds Annual Report dated March 31, 2005 are incorporated by reference herein. Further information about the Fund is contained in and incorporated herein by reference to the Fund's Prospectus and Statement of Additional Information dated August 1, 2005. The audited financial statements, notes thereto and related independent auditor's report for the Fund contained in the Annual Report dated March 31, 2005, are incorporated herein by reference. No other parts of the Fund's Annual Report are incorporated by reference herein. THE UNAUDITED PRO FORMA FINANCIAL STATEMENTS OF SPHINX AND THE ARS FUND ARE ATTACHED AS EXHIBIT A AND ARE INCORPORATED BY REFERENCE INTO THIS SAI. The date of this Statement of Additional Information is [March __, 2006]. 30 EXHIBIT A ABSOLUTE RETURN STRATEGIES FUND DECEMBER 31, 2005 SCHEDULE OF INVESTMENTS (UNAUDITED) SHARES MARKET VALUE - -------------------------------------------------------------------------------- COMMON STOCKS 44.2% FINANCIALS INSURANCE Prudential Financial, Inc. 1,249 $ 91,414 AFLAC, Inc. 1,219 56,586 Chubb Corp. 350 34,177 XL Capital Ltd. 460 30,995 ACE Ltd. 500 26,720 UICI 640 22,726 Loews Corp. 230 21,816 MBIA, Inc. 230 13,837 SAFECO Corp. 220 12,430 ----------- TOTAL INSURANCE 310,701 CAPITAL MARKETS Goldman Sachs Group, Inc. 1,199 153,124 Franklin Resources, Inc. 420 39,484 E*Trade Financial Corp.* 1,359 28,349 UBS AG 100 9,515 Merrill Lynch & Co., Inc. 120 8,128 Morgan Stanley 140 7,944 Credit Suisse Group -- SP ADR 150 7,642 Deutsche Bank AG 70 6,781 Lehman Brothers Holdings, Inc. 50 6,408 Nomura Holdings, Inc. -- SP ADR 320 6,150 Bank of New York Co., Inc. 160 5,096 State Street Corp. 80 4,435 Mellon Financial Corp. 110 3,768 Legg Mason, Inc. 30 3,591 Bear Stearns Cos., Inc. 30 3,466 ----------- TOTAL CAPITAL MARKETS 293,881 REAL ESTATE AMLI Residential Properties Trust 620 23,591 Criimi MAE, Inc.* 1,179 23,344 Shurgard Storage Centers, Inc. -- Class A 410 23,251 Prentiss Properties Trust 570 23,188 CenterPoint Properties Trust 410 20,287 Town & Country Trust 600 20,286 Arden Realty, Inc. 440 19,725 Plum Creek Timber Co., Inc. (REIT) 450 16,222 Archstone-Smith Trust 250 10,473 ----------- TOTAL REAL ESTATE 180,367 BANKS National City Corp. 1,109 37,229 Westcorp 360 23,979 Central Coast Bancorp* 949 23,478 Unizan Financial Corp. 869 23,081 Hudson United Bancorp 550 22,924 Main Street Banks, Inc. 739 20,123 ----------- TOTAL BANKS 150,814 THRIFTS & MORTGAGE FINANCE Fannie Mae 1,489 72,678 Independence Community Bank Corp. 590 23,441 ----------- TOTAL THRIFTS & MORTGAGE FINANCE 96,119 CONSUMER FINANCE WFS Financial, Inc.* 310 23,607 MBNA Corp. 869 23,593 Collegiate Funding Services LLC* 1,039 20,520 ----------- TOTAL CONSUMER FINANCE 67,720 DIVERSIFIED FINANCIALS CIT Group, Inc. 370 19,159 ----------- TOTAL DIVERSIFIED FINANCIALS 19,159 ----------- TOTAL FINANCIALS 1,118,761 INFORMATION TECHNOLOGY INTERNET SOFTWARE & SERVICES Yahoo!, Inc.* 3,108 121,771 Google, Inc. -- Class A* 160 66,378 VeriSign, Inc.* 630 13,810 Akamai Technologies, Inc.* 490 9,766 CNET Networks, Inc.* 550 8,079 aQuantive, Inc.* 320 8,077 ValueClick, Inc.* 400 7,244 Websense, Inc.* 110 7,220 EarthLink, Inc.* 610 6,777 Digitas, Inc.* 520 6,510 Openwave Systems, Inc.* 360 6,289 Netease.com, Inc. -- SP ADR* 110 6,178 Sina Corp.* 250 6,040 Digital River, Inc.* 170 5,056 WebEx Communications, Inc.* 220 4,759 ----------- TOTAL INTERNET SOFTWARE & SERVICES 283,954 SEMICONDUCTOR & SEMICONDUCTOR EQUIPMENT Broadcom Corp. -- Class A* 1,249 58,890 Texas Instruments, Inc. 1,429 45,828 Advanced Micro Devices, Inc.* 1,129 34,548 Micron Technology, Inc.* 1,749 23,279 Freescale Semiconductor, Inc. -- Class B* 640 16,109 Novellus Systems, Inc.* 390 9,407 Teradyne, Inc.* 560 8,159 LSI Logic Corp.* 340 2,720 ----------- TOTAL SEMICONDUCTOR & SEMICONDUCTOR EQUIPMENT 198,940 SOFTWARE Intellisync Corp.* 4,597 23,720 Captiva Software Corp.* 1,059 23,563 Geac Computer Corp. Ltd.* 2,149 23,424 Serena Software, Inc.* 999 23,417 CCC Information Services Group* 889 23,310 Cyberguard Corp.* 2,568 22,675 Jamdat Mobile, Inc.* 769 20,440 Micromuse, Inc.* 2,038 20,156 Parametric Technology Corp.* 770 4,697 Compuware Corp.* 340 3,050 ----------- TOTAL SOFTWARE 188,452 COMMUNICATIONS EQUIPMENT Corning, Inc.* 3,428 67,394 Scientific-Atlanta, Inc. 550 23,689 Enterasys Networks, Inc.* 1,779 23,625 Dycom Industries, Inc.* 320 7,040 ----------- TOTAL COMMUNICATIONS EQUIPMENT 121,748 COMPUTERS & PERIPHERALS Apple Computer, Inc.* 1,199 86,196 Maxtor Corp.* 2,878 19,973 ----------- TOTAL COMPUTERS & PERIPHERALS 106,169 IT CONSULTING & SERVICES iPayment Holdings, Inc.* 580 24,082 Acxiom Corp. 1,019 23,437 Anteon International Corp.* 380 20,653 Computer Sciences Corp.* 130 6,583 Affiliated Computer Services, Inc. -- Class A* 90 5,326 Sabre Holdings Corp. 90 2,170 Convergys Corp.* 100 1,585 ----------- TOTAL IT CONSULTING & SERVICES 83,836 OFFICE ELECTRONICS Xerox Corp.* 680 9,962 ----------- TOTAL OFFICE ELECTRONICS 9,962 TOTAL INFORMATION TECHNOLOGY HEALTH CARE HEALTH CARE PROVIDERS & SERVICES Aetna, Inc. 1,009 95,159 CIGNA Corp. 280 31,276 McKesson Corp. 520 26,827 Medco Health Solutions, Inc.* 460 25,668 NDCHealth Corp.* 1,239 23,826 IDX Systems Corp.* 540 23,717 Renal Care Group, Inc.* 500 23,655 Specialty Laboratories, Inc.* 1,789 23,346 Beverly Enterprises, Inc.* 1,969 22,978 HCA, Inc. 340 17,170 AmerisourceBergen Corp. 350 14,490 Humana, Inc.* 210 11,409 WellPoint, Inc.* 140 11,183 Cardinal Health, Inc. 120 8,250 Caremark Rx, Inc.* 140 7,251 Health Management Associates, Inc. -- Class A 250 5,490 Coventry Health Care, Inc.* 70 3,987 Laboratory Corporation of America Holdings* 70 3,769 Patterson Cos., Inc.* 70 2,338 Manor Care, Inc. 40 1,591 ----------- TOTAL HEALTH CARE PROVIDERS & SERVICES 383,380 HEALTH CARE EQUIPMENT & SUPPLIES Guidant Corp. 1,399 90,585 Boston Scientific Corp.* 2,179 53,364 Micro Therapeutics, Inc.* 3,877 26,868 Fisher Scientific International, Inc.* 390 24,125 Animas Corp.* 839 20,262 Waters Corp.* 370 13,986 PerkinElmer, Inc. 420 9,895 ----------- TOTAL HEALTH CARE EQUIPMENT & SUPPLIES 239,085 BIOTECHNOLOGY Gilead Sciences, Inc.* 879 46,262 Abgenix, Inc.* 939 20,198 Amgen, Inc.* 200 15,772 Genentech, Inc.* 170 15,725 Genzyme Corp.* 90 6,370 Celgene Corp.* 80 5,184 Applera Corp. - Applied Biosystems Group 140 3,718 Amylin Pharmaceuticals, Inc.* 90 3,593 Invitrogen Corp.* 50 3,332 Protein Design Labs, Inc.* 110 3,126 ImClone Systems, Inc.* 90 3,082 Charles River Laboratories International, Inc.* 70 2,966 Affymetrix, Inc.* 60 2,865 ----------- TOTAL BIOTECHNOLOGY 132,193 PHARMACEUTICALS Pfizer, Inc. 3,597 83,882 Merck & Co., Inc. 1,069 34,005 ----------- TOTAL PHARMACEUTICALS 117,887 ----------- TOTAL HEALTH CARE 872,545 INDUSTRIALS ROAD & RAIL Norfolk Southern Corp. 2,069 92,753 Burlington Northern Santa Fe Corp. 490 34,702 Canadian National Railway Co. 150 11,998 CSX Corp. 170 8,631 Canadian Pacific Railway Ltd. 150 6,292 J.B. Hunt Transport Services, Inc. 220 4,981 CNF, Inc. 80 4,471 Yellow Roadway Corp.* 90 4,015 Landstar System, Inc. 90 3,757 Laidlaw International, Inc. 160 3,717 Kansas City Southern* 150 3,664 Knight Transportation, Inc. 170 3,524 Florida East Coast Industries, Inc. 70 2,966 Heartland Express, Inc. 140 2,841 ----------- TOTAL ROAD & RAIL 188,312 MACHINERY Ingersoll-Rand Co. -- Class A 1,519 61,322 Cummins, Inc. 280 25,125 Lancer Corp./TX* 1,079 23,576 Titan International, Inc. 1,349 23,270 Parker Hannifin Corp. 210 13,852 ----------- TOTAL MACHINERY 147,145 AEROSPACE & DEFENSE Northrop Grumman Corp. 2,228 133,925 Goodrich Corp. 90 3,699 ----------- TOTAL AEROSPACE & DEFENSE 137,624 COMMERCIAL SERVICES & SUPPLIES Cendant Corp. 1,809 31,205 Waste Management, Inc. 969 29,409 Monster Worldwide, Inc.* 550 22,451 Robert Half International, Inc. 550 20,840 ----------- TOTAL COMMERCIAL SERVICES & SUPPLIES 103,905 TRADING COMPANIES & DISTRIBUTORS W.W. Grainger, Inc. 220 15,642 Fastenal Co. 370 14,500 MSC Industrial Direct Co. -- Class A 250 10,055 United Rentals, Inc.* 370 8,654 Hughes Supply, Inc. 240 8,604 WESCO International, Inc.* 200 8,546 GATX Corp. 220 7,938 Watsco, Inc. 130 7,775 Applied Industrial Technologies, Inc. 190 6,401 Beacon Roofing Supply, Inc.* 180 5,172 ----------- TOTAL TRADING COMPANIES & DISTRIBUTORS 93,287 CONSTRUCTION & ENGINEERING Fluor Corp. 200 15,452 Jacobs Engineering Group, Inc.* 160 10,859 Shaw Group, Inc.* 310 9,018 McDermott International, Inc.* 190 8,476 Foster Wheeler, Ltd.* 200 7,356 URS Corp.* 190 7,146 Chicago Bridge & Iron NV Co. 280 7,059 Washington Group International, Inc.* 120 6,356 Quanta Services, Inc.* 480 6,322 Granite Construction, Inc. 170 6,105 EMCOR Group, Inc.* 80 5,402 Insituform Technologies, Inc. -- Class A* 180 3,487 ----------- TOTAL CONSTRUCTION & ENGINEERING 93,038 AIRLINES Ryanair Holdings PLC -- SP ADR* 290 16,237 Gol Linhas Aereas Inteligentes SA -- SP ADR 460 12,976 AMR Corp.* 480 10,670 JetBlue Airways Corp.* 570 8,767 Lan Airlines SA-SP ADR 210 7,871 Continental Airlines, Inc. -- Class B* 310 6,603 AirTran Holdings, Inc. 380 6,091 SkyWest, Inc. 210 5,641 Alaska Air Group, Inc.* 140 5,001 ----------- TOTAL AIRLINES 79,857 ELECTRICAL EQUIPMENT American Power Conversion Corp. 150 3,300 ----------- TOTAL ELECTRICAL EQUIPMENT 3,300 AIR FREIGHT & COURIERS Ryder System, Inc. 70 2,871 ----------- TOTAL AIR FREIGHT & COURIERS 2,871 TOTAL INDUSTRIALS 849,339 CONSUMER DISCRETIONARY MEDIA Comcast Corp. -- Class A* 2,928 76,011 The Walt Disney Co. 2,738 65,630 Liberty Corp. 500 23,405 Dex Media, Inc. 859 23,270 ----------- TOTAL MEDIA 188,316 HOTELS, RESTAURANTS & LEISURE La Quinta Corp.* 2,129 23,717 MTR Gaming Group, Inc.* 1,998 20,799 Dave & Buster's, Inc.* 1,159 20,410 Marriott International, Inc. -- Class A 290 19,421 Harrah's Entertainment, Inc. 150 10,694 Hilton Hotels Corp. 130 3,134 ----------- TOTAL HOTELS, RESTAURANTS & LEISURE 98,175 TEXTILES & APPAREL Reebok International Ltd. 540 31,444 Tommy Hilfiger Corp.* 1,269 20,608 VF Corp. 140 7,748 Jones Apparel Group, Inc. 150 4,608 ----------- TOTAL TEXTILES & APPAREL 64,408 SPECIALTY RETAIL Linens 'N Things, Inc.* 909 24,179 Goody's Family Clothing, Inc. 2,508 24,052 Office Depot, Inc.* 260 8,164 Circuit City Stores, Inc. 250 5,648 ----------- TOTAL SPECIALTY RETAIL 62,043 MULTILINE RETAIL Federated Department Stores, Inc. 360 23,879 J.C. Penney Holding Co., Inc. 210 11,676 Sears Holdings Corp.* 60 6,932 Dillard's, Inc. -- Class A 220 5,460 Family Dollar Stores, Inc. 140 3,470 ----------- TOTAL MULTILINE RETAIL 51,417 INTERNET & CATALOG RETAIL J. Jill Group, Inc.* 1,219 23,198 Provide Commerce, Inc.* 619 20,495 ----------- TOTAL INTERNET & CATALOG RETAIL 43,693 AUTOMOBILES General Motors Corp. 720 13,982 Ford Motor Co. 1,619 12,499 ----------- TOTAL AUTOMOBILES 26,481 HOUSEHOLD DURABLES Pulte Homes, Inc. 560 22,042 ----------- TOTAL HOUSEHOLD DURABLES 22,042 AUTO COMPONENTS Johnson Controls, Inc. 240 17,499 Goodyear Tire & Rubber Co.* 140 2,433 Delphi Corp. 750 218 ----------- TOTAL AUTO COMPONENTS 20,150 LEISURE EQUIPMENT & PRODUCTS Brunswick Corp. 120 4,879 ----------- TOTAL LEISURE EQUIPMENT & PRODUCTS 4,879 ----------- TOTAL CONSUMER DISCRETIONARY 581,604 ENERGY OIL & GAS Valero Energy Corp. 2,708 139,733 Williams Cos., Inc. 5,376 124,562 ConocoPhillips 739 42,995 Vintage Petroleum, Inc. 430 22,932 General Maritime Corp. 520 19,261 Exxon Mobil Corp. 190 10,672 Amerada Hess Corp. 80 10,145 Royal Dutch Shell PLC -- SP ADR 150 9,223 Kerr-McGee Corp. 100 9,086 BP PLC -- SP ADR 130 8,349 PetroChina Co. Ltd. -- SP ADR 80 6,557 Total SA -- SP ADR 50 6,320 Chevron Corp. 100 5,677 ENI-Ente Nazionale Idrocarburi -- SP ADR 40 5,578 Petroleo Brasiliero SA -- Petrobras 70 4,989 Imperial Oil Ltd. 40 3,984 China Petroleum & Chemical Corp. -- SP ADR 80 3,968 EnCana Corp. 80 3,613 Repsol YPF SA -- SP ADR 110 3,235 Statoil ASA -- SP ADR 80 1,837 ----------- TOTAL OIL & GAS 442,716 ENERGY EQUIPMENT & SERVICES Rowan Cos., Inc. 570 20,315 Schlumberger Ltd. 130 12,629 Transocean, Inc.* 110 7,666 Baker Hughes, Inc. 120 7,294 Weatherford International Ltd.* 190 6,878 BJ Services Co. 160 5,867 Tenaris SA -- SP ADR 50 5,725 Nabors Industries Ltd.* 70 5,302 GlobalSantaFe Corp. 110 5,296 Noble Corp. 70 4,938 Diamond Offshore Drilling, Inc. 70 4,869 Smith International, Inc. 120 4,453 ENSCO International, Inc. 90 3,992 Patterson-UTI Energy, Inc. 110 3,625 Precision Drilling Trust 110 3,619 ----------- TOTAL ENERGY EQUIPMENT & SERVICES 102,468 ----------- TOTAL ENERGY 545,184 CONSUMER STAPLES FOOD PRODUCTS Archer-Daniels-Midland Co. 4,127 101,772 Hershey Co. 949 52,432 General Mills, Inc. 770 37,976 ----------- TOTAL FOOD PRODUCTS 192,180 FOOD & DRUG RETAILING Costco Wholesale Corp. 1,859 91,965 Safeway, Inc. 1,739 41,145 Supervalu, Inc. 330 10,718 ----------- TOTAL FOOD & DRUG RETAILING 143,828 TOBACCO Altria Group, Inc. 760 56,787 Reynolds American, Inc. 310 29,553 UST, Inc. 640 26,131 ----------- TOTAL TOBACCO 112,471 BEVERAGES Molson Coors Brewing Co. -- Class B 100 6,699 ----------- TOTAL BEVERAGES 6,699 ----------- TOTAL CONSUMER STAPLES 455,178 ----------- MATERIALS METALS & MINING Phelps Dodge Corp. 260 37,406 Roanoke Electric Steel Corp. 999 23,576 Nucor Corp. 330 22,018 United States Steel Corp. 370 17,786 BHP Billiton Ltd. -- SP ADR 370 12,365 Rio Tinto PLC -- SP ADR 60 10,967 Anglo American PLC -- ADR 270 9,391 Companhia Vale do Rio Doce -- SP ADR 200 8,228 Alcoa, Inc. 220 6,505 Newmont Mining Corp. 120 6,408 Barrick Gold Corp. 180 5,017 Mittal Steel NV Co. -- Class A 190 5,003 POSCO -- SP ADR 100 4,951 Alcan, Inc. 110 4,504 AngloGold Ashanti Ltd. -- SP ADR 90 4,440 Falconbridge Ltd. 130 3,852 ----------- TOTAL METALS & MINING 182,417 PAPER & FOREST PRODUCTS Weyerhaeuser Co. 230 15,258 MeadWestvaco Corp. 430 12,053 Louisiana-Pacific Corp. 110 3,022 ----------- TOTAL PAPER & FOREST PRODUCTS 30,333 CONSTRUCTION MATERIALS Vulcan Materials Co. 170 11,518 ----------- TOTAL CONSTRUCTION MATERIALS 11,518 ----------- TOTAL MATERIALS 224,268 TELECOMMUNICATION SERVICES DIVERSIFIED TELECOMMUNICATION SERVICES BellSouth Corp. 1,289 34,932 Telewest Global, Inc.* 1,019 24,273 PanAmSat Holding Corp. 959 23,496 New Skies Satellites Holdings Ltd. 929 20,224 Verizon Communications, Inc. 510 15,361 AT&T, Inc. 610 14,939 CenturyTel, Inc. 90 2,984 ----------- TOTAL DIVERSIFIED TELECOMMUNICATION SERVICES 136,209 WIRELESS TELECOMMUNICATION SERVICES Alltel Corp. 550 34,705 Alamosa Holdings, Inc.* 1,259 23,430 Nextel Partners, Inc. -- Class A* 719 20,089 ----------- TOTAL WIRELESS TELECOMMUNICATION SERVICES 78,224 ----------- TOTAL TELECOMMUNICATION SERVICES 214,433 UTILITIES MULTI-UTILITIES Constellation Energy Group, Inc. 550 31,680 Public Service Enterprise Group, Inc. 360 23,389 NorthWestern Corp. 740 22,992 PG&E Corp. 260 9,651 Duke Energy Corp. 180 4,941 NiSource, Inc. 190 3,963 ----------- TOTAL MULTI-UTILITIES 96,616 ELECTRIC UTILITIES Cinergy Corp. 580 24,627 Exelon Corp. 340 18,068 Entergy Corp. 150 10,297 American Electric Power Co., Inc. 270 10,014 Allegheny Energy, Inc.* 300 9,495 Pinnacle West Capital Corp. 70 2,895 ----------- TOTAL ELECTRIC UTILITIES 75,396 ----------- TOTAL UTILITIES 172,012 ----------- TOTAL COMMON STOCKS 6,026,385 (Cost $5,988,051)
