As Filed with the U.S. Securities and Exchange Commission on March 16, 2009
File No. 333-_________
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. ___[ ]
Post-Effective Amendment No. ___[ ]
RYDEX SERIES FUNDS
(Exact Name of Registrant as Specified in Charter)
9601 Blackwell Road, Suite 500
Rockville, Maryland 20850
(Address of Principal Executive Offices) (Zip Code)
(301) 296-5100
(Registrant's Telephone Number, Including Area Code)
NAME AND ADDRESS OF AGENT FOR SERVICE: COPIES TO:
Carl G. Verboncoeur W. John McGuire
9601 Blackwell Road Morgan, Lewis & Bockius LLP
Suite 500 1111 Pennsylvania Avenue, N.W.
Rockville, Maryland 20850 Washington, D.C. 20004
As soon as practicable after the Registration Statement becomes effective under
the Securities Act of 1933.
(Appproximate date of proposed public offering)
It is proposed that this filing will become effective on April 15, 2009
pursuant to Rule 488.
No filing fee is due because the Registrant has previously registered an
indefinite number of shares under the Securities Act of 1933 pursuant to Section
24(f) under the Investment Company Act of 1940.
RYDEX SERIES FUNDS
9601 Blackwell Road, Suite 500
Rockville, MD 20850
April ___, 2009
Dear Shareholder:
We wish to provide you with some important information concerning your
investment. As a shareholder of the Hedged Equity Fund (the "Acquired Fund"), we
wish to inform you that the Board of Trustees of the Rydex Series Funds (the
"Trust"), after careful consideration, has approved the reorganization of the
Hedged Equity Fund into the Multi-Hedge Strategies Fund, formerly the Absolute
Return Strategies Fund, (the "Surviving Fund" and, together with the Hedged
Equity Fund, the "Funds"). The Acquired Fund and the Surviving Fund pursue
similar investment objectives and possess similar policies and are managed by
the same portfolio managers.
We believe that this combination will provide substantial benefits to
shareholders. The reorganization will combine a smaller fund into a larger fund.
Shareholders could potentially benefit by the growth in assets realized by the
combination of the Funds because the Surviving Fund can potentially take
advantage of the benefits of any future economies of scale, including the
ability to spread certain fixed costs across a larger asset base. Further, the
reorganization is intended to be tax-free, for federal income tax purposes, for
the Acquired Fund, Surviving Fund, and the Acquired Fund's shareholders. The
Reorganization will be accomplished in such a manner as to not dilute your
investment.
Shareholder approval is NOT required to effect the reorganization. At the
close of business on May ___, 2009, the Acquired Fund will transfer its assets
and liabilities to the Surviving Fund. On that date, you will receive H-Class
Shares, A-Class Shares, and C-Class Shares of the Surviving Fund equal in
aggregate net asset value to your H-Class Shares, A-Class Shares, and C-Class
Shares of the Acquired Fund. We have enclosed a Prospectus/Information Statement
that describes the reorganization in greater detail and contains important
information about the Surviving Fund.
THE TRANSACTION WILL NOT REQUIRE ANY ACTION ON YOUR PART. You will
automatically receive H-Class Shares, A-Class Shares, and C-Class Shares of the
Surviving Fund in exchange for your H-Class Shares, A-Class Shares, and C-Class
Shares of the Acquired Fund as of the closing date. If you have questions or
would like to discuss alternatives, you may contact us at (800) 820-0888. If you
invest through another financial institution, such as a brokerage firm, please
contact your financial institution should you have any questions. You are a
valued investor and we thank you for your continued investment in the Trust.
Sincerely,
----------------------------------------
Carl G. Verboncoeur
President
RYDEX SERIES FUNDS
9601 Blackwell Road, Suite 500
Rockville, MD 20850
(800) 820-0888
PROSPECTUS/INFORMATION STATEMENT
April ___, 2009
This Prospectus/Information Statement is being furnished to shareholders of
the Hedged Equity Fund (the "Acquired Fund"), a series of Rydex Series Funds
(the "Trust"), in connection with an Agreement and Plan of Reorganization (the
"Plan") that has been approved by the Board of Trustees of the Trust (the
"Board"). Under the Plan, shareholders of H-Class Shares, A-Class Shares, and
C-Class Shares of the Acquired Fund will receive H-Class Shares, A-Class Shares,
and C-Class Shares of the Multi-Hedge Strategies Fund, formerly the Absolute
Return Strategies Fund, (the "Surviving Fund" and, together with the Acquired
Fund, the "Funds"), a series of the Trust, equal in aggregate value to the
aggregate net asset value of the assets transferred by the Acquired Fund to the
Surviving Fund less the liabilities of the Acquired Fund that are assumed by the
Surviving Fund, as of the closing date of the reorganization (the
"Reorganization"). After the Reorganization is complete, the Acquired Fund will
be terminated. The Reorganization is expected to be effective on or about May
__, 2009.
The Board believes that the Reorganization is in the best interest of each
Fund and that the interests of each Fund's shareholders will not be diluted as a
result of the Reorganization. For federal income tax purposes, the
Reorganization is intended to be structured as a tax-free transaction for the
Acquired Fund and its shareholders. Shareholders of the Acquired Fund are not
being asked to vote on the Plan or approve the Reorganization.
The Acquired Fund and the Surviving Fund are each a series of the Trust, a
Delaware statutory trust registered with the U.S. Securities and Exchange
Commission (the "SEC") as an open-end management investment company. The Trust
currently consists of [56] separate series, including the Acquired Fund and the
Surviving Fund. PADCO Advisors, Inc., which operates under the name Rydex
Investments ("Rydex" or the "Advisor") serves as the investment adviser to the
Acquired Fund and the Surviving Fund. The investment objective of the Surviving
Fund is to seek capital appreciation consistent with the return and risk
characteristics of the hedge fund universe. The Surviving Fund uses multiple
investment strategies including the "Long/Short Equity" strategy, which accounts
for the largest allocation. The Acquired Fund seeks to provide capital
appreciation consistent with the return and risk characteristics of the
long/short hedge fund universe.
This Prospectus/Information Statement, which you should read carefully and
retain for future reference, sets forth concisely the information that you
should know about the Acquired Fund and Surviving Fund and the Reorganization.
The prospectuses for the Acquired Fund and the Surviving Fund, dated August 1,
2008, is included with this Prospectus/Information Statement and is incorporated
herein by reference.
A Statement of Additional Information dated April ___, 2009 relating to
this Prospectus/Information Statement and the Reorganization has been filed with
the SEC and is incorporated by reference into this Prospectus/Information
Statement. Additional information relating to the Acquired Fund and Surviving
Fund is contained in the Statement of Additional Information dated August 1,
2008, which has been filed with the SEC.
For a free copy of any of the documents described above, you may call (800)
820-0888, or you may write to Rydex Series Funds at the address listed on the
cover of this Prospectus/Information Statement. You may also obtain these
documents by accessing the Internet site for Rydex Series Funds at
www.rydexinvestments.com. In addition, these documents may be obtained from the
EDGAR database on the SEC's Internet site at www.sec.gov. You may review and
copy documents at the SEC Public Reference Room in Washington, DC (for
information on the operation of the Public Reference Room, call 1-202-551-8090).
You may request documents by mail from the SEC, upon payment of a duplication
fee, by writing to: Securities and Exchange Commission, Public Reference
Section, Washington, DC 20549-0102. You may also obtain this information upon
payment of a duplicating fee, by e-mailing the SEC at the following address:
publicinfo@sec.gov.
This Prospectus/Information Statement and the enclosures are expected to be
available to shareholders on or about April __, 2009. WE ARE NOT ASKING YOU FOR
A PROXY AND YOU ARE REQUESTED NOT TO SEND US A PROXY.
AN INVESTMENT IN THE FUNDS IS NOT A DEPOSIT OF ANY BANK AND IS NOT INSURED
OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION ("FDIC") OR ANY OTHER
GOVERNMENT AGENCY. AN INVESTMENT IN THE FUNDS INVOLVES INVESTMENT RISK,
INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED
THESE SECURITIES OR PASSED UPON THE ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
TABLE OF CONTENTS
SYNOPSIS
The Reorganization.....................................................
Comparison of the Investment Objectives and Policies of the Funds......
Fees and Expenses......................................................
Purchase and Redemption Procedures; Exchange Procedures; Dividends,
Distributions.......................................................
PRINCIPAL RISK FACTORS....................................................
INFORMATION ABOUT THE REORGANIZATION......................................
Material Features of the Agreement and Plan of Reorganization .........
Reasons For the Reorganization.........................................
Federal Income Tax Consequences........................................
Shareholder Rights, Description of the Securities to be Issued.........
Capitalization
ADDITIONAL INFORMATION ABOUT THE SURVIVING FUND AND THE ACQUIRED FUND.....
COMPARISON OF THE FUNDS...................................................
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES.......................
Control Persons........................................................
Principal Shareholders.................................................
ADDITIONAL INFORMATION....................................................
Investment Adviser.....................................................
FINANCIAL HIGHLIGHTS......................................................
APPENDIX A
AGREEMENT AND PLAN OF REORGANIZATION......................................
SYNOPSIS
THE REORGANIZATION.
The Reorganization involves the transfer of all of the assets and
liabilities of the Acquired Fund to the Surviving Fund in exchange for H-Class
Shares, A-Class Shares, and C-Class Shares of the Surviving Fund. The transfer
of assets by the Acquired Fund will occur at its then-current market value as
determined in accordance with the Acquired Fund's valuation procedures, and
shares of the Surviving Fund to be issued to the Acquired Fund will be valued at
their then-current net asset value as determined in accordance with the
Surviving Fund's valuation procedures. H-Class Shares, A-Class Shares, and
C-Class Shares of the Surviving Fund will be distributed, respectively, to
shareholders of H-Class Shares, A-Class Shares, and C-Class Shares of the
Acquired Fund in exchange for their H-Class Shares, A-Class Shares, and C-Class
Shares of the Acquired Fund. After completion of the Reorganization, each
shareholder of H-Class Shares, A-Class Shares, and C-Class Shares of the
Acquired Fund will own, respectively, H-Class Shares, A-Class Shares, and
C-Class Shares of the Surviving Fund equal in value to the current net asset
value of such shareholder's shares of the Acquired Fund. Following the
completion of the Reorganization, the Acquired Fund will be liquidated and its
registration under the Investment Company Act of 1940 (the "1940 Act") will be
terminated.
The Reorganization is intended to be tax-free for U.S. Federal income tax
purposes. This means that it is intended that shareholders of the Acquired Fund
will become shareholders of the Surviving Fund without realizing any gain or
loss for federal income tax purposes. This also means that it is intended that
the Reorganization will be tax-free for the Surviving Fund.
The implementation of the Reorganization is subject to a number of
conditions set forth in the Agreement and Plan of Reorganization (the "Plan").
Among the more significant conditions is the receipt by the Funds of an opinion
of counsel to the effect that the Reorganization will be treated as a tax-free
transaction to the Funds and their shareholders for federal income tax purposes,
as described further below. For more information about the Reorganization, see
"Information About the Reorganization" below.
The Advisor and its affiliates have undertaken to bear and pay the expenses
related to the preparation and assembly of this Prospectus/Information Statement
and all mailing and other expenses associated with the Reorganization.
COMPARISON OF THE INVESTMENT OBJECTIVES AND POLICIES OF THE ACQUIRED FUND
AND SURVIVING FUND.
The Acquired Fund and Surviving Fund have similar investment objectives.
The Surviving Fund seeks to provide capital appreciation consistent with the
return and risk characteristics of the hedge fund universe. The Acquired Fund
seeks to provide capital appreciation consistent with the return and risk
characteristics of the long/short hedge fund universe. Both Funds seek to
achieve these returns with low correlation to and less volatility than equity
indices.
The Acquired Fund and the Surviving Fund pursue similar investment
strategies, which correspond to investment styles and strategies used by hedge
funds. The primary difference between the two Funds' investment strategies is
that the Acquired Fund employs predominately long/short investment styles while
the Surviving Fund may utilize multiple strategies, including long/short styles
that may be replicated through proprietary quantitative analysis. Historically,
over 50% of the Surviving Fund's assets have been allocated to the long/short
strategy. A more complete description of the Funds' investment strategies and
policies is set forth below.
The Surviving Fund pursues multiple investment styles or mandates that
correspond to investment strategies widely employed by hedge funds, including
strategies sometimes referred to as absolute return strategies. In particular,
the Fund will pursue those investment strategies that may be replicated through
proprietary quantitative style analysis. These investment strategies include,
but are not limited to: Long/Short Equity; Equity Market Neutral; Fixed Income
Arbitrage; Merger Arbitrage; and Global Macro. The Surviving Fund may be long or
short in a broad mix of financial assets including small, mid, and
large-capitalization U.S. and foreign common stocks, currencies, commodities,
futures, options, swap agreements, high yield securities, securities of other
investment companies, American Depositary Receipts, exchange-traded funds, and
corporate debt. The Surviving Fund may hold U.S. government securities or cash
equivalents to collateralize its derivative positions. The Surviving Fund is
non-diversified and, therefore, may invest a greater percentage of its assets in
a particular issuer in comparison to a diversified fund.
The Acquired Fund pursues a long/short investment strategy by employing
multiple investment styles widely used by hedge funds. In particular, the Fund
will pursue those long/short investment styles that may be replicated through
proprietary quantitative analysis. These long/short investment styles include,
but are not limited to: Long/Short Value; Long/Short Growth; Long/Short
Momentum; and Covered Call Writing. Under normal circumstances, the Acquired
Fund invests at least 80% of its net assets in long and short positions in
small, mid, and large-capitalization U.S. and foreign common stocks or
derivatives thereof, which primarily consist of futures, options and swap
agreements, American Depositary Receipts, and securities of other investment
companies. This is a non-fundamental policy that can be changed by the Fund upon
60 days' notice to shareholders. The Fund may invest its remaining assets in
directional and non-directional fixed income investments. The Fund is
non-diversified and, therefore, may invest in a greater percentage of assets in
a particular issuer in comparison to a diversified fund.
For further information about the Funds' investment objectives and
policies, see "Comparison of the Funds--Investment Objectives and Strategies."
FEES AND EXPENSES.
The following table sets forth: (i) the fees and expenses of the H-Class
Shares, A-Class Shares, and C-Class Shares of the Hedged Equity Fund for the
year ended March 31, 2008; (ii) the fees and expenses of the H-Class Shares,
A-Class Shares, and C-Class Shares of the Multi-Hedge Strategies Fund for the
year ended March 31, 2008; and (iii) the estimated fees and expenses of the
H-Class Shares, A-Class Shares, and C-Class Shares of the Multi-Hedge Strategies
Fund on a pro forma basis after giving effect to the Reorganization, for the
year ended March 31, 2008.
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from fund assets)
PRO FORMA
COMBINED MULTI-
HEDGE
HEDGED EQUITY MULTI-HEDGE STRATEGIES FUND
FUND STRATEGIES FUND (SURVIVING FUND)
---------------------------- ---------------------------- -------------------------
A- C- H- A- C-
H-Class A-Class C-Class H-Class Class Class Class Class Class
Shares Shares Shares Shares Shares Shares Shares Shares Shares
------- -------- -------- -------- -------- -------- ------ -------- -------
SHAREHOLDER FEES
(paid directly from your investment)
Maximum Sales Charge (Load) Imposed on
Purchases (as a percentage of initial
sales price)(1) .......................... N/A 4.75% None N/A 4.75% None N/A 4.75% None
Maximum Deferred Sales Charge (Load)
(as a percentage of initial purchase
price or current market value,
whichever is less)(2) .................... N/A None(3) 1.00% N/A None(3) 1.00% N/A None(3) 1.00%
Redemption Fee (charged only to shares
redeemed or exchanged within 30 days
of purchase) ............................. 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00%
ANNUAL FUND OPERATING EXPENSES
(expenses that are deducted from Fund assets)
Management Fees ............................. 1.15% 1.15% 1.15% 1.15% 1.15% 1.15% 1.15% 1.15% 1.15%
Distribution and Shareholder Service
(12b-1) Fees ............................. 0.25% 0.25% 1.00% 0.25% 0.25% 1.00% 0.25% 0.25% 1.00%
Short Dividend Expenses ..................... 0.63%(5) 0.63%(5) 0.63%(5) 0.55%(5) 0.55%(5) 0.55%(5) 0.56% 0.56% 0.56%
Remaining other Expenses .................... None 0.01% None None 0.01% 0.01% 0.00% 0.01% 0.01%
Total Other Expenses(4) ..................... 0.63%(6) 0.64%(6) 0.63%(6) 0.55%(6) 0.56%(6) 0.56%(6) 0.56% 0.57% 0.57%
Acquired Fund Fees and Expenses ............. 0.06%(7) 0.06%(7) 0.06%(7) 0.05%(7) 0.05%(7) 0.05%(7) 0.05% 0.05% 0.05%
Total Annual Fund Operating Expenses ........ 2.09% 2.10% 2.84% 2.00% 2.01% 2.76% 2.01% 2.02% 2.77%
(1) Represents the maximum sales charge (load) imposed on purchases. This sales
charge varies depending on how much you invest. You may pay less than the
maximum sales charge because of waivers and reduced sales charges that may
be available.
(2) The deferred sales charge applies for the first year following purchase and
will be waived for customers of financial intermediaries that have entered
into an arrangement with Rydex Distributors, Inc. (the "Distributor") to
forego transaction-based compensation in connection with the initial
purchase.
(3) For investments of $1 million or more, A-Class Shares are sold at net asset
value ("NAV"), without any up-front sales charge. However, if you sell your
shares within 18 months of purchase, you will normally have to pay a 1.00%
contingent-deferred sales charge ("CDSC") based on your initial purchase
price or current market value, whichever is lower.
(4) The Advisor has contractually agreed to pay all operating expenses of the
Fund, excluding interest expense and taxes (expected to be de minimis),
brokerage commissions and other expenses connected with the execution of
portfolio transactions, short dividend expenses, and extraordinary
expenses.
(5) Short Dividend Expense occurs because the Fund short-sells an equity
security to gain the inverse exposure necessary to meet its investment
objective. The Fund must pay out the dividend rate of the equity security
to the purchaser and records this as an expense. However, any such dividend
on a security sold short generally reduces the market value of the shorted
security - thus increasing the Fund's unrealized gain or reducing the
Fund's unrealized loss on its short sale transaction. Short Dividend
Expense is not a fee charged to the shareholder by the Advisor or other
service provider. Rather it is more similar to the transaction costs or
capital expenditures associated with the day-to-day management of any
mutual fund. If these costs had been treated as transaction costs or
capital items rather than as expenses, the expense ratio for the Hedged
Equity Fund would have equaled 1.46% for H-Class Shares, 1.47% for A-Class
Shares, and 2.21% for C-Class Shares. The expense ratio for the Multi-Hedge
Strategies Fund would have equaled 1.45% for H-Class Shares, 1.46% for
A-Class Shares, and 2.21% for C-Class Shares.
(6) The Advisor has contractually agreed to pay all expenses of the Fund,
excluding interest expense and taxes (expected to be de minimus), brokerage
commissions and other expenses connected with the execution of portfolio
transactions, short dividend expenses, and extraordinary expenses.
(7) As a shareholder in certain funds (the "Acquired Funds"), the Fund will
indirectly bear its proportionate share of the fees and expenses of the
Acquired Funds. "Acquired Funds Fees and Expenses" are based upon (i) the
approximate allocation of the Fund's assets among the Acquired Funds and
the (ii) net expenses (excluding interest, taxes, and extraordinary
expenses) of the Acquired Funds during their most recently completed fiscal
year. "Acquired Funds Fees and Expenses" will vary with changes in the
expenses of the Acquired Funds, as well as allocation of the Fund's assets,
and may be higher or lower than those shown.
Example: This Example is intended to help you compare the current cost of
investing in the Acquired Fund and the Surviving Fund, and also allows you to
compare these costs with the cost of investing in other mutual funds. Your
actual costs may be higher or lower.
The Example assumes that you invest $10,000 in a Fund for the time periods
indicated and that you sell your shares at the end of the period. In addition,
the Example assumes that each year your investment has a 5% return, a Fund's
operating expenses remain the same and you reinvest all dividends and
distributions.
1 3 5 10
YEAR YEARS YEARS YEARS
---- ------ ------ ------
HEDGED EQUITY FUND
H-Class Shares................................................. $212 $ 655 $1,124 $2,421
A-Class Shares................................................. $678 $1,102 $1,550 $2,791
C-Class Shares
If you sell your shares at the end of the period: .......... $387 $ 880 $1,499 $3,166
If you do not sell your shares at the end of the period: ... $287 $ 880 $1,499 $3,166
MULTI-HEDGE STRATEGIES FUND
H-Class Shares................................................. $203 $ 627 $1,078 $2,327
A-Class Shares................................................. $669 $1,076 $1,506 $2,702
C-Class Shares
If you sell your shares at the end of the period: .......... $379 $ 856 $1,459 $3,090
If you do not sell your shares at the end of the period: ... $279 $ 856 $1,459 $3,090
PRO FORMA COMBINED MULTI-HEDGE STRATEGIES FUND
H-Class Shares................................................. $204 $ 631 $1,083 $2,338
A-Class Shares................................................. $670 $1,078 $1,511 $2,712
C-Class Shares
If you sell your shares at the end of the period: .......... $380 $ 859 $1,464 $3,099
If you do not sell your shares at the end of the period: ... $280 $ 859 $1,464 $3,099
The projected post-Reorganization pro forma Annual Fund Operating Expenses
and Example Expenses presented above are based on numerous material assumptions,
including (1) that the current contractual agreements will remain in place and
(2) that certain fixed costs involved in operating the Acquired Fund will be
eliminated. Although these projections represent good faith estimates, there can
be no assurance that any particular level of expenses or expense savings will be
achieved because expenses depend on a variety of factors, including the future
level of the Surviving Fund's assets, many of which are beyond the control of
the Surviving Fund and the Advisor.
PURCHASE AND REDEMPTION PROCEDURES; EXCHANGE PROCEDURES; DIVIDENDS,
DISTRIBUTIONS AND PRICING.
Procedures for purchasing, redeeming and exchanging shares of the Surviving
Fund are the same as those of the Acquired Fund. Additionally, each Fund intends
to pay out as dividends substantially all of its net income and net short-term
and long-term capital gains (after reduction by any available capital loss
carry-forwards). Income dividends, if any, are paid at least annually by each of
the Funds. If you own Fund shares on a Fund's record date, you will be entitled
to receive the dividend. The Funds may declare and pay dividends on the same
date. The Funds make distributions of capital gains, if any, at least annually.
The Funds, however, may declare a special capital gains distribution if the
Board of Trustees believes that such a distribution would be in the best
interests of the shareholders of a Fund. The Funds determine their net asset
value per share as of the close of regular trading hours on the New York Stock
Exchange (normally 4:00 p.m., Eastern time). The Funds' procedures for valuing
their assets are the same.
The principal risks of investments in the Acquired Fund and Surviving Fund
are similar. All risks are the same, but the Surviving Fund also has Credit
Default Swap Risk, Currency Risk and High Yield Risk.
RISKS APPLICABLE TO ACQUIRED FUND AND SURVIVING FUND
Counterparty Credit Risk The Funds may invest in financial instruments
(both Funds) involving counterparties for the purpose of
attempting to gain exposure to a particular
group of securities, index or asset class
without actually purchasing those securities or
investments, or to hedge a position. Such
financial instruments include, but are not
limited to, total return, index, interest rate,
and credit default swap agreements. The Funds
will use short-term counterparty agreements to
exchange the returns (or differentials in rates
of return) earned or realized in particular
predetermined investments or instruments. The
Funds will not enter into any agreement with a
counterparty unless the Advisor believes that
the other party to the transaction is
creditworthy. The use of swap agreements and
similar instruments involves risks that are
different from those associated with ordinary
portfolio securities transactions. For example,
the Funds bears the risk of loss of the amount
expected to be received under a swap agreement
in the event of the default or bankruptcy of a
swap agreement counterparty. If a counterparty
defaults on its payment obligations to the
Funds, this default will cause the value of
your investment in the Funds to decrease. In
addition, the Funds may enter into swap
agreements with a limited number of
counterparties, which may increase the Fund's
exposure to counterparty credit risk. Swap
agreements also may be considered to be
illiquid.
Credit Default Swap Risk The Surviving Fund may enter into credit
(Surviving Fund only) default swap agreements. A credit default swap
agreement is an agreement between two parties:
a buyer of credit protection and a seller of
credit protection. The Fund may be either the
buyer of credit protection against a designated
event of default, restructuring or other credit
related event (each a "Credit Event") or the
seller of credit protection in a credit default
swap. The buyer in a credit default swap
agreement is obligated to pay the seller a
periodic stream of payments over the term of
the swap agreement. If no Credit Event occurs,
the seller of credit protection will have
received a fixed rate of income throughout the
term of the swap agreement. If a Credit Event
occurs, the seller of credit protection must
pay the buyer of credit protection the full
notional value of the reference obligation
through either physical settlement or cash
settlement. If no Credit Event occurs, the
buyer of credit protection will have made
a series of periodic payments through the term
of the swap agreement. However, if a Credit
Event occurs, the buyer of credit protection
will receive the full notional value of the
reference obligation either through physical
settlement or cash settlement from the seller
of credit protection. A credit default swap may
involve greater risks than if the Fund invested
directly in the underlying reference
obligations. For example, a credit default swap
may increase the Fund's credit risk because it
has exposure to both the issuer of the
underlying reference obligation and the
counterparty to the credit default swap. In
addition, credit default swap agreements may be
difficult to value depending on whether an
active market exists for the credit default
swaps in which the Fund invests.
Currency Risk The Surviving Fund's indirect and direct
(Surviving Fund only) exposure to foreign currencies subjects the
Funds to the risk that those currencies will
decline in value relative to the U.S. Dollar,
or, in the case of short positions, that the
U.S. Dollar will decline in value relative to
the currency being hedged. Currency rates in
foreign countries may fluctuate significantly
over short periods of time for a number of
reasons, including changes in interest rates
and the imposition of currency controls or
other political developments in the U.S. or
abroad. In addition, the Fund may incur
transaction costs in connection with
conversions between various currencies. The
Fund may, but are not obligated to, engage in
currency hedging transactions, which generally
involve buying currency forward, options or
futures contracts. However, not all currency
risk may be effectively hedged, and in some
cases the costs of hedging techniques may
outweigh expected benefits. In such instances,
the value of securities denominated in foreign
currencies can change significantly when
foreign currencies strengthen or weaken
relative to the U.S. Dollar.
Depositary Receipt Risk The Funds may hold the securities of non-U.S.
(both Funds) companies in the form of American Depositary
Receipts or ADRs. ADRs are negotiable
certificates issued by a U.S. financial
institution that represent a specified number
of shares in a foreign stock and trade on a
U.S. national securities exchange, such as the
NYSE. The Funds will primarily invest in
sponsored ADRs, which are issued with the
support of the issuer of the foreign stock
underlying the ADRs and which carry all of the
rights of common
shares, including voting rights. The underlying
securities of the ADRs in the Funds' portfolio
are usually denominated or quoted in currencies
other than the U.S. Dollar. As a result,
changes in foreign currency exchange rates may
affect the value of the Funds' portfolio.
Generally, when the U.S. Dollar rises in value
against a foreign currency, a security
denominated in that currency loses value
because the currency is worth fewer U.S.
Dollars. In addition, because the underlying
securities of ADRs trade on foreign exchanges
at times when the U.S. markets are not open for
trading, the value of the securities underlying
the ADRs may change materially at times when
the U.S. markets are not open for trading,
regardless of whether there is an active U.S.
market for shares of the Fund. Investments in
the underlying foreign securities may involve
risks not typically associated with investing
in U.S. companies. Foreign securities markets
generally have less trading volume and less
liquidity than U.S. markets, and prices in some
foreign markets can be extremely volatile due
to increased risks of adverse issuer,
political, regulatory, market, or economic
developments. Many foreign countries lack
accounting and disclosure standards comparable
to those that apply to U.S. companies, and it
may be more difficult to obtain reliable
information regarding a foreign issuer's
financial condition and operations. In
addition, transaction costs and costs
associated with custody services are generally
higher for foreign securities than they are for
U.S. securities.
Derivatives Risk The Funds may invest a percentage of their
(both Funds) assets in derivatives, such as futures and
options contracts, to pursue their investment
objectives. The use of such derivatives may
expose the Funds to additional risks that it
would not be subject to if it invested directly
in the securities underlying those derivatives.
The Funds may use futures contracts and related
options for bona fide hedging purposes to
offset changes in the value of securities held
or expected to be acquired. They may also be
used to gain exposure to a particular market or
instrument, to create a synthetic money market
position, and for certain other tax-related
purposes. The Funds will only enter into
futures contracts traded on a national futures
exchange or board of trade. Futures and options
contracts are described in more detail below:
FUTURES CONTRACTS - Futures contracts and
options on futures contracts provide for
the
future sale by one party and purchase by
another party of a specified amount of a
specific security at a specified future
time and at a specified price. An option
on a futures contract gives the purchaser
the right, in exchange for a premium, to
assume a position in a futures contract at
a specified exercise price during the term
of the option. Index futures are futures
contracts for various indices that are
traded on registered securities exchanges.
OPTIONS - The buyer of an option acquires
the right to buy (a call option) or sell
(a put option) a certain quantity of a
security (the underlying security) or
instrument at a certain price up to a
specified point in time. The seller or
writer of an option is obligated to sell
(a call option) or buy (a put option) the
underlying security. When writing
(selling) call options on securities, the
Funds may cover its positions by owning
the underlying security on which the
option is written or by owning a call
option on the underlying security.
Alternatively, the Funds may cover its
positions by maintaining, in a segregated
account, cash or liquid securities equal
in value to the exercise price of the call
options written by the Funds.
The risks associated with the use of
futures and options contracts include:
- The Funds experiencing losses
that exceed losses experienced
by funds that do not use futures
contracts and options.
- There may be an imperfect
correlation between the changes
in market value of the
securities held by the Funds and
the prices of futures and
options on futures.
- Although the Funds will only
purchase exchange-traded
futures, due to market
conditions there may not always
be a liquid secondary market for
a futures contract. As a result,
the Funds may be unable to close
out its futures contracts at a
time which is advantageous.
- Trading restrictions or
limitations may be imposed by an
exchange, and government
regulations may restrict trading
in futures contracts and
options.
- Because option premiums paid or
received by the Funds are small
in relation to the market value
of the investments underlying
the options, buying and selling
put and call options can be more
speculative than investing
directly in securities.
Early Closing Risk The normal close of trading of securities
(both Funds) listed on NASDAQ and the NYSE is 4:00 p.m.,
Eastern Time. Unanticipated early closings of
securities exchanges and other financial
markets may result in the Funds' inability to
buy or sell securities or other financial
instruments on that day. If an exchange or
market closes early on a day when the Funds
need to execute a high volume of trades late in
a trading day, the Funds might incur
substantial trading losses.
