UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number 811-21261
------------------------
Rydex ETF Trust
----------------------------------------------------------
(Exact name of registrant as specified in charter)
9601 Blackwell Road, Suite 500
Rockville, Maryland 20850
----------------------------------------------------------
(Address of principal executive offices) (Zip code)
Carl G. Verboncoeur
Rydex ETF Trust
9601 Blackwell Road, Suite 500
Rockville, Maryland 20850
----------------------------------------------------------
(Name and address of agent for service)
Registrant's telephone number, including area code: 1-301-296-5100
------------------
Date of fiscal year end: October 31, 2005
-----------------
Date of reporting period: October 31, 2005
-----------------
Form N-CSR is to be used by management investment companies to file reports with
the Commission not later than 10 days after the transmission to stockholders of
any report that is required to be transmitted to stockholders under Rule 30e-1
under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may
use the information provided on Form N-CSR in its regulatory, disclosure review,
inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR,
and the Commission will make this information public. A registrant is not
required to respond to the collection of information contained in Form N-CSR
unless the Form displays a currently valid Office of Management and Budget
("OMB") control number. Please direct comments concerning the accuracy of the
information collection burden estimate and any suggestions for reducing the
burden to Secretary, Securities and Exchange Commission, 450 Fifth Street, NW,
Washington, DC 20549-0609. The OMB has reviewed this collection of information
under the clearance requirements of 44 U.S.C. Section 3507.
ITEM 1. REPORTS TO STOCKHOLDERS.
[Insert a copy of the report transmitted to stockholders pursuant to Rule 30e-1
under the Act (17 CFR 270.30e-1).]
[GRAPHIC]
OCTOBER 31, 2005
RYDEX ETF TRUST
ANNUAL REPORT
RYDEX RUSSELL TOP 50 ETF
RYDEX S&P EQUAL WEIGHT ETF
[RYDEXINVESTMENTS LOGO]
ESSENTIAL FOR MODERN MARKETS(TM)
ANNUAL REPORT 1
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<Table>
LETTER FROM THE CEO......................................... 2
MANAGER'S ANALYSIS.......................................... 4
FEES & EXPENSES............................................. 8
PORTFOLIO SUMMARY........................................... 9
SCHEDULE OF INVESTMENTS..................................... 11
STATEMENTS OF ASSETS AND LIABILITIES........................ 29
STATEMENTS OF OPERATIONS.................................... 30
STATEMENTS OF CHANGES IN NET ASSETS......................... 31
FINANCIAL HIGHLIGHTS........................................ 32
NOTES TO FINANCIAL STATEMENTS............................... 34
INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM'S REPORT.................................... 40
SUPPLEMENTAL INFORMATION.................................... 41
</Table>
- --------------------------------------------------------------------------------
2
DEAR SHAREHOLDER,
The year ended October 31, 2005 was a tumultuous one for the economy and the
financial markets. Investors, consumers and businesses alike were rocked by the
twin hurricanes of Katrina and Rita and the unprecedented rise in energy prices.
Energy prices -- particularly for refined products such as gas, diesel, jet fuel
and heating oil -- skyrocketed, causing consumer confidence to plummet and
raising the prospect of a pullback in consumer spending. Typically, developments
like these would have a downward effect on equity prices and interest rates, but
that wasn't the case as stocks rallied and interest rates rose modestly.
Surprisingly, U.S. equity markets navigated the storms remarkably well. The Dow
Jones Industrial Average rose 6.4%, the S&P 500 rose 8.7% and the S&P Equal
Weight Index gained 12.7%.
Two factors drove stock prices higher. The first is that earnings growth
remained strong, increasing at a double-digit pace during the period. Investors
also looked beyond the immediate impact of the hurricanes to the anticipated
kick to economic growth as reconstruction efforts get underway.
As one might expect, energy stocks led the market higher. In fact, the meteoric
rise in energy stocks is responsible for much of the positive performance in the
broader market averages. Energy prices were well on their way up prior to the
arrival of Katrina as the price of a barrel of crude oil rose from $49.69 in
late May to a high of $69.74 by the end of August. While the Gulf storms
exacerbated this rise, the year-long increase in energy prices was attributable
to the rapid growth in the powerhouse economies of China and India. China in
particular continues to import commodities of all kinds at a voracious rate.
Clearly, energy stocks were the big winners as the cap weighted S&P Energy Index
rose nearly 34% and the companion equal weight sector rose 55%. Utility stocks
also fared well as the S&P Utility Index shot up 24% in anticipation of a
substantial rise in home heating costs while the equal weight utility sector
rose 21%. On the flip side, health care stocks, which tend to be perceived as
defensive in nature, fared well as the S&P Health Care Index gained 10% while
its equal weight counterpart climbed 22%. Health care stocks were perceived as a
safe haven should economic growth stall in the wake of the devastation left by
Katrina and Rita.
Despite the uncertainty, the Federal Reserve remained vigilant against any signs
of increasing inflation. The shock to the economy of the storms and the loss of
much of the U.S.'s critical energy infrastructure led many to predict a pause in
the Fed's rate hikes. This was not to be, as the Fed implemented a eight rate
hikes during the year, bringing the Fed Funds target rate to 3.75%. Central bank
policy drove longer rates higher during this 12-month period, with the yield on
the benchmark 10-Year Treasury Note rising half a percent to 4.55%.
- --------------------------------------------------------------------------------
3 ANNUAL REPORT
With all of the crosscurrents in the economy and the financial markets, stock
price behavior is likely to remain choppy and erratic. Investment strategies
that do not depend on highly directional markets will likely fare well as we
move through the remainder of 2005 and into 2006.
We appreciate the trust you have placed in our firm by investing with us.
Sincerely,
/s/ CARL G. VERBONCOEUR
Carl G. Verboncoeur
Chief Executive Officer
Rydex Investments
All sources: Rydex Investments and Bloomberg
4
RYDEX RUSSELL TOP 50 ETF
MANAGER'S ANALYSIS
- --------------------------------------------------------------------------------
Since inception in May, large-cap stocks significantly underperformed small-cap
stocks. During this period, the Russell 2000 Index was up 9.25% versus the
Russell Top 50, which increased only 0.43%.
CUMULATIVE FUND PERFORMANCE: MAY 4, 2005 - OCTOBER 31, 2005
[LINE GRAPH]
<Table>
<Caption>
RUSSELL TOP 50 TOTAL RETURN
DATE RYDEX RUSSELL TOP 50 ETF INDEX S&P 100 TOTAL RETURN INDEX
- ---- ------------------------ --------------------------- --------------------------
5/4/2005 10000.00 10000.00 10000.00
9976.00 9976.00 9972.00
9952.00 9953.00 9958.00
10010.00 10010.00 10014.00
9905.00 9905.00 9905.00
9954.00 9954.00 9941.00
9870.00 9870.00 9853.00
9846.00 9846.00 9824.00
9933.00 9934.00 9911.00
9990.00 9991.00 9968.00
5/18/2005 10078.00 10079.00 10067.00
10132.00 10133.00 10117.00
10115.00 10117.00 10107.00
10151.00 10152.00 10138.00
10163.00 10165.00 10141.00
10145.00 10146.00 10113.00
10200.00 10202.00 10167.00
10204.00 10206.00 10165.00
10117.00 10118.00 10088.00
6/1/2005 10213.00 10215.00 10179.00
10222.00 10224.00 10186.00
10130.00 10132.00 10105.00
10133.00 10135.00 10110.00
10130.00 10132.00 10118.00
10107.00 10109.00 10099.00
10152.00 10155.00 10137.00
10127.00 10129.00 10125.00
10142.00 10144.00 10143.00
10151.00 10153.00 10156.00
6/15/2005 10173.00 10176.00 10180.00
10204.00 10207.00 10202.00
10248.00 10251.00 10237.00
10242.00 10246.00 10229.00
10223.00 10226.00 10213.00
10211.00 10214.00 10213.00
10092.00 10095.00 10101.00
10014.00 10017.00 10018.00
10009.00 10012.00 10010.00
10088.00 10091.00 10093.00
6/29/2005 10078.00 10081.00 10092.00
9963.00 9966.00 9989.00
9984.00 9987.00 10006.00
10064.00 10067.00 10086.00
9979.00 9982.00 10005.00
9992.00 9995.00 10014.00
10115.00 10118.00 10146.00
10158.00 10161.00 10202.00
10183.00 10186.00 10222.00
7/13/2005 10204.00 10208.00 10245.00
10251.00 10255.00 10299.00
10260.00 10264.00 10309.00
10172.00 10176.00 10228.00
10224.00 10228.00 10287.00
10261.00 10266.00 10327.00
10202.00 10207.00 10255.00
10224.00 10228.00 10291.00
10186.00 10191.00 10250.00
10194.00 10199.00 10258.00
7/27/2005 10239.00 10244.00 10303.00
10283.00 10288.00 10351.00
10185.00 10189.00 10263.00
10203.00 10207.00 10271.00
10281.00 10285.00 10342.00
10290.00 10295.00 10353.00
10225.00 10230.00 10281.00
10172.00 10177.00 10226.00
10146.00 10151.00 10199.00
10217.00 10222.00 10277.00
8/10/2005 10185.00 10190.00 10248.00
10256.00 10261.00 10324.00
10190.00 10195.00 10240.00
10210.00 10214.00 10267.00
10113.00 10118.00 10164.00
10125.00 10129.00 10184.00
10127.00 10131.00 10179.00
10119.00 10124.00 10174.00
10133.00 10137.00 10190.00
10091.00 10096.00 10152.00
8/24/2005 10011.00 10016.00 10072.00
9977.00 10036.00 10089.00
9976.00 9980.00 10033.00
10045.00 10050.00 10096.00
10018.00 10023.00 10059.00
10109.00 10114.00 10142.00
10120.00 10125.00 10141.00
10092.00 10097.00 10119.00
10219.00 10225.00 10254.00
9/7/2005 10247.00 10254.00 10282.00
10225.00 10231.00 10249.00
10294.00 10301.00 10317.00
10278.00 10285.00 10307.00
10199.00 10205.00 10239.00
10166.00 10172.00 10201.00
10181.00 10188.00 10217.00
10280.00 10288.00 10308.00
10234.00 10241.00 10249.00
10167.00 10175.00 10177.00
9/21/2005 10097.00 10105.00 10082.00
10126.00 10133.00 10123.00
10096.00 10104.00 10113.00
10090.00 10098.00 10109.00
10078.00 10085.00 10101.00
10087.00 10095.00 10121.00
10181.00 10190.00 10196.00
10163.00 10171.00 10196.00
10120.00 10128.00 10163.00
10035.00 10042.00 10073.00
10/5/2005 9923.00 9930.00 9948.00
9905.00 9912.00 9924.00
9926.00 9933.00 9954.00
9883.00 9890.00 9902.00
9884.00 9891.00 9889.00
9850.00 9857.00 9856.00
9856.00 9863.00 9856.00
9911.00 9918.00 9912.00
9922.00 9929.00 9931.00
9839.00 9845.00 9843.00
10/19/2005 9981.00 9987.00 9977.00
9816.00 9822.00 9817.00
9815.00 9822.00 9806.00
9963.00 9970.00 9964.00
9959.00 9967.00 9954.00
9924.00 9932.00 9912.00
9840.00 9847.00 9820.00
9997.00 10005.00 9986.00
10/31/2005 10035.00 10043.00 10027.00
</Table>
<Table>
<Caption>
AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIOD ENDED OCTOBER 31, 2005
- -----------------------------------------------------------------------------
SINCE INCEPTION
(05/04/05)
---------------
RYDEX RUSSELL TOP 50 ETF................................... 0.36%
RUSSELL TOP 50 TOTAL RETURN INDEX.......................... 0.43%
S&P 100 TOTAL RETURN INDEX................................. 0.27%
</Table>
The returns presented above do not reflect the effect of taxes. Index returns
represent total returns. Past performance is no guarantee of future results. The
Russell Top 50 Total Return Index and the S&P 100 Total Return Index are
unmanaged stock indices and, unlike the Fund, have no management fees or other
operating expense to reduce its reported returns. Returns are historical and
include changes in principal and reinvested dividends and capital gains.
- --------------------------------------------------------------------------------
5 ANNUAL REPORT
<Table>
<Caption>
TOP 10 HOLDINGS*
- ---------------------------------------
COMPANY NAME % OF TOTAL
- ---------------------------------------
GENERAL ELECTRIC CO. 6.91%
EXXON MOBIL CORP. 6.79%
CITIGROUP INC. 4.62%
MICROSOFT CORP. 4.48%
JOHNSON & JOHNSON 3.60%
PROCTER & GAMBLE CO. 3.52%
BANK OF AMERICA CORP. 3.41%
PFIZER INC. 3.12%
ALTRIA GROUP INC. 3.00%
INTEL CORP. 2.89%
- ---------------------------------------
</Table>
SECTOR ALLOCATION*
[PIE CHART]
<Table>
<Caption>
CONSUMER INFORMATION CONSUMER
FINANCIALS DISCRETIONARY TECHNOLOGY HEALTH CARE INDUSTRIALS STAPLES ENERGY
- ---------- ------------- ----------- ----------- ----------- -------- ------
21.22 6.82 18.48 16.79 9.92 12.60 10.97
TELECOMMUNICATION
SERVICES
-----------------
3.20
</Table>
* The Fund's holdings are expressed as a percentage of net assets and the sector
allocation is expressed as a percentage of market value. These percentages may
change over time.
6
RYDEX S&P EQUAL WEIGHT ETF
MANAGER'S ANALYSIS
- --------------------------------------------------------------------------------
Over the one-year reporting period, broad-based performance continues to be
strong as smaller companies helped drive outperformance versus the S&P 500.
During this reporting period, Rydex S&P Equal Weight ETF (RSP) returned 12.29%
versus the S&P 500's 8.72%. RSP has outperformed the cap-weighted index 22.45%
versus 14.80% since inception April 24, 2003.