CONTRACTS OPTIONS PURCHASED 0.0% Put Options on: January 2006 S&P 500 Index Futures Contracts Expiring January 2006 with strike price of 1160 6 750 ------------ TOTAL OPTIONS PURCHASED (Cost $1,224) 750 ------------ REPURCHASE AGREEMENTS 40.5% FACE AMOUNT MARKET VALUE ------------------------------ Collateralized by U.S. Treasury Obligations Credit Suisse First Boston at 3.45% due 01/03/06 $ 2,046,374 2,046,374 Lehman Brothers, Inc. at 3.40% due 01/03/06 573,814 573,814 Morgan Stanley at 3.30% due 01/03/06 1,184,215 1,184,215 Bear Stearns Cos., Inc. at 3.10% due 01/03/06 1,614,838 1,614,838 Citigroup, Inc. at 2.90% due 01/03/06 107,656 107,656 ------------ TOTAL REPURCHASE AGREEMENTS (Cost $5,526,897) 5,526,897 5,526,897 SHARES MARKET VALUE ------------------------------ COMMON STOCKS SOLD SHORT (26.8)% INFORMATION TECHNOLOGY IT CONSULTING & SERVICES Unisys Corp.* 180 (1,049) ------------ TOTAL IT CONSULTING & SERVICES (1,049) ELECTRONIC EQUIPMENT & INSTRUMENTS Symbol Technologies, Inc. 130 (1,667) ------------ TOTAL ELECTRONIC EQUIPMENT & INSTRUMENTS (1,667) SEMICONDUCTOR & SEMICONDUCTOR EQUIPMENT Nvidia Corp.* 90 (3,290) ------------ TOTAL SEMICONDUCTOR & SEMICONDUCTOR EQUIPMENT (3,290) COMPUTERS & PERIPHERALS NCR Corp.* 100 (3,394) Seagate Technology* 1,000 (19,990) ------------ TOTAL COMPUTERS & PERIPHERALS (23,384) COMMUNICATIONS EQUIPMENT Comverse Technology, Inc.* 280 (7,445) ADC Telecommunications, Inc.* 1,060 (23,681) ------------ TOTAL COMMUNICATIONS EQUIPMENT (31,126) SOFTWARE Symantec Corp.* 370 (6,475) Adobe Systems, Inc. 260 (9,609) Autodesk, Inc. 320 (13,744) Secure Computing Corp.* 1,810 (22,191) ------------ TOTAL SOFTWARE (52,019) ------------ TOTAL INFORMATION TECHNOLOGY (112,535) UTILITIES MULTI-UTILITIES KeySpan Corp. 100 (3,569) TECO Energy, Inc. 270 (4,638) ------------ TOTAL MULTI-UTILITIES (8,207) ELECTRIC UTILITIES PPL Corp. 220 (6,468) FPL Group, Inc. 700 (29,092) TXU Corp. 1,910 (95,863) ------------ TOTAL ELECTRIC UTILITIES (131,423) ------------ TOTAL UTILITIES (139,630) MATERIALS CONTAINERS & PACKAGING Pactiv Corp.* 80 (1,760) Temple-Inland, Inc. 60 (2,691) ------------ TOTAL CONTAINERS & PACKAGING (4,451) PAPER & FOREST PRODUCTS International Paper Co. 280 (9,411) ------------ TOTAL PAPER & FOREST PRODUCTS (9,411) ------------ METALS & MINING Steel Dynamics, Inc. 670 (23,792) Allegheny Technologies, Inc. 720 (25,977) Freeport-McMoRan Copper & Gold, Inc. -- Class B 1,540 (82,852) ------------ TOTAL METALS & MINING (132,621) ------------ TOTAL MATERIALS (146,483) TELECOMMUNICATION SERVICES DIVERSIFIED TELECOMMUNICATION SERVICES Valor Communications Group, Inc. 1,710 (19,494) ------------ TOTAL DIVERSIFIED TELECOMMUNICATION SERVICES (19,494) ------------ WIRELESS TELECOMMUNICATION SERVICES Sprint Nextel Corp. 12,789 (298,751) ------------ TOTAL WIRELESS TELECOMMUNICATION SERVICES (298,751) ------------ TOTAL TELECOMMUNICATION SERVICES (318,245) ENERGY OIL & GAS Sunoco, Inc. 60 (4,703) Devon Energy Corp. 190 (11,882) Occidental Petroleum Corp. 240 (19,171) ------------ TOTAL OIL & GAS (35,756) ------------ ENERGY EQUIPMENT & SERVICES Halliburton Co. 5,080 (314,757) ------------ TOTAL ENERGY EQUIPMENT & SERVICES (314,757) ------------ TOTAL ENERGY (350,513) CONSUMER STAPLES PERSONAL PRODUCTS Avon Products, Inc. 450 (12,847) ------------ TOTAL PERSONAL PRODUCTS (12,847) ------------ FOOD & DRUG RETAILING Albertson's, Inc. 350 (7,472) CVS Corp. 780 (20,608) ------------ TOTAL FOOD & DRUG RETAILING (28,080) BEVERAGES Brown-Forman Corp. -- Class B 170 (11,784) Coca-Cola Enterprises, Inc. 3,480 (66,712) ------------ TOTAL BEVERAGES (78,496) FOOD PRODUCTS WM Wrigley Jr Co. 320 (21,277) Campbell Soup Co. 3,010 (89,608) Sara Lee Corp. 6,560 (123,984) ------------ TOTAL FOOD PRODUCTS (234,869) ------------ TOTAL CONSUMER STAPLES (354,292)
CONSUMER DISCRETIONARY LEISURE EQUIPMENT & PRODUCTS Eastman Kodak Co. 110 (2,574) ------------ TOTAL LEISURE EQUIPMENT & PRODUCTS (2,574) HOUSEHOLD DURABLES Maytag Corp. 140 (2,635) ------------ TOTAL HOUSEHOLD DURABLES (2,635) ------------ INTERNET & CATALOG RETAIL eBay, Inc.* 80 (3,460) ------------ TOTAL INTERNET & CATALOG RETAIL (3,460) ------------ AUTO COMPONENTS Cooper Tire & Rubber Co. 100 (1,532) Dana Corp. 310 (2,226) ------------ TOTAL AUTO COMPONENTS (3,758) SPECIALTY RETAIL Tiffany & Co. 140 (5,361) ------------ TOTAL SPECIALTY RETAIL (5,361) ------------ MULTILINE RETAIL Big Lots, Inc.* 190 (2,282) Nordstrom, Inc. 280 (10,472) ------------ TOTAL MULTILINE RETAIL (12,754) COMMERCIAL SERVICES & SUPPLIES H&R Block, Inc. 130 (3,191) Apollo Group, Inc. -- Class A* 180 (10,883) ------------ TOTAL COMMERCIAL SERVICES & SUPPLIES (14,074) HOTELS, RESTAURANTS & LEISURE International Game Technology, Inc. 480 (14,774) Starbucks Corp.* 780 (23,408) ------------ TOTAL HOTELS, RESTAURANTS & LEISURE (38,182) MEDIA Dow Jones & Co., Inc. 80 (2,839) Interpublic Group of Cos., Inc.* 720 (6,948) McGraw-Hill Cos., Inc. 150 (7,744) News Corp. -- Class A 1,290 (20,060) RH Donnelley Corp.* 370 (22,799) NTL, Inc.* 360 (24,509) Viacom, Inc. -- Class B* 2,690 (87,694) Time Warner, Inc. 7,950 (138,648) TOTAL MEDIA (311,241) ------------ TOTAL CONSUMER DISCRETIONARY (394,039) INDUSTRIALS BUILDING PRODUCTS Masco Corp. 250 (7,548) ------------ TOTAL BUILDING PRODUCTS (7,548) ------------ COMMERCIAL SERVICES & SUPPLIES Avery Dennison Corp. 60 (3,316) Allied Waste Industries, Inc.* 2,780 (24,297) ------------ TOTAL COMMERCIAL SERVICES & SUPPLIES (27,613) AEROSPACE & DEFENSE Boeing Co. 360 (25,286) United Technologies Corp. 600 (33,546) ------------ TOTAL AEROSPACE & DEFENSE (58,832) MACHINERY Caterpillar, Inc. 1,240 (71,635) ------------ TOTAL MACHINERY (71,635) AIRLINES Southwest Airlines Co. 5,490 (90,201) ------------ TOTAL AIRLINES (90,201) ROAD & RAIL Union Pacific Corp. 2,070 (166,656) ------------ TOTAL ROAD & RAIL (166,656) ------------ TOTAL INDUSTRIALS (422,485) HEALTH CARE BIOTECHNOLOGY Biogen Idec, Inc.* 40 (1,813) Medimmune, Inc.* 890 (31,168) ------------ TOTAL BIOTECHNOLOGY (32,981) HEALTH CARE PROVIDERS & SERVICES Quest Diagnostics, Inc. 30 (1,544) Tenet Healthcare Corp.* 1,200 (9,192) Express Scripts, Inc.* 160 (13,408) Wellpoint, Inc. 170 (13,564) Per-Se Technologies, Inc.* 960 (22,426) ------------ TOTAL HEALTH CARE PROVIDERS & SERVICES (60,134) HEALTH CARE EQUIPMENT & SUPPLIES Biomet, Inc. 130 (4,754) St. Jude Medical, Inc.* 200 (10,040) Mentor Corp. 490 (22,579) ev3, Inc.* 1,830 (26,974) Stryker Corp. 650 (28,880) Baxter International, Inc. 1,590 (59,864) ------------ TOTAL HEALTH CARE EQUIPMENT & SUPPLIES (153,091) PHARMACEUTICALS Medicis Pharmaceutical Corp. -- Class A 700 (22,435) Schering-Plough Corp. 6,140 (128,019) Eli Lilly & Co. 2,900 (164,111) ------------ TOTAL PHARMACEUTICALS (314,565) ------------ TOTAL HEALTH CARE (560,771) FINANCIALS CAPITAL MARKETS T. Rowe Price Group, Inc. 130 (9,364) Janus Capital Group, Inc. 540 (10,060) Charles Schwab Corp. 960 (14,083) Northern Trust Corp. 480 (24,874) ------------ TOTAL CAPITAL MARKETS (58,381) INSURANCE Ambac Financial Group, Inc. 100 (7,706) Marsh & McLennan Cos., Inc. 480 (15,245) UnumProvident Corp. 710 (16,152) Aon Corp. 760 (27,322) ------------ TOTAL INSURANCE (66,425) THRIFTS & MORTGAGE FINANCE MGIC Investment Corp. 80 (5,265) Golden West Financial Corp. 280 (18,480) Freddie Mac 440 (28,754) Countrywide Financial Corp. 1,420 (48,550) ------------ TOTAL THRIFTS & MORTGAGE FINANCE (101,049) REAL ESTATE Simon Property Group, Inc. 210 (16,092) ProLogis 410 (19,155) Brandywine Realty Trust 820 (22,886) Public Storage, Inc. 340 (23,025)
Equity Office Properties Trust 980 (29,724) ------------ TOTAL REAL ESTATE (110,882) BANKS First Horizon National Corp. 110 (4,228) North Fork Bancorporation, Inc. 430 (11,765) BB&T Corp. 480 (20,117) TD Banknorth, Inc. 780 (22,659) Huntington Bancshares, Inc. 980 (23,275) Bank of America Corp. 510 (23,537) Wachovia Corp. 450 (23,787) ------------ TOTAL BANKS (129,368) DIVERSIFIED FINANCIALS Moody's Corp. 940 (57,735) J.P. Morgan Chase & Co. 8,400 (333,396) ------------ TOTAL DIVERSIFIED FINANCIALS (391,131) ------------ TOTAL FINANCIALS (857,236) ------------ TOTAL COMMON STOCKS SOLD SHORT (Cost $3,669,130) (3,656,229) TOTAL INVESTMENTS 57.9% (Cost $7,847,042) $ 7,897,803 OTHER ASSETS IN EXCESS OF LIABILITIES - 42.1% $ 5,737,366 NET ASSETS - 100.0% $ 13,635,169 UNREALIZED CONTRACTS GAIN (LOSS) FUTURES CONTRACT PURCHASED March 2006 U.S. 10Year Treasury Note Futures Contracts (Aggregate Market Value of Contracts $1,312,875) 12 $ 11,587 January 2006 Goldman Sachs Commodity Index Futures Contracts (Aggregate Market Value of Contracts $539,813) 5 -10,180 March 2006 S&P MidCap 400 Index Mini Futures Contracts (Aggregate Market Value of Contracts $742,100) 10 -9,458 March 2006 S&P 500 Index Mini Futures Contracts (Aggregate Market Value of Contracts $751,350) 12 -12,303 March 2006 Russell 2000 Index Mini Futures Contracts (Aggregate Market Value of Contracts $742,170) 11 -21,276 (TOTAL AGGREGATE MARKET VALUE OF CONTRACTS $4,088,308) -41,630 ------------ FUTURES CONTRACTS SOLD SHORT March 2006 U.S. Dollar Index Futures Contracts (Aggregate Market Value of Contracts $1,910,160) 21 269 * Non-Income Producing Security ADR - American Depository Receipt
RYDEX CAPITAL PARTNERS SPHINX FUND DECEMBER 31, 2005 SCHEDULE OF INVESTMENTS (Unaudited)
SHARES FAIR VALUE - ----------------------------------------------------------------------------------------- PORTFOLIO FUNDS - 98.1% * SPHINX CONVERTIBLE ARBITRAGE - 11.0% Clinton Group, Inc. 4,228 $ 3,891,964 Deephaven Market Neutral Fund, Ltd. 3,602 3,877,277 Forest Global Convertible Fund, Ltd. 3,265 3,841,917 SSI Hedged Convertible Market-Neutral 3,240 3,775,344 TQA Vantage Fund, Ltd. 3,371 3,877,135 ------------ 19,263,637 ------------ SPHINX DISTRESSED - 11.0% Contrarian Capital Senior Secured Offshore Fund, Ltd. 2,951 4,739,352 Longacre International, Ltd. 3,631 4,771,374 MW Post Opportunity Offshore Fund, Ltd. 2,606 4,893,756 Varde Fund, Ltd. 3,159 4,818,340 ------------ 19,222,822 ------------ SPHINX EQUITY MARKET NEUTRAL - 10.9% First Quadrant US Market Neutral 4,031 3,807,614 GLC Gestalt Europe Fund 3,795 3,815,146 Martingale Equity Market Neutral Strategy 4,347 3,805,890 Salus Market Neutral Strategy 3,826 3,808,330 Thales Fund Management, LLC 3,261 3,834,662 ------------ 19,071,642 ------------ SPHINX FIXED INCOME ARBITRAGE - 11.0% Alliance Capital High Grade Strategy 3,616 3,898,255 Concordia Capital, Ltd., Class C 4,228 4,069,334 Ellington Overseas Partners, Ltd. 2,621 3,703,128 Greenwich Harbour Capital 3,491 3,797,887 MKP Offshore Partners, Ltd. 3,426 3,790,876 ------------ 19,259,480 ------------ SPHINX LONG/SHORT EQUITY - 10.9% Chilton Investment Partners 3,375 3,807,337 Cumberland Partners 2,504 3,800,635 Lazard Global Opportunities 3,051 3,812,874 Omega Overseas Partners, Ltd. 2,235 3,806,185 Sparx Long-Short Fund, Ltd. 2,457 3,822,525 ------------ 19,049,556 ------------ SPHINX MACRO - 10.9% Big Sky Global Vision, LP 4,084 $ 4,850,073 Bridgewater Pure Alpha Stategy 4,599 4,778,360 Epoch Overseas, Ltd. 5,533 4,762,558 Vega Global Fund, Ltd. 4,052 4,798,818 ------------ 19,189,809 ------------ SPHINX MANAGED FUTURES - 10.6% SPhinX Managed Futures Fund, Ltd. 15,156 18,687,013 ------------ SPHINX MERGER ARBITRAGE - 10.8% Aetos Corp. 4,335 4,759,298 Gabelli Associates, Ltd. 4,530 4,749,419 Kellner DiLeo 4,248 4,743,569 Merger Fund Ltd. 4,282 4,777,392 ------------ 19,029,678 ------------ SPHINX SPECIAL SITUATIONS - 11.0% Canyon Value Realization Fund, Ltd. 2,540 3,959,484 Halcyon Offshore Event-Driven Strategies Fund 3,195 3,846,833 Mariner Investment Group, Inc. 2,885 3,813,803 Metropolitan Capital Advisors International, Ltd. 2,938 3,793,517 Para International Fund, Ltd. 2,848 3,900,163 ------------ 19,313,800 ------------ TOTAL INVESTMENTS IN PORTFOLIO FUNDS - 98.1% $172,087,437 ------------ (Cost $163,166,290) SHORT-TERM INVESTMENT - 0.8% MONEY MARKET FUND - 0.8% Monarch Daily Assets Cash Fund 1,375,012 1,375,012 ------------ (Cost $1,375,012) Total Investments - 99.3 $173,462,449 (Cost $164,541,302**) Other Assets Net of Liabilities - 0.7% 1,325,336 ------------ NET ASSETS - 100.0% $174,787,785 ============
* INTERESTS IN PORTFOLIO FUNDS ARE SUBJECT TO LOCK-UP PROVISIONS AND MAY ONLY BE LIQUIDATED QUARTERLY WITH SIXTY-FIVE DAYS NOTICE. THE NEXT AVAILABLE LIQUIDATION DATE IS FEBRUARY 28, 2005. ** COST FOR FEDERAL INCOME TAX PURPOSES IS SUBSTANTIALLY THE SAME AS FOR FINANCIAL STATEMENT PURPOSES AND NET UNREALIZED APPRECIATION CONSISTS OF: GROSS UNREALIZED APPRECIATION: $ 1,497,374 GROSS UNREALIZED DEPRECIATION: (10,418,521) NET UNREALIZED APPRECIATION (DEPRECIATION): $ (8,921,147) ABSOLUTE RETURN STRATEGIES FUND DECEMBER 31, 2005 SCHEDULE OF INVESTMENTS PRO FORMA (UNAUDITED) ** SHARES MARKET VALUE - ----------------------------------------------------- ---------- ------------ COMMON STOCKS 6.2% FINANCIALS INSURANCE Prudential Financial, Inc. 1,249 $ 91,414 AFLAC, Inc. 1,219 56,586 Chubb Corp. 350 34,177 XL Capital Ltd. 460 30,995 ACE Ltd. 500 26,720 UICI 640 22,726 Loews Corp. 230 21,816 MBIA, Inc. 230 13,837 SAFECO Corp. 220 12,430 ------------ TOTAL INSURANCE 310,701 CAPITAL MARKETS Goldman Sachs Group, Inc. 1,199 153,124 Franklin Resources, Inc. 420 39,484 E*Trade Financial Corp.* 1,359 28,349 UBS AG 100 9,515 Merrill Lynch & Co., Inc. 120 8,128 Morgan Stanley 140 7,944 Credit Suisse Group -- SP ADR 150 7,642 Deutsche Bank AG 70 6,781 Lehman Brothers Holdings, Inc. 50 6,408 Nomura Holdings, Inc. -- SP ADR 320 6,150 Bank of New York Co., Inc. 160 5,096 State Street Corp. 80 4,435 Mellon Financial Corp. 110 3,768 Legg Mason, Inc. 30 3,591 Bear Stearns Cos., Inc. 30 3,466 ------------ TOTAL CAPITAL MARKETS 293,881 REAL ESTATE AMLI Residential Properties Trust 620 23,591 Criimi MAE, Inc.* 1,179 23,344 Shurgard Storage Centers, Inc. -- Class A 410 23,251 Prentiss Properties Trust 570 23,188 CenterPoint Properties Trust 410 20,287 Town & Country Trust 600 20,286 Arden Realty, Inc. 440 19,725 Plum Creek Timber Co., Inc. (REIT) 450 16,222 Archstone-Smith Trust 250 10,473 ------------ TOTAL REAL ESTATE 180,367 BANKS National City Corp. 1,109 37,229 Westcorp 360 23,979 Central Coast Bancorp* 949 23,478 Unizan Financial Corp. 869 23,081 Hudson United Bancorp 550 22,924 Main Street Banks, Inc. 739 20,123 ------------ TOTAL BANKS 150,814 THRIFTS & MORTGAGE FINANCE Fannie Mae 1,489 72,678 Independence Community Bank Corp. 590 23,441 ------------ TOTAL THRIFTS & MORTGAGE FINANCE 96,119 CONSUMER FINANCE WFS Financial, Inc.* 310 23,607 MBNA Corp. 869 23,593 Collegiate Funding Services LLC* 1,039 20,520 ------------ TOTAL CONSUMER FINANCE 67,720 DIVERSIFIED FINANCIALS CIT Group, Inc. 370 19,159 ------------ TOTAL DIVERSIFIED FINANCIALS 19,159 ------------ TOTAL FINANCIALS 1,118,761 INFORMATION TECHNOLOGY INTERNET SOFTWARE & SERVICES Yahoo!, Inc.* 3,108 121,771 Google, Inc. -- Class A* 160 66,378 VeriSign, Inc.* 630 13,810 Akamai Technologies, Inc.* 490 9,766 CNET Networks, Inc.* 550 8,079 aQuantive, Inc.* 320 8,077 ValueClick, Inc.* 400 7,244 Websense, Inc.* 110 7,220 EarthLink, Inc.* 610 6,777 Digitas, Inc.* 520 6,510 Openwave Systems, Inc.* 360 6,289 Netease.com, Inc. -- SP ADR* 110 6,178 Sina Corp.* 250 6,040 Digital River, Inc.* 170 5,056 WebEx Communications, Inc.* 220 4,759 ------------ TOTAL INTERNET SOFTWARE & SERVICES 283,954 SEMICONDUCTOR & SEMICONDUCTOR EQUIPMENT Broadcom Corp. -- Class A* 1,249 58,890 Texas Instruments, Inc. 1,429 45,828 Advanced Micro Devices, Inc.* 1,129 34,548 Micron Technology, Inc.* 1,749 23,279 Freescale Semiconductor, Inc. -- Class B* 640 16,109 Novellus Systems, Inc.* 390 9,407 Teradyne, Inc.* 560 8,159 LSI Logic Corp.* 340 2,720 ------------ TOTAL SEMICONDUCTOR & SEMICONDUCTOR EQUIPMENT 198,940 SOFTWARE Intellisync Corp.* 4,597 23,720 Captiva Software Corp.* 1,059 23,563 Geac Computer Corp. Ltd.* 2,149 23,424 Serena Software, Inc.* 999 23,417 CCC Information Services Group* 889 23,310 Cyberguard Corp.* 2,568 22,675 Jamdat Mobile, Inc.* 769 20,440 Micromuse, Inc.* 2,038 20,156 Parametric Technology Corp.* 770 4,697 Compuware Corp.* 340 3,050 ------------ TOTAL SOFTWARE 188,452 COMMUNICATIONS EQUIPMENT Corning, Inc.* 3,428 67,394 Scientific-Atlanta, Inc. 550 23,689 Enterasys Networks, Inc.* 1,779 23,625 Dycom Industries, Inc.* 320 7,040 ------------ TOTAL COMMUNICATIONS EQUIPMENT 121,748 COMPUTERS & PERIPHERALS Apple Computer, Inc.* 1,199 86,196 Maxtor Corp.* 2,878 19,973 ------------ TOTAL COMPUTERS & PERIPHERALS 106,169 IT CONSULTING & SERVICES iPayment Holdings, Inc.* 580 24,082 Acxiom Corp. 1,019 23,437 Anteon International Corp.* 380 20,653 Computer Sciences Corp.* 130 6,583 Affiliated Computer Services, Inc. -- Class A* 90 5,326 Sabre Holdings Corp. 90 2,170 Convergys Corp.* 100 1,585 ------------ TOTAL IT CONSULTING & SERVICES 83,836 OFFICE ELECTRONICS Xerox Corp.* 680 9,962 ------------ TOTAL OFFICE ELECTRONICS 9,962 TOTAL INFORMATION TECHNOLOGY HEALTH CARE HEALTH CARE PROVIDERS & SERVICES Aetna, Inc. 1,009 95,159 CIGNA Corp. 280 31,276 McKesson Corp. 520 26,827 Medco Health Solutions, Inc.* 460 25,668 NDCHealth Corp.* 1,239 23,826 IDX Systems Corp.* 540 23,717 Renal Care Group, Inc.* 500 23,655 Specialty Laboratories, Inc.* 1,789 23,346 Beverly Enterprises, Inc.* 1,969 22,978 HCA, Inc. 340 17,170 AmerisourceBergen Corp. 350 14,490 Humana, Inc.* 210 11,409 WellPoint, Inc.* 140 11,183 Cardinal Health, Inc. 120 8,250 Caremark Rx, Inc.* 140 7,251 Health Management Associates, Inc. -- Class A 250 5,490 Coventry Health Care, Inc.* 70 3,987 Laboratory Corporation of America Holdings* 70 3,769 Patterson Cos., Inc.* 70 2,338 Manor Care, Inc. 40 1,591 ------------ TOTAL HEALTH CARE PROVIDERS & SERVICES 383,380 HEALTH CARE EQUIPMENT & SUPPLIES Guidant Corp. 1,399 90,585 Boston Scientific Corp.* 2,179 53,364 Micro Therapeutics, Inc.* 3,877 26,868 Fisher Scientific International, Inc.* 390 24,125 Animas Corp.* 839 20,262 Waters Corp.* 370 13,986 PerkinElmer, Inc. 420 9,895 ------------ TOTAL HEALTH CARE EQUIPMENT & SUPPLIES 239,085 BIOTECHNOLOGY Gilead Sciences, Inc.* 879 46,262 Abgenix, Inc.* 939 20,198 Amgen, Inc.* 200 15,772 Genentech, Inc.* 170 15,725 Genzyme Corp.* 90 6,370 Celgene Corp.* 80 5,184 Applera Corp. - Applied Biosystems Group 140 3,718 Amylin Pharmaceuticals, Inc.* 90 3,593 Invitrogen Corp.* 50 3,332 Protein Design Labs, Inc.* 110 3,126 ImClone Systems, Inc.* 90 3,082 Charles River Laboratories International, Inc.* 70 2,966 Affymetrix, Inc.* 60 2,865 ------------ TOTAL BIOTECHNOLOGY 132,193 PHARMACEUTICALS Pfizer, Inc. 3,597 83,882 Merck & Co., Inc. 1,069 34,005 ------------ TOTAL PHARMACEUTICALS 117,887 ------------ TOTAL HEALTH CARE 872,545 INDUSTRIALS ROAD & RAIL Norfolk Southern Corp. 2,069 92,753 Burlington Northern Santa Fe Corp. 490 34,702 Canadian National Railway Co. 150 11,998 CSX Corp. 170 8,631 Canadian Pacific Railway Ltd. 150 6,292 J.B. Hunt Transport Services, Inc. 220 4,981 CNF, Inc. 80 4,471 Yellow Roadway Corp.* 90 4,015 Landstar System, Inc. 90 3,757 Laidlaw International, Inc. 160 3,717 Kansas City Southern* 150 3,664 Knight Transportation, Inc. 170 3,524 Florida East Coast Industries, Inc. 70 2,966 Heartland Express, Inc. 140 2,841 ------------ TOTAL ROAD & RAIL 188,312 MACHINERY Ingersoll-Rand Co. -- Class A 1,519 61,322 Cummins, Inc. 280 25,125 Lancer Corp./TX* 1,079 23,576 Titan International, Inc. 1,349 23,270 Parker Hannifin Corp. 210 13,852 ------------ TOTAL MACHINERY 147,145 AEROSPACE & DEFENSE Northrop Grumman Corp. 2,228 133,925 Goodrich Corp. 90 3,699 ------------ TOTAL AEROSPACE & DEFENSE 137,624 COMMERCIAL SERVICES & SUPPLIES Cendant Corp. 1,809 31,205 Waste Management, Inc. 969 29,409 Monster Worldwide, Inc.* 550 22,451 Robert Half International, Inc. 550 20,840 ------------ TOTAL COMMERCIAL SERVICES & SUPPLIES 103,905 TRADING COMPANIES & DISTRIBUTORS W.W. Grainger, Inc. 220 15,642 Fastenal Co. 370 14,500 MSC Industrial Direct Co. -- Class A 250 10,055 United Rentals, Inc.* 370 8,654 Hughes Supply, Inc. 240 8,604 WESCO International, Inc.* 200 8,546 GATX Corp. 220 7,938 Watsco, Inc. 130 7,775 Applied Industrial Technologies, Inc. 190 6,401 Beacon Roofing Supply, Inc.* 180 5,172 ------------ TOTAL TRADING COMPANIES & DISTRIBUTORS 93,287 CONSTRUCTION & ENGINEERING Fluor Corp. 200 15,452 Jacobs Engineering Group, Inc.* 160 10,859 Shaw Group, Inc.* 310 9,018 McDermott International, Inc.* 190 8,476 Foster Wheeler, Ltd.* 200 7,356 URS Corp.* 190 7,146 Chicago Bridge & Iron NV Co. 280 7,059 Washington Group International, Inc.* 120 6,356 Quanta Services, Inc.* 480 6,322 Granite Construction, Inc. 170 6,105 EMCOR Group, Inc.* 80 5,402 Insituform Technologies, Inc. -- Class A* 180 3,487 ------------ TOTAL CONSTRUCTION & ENGINEERING 93,038 AIRLINES Ryanair Holdings PLC -- SP ADR* 290 16,237 Gol Linhas Aereas Inteligentes SA -- SP ADR 460 12,976 AMR Corp.* 480 10,670 JetBlue Airways Corp.* 570 8,767 Lan Airlines SA-SP ADR 210 7,871 Continental Airlines, Inc. -- Class B* 310 6,603 AirTran Holdings, Inc. 380 6,091 SkyWest, Inc. 210 5,641 Alaska Air Group, Inc.* 140 5,001 ------------ TOTAL AIRLINES 79,857 ELECTRICAL EQUIPMENT American Power Conversion Corp. 150 3,300 ------------ TOTAL ELECTRICAL EQUIPMENT 3,300 AIR FREIGHT & COURIERS Ryder System, Inc. 70 2,871 ------------ TOTAL AIR FREIGHT & COURIERS 2,871 TOTAL INDUSTRIALS 849,339 CONSUMER DISCRETIONARY MEDIA Comcast Corp. -- Class A* 2,928 76,011 The Walt Disney Co. 2,738 65,630 Liberty Corp. 500 23,405 Dex Media, Inc. 859 23,270 ------------ TOTAL MEDIA 188,316 HOTELS, RESTAURANTS & LEISURE La Quinta Corp.* 2,129 23,717 MTR Gaming Group, Inc.* 1,998 20,799 Dave & Buster's, Inc.* 1,159 20,410 Marriott International, Inc. -- Class A 290 19,421 Harrah's Entertainment, Inc. 150 10,694 Hilton Hotels Corp. 130 3,134 ------------ TOTAL HOTELS, RESTAURANTS & LEISURE 98,175 TEXTILES & APPAREL Reebok International Ltd. 540 31,444 Tommy Hilfiger Corp.* 1,269 20,608 VF Corp. 140 7,748 Jones Apparel Group, Inc. 150 4,608 ------------ TOTAL TEXTILES & APPAREL 64,408 SPECIALTY RETAIL Linens 'N Things, Inc.* 909 24,179 Goody's Family Clothing, Inc. 2,508 24,052 Office Depot, Inc.* 260 8,164 Circuit City Stores, Inc. 250 5,648 ------------ TOTAL SPECIALTY RETAIL 62,043 MULTILINE RETAIL Federated Department Stores, Inc. 360 23,879 J.C. Penney Holding Co., Inc. 210 11,676 Sears Holdings Corp.* 60 6,932 Dillard's, Inc. -- Class A 220 5,460 Family Dollar Stores, Inc. 140 3,470 ------------ TOTAL MULTILINE RETAIL 51,417 INTERNET & CATALOG RETAIL J. Jill Group, Inc.* 1,219 23,198 Provide Commerce, Inc.* 619 20,495 ------------ TOTAL INTERNET & CATALOG RETAIL 43,693 AUTOMOBILES General Motors Corp. 720 13,982 Ford Motor Co. 1,619 12,499 ------------ TOTAL AUTOMOBILES 26,481 HOUSEHOLD DURABLES Pulte Homes, Inc. 560 22,042 ------------ TOTAL HOUSEHOLD DURABLES 22,042 AUTO COMPONENTS Johnson Controls, Inc. 240 17,499 Goodyear Tire & Rubber Co.* 140 2,433 Delphi Corp. 750 218 ------------ TOTAL AUTO COMPONENTS 20,150 LEISURE EQUIPMENT & PRODUCTS Brunswick Corp. 120 4,879 ------------ TOTAL LEISURE EQUIPMENT & PRODUCTS 4,879 ------------ TOTAL CONSUMER DISCRETIONARY 581,604 ENERGY OIL & GAS Valero Energy Corp. 2,708 139,733 Williams Cos., Inc. 5,376 124,562 ConocoPhillips 739 42,995 Vintage Petroleum, Inc. 430 22,932 General Maritime Corp. 520 19,261 Exxon Mobil Corp. 190 10,672 Amerada Hess Corp. 80 10,145 Royal Dutch Shell PLC -- SP ADR 150 9,223 Kerr-McGee Corp. 100 9,086 BP PLC -- SP ADR 130 8,349 PetroChina Co. Ltd. -- SP ADR 80 6,557 Total SA -- SP ADR 50 6,320 Chevron Corp. 100 5,677 ENI-Ente Nazionale Idrocarburi -- SP ADR 40 5,578 Petroleo Brasiliero SA -- Petrobras 70 4,989 Imperial Oil Ltd. 40 3,984 China Petroleum & Chemical Corp. -- SP ADR 80 3,968 EnCana Corp. 80 3,613 Repsol YPF SA -- SP ADR 110 3,235 Statoil ASA -- SP ADR 80 1,837 ------------ TOTAL OIL & GAS 442,716 ENERGY EQUIPMENT & SERVICES Rowan Cos., Inc. 570 20,315 Schlumberger Ltd. 130 12,629 Transocean, Inc.* 110 7,666 Baker Hughes, Inc. 120 7,294 Weatherford International Ltd.* 190 6,878 BJ Services Co. 160 5,867 Tenaris SA -- SP ADR 50 5,725 Nabors Industries Ltd.* 70 5,302 GlobalSantaFe Corp. 110 5,296 Noble Corp. 70 4,938 Diamond Offshore Drilling, Inc. 70 4,869 Smith International, Inc. 120 4,453 ENSCO International, Inc. 90 3,992 Patterson-UTI Energy, Inc. 110 3,625 Precision Drilling Trust 110 3,619 ------------ TOTAL ENERGY EQUIPMENT & SERVICES 102,468 ------------ TOTAL ENERGY 545,184 CONSUMER STAPLES FOOD PRODUCTS Archer-Daniels-Midland Co. 4,127 101,772 Hershey Co. 949 52,432 General Mills, Inc. 770 37,976 ------------ TOTAL FOOD PRODUCTS 192,180 FOOD & DRUG RETAILING Costco Wholesale Corp. 1,859 91,965 Safeway, Inc. 1,739 41,145 Supervalu, Inc. 330 10,718 ------------ TOTAL FOOD & DRUG RETAILING 143,828 TOBACCO Altria Group, Inc. 760 56,787 Reynolds American, Inc. 310 29,553 UST, Inc. 640 26,131 ------------ TOTAL TOBACCO 112,471 BEVERAGES Molson Coors Brewing Co. -- Class B 100 6,699 ------------ TOTAL BEVERAGES 6,699 ------------ TOTAL CONSUMER STAPLES 455,178 ------------ MATERIALS METALS & MINING Phelps Dodge Corp. 260 37,406 Roanoke Electric Steel Corp. 999 23,576 Nucor Corp. 330 22,018 United States Steel Corp. 370 17,786 BHP Billiton Ltd. -- SP ADR 370 12,365 Rio Tinto PLC -- SP ADR 60 10,967 Anglo American PLC -- ADR 270 9,391 Companhia Vale do Rio Doce -- SP ADR 200 8,228 Alcoa, Inc. 220 6,505 Newmont Mining Corp. 120 6,408 Barrick Gold Corp. 180 5,017 Mittal Steel NV Co. -- Class A 190 5,003 POSCO -- SP ADR 100 4,951 Alcan, Inc. 110 4,504 AngloGold Ashanti Ltd. -- SP ADR 90 4,440 Falconbridge Ltd. 130 3,852 ------------ TOTAL METALS & MINING 182,417 PAPER & FOREST PRODUCTS Weyerhaeuser Co. 230 15,258 MeadWestvaco Corp. 430 12,053 Louisiana-Pacific Corp. 110 3,022 ------------ TOTAL PAPER & FOREST PRODUCTS 30,333 CONSTRUCTION MATERIALS Vulcan Materials Co. 170 11,518 ------------ TOTAL CONSTRUCTION MATERIALS 11,518 ------------ TOTAL MATERIALS 224,268 TELECOMMUNICATION SERVICES DIVERSIFIED TELECOMMUNICATION SERVICES BellSouth Corp. 1,289 34,932 Telewest Global, Inc.* 1,019 24,273 PanAmSat Holding Corp. 959 23,496 New Skies Satellites Holdings Ltd. 929 20,224 Verizon Communications, Inc. 510 15,361 AT&T, Inc. 610 14,939 CenturyTel, Inc. 90 2,984 ------------ TOTAL DIVERSIFIED TELECOMMUNICATION SERVICES 136,209 WIRELESS TELECOMMUNICATION SERVICES Alltel Corp. 550 34,705 Alamosa Holdings, Inc.* 1,259 23,430 Nextel Partners, Inc. -- Class A* 719 20,089 ------------ TOTAL WIRELESS TELECOMMUNICATION SERVICES 78,224 ------------ TOTAL TELECOMMUNICATION SERVICES 214,433 UTILITIES MULTI-UTILITIES Constellation Energy Group, Inc. 550 31,680 Public Service Enterprise Group, Inc. 360 23,389 NorthWestern Corp. 740 22,992 PG&E Corp. 260 9,651 Duke Energy Corp. 180 4,941 NiSource, Inc. 190 3,963 ------------ TOTAL MULTI-UTILITIES 96,616 ELECTRIC UTILITIES Cinergy Corp. 580 24,627 Exelon Corp. 340 18,068 Entergy Corp. 150 10,297 American Electric Power Co., Inc. 270 10,014 Allegheny Energy, Inc.* 300 9,495 Pinnacle West Capital Corp. 70 2,895 ------------ TOTAL ELECTRIC UTILITIES 75,396 ------------ TOTAL UTILITIES 172,012 ------------ TOTAL COMMON STOCKS 6,026,385 (Cost $5,988,051)