Fixed Income Risk The Funds may invest in fixed income securities
(both Funds) or related instruments. The market value of
fixed income investments, and financial
instruments related to those fixed income
investments, will change in response to
interest rate changes and other factors, such
as changes in the effective maturities and
credit ratings of fixed income investments.
During periods of falling interest rates, the
values of outstanding fixed income securities
generally rise. Falling interest rates may
cause an issuer to redeem or "call" a security
before its stated maturity, which may result in
the Fund having to reinvest the proceeds in
lower yielding securities. Conversely, during
periods of rising interest rates, the values of
such securities and related financial
instruments generally decline. While securities
with longer maturities tend to produce higher
yields, the prices of longer maturity
securities are also subject to greater market
fluctuations as a result of changes in interest
rates. Fixed income investments are also
subject to credit risk, which is the
possibility that the credit strength of an
issuer will weaken and/or an issuer of a debt
security will fail to make timely payments of
principal or interest and the security will go
into default.
High Yield Risk The Surviving Fund may invest in high yield
(Surviving Fund only) securities and unrated securities of similar
credit quality (commonly known as "junk
bonds"). High yield securities generally pay
higher yields (greater income) than investment
in higher quality securities; however, high
yield securities and junk bonds may
be subject to greater levels of interest rate,
credit and liquidity risk than funds that do
not invest in such securities, and are
considered predominantly speculative with
respect to an issuer's continuing ability to
make principal and interest payments. The value
of these securities often fluctuates in
response to company, political, or economic
developments and declines significantly over
short periods of time or during periods of
general economic difficulty. An economic
downturn or period of rising interest rates
could adversely affect the market for these
securities and reduce the ability of the Fund
or an underlying fund to sell these securities
(liquidity risk). These securities can also be
thinly traded or have restrictions on resale,
making them difficult to sell at an acceptable
price. If the issuer of a security is in
default with respect to interest or principal
payments, the Fund or an underlying fund may
lose its entire investment.
Investment in Investment The Funds may purchase shares of investment
Companies Risk (both Funds) companies, such as exchange-traded funds, unit
investment trusts, and closed-end investment
companies to gain exposure to a particular
portion of the market while awaiting an
opportunity to purchase securities directly.
The Funds may regularly invest in other
investment companies, some of which may also
invest in investment companies, and
exchange-traded funds or ETFs. When the Funds
invest in an investment company, in addition to
directly bearing the expenses associated with
its own operations, it will bear a pro rata
portion of the investment company's expenses.
Further, in part because of these additional
expenses, the performance of an investment
company may differ from the performance the
Funds would achieve if it invested directly in
the underlying investments of the investment
company. In addition, while the risks of owning
shares of an investment company generally
reflect the risks of owning the underlying
investments of the investment company, the
Funds may be subject to additional or different
risks than if the Funds had invested directly
in the underlying investments. For example,
shares of an exchange-traded fund are traded at
market prices, which may vary from the net
asset value of its underlying investments.
Also, the lack of liquidity in an
exchange-traded fund can contribute to the
increased volatility of its value in comparison
to the value of the underlying portfolio
securities. The Funds may invest in investment
companies and other pooled
investment vehicles that are not registered
pursuant to the Investment Company Act of 1940,
and therefore, not subject to the regulatory
scheme of the Investment Company Act of 1940.
Large-Capitalization The Funds are subject to the risk that
Securities Risk large-capitalization stocks may underperform
(both Funds) other segments of the equity market or the
equity market as a whole.
Leveraging Risk The Funds achieve leveraged exposure to their
(both Funds) respective underlying indices through the use
of derivative instruments. The more the Funds
invest in derivative instruments that give rise
to leverage, the more this leverage will
magnify any losses on those investments.
Leverage will cause the value of the Funds'
shares to be more volatile than if the Funds
did not use leverage. This is because leverage
tends to exaggerate the effect of any increase
or decrease in the value of the Funds'
portfolio securities or other investments. The
Funds will engage in transactions and purchase
instruments that give rise to forms of
leverage. Such transactions and instruments may
include, among others, the use of reverse
repurchase agreements and other borrowings, the
investment of collateral from loans of
portfolio securities, the use of when issued,
delayed-delivery or forward commitment
transactions or short sales. The use of
leverage may also cause the Funds to liquidate
portfolio positions when it would not be
advantageous to do so in order to satisfy its
obligations or to meet segregation
requirements. Certain types of leveraging
transactions, such as short sales that are not
"against the box," could theoretically be
subject to unlimited losses in cases where the
Funds for any reason, is unable to close out
the transaction. In addition, to the extent the
Funds borrows money, interest costs on such
borrowed money may not be recovered by any
appreciation of the securities purchased with
the borrowed funds and could exceed the Funds'
or an investment income, resulting in greater
losses. The value of the Funds' shares will
tend to increase or decrease more than the
value of any increase or decrease in its
underlying index due to the fact that the
Funds' investment strategies involve
consistently applied leverage. Leverage will
also have the effect of magnifying tracking
error risk.
Market Risk The Funds may invest in public and privately
(both Funds) issued
securities, which may include common and
preferred stocks, bonds, warrants, and rights,
as well as derivatives and financial
instruments that attempt to track the price
movement of securities or commodities indices.
Investments in securities and other financial
instruments, in general, are subject to market
risks that may cause their prices to fluctuate
over time. The Funds' investments may decline
in value due to factors affecting securities or
commodities markets generally, or particular
countries, segments, economic sectors,
industries or companies within those markets.
The value of a security may decline due to
general economic and market conditions which
are not specifically related to a particular
issuer, such as real or perceived adverse
economic conditions or changes in interest or
currency rates. The value of securities
convertible into equity securities, such as
warrants or convertible debt, is also affected
by prevailing interest rates, the credit
quality of the issuer and any call provision.
Fluctuations in the value of securities and
financial instruments in which the Fund or an
underlying fund invests will cause the net
asset value of the Fund to fluctuate.
Historically, the markets have moved in cycles,
and the value of the Funds' securities and
other financial instruments may fluctuate
drastically from day to day. Because of its
link to the markets, an investment in the Funds
may be more suitable for long-term investors
who can bear the risk of short-term principal
fluctuations, which at times may be
significant.
Non-Diversification Risk To the extent that the Funds invest a
(both Funds) significant percentage of its assets in a
limited number of issuers, the Funds are
subject to the risks of investing in those few
issuers, and may be more susceptible to a
single adverse economic or regulatory
occurrence. As a result, changes in the market
value of a single security could cause greater
fluctuations in the value of Funds share than
would occur in a diversified fund.
Portfolio Turnover Risk The Funds' strategies may frequently involve
(both Funds) buying and selling portfolio securities to
rebalance the Funds' exposure to various market
sectors. Higher portfolio turnover may result
in the Funds paying higher levels of
transaction costs and generating greater tax
liabilities for shareholders. Portfolio
turnover risk may cause the Funds' performance
to be less than you expect.
Short Sales Risk Short sales are transactions in which the Fund
(both Funds) sells a security it does not own. To complete
the transaction, the Fund must borrow the
security to make delivery to the buyer. The
Fund is then obligated to replace the security
borrowed by purchasing the security at the
market price at the time of replacement. The
price at such time may be higher or lower than
the price at which the security was sold by the
Fund. If the underlying security goes down in
price between the time the Fund sells the
security and buys it back, the Fund will
realize a gain on the transaction. Conversely,
if the underlying security goes up in price
during the period, the Fund will realize a loss
on the transaction. Any such loss is increased
by the amount of premium or interest the Fund
must pay to the lender of the security.
Likewise, any gain will be decreased by the
amount of premium or interest the Fund must pay
to the lender of the security. The Fund is also
required to segregate other assets on its books
to cover its obligation to return the security
to the lender which means that those other
assets may not be available to meet the Fund's
needs for immediate cash or other liquidity.
The Fund's investment performance may also
suffer if the Fund is required to close out a
short position earlier than it had intended.
This would occur if the securities lender
required the Fund to deliver the securities the
Fund borrowed at the commencement of the short
sale and the Fund was unable to borrow the
securities from another securities lender or
otherwise obtain the security by other means.
In addition, the Fund may be subject to
expenses related to short sales that are not
typically associated with investing in
securities directly, such as costs of borrowing
and margin account maintenance costs associated
with the Fund's open short positions. These
expenses negatively impact the performance of
the Fund. For example, when the Fund short
sells an interest-bearing security, such as a
bond, it is obligated to pay the interest on
the security it has sold. This cost is
partially offset by the interest earned by the
Fund on the investment of the cash generated by
the short sale. Similarly, when the Fund sells
short an equity security that pays a dividend,
it is obligated to pay the dividend on the
security it has sold. However, a dividend paid
on a security sold short generally reduces the
market value of the shorted security and thus,
increases the Fund's unrealized gain or reduces
the Fund's unrealized loss on its short sale
transaction. To the extent that the interest
rate and/or
dividend that the Fund is obligated to pay is
greater than the interest earned by the Fund on
investments, the performance of the Fund will
be negatively impacted. These types of short
sales expenses are sometimes referred to as the
"negative cost of carry," and will tend to
cause the Fund to lose money on a short sale
even in instances where the price of the
underlying security sold short does not change
over the duration of the short sale.
Small Capitalization and In comparison to securities of companies with
Mid-Capitalization Securities larger capitalizations, securities of small and
Risk medium-capitalization companies may have more
(both Funds) price volatility, greater spreads between their
bid and ask prices, significantly lower trading
volumes, and cyclical or static growth
prospects. Small and medium-capitalization
companies often have limited product lines,
markets or financial resources, and may
therefore be more vulnerable to adverse
developments than larger capitalization
companies. These securities may or may not pay
dividends. Small and medium-capitalization
stocks may underperform other segments of the
equity market or the equity market as a whole.
Trading Halt Risk (both Funds) The Funds typically will hold short-term
options and futures contracts. The major
exchanges on which these contracts are traded,
such as the Chicago Mercantile Exchange, have
established limits on how much an option or
futures contract may decline over various time
periods within a day. In addition, the major
securities exchanges, such as the NYSE, have
established limits on how much the securities
market, based on the Dow Jones Industrial
Average(SM), may decline over various time
periods within a day. If the price of a
security, an option or a futures contract
declines more than the established limits,
trading on the exchange is halted on that
instrument. If a trading halt occurs, the Funds
may temporarily be unable to purchase or sell
the options, futures contracts or securities
that are the subject of the trading halt. Such
a trading halt near the time the Funds price
their shares may limit the Funds' ability to
use leverage and may prevent the Funds from
achieving its investment objective. In such an
event, the Funds also may be required to use a
"fair value" method to price its outstanding
contracts or securities.
INFORMATION ABOUT THE REORGANIZATION
MATERIAL FEATURES OF THE PLAN.
The Plan sets forth the terms and conditions of the Reorganization. A
complete copy of the Plan is attached as Appendix A. Significant provisions of
the Plan are summarized below; however, this summary is qualified in its
entirety by reference to the Plan, a copy of which is included in this
Prospectus/Information Statement.
Pursuant to the Reorganization Agreement, the Surviving Fund will acquire
all of the Acquired Fund's assets and liabilities. In exchange, the Surviving
Fund will issue to the Acquired Fund H-Class Shares, A-Class Shares and C-Class
Shares of the Surviving Fund having an aggregate net asset value equal to the
aggregate value of the Acquired Fund's assets so acquired. The Acquired Fund
will then immediately make a pro rata distribution of such Surviving Fund
H-Class Shares, A-Class Shares and C-Class Shares to the Acquired Fund
Shareholders in complete liquidation of the Acquired Fund.
As a result of the Reorganization, each of the Acquired Fund's Shareholders
will receive the number of full and fractional H-Class Shares, A-Class Shares
and C-Class Shares of the Surviving Fund that are equal in value to that
shareholder's pro rata interest in the net assets transferred to the Surviving
Fund as of the close of business at the Effective Time. As a result, the
Acquired Fund shareholders will become shareholders of the Surviving Fund. It is
expected that the value of each Acquired Fund shareholder's account in the
Surviving Fund immediately after the Reorganization will be the same as the
value of that Shareholder's Acquired Fund account immediately prior to the
Reorganization. Acquired Fund shareholders will not pay any sales load or sales
commissions on the Surviving Fund H-Class Shares, A-Class Shares and C-Class
Shares they receive in the Reorganization or on Acquired Fund shares they
surrender in the Reorganization.
The completion of the Reorganization is subject to certain conditions set
forth in the Reorganization Agreement, including the following:
- The Reorganization may be terminated at any time prior to the Closing Date;
- By either party upon a misrepresentation, breach of warranty or
failure to perform any agreement or covenant by the other party
in any of its representations, warranties, agreements or
covenants set forth in the Reorganization Agreement; or
- By the Board of Trustees of the Trust, in the good faith opinion
of such Board, make proceeding with the Reorganization not in the
best interests of the shareholders of the Surviving Fund or the
Acquired Fund, respectively.
- Any authority from the SEC as may be necessary to permit the parties to
carry out the transactions contemplated by the Plan shall have been
received.
The Plan provides that the Board will declare a dividend or dividends with
respect to the Acquired Fund prior to the Effective Time. This dividend,
together with all previous dividends, will have the effect of distributing to
the shareholders of the Acquired Fund all undistributed ordinary income earned
and net capital gains recognized up to and including the Effective Time. The
shareholders of the Acquired Fund will recognize ordinary income and capital
gain with respect to this distribution and such income and gain may be subject
to federal, state and/or local taxes.
The stock transfer books of the Trust with respect to the Acquired Fund
will be permanently closed as of the close of business on the day immediately
preceding the Effective Time. Redemption requests received thereafter by the
Trust with respect to the Acquired Fund will be deemed to be redemption requests
for shares of the Surviving Fund issued pursuant to the Plan. If any shares of
the Acquired Fund are represented by a share certificate, the certificate must
be surrendered to Trust's transfer agent for cancellation before the Surviving
Fund shares issuable to the shareholder pursuant to this Plan will be redeemed.
Any special options relating to a shareholders account in the Acquired Fund will
transfer over to the Surviving Fund without the need for the shareholder to take
any action.
The Advisor and its affiliates have undertaken to bear and pay the expenses
related to the preparation and assembly of this Prospectus/Information Statement
and all mailing and other expenses associated with the Reorganization.
REASONS FOR REORGANIZATION.
The Board considered the Reorganization at a meeting held on February 26,
2009, and approved the Plan. In approving the Reorganization, the Board of the
Acquired Fund determined that it is in the best interests of the Acquired Fund
and its shareholders to reorganize the Acquired Fund into the Surviving Fund. In
making this determination, the Board of the Acquired Fund considered a number of
factors, including:
- the interests of the Acquired Fund's shareholders and the
Surviving Fund's shareholders would not be diluted as a result of
the proposed reorganization;
- the similarity of the investment strategies of the Acquired Fund
to those of the Surviving Fund;
- the greater asset size of the Surviving Fund relative to that of
the Acquired Fund and the possibility that greater aggregate
assets upon consummation of the Reorganization would allow the
Surviving Fund to take advantage of the possible benefits of a
larger asset base, including economies of scale and spreading
costs across a larger asset base to the potential benefit of all
shareholders;
- the future prospects of the Acquired Fund if the Reorganization
was not effected, including the Acquired Fund's continuing
viability as a stand-alone series of the Trust;
- that the Reorganization is intended to be tax-free for U.S.
federal income tax purposes for shareholders of the Acquired
Fund;
- that the management fee with respect to the Acquired Fund is
identical to that of the Surviving Fund; and
- that the expenses of the Reorganization would not be borne by the
Funds' shareholders.
The Board of the Surviving Fund has also determined that the consummation
of the Reorganization is in the best interests of the shareholders of the
Surviving Fund and that the interests of the Surviving Fund's shareholders would
not be diluted as a result of the proposed reorganization.
FEDERAL INCOME TAX CONSEQUENCES
Each Fund intends to qualify as of the Effective Time as a "regulated
investment company" under the Internal Revenue Code of 1986, as amended (the
"Code"). Accordingly, each of the Funds has been, and expects to continue to be,
relieved of all or substantially all federal income taxes. Consummation of the
transaction is subject to the condition that the Trust receive an opinion from
Morgan, Lewis & Bockius LLP, subject to appropriate factual assumptions and
customary representations, to the effect that for federal income tax purposes:
(1) The transfer of all of the assets and liabilities of the Acquired Fund
to the Surviving Fund in exchange for shares of the Surviving Fund and the
distribution to shareholders of the Acquired Fund of shares of the Surviving
Fund, as described in the Plan, will constitute a tax-free "reorganization"
within the meaning of Section 368(a) of the Code, and the Acquired Fund and the
Surviving Fund each will be considered "a party to a reorganization" within the
meaning of Section 368(b) of the Code;
(2) No gain or loss will be recognized by the Acquired Fund upon the
transfer of all of its assets to the Surviving Fund solely in exchange for
shares of the Surviving Fund and the assumption by the Surviving Fund of all of
the Acquired Fund's liabilities, if any, or the distribution by the Acquired
Fund to its shareholders of shares of the Surviving Fund received as a result of
the Reorganization;
(3) No gain or loss will be recognized by the Surviving Fund upon the
receipt of the assets of the Acquired Fund solely in exchange for the shares of
the Surviving Fund and the assumption by the Surviving Fund of all of the
Acquired Fund's liabilities, if any;
(4) The aggregate tax basis of the Surviving Fund shares received by each
shareholder of the Acquired Fund will be the same as the aggregate tax basis of
the shareholder's Acquired Fund shares exchanged therefore;
(5) The tax basis of the assets of the Acquired Fund received by the
Surviving Fund pursuant to the Reorganization will be the same as the tax basis
of such assets to the Acquired Fund immediately before the Reorganization;
(6) The holding period for the shares of the Surviving Fund issued in the
Reorganization will include the holding period of the shares of the Acquired
Fund exchanged therefore, provided that the shareholder held such shares of the
Acquired Fund as capital assets;
(7) The holding period of the assets of the Acquired Fund received by the
Surviving Fund in the Reorganization will include the period for which such
assets were held by the Acquired Fund; and
(8) No gain or loss will be recognized by shareholders of the Acquired Fund
upon the exchange of their shares of the Acquired Fund for shares of the
Surviving Fund as part of the Reorganization.
No opinion will be expressed as to the effect of the Reorgnaization on (i)
the Acquired Fund or the Surviving Fund with respect to any asset as to which
any unrealized gain or loss is required to be recognized for U.S. federal income
tax purposes at the end of the taxable year (or on the termination or transfer
thereof) under a mark-to-market system of accounting and (ii) any Acquired Fund
or the Surviving Fund shareholder that is required to recognize unrealized gains
and losses for U.S. federal income tax purposes under a mark-to-market system of
accounting.
As of September 30, 2008, the Acquired Fund had unutilized capital loss
carry-forwards of approximately $0. The final amount of unutilized capital loss
carry-forwards for the Acquired Fund is subject to change and will not be
finally determined until the Effective Time of the Reorganization. Under
Section 382 of the Code, the ability of the Surviving Fund to fully utilize the
capital loss carry-forwards of the Acquired Fund may be limited because the
Reorganization will result in a change in control of the Acquired Fund.
Therefore, the capital loss carry-forwards that may be utilized as tax
deductions by the Surviving Fund will be limited each taxable year to an amount
equal to the value of the capital stock of the Acquired Fund at the time of the
Reorganization multiplied by an interest rate set monthly by the Internal
Revenue Service that approximates a tax-exempt bond yield.
The Funds have not sought a tax ruling on the federal tax consequences of
the Reorganization from the Internal Revenue Service ("IRS"). The opinion from
Morgan, Lewis & Bockius LLP, with respect to the federal income tax consequences
of the Reorganization described in this section is not binding on the IRS and
does not preclude the IRS from adopting a contrary position.
Shareholders should consult their own advisors concerning the potential tax
consequences to them, including state and local income tax consequences.
SHAREHOLDER RIGHTS, DESCRIPTION OF THE SECURITIES TO BE ISSUED
The Trust is organized as a Delaware statutory trust. The Acquired Fund and
the Surviving Fund are both series of the Trust and, therefore, shareholders of
the Acquired Fund and the Surviving Fund are shareholders of the same legal
entity, the Trust. The Trust's Declaration of Trust dated March 13, 1993, as
amended on November 2, 1993 and February 25, 2000 ("Declaration of Trust"), the
Trust's governing document, does not afford any rights to the shareholders of
the Surviving Fund that differ in any material respect from the rights afforded
to the shareholders of the Acquired Fund.
Each share in the Surviving Fund represents an equal proportionate interest
in the Surviving Fund with other shares of the same class, and is entitled to
such dividends and distributions out of the income earned on the assets
belonging to the Fund as are declared in the discretion of the Trust's Board.
When sold in accordance with the Declaration of Trust, and for the consideration
described in its registration statement, shares of the Surviving Fund will be
fully paid and non-assessable.
Surviving Fund shares have no preemptive rights and only such conversion or
exchange rights as the Board may grant in its discretion. In the event of a
liquidation or dissolution of the Surviving Fund, its shareholders are entitled
to receive the assets available for distribution belonging to the Surviving Fund
and a proportionate distribution, based upon the relative asset values of the
Trust's portfolios, of any general assets of the Trust not belonging to any
particular portfolio of the Trust which are available for distribution. In the
event of a liquidation or dissolution of the Trust, its shareholders will be
entitled to the same distribution process.
The Declaration of Trust does not prescribe any rights or privileges to the
shares of the Surviving Fund that differ in any material respect from the rights
or privileges prescribed to the shares of the Acquired Fund.
CAPITALIZATION.
The Surviving Fund's total capitalization after the Reorganization will be
greater than the current capitalization of the Acquired Fund as a result of the
combination of the Acquired Fund with the Surviving Fund. The following table
sets forth, as of September 30, 2008, on an unaudited basis:
(1) the capitalization of the Hedged Equity Fund;
(2) the capitalization of the Multi-Hedge Strategies Fund only; and
(3) the pro forma capitalization of the Multi-Hedge Strategies Fund as
adjusted to give effect to the Reorganization
PRO FORMA
COMBINED
MULTI-HEDGE MULTI-HEDGE
HEDGED EQUITY STRATEGIES STRATEGIES FUND
FUND FUND (SURVIVING FUND)
------------- ------------ ----------------
TOTAL NET ASSETS ........................... $20,246,328 $215,998,347 $236,244,675
H-Class Shares .......................... $11,600,952 $105,780,495 $117,381,447
A-Class Shares .......................... $ 5,542,531 $ 65,136,060 $ 70,678,591
C-Class Shares .......................... $ 3,102,845 $ 45,081,792 $ 48,184,637
SHARES OUTSTANDING
H-Class Shares .......................... 531,878 4,443,476 4,930,706
A-Class Shares .......................... 254,209 2,737,924 2,970,901
C-Class Shares .......................... 145,671 1,939,613 2,073,126
NET ASSET VALUE PER SHARE
H-Class Shares .......................... $ 21.81 $ 23.81 $ 23.81
A-Class Shares Maximum Offering Price* .. $ 22.89 $ 24.98 $ 24.98
A-Class Shares .......................... $ 21.80 $ 23.79 $ 23.79
C-Class Shares .......................... $ 21.30 $ 23.24 $ 23.24
* Net asset value adjusted for the maximum sales charge of 4.75% of offering
price, calculated NAV/(1-4.75%)
This information is for informational purposes only. There is, of course,
no assurance that the Reorganization will be consummated. Moreover, if
consummated, the capitalization of the Acquired Fund and the Surviving Fund is
likely to be different at the Effective Time as a result of daily share purchase
and redemption activity in the Funds. Accordingly, the foregoing should not be
relied upon to reflect the number of shares of the Surviving Fund that actually
will be received on or after such date.
Prior to the Effective Time, the Advisor reserves the right to sell
portfolio securities and/or purchase other securities for the Acquired Fund, to
the extent necessary so that the asset composition of the Acquired Fund is
consistent with the investment policies and restrictions of the Surviving Fund.
To the extent the Acquired Fund sells securities at a gain, current shareholders
may receive a capital gain dividend. Transaction costs associated with any such
purchases and sales would be borne by the Acquired Fund, which shall result in a
decrease in the Acquired Fund's Net Asset Value.
ADDITIONAL INFORMATION ABOUT THE
SURVIVING FUND AND THE ACQUIRED FUND
COMPARISON OF THE SURVIVING FUND AND THE ACQUIRED FUND
The following is a comparison of the investment objectives, principal
investment strategies and portfolio management of the Funds.
MULTI-HEDGE STRATEGIES FUND HEDGED EQUITY FUND
(the Surviving Fund) (the Acquired Fund)
------------------------------------- ----------------------------------------
INVESTMENT OBJECTIVE INVESTMENT OBJECTIVE
The Multi-Hedge Strategies Fund seeks The Hedged Equity Fund seeks to provide
to provide capital appreciation capital appreciation consistent with the
consistent with the return and risk return and risk characteristics of the
characteristics of the hedge fund long/short hedge fund universe.
universe.
The secondary objective is to achieve The secondary objective is to achieve
these returns with low correlation these returns with low correlation to
to, and less volatility than, equity and less volatility than equity indices.
indices. The investment objective of The investment objective of the Fund is
the Fund is non-fundamental and may non-fundamental and may be changed
be changed without shareholder without shareholder approval.
approval.
PRINCIPAL INVESTMENT STRATEGIES PRINCIPAL INVESTMENT STRATEGIES
The Multi-Hedge Strategies Fund The Hedged Equity Fund pursues a
pursues multiple investment styles or long/short investment strategy by
mandates that correspond to employing multiple investment styles
investment strategies widely employed widely used by hedge funds. In
by hedge funds, including strategies particular, the Fund will pursue those
sometimes referred to as absolute long/short investment styles that may be
return strategies. In particular, the replicated through proprietary
Fund will pursue those investment quantitative style analysis. These
strategies that may be replicated long/short investment styles include,
through proprietary quantitative but are not limited to, those described
style analysis. These investment below.
strategies include, but are not
limited to, those described below.
LONG/SHORT EQUITY - Pursuant to a LONG/SHORT VALUE - Pursuant to a
long/short equity investment long/short value investment style,
strategy, portfolio managers seek to portfolio managers seek to profit from
profit from investing on both the buying long or selling short equities
long and short sides of equity and/or equity-related securities based
markets. The Advisor seeks to execute on value signals. The Advisor seeks to
this investment strategy by creating execute this investment style by
portfolios that include, but are not creating portfolios that include, but
limited to, one or more of the are not limited to, one or more of the
following directional and/or following directional and/or
non-directional positions: long non-directional positions: long equity,
equity, market neutral value, market market neutral value and market neutral
neutral capitalization, market capitalization.
neutral growth and market neutral
momentum.
EQUITY MARKET NEUTRAL - Pursuant to LONG/SHORT GROWTH - Pursuant to a
an equity market neutral investment long/short growth investment style,
strategy, portfolio managers seek to portfolio managers seek to profit from
profit from exploiting pricing buying long or selling short equities
relationships between different and/or equity-related securities based
equities or related securities while on growth signals. The Advisor seeks to
typically hedging exposure to overall execute this investment style by
equity market movements. The Advisor creating portfolios that include, but
seeks to execute this strategy by are not limited to, one or more of the
creating portfolios that may include, following directional and/or
but are not limited to, one or more non-directional positions: long equity,
of the following directional and/or market neutral growth and market neutral
non-directional positions: market capitalization.
neutral value, market neutral
capitalization, market neutral LONG/SHORT MOMENTUM - Pursuant to a
growth, market neutral momentum and long/short momentum investment style,
market neutral illiquidity premiums. portfolio managers seek to profit from
buying long or selling short equities
FIXED INCOME ARBITRAGE - Pursuant to and/or equity-related securities based
a fixed income arbitrage investment on price momentum signals. The Advisor
strategy, portfolio managers seek to attempts to execute this investment
profit from relationships between style by creating portfolios that
include, but are not limited to, one or
more of the
different fixed income securities or following directional and/or
fixed income and equity securities; non-directional positions: long equity,
leveraging long and short positions market neutral momentum and market
in securities that are related neutral capitalization.
mathematically or economically. The
Advisor seeks to execute this COVERED CALL WRITING - Pursuant to a
strategy by creating portfolios that covered call writing investment
may include, but are not limited to, strategy, portfolio managers seek to
one or more of the following generate potential returns through the
directional and/or non-directional sale of call options covered by the
positions: long fixed income, holdings in the portfolio. The Advisor
duration neutral default spreads and seeks to execute this investment style
convertible arbitrage. by creating portfolios that include, but
are not limited to, one or more of the
MERGER ARBITRAGE - Pursuant to a following directional and/or
merger arbitrage investment strategy, non-directional positions: long equity
portfolio managers invest and covered call options.
simultaneously in long and short
positions in both companies involved
in a merger or acquisition. Risk
arbitrageurs typically invest in long
positions in the stock of the company
to be acquired and short the stock of
the acquiring company. The Advisor
seeks to execute this investment
strategy by creating a portfolio
consisting primarily of instruments
that provide exposure to merger
arbitrage spreads.
GLOBAL MACRO - Pursuant to a global
macro strategy, portfolio managers
seek to profit from changes in
currencies, commodity prices, and
market volatility. The Advisor seeks
to execute this strategy by creating
portfolios that include, but are not
limited to, one or more of the
following directional and/or
non-directional positions:
directional currency trades,
directional commodity trades,
currency spread trades, and
volatility arbitrage spread trades.
Each of these investment strategies Each of these investment styles may
may incorporate one or more incorporate one or more directional
directional and/or non-directional and/or non-directional positions. In
positions. In general, directional general, directional positions seek to
positions seek to benefit from market benefit from market movement in one
movement in one direction or the direction or the other. In contrast,
other. In contrast, non-directional non-directional positions seek to
positions seek to benefit from both benefit from both upward and downward
upward and downward movement in one movement in one or more markets. The
or more markets. The Fund will Fund will predominately have a long
predominately have a long exposure to exposure to directional and
directional and non-directional non-directional positions. However,
positions. However, there may be there may be times that the Fund will
times that the Fund will have a short have a short exposure to directional
exposure to directional and/or and/or non-directional positions.
non-directional positions.
The Fund may use moderate leverage The Fund may use moderate leverage
subject to internally imposed subject to internally imposed investment
investment constraints designed to constraints designed to limit the amount
limit the amount of loss resulting of loss resulting from such leverage.
from such leverage. The Fund's use of The Fund's use of directional and
directional and non-directional non-directional positions and internal
positions and internal investment investment controls result in a
controls result in a portfolio of portfolio of assets designed to provide
assets designed to provide appropriate long/short hedge fund
appropriate hedge fund portfolio portfolio characteristics as well as
characteristics as well as providing providing risk diversification. The Fund
risk diversification. invests in core long positions at all
times and, as a
result, tends to have a long market
bias.
