0000935069-09-000767.txt : 20110808 0000935069-09-000767.hdr.sgml : 20110808 20090316172447 ACCESSION NUMBER: 0000935069-09-000767 CONFORMED SUBMISSION TYPE: N-14 PUBLIC DOCUMENT COUNT: 6 FILED AS OF DATE: 20090316 DATE AS OF CHANGE: 20110806 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: 333-158016 FILM NUMBER: 09685536 BUSINESS ADDRESS: STREET 1: 805 KING FARM BLVD STREET 2: SUITE 600 CITY: ROCKVILLE STATE: MD ZIP: 20850 BUSINESS PHONE: 301-296-5100 MAIL ADDRESS: STREET 1: 805 KING FARM BLVD STREET 2: SUITE 600 CITY: ROCKVILLE STATE: MD ZIP: 20850 FORMER COMPANY: FORMER CONFORMED NAME: RYDEX SERIES TRUST DATE OF NAME CHANGE: 19930714 CENTRAL INDEX KEY: 0000899148 S000003763 Absolute Return Strategies Fund C000010438 H RYMSX CENTRAL INDEX KEY: 0000899148 S000003762 Hedged Equity Fund C000010435 H RYSTX CENTRAL INDEX KEY: 0000899148 S000003763 Absolute Return Strategies Fund C000010439 A RYMQX CENTRAL INDEX KEY: 0000899148 S000003762 Hedged Equity Fund C000010436 A RYSLX CENTRAL INDEX KEY: 0000899148 S000003763 Absolute Return Strategies Fund C000010440 C RYMRX CENTRAL INDEX KEY: 0000899148 S000003762 Hedged Equity Fund C000010437 C RYSSX N-14 1 g52595_seriesn14.txt G52595_SERIESN14.TXT As Filed with the U.S. Securities and Exchange Commission on March 16, 2009 File No. 333-_________ U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form N-14 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X] Pre-Effective Amendment No. ___[ ] Post-Effective Amendment No. ___[ ] 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) NAME AND ADDRESS OF AGENT FOR SERVICE: COPIES TO: Carl G. Verboncoeur W. John McGuire 9601 Blackwell Road Morgan, Lewis & Bockius LLP Suite 500 1111 Pennsylvania Avenue, N.W. Rockville, Maryland 20850 Washington, D.C. 20004 As soon as practicable after the Registration Statement becomes effective under the Securities Act of 1933. (Appproximate date of proposed public offering) It is proposed that this filing will become effective on April 15, 2009 pursuant to Rule 488. No filing fee is due because the Registrant has previously registered an indefinite number of shares under the Securities Act of 1933 pursuant to Section 24(f) under the Investment Company Act of 1940. RYDEX SERIES FUNDS 9601 Blackwell Road, Suite 500 Rockville, MD 20850 April ___, 2009 Dear Shareholder: We wish to provide you with some important information concerning your investment. As a shareholder of the Hedged Equity Fund (the "Acquired Fund"), we wish to inform you that the Board of Trustees of the Rydex Series Funds (the "Trust"), after careful consideration, has approved the reorganization of the Hedged Equity Fund into the Multi-Hedge Strategies Fund, formerly the Absolute Return Strategies Fund, (the "Surviving Fund" and, together with the Hedged Equity Fund, the "Funds"). The Acquired Fund and the Surviving Fund pursue similar investment objectives and possess similar policies and are managed by the same portfolio managers. We believe that this combination will provide substantial benefits to shareholders. The reorganization will combine a smaller fund into a larger fund. Shareholders could potentially benefit by the growth in assets realized by the combination of the Funds because the Surviving Fund can potentially take advantage of the benefits of any future economies of scale, including the ability to spread certain fixed costs across a larger asset base. Further, the reorganization is intended to be tax-free, for federal income tax purposes, for the Acquired Fund, Surviving Fund, and the Acquired Fund's shareholders. The Reorganization will be accomplished in such a manner as to not dilute your investment. Shareholder approval is NOT required to effect the reorganization. At the close of business on May ___, 2009, the Acquired Fund will transfer its assets and liabilities to the Surviving Fund. On that date, you will receive H-Class Shares, A-Class Shares, and C-Class Shares of the Surviving Fund equal in aggregate net asset value to your H-Class Shares, A-Class Shares, and C-Class Shares of the Acquired Fund. We have enclosed a Prospectus/Information Statement that describes the reorganization in greater detail and contains important information about the Surviving Fund. THE TRANSACTION WILL NOT REQUIRE ANY ACTION ON YOUR PART. You will automatically receive H-Class Shares, A-Class Shares, and C-Class Shares of the Surviving Fund in exchange for your H-Class Shares, A-Class Shares, and C-Class Shares of the Acquired Fund as of the closing date. If you have questions or would like to discuss alternatives, you may contact us at (800) 820-0888. If you invest through another financial institution, such as a brokerage firm, please contact your financial institution should you have any questions. You are a valued investor and we thank you for your continued investment in the Trust. Sincerely, ---------------------------------------- Carl G. Verboncoeur President RYDEX SERIES FUNDS 9601 Blackwell Road, Suite 500 Rockville, MD 20850 (800) 820-0888 PROSPECTUS/INFORMATION STATEMENT April ___, 2009 This Prospectus/Information Statement is being furnished to shareholders of the Hedged Equity Fund (the "Acquired Fund"), a series of Rydex Series Funds (the "Trust"), in connection with an Agreement and Plan of Reorganization (the "Plan") that has been approved by the Board of Trustees of the Trust (the "Board"). Under the Plan, shareholders of H-Class Shares, A-Class Shares, and C-Class Shares of the Acquired Fund will receive H-Class Shares, A-Class Shares, and C-Class Shares of the Multi-Hedge Strategies Fund, formerly the Absolute Return Strategies Fund, (the "Surviving Fund" and, together with the Acquired Fund, the "Funds"), a series of the Trust, equal in aggregate value to the aggregate net asset value of the assets transferred by the Acquired Fund to the Surviving Fund less the liabilities of the Acquired Fund that are assumed by the Surviving Fund, as of the closing date of the reorganization (the "Reorganization"). After the Reorganization is complete, the Acquired Fund will be terminated. The Reorganization is expected to be effective on or about May __, 2009. The Board believes that the Reorganization is in the best interest of each Fund and that the interests of each Fund's shareholders will not be diluted as a result of the Reorganization. For federal income tax purposes, the Reorganization is intended to be structured as a tax-free transaction for the Acquired Fund and its shareholders. Shareholders of the Acquired Fund are not being asked to vote on the Plan or approve the Reorganization. The Acquired Fund and the Surviving Fund are each a series of the Trust, a Delaware statutory trust registered with the U.S. Securities and Exchange Commission (the "SEC") as an open-end management investment company. The Trust currently consists of [56] separate series, including the Acquired Fund and the Surviving Fund. PADCO Advisors, Inc., which operates under the name Rydex Investments ("Rydex" or the "Advisor") serves as the investment adviser to the Acquired Fund and the Surviving Fund. The investment objective of the Surviving Fund is to seek capital appreciation consistent with the return and risk characteristics of the hedge fund universe. The Surviving Fund uses multiple investment strategies including the "Long/Short Equity" strategy, which accounts for the largest allocation. The Acquired Fund seeks to provide capital appreciation consistent with the return and risk characteristics of the long/short hedge fund universe. This Prospectus/Information Statement, which you should read carefully and retain for future reference, sets forth concisely the information that you should know about the Acquired Fund and Surviving Fund and the Reorganization. The prospectuses for the Acquired Fund and the Surviving Fund, dated August 1, 2008, is included with this Prospectus/Information Statement and is incorporated herein by reference. A Statement of Additional Information dated April ___, 2009 relating to this Prospectus/Information Statement and the Reorganization has been filed with the SEC and is incorporated by reference into this Prospectus/Information Statement. Additional information relating to the Acquired Fund and Surviving Fund is contained in the Statement of Additional Information dated August 1, 2008, which has been filed with the SEC. For a free copy of any of the documents described above, you may call (800) 820-0888, or you may write to Rydex Series Funds at the address listed on the cover of this Prospectus/Information Statement. You may also obtain these documents by accessing the Internet site for Rydex Series Funds at www.rydexinvestments.com. In addition, these documents may be obtained from the EDGAR database on the SEC's Internet site at www.sec.gov. You may review and copy documents at the SEC Public Reference Room in Washington, DC (for information on the operation of the Public Reference Room, call 1-202-551-8090). You may request documents by mail from the SEC, upon payment of a duplication fee, by writing to: Securities and Exchange Commission, Public Reference Section, Washington, DC 20549-0102. You may also obtain this information upon payment of a duplicating fee, by e-mailing the SEC at the following address: publicinfo@sec.gov. This Prospectus/Information Statement and the enclosures are expected to be available to shareholders on or about April __, 2009. WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A PROXY. AN INVESTMENT IN THE FUNDS IS NOT A DEPOSIT OF ANY BANK AND IS NOT INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION ("FDIC") OR ANY OTHER GOVERNMENT AGENCY. AN INVESTMENT IN THE FUNDS INVOLVES INVESTMENT RISK, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL. THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED UPON THE ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. TABLE OF CONTENTS SYNOPSIS The Reorganization..................................................... Comparison of the Investment Objectives and Policies of the Funds...... Fees and Expenses...................................................... Purchase and Redemption Procedures; Exchange Procedures; Dividends, Distributions....................................................... PRINCIPAL RISK FACTORS.................................................... INFORMATION ABOUT THE REORGANIZATION...................................... Material Features of the Agreement and Plan of Reorganization ......... Reasons For the Reorganization......................................... Federal Income Tax Consequences........................................ Shareholder Rights, Description of the Securities to be Issued......... Capitalization ADDITIONAL INFORMATION ABOUT THE SURVIVING FUND AND THE ACQUIRED FUND..... COMPARISON OF THE FUNDS................................................... CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES....................... Control Persons........................................................ Principal Shareholders................................................. ADDITIONAL INFORMATION.................................................... Investment Adviser..................................................... FINANCIAL HIGHLIGHTS...................................................... APPENDIX A AGREEMENT AND PLAN OF REORGANIZATION......................................
SYNOPSIS THE REORGANIZATION. The Reorganization involves the transfer of all of the assets and liabilities of the Acquired Fund to the Surviving Fund in exchange for H-Class Shares, A-Class Shares, and C-Class Shares of the Surviving Fund. The transfer of assets by the Acquired Fund will occur at its then-current market value as determined in accordance with the Acquired Fund's valuation procedures, and shares of the Surviving Fund to be issued to the Acquired Fund will be valued at their then-current net asset value as determined in accordance with the Surviving Fund's valuation procedures. H-Class Shares, A-Class Shares, and C-Class Shares of the Surviving Fund will be distributed, respectively, to shareholders of H-Class Shares, A-Class Shares, and C-Class Shares of the Acquired Fund in exchange for their H-Class Shares, A-Class Shares, and C-Class Shares of the Acquired Fund. After completion of the Reorganization, each shareholder of H-Class Shares, A-Class Shares, and C-Class Shares of the Acquired Fund will own, respectively, H-Class Shares, A-Class Shares, and C-Class Shares of the Surviving Fund equal in value to the current net asset value of such shareholder's shares of the Acquired Fund. Following the completion of the Reorganization, the Acquired Fund will be liquidated and its registration under the Investment Company Act of 1940 (the "1940 Act") will be terminated. The Reorganization is intended to be tax-free for U.S. Federal income tax purposes. This means that it is intended that shareholders of the Acquired Fund will become shareholders of the Surviving Fund without realizing any gain or loss for federal income tax purposes. This also means that it is intended that the Reorganization will be tax-free for the Surviving Fund. The implementation of the Reorganization is subject to a number of conditions set forth in the Agreement and Plan of Reorganization (the "Plan"). Among the more significant conditions is the receipt by the Funds of an opinion of counsel to the effect that the Reorganization will be treated as a tax-free transaction to the Funds and their shareholders for federal income tax purposes, as described further below. For more information about the Reorganization, see "Information About the Reorganization" below. The Advisor and its affiliates have undertaken to bear and pay the expenses related to the preparation and assembly of this Prospectus/Information Statement and all mailing and other expenses associated with the Reorganization. COMPARISON OF THE INVESTMENT OBJECTIVES AND POLICIES OF THE ACQUIRED FUND AND SURVIVING FUND. The Acquired Fund and Surviving Fund have similar investment objectives. The Surviving Fund seeks to provide capital appreciation consistent with the return and risk characteristics of the hedge fund universe. The Acquired Fund seeks to provide capital appreciation consistent with the return and risk characteristics of the long/short hedge fund universe. Both Funds seek to achieve these returns with low correlation to and less volatility than equity indices. The Acquired Fund and the Surviving Fund pursue similar investment strategies, which correspond to investment styles and strategies used by hedge funds. The primary difference between the two Funds' investment strategies is that the Acquired Fund employs predominately long/short investment styles while the Surviving Fund may utilize multiple strategies, including long/short styles that may be replicated through proprietary quantitative analysis. Historically, over 50% of the Surviving Fund's assets have been allocated to the long/short strategy. A more complete description of the Funds' investment strategies and policies is set forth below. The Surviving Fund pursues multiple investment styles or mandates that correspond to investment strategies widely employed by hedge funds, including strategies sometimes referred to as absolute return strategies. In particular, the Fund will pursue those investment strategies that may be replicated through proprietary quantitative style analysis. These investment strategies include, but are not limited to: Long/Short Equity; Equity Market Neutral; Fixed Income Arbitrage; Merger Arbitrage; and Global Macro. The Surviving Fund may be long or short in a broad mix of financial assets including small, mid, and large-capitalization U.S. and foreign common stocks, currencies, commodities, futures, options, swap agreements, high yield securities, securities of other investment companies, American Depositary Receipts, exchange-traded funds, and corporate debt. The Surviving Fund may hold U.S. government securities or cash equivalents to collateralize its derivative positions. The Surviving Fund is non-diversified and, therefore, may invest a greater percentage of its assets in a particular issuer in comparison to a diversified fund. The Acquired Fund pursues a long/short investment strategy by employing multiple investment styles widely used by hedge funds. In particular, the Fund will pursue those long/short investment styles that may be replicated through proprietary quantitative analysis. These long/short investment styles include, but are not limited to: Long/Short Value; Long/Short Growth; Long/Short Momentum; and Covered Call Writing. Under normal circumstances, the Acquired Fund invests at least 80% of its net assets in long and short positions in small, mid, and large-capitalization U.S. and foreign common stocks or derivatives thereof, which primarily consist of futures, options and swap agreements, American Depositary Receipts, and securities of other investment companies. This is a non-fundamental policy that can be changed by the Fund upon 60 days' notice to shareholders. The Fund may invest its remaining assets in directional and non-directional fixed income investments. The Fund is non-diversified and, therefore, may invest in a greater percentage of assets in a particular issuer in comparison to a diversified fund. For further information about the Funds' investment objectives and policies, see "Comparison of the Funds--Investment Objectives and Strategies." FEES AND EXPENSES. The following table sets forth: (i) the fees and expenses of the H-Class Shares, A-Class Shares, and C-Class Shares of the Hedged Equity Fund for the year ended March 31, 2008; (ii) the fees and expenses of the H-Class Shares, A-Class Shares, and C-Class Shares of the Multi-Hedge Strategies Fund for the year ended March 31, 2008; and (iii) the estimated fees and expenses of the H-Class Shares, A-Class Shares, and C-Class Shares of the Multi-Hedge Strategies Fund on a pro forma basis after giving effect to the Reorganization, for the year ended March 31, 2008. ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from fund assets)
PRO FORMA COMBINED MULTI- HEDGE HEDGED EQUITY MULTI-HEDGE STRATEGIES FUND FUND STRATEGIES FUND (SURVIVING FUND) ---------------------------- ---------------------------- ------------------------- A- C- H- A- C- H-Class A-Class C-Class H-Class Class Class Class Class Class Shares Shares Shares Shares Shares Shares Shares Shares Shares ------- -------- -------- -------- -------- -------- ------ -------- ------- SHAREHOLDER FEES (paid directly from your investment) Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of initial sales price)(1) .......................... N/A 4.75% None N/A 4.75% None N/A 4.75% None Maximum Deferred Sales Charge (Load) (as a percentage of initial purchase price or current market value, whichever is less)(2) .................... N/A None(3) 1.00% N/A None(3) 1.00% N/A None(3) 1.00% Redemption Fee (charged only to shares redeemed or exchanged within 30 days of purchase) ............................. 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund assets) Management Fees ............................. 1.15% 1.15% 1.15% 1.15% 1.15% 1.15% 1.15% 1.15% 1.15% Distribution and Shareholder Service (12b-1) Fees ............................. 0.25% 0.25% 1.00% 0.25% 0.25% 1.00% 0.25% 0.25% 1.00% Short Dividend Expenses ..................... 0.63%(5) 0.63%(5) 0.63%(5) 0.55%(5) 0.55%(5) 0.55%(5) 0.56% 0.56% 0.56% Remaining other Expenses .................... None 0.01% None None 0.01% 0.01% 0.00% 0.01% 0.01% Total Other Expenses(4) ..................... 0.63%(6) 0.64%(6) 0.63%(6) 0.55%(6) 0.56%(6) 0.56%(6) 0.56% 0.57% 0.57% Acquired Fund Fees and Expenses ............. 0.06%(7) 0.06%(7) 0.06%(7) 0.05%(7) 0.05%(7) 0.05%(7) 0.05% 0.05% 0.05% Total Annual Fund Operating Expenses ........ 2.09% 2.10% 2.84% 2.00% 2.01% 2.76% 2.01% 2.02% 2.77%
(1) Represents the maximum sales charge (load) imposed on purchases. This sales charge varies depending on how much you invest. You may pay less than the maximum sales charge because of waivers and reduced sales charges that may be available. (2) The deferred sales charge applies for the first year following purchase and will be waived for customers of financial intermediaries that have entered into an arrangement with Rydex Distributors, Inc. (the "Distributor") to forego transaction-based compensation in connection with the initial purchase. (3) For investments of $1 million or more, A-Class Shares are sold at net asset value ("NAV"), without any up-front sales charge. However, if you sell your shares within 18 months of purchase, you will normally have to pay a 1.00% contingent-deferred sales charge ("CDSC") based on your initial purchase price or current market value, whichever is lower. (4) The Advisor has contractually agreed to pay all operating expenses of the 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 Expense occurs because the Fund short-sells an equity security to gain the inverse exposure necessary to meet its investment objective. The 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 Fund's unrealized gain or reducing the 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 the Hedged Equity Fund would have equaled 1.46% for H-Class Shares, 1.47% for A-Class Shares, and 2.21% for C-Class Shares. The expense ratio for the Multi-Hedge Strategies Fund would have equaled 1.45% for H-Class Shares, 1.46% for A-Class Shares, and 2.21% for C-Class Shares. (6) The Advisor has contractually agreed to pay all expenses of the Fund, excluding interest expense and taxes (expected to be de minimus), brokerage commissions and other expenses connected with the execution of portfolio transactions, short dividend expenses, and extraordinary expenses. (7) As a shareholder in certain funds (the "Acquired Funds"), the Fund will indirectly bear its proportionate share of the fees and expenses of the Acquired Funds. "Acquired Funds Fees and Expenses" are based upon (i) the approximate allocation of the Fund's assets among the Acquired Funds and the (ii) net expenses (excluding interest, taxes, and extraordinary expenses) of the Acquired Funds during their most recently completed fiscal year. "Acquired Funds Fees and Expenses" will vary with changes in the expenses of the Acquired Funds, as well as allocation of the Fund's assets, and may be higher or lower than those shown. Example: This Example is intended to help you compare the current cost of investing in the Acquired Fund and the Surviving Fund, and also allows you to compare these costs with the cost of investing in other mutual funds. Your actual costs may be higher or lower. The Example assumes that you invest $10,000 in a Fund for the time periods indicated and that you sell your shares at the end of the period. In addition, the Example assumes that each year your investment has a 5% return, a Fund's operating expenses remain the same and you reinvest all dividends and distributions.
1 3 5 10 YEAR YEARS YEARS YEARS ---- ------ ------ ------ HEDGED EQUITY FUND H-Class Shares................................................. $212 $ 655 $1,124 $2,421 A-Class Shares................................................. $678 $1,102 $1,550 $2,791 C-Class Shares If you sell your shares at the end of the period: .......... $387 $ 880 $1,499 $3,166 If you do not sell your shares at the end of the period: ... $287 $ 880 $1,499 $3,166 MULTI-HEDGE STRATEGIES FUND H-Class Shares................................................. $203 $ 627 $1,078 $2,327 A-Class Shares................................................. $669 $1,076 $1,506 $2,702 C-Class Shares If you sell your shares at the end of the period: .......... $379 $ 856 $1,459 $3,090 If you do not sell your shares at the end of the period: ... $279 $ 856 $1,459 $3,090 PRO FORMA COMBINED MULTI-HEDGE STRATEGIES FUND H-Class Shares................................................. $204 $ 631 $1,083 $2,338 A-Class Shares................................................. $670 $1,078 $1,511 $2,712 C-Class Shares If you sell your shares at the end of the period: .......... $380 $ 859 $1,464 $3,099 If you do not sell your shares at the end of the period: ... $280 $ 859 $1,464 $3,099
The projected post-Reorganization pro forma Annual Fund Operating Expenses and Example Expenses presented above are based on numerous material assumptions, including (1) that the current contractual agreements will remain in place and (2) that certain fixed costs involved in operating the Acquired Fund will be eliminated. Although these projections represent good faith estimates, there can be no assurance that any particular level of expenses or expense savings will be achieved because expenses depend on a variety of factors, including the future level of the Surviving Fund's assets, many of which are beyond the control of the Surviving Fund and the Advisor. PURCHASE AND REDEMPTION PROCEDURES; EXCHANGE PROCEDURES; DIVIDENDS, DISTRIBUTIONS AND PRICING. Procedures for purchasing, redeeming and exchanging shares of the Surviving Fund are the same as those of the Acquired Fund. Additionally, each Fund intends to pay out as dividends substantially all of its net income and net short-term and long-term capital gains (after reduction by any available capital loss carry-forwards). Income dividends, if any, are paid at least annually by each of the Funds. If you own Fund shares on a Fund's record date, you will be entitled to receive the dividend. The Funds may declare and pay dividends on the same date. The Funds make distributions of capital gains, if any, at least annually. The Funds, however, may declare a special capital gains distribution if the Board of Trustees believes that such a distribution would be in the best interests of the shareholders of a Fund. The Funds determine their net asset value per share as of the close of regular trading hours on the New York Stock Exchange (normally 4:00 p.m., Eastern time). The Funds' procedures for valuing their assets are the same. The principal risks of investments in the Acquired Fund and Surviving Fund are similar. All risks are the same, but the Surviving Fund also has Credit Default Swap Risk, Currency Risk and High Yield Risk. RISKS APPLICABLE TO ACQUIRED FUND AND SURVIVING FUND Counterparty Credit Risk The Funds may invest in financial instruments (both Funds) involving counterparties for the purpose of attempting to gain exposure to a particular group of securities, index or asset class without actually purchasing those securities or investments, or to hedge a position. Such financial instruments include, but are not limited to, total return, index, interest rate, and credit default swap agreements. The Funds will use short-term counterparty agreements to exchange the returns (or differentials in rates of return) earned or realized in particular predetermined investments or instruments. The Funds will not enter into any agreement with a counterparty unless the Advisor believes that the other party to the transaction is creditworthy. The use of swap agreements and similar instruments involves risks that are different from those associated with ordinary portfolio securities transactions. For example, the Funds bears the risk of loss of the amount expected to be received under a swap agreement in the event of the default or bankruptcy of a swap agreement counterparty. If a counterparty defaults on its payment obligations to the Funds, this default will cause the value of your investment in the Funds to decrease. In addition, the Funds may enter into swap agreements with a limited number of counterparties, which may increase the Fund's exposure to counterparty credit risk. Swap agreements also may be considered to be illiquid. Credit Default Swap Risk The Surviving Fund may enter into credit (Surviving Fund only) default swap agreements. A credit default swap agreement is an agreement between two parties: a buyer of credit protection and a seller of credit protection. The Fund may be either the buyer of credit protection against a designated event of default, restructuring or other credit related event (each a "Credit Event") or the seller of credit protection in a credit default swap. The buyer in a credit default swap agreement is obligated to pay the seller a periodic stream of payments over the term of the swap agreement. If no Credit Event occurs, the seller of credit protection will have received a fixed rate of income throughout the term of the swap agreement. If a Credit Event occurs, the seller of credit protection must pay the buyer of credit protection the full notional value of the reference obligation through either physical settlement or cash settlement. If no Credit Event occurs, the buyer of credit protection will have made
a series of periodic payments through the term of the swap agreement. However, if a Credit Event occurs, the buyer of credit protection will receive the full notional value of the reference obligation either through physical settlement or cash settlement from the seller of credit protection. A credit default swap may involve greater risks than if the Fund invested directly in the underlying reference obligations. For example, a credit default swap may increase the Fund's credit risk because it has exposure to both the issuer of the underlying reference obligation and the counterparty to the credit default swap. In addition, credit default swap agreements may be difficult to value depending on whether an active market exists for the credit default swaps in which the Fund invests. Currency Risk The Surviving Fund's indirect and direct (Surviving Fund only) exposure to foreign currencies subjects the Funds to the risk that those currencies will decline in value relative to the U.S. Dollar, or, in the case of short positions, that the U.S. Dollar will decline in value relative to the currency being hedged. Currency rates in foreign countries may fluctuate significantly over short periods of time for a number of reasons, including changes in interest rates and the imposition of currency controls or other political developments in the U.S. or abroad. In addition, the Fund may incur transaction costs in connection with conversions between various currencies. The Fund may, but are not obligated to, engage in currency hedging transactions, which generally involve buying currency forward, options or futures contracts. However, not all currency risk may be effectively hedged, and in some cases the costs of hedging techniques may outweigh expected benefits. In such instances, the value of securities denominated in foreign currencies can change significantly when foreign currencies strengthen or weaken relative to the U.S. Dollar. Depositary Receipt Risk The Funds may hold the securities of non-U.S. (both Funds) companies in the form of American Depositary Receipts or ADRs. ADRs are negotiable certificates issued by a U.S. financial institution that represent a specified number of shares in a foreign stock and trade on a U.S. national securities exchange, such as the NYSE. The Funds will primarily invest in sponsored ADRs, which are issued with the support of the issuer of the foreign stock underlying the ADRs and which carry all of the rights of common
shares, including voting rights. The underlying securities of the ADRs in the Funds' portfolio are usually denominated or quoted in currencies other than the U.S. Dollar. As a result, changes in foreign currency exchange rates may affect the value of the Funds' portfolio. Generally, when the U.S. Dollar rises in value against a foreign currency, a security denominated in that currency loses value because the currency is worth fewer U.S. Dollars. In addition, because the underlying securities of ADRs trade on foreign exchanges at times when the U.S. markets are not open for trading, the value of the securities underlying the ADRs may change materially at times when the U.S. markets are not open for trading, regardless of whether there is an active U.S. market for shares of the Fund. Investments in the underlying foreign securities may involve risks not typically associated with investing in U.S. companies. Foreign securities markets generally have less trading volume and less liquidity than U.S. markets, and prices in some foreign markets can be extremely volatile due to increased risks of adverse issuer, political, regulatory, market, or economic developments. Many foreign countries lack accounting and disclosure standards comparable to those that apply to U.S. companies, and it may be more difficult to obtain reliable information regarding a foreign issuer's financial condition and operations. In addition, transaction costs and costs associated with custody services are generally higher for foreign securities than they are for U.S. securities. Derivatives Risk The Funds may invest a percentage of their (both Funds) assets in derivatives, such as futures and options contracts, to pursue their investment objectives. The use of such derivatives may expose the Funds to additional risks that it would not be subject to if it invested directly in the securities underlying those derivatives. The Funds may use futures contracts and related options for bona fide hedging purposes to offset changes in the value of securities held or expected to be acquired. They may also be used to gain exposure to a particular market or instrument, to create a synthetic money market position, and for certain other tax-related purposes. The Funds will only enter into futures contracts traded on a national futures exchange or board of trade. Futures and options contracts are described in more detail below: FUTURES CONTRACTS - Futures contracts and options on futures contracts provide for the
future sale by one party and purchase by another party of a specified amount of a specific security at a specified future time and at a specified price. An option on a futures contract gives the purchaser the right, in exchange for a premium, to assume a position in a futures contract at a specified exercise price during the term of the option. Index futures are futures contracts for various indices that are traded on registered securities exchanges. OPTIONS - The buyer of an option acquires the right to buy (a call option) or sell (a put option) a certain quantity of a security (the underlying security) or instrument at a certain price up to a specified point in time. The seller or writer of an option is obligated to sell (a call option) or buy (a put option) the underlying security. When writing (selling) call options on securities, the Funds may cover its positions by owning the underlying security on which the option is written or by owning a call option on the underlying security. Alternatively, the Funds may cover its positions by maintaining, in a segregated account, cash or liquid securities equal in value to the exercise price of the call options written by the Funds. The risks associated with the use of futures and options contracts include: - The Funds experiencing losses that exceed losses experienced by funds that do not use futures contracts and options. - There may be an imperfect correlation between the changes in market value of the securities held by the Funds and the prices of futures and options on futures. - Although the Funds will only purchase exchange-traded futures, due to market conditions there may not always be a liquid secondary market for a futures contract. As a result, the Funds may be unable to close out its futures contracts at a time which is advantageous. - Trading restrictions or limitations may be imposed by an exchange, and government regulations may restrict trading in futures contracts and options. - Because option premiums paid or
received by the Funds are small in relation to the market value of the investments underlying the options, buying and selling put and call options can be more speculative than investing directly in securities. Early Closing Risk The normal close of trading of securities (both Funds) listed on NASDAQ and the NYSE is 4:00 p.m., Eastern Time. Unanticipated early closings of securities exchanges and other financial markets may result in the Funds' inability to buy or sell securities or other financial instruments on that day. If an exchange or market closes early on a day when the Funds need to execute a high volume of trades late in a trading day, the Funds might incur substantial trading losses. Fixed Income Risk The Funds may invest in fixed income securities (both Funds) or related instruments. The market value of fixed income investments, and financial instruments related to those fixed income investments, will change in response to interest rate changes and other factors, such as changes in the effective maturities and credit ratings of fixed income investments. During periods of falling interest rates, the values of outstanding fixed income securities generally rise. Falling interest rates may cause an issuer to redeem or "call" a security before its stated maturity, which may result in the Fund having to reinvest the proceeds in lower yielding securities. Conversely, during periods of rising interest rates, the values of such securities and related financial instruments generally decline. While securities with longer maturities tend to produce higher yields, the prices of longer maturity securities are also subject to greater market fluctuations as a result of changes in interest rates. Fixed income investments are also subject to credit risk, which is the possibility that the credit strength of an issuer will weaken and/or an issuer of a debt security will fail to make timely payments of principal or interest and the security will go into default. High Yield Risk The Surviving Fund may invest in high yield (Surviving Fund only) securities and unrated securities of similar credit quality (commonly known as "junk bonds"). High yield securities generally pay higher yields (greater income) than investment in higher quality securities; however, high yield securities and junk bonds may
be subject to greater levels of interest rate, credit and liquidity risk than funds that do not invest in such securities, and are considered predominantly speculative with respect to an issuer's continuing ability to make principal and interest payments. The value of these securities often fluctuates in response to company, political, or economic developments and declines significantly over short periods of time or during periods of general economic difficulty. An economic downturn or period of rising interest rates could adversely affect the market for these securities and reduce the ability of the Fund or an underlying fund to sell these securities (liquidity risk). These securities can also be thinly traded or have restrictions on resale, making them difficult to sell at an acceptable price. If the issuer of a security is in default with respect to interest or principal payments, the Fund or an underlying fund may lose its entire investment. Investment in Investment The Funds may purchase shares of investment Companies Risk (both Funds) companies, such as exchange-traded funds, unit investment trusts, and closed-end investment companies to gain exposure to a particular portion of the market while awaiting an opportunity to purchase securities directly. The Funds may regularly invest in other investment companies, some of which may also invest in investment companies, and exchange-traded funds or ETFs. When the Funds invest in an investment company, in addition to directly bearing the expenses associated with its own operations, it will bear a pro rata portion of the investment company's expenses. Further, in part because of these additional expenses, the performance of an investment company may differ from the performance the Funds would achieve if it invested directly in the underlying investments of the investment company. In addition, while the risks of owning shares of an investment company generally reflect the risks of owning the underlying investments of the investment company, the Funds may be subject to additional or different risks than if the Funds had invested directly in the underlying investments. For example, shares of an exchange-traded fund are traded at market prices, which may vary from the net asset value of its underlying investments. Also, the lack of liquidity in an exchange-traded fund can contribute to the increased volatility of its value in comparison to the value of the underlying portfolio securities. The Funds may invest in investment companies and other pooled
investment vehicles that are not registered pursuant to the Investment Company Act of 1940, and therefore, not subject to the regulatory scheme of the Investment Company Act of 1940. Large-Capitalization The Funds are subject to the risk that Securities Risk large-capitalization stocks may underperform (both Funds) other segments of the equity market or the equity market as a whole. Leveraging Risk The Funds achieve leveraged exposure to their (both Funds) respective underlying indices through the use of derivative instruments. The more the Funds invest in derivative instruments that give rise to leverage, the more this leverage will magnify any losses on those investments. Leverage will cause the value of the Funds' shares to be more volatile than if the Funds did not use leverage. This is because leverage tends to exaggerate the effect of any increase or decrease in the value of the Funds' portfolio securities or other investments. The Funds will engage in transactions and purchase instruments that give rise to forms of leverage. Such transactions and instruments may include, among others, the use of reverse repurchase agreements and other borrowings, the investment of collateral from loans of portfolio securities, the use of when issued, delayed-delivery or forward commitment transactions or short sales. The use of leverage may also cause the Funds to liquidate portfolio positions when it would not be advantageous to do so in order to satisfy its obligations or to meet segregation requirements. Certain types of leveraging transactions, such as short sales that are not "against the box," could theoretically be subject to unlimited losses in cases where the Funds for any reason, is unable to close out the transaction. In addition, to the extent the Funds borrows money, interest costs on such borrowed money may not be recovered by any appreciation of the securities purchased with the borrowed funds and could exceed the Funds' or an investment income, resulting in greater losses. The value of the Funds' shares will tend to increase or decrease more than the value of any increase or decrease in its underlying index due to the fact that the Funds' investment strategies involve consistently applied leverage. Leverage will also have the effect of magnifying tracking error risk. Market Risk The Funds may invest in public and privately (both Funds) issued
securities, which may include common and preferred stocks, bonds, warrants, and rights, as well as derivatives and financial instruments that attempt to track the price movement of securities or commodities indices. Investments in securities and other financial instruments, in general, are subject to market risks that may cause their prices to fluctuate over time. The Funds' investments may decline in value due to factors affecting securities or commodities markets generally, or particular countries, segments, economic sectors, industries or companies within those markets. The value of a security may decline due to general economic and market conditions which are not specifically related to a particular issuer, such as real or perceived adverse economic conditions or changes in interest or currency rates. The value of securities convertible into equity securities, such as warrants or convertible debt, is also affected by prevailing interest rates, the credit quality of the issuer and any call provision. Fluctuations in the value of securities and financial instruments in which the Fund or an underlying fund invests will cause the net asset value of the Fund to fluctuate. Historically, the markets have moved in cycles, and the value of the Funds' securities and other financial instruments may fluctuate drastically from day to day. Because of its link to the markets, an investment in the Funds may be more suitable for long-term investors who can bear the risk of short-term principal fluctuations, which at times may be significant. Non-Diversification Risk To the extent that the Funds invest a (both Funds) significant percentage of its assets in a limited number of issuers, the Funds are subject to the risks of investing in those few issuers, and may be more susceptible to a single adverse economic or regulatory occurrence. As a result, changes in the market value of a single security could cause greater fluctuations in the value of Funds share than would occur in a diversified fund. Portfolio Turnover Risk The Funds' strategies may frequently involve (both Funds) buying and selling portfolio securities to rebalance the Funds' exposure to various market sectors. Higher portfolio turnover may result in the Funds paying higher levels of transaction costs and generating greater tax liabilities for shareholders. Portfolio turnover risk may cause the Funds' performance to be less than you expect.