CONTRACTS OPTIONS PURCHASED 0.0% Put Options on: January 2006 S&P 500 Index Futures Contracts Expiring January 2006 with strike price of 1160 6 750 ------------- TOTAL OPTIONS PURCHASED (Cost $1,224) 750 ------------- REPURCHASE AGREEMENTS 5.7% FACE AMOUNT MARKET VALUE ------------- ------------- Collateralized by U.S. Treasury Obligations Credit Suisse First Boston at 3.45% due 01/03/06 $ 2,046,374 2,046,374 Lehman Brothers, Inc. at 3.40% due 01/03/06 573,814 573,814 Morgan Stanley at 3.30% due 01/03/06 1,184,215 1,184,215 Bear Stearns Cos., Inc. at 3.10% due 01/03/06 1,614,838 1,614,838 Citigroup, Inc. at 2.90% due 01/03/06 107,656 107,656 ------------- TOTAL REPURCHASE AGREEMENTS (Cost $5,526,897) 5,526,897 5,526,897 SHARES MARKET VALUE ------------- ------------- COMMON STOCKS SOLD SHORT (3.8)% INFORMATION TECHNOLOGY IT CONSULTING & SERVICES Unisys Corp.* 180 (1,049) ------------- TOTAL IT CONSULTING & SERVICES (1,049) ELECTRONIC EQUIPMENT & INSTRUMENTS Symbol Technologies, Inc. 130 (1,667) ------------- TOTAL ELECTRONIC EQUIPMENT & INSTRUMENTS (1,667) SEMICONDUCTOR & SEMICONDUCTOR EQUIPMENT Nvidia Corp.* 90 (3,290) ------------- TOTAL SEMICONDUCTOR & SEMICONDUCTOR EQUIPMENT (3,290) COMPUTERS & PERIPHERALS NCR Corp.* 100 (3,394) Seagate Technology* 1,000 (19,990) ------------- TOTAL COMPUTERS & PERIPHERALS (23,384) COMMUNICATIONS EQUIPMENT Comverse Technology, Inc.* 280 (7,445) ADC Telecommunications, Inc.* 1,060 (23,681) ------------- TOTAL COMMUNICATIONS EQUIPMENT (31,126) SOFTWARE Symantec Corp.* 370 (6,475) Adobe Systems, Inc. 260 (9,609) Autodesk, Inc. 320 (13,744) Secure Computing Corp.* 1,810 (22,191) ------------- TOTAL SOFTWARE (52,019) ------------- TOTAL INFORMATION TECHNOLOGY (112,535) UTILITIES MULTI-UTILITIES KeySpan Corp. 100 (3,569) TECO Energy, Inc. 270 (4,638) ------------- TOTAL MULTI-UTILITIES (8,207) ELECTRIC UTILITIES PPL Corp. 220 (6,468) FPL Group, Inc. 700 (29,092) TXU Corp. 1,910 (95,863) ------------- TOTAL ELECTRIC UTILITIES (131,423) ------------- TOTAL UTILITIES (139,630) MATERIALS CONTAINERS & PACKAGING Pactiv Corp.* 80 (1,760) Temple-Inland, Inc. 60 (2,691) ------------- TOTAL CONTAINERS & PACKAGING (4,451) PAPER & FOREST PRODUCTS International Paper Co. 280 (9,411) ------------- TOTAL PAPER & FOREST PRODUCTS (9,411) ------------- METALS & MINING Steel Dynamics, Inc. 670 (23,792) Allegheny Technologies, Inc. 720 (25,977) Freeport-McMoRan Copper & Gold, Inc. -- Class B 1,540 (82,852) ------------- TOTAL METALS & MINING (132,621) ------------- TOTAL MATERIALS (146,483) TELECOMMUNICATION SERVICES DIVERSIFIED TELECOMMUNICATION SERVICES Valor Communications Group, Inc. 1,710 (19,494) ------------- TOTAL DIVERSIFIED TELECOMMUNICATION SERVICES (19,494) ------------- WIRELESS TELECOMMUNICATION SERVICES Sprint Nextel Corp. 12,789 (298,751) ------------- TOTAL WIRELESS TELECOMMUNICATION SERVICES (298,751) ------------- TOTAL TELECOMMUNICATION SERVICES ENERGY (318,245) OIL & GAS Sunoco, Inc. 60 (4,703) Devon Energy Corp. 190 (11,882) Occidental Petroleum Corp. 240 (19,171) ------------- TOTAL OIL & GAS (35,756) ------------- ENERGY EQUIPMENT & SERVICES Halliburton Co. 5,080 (314,757) ------------- TOTAL ENERGY EQUIPMENT & SERVICES (314,757) ------------- TOTAL ENERGY (350,513) CONSUMER STAPLES PERSONAL PRODUCTS Avon Products, Inc. 450 (12,847) ------------- TOTAL PERSONAL PRODUCTS (12,847) ------------- FOOD & DRUG RETAILING Albertson's, Inc. 350 (7,472) CVS Corp. 780 (20,608) ------------- TOTAL FOOD & DRUG RETAILING (28,080) BEVERAGES Brown-Forman Corp. -- Class B 170 (11,784) Coca-Cola Enterprises, Inc. 3,480 (66,712) ------------- TOTAL BEVERAGES (78,496) FOOD PRODUCTS WM Wrigley Jr Co. 320 (21,277) Campbell Soup Co. 3,010 (89,608) Sara Lee Corp. 6,560 (123,984) ------------- TOTAL FOOD PRODUCTS (234,869) ------------- TOTAL CONSUMER STAPLES (354,292)
CONSUMER DISCRETIONARY LEISURE EQUIPMENT & PRODUCTS Eastman Kodak Co. 110 (2,574) ------------- TOTAL LEISURE EQUIPMENT & PRODUCTS (2,574) HOUSEHOLD DURABLES Maytag Corp. 140 (2,635) ------------- TOTAL HOUSEHOLD DURABLES (2,635) ------------- INTERNET & CATALOG RETAIL eBay, Inc.* 80 (3,460) ------------- TOTAL INTERNET & CATALOG RETAIL (3,460) ------------- AUTO COMPONENTS Cooper Tire & Rubber Co. 100 (1,532) Dana Corp. 310 (2,226) ------------- TOTAL AUTO COMPONENTS (3,758) SPECIALTY RETAIL Tiffany & Co. 140 (5,361) ------------- TOTAL SPECIALTY RETAIL (5,361) ------------- MULTILINE RETAIL Big Lots, Inc.* 190 (2,282) Nordstrom, Inc. 280 (10,472) ------------- TOTAL MULTILINE RETAIL (12,754) COMMERCIAL SERVICES & SUPPLIES H&R Block, Inc. 130 (3,191) Apollo Group, Inc. -- Class A* 180 (10,883) ------------- TOTAL COMMERCIAL SERVICES & SUPPLIES (14,074) HOTELS, RESTAURANTS & LEISURE International Game Technology, Inc. 480 (14,774) Starbucks Corp.* 780 (23,408) ------------- TOTAL HOTELS, RESTAURANTS & LEISURE (38,182) MEDIA Dow Jones & Co., Inc. 80 (2,839) Interpublic Group of Cos., Inc.* 720 (6,948) McGraw-Hill Cos., Inc. 150 (7,744) News Corp. -- Class A 1,290 (20,060) RH Donnelley Corp.* 370 (22,799) NTL, Inc.* 360 (24,509) Viacom, Inc. -- Class B* 2,690 (87,694) Time Warner, Inc. 7,950 (138,648) TOTAL MEDIA (311,241) ------------- TOTAL CONSUMER DISCRETIONARY (394,039) INDUSTRIALS BUILDING PRODUCTS Masco Corp. 250 (7,548) ------------- TOTAL BUILDING PRODUCTS (7,548) ------------- COMMERCIAL SERVICES & SUPPLIES Avery Dennison Corp. 60 (3,316) Allied Waste Industries, Inc.* 2,780 (24,297) ------------- TOTAL COMMERCIAL SERVICES & SUPPLIES (27,613) AEROSPACE & DEFENSE Boeing Co. 360 (25,286) United Technologies Corp. 600 (33,546) ------------- TOTAL AEROSPACE & DEFENSE (58,832) MACHINERY Caterpillar, Inc. 1,240 (71,635) ------------- TOTAL MACHINERY (71,635) AIRLINES Southwest Airlines Co. 5,490 (90,201) ------------- TOTAL AIRLINES (90,201) ROAD & RAIL Union Pacific Corp. 2,070 (166,656) ------------- TOTAL ROAD & RAIL (166,656) ------------- TOTAL INDUSTRIALS (422,485) HEALTH CARE BIOTECHNOLOGY Biogen Idec, Inc.* 40 (1,813) Medimmune, Inc.* 890 (31,168) ------------- TOTAL BIOTECHNOLOGY (32,981) HEALTH CARE PROVIDERS & SERVICES Quest Diagnostics, Inc. 30 (1,544) Tenet Healthcare Corp.* 1,200 (9,192) Express Scripts, Inc.* 160 (13,408) Wellpoint, Inc. 170 (13,564) Per-Se Technologies, Inc.* 960 (22,426) ------------- TOTAL HEALTH CARE PROVIDERS & SERVICES (60,134) HEALTH CARE EQUIPMENT & SUPPLIES Biomet, Inc. 130 (4,754) St. Jude Medical, Inc.* 200 (10,040) Mentor Corp. 490 (22,579) ev3, Inc.* 1,830 (26,974) Stryker Corp. 650 (28,880) Baxter International, Inc. 1,590 (59,864) ------------- TOTAL HEALTH CARE EQUIPMENT & SUPPLIES (153,091) PHARMACEUTICALS Medicis Pharmaceutical Corp. -- Class A 700 (22,435) Schering-Plough Corp. 6,140 (128,019) Eli Lilly & Co. 2,900 (164,111) ------------- TOTAL PHARMACEUTICALS (314,565) ------------- TOTAL HEALTH CARE (560,771) FINANCIALS CAPITAL MARKETS T. Rowe Price Group, Inc. 130 (9,364) Janus Capital Group, Inc. 540 (10,060) Charles Schwab Corp. 960 (14,083) Northern Trust Corp. 480 (24,874) ------------- TOTAL CAPITAL MARKETS (58,381) INSURANCE Ambac Financial Group, Inc. 100 (7,706) Marsh & McLennan Cos., Inc. 480 (15,245) UnumProvident Corp. 710 (16,152) Aon Corp. 760 (27,322) ------------- TOTAL INSURANCE (66,425) THRIFTS & MORTGAGE FINANCE MGIC Investment Corp. 80 (5,265) Golden West Financial Corp. 280 (18,480) Freddie Mac 440 (28,754) Countrywide Financial Corp. 1,420 (48,550) ------------- TOTAL THRIFTS & MORTGAGE FINANCE (101,049) REAL ESTATE Simon Property Group, Inc. 210 (16,092) ProLogis 410 (19,155) Brandywine Realty Trust 820 (22,886) Public Storage, Inc. 340 (23,025)
Equity Office Properties Trust 980 (29,724) ------------- TOTAL REAL ESTATE (110,882) BANKS First Horizon National Corp. 110 (4,228) North Fork Bancorporation, Inc. 430 (11,765) BB&T Corp. 480 (20,117) TD Banknorth, Inc. 780 (22,659) Huntington Bancshares, Inc. 980 (23,275) Bank of America Corp. 510 (23,537) Wachovia Corp. 450 (23,787) ------------- TOTAL BANKS (129,368) DIVERSIFIED FINANCIALS Moody's Corp. 940 (57,735) J.P. Morgan Chase & Co. 8,400 (333,396) ------------- TOTAL DIVERSIFIED FINANCIALS (391,131) ------------- TOTAL FINANCIALS (857,236) ------------- TOTAL COMMON STOCKS SOLD SHORT (Cost $3,669,130) (3,656,229) TOTAL INVESTMENTS 8.2% (Cost $7,847,042) $ 7,897,803 OTHER ASSETS IN EXCESS OF LIABILITIES - 91.8% *** $ 88,979,384 NET ASSETS - 100.0% *** $ 96,877,187
UNREALIZED CONTRACTS GAIN (LOSS) FUTURES CONTRACT PURCHASED March 2006 U.S. 10Year Treasury Note Futures Contracts (Aggregate Market Value of Contracts $1,312,875) 12 $ 11,587 January 2006 Goldman Sachs Commodity Index Futures Contracts (Aggregate Market Value of Contracts $539,813) 5 -10,180 March 2006 S&P MidCap 400 Index Mini Futures Contracts (Aggregate Market Value of Contracts $742,100) 10 -9,458 March 2006 S&P 500 Index Mini Futures Contracts (Aggregate Market Value of Contracts $751,350) 12 -12,303 March 2006 Russell 2000 Index Mini Futures Contracts (Aggregate Market Value of Contracts $742,170) 11 -21,276 (TOTAL AGGREGATE MARKET VALUE OF CONTRACTS $4,088,308) -41,630 ------------- FUTURES CONTRACTS SOLD SHORT March 2006 U.S. Dollar Index Futures Contracts (Aggregate Market Value of Contracts $1,910,160) 21 269
* Non-Income Producing Security ADR - American Depository Receipt ** As the merger with the Rydex Capital Partners Sphinx Fund is cash only, the only change in the proforma Statement of Investments is the addition of $83,242,018 in cash and net assets that will be invested after the merger takes place. *** Amount of cash included as a result of the merger was estimated by using the net assets of the Rydex Capital Partners Sphinx Fund at 12/31/05 which was $174,787,785, less any tender requests received for the 3/31/06 tender period which were $81,257,428 and a potential holdback of 11% of all remaining assets -- $10,288,339 due to the ongoing Refco proceedings as explained in the proxy statement.
RYDEX SERIES TRUST RYDEX CAPITAL RYDEX SERIES TRUST ABSOLUTE RETURN PARTNERS ADJUSTMENTS ABSOLUTE RETURN STRATEGIES FUND SPHINX FUND (SEE NOTES BELOW) STRATEGIES FUND STATEMENT OF ASSETS AND LIABILITIES (Unaudited) PRO FORMA * - -------------------------------------------------------------------------------------------------------------------------------- DECEMBER 31, 2005 DECEMBER 31, 2005 DECEMBER 31, 2005 DECEMBER 31, 2005 ASSETS Securities at Value ** $ 11,554,032 $ 173,462,449 $(173,462,449)*** $ 11,554,032 Segregated Cash with Broker 1,875,133 -- -- 1,875,133 Cash in Custodian Bank 16,110 -- 83,242,018 # 83,258,128 Receivable for Futures Contracts Settlement (13,295) -- -- (13,295) Receivable for Securities Sold 3,725,382 55,000,000 (55,000,000)*** 3,725,382 Receivable for Shares Purchased 155,650 -- -- 155,650 Investment Income Receivable 11,741 4,089 (4,089)*** 11,741 Prepaid Expenses -- 8,465 (8,465)*** -- --------------------------------------------------- ------------- TOTAL ASSETS 17,324,753 228,475,003 (145,232,985) 100,566,771 --------------------------------------------------- ------------- LIABILITIES Short Sales at Market Value 3,656,229 -- -- 3,656,229 Written Options at Market Value -- -- -- -- Payable for Securities Purchased 16,111 -- -- 16,111 Payable for Fund Shares Redeemed 1,254 53,201,630 (53,201,630)*** 1,254 Investment Advisory Fees Payable 12,329 263,503 (263,503)*** 12,329 Distribution and Service Fees Payable 1,437 -- -- 1,437 Trustees' Fees and Expenses -- 2,212 (2,212)*** -- Other Accrued Expenses -- 159,322 (159,322)*** -- Cash Payable to Custodian Bank -- 60,551 (60,551)*** -- Short Sales Dividends Payable 2,223 -- -- 2,223 --------------------------------------------------- ------------- TOTAL LIABILITIES 3,689,583 53,687,218 (53,687,218) 3,689,583 --------------------------------------------------- ------------- NET ASSETS $ 13,635,169 $ 174,787,785 $ (91,545,767) $ 96,877,187 =================================================== ============= NET ASSETS CONSIST OF Paid-in Capital $ 13,614,542 $ 170,800,621 $ (87,558,603) # $ 96,856,560 Undistributed Net Investment Income 3,266 (10,005,055) 10,005,055 *** 3,266 Accumulated Net Realized Gain on Investments 7,961 5,071,072 (5,071,072)*** 7,961 Net Unrealized Depreciation on Investments 9,400 8,921,147 (8,921,147)*** 9,400 --------------------------------------------------- ------------- NET ASSETS $ 13,635,169 $ 174,787,785 $ (91,545,767) $ 96,877,187 =================================================== ============= A- Class $ 1,686,640 N/A -- $ 1,686,640 C- Class 2,049,677 N/A -- 2,049,677 H-Class 9,898,852 N/A 83,242,018 # 93,140,870 SHARES OUTSTANDING Sphinx Fund N/A 1,683,709 -1,683,709 *** N/A A- Class 67,752 N/A -- 67,752 C- Class 82,497 N/A -- 82,497 H-Class 397,564 N/A 3,343,053 # 3,740,617 NET ASSET VALUE Sphinx Fund N/A $ 103.81 N/A Sphinx Fund Maximum Offering Price N/A $ 107.02 N/A A- Class $ 24.89 N/A $ 24.89 A- Class Maximum Offering Price 26.13 N/A 26.13 C- Class 24.85 N/A 24.85 H-Class 24.90 N/A 24.90
* Assumes cash merger from Rydex Capital Partners Sphinx Fund of $83,242,018. Only cash will be merged into fund. ** The cost of Securities at Value is $11,516,172, $164,541,032 and $11,516,172, respectively. *** Due to merger being cash only, all other assets and liabilities will be liquidated to cash prior to the merger. # Amount of cash included as a result of the merger was estimated by using the net assets of the Rydex Capital Partners Sphinx Fund at 12/31/05 which was $174,787,785, less any tender requests received for the 3/31/06 tender period which were $81,257,428 and a potential holdback of 11% of all remaining assets -- $10,288,339 due to the ongoing Refco proceedings as explained in the proxy statement.