CUMULATIVE FUND PERFORMANCE: APRIL 24, 2003 - OCTOBER 31, 2005
[LINE GRAPH]
<Table>
<Caption>
RYDEX S&P EQUAL WEIGHT S&P EQUAL WEIGHT TOTAL
ETF RETURN INDEX S&P 500 TOTAL RETURN INDEX
---------------------- ---------------------- --------------------------
4/24/03 10000 10000 10000
9845 9845 9862
10041 10041 10039
10113 10113 10072
10113 10114 10063
10091 10092 10058
10280 10282 10210
10300 10303 10171
10397 10399 10257
10341 10343 10206
10240 10242 10104
10405 10408 10251
10566 10569 10380
10566 10569 10350
10565 10568 10320
10687 10691 10402
10723 10727 10377
10417 10421 10119
10402 10406 10108
10457 10461 10149
10582 10586 10242
10646 10651 10257
10878 10884 10458
10899 10905 10478
10882 10888 10440
11089 11096 10594
11146 11152 10631
11141 11148 10682
11363 11371 10846
11455 11462 10890
11410 11418 10864
11217 11225 10734
11309 11317 10832
11492 11501 10975
11522 11531 10987
11359 11368 10878
11593 11602 11122
11588 11597 11132
11576 11586 11116
11409 11418 10946
11390 11399 10957
11185 11195 10803
11199 11209 10823
11137 11146 10733
11260 11269 10853
11176 11186 10748
11168 11179 10729
11229 11239 10817
11374 11384 10943
11287 11298 10854
11504 11515 11060
11601 11613 11102
11573 11585 11041
11386 11398 10892
11474 11486 10997
11544 11555 11060
11471 11496 11022
11389 11399 10952
11232 11241 10817
11367 11377 10945
11218 11228 10785
11358 11368 10888
11361 11372 10893
7/24/03 11313 11323 10816
11498 11509 11004
11503 11515 10981
11427 11438 10902
11387 11398 10884
11456 11468 10918
11368 11380 10806
11363 11375 10835
11163 11174 10645
11158 11169 10664
11225 11236 10742
11261 11273 10781
11311 11323 10816
11440 11452 10924
11422 11434 10859
11518 11530 10930
11517 11531 10934
11656 11671 11034
11737 11751 11063
11749 11765 11042
11843 11859 11075
11714 11730 10962
11692 11708 10969
11728 11743 11003
11767 11784 11005
11873 11890 11073
11959 11976 11130
12124 12143 11285
12153 12174 11336
12158 12178 11355
12086 12105 11283
12215 12235 11397
12100 12119 11303
11893 11909 11169
11969 11988 11233
12009 12028 11257
11966 11986 11215
12145 12166 11376
12113 12133 11339
12263 12285 11490
12250 12272 11454
12090 12112 11305
12170 12193 11373
11948 11970 11156
11834 11857 11091
11731 11754 11022
11847 11871 11130
11751 11773 11013
11988 12012 11260
12035 12059 11283
12191 12215 11390
12257 12281 11439
12312 12341 11494
12277 12301 11438
12356 12381 11493
12352 12377 11486
12463 12488 11567
12512 12538 11613
12466 12491 11585
12503 12529 11622
12352 12378 11503
12403 12429 11577
12418 12444 11577
12240 12266 11405
12247 12273 11443
10/24/03 12208 12235 11389
12288 12315 11413
12469 12496 11587
12527 12555 11604
12541 12570 11594
12576 12605 11636
12697 12725 11728
12643 12672 11664
12645 12673 11650
12722 12752 11720
12708 12737 11669
12590 12620 11602
12577 12607 11596
12748 12779 11734
12770 12801 11732
12648 12678 11645
12525 12556 11570
12399 12429 11466
12472 12502 11559
12384 12415 11462
12442 12473 11480
12676 12708 11667
12748 12781 11688
12827 12860 11740
12842 12875 11738
13000 13035 11871
12950 12984 11832
12928 12962 11814
12953 12988 11870
12843 12877 11779
12933 12969 11867
12811 12846 11765
12747 12782 11755
12941 12977 11891
12987 13023 11924
12883 12918 11857
12937 12974 11935
12972 13009 11952
13168 13206 12094
13166 13205 12089
13247 13286 12137
13307 13346 12171
13285 13324 12149
13314 13354 12169
13483 13524 12325
13494 13535 12328
13502 13543 12353
13449 13491 12316
13618 13660 12469
13642 13684 12486
13665 13707 12518
13766 13809 12581
13684 13727 12469
13753 13796 12529
13685 13729 12463
13816 13859 12567
13846 13891 12584
13977 14022 12670
14011 14057 12659
14085 14131 12758
14012 14058 12717
1/23/04 13978 14024 12691
14106 14148 12844
13987 14033 12719
13801 13847 12548
13812 13858 12613
13825 13872 12580
13852 13900 12626
13854 13902 12635
13694 13741 12531
13737 13784 12555
13955 14004 12713
13952 14001 12682
14032 14081 12746
14198 14248 12887
14147 14197 12825
14047 14097 12756
14210 14260 12887
14159 14210 12825
14084 14135 12773
14013 14064 12740
13918 13969 12706
13886 13938 12684
13972 14024 12737
14035 14087 12755
14099 14151 12755
14269 14323 12878
14200 14253 12802
14218 14271 12827
14276 14330 12870
14312 14368 12893
14175 14228 12786
14052 14106 12712
13821 13873 12527
13617 13668 12340
13825 13877 12494
13599 13651 12315
13659 13711 12385
13869 13923 12531
13843 13897 12515
13722 13777 12376
13526 13580 12215
13516 13570 12199
13479 13534 12170
13723 13779 12369
13721 13777 12357
13905 13961 12520
13981 14038 12570
14004 14061 12563
14079 14137 12629
14226 14285 12738
14321 14381 12835
14296 14355 12812
14219 14278 12728
14201 14261 12714
14256 14316 12780
14030 14090 12605
13987 14046 12591
13976 14036 12599
14061 14122 12663
14068 14129 12677
13858 13918 12480
13951 14034 12547
14203 14265 12724
4/23/04 14179 14241 12732
14096 14158 12675
14119 14181 12704
13907 13968 12531
13734 13795 12439
13647 13707 12365
13760 13821 12479
13793 13855 12502
13836 13925 12526
13706 13773 12443
13467 13528 12273
13283 13342 12144
13418 13478 12239
13423 13484 12264
13448 13509 12255
13440 13502 12248
13265 13329 12120
13387 13449 12203
13376 13437 12173
13352 13414 12179
13434 13496 12228
13510 13573 12249
13753 13818 12446
13797 13862 12469
13870 13936 12542
13897 13963 12535
13900 13967 12541
13943 14010 12587
13805 13872 12494
13892 13959 12560
14135 14204 12761
14156 14226 12782
13993 14062 12661
14056 14126 12719
13888 13957 12598
14013 14083 12673
14035 14105 12691
14021 14091 12674
14057 14127 12707
14016 14087 12654
14114 14185 12701
14270 14342 12809
14231 14303 12773
14248 14322 12704
14193 14266 12694
14232 14306 12726
14321 14395 12779
14127 14207 12647
14080 14153 12608
13922 13993 12505
13953 14025 12532
13791 13862 12429
13846 13919 12471
13843 13916 12489
13847 13921 12498
13807 13880 12458
13803 13876 12404
13718 13791 12345
13718 13791 12339
13835 13909 12426
13617 13689 12262
13610 13682 12295
7/23/04 13481 13554 12176
13405 13477 12152
13532 13605 12273
13533 13605 12282
13656 13729 12341
13687 13761 12356
13724 13799 12411
13593 13667 12333
13563 13637 12324
13338 13411 12123
13104 13172 11936
13135 13199 11950
13334 13401 12105
13273 13338 12076
13111 13173 11935
13110 13172 11954
13324 13390 12118
13367 13435 12145
13555 13630 12299
13495 13570 12255
13608 13684 12335
13565 13640 12306
13566 13640 12312
13680 13756 12411
13683 13758 12412
13714 13788 12444
13603 13671 12348
13666 13732 12406
13709 13777 12429
13821 13945 12568
13821 13890 12516
13925 13998 12602
13827 13903 12548
13886 13959 12572
13967 14041 12634
14025 14099 12659
14036 14111 12688
13932 14006 12598
14007 14082 12634
14063 14139 12691
14010 14086 12619
14116 14193 12699
13935 14012 12523
13883 13959 12467
13900 13976 12486
13793 13868 12412
13876 13953 12488
13938 14016 12543
14022 14099 12540
14243 14323 12731
14308 14389 12773
14278 14358 12766
14382 14462 12855
14237 14317 12728
14110 14190 12632
14119 14200 12657
14069 14149 12629
13958 14037 12538
13853 13932 12421
13924 14004 12476
13975 14055 12542
13831 13910 12420
13854 13933 12426
13962 14043 12459
10/22/04 13852 13932 12338
13867 13947 12327
14076 14158 12511
14272 14356 12674
14293 14377 12701
14352 14437 12732
14373 14459 12735
14358 14444 12736
14522 14609 12881
14773 14861 13090
14859 14949 13141
14840 14930 13127
14847 14937 13123
14855 14947 13113
15007 15098 13232
15145 15238 13354
15154 15253 13351
15060 15153 13258
15169 15262 13333
15198 15292 13351
15019 15112 13202
15137 15231 13280
15145 15239 13277
15250 15345 13332
15283 15379 13344
15238 15334 13300
15181 15277 13247
15397 15495 13449
15350 15449 13438
15379 15477 13447
15369 15468 13437
15175 15273 13289
15218 15316 13357
15294 15393 13430
15305 15405 13416
15440 15541 13538
15526 15628 13591
15592 15695 13619
15521 15623 13591
15454 15557 13490
15442 15545 13495
15582 15687 13617
15634 15738 13668
15638 15743 13675
15561 15666 13616
15693 15800 13713
15717 15824 13714
15742 15848 13716
15732 15839 13697
15539 15645 13587
15303 15407 13430
15192 15295 13382
15233 15337 13432
15205 15310 13413
15251 15356 13459
15148 15252 13378
15217 15322 13433
15129 15233 13317
15247 15353 13397
15400 15507 13526
15262 15368 13399
15146 15251 13295
15049 15154 13210
1/24/05 14966 15071 13163
14997 15103 13216
15101 15207 13280
15145 15252 13287
15090 15198 13252
15258 15367 13364
15365 15475 13456
15425 15536 13501
15395 15505 13467
15579 15691 13616
15551 15663 13602
15566 15679 13611
15399 15509 13498
15451 15562 13555
15608 15719 13652
15602 15714 13663
15663 15776 13709
15670 15783 13713
15535 15647 13605
15532 15645 13615
15293 15404 13418
15376 15488 13494
15517 15630 13605
15675 15791 13733
15579 15694 13645
15691 15807 13722
15675 15791 13723
15694 15810 13728
15853 15971 13860
15918 16037 13897
15821 15940 13832
15660 15776 13692
15669 15786 13718
15579 15696 13618
15698 15817 13695
15576 15694 13592
15425 15541 13483
15468 15585 13508
15443 15559 13501
15403 15520 13435
15266 15382 13298
15259 15374 13308
15269 15385 13295
15270 15387 13327
15127 15239 13229
15342 15459 13413
15374 15491 13404
15300 15412 13316
15322 15435 13354
15377 15491 13414
15414 15529 13448
15510 15625 13529
15378 15493 13416
15371 15486 13416
15453 15568 13491
15237 15350 13334
15033 15145 13201
14728 14837 12980
14790 14900 13018
14927 15039 13096
14719 14829 12923
15012 15125 13178
4/22/05 14881 14993 13090
15025 15139 13203
14874 14986 13085
14916 15030 13140
14734 14845 12994
14899 15012 13149
14969 15083 13210
14965 15079 13198
15184 15301 13366
15129 15246 13332
15144 15260 13318
15257 15374 13403
15101 15218 13260
15160 15278 13323
14991 15107 13190
14912 15028 13132
15083 15201 13265
15205 15325 13359
15409 15530 13496
15478 15600 13559
15489 15612 13538
15545 15669 13591
15537 15660 13593
15472 15596 13548
15590 15715 13636
15616 15742 13651
15569 15694 13568
15707 15834 13695
15752 15879 13718
15659 15786 13624
15683 15811 13641
15683 15811 13640
15660 15784 13612
15747 15872 13684
15717 15847 13652
15785 15915 13687
15852 15983 13722
15884 16015 13753
15957 16089 13803
16031 16166 13871
16011 16145 13862
15990 16124 13833
15999 16134 13837
15845 15978 13690
15709 15842 13585
15686 15818 13575
15876 16010 13702
15859 15993 13684
15787 15921 13587
15840 15975 13624
15985 16122 13744
15880 16016 13633
15926 16062 13667
16121 16260 13827
16246 16387 13914
16272 16413 13946
16284 16413 13960
16317 16459 13997
16334 16476 14013
16295 16437 13935
16427 16571 14029
16543 16688 14097
16401 16545 14004
7/22/05 16514 16660 14080
16439 16584 14027
16501 16647 14052
16567 16714 14118
16679 16827 14201
16581 16728 14092
16588 16736 14106
16691 16840 14206
16696 16845 14219
16553 16701 14115
16390 16536 14007
16343 16489 13970
16428 16575 14065
16420 16568 14045
16535 16684 14146
16453 16601 14061
16523 16672 14103
16303 16450 13937
16322 16469 13951
16281 16428 13938
16316 16464 13947
16335 16484 13970
16290 16453 13923
16222 16370 13832
16276 16425 13865
16172 16320 13781
16266 16415 13865
16209 16357 13823
16400 16550 13964
16418 16569 13978
16360 16511 13938
16552 16706 14114
16608 16763 14150
16528 16682 14097
16680 16836 14209
16701 16858 14199
16591 16746 14096
16529 16684 14050
16511 16666 14057
16617 16774 14174
16486 16640 14095
16339 16493 13984
16154 16305 13857
16214 16367 13911
16273 16427 13919
16275 16429 13922
16287 16441 13923
16318 16473 13940
16454 16611 14064
16533 16690 14077
16539 16697 14053
16376 16532 13914
16085 16239 13712
15977 16129 13656
16038 16192 13707
15855 16007 13608
15777 15927 13581
15646 15795 13500
15633 15782 13491
15782 15933 13602
15852 16004 13643
15685 15835 13506
15887 16040 13709
15697 15847 13504
15749 15901 13524
10/31/05 16021 16175 13751
</Table>
<Table>
<Caption>
AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIOD ENDED OCTOBER 31, 2005
- -----------------------------------------------------------------------------
SINCE INCEPTION
ONE YEAR (04/24/03)
-------- ---------------
RYDEX S&P EQUAL WEIGHT ETF...................... 12.29% 22.45%
S&P EQUAL WEIGHT TOTAL RETURN INDEX............. 12.71% 22.95%
S&P 500 TOTAL RETURN INDEX...................... 8.72% 14.80%
</Table>
The returns presented above do not reflect the effect of taxes. Index returns
represent total returns. Past performance is no guarantee of future results. The
S&P Equal Weight Total Return Index and the S&P 500 Index are unmanaged stock
indices and, unlike the Fund, have no management fees or other operating expense
to reduce its reported returns. Returns are historical and include changes in
principal and reinvested dividends and capital gains.
- --------------------------------------------------------------------------------
7 ANNUAL REPORT
<Table>
<Caption>
TOP 10 HOLDINGS*
- ---------------------------------------
COMPANY NAME % OF TOTAL
- ---------------------------------------
EXPRESS SCRIPTS INC. 0.25%
STARBUCKS CORP. 0.25%
RYDER SYSTEM INC. 0.25%
JANUS CAPITAL GROUP INC. 0.24%
PAYCHEX INC. 0.24%
AVAYA INC. 0.24%
NETWORK APPLIANCE INC. 0.24%
FEDEX CORP. 0.24%
MEDIMMUNE INC. 0.24%
QWEST COMMUNICATIONS
INTERNATIONAL INC. 0.23%
- ---------------------------------------
</Table>
SECTOR ALLOCATIONS*
[PIE CHART]
<Table>
<Caption>
CONSUMER INFORMATION HEALTH CONSUMER
FINANCIALS DISCRETIONARY TECHNOLOGY CARE INDUSTRIALS STAPLES MATERIALS UTILITIES ENERGY
- ---------- ------------- ----------- ------ ----------- -------- --------- --------- ------
17.47 17.26 15.51 11.20 10.73 7.48 6.51 6.32 5.70
TELECOMMUNICATION
SERVICES
-----------------
1.82
</Table>
* The Fund's holdings are expressed as a percentage of net assets and the sector
allocation is expressed as a percentage of market value. These percentages may
change over time.
- --------------------------------------------------------------------------------
8
SHAREHOLDER EXPENSE EXAMPLE (UNAUDITED)
As a shareholder of the Rydex ETF Trust, you incur advisory fees and
distribution fees. All other Trust expenses are paid by the adviser. This
Example is intended to help you understand your ongoing costs (in dollars) of
investing in a Fund and to compare these costs with the ongoing costs of
investing in other mutual funds.
The example is based on an investment of $1,000 invested at the beginning of the
period and held for the six-months ended October 31, 2005.
ACTUAL EXPENSES
The first table below provides information about actual account values and
actual expenses. You may use the information in this table, together with the
amount you invested, to estimate the expenses that you incurred over the period.
Simply divide your account value by $1,000 (for example, an $8,600 account value
divided by $1,000 = 8.6), then multiply the result by the number in the first
table under the heading entitled "Expenses Paid During the Six-Month Period" to
estimate the expenses attributable to your investment during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second table below provides information about hypothetical account values
and hypothetical expenses based on a Fund's actual expense ratio and an assumed
rate of return of 5% per year before expenses, which is not a Fund's actual
return. Thus, you should not use the hypothetical account values and expenses to
estimate the actual ending account balance or your expenses for the period.
Rather, these figures are provided to enable you to compare the ongoing costs of
investing in a Fund and other funds. To do so, compare this 5% hypothetical
example with the 5% hypothetical examples that appear in the shareholder reports
of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transaction costs, such as creation
and redemption fees, or brokerage charges. Therefore, the second table is useful
in comparing ongoing costs only, and will not help you determine the relative
total costs of owning different funds. In addition, if these transaction costs
were included, your costs would have been higher.
<Table>
<Caption>
BEGINNING ENDING
ACCOUNT ACCOUNT EXPENSES PAID
VALUE VALUE DURING PERIOD*
5/01/05** 10/31/05 5/01/05 TO 10/31/05**
--------- --------- ---------------------
ACTUAL
Rydex Russell Top 50 ETF........... $1,000 $1,003.60 $0.99
Rydex S&P Equal Weight ETF......... $1,000 $1,081.60 $2.10
HYPOTHETICAL (ASSUMING A 5% RETURN
BEFORE EXPENSES)
Rydex Russell Top 50 ETF........... $1,000 $1,023.80 $1.00
Rydex S&P Equal Weight ETF......... $1,000 $1,023.19 $2.04
</Table>
- ---------------
* Expenses are equal to the Fund's annualized expense ratio of 0.20% and 0.40%,
respectively, multiplied by the average account value of the period,
multiplied by 181/365 and 184/365, respectively.