The Fund may be long or short in a Under normal circumstances, the Fund
broad mix of financial assets will invest at least 80% of its net
including small, mid, and assets in long and short positions in
large-capitalization U.S. and foreign small, mid, and large-capitalization
common stocks, currencies, U.S. and foreign common stocks or
commodities, futures, options, swap derivatives thereof, which primarily
agreements, high yield securities, consist of futures, options and swap
securities of other investment agreements, American Depositary
companies, American Depositary Receipts, and securities of other
Receipts, exchange-traded funds, and investment companies. This is a
corporate debt. The Fund may hold non-fundamental policy that can be
U.S. government securities or cash changed by the Fund upon 60 days' notice
equivalents to collateralize its to shareholders. The Fund may invest its
derivative positions. remaining assets in directional and
non-directional fixed income
investments.
The Fund is non-diversified and, The Fund is non-diversified and,
therefore, may invest a greater therefore, may invest a greater
percentage of its assets in a percentage of its assets in a particular
particular issuer in comparison to a issuer in comparison to a diversified
diversified fund. fund.
ADVISOR'S INVESTMENT METHODOLOGY
(BOTH FUNDS)
The Advisor develops and implements structured investment strategies designed to
achieve each Fund's objective. The Advisor uses quantitative methods to
construct portfolios that correlate highly with their respective benchmarks.
Statistical techniques are then used to determine the optimal mix of assets for
each Fund. The Advisor places particular emphasis on controlling risk relative
to each Fund's benchmark or market sector in order to maintain consistency and
predictability. The Advisor does not engage in temporary defensive investing,
keeping each Fund fully invested in all market environments.
As the result of market observations and internal and external research, the
Advisor believes that aggregate hedge fund performance is largely driven by
exposure to well recognized structural investment strategies or "Beta." Beta is
exposure to any systematic risk for which the investor expects to be rewarded
over time. Beta is commonly referred to as market risk. In this context, the
Advisor considers exposure to both directional positions (E.G., equity and/or
fixed income securities) and non-directional positions (E.G., value and/or
corporate default) as Beta. Although hedge fund exposure to these positions
varies over time, their exposure to them in the aggregate, and the investment
returns provided by the exposure, have historically been stable. The conclusion
of the Advisor's research is that aggregate hedge fund returns are replicable
through exposure to these structural investment positions and, therefore, can be
delivered in a mutual fund.
The Funds employ a proprietary quantitative model that uses a style analysis of
the returns of the appropriate
segment of the hedge fund universe. This style analysis compares the returns of
the appropriate hedge fund universe with the returns of various directional and
non-directional positions. Based on the results of this analysis, historical
research and market insights, the Advisor constructs a portfolio mix of
directional and non-directional positions that best replicates the return, risk
and correlation characteristics of the appropriate segment of the hedge fund
universe. The Advisor anticipates adding and subtracting directional and
non-directional positions over time based on continuing research of hedge fund
returns.
DIRECTIONAL AND NON-DIRECTIONAL POSITIONS
(BOTH FUNDS)
A directional position is designed to have a high correlation with market
returns. The Advisor selects securities to achieve particular directional
positions using a quantitative model to identify those securities with high
measures of liquidity and correlation to the appropriate market. For example,
the Advisor may use S&P 500 futures to achieve a directional exposure to the
equities market. Directional positions have market risk and are exposed to
market movements. The Funds will predominately have a long exposure to
directional positions. There may be times that the Funds will have a short
exposure to directional positions. The Funds use some, or all, of the following
directional positions:
- An EQUITIES position involves investing in a portfolio that buys a
basket of stocks or derivatives thereof, such as index futures.
- A FIXED INCOME position involves investing in a portfolio that buys a
basket of U.S. government securities or bond futures.
- A DIRECTIONAL COMMODITY trade involves investing in precious metals,
livestock, grains, and other basic goods or materials.
- A DIRECTIONAL CURRENCY trade consists of purchasing or selling a
basket of foreign currencies against the US Dollar.
- A COVERED CALL OPTIONS position involves investing in written call
options on underlying securities which a Fund already owns.
- A LONG OPTIONS position involves investing in long call or put
options. A long call option provides upside profit potential while
limiting downside exposure. A long put option provides downside profit
potential while limiting upside exposure.
- A VOLATILITY ARBITRAGE SPREAD trade involves trading
volatility/variance futures or swaps which provide a return based on
the difference between the implied volatility in the marketplace at
the time of sale and the subsequently realized market volatility. The
swap is structured to include protection against extreme movements in
market volatility.
A non-directional position is designed to have a low correlation with market
returns. Non-directional positions attempt to profit by exploiting structural
mispricings in the financial markets. Non-directional investment strategies are
market neutral in nature and, if executed successfully, have limited market
exposure. The Funds will predominately have a long exposure to non-directional
positions. There may be times that the Funds will have a short exposure to
non-directional positions. The Funds use some, or all, of the following
non-directional positions:
- A MARKET NEUTRAL VALUE position involves investing in a basket of
stocks that exhibit traditional value characteristics and
simultaneously selling short a basket of stocks that exhibit non-value
characteristics. Traditional value characteristics include, but are
not limited to, high book-to-price ratios, high earnings-to-price
ratios and high cash flow-to-price ratios. The portfolio is formed
such
that the dollar amount of long and short positions are approximately
equal and has limited market exposure.
- A MARKET NEUTRAL GROWTH position involves investing in a basket of
stocks that exhibit traditional growth characteristics and
simultaneously selling short a basket of stocks that exhibit
non-growth characteristics. Traditional growth characteristics
include, but are not limited to, high earnings growth and high cash
flow growth. The portfolio is formed such that long and short
positions are approximately equal and has limited market exposure.
- A MARKET NEUTRAL MOMENTUM position involves investing in a basket of
stocks that exhibit strong price momentum and simultaneously selling
short a basket of stocks that exhibit weak price momentum. The
portfolio is formed such that the dollar amount of long and short
positions are approximately equal and has limited market exposure.
- A MARKET NEUTRAL CAPITALIZATION position involves investing in a
basket of small-capitalization stocks and simultaneously selling short
a basket of large-capitalization stocks. The portfolio is formed such
that the dollar amount of long and short positions are approximately
equal and has limited market exposure.
- A MARKET NEUTRAL ILLIQUIDITY PREMIUM trade involves purchasing a
basket of illiquid securities which may include, but is not limited
to, closed-end funds and shorting a basket of more liquid stocks
against them. The portfolio is structured to minimize market exposure.
- A MERGER ARBITRAGE SPREADS position involves investing in a basket of
stocks that are being acquired and simultaneously selling short a
basket of stocks that are making the acquisitions. The portfolio is
formed such that the dollar amount of long and short positions are
approximately equal and has limited market exposure.
- A DURATION NEUTRAL TERM SPREADS position involves investing in long
10-year U.S. government securities and simultaneously selling short
2-year U.S. government securities. The portfolio is duration-adjusted
such that the duration of both long and positions are approximately
equal and has limited market exposure.
- A DURATION NEUTRAL DEFAULT SPREADS position involves investing in a
basket of corporate bonds and simultaneously selling short U.S.
government securities of similar duration. The portfolio is formed
such that the duration of both long and short positions are
approximately equal and has limited market exposure.
- A CONVERTIBLE ARBITRAGE SPREAD involves purchasing a basket of
convertible bonds and simultaneously selling short associated equities
against them. The portfolio is structured in such a way as to minimize
equity and credit market exposure.
- A CURRENCY SPREAD trade involves purchasing a basket of high yielding
currencies and selling short a basket of low yielding currencies
against it. The portfolio is structured to be dollar neutral.
INVESTMENT ADVISOR
(BOTH FUNDS)
PADCO Advisors Inc, which operates under the name Rydex Investments, is located
at 9601 Blackwell Road, Suite 500, Rockville, Maryland 20850, and serves as
investment adviser of the Funds. The Advisor has served as the investment
adviser of the Funds since each Fund's inception.
The Advisor makes investment decisions for the assets of the Funds and
continuously reviews, supervises, and administers each Fund's investment
program. The Board of Trustees of the Trust supervises the Advisor and
establishes policies that the Advisor must follow in its day-to-day management
activities. Upon
consummation of the Reorganization, the investment advisory fee of 1.15%, paid
to the Advisor with respect to the Surviving Fund, will remain the same.
PORTFOLIO MANAGERS
(BOTH FUNDS)
On a day-to-day basis the following three individuals are jointly and primarily
responsible for the management of the Funds.
MICHAEL P. BYRUM, CFA, President and CIO of Rydex Investments - As the CIO, Mr.
Byrum has ultimate responsibility for the management of the Funds. In addition
to generally overseeing all aspects of the management of all of the Rydex Funds,
Mr. Byrum reviews the activities of Messrs. Dellapa and Harder. He has been
associated with Rydex Investments since the Advisor was founded in 1993. Mr.
Byrum was named the President of Rydex Investments in 2004 and has served as
Chief Investment Officer of Rydex Investments since 2003. During this time, he
has played a key role in the development of the firm's investment strategies and
product offerings. As Senior Portfolio Manager, Mr. Byrum was instrumental in
the launch of the NASDAQ-100(R), Precious Metals, Government Long Bond 1.2x
Strategy, Inverse Government Long Bond Strategy, Inverse S&P 500 Strategy and
Inverse NASDAQ-100(R) Strategy Funds, and helped to create the Sector Funds, all
of which are offered in a separate prospectus. He was named Vice President of
Portfolio for Rydex Investments in 1998, and Executive Vice President in 2000.
Prior to joining Rydex Investments, Mr. Byrum worked for Money Management
Associates, the investment adviser for Rushmore Funds, Inc. He holds a degree in
finance from Miami University of Ohio and is a member of the CFA Institute and
the Washington Society of Investment Analysts. Mr. Byrum has co-managed each
Fund since its inception.
MICHAEL J. DELLAPA, CFA, CAIA, Director of Alternative Investment Strategies -
Mr. Dellapa plays a key role in the development of new products and research
processes and systems that enhance the management of all of the Rydex Funds. In
particular, Mr. Dellapa focuses on the management of the Alternative Investment
Funds, including the Multi-Hedge Strategies Fund and the Hedged Equity Fund. Mr.
Dellapa joined Rydex Investments in 2000 as a Research Analyst and was promoted
to portfolio manager in 2003. During his tenure as a portfolio manager, he had
direct oversight for the Russell 2000(R) 1.5x Strategy, Healthcare,
Biotechnology, and Consumer Products Funds, all of which are offered in a
separate prospectus. In 2005, Mr. Dellapa became Director of Investment Research
and in 2007 became the Director of Alternative Investment Strategies. Prior to
joining Rydex Investments, Mr. Dellapa worked as an equity analyst for Invista
Capital and systems analyst for Accenture. He holds an engineering degree from
the University of Maryland and MBA from the University of Chicago. Previously,
he was owner/consultant of Dellapa Consulting Inc. as well as a senior
consultant and an analyst at Andersen Consulting. Mr. Dellapa has co-managed
each Fund since September 2005.
RYAN A. HARDER, CFA, Senior Portfolio Manager- Mr. Harder is involved in the
management of all of the Rydex Funds, but focuses particularly on the management
of the Domestic Equity, Domestic Equity-Style, International Equity, Fixed
Income, and Alternative Investment Funds. Mr. Harder joined Rydex Investments in
2004 as an Assistant Portfolio Manager, was promoted to Portfolio Manager in
2005 and has served in his current capacity since 2008. He was instrumental in
the launch of the Multi-Hedge Strategies, Hedged Equity, High Yield Strategy and
Inverse High Yield Strategy Funds. Prior to joining Rydex Investments, Mr.
Harder served in various capacities with WestLB Asset Management, including as
an Assistant Portfolio Manager, and worked in risk management at CIBC World
Markets. He holds a B.A. in Economics from Brock University in Ontario, Canada
and a Master of Science in International Securities, Investment and Banking from
the ICMA Centre at the University of Reading in the U.K. Mr. Harder has
co-managed each Fund since March 2008.
Additional information about the Funds, including risks associated with an
investment in the Funds, performance, management, organization and capital
structure, disclosure of portfolio holdings, shareholding information (including
information as to the pricing of shares), and distribution arrangements are
contained in the Funds' prospectus, a copy of which is included with this
Prospectus/Information Statement and is incorporated herein by reference. A
Statement of Additional Information, dated August 1, 2008, for each of the Funds
also contains additional information concerning these matters. A free copy of
these documents is available upon request as described on the second page of
this Prospectus/Information Statement.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
CONTROL PERSONS. As of April 1, 2009, _____________ held of record
approximately ____% of the outstanding shares of the Hedged Equity Fund, as
agent or custodian for their customers, but did not own such shares beneficially
because they did not have voting or investment discretion with respect to such
shares.
As of April 1, 2009, the Trustees and officers as a group owned less than
1% of the outstanding shares of each share class of the Hedged Equity Fund, and
less than 1% of the outstanding shares of all funds of the Trust in the
aggregate.
As of April 1, 2009, Rydex Investments and its affiliates held of record
approximately _____% of the Multi-Hedge Strategies Fund's outstanding Shares, as
agent or custodian for their customers, but did not own such shares beneficially
because they did not have voting or investment discretion with respect to such
shares.
As of April 1, 2009, the Trustees and officer as a group owned less than 1%
of the outstanding shares of each share class of the Multi-Hedge Strategies
Fund, and less than 1% of the outstanding shares of all funds of the Trust in
the aggregate.
PRINCIPAL SHAREHOLDERS. As of April 1, 2009, the following shareholders
owned, of record, or to the knowledge of the Funds, beneficially, 5% or more of
the outstanding shares of the Funds.
PERCENTAGE OF OUTSTANDING
HEDGED EQUITY FUND - H-CLASS SHARES NAME AND ADDRESS SHARES OWNED
----------------------------------- ---------------- -------------------------
PERCENTAGE OF OUTSTANDING
HEDGED EQUITY FUND - A-CLASS SHARES NAME AND ADDRESS SHARES OWNED
----------------------------------- ---------------- -------------------------
PERCENTAGE OF OUTSTANDING
HEDGED EQUITY FUND - C-CLASS SHARES NAME AND ADDRESS SHARES OWNED
----------------------------------- ---------------- -------------------------
MULTI-HEDGE STRATEGIES FUND - PERCENTAGE OF OUTSTANDING
H-CLASS SHARES NAME AND ADDRESS SHARES OWNED
----------------------------- ---------------- -------------------------
MULTI-HEDGE STRATEGIES FUND - PERCENTAGE OF OUTSTANDING
A-CLASS SHARES NAME AND ADDRESS SHARES OWNED
----------------------------- ---------------- -------------------------
MULTI-HEDGE STRATEGIES FUND - PERCENTAGE OF OUTSTANDING
C-CLASS SHARES NAME AND ADDRESS SHARES OWNED
----------------------------- ---------------- -------------------------
On the basis of the share holdings information presented above, the
following persons will own in excess of 5% of the outstanding shares of the
Multi-Hedge Strategies Fund upon consummation of the Reorganization. These
tables assume that the value of the shareholder's interest in a Fund on the date
of the consummation of the Reorganization is the same as on April 1, 2009.
MULTI-HEDGE STRATEGIES FUND - PERCENTAGE OF OUTSTANDING
H-CLASS SHARES NAME AND ADDRESS SHARES OWNED
----------------------------- ---------------- -------------------------
MULTI-HEDGE STRATEGIES FUND - PERCENTAGE OF OUTSTANDING
A-CLASS SHARES NAME AND ADDRESS SHARES OWNED
----------------------------- ---------------- -------------------------
MULTI-HEDGE STRATEGIES FUND - PERCENTAGE OF OUTSTANDING
C-CLASS SHARES NAME AND ADDRESS SHARES OWNED
----------------------------- ---------------- -------------------------
ADDITIONAL INFORMATION
Information about the Adviser is presented in "Additional Information About
the Surviving Fund and the Acquired Fund." Additional information about the
Advisor is contained in the prospectus for the Acquired Fund and Surviving Fund,
a copy of which is included with this Prospectus/Information Statement and is
incorporated herein by reference. A Statement of Additional Information, dated
August 1, 2008, for each of the Funds also contains additional information about
the Advisor. A free copy of these documents is available upon request as
described on the first page of this Prospectus/Information Statement.
Other Service Providers. The Funds' other service providers are also the
same. These entities are listed below.
Rydex Fund Services, Inc. Transfer Agent
9601 Blackwell Road, Suite 500 Administrator
Rockville, MD 20850 Fund Accountant
U.S. Bank, N.A. Custodian
425 Walnut Street
Cincinnati, Ohio 45202
Rydex Distributors, Inc. Distributor
9601 Blackwell Road, Suite 500
Rockville, MD 20850
FINANCIAL HIGHLIGHTS
The financial highlights tables that follow are intended to help you
understand each Fund's financial performance for the periods shown. The total
returns in the tables represent the rate that an investor would have earned (or
lost) on an investment in the particular Fund (assuming reinvestment of all
dividends and distributions). The information provided below for the fiscal
years ended March 31, 2007 and 2008 (but excluding the information for the six
months ended September 30, 2008) has been audited by Ernst & Young LLP,
independent registered public accounting firm of the Fund. The information for
prior periods has been audited by a predecessor independent registered public
accounting firm. Ernst & Young LLP's audit report, along with the Funds'
financial statements, is included in the Funds' 2008 Annual Report, which is
incorporated herein by reference.
This table is presented to show selected data for a share outstanding throughout
each period, and to assist shareholders in evaluating a Fund's performance for
the periods presented.
NET REALIZED
AND NET INCREASE
NET ASSET NET UNREALIZED (DECREASE) IN NET DISTRIBUTIONS DISTRIBUTIONS
VALUE, INVESTMENT GAINS ASSET VALUE FROM NET FROM NET
BEGINNING INCOME (LOSSES) ON RESULTING FROM INVESTMENT REALIZED
YEAR ENDED OF PERIOD (LOSS)+ INVESTMENTS OPERATIONS INCOME GAINS
---------- --------- ---------- ------------ ----------------- ------------- -------------
MULTI-HEDGE STRATEGIES FUND
(FORMERLY, ABSOLUTE RETURN STRATEGIES FUND)
A-CLASS
SEPTEMBER 30, 2008 ## $24.61 $ .07 $ (.89) $ (.82) $ -- $ --
March 31, 2008 26.44 .58 (1.53) (.95) (.79) (.09)
March 31, 2007 25.52 .71 .80 1.51 (.38) (.22)
March 31, 2006 * 25.00 .29 .24 .53 (.07) --
MULTI-HEDGE STRATEGIES FUND
(FORMERLY, ABSOLUTE RETURN STRATEGIES FUND)
C-CLASS
SEPTEMBER 30, 2008 ## 24.13 (.01) (.88) (.89) -- --
March 31, 2008 26.14 .37 (1.50) (1.13) (.79) (.09)
March 31, 2007 25.42 .51 .80 1.31 (.38) (.22)
March 31, 2006 * 25.00 .19 .24 .43 (.07) --
MULTI-HEDGE STRATEGIES FUND
(FORMERLY, ABSOLUTE RETURN STRATEGIES FUND)
H-CLASS
SEPTEMBER 30, 2008 ## 24.63 .08 (.90) (.82) -- --
March 31, 2008 26.46 .58 (1.53) (.95) (.79) (.09)
March 31, 2007 25.53 .72 .80 1.52 (.38) (.22)
March 31, 2006 * 25.00 .29 .25 .54 (.07) --
HEDGED EQUITY FUND A-CLASS
SEPTEMBER 30, 2008 ## 22.90 .06 (1.16) (1.10) -- --
March 31, 2008 26.29 .67 (2.94) (2.27) (1.09) (.03)
March 31, 2007 25.86 .82 .63 1.45 (.52) (.51)
March 31, 2006 * 25.00 .26 .65 .91 (.09) --
HEDGED EQUITY FUND C-CLASS
SEPTEMBER 30, 2008 ## 22.46 (.03) (1.13) (1.16) -- --
March 31, 2008 25.99 .48 (2.89) (2.41) (1.09) (.03)
March 31, 2007 25.76 .62 .63 1.25 (.52) (.51)
March 31, 2006 * 25.00 .16 .65 .81 (.09) --
HEDGED EQUITY FUND H-CLASS
SEPTEMBER 30, 2008 ## 22.91 .06 (1.16) (1.10) -- --
March 31, 2008 26.30 .68 (2.95) (2.27) (1.09) (.03)
March 31, 2007 25.86 .81 .65 1.46 (.52) (.51)
March 31, 2006 * 25.00 .26 .65 .91 (.09) --
NET INCREASE NET ASSET
REDEMPTION (DECREASE) IN VALUE, TOTAL
TOTAL FEES NET ASSET END OF INVESTMENT
YEAR ENDED DISTRIBUTIONS COLLECTED VALUE PERIOD RETURN+++
---------- ------------- ---------- ------------- --------- ----------
MULTI-HEDGE STRATEGIES FUND
(FORMERLY, ABSOLUTE RETURN STRATEGIES FUND)
A-CLASS
SEPTEMBER 30, 2008 ## $ -- $ -- Section $ (.82) $23.79 (3.33)%
March 31, 2008 (.88) -- Section (1.83) 24.61 (3.72)%
March 31, 2007 (.60) .01 .92 26.44 6.05%
March 31, 2006 * (.07) .06 .52 25.52 2.36%
MULTI-HEDGE STRATEGIES FUND
(FORMERLY, ABSOLUTE RETURN STRATEGIES FUND)
A-CLASS
SEPTEMBER 30, 2008 ## -- -- Section (.89) 23.24 (3.69)%
March 31, 2008 (.88) -- Section (2.01) 24.13 (4.46)%
March 31, 2007 (.60) .01 .72 26.14 5.28%
March 31, 2006 * (.07) .06 .42 25.42 1.96%
MULTI-HEDGE STRATEGIES FUND
(FORMERLY, ABSOLUTE RETURN STRATEGIES FUND)
A-CLASS
SEPTEMBER 30, 2008 ## -- -- Section (.82) 23.81 (3.33)%
March 31, 2008 (.88) -- Section (1.83) 24.63 (3.71)%
March 31, 2007 (.60) .01 .93 26.46 6.09%
March 31, 2006 * (.07) .06 .53 25.53 2.40%
HEDGED EQUITY FUND A-CLASS
SEPTEMBER 30, 2008 ## -- -- Section (1.10) 21.80 (4.80)%
March 31, 2008 (1.12) -- Section (3.39) 22.90 (8.98)%
March 31, 2007 (1.03) .01 .43 26.29 5.82%
March 31, 2006 * (.09) .04 .86 25.86 3.81%
HEDGED EQUITY FUND C-CLASS
SEPTEMBER 30, 2008 ## -- -- Section (1.16) 21.30 (5.16)%
March 31, 2008 (1.12) -- Section (3.53) 22.46 (9.63)%
March 31, 2007 (1.03) .01 .23 25.99 5.05%
March 31, 2006 * (.09) .04 .76 25.76 3.41%
HEDGED EQUITY FUND H-CLASS
SEPTEMBER 30, 2008 ## -- -- Section (1.10) 21.81 (4.80)%
March 31, 2008 (1.12) -- Section (3.39) 22.91 (8.97)%
March 31, 2007 (1.03) .01 .44 26.30 5.86%
March 31, 2006 * (.09) .04 .86 25.86 3.81%
RATIOS TO AVERAGE NET ASSETS:
--------------------------------
NET NET ASSETS,
INVESTMENT PORTFOLIO END OF PERIOD
TOTAL OPERATING INCOME TURNOVER (000'S
YEAR ENDED EXPENSES EXPENSES++ (LOSS) RATE OMITTED)
---------- -------- ---------- ---------- --------- -------------
MULTI-HEDGE STRATEGIES FUND
(FORMERLY, ABSOLUTE RETURN STRATEGIES FUND)
A-CLASS
SEPTEMBER 30, 2008 ## 1.98% ** 1.40% ** 0.58% ** 716% $ 65,136
March 31, 2008 1.96% 1.40% 2.18% 509% 42,193
March 31, 2007 1.93% 1.43% 2.74% 298% 41,771
March 31, 2006 * 1.87% ** 1.45% ** 2.20% ** 127% 5,791
MULTI-HEDGE STRATEGIES FUND
(FORMERLY, ABSOLUTE RETURN STRATEGIES FUND)
C-CLASS
SEPTEMBER 30, 2008 ## 2.72% ** 2.15% ** (0.11)%** 716% 45,082
March 31, 2008 2.71% 2.15% 1.41% 509% 54,857
March 31, 2007 2.66% 2.16% 1.99% 298% 48,052
March 31, 2006 * 2.65% ** 2.23% ** 1.42% ** 127% 7,352
MULTI-HEDGE STRATEGIES FUND
(FORMERLY, ABSOLUTE RETURN STRATEGIES FUND)
H-CLASS
SEPTEMBER 30, 2008 ## 1.97% ** 1.40% ** 0.63% ** 716% 105,780
March 31, 2008 1.95% 1.39% 2.21% 509% 141,483
March 31, 2007 1.90% 1.40% 2.78% 298% 176,187
March 31, 2006 * 1.83% ** 1.41% ** 2.18% ** 127% 30,796
HEDGED EQUITY FUND A-CLASS
SEPTEMBER 30, 2008 ## 2.18% ** 1.40% ** 0.53% ** 597% 5,543
March 31, 2008 2.04% 1.41% 2.59% 433% 5,553
March 31, 2007 2.13% 1.41% 3.15% 282% 7,086
March 31, 2006 * 2.10% ** 1.44% ** 1.91% ** 159% 1,672
HEDGED EQUITY FUND C-CLASS
SEPTEMBER 30, 2008 ## 2.94% ** 2.15% ** (0.26)%** 597% 3,103
March 31, 2008 2.78% 2.15% 1.89% 433% 5,226
March 31, 2007 2.89% 2.17% 2.40% 282% 8,312
March 31, 2006 * 2.86% ** 2.20% ** 1.16% ** 159% 2,957
HEDGED EQUITY FUND H-CLASS
SEPTEMBER 30, 2008 ## 2.19% ** 1.40% ** 0.49% ** 597% 11,601
March 31, 2008 2.03% 1.40% 2.63% 433% 16,663
March 31, 2007 2.13% 1.41% 3.14% 282% 28,947
March 31, 2006 * 2.07% ** 1.41% ** 1.96% ** 159% 17,321
* SINCE THE COMMENCEMENT OF OPERATIONS: SEPTEMBER 19, 2005.
** ANNUALIZED
+ CALCULATED USING THE AVERAGE DAILY SHARES OUTSTANDING FOR THE YEAR.
++ OPERATING EXPENSES EXCLUDE SHORT DIVIDENDS EXPENSE.
+++ TOTAL INVESTMENT RETURN DOES NOT REFLECT THE IMPACT OF ANY APPLICABLE
SALES CHARGES AND HAS NOT BEEN ANNUALIZED.
Section LESS THAN $.01 PER SHARE.
## UNAUDITED
APPENDIX A
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION, dated as of [May ___, 2009] (the
"Agreement"), by and between the Rydex Series Funds, a Delaware statutory trust
(the "Trust") on behalf of its Hedged Equity Fund (the "Acquired Fund"), and the
Trust, on behalf of its Multi-Hedge Strategies Fund (formerly, the Rydex Series
Funds Absolute Return Strategies Fund) (the "Surviving Fund") to provide for the
reorganization of the Acquired Fund into the Surviving Fund. PADCO Advisors,
Inc. (the "Advisor") joins this Agreement solely for purposes of Section 13. The
Acquired Fund and the Surviving Fund are sometimes referred to collectively, as
the "Funds" and individually, as a "Fund."
PRELIMINARY STATEMENTS
The Trust is an open-end management investment company registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), and each of the
Acquired Fund and the Surviving Fund is a separate series of the Trust.
The Board of Trustees (the "Board") of the Trust has determined that the
Reorganization (as defined below) is in the best interests of each Fund and that
the interests of the existing shareholders of each Fund would not be diluted as
a result of the Reorganization.
In consideration of the mutual premises contained in this Agreement, the
parties hereto agree to effect the transfer of all of the assets of the Acquired
Fund solely in exchange for (a) the assumption by the Surviving Fund of all of
the liabilities of the Acquired Fund and (b) shares of the Surviving Fund
followed by the distribution, at the Effective Time (as defined in Section 9 of
this Agreement), of such shares of the Surviving Fund to the shareholders of the
Acquired Fund in complete liquidation of the Acquired Fund on the terms and
conditions in this Agreement (the "Reorganization"). Shares of the Surviving
Fund that are given in exchange for the assets of the Acquired Fund and the
assumption of liabilities are referred to as the "Surviving Fund Shares," and
the shares of the Acquired Fund that are held by the holders of such shares at
the Effective Time are referred to as the "Acquired Fund Shares." For purposes
of this Agreement, the term "Surviving Fund Shares" refers to all share classes
of the Surviving Fund.
The Reorganization is intended to be a tax-free "reorganization" within the
meaning of the regulations under Section 368(a) of the Internal Revenue Code of
1986, as amended (the "Code"). This means that it is intended that shareholders
of the Acquired Fund will become shareholders of the Surviving Fund without
realizing any gain or loss for federal income tax purposes. This also means that
the Reorganization is intended to be tax-free with respect to the Surviving Fund
for federal income tax purposes.
AGREEMENTS
The parties to this Agreement covenant and agree as follows:
1. PLAN OF REORGANIZATION. At the Effective Time, the Acquired Fund will
assign, deliver and otherwise transfer all of its assets and good and marketable
title to those assets, free and clear of all liens, encumbrances and adverse
claims, and assign its liabilities to the Surviving Fund.
The Surviving Fund shall acquire all the assets, and shall assume all the
liabilities, of the Acquired Fund, in exchange for delivery to the Acquired Fund
by the Surviving Fund of a number of its Surviving Fund Shares (both full and
fractional) equivalent in value to the Acquired Fund Shares outstanding
immediately prior to the Effective Time. The assets and liabilities of the
Acquired Fund, shall be exclusively assigned to and assumed by the Surviving
Fund. All debts, liabilities, obligations and duties of the Acquired Fund,
shall, after the Effective Time, attach to the Surviving Fund and may be
enforced against the Surviving Fund to the same extent as if the same had been
incurred by the Surviving Fund. If the Acquired Fund is unable to make delivery
of any of its portfolio securities pursuant to this Section to the Surviving
Fund for
the reason that any of such securities purchased by the Acquired Fund have not
yet been delivered to it by the Acquired Fund's broker or brokers, then in lieu
of such delivery, the Acquired Fund shall deliver to the Surviving Fund, with
respect to these securities, executed copies of an agreement of assignment and
due bills executed on behalf of said broker or brokers, together with such other
documents as may be required by the Surviving Fund, including brokers'
confirmation slips.