RYDEX SERIES TRUST RYDEX CAPITAL PRO FORMA STATEMENT ABSOLUTE RETURN PARTNERS ADJUSTMENTS RYDEX SERIES TRUST STRATEGIES FUND * SPHINX FUND ** (SEE NOTES BELOW ) ABSOLUTE RETURN STATEMENT OF OPERATIONS (Unaudited) STRATEGIES FUND *** - ------------------------------------------------------------------------------------------------------------------------------------ PRO FORMA PERIOD ENDING PERIOD ENDING PERIOD ENDING PERIOD ENDING DECEMBER 31, 2005 DECEMBER 31, 2005 DECEMBER 31, 2005 DECEMBER 31, 2005 INVESTMENT INCOME Dividends $ 8,034 $ 71,410 $ (71,410) # $ 8,034 Interest 65,508 -- -- 65,508 ------------------------------------------------------------------------ Total Income 73,542 71,410 (71,410) 73,542 ------------------------------------------------------------------------ EXPENSES Investment Advisory Fees 23,890 1,064,009 (1,064,009) # 23,890 Distribution & Service Fees 6,804 -- - # 6,804 Administration Fees -- 114,380 (114,380) # -- Transfer Agency Fees -- 43,694 (43,694) # -- Custody Fees -- 917 (917) # -- Registration Fees -- 24,040 (24,040) # -- Professional Fees -- 164,126 (164,126) # -- Trustees' Fees and Expenses -- 8,916 (8,916) # -- Miscellaneous 13 12,203 (12,203) # 13 Short Sales Dividend Expense 4,045 -- -- # 4,045 ------------------------------------------------------------------------ Total Expenses 34,752 1,432,285 (1,432,285) 34,752 ------------------------------------------------------------------------ Fees Waived -- (308,266) 308,266 # -- ------------------------------------------------------------------------ Net Expenses 34,752 1,124,019 (1,124,019) 34,752 ------------------------------------------------------------------------ Net Investment Income (Loss) 38,790 (1,052,609) 1,052,609 38,790 ------------------------------------------------------------------------ REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Net Realized Gain (Loss) From: Investments (36,319) 3,039,100 (3,039,100) # (36,319) Futures and Options Contracts 10,335 -- -- 10,335 Securities Sold Short 33,945 -- -- 33,945 ------------------------------------------------------------------------ Net Realized Gain 7,961 3,039,100 (3,039,100) 7,961 Net Change in Unrealized Appreciation (Depreciation) on: Investments 37,860 (1,907,485) 1,907,485 # 37,860 Futures Contracts (41,361) -- -- (41,361) Securities Sold Short 12,901 -- -- 12,901 Net Change in Unrealized Appreciation (Depreciation) 9,400 (1,907,485) 1,907,485 # 9,400 Net Realized and Unrealized Gain on Investments 17,361 1,131,615 (1,131,615) # 17,361 ------------------------------------------------------------------------ NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS $ 56,151 $ 79,006 $ (79,006) # $ 56,151 ========================================================================
* Since the commencement of operations September 19, 2005 ** For the three month period ending December 31, 2005 *** As estimated for the three month period ending December 31, 2005 # As a result of cash only merger, there will be no increase or decrease in net assets from operations.
PRO FORMA STATEMENT RYDEX SERIES TRUST RYDEX CAPITAL ADJUSTMENTS RYDEX SERIES TRUST ABSOLUTE RETURN PARTNERS (SEE NOTES BELOW) ABSOLUTE RETURN STATEMENT OF CHANGES IN NET ASSETS (Unaudited) STRATEGIES FUND * SPHINX FUND ** STRATEGIES FUND *** - ---------------------------------------------------------------------------------------------------------------------------------- PERIOD ENDING PERIOD ENDING PERIOD ENDING PERIOD ENDING DECEMBER 31, 2005 DECEMBER 31, 2005 DECEMBER 31, 2005 DECEMBER 31, 2005 OPERATIONS Net Investment Income (Loss) $ 38,790 $ (1,052,609) $ 1,052,609 # $ 38,790 Net Realized Gain on Investments 7,961 3,039,100 (3,039,100)# 7,961 Net Change in Unrealized Appreciation/(Depreciation) on Investments 9,400 (1,907,485) 1,907,485 # 9,400 ---------------------------------------------------------------------- Net Increase in Net Assets Resulting From Operations 56,151 79,006 (79,006) 56,151 ---------------------------------------------------------------------- DISTRIBUTIONS TO SHAREHOLDERS FROM Net Investment Income (35,524) (1,958,288) 1,958,288 # (35,524) Net Realized Gain on Investments -- (1,299,301) 1,299,301 # -- ------------- Total Distributions to Shareholders (35,524) (3,257,589) 3,257,589 (35,524) SHAREHOLDER TRANSACTIONS Proceeds from Shares Purchased - Sphinx Fund -- 3,541,619 (3,541,619) ## -- Proceeds from Shares Purchased - A Class 1,738,621 -- -- 1,738,621 Proceeds from Shares Purchased - C Class 2,149,090 -- -- 2,149,090 Proceeds from Shares Purchased - H Class 11,648,929 -- 83,242,018 ### 94,890,947 Value of Shares Purchased through Dividend Reinvestment - Sphinx Fund -- 3,197,037 (3,197,037) ## -- Value of Shares Purchased through Dividend Reinvestment - A Class 3,202 -- -- 3,202 Value of Shares Purchased through Dividend Reinvestment - C Class 4,845 -- -- 4,845 Value of Shares Purchased through Dividend Reinvestment - H Class 21,204 -- -- 21,204 Cost of Shares Redeemed - Sphinx Fund -- (52,689,366) (122,095,419) ## -- Cost of Shares Redeemed - A Class (58,755) -- -- (58,755) Cost of Shares Redeemed - C Class (101,972) -- -- (101,972) Cost of Shares Redeemed - H Class (1,790,621) -- -- (1,790,621) ---------------------------------------------------------------------- Net Increase (Decrease) in Net Assets from Share Transactions $ 13,614,542 (45,950,710) (45,592,057) 96,856,560 ---------------------------------------------------------------------- ---------------------------------------------------------------------- Net Increase in Net Assets 13,635,169 (49,129,293) 96,877,187 NET ASSETS -- BEGINNING OF PERIOD -- 223,917,078 -- ---------------------------------------------------------------------- NET ASSETS -- END OF PERIOD $ 13,635,169 $ 174,787,785 $ 96,877,187 ====================================================================== Undistributed Net Income $ 3,266 -- $ 3,266
* Since the commencement of operations September 19, 2005 ** For the three month period ending December 31, 2005 *** As estimated for the three month period ending December 31, 2005 # As a result of cash only merger, there will be no increase or decrease in net assets from operations. ## Represents liquidation of Sphinx Fund shares to be tendered on on 3/31/06 and remaining assets to be merged into Absolute Return Strategies Fund less potential holdback amount. ### Amount of capital included as a result of the merger was estimated by using the net assets of the Rydex Capital Partners Sphinx Fund at 12/31/05 which was $174,787,785, less any tender requests received for the 3/31/06 tender period which were $81,257,428 and a potential holdback of 11% of all remaining assets -- $10,288,339 due to the ongoing Refco proceedings as explained in the proxy statement. PART C OTHER INFORMATION ITEM 15. INDEMNIFICATION: Rydex Series Funds (the "Registrant" or the "Trust") is organized as a Delaware statutory trust and is operated pursuant to a Declaration of Trust, dated as of March 13, 1993, as amended (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. ITEM 16. EXHIBITS: (1)(a) Declaration of Trust dated March 13, 1993 of the Registrant is incorporated herein by reference to Exhibit (1)(b) of Post-Effective Amendment No. 27 to the Registrant's Registration Statement on Form N-1A (File No. 033-59692), as filed with the U.S. Securities and Exchange Commission (the "SEC") on October 30, 1996. (1)(b) Amendment dated November 2, 1993 to the Declaration of Trust dated March 13, 1993 of the Registrant is incorporated herein by reference to Exhibit (a)(3) of Post-Effective Amendment No. 40 to the Registrant's Registration Statement on Form N-1A (File No. 033-59692), as filed with the SEC on August 1, 2000. (1)(c) Amendment dated February 25, 2000 to the Declaration of Trust dated March 13, 1993 of the Registrant is incorporated herein by reference to Exhibit (a)(4) of Post-Effective Amendment No. 40 to the Registrant's Registration Statement on Form N-1A (File No. 033-59692), as filed with the SEC on August 1, 2000. (1)(d) Amendment dated November 21, 2005 to the Declaration of Trust dated March 13, 1993 of the Registrant is filed herewith. (2) Amended and Restated By-Laws of the Registrant are filed herewith. (3) Not applicable. (4) Form of Agreement and Plan of Reorganization is filed herewith. (5) Not applicable. (6)(a) Advisory Agreement dated April 30, 2004 between the Registrant and PADCO Advisors, Inc. is incorporated herein by reference to Exhibit (d)(13) of Post-Effective Amendment No. 54 to the Registrant's Registration Statement on Form N-1A (File No. 033-59692), as filed with the SEC on July 29, 2004. (6)(b) Amendment dated May 23, 2005 to the Advisory Agreement dated April 30, 2004 between the Registrant and PADCO Advisors, Inc. is incorporated herein by reference to Exhibit (d)(2) of Post-Effective Amendment No. 57 to the Registrant's Registration Statement on Form N-1A (File No. 033-59692), as filed with the SEC on May 24, 2005. (6)(c) Advisory Agreement dated May 23, 2005 between the Registrant and PADCO Advisors, Inc., relating to the Absolute Return Strategies Fund, Hedged Equity Fund and Market Neutral Fund, is filed herewith. (7)(a) Distribution Agreement dated February 25, 2000 between the Registrant and PADCO Financial Services, Inc., relating to the International Funds, is incorporated herein by reference to Exhibit (e)(2) of Post-Effective Amendment No. 40 to the Registrant's Registration Statement on Form N-1A (File No. 033-59692), as filed with the SEC on August 1, 2000. (7)(b) Distribution Agreement dated December 16, 2003 between the Registrant and Rydex Distributors, Inc. is incorporated herein by reference to Exhibit (e)(2) of Post-Effective Amendment No. 57 to the Registrant's Registration Statement on Form N-1A (File No. 033-59692), as filed with the SEC on May 24, 2005. (8) Not applicable. (9) Custody Agreement dated November 30, 1993 between the Registrant and Star Bank, N.A. is incorporated herein by reference to Exhibit 8 of Post-Effective Amendment No. 27 to the Registrant's Registration Statement on Form N-1A (File No. 033-59692), as filed with the SEC on October 30, 1996. (10)(a) Amended and Restated Distribution and Shareholder Services Plan for Advisor Class Shares and C-Class Shares dated August 28, 2000 is incorporated herein by reference to Exhibit (m)(11) of Post- Effective Amendment No. 43 to the Registrant's Registration Statement on Form N-1A (File No. 033-59692) as filed with the SEC on July 30, 2001. (10)(b) Amendment dated May 21, 2001 to the Amended and Restated Distribution and Shareholder Services Plan dated August 28, 2000 for Advisor Class Shares and C-Class Shares is incorporated herein by reference to Exhibit (m)(12) of Post-Effective Amendment No. 43 to the Registrant's Registration Statement on Form N- 1A (File No. 033-59692), as filed with the SEC on July 30, 2001. (10)(c) Amendment dated November 5, 2001 to the Amended and Restated Distribution and Shareholder Services Plan for Advisor Class Shares and C-Class Shares dated August 28, 2000 is incorporated herein by reference to Exhibit (m)(4) of Post-Effective Amendment No. 57 to the Registrant's Registration Statement on Form N-1A (File No. 033-59692), as filed with the SEC on May 24, 2005. (10)(d) Amendment dated May 20, 2002 to the Amended and Restated Distribution and Shareholder Services Plan for Advisor Class Shares and C-Class Shares dated August 28, 2000 is incorporated herein by reference to Exhibit (m)(15) of Post-Effective Amendment No. 48 to the Registrant's Registration Statement on Form N-1A (File No. 033-59692), as filed with the SEC on July 29, 2002. (10)(e) Amendment dated November 10, 2003 to the Distribution and Shareholder Services Plan for Advisor Class Shares and C-Class Shares dated August 28, 2000 is incorporated herein by reference to Exhibit (m)(13) of Post-Effective Amendment No. 54 to the Registrant's Registration Statement on Form N-1A (File No. 033- 59692), as filed with the SEC on July 29, 2004. (10)(f) Amendment dated May 23, 2005 to the Amended and Restated Distribution and Shareholder Services Plan for Advisor Class Shares and C-Class Shares dated August 28, 2000 is incorporated herein by reference to Exhibit (m)(15) of Post-Effective Amendment No. 57 to the Registrant's Registration Statement on Form N-1A (File No. 033-59692), filed with the SEC on May 24, 2005. (10)(g) Distribution Plan for H-Class Shares dated February 25, 2000 is incorporated herein by reference to Exhibit (m)(11) of Post-Effective Amendment No. 40 to the Registrant's Registration Statement on Form N- 1A (File No. 033-59692), as filed with the SEC on August 2, 2000. (10)(h) Amendment dated May 21, 2001 to the Distribution Plan for H-Class Shares dated February 25, 2000 is incorporated herein by reference to Exhibit (m)(6) of Post-Effective Amendment No. 57 to the Registrant's Registration Statement on Form N-1A (File No. 033-59692), as filed with the SEC on May 24, 2005. (10)(i) Amendment dated November 5, 2001 to the Distribution Plan for H-Class Shares dated February 25, 2000 is incorporated herein by reference to Exhibit (m)(7) of Post-Effective Amendment No. 57 to the Registrant's Registration Statement on Form N-1A (File No. 033-59692), as filed with the SEC on May 24, 2005. (10)(j) Amendment dated May 20, 2002 to the Distribution Plan for H-Class Shares dated February 25, 2000 is incorporated herein by reference to Exhibit (m)(16) of Post-Effective Amendment No. 48 to the Registrant's Registration Statement on Form N-1A (File No. 033-59692), as filed with the SEC on July 29, 2002. (10)(k) Amendment dated November 10, 2003 to the Distribution Plan for H-Class Shares dated February 25, 2000 is incorporated herein by reference to Exhibit (m)(14) of Post-Effective Amendment No. 54 to the Registrant's Registration Statement on Form N-1A (File No. 033-59692), as filed with the SEC on July 29, 2004. (10)(l) Amendment dated May 23, 2005 to the Distribution Plan for H-Class Shares dated February 25, 2000 is incorporated herein by reference to Exhibit (m)(16) of Post-Effective Amendment No. 57 to the Registrant's Registration Statement on Form N-1A (File No. 033-59692), as filed with the SEC on May 24, 2005. (10)(m) Distribution Plan for A-Class Shares dated November 5, 2001 is incorporated herein by reference to Exhibit (m)(8) of Post-Effective Amendment No. 57 to the Registrant's Registration Statement on Form N-1A (File No. 033-59692), as filed with the SEC on May 24, 2005. (10)(n) Amendment dated May 20, 2002 to the Distribution Plan for A-Class Shares dated November 5, 2001 is incorporated herein by reference to Exhibit (m)(17) of Post-Effective Amendment No. 48 to the Registrant's Registration Statement on Form N-1A (File No. 033-59692), as filed with the SEC on July 29, 2002. (10)(o) Amendment dated November 18, 2002 to the Distribution Plan for A-Class Shares dated November 5, 2001 is incorporated herein by reference to Exhibit (m)(18) of Post-Effective Amendment No. 51 to the Registrant's Registration Statement on Form N-1A (File No. 033-59692), as filed with the SEC on July 31, 2003. (10)(p) Amendment dated November 10, 2003 to the Distribution Plan for A-Class Shares dated November 5, 2001 is incorporated herein by reference to Exhibit (m)(14) of Post-Effective Amendment No. 57 to the Registrant's Registration Statement on Form N-1A (File No. 033-59692), as filed with the SEC on May 24, 2005. (10)(q) Amendment dated May 23, 2005 to the Distribution Plan for A-Class Shares dated November 5, 2001 is incorporated herein by reference to Exhibit (m)(17) of Post-Effective Amendment No. 57 to the Registrant's Registration Statement on Form N-1A (File No. 033-59692), as filed with the SEC on May 24, 2005. (10)(r) Amended and Restated Rule 18f-3 Plan dated August 30, 2004 is incorporated herein by reference to Exhibit (n)(1) of Post-Effective Amendment No. 57 to the Registrant's Registration Statement on Form N-1A (File No. 033-59692), as filed with the SEC on May 24, 2005. (10)(s) Amendment dated May 23, 2005 to the Amended and Restated Rule 18f-3 Plan dated August 30, 2004 is incorporated herein by reference to Exhibit (n)(2) of Post-Effective Amendment No. 57 to the Registrant's Registration Statement on Form N-1A (File No. 033-59692), as filed with the SEC on May 24, 2005. (11) Opinion and Consent of Morgan, Lewis & Bockius LLP regarding legality of issuance of shares and other matters is filed herewith. (12) Not applicable. (13)(a) Amended and Restated Service Agreement dated November 15, 2004 between the Registrant and Rydex Fund Services, Inc. is incorporated herein by reference to Exhibit (h)(1) of Post-Effective Amendment No. 57 to the Registrant's Registration Statement on Form N-1A (File No. 033-59692), as filed with the SEC on May 24, 2005. (13)(b) Amendment dated May 23, 2005 to the Amended and Restated Service Agreement dated November 15, 2004 between the Registrant and Rydex Fund Services, Inc. is incorporated herein by reference to Exhibit (h)(2) of Post-Effective Amendment No. 57 to the Registrant's Registration Statement on Form N-1A (File No. 033-59692), as filed with the SEC on May 24, 2005. (13)(c) Accounting Services Agreement dated September 25, 1996 between the Registrant and PADCO Service Company, Inc. d/b/a Rydex Fund Services, Inc. is incorporated herein by reference to Exhibit (9)(d) of Post-Effective Amendment No. 27 to the Registrant's Registration Statement on Form N-1A (File No. 033-59692), as filed with the SEC on October 30, 1996. (13)(d) Amendment dated May 23, 2005 to the Accounting Services Agreement dated September 25, 1996 between the Registrant and Rydex Fund Services, Inc. is incorporated herein by reference to Exhibit (h)(12) of Post- Effective Amendment No. 57 to the Registrant's Registration Statement on Form N-1A (File No. 033-59692), as filed with the SEC on May 24, 2005. (14) Consent of independent registered public accounting firm, PricewaterhouseCoopers LLP, is filed herewith. (15) Not applicable. (16) Powers of attorney for Werner E. Keller, Thomas F. Lydon, Corey A. Colehour, J. Kenneth Dalton, John O. Demaret, Patrick T. McCarville, and Roger Somers are incorporated herein by reference to Exhibit (q) of Post-Effective Amendment No. 5 to Rydex ETF Trust's Registration Statement on Form N1-A (File No. 333-101625), as filed with the SEC on December 15, 2005. ITEM 17. UNDERTAKINGS: (1) The undersigned Registrant agrees that prior to any public reoffering of the securities registered through the use of a prospectus which is a part of this Registration Statement by any person or party who is deemed to be an underwriter within the meaning of Rule 145(c) of the Securities Act of 1933, as amended, the reoffering prospectus will contain the information called for by the applicable registration form for the reofferings by persons who may be deemed underwriters, in addition to the information called for by the other items of the applicable form. (2) The undersigned Registrant agrees that every prospectus that is filed under paragraph (1) above will be filed as a part of an amendment to the Registration Statement and will not be used until the amendment is effective, and that, in determining any liability under the Securities Act of 1933, as amended, each post-effective amendment shall be deemed to be a new registration statement for the securities offered therein, and the offering of the securities at that time shall be deemed to be the initial bona fide offering of them. SIGNATURES As required by the Securities Act of 1933, this Registration Statement has been signed on behalf of the Registrant, in the City of Rockville, and State of Maryland on this 23rd day of February 2006. RYDEX SERIES FUNDS /S/ CARL G. VERBONCOEUR ----------------------- Carl G. Verboncoeur President As required of the Securities Act of 1933, this Registration Statement has been signed below by the following persons in the capacities and on the dates indicated. SIGNATURES TITLE DATE - ---------- ----- ---- /S/CARL G. VERBONCOEUR President and Chief Executive Officer February 23, 2006 - ------------------------ Carl G. Verboncoeur /S/J. KENNETH DALTON Member of the Board of Trustees February 23, 2006 - ------------------------ J. Kenneth Dalton /S/JOHN O. DEMARET Member of the Board of Trustees February 23, 2006 - ------------------------ John O. Demaret /S/PATRICK T. McCARVILLE Member of the Board of Trustees February 23, 2006 - ------------------------ Patrick T. McCarville /S/ROGER SOMERS Member of the Board of Trustees February 23, 2006 - ------------------------ Roger Somers /S/COREY A. COLEHOUR Member of the Board of Trustees February 23, 2006 - ------------------------ Corey A. Colehour /S/MICHAEL P. BYRUM Member of the Board of Trustees February 23, 2006 - ------------------------ Michael P. Byrum /S/WERNER E. KELLER Member of the Board of Trustees February 23, 2006 - ------------------------ Werner E. Keller /S/THOMAS F. LYDON Member of the Board of Trustees February 23, 2006 - ------------------------ Thomas F. Lydon /S/NICK BONOS Vice President and Treasurer February 23, 2006 - ------------------------ Nick Bonos RYDEX SERIES FUNDS EXHIBIT INDEX NUMBER EXHIBIT: - ------ -------- EX-99.1d Amendment dated November 21, 2005 to the Declaration of Trust dated March 13, 1993 of the Registrant. EX-99.2 Amended and Restated By-Laws of the Registrant. EX-99.4 Form of Agreement and Plan of Reorganization. EX-99.6c Advisory Agreement dated May 23, 2005 between the Registrant and PADCO Advisors, Inc., relating to the Absolute Return Strategies Fund, Hedged Equity Fund and Market Neutral Fund. EX-99.11 Opinion and Consent of Morgan, Lewis & Bockius LLP regarding legality of issuance of shares and other matters. EX-99.14 Consent of independent registered public accounting firm, PricewaterhouseCoopers LLP. EX-99.1D 2 g21101_ex-1d.txt EXHIBIT 1D EXHIBIT 1(d) AMENDMENT DATED NOVEMBER 21, 2005 TO DECLARATION OF TRUST OF RYDEX SERIES FUNDS DATED MARCH 13, 1993, AS AMENDED AMENDMENT TO DECLARATION OF TRUST OF RYDEX SERIES FUNDS DATED MARCH 13, 1993 The following Amendment was approved by the Board of Trustees on November 21, 2005 and is made to Section 4.05 of the Declaration of Trust of Rydex Series Funds (the "Trust"), as amended to date (the "Trust Instrument"), and is hereby incorporated into and made a part of the Trust Instrument: Section 4.05 of the Trust Instrument is amended, effective November 21, 2005, and replaced with the following: 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 have the duties specified in the Bylaws, and such other duties as may be designated by the Trustees from time to time. By: /S/ JOANNA M. HAIGNEY --------------------- Joanna M. Haigney Secretary EX-99.2 3 g21101_exhibit2.txt EXHIBIT 2 EXHIBIT 2 AMENDED AND RESTATED BYLAWS of RYDEX SERIES FUNDS These Amended and Restated Bylaws of Rydex Series Funds (the "Trust"), a Delaware business trust, are subject to the Trust's Declaration of Trust, dated March 13, 1993, 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 Bethesda, 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 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 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 Bylaws. 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. CHAIRMAN OF THE TRUSTEES. The Trustees shall appoint from among their number a Chairman who shall hold office for a term of two years and until his successor has been duly appointed, or until his earlier death, resignation or removal. The Chairman 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 or special meeting of the Trustees. When present, the Chairman shall preside at all meetings of the Shareholders and the Trustees. The Chairman may appoint another Trustee to preside in his absence at meetings of the Trustees and may appoint another Trustee or an officer of the Trust to preside in his absence at meetings of Shareholders, or if not made by the Chairman such appointment may be made by the Trustees. The Chairman shall perform such other duties as the Trustees from time to time may designate. ARTICLE III OFFICERS AND THEIR ELECTION SECTION 1. NUMBER. 