Short Sales Risk Short sales are transactions in which the Fund (both Funds) sells a security it does not own. To complete the transaction, the Fund must borrow the security to make delivery to the buyer. The Fund is then obligated to replace the security borrowed by purchasing the security at the market price at the time of replacement. The price at such time may be higher or lower than the price at which the security was sold by the Fund. If the underlying security goes down in price between the time the Fund sells the security and buys it back, the Fund will realize a gain on the transaction. Conversely, if the underlying security goes up in price during the period, the Fund will realize a loss on the transaction. Any such loss is increased by the amount of premium or interest the Fund must pay to the lender of the security. Likewise, any gain will be decreased by the amount of premium or interest the Fund must pay to the lender of the security. The Fund is also required to segregate other assets on its books to cover its obligation to return the security to the lender which means that those other assets may not be available to meet the Fund's needs for immediate cash or other liquidity. The Fund's investment performance may also suffer if the Fund is required to close out a short position earlier than it had intended. This would occur if the securities lender required the Fund to deliver the securities the Fund borrowed at the commencement of the short sale and the Fund was unable to borrow the securities from another securities lender or otherwise obtain the security by other means. In addition, the Fund may be subject to expenses related to short sales that are not typically associated with investing in securities directly, such as costs of borrowing and margin account maintenance costs associated with the Fund's open short positions. These expenses negatively impact the performance of the Fund. For example, when the Fund short sells an interest-bearing security, such as a bond, it is obligated to pay the interest on the security it has sold. This cost is partially offset by the interest earned by the Fund on the investment of the cash generated by the short sale. Similarly, when the Fund sells short an equity security that pays a dividend, it is obligated to pay the dividend on the security it has sold. However, a dividend paid on a security sold short generally reduces the market value of the shorted security and thus, increases the Fund's unrealized gain or reduces the Fund's unrealized loss on its short sale transaction. To the extent that the interest rate and/or
dividend that the Fund is obligated to pay is greater than the interest earned by the Fund on investments, the performance of the Fund will be negatively impacted. These types of short sales expenses are sometimes referred to as the "negative cost of carry," and will tend to cause the Fund to lose money on a short sale even in instances where the price of the underlying security sold short does not change over the duration of the short sale. Small Capitalization and In comparison to securities of companies with Mid-Capitalization Securities larger capitalizations, securities of small and Risk medium-capitalization companies may have more (both Funds) price volatility, greater spreads between their bid and ask prices, significantly lower trading volumes, and cyclical or static growth prospects. Small and medium-capitalization companies often have limited product lines, markets or financial resources, and may therefore be more vulnerable to adverse developments than larger capitalization companies. These securities may or may not pay dividends. Small and medium-capitalization stocks may underperform other segments of the equity market or the equity market as a whole. Trading Halt Risk (both Funds) The Funds typically will hold short-term options and futures contracts. The major exchanges on which these contracts are traded, such as the Chicago Mercantile Exchange, have established limits on how much an option or futures contract may decline over various time periods within a day. In addition, the major securities exchanges, such as the NYSE, have established limits on how much the securities market, based on the Dow Jones Industrial Average(SM), may decline over various time periods within a day. If the price of a security, an option or a futures contract declines more than the established limits, trading on the exchange is halted on that instrument. If a trading halt occurs, the Funds may temporarily be unable to purchase or sell the options, futures contracts or securities that are the subject of the trading halt. Such a trading halt near the time the Funds price their shares may limit the Funds' ability to use leverage and may prevent the Funds from achieving its investment objective. In such an event, the Funds also may be required to use a "fair value" method to price its outstanding contracts or securities.
INFORMATION ABOUT THE REORGANIZATION MATERIAL FEATURES OF THE PLAN. The Plan sets forth the terms and conditions of the Reorganization. A complete copy of the Plan is attached as Appendix A. Significant provisions of the Plan are summarized below; however, this summary is qualified in its entirety by reference to the Plan, a copy of which is included in this Prospectus/Information Statement. Pursuant to the Reorganization Agreement, the Surviving Fund will acquire all of the Acquired Fund's assets and liabilities. In exchange, the Surviving Fund will issue to the Acquired Fund H-Class Shares, A-Class Shares and C-Class Shares of the Surviving Fund having an aggregate net asset value equal to the aggregate value of the Acquired Fund's assets so acquired. The Acquired Fund will then immediately make a pro rata distribution of such Surviving Fund H-Class Shares, A-Class Shares and C-Class Shares to the Acquired Fund Shareholders in complete liquidation of the Acquired Fund. As a result of the Reorganization, each of the Acquired Fund's Shareholders will receive the number of full and fractional H-Class Shares, A-Class Shares and C-Class Shares of the Surviving Fund that are equal in value to that shareholder's pro rata interest in the net assets transferred to the Surviving Fund as of the close of business at the Effective Time. As a result, the Acquired Fund shareholders will become shareholders of the Surviving Fund. It is expected that the value of each Acquired Fund shareholder's account in the Surviving Fund immediately after the Reorganization will be the same as the value of that Shareholder's Acquired Fund account immediately prior to the Reorganization. Acquired Fund shareholders will not pay any sales load or sales commissions on the Surviving Fund H-Class Shares, A-Class Shares and C-Class Shares they receive in the Reorganization or on Acquired Fund shares they surrender in the Reorganization. The completion of the Reorganization is subject to certain conditions set forth in the Reorganization Agreement, including the following: - The Reorganization may be terminated at any time prior to the Closing Date; - 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 - By the Board of Trustees of the Trust, in the good faith opinion of such Board, make proceeding with the Reorganization not in the best interests of the shareholders of the Surviving Fund or the Acquired Fund, respectively. - Any authority from the SEC as may be necessary to permit the parties to carry out the transactions contemplated by the Plan shall have been received. The Plan provides that the Board will declare a dividend or dividends with respect to the Acquired Fund prior to the Effective Time. This dividend, together with all previous dividends, will have the effect of distributing to the shareholders of the Acquired Fund all undistributed ordinary income earned and net capital gains recognized up to and including the Effective Time. The shareholders of the Acquired Fund will recognize ordinary income and capital gain with respect to this distribution and such income and gain may be subject to federal, state and/or local taxes. The stock transfer books of the Trust with respect to the Acquired Fund will be permanently closed as of the close of business on the day immediately preceding the Effective Time. Redemption requests received thereafter by the Trust with respect to the Acquired Fund will be deemed to be redemption requests for shares of the Surviving Fund issued pursuant to the Plan. If any shares of the Acquired Fund are represented by a share certificate, the certificate must be surrendered to Trust's transfer agent for cancellation before the Surviving Fund shares issuable to the shareholder pursuant to this Plan will be redeemed. Any special options relating to a shareholders account in the Acquired Fund will transfer over to the Surviving Fund without the need for the shareholder to take any action. The Advisor and its affiliates have undertaken to bear and pay the expenses related to the preparation and assembly of this Prospectus/Information Statement and all mailing and other expenses associated with the Reorganization. REASONS FOR REORGANIZATION. The Board considered the Reorganization at a meeting held on February 26, 2009, and approved the Plan. In approving the Reorganization, the Board of the Acquired Fund determined that it is in the best interests of the Acquired Fund and its shareholders to reorganize the Acquired Fund into the Surviving Fund. In making this determination, the Board of the Acquired Fund considered a number of factors, including: - the interests of the Acquired Fund's shareholders and the Surviving Fund's shareholders would not be diluted as a result of the proposed reorganization; - the similarity of the investment strategies of the Acquired Fund to those of the Surviving Fund; - the greater asset size of the Surviving Fund relative to that of the Acquired Fund and the possibility that greater aggregate assets upon consummation of the Reorganization would allow the Surviving Fund to take advantage of the possible benefits of a larger asset base, including economies of scale and spreading costs across a larger asset base to the potential benefit of all shareholders; - the future prospects of the Acquired Fund if the Reorganization was not effected, including the Acquired Fund's continuing viability as a stand-alone series of the Trust; - that the Reorganization is intended to be tax-free for U.S. federal income tax purposes for shareholders of the Acquired Fund; - that the management fee with respect to the Acquired Fund is identical to that of the Surviving Fund; and - that the expenses of the Reorganization would not be borne by the Funds' shareholders. The Board of the Surviving Fund has also determined that the consummation of the Reorganization is in the best interests of the shareholders of the Surviving Fund and that the interests of the Surviving Fund's shareholders would not be diluted as a result of the proposed reorganization. FEDERAL INCOME TAX CONSEQUENCES Each Fund intends to qualify as of the Effective Time as a "regulated investment company" under the Internal Revenue Code of 1986, as amended (the "Code"). Accordingly, each of the Funds has been, and expects to continue to be, relieved of all or substantially all federal income taxes. Consummation of the transaction is subject to the condition that the Trust receive an opinion from Morgan, Lewis & Bockius LLP, subject to appropriate factual assumptions and customary representations, to the effect that for federal income tax purposes: (1) The transfer of all of the assets and liabilities of the Acquired Fund to the Surviving Fund in exchange for shares of the Surviving Fund and the distribution to shareholders of the Acquired Fund of shares of the Surviving Fund, as described in the Plan, will constitute a tax-free "reorganization" within the meaning of Section 368(a) of the Code, and the Acquired Fund and the Surviving Fund each will be considered "a party to a reorganization" within the meaning of Section 368(b) of the Code; (2) No gain or loss will be recognized by the Acquired Fund upon the transfer of all of its assets to the Surviving Fund solely in exchange for shares of the Surviving Fund and the assumption by the Surviving Fund of all of the Acquired Fund's liabilities, if any, or the distribution by the Acquired Fund to its shareholders of shares of the Surviving Fund received as a result of the Reorganization; (3) No gain or loss will be recognized by the Surviving Fund upon the receipt of the assets of the Acquired Fund solely in exchange for the shares of the Surviving Fund and the assumption by the Surviving Fund of all of the Acquired Fund's liabilities, if any; (4) The aggregate tax basis of the Surviving Fund shares received by each shareholder of the Acquired Fund will be the same as the aggregate tax basis of the shareholder's Acquired Fund shares exchanged therefore; (5) The tax basis of the assets of the Acquired Fund received by the Surviving Fund pursuant to the Reorganization will be the same as the tax basis of such assets to the Acquired Fund immediately before the Reorganization; (6) The holding period for the shares of the Surviving Fund issued in the Reorganization will include the holding period of the shares of the Acquired Fund exchanged therefore, provided that the shareholder held such shares of the Acquired Fund as capital assets; (7) The holding period of the assets of the Acquired Fund received by the Surviving Fund in the Reorganization will include the period for which such assets were held by the Acquired Fund; and (8) No gain or loss will be recognized by shareholders of the Acquired Fund upon the exchange of their shares of the Acquired Fund for shares of the Surviving Fund as part of the Reorganization. No opinion will be expressed as to the effect of the Reorgnaization on (i) the Acquired Fund or the Surviving Fund with respect to any asset as to which any unrealized gain or loss is required to be recognized for U.S. federal income tax purposes at the end of the taxable year (or on the termination or transfer thereof) under a mark-to-market system of accounting and (ii) any Acquired Fund or the Surviving Fund shareholder that is required to recognize unrealized gains and losses for U.S. federal income tax purposes under a mark-to-market system of accounting. As of September 30, 2008, the Acquired Fund had unutilized capital loss carry-forwards of approximately $0. The final amount of unutilized capital loss carry-forwards for the Acquired Fund is subject to change and will not be finally determined until the Effective Time of the Reorganization. Under Section 382 of the Code, the ability of the Surviving Fund to fully utilize the capital loss carry-forwards of the Acquired Fund may be limited because the Reorganization will result in a change in control of the Acquired Fund. Therefore, the capital loss carry-forwards that may be utilized as tax deductions by the Surviving Fund will be limited each taxable year to an amount equal to the value of the capital stock of the Acquired Fund at the time of the Reorganization multiplied by an interest rate set monthly by the Internal Revenue Service that approximates a tax-exempt bond yield. The Funds have not sought a tax ruling on the federal tax consequences of the Reorganization from the Internal Revenue Service ("IRS"). The opinion from Morgan, Lewis & Bockius LLP, with respect to the federal income tax consequences of the Reorganization described in this section is not binding on the IRS and does not preclude the IRS from adopting a contrary position. Shareholders should consult their own advisors concerning the potential tax consequences to them, including state and local income tax consequences. SHAREHOLDER RIGHTS, DESCRIPTION OF THE SECURITIES TO BE ISSUED The Trust is organized as a Delaware statutory trust. The Acquired Fund and the Surviving Fund are both series of the Trust and, therefore, shareholders of the Acquired Fund and the Surviving Fund are shareholders of the same legal entity, the Trust. The Trust's Declaration of Trust dated March 13, 1993, as amended on November 2, 1993 and February 25, 2000 ("Declaration of Trust"), the Trust's governing document, does not afford any rights to the shareholders of the Surviving Fund that differ in any material respect from the rights afforded to the shareholders of the Acquired Fund. Each share in the Surviving Fund represents an equal proportionate interest in the Surviving Fund with other shares of the same class, and is entitled to such dividends and distributions out of the income earned on the assets belonging to the Fund as are declared in the discretion of the Trust's Board. When sold in accordance with the Declaration of Trust, and for the consideration described in its registration statement, shares of the Surviving Fund will be fully paid and non-assessable. Surviving Fund shares have no preemptive rights and only such conversion or exchange rights as the Board may grant in its discretion. In the event of a liquidation or dissolution of the Surviving Fund, its shareholders are entitled to receive the assets available for distribution belonging to the Surviving Fund and a proportionate distribution, based upon the relative asset values of the Trust's portfolios, of any general assets of the Trust not belonging to any particular portfolio of the Trust which are available for distribution. In the event of a liquidation or dissolution of the Trust, its shareholders will be entitled to the same distribution process. The Declaration of Trust does not prescribe any rights or privileges to the shares of the Surviving Fund that differ in any material respect from the rights or privileges prescribed to the shares of the Acquired Fund. CAPITALIZATION. The Surviving Fund's total capitalization after the Reorganization will be greater than the current capitalization of the Acquired Fund as a result of the combination of the Acquired Fund with the Surviving Fund. The following table sets forth, as of September 30, 2008, on an unaudited basis: (1) the capitalization of the Hedged Equity Fund; (2) the capitalization of the Multi-Hedge Strategies Fund only; and (3) the pro forma capitalization of the Multi-Hedge Strategies Fund as adjusted to give effect to the Reorganization
PRO FORMA COMBINED MULTI-HEDGE MULTI-HEDGE HEDGED EQUITY STRATEGIES STRATEGIES FUND FUND FUND (SURVIVING FUND) ------------- ------------ ---------------- TOTAL NET ASSETS ........................... $20,246,328 $215,998,347 $236,244,675 H-Class Shares .......................... $11,600,952 $105,780,495 $117,381,447 A-Class Shares .......................... $ 5,542,531 $ 65,136,060 $ 70,678,591 C-Class Shares .......................... $ 3,102,845 $ 45,081,792 $ 48,184,637 SHARES OUTSTANDING H-Class Shares .......................... 531,878 4,443,476 4,930,706 A-Class Shares .......................... 254,209 2,737,924 2,970,901 C-Class Shares .......................... 145,671 1,939,613 2,073,126 NET ASSET VALUE PER SHARE H-Class Shares .......................... $ 21.81 $ 23.81 $ 23.81 A-Class Shares Maximum Offering Price* .. $ 22.89 $ 24.98 $ 24.98 A-Class Shares .......................... $ 21.80 $ 23.79 $ 23.79 C-Class Shares .......................... $ 21.30 $ 23.24 $ 23.24
* Net asset value adjusted for the maximum sales charge of 4.75% of offering price, calculated NAV/(1-4.75%) This information is for informational purposes only. There is, of course, no assurance that the Reorganization will be consummated. Moreover, if consummated, the capitalization of the Acquired Fund and the Surviving Fund is likely to be different at the Effective Time as a result of daily share purchase and redemption activity in the Funds. Accordingly, the foregoing should not be relied upon to reflect the number of shares of the Surviving Fund that actually will be received on or after such date. Prior to the Effective Time, the Advisor reserves the right to sell portfolio securities and/or purchase other securities for the Acquired Fund, to the extent necessary so that the asset composition of the Acquired Fund is consistent with the investment policies and restrictions of the Surviving Fund. To the extent the Acquired Fund sells securities at a gain, current shareholders may receive a capital gain dividend. Transaction costs associated with any such purchases and sales would be borne by the Acquired Fund, which shall result in a decrease in the Acquired Fund's Net Asset Value. ADDITIONAL INFORMATION ABOUT THE SURVIVING FUND AND THE ACQUIRED FUND COMPARISON OF THE SURVIVING FUND AND THE ACQUIRED FUND The following is a comparison of the investment objectives, principal investment strategies and portfolio management of the Funds.
MULTI-HEDGE STRATEGIES FUND HEDGED EQUITY FUND (the Surviving Fund) (the Acquired Fund) ------------------------------------- ---------------------------------------- INVESTMENT OBJECTIVE INVESTMENT OBJECTIVE The Multi-Hedge Strategies Fund seeks The Hedged Equity Fund seeks to provide to provide capital appreciation capital appreciation consistent with the consistent with the return and risk return and risk characteristics of the characteristics of the hedge fund long/short hedge fund universe. universe. The secondary objective is to achieve The secondary objective is to achieve these returns with low correlation these returns with low correlation to to, and less volatility than, equity and less volatility than equity indices. indices. The investment objective of The investment objective of the Fund is the Fund is non-fundamental and may non-fundamental and may be changed be changed without shareholder without shareholder approval. approval. PRINCIPAL INVESTMENT STRATEGIES PRINCIPAL INVESTMENT STRATEGIES The Multi-Hedge Strategies Fund The Hedged Equity Fund pursues a pursues multiple investment styles or long/short investment strategy by mandates that correspond to employing multiple investment styles investment strategies widely employed widely used by hedge funds. In by hedge funds, including strategies particular, the Fund will pursue those sometimes referred to as absolute long/short investment styles that may be return strategies. In particular, the replicated through proprietary Fund will pursue those investment quantitative style analysis. These strategies that may be replicated long/short investment styles include, through proprietary quantitative but are not limited to, those described style analysis. These investment below. strategies include, but are not limited to, those described below. LONG/SHORT EQUITY - Pursuant to a LONG/SHORT VALUE - Pursuant to a long/short equity investment long/short value investment style, strategy, portfolio managers seek to portfolio managers seek to profit from profit from investing on both the buying long or selling short equities long and short sides of equity and/or equity-related securities based markets. The Advisor seeks to execute on value signals. The Advisor seeks to this investment strategy by creating execute this investment style by portfolios that include, but are not creating portfolios that include, but limited to, one or more of the are not limited to, one or more of the following directional and/or following directional and/or non-directional positions: long non-directional positions: long equity, equity, market neutral value, market market neutral value and market neutral neutral capitalization, market capitalization. neutral growth and market neutral momentum. EQUITY MARKET NEUTRAL - Pursuant to LONG/SHORT GROWTH - Pursuant to a an equity market neutral investment long/short growth investment style, strategy, portfolio managers seek to portfolio managers seek to profit from profit from exploiting pricing buying long or selling short equities relationships between different and/or equity-related securities based equities or related securities while on growth signals. The Advisor seeks to typically hedging exposure to overall execute this investment style by equity market movements. The Advisor creating portfolios that include, but seeks to execute this strategy by are not limited to, one or more of the creating portfolios that may include, following directional and/or but are not limited to, one or more non-directional positions: long equity, of the following directional and/or market neutral growth and market neutral non-directional positions: market capitalization. neutral value, market neutral capitalization, market neutral LONG/SHORT MOMENTUM - Pursuant to a growth, market neutral momentum and long/short momentum investment style, market neutral illiquidity premiums. portfolio managers seek to profit from buying long or selling short equities FIXED INCOME ARBITRAGE - Pursuant to and/or equity-related securities based a fixed income arbitrage investment on price momentum signals. The Advisor strategy, portfolio managers seek to attempts to execute this investment profit from relationships between style by creating portfolios that include, but are not limited to, one or more of the
different fixed income securities or following directional and/or fixed income and equity securities; non-directional positions: long equity, leveraging long and short positions market neutral momentum and market in securities that are related neutral capitalization. mathematically or economically. The Advisor seeks to execute this COVERED CALL WRITING - Pursuant to a strategy by creating portfolios that covered call writing investment may include, but are not limited to, strategy, portfolio managers seek to one or more of the following generate potential returns through the directional and/or non-directional sale of call options covered by the positions: long fixed income, holdings in the portfolio. The Advisor duration neutral default spreads and seeks to execute this investment style convertible arbitrage. by creating portfolios that include, but are not limited to, one or more of the MERGER ARBITRAGE - Pursuant to a following directional and/or merger arbitrage investment strategy, non-directional positions: long equity portfolio managers invest and covered call options. simultaneously in long and short positions in both companies involved in a merger or acquisition. Risk arbitrageurs typically invest in long positions in the stock of the company to be acquired and short the stock of the acquiring company. The Advisor seeks to execute this investment strategy by creating a portfolio consisting primarily of instruments that provide exposure to merger arbitrage spreads. GLOBAL MACRO - Pursuant to a global macro strategy, portfolio managers seek to profit from changes in currencies, commodity prices, and market volatility. The Advisor seeks to execute this strategy by creating portfolios that include, but are not limited to, one or more of the following directional and/or non-directional positions: directional currency trades, directional commodity trades, currency spread trades, and volatility arbitrage spread trades. Each of these investment strategies Each of these investment styles may may incorporate one or more incorporate one or more directional directional and/or non-directional and/or non-directional positions. In positions. In general, directional general, directional positions seek to positions seek to benefit from market benefit from market movement in one movement in one direction or the direction or the other. In contrast, other. In contrast, non-directional non-directional positions seek to positions seek to benefit from both benefit from both upward and downward upward and downward movement in one movement in one or more markets. The or more markets. The Fund will Fund will predominately have a long predominately have a long exposure to exposure to directional and directional and non-directional non-directional positions. However, positions. However, there may be there may be times that the Fund will times that the Fund will have a short have a short exposure to directional exposure to directional and/or and/or non-directional positions. non-directional positions.
The Fund may use moderate leverage The Fund may use moderate leverage subject to internally imposed subject to internally imposed investment investment constraints designed to constraints designed to limit the amount limit the amount of loss resulting of loss resulting from such leverage. from such leverage. The Fund's use of The Fund's use of directional and directional and non-directional non-directional positions and internal positions and internal investment investment controls result in a controls result in a portfolio of portfolio of assets designed to provide assets designed to provide appropriate long/short hedge fund appropriate hedge fund portfolio portfolio characteristics as well as characteristics as well as providing providing risk diversification. The Fund risk diversification. invests in core long positions at all times and, as a result, tends to have a long market bias. The Fund may be long or short in a Under normal circumstances, the Fund broad mix of financial assets will invest at least 80% of its net including small, mid, and assets in long and short positions in large-capitalization U.S. and foreign small, mid, and large-capitalization common stocks, currencies, U.S. and foreign common stocks or commodities, futures, options, swap derivatives thereof, which primarily agreements, high yield securities, consist of futures, options and swap securities of other investment agreements, American Depositary companies, American Depositary Receipts, and securities of other Receipts, exchange-traded funds, and investment companies. This is a corporate debt. The Fund may hold non-fundamental policy that can be U.S. government securities or cash changed by the Fund upon 60 days' notice equivalents to collateralize its to shareholders. The Fund may invest its derivative positions. remaining assets in directional and non-directional fixed income investments. The Fund is non-diversified and, The Fund is non-diversified and, therefore, may invest a greater therefore, may invest a greater percentage of its assets in a percentage of its assets in a particular particular issuer in comparison to a issuer in comparison to a diversified diversified fund. fund.
ADVISOR'S INVESTMENT METHODOLOGY (BOTH FUNDS) The Advisor develops and implements structured investment strategies designed to achieve each Fund's objective. The Advisor uses quantitative methods to construct portfolios that correlate highly with their respective benchmarks. Statistical techniques are then used to determine the optimal mix of assets for each Fund. The Advisor places particular emphasis on controlling risk relative to each Fund's benchmark or market sector in order to maintain consistency and predictability. The Advisor does not engage in temporary defensive investing, keeping each Fund fully invested in all market environments. As the result of market observations and internal and external research, the Advisor believes that aggregate hedge fund performance is largely driven by exposure to well recognized structural investment strategies or "Beta." Beta is exposure to any systematic risk for which the investor expects to be rewarded over time. Beta is commonly referred to as market risk. In this context, the Advisor considers exposure to both directional positions (E.G., equity and/or fixed income securities) and non-directional positions (E.G., value and/or corporate default) as Beta. Although hedge fund exposure to these positions varies over time, their exposure to them in the aggregate, and the investment returns provided by the exposure, have historically been stable. The conclusion of the Advisor's research is that aggregate hedge fund returns are replicable through exposure to these structural investment positions and, therefore, can be delivered in a mutual fund. The Funds employ a proprietary quantitative model that uses a style analysis of the returns of the appropriate segment of the hedge fund universe. This style analysis compares the returns of the appropriate hedge fund universe with the returns of various directional and non-directional positions. Based on the results of this analysis, historical research and market insights, the Advisor constructs a portfolio mix of directional and non-directional positions that best replicates the return, risk and correlation characteristics of the appropriate segment of the hedge fund universe. The Advisor anticipates adding and subtracting directional and non-directional positions over time based on continuing research of hedge fund returns. DIRECTIONAL AND NON-DIRECTIONAL POSITIONS (BOTH FUNDS) A directional position is designed to have a high correlation with market returns. The Advisor selects securities to achieve particular directional positions using a quantitative model to identify those securities with high measures of liquidity and correlation to the appropriate market. For example, the Advisor may use S&P 500 futures to achieve a directional exposure to the equities market. Directional positions have market risk and are exposed to market movements. The Funds will predominately have a long exposure to directional positions. There may be times that the Funds will have a short exposure to directional positions. The Funds use some, or all, of the following directional positions: - An EQUITIES position involves investing in a portfolio that buys a basket of stocks or derivatives thereof, such as index futures. - A FIXED INCOME position involves investing in a portfolio that buys a basket of U.S. government securities or bond futures. - A DIRECTIONAL COMMODITY trade involves investing in precious metals, livestock, grains, and other basic goods or materials. - A DIRECTIONAL CURRENCY trade consists of purchasing or selling a basket of foreign currencies against the US Dollar. - A COVERED CALL OPTIONS position involves investing in written call options on underlying securities which a Fund already owns. - A LONG OPTIONS position involves investing in long call or put options. A long call option provides upside profit potential while limiting downside exposure. A long put option provides downside profit potential while limiting upside exposure. - A VOLATILITY ARBITRAGE SPREAD trade involves trading volatility/variance futures or swaps which provide a return based on the difference between the implied volatility in the marketplace at the time of sale and the subsequently realized market volatility. The swap is structured to include protection against extreme movements in market volatility. A non-directional position is designed to have a low correlation with market returns. Non-directional positions attempt to profit by exploiting structural mispricings in the financial markets. Non-directional investment strategies are market neutral in nature and, if executed successfully, have limited market exposure. The Funds will predominately have a long exposure to non-directional positions. There may be times that the Funds will have a short exposure to non-directional positions. The Funds use some, or all, of the following non-directional positions: - A MARKET NEUTRAL VALUE position involves investing in a basket of stocks that exhibit traditional value characteristics and simultaneously selling short a basket of stocks that exhibit non-value characteristics. Traditional value characteristics include, but are not limited to, high book-to-price ratios, high earnings-to-price ratios and high cash flow-to-price ratios. The portfolio is formed such that the dollar amount of long and short positions are approximately equal and has limited market exposure. - A MARKET NEUTRAL GROWTH position involves investing in a basket of stocks that exhibit traditional growth characteristics and simultaneously selling short a basket of stocks that exhibit non-growth characteristics. Traditional growth characteristics include, but are not limited to, high earnings growth and high cash flow growth. The portfolio is formed such that long and short positions are approximately equal and has limited market exposure. - A MARKET NEUTRAL MOMENTUM position involves investing in a basket of stocks that exhibit strong price momentum and simultaneously selling short a basket of stocks that exhibit weak price momentum. The portfolio is formed such that the dollar amount of long and short positions are approximately equal and has limited market exposure. - A MARKET NEUTRAL CAPITALIZATION position involves investing in a basket of small-capitalization stocks and simultaneously selling short a basket of large-capitalization stocks. The portfolio is formed such that the dollar amount of long and short positions are approximately equal and has limited market exposure. - A MARKET NEUTRAL ILLIQUIDITY PREMIUM trade involves purchasing a basket of illiquid securities which may include, but is not limited to, closed-end funds and shorting a basket of more liquid stocks against them. The portfolio is structured to minimize market exposure. - A MERGER ARBITRAGE SPREADS position involves investing in a basket of stocks that are being acquired and simultaneously selling short a basket of stocks that are making the acquisitions. The portfolio is formed such that the dollar amount of long and short positions are approximately equal and has limited market exposure. - A DURATION NEUTRAL TERM SPREADS position involves investing in long 10-year U.S. government securities and simultaneously selling short 2-year U.S. government securities. The portfolio is duration-adjusted such that the duration of both long and positions are approximately equal and has limited market exposure. - A DURATION NEUTRAL DEFAULT SPREADS position involves investing in a basket of corporate bonds and simultaneously selling short U.S. government securities of similar duration. The portfolio is formed such that the duration of both long and short positions are approximately equal and has limited market exposure. - A CONVERTIBLE ARBITRAGE SPREAD involves purchasing a basket of convertible bonds and simultaneously selling short associated equities against them. The portfolio is structured in such a way as to minimize equity and credit market exposure. - A CURRENCY SPREAD trade involves purchasing a basket of high yielding currencies and selling short a basket of low yielding currencies against it. The portfolio is structured to be dollar neutral. INVESTMENT ADVISOR (BOTH FUNDS) PADCO Advisors Inc, which operates under the name Rydex Investments, is located at 9601 Blackwell Road, Suite 500, Rockville, Maryland 20850, and serves as investment adviser of the Funds. The Advisor has served as the investment adviser of the Funds since each Fund's inception. The Advisor makes investment decisions for the assets of the Funds and continuously reviews, supervises, and administers each Fund's investment program. The Board of Trustees of the Trust supervises the Advisor and establishes policies that the Advisor must follow in its day-to-day management activities. Upon consummation of the Reorganization, the investment advisory fee of 1.15%, paid to the Advisor with respect to the Surviving Fund, will remain the same. PORTFOLIO MANAGERS (BOTH FUNDS) On a day-to-day basis the following three individuals are jointly and primarily responsible for the management of the Funds. MICHAEL P. BYRUM, CFA, President and CIO of Rydex Investments - As the CIO, Mr. Byrum has ultimate responsibility for the management of the Funds. In addition to generally overseeing all aspects of the management of all of the Rydex Funds, Mr. Byrum reviews the activities of Messrs. Dellapa and Harder. He has been associated with Rydex Investments since the Advisor was founded in 1993. Mr. Byrum was named the President of Rydex Investments in 2004 and has served as Chief Investment Officer of Rydex Investments since 2003. During this time, he 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 NASDAQ-100(R), Precious Metals, Government Long Bond 1.2x Strategy, Inverse Government Long Bond Strategy, Inverse S&P 500 Strategy and Inverse NASDAQ-100(R) Strategy Funds, and helped to create the Sector Funds, all of which are offered in a separate prospectus. 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 and is a member of the CFA Institute and the Washington Society of Investment Analysts. Mr. Byrum has co-managed each Fund since its inception. MICHAEL J. DELLAPA, CFA, CAIA, Director of Alternative Investment Strategies - Mr. Dellapa plays a key role in the development of new products and research processes and systems that enhance the management of all of the Rydex Funds. In particular, Mr. Dellapa focuses on the management of the Alternative Investment Funds, including the Multi-Hedge Strategies Fund and the Hedged Equity Fund. Mr. Dellapa joined Rydex Investments in 2000 as a Research Analyst and was promoted to portfolio manager in 2003. During his tenure as a portfolio manager, he had direct oversight for the Russell 2000(R) 1.5x Strategy, Healthcare, Biotechnology, and Consumer Products Funds, all of which are offered in a separate prospectus. In 2005, Mr. Dellapa became Director of Investment Research and in 2007 became the Director of Alternative Investment Strategies. Prior to joining Rydex Investments, Mr. Dellapa worked as an equity analyst for Invista Capital and systems analyst for Accenture. He holds an engineering degree from the University of Maryland and MBA from the University of Chicago. Previously, he was owner/consultant of Dellapa Consulting Inc. as well as a senior consultant and an analyst at Andersen Consulting. Mr. Dellapa has co-managed each Fund since September 2005. RYAN A. HARDER, CFA, Senior Portfolio Manager- Mr. Harder is involved in the management of all of the Rydex Funds, but focuses particularly on the management of the Domestic Equity, Domestic Equity-Style, International Equity, Fixed Income, and Alternative Investment Funds. Mr. Harder joined Rydex Investments in 2004 as an Assistant Portfolio Manager, was promoted to Portfolio Manager in 2005 and has served in his current capacity since 2008. He was instrumental in the launch of the Multi-Hedge Strategies, Hedged Equity, High Yield Strategy and Inverse High Yield Strategy Funds. Prior to joining Rydex Investments, Mr. Harder served in various capacities with WestLB Asset Management, including as an Assistant Portfolio Manager, and worked in risk management at CIBC World Markets. He holds a B.A. in Economics from Brock University in Ontario, Canada and a Master of Science in International Securities, Investment and Banking from the ICMA Centre at the University of Reading in the U.K. Mr. Harder has co-managed each Fund since March 2008. Additional information about the Funds, including risks associated with an investment in the Funds, performance, management, organization and capital structure, disclosure of portfolio holdings, shareholding information (including information as to the pricing of shares), and distribution arrangements are contained in the Funds' prospectus, a copy of which is included with this Prospectus/Information Statement and is incorporated herein by reference. A Statement of Additional Information, dated August 1, 2008, for each of the Funds also contains additional information concerning these matters. A free copy of these documents is available upon request as described on the second page of this Prospectus/Information Statement. CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES CONTROL PERSONS. As of April 1, 2009, _____________ held of record approximately ____% of the outstanding shares of the Hedged Equity Fund, as agent or custodian for their customers, but did not own such shares beneficially because they did not have voting or investment discretion with respect to such shares. As of April 1, 2009, the Trustees and officers as a group owned less than 1% of the outstanding shares of each share class of the Hedged Equity Fund, and less than 1% of the outstanding shares of all funds of the Trust in the aggregate. As of April 1, 2009, Rydex Investments and its affiliates held of record approximately _____% of the Multi-Hedge Strategies Fund's outstanding Shares, as agent or custodian for their customers, but did not own such shares beneficially because they did not have voting or investment discretion with respect to such shares. As of April 1, 2009, the Trustees and officer as a group owned less than 1% of the outstanding shares of each share class of the Multi-Hedge Strategies Fund, and less than 1% of the outstanding shares of all funds of the Trust in the aggregate. PRINCIPAL SHAREHOLDERS. As of April 1, 2009, the following shareholders owned, of record, or to the knowledge of the Funds, beneficially, 5% or more of the outstanding shares of the Funds.
PERCENTAGE OF OUTSTANDING HEDGED EQUITY FUND - H-CLASS SHARES NAME AND ADDRESS SHARES OWNED ----------------------------------- ---------------- -------------------------
PERCENTAGE OF OUTSTANDING HEDGED EQUITY FUND - A-CLASS SHARES NAME AND ADDRESS SHARES OWNED ----------------------------------- ---------------- -------------------------
PERCENTAGE OF OUTSTANDING HEDGED EQUITY FUND - C-CLASS SHARES NAME AND ADDRESS SHARES OWNED ----------------------------------- ---------------- -------------------------
MULTI-HEDGE STRATEGIES FUND - PERCENTAGE OF OUTSTANDING H-CLASS SHARES NAME AND ADDRESS SHARES OWNED ----------------------------- ---------------- -------------------------
MULTI-HEDGE STRATEGIES FUND - PERCENTAGE OF OUTSTANDING A-CLASS SHARES NAME AND ADDRESS SHARES OWNED ----------------------------- ---------------- -------------------------
MULTI-HEDGE STRATEGIES FUND - PERCENTAGE OF OUTSTANDING C-CLASS SHARES NAME AND ADDRESS SHARES OWNED ----------------------------- ---------------- -------------------------
On the basis of the share holdings information presented above, the following persons will own in excess of 5% of the outstanding shares of the Multi-Hedge Strategies Fund upon consummation of the Reorganization. These tables assume that the value of the shareholder's interest in a Fund on the date of the consummation of the Reorganization is the same as on April 1, 2009.
MULTI-HEDGE STRATEGIES FUND - PERCENTAGE OF OUTSTANDING H-CLASS SHARES NAME AND ADDRESS SHARES OWNED ----------------------------- ---------------- -------------------------
MULTI-HEDGE STRATEGIES FUND - PERCENTAGE OF OUTSTANDING A-CLASS SHARES NAME AND ADDRESS SHARES OWNED ----------------------------- ---------------- -------------------------
MULTI-HEDGE STRATEGIES FUND - PERCENTAGE OF OUTSTANDING C-CLASS SHARES NAME AND ADDRESS SHARES OWNED ----------------------------- ---------------- -------------------------
ADDITIONAL INFORMATION Information about the Adviser is presented in "Additional Information About the Surviving Fund and the Acquired Fund." Additional information about the Advisor is contained in the prospectus for the Acquired Fund and Surviving Fund, a copy of which is included with this Prospectus/Information Statement and is incorporated herein by reference. A Statement of Additional Information, dated August 1, 2008, for each of the Funds also contains additional information about the Advisor. A free copy of these documents is available upon request as described on the first page of this Prospectus/Information Statement. Other Service Providers. The Funds' other service providers are also the same. These entities are listed below. Rydex Fund Services, Inc. Transfer Agent 9601 Blackwell Road, Suite 500 Administrator Rockville, MD 20850 Fund Accountant U.S. Bank, N.A. Custodian 425 Walnut Street Cincinnati, Ohio 45202 Rydex Distributors, Inc. Distributor 9601 Blackwell Road, Suite 500 Rockville, MD 20850
FINANCIAL HIGHLIGHTS The financial highlights tables that follow are intended to help you understand each Fund's financial performance for the periods shown. The total returns in the tables represent the rate that an investor would have earned (or lost) on an investment in the particular Fund (assuming reinvestment of all dividends and distributions). The information provided below for the fiscal years ended March 31, 2007 and 2008 (but excluding the information for the six months ended September 30, 2008) has been audited by Ernst & Young LLP, independent registered public accounting firm of the Fund. The information for prior periods has been audited by a predecessor independent registered public accounting firm. Ernst & Young LLP's audit report, along with the Funds' financial statements, is included in the Funds' 2008 Annual Report, which is incorporated herein by reference. This table is presented to show selected data for a share outstanding throughout each period, and to assist shareholders in evaluating a Fund's performance for the periods presented.
NET REALIZED AND NET INCREASE NET ASSET NET UNREALIZED (DECREASE) IN NET DISTRIBUTIONS DISTRIBUTIONS VALUE, INVESTMENT GAINS ASSET VALUE FROM NET FROM NET BEGINNING INCOME (LOSSES) ON RESULTING FROM INVESTMENT REALIZED YEAR ENDED OF PERIOD (LOSS)+ INVESTMENTS OPERATIONS INCOME GAINS ---------- --------- ---------- ------------ ----------------- ------------- ------------- MULTI-HEDGE STRATEGIES FUND (FORMERLY, ABSOLUTE RETURN STRATEGIES FUND) A-CLASS SEPTEMBER 30, 2008 ## $24.61 $ .07 $ (.89) $ (.82) $ -- $ -- March 31, 2008 26.44 .58 (1.53) (.95) (.79) (.09) March 31, 2007 25.52 .71 .80 1.51 (.38) (.22) March 31, 2006 * 25.00 .29 .24 .53 (.07) -- MULTI-HEDGE STRATEGIES FUND (FORMERLY, ABSOLUTE RETURN STRATEGIES FUND) C-CLASS SEPTEMBER 30, 2008 ## 24.13 (.01) (.88) (.89) -- -- March 31, 2008 26.14 .37 (1.50) (1.13) (.79) (.09) March 31, 2007 25.42 .51 .80 1.31 (.38) (.22) March 31, 2006 * 25.00 .19 .24 .43 (.07) -- MULTI-HEDGE STRATEGIES FUND (FORMERLY, ABSOLUTE RETURN STRATEGIES FUND) H-CLASS SEPTEMBER 30, 2008 ## 24.63 .08 (.90) (.82) -- -- March 31, 2008 26.46 .58 (1.53) (.95) (.79) (.09) March 31, 2007 25.53 .72 .80 1.52 (.38) (.22) March 31, 2006 * 25.00 .29 .25 .54 (.07) -- HEDGED EQUITY FUND A-CLASS SEPTEMBER 30, 2008 ## 22.90 .06 (1.16) (1.10) -- -- March 31, 2008 26.29 .67 (2.94) (2.27) (1.09) (.03) March 31, 2007 25.86 .82 .63 1.45 (.52) (.51) March 31, 2006 * 25.00 .26 .65 .91 (.09) -- HEDGED EQUITY FUND C-CLASS SEPTEMBER 30, 2008 ## 22.46 (.03) (1.13) (1.16) -- -- March 31, 2008 25.99 .48 (2.89) (2.41) (1.09) (.03) March 31, 2007 25.76 .62 .63 1.25 (.52) (.51) March 31, 2006 * 25.00 .16 .65 .81 (.09) -- HEDGED EQUITY FUND H-CLASS SEPTEMBER 30, 2008 ## 22.91 .06 (1.16) (1.10) -- -- March 31, 2008 26.30 .68 (2.95) (2.27) (1.09) (.03) March 31, 2007 25.86 .81 .65 1.46 (.52) (.51) March 31, 2006 * 25.00 .26 .65 .91 (.09) -- NET INCREASE NET ASSET REDEMPTION (DECREASE) IN VALUE, TOTAL TOTAL FEES NET ASSET END OF INVESTMENT YEAR ENDED DISTRIBUTIONS COLLECTED VALUE PERIOD RETURN+++ ---------- ------------- ---------- ------------- --------- ---------- MULTI-HEDGE STRATEGIES FUND (FORMERLY, ABSOLUTE RETURN STRATEGIES FUND) A-CLASS SEPTEMBER 30, 2008 ## $ -- $ -- Section $ (.82) $23.79 (3.33)% March 31, 2008 (.88) -- Section (1.83) 24.61 (3.72)% March 31, 2007 (.60) .01 .92 26.44 6.05% March 31, 2006 * (.07) .06 .52 25.52 2.36% MULTI-HEDGE STRATEGIES FUND (FORMERLY, ABSOLUTE RETURN STRATEGIES FUND) A-CLASS SEPTEMBER 30, 2008 ## -- -- Section (.89) 23.24 (3.69)% March 31, 2008 (.88) -- Section (2.01) 24.13 (4.46)% March 31, 2007 (.60) .01 .72 26.14 5.28% March 31, 2006 * (.07) .06 .42 25.42 1.96% MULTI-HEDGE STRATEGIES FUND (FORMERLY, ABSOLUTE RETURN STRATEGIES FUND) A-CLASS SEPTEMBER 30, 2008 ## -- -- Section (.82) 23.81 (3.33)% March 31, 2008 (.88) -- Section (1.83) 24.63 (3.71)% March 31, 2007 (.60) .01 .93 26.46 6.09% March 31, 2006 * (.07) .06 .53 25.53 2.40% HEDGED EQUITY FUND A-CLASS SEPTEMBER 30, 2008 ## -- -- Section (1.10) 21.80 (4.80)% March 31, 2008 (1.12) -- Section (3.39) 22.90 (8.98)% March 31, 2007 (1.03) .01 .43 26.29 5.82% March 31, 2006 * (.09) .04 .86 25.86 3.81% HEDGED EQUITY FUND C-CLASS SEPTEMBER 30, 2008 ## -- -- Section (1.16) 21.30 (5.16)% March 31, 2008 (1.12) -- Section (3.53) 22.46 (9.63)% March 31, 2007 (1.03) .01 .23 25.99 5.05% March 31, 2006 * (.09) .04 .76 25.76 3.41% HEDGED EQUITY FUND H-CLASS SEPTEMBER 30, 2008 ## -- -- Section (1.10) 21.81 (4.80)% March 31, 2008 (1.12) -- Section (3.39) 22.91 (8.97)% March 31, 2007 (1.03) .01 .44 26.30 5.86% March 31, 2006 * (.09) .04 .86 25.86 3.81% RATIOS TO AVERAGE NET ASSETS: -------------------------------- NET NET ASSETS, INVESTMENT PORTFOLIO END OF PERIOD TOTAL OPERATING INCOME TURNOVER (000'S YEAR ENDED EXPENSES EXPENSES++ (LOSS) RATE OMITTED) ---------- -------- ---------- ---------- --------- ------------- MULTI-HEDGE STRATEGIES FUND (FORMERLY, ABSOLUTE RETURN STRATEGIES FUND) A-CLASS SEPTEMBER 30, 2008 ## 1.98% ** 1.40% ** 0.58% ** 716% $ 65,136 March 31, 2008 1.96% 1.40% 2.18% 509% 42,193 March 31, 2007 1.93% 1.43% 2.74% 298% 41,771 March 31, 2006 * 1.87% ** 1.45% ** 2.20% ** 127% 5,791 MULTI-HEDGE STRATEGIES FUND (FORMERLY, ABSOLUTE RETURN STRATEGIES FUND) C-CLASS SEPTEMBER 30, 2008 ## 2.72% ** 2.15% ** (0.11)%** 716% 45,082 March 31, 2008 2.71% 2.15% 1.41% 509% 54,857 March 31, 2007 2.66% 2.16% 1.99% 298% 48,052 March 31, 2006 * 2.65% ** 2.23% ** 1.42% ** 127% 7,352 MULTI-HEDGE STRATEGIES FUND (FORMERLY, ABSOLUTE RETURN STRATEGIES FUND) H-CLASS SEPTEMBER 30, 2008 ## 1.97% ** 1.40% ** 0.63% ** 716% 105,780 March 31, 2008 1.95% 1.39% 2.21% 509% 141,483 March 31, 2007 1.90% 1.40% 2.78% 298% 176,187 March 31, 2006 * 1.83% ** 1.41% ** 2.18% ** 127% 30,796 HEDGED EQUITY FUND A-CLASS SEPTEMBER 30, 2008 ## 2.18% ** 1.40% ** 0.53% ** 597% 5,543 March 31, 2008 2.04% 1.41% 2.59% 433% 5,553 March 31, 2007 2.13% 1.41% 3.15% 282% 7,086 March 31, 2006 * 2.10% ** 1.44% ** 1.91% ** 159% 1,672 HEDGED EQUITY FUND C-CLASS SEPTEMBER 30, 2008 ## 2.94% ** 2.15% ** (0.26)%** 597% 3,103 March 31, 2008 2.78% 2.15% 1.89% 433% 5,226 March 31, 2007 2.89% 2.17% 2.40% 282% 8,312 March 31, 2006 * 2.86% ** 2.20% ** 1.16% ** 159% 2,957 HEDGED EQUITY FUND H-CLASS SEPTEMBER 30, 2008 ## 2.19% ** 1.40% ** 0.49% ** 597% 11,601 March 31, 2008 2.03% 1.40% 2.63% 433% 16,663 March 31, 2007 2.13% 1.41% 3.14% 282% 28,947 March 31, 2006 * 2.07% ** 1.41% ** 1.96% ** 159% 17,321
* SINCE THE COMMENCEMENT OF OPERATIONS: SEPTEMBER 19, 2005. ** ANNUALIZED + CALCULATED USING THE AVERAGE DAILY SHARES OUTSTANDING FOR THE YEAR. ++ OPERATING EXPENSES EXCLUDE SHORT DIVIDENDS EXPENSE. +++ TOTAL INVESTMENT RETURN DOES NOT REFLECT THE IMPACT OF ANY APPLICABLE SALES CHARGES AND HAS NOT BEEN ANNUALIZED. Section LESS THAN $.01 PER SHARE. ## UNAUDITED APPENDIX A AGREEMENT AND PLAN OF REORGANIZATION THIS AGREEMENT AND PLAN OF REORGANIZATION, dated as of [May ___, 2009] (the "Agreement"), by and between the Rydex Series Funds, a Delaware statutory trust (the "Trust") on behalf of its Hedged Equity Fund (the "Acquired Fund"), and the Trust, on behalf of its Multi-Hedge Strategies Fund (formerly, the Rydex Series Funds Absolute Return Strategies Fund) (the "Surviving Fund") to provide for the reorganization of the Acquired Fund into the Surviving Fund. PADCO Advisors, Inc. (the "Advisor") joins this Agreement solely for purposes of Section 13. The Acquired Fund and the Surviving Fund are sometimes referred to collectively, as the "Funds" and individually, as a "Fund." PRELIMINARY STATEMENTS The Trust is an open-end management investment company registered under the Investment Company Act of 1940, as amended (the "1940 Act"), and each of the Acquired Fund and the Surviving Fund is a separate series of the Trust. The Board of Trustees (the "Board") of the Trust has 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. In consideration of the mutual premises contained in this Agreement, the parties hereto agree to effect the transfer of all of the assets of the Acquired Fund solely in exchange for (a) the assumption by the Surviving Fund of all of the liabilities of the Acquired Fund and (b) shares of the Surviving Fund followed by the distribution, at the Effective Time (as defined in Section 9 of this Agreement), of such shares of the Surviving Fund to the shareholders of the Acquired Fund in complete liquidation of the Acquired Fund on the terms and conditions in this Agreement (the "Reorganization"). Shares of the Surviving Fund that are given in exchange for the assets of the Acquired Fund and the assumption of liabilities are referred to as the "Surviving Fund Shares," and the shares of the Acquired Fund that are held by the holders of such shares at the Effective Time are referred to as the "Acquired Fund Shares." For purposes of this Agreement, the term "Surviving Fund Shares" refers to all share classes of the Surviving Fund. The Reorganization is intended to be a tax-free "reorganization" within the meaning of the regulations under Section 368(a) of the Internal Revenue Code of 1986, as amended (the "Code"). This means that it is intended that shareholders of the Acquired Fund will become shareholders of the Surviving Fund without realizing any gain or loss for federal income tax purposes. This also means that the Reorganization is intended to be tax-free with respect to the Surviving Fund for federal income tax purposes. AGREEMENTS The parties to this Agreement covenant and agree as follows: 1. PLAN OF REORGANIZATION. At the Effective Time, the Acquired Fund will assign, deliver and otherwise transfer all of its assets and good and marketable title to those assets, free and clear of all liens, encumbrances and adverse claims, and assign its liabilities to the Surviving Fund. The Surviving Fund shall acquire all the assets, and shall assume all the liabilities, of the Acquired Fund, in exchange for delivery to the Acquired Fund by the Surviving Fund of a number of its Surviving Fund Shares (both full and fractional) equivalent in value to the Acquired Fund Shares outstanding immediately prior to the Effective Time. The assets and liabilities of the Acquired Fund, shall be exclusively assigned to and assumed by the Surviving Fund. All debts, liabilities, obligations and duties of the Acquired Fund, shall, after the Effective Time, attach to the Surviving Fund and may be enforced against the Surviving Fund to the same extent as if the same had been incurred by the Surviving Fund. If the Acquired Fund is unable to make delivery of any of its portfolio securities pursuant to this Section to the Surviving Fund for the reason that any of such securities purchased by the Acquired Fund have not yet been delivered to it by the Acquired Fund's broker or brokers, then in lieu of such delivery, the Acquired Fund shall deliver to the Surviving 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 Surviving Fund, including brokers' confirmation slips. 2. TRANSFER OF ASSETS. The assets of the Acquired Fund to be acquired by the Surviving 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 Acquired Fund and other property owned by the Acquired Fund at the Effective Time. 3. LIQUIDATION AND TERMINATION OF THE ACQUIRED FUND. At the Effective Time, the Surviving Fund Shares (both full and fractional) received by the Acquired Fund will be distributed to the shareholders of record of the Acquired Fund as of the Effective Time in complete liquidation of the Acquired Fund. Each shareholder of the Acquired Fund will receive a number of H-Class Shares, A-Class Shares and C-Class Shares of Surviving Fund Shares equal in value to the H-Class Shares, A-Class Shares and C-Class Shares of Acquired Fund Shares held by that shareholder. This liquidation and distribution will be accompanied by the establishment of an open account on the share records of the Surviving Fund in the name of each shareholder of record of the Acquired Fund and representing the respective number of Surviving Fund Shares due that shareholder. Following the complete liquidation of the Acquired Fund, all shares of the Acquired Fund shall then be cancelled on the books of the Acquired Fund. Officers of the Acquired Fund shall make all necessary filings with the Securities and Exchange Commission ("SEC") and other governmental entities to effectuate the termination of the Acquired Fund under the 1940 Act and Delaware law. 4. REPRESENTATIONS AND WARRANTIES OF THE SURVIVING FUND. The Surviving Fund represents and warrants to the Acquired Fund as follows: (a) SHARES TO BE ISSUED UPON REORGANIZATION. The Surviving 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 Surviving Fund shall have any option, warrant, or preemptive right of subscription or purchase with respect to the Surviving Fund's Shares. (b) LIABILITIES. The Surviving Fund has no known liabilities of a material nature, contingent or otherwise, other than those shown as belonging to it on its most recent statement of assets and liabilities and those incurred in the ordinary course of the Surviving Fund's business as an investment company since the date of its most recent statement of assets and liabilities. (c) LITIGATION. Except as previously disclosed to the Surviving Fund, there are no claims, actions, suits or proceedings pending or, to the actual knowledge of the Surviving Fund, threatened that would materially adversely affect the Surviving Fund or its assets or business or that 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 Surviving 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 Surviving 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 ACQUIRED FUND. The Acquired Fund represents and warrants to the Surviving Fund as follows: (a) MARKETABLE TITLE TO ASSETS. The Acquired 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 Surviving Fund. Upon delivery and payment for these assets, the Surviving 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. The Acquired Fund has no known liabilities of a material nature, contingent or otherwise, other than those shown as belonging to it on its most recent statement of assets and liabilities and those incurred in the ordinary course of the Acquired Fund's business as an investment company since the date of its most recent statement of assets and liabilities. (c) LITIGATION. Except as previously disclosed to the Surviving Fund, there are no claims, actions, suits or proceedings pending or, to the knowledge of the Acquired Fund, threatened that would materially adversely affect the Acquired Fund or its assets or business or that 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 Acquired 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 Acquired 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 SURVIVING FUND. The obligations of the Surviving Fund under this Agreement shall be subject to the following conditions: (a) All representations and warranties of the Acquired 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 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 Trust, and dated as of the Effective Time, to the effect that: (1) the Acquired Fund is a separate series of the Trust, which 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 Acquired 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 Acquired Fund; (3) this Agreement has been duly authorized, executed and delivered by the Acquired Fund and represents a valid and binding contract of the Acquired 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; (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 Trust or any material agreement known to such counsel to which the Acquired 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 Acquired 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 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. 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 registration statement/information statement on Form N-14 (the "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 Acquired Fund with certain officers of the Acquired 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 Registration Statement, and any amendment thereof or supplement thereto and only insofar as they relate to information with respect to the Acquired Fund, the 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 Acquired Fund contained or incorporated by reference in the Registration Statement; and (iii) shall state that such opinion is solely for the benefit of the 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 ACQUIRED FUND. The obligations of the Acquired Fund under this Agreement shall be subject to the following conditions: (a) All representations and warranties of the Surviving 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 Acquired 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 Acquired Fund, and dated as of the Effective Time, to the effect that: (1) the Surviving Fund is a separate series of the Trust, which 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 Surviving 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 Surviving Fund and the Surviving Fund Shares to be delivered to the Acquired 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 Surviving Fund, and no shareholder of the Surviving Fund has any option, warrant or preemptive right to subscription or purchase in respect thereof based on a review of the Trust's Agreement and Declaration of Trust and By-laws and otherwise to such counsel's knowledge; (3) the Board of Trustees of the Trust has duly authorized the Surviving Fund as a class of units of beneficial interest of the Trust pursuant to the terms of the Agreement and Declaration of Trust of the Surviving Trust; (4) this Agreement has been duly authorized, executed and delivered by the Surviving Fund and represents a valid and binding contract of the Surviving 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 related to or affecting creditors' rights and to general equity principles. (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 Trust or any material agreement known to such counsel to which the Surviving Fund 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 Surviving 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 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. 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 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 Surviving Fund and the Surviving Trust with certain officers of the Surviving 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 Registration Statement and any amendment thereof or supplement thereto and only insofar as they relate to information with respect to the Surviving Trust and the Surviving Fund, the 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 Surviving Trust or the Surviving Fund contained or incorporated by reference in the Registration Statement; and (iii) shall state that such opinion is solely for the benefit of the 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. 8. FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRED FUND AND THE SURVIVING FUND. The obligations of the Acquired Fund and the Surviving Fund to effectuate this Agreement shall be subject to the satisfaction of each of the following conditions as of the Effective Time: (a) The Board, on behalf of each of the Acquired Fund and Surviving Fund, shall have approved this Agreement. (b) 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. (c) The Registration Statement shall have become effective under the 1933 Act, and no stop orders suspending the effectiveness of the Registration Statement shall have been issued and, to the best knowledge of the parties hereto, no investigation or proceeding for that purpose shall have been instituted or be pending, threatened or contemplated under the 1933 Act. (d) The Surviving 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. (e) The Board, at a meeting duly called for such purpose, shall have authorized the issuance by the Surviving Fund of Surviving Fund Shares at the Effective Time in exchange for the assets of the Acquired Fund pursuant to the terms and provisions of this Agreement. (f) Prior to the Effective Time, the Acquired Fund shall declare and pay a dividend or dividends which, together with all previous such dividends, shall have the effect of distributing to its shareholders all of the Acquired Fund's investment company taxable income (computed without regard to any deduction for dividends paid), if any, plus the excess, if any, of its interest income excludible from gross income under Section 103(a) of the Code over its deductions disallowed under Sections 265 and 171(a)(2) of the Code for all taxable periods or years ending on or before the Effective Time, and all of its net capital gains realized (after reduction for any capital loss carry forward), if any, in all taxable periods or years ending on or before the Effective Time. (g) The Funds shall have received a favorable opinion of Morgan, Lewis & Bockius LLP addressed to the Surviving Fund and the Acquired Fund substantially to the effect that with respect to the Acquired Fund and the Surviving Fund for Federal income tax purposes: (i) The Reorganization will constitute a tax-free reorganization within the meaning of Section 368(a) of the Code, and the Acquired Fund and the Surviving Fund will each be a "party to the reorganization" within the meaning of Section 368(b) of the Code. (ii) No gain or loss will be recognized by the Surviving Fund upon the receipt of the assets of the Acquired Fund solely in exchange for Surviving Fund Shares and the assumption by the Surviving Fund of all of the liabilities of the Acquired Fund. (iii) No gain or loss will be recognized by the Acquired Fund upon the transfer of all of its assets to the Surviving Fund solely in exchange for Surviving Fund Shares and the assumption by the Surviving Fund of all of the liabilities of the Acquired Fund or upon the distribution of Surviving Fund Shares to shareholders of the Acquired Fund. (iv) No gain or loss will be recognized by the shareholders of the Acquired Fund upon the exchange of their shares of the Acquired Fund for Surviving Fund Shares (including fractional shares to which they may be entitled). (v) The aggregate tax basis of Surviving Fund Shares received by each shareholder of the Acquired Fund (including fractional shares to which they may be entitled) will be the same as the aggregate tax basis of the Acquired Fund shares exchanged. (vi) The holding period of the Surviving Fund Shares received by the shareholders of the Acquired Fund (including fractional shares to which they may be entitled) will include the holding period of the Acquired Fund shares surrendered in exchange therefor, provided that the Acquired Fund shares were held as a capital asset as of the Effective Time. (vii) The tax basis of the assets of the Acquired Fund received by the Surviving Fund will be the same as the tax basis of such assets to the Acquired Fund immediately prior to the exchange. (viii) The holding period of the assets of the Acquired Fund received by the Surviving Fund will include the period during which such assets were held by the Acquired Fund. (ix) The Surviving Fund will succeed to and take into account, as of the date of the transfer (as defined in Section 1.381(b)-1(b) of the Treasury Regulations), the items of the Acquired Fund described in Section 381(c) of the Code, subject to the conditions and limitations specified in Sections 381(b) and (c), 382, 383 and 384 of the Code. No opinion will be expressed as to the effect of the Reorganization on (i) the Acquired Fund or the Surviving Fund with respect to any asset as to which any unrealized gain or loss is required to be recognized for U.S. federal income tax purposes at the end of a taxable year (or on the termination or transfer thereof) under a mark-to-market system of accounting and (ii) any shareholder of the Acquired Fund that is required to recognize unrealized gains and losses for U.S. federal income tax purposes under a mark-to-market system of accounting. Such opinion shall be based on customary assumptions, limitations and such representations as Morgan, Lewis & Bockius LLP may reasonably request, and the Acquired Fund and Surviving Fund will cooperate to make and certify the accuracy of such representations. Such opinion may contain such assumptions and limitations as shall be in the opinion of such counsel appropriate to render the opinions expressed therein. Notwithstanding anything herein to the contrary, neither the Surviving Fund nor the Acquired Fund may waive the conditions set forth in this Section 8(g). 9. EFFECTIVE TIME OF THE REORGANIZATION. The exchange of the Acquired Fund's assets for corresponding Surviving Fund Shares shall be effective at [4:00 P.M., EASTERN TIME ON MAY XX, 2009], 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 Surviving Fund and/or the Acquired Fund, without penalty, by resolution of the Board or at the discretion of any duly authorized officer of the Trust at any time prior to the Effective Time, if circumstances should develop that, in the opinion of the Board or such 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 Surviving Fund, the Acquired Fund, the Trust, the Board, or officers of the Trust. 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 Surviving Fund Shares to be paid to the Acquired Fund's shareholders under this Agreement to the detriment of the Acquired 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 Trust with or without the approval of either Fund's shareholders). 12. INDEMNIFICATION. (a) The Surviving Fund shall indemnify, defend and hold harmless the Acquired 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 Acquired Fund, with respect to any claim asserted prior to the Effective Time, shall indemnify, defend and hold harmless the Surviving 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. Except as otherwise provided for herein, all expenses that are solely and directly related to the reorganization contemplated by this Agreement will be borne and paid by PADCO Advisors, Inc., the Advisor to the Funds. Such expenses include, without limitation, to the extent solely and directly related to the reorganization contemplated by this Agreement: (i) expenses incurred in connection with the entering into and the carrying out of the provisions of this Agreement; (ii) expenses associated with the preparation and filing of the Registration Statement under the 1933 Act covering the Surviving Fund Shares to be issued pursuant to the provisions of this Agreement; (iii) registration or qualification fees and expenses of preparing and filing such forms as are necessary under applicable state securities laws to qualify the Surviving Fund Shares to be issued in connection herewith in each state in which the Acquired Fund's shareholders are resident as of the date of the mailing of the Information Statement/Prospectus to such shareholders; (iv) postage; (v) printing; (vi) accounting fees; and (vii) legal fees. PADCO Advisors, Inc. agrees that all such fees and expenses so borne and paid, shall be paid directly by PADCO Advisors, Inc. (or an affiliate thereof) to the relevant providers of services or other payees in accordance with the principles set forth in the Internal Revenue Service Rev. Ruling 73-54, 1973-1 C.B. 187. Fees and expenses not incurred directly in connection with the consummation of the transactions contemplated by this Agreement will be borne by the party incurring such fees and expenses. Notwithstanding the foregoing, expenses will in any event be paid by the party directly incurring such expenses if and to the extent that the payment by the other party of such expenses would result in the disqualification of the Acquired Fund or the Surviving Fund, as the case may be, as a "regulated investment company" within the meaning of Section 851 of the Code. Acquired Fund shareholders will pay their respective expenses, if any, incurred in connection with the transactions contemplated by this Agreement. Neither the Acquired Fund nor the Surviving Fund will pay the Surviving Fund shareholders' expenses, if any. 14. HEADINGS, COUNTERPARTS, ASSIGNMENT. (a) The article and section 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 Surviving Fund and Acquired 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 Surviving Fund and Acquired 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 Trust's Bylaws, as amended and supplemented to date, this Agreement was authorized by the Trustees of the Trust, on behalf of the Surviving Fund and the Acquired Fund, as Trustees and not individually, and executed by the undersigned officers of the Trust, 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 Acquired Fund and Surviving Fund. Moreover, no class or series of the Trust shall be liable for the obligations of any other classes or series of the Trust. IN WITNESS WHEREOF, the parties have duly executed this Agreement, all as of the date first written above. RYDEX SERIES FUNDS on behalf of Hedged Equity Fund By: ------------------------------------ Name: [Insert Name] Title: [Insert Title] RYDEX SERIES FUNDS on behalf of Multi-Hedge Strategies Fund By: ------------------------------------ Name: [Insert Name] Title: [Insert Title] SOLELY FOR PURPOSES OF SECTION 13. PADCO Advisors, Inc. By: ------------------------------------ Name: [Insert Name] Title: [Insert Title] RYDEX SERIES FUNDS 9601 Blackwell Road, Suite 500 Rockville, MD 20850 (800) 820-0888 STATEMENT OF ADDITIONAL INFORMATION Acquisition of the Assets of HEDGED EQUITY FUND a series of Rydex Series Funds 9601 Blackwell Road, Suite 500 Rockville, MD 20850 By and in Exchange for the Shares of MULTI-HEDGE STRATEGIES FUND a series of Rydex Series Funds 9601 Blackwell Road, Suite 500 Rockville, MD 20850 April ___, 2009 This Statement of Additional Information (the "SAI"), which is not a prospectus, relating specifically to the proposed transfer of assets and liabilities of the Rydex Series Trust Hedged Equity Fund (the "Hedged Equity Fund" or the "Acquired Fund") to the Rydex Series Trust Multi-Hedge Strategies Fund (the "Multi-Hedge Strategies Fund" or the "Surviving Fund" and, together with the Hedged Equity Fund, the "Funds") (the "Reorganization"), should be read in conjunction with the Prospectus/Information Statement dated April ___, 2009 relating specifically to the Reorganization (the "Prospectus"). Copies of the Prospectus may be obtained at no charge by calling the Trust at (800) 820-0888. This SAI, relating specifically to the Reorganization, consists of this cover page and the following described documents, each of which is incorporated by reference herein: 1. The Statement of Additional Information of the Trust relating to the Acquired Fund and the Surviving Fund dated August 1, 2008. 2. The Report of the Independent Registered Public Accounting Firm and audited financial statements of the Acquired Fund and Surviving Fund included in the Funds' Annual Reports for the period ended March 31, 2008 (together, the "Annual Reports"). No other parts of the Annual Reports are incorporated herein by reference. 3. The unaudited financial statements of the Acquired Fund and Surviving Fund included in the Funds' Semi-Annual Reports for the year ended September 30, 2008 (together, the "Semi-Annual Reports"). No other parts of the Semi-Annual Reports are incorporated herein by reference. TABLE OF CONTENTS - A. General Information..................................................... B. Additional Information About the Acquired Fund and the Surviving Fund... C. Financial Statements.................................................... D. Pro Forma Financial Statements (Unaudited).............................. E. Miscellaneous...........................................................
A. GENERAL INFORMATION The Board of Trustees of the Trust has approved an Agreement and Plan of Reorganization (the "Plan") which contemplates the transfer of all the assets and liabilities of the Acquired Fund to the Surviving Fund in exchange for H-Class Shares, A-Class Shares, and C-Class Shares of the Surviving Fund. After the transfer of all its assets and liabilities in exchange for H-Class Shares, A-Class Shares, and C-Class Shares of the Surviving Fund, the Acquired Fund will distribute the shares to its shareholders in liquidation of the Acquired Fund. Each shareholder owning H-Class Shares, A-Class Shares, and C-Class Shares of the Acquired Fund at the closing of the Reorganization will receive H-Class Shares, A-Class Shares, and C-Class Shares, respectively, of the Surviving Fund equal in aggregate value to his or her interest in the Acquired Fund, and will receive any unpaid dividends or distributions on shares of the Acquired Fund that were declared at or before the closing of the Reorganization. The Surviving Fund will establish an account for each former shareholder of the Acquired Fund reflecting the appropriate number of shares distributed to the shareholder. These accounts will be substantially identical to the accounts currently maintained by the Surviving Fund for each shareholder. In connection with the Reorganization, all outstanding H-Class Shares, A-Class Shares, and C-Class Shares of the Acquired Fund will be cancelled, and the Acquired Fund will wind up its affairs and be terminated. For further information about the Reorganization, see the Prospectus. B. ADDITIONAL INFORMATION ABOUT THE ACQUIRED FUND AND THE SURVIVING FUND This SAI incorporates by reference the Statement of Additional Information of the Trust relating to the Acquired Fund and the Surviving Fund dated August 1, 2008. C. FINANCIAL STATEMENTS Historical financial information regarding the Acquired Fund and Surviving Fund is incorporated herein by reference as follows: 1. The Report of the Independent Registered Public Accounting Firm and audited financial statements of the Acquired Fund and Surviving Fund included in the Funds' Annual Reports are incorporated herein by reference to such Annual Reports. No other parts of the Annual Reports are incorporated herein by reference; and 2. The unaudited financial statements of the Acquired Fund and Surviving Fund included in the Funds' Semi-Annual Reports are incorporated herein by reference to such Semi-Annual Reports. No other parts of the Semi-Annual Reports are incorporated herein by reference. D. PRO FORMA FINANCIAL INFORMATION (UNAUDITED) The unaudited pro forma combined financial statements are presented for the information of the reader and may not necessarily be representative of what the actual combined financial statements would have been had the Reorganization occurred on October 1, 2007. The unaudited pro forma combined schedule of investments and statement of assets and liabilities reflect the combined financial position of the Acquired Fund and Surviving Fund as of September 30, 2008. The unaudited pro forma combined statement of operations presents the combined results of operations of the Acquired Fund and Surviving Fund for the twelve month period ended September 30, 2008. The pro forma results of operations are not necessarily indicative of future operations or the actual results that would have occurred had the combination been consummated at October 1, 2007. These historical statements have been derived from the respective books of the Acquired Fund and Surviving Fund and records utilized in calculating daily net asset value at September 30, 2008, and for the twelve-month period then ended under U.S. generally accepted accounting principals. Under U.S. generally accepted accounting principles, the historical cost of investment securities will be carried forward to the surviving entity and the results of operations of the Acquired Fund for pre-combination periods will not be combined/consolidated or included with the results of the Surviving Fund. The unaudited pro forma combined financial statements should be read in conjunction with the separate financial statements of the Acquired Fund and Surviving Fund incorporated by reference into this SAI. Pro Forma Schedule of Investments (Unaudited) Hedged Equity Fund, Multi-Hedge Strategies Fund and Pro Forma Multi-Hedge Strategies Fund September 30, 2008
MULTI-HEDGE HEDGED EQUITY PRO FORMA STRATEGIES FUND FUND COMBINED ---------------------- -------------------- ---------------------- MARKET MARKET MARKET SHARES VALUE SHARES VALUE SHARES VALUE --------- ----------- --------- --------- --------- ----------- COMMON STOCKS 52.3% FINANCIALS 9.1% Darwin Professional Underwriters, Inc.* 39,830 1,239,112 39,830 1,239,112 Charles Schwab Corp. Section 40,319 1,048,294 4,710 122,460 45,029 1,170,754 Allied World Assurance Company Holdings Ltd 27,699 983,868 3,450 122,545 31,149 1,106,413 Nationwide Financial Services, Inc. 21,010 1,036,423 21,010 1,036,423 Aon Corp. Section 20,549 923,883 2,410 108,354 22,959 1,032,237 Hilb Rogal & Hobbs Co. 17,249 806,218 17,249 806,218 Travelers Companies, Inc. Section 14,800 668,960 2,080 94,016 16,880 762,976 Loews Corp. Section 16,929 668,526 1,990 78,585 18,919 747,111 Plum Creek Timber Co., Inc. (REIT) Section 11,990 597,821 1,190 59,333 13,180 657,154 Annaly Capital Management, Inc. 41,069 552,378 5,010 67,384 46,079 619,762 MetLife, Inc. Section 9,330 522,480 1,310 73,360 10,640 595,840 Axis Capital Holdings Ltd. 15,690 497,530 2,210 70,079 17,900 567,609 Blackrock, Inc. 2,580 501,810 300 58,350 2,880 560,160 Castlepoint Holdings Ltd. 49,490 550,824 49,490 550,824 JPMorgan Chase & Co. Section 10,310 481,477 1,450 67,715 11,760 549,192 PartnerRe Ltd. 7,020 477,992 990 67,409 8,010 545,401 Hanover Insurance Group, Inc. Section 10,300 468,856 1,450 66,004 11,750 534,860 Unum Group Section 18,239 457,799 2,140 53,714 20,379 511,513 AFLAC, Inc. Section 7,200 423,000 840 49,350 8,040 472,350 Invesco Ltd. Section 19,179 402,375 2,700 56,646 21,879 459,021 Transatlantic Holdings, Inc. 7,220 392,407 1,020 55,437 8,240 447,844 Arthur J. Gallagher & Co. Section 14,660 376,175 2,060 52,860 16,720 429,035 Federated Investors, Inc. -- Class B Section 13,070 377,069 1,620 46,737 14,690 423,806 Philadelphia Consolidated Holding Corp.* 6,930 405,890 6,930 405,890 Liberty Media Corp. - Capital* 28,740 384,541 4,050 54,189 32,790 438,730 Chubb Corp. Section 6,000 329,400 840 46,116 6,840 375,516 Allstate Corp. Section 6,970 321,456 980 45,198 7,950 366,654 Hudson City Bancorp, Inc. Section 17,769 327,838 2,080 38,376 19,849 366,214 ProLogis Section 7,640 315,303 1,070 44,159 8,710 359,462
T. Rowe Price Group, Inc. Section 5,900 316,889 560 30,078 6,460 346,967 Janus Capital Group, Inc. Section 12,210 296,459 1,410 34,235 13,620 330,694 Goldman Sachs Group, Inc. Section 2,000 256,000 280 35,840 2,280 291,840 Ameriprise Financial, Inc. Section 6,130 234,166 860 32,852 6,990 267,018 Health Care REIT, Inc. Section 3,820 203,339 450 23,953 4,270 227,292 Northern Trust Corp. Section 2,800 202,160 260 18,772 3,060 220,932 Hartford Financial Services Group, Inc. Section 4,140 169,699 580 23,774 4,720 193,473 Nationwide Health Properties, Inc. Section 4,370 157,233 520 18,710 4,890 175,943 Everest Re Group Ltd. Section 1,740 150,562 250 21,632 1,990 172,194 HCP, Inc. Section 3,620 145,271 450 18,059 4,070 163,330 People's United Financial, Inc. 7,320 140,910 1,030 19,827 8,350 160,737 Host Hotels & Resorts, Inc. Section 10,240 136,090 1,440 19,138 11,680 155,228 W.R. Berkley Corp. Section 5,730 134,941 810 19,075 6,540 154,016 American Financial Group, Inc. Section 4,490 132,455 630 18,585 5,120 151,040 Cincinnati Financial Corp. Section 4,290 122,008 600 17,064 4,890 139,072 State Street Corp. Section 2,110 120,017 240 13,651 2,350 133,668 Macerich Co. Section 1,800 114,570 250 15,913 2,050 130,483 Waddell & Reed Financial, Inc. -- Class A Section 3,650 90,337 360 8,910 4,010 99,247 Protective Life Corp. Section 2,870 81,824 400 11,404 3,270 93,228 Genworth Financial, Inc. -- Class A Section 8,320 71,635 1,170 10,074 9,490 81,709 NYSE Euronext Section 1,270 49,759 180 7,052 1,450 56,811 Endurance Specialty Holdings Ltd. 1,240 38,341 170 5,256 1,410 43,597 Jones Lang LaSalle, Inc. Section 690 30,001 120 5,218 810 35,219 IntercontinentalExchange, Inc.* Section 220 17,750 30 2,420 250 20,170 Leucadia National Corp. Section 290 13,178 290 13,178 TOTAL FINANCIALS 19,965,299 2,029,868 21,995,167 HEALTH CARE 8.1% Thermo Fisher Scientific, Inc.* Section 24,399 1,341,945 3,190 175,450 27,589 1,517,395 Baxter International, Inc. Section 17,749 1,164,867 2,180 143,073 19,929 1,307,940 Applied Biosystems Inc. 35,979 1,232,281 35,979 1,232,281 Apria Healthcare Group, Inc.* 65,309 1,191,236 65,309 1,191,236 Alpharma, Inc. -- Class A* 30,224 1,114,963 30,224 1,114,963 Genentech, Inc.* 12,520 1,110,274 12,520 1,110,274 Vital Signs, Inc. 14,610 1,079,679 14,610 1,079,679 Datascope Corp. 17,978 928,204 17,978 928,204 HLTH Corp.* 64,540 737,692 64,540 737,692 Barr Pharmaceuticals, Inc.* 9,680 632,104 9,680 632,104 LifePoint Hospitals, Inc.* Section 15,359 493,638 2,160 69,422 17,519 563,060 Hill-Rom Holdings, Inc. Section 15,290 463,440 2,150 65,166 17,440 528,606 C.R. Bard, Inc. Section 4,880 462,966 690 65,460 5,570 528,426 WellPoint, Inc.* Section 9,030 422,333 1,270 59,398 10,300 481,731 ImClone Systems, Inc.* 7,280 454,563 7,280 454,563 Express Scripts, Inc.* Section 5,360 395,675 630 46,507 5,990 442,182 Covance, Inc.* Section 3,870 342,147 500 44,205 4,370 386,352 Pfizer, Inc. Section 18,350 338,374 2,580 47,575 20,930 385,949 Millipore Corp.* Section 4,710 324,048 690 47,472 5,400 371,520
Techne Corp.* Section 4,350 313,722 550 39,666 4,900 353,388 Charles River Laboratories International, Inc.* Section 4,600 255,438 630 34,984 5,230 290,422 DENTSPLY International, Inc. Section 6,550 245,887 890 33,411 7,440 279,298 Medco Health Solutions, Inc.* Section 5,060 227,700 590 26,550 5,650 254,250 Pharmaceutical Product Development, Inc. Section 5,320 219,982 710 29,358 6,030 249,340 Hologic, Inc.* Section 10,870 210,117 1,550 29,961 12,420 240,078 McKesson Corp. Section 3,680 198,021 520 27,981 4,200 226,002 Aetna, Inc. Section 5,290 191,022 740 26,721 6,030 217,743 Biogen Idec, Inc.* Section 3,640 183,056 450 22,631 4,090 205,687 Quest Diagnostics, Inc. Section 3,060 158,110 430 22,218 3,490 180,328 Perrigo Co. Section 3,520 135,379 410 15,769 3,930 151,148 Coventry Health Care, Inc.* Section 2,770 90,164 390 12,695 3,160 102,859 Community Health Systems, Inc.* Section 2,860 83,827 400 11,724 3,260 95,551 Illumina, Inc.* 2,020 81,871 260 10,538 2,280 92,409 Waters Corp.* Section 1,290 75,052 210 12,218 1,500 87,270 Amgen, Inc.* Section 1,230 72,902 200 11,854 1,430 84,756 BioMarin Pharmaceuticals, Inc.* 2,550 67,550 240 6,358 2,790 73,908 Inverness Medical Innovations* 388 73,720 388 73,720 PerkinElmer, Inc. Section 2,160 53,935 360 8,989 2,520 62,924 Bio-Rad Laboratories, Inc. -- Class A* 540 53,525 90 8,921 630 62,446 Medtronic, Inc. Section 1,060 53,106 180 9,018 1,240 62,124 Alcon, Inc. -- SP ADR 320 51,683 50 8,076 370 59,759 Bruker BioSciences Corp.* 3,730 49,721 620 8,265 4,350 57,986 Humana, Inc.* Section 1,220 50,264 170 7,004 1,390 57,268 Parexel International Corp.* 1,540 44,136 250 7,165 1,790 51,301 Covidien Ltd. Section 750 40,320 120 6,451 870 46,771 Varian, Inc.* Section 790 33,891 130 5,577 920 39,468 Becton, Dickinson & Co. Section 400 32,104 70 5,618 470 37,722 Intuitive Surgical, Inc.* Section 140 33,737 10 2,410 150 36,147 Zimmer Holdings, Inc.* Section 420 27,115 70 4,519 490 31,634 St. Jude Medical, Inc.* Section 620 26,964 100 4,349 720 31,313 Cephalon, Inc.* Section 270 20,922 40 3,100 310 24,022 Varian Medical Systems, Inc.* Section 360 20,567 60 3,428 420 23,995 Myriad Genetics, Inc.* 230 14,922 40 2,595 270 17,517 Alexion Pharmaceuticals, Inc.* 380 14,934 60 2,358 440 17,292 OSI Pharmaceuticals, Inc.* 300 14,787 50 2,465 350 17,252 Invitrogen Corp.* 430 16,254 430 16,254 United Therapeutics Corp.* 120 12,620 20 2,103 140 14,723 Vertex Pharmaceuticals, Inc.* Section 290 9,640 60 1,994 350 11,634 Inverness Medical Innovations, Inc.* 250 7,500 60 1,800 310 9,300 UnitedHealth Group, Inc. Section 1 25 1 25 TOTAL HEALTH CARE 17,780,342 1,260,849 19,041,191 CONSUMER DISCRETIONARY 6.2% Nike, Inc. -- Class B Section 16,179 1,082,375 1,900 127,110 18,079 1,209,485 McDonald's Corp. Section 15,359 947,650 1,800 111,060 17,159 1,058,710
Landry's Restaurants, Inc.+ 60,518 941,055 60,518 941,055 Wendy's/Arby's Group, Inc. - Class A 143,858 756,695 143,858 756,695 Hasbro, Inc. Section 18,730 650,306 2,440 84,717 21,170 735,023 Service Corporation International Section 76,267 637,592 9,110 76,160 85,377 713,752 Amazon.com, Inc.* Section 8,620 627,191 1,030 74,943 9,650 702,134 Burger King Holdings, Inc. 20,299 498,544 2,480 60,909 22,779 559,453 Regal Entertainment Group -- Class A+ 30,080 474,662 4,230 66,749 34,310 541,411 TJX Companies, Inc. Section 15,239 465,094 1,790 54,631 17,029 519,725 Stewart Enterprises, Inc. -- Class A+ 59,878 470,641 59,878 470,641 Walt Disney Co. Section 9,970 305,979 1,400 42,966 11,370 348,945 Comcast Corp. -- Class A Section 13,930 273,446 1,960 38,475 15,890 311,921 Mohawk Industries, Inc.* Section 4,020 270,908 570 38,412 4,590 309,320 Home Depot, Inc. Section 10,190 263,819 1,430 37,023 11,620 300,842 Time Warner, Inc. Section 18,540 243,059 2,610 34,217 21,150 277,276 Liberty Global, Inc. -- Class A* 7,370 223,311 1,040 31,512 8,410 254,823 DIRECTV Group, Inc.* Section 7,800 204,126 1,100 28,787 8,900 232,913 Lowe's Companies, Inc. Section 8,540 202,313 1,230 29,139 9,770 231,452 Royal Caribbean Cruises Ltd.+ 9,530 197,748 1,340 27,805 10,870 225,553 Carnival Corp. Section 5,460 193,011 770 27,219 6,230 220,230 GameStop Corp. -- Class A* Section 5,660 193,629 650 22,236 6,310 215,865 DreamWorks Animation SKG, Inc. -- Class A* Section 5,260 165,427 740 23,273 6,000 188,700 BorgWarner, Inc. Section 5,010 164,178 590 19,334 5,600 183,512 CKX, Inc.* 29,268 180,291 29,268 180,291 DeVry, Inc. Section 3,130 155,060 350 17,339 3,480 172,399 Ross Stores, Inc. Section 4,170 153,498 490 18,037 4,660 171,535 CTC Media, Inc.* 9,180 137,700 1,130 16,950 10,310 154,650 Bluegreen Corp.* 22,340 154,369 22,340 154,369 LKQ Corp.* 7,990 135,590 940 15,952 8,930 151,542 Yum! Brands, Inc. Section 3,770 122,940 440 14,348 4,210 137,288 Hanesbrands, Inc.* Section 4,860 105,705 570 12,397 5,430 118,102 Snap-On, Inc. Section 1,940 102,160 230 12,112 2,170 114,272 Whirlpool Corp. Section 1,260 99,905 180 14,272 1,440 114,177 Central European Media Enterprises Ltd. -- Class A*+ 1,460 95,484 190 12,426 1,650 107,910 Strayer Education, Inc. Section 370 74,096 20 4,005 390 78,101 Discovery Communications, Inc. - Class A* 4,765 67,901 560 7,980 5,325 75,881 Discovery Communications, Inc.* 4,765 67,472 560 7,930 5,325 75,402 Penske Auto Group, Inc.+ 5,730 65,723 810 9,291 6,540 75,014 Barnes & Noble, Inc. Section 2,430 63,374 340 8,867 2,770 72,241 priceline.com, Inc.* Section 920 62,956 100 6,843 1,020 69,799 Johnson Controls, Inc. Section 1,690 51,258 240 7,279 1,930 58,537 Apollo Group, Inc. -- Class A* Section 790 46,847 80 4,744 870 51,591 Big Lots, Inc.* Section 1,620 45,085 230 6,401 1,850 51,486 Tiffany & Co. Section 1,220 43,334 170 6,038 1,390 49,372 Autoliv, Inc. 1,220 41,175 170 5,738 1,390 46,913 Dick's Sporting Goods, Inc.* Section 1,990 38,964 280 5,482 2,270 44,446 CBS Corp. Section 2,610 38,054 370 5,395 2,980 43,449 Weight Watchers International, Inc. 1,010 36,966 170 6,222 1,180 43,188
Matthews International Corp. -- Class A Section 530 26,892 90 4,567 620 31,459 Corinthian Colleges, Inc.* Section 1,730 25,950 290 4,350 2,020 30,300 TRW Automotive Holdings Corp.* 1,610 25,615 230 3,659 1,840 29,274 Urban Outfitters, Inc.* Section 910 29,002 910 29,002 Regis Corp. Section 850 23,375 140 3,850 990 27,225 AutoZone, Inc.* Section 200 24,668 20 2,467 220 27,135 Sotheby's Section 1,080 21,665 180 3,611 1,260 25,276 Coinstar, Inc.* 620 19,840 100 3,200 720 23,040 ITT Educational Services, Inc.* Section 230 18,609 40 3,236 270 21,845 Capella Education Co.* 360 15,430 60 2,572 420 18,002 Advance Auto Parts, Inc. Section 350 13,881 40 1,586 390 15,467 Ascent Media Corp. - Class A* 476 11,619 56 1,367 532 12,986 M.D.C. Holdings, Inc. Section 170 6,220 20 732 190 6,952 Brunswick Corp. 16 205 16 205 TOTAL CONSUMER DISCRETIONARY 12,901,432 1,318,127 14,219,559 UTILITIES 5.8% Puget Energy, Inc. 49,219 1,314,147 49,219 1,314,147 UGI Corp. 41,218 1,062,600 5,090 131,220 46,308 1,193,820 Constellation Energy Group, Inc. 44,460 1,080,378 44,460 1,080,378 TECO Energy, Inc. Section 57,488 904,286 6,850 107,750 64,338 1,012,036 TransAlta Corp.+ 32,190 884,581 32,190 884,581 FirstEnergy Corp. Section 11,419 764,959 1,340 89,767 12,759 854,726 Calpine Corp.* 63,869 830,297 63,869 830,297 Public Service Enterprise Group, Inc. Section 19,409 636,421 2,240 73,450 21,649 709,871 Questar Corp. Section 14,050 574,926 1,650 67,518 15,700 642,444 Energen Corp. Section 12,409 561,880 1,460 66,109 13,869 627,989 Atmos Energy Corp. 18,859 502,027 2,660 70,809 21,519 572,836 American Water Works Company, Inc. 22,660 487,190 3,190 68,585 25,850 555,775 MDU Resources Group, Inc. Section 15,739 456,431 1,850 53,650 17,589 510,081 National Fuel Gas Co. Section 10,820 456,388 1,210 51,038 12,030 507,426 Pepco Holdings, Inc. Section 19,300 442,163 2,720 62,315 22,020 504,478 DTE Energy Co. Section 10,420 418,050 1,470 58,976 11,890 477,026 DPL, Inc. Section 15,680 388,864 2,210 54,808 17,890 443,672 Oneok, Inc. Section 5,490 188,856 640 22,016 6,130 210,872 AES Corp.* Section 13,720 160,387 2,200 25,718 15,920 186,105 Xcel Energy, Inc. Section 7,950 158,920 1,120 22,389 9,070 181,309 Equitable Resources, Inc. Section 3,570 130,948 210 7,703 3,780 138,651 SCANA Corp. Section 2,330 90,707 330 12,847 2,660 103,554 Exelon Corp. Section 1,520 95,182 110 6,888 1,630 102,070 NRG Energy, Inc.* 1,780 44,055 1,780 44,055 PG&E Corp. Section 1 37 1 37 TOTAL UTILITIES 12,590,588 1,097,648 13,688,236
INFORMATION TECHNOLOGY 5.6% Greenfield Online, Inc.* 82,447 1,434,578 82,447 1,434,578 Photon Dynamics, Inc.* 83,167 1,276,613 83,167 1,276,613 NDS Group PLC - SP ADR* 21,070 1,177,602 21,070 1,177,602 International Rectifier Corp.* 51,696 983,258 51,696 983,258 SI International, Inc.* 22,890 687,845 22,890 687,845 Secure Computing Corp.* 123,710 677,931 123,710 677,931 Foundry Networks, Inc.* 33,799 615,480 33,799 615,480 Synopsys, Inc.* Section 22,830 455,459 3,210 64,039 26,040 519,498 Hewlett-Packard Co. Section 8,680 401,363 1,220 56,413 9,900 457,776 Applied Materials, Inc. Section 21,100 319,243 2,970 44,936 24,070 364,179 QLogic Corp.* Section 20,499 314,865 2,400 36,864 22,899 351,729 VeriSign, Inc.* Section 11,520 300,442 1,320 34,426 12,840 334,868 Qualcomm, Inc. Section 5,810 249,656 680 29,220 6,490 278,876 Hewitt Associates, Inc. -- Class A* 6,160 224,470 720 26,237 6,880 250,707 MasterCard, Inc. Section 1,270 225,209 140 24,826 1,410 250,035 Amphenol Corp. Section 5,140 206,320 630 25,288 5,770 231,608 United Online, Inc. 23,859 224,513 23,859 224,513 Arrow Electronics, Inc.* Section 7,470 195,863 1,050 27,531 8,520 223,394 Dolby Laboratories, Inc. -- Class A* 5,390 189,674 630 22,170 6,020 211,844 Western Digital Corp.* Section 8,190 174,611 960 20,467 9,150 195,078 MEMC Electronic Materials, Inc.* Section 5,990 169,277 830 23,456 6,820 192,733 Avnet, Inc.* Section 6,080 149,750 860 21,182 6,940 170,932 Affiliated Computer Services, Inc. -- Class A* Section 2,780 140,751 390 19,746 3,170 160,497 Computer Sciences Corp.* Section 3,490 140,263 490 19,693 3,980 159,956 Lam Research Corp.* Section 4,390 138,241 620 19,524 5,010 157,765 Zebra Technologies Corp. -- Class A* Section 4,910 136,744 690 19,216 5,600 155,960 Apple, Inc.* Section 1,170 132,982 130 14,776 1,300 147,758 Trimble Navigation Ltd.* Section 4,620 119,473 540 13,964 5,160 133,437 Fidelity National Information Services, Inc. Section 5,560 102,638 970 17,906 6,530 120,544 ANSYS, Inc.* Section 2,510 95,054 240 9,089 2,750 104,143 Novellus Systems, Inc.* Section 4,420 86,809 620 12,177 5,040 98,986 Compuware Corp.* Section 8,439 81,774 990 9,593 9,429 91,367 EchoStar Corp. -- Class A* 3,180 76,638 450 10,845 3,630 87,483 Itron, Inc.* 840 74,365 100 8,853 940 83,218 Sohu.com, Inc.* 1,120 62,440 120 6,690 1,240 69,130 Flir Systems, Inc.* Section 1,560 59,935 110 4,226 1,670 64,161 Cypress Semiconductor Corp.* Section 10,720 55,958 1,260 6,577 11,980 62,535 CommScope, Inc.* Section 1,560 54,038 210 7,274 1,770 61,312 ADC Telecommunications, Inc.* Section 6,350 53,658 890 7,520 7,240 61,178 Ingram Micro, Inc. -- Class A* Section 3,330 53,513 470 7,553 3,800 61,066 KLA-Tencor Corp. Section 1,240 39,246 170 5,381 1,410 44,627 Nvidia Corp.* Section 2,760 29,560 520 5,569 3,280 35,129 BMC Software, Inc.* Section 740 21,186 90 2,577 830 23,763 Western Union Co. Section 500 12,335 60 1,480 560 13,815 Vishay Intertechnology, Inc.* Section 480 3,178 480 3,178 Convergys Corp.* Section 1 15 1 15 TOTAL INFORMATION TECHNOLOGY 12,421,623 690,477 13,112,100
INDUSTRIALS 5.3% Northwest Airlines Corp.* 180,626 1,631,053 180,626 1,631,053 DRS Technologies, Inc. Section 15,789 1,211,806 15,789 1,211,806 Allied Waste Industries, Inc.* 100,158 1,112,755 100,158 1,112,755 IKON Office Solutions, Inc. 64,146 1,091,123 64,146 1,091,123 Deere & Co. Section 11,230 555,885 1,320 65,340 12,550 621,225 Copart, Inc.* Section 12,960 492,480 1,520 57,760 14,480 550,240 Brink's Co. Section 6,830 416,767 960 58,579 7,790 475,346 SPX Corp. Section 5,130 395,010 620 47,740 5,750 442,750 Flowserve Corp. Section 4,320 383,486 560 49,711 4,880 433,197 AGCO Corp.* Section 7,310 311,479 850 36,218 8,160 347,697 Ryder System, Inc. Section 4,550 282,100 650 40,300 5,200 322,400 McDermott International, Inc.* 10,770 275,173 1,350 34,492 12,120 309,665 Waste Management, Inc. Section 8,130 256,014 1,140 35,899 9,270 291,913 Norfolk Southern Corp. Section 3,750 248,287 490 32,443 4,240 280,730 Jacobs Engineering Group, Inc.* Section 4,120 223,757 410 22,267 4,530 246,024 Joy Global, Inc. Section 4,540 204,936 520 23,473 5,060 228,409 SunPower Corp. Class B* 2,939 202,967 345 23,856 3,284 226,823 Valmont Industries, Inc. 2,330 192,668 270 22,326 2,600 214,994 Cummins, Inc. Section 4,180 182,750 470 20,548 4,650 203,298 Eaton Corp. Section 2,780 156,180 390 21,910 3,170 178,090 Precision Castparts Corp. Section 1,510 118,958 210 16,544 1,720 135,502 CSX Corp. Section 2,180 118,963 300 16,371 2,480 135,334 Bucyrus International, Inc. 2,480 110,806 280 12,510 2,760 123,316 Timken Co. Section 3,590 101,776 510 14,459 4,100 116,235 GATX Corp. Section 2,410 95,364 340 13,454 2,750 108,818 First Solar, Inc.* 460 86,899 70 13,224 530 100,123 Kansas City Southern* Section 1,960 86,946 250 11,090 2,210 98,036 ABB Ltd. -- SP ADR 4,140 80,316 680 13,192 4,820 93,508 Fluor Corp. Section 1,530 85,221 140 7,798 1,670 93,019 Union Pacific Corp. Section 1,030 73,295 170 12,097 1,200 85,392 Emerson Electric Co. Section 1,750 71,382 290 11,829 2,040 83,211 Quanta Services, Inc.* Section 2,660 71,847 370 9,994 3,030 81,841 Burlington Northern Santa Fe Corp. Section 730 67,474 120 11,092 850 78,566 Manitowoc Co., Inc. Section 3,920 60,956 550 8,553 4,470 69,509 Canadian National Railway Co. 1,230 58,831 200 9,566 1,430 68,397 Foster Wheeler Ltd.* 1,660 59,943 180 6,500 1,840 66,443 Woodward Governor Co. 1,540 54,316 250 8,818 1,790 63,134 FTI Consulting, Inc.* 690 49,846 80 5,779 770 55,625 Granite Construction, Inc. Section 1,060 37,969 120 4,298 1,180 42,267 Energy Conversion Devices, Inc.* 560 32,620 90 5,243 650 37,863 Suntech Power Holdings Co. Ltd. - SP ADR* 850 30,489 140 5,022 990 35,511 Roper Industries, Inc. Section 520 29,619 90 5,126 610 34,745 United Rentals, Inc.* Section 1,940 29,566 310 4,724 2,250 34,290 SunPower Corp. Class A* 400 28,372 70 4,965 470 33,337 AMETEK, Inc. Section 690 28,131 110 4,485 800 32,616 J.B. Hunt Transport Services, Inc. Section 760 25,361 130 4,338 890 29,699
Brady Corp. -- Class A 660 23,285 110 3,881 770 27,166 GrafTech International Ltd.* 1,240 18,736 210 3,173 1,450 21,909 Con-way Inc. Section 390 17,203 60 2,647 450 19,850 Werner Enterprises, Inc. Section 760 16,500 130 2,822 890 19,322 Heartland Express, Inc. 1,000 15,520 160 2,483 1,160 18,003 Regal-Beloit Corp. 350 14,882 60 2,551 410 17,433 Hubbell, Inc. -- Class B Section 410 14,370 70 2,454 480 16,824 Walter Industries, Inc. 300 14,235 20 949 320 15,184 Knight Transportation, Inc. 850 14,424 140 2,376 990 16,800 American Superconductor Corp.* 550 12,963 90 2,121 640 15,084 Old Dominion Freight Line, Inc.* 440 12,470 70 1,984 510 14,454 Belden, Inc. 380 12,080 60 1,907 440 13,987 Donaldson Company Section 200 8,382 20 838 220 9,220 General Cable Corp.* 200 7,126 30 1,069 230 8,195 Steelcase, Inc. -- Class A 570 6,128 80 860 650 6,988 Boeing Co. Section 50 2,868 10 574 60 3,442 TOTAL INDUSTRIALS 11,733,114 866,622 12,599,736 CONSUMER STAPLES 4.2% Wm. Wrigley Jr. Co. 17,340 1,376,796 17,340 1,376,796 UST, Inc. 15,847 1,054,459 15,847 1,054,459 Herbalife Ltd. 20,400 806,208 2,630 103,938 23,030 910,146 Corn Products International, Inc. 26,088 842,121 26,088 842,121 Molson Coors Brewing Co. -- Class B Section 15,109 706,346 1,820 85,085 16,929 791,431 Costco Wholesale Corp. Section 9,780 635,016 1,150 74,669 10,930 709,685 Anheuser-Busch Companies, Inc. 10,700 694,216 10,700 694,216 Dr Pepper Snapple Group, Inc.* 17,019 450,663 2,420 64,082 19,439 514,745 PepsiAmericas, Inc. Section 16,950 351,204 2,120 43,926 19,070 395,130 Bunge Ltd. 4,860 307,055 580 36,644 5,440 343,699 Coca-Cola Enterprises, Inc. Section 14,130 236,960 2,060 34,546 16,190 271,506 Procter & Gamble Co. Section 3,060 213,251 510 35,542 3,570 248,793 BJ's Wholesale Club, Inc.* Section 5,040 195,854 710 27,591 5,750 223,445 Central European Distribution Corp.* 4,000 181,640 470 21,343 4,470 202,983 Reynolds American, Inc. Section 3,570 173,573 500 24,310 4,070 197,883 CVS Caremark Corp. Section 4,770 160,558 560 18,850 5,330 179,408 Pepsi Bottling Group, Inc. Section 4,980 145,267 720 21,002 5,700 166,269 Safeway, Inc. Section 6,110 144,929 860 20,399 6,970 165,328 Wal-Mart Stores, Inc. Section 1,890 113,192 220 13,176 2,110 126,368 PepsiCo, Inc. Section 1,280 91,226 210 14,967 1,490 106,193 SUPERVALU, INC. Section 3,660 79,422 620 13,454 4,280 92,876 Kimberly-Clark Corp. Section 1,210 78,456 200 12,968 1,410 91,424 Diageo PLC -- SP ADR 790 54,399 130 8,952 920 63,351 Coca-Cola Co. Section 1,000 52,880 180 9,518 1,180 62,398 Clorox Co. Section 710 44,510 120 7,523 830 52,033 Energizer Holdings, Inc.* Section 400 32,220 70 5,638 470 37,858 Church & Dwight Co., Inc. Section 480 29,803 80 4,967 560 34,770 NBTY, Inc.* Section 680 20,074 230 6,790 910 26,864
Brown-Forman Corp. -- Class B Section 250 17,953 40 2,872 290 20,825 Hansen Natural Corp.* 490 14,823 80 2,420 570 17,243 WD-40 Co. 310 11,138 50 1,797 360 12,935 TOTAL CONSUMER STAPLES 9,316,212 716,969 10,033,181 ENERGY 3.3% National-Oilwell Varco, Inc.* Section 13,580 682,123 1,670 83,884 15,250 766,007 Alpha Natural Resources, Inc.* 12,740 655,218 12,740 655,218 SEACOR Holdings, Inc.*+ 5,860 462,647 820 64,739 6,680 527,386 ConocoPhillips Section 5,670 415,327 810 59,332 6,480 474,659 ENSCO International, Inc. Section 7,190 414,360 1,020 58,783 8,210 473,143 Cimarex Energy Co. Section 6,710 328,186 940 45,975 7,650 374,161 Anadarko Petroleum Corp. Section 6,370 309,009 910 44,144 7,280 353,153 Frontline Ltd.+ 6,200 298,034 730 35,091 6,930 333,125 FMC Technologies, Inc.* Section 6,290 292,799 690 32,119 6,980 324,918 Patterson-UTI Energy, Inc. Section 14,119 282,662 1,990 39,840 16,109 322,502 Noble Corp. Section 5,600 245,840 800 35,120 6,400 280,960 Unit Corp.* 4,890 243,620 690 34,376 5,580 277,996 Transocean, Inc.* Section 1,970 216,385 290 31,854 2,260 248,239 Superior Energy Services* Section 6,230 194,002 880 27,403 7,110 221,405 Stone Energy Corp.* 5,120 216,730 5,120 216,730 Chesapeake Energy Corp. Section 4,670 167,466 660 23,668 5,330 191,134 Denbury Resources, Inc.* Section 8,190 155,938 960 18,278 9,150 174,216 Apache Corp. Section 1,070 111,580 140 14,599 1,210 126,179 Whiting Petroleum Corp.* 1,440 102,614 170 12,114 1,610 114,728 Massey Energy Co. Section 2,850 101,659 363 12,948 3,213 114,607 Hess Corp. Section 1,130 92,750 140 11,491 1,270 104,241 Encore Acquisition Co.* Section 2,180 91,080 250 10,445 2,430 101,525 Diamond Offshore Drilling, Inc. 800 82,448 110 11,337 910 93,785 Exxon Mobil Corp. Section 980 76,107 160 12,426 1,140 88,533 PetroHawk Energy Corp.* 3,420 73,975 400 8,652 3,820 82,627 Chevron Corp. Section 610 50,313 100 8,248 710 58,561 Range Resources Corp. Section 1,140 48,872 130 5,573 1,270 54,445 Arch Coal, Inc. Section 1,440 47,362 170 5,591 1,610 52,953 Consol Energy, Inc. Section 1,020 46,808 110 5,048 1,130 51,856 BP PLC -- SP ADR 870 43,648 140 7,024 1,010 50,672 Halliburton Co. Section 1,310 42,431 220 7,126 1,530 49,557 Helmerich & Payne, Inc. Section 870 37,575 120 5,183 990 42,758 Royal Dutch Shell PLC -- SP ADR 590 34,816 100 5,901 690 40,717 EOG Resources, Inc. Section 360 32,206 50 4,473 410 36,679 Weatherford International Ltd.* Section 1,230 30,922 200 5,028 1,430 35,950 Occidental Petroleum Corp. Section 420 29,589 70 4,931 490 34,520 Tenaris SA -- SP ADR 780 29,086 130 4,848 910 33,934 Smith International, Inc. Section 450 26,388 70 4,105 520 30,493 Devon Energy Corp. Section 280 25,536 50 4,560 330 30,096 Canadian Natural Resources Ltd. 340 23,276 60 4,108 400 27,384 Cameron International Corp.* Section 590 22,739 100 3,854 690 26,593 XTO Energy, Inc. Section 380 17,678 60 2,791 440 20,469 W&T Offshore, Inc. 250 6,822 30 819 280 7,641 Atwood Oceanics, Inc.* 150 5,460 20 728 170 6,188 TOTAL ENERGY 6,914,086 818,557 7,732,643
MATERIALS 2.8% Hercules, Inc. 66,449 1,315,026 66,449 1,315,026 Fording Canadian Coal Trust+ 12,430 1,031,690 12,430 1,031,690 Rohm & Haas Co. 9,610 672,700 9,610 672,700 Crown Holdings, Inc.* 17,270 383,567 2,430 53,970 19,700 437,537 Lubrizol Corp. Section 8,070 348,140 1,140 49,180 9,210 397,320 Dow Chemical Co. Section 9,550 303,499 1,370 43,539 10,920 347,038 United States Steel Corp. Section 3,730 289,485 440 34,148 4,170 323,633 International Paper Co. Section 10,230 267,821 1,440 37,699 11,670 305,520 Steel Dynamics, Inc. Section 9,640 164,748 1,130 19,312 10,770 184,060 The Mosaic Co. 2,370 161,207 310 21,086 2,680 182,293 Reliance Steel & Aluminum Co. Section 3,800 144,286 450 17,086 4,250 161,372 Alcoa, Inc. Section 6,250 141,125 880 19,870 7,130 160,995 Huntsman Corp. 12,170 153,342 12,170 153,342 Nalco Holding Co. 6,060 112,352 850 15,759 6,910 128,111 AK Steel Holding Corp. Section 4,100 106,272 500 12,960 4,600 119,232 Commercial Metals Co. Section 3,850 65,027 540 9,121 4,390 74,148 Monsanto Co. Section 630 62,357 100 9,898 730 72,255 Albemarle Corp. Section 1,980 61,063 280 8,635 2,260 69,698 CF Industries Holdings, Inc. Section 620 56,705 80 7,317 700 64,022 Potash Corporation of Saskatchewan 400 52,804 70 9,241 470 62,045 Terra Industries, Inc. Section 1,540 45,276 180 5,292 1,720 50,568 E.I. du Pont de Nemours and Co. Section 920 37,076 150 6,045 1,070 43,121 Praxair, Inc. Section 420 30,131 70 5,022 490 35,153 Air Products & Chemicals, Inc. Section 330 22,602 50 3,425 380 26,027 Agrium, Inc. 380 21,310 60 3,365 440 24,675 Sigma-Aldrich Corp. Section 340 17,823 60 3,145 400 20,968 PPG Industries, Inc. Section 300 17,496 50 2,916 350 20,412 Carpenter Technology Corp. Section 620 15,903 90 2,309 710 18,212 Intrepid Potash, Inc.* 470 14,166 70 2,110 540 16,276 Owens-Illinois, Inc.* 550 16,170 550 16,170 Temple-Inland, Inc. Section 600 9,156 340 5,188 940 14,344 Cleveland-Cliffs, Inc. 160 8,470 160 8,470 TOTAL MATERIALS 6,140,325 416,108 6,556,433 TELECOMMUNICATION SERVICES 1.9% Verizon Communications, Inc. Section 29,989 962,347 3,750 120,337 33,739 1,082,684 Crown Castle International Corp.* 26,609 770,863 3,120 90,386 29,729 861,249 Gilat Satellite Networks Ltd.* 113,536 659,644 113,536 659,644 CenturyTel, Inc. Section 11,290 413,779 1,590 58,274 12,880 472,053 American Tower Corp. -- Class A* Section 11,419 410,742 1,420 51,077 12,839 461,819 SBA Communications Corp.* 15,239 394,233 1,470 38,029 16,709 432,262 AT&T, Inc. Section 10,820 302,094 1,520 42,438 12,340 344,532 Telephone & Data Systems, Inc. Section 1,660 59,345 230 8,223 1,890 67,568
U.S. Cellular Corp.* 690 32,375 100 4,692 790 37,067 NII Holdings, Inc. -- Class B* 470 17,822 110 4,171 580 21,993 MetroPCS Communications, Inc.* 370 5,176 50 700 420 5,876 TOTAL TELECOMMUNICATION SERVICES 4,028,420 418,327 4,446,747 TOTAL COMMON STOCKS (Cost $135,390,702) 113,791,441 9,633,552 123,424,993 EXCHANGE TRADED FUNDS 5.5% iShares MSCI Emerging Markets Index Fund 111,934 3,865,081 21,531 743,465 133,465 4,608,546 Vanguard Emerging Markets ETF 37,340 1,294,204 3,563 123,494 40,903 1,417,698 iShares S&P GSCI Commodity Indexed Trust* 19,420 1,044,796 19,420 1,044,796 Nuveen Equity Premium Opportunity Fund 64,740 842,267 6,080 79,101 70,820 921,368 Nuveen Equity Premium and Growth Fund+ 62,020 810,601 5,870 76,721 67,890 887,322 Eaton Vance Tax-Managed Buy-Write Income Fund 60,310 787,046 5,710 74,515 66,020 861,561 Nuveen Core Equity Alpha Fund 63,660 773,469 6,020 73,143 69,680 846,612 First Trust Enhanced Equity Income Fund, Inc. 66,770 741,147 6,320 70,152 73,090 811,299 Eaton Vance Tax-Managed Buy-Write Opportunities Fund 61,870 740,584 5,850 70,025 67,720 810,609 Liberty All Star Equity Fund 155,728 702,333 14,620 65,936 170,348 768,269 TOTAL EXCHANGE TRADED FUNDS (Cost $15,968,975) 11,601,528 1,376,552 12,978,080 SECURITIES LENDING COLLATERAL 1.0% Mount Vernon Securities Lending Trust Prime Portfolio 1,786,618 1,786,618 49,306 49,306 1,835,924 1,835,924 TOTAL SECURITIES LENDING COLLATERAL (Cost $1,835,924) 1,786,618 49,306 1,835,924
CONTRACTS CONTRACTS CONTRACTS --------- --------- --------- OPTIONS PURCHASED 0.0% PUT OPTIONS ON: iShares S&P GSCI Commodity Index Expiring October 2008 with a strike price of 53 171 25,650 171 25,650 TOTAL PUT OPTIONS TOTAL OPTIONS PURCHASED (Cost $18,054) 25,650 25,650
FACE FACE FACE AMOUNT AMOUNT AMOUNT ---------- --------- ---------- REPURCHASE AGREEMENTS++ 14.7% Credit Suisse Group issued 09/30/08 at 0.25% due 10/01/08 21,498,405 21,498,405 6,096,541 6,096,541 27,594,946 27,594,946 Morgan Stanley issued 09/30/08 at 0.05% due 10/01/08 2,795,823 2,795,823 189,897 189,897 2,985,720 2,985,720 Mizuho Financial Group, Inc. issued 09/30/08 at 0.26% due 10/01/08 2,315,849 2,315,849 157,297 157,297 2,473,146 2,473,146 Morgan Stanley issued 09/30/08 at 0.10% due 10/01/08 1,639,539 1,639,539 111,360 111,360 1,750,899 1,750,899 TOTAL REPURCHASE AGREEMENTS (Cost $34,804,711) 28,249,616 6,555,095 34,804,711 TOTAL LONG SECURITIES 72.5% (Cost $188,018,366) 155,454,853 17,614,505 173,069,358
SHARES SHARES SHARES ---------- --------- ---------- COMMON STOCKS SOLD SHORT (35.6)% TELECOMMUNICATION SERVICES (0.2)% Clearwire Corp.* 2,950 (35,046) 210 (2,495) 3,160 (37,541) Qwest Communications International, Inc 35,340 (114,148) 4,180 (13,501) 39,520 (127,649) Sprint Nextel Corp. 34,430 (210,023) 4,330 (26,413) 38,760 (236,436) TOTAL TELECOMMUNICATION SERVICES (359,217) (42,409) (401,626) ENERGY (2.5)% Massey Energy Co. 3 (107) 3 (107) SandRidge Energy, Inc.* 120 (2,352) 20 (392) 140 (2,744) Patriot Coal Corp.* 100 (2,905) 10 (291) 110 (3,196) Key Energy Services, Inc.* 680 (7,888) 80 (928) 760 (8,816) Southwestern Energy Co.* 680 (20,767) 100 (3,054) 780 (23,821) Continental Resources, Inc.* 880 (34,522) 160 (6,277) 1,040 (40,799) El Paso Corp. 3,970 (50,657) 560 (7,146) 4,530 (57,803) Global Industries Ltd.* 7,990 (55,451) 890 (6,177) 8,880 (61,628) Valero Energy Corp. 2,000 (60,600) 70 (2,121) 2,070 (62,721) Helix Energy Solutions Group, Inc.* 2,970 (72,112) 350 (8,498) 3,320 (80,610) Tesoro Corp. 6,920 (114,111) 760 (12,532) 7,680 (126,643) Hercules Offshore, Inc.* 7,330 (111,123) 1,040 (15,766) 8,370 (126,889) Frontier Oil Corp. 8,060 (148,465) 920 (16,946) 8,980 (165,411) Peabody Energy Corp. 3,820 (171,900) 540 (24,300) 4,360 (196,200) Overseas Shipholding Group, Inc 3,070 (179,012) 440 (25,656) 3,510 (204,668)
Stone Energy Corp. 5,120 (216,730) 5,120 (216,730) Sunoco, Inc. 5,650 (201,027) 640 (22,771) 6,290 (223,798) Plains Exploration & Production Co.* 5,580 (196,193) 790 (27,776) 6,370 (223,969) Holly Corp. 7,550 (218,346) 890 (25,739) 8,440 (244,085) Marathon Oil Corp. 6,000 (239,220) 640 (25,517) 6,640 (264,737) Newfield Exploration Co.* 7,310 (233,847) 1,040 (33,270) 8,350 (267,117) Nabors Industries Ltd.* 10,390 (258,919) 1,230 (30,652) 11,620 (289,571) Exterran Holdings, Inc.* 9,250 (295,630) 1,260 (40,270) 10,510 (335,900) Teekay Corp. 13,180 (347,688) 1,640 (43,263) 14,820 (390,951) Tetra Technologies, Inc.* 28,300 (391,955) 3,350 (46,398) 31,650 (438,353) Baker Hughes, Inc. 8,050 (487,347) 930 (56,302) 8,980 (543,649) BJ Services Co. 31,300 (598,769) 3,660 (70,016) 34,960 (668,785) TOTAL ENERGY (4,717,535) (552,164) (5,269,699) MATERIALS (2.5)% Westlake Chemical Corp. 240 (5,047) 31 (634) 271 (5,681) RPM International, Inc. 440 (8,510) 60 (1,160) 500 (9,670) Century Aluminum Co.* 370 (10,245) 50 (1,385) 420 (11,630) Cabot Corp. 1,510 (47,988) 110 (3,496) 1,620 (51,484) Allegheny Technologies, Inc. 1,630 (48,167) 130 (3,842) 1,760 (52,009) Chemtura Corp. 11,110 (50,662) 1,580 (7,205) 12,690 (57,867) Celanese Corp. 2,160 (60,286) 340 (9,489) 2,500 (69,775) International Flavors & Fragrances, Inc. 1,700 (67,082) 240 (9,470) 1,940 (76,552) Teck Cominco Ltd. - Class B 2,990 (87,069) 2,990 (87,069) Ecolab, Inc. 2,640 (128,093) 360 (17,467) 3,000 (145,560) Eastman Chemical Co. 2,350 (129,391) 330 (18,170) 2,680 (147,561) Valhi, Inc. 7,500 (135,000) 1,070 (19,260) 8,570 (154,260) Smurfit-Stone Container Corp.* 29,370 (138,039) 3,470 (16,309) 32,840 (154,348) Titanium Metals Corp. 14,170 (160,688) 1,680 (19,051) 15,850 (179,739) Eagle Materials, Inc. 9,060 (202,672) 1,160 (25,949) 10,220 (228,621) Domtar Corp.* 47,779 (219,783) 5,650 (25,990) 53,429 (245,773) Ashland, Inc. 11,970 (350,003) 700 (20,468) 12,670 (370,471) Scotts Miracle-Gro Co. - Class A 14,160 (334,742) 1,670 (39,479) 15,830 (374,221) Newmont Mining Corp. 9,570 (370,933) 1,360 (52,714) 10,930 (423,647) Weyerhaeuser Co. 7,250 (439,205) 1,030 (62,397) 8,280 (501,602) Cliffs Natural Resources, Inc. 10,560 (559,046) 10,560 (559,046) Sealed Air Corp. 23,870 (524,901) 2,800 (61,572) 26,670 (586,473) Pactiv Corp.* 22,840 (567,117) 2,700 (67,041) 25,540 (634,158) Bemis Co., Inc. 25,279 (662,563) 2,989 (78,342) 28,268 (740,905) TOTAL MATERIALS (5,307,232) (560,890) (5,868,122) CONSUMER STAPLES (2.5)% Altria Group, Inc. 2,780 (55,155) 390 (7,738) 3,170 (62,893) Rite Aid Corp.* 104,969 (85,025) 12,410 (10,052) 117,379 (95,077) Constellation Brands, Inc. -- Class A* 9,060 (194,428) 1,190 (25,537) 10,250 (219,965)
Tyson Foods, Inc. - Class A 17,150 (204,771) 2,030 (24,238) 19,180 (229,009) Del Monte Foods Co. 33,170 (258,726) 2,829 (22,066) 35,999 (280,792) Smithfield Foods, Inc.* 16,170 (256,780) 2,170 (34,460) 18,340 (291,240) Colgate-Palmolive Co. 4,500 (339,075) 610 (45,964) 5,110 (385,039) Sara Lee Corp. 28,850 (364,376) 4,090 (51,657) 32,940 (416,033) Alberto-Culver Co. 18,360 (500,126) 2,610 (71,096) 20,970 (571,222) Avon Products, Inc. 13,140 (546,230) 2,100 (87,297) 15,240 (633,527) Walgreen Co. 20,950 (648,612) 2,480 (76,781) 23,430 (725,393) Dean Foods Co.* 38,310 (894,922) 4,810 (112,362) 43,120 (1,007,284) Hershey Co. 24,329 (961,969) 2,879 (113,836) 27,208 (1,075,805) TOTAL CONSUMER STAPLES (5,310,193) (683,083) (5,993,276) INFORMATION TECHNOLOGY (3.4)% Acxiom Corp. 290 (3,637) 31 (390) 321 (4,027) MoneyGram International, Inc. 2,530 (3,593) 360 (511) 2,890 (4,104) Broadcom Corp. -- Class A* 290 (5,403) 30 (559) 320 (5,962) Vishay Intertechnology, Inc. 990 (6,554) 990 (6,554) Ciena Corp.* 830 (8,366) 100 (1,008) 930 (9,374) Fairchild Semiconductor International, Inc.* 2,920 (25,959) 350 (3,112) 3,270 (29,071) F5 Networks, Inc.* 1,120 (26,186) 130 (3,039) 1,250 (29,225) Brocade Communications Systems, Inc.* 4,830 (28,111) 260 (1,513) 5,090 (29,624) Varian Semiconductor Equipment Associates, Inc.* 1,660 (41,699) 200 (5,024) 1,860 (46,723) Akamai Technologies, Inc.* 3,450 (60,168) 490 (8,546) 3,940 (68,714) Google, Inc. -- Class A* 170 (68,088) 20 (8,010) 190 (76,098) Cognizant Technology Solutions Corp. -- Class A* 3,230 (73,741) 460 (10,502) 3,690 (84,243) Novell, Inc.* 16,750 (86,095) 2,380 (12,233) 19,130 (98,328) Xerox Corp. 8,440 (97,313) 640 (7,379) 9,080 (104,692) LSI Logic Corp.* 20,560 (110,202) 2,920 (15,651) 23,480 (125,853) Cadence Design Systems, Inc.* 20,360 (137,634) 2,220 (15,007) 22,580 (152,641) Rambus, Inc.* 10,500 (134,925) 1,490 (19,147) 11,990 (154,072) SanDisk Corp.* 7,430 (145,257) 850 (16,618) 8,280 (161,875) Integrated Device Technology, Inc.* 18,900 (147,042) 2,360 (18,361) 21,260 (165,403) Salesforce.com, Inc.* 2,988 (144,619) 500 (24,200) 3,488 (168,819) Unisys Corp.* 58,360 (160,490) 7,389 (20,320) 65,749 (180,810) Altera Corp. 7,770 (160,684) 1,100 (22,748) 8,870 (183,432) Convergys Corp. 11,890 (175,734) 1,191 (17,603) 13,081 (193,337) Sun Microsystems, Inc.* 26,060 (198,056) 3,080 (23,408) 29,140 (221,464) United Online, Inc. 23,859 (224,513) 23,859 (224,513) NCR Corp.* 9,670 (213,224) 1,370 (30,209) 11,040 (243,433) Atmel Corp.* 63,640 (215,740) 9,030 (30,612) 72,670 (246,352) Paychex, Inc. 6,690 (220,971) 950 (31,379) 7,640 (252,350) Teradyne, Inc.* 28,910 (225,787) 3,710 (28,975) 32,620 (254,762) Tech Data Corp.* 7,690 (229,547) 1,090 (32,537) 8,780 (262,084) Micron Technology, Inc.* 61,160 (247,698) 7,350 (29,768) 68,510 (277,466) Advanced Micro Devices, Inc.* 47,330 (248,483) 5,600 (29,400) 52,930 (277,883)
Tyco Electronics Ltd. 9,600 (265,536) 1,360 (37,618) 10,960 (303,154) Tellabs, Inc.* 69,070 (280,424) 8,470 (34,388) 77,540 (314,812) Jabil Circuit, Inc. 30,420 (290,207) 3,740 (35,680) 34,160 (325,887) WebMD Health Corp.* 13,620 (405,059) 13,620 (405,059) Adobe Systems, Inc.* 9,030 (356,414) 1,280 (50,522) 10,310 (406,936) Motorola, Inc. 72,180 (515,365) 8,970 (64,046) 81,150 (579,411) Electronic Arts, Inc.* 15,790 (584,072) 2,240 (82,858) 18,030 (666,930) JDS Uniphase Corp.* 76,590 (647,951) 10,230 (86,546) 86,820 (734,497) TOTAL INFORMATION TECHNOLOGY (7,220,543) (859,422) (8,079,965) HEALTH CARE (3.4)% Bristol-Myers Squibb Co. 440 (9,174) 50 (1,043) 490 (10,217) PDL BioPharma, Inc. 1,170 (10,893) 140 (1,303) 1,310 (12,196) Cardinal Health, Inc. 240 (11,827) 30 (1,478) 270 (13,305) Kinetic Concepts, Inc.* 1,220 (34,880) 140 (4,003) 1,360 (38,883) Celgene Corp.* 830 (52,522) 100 (6,328) 930 (58,850) WellCare Health Plans, Inc.* 2,090 (75,240) 250 (9,000) 2,340 (84,240) King Pharmaceuticals, Inc.* 8,500 (81,430) 670 (6,419) 9,170 (87,849) Lincare Holdings Inc.* 2,690 (80,942) 250 (7,523) 2,940 (88,465) Health Management Associates, Inc. -- Class A* 22,450 (93,392) 2,560 (10,650) 25,010 (104,042) Brookdale Senior Living Inc. 5,720 (125,783) 520 (11,435) 6,240 (137,218) Schering-Plough Corp. 7,650 (141,296) 900 (16,623) 8,550 (157,919) Gilead Sciences, Inc.* 3,230 (147,223) 530 (24,157) 3,760 (171,380) Mylan, Inc.* 15,840 (180,893) 1,870 (21,355) 17,710 (202,248) Hospira, Inc.* 5,060 (193,292) 710 (27,122) 5,770 (220,414) UnitedHealth Group, Inc. 8,360 (212,260) 801 (20,337) 9,161 (232,597) Health Net, Inc.* 9,970 (235,292) 1,080 (25,488) 11,050 (260,780) Teva Pharmaceutical Industries Ltd. - SP ADR 5,960 (272,908) 5,960 (272,908) Tenet Healthcare Corp.* 52,250 (289,988) 7,410 (41,126) 59,660 (331,114) Stryker Corp. 4,760 (296,548) 670 (41,741) 5,430 (338,289) Genzyme Corp.* 3,690 (298,484) 510 (41,254) 4,200 (339,738) CooperCompanies, Inc. 9,430 (327,787) 1,229 (42,720) 10,659 (370,507) Sepracor, Inc.* 19,409 (355,379) 2,289 (41,912) 21,698 (397,291) Advanced Medical Optics, Inc.* 20,100 (357,378) 2,580 (45,872) 22,680 (403,250) Amylin Pharmaceuticals, Inc.* 18,180 (367,600) 2,260 (45,697) 20,440 (413,297) Merck & Company, Inc. 11,610 (366,412) 1,560 (49,234) 13,170 (415,646) Invitrogen Corp. 12,220 (461,916) 12,220 (461,916) Omnicare, Inc. 15,050 (432,989) 1,780 (51,211) 16,830 (484,200) Watson Pharmaceuticals, Inc.* 16,270 (463,695) 2,310 (65,835) 18,580 (529,530) Allergan, Inc. 10,760 (554,140) 1,530 (78,795) 12,290 (632,935) Boston Scientific Corp.* 62,980 (772,765) 7,980 (97,915) 70,960 (870,680) TOTAL HEALTH CARE (7,304,326) (837,574) (8,141,900) UTILITIES (3.8)% Northeast Utilities System 1,220 (31,293) 140 (3,591) 1,360 (34,884) Centerpoint Energy, Inc. 2,850 (41,525) 400 (5,828) 3,250 (47,353)
Duke Energy Corp. 2,690 (46,887) 380 (6,623) 3,070 (53,510) Great Plains Energy, Inc. 8,180 (181,760) 970 (21,553) 9,150 (203,313) Allegheny Energy, Inc. 5,850 (215,105) 830 (30,519) 6,680 (245,624) Alliant Energy Corp. 7,770 (250,272) 569 (18,327) 8,339 (268,599) Mirant Corp.* 13,980 (255,694) 1,650 (30,179) 15,630 (285,873) Reliant Energy, Inc.* 45,809 (336,696) 5,840 (42,924) 51,649 (379,620) Consolidated Edison, Inc. 8,040 (345,398) 940 (40,382) 8,980 (385,780) Ameren Corp. 10,290 (401,619) 1,290 (50,349) 11,580 (451,968) PPL Corp. 11,250 (416,475) 1,600 (59,232) 12,850 (475,707) Pinnacle West Capital Corp. 12,700 (437,007) 1,170 (40,260) 13,870 (477,267) Southern Union Co. 23,280 (480,732) 2,749 (56,767) 26,029 (537,499) NRG Energy, Inc. 21,050 (520,988) 21,050 (520,988) PG&E Corp. 12,910 (483,480) 1,441 (53,965) 14,351 (537,445) Sierra Pacific Resources 57,170 (547,689) 6,110 (58,534) 63,280 (606,223) Hawaiian Electric Industries, Inc. 18,240 (530,966) 2,590 (75,395) 20,830 (606,361) Dynegy, Inc. - Class A* 178,610 (639,424) 22,860 (81,839) 201,470 (721,263) CMS Energy Corp. 53,970 (673,006) 6,380 (79,559) 60,350 (752,565) NiSource, Inc. 57,230 (844,715) 6,750 (99,630) 63,980 (944,345) Aqua America, Inc. 54,180 (963,320) 6,740 (119,837) 60,920 (1,083,157) TOTAL UTILITIES (8,644,048) (975,293) (9,619,341) CONSUMER DISCRETIONARY (4.3)% Urban Outfitters, Inc. 10 (319) 10 (319) RH Donnelley Corp.* 1,560 (3,104) 180 (358) 1,740 (3,462) Idearc, Inc. 7,210 (9,013) 850 (1,063) 8,060 (10,076) Harte-Hanks, Inc. 1,850 (19,185) 220 (2,281) 2,070 (21,466) Coldwater Creek, Inc.* 6,580 (38,098) 780 (4,516) 7,360 (42,614) Morningstar, Inc.* 760 (42,157) 180 (9,985) 940 (52,142) Chico's FAS, Inc.* 8,720 (47,698) 1,030 (5,634) 9,750 (53,332) Brunswick Corp. 4,140 (52,951) 506 (6,472) 4,646 (59,423) AnnTaylor Stores Corp.* 2,710 (55,934) 320 (6,605) 3,030 (62,539) Ryland Group, Inc. 2,140 (56,753) 250 (6,630) 2,390 (63,383) Scientific Games Corp. -- Class A* 2,530 (58,241) 360 (8,287) 2,890 (66,528) Gannett Co., Inc. 3,790 (64,089) 370 (6,257) 4,160 (70,346) Tim Hortons, Inc. 2,090 (61,927) 300 (8,889) 2,390 (70,816) Macy's, Inc. 3,760 (67,605) 520 (9,350) 4,280 (76,955) Career Education Corp.* 4,800 (78,480) 540 (8,829) 5,340 (87,309) Interpublic Group of Companies, Inc.* 9,900 (76,725) 1,400 (10,850) 11,300 (87,575) International Game Technology 4,890 (84,010) 690 (11,854) 5,580 (95,864) Cablevision Systems Corp. -- Class A 3,390 (85,292) 480 (12,077) 3,870 (97,369) Penn National Gaming Inc.* 3,360 (89,275) 400 (10,628) 3,760 (99,903) Jones Apparel Group, Inc. 5,020 (92,920) 710 (13,142) 5,730 (106,062) Williams-Sonoma, Inc. 6,430 (104,037) 760 (12,297) 7,190 (116,334) JC Penney Co., Inc. 3,210 (107,021) 360 (12,002) 3,570 (119,023) Virgin Media, Inc. 15,290 (120,791) 1,810 (14,299) 17,100 (135,090) Boyd Gaming Corp. 13,220 (123,739) 1,490 (13,946) 14,710 (137,685)
Coach, Inc.* 4,830 (120,943) 680 (17,027) 5,510 (137,970) Marriott International, Inc. -- Class A 4,690 (122,362) 670 (17,480) 5,360 (139,842) OfficeMax, Inc. 14,390 (127,927) 1,720 (15,291) 16,110 (143,218) Warner Music Group Corp. 17,290 (131,404) 2,040 (15,504) 19,330 (146,908) Office Depot, Inc.* 22,850 (132,987) 2,600 (15,132) 25,450 (148,119) KB Home 6,770 (133,234) 770 (15,154) 7,540 (148,388) New York Times Co. -- Class A 9,690 (138,470) 1,380 (19,720) 11,070 (158,190) Hearst-Argyle Television, Inc. 6,890 (153,854) 980 (21,883) 7,870 (175,737) Thor Industries, Inc. 6,669 (165,525) 780 (19,360) 7,449 (184,885) Harman International Industries, Inc. 5,260 (179,208) 620 (21,123) 5,880 (200,331) Lennar Corp. -- Class A 11,970 (181,824) 1,420 (21,570) 13,390 (203,394) Wyndham Worldwide Corp. 11,760 (184,750) 1,520 (23,879) 13,280 (208,629) Centex Corp. 12,790 (207,198) 1,370 (22,194) 14,160 (229,392) WABCO Holdings, Inc. 6,870 (244,160) 970 (34,474) 7,840 (278,634) Meredith Corp. 8,910 (249,836) 1,050 (29,442) 9,960 (279,278) DR Horton, Inc. 20,710 (269,644) 2,720 (35,414) 23,430 (305,058) H&R Block, Inc. 12,290 (279,598) 1,680 (38,220) 13,970 (317,818) Toll Brothers, Inc.* 11,700 (295,191) 1,660 (41,882) 13,360 (337,073) RadioShack Corp. 17,780 (307,238) 2,080 (35,942) 19,860 (343,180) Pulte Homes, Inc. 22,410 (313,068) 2,840 (39,675) 25,250 (352,743) Liz Claiborne, Inc. 20,410 (335,336) 2,510 (41,239) 22,920 (376,575) Federal-Mogul Corp.* 27,760 (348,388) 3,940 (49,447) 31,700 (397,835) Starbucks Corp.* 24,070 (357,921) 3,040 (45,205) 27,110 (403,126) Goodyear Tire & Rubber Co.* 23,430 (358,713) 3,330 (50,982) 26,760 (409,695) Saks, Inc.* 40,860 (377,955) 5,500 (50,875) 46,360 (428,830) Scripps Networks Interactive, Inc. - Class A 12,460 (452,423) 1,770 (64,269) 14,230 (516,692) Eastman Kodak Co. 37,260 (573,059) 4,620 (71,056) 41,880 (644,115) Wendy's/Arby's Group, Inc. - Class A 143,580 (755,231) 143,580 (755,231) TOTAL CONSUMER DISCRETIONARY (9,036,492) (1,070,009) (10,106,501) INDUSTRIALS (6.1)% HNI Corp. 120 (3,041) 10 (253) 130 (3,294) BE Aerospace, Inc.* 440 (6,965) 50 (792) 490 (7,757) Thomas & Betts Corp.* 630 (24,614) 70 (2,735) 700 (27,349) Avery Dennison Corp. 1,020 (45,370) 150 (6,672) 1,170 (52,042) Shaw Group Inc.* 1,900 (58,387) 340 (10,448) 2,240 (68,835) Avis Budget Group, Inc.* 11,500 (66,010) 1,220 (7,003) 12,720 (73,013) Manpower Inc. 1,950 (84,162) 230 (9,927) 2,180 (94,089) Hertz Global Holdings, Inc.* 16,140 (122,180) 1,740 (13,172) 17,880 (135,352) Carlisle Companies, Inc. 4,309 (129,141) 480 (14,386) 4,789 (143,527) Oshkosh Corp. 10,470 (137,785) 1,130 (14,871) 11,600 (152,656) Armstrong World Industries, Inc 5,330 (154,037) 760 (21,964) 6,090 (176,001) Dun & Bradstreet Corp. 1,770 (167,017) 250 (23,590) 2,020 (190,607) Rockwell Collins, Inc. 3,540 (170,239) 500 (24,045) 4,040 (194,284) Fastenal Co. 3,710 (183,237) 530 (26,177) 4,240 (209,414) UTi Worldwide, Inc. 11,110 (189,092) 1,400 (23,828) 12,510 (212,920) Graco, Inc. 5,470 (194,787) 650 (23,147) 6,120 (217,934)
Monster Worldwide, Inc.* 13,100 (195,321) 1,550 (23,111) 14,650 (218,432) Copa Holdings SA 6,140 (199,550) 730 (23,725) 6,870 (223,275) Corporate Executive Board Co. 6,620 (206,875) 820 (25,625) 7,440 (232,500) WESCO International, Inc.* 6,670 (214,641) 790 (25,422) 7,460 (240,063) Cintas Corp. 8,960 (257,242) 1,060 (30,433) 10,020 (287,675) Expeditors International of Washington, Inc. 7,400 (257,816) 1,050 (36,582) 8,450 (294,398) Continental Airlines, Inc.* 16,290 (271,717) 1,860 (31,025) 18,150 (302,742) Landstar System, Inc. 6,560 (289,034) 920 (40,535) 7,480 (329,569) FedEx Corp. 3,880 (306,675) 380 (30,035) 4,260 (336,710) AMR Corp.* 30,780 (302,260) 3,530 (34,665) 34,310 (336,925) CH Robinson Worldwide, Inc. 7,220 (367,931) 1,020 (51,979) 8,240 (419,910) Owens Corning, Inc.* 15,900 (380,169) 2,140 (51,167) 18,040 (431,336) Stericycle, Inc.* 6,700 (394,697) 990 (58,321) 7,690 (453,018) Robert Half International, Inc. 18,460 (456,885) 2,180 (53,955) 20,640 (510,840) Toro Co. 11,450 (472,885) 1,350 (55,755) 12,800 (528,640) USG Corp.* 18,800 (481,280) 2,540 (65,024) 21,340 (546,304) Tyco International Ltd. 13,980 (489,580) 1,760 (61,635) 15,740 (551,215) Masco Corp. 27,980 (501,961) 3,490 (62,611) 31,470 (564,572) Pitney Bowes, Inc. 17,280 (574,733) 2,450 (81,487) 19,730 (656,220) Southwest Airlines Co. 47,550 (689,951) 5,620 (81,546) 53,170 (771,497) United Parcel Service, Inc. -- Class B 15,540 (977,311) 2,200 (138,358) 17,740 (1,115,669) Republic Services, Inc. 44,230 (1,326,015) 44,230 (1,326,015) Delta Air Lines, Inc.* 237,059 (1,766,090) 1,899 (14,148) 238,958 (1,780,238) TOTAL INDUSTRIALS (13,116,680) (1,300,151) (14,416,831) FINANCIALS (6.9)% Leucadia National Corp. 80 (3,635) 80 (3,635) TCF Financial Corp. 340 (6,120) 40 (720) 380 (6,840) PMI Group, Inc. 2,630 (7,759) 310 (915) 2,940 (8,674) Comerica, Inc. 340 (11,149) 20 (656) 360 (11,805) CNA Financial Corp. 540 (14,170) 60 (1,574) 600 (15,744) Taubman Centers, Inc. 220 (11,000) 110 (5,500) 330 (16,500) Camden Property Trust 370 (16,968) 50 (2,293) 420 (19,261) American International Group, Inc. 5,890 (19,614) 690 (2,298) 6,580 (21,912) National City Corp. 11,540 (20,195) 1,410 (2,468) 12,950 (22,663) SEI Investments Co. 1,030 (22,866) 150 (3,330) 1,180 (26,196) iStar Financial, Inc. 10,450 (27,170) 1,170 (3,042) 11,620 (30,212) Marshall & Ilsley Corp. 1,390 (28,009) 160 (3,224) 1,550 (31,233) CapitalSource, Inc. 2,390 (29,397) 280 (3,444) 2,670 (32,841) CIT Group, Inc. 5,260 (36,610) 500 (3,480) 5,760 (40,090) BRE Properties, Inc. 900 (44,100) 110 (5,390) 1,010 (49,490) MGIC Investment Corp. 7,790 (54,764) 920 (6,468) 8,710 (61,232) AmeriCredit Corp.* 5,560 (56,323) 510 (5,166) 6,070 (61,489) E*Trade Financial Corp.* 19,750 (55,300) 2,350 (6,580) 22,100 (61,880) Morgan Stanley 2,390 (54,970) 340 (7,820) 2,730 (62,790) Equity Residential 1,290 (57,289) 180 (7,994) 1,470 (65,283) General Growth Properties, Inc. 4,090 (61,759) 480 (7,248) 4,570 (69,007) MF Global Ltd.* 14,320 (62,149) 1,850 (8,029) 16,170 (70,178)
Kilroy Realty Corp. 1,320 (63,083) 190 (9,080) 1,510 (72,163) Wachovia Corp. 19,020 (66,570) 2,320 (8,120) 21,340 (74,690) Legg Mason, Inc. 1,850 (70,411) 220 (8,373) 2,070 (78,784) HRPT Properties Trust 10,760 (74,136) 1,270 (8,750) 12,030 (82,886) Discover Financial Services 6,140 (84,855) 690 (9,536) 6,830 (94,391) Fidelity National Financial, Inc -- Class A 6,580 (96,726) 930 (13,671) 7,510 (110,397) CME Group, Inc. 260 (96,593) 40 (14,860) 300 (111,453) CB Richard Ellis Group, Inc. -- Class A* 7,570 (101,211) 850 (11,365) 8,420 (112,576) Ventas, Inc. 2,070 (102,299) 400 (19,768) 2,470 (122,067) Old Republic International Corp. 8,980 (114,495) 890 (11,348) 9,870 (125,843) Conseco, Inc.* 34,170 (120,278) 4,210 (14,819) 38,380 (135,097) Developers Diversified Realty Corp. 3,880 (122,957) 550 (17,430) 4,430 (140,387) CBL & Associates Properties, Inc. 6,970 (139,958) 820 (16,466) 7,790 (156,424) Public Storage 1,390 (137,624) 200 (19,802) 1,590 (157,426) Whitney Holding Corp. 5,890 (142,833) 700 (16,975) 6,590 (159,808) Vornado Realty Trust 1,560 (141,882) 220 (20,009) 1,780 (161,891) SunTrust Banks, Inc. 3,460 (155,665) 400 (17,996) 3,860 (173,661) Capitol Federal Financial 3,480 (154,268) 490 (21,722) 3,970 (175,990) Regency Centers Corp. 2,460 (164,057) 350 (23,342) 2,810 (187,399) Regions Financial Corp. 18,460 (177,216) 1,990 (19,104) 20,450 (196,320) Sovereign Bancorp, Inc. 44,050 (173,998) 5,680 (22,436) 49,730 (196,434) Merrill Lynch & Co., Inc. 6,920 (175,076) 850 (21,505) 7,770 (196,581) First Horizon National Corp. 18,695 (174,989) 2,340 (21,898) 21,035 (196,887) XL Capital 10,050 (180,297) 1,290 (23,143) 11,340 (203,440) Duke Realty Corp. 7,450 (183,121) 880 (21,630) 8,330 (204,751) KeyCorp 15,780 (188,413) 1,870 (22,328) 17,650 (210,741) Student Loan Corp. 2,069 (192,417) 260 (24,180) 2,329 (216,597) AvalonBay Communities, Inc. 2,000 (196,840) 280 (27,558) 2,280 (224,398) First American Corp. 6,800 (200,600) 930 (27,435) 7,730 (228,035) Eaton Vance Corp. 5,840 (205,743) 830 (29,241) 6,670 (234,984) Webster Financial Corp. 8,630 (217,908) 1,000 (25,250) 9,630 (243,158) Kimco Realty Corp. 5,860 (216,468) 830 (30,660) 6,690 (247,128) Brandywine Realty Trust 14,560 (233,397) 1,720 (27,572) 16,280 (260,969) Franklin Resources, Inc. 2,730 (240,595) 390 (34,371) 3,120 (274,966) New York Community Bancorp, Inc. 14,660 (246,141) 2,080 (34,923) 16,740 (281,064) MSCI, Inc. - Class A* 10,500 (252,000) 1,490 (35,760) 11,990 (287,760) Brown & Brown, Inc. 12,270 (265,277) 1,450 (31,349) 13,720 (296,626) SLM Corp.* 21,210 (261,731) 2,830 (34,922) 24,040 (296,653) Essex Property Trust, Inc. 2,290 (270,976) 320 (37,866) 2,610 (308,842) Citigroup, Inc. 13,420 (275,244) 1,710 (35,072) 15,130 (310,316) Popular, Inc. 37,770 (313,113) 4,630 (38,383) 42,400 (351,496) Fifth Third Bancorp 26,580 (316,302) 3,380 (40,222) 29,960 (356,524) Lazard Ltd. -- Class A 7,480 (319,845) 1,060 (45,326) 8,540 (365,171) St Joe Co.* 8,380 (327,574) 1,190 (46,517) 9,570 (374,091) Willis Group Holdings Ltd. 11,850 (382,281) 11,850 (382,281) Huntington Bancshares, Inc. 42,600 (340,374) 5,320 (42,507) 47,920 (382,881) Marsh & McLennan Companies, Inc. 12,860 (408,434) 1,820 (57,803) 14,680 (466,237) Federal Realty Investment Trust 4,850 (415,160) 690 (59,064) 5,540 (474,224) Capital One Financial Corp. 8,620 (439,620) 890 (45,390) 9,510 (485,010)
Simon Property Group, Inc. 4,600 (446,200) 650 (63,050) 5,250 (509,250) Tower Group, Inc. 23,039 (542,799) 23,039 (542,799) Moody's Corp. 14,450 (491,300) 1,830 (62,220) 16,280 (553,520) M&T Bank Corp. 5,630 (502,478) 670 (59,798) 6,300 (562,276) PNC Financial Services Group, Inc. 6,840 (510,948) 970 (72,459) 7,810 (583,407) UDR, Inc. 20,780 (543,397) 2,950 (77,143) 23,730 (620,540) Digital Realty Trust, Inc. 17,660 (834,418) 2,510 (118,579) 20,170 (952,997) TOTAL FINANCIALS (14,510,286) (1,791,383) (16,301,669) TOTAL COMMON STOCKS SOLD SHORT (Proceeds $97,424,676) (75,526,553) (8,672,377) (84,198,930)
CONTRACTS CONTRACTS CONTRACTS ---------- --------- ---------- OPTIONS WRITTEN (0.7)% CALL OPTIONS ON: NDS Group PLC-SP ADR Expiring October 2008 with strike price of 60 17 (765) 17 (765) Alpha Natural Resources Inc. Expiring October 2008 with a strike price of 85 17 (850) 17 (850) iShares MSCI Emerging Market Index Expiring October 2008 with a strike price of 39 706 (44,478) 136 (8,568) 842 (53,046) Constellation Energy Group Expiring October 2008 with a strike price of 25 420 (56,700) 420 (56,700) Alpharma Inc. - Class A Expiring October 2008 with a strike price of 35 300 (84,000) 300 (84,000) Genetech Inc. Expiring October 2008 with a strike price of 80 110 (111,100) 110 (111,100) October 2008 S&P 500 Index Futures Contracts Expiring October 2008 with a strike price of 1190 119 (1,038,275) 24 (209,400) 143 (1,247,675) TOTAL CALL OPTIONS TOTAL OPTIONS WRITTEN (Premiums Received $3,174,837) (1,336,168) (217,968) (1,554,136) OTHER ASSETS IN EXCESS OF LIABILITIES - 63.8% 60,543,494 2,631,823 63,175,317 NET ASSETS - 100.0% 215,998,347 20,246,328 236,244,675
UNREALIZED UNREALIZED UNREALIZED CONTRACTS GAIN (LOSS) CONTRACTS LOSS CONTRACTS GAIN (LOSS) ---------- ----------- --------- ----------- ---------- ----------- CURRENCY FUTURES CONTRACTS PURCHASED December 2008 British Pound Futures Contracts (Aggregate Market Value of Contracts $7,909,844) 71 177,764 71 177,764
December 2008 New Zealand Dollar Futures Contracts (Aggregate Market Value of Contracts $7,561,620) 114 48,587 114 48,587 December 2008 Australian Dollar Futures Contracts (Aggregate Market Value of Contracts $7,407,200) 94 (140,502) 94 (140,502) (TOTAL AGGREGATE MARKET VALUE OF CONTRACTS $22,878,664) 85,849 85,849 FUTURES CONTRACTS PURCHASED December 2008 U.S. 10-Year Treasury Note Index Future Contracts (Aggregate Market Value of Contracts $24,755,625) 216 (174,679) 216 (174,679) December 2008 Dow Jones Euro STOXX 50 Index Futures Contracts (Aggregate Market Value of Contracts $13,986,907) 275 (186,475) 45 (11,966) 320 (198,441) December 2008 Nikkei-225 Stock Average Index Futures Contracts (Aggregate Market Value of Contracts $9,615,375) 142 (383,897) 23 (62,180) 165 (446,077) December 2008 Russell 2000 Index Mini Futures Contracts (Aggregate Market Value of Contracts $14,931,420) 188 (479,986) 31 (97,071) 219 (577,057) December 2008 S&P MidCap 400 Index Mini Futures Contracts (Aggregate Market Value of Contracts $10,162,600) 122 (583,230) 18 (89,814) 140 (673,044) December 2008 S&P 500 Index Mini Futures Contracts (Aggregate Market Value of Contracts $47,243,408) 675 (1,784,545) 130 (371,976) 805 (2,156,521) (TOTAL AGGREGATE MARKET VALUE OF CONTRACTS $120,695,335) (3,592,812) (633,007) (4,225,819) CURRENCY FUTURES CONTRACTS SOLD SHORT December 2008 Canadian Dollar Currency Futures Contracts (Aggregate Market Value of Contracts $659,680) 7 (4,918) 7 (4,918) December 2008 Swiss Franc Futures Contracts (Aggregate Market Value of Contracts $7,171,200) 64 (96,160) 64 (96,160) December 2008 Japanese Yen Futures Contracts (Aggregate Market Value of Contracts $8,430,363) 71 (168,359) 71 (168,359) (TOTAL AGGREGATE MARKET VALUE OF CONTRACTS $16,261,243) (269,437) (269,437)
FUTURES CONTRACTS SOLD SHORT December 2008 U.S. Dollar Index Futures Contracts (Aggregate Market Value of Contracts $25,808,250) 325 212,826 325 212,826
* Non-Income Producing Security. + All or a portion of this security is on loan at September 30, 2008. ++ Repurchase Agreements - See Notes. Pro Forma Statement of Assets and Liabilities (Unaudited) Hedged Equity Fund, Multi-Hedge Strategies Fund and Pro Forma Multi-Hedge Strategies Fund September 30, 2008
MULTI-HEDGE HEDGED STRATEGIES EQUITY PRO FORMA PRO FORMA FUND FUND ADJUSTMENTS COMBINED ------------ ----------- ----------- ------------ ASSETS Investment Securities $127,205,237 $11,059,410 $138,264,647 Repurchase Agreements 28,249,616 6,555,095 34,804,711 ------------ ----------- -------- ------------ Total Investments 155,454,853 17,614,505 -- 173,069,358 Segregated Cash with Broker 46,748,809 660,562 47,409,371 Cash 1,674 -- 1,674 Deposits with Brokers for Securities Sold Short 87,614,998 10,086,015 97,701,013 Variation Margin on Futures Contracts 2,130,861 757,364 2,888,225 Receivable for Securities Sold 40,097,901 3,467,096 43,564,997 Receivable for Fund Shares Sold 390,606 1,700 392,306 Investment Income Receivable 273,134 31,085 304,219 Receivable for Options Written Premium 203,434 -- 203,434 ------------ ----------- -------- ------------ TOTAL ASSETS 332,916,270 32,618,327 -- 365,534,597 ============ =========== ======== ============ LIABILITIES Short Sales at Market Value 75,526,553 8,672,377 84,198,930 Written Options at Market Value 1,336,168 217,968 1,554,136 Payable upon Return of Securities Loaned 1,786,618 49,306 1,835,924 Payable for Securities Purchased 37,131,615 3,201,880 40,333,495
Payable for Fund Shares Redeemed 725,477 175,931 901,408 Investment Advisory Fees Payable 207,961 19,763 227,724 Distribution and Service Fees Payable 73,068 6,347 79,415 Custody Fees Payable -- 3 3 Overdraft Due to Custodian Bank -- 13,596 13,596 Short Sales Dividends Payable 102,141 10,174 112,315 Other Liabilities 28,322 4,654 32,976 ------------ ----------- -------- ------------ TOTAL LIABILITIES 116,917,923 12,371,999 -- 129,289,922 ============ =========== ======== ============ NET ASSETS $215,998,347 $20,246,328 -- $236,244,675 ============ =========== ======== ============ NET ASSETS CONSIST OF Paid-In Capital $243,007,682 $25,702,450 $268,710,132 Undistributed Net Investment Income (Loss) 1,245,084 78,030 1,323,114 Accumulated Net Realized Gain (Loss) on Investments (24,254,794) (5,234,635) (29,489,429) Net Unrealized Appreciation (Depreciation) on Investments (3,999,625) (299,517) (4,299,142) ------------ ----------- -------- ------------ NET ASSETS $215,998,347 $20,246,328 $ 0 $236,244,675 ------------ ----------- -------- ------------ A-Class $ 65,136,060 $ 5,542,531 $ 70,678,591 C-Class 45,081,792 3,102,845 48,184,637 H-Class 105,780,495 11,600,952 117,381,447 SHARES OUTSTANDING A-Class 2,737,924 254,209 (21,232) 2,970,901 C-Class 1,939,613 145,671 (12,158) 2,073,126 H-Class 4,443,476 531,878 (44,648) 4,930,706 NET ASSET VALUES A-Class $ 23.79 $ 21.80 $ 23.79 A-Class Maximum Offering Price* 24.98 22.89 24.98 C-Class 23.24 21.3 23.24 H-Class 23.81 21.81 23.81 ------------ ----------- ------------ Cost of Investments $169,079,977 $18,938,389 $188,018,366 Proceeds from Short Sales 87,373,094 10,051,582 97,424,676 Premiums received for Written Options 2,678,700 496,137 3,174,837
* Net asset value adjusted for the maximum sales charge of 4.75% of offering price, calculated NAV/(1-4.75%). Pro Forma Statement of Operations (Unaudited) Hedged Equity Fund, Multi-Hedge Strategies Fund and Pro Forma Multi-Hedge Strategies Fund 12-Month Period Ended September 30, 2008
MULTI-HEDGE HEDGED STRATEGIES EQUITY PRO FORMA PRO FORMA INVESTMENT INCOME FUND FUND ADJUSTMENTS COMBINED ----------------- ------------- ------------ ----------- ------------- Interest+ $ 5,297,864 $ 707,132 -- $ 6,004,996 Income from Securities Lending, net 212,960 29,715 -- 242,675 Dividends, Net of Foreign Tax Withheld * 3,236,028 423,715 -- 3,659,743 ------------- ------------ --- ------------- Total Income 8,746,852 1,160,562 -- 9,907,414 ------------- ------------ --- ------------- EXPENSES Investment Advisory Fees 3,031,584 367,603 3,399,187 Distribution & Service Fees: A-Class 131,002 15,029 146,031 C-Class 566,708 53,488 620,196 H-Class 386,362 51,513 437,875 Short Sales Dividend Expense 1,711,472 246,036 1,957,508 ------------- ------------ --- ------------- Total Expenses 5,827,128 733,669 -- 6,560,797 ------------- ------------ --- ------------- Net Investment Income (Loss) 2,919,724 426,893 -- 3,346,617 ============= ============ === ============= REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Net Realized Gain (Loss) on: Investment Securities (11,502,665) (353,279) (11,855,944) Swaps (3,705,314) -- (3,705,314) Futures Contracts (14,094,445) (3,757,556) (17,852,001) Securities Sold Short 10,701,978 228,147 10,930,125 ------------- ------------ --- ------------- Total Net Realized Gain (Loss) (18,600,446) (3,882,688) -- (22,483,134) ------------- ------------ --- ------------- Net Change in Unrealized Appreciation (Depreciation) on: Investment Securities (23,667,961) (3,219,226) (26,887,187) Swaps 363,434 -- 363,434 Futures Contracts (6,611,565) (1,150,507) (7,762,072) Securities Sold Short 19,174,861 2,761,202 21,936,063 ------------- ------------ ------------- Net Change in Unrealized Appreciation (Depreciation) (10,741,231) (1,608,531) (12,349,762) ------------- ------------ --- ------------- Net Gain (Loss) on Investments (29,341,677) (5,491,219) -- (34,832,896) ------------- ------------ --- ------------- NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS ($26,421,953) ($5,064,326) -- ($31,486,279) ============= ============ === ============= Rebate Income on Proceeds for Securities Sold Short, included in Interest $ 2,200,969 $ 356,374 $ 2,557,343 Foreign Tax Withheld 21,111 4,405 25,516
Notes to the Unaudited Pro Forma Combined Financial Statements September 30, 2008 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION The Rydex Series Funds (the "Trust") is registered with the SEC under the Investment Company Act of 1940 (the "1940 Act") as a non-diversified, open-ended investment company. The Trust offers five separate classes of shares, Investor Class Shares, Advisor Class Shares, A-Class Shares, C-Class Shares, and H-Class Shares. C-Class Shares have a 1% CDSC if shares are redeemed within 12 months of purchase. Sales of shares of each Class are made without a sales charge at the NAV, with the exception of A-Class Shares. A-Class Shares are sold at the NAV, plus the applicable front-end sales charge, except for the U.S. Government Money Market Fund. The sales charge varies depending on the amount purchased, but will not exceed 4.75%. A-Class Share purchases of $1 million or more are exempt from the front-end sales charge but have a 1% CDSC if shares are redeemed within 18 months of purchase. At September 30, 2008, the Trust consisted of fifty-four separate series and only A-Class, C-Class and H-Class Shares had been issued in the Multi-Hedge Strategies Fund (the "Fund"), which are subject to a 1% redemption fee when shares are redeemed within 30 days of purchase. Rydex Investments provides advisory, transfer agent and administrative services, and accounting services to the Trust. Rydex Distributors, Inc. (the "Distributor") acts as principal underwriter for the Trust. Both Rydex Investments and the Distributor are affiliated entities. BASIS OF COMBINATION The accompanying pro forma financial statements are presented to the show the effect of the proposed acquisition of the Hedged Equity Fund ("Target Fund"), a series of the Trust, by the Multi-Hedge Strategies Fund as if such acquisition had taken place as of October 1, 2007. Under the terms of the Plan of Reorganization, the combination of the Hedged Equity Fund and the Multi-Hedge Strategies Fund will be accounted for by the method of accounting for tax-free mergers of investment companies. The acquisition would be accomplished by an acquisition of the net assets of Hedged Equity Fund in exchange for shares of the Multi-Hedge Strategies Fund at net asset value. The statement of assets and liabilities and the related statement of operations of the Hedged Equity Fund and the Multi-Hedge Strategies Fund have been combined as of and for the period ended September 30, 2008. Following the acquisition, the Multi-Hedge Strategies Fund will be the accounting survivor. In accordance with U.S. generally accepted accounting principles, the historical cost of investment securities will be carried forward to the surviving Fund and the results of operations for the pre-combination periods of the surviving Fund will not be restated. The accompanying pro forma financial statements should be read in conjunction with the financial statements of the Multi-Hedge Strategies Fund and the Hedged Equity Fund included in their respective semi-annual reports dated September 30, 2008. The following notes refer to the accompanying pro forma financial statements as if the above-mentioned acquisition of the Hedged Equity Fund by the Multi-Hedge Strategies Fund had taken place as of October 1, 2007. SIGNIFICANT ACCOUNTING POLICIES The following significant accounting policies and the preparation of financial statements are in conformity with U.S. generally accepted accounting principles and are consistently followed by the Trust. This requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. The information contained in these notes may not apply to every fund in the Trust. A. Equity securities listed on an exchange (NYSE or American Stock Exchange) are valued at the last quoted sales price as of the close of business on the NYSE, usually 4:00 p.m. (Eastern Time) on the valuation date. Equity securities listed on the NASDAQ market system are valued at the NASDAQ Official Closing Price on the valuation date. Short-term debt securities, if any, are valued at amortized cost, which approximates market value. Listed options held by the Fund are valued at the Official Settlement Price listed by the exchange. In the event that a settlement price is not available, fair valuation is enacted. Over-the-counter options held by the Fund are valued using the average bid price obtained from one or more security dealers. The value of futures contracts purchased and sold by the Fund is accounted for using the unrealized gain or loss on the contracts that is determined by marking the contracts to their current realized settlement prices. Financial futures contracts are valued at the last quoted sales price on the valuation date. In the event that the exchange for a specific futures contract closes earlier than 4:00 p.m., the futures contract is valued at the Official Settlement Price of the exchange. However, the underlying securities from which the futures contract value is derived are monitored until 4:00 p.m. to determine if fair valuation would provide a more accurate valuation. Short-term securities, if any, are valued at amortized cost, which approximates market value. Open-ended investment companies ("Mutual Funds") are valued at their NAV as of the close of business, on the valuation date. Exchange Traded Funds ("ETFs") and closed-end investment companies are valued at the last quoted sales price. Investments for which market quotations are not readily available are fair valued as determined in good faith by Rydex Investments under the direction of the Board of Trustees using methods established or ratified by the Board of Trustees. These methods include, but are not limited to: (i) general information as to how these securities and assets trade; (ii) in connection with futures contracts and options thereupon, and other derivative investments, information as to how (a) these contracts and other derivative investments trade in the futures or other derivative markets, respectively, and (b) the securities underlying these contracts and other derivative investments trade in the cash market; and (iii) other information and considerations, including current values in related-markets. B. Securities transactions are recorded on the trade date for financial reporting purposes. Realized gains and losses from securities transactions are recorded using the identified cost basis. Proceeds from lawsuits related to investment holdings are recorded as realized gains in the respective Fund. Dividend income is recorded on the ex-dividend date, net of applicable taxes withheld by foreign countries. Interest income, including amortization of premiums and accretion of discount, is accrued on a daily basis. Distributions received from investments in REITs are recorded as dividend income on the ex-dividend date, subject to reclassification upon notice of the character of such distribution by the issuer. C. Distributions of net investment income and net realized capital gains, if any, are declared and paid at least annually. Distributions are recorded on the ex-dividend date and are determined in accordance with income tax regulations which may differ from U.S. generally accepted accounting principles. D. When a Fund engages in a short sale of an equity or fixed income security, an amount equal to the proceeds is reflected as an asset and an equivalent liability. The amount of the liability is subsequently marked-to-market to reflect the market value of the short sale. The Fund maintains a segregated account of cash and/or securities as collateral for short sales. The Fund is exposed to market risk based on the amount, if any, that the market value of the security exceeds the market value of the securities in the segregated account. Fees, if any, paid to brokers to borrow securities in connection with short sales are considered part of the cost of short sale transactions. In addition, the Fund must pay out the dividend rate of the equity or coupon rate of the treasury obligation to the lender and records this as an expense. Short dividends or interest expense is a cost associated with the investment objective of short sales transactions, rather than an operational cost associated with the day-to-day management of any mutual fund. The Fund may also receive rebate income from the broker resulting from the investment of the proceeds from securities sold short. E. Upon the purchase of an option by a Fund, the premium paid is recorded as an investment, the value of which is marked-to-market daily. When a purchased option expires, that Fund will realize a loss in the amount of the cost of the option. When a Fund enters into a closing sale transaction, that Fund will realize a gain or loss depending on whether the proceeds from the closing sale transaction are greater or less than the cost of the option. When a Fund exercises a put option, that Fund will realize a gain or loss from the sale of the underlying security and the proceeds from such sale will be decreased by the premium originally paid. When a Fund exercises a call option, the cost of the security purchased by that Fund upon exercise will be increased by the premium originally paid. When a Fund writes (sells) an option, an amount equal to the premium received is entered in that Fund's accounting records as an asset and equivalent liability. The amount of the liability is subsequently marked-to-market to reflect the current value of the option written. When a written option expires, or if a Fund enters into a closing purchase transaction, that Fund realizes a gain (or loss if the cost of a closing purchase transaction exceeds the premium received when the option was sold). F. The Fund may enter into stock and bond index futures contracts and options on such futures contracts. Futures contracts are contracts for delayed delivery of securities at a specified future delivery date and at a specific price. Upon entering into a contract, a Fund deposits and maintains as collateral such initial margin as required by the exchange on which the transaction is effected. Pursuant to the contract, the Fund agrees to receive from or pay to the broker an amount of cash equal to the daily fluctuation in value of the contract. Such receipts or payments are known as variation margin and are recorded by the Fund as unrealized gains or losses. When the contract is closed, the Fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed. G. The Fund may leave cash overnight in their cash account with the custodian, U.S. Bank. Periodically, a Fund may have cash due to the custodian bank as an overdraft balance. A fee is incurred on this overdraft, calculated by multiplying the overdraft by a rate based on the federal funds rate. Segregated cash with the broker is held as collateral for investments in derivative instruments such as futures contracts and index swap agreements. H. Throughout the normal course of business, the Fund enters into contracts that contain a variety of representations and warranties which provide general indemnifications. The Fund's maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Fund and/or its affiliates that have not yet occurred. However, based on experience, the Fund expects the risk of loss to be remote. 2. FINANCIAL INSTRUMENTS As part of its investment strategy, the Fund may utilize short sales and a variety of derivative instruments, including options, futures and options on futures. These investments involve, to varying degrees, elements of market risk and risks in excess of the amounts recognized in the Statements of Assets and Liabilities. Short sales are transactions in which a Fund sells an equity or fixed income security it does not own. If the security sold short decreases in price between the time the Fund sells the security and closes its short position, that Fund will realize a gain on the transaction. Conversely, if the security increases in price during the period, that Fund will realize a loss on the transaction. The risk of such price increases is the principal risk of engaging in short sales. The risk associated with purchasing options is limited to the premium originally paid. The risk in writing a covered call option is that a Fund may forego the opportunity for profit if the market price of the underlying security increases and the option is exercised. The risk in writing a covered put option is that a Fund may incur a loss if the market price of the underlying security decreases and the option is exercised. In addition, there is the risk that a Fund may not be able to enter into a closing transaction because of an illiquid secondary market or, for over-the-counter options, because of the counterparty's inability to perform. There are several risks in connection with the use of futures contracts. Risks may be caused by an imperfect correlation between movements in the price of the instruments and the price of the underlying securities. In addition, there is the risk that a Fund may not be able to enter into a closing transaction because of an illiquid secondary market. In conjunction with the use of short sales, options, futures and options on futures, the Fund is required to maintain collateral in various forms. The Fund uses, where appropriate, depending on the financial instrument utilized and the broker involved, margin deposits at the broker, cash and/or securities segregated at the custodian bank, discount notes, or the repurchase agreements allocated to each Fund. The risks inherent in the use of short sales, options, futures contracts, and options on futures contracts, include i) adverse changes in the value of such instruments; ii) imperfect correlation between the price of the instruments and movements in the price of the underlying securities, indices, or futures contracts; iii) the possible absence of a liquid secondary market for any particular instrument at any time; and iv) the potential of counterparty default. The Trust has established strict counterparty credit guidelines and enters into transactions only with financial institutions of investment grade or better. 3. CALL OPTIONS WRITTEN Transactions in options written during the year ended September 30, 2008, were as follows:
MULTI-HEDGE STRATEGIES FUND (FORMERLY, ABSOLUTE RETURN STRATEGIES FUND) HEDGED EQUITY FUND PRO FORMA COMBINED ------------------------ ----------------------- ------------------------ NUMBER OF PREMIUMS NUMBER OF PREMIUMS NUMBER OF PREMIUMS CONTRACTS RECEIVED CONTRACTS RECEIVED CONTRACTS RECEIVED --------- ------------ --------- ----------- --------- ------------ Options outstanding at September 30, 2007 -- $ -- -- $ -- -- $ -- Options written 5,870 21,332,680 513 3,717,125 6,383 25,049,805 Options terminated in closing purchase transactions (2,779) (14,166,676) (275) (2,430,094) (3,054) (16,596,770) Options expired (1,307) (4,476,949) (78) (790,895) (1,385) (5,267,844) Options exercised (95) (10,355) -- -- (95) (10,355) ------ ------------ ---- ----------- ------ ------------ Options outstanding at September 30, 2008 1,689 $ 2,678,700 160 $ 496,136 1,849 $ 3,174,836
4. CAPITAL SHARES The pro forma net asset value per share assumes the issuance of shares of the Fund that would have been issued at September 30, 2008, in connection with the proposed reorganization. The number of shares assumed to be issued is equal to the net asset value of shares of Hedged Equity Fund, as of September 30, 2008, divided by the net asset value per share of the shares of Multi-Hedge Strategies Fund as of September 30, 2008. The pro forma number of shares outstanding, for the combined fund consists of the following at September 30, 2008:
ADDITIONAL HEDGED EQUITY SHARES OF MULTI-HEDGE SHARES ASSUMED TOTAL OUTSTANDING STRATEGIES FUND ISSUED IN SHARE POST- PRE-COMBINATION REORGANIZATION COMBINATION ------------------ -------------- ----------------- SHARES OUTSTANDING A-Class 2,737,924 232,977 2,970,901 C-Class 1,939,613 133,513 2,073,126 H-Class 4,443,476 487,230 4,930,706
5. FEES AND OTHER TRANSACTIONS WITH AFFILIATES Under the terms of an investment advisory contract, the Funds pay Rydex Investments investment advisory fees calculated at an annualized rate of 1.15% of the average daily net assets of the Fund. As part of its agreement with the Trust, Rydex Investments will pay all expenses of the Funds, 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. Rydex Investments engages external service providers to perform other necessary services for the Trust, such as audit and accounting related services, legal services, custody, printing and mailing, etc., on a pass-through basis. Such expenses vary from Fund to Fund and are allocated to the Funds based on relative net assets. Any of these expenses allocated to the Multi-Hedge Strategies and Hedged Equity Funds are paid by Rydex Investments, as previously noted. Certain officers and trustees of the Trust are also officers of Rydex Investments. 6. FEDERAL INCOME TAX INFORMATION Each fund has elected to be taxed as a "regulated investment company" under the Internal Revenue Code. After the acquisition, the Acquiring Fund intends to continue to qualify as a regulated investment company, if such qualification is in the best interests of its shareholders, by complying with the provisions available to certain investment companies, as defined in applicable sections of the Internal Revenue Code, and to make distributions of taxable income sufficient to relieve it from all, or substantially all, Federal income taxes. At September 30, 2008, the cost of securities for Federal income tax purposes, the aggregate gross unrealized gain for all securities for which there was an excess of value over tax cost and the aggregate gross unrealized loss for all securities for which there was an excess of tax cost over value were as follows:
TAX UNREALIZED TAX UNREALIZED NET UNREALIZED FUND TAX COST GAIN LOSS GAIN (LOSS) ---- ------------ -------------- -------------- -------------- Multi-Hedge Strategies Fund $170,786,235 $17,208,134 $(19,350,443) $(2,142,309) Hedged Equity Fund 19,051,587 2,227,762 (2,007,470) 220,292 Pro Forma Combined 189,837,822 19,435,896 (21,357,913) (1,922,017)
7. REPURCHASE AGREEMENTS The Fund transfers uninvested cash balances into a single joint account, the daily aggregate balance of which is invested in one or more repurchase agreements collateralized by obligations of the U.S. Treasury and U.S. Government Agencies. The collateral is in the possession of the Fund's custodian and is evaluated to ensure that its market value exceeds by, at a minimum, 102% of the original face amount of the repurchase agreements. The Fund holds a pro rata share of the collateral based on the dollar amount of the repurchase agreement entered into by each Fund. The repurchase agreements executed by the joint account and outstanding at September 30, 2008, were as follows:
COUNTERPARTY TERMS OF AGREEMENT FACE VALUE MARKET VALUE REPURCHASE PRICE ------------ ------------------ ------------ -------------- ---------------- Morgan Stanley 0.15% due 10/01/08 $682,099,856 $ 682,099,856 $ 682,102,698 Mizuho Financial Group, Inc. 0.26% due 10/01/08 565,000,000 565,000,000 565,004,081 Morgan Stanley 0.10% due 10/01/08 400,000,000 400,000,000 400,001,111 Credit Suisse Group 0.25% due 10/01/08 139,360,464 139,360,464 139,361,432 -------------- -------------- $1,786,460,320 $1,786,469,322 ============== ==============
At September 30, 2008, the collateral for the repurchase agreements in the joint account was as follows:
SECURITY TYPE MATURITY DATES RANGE OF RATES PAR VALUE MARKET VALUE ------------- ------------------- --------------- ------------ -------------- U.S. Treasury Note 12/31/08 - 8/15/17 3.375% - 4.750% $793,096,500 $ 816,275,910 U.S. TIP Bond 04/15/28 3.625% 289,705,400 474,835,309 U.S. Treasury Bond 05/15/16 - 04/15/28 3.625% - 7.250% 216,596,900 279,371,569 U.S. Treasury Bill 10/02/08 - 09/24/09 -- 252,540,300 251,799,789 -------------- $1,822,282,577 ==============
In the event of counterparty default, the Fund has the right to collect the collateral to offset losses incurred. There is potential loss to the Fund in the event the Fund is delayed or prevented from exercising its rights to dispose of the collateral securities, including the risk of a possible decline in the value of the underlying securities during the period while the Fund seeks to assert its rights. The Fund's investment advisor, acting under the supervision of the Board of Trustees, reviews the value of the collateral and the creditworthiness of those banks and dealers with which the Fund enters into repurchase agreements to evaluate potential risks. 8. PORTFOLIO SECURITIES LOANED The Funds may lend their securities to approved brokers to earn additional income. Security lending income shown on the statement of operations is shown net of rebates paid to borrowers and earnings on cash collateral investments shared with the lending agent. Within this arrangement, the Fund acts as the lender, U.S. Bank acts as the agent, and other approved registered broker dealers act as the borrowers. The Funds receive cash collateral, valued at a minimum of 100% of the value of the securities on loan, which is initially held in a segregated account at U.S. Bank. Under the terms of the Funds' securities lending agreement with U.S Bank, cash collateral may be invested by U.S. Bank in certain high quality, liquid investments. At September 30, 2008, the cash collateral investments consisted of a money market mutual fund. The Funds bear the risk of loss on cash collateral investments. Collateral is maintained over the life of the loan in an amount not less than the value of loaned securities, as determined at the close of fund business each day; any additional collateral required due to changes in security values is delivered to the Fund the next business day. Although the collateral mitigates risk, the Funds could experience a delay in recovering its securities and a possible loss of income or value if the borrower fails to return the securities. The Funds have the right under the securities lending agreement to recover the securities from the borrower on demand. Subsequent to September 30, 2008, the Funds ceased participation in securities lending. The following represents a breakdown of the collateral: MUTUAL FUND ------------------------------------------- ---------- ------------ Issuer Shares Market Value ----- ------------------------------------- ---------- ------------ Mount Vernon Securities Lending Trust 11,532,939 $11,532,939 ----------- Total Mutual Fund $11,532,939 =========== ------------ At September 30, 2008 the following Funds participated in securities lending and received cash collateral: Value of Fund Cash Collateral Securities Loaned ---------------------------- --------------- ----------------- Multi-Hedge Strategies $1,786,618.00 $1,792,921.00 Fund Hedged Equity Fund 49,306.00 49,024.00 Pro Forma Combined 1,835,924.00 1,841,945.00 E. MISCELLANEOUS Independent Registered Public Accounting Firm The audited financial statements and financial highlights of the Funds for the years ended March 21, 2008 and 2007, incorporated into this SAI, have been audited by Ernst & Young, the Funds' independent registered public accounting firm, to the extent indicated in their report thereon which is included in the Annual Reports. The audited financial statements and financial highlights for prior years were audited by a predecessor independent registered public accounting firm. PART C OTHER INFORMATION ITEM 15. INDEMNIFICATION: Rydex Series Funds (the "Registrant") 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 Registrant's Declaration of Trust 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 Registrant's Declaration of Trust 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) Registrant's Certificate of Trust dated February 10, 1993 is incorporated herein by reference to Exhibit (1)(a) 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) Registrant's Declaration of Trust dated March 13, 1993 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)(c) 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)(d) 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)(e) Amendment dated November 21, 2005 to the Declaration of Trust dated March 13, 1993 of the Registrant is incorporated herein by reference to Exhibit (a)(5) of Post-Effective Amendment No. 61 to the Registrant's Registration Statement on Form N-1A (File No. 033-59692), as filed with the SEC via EDGAR Accession No. 0001169232-06-001381 on March 3, 2006. (2) Registrant's Amended and Restated Bylaws are incorporated herein by reference to Exhibit (b) of Post-Effective Amendment No. 61 to the Registrant's Registration Statement on Form N-1A (File No 033-59692), as filed with the SEC via EDGAR Accession No. 0001169232-06-001381 on March 3, 2006. (3) Not applicable. (4) Form of Agreement and Plan of Reorganization is filed herewith as Appendix A to Part A of this Registration Statement on Form N-14. (5) Reference is made to Article VII of the Registrant's Declaration of Trust dated March 13, 1993, which has been incorporated herein by reference in Exhibit (1)(b) of this Registration Statement. (6)(a) Advisory Agreement dated January 18, 2008 between the Registrant and PADCO Advisors, Inc. with respect to the Absolute Return Strategies and Hedged Equity Funds, is incorporated herein by reference to Exhibit (d)(3) of Post-Effective Amendment No. 75 to the Registrant's Registration Statement on Form N-1A (File No. 033-59692), as filed with the SEC via EDGAR Accession No. 0000935069-08-000948 on April 21, 2008. (6)(b) Schedule A as last amended August 27, 2008 to the Advisory Agreement dated January 18, 2008 between the Registrant and PADCO Advisor Inc., with respect to the Absolute Return Strategies and Hedged Equity Funds, is incorporated herein by reference to Exhibit (d)(2) of Post-Effective Amendment No. 82 to the Registrant's Registration Statement on Form N-1A (File No. 033-59692), as filed with the SEC via EDGAR Accession No. 0000935069-08-003028 on December 17, 2008. (7) Distribution Agreement dated January 18, 2008 between the Registrant and Rydex Distributors, Inc. is incorporated herein by reference to Exhibit (e)(1) of Post-Effective Amendment No. 75 to the Registrant's Registration Statement on Form N-1A (File No. 033-59692), as filed with the SEC via EDGAR Accession No. 0000935069-08-000948 on April 21, 2008. (8) Not applicable. (9)(a) Custody Agreement dated November 30, 1993 between the Registrant and Star Bank, N.A. (now, U.S. 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. (9)(b) Amendment dated April 24, 2008 between the Registrant and U.S. Bank, N.A. (formerly, Star Bank, N.A.) to the Custody Agreement dated November 30, 1993 between the Registrant and Star Bank, N.A. (now, U.S. Bank, N.A.) is incorporated herein by reference to Exhibit (g)(2) of Post-Effective amendment No. 76 to the Registrant's Registration Statement on Form N-1A (File No. 033-59692), as filed with the SEC via EDGAR Accession No. 0000935069-08-001345 on May 30, 2008. (9)(c) Amended and Restated Foreign Custody Manager Agreement dated April 24, 2008 between the Registrant and U.S. Bank, N.A. (formerly, Star Bank, N.A.) is incorporated herein by reference to Exhibit (g)(3) of Post-Effective Amendment No. 76 to the Registrant's Registration Statement on Form N-1A (File No. 033-59692), as filed with the SEC via EDGAR Accession No. 0000935069-08-001345 on May 30, 2008. (9)(d) Revised Schedule II to the Amended and Restated Foreign Custody Manager Agreement dated April 24, 2008 between the Registrant and U.S. Bank, N.A. (formerly, Star Bank, N.A.) is incorporated herein by reference to Exhibit (g)(4) of Post-Effective Amendment No. 82 to the Registrant's Registration Statement on Form N-1A (File No. 033-59692), as filed with the SEC via EDGAR Accession No. 0000935069-08-003028 on December 17, 2008. (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 via EDGAR Accession No. 0000912057-01-525748 on July 30, 2001. (10)(b) 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)(c) Amendment dated August 27, 2008 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)(3) of Post-Effective Amendment No. 82 to the Registrant's Registration Statement on Form N-1A (File No. 033-59692), as filed with the SEC via EDGAR Accession No. 0000935069-08-003028 on December 17, 2008. (10)(d) 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)(e) Amendment dated August 27, 2008 to the Distribution Plan for H-Class Shares dated February 25, 2000 is incorporated herein by reference to Exhibit (m)(5) of Post-Effective Amendment No. 82 to the Registrant's Registration Statement on Form N-1A (File No. 033-59692), as filed with the SEC via EDGAR Accession No. 0000935069-08-003028 on December 17, 2008. (10)(f) 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)(g) Amendment dated August 27, 2008 to the Distribution Plan for A-Class Shares dated November 5, 2001 is incorporated herein by reference to Exhibit (m)(7) of Post-Effective Amendment No. 82 to the Registrant's Registration Statement on Form N-1A (File No. 033-59692), as filed with the SEC via EDGAR Accession No. 0000935069-08-003028 on December 17, 2008. (10)(h) 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)(i) Amendment dated August 27, 2008 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. 82 to the Registrant's Registration Statement on Form N-1A (File No. 033-59692), as filed with the SEC via EDGAR Accession No. 0000935069-08-003028 on December 17, 2008. (11) Opinion and Consent of Morgan, Lewis & Bockius LLP, regarding the legality of securities being issued, is filed herewith. (12) Form of Opinion and Consent of Morgan, Lewis & Bockius LLP, regarding certain tax matters, is filed herewith. (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 via EDGAR Accession No. 0000935069-05-001236 on May 24, 2005. (13)(b) Amendment dated August 27, 2008 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. 82 to the Registrant's Registration Statement on Form N-1A (File No. 033-59692), as filed with the SEC via EDGAR Accession No. 0000935069-08-003028 on December 17, 2008. (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 August 27, 2008 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)(4) of Post-Effective Amendment No. 82 to the Registrant's Registration Statement on Form N-1A (File No. 033-59692), as filed with the SEC via EDGAR Accession No. 0000935069-08-003028 on December 17, 2008. (14)(a) Consent of Ernst & Young LLP is filed herewith. (14)(b) Consent of Morgan, Lewis & Bockius 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. 76 to the Registrant's Registration Statement on Form N-1A (File No. 033-59692), as filed with the SEC via EDGAR Accession No. 0000935069-08-001345 on May 30, 2008. (17)(a) Combined Code of Ethics for the Registrant, Rydex Dynamic Funds, Rydex Variable Trust, Rydex ETF Trust, PADCO Advisors, Inc. d/b/a Rydex Investments, PADCO Advisors II, Inc. d/b/a Rydex Investments, Rydex Capital Partners I, LLC, Rydex Capital Partners II, LLC, and Rydex Distributors, Inc. is incorporated herein by reference to Exhibit (p)(1) of Post-Effective Amendment No. 30 to Rydex Variable Trust's Registration Statement on Form N-1A (File No. 333-57017), as filed with the SEC via EDGAR Accession No. 0001104659-08-009438 on February 12, 2008. (17)(b) Prospectus and Statement of Additional Information dated August 1, 2008, with respect to the Absolute Return Strategies Fund and Hedged Equity Fund, is incorporated herein by reference to Post-Effective Amendment No. 77 to the Registrant's Registration Statement on Form N-1A (File No. 333-57017), as filed with the SEC via EDGAR Accession No. 0000935069-08-001690 on July 29, 2008. (17)(c) Supplement dated August 25, 2008 to the Registrant's A-Class and C-Class Shares Prospectuses dated August 1, 2008 is incorporated herein by reference to definitive materials filed with the SEC via EDGAR Accession No. 0000935069-08-001864 on August 25, 2008 pursuant to Rule 497 under the Securities Act of 1933, as amended. (17)(d) The Report of the Independent Registered Public Accounting Firm and audited financial statements for the Absolute Return Strategies Fund and Hedged Equity Fund are incorporated herein by reference to the Registrant's Annual Report to Shareholders on Form N-CSR, as filed with the SEC via EDGAR Accession No. 0000935069-08-001457 on June 12, 2008. (17)(e) The unaudited financial statements of the Absolute Return Strategies Fund and Hedged Equity Fund are incorporated herein by reference to the Registrant's Semi-Annual Report on Form N-CSR, as filed with the SEC via EDGAR Accession No. 0000935069-08-002913 on December 5, 2008. ITEM 17. UNDERTAKINGS: (1) The 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 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. (3) The Registrant agrees to file, by post-effective amendment, an opinion of counsel supporting the tax consequences of the Reorganization within a reasonably prompt time after receipt of such opinion. 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 26th day of February, 2009. 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 26, 2009 --------------------------- Carl G. Verboncoeur * Member of the Board of Trustees February 26, 2009 --------------------------- J.Kenneth Dalton * Member of the Board of Trustees February 26, 2009 --------------------------- John O. Demaret * Member of the Board of Trustees February 26, 2009 --------------------------- Patrick T. McCarville * Member of the Board of Trustees February 26, 2009 --------------------------- Roger Somers * Member of the Board of Trustees February 26, 2009 --------------------------- Corey A. Colehour /S/ MICHAEL P. BYRUM Member of the Board of Trustees February 26, 2009 --------------------------- Michael P. Byrum * Member of the Board of Trustees February 26, 2009 --------------------------- Werner E. Keller * Member of the Board of Trustees February 26, 2009 --------------------------- Thomas F. Lydon /S/ NICK BONOS Vice President and Treasurer February 26, 2009 --------------------------- Nick Bonos * /S/ CARL G. VERBONCOEUR --------------------------- Carl G. Verboncoeur
*Attorney-in-Fact pursuant to 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, which are incorporated herein by reference to Exhibit (q) of Post-Effective Amendment No. 76 to the Registrant's Registration Statement on Form N-1A (File No. 033-59692), as filed with the SEC via EDGAR Accession No. 0000935069-08-001345 on May 30, 2008. EXHIBIT INDEX NUMBER EXHIBIT: ------ -------- EX-99.11 Opinion and Consent of Morgan, Lewis & Bockius LLP regarding the legality of securities being issued EX-99.12 Form of Opinion and Consent of Morgan, Lewis & Bockius LLP regarding tax matters EX-99.14A Consent of Ernst & Young LLP EX-99.14B Consent of Morgan, Lewis & Bockius LLP EX-99.11 2 exhibit_11.txt EXHIBIT_11.TXT Morgan, Lewis & Bockius LLP 1111 Pennsylvania Avenue, NW Washington, DC 20004 March 13, 2009 Rydex Series Funds 9601 Blackwell Road Suite 500 Rockville, MD 20850 Re: OPINION OF COUNSEL REGARDING THE REGISTRATION STATEMENT FILED ON FORM N-14 UNDER THE SECURITIES ACT OF 1933 ---------------------------------------------------------------- Ladies and Gentlemen: We have acted as counsel to Rydex Series Funds, a Delaware statutory trust (the "Trust"), in connection with the above-referenced registration statement on Form N-14 (the "Registration Statement"), which relates to the Trust's shares of beneficial interest, without par value (collectively, the "Shares") of the Multi-Hedge Strategies Fund (the "Fund") to be issued in connection with the reorganization of the Hedged Equity Fund, a series of the Trust, into the Fund. This opinion is being delivered to you in connection with the Trust's filing of the Registration Statement with the U.S. Securities and Exchange Commission (the "SEC") pursuant to Rule 488(a) under the Securities Act of 1933, as amended (the "1933 Act"). 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 Declaration of Trust and all amendments and supplements thereto (the "Declaration of Trust"); (c) a certificate executed by Joanna M. Haigney, Secretary of the Trust, certifying, and attaching copies of, the Trust's Declaration of Trust and By-Laws (the "By-Laws"), and certain resolutions adopted by the Board of Trustees of the Trust authorizing the issuance of the Shares of the Fund; 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 SEC, 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 Shares, when issued and sold in accordance with the Declaration of Trust and By-Laws, and for the consideration described in the Registration Statement, will be legally issued, fully paid and non-assessable under the laws of the State of Delaware. We hereby consent to the filing of this opinion as an exhibit to the Registration Statement. 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 1933 Act. Very truly yours, /S/ MORGAN, LEWIS & BOCKIUS LLP ------------------------------- EX-99.12 3 exhibit12.txt EXHIBIT12.TXT [FORM OF OPINION] ______ __, 2009 Board of Trustees Rydex Series Funds 9601 Blackwell Road, Suite 500 Rockville, MD 20850 RE: AGREEMENT AND PLAN OF REORGANIZATION, DATED MAY __, 2009 (THE "PLAN"), ADOPTED BY THE BOARD OF TRUSTEES OF THE RYDEX SERIES FUNDS (THE "TRUST") FOR THE REORGANIZATION OF THE TRUST'S HEDGED EQUITY FUND (THE "ACQUIRED FUND") INTO THE TRUST'S MULTI-HEDGE STRATEGIES FUND, FORMERLY THE ABSOLUTE RETURN STRATEGIES FUND (THE "SURVIVING FUND") Ladies and Gentlemen: You have requested our opinions as to certain U.S. federal income tax consequences of the reorganization of the Acquired Fund and the Surviving Fund that will consist of: (i) the transfer of all of the assets of the Acquired Fund to the Surviving Fund in exchange solely for H-Class, A-Class and C Class shares of the Surviving Fund ("Surviving Fund Shares"), (ii) the assumption by the Surviving Fund of all of the liabilities of the Acquired Fund, and (iii) the distribution of the Surviving Fund Shares to the shareholders of the Acquired Fund(1) in complete liquidation of the Acquired Fund, all upon the terms and conditions set forth in the Plan (the "Reorganization"). In rendering our opinions, we have reviewed and relied upon (a) the Plan, (b) certain representations concerning the Reorganization made to us by the Trust, on behalf of the funds, in a letter dated _____ __, 2009 (the "Representation Letter"), (c) all other documents, financial and other reports and corporate minutes that we deemed relevant or appropriate, and (d) such statutes, regulations, rulings and decisions as we deemed material with respect to this opinion. All terms used herein, unless otherwise defined, are used as defined in the Plan. For purposes of our opinions, we have assumed that the Acquired Fund and the Surviving Fund, as of the Effective Time of the Reorganization, each satisfy and, following the Reorganization, the Surviving Fund will continue to satisfy, the requirements of subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"), for qualification as a regulated investment company ("RIC"). Based on the foregoing, and provided the Reorganization is carried out in accordance with the laws of the State of Delaware, the Plan and the Representation Letter, it is our opinion that: 1. The Reorganization will constitute a tax-free reorganization within the meaning of Section 368(a) of the Code, and the Acquired Fund and the Surviving Fund will each be a "party to the reorganization" within the meaning of Section 368(b) of the Code. 2. No gain or loss will be recognized by the Surviving Fund upon the receipt of the assets of the Acquired Fund solely in exchange for Surviving Fund Shares and the assumption by -------------------------------------- (1) In the distribution, Acquired Fund shareholders who hold Acquired Fund H-Class, A-Class and C-Class shares will receive Surviving Fund H-Class, A-Class and C-Class shares, respectively. Board of Trustees Rydex Series Funds ______ __, 2009 Page 2 the Surviving Fund of all of the liabilities of the Acquired Fund, pursuant to Section 1032(a) of the Code. 3. No gain or loss will be recognized by the Acquired Fund upon the transfer of all of its assets to the Surviving Fund solely in exchange for Surviving Fund Shares and the assumption by the Surviving Fund of all of the liabilities of the Acquired Fund or upon the distribution of Surviving Fund Shares to shareholders of the Acquired Fund, pursuant to Sections 361(a) and (c) and 357(a) of the Code. 4. No gain or loss will be recognized by the shareholders of the Acquired Fund upon the exchange of their shares of the Acquired Fund for Surviving Fund Shares (including fractional shares to which they may be entitled), pursuant to Section 354(a) of the Code. 5. The aggregate tax basis of Surviving Fund Shares received by each shareholder of the Acquired Fund (including fractional shares to which they may be entitled) will be the same as the aggregate tax basis of the Acquired Fund shares exchanged therefor, pursuant to Section 358(a)(1) of the Code. 6. The holding period of the Surviving Fund Shares received by the shareholders of the Acquired Fund (including fractional shares to which they may be entitled) will include the holding period of the Acquired Fund shares surrendered in exchange therefor, provided that the Acquired Fund shares were held as a capital asset as of the Effective Time of the Reorganization, pursuant to Section 1223(1) of the Code. 7. The tax basis of the assets of the Acquired Fund received by the Surviving Fund will be the same as the tax basis of such assets to the Acquired Fund immediately prior to the exchange, pursuant to Section 362(b) of the Code. 8. The holding period of the assets of the Acquired Fund received by the Surviving Fund will include the period during which such assets were held by the Acquired Fund, pursuant to Section 1223(2) of the Code. 9. The Surviving Fund will succeed to and take into account, as of the date of the transfer (as defined in Section 1.381(b)-1(b) of the Treasury Regulations), the items of the Acquired Fund described in Section 381(c) of the Code, subject to the conditions and limitations specified in Sections 381(b) and (c), 382, 383 and 384 of the Code. Notwithstanding the foregoing opinions, no opinion is expressed as to the effect of the Reorganization on (i) the Acquired Fund or the Surviving Fund with respect to any asset as to which any unrealized gain or loss is required to be recognized for U.S. federal income tax purposes at the end of a taxable year (or on the termination or transfer thereof) under a mark-to-market system of accounting and (ii) any shareholder of the Acquired Fund that is required to recognize unrealized gains and losses for U.S. federal income tax purposes under a mark-to-market system of accounting. Board of Trustees Rydex Series Funds ______ __, 2009 Page 3 Our opinions are limited solely to the Reorganization. This opinion letter expresses our views only as to U.S. federal income tax laws in effect as of the date hereof. It represents our best legal judgment as to the matters addressed herein, but is not binding on the Internal Revenue Service or the courts. Accordingly, no assurance can be given that the opinions and analysis expressed herein, if contested, would be sustained by a court. Our opinion is based upon the Code, the applicable Treasury Regulations promulgated thereunder, the present position of the Internal Revenue Service as set forth in published revenue rulings and revenue procedures, present administrative positions of the Internal Revenue Service, and existing judicial decisions, all of which are subject to change either prospectively or retroactively. We do not undertake to make any continuing analysis of the facts or relevant law following the date of this letter. Our opinions are conditioned upon the performance by the Trust, on behalf of the Surviving Fund and the Acquired Fund, of its undertakings in the Plan and the Representation Letter. Our opinions are being rendered to the Trust on behalf of the Surviving Fund and the Acquired Fund, and may be relied upon only by the Trust, its Board of Trustees, the Acquired Fund, the Surviving Fund and the shareholders of the Acquired Fund and the Surviving Fund. Very truly yours, EX-99.14 4 exhibit_14a.txt EXHIBIT_14A.TXT CONSENT OF ERNST & YOUNG LLP, INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM We consent to the references to our firm under the captions "Financial Highlights" in the Prospectus/Information Statement and "Independent Registered Public Accounting Firm" in the Statement of Additional Information in this Registration Statement (Form N-14)(File Nos. 333-59692 and 811-07584) of Rydex Series Funds, the captions "Financial Highlights" in the A-Class, C-Class and H-Class Prospectuses with respect to the Absolute Return Strategies Fund and Hedged Equity Fund series of Rydex Series Funds dated August 1, 2008, incorporated by reference in this Registration Statement, and the captions "Independent Registered Public Accounting Firm" and "Financial Statements" in the Statement of Additional Information with respect to the Absolute Return Strategies Fund and Hedged Equity Fund series of Rydex Series Funds dated August 1, 2008, incorporated by reference in this Registration Statement, and to the incorporation by reference in this Registration Statement of Rydex Series Funds of our report on the Absolute Return Strategies Fund and Hedged Equity Fund of Rydex Series Funds dated May 29, 2008, included in the 2008 Annual Report to shareholders. /s/ ERNST & YOUNG LLP --------------------- McLean, Virginia March 13, 2009 EX-99.14 5 exhibit_14b.txt EXHIBIT_14B.TXT Morgan, Lewis & Bockius LLP 1111 Pennsylvania Avenue, NW Washington, DC 20004 202.739.3000 Fax: 202.739.3001 March 13, 2009 Rydex Series Funds 9601 Blackwell Road Suite 500 Rockville, MD 20850 Re: REGISTRATION STATEMENT FILED ON FORM N-14 UNDER THE SECURITIES ACT OF 1933 -------------------------------------------------------------------------- We hereby consent to the reference to our Firm in the Registration Statement filed on Form N-14 under the Prospectus/Proxy Statement heading "Information about the Reorganization -- Federal Income Tax Consequences." 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, or the rules and regulations promulgated thereunder. Very truly yours, /S/ MORGAN, LEWIS & BOCKIUS LLP ------------------------------- Morgan, Lewis & Bockius LLP COVER 6 filename6.txt Morgan, Lewis & Bockius LLP 1111 Pennsylvania Avenue, NW Washington, DC 20004 March 16, 2009 VIA EDGAR US Securities and Exchange Commission 100 F Street NE Washington, DC 20549 Re: RYDEX SERIES FUNDS RPURSUANT REGISTRATION STATEMENT/INFORMATION STATEMENT ON FORM N-14 ----------------------------------------------------------------------- Ladies and Gentlemen: On behalf of our client, Rydex Series Funds (the "Trust"), we are herewith filing the Trust's Registration Statement/Information Statement on Form N-14, including exhibits thereto, pursuant to Rule 488(a) under the Securities Act of 1933. This filing relates to the reorganization of the Trust's Hedged Equity Fund with and into the Absolute Return Strategies Fund (to be renamed the Multi-Hedge Strategies Fund on or about April 1, 2009). Please feel free to contact me at (202) 739-5896 with your questions or comments. Sincerely, /S/ CHRISTOPHER D. MENCONI -------------------------- Christopher D. Menconi