2. TRANSFER OF ASSETS. The assets of the Acquired Fund to be acquired by
the Surviving Fund shall include, without limitation, all cash, cash
equivalents, securities, receivables (including interest and dividends
receivable), goodwill and intangible property, and deferred or prepaid expenses
as set forth in the Statement of Assets and Liabilities, as well as any claims
or rights of action or rights to register shares under applicable securities
laws, any books or records of the Acquired Fund and other property owned by the
Acquired Fund at the Effective Time.
3. LIQUIDATION AND TERMINATION OF THE ACQUIRED FUND. At the Effective Time,
the Surviving Fund Shares (both full and fractional) received by the Acquired
Fund will be distributed to the shareholders of record of the Acquired Fund as
of the Effective Time in complete liquidation of the Acquired Fund. Each
shareholder of the Acquired Fund will receive a number of H-Class Shares,
A-Class Shares and C-Class Shares of Surviving Fund Shares equal in value to the
H-Class Shares, A-Class Shares and C-Class Shares of Acquired Fund Shares held
by that shareholder. This liquidation and distribution will be accompanied by
the establishment of an open account on the share records of the Surviving Fund
in the name of each shareholder of record of the Acquired Fund and representing
the respective number of Surviving Fund Shares due that shareholder. Following
the complete liquidation of the Acquired Fund, all shares of the Acquired Fund
shall then be cancelled on the books of the Acquired Fund. Officers of the
Acquired Fund shall make all necessary filings with the Securities and Exchange
Commission ("SEC") and other governmental entities to effectuate the termination
of the Acquired Fund under the 1940 Act and Delaware law.
4. REPRESENTATIONS AND WARRANTIES OF THE SURVIVING FUND. The Surviving Fund
represents and warrants to the Acquired Fund as follows:
(a) SHARES TO BE ISSUED UPON REORGANIZATION. The Surviving Fund Shares to
be issued in connection with the Reorganization (i) have been duly authorized
and upon consummation of the Reorganization will be validly issued, fully paid
and non-assessable, and (ii) will be duly registered in conformity with
applicable federal and state securities laws, and no shareholder of the
Surviving Fund shall have any option, warrant, or preemptive right of
subscription or purchase with respect to the Surviving Fund's Shares.
(b) LIABILITIES. The Surviving Fund has no known liabilities of a material
nature, contingent or otherwise, other than those shown as belonging to it on
its most recent statement of assets and liabilities and those incurred in the
ordinary course of the Surviving Fund's business as an investment company since
the date of its most recent statement of assets and liabilities.
(c) LITIGATION. Except as previously disclosed to the Surviving Fund, there
are no claims, actions, suits or proceedings pending or, to the actual knowledge
of the Surviving Fund,
threatened that would materially adversely affect the Surviving Fund or its
assets or business or that would prevent or hinder in any material respect
consummation of the transactions contemplated by this Agreement.
(d) TAXES. As of the Effective Time, all federal and other tax returns and
reports of the Surviving Fund required by law to have been filed shall have been
filed, and all other taxes shall have been paid so far as due, or provision
shall have been made for the payment of them, and to the best of the Surviving
Fund's knowledge, no such return is currently under audit and no assessment has
been asserted with respect to any of these returns.
(e) FEES AND EXPENSES. As of the Effective Time, there are no brokers or
finders entitled to receive any payments in connection with the transactions
provided for in this Agreement.
5. REPRESENTATIONS AND WARRANTIES OF THE ACQUIRED FUND. The Acquired Fund
represents and warrants to the Surviving Fund as follows:
(a) MARKETABLE TITLE TO ASSETS. The Acquired Fund will have, at the
Effective Time, good and marketable title to, and full right, power and
authority to sell, assign, transfer and deliver, the assets to be transferred to
the Surviving Fund. Upon delivery and payment for these assets, the Surviving
Fund will have good and marketable title to the assets without restriction on
the transfer of the assets free and clear of all liens, encumbrances and adverse
claims.
(b) LIABILITIES. The Acquired Fund has no known liabilities of a material
nature, contingent or otherwise, other than those shown as belonging to it on
its most recent statement of assets and liabilities and those incurred in the
ordinary course of the Acquired Fund's business as an investment company since
the date of its most recent statement of assets and liabilities.
(c) LITIGATION. Except as previously disclosed to the Surviving Fund, there
are no claims, actions, suits or proceedings pending or, to the knowledge of the
Acquired Fund, threatened that would materially adversely affect the Acquired
Fund or its assets or business or that would prevent or hinder in any material
respect consummation of the transactions contemplated by this Agreement.
(d) TAXES. As of the Effective Time, all federal and other tax returns and
reports of the Acquired Fund required by law to have been filed shall have been
filed, and all other taxes shall have been paid so far as due, or provision
shall have been made for the payment of them, and to the best of the Acquired
Fund's knowledge, no such return is currently under audit and no assessment has
been asserted with respect to any of those returns.
(e) FEES AND EXPENSES. As of the Effective Time, there are no brokers or
finders entitled to receive any payments in connection with the transactions
provided for in this Agreement.
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE SURVIVING FUND. The
obligations of the Surviving Fund under this Agreement shall be subject to the
following conditions:
(a) All representations and warranties of the Acquired Fund contained in
this Agreement shall be true and correct in all material respects as of the date
of this Agreement and, except as they may be affected by the transactions
contemplated by this Agreement, as of the Effective Time, with the same force
and effect as if made on and as of the Effective Time.
(b) The Trust shall have received an opinion of Morgan, Lewis & Bockius
LLP, counsel to both Funds, regarding the transaction, in a form reasonably
satisfactory to the Trust, and dated as of the Effective Time, to the effect
that:
(1) the Acquired Fund is a separate series of the Trust, which is a
statutory trust duly organized, validly existing and in good standing under the
laws of the State of Delaware;
(2) the shares of the Acquired Fund issued and outstanding at the Effective
Time are legally issued, fully paid and non-assessable under the laws of the
State of Delaware by the Acquired Fund;
(3) this Agreement has been duly authorized, executed and delivered by the
Acquired Fund and represents a valid and binding contract of the Acquired Fund,
enforceable in accordance with its terms, subject to the effect of bankruptcy,
insolvency, reorganization, moratorium, fraudulent conveyance and transfer, and
other similar laws of general applicability relating to or affecting creditors'
rights and to general equity principles;
(4) the execution and delivery of this Agreement did not, and the
consummation of the transactions contemplated by this Agreement will not,
violate the Agreement and Declaration of Trust or Bylaws of the Trust or any
material agreement known to such counsel to which the Acquired Fund is a party
or by which it is bound;
(5) to the knowledge of such counsel no consent, approval, authorization,
or order of any court or governmental authority is required for the consummation
by the Acquired Fund of the transactions contemplated by this Agreement, except
such as have been obtained under the Securities Act of 1933 (the "1933 Act"),
state securities laws, the 1940 Act, the rules and regulations under those
statutes and such as may be required under state securities laws, rules and
regulations; and
(6) the Trust is registered as an investment company under the 1940 Act and
such registration with the SEC as an investment company under the 1940 Act is in
full force and effect.
Such opinion: (i) shall state that while such counsel have not verified,
and are not passing upon and do not assume responsibility for, the accuracy,
completeness, or fairness of any portion of the registration
statement/information statement on Form N-14 (the "Registration Statement")
relating to the Reorganization or any amendment thereof or supplement thereto,
they have generally reviewed and discussed certain information included therein
with respect to the Acquired Fund with certain officers of the Acquired Fund and
that in the course of such review and discussion no facts came to the attention
of such counsel which caused them to believe that, on the respective effective
or clearance dates of the Registration Statement, and any amendment
thereof or supplement thereto and only insofar as they relate to information
with respect to the Acquired Fund, the Registration Statement or any amendment
thereof or supplement thereto, contained any untrue statement of a material fact
or omitted to state any material fact required to be stated therein or necessary
to make the statements therein not misleading; (ii) shall state that such
counsel does not express any opinion or belief as to the financial statements,
other financial data, statistical data, or any information relating to the
Acquired Fund contained or incorporated by reference in the Registration
Statement; and (iii) shall state that such opinion is solely for the benefit of
the Trust and its Board of Trustees and officers.
In giving such opinion, Morgan, Lewis & Bockius LLP may rely upon officers'
certificates and certificates of public officials.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRED FUND. The
obligations of the Acquired Fund under this Agreement shall be subject to the
following conditions:
(a) All representations and warranties of the Surviving Fund contained in
this Agreement shall be true and correct in all material respects as of the date
of this Agreement and, except as they may be affected by the transactions
contemplated by this Agreement, as of the Effective Time, with the same force
and effect as if made on and as of the Effective Time.
(b) The Acquired Fund shall have received an opinion of Morgan, Lewis &
Bockius LLP, counsel to both Funds, regarding the transaction, in a form
reasonably satisfactory to the Acquired Fund, and dated as of the Effective
Time, to the effect that:
(1) the Surviving Fund is a separate series of the Trust, which is a
statutory trust duly organized, validly existing and in good standing under the
laws of the State of Delaware;
(2) the shares of the Surviving Fund issued and outstanding at the
Effective Time are legally issued, fully paid and non-assessable under the laws
of the State of Delaware by the Surviving Fund and the Surviving Fund Shares to
be delivered to the Acquired Fund, as provided for by this Agreement, are duly
authorized and upon delivery pursuant to the terms of this Agreement, will be
legally issued, fully paid and non-assessable under the laws of the State of
Delaware by the Surviving Fund, and no shareholder of the Surviving Fund has any
option, warrant or preemptive right to subscription or purchase in respect
thereof based on a review of the Trust's Agreement and Declaration of Trust and
By-laws and otherwise to such counsel's knowledge;
(3) the Board of Trustees of the Trust has duly authorized the Surviving
Fund as a class of units of beneficial interest of the Trust pursuant to the
terms of the Agreement and Declaration of Trust of the Surviving Trust;
(4) this Agreement has been duly authorized, executed and delivered by the
Surviving Fund and represents a valid and binding contract of the Surviving
Fund, enforceable in accordance with its terms, subject to the effect of
bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance and
transfer, and other similar laws of general applicability related to or
affecting creditors' rights and to general equity principles.
(5) the execution and delivery of this Agreement did not, and the
consummation of the transactions contemplated by this Agreement will not,
violate the Agreement and Declaration of Trust or Bylaws of the Trust or any
material agreement known to such counsel to which the Surviving Fund is a party
or by which it is bound;
(6) to the knowledge of such counsel no consent, approval, authorization,
or order of any court or governmental authority is required for the consummation
by Surviving Fund of the transactions contemplated by this Agreement, except
such as have been obtained under the 1933 Act, state securities laws, the 1940
Act, the rules and regulations under those statutes and such as may be required
under state securities laws, rules and regulations; and
(7) the Trust is registered as an investment company under the 1940 Act and
such registration with the SEC as an investment company under the 1940 Act is in
full force and effect.
Such opinion: (i) shall state that while such counsel have not verified,
and are not passing upon and do not assume responsibility for, the accuracy,
completeness, or fairness of any portion of the Registration Statement relating
to the Reorganization or any amendment thereof or supplement thereto, they have
generally reviewed and discussed certain information included therein with
respect to the Surviving Fund and the Surviving Trust with certain officers of
the Surviving Trust and that in the course of such review and discussion no
facts came to the attention of such counsel which caused them to believe that,
on the respective effective or clearance dates of the Registration Statement and
any amendment thereof or supplement thereto and only insofar as they relate to
information with respect to the Surviving Trust and the Surviving Fund, the
Registration Statement or any amendment thereof or supplement thereto contained
any untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading; (ii) shall state that such counsel does not express any opinion or
belief as to the financial statements, other financial data, statistical data,
or information relating to the Surviving Trust or the Surviving Fund contained
or incorporated by reference in the Registration Statement; and (iii) shall
state that such opinion is solely for the benefit of the Trust and its Board of
Trustees and officers.
In giving such opinion, Morgan, Lewis & Bockius LLP may rely upon officers'
certificates and certificates of public officials.
8. FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRED FUND AND THE
SURVIVING FUND. The obligations of the Acquired Fund and the Surviving Fund to
effectuate this Agreement shall be subject to the satisfaction of each of the
following conditions as of the Effective Time:
(a) The Board, on behalf of each of the Acquired Fund and Surviving
Fund, shall have approved this Agreement.
(b) Any authority from the SEC as may be necessary to permit the
parties to carry out the transactions contemplated by this Agreement shall have
been received.
(c) The Registration Statement shall have become effective under the
1933 Act, and no stop orders suspending the effectiveness of the Registration
Statement shall have been issued and, to the best knowledge of the parties
hereto, no investigation or proceeding for that purpose shall have been
instituted or be pending, threatened or contemplated under the 1933 Act.
(d) The Surviving Fund has filed all documents and paid all fees
required to permit its shares to be offered to the public in all states of the
United States, the Commonwealth of Puerto Rico and the District of Columbia
(except where such qualifications are not required) so as to permit the transfer
contemplated by this Agreement to be consummated.
(e) The Board, at a meeting duly called for such purpose, shall have
authorized the issuance by the Surviving Fund of Surviving Fund Shares at the
Effective Time in exchange for the assets of the Acquired Fund pursuant to the
terms and provisions of this Agreement.
(f) Prior to the Effective Time, the Acquired Fund shall declare and
pay a dividend or dividends which, together with all previous such dividends,
shall have the effect of distributing to its shareholders all of the Acquired
Fund's investment company taxable income (computed without regard to any
deduction for dividends paid), if any, plus the excess, if any, of its interest
income excludible from gross income under Section 103(a) of the Code over its
deductions disallowed under Sections 265 and 171(a)(2) of the Code for all
taxable periods or years ending on or before the Effective Time, and all of its
net capital gains realized (after reduction for any capital loss carry forward),
if any, in all taxable periods or years ending on or before the Effective Time.
(g) The Funds shall have received a favorable opinion of Morgan, Lewis
& Bockius LLP addressed to the Surviving Fund and the Acquired Fund
substantially to the effect that with respect to the Acquired Fund and the
Surviving Fund for Federal income tax purposes:
(i) The Reorganization will constitute a tax-free reorganization
within the meaning of Section 368(a) of the Code, and the Acquired Fund and the
Surviving Fund will each be a "party to the reorganization" within the meaning
of Section 368(b) of the Code.
(ii) No gain or loss will be recognized by the Surviving Fund upon the
receipt of the assets of the Acquired Fund solely in exchange for Surviving Fund
Shares and the assumption by the Surviving Fund of all of the liabilities of the
Acquired Fund.
(iii) No gain or loss will be recognized by the Acquired Fund upon the
transfer of all of its assets to the Surviving Fund solely in exchange for
Surviving Fund Shares and the assumption by the Surviving Fund of all of the
liabilities of the Acquired Fund or upon the distribution of Surviving Fund
Shares to shareholders of the Acquired Fund.
(iv) No gain or loss will be recognized by the shareholders of the
Acquired Fund upon the exchange of their shares of the Acquired Fund for
Surviving Fund Shares (including fractional shares to which they may be
entitled).
(v) The aggregate tax basis of Surviving Fund Shares received by each
shareholder of the Acquired Fund (including fractional shares to which they may
be entitled) will be the same as the aggregate tax basis of the Acquired Fund
shares exchanged.
(vi) The holding period of the Surviving Fund Shares received by the
shareholders of the Acquired Fund (including fractional shares to which they may
be entitled) will include the holding period of the Acquired Fund shares
surrendered in exchange therefor, provided that the Acquired Fund shares were
held as a capital asset as of the Effective Time.
(vii) The tax basis of the assets of the Acquired Fund received by the
Surviving Fund will be the same as the tax basis of such assets to the Acquired
Fund immediately prior to the exchange.
(viii) The holding period of the assets of the Acquired Fund received
by the Surviving Fund will include the period during which such assets were held
by the Acquired Fund.
(ix) The Surviving Fund will succeed to and take into account, as of
the date of the transfer (as defined in Section 1.381(b)-1(b) of the Treasury
Regulations), the items of the Acquired Fund described in Section 381(c) of the
Code, subject to the conditions and limitations specified in Sections 381(b) and
(c), 382, 383 and 384 of the Code.
No opinion will be expressed as to the effect of the Reorganization on (i)
the Acquired Fund or the Surviving Fund with respect to any asset as to which
any unrealized gain or loss is required to be recognized for U.S. federal income
tax purposes at the end of a taxable year (or on the termination or transfer
thereof) under a mark-to-market system of accounting and (ii) any shareholder of
the Acquired Fund that is required to recognize unrealized gains and losses for
U.S. federal income tax purposes under a mark-to-market system of accounting.
Such opinion shall be based on customary assumptions, limitations and such
representations as Morgan, Lewis & Bockius LLP may reasonably request, and the
Acquired Fund and Surviving Fund will cooperate to make and certify the accuracy
of such representations. Such opinion may contain such assumptions and
limitations as shall be in the opinion of such counsel appropriate to render the
opinions expressed therein. Notwithstanding anything herein to the contrary,
neither the Surviving Fund nor the Acquired Fund may waive the conditions set
forth in this Section 8(g).
9. EFFECTIVE TIME OF THE REORGANIZATION. The exchange of the Acquired
Fund's assets for corresponding Surviving Fund Shares shall be effective at
[4:00 P.M., EASTERN TIME ON MAY XX, 2009], or at such other time and date as
fixed by the mutual consent of the parties (the "Effective Time").
10. TERMINATION. This Agreement and the transactions contemplated by this
Agreement may be terminated and abandoned with respect to the Surviving Fund
and/or the Acquired Fund, without penalty, by resolution of the Board or at the
discretion of any duly authorized officer of the Trust at any time prior to the
Effective Time, if circumstances should develop that, in the opinion of the
Board or such officer, make proceeding with the Agreement inadvisable. In the
event of any such termination, there shall be no liability for damages on the
part of the Surviving Fund, the Acquired Fund, the Trust, the Board, or officers
of the Trust.
11. AMENDMENT AND WAIVER. This Agreement may be amended, modified or
supplemented in such manner as may be mutually agreed upon in writing by the
parties; provided, that no amendment may have the effect of changing the
provisions for determining the number or value of Surviving Fund Shares to be
paid to the Acquired Fund's shareholders under this Agreement to the detriment
of the Acquired Fund's shareholders without their further approval. Furthermore,
either party may waive any breach by the other party or the failure to satisfy
any of the conditions to its obligations (this waiver must be in writing and
authorized by the President or any Vice President of the Trust with or without
the approval of either Fund's shareholders).
12. INDEMNIFICATION.
(a) The Surviving Fund shall indemnify, defend and hold harmless the
Acquired Fund, its Trustees, officers, employees and agents against all losses,
claims, demands, liabilities and expenses, including reasonable legal and other
expenses incurred in defending third party claims, actions, suits or
proceedings, arising from any of its representations, warranties, covenants or
agreements set forth in this Agreement.
(b) The Acquired Fund, with respect to any claim asserted prior to the
Effective Time, shall indemnify, defend and hold harmless the Surviving Fund,
its Trustees, officers, employees and agents against all losses, claims,
demands, liabilities and expenses, including reasonable legal and other expenses
incurred in defending third party claims, actions, suits or proceedings, arising
from any of its representations, warranties, covenants or agreements set forth
in this Agreement.
13. FEES AND EXPENSES. Except as otherwise provided for herein, all
expenses that are solely and directly related to the reorganization contemplated
by this Agreement will be borne and paid by PADCO Advisors, Inc., the Advisor to
the Funds. Such expenses include, without limitation, to the extent solely and
directly related to the reorganization contemplated by this Agreement: (i)
expenses incurred in connection with the entering into and the carrying out of
the provisions of this Agreement; (ii) expenses associated with the preparation
and filing of the Registration Statement under the 1933 Act covering the
Surviving Fund Shares to be issued pursuant to the provisions of this Agreement;
(iii) registration or qualification fees and expenses of preparing and filing
such forms as are necessary under applicable state securities laws to qualify
the Surviving Fund Shares to be issued in connection herewith in each state in
which the Acquired Fund's shareholders are resident as of the date of the
mailing of the Information Statement/Prospectus to such shareholders; (iv)
postage; (v) printing; (vi) accounting fees; and (vii) legal fees. PADCO
Advisors, Inc. agrees that all such fees and expenses so borne and paid,
shall be paid directly by PADCO Advisors, Inc. (or an affiliate thereof) to the
relevant providers of services or other payees in accordance with the principles
set forth in the Internal Revenue Service Rev. Ruling 73-54, 1973-1 C.B. 187.
Fees and expenses not incurred directly in connection with the consummation of
the transactions contemplated by this Agreement will be borne by the party
incurring such fees and expenses. Notwithstanding the foregoing, expenses will
in any event be paid by the party directly incurring such expenses if and to the
extent that the payment by the other party of such expenses would result in the
disqualification of the Acquired Fund or the Surviving Fund, as the case may be,
as a "regulated investment company" within the meaning of Section 851 of the
Code. Acquired Fund shareholders will pay their respective expenses, if any,
incurred in connection with the transactions contemplated by this Agreement.
Neither the Acquired Fund nor the Surviving Fund will pay the Surviving Fund
shareholders' expenses, if any.
14. HEADINGS, COUNTERPARTS, ASSIGNMENT.
(a) The article and section headings contained in this Agreement are for
reference purposes only and shall not effect in any way the meaning or
interpretation of this Agreement.
(b) This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original.
(c) This Agreement shall be binding upon and inure to the benefit of the
parties and their respective successors and assigns, but no assignment or
transfer of any rights or obligations shall be made by any party without the
written consent of the other party. Nothing in this Agreement expressed or
implied is intended nor shall be construed to confer upon or give any person,
firm or corporation (other than the parties and their respective successors and
assigns) any rights or remedies under or by reason of this Agreement.
15. ENTIRE AGREEMENT. The Surviving Fund and Acquired Fund agree that
neither party has made any representation, warranty or covenant not set forth in
this Agreement and that this Agreement constitutes the entire agreement between
the parties. The representations, warranties and covenants contained in this
Agreement or in any document delivered pursuant to this Agreement or in
connection with this Agreement shall survive the consummation of the
transactions contemplated under this Agreement.
16. FURTHER ASSURANCES. The Surviving Fund and Acquired Fund shall take
such further action as may be necessary or desirable and proper to consummate
the transactions contemplated by this Agreement.
17. BINDING NATURE OF AGREEMENT. As provided in the Trust's Bylaws, as
amended and supplemented to date, this Agreement was authorized by the Trustees
of the Trust, on behalf of the Surviving Fund and the Acquired Fund, as Trustees
and not individually, and executed by the undersigned officers of the Trust, as
officers and not individually. The obligations of this Agreement are not binding
upon the undersigned officers, Trustees, shareholders, nominees or agents
individually, but are binding only upon the assets and property of the Acquired
Fund and
Surviving Fund. Moreover, no class or series of the Trust shall be liable for
the obligations of any other classes or series of the Trust.
IN WITNESS WHEREOF, the parties have duly executed this Agreement, all as
of the date first written above.
RYDEX SERIES FUNDS
on behalf of Hedged Equity Fund
By:
------------------------------------
Name: [Insert Name]
Title: [Insert Title]
RYDEX SERIES FUNDS
on behalf of Multi-Hedge Strategies Fund
By:
------------------------------------
Name: [Insert Name]
Title: [Insert Title]
SOLELY FOR PURPOSES OF SECTION 13.
PADCO Advisors, Inc.
By:
------------------------------------
Name: [Insert Name]
Title: [Insert Title]
RYDEX SERIES FUNDS
9601 Blackwell Road, Suite 500
Rockville, MD 20850
(800) 820-0888
STATEMENT OF ADDITIONAL INFORMATION
Acquisition of the Assets of
HEDGED EQUITY FUND
a series of
Rydex Series Funds
9601 Blackwell Road, Suite 500
Rockville, MD 20850
By and in Exchange for the Shares of
MULTI-HEDGE STRATEGIES FUND
a series of
Rydex Series Funds
9601 Blackwell Road, Suite 500
Rockville, MD 20850
April ___, 2009
This Statement of Additional Information (the "SAI"), which is not a
prospectus, relating specifically to the proposed transfer of assets and
liabilities of the Rydex Series Trust Hedged Equity Fund (the "Hedged Equity
Fund" or the "Acquired Fund") to the Rydex Series Trust Multi-Hedge Strategies
Fund (the "Multi-Hedge Strategies Fund" or the "Surviving Fund" and, together
with the Hedged Equity Fund, the "Funds") (the "Reorganization"), should be read
in conjunction with the Prospectus/Information Statement dated April ___, 2009
relating specifically to the Reorganization (the "Prospectus"). Copies of the
Prospectus may be obtained at no charge by calling the Trust at (800) 820-0888.
This SAI, relating specifically to the Reorganization, consists of this
cover page and the following described documents, each of which is incorporated
by reference herein:
1. The Statement of Additional Information of the Trust relating to the
Acquired Fund and the Surviving Fund dated August 1, 2008.
2. The Report of the Independent Registered Public Accounting Firm and
audited financial statements of the Acquired Fund and Surviving Fund included in
the Funds' Annual Reports for the period ended March 31, 2008 (together, the
"Annual Reports"). No other parts of the Annual Reports are incorporated herein
by reference.
3. The unaudited financial statements of the Acquired Fund and Surviving
Fund included in the Funds' Semi-Annual Reports for the year ended September 30,
2008 (together, the "Semi-Annual Reports"). No other parts of the Semi-Annual
Reports are incorporated herein by reference.
TABLE OF CONTENTS -
A. General Information.....................................................
B. Additional Information About the Acquired Fund and the Surviving Fund...
C. Financial Statements....................................................
D. Pro Forma Financial Statements (Unaudited)..............................
E. Miscellaneous...........................................................
A. GENERAL INFORMATION
The Board of Trustees of the Trust has approved an Agreement and Plan of
Reorganization (the "Plan") which contemplates the transfer of all the assets
and liabilities of the Acquired Fund to the Surviving Fund in exchange for
H-Class Shares, A-Class Shares, and C-Class Shares of the Surviving Fund.
After the transfer of all its assets and liabilities in exchange for
H-Class Shares, A-Class Shares, and C-Class Shares of the Surviving Fund, the
Acquired Fund will distribute the shares to its shareholders in liquidation of
the Acquired Fund. Each shareholder owning H-Class Shares, A-Class Shares, and
C-Class Shares of the Acquired Fund at the closing of the Reorganization will
receive H-Class Shares, A-Class Shares, and C-Class Shares, respectively, of the
Surviving Fund equal in aggregate value to his or her interest in the Acquired
Fund, and will receive any unpaid dividends or distributions on shares of the
Acquired Fund that were declared at or before the closing of the Reorganization.
The Surviving Fund will establish an account for each former shareholder of the
Acquired Fund reflecting the appropriate number of shares distributed to the
shareholder. These accounts will be substantially identical to the accounts
currently maintained by the Surviving Fund for each shareholder. In connection
with the Reorganization, all outstanding H-Class Shares, A-Class Shares, and
C-Class Shares of the Acquired Fund will be cancelled, and the Acquired Fund
will wind up its affairs and be terminated. For further information about the
Reorganization, see the Prospectus.
B. ADDITIONAL INFORMATION ABOUT THE ACQUIRED FUND AND THE SURVIVING FUND
This SAI incorporates by reference the Statement of Additional Information
of the Trust relating to the Acquired Fund and the Surviving Fund dated August
1, 2008.
C. FINANCIAL STATEMENTS
Historical financial information regarding the Acquired Fund and Surviving
Fund is incorporated herein by reference as follows:
1. The Report of the Independent Registered Public Accounting Firm and
audited financial statements of the Acquired Fund and Surviving Fund included in
the Funds' Annual Reports are incorporated herein by reference to such Annual
Reports. No other parts of the Annual Reports are incorporated herein by
reference; and
2. The unaudited financial statements of the Acquired Fund and Surviving
Fund included in the Funds' Semi-Annual Reports are incorporated herein by
reference to such Semi-Annual Reports. No other parts of the Semi-Annual Reports
are incorporated herein by reference.
D. PRO FORMA FINANCIAL INFORMATION (UNAUDITED)
The unaudited pro forma combined financial statements are presented for the
information of the reader and may not necessarily be representative of what the
actual combined financial statements would have been had the Reorganization
occurred on October 1, 2007.
The unaudited pro forma combined schedule of investments and statement of
assets and liabilities reflect the combined financial position of the Acquired
Fund and Surviving Fund as of September 30, 2008. The unaudited pro forma
combined statement of operations presents the combined results of operations of
the Acquired Fund and Surviving Fund for the twelve month period ended September
30, 2008. The pro forma results of operations are not necessarily indicative of
future operations or the actual results that would have occurred had the
combination been consummated at October 1, 2007. These historical statements
have been derived from the respective books of the Acquired Fund and Surviving
Fund and records utilized in calculating daily net asset value at September 30,
2008, and for the twelve-month period then ended under U.S. generally accepted
accounting principals.
Under U.S. generally accepted accounting principles, the historical cost of
investment securities will be carried forward to the surviving entity and the
results of operations of the Acquired Fund for pre-combination periods will not
be combined/consolidated or included with the results of the Surviving Fund.
The unaudited pro forma combined financial statements should be read in
conjunction with the separate financial statements of the Acquired Fund and
Surviving Fund incorporated by reference into this SAI.