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 AND TERM OF OFFICE. 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 or President and Secretary. Subject to the provisions of Section 12 hereof, 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. RESIGNATION. Any officer of the Trust may resign, notwithstanding Section 2 hereof, by filing an 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. SECTION 4. 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 5. 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. 2 SECTION 6. 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 custody of the seal of the Trust. The Secretary shall perform such additional duties as the Trustees from time to time may designate. SECTION 7. 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 8. 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 9. 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 10. 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 11. 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 12. 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 10 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. 3 SECTION 13. REMUNERATION. 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 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 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 4 burden of 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 qualifications of voters, the validity of 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 Shareholder 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. A majority of the 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. 5 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. Each Shareholder shall be entitled to a certificate or certificates which shall certify the number of Shares owned by him in the respective Series. Each certificate shall be signed by the President or a Vice President and counter-signed by the Secretary or an Assistant Secretary or the Treasurer or an Assistant Treasurer and shall be sealed with the Trust Seal. The signatures may be either manual or facsimile signatures and the seal may be either facsimile or any other form. If 6 certificates are not requested by the Shareholder, his Shares will be held on deposit by the Trust. In case any officer who has signed or whose facsimile signature has been placed on such certificate shall have ceased to be such officer before such certificate is issued, such certificate may be issued by the Trust with the same effect as if he or she were such officer at the time of the certificate's issue. In lieu of issuing certificates for Shares, the Trustees or the transfer or shareholder services agent either may issue receipts therefore 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. SECTION 5. LOSS OF CERTIFICATE. In the case of the alleged loss or destruction or the mutilation of a Share certificate, a duplicate certificate may be issued in place thereof, upon such terms as the Trustees may prescribe. SECTION 6. DISCONTINUANCE OF ISSUANCE OF CERTIFICATES. The Trustees at any time may discontinue the issuance of Share certificates and may require, by written notice to each Shareholder, the surrender of Share certificates to the Trust for cancellation. Such surrender and cancellation shall not affect the ownership of Shares in the Trust. 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 7 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 SERIES 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. 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 Bylaws may be amended at any meeting of the Trustees of the Trust by a majority. 8 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 Bylaws for convenience of reference only and, in case of any conflict, the text of these Bylaws rather than the headings shall control. 9 EX-99.4 4 g21101_ex-4.txt EXHIBIT 4 EXHIBIT 4 FORM OF AGREEMENT AND PLAN OF REORGANIZATION THIS AGREEMENT AND PLAN OF REORGANIZATION is dated as of [May 1, 2006] (the "Agreement"), by and between Rydex Capital Partners Sphinx Fund, a Delaware statutory trust (the "Selling Fund"), and Rydex Series Funds, a Delaware statutory trust (the "Acquiring Trust"), on behalf of its series, the Rydex Absolute Return Strategies Fund (the "Acquiring Fund"). The Selling Fund and the Acquiring Fund are sometimes referred to collectively, as the "Funds" and individually, as a "Fund." PRELIMINARY STATEMENTS The Selling Fund, a closed-end management investment company, and the Acquiring Trust, an open-end management investment company, are each registered under the Investment Company Act of 1940, as amended (the "1940 Act"). The Boards of Trustees of the Funds have determined that the Reorganization (as defined below) is in the best interests of each Fund and that the interests of the existing shareholders of each Fund would not be diluted as a result of the Reorganization. Nonetheless, certain assets held by the Selling Fund are currently the subject of a temporary restraining order ("TRO") issued by the bankruptcy court as a result of the Refco, LLC bankruptcy proceedings. Because the TRO impacts the liquidity, and could potentially impact the value, of those assets, the Boards of Trustees of the Funds have determined that, to the extent those assets remain subject to the TRO or any other legal restriction at the Effective Time (as defined in Section 9 of this Agreement), those assets will not be transferred to the Acquiring Fund. In consideration of the mutual premises contained in this Agreement, the parties hereto agree to effect the transfer of substantially all of the assets of the Selling Fund solely in exchange for (a) the assumption by the Acquiring Fund of certain stated liabilities of the Selling Fund and (b) shares of the Acquiring Fund followed by the distribution, at the Effective Time, of such shares of the Acquiring Fund to the shareholders of the Selling Fund on the terms and conditions in this Agreement in liquidation of the Selling Fund (the "Reorganization"). Any assets of the Selling Fund which are not transferred to the Acquiring Fund pursuant to this Agreement shall be held in Trust by the Selling Fund, solely for the benefit of the shareholders of the Selling Fund. Shares of the Acquiring Fund that are given in exchange for the assets of the Selling Fund are referred to as the "Acquiring Fund Shares," and the shares of the Selling Fund that are held by the holders of such shares at the Effective Time are referred to as the "Selling Fund Shares." For purposes of this Agreement, the term "Acquiring Fund Shares" refers only to the H-Class Shares of the Acquiring Fund. AGREEMENTS The parties to this Agreement covenant and agree as follows: 1. PLAN OF REORGANIZATION. At the Effective Time, the Selling Fund will assign, deliver and otherwise transfer substantially all of its assets and good and marketable title to those assets, free and clear of all liens, encumbrances and adverse claims except as provided in this Agreement, and assign the stated liabilities as set forth in a statement of assets and liabilities, to be prepared as of the Effective Time (the "Statement of Assets and Liabilities") to the Acquiring Fund. Any assets that are subject to legal restrictions shall not be included in the Statement of Assets and Liabilities and shall not be transferred to the Acquiring Fund and the value of Selling Fund Shares shall be reduced accordingly. Any obligations of the Selling Fund to pay current or former shareholders any tender proceeds from assets that are subject to the TRO shall not be included in the Statement of Assets and Liabilities and shall not be transferred to the Acquiring Fund. Any and all obligations that arise out of any action, proceeding, arbitration, or regulatory examination or investigation, whenever commenced, to the extent such obligations arise in connection with assets of the Selling Fund that are subject to the TRO shall not be included in the Statement of Assets and Liabilities and shall not be transferred to the Acquiring Fund. The Acquiring Fund shall acquire all the assets, and shall assume all the liabilities, that are included in the Statement of Assets and Liabilities, in exchange for delivery to the Selling Fund by the Acquiring Fund of a number of its Acquiring Fund Shares (both full and fractional) equivalent in value to the Selling Fund Shares of the Selling Fund, less the value of any assets or liabilities of the Selling Fund that are not included in the Statement of Assets and Liabilities, outstanding immediately prior to the Effective Time. The assets and stated liabilities of the Selling Fund, as set forth in the Statement of Assets and Liabilities, shall be exclusively assigned to and assumed by the Acquiring Fund. All debts, liabilities, obligations and duties of the Selling Fund, to the extent that they exist at or after the Effective Time and are stated in the Statement of Assets and Liabilities, shall after the Effective Time, attach to the Acquiring Fund and may be enforced against the Acquiring Fund to the same extent as if the same had been incurred by the Acquiring Fund. If the Selling Fund is unable to make delivery of any of its portfolio securities listed in the Statement of Assets and Liabilities pursuant to this Section to the Acquiring Fund for the reason that any of such securities purchased by the Selling Fund have not yet been delivered to it by the Selling Fund's broker or brokers, then in lieu of such delivery, the Selling Fund shall deliver to the Acquiring Fund, with respect to these securities, executed copies of an agreement of assignment and due bills executed on behalf of said broker or brokers, together with such other documents as may be required by the Acquiring Fund, including brokers' confirmation slips. 2. TRANSFER OF ASSETS. The assets of the Selling Fund to be acquired by the Acquiring Fund shall include, without limitation, all cash, cash equivalents, securities, receivables (including interest and dividends receivable), goodwill and intangible property, and deferred or prepaid expenses as set forth in the Statement of Assets and Liabilities, as well as any claims or rights of action or rights to register shares under applicable securities laws, any books or records of the Selling Fund and other property owned by the Selling Fund at the Effective Time. The assets of the Selling Fund that are not to be acquired by the Acquiring Fund shall be limited to those assets, if any, that are subject to legal restriction, such as the TRO, as of the Effective Time and, thus, are not listed in the Statement of Assets and Liabilities. 3. LIQUIDATION, DISSOLUTION AND TERMINATION OF THE SELLING FUND. At the Effective Time, those assets that do not transfer to the Acquiring Fund will be held in Trust by the Selling Fund for the benefit of the shareholders of the Selling Fund. Following the Effective Time, the Selling Fund will begin to liquidate and the Acquiring Fund Shares (both full and fractional) received by the Selling Fund will be distributed to the shareholders of record of the Selling Fund as of the Effective Time. 2 Each Selling Fund shareholder shall also have the right to receive any dividends or other distributions that were declared prior to the Effective Time, but unpaid at that time, with respect to the Selling Fund Shares that are held by such Selling Fund shareholders at the Effective Time. Each shareholder of the Selling Fund will receive a number of Acquiring Fund Shares equal in value to the Selling Fund Shares held by that shareholder, less the value of any assets retained by the Selling Fund. This liquidation and distribution will be accompanied by the establishment of an open account on the share records of the Acquiring Fund in the name of each shareholder of record of the Selling Fund and representing the respective number of Acquiring Fund Shares due that shareholder. After the Effective Time, the Selling Fund shall cease its business as an investment company and shall not engage in any business activities except for the purposes of winding up its business and affairs, paying any outstanding obligations, marshalling and preserving the value of any retained assets and distributing those assets to shareholders of the Selling Fund in accordance with the provisions of the Agreement. As soon as is reasonable and practicable after the Effective Time, all retained assets of the Selling Fund shall be converted to cash and distributed to the Selling Fund shareholders. Following the complete liquidation of the Selling Fund, all issued and outstanding shares of the Selling Fund shall then be cancelled on the books of the Selling Fund. Officers of the Selling Fund shall make all necessary filings with the Securities and Exchange Commission ("SEC") and other governmental entities to effectuate the termination of the Selling Fund under the 1940 Act and Delaware law. 4. REPRESENTATIONS AND WARRANTIES OF THE ACQUIRING FUND. The Acquiring Fund represents and warrants to the Selling Fund as follows: (a) SHARES TO BE ISSUED UPON REORGANIZATION. The Acquiring Fund Shares to be issued in connection with the Reorganization (i) have been duly authorized and upon consummation of the Reorganization will be validly issued, fully paid and non-assessable, and (ii) will be duly registered in conformity with applicable federal and state securities laws, and no shareholder of the Acquiring Fund shall have any option, warrant, or preemptive right of subscription or purchase with respect to the Acquiring Fund's Shares. (b) LIABILITIES. There are no liabilities of the Acquiring Fund, whether or not determined or determinable, other than liabilities disclosed or provided for in the Acquiring Fund's statement of assets and liabilities, if any, and liabilities incurred in the ordinary course of business prior to the Effective Time or otherwise previously disclosed to the Selling Fund, none of which has been materially adverse to the business, assets or results of operations of the Acquiring Fund. (c) LITIGATION. Except as previously disclosed to the Selling Fund, there are no claims, actions, suits or proceedings pending or, to the actual knowledge of the Acquiring Fund, threatened which would materially adversely affect the Acquiring Fund or its assets or business or which would prevent or hinder in any material respect consummation of the transactions contemplated by this Agreement. (d) TAXES. As of the Effective Time, all federal and other tax returns and reports of the Acquiring Fund required by law to have been filed shall have been filed, and all other taxes shall have been paid so far as due, or provision shall have been made for the payment of them, and to the best of the Acquiring Fund's knowledge, no such return is currently under audit and no assessment has been asserted with respect to any of these returns. 3 (e) FEES AND EXPENSES. As of the Effective Time, there are no brokers or finders entitled to receive any payments in connection with the transactions provided for in this Agreement. 5. REPRESENTATIONS AND WARRANTIES OF THE SELLING FUND. The Selling Fund represents and warrants to the Acquiring Fund as follows: (a) MARKETABLE TITLE TO ASSETS. The Selling Fund will have, at the Effective Time, good and marketable title to, and full right, power and authority to sell, assign, transfer and deliver, the assets to be transferred to the Acquiring Fund. Upon delivery and payment for these assets, the Acquiring Fund will have good and marketable title to the assets without restriction on the transfer of the assets free and clear of all liens, encumbrances and adverse claims. (b) LIABILITIES. There are no liabilities of the Selling Fund, whether or not determined or determinable, other than liabilities disclosed or provided for in the Selling Fund's Statement of Assets and Liabilities, and liabilities incurred in the ordinary course of business prior to the Effective Time or otherwise previously disclosed to the Acquiring Fund, none of which has been materially adverse to the business, assets or results of operations of the Selling Fund. (c) LITIGATION. Except as previously disclosed to the Acquiring Fund, there are no claims, actions, suits or proceedings pending or, to the knowledge of the Selling Fund, threatened which would materially adversely affect the Selling Fund or its assets or business or which would prevent or hinder in any material respect consummation of the transactions contemplated by this Agreement. (d) TAXES. As of the Effective Time, all federal and other tax returns and reports of the Selling Fund required by law to have been filed shall have been filed, and all other taxes shall have been paid so far as due, or provision shall have been made for the payment of them, and to the best of the Selling Fund's knowledge, no such return is currently under audit and no assessment has been asserted with respect to any of those returns. (e) FEES AND EXPENSES. As of the Effective Time, there are no brokers or finders entitled to receive any payments in connection with the transactions provided for in this Agreement. 6. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND. The obligations of the Acquiring Fund under this Agreement shall be subject to the following conditions: (a) All representations and warranties of the Selling Fund contained in this Agreement shall be true and correct in all material respects as of the date of this Agreement and, except as they may be affected by the transactions contemplated by this Agreement, as of the Effective Time, with the same force and effect as if made on and as of the Effective Time. (b) The Acquiring Trust shall have received an opinion of Morgan, Lewis & Bockius LLP, counsel to both Funds, regarding the transaction, in a form reasonably satisfactory to the Acquiring Trust, and dated as of the Effective Time, to the effect that: (1) the Selling Fund is a statutory trust duly organized, validly existing and in good standing under the laws of the State of Delaware; 4 (2) the shares of the Selling Fund issued and outstanding at the Effective Time are legally issued, fully paid and non-assessable under the laws of the State of Delaware by the Selling Fund; (3) this Agreement has been duly authorized, executed and delivered by the Selling Fund and represents a valid and binding contract of the Selling Fund, enforceable in accordance with its terms, subject to the effect of bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance and transfer, and other similar laws of general applicability relating to or affecting creditors' rights and to general equity principles; provided, however, that no opinion need be expressed with respect to provisions of this Agreement relating to indemnification nor with respect to provisions of this Agreement intended to limit liability for particular matters to the Selling Fund and its assets; (4) the execution and delivery of this Agreement did not, and the consummation of the transactions contemplated by this Agreement will not, violate the Agreement and Declaration of Trust or Bylaws of the Selling Fund or any material agreement known to such counsel to which the Selling Fund is a party or by which it is bound; (5) to the knowledge of such counsel no consent, approval, authorization, or order of any court or governmental authority is required for the consummation by the Selling Fund of the transactions contemplated by this Agreement, except such as have been obtained under the Securities Act of 1933 (the "1933 Act"), state securities laws, the 1940 Act, the rules and regulations under those statutes and such as may be required under state securities laws, rules and regulations; and (6) the Selling Fund is registered as an investment company under the 1940 Act and such registration with the SEC as an investment company under the 1940 Act is in full force and effect. Such opinion: (i) shall state that while such counsel have not verified, and are not passing upon and do not assume responsibility for, the accuracy, completeness, or fairness of any portion of the Form N-14 Registration Statement relating to the Reorganization or any amendment thereof or supplement thereto, they have generally reviewed and discussed certain information included therein with respect to the Selling Fund with certain officers of the Selling Fund and that in the course of such review and discussion no facts came to the attention of such counsel which caused them to believe that, on the respective effective or clearance dates of the Form N-14 Registration Statement, and any amendment thereof or supplement thereto and only insofar as they relate to information with respect to the Selling Fund, the Form N-14 Registration Statement or any amendment thereof or supplement thereto, contained any untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary to make the statements therein not misleading; (ii) shall state that such counsel does not express any opinion or belief as to the financial statements, other financial data, statistical data, or any information relating to the Selling Fund contained or incorporated by reference in the Form N-14 Registration Statement; and (iii) shall state that such opinion is solely for the benefit of the Acquiring Trust and its Board of Trustees and officers. In giving such opinion, Morgan, Lewis & Bockius LLP may rely upon officers' certificates and certificates of public officials. 7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE SELLING FUND. The obligations of the Selling Fund under this Agreement shall be subject to the following conditions: 5 (a) All representations and warranties of the Acquiring Fund contained in this Agreement shall be true and correct in all material respects as of the date of this Agreement and, except as they may be affected by the transactions contemplated by this Agreement, as of the Effective Time, with the same force and effect as if made on and as of the Effective Time. (b) The Selling Fund shall have received an opinion of Morgan, Lewis & Bockius LLP, counsel to both Funds, regarding the transaction, in a form reasonably satisfactory to the Selling Fund, and dated as of the Effective Time, to the effect that: (1) the Acquiring Trust is a statutory trust duly organized, validly existing and in good standing under the laws of the State of Delaware; (2) the shares of the Acquiring Fund issued and outstanding at the Effective Time are legally issued, fully paid and non-assessable under the laws of the State of Delaware by the Acquiring Trust, and the Acquiring Fund Shares to be delivered to the Selling Fund, as provided for by this Agreement, are duly authorized and upon delivery pursuant to the terms of this Agreement, will be legally issued, fully paid and non-assessable under the laws of the State of Delaware by the Acquiring Trust, and no shareholder of the Acquiring Fund has any option, warrant or preemptive right to subscription or purchase in respect thereof based on a review of the Acquiring Trust's Agreement and Declaration of Trust and By-laws and otherwise to such counsel's knowledge; (3) the Board of Trustees of the Acquiring Trust has duly authorized the Acquiring Fund as a class of units of beneficial interest of the Acquiring Trust pursuant to the terms of the Agreement and Declaration of Trust of the Acquiring Trust; (4) this Agreement has been duly authorized, executed and delivered by the Acquiring Trust and represents a valid and binding contract of the Acquiring Trust, enforceable in accordance with its terms, subject to the effect of bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance and transfer, and other similar laws of general applicability related to or affecting creditors' rights and to general equity principles; provided, however, that no opinion need be expressed with respect to provisions of this Agreement relating to indemnification nor with respect to provisions of this Agreement intended to limit liability for particular matters to the Acquiring Fund and its assets; (5) the execution and delivery of this Agreement did not, and the consummation of the transactions contemplated by this Agreement will not, violate the Agreement and Declaration of Trust or Bylaws of the Acquiring Trust or any material agreement known to such counsel to which the Acquiring Trust is a party or by which it is bound; (6) to the knowledge of such counsel no consent, approval, authorization, or order of any court or governmental authority is required for the consummation by Acquiring Fund of the transactions contemplated by this Agreement, except such as have been obtained under the 1933 Act, state securities laws, the 1940 Act, the rules and regulations under those statutes and such as may be required under state securities laws, rules and regulations; and (7) the Acquiring Trust is registered as an investment company under the 1940 Act and such registration with the SEC as an investment company under the 1940 Act is in full force and effect. 