** The Rydex Russell Top 50 ETF commenced operations on 5/4/05.
9 ANNUAL REPORT
RYDEX RUSSELL TOP 50 ETF
PORTFOLIO SUMMARY October 31, 2005
- --------------------------------------------------------------------------------
<Table>
<Caption>
INCEPTION DATE PORTFOLIO STATISTICS
-------------- --------------------
5/4/2005 Net Assets ($million): $137.1
</Table>
<Table>
<Caption>
INDUSTRY BREAKDOWN
(AS A % OF NET ASSETS)
------------------
1.0% Aerospace & Defense
0.9% Air Freight & Logistics
3.6% Beverages
2.7% Biotechnology
1.3% Capital Markets
8.0% Commercial Banks
3.4% Communications Equipment
5.6% Computers & Peripherals
1.1% Consumer Finance
7.1% Diversified Financial Services
3.2% Diversified Telecommunication
Services
0.1% Food Products
2.3% Food & Staples Retailing
1.3% Health Care Equipment &
Supplies
1.4% Health Care Providers &
Services
</Table>
<Table>
<Caption>
(AS A % OF NET ASSETS)
------------------
3.5% Household Products
8.0% Industrial Conglomerates
2.9% Insurance
1.1% Internet Software & Services
5.1% Media
11.0% Oil, Gas & Consumable Fuels
11.4% Pharmaceuticals
2.9% Semiconductor & Semiconductor
Equipment
5.4% Software
1.7% Specialty Retail
0.9% Thrifts & Mortgage Finance
3.0% Tobacco
0.0% Short Term Investments(a)
0.1% Other Assets
</Table>
(a) Amount represents less than 0.05% of net assets.
10
RYDEX S&P EQUAL WEIGHT ETF
PORTFOLIO SUMMARY October 31, 2005
- --------------------------------------------------------------------------------
<Table>
<Caption>
INCEPTION DATE PORTFOLIO STATISTICS
-------------- --------------------
4/24/2003 Net Assets ($million):
$1,071.4
</Table>
<Table>
<Caption>
INDUSTRY BREAKDOWN
(AS A % OF NET ASSETS)
------------------
1.9% Aerospace & Defense
0.7% Air Freight & Logistics
0.2% Airlines
0.9% Auto Components
0.5% Automobiles
1.6% Beverages
1.5% Biotechnology
0.4% Building Products
3.5% Capital Markets
2.9% Chemicals
4.3% Commercial Banks
2.0% Commercial Services & Supplies
2.6% Communications Equipment
2.2% Computers & Peripherals
0.2% Construction & Engineering
0.2% Construction Materials
0.8% Consumer Finance
1.1% Containers & Packaging
0.2% Distributors
0.4% Diversified Consumer Services
1.1% Diversified Financial Services
1.4% Diversified Telecommunication
Services
2.3% Electric Utilities
0.8% Electrical Equipment
1.3% Electronic Equipment &
Instruments
2.0% Energy Equipment & Services
2.3% Food Products
1.8% Food & Staples Retailing
0.4% Gas Utilities
3.3% Health Care Equipment &
Supplies
3.9% Health Care Providers &
Services
2.2% Hotels, Restaurants & Leisure
2.5% Household Durables
</Table>
<Table>
<Caption>
(AS A % OF NET ASSETS)
------------------
0.8% Household Products
1.1% Independent Power Producers
And Energy Traders
0.8% Industrial Conglomerates
4.7% Insurance
0.2% Internet & Catalog Retail
0.2% Internet Software & Services
2.1% IT Services
0.7% Leisure Equipment & Products
2.5% Machinery
3.1% Media
1.4% Metals & Mining
2.5% Multi-Utilities
2.0% Multiline Retail
0.2% Office Electronics
3.7% Oil, Gas & Consumable Fuels
1.0% Paper & Forest Products
0.4% Personal Products
2.5% Pharmaceuticals
1.8% Real Estate
0.9% Road & Rail
3.7% Semiconductor & Semiconductor
Equipment
3.1% Software
3.2% Specialty Retail
1.2% Textiles, Apparel & Luxury
Goods
1.4% Thrifts & Mortgage Finance
0.6% Tobacco
0.2% Trading Companies &
Distributors
0.4% Wireless Telecommunication
Services
0.2% Short Term Investments
0.0% Other Assets(a)
</Table>
(a) Amount represents less than 0.05% of net assets.
11 ANNUAL REPORT
RYDEX RUSSELL TOP 50 ETF
SCHEDULE OF INVESTMENTS October 31, 2005
- --------------------------------------------------------------------------------
<Table>
<Caption>
MARKET
SHARES VALUE
- --------------------------------------------------------------------------
COMMON STOCKS 99.9%
AEROSPACE & DEFENSE 1.0%
United Technologies Corp. ...................... 27,382 $1,404,149
------------
TOTAL AEROSPACE & DEFENSE 1,404,149
------------
AIR FREIGHT & LOGISTICS 0.9%
United Parcel Service Inc., -- Class B.......... 16,042 1,170,103
------------
TOTAL AIR FREIGHT & LOGISTICS 1,170,103
------------
BEVERAGES 3.6%
Coca-Cola Co. (The)............................. 55,548 2,376,343
PepsiCo, Inc. .................................. 44,119 2,606,551
------------
TOTAL BEVERAGES 4,982,894
------------
BIOTECHNOLOGY 2.7%
Amgen, Inc.*.................................... 32,994 2,499,625
Genentech, Inc.*................................ 12,365 1,120,269
------------
TOTAL BIOTECHNOLOGY 3,619,894
------------
CAPITAL MARKETS 1.3%
Ameriprise Financial, Inc.*..................... 5,750 214,015
Morgan Stanley.................................. 28,906 1,572,776
------------
TOTAL CAPITAL MARKETS 1,786,791
------------
COMMERCIAL BANKS 8.0%
Bank of America Corp. .......................... 106,835 4,672,963
U.S. Bancorp.................................... 50,096 1,481,839
Wachovia Corp. ................................. 41,867 2,115,121
Wells Fargo & Co. .............................. 44,685 2,690,037
------------
TOTAL COMMERCIAL BANKS 10,959,960
------------
COMMUNICATIONS EQUIPMENT 3.4%
Cisco Systems, Inc.*............................ 171,470 2,992,152
QUALCOMM, Inc. ................................. 43,258 1,719,938
------------
TOTAL COMMUNICATIONS EQUIPMENT
4,712,090
------------
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- --------------------------------------------------------------------------
COMPUTERS & PERIPHERALS 5.6%
Dell, Inc.*..................................... 64,427 $2,053,933
Hewlett-Packard Co. ............................ 76,145 2,135,106
International Business Machines Corp. .......... 42,764 3,501,516
------------
TOTAL COMPUTERS & PERIPHERALS
7,690,555
------------
CONSUMER FINANCE 1.1%
American Express
Co. .......................................... 28,990 1,442,832
------------
TOTAL CONSUMER FINANCE 1,442,832
------------
DIVERSIFIED FINANCIAL SERVICES 7.1%
Citigroup, Inc. ................................ 138,180 6,325,880
JPMorgan Chase & Co. ........................... 93,004 3,405,807
------------
TOTAL DIVERSIFIED FINANCIAL SERVICES
9,731,687
------------
DIVERSIFIED TELECOMMUNICATION SERVICES 3.2%
SBC Communications, Inc. ....................... 87,140 2,078,289
Verizon Communications, Inc. ................... 73,194 2,306,343
------------
TOTAL DIVERSIFIED TELECOMMUNICATION SERVICES
4,384,632
------------
FOOD PRODUCTS 0.1%
Kraft Foods, Inc. .............................. 6,604 186,893
------------
TOTAL FOOD PRODUCTS 186,893
------------
FOOD & STAPLES RETAILING 2.3%
Wal-Mart Stores, Inc. .......................... 66,798 3,160,213
------------
TOTAL FOOD & STAPLES RETAILING
3,160,213
------------
</Table>
See Notes to Financial Statements.
RYDEX RUSSELL TOP 50 ETF
SCHEDULE OF INVESTMENTS (continued) October 31, 2005
- --------------------------------------------------------------------------------
12
<Table>
<Caption>
MARKET
SHARES VALUE
- --------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
HEALTH CARE EQUIPMENT & SUPPLIES 1.3%
Medtronic, Inc. ................................ 32,439 $1,837,994
------------
TOTAL HEALTH CARE EQUIPMENT & SUPPLIES
1,837,994
------------
HEALTH CARE PROVIDERS & SERVICES 1.4%
UnitedHealth Group, Inc. ....................... 33,939 1,964,729
------------
TOTAL HEALTH CARE PROVIDERS & SERVICES
1,964,729
------------
HOUSEHOLD PRODUCTS 3.5%
Procter & Gamble Co. ........................... 86,018 4,816,148
------------
TOTAL HOUSEHOLD PRODUCTS 4,816,148
------------
INDUSTRIAL CONGLOMERATES 8.0%
3M Co. ......................................... 20,283 1,541,102
General Electric Co. ........................... 279,228 9,468,622
------------
TOTAL INDUSTRIAL CONGLOMERATES
11,009,724
------------
INSURANCE 2.9%
American International Group, Inc. ............. 60,753 3,936,794
------------
TOTAL INSURANCE 3,936,794
------------
INTERNET SOFTWARE & SERVICES 1.1%
Google, Inc.*................................... 4,200 1,562,988
------------
TOTAL INTERNET SOFTWARE & SERVICES
1,562,988
------------
MEDIA 5.1%
Comcast Corp.* -- Class A....................... 53,893 1,499,842
News Corp. ..................................... 61,005 869,321
Time Warner, Inc.*.............................. 121,190 2,160,818
Viacom, Inc. -- Class B ........................ 37,481 1,160,787
Walt Disney Co. ................................ 54,479 1,327,653
------------
TOTAL MEDIA 7,018,421
------------
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- --------------------------------------------------------------------------
OIL, GAS & CONSUMABLE FUELS 11.0%
Chevron Corp. .................................. 58,909 $3,361,937
ConocoPhillips.................................. 36,151 2,363,552
Exxon Mobil Corp. .............................. 165,771 9,306,384
------------
TOTAL OIL, GAS & CONSUMABLE FUELS
15,031,873
------------
PHARMACEUTICALS 11.4%
Abbott Laboratories............................. 42,122 1,813,352
Eli Lilly & Co. ................................ 25,767 1,282,939
Johnson & Johnson............................... 78,838 4,936,836
Merck & Co, Inc. ............................... 58,504 1,650,983
Pfizer, Inc. ................................... 196,831 4,279,106
Wyeth........................................... 36,133 1,610,086
------------
TOTAL PHARMACEUTICALS 15,573,302
------------
SEMICONDUCTOR & SEMICONDUCTOR EQUIPMENT 2.9%
Intel Corp. .................................... 168,298 3,955,003
------------
TOTAL SEMICONDUCTOR & SEMICONDUCTOR EQUIPMENT
3,955,003
------------
SOFTWARE 5.4%
Microsoft Corp. ................................ 238,852 6,138,497
Oracle Corp.*................................... 99,124 1,256,892
------------
TOTAL SOFTWARE 7,395,389
------------
SPECIALTY RETAIL 1.7%
Home Depot, Inc. ............................... 56,839 2,332,673
------------
TOTAL SPECIALTY RETAIL 2,332,673
------------
THRIFTS & MORTGAGE FINANCE 0.9%
Federal Nat'l Mtg. Assn......................... 25,291 1,201,828
------------
TOTAL THRIFTS & MORTGAGE FINANCE
1,201,828
------------
</Table>
See Notes to Financial Statements.
RYDEX RUSSELL TOP 50 ETF
SCHEDULE OF INVESTMENTS (continued) October 31, 2005
- --------------------------------------------------------------------------------
13 ANNUAL REPORT
<Table>
<Caption>
MARKET
SHARES VALUE
- --------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
TOBACCO 3.0%
Altria Group, Inc. ............................. 54,741 $4,108,312
------------
TOTAL TOBACCO 4,108,312
------------
TOTAL COMMON STOCKS
(Cost $139,040,296) 136,977,871
------------
SHORT TERM INVESTMENTS 0.0%(A)
Short-Term Investment Co. ...................... 36,886 36,886
------------
TOTAL SHORT TERM INVESTMENTS
(Cost $36,886) 36,886
------------
TOTAL INVESTMENTS 99.9%
(Cost $139,077,182) 137,014,757
------------
OTHER ASSETS IN EXCESS OF LIABILITIES--0.1%
70,464
------------
NET ASSETS--100.0% $137,085,221
- --------------------------------------------------------------------------
</Table>
* Non-Income Producing Security.
(a) Amount represents less than 0.05% of net assets.
See Notes to Financial Statements.
14
RYDEX S&P EQUAL WEIGHT ETF
SCHEDULE OF INVESTMENTS October 31, 2005
- --------------------------------------------------------------------------------
<Table>
<Caption>
MARKET
SHARES VALUE
- -------------------------------------------------------------------------------
COMMON STOCKS 99.8%
AEROSPACE & DEFENSE 1.9%
Boeing Co. ..................................... 34,066 $2,202,026
General Dynamics Corp. ......................... 18,851 2,192,371
Goodrich Corp. ................................. 49,562 1,787,701
Honeywell International, Inc. .................. 56,184 1,921,493
L-3 Communications Holdings, Inc. .............. 26,973 2,099,039
Lockheed Martin Corp. .......................... 35,388 2,143,097
Northrop Grumman Corp. ......................... 39,195 2,102,812
Raytheon Co. ................................... 57,712 2,132,459
Rockwell Collins, Inc. ......................... 45,562 2,087,651
United Technologies Corp. ...................... 42,964 2,203,194
--------------
TOTAL AEROSPACE & DEFENSE 20,871,843
--------------
AIR FREIGHT & LOGISTICS 0.7%
FedEx Corp. .................................... 27,528 2,530,649
Ryder System, Inc. ............................. 66,590 2,641,625
United Parcel Service, Inc. -- Class B.......... 32,002 2,334,226
--------------
TOTAL AIR FREIGHT & LOGISTICS
7,506,500
--------------
AIRLINES 0.2%
Southwest Airlines Co. ......................... 151,197 2,420,664
--------------
TOTAL AIRLINES 2,420,664
--------------
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- -------------------------------------------------------------------------------
AUTO COMPONENTS 0.9%
Cooper Tire & Rubber Co. ....................... 128,863 $1,760,269
Dana Corp. ..................................... 230,425 1,730,492
Goodyear Tire & Rubber Co.*..................... 135,928 2,125,914
Johnson Controls, Inc. ......................... 35,725 2,431,086
Visteon Corp. .................................. 222,080 1,849,926
--------------
TOTAL AUTO COMPONENTS 9,897,687
--------------
AUTOMOBILES 0.5%
Ford Motor Co. ................................. 222,304 1,849,569
General Motors Corp. ........................... 67,964 1,862,214
Harley-Davidson, Inc. .......................... 42,698 2,114,832
--------------
TOTAL AUTOMOBILES 5,826,615
--------------
BEVERAGES 1.6%
Anheuser-Busch Cos., Inc. ...................... 48,838 2,015,056
Brown-Forman Corp. -- Class B................... 35,513 2,249,394
Coca-Cola Co (The).............................. 50,863 2,175,919
Coca-Cola Enterprises, Inc. .................... 113,087 2,137,344
Constellation Brands, Inc. -- Class A*.......... 76,808 1,808,060
Molson Coors Brewing Co. -- Class B............. 32,972 2,034,372
Pepsi Bottling Group, Inc. ..................... 78,474 2,231,016
PepsiCo, Inc. .................................. 39,419 2,328,875
--------------
TOTAL BEVERAGES 16,980,036
--------------
</Table>
See Notes to Financial Statements.
RYDEX S&P EQUAL WEIGHT ETF
SCHEDULE OF INVESTMENTS (continued) October 31, 2005
- --------------------------------------------------------------------------------
15 ANNUAL REPORT
<Table>
<Caption>
MARKET
SHARES VALUE
- -------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
BIOTECHNOLOGY 1.5%
Amgen, Inc.*.................................... 26,013 $1,970,745
Applera Corp. -- Applied Biosystems Group....... 94,458 2,292,496
Biogen Idec, Inc.*.............................. 53,528 2,174,842
Chiron Corp.*................................... 50,457 2,227,172
Genzyme Corp.*.................................. 30,310 2,191,413
Gilead Sciences, Inc.*.......................... 47,709 2,254,250
Medimmune, Inc.*................................ 72,046 2,520,169
--------------
TOTAL BIOTECHNOLOGY 15,631,087
--------------
BUILDING PRODUCTS 0.4%
American Standard Cos., Inc. ................... 47,058 1,790,086
Masco Corp. .................................... 73,192 2,085,972
--------------
TOTAL BUILDING PRODUCTS 3,876,058
--------------
CAPITAL MARKETS 3.5%
Ameriprise Financial, Inc. ..................... 57,462 2,138,736
Bank of New York Co., Inc. ..................... 72,329 2,263,174
Bear Stearns Cos., Inc. ........................ 21,144 2,237,035
Charles Schwab Corp. ........................... 153,831 2,338,231
E*Trade Financial Corp.*........................ 130,388 2,418,697
Federated Investors, Inc. -- Class B............ 66,231 2,318,747
Franklin Resources, Inc. ....................... 27,456 2,426,287
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- -------------------------------------------------------------------------------
Goldman Sachs Group, Inc. ...................... 18,644 $2,356,042
Janus Capital Group, Inc. ...................... 147,263 2,584,466
Lehman Brothers Holdings, Inc. ................. 19,499 2,333,445
Mellon Financial Corp. ......................... 66,611 2,110,903
Merrill Lynch & Co., Inc. ...................... 36,529 2,364,888
Morgan Stanley.................................. 42,451 2,309,759
Northern Trust Corp. ........................... 44,722 2,397,099
State Street Corp. ............................. 43,851 2,421,891
T. Rowe Price Group, Inc. ...................... 34,503 2,260,637
--------------
TOTAL CAPITAL MARKETS 37,280,037
--------------
CHEMICALS 2.9%
Air Products & Chemicals, Inc. ................. 39,174 2,242,320
Ashland, Inc. .................................. 37,760 2,020,538
Dow Chemical Co. ............................... 50,387 2,310,748
Du Pont (E.I.) de Nemours & Co. ................ 54,492 2,271,771
Eastman Chemical Co. ........................... 46,818 2,470,118
Ecolab, Inc. ................................... 67,714 2,239,979
Engelhard Corp. ................................ 77,510 2,108,272
Hercules, Inc.*................................. 175,754 1,957,900
International Flavors & Fragrances, Inc. ....... 61,490 2,028,555
Monsanto Co. ................................... 34,747 2,189,408
PPG Industries, Inc. ........................... 35,518 2,130,014
</Table>
See Notes to Financial Statements.