Pro Forma Schedule of Investments (Unaudited)
Hedged Equity Fund, Multi-Hedge Strategies Fund and Pro Forma Multi-Hedge
Strategies Fund
September 30, 2008
MULTI-HEDGE HEDGED EQUITY PRO FORMA
STRATEGIES FUND FUND COMBINED
---------------------- -------------------- ----------------------
MARKET MARKET MARKET
SHARES VALUE SHARES VALUE SHARES VALUE
--------- ----------- --------- --------- --------- -----------
COMMON STOCKS 52.3%
FINANCIALS 9.1%
Darwin Professional Underwriters, Inc.* 39,830 1,239,112 39,830 1,239,112
Charles Schwab Corp. Section 40,319 1,048,294 4,710 122,460 45,029 1,170,754
Allied World Assurance Company Holdings Ltd 27,699 983,868 3,450 122,545 31,149 1,106,413
Nationwide Financial Services, Inc. 21,010 1,036,423 21,010 1,036,423
Aon Corp. Section 20,549 923,883 2,410 108,354 22,959 1,032,237
Hilb Rogal & Hobbs Co. 17,249 806,218 17,249 806,218
Travelers Companies, Inc. Section 14,800 668,960 2,080 94,016 16,880 762,976
Loews Corp. Section 16,929 668,526 1,990 78,585 18,919 747,111
Plum Creek Timber Co., Inc. (REIT) Section 11,990 597,821 1,190 59,333 13,180 657,154
Annaly Capital Management, Inc. 41,069 552,378 5,010 67,384 46,079 619,762
MetLife, Inc. Section 9,330 522,480 1,310 73,360 10,640 595,840
Axis Capital Holdings Ltd. 15,690 497,530 2,210 70,079 17,900 567,609
Blackrock, Inc. 2,580 501,810 300 58,350 2,880 560,160
Castlepoint Holdings Ltd. 49,490 550,824 49,490 550,824
JPMorgan Chase & Co. Section 10,310 481,477 1,450 67,715 11,760 549,192
PartnerRe Ltd. 7,020 477,992 990 67,409 8,010 545,401
Hanover Insurance Group, Inc. Section 10,300 468,856 1,450 66,004 11,750 534,860
Unum Group Section 18,239 457,799 2,140 53,714 20,379 511,513
AFLAC, Inc. Section 7,200 423,000 840 49,350 8,040 472,350
Invesco Ltd. Section 19,179 402,375 2,700 56,646 21,879 459,021
Transatlantic Holdings, Inc. 7,220 392,407 1,020 55,437 8,240 447,844
Arthur J. Gallagher & Co. Section 14,660 376,175 2,060 52,860 16,720 429,035
Federated Investors, Inc. -- Class B Section 13,070 377,069 1,620 46,737 14,690 423,806
Philadelphia Consolidated Holding Corp.* 6,930 405,890 6,930 405,890
Liberty Media Corp. - Capital* 28,740 384,541 4,050 54,189 32,790 438,730
Chubb Corp. Section 6,000 329,400 840 46,116 6,840 375,516
Allstate Corp. Section 6,970 321,456 980 45,198 7,950 366,654
Hudson City Bancorp, Inc. Section 17,769 327,838 2,080 38,376 19,849 366,214
ProLogis Section 7,640 315,303 1,070 44,159 8,710 359,462
T. Rowe Price Group, Inc. Section 5,900 316,889 560 30,078 6,460 346,967
Janus Capital Group, Inc. Section 12,210 296,459 1,410 34,235 13,620 330,694
Goldman Sachs Group, Inc. Section 2,000 256,000 280 35,840 2,280 291,840
Ameriprise Financial, Inc. Section 6,130 234,166 860 32,852 6,990 267,018
Health Care REIT, Inc. Section 3,820 203,339 450 23,953 4,270 227,292
Northern Trust Corp. Section 2,800 202,160 260 18,772 3,060 220,932
Hartford Financial Services Group, Inc. Section 4,140 169,699 580 23,774 4,720 193,473
Nationwide Health Properties, Inc. Section 4,370 157,233 520 18,710 4,890 175,943
Everest Re Group Ltd. Section 1,740 150,562 250 21,632 1,990 172,194
HCP, Inc. Section 3,620 145,271 450 18,059 4,070 163,330
People's United Financial, Inc. 7,320 140,910 1,030 19,827 8,350 160,737
Host Hotels & Resorts, Inc. Section 10,240 136,090 1,440 19,138 11,680 155,228
W.R. Berkley Corp. Section 5,730 134,941 810 19,075 6,540 154,016
American Financial Group, Inc. Section 4,490 132,455 630 18,585 5,120 151,040
Cincinnati Financial Corp. Section 4,290 122,008 600 17,064 4,890 139,072
State Street Corp. Section 2,110 120,017 240 13,651 2,350 133,668
Macerich Co. Section 1,800 114,570 250 15,913 2,050 130,483
Waddell & Reed Financial, Inc. -- Class A Section 3,650 90,337 360 8,910 4,010 99,247
Protective Life Corp. Section 2,870 81,824 400 11,404 3,270 93,228
Genworth Financial, Inc. -- Class A Section 8,320 71,635 1,170 10,074 9,490 81,709
NYSE Euronext Section 1,270 49,759 180 7,052 1,450 56,811
Endurance Specialty Holdings Ltd. 1,240 38,341 170 5,256 1,410 43,597
Jones Lang LaSalle, Inc. Section 690 30,001 120 5,218 810 35,219
IntercontinentalExchange, Inc.* Section 220 17,750 30 2,420 250 20,170
Leucadia National Corp. Section 290 13,178 290 13,178
TOTAL FINANCIALS 19,965,299 2,029,868 21,995,167
HEALTH CARE 8.1%
Thermo Fisher Scientific, Inc.* Section 24,399 1,341,945 3,190 175,450 27,589 1,517,395
Baxter International, Inc. Section 17,749 1,164,867 2,180 143,073 19,929 1,307,940
Applied Biosystems Inc. 35,979 1,232,281 35,979 1,232,281
Apria Healthcare Group, Inc.* 65,309 1,191,236 65,309 1,191,236
Alpharma, Inc. -- Class A* 30,224 1,114,963 30,224 1,114,963
Genentech, Inc.* 12,520 1,110,274 12,520 1,110,274
Vital Signs, Inc. 14,610 1,079,679 14,610 1,079,679
Datascope Corp. 17,978 928,204 17,978 928,204
HLTH Corp.* 64,540 737,692 64,540 737,692
Barr Pharmaceuticals, Inc.* 9,680 632,104 9,680 632,104
LifePoint Hospitals, Inc.* Section 15,359 493,638 2,160 69,422 17,519 563,060
Hill-Rom Holdings, Inc. Section 15,290 463,440 2,150 65,166 17,440 528,606
C.R. Bard, Inc. Section 4,880 462,966 690 65,460 5,570 528,426
WellPoint, Inc.* Section 9,030 422,333 1,270 59,398 10,300 481,731
ImClone Systems, Inc.* 7,280 454,563 7,280 454,563
Express Scripts, Inc.* Section 5,360 395,675 630 46,507 5,990 442,182
Covance, Inc.* Section 3,870 342,147 500 44,205 4,370 386,352
Pfizer, Inc. Section 18,350 338,374 2,580 47,575 20,930 385,949
Millipore Corp.* Section 4,710 324,048 690 47,472 5,400 371,520
Techne Corp.* Section 4,350 313,722 550 39,666 4,900 353,388
Charles River Laboratories International, Inc.* Section 4,600 255,438 630 34,984 5,230 290,422
DENTSPLY International, Inc. Section 6,550 245,887 890 33,411 7,440 279,298
Medco Health Solutions, Inc.* Section 5,060 227,700 590 26,550 5,650 254,250
Pharmaceutical Product Development, Inc. Section 5,320 219,982 710 29,358 6,030 249,340
Hologic, Inc.* Section 10,870 210,117 1,550 29,961 12,420 240,078
McKesson Corp. Section 3,680 198,021 520 27,981 4,200 226,002
Aetna, Inc. Section 5,290 191,022 740 26,721 6,030 217,743
Biogen Idec, Inc.* Section 3,640 183,056 450 22,631 4,090 205,687
Quest Diagnostics, Inc. Section 3,060 158,110 430 22,218 3,490 180,328
Perrigo Co. Section 3,520 135,379 410 15,769 3,930 151,148
Coventry Health Care, Inc.* Section 2,770 90,164 390 12,695 3,160 102,859
Community Health Systems, Inc.* Section 2,860 83,827 400 11,724 3,260 95,551
Illumina, Inc.* 2,020 81,871 260 10,538 2,280 92,409
Waters Corp.* Section 1,290 75,052 210 12,218 1,500 87,270
Amgen, Inc.* Section 1,230 72,902 200 11,854 1,430 84,756
BioMarin Pharmaceuticals, Inc.* 2,550 67,550 240 6,358 2,790 73,908
Inverness Medical Innovations* 388 73,720 388 73,720
PerkinElmer, Inc. Section 2,160 53,935 360 8,989 2,520 62,924
Bio-Rad Laboratories, Inc. -- Class A* 540 53,525 90 8,921 630 62,446
Medtronic, Inc. Section 1,060 53,106 180 9,018 1,240 62,124
Alcon, Inc. -- SP ADR 320 51,683 50 8,076 370 59,759
Bruker BioSciences Corp.* 3,730 49,721 620 8,265 4,350 57,986
Humana, Inc.* Section 1,220 50,264 170 7,004 1,390 57,268
Parexel International Corp.* 1,540 44,136 250 7,165 1,790 51,301
Covidien Ltd. Section 750 40,320 120 6,451 870 46,771
Varian, Inc.* Section 790 33,891 130 5,577 920 39,468
Becton, Dickinson & Co. Section 400 32,104 70 5,618 470 37,722
Intuitive Surgical, Inc.* Section 140 33,737 10 2,410 150 36,147
Zimmer Holdings, Inc.* Section 420 27,115 70 4,519 490 31,634
St. Jude Medical, Inc.* Section 620 26,964 100 4,349 720 31,313
Cephalon, Inc.* Section 270 20,922 40 3,100 310 24,022
Varian Medical Systems, Inc.* Section 360 20,567 60 3,428 420 23,995
Myriad Genetics, Inc.* 230 14,922 40 2,595 270 17,517
Alexion Pharmaceuticals, Inc.* 380 14,934 60 2,358 440 17,292
OSI Pharmaceuticals, Inc.* 300 14,787 50 2,465 350 17,252
Invitrogen Corp.* 430 16,254 430 16,254
United Therapeutics Corp.* 120 12,620 20 2,103 140 14,723
Vertex Pharmaceuticals, Inc.* Section 290 9,640 60 1,994 350 11,634
Inverness Medical Innovations, Inc.* 250 7,500 60 1,800 310 9,300
UnitedHealth Group, Inc. Section 1 25 1 25
TOTAL HEALTH CARE 17,780,342 1,260,849 19,041,191
CONSUMER DISCRETIONARY 6.2%
Nike, Inc. -- Class B Section 16,179 1,082,375 1,900 127,110 18,079 1,209,485
McDonald's Corp. Section 15,359 947,650 1,800 111,060 17,159 1,058,710
Landry's Restaurants, Inc.+ 60,518 941,055 60,518 941,055
Wendy's/Arby's Group, Inc. - Class A 143,858 756,695 143,858 756,695
Hasbro, Inc. Section 18,730 650,306 2,440 84,717 21,170 735,023
Service Corporation International Section 76,267 637,592 9,110 76,160 85,377 713,752
Amazon.com, Inc.* Section 8,620 627,191 1,030 74,943 9,650 702,134
Burger King Holdings, Inc. 20,299 498,544 2,480 60,909 22,779 559,453
Regal Entertainment Group -- Class A+ 30,080 474,662 4,230 66,749 34,310 541,411
TJX Companies, Inc. Section 15,239 465,094 1,790 54,631 17,029 519,725
Stewart Enterprises, Inc. -- Class A+ 59,878 470,641 59,878 470,641
Walt Disney Co. Section 9,970 305,979 1,400 42,966 11,370 348,945
Comcast Corp. -- Class A Section 13,930 273,446 1,960 38,475 15,890 311,921
Mohawk Industries, Inc.* Section 4,020 270,908 570 38,412 4,590 309,320
Home Depot, Inc. Section 10,190 263,819 1,430 37,023 11,620 300,842
Time Warner, Inc. Section 18,540 243,059 2,610 34,217 21,150 277,276
Liberty Global, Inc. -- Class A* 7,370 223,311 1,040 31,512 8,410 254,823
DIRECTV Group, Inc.* Section 7,800 204,126 1,100 28,787 8,900 232,913
Lowe's Companies, Inc. Section 8,540 202,313 1,230 29,139 9,770 231,452
Royal Caribbean Cruises Ltd.+ 9,530 197,748 1,340 27,805 10,870 225,553
Carnival Corp. Section 5,460 193,011 770 27,219 6,230 220,230
GameStop Corp. -- Class A* Section 5,660 193,629 650 22,236 6,310 215,865
DreamWorks Animation SKG, Inc. -- Class A* Section 5,260 165,427 740 23,273 6,000 188,700
BorgWarner, Inc. Section 5,010 164,178 590 19,334 5,600 183,512
CKX, Inc.* 29,268 180,291 29,268 180,291
DeVry, Inc. Section 3,130 155,060 350 17,339 3,480 172,399
Ross Stores, Inc. Section 4,170 153,498 490 18,037 4,660 171,535
CTC Media, Inc.* 9,180 137,700 1,130 16,950 10,310 154,650
Bluegreen Corp.* 22,340 154,369 22,340 154,369
LKQ Corp.* 7,990 135,590 940 15,952 8,930 151,542
Yum! Brands, Inc. Section 3,770 122,940 440 14,348 4,210 137,288
Hanesbrands, Inc.* Section 4,860 105,705 570 12,397 5,430 118,102
Snap-On, Inc. Section 1,940 102,160 230 12,112 2,170 114,272
Whirlpool Corp. Section 1,260 99,905 180 14,272 1,440 114,177
Central European Media Enterprises Ltd. -- Class A*+ 1,460 95,484 190 12,426 1,650 107,910
Strayer Education, Inc. Section 370 74,096 20 4,005 390 78,101
Discovery Communications, Inc. - Class A* 4,765 67,901 560 7,980 5,325 75,881
Discovery Communications, Inc.* 4,765 67,472 560 7,930 5,325 75,402
Penske Auto Group, Inc.+ 5,730 65,723 810 9,291 6,540 75,014
Barnes & Noble, Inc. Section 2,430 63,374 340 8,867 2,770 72,241
priceline.com, Inc.* Section 920 62,956 100 6,843 1,020 69,799
Johnson Controls, Inc. Section 1,690 51,258 240 7,279 1,930 58,537
Apollo Group, Inc. -- Class A* Section 790 46,847 80 4,744 870 51,591
Big Lots, Inc.* Section 1,620 45,085 230 6,401 1,850 51,486
Tiffany & Co. Section 1,220 43,334 170 6,038 1,390 49,372
Autoliv, Inc. 1,220 41,175 170 5,738 1,390 46,913
Dick's Sporting Goods, Inc.* Section 1,990 38,964 280 5,482 2,270 44,446
CBS Corp. Section 2,610 38,054 370 5,395 2,980 43,449
Weight Watchers International, Inc. 1,010 36,966 170 6,222 1,180 43,188
Matthews International Corp. -- Class A Section 530 26,892 90 4,567 620 31,459
Corinthian Colleges, Inc.* Section 1,730 25,950 290 4,350 2,020 30,300
TRW Automotive Holdings Corp.* 1,610 25,615 230 3,659 1,840 29,274
Urban Outfitters, Inc.* Section 910 29,002 910 29,002
Regis Corp. Section 850 23,375 140 3,850 990 27,225
AutoZone, Inc.* Section 200 24,668 20 2,467 220 27,135
Sotheby's Section 1,080 21,665 180 3,611 1,260 25,276
Coinstar, Inc.* 620 19,840 100 3,200 720 23,040
ITT Educational Services, Inc.* Section 230 18,609 40 3,236 270 21,845
Capella Education Co.* 360 15,430 60 2,572 420 18,002
Advance Auto Parts, Inc. Section 350 13,881 40 1,586 390 15,467
Ascent Media Corp. - Class A* 476 11,619 56 1,367 532 12,986
M.D.C. Holdings, Inc. Section 170 6,220 20 732 190 6,952
Brunswick Corp. 16 205 16 205
TOTAL CONSUMER DISCRETIONARY 12,901,432 1,318,127 14,219,559
UTILITIES 5.8%
Puget Energy, Inc. 49,219 1,314,147 49,219 1,314,147
UGI Corp. 41,218 1,062,600 5,090 131,220 46,308 1,193,820
Constellation Energy Group, Inc. 44,460 1,080,378 44,460 1,080,378
TECO Energy, Inc. Section 57,488 904,286 6,850 107,750 64,338 1,012,036
TransAlta Corp.+ 32,190 884,581 32,190 884,581
FirstEnergy Corp. Section 11,419 764,959 1,340 89,767 12,759 854,726
Calpine Corp.* 63,869 830,297 63,869 830,297
Public Service Enterprise Group, Inc. Section 19,409 636,421 2,240 73,450 21,649 709,871
Questar Corp. Section 14,050 574,926 1,650 67,518 15,700 642,444
Energen Corp. Section 12,409 561,880 1,460 66,109 13,869 627,989
Atmos Energy Corp. 18,859 502,027 2,660 70,809 21,519 572,836
American Water Works Company, Inc. 22,660 487,190 3,190 68,585 25,850 555,775
MDU Resources Group, Inc. Section 15,739 456,431 1,850 53,650 17,589 510,081
National Fuel Gas Co. Section 10,820 456,388 1,210 51,038 12,030 507,426
Pepco Holdings, Inc. Section 19,300 442,163 2,720 62,315 22,020 504,478
DTE Energy Co. Section 10,420 418,050 1,470 58,976 11,890 477,026
DPL, Inc. Section 15,680 388,864 2,210 54,808 17,890 443,672
Oneok, Inc. Section 5,490 188,856 640 22,016 6,130 210,872
AES Corp.* Section 13,720 160,387 2,200 25,718 15,920 186,105
Xcel Energy, Inc. Section 7,950 158,920 1,120 22,389 9,070 181,309
Equitable Resources, Inc. Section 3,570 130,948 210 7,703 3,780 138,651
SCANA Corp. Section 2,330 90,707 330 12,847 2,660 103,554
Exelon Corp. Section 1,520 95,182 110 6,888 1,630 102,070
NRG Energy, Inc.* 1,780 44,055 1,780 44,055
PG&E Corp. Section 1 37 1 37
TOTAL UTILITIES 12,590,588 1,097,648 13,688,236
INFORMATION TECHNOLOGY 5.6%
Greenfield Online, Inc.* 82,447 1,434,578 82,447 1,434,578
Photon Dynamics, Inc.* 83,167 1,276,613 83,167 1,276,613
NDS Group PLC - SP ADR* 21,070 1,177,602 21,070 1,177,602
International Rectifier Corp.* 51,696 983,258 51,696 983,258
SI International, Inc.* 22,890 687,845 22,890 687,845
Secure Computing Corp.* 123,710 677,931 123,710 677,931
Foundry Networks, Inc.* 33,799 615,480 33,799 615,480
Synopsys, Inc.* Section 22,830 455,459 3,210 64,039 26,040 519,498
Hewlett-Packard Co. Section 8,680 401,363 1,220 56,413 9,900 457,776
Applied Materials, Inc. Section 21,100 319,243 2,970 44,936 24,070 364,179
QLogic Corp.* Section 20,499 314,865 2,400 36,864 22,899 351,729
VeriSign, Inc.* Section 11,520 300,442 1,320 34,426 12,840 334,868
Qualcomm, Inc. Section 5,810 249,656 680 29,220 6,490 278,876
Hewitt Associates, Inc. -- Class A* 6,160 224,470 720 26,237 6,880 250,707
MasterCard, Inc. Section 1,270 225,209 140 24,826 1,410 250,035
Amphenol Corp. Section 5,140 206,320 630 25,288 5,770 231,608
United Online, Inc. 23,859 224,513 23,859 224,513
Arrow Electronics, Inc.* Section 7,470 195,863 1,050 27,531 8,520 223,394
Dolby Laboratories, Inc. -- Class A* 5,390 189,674 630 22,170 6,020 211,844
Western Digital Corp.* Section 8,190 174,611 960 20,467 9,150 195,078
MEMC Electronic Materials, Inc.* Section 5,990 169,277 830 23,456 6,820 192,733
Avnet, Inc.* Section 6,080 149,750 860 21,182 6,940 170,932
Affiliated Computer Services, Inc. -- Class A* Section 2,780 140,751 390 19,746 3,170 160,497
Computer Sciences Corp.* Section 3,490 140,263 490 19,693 3,980 159,956
Lam Research Corp.* Section 4,390 138,241 620 19,524 5,010 157,765
Zebra Technologies Corp. -- Class A* Section 4,910 136,744 690 19,216 5,600 155,960
Apple, Inc.* Section 1,170 132,982 130 14,776 1,300 147,758
Trimble Navigation Ltd.* Section 4,620 119,473 540 13,964 5,160 133,437
Fidelity National Information Services, Inc. Section 5,560 102,638 970 17,906 6,530 120,544
ANSYS, Inc.* Section 2,510 95,054 240 9,089 2,750 104,143
Novellus Systems, Inc.* Section 4,420 86,809 620 12,177 5,040 98,986
Compuware Corp.* Section 8,439 81,774 990 9,593 9,429 91,367
EchoStar Corp. -- Class A* 3,180 76,638 450 10,845 3,630 87,483
Itron, Inc.* 840 74,365 100 8,853 940 83,218
Sohu.com, Inc.* 1,120 62,440 120 6,690 1,240 69,130
Flir Systems, Inc.* Section 1,560 59,935 110 4,226 1,670 64,161
Cypress Semiconductor Corp.* Section 10,720 55,958 1,260 6,577 11,980 62,535
CommScope, Inc.* Section 1,560 54,038 210 7,274 1,770 61,312
ADC Telecommunications, Inc.* Section 6,350 53,658 890 7,520 7,240 61,178
Ingram Micro, Inc. -- Class A* Section 3,330 53,513 470 7,553 3,800 61,066
KLA-Tencor Corp. Section 1,240 39,246 170 5,381 1,410 44,627
Nvidia Corp.* Section 2,760 29,560 520 5,569 3,280 35,129
BMC Software, Inc.* Section 740 21,186 90 2,577 830 23,763
Western Union Co. Section 500 12,335 60 1,480 560 13,815
Vishay Intertechnology, Inc.* Section 480 3,178 480 3,178
Convergys Corp.* Section 1 15 1 15
TOTAL INFORMATION TECHNOLOGY 12,421,623 690,477 13,112,100
INDUSTRIALS 5.3%
Northwest Airlines Corp.* 180,626 1,631,053 180,626 1,631,053
DRS Technologies, Inc. Section 15,789 1,211,806 15,789 1,211,806
Allied Waste Industries, Inc.* 100,158 1,112,755 100,158 1,112,755
IKON Office Solutions, Inc. 64,146 1,091,123 64,146 1,091,123
Deere & Co. Section 11,230 555,885 1,320 65,340 12,550 621,225
Copart, Inc.* Section 12,960 492,480 1,520 57,760 14,480 550,240
Brink's Co. Section 6,830 416,767 960 58,579 7,790 475,346
SPX Corp. Section 5,130 395,010 620 47,740 5,750 442,750
Flowserve Corp. Section 4,320 383,486 560 49,711 4,880 433,197
AGCO Corp.* Section 7,310 311,479 850 36,218 8,160 347,697
Ryder System, Inc. Section 4,550 282,100 650 40,300 5,200 322,400
McDermott International, Inc.* 10,770 275,173 1,350 34,492 12,120 309,665
Waste Management, Inc. Section 8,130 256,014 1,140 35,899 9,270 291,913
Norfolk Southern Corp. Section 3,750 248,287 490 32,443 4,240 280,730
Jacobs Engineering Group, Inc.* Section 4,120 223,757 410 22,267 4,530 246,024
Joy Global, Inc. Section 4,540 204,936 520 23,473 5,060 228,409
SunPower Corp. Class B* 2,939 202,967 345 23,856 3,284 226,823
Valmont Industries, Inc. 2,330 192,668 270 22,326 2,600 214,994
Cummins, Inc. Section 4,180 182,750 470 20,548 4,650 203,298
Eaton Corp. Section 2,780 156,180 390 21,910 3,170 178,090
Precision Castparts Corp. Section 1,510 118,958 210 16,544 1,720 135,502
CSX Corp. Section 2,180 118,963 300 16,371 2,480 135,334
Bucyrus International, Inc. 2,480 110,806 280 12,510 2,760 123,316
Timken Co. Section 3,590 101,776 510 14,459 4,100 116,235
GATX Corp. Section 2,410 95,364 340 13,454 2,750 108,818
First Solar, Inc.* 460 86,899 70 13,224 530 100,123
Kansas City Southern* Section 1,960 86,946 250 11,090 2,210 98,036
ABB Ltd. -- SP ADR 4,140 80,316 680 13,192 4,820 93,508
Fluor Corp. Section 1,530 85,221 140 7,798 1,670 93,019
Union Pacific Corp. Section 1,030 73,295 170 12,097 1,200 85,392
Emerson Electric Co. Section 1,750 71,382 290 11,829 2,040 83,211
Quanta Services, Inc.* Section 2,660 71,847 370 9,994 3,030 81,841
Burlington Northern Santa Fe Corp. Section 730 67,474 120 11,092 850 78,566
Manitowoc Co., Inc. Section 3,920 60,956 550 8,553 4,470 69,509
Canadian National Railway Co. 1,230 58,831 200 9,566 1,430 68,397
Foster Wheeler Ltd.* 1,660 59,943 180 6,500 1,840 66,443
Woodward Governor Co. 1,540 54,316 250 8,818 1,790 63,134
FTI Consulting, Inc.* 690 49,846 80 5,779 770 55,625
Granite Construction, Inc. Section 1,060 37,969 120 4,298 1,180 42,267
Energy Conversion Devices, Inc.* 560 32,620 90 5,243 650 37,863
Suntech Power Holdings Co. Ltd. - SP ADR* 850 30,489 140 5,022 990 35,511
Roper Industries, Inc. Section 520 29,619 90 5,126 610 34,745
United Rentals, Inc.* Section 1,940 29,566 310 4,724 2,250 34,290
SunPower Corp. Class A* 400 28,372 70 4,965 470 33,337
AMETEK, Inc. Section 690 28,131 110 4,485 800 32,616
J.B. Hunt Transport Services, Inc. Section 760 25,361 130 4,338 890 29,699
Brady Corp. -- Class A 660 23,285 110 3,881 770 27,166
GrafTech International Ltd.* 1,240 18,736 210 3,173 1,450 21,909
Con-way Inc. Section 390 17,203 60 2,647 450 19,850
Werner Enterprises, Inc. Section 760 16,500 130 2,822 890 19,322
Heartland Express, Inc. 1,000 15,520 160 2,483 1,160 18,003
Regal-Beloit Corp. 350 14,882 60 2,551 410 17,433
Hubbell, Inc. -- Class B Section 410 14,370 70 2,454 480 16,824
Walter Industries, Inc. 300 14,235 20 949 320 15,184
Knight Transportation, Inc. 850 14,424 140 2,376 990 16,800
American Superconductor Corp.* 550 12,963 90 2,121 640 15,084
Old Dominion Freight Line, Inc.* 440 12,470 70 1,984 510 14,454
Belden, Inc. 380 12,080 60 1,907 440 13,987
Donaldson Company Section 200 8,382 20 838 220 9,220
General Cable Corp.* 200 7,126 30 1,069 230 8,195
Steelcase, Inc. -- Class A 570 6,128 80 860 650 6,988
Boeing Co. Section 50 2,868 10 574 60 3,442
TOTAL INDUSTRIALS 11,733,114 866,622 12,599,736
CONSUMER STAPLES 4.2%
Wm. Wrigley Jr. Co. 17,340 1,376,796 17,340 1,376,796
UST, Inc. 15,847 1,054,459 15,847 1,054,459
Herbalife Ltd. 20,400 806,208 2,630 103,938 23,030 910,146
Corn Products International, Inc. 26,088 842,121 26,088 842,121
Molson Coors Brewing Co. -- Class B Section 15,109 706,346 1,820 85,085 16,929 791,431
Costco Wholesale Corp. Section 9,780 635,016 1,150 74,669 10,930 709,685
Anheuser-Busch Companies, Inc. 10,700 694,216 10,700 694,216
Dr Pepper Snapple Group, Inc.* 17,019 450,663 2,420 64,082 19,439 514,745
PepsiAmericas, Inc. Section 16,950 351,204 2,120 43,926 19,070 395,130
Bunge Ltd. 4,860 307,055 580 36,644 5,440 343,699
Coca-Cola Enterprises, Inc. Section 14,130 236,960 2,060 34,546 16,190 271,506
Procter & Gamble Co. Section 3,060 213,251 510 35,542 3,570 248,793
BJ's Wholesale Club, Inc.* Section 5,040 195,854 710 27,591 5,750 223,445
Central European Distribution Corp.* 4,000 181,640 470 21,343 4,470 202,983
Reynolds American, Inc. Section 3,570 173,573 500 24,310 4,070 197,883
CVS Caremark Corp. Section 4,770 160,558 560 18,850 5,330 179,408
Pepsi Bottling Group, Inc. Section 4,980 145,267 720 21,002 5,700 166,269
Safeway, Inc. Section 6,110 144,929 860 20,399 6,970 165,328
Wal-Mart Stores, Inc. Section 1,890 113,192 220 13,176 2,110 126,368
PepsiCo, Inc. Section 1,280 91,226 210 14,967 1,490 106,193
SUPERVALU, INC. Section 3,660 79,422 620 13,454 4,280 92,876
Kimberly-Clark Corp. Section 1,210 78,456 200 12,968 1,410 91,424
Diageo PLC -- SP ADR 790 54,399 130 8,952 920 63,351
Coca-Cola Co. Section 1,000 52,880 180 9,518 1,180 62,398
Clorox Co. Section 710 44,510 120 7,523 830 52,033
Energizer Holdings, Inc.* Section 400 32,220 70 5,638 470 37,858
Church & Dwight Co., Inc. Section 480 29,803 80 4,967 560 34,770
NBTY, Inc.* Section 680 20,074 230 6,790 910 26,864
Brown-Forman Corp. -- Class B Section 250 17,953 40 2,872 290 20,825
Hansen Natural Corp.* 490 14,823 80 2,420 570 17,243
WD-40 Co. 310 11,138 50 1,797 360 12,935
TOTAL CONSUMER STAPLES 9,316,212 716,969 10,033,181
ENERGY 3.3%
National-Oilwell Varco, Inc.* Section 13,580 682,123 1,670 83,884 15,250 766,007
Alpha Natural Resources, Inc.* 12,740 655,218 12,740 655,218
SEACOR Holdings, Inc.*+ 5,860 462,647 820 64,739 6,680 527,386
ConocoPhillips Section 5,670 415,327 810 59,332 6,480 474,659
ENSCO International, Inc. Section 7,190 414,360 1,020 58,783 8,210 473,143
Cimarex Energy Co. Section 6,710 328,186 940 45,975 7,650 374,161
Anadarko Petroleum Corp. Section 6,370 309,009 910 44,144 7,280 353,153
Frontline Ltd.+ 6,200 298,034 730 35,091 6,930 333,125
FMC Technologies, Inc.* Section 6,290 292,799 690 32,119 6,980 324,918
Patterson-UTI Energy, Inc. Section 14,119 282,662 1,990 39,840 16,109 322,502
Noble Corp. Section 5,600 245,840 800 35,120 6,400 280,960
Unit Corp.* 4,890 243,620 690 34,376 5,580 277,996
Transocean, Inc.* Section 1,970 216,385 290 31,854 2,260 248,239
Superior Energy Services* Section 6,230 194,002 880 27,403 7,110 221,405
Stone Energy Corp.* 5,120 216,730 5,120 216,730
Chesapeake Energy Corp. Section 4,670 167,466 660 23,668 5,330 191,134
Denbury Resources, Inc.* Section 8,190 155,938 960 18,278 9,150 174,216
Apache Corp. Section 1,070 111,580 140 14,599 1,210 126,179
Whiting Petroleum Corp.* 1,440 102,614 170 12,114 1,610 114,728
Massey Energy Co. Section 2,850 101,659 363 12,948 3,213 114,607
Hess Corp. Section 1,130 92,750 140 11,491 1,270 104,241