6 Such opinion: (i) shall state that while such counsel have not verified, and are not passing upon and do not assume responsibility for, the accuracy, completeness, or fairness of any portion of the Form N-14 Registration Statement relating to the Reorganization or any amendment thereof or supplement thereto, they have generally reviewed and discussed certain information included therein with respect to the Acquiring Fund and the Acquiring Trust with certain officers of the Acquiring Trust and that in the course of such review and discussion no facts came to the attention of such counsel which caused them to believe that, on the respective effective or clearance dates of the Form N-14 Registration Statement and any amendment thereof or supplement thereto and only insofar as they relate to information with respect to the Acquiring Trust and the Acquiring Fund, the Form N-14 Registration Statement or any amendment thereof or supplement thereto contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading; (ii) shall state that such counsel does not express any opinion or belief as to the financial statements, other financial data, statistical data, or information relating to the Acquiring Trust or the Acquiring Fund contained or incorporated by reference in the Form N-14 Registration Statement; and (iii) shall state that such opinion is solely for the benefit of the Selling Fund and its Board of Trustees and officers. In giving such opinion, Morgan, Lewis & Bockius LLP may rely upon officers' certificates and certificates of public officials. 8. FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF THE SELLING FUND AND THE ACQUIRING FUND. The obligations of the Selling Fund and the Acquiring Fund to effectuate this Agreement shall be subject to the satisfaction of each of the following conditions as of the Effective Time: (a) Any authority from the SEC as may be necessary to permit the parties to carry out the transactions contemplated by this Agreement shall have been received. (b) The Registration Statement on Form N-1A of the Acquiring Fund shall be effective under the 1933 Act, and, to the best knowledge of the Acquiring Fund, no investigation or proceeding for that purpose shall have been instituted or be pending, threatened or contemplated under the 1933 Act. (c) The Acquiring Fund has filed all documents and paid all fees required to permit its shares to be offered to the public in all states of the United States, the Commonwealth of Puerto Rico and the District of Columbia (except where such qualifications are not required) so as to permit the transfer contemplated by this Agreement to be consummated. (d) A vote approving this Agreement and the Reorganization contemplated by this Agreement shall have been adopted by at least a majority of the shares of the Selling Fund present in person or by proxy and entitled to vote. (e) The Board of Trustees of the Acquiring Trust, at a meeting duly called for such purpose, shall have authorized the issuance by the Acquiring Fund of Acquiring Fund Shares at the Effective Time in exchange for the assets of the Selling Fund pursuant to the terms and provisions of this Agreement. 7 9. EFFECTIVE TIME OF THE REORGANIZATION. The exchange of the Selling Fund's assets for corresponding Acquiring Fund Shares shall be effective at [4:00 P.M., EASTERN TIME ON MAY 5, 2006], or at such other time and date as fixed by the mutual consent of the parties (the "Effective Time"). 10. TERMINATION. This Agreement and the transactions contemplated by this Agreement may be terminated and abandoned with respect to the Acquiring Fund and/or the Selling Fund, without penalty, by resolution of the Board of Trustees of the Acquiring Trust or Selling Fund, respectively, or at the discretion of any duly authorized officer of the Acquiring Trust or Selling Fund, at any time prior to the Effective Time, if circumstances should develop that, in the opinion of such Board or officer, make proceeding with the Agreement inadvisable. In the event of any such termination, there shall be no liability for damages on the part of the Acquiring Fund, the Selling Fund or Acquiring Trust, or their respective Boards of Trustees or officers. 11. AMENDMENT AND WAIVER. This Agreement may be amended, modified or supplemented in such manner as may be mutually agreed upon in writing by the parties; pROVIDED, THAT no amendment may have the effect of changing the provisions for determining the number or value of Acquiring Fund Shares to be paid to the Selling Fund's shareholders under this Agreement to the detriment of the Selling Fund's shareholders without their further approval. Furthermore, either party may waive any breach by the other party or the failure to satisfy any of the conditions to its obligations (this waiver must be in writing and authorized by the President or any Vice President of the waiving party with or without the approval of the party's shareholders). 12. INDEMNIFICATION. (a) The Acquiring Fund shall indemnify, defend and hold harmless the Selling Fund, its trustees, officers, employees and agents against all losses, claims, demands, liabilities and expenses, including reasonable legal and other expenses incurred in defending third party claims, actions, suits or proceedings, arising from any of its representations, warranties, covenants or agreements set forth in this Agreement. (b) The Selling Fund, with respect to any claim asserted prior to the Effective Time, shall indemnify, defend and hold harmless the Acquiring Fund, its Trustees, officers, employees and agents against all losses, claims, demands, liabilities and expenses, including reasonable legal and other expenses incurred in defending third party claims, actions, suits or proceedings, arising from any of its representations, warranties, covenants or agreements set forth in this Agreement. 13. FEES AND EXPENSES. Each Fund shall be solely liable for its own expenses incurred in connection with entering into and carrying out the transactions contemplated by this Agreement, whether or not the transactions contemplated hereby are consummated. 14. HEADINGS, COUNTERPARTS, ASSIGNMENT. (a) The article and paragraph headings contained in this Agreement are for reference purposes only and shall not effect in any way the meaning or interpretation of this Agreement. 8 (b) This Agreement may be executed in any number of counterparts, each of which shall be deemed an original. (c) This Agreement shall be binding upon and inure to the benefit of the parties and their respective successors and assigns, but no assignment or transfer of any rights or obligations shall be made by any party without the written consent of the other party. Nothing in this Agreement expressed or implied is intended nor shall be construed to confer upon or give any person, firm or corporation (other than the parties and their respective successors and assigns) any rights or remedies under or by reason of this Agreement. 15. ENTIRE AGREEMENT. The Acquiring Fund and Selling Fund agree that neither party has made any representation, warranty or covenant not set forth in this Agreement and that this Agreement constitutes the entire agreement between the parties. The representations, warranties and covenants contained in this Agreement or in any document delivered pursuant to this Agreement or in connection with this Agreement shall survive the consummation of the transactions contemplated under this Agreement. 16. FURTHER ASSURANCES. The Acquiring Fund and Selling Fund shall take such further action as may be necessary or desirable and proper to consummate the transactions contemplated by this Agreement. 17. BINDING NATURE OF AGREEMENT. As provided in the Selling Fund's and Acquiring Trust's By-laws, as amended and supplemented to date, this Agreement was authorized by the Trustees of the Selling Fund and the Acquiring Trust, on behalf of the Acquiring Fund, as Trustees and not individually, and executed by the undersigned officers of the Selling Fund and the Acquiring Trust, on behalf of the Acquiring Fund, as officers and not individually. The obligations of this Agreement are not binding upon the undersigned officers, Trustees, shareholders, nominees or agents individually, but are binding only upon the assets and property of the Selling Fund and Acquiring Fund. Moreover, no class or series of the Acquiring Trust shall be liable for the obligations of any other classes or series of the Acquiring Trust. IN WITNESS WHEREOF, the parties have duly executed this Agreement, all as of the date first written above. RYDEX CAPITAL PARTNERS SPHINX FUND By: _____________________________ Name: [Insert Name] Title: [Insert Title] RYDEX SERIES FUNDS on behalf of Rydex Absolute Return Strategies Fund By: _____________________________ Name: [Insert Name] Title: [Insert Title] 9 EX-99.6C 5 g21101_ex-6c.txt EXHIBIT 6C EXHIBIT 6(c) ADVISORY AGREEMENT ADVISORY AGREEMENT made as of this 23rd day of May, 2005 by and between RYDEX SERIES FUNDS (the "Trust"), a Delaware statutory trust registered as an investment company under the Investment Company Act of 1940, as amended (the "1940 Act"), and PADCO ADVISORS I, INC., a Maryland corporation with its principal place of business at 9601 Blackwell Road, Suite 500, Rockville, Maryland 20850 (the "Adviser"). W I T N E S S E T H WHEREAS, the Board of Trustees (the "Board") of the Trust has selected the Adviser to act as investment adviser to the Trust on behalf of the series set forth on Schedule A to this Agreement (each a "Fund" and, collectively, the "Funds"), as such Schedule may be amended from time to time upon mutual agreement of the parties, and to provide certain related services, as more fully set forth below, and to perform such services under the terms and conditions hereinafter set forth; NOW, THEREFORE, in consideration of the mutual covenants and benefits set forth herein, the Trust and the Adviser do hereby agree as follows: 1. THE ADVISER'S SERVICES. (a) DISCRETIONARY INVESTMENT MANAGEMENT SERVICES. The Adviser shall act as investment adviser with respect to the Funds. In such capacity, the Adviser shall, subject to the supervision of the Board, regularly provide the Funds with investment research, advice and supervision and shall furnish continuously an investment program for the Funds, consistent with the respective investment objectives and policies of each Fund. The Adviser shall determine, from time to time, what securities shall be purchased for the Funds, what securities shall be held or sold by the Funds and what portion of the Funds' assets shall be held uninvested in cash, subject always to the provisions of the Trust's Agreement and Declaration of Trust, By-Laws and its registration statement on Form N-1A (the "Registration Statement") under the 1940 Act, and under the Securities Act of 1933, as amended (the "1933 Act"), covering Fund shares, as filed with the Securities and Exchange Commission (the "Commission"), and to the investment objectives, policies and restrictions of the Funds, as each of the same shall be from time to time in effect. To carry out such obligations, the Adviser shall exercise full discretion and act for the Funds in the same manner and with the same force and effect as the Funds themselves might or could do with respect to purchases, sales or other transactions, as well as with respect to all other such things necessary or incidental to the furtherance or conduct of such purchases, sales or other transactions. No reference in this Agreement to the Adviser having full discretionary authority over each Fund's investments shall in any way limit the right of the Board, in its sole discretion, to establish or revise policies in connection with the management of a Fund's assets or to otherwise exercise its right to control the overall management of a Fund. 1 (b) COMPLIANCE. The Adviser agrees to comply with the requirements of the 1940 Act, the Investment Advisers Act of 1940 (the "Advisers Act"), the 1933 Act, the Securities Exchange Act of 1934, as amended (the "1934 Act"), the Commodity Exchange Act and the respective rules and regulations thereunder, as applicable, as well as with all other applicable federal and state laws, rules, regulations and case law that relate to the services and relationships described hereunder and to the conduct of its business as a registered investment adviser. The Adviser also agrees to comply with the objectives, policies and restrictions set forth in the Registration Statement, as amended or supplemented, of the Funds, and with any policies, guidelines, instructions and procedures approved by the Board and provided to the Adviser. In selecting each Fund's portfolio securities and performing the Adviser's obligations hereunder, the Adviser shall cause the Fund to comply with the diversification and source of income requirements of Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"), for qualification as a regulated investment company. The Adviser shall maintain compliance procedures that it reasonably believes are adequate to ensure its compliance with the foregoing. No supervisory activity undertaken by the Board shall limit the Adviser's full responsibility for any of the foregoing. (c) PROXY VOTING. The Board has the authority to determine how proxies with respect to securities that are held by the Funds shall be voted, and the Board has initially determined to delegate the authority and responsibility to vote proxies for the Fund's securities to the Adviser. So long as proxy voting authority for the Fund has been delegated to the Adviser, the Adviser shall exercise its proxy voting responsibilities Adviser shall carry out such responsibility in accordance with any instructions that the Board shall provide from time to time, and at all times in a manner consistent with Rule 206(4)-6 under the Advisers Act and its fiduciary responsibilities to the Trust. The Adviser shall provide periodic reports and keep records relating to proxy voting as the Board may reasonably request or as may be necessary for the Funds to comply with the 1940 Act and other applicable law. Any such delegation of proxy voting responsibility to the Adviser may be revoked or modified by the Board at any time. (d) RECORDKEEPING. The Adviser shall not be responsible for the provision of administrative, bookkeeping or accounting services to the Fund, except as otherwise provided herein or as may be necessary for the Adviser to supply to the Trust or its Board the information required to be supplied under this Agreement. The Adviser shall maintain separate books and detailed records of all matters pertaining to Fund assets advised by the Adviser required by Rule 31a-1 under the 1940 Act (other than those records being maintained by any administrator, custodian or transfer agent appointed by the Funds) relating to its responsibilities provided hereunder with respect to the Funds, and shall preserve such records for the periods and in a manner prescribed therefore by Rule 31a-2 under the 1940 Act (the "Fund Books and Records"). The Fund Books and Records shall be available to the Board at any time upon request, shall be delivered to the Trust upon the termination of this Agreement and shall be available without delay during any day the Trust is open for business. 2 (e) HOLDINGS INFORMATION AND PRICING. The Adviser shall provide regular reports regarding Fund holdings, and shall, on its own initiative, furnish the Trust and its Board from time to time with whatever information the Adviser believes is appropriate for this purpose. The Adviser agrees to immediately notify the Trust if the Adviser reasonably believes that the value of any security held by a Fund may not reflect fair value. The Adviser agrees to provide any pricing information of which the Adviser is aware to the Trust, its Board and/or any Fund pricing agent to assist in the determination of the fair value of any Fund holdings for which market quotations are not readily available or as otherwise required in accordance with the 1940 Act or the Trust's valuation procedures for the purpose of calculating the Fund net asset value in accordance with procedures and methods established by the Board. (f) COOPERATION WITH AGENTS OF THE TRUST. The Adviser agrees to cooperate with and provide reasonable assistance to the Trust, any Trust custodian or foreign sub-custodians, any Trust pricing agents and all other agents and representatives of the Trust, such information with respect to the Funds as they may reasonably request from time to time in the performance of their obligations, provide prompt responses to reasonable requests made by such persons and establish appropriate interfaces with each so as to promote the efficient exchange of information and compliance with applicable laws and regulations. 2. CODE OF ETHICS. The Adviser has adopted a written code of ethics that it reasonably believes complies with the requirements of Rule 17j-1 under the 1940 Act, which it will provide to the Trust. The Adviser shall ensure that its Access Persons (as defined in the Adviser's Code of Ethics) comply in all material respects with the Adviser's Code of Ethics, as in effect from time to time. Upon request, the Adviser shall provide the Trust with a (i) a copy of the Adviser's current Code of Ethics, as in effect from time to time, and (ii) certification that it has adopted procedures reasonably necessary to prevent Access Persons from engaging in any conduct prohibited by the Adviser's Code of Ethics. Annually, the Adviser shall furnish a written report, which complies with the requirements of Rule 17j-1, concerning the Adviser's Code of Ethics to the Trust. The Adviser shall respond to requests for information from the Trust as to violations of the Code by Access Persons and the sanctions imposed by the Adviser. The Adviser shall immediately notify the Trust of any material violation of the Code, whether or not such violation relates to a security held by any Fund. 3. INFORMATION AND REPORTING. The Adviser shall provide the Trust and its respective officers with such periodic reports concerning the obligations the Adviser has assumed under this Agreement as the Trust may from time to time reasonably request. (a) NOTIFICATION OF BREACH / COMPLIANCE REPORTS. The Adviser shall notify the Trust immediately upon detection of (i) any material failure to manage any Fund in accordance with its investment objectives and policies or any applicable law; or (ii) any material breach of any of the Funds' or the Adviser's policies, guidelines or procedures. In addition, the Adviser shall provide a quarterly report regarding each Fund's compliance with its investment objectives and policies, applicable law, including, but not limited to the 1940 Act and Subchapter M of the Code, and the Fund's policies, 3 guidelines or procedures as applicable to the Adviser's obligations under this Agreement. The Adviser agrees to correct any such failure promptly and to take any action that the Board may reasonably request in connection with any such breach. Upon request, the Adviser shall also provide the officers of the Trust with supporting certifications in connection with such certifications of Fund financial statements and disclosure controls pursuant to the Sarbanes-Oxley Act. The Adviser will promptly notify the Trust in the event (i) the Adviser is served or otherwise receives notice of any action, suit, proceeding, inquiry or investigation, at law or in equity, before or by any court, public board, or body, involving the affairs of the Trust (excluding class action suits in which a Fund is a member of the plaintiff class by reason of the Fund's ownership of shares in the defendant) or the compliance by the Adviser with the federal or state securities laws or (ii) an actual change in control of the Adviser resulting in an "assignment" (as defined in the 1940 Act) has occurred or is otherwise proposed to occur. (b) BOARD AND FILINGS INFORMATION. The Adviser will also provide the Trust with any information reasonably requested regarding its management of the Funds required for any meeting of the Board, or for any shareholder report, amended registration statement, proxy statement, or prospectus supplement to be filed by the Trust with the Commission. The Adviser will make its officers and employees available to meet with the Board from time to time on due notice to review its investment management services to the Funds in light of current and prospective economic and market conditions and shall furnish to the Board such information as may reasonably be necessary in order for the Board to evaluate this Agreement or any proposed amendments thereto. (c) TRANSACTION INFORMATION. The Adviser shall furnish to the Trust such information concerning portfolio transactions as may be necessary to enable the Trust or its designated agent to perform such compliance testing on the Funds and the Adviser's services as the Trust may, in its sole discretion, determine to be appropriate. The provision of such information by the Adviser to the Trust or its designated agent in no way relieves the Adviser of its own responsibilities under this Agreement. 