RYDEX S&P EQUAL WEIGHT ETF
SCHEDULE OF INVESTMENTS (continued) October 31, 2005
- --------------------------------------------------------------------------------
16
<Table>
<Caption>
MARKET
SHARES VALUE
- -------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
Praxair, Inc. .................................. 45,198 $2,233,233
Rohm & Haas Co. ................................ 54,668 2,379,698
Sigma-Aldrich Corp. ............................ 35,581 2,266,510
--------------
TOTAL CHEMICALS 30,849,064
--------------
COMMERCIAL BANKS 4.3%
AmSouth Bancorp................................. 83,332 2,102,466
Bank of America Corp. .......................... 50,537 2,210,488
BB&T Corp. ..................................... 53,828 2,279,078
Comerica, Inc. ................................. 36,099 2,085,800
Compass Bancshares, Inc. ....................... 46,759 2,279,969
Fifth Third Bancorp............................. 55,829 2,242,651
First Horizon National Corp. ................... 57,011 2,205,185
Huntington Bancshares, Inc. .................... 93,458 2,173,833
KeyCorp......................................... 66,251 2,135,932
M&T Bank Corp. ................................. 20,660 2,222,603
Marshall & Ilsley Corp. ........................ 49,142 2,111,140
National City Corp. ............................ 62,008 1,998,518
North Fork Bancorporation, Inc. ................ 84,062 2,130,131
PNC Financial Services Group, Inc. ............. 38,086 2,312,201
Regions Financial Corp. ........................ 67,610 2,200,706
SunTrust Banks, Inc. ........................... 30,574 2,216,004
Synovus Financial Corp. ........................ 77,728 2,135,188
U.S. Bancorp.................................... 73,704 2,180,164
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- -------------------------------------------------------------------------------
Wachovia Corp. ................................. 44,407 $2,243,442
Wells Fargo & Co. .............................. 36,810 2,215,962
Zions Bancorp................................... 30,732 2,257,880
--------------
TOTAL COMMERCIAL BANKS 45,939,341
--------------
COMMERCIAL SERVICES & SUPPLIES 2.0%
Allied Waste Industries, Inc.*.................. 265,321 2,159,713
Avery Dennison Corp. ........................... 40,504 2,294,552
Cendant Corp. .................................. 108,263 1,885,941
Cintas Corp. ................................... 55,576 2,254,718
Equifax, Inc. .................................. 63,800 2,199,186
Monster Worldwide, Inc.*........................ 70,481 2,312,482
Pitney Bowes, Inc. ............................. 50,665 2,131,983
Robert Half International, Inc. ................ 62,464 2,303,672
R.R. Donnelley & Sons Co. ...................... 59,533 2,084,846
Waste Management, Inc. ......................... 78,279 2,310,013
--------------
TOTAL COMMERCIAL SERVICES & SUPPLIES
21,937,106
--------------
COMMUNICATIONS EQUIPMENT 2.6%
ADC Telecommunications, Inc.*................... 102,435 1,787,491
Andrew Corp.*................................... 199,051 2,113,922
Avaya, Inc.*.................................... 220,306 2,537,925
CIENA Corp.*.................................... 1,017,269 2,410,928
Cisco Systems, Inc.*............................ 119,841 2,091,225
Comverse Technology, Inc.*...................... 83,019 2,083,777
Corning, Inc.*.................................. 109,011 2,190,031
</Table>
See Notes to Financial Statements.
RYDEX S&P EQUAL WEIGHT ETF
SCHEDULE OF INVESTMENTS (continued) October 31, 2005
- --------------------------------------------------------------------------------
17 ANNUAL REPORT
<Table>
<Caption>
MARKET
SHARES VALUE
- -------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
JDS Uniphase Corp.*............................. 1,186,814 $2,492,309
Lucent Technologies, Inc.*...................... 716,713 2,042,632
Motorola, Inc. ................................. 93,182 2,064,913
QUALCOMM, Inc. ................................. 50,957 2,026,050
Scientific-Atlanta, Inc. ....................... 56,442 2,000,305
Tellabs, Inc.*.................................. 231,149 2,209,784
--------------
TOTAL COMMUNICATIONS EQUIPMENT
28,051,292
--------------
COMPUTERS & PERIPHERALS 2.2%
Apple Computer, Inc.*........................... 43,106 2,482,475
Dell, Inc.*..................................... 63,324 2,018,769
EMC Corp.*...................................... 175,057 2,443,796
Gateway, Inc.*.................................. 814,566 2,321,513
Hewlett-Packard Co. ............................ 77,893 2,184,120
International Business Machines Corp. .......... 27,480 2,250,062
Lexmark International, Inc. -- Class A*......... 34,040 1,413,341
NCR Corp.*...................................... 69,308 2,094,488
Network Appliance, Inc.*........................ 92,518 2,531,292
QLogic Corp.*................................... 65,002 1,960,460
Sun Microsystems, Inc.*......................... 549,123 2,196,492
--------------
TOTAL COMPUTERS & PERIPHERALS
23,896,808
--------------
CONSTRUCTION & ENGINEERING 0.2%
Fluor Corp. .................................... 36,421 2,316,376
--------------
TOTAL CONSTRUCTION & ENGINEERING
2,316,376
--------------
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- -------------------------------------------------------------------------------
CONSTRUCTION MATERIALS 0.2%
Vulcan Materials Co. ........................... 31,004 $2,015,260
--------------
TOTAL CONSTRUCTION MATERIALS
2,015,260
--------------
CONSUMER FINANCE 0.8%
American Express Co. ........................... 37,125 1,847,711
Capital One Financial Corp. .................... 26,920 2,055,342
MBNA Corp. ..................................... 86,977 2,224,002
SLM Corp. ...................................... 41,146 2,284,838
--------------
TOTAL CONSUMER FINANCE 8,411,893
--------------
CONTAINERS & PACKAGING 1.1%
Ball Corp. ..................................... 59,039 2,324,365
Bemis Co. ...................................... 87,080 2,300,654
Pactiv Corp.*................................... 123,392 2,430,822
Sealed Air Corp.*............................... 45,760 2,302,186
Temple-Inland, Inc. ............................ 55,970 2,061,375
--------------
TOTAL CONTAINERS & PACKAGING
11,419,402
--------------
DISTRIBUTORS 0.2%
Genuine Parts Co. .............................. 48,827 2,166,454
--------------
TOTAL DISTRIBUTORS 2,166,454
--------------
DIVERSIFIED CONSUMER SERVICES 0.4%
Apollo Group, Inc. -- Class A*.................. 29,924 1,885,811
H&R Block, Inc. ................................ 90,211 2,242,645
--------------
TOTAL DIVERSIFIED CONSUMER SERVICES
4,128,456
--------------
DIVERSIFIED FINANCIAL SERVICES 1.1%
Citigroup, Inc. ................................ 48,612 2,225,457
CIT Group, Inc. ................................ 47,905 2,190,696
</Table>
See Notes to Financial Statements.
RYDEX S&P EQUAL WEIGHT ETF
SCHEDULE OF INVESTMENTS (continued) October 31, 2005
- --------------------------------------------------------------------------------
18
<Table>
<Caption>
MARKET
SHARES VALUE
- -------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
JPMorgan Chase & Co. ........................... 63,089 $2,310,319
Moody's Corp. .................................. 43,566 2,320,325
Principal Financial Group, Inc. ................ 47,008 2,333,007
--------------
TOTAL DIVERSIFIED FINANCIAL SERVICES
11,379,804
--------------
DIVERSIFIED TELECOMMUNICATION SERVICES 1.4%
AT&T Corp. ..................................... 110,925 2,194,097
BellSouth Corp. ................................ 83,775 2,179,826
CenturyTel, Inc. ............................... 63,270 2,070,827
Citizens Communications Co. .................... 161,130 1,972,231
Qwest Communications International, Inc.*....... 576,363 2,512,943
SBC Communications, Inc. ....................... 91,105 2,172,854
Verizon Communications, Inc. ................... 67,281 2,120,024
--------------
TOTAL DIVERSIFIED TELECOMMUNICATION SERVICES
15,222,802
--------------
ELECTRIC UTILITIES 2.3%
Allegheny Energy, Inc.*......................... 72,758 2,056,141
American Electric Power Co., Inc. .............. 56,762 2,154,686
Cinergy Corp. .................................. 49,729 1,984,187
Edison International............................ 47,219 2,066,303
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- -------------------------------------------------------------------------------
Entergy Corp. .................................. 29,524 $2,087,937
Exelon Corp. ................................... 38,782 2,017,828
FirstEnergy Corp. .............................. 41,911 1,990,773
FPL Group, Inc. ................................ 47,989 2,066,406
Pinnacle West Capital Corp. .................... 48,325 2,018,052
PPL Corp. ...................................... 68,216 2,137,889
Progress Energy, Inc. .......................... 49,617 2,162,805
Southern Co. ................................... 61,047 2,136,035
--------------
TOTAL ELECTRIC UTILITIES 24,879,042
--------------
ELECTRICAL EQUIPMENT 0.8%
American Power Conversion Corp. ................ 83,144 1,778,450
Cooper Industries Ltd. -- Class A............... 31,955 2,265,290
Emerson Electric Co. ........................... 32,801 2,281,309
Rockwell Automation, Inc. ...................... 40,151 2,134,026
--------------
TOTAL ELECTRICAL EQUIPMENT 8,459,075
--------------
ELECTRONIC EQUIPMENT & INSTRUMENTS 1.3%
Agilent Technologies, Inc.*..................... 65,098 2,083,787
Jabil Circuit, Inc.*............................ 75,238 2,245,854
Molex, Inc. .................................... 84,740 2,144,770
Sanmina-SCI Corp.*.............................. 492,739 1,798,497
Solectron Corp.*................................ 567,474 2,003,183
</Table>
See Notes to Financial Statements.
RYDEX S&P EQUAL WEIGHT ETF
SCHEDULE OF INVESTMENTS (continued) October 31, 2005
- --------------------------------------------------------------------------------
19 ANNUAL REPORT
<Table>
<Caption>
MARKET
SHARES VALUE
- -------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
Symbol Technologies, Inc. ...................... 220,087 $1,826,722
Tektronix, Inc. ................................ 82,894 1,904,904
--------------
TOTAL ELECTRONIC EQUIPMENT & INSTRUMENTS
14,007,717
--------------
ENERGY EQUIPMENT & SERVICES 2.0%
Baker Hughes, Inc. ............................. 37,542 2,063,308
BJ Services Co. ................................ 67,693 2,352,332
Halliburton Co. ................................ 33,961 2,007,095
Nabors Industries Ltd.*......................... 31,657 2,172,620
National-Oilwell Varco, Inc.*................... 34,605 2,161,774
Noble Corp. .................................... 31,468 2,025,910
Rowan Cos., Inc. ............................... 60,429 1,993,553
Schlumberger Ltd. .............................. 26,545 2,409,490
Transocean, Inc.*............................... 37,007 2,127,532
Weatherford International Ltd.*................. 31,992 2,002,699
--------------
TOTAL ENERGY EQUIPMENT & SERVICES
21,316,313
--------------
FOOD PRODUCTS 2.3%
Archer-Daniels-Midland Co. ..................... 95,396 2,324,801
Campbell Soup Co. .............................. 73,607 2,141,964
ConAgra Foods, Inc. ............................ 97,246 2,262,914
General Mills, Inc. ............................ 47,606 2,297,466
H.J. Heinz Co. ................................. 61,490 2,182,895
Hershey Co. (The)............................... 38,086 2,164,427
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- -------------------------------------------------------------------------------
Kellogg Co. .................................... 49,055 $2,166,759
McCormick & Co., Inc. .......................... 71,071 2,152,741
Sara Lee Corp. ................................. 116,244 2,074,955
Tyson Foods, Inc. -- Class A.................... 122,637 2,182,939
Wm. Wrigley Jr Co. ............................. 32,006 2,224,417
--------------
TOTAL FOOD PRODUCTS 24,176,278
--------------
FOOD & STAPLES RETAILING 1.8%
Albertson's, Inc. .............................. 84,903 2,131,914
Costco Wholesale Corp. ......................... 51,111 2,471,728
CVS Corp. ...................................... 73,952 1,805,168
Kroger Co.*..................................... 107,420 2,137,658
Safeway, Inc.*.................................. 88,123 2,049,741
SUPERVALU, Inc. ................................ 69,967 2,199,063
Sysco Corp. .................................... 67,569 2,156,127
Wal-Mart Stores, Inc. .......................... 50,319 2,380,592
Walgreen Co. ................................... 48,870 2,220,164
--------------
TOTAL FOOD & STAPLES RETAILING
19,552,155
--------------
GAS UTILITIES 0.4%
Nicor, Inc. .................................... 52,710 2,066,232
Peoples Energy Corp. ........................... 51,265 1,907,058
--------------
TOTAL GAS UTILITIES 3,973,290
--------------
HEALTH CARE EQUIPMENT & SUPPLIES 3.3%
Bausch & Lomb, Inc. ............................ 28,003 2,077,543
Baxter International, Inc. ..................... 54,171 2,070,957
</Table>
See Notes to Financial Statements.
RYDEX S&P EQUAL WEIGHT ETF
SCHEDULE OF INVESTMENTS (continued) October 31, 2005
- --------------------------------------------------------------------------------
20
<Table>
<Caption>
MARKET
SHARES VALUE
- -------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
Becton, Dickinson & Co. ........................ 41,008 $2,081,156
Biomet, Inc. ................................... 60,396 2,103,593
Boston Scientific Corp.*........................ 91,218 2,291,396
C.R. Bard, Inc. ................................ 32,703 2,040,013
Fisher Scientific International, Inc.*.......... 35,073 1,981,625
Guidant Corp. .................................. 32,226 2,030,238
Hospira, Inc.*.................................. 53,801 2,143,970
Medtronic, Inc. ................................ 38,728 2,194,328
Millipore Corp.*................................ 34,310 2,100,458
PerkinElmer, Inc. .............................. 109,065 2,407,065
St. Jude Medical, Inc.*......................... 47,524 2,284,479
Stryker Corp. .................................. 43,974 1,806,012
Thermo Electron Corp.*.......................... 71,555 2,160,245
Waters Corp.*................................... 51,337 1,858,399
Zimmer Holdings, Inc.*.......................... 30,528 1,946,771
--------------
TOTAL HEALTH CARE EQUIPMENT & SUPPLIES
35,578,248
--------------
HEALTH CARE PROVIDERS & SERVICES 3.9%
Aetna, Inc. .................................... 26,957 2,387,312
AmerisourceBergen Corp. ........................ 28,221 2,152,416
Cardinal Health, Inc. .......................... 34,835 2,177,536
Caremark Rx, Inc.*.............................. 44,713 2,342,961
CIGNA Corp. .................................... 19,179 2,222,271
Coventry Health Care, Inc.*..................... 39,042 2,107,851
Express Scripts, Inc.*.......................... 35,754 2,696,209
HCA, Inc. ...................................... 44,488 2,143,877
Health Management Associates, Inc. -- Class A... 94,055 2,013,718
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- -------------------------------------------------------------------------------
Humana, Inc.*................................... 44,940 $1,994,887
IMS Health, Inc. ............................... 81,758 1,899,238
Laboratory Corporation of America Holdings*..... 45,979 2,218,487
Manor Care, Inc. ............................... 56,284 2,096,579
McKesson Corp. ................................. 47,503 2,158,061
Medco Health Solutions, Inc.*................... 40,415 2,283,447
Patterson Cos., Inc.*........................... 6,639 274,722
Quest Diagnostics, Inc. ........................ 43,843 2,047,906
Tenet Healthcare Corp.*......................... 189,320 1,594,074
UnitedHealth Group, Inc. ....................... 40,841 2,364,285
WellPoint, Inc.*................................ 29,815 2,226,584
--------------
TOTAL HEALTH CARE PROVIDERS & SERVICES
41,402,421
--------------
HOTELS, RESTAURANTS & LEISURE 2.2%
Carnival Corp. ................................. 45,023 2,236,292
Darden Restaurants, Inc. ....................... 72,022 2,334,953
Harrah's Entertainment, Inc. ................... 31,531 1,906,995
Hilton Hotels Corp. ............................ 99,931 1,943,658
International Game Technology, Inc. ............ 80,565 2,134,167
</Table>
See Notes to Financial Statements.