Encore Acquisition Co.* Section 2,180 91,080 250 10,445 2,430 101,525
Diamond Offshore Drilling, Inc. 800 82,448 110 11,337 910 93,785
Exxon Mobil Corp. Section 980 76,107 160 12,426 1,140 88,533
PetroHawk Energy Corp.* 3,420 73,975 400 8,652 3,820 82,627
Chevron Corp. Section 610 50,313 100 8,248 710 58,561
Range Resources Corp. Section 1,140 48,872 130 5,573 1,270 54,445
Arch Coal, Inc. Section 1,440 47,362 170 5,591 1,610 52,953
Consol Energy, Inc. Section 1,020 46,808 110 5,048 1,130 51,856
BP PLC -- SP ADR 870 43,648 140 7,024 1,010 50,672
Halliburton Co. Section 1,310 42,431 220 7,126 1,530 49,557
Helmerich & Payne, Inc. Section 870 37,575 120 5,183 990 42,758
Royal Dutch Shell PLC -- SP ADR 590 34,816 100 5,901 690 40,717
EOG Resources, Inc. Section 360 32,206 50 4,473 410 36,679
Weatherford International Ltd.* Section 1,230 30,922 200 5,028 1,430 35,950
Occidental Petroleum Corp. Section 420 29,589 70 4,931 490 34,520
Tenaris SA -- SP ADR 780 29,086 130 4,848 910 33,934
Smith International, Inc. Section 450 26,388 70 4,105 520 30,493
Devon Energy Corp. Section 280 25,536 50 4,560 330 30,096
Canadian Natural Resources Ltd. 340 23,276 60 4,108 400 27,384
Cameron International Corp.* Section 590 22,739 100 3,854 690 26,593
XTO Energy, Inc. Section 380 17,678 60 2,791 440 20,469
W&T Offshore, Inc. 250 6,822 30 819 280 7,641
Atwood Oceanics, Inc.* 150 5,460 20 728 170 6,188
TOTAL ENERGY 6,914,086 818,557 7,732,643
MATERIALS 2.8%
Hercules, Inc. 66,449 1,315,026 66,449 1,315,026
Fording Canadian Coal Trust+ 12,430 1,031,690 12,430 1,031,690
Rohm & Haas Co. 9,610 672,700 9,610 672,700
Crown Holdings, Inc.* 17,270 383,567 2,430 53,970 19,700 437,537
Lubrizol Corp. Section 8,070 348,140 1,140 49,180 9,210 397,320
Dow Chemical Co. Section 9,550 303,499 1,370 43,539 10,920 347,038
United States Steel Corp. Section 3,730 289,485 440 34,148 4,170 323,633
International Paper Co. Section 10,230 267,821 1,440 37,699 11,670 305,520
Steel Dynamics, Inc. Section 9,640 164,748 1,130 19,312 10,770 184,060
The Mosaic Co. 2,370 161,207 310 21,086 2,680 182,293
Reliance Steel & Aluminum Co. Section 3,800 144,286 450 17,086 4,250 161,372
Alcoa, Inc. Section 6,250 141,125 880 19,870 7,130 160,995
Huntsman Corp. 12,170 153,342 12,170 153,342
Nalco Holding Co. 6,060 112,352 850 15,759 6,910 128,111
AK Steel Holding Corp. Section 4,100 106,272 500 12,960 4,600 119,232
Commercial Metals Co. Section 3,850 65,027 540 9,121 4,390 74,148
Monsanto Co. Section 630 62,357 100 9,898 730 72,255
Albemarle Corp. Section 1,980 61,063 280 8,635 2,260 69,698
CF Industries Holdings, Inc. Section 620 56,705 80 7,317 700 64,022
Potash Corporation of Saskatchewan 400 52,804 70 9,241 470 62,045
Terra Industries, Inc. Section 1,540 45,276 180 5,292 1,720 50,568
E.I. du Pont de Nemours and Co. Section 920 37,076 150 6,045 1,070 43,121
Praxair, Inc. Section 420 30,131 70 5,022 490 35,153
Air Products & Chemicals, Inc. Section 330 22,602 50 3,425 380 26,027
Agrium, Inc. 380 21,310 60 3,365 440 24,675
Sigma-Aldrich Corp. Section 340 17,823 60 3,145 400 20,968
PPG Industries, Inc. Section 300 17,496 50 2,916 350 20,412
Carpenter Technology Corp. Section 620 15,903 90 2,309 710 18,212
Intrepid Potash, Inc.* 470 14,166 70 2,110 540 16,276
Owens-Illinois, Inc.* 550 16,170 550 16,170
Temple-Inland, Inc. Section 600 9,156 340 5,188 940 14,344
Cleveland-Cliffs, Inc. 160 8,470 160 8,470
TOTAL MATERIALS 6,140,325 416,108 6,556,433
TELECOMMUNICATION SERVICES 1.9%
Verizon Communications, Inc. Section 29,989 962,347 3,750 120,337 33,739 1,082,684
Crown Castle International Corp.* 26,609 770,863 3,120 90,386 29,729 861,249
Gilat Satellite Networks Ltd.* 113,536 659,644 113,536 659,644
CenturyTel, Inc. Section 11,290 413,779 1,590 58,274 12,880 472,053
American Tower Corp. -- Class A* Section 11,419 410,742 1,420 51,077 12,839 461,819
SBA Communications Corp.* 15,239 394,233 1,470 38,029 16,709 432,262
AT&T, Inc. Section 10,820 302,094 1,520 42,438 12,340 344,532
Telephone & Data Systems, Inc. Section 1,660 59,345 230 8,223 1,890 67,568
U.S. Cellular Corp.* 690 32,375 100 4,692 790 37,067
NII Holdings, Inc. -- Class B* 470 17,822 110 4,171 580 21,993
MetroPCS Communications, Inc.* 370 5,176 50 700 420 5,876
TOTAL TELECOMMUNICATION SERVICES 4,028,420 418,327 4,446,747
TOTAL COMMON STOCKS
(Cost $135,390,702) 113,791,441 9,633,552 123,424,993
EXCHANGE TRADED FUNDS 5.5%
iShares MSCI Emerging Markets Index Fund 111,934 3,865,081 21,531 743,465 133,465 4,608,546
Vanguard Emerging Markets ETF 37,340 1,294,204 3,563 123,494 40,903 1,417,698
iShares S&P GSCI Commodity Indexed Trust* 19,420 1,044,796 19,420 1,044,796
Nuveen Equity Premium Opportunity Fund 64,740 842,267 6,080 79,101 70,820 921,368
Nuveen Equity Premium and Growth Fund+ 62,020 810,601 5,870 76,721 67,890 887,322
Eaton Vance Tax-Managed Buy-Write Income Fund 60,310 787,046 5,710 74,515 66,020 861,561
Nuveen Core Equity Alpha Fund 63,660 773,469 6,020 73,143 69,680 846,612
First Trust Enhanced Equity Income Fund, Inc. 66,770 741,147 6,320 70,152 73,090 811,299
Eaton Vance Tax-Managed Buy-Write Opportunities Fund 61,870 740,584 5,850 70,025 67,720 810,609
Liberty All Star Equity Fund 155,728 702,333 14,620 65,936 170,348 768,269
TOTAL EXCHANGE TRADED FUNDS
(Cost $15,968,975) 11,601,528 1,376,552 12,978,080
SECURITIES LENDING COLLATERAL 1.0%
Mount Vernon Securities Lending Trust Prime Portfolio 1,786,618 1,786,618 49,306 49,306 1,835,924 1,835,924
TOTAL SECURITIES LENDING COLLATERAL
(Cost $1,835,924) 1,786,618 49,306 1,835,924
CONTRACTS CONTRACTS CONTRACTS
--------- --------- ---------
OPTIONS PURCHASED 0.0%
PUT OPTIONS ON:
iShares S&P GSCI Commodity Index Expiring October 2008
with a strike price of 53 171 25,650 171 25,650
TOTAL PUT OPTIONS
TOTAL OPTIONS PURCHASED
(Cost $18,054) 25,650 25,650
FACE FACE FACE
AMOUNT AMOUNT AMOUNT
---------- --------- ----------
REPURCHASE AGREEMENTS++ 14.7%
Credit Suisse Group issued 09/30/08 at 0.25% due 10/01/08 21,498,405 21,498,405 6,096,541 6,096,541 27,594,946 27,594,946
Morgan Stanley issued 09/30/08 at 0.05% due 10/01/08 2,795,823 2,795,823 189,897 189,897 2,985,720 2,985,720
Mizuho Financial Group, Inc. issued 09/30/08 at 0.26%
due 10/01/08 2,315,849 2,315,849 157,297 157,297 2,473,146 2,473,146
Morgan Stanley issued 09/30/08 at 0.10% due 10/01/08 1,639,539 1,639,539 111,360 111,360 1,750,899 1,750,899
TOTAL REPURCHASE AGREEMENTS
(Cost $34,804,711) 28,249,616 6,555,095 34,804,711
TOTAL LONG SECURITIES 72.5%
(Cost $188,018,366) 155,454,853 17,614,505 173,069,358
SHARES SHARES SHARES
---------- --------- ----------
COMMON STOCKS SOLD SHORT (35.6)%
TELECOMMUNICATION SERVICES (0.2)%
Clearwire Corp.* 2,950 (35,046) 210 (2,495) 3,160 (37,541)
Qwest Communications International, Inc 35,340 (114,148) 4,180 (13,501) 39,520 (127,649)
Sprint Nextel Corp. 34,430 (210,023) 4,330 (26,413) 38,760 (236,436)
TOTAL TELECOMMUNICATION SERVICES (359,217) (42,409) (401,626)
ENERGY (2.5)%
Massey Energy Co. 3 (107) 3 (107)
SandRidge Energy, Inc.* 120 (2,352) 20 (392) 140 (2,744)
Patriot Coal Corp.* 100 (2,905) 10 (291) 110 (3,196)
Key Energy Services, Inc.* 680 (7,888) 80 (928) 760 (8,816)
Southwestern Energy Co.* 680 (20,767) 100 (3,054) 780 (23,821)
Continental Resources, Inc.* 880 (34,522) 160 (6,277) 1,040 (40,799)
El Paso Corp. 3,970 (50,657) 560 (7,146) 4,530 (57,803)
Global Industries Ltd.* 7,990 (55,451) 890 (6,177) 8,880 (61,628)
Valero Energy Corp. 2,000 (60,600) 70 (2,121) 2,070 (62,721)
Helix Energy Solutions Group, Inc.* 2,970 (72,112) 350 (8,498) 3,320 (80,610)
Tesoro Corp. 6,920 (114,111) 760 (12,532) 7,680 (126,643)
Hercules Offshore, Inc.* 7,330 (111,123) 1,040 (15,766) 8,370 (126,889)
Frontier Oil Corp. 8,060 (148,465) 920 (16,946) 8,980 (165,411)
Peabody Energy Corp. 3,820 (171,900) 540 (24,300) 4,360 (196,200)
Overseas Shipholding Group, Inc 3,070 (179,012) 440 (25,656) 3,510 (204,668)
Stone Energy Corp. 5,120 (216,730) 5,120 (216,730)
Sunoco, Inc. 5,650 (201,027) 640 (22,771) 6,290 (223,798)
Plains Exploration & Production Co.* 5,580 (196,193) 790 (27,776) 6,370 (223,969)
Holly Corp. 7,550 (218,346) 890 (25,739) 8,440 (244,085)
Marathon Oil Corp. 6,000 (239,220) 640 (25,517) 6,640 (264,737)
Newfield Exploration Co.* 7,310 (233,847) 1,040 (33,270) 8,350 (267,117)
Nabors Industries Ltd.* 10,390 (258,919) 1,230 (30,652) 11,620 (289,571)
Exterran Holdings, Inc.* 9,250 (295,630) 1,260 (40,270) 10,510 (335,900)
Teekay Corp. 13,180 (347,688) 1,640 (43,263) 14,820 (390,951)
Tetra Technologies, Inc.* 28,300 (391,955) 3,350 (46,398) 31,650 (438,353)
Baker Hughes, Inc. 8,050 (487,347) 930 (56,302) 8,980 (543,649)
BJ Services Co. 31,300 (598,769) 3,660 (70,016) 34,960 (668,785)
TOTAL ENERGY (4,717,535) (552,164) (5,269,699)
MATERIALS (2.5)%
Westlake Chemical Corp. 240 (5,047) 31 (634) 271 (5,681)
RPM International, Inc. 440 (8,510) 60 (1,160) 500 (9,670)
Century Aluminum Co.* 370 (10,245) 50 (1,385) 420 (11,630)
Cabot Corp. 1,510 (47,988) 110 (3,496) 1,620 (51,484)
Allegheny Technologies, Inc. 1,630 (48,167) 130 (3,842) 1,760 (52,009)
Chemtura Corp. 11,110 (50,662) 1,580 (7,205) 12,690 (57,867)
Celanese Corp. 2,160 (60,286) 340 (9,489) 2,500 (69,775)
International Flavors & Fragrances, Inc. 1,700 (67,082) 240 (9,470) 1,940 (76,552)
Teck Cominco Ltd. - Class B 2,990 (87,069) 2,990 (87,069)
Ecolab, Inc. 2,640 (128,093) 360 (17,467) 3,000 (145,560)
Eastman Chemical Co. 2,350 (129,391) 330 (18,170) 2,680 (147,561)
Valhi, Inc. 7,500 (135,000) 1,070 (19,260) 8,570 (154,260)
Smurfit-Stone Container Corp.* 29,370 (138,039) 3,470 (16,309) 32,840 (154,348)
Titanium Metals Corp. 14,170 (160,688) 1,680 (19,051) 15,850 (179,739)
Eagle Materials, Inc. 9,060 (202,672) 1,160 (25,949) 10,220 (228,621)
Domtar Corp.* 47,779 (219,783) 5,650 (25,990) 53,429 (245,773)
Ashland, Inc. 11,970 (350,003) 700 (20,468) 12,670 (370,471)
Scotts Miracle-Gro Co. - Class A 14,160 (334,742) 1,670 (39,479) 15,830 (374,221)
Newmont Mining Corp. 9,570 (370,933) 1,360 (52,714) 10,930 (423,647)
Weyerhaeuser Co. 7,250 (439,205) 1,030 (62,397) 8,280 (501,602)
Cliffs Natural Resources, Inc. 10,560 (559,046) 10,560 (559,046)
Sealed Air Corp. 23,870 (524,901) 2,800 (61,572) 26,670 (586,473)
Pactiv Corp.* 22,840 (567,117) 2,700 (67,041) 25,540 (634,158)
Bemis Co., Inc. 25,279 (662,563) 2,989 (78,342) 28,268 (740,905)
TOTAL MATERIALS (5,307,232) (560,890) (5,868,122)
CONSUMER STAPLES (2.5)%
Altria Group, Inc. 2,780 (55,155) 390 (7,738) 3,170 (62,893)
Rite Aid Corp.* 104,969 (85,025) 12,410 (10,052) 117,379 (95,077)
Constellation Brands, Inc. -- Class A* 9,060 (194,428) 1,190 (25,537) 10,250 (219,965)
Tyson Foods, Inc. - Class A 17,150 (204,771) 2,030 (24,238) 19,180 (229,009)
Del Monte Foods Co. 33,170 (258,726) 2,829 (22,066) 35,999 (280,792)
Smithfield Foods, Inc.* 16,170 (256,780) 2,170 (34,460) 18,340 (291,240)
Colgate-Palmolive Co. 4,500 (339,075) 610 (45,964) 5,110 (385,039)
Sara Lee Corp. 28,850 (364,376) 4,090 (51,657) 32,940 (416,033)
Alberto-Culver Co. 18,360 (500,126) 2,610 (71,096) 20,970 (571,222)
Avon Products, Inc. 13,140 (546,230) 2,100 (87,297) 15,240 (633,527)
Walgreen Co. 20,950 (648,612) 2,480 (76,781) 23,430 (725,393)
Dean Foods Co.* 38,310 (894,922) 4,810 (112,362) 43,120 (1,007,284)
Hershey Co. 24,329 (961,969) 2,879 (113,836) 27,208 (1,075,805)
TOTAL CONSUMER STAPLES (5,310,193) (683,083) (5,993,276)
INFORMATION TECHNOLOGY (3.4)%
Acxiom Corp. 290 (3,637) 31 (390) 321 (4,027)
MoneyGram International, Inc. 2,530 (3,593) 360 (511) 2,890 (4,104)
Broadcom Corp. -- Class A* 290 (5,403) 30 (559) 320 (5,962)
Vishay Intertechnology, Inc. 990 (6,554) 990 (6,554)
Ciena Corp.* 830 (8,366) 100 (1,008) 930 (9,374)
Fairchild Semiconductor International, Inc.* 2,920 (25,959) 350 (3,112) 3,270 (29,071)
F5 Networks, Inc.* 1,120 (26,186) 130 (3,039) 1,250 (29,225)
Brocade Communications Systems, Inc.* 4,830 (28,111) 260 (1,513) 5,090 (29,624)
Varian Semiconductor Equipment Associates, Inc.* 1,660 (41,699) 200 (5,024) 1,860 (46,723)
Akamai Technologies, Inc.* 3,450 (60,168) 490 (8,546) 3,940 (68,714)
Google, Inc. -- Class A* 170 (68,088) 20 (8,010) 190 (76,098)
Cognizant Technology Solutions Corp. -- Class A* 3,230 (73,741) 460 (10,502) 3,690 (84,243)
Novell, Inc.* 16,750 (86,095) 2,380 (12,233) 19,130 (98,328)
Xerox Corp. 8,440 (97,313) 640 (7,379) 9,080 (104,692)
LSI Logic Corp.* 20,560 (110,202) 2,920 (15,651) 23,480 (125,853)
Cadence Design Systems, Inc.* 20,360 (137,634) 2,220 (15,007) 22,580 (152,641)
Rambus, Inc.* 10,500 (134,925) 1,490 (19,147) 11,990 (154,072)
SanDisk Corp.* 7,430 (145,257) 850 (16,618) 8,280 (161,875)
Integrated Device Technology, Inc.* 18,900 (147,042) 2,360 (18,361) 21,260 (165,403)
Salesforce.com, Inc.* 2,988 (144,619) 500 (24,200) 3,488 (168,819)
Unisys Corp.* 58,360 (160,490) 7,389 (20,320) 65,749 (180,810)
Altera Corp. 7,770 (160,684) 1,100 (22,748) 8,870 (183,432)
Convergys Corp. 11,890 (175,734) 1,191 (17,603) 13,081 (193,337)
Sun Microsystems, Inc.* 26,060 (198,056) 3,080 (23,408) 29,140 (221,464)
United Online, Inc. 23,859 (224,513) 23,859 (224,513)
NCR Corp.* 9,670 (213,224) 1,370 (30,209) 11,040 (243,433)
Atmel Corp.* 63,640 (215,740) 9,030 (30,612) 72,670 (246,352)
Paychex, Inc. 6,690 (220,971) 950 (31,379) 7,640 (252,350)
Teradyne, Inc.* 28,910 (225,787) 3,710 (28,975) 32,620 (254,762)
Tech Data Corp.* 7,690 (229,547) 1,090 (32,537) 8,780 (262,084)
Micron Technology, Inc.* 61,160 (247,698) 7,350 (29,768) 68,510 (277,466)
Advanced Micro Devices, Inc.* 47,330 (248,483) 5,600 (29,400) 52,930 (277,883)
Tyco Electronics Ltd. 9,600 (265,536) 1,360 (37,618) 10,960 (303,154)
Tellabs, Inc.* 69,070 (280,424) 8,470 (34,388) 77,540 (314,812)
Jabil Circuit, Inc. 30,420 (290,207) 3,740 (35,680) 34,160 (325,887)
WebMD Health Corp.* 13,620 (405,059) 13,620 (405,059)
Adobe Systems, Inc.* 9,030 (356,414) 1,280 (50,522) 10,310 (406,936)
Motorola, Inc. 72,180 (515,365) 8,970 (64,046) 81,150 (579,411)
Electronic Arts, Inc.* 15,790 (584,072) 2,240 (82,858) 18,030 (666,930)
JDS Uniphase Corp.* 76,590 (647,951) 10,230 (86,546) 86,820 (734,497)
TOTAL INFORMATION TECHNOLOGY (7,220,543) (859,422) (8,079,965)
HEALTH CARE (3.4)%
Bristol-Myers Squibb Co. 440 (9,174) 50 (1,043) 490 (10,217)
PDL BioPharma, Inc. 1,170 (10,893) 140 (1,303) 1,310 (12,196)
Cardinal Health, Inc. 240 (11,827) 30 (1,478) 270 (13,305)
Kinetic Concepts, Inc.* 1,220 (34,880) 140 (4,003) 1,360 (38,883)
Celgene Corp.* 830 (52,522) 100 (6,328) 930 (58,850)
WellCare Health Plans, Inc.* 2,090 (75,240) 250 (9,000) 2,340 (84,240)
King Pharmaceuticals, Inc.* 8,500 (81,430) 670 (6,419) 9,170 (87,849)
Lincare Holdings Inc.* 2,690 (80,942) 250 (7,523) 2,940 (88,465)
Health Management Associates, Inc. -- Class A* 22,450 (93,392) 2,560 (10,650) 25,010 (104,042)
Brookdale Senior Living Inc. 5,720 (125,783) 520 (11,435) 6,240 (137,218)
Schering-Plough Corp. 7,650 (141,296) 900 (16,623) 8,550 (157,919)
Gilead Sciences, Inc.* 3,230 (147,223) 530 (24,157) 3,760 (171,380)
Mylan, Inc.* 15,840 (180,893) 1,870 (21,355) 17,710 (202,248)
Hospira, Inc.* 5,060 (193,292) 710 (27,122) 5,770 (220,414)
UnitedHealth Group, Inc. 8,360 (212,260) 801 (20,337) 9,161 (232,597)
Health Net, Inc.* 9,970 (235,292) 1,080 (25,488) 11,050 (260,780)
Teva Pharmaceutical Industries Ltd. - SP ADR 5,960 (272,908) 5,960 (272,908)
Tenet Healthcare Corp.* 52,250 (289,988) 7,410 (41,126) 59,660 (331,114)
Stryker Corp. 4,760 (296,548) 670 (41,741) 5,430 (338,289)
Genzyme Corp.* 3,690 (298,484) 510 (41,254) 4,200 (339,738)
CooperCompanies, Inc. 9,430 (327,787) 1,229 (42,720) 10,659 (370,507)
Sepracor, Inc.* 19,409 (355,379) 2,289 (41,912) 21,698 (397,291)
Advanced Medical Optics, Inc.* 20,100 (357,378) 2,580 (45,872) 22,680 (403,250)
Amylin Pharmaceuticals, Inc.* 18,180 (367,600) 2,260 (45,697) 20,440 (413,297)
Merck & Company, Inc. 11,610 (366,412) 1,560 (49,234) 13,170 (415,646)
Invitrogen Corp. 12,220 (461,916) 12,220 (461,916)
Omnicare, Inc. 15,050 (432,989) 1,780 (51,211) 16,830 (484,200)
Watson Pharmaceuticals, Inc.* 16,270 (463,695) 2,310 (65,835) 18,580 (529,530)
Allergan, Inc. 10,760 (554,140) 1,530 (78,795) 12,290 (632,935)
Boston Scientific Corp.* 62,980 (772,765) 7,980 (97,915) 70,960 (870,680)
TOTAL HEALTH CARE (7,304,326) (837,574) (8,141,900)
UTILITIES (3.8)%
Northeast Utilities System 1,220 (31,293) 140 (3,591) 1,360 (34,884)
Centerpoint Energy, Inc. 2,850 (41,525) 400 (5,828) 3,250 (47,353)
Duke Energy Corp. 2,690 (46,887) 380 (6,623) 3,070 (53,510)
Great Plains Energy, Inc. 8,180 (181,760) 970 (21,553) 9,150 (203,313)
Allegheny Energy, Inc. 5,850 (215,105) 830 (30,519) 6,680 (245,624)
Alliant Energy Corp. 7,770 (250,272) 569 (18,327) 8,339 (268,599)
Mirant Corp.* 13,980 (255,694) 1,650 (30,179) 15,630 (285,873)
Reliant Energy, Inc.* 45,809 (336,696) 5,840 (42,924) 51,649 (379,620)
Consolidated Edison, Inc. 8,040 (345,398) 940 (40,382) 8,980 (385,780)
Ameren Corp. 10,290 (401,619) 1,290 (50,349) 11,580 (451,968)
PPL Corp. 11,250 (416,475) 1,600 (59,232) 12,850 (475,707)
Pinnacle West Capital Corp. 12,700 (437,007) 1,170 (40,260) 13,870 (477,267)
Southern Union Co. 23,280 (480,732) 2,749 (56,767) 26,029 (537,499)
NRG Energy, Inc. 21,050 (520,988) 21,050 (520,988)
PG&E Corp. 12,910 (483,480) 1,441 (53,965) 14,351 (537,445)
Sierra Pacific Resources 57,170 (547,689) 6,110 (58,534) 63,280 (606,223)
Hawaiian Electric Industries, Inc. 18,240 (530,966) 2,590 (75,395) 20,830 (606,361)
Dynegy, Inc. - Class A* 178,610 (639,424) 22,860 (81,839) 201,470 (721,263)
CMS Energy Corp. 53,970 (673,006) 6,380 (79,559) 60,350 (752,565)
NiSource, Inc. 57,230 (844,715) 6,750 (99,630) 63,980 (944,345)
Aqua America, Inc. 54,180 (963,320) 6,740 (119,837) 60,920 (1,083,157)
TOTAL UTILITIES (8,644,048) (975,293) (9,619,341)
CONSUMER DISCRETIONARY (4.3)%
Urban Outfitters, Inc. 10 (319) 10 (319)
RH Donnelley Corp.* 1,560 (3,104) 180 (358) 1,740 (3,462)
Idearc, Inc. 7,210 (9,013) 850 (1,063) 8,060 (10,076)
Harte-Hanks, Inc. 1,850 (19,185) 220 (2,281) 2,070 (21,466)
Coldwater Creek, Inc.* 6,580 (38,098) 780 (4,516) 7,360 (42,614)
Morningstar, Inc.* 760 (42,157) 180 (9,985) 940 (52,142)
Chico's FAS, Inc.* 8,720 (47,698) 1,030 (5,634) 9,750 (53,332)
Brunswick Corp. 4,140 (52,951) 506 (6,472) 4,646 (59,423)
AnnTaylor Stores Corp.* 2,710 (55,934) 320 (6,605) 3,030 (62,539)
Ryland Group, Inc. 2,140 (56,753) 250 (6,630) 2,390 (63,383)
Scientific Games Corp. -- Class A* 2,530 (58,241) 360 (8,287) 2,890 (66,528)
Gannett Co., Inc. 3,790 (64,089) 370 (6,257) 4,160 (70,346)
Tim Hortons, Inc. 2,090 (61,927) 300 (8,889) 2,390 (70,816)
Macy's, Inc. 3,760 (67,605) 520 (9,350) 4,280 (76,955)
Career Education Corp.* 4,800 (78,480) 540 (8,829) 5,340 (87,309)
Interpublic Group of Companies, Inc.* 9,900 (76,725) 1,400 (10,850) 11,300 (87,575)
International Game Technology 4,890 (84,010) 690 (11,854) 5,580 (95,864)
Cablevision Systems Corp. -- Class A 3,390 (85,292) 480 (12,077) 3,870 (97,369)
Penn National Gaming Inc.* 3,360 (89,275) 400 (10,628) 3,760 (99,903)
Jones Apparel Group, Inc. 5,020 (92,920) 710 (13,142) 5,730 (106,062)
Williams-Sonoma, Inc. 6,430 (104,037) 760 (12,297) 7,190 (116,334)
JC Penney Co., Inc. 3,210 (107,021) 360 (12,002) 3,570 (119,023)
Virgin Media, Inc. 15,290 (120,791) 1,810 (14,299) 17,100 (135,090)
Boyd Gaming Corp. 13,220 (123,739) 1,490 (13,946) 14,710 (137,685)
Coach, Inc.* 4,830 (120,943) 680 (17,027) 5,510 (137,970)
Marriott International, Inc. -- Class A 4,690 (122,362) 670 (17,480) 5,360 (139,842)
OfficeMax, Inc. 14,390 (127,927) 1,720 (15,291) 16,110 (143,218)
Warner Music Group Corp. 17,290 (131,404) 2,040 (15,504) 19,330 (146,908)
Office Depot, Inc.* 22,850 (132,987) 2,600 (15,132) 25,450 (148,119)
KB Home 6,770 (133,234) 770 (15,154) 7,540 (148,388)
New York Times Co. -- Class A 9,690 (138,470) 1,380 (19,720) 11,070 (158,190)
Hearst-Argyle Television, Inc. 6,890 (153,854) 980 (21,883) 7,870 (175,737)
Thor Industries, Inc. 6,669 (165,525) 780 (19,360) 7,449 (184,885)
Harman International Industries, Inc. 5,260 (179,208) 620 (21,123) 5,880 (200,331)
Lennar Corp. -- Class A 11,970 (181,824) 1,420 (21,570) 13,390 (203,394)
Wyndham Worldwide Corp. 11,760 (184,750) 1,520 (23,879) 13,280 (208,629)
Centex Corp. 12,790 (207,198) 1,370 (22,194) 14,160 (229,392)
WABCO Holdings, Inc. 6,870 (244,160) 970 (34,474) 7,840 (278,634)
Meredith Corp. 8,910 (249,836) 1,050 (29,442) 9,960 (279,278)
DR Horton, Inc. 20,710 (269,644) 2,720 (35,414) 23,430 (305,058)
H&R Block, Inc. 12,290 (279,598) 1,680 (38,220) 13,970 (317,818)
Toll Brothers, Inc.* 11,700 (295,191) 1,660 (41,882) 13,360 (337,073)
RadioShack Corp. 17,780 (307,238) 2,080 (35,942) 19,860 (343,180)
Pulte Homes, Inc. 22,410 (313,068) 2,840 (39,675) 25,250 (352,743)
Liz Claiborne, Inc. 20,410 (335,336) 2,510 (41,239) 22,920 (376,575)
Federal-Mogul Corp.* 27,760 (348,388) 3,940 (49,447) 31,700 (397,835)
Starbucks Corp.* 24,070 (357,921) 3,040 (45,205) 27,110 (403,126)
Goodyear Tire & Rubber Co.* 23,430 (358,713) 3,330 (50,982) 26,760 (409,695)
Saks, Inc.* 40,860 (377,955) 5,500 (50,875) 46,360 (428,830)
Scripps Networks Interactive, Inc. - Class A 12,460 (452,423) 1,770 (64,269) 14,230 (516,692)
Eastman Kodak Co. 37,260 (573,059) 4,620 (71,056) 41,880 (644,115)
Wendy's/Arby's Group, Inc. - Class A 143,580 (755,231) 143,580 (755,231)
TOTAL CONSUMER DISCRETIONARY (9,036,492) (1,070,009) (10,106,501)
INDUSTRIALS (6.1)%
HNI Corp. 120 (3,041) 10 (253) 130 (3,294)
BE Aerospace, Inc.* 440 (6,965) 50 (792) 490 (7,757)
Thomas & Betts Corp.* 630 (24,614) 70 (2,735) 700 (27,349)
Avery Dennison Corp. 1,020 (45,370) 150 (6,672) 1,170 (52,042)
Shaw Group Inc.* 1,900 (58,387) 340 (10,448) 2,240 (68,835)
Avis Budget Group, Inc.* 11,500 (66,010) 1,220 (7,003) 12,720 (73,013)
Manpower Inc. 1,950 (84,162) 230 (9,927) 2,180 (94,089)
Hertz Global Holdings, Inc.* 16,140 (122,180) 1,740 (13,172) 17,880 (135,352)
Carlisle Companies, Inc. 4,309 (129,141) 480 (14,386) 4,789 (143,527)
Oshkosh Corp. 10,470 (137,785) 1,130 (14,871) 11,600 (152,656)
Armstrong World Industries, Inc 5,330 (154,037) 760 (21,964) 6,090 (176,001)
Dun & Bradstreet Corp. 1,770 (167,017) 250 (23,590) 2,020 (190,607)
Rockwell Collins, Inc. 3,540 (170,239) 500 (24,045) 4,040 (194,284)
Fastenal Co. 3,710 (183,237) 530 (26,177) 4,240 (209,414)
UTi Worldwide, Inc. 11,110 (189,092) 1,400 (23,828) 12,510 (212,920)
Graco, Inc. 5,470 (194,787) 650 (23,147) 6,120 (217,934)
Monster Worldwide, Inc.* 13,100 (195,321) 1,550 (23,111) 14,650 (218,432)
Copa Holdings SA 6,140 (199,550) 730 (23,725) 6,870 (223,275)
Corporate Executive Board Co. 6,620 (206,875) 820 (25,625) 7,440 (232,500)
WESCO International, Inc.* 6,670 (214,641) 790 (25,422) 7,460 (240,063)
Cintas Corp. 8,960 (257,242) 1,060 (30,433) 10,020 (287,675)
Expeditors International of Washington, Inc. 7,400 (257,816) 1,050 (36,582) 8,450 (294,398)
Continental Airlines, Inc.* 16,290 (271,717) 1,860 (31,025) 18,150 (302,742)
Landstar System, Inc. 6,560 (289,034) 920 (40,535) 7,480 (329,569)
FedEx Corp. 3,880 (306,675) 380 (30,035) 4,260 (336,710)
AMR Corp.* 30,780 (302,260) 3,530 (34,665) 34,310 (336,925)
CH Robinson Worldwide, Inc. 7,220 (367,931) 1,020 (51,979) 8,240 (419,910)
Owens Corning, Inc.* 15,900 (380,169) 2,140 (51,167) 18,040 (431,336)
Stericycle, Inc.* 6,700 (394,697) 990 (58,321) 7,690 (453,018)
Robert Half International, Inc. 18,460 (456,885) 2,180 (53,955) 20,640 (510,840)
Toro Co. 11,450 (472,885) 1,350 (55,755) 12,800 (528,640)
USG Corp.* 18,800 (481,280) 2,540 (65,024) 21,340 (546,304)
Tyco International Ltd. 13,980 (489,580) 1,760 (61,635) 15,740 (551,215)
Masco Corp. 27,980 (501,961) 3,490 (62,611) 31,470 (564,572)
Pitney Bowes, Inc. 17,280 (574,733) 2,450 (81,487) 19,730 (656,220)
Southwest Airlines Co. 47,550 (689,951) 5,620 (81,546) 53,170 (771,497)
United Parcel Service, Inc. -- Class B 15,540 (977,311) 2,200 (138,358) 17,740 (1,115,669)
Republic Services, Inc. 44,230 (1,326,015) 44,230 (1,326,015)
Delta Air Lines, Inc.* 237,059 (1,766,090) 1,899 (14,148) 238,958 (1,780,238)
TOTAL INDUSTRIALS (13,116,680) (1,300,151) (14,416,831)
FINANCIALS (6.9)%
Leucadia National Corp. 80 (3,635) 80 (3,635)
TCF Financial Corp. 340 (6,120) 40 (720) 380 (6,840)
PMI Group, Inc. 2,630 (7,759) 310 (915) 2,940 (8,674)
Comerica, Inc. 340 (11,149) 20 (656) 360 (11,805)
CNA Financial Corp. 540 (14,170) 60 (1,574) 600 (15,744)
Taubman Centers, Inc. 220 (11,000) 110 (5,500) 330 (16,500)
Camden Property Trust 370 (16,968) 50 (2,293) 420 (19,261)
American International Group, Inc. 5,890 (19,614) 690 (2,298) 6,580 (21,912)
National City Corp. 11,540 (20,195) 1,410 (2,468) 12,950 (22,663)
SEI Investments Co. 1,030 (22,866) 150 (3,330) 1,180 (26,196)
iStar Financial, Inc. 10,450 (27,170) 1,170 (3,042) 11,620 (30,212)
Marshall & Ilsley Corp. 1,390 (28,009) 160 (3,224) 1,550 (31,233)
CapitalSource, Inc. 2,390 (29,397) 280 (3,444) 2,670 (32,841)
CIT Group, Inc. 5,260 (36,610) 500 (3,480) 5,760 (40,090)
BRE Properties, Inc. 900 (44,100) 110 (5,390) 1,010 (49,490)
MGIC Investment Corp. 7,790 (54,764) 920 (6,468) 8,710 (61,232)
AmeriCredit Corp.* 5,560 (56,323) 510 (5,166) 6,070 (61,489)
E*Trade Financial Corp.* 19,750 (55,300) 2,350 (6,580) 22,100 (61,880)
Morgan Stanley 2,390 (54,970) 340 (7,820) 2,730 (62,790)
Equity Residential 1,290 (57,289) 180 (7,994) 1,470 (65,283)
General Growth Properties, Inc. 4,090 (61,759) 480 (7,248) 4,570 (69,007)
MF Global Ltd.* 14,320 (62,149) 1,850 (8,029) 16,170 (70,178)
Kilroy Realty Corp. 1,320 (63,083) 190 (9,080) 1,510 (72,163)
Wachovia Corp. 19,020 (66,570) 2,320 (8,120) 21,340 (74,690)
Legg Mason, Inc. 1,850 (70,411) 220 (8,373) 2,070 (78,784)
HRPT Properties Trust 10,760 (74,136) 1,270 (8,750) 12,030 (82,886)
Discover Financial Services 6,140 (84,855) 690 (9,536) 6,830 (94,391)
Fidelity National Financial, Inc -- Class A 6,580 (96,726) 930 (13,671) 7,510 (110,397)
CME Group, Inc. 260 (96,593) 40 (14,860) 300 (111,453)
CB Richard Ellis Group, Inc. -- Class A* 7,570 (101,211) 850 (11,365) 8,420 (112,576)
Ventas, Inc. 2,070 (102,299) 400 (19,768) 2,470 (122,067)
Old Republic International Corp. 8,980 (114,495) 890 (11,348) 9,870 (125,843)
Conseco, Inc.* 34,170 (120,278) 4,210 (14,819) 38,380 (135,097)
Developers Diversified Realty Corp. 3,880 (122,957) 550 (17,430) 4,430 (140,387)
CBL & Associates Properties, Inc. 6,970 (139,958) 820 (16,466) 7,790 (156,424)
Public Storage 1,390 (137,624) 200 (19,802) 1,590 (157,426)
Whitney Holding Corp. 5,890 (142,833) 700 (16,975) 6,590 (159,808)
Vornado Realty Trust 1,560 (141,882) 220 (20,009) 1,780 (161,891)
SunTrust Banks, Inc. 3,460 (155,665) 400 (17,996) 3,860 (173,661)
Capitol Federal Financial 3,480 (154,268) 490 (21,722) 3,970 (175,990)
Regency Centers Corp. 2,460 (164,057) 350 (23,342) 2,810 (187,399)
Regions Financial Corp. 18,460 (177,216) 1,990 (19,104) 20,450 (196,320)
Sovereign Bancorp, Inc. 44,050 (173,998) 5,680 (22,436) 49,730 (196,434)
Merrill Lynch & Co., Inc. 6,920 (175,076) 850 (21,505) 7,770 (196,581)
First Horizon National Corp. 18,695 (174,989) 2,340 (21,898) 21,035 (196,887)
XL Capital 10,050 (180,297) 1,290 (23,143) 11,340 (203,440)
Duke Realty Corp. 7,450 (183,121) 880 (21,630) 8,330 (204,751)
KeyCorp 15,780 (188,413) 1,870 (22,328) 17,650 (210,741)
Student Loan Corp. 2,069 (192,417) 260 (24,180) 2,329 (216,597)
AvalonBay Communities, Inc. 2,000 (196,840) 280 (27,558) 2,280 (224,398)
First American Corp. 6,800 (200,600) 930 (27,435) 7,730 (228,035)
Eaton Vance Corp. 5,840 (205,743) 830 (29,241) 6,670 (234,984)
Webster Financial Corp. 8,630 (217,908) 1,000 (25,250) 9,630 (243,158)
Kimco Realty Corp. 5,860 (216,468) 830 (30,660) 6,690 (247,128)
Brandywine Realty Trust 14,560 (233,397) 1,720 (27,572) 16,280 (260,969)
Franklin Resources, Inc. 2,730 (240,595) 390 (34,371) 3,120 (274,966)
New York Community Bancorp, Inc. 14,660 (246,141) 2,080 (34,923) 16,740 (281,064)
MSCI, Inc. - Class A* 10,500 (252,000) 1,490 (35,760) 11,990 (287,760)
Brown & Brown, Inc. 12,270 (265,277) 1,450 (31,349) 13,720 (296,626)
SLM Corp.* 21,210 (261,731) 2,830 (34,922) 24,040 (296,653)
Essex Property Trust, Inc. 2,290 (270,976) 320 (37,866) 2,610 (308,842)
Citigroup, Inc. 13,420 (275,244) 1,710 (35,072) 15,130 (310,316)
Popular, Inc. 37,770 (313,113) 4,630 (38,383) 42,400 (351,496)
Fifth Third Bancorp 26,580 (316,302) 3,380 (40,222) 29,960 (356,524)
Lazard Ltd. -- Class A 7,480 (319,845) 1,060 (45,326) 8,540 (365,171)
St Joe Co.* 8,380 (327,574) 1,190 (46,517) 9,570 (374,091)
Willis Group Holdings Ltd. 11,850 (382,281) 11,850 (382,281)
Huntington Bancshares, Inc. 42,600 (340,374) 5,320 (42,507) 47,920 (382,881)
Marsh & McLennan Companies, Inc. 12,860 (408,434) 1,820 (57,803) 14,680 (466,237)
Federal Realty Investment Trust 4,850 (415,160) 690 (59,064) 5,540 (474,224)
Capital One Financial Corp. 8,620 (439,620) 890 (45,390) 9,510 (485,010)
Simon Property Group, Inc. 4,600 (446,200) 650 (63,050) 5,250 (509,250)
Tower Group, Inc. 23,039 (542,799) 23,039 (542,799)
Moody's Corp. 14,450 (491,300) 1,830 (62,220) 16,280 (553,520)
M&T Bank Corp. 5,630 (502,478) 670 (59,798) 6,300 (562,276)
PNC Financial Services Group, Inc. 6,840 (510,948) 970 (72,459) 7,810 (583,407)
UDR, Inc. 20,780 (543,397) 2,950 (77,143) 23,730 (620,540)
Digital Realty Trust, Inc. 17,660 (834,418) 2,510 (118,579) 20,170 (952,997)
TOTAL FINANCIALS (14,510,286) (1,791,383) (16,301,669)
TOTAL COMMON STOCKS SOLD SHORT
(Proceeds $97,424,676) (75,526,553) (8,672,377) (84,198,930)
CONTRACTS CONTRACTS CONTRACTS
---------- --------- ----------
OPTIONS WRITTEN (0.7)%
CALL OPTIONS ON:
NDS Group PLC-SP ADR Expiring October 2008 with
strike price of 60 17 (765) 17 (765)
Alpha Natural Resources Inc. Expiring October 2008
with a strike price of 85 17 (850) 17 (850)
iShares MSCI Emerging Market Index Expiring October 2008
with a strike price of 39 706 (44,478) 136 (8,568) 842 (53,046)
Constellation Energy Group Expiring October 2008 with a
strike price of 25 420 (56,700) 420 (56,700)
Alpharma Inc. - Class A Expiring October 2008 with a
strike price of 35 300 (84,000) 300 (84,000)
Genetech Inc. Expiring October 2008 with a strike
price of 80 110 (111,100) 110 (111,100)
October 2008 S&P 500 Index Futures Contracts Expiring
October 2008 with a strike price of 1190 119 (1,038,275) 24 (209,400) 143 (1,247,675)
TOTAL CALL OPTIONS
TOTAL OPTIONS WRITTEN
(Premiums Received $3,174,837) (1,336,168) (217,968) (1,554,136)
OTHER ASSETS IN EXCESS OF LIABILITIES - 63.8% 60,543,494 2,631,823 63,175,317
NET ASSETS - 100.0% 215,998,347 20,246,328 236,244,675
UNREALIZED UNREALIZED UNREALIZED
CONTRACTS GAIN (LOSS) CONTRACTS LOSS CONTRACTS GAIN (LOSS)
---------- ----------- --------- ----------- ---------- -----------
CURRENCY FUTURES CONTRACTS PURCHASED
December 2008 British Pound Futures Contracts
(Aggregate Market Value of Contracts $7,909,844) 71 177,764 71 177,764
December 2008 New Zealand Dollar Futures Contracts
(Aggregate Market Value of Contracts $7,561,620) 114 48,587 114 48,587
December 2008 Australian Dollar Futures Contracts
(Aggregate Market Value of Contracts $7,407,200) 94 (140,502) 94 (140,502)
(TOTAL AGGREGATE MARKET VALUE OF CONTRACTS $22,878,664) 85,849 85,849
FUTURES CONTRACTS PURCHASED
December 2008 U.S. 10-Year Treasury Note Index Future
Contracts (Aggregate Market Value of Contracts
$24,755,625) 216 (174,679) 216 (174,679)
December 2008 Dow Jones Euro STOXX 50 Index Futures
Contracts (Aggregate Market Value of Contracts
$13,986,907) 275 (186,475) 45 (11,966) 320 (198,441)
December 2008 Nikkei-225 Stock Average Index Futures
Contracts (Aggregate Market Value of Contracts
$9,615,375) 142 (383,897) 23 (62,180) 165 (446,077)
December 2008 Russell 2000 Index Mini Futures Contracts
(Aggregate Market Value of Contracts $14,931,420) 188 (479,986) 31 (97,071) 219 (577,057)
December 2008 S&P MidCap 400 Index Mini Futures Contracts
(Aggregate Market Value of Contracts $10,162,600) 122 (583,230) 18 (89,814) 140 (673,044)
December 2008 S&P 500 Index Mini Futures Contracts
(Aggregate Market Value of Contracts $47,243,408) 675 (1,784,545) 130 (371,976) 805 (2,156,521)
(TOTAL AGGREGATE MARKET VALUE OF CONTRACTS $120,695,335) (3,592,812) (633,007) (4,225,819)
CURRENCY FUTURES CONTRACTS SOLD SHORT
December 2008 Canadian Dollar Currency Futures Contracts
(Aggregate Market Value of Contracts $659,680) 7 (4,918) 7 (4,918)
December 2008 Swiss Franc Futures Contracts
(Aggregate Market Value of Contracts $7,171,200) 64 (96,160) 64 (96,160)
December 2008 Japanese Yen Futures Contracts
(Aggregate Market Value of Contracts $8,430,363) 71 (168,359) 71 (168,359)
(TOTAL AGGREGATE MARKET VALUE OF CONTRACTS $16,261,243) (269,437) (269,437)
FUTURES CONTRACTS SOLD SHORT
December 2008 U.S. Dollar Index Futures Contracts
(Aggregate Market Value of Contracts $25,808,250) 325 212,826 325 212,826
* Non-Income Producing Security.
+ All or a portion of this security is on loan at September 30, 2008.
++ Repurchase Agreements - See Notes.
Pro Forma Statement of Assets and Liabilities (Unaudited)
Hedged Equity Fund, Multi-Hedge Strategies Fund and Pro Forma Multi-Hedge
Strategies Fund
September 30, 2008
MULTI-HEDGE HEDGED
STRATEGIES EQUITY PRO FORMA PRO FORMA
FUND FUND ADJUSTMENTS COMBINED
------------ ----------- ----------- ------------
ASSETS
Investment Securities $127,205,237 $11,059,410 $138,264,647
Repurchase Agreements 28,249,616 6,555,095 34,804,711
------------ ----------- -------- ------------
Total Investments 155,454,853 17,614,505 -- 173,069,358
Segregated Cash with Broker 46,748,809 660,562 47,409,371
Cash 1,674 -- 1,674
Deposits with Brokers for Securities Sold Short 87,614,998 10,086,015 97,701,013
Variation Margin on Futures Contracts 2,130,861 757,364 2,888,225
Receivable for Securities Sold 40,097,901 3,467,096 43,564,997
Receivable for Fund Shares Sold 390,606 1,700 392,306
Investment Income Receivable 273,134 31,085 304,219
Receivable for Options Written Premium 203,434 -- 203,434
------------ ----------- -------- ------------
TOTAL ASSETS 332,916,270 32,618,327 -- 365,534,597
============ =========== ======== ============
LIABILITIES
Short Sales at Market Value 75,526,553 8,672,377 84,198,930
Written Options at Market Value 1,336,168 217,968 1,554,136
Payable upon Return of Securities Loaned 1,786,618 49,306 1,835,924
Payable for Securities Purchased 37,131,615 3,201,880 40,333,495
Payable for Fund Shares Redeemed 725,477 175,931 901,408
Investment Advisory Fees Payable 207,961 19,763 227,724
Distribution and Service Fees Payable 73,068 6,347 79,415
Custody Fees Payable -- 3 3
Overdraft Due to Custodian Bank -- 13,596 13,596
Short Sales Dividends Payable 102,141 10,174 112,315
Other Liabilities 28,322 4,654 32,976
------------ ----------- -------- ------------
TOTAL LIABILITIES 116,917,923 12,371,999 -- 129,289,922
============ =========== ======== ============
NET ASSETS $215,998,347 $20,246,328 -- $236,244,675
============ =========== ======== ============
NET ASSETS CONSIST OF
Paid-In Capital $243,007,682 $25,702,450 $268,710,132
Undistributed Net Investment Income (Loss) 1,245,084 78,030 1,323,114
Accumulated Net Realized Gain (Loss) on Investments (24,254,794) (5,234,635) (29,489,429)
Net Unrealized Appreciation (Depreciation) on Investments (3,999,625) (299,517) (4,299,142)
------------ ----------- -------- ------------
NET ASSETS $215,998,347 $20,246,328 $ 0 $236,244,675
------------ ----------- -------- ------------
A-Class $ 65,136,060 $ 5,542,531 $ 70,678,591
C-Class 45,081,792 3,102,845 48,184,637
H-Class 105,780,495 11,600,952 117,381,447
SHARES OUTSTANDING
A-Class 2,737,924 254,209 (21,232) 2,970,901
C-Class 1,939,613 145,671 (12,158) 2,073,126
H-Class 4,443,476 531,878 (44,648) 4,930,706
NET ASSET VALUES
A-Class $ 23.79 $ 21.80 $ 23.79
A-Class Maximum Offering Price* 24.98 22.89 24.98
C-Class 23.24 21.3 23.24
H-Class 23.81 21.81 23.81
------------ ----------- ------------
Cost of Investments $169,079,977 $18,938,389 $188,018,366
Proceeds from Short Sales 87,373,094 10,051,582 97,424,676
Premiums received for Written Options 2,678,700 496,137 3,174,837
* Net asset value adjusted for the maximum sales charge of 4.75% of offering
price, calculated NAV/(1-4.75%).
Pro Forma Statement of Operations (Unaudited)
Hedged Equity Fund, Multi-Hedge Strategies Fund and Pro Forma Multi-Hedge
Strategies Fund
12-Month Period Ended September 30, 2008
MULTI-HEDGE HEDGED
STRATEGIES EQUITY PRO FORMA PRO FORMA
INVESTMENT INCOME FUND FUND ADJUSTMENTS COMBINED
----------------- ------------- ------------ ----------- -------------
Interest+ $ 5,297,864 $ 707,132 -- $ 6,004,996
Income from Securities Lending, net 212,960 29,715 -- 242,675
Dividends, Net of Foreign Tax Withheld * 3,236,028 423,715 -- 3,659,743
------------- ------------ --- -------------
Total Income 8,746,852 1,160,562 -- 9,907,414
------------- ------------ --- -------------
EXPENSES
Investment Advisory Fees 3,031,584 367,603 3,399,187
Distribution & Service Fees:
A-Class 131,002 15,029 146,031
C-Class 566,708 53,488 620,196
H-Class 386,362 51,513 437,875
Short Sales Dividend Expense 1,711,472 246,036 1,957,508
------------- ------------ --- -------------
Total Expenses 5,827,128 733,669 -- 6,560,797
------------- ------------ --- -------------
Net Investment Income (Loss) 2,919,724 426,893 -- 3,346,617
============= ============ === =============
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net Realized Gain (Loss) on:
Investment Securities (11,502,665) (353,279) (11,855,944)
Swaps (3,705,314) -- (3,705,314)
Futures Contracts (14,094,445) (3,757,556) (17,852,001)
Securities Sold Short 10,701,978 228,147 10,930,125
------------- ------------ --- -------------
Total Net Realized Gain (Loss) (18,600,446) (3,882,688) -- (22,483,134)
------------- ------------ --- -------------
Net Change in Unrealized Appreciation (Depreciation) on:
Investment Securities (23,667,961) (3,219,226) (26,887,187)
Swaps 363,434 -- 363,434
Futures Contracts (6,611,565) (1,150,507) (7,762,072)
Securities Sold Short 19,174,861 2,761,202 21,936,063
------------- ------------ -------------
Net Change in Unrealized Appreciation (Depreciation) (10,741,231) (1,608,531) (12,349,762)
------------- ------------ --- -------------
Net Gain (Loss) on Investments (29,341,677) (5,491,219) -- (34,832,896)
------------- ------------ --- -------------
NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS ($26,421,953) ($5,064,326) -- ($31,486,279)
============= ============ === =============
Rebate Income on Proceeds for Securities Sold Short,
included in Interest $ 2,200,969 $ 356,374 $ 2,557,343
Foreign Tax Withheld 21,111 4,405 25,516
Notes to the Unaudited Pro Forma Combined Financial Statements September 30,
2008
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION
The Rydex Series Funds (the "Trust") is registered with the SEC under the
Investment Company Act of 1940 (the "1940 Act") as a non-diversified, open-ended
investment company. The Trust offers five separate classes of shares, Investor
Class Shares, Advisor Class Shares, A-Class Shares, C-Class Shares, and H-Class
Shares. C-Class Shares have a 1% CDSC if shares are
redeemed within 12 months of purchase. Sales of shares of each Class are made
without a sales charge at the NAV, with the exception of A-Class Shares. A-Class
Shares are sold at the NAV, plus the applicable front-end sales charge, except
for the U.S. Government Money Market Fund. The sales charge varies depending on
the amount purchased, but will not exceed 4.75%. A-Class Share purchases of $1
million or more are exempt from the front-end sales charge but have a 1% CDSC if
shares are redeemed within 18 months of purchase.
At September 30, 2008, the Trust consisted of fifty-four separate series and
only A-Class, C-Class and H-Class Shares had been issued in the Multi-Hedge
Strategies Fund (the "Fund"), which are subject to a 1% redemption fee when
shares are redeemed within 30 days of purchase.
Rydex Investments provides advisory, transfer agent and administrative services,
and accounting services to the Trust. Rydex Distributors, Inc. (the
"Distributor") acts as principal underwriter for the Trust. Both Rydex
Investments and the Distributor are affiliated entities.
BASIS OF COMBINATION
The accompanying pro forma financial statements are presented to the show the
effect of the proposed acquisition of the Hedged Equity Fund ("Target Fund"), a
series of the Trust, by the Multi-Hedge Strategies Fund as if such acquisition
had taken place as of October 1, 2007.
Under the terms of the Plan of Reorganization, the combination of the Hedged
Equity Fund and the Multi-Hedge Strategies Fund will be accounted for by the
method of accounting for tax-free mergers of investment companies. The
acquisition would be accomplished by an acquisition of the net assets of Hedged
Equity Fund in exchange for shares of the Multi-Hedge Strategies Fund at net
asset value. The statement of assets and liabilities and the related statement
of operations of the Hedged Equity Fund and the Multi-Hedge Strategies Fund have
been combined as of and for the period ended September 30, 2008. Following the
acquisition, the Multi-Hedge Strategies Fund will be the accounting survivor. In
accordance with U.S. generally accepted accounting principles, the historical
cost of investment securities will be carried forward to the surviving Fund and
the results of operations for the pre-combination periods of the surviving Fund
will not be restated.
The accompanying pro forma financial statements should be read in conjunction
with the financial statements of the Multi-Hedge Strategies Fund and the Hedged
Equity Fund included in their respective semi-annual reports dated September 30,
2008.
The following notes refer to the accompanying pro forma financial statements as
if the above-mentioned acquisition of the Hedged Equity Fund by the Multi-Hedge
Strategies Fund had taken place as of October 1, 2007.
SIGNIFICANT ACCOUNTING POLICIES
The following significant accounting policies and the preparation of financial
statements are in conformity with U.S. generally accepted accounting principles
and are consistently followed by the Trust. This requires management to make
estimates and assumptions that affect the reported amount of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from these estimates.
The information contained in these notes may not apply to every fund in the
Trust.
A. Equity securities listed on an exchange (NYSE or American Stock Exchange) are
valued at the last quoted sales price as of the close of business on the NYSE,
usually 4:00 p.m. (Eastern Time) on the valuation date. Equity securities listed
on the NASDAQ market system are valued at the NASDAQ Official Closing Price on
the valuation date. Short-term debt securities, if any, are valued at amortized
cost, which approximates market value.
Listed options held by the Fund are valued at the Official Settlement Price
listed by the exchange. In the event that a settlement price is not available,
fair valuation is enacted. Over-the-counter options held by the Fund are valued
using the average bid price obtained from one or more security dealers.
The value of futures contracts purchased and sold by the Fund is accounted for
using the unrealized gain or loss on the contracts that is determined by marking
the contracts to their current realized settlement prices. Financial futures
contracts are valued at the last quoted sales price on the valuation date. In
the event that the exchange for a specific futures contract closes earlier than
4:00 p.m., the futures contract is valued at the Official Settlement Price of
the exchange. However, the underlying securities from which the futures contract
value is derived are monitored until 4:00 p.m. to determine if fair valuation
would provide a more accurate valuation. Short-term securities, if any, are
valued at amortized cost, which approximates market value.
Open-ended investment companies ("Mutual Funds") are valued at their NAV as of
the close of business, on the valuation date. Exchange Traded Funds ("ETFs") and
closed-end investment companies are valued at the last quoted sales price.
Investments for which market quotations are not readily available are fair
valued as determined in good faith by Rydex Investments under the direction of
the Board of Trustees using methods established or ratified by the Board of
Trustees. These methods include, but are not limited to: (i) general information
as to how these securities and assets trade; (ii) in connection with futures
contracts and options thereupon, and other derivative investments, information
as to how (a) these contracts and other derivative investments trade in the
futures or other derivative markets, respectively, and (b) the securities
underlying these contracts and other derivative investments trade in the cash
market; and (iii) other information and considerations, including current values
in related-markets.
B. Securities transactions are recorded on the trade date for financial
reporting purposes. Realized gains and losses from securities transactions are
recorded using the identified cost basis. Proceeds from lawsuits related to
investment holdings are recorded as realized gains in the respective Fund.
Dividend income is recorded on the ex-dividend date, net of applicable taxes
withheld by foreign countries. Interest income, including amortization of
premiums and accretion of discount, is accrued on a daily basis. Distributions
received from investments in REITs are recorded as dividend income on the
ex-dividend date, subject to reclassification upon notice of the character of
such distribution by the issuer.
C. Distributions of net investment income and net realized capital gains, if
any, are declared and paid at least annually. Distributions are recorded on the
ex-dividend date and are determined in accordance with income tax regulations
which may differ from U.S. generally accepted accounting principles.
D. When a Fund engages in a short sale of an equity or fixed income security, an
amount equal to the proceeds is reflected as an asset and an equivalent
liability. The amount of the liability is subsequently marked-to-market to
reflect the market value of the short sale. The Fund maintains a segregated
account of cash and/or securities as collateral for short sales. The Fund is
exposed to market risk based on the amount, if any, that the market value of the
security exceeds the market value of the securities in the segregated account.
Fees, if any, paid to brokers to borrow securities in connection with short
sales are considered part of the cost of short sale transactions. In addition,
the Fund must pay out the dividend rate of the equity or coupon rate of the
treasury obligation to the lender and records this as an expense. Short
dividends or interest expense is a cost associated with the investment objective
of short sales transactions, rather than an operational cost associated with the
day-to-day management of any mutual fund. The Fund may also receive rebate
income from the broker resulting from the investment of the proceeds from
securities sold short.
E. Upon the purchase of an option by a Fund, the premium paid is recorded as an
investment, the value of which is marked-to-market daily. When a purchased
option expires, that Fund will realize a loss in the amount of the cost of the
option. When a Fund enters into a closing sale transaction, that Fund will
realize a gain or loss depending on whether the proceeds from the closing sale
transaction are greater or less than the cost of the option. When a Fund
exercises a put option, that Fund will realize a gain or loss from the sale of
the underlying security and the proceeds from such sale will be decreased by the
premium originally paid. When a Fund exercises a call option, the cost of the
security purchased by that Fund upon exercise will be increased by the premium
originally paid. When a Fund writes (sells) an option, an amount equal to the
premium received is entered in that Fund's accounting records as an asset and
equivalent liability. The amount of the liability is subsequently
marked-to-market to reflect the current value of the option written. When a
written option expires, or if a Fund enters into a closing purchase transaction,
that Fund realizes a gain (or loss if the cost of a closing purchase transaction
exceeds the premium received when the option was sold).
F. The Fund may enter into stock and bond index futures contracts and options on
such futures contracts. Futures contracts are contracts for delayed delivery of
securities at a specified future delivery date and at a specific price. Upon
entering into a contract, a Fund deposits and maintains as collateral such
initial margin as required by the exchange on which the transaction is effected.