4. BROKERAGE. (a) PRINCIPAL TRANSACTIONS. In connection with purchases or sales of securities for the account of a Fund, neither the Adviser nor any of its directors, officers or employees will act as a principal or agent or receive any commission except as permitted by the 1940 Act. (b) PLACEMENT OF ORDERS. The Adviser shall arrange for the placing of all orders for the purchase and sale of securities for a Fund's account with brokers or dealers selected by the Adviser. In the selection of such brokers or dealers and the placing of such orders, the Adviser is directed at all times to seek for the Fund the most favorable execution and net price available under the circumstances. It is also understood that it is desirable for the Fund that the Adviser have access to brokerage and research services provided by brokers who may execute brokerage transactions at a higher cost to the Fund 4 than may result when allocating brokerage to other brokers, consistent with section 28(e) of the 1934 Act and any Commission staff interpretations thereof. Therefore, the Adviser is authorized to place orders for the purchase and sale of securities for a Fund with such brokers, subject to review by the Board from time to time with respect to the extent and continuation of this practice. It is understood that the services provided by such brokers may be useful to the Adviser in connection with its or its affiliates' services to other clients. (c) AGGREGATED TRANSACTIONS. On occasions when the Adviser deems the purchase or sale of a security to be in the best interest of a Fund as well as other clients of the Adviser, the Adviser may, to the extent permitted by applicable law and regulations, aggregate the order for securities to be sold or purchased. In such event, the Adviser will allocate securities or futures contracts so purchased or sold, as well as the expenses incurred in the transaction, in the manner the Adviser reasonably considers to be equitable and consistent with its fiduciary obligations to the Fund and to such other clients under the circumstances. (d) AFFILIATED BROKERS. The Adviser or any of its affiliates may act as broker in connection with the purchase or sale of securities or other investments for a Fund, subject to: (a) the requirement that the Adviser seek to obtain best execution and price within the policy guidelines determined by the Board and set forth in the Fund's current prospectus and SAI; (b) the provisions of the 1940 Act; (c) the provisions of the Advisers Act; (d) the provisions of the 1934 Act; and (e) other provisions of applicable law. These brokerage services are not within the scope of the duties of the Adviser under this Agreement. Subject to the requirements of applicable law and any procedures adopted by the Board, the Adviser or its affiliates may receive brokerage commissions, fees or other remuneration from a Fund for these services in addition to the Adviser's fees for services under this Agreement. 5. CUSTODY. Nothing in this Agreement shall permit the Adviser to take or receive physical possession of cash, securities or other investments of a Fund. 6. ALLOCATION OF CHARGES AND EXPENSES. The Adviser will bear its own costs of providing services hereunder. The Adviser agrees to pay all expenses incurred by the Trust except for interest, taxes, brokerage and other expenses incurred in placing orders for the purchase and sale of securities and other investment instruments, extraordinary expenses, and distribution fees and expenses paid by the Trust under any distribution plan adopted pursuant to Rule 12b-1 under the 1940 Act. 7. REPRESENTATIONS, WARRANTIES AND COVENANTS. (a) PROPERLY REGISTERED. The Adviser is registered as an investment adviser under the Advisers Act, and will remain so registered for the duration of this Agreement. The Adviser is not prohibited by the Advisers Act or the 1940 Act from performing the services contemplated by this Agreement, and to the best knowledge of the Adviser, there is no proceeding or investigation that is reasonably likely to result in the Adviser being 5 prohibited from performing the services contemplated by this Agreement. The Adviser agrees to promptly notify the Trust of the occurrence of any event that would disqualify the Adviser from serving as an investment adviser to an investment company. The Adviser is in compliance in all material respects with all applicable federal and state law in connection with its investment management operations. (b) ADV DISCLOSURE. The Adviser has provided the Trust with a copy of its Form ADV as most recently filed with the SEC and will, promptly after filing any amendment to its Form ADV with the SEC, furnish a copy of such amendments to the Trust. The information contained in the Adviser's Form ADV is accurate and complete in all material respects and does not omit to state any material fact necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading. (c) FUND DISCLOSURE DOCUMENTS. The Adviser has reviewed and will in the future review, the Registration Statement, and any amendments or supplements thereto, the annual or semi-annual reports to shareholders, other reports filed with the Commission and any marketing material of a Fund (collectively the "Disclosure Documents") and represents and warrants that with respect to disclosure about the Adviser, the manner in which the Adviser manages the Fund or information relating directly or indirectly to the Adviser, such Disclosure Documents contain or will contain, as of the date thereof, no untrue statement of any material fact and does not omit any statement of material fact which was required to be stated therein or necessary to make the statements contained therein not misleading. (d) USE OF THE NAME "RYDEX". The Adviser has the right to use the name "Rydex" in connection with its services to the Trust and that, subject to the terms set forth in Section 8 of this Agreement, the Trust shall have the right to use the name "Rydex" in connection with the management and operation of the Funds. The Adviser is not aware of any threatened or existing actions, claims, litigation or proceedings that would adversely effect or prejudice the rights of the Adviser or the Trust to use the name "Rydex". (e) INSURANCE. The Adviser maintains errors and omissions insurance coverage in an appropriate amount and shall provide prior written notice to the Trust (i) of any material changes in its insurance policies or insurance coverage; or (ii) if any material claims will be made on its insurance policies. Furthermore, the Adviser shall upon reasonable request provide the Trust with any information it may reasonably require concerning the amount of or scope of such insurance. (f) NO DETRIMENTAL AGREEMENT. The Adviser represents and warrants that it has no arrangement or understanding with any party, other than the Trust, that would influence the decision of the Adviser with respect to its selection of securities for a Fund, and that all selections shall be done in accordance with what is in the best interest of the Fund. 6 (g) CONFLICTS. The Adviser shall act honestly, in good faith and in the best interests of the Trust including requiring any of its personnel with knowledge of Fund activities to place the interest of the Fund first, ahead of their own interests, in all personal trading scenarios that may involve a conflict of interest with the Funds, consistent with its fiduciary duties under applicable law. (h) REPRESENTATIONS. The representations and warranties in this Section 7 shall be deemed to be made on the date this Agreement is executed and at the time of delivery of the quarterly compliance report required by Section 3(a), whether or not specifically referenced in such report. 8. THE NAME "RYDEX". The Adviser grants to the Trust a sublicense to use the name "Rydex" (the "Name") as part of the name of any Fund. The foregoing authorization by the Adviser to the Trust to use the Name as part of the name of any Fund is not exclusive of the right of the Adviser itself to use, or to authorize others to use, the Name; the Trust acknowledges and agrees that, as between the Trust and the Adviser, the Adviser has the right to use, or authorize others to use, the Name. The Trust shall (1) only use the Name in a manner consistent with uses approved by the Adviser; (2) use its best efforts to maintain the quality of the services offered using the Name; (3) adhere to such other specific quality control standards as the Adviser may from time to time promulgate. At the request of the Adviser, the Trust will (a) submit to Adviser representative samples of any promotional materials using the Name; and (b) change the name of any Fund within three months of its receipt of the Adviser's request, or such other shorter time period as may be required under the terms of a settlement agreement or court order, so as to eliminate all reference to the Name and will not thereafter transact any business using the Name in the name of any Fund; provided, however, that the Trust may continue to use beyond such date any supplies of prospectuses, marketing materials and similar documents that the Trust had on the date of such name change in quantities not exceeding those historically produced and used in connection with such Fund. 9. ADVISER'S COMPENSATION. The Funds shall pay to the Adviser, as compensation for the Adviser's services hereunder, a fee, determined as described in Schedule A that is attached hereto and made a part hereof. Such fee shall be computed daily and paid not less than monthly in arrears by the Funds. The method for determining net assets of a Fund for purposes hereof shall be the same as the method for determining net assets for purposes of establishing the offering and redemption prices of Fund shares as described in the Fund's prospectus. In the event of termination of this Agreement, the fee provided in this Section 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. 10. INDEPENDENT CONTRACTOR. In the performance of its duties hereunder, the Adviser is and shall be an independent contractor and, unless otherwise expressly provided herein or otherwise authorized in writing, shall have no authority to act for or represent the Trust or any Fund in any way or otherwise be deemed to be an agent of the Trust or any Fund. If any 7 occasion should arise in which the Adviser gives any advice to its clients concerning the shares of a Fund, the Adviser will act solely as investment counsel for such clients and not in any way on behalf of the Fund. 11. ASSIGNMENT AND AMENDMENTS. This Agreement shall automatically terminate, without the payment of any penalty, in the event of its assignment (as defined in section 2(a)(4) of the 1940 Act); provided that such termination shall not relieve the Adviser of any liability incurred hereunder. This Agreement may not be added to or changed orally and may not be modified or rescinded except by a writing signed by the parties hereto and in accordance with the 1940 Act, when applicable. 12. DURATION AND TERMINATION. (a) This Agreement shall become effective as of the date executed and shall remain in full force and effect continually thereafter, subject to renewal as provided in Section 12(d) and unless terminated automatically as set forth in Section 11 hereof or until terminated as follows: (b) The Trust may cause this Agreement to terminate either (i) by vote of its Board or (ii) with respect to any Fund, upon the affirmative vote of a majority of the outstanding voting securities of the Fund; or (c) The Adviser may at any time terminate this Agreement by not more than sixty (60) days' nor less than thirty (30) days' written notice delivered or mailed by registered mail, postage prepaid, to the Trust; or (d) This Agreement shall automatically terminate two years from the date of its execution unless its renewal is specifically approved at least annually thereafter by (i) a majority vote of the Trustees, including a majority vote of such Trustees who are not interested persons of the Trust or the Adviser, at a meeting called for the purpose of voting on such approval; or (ii) the vote of a majority of the outstanding voting securities of each Fund; provided, however, that if the continuance of this Agreement is submitted to the shareholders of the Funds for their approval and such shareholders fail to approve such continuance of this Agreement as provided herein, the Adviser may continue to serve hereunder as to the Funds in a manner consistent with the 1940 Act and the rules and regulations thereunder; and Termination of this Agreement pursuant to this Section shall be without payment of any penalty. In the event of termination of this Agreement for any reason, the Adviser shall, immediately upon notice of termination or on such later date as may be specified in such notice, cease all activity on behalf of the Fund and with respect to any of its assets, except as otherwise required by any fiduciary duties of the Adviser under applicable law. In addition, the Adviser 8 shall deliver the Fund Books and Records to the Trust by such means and in accordance with such schedule as the Trust shall direct and shall otherwise cooperate, as reasonably directed by the Trust, in the transition of portfolio asset management to any successor of the Adviser. 13. CERTAIN DEFINITIONS. For the purposes of this Agreement: (a) "Affirmative vote of a majority of the outstanding voting securities of the Fund" shall have the meaning as set forth in the 1940 Act, subject, however, to such exemptions as may be granted by the Commission under the 1940 Act or any interpretations of the Commission staff. (b) "Interested persons" and "Assignment" shall have their respective meanings as set forth in the 1940 Act, subject, however, to such exemptions as may be granted by the Commission under the 1940 Act or any interpretations of the Commission staff. 14. LIABILITY OF THE ADVISER. The Adviser shall indemnify and hold harmless the Trust and all affiliated persons thereof (within the meaning of Section 2(a)(3) of the 1940 Act) and all controlling persons (as described in Section 15 of the 1933 Act) (collectively, the "Adviser Indemnitees") against any and all losses, claims, damages, liabilities or litigation (including reasonable legal and other expenses) by reason of or arising out of: (a) the Adviser being in material violation of any applicable federal or state law, rule or regulation or any investment policy or restriction set forth in the Funds' Registration Statement or any written guidelines or instruction provided in writing by the Board, (b) a Fund's failure to satisfy the diversification or source of income requirements of Subchapter M of the Code, or (c) the Adviser's willful misfeasance, bad faith or gross negligence generally in the performance of its duties hereunder or its reckless disregard of its obligations and duties under this Agreement. 15. ENFORCEABILITY. Any term or provision of this Agreement which is invalid or unenforceable in any jurisdiction shall, as to such jurisdiction be ineffective to the extent of such invalidity or unenforceability without rendering invalid or unenforceable the remaining terms or provisions of this Agreement or affecting the validity or enforceability of any of the terms or provisions of this Agreement in any other jurisdiction. 16. LIMITATION OF LIABILITY. The parties to this Agreement acknowledge and agree that all litigation arising hereunder, whether direct or indirect, and of any and every nature whatsoever shall be satisfied solely out of the assets of the affected Fund and that no Trustee, officer or holder of shares of beneficial interest of the Fund shall be personally liable for any of the foregoing liabilities. The Trust's Certificate of Trust, as amended from time to time, is on file in the Office of the Secretary of State of the State of Delaware. Such Certificate of Trust and the Trust's Agreement and Declaration of Trust describe in detail the respective responsibilities and limitations on liability of the Trustees, officers, and holders of shares of beneficial interest. 17. JURISDICTION. This Agreement shall be governed by and construed in accordance with the substantive laws of state of Delaware and the Adviser consents to the jurisdiction of courts, both state and federal, in Delaware, with respect to any dispute under this Agreement. 9 18. PARAGRAPH HEADINGS. The headings of paragraphs contained in this Agreement are provided for convenience only, form no part of this Agreement and shall not affect its construction. 19. COUNTERPARTS. This Agreement may be executed simultaneously in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 10 IN WITNESS WHEREOF, the parties hereto have caused this instrument to be signed on their behalf by their duly authorized officers as of the date first above written. RYDEX SERIES FUNDS, on behalf of each Fund listed on Schedule A By: /S/ CARL G. VERBONCOEUR --------------------------- Name: Carl G. Verboncoeur Title: President PADCO ADVISORS I, INC. By: /S/ CARL G. VERBONCOEUR --------------------------- Name: Carl G. Verboncoeur Title: Chief Executive Officer 11 SCHEDULE A TO THE ADVISORY AGREEMENT DATED MAY 23, 2005 BETWEEN RYDEX SERIES FUNDS AND PADCO ADVISORS I, INC. The Trust will pay to the Adviser as compensation for the Adviser's services rendered, a fee, computed daily at an annual rate based on the average daily net assets of the respective Fund in accordance the following fee schedule: FUND RATE - ---- ---- Absolute Return Strategies Fund.......... 1.15% Hedged Equity Fund....................... 1.15% Market Neutral Fund ..................... 1.15% A-1 EX-99.11 6 g21101_ex-11.txt EXHIBIT 11 EXHIBIT 11 Morgan, Lewis & Bockius LLP 1111 Pennsylvania Avenue, NW Washington, DC 20004 February 23, 2006 Rydex Series Funds 9601 Blackwell Road Suite 500 Rockville, MD 20850 Re: OPINION OF COUNSEL RELATING TO THE REGISTRATION STATEMENT FILED ON FORM N-14 UNDER THE SECURITIES ACT OF 1933 Ladies and Gentlemen: We refer to the registration statement on Form N-14 (the "Registration Statement") of Rydex Series Funds (the "Trust"), relating to the transfer of substantially all the assets and stated liabilities of Rydex Capital Partners SPhinX Fund (the "Selling Fund"), in exchange for shares of the Trust's Absolute Return Strategies Fund (the "Acquiring Fund"), followed by the distribution of such shares (the "Acquiring Fund's Shares"), in exchange for such Selling Fund's shares (the "Reorganization"). We have been requested by the Trust to furnish this opinion as an exhibit to the Registration Statement. With your permission, all assumptions and statements of reliance herein have been made without any independent investigation or verification on our part except to the extent otherwise expressly stated, and we express no opinion with respect to the subject matter or accuracy of such assumptions or items relied upon. In connection with this opinion, we have reviewed, among other things, executed copies of the following documents: (a) a certificate of the State of Delaware as to the existence and good standing of the Trust; (b) copies of the Trust's Agreement and Declaration of Trust and of all amendments and all supplements thereto (the "Declaration of Trust"); (c) a certificate executed by Joanna M. Haigney, Secretary of the Trust, certifying to and attaching copies of the Trust's Declaration of Trust and By-Laws, and certain resolutions adopted by the Board of Trustees of the Trust authorizing the issuance of the shares; and (d) a printer's proof of the Registration Statement. In our capacity as counsel to the Trust, we have examined the originals or certified, conformed or reproduced copies of all records, agreements, instruments and documents as we have deemed relevant or necessary as the basis for the opinion hereinafter expressed. In all such examinations, we have assumed the legal capacity of all natural persons executing documents, the genuineness of all signatures, the authenticity of all original or certified copies, and the conformity to original or certified copies of all copies submitted to us as conformed or reproduced copies. As to various questions of fact relevant to such opinion, we have relied upon, and assume the accuracy of, certificates and oral or written statements of public officials and officers or representatives of the Trust. We have assumed that the Registration Statement, as filed with the U.S. Securities and Exchange Commission, will be in substantially the form of the printer's proof referred to in paragraph (d) above. Based upon, and subject to, the limitations set forth herein, we are of the opinion that the issuance of the Acquiring Fund's Shares by the Trust has been duly and legally authorized by all appropriate action and, upon delivery thereof and payment therefor in accordance with the Registration Statement, the Acquiring Fund's Shares, when issued, will be legally issued, fully paid and non-assessable under the laws of the State of Delaware. We have not reviewed the securities laws of any state or territory in connection with the proposed offering of the Acquiring Fund's Shares and we express no opinion as to the legality of any offer or sale of the Acquiring Fund's Shares under any such state or territorial securities laws. This opinion is intended only for your use in connection with the offering of the Acquiring Fund's Shares and may not be relied upon by any other person. We hereby consent to the filing of this opinion as an exhibit to the Registration Statement on Form N-14. In giving this consent, we do not concede that we are in the category of persons whose consent is required under Section 7 of the Securities Act of 1933, as amended. Very truly yours, /s/ Morgan, Lewis & Bockius LLP EX-99.14 7 g21101_exhibit14.txt EXHIBIT 14 CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM We hereby consent to the incorporation by reference in this Registration Statement on Form N-14 of our report dated May 27, 2005, relating to the financial statements and financial highlights which appears in the March 31, 2005 Annual Report to Shareholders of the Rydex Capital Partners SPhinX Fund, which are also incorporated by reference into the Registration Statement. We also consent to the references to us under the headings "Financial Highlights", "Experts", "Independent Registered Public Accounting Firm" and "Financial Statements" in such Registration Statement. PricewaterhouseCoopers LLP Philadelphia, PA February 23, 2006 COVER 8 filename8.txt Morgan, Lewis & Bockius LLP 1111 Pennsylvania Avenue, NW Washington, DC 20004 February 23, 2006 VIA EDGAR U.S. Securities and Exchange Commission 100 F Street, NE Washington, DC 20549 Re: RYDEX SERIES FUNDS (FILE NO. 811- 07584) Ladies and Gentlemen: On behalf of our client, Rydex Series Funds (the "Trust"), we are filing herewith the Trust's Registration Statement under the Securities Act of 1933, as amended, on Form N-14, together with all exhibits thereto. The combined Prospectus/Proxy Statement contained in this filing relates to the reorganization of the Rydex Capital Partners SPhinX Fund (the "Fund") with and into the Trust's Absolute Return Strategies Fund (the "Reorganization"). We anticipate that the combined Prospectus/Proxy Statement will be automatically effective on March 27, 2006 and that the Reorganization will occur in May 2006. In connection with the above referenced filing, please note that one or more of the portfolio funds, in which the Fund invested and which are sponsored by PlusFunds Group, Inc., used Refco Inc. affiliates to hold futures commission accounts and cash accounts. As a result of the Refco bankruptcy proceedings, approximately 11% of the Fund's assets held in the portfolio funds are currently subject to a temporary restraining order issued by the bankruptcy court pending resolution of certain legal issues concerning preferential transfers prior to Refco's bankruptcy filing. The Fund has communicated these facts to the Fund's shareholders in a letter filed with the U.S. Securities and Exchange Commission on December 30, 2005. In addition, Rydex's management personnel has discussed the impact of Refco's bankruptcy and the temporary restraining order on the Fund and its shareholders with Mr. William R. Meck, Senior Assistant District Administrator of the Office of Examination in the Philiadelphia District Office. Finally, we have discussed certain aspects of the Reorganization, particularly with respect to the pro forma financial statements, with Mr. James Campbell, Assistant Chief Accountant of the Division of Investment Management. Please do not hesitate to contact John McGuire at 202.739.5654 or me at 202.739.5684 if you have any questions or comments concerning this filing. Sincerely, /s/ Laura E. Flores - ------------------- Laura E. Flores -----END PRIVACY-ENHANCED MESSAGE-----