RYDEX S&P EQUAL WEIGHT ETF
SCHEDULE OF INVESTMENTS (continued) October 31, 2005
- --------------------------------------------------------------------------------
21 ANNUAL REPORT
<Table>
<Caption>
MARKET
SHARES VALUE
- -------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
Marriott International, Inc. -- Class A......... 35,894 $2,140,000
McDonald's Corp. ............................... 64,471 2,037,284
Starbucks Corp.*................................ 93,977 2,657,670
Starwood Hotels & Resorts Worldwide, Inc. ...... 37,741 2,205,207
Wendy's International, Inc. .................... 46,650 2,179,488
Yum! Brands, Inc. .............................. 43,643 2,220,119
--------------
TOTAL HOTELS, RESTAURANTS & LEISURE
23,995,833
--------------
HOUSEHOLD DURABLES 2.5%
Black & Decker Corp. ........................... 26,532 2,179,073
Centex Corp. ................................... 33,821 2,176,382
D.R. Horton, Inc. .............................. 60,896 1,868,898
Fortune Brands, Inc. ........................... 25,564 1,942,097
KB HOME......................................... 29,433 1,923,447
Leggett & Platt, Inc. .......................... 94,741 1,898,610
Lennar Corp. -- Class A......................... 38,823 2,157,782
Maytag Corp. ................................... 119,001 2,049,197
Newell Rubbermaid, Inc. ........................ 94,417 2,170,647
Pulte Homes, Inc. .............................. 50,237 1,898,456
Snap-On, Inc. .................................. 62,588 2,254,420
Stanley Works................................... 47,812 2,291,629
Whirlpool Corp. ................................ 28,476 2,235,366
--------------
TOTAL HOUSEHOLD DURABLES 27,046,004
--------------
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- -------------------------------------------------------------------------------
HOUSEHOLD PRODUCTS 0.8%
Clorox Co. ..................................... 38,126 $2,063,379
Colgate-Palmolive Co. .......................... 41,169 2,180,310
Kimberly-Clark Corp. ........................... 35,274 2,004,974
Procter & Gamble Co. ........................... 39,136 2,191,200
--------------
TOTAL HOUSEHOLD PRODUCTS 8,439,863
--------------
INDEPENDENT POWER PRODUCERS & ENERGY TRADERS 1.1%
AES Corp.*...................................... 145,229 2,307,689
Calpine Corp.*.................................. 689,836 1,641,810
Constellation Energy Group, Inc. ............... 36,218 1,984,746
Duke Energy Corp. .............................. 75,186 1,990,925
Dynegy, Inc. -- Class A*........................ 473,707 2,103,259
TXU Corp. ...................................... 20,747 2,090,260
--------------
TOTAL INDEPENDENT POWER PRODUCERS & ENERGY TRADERS
12,118,689
--------------
INDUSTRIAL CONGLOMERATES 0.8%
3M Co. ......................................... 30,095 2,286,618
General Electric Co. ........................... 64,040 2,171,596
Textron, Inc. .................................. 31,241 2,250,602
Tyco International Ltd. ........................ 73,927 1,950,934
--------------
TOTAL INDUSTRIAL CONGLOMERATES
8,659,750
--------------
INSURANCE 4.7%
ACE Ltd. ....................................... 46,660 2,430,986
AFLAC, Inc. .................................... 48,251 2,305,433
Allstate Corp. ................................. 40,041 2,113,764
Ambac Financial Group, Inc. .................... 31,813 2,255,224
</Table>
See Notes to Financial Statements.
RYDEX S&P EQUAL WEIGHT ETF
SCHEDULE OF INVESTMENTS (continued) October 31, 2005
- --------------------------------------------------------------------------------
22
<Table>
<Caption>
MARKET
SHARES VALUE
- -------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
American International Group, Inc. ............. 36,011 $2,333,513
Aon Corp. ...................................... 69,724 2,360,157
Chubb Corp. .................................... 24,362 2,264,935
Cincinnati Financial Corp. ..................... 52,534 2,235,322
Hartford Financial Services Group, Inc. ........ 28,939 2,307,885
Jefferson-Pilot Corp. .......................... 43,437 2,383,823
Lincoln National Corp. ......................... 42,248 2,138,171
Loews Corp. .................................... 23,718 2,205,300
Marsh & McLennan Cos., Inc. .................... 76,146 2,219,656
MBIA, Inc. ..................................... 37,929 2,208,985
MetLife, Inc. .................................. 43,974 2,172,755
Progressive Corp. .............................. 21,638 2,505,897
Prudential Financial, Inc. ..................... 32,573 2,370,989
SAFECO Corp. ................................... 40,978 2,282,475
St. Paul Travelers Cos., Inc. .................. 50,747 2,285,137
Torchmark Corp. ................................ 41,729 2,204,543
UnumProvident Corp. ............................ 109,443 2,220,598
XL Capital Ltd. -- Class A...................... 31,223 2,000,145
--------------
TOTAL INSURANCE 49,805,693
--------------
INTERNET & CATALOG RETAIL 0.2%
eBay, Inc.*..................................... 59,389 2,351,804
--------------
TOTAL INTERNET & CATALOG RETAIL
2,351,804
--------------
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- -------------------------------------------------------------------------------
INTERNET SOFTWARE & SERVICES 0.2%
Yahoo!, Inc.*................................... 66,550 $2,460,354
--------------
TOTAL INTERNET SOFTWARE & SERVICES
2,460,354
--------------
IT SERVICES 2.1%
Affiliated Computer Services, Inc. -- Class
A*............................................ 40,925 2,214,452
Automatic Data Processing, Inc. ................ 52,937 2,470,040
Computer Sciences Corp.*........................ 48,870 2,504,587
Convergys Corp.*................................ 152,240 2,473,900
Electronic Data Systems Corp. .................. 96,354 2,246,012
First Data Corp. ............................... 52,039 2,104,978
Fiserv, Inc.*................................... 49,329 2,154,691
Paychex, Inc. .................................. 65,699 2,546,493
Sabre Holdings Corp. ........................... 112,799 2,202,964
Unisys Corp.*................................... 318,999 1,630,085
--------------
TOTAL IT SERVICES 22,548,202
--------------
LEISURE EQUIPMENT & PRODUCTS 0.7%
Brunswick Corp. ................................ 50,341 1,919,502
Eastman Kodak Co. .............................. 86,874 1,902,541
Hasbro, Inc. ................................... 101,260 1,907,738
Mattel, Inc. ................................... 121,825 1,796,919
--------------
TOTAL LEISURE EQUIPMENT & PRODUCTS
7,526,700
--------------
MACHINERY 2.5%
Caterpillar, Inc. .............................. 38,245 2,011,304
Cummins, Inc. .................................. 23,989 2,047,941
Danaher Corp. .................................. 42,289 2,203,257
Deere & Co. .................................... 35,291 2,141,458
</Table>
See Notes to Financial Statements.
RYDEX S&P EQUAL WEIGHT ETF
SCHEDULE OF INVESTMENTS (continued) October 31, 2005
- --------------------------------------------------------------------------------
23 ANNUAL REPORT
<Table>
<Caption>
MARKET
SHARES VALUE
- -------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
Dover Corp. .................................... 53,321 $2,078,453
Eaton Corp. .................................... 34,459 2,027,223
Illinois Tool Works, Inc. ...................... 27,056 2,293,266
Ingersoll-Rand Co. -- Class A................... 55,772 2,107,624
ITT Industries, Inc. ........................... 19,638 1,995,221
Navistar International Corp.*................... 64,983 1,788,332
PACCAR, Inc. ................................... 31,166 2,182,243
Pall Corp. ..................................... 78,141 2,044,169
Parker Hannifin Corp. .......................... 33,071 2,072,890
--------------
TOTAL MACHINERY 26,993,381
--------------
MEDIA 3.1%
Clear Channel Communications, Inc. ............. 65,757 2,000,328
Comcast Corp. -- Class A*....................... 72,974 2,030,866
Dow Jones & Co., Inc. .......................... 54,871 1,860,676
Gannett Co., Inc. .............................. 31,078 1,947,348
Interpublic Group of Cos., Inc.*................ 195,872 2,023,358
Knight-Ridder, Inc. ............................ 36,367 1,941,270
McGraw-Hill Cos., Inc. ......................... 46,085 2,255,400
Meredith Corp. ................................. 44,000 2,195,600
New York Times Co. -- Class A................... 68,048 1,853,628
News Corp. -- Class A........................... 137,452 1,958,691
Omnicom Group................................... 26,264 2,178,861
Time Warner, Inc.*.............................. 116,798 2,082,508
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- -------------------------------------------------------------------------------
Tribune Co. .................................... 58,709 $1,849,921
Univision Communications, Inc. -- Class A*...... 86,840 2,269,998
Viacom, Inc. -- Class B......................... 64,320 1,991,990
Walt Disney Co. ................................ 91,558 2,231,268
--------------
TOTAL MEDIA 32,671,711
--------------
METALS & MINING 1.4%
Alcoa, Inc. .................................... 82,739 2,009,730
Allegheny Technologies, Inc. ................... 76,067 2,183,884
Freeport-McMoRan Copper & Gold, Inc. -- Class
B............................................. 50,399 2,490,719
Newmont Mining Corp. ........................... 47,770 2,035,002
Nucor Corp. .................................... 36,976 2,213,014
Phelps Dodge Corp. ............................. 19,535 2,353,381
United States Steel Corp. ...................... 49,055 1,791,979
--------------
TOTAL METALS & MINING 15,077,709
--------------
MULTI-UTILITIES 2.5%
Ameren Corp. ................................... 39,216 2,062,762
CenterPoint Energy, Inc. ....................... 145,901 1,931,729
CMS Energy Corp.*............................... 133,141 1,985,132
Consolidated Edison, Inc. ...................... 44,831 2,039,811
Dominion Resources, Inc......................... 26,738 2,034,227
DTE Energy Co. ................................. 47,729 2,061,893
KeySpan Corp. .................................. 57,802 1,998,215
NiSource, Inc. ................................. 90,433 2,138,740
</Table>
See Notes to Financial Statements.
RYDEX S&P EQUAL WEIGHT ETF
SCHEDULE OF INVESTMENTS (continued) October 31, 2005
- --------------------------------------------------------------------------------
24
<Table>
<Caption>
MARKET
SHARES VALUE
- -------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
PG&E Corp. ..................................... 57,129 $2,078,353
Public Service Enterprise Group, Inc. .......... 32,607 2,050,654
Sempra Energy................................... 47,209 2,091,359
TECO Energy, Inc. .............................. 121,557 2,102,936
Xcel Energy, Inc. .............................. 111,376 2,041,522
--------------
TOTAL MULTI-UTILITIES 26,617,333
--------------
MULTILINE RETAIL 2.0%
Big Lots, Inc.*................................. 191,788 2,218,987
Dillard's, Inc. -- Class A...................... 98,023 2,030,056
Dollar General Corp. ........................... 115,213 2,239,741
Family Dollar Stores, Inc. ..................... 103,930 2,301,010
Federated Department Stores, Inc. .............. 33,265 2,041,473
J.C. Penney Holding Co., Inc. .................. 45,051 2,306,611
Kohl's Corp.*................................... 42,007 2,021,797
Nordstrom, Inc. ................................ 61,524 2,131,807
Sears Holdings Corp.*........................... 17,769 2,136,722
Target Corp. ................................... 41,416 2,306,457
--------------
TOTAL MULTILINE RETAIL 21,734,661
--------------
OFFICE ELECTRONICS 0.2%
Xerox Corp.*.................................... 157,789 2,141,197
--------------
TOTAL OFFICE ELECTRONICS 2,141,197
--------------
OIL, GAS & CONSUMABLE FUELS 3.7%
Amerada Hess Corp. ............................. 16,533 2,068,278
Anadarko Petroleum Corp. ....................... 23,602 2,140,937
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- -------------------------------------------------------------------------------
Apache Corp. ................................... 30,066 $1,919,113
Burlington Resources, Inc. ..................... 29,331 2,118,285
Chevron Corp. .................................. 34,829 1,987,691
ConocoPhillips.................................. 31,923 2,087,126
Devon Energy Corp. ............................. 35,376 2,136,003
El Paso Corp. .................................. 172,729 2,048,566
EOG Resources, Inc. ............................ 31,241 2,117,515
Exxon Mobil Corp. .............................. 34,654 1,945,476
Kerr-McGee Corp. ............................... 23,501 1,998,525
Kinder Morgan, Inc. ............................ 23,239 2,112,425
Marathon Oil Corp. ............................. 32,463 1,952,974
Murphy Oil Corp. ............................... 44,867 2,102,019
Occidental Petroleum Corp. ..................... 25,505 2,011,834
Sunoco, Inc. ................................... 30,021 2,236,565
Valero Energy Corp. ............................ 20,430 2,150,053
Williams Cos., Inc. ............................ 93,577 2,086,767
XTO Energy, Inc. ............................... 55,256 2,401,426
--------------
TOTAL OIL, GAS & CONSUMABLE FUELS
39,621,578
--------------
PAPER & FOREST PRODUCTS 1.0%
Georgia-Pacific Corp. .......................... 64,584 2,100,918
International Paper Co. ........................ 69,923 2,040,353
Louisiana-Pacific Corp. ........................ 81,637 2,035,210
</Table>
See Notes to Financial Statements.
RYDEX S&P EQUAL WEIGHT ETF
SCHEDULE OF INVESTMENTS (continued) October 31, 2005
- --------------------------------------------------------------------------------
25 ANNUAL REPORT
<Table>
<Caption>
MARKET
SHARES VALUE
- -------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
MeadWestvaco Corp. ............................. 76,622 $2,009,029
Weyerhaeuser Co. ............................... 32,482 2,057,410
--------------
TOTAL PAPER & FOREST PRODUCTS
10,242,920
--------------
PERSONAL PRODUCTS 0.4%
Alberto-Culver Co. -- Class B................... 49,440 2,146,191
Avon Products, Inc. ............................ 68,470 1,848,005
--------------
TOTAL PERSONAL PRODUCTS 3,994,196
--------------
PHARMACEUTICALS 2.5%
Abbott Laboratories............................. 50,468 2,172,648
Allergan, Inc. ................................. 23,397 2,089,352
Bristol-Myers Squibb Co. ....................... 88,264 1,868,549
Eli Lilly & Co. ................................ 39,990 1,991,102
Forest Laboratories, Inc.*...................... 50,700 1,922,037
Johnson & Johnson............................... 33,867 2,120,752
King Pharmaceuticals, Inc.*..................... 141,505 2,183,422
Merck & Co, Inc. ............................... 76,383 2,155,528
Mylan Laboratories, Inc. ....................... 120,430 2,313,460
Pfizer, Inc. ................................... 85,231 1,852,922
Schering-Plough Corp. .......................... 105,118 2,138,100
Watson Pharmaceuticals, Inc.*................... 62,077 2,145,381
Wyeth........................................... 48,346 2,154,298
--------------
TOTAL PHARMACEUTICALS 27,107,551
--------------
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- -------------------------------------------------------------------------------
REAL ESTATE 1.8%
Apartment Investment & Management Co. -- Class
A............................................. 55,999 $2,150,361
Archstone-Smith Trust........................... 54,506 2,211,308
Equity Office Properties Trust.................. 66,671 2,053,467
Equity Residential Properties Trust............. 56,967 2,235,955
Plum Creek Timber Co., Inc. .................... 56,762 2,208,042
ProLogis........................................ 47,989 2,063,527
Public Storage, Inc. ........................... 32,559 2,155,406
Simon Property Group, Inc. ..................... 29,390 2,104,912
Vornado Realty Trust............................ 25,159 2,037,879
--------------
TOTAL REAL ESTATE 19,220,857
--------------
ROAD & RAIL 0.9%
Burlington Northern Santa Fe Corp. ............. 39,617 2,458,631
CSX Corp. ...................................... 49,066 2,247,714
Norfolk Southern Corp. ......................... 59,166 2,378,473
Union Pacific Corp. ............................ 32,535 2,250,771
--------------
TOTAL ROAD & RAIL 9,335,589
--------------
SEMICONDUCTOR & SEMICONDUCTOR EQUIPMENT 3.7%
Advanced Micro Devices, Inc.*................... 97,460 2,263,021
Altera Corp.*................................... 115,153 1,917,297
Analog Devices, Inc. ........................... 58,322 2,028,439
</Table>
See Notes to Financial Statements.
RYDEX S&P EQUAL WEIGHT ETF
SCHEDULE OF INVESTMENTS (continued) October 31, 2005
- --------------------------------------------------------------------------------
26
<Table>
<Caption>
MARKET
SHARES VALUE
- -------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
Applied Materials, Inc.......................... 123,185 $2,017,770
Applied Micro Circuits Corp.*................... 771,844 1,883,299
Broadcom Corp. -- Class A*...................... 48,104 2,042,496
Freescale Semiconductor, Inc. -- Class A*....... 92,055 2,198,273
Intel Corp. .................................... 88,975 2,090,913
KLA-Tencor Corp. ............................... 43,869 2,030,696
Linear Technology Corp. ........................ 57,546 1,911,103
LSI Logic Corp.*................................ 232,366 1,884,488
Maxim Integrated Products, Inc. ................ 50,491 1,751,028
Micron Technology, Inc.......................... 172,324 2,238,489
National Semiconductor Corp. ................... 88,975 2,013,504
Novellus Systems, Inc.*......................... 86,095 1,882,037
NVIDIA Corp.*................................... 66,390 2,227,384
PMC -- Sierra, Inc.*............................ 249,151 1,768,972
Teradyne, Inc.*................................. 135,594 1,835,943
Texas Instruments, Inc. ........................ 67,301 1,921,444
Xilinx, Inc. ................................... 80,068 1,917,629
--------------
TOTAL SEMICONDUCTOR & SEMICONDUCTOR EQUIPMENT
39,824,225
--------------
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- -------------------------------------------------------------------------------
SOFTWARE 3.1%
Adobe Systems, Inc. ............................ 75,008 $2,419,008
Autodesk, Inc. ................................. 52,088 2,350,731
BMC Software, Inc.*............................. 103,105 2,019,827
Citrix Systems, Inc.*........................... 87,877 2,422,769
Computer Associates International, Inc. ........ 79,348 2,219,364
Compuware Corp.*................................ 232,366 1,879,841
Electronic Arts, Inc.*.......................... 36,433 2,072,309
Intuit, Inc.*................................... 48,559 2,230,315
Mercury Interactive Corp.*...................... 57,203 1,990,092
Microsoft Corp. ................................ 84,675 2,176,148
Novell, Inc.*................................... 304,900 2,323,338
Oracle Corp.*................................... 166,602 2,112,513
Parametric Technology Corp.*.................... 331,453 2,157,759
Siebel Systems, Inc............................. 214,110 2,216,038
Symantec Corp.*................................. 100,660 2,400,741
--------------
TOTAL SOFTWARE 32,990,793
--------------
SPECIALTY RETAIL 3.2%
AutoNation, Inc.*............................... 107,840 2,143,859
AutoZone, Inc.*................................. 23,731 1,919,838
Bed Bath & Beyond, Inc.*........................ 55,118 2,233,381
Best Buy Co., Inc. ............................. 49,977 2,211,982
Circuit City Stores, Inc. ...................... 137,537 2,446,783
Home Depot, Inc. ............................... 55,325 2,270,538
</Table>
See Notes to Financial Statements.
RYDEX S&P EQUAL WEIGHT ETF
SCHEDULE OF INVESTMENTS (continued) October 31, 2005
- --------------------------------------------------------------------------------
27 ANNUAL REPORT
<Table>
<Caption>
MARKET
SHARES VALUE
- -------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
Limited Brands, Inc. ........................... 108,529 $2,171,665
Lowe's Cos., Inc. .............................. 33,753 2,051,170
Office Depot, Inc.*............................. 74,276 2,044,818
OfficeMax, Inc. ................................ 67,548 1,892,695
RadioShack Corp. ............................... 86,568 1,913,153
Sherwin-Williams Co. ........................... 47,916 2,038,826
Staples, Inc. .................................. 104,077 2,365,670
The Gap, Inc. .................................. 122,637 2,119,167
Tiffany & Co. .................................. 58,461 2,303,364
TJX Cos., Inc. ................................. 104,620 2,252,469
--------------
TOTAL SPECIALTY RETAIL 34,379,378
--------------
TEXTILES, APPAREL & LUXURY GOODS 1.2%
Coach, Inc.*.................................... 68,640 2,208,835
Jones Apparel Group, Inc. ...................... 79,981 2,181,882
Liz Claiborne, Inc. ............................ 54,291 1,911,043
NIKE, Inc. -- Class B........................... 28,135 2,364,747
Reebok International Ltd. ...................... 39,098 2,230,541
V.F. Corp. ..................................... 36,457 1,904,878
--------------
TOTAL TEXTILES, APPAREL & LUXURY GOODS
12,801,926
--------------
THRIFTS & MORTGAGE FINANCE 1.4%
Countrywide Financial Corp. .................... 62,819 1,995,759
Federal Home Ln. Mtg. Corp...................... 36,982 2,268,846
Federal Nat'l Mtg. Assn......................... 45,741 2,173,612
</Table>
<Table>
<Caption>
MARKET
SHARES VALUE
- -------------------------------------------------------------------------------
Golden West Financial Corp. .................... 35,871 $2,106,704
MGIC Investment Corp. .......................... 34,203 2,026,186
Sovereign Bancorp, Inc. ........................ 94,579 2,040,069
Washington Mutual, Inc. ........................ 52,310 2,071,476
--------------
TOTAL THRIFTS & MORTGAGE FINANCE
14,682,652
--------------
TOBACCO 0.6%
Altria Group, Inc. ............................. 30,181 2,265,084
Reynolds American, Inc. ........................ 27,293 2,319,905
UST, Inc. ...................................... 54,519 2,256,541
--------------
TOTAL TOBACCO 6,841,530
--------------
TRADING COMPANIES & DISTRIBUTORS 0.2%
W.W. Grainger, Inc. ............................ 34,156 2,287,769
--------------
TOTAL TRADING COMPANIES & DISTRIBUTORS
2,287,769
--------------
WIRELESS TELECOMMUNICATION SERVICES 0.4%
ALLTEL Corp. ................................... 34,956 2,162,378
Sprint Nextel Corp. ............................ 86,977 2,027,434
--------------
TOTAL WIRELESS TELECOMMUNICATION SERVICES
4,189,812
--------------
TOTAL COMMON STOCKS
(Cost $1,047,823,172)........................... 1,069,078,784
--------------
</Table>
See Notes to Financial Statements.
RYDEX S&P EQUAL WEIGHT ETF
SCHEDULE OF INVESTMENTS (continued) October 31, 2005
- --------------------------------------------------------------------------------
28
<Table>
<Caption>
MARKET
SHARES VALUE
- -------------------------------------------------------------------------------
SHORT TERM INVESTMENTS 0.2%
Short-Term Investment Co. ...................... 2,140,912 $2,140,912
--------------
TOTAL SHORT TERM INVESTMENTS
(Cost $2,140,912)............................... 2,140,912
--------------
TOTAL INVESTMENTS 100.0%
(Cost $1,049,964,084)........................... 1,071,219,696
--------------
OTHER ASSETS IN EXCESS OF LIABILITIES-- 0.0%(A)
189,872
--------------
NET ASSETS--100.0% $1,071,409,568
- -------------------------------------------------------------------------------
</Table>
(a) Amount represents less than 0.05% of net assets.
* Non-Income Producing Security.
See Notes to Financial Statements.
29 ANNUAL REPORT
STATEMENTS OF ASSETS
AND LIABILITIES October 31, 2005
- --------------------------------------------------------------------------------
<Table>
<Caption>
RYDEX S&P
RYDEX RUSSELL EQUAL
TOP 50 ETF WEIGHT ETF
------------- --------------
ASSETS
Investments at market value (Cost
$139,077,182 and $1,049,964,084,
respectively).......................... $137,014,757 $1,071,219,696
Receivables:
Dividends.............................. 116,389 889,640
------------ --------------
TOTAL ASSETS......................... 137,131,146 1,072,109,336
------------ --------------
LIABILITIES
Payables:
Accrued Management Fees................ 45,925 699,768
------------ --------------
TOTAL LIABILITIES.................... 45,925 699,768
------------ --------------
NET ASSETS............................... $137,085,221 $1,071,409,568
============ ==============
NET ASSETS CONSIST OF:
Paid-in Capital.......................... $139,033,869 $1,055,693,728
Undistributed Net Investment Income...... 202,245 569,892
Accumulated Net Realized Gain/(Loss) on
Investments............................ (88,468) (6,109,664)
Net Unrealized
Appreciation/(Depreciation) on
Investments............................ (2,062,425) 21,255,612
------------ --------------
NET ASSETS............................... $137,085,221 $1,071,409,568
============ ==============
Shares Outstanding (Unlimited Shares
Authorized), No Par Value.............. 1,500,000 6,751,000
============ ==============
Net Asset Value, Offering Price and
Repurchase Price Per Share............. $ 91.39 $ 158.70
============ ==============
</Table>
See Notes to Financial Statements.
30
STATEMENTS OF OPERATIONS For the Period Ended
October 31, 2005
- --------------------------------------------------------------------------------
<Table>
<Caption>
RYDEX S&P
RYDEX RUSSELL EQUAL
TOP 50 ETF* WEIGHT ETF
------------- -----------
INVESTMENT INCOME
Dividends................................ $ 971,677 $12,782,316
----------- -----------
Total Income........................... 971,677 12,782,316
----------- -----------
EXPENSES
Management Fee........................... 99,610 3,381,391
----------- -----------
Net Investment Income...................... 872,067 9,400,925
----------- -----------
REALIZED AND UNREALIZED GAIN/(LOSS) ON
INVESTMENTS
Net Realized Gain/(Loss) From:
Investments.............................. (88,468) (5,784,906)
In-kind Redemptions...................... (10,379) 70,272,626
----------- -----------
Net Realized Gain/(Loss)............... (98,847) 64,487,720
Net Change in Unrealized
Appreciation/(Depreciation) on
Investments.............................. (2,062,425) 319,080
----------- -----------
Net Realized and Unrealized Gain/(Loss) on
Investments.............................. (2,161,272) 64,806,800
----------- -----------
NET INCREASE/(DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS............ $(1,289,205) $74,207,725
=========== ===========
</Table>
* The Fund commenced operations on May 4, 2005.
See Notes to Financial Statements.
31 ANNUAL REPORT
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<Table>
<Caption>
RYDEX RUSSELL RYDEX S&P
TOP 50 ETF EQUAL WEIGHT ETF
---------------- -----------------------------------
FOR THE PERIOD
MAY 4, 2005*
THROUGH YEAR ENDED YEAR ENDED
OCTOBER 31, 2005 OCTOBER 31, 2005 OCTOBER 31, 2004
---------------- ---------------- ----------------
OPERATIONS
Net Investment Income............. $ 872,067 $ 9,400,925 $ 3,357,469
Net Realized Gain/(Loss).......... (98,847) 64,487,720 26,567,768
Net Change in Unrealized
Appreciation/ (Depreciation) on
Investments..................... (2,062,425) 319,080 2,736,534
------------ -------------- -------------
Net Increase/(Decrease) in Net
Assets Resulting From
Operations...................... (1,289,205) 74,207,725 32,661,771
------------ -------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS FROM
Net Investment Income............. (669,822) (8,884,060) (3,196,596)
------------ -------------- -------------
SHAREHOLDER TRANSACTIONS
Proceeds From Shares Sold......... 143,626,041 673,529,856 423,777,066
Value of Shares Repurchased....... (4,581,793) (153,080,243) (144,741,249)
------------ -------------- -------------
Net Increase in Net Assets
Resulting From Share
Transactions.................... 139,044,248 520,449,613 279,035,817
------------ -------------- -------------
Increase in Net Assets.......... 137,085,221 585,773,278 308,500,992
NET ASSETS--BEGINNING OF PERIOD..... -- 485,636,290 177,135,298
------------ -------------- -------------
NET ASSETS--END OF PERIOD+.......... $137,085,221 $1,071,409,568 $ 485,636,290
============ ============== =============
+Including Undistributed Net
Investment Income................. $ 202,245 $ 569,892 $ 314,137
============ ============== =============
CHANGES IN SHARES OUTSTANDING:
Shares Sold....................... 1,550,000 4,350,000 3,050,000
Shares Repurchased................ (50,000) (1,000,000) (1,050,000)
Shares Outstanding, Beginning of
Period.......................... -- 3,401,000 1,401,000
------------ -------------- -------------
Shares Outstanding, End of
Period.......................... 1,500,000 6,751,000 3,401,000
============ ============== =============
</Table>
* Commencement of investment operations.
See Notes to Financial Statements.
32
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<Table>
<Caption>
RYDEX RUSSELL
TOP 50 ETF
----------------
FOR THE PERIOD
MAY 4, 2005*
THROUGH
OCTOBER 31, 2005
----------------
PER SHARE OPERATING PERFORMANCE:
NET ASSET VALUE AT BEGINNING OF PERIOD............... $91.51
----------------
Net Investment Income**.............................. 0.79
Net Realized and Unrealized Gain on Investments**.... (0.46)
----------------
TOTAL FROM INVESTMENT OPERATIONS..................... 0.33
----------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net Investment Income................................ (0.45)
----------------
NET ASSET VALUE AT END OF PERIOD..................... $91.39
================
TOTAL RETURN***...................................... 0.36%
RATIOS/SUPPLEMENTAL DATA:
Net assets at End of Period (000's omitted).......... $137,085
RATIO TO AVERAGE NET ASSETS OF:
Expenses............................................. 0.20%****
Net Investment Income................................ 1.74%****
Portfolio Turnover Rate+............................. 1%
</Table>
* Commencement of investment operations.
** Based on average shares outstanding.
*** Total investment return is calculated assuming an initial investment made
at the net asset value at the beginning of the period, reinvestment of
all dividends and distributions at net asset value during the period, and
redemption on the last day of the period. Transaction fees and broker
commission charges are not reflected in the calculation of total
investment return. Total investment return calculated for a period of
less than one year is not annualized.
**** Annualized.
+ Portfolio turnover is not annualized and does not include securities
received or delivered from processing creations or redemptions.
See Notes to Financial Statements.
33 ANNUAL REPORT
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<Table>
<Caption>
RYDEX S&P EQUAL WEIGHT ETF
------------------------------------------------------
FOR THE PERIOD
APRIL 24, 2003*
YEAR ENDED YEAR ENDED THROUGH
OCTOBER 31, 2005 OCTOBER 31, 2004 OCTOBER 31, 2003
---------------- ---------------- ----------------
PER SHARE OPERATING PERFORMANCE:
NET ASSET VALUE AT BEGINNING OF
PERIOD.......................... $142.79 $126.43 $101.03
---------------- ---------------- ----------------
Net Investment Income**........... 1.73 1.48 0.70
Net Realized and Unrealized Gain
on Investments**................ 15.78 16.30 25.32
---------------- ---------------- ----------------
TOTAL FROM INVESTMENT
OPERATIONS...................... 17.51 17.78 26.02
---------------- ---------------- ----------------
DISTRIBUTIONS TO SHAREHOLDERS
FROM:
Net Investment Income............. (1.60) (1.42) (0.62)
---------------- ---------------- ----------------
NET ASSET VALUE AT END OF
PERIOD.......................... $158.70 $142.79 $126.43
================ ================ ================
TOTAL RETURN***................... 12.29% 14.11% 25.77%
RATIOS/SUPPLEMENTAL DATA:
Net Assets at End of Period (000's
omitted)........................ $1,071,410 $485,636 $177,135
RATIO TO AVERAGE NET ASSETS OF:
Expenses.......................... 0.40% 0.40% 0.40%****
Net Investment Income............. 1.11% 1.09% 1.13%****
Portfolio Turnover Rate+.......... 22% 55% 42%
</Table>
* Commencement of investment operations.
** Based on average shares outstanding.
*** Total investment return is calculated assuming an initial investment made
at the net asset value at the beginning of the period, reinvestment of
all dividends and distributions at net asset value during the period, and
redemption on the last day of the period. Transaction fees and broker
commission charges are not reflected in the calculation of total
investment return. Total investment return calculated for a period of
less than one year is not annualized.
**** Annualized.
+ Portfolio turnover is not annualized and does not include securities
received or delivered from processing creations or redemptions.
See Notes to Financial Statements.
34
NOTES TO FINANCIAL STATEMENTS October 31, 2005
- --------------------------------------------------------------------------------
1. ORGANIZATION
Rydex ETF Trust (the "Trust") is an open-ended management investment company
registered under the Investment Company Act of 1940, as amended (the "1940
Act"). The Trust was organized as a Delaware statutory trust on November 22,
2002. The Trust currently consists of two series, Rydex S&P Equal Weight ETF and
Rydex Russell Top 50 ETF (the "Funds"). Rydex S&P Equal Weight ETF commenced
operations on April 24, 2003 and Rydex Russell Top 50 ETF commenced operations
on May 4, 2005.
The Funds' investment objective is to provide investment results that correspond
generally to the price and yield performance, before fees and expenses, of an
index representing publicly traded equity securities (the "Underlying Index").
The Rydex Russell Top 50 ETF tracks the Russell Top 50 Total Return Index and
the Rydex S&P Equal Weight ETF tracks the S&P Equal Weight Total Return Index.
The Funds seek to achieve their objective by investing in common stocks that
comprise the Underlying Index. The Funds use a "replication" strategy to track
the Underlying Index. "Replication" refers to investing in substantially all of
the securities in the Underlying Index in approximately the same proportions as
in the Underlying Index.
The Funds operate as index funds and are not actively managed. Adverse
performance of a security in the Funds portfolio will ordinarily not result in
the elimination of the security from the Funds portfolio.
The Funds issue and redeem shares on a continuous basis, at net asset value,
only in aggregations of 50,000 shares called a "Creation Unit". Creation Units
are issued and redeemed principally in-kind for securities included in the
Underlying Index.
2. SIGNIFICANT ACCOUNTING POLICIES
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets,
liabilities and disclosures at the date of the financial statements and
accompanying notes. Management believes that the estimates utilized in preparing
the Funds financial statements are reasonable and prudent; however, actual
results could differ from these estimates.
A. SECURITY VALUATION
Securities listed on a domestic securities exchange are valued based on the last
sale price as of the close of regular trading hours on the New York Stock
Exchange or, in the absence of recorded sales, at the average of readily
available closing bid and asked prices on such exchange. Securities for which
the primary market is the National Association of Securities Dealers Automated
Quotations National Market System ("NASDAQ") are valued at the NASDAQ Official
Closing Price.
NOTES TO FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
35 ANNUAL REPORT
Securities, for which market quotations are not readily available, including
investments that are subject to limitations as to their sale, are valued at fair
value as determined in good faith by the Board of Trustees. In determining fair
value, consideration is given to market conditions, relative benchmarks and
other financial data.
B. SECURITY TRANSACTIONS AND INCOME RECOGNITION
Security transactions are recorded on the trade date. Realized gains and losses
from portfolio fund transactions are calculated on the identified cost basis.
Dividend income is recorded on the ex-dividend date. Interest income is recorded
on the accrual basis.
C. REPURCHASE AGREEMENTS
The Funds may enter into repurchase agreements with financial institutions. The
Funds follows certain procedures designed to minimize the risks inherent in such
agreements. These procedures include effecting repurchase transactions only with
large, well-capitalized and well-established financial institutions whose
condition will be continually monitored by Rydex Global Advisors, which acts as
the Funds investment adviser (the "Advisor"). In addition, the value of the
collateral underlying the repurchase agreement will always be at least equal to
the repurchase price, including any accrued interest earned on the repurchase
agreement. In the event of a default or bankruptcy by a selling financial
institution, the Funds will seek to liquidate such collateral. However, the
exercising of the Funds right to liquidate such collateral could involve certain
costs or delays and, to the extent that proceeds from any sale upon a default of
the obligation to repurchase were less than the repurchase price, the Funds
could suffer a loss. It is the current policy of the Funds not to invest in
repurchase agreements that do not mature within seven days if any such
investment, together with any other illiquid assets held by the Funds, amounts
to more than 15% of the Funds net assets. The investments of the Funds in
repurchase agreements, at times, may be substantial when, in the view of the
Advisor, liquidity or other considerations so warrant. For the year ended
October 31, 2005, the Funds had not engaged in repurchase transactions.
D. FEDERAL INCOME TAXES
The Funds policy is to comply with the requirements of the Internal Revenue Code
applicable to regulated investment companies and distribute all of the taxable
income to the shareholders within the allowable time limits. Therefore, no
provision for Federal income taxes is required.
Income and capital gain distributions are determined in accordance with Federal
income tax regulations, which may differ from accounting principles generally
accepted in the United States. These differences are primarily due to differing
treatments for in-kind redemptions, income reclassifications from real estate
investment trusts and losses deferred due to wash sales.
NOTES TO FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
36
For the year ended October 31, 2005, the Funds realized net capital gains and
losses resulting from in-kind redemptions and other transactions. Because gains
and losses from in-kind redemptions are not taxable to the Funds, and are not
distributed to existing Fund shareholders, the gains and losses are reclassified
from accumulated net realized gain/loss to paid-in-capital at the end of the
Funds tax year. These reclassifications have no effect on net assets or net
asset value per share. The in-kind gains and losses for the year ended October
31, 2005 are disclosed in the Funds' Statement of Operations.
In order to present paid-in-capital, undistributed net investment income and
accumulated net realized gain/loss on investments on the statement of assets and
liabilities that more closely represent their tax character, certain adjustments
have been made to paid-in-capital, undistributed net investment income and
accumulated net realized gain/loss, on investments. For the year ended October
31, 2005, the adjustments for the Funds were as follows:
<Table>
<Caption>
UNDISTRIBUTED ACCUMULATED
PAID-IN NET INVESTMENT NET REALIZED
CAPITAL INCOME GAIN/(LOSS)
----------- -------------- ------------
Rydex Russell Top 50 ETF.............. $ (10,379) $ -- $ 10,379
Rydex S&P Equal Weight ETF............ 70,132,808 (261,110) (69,871,698)
</Table>
At October 31, 2005, the Funds had capital loss carryforwards which may be
utilized to offset any net realized capital gains expiring October 31:
<Table>
<Caption>
2012 2013
-------- ----------
Rydex Russell Top 50 ETF................................. $ -- $ 88,468
Rydex S&P Equal Weight ETF............................... 272,282 5,596,230
</Table>
The tax character of distributable earnings at October 31, 2005 were as follows:
<Table>
<Caption>
RYDEX S&P
RYDEX RUSSELL EQUAL WEIGHT
TOP 50 ETF ETF
------------- -------------
Net Unrealized Appreciation/(Depreciation)........ (2,062,425) 21,042,178
Undistributed Ordinary Income..................... 202,245 542,174
Undistributed Long-term Capital Gains............. -- --
Capital Loss Carryforwards........................ (88,468) (5,868,512)
Paid-in Capital................................... 139,033,869 1,055,693,728
------------- -------------
Net Assets........................................ 137,085,221 1,071,409,568
============= =============
</Table>
NOTES TO FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
37 ANNUAL REPORT
The tax character of distributions paid during 2005 were as follows:
<Table>
Ordinary Income................................... 669,822 8,884,060
Long-term Capital Gain............................ -- --
Return of Capital................................. -- --
------------- -------------
Total Distributions............................... 669,822 8,884,060
============= =============
</Table>
The tax character of distributions paid during 2004 were as follows:
<Table>
Ordinary Income................................... -- 3,196,596
Long-term Capital Gain............................ -- --
Return of Capital................................. -- --
------------- -------------
Total Distributions............................... -- 3,196,596
============= =============
Tax Cost Basis of Securities...................... 139,077,182 1,050,177,518
Gross Tax Unrealized Appreciation................. 3,628,085 77,860,728
Gross Tax Unrealized Depreciation................. (5,690,510) (56,818,550)
------------- -------------
Net Tax Unrealized Appreciation/(Depreciation) on
Investments..................................... (2,062,425) 21,042,178
============= =============
</Table>
E. DIVIDENDS AND DISTRIBUTIONS
The Funds declare and pay dividends from net investment income and distribute
from net realized capital gains at least annually.
F. RISK AND UNCERTAINTIES
The Trust invests in various investments which are exposed to risk, such as
market risk. Due to the level of risk associated with certain investments it is
at least reasonably possible that changes in the values of investment securities
will occur in the near term and that such changes could materially affect
amounts reported in the financial statements. The Rydex Russell Top 50 ETF is a
non-diversified fund, subjecting it to a greater risk than funds that are
diversified.
3. ADVISORY, ADMINISTRATION AND OTHER TRANSACTIONS WITH AFFILIATES
The Advisor determines the composition of the portfolio of securities that must
be delivered in exchange for the issuance of Creation Units and periodically
adjusts the composition of the portfolio of the Funds to conform to changes in
the composition of the relevant index. For these services, the Advisor receives
an advisory fee at the annual rate of 0.20% and 0.40% of the average daily net
assets of the Rydex Russell Top 50 ETF and the Rydex S&P Equal Weight ETF,
respectively.
NOTES TO FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
38
Under an Administration agreement, State Street Bank and Trust Company (the
"Administrator") provides various administrative and accounting services for the
maintenance and operations of the Funds (Bank of New York was the Administrator
for the Rydex S&P Equal Weight ETF until August 31, 2005). Under a Custodian
Agreement with the Trust, the Administrator maintains in separate accounts cash,
securities and other assets of the Trust and the Funds, keeps all necessary
accounts and records, and provides other services. The Administrator is
required, upon the order of the Trust, to deliver securities held by the
Custodian and to make payments for securities purchased by the Trust for the
Funds. Pursuant to a Transfer Agency and Service Agreement with the Trust, the
Administrator acts as a transfer agent for the Trust's authorized and issued
shares of beneficial interest, and as dividend disbursing agent of the Trust.
The Advisor compensates the Administrator directly for the foregoing services.
The Advisor pays all expenses of the Funds, including the cost of transfer
agency, custody, fund administration, legal, audit and other services except
interest, taxes, brokerage commissions, and other expenses connected with the
execution of portfolio transactions, any future distribution fees or expenses
and extraordinary expenses.
The Funds have adopted a Distribution Plan (the "Plan") that allows the Funds to
pay distribution fees to Rydex Distributors, Inc. (the "Distributor") and other
firms that provide distribution services ("Service Providers"). If a Service
Provider provides distribution services, the Funds will pay distribution fees to
the Distributor at an annual rate not to exceed 0.25% of average daily net
assets, pursuant to Rule 12b-1 of the 1940 Act. The Distributor will, in turn,
pay the Service Provider out of its fees. No such fee is currently charged to
the Funds.
4. CAPITAL
At October 31, 2005, there were an unlimited number of no par value shares of
beneficial interest authorized. There is a minimum transaction fee of $500 and
$2,000 for Rydex Russell Top 50 ETF and Rydex S&P Equal Weight ETF,
respectively, per transaction to those persons purchasing or redeeming Creation
Units. An additional charge of up to three times the standard transaction fee
may be imposed for purchases and redemptions effected outside the National
Securities Clearing Corporation usual clearing process or for cash. Such
transactions are generally permitted on an in-kind basis, with a balancing cash
component to equate the transaction to the net asset value per unit of the Fund
on the transaction date.
NOTES TO FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
39 ANNUAL REPORT
5. INVESTMENT TRANSACTIONS
Purchases and sales of investment securities (excluding short-term investments,
U.S. government and government agency obligations) for Rydex Russell Top 50 ETF
and Rydex S&P Equal Weight ETF aggregated $176,344 and $81,449, respectively,
and $178,375,536 and $179,410,838, respectively, for the year ended October 31,
2005. There were no purchases or sales of U.S. government or government agency
obligations for the year ended October 31, 2005.
40
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
- --------------------------------------------------------------------------------
To the Board of Trustees and Shareholders of Rydex ETF Trust:
In our opinion, the accompanying statements of assets and liabilities, including
the schedules of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Rydex S&P Equal Weight ETF and the
Russell Top 50 ETF (the Rydex ETF Trust, hereafter referred to as the "Funds")
at October 31, 2005, and the results of its operations, the changes in its net
assets and the financial highlights for the periods presented, in conformity
with accounting principles generally accepted in the United States of America.
These financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Funds' management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at October 31, 2005 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion.
PricewaterhouseCoopers LLP
December 20, 2005
41 ANNUAL REPORT
SUPPLEMENTAL INFORMATION (Unaudited)
- --------------------------------------------------------------------------------
FEDERAL INCOME TAX INFORMATION
100% of investment income (dividend income plus short-term gains, if any)
qualifies for the dividends-received deduction and as qualified dividend income.
In January 2006, you will be advised on IRS Form 1099-DIV or substitute 1099-DIV
as to the federal tax status of the distributions received by you in the
calendar year 2005.
RYDEX INVESTMENTS
BOARD REVIEW AND APPROVAL OF THE INVESTMENT ADVISORY AGREEMENT
The Investment Company Act of 1940 (the "1940 Act") requires that the initial
approval of, as well as the continuation of, a fund's investment advisory
agreement must be specifically approved (1) by the vote of the trustees or by a
vote of the shareholders of the fund, and (2) by the vote of a majority of the
trustees who are not parties to the investment advisory agreement or "interested
persons" of any party (the "Independent Trustees"), cast in person at a meeting
called for the purpose of voting on such approval. In connection with such
approvals, the fund's trustees must request and evaluate, and the investment
adviser is required to furnish, such information as may be reasonably necessary
to evaluate the terms of the advisory agreement. In addition, the Securities and
Exchange Commission (the "SEC") takes the position that, as part of their
fiduciary duties with respect to fund fees, fund boards are required to evaluate
the material factors applicable to a decision to approve an investment advisory
agreement.
Consistent with these responsibilities, the Rydex ETF Trust Board of Trustees
(the "Board") calls and holds one meeting each year that is dedicated to
considering whether to renew the investment advisory agreement between Rydex ETF
Trust (the "Trust") and PADCO Advisors II, Inc., which does business under the
name Rydex Investments ("Rydex Investments") (the "Advisory Agreement") with
respect to existing funds in the Trust, including the funds discussed in this
Annual Report (each a "Fund" and collectively, the "Funds"), and to reviewing
certain other agreements pursuant to which Rydex Investments provides investment
advisory services to certain other registered investment companies. In
preparation for the meeting, the Board requests and reviews a wide variety of
materials provided by Rydex Investments, including information about Rydex
Investments' affiliates, personnel and operations. This information is in
addition to the detailed information about the Funds that the Board reviews
during the course of each year, including information that relates to Fund
operations and performance. The Board also receives a memorandum from Fund
counsel regarding the responsibilities of the Board for the approval of
investment advisory agreements. In addition, the Independent Trustees receive
advice from independent counsel to the Independent Trustees, meet in executive
session outside the presence of fund management, if necessary, and participate
in question and answer sessions with representatives of Rydex Investments.
SUPPLEMENTAL INFORMATION (Unaudited) (continued)
- --------------------------------------------------------------------------------
42
At a meeting held on August 28 and 29, 2005, the Board approved the selection of
Rydex Investments and the continuance of the Advisory Agreement for an
additional one-year period, based on its review of qualitative and quantitative
information provided by Rydex Investments. The Board's approval of the Advisory
Agreement was based on consideration and evaluation of a variety of specific
factors discussed at that meeting and at prior meetings, including:
NATURE, EXTENT AND QUALITY OF SERVICES PROVIDED BY RYDEX INVESTMENTS
The Board reviewed the scope of services to be provided by Rydex Investments
under the Advisory Agreement and noted that there would be no significant
differences between the scope of services required to be provided by Rydex
Investments for the past year and the scope of services required to be provided
by Rydex Investments for the upcoming year. In reviewing the scope of services
provided to the Funds by Rydex Investments, the Board reviewed and discussed
Rydex Investments' investment experience, noting that Rydex Investments and its
affiliates have committed significant resources over time to the support of the
Funds. The Board also considered Rydex Investments' compliance program and its
compliance record with respect to the Funds. In that regard, the Board noted
that Rydex Investments provides information regarding the portfolio management
and compliance to the Board on a periodic basis in connection with regularly
scheduled meetings of the Board. In addition to the above considerations, the
Board reviewed and considered Rydex Investments' investment processes and
strategies, and matters related to Rydex Investments' portfolio transaction
policies and procedures. The Board further noted that the Funds have met their
investment objectives consistently since their relevant inception dates. Based
on this review, the Board concluded that the nature, extent and quality of
services to be provided by Rydex Investments to the Funds under the Advisory
Agreement were appropriate and continued to support the Board's original
selection of Rydex Investments as investment adviser to the Funds.
FUND EXPENSES AND PERFORMANCE OF THE FUNDS AND RYDEX INVESTMENTS
The Board reviewed statistical information prepared by Rydex Investments
regarding the expense ratio components, including actual advisory fees,
waivers/reimbursements, and gross and net total expenses of each Fund. In
addition, the Board reviewed statistical information prepared by Rydex
Investments relating to the performance of each Fund, as well as each Fund's
ability to successfully track its benchmark over time, and a comparison of each
Fund's performance to appropriate indices/benchmarks, in light of total return,
yield and market trends. Based on this review, the Board concluded that the
investment advisory fees and expense levels and the historical performance of
the
SUPPLEMENTAL INFORMATION (Unaudited) (continued)
- --------------------------------------------------------------------------------
43 ANNUAL REPORT
Funds, as managed by Rydex Investments, were satisfactory for the purposes of
approving the continuance of the Advisory Agreement.
COSTS OF SERVICES PROVIDED TO THE FUNDS AND PROFITS REALIZED BY RYDEX
INVESTMENTS AND ITS AFFILIATES
The Board reviewed information about the profitability of the Funds to Rydex
Investments based on the advisory fees payable under the Advisory Agreement for
the last calendar year. Rydex Investments also presented the Board with material
discussing its methodology for determining the level of advisory fees assessable
to the Funds. The Board analyzed the Funds' expenses, including the investment
advisory fees paid to Rydex Investments. The Board also reviewed information
regarding direct revenue received by Rydex Investments and ancillary revenue
received by Rydex Investments and/or its affiliates in connection with the
services provided to the Funds by Rydex Investments (as discussed below). The
Board also discussed Rydex Investments' profit margin as reflected in Rydex
Investments' profitability analysis and reviewed information regarding economies
of scale (as discussed below). Based on this review, the Board concluded that
the profits to be realized by Rydex Investments and its affiliates under the
Advisory Agreement and from other relationships between the Funds and Rydex
Investments and/or its affiliates, if any, were within the range the Board
considered reasonable and appropriate.
