NOTES TO FINANCIAL STATEMENTS
(continued)
11. Name Changes
Effective May 1, 2009, the Large-Cap Growth Fund, Large-Cap Value Fund, Mid-Cap Growth Fund, Mid-Cap Value Fund, Small-Cap Growth Fund, and Small-Cap Value Fund changed their Fund names to S&P 500 Pure Growth Fund, S&P 500 Pure Value Fund, S&P MidCap 400 Pure Growth Fund, S&P MidCap 400 Pure Value Fund, S&P SmallCap 600 Pure Growth Fund, and S&P SmallCap 600 Pure Value Fund, respectively. The name changes did not have any impact on the Funds’ investment objectives, tickers or CUSIPS.
12. Reverse Share Splits
Effective April 20, 2009, the S&P 500 Pure Value Fund underwent a 1-for-5 reverse share split. The effect of this transaction was to divide the number of outstanding shares of the Fund by five, resulting in a corresponding increase in the net asset value per share. The share transactions presented in Note 10 and the per share data in the financial highlights for periods presented prior to April 20, 2009 have been given retroactive effects to reflect these reverse share splits. There were no changes in net assets, results of operations or total return as a result of these transactions.
13. Line of Credit
The Trust has secured an uncommitted, $75,000,000 line of credit with U.S. Bank, N.A. