UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-01136
SECURITY EQUITY FUND
(Exact name of registrant as specified in charter)
ONE SECURITY BENEFIT PLACE, TOPEKA, KANSAS 66636-0001
(Address of principal executive offices) (Zip code)
(Address of principal executive offices) (Zip code)
RICHARD M. GOLDMAN, PRESIDENT
SECURITY EQUITY FUND
ONE SECURITY BENEFIT PLACE
SECURITY EQUITY FUND
ONE SECURITY BENEFIT PLACE
TOPEKA, KANSAS 66636-0001
(Name and address of agent for service)
(Name and address of agent for service)
Registrant’s telephone number, including area code: (785) 438-3000
Date of fiscal year end: September 30
Date of reporting period: September 30, 2010
Form N-CSR is to be used by management investment companies to file reports with the Commission not later than 10 days after the transmission to stockholders of any report that is required to be transmitted to stockholders under Rule 30e-1 under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may use the information provided on Form N-CSR in its regulatory, disclosure review, inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR, and the Commission will make this information public. A registrant is not required to respond to the collection of information contained in Form N-CSR unless the Form displays a currently valid Office of Management and Budget (“OMB”) control number. Please direct comments concerning the accuracy of the information collection burden estimate and any suggestions for reducing the burden to Secretary, Securities and Exchange Commission, 450 Fifth Street, NW, Washington, DC 20549-0609. The OMB has reviewed this collection of information under the clearance requirements of 44 U.S.C. §3507.
Item 1. Reports to Stockholders.
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SEPTEMBER 30, 2010
ANNUAL REPORT
EQUITY FUNDS
EQUITY FUNDS
§ | Rydex|SGI Equity Fund® |
• | All Cap Value Fund | |||
• | Alpha Opportunity Fund | |||
• | Large Cap Core Fund (Formerly, Equity Fund) | |||
• | Global Fund | |||
• | Global Institutional Fund | |||
• | Mid Cap Value Fund | |||
• | Mid Cap Value Institutional Fund | |||
• | Large Cap Concentrated Growth Fund (Formerly, Select 25 Fund) | |||
• | Small Cap Growth Fund | |||
• | Small Cap Value Fund |
§ | Rydex|SGI Large Cap Value Fund |
• | Large Cap Value Fund | |||
• | Large Cap Value Institutional Fund |
§ | Rydex|SGI Mid Cap Growth Fund |
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![(GRAPHIC)](https://capedge.com/proxy/N-CSR/0000950123-10-111594/g06945g0694503.gif)
This report and the financial statements contained herein are submitted for the general information of our shareholders. The report is not authorized for distribution to prospective investors unless preceded or accompanied by an effective prospectus.
Distributed by Rydex Distributors, LLC.
RYDEX|SGI EQUITY FUND
RYDEX|SGI LARGE CAP VALUE FUND
RYDEX|SGI MID CAP GROWTH FUND
RYDEX|SGI LARGE CAP VALUE FUND
RYDEX|SGI MID CAP GROWTH FUND
September 30, 2010
Annual Report
Annual Report
Table of Contents
Rydex|SGI Equity Fund |
35 |
Rydex|SGI Large Cap Value Fund |
THE RYDEX | SGI EQUITY FUNDS ANNUAL REPORT | | | 1 |
INFORMATION ABOUT YOUR FUND EXPENSES (Unaudited)
September 30, 2010
September 30, 2010
Calculating your ongoing Fund expenses
As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, which may include sales charges (loads) on purchase payments; contingent deferred sales charges on redemptions; and redemption fees, if any; and (2) ongoing costs, including management fees; distribution and/or service fees (12b-1); and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period beginning March 31, 2010 through September 30, 2010.
Actual Expenses
The first table provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled “Expenses Paid During the Period” to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The second table provides information about hypothetical account values and hypothetical expenses based on the Fund actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other mutual funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads) on purchase payments, contingent deferred sales charges on redemptions, and redemption fees, if any. Therefore, the second line for each class of shares is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
2 | | | THE RYDEX | SGI EQUITY FUNDS ANNUAL REPORT |
INFORMATION ABOUT YOUR FUND EXPENSES (Unaudited) (continued)
September 30, 2010
Beginning | Ending | Expenses | ||||||||||||||||||
Expense | Fund | Account Value | Account Value | Paid During | ||||||||||||||||
Ratio | 1 | Return | March 31, 2010 | September 30, 2010 | the Period | 2 | ||||||||||||||
Table 1. Based on actual Fund return3 | ||||||||||||||||||||
All Cap Value Fund | ||||||||||||||||||||
A-Class | 1.27% | (2.03%) | $ | 1,000.00 | $ | 979.70 | $ | 6.30 | ||||||||||||
C-Class | 2.02% | (2.32%) | 1,000.00 | 976.80 | 10.01 | |||||||||||||||
Institutional Class | 1.02% | (1.85%) | 1,000.00 | 981.50 | 5.07 | |||||||||||||||
Alpha Opportunity Fund | ||||||||||||||||||||
A-Class | 2.11% | 1.25% | 1,000.00 | 1,012.50 | 10.65 | |||||||||||||||
B-Class | 2.86% | 0.78% | 1,000.00 | 1,007.80 | 14.40 | |||||||||||||||
C-Class | 2.86% | 0.78% | 1,000.00 | 1,007.80 | 14.40 | |||||||||||||||
Institutional Class | 1.86% | 1.21% | 1,000.00 | 1,012.10 | 9.38 | |||||||||||||||
Global Fund | ||||||||||||||||||||
A-Class | 1.89% | (0.66%) | 1,000.00 | 993.39 | 9.44 | |||||||||||||||
B-Class4 | 1.64% | (0.43%) | 1,000.00 | 995.67 | 8.20 | |||||||||||||||
C-Class | 2.64% | (0.98%) | 1,000.00 | 990.16 | 13.17 | |||||||||||||||
Global Institutional Fund | 1.00% | 0.22% | 1,000.00 | 1,002.20 | 5.02 | |||||||||||||||
Large Cap Concentrated Growth Fund | ||||||||||||||||||||
A-Class | 1.35% | (2.80%) | 1,000.00 | 971.97 | 6.67 | |||||||||||||||
B-Class | 2.10% | (3.20%) | 1,000.00 | 968.01 | 10.36 | |||||||||||||||
C-Class | 2.10% | (3.19%) | 1,000.00 | 968.14 | 10.36 | |||||||||||||||
Large Cap Core Fund | ||||||||||||||||||||
A-Class | 1.44% | (3.52%) | 1,000.00 | 964.84 | 7.09 | |||||||||||||||
B-Class | 2.19% | (3.74%) | 1,000.00 | 962.57 | 10.77 | |||||||||||||||
C-Class | 2.19% | (3.95%) | 1,000.00 | 960.49 | 10.76 | |||||||||||||||
Large Cap Value Fund | ||||||||||||||||||||
A-Class | 1.15% | (4.96%) | 1,000.00 | 950.44 | 5.62 | |||||||||||||||
B-Class4 | 0.90% | (4.88%) | 1,000.00 | 951.18 | 4.40 | |||||||||||||||
C-Class | 1.90% | (5.24%) | 1,000.00 | 947.61 | 9.28 | |||||||||||||||
Large Cap Value Institutional Fund | 0.96% | (3.78%) | 1,000.00 | 962.24 | 4.72 | |||||||||||||||
Mid Cap Growth Fund | ||||||||||||||||||||
A-Class | 1.73% | 0.96% | 1,000.00 | 1,009.60 | 8.72 | |||||||||||||||
B-Class | 2.48% | 0.55% | 1,000.00 | 1,005.47 | 12.47 | |||||||||||||||
C-Class | 2.48% | 0.63% | 1,000.00 | 1,006.34 | 12.47 | |||||||||||||||
Mid Cap Value Fund | ||||||||||||||||||||
A-Class | 1.36% | 1.55% | 1,000.00 | 1,015.47 | 6.87 | |||||||||||||||
B-Class | 2.11% | 1.21% | 1,000.00 | 1,012.06 | 10.64 | |||||||||||||||
C-Class | 2.11% | 1.17% | 1,000.00 | 1,011.71 | 10.64 | |||||||||||||||
Mid Cap Value Institutional Fund | 0.90% | 1.61% | 1,000.00 | 1,016.13 | 4.55 | |||||||||||||||
Small Cap Growth Fund | ||||||||||||||||||||
A-Class | 2.25% | 2.34% | 1,000.00 | 1,023.39 | 11.41 | |||||||||||||||
B-Class | 3.02% | 1.88% | 1,000.00 | 1,018.78 | 15.28 | |||||||||||||||
C-Class | 3.01% | 1.94% | 1,000.00 | 1,019.35 | 15.24 | |||||||||||||||
Small Cap Value Fund | ||||||||||||||||||||
A-Class | 1.30% | 1.49% | 1,000.00 | 1,014.85 | 6.57 | |||||||||||||||
C-Class | 2.05% | 1.07% | 1,000.00 | 1,010.73 | 10.33 | |||||||||||||||
Institutional Class | 1.05% | 1.62% | 1,000.00 | 1,016.20 | 5.31 |
THE RYDEX | SGI EQUITY FUNDS ANNUAL REPORT | | | 3 |
INFORMATION ABOUT YOUR FUND EXPENSES (Unaudited) (concluded)
September 30, 2010
Beginning | Ending | Expenses | ||||||||||||||||||
Expense | Fund | Account Value | Account Value | Paid During | ||||||||||||||||
Ratio | 1 | Return | March 31, 2010 | September 30, 2010 | the Period | 2 | ||||||||||||||
Table 2. Based on hypothetical 5% return (before expenses) | ||||||||||||||||||||
All Cap Value Fund | ||||||||||||||||||||
A-Class | 1.27% | 5.00% | $ | 1,000.00 | $ | 1,018.70 | $ | 6.43 | ||||||||||||
C-Class | 2.02% | 5.00% | 1,000.00 | 1,014.94 | 10.20 | |||||||||||||||
Institutional Class | 1.02% | 5.00% | 1,000.00 | 1,019.95 | 5.16 | |||||||||||||||
Alpha Opportunity Fund | ||||||||||||||||||||
A-Class | 2.11% | 5.00% | 1,000.00 | 1,014.49 | 10.66 | |||||||||||||||
B-Class | 2.86% | 5.00% | 1,000.00 | 1,010.73 | 14.42 | |||||||||||||||
C-Class | 2.86% | 5.00% | 1,000.00 | 1,010.73 | 14.42 | |||||||||||||||
Institutional Class | 1.86% | 5.00% | 1,000.00 | 1,015.74 | 9.40 | |||||||||||||||
Global Fund | ||||||||||||||||||||
A-Class | 1.89% | 5.00% | 1,000.00 | 1,015.59 | 9.55 | |||||||||||||||
B-Class4 | 1.64% | 5.00% | 1,000.00 | 1,016.85 | 8.29 | |||||||||||||||
C-Class | 2.64% | 5.00% | 1,000.00 | 1,011.83 | 13.31 | |||||||||||||||
Global Institutional Fund | 1.00% | 5.00% | 1,000.00 | 1,020.05 | 5.06 | |||||||||||||||
Large Cap Concentrated Growth Fund | ||||||||||||||||||||
A-Class | 1.35% | 5.00% | 1,000.00 | 1,018.30 | 6.83 | |||||||||||||||
B-Class | 2.10% | 5.00% | 1,000.00 | 1,014.54 | 10.61 | |||||||||||||||
C-Class | 2.10% | 5.00% | 1,000.00 | 1,014.54 | 10.61 | |||||||||||||||
Large Cap Core Fund | ||||||||||||||||||||
A-Class | 1.44% | 5.00% | 1,000.00 | 1,017.85 | 7.28 | |||||||||||||||
B-Class | 2.19% | 5.00% | 1,000.00 | 1,014.09 | 11.06 | |||||||||||||||
C-Class | 2.19% | 5.00% | 1,000.00 | 1,014.09 | 11.06 | |||||||||||||||
Large Cap Value Fund | ||||||||||||||||||||
A-Class | 1.15% | 5.00% | 1,000.00 | 1,019.30 | 5.82 | |||||||||||||||
B-Class4 | 0.90% | 5.00% | 1,000.00 | 1,020.56 | 4.56 | |||||||||||||||
C-Class | 1.90% | 5.00% | 1,000.00 | 1,015.54 | 9.60 | |||||||||||||||
Large Cap Value Institutional Fund | 0.96% | 5.00% | 1,000.00 | 1,020.26 | 4.86 | |||||||||||||||
Mid Cap Growth Fund | ||||||||||||||||||||
A-Class | 1.73% | 5.00% | 1,000.00 | 1,016.39 | 8.74 | |||||||||||||||
B-Class | 2.48% | 5.00% | 1,000.00 | 1,012.63 | 12.51 | |||||||||||||||
C-Class | 2.48% | 5.00% | 1,000.00 | 1,012.63 | 12.51 | |||||||||||||||
Mid Cap Value Fund | ||||||||||||||||||||
A-Class | 1.36% | 5.00% | 1,000.00 | 1,018.25 | 6.88 | |||||||||||||||
B-Class | 2.11% | 5.00% | 1,000.00 | 1,014.49 | 10.66 | |||||||||||||||
C-Class | 2.11% | 5.00% | 1,000.00 | 1,014.49 | 10.66 | |||||||||||||||
Mid Cap Value Institutional Fund | 0.90% | 5.00% | 1,000.00 | 1,020.56 | 4.56 | |||||||||||||||
Small Cap Growth Fund | ||||||||||||||||||||
A-Class | 2.25% | 5.00% | 1,000.00 | 1,013.79 | 11.36 | |||||||||||||||
B-Class | 3.02% | 5.00% | 1,000.00 | 1,009.93 | 15.22 | |||||||||||||||
C-Class | 3.01% | 5.00% | 1,000.00 | 1,009.98 | 15.17 | |||||||||||||||
Small Cap Value Fund | ||||||||||||||||||||
A-Class | 1.30% | 5.00% | 1,000.00 | 1,018.55 | 6.58 | |||||||||||||||
C-Class | 2.05% | 5.00% | 1,000.00 | 1,014.79 | 10.35 | |||||||||||||||
Institutional Class | 1.05% | 5.00% | 1,000.00 | 1,019.80 | 5.32 |
1 | Annualized |
2 | Expenses are equal to the Fund’s annualized expense ratio, net of any applicable fee waivers or earnings credits, multiplied by the average account value over the period, multiplied by 183/365 (to reflect the one-half year period). |
3 | Actual cumulative return at net asset value for the period March 31, 2010 to September 30, 2010. |
4 | B-Class shares of Global Fund and Large Cap Value Fund did not charge 12b-1 fees during the period. |
4 | | | THE RYDEX | SGI EQUITY FUNDS ANNUAL REPORT |
MANAGERS’ COMMENTARY
September 30, 2010
To Our Shareholders:
For the fiscal year ended September 30, 2010, the Rydex|SGI Equity Fund-All Cap Value Fund gained 8.97%1 while the Fund’s benchmark, the Russell 3000® Value Index, was up 9.15% during the same period.
Our strategy is to buy companies, across the market capitalization spectrum, trading at a significant discount to their intrinsic value. Our investment approach is a defined and disciplined process with three clear philosophical tenets that drive our investment decisions: a valuation focus, a long-term perspective and an opportunistic approach.
Our investment process is fundamentally driven and quantitatively aided. We use proprietary screens to identify potential companies for investment and then perform rigorous fundamental analysis to identify the best ideas. Through this fundamental research, we determine an estimate of intrinsic value and a valuation target for each idea. We construct the portfolios based on the level of conviction generated by the bottom-up analysis and the upside/downside profile associated with each company.
Financials and Industrials Top Performers
The Fund’s two top-performing sectors accounted for 38% of the portfolio assets. The Financials sector while underweight to the benchmark, consisted of 18.5% of the portfolio while holdings in the Industrials sector totaled 19.5% of assets, significantly higher than the 10.6% for the Index.
The leading security in the Financials sector was Berkshire Hathaway Inc. (Cl B), a 2.7% weight that gained 28.3% over the period. Regions Financial Corp., a 1.1% weight, climbed 17.8%. Other holdings in the sector that contributed to relative performance in the Fund included JPMorgan Chase & Co. and Wells Fargo & Co.
Advised by:
![(SGI LOGO)](https://capedge.com/proxy/N-CSR/0000950123-10-111594/g06945g0694504.gif)
Leading the Industrials sector for the Fund was Power-One Inc., which soared 366.2% during the one-year period. Union Pacific Corp., a 1.5% weight, gained 42.6%. Other positive contributors to the sector included GeoEye Inc. and Parker Hannifin Corp., which gained 51.0% and 37.5%, respectively.
Consumer Discretionary and Utilities Disappoint
Security selection was the primary culprit in the underperformance of the Fund in the Consumer Discretionary and Utilities sectors. Holdings for the Fund in the Consumer Discretionary sector increased 11.0%, compared to a 20.7% gain for the Index. Similarly, securities in the portfolio’s Utilities sector lagged 7.3% behind the Index return.
J.C. Penney Co. Inc., a 1.5% weight, lost 17.2% during the one-year period ended September 30, 2010. Likewise, Chico’s FAS Inc. dropped 18.2%, while the value of Conn’s Inc. plummeted 58.8%.
Utilities company NRG Energy Inc. declined 26.1% compared to a 14.0% overall gain in the sector for the benchmark. Edison International, with a 2.1% weight, had a positive performance of 6.2%, yet that was still well below the average gain in the sector for the Index.
Market Outlook
The S&P 500® Index, as a proxy for the general market, continues to be volatile. The third quarter of 2010 marked the sixth time in the last eight quarters the benchmark has either gained or lost more than 10%. In contrast, prior to the fourth quarter of 2008, the S&P 500® had only one up or down movement of more than 10% in the previous 16 months. Volatility will most likely continue.
THE RYDEX | SGI EQUITY FUNDS ANNUAL REPORT | | | 5 |
MANAGERS’ COMMENTARY (concluded)
We believe that investing is a long-term pursuit that requires patience and a consistent approach. We recognize there are many investment alternatives available today and thank you for your business and the confidence you place in us.
Sincerely,
James Schier, CFA, Portfolio Manager
Mark A. Mitchell, CFA, Portfolio Manager
Mark A. Mitchell, CFA, Portfolio Manager
1 | Performance figures are based on A-Class shares and do not reflect deduction of the sales charges or taxes that a shareholder would pay on distributions or the redemption of shares. Fee waivers and/or reimbursements reduce Fund expenses and in the absence of such waivers, the performance quoted would be reduced. |
Performance displayed represents past performance which is no guarantee of future results. Of course, Fund performance is subject to daily market volatility and may be better or worse since the end of the last quarter. For up-to-date Fund performance, call us at 800.820.0888 or visit www.rydex-sgi.com. | |
Russell 3000 ® Value Index – measures the performance of the largest 3000 U.S. companies representing approximately 98% of the investable U.S. equity market. | |
Standard & Poor’s 500 Index (S&P 500 ®) – a capitalization-weighted Index covering 500 industrial, utility, transportation and financial companies of the U.S. markets (mostly NYSE Euronext issues). | |
Rydex|SGI Funds are distributed by Rydex Distributors, LLC (RDL). Security Global InvestorsSM is the investment advisory arm of Security Benefit Corporation (Security Benefit). Security Global Investors consists of Security Global Investors, LLC, Security Investors, LLC and Rydex Investments. Rydex Investments is the primary business name for Rydex Advisors, LLC and Rydex Advisors II, LLC. Security Global Investors and RDL are affiliates and are subsidiaries of Security Benefit, which is wholly owned by Guggenheim SBC Holdings, LLC, a special purpose entity managed by Guggenheim Partners, LLC, a diversified financial services firm with more than $100 billion in assets under supervision. | |
Read each Fund’s prospectus and summary prospectus (if available) carefully before investing. It contains the Fund’s investment objectives, risks, charges, expenses and other information, which should be considered carefully before investing. Obtain a prospectus and summary prospectus (if available) at www.rydex-sgi.com or call 800.820.0888. |
6 | | | THE RYDEX | SGI EQUITY FUNDS ANNUAL REPORT |
PERFORMANCE SUMMARY September 30, 2010 | Rydex|SGI Equity Fund All Cap Value Fund (Unaudited) |
PERFORMANCE
![(PERFORMANCE GRAPH)](https://capedge.com/proxy/N-CSR/0000950123-10-111594/g06945g0694505.gif)
$10,000 Since Inception
This chart assumes a $10,000 investment in A-Class shares of All Cap Value Fund on October 3, 2008 (date of inception), reflects deduction of the maximum front-end sales charge of 5.75% and assumes all dividends are reinvested. The chart does not reflect the deduction of taxes that a shareholder would pay on distributions or the redemption of fund shares. The Russell 3000® Value Index is an unmanaged index that measures the performance of the broad value segment of the U.S. equity universe. It includes those Russell 3000® companies with lower price-to-book ratios and lower forecasted growth values.
AVERAGE ANNUAL RETURNS PERIODS ENDED 9/30/10 | |||||||||
SINCE | |||||||||
INCEPTION | |||||||||
1 YEAR | (10/03/08) | ||||||||
A-Class Shares | 8.97 | % | 5.50 | % | |||||
A-Class Shares with sales charge | 2.73 | % | 2.41 | % | |||||
C-Class Shares | 8.29 | % | 4.76 | % | |||||
C-Class Shares with CDSC | 7.29 | % | 4.76 | % | |||||
Institutional Class Shares | 9.22 | % | 5.78 | % | |||||
The performance data above represents past performance that is not predictive of future results. The investment return and principal value of an investment in the Fund will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. The figures above do not reflect deduction of the maximum front-end sales charge of 5.75% for A-Class shares or the contingent deferred sales charge (CDSC) of up to 1% for C-Class shares, as applicable, except where noted. The figures do not reflect the deduction of taxes that a shareholder would pay on distributions or redemption of shares. Such figures would be lower if the maximum sales charge and any applicable taxes were deducted. Fee waivers and/or reimbursements reduced expenses of the Fund and in the absence of such waivers, the performance quoted would be reduced.
Portfolio Composition by Sector | ||||
Common Stocks | ||||
Consumer Discretionary | 9.5 | % | ||
Consumer Staples | 7.3 | % | ||
Energy | 12.6 | % | ||
Financials | 16.3 | % | ||
Health Care | 6.7 | % | ||
Industrials | 17.8 | % | ||
Information Technology | 13.1 | % | ||
Materials | 3.8 | % | ||
Telecommunication Services | 1.0 | % | ||
Utilities | 4.3 | % | ||
Exchange Traded Funds | 3.7 | % | ||
Cash & Other Assets, | ||||
Less Liabilities | 3.9 | % | ||
Total Net Assets | 100.0 | % | ||
The accompanying notes are an integral part of the financial statements. | THE RYDEX | SGI EQUITY FUNDS ANNUAL REPORT | | | 7 |
SCHEDULE OF INVESTMENTS September 30, 2010 | Rydex|SGI Equity Fund All Cap Value Fund |
SHARES | VALUE | |||||||
COMMON STOCKS† - 92.4% | ||||||||
Industrials - 17.8% | ||||||||
Equifax, Inc. | 2,665 | $ | 83,147 | |||||
United Technologies Corp. | 630 | 44,874 | ||||||
FedEx Corp. | 517 | 44,204 | ||||||
Union Pacific Corp. | 510 | 41,718 | ||||||
Parker Hannifin Corp. | 452 | 31,667 | ||||||
Babcock & Wilcox Co.* | 1,384 | 29,452 | ||||||
USG Corp.* | 2,154 | 28,411 | ||||||
GeoEye, Inc.* | 600 | 24,288 | ||||||
Quanta Services, Inc.* | 1,180 | 22,515 | ||||||
Dover Corp. | 357 | 18,639 | ||||||
Covanta Holdings Corp. | 1,100 | 17,325 | ||||||
Insituform Technologies, Inc. — Class A* | 610 | 14,750 | ||||||
Administaff, Inc. | 450 | 12,119 | ||||||
Saia, Inc.* | 712 | 10,630 | ||||||
General Cable Corp.* | 390 | 10,577 | ||||||
Orbital Sciences Corp.* | 655 | 10,022 | ||||||
Navigant Consulting, Inc.* | 725 | 8,431 | ||||||
Force Protection, Inc.* | 1,611 | 8,119 | ||||||
URS Corp.* | 183 | 6,950 | ||||||
Trex Company, Inc.* | 279 | 5,321 | ||||||
FTI Consulting, Inc.* | 101 | 3,504 | ||||||
ICF International, Inc.* | 139 | 3,485 | ||||||
United Stationers, Inc.* | 47 | 2,515 | ||||||
Total Industrials | 482,663 | |||||||
Financials - 16.3% | ||||||||
Berkshire Hathaway, Inc. — Class B* | 770 | 63,663 | ||||||
AON Corp. | 1,134 | 44,351 | ||||||
Wells Fargo & Co. | 1,672 | 42,017 | ||||||
JPMorgan Chase & Co. | 1,010 | 38,451 | ||||||
Bank of New York Mellon Corp. | 1,330 | 34,753 | ||||||
U.S. Bancorp | 1,440 | 31,133 | ||||||
BB&T Corp. | 1,135 | 27,330 | ||||||
Hanover Insurance Group, Inc. | 554 | 26,037 | ||||||
Regions Financial Corp. | 3,220 | 23,409 | ||||||
WR Berkley Corp.1 | 836 | 22,631 | ||||||
American Financial Group, Inc. | 620 | 18,960 | ||||||
Fifth Street Finance Corp. | 990 | 11,029 | ||||||
Associated Banc-Corp | 814 | 10,737 | ||||||
Reinsurance Group of America, Inc. — Class A | 180 | 8,692 | ||||||
Investors Real Estate Trust | 900 | 7,542 | ||||||
Old National Bancorp | 713 | 7,487 | ||||||
Employers Holdings, Inc. | 459 | 7,238 | ||||||
Alleghany Corp.* | 23 | 6,970 | ||||||
First Marblehead Corp.* | 2,279 | 5,333 | ||||||
First Horizon National Corp.* | 391 | 4,467 | ||||||
Arthur J Gallagher & Co. | 97 | 2,558 | ||||||
Whitney Holding Corp. | 143 | 1,168 | ||||||
Total Financials | 445,956 | |||||||
SHARES | VALUE | |||||||
Information Technology - 13.1% | ||||||||
Western Union Co. | 4,690 | $ | 82,873 | |||||
Computer Sciences Corp. | 1,243 | 57,178 | ||||||
Tyco Electronics Ltd. | 1,952 | 57,037 | ||||||
Hewlett-Packard Co. | 1,090 | 45,856 | ||||||
Synopsys, Inc.* | 1,220 | 30,219 | ||||||
IXYS Corp.* | 2,494 | 23,818 | ||||||
Power-One, Inc.* | 2,520 | 22,907 | ||||||
Maxwell Technologies, Inc.* | 859 | 12,550 | ||||||
Satyam Computer Services, Ltd. ADR* | 2,707 | 10,530 | ||||||
Symmetricom, Inc.* | 1,825 | 10,439 | ||||||
FEI Co.* | 250 | 4,893 | ||||||
Total Information Technology | 358,300 | |||||||
Energy - 12.6% | ||||||||
ConocoPhillips | 960 | 55,132 | ||||||
Chevron Corp. | 660 | 53,493 | ||||||
McDermott International, Inc.* | 2,768 | 40,911 | ||||||
Williams Companies, Inc. | 1,960 | 37,456 | ||||||
Halliburton Co. | 1,069 | 35,352 | ||||||
Exxon Mobil Corp. | 390 | 24,098 | ||||||
Southern Union Co. | 903 | 21,726 | ||||||
Global Industries Ltd.* | 3,094 | 16,924 | ||||||
Valero Energy Corp. | 790 | 13,833 | ||||||
Chesapeake Energy Corp. | 559 | 12,662 | ||||||
Petrohawk Energy Corp.* | 750 | 12,105 | ||||||
USEC, Inc.* | 2,005 | 10,406 | ||||||
Goodrich Petroleum Corp.* | 523 | 7,620 | ||||||
Gulfport Energy Corp.* | 230 | 3,183 | ||||||
Total Energy | 344,901 | |||||||
Consumer Discretionary - 9.5% | ||||||||
Lowe’s Companies, Inc. | 2,959 | 65,956 | ||||||
Time Warner, Inc. | 1,687 | 51,707 | ||||||
JC Penney Company, Inc. | 1,451 | 39,438 | ||||||
Cabela’s, Inc.* | 1,099 | 20,859 | ||||||
Maidenform Brands, Inc.* | 537 | 15,493 | ||||||
Brown Shoe Company, Inc. | 1,251 | 14,349 | ||||||
Chico’s FAS, Inc. | 1,200 | 12,624 | ||||||
Penn National Gaming, Inc.* | 400 | 11,844 | ||||||
Leggett & Platt, Inc. | 367 | 8,353 | ||||||
Scholastic Corp. | 200 | 5,564 | ||||||
Fortune Brands, Inc. | 100 | 4,923 | ||||||
Jack in the Box, Inc.* | 210 | 4,502 | ||||||
Fred’s, Inc. — Class A | 200 | 2,360 | ||||||
Conn’s, Inc.* | 319 | 1,483 | ||||||
Columbia Sportswear Co. | 7 | 409 | ||||||
Total Consumer Discretionary | 259,864 | |||||||
Consumer Staples - 7.3% | ||||||||
Wal-Mart Stores, Inc. | 1,000 | 53,520 | ||||||
CVS Caremark Corp. | 1,108 | 34,869 | ||||||
Hormel Foods Corp.1 | 629 | 28,053 | ||||||
Philip Morris International, Inc. | 442 | 24,761 |
8 | | | THE RYDEX | SGI EQUITY FUNDS ANNUAL REPORT | The accompanying notes are an integral part of the financial statements. |
SCHEDULE OF INVESTMENTS (concluded) September 30, 2010 | Rydex|SGI Equity Fund All Cap Value Fund |
SHARES | VALUE | |||||||
JM Smucker Co. | 381 | $ | 23,062 | |||||
Bunge Ltd. | 300 | 17,748 | ||||||
Ralcorp Holdings, Inc.* | 140 | 8,187 | ||||||
Del Monte Foods Co. | 596 | 7,814 | ||||||
Total Consumer Staples | 198,014 | |||||||
Health Care - 6.7% | ||||||||
Aetna, Inc. | 1,449 | 45,803 | ||||||
Covidien plc | 938 | 37,699 | ||||||
Hospira, Inc.* | 619 | 35,289 | ||||||
Medco Health Solutions, Inc.* | 244 | 12,703 | ||||||
Merck & Company, Inc. | 310 | 11,411 | ||||||
Genzyme Corp.* | 160 | 11,326 | ||||||
Mednax, Inc.* | 154 | 8,208 | ||||||
RehabCare Group, Inc.* | 392 | 7,926 | ||||||
Forest Laboratories, Inc.* | 230 | 7,114 | ||||||
Hologic, Inc.* | 399 | 6,388 | ||||||
Total Health Care | 183,867 | |||||||
Utilities - 4.3% | ||||||||
Edison International | 1,580 | 54,337 | ||||||
NRG Energy, Inc.* | 890 | 18,530 | ||||||
Allete, Inc. | 273 | 9,945 | ||||||
Great Plains Energy, Inc. | 497 | 9,393 | ||||||
Black Hills Corp. | 290 | 9,048 | ||||||
American Water Works Company, Inc. | 300 | 6,981 | ||||||
Northeast Utilities | 202 | 5,973 | ||||||
Alliant Energy Corp. | 89 | 3,235 | ||||||
Total Utilities | 117,442 | |||||||
Materials - 3.8% | ||||||||
Dow Chemical Co. | 1,056 | 28,998 | ||||||
Bemis Company, Inc. | 894 | 28,384 | ||||||
Louisiana-Pacific Corp.* | 2,800 | 21,196 | ||||||
Sonoco Products Co. | 521 | 17,422 | ||||||
HB Fuller Co. | 210 | 4,173 | ||||||
Zoltek Companies, Inc.* | 224 | 2,177 | ||||||
Total Materials | 102,350 | |||||||
Telecommunication Services - 1.0% | ||||||||
Windstream Corp. | 2,182 | 26,817 | ||||||
Total Common Stocks (Cost $2,327,037) | 2,520,174 | |||||||
SHARES | VALUE | |||||||
EXCHANGE TRADED FUNDS† - 3.7% | ||||||||
iShares Russell 1000 Value Index Fund | 870 | $ | 51,321 | |||||
iShares S&P 500 Value Index Fund | 940 | 50,995 | ||||||
Total Exchange Traded Funds (Cost $92,403) | 102,316 | |||||||
Total Investments - 96.1% (Cost $2,419,440) | $ | 2,622,490 | ||||||
CONTRACTS | ||||||||
OPTIONS WRITTEN† - 0.0% | ||||||||
Put Options on: | ||||||||
Great Plains Energy, Inc. Expiring December 2010 with strike price of $17.50 | 2 | (70 | ) | |||||
American Waterworks, Inc. Expiring December 2010 with strike price of $22.50 | 3 | (180 | ) | |||||
Brinker International, Inc. Expiring January 2011 with strike price of $17.50 | 3 | (360 | ) | |||||
Total Options Written (Premiums received $1,057) | (610 | ) | ||||||
Cash & Other Assets, Less Liabilities - 3.9% | 106,591 | |||||||
Total Net Assets - 100.0% | $ | 2,728,471 | ||||||
* | Non-income producing security |
† | Value determined based on Level 1 inputs — See Note 9. |
1 | Security is segregated as collateral for open written option contracts. |
ADR — American Depositary Receipt | |
plc — Public Limited Company |
The accompanying notes are an integral part of the financial statements. | THE RYDEX | SGI EQUITY FUNDS ANNUAL REPORT | | | 9 |
Rydex|SGI Equity Fund All Cap Value Fund |
STATEMENT OF ASSETS
AND LIABILITIES
AND LIABILITIES
September 30, 2010
Assets: | ||||
Investments, at value* | $ | 2,622,490 | ||
Cash | 81,575 | |||
Receivables: | ||||
Fund shares sold | 20,000 | |||
Securities sold | 8,344 | |||
Dividends | 3,287 | |||
Prepaid expenses | 19,901 | |||
Total assets | 2,755,597 | |||
Liabilities: | ||||
Written options, at value** | 610 | |||
Payable for: | ||||
Securities purchased | 3,783 | |||
Fund shares redeemed | 126 | |||
Due to Security Investors | 3,371 | |||
Management fees | 1,516 | |||
Custodian fees | 290 | |||
Transfer agent/maintenance fees | 1,432 | |||
Administration fees | 206 | |||
Professional fees | 8,665 | |||
12b-1 distribution plan fees | 951 | |||
Directors’ fees | 22 | |||
Other | 6,154 | |||
Total liabilities | 27,126 | |||
Net assets | $ | 2,728,471 | ||
Net assets consist of: | ||||
Paid in capital | $ | 2,404,568 | ||
Undistributed net investment income | 3,801 | |||
Accumulated net realized gain on investments | 116,605 | |||
Net unrealized appreciation on investments | 203,497 | |||
Net assets | $ | 2,728,471 | ||
A-Class: | ||||
Capital shares outstanding | ||||
(unlimited number of shares authorized) | 144,078 | |||
Net assets | $ | 1,600,647 | ||
Net asset value and redemption price per share | $11.11 | |||
Maximum offering price per share (net asset value divided by 94.25%) | $11.79 | |||
C-Class: | ||||
Capital shares outstanding | ||||
(unlimited number of shares authorized) | 73,804 | |||
Net assets | $ | 809,406 | ||
Net asset value, offering and redemption price | ||||
per share (excluding any applicable | ||||
contingent deferred sales charge) | $10.97 | |||
Institutional Class: | ||||
Capital shares outstanding | ||||
(unlimited number of shares authorized) | 28,629 | |||
Net assets | $ | 318,418 | ||
Net asset value, offering and redemption price | ||||
per share | $11.12 | |||
* Investments, at cost | $ | 2,419,440 | ||
** Premiums received for written options | $ | 1,057 |
STATEMENT OF
OPERATIONS
OPERATIONS
For the Year Ended September 30, 2010
Investment Income: | ||||
Dividends | $ | 39,382 | ||
Interest | 46 | |||
Total investment income | 39,428 | |||
Expenses: | ||||
Management fees | 17,156 | |||
Transfer agent/maintenance fees | 15,366 | |||
Administration fees | 2,726 | |||
Custodian fees | 7,781 | |||
Directors’ fees | 239 | |||
Professional fees | 9,359 | |||
Reports to shareholders | 4,023 | |||
Registration fees | 26,189 | |||
Other | 2,073 | |||
12b-1 distribution fees - A-Class | 3,835 | |||
12b-1 distribution fees - C-Class | 6,072 | |||
Total expenses | 94,819 | |||
Reimbursement of expenses | (59,326 | ) | ||
Net expenses | 35,493 | |||
Net investment income | 3,935 | |||
Net Realized and Unrealized Gain (Loss): | ||||
Net realized gain (loss) on: | ||||
Investments | 133,404 | |||
Options written | 6,984 | |||
Net realized gain | 140,388 | |||
Net change in unrealized appreciation | ||||
(depreciation) on: | ||||
Investments | 54,962 | |||
Options written | (176 | ) | ||
Net change in unrealized appreciation (depreciation) | 54,786 | |||
Net realized and unrealized gain | 195,174 | |||
Net increase in net assets resulting from operations | $ | 199,109 | ||
10 | | | THE RYDEX | SGI EQUITY FUNDS ANNUAL REPORT | The accompanying notes are an integral part of the financial statements. |
STATEMENTS OF CHANGES IN NET ASSETS | Rydex|SGI Equity Fund All Cap Value Fund |
Year Ended | Period Ended | |||||||
September 30, | September 30, | |||||||
2010 | 2009 | * | ||||||
Increase (Decrease) In Net Assets From Operations: | ||||||||
Net investment income | $ | 3,935 | $ | 3,576 | ||||
Net realized gain (loss) on investments | 140,388 | (23,783 | ) | |||||
Net change in unrealized appreciation (depreciation) on investments | 54,786 | 148,711 | ||||||
Net increase in net assets resulting from operations | 199,109 | 128,504 | ||||||
Distributions to shareholders from: | ||||||||
Net investment income A-Class | (1,974 | ) | — | |||||
Institutional Class | (1,736 | ) | — | |||||
Total distributions to shareholders | (3,710 | ) | — | |||||
Capital share transactions: | ||||||||
Proceeds from sale of shares A-Class | 1,353,803 | 1,271,992 | ||||||
C-Class | 464,106 | 418,597 | ||||||
Institutional Class | 43,200 | 284,637 | ||||||
Distributions reinvested A-Class | 1,960 | — | ||||||
Institutional Class | 1,736 | — | ||||||
Cost of shares redeemed A-Class | (1,209,690 | ) | (56,559 | ) | ||||
C-Class | (128,033 | ) | (955 | ) | ||||
Institutional Class | (40,226 | ) | — | |||||
Net increase from capital share transactions | 486,856 | 1,917,712 | ||||||
Net increase in net assets | 682,255 | 2,046,216 | ||||||
Net assets: | ||||||||
Beginning of year | 2,046,216 | — | ||||||
End of year | $ | 2,728,471 | $ | 2,046,216 | ||||
Undistributed net investment income at end of year | $ | 3,801 | $ | 3,576 | ||||
Capital share activity: | ||||||||
Shares sold A-Class | 126,610 | 134,995 | ||||||
C-Class | 42,853 | 43,096 | ||||||
Institutional Class | 3,913 | 28,464 | ||||||
Shares issued from reinvestment of distributions A-Class | 186 | — | ||||||
Institutional Class | 165 | — | ||||||
Shares redeemed A-Class | (111,974 | ) | (5,739 | ) | ||||
C-Class | (12,031 | ) | (114 | ) | ||||
Institutional Class | (3,913 | ) | — | |||||
Total capital share activity | 45,809 | 200,702 | ||||||
* | For the period October 3, 2008 (commencement of operations) to September 30, 2009. |
The accompanying notes are an integral part of the financial statements. | THE RYDEX | SGI EQUITY FUNDS ANNUAL REPORT | | | 11 |
FINANCIAL HIGHLIGHTS | Rydex|SGI Equity Fund All Cap Value Fund |
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.
Year Ended | Period Ended | |||||||
September 30, | September 30, | |||||||
A-Class | 2010 | 2009a | ||||||
Per Share Data | ||||||||
Net asset value, beginning of period | $10.21 | $10.00 | ||||||
Income (loss) from investment operations: | ||||||||
Net investment incomeb | 0.03 | 0.04 | ||||||
Net gain on investments (realized and unrealized) | 0.89 | 0.17 | ||||||
Total from investment operations | 0.92 | 0.21 | ||||||
Less distributions from: | ||||||||
Net investment income | (0.02 | ) | — | |||||
Total distributions | (0.02 | ) | — | |||||
Net asset value, end of period | $11.11 | $10.21 | ||||||
Total Returnc | 8.97% | 2.10% | ||||||
Ratios/Supplemental Data | ||||||||
Net assets, end of period (in thousands) | $1,601 | $1,319 | ||||||
Ratios to average net assets: | ||||||||
Net investment income | 0.31% | 0.51% | ||||||
Total expensesd | 3.71% | 6.75% | ||||||
Net expensese | 1.29% | 1.35% | ||||||
Portfolio turnover rate | 55% | 17% | ||||||
Year Ended | Period Ended | |||||||
September 30, | September 30, | |||||||
C-Class | 2010 | 2009a | ||||||
Per Share Data | ||||||||
Net asset value, beginning of period | $10.13 | $10.00 | ||||||
Income (loss) from investment operations: | ||||||||
Net investment lossb | (0.04 | ) | (0.02 | ) | ||||
Net gain on investments (realized and unrealized) | 0.88 | 0.15 | ||||||
Total from investment operations | 0.84 | 0.13 | ||||||
Net asset value, end of period | $10.97 | $10.13 | ||||||
Total Returnc | 8.29% | 1.30% | ||||||
Ratios/Supplemental Data | ||||||||
Net assets, end of period (in thousands) | $809 | $436 | ||||||
Ratios to average net assets: | ||||||||
Net investment loss | (0.41% | ) | (0.18% | ) | ||||
Total expensesd | 4.47% | 8.89% | ||||||
Net expensese | 2.04% | 2.10% | ||||||
Portfolio turnover rate | 55% | 17% |
12 | | | THE RYDEX | SGI EQUITY FUNDS ANNUAL REPORT | The accompanying notes are an integral part of the financial statements. |
FINANCIAL HIGHLIGHTS (concluded) | Rydex|SGI Equity Fund All Cap Value Fund |
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.
Year Ended | Period Ended | |||||||
September 30, | September 30, | |||||||
Institutional Class | 2010 | 2009a | ||||||
Per Share Data | ||||||||
Net asset value, beginning of period | $10.24 | $10.00 | ||||||
Income (loss) from investment operations: | ||||||||
Net investment incomeb | 0.06 | 0.07 | ||||||
Net gain on investments (realized and unrealized) | 0.88 | 0.17 | ||||||
Total from investment operations | 0.94 | 0.24 | ||||||
Less distributions from: | ||||||||
Net investment income | (0.06 | ) | — | |||||
Total distributions | (0.06 | ) | — | |||||
Net asset value, end of period | $11.12 | $10.24 | ||||||
Total Return | 9.22% | 2.40% | ||||||
Ratios/Supplemental Data | ||||||||
Net assets, end of period (in thousands) | $318 | $291 | ||||||
Ratios to average net assets: | ||||||||
Net investment income | 0.55% | 0.81% | ||||||
Total expensesd | 3.48% | 8.19% | ||||||
Net expensese | 1.05% | 1.10% | ||||||
Portfolio turnover rate | 55% | 17% |
a | The All Cap Value Fund was initially capitalized on October 3, 2008 with a net asset value of $10 per share. Percentage amounts for the period, except total return, have been annualized. |
b | Net investment income (loss) was computed using average shares outstanding throughout the period. |
c | Total return information does not reflect deduction of any sales charges imposed at the time of purchase for A-Class shares or upon redemption for C-Class shares. |
d | Total expense information reflects expense ratios absent expense reductions by the Investment Manager, as applicable. |
e | Net expense information reflects the expense ratios after voluntary expense waivers and reimbursements and before custodian earnings credits, as applicable. |
The accompanying notes are an integral part of the financial statements. | THE RYDEX | SGI EQUITY FUNDS ANNUAL REPORT | | | 13 |
MANAGERS’ COMMENTARY
September 30, 2010
Advised by:
![(SECURITY GLOBAL INVESTORS LOGO)](https://capedge.com/proxy/N-CSR/0000950123-10-111594/g06945g0694504.gif)
and Subadvised by:
![(MAINSTREAM LOGO)](https://capedge.com/proxy/N-CSR/0000950123-10-111594/g06945g0694506.gif)
To Our Shareholders:
For the fiscal year ended September 30, 2010, the Rydex|SGI Equity Fund–Alpha Opportunity Fund returned 13.43%1, outperforming the 10.16% gain for the S&P 500® Index and the peer group’s 2.63% increase.
The Fund pursues its objective by investing approximately 37.5% of its total assets according to a long/short strategy in domestic equity securities and 37.5% of its total assets according to a long/short strategy in non-U.S. securities. The manager invests the remaining 25% of total assets in a portfolio of equity securities, equity derivative securities, and fixed-income securities intended to track the S&P 500® Index.
The Fund pursues its domestic long/short strategy using fundamental and technical analysis to identify quality securities trading at attractive valuations. The domestic strategy uses a top-down perspective to formulate long-term themes and a bottom-up approach to identify individual securities. The Fund pursues its global long/short strategy using quantitative and qualitative techniques to identify long and short investment opportunities.
Domestic Strategy Performance
For the domestic strategy, contributors to performance included the Financials, Materials, and Information Technology sectors, all due to superior stock selection.
Holdings in the portfolio’s Financials sector were underweight the Index 9.1% to 16.1%, but gained 2.7% compared to a 3.3% loss for the benchmark. Leaders for the Fund included United States Oil Fund LP, Weyerhaeuser Co., and Potlatch Corp.
The Fund’s Materials sector was a large overweight position, 14.5% to 3.5%, and outperformed by 15.5% to 10.5%. Stillwater Mining Co. soared
132.3%, while Molycorp Inc. returned 78.3% during the fiscal year. Other contributors included Newmont Mining Corp. and Tech Resources Ltd.
Information Technology holdings in the portfolio gained 24.8% versus an 11.1% gain for the Index, a difference of more than 13%. Skyworks Solutions Inc. was up 63.3%, while Baidu Inc. ADS increased 39.8%.
Global Strategy Performance
For the global strategy, top performing sectors included Industrials, Financials, and Consumer Staples.
In the Industrials sector, Joy Global Inc. gained 45.5%, while A.O. Smith Corp. was up 54.5%. Other positive contributors for the Fund included Brisa-Autoestradeas de Portugal S/A, Trinity Industries Inc., and Beijing Capital International Airport Ltd.
Leaders in the Financials sector for the portfolio included Wells Fargo & Co. and PrivateBancorp Inc.
The Fund’s Consumer Staples sector was a 16.2% to 11.5% overweight and outperformed the Index 31.3% to 13.0%. Herbalife Ltd. increased 87.7%, while Altria Group Inc. gained 44.3%. Other gainers included Philip Morris International Inc., Wal-Mart Stores Inc., and Safeway Inc.
Hurting performance, in addition to a cash drag, were the Information Technology, Materials, and Consumer Discretionary sectors. In the Information Technology sector, VMware Inc., Riverbed Technology Inc., and Baidu Inc. ADS detracted from performance. Those hurting performance in the Materials sector were Silver Wheaton Corp., Ivanhoe Mines Ltd., and Eldorado Gold Corp. Shanda Interactive Entertainment Ltd. ADS and Genting Singapore plc were underperformers in the Consumer Discretionary sector.
14 | | | THE RYDEX | SGI EQUITY FUNDS ANNUAL REPORT |
1
MANAGERS’ COMMENTARY (concluded)
Market Outlook
U.S. GDP in the fourth quarter of 2009 was a strong 5.0% while the first quarter of 2010 recorded a gain of 3.7%. By the second quarter of the year, GDP had slowed to 1.7%, nearly back to the level in the third quarter of 2009. Ending the third quarter of 2010, the economic backdrop is a low-inflation, below-potential-growth environment, with a Federal Reserve that is willing to support the markets should economic activity falter. We will continue to closely monitor the growth and strength of the world economies as we try to uncover individual companies in the best position to succeed in such an environment.
The Fund is currently unable to pursue its investment strategy of short sales of securities of non-U.S. issuers, which affects its ability to meet its investment objective. As referenced in Note 8 of the Notes to Financials in this shareholder report, Security Global Investors (SGI) is working to resolve certain outstanding short sale transactions with Lehman Brothers International Europe (LBIE) and its administrator. The Fund’s exposure to LBIE due to these transactions consists of short sale proceeds and long positions held at the Fund’s custodian, as collateral. Release of the collateral requires the consent of LBIE and Lehman Brothers, Inc., an entity that is subject to a liquidation proceeding. Due to the valuations assigned to these positions, which are based on certain assumptions, resolution of these matters could ultimately result in the Funds
realizing values that are materially different from those indicated in this report, which would materially affect the Fund’s net asset value (either positively or negatively). SGI is uncertain when it will resume its full investment program.
We thank you for your investment and appreciate the trust and confidence you have placed in us.
Sincerely,
Bill Jenkins, Portfolio Manager
(Mainstream Investment Advisers)
Charles Craig, Portfolio Manager
(Mainstream Investment Advisers)
David Whittall, Portfolio Manager
(Security Global Investors, LLC)
Scott Klimo, CFA, Portfolio Manager
(Security Global Investors, LLC)
Mark Kress, CFA, Portfolio/Risk Manager
(Security Global Investors, LLC)
Yon Perullo, CFA, Portfolio/Risk Manager
(Security Global Investors, LLC)
(Mainstream Investment Advisers)
Charles Craig, Portfolio Manager
(Mainstream Investment Advisers)
David Whittall, Portfolio Manager
(Security Global Investors, LLC)
Scott Klimo, CFA, Portfolio Manager
(Security Global Investors, LLC)
Mark Kress, CFA, Portfolio/Risk Manager
(Security Global Investors, LLC)
Yon Perullo, CFA, Portfolio/Risk Manager
(Security Global Investors, LLC)
1 | Performance figures are based on A-Class shares and do not reflect deduction of the sales charges or taxes that a shareholder would pay on distributions or the redemption of shares. Fee waivers and/or reimbursements reduce Fund expenses and in the absence of such waivers, the performance quoted would be reduced. |
Mainstream Investment Advisors, LLC is not affiliated with Security Global Investors, LLC. | |
Performance displayed represents past performance which is no guarantee of future results. Of course, Fund performance is subject to daily market volatility and may be better or worse since the end of the last quarter. For up-to-date Fund performance, call us at 800.820.0888 or visit www.rydex-sgi.com. | |
Standard & Poor’s 500 Index (S&P 500®) – a capitalization-weighted Index covering 500 industrial, utility, transportation and financial companies of the U.S. markets (mostly NYSE Euronext issues). | |
Rydex|SGI Funds are distributed by Rydex Distributors, LLC (RDL). Security Global InvestorsSM is the investment advisory arm of Security Benefit Corporation (Security Benefit). Security Global Investors consists of Security Global Investors, LLC, Security Investors, LLC and Rydex Investments. Rydex Investments is the primary business name for Rydex Advisors, LLC and Rydex Advisors II, LLC. Security Global Investors and RDL are affiliates and are subsidiaries of Security Benefit, which is wholly owned by Guggenheim SBC Holdings, LLC, a special purpose entity managed by Guggenheim Partners, LLC, a diversified financial services firm with more than $100 billion in assets under supervision. | |
Read each Fund’s prospectus and summary prospectus (if available) carefully before investing. It contains the Fund’s investment objectives, risks, charges, expenses and other information, which should be considered carefully before investing. Obtain a prospectus and summary prospectus (if available) at www.rydex-sgi.com or call 800.820.0888. |
THE RYDEX | SGI EQUITY FUNDS ANNUAL REPORT | | | 15 |
2
PERFORMANCE SUMMARY September 30, 2010 | Rydex|SGI Equity Fund Alpha Opportunity Fund (Unaudited) |
PERFORMANCE
![(PERFORMANCE GRAPH)](https://capedge.com/proxy/N-CSR/0000950123-10-111594/g06945g0694507.gif)
$10,000 Since Inception
This chart assumes a $10,000 investment in A-Class shares of Alpha Opportunity Fund on July 7, 2003 (date of inception), reflects deduction of the maximum front-end sales charge of 5.75% and assumes all dividends are reinvested. The chart does not reflect the deduction of taxes that a shareholder would pay on distributions or the redemption of fund shares. The S&P 500® Index is a capitalization weighted index composed of 500 selected common stocks that represent the broad domestic economy and is a widely recognized unmanaged index of market performance.
AVERAGE ANNUAL RETURNS PERIODS ENDED 9/30/10 | ||||||||||||
SINCE | ||||||||||||
INCEPTION | ||||||||||||
1 YEAR | 5 YEAR | (07/07/03) | ||||||||||
A-Class Shares | 13.43 | % | 3.37 | % | 7.13 | % | ||||||
A-Class Shares with sales charge | 6.94 | % | 2.16 | % | 6.26 | % | ||||||
B-Class Shares | 12.31 | % | 2.55 | % | 6.29 | % | ||||||
B-Class Shares with CDSC | 7.31 | % | 2.28 | % | 6.29 | % | ||||||
C-Class Shares | 12.59 | % | 2.55 | % | 6.29 | % | ||||||
C-Class Shares with CDSC | 11.59 | % | 2.55 | % | 6.29 | % |
SINCE | ||||||||
INCEPTION | ||||||||
1 YEAR | (11/07/08) | |||||||
Institutional Class Shares | 13.64 | % | 16.37 | % |
The performance data above represents past performance that is not predictive of future results. The investment return and principal value of an investment in the Fund will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. The figures above do not reflect deduction of the maximum front-end sales charge of 5.75% for A-Class shares or the CDSC of up to 5% for B-Class shares and 1% for C-Class shares, as applicable, except where noted. The figures do not reflect the deduction of taxes that a shareholder would pay on distributions or redemption of shares. Such figures would be lower if the maximum sales charge and any applicable taxes were deducted. Fee waivers and/or reimbursements reduced expenses of the Fund and in the absence of such waivers, the performance quoted would be reduced.
Holdings Diversification (Market Exposure as % of Net Assets)
![(BAR CHART)](https://capedge.com/proxy/N-CSR/0000950123-10-111594/g06945g0694508.gif)
16 | | | THE RYDEX | SGI EQUITY FUNDS ANNUAL REPORT | The accompanying notes are an integral part of the financial statements. |
3
SCHEDULE OF INVESTMENTS September 30, 2010 | Rydex|SGI Equity Fund Alpha Opportunity Fund |
SHARES | VALUE | |||||||
COMMON STOCKS† - 93.5% | ||||||||
Industrials - 23.0% | ||||||||
Joy Global, Inc.1,2 | 9,080 | $ | 638,506 | |||||
Lockheed Martin Corp.1,2 | 3,753 | 267,514 | ||||||
Trinity Industries, Inc.1,2 | 10,200 | 227,154 | ||||||
AO Smith Corp.1,2 | 2,800 | 162,092 | ||||||
United Parcel Service, Inc. — Class B | 1,929 | 128,645 | ||||||
Towers Watson & Co. — Class A1,2 | 2,200 | 108,196 | ||||||
Watts Water Technologies, Inc. — Class A1,2 | 2,800 | 95,340 | ||||||
J.B. Hunt Transport Services, Inc. | 2,546 | 88,346 | ||||||
US Airways Group, Inc.* | 9,199 | 85,091 | ||||||
FedEx Corp. | 890 | 76,095 | ||||||
Westport Innovations, Inc.* | 4,145 | 72,952 | ||||||
Continental Airlines, Inc. — Class B* | 2,820 | 70,049 | ||||||
General Electric Co.1,2 | 4,200 | 68,250 | ||||||
Northrop Grumman Corp.1,2 | 1,100 | 66,693 | ||||||
Alamo Group, Inc. | 2,967 | 66,253 | ||||||
GrafTech International Ltd.* | 4,007 | 62,629 | ||||||
Republic Services, Inc. — Class A | 1,833 | 55,888 | ||||||
Genesee & Wyoming, Inc. — Class A* | 1,249 | 54,194 | ||||||
Canadian National Railway Co. | 841 | 53,841 | ||||||
Con-way, Inc.1,2 | 1,700 | 52,683 | ||||||
GATX Corp. | 1,654 | 48,495 | ||||||
KBR, Inc. | 1,705 | 42,011 | ||||||
Wabash National Corp.* | 4,751 | 38,436 | ||||||
Fluor Corp. | 742 | 36,751 | ||||||
Kansas City Southern* | 920 | 34,417 | ||||||
Watsco, Inc. | 587 | 32,684 | ||||||
Honeywell International, Inc. | 596 | 26,188 | ||||||
Tyco International, Ltd. | 596 | 21,891 | ||||||
Deere & Co. | 297 | 20,725 | ||||||
Chicago Bridge & Iron Company N.V.* | 469 | 11,467 | ||||||
AerCap Holdings N.V.* | 398 | 4,708 | ||||||
Total Industrials | 2,818,184 | |||||||
Information Technology - 14.5% | ||||||||
Shanda Interactive Entertainment Ltd. ADR*,1,2 | 15,100 | 591,165 | ||||||
CA, Inc. 1,2 | 19,362 | 408,925 | ||||||
Symantec Corp.*,1,2 | 5,900 | 89,503 | ||||||
Avnet, Inc.*,1,2 | 3,100 | 83,731 | ||||||
eBay, Inc.* | 3,265 | 79,666 | ||||||
Harmonic, Inc.*,1,2 | 11,000 | 75,680 | ||||||
Arrow Electronics, Inc.*,1,2 | 2,600 | 69,498 | ||||||
Amkor Technology, Inc.*,1,2 | 9,200 | 60,444 | ||||||
Cirrus Logic, Inc.* | 2,820 | 50,309 | ||||||
Linear Technology Corp. | 1,632 | 50,151 | ||||||
Microchip Technology, Inc. | 1,039 | 32,677 | ||||||
Seagate Technology plc* | 1,913 | 22,535 | ||||||
Volterra Semiconductor Corp.* | 1,039 | 22,359 | ||||||
Omnivision Technologies, Inc.* | 849 | 19,561 | ||||||
Daktronics, Inc. | 1,781 | 17,489 | ||||||
Polycom, Inc.* | 593 | 16,177 | ||||||
RF Micro Devices, Inc.* | 2,374 | 14,576 | ||||||
Western Digital Corp.* | 491 | 13,939 |
SHARES | VALUE | |||||||
Tellabs, Inc. | 1,781 | $ | 13,268 | |||||
Entropic Communications, Inc.* | 1,113 | 10,685 | ||||||
LivePerson, Inc.* | 1,039 | 8,728 | ||||||
Lattice Semiconductor Corp.* | 1,544 | 7,334 | ||||||
LTX-Credence Corp.* | 1,226 | 2,562 | ||||||
FSI International, Inc.* | 835 | 2,221 | ||||||
Total Information Technology | 1,763,183 | |||||||
Consumer Staples - 13.1% | ||||||||
Philip Morris International, Inc.1,2 | 9,800 | 548,997 | ||||||
Altria Group, Inc.1,2 | 16,700 | 401,134 | ||||||
Herbalife Ltd.1,2 | 2,500 | 150,875 | ||||||
Tyson Foods, Inc. — Class A | 8,459 | 135,514 | ||||||
Wal-Mart Stores, Inc.1,2 | 2,200 | 117,744 | ||||||
Safeway, Inc.1,2 | 3,900 | 82,524 | ||||||
Kraft Foods, Inc. — Class A | 2,095 | 64,652 | ||||||
Andersons, Inc. | 893 | 33,845 | ||||||
Archer-Daniels-Midland Co. | 906 | 28,920 | ||||||
General Mills, Inc. | 762 | 27,843 | ||||||
Smithfield Foods, Inc.* | 1,187 | 19,977 | ||||||
Kroger Co. | 172 | 3,726 | ||||||
Total Consumer Staples | 1,615,751 | |||||||
Health Care - 12.0% | ||||||||
Johnson & Johnson1,2 | 5,000 | 309,800 | ||||||
Viropharma, Inc.*,1,2 | 9,900 | 147,609 | ||||||
Lincare Holdings, Inc.1,2 | 5,700 | 143,013 | ||||||
Life Technologies Corp.*,1,2 | 2,800 | 130,732 | ||||||
Owens & Minor, Inc.1,2 | 4,050 | 115,263 | ||||||
Forest Laboratories, Inc.*,1,2 | 3,400 | 105,162 | ||||||
Amgen, Inc.*,1,2 | 1,800 | 99,198 | ||||||
Baxter International, Inc.1,2 | 1,800 | 85,878 | ||||||
WellCare Health Plans, Inc.*,1,2 | 2,300 | 66,608 | ||||||
Charles River Laboratories International, Inc.*,1,2 | 2,000 | 66,300 | ||||||
Centene Corp.* | 2,767 | 65,274 | ||||||
Kindred Healthcare, Inc.*,1,2 | 3,900 | 50,778 | ||||||
Merck & Company, Inc. | 1,359 | 50,025 | ||||||
DexCom, Inc.* | 1,479 | 19,552 | ||||||
Health Net, Inc.* | 202 | 5,492 | ||||||
Animal Health International, Inc.* | 1,811 | 4,980 | ||||||
Five Star Quality Care, Inc.* | 89 | 449 | ||||||
Total Health Care | 1,466,113 | |||||||
Consumer Discretionary - 11.5% | ||||||||
Limited Brands, Inc.1,2 | 7,845 | 210,089 | ||||||
Family Dollar Stores, Inc.1,2 | 3,700 | 163,392 | ||||||
TJX Companies, Inc.1,2 | 3,600 | 160,669 | ||||||
Walt Disney Co. | 4,024 | 133,234 | ||||||
Gymboree Corp.*,1,2 | 3,000 | 124,620 | ||||||
Ross Stores, Inc.1,2 | 2,100 | 114,702 | ||||||
The Gap, Inc.1,2 | 6,000 | 111,840 | ||||||
RadioShack Corp.1,2 | 5,100 | 108,783 | ||||||
Jack in the Box, Inc.*,1,2 | 4,000 | 85,760 | ||||||
Ford Motor Co.* | 6,530 | 79,927 | ||||||
Phillips-Van Heusen Corp.1,2 | 800 | 48,128 | ||||||
Target Corp. | 465 | 24,850 | ||||||
Hasbro, Inc. | 488 | 21,721 |
The accompanying notes are an integral part of the financial statements. | THE RYDEX | SGI EQUITY FUNDS ANNUAL REPORT | | | 17 |
SCHEDULE OF INVESTMENTS (continued) September 30, 2010 | Rydex|SGI Equity Fund Alpha Opportunity Fund |
SHARES | VALUE | |||||||
Fortune Brands, Inc. | 176 | $ | 8,664 | |||||
Perfumania Holdings, Inc.* | 904 | 7,359 | ||||||
Navarre Corp.* | 548 | 1,425 | ||||||
Total Consumer Discretionary | 1,405,163 | |||||||
Materials - 7.0% | ||||||||
Mosaic Co. | 1,931 | 113,466 | ||||||
Schnitzer Steel Industries, Inc. — Class A | 2,078 | 100,326 | ||||||
Titanium Metals Corp.* | 4,918 | 98,162 | ||||||
Monsanto Co. | 1,484 | 71,128 | ||||||
Royal Gold, Inc. | 1,336 | 66,586 | ||||||
RTI International Metals, Inc.* | 2,159 | 66,109 | ||||||
Cliffs Natural Resources, Inc. | 890 | 56,889 | ||||||
Harry Winston Diamond Corp.* | 3,195 | 37,190 | ||||||
Compass Minerals International, Inc. | 383 | 29,345 | ||||||
Newmont Mining Co. | 455 | 28,579 | ||||||
Mechel ADR | 1,078 | 26,842 | ||||||
Noranda Aluminum Holding Corp.* | 2,968 | 24,397 | ||||||
General Moly, Inc.* | 5,851 | 21,415 | ||||||
Intrepid Potash, Inc.* | 763 | 19,891 | ||||||
Greif, Inc. — Class A | 337 | 19,829 | ||||||
Brush Engineered Materials, Inc.* | 636 | 18,088 | ||||||
AMCOL International Corp. | 687 | 17,993 | ||||||
OM Group, Inc.* | 444 | 13,373 | ||||||
Barrick Gold Corp. | 232 | 10,739 | ||||||
E. I. du Pont de Nemours & Co. | 128 | 5,711 | ||||||
China Green Agriculture, Inc.* | 353 | 3,099 | ||||||
Total Materials | 849,157 | |||||||
Energy - 4.2% | ||||||||
Anadarko Petroleum Corp.1,2 | 2,755 | 157,173 | ||||||
ConocoPhillips1,2 | 1,500 | 86,145 | ||||||
Petroleum Development Corp.* | 2,349 | 64,832 | ||||||
Peabody Energy Corp. | 1,188 | 58,224 | ||||||
Noble Energy, Inc. | 741 | 55,642 | ||||||
Marathon Oil Corp. | 873 | 28,896 | ||||||
Concho Resources, Inc.* | 425 | 28,122 | ||||||
Complete Production Services, Inc.* | 615 | 12,577 | ||||||
Denbury Resources, Inc.* | 742 | 11,790 | ||||||
Abraxas Petroleum Corp.* | 3,890 | 11,048 | ||||||
Cloud Peak Energy, Inc.* | 221 | 4,033 | ||||||
Total Energy | 518,482 | |||||||
Financials - 4.0% | ||||||||
Endurance Specialty Holdings Ltd.1,2 | 3,000 | 119,400 | ||||||
Amtrust Financial Services, Inc.1,2 | 6,000 | 87,120 | ||||||
Weyerhaeuser Co. | 4,471 | 70,463 | ||||||
American Equity Investment Life Holding Co. | 5,480 | 56,116 | ||||||
MetLife, Inc. | 1,336 | 51,369 | ||||||
Genworth Financial, Inc. — Class A*,1,2 | 4,000 | 48,880 | ||||||
Ezcorp, Inc. — Class A* | 897 | 17,976 | ||||||
CNO Financial Group, Inc.* | 2,078 | 11,512 | ||||||
Citigroup, Inc.* | 2,374 | 9,259 | ||||||
MF Global Holdings Ltd.* | 1,187 | 8,546 | ||||||
CBL & Associates Properties, Inc. | 445 | 5,812 | ||||||
Farmer Mac — Class C | 373 | 4,036 | ||||||
Total Financials | 490,489 | |||||||
SHARES | VALUE | |||||||
Telecommunication Services - 2.5% | ||||||||
AT&T, Inc.1,2 | 10,600 | $ | 303,160 | |||||
Utilities - 1.7% | ||||||||
Constellation Energy Group, Inc.1,2 | 5,100 | 164,424 | ||||||
NiSource, Inc. | 1,484 | 25,822 | ||||||
Xcel Energy, Inc. | 887 | 20,374 | ||||||
Total Utilities | 210,620 | |||||||
Total Common Stocks (Cost $11,875,585) | 11,440,302 | |||||||
EXCHANGE TRADED FUNDS† - 2.4% | ||||||||
Market Vectors — Russia ETF | 3,180 | 103,445 | ||||||
iPATH S&P 500 VIX Mid-Term Futures ETN | 890 | 77,145 | ||||||
iShares Barclays 20+ Year Treasury Bond Fund | 615 | 64,889 | ||||||
Guggenheim Timber ETF6 | 2,533 | 48,887 | ||||||
Total Exchange Traded Funds (Cost $288,216) | 294,366 | |||||||
CLOSED-END FUND† - 0.6% | ||||||||
Morgan Stanley China A Share Fund, Inc. | 2,796 | 77,198 | ||||||
Total Closed-End Fund (Cost $79,196) | 77,198 | |||||||
FACE | ||||||||
AMOUNT | ||||||||
FEDERAL AGENCY DISCOUNT NOTE†† - 8.2% | ||||||||
Fannie Mae3 | ||||||||
0.19% due 12/27/10 | $ | 1,000,000 | 999,662 | |||||
Total Federal Agency Discount Note (Cost $999,542) | 999,662 | |||||||
SHARES | ||||||||
SHORT TERM INVESTMENT†† - 2.9% | ||||||||
State Street General Account | ||||||||
U.S. Government Fund | 356,703 | 356,703 | ||||||
Total Short Term Investment (Cost $356,703) | 356,703 | |||||||
FACE | ||||||||
AMOUNT | ||||||||
REPURCHASE AGREEMENTS†† - 10.6% | ||||||||
State Street, 0.028%, dated | ||||||||
09/30/10 matures 10/01/10; | ||||||||
repurchase amount $955,437 (Collateralized by U.S. Treasury Note, 2.50%, 04/30/15 with a value of $979,691) | $ | 955,437 | 955,437 | |||||
State Street, 0.028%, dated | ||||||||
09/30/10 matures 10/01/10; repurchase amount $336,307 (Collateralized by U.S. Treasury Note, 2.125%, 05/31/15 with a value of $346,401) | 336,307 | 336,307 | ||||||
Total Repurchase Agreements (Cost $1,291,744) | 1,291,744 | |||||||
Total Investments - 118.2% (Cost $14,890,986) | $ | 14,459,975 | ||||||
18 | | | THE RYDEX | SGI EQUITY FUNDS ANNUAL REPORT | The accompanying notes are an integral part of the financial statements. |
SCHEDULE OF INVESTMENTS (continued) September 30, 2010 | Rydex|SGI Equity Fund Alpha Opportunity Fund |
SHARES | VALUE | |||||||
SCHEDULE OF SECURITIES SOLD SHORT | ||||||||
COMMON STOCKS - (62.5)% | ||||||||
Consumer Staples - (1.0)% | ||||||||
Walgreen Co.† | 238 | $ | (7,973 | ) | ||||
Colgate-Palmolive Co.† | 119 | (9,146 | ) | |||||
Hansen Natural Corp.*,†††,5 | 3,250 | (96,233 | ) | |||||
(113,352 | ) | |||||||
Telecommunication Services - (1.5)% | ||||||||
Clearwire Corp.*,†††,5 | 2,530 | (28,665 | ) | |||||
Global Crossing Ltd.*,†††,5 | 1,800 | (28,746 | ) | |||||
Leap Wireless International, Inc.*,†††,5 | 1,500 | (65,100 | ) | |||||
SBA Communications Corp.*,†††,5 | 2,400 | (69,096 | ) | |||||
(191,607 | ) | |||||||
Utilities - (2.0)% | ||||||||
Korea Electric Power Corp. ADR †††,5 | 18,310 | (247,734 | ) | |||||
Energy - (2.8)% | ||||||||
Pride International, Inc.*,† | 119 | (3,502 | ) | |||||
Aquila Resources Ltd.*,†††,5 | 2,750 | (21,907 | ) | |||||
Arrow Energy Ltd.*,†††,5 | 8,900 | (22,965 | ) | |||||
Modec, Inc.†††,5 | 900 | (23,195 | ) | |||||
Sevan Marine ASA*,†††,5 | 5,900 | (30,951 | ) | |||||
Trican Well Service Ltd.†††,5 | 2,000 | (34,043 | ) | |||||
Queensland Gas Company Ltd.*,†††,5 | 12,800 | (49,787 | ) | |||||
Riversdale Mining Ltd.*,†††,5 | 6,700 | (50,985 | ) | |||||
BPZ Resources, Inc.*,†††,5 | 5,700 | (107,160 | ) | |||||
(344,495 | ) | |||||||
Materials - (3.5)% | ||||||||
Dow Chemical Co.† | 238 | (6,535 | ) | |||||
China National Building Material Company Ltd.†††,5 | 14,700 | (19,910 | ) | |||||
Anhui Conch Cement Company Ltd.†††,5 | 4,500 | (20,259 | ) | |||||
Fushan International Energy Group Ltd.†††,5 | 66,000 | (23,727 | ) | |||||
Sino Gold Mining Ltd.*,†††,5 | 8,600 | (35,368 | ) | |||||
Ivanhoe Mines Ltd.*,†††,5 | 4,440 | (37,030 | ) | |||||
Western Areas NL†††,5 | 6,200 | (44,456 | ) | |||||
Zoltek Companies, Inc.*,†††,5 | 2,700 | (49,221 | ) | |||||
Silver Wheaton Corp.*,†††,5 | 6,100 | (64,046 | ) | |||||
Agnico-Eagle Mines Ltd.†††,4,5 | 1,800 | (119,001 | ) | |||||
(419,553 | ) | |||||||
Information Technology - (6.6)% | ||||||||
Corning, Inc.† | 119 | (2,175 | ) | |||||
Synaptics, Inc.*,† | 357 | (10,046 | ) | |||||
VeriSign, Inc.*,†††,5 | 1,200 | (30,756 | ) | |||||
Access Company Ltd.†††,5 | 17 | (32,755 | ) | |||||
Varian Semiconductor Equipment Associates, Inc.*,†††,5 | 1,260 | (33,037 | ) | |||||
Electronic Arts, Inc.*,†††,5 | 900 | (36,720 | ) | |||||
Riverbed Technology, Inc.*,†††,5 | 3,280 | (43,624 | ) | |||||
Red Hat, Inc.*,†††,5 | 2,610 | (46,589 | ) |
SHARES | VALUE | |||||||
Baidu, Inc. ADR *,†††,5 | 200 | $ | (53,726 | ) | ||||
Intermec, Inc.*,†††,5 | 2,740 | (54,307 | ) | |||||
Rambus, Inc.*,†††,5 | 3,600 | (55,224 | ) | |||||
VMware, Inc.*,†††,5 | 2,400 | (68,592 | ) | |||||
Imperial Energy Corp. plc *,†††,5 | 3,900 | (77,681 | ) | |||||
Equinix, Inc.*,†††,5 | 1,000 | (79,940 | ) | |||||
SAVVIS, Inc.*,†††,5 | 5,700 | (84,018 | ) | |||||
Cree, Inc.*,†††,5 | 4,000 | (109,840 | ) | |||||
(819,030 | ) | |||||||
Industrials - (8.6)% | ||||||||
Pitney Bowes, Inc.† | 357 | (7,633 | ) | |||||
China Merchants Holdings International Company Ltd.†††,5 | 3,100 | (11,047 | ) | |||||
China Communications Construction Company, Ltd.†††,5 | 15,000 | (15,536 | ) | |||||
China National Materials Company Ltd.†††,5 | 34,400 | (17,537 | ) | |||||
Japan Steel Works Ltd.†††,5 | 1,500 | (20,809 | ) | |||||
Ausenco Ltd.†††,5 | 2,100 | (22,659 | ) | |||||
Toyo Tanso Company Ltd.†††,5 | 500 | (27,007 | ) | |||||
General Electric Co.† | 2,142 | (34,808 | ) | |||||
Ryanair Holdings plc†††,5 | 9,600 | (35,971 | ) | |||||
Meyer Burger Technology AG*,†††,5 | 200 | (49,879 | ) | |||||
USG Corp.*,†††,5 | 4,940 | (141,877 | ) | |||||
Beijing Capital International Airport Company Ltd.†††,5 | 218,000 | (188,550 | ) | |||||
Brisa Auto-Estradas de Portugal S.A.†††,5 | 44,400 | (461,804 | ) | |||||
(1,035,117 | ) | |||||||
Financials - (10.1)% | ||||||||
Stifel Financial Corp.*,† | 238 | (11,017 | ) | |||||
C C Land Holdings Ltd.†††,5 | 50,000 | (13,945 | ) | |||||
Bank of America Corp.† | 1,309 | (17,161 | ) | |||||
JPMorgan Chase & Co.† | 476 | (18,121 | ) | |||||
Federated Investors, Inc.† | 952 | (21,668 | ) | |||||
Franshion Properties China Ltd.†††,5 | 79,400 | (22,104 | ) | |||||
Mizuho Trust & Banking Company Ltd.†††,5 | 17,700 | (24,682 | ) | |||||
Aozora Bank Ltd.†††,5 | 16,300 | (26,250 | ) | |||||
Monex Group, Inc.†††,5 | 78 | (27,384 | ) | |||||
Mizuho Financial Group, Inc.†††,5 | 11,000 | (45,461 | ) | |||||
Aeon Mall Company Ltd.†††,5 | 1,700 | (52,093 | ) | |||||
PrivateBancorp, Inc.†††,5 | 2,390 | (102,770 | ) | |||||
Erste Group Bank AG†††,5 | 5,200 | (319,535 | ) | |||||
Wells Fargo & Co.†††,5 | 12,384 | (539,689 | ) | |||||
(1,241,880 | ) | |||||||
Health Care - (11.5)% | ||||||||
Thermo Fisher Scientific, Inc.*,† | 238 | (11,395 | ) | |||||
Sepracor, Inc.*,†††,5 | 1,400 | (24,500 | ) | |||||
Becton Dickinson and Co.† | 357 | (26,454 | ) | |||||
Exelixis, Inc.*,†††,5 | 4,500 | (28,845 | ) | |||||
Johnson & Johnson† | 595 | (36,866 | ) | |||||
Savient Pharmaceuticals, Inc.*,†††,5 | 2,420 | (48,013 | ) | |||||
Zeltia S.A.†††,5 | 8,000 | (54,559 | ) | |||||
Intuitive Surgical, Inc.*,†††,5 | 200 | (56,100 | ) | |||||
Auxilium Pharmaceuticals, Inc.*,†††,5 | 1,540 | (56,703 | ) |
The accompanying notes are an integral part of the financial statements. | THE RYDEX | SGI EQUITY FUNDS ANNUAL REPORT | | | 19 |
SCHEDULE OF INVESTMENTS (concluded) September 30, 2010 | Rydex|SGI Equity Fund Alpha Opportunity Fund |
SHARES | VALUE | |||||||
XenoPort, Inc.*,†††,5 | 1,376 | $ | (63,062 | ) | ||||
Luminex Corp.*,†††,5 | 2,500 | (63,725 | ) | |||||
Regeneron Pharmaceuticals, Inc.*,†††,5 | 3,180 | (69,038 | ) | |||||
Vertex Pharmaceuticals, Inc.*,†††,5 | 2,600 | (71,942 | ) | |||||
Align Technology, Inc.*,†††,5 | 6,100 | (74,420 | ) | |||||
Intercell AG*,†††,5 | 1,900 | (74,840 | ) | |||||
Acorda Therapeutics, Inc.*,†††,5 | 2,800 | (74,900 | ) | |||||
Rigel Pharmaceuticals, Inc.*,†††,5 | 3,050 | (78,324 | ) | |||||
Sequenom, Inc.*,†††,5 | 3,810 | (78,525 | ) | |||||
Cepheid, Inc.*,†††,5 | 5,300 | (81,620 | ) | |||||
AMAG Pharmaceuticals, Inc.*,†††,5 | 1,900 | (82,954 | ) | |||||
Basilea Pharmaceutica*,†††,5 | 500 | (83,364 | ) | |||||
Alnylam Pharmaceuticals, Inc.*,†††,5 | 2,900 | (85,288 | ) | |||||
athenahealth, Inc.*,†††,5 | 2,500 | (89,625 | ) | |||||
(1,415,062 | ) | |||||||
Consumer Discretionary - (14.9)% | ||||||||
PetMed Express, Inc.† | 238 | (4,165 | ) | |||||
hhgregg, Inc.*,† | 238 | (5,893 | ) | |||||
HOT Topic, Inc.† | 1,071 | (6,415 | ) | |||||
Scholastic Corp.† | 241 | (6,705 | ) | |||||
McGraw-Hill Companies, Inc.† | 238 | (7,868 | ) | |||||
Best Buy Company, Inc.† | 476 | (19,435 | ) | |||||
Tokyo Broadcasting System Holdings, Inc.†††,5 | 1,300 | (21,836 | ) | |||||
Buffalo Wild Wings, Inc.*,† | 475 | (22,748 | ) | |||||
Genting Singapore plc *,†††,5 | 124,900 | (41,123 | ) | |||||
bwin Interactive Entertainment AG†††,5 | 1,600 | (45,582 | ) | |||||
PartyGaming plc *,†††,5 | 15,200 | (57,210 | ) | |||||
Focus Media Holding Ltd. ADR *,†††,5 | 2,130 | (63,900 | ) | |||||
Sky Deutschland AG *,†††,5 | 4,000 | (65,668 | ) | |||||
Marui Group Company, Ltd.†††,5 | 29,100 | (219,528 | ) | |||||
Pool Corp.†††,5 | 11,639 | (288,065 | ) | |||||
Electrolux AB†††,5 | 30,100 | (395,761 | ) | |||||
Volkswagen AG†††,5 | 1,300 | (539,375 | ) | |||||
(1,811,277 | ) | |||||||
Total Common Stocks Sold Short (Proceeds $7,458,189) | $ | (7,639,107 | ) | |||||
EXCHANGE TRADED FUNDS† - (0.9)% | ||||||||
Vanguard European ETF | 425 | (20,706 | ) | |||||
Financial Select Sector SPDR Fund | 2,380 | (34,153 | ) | |||||
CurrencyShares Euro Trust | 425 | (57,719 | ) | |||||
Total Exchange Traded Funds (Proceeds $113,394) | (112,578 | ) | ||||||
VALUE | ||||||||
Total Securities Sold Short - (63.4%) (Proceeds $7,571,583) | $ | (7,751,685 | ) | |||||
Cash & Other Assets, Less Liabilities - 45.2% | 5,523,801 | |||||||
Total Net Assets - 100.0% | $ | 12,232,091 | ||||||
INVESTMENT CONCENTRATION | ||||||||
At September 30, 2010, the investment diversification of the Fund was as follows: | ||||||||
COUNTRY | % OF NET ASSETS | VALUE | ||||||
United States | 78.9 | % | $ | 9,664,857 | ||||
Cayman Islands | 5.1 | 624,414 | ||||||
Bermuda | 0.7 | 76,709 | ||||||
Russian Federation | 0.2 | 26,842 | ||||||
Netherlands | 0.1 | 16,175 | ||||||
Ireland | (0.1 | ) | (13,436 | ) | ||||
Norway | (0.3 | ) | (30,951 | ) | ||||
Isle Of Man | (0.3 | ) | (41,123 | ) | ||||
Spain | (0.4 | ) | (54,559 | ) | ||||
Hong Kong | (0.5 | ) | (56,878 | ) | ||||
Gibraltar | (0.5 | ) | (57,210 | ) | ||||
United Kingdom | (0.6 | ) | (77,681 | ) | ||||
Canada | (0.7 | ) | (79,398 | ) | ||||
Switzerland | (0.9 | ) | (111,352 | ) | ||||
Republic of Korea | (2.0 | ) | (247,734 | ) | ||||
Australia | (2.0 | ) | (248,127 | ) | ||||
China | (2.1 | ) | (258,693 | ) | ||||
Sweden | (3.2 | ) | (395,761 | ) | ||||
Austria | (3.6 | ) | (439,957 | ) | ||||
Portugal | (3.8 | ) | (461,804 | ) | ||||
Japan | (4.3 | ) | (521,000 | ) | ||||
Germany | (4.9 | ) | (605,043 | ) | ||||
Total Investments | 54.8 | % | $ | 6,708,290 | ||||
Unrealized | ||||||||
CONTRACTS | GAIN | |||||||
FUTURES CONTRACTS PURCHASED† | ||||||||
December 2010 S&P 500 Index® | ||||||||
Mini Futures Contracts | ||||||||
(Aggregate Market Value of | ||||||||
Contracts $2,671,245) | 47 | $ | 49,033 | |||||
* | Non-income producing security |
† | Value determined based on Level 1 inputs — See Note 9. |
†† | Value determined based on Level 2 inputs — See Note 9. |
††† | Value determined based on Level 3 inputs — See Note 9. |
1 | All or a portion of the security is deemed illiquid due to the Fund’s exposure to Lehman Brothers International Europe (“LBIE”) prime brokerage services. The total market value of illiquid securities is $7,272,370 (cost $7,825,618), or 59.5% of total net assets. The security was deemed liquid at the time of purchase — See Note 8. |
2 | Security is segregated as collateral for open short positions. |
3 | On September 7, 2008 the issuer was placed in conservatorship by the Federal Housing Finance Agency (FHFA). As conservator, the FHFA has full powers to control the assets and operations of the firm. |
4 | Security was acquired through a private placement. |
5 | Security sold short was fair valued by the Valuation Committee based on non-observable market inputs at September 30, 2010. The total market value of fair valued securities amounts to $(7,341,377) (proceeds $7,166,693), or (60.0%) of total net assets — See Note 8. |
6 | Investment in an affiliated issuer — See Note 7. |
ADR — American Depositary Receipt | |
plc — Public Limited Company |
20 | | | THE RYDEX | SGI EQUITY FUNDS ANNUAL REPORT | The accompanying notes are an integral part of the financial statements. |
| Rydex|SGI Equity Fund Alpha Opportunity Fund |
STATEMENT OF ASSETS
AND LIABILITIES
AND LIABILITIES
September 30, 2010
Assets: | ||||
Investments in unaffiliated issuers, at value*,† | $ | 13,119,344 | ||
Investments in affiliated issuers, at value** | 48,887 | |||
Repurchase agreements, at value* | 1,291,744 | |||
Total investments | 14,459,975 | |||
Cash | 394,347 | |||
Restricted cash† | 1,563,116 | |||
Restricted cash denominated in a foreign currency, at value****,† | 3,573,200 | |||
Receivables: | ||||
Fund shares sold | 28,396 | |||
Securities sold | 610,967 | |||
Dividends | 22,243 | |||
Due from Security Investors | 20,072 | |||
Foreign taxes recoverable | 334 | |||
Prepaid expenses | 17,152 | |||
Total assets | 20,689,802 | |||
Liabilities: | ||||
Securities sold short, at value***,† | 7,751,685 | |||
Payable for: | ||||
Securities purchased | 614,788 | |||
Fund shares redeemed | 2,087 | |||
Variation margin | 9,870 | |||
Dividends on short sales | 279 | |||
Management fees | 12,156 | |||
Custodian fees | 33,467 | |||
Transfer agent/maintenance fees | 1,123 | |||
Administration fees | 1,459 | |||
Professional fees | 20,305 | |||
12b-1 distribution plan fees | 3,719 | |||
Directors’ fees | 867 | |||
Other | 5,906 | |||
Total liabilities | 8,457,711 | |||
Net assets | $ | 12,232,091 | ||
Net assets consist of: | ||||
Paid in capital | $ | 25,250,433 | ||
Accumulated net investment loss | (2,843 | ) | ||
Accumulated net realized loss on investments and foreign currency transactions | (12,645,937 | ) | ||
Net unrealized depreciation on investments and translation of assets and liabilities in foreign currencies | (369,562 | ) | ||
Net assets | $ | 12,232,091 | ||
A-Class: | ||||
Capital shares outstanding | ||||
(unlimited number of shares authorized) | 838,752 | |||
Net assets | $ | 8,138,101 | ||
Net asset value and redemption price per share | $9.70 | |||
Maximum offering price per share (net asset value divided by 94.25%) | $10.29 | |||
B-Class: | ||||
Capital shares outstanding (unlimited number of shares authorized) | 128,573 | |||
Net assets | $ | 1,160,906 | ||
Net asset value, offering and redemption price per share (excluding any applicable contingent deferred sales charge) | $9.03 | |||
C-Class: | ||||
Capital shares outstanding (unlimited number of shares authorized) | 164,996 | |||
Net assets | $ | 1,489,518 | ||
Net asset value, offering and redemption price per share (excluding any applicable contingent deferred sales charge) | $9.03 | |||
Institutional Class: | ||||
Capital shares outstanding (unlimited number of shares authorized) | 108,273 | |||
Net assets | $ | 1,443,566 | ||
Net asset value, offering and redemption price per share | $13.33 | |||
* Investments in unaffiliated issuers, at cost | $ | 14,843,612 | ||
** Investments in affiliated issuers, at cost | 47,374 | |||
Total Cost | $ | 14.890,986 | ||
*** Securities sold short, proceeds | 7,571,583 | |||
**** Restricted cash denominated in a foreign currency, at cost | 3,380,682 |
† All or portion of this amount represents values related to Lehman Brothers International Europe prime brokerage services — See Note 8. |
STATEMENT OF
OPERATIONS
OPERATIONS
For the Year Ended September 30, 2010
Investment Income: | ||||
Dividends (net of foreign withholding tax of $52) | $ | 201,519 | ||
Interest | 1,658 | |||
Total investment income | 203,177 | |||
Expenses: | ||||
Management fees | 169,597 | |||
Transfer agent/maintenance fees | 47,661 | |||
Administration fees | 31,659 | |||
Custodian fees | 78,322 | |||
Directors’ fees | 1,008 | |||
Professional fees | 39,158 | |||
Reports to shareholders | 3,808 | |||
Registration fees | 45,985 | |||
Other | 3,895 | |||
Dividends on short sales | 8,293 | |||
Prime broker interest expense | 13,406 | |||
12b-1 distribution fees - A-Class | 22,431 | |||
12b-1 distribution fees - B-Class | 13,399 | |||
12b-1 distribution fees - C-Class | 16,246 | |||
Total expenses | 494,868 | |||
Reimbursement of expenses | (176,815 | ) | ||
Net expenses | 318,053 | |||
Net investment loss | (114,876 | ) | ||
Net Realized and Unrealized Gain (Loss): | ||||
Net realized gain (loss) on: | ||||
Investments†† | 621,422 | |||
Foreign currency transactions | (2,843 | ) | ||
Futures contracts | 419,241 | |||
Net realized gain | 1,037,820 | |||
Net change in unrealized appreciation (depreciation) on: | ||||
Investments | 644,263 | |||
Securities sold short | 18,077 | |||
Futures contracts | 13,864 | |||
Translation of assets and liabilities in foreign currencies | 7,645 | |||
Net change in unrealized appreciation (depreciation) | 683,849 | |||
Net realized and unrealized gain | 1,721,669 | |||
Net increase in net assets resulting from operations | $ | 1,606,793 | ||
†† Includes net realized gains of $2,737 on affiliated issuers. |
The accompanying notes are an integral part of the financial statements. | THE RYDEX | SGI EQUITY FUNDS ANNUAL REPORT | | | 21 |
STATEMENTS OF CHANGES IN NET ASSETS | Rydex|SGI Equity Fund Alpha Opportunity Fund |
Year Ended | Year Ended | |||||||
September 30, | September 30, | |||||||
2010 | 2009 | |||||||
Increase (Decrease) In Net Assets From Operations: | ||||||||
Net investment loss | $ | (114,876 | ) | $ | (123,718 | ) | ||
Net realized gain (loss) on investments and foreign currency transactions | 1,037,820 | (10,496,580 | ) | |||||
Net change in unrealized appreciation (depreciation) on investments and translation of assets and liabilities in foreign currencies | 683,849 | 3,498,389 | ||||||
Net increase (decrease) in net assets resulting from operations | 1,606,793 | (7,121,909 | ) | |||||
Capital share transactions: | ||||||||
Proceeds from sale of shares | ||||||||
A-Class | 293,839 | * | 1,524,278 | |||||
B-Class | — | 4,268 | ||||||
C-Class | — | 7,933 | ||||||
Institutional Class | — | 4,980,476 | ||||||
Cost of shares redeemed | ||||||||
A-Class | (2,954,805 | ) | (16,913,028 | ) | ||||
B-Class | (635,054 | ) | (2,762,142 | ) | ||||
C-Class | (698,685 | ) | (2,096,985 | ) | ||||
Institutional Class | (917,495 | ) | (3,025,562 | ) | ||||
Net decrease from capital share transactions | (4,912,200 | ) | (18,280,762 | ) | ||||
Net decrease in net assets | (3,305,407 | ) | (25,402,671 | ) | ||||
Net assets: | ||||||||
Beginning of year | 15,537,498 | 40,940,169 | ||||||
End of year | $ | 12,232,091 | $ | 15,537,498 | ||||
Accumulated net investment loss at end of year | $ | (2,843 | ) | $ | (29,427 | ) | ||
Capital share activity: | ||||||||
Shares sold | ||||||||
A-Class | 32,339 | * | 208,127 | |||||
B-Class | — | 292 | ||||||
C-Class | — | 796 | ||||||
Institutional Class | — | 502,702 | ||||||
Shares redeemed A-Class | (333,306 | ) | (2,335,782 | ) | ||||
B-Class | (74,867 | ) | (404,666 | ) | ||||
C-Class | (83,926 | ) | (308,317 | ) | ||||
Institutional Class | (75,471 | ) | (318,958 | ) | ||||
Total capital share activity | (535,231 | ) | (2,655,806 | ) | ||||
* | Represents conversion of B-Class to A-Class shares. |
22 | | | THE RYDEX | SGI EQUITY FUNDS ANNUAL REPORT | The accompanying notes are an integral part of the financial statements. |
FINANCIAL HIGHLIGHTS | Rydex|SGI Equity Fund Alpha Opportunity Fund |
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.
Year Ended | Year Ended | Year Ended | Year Ended | Year Ended | ||||||||||||||||
September 30, | September 30, | September 30, | September 30, | September 30, | ||||||||||||||||
A-Class | 2010 | 2009 | 2008 | a | 2007 | 2006 | ||||||||||||||
Per Share Data | ||||||||||||||||||||
Net asset value, beginning of period | $8.56 | $9.37 | $13.94 | $12.23 | $12.37 | |||||||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||
Net investment lossb | (0.06 | ) | (0.04 | ) | (0.16 | ) | (0.01 | ) | (0.06 | ) | ||||||||||
Net gain (loss) on investments (realized and unrealized) | 1.20 | (0.77 | ) | (1.68 | ) | 2.99 | 0.93 | |||||||||||||
Total from investment operations | 1.14 | (0.81 | ) | (1.84 | ) | 2.98 | 0.87 | |||||||||||||
Less distributions from: | ||||||||||||||||||||
Net realized gains | — | — | (2.57 | ) | (1.27 | ) | (1.01 | ) | ||||||||||||
Return of capital | — | — | (0.16 | ) | — | — | ||||||||||||||
Total distributions | — | — | (2.73 | ) | (1.27 | ) | (1.01 | ) | ||||||||||||
Net asset value, end of period | $9.70 | $8.56 | $ 9.37 | $ 3.94 | $12.23 | |||||||||||||||
Total Returnc | 13.43% | (8.64% | ) | (15.99% | ) | 26.10% | 7.39% | |||||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||
Net assets, end of period (in thousands) | $8,138 | $9,752 | $30,615 | $25,072 | $20,595 | |||||||||||||||
Ratios to average net assets: | ||||||||||||||||||||
Net investment loss | (0.71% | ) | (0.50% | ) | (1.44% | ) | (0.08% | ) | (0.50% | ) | ||||||||||
Total expensesd | 3.51% | 3.82% | 3.41% | 2.88% | 3.20% | |||||||||||||||
Net expensese | 2.21% | 2.00% | 3.32% | 2.82% | 3.04% | |||||||||||||||
Operating expensesf | 2.05% | 1.95% | 3.06% | 2.62% | 2.95% | |||||||||||||||
Portfolio turnover rate | 954% | 422% | 1,248% | 1,697% | 1,302% |
Year Ended | Year Ended | Year Ended | Year Ended | Year Ended | ||||||||||||||||
September 30, | September 30, | September 30, | September 30, | September 30, | ||||||||||||||||
B-Class | 2010 | 2009 | 2008 | a | 2007 | 2006 | ||||||||||||||
Per Share Data | ||||||||||||||||||||
Net asset value, beginning of period | $8.04 | $8.87 | $13.42 | $11.90 | $12.15 | |||||||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||
Net investment lossb | (0.12 | ) | (0.09 | ) | (0.23 | ) | (0.09 | ) | (0.15 | ) | ||||||||||
Net gain (loss) on investments (realized and unrealized) | 1.11 | (0.74 | ) | (1.59 | ) | 2.88 | 0.91 | |||||||||||||
Total from investment operations | 0.99 | (0.83 | ) | (1.82 | ) | 2.79 | 0.76 | |||||||||||||
Less distributions from: | ||||||||||||||||||||
Net realized gains | — | — | (2.57 | ) | (1.27 | ) | (1.01 | ) | ||||||||||||
Return of capital | — | — | (0.16 | ) | — | — | ||||||||||||||
Total distributions | — | — | (2.73 | ) | (1.27 | ) | (1.01 | ) | ||||||||||||
Net asset value, end of period | $9.03 | $8.04 | $ 8.87 | $13.42 | $11.90 | |||||||||||||||
Total Returnc | 12.31% | (9.36% | ) | (16.66% | ) | 25.14% | 6.56% | |||||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||
Net assets, end of period (in thousands) | $1,161 | $1,635 | $5,391 | $3,154 | $4,846 | |||||||||||||||
Ratios to average net assets: | ||||||||||||||||||||
Net investment loss | (1.47% | ) | (1.24% | ) | (2.18% | ) | (0.77% | ) | (1.24% | ) | ||||||||||
Total expensesd | 4.27% | 4.57% | 4.16% | 3.59% | 3.95% | |||||||||||||||
Net expensese | 2.96% | 2.75% | 4.04% | 3.53% | 3.78% | |||||||||||||||
Operating expensesf | 2.80% | 2.69% | 3.78% | 3.33% | 3.69% | |||||||||||||||
Portfolio turnover rate | 954% | 422% | 1,248% | 1,697% | 1,302% |
The accompanying notes are an integral part of the financial statements. | THE RYDEX | SGI EQUITY FUNDS ANNUAL REPORT | | | 23 |
FINANCIAL HIGHLIGHTS (continued) | Rydex|SGI Equity Fund Alpha Opportunity Fund |
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.
Year Ended | Year Ended | Year Ended | Year Ended | Year Ended | ||||||||||||||||
September 30, | September 30, | September 30, | September 30, | September 30, | ||||||||||||||||
C-Class | 2010 | 2009 | 2008 | a | 2007 | 2006 | ||||||||||||||
Per Share Data | ||||||||||||||||||||
Net asset value, beginning of period | $8.02 | $8.87 | $13.43 | $11.90 | $12.15 | |||||||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||
Net investment lossb | (0.12 | ) | (0.09 | ) | (0.23 | ) | (0.10 | ) | (0.15 | ) | ||||||||||
Net gain (loss) on investments (realized and unrealized) | 1.13 | (0.76 | ) | (1.60 | ) | 2.90 | 0.91 | |||||||||||||
Total from investment operations | 1.01 | (0.85 | ) | (1.83 | ) | 2.80 | 0.76 | |||||||||||||
Less distributions from: | ||||||||||||||||||||
Net realized gains | — | — | (2.57 | ) | (1.27 | ) | (1.01 | ) | ||||||||||||
Return of capital | — | — | (0.16 | ) | — | — | ||||||||||||||
Total distributions | — | — | (2.73 | ) | (1.27 | ) | (1.01 | ) | ||||||||||||
Net asset value, end of period | $9.03 | $8.02 | $8.87 | $13.43 | $11.90 | |||||||||||||||
Total Returnc | 12.59% | (9.58% | ) | (16.63% | ) | 25.24% | 6.56% | |||||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||
Net assets, end of period (in thousands) | $1,490 | $1,996 | $4,935 | $4,216 | $5,576 | |||||||||||||||
Ratios to average net assets: | ||||||||||||||||||||
Net investment loss | (1.46% | ) | (1.24% | ) | (2.21% | ) | (0.77% | ) | (1.18% | ) | ||||||||||
Total expensesd | 4.28% | 4.67% | 4.16% | 3.60% | 3.95% | |||||||||||||||
Net expensese | 2.95% | 2.75% | 4.09% | 3.54% | 3.77% | |||||||||||||||
Operating expensesf | 2.80% | 2.69% | 3.83% | 3.34% | 3.68% | |||||||||||||||
Portfolio turnover rate | 954% | 422% | 1,248% | 1,697% | 1,302% |
Year Ended | Period Ended | |||||||
September 30, | September 30, | |||||||
Institutional Class | 2010 | 2009 | g | |||||
Per Share Data | ||||||||
Net asset value, beginning of period | $11.73 | $10.00 | ||||||
Income (loss) from investment operations: | ||||||||
Net investment lossb | (0.06 | ) | (0.01 | ) | ||||
Net gain (loss) on investments (realized and unrealized) | 1.66 | 1.74 | ||||||
Total from investment operations | 1.60 | 1.73 | ||||||
Net asset value, end of period | $13.33 | $11.73 | ||||||
Total Return | 13.64% | 17.30% | ||||||
Ratios/Supplemental Data | ||||||||
Net assets, end of period (in thousands) | $1,444 | $2,155 | ||||||
Ratios to average net assets: | ||||||||
Net investment loss | (0.48% | ) | (0.07% | ) | ||||
Total expensesd | 3.28% | 3.94% | ||||||
Net expensese | 1.96% | 1.76% | ||||||
Operating expensesf | 1.80% | 1.70% | ||||||
Portfolio turnover rate | 954% | 422% |
24 | | | THE RYDEX | SGI EQUITY FUNDS ANNUAL REPORT | The accompanying notes are an integral part of the financial statements. |
FINANCIAL HIGHLIGHTS (concluded) | Rydex|SGI Equity Fund Alpha Opportunity Fund |
a | Security Global Investors, LLC (SGI) became the sub-adviser of 37.5% of the assets of the Alpha Opportunity Fund effective August 18, 2008. Also effective August 18, 2008, Mainstream Investment Advisers, LLC (Mainstream) sub-advises 37.5% of the assets and Security Investors, LLC (SI) manages 25% of the assets. Prior to August 18, 2008, Mainstream sub-advised 60% of the assets and SI managed the remaining 40% of the assets. |
b | Net investment income (loss) was computed using average shares outstanding throughout the period. |
c | Total return information does not reflect deduction of any sales charges imposed at the time of purchase for A-Class shares or upon redemption for B-Class and C-Class shares. |
d | Total expense information reflects expense ratios absent expense reductions by the Investment Manager and custodian earnings credits, as applicable. |
e | Net expense information reflects the expense ratios after voluntary expense waivers and reimbursements and before custodian earnings credits, as applicable. |
f | Operating expense ratios exclude expenses from dividends on short sales and prime broker interest expense. |
g | The Institutional Class of Alpha Opportunity Fund was initially capitalized on November 7, 2008 with a net asset value of $10 per share. Percentage amounts for the period, except total return, have been annualized. |
The accompanying notes are an integral part of the financial statements. | THE RYDEX | SGI EQUITY FUNDS ANNUAL REPORT | | | 25 |
MANAGERS’ COMMENTARY
September 30, 2010
Advised by:
![(SECURITY GLOBAL INVESTORS LOGO)](https://capedge.com/proxy/N-CSR/0000950123-10-111594/g06945g0694504.gif)
To Our Shareholders:
For the fiscal year ended September 30, 2010, the Rydex|SGI Equity Fund–Large Cap Core Fund (formerly, Equity Fund) returned 8.40%1, lagging the benchmark S&P 500® Index’s return of 10.16% and the Fund’s peer group median performance of 8.87%.
The Fund pursues its objective by investing approximately 50% of its total assets according to a large cap growth strategy and approximately 50% to a large cap value strategy. The manager will rebalance the Fund if either strategy equals or exceeds 60% of total assets. The manager uses a blended approach, investing in growth stocks and value stocks, and may invest in a limited number of industries and sectors.
The large cap growth manager chooses growth-oriented companies through a combination of a qualitative top-down approach in reviewing growth trends. The large cap value manager chooses securities of companies that appear to be undervalued relative to assets, earnings, growth potential, and cash flow. The managers sell a security when the reasons for buying it no longer apply or when the company begins to show deteriorating fundamentals or poor performance.
Industrials and Information Technology Top Performers
The Industrials sector benefited the Fund through both an overweight allocation, 17.2% versus 10.4%, and superior stock selection. Union Pacific Corp., a 1.3% weight, gained 42.6% while the 1.5% position in Cooper Industries plc (Cl A) was up 20.9%. Other contributors in the sector for the Fund included Boeing Co. and Cummins Inc., with increases of 37.3% and 29.0%, respectively.
In the Information Technology sector, the Fund benefited from security selection. While slightly underweight the Index, holdings in the sector for the Fund beat those in the Index 14.9% to 11.1%.
Motorola Inc. was up 17.3% while Google Inc. ended the period with a 20.4% gain. Tyco Electronics Ltd., a 1.1% weight in the portfolio, delivered a 34.4% return. Other holdings helping portfolio returns included Intel Corp. and EMC Corp.
Consumer Discretionary, Utilities, and Consumer Staples Disappoint
Security selection hurt the portfolio in the Consumer Discretionary sector, which was overweight relative to the Index but had returns that fell behind the Index 14.7% to 23.7%. Kohl’s Corp., a 1.4% weight, declined 20.6% during the 12-month period. J.C. Penney Co. Inc., a 0.90% weight, was down 17.2%. Other detractors included Royal Caribbean Cruises Ltd. and Johnson Controls Inc. with losses of 28.9% and 12.7%, respectively.
The Utilities sector was a small 2.0% weight for the Fund but its overall return was a negative 3.1% compared to a gain of 12.4% for the benchmark. The largest detractor was NRG Energy Inc. with a 26.1% drop.
The Fund had an underweight position in the Consumer Staples sector, 8.4% to 11.4%, that performed in-line with the Index, with a gain of 12.7%. However, CVS Caremark Corp., with a 1.1% weight, accounted for nearly the entire underperformance in the sector with an 11.1% loss.
Market Outlook
Our bottom-up approach looks at market uncertainty in the context of the potential long-term impact on individual companies. Our focus is on identifying companies with the ability to be substantially better over the next three to five years or have the potential to maintain their return on capital at current levels in a difficult economic environment. During these uncertain times and volatile market conditions, we are confident in our ability to find these companies by consistently
26 | | | THE RYDEX | SGI EQUITY FUNDS ANNUAL REPORT |
MANAGERS’ COMMENTARY (concluded)
applying our disciplined process to individual stock evaluations.
We believe that investing is a long-term pursuit that requires patience and a consistent approach. We thank you for your business and the confidence you place in us.
Sincerely,
Mark Mitchell, CFA, Portfolio Manager
Mark Bronzo, CFA, Portfolio Manager
Mark Bronzo, CFA, Portfolio Manager
1 | Performance figures are based on A-Class shares and do not reflect deduction of the sales charges or taxes that a shareholder would pay on distributions or the redemption of shares. |
Performance displayed represents past performance which is no guarantee of future results. Of course, Fund performance is subject to daily market volatility and may be better or worse since the end of the last quarter. For up-to-date Fund performance, call us at 800.820.0888 or visit www.rydex-sgi.com. | |
Standard & Poor’s 500 Index (S&P 500®) – a capitalization-weighted Index covering 500 industrial, utility, transportation and financial companies of the U.S. markets (mostly NYSE Euronext issues). | |
Rydex|SGI Funds are distributed by Rydex Distributors, LLC (RDL). Security Global InvestorsSM is the investment advisory arm of Security Benefit Corporation (Security Benefit). Security Global Investors consists of Security Global Investors, LLC, Security Investors, LLC and Rydex Investments. Rydex Investments is the primary business name for Rydex Advisors, LLC and Rydex Advisors II, LLC. Security Global Investors and RDL are affiliates and are subsidiaries of Security Benefit, which is wholly owned by Guggenheim SBC Holdings, LLC, a special purpose entity managed by Guggenheim Partners, LLC, a diversified financial services firm with more than $100 billion in assets under supervision. | |
Read each Fund’s prospectus and summary prospectus (if available) carefully before investing. It contains the Fund’s investment objectives, risks, charges, expenses and other information, which should be considered carefully before investing. Obtain a prospectus and summary prospectus (if available) at www.rydex-sgi.com or call 800.820.0888. |
THE RYDEX | SGI EQUITY FUNDS ANNUAL REPORT | | | 27 |
PERFORMANCE SUMMARY September 30, 2010 | Rydex|SGI Equity Fund Large Cap Core Fund (Unaudited) |
PERFORMANCE
![(PERFORMANCE GRAPH)](https://capedge.com/proxy/N-CSR/0000950123-10-111594/g06945g0694509.gif)
$10,000 Over Ten Years
This chart assumes a $10,000 investment in A-Class shares of Large Cap Core Fund on September 30, 2000, reflects deduction of the maximum front-end sales charge of 5.75% and assumes all dividends are reinvested. The chart does not reflect the deduction of taxes that a shareholder would pay on distributions or the redemption of fund shares. The S&P 500® Index is a capitalization-weighted index composed of 500 selected common stocks that represent the broad domestic economy and is a widely recognized unmanaged index on market performance.
AVERAGE ANNUAL RETURNS | ||||||||||||
PERIODS ENDED 9/30/10 | ||||||||||||
(Inception 9/10/1962) | ||||||||||||
1 YEAR | 5 YEAR | 10 YEAR | ||||||||||
A-Class Shares | 8.40 | % | -1.82 | % | -3.06 | % | ||||||
A-Class Shares with sales charge | 2.09 | % | -2.97 | % | -3.64 | % | ||||||
B-Class Shares | 7.78 | % | -2.53 | % | -3.70 | % | ||||||
B-Class Shares with CDSC | 2.78 | % | -2.80 | % | -3.70 | % | ||||||
C-Class Shares | 7.46 | % | -2.53 | % | -3.83 | % | ||||||
C-Class Shares with CDSC | 6.46 | % | -2.53 | % | -3.83 | % |
The performance data above represents past performance that is not predictive of future results. The investment return and principal value of an investment in the Fund will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. The figures above do not reflect deduction of the maximum front-end sales charge of 5.75% for A-Class shares or the CDSC of up to 5% for B-Class shares and 1% for C-Class shares, as applicable, except where noted. The figures do not reflect the deduction of taxes that a shareholder would pay on distributions or redemption of shares. Such figures would be lower if the maximum sales charge and any applicable taxes were deducted.
Portfolio Composition by Sector | ||||
Common Stocks | ||||
Consumer Discretionary | 14.8 | % | ||
Consumer Staples | 6.5 | % | ||
Energy | 11.1 | % | ||
Financials | 10.3 | % | ||
Health Care | 8.8 | % | ||
Industrials | 16.6 | % | ||
Information Technology | 21.2 | % | ||
Materials | 4.9 | % | ||
Telecommunication Services | 0.7 | % | ||
Utilities | 2.1 | % | ||
Exchange Traded Funds | 0.8 | % | ||
Cash & Other Assets, | ||||
Less Liabilities | 2.2 | % | ||
Total Net Assets | 100.0 | % | ||
28 | | | THE RYDEX | SGI EQUITY FUNDS ANNUAL REPORT | The accompanying notes are an integral part of the financial statements. |
SCHEDULE OF INVESTMENTS September 30, 2010 | Rydex|SGI Equity Fund Large Cap Core Fund |
SHARES | VALUE | |||||||||||
COMMON STOCKS† - 97.0% | ||||||||||||
Information Technology - 21.2% | ||||||||||||
Apple, Inc.* | 18,345 | $ | 5,205,393 | |||||||||
Oracle Corp. | 149,000 | 4,000,650 | ||||||||||
Google, Inc. — Class A* | 7,585 | 3,988,117 | ||||||||||
EMC Corp.* | 187,120 | 3,800,407 | ||||||||||
Xerox Corp. | 357,600 | 3,701,160 | ||||||||||
Western Union Co. | 207,100 | 3,659,457 | ||||||||||
Motorola, Inc.* | 401,615 | 3,425,776 | ||||||||||
Lam Research Corp.* | 70,650 | 2,956,703 | ||||||||||
Tyco Electronics Ltd. | 75,400 | 2,203,188 | ||||||||||
Hewlett-Packard Co. | 50,716 | 2,133,622 | ||||||||||
Computer Sciences Corp. | 42,000 | 1,932,000 | ||||||||||
Synopsys, Inc.* | 47,900 | 1,186,483 | ||||||||||
Visa, Inc. — Class A | 12,100 | 898,546 | ||||||||||
Total Information Technology | 39,091,502 | |||||||||||
Industrials - 16.6% | ||||||||||||
3M Co. | 39,260 | 3,404,235 | ||||||||||
CSX Corp. | 61,400 | 3,396,648 | ||||||||||
Cooper Industries plc — Class A | 68,680 | 3,360,512 | ||||||||||
Equifax, Inc. | 100,700 | 3,141,840 | ||||||||||
Cummins, Inc. | 33,400 | 3,025,372 | ||||||||||
Boeing Co. | 45,000 | 2,994,300 | ||||||||||
United Technologies Corp. | 33,600 | 2,393,328 | ||||||||||
FedEx Corp. | 25,800 | 2,205,900 | ||||||||||
Union Pacific Corp. | 25,900 | 2,118,620 | ||||||||||
Parker Hannifin Corp. | 24,400 | 1,709,464 | ||||||||||
Babcock & Wilcox Co.* | 63,300 | 1,347,024 | ||||||||||
USG Corp.* | 97,000 | 1,279,430 | ||||||||||
Total Industrials | 30,376,673 | |||||||||||
Consumer Discretionary - 14.8% | ||||||||||||
Omnicom Group, Inc. | 78,700 | 3,107,076 | ||||||||||
Macy’s, Inc. | 133,800 | 3,089,442 | ||||||||||
TJX Companies, Inc. | 68,300 | 3,048,229 | ||||||||||
BorgWarner, Inc.* | 57,650 | 3,033,543 | ||||||||||
Yum! Brands, Inc. | 63,800 | 2,938,628 | ||||||||||
Walt Disney Co. | 86,200 | 2,854,082 | ||||||||||
McDonald’s Corp. | 36,900 | 2,749,419 | ||||||||||
Lowe’s Companies, Inc. | 123,300 | 2,748,357 | ||||||||||
Time Warner, Inc. | 61,700 | 1,891,105 | ||||||||||
JC Penney Company, Inc. | 62,900 | 1,709,622 | ||||||||||
Total Consumer Discretionary | 27,169,503 | |||||||||||
Energy - 11.1% | ||||||||||||
Occidental Petroleum Corp. | 46,640 | 3,651,912 | ||||||||||
Schlumberger Ltd. | 43,000 | 2,649,230 | ||||||||||
Peabody Energy Corp. | 50,850 | 2,492,159 | ||||||||||
Chevron Corp. | 29,900 | 2,423,395 | ||||||||||
McDermott International, Inc.* | 126,600 | 1,871,148 | ||||||||||
Williams Companies, Inc. | 93,900 | 1,794,429 | ||||||||||
Exxon Mobil Corp. | 27,500 | 1,699,225 | ||||||||||
Halliburton Co. | 47,600 | 1,574,132 | ||||||||||
Chesapeake Energy Corp. | 64,400 | 1,458,660 | ||||||||||
ConocoPhillips | 14,400 | 826,992 | ||||||||||
Total Energy | 20,441,282 | |||||||||||
SHARES | VALUE | |||||||
Financials - 10.3% | ||||||||
U.S. Bancorp | 215,026 | $ | 4,648,863 | |||||
JPMorgan Chase & Co. | 116,470 | 4,434,013 | ||||||
AON Corp. | 58,700 | 2,295,757 | ||||||
Berkshire Hathaway, Inc. — Class A*,1 | 17 | 2,116,500 | ||||||
Wells Fargo & Co. | 77,778 | 1,954,561 | ||||||
Bank of New York Mellon Corp. | 56,100 | 1,465,893 | ||||||
BB&T Corp. | 39,112 | 941,817 | ||||||
Regions Financial Corp. | 114,100 | 829,507 | ||||||
First Marblehead Corp.* | 97,760 | 228,758 | ||||||
Total Financials | 18,915,669 | |||||||
Health Care - 8.8% | ||||||||
Celgene Corp.* | 51,600 | 2,972,676 | ||||||
Abbott Laboratories | 54,800 | 2,862,752 | ||||||
Hospira, Inc.* | 44,100 | 2,514,141 | ||||||
Warner Chilcott plc — Class A | 109,950 | 2,467,278 | ||||||
Aetna, Inc. | 68,300 | 2,158,963 | ||||||
Covidien plc | 33,800 | 1,358,422 | ||||||
Medco Health Solutions, Inc.* | 14,800 | 770,488 | ||||||
Merck & Company, Inc. | 17,762 | 653,819 | ||||||
Genzyme Corp.* | 4,300 | 304,397 | ||||||
Total Health Care | 16,062,936 | |||||||
Consumer Staples - 6.5% | ||||||||
PepsiCo, Inc. | 41,820 | 2,778,521 | ||||||
Costco Wholesale Corp. | 37,700 | 2,431,273 | ||||||
Wal-Mart Stores, Inc.1 | 43,600 | 2,333,472 | ||||||
CVS Caremark Corp. | 57,600 | 1,812,672 | ||||||
Philip Morris International, Inc. | 19,400 | 1,086,788 | ||||||
Altria Group, Inc. | 34,500 | 828,690 | ||||||
Bunge Ltd. | 9,700 | 573,852 | ||||||
Total Consumer Staples | 11,845,268 | |||||||
Materials - 4.9% | ||||||||
Dow Chemical Co. | 164,130 | 4,507,010 | ||||||
Air Products & Chemicals, Inc. | 37,600 | 3,114,032 | ||||||
Bemis Company, Inc. | 40,400 | 1,282,700 | ||||||
Total Materials | 8,903,742 | |||||||
Utilities - 2.1% | ||||||||
Edison International | 86,500 | 2,974,735 | ||||||
NRG Energy, Inc.* | 41,500 | 864,030 | ||||||
Total Utilities | 3,838,765 | |||||||
Telecommunication Services - 0.7% | ||||||||
Windstream Corp. | 98,400 | 1,209,336 | ||||||
Total Common Stocks (Cost $168,650,864) | 177,854,676 | |||||||
EXCHANGE TRADED FUND† - 0.8% | ||||||||
iShares Russell 1000 Value Index Fund | 23,600 | 1,392,164 | ||||||
Total Exchange Traded Fund (Cost $1,355,150) | 1,392,164 | |||||||
Total Investments - 97.8% (Cost $170,006,014) | $ | 179,246,840 | ||||||
The accompanying notes are an integral part of the financial statements. | THE RYDEX | SGI EQUITY FUNDS ANNUAL REPORT | | | 29 |
SCHEDULE OF INVESTMENTS (concluded) September 30, 2010 | Rydex|SGI Equity Fund Large Cap Core Fund |
CONTRACTS | VALUE | |||||||
OPTIONS WRITTEN† - 0.0% | ||||||||
Put Options on: | ||||||||
Wells Fargo & Co. | ||||||||
Expiring October 2010 with strike price of $27.00 | 120 | $ | (23,400 | ) | ||||
Total Options Written (Premiums received $36,067) | $ | (23,400 | ) | |||||
Cash & Other Assets, Less Liabilities - 2.2% | 4,123,049 | |||||||
Total Net Assets - 100.0% | $ | 183,346,489 | ||||||
* | Non-income producing security. |
† | Value determined based on Level 1 inputs — See Note 9. |
1 | Security is segregated as collateral for open written option contracts. plc — Public Limited Company |
30 | | | THE RYDEX | SGI EQUITY FUNDS ANNUAL REPORT | The accompanying notes are an integral part of the financial statements. |
2
| Rydex|SGI Equity Fund Large Cap Core Fund |
STATEMENT OF ASSETS
AND LIABILITIES
AND LIABILITIES
September 30, 2010
Assets: | ||||
Investments, at value* | $ | 179,246,840 | ||
Cash | 4,127,612 | |||
Receivables: | ||||
Fund shares sold | 2,517 | |||
Securities sold | 125,067 | |||
Dividends | 269,491 | |||
Prepaid expenses | 23,646 | |||
Total assets | 183,795,173 | |||
Liabilities: | ||||
Written options, at value** | 23,400 | |||
Payable for: | ||||
Fund shares redeemed | 110,160 | |||
Management fees | 111,052 | |||
Custodian fees | 475 | |||
Transfer agent/maintenance fees | 14,607 | |||
Administration fees | 14,124 | |||
Professional fees | 32,295 | |||
12b-1 distribution plan fees | 42,592 | |||
Directors’ fees | 6,837 | |||
Other | 93,142 | |||
Total liabilities | 448,684 | |||
Net assets | $ | 183,346,489 | ||
Net assets consist of: | ||||
Paid in capital | $ | 208,285,539 | ||
Undistributed net investment income | 505,424 | |||
Accumulated net realized loss on investments | (34,697,967 | ) | ||
Net unrealized appreciation on investments | 9,253,493 | |||
Net assets | $ | 183,346,489 | ||
A-Class: | ||||
Capital shares outstanding (unlimited number of shares authorized) | 39,711,846 | |||
Net assets | $ | 174,371,070 | ||
Net asset value and redemption price per share | $4.39 | |||
Maximum offering price per share (net asset value divided by 94.25%) | $4.66 | |||
B-Class: | ||||
Capital shares outstanding (unlimited number of shares authorized) | 1,895,877 | |||
Net assets | $ | 6,817,096 | ||
Net asset value, offering and redemption price per share (excluding any applicable contingent deferred sales charge) | $3.60 | |||
C-Class: | ||||
Capital shares outstanding (unlimited number of shares authorized) | 554,827 | |||
Net assets | $ | 2,158,323 | ||
Net asset value, offering and redemption | ||||
price per share (excluding any applicable contingent deferred sales charge) | $3.89 | |||
* Investments, at cost | $ | 170,006,014 | ||
** Premiums received for written options | $ | 36,067 |
STATEMENT OF
OPERATIONS
OPERATIONS
For the Year Ended September 30, 2010
Investment Income: | ||||
Dividends (net of foreign withholding tax of $426) | $ | 3,292,270 | ||
Interest | 2,381 | |||
Total investment income | 3,294,651 | |||
Expenses: | ||||
Management fees | 1,426,137 | |||
Transfer agent/maintenance fees | 471,179 | |||
Administration fees | 180,964 | |||
Custodian fees | 7,332 | |||
Directors’ fees | 18,264 | |||
Professional fees | 38,759 | |||
Reports to shareholders | 44,068 | |||
Registration fees | 39,849 | |||
Other | 9,205 | |||
12b-1 distribution fees - A-Class | 449,349 | |||
12b-1 distribution fees - B-Class | 81,823 | |||
12b-1 distribution fees - C-Class | 22,298 | |||
Total expenses | 2,789,227 | |||
Net investment income | 505,424 | |||
Net Realized and Unrealized Gain (Loss): | ||||
Net realized gain (loss) on: | ||||
Investments | 6,562,544 | |||
Options written | 83,799 | |||
Net realized gain | 6,646,343 | |||
Net change in unrealized appreciation (depreciation) on: | ||||
Investments | 8,010,716 | |||
Options written | 12,667 | |||
Net change in unrealized appreciation (depreciation) | 8,023,383 | |||
Net realized and unrealized gain | 14,669,726 | |||
Net increase in net assets resulting from operations | $ | 15,175,150 | ||
The accompanying notes are an integral part of the financial statements. | THE RYDEX | SGI EQUITY FUNDS ANNUAL REPORT | | | 31 |
3
STATEMENTS OF CHANGES IN NET ASSETS | Rydex|SGI Equity Fund Large Cap Core Fund |
Year Ended | Year Ended | |||||||
September 30, | September 30, | |||||||
2010 | 2009 | |||||||
Increase (Decrease) In Net Assets From Operations: | ||||||||
Net investment income | $ | 505,424 | $ | 392,434 | ||||
Net realized gain (loss) on investments | 6,646,343 | (39,927,753 | ) | |||||
Net change in unrealized appreciation (depreciation) on investments | 8,023,383 | 25,674,075 | ||||||
Net increase (decrease) in net assets resulting from operations | 15,175,150 | (13,861,244 | ) | |||||
Distributions to shareholders from: | ||||||||
Net investment income | ||||||||
A-Class | — | (392,434 | ) | |||||
Return of capital | ||||||||
A-Class | — | (596,632 | ) | |||||
B-Class | — | (33,423 | ) | |||||
C-Class | — | (9,223 | ) | |||||
Total distributions to shareholders | — | (1,031,712 | ) | |||||
Capital share transactions: | ||||||||
Proceeds from sale of shares | ||||||||
A-Class | 12,543,804 | 5,175,096 | ||||||
B-Class | 2,379,823 | 913,069 | ||||||
C-Class | 266,313 | 584,733 | ||||||
Distributions reinvested | ||||||||
A-Class | — | 906,902 | ||||||
B-Class | — | 32,949 | ||||||
C-Class | — | 9,093 | ||||||
Cost of shares redeemed | ||||||||
A-Class | (27,969,578 | ) | (22,903,493 | ) | ||||
B-Class | (3,966,116 | ) | (2,826,140 | ) | ||||
C-Class | (514,992 | ) | (1,012,475 | ) | ||||
Net decrease from capital share transactions | (17,260,746 | ) | (19,120,266 | ) | ||||
Net decrease in net assets | (2,085,596 | ) | (34,013,222 | ) | ||||
Net assets: | ||||||||
Beginning of year | 185,432,085 | 219,445,307 | ||||||
End of year | $ | 183,346,489 | $ | 185,432,085 | ||||
Undistributed net investment income at end of year | $ | 505,424 | $ | — | ||||
Capital share activity: | ||||||||
Shares sold | ||||||||
A-Class | 2,947,547 | 1,556,038 | ||||||
B-Class | 686,162 | 331,911 | ||||||
C-Class | 70,248 | 194,316 | ||||||
Shares issued from reinvestment of distributions | ||||||||
A-Class | — | 279,047 | ||||||
B-Class | — | 12,204 | ||||||
C-Class | — | 3,114 | ||||||
Shares redeemed | ||||||||
A-Class | (6,523,729 | ) | (6,925,030 | ) | ||||
B-Class | (1,118,493 | ) | (1,023,385 | ) | ||||
C-Class | (135,863 | ) | (341,567 | ) | ||||
Total capital share activity | (4,074,128 | ) | (5,913,352 | ) | ||||
32 | | | THE RYDEX | SGI EQUITY FUNDS ANNUAL REPORT | The accompanying notes are an integral part of the financial statements. |
4
FINANCIAL HIGHLIGHTS | Rydex|SGI Equity Fund Large Cap Core Fund |
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.
Year Ended | Year Ended | Year Ended | Year Ended | Year Ended | ||||||||||||||||
September 30, | September 30, | September 30, | September 30, | September 30, | ||||||||||||||||
A-Class | 2010 | 2009 | 2008 | 2007 | 2006 | |||||||||||||||
Per Share Data | ||||||||||||||||||||
Net asset value, beginning of period | $4.05 | $4.26 | $6.84 | $6.85 | $6.58 | |||||||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||
Net investment income (loss)a | 0.01 | 0.01 | 0.01 | — | (0.01 | ) | ||||||||||||||
Net gain (loss) on investments (realized and unrealized) | 0.33 | (0.20 | ) | (1.61 | ) | 0.69 | 0.52 | |||||||||||||
Total from investment operations | 0.34 | (0.19 | ) | (1.60 | ) | 0.69 | 0.51 | |||||||||||||
Less distributions from: | ||||||||||||||||||||
Net investment income | — | (0.01 | ) | — | — | (0.04 | ) | |||||||||||||
Net realized gains | — | — | (0.97 | ) | (0.70 | ) | (0.20 | ) | ||||||||||||
Return of capital | — | (0.01 | ) | (0.01 | ) | — | — | |||||||||||||
Total distributions | — | (0.02 | ) | (0.98 | ) | (0.70 | ) | (0.24 | ) | |||||||||||
Net asset value, end of period | $4.39 | $4.05 | $4.26 | $6.84 | $6.85 | |||||||||||||||
Total Returnb | 8.40% | (4.32% | ) | (26.12% | ) | 10.33% | 7.88% | |||||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||
Net assets, end of period (in thousands) | $174,371 | $175,404 | $205,908 | $322,850 | $371,006 | |||||||||||||||
Ratios to average net assets: | ||||||||||||||||||||
Net investment income (loss) | 0.31% | 0.28% | 0.15% | 0.02% | (0.08% | ) | ||||||||||||||
Total expenses | 1.43% | 1.49% | 1.36% | 1.34% | 1.34% | |||||||||||||||
Portfolio turnover rate | 100% | 69% | 111% | c | 20% | 34% |
Year Ended | Year Ended | Year Ended | Year Ended | Year Ended | ||||||||||||||||
September 30, | September 30, | September 30, | September 30, | September 30, | ||||||||||||||||
B-Class | 2010 | 2009 | 2008 | 2007 | 2006 | |||||||||||||||
Per Share Data | ||||||||||||||||||||
Net asset value, beginning of period | $3.34 | $3.53 | $5.89 | $6.04 | $5.83 | |||||||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||
Net investment lossa | (0.02 | ) | (0.01 | ) | (0.03 | ) | (0.04 | ) | (0.05 | ) | ||||||||||
Net gain (loss) on investments (realized and unrealized) | 0.28 | (0.17 | ) | (1.35 | ) | 0.59 | 0.46 | |||||||||||||
Total from investment operations | 0.26 | (0.18 | ) | (1.38 | ) | 0.55 | 0.41 | |||||||||||||
Less distributions from: | ||||||||||||||||||||
Net realized gains | — | — | (0.97 | ) | (0.70 | ) | (0.20 | ) | ||||||||||||
Return of capital | — | (0.01 | ) | (0.01 | ) | — | — | |||||||||||||
Total distributions | — | (0.01 | ) | (0.98 | ) | (0.70 | ) | (0.20 | ) | |||||||||||
Net asset value, end of period | $3.60 | $3.34 | $3.53 | $5.89 | $6.04 | |||||||||||||||
Total Returnb | 7.78% | (4.96% | ) | (26.69% | ) | 9.33% | 7.16% | |||||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||
Net assets, end of period (in thousands) | $6,817 | $7,784 | $10,621 | $19,928 | $27,842 | |||||||||||||||
Ratios to average net assets: | ||||||||||||||||||||
Net investment loss | (0.48% | ) | (0.46% | ) | (0.61% | ) | (0.74% | ) | (0.83% | ) | ||||||||||
Total expenses | 2.17% | 2.24% | 2.11% | 2.09% | 2.09% | |||||||||||||||
Portfolio turnover rate | 100% | 69% | 111% | c | 20% | 34% |
The accompanying notes are an integral part of the financial statements. | THE RYDEX | SGI EQUITY FUNDS ANNUAL REPORT | | | 33 |
5
FINANCIAL HIGHLIGHTS (concluded) | Rydex|SGI Equity Fund Large Cap Core Fund |
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.
Year Ended | Year Ended | Year Ended | Year Ended | Year Ended | ||||||||||||||||
September 30, | September 30, | September 30, | September 30, | September 30, | ||||||||||||||||
C-Class | 2010 | 2009 | 2008 | 2007 | 2006 | |||||||||||||||
Per Share Data | ||||||||||||||||||||
Net asset value, beginning of period | $3.62 | $3.81 | $6.28 | $6.39 | $6.16 | |||||||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||
Net investment lossa | (0.02 | ) | (0.01 | ) | (0.03 | ) | (0.05 | ) | (0.05 | ) | ||||||||||
Net gain (loss) on investments (realized and unrealized) | 0.29 | (0.17 | ) | (1.46 | ) | 0.64 | 0.48 | |||||||||||||
Total from investment operations | 0.27 | (0.18 | ) | (1.49 | ) | 0.59 | 0.43 | |||||||||||||
Less distributions from: | ||||||||||||||||||||
Net realized gains | — | — | (0.97 | ) | (0.70 | ) | (0.20 | ) | ||||||||||||
Return of capital | — | (0.01 | ) | (0.01 | ) | — | — | |||||||||||||
Total distributions | — | (0.01 | ) | (0.98 | ) | (0.70 | ) | (0.20 | ) | |||||||||||
Net asset value, end of period | $3.89 | $3.62 | $3.81 | $6.28 | $6.39 | |||||||||||||||
Total Returnb | 7.46% | (4.60% | ) | (26.79% | ) | 9.45% | 7.10% | |||||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||
Net assets, end of period (in thousands) | $2,158 | $2,244 | $2,915 | $5,048 | $5,794 | |||||||||||||||
Ratios to average net assets: | ||||||||||||||||||||
Net investment loss | (0.44% | ) | (0.47% | ) | (0.60% | ) | (0.73% | ) | (0.83% | ) | ||||||||||
Total expenses | 2.18% | 2.24% | 2.11% | 2.09% | 2.09% | |||||||||||||||
Portfolio turnover rate | 100% | 69% | 111% | c | 20% | 34% |
a | Net investment income (loss) was computed using average shares outstanding throughout the period. |
b | Total return information does not reflect deduction of any sales charges imposed at the time of purchase for A-Class shares or upon redemption for B-Class and C-Class shares. |
c | Significant variation in the portfolio turnover rate is due to the Investment Manager’s appointment of new portfolio managers for the Fund. |
34 | | | THE RYDEX | SGI EQUITY FUNDS ANNUAL REPORT | The accompanying notes are an integral part of the financial statements. |
6
MANAGERS’ COMMENTARY
September 30, 2010
Advised by:
![(SECURITY GLOBAL INVESTORS LOGO)](https://capedge.com/proxy/N-CSR/0000950123-10-111594/g06945g0694504.gif)
To Our Shareholders:
For the fiscal year ended September 30, 2010, the Rydex|SGI Equity Fund-Global Fund underperformed its benchmark, the MSCI World Index, 5.52%1 to 6.76%, and its peer group return of 8.35%.
At the core of the investment management team’s philosophy is the idea that excess-return opportunities exist in global stock markets and can be identified and captured at the security level, regardless of country, region, or sector. Portfolio managers Scott Klimo and David Whittall lead the global equities team. In addition to the team’s extensive experience, competitive advantages include the execution of in-depth fundamental research using a proprietary database that provides a unique perspective of the world, a proprietary risk-management module and a well-defined and disciplined investment process.
Financials and Energy Top Performers
Holdings in the Financials and Energy sector contributed to positive performance due to superior stock selection.
The Financials sector was the largest in the portfolio, consisting of 18.3% of assets under management. DBS Group Holdings Ltd., a 1.8% weight, gained 13.5%, while Julius Baer Group AG, a 1.7% weight, was up 10.6%. Others in the sector that did well included BNP Paribas S.A., Goldman Sachs Group Inc., and Protective Life Corp.
Overall, Energy sector holdings in the portfolio gained 8.9%. Forest Oil Corp., a 1.6% weight, soared 51.8%. Hong Kong-based CNOOC Ltd., China’s largest producer of offshore crude oil and natural gas, was up 48.6% during the fiscal year. Other Energy companies contributing to performance included John Wood Group plc and Sunoco Inc.
From a regional perspective, all portfolio gains were propelled by companies in North America.
Consumer Discretionary and Materials Disappoint
The Fund was hurt by securities in the Consumer Discretionary sector, which held 12.5% of portfolio assets, due to poor stock selection. ITT Educational Services Inc., a 1.2% weight, was down 14.1%, while Mitsui & Co. Ltd. dropped 16.9%. Other holdings detracting from performance included Ubisoft Entertainment S.A., DeNA Co. Ltd., and Renault S.A.
In the Materials sector, Randgold Resources Ltd. was down 21.2%, while voestalpine AG and Mitsui Chemicals Inc. lost 16.2% and 15.3%, respectively.
On a regional basis, securities in the European and Asian territories were the largest drag on portfolio returns.
Market Outlook
At the end of 2009, our outlook focused on the prospects of economic recovery versus the possibility of double-dip recession. These days it seems to be the key economic debate with a line drawn between the Keynesians and the Austrians. The former often point to the U.S. in 1937, when a recovering economy was pushed back into recession as the Roosevelt administration reduced spending and raised taxes to bring the budget into balance. The latter present the Japanese model as a counter-argument, where years of government spending and an exploding debt load have done nothing to engender consistent growth. In the meantime, the labor market remains precarious as unemployment continues to hover around double-digits. In this environment, we continue to emphasize a focus on risk.
THE RYDEX | SGI EQUITY FUNDS ANNUAL REPORT | | | 35 |
1
MANAGERS’ COMMENTARY (concluded)
We appreciate your confidence and trust. We will continue to seek out the best individual prospects from around the globe for the Fund.
Sincerely,
Scott Klimo, CFA, Portfolio Manager
David Whittall, Portfolio Manager
David Whittall, Portfolio Manager
1 | Performance figures are based on A-Class shares and do not reflect deduction of the sales charges or taxes that a shareholder would pay on distributions or the redemption of shares. Investments in international securities entail greater risks than investment in domestic securities. |
Performance displayed represents past performance which is no guarantee of future results. Of course, Fund performance is subject to daily market volatility and may be better or worse since the end of the last quarter. For up-to-date Fund performance, call us at 800.820.0888 or visit www.rydex-sgi.com. | |
MSCI World Index - a free float-adjusted market capitalization weighted Index that is designed to measure the equity market performance of developed markets. As of May 27, 2010 the MSCI World Index consisted of the following 24 developed market country indices: Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Greece, Hong Kong, Ireland, Israel, Italy, Japan, Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, the United Kingdom, and the United States. | |
Rydex|SGI Funds are distributed by Rydex Distributors, LLC (RDL). Security Global InvestorsSM is the investment advisory arm of Security Benefit Corporation (Security Benefit). Security Global Investors consists of Security Global Investors, LLC, Security Investors, LLC and Rydex Investments. Rydex Investments is the primary business name for Rydex Advisors, LLC and Rydex Advisors II, LLC. Security Global Investors and RDL are affiliates and are subsidiaries of Security Benefit, which is wholly owned by Guggenheim SBC Holdings, LLC, a special purpose entity managed by Guggenheim Partners, LLC, a diversified financial services firm with more than $100 billion in assets under supervision. | |
Read each Fund’s prospectus and summary prospectus (if available) carefully before investing. It contains the Fund’s investment objectives, risks, charges, expenses and other information, which should be considered carefully before investing. Obtain a prospectus and summary prospectus (if available) at www.rydex-sgi.com or call 800.820.0888. |
36 | | | THE RYDEX | SGI EQUITY FUNDS ANNUAL REPORT |
2
PERFORMANCE SUMMARY September 30, 2010 | Rydex|SGI Equity Fund Global Fund (Unaudited) |
PERFORMANCE
![(PERFORMANCE GRAPH)](https://capedge.com/proxy/N-CSR/0000950123-10-111594/g06945g0694510.gif)
$10,000 Over Ten Years
This chart assumes a $10,000 investment in A-Class shares of Global Fund on September 30, 2000, reflects deduction of the maximum front-end sales charge of 5.75% and assumes all dividends are reinvested. The chart does not reflect the deduction of taxes that a shareholder would pay on distributions or the redemption of fund shares. The MSCI World Index is an unmanaged capitalization weighted index that is designed to measure global developed market equity performance.
AVERAGE ANNUAL RETURNS PERIODS ENDED 9/30/10 (Inception 10/01/1993) | |||||||||||||||
1 YEAR | 5 YEAR | 10 YEAR | |||||||||||||
A-Class Shares | 5.52 | % | 0.74 | % | 1.75 | % | |||||||||
A-Class Shares with sales charge | -0.57 | % | -0.45 | % | 1.15 | % | |||||||||
B-Class Shares | 5.75 | % | 1.00 | % | 1.60 | % | |||||||||
B-Class Shares with CDSC | 0.75 | % | 0.78 | % | 1.60 | % | |||||||||
C-Class Shares | 4.62 | % | -0.03 | % | 0.97 | % | |||||||||
C-Class Shares with CDSC | 3.62 | % | -0.03 | % | 0.97 | % | |||||||||
The performance data above represents past performance that is not predictive of future results. The investment return and principal value of an investment in the Fund will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. The figures above do not reflect deduction of the maximum front-end sales charge of 5.75% for A-Class shares or the CDSC of up to 5% for B-Class shares and 1% for C-Class shares, as applicable, except where noted. The figures do not reflect the deduction of taxes that a shareholder would pay on distributions or redemption of shares. Such figures would be lower if the maximum sales charge and any applicable taxes were deducted. Fee waivers and/or reimbursements reduced expenses of the Fund and in the absence of such waivers, the performance quoted would be reduced.
Portfolio Composition by Sector | ||||
Common Stocks | ||||
Consumer Discretionary | 10.7 | % | ||
Consumer Staples | 5.4 | % | ||
Energy | 9.6 | % | ||
Financials | 14.5 | % | ||
Health Care | 11.0 | % | ||
Industrials | 12.8 | % | ||
Information Technology | 16.5 | % | ||
Materials | 8.3 | % | ||
Telecommunication Services | 6.2 | % | ||
Utilities | 2.1 | % | ||
Short Term Investments | 1.7 | % | ||
Cash & Other Assets, Less Liabilities | 1.2 | % | ||
Total Net Assets | 100.0 | % |
The accompanying notes are an integral part of the financial statements. | THE RYDEX | SGI EQUITY FUNDS ANNUAL REPORT | | | 37 |
SCHEDULE OF INVESTMENTS September 30, 2010 | Rydex|SGI Equity Fund Global Fund |
SHARES | VALUE | |||||||
COMMON STOCKS† - 97.1% | ||||||||
Information Technology - 16.5% | ||||||||
Apple, Inc.* | 13,369 | $ | 3,793,453 | |||||
Hitachi Ltd. | 750,000 | 3,279,033 | ||||||
Mastercard, Inc. — Class A | 11,791 | 2,641,184 | ||||||
Software AG | 16,180 | 1,954,527 | ||||||
Xerox Corp. | 186,800 | 1,933,380 | ||||||
AOL, Inc.* | 24,914 | 616,622 | ||||||
CoreLogic, Inc. | 23,800 | 456,008 | ||||||
Total Information Technology | 14,674,207 | |||||||
Financials - 14.5% | ||||||||
Julius Baer Group Ltd. | 63,684 | 2,318,315 | ||||||
BNP Paribas | 27,925 | 1,986,294 | ||||||
Standard Chartered plc | 63,001 | 1,808,229 | ||||||
Sony Financial Holdings, Inc. | 529 | 1,723,519 | ||||||
JPMorgan Chase & Co. | 42,950 | 1,635,107 | ||||||
PNC Financial Services Group, Inc. | 13,900 | 721,549 | ||||||
RenaissanceRe Holdings Ltd. | 11,500 | 689,540 | ||||||
Fubon Financial Holding Company, Ltd. | 534,000 | 658,045 | ||||||
PartnerRe Ltd. | 8,000 | 641,440 | ||||||
Validus Holdings Ltd. | 19,100 | 503,476 | ||||||
Hartford Financial Services Group, Inc. | 20,100 | 461,295 | ||||||
Total Financials | 13,146,809 | |||||||
Industrials - 12.8% | ||||||||
Deutsche Lufthansa AG* | 104,821 | 1,927,209 | ||||||
Amada Company, Ltd. | 270,000 | 1,849,913 | ||||||
Marubeni Corp. | 324,000 | 1,831,802 | ||||||
Manitowoc Company, Inc. | 64,400 | 779,884 | ||||||
JetBlue Airways Corp.* | 114,400 | 765,336 | ||||||
East Japan Railway Co. | 11,500 | 694,256 | ||||||
Central Japan Railway Co. | 92 | 676,625 | ||||||
Alliant Techsystems, Inc.* | 7,900 | 595,660 | ||||||
United Continental Holdings, Inc.* | 24,500 | 578,935 | ||||||
Alaska Air Group, Inc.* | 11,000 | 561,330 | ||||||
US Airways Group, Inc.* | 54,600 | 505,050 | ||||||
Asiana Airlines | 60,430 | 499,189 | ||||||
Total Industrials | 11,265,189 | |||||||
Health Care - 11.0% | ||||||||
Express Scripts, Inc. — Class A* | 70,412 | 3,429,064 | ||||||
Fresenius Medical Care AG & Co. KGaA | 35,782 | 2,210,244 | ||||||
Endo Pharmaceuticals Holdings, Inc.* | 22,198 | 737,862 | ||||||
Zimmer Holdings, Inc.* | 13,800 | 722,154 | ||||||
Cephalon, Inc.* | 10,700 | 668,108 | ||||||
Humana, Inc.* | 12,200 | 612,928 | ||||||
AstraZeneca plc | 12,031 | 611,425 | ||||||
CR Bard, Inc. | 7,100 | 578,153 | ||||||
Kinetic Concepts, Inc.* | 11,900 | 435,302 | ||||||
Total Health Care | 10,005,240 | |||||||
SHARES | VALUE | |||||||
Consumer Discretionary - 10.7% | ||||||||
Rent-A-Center, Inc. — Class A | 102,000 | $ | 2,282,760 | |||||
Compass Group plc | 247,124 | 2,059,529 | ||||||
Kingfisher plc | 512,341 | 1,885,814 | ||||||
Wynn Macau Ltd.* | 806,563 | 1,395,053 | ||||||
Gannett Company, Inc. | 54,600 | 667,758 | ||||||
Tractor Supply Co. | 12,400 | 491,784 | ||||||
Apollo Group, Inc. — Class A* | 8,200 | 421,070 | ||||||
Pulte Group, Inc.* | 31,600 | 276,816 | ||||||
Total Consumer Discretionary | 9,480,584 | |||||||
Energy - 9.6% | ||||||||
Royal Dutch Shell plc — Class A | 63,177 | 1,901,612 | ||||||
CNOOC Ltd. | 944,087 | 1,830,036 | ||||||
Forest Oil Corp.* | 58,473 | 1,736,648 | ||||||
Occidental Petroleum Corp. | 20,270 | 1,587,141 | ||||||
Stone Energy Corp.* | 35,200 | 518,496 | ||||||
Sunoco, Inc. | 14,200 | 518,300 | ||||||
World Fuel Services Corp. | 17,000 | 442,170 | ||||||
Total Energy | 8,534,403 | |||||||
Materials - 8.3% | ||||||||
Osisko Mining Corp.*,1 | 168,200 | 2,394,917 | ||||||
Exxaro Resources Ltd. | 110,438 | 1,908,092 | ||||||
Huntsman Corp. | 59,900 | 692,444 | ||||||
Yamana Gold, Inc. | 59,500 | 678,331 | ||||||
Newmont Mining Co. | 10,300 | 646,943 | ||||||
Harmony Gold Mining Company Ltd. | 55,383 | 619,906 | ||||||
Nippon Paper Group, Inc. | 19,900 | 497,947 | ||||||
Total Materials | 7,438,580 | |||||||
Telecommunication Services - 6.2% | ||||||||
Deutsche Telekom AG | 136,984 | 1,874,203 | ||||||
MetroPCS Communications, Inc.* | 149,900 | 1,567,954 | ||||||
Koninklijke KPN N.V. | 97,249 | 1,504,247 | ||||||
Taiwan Mobile Company, Ltd. | 253,000 | 522,995 | ||||||
Total Telecommunication Services | 5,469,399 | |||||||
Consumer Staples - 5.4% | ||||||||
Marine Harvest ASA | 2,111,285 | 1,840,037 | ||||||
Koninklijke Ahold N.V. | 129,867 | 1,750,801 | ||||||
Archer-Daniels-Midland Co. | 19,300 | 616,056 | ||||||
Empire Company Ltd. — Class A | 9,426 | 504,418 | ||||||
Total Consumer Staples | 4,711,312 | |||||||
Utilities - 2.1% | ||||||||
UGI Corp. | 66,907 | 1,914,209 | ||||||
Total Common Stocks (Cost $78,811,968) | 86,639,932 | |||||||
SHORT TERM INVESTMENT†† - 1.7% | ||||||||
State Street General Account U.S. Government Fund | 1,544,883 | 1,544,883 | ||||||
Total Short Term Investment (Cost $1,544,883) | 1,544,883 | |||||||
38 | | | THE RYDEX | SGI EQUITY FUNDS ANNUAL REPORT | The accompanying notes are an integral part of the financial statements. |
SCHEDULE OF INVESTMENTS (concluded) September 30, 2010 | Rydex|SGI Equity Fund Global Fund |
VALUE | ||||||||
Total Investments - 98.8% (Cost $80,356,851) | $ | 88,184,815 | ||||||
Cash & Other Assets, Less Liabilities - 1.2% | 1,079,987 | |||||||
Total Net Assets - 100.0% | $ | 89,264,802 | ||||||
INVESTMENT CONCENTRATION | ||||||||
At September 30, 2010, the investment diversification of the Fund was as follows: | ||||||||
COUNTRY | % OF NET ASSETS | VALUE | ||||||
United States | 43.9 | % | $ | 39,153,796 | ||||
Japan | 11.8 | 10,553,095 | ||||||
Germany | 8.9 | 7,966,183 | ||||||
United Kingdom | 7.1 | 6,364,997 | ||||||
Netherlands | 5.8 | 5,156,660 | ||||||
Canada | 4.0 | 3,577,666 | ||||||
South Africa | 2.8 | 2,527,998 | ||||||
Switzerland | 2.6 | 2,318,315 | ||||||
France | 2.2 | 1,986,294 | ||||||
Norway | 2.1 | 1,840,037 | ||||||
Hong Kong | 2.1 | 1,830,036 | ||||||
Bermuda | 2.0 | 1,834,456 | ||||||
Macau | 1.6 | 1,395,053 | ||||||
Taiwan, Province of China | 1.3 | 1,181,040 | ||||||
Netherlands Antilles | 0.6 | 499,189 | ||||||
Total Investments | 98.8 | % | $ | 88,184,815 | ||||
* | Non-income producing security |
† | Value determined based on Level 1 inputs — See Note 9. |
†† | Value determined based on Level 2 inputs — See Note 9. |
1 | Security is a PFIC (Passive Foreign Investment Company). |
plc — Public Limited Company |
The accompanying notes are an integral part of the financial statements. | THE RYDEX | SGI EQUITY FUNDS ANNUAL REPORT | | | 39 |
Rydex|SGI Equity Fund Global Fund |
STATEMENT OF ASSETS
AND LIABILITIES
AND LIABILITIES
September 30, 2010
Assets: | ||||
Investments, at value* | $ | 88,184,815 | ||
Cash denominated in a foreign currency, | ||||
at value** | 13,051 | |||
Receivables: | ||||
Fund shares sold | 14,322 | |||
Securities sold | 2,229,570 | |||
Dividends | 267,411 | |||
Foreign taxes recoverable | 50,633 | |||
Prepaid expenses | 24,582 | |||
Total assets | 90,784,384 | |||
Liabilities: | ||||
Payable for: | ||||
Securities purchased | 1,273,692 | |||
Fund shares redeemed | 58,982 | |||
Management fees | 74,190 | |||
Custodian fees | 16,051 | |||
Transfer agent/maintenance fees | 5,288 | |||
Administration fees | 11,129 | |||
Professional fees | 23,522 | |||
12b-1 distribution plan fees | 19,727 | |||
Directors’ fees | 5,823 | |||
Other | 31,178 | |||
Total liabilities | 1,519,582 | |||
Net assets | $ | 89,264,802 | ||
Net assets consist of: | ||||
Paid in capital | $ | 124,725,451 | ||
Accumulated net investment loss | (426,190 | ) | ||
Accumulated net realized loss on investments | (42,868,037 | ) | ||
Net unrealized appreciation on investments | 7,833,578 | |||
Net assets | $ | 89,264,802 | ||
A-Class: | ||||
Capital shares outstanding | ||||
(unlimited number of shares authorized) | 7,432,541 | |||
Net assets | $ | 78,201,314 | ||
Net asset value and redemption price per share | $10.52 | |||
Maximum offering price per share (net asset value divided by 94.25%) | $11.16 | |||
B-Class: | ||||
Capital shares outstanding | ||||
(unlimited number of shares authorized) | 736,617 | |||
Net assets | $ | 6,768,582 | ||
Net asset value, offering and redemption | ||||
price per share (excluding any applicable contingent deferred sales charge) | $9.19 | |||
C-Class: | ||||
Capital shares outstanding | ||||
(unlimited number of shares authorized) | 473,896 | |||
Net assets | $ | 4,294,906 | ||
Net asset value, offering and redemption price per share (excluding any applicable contingent deferred sales charge) | $9.06 | |||
* Investments, at cost | $ | 80,356,851 | ||
** Cash denominated in a foreign currency, at cost | 7,437 |
STATEMENT OF
OPERATIONS
OPERATIONS
For the Year Ended September 30, 2010
Investment Income: | ||||
Dividends (net of foreign withholding tax of $146,511) | $ | 2,073,089 | ||
Interest | 63 | |||
Total investment income | 2,073,152 | |||
Expenses: | ||||
Management fees | 986,496 | |||
Transfer agent/maintenance fees | 252,325 | |||
Administration fees | 151,213 | |||
Custodian fees | 61,033 | |||
Directors’ fees | 11,499 | |||
Professional fees | 40,187 | |||
Reports to shareholders | 20,001 | |||
Registration fees | 42,009 | |||
Other | 26,807 | |||
12b-1 distribution fees - A-Class | 213,352 | |||
12b-1 distribution fees - C-Class | 45,079 | |||
Total expenses | 1,850,001 | |||
Net investment income | 223,151 | |||
Net Realized and Unrealized Gain (Loss): | ||||
Net realized gain (loss) on: | ||||
Investments | 12,134,326 | |||
Foreign currency transactions | (340,574 | ) | ||
Net realized gain | 11,793,752 | |||
Net change in unrealized appreciation | ||||
(depreciation) on: | ||||
Investments | (6,395,158 | ) | ||
Translation of assets and liabilities in foreign currencies | (3,309 | ) | ||
Net change in unrealized appreciation (depreciation) | (6,398,467 | ) | ||
Net realized and unrealized gain | 5,395,285 | |||
Net increase in net assets resulting from operations | $ | 5,618,436 | ||
40 | | | THE RYDEX | SGI EQUITY FUNDS ANNUAL REPORT | The accompanying notes are an integral part of the financial statements. |
STATEMENTS OF CHANGES IN NET ASSETS | Rydex|SGI Equity Fund Global Fund |
Year Ended | Year Ended | |||||||
September 30, | September 30, | |||||||
2010 | 2009 | |||||||
Increase (Decrease) In Net Assets From Operations: | ||||||||
Net investment income | $ | 223,151 | $ | 588,726 | ||||
Net realized gain (loss) on investments | 11,793,752 | (32,306,831 | ) | |||||
Net change in unrealized appreciation (depreciation) on investments | (6,398,467 | ) | 30,228,428 | |||||
Net increase (decrease) in net assets resulting from operations | 5,618,436 | (1,489,677 | ) | |||||
Distributions to shareholders from: | ||||||||
Net investment income A-Class | — | (163,957 | ) | |||||
B-Class | — | (75,171 | ) | |||||
Return of capital A-Class | — | (535,384 | ) | |||||
B-Class | — | (101,453 | ) | |||||
C-Class | — | (46,236 | ) | |||||
Total distributions to shareholders | — | (922,201 | ) | |||||
Capital share transactions: | ||||||||
Proceeds from sale of shares A-Class | 20,592,616 | 34,945,358 | ||||||
B-Class | 826,631 | 2,542,896 | ||||||
C-Class | 439,496 | 988,149 | ||||||
Distributions reinvested | ||||||||
A-Class | — | 692,086 | ||||||
B-Class | — | 175,483 | ||||||
C-Class | — | 45,624 | ||||||
Cost of shares redeemed A-Class | (44,556,043 | ) | (26,643,873 | ) | ||||
B-Class | (5,667,547 | ) | (5,753,043 | ) | ||||
C-Class | (1,186,786 | ) | (3,334,066 | ) | ||||
Net increase (decrease) from capital share transactions | (29,551,633 | ) | 3,658,614 | |||||
Net increase (decrease) in net assets | (23,933,197 | ) | 1,246,736 | |||||
Net assets: | ||||||||
Beginning of year | 113,197,999 | 111,951,263 | ||||||
End of year | $ | 89,264,802 | $ | 113,197,999 | ||||
Accumulated net investment loss at end of year | $ | (426,190 | ) | $ | (308,767 | ) | ||
Capital share activity: | ||||||||
Shares sold | ||||||||
A-Class | 2,066,878 | 4,245,498 | ||||||
B-Class | 93,747 | 355,824 | ||||||
C-Class | 50,022 | 136,231 | ||||||
Shares issued from reinvestment of distributions | ||||||||
A-Class | — | 84,093 | ||||||
B-Class | — | 24,543 | ||||||
C-Class | — | 6,354 | ||||||
Shares redeemed | ||||||||
A-Class | (4,379,932 | ) | (3,160,197 | ) | ||||
B-Class | (640,990 | ) | (787,666 | ) | ||||
C-Class | (135,076 | ) | (453,603 | ) | ||||
Total capital share activity | (2,945,351 | ) | 451,077 | |||||
The accompanying notes are an integral part of the financial statements. | THE RYDEX | SGI EQUITY FUNDS ANNUAL REPORT | | | 41 |
FINANCIAL HIGHLIGHTS | Rydex|SGI Equity Fund Global Fund |
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.
Year Ended | Year Ended | Year Ended | Year Ended | Year Ended | ||||||||||||||||
September 30, | September 30, | September 30, | September 30, | September 30, | ||||||||||||||||
A-Class | 2010 | 2009 | 2008 | 2007 | a | 2006 | ||||||||||||||
Per Share Data | ||||||||||||||||||||
Net asset value, beginning of period | $9.97 | $10.35 | $20.69 | $19.65 | $17.47 | |||||||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||
Net investment income (loss)b | 0.02 | 0.05 | 0.05 | 0.06 | (0.03 | ) | ||||||||||||||
Net gain (loss) on investments (realized and unrealized) | 0.53 | (0.35 | ) | (3.63 | ) | 3.60 | 2.21 | |||||||||||||
Total from investment operations | 0.55 | (0.30 | ) | (3.58 | ) | 3.66 | 2.18 | |||||||||||||
Less distributions from: | ||||||||||||||||||||
Net investment income | — | (0.02 | ) | (0.04 | ) | — | — | |||||||||||||
Net realized gains | — | — | (6.72 | ) | (2.62 | ) | — | |||||||||||||
Return of capital | — | (0.06 | ) | — | — | — | ||||||||||||||
Total distributions | — | (0.08 | ) | (6.76 | ) | (2.62 | ) | — | ||||||||||||
Net asset value, end of period | $10.52 | $9.97 | $10.35 | $20.69 | $19.65 | |||||||||||||||
Total Returnc | 5.52% | (2.71% | ) | (25.16% | ) | 20.07% | 12.48% | |||||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||
Net assets, end of period (in thousands) | $78,201 | $97,205 | $88,782 | $145,158 | $119,176 | |||||||||||||||
Ratios to average net assets: | ||||||||||||||||||||
Net investment income (loss) | 0.24% | 0.63% | 0.33% | 0.29% | (0.17% | ) | ||||||||||||||
Total expenses | 1.86% | 1.89% | 1.73% | 1.69% | 1.75% | |||||||||||||||
Portfolio turnover rate | 288% | 368% | 280% | d | 162% | d | 28% | |||||||||||||
Year Ended | Year Ended | Year Ended | Year Ended | Year Ended | ||||||||||||||||
September 30, | September 30, | September 30, | September 30, | September 30, | ||||||||||||||||
B-Class | 2010 | 2009 | 2008 | 2007 | a | 2006 | ||||||||||||||
Per Share Data | ||||||||||||||||||||
Net asset value, beginning of period | $8.69 | $9.05 | $18.96 | $18.17 | $16.12 | |||||||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||
Net investment incomeb | 0.04 | 0.07 | 0.07 | 0.09 | 0.02 | |||||||||||||||
Net gain (loss) on investments (realized and unrealized) | 0.46 | (0.32 | ) | (3.17 | ) | 3.32 | 2.03 | |||||||||||||
Total from investment operations | 0.50 | (0.25 | ) | (3.10 | ) | 3.41 | 2.05 | |||||||||||||
Less distributions from: | ||||||||||||||||||||
Net investment income | — | (0.04 | ) | (0.09 | ) | — | — | |||||||||||||
Net realized gains | — | — | (6.72 | ) | (2.62 | ) | — | |||||||||||||
Return of capital | — | (0.07 | ) | — | — | — | ||||||||||||||
Total distributions | — | (0.11 | ) | (6.81 | ) | (2.62 | ) | — | ||||||||||||
Net asset value, end of period | $9.19 | $8.69 | $9.05 | $18.96 | $18.17 | |||||||||||||||
Total Returnc | 5.75% | (2.45% | ) | (24.91% | ) | 20.36% | 12.72% | |||||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||
Net assets, end of period (in thousands) | $6,769 | $11,155 | $15,303 | $29,659 | $27,494 | |||||||||||||||
Ratios to average net assets: | ||||||||||||||||||||
Net investment income | 0.45% | 0.90% | 0.55% | 0.50% | 0.11% | |||||||||||||||
Total expenses | 1.61% | 1.65% | 1.48% | 1.44% | 1.50% | |||||||||||||||
Portfolio turnover rate | 288% | 368% | 280% | d | 162% | d | 28% |
42 | | | THE RYDEX | SGI EQUITY FUNDS ANNUAL REPORT | The accompanying notes are an integral part of the financial statements. |
FINANCIAL HIGHLIGHTS (concluded) | Rydex|SGI Equity Fund Global Fund |
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.
Year Ended | Year Ended | Year Ended | Year Ended | Year Ended | ||||||||||||||||
September 30, | September 30, | September 30, | September 30, | September 30, | ||||||||||||||||
C-Class | 2010 | 2009 | 2008 | 2007 | a | 2006 | ||||||||||||||
Per Share Data | ||||||||||||||||||||
Net asset value, beginning of period | $8.66 | $9.04 | $19.00 | $18.37 | $16.46 | |||||||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||
Net investment lossb | (0.04 | ) | (0.01 | ) | (0.05 | ) | (0.09 | ) | (0.15 | ) | ||||||||||
Net gain (loss) on investments (realized and unrealized) | 0.44 | (0.31 | ) | (3.18 | ) | 3.34 | 2.06 | |||||||||||||
Total from investment operations | 0.40 | (0.32 | ) | (3.23 | ) | 3.25 | 1.91 | |||||||||||||
Less distributions from: | ||||||||||||||||||||
Net realized gains | — | — | (6.73 | ) | (2.62 | ) | — | |||||||||||||
Return of capital | — | (0.06 | ) | — | — | — | ||||||||||||||
Total distributions | — | (0.06 | ) | (6.73 | ) | (2.62 | ) | — | ||||||||||||
Net asset value, end of period | $9.06 | $8.66 | $9.04 | $19.00 | $18.37 | |||||||||||||||
Total Returnc | 4.62% | (3.39% | ) | (25.69% | ) | 19.14% | 11.60% | |||||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||
Net assets, end of period (in thousands) | $4,295 | $4,838 | $7,866 | $12,449 | $10,361 | |||||||||||||||
Ratios to average net assets: | ||||||||||||||||||||
Net investment loss | (0.50% | ) | (0.11% | ) | (0.44% | ) | (0.48% | ) | (0.87% | ) | ||||||||||
Total expenses | 2.62% | 2.65% | 2.49% | 2.44% | 2.51% | |||||||||||||||
Portfolio turnover rate | 288% | 368% | 280% | d | 162% | d | 28% |
a | Security Global Investors, LLC (SGI) became the sub-advisor of the Global Fund effective August 1, 2007. Prior to August 1, 2007, Oppenheimer sub-advised the Fund. |
b | Net investment income (loss) was computed using average shares outstanding throughout the period. |
c | Total return information does not reflect deduction of any sales charges imposed at the time of purchase for A-Class shares or upon redemption for B-Class and C-Class shares. |
d | Significant variation in the portfolio turnover rate is due to the re-alignment of the Fund’s portfolio following the appointment of SGI as sub-advisor. |
The accompanying notes are an integral part of the financial statements. | THE RYDEX | SGI EQUITY FUNDS ANNUAL REPORT | | | 43 |
MANAGERS’ COMMENTARY September 30, 2010 | |
Advised by:
![(SECURITY GLOBAL INVESTORS LOGO)](https://capedge.com/proxy/N-CSR/0000950123-10-111594/g06945g0694504.gif)
To Our Shareholders:
For the fiscal year ended September 30, 2010, the Rydex|SGI Equity Fund–Global Institutional Fund underperformed its benchmark, the MSCI World Index, 6.61%1 to 6.76%.
At the core of the investment management team’s philosophy is the idea that excess-return opportunities exist in global stock markets and can be identified and captured at the security level, regardless of country, region, or sector. Portfolio Managers Scott Klimo and David Whittall lead the global equities team. In addition to the team’s extensive experience, competitive advantages include the execution of in-depth fundamental research using a proprietary database that provides a unique perspective of the world, a proprietary risk-management module, and a well-defined and disciplined investment process.
Financials and Energy Top Performers
Holdings in the Financials and Energy sector contributed to positive performance due to superior stock selection.
The Financials sector was the largest in the portfolio, consisting of 18.4% of assets under management. DBS Group Holdings Ltd., a 1.8% weight, gained 13.5%, while Julius Baer Group AG, a 1.7% weight, was up 10.6%. Others in the sector that did well included BNP Paribas S.A., Goldman Sachs Group Inc., and Protective Life Corp.
Overall, Energy sector holdings in the portfolio gained 9.1%. Forest Oil Corp., a 1.7% weight, soared 51.8%. Hong Kong-based CNOOC Ltd., China’s largest producer of offshore crude oil and natural gas, was up 48.6% during the fiscal year. Other Energy companies contributing to performance included John Wood Group plc and Sunoco Inc.
From a regional perspective, all portfolio gains were propelled by companies in North America.
Consumer Discretionary and Materials Disappoint
The Fund was hurt by securities in the Consumer Discretionary sector, which held 12.6% of portfolio assets, due to poor stock selection. ITT Educational Services Inc., a 1.2% weight, was down 14.1%, while Mitsui & Co. Ltd. dropped 16.9%. Other holdings detracting from performance included Ubisoft Entertainment S.A., DeNA Co. Ltd., and Renault S.A.
In the Materials sector, Randgold Resources Ltd. was down 21.2%, while voestalpine AG and Mitsui Chemicals Inc. lost 16.2% and 15.3%, respectively.
On a regional basis, securities in the European and Asian territories were the largest drag on portfolio returns.
Market Outlook
At the end of 2009, our outlook focused on the prospects of economic recovery versus the possibility of double-dip recession. These days it seems to be the key economic debate with a line drawn between the Keynesians and the Austrians. The former often point to the U.S. in 1937 when a recovering economy was pushed back into recession as the Roosevelt administration reduced spending and raised taxes to bring the budget into balance. The latter present the Japanese model as a counter-argument, where years of government spending and an exploding debt load have done nothing to engender consistent growth. In the meantime, the labor market remains precarious as unemployment continues to hover around double-digits. In this environment, we continue to emphasize a focus on risk.
We appreciate your confidence and trust. We will continue to seek out the best individual prospects from around the globe for the Fund.
Sincerely,
Scott Klimo, CFA, Portfolio Manager
David Whittall, Portfolio Manager
David Whittall, Portfolio Manager
44 | | | THE RYDEX | SGI EQUITY FUNDS ANNUAL REPORT |
MANAGERS’ COMMENTARY (concluded)
1 | Fee waivers and/or reimbursements reduce Fund expenses and in the absence of such waivers, the performance quoted would be reduced. Investments in international securities entail greater risks than investment in domestic securities. |
Performance displayed represents past performance which is no guarantee of future results. Of course, Fund performance is subject to daily market volatility and may be better or worse since the end of the last quarter. For up-to-date Fund performance, call us at 800.820.0888 or visit www.rydex-sgi.com. | |
MSCI World Index – a free float-adjusted market capitalization weighted Index that is designed to measure the equity market performance of developed markets. As of May 27, 2010 the MSCI World Index consisted of the following 24 developed market country indices: Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Greece, Hong Kong, Ireland, Israel, Italy, Japan, Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, the United Kingdom, and the United States. | |
Rydex|SGI Funds are distributed by Rydex Distributors, LLC (RDL). Security Global InvestorsSM is the investment advisory arm of Security Benefit Corporation (Security Benefit). Security Global Investors consists of Security Global Investors, LLC, Security Investors, LLC and Rydex Investments. Rydex Investments is the primary business name for Rydex Advisors, LLC and Rydex Advisors II, LLC. Security Global Investors and RDL are affiliates and are subsidiaries of Security Benefit, which is wholly owned by Guggenheim SBC Holdings, LLC, a special purpose entity managed by Guggenheim Partners, LLC, a diversified financial services firm with more than $100 billion in assets under supervision. | |
Read each Fund’s prospectus and summary prospectus (if available) carefully before investing. It contains the Fund’s investment objectives, risks, charges, expenses and other information, which should be considered carefully before investing. Obtain a prospectus and summary prospectus (if available) at www.rydex-sgi.com or call 800.820.0888. |
THE RYDEX | SGI EQUITY FUNDS ANNUAL REPORT | | | 45 |
PERFORMANCE SUMMARY September 30, 2010 | Rydex|SGI Equity Fund Global Institutional Fund (Unaudited) |
PERFORMANCE
![(PERFORMANCE GRAPH)](https://capedge.com/proxy/N-CSR/0000950123-10-111594/g06945g0694511.gif)
$10,000 Since Inception
This chart assumes a $10,000 investment in shares of Global Institutional Fund on July 11, 2008 (date of inception), reflects the fees and expenses of the Fund and assumes all dividends are reinvested. The chart does not reflect the deduction of taxes that a shareholder would pay on distributions or the redemption of fund shares. The MSCI World Index is an unmanaged capitalization weighted index that is designed to measure global developed market equity performance.
AVERAGE ANNUAL RETURNS | ||||||||
PERIODS ENDED 9/30/10 | ||||||||
SINCE | ||||||||
INCEPTION | ||||||||
1 YEAR | (07/11/08) | |||||||
Global Institutional Fund | 6.61 | % | -3.87 | % |
The performance data above represents past performance that is not predictive of future results. The investment return and principal value of an investment in the Fund will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. The figures do not reflect the deduction of taxes that a shareholder would pay on distributions or redemption of shares. Such figures would be lower if any applicable taxes were deducted. Fee waivers and/or reimbursements reduced expenses of the Fund and in the absence of such waivers, the performance quoted would be reduced.
Portfolio Composition by Sector | ||||
Common Stocks | ||||
Consumer Discretionary | 10.5 | % | ||
Consumer Staples | 5.4 | % | ||
Energy | 9.5 | % | ||
Financials | 14.5 | % | ||
Health Care | 11.0 | % | ||
Industrials | 12.4 | % | ||
Information Technology | 16.7 | % | ||
Materials | 8.2 | % | ||
Telecommunication Services | 6.2 | % | ||
Utilities | 2.2 | % | ||
Short Term Investments | 1.2 | % | ||
Cash & Other Assets, | ||||
Less Liabilities | 2.2 | % | ||
Total Net Assets | 100.0 | % | ||
46 | | | THE RYDEX | SGI EQUITY FUNDS ANNUAL REPORT | The accompanying notes are an integral part of the financial statements. |
SCHEDULE OF INVESTMENTS September 30, 2010 | Rydex|SGI Equity Fund Global Institutional Fund |
Shares | Value | |||||||
COMMON STOCKS† - 96.6% | ||||||||
Information Technology - 16.7% | ||||||||
Apple, Inc.* | 583 | $ | 165,425 | |||||
Hitachi Ltd. | 32,800 | 143,402 | ||||||
Mastercard, Inc. — Class A | 513 | 114,912 | ||||||
Software AG | 702 | 84,801 | ||||||
Xerox Corp. | 8,000 | 82,800 | ||||||
AOL, Inc.* | 1,082 | 26,780 | ||||||
CoreLogic, Inc. | 1,000 | 19,160 | ||||||
Total Information Technology | 637,280 | |||||||
Financials - 14.5% | ||||||||
Julius Baer Group Ltd. | 2,747 | 100,000 | ||||||
BNP Paribas | 1,210 | 86,067 | ||||||
Standard Chartered plc | 2,722 | 78,126 | ||||||
Sony Financial Holdings, Inc. | 23 | 74,936 | ||||||
JPMorgan Chase & Co. | 1,850 | 70,430 | ||||||
PNC Financial Services Group, Inc. | 600 | 31,146 | ||||||
RenaissanceRe Holdings Ltd. | 500 | 29,980 | ||||||
Fubon Financial Holding Company, Ltd. | 23,000 | 28,343 | ||||||
PartnerRe Ltd. | 350 | 28,063 | ||||||
Validus Holdings Ltd. | 800 | 21,088 | ||||||
Hartford Financial Services Group, Inc. | 900 | 20,655 | ||||||
Total Financials | 568,834 | |||||||
Industrials - 12.4% | ||||||||
Deutsche Lufthansa AG | 4,541 | 83,490 | ||||||
Marubeni Corp. | 14,000 | 79,152 | ||||||
Amada Company, Ltd. | 11,000 | 75,367 | ||||||
Manitowoc Company, Inc. | 2,800 | 33,908 | ||||||
JetBlue Airways Corp.* | 4,900 | 32,781 | ||||||
East Japan Railway Co. | 500 | 30,186 | ||||||
Central Japan Railway Co. | 4 | 29,418 | ||||||
United Continental Holdings, Inc.* | 1,100 | 25,993 | ||||||
Alaska Air Group, Inc.* | 500 | 25,515 | ||||||
Alliant Techsystems, Inc.* | 300 | 22,620 | ||||||
US Airways Group, Inc.* | 2,400 | 22,200 | ||||||
Asiana Airlines | 2,610 | 21,560 | ||||||
Total Industrials | 482,190 | |||||||
Health Care - 11.0% | ||||||||
Express Scripts, Inc. — Class A* | 3,057 | 148,875 | ||||||
Fresenius Medical Care AG & Co. KGaA | 1,552 | 95,866 | ||||||
Endo Pharmaceuticals Holdings, Inc.* | 979 | 32,542 | ||||||
Zimmer Holdings, Inc.* | 600 | 31,398 | ||||||
Cephalon, Inc.* | 465 | 29,035 | ||||||
AstraZeneca plc | 538 | 27,342 | ||||||
Humana, Inc.* | 500 | 25,120 | ||||||
CR Bard, Inc. | 300 | 24,429 | ||||||
Kinetic Concepts, Inc.* | 500 | 18,290 | ||||||
Total Health Care | 432,897 | |||||||
Shares | Value | |||||||
Consumer Discretionary - 10.5% | ||||||||
Rent-A-Center, Inc. — Class A | 4,360 | $ | 97,577 | |||||
Compass Group plc | 10,724 | 89,373 | ||||||
Kingfisher plc | 22,198 | 81,706 | ||||||
Wynn Macau Ltd.* | 35,019 | 60,570 | ||||||
Gannett Company, Inc. | 2,400 | 29,352 | ||||||
Tractor Supply Co. | 520 | 20,623 | ||||||
Apollo Group, Inc. — Class A* | 335 | 17,202 | ||||||
Pulte Group, Inc.* | 1,400 | 12,264 | ||||||
Total Consumer Discretionary | 408,667 | |||||||
Energy - 9.5% | ||||||||
Royal Dutch Shell plc — Class A | 2,738 | 82,413 | ||||||
CNOOC Ltd. | 41,601 | 80,640 | ||||||
Forest Oil Corp.* | 2,541 | 75,468 | ||||||
Occidental Petroleum Corp. | 879 | 68,826 | ||||||
Stone Energy Corp.* | 1,500 | 22,095 | ||||||
Sunoco, Inc. | 600 | 21,900 | ||||||
World Fuel Services Corp. | 690 | 17,947 | ||||||
Total Energy | 369,289 | |||||||
Materials - 8.2% | ||||||||
Osisko Mining Corp.*,1 | 7,300 | 103,941 | ||||||
Exxaro Resources Ltd. | 4,744 | 81,964 | ||||||
Huntsman Corp. | 2,600 | 30,056 | ||||||
Yamana Gold, Inc. | 2,600 | 29,641 | ||||||
Harmony Gold Mining Company Ltd. | 2,393 | 26,785 | ||||||
Newmont Mining Co. | 400 | 25,124 | ||||||
Nippon Paper Group, Inc. | 900 | 22,520 | ||||||
Total Materials | 320,031 | |||||||
Telecommunication Services - 6.2% | ||||||||
Deutsche Telekom AG | 5,920 | 80,997 | ||||||
MetroPCS Communications, Inc.* | 6,500 | 67,990 | ||||||
Koninklijke KPN N.V. | 4,173 | 64,548 | ||||||
Taiwan Mobile Company, Ltd. | 11,000 | 22,739 | ||||||
Total Telecommunication Services | 236,274 | |||||||
Consumer Staples - 5.4% | ||||||||
Marine Harvest ASA | 91,677 | 79,899 | ||||||
Koninklijke Ahold N.V. | 5,633 | 75,941 | ||||||
Archer-Daniels-Midland Co. | 840 | 26,813 | ||||||
Empire Company Ltd. — Class A | 420 | 22,476 | ||||||
Total Consumer Staples | 205,129 | |||||||
Utilities - 2.2% | ||||||||
UGI Corp. | 2,931 | 83,856 | ||||||
Total Common Stocks | ||||||||
(Cost $3,397,865) | 3,744,447 | |||||||
SHORT TERM INVESTMENT†† - 1.2% | ||||||||
State Street General Account | ||||||||
U.S. Government Fund | 46,379 | 46,379 | ||||||
Total Short Term Investment | ||||||||
(Cost $46,379) | 46,379 | |||||||
The accompanying notes are an integral part of the financial statements. | THE RYDEX | SGI EQUITY FUNDS ANNUAL REPORT | | | 47 |
SCHEDULE OF INVESTMENTS (concluded) September 30, 2010 | Rydex|SGI Equity Fund Global Institutional Fund |
Value | ||||||||
Total Investments - 97.8% | ||||||||
(Cost $3,444,244) | $ | 3,790,826 | ||||||
Cash & Other Assets, | ||||||||
Less Liabilities - 2.2% | 83,742 | |||||||
Total Net Assets - 100.0% | $ | 3,874,568 | ||||||
INVESTMENT CONCENTRATION At September 30, 2010, the investment diversification of the Fund was as follows: | ||||||||
% of Net | ||||||||
Country | Assets | Value | ||||||
United States | 43.0 | % | $ | 1,667,486 | ||||
Japan | 11.7 | 454,981 | ||||||
Germany | 8.9 | 345,154 | ||||||
United Kingdom | 7.1 | 276,547 | ||||||
Netherlands | 5.8 | 222,902 | ||||||
Canada | 4.0 | 156,058 | ||||||
South Africa | 2.8 | 108,749 | ||||||
Switzerland | 2.6 | 100,000 | ||||||
France | 2.2 | 86,067 | ||||||
Hong Kong | 2.1 | 80,640 | ||||||
Norway | 2.1 | 79,899 | ||||||
Bermuda | 2.0 | 79,131 | ||||||
Macau | 1.6 | 60,570 | ||||||
Taiwan, Province of China | 1.3 | 51,082 | ||||||
Netherlands Antilles | 0.6 | 21,560 | ||||||
Total Investments | 97.8 | % | $ | 3,790,826 | ||||
* | Non-income producing security |
† | Value determined based on Level 1 inputs — See Note 9. |
†† | Value determined based on Level 2 inputs — See Note 9. |
1 | Security is a PFIC (Passive Foreign Investment Company). |
plc — Public Limited Company |
48 | | | THE RYDEX | SGI EQUITY FUNDS ANNUAL REPORT | The accompanying notes are an integral part of the financial statements. |
Rydex|SGI Equity Fund Global Institutional Fund |
STATEMENT OF ASSETS
AND LIABILITIES
AND LIABILITIES
September 30, 2010
Assets: | ||||
Investments, at value* | $ | 3,790,826 | ||
Cash denominated in a foreign currency, | ||||
at value** | 81,672 | |||
Receivables: | ||||
Securities sold | 81,701 | |||
Dividends | 11,635 | |||
Due from Security Investors | 12,897 | |||
Foreign taxes recoverable | 3,015 | |||
Prepaid expenses | 9,050 | |||
Total assets | 3,990,796 | |||
Liabilities: | ||||
Cash overdraft | 81,458 | |||
Payable for: | ||||
Fund shares redeemed | 144 | |||
Management fees | 3,144 | |||
Administration fees | 472 | |||
Transfer agent/maintenance fees | 3,091 | |||
Custodian fees | 12,958 | |||
Directors’ fees | 293 | |||
Professional fees | 7,377 | |||
Other | 7,291 | |||
Total liabilities | 116,228 | |||
Net assets | $ | 3,874,568 | ||
Net assets consist of: | ||||
Paid in capital | $ | 5,367,723 | ||
Distributions in excess of net investment income | (22,349 | ) | ||
Accumulated net realized loss on investments | (1,817,701 | ) | ||
Net unrealized appreciation on investments | 346,895 | |||
Net assets | $ | 3,874,568 | ||
Capital shares authorized | unlimited | |||
Capital shares outstanding | 433,948 | |||
Net asset value per share (net assets | ||||
divided by shares outstanding) | $8.93 | |||
* Investments, at cost | $ | 3,444,244 | ||
** Cash denominated in a foreign currency, at cost | 81,359 |
STATEMENT OF
OPERATIONS
OPERATIONS
For the Year Ended September 30, 2010
Investment Income: | ||||
Dividends (net of foreign withholding tax $6,556) | $ | 91,209 | ||
Total investment income | 91,209 | |||
Expenses: | ||||
Management fees | 42,753 | |||
Administration fees | 22,570 | |||
Transfer agent/maintenance fees | 17,936 | |||
Custodian fees | 30,283 | |||
Directors’ fees | 471 | |||
Professional fees | 8,737 | |||
Reports to shareholders | 4,349 | |||
Registration fees | 14,241 | |||
Other | 1,663 | |||
Total expenses | 143,003 | |||
Reimbursement of expenses | (100,250 | ) | ||
Net expenses | 42,753 | |||
Net investment income | 48,456 | |||
Net Realized and Unrealized Gain (Loss): | ||||
Net realized gain (loss) on: | ||||
Investments | 482,593 | |||
Foreign currency transactions | (15,254 | ) | ||
Net realized gain | 467,339 | |||
Net change in unrealized appreciation | ||||
(depreciation) on: | ||||
Investments | (256,256 | ) | ||
Translation of assets and liabilities in | ||||
foreign currencies | 211 | |||
Net change in unrealized appreciation (depreciation) | (256,045 | ) | ||
Net realized and unrealized gain | 211,294 | |||
Net increase in net assets resulting from operations | $ | 259,750 | ||
The accompanying notes are an integral part of the financial statements. | THE RYDEX | SGI EQUITY FUNDS ANNUAL REPORT | | | 49 |
STATEMENTS OF CHANGES IN NET ASSETS | Rydex|SGI Equity Fund Global Institutional Fund |
Year Ended | Year Ended | |||||||
September 30, | September 30, | |||||||
2010 | 2009 | |||||||
Increase (Decrease) In Net Assets From Operations: | ||||||||
Net investment income | $ | 48,456 | $ | 77,330 | ||||
Net realized gain (loss) on investments | 467,339 | (1,936,023 | ) | |||||
Net change in unrealized appreciation (depreciation) on investments | (256,045 | ) | 1,376,356 | |||||
Net increase (decrease) in net assets resulting from operations | 259,750 | (482,337 | ) | |||||
Distributions to shareholders from: | ||||||||
Net investment income | (97,135 | ) | (21,309 | ) | ||||
Total distributions to shareholders | (97,135 | ) | (21,309 | ) | ||||
Capital share transactions: | ||||||||
Proceeds from sale of shares | 592,280 | 1,489,252 | ||||||
Dividends reinvested | 97,135 | 20,899 | ||||||
Cost of shares redeemed | (1,887,824 | ) | (3,478,142 | ) | ||||
Net decrease from capital share transactions | (1,198,409 | ) | (1,967,991 | ) | ||||
Net decrease in net assets | (1,035,794 | ) | (2,471,637 | ) | ||||
Net assets: | ||||||||
Beginning of year | 4,910,362 | 7,381,999 | ||||||
End of year | $ | 3,874,568 | $ | 4,910,362 | ||||
Undistributed (distributions in excess of) net investment income at end of year | $ | (22,349 | ) | $ | 41,584 | |||
Capital share activity: | ||||||||
Shares sold | 69,226 | 214,539 | ||||||
Shares issued from reinvestment of distributions | 11,468 | 2,998 | ||||||
Shares redeemed | (220,651 | ) | (495,421 | ) | ||||
Total capital share activity | (139,957 | ) | (277,884 | ) | ||||
50 | | | THE RYDEX | SGI EQUITY FUNDS ANNUAL REPORT | The accompanying notes are an integral part of the financial statements. |
FINANCIAL HIGHLIGHTS | Rydex|SGI Equity Fund Global Institutional Fund |
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.
Year Ended | Year Ended | Period Ended | ||||||||||
September 30, | September 30, | September 30, | ||||||||||
2010 | 2009 | 2008 | a | |||||||||
Per Share Data | ||||||||||||
Net asset value, beginning of period | $8.56 | $8.67 | $10.00 | |||||||||
Income (loss) from investment operations: | ||||||||||||
Net investment incomeb | 0.10 | 0.17 | 0.02 | |||||||||
Net gain (loss) on investments (realized and unrealized) | 0.46 | (0.25 | ) | (1.35 | ) | |||||||
Total from investment operations | 0.56 | (0.08 | ) | (1.33 | ) | |||||||
Less distributions from: | ||||||||||||
Net investment income | (0.19 | ) | (0.03 | ) | — | |||||||
Total distributions | (0.19 | ) | (0.03 | ) | — | |||||||
Net asset value, end of period | $8.93 | $8.56 | $ 8.67 | |||||||||
Total Return | 6.61% | (0.90% | ) | (13.30% | ) | |||||||
Ratios/Supplemental Data | ||||||||||||
Net assets, end of period (in thousands) | $3,875 | $4,910 | $7,382 | |||||||||
Ratios to average net assets: | ||||||||||||
Net investment income | 1.13% | 2.34% | 0.87% | |||||||||
Total expensesc | 3.34% | 2.76% | 1.97% | |||||||||
Net expensesd | 1.00% | 1.15% | 1.15% | |||||||||
Portfolio turnover rate | 295% | 379% | 325% |
a | The Global Institutional Fund was initially capitalized on July 11, 2008 with a net asset value of $10 per share. Percentage amounts for the period, except total return, have been annualized. |
b | Net investment income was computed using average shares outstanding throughout the period. |
c | Total expense information reflects the expense ratios absent expense reductions by the Investment Manager, as applicable. |
d | Net expense information reflects the expense ratios after voluntary expense waivers and reimbursements, as applicable. |
The accompanying notes are an integral part of the financial statements. | THE RYDEX | SGI EQUITY FUNDS ANNUAL REPORT | | | 51 |
MANAGER’S COMMENTARY
September 30, 2010
Advised by:
![(SECURITY GLOBAL INVESTORS LOGO)](https://capedge.com/proxy/N-CSR/0000950123-10-111594/g06945g0694504.gif)
To Our Shareholders:
For the fiscal year ended September 30, 2010, the Rydex|SGI Equity Fund–Mid Cap Value Fund gained 11.32%1, lagging the 14.74% return of the Fund’s benchmark, the Russell 2500® Value Index, and the 14.59% median return of the peer group.
Our approach with the Mid Cap Value strategy is to seek companies that can increase shareholders’ return on capital. We hold such companies over three to five years to capture long-term improvements in profitability.
The investment process is fundamentally driven and quantitatively aided. We use proprietary screens to identify potential companies for investment and then perform rigorous fundamental analysis to identify the best ideas. Through this fundamental research, we determine an estimate of intrinsic value and thus a valuation target for each idea. We construct the portfolios based on the level of conviction generated by this bottom-up analysis and the upside/downside profile associated with each company.
Industrials, Consumer Discretionary, and Financials Top Performers
Superior stock selection in the Industrials, Consumer Discretionary, and Financials sectors outperformed its benchmark holdings in those sectors during the fiscal year ended September 30, 2010.
The Fund had a large overweight position in the Industrials sector, 20.1% to 12.1%, while outperforming the Index 22.0% to 14.9%. Power-One Inc., a 2.2% weight, soared 366.2%. GeoEye Inc. and Insituform Technologies Inc. (Cl A), both solid portfolio weights, gained 51.0% and 26.5%, respectively.
Similarly, the Fund’s Consumer Discretionary sector outperformed the Index 28.4% to 18.5%. Leaders for the portfolio were Maidenform Brands Inc. and Cabela’s Inc., up 79.6% and 42.3%, respectively.
Other portfolio positions that performed well included Penn National Gaming Inc., Burger King Holdings Inc., and Brown Shoe Co. Inc.
In addition to outperforming the Index, the portfolio’s Financials sector benefited from a large underweight position, 14.6% to 31.9%. Euronet Worldwide Inc. increased 38.4% while American Financial Group gained 22.3%.
Energy and Information Technology
Disappoint
Disappoint
The Fund was battered by poor security selection in the Energy and Information Technology sectors. The Energy sector lost 17.0% versus a 14.6% gain for the Index, a spread of nearly 32%. Likewise, the Fund’s Information Technology holdings were down 7.5% against a gain of 8.0% for the Index, a 15.0% difference.
Global Industries Ltd., a 2.3% weight, dropped 42.4% during the period. Goodrich Petroleum Corp. lost 43.6% while Petrohawk Energy Corp. declined 33.3%. Other Energy companies hurting the portfolio included Evergreen Energy Inc. and Valero Energy Corp.
Information Technology company Computer Sciences Corp., a 3.3% weight, was down 12.2% over the 12 months. Maxwell Technologies Inc., a 1.9% weight, lost 20.7%, while Satyam Computer Services Ltd. plunged 40.9%. Other holdings detrimental to the portfolio included IXYS Corp., FEI Co., and EFJohnson Technologies Inc.
Other disappointing sectors for the Fund were Health Care and Materials.
Market Outlook
In challenging times, our core philosophy and disciplined process become paramount. We continue to use a rigorous fundamental research process to identify strong companies from a risk perspective, companies that can provide earnings sustainability and generate excess cash.
52 | | | THE RYDEX | SGI EQUITY FUNDS ANNUAL REPORT |
MANAGER’S COMMENTARY (concluded)
Regardless of the economic environment, we continue to focus on identifying companies that are generating sufficient or increasing returns on invested capital with attractive risk/reward characteristics.
On behalf of Security Global Investors, I would like to thank you for trusting your investments and goals with us. As always, we continue to do our best to seek the potential available in small and mid capitalization companies.
Sincerely,
James P. Schier, CFA, Portfolio Manager
1 | Performance figures are based on A-Class shares and do not reflect deduction of the sales charges or taxes that a shareholder would pay on distributions or the redemption of shares. |
Performance displayed represents past performance which is no guarantee of future results. Of course, Fund performance is subject to daily market volatility and may be better or worse since the end of the last quarter. For up-to-date Fund performance, call us at 800.820.0888 or visit www.rydex-sgi.com. | |
Russell 2500® Value Index – measures the performance of the small to mid-cap value segment of the U.S. equity universe. It includes those Russell 2500 companies with lower price-to-book ratios and lower forecasted growth values. | |
Rydex|SGI Funds are distributed by Rydex Distributors, LLC (RDL). Security Global InvestorsSM is the investment advisory arm of Security Benefit Corporation (Security Benefit). Security Global Investors consists of Security Global Investors, LLC, Security Investors, LLC and Rydex Investments. Rydex Investments is the primary business name for Rydex Advisors, LLC and Rydex Advisors II, LLC. Security Global Investors and RDL are affiliates and are subsidiaries of Security Benefit, which is wholly owned by Guggenheim SBC Holdings, LLC, a special purpose entity managed by Guggenheim Partners, LLC, a diversified financial services firm with more than $100 billion in assets under supervision. | |
Read each Fund’s prospectus and summary prospectus (if available) carefully before investing. It contains the Fund’s investment objectives, risks, charges, expenses and other information, which should be considered carefully before investing. Obtain a prospectus and summary prospectus (if available) at www.rydex-sgi.com or call 800.820.0888. |
THE RYDEX | SGI EQUITY FUNDS ANNUAL REPORT | | | 53 |
PERFORMANCE SUMMARY September 30, 2010 | Rydex|SGI Equity Fund Mid Cap Value Fund (Unaudited) |
PERFORMANCE
![(PERFORMANCE GRAPH)](https://capedge.com/proxy/N-CSR/0000950123-10-111594/g06945g0694512.gif)
$10,000 Over Ten Years
This chart assumes a $10,000 investment in A-Class shares of Mid Cap Value Fund on September 30, 2000, reflects deduction of the maximum front-end sales charge of 5.75% and assumes all dividends are reinvested. The chart does not reflect the deduction of taxes that a shareholder would pay on distributions or the redemption of fund shares. The Russell 2500® Value Index is an unmanaged index that measures the performance of securities of small-to-mid cap U.S. companies with greater-than-average value orientation.
AVERAGE ANNUAL RETURNS | ||||||||||||
PERIODS ENDED 9/30/10 | ||||||||||||
(Inception 5/01/1997) | ||||||||||||
1 YEAR | 5 YEAR | 10 YEAR | ||||||||||
A-Class Shares | 11.32 | % | 5.57 | % | 10.71 | % | ||||||
A-Class Shares with sales charge | 4.93 | % | 4.32 | % | 10.06 | % | ||||||
B-Class Shares | 10.49 | % | 4.79 | % | 9.99 | % | ||||||
B-Class Shares with CDSC | 5.49 | % | 4.54 | % | 9.99 | % | ||||||
C-Class Shares | 10.48 | % | 4.78 | % | 9.84 | % | ||||||
C-Class Shares with CDSC | 9.48 | % | 4.78 | % | 9.84 | % |
The performance data above represents past performance that is not predictive of future results. The investment return and principal value of an investment in the Fund will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. The figures above do not reflect deduction of the maximum front-end sales charge of 5.75% for A-Class shares or the CDSC of up to 5% for B-Class shares and 1% for C-Class shares, as applicable, except where noted. The figures do not reflect the deduction of taxes that a shareholder would pay on distributions or redemption of shares. Such figures would be lower if the maximum sales charge and any applicable taxes were deducted.
Portfolio Composition by Sector | ||||
Common Stocks | ||||
Consumer Discretionary | 11.0 | % | ||
Consumer Staples | 5.7 | % | ||
Energy | 9.9 | % | ||
Financials | 14.7 | % | ||
Health Care | 4.1 | % | ||
Industrials | 17.8 | % | ||
Information Technology | 12.2 | % | ||
Materials | 6.5 | % | ||
Utilities | 11.6 | % | ||
Exchange Traded Funds | 1.7 | % | ||
Convertible Preferred Stock | 0.1 | % | ||
Warrants | 0.1 | % | ||
Convertible Bonds | 0.7 | % | ||
Repurchase Agreement | 4.5 | % | ||
Options Written | (0.1) | % | ||
Liabilities, Less Cash & | ||||
Other Assets | (0.5) | % | ||
Total Net Assets | 100.0 | % | ||
54 | | | THE RYDEX | SGI EQUITY FUNDS ANNUAL REPORT | The accompanying notes are an integral part of the financial statements. |
SCHEDULE OF INVESTMENTS September 30, 2010 | Rydex|SGI Equity Fund Mid Cap Value Fund |
SHARES | VALUE | |||||||
COMMON STOCKS† - 93.5% | ||||||||
Industrials - 17.8% | ||||||||
GeoEye, Inc.* | 844,500 | $ | 34,185,360 | |||||
Covanta Holdings Corp. | 1,623,940 | 25,577,055 | ||||||
Quanta Services, Inc.* | 1,032,600 | 19,702,007 | ||||||
Insituform Technologies, Inc. — Class A* | 794,000 | 19,198,920 | ||||||
Administaff, Inc. | 612,097 | 16,483,772 | ||||||
General Cable Corp.* | 565,900 | 15,347,208 | ||||||
Orbital Sciences Corp.* | 986,080 | 15,087,024 | ||||||
Navigant Consulting, Inc.* | 1,177,500 | 13,694,325 | ||||||
URS Corp.* | 338,300 | 12,848,634 | ||||||
ICF International, Inc.* | 426,700 | 10,697,369 | ||||||
Force Protection, Inc.* | 2,043,525 | 10,299,366 | ||||||
Babcock & Wilcox Co.* | 460,650 | 9,802,632 | ||||||
Saia, Inc.* | 551,770 | 8,237,926 | ||||||
Trex Company, Inc.* | 359,900 | 6,863,293 | ||||||
FTI Consulting, Inc.* | 137,496 | 4,769,736 | ||||||
United Stationers, Inc.* | 80,129 | 4,287,703 | ||||||
UQM Technologies, Inc.* | 338,990 | 867,814 | ||||||
Thermoenergy Corp.*,1 | 2,701,839 | 810,552 | ||||||
Total Industrials | 228,760,696 | |||||||
Financials - 14.7% | ||||||||
Hanover Insurance Group, Inc. | 639,800 | 30,070,600 | ||||||
WR Berkley Corp. | 938,010 | 25,391,931 | ||||||
American Financial Group, | ||||||||
Inc.2 | 629,400 | 19,247,052 | ||||||
Alleghany Corp.* | 60,020 | 18,187,861 | ||||||
Associated Banc-Corp | 1,067,807 | 14,084,374 | ||||||
Fifth Street Finance Corp. | 1,231,932 | 13,723,722 | ||||||
Reinsurance Group of America, Inc. — Class A | 252,580 | 12,197,088 | ||||||
Old National Bancorp | 1,015,822 | 10,666,131 | ||||||
First Horizon National Corp.* | 833,339 | 9,508,399 | ||||||
Commerce Bancshares, Inc. | 207,532 | 7,801,128 | ||||||
Employers Holdings, Inc. | 471,300 | 7,432,401 | ||||||
Lexington Realty Trust | 968,000 | 6,930,880 | ||||||
Investors Real Estate Trust | 815,452 | 6,833,488 | ||||||
Redwood Trust, Inc. | 285,027 | 4,121,490 | ||||||
First Marblehead Corp.* | 1,117,473 | 2,614,887 | ||||||
Whitney Holding Corp. | 63,215 | 516,467 | ||||||
Total Financials | 189,327,899 | |||||||
Information Technology - 12.2% | ||||||||
Computer Sciences Corp. | 839,890 | 38,634,941 | ||||||
Power-One, Inc.* | 2,952,710 | 26,840,134 | ||||||
IXYS Corp.*,1 | 2,340,000 | 22,347,000 | ||||||
Maxwell Technologies, Inc.*,1 | 1,484,700 | 21,691,467 | ||||||
Satyam Computer Services, Ltd. ADR* | 4,052,797 | 15,765,380 | ||||||
Symmetricom, Inc.* | 1,908,270 | 10,915,304 | ||||||
Euronet Worldwide, Inc.* | 604,800 | 10,880,352 | ||||||
Ultratech, Inc.* | 316,200 | 5,407,020 | ||||||
FEI Co.* | 264,500 | 5,176,265 | ||||||
Total Information Technology | 157,657,863 | |||||||
SHARES | VALUE | |||||||
Utilities - 11.6% | ||||||||
Great Plains Energy, Inc. | 953,117 | $ | 18,013,910 | |||||
Westar Energy, Inc. | 739,800 | 17,925,354 | ||||||
NorthWestern Corp. | 608,100 | 17,330,850 | ||||||
Northeast Utilities | 562,060 | 16,620,114 | ||||||
Allete, Inc. | 424,757 | 15,473,898 | ||||||
Atmos Energy Corp. | 508,000 | 14,859,000 | ||||||
Black Hills Corp. | 397,000 | 12,386,400 | ||||||
American Water Works Company, Inc. | 527,740 | 12,280,510 | ||||||
UGI Corp. | 386,242 | 11,050,384 | ||||||
Pepco Holdings, Inc. | 408,400 | 7,596,240 | ||||||
Alliant Energy Corp. | 178,300 | 6,481,205 | ||||||
Total Utilities | 150,017,865 | |||||||
Consumer Discretionary - 11.0% | ||||||||
Cabela’s, Inc.* | 1,529,693 | 29,033,573 | ||||||
Chico’s FAS, Inc. | 1,947,100 | �� | 20,483,492 | |||||
Brown Shoe Company, Inc. | 1,672,880 | 19,187,934 | ||||||
Maidenform Brands, Inc.* | 655,900 | 18,922,715 | ||||||
Penn National Gaming, Inc.* | 483,700 | 14,322,357 | ||||||
Leggett & Platt, Inc. | 539,800 | 12,285,848 | ||||||
Jack in the Box, Inc.* | 433,000 | 9,283,520 | ||||||
Scholastic Corp. | 229,400 | 6,381,908 | ||||||
Fortune Brands, Inc. | 121,500 | 5,981,445 | ||||||
Smith & Wesson Holding Corp.* | 924,930 | 3,292,751 | ||||||
Fred’s, Inc. — Class A | 221,950 | 2,619,010 | ||||||
Columbia Sportswear Co. | 6,728 | 393,184 | ||||||
Total Consumer Discretionary | 142,187,737 | |||||||
Energy - 9.9% | ||||||||
Global Industries Ltd.* | 4,671,590 | 25,553,596 | ||||||
Southern Union Co. | 866,360 | 20,844,622 | ||||||
Valero Energy Corp. | 972,000 | 17,019,720 | ||||||
McDermott International, Inc.* | 921,300 | 13,616,814 | ||||||
USEC, Inc.* | 2,613,730 | 13,565,259 | ||||||
Gulfport Energy Corp.* | 808,947 | 11,195,827 | ||||||
Goodrich Petroleum Corp.* | 729,069 | 10,622,535 | ||||||
Petrohawk Energy Corp.* | 609,300 | 9,834,102 | ||||||
Helmerich & Payne, Inc. | 148,600 | 6,012,356 | ||||||
Total Energy | 128,264,831 | |||||||
Materials - 6.5% | ||||||||
Bemis Company, Inc. | 1,035,180 | 32,866,965 | ||||||
Sonoco Products Co. | 517,200 | 17,295,168 | ||||||
Louisiana-Pacific Corp.* | 2,079,300 | 15,740,301 | ||||||
HB Fuller Co. | 413,688 | 8,219,981 | ||||||
Landec Corp.* | 911,716 | 5,661,756 | ||||||
Zoltek Companies, Inc.* | 501,000 | 4,869,720 | ||||||
Total Materials | 84,653,891 | |||||||
Consumer Staples - 5.7% | ||||||||
JM Smucker Co. | 395,300 | 23,927,509 | ||||||
Hormel Foods Corp.2 | 483,940 | 21,583,724 | ||||||
Ralcorp Holdings, Inc.* | 208,800 | 12,210,624 |
The accompanying notes are an integral part of the financial statements. | THE RYDEX | SGI EQUITY FUNDS ANNUAL REPORT | | | 55 |
SCHEDULE OF INVESTMENTS (concluded) September 30, 2010 | Rydex|SGI Equity Fund Mid Cap Value Fund |
SHARES | VALUE | |||||||
Del Monte Foods Co. | 663,471 | $ | 8,698,105 | |||||
Bunge Ltd. | 130,700 | 7,732,212 | ||||||
Total Consumer Staples | 74,152,174 | |||||||
Health Care - 4.1% | ||||||||
Mednax, Inc.* | 347,641 | 18,529,266 | ||||||
Forest Laboratories, Inc.* | 390,780 | 12,086,825 | ||||||
Hologic, Inc.* | 737,801 | 11,812,194 | ||||||
RehabCare Group, Inc.* | 529,827 | 10,713,102 | ||||||
Total Health Care | 53,141,387 | |||||||
Total Common Stocks | ||||||||
(Cost $1,060,724,257) | 1,208,164,343 | |||||||
CONVERTIBLE PREFERRED STOCK†† - 0.1% | ||||||||
Thermoenergy Corp.*,1,3,4 | 858,334 | 751,901 | ||||||
Total Convertible Preferred Stock | ||||||||
(Cost $819,654) | 751,901 | |||||||
WARRANTS†† - 0.1% | ||||||||
Thermoenergy Corp.1,3 $0.30, 07/31/15 | 13,733,344 | 1,106,908 | ||||||
Nova Biosource Fuels, Inc. $2.40, 07/05/11 | 677,450 | 932 | ||||||
Total Warrants (Cost $1,940,120) | 1,107,840 | |||||||
EXCHANGE TRADED FUNDS† - 1.7% | ||||||||
iShares Russell Midcap Value Index Fund | 300,000 | 12,111,000 | ||||||
iShares Russell 2000 Value Index Fund | 160,860 | 9,957,234 | ||||||
Total Exchange Traded Funds | ||||||||
(Cost $19,887,647) | 22,068,234 | |||||||
FACE | ||||||||
AMOUNT | ||||||||
CONVERTIBLE BOND†† - 0.7% | ||||||||
USEC, Inc. 3.00% due 10/01/14 | $ | 12,100,000 | 9,574,125 | |||||
Total Convertible Bond | ||||||||
(Cost $11,122,075) | 9,574,125 | |||||||
FACE | ||||||||
AMOUNT | VALUE | |||||||
REPURCHASE AGREEMENT†† - 4.5% | ||||||||
UMB Financial Corp., | ||||||||
0.09%, dated 09/30/10, | ||||||||
matures 10/01/10; | ||||||||
repurchase amount | ||||||||
$58,548,146 (Collateralized | ||||||||
by U.S. Treasury Note, | ||||||||
1.375%, 04/15/12 with a | ||||||||
value of $41,128,717 and | ||||||||
U.S. Treasury Note, 1.375%, | ||||||||
05/15/12 with a value of | ||||||||
$18,590,344) | $ | 58,548,000 | $ | 58,548,000 | ||||
Total Repurchase Agreement (Cost $58,548,000) | 58,548,000 | |||||||
Total Investments - 100.5% | ||||||||
(Cost $1,153,041,753) | $ | 1,300,214,443 | ||||||
CONTRACTS | ||||||||
OPTIONS WRITTEN† - (0.1)% | ||||||||
Call Options on: | ||||||||
Valero Energy Corp. Expiring January 2011 with strike price of $17.50 | 4,000 | (512,000 | ) | |||||
Total Call Options | (512,000 | ) | ||||||
Put Options on: | ||||||||
American Waterworks Inc. Expiring December 2010 with strike price of $20.00 | 2,900 | (29,000 | ) | |||||
Great Plains Energy, Inc. Expiring December 2010 with strike price of $17.50 | 1,492 | (52,220 | ) | |||||
American Waterworks, Inc. Expiring December 2010 with strike price of $22.50 | 2,900 | (174,000 | ) | |||||
Brinker International, Inc. Expiring January 2011 with strike price of $17.50 | 1,453 | (174,360 | ) | |||||
Total Put Options | (429,580 | ) | ||||||
Total Options Written (Premiums received $1,579,506) | (941,580 | ) | ||||||
Liabilities, Less Cash & Other Assets - (0.5)% | (6,310,533 | ) | ||||||
Total Net Assets - 100.0% | $ | 1,292,962,330 | ||||||
* | Non-income producing security |
† | Value determined based on Level 1 inputs — See Note 9. |
†† | Value determined based on Level 2 inputs — See Note 9. |
1 | Investment in an affiliated issuer. See Note 7 in the Notes to Financial Statements. |
2 | Security is segregated as collateral for open written option contracts. |
3 | Security was fair valued by the Valuation Committee at September 30, 2010. The total market value of fair valued securities amounts to $1,858,809, (cost $2,060,002) or 0.1% of total net assets. |
4 | PIPE (Private Investment in Public Equity) — Stock issued by a company in the secondary market as a means of raising capital more quickly and less expensively than through registration of a secondary public offering. ADR — American Depositary Receipt |
56 | | | THE RYDEX | SGI EQUITY FUNDS ANNUAL REPORT | The accompanying notes are an integral part of the financial statements. |
Rydex|SGI Equity Fund Mid Cap Value Fund |
STATEMENT OF ASSETS
AND LIABILITIES
AND LIABILITIES
September 30, 2010
Assets: | ||||
Investments in unaffiliated issuers, at value* | $ | 1,253,506,615 | ||
Investments in affiliated issuers, at value** | 46,707,828 | |||
Total investments | 1,300,214,443 | |||
Receivables: | ||||
Fund shares sold | 3,090,637 | |||
Interest | 159,125 | |||
Dividends | 1,200,009 | |||
Prepaid expenses | 83,201 | |||
Total assets | 1,304,747,415 | |||
Liabilities: | ||||
Written options, at value*** | 941,580 | |||
Cash overdraft | 39,603 | |||
Payable for: | ||||
Securities purchased | 6,985,722 | |||
Fund shares redeemed | 1,603,056 | |||
Management fees | 794,305 | |||
Custodian fees | 17,181 | |||
Transfer agent/maintenance fees | 123,818 | |||
Administration fees | 95,405 | |||
Professional fees | 75,909 | |||
12b-1 distribution plan fees | 392,244 | |||
Directors’ fees | 55,037 | |||
Other | 661,225 | |||
Total liabilities | 11,785,085 | |||
Net assets | $ | 1,292,962,330 | ||
Net assets consist of: | ||||
Paid in capital | $ | 1,230,824,236 | ||
Undistributed net investment income | 2,564,377 | |||
Accumulated net realized loss on investments | (88,236,899 | ) | ||
Net unrealized appreciation on investments | 147,810,616 | |||
Net assets | $ | 1,292,962,330 | ||
A-Class: | ||||
Capital shares outstanding | ||||
(unlimited number of shares authorized) | 35,752,511 | |||
Net assets | $ | 1,056,654,746 | ||
Net asset value and redemption price per share | $29.55 | |||
Maximum offering price per share (net asset value divided by 94.25%) | $31.35 | |||
B-Class: | ||||
Capital shares outstanding (unlimited number of shares authorized) | 1,681,351 | |||
Net assets | $ | 42,321,241 | ||
Net asset value, offering and redemption price per share (excluding any applicable contingent deferred sales charge) | $25.17 | |||
C-Class: | ||||
Capital shares outstanding (unlimited number of shares authorized) | 7,479,804 | |||
Net assets | $ | 193,986,343 | ||
Net asset value, offering and redemption price per share (excluding any applicable contingent deferred sales charge) | $25.93 | |||
* Investments in unaffiliated issuers, at cost | $ | 1,112,522,410 | ||
** Investments in affiliated issuers, at cost | 40,519,343 | |||
Total cost | $ | 1,153,041,753 | ||
*** Premiums received for written options | $ | 1,579,506 |
STATEMENT OF
OPERATIONS
OPERATIONS
For the Year Ended September 30, 2010
Investment Income: | ||||
Dividends | $ | 19,492,781 | ||
Interest | 273,208 | |||
Total investment income | 19,765,989 | |||
Expenses: | ||||
Management fees | 8,950,803 | |||
Transfer agent/maintenance fees | 1,939,114 | |||
Administration fees | 1,071,380 | |||
Custodian fees | 61,166 | |||
Directors’ fees | 146,949 | |||
Professional fees | 149,329 | |||
Reports to shareholders | 184,796 | |||
Registration fees | 103,868 | |||
Other | 64,743 | |||
12b-1 distribution fees - A-Class | 2,270,523 | |||
12b-1 distribution fees - B-Class | 506,522 | |||
12b-1 distribution fees - C-Class | 1,679,124 | |||
Total expenses | 17,128,317 | |||
Net investment income | 2,637,672 | |||
Net Realized and Unrealized Gain (Loss): | ||||
Net realized gain (loss) on: | ||||
Investments† | (8,693,118 | ) | ||
Options written | 5,877,084 | |||
Net realized loss | (2,816,034 | ) | ||
Net change in unrealized appreciation (depreciation) on: | ||||
Investments | 120,815,451 | |||
Options written | 70,961 | |||
Net change in unrealized appreciation (depreciation) | 120,886,412 | |||
Net realized and unrealized gain | 118,070,378 | |||
Net increase in net assets resulting from operations | $ | 120,708,050 | ||
† Includes net realized losses of $476,673 on affiliated issuers. |
The accompanying notes are an integral part of the financial statements. | THE RYDEX | SGI EQUITY FUNDS ANNUAL REPORT | | | 57 |
STATEMENTS OF CHANGES IN NET ASSETS | Rydex|SGI Equity Fund Mid Cap Value Fund |
Year Ended | Year Ended | |||||||
September 30, | September 30, | |||||||
2010 | 2009 | |||||||
Increase (Decrease) In Net Assets From Operations: | ||||||||
Net investment income | $ | 2,637,672 | $ | 1,892,720 | ||||
Net realized loss on investments | (2,816,034 | ) | (84,154,831 | ) | ||||
Net change in unrealized appreciation (depreciation) on investments | 120,886,412 | 155,944,161 | ||||||
Net increase in net assets resulting from operations | 120,708,050 | 73,682,050 | ||||||
Distributions to shareholders from: | ||||||||
Net investment income | ||||||||
A-Class | (1,178,918 | ) | (3,569,957 | ) | ||||
Net realized gains | ||||||||
A-Class | — | (68,549,175 | ) | |||||
B-Class | — | (6,651,443 | ) | |||||
C-Class | — | (11,126,589 | ) | |||||
Total distributions to shareholders | (1,178,918 | ) | (89,897,164 | ) | ||||
Capital share transactions: | ||||||||
Proceeds from sale of shares | ||||||||
A-Class | 525,044,189 | 388,375,263 | ||||||
B-Class | 2,160,769 | 7,862,714 | ||||||
C-Class | 60,822,739 | 46,299,086 | ||||||
Distributions reinvested | ||||||||
A-Class | 1,064,396 | 67,810,290 | ||||||
B-Class | — | 6,316,674 | ||||||
C-Class | — | 10,539,574 | ||||||
Cost of shares redeemed | ||||||||
A-Class | (349,397,686 | ) | (325,079,843 | ) | ||||
B-Class | (23,155,998 | ) | (16,824,893 | ) | ||||
C-Class | (22,330,336 | ) | (25,735,329 | ) | ||||
Net increase from capital share transactions | 194,208,073 | 159,563,536 | ||||||
Net increase in net assets | 313,737,205 | 143,348,422 | ||||||
Net assets: | ||||||||
Beginning of year | 979,225,125 | 835,876,703 | ||||||
End of year | $ | 1,292,962,330 | $ | 979,225,125 | ||||
Undistributed net investment income at end of year | $ | 2,564,377 | $ | 1,105,623 | ||||
Capital share activity: | ||||||||
Shares sold | ||||||||
A-Class | 18,798,275 | 18,036,421 | ||||||
B-Class | 92,317 | 420,635 | ||||||
C-Class | 2,460,598 | 2,271,053 | ||||||
Shares issued from reinvestment of distributions | ||||||||
A-Class | 38,861 | 3,546,564 | ||||||
B-Class | — | 383,293 | ||||||
C-Class | — | 620,705 | ||||||
Shares redeemed | ||||||||
A-Class | (12,495,803 | ) | (15,264,008 | ) | ||||
B-Class | (966,968 | ) | (931,362 | ) | ||||
C-Class | (908,686 | ) | (1,403,785 | ) | ||||
Total capital share activity | 7,018,594 | 7,679,516 | ||||||
58 | | | THE RYDEX | SGI EQUITY FUNDS ANNUAL REPORT | The accompanying notes are an integral part of the financial statements. |
FINANCIAL HIGHLIGHTS | Rydex|SGI Equity Fund Mid Cap Value Fund |
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.
Year Ended | Year Ended | Year Ended | Year Ended | Year Ended | ||||||||||||||||
September 30, | September 30, | September 30, | September 30, | September 30, | ||||||||||||||||
A-Class | 2010 | 2009 | 2008 | 2007 | 2006 | |||||||||||||||
Per Share Data | ||||||||||||||||||||
Net asset value, beginning of period | $26.58 | $28.41 | $40.79 | $38.27 | $36.34 | |||||||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||
Net investment incomea | 0.11 | 0.08 | 0.25 | 0.25 | 0.04 | |||||||||||||||
Net gain (loss) on investments (realized and unrealized) | 2.90 | 0.82 | (4.77 | ) | 4.59 | 3.96 | ||||||||||||||
Total from investment operations | 3.01 | 0.90 | (4.52 | ) | 4.84 | 4.00 | ||||||||||||||
Less distributions from: | ||||||||||||||||||||
Net investment income | (0.04 | ) | (0.14 | ) | (0.14 | ) | (0.23 | ) | — | |||||||||||
Net realized gains | — | (2.59 | ) | (7.72 | ) | (2.09 | ) | (2.07 | ) | |||||||||||
Total distributions | (0.04 | ) | (2.73 | ) | (7.86 | ) | (2.32 | ) | (2.07 | ) | ||||||||||
Net asset value, end of period | $29.55 | $26.58 | $28.41 | $40.79 | $38.27 | |||||||||||||||
Total Returnb | 11.32% | 6.90% | (12.48% | ) | 12.96% | 11.44% | ||||||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||
Net assets, end of period (in thousands) | $1,056,655 | $781,883 | $656,044 | $687,484 | $596,074 | |||||||||||||||
Ratios to average net assets: | ||||||||||||||||||||
Net investment income | 0.38% | 0.40% | 0.79% | 0.61% | 0.10% | |||||||||||||||
Total expenses | 1.37% | 1.48% | 1.37% | 1.32% | 1.36% | |||||||||||||||
Portfolio turnover rate | 23% | 31% | 68% | 44% | 33% |
Year Ended | Year Ended | Year Ended | Year Ended | Year Ended | ||||||||||||||||
September 30, | September 30, | September 30, | September 30, | September 30, | ||||||||||||||||
B-Class | 2010 | 2009 | 2008 | 2007 | 2006 | |||||||||||||||
Per Share Data | ||||||||||||||||||||
Net asset value, beginning of period | $22.78 | $24.83 | $36.78 | $34.76 | $33.43 | |||||||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||
Net investment lossa | (0.09 | ) | (0.06 | ) | — | (0.04 | ) | (0.23 | ) | |||||||||||
Net gain (loss) on investments (realized and unrealized) | 2.48 | 0.60 | (4.23 | ) | 4.15 | 3.63 | ||||||||||||||
Total from investment operations | 2.39 | 0.54 | (4.23 | ) | 4.11 | 3.40 | ||||||||||||||
Less distributions from: | ||||||||||||||||||||
Net realized gains | — | (2.59 | ) | (7.72 | ) | (2.09 | ) | (2.07 | ) | |||||||||||
Total distributions | — | (2.59 | ) | (7.72 | ) | (2.09 | ) | (2.07 | ) | |||||||||||
Net asset value, end of period | $25.17 | $22.78 | $24.83 | $36.78 | $34.76 | |||||||||||||||
Total Returnb | 10.49% | 6.17% | (13.14% | ) | 12.10% | 10.60% | ||||||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||
Net assets, end of period (in thousands) | $42,321 | $58,221 | $66,641 | $106,179 | $108,784 | |||||||||||||||
Ratios to average net assets: | ||||||||||||||||||||
Net investment loss | (0.40% | ) | (0.34% | ) | (0.01% | ) | (0.10% | ) | (0.68% | ) | ||||||||||
Total expenses | 2.12% | 2.23% | 2.12% | 2.07% | 2.11% | |||||||||||||||
Portfolio turnover rate | 23% | 31% | 68% | 44% | 33% |
The accompanying notes are an integral part of the financial statements. | THE RYDEX | SGI EQUITY FUNDS ANNUAL REPORT | | | 59 |
FINANCIAL HIGHLIGHTS (concluded) | Rydex|SGI Equity Fund Mid Cap Value Fund |
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.
Year Ended | Year Ended | Year Ended | Year Ended | Year Ended | ||||||||||||||||
September 30, | September 30, | September 30, | September 30, | September 30, | ||||||||||||||||
C-Class | 2010 | 2009 | 2008 | 2007 | 2006 | |||||||||||||||
Per Share Data | ||||||||||||||||||||
Net asset value, beginning of period | $23.47 | $25.49 | $37.54 | $35.43 | $34.03 | |||||||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||
Net investment lossa | (0.09 | ) | (0.07 | ) | — | (0.05 | ) | (0.22 | ) | |||||||||||
Net gain (loss) on investments (realized and unrealized) | 2.55 | 0.64 | (4.33 | ) | 4.25 | 3.69 | ||||||||||||||
Total from investment operations | 2.46 | 0.57 | (4.33 | ) | 4.20 | 3.47 | ||||||||||||||
Less distributions from: | ||||||||||||||||||||
Net realized gains | — | (2.59 | ) | (7.72 | ) | (2.09 | ) | (2.07 | ) | |||||||||||
Total distributions | — | (2.59 | ) | (7.72 | ) | (2.09 | ) | (2.07 | ) | |||||||||||
Net asset value, end of period | $25.93 | $23.47 | $25.49 | $37.54 | $35.43 | |||||||||||||||
Total Returnb | 10.48% | 6.13% | (13.15% | ) | 12.13% | 10.62% | ||||||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||
Net assets, end of period (in thousands) | $193,986 | $139,121 | $113,192 | $176,746 | $152,579 | |||||||||||||||
Ratios to average net assets: | ||||||||||||||||||||
Net investment loss | (0.37% | ) | (0.35% | ) | (0.01% | ) | (0.12% | ) | (0.65% | ) | ||||||||||
Total expenses | 2.12% | 2.22% | 2.12% | 2.07% | 2.11% | |||||||||||||||
Portfolio turnover rate | 23% | 31% | 68% | 44% | 33% |
a | Net investment income (loss) was computed using average shares outstanding throughout the period. |
b | Total return information does not reflect deduction of any sales charges imposed at the time of purchase for A-Class shares or upon redemption for B-Class and C-Class shares. |
60 | | | THE RYDEX | SGI EQUITY FUNDS ANNUAL REPORT | The accompanying notes are an integral part of the financial statements. |
MANAGER’S COMMENTARY
September 30, 2010
Advised by:
![(SECURITY GLOBAL INVESTORS LOGO)](https://capedge.com/proxy/N-CSR/0000950123-10-111594/g06945g0694504.gif)
To Our Shareholders:
For the fiscal year ended September 30, 2010, the Rydex|SGI Equity Fund–Mid Cap Value Institutional Fund gained 11.76%1, lagging the 14.74% return of the Fund’s benchmark, the Russell 2500® Value Index.
Our approach with the Mid Cap Value strategy is to seek companies that can increase shareholders’ return on capital. We hold such companies over three to five years to capture long-term improvements in profitability.
The investment process is fundamentally driven and quantitatively aided. We use proprietary screens to identify potential companies for investment and then perform rigorous fundamental analysis to identify the best ideas. Through this fundamental research, we determine an estimate of intrinsic value and a valuation target for each potential investment. We construct the portfolios based on the level of conviction generated by this bottom-up analysis and the upside/downside profile associated with each company.
Industrials, Consumer Discretionary, and Financials Top Performers
Superior stock selection in the Industrials, Consumer Discretionary, and Financials sectors outperformed its benchmark holdings in those sectors during the fiscal year ended September 30, 2010.
The Fund had a large overweight position in the Industrials sector, 19.8% to 12.1%, while outperforming the Index 20.4% to 14.9%. Power-One Inc., a 2.1% weight, soared 366.2%. GeoEye Inc. and Insituform Technologies Inc. (Cl A), both solid portfolio weights, gained 51.0% and 26.5%, respectively.
Similarly, the Fund’s Consumer Discretionary sector outperformed the index 27.6% to 18.5%. Leaders for the portfolio were Maidenform Brands Inc. and Cabela’s Inc., up 79.6% and 42.3%, respectively. Other portfolio positions that performed well
included Penn National Gaming Inc., Burger King Holdings Inc., and Brown Shoe Co. Inc.
In addition to outperforming the Index, the portfolio’s Financials sector benefited from a large underweight position, 14.6% to 31.9%. Euronet Worldwide Inc. increased 38.4% while American Financial Group gained 22.3%.
Energy and Information Technology Disappoints
The Fund was battered by poor security selection in the Energy and Information Technology sectors. The Energy sector lost 17.2% versus a 14.6% gain for the Index, a spread of nearly 32%. Likewise, the Fund’s Information Technology holdings were down 5.2% against a gain of 8.0% for the Index, a 13.2% difference.
Global Industries Ltd., a 2.2% weight, dropped 42.4% during the period. Goodrich Petroleum Corp. lost 43.6% while Petrohawk Energy Corp. declined 33.3%. Other Energy companies hurting the portfolio included Evergreen Energy Inc. and Valero Energy Corp.
Information Technology company Computer Sciences Corp., a 3.4% weight, was down 12.2% over the 12 months. Maxwell Technologies Inc., a 1.5% weight, lost 20.7%, while Satyam Computer Services Ltd. plunged 40.9%. Other holdings detrimental to the portfolio included FEI Co., and EFJohnson Technologies Inc.
Other disappointing sectors for the Fund were Health Care and Materials.
Market Outlook
In challenging times, our core philosophy and disciplined process become paramount. We continue to use a rigorous fundamental research process to identify strong companies from a risk perspective, companies that can provide earnings sustainability and generate excess cash.
THE RYDEX | SGI EQUITY FUNDS ANNUAL REPORT | | | 61 |
MANAGER’S COMMENTARY (concluded)
Regardless of the economic environment, we continue to focus on identifying companies that are generating sufficient or increasing returns on invested capital with attractive risk/reward characteristics.
On behalf of Security Global Investors, I would like to thank you for trusting your investments and financial goals with us. We will continue to do our best to identify companies with the greatest potential for returns with a focus on risk management.
Sincerely,
James P. Schier, CFA, Portfolio Manager
1 | Fee waivers and/or reimbursements reduce Fund expenses and in the absence of such waivers, the performance quoted would be reduced. |
Performance displayed represents past performance which is no guarantee of future results. Of course, Fund performance is subject to daily market volatility and may be better or worse since the end of the last quarter. For up-to-date Fund performance, call us at 800.820.0888 or visit www.rydex-sgi.com. | |
Russell 2500® Value Index – measures the performance of the small to mid-cap value segment of the U.S. equity universe. It includes those Russell 2500 companies with lower price-to-book ratios and lower forecasted growth values. | |
Rydex|SGI Funds are distributed by Rydex Distributors, LLC (RDL). Security Global InvestorsSM is the investment advisory arm of Security Benefit Corporation (Security Benefit). Security Global Investors consists of Security Global Investors, LLC, Security Investors, LLC and Rydex Investments. Rydex Investments is the primary business name for Rydex Advisors, LLC and Rydex Advisors II, LLC. Security Global Investors and RDL are affiliates and are subsidiaries of Security Benefit, which is wholly owned by Guggenheim SBC Holdings, LLC, a special purpose entity managed by Guggenheim Partners, LLC, a diversified financial services firm with more than $100 billion in assets under supervision. | |
Read each Fund’s prospectus and summary prospectus (if available) carefully before investing. It contains the Fund’s investment objectives, risks, charges, expenses and other information, which should be considered carefully before investing. Obtain a prospectus and summary prospectus (if available) at www.rydex-sgi.com or call 800.820.0888. |
62 | | | THE RYDEX | SGI EQUITY FUNDS ANNUAL REPORT |
PERFORMANCE SUMMARY September 30, 2010 | Rydex|SGI Equity Fund Mid Cap Value Institutional Fund (Unaudited) |
PERFORMANCE
![(PERFORMANCE GRAPH)](https://capedge.com/proxy/N-CSR/0000950123-10-111594/g06945g0694513.gif)
$10,000 Since Inception
This chart assumes a $10,000 investment in shares of Mid Cap Value Institutional Fund on July 11, 2008 (date of Inception) and assumes all dividends are reinvested. The chart does not reflect the deduction of taxes that a shareholder would pay on distributions or the redemption of fund shares. The Russell 2500® Value Index is an unmanaged index that measures the performance of securities of small-to-mid cap U.S. companies with greater-than-average value orientation.
AVERAGE ANNUAL RETURNS PERIODS ENDED 9/30/10 | ||||||||
SINCE | ||||||||
INCEPTION | ||||||||
1 YEAR | (07/11/08) | |||||||
Mid Cap Value Institutional Fund | 11.76 | % | 10.84 | % |
The performance data above represents past performance that is not predictive of future results. The investment return and principal value of an investment in the Fund will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. The figures do not reflect the deduction of taxes that a shareholder would pay on distributions or redemption of shares. Such figures would be lower if any applicable taxes were deducted. Fee waivers and/or reimbursements reduced expenses of the Fund and in the absence of such waivers, the performance quoted would be reduced.
Portfolio Composition by Sector | ||||
Common Stocks | ||||
Consumer Discretionary | 10.3 | % | ||
Consumer Staples | 5.2 | % | ||
Energy | 9.8 | % | ||
Financials | 14.4 | % | ||
Health Care | 3.7 | % | ||
Industrials | 16.9 | % | ||
Information Technology | 11.6 | % | ||
Materials | 6.2 | % | ||
Utilities | 10.4 | % | ||
Exchange Traded Funds | 5.7 | % | ||
Convertible Preferred Stock | 0.1 | % | ||
Warrants | 0.2 | % | ||
Convertible Bonds | 0.8 | % | ||
Repurchase Agreement | 5.2 | % | ||
Options Written | (0.1) | % | ||
Liabilities, Less Cash & | ||||
Other Assets | (0.4) | % | ||
Total Net Assets | 100.0 | % | ||
The accompanying notes are an integral part of the financial statements. | THE RYDEX | SGI EQUITY FUNDS ANNUAL REPORT | | | 63 |
SCHEDULE OF INVESTMENTS September 30, 2010 | Rydex|SGI Equity Fund Mid Cap Value Institutional Fund |
SHARES | VALUE | |||||||
COMMON STOCKS† - 88.5% | ||||||||
Industrials - 16.9% | ||||||||
GeoEye, Inc.* | 312,700 | $ | 12,658,096 | |||||
Covanta Holdings Corp. | 628,470 | 9,898,403 | ||||||
Quanta Services, Inc.* | 415,200 | 7,922,015 | ||||||
Insituform Technologies, Inc. — Class A* | 306,400 | 7,408,752 | ||||||
General Cable Corp.* | 233,400 | 6,329,808 | ||||||
Orbital Sciences Corp.* | 392,888 | 6,011,186 | ||||||
Navigant Consulting, Inc.* | 476,600 | 5,542,858 | ||||||
Administaff, Inc. | 204,581 | 5,509,366 | ||||||
URS Corp.* | 121,700 | 4,622,166 | ||||||
Force Protection, Inc.* | 772,103 | 3,891,399 | ||||||
ICF International, Inc.* | 154,910 | 3,883,594 | ||||||
Babcock & Wilcox Co.* | 171,600 | 3,651,648 | ||||||
Saia, Inc.* | 214,470 | 3,202,037 | ||||||
Trex Company, Inc.* | 129,200 | 2,463,844 | ||||||
FTI Consulting, Inc.* | 54,565 | 1,892,860 | ||||||
United Stationers, Inc.* | 33,678 | 1,802,110 | ||||||
UQM Technologies, Inc.* | 100,310 | 256,794 | ||||||
Total Industrials | 86,946,936 | |||||||
Financials - 14.4% | ||||||||
Hanover Insurance Group, Inc. | 246,200 | 11,571,400 | ||||||
WR Berkley Corp. | 363,010 | 9,826,681 | ||||||
American Financial Group, Inc.1 | 247,200 | 7,559,376 | ||||||
Alleghany Corp.* | 21,175 | 6,416,660 | ||||||
Fifth Street Finance Corp. | 494,507 | 5,508,808 | ||||||
Associated Banc-Corp | 407,692 | 5,377,457 | ||||||
Reinsurance Group of America, | ||||||||
Inc. — Class A | 100,730 | 4,864,252 | ||||||
Old National Bancorp | 393,845 | 4,135,373 | ||||||
First Horizon National Corp.* | 322,507 | 3,679,809 | ||||||
Commerce Bancshares, Inc. | 96,746 | 3,636,682 | ||||||
Employers Holdings, Inc. | 193,100 | 3,045,187 | ||||||
Lexington Realty Trust | 371,000 | 2,656,360 | ||||||
Investors Real Estate Trust | 309,217 | 2,591,238 | ||||||
Redwood Trust, Inc. | 124,100 | 1,794,486 | ||||||
First Marblehead Corp.* | 352,384 | 824,579 | ||||||
Bimini Capital Management, | ||||||||
Inc. — Class A | 473,362 | 397,624 | ||||||
Whitney Holding Corp. | 24,666 | 201,521 | ||||||
Total Financials | 74,087,493 | |||||||
Information Technology - 11.6% | ||||||||
Computer Sciences Corp. | 325,040 | 14,951,840 | ||||||
Power-One, Inc.* | 1,082,798 | 9,842,634 | ||||||
IXYS Corp.* | 938,379 | 8,961,519 | ||||||
Maxwell Technologies, Inc.* | 576,755 | 8,426,391 | ||||||
Satyam Computer Services, Ltd. | ||||||||
ADR* | 1,619,372 | 6,299,357 | ||||||
Euronet Worldwide, Inc.* | 222,800 | 4,008,172 | ||||||
Symmetricom, Inc.* | 630,300 | 3,605,316 |
SHARES | VALUE | |||||||
Ultratech, Inc.* | 104,900 | $ | 1,793,790 | |||||
FEI Co.* | 86,400 | 1,690,848 | ||||||
Total Information Technology | 59,579,867 | |||||||
Utilities - 10.4% | ||||||||
Great Plains Energy, Inc. | 352,735 | 6,666,691 | ||||||
Westar Energy, Inc. | 266,100 | 6,447,603 | ||||||
NorthWestern Corp. | 218,200 | 6,218,700 | ||||||
Allete, Inc. | 157,854 | 5,750,621 | ||||||
Northeast Utilities | 186,600 | 5,517,762 | ||||||
American Water Works Company, Inc. | 204,240 | 4,752,665 | ||||||
Atmos Energy Corp. | 161,800 | 4,732,650 | ||||||
Black Hills Corp. | 147,000 | 4,586,400 | ||||||
UGI Corp. | 143,457 | 4,104,305 | ||||||
Pepco Holdings, Inc. | 135,500 | 2,520,300 | ||||||
Alliant Energy Corp. | 64,500 | 2,344,575 | ||||||
Total Utilities | 53,642,272 | |||||||
Consumer Discretionary - 10.3% | ||||||||
Cabela’s, Inc.* | 620,901 | 11,784,701 | ||||||
Chico’s FAS, Inc. | 754,570 | 7,938,076 | ||||||
Brown Shoe Company, Inc. | 647,410 | 7,425,793 | ||||||
Maidenform Brands, Inc.* | 214,750 | 6,195,537 | ||||||
Penn National Gaming, Inc.* | 188,300 | 5,575,563 | ||||||
Leggett & Platt, Inc. | 185,200 | 4,215,152 | ||||||
Jack in the Box, Inc.* | 162,700 | 3,488,288 | ||||||
Scholastic Corp. | 84,931 | 2,362,780 | ||||||
Fortune Brands, Inc. | 42,000 | 2,067,660 | ||||||
Smith & Wesson Holding Corp.* | 301,610 | 1,073,732 | ||||||
Fred’s, Inc. — Class A | 76,310 | 900,458 | ||||||
Columbia Sportswear Co. | 2,140 | 125,062 | ||||||
HydroGen Corp.*,2 | 1,265,700 | 3,924 | ||||||
Total Consumer Discretionary | 53,156,726 | |||||||
Energy - 9.8% | ||||||||
Global Industries Ltd.* | 1,831,039 | 10,015,783 | ||||||
Southern Union Co. | 342,700 | 8,245,362 | ||||||
USEC, Inc.* | 1,234,000 | 6,404,460 | ||||||
Valero Energy Corp. | 347,000 | 6,075,970 | ||||||
McDermott International, Inc.* | 338,200 | 4,998,596 | ||||||
Gulfport Energy Corp.* | 320,172 | 4,431,180 | ||||||
Goodrich Petroleum Corp.* | 283,410 | 4,129,284 | ||||||
Petrohawk Energy Corp.* | 244,870 | 3,952,202 | ||||||
Helmerich & Payne, Inc. | 50,400 | 2,039,184 | ||||||
Total Energy | 50,292,021 | |||||||
Materials - 6.2% | ||||||||
Bemis Company, Inc. | 396,680 | 12,594,590 | ||||||
Louisiana-Pacific Corp.* | 809,700 | 6,129,429 | ||||||
Sonoco Products Co. | 174,500 | 5,835,280 | ||||||
HB Fuller Co. | 165,342 | 3,285,346 | ||||||
Zoltek Companies, Inc.* | 202,400 | 1,967,328 | ||||||
Landec Corp.* | 304,600 | 1,891,566 | ||||||
Total Materials | 31,703,539 | |||||||
64 | | | THE RYDEX | SGI EQUITY FUNDS ANNUAL REPORT | The accompanying notes are an integral part of the financial statements. |
SCHEDULE OF INVESTMENTS (continued) September 30, 2010 | Rydex|SGI Equity Fund Mid Cap Value Institutional Fund |
SHARES | VALUE | |||||||
Consumer Staples - 5.2% | ||||||||
Hormel Foods Corp.1 | 187,290 | $ | 8,353,134 | |||||
JM Smucker Co. | 134,500 | 8,141,285 | ||||||
Ralcorp Holdings, Inc.* | 77,400 | 4,526,352 | ||||||
Del Monte Foods Co. | 218,925 | 2,870,107 | ||||||
Bunge Ltd. | 48,000 | 2,839,680 | ||||||
Total Consumer Staples | 26,730,558 | |||||||
Health Care - 3.7% | ||||||||
Mednax, Inc.* | 114,013 | 6,076,893 | ||||||
Forest Laboratories, Inc.* | 151,230 | 4,677,544 | ||||||
Hologic, Inc.* | 279,882 | 4,480,911 | ||||||
RehabCare Group, Inc.* | 198,229 | 4,008,190 | ||||||
Total Health Care | 19,243,538 | |||||||
Total Common Stocks | ||||||||
(Cost $400,561,140) | 455,382,950 | |||||||
CONVERTIBLE PREFERRED STOCK†† - 0.1% | ||||||||
Thermoenergy Corp.*,2,3,4 | 793,750 | 695,325 | ||||||
Total Convertible Preferred Stock | ||||||||
(Cost $757,980) | 695,325 | |||||||
WARRANT†† - 0.2% | ||||||||
Thermoenergy Corp.2,3 | ||||||||
$0.30, 07/31/15 | 12,700,000 | 1,023,620 | ||||||
Total Warrant | ||||||||
(Cost $1,147,020) | 1,023,620 | |||||||
EXCHANGE TRADED FUNDS† - 5.7% | ||||||||
iShares Russell Midcap Value | ||||||||
Index Fund | 325,570 | 13,143,261 | ||||||
iShares Russell 2000 Value | ||||||||
Index Fund | 164,300 | 10,170,170 | ||||||
iShares S&P MidCap 400 Value | ||||||||
Index Fund | 82,000 | 5,832,660 | ||||||
Total Exchange Traded Funds | ||||||||
(Cost $27,137,981) | 29,146,091 | |||||||
FACE | ||||||||
AMOUNT | ||||||||
CONVERTIBLE BOND†† - 0.8% | ||||||||
USEC, Inc. | ||||||||
3.00% due 10/01/14 | $ | 5,000,000 | 3,956,250 | |||||
Total Convertible Bond | ||||||||
(Cost $3,863,165) | 3,956,250 | |||||||
FACE | ||||||||
AMOUNT | VALUE | |||||||
REPURCHASE AGREEMENT†† - 5.2% | ||||||||
UMB Financial Corp., | ||||||||
0.09%, dated 09/30/10, | ||||||||
matures 10/01/10; repurchase | ||||||||
amount $26,776,067 | ||||||||
(Collateralized by U.S. Treasury | ||||||||
Note, 1.00%, 10/31/11 with a | ||||||||
value of $6,069,155, | ||||||||
U.S. Treasury Note, 1.375%, | ||||||||
02/16/12 with a value of | ||||||||
$20,320,202 and US Treasury | ||||||||
Note, 4.50%, 09/30/11 with a | ||||||||
value of $386,698) | $ | 26,776,000 | $ | 26,776,000 | ||||
Total Repurchase Agreement | ||||||||
(Cost $26,776,000) | 26,776,000 | |||||||
Total Investments - 100.4% | ||||||||
(Cost $460,243,286) | $ | 516,980,236 | ||||||
CONTRACTS | ||||||||
OPTIONS WRITTEN† - (0.1)% | ||||||||
Call Options on: | ||||||||
Valero Energy Corp. | ||||||||
Expiring January 2011 | ||||||||
with strike price of $17.50 | 1,400 | (179,200 | ) | |||||
Total Call Options | (179,200 | ) | ||||||
Put Options on: | ||||||||
American Waterworks Inc. | ||||||||
Expiring December 2010 | ||||||||
with strike price of $20.00 | 1,050 | (10,500 | ) | |||||
Great Plains Energy, Inc. | ||||||||
Expiring December 2010 | ||||||||
with strike price of $17.50 | 560 | (19,600 | ) | |||||
American Waterworks, Inc. | ||||||||
Expiring December 2010 | ||||||||
with strike price of $22.50 | 1,100 | (66,000 | ) | |||||
Brinker International, Inc. | ||||||||
Expiring January 2011 | ||||||||
with strike price of $17.50 | 564 | (67,680 | ) | |||||
Total Put Options | (163,780 | ) | ||||||
Total Options Written | ||||||||
(Premiums received $579,542) | (342,980 | ) | ||||||
Liabilities, Less Cash & | ||||||||
Other Assets - (0.4)% | (2,190,258 | ) | ||||||
Total Net Assets - 100.0% | $ | 514,446,998 | ||||||
The accompanying notes are an integral part of the financial statements. | THE RYDEX | SGI EQUITY FUNDS ANNUAL REPORT | | | 65 |
SCHEDULE OF INVESTMENTS (concluded) September 30, 2010 | Rydex|SGI Equity Fund Mid Cap Value Institutional Fund |
* | Non-income producing security |
† | Value determined based on Level 1 inputs — See Note 9. |
†† | Value determined based on Level 2 inputs — See Note 9. |
1 | Security is segregated as collateral for open written option contracts. |
2 | Investment in an affiliated issuer. See Note 7 in the Notes to Financial Statements. |
3 | Security was fair valued by the Valuation Committee at September 30, 2010. The total market value of fair valued securities amounts to $1,718,945, (cost $1,905,000) or 0.1% of total net assets. |
4 | PIPE (Private Investment in Public Equity) — Stock issued by a company in the secondary market as a means of raising capital more quickly and less expensively than through registration of a secondary public offering. |
ADR — American Depositary Receipt |
66 | | | THE RYDEX | SGI EQUITY FUNDS ANNUAL REPORT | The accompanying notes are an integral part of the financial statements. |
Rydex|SGI Equity Fund Mid Cap Value Institutional Fund |
STATEMENT OF ASSETS
AND LIABILITIES
AND LIABILITIES
September 30, 2010
Assets: | ||||
Investments in unaffiliated issuers, at value* | $ | 515,257,367 | ||
Investments in affiliated issuers, at value** | 1,722,869 | |||
Total investments | 516,980,236 | |||
Cash | 40,719 | |||
Receivables: | ||||
Fund shares sold | 682,842 | |||
Interest | 60,000 | |||
Dividends | 455,138 | |||
Due from Security Investors | 42,147 | |||
Prepaid expenses | 20,033 | |||
Total assets | 518,281,115 | |||
Liabilities: | ||||
Written options, at value*** | 342,980 | |||
Payable for: | ||||
Fund shares redeemed | 99,795 | |||
Securities purchased | 3,017,152 | |||
Management fees | 292,806 | |||
Administration fees | 37,088 | |||
Transfer agent/maintenance fees | 8,817 | |||
Directors’ fees | 10,342 | |||
Professional fees | 6,260 | |||
Other | 18,877 | |||
Total liabilities | 3,834,117 | |||
Net assets | $ | 514,446,998 | ||
Net assets consist of: | ||||
Paid in capital | $ | 435,798,341 | ||
Undistributed net investment income | 3,027,929 | |||
Accumulated net realized gain on investments | 18,647,216 | |||
Net unrealized appreciation on investments | 56,973,512 | |||
Net assets | $ | 514,446,998 | ||
Capital shares authorized | unlimited | |||
Capital shares outstanding | 45,375,638 | |||
Net asset value per share (net assets divided by shares outstanding) | $11.34 | |||
* Investments in unaffiliated issuers, at cost | $ | 458,335,755 | ||
** Investments in affiliated issuers, at cost | 1,907,531 | |||
Total cost | $ | 460,243,286 | ||
*** Premiums received for written options | $ | 579,542 |
STATEMENT OF
OPERATIONS
OPERATIONS
For the Year Ended September 30, 2010
Investment Income: | ||||
Dividends | $ | 6,497,814 | ||
Interest | 27,114 | |||
Total investment income | 6,524,928 | |||
Expenses: | ||||
Management fees | 2,914,159 | |||
Administration fees | 369,590 | |||
Transfer agent/maintenance fees | 283,742 | |||
Custodian fees | 19,674 | |||
Directors’ fees | 32,848 | |||
Professional fees | 28,640 | |||
Reports to shareholders | 9,203 | |||
Registration fees | 27,556 | |||
Other | 21,563 | |||
Total expenses | 3,706,975 | |||
Reimbursement of expenses | (209,976 | ) | ||
Net expenses | 3,496,999 | |||
Net investment income | 3,027,929 | |||
Net Realized and Unrealized Gain (Loss): | ||||
Net realized gain (loss) on: | ||||
Investments† | 20,019,977 | |||
Options written | 1,746,191 | |||
Net realized gain | 21,766,168 | |||
Net change in unrealized appreciation | ||||
(depreciation) on: | ||||
Investments | 19,582,024 | |||
Options written | 217,815 | |||
Net change in unrealized appreciation (depreciation) | 19,799,839 | |||
Net realized and unrealized gain | 41,566,007 | |||
Net increase in net assets resulting | ||||
from operations | $ | 44,593,936 | ||
The accompanying notes are an integral part of the financial statements. | THE RYDEX | SGI EQUITY FUNDS ANNUAL REPORT | | | 67 |
STATEMENTS OF CHANGES IN NET ASSETS | Rydex|SGI Equity Fund Mid Cap Value Institutional Fund |
Year Ended | Year Ended | |||||||
September 30, | September 30, | |||||||
2010 | 2009 | |||||||
Increase (Decrease) In Net Assets From Operations: | ||||||||
Net investment income | $ | 3,027,929 | $ | 721,069 | ||||
Net realized gain on investments | 21,766,168 | 7,639,819 | ||||||
Net change in unrealized appreciation on investments | 19,799,839 | 37,041,254 | ||||||
Net increase in net assets resulting from operations | 44,593,936 | 45,402,142 | ||||||
Distributions to shareholders from: | ||||||||
Net investment income | (326,334 | ) | (116,483 | ) | ||||
Net realized gains | (11,082,828 | ) | (966,008 | ) | ||||
Total distributions to shareholders | (11,409,162 | ) | (1,082,491 | ) | ||||
Capital share transactions: | ||||||||
Proceeds from sale of shares | 259,968,422 | 285,643,830 | ||||||
Dividends reinvested | 5,348,897 | 946,155 | ||||||
Cost of shares redeemed | (101,510,411 | ) | (30,890,230 | ) | ||||
Net increase from capital share transactions | 163,806,908 | 255,699,755 | ||||||
Net increase in net assets | 196,991,682 | 300,019,406 | ||||||
Net assets: | ||||||||
Beginning of year | 317,455,316 | 17,435,910 | ||||||
End of year | $ | 514,446,998 | $ | 317,455,316 | ||||
Undistributed net investment income at end of year | $ | 3,027,929 | $ | 675,406 | ||||
Capital share activity: | ||||||||
Shares sold | 23,979,841 | 31,844,224 | ||||||
Shares issued from reinvestment of distributions | 509,904 | 126,492 | ||||||
Shares redeemed | (9,372,413 | ) | (3,344,963 | ) | ||||
Total capital share activity | 15,117,332 | 28,625,753 | ||||||
68 | | | THE RYDEX | SGI EQUITY FUNDS ANNUAL REPORT | The accompanying notes are an integral part of the financial statements. |
FINANCIAL HIGHLIGHTS | Rydex|SGI Equity Fund Mid Cap Value Institutional Fund |
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.
Year Ended | Year Ended | Year Ended | ||||||||||
September 30, | September 30, | September 30, | ||||||||||
2010 | 2009 | 2008 | a | |||||||||
Per Share Data | ||||||||||||
Net asset value, beginning of period | $10.49 | $10.68 | $10.00 | |||||||||
Income (loss) from investment operations: | ||||||||||||
Net investment incomeb | 0.08 | 0.08 | 0.04 | |||||||||
Net gain on investments (realized and unrealized) | 1.13 | 0.27 | 0.64 | |||||||||
Total from investment operations | 1.21 | 0.35 | 0.68 | |||||||||
Less distributions from: | ||||||||||||
Net investment income | (0.01 | ) | (0.06 | ) | — | |||||||
Net realized gains | (0.35 | ) | (0.48 | ) | — | |||||||
Total distributions | (0.36 | ) | (0.54 | ) | — | |||||||
Net asset value, end of period | $11.34 | $10.49 | $10.68 | |||||||||
Total Return | 11.76% | 5.30% | 6.80% | |||||||||
Ratios/Supplemental Data | ||||||||||||
Net assets, end of period (in thousands) | $514,447 | $317,455 | $17,436 | |||||||||
Ratios to average net assets: | ||||||||||||
Net investment income | 0.78% | 0.82% | 1.81% | |||||||||
Total expensesc | 0.95% | 0.98% | 1.19% | |||||||||
Net expensesd | 0.90% | 0.91% | 1.10% | |||||||||
Portfolio turnover rate | 20% | 76% | 63% |
a | The Mid Cap Value Institutional Fund was initially capitalized on July 11, 2008 with a net asset value of $10 per share. Percentage amounts for the period, except total return, have been annualized. |
b | Net investment income was computed using average shares outstanding throughout the period. |
c | Total expense information reflects the expense ratios absent expense reductions by the Investment Manager, as applicable. |
d | Net expense information reflects the expense ratios after voluntary expense waivers and reimbursements, as applicable. |
The accompanying notes are an integral part of the financial statements. | THE RYDEX | SGI EQUITY FUNDS ANNUAL REPORT | | | 69 |
MANAGER’S COMMENTARY
September 30, 2010
Advised by:
![(SECURITY GLOBAL INVESTORS LOGO)](https://capedge.com/proxy/N-CSR/0000950123-10-111594/g06945g0694504.gif)
To Our Shareholders:
For the fiscal year ended September 30, 2010, the Rydex|SGI Equity Fund–Large Cap Concentrated Growth Fund (formerly, Select 25 Fund) returned 9.78%1, lagging the benchmark Russell 1000® Growth Index’s return of 12.65% and the Fund’s peer group median performance of 10.01%.
The Fund pursues its objective by focusing on core holdings of common stocks of growth companies that have exhibited consistent above-average earnings and/or revenue growth. We select what we believe to be premier growth companies using a combination of a qualitative top-down approach in reviewing growth trends that are based on several fixed income factors, such as bond spreads and interest rates, along with a quantitative fundamental bottom-up approach.
We structure the portfolio with 20-30 names. This philosophy is applied to a broad range of growth names. We will replace holdings in the portfolio when the fundamentals of a company or the original thesis for selecting the security changes.
Industrials and Information Technology Top Performers
The Fund benefited from superior security selection in the Industrials and Information Technology sectors. The Industrials sector was overweight the benchmark 15.4% to 11.0%. Its holdings outperformed with a 39.6% return versus a gain of 22.4% for the Index. The Fund’s Information Technology sector was underweight the benchmark 26.6% to 31.3% but had a 16.2% to 12.3% return advantage.
Boeing Co., a 2.1% weight in the Industrials sector, surged 37.3% while Cummins Inc., a 1.4% weight increased 29.0% during the fiscal year. Other holdings contributing to performance in the sector included Emerson Electric Co., Goodrich Corp., and Cooper Industries plc (Cl A).
The Fund had several substantial holdings in the Information Technology sector. Motorola Inc., a 1.7% weight, gained 17.3% while Google Inc. (Cl A) with a 1.7% weight increased 20.4% during the period. Other holdings adding to portfolio returns included EMC Corp., Cognizant Technology Solutions Corp., and Intel Corp.
Financials, Health Care, and Consumer Discretionary Disappoint
The portfolio’s Financials holdings were the largest detractors to overall performance. While an approximate equal weight to the Index, holdings in the Fund plummeted 29.1% compared to a 4.1% gain for the Russell 1000® Growth Index. Wells Fargo was down 28.7%, U.S. Bancorp dropped 17.7% and Morgan Stanley 17.4%.
Holdings in the Health Care sector had a negative 0.9% return against a 6.5% advance for the Index. McKesson Corp., Celgene Corp., Covidien plc, and Abbot Laboratories were all detractors from portfolio returns.
Securities selected in the Consumer Discretionary sector could not keep pace with the Index, trailing 18.9% to 24.7%. Kohl’s Corp., a 2.6% weight, dropped 20.6% during the period. Royal Caribbean Cruises Ltd. lost 28.9% in value. Other holdings that held down portfolio performance included Darden Restaurants Inc., Activision Blizzard Inc., and Johnson Controls Inc.
Market Outlook
Although our indicators are mildly more positive than at the end of the 2nd quarter, we do not feel compelled to raise the risk levels of our model portfolios further, but we will continue to maintain a slightly higher risk composition than that of our benchmarks.
During these uncertain times and volatile market conditions, we are confident in our ability to find opportunities by consistently applying our disciplined process to individual stock evaluations.
70 | | | THE RYDEX | SGI EQUITY FUNDS ANNUAL REPORT |
MANAGER’S COMMENTARY (concluded)
We believe that investing is a long-term pursuit that requires patience and a consistent approach. We thank you for your business and the confidence you place in us.
Sincerely,
Mark Bronzo, CFA, Portfolio Manager
1 | Performance figures are based on A-Class shares and do not reflect deduction of the sales charges or taxes that a shareholder would pay on distributions or the redemption of shares. Fee waivers and/or reimbursements reduced expenses of the Fund and in the absence of such waiver, the performance quoted would be reduced. |
Performance displayed represents past performance which is no guarantee of future results. Of course, Fund performance is subject to daily market volatility and may be better or worse since the end of the last quarter. For up-to-date Fund performance, call us at 800.820.0888 or visit www.rydex-sgi.com. | |
Russell 1000® Growth Index – measures the performance of the large-cap growth segment of the U.S. equity universe. It includes those Russell 1000 companies with higher price-to-book ratios and higher forecasted growth values. | |
Rydex|SGI Funds are distributed by Rydex Distributors, LLC (RDL). Security Global InvestorsSM is the investment advisory arm of Security Benefit Corporation (Security Benefit). Security Global Investors consists of Security Global Investors, LLC, Security Investors, LLC and Rydex Investments. Rydex Investments is the primary business name for Rydex Advisors, LLC and Rydex Advisors II, LLC. Security Global Investors and RDL are affiliates and are subsidiaries of Security Benefit, which is wholly owned by Guggenheim SBC Holdings, LLC, a special purpose entity managed by Guggenheim Partners, LLC, a diversified financial services firm with more than $100 billion in assets under supervision. | |
Read each Fund’s prospectus and summary prospectus (if available) carefully before investing. It contains the Fund’s investment objectives, risks, charges, expenses and other information, which should be considered carefully before investing. Obtain a prospectus and summary prospectus (if available) at www.rydex-sgi.com or call 800.820.0888. |
THE RYDEX | SGI EQUITY FUNDS ANNUAL REPORT | | | 71 |
PERFORMANCE SUMMARY September 30, 2010 | Rydex|SGI Equity Fund Large Cap Concentrated Growth Fund (Unaudited) |
PERFORMANCE
![(PERFORMANCE GRAPH)](https://capedge.com/proxy/N-CSR/0000950123-10-111594/g06945g0694514a.gif)
$10,000 Over Ten Years
This chart assumes a $10,000 investment in A-Class shares of Large Cap Concentrated Growth Fund on September 30, 2000, reflects deduction of the maximum front-end sales charge of 5.75% and assumes all dividends are reinvested. The chart does not reflect the deduction of taxes that a shareholder would pay on distributions or the redemption of fund shares. The Russell 1000® Growth Index is an unmanaged capitalization index which includes stocks incorporated in the United States and its territories and measures the performance of the Russell 1000® companies with higher price-to-book ratios and higher forecasted growth values.
AVERAGE ANNUAL RETURNS PERIODS ENDED 9/30/10 (Inception 1/29/1999) | ||||||||||||
1 YEAR | 5 YEAR | 10 YEAR | ||||||||||
A-Class Shares | 9.78 | % | -2.20 | % | -2.99 | % | ||||||
A-Class Shares with sales charge | 3.53 | % | -3.35 | % | -3.56 | % | ||||||
B-Class Shares | 8.92 | % | -2.92 | % | -3.56 | % | ||||||
B-Class Shares with CDSC | 3.92 | % | -3.28 | % | -3.56 | % | ||||||
C-Class Shares | 9.05 | % | -2.89 | % | -3.70 | % | ||||||
C-Class Shares with CDSC | 8.05 | % | -2.89 | % | -3.70 | % | ||||||
The performance data above represents past performance that is not predictive of future results. The investment return and principal value of an investment in the Fund will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. The figures above do not reflect deduction of the maximum front-end sales charge of 5.75% for A-Class shares or the CDSC of up to 5% for B-Class shares and 1% for C-Class shares, as applicable, except where noted. The figures do not reflect the deduction of taxes that a shareholder would pay on distributions or redemption of shares. Such figures would be lower if the maximum sales charge and any applicable taxes were deducted. Fee waivers and/or reimbursements reduced expenses of the Fund and in the absence of such waivers, the performance quoted would be reduced.
Portfolio Composition by Sector | ||||
Common Stocks | ||||
Consumer Discretionary | 21.2 | % | ||
Consumer Staples | 3.0 | % | ||
Energy | 9.1 | % | ||
Financials | 5.6 | % | ||
Health Care | 8.4 | % | ||
Industrials | 16.4 | % | ||
Information Technology | 27.4 | % | ||
Materials | 6.0 | % | ||
Cash & Other Assets, | ||||
Less Liabilities | 2.9 | % | ||
Total Net Assets | 100.0 | % | ||
72 | | | THE RYDEX | SGI EQUITY FUNDS ANNUAL REPORT | The accompanying notes are an integral part of the financial statements. |
1
SCHEDULE OF INVESTMENTS September 30, 2010 | Rydex|SGI Equity Fund Large Cap Concentrated Growth Fund |
SHARES | VALUE | |||||||
COMMON STOCKS† - 97.1% | ||||||||
Information Technology - 27.4% | ||||||||
Apple, Inc.* | 6,580 | $ | 1,867,074 | |||||
Oracle Corp. | 56,110 | 1,506,554 | ||||||
Google, Inc. — Class A* | 2,855 | 1,501,130 | ||||||
EMC Corp.* | 70,490 | 1,431,652 | ||||||
Xerox Corp. | 134,600 | 1,393,110 | ||||||
Motorola, Inc.* | 151,245 | 1,290,120 | ||||||
Lam Research Corp.* | 27,800 | 1,163,430 | ||||||
Total Information Technology | 10,153,070 | |||||||
Consumer Discretionary - 21.2% | ||||||||
BorgWarner, Inc.* | 22,750 | 1,197,105 | ||||||
Macy’s, Inc. | 50,300 | 1,161,427 | ||||||
TJX Companies, Inc. | 25,700 | 1,146,991 | ||||||
Yum! Brands, Inc. | 23,800 | 1,096,227 | ||||||
Omnicom Group, Inc. | 27,720 | 1,094,386 | ||||||
McDonald’s Corp. | 14,530 | 1,082,630 | ||||||
Walt Disney Co. | 31,500 | 1,042,965 | ||||||
Total Consumer Discretionary | 7,821,731 | |||||||
Industrials - 16.4% | ||||||||
3M Co. | 14,740 | 1,278,106 | ||||||
CSX Corp. | 23,100 | 1,277,892 | ||||||
Cooper Industries plc — Class A | 24,680 | 1,207,592 | ||||||
Boeing Co. | 17,300 | 1,151,142 | ||||||
Cummins, Inc. | 12,550 | 1,136,779 | ||||||
Total Industrials | 6,051,511 | |||||||
Energy - 9.1% | ||||||||
Occidental Petroleum Corp. | 18,540 | 1,451,682 | ||||||
Schlumberger Ltd. | 15,600 | 961,116 | ||||||
Peabody Energy Corp. | 19,300 | 945,893 | ||||||
Total Energy | 3,358,691 | |||||||
Health Care - 8.4% | ||||||||
Celgene Corp.* | 19,650 | 1,132,037 | ||||||
Abbott Laboratories | 21,050 | 1,099,652 | ||||||
Warner Chilcott plc — Class A | 39,650 | 889,746 | ||||||
Total Health Care | 3,121,435 | |||||||
Materials - 6.0% | ||||||||
Dow Chemical Co. | 40,735 | 1,118,584 | ||||||
Air Products & Chemicals, Inc. | 13,220 | 1,094,880 | ||||||
Total Materials | 2,213,464 | |||||||
Financials - 5.6% | ||||||||
JPMorgan Chase & Co. | 27,150 | 1,033,601 | ||||||
U.S. Bancorp | 47,600 | 1,029,112 | ||||||
Total Financials | 2,062,713 | |||||||
Consumer Staples - 3.0% | ||||||||
PepsiCo, Inc. | 16,470 | 1,094,267 | ||||||
Total Common Stocks | ||||||||
(Cost $33,055,256) | 35,876,882 | |||||||
VALUE | ||||||||
Total Investments - 97.1% | ||||||||
(Cost $33,055,256) | $ | 35,876,882 | ||||||
Cash & Other Assets, Less Liabilities - 2.9% | 1,067,801 | |||||||
Total Net Assets - 100.0% | $ | 36,944,683 | ||||||
* | Non-income producing security. |
† | Value determined based on Level 1 inputs — See Note 9. |
plc — Public Limited Company. |
The accompanying notes are an integral part of the financial statements. | THE RYDEX | SGI EQUITY FUNDS ANNUAL REPORT | | | 73 |
Rydex|SGI Equity Fund Large Cap Concentrated Growth Fund |
STATEMENT OF ASSETS
AND LIABILITIES
AND LIABILITIES
September 30, 2010
Assets: | ||||
Investments, at value* | $ | 35,876,882 | ||
Cash | 1,021,219 | |||
Receivables: | ||||
Fund shares sold | 40,151 | |||
Dividends | 48,085 | |||
Due from Security Investors | 12,247 | |||
Prepaid expenses | 12,956 | |||
Total assets | 37,011,540 | |||
Liabilities: | ||||
Payable for: | ||||
Fund shares redeemed | 2,784 | |||
Management fees | 23,004 | |||
Custodian fees | 512 | |||
Transfer agent/maintenance fees | 5,262 | |||
Administration fees | 2,944 | |||
Professional fees | 9,824 | |||
12b-1 distribution plan fees | 12,667 | |||
Directors’ fees | 2,210 | |||
Other | 7,650 | |||
Total liabilities | 66,857 | |||
Net assets | $ | 36,944,683 | ||
Net assets consist of: | ||||
Paid in capital | $ | 47,411,316 | ||
Undistributed net investment income | 129,025 | |||
Accumulated net realized loss on investments | (13,417,284 | ) | ||
Net unrealized appreciation on investments | 2,821,626 | |||
Net assets | $ | 36,944,683 | ||
A-Class: | ||||
Capital shares outstanding | ||||
(unlimited number of shares authorized) | 3,807,189 | |||
Net assets | $ | 29,058,762 | ||
Net asset value and redemption price per share | $7.63 | |||
Maximum offering price per share (net asset value divided by 94.25%) | $8.10 | |||
B-Class: | ||||
Capital shares outstanding | ||||
(unlimited number of shares authorized) | 659,167 | |||
Net assets | $ | 4,590,240 | ||
Net asset value, offering and redemption price per share (excluding any applicable contingent deferred sales charge) | $6.96 | |||
C-Class: | ||||
Capital shares outstanding | ||||
(unlimited number of shares authorized) | 471,423 | |||
Net assets | $ | 3,295,681 | ||
Net asset value, offering and redemption price per share (excluding any applicable contingent deferred sales charge) | $6.99 | |||
*Investments, at cost | $ | 33,055,256 |
STATEMENT OF
OPERATIONS
OPERATIONS
For the Year Ended September 30, 2010
Investment Income: | ||||
Dividends (net of foreign withholding tax of $172) | $ | 734,589 | ||
Interest | 341 | |||
Total investment income | 734,930 | |||
Expenses: | ||||
Management fees | 297,673 | |||
Transfer agent/maintenance fees | 198,581 | |||
Administration fees | 37,857 | |||
Custodian fees | 2,164 | |||
Directors’ fees | 4,946 | |||
Professional fees | 5,622 | |||
Reports to shareholders | 2,412 | |||
Registration fees | 34,636 | |||
Other | 2,801 | |||
12b-1 distribution fees - A-Class | 75,860 | |||
12b-1 distribution fees - B-Class | 58,853 | |||
12b-1 distribution fees - C-Class | 34,604 | |||
Total expenses | 756,009 | |||
Reimbursement of expenses | (150,104 | ) | ||
Net expenses | 605,905 | |||
Net investment income | 129,025 | |||
Net Realized and Unrealized Gain (Loss): | ||||
Net realized gain (loss) on: | ||||
Investments | 4,700,281 | |||
Net realized gain | 4,700,281 | |||
Net change in unrealized appreciation | ||||
(depreciation) on: | ||||
Investments | (1,175,337 | ) | ||
Net change in unrealized appreciation (depreciation) | (1,175,337 | ) | ||
Net realized and unrealized gain | 3,524,944 | |||
Net increase in net assets resulting from operations | $ | 3,653,969 | ||
74 | | | THE RYDEX | SGI EQUITY FUNDS ANNUAL REPORT | The accompanying notes are an integral part of the financial statements. |
STATEMENTS OF CHANGES IN NET ASSETS | Rydex|SGI Equity Fund Large Cap Concentrated Growth Fund |
Year Ended | Year Ended | |||||||
September 30, | September 30, | |||||||
2010 | 2009 | |||||||
Increase (Decrease) In Net Assets From Operations: | ||||||||
Net investment income (loss) | $ | 129,025 | $ | (44,288 | ) | |||
Net realized gain (loss) on investments | 4,700,281 | (9,322,393 | ) | |||||
Net change in unrealized appreciation (depreciation) on investments | (1,175,337 | ) | 9,260,235 | |||||
Net increase (decrease) in net assets resulting from operations | 3,653,969 | (106,446 | ) | |||||
Capital share transactions: | ||||||||
Proceeds from sale of shares | ||||||||
A-Class | 12,118,241 | 8,421,946 | ||||||
B-Class | 1,138,329 | 2,137,575 | ||||||
C-Class | 253,325 | 463,278 | ||||||
Cost of shares redeemed A-Class | (8,293,084 | ) | (10,110,314 | ) | ||||
B-Class | (2,811,232 | ) | (3,656,353 | ) | ||||
C-Class | (1,022,294 | ) | (1,859,843 | ) | ||||
Net increase (decrease) from capital share transactions | 1,383,285 | (4,603,711 | ) | |||||
Net increase (decrease) in net assets | 5,037,254 | (4,710,157 | ) | |||||
Net assets: | ||||||||
Beginning of year | 31,907,429 | 36,617,586 | ||||||
End of year | $ | 36,944,683 | $ | 31,907,429 | ||||
Undistributed net investment income at end of year | $ | 129,025 | $ | — | ||||
Capital share activity: | ||||||||
Shares sold | ||||||||
A-Class | 1,699,951 | 1,538,705 | ||||||
B-Class | 170,222 | 427,040 | ||||||
C-Class | 37,449 | 88,295 | ||||||
Shares redeemed | ||||||||
A-Class | (1,120,658 | ) | (1,744,788 | ) | ||||
B-Class | (409,958 | ) | (683,944 | ) | ||||
C-Class | (149,671 | ) | (361,341 | ) | ||||
Total capital share activity | 227,335 | (736,033 | ) | |||||
The accompanying notes are an integral part of the financial statements. | THE RYDEX | SGI EQUITY FUNDS ANNUAL REPORT | | | 75 |
FINANCIAL HIGHLIGHTS | Rydex|SGI Equity Fund Large Cap Concentrated Growth Fund |
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.
Year Ended | Year Ended | Year Ended | Year Ended | Year Ended | ||||||||||||||||
September 30, | September 30, | September 30, | September 30, | September 30, | ||||||||||||||||
A-Class | 2010 | 2009 | 2008 | 2007 | 2006 | a | ||||||||||||||
Per Share Data | ||||||||||||||||||||
Net asset value, beginning of period | $6.95 | $6.91 | $10.66 | $ 9.86 | $9.36 | |||||||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||
Net investment income (loss)b | 0.04 | 0.01 | (0.02 | ) | (0.01 | ) | (0.06 | ) | ||||||||||||
Net gain (loss) on investments (realized and unrealized) | 0.64 | 0.03 | (2.87 | ) | 0.81 | 0.56 | ||||||||||||||
Total from investment operations | 0.68 | 0.04 | (2.89 | ) | 0.80 | 0.50 | ||||||||||||||
Less distributions from: | ||||||||||||||||||||
Net realized gains | — | — | (0.86 | ) | — | — | ||||||||||||||
Total distributions | — | — | (0.86 | ) | — | — | ||||||||||||||
Net asset value, end of period | $7.63 | $6.95 | $ 6.91 | $10.66 | $9.86 | |||||||||||||||
Total Returnc | 9.78% | 0.58% | (28.85% | ) | 8.11% | 5.34% | ||||||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||
Net assets, end of period (in thousands) | $29,059 | $22,425 | $23,723 | $30,375 | $30,078 | |||||||||||||||
Ratios to average net assets: | ||||||||||||||||||||
Net investment income (loss) | 0.52% | 0.09% | (0.20% | ) | (0.10% | ) | (0.68% | ) | ||||||||||||
Total expensesd | 1.73% | 2.04% | 1.72% | 1.57% | 1.76% | |||||||||||||||
Net expensese | 1.35% | 1.35% | 1.35% | 1.40% | 1.76% | |||||||||||||||
Portfolio turnover rate | 190% | 134% | 198% | f | 21% | 39% |
Year Ended | Year Ended | Year Ended | Year Ended | Year Ended | ||||||||||||||||
September 30, | September 30, | September 30, | September 30, | September 30, | ||||||||||||||||
B-Class | 2010 | 2009 | 2008 | 2007 | 2006 | a | ||||||||||||||
Per Share Data | ||||||||||||||||||||
Net asset value, beginning of period | $6.39 | $6.40 | $10.01 | $9.33 | $8.92 | |||||||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||
Net investment lossb | (0.02 | ) | (0.03 | ) | (0.08 | ) | (0.09 | ) | (0.13 | ) | ||||||||||
Net gain (loss) on investments (realized and unrealized) | 0.59 | 0.02 | (2.67 | ) | 0.77 | 0.54 | ||||||||||||||
Total from investment operations | 0.57 | (0.01 | ) | (2.75 | ) | 0.68 | 0.41 | |||||||||||||
Less distributions from: | ||||||||||||||||||||
Net realized gains | — | — | (0.86 | ) | — | — | ||||||||||||||
Total distributions | — | — | (0.86 | ) | — | — | ||||||||||||||
Net asset value, end of period | $6.96 | $6.39 | $6.40 | $10.01 | $9.33 | |||||||||||||||
Total Returnc | 8.92% | (0.16% | ) | (29.36% | ) | 7.29% | 4.60% | |||||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||
Net assets, end of period (in thousands) | $4,590 | $5,740 | $7,394 | $10,868 | $16,073 | |||||||||||||||
Ratios to average net assets: | ||||||||||||||||||||
Net investment loss | (0.31% | ) | (0.66% | ) | (0.95% | ) | (0.88% | ) | (1.46% | ) | ||||||||||
Total expensesd | 2.48% | 2.79% | 2.47% | 2.32% | 2.53% | |||||||||||||||
Net expensese | 2.10% | 2.10% | 2.10% | 2.15% | 2.53% | |||||||||||||||
Portfolio turnover rate | 190% | 134% | 198% | f | 21% | 39% |
76 | | | THE RYDEX | SGI EQUITY FUNDS ANNUAL REPORT | The accompanying notes are an integral part of the financial statements. |
FINANCIAL HIGHLIGHTS (concluded) | Rydex|SGI Equity Fund Large Cap Concentrated Growth Fund |
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.
Year Ended | Year Ended | Year Ended | Year Ended | Year Ended | ||||||||||||||||
September 30, | September 30, | September 30, | September 30, | September 30, | ||||||||||||||||
C-Class | 2010 | 2009 | 2008 | 2007 | 2006 | a | ||||||||||||||
Per Share Data | ||||||||||||||||||||
Net asset value, beginning of period | $6.41 | $6.42 | $10.04 | $ 9.36 | $8.94 | |||||||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||
Net investment lossb | (0.02 | ) | (0.03 | ) | (0.08 | ) | (0.08 | ) | (0.13 | ) | ||||||||||
Net gain (loss) on investments (realized and unrealized) | 0.60 | 0.02 | (2.68 | ) | 0.76 | 0.55 | ||||||||||||||
Total from investment operations | 0.58 | (0.01 | ) | (2.76 | ) | 0.68 | 0.42 | |||||||||||||
Less distributions from: | ||||||||||||||||||||
Net realized gains | — | — | (0.86 | ) | — | — | ||||||||||||||
Total distributions | — | — | (0.86 | ) | — | — | ||||||||||||||
Net asset value, end of period | $6.99 | $6.41 | $6.42 | $10.04 | $9.36 | |||||||||||||||
Total Returnc | 9.05% | (0.16% | ) | (29.37% | ) | 7.26% | 4.70% | |||||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||
Net assets, end of period (in thousands) | $3,296 | $3,742 | $5,501 | $11,245 | $12,777 | |||||||||||||||
Ratios to average net assets: | ||||||||||||||||||||
Net investment loss | (0.27% | ) | (0.66% | ) | (0.92% | ) | (0.86% | ) | (1.44% | ) | ||||||||||
Total expensesd | 2.48% | 2.78% | 2.46% | 2.32% | 2.52% | |||||||||||||||
Net expensese | 2.10% | 2.10% | 2.10% | 2.15% | 2.52% | |||||||||||||||
Portfolio turnover rate | 190% | 134% | 198% | f | 21% | 39% |
a | The financial highlights for the Large Cap Concentrated Growth Fund exclude the historical financial highlights of the Enhanced Index Fund, A-Class, B-Class, and C-Class shares, the Large Cap Growth Fund, A-Class, B-Class, and C-Class shares and the Social Awareness Fund, A-Class, B-Class, and C-Class shares. A total of $29,412,366 was excluded from purchases in the portfolio turnover calculation. This was the cost of the securities Large Cap Concentrated Growth Fund received as a result of the merger. The assets of the Enhanced Index, Large Cap Growth and Social Awareness Funds were acquired by the Large Cap Concentrated Growth Fund on June 16, 2006. |
b | Net investment income (loss) was computed using average shares outstanding throughout the period. |
c | Total return information does not reflect deduction of any sales charges imposed at the time of purchase for A-Class shares or upon redemption for B-Class and C-Class shares. |
d | Total expense information reflects expense ratios absent expense reductions by the Investment Manager, as applicable. |
e | Net expense information reflects the expense ratios after voluntary expense waivers and reimbursements and before custodian earnings credits, as applicable. |
f | Significant variation in the portfolio turnover rate is due to the Investment Manager’s appointment of new portfolio managers for the Fund. |
The accompanying notes are an integral part of the financial statements. | THE RYDEX | SGI EQUITY FUNDS ANNUAL REPORT | | | 77 |
MANAGER’S COMMENTARY
September 30, 2010
To Our Shareholders:
For the fiscal year ended September 30, 2010, the Rydex|SGI Equity Fund–Small Cap Growth Fund returned 16.00%1, outperforming the Fund’s benchmark Russell 2000® Growth Index’s return of 14.79% and its peer group median of 13.89%.
The Fund uses a combination of a qualitative macroeconomic approach in reviewing growth trends that is based upon several fixed-income factors, such as bond spreads and interest rates, along with a quantitative fundamental bottom-up approach in selecting growth stocks. The manager chooses securities that it believes are attractively valued with the greatest potential for long-term growth of capital.
The manager identifies the securities of companies that are in the early to middle stages of growth and are valued at a reasonable price. Equity securities considered to have appreciation potential may include securities of smaller and less mature companies, which have unique proprietary products or profitable market niches and the potential to grow very rapidly. The Fund typically sells a stock if its growth prospects diminish, or if better opportunities become available.
Health Care, Industrials, and Consumer Discretionary Top Performers
Superior stock selection drove positive performance for the Fund during the fiscal year. Holdings in the Health Care sector outperformed the Index 17.6% to 5.2%, by 25.6% to 13.3% in the Industrials sector, and 28.5% to 19.4% in the Consumer Discretionary sector.
Three of the best performers in the Health Care sector were non-Index picks. Perrigo Co., a 1.8% weight, soared 89.9% while Endo Pharmaceuticals Holdings Inc. and Hill-Rom Holdings Inc. were up 46.9% and 12.7%, respectively.
The same was true in the Industrials sector, as eight holdings consisting of 10.6% of total portfolio assets were all non-Index securities. Bucyrus
Advised by:
![(SECURITY GLOBAL INVESTORS LOGO)](https://capedge.com/proxy/N-CSR/0000950123-10-111594/g06945g0694504.gif)
International Inc., a 1.4% weight, climbed 95.1%, while BE Aerospace Inc., a 1.6% weight, gained 50.5%.
In the Consumer Discretionary sector, the Fund benefited from holdings in lululemon athletica inc., a maker of yoga apparel, which gained 96.6%, IMAX Corp. which was up 67.4%, Life Time Fitness Inc. and Panera Bread Co. (Cl A) which increased 40.7% and 33.5%, respectively.
Financials and Information Technology Disappoint
Poor stock selection in the Health Care sector hurt the Fund in the Financials and Information Technology sectors during the period.
Overall, holdings in the Financials sector dropped 10.1% compared to a 4.2% gain for the Index. The largest detractors were Knight Capital Group Inc. (Cl A) and Stifel Financial Corp., which were down 34.8% and 15.7%, respectively.
Several holdings in the Information Technology sector were a drag on performance. ON Semiconductor Corp. was down 18.9%, Tessera Technologies Inc. lost 27.3%, and FormFactor Inc. was off 25.8%.
Market Outlook
Our bottom-up approach looks at market uncertainty in the context of the potential long-term impact on individual companies. Our focus is on identifying companies with the ability to be substantially better over the next three to five years or have the potential to maintain their return on capital at current levels in a difficult economic environment. During these uncertain times and volatile market conditions, we are confident in our ability to find these companies by consistently applying our disciplined process to individual stock evaluations.
We believe that it is more important that ever that we maintain discipline in our investment approach based on our core philosophy and rigorous
78 | | | THE RYDEX | SGI EQUITY FUNDS ANNUAL REPORT |
MANAGER’S COMMENTARY (concluded)
fundamental process to identify the securities that can provide the best long-term performance for shareholders.
On behalf of Security Global Investors, I would like to thank you for trusting your investments with us.
Sincerely,
Joseph O’Connor, Portfolio Manager
1 | Performance figures are based on A-Class shares and do not reflect deduction of the sales charges or taxes that a shareholder would pay on distributions or redemptions of shares. |
Performance displayed represents past performance which is no guarantee of future results. Of course, Fund performance is subject to daily market volatility and may be better or worse since the end of the last quarter. For up-to-date Fund performance, call us at 800.820.0888 or visit www.rydex-sgi.com. | |
Russell 2000® Growth Index – measures the performance of the small-cap growth segment of the U.S. equity universe. It includes those Russell 2000 companies with higher price-to-book ratios and higher forecasted growth values. | |
Rydex|SGI Funds are distributed by Rydex Distributors, LLC (RDL). Security Global InvestorsSM is the investment advisory arm of Security Benefit Corporation (Security Benefit). Security Global Investors consists of Security Global Investors, LLC, Security Investors, LLC and Rydex Investments. Rydex Investments is the primary business name for Rydex Advisors, LLC and Rydex Advisors II, LLC. Security Global Investors and RDL are affiliates and are subsidiaries of Security Benefit, which is wholly owned by Guggenheim SBC Holdings, LLC, a special purpose entity managed by Guggenheim Partners, LLC, a diversified financial services firm with more than $100 billion in assets under supervision. | |
Read each Fund’s prospectus and summary prospectus (if available) carefully before investing. It contains the Fund’s investment objectives, risks, charges, expenses and other information, which should be considered carefully before investing. Obtain a prospectus and summary prospectus (if available) at www.rydex-sgi.com or call 800.820.0888. |
THE RYDEX | SGI EQUITY FUNDS ANNUAL REPORT | | | 79 |
PERFORMANCE SUMMARY September 30, 2010 | Rydex|SGI Equity Fund Small Cap Growth Fund (Unaudited) |
PERFORMANCE
![(PERFORMANCE GRAPH)](https://capedge.com/proxy/N-CSR/0000950123-10-111594/g06945g0694514.gif)
$10,000 Over Ten Years
This chart assumes a $10,000 investment in A-Class shares of Small Cap Growth Fund on September 30, 2000, reflects deduction of the maximum front-end sales charge of 5.75% and assumes all dividends are reinvested. The chart does not reflect the deduction of taxes that a shareholder would pay on distributions or the redemption of fund shares. The Russell 2000® Growth Index measures the performance of those Russell 2000® companies with higher price-to-book ratios and higher forecasted growth values.
AVERAGE ANNUAL RETURNS | ||||||||||||
PERIODS ENDED 9/30/10 | ||||||||||||
(Inception 10/15/1997) | ||||||||||||
1 YEAR | 5 YEAR | 10 YEAR | ||||||||||
A-Class Shares | 16.00 | % | -3.25 | % | -4.13 | % | ||||||
A-Class Shares with sales charge | 9.37 | % | -4.39 | % | -4.70 | % | ||||||
B-Class Shares | 15.06 | % | -3.94 | % | -4.72 | % | ||||||
B-Class Shares with CDSC | 10.06 | % | -4.30 | % | -4.72 | % | ||||||
C-Class Shares | 15.09 | % | -3.98 | % | -4.88 | % | ||||||
C-Class Shares with CDSC | 14.09 | % | -3.98 | % | -4.88 | % | ||||||
The performance data above represents past performance that is not predictive of future results. The investment return and principal value of an investment in the Fund will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. The figures above do not reflect deduction of the maximum front-end sales charge of 5.75% for A-Class shares or the CDSC of up to 5% for B-Class shares and 1% for C-Class shares, as applicable, except where noted. The figures do not reflect the deduction of taxes that a shareholder would pay on distributions or redemption of shares. Such figures would be lower if the maximum sales charge and any applicable taxes were deducted.
Portfolio Composition by Sector | ||||
Common Stocks | ||||
Consumer Discretionary | 18.3 | % | ||
Consumer Staples | 3.1 | % | ||
Energy | 4.9 | % | ||
Financials | 5.8 | % | ||
Health Care | 17.4 | % | ||
Industrials | 16.8 | % | ||
Information Technology | 24.0 | % | ||
Materials | 4.0 | % | ||
Telecommunication Services | 1.4 | % | ||
Utilities | 2.2 | % | ||
Cash & Other Assets, | ||||
Less Liabilities | 2.1 | % | ||
Total Net Assets | 100.0 | % | ||
80 | | | THE RYDEX | SGI EQUITY FUNDS ANNUAL REPORT | The accompanying notes are an integral part of the financial statements. |
SCHEDULE OF INVESTMENTS September 30, 2010 | Rydex|SGI Equity Fund Small Cap Growth Fund |
Shares | Value | |||||||
COMMON STOCKS† - 97.9% | ||||||||
Information Technology - 24.0% | ||||||||
Solera Holdings, Inc. | 7,150 | $ | 315,743 | |||||
Alliance Data Systems Corp.* | 4,675 | 305,091 | ||||||
Informatica Corp.* | 7,440 | 285,770 | ||||||
Cadence Design Systems, Inc.* | 36,900 | 281,547 | ||||||
Equinix, Inc.* | 2,350 | 240,523 | ||||||
InterDigital, Inc.* | 7,540 | 223,258 | ||||||
GSI Commerce, Inc.* | 8,950 | 221,065 | ||||||
SYNNEX Corp.* | 7,130 | 200,638 | ||||||
Nanometrics, Inc.* | 12,860 | 193,543 | ||||||
Nuance Communications, Inc.* | 11,745 | 183,692 | ||||||
Smith Micro Software, Inc.* | 18,260 | 181,504 | ||||||
Veeco Instruments, Inc.* | 4,850 | 169,120 | ||||||
Riverbed Technology, Inc.* | 3,250 | 148,135 | ||||||
Acme Packet, Inc.* | 3,800 | 144,172 | ||||||
FLIR Systems, Inc.* | 5,250 | 134,925 | ||||||
Rofin-Sinar Technologies, Inc.* | 4,710 | 119,540 | ||||||
SolarWinds, Inc.* | 5,960 | 102,870 | ||||||
VanceInfo Technologies, Inc. ADR* | 2,900 | 93,786 | ||||||
Total Information Technology | 3,544,922 | |||||||
Consumer Discretionary - 18.3% | ||||||||
Jarden Corp. | 10,315 | 321,106 | ||||||
Gaylord Entertainment Co.* | 7,090 | 216,245 | ||||||
Lamar Advertising Co. — Class A* | 6,640 | 211,285 | ||||||
Penn National Gaming, Inc.* | 6,985 | 206,826 | ||||||
Harman International Industries, Inc.* | 5,670 | 189,435 | ||||||
WMS Industries, Inc.* | 4,875 | 185,591 | ||||||
Tempur-Pedic International, Inc.* | 5,250 | 162,750 | ||||||
Gentex Corp. | 7,760 | 151,398 | ||||||
Life Time Fitness, Inc.* | 3,750 | 148,012 | ||||||
Hanesbrands, Inc.* | 5,490 | 141,971 | ||||||
Lennar Corp. — Class A | 8,700 | 133,806 | ||||||
Vail Resorts, Inc.* | 3,415 | 128,131 | ||||||
Monro Muffler Brake, Inc. | 2,490 | 114,814 | ||||||
Lululemon Athletica, Inc.* | 2,560 | 114,483 | ||||||
Oxford Industries, Inc. | 4,620 | 109,864 | ||||||
Select Comfort Corp.* | 12,900 | 87,462 | ||||||
McCormick & Schmick’s Seafood Restaurants, Inc.* | 10,090 | 78,500 | ||||||
Total Consumer Discretionary | 2,701,679 | |||||||
Health Care - 17.4% | ||||||||
Martek Biosciences Corp.* | 10,420 | 235,804 | ||||||
Endo Pharmaceuticals Holdings, Inc.* | 6,690 | 222,375 | ||||||
Hill-Rom Holdings, Inc. | 6,180 | 221,799 | ||||||
Haemonetics Corp.* | 3,605 | 211,001 | ||||||
Perrigo Co. | 3,180 | 204,220 | ||||||
Parexel International Corp.* | 7,500 | 173,475 | ||||||
Integra LifeSciences Holdings Corp.* | 4,230 | 166,916 | ||||||
Natus Medical, Inc.* | 10,950 | 159,542 | ||||||
Mednax, Inc.* | 2,970 | 158,301 | ||||||
Wright Medical Group, Inc.* | 8,050 | 116,001 |
Shares | Value | |||||||
Health Management Associates, | ||||||||
Inc. — Class A* | 14,820 | $ | 113,521 | |||||
BioMarin Pharmaceutical, Inc.* | 5,000 | 111,750 | ||||||
Halozyme Therapeutics, Inc.* | 11,660 | 89,899 | ||||||
Clarient, Inc.* | 24,150 | 81,627 | ||||||
Human Genome Sciences, Inc.* | 2,630 | 78,348 | ||||||
Obagi Medical Products, Inc.* | 6,420 | 67,410 | ||||||
CardioNet, Inc.* | 12,550 | 56,601 | ||||||
Angiodynamics, Inc.* | 3,660 | 55,778 | ||||||
Momenta Pharmaceuticals, Inc.* | 3,300 | 49,665 | ||||||
Total Health Care | 2,574,033 | |||||||
Industrials - 16.8% | ||||||||
Bucyrus International, Inc. — Class A | 4,410 | 305,834 | ||||||
BE Aerospace, Inc.* | 8,740 | 264,909 | ||||||
IDEX Corp. | 7,160 | 254,251 | ||||||
Regal-Beloit Corp. | 4,040 | 237,108 | ||||||
Roper Industries, Inc. | 3,540 | 230,737 | ||||||
Pentair, Inc. | 6,520 | 219,267 | ||||||
Wabtec Corp. | 3,460 | 165,353 | ||||||
Kansas City Southern* | 4,015 | 150,201 | ||||||
Pall Corp. | 3,240 | 134,914 | ||||||
Aecom Technology Corp.* | 5,560 | 134,886 | ||||||
Towers Watson & Co. — Class A | 2,620 | 128,852 | ||||||
Interface, Inc. — Class A | 8,620 | 122,663 | ||||||
DigitalGlobe, Inc.* | 2,730 | 82,992 | ||||||
ICF International, Inc.* | 1,790 | 44,875 | ||||||
Total Industrials | 2,476,842 | |||||||
Financials - 5.8% | ||||||||
HCC Insurance Holdings, Inc. | 9,390 | 244,985 | ||||||
Commerce Bancshares, Inc. | 4,820 | 181,184 | ||||||
Stifel Financial Corp.* | 3,670 | 169,884 | ||||||
TCF Financial Corp. | 8,540 | 138,263 | ||||||
Cardtronics, Inc.* | 8,300 | 128,069 | ||||||
Total Financials | 862,385 | |||||||
Energy - 4.9% | ||||||||
Alpha Natural Resources, Inc.* | 5,290 | 217,684 | ||||||
Oil States International, Inc.* | 4,630 | 215,526 | ||||||
Superior Energy Services, Inc.* | 6,190 | 165,211 | ||||||
Bill Barrett Corp.* | 3,370 | 121,320 | ||||||
Total Energy | 719,741 | |||||||
Materials - 4.0% | ||||||||
Solutia, Inc.* | 12,000 | 192,240 | ||||||
Kaiser Aluminum Corp. | 3,590 | 153,616 | ||||||
Silgan Holdings, Inc. | 4,490 | 142,333 | ||||||
Cliffs Natural Resources, Inc. | 1,600 | 102,272 | ||||||
Total Materials | 590,461 | |||||||
Consumer Staples - 3.1% | ||||||||
Diamond Foods, Inc. | 5,050 | 207,000 | ||||||
TreeHouse Foods, Inc.* | 3,440 | 158,584 | ||||||
J&J Snack Foods Corp. | 2,040 | 85,537 | ||||||
Total Consumer Staples | 451,121 | |||||||
The accompanying notes are an integral part of the financial statements. | THE RYDEX | SGI EQUITY FUNDS ANNUAL REPORT | | | 81 |
SCHEDULE OF INVESTMENTS (concluded) September 30, 2010 | Rydex|SGI Equity Fund Small Cap Growth Fund |
Shares | Value | |||||||
Utilities - 2.2% | ||||||||
ITC Holdings Corp. | 2,770 | $ | 172,433 | |||||
NorthWestern Corp. | 5,550 | 158,175 | ||||||
Total Utilities | 330,608 | |||||||
Telecommunication Services - 1.4% | ||||||||
SBA Communications Corp. — | ||||||||
Class A* | 5,000 | 201,500 | ||||||
Total Common Stocks | ||||||||
(Cost $11,557,346) | 14,453,292 | |||||||
Total Investments - 97.9% | ||||||||
(Cost $11,557,346) | $ | 14,453,292 | ||||||
Cash & Other Assets, | ||||||||
Less Liabilities - 2.1% | 311,711 | |||||||
Total Net Assets - 100.0% | $ | 14,765,003 | ||||||
| |
* | Non-income producing security. |
† | Value determined based on Level 1 inputs — See Note 9. |
ADR — American Depositary Receipt. |
82 | | | THE RYDEX | SGI EQUITY FUNDS ANNUAL REPORT | The accompanying notes are an integral part of the financial statements. |
Rydex|SGI Equity Fund Small Cap Growth Fund |
STATEMENT OF ASSETS
AND LIABILITIES
AND LIABILITIES
September 30, 2010
Assets: | ||||
Investments, at value* | $ | 14,453,292 | ||
Cash | 318,393 | |||
Receivables: | ||||
Fund shares sold | 801 | |||
Securities sold | 161,202 | |||
Dividends | 3,315 | |||
Prepaid expenses | 20,974 | |||
Total assets | 14,957,977 | |||
Liabilities: | ||||
Payable for: | ||||
Securities purchased | 92,798 | |||
Fund shares redeemed | 67,895 | |||
Management fees | 10,016 | |||
Custodian fees | 1,887 | |||
Transfer agent/maintenance fees | 2,064 | |||
Administration fees | 1,119 | |||
Professional fees | 9,030 | |||
12b-1 distribution plan fees | 4,698 | |||
Directors’ fees | 535 | |||
Other | 2,932 | |||
Total liabilities | 192,974 | |||
Net assets | $ | 14,765,003 | ||
Net assets consist of: | ||||
Paid in capital | $ | 18,600,445 | ||
Accumulated net realized loss on investments | (6,731,388 | ) | ||
Net unrealized appreciation on investments | 2,895,946 | |||
Net assets | $ | 14,765,003 | ||
A-Class: | ||||
Capital shares outstanding | ||||
(unlimited number of shares authorized) | 967,214 | |||
Net assets | $ | 11,847,441 | ||
Net asset value and redemption price per share | $12.25 | |||
Maximum offering price per share (net asset value divided by 94.25%) | $13.00 | |||
B-Class: | ||||
Capital shares outstanding | ||||
(unlimited number of shares authorized) | 130,725 | |||
Net assets | $ | 1,418,823 | ||
Net asset value, offering and redemption price per share (excluding any applicable contingent deferred sales charge) | $10.85 | |||
C-Class: | ||||
Capital shares outstanding | ||||
(unlimited number of shares authorized) | 135,488 | |||
Net assets | $ | 1,498,739 | ||
Net asset value, offering and redemption price per share (excluding any applicable contingent deferred sales charge) | $11.06 | |||
*Investments, at cost | $ | 11,557,346 |
STATEMENT OF
OPERATIONS
OPERATIONS
For the Year Ended September 30, 2010
Investment Income: | ||||
Dividends | $ | 101,598 | ||
Interest | 140 | |||
Total investment income | 101,738 | |||
Expenses: | ||||
Management fees | 122,319 | |||
Transfer agent/maintenance fees | 87,581 | |||
Administration fees | 25,866 | |||
Custodian fees | 3,551 | |||
Directors’ fees | 1,355 | |||
Professional fees | 9,410 | |||
Reports to shareholders | 2,277 | |||
Registration fees | 33,830 | |||
Other | 3,267 | |||
12b-1 distribution fees - A-Class | 28,244 | |||
12b-1 distribution fees - B-Class | 15,943 | |||
12b-1 distribution fees - C-Class | 14,986 | |||
Total expenses | 348,629 | |||
Net investment loss | (246,891 | ) | ||
Net Realized and Unrealized Gain (Loss): | ||||
Net realized gain (loss) on: | ||||
Investments | 2,427,963 | |||
Net realized gain | 2,427,963 | |||
Net change in unrealized appreciation | ||||
(depreciation) on: | ||||
Investments | (19,339 | ) | ||
Net change in unrealized appreciation | ||||
(depreciation) | (19,339 | ) | ||
Net realized and unrealized gain | 2,408,624 | |||
Net increase in net assets resulting from operations | $ | 2,161,733 | ||
The accompanying notes are an integral part of the financial statements. | THE RYDEX | SGI EQUITY FUNDS ANNUAL REPORT | | | 83 |
STATEMENTS OF CHANGES IN NET ASSETS | Rydex|SGI Equity Fund Small Cap Growth Fund |
Year Ended | Year Ended | |||||||
September 30, | September 30, | |||||||
2010 | 2009 | |||||||
Increase (Decrease) In Net Assets From Operations: | ||||||||
Net investment loss | $ | (246,891 | ) | $ | (267,291 | ) | ||
Net realized gain (loss) on investments | 2,427,963 | (5,298,229 | ) | |||||
Net change in unrealized appreciation (depreciation) on investments | (19,339 | ) | 3,555,194 | |||||
Net increase (decrease) in net assets resulting from operations | 2,161,733 | (2,010,326 | ) | |||||
Distributions to shareholders from: | ||||||||
Net realized gains | ||||||||
A-Class | — | (68,412 | ) | |||||
B-Class | — | (15,241 | ) | |||||
C-Class | — | (14,153 | ) | |||||
Total distributions to shareholders | — | (97,806 | ) | |||||
Capital share transactions: | ||||||||
Proceeds from sale of shares | ||||||||
A-Class | 7,166,260 | 2,029,895 | ||||||
B-Class | 126,073 | 248,049 | ||||||
C-Class | 164,394 | 317,482 | ||||||
Distributions reinvested | ||||||||
A-Class | — | 67,918 | ||||||
B-Class | — | 15,032 | ||||||
C-Class | — | 14,129 | ||||||
Cost of shares redeemed | ||||||||
A-Class | (7,013,788 | ) | (3,116,009 | ) | ||||
B-Class | (691,365 | ) | (805,709 | ) | ||||
C-Class | (397,619 | ) | (820,807 | ) | ||||
Net decrease from capital share transactions | (646,045 | ) | (2,050,020 | ) | ||||
Net increase (decrease) in net assets | 1,515,688 | (4,158,152 | ) | |||||
Net assets: | ||||||||
Beginning of year | 13,249,315 | 17,407,467 | ||||||
End of year | $ | 14,765,003 | $ | 13,249,315 | ||||
Accumulated net investment loss at end of year | $ | — | $ | — | ||||
Capital share activity: | ||||||||
Shares sold | ||||||||
A-Class | 641,027 | 233,845 | ||||||
B-Class | 12,444 | 32,329 | ||||||
C-Class | 16,059 | 41,277 | ||||||
Shares issued from reinvestment of distributions | ||||||||
A-Class | — | 8,334 | ||||||
B-Class | — | 2,056 | ||||||
C-Class | — | 1,894 | ||||||
Shares redeemed | ||||||||
A-Class | (617,198 | ) | (384,736 | ) | ||||
B-Class | (69,069 | ) | (107,295 | ) | ||||
C-Class | (38,473 | ) | (106,372 | ) | ||||
Total capital share activity | (55,210 | ) | (278,668 | ) | ||||
84 | | | THE RYDEX | SGI EQUITY FUNDS ANNUAL REPORT | The accompanying notes are an integral part of the financial statements. |
FINANCIAL HIGHLIGHTS | Rydex|SGI Equity Fund Small Cap Growth Fund |
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.
Year Ended | Year Ended | Year Ended | Year Ended | Year Ended | ||||||||||||||||
September 30, | September 30, | September 30, | September 30, | September 30, | ||||||||||||||||
A-Class | 2010 | 2009 | 2008 | 2007 | 2006 | |||||||||||||||
Per Share Data | ||||||||||||||||||||
Net asset value, beginning of period | $10.56 | $11.43 | $18.53 | $15.63 | $15.76 | |||||||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||
Net investment lossa | (0.18 | ) | (0.18 | ) | (0.24 | ) | (0.23 | ) | (0.23 | ) | ||||||||||
Net gain (loss) on investments (realized and unrealized) | 1.87 | (0.63 | ) | (5.55 | ) | 3.13 | 0.10 | |||||||||||||
Total from investment operations | 1.69 | (0.81 | ) | (5.79 | ) | 2.90 | (0.13 | ) | ||||||||||||
Less distributions from: | ||||||||||||||||||||
Net realized gains | — | (0.06 | ) | (1.31 | ) | — | — | |||||||||||||
Total distributions | — | (0.06 | ) | (1.31 | ) | — | — | |||||||||||||
Net asset value, end of period | $12.25 | $10.56 | $11.43 | $18.53 | $15.63 | |||||||||||||||
Total Returnb | 16.00% | (6.89% | ) | (33.25% | ) | 18.55% | (0.82% | ) | ||||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||
Net assets, end of period (in thousands) | $11,847 | $9,966 | $12,414 | $45,430 | $45,451 | |||||||||||||||
Ratios to average net assets: | ||||||||||||||||||||
Net investment loss | (1.55% | ) | (2.04% | ) | (1.59% | ) | (1.32% | ) | (1.46% | ) | ||||||||||
Total expensesc | 2.26% | 2.67% | 1.98% | 1.80% | 2.01% | |||||||||||||||
Net expensesd | 2.26% | 2.60% | 1.98% | 1.80% | 2.01% | |||||||||||||||
Portfolio turnover rate | 112% | 200% | 169% | 145% | 136% |
Year Ended | Year Ended | Year Ended | Year Ended | Year Ended | ||||||||||||||||
September 30, | September 30, | September 30, | September 30, | September 30, | ||||||||||||||||
B-Class | 2010 | 2009 | 2008 | 2007 | 2006 | |||||||||||||||
Per Share Data | ||||||||||||||||||||
Net asset value, beginning of period | $9.43 | $10.28 | $16.92 | $14.38 | $14.60 | |||||||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||
Net investment lossa | (0.23 | ) | (0.21 | ) | (0.32 | ) | (0.33 | ) | (0.36 | ) | ||||||||||
Net gain (loss) on investments (realized and unrealized) | 1.65 | (0.58 | ) | (5.01 | ) | 2.87 | 0.14 | |||||||||||||
Total from investment operations | 1.42 | (0.79 | ) | (5.33 | ) | 2.54 | (0.22 | ) | ||||||||||||
Less distributions from: | ||||||||||||||||||||
Net realized gains | — | (0.06 | ) | (1.31 | ) | — | — | |||||||||||||
Total distributions | — | (0.06 | ) | (1.31 | ) | — | — | |||||||||||||
Net asset value, end of period | $10.85 | $9.43 | $10.28 | $16.92 | $14.38 | |||||||||||||||
Total Returnb | 15.06% | (7.47% | ) | (33.72% | ) | 17.66% | (1.51% | ) | ||||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||
Net assets, end of period (in thousands) | $1,419 | $1,766 | $2,675 | $5,792 | $5,919 | |||||||||||||||
Ratios to average net assets: | ||||||||||||||||||||
Net investment loss | (2.30% | ) | (2.77% | ) | (2.42% | ) | (2.07% | ) | (2.31% | ) | ||||||||||
Total expensesc | 3.02% | 3.41% | 2.82% | 2.56% | 2.79% | |||||||||||||||
Net expensesd | 3.02% | 3.33% | 2.82% | 2.56% | 2.79% | |||||||||||||||
Portfolio turnover rate | 112% | 200% | 169% | 145% | 136% |
The accompanying notes are an integral part of the financial statements. | THE RYDEX | SGI EQUITY FUNDS ANNUAL REPORT | | | 85 |
FINANCIAL HIGHLIGHTS (concluded) | Rydex|SGI Equity Fund Small Cap Growth Fund |
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.
Year Ended | Year Ended | Year Ended | Year Ended | Year Ended | ||||||||||||||||
September 30, | September 30, | September 30, | September 30, | September 30, | ||||||||||||||||
C-Class | 2010 | 2009 | 2008 | 2007 | 2006 | |||||||||||||||
Per Share Data | ||||||||||||||||||||
Net asset value, beginning of period | $9.61 | $10.48 | $17.23 | $14.64 | $14.88 | |||||||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||
Net investment lossa | (0.24 | ) | (0.22 | ) | (0.33 | ) | (0.33 | ) | (0.35 | ) | ||||||||||
Net gain (loss) on investments (realized and unrealized) | 1.69 | (0.59 | ) | (5.11 | ) | 2.92 | 0.11 | |||||||||||||
Total from investment operations | 1.45 | (0.81 | ) | (5.44 | ) | 2.59 | (0.24 | ) | ||||||||||||
Less distributions from: | ||||||||||||||||||||
Net realized gains | — | (0.06 | ) | (1.31 | ) | — | — | |||||||||||||
Total distributions | — | (0.06 | ) | (1.31 | ) | — | — | |||||||||||||
Net asset value, end of period | $11.06 | $9.61 | $10.48 | $17.23 | $14.64 | |||||||||||||||
Total Returnb | 15.09% | (7.51% | ) | (33.76% | ) | 17.69% | (1.61% | ) | ||||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||
Net assets, end of period (in thousands) | $1,499 | $1,518 | $2,318 | $3,964 | $4,304 | |||||||||||||||
Ratios to average net assets: | ||||||||||||||||||||
Net investment loss | (2.31% | ) | (2.77% | ) | (2.43% | ) | (2.07% | ) | (2.29% | ) | ||||||||||
Total expensesc | 3.02% | 3.40% | 2.83% | 2.56% | 2.79% | |||||||||||||||
Net expensesd | 3.02% | 3.33% | 2.83% | 2.56% | 2.79% | |||||||||||||||
Portfolio turnover rate | 112% | 200% | 169% | 145% | 136% |
a | Net investment income (loss) was computed using average shares outstanding throughout the period. |
b | Total return information does not reflect deduction of any sales charges imposed at the time of purchase for A-Class shares or upon redemption for B-Class and C-Class shares. |
c | Total expense information reflects expense ratios absent expense reductions by the Investment Manager, as applicable. |
d | Net expense information reflects the expense ratios after voluntary expense waivers and reimbursements and before custodian earnings credits, as applicable. |
86 | | | THE RYDEX | SGI EQUITY FUNDS ANNUAL REPORT | The accompanying notes are an integral part of the financial statements. |
MANAGER’S COMMENTARY September 30, 2010 | |
Advised by:
![(SECURITY GLOBAL INVESTORS LOGO)](https://capedge.com/proxy/N-CSR/0000950123-10-111594/g06945g0694504.gif)
To Our Shareholders:
For the fiscal year ended September 30, 2010, the Rydex|SGI Equity Fund-Small Cap Value Fund gained 11.53%1. The Fund’s benchmark, the Russell 2000® Value Index, was slightly better during the period with an increase of 11.84%.
The development of the Small Cap Value strategy was a natural extension of our long-term success with the Mid Cap Value Fund. The same portfolio manager and research team manage the Fund using the same approach, but focusing on small-capitalization companies. We seek companies that can increase shareholders’ return on capital and then hold them over three to five years to capture long-term improvements in profitability. We focus on investing in companies rather than securities and the size of the holding is reflective of our confidence in the opportunity.
Industrials and Financials Top Performers
The Fund benefited from strong performance in Industrials and Financials. Both sectors performed well due to stock selection while the Financials sector also benefited due to a large underweight position.
Overall, the Industrials sector had a significant overweight position with 25.0% of total portfolio assets compared to a weighting of 16.0% for the Index. Power-One, a 1.8% weight, soared 366.2% during the fiscal year. GeoEye Inc. and Insituform Technologies Inc. (Cl A) were both solid weightings of over 2%, and gained 51.0% and 26.5%, respectively. Other securities that performed well include Quixote Corp. and DynCorp International Inc. (Cl A).
The portfolio’s Financials sector was a large underweight position, 14.2% compared to a 36.1% weight for the Index. As a whole, portfolio holdings in the sector outperformed those in the Index 15.7% to 9.8%. Portfolio leaders were Euronet Worldwide Inc. and Horace Mann Educators Corp.,
with returns of 38.4% and 30.1%, respectively. Other contributors included The Hanover Insurance Group Inc., Investors Real Estate Trust, and First Potomac Realty Trust.
Energy and Information Technology Disappoint
Detractors from performance due to stock selection occurred in the Energy and Information Technology sectors.
The portfolio had a double weight in Energy, 11.6% compared to a 5.4% weight for the Index. In addition, those holdings dropped 10.4% during the period while the sector in the Index gained 3.8%. Global Industries Ltd., a 1.9% position, dropped 42.4% during the period. Goodrich Petroleum Corp. was down 43.6% while GMX Resources Inc. and Vantage Drilling Co. were off 45.2% and 33.3%, respectively.
Holdings in the Information Technology sector lost 2.1% as the Index for the sector was up 9.4%. Maxwell Technologies Inc., a 1.8% weight, lost 20.7% while Satyam Computer Services Ltd. was down 40.9%. Other holdings hurting portfolio performance included ADPT Corp. and IXYS Corp.
Market Outlook
While there are indications that the economy may be stabilizing from a macroeconomic standpoint, the economy and markets remain uncertain with contradictory information. We recognize that these are unprecedented times and therefore intend to remain focused and disciplined.
As with our Large Cap Value Fund and Mid Cap Value Fund, the core investment approach and rigorous bottom-up analysis focusing on return on invested capital will continue to be our focus. We will continue to seek the best companies with solid financial statements that will be able to perform well over the next three to five year market cycle.
THE RYDEX | SGI EQUITY FUNDS ANNUAL REPORT | | | 87 |
MANAGER’S COMMENTARY (concluded)
On behalf of Security Global Investors, I would like to thank you for trusting your investments with us. As always, we continue to do our best to seek the potential available in small capitalization companies.
Sincerely,
James P. Schier, CFA, Portfolio Manager
1 | Performance figures are based on A-Class shares and do not reflect deduction of the sales charges or taxes that a shareholder would pay on distributions or the redemption of shares. Fee waivers and/or reimbursements reduce Fund expenses and in the absence of such waivers, the performance quoted would be reduced. |
Performance displayed represents past performance which is no guarantee of future results. Of course, Fund performance is subject to daily market volatility and may be better or worse since the end of the last quarter. For up-to-date Fund performance, call us at 800.820.0888 or visit www.rydex-sgi.com. | |
Russell 2000® Value Index – measures the performance of small-cap value segment of the U.S. equity universe. It includes those Russell 2000 companies with lower price-to-book ratios and lower forecasted growth values. | |
Rydex|SGI Funds are distributed by Rydex Distributors, LLC (RDL). Security Global InvestorsSM is the investment advisory arm of Security Benefit Corporation (Security Benefit). Security Global Investors consists of Security Global Investors, LLC, Security Investors, LLC and Rydex Investments. Rydex Investments is the primary business name for Rydex Advisors, LLC and Rydex Advisors II, LLC. Security Global Investors and RDL are affiliates and are subsidiaries of Security Benefit, which is wholly owned by Guggenheim SBC Holdings, LLC, a special purpose entity managed by Guggenheim Partners, LLC, a diversified financial services firm with more than $100 billion in assets under supervision. | |
Read each Fund’s prospectus and summary prospectus (if available) carefully before investing. It contains the Fund’s investment objectives, risks, charges, expenses and other information, which should be considered carefully before investing. Obtain a prospectus and summary prospectus (if available) at www.rydex-sgi.com or call 800.820.0888. |
88 | | | THE RYDEX | SGI EQUITY FUNDS ANNUAL REPORT |
PERFORMANCE SUMMARY September 30, 2010 | Rydex|SGI Equity Fund Small Cap Value Fund (Unaudited) |
PERFORMANCE
![(PERFORMANCE GRAPH)](https://capedge.com/proxy/N-CSR/0000950123-10-111594/g06945g0694515.gif)
$10,000 Since Inception
This chart assumes a $10,000 investment in A-Class shares of Small Cap Value Fund on July 11, 2008 (date of inception), reflects deduction of the maximum front-end sales charge of 5.75% and assumes all dividends are reinvested. The chart does not reflect the deduction of taxes that a shareholder would pay on distributions or the redemption of fund shares. The Russell 2000® Value Index is an unmanaged index that measures the performance of securities of small to mid cap U.S. companies with lower price-to-book ratios and lower forecasted growth values.
AVERAGE ANNUAL RETURNS | ||||||||||||
PERIODS ENDED 9/30/10 | ||||||||||||
SINCE | ||||||||||||
INCEPTION | ||||||||||||
1 YEAR | (07/11/08) | |||||||||||
A-Class Shares | 11.53 | % | 23.19 | % | ||||||||
A-Class Shares with sales charge | 5.10 | % | 19.95 | % | ||||||||
C-Class Shares | 10.94 | % | 22.36 | % | ||||||||
C-Class Shares with CDSC | 9.94 | % | 22.36 | % | ||||||||
Institutional Class Shares | 11.80 | % | 23.49 | % |
The performance data above represents past performance that is not predictive of future results. The investment return and principal value of an investment in the Fund will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. The figures above do not reflect deduction of the maximum front-end sales charge of 5.75% for A-Class shares or the CDSC of 1% for C-Class shares, as applicable, except where noted. The figures do not reflect the deduction of taxes that a shareholder would pay on distributions or redemption of shares. Such figures would be lower if the maximum sales charge and any applicable taxes were deducted. Fee waivers and/or reimbursements reduced expenses of the Fund and in the absence of such waivers, the performance quoted would be reduced.
Portfolio Composition by Sector | ||||
Common Stocks | ||||
Consumer Discretionary | 12.0 | % | ||
Consumer Staples | 5.6 | % | ||
Energy | 10.5 | % | ||
Financials | 15.2 | % | ||
Health Care | 1.9 | % | ||
Industrials | 20.1 | % | ||
Information Technology | 19.1 | % | ||
Materials | 9.2 | % | ||
Utilities | 1.2 | % | ||
Convertible Preferred Stock | 0.1 | % | ||
Warrants | 0.1 | % | ||
Cash & Other Assets, | ||||
Less Liabilities | 5.0 | % | ||
Total Net Assets | 100.0 | % | ||
The accompanying notes are an integral part of the financial statements. | THE RYDEX | SGI EQUITY FUNDS ANNUAL REPORT | | | 89 |
SCHEDULE OF INVESTMENTS September 30, 2010 | Rydex|SGI Equity Fund Small Cap Value Fund |
SHARES | VALUE | |||||||
COMMON STOCKS† - 94.8% | ||||||||
Industrials - 20.1% | ||||||||
GeoEye, Inc.* | 6,310 | $ | 255,430 | |||||
Insituform Technologies, Inc. — Class A* | 6,840 | 165,391 | ||||||
Force Protection, Inc.* | 29,380 | 148,075 | ||||||
ICF International, Inc.* | 5,670 | 142,147 | ||||||
Administaff, Inc. | 4,320 | 116,338 | ||||||
Saia, Inc.* | 7,450 | 111,228 | ||||||
General Cable Corp.* | 3,900 | 105,768 | ||||||
Navigant Consulting, Inc.* | 8,850 | 102,926 | ||||||
Orbital Sciences Corp.* | 6,376 | 97,553 | ||||||
LaBarge, Inc.* | 7,470 | 93,300 | ||||||
Celadon Group, Inc.* | 6,112 | 84,407 | ||||||
Trex Company, Inc.* | 4,410 | 84,099 | ||||||
Flow International Corp.* | 27,662 | 72,751 | ||||||
Ceradyne, Inc.* | 1,800 | 42,030 | ||||||
FTI Consulting, Inc.* | 847 | 29,382 | ||||||
United Stationers, Inc.* | 491 | 26,273 | ||||||
Total Industrials | 1,677,098 | |||||||
Information Technology - 19.1% | ||||||||
Power-One, Inc.* | 17,990 | 163,529 | ||||||
Insight Enterprises, Inc.* | 10,090 | 157,808 | ||||||
Maxwell Technologies, Inc.* | 10,530 | 153,843 | ||||||
IXYS Corp.* | 14,460 | 138,093 | ||||||
Standard Microsystems Corp.* | 5,493 | 125,295 | ||||||
CACI International, Inc. — Class A* | 2,530 | 114,508 | ||||||
Quantum Corp.* | 49,948 | 105,890 | ||||||
Satyam Computer Services, Ltd. ADR* | 26,288 | 102,260 | ||||||
Harmonic, Inc.* | 14,170 | 97,489 | ||||||
Silicon Graphics International Corp.* | 11,635 | 90,288 | ||||||
Euronet Worldwide, Inc.* | 4,060 | 73,039 | ||||||
Methode Electronics, Inc. | 7,884 | 71,587 | ||||||
Perficient, Inc.* | 6,110 | 55,845 | ||||||
Symmetricom, Inc.* | 8,380 | 47,934 | ||||||
Global Cash Access Holdings, Inc.* | 10,798 | 44,056 | ||||||
FEI Co.* | 2,140 | 41,880 | ||||||
Total Information Technology | 1,583,344 | |||||||
Financials - 15.2% | ||||||||
Hanover Insurance Group, Inc. | 4,620 | 217,140 | ||||||
Horace Mann Educators Corp. | 9,420 | 167,488 | ||||||
Fifth Street Finance Corp. | 12,910 | 143,817 | ||||||
Associated Banc-Corp | 8,664 | 114,278 | ||||||
1st Source Corp. | 5,850 | 101,556 | ||||||
Employers Holdings, Inc. | 5,510 | 86,893 | ||||||
Reinsurance Group of America, Inc. — Class A | 1,730 | 83,542 | ||||||
Old National Bancorp | 7,499 | 78,740 | ||||||
Bancfirst Corp. | 1,340 | 54,216 | ||||||
Lexington Realty Trust | 7,320 | 52,411 | ||||||
Heritage Financial Corp.* | 3,590 | 50,260 |
SHARES | VALUE | |||||||
First Potomac Realty Trust | 3,350 | $ | 50,250 | |||||
Redwood Trust, Inc. | 2,430 | 35,138 | ||||||
First Marblehead Corp.* | 7,921 | 18,535 | ||||||
Whitney Holding Corp. | 396 | 3,235 | ||||||
Total Financials | 1,257,499 | |||||||
Consumer Discretionary - 12.0% | ||||||||
Cabela’s, Inc.* | 11,239 | 213,316 | ||||||
Chico’s FAS, Inc. | 14,000 | 147,280 | ||||||
Maidenform Brands, Inc.* | 5,050 | 145,692 | ||||||
Smith & Wesson Holding Corp.* | 37,140 | 132,218 | ||||||
Brown Shoe Company, Inc. | 10,890 | 124,908 | ||||||
Penn National Gaming, Inc.* | 3,520 | 104,227 | ||||||
Scholastic Corp. | 2,030 | 56,475 | ||||||
Conn’s, Inc.* | 10,810 | 50,267 | ||||||
Fred’s, Inc. — Class A | 1,900 | 22,420 | ||||||
Columbia Sportswear Co. | 24 | 1,403 | ||||||
Total Consumer Discretionary | 998,206 | |||||||
Energy - 10.5% | ||||||||
Tesco Corp.* | 15,940 | 191,759 | ||||||
Southern Union Co.1 | 7,690 | 185,021 | ||||||
Global Industries Ltd.* | 30,452 | 166,572 | ||||||
USEC, Inc.* | 22,520 | 116,879 | ||||||
Gulfport Energy Corp.* | 5,965 | 82,556 | ||||||
Goodrich Petroleum Corp.* | 4,504 | 65,623 | ||||||
Kodiak Oil & Gas Corp.* | 17,290 | 58,613 | ||||||
Total Energy | 867,023 | |||||||
Materials - 9.2% | ||||||||
Louisiana-Pacific Corp.* | 29,920 | 226,494 | ||||||
Myers Industries, Inc. | 16,460 | 141,391 | ||||||
Landec Corp.* | 19,560 | 121,468 | ||||||
Zoltek Companies, Inc.* | 9,470 | 92,048 | ||||||
LSB Industries, Inc.* | 4,680 | 86,908 | ||||||
Clearwater Paper Corp.* | 700 | 53,256 | ||||||
HB Fuller Co. | 1,970 | 39,144 | ||||||
Total Materials | 760,709 | |||||||
Consumer Staples - 5.6% | ||||||||
Elizabeth Arden, Inc.* | 9,220 | 184,308 | ||||||
Orchids Paper Products Co.* | 7,864 | 113,635 | ||||||
Winn-Dixie Stores, Inc.* | 11,870 | 84,633 | ||||||
Smart Balance, Inc.* | 21,240 | 82,411 | ||||||
Total Consumer Staples | 464,987 | |||||||
Health Care - 1.9% | ||||||||
RehabCare Group, Inc.* | 4,160 | 84,115 | ||||||
Mednax, Inc.* | 1,410 | 75,153 | ||||||
Total Health Care | 159,268 | |||||||
Utilities - 1.2% | ||||||||
NorthWestern Corp.1 | 3,540 | 100,890 | ||||||
Total Common Stocks (Cost $7,524,211) | 7,869,024 | |||||||
90 | | | THE RYDEX | SGI EQUITY FUNDS ANNUAL REPORT | The accompanying notes are an integral part of the financial statements. |
SCHEDULE OF INVESTMENTS (concluded) September 30, 2010 | Rydex|SGI Equity Fund Small Cap Value Fund |
SHARES | VALUE | |||||||
CONVERTIBLE PREFERRED STOCK†† - 0.1% | ||||||||
Thermoenergy Corp.*,2,3 | 6,250 | $ | 5,475 | |||||
Total Convertible Preferred Stock (Cost $5,968) | 5,475 | |||||||
WARRANT†† - 0.1% | ||||||||
Thermoenergy Corp.2 $0.30, 07/31/15 | 100,000 | 8,060 | ||||||
Total Warrant (Cost $9,032) | 8,060 | |||||||
Total Investments - 95.0% (Cost $7,539,211) | $ | 7,882,559 | ||||||
CONTRACTS | ||||||||
OPTIONS WRITTEN† - 0.0% | ||||||||
Put Options on: | ||||||||
North American Energy Partners, Inc. | ||||||||
Expiring November 2010 | ||||||||
with strike price of $7.50 | 8 | (240 | ) | |||||
Brinker International, Inc. | ||||||||
Expiring January 2011 | ||||||||
with strike price of $17.50 | 9 | (1,080 | ) | |||||
Total Options Written (Premiums received $1,946) | (1,320 | ) | ||||||
Cash & Other Assets, Less Liabilities - 5.0% | 415,310 | |||||||
Total Net Assets - 100.0% | $ | 8,296,549 | ||||||
* | Non-income producing security. |
† | Value determined based on Level 1 inputs — See Note 9. |
†† | Value determined based on Level 2 inputs — See Note 9. |
1 | Security is segregated as collateral for open written option contracts. |
2 | Security was fair valued by the Valuation Committee at September 30, 2010. The total market value of fair valued securities amounts to $13,535, (cost $15,000) or 0.1% of total net assets. |
3 | PIPE (Private Investment in Public Equity) — Stock issued by a company in the secondary market as a means of raising capital more quickly and less expensively than through registration of a secondary public offering. |
ADR — American Depositary Receipt. |
The accompanying notes are an integral part of the financial statements. | THE RYDEX | SGI EQUITY FUNDS ANNUAL REPORT | | | 91 |
Rydex|SGI Equity Fund Small Cap Value Fund |
STATEMENT OF ASSETS
AND LIABILITIES
AND LIABILITIES
September 30, 2010
Assets: | ||||
Investments, at value* | $ | 7,882,559 | ||
Cash | 177,315 | |||
Receivables: | ||||
Fund shares sold | 256,975 | |||
Dividends | 4,660 | |||
Due from Security Investors | 9,814 | |||
Prepaid expenses | 19,464 | |||
Total assets | 8,350,787 | |||
Liabilities: | ||||
Written options, at value** | 1,320 | |||
Payable for: | ||||
Securities purchased | 29,431 | |||
Fund shares redeemed | 1,805 | |||
Management fees | 6,265 | |||
Transfer agent/maintenance fees | 2,509 | |||
Administration fees | 595 | |||
Professional fees | 6,575 | |||
12b-1 distribution plan fees | 2,180 | |||
Directors’ fees | 343 | |||
Other | 3,215 | |||
Total liabilities | 54,238 | |||
Net assets | $ | 8,296,549 | ||
Net assets Consist Of: | ||||
Paid in capital | $ | 7,324,020 | ||
Accumulated net realized gain on investments | 628,555 | |||
Net unrealized appreciation on investments | 343,974 | |||
Net assets | $ | 8,296,549 | ||
A-Class: | ||||
Capital shares outstanding | ||||
(unlimited number of shares authorized) | 432,532 | |||
Net assets | $ | 6,208,970 | ||
Net asset value and redemption price per share | $14.35 | |||
Maximum offering price per share (net asset value divided by 94.25%) | $15.23 | |||
C-Class: | ||||
Capital shares outstanding | ||||
(unlimited number of shares authorized) | 95,741 | |||
Net assets | $ | 1,353,244 | ||
Net asset value, offering and redemption price | ||||
per share (excluding any applicable | ||||
contingent deferred sales charge) | $14.13 | |||
Institutional Class: | ||||
Capital shares outstanding | ||||
(unlimited number of shares authorized) | 50,881 | |||
Net assets | $ | 734,335 | ||
Net asset value, offering and redemption price | ||||
per share | $14.43 | |||
* Investments, at cost | $ | 7,539,211 | ||
** Premiums received for written options | $ | 1,946 |
STATEMENT OF
OPERATIONS
OPERATIONS
For the Year Ended September 30, 2010
Investment Income: | ||||
Dividends | $ | 74,959 | ||
Interest | 137 | |||
Total investment income | 75,096 | |||
Expenses: | ||||
Management fees | 78,268 | |||
Transfer agent/maintenance fees | 21,303 | |||
Administration fees | 19,331 | |||
Custodian fees | 8,399 | |||
Directors’ fees | 857 | |||
Professional fees | 7,547 | |||
Reports to shareholders | 2,390 | |||
Registration fees | 31,893 | |||
Other | 2,540 | |||
12b-1 distribution fees - A-Class | 15,132 | |||
12b-1 distribution fees - C-Class | 10,109 | |||
Total expenses | 197,769 | |||
Reimbursement of expenses | (90,347 | ) | ||
Net expenses | 107,422 | |||
Net investment loss | (32,326 | ) | ||
Net Realized and Unrealized Gain (Loss): | ||||
Net realized gain (loss) on: | ||||
Investments | 674,245 | |||
Options written | 46,027 | |||
Net realized gain | 720,272 | |||
Net change in unrealized appreciation | ||||
(depreciation) on: | ||||
Investments | (373,923 | ) | ||
Options written | (3,065 | ) | ||
Net change in unrealized appreciation (depreciation) | (376,988 | ) | ||
Net realized and unrealized gain | 343,284 | |||
Net increase in net assets resulting from operations | $ | 310,958 | ||
92 | | | THE RYDEX | SGI EQUITY FUNDS ANNUAL REPORT | The accompanying notes are an integral part of the financial statements. |
STATEMENTS OF CHANGES IN NET ASSETS | Rydex|SGI Equity Fund Small Cap Value Fund |
Year Ended | Year Ended | |||||||
September 30, | September 30, | |||||||
2010 | 2009 | |||||||
Increase (Decrease) In Net Assets From Operations: | ||||||||
Net investment loss | $ | (32,326 | ) | $ | (10,392 | ) | ||
Net realized gain on investments | 720,272 | 151,123 | ||||||
Net change in unrealized appreciation (depreciation) on investments | (376,988 | ) | 654,339 | |||||
Net increase in net assets resulting from operations | 310,958 | 795,070 | ||||||
Distributions to shareholders from: | ||||||||
Net realized gains | ||||||||
A-Class | (152,192 | ) | (37,409 | ) | ||||
C-Class | (21,874 | ) | (26,547 | ) | ||||
Institutional Class | (21,435 | ) | (20,967 | ) | ||||
Total distributions to shareholders | (195,501 | ) | (84,923 | ) | ||||
Capital share transactions: | ||||||||
Proceeds from sale of shares | ||||||||
A-Class | 12,456,244 | 2,415,545 | ||||||
C-Class | 692,236 | 242,210 | ||||||
Institutional Class | 157,271 | 144,125 | ||||||
Distributions reinvested | ||||||||
A-Class | 150,268 | 37,409 | ||||||
C-Class | 21,874 | 26,547 | ||||||
Institutional Class | 13,598 | 20,967 | ||||||
Cost of shares redeemed | ||||||||
A-Class | (9,619,034 | ) | (126,867 | ) | ||||
C-Class | (143,145 | ) | (59,944 | ) | ||||
Institutional Class | (131,908 | ) | (340 | ) | ||||
Net increase from capital share transactions | 3,597,404 | 2,699,652 | ||||||
Net increase in net assets | 3,712,861 | 3,409,799 | ||||||
Net assets: | ||||||||
Beginning of year | 4,583,688 | 1,173,889 | ||||||
End of year | $ | 8,296,549 | $ | 4,583,688 | ||||
Accumulated net investment loss at end of year | $ | — | $ | — | ||||
Capital share activity: | ||||||||
Shares sold | ||||||||
A-Class | 911,652 | 216,245 | ||||||
C-Class | 51,089 | 23,833 | ||||||
Institutional Class | 11,908 | 11,584 | ||||||
Shares issued from reinvestment of distributions | ||||||||
A-Class | 11,497 | 4,545 | ||||||
C-Class | 1,693 | 3,234 | ||||||
Institutional Class | 1,036 | 2,545 | ||||||
Shares redeemed | ||||||||
A-Class | (735,798 | ) | (10,413 | ) | ||||
C-Class | (11,124 | ) | (7,117 | ) | ||||
Institutional Class | (9,494 | ) | (31 | ) | ||||
Total capital share activity | 232,459 | 244,425 | ||||||
The accompanying notes are an integral part of the financial statements. | THE RYDEX | SGI EQUITY FUNDS ANNUAL REPORT | | | 93 |
1
FINANCIAL HIGHLIGHTS | Rydex|SGI Equity Fund Small Cap Value Fund |
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.
Year Ended | Year Ended | Year Ended | ||||||||||
September 30, | September 30, | September 30, | ||||||||||
A-Class | 2010 | 2009 | 2008 | a | ||||||||
Per Share Data | ||||||||||||
Net asset value, beginning of period | $13.24 | $11.48 | $10.00 | |||||||||
Income (loss) from investment operations: | ||||||||||||
Net investment income (loss)b | (0.05 | ) | (0.05 | ) | — | |||||||
Net gain on investments (realized and unrealized) | 1.54 | 2.44 | 1.48 | |||||||||
Total from investment operations | 1.49 | 2.39 | 1.48 | |||||||||
Less distributions from: | ||||||||||||
Net realized gains | (0.38 | ) | (0.63 | ) | — | |||||||
Total distributions | (0.38 | ) | (0.63 | ) | — | |||||||
Net asset value, end of period | $14.35 | $13.24 | $11.48 | |||||||||
Total Returnc | 11.53% | 24.15% | 14.80% | |||||||||
Ratios/Supplemental Data | ||||||||||||
Net assets, end of period (in thousands) | $6,209 | $3,245 | $400 | |||||||||
Ratios to average net assets: | ||||||||||||
Net investment loss | (0.34% | ) | (0.46% | ) | (0.19% | ) | ||||||
Total expensesd | 2.45% | 4.92% | 6.10% | |||||||||
Net expensese | 1.30% | 1.55% | 1.55% | |||||||||
Portfolio turnover rate | 140% | 58% | 86% |
Year Ended | Year Ended | Year Ended | ||||||||||
September 30, | September 30, | September 30, | ||||||||||
C-Class | 2010 | 2009 | 2008 | a | ||||||||
Per Share Data | ||||||||||||
Net asset value, beginning of period | $13.11 | $11.46 | $10.00 | |||||||||
Income (loss) from investment operations: | ||||||||||||
Net investment lossb | (0.15 | ) | (0.11 | ) | (0.02 | ) | ||||||
Net gain on investments (realized and unrealized) | 1.55 | 2.39 | 1.48 | |||||||||
Total from investment operations | 1.40 | 2.28 | 1.46 | |||||||||
Less distributions from: | ||||||||||||
Net realized gains | (0.38 | ) | (0.63 | ) | — | |||||||
Total distributions | (0.38 | ) | (0.63 | ) | — | |||||||
Net asset value, end of period | $14.13 | $13.11 | $11.46 | |||||||||
Total Returnc | 10.94% | 23.16% | 14.60% | |||||||||
Ratios/Supplemental Data | ||||||||||||
Net assets, end of period (in thousands) | $1,353 | $709 | $391 | |||||||||
Ratios to average net assets: | ||||||||||||
Net investment loss | (1.09% | ) | (1.15% | ) | (0.94% | ) | ||||||
Total expensesd | 3.22% | 6.40% | 6.88% | |||||||||
Net expensese | 2.05% | 2.30% | 2.30% | |||||||||
Portfolio turnover rate | 140% | 58% | 86% |
94 | | | THE RYDEX | SGI EQUITY FUNDS ANNUAL REPORT | The accompanying notes are an integral part of the financial statements. |
2
FINANCIAL HIGHLIGHTS (concluded) | Rydex|SGI Equity Fund Small Cap Value Fund |
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.
Year Ended | Year Ended | Year Ended | ||||||||||
September 30, | September 30, | September 30, | ||||||||||
Institutional Class | 2010 | 2009 | 2008 | a | ||||||||
Per Share Data | ||||||||||||
Net asset value, beginning of period | $13.28 | $11.49 | $10.00 | |||||||||
Income (loss) from investment operations: | ||||||||||||
Net investment income (loss)b | (0.01 | ) | (0.01 | ) | — | |||||||
Net gain on investments (realized and unrealized) | 1.54 | 2.43 | 1.49 | |||||||||
Total from investment operations | 1.53 | 2.42 | 1.49 | |||||||||
Less distributions from: | ||||||||||||
Net realized gains | (0.38 | ) | (0.63 | ) | — | |||||||
Total distributions | (0.38 | ) | (0.63 | ) | — | |||||||
Net asset value, end of period | $14.43 | $13.28 | $11.49 | |||||||||
Total Return | 11.80% | 24.40% | 14.90% | |||||||||
Ratios/Supplemental Data | ||||||||||||
Net assets, end of period (in thousands) | $734 | $630 | $383 | |||||||||
Ratios to average net assets: | ||||||||||||
Net investment income (loss) | (0.08% | ) | (0.14% | ) | 0.06% | |||||||
Total expensesd | 2.21% | 5.44% | 5.90% | |||||||||
Net expensese | 1.05% | 1.30% | 1.30% | |||||||||
Portfolio turnover rate | 140% | 58% | 86% |
a | The Small Cap Value Fund was initially capitalized on July 11, 2008 with a net asset value of $10 per share. Percentage amounts for the period, except total return have been annualized. |
b | Net investment income (loss) was computed using average shares outstanding throughout the period. |
c | Total return information does not reflect deduction of any sales charges imposed at the time of purchase for A-Class shares or upon redemption for C-Class shares. |
d | Total expense information reflects expense ratios absent expense reductions by the Investment Manager, as applicable. |
e | Net expense information reflects the expense ratios after voluntary expense waivers and reimbursements and before custodian earnings credits, as applicable. |
The accompanying notes are an integral part of the financial statements. | THE RYDEX | SGI EQUITY FUNDS ANNUAL REPORT | | | 95 |
3
MANAGER’S COMMENTARY
September 30, 2010
Advised by:
![(SECURITY GLOBAL INVESTORS LOGO)](https://capedge.com/proxy/N-CSR/0000950123-10-111594/g06945g0694504.gif)
To Our Shareholders:
For the fiscal year ended September 30, 2010, the Rydex|SGI Large Cap Value Fund–Large Cap Value Fund returned 5.46%1, underperforming the benchmark Russell 1000® Value Index’s return of 8.90% and the Fund’s peer group median return of 7.54%.
Our strategy is to buy companies that are trading at a significant discount to their intrinsic value. Our investment approach is a defined and disciplined process of three clear philosophical tenets that drive our investment decisions: a valuation focus, a long-term perspective and an opportunistic approach.
This investment process is fundamentally driven and quantitatively aided. We use proprietary screens to identify potential companies for investment and then perform rigorous fundamental analysis to identify the best ideas. Through this fundamental research, we determine an estimate of intrinsic value and thus a valuation target for each potential investment. We construct the portfolios based on the level of conviction generated by this bottom-up analysis and the upside/downside profile associated with each company.
Financials and Health Care Top Performers
The Fund’s Financials sector contributed to overall performance through a combination of an underweight allocation, 21.1% to 26.2%, and superior stock selection, even though the sector as a whole gained just 2.0% for the period. Berkshire Hathaway Inc. (Cl A), a 3.7% weight, was the leading holding with an increase of 23.3%. Regions Financial Corp., a 1.1% portfolio position, added to positive performance with a return of 17.8%. Other holdings contributing to the sector include Fifth Third Bancorp and Visa Inc.
As an equal-weighted sector, the Fund benefited from security selection in Health Care holdings. The sector for the Fund was up 14.5% compared to 11.9% for the Index. The sector’s greatest contributor was Hospira Inc., a 2.6% weight that gained 27.8% during the period.
The Information Technology and Energy sectors added to positive returns for the Fund.
Consumer Discretionary and Utilities Disappoint
The Fund suffered from poor stock selection in both the Consumer Discretionary and Utilities sectors.
The Fund’s holdings in the Consumer Discretionary sector underperformed those in the Index by gaining only 2.7% against a 21.3% increase in the benchmark. J.C. Penney Co. Inc., a 2.0% weight, lost 17.2% over the period. While the 2.2% position in Lowe’s Cos. gained 8.3%, it was still well below the overall return for the Index.
Holdings in the Fund’s Utilities sector lost 3.2% as the Index increased 13.6%, a nearly 17% difference. NRG Energy Inc., a 1.2% weight, dropped 26.1% over the 12-month period. The 3.6% weight in Edison International gained 6.2%, less than half the increase for the Index.
Other sectors in the portfolio contributing to negative performance include Industrials, Consumer Staples, and Telecommunications Services.
Market Outlook
Our bottom-up approach views opportunity in the context of the potential long-term impact on individual companies. Our focus is on applying a bottom-up approach to identifying individual companies with the ability to be substantially better
96 | | | THE RYDEX | SGI EQUITY FUNDS ANNUAL REPORT |
4
MANAGER’S COMMENTARY (concluded)
and have a positive impact on the portfolio over the next three to five years. We remain confident in our ability to uncover these companies.
Current markets reinforce that investing is a long-term pursuit that requires patience and a consistent approach. We recognize there are many investment fund alternatives available today and thank you for your business and the confidence you place in us.
Sincerely,
Mark Mitchell, CFA, Portfolio Manager
1 | Performance figures are based on A-Class shares and do not reflect deduction of the sales charges or taxes that a shareholder would pay on distributions or the redemption of shares. Fee waivers and/or reimbursements reduce Fund expenses and in the absence of such waivers, the performance quoted would be reduced. |
Performance displayed represents past performance which is no guarantee of future results. Of course, Fund performance is subject to daily market volatility and may be better or worse since the end of the last quarter. For up-to-date Fund performance, call us at 800.820.0888 or visit www.rydex-sgi.com. | |
Russell 1000® Value Index – measures the performance of the large-cap value segment of the U.S. equity universe. It includes those Russell 1000 companies with lower price-to-book ratios and lower expected growth values. | |
Rydex|SGI Funds are distributed by Rydex Distributors, LLC (RDL). Security Global InvestorsSM is the investment advisory arm of Security Benefit Corporation (Security Benefit). Security Global Investors consists of Security Global Investors, LLC, Security Investors, LLC and Rydex Investments. Rydex Investments is the primary business name for Rydex Advisors, LLC and Rydex Advisors II, LLC. Security Global Investors and RDL are affiliates and are subsidiaries of Security Benefit, which is wholly owned by Guggenheim SBC Holdings, LLC, a special purpose entity managed by Guggenheim Partners, LLC, a diversified financial services firm with more than $100 billion in assets under supervision. | |
Read each Fund’s prospectus and summary prospectus (if available) carefully before investing. It contains the Fund’s investment objectives, risks, charges, expenses and other information, which should be considered carefully before investing. Obtain a prospectus and summary prospectus (if available) at www.rydex-sgi.com or call 800.820.0888. |
THE RYDEX | SGI EQUITY FUNDS ANNUAL REPORT | | | 97 |
5
PERFORMANCE SUMMARY September 30, 2010 | Rydex|SGI Large Cap Value Fund Large Cap Value Fund (Unaudited) |
PERFORMANCE
![(PERFORMANCE GRAPH)](https://capedge.com/proxy/N-CSR/0000950123-10-111594/g06945g0694516.gif)
$10,000 Over Ten Years
This chart assumes a $10,000 investment in A-Class shares of Large Cap Value Fund on September 30, 2000, reflects deduction of the maximum front-end sales charge of 5.75% and assumes all dividends are reinvested. The chart does not reflect the deduction of taxes that a shareholder would pay on distributions or the redemption of fund shares. The Russell 1000® Value Index is an unmanaged index representing the performance of those Russell 1000® Index companies with lower price-to-book ratios and lower forecasted growth values.
AVERAGE ANNUAL RETURNS | ||||||||||||
PERIODS ENDED 9/30/10 | ||||||||||||
(Inception 8/07/1944) | ||||||||||||
1 YEAR | 5 YEAR | 10 YEAR | ||||||||||
A-Class Shares | 5.46 | % | 0.75 | % | 1.07 | % | ||||||
A-Class Shares with sales charge | -0.60 | % | -0.43 | % | 0.47 | % | ||||||
B-Class Shares | 5.78 | % | 0.50 | % | 0.53 | % | ||||||
B-Class Shares with CDSC | 0.78 | % | 0.13 | % | 0.53 | % | ||||||
C-Class Shares | 4.77 | % | -0.08 | % | 0.23 | % | ||||||
C-Class Shares with CDSC | 3.77 | % | -0.08 | % | 0.23 | % |
The performance data above represents past performance that is not predictive of future results. The investment return and principal value of an investment in the Fund will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. The figures above do not reflect deduction of the maximum front-end sales charge of 5.75% for A-Class shares or the CDSC of up to 5% for B-Class shares and 1% for C-Class shares, as applicable, except where noted. The figures do not reflect the deduction of taxes that a shareholder would pay on distributions or redemption of shares. Such figures would be lower if the maximum sales charge and any applicable taxes were deducted. Fee waivers and/or reimbursements reduced expenses of the Fund and in the absence of such waivers, the performance quoted would be reduced.
Portfolio Composition by Sector | ||||
Common Stocks | ||||
Consumer Discretionary | 7.8 | % | ||
Consumer Staples | 8.8 | % | ||
Energy | 13.1 | % | ||
Financials | 15.6 | % | ||
Health Care | 8.6 | % | ||
Industrials | 15.1 | % | ||
Information Technology | 13.0 | % | ||
Materials | 3.3 | % | ||
Telecommunication Services | 1.4 | % | ||
Utilities | 4.5 | % | ||
Exchange Traded Funds | 3.9 | % | ||
Cash & Other Assets, | ||||
Less Liabilities | 4.9 | % | ||
Total Net Assets | 100.0 | % | ||
98 | | | THE RYDEX | SGI EQUITY FUNDS ANNUAL REPORT | The accompanying notes are an integral part of the financial statements. |
1
SCHEDULE OF INVESTMENTS September 30, 2010 | Rydex|SGI Large Cap Value Fund Large Cap Value Fund |
SHARES | VALUE | |||||||
COMMON STOCKS† - 91.2% | ||||||||
Financials - 15.6% | ||||||||
AON Corp. | 37,400 | $ | 1,462,714 | |||||
U.S. Bancorp | 61,332 | 1,325,997 | ||||||
Berkshire Hathaway, Inc. — Class A*,1 | 10 | 1,245,000 | ||||||
Wells Fargo & Co. | 49,452 | 1,242,729 | ||||||
JPMorgan Chase & Co. | 27,063 | 1,030,288 | ||||||
Bank of New York Mellon Corp. | 35,300 | 922,389 | ||||||
BB&T Corp. | 23,432 | 564,243 | ||||||
Regions Financial Corp. | 74,900 | 544,523 | ||||||
First Marblehead Corp.* | 74,421 | 174,145 | ||||||
Total Financials | 8,512,028 | |||||||
Industrials - 15.1% | ||||||||
Equifax, Inc. | 61,600 | 1,921,920 | ||||||
United Technologies Corp. | 18,600 | 1,324,878 | ||||||
FedEx Corp. | 14,400 | 1,231,200 | ||||||
Union Pacific Corp. | 14,500 | 1,186,100 | ||||||
Parker Hannifin Corp. | 13,400 | 938,804 | ||||||
Babcock & Wilcox Co.* | 41,800 | 889,504 | ||||||
USG Corp.* | 54,300 | 716,217 | ||||||
Total Industrials | 8,208,623 | |||||||
Energy - 13.1% | ||||||||
Chevron Corp. | 20,100 | 1,629,105 | ||||||
McDermott International, Inc.* | 77,600 | 1,146,928 | ||||||
Williams Companies, Inc. | 60,000 | 1,146,600 | ||||||
Exxon Mobil Corp. | 15,300 | 945,387 | ||||||
Halliburton Co. | 26,700 | 882,969 | ||||||
Chesapeake Energy Corp. | 32,000 | 724,800 | ||||||
ConocoPhillips | 11,000 | 631,730 | ||||||
Total Energy | 7,107,519 | |||||||
Information Technology - 13.0% | ||||||||
Western Union Co. | 115,600 | 2,042,652 | ||||||
Computer Sciences Corp. | 27,200 | 1,251,200 | ||||||
Tyco Electronics Ltd. | 41,450 | 1,211,169 | ||||||
Hewlett-Packard Co. | 28,341 | 1,192,306 | ||||||
Synopsys, Inc.* | 32,500 | 805,025 | ||||||
Visa, Inc. — Class A | 7,400 | 549,524 | ||||||
Total Information Technology | 7,051,876 | |||||||
Consumer Staples - 8.8% | ||||||||
Wal-Mart Stores, Inc.1 | 24,400 | 1,305,888 | ||||||
CVS Caremark Corp. | 38,600 | 1,214,742 | ||||||
Costco Wholesale Corp. | 14,300 | 922,207 | ||||||
Altria Group, Inc. | 20,100 | 482,802 | ||||||
Philip Morris International, Inc. | 8,100 | 453,762 | ||||||
Bunge Ltd. | 6,900 | 408,204 | ||||||
Total Consumer Staples | 4,787,605 | |||||||
SHARES | VALUE | |||||||
Health Care - 8.6% | ||||||||
Hospira, Inc.* | 24,200 | $ | 1,379,642 | |||||
Aetna, Inc. | 42,400 | 1,340,264 | ||||||
Covidien plc | 24,750 | 994,703 | ||||||
Medco Health Solutions, Inc.* | 8,100 | 421,686 | ||||||
Merck & Company, Inc. | 9,919 | 365,118 | ||||||
Genzyme Corp.* | 2,400 | 169,896 | ||||||
Total Health Care | 4,671,309 | |||||||
Consumer Discretionary - 7.8% | ||||||||
Lowe’s Companies, Inc. | 75,300 | 1,678,437 | ||||||
Time Warner, Inc. | 48,166 | 1,476,288 | ||||||
JC Penney Company, Inc. | 39,000 | 1,060,020 | ||||||
Total Consumer Discretionary | 4,214,745 | |||||||
Utilities - 4.5% | ||||||||
Edison International | 54,300 | 1,867,377 | ||||||
NRG Energy, Inc.* | 26,500 | 551,730 | ||||||
Total Utilities | 2,419,107 | |||||||
Materials - 3.3% | ||||||||
Dow Chemical Co. | 35,900 | 985,814 | ||||||
Bemis Company, Inc. | 25,500 | 809,625 | ||||||
Total Materials | 1,795,439 | |||||||
Telecommunication Services - 1.4% | ||||||||
Windstream Corp. | 63,776 | 783,807 | ||||||
Total Common Stocks | ||||||||
(Cost $48,276,610) | 49,552,058 | |||||||
EXCHANGE TRADED FUNDS† - 3.9% | ||||||||
iShares Russell 1000 Value Index Fund | 18,000 | 1,061,820 | ||||||
iShares S&P 500 Value Index Fund | 19,500 | 1,057,875 | ||||||
Total Exchange Traded Funds | ||||||||
(Cost $2,137,595) | 2,119,695 | |||||||
Total Investments - 95.1% | ||||||||
(Cost $50,414,205) | $ | 51,671,753 | ||||||
CONTRACTS | ||||||||
OPTIONS WRITTEN† - 0.0% | ||||||||
Put Options on: | ||||||||
Wells Fargo & Co. | ||||||||
Expiring October 2010 | ||||||||
with strike price of $27.00 | 75 | (14,625 | ) | |||||
Total Options Written | ||||||||
(Premiums received $22,541) | (14,625 | ) | ||||||
Cash & Other Assets, Less Liabilities - 4.9% | 2,686,081 | |||||||
Total Net Assets - 100.0% | $ | 54,343,209 | ||||||
* | Non-income producing security. |
† | Value determined based on Level 1 inputs — See Note 9. |
1 | Security is segregated as collateral for open written option contracts. plc — Public Limited Company. |
The accompanying notes are an integral part of the financial statements. | THE RYDEX | SGI EQUITY FUNDS ANNUAL REPORT | | | 99 |
2
Rydex|SGI Large Cap Value Fund Large Cap Value Fund |
STATEMENT OF ASSETS
AND LIABILITIES
AND LIABILITIES
September 30, 2010
Assets: | ||||
Investments, at value* | $ | 51,671,753 | ||
Cash | 3,104,986 | |||
Receivables: | ||||
Fund shares sold | 1,985 | |||
Dividends | 84,009 | |||
Due from Security Investors | 20,496 | |||
Prepaid expenses | 22,906 | |||
Total assets | 54,906,135 | |||
Liabilities: | ||||
Written options, at value** | 14,625 | |||
Payable for: | ||||
Securities purchased | 458,811 | |||
Fund shares redeemed | 20,340 | |||
Management fees | 26,232 | |||
Custodian fees | 267 | |||
Transfer agent/maintenance fees | 4,794 | |||
Administration fees | 3,877 | |||
Professional fees | 9,191 | |||
12b-1 distribution plan fees | 10,896 | |||
Directors’ fees | 2,888 | |||
Other | 11,005 | |||
Total liabilities | 562,926 | |||
Net Assets | $ | 54,343,209 | ||
Net assets consist of: | ||||
Paid in capital | $ | 70,199,619 | ||
Undistributed net investment income | 212,689 | |||
Accumulated net realized loss on investments | (17,334,563 | ) | ||
Net unrealized appreciation on investments | 1,265,464 | |||
Net assets | $ | 54,343,209 | ||
A-Class: | ||||
Capital shares outstanding | ||||
(unlimited number of shares authorized) | 7,316,645 | |||
Net assets | $ | 47,718,275 | ||
Net asset value and redemption price per share | $6.52 | |||
Maximum offering price per share (net asset value divided by 94.25%) | $6.92 | |||
B-Class: | ||||
Capital shares outstanding | ||||
(unlimited number of shares authorized) | 684,276 | |||
Net assets | $ | 4,132,266 | ||
Net asset value, offering and redemption price per share (excluding any applicable contingent deferred sales charge) | $6.04 | |||
C-Class: | ||||
Capital shares outstanding | ||||
(unlimited number of shares authorized) | 405,549 | |||
Net assets | $ | 2,492,668 | ||
Net asset value, offering and redemption price per share (excluding any applicable contingent deferred sales charge) | $6.15 | |||
* Investments, at cost | $ | 50,414,205 | ||
** Premiums received for written options | $ | 22,541 |
STATEMENT OF
OPERATIONS
OPERATIONS
For the Year Ended September 30, 2010
Investment Income: | ||||
Dividends | $ | 833,610 | ||
Interest | 922 | |||
Total investment income | 834,532 | |||
Expenses: | ||||
Management fees | 330,582 | |||
Transfer agent/maintenance fees | 189,244 | |||
Administration fees | 48,490 | |||
Custodian fees | 2,273 | |||
Directors’ fees | 4,699 | |||
Professional fees | 16,711 | |||
Reports to shareholders | 8,994 | |||
Registration fees | 46,221 | |||
Other | 32,565 | |||
12b-1 distribution fees - A-Class | 110,912 | |||
12b-1 distribution fees - C-Class | 26,224 | |||
Total expenses | 816,915 | |||
Reimbursement of expenses | (204,444 | ) | ||
Net expenses | 612,471 | |||
Net investment income | 222,061 | |||
Net Realized and Unrealized Gain (Loss): | ||||
Net realized gain (loss) on: | ||||
Investments | (634,078 | ) | ||
Options written | 46,816 | |||
Net realized loss | (587,262 | ) | ||
Net change in unrealized appreciation (depreciation) on: | ||||
Investments | 3,647,506 | |||
Options written | 7,916 | |||
Net change in unrealized appreciation (depreciation) | 3,655,422 | |||
Net realized and unrealized gain | 3,068,160 | |||
Net increase in net assets resulting from operations | $ | 3,290,221 | ||
100 | | | THE RYDEX | SGI EQUITY FUNDS ANNUAL REPORT | The accompanying notes are an integral part of the financial statements. |
3
STATEMENTS OF CHANGES IN NET ASSETS | Rydex|SGI Large Cap Value Fund Large Cap Value Fund |
Year Ended | Year Ended | |||||||
September 30, | September 30, | |||||||
2010 | 2009 | |||||||
Increase (Decrease) In Net Assets From Operations: | ||||||||
Net investment income | $ | 222,061 | $ | 414,061 | ||||
Net realized loss on investments | (587,262 | ) | (9,147,170 | ) | ||||
Net change in unrealized appreciation (depreciation) on investments | 3,655,422 | (2,052,233 | ) | |||||
Net increase (decrease) in net assets resulting from operations | 3,290,221 | (10,785,342 | ) | |||||
Distributions to shareholders from: | ||||||||
Net investment income | ||||||||
A-Class | (355,258 | ) | (503,278 | ) | ||||
B-Class | (50,199 | ) | (90,508 | ) | ||||
Net realized gains | ||||||||
A-Class | — | (377,459 | ) | |||||
B-Class | — | (49,025 | ) | |||||
C-Class | — | (28,173 | ) | |||||
Total distributions to shareholders | (405,457 | ) | (1,048,443 | ) | ||||
Capital share transactions: | ||||||||
Proceeds from sale of shares | ||||||||
A-Class | 23,964,177 | 9,579,824 | ||||||
B-Class | 1,414,615 | 2,086,370 | ||||||
C-Class | 289,639 | 1,077,179 | ||||||
Distributions reinvested | ||||||||
A-Class | 337,049 | 846,030 | ||||||
B-Class | 49,907 | 138,477 | ||||||
C-Class | — | 28,048 | ||||||
Cost of shares redeemed | ||||||||
A-Class | (17,125,261 | ) | (29,267,639 | ) | ||||
B-Class | (2,349,156 | ) | (4,280,914 | ) | ||||
C-Class | (1,060,910 | ) | (1,844,593 | ) | ||||
Net increase (decrease) from capital share transactions | 5,520,060 | (21,637,218 | ) | |||||
Net increase (decrease) in net assets | 8,404,824 | (33,471,003 | ) | |||||
Net assets: | ||||||||
Beginning of year | 45,938,385 | 79,409,388 | ||||||
End of year | $ | 54,343,209 | $ | 45,938,385 | ||||
Undistributed net investment income at end of year | $ | 212,689 | $ | 396,085 | ||||
Capital share activity: | ||||||||
Shares sold | ||||||||
A-Class | 3,793,694 | 1,952,259 | ||||||
B-Class | 239,984 | 449,727 | ||||||
C-Class | 47,138 | 222,048 | ||||||
Shares issued from reinvestment of distributions | ||||||||
A-Class | 52,912 | 170,227 | ||||||
B-Class | 8,473 | 29,908 | ||||||
C-Class | — | 5,930 | ||||||
Shares redeemed | ||||||||
A-Class | (2,634,358 | ) | (5,975,380 | ) | ||||
B-Class | (395,240 | ) | (934,814 | ) | ||||
C-Class | (174,724 | ) | (389,302 | ) | ||||
Total capital share activity | 937,879 | (4,469,397 | ) | |||||
The accompanying notes are an integral part of the financial statements. | THE RYDEX | SGI EQUITY FUNDS ANNUAL REPORT | | | 101 |
4
FINANCIAL HIGHLIGHTS | Rydex|SGI Large Cap Value Fund Large Cap Value Fund |
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.
Year Ended | Year Ended | Year Ended | Year Ended | Year Ended | ||||||||||||||||
September 30, | September 30, | September 30, | September 30, | September 30, | ||||||||||||||||
A-Class | 2010 | 2009 | 2008 | 2007 | 2006 | |||||||||||||||
Per Share Data | ||||||||||||||||||||
Net asset value, beginning of period | $6.23 | $6.72 | $9.18 | $7.65 | $6.78 | |||||||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||
Net investment incomea | 0.03 | 0.05 | 0.05 | 0.04 | 0.01 | |||||||||||||||
Net gain (loss) on investments (realized and unrealized) | 0.31 | (0.45 | ) | (2.14 | ) | 1.49 | 0.90 | |||||||||||||
Total from investment operations | 0.34 | (0.40 | ) | (2.09 | ) | 1.53 | 0.91 | |||||||||||||
Less distributions from: | ||||||||||||||||||||
Net investment income | (0.05 | ) | (0.05 | ) | (0.04 | ) | — | (0.04 | ) | |||||||||||
Net realized gains | — | (0.04 | ) | (0.33 | ) | — | — | |||||||||||||
Total distributions | (0.05 | ) | (0.09 | ) | (0.37 | ) | — | (0.04 | ) | |||||||||||
Net asset value, end of period | $6.52 | $6.23 | $6.72 | $9.18 | $7.65 | |||||||||||||||
Total Returnb | 5.46% | (5.59% | ) | (23.45% | ) | 20.04% | 13.45% | |||||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||
Net assets, end of period (in thousands) | $47,718 | $38,008 | $66,902 | $79,998 | $64,786 | |||||||||||||||
Ratios to average net assets: | ||||||||||||||||||||
Net investment income | 0.46% | 0.88% | 0.68% | 0.51% | 0.17% | |||||||||||||||
Total expensesc | 1.59% | 1.70% | 1.36% | 1.35% | 1.49% | |||||||||||||||
Net expensesd | 1.18% | 1.25% | 1.25% | 1.27% | 1.49% | |||||||||||||||
Portfolio turnover rate | 29% | 25% | 48% | 25% | 54% |
Year Ended | Year Ended | Year Ended | Year Ended | Year Ended | ||||||||||||||||
September 30, | September 30, | September 30, | September 30, | September 30, | ||||||||||||||||
B-Class | 2010 | e | 2009 | e | 2008 | e | 2007 | e | 2006 | |||||||||||
Per Share Data | ||||||||||||||||||||
Net asset value, beginning of period | $5.78 | $6.29 | $8.58 | $7.18 | $6.38 | |||||||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||
Net investment income (loss)a | 0.04 | 0.06 | 0.07 | (0.01 | ) | (0.04 | ) | |||||||||||||
Net gain (loss) on investments (realized and unrealized) | 0.29 | (0.46 | ) | (2.02 | ) | 1.41 | 0.84 | |||||||||||||
Total from investment operations | 0.33 | (0.40 | ) | (1.95 | ) | 1.40 | 0.80 | |||||||||||||
Less distributions from: | ||||||||||||||||||||
Net investment income | (0.07 | ) | (0.07 | ) | (0.01 | ) | — | — | ||||||||||||
Net realized gains | — | (0.04 | ) | (0.33 | ) | — | — | |||||||||||||
Total distributions | (0.07 | ) | (0.11 | ) | (0.34 | ) | — | — | ||||||||||||
Net asset value, end of period | $6.04 | $5.78 | $6.29 | $8.58 | $7.18 | |||||||||||||||
Total Returnb | 5.78% | (5.91% | ) | (23.39% | ) | 19.50% | 12.54% | |||||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||
Net assets, end of period (in thousands) | $4,132 | $4,802 | $8,097 | $13,784 | $12,761 | |||||||||||||||
Ratios to average net assets: | ||||||||||||||||||||
Net investment income (loss) | 0.68% | 1.16% | 0.93% | (0.08% | ) | (0.58% | ) | |||||||||||||
Total expensesc | 1.33% | 1.47% | 1.11% | 1.92% | 2.26% | |||||||||||||||
Net expensesd | 0.94% | 1.00% | 1.00% | 1.85% | 2.26% | |||||||||||||||
Portfolio turnover rate | 29% | 25% | 48% | 25% | 54% |
102 | | | THE RYDEX | SGI EQUITY FUNDS ANNUAL REPORT | The accompanying notes are an integral part of the financial statements. |
FINANCIAL HIGHLIGHTS (concluded) | Rydex|SGI Large Cap Value Fund Large Cap Value Fund |
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.
Year Ended | Year Ended | Year Ended | Year Ended | Year Ended | ||||||||||||||||
September 30, | September 30, | September 30, | September 30, | September 30, | ||||||||||||||||
C-Class | 2010 | 2009 | 2008 | 2007 | 2006 | |||||||||||||||
Per Share Data | ||||||||||||||||||||
Net asset value, beginning of period | $5.87 | $6.35 | $8.72 | $7.31 | $6.49 | |||||||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||
Net investment income (loss)a | (0.02 | ) | 0.01 | — | (0.02 | ) | (0.04 | ) | ||||||||||||
Net gain (loss) on investments (realized and unrealized) | 0.30 | (0.45 | ) | (2.04 | ) | 1.43 | 0.86 | |||||||||||||
Total from investment operations | 0.28 | (0.44 | ) | (2.04 | ) | 1.41 | 0.82 | |||||||||||||
Less distributions from: | ||||||||||||||||||||
Net realized gains | — | (0.04 | ) | (0.33 | ) | — | — | |||||||||||||
Total distributions | — | (0.04 | ) | (0.33 | ) | — | — | |||||||||||||
Net asset value, end of period | $6.15 | $5.87 | $6.35 | $8.72 | $7.31 | |||||||||||||||
Total Returnb | 4.77% | (6.80% | ) | (24.09% | ) | 19.29% | 12.63% | |||||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||
Net assets, end of period (in thousands) | $2,493 | $3,128 | $4,410 | $5,717 | $3,536 | |||||||||||||||
Ratios to average net assets: | ||||||||||||||||||||
Net investment income (loss) | (0.31% | ) | 0.14% | (0.07% | ) | (0.23% | ) | (0.60% | ) | |||||||||||
Total expensesc | 2.33% | 2.46% | 2.11% | 2.10% | 2.25% | |||||||||||||||
Net expensesd | 1.94% | 2.00% | 2.00% | 2.02% | 2.25% | |||||||||||||||
Portfolio turnover rate | 29% | 25% | 48% | 25% | 54% |
| |
a | Net investment income (loss) was computed using average shares outstanding throughout the period. |
b | Total return information does not reflect deduction of any sales charges imposed at the time of purchase for A-Class shares or upon redemption for B-Class and C-Class shares. |
c | Total expense information reflects expense ratios absent expense reductions by the Investment Manager, as applicable. |
d | Net expense information reflects the expense ratios after voluntary expense waivers and reimbursements and before custodian earnings credits, as applicable. |
e | Effective August 1, 2007, B-Class shares ceased charging 12b-1 fees in accordance with FINRA (formerly NASD) sales cap regulations. Per share information reflects this change. This fee will be reinstated when sales exceed the sales cap limit. |
The accompanying notes are an integral part of the financial statements. | THE RYDEX | SGI EQUITY FUNDS ANNUAL REPORT | | | 103 |
MANAGER’S COMMENTARY
September 30, 2010
Advised by:
![(SECURITY GLOBAL INVESTORS LOGO)](https://capedge.com/proxy/N-CSR/0000950123-10-111594/g06945g0694504.gif)
To Our Shareholders:
For the fiscal year ended September 30, 2010, the Rydex|SGI Large Cap Value Fund-Large Cap Value Institutional Fund gained 7.00%1, less than the 8.90% return of its benchmark, the Russell 1000® Value Index.
Our strategy is to buy companies that are trading at a significant discount to their intrinsic value. Our investment approach is a defined and disciplined process of three clear philosophical tenets that drive our investment decisions: a valuation focus, a long-term perspective and an opportunistic approach.
This investment process is fundamentally driven and quantitatively aided. We use proprietary screens to identify potential companies for investment and then perform rigorous fundamental analysis to identify the best ideas. Through this fundamental research, we determine an estimate of intrinsic value and a valuation target for each potential investment. We construct the portfolio based on the level of conviction generated by this bottom-up analysis and the upside/downside profile associated with each company.
Financials and Energy Top Performers
The Fund’s Financials sector contributed to overall performance through a combination of an underweight allocation, 21.3% to 26.2%, and superior stock selection, even though the sector as a whole gained just 1.6% for the period. Berkshire Hathaway Inc. (Cl A), a 3.3% weight, was the leading holding with an increase of 20.2%. Regions Financial Corp., a 1.1% portfolio position, added to positive performance with a return of 17.8%. Other holdings contributing to the sector include Fifth Third Bancorp and Visa Inc.
A slight underweight in the Fund’s Energy sector, 14.6% to 16.4%, added relative value to the portfolio. The largest contributor in the sector was Halliburton Co., a 2.9% weight, which gained 23.5%. Other securities in the sector benefiting the fund included Williams Cos. and Chevron Corp.
The Information Technology and Health Care sectors added to positive returns for the Fund.
Consumer Discretionary and Utilities Disappoint
The Fund suffered from poor stock selection in both the Consumer Discretionary and Utilities sectors.
The Fund’s holdings in the Consumer Discretionary sector underperformed those in the Index by gaining only 3.4% against a 21.3% increase in the benchmark. J.C. Penney Co. Inc., a 1.9% weight, lost 17.2% over the period. While the 2.4% position in Lowe’s Cos. gained 8.3%, it was still well below the overall return for the Index.
Holdings in the Fund’s Utilities sector lost 4.1% as the Index increased 13.6%, a nearly 18% difference. NRG Energy Inc., a 1.3% weight, dropped 26.1% over the 12-month period. The 3.4% weight in Edison International gained 6.2%, less than half the increase for the sector in the Index.
Other sectors in the portfolio contributing to negative performance include Industrials, Consumer Staples, and Telecommunications Services.
Market Outlook
Our bottom-up approach views opportunity in the context of the potential long-term impact on individual companies. Our focus is on applying a bottom-up approach to identifying individual companies with the ability to be substantially better and have a positive impact on the portfolio over the next three to five years. We remain confident in our ability to uncover these companies.
Current markets reinforce that investing is a long-term pursuit that requires patience and a consistent approach. We recognize there are many investment fund alternatives available today and thank you for your business and the confidence you place in us.
Sincerely,
Mark Mitchell, CFA, Portfolio Manager
104 | | | THE RYDEX | SGI EQUITY FUNDS ANNUAL REPORT |
MANAGER’S COMMENTARY (concluded)
1 | Fee waivers and/or reimbursements reduce Fund expenses and in the absence of such waivers, the performance quoted would be reduced. Performance displayed represents past performance which is no guarantee of future results. Of course, Fund performance is subject to daily market volatility and may be better or worse since the end of the last quarter. For up-to-date Fund performance, call us at 800.820.0888 or visit www.rydex-sgi.com. |
Russell 1000® Value Index – measures the performance of the large-cap value segment of the U.S. equity universe. It includes those Russell 1000 companies with lower price-to-book ratios and lower expected growth values. | |
Rydex|SGI Funds are distributed by Rydex Distributors, LLC (RDL). Security Global InvestorsSM is the investment advisory arm of Security Benefit Corporation (Security Benefit). Security Global Investors consists of Security Global Investors, LLC, Security Investors, LLC and Rydex Investments. Rydex Investments is the primary business name for Rydex Advisors, LLC and Rydex Advisors II, LLC. Security Global Investors and RDL are affiliates and are subsidiaries of Security Benefit, which is wholly owned by Guggenheim SBC Holdings, LLC, a special purpose entity managed by Guggenheim Partners, LLC, a diversified financial services firm with more than $100 billion in assets under supervision. | |
Read each Fund’s prospectus and summary prospectus (if available) carefully before investing. It contains the Fund’s investment objectives, risks, charges, expenses and other information, which should be considered carefully before investing. Obtain a prospectus and summary prospectus (if available) at www.rydex-sgi.com or call 800.820.0888. |
THE RYDEX | SGI EQUITY FUNDS ANNUAL REPORT | | | 105 |
PERFORMANCE SUMMARY September 30, 2010 | Rydex|SGI Large Cap Value Fund Large Cap Value Institutional Fund (Unaudited) |
PERFORMANCE
![(PERFORMANCE GRAPH)](https://capedge.com/proxy/N-CSR/0000950123-10-111594/g06945g0694517.gif)
$10,000 Since Inception
This chart assumes a $10,000 investment in shares of Large Cap Value Institutional Fund on July 11, 2008 (date of inception), and assumes all dividends are reinvested. The chart does not reflect the deduction of taxes that a shareholder would pay on distributions or the redemption of fund shares. The Russell 1000® Value Index is an unmanaged index representing the performance of those Russell 1000® Index companies with lower price-to-book ratios and lower forecasted growth values.
AVERAGE ANNUAL RETURNS | ||||||||
PERIODS ENDED 9/30/10 | ||||||||
SINCE | ||||||||
INCEPTION | ||||||||
1 YEAR | (07/11/08) | |||||||
Large Cap Value Institutional Fund | 7.00 | % | -1.94 | % |
The performance data above represents past performance that is not predictive of future results. The investment return and principal value of an investment in the Fund will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. The figures do not reflect the deduction of taxes that a shareholder would pay on distributions or redemption of shares. Such figures would be lower if the maximum sales charge and any applicable taxes were deducted. Fee waivers and/or reimbursements reduced expenses of the Fund and in the absence of such waivers, the performance quoted would be reduced.
Portfolio Composition by Sector | ||||
Common Stocks | ||||
Consumer Discretionary | 7.4 | % | ||
Consumer Staples | 10.1 | % | ||
Energy | 14.1 | % | ||
Financials | 15.0 | % | ||
Health Care | 8.6 | % | ||
Industrials | 15.8 | % | ||
Information Technology | 13.8 | % | ||
Materials | 3.3 | % | ||
Telecommunication Services | 1.4 | % | ||
Utilities | 4.6 | % | ||
Exchange Traded Funds | 2.1 | % | ||
Cash & Other Assets, | ||||
Less Liabilities | 3.8 | % | ||
Total Net Assets | 100.0 | % | ||
106 | | | THE RYDEX | SGI EQUITY FUNDS ANNUAL REPORT | The accompanying notes are an integral part of the financial statements. |
SCHEDULE OF INVESTMENTS September 30, 2010 | Rydex|SGI Large Cap Value Fund Large Cap Value Institutional Fund |
Shares | Value | |||||||
COMMON STOCKS† - 94.1% | ||||||||
Industrials - 15.8% | ||||||||
Equifax, Inc. | 3,270 | $ | 102,023 | |||||
United Technologies Corp. | 1,030 | 73,367 | ||||||
Union Pacific Corp. | 860 | 70,348 | ||||||
FedEx Corp. | 800 | 68,400 | ||||||
Parker Hannifin Corp. | 740 | 51,844 | ||||||
Babcock & Wilcox Co.* | 2,035 | 43,305 | ||||||
USG Corp.* | 3,090 | 40,757 | ||||||
Total Industrials | 450,044 | |||||||
Financials - 15.0% | ||||||||
AON Corp. | 1,870 | 73,136 | ||||||
U.S. Bancorp | 3,041 | 65,746 | ||||||
Wells Fargo & Co. | 2,543 | 63,906 | ||||||
Berkshire Hathaway, Inc. — Class B*,1 | 700 | 57,876 | ||||||
JPMorgan Chase & Co. | 1,376 | 52,384 | ||||||
Bank of New York Mellon Corp. | 1,800 | 47,034 | ||||||
BB&T Corp. | 1,251 | 30,124 | ||||||
Regions Financial Corp. | 3,500 | 25,445 | ||||||
First Marblehead Corp.* | 3,412 | 7,984 | ||||||
Total Financials | 423,635 | |||||||
Energy - 14.1% | ||||||||
Chevron Corp. | 1,190 | 96,449 | ||||||
McDermott International, Inc.* | 4,070 | 60,155 | ||||||
Williams Companies, Inc. | 3,090 | 59,050 | ||||||
Exxon Mobil Corp. | 920 | 56,847 | ||||||
Halliburton Co. | 1,560 | 51,589 | ||||||
ConocoPhillips | 660 | 37,904 | ||||||
Chesapeake Energy Corp. | 1,600 | 36,240 | ||||||
Total Energy | 398,234 | |||||||
Information Technology - 13.8% | ||||||||
Western Union Co. | 6,640 | 117,329 | ||||||
Tyco Electronics Ltd. | 2,410 | 70,420 | ||||||
Hewlett-Packard Co. | 1,645 | 69,205 | ||||||
Computer Sciences Corp. | 1,400 | 64,400 | ||||||
Synopsys, Inc.* | 1,600 | 39,632 | ||||||
Visa, Inc. — Class A | 400 | 29,704 | ||||||
Total Information Technology | 390,690 | |||||||
Consumer Staples - 10.1% | ||||||||
Wal-Mart Stores, Inc.1 | 1,360 | 72,787 | ||||||
Costco Wholesale Corp. | 1,040 | 67,070 | ||||||
CVS Caremark Corp. | 1,960 | 61,681 | ||||||
Philip Morris International, Inc. | 630 | 35,293 | ||||||
Altria Group, Inc. | 1,100 | 26,422 | ||||||
Bunge Ltd. | 400 | 23,664 | ||||||
Total Consumer Staples | 286,917 | |||||||
Shares | Value | |||||||
Health Care - 8.6% | ||||||||
Hospira, Inc.* | 1,360 | $ | 77,533 | |||||
Aetna, Inc. | 2,420 | 76,496 | ||||||
Covidien plc | 1,350 | 54,257 | ||||||
Medco Health Solutions, Inc.* | 480 | 24,989 | ||||||
Genzyme Corp.* | 140 | 9,911 | ||||||
Total Health Care | 243,186 | |||||||
Consumer Discretionary - 7.4% | ||||||||
Lowe’s Companies, Inc. | 3,980 | 88,714 | ||||||
Time Warner, Inc. | 2,240 | 68,656 | ||||||
JC Penney Company, Inc. | 1,870 | 50,827 | ||||||
Total Consumer Discretionary | 208,197 | |||||||
Utilities - 4.6% | ||||||||
Edison International | 2,830 | 97,324 | ||||||
NRG Energy, Inc.* | 1,600 | 33,312 | ||||||
Total Utilities | 130,636 | |||||||
Materials - 3.3% | ||||||||
Dow Chemical Co. | 1,950 | 53,547 | ||||||
Bemis Company, Inc. | 1,300 | 41,275 | ||||||
Total Materials | 94,822 | |||||||
Telecommunication Services - 1.4% | ||||||||
Windstream Corp. | 3,130 | 38,468 | ||||||
Total Common Stocks | ||||||||
(Cost $2,494,672) | 2,664,829 | |||||||
EXCHANGE TRADED FUNDS† - 2.1% | ||||||||
iShares Russell 1000 Value Index Fund | 500 | 29,495 | ||||||
iShares S&P 500 Value Index Fund | 540 | 29,295 | ||||||
Total Exchange Traded Funds | ||||||||
(Cost $58,197) | 58,790 | |||||||
Total Investments - 96.2% | ||||||||
(Cost $2,552,869) | $ | 2,723,619 | ||||||
CONTRACTS | ||||||||
OPTIONS WRITTEN† - 0.0% | ||||||||
Put Options on: | ||||||||
Wells Fargo & Co. | ||||||||
Expiring October 2010 | ||||||||
with strike price of $27.00 | 5 | (975 | ) | |||||
Total Options Written | ||||||||
(Premiums received $1,503) | (975 | ) | ||||||
Cash & Other Assets, | ||||||||
Less Liabilities - 3.8% | 108,306 | |||||||
Total Net Assets - 100.0% | $ | 2,830,950 | ||||||
* | Non-income producing security. |
† | Value determined based on Level 1 inputs — See Note 9. |
1 | Security is segregated as collateral for open written option contracts. |
plc — Public Limited Company. |
The accompanying notes are an integral part of the financial statements. | THE RYDEX | SGI EQUITY FUNDS ANNUAL REPORT | | | 107 |
Rydex|SGI Large Cap Value Fund Large Cap Value Institutional Fund |
STATEMENT OF ASSETS
AND LIABILITIES
AND LIABILITIES
September 30, 2010
Assets: | ||||
Investments, at value* | $ | 2,723,619 | ||
Cash | 105,580 | |||
Receivables: | ||||
Dividends | 4,484 | |||
Due from Security Investors | 9,090 | |||
Prepaid expenses | 10,863 | |||
Total assets | 2,853,636 | |||
Liabilities: | ||||
Written options, at value** | 975 | |||
Payable for: | ||||
Management fees | 1,471 | |||
Administration fees | 215 | |||
Transfer agent/maintenance fees | 4,309 | |||
Custodian fees | 223 | |||
Directors’ fees | 118 | |||
Professional fees | 7,978 | |||
Other | 7,397 | |||
Total liabilities | 22,686 | |||
Net assets | $ | 2,830,950 | ||
Net assets consist of: | ||||
Paid in capital | $ | 3,011,335 | ||
Undistributed net investment income | 15,398 | |||
Accumulated net realized loss on investments | (367,061 | ) | ||
Net unrealized appreciation on investments | 171,278 | |||
Net assets | $ | 2,830,950 | ||
Capital shares authorized | unlimited | |||
Capital shares outstanding | 300,073 | |||
Net asset value per share | ||||
(net assets divided by shares outstanding) | $9.43 | |||
* Investments, at cost | $ | 2,552,869 | ||
** Premiums received for written options | $ | 1,503 |
STATEMENT OF
OPERATIONS
OPERATIONS
For the Year Ended September 30, 2010
Investment Income: | ||||||||
Dividends | $ | 44,593 | ||||||
Interest | 46 | |||||||
Total investment income | 44,639 | |||||||
Expenses: | ||||||||
Management fees | 18,163 | |||||||
Administration fees | 17,610 | |||||||
Transfer agent/maintenance fees | 19,008 | |||||||
Custodian fees | 1,590 | |||||||
Directors’ fees | 280 | |||||||
Professional fees | 9,003 | |||||||
Reports to shareholders | 4,510 | |||||||
Registration fees | 15,990 | |||||||
Other | 2,819 | |||||||
Total expenses | 88,973 | |||||||
Reimbursement of expenses | (61,962 | ) | ||||||
Net expenses | 27,011 | |||||||
Net investment income | 17,628 | |||||||
Net Realized and Unrealized Gain (Loss): | ||||||||
Net realized gain (loss) on: | ||||||||
Investments | (46,438 | ) | ||||||
Options written | 2,620 | |||||||
Net realized loss | (43,818 | ) | ||||||
Net change in unrealized appreciation | ||||||||
(depreciation) on: | ||||||||
Investments | 210,131 | |||||||
Options written | 528 | |||||||
Net change in unrealized appreciation (depreciation) | 210,659 | |||||||
Net realized and unrealized gain | 166,841 | |||||||
Net increase in net assets resulting | ||||||||
from operations | $ | 184,469 | ||||||
108 | | | THE RYDEX | SGI EQUITY FUNDS ANNUAL REPORT | The accompanying notes are an integral part of the financial statements. |
STATEMENTS OF CHANGES IN NET ASSETS | Rydex|SGI Large Cap Value Fund Large Cap Value Institutional Fund |
Year Ended | Year Ended | |||||||
September 30, | September 30, | |||||||
2010 | 2009 | |||||||
Increase (Decrease) In Net Assets From Operations: | ||||||||
Net investment income | $ | 17,628 | $ | 33,258 | ||||
Net realized loss on investments | (43,818 | ) | (280,294 | ) | ||||
Net change in unrealized appreciation (depreciation) on investments | 210,659 | 42,891 | ||||||
Net increase (decrease) in net assets resulting from operations | 184,469 | (204,145 | ) | |||||
Distributions to shareholders from: | ||||||||
Net investment income | (23,939 | ) | (19,621 | ) | ||||
Total distributions to shareholders | (23,939 | ) | (19,621 | ) | ||||
Capital share transactions: | ||||||||
Proceeds from sale of shares | 740,266 | 2,460,110 | ||||||
Dividends reinvested | 23,939 | 19,622 | ||||||
Cost of shares redeemed | (811,428 | ) | (2,416,519 | ) | ||||
Net increase (decrease) from capital share transactions | (47,223 | ) | 63,213 | |||||
Net increase (decrease) in net assets | 113,307 | (160,553 | ) | |||||
Net assets: | ||||||||
Beginning of year | 2,717,643 | 2,878,196 | ||||||
End of year | $ | 2,830,950 | $ | 2,717,643 | ||||
Undistributed net investment income at end of year | $ | 15,398 | $ | 21,709 | ||||
Capital share activity: | ||||||||
Shares sold | 79,452 | 343,781 | ||||||
Shares issued from reinvestment of distributions | 2,631 | 2,763 | ||||||
Shares redeemed | (87,551 | ) | (340,533 | ) | ||||
Total capital share activity | (5,468 | ) | 6,011 | |||||
The accompanying notes are an integral part of the financial statements. | THE RYDEX | SGI EQUITY FUNDS ANNUAL REPORT | | | 109 |
FINANCIAL HIGHLIGHTS | Rydex|SGI Large Cap Value Fund Large Cap Value Institutional Fund |
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.
Year Ended | Year Ended | Year Ended | ||||||||||
September 30, | September 30, | September 30, | ||||||||||
2010 | 2009 | 2008 | a | |||||||||
Per Share Data | ||||||||||||
Net asset value, beginning of period | $8.89 | $9.61 | $10.00 | |||||||||
Income (loss) from investment operations: | ||||||||||||
Net investment incomeb | 0.06 | 0.09 | 0.03 | |||||||||
Net gain (loss) on investments (realized and unrealized) | 0.56 | (0.76 | ) | (0.42 | ) | |||||||
Total from investment operations | 0.62 | (0.67 | ) | (0.39 | ) | |||||||
Less distributions from: | ||||||||||||
Net investment income | (0.08 | ) | (0.05 | ) | — | |||||||
Total distributions | (0.08 | ) | (0.05 | ) | — | |||||||
Net asset value, end of period | $9.43 | $8.89 | $ 9.61 | |||||||||
Total Return | 7.00% | (6.89% | ) | (3.90% | ) | |||||||
Ratios/Supplemental Data | ||||||||||||
Net assets, end of period (in thousands) | $2,831 | $2,718 | $2,878 | |||||||||
Ratios to average net assets: | ||||||||||||
Net investment income | 0.63% | 1.22% | 1.17% | |||||||||
Total expensesc | 3.18% | 2.37% | 2.33% | |||||||||
Net expensesd | 0.97% | 0.98% | 0.98% | |||||||||
Portfolio turnover rate | 26% | 45% | 35% |
| |
a | The Large Cap Value Institutional Fund was initially capitalized on July 11, 2008 with a net asset value of $10 per share. Percentage amounts for the period, except total return, have been annualized. |
b | Net investment income (loss) was computed using average shares outstanding throughout the period. |
c | Total expense information reflects the expense ratios absent expense reductions by the Investment Manager, as applicable. |
d | Net expense information reflects the expense ratios after voluntary expense waivers and reimbursements and before custodian earnings credits, as applicable. |
110 | | | THE RYDEX | SGI EQUITY FUNDS ANNUAL REPORT | The accompanying notes are an integral part of the financial statements. |
MANAGER’S COMMENTARY
September 30, 2010
Advised by:
![(SECURITY GLOBAL INVESTORS LOGO)](https://capedge.com/proxy/N-CSR/0000950123-10-111594/g06945g0694504.gif)
To Our Shareholders:
For the fiscal year ended September 30, 2010, the Rydex|SGI Mid Cap Growth Fund returned 12.54%1, underperforming the Russell Midcap® Growth Index’s return of 18.27% and its peer group median return of 16.08%.
The Fund uses a combination of a qualitative macroeconomic approach in reviewing growth trends that is based upon several fixed-income factors, such as bond spreads and interest rates, along with a quantitative fundamental bottom-up approach in selecting growth stocks. The manager chooses securities that it believes are attractively valued with the greatest potential for long-term growth of capital.
The manager seeks to identify securities of companies that are able to grow and reinvest in increasingly profitable ventures and hold them over three to five years to capture the best part of the improvements in profits or profitability. We target securities of companies that appear likely to generate above-average profitability at prices that do not reflect that potential.
Industrials and Energy Top Performers
The Fund’s holdings in the Industrials and Energy sectors led performance due to superior stock selection. The Industrials sector, a slight overweight position, beat the benchmark 28.2% to 19.6%. Overall, the Fund’s holdings in the Energy sector returned 17.8% compared with a loss of 1.18% for the Index.
Union Pacific Corp., a 2.1% position that was not in the Fund’s Index gained 42.6%. Dover Corp., another solid weighting at 3.2%, increased 38.0% during the period. Other holdings in the Industrials sector that performed well included Cummins Inc. and Goodrich Corp., which gained 40.2% and 37.9%, respectively.
Positions of more than 1% in Peabody Energy Corp. and Williams Cos. helped portfolio performance with returns of 14.3% and 13.5%, respectively. FMC
Technologies Inc. was a positive contributor with an increase of 26.4%. Another decision benefiting the Fund was not investing in Petrohawk Energy Corp., an Index holding that lost over 33% during the fiscal year.
Health Care, Information Technology, and Financials Disappoint
Security selection was the main factor in what hurt the Fund’s total return. The Fund’s Health Care sector lost 2.3% against a positive return of 18.5% for the Index. Information Technology holdings lagged the Index by 6% while the portfolio’s Financials holdings dropped 6.5% compared with an 11.9% gain for the benchmark.
Detracting from performance in the Health Care sector was Beckman Coulter Inc., a 1.5% weight, which lost 12.5%. Zimmer Holdings Inc., a 2.3% weight, was also down more than 12%. Community Health Systems Inc. lost 24.8% during the period.
In the Information Technology sector, CommScope Inc. dropped 34.5%. On Semiconductor Corp., a 1.2% weight, was off 3.76%, while McAfee Inc. decreased by 11.37%.
Several positions in the Financials sector hurt Fund performance. Comerica Inc. was down 14.1%, Western Union Co. by 12.8%, and BlackRock Inc. by 10.3%. The Fund held a 1.9% position in T. Rowe Price Group Inc., which was down slightly at 0.7% due to transactions at different times of the fiscal year. Had the security been held throughout the entire period, it would have gained 11.9%.
Market Outlook
Our bottom-up approach looks at market uncertainty in the context of the potential long-term impact on individual companies. Our focus is on identifying companies with the ability to be substantially better over the next three to five years or have the potential to maintain their return on capital at current levels in a difficult economic environment. During these uncertain times and volatile market conditions, we are confident in our
THE RYDEX | SGI EQUITY FUNDS ANNUAL REPORT | | | 111 |
MANAGER’S COMMENTARY (concluded)
ability to find these companies by consistently applying our disciplined process to individual stock evaluations.
On behalf of Security Global Investors, I would like to thank you for trusting your investments with us. As always, we continue to do our best to seek the potential available in mid capitalization companies.
Sincerely,
Joseph O’Connor, Portfolio Manager
1 | Performance figures are based on A-Class shares and do not reflect deduction of the sales charges or taxes that a shareholder would pay on distributions or redemptions of shares. |
Performance displayed represents past performance which is no guarantee of future results. Of course, Fund performance is subject to daily market volatility and may be better or worse since the end of the last quarter. For up-to-date Fund performance, call us at 800.820.0888 or visit www.rydex-sgi.com. | |
Russell Midcap® Growth Index – measures the performance of the mid-cap growth segment of the U.S. equity universe. It includes those Russell Midcap Index companies with higher price-to-book ratios and higher forecasted growth values. | |
Rydex|SGI Funds are distributed by Rydex Distributors, LLC (RDL). Security Global InvestorsSM is the investment advisory arm of Security Benefit Corporation (Security Benefit). Security Global Investors consists of Security Global Investors, LLC, Security Investors, LLC and Rydex Investments. Rydex Investments is the primary business name for Rydex Advisors, LLC and Rydex Advisors II, LLC. Security Global Investors and RDL are affiliates and are subsidiaries of Security Benefit, which is wholly owned by Guggenheim SBC Holdings, LLC, a special purpose entity managed by Guggenheim Partners, LLC, a diversified financial services firm with more than $100 billion in assets under supervision. | |
Read each Fund’s prospectus and summary prospectus (if available) carefully before investing. It contains the Fund’s investment objectives, risks, charges, expenses and other information, which should be considered carefully before investing. Obtain a prospectus and summary prospectus (if available) at www.rydex-sgi.com or call 800.820.0888. |
112 | | | THE RYDEX | SGI EQUITY FUNDS ANNUAL REPORT |
PERFORMANCE SUMMARY September 30, 2010 | Rydex|SGI Mid Cap Growth Fund (Unaudited) |
PERFORMANCE
![(PERFORMANCE GRAPH)](https://capedge.com/proxy/N-CSR/0000950123-10-111594/g06945g0694518a.gif)
$10,000 Over Ten Years
This chart assumes a $10,000 investment in A-Class shares of Mid Cap Growth Fund on September 30, 2000, reflects deduction of the maximum front-end sales charge of 5.75% and assumes all dividends are reinvested. The chart does not reflect the deduction of taxes that a shareholder would pay on distributions of the redemption of fund shares. The Russell MidCap® Growth Index is an unmanaged capitalization-weighted index that is designed to measure the performance of the 800 smallest companies in the Russell 1000® Index with higher price-to-book ratios and higher forecasted growth values.
AVERAGE ANNUAL RETURNS | ||||||||||||||
PERIODS ENDED 9/30/10 | ||||||||||||||
(Inception 9/17/1969) | ||||||||||||||
1 YEAR | 5 YEAR | 10 YEAR | ||||||||||||
A-Class Shares | 12.54 | % | -2.27 | % | -1.02 | % | ||||||||
A-Class Shares with sales charge | 6.05 | % | -3.42 | % | -1.60 | % | ||||||||
B-Class Shares | 11.76 | % | -3.00 | % | -1.67 | % | ||||||||
B-Class Shares with CDSC | 6.76 | % | -3.23 | % | -1.67 | % | ||||||||
C-Class Shares | 11.60 | % | -3.01 | % | -1.73 | % | ||||||||
C-Class Shares with CDSC | 10.60 | % | -3.01 | % | -1.73 | % |
The performance data above represents past performance that is not predictive of future results. The investment return and principal value of an investment in the Fund will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. The figures above do not reflect deduction of the maximum front-end sales charge of 5.75% for A-Class shares or the CDSC of up to 5% for B-Class shares and 1% for C-Class shares, as applicable, except where noted. The figures do not reflect the deduction of taxes that a shareholder would pay on distributions or redemption of shares. Such figures would be lower if the maximum sales charge and any applicable taxes were deducted.
Portfolio Composition by Sector | ||||
Common Stocks | ||||
Consumer Discretionary | 21.3 | % | ||
Consumer Staples | 1.2 | % | ||
Energy | 4.2 | % | ||
Financials | 6.9 | % | ||
Health Care | 10.1 | % | ||
Industrials | 20.4 | % | ||
Information Technology | 20.7 | % | ||
Materials | 7.6 | % | ||
Telecommunication Services | 2.0 | % | ||
Exchange Traded Funds | 2.1 | % | ||
Cash & Other Assets, | ||||
Less Liabilities | 3.5 | % | ||
Total Net Assets | 100.0 | % | ||
The accompanying notes are an integral part of the financial statements. | THE RYDEX | SGI EQUITY FUNDS ANNUAL REPORT | | | 113 |
SCHEDULE OF INVESTMENTS September 30, 2010 | Rydex|SGI Mid Cap Growth Fund |
SHARES | VALUE | |||||||
COMMON STOCKS† - 94.4% | ||||||||
Consumer Discretionary - 21.3% | ||||||||
Jarden Corp. | 73,480 | $ | 2,287,432 | |||||
Johnson Controls, Inc. | 70,050 | 2,136,525 | ||||||
Phillips-Van Heusen Corp. | 29,050 | 1,747,648 | ||||||
Kohl’s Corp.* | 31,300 | 1,648,884 | ||||||
Penn National Gaming, Inc.* | 44,570 | 1,319,718 | ||||||
Bed Bath & Beyond, Inc.* | 30,270 | 1,314,021 | ||||||
Starwood Hotels & Resorts Worldwide, Inc. | 24,400 | 1,282,220 | ||||||
WMS Industries, Inc.* | 33,555 | 1,277,439 | ||||||
Royal Caribbean Cruises Ltd.* | 40,300 | 1,270,659 | ||||||
Las Vegas Sands Corp.* | 33,750 | 1,176,188 | ||||||
Darden Restaurants, Inc. | 24,750 | 1,058,805 | ||||||
Life Time Fitness, Inc.* | 22,100 | 872,287 | ||||||
Total Consumer Discretionary | 17,391,826 | |||||||
Information Technology - 20.7% | ||||||||
Agilent Technologies, Inc.* | 62,200 | 2,075,614 | ||||||
Equinix, Inc.* | 19,200 | 1,965,120 | ||||||
Amphenol Corp. — Class A | 38,700 | 1,895,526 | ||||||
Cadence Design Systems, Inc.* | 211,980 | 1,617,408 | ||||||
Cognizant Technology Solutions Corp. — Class A* | 24,285 | 1,565,654 | ||||||
Alliance Data Systems Corp.* | 20,915 | 1,364,913 | ||||||
Check Point Software Technologies Ltd.* | 31,995 | 1,181,575 | ||||||
Lam Research Corp.* | 27,838 | 1,165,020 | ||||||
Nuance Communications, Inc.* | 73,035 | 1,142,267 | ||||||
Xerox Corp. | 108,200 | 1,119,870 | ||||||
NetApp, Inc.* | 20,500 | 1,020,695 | ||||||
PMC - Sierra, Inc.* | 113,100 | 832,416 | ||||||
Total Information Technology | 16,946,078 | |||||||
Industrials - 20.4% | ||||||||
Cooper Industries plc — Class A | 50,400 | 2,466,071 | ||||||
Dover Corp. | 46,950 | 2,451,260 | ||||||
Cummins, Inc. | 27,000 | 2,445,660 | ||||||
Roper Industries, Inc. | 35,470 | 2,311,934 | ||||||
AMETEK, Inc. | 42,750 | 2,042,168 | ||||||
Union Pacific Corp. | 24,620 | 2,013,916 | ||||||
Joy Global, Inc. | 21,650 | 1,522,428 | ||||||
Goodrich Corp. | 19,350 | 1,426,676 | ||||||
Total Industrials | 16,680,113 | |||||||
Health Care - 10.1% | ||||||||
Thermo Fisher Scientific, Inc.* | 47,815 | 2,289,382 | ||||||
Hospira, Inc.* | 35,700 | 2,035,257 | ||||||
Teva Pharmaceutical Industries Ltd. ADR | 30,965 | 1,633,403 |
SHARES | VALUE | |||||||
Endo Pharmaceuticals Holdings, Inc.* | 32,000 | $ | 1,063,680 | |||||
Community Health Systems, Inc.* | 21,050 | 651,919 | ||||||
Hill-Rom Holdings, Inc. | 15,200 | 545,528 | ||||||
Total Health Care | 8,219,169 | |||||||
Materials - 7.6% | ||||||||
Ball Corp. | 38,522 | 2,267,019 | ||||||
Praxair, Inc. | 17,575 | 1,586,320 | ||||||
International Flavors & Fragrances, Inc. | 27,150 | 1,317,318 | ||||||
Solutia, Inc.* | 62,700 | 1,004,454 | ||||||
Total Materials | 6,175,111 | |||||||
Financials - 6.9% | ||||||||
Discover Financial Services | 98,700 | 1,646,316 | ||||||
T. Rowe Price Group, Inc. | 31,800 | 1,592,067 | ||||||
HCC Insurance Holdings, Inc. | 48,850 | 1,274,497 | ||||||
Comerica, Inc. | 30,700 | 1,140,505 | ||||||
Total Financials | 5,653,385 | |||||||
Energy - 4.2% | ||||||||
Newfield Exploration Co.* | 31,050 | 1,783,512 | ||||||
FMC Technologies, Inc.* | 24,200 | 1,652,618 | ||||||
Total Energy | 3,436,130 | |||||||
Telecommunication Services - 2.0% | ||||||||
SBA Communications Corp. — Class A* | 40,700 | 1,640,210 | ||||||
Consumer Staples - 1.2% | ||||||||
Clorox Co. | 15,200 | 1,014,752 | ||||||
Total Common Stocks (Cost $67,365,308) | 77,156,774 | |||||||
WARRANT†† - 0.0% | ||||||||
Nova Biosource Fuels, Inc. $2.40, 07/05/11 | 208,050 | 286 | ||||||
Total Warrant (Cost $214,905) | 286 | |||||||
EXCHANGE TRADED FUND† - 2.1% | ||||||||
iShares Russell Midcap Growth Index Fund | 33,885 | 1,688,151 | ||||||
Total Exchange Traded Fund (Cost $1,616,646) | 1,688,151 | |||||||
Total Investments - 96.5% (Cost $69,196,859) | $ | 78,845,211 | ||||||
Cash & Other Assets, Less Liabilities - 3.5% | 2,888,597 | |||||||
Total Net Assets - 100.0% | $ | 81,733,808 | ||||||
* | Non-income producing security. |
† | Value determined based on Level 1 inputs — See Note 9. |
†† | Value determined based on Level 2 inputs — See Note 9. |
ADR — American Depositary Receipt. | |
plc — Public Limited Company. |
114 | | | THE RYDEX | SGI EQUITY FUNDS ANNUAL REPORT | The accompanying notes are an integral part of the financial statements. |
Rydex|SGI Mid Cap Growth Fund |
STATEMENT OF ASSETS
AND LIABILITIES
AND LIABILITIES
September 30, 2010
Assets: | ||||
Investments, at value* | $ | 78,845,211 | ||
Cash | 2,713,939 | |||
Receivables: | ||||
Fund shares sold | 9,655 | |||
Securities sold | 3,204,218 | |||
Dividends | 60,950 | |||
Prepaid expenses | 20,353 | |||
Total assets | 84,854,326 | |||
Liabilities: | ||||
Payable for: | ||||
Securities purchased | 2,904,688 | |||
Fund shares redeemed | 41,534 | |||
Management fees | 48,956 | |||
Custodian fees | 538 | |||
Transfer agent/maintenance fees | 7,782 | |||
Administration fees | 6,201 | |||
Professional fees | 15,162 | |||
12b-1 distribution plan fees | 22,249 | |||
Directors’ fees | 44,045 | |||
Other | 29,363 | |||
Total liabilities | 3,120,518 | |||
Net assets | $ | 81,733,808 | ||
Net assets consist of: | ||||
Paid in capital | $ | 104,614,555 | ||
Accumulated net realized loss on investments | (32,529,099 | ) | ||
Net unrealized appreciation on investments | 9,648,352 | |||
Net assets | $ | 81,733,808 | ||
A-Class: | ||||
Capital shares outstanding | ||||
(unlimited number of shares authorized) | 9,762,009 | |||
Net assets | $ | 71,858,331 | ||
Net asset value and redemption price per share | $7.36 | |||
Maximum offering price per share (net asset value divided by 94.25%) | $7.81 | |||
B-Class: | ||||
Capital shares outstanding | ||||
(unlimited number of shares authorized) | 823,391 | |||
Net assets | $ | 4,536,680 | ||
Net asset value, offering and redemption price per share (excluding any applicable contingent deferred sales charge) | $5.51 | |||
C-Class: | ||||
Capital shares outstanding | ||||
(unlimited number of shares authorized) | 840,555 | |||
Net assets | $ | 5,338,797 | ||
Net asset value, offering and redemption price per share (excluding any applicable contingent deferred sales charge) | $6.35 | |||
*Investments, at cost | $ | 69,196,859 |
STATEMENT OF
OPERATIONS
OPERATIONS
For the Year Ended September 30, 2010
Investment Income: | ||||
Dividends | $ | 672,329 | ||
Interest | 1,282 | |||
Total investment income | 673,611 | |||
Expenses: | ||||
Management fees | 610,509 | |||
Transfer agent/maintenance fees | 293,786 | |||
Administration fees | 77,511 | |||
Custodian fees | 5,390 | |||
Directors’ fees | 48,786 | |||
Professional fees | 22,378 | |||
Reports to shareholders | 21,585 | |||
Registration fees | 46,292 | |||
Other | 32,902 | |||
12b-1 distribution fees - A-Class | 176,186 | |||
12b-1 distribution fees - B-Class | 54,800 | |||
12b-1 distribution fees - C-Class | 54,470 | |||
Total expenses | 1,444,595 | |||
Net investment loss | (770,984 | ) | ||
Net Realized and Unrealized Gain (Loss): | ||||
Net realized gain (loss) on: | ||||
Investments | 12,599,744 | |||
Net realized gain | 12,599,744 | |||
Net change in unrealized appreciation | ||||
(depreciation) on: | ||||
Investments | (2,290,110 | ) | ||
Net change in unrealized appreciation (depreciation) | (2,290,110 | ) | ||
Net realized and unrealized gain | 10,309,634 | |||
Net increase in net assets resulting from operations | $ | 9,538,650 | ||
The accompanying notes are an integral part of the financial statements. | THE RYDEX | SGI EQUITY FUNDS ANNUAL REPORT | | | 115 |
STATEMENTS OF CHANGES IN NET ASSETS | Rydex|SGI Mid Cap Growth Fund |
Year Ended | Year Ended | |||||||
September 30, | September 30, | |||||||
2010 | 2009 | |||||||
Increase (Decrease) In Net Assets From Operations: | ||||||||
Net investment loss | $ | (770,984 | ) | $ | (750,158 | ) | ||
Net realized gain (loss) on investments | 12,599,744 | (21,443,279 | ) | |||||
Net change in unrealized appreciation (depreciation) on investments | (2,290,110 | ) | 22,788,661 | |||||
Net increase in net assets resulting from operations | 9,538,650 | 595,224 | ||||||
Distributions to shareholders from: | ||||||||
Net realized gains | ||||||||
A-Class | — | (535,743 | ) | |||||
B-Class | — | (73,574 | ) | |||||
C-Class | — | (53,571 | ) | |||||
Total distributions to shareholders | — | (662,888 | ) | |||||
Capital share transactions: | ||||||||
Proceeds from sale of shares | ||||||||
A-Class | 8,594,212 | 12,472,300 | ||||||
B-Class | 168,153 | 2,327,638 | ||||||
C-Class | 764,151 | 1,992,612 | ||||||
Distributions reinvested | ||||||||
A-Class | — | 513,214 | ||||||
B-Class | — | 72,606 | ||||||
C-Class | — | 50,288 | ||||||
Cost of shares redeemed | ||||||||
A-Class | (17,101,108 | ) | (12,908,354 | ) | ||||
B-Class | (3,669,427 | ) | (2,576,449 | ) | ||||
C-Class | (1,620,755 | ) | (2,633,411 | ) | ||||
Net decrease from capital share transactions | (12,864,774 | ) | (689,556 | ) | ||||
Net decrease in net assets | (3,326,124 | ) | (757,220 | ) | ||||
Net assets: | ||||||||
Beginning of year | 85,059,932 | 85,817,152 | ||||||
End of year | $ | 81,733,808 | $ | 85,059,932 | ||||
Accumulated net investment loss at end of year | $ | — | $ | — | ||||
Capital share activity: | ||||||||
Shares sold | ||||||||
A-Class | 1,268,879 | 2,324,333 | ||||||
B-Class | 33,044 | 571,695 | ||||||
C-Class | 127,029 | 344,666 | ||||||
Shares issued from reinvestment of distributions | ||||||||
A-Class | — | 111,569 | ||||||
B-Class | — | 20,804 | ||||||
C-Class | — | 12,509 | ||||||
Shares redeemed | ||||||||
A-Class | (2,513,824 | ) | (2,528,289 | ) | ||||
B-Class | (720,750 | ) | (647,831 | ) | ||||
C-Class | (275,201 | ) | (506,175 | ) | ||||
Total capital share activity | (2,080,823 | ) | (296,719 | ) | ||||
116 | | | THE RYDEX | SGI EQUITY FUNDS ANNUAL REPORT | The accompanying notes are an integral part of the financial statements. |
FINANCIAL HIGHLIGHTS | Rydex|SGI Mid Cap Growth Fund |
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.
Year Ended | Year Ended | Year Ended | Year Ended | Year Ended | ||||||||||||||||
September 30, | September 30, | September 30, | September 30, | September 30, | ||||||||||||||||
A-Class | 2010 | 2009 | 2008 | 2007 | 2006 | |||||||||||||||
Per Share Data | ||||||||||||||||||||
Net asset value, beginning of period | $6.54 | $6.46 | $11.11 | $12.03 | $12.65 | |||||||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||
Net investment lossa | (0.06 | ) | (0.05 | ) | (0.05 | ) | (0.08 | ) | (0.12 | ) | ||||||||||
Net gain (loss) on investments (realized and unrealized) | 0.88 | 0.18 | (2.46 | ) | 0.35 | 0.47 | ||||||||||||||
Total from investment operations | 0.82 | 0.13 | (2.51 | ) | 0.27 | 0.35 | ||||||||||||||
Less distributions from: | ||||||||||||||||||||
Net realized gains | — | (0.05 | ) | (2.14 | ) | (1.19 | ) | (0.97 | ) | |||||||||||
Total distributions | — | (0.05 | ) | (2.14 | ) | (1.19 | ) | (0.97 | ) | |||||||||||
Net asset value, end of period | $7.36 | $6.54 | $6.46 | $11.11 | $12.03 | |||||||||||||||
Total Returnb | 12.54% | 2.32% | (26.24% | ) | 2.10% | 2.81% | ||||||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||
Net assets, end of period (in thousands) | $71,858 | $71,985 | $71,655 | $160,544 | $192,159 | |||||||||||||||
Ratios to average net assets: | ||||||||||||||||||||
Net investment loss | (0.85% | ) | (0.99% | ) | (0.63% | ) | (0.67% | ) | (0.93% | ) | ||||||||||
Total expenses | 1.67% | 1.78% | 1.50% | 1.41% | 1.40% | |||||||||||||||
Portfolio turnover rate | 133% | 138% | 191% | c | 34% | 41% |
Year Ended | Year Ended | Year Ended | Year Ended | Year Ended | ||||||||||||||||
September 30, | September 30, | September 30, | September 30, | September 30, | ||||||||||||||||
B-Class | 2010 | 2009 | 2008 | 2007 | 2006 | |||||||||||||||
Per Share Data | ||||||||||||||||||||
Net asset value, beginning of period | $4.93 | $4.92 | $9.09 | $10.12 | $10.86 | |||||||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||
Net investment lossa | (0.08 | ) | (0.07 | ) | (0.09 | ) | (0.14 | ) | (0.18 | ) | ||||||||||
Net gain (loss) on investments (realized and unrealized) | 0.66 | 0.13 | (1.94 | ) | 0.30 | 0.41 | ||||||||||||||
Total from investment operations | 0.58 | 0.06 | (2.03 | ) | 0.16 | 0.23 | ||||||||||||||
Less distributions from: | ||||||||||||||||||||
Net realized gains | — | (0.05 | ) | (2.14 | ) | (1.19 | ) | (0.97 | ) | |||||||||||
Total distributions | — | (0.05 | ) | (2.14 | ) | (1.19 | ) | (0.97 | ) | |||||||||||
Net asset value, end of period | $5.51 | $4.93 | $4.92 | $9.09 | $10.12 | |||||||||||||||
Total Returnb | 11.76% | 1.61% | (26.92% | ) | 1.34% | 2.12% | ||||||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||
Net assets, end of period (in thousands) | $4,537 | $7,454 | $7,711 | $14,877 | $22,010 | |||||||||||||||
Ratios to average net assets: | ||||||||||||||||||||
Net investment loss | (1.60% | ) | (1.73% | ) | (1.40% | ) | (1.43% | ) | (1.68% | ) | ||||||||||
Total expenses | 2.42% | 2.53% | 2.26% | 2.16% | 2.15% | |||||||||||||||
Portfolio turnover rate | 133% | 138% | 191% | c | 34% | 41% |
The accompanying notes are an integral part of the financial statements. | THE RYDEX | SGI EQUITY FUNDS ANNUAL REPORT | | | 117 |
FINANCIAL HIGHLIGHTS (concluded) | Rydex|SGI Mid Cap Growth Fund |
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.
Year Ended | Year Ended | Year Ended | Year Ended | Year Ended | ||||||||||||||||
September 30, | September 30, | September 30, | September 30, | September 30, | ||||||||||||||||
C-Class | 2010 | 2009 | 2008 | 2007 | 2006 | |||||||||||||||
Per Share Data | ||||||||||||||||||||
Net asset value, beginning of period | $5.69 | $5.67 | $10.11 | $11.13 | $11.84 | |||||||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||
Net investment lossa | (0.10 | ) | (0.08 | ) | (0.10 | ) | (0.15 | ) | (0.19 | ) | ||||||||||
Net gain (loss) on investments (realized and unrealized) | 0.76 | 0.15 | (2.20 | ) | 0.32 | 0.45 | ||||||||||||||
Total from investment operations | 0.66 | 0.07 | (2.30 | ) | 0.17 | 0.26 | ||||||||||||||
Less distributions from: | ||||||||||||||||||||
Net realized gains | — | (0.05 | ) | (2.14 | ) | (1.19 | ) | (0.97 | ) | |||||||||||
Total distributions | — | (0.05 | ) | (2.14 | ) | (1.19 | ) | (0.97 | ) | |||||||||||
Net asset value, end of period | $6.35 | $5.69 | $5.67 | $10.11 | $11.13 | |||||||||||||||
Total Returnb | 11.60% | 1.58% | (26.87% | ) | 1.31% | 2.20% | ||||||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||
Net assets, end of period (in thousands) | $5,339 | $5,622 | $6,452 | $10,717 | $15,505 | |||||||||||||||
Ratios to average net assets: | ||||||||||||||||||||
Net investment loss | (1.60% | ) | (1.74% | ) | (1.40% | ) | (1.43% | ) | (1.68% | ) | ||||||||||
Total expenses | 2.43% | 2.54% | 2.26% | 2.16% | 2.15% | |||||||||||||||
Portfolio turnover rate | 133% | 138% | 191% | c | 34% | 41% |
a | Net investment income (loss) was computed using average shares outstanding throughout the period. |
b | Total return information does not reflect deduction of any sales charges imposed at the time of purchase for A-Class shares or upon redemption for B-Class and C-Class shares. |
c | Significant variation in the portfolio turnover rate is due to the Investment Manager’s appointment of new portfolio managers for the Fund. |
118 | | | THE RYDEX | SGI EQUITY FUNDS ANNUAL REPORT | The accompanying notes are an integral part of the financial statements. |
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies
Rydex|SGI Equity, Large Cap Value, and Mid Cap Growth Funds (legally known as Security Equity Fund, Security Large Cap Value Fund, and Security Mid Cap Growth Fund, respectively), (collectively referred to herein as the Funds) are registered under the Investment Company Act of 1940 (the “1940 Act”), as amended, as open-end management investment companies. The shares of Rydex|SGI Equity Fund and Large Cap Value Fund are currently issued in multiple series, with each series, in effect, representing a separate fund. The Rydex|SGI Equity Fund and Large Cap Value Fund account for the assets of each series separately. A-Class shares are generally sold with a front-end sales charge at the time of purchase. A-Class shares are not subject to a sales charge when they are redeemed, except for purchases of $1 million or more sold without a front-end sales charge which are subject to a contingent deferred sales charge if redeemed within one year of purchase. B-Class shares are offered without a front-end sales charge, but are subject to a contingent deferred sales charge for five years and automatically convert to A-Class shares after eight years. C-Class shares are offered without a front-end sales charge but incur additional class-specific expenses. Redemptions of C-Class shares within one year of acquisition incur a contingent deferred sales charge. Institutional Class shares are offered primarily for direct investment by institutions, such as pension and profit sharing plans, endowments, foundations and corporations. Institutional class shares have a minimum initial investment of $2 million and a minimum account balance of $1 million. Institutional Class shares are offered without a front-end sales charge or a contingent deferred sales charge. The following is a summary of the significant accounting policies followed by the Funds in the preparation of their financial statements.
A. Security Valuation – Valuations of the Funds’ securities are supplied by pricing services approved by the Board of Directors. The Funds’ officers, through the Valuation Committee, under the general supervision of the Board of Directors, regularly review procedures used by, and valuations provided by, the pricing services. Each security owned by the Funds that is listed on a securities exchange is valued at its last sale price on that exchange on the date as of which assets are valued. Where the security is listed on more than one exchange, the Fund will use the price of that exchange that it generally considers to be the principal exchange on which the stock is traded. Securities listed on the NASDAQ Stock Market, Inc. (“NASDAQ”) will be valued at the NASDAQ Official Closing Price, which may not necessarily represent the last sale price. If there has been no sale on such exchange or NASDAQ on such day, the security is valued at the closing bid price on such day. Securities for which market quotations are not readily available are valued taking into consideration securities with similar yields, quality, type of issue, coupon, duration and rating. If there is no bid price or if the bid price is deemed
to be unsatisfactory by the Board of Directors or by the Funds’ investment manager, then the securities are valued in good faith by such method as the Board of Directors determines will reflect the fair value. If events occur after the close of a foreign exchange that will affect the value of a Funds portfolio securities before the time as of which the NAV is calculated (a “significant event”), the security will generally be priced using a fair value procedure. If the Valuation Committee determines a significant event has occurred, it will evaluate the impact of that event on an affected security or securities, to determine whether a fair value adjustment would materially affect the Funds net asset value per share. Some of the factors which may be considered by the Board of Directors in determining fair value are fundamental analytical data relating to the investment, the nature and duration of any restrictions on disposition, trading in similar securities of the same issuer or comparable companies, information from broker-dealers, and an evaluation of the forces that influence the market in which the securities are purchased and sold. The Funds generally will value short-term debt securities at prices based on market quotations for such securities or securities of similar type, yield, quality and duration. Those securities purchased with 60 days or less to maturity are valued on the basis of amortized cost, which approximates market value.
Generally, trading in foreign securities markets is substantially completed each day at various times prior to the close of the New York Stock Exchange. The values of foreign securities are determined as of the close of such foreign markets or the close of the New York Stock Exchange, if earlier. All investments quoted in foreign currency are valued in U.S. dollars on the basis of the foreign currency exchange rates prevailing at the close of business. Investments in foreign securities may involve risks not present in domestic investments. The Valuation Committee will determine the current value of such foreign securities by taking into consideration certain factors which may include those discussed above, as well as the following factors, among others: the value of the securities traded on other foreign markets, ADR trading, closed-end fund trading, foreign currency exchange activity, and the trading prices of financial products that are tied to foreign securities such as WEBS®. In addition, the Board of Directors has authorized the Valuation Committee and Administrator to use prices and other information supplied by a third party pricing vendor in valuing foreign securities.
B. Repurchase Agreements – In connection with transactions in repurchase agreements, it is the Funds’ policy that their custodian take possession of the underlying collateral and that the fair value of the collateral exceed the principal amount of the repurchase transaction, including accrued interest, at all times. If the seller defaults, and the fair value of the collateral declines, realization of the collateral by the Fund may be delayed or limited.
THE RYDEX | SGI EQUITY FUNDS ANNUAL REPORT | | | 119 |
NOTES TO FINANCIAL STATEMENTS (continued)
C. Foreign Currency Transactions – The accounting records of the Funds are maintained in U.S. dollars. All assets and liabilities initially expressed in foreign currencies are converted into U.S. dollars at prevailing exchange rates. Purchases and sales of investment securities, dividend and interest income, and certain expenses are translated at the rates of exchange prevailing on the respective dates of such transactions. Changes in the relationship of these foreign currencies to the U.S. dollar can significantly affect the value of the investments and earnings of the Funds. Foreign investments may also subject the Fund to foreign government exchange restrictions, expropriation, taxation or other political, social or economic developments, all of which could affect the market and/or credit risk of the investments.
The Funds do not isolate that portion of the results of operations resulting from changes in the foreign exchange rates on investments from the fluctuations arising from changes in the market prices of securities held. Such fluctuations are included with the net realized and unrealized gain or loss on investments.
Net realized foreign exchange gains or losses arise from sales of portfolio securities, sales of foreign currencies, and the difference between asset and liability amounts initially stated in foreign currencies and the U.S. dollar value of the amounts actually received or paid. Net unrealized foreign exchange gains or losses arise from changes in the value of portfolio securities and other assets and liabilities at the end of the reporting period, resulting from changes in the exchange rates.
D. Futures – The Alpha Opportunity Fund utilized futures contracts to obtain broad index exposure. Returns may be enhanced by purchasing futures contracts instead of the underlying securities when futures are believed to be priced more attractively than the underlying securities. The primary risks associated with the use of futures contracts are imperfect correlation between changes in market values of stocks contained in the indexes and the prices of futures contracts, and the possibility of an illiquid market. Futures contracts are valued based upon their quoted daily settlement prices. Upon entering into a futures contract, the Funds are required to deposit and maintain as collateral either cash or securities, representing the initial margin, equal to a certain percentage of the contract value. Cash deposits are shown as restricted cash on the Statement of Assets and Liabilities; securities held as collateral are noted in the Schedule of Investments. Subsequent changes in the
value of the contract are recorded as unrealized gains or losses. The variation margin is paid or received in cash daily by the Funds. The Funds realize a gain or loss when the contract is closed or expires.
E. Options Written – Certain Funds wrote call options on a covered basis and put options on securities that are traded on recognized securities exchanges and over-the-counter markets (see footnote 4). Call and put options on securities give the writer the obligation to sell or purchase a security at a specified price, until a certain date. Options were used minimally to hedge the Funds’ portfolio, to increase returns, to maintain exposure to the equity markets, and create liquidity. The primary risks associated with the use of options are an imperfect correlation between the change in market value of the securities held by the Fund and the price of the option, the possibility of an illiquid market, and the inability of the counterparty to meet the terms of the contract.
The premium received for a written option is recorded as an asset with an equal liability which is marked-to-market based on the option’s quoted daily settlement price. Fluctuations in the value of such instruments are recorded as unrealized appreciation (depreciation) until terminated, at which time realized gains and losses are recognized.
F. Securities Sold Short – The Alpha Opportunity Fund may make short sales “against the box,” in which the Fund enters into a short sale of a security it owns. At no time will more than 15% of the value of the Funds’ net assets be in deposits on short sales against the box. If a Fund makes a short sale, the Fund does not immediately deliver from its own account the securities sold and does not receive the proceeds from the sale. To complete the sale, the Fund must borrow the security (generally from the broker through which the short sale is made) in order to make delivery to the buyer. The Fund must replace the security borrowed by purchasing it at the market price at the time of replacement or delivering the security from its own portfolio. The Fund is said to have a “short position” in securities sold until it delivers them to the broker, at which time it receives the proceeds of the sale. The Fund also makes short sales that are not “against the box,” which create opportunities to increase the Fund’s return but, at the same time, involve specific risk considerations and may be considered a speculative technique. Such short sales theoretically involve unlimited loss potential, as the market price of securities sold short may continually increase, although a Fund may
120 | | | THE RYDEX | SGI EQUITY FUNDS ANNUAL REPORT |
NOTES TO FINANCIAL STATEMENTS (continued)
mitigate such losses by replacing the securities sold short before the market price has increased significantly. For financial statement purposes, an amount equal to the settlement amount is initially recorded as an asset and an equivalent liability. The amount of the liability is subsequently marked-to-market to reflect the current value of the short position. Subsequent fluctuations in the market prices of securities sold short, may require purchasing the securities at prices which differ from the market value reflected on the Statement of Assets and Liabilities. The Funds are liable for any dividends or interest payable on securities while those securities are in a short position and are recorded as dividend or interest expense in the Statement of Operations. As collateral for its short positions, the Funds are required under the 1940 Act to maintain segregated assets consisting of cash, cash equivalents or liquid securities. These segregated assets are valued consistent with Note 1A above. These segregated assets are required to be adjusted daily to reflect changes in the market value of the securities sold short.
G. Security Transactions and Investment Income – Security transactions are accounted for on the date the securities are purchased or sold (trade date). Realized gains and losses are reported on an identified cost basis. Dividend income is accrued as of the ex-dividend date, except that certain dividends for foreign securities where the ex-dividend date may have passed are recorded as soon as the Fund is informed of the dividend in the exercise of reasonable diligence. Interest income is recognized on the accrual basis, including the amortization of premiums and accretion of discounts on debt securities.
H. Expenses – Expenses that are directly related to one of the Funds are charged directly to that Fund. Other operating expenses are allocated to the Funds on the basis of relative net assets. Class specific expenses, such as 12b-1 fees, are borne by that class. Income, other expenses and realized and unrealized gains and losses of a Fund are allocated to each respective class in proportion to the relative net assets of each class.
I. Distributions to Shareholders – Distributions to shareholders are recorded on the ex-dividend date. The character of distributions made during the year from net investment income or net realized gains may differ from their ultimate characterization for federal income tax purposes.
J. Taxes – The Funds intend to comply with the requirements of the Internal Revenue Code applicable to regulated investment companies and distribute all of their taxable net income and net realized gains sufficient to relieve them from all, or substantially all, federal income, excise and state income taxes. Therefore, no provision for federal or state income tax is required.
The evaluation of tax positions taken or expected to be taken in the course of preparing the Fund’s tax returns is required to determine whether the tax positions are “more-likely-than-not” of being sustained by the applicable tax authority. For all open tax years (September 30, 2007— September 30, 2010) and all major taxing jurisdictions through the end of the reporting period, the Fund’s management has completed a review and evaluation and has determined that no tax liability is required and no additional disclosures are needed as of September 30, 2010.
K. Earnings Credits – Under the fee agreement with the custodian, the Funds may earn credits based on overnight custody cash balances. These credits are utilized to reduce related custodial expenses. The custodian fees disclosed in the Statement of Operations are before the reduction in expense from the related earnings credits.
L. Use of Estimates – The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates.
M. Indemnifications – Under the Funds’ organizational documents, its Officers and Directors are indemnified against certain liabilities arising out of the performance of their duties to the Funds. In addition, in the normal course of business, the Funds enter into contracts that provide general indemnification to other parties. The Funds’ maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Funds that have not yet occurred, and may not occur. However, the Funds have not had prior claims or losses pursuant to these contracts and expect the risk of loss to be remote.
THE RYDEX | SGI EQUITY FUNDS ANNUAL REPORT | | | 121 |
NOTES TO FINANCIAL STATEMENTS (continued)
2. Management Fees and Other Transactions with Affiliates
Security Investors, LLC (SI) pays the Sub-Advisor out of the advisory fees it receives. Management fees are paid monthly to SI, based on the following annual rates for the year ended September 30, 2010:
Management | ||||
Fees (as a % | ||||
of net assets) | ||||
All Cap Value Fund | 0.70% | |||
Alpha Opportunity Fund | 1.25% | |||
Large Cap Core Fund | 0.75% | |||
Global Fund | 1.00% | |||
Global Institutional Fund | 1.00% | |||
Mid Cap Value Fund | 0.79% | 1 | ||
Mid Cap Value Institutional Fund | 0.75% | |||
Large Cap Concentrated Growth Fund | 0.75% | |||
Small Cap Growth Fund | 0.85% | |||
Small Cap Value Fund | 1.00% | |||
Large Cap Value Fund | 0.65% | |||
Large Cap Value Institutional Fund | 0.65% | |||
Mid Cap Growth Fund | 0.75% |
1 | Management fees are payable at an annual rate of 1.00% of the average daily net assets of $200 million or less, and 0.75% of the average daily net assets of the Mid Cap Value Fund in excess of $200 million. |
SI also acts as the administrative agent and transfer agent for the Funds, and as such performs administrative functions, transfer agency and dividend disbursing services, and the bookkeeping, accounting and pricing functions for each Fund. For these services, SI receives the following:
Administrative Fees | ||||
(as a % of net assets) | ||||
All Cap Value Fund | 0.095% | |||
Alpha Opportunity Fund | 0.15% | |||
Large Cap Core Fund | 0.095% | |||
Global Fund | greater of 0.15% or $60,000 | |||
Global Institutional Fund | 0.15% | |||
Mid Cap Value Fund | 0.095% | |||
Mid Cap Value Institutional Fund | 0.095% | |||
Large Cap Concentrated Growth Fund | 0.095% | |||
Small Cap Growth Fund | 0.095% | |||
Small Cap Value Fund | 0.095% | |||
Large Cap Value Fund | 0.095% | |||
Large Cap Value Institutional Fund | 0.095% | |||
Mid Cap Growth Fund | 0.095% | |||
Minimum charge per Fund | $25,000 | 1 | ||
Certain out-of-pocket charges | Varies |
1 | SI has agreed not to charge the $25,000 minimum fee on the All Cap Value Fund. |
SI is paid the following for providing transfer agent services to the Funds:
Annual per account charge | $ | 5.00 – $8.00 | ||
Transaction fee | $ | 0.60 – $1.10 | ||
Annual minimum charge | ||||
(per Fund) | $25,000 | 1 | ||
Certain out-of-pocket charges | Varies |
1 | SI has agreed not to charge the $25,000 minimum fee on the All Cap Value Fund. |
122 | | | THE RYDEX | SGI EQUITY FUNDS ANNUAL REPORT |
NOTES TO FINANCIAL STATEMENTS (continued)
The investment advisory contracts for the following Funds provide that the total expenses be limited to a percentage of average net assets for each class of shares, exclusive of brokerage costs, dividends on securities sold short, expenses of other investment companies in which a Fund invests, interest, taxes, litigation, indemnification and extraordinary expenses (as determined under generally accepted accounting principles). The limits are listed below:
Effective | Contract | |||||||||||
Limit | Date | End Date | ||||||||||
All Cap Value Fund – A-Class | 1.27% | 2/1/2010 | 2 | 1/31/2011 | ||||||||
All Cap Value Fund – C-Class | 2.02% | 2/1/2010 | 2 | 1/31/2011 | ||||||||
All Cap Value Fund – Institutional Class | 1.02% | 2/1/2010 | 2 | 1/31/2011 | ||||||||
Alpha Opportunity Fund – A-Class | 2.11% | 2/1/2010 | 1 | 1/31/2011 | ||||||||
Alpha Opportunity Fund – B-Class | 2.86% | 2/1/2010 | 1 | 1/31/2011 | ||||||||
Alpha Opportunity Fund – C-Class | 2.86% | 2/1/2010 | 1 | 1/31/2011 | ||||||||
Alpha Opportunity Fund – Institutional Class | 1.86% | 2/1/2010 | 1 | 1/31/2011 | ||||||||
Global Institutional Fund | 1.00% | 8/24/2009 | 1/31/2011 | |||||||||
Mid Cap Value Institutional Fund | 0.90% | 4/13/2009 | 3/31/2011 | |||||||||
Large Cap Concentrated Growth Fund – A-Class | 1.35% | 1/11/2007 | 1/31/2011 | |||||||||
Large Cap Concentrated Growth Fund – B-Class | 2.10% | 1/11/2007 | 1/31/2011 | |||||||||
Large Cap Concentrated Growth Fund – C-Class | 2.10% | 1/11/2007 | 1/31/2011 | |||||||||
Small Cap Value Fund – A-Class | 1.30% | 8/24/2009 | 1/31/2011 | |||||||||
Small Cap Value Fund – C-Class | 2.05% | 8/24/2009 | 1/31/2011 | |||||||||
Small Cap Value Fund – Institutional Class | 1.05% | 8/24/2009 | 1/31/2011 | |||||||||
Large Cap Value Fund – A-Class | 1.15% | 2/1/2010 | 3 | 1/31/2011 | ||||||||
Large Cap Value Fund – B-Class | 1.90% | 2/1/2010 | 3 | 1/31/2011 | ||||||||
Large Cap Value Fund – C-Class | 1.90% | 2/1/2010 | 3 | 1/31/2011 | ||||||||
Large Cap Value Institutional Fund | 0.96% | 2/1/2010 | 4 | 1/31/2011 |
1 | Prior to February 1, 2010 the expense limit was 1.95% for A-Class shares, 2.70% for B-Class & C-Class shares and 1.70% for the Institutional Class of shares. |
2 | Prior to February 1, 2010 the expense limit was 1.35% for A-Class shares, 2.10% for C-Class shares and 1.10% for the Institutional Class of shares. |
3 | Prior to February 1, 2010 the expense limit was 1.25% for A-Class shares, 2.00% for B-Class & C-Class shares. |
4 | Prior to February 1, 2010 the expense ratio was 0.98%. |
The Investment Manager is entitled to reimbursement by the All Cap Value Fund, Alpha Opportunity Fund, Global Institutional Fund, Mid Cap Value Institutional Fund, Large Cap Concentrated Growth Fund, Small Cap Value Fund, Large Cap Value Fund and the Large Cap Value Institutional Fund for fees waived or expenses reimbursed during any of the previous 36 months, beginning on the date of the expense limitation agreement, if on any day the estimated operating expenses are less than the indicated percentages. As of September 30, 2010, the amount of fees waived or expenses reimbursed in the All Cap Value Fund, Alpha Opportunity Fund, Global Institutional Fund, Mid Cap Value Institutional Fund, Large Cap Concentrated Growth Fund, Small Cap Value Fund, Large Cap Value Fund and the Large Cap Value Institutional Fund were $115,814, $572,915, $203,856, $269,730, $537,030, $170,723, $528,110 and $109,315, respectively. For the year ended September 30, 2010, no amounts were recouped by the Investment Manager.
The Funds have adopted Distribution Plans related to the offering of A-Class, B-Class and C-Class shares pursuant to Rule 12b-1 under the Investment Company Act of 1940. The plans provide for payments at an annual rate of 1.00% of the average daily net assets of each Fund’s B-Class and C-Class shares, and 0.25% of the average daily net assets of each Fund’s A-Class shares. Effective August 25, 2005, the Global Fund ceased charging 12b-1 fees on B-Class shares in accordance with the FINRA sales cap regulations. Effective August 1, 2007, the Large Cap Value Fund ceased charging 12b-1 fees on B-Class shares in accordance with the FINRA sales cap regulations. These fees may be reinstated at any time.
THE RYDEX | SGI EQUITY FUNDS ANNUAL REPORT | | | 123 |
NOTES TO FINANCIAL STATEMENTS (continued)
Security Distributors, Inc. (SDI) retained underwriting commissions during the period ended October 16, 2009, on sales of shares after allowances to broker dealers in the following amounts:
SDI | ||||
Underwriting | ||||
Commissions | ||||
All Cap Value Fund | $ | 32 | ||
Large Cap Core Fund | 4,744 | |||
Global Fund | 20,101 | |||
Mid Cap Value Fund | 53,880 | |||
Large Cap Concentrated Growth Fund | 856 | |||
Small Cap Growth Fund | 991 | |||
Small Cap Value Fund | 961 | |||
Large Cap Value Fund | 5,586 | |||
Mid Cap Growth Fund | 5,553 |
Rydex Distributors, LLC retained underwriting commissions during the period October 16, 2009 to September 30, 2010, on sales of shares after allowances to brokers and dealers in the following amounts:
Rydex Distributors | ||||
Underwriting | ||||
Commissions | ||||
Large Cap Core Fund | $ | 5,956 | ||
Global Fund | 4,949 | |||
Mid Cap Value Fund | 37,948 | |||
Small Cap Growth Fund | 1,372 | |||
Small Cap Value Fund | 1,154 | |||
Large Cap Value Fund | 9,344 | |||
Mid Cap Growth Fund | 4,566 |
Certain officers and directors of the Funds are also officers and/or directors of Security Benefit Life Insurance Company, a subsidiary of Security Benefit Corporation, and its affiliates, which include Security Investors, Security Global Investors (SGI), SDI, and Rydex Distributors, LLC.
At September 30, 2010, Security Benefit Corporation and its subsidiaries owned over five percent of the outstanding shares of the Funds, as follows:
Percent of | ||||
outstanding | ||||
Fund | shares owned | |||
All Cap Value Fund | 34.72% | |||
Alpha Opportunity Fund | 14.64% | |||
Large Cap Core Fund | 14.91% | |||
Global Fund | 9.92% | |||
Global Institutional Fund | 100% | |||
Large Cap Concentrated Growth Fund | 6.29% | |||
Small Cap Growth Fund | 21.22% | |||
Small Cap Value Fund | 19.13% | |||
Large Cap Value Fund: | ||||
Large Cap Value Fund | 17.03% | |||
Large Cap Value Institutional Fund | 100% | |||
Mid Cap Growth Fund | 7.22% |
124 | | | THE RYDEX | SGI EQUITY FUNDS ANNUAL REPORT |
NOTES TO FINANCIAL STATEMENTS (continued)
3. Investment Transactions
Investment transactions for the year ended September 30, 2010, (excluding overnight investments and short-term commercial paper) were as follows:
Purchases | Proceeds from Sales | |||||||
All Cap Value Fund | $ | 1,672,003 | $ | 1,185,441 | ||||
Alpha Opportunity Fund | 50,704,699 | 53,666,810 | ||||||
Large Cap Core Fund | 183,105,240 | 198,034,117 | ||||||
Global Fund | 276,366,228 | 306,471,561 | ||||||
Global Institutional Fund | 12,304,056 | 13,580,837 | ||||||
Mid Cap Value Fund | 425,921,971 | 244,671,493 | ||||||
Mid Cap Value Institutional Fund | 207,114,635 | 69,722,828 | ||||||
Large Cap Concentrated Growth Fund | 72,624,474 | 71,425,210 | ||||||
Small Cap Growth Fund | 15,285,266 | 15,988,070 | ||||||
Small Cap Value Fund | 13,067,488 | 9,943,930 | ||||||
Large Cap Value Fund | 18,261,911 | 14,198,642 | ||||||
Large Cap Value Institutional Fund | 642,334 | 844,531 | ||||||
Mid Cap Growth Fund | 103,203,714 | 115,362,123 |
4. Options Written
Information as to options written by the Funds during the year ended September 30, 2010, and options outstanding at September 30, 2010 is provided below:
All Cap Value Fund Written Call Options
Number of | Premium | |||||||
Contracts | Amount | |||||||
Balance at September 30, 2009 | 28 | $ | 1,701 | |||||
Options written | 25 | 3,899 | ||||||
Options terminated in closing purchase transactions | — | — | ||||||
Options expired | (51 | ) | (5,138 | ) | ||||
Options exercised | (2 | ) | (462 | ) | ||||
Balance at September 30, 2010 | — | $ | — | |||||
All Cap Value Fund Written Put Options | ||||||||
Number of | Premium | |||||||
Contracts | Amount | |||||||
Balance at September 30, 2009 | 5 | $ | 532 | |||||
Options written | 15 | 2,608 | ||||||
Options terminated in closing purchase transactions | — | — | ||||||
Options expired | (10 | ) | (1,847 | ) | ||||
Options exercised | (2 | ) | (236 | ) | ||||
Balance at September 30, 2010 | 8 | $ | 1,057 | |||||
Large Cap Core Fund Written Put Options | ||||||||
Number of | Premium | |||||||
Contracts | Amount | |||||||
Balance at September 30, 2009 | — | $ | — | |||||
Options written | 606 | 119,866 | ||||||
Options terminated in closing purchase transactions | — | — | ||||||
Options expired | (486 | ) | (83,799 | ) | ||||
Options exercised | — | — | ||||||
Balance at September 30, 2010 | 120 | $ | 36,067 | |||||
THE RYDEX | SGI EQUITY FUNDS ANNUAL REPORT | | | 125 |
NOTES TO FINANCIAL STATEMENTS (continued)
Mid Cap Value Fund Written Call Options
Number of | Premium | |||||||
Contracts | Amount | |||||||
Balance at September 30, 2009 | 25,125 | $ | 2,200,451 | |||||
Options written | 24,216 | 4,124,984 | ||||||
Options terminated in closing purchase transactions | (408 | ) | (74,662 | ) | ||||
Options expired | (35,382 | ) | (3,719,425 | ) | ||||
Options exercised | (9,551 | ) | (2,011,051 | ) | ||||
Balance at September 30, 2010 | 4,000 | $ | 520,297 | |||||
Mid Cap Value Fund Written Put Options
Number of | Premium | |||||||
Contracts | Amount | |||||||
Balance at September 30, 2009 | 6,939 | $ | 790,339 | |||||
Options written | 19,617 | 2,798,344 | ||||||
Options terminated in closing purchase transactions | — | — | ||||||
Options expired | (15,084 | ) | (2,116,169 | ) | ||||
Options exercised | (2,727 | ) | (413,305 | ) | ||||
Balance at September 30, 2010 | 8,745 | $ | 1,059,209 | |||||
Mid Cap Value Institutional Fund Written Call Options
Number of | Premium | |||||||
Contracts | Amount | |||||||
Balance at September 30, 2009 | 6,637 | $ | 519,263 | |||||
Options written | 7,986 | 1,345,954 | ||||||
Options terminated in closing purchase transactions | (24 | ) | (4,392 | ) | ||||
Options expired | (10,930 | ) | (1,201,842 | ) | ||||
Options exercised | (2,269 | ) | (476,882 | ) | ||||
Balance at September 30, 2010 | 1,400 | $ | 182,101 | |||||
Mid Cap Value Institutional Fund Written Put Options
Number of | Premium | |||||||
Contracts | Amount | |||||||
Balance at September 30, 2009 | 683 | $ | 81,300 | |||||
Options written | 7,014 | 995,700 | ||||||
Options terminated in closing purchase transactions | — | — | ||||||
Options expired | (3,515 | ) | (541,909 | ) | ||||
Options exercised | (908 | ) | (137,650 | ) | ||||
Balance at September 30, 2010 | 3,274 | $ | 397,441 | |||||
Small Cap Value Fund Written Call Options
Number of | Premium | |||||||
Contracts | Amount | |||||||
Balance at September 30, 2009 | 134 | $ | 12,682 | |||||
Options written | 147 | 28,169 | ||||||
Options terminated in closing purchase transactions | (1 | ) | (183 | ) | ||||
Options expired | (239 | ) | (29,348 | ) | ||||
Options exercised | (41 | ) | (11,320 | ) | ||||
Balance at September 30, 2010 | — | $ | — | |||||
Small Cap Value Fund Written Put Options
Number of | Premium | |||||||
Contracts | Amount | |||||||
Balance at September 30, 2009 | 75 | $ | 7,544 | |||||
Options written | 94 | 11,957 | ||||||
Options terminated in closing purchase transactions | — | — | ||||||
Options expired | (146 | ) | (16,577 | ) | ||||
Options exercised | (6 | ) | (978 | ) | ||||
Balance at September 30, 2010 | 17 | $ | 1,946 | |||||
126 | | | THE RYDEX | SGI EQUITY FUNDS ANNUAL REPORT |
NOTES TO FINANCIAL STATEMENTS (continued)
Large Cap Value Fund Written Put Options
Number of | Premium | |||||||
Contracts | Amount | |||||||
Balance at September 30, 2009 | — | $ | — | |||||
Options written | 347 | 69,357 | ||||||
Options terminated in closing purchase transactions | — | — | ||||||
Options expired | (272 | ) | (46,816 | ) | ||||
Options exercised | — | — | ||||||
Balance at September 30, 2010 | 75 | $ | 22,541 | |||||
Large Cap Value Institutional Fund Written Put Options
Number of | Premium | |||||||
Contracts | Amount | |||||||
Balance at September 30, 2009 | — | $ | — | |||||
Options written | 20 | 4,123 | ||||||
Options terminated in closing purchase transactions | — | — | ||||||
Options expired | (15 | ) | (2,620 | ) | ||||
Options exercised | — | — | ||||||
Balance at September 30, 2010 | 5 | $ | 1,503 | |||||
5. Derivative Investment Holdings Categorized by Risk Exposure
U.S. generally accepted accounting principles requires enhanced disclosures to enable investors to better understand how and why the Funds use derivative instruments, how these derivative instruments are accounted for and their effects on the Funds’ financial position and results of operations. None of the derivatives currently held by the Funds are being used as hedging instruments.
During the year ended September 30, 2010, the Alpha Opportunity Fund utilized futures contracts as part of its investment strategy. The notional amount of futures contracts outstanding as an approximate percentage of the Fund’s net assets on a daily basis was 20%.
The following is a summary of the location of derivative investments on the Funds’ Statements of Assets and Liabilities as of September 30, 2010:
Location on the Statements of Assets and Liabilities
Derivative Investments Type | Asset Derivatives | Liability Derivatives | ||
Futures – equity contracts | Receivable: Variation margin | Payable: Variation margin | ||
Written Options – equity contracts | Written Options, at value |
The following table sets forth the fair value of the Funds’ derivative contracts by primary risk exposure as of September 30, 2010:
Asset Derivative Investments Value
Futures | Written Options | |||||||||||
Equity | Equity | |||||||||||
Fund | Contracts* | Contracts | Total | |||||||||
Alpha Opportunity Fund | $49,033 | $ — | $ | 49,033 | ||||||||
Liability Derivative Investments Value | ||||||||||||
Futures | Written Options | |||||||||||
Equity | Equity | |||||||||||
Fund | Contracts* | Contracts | Total | |||||||||
All Cap Value Fund | $ — | $ | 610 | $ | 610 | |||||||
Large Cap Core Fund | — | 23,400 | 23,400 | |||||||||
Mid Cap Value Fund | — | 941,580 | 941,580 | |||||||||
Mid Cap Value Institutional Fund | — | 342,980 | 342,980 | |||||||||
Small Cap Value Fund | — | 1,320 | 1,320 | |||||||||
Large Cap Value Fund | — | 14,625 | 14,625 | |||||||||
Large Cap Value Institutional Fund | — | 975 | 975 |
* | Includes cumulative appreciation (depreciation) of futures contracts as reported in the Schedule of Investments. Only current day’s variation margin is reported within the Statement of Assets and Liabilities. |
THE RYDEX | SGI EQUITY FUNDS ANNUAL REPORT | | | 127 |
NOTES TO FINANCIAL STATEMENTS (continued)
The following is a summary of the location of derivative investments on the Funds’ Statements of Operations as of September 30, 2010:
Derivative Investment Type | Location of Gain (Loss) on Derivatives | |
Futures – equity contracts | Net realized gain (loss) on futures contracts and change in net unrealized appreciation (depreciation) on futures contracts | |
Written Options – equity contracts | Net realized gain (loss) on options written and change in net unrealized appreciation (depreciation) on options written |
The following is a summary of the Funds’ realized gain (loss) and change in unrealized appreciation (depreciation) on derivative investments recognized in the Statements of Operations categorized by primary risk exposure for the year ended September 30, 2010:
Realized Gain (Loss) on Derivative Investments Recognized in the Statement of Operations
Futures | Written Options | |||||||||||
Equity | Equity | |||||||||||
Fund | Contracts | Contracts | Total | |||||||||
All Cap Value Fund | $ | — | $ | 6,984 | $ | 6,984 | ||||||
Alpha Opportunity Fund | 419,241 | — | 419,241 | |||||||||
Large Cap Core Fund | — | 83,799 | 83,799 | |||||||||
Mid Cap Value Fund | — | 5,877,084 | 5,877,084 | |||||||||
Mid Cap Value Institutional Fund | — | 1,746,191 | 1,746,191 | |||||||||
Small Cap Value Fund | — | 46,027 | 46,027 | |||||||||
Large Cap Value Fund | — | 46,816 | 46,816 | |||||||||
Large Cap Value Institutional Fund | — | 2,620 | 2,620 |
Change in Unrealized Appreciation (Depreciation) on Derivative Investments Recognized in the Statement of Operations
Futures | Written Options | |||||||||||
Equity | Equity | |||||||||||
Fund | Contracts | Contracts | Total | |||||||||
All Cap Value Fund | $ | — | $ | (176 | ) | $ | (176 | ) | ||||
Alpha Opportunity Fund | 13,864 | — | 13,864 | |||||||||
Large Cap Core Fund | — | 12,667 | 12,667 | |||||||||
Mid Cap Value Fund | — | 70,961 | 70,961 | |||||||||
Mid Cap Value Institutional Fund | — | 217,815 | 217,815 | |||||||||
Small Cap Value Fund | — | (3,065 | ) | (3,065 | ) | |||||||
Large Cap Value Fund | — | 7,916 | 7,916 | |||||||||
Large Cap Value Institutional Fund | — | 528 | 528 |
6. Federal Tax Matters
For federal income tax purposes, the amounts of unrealized appreciation (depreciation) on investments at September 30, 2010, were as follows:
Investment | Tax Unrealized | Tax Unrealized | Net Unrealized | |||||||||||||
Fund Name | Tax Cost | Gain | Loss | Gain (Loss) | ||||||||||||
All Cap Value Fund | $ | 2,459,699 | $ | 236,042 | $ | (73,251 | ) | $ | 162,791 | |||||||
Alpha Opportunity Fund | 14,930,504 | 783,679 | (1,254,208 | ) | (470,529 | ) | ||||||||||
Large Cap Core Fund | 170,423,930 | 21,774,549 | (12,951,639 | ) | 8,822,910 | |||||||||||
Global Fund | 81,168,133 | 7,625,559 | (608,877 | ) | 7,016,682 | |||||||||||
Global Institutional Fund | 3,479,830 | 336,757 | (25,761 | ) | 310,996 | |||||||||||
Mid Cap Value Fund | 1,163,262,551 | 201,403,720 | (64,451,828 | ) | 136,951,892 | |||||||||||
Mid Cap Value Institutional Fund | 460,415,844 | 72,361,928 | (15,797,536 | ) | 56,564,392 | |||||||||||
Large Cap Concentrated Growth Fund | 33,145,638 | 3,422,987 | (691,743 | ) | 2,731,244 | |||||||||||
Small Cap Growth Fund | 11,572,471 | 3,342,780 | (461,959 | ) | 2,880,821 | |||||||||||
Small Cap Value Fund | 8,048,383 | 153,327 | (319,151 | ) | (165,824 | ) | ||||||||||
Large Cap Value Fund | 50,433,010 | 5,862,879 | (4,624,136 | ) | 1,238,743 | |||||||||||
Large Cap Value Institutional Fund | 2,558,171 | 352,576 | (187,128 | ) | 165,448 | |||||||||||
Mid Cap Growth Fund | 69,427,690 | 10,508,114 | (1,090,593 | ) | 9,417,521 |
128 | | | THE RYDEX | SGI EQUITY FUNDS ANNUAL REPORT |
NOTES TO FINANCIAL STATEMENTS (continued)
The tax character of distributions paid during the fiscal years ended September 30, 2010 and 2009 is as follows:
Ordinary | Capital | Return of | ||||||||||||||
2010 | Income | Gain | Capital | Total | ||||||||||||
All Cap Value Fund | $ | 3,710 | $ | — | $ | — | $ | 3,710 | ||||||||
Global Institutional Fund | 97,135 | — | — | 97,135 | ||||||||||||
Mid Cap Value Fund | 1,178,918 | — | — | 1,178,918 | ||||||||||||
Mid Cap Value Institutional Fund | 10,187,733 | 1,221,429 | — | 11,409,162 | ||||||||||||
Small Cap Value Fund | 161,456 | 34,045 | — | 195,501 | ||||||||||||
Large Cap Value Fund | 405,457 | — | — | 405,457 | ||||||||||||
Large Cap Value Institutional Fund | 23,939 | — | — | 23,939 |
Ordinary | Capital | Return of | ||||||||||||||
2009 | Income | Gain | Capital | Total | ||||||||||||
Large Cap Core Fund | $ | 392,434 | $ | — | $ | 639,278 | $ | 1,031,712 | ||||||||
Global Fund | 239,128 | — | 683,073 | 922,201 | ||||||||||||
Global Institutional Fund | 21,309 | — | — | 21,309 | ||||||||||||
Mid Cap Value Fund | 3,483,597 | 86,413,567 | — | 89,897,164 | ||||||||||||
Mid Cap Value Institutional Fund | 1,082,491 | — | — | 1,082,491 | ||||||||||||
Small Cap Growth Fund | — | 97,806 | — | 97,806 | ||||||||||||
Small Cap Value Fund | 84,923 | — | — | 84,923 | ||||||||||||
Large Cap Value Fund | 620,709 | 427,734 | — | 1,048,443 | ||||||||||||
Large Cap Value Institutional Fund | 19,621 | — | — | 19,621 | ||||||||||||
Mid Cap Growth Fund | — | 651,342 | 11,546 | 662,888 |
Note: For federal income tax purposes, short term capital gain distributions are treated as ordinary income distributions.
As of September 30, 2010, the components of distributable earnings on a tax basis were:
Undistributed | Undistributed | Accumulated | Unrealized | Total | ||||||||||||||||
Ordinary | Long-Term | Capital and | Appreciation | Accumulated | ||||||||||||||||
Income | Capital Gain | Other Losses* | (Depreciation)** | Earnings/(Deficit) | ||||||||||||||||
All Cap Value Fund | $ | 46,034 | $ | 114,631 | $ | — | $ | 163,238 | $ | 323,903 | ||||||||||
Alpha Opportunity Fund | — | — | (12,560,228 | ) | (458,114 | ) | (13,018,342 | ) | ||||||||||||
Large Cap Core Fund | 505,424 | — | (34,280,051 | ) | 8,835,577 | (24,939,050 | ) | |||||||||||||
Global Fund | 476,659 | — | (42,959,604 | ) | 7,022,296 | (35,460,649 | ) | |||||||||||||
Global Institutional Fund | 17,497 | — | (1,821,961 | ) | 311,309 | (1,493,155 | ) | |||||||||||||
Mid Cap Value Fund | 2,564,377 | — | (78,016,101 | ) | 137,589,818 | 62,138,094 | ||||||||||||||
Mid Cap Value Institutional Fund | 14,921,262 | 6,926,441 | — | 56,800,954 | 78,648,657 | |||||||||||||||
Large Cap Concentrated Growth Fund | 129,025 | — | (13,326,902 | ) | 2,731,244 | (10,466,633 | ) | |||||||||||||
Small Cap Growth Fund | — | — | (6,716,262 | ) | 2,880,820 | (3,835,442 | ) | |||||||||||||
Small Cap Value Fund | 461,897 | 675,830 | — | (165,198 | ) | 972,529 | ||||||||||||||
Large Cap Value Fund | 212,689 | — | (17,315,758 | ) | 1,246,659 | (15,856,410 | ) | |||||||||||||
Large Cap Value Institutional Fund | 15,398 | — | (361,759 | ) | 165,976 | (180,385 | ) | |||||||||||||
Mid Cap Growth Fund | — | — | (32,298,267 | ) | 9,417,520 | (22,880,747 | ) |
* | Certain Funds had net capital loss carryovers and deferred post October losses as identified elsewhere in the Notes to the Financial Statements. |
** | The differences between book-basis and tax-basis unrealized appreciation (depreciation) are attributable primarily to the tax deferral of wash sale losses, the differences between book and tax basis passive foreign investment companies and bond discount accretion. |
For the year ended September 30, 2010, the capital loss carryovers utilized or expired and the accumulated net realized loss on sales of investments for federal income tax purposes which are available to offset future taxable gains are shown in the table below. The post-October losses that are deferred to the first day of the next fiscal year are as follows:
Deferred | ||||||||||||||||||||
Capital Loss | Capital Loss | Remaining | Post- | |||||||||||||||||
Carryovers | Carryovers | Capital Loss | October | |||||||||||||||||
Utilized | Expired | Carryovers | Expires In | Losses | ||||||||||||||||
All Cap Value Fund | $ | 4,080 | $ | — | $ | — | 2017 | $ | — | |||||||||||
Alpha Opportunity Fund | $ | — | $ | — | $ | 8,215,458 | 2017 | $ | 2,843 | |||||||||||
— | — | 4,341,927 | 2018 | |||||||||||||||||
$ | — | $ | — | $ | 12,557,385 | |||||||||||||||
Large Cap Core Fund | $ | — | $ | — | $ | 10,341,572 | 2017 | $ | 2,315,300 | |||||||||||
— | — | 21,623,180 | 2018 | |||||||||||||||||
$ | — | $ | — | $ | 31,964,752 | |||||||||||||||
THE RYDEX | SGI EQUITY FUNDS ANNUAL REPORT | | | 129 |
NOTES TO FINANCIAL STATEMENTS (continued)
Deferred | ||||||||||||||||||||
Capital Loss | Capital Loss | Remaining | Post- | |||||||||||||||||
Carryovers | Carryovers | Capital Loss | October | |||||||||||||||||
Utilized | Expired | Carryovers | Expires In | Losses | ||||||||||||||||
Global Fund | $ | — | $ | 674,209 | $ | — | 2010 | $ | 301,732 | |||||||||||
— | — | 37,300,368 | 2017 | |||||||||||||||||
— | — | 5,357,504 | 2018 | |||||||||||||||||
$ | — | $ | 674,209 | $ | 42,657,872 | |||||||||||||||
Global Institutional Fund | $ | — | $ | — | $ | 1,263,838 | 2017 | $ | 12,655 | |||||||||||
— | — | 545,469 | 2018 | |||||||||||||||||
$ | — | $ | — | $ | 1,809,307 | |||||||||||||||
Mid Cap Value Fund | $ | — | $ | — | $ | 3,357,672 | 2017 | $ | 3,790,876 | |||||||||||
— | — | 70,867,553 | 2018 | |||||||||||||||||
$ | — | $ | — | $ | 74,225,225 | |||||||||||||||
Large Cap Concentrated Growth Fund* | $ | — | $ | 2,582,076 | $ | — | 2010 | $ | — | |||||||||||
— | — | 3,390,876 | 2011 | |||||||||||||||||
— | — | 38,639 | 2012 | |||||||||||||||||
— | — | 7,441,695 | 2017 | |||||||||||||||||
— | — | 2,455,692 | 2018 | |||||||||||||||||
$ | — | $ | 2,582,076 | $ | 13,326,902 | |||||||||||||||
Small Cap Growth Fund | $ | — | $ | — | $ | 4,589,755 | 2017 | $ | — | |||||||||||
— | — | 2,126,507 | 2018 | |||||||||||||||||
$ | — | $ | — | $ | 6,716,262 | |||||||||||||||
Large Cap Value Fund | $ | — | $ | — | $ | 7,053,807 | 2017 | $ | 28,441 | |||||||||||
— | — | 10,233,510 | 2018 | |||||||||||||||||
$ | — | $ | — | $ | 17,287,317 | |||||||||||||||
Large Cap Value Institutional Fund | $ | — | $ | — | $ | 70,714 | 2017 | $ | 28,663 | |||||||||||
— | — | 262,382 | 2018 | |||||||||||||||||
$ | — | $ | — | $ | 333,096 | |||||||||||||||
Mid Cap Growth Fund | $ | — | $ | 567,035 | $ | — | 2010 | $ | — | |||||||||||
— | — | 16,944 | 2011 | |||||||||||||||||
— | — | 26,755,106 | 2017 | |||||||||||||||||
— | — | 5,526,217 | 2018 | |||||||||||||||||
$ | — | $ | 567,035 | $ | 32,298,267 | |||||||||||||||
* | Subject to limitations pursuant to Section 382 of the Internal Revenue Code. |
Net investment income and net realized gains (losses) may differ for financial statement and tax purposes because of temporary or permanent book/tax differences. These differences are primarily due to post-October losses, losses deferred due to wash sales, foreign currency gains and losses, and the “mark-to-market” of certain passive foreign investment companies (PFICs) for tax purposes. To the extent these differences are permanent, reclassifications are made to the appropriate equity accounts in the period that the differences arise.
On the Statement of Assets and Liabilities the following adjustments were made for permanent book/tax differences:
Accumulated | Undistributed | |||||||||||
Net Realized | Net Investment | Paid-In | ||||||||||
Gain (Loss) | Income | Capital | ||||||||||
Alpha Opportunity Fund | $ | 2,843 | $ | 141,460 | $ | (144,303 | ) | |||||
Global Fund | 1,014,783 | (340,574 | ) | (674,209 | ) | |||||||
Global Institutional Fund | 15,254 | (15,254 | ) | — | ||||||||
Mid Cap Value Institutional Fund | 349,072 | (349,072 | ) | — | ||||||||
Large Cap Concentrated Growth Fund | 2,582,076 | — | (2,582,076 | ) | ||||||||
Small Cap Growth Fund | — | 246,891 | (246,891 | ) | ||||||||
Small Cap Value Fund | (32,326 | ) | 32,326 | — | ||||||||
Mid Cap Growth Fund | 567,035 | 770,984 | (1,338,019 | ) |
130 | | | THE RYDEX | SGI EQUITY FUNDS ANNUAL REPORT |
NOTES TO FINANCIAL STATEMENTS (continued)
7. Affiliated Transactions
Investments representing 5% or more of the outstanding voting shares of a portfolio company of a fund, or control of or by, or common control under Guggenheim Partners, LLC., result in that portfolio company being considered an affiliated company of such fund, as defined in the 1940 Act. Transactions during the year ended September 30, 2010 in which the portfolio company is an “affiliated person” are as follows:
Value | Value | Shares | Investment | |||||||||||||||||||||||||
Fund | Security | 9/30/09 | Additions | Reductions | 9/30/10 | 9/30/10 | Income | |||||||||||||||||||||
Alpha Opportunity Fund | Exchange Traded Fund: | |||||||||||||||||||||||||||
Guggenheim Timber ETF | $ | — | $ | 168,866 | $ | 124,229 | $ | 48,887 | 2,533 | $ 269 | ||||||||||||||||||
Mid Cap Value Fund | Common Stock: | |||||||||||||||||||||||||||
IXYS Corp. | 20,094,663 | — | (181,902 | ) | 22,347,000 | 2,340,000 | — | |||||||||||||||||||||
Maxwell Technologies, Inc. | 26,649,780 | 613,110 | — | 21,691,467 | 1,484,700 | — | ||||||||||||||||||||||
Thermoenergy Corp. | 1,218,027 | — | (319,282 | ) | 810,552 | 2,701,839 | — | |||||||||||||||||||||
Preferred Stock: | ||||||||||||||||||||||||||||
Thermoenergy Corp. | — | 819,654 | — | 751,901 | 858,334 | — | ||||||||||||||||||||||
Warrant: | ||||||||||||||||||||||||||||
Thermoenergy Corp. | — | 1,240,348 | — | 1,106,908 | 13,733,344 | — | ||||||||||||||||||||||
Total | 47,962,470 | 2,673,112 | (501,184 | ) | 46,707,828 | — | — | |||||||||||||||||||||
Mid Cap Value Institutional Fund | Common Stock: | |||||||||||||||||||||||||||
Hydrogen Corp. | — | 2,531 | — | 3,924 | 1,265,700 | — | ||||||||||||||||||||||
Preferred Stock: | ||||||||||||||||||||||||||||
Thermoenergy Corp. | — | 757,980 | — | 695,325 | 793,750 | — | ||||||||||||||||||||||
Warrant: | ||||||||||||||||||||||||||||
Thermoenergy Corp. | — | 1,147,020 | — | 1,023,620 | 12,700,000 | — | ||||||||||||||||||||||
Total | — | 1,907,531 | — | 1,722,869 | — |
8. Alpha Opportunity Fund
The Fund contracted with Lehman Brothers International Europe (“LBIE”) to provide prime brokerage services related to the Fund’s short selling. On September 15, 2008, LBIE was placed into administration and a third party administrator was named (the “Administrator”). The Fund’s exposure to LBIE consists of short sale proceeds held by LBIE, and restricted long positions held at the Fund’s custodian, as collateral for said short sales. The Fund has delivered a Notice of Termination of Loans to LBIE and the Administrator. The Fund is working to resolve these issues with LBIE and the Administrator. As of September 30, 2010, included in the statement of Assets and Liabilities are the value of restricted long positions of $7,272,370, restricted cash representing the value of short sale proceeds of $4,281,716 and liabilities for short sales of $7,341,377 representing the value of securities sold short at the date the short sales were deemed by the Fund to have been terminated. Until such time as the liability for short sales is settled and all restrictions are removed by LBIE and LBI, the Fund cannot sell such restricted long positions and/or utilize the restricted cash balances to achieve the Fund’s investment objectives and/or meet Fund redemption or other Fund obligations. Based on the ultimate terms of such settlement, the value assigned to these positions may ultimately differ from the fair valuations assigned to them by the Fund and there is no guaranty that the Fund will ultimately recover the full value of the assets that are subject to restrictions. Accordingly, a settlement could ultimately result in the Fund realizing values that are materially different from those indicated herein, which would materially impact the Fund’s net asset value (either positively or negatively). As of the close of business on October 3, 2008, and until further notice, the Fund is not accepting subscriptions for shares from either new or existing shareholders.
9. Fair Value of Financial Instruments
In accordance with U.S. generally accepted accounting principles, fair value is defined as the price that the Fund would receive to sell an investment or pay to transfer a liability in an orderly transaction with an independent buyer in the principal market, or in the absence of a principal market, the most advantageous market for the investment or liability. A three-tier hierarchy to distinguish between (1) inputs that reflect the assumptions market participants would use in pricing an asset or liability developed based on market data obtained from sources independent of the reporting entity (observable inputs) and (2) inputs that reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing an asset or liability developed based on the best information available in the circumstances (unobservable inputs) and to establish classification of fair value measurements for disclosure purposes. Various inputs are used in determining the value of the Funds’ investments. The inputs are summarized in the three broad levels listed below:
THE RYDEX | SGI EQUITY FUNDS ANNUAL REPORT | | | 131 |
NOTES TO FINANCIAL STATEMENTS (continued)
Level 1 — | quoted prices in active markets for identical securities. The types of assets and liabilities carried at Level 1 fair value generally are government and agency securities, equities listed in active markets, certain futures and certain options. | |
Level 2 — | other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.). The types of assets and liabilities carried at Level 2 fair value generally are municipal bonds, certain mortgage and asset-backed securities, private investments in public equities (PIPEs), certain corporate debt, and short term securities with maturities of 60 days or less, including commercial paper and repurchase agreements. | |
Level 3 — | significant unobservable inputs (including the fund’s own assumptions used to determine the fair value of investments). The types of assets and liabilities carried at Level 3 fair value generally are certain mortgage and asset-backed securities, certain corporate debt and certain derivatives. |
Transfers between investment Levels may occur as the markets fluctuate and/or the availability of data used in an investment’s valuation changes. Foreign equities typically fall into Level 1, but may move to Level 2 depending on market conditions, post local close time. The inputs or methodologies used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
The following table provides the fair value measurement of applicable Fund assets by level within the fair value hierarchy as of September 30, 2010. These assets are measured on a recurring basis.
Level 1 | Level 1 | Level 2 | Level 3 | |||||||||||||||||
Investments | Other Financial | Investments | Investments | |||||||||||||||||
Fund | In Securities | Instruments | In Securities | In Securities | Total | |||||||||||||||
Assets | ||||||||||||||||||||
All Cap Value Fund | $ | 2,622,490 | $ | — | $ | — | $ | — | $ | 2,622,490 | ||||||||||
Alpha Opportunity Fund | 11,811,866 | 49,033 | 2,648,109 | — | 14,509,008 | |||||||||||||||
Large Cap Core Fund | 179,246,840 | — | — | — | 179,246,840 | |||||||||||||||
Global Fund | 86,639,932 | — | 1,544,883 | — | 88,184,815 | |||||||||||||||
Global Institutional Fund | 3,744,447 | — | 46,379 | — | 3,790,826 | |||||||||||||||
Mid Cap Value Fund | 1,230,232,577 | — | 69,981,866 | — | 1,300,214,443 | |||||||||||||||
Mid Cap Value Institutional Fund | 484,529,041 | — | 32,451,195 | — | 516,980,236 | |||||||||||||||
Large Cap Concentrated Growth Fund | 35,876,882 | — | — | — | 35,876,882 | |||||||||||||||
Small Cap Growth Fund | 14,453,292 | — | — | — | 14,453,292 | |||||||||||||||
Small Cap Value Fund | 7,869,024 | — | 13,535 | — | 7,882,559 | |||||||||||||||
Large Cap Value Fund | 51,671,753 | — | — | — | 51,671,753 | |||||||||||||||
Large Cap Value Institutional Fund | 2,723,619 | — | — | — | 2,723,619 | |||||||||||||||
Mid Cap Growth Fund | 78,844,925 | — | 286 | — | 78,845,211 | |||||||||||||||
Liabilities | ||||||||||||||||||||
All Cap Value Fund | $ | — | $ | 610 | $ | — | $ | — | $ | 610 | ||||||||||
Alpha Opportunity Fund | 410,308 | — | — | 7,341,377 | 7,751,685 | |||||||||||||||
Large Cap Core Fund | — | 23,400 | — | — | 23,400 | |||||||||||||||
Global Fund | — | — | — | — | — | |||||||||||||||
Global Institutional Fund | — | — | — | — | — | |||||||||||||||
Mid Cap Value Fund | — | 941,580 | — | — | 941,580 | |||||||||||||||
Mid Cap Value Institutional Fund | — | 342,980 | — | — | 342,980 | |||||||||||||||
Large Cap Concentrated Growth Fund | — | — | — | — | — | |||||||||||||||
Small Cap Growth Fund | — | — | — | — | — | |||||||||||||||
Small Cap Value Fund | — | 1,320 | — | — | 1,320 | |||||||||||||||
Large Cap Value Fund | — | 14,625 | — | — | 14,625 | |||||||||||||||
Large Cap Value Institutional Fund | — | 975 | — | — | 975 | |||||||||||||||
Mid Cap Growth Fund | — | — | — | — | — |
The Funds adopted updated provisions surrounding fair value measurements and disclosures effective March 31, 2010. This update applies to the Funds’ disclosures about transfers in and out of all Levels of the fair value hierarchy on a gross basis and the reasons for the transfers, as well as to disclosures about the valuation techniques and inputs used to measure fair value for investments that fall in either Level 2 or Level 3 fair value hierarchy. Effective for interim and annual periods beginning after December 15, 2010, purchases, sales, issuances and settlements must be shown on a gross basis in the Level 3 rollforward rather than as one net number.
132 | | | THE RYDEX | SGI EQUITY FUNDS ANNUAL REPORT |
NOTES TO FINANCIAL STATEMENTS (concluded)
For the year ended September 30, 2010, there were no securities transferred from Level 1 to Level 2 or from Level 2 to Level 1.
Following is a reconciliation of Level 3 assets for which significant unobservable inputs were used to determine fair value for the year ended September 30, 2010:
LEVEL 3 - Fair value measurement using significant unobservable inputs
Securities Sold Short | Total | |||||||
Alpha Opportunity Fund | ||||||||
Liabilities: | ||||||||
Beginning Balance | $7,341,377 | $7,341,377 | ||||||
Total realized gains or losses included in earnings | — | — | ||||||
Total unrealized gains or losses included in earnings | — | — | ||||||
Purchases, sales, issuances, and settlements (net) | — | — | ||||||
Transfers in and/or out of Level 3 | — | — | ||||||
Ending Balance | $7,341,377 | $7,341,377 | ||||||
10. Other Liabilities
Mid Cap Value Fund, Mid Cap Value Institutional Fund and Large Cap Core Fund each wrote put option contracts through Lehman Brothers Inc., (“Lehman”) that were exercised prior to the option contracts’ expiration and prior to the bankruptcy filing by Lehman, during September, 2008. However, these transactions have not settled and the securities have not been delivered to the Funds as of September 30, 2010.
Although the ultimate resolution of these transactions is uncertain, the Funds have recorded a liability on their respective books equal to the difference between the strike price on the put options and the market price of the underlying security on the exercise date. The amount of the liability recorded by the Funds as of September 30, 2010 was $473,594 for Mid Cap Value Fund, $15,940 for Mid Cap Value Institutional Fund, and $18,615 for Large Cap Core Fund.
11. New Accounting Pronouncements
Effective March 31, 2010, the Funds adopted the Financial Accounting Standards Board ASU 2010-06, Improving Disclosures about Fair Value Measurements, which introduces new disclosure requirements and clarifies certain existing disclosure requirements around fair value measurements, which are reflected in Note 9.
12. Guggenheim Acquisition
Guggenheim SBC Holdings, LLC (“Guggenheim SBC Holdings”), an investor group managed by Guggenheim Partners, LLC (“Guggenheim”), acquired control of Security Benefit Corporation (“SBC”), the parent company of Security Investors, LLC, the Funds’ investment adviser (the “Investment Adviser”) and Security Global Investors, LLC, the sub-adviser to certain of the Funds, pursuant to an agreement entered between SBC and Guggenheim SBC Holdings. Under the agreement, Guggenheim SBC Holdings received a 100% ownership stake in SBC and consequently acquired control of the Investment Adviser (the “Purchase Transaction”). Guggenheim is a global, independent, privately held, diversified financial services firm with more than $100 billion in assets under supervision. The Purchase Transaction is not expected to result in material changes to the day-to-day management and operations of the Funds or any increase in fees. The Purchase Transaction closed on July 30, 2010.
Under the Investment Company Act of 1940, the closing of the Purchase Transaction had the effect of terminating the Funds’ investment advisory agreements with the Investment Adviser and any investment sub-advisory agreements entered on behalf of a Fund (together, the “Previous Agreements”). New investment advisory and sub-advisory agreements (“New Agreements”) were approved by Fund shareholders in a series of special meetings of shareholders. The terms of the New Agreements are substantially identical to the corresponding Previous Agreements, except with respect to the date of execution. At a Special Meeting on January 28, 2010, the Board approved the Investment Manager and Sub-Adviser to continue to serve each Fund.
13. Distributor and Transfer Agent Change
Effective July 30, 2010, the Funds’ distributor, Rydex Distributors, Inc., a Maryland corporation, became Rydex Distributors, LLC, a Kansas limited liability company.
THE RYDEX | SGI EQUITY FUNDS ANNUAL REPORT | | | 133 |
REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
ACCOUNTING FIRM
The Board of Directors and Shareholders
Rydex|SGI Equity Fund, Rydex|SGI Large Cap Value Fund and Rydex|SGI Mid Cap Growth Fund
Rydex|SGI Equity Fund, Rydex|SGI Large Cap Value Fund and Rydex|SGI Mid Cap Growth Fund
We have audited the accompanying statements of assets and liabilities, including the schedules of investments, of Rydex|SGI Equity Fund (comprised of All Cap Value, Alpha Opportunity, Large Cap Core (formerly Equity), Global, Global Institutional, Mid Cap Value, Mid Cap Value Institutional, Large Cap Concentrated Growth (formerly Select 25), Small Cap Growth and Small Cap Value Funds), Rydex|SGI Large Cap Value Fund (comprised of Large Cap Value and Large Cap Value Institutional Funds) and Rydex|SGI Mid Cap Growth Fund (the “Funds”) as of September 30, 2010, and the related statements of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the periods indicated therein. These financial statements and financial highlights are the responsibility of the Funds’ management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. We were not engaged to perform an audit of the Funds’ internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Funds’ internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of September 30, 2010, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. We believe that our audits provide a reasonable basis for our opinion.
As more fully discussed in Note 8 to the financial statements, the Alpha Opportunity Fund (“Alpha Opportunity”) previously utilized the services of Lehman Brothers International (Europe) (“Lehman”) to provide prime broker services related to Alpha Opportunity’s securities sold short. On September 15, 2008,
Lehman was placed into administration. The financial records of Lehman are now being handled by the administrators. Information flow to Alpha Opportunity from the administrators has been limited. Management has recorded in the financial statements its best estimate of the liability for securities sold short due to Lehman, based upon management’s assessment of all available evidence, including information supplied by the administrators. Significant uncertainty exists regarding the ultimate timing and manner of settlement, as well as the ultimate liability for securities sold short due to Lehman, and the difference between amounts currently recorded and that which may ultimately be due may be material.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of each of the respective portfolios constituting the Funds at September 30, 2010, the results of their operations for the year then ended, the changes in their net assets for each of the two years in the period then ended, and the financial highlights for each of the periods indicated therein, in conformity with U.S. generally accepted accounting principles.
![(ERNST & YOUNG LLP)](https://capedge.com/proxy/N-CSR/0000950123-10-111594/g06945g0694518.gif)
Chicago, Illinois
November 26, 2010
November 26, 2010
134 | | | THE RYDEX | SGI EQUITY FUNDS ANNUAL REPORT |
INFORMATION ON BOARD OF TRUSTEES AND OFFICERS (Unaudited)
DIRECTORS
The business address of each director is One Security Benefit Place, Topeka, KS 66636-0001
Name | ||
(Date of Birth) | Principal Occupations | |
Year Elected*** | During Past Five Years | |
Donald A. Chubb, Jr.** | Business Broker - Griffith & Blair Realtors | |
(12-14-46) | ||
1994 | ||
Harry W. Craig, Jr.** | Chairman, CEO, Secretary & Director - The Martin Tractor | |
(05-11-39) | Company, Inc. | |
2004 | ||
Jerry B. Farley** | President - Washburn University | |
(09-20-46) | ||
2005 | ||
Penny A. Lumpkin** | Partner - Vivian’s Gift Shop (Corporate Retail) | |
(08-20-39) | Vice President - Palmer Companies, Inc. (Small Business and | |
1993 | Shopping Center Development) | |
Vice President - PLB (Real Estate Equipment Leasing) | ||
Maynard F. Oliverius** | President & Chief Executive Officer - Stormont-Vail HealthCare | |
(12-18-43) | ||
1998 | ||
Richard M. Goldman* | Senior Vice President - Security Benefit Corporation | |
(03-04-61) | Director - First Security Benefit Life Insurance and Annuity | |
2008 (President, Director & | Company of New York | |
Chairman of the Board) | President - Security Investors, LLC | |
President & Director - Security Global Investors, LLC | ||
CEO, President, & Director - Rydex Distributors, Inc. | ||
President & CEO - Rydex Holdings, LLC | ||
CEO & Director - Padco Advisors, Inc. | ||
CEO & Director - Padco Advisors II, Inc. | ||
Director - Rydex Fund Services, Inc. | ||
Director - Security Distributors, Inc. (2007-2009) | ||
Managing Member - Goldman Partners, LLC (2006-2007) | ||
President and CEO - ForstmannLeff (2003-2005) |
* | This director is deemed to be an “interested person” of the Funds under the Investment Company Act of 1940, as amended, by reason of his position with the Funds’ Investment Manager and/or the parent of the Investment Manager. This director is also an officer of the funds. |
** | These directors serve on the Fund’s joint audit committee, the purpose of which is to meet with the independent registered public accounting firm, to review the work of the independent registered public accounting firm, and to oversee the handling by Security Investors of the accounting and financial reporting functions for the Funds. |
*** | Each director oversees 29 Security Funds portfolios and serves until the next annual meeting, or until a successor has been duly elected and qualified. |
THE RYDEX | SGI EQUITY FUNDS ANNUAL REPORT | | | 135 |
1
INFORMATION ON BOARD OF TRUSTEES AND OFFICERS (Unaudited) (continued)
OFFICERS*
The business address of each officer is One Security Benefit Place, Topeka, KS 66636-0001
Name | ||
(Date of Birth) | Principal Occupations | |
Title – Year Elected | During Past Five Years | |
Mark P. Bronzo | Portfolio Manager - Security Investors, LLC | |
(11-01-60) | Managing Director & Chief Compliance Officer - Nationwide | |
Vice President - 2008 | Separate Accounts LLC (2003-2008) | |
Brenda M. Harwood | Vice President & Chief Compliance Officer - Security Investors, LLC | |
(11-03-63) | Chief Compliance Officer - Security Global Investors, LLC | |
Chief Compliance Officer - 2004 | Assistant Vice President - Security Benefit Life Insurance | |
Treasurer - 1988 | Company (2004-2009) | |
Vice President & Assistant Treasurer (2006-2009) & Director - | ||
Security Distributors, Inc. (2004-2009) | ||
Amy J. Lee | Secretary - Security Investors, LLC | |
(06-05-61) | Secretary & Chief Compliance Officer - Security Distributors, Inc. | |
Secretary - 1987 | Vice President, Associate General Counsel & Assistant Secretary - | |
Security Benefit Life Insurance Company & Security Benefit | ||
Corporation | ||
Secretary - Security Global Investors, LLC | ||
Associate General Counsel - First Security Benefit Life Insurance | ||
and Annuity of New York | ||
Secretary - Security Financial Resources, Inc. | ||
Vice President & Assistant Secretary - Rydex Series Funds, Rydex | ||
ETF Trust, Rydex Dynamic Funds, and Rydex Variable Trust | ||
Secretary - Rydex Holdings, LLC | ||
Vice President & Secretary - Rydex Advisory Services, LLC | ||
President & Secretary - Advisor Research Center, Inc. | ||
Director - Brecek & Young Advisors, Inc. (2004-2008) | ||
Mark Mitchell | Vice President & Portfolio Manager - Security Investors, LLC | |
(08-24-64) | Vice President & Portfolio Manager - Security Benefit Life | |
Vice President - 2003 | Insurance Company | |
Joseph C. O’Connor | Portfolio Manager - Security Investors, LLC | |
(07-15-60) | Managing Director - Nationwide Separate Accounts LLC | |
Vice President - 2008 | (2003-2008) | |
Keith Fletcher | Vice President - Rydex Series Funds, Rydex Variable Trust, Rydex | |
(2-18-58) | Dynamic Funds and Rydex ETF Trust | |
Vice President - 2009 | Vice President - Rydex Investments | |
Vice President & Director - Rydex Distributors, Inc. | ||
Vice President - Security Global Investors LLC | ||
Daniel W. Portanova | Portfolio Manager - Security Investors, LLC | |
(10-02-60) | Managing Director - Nationwide Separate Accounts LLC | |
Vice President - 2008 | (2003-2008) |
* | Officers serve until the next annual meeting or until a successor has been duly elected and qualified. |
136 | | | THE RYDEX | SGI EQUITY FUNDS ANNUAL REPORT |
2
INFORMATION ON BOARD OF TRUSTEES AND OFFICERS (Unaudited) (concluded)
OFFICERS* (concluded)
The business address of each officer is One Security Benefit Place, Topeka, KS 66636-0001
Name (Date of Birth) | Principal Occupations | |
Title – Year Elected | During Past Five Years | |
James P. Schier | Senior Portfolio Manager - Security Investors, LLC | |
(12-28-57) | Vice President & Senior Portfolio Manager - Security Benefit Life | |
Vice President - 1998 | Insurance Company | |
Christopher D. Swickard | Assistant Secretary - Security Investors, LLC and Security | |
(10-09-65) | Distributors, Inc. | |
Assistant Secretary - 1996 | Second Vice President & Assistant General Counsel - Security | |
Benefit Corporation and Security Benefit Life Insurance Company | ||
Assistant General Counsel - First Security Benefit Life Insurance | ||
and Annuity Company of New York | ||
David G. Toussaint | Vice President & Portfolio Manager - Security Investors, LLC | |
(10-10-66) | Assistant Vice President & Portfolio Manager - Security Benefit | |
Vice President - 2001 | Life Insurance Company |
* | Officers serve until the next annual meeting or until a successor has been duly elected and qualified. |
THE RYDEX |SGI EQUITY FUNDS ANNUAL REPORT | | | 137 |
3
OTHER INFORMATION (Unaudited)
Each of the Rydex|SGI Funds files a complete schedule of portfolio holdings with the U.S. Securities and Exchange Commission for the first and third quarters of each fiscal year on Form N-Q. The Forms N-Q of each such Fund are available on the Commission’s website at www.sec.gov. The Forms N-Q may be reviewed and copied at the Commission’s Public Reference Room in Washington, DC. Information on the operation of the Public Reference Room may be obtained by calling 1.800.SEC.0330. The portfolio holdings of each of the Rydex|SGI Funds are available on their website, www.securitybenefit.com or by calling 1.800.888.2461.
A description of the policies and procedures that the Rydex|SGI Funds use to determine how to vote proxies relating to portfolio securities is available upon request, free of charge by calling 1.800.888.2461, or accessing the U.S. Securities and Exchange Commission website at www.sec.gov. Information regarding how the Rydex|SGI Funds voted proxies relating to portfolio securities during the 12 month period ended June 30, 2010 is available upon request, free of charge by calling 1.800.888.2461, or accessing the U.S. Securities and Exchange Commission website at www.sec.gov.
The statement of additional information (“SAI”) includes additional information about the Funds’ Directors and is available upon request without charge by calling 1.800.888.2461.
Tax Information
In accordance with the provisions of the Internal Revenue Code, the percentage of ordinary income distributions (including short-term capital gains) attributable to the fiscal year ended September 30, 2010 which qualify for the dividends received deduction for corporate shareholders is as follows:
All Cap Value Fund | 99% | |||
Global Institutional Fund | 73% | |||
Mid Cap Value Fund | 100% | |||
Mid Cap Value Institutional Fund | 20% | |||
Small Cap Value Fund | 15% | |||
Large Cap Value Fund | 100% | |||
Large Cap Value Institutional Fund | 100% |
Certain dividends paid by the Funds may be subject to a maximum tax rate of 15%, as provided by the Jobs and Growth Tax Relief Reconciliation Act of 2003. The percentage of ordinary income distributions for the fiscal year ended September 30, 2010, taxed at the maximum rate of 15% is as follows:
All Cap Value Fund | 99% | |||
Global Institutional Fund | 100% | |||
Mid Cap Value Fund | 100% | |||
Mid Cap Value Institutional Fund | 20% | |||
Small Cap Value Fund | 14% | |||
Large Cap Value Fund | 100% | |||
Large Cap Value Institutional Fund | 100% |
For federal income tax purposes, the Funds designate capital gain dividends for the fiscal year ended September 30, 2010 as follows:
Mid Cap Value Institutional Fund | $ | 1,221,429 | ||
Small Cap Value Fund | 34,045 |
Additional information for foreign shareholders only:
For the year ended September 30, 2010, the following ordinary distributions paid qualified as interest related dividends under the Internal Revenue Code Section 871(k)(1)(C):
All Cap Value Fund | 1% | |||
Mid Cap Value Fund | 4% |
For the year ended September 30, 2010, the following ordinary distributions paid qualified as short term capital gain dividends under the Internal Revenue Code Section 871(k)(2)(C):
All Cap Value Fund | 3% | |||
Mid Cap Value Institutional Fund | 90% | |||
Small Cap Value Fund | 100% |
138 | | | THE RYDEX | SGI EQUITY FUNDS ANNUAL REPORT |
OTHER INFORMATION (Unaudited) (concluded)
Proxy Results
At a special meeting of shareholders held on May 21, 2010, the shareholders of the Funds voted on whether to approve a new investment advisory agreement between Rydex|SGI Equity Fund, Rydex|SGI Large Cap Value Fund, Rydex|SGI Mid Cap Growth Fund and Security Investors, LLC. A description of the number of shares voted is as follows:
Fund | Shares For | Shares Against | Shares Abstained | |||||||||
All Cap Value Fund | 138,182 | 2,209 | 2,346 | |||||||||
Alpha Opportunity Fund | 1,087,759 | 460 | 12,261 | |||||||||
Large Cap Core Fund | 25,309,211 | 482,774 | 1,224,335 | |||||||||
Global Fund | 6,841,519 | 9,998 | 99,185 | |||||||||
Global Institutional Fund | 526,107 | — | — | |||||||||
Mid Cap Value Fund | 19,585,184 | 359,472 | 602,253 | |||||||||
Mid Cap Value Institutional Fund | 18,640,366 | 66,151 | 109,790 | |||||||||
Large Cap Concentrated Growth Fund | 3,271,905 | 15,437 | 49,544 | |||||||||
Small Cap Growth Fund | 945,106 | 2,277 | 10,957 | |||||||||
Small Cap Value Fund | 482,404 | — | 2,183 | |||||||||
Large Cap Value Fund | 4,844,111 | 26,200 | 67,739 | |||||||||
Large Cap Value Institutional Fund | 317,261 | — | — | |||||||||
Mid Cap Growth Fund | 7,298,023 | 78,307 | 215,621 |
At a special meeting of shareholders held on May 21, 2010, the shareholders of the Funds also voted on whether to approve a new investment sub-advisory agreement between Security Investors, LLC and Security Global Investors, LLC. A description of the number of shares voted is as follows:
Fund | Shares For | Shares Against | Shares Abstained | |||||||||
Alpha Opportunity Fund | 1,086,566 | 1,254 | 12,659 | |||||||||
Global Fund | 6,833,660 | 10,181 | 106,861 | |||||||||
Global Institutional Fund | 526,107 | — | — |
THE RYDEX | SGI EQUITY FUNDS ANNUAL REPORT | | | 139 |
RYDEX | SGI PRIVACY POLICIES
Rydex Funds, Rydex|SGI Funds, Rydex Investments, Rydex Distributors, Inc., Security Investors, LLC, Security Global Investors, LLC, Security Distributors, Inc. and Rydex Advisory Services (Collectively “Rydex”)
Our Commitment to You
When you become a Rydex|SGI investor, you entrust us with not only your hard-earned money but also with personal and financial information about you. We recognize that your relationship with us is based on trust and that you expect us to act responsibly and in your best interests. Because we have access to this private information about you, we hold ourselves to the highest standards in its safekeeping and use. This means, most importantly, that we do not sell client information to anyone—whether it is your personal information or if you are a current or former Rydex|SGI client.
The Information We Collect About You
In the course of doing business with shareholders and investors, we collect nonpublic personal information about you. You typically provide personal information when you complete a Rydex|SGI account application or when you request a transaction that involves Rydex and Rydex|SGI funds or one of the Rydex|SGI affiliated companies. “Nonpublic personal information” is personally identifiable private information about you. For example, it includes information regarding your name and address, Social Security or taxpayer identification number, assets, income, account balance, bank account information and investment activity (e.g., purchase and redemption history).
How We Handle Your Personal Information
As emphasized above, we do not sell information about current or former clients or their accounts to third parties. Nor do we share such information, except when necessary to complete transactions at your request or to make you aware of related investment products and services that we offer. Additional details about how we handle your personal information are provided below. To complete certain transactions or account changes that you direct, it may be necessary to provide identifying information to companies, individuals or groups that are not affiliated with Rydex|SGI. For example, if you ask to transfer assets from another financial institution to Rydex|SGI, we will need to provide certain information about you to that company to complete the transaction. To alert you to other Rydex|SGI investment products and services, we may share your information within the Rydex|SGI family of affiliated companies. This would include, for example, sharing your information within Rydex|SGI so we can make you aware of new Rydex and Rydex|SGI funds or the services offered through another Rydex|SGI affiliated company. In certain instances, we may contract with nonaffiliated companies to perform services for us. Where necessary, we will disclose information we have about you to these third parties. In all such cases, we provide the third party with only the information necessary to carry out its assigned responsibilities and only for that purpose. And we require these third parties to treat your private information with the same high degree of confidentiality that we do. In certain instances, we may share information with other financial institutions regarding individuals and entities in response to the U.S.A. Patriot Act. Finally, we will release information about you if you direct us to do so, if we are compelled by law to do so or in other circumstances permitted by law.
Opt Out Provisions
We do not sell your personal information to anyone. The law allows you to “opt out” of only certain kinds of information sharing with third parties. The firm does not share personal information about you with any third parties that triggers this opt-out right. This means YOU ARE ALREADY OPTED OUT.
How We Protect Privacy Online
Our concern for the privacy of our shareholders also extends to those who use our web site, www.rydex-sgi.com. Our web site uses some of the most secure forms of online communication available, including encryption technology, Secure Socket Layer (SSL) protocol, firewalls and user names and passwords. These technologies provide a high level of security and privacy when you access your account information or initiate online transactions. The Rydex|SGI web site offers customized features that require our use of “http cookies”—tiny pieces of information that we ask your browser to store. However, we make very limited use of these cookies. We only use cookies for session management and security features on the Rydex|SGI web site. We do not use them to pull data from your hard drive, to learn your email address, or to view data in cookies created by other web sites. We will not share the information in our cookies or give others access to it. See the legal information area on our web site for more details about web site security and privacy features.
How We Safeguard Your Personal Information
We restrict access to nonpublic personal information about shareholders to our employees and in some cases to third parties (for example, the service providers described above) as permitted by law. We maintain strict physical, electronic and procedural safeguards that comply with federal standards to guard your nonpublic personal information.
We’ll Keep You Informed
As required by federal law, we will notify shareholders of our privacy policy annually. We reserve the right to modify this policy at any time, but rest assured that if we do change it, we will tell you promptly. You will also be able to access our privacy policy from our web site at www.rydex-sgi.com. Should you have any questions regarding our privacy policy, contact us at 800.820.0888 or 301.296.5100.
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Item 2. Code of Ethics.
The registrant’s Board of Trustees has adopted a code of ethics that applies to the registrant’s principal executive officer and principal financial officer. No substantive amendments were approved or waivers were granted to the Code during the period covered by this report. The Code is filed as an exhibit to this Form N-CSR.
Item 3. Audit Committee Financial Expert.
The Registrant’s Board of Directors has determined that Maynard Oliverius, a member of the Audit Committee of the Board, is an audit committee financial expert. Mr. Oliverius is “independent” for purposes of this item.
Item 4. Principal Accountant Fees and Services.
(a) | Audit Fees. The aggregate fees billed for each of the last two fiscal years (the “Reporting Periods”) for professional services rendered by the Registrant’s principal accountant (the “Auditor”) for the audit of the Registrant’s annual financial statements, or services that are normally provided by the Auditor in connection with the statutory and regulatory filings or engagements for the Reporting Periods, were $170,700 in 2009 and $171,900 in 2010. |
(b) | Audit-Related Fees. The aggregate fees billed in the Reporting Periods for assurance and related services by the Auditor that are reasonably related to the performance of the audit of the Registrant’s financial statements and are not reported under paragraph (a) of this Item 4 were $14,300 in 2009 and $5,400 in 2010. These services consisted of financial reporting advisory services. |
The aggregate fees billed in the Reporting Periods for assurance and related services by the Auditor to the Registrant’s investment adviser (not including any sub-investment adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser), and any entity controlling, controlled by or under common control with the investment adviser that provides ongoing services to the Registrant (“Service Affiliates”) which required pre-approval by the Audit Committee were $9,250 in 2009 and $9,250 in 2010, which related to the review of the transfer agent function. |
__________ |
(c) | Tax Fees. The aggregate fees billed to the Registrant in the Reporting Periods for professional services rendered by the Auditor for tax compliance, tax advice and tax planning (“Tax Services”) were $33,500 in 2009 and $38,700 in 2010. These services consisted of (i) preparation of U.S. federal, state and excise tax returns; (ii) U.S. federal and state tax planning, advice and assistance regarding statutory, regulatory or administrative developments, (iii) tax advice regarding tax qualification matters and/or treatment of various financial instruments held or proposed to be acquired and (iv) review of U.S. federal excise distribution calculations. |
The aggregate fees billed in the Reporting Periods for Tax Services by the Auditor to Service Affiliates which required pre-approval by the Audit Committee were $0 in 2009 and $0 in 2010. |
__________ |
(d) | All Other Fees. The aggregate fees billed to the Registrant in the Reporting Periods for products and services provided by the Auditor, other than the services reported in paragraphs (a) through (c) of this Item, were $0 in 2009 and $0 in 2010. |
The aggregate fees billed in the Reporting Periods for Non-Audit Services by the Auditor to Service Affiliates, other than the services reported in paragraphs (b) through (d) of this Item, which required pre-approval by the Audit Committee were $0 in 2009 and $0 in 2010. |
__________ |
(e) | (1) | Audit Committee Pre-Approval Policies and Procedures. The Registrant’s Audit Committee has established policies and procedures for pre-approval of the auditor’s engagements for audit and non-audit services to the Registrant. Pre-approval considerations include whether the proposed services are compatible with maintaining the auditor’s independence as specified in applicable rules. | |
(e) | (2) | Percentage of Non-Audit Services Approved under (c)(7)(i)(C). The percentage of the services described in each of (b) through (d) of this Item 4 (only those that relate to the Registrant) that were approved by the Audit Committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X was 0%, 0% and 0%, respectively. |
(f) | Not applicable. | |
(g) | Non-Audit Fees. The aggregate non-audit fees were for audit-related and tax services rendered to the Registrant, and rendered to Service Affiliates, for the Reporting Periods were $57,050 in 2009 and $53,350 in 2010. | |
(h) | Auditor Independence. The Registrant’s Audit Committee was provided with information relating to the provision of non-audit services by Ernst & Young, LLP to the Registrant (and its affiliates) that were not pre-approved by the Audit Committee so that a determination could be made whether the provision of such services is compatible with maintaining Ernst & Young, LLP’s independence. |
Item 5. Audit Committee of Listed Registrants.
Not applicable.
Item 6. Schedule of Investments.
The Schedule of Investments is included under Item 1 of this form.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies.
Not applicable.
Item 8. Portfolio Mangers of Closed-end Management Investment Companies
Not applicable
Item 9. Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers.
Not applicable.
Item 10. Submission of Matters to a Vote of Security Holders.
The registrant does not currently have in place procedures by which shareholders may recommend nominees to the registrant’s board.
There have been no changes to the procedures by which shareholders may recommend nominees to the registrant’s board.
Item 11. Controls and Procedures.
(a) | The registrant’s President and Treasurer have concluded that the registrant’s disclosure controls and procedures (as defined in rule 30a-3(c) under the Investment Company Act of 1940) are effective based on their evaluation of these disclosure controls and procedures within 90 days of the filing date of this report on Form N-CSR. | ||
There was no fraud, whether or not material, involving officers or employees of the Registrant who have a significant role in the Registrant’s internal controls, including disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) that has come to the attention of the Registrant, including its President and Treasurer. | |||
(b) | There were no significant changes in the registrant’s internal controls, or in other factors that could significantly affect these controls subsequent to the date of their evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. |
Item 12. Exhibits.
(a) | (2) | Separate certifications by the President (principal executive officer) and Treasurer (principal financial officer) of the registrant as required by Rule 30a-2(a) under the Act (17 CFR 270.30a-2(a)) are attached. |
(b) | A certification by the registrant’s President (principal executive officer) and Treasurer (principal financial officer) as required by Rule 30a-2(b) under the Act (17 CFR 270.30a-2(b)) is attached. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant) Security Equity Fund
By (Signature and Title)* | /s/ Richard M. Goldman | |||
Richard M. Goldman, President |
Date December 7, 2010
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
By (Signature and Title)* | /s/ Richard M. Goldman | |||
Richard M. Goldman, President |
Date December 7, 2010
By (Signature and Title)* | /s/ Brenda M. Harwood | |||
Brenda M. Harwood, Treasurer |
Date December 7, 2010
* | Print the name and title of each signing officer under his or her signature. |