Pursuant to the contract, the Fund agrees to receive from or pay to the broker
an amount of cash equal to the daily fluctuation in value of the contract. Such
receipts or payments are known as variation margin and are recorded by the Fund
as unrealized gains or losses. When the contract is closed, the Fund records a
realized gain or loss equal to the difference between the value of the contract
at the time it was opened and the value at the time it was closed.
G. The Fund may leave cash overnight in their cash account with the custodian,
U.S. Bank. Periodically, a Fund may have cash due to the custodian bank as an
overdraft balance. A fee is
incurred on this overdraft, calculated by multiplying the overdraft by a rate
based on the federal funds rate. Segregated cash with the broker is held as
collateral for investments in derivative instruments such as futures contracts
and index swap agreements.
H. Throughout the normal course of business, the Fund enters into contracts that
contain a variety of representations and warranties which provide general
indemnifications. The Fund's maximum exposure under these arrangements is
unknown, as this would involve future claims that may be made against the Fund
and/or its affiliates that have not yet occurred. However, based on experience,
the Fund expects the risk of loss to be remote.
2. FINANCIAL INSTRUMENTS
As part of its investment strategy, the Fund may utilize short sales and a
variety of derivative instruments, including options, futures and options on
futures. These investments involve, to varying degrees, elements of market risk
and risks in excess of the amounts recognized in the Statements of Assets and
Liabilities.
Short sales are transactions in which a Fund sells an equity or fixed income
security it does not own. If the security sold short decreases in price between
the time the Fund sells the security and closes its short position, that Fund
will realize a gain on the transaction. Conversely, if the security increases in
price during the period, that Fund will realize a loss on the transaction. The
risk of such price increases is the principal risk of engaging in short sales.
The risk associated with purchasing options is limited to the premium originally
paid. The risk in writing a covered call option is that a Fund may forego the
opportunity for profit if the market price of the underlying security increases
and the option is exercised. The risk in writing a covered put option is that a
Fund may incur a loss if the market price of the underlying security decreases
and the option is exercised. In addition, there is the risk that a Fund may not
be able to enter into a closing transaction because of an illiquid secondary
market or, for over-the-counter options, because of the counterparty's inability
to perform.
There are several risks in connection with the use of futures contracts. Risks
may be caused by an imperfect correlation between movements in the price of the
instruments and the price of the underlying securities. In addition, there is
the risk that a Fund may not be able to enter into a closing transaction because
of an illiquid secondary market.
In conjunction with the use of short sales, options, futures and options on
futures, the Fund is required to maintain collateral in various forms. The Fund
uses, where appropriate, depending on the financial instrument utilized and the
broker involved, margin deposits at the broker, cash and/or securities
segregated at the custodian bank, discount notes, or the repurchase agreements
allocated to each Fund.
The risks inherent in the use of short sales, options, futures contracts, and
options on futures contracts, include i) adverse changes in the value of such
instruments; ii) imperfect correlation between the price of the instruments and
movements in the price of the underlying securities, indices, or futures
contracts; iii) the possible absence of a liquid secondary market for any
particular instrument at any time; and iv) the potential of counterparty
default. The Trust has
established strict counterparty credit guidelines and enters into transactions
only with financial institutions of investment grade or better.
3. CALL OPTIONS WRITTEN
Transactions in options written during the year ended September 30, 2008, were
as follows:
MULTI-HEDGE
STRATEGIES FUND
(FORMERLY, ABSOLUTE RETURN
STRATEGIES FUND) HEDGED EQUITY FUND PRO FORMA COMBINED
------------------------ ----------------------- ------------------------
NUMBER OF PREMIUMS NUMBER OF PREMIUMS NUMBER OF PREMIUMS
CONTRACTS RECEIVED CONTRACTS RECEIVED CONTRACTS RECEIVED
--------- ------------ --------- ----------- --------- ------------
Options outstanding at September 30, 2007 -- $ -- -- $ -- -- $ --
Options written 5,870 21,332,680 513 3,717,125 6,383 25,049,805
Options terminated in closing purchase transactions (2,779) (14,166,676) (275) (2,430,094) (3,054) (16,596,770)
Options expired (1,307) (4,476,949) (78) (790,895) (1,385) (5,267,844)
Options exercised (95) (10,355) -- -- (95) (10,355)
------ ------------ ---- ----------- ------ ------------
Options outstanding at September 30, 2008 1,689 $ 2,678,700 160 $ 496,136 1,849 $ 3,174,836
4. CAPITAL SHARES
The pro forma net asset value per share assumes the issuance of shares of the
Fund that would have been issued at September 30, 2008, in connection with the
proposed reorganization. The number of shares assumed to be issued is equal to
the net asset value of shares of Hedged Equity Fund, as of September 30, 2008,
divided by the net asset value per share of the shares of Multi-Hedge Strategies
Fund as of September 30, 2008. The pro forma number of shares outstanding, for
the combined fund consists of the following at September 30, 2008:
ADDITIONAL
HEDGED EQUITY
SHARES OF MULTI-HEDGE SHARES ASSUMED TOTAL OUTSTANDING
STRATEGIES FUND ISSUED IN SHARE POST-
PRE-COMBINATION REORGANIZATION COMBINATION
------------------ -------------- -----------------
SHARES OUTSTANDING
A-Class 2,737,924 232,977 2,970,901
C-Class 1,939,613 133,513 2,073,126
H-Class 4,443,476 487,230 4,930,706
5. FEES AND OTHER TRANSACTIONS WITH AFFILIATES
Under the terms of an investment advisory contract, the Funds pay Rydex
Investments investment advisory fees calculated at an annualized rate of 1.15%
of the average daily net assets of the Fund.
As part of its agreement with the Trust, Rydex Investments will pay all expenses
of the Funds, including the cost of transfer agency, custody, fund
administration, legal, audit and other services, except interest expense, taxes
(expected to be de minimis), brokerage commissions and other expenses connected
with execution of portfolio transactions, short dividend expenses, and
extraordinary expenses.
Rydex Investments engages external service providers to perform other necessary
services for the Trust, such as audit and accounting related services, legal
services, custody, printing and mailing, etc., on a pass-through basis. Such
expenses vary from Fund to Fund and are allocated to the Funds based on relative
net assets. Any of these expenses allocated to the Multi-Hedge Strategies and
Hedged Equity Funds are paid by Rydex Investments, as previously noted.
Certain officers and trustees of the Trust are also officers of Rydex
Investments.
6. FEDERAL INCOME TAX INFORMATION
Each fund has elected to be taxed as a "regulated investment company" under the
Internal Revenue Code. After the acquisition, the Acquiring Fund intends to
continue to qualify as a regulated investment company, if such qualification is
in the best interests of its shareholders, by complying with the provisions
available to certain investment companies, as defined in applicable sections of
the Internal Revenue Code, and to make distributions of taxable income
sufficient to relieve it from all, or substantially all, Federal income taxes.
At September 30, 2008, the cost of securities for Federal income tax purposes,
the aggregate gross unrealized gain for all securities for which there was an
excess of value over tax cost and the aggregate gross unrealized loss for all
securities for which there was an excess of tax cost over value were as follows:
TAX UNREALIZED TAX UNREALIZED NET UNREALIZED
FUND TAX COST GAIN LOSS GAIN (LOSS)
---- ------------ -------------- -------------- --------------
Multi-Hedge Strategies Fund $170,786,235 $17,208,134 $(19,350,443) $(2,142,309)
Hedged Equity Fund 19,051,587 2,227,762 (2,007,470) 220,292
Pro Forma Combined 189,837,822 19,435,896 (21,357,913) (1,922,017)
7. REPURCHASE AGREEMENTS
The Fund transfers uninvested cash balances into a single joint account, the
daily aggregate balance of which is invested in one or more repurchase
agreements collateralized by obligations of the U.S. Treasury and U.S.
Government Agencies. The collateral is in the possession of the Fund's custodian
and is evaluated to ensure that its market value exceeds by, at a minimum, 102%
of the original face amount of the repurchase agreements. The Fund holds a pro
rata share of the collateral based on the dollar amount of the repurchase
agreement entered into by each Fund.
The repurchase agreements executed by the joint account and outstanding at
September 30, 2008, were as follows:
COUNTERPARTY TERMS OF AGREEMENT FACE VALUE MARKET VALUE REPURCHASE PRICE
------------ ------------------ ------------ -------------- ----------------
Morgan Stanley 0.15% due 10/01/08 $682,099,856 $ 682,099,856 $ 682,102,698
Mizuho Financial Group, Inc. 0.26% due 10/01/08 565,000,000 565,000,000 565,004,081
Morgan Stanley 0.10% due 10/01/08 400,000,000 400,000,000 400,001,111
Credit Suisse Group 0.25% due 10/01/08 139,360,464 139,360,464 139,361,432
-------------- --------------
$1,786,460,320 $1,786,469,322
============== ==============
At September 30, 2008, the collateral for the repurchase agreements in the joint
account was as follows:
SECURITY TYPE MATURITY DATES RANGE OF RATES PAR VALUE MARKET VALUE
------------- ------------------- --------------- ------------ --------------
U.S. Treasury Note 12/31/08 - 8/15/17 3.375% - 4.750% $793,096,500 $ 816,275,910
U.S. TIP Bond 04/15/28 3.625% 289,705,400 474,835,309
U.S. Treasury Bond 05/15/16 - 04/15/28 3.625% - 7.250% 216,596,900 279,371,569
U.S. Treasury Bill 10/02/08 - 09/24/09 -- 252,540,300 251,799,789
--------------
$1,822,282,577
==============
In the event of counterparty default, the Fund has the right to collect the
collateral to offset losses incurred. There is potential loss to the Fund in the
event the Fund is delayed or prevented from exercising its rights to dispose of
the collateral securities, including the risk of a possible decline in the value
of the underlying securities during the period while the Fund seeks to assert
its rights. The Fund's investment advisor, acting under the supervision of the
Board of Trustees, reviews the value of the collateral and the creditworthiness
of those banks and dealers with which the Fund enters into repurchase agreements
to evaluate potential risks.
8. PORTFOLIO SECURITIES LOANED
The Funds may lend their securities to approved brokers to earn additional
income. Security lending income shown on the statement of operations is shown
net of rebates paid to borrowers and earnings on cash collateral investments
shared with the lending agent. Within this arrangement, the Fund acts as the
lender, U.S. Bank acts as the agent, and other approved registered broker
dealers act as the borrowers. The Funds receive cash collateral, valued at a
minimum of 100% of the value of the securities on loan, which is initially held
in a segregated account at U.S. Bank. Under the terms of the Funds' securities
lending agreement with U.S Bank, cash collateral may be invested by U.S. Bank in
certain high quality, liquid investments. At September 30, 2008, the cash
collateral investments consisted of a money market mutual fund. The Funds bear
the risk of loss on cash collateral investments. Collateral is maintained over
the life of the loan in an amount not less than the value of loaned securities,
as determined at the close of fund business each day; any additional collateral
required due to changes in security values is delivered to the Fund the next
business day. Although the collateral mitigates risk, the Funds could experience
a delay in recovering its securities and a possible loss of income or value if
the borrower fails to return the securities. The Funds have the right under the
securities lending agreement to recover the securities from the borrower on
demand.
Subsequent to September 30, 2008, the Funds ceased participation in securities
lending.
The following represents a breakdown of the collateral:
MUTUAL FUND
------------------------------------------- ---------- ------------
Issuer Shares Market Value
----- ------------------------------------- ---------- ------------
Mount Vernon Securities Lending Trust 11,532,939 $11,532,939
-----------
Total Mutual Fund $11,532,939
===========
------------
At September 30, 2008 the following Funds participated in securities lending and
received cash collateral:
Value of
Fund Cash Collateral Securities Loaned
---------------------------- --------------- -----------------
Multi-Hedge Strategies $1,786,618.00 $1,792,921.00
Fund
Hedged Equity Fund 49,306.00 49,024.00
Pro Forma Combined 1,835,924.00 1,841,945.00
E. MISCELLANEOUS
Independent Registered Public Accounting Firm
The audited financial statements and financial highlights of the Funds for
the years ended March 21, 2008 and 2007, incorporated into this SAI, have been
audited by Ernst & Young, the Funds' independent registered public accounting
firm, to the extent indicated in their report thereon which is included in the
Annual Reports. The audited financial statements and financial highlights for
prior years were audited by a predecessor independent registered public
accounting firm.
PART C
OTHER INFORMATION
ITEM 15. INDEMNIFICATION:
Rydex Series Funds (the "Registrant") is organized as a Delaware statutory trust
and is operated pursuant to a Declaration of Trust, dated as of March 13, 1993,
as amended (the "Declaration of Trust"), that permits the Registrant to
indemnify its trustees and officers under certain circumstances. Such
indemnification, however, is subject to the limitations imposed by the
Securities Act of 1933, as amended, and the Investment Company Act of 1940, as
amended. The Registrant's Declaration of Trust provides that officers and
trustees of the Trust shall be indemnified by the Trust against liabilities and
expenses of defense in proceedings against them by reason of the fact that they
each serve as an officer or trustee of the Trust or as an officer or trustee of
another entity at the request of the entity. This indemnification is subject to
the following conditions:
(a) no trustee or officer of the Trust is indemnified against any liability
to the Trust or its security holders which was the result of any
willful misfeasance, bad faith, gross negligence, or reckless disregard
of his duties;
(b) officers and trustees of the Trust are indemnified only for actions
taken in good faith which the officers and trustees believed were in or
not opposed to the best interests of the Trust; and
(c) expenses of any suit or proceeding will be paid in advance only if the
persons who will benefit by such advance undertake to repay the
expenses unless it subsequently is determined that such persons are
entitled to indemnification.
The Registrant's Declaration of Trust provides that if indemnification is not
ordered by a court, indemnification may be authorized upon determination by
shareholders, or by a majority vote of a quorum of the trustees who were not
parties to the proceedings or, if this quorum is not obtainable, if directed by
a quorum of disinterested trustees, or by independent legal counsel in a written
opinion, that the persons to be indemnified have met the applicable standard.
ITEM 16. EXHIBITS:
(1)(a) Registrant's Certificate of Trust dated February 10, 1993 is
incorporated herein by reference to Exhibit (1)(a) of Post-Effective
Amendment No. 27 to the Registrant's Registration Statement on Form
N-1A (File No. 033-59692), as filed with the U.S. Securities and
Exchange Commission (the "SEC") on October 30, 1996.
(1)(b) Registrant's Declaration of Trust dated March 13, 1993 is incorporated
herein by reference to Exhibit (1)(b) of Post-Effective Amendment No.
27 to the Registrant's Registration Statement on Form N-1A (File No.
033-59692), as filed with the U.S. Securities and Exchange Commission
(the "SEC") on October 30, 1996.
(1)(c) Amendment dated November 2, 1993 to the Declaration of Trust dated
March 13, 1993 of the Registrant is incorporated herein by reference to
Exhibit (a)(3) of Post-Effective Amendment No. 40 to the Registrant's
Registration Statement on Form N-1A (File No. 033-59692), as filed with
the SEC on August 1, 2000.
(1)(d) Amendment dated February 25, 2000 to the Declaration of Trust dated
March 13, 1993 of the Registrant is incorporated herein by reference to
Exhibit (a)(4) of Post-Effective Amendment No. 40 to the Registrant's
Registration Statement on Form N-1A (File No. 033-59692), as filed with
the SEC on August 1, 2000.
(1)(e) Amendment dated November 21, 2005 to the Declaration of Trust dated
March 13, 1993 of the Registrant is incorporated herein by reference to
Exhibit (a)(5) of Post-Effective Amendment No. 61 to the Registrant's
Registration Statement on Form N-1A (File No. 033-59692), as filed with
the SEC via EDGAR Accession No. 0001169232-06-001381 on March 3, 2006.
(2) Registrant's Amended and Restated Bylaws are incorporated herein by
reference to Exhibit (b) of Post-Effective Amendment No. 61 to the
Registrant's Registration Statement on Form N-1A (File No 033-59692),
as filed with the SEC via EDGAR Accession No. 0001169232-06-001381 on
March 3, 2006.
(3) Not applicable.
(4) Form of Agreement and Plan of Reorganization is filed herewith as
Appendix A to Part A of this Registration Statement on Form N-14.
(5) Reference is made to Article VII of the Registrant's Declaration of
Trust dated March 13, 1993, which has been incorporated herein by
reference in Exhibit (1)(b) of this Registration Statement.
(6)(a) Advisory Agreement dated January 18, 2008 between the Registrant and
PADCO Advisors, Inc. with respect to the Absolute Return Strategies and
Hedged Equity Funds, is incorporated herein by reference to Exhibit
(d)(3) of Post-Effective Amendment No. 75 to the Registrant's
Registration Statement on Form N-1A (File No. 033-59692), as filed with
the SEC via EDGAR Accession No. 0000935069-08-000948 on April 21, 2008.
(6)(b) Schedule A as last amended August 27, 2008 to the Advisory Agreement
dated January 18, 2008 between the Registrant and PADCO Advisor Inc.,
with respect to the Absolute Return Strategies and Hedged Equity Funds,
is incorporated herein by reference to Exhibit (d)(2) of Post-Effective
Amendment No. 82 to the Registrant's Registration Statement on Form
N-1A (File No. 033-59692), as filed with the SEC via EDGAR Accession
No. 0000935069-08-003028 on December 17, 2008.
(7) Distribution Agreement dated January 18, 2008 between the Registrant
and Rydex Distributors, Inc. is incorporated herein by reference to
Exhibit (e)(1) of Post-Effective Amendment No. 75 to the Registrant's
Registration Statement on Form N-1A (File No. 033-59692), as filed with
the SEC via EDGAR Accession No. 0000935069-08-000948 on April 21, 2008.
(8) Not applicable.
(9)(a) Custody Agreement dated November 30, 1993 between the Registrant and
Star Bank, N.A. (now, U.S. Bank, N.A.) is incorporated herein by
reference to Exhibit 8 of Post-Effective Amendment No. 27 to the
Registrant's Registration Statement on Form N-1A (File No. 033-59692),
as filed with the SEC on October 30, 1996.
(9)(b) Amendment dated April 24, 2008 between the Registrant and U.S. Bank,
N.A. (formerly, Star Bank, N.A.) to the Custody Agreement dated
November 30, 1993 between the Registrant and Star Bank, N.A. (now, U.S.
Bank, N.A.) is incorporated herein by reference to Exhibit (g)(2) of
Post-Effective amendment No. 76 to the Registrant's Registration
Statement on Form N-1A (File No. 033-59692), as filed with the SEC via
EDGAR Accession No. 0000935069-08-001345 on May 30, 2008.
(9)(c) Amended and Restated Foreign Custody Manager Agreement dated April 24,
2008 between the Registrant and U.S. Bank, N.A. (formerly, Star Bank,
N.A.) is incorporated herein by
reference to Exhibit (g)(3) of Post-Effective Amendment No. 76 to the
Registrant's Registration Statement on Form N-1A (File No. 033-59692),
as filed with the SEC via EDGAR Accession No. 0000935069-08-001345 on
May 30, 2008.
(9)(d) Revised Schedule II to the Amended and Restated Foreign Custody Manager
Agreement dated April 24, 2008 between the Registrant and U.S. Bank,
N.A. (formerly, Star Bank, N.A.) is incorporated herein by reference to
Exhibit (g)(4) of Post-Effective Amendment No. 82 to the Registrant's
Registration Statement on Form N-1A (File No. 033-59692), as filed with
the SEC via EDGAR Accession No. 0000935069-08-003028 on December 17,
2008.
(10)(a) Amended and Restated Distribution and Shareholder Services Plan for
Advisor Class Shares and C-Class Shares dated August 28, 2000 is
incorporated herein by reference to Exhibit (m)(11) of Post-Effective
Amendment No. 43 to the Registrant's Registration Statement on Form
N-1A (File No. 033-59692), as filed with the SEC via EDGAR Accession
No. 0000912057-01-525748 on July 30, 2001.
(10)(b) Amendment dated November 5, 2001 to the Amended and Restated
Distribution and Shareholder Services Plan for Advisor Class Shares and
C-Class Shares dated August 28, 2000 is incorporated herein by
reference to Exhibit (m)(4) of Post-Effective Amendment No. 57 to the
Registrant's Registration Statement on Form N-1A (File No. 033-59692),
as filed with the SEC on May 24, 2005.
(10)(c) Amendment dated August 27, 2008 to the Amended and Restated
Distribution and Shareholder Services Plan for Advisor Class Shares and
C-Class Shares dated August 28, 2000 is incorporated herein by
reference to Exhibit (m)(3) of Post-Effective Amendment No. 82 to the
Registrant's Registration Statement on Form N-1A (File No. 033-59692),
as filed with the SEC via EDGAR Accession No. 0000935069-08-003028 on
December 17, 2008.
(10)(d) Distribution Plan for H-Class Shares dated February 25, 2000 is
incorporated herein by reference to Exhibit (m)(11) of Post-Effective
Amendment No. 40 to the Registrant's Registration Statement on Form
N-1A (File No. 033-59692), as filed with the SEC on August 2, 2000.
(10)(e) Amendment dated August 27, 2008 to the Distribution Plan for H-Class
Shares dated February 25, 2000 is incorporated herein by reference to
Exhibit (m)(5) of Post-Effective Amendment No. 82 to the Registrant's
Registration Statement on Form N-1A (File No. 033-59692), as filed with
the SEC via EDGAR Accession No. 0000935069-08-003028 on December 17,
2008.
(10)(f) Distribution Plan for A-Class Shares dated November 5, 2001 is
incorporated herein by reference to Exhibit (m)(8) of Post-Effective
Amendment No. 57 to the Registrant's Registration Statement on Form
N-1A (File No. 033-59692), as filed with the SEC on May 24, 2005.
(10)(g) Amendment dated August 27, 2008 to the Distribution Plan for A-Class
Shares dated November 5, 2001 is incorporated herein by reference to
Exhibit (m)(7) of Post-Effective Amendment No. 82 to the Registrant's
Registration Statement on Form N-1A (File No. 033-59692), as filed with
the SEC via EDGAR Accession No. 0000935069-08-003028 on December 17,
2008.
(10)(h) Amended and Restated Rule 18f-3 Plan dated August 30, 2004 is
incorporated herein by reference to Exhibit (n)(1) of Post-Effective
Amendment No. 57 to the Registrant's Registration Statement on Form
N-1A (File No. 033-59692), as filed with the SEC on May 24, 2005.
(10)(i) Amendment dated August 27, 2008 to the Amended and Restated Rule 18f-3
Plan dated August 30, 2004 is incorporated herein by reference to
Exhibit (n)(2) of Post-Effective Amendment No. 82 to the Registrant's
Registration Statement on Form N-1A (File No. 033-59692), as filed with
the SEC via EDGAR Accession No. 0000935069-08-003028 on December 17,
2008.
(11) Opinion and Consent of Morgan, Lewis & Bockius LLP, regarding the
legality of securities being issued, is filed herewith.
(12) Form of Opinion and Consent of Morgan, Lewis & Bockius LLP, regarding
certain tax matters, is filed herewith.
(13)(a) Amended and Restated Service Agreement dated November 15, 2004 between
the Registrant and Rydex Fund Services, Inc. is incorporated herein by
reference to Exhibit (h)(1) of Post-Effective Amendment No. 57 to the
Registrant's Registration Statement on Form N-1A (File No. 033-59692),
as filed with the SEC via EDGAR Accession No. 0000935069-05-001236 on
May 24, 2005.
(13)(b) Amendment dated August 27, 2008 to the Amended and Restated Service
Agreement dated November 15, 2004 between the Registrant and Rydex Fund
Services, Inc. is incorporated herein by reference to Exhibit (h)(2) of
Post-Effective Amendment No. 82 to the Registrant's Registration
Statement on Form N-1A (File No. 033-59692), as filed with the SEC via
EDGAR Accession No. 0000935069-08-003028 on December 17, 2008.
(13)(c) Accounting Services Agreement dated September 25, 1996 between the
Registrant and PADCO Service Company, Inc. d/b/a Rydex Fund Services,
Inc. is incorporated herein by reference to Exhibit (9)(d) of
Post-Effective Amendment No. 27 to the Registrant's Registration
Statement on Form N-1A (File No. 033-59692), as filed with the SEC on
October 30, 1996.
(13)(d) Amendment dated August 27, 2008 to the Accounting Services Agreement
dated September 25, 1996 between the Registrant and Rydex Fund
Services, Inc. is incorporated herein by reference to Exhibit (h)(4) of
Post-Effective Amendment No. 82 to the Registrant's Registration
Statement on Form N-1A (File No. 033-59692), as filed with the SEC via
EDGAR Accession No. 0000935069-08-003028 on December 17, 2008.
(14)(a) Consent of Ernst & Young LLP is filed herewith.
(14)(b) Consent of Morgan, Lewis & Bockius LLP is filed herewith.
(15) Not applicable.
(16) Powers of attorney for Werner E. Keller, Thomas F. Lydon, Corey A.
Colehour, J. Kenneth Dalton, John O. Demaret, Patrick T. McCarville,
and Roger Somers are incorporated herein by reference to Exhibit (q) of
Post-Effective Amendment No. 76 to the Registrant's Registration
Statement on Form N-1A (File No. 033-59692), as filed with the SEC via
EDGAR Accession No. 0000935069-08-001345 on May 30, 2008.
(17)(a) Combined Code of Ethics for the Registrant, Rydex Dynamic Funds, Rydex
Variable Trust, Rydex ETF Trust, PADCO Advisors, Inc. d/b/a Rydex
Investments, PADCO Advisors II, Inc. d/b/a Rydex Investments, Rydex
Capital Partners I, LLC, Rydex Capital Partners II, LLC, and Rydex
Distributors, Inc. is incorporated herein by reference to Exhibit
(p)(1) of Post-Effective Amendment No. 30 to Rydex Variable Trust's
Registration Statement on Form N-1A (File No. 333-57017), as filed with
the SEC via EDGAR Accession No. 0001104659-08-009438 on February 12,
2008.
(17)(b) Prospectus and Statement of Additional Information dated August 1,
2008, with respect to the Absolute Return Strategies Fund and Hedged
Equity Fund, is incorporated herein by reference to Post-Effective
Amendment No. 77 to the Registrant's Registration Statement on Form
N-1A (File No. 333-57017), as filed with the SEC via EDGAR Accession
No. 0000935069-08-001690 on July 29, 2008.
(17)(c) Supplement dated August 25, 2008 to the Registrant's A-Class and
C-Class Shares Prospectuses dated August 1, 2008 is incorporated herein
by reference to definitive materials filed with the SEC via EDGAR
Accession No. 0000935069-08-001864 on August 25, 2008 pursuant to Rule
497 under the Securities Act of 1933, as amended.
(17)(d) The Report of the Independent Registered Public Accounting Firm and
audited financial statements for the Absolute Return Strategies Fund
and Hedged Equity Fund are incorporated herein by reference to the
Registrant's Annual Report to Shareholders on Form N-CSR, as filed with
the SEC via EDGAR Accession No. 0000935069-08-001457 on June 12, 2008.
(17)(e) The unaudited financial statements of the Absolute Return Strategies
Fund and Hedged Equity Fund are incorporated herein by reference to the
Registrant's Semi-Annual Report on Form N-CSR, as filed with the SEC
via EDGAR Accession No. 0000935069-08-002913 on December 5, 2008.
ITEM 17. UNDERTAKINGS:
(1) The Registrant agrees that prior to any public reoffering of the
securities registered through the use of a prospectus which is a part
of this Registration Statement by any person or party who is deemed to
be an underwriter within the meaning of Rule 145(c) of the Securities
Act of 1933, as amended, the reoffering prospectus will contain the
information called for by the applicable registration form for the
reofferings by persons who may be deemed underwriters, in addition to
the information called for by the other items of the applicable form.
(2) The Registrant agrees that every prospectus that is filed under
paragraph (1) above will be filed as a part of an amendment to the
Registration Statement and will not be used until the amendment is
effective, and that, in determining any liability under the Securities
Act of 1933, as amended, each post-effective amendment shall be deemed
to be a new registration statement for the securities offered therein,
and the offering of the securities at that time shall be deemed to be
the initial bona fide offering of them.
(3) The Registrant agrees to file, by post-effective amendment, an opinion
of counsel supporting the tax consequences of the Reorganization within
a reasonably prompt time after receipt of such opinion.
SIGNATURES
As required by the Securities Act of 1933, this Registration Statement has been
signed on behalf of the Registrant, in the City of Rockville, and State of
Maryland on this 26th day of February, 2009.
RYDEX SERIES FUNDS
/S/ CARL G. VERBONCOEUR
-----------------------
Carl G. Verboncoeur
President
As required of the Securities Act of 1933, this Registration Statement has been
signed below by the following persons in the capacities and on the dates
indicated.
SIGNATURES TITLE DATE
---------- ----- ----
/S/ CARL G. VERBONCOEUR President and Chief Executive Officer February 26, 2009
---------------------------
Carl G. Verboncoeur
* Member of the Board of Trustees February 26, 2009
---------------------------
J.Kenneth Dalton
* Member of the Board of Trustees February 26, 2009
---------------------------
John O. Demaret
* Member of the Board of Trustees February 26, 2009
---------------------------
Patrick T. McCarville
* Member of the Board of Trustees February 26, 2009
---------------------------
Roger Somers
* Member of the Board of Trustees February 26, 2009
---------------------------
Corey A. Colehour
/S/ MICHAEL P. BYRUM Member of the Board of Trustees February 26, 2009
---------------------------
Michael P. Byrum
* Member of the Board of Trustees February 26, 2009
---------------------------
Werner E. Keller
* Member of the Board of Trustees February 26, 2009
---------------------------
Thomas F. Lydon
/S/ NICK BONOS Vice President and Treasurer February 26, 2009
---------------------------
Nick Bonos
* /S/ CARL G. VERBONCOEUR
---------------------------
Carl G. Verboncoeur
*Attorney-in-Fact pursuant to powers of attorney for Werner E. Keller, Thomas F.
Lydon, Corey A. Colehour, J. Kenneth Dalton, John O. Demaret, Patrick T.
McCarville, and Roger Somers, which are incorporated herein by reference to
Exhibit (q) of Post-Effective Amendment No. 76 to the Registrant's Registration
Statement on Form N-1A (File No. 033-59692), as filed with the SEC via EDGAR
Accession No. 0000935069-08-001345 on May 30, 2008.
EXHIBIT INDEX
NUMBER EXHIBIT:
------ --------
EX-99.11 Opinion and Consent of Morgan, Lewis & Bockius LLP regarding
the legality of securities being issued
EX-99.12 Form of Opinion and Consent of Morgan, Lewis & Bockius LLP
regarding tax matters
EX-99.14A Consent of Ernst & Young LLP
EX-99.14B Consent of Morgan, Lewis & Bockius LLP