ECONOMIES OF SCALE
In connection with its review of the Funds' profitability analysis, the Board
reviewed information regarding economies of scale or other efficiencies that may
result from increases in the Funds' asset levels. The Board noted that the
Advisory Agreement for the Funds did not provide for any breakpoints in the
investment advisory fee rates as a result of increases in the asset levels of
such Funds. However, the Board further noted that possible future economies of
scale had been taken into consideration by fixing the investment advisory fees
at rates at the lower end of the marketplace, effectively giving Fund
shareholders, from inception, the benefits of the lower average fee shareholders
would have received from a fee structure with declining breakpoints where the
initial fee was higher. The Board also reviewed Rydex Investments' historic
profitability as investment adviser to the Funds and determined that reductions
in fee rates or additions of breakpoints were not warranted at this juncture.
Based on this review, the Board, recognizing its responsibility to consider this
issue at least annually, concluded that there are limited economies of scale to
share with the Funds' shareholders.
OTHER BENEFITS TO RYDEX INVESTMENTS AND/OR ITS AFFILIATES
The Board noted that Rydex Investments reports its use of soft dollars to the
Board on a quarterly basis, as well as any portfolio transactions on behalf of
the Funds placed
SUPPLEMENTAL INFORMATION (Unaudited) (continued)
- --------------------------------------------------------------------------------
44
through an affiliate of the Funds or Rydex Investments pursuant to Rule 17e-1
under the 1940 Act. The Board concluded that any such ancillary benefits would
not be disadvantageous to the Funds' shareholders.
Based on the above analysis, the Board determined that the Advisory Agreement,
including the investment advisory fee rates thereunder, are fair and reasonable
in light of all relevant circumstances and concluded that it is in the best
interest of the Funds and their shareholders to continue the Advisory Agreement.
- --------------------------------------------------------------------------------
45 ANNUAL REPORT
PROXY VOTING POLICIES AND PROCEDURES
A description of the Funds' proxy voting policies and procedures is available,
without charge and upon request, by calling (800) 820-0888. This information is
also available on the Securities and Exchange Commission's ("Commission")
website at www.sec.gov.
Information regarding how the Funds voted proxies for portfolio securities, if
applicable during the most recent 12-month period ended June 30, is also
available, without charge and upon request, by (i) calling (800) 820-0888; or
(ii) accessing the Funds' Form N-PX on the SEC's website at www.sec.gov.
QUARTERLY PORTFOLIOS
The Funds file their complete schedule of portfolio holdings with the Commission
for the first and third quarters of each fiscal year on Form N-Q. The Funds'
Forms N-Q are available on the Commission's website at . The Funds' Forms N-Q
may also be reviewed and copied at the Commission's Public Reference Room in
Washington, DC; information on the operation of the Public Reference Room may be
obtained by calling (800) SEC-0330.
INFORMATION ON THE BOARD OF TRUSTEES
AND OFFICERS
- --------------------------------------------------------------------------------
46
A Board of Trustees oversees all Rydex Investments, in which its members have no
stated term of service, and continue to serve after election until resignation.
The Statement of Additional Information includes further information about Fund
Trustees and Officers, and can be obtained without charge by calling (800)
820-0888.
All Trustees and Officers may be reached c/o Rydex Investments, 9601 Blackwell
Rd., Suite 500, Rockville, MD 20850.
TRUSTEES AND OFFICERS
<Table>
<Caption>
LENGTH OF SERVICE
NAME, POSITION AND AS TRUSTEE NUMBER OF FUNDS
YEAR OF BIRTH (YEAR BEGAN) OVERSEEN
- ------------------------ ---------------------------------- ---------------
CARL G. VERBONCOEUR* Rydex Series Funds - 2004 110
Trustee, President Rydex Variable Trust - 2004
(1952) Rydex Dynamic Funds - 2004
Rydex ETF Trust - 2004
Rydex Capital Partners SPhinX Fund
- 2005
</Table>
PRINCIPAL OCCUPATIONS DURING PAST FIVE YEARS: Chief Executive Officer of Rydex
Fund Services, Inc., PADCO Advisors, Inc., PADCO Advisors II, Inc., and Rydex
Distributors, Inc. (2003 to present); Executive Vice President of Rydex Fund
Services, Inc. (2000 to 2003); Vice President of Rydex Fund Services, Inc. and
Rydex Distributors, Inc. (1997 to 2000)
---------------
<Table>
MICHAEL P. BYRUM* Rydex Series Funds - 2005 110
Trustee, Vice President Rydex Variable Trust - 2005
and Secretary (1970) Rydex Dynamic Funds - 2005
Rydex ETF Trust - 2005
Rydex Capital Partners SPhinX Fund
- 2003
</Table>
PRINCIPAL OCCUPATIONS DURING PAST FIVE YEARS: Secretary of Rydex Series Funds,
Rydex Variable Trust, and Rydex Dynamic Funds (2004 to present); Vice President
of Rydex Series Funds (1997 to present); Vice President of Rydex Variable Trust
(1998 to present); Vice President of Rydex Dynamic Funds (1999 to present); Vice
President of Rydex ETF Trust (2002 to present); President and Trustee of Rydex
Capital Partners SPhinX Fund (2003 to present); President of Rydex Global
Advisors (2004 to present); Chief Operating Officer of Rydex Global Advisors and
Rydex Distributors, Inc. (2003 to 2004)
- --------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
<Table>
<Caption>
LENGTH OF SERVICE
NAME, POSITION AND AS TRUSTEE NUMBER OF
YEAR OF BIRTH (YEAR BEGAN) FUNDS OVERSEEN
- ------------------------ ---------------------------------- ---------------
COREY A. COLEHOUR Rydex Series Funds - 1993 110
Trustee (1945) Rydex Variable Trust - 1998
Rydex Dynamic Funds - 1999
Rydex ETF Trust - 2003
Rydex Capital Partners SPhinX Fund
- 2005
</Table>
PRINCIPAL OCCUPATIONS DURING PAST FIVE YEARS: Senior Vice President of
Marketing/Co-Owner, Schield Management Company
---------------
<Table>
J. KENNETH DALTON Rydex Series Funds - 1995 110
Trustee (1941) Rydex Variable Trust - 1998
Rydex Dynamic Funds - 1999
Rydex ETF Trust - 2003
Rydex Capital Partners SPhinX Fund
- 2005
</Table>
PRINCIPAL OCCUPATIONS DURING PAST FIVE YEARS: Mortgage Banking Consultant and
Investor, The Dalton Group
---------------
INFORMATION ON THE BOARD OF TRUSTEES
AND OFFICERS
- --------------------------------------------------------------------------------
47 ANNUAL REPORT
<Table>
JOHN O. DEMARET Rydex Series Funds - 1997 110
Trustee (1940) Rydex Variable Trust - 1998
Rydex Dynamic Funds - 1999
Rydex ETF Trust - 2003
Rydex Capital Partners SPhinX Fund
- 2003
</Table>
PRINCIPAL OCCUPATIONS DURING PAST FIVE YEARS: Retired
---------------
<Table>
<Caption>
LENGTH OF SERVICE
NAME, POSITION AND AS TRUSTEE NUMBER OF FUNDS
YEAR OF BIRTH (YEAR BEGAN) OVERSEEN
- ------------------------ ---------------------------------- ---------------
WERNER E. KELLER Rydex Series Funds - 2005 110
Trustee (1940) Rydex Variable Trust - 2005
Rydex Dynamic Funds - 2005
Rydex ETF Trust - 2005
Rydex Capital Partners SPhinX Fund
- 2003
</Table>
PRINCIPAL OCCUPATIONS DURING PAST FIVE YEARS: Retired (2001 to present);
Chairman, Centurion Capital Management (1991 to 2001)
---------------
<Table>
THOMAS F. LYDON, JR. Rydex Series Funds - 2005 110
Trustee (1960) Rydex Variable Trust - 2005
Rydex Dynamic Funds - 2005
Rydex ETF Trust - 2005
Rydex Capital Partners SPhinX Fund
- 2003
</Table>
PRINCIPAL OCCUPATIONS DURING PAST FIVE YEARS: President, Global Trends
Investments
---------------
<Table>
PATRICK T. MCCARVILLE Rydex Series Funds - 1997 110
TRUSTEE (1942) Rydex Variable Trust - 1998
Rydex Dynamic Funds - 1999
Rydex ETF Trust - 2003
Rydex Capital Partners SPhinX Fund
- 2005
</Table>
PRINCIPAL OCCUPATIONS DURING PAST FIVE YEARS: Founder and Chief Executive
Officer, Par Industries, Inc.
---------------
<Table>
ROGER SOMERS TRUSTEE Rydex Series Funds - 1993 110
(1944) Rydex Variable Trust - 1998
Rydex Dynamic Funds - 1999
Rydex ETF Trust - 2003
Rydex Capital Partners SPhinX Fund
- 2005
</Table>
PRINCIPAL OCCUPATIONS DURING PAST FIVE YEARS: Owner, Arrow Limousine
- --------------------------------------------------------------------------------
EXECUTIVE OFFICERS
<Table>
<Caption>
NAME, POSITION AND PRINCIPAL OCCUPATIONS
YEAR OF BIRTH DURING PAST FIVE YEARS
- ------------------------- --------------------------------------------------
NICK BONOS* Vice President and Treasurer of Rydex Series
Vice President and Funds, Rydex Variable Trust, Rydex Dynamic Funds,
Treasurer (1963) Rydex ETF Trust, and Rydex Capital Partners SPhinX
Fund (2003 to present); Senior Vice President of
Rydex Fund Services, Inc. (2003 to present); Vice
President of Accounting of Rydex Fund Services,
Inc. (2000 to 2003)
JOANNA M. HAIGNEY* Chief Compliance Officer Rydex Series Funds, Rydex
Chief Compliance Officer Variable Trust, and Rydex Dynamic Funds (2004 to
and Assistant Secretary present); Assistant Secretary of Rydex Series
(1967) Funds, Rydex Variable Trust, and Rydex Dynamic
Funds (2000 to present); Assistant Secretary of
Rydex ETF Trust (2002 to present); Secretary of
Rydex Capital Partners SPhinX Fund, (2003 to
present); Vice President of Compliance of Rydex
Fund Services, Inc. (2000 to present)
</Table>
* Officers of the fund are deemed to be "interested persons" of the Trust,
within the meaning of Section 2(a)(19) of the 1940 Act, inasmuch as this person
is affiliated with the Advisor.
- --------------------------------------------------------------------------------
48
The Funds' Statement of Additional Information contains additional information
about the Trustees and Officers and is available, without charge, upon request,
by calling (800) 207-3390.
INVESTMENT ADVISOR
Rydex Investments
ADMINISTRATOR
State Street Bank and Trust Company
CUSTODIAN
State Street Bank and Trust Company
TRANSFER AGENT
State Street Bank and Trust Company
DISTRIBUTOR
Rydex Distributors, Inc.
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
PricewaterhouseCoopers LLP
[RYDEXINVESTMENTS LOGO]
ESSENTIAL FOR MODERN MARKETS(TM)
- --------------------------------------------------------------------------------
9601 Blackwell Road - Suite 500 - Rockville, MD 20850
www.rydexinvestments.com - 800.820.0888
ETF-ANN 1205 X1206
[GRAPHIC]
ITEM 2. CODE OF ETHICS.
The Board of Trustees of the Trust has adopted a Combined Code of Ethics (the
"Code") pursuant to Rule 17j-1 under the 1940 Act. The Advisor and Distributor
are also covered by the Code. The Code applies to the personal investing
activities of trustees, directors, officers, and certain employees ("access
persons"). Rule 17j-1 and the Code are designed to prevent unlawful practices in
connection with the purchase or sale of securities by access persons. Under the
Code, access persons are permitted to engage in personal securities
transactions, but are required to report their personal securities transactions
for monitoring purposes. In addition, certain access persons are required to
obtain approval before investing in initial public offerings or private
placements. No substantive amendments were approved or waivers were granted to
the Code during the period covered by this report. The Code is filed as an
exhibit to this Form N-CSR.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
While the members of the audit committee have many years of experience in
business and finance, including working with fund financial statements and
auditors, they do not feel that the background and experience of any single
member would meet the qualifications necessary to be a "financial expert" as
that term is defined by the Securities and Exchange Commission. Nonetheless, the
committee has determined that, together, its collective financial experience and
expertise makes an individual financial expert unnecessary at this time.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
(a)-(d) The aggregate Audit Fees billed by PricewaterhouseCoopers LLP ("PWC"),
the Trust's principal accountant, for the audit of the annual financial
statements in connection with statutory and regulatory filings for the fiscal
years ended October 31, 2005 and October 31, 2004 were $32,400 and $21,200,
respectively. The aggregate Tax Fees billed by PWC for professional services
rendered for tax compliance, tax advice, and tax planning, including preparation
of tax returns and distribution assistance, for the fiscal years ended October
31, 2005 and December 31, 2004 were $30,000 and $14,840, respectively.
(e) The audit committee has adopted a policy whereby audit and non-audit
services performed by the registrant's principal accountant for the registrant,
its investment advisor, and any entity controlling, controlled by, or under
common control with the investment advisor that provides ongoing services to the
registrant require pre-approval in advance at regularly scheduled audit
committee meetings. If such service is required between regularly scheduled
audit committee meetings, the chairman of the audit committee, J. Kenneth
Dalton, is authorized to pre-approve the service with full committee approval at
the next scheduled meeting. There
shall be no waivers of the pre-approval process. No services described in
(b)-(d) above were approved pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of
Regulation S-X.
(f) Not applicable.
(g) Not applicable.
(h) Not applicable.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
The Rydex ETF Trust has a separate designated audit committee, which consists of
the independent trustees. The audit committee members are J. Kenneth Dalton,
John O. Demaret, Patrick T. McCarville, Corey A. Colehour and Roger Somers.
ITEM 6. SCHEDULE OF INVESTMENTS
Schedule of Investments is included as part of the report to shareholders filed
under Item 1 of this form.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not applicable.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
ITEM 11. CONTROLS AND PROCEDURES.
(a) Based on their evaluation on January 9, 2006, the President (principal
executive officer) and the Treasurer (principal financial officer) of the Rydex
ETF Trust (the "Trust") believe that there were no significant deficiencies in
the design or operation of the internal controls of the Trust or Rydex Global
Advisors ("RGA"), the investment advisor and manager of the Trust, and State
Street Bank and Trust Company (the "Administrator"), the administrator of the
Trust, or Rydex Distributors, Inc. ("RD"), which acts as distributor for the
Trust, including disclosure
controls and procedures (as defined in Rule 30a-3(c) under the Investment
Company Act of 1940) which would have adversely affected the ability of the
Trust, the Administrator or RGA on behalf of the Trust, to record, process,
summarize, and report the subject matter contained in this Report, and the
President and Treasurer of the Trust have identified no material weaknesses in
such internal controls on behalf of the Trust.
There was no fraud, whether or not material, involving officers or employees of
RGA, the Administrator, RD or the Trust who have a significant role in the
Trust's internal controls, including disclosure controls and procedures (as
defined in Rule 30a-3(c) under the Investment Company Act of 1940) that has come
to the attention of the advisor or the officers of the Trust, including its
President and Treasurer.
(b) There were no significant changes in the Trust's and RGA's internal controls
over financial reporting, including disclosure controls and procedures (as
defined in Rule 30a-3(d) under the Investment Company Act of 1940) that occurred
during the second fiscal quarter of the period covered by this report that has
materially affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting.
ITEM 12. EXHIBITS.
(a)(1) The registrant's code of ethics pursuant to Item 2 of Form N-CSR is
attached.
(a)(2) Separate certifications by the President (principal executive officer)
and Treasurer (principal financial officer) of the registrant as required by
Rule 30a-2(a) under the Act (17 CFR 270.30a-2(a)) are attached.
(b) A certification by the registrant's President (principal executive officer)
and Treasurer (principal financial officer) as required by Rule 30a-2(b) under
the Act (17 CFR 270.30a-2(b)) is attached.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant) Rydex ETF Trust
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By (Signature and Title)* /s/ Carl G. Verboncoeur
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Carl G. Verboncoeur, President
Date January 9, 2006
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Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By (Signature and Title)* /s/ Carl G. Verboncoeur
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Carl G. Verboncoeur, President
Date January 9, 2006
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By (Signature and Title)* /s/ Nick Bonos
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Nick Bonos, Vice President and Treasurer
Date January 9, 2006
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* Print the name and title of each signing officer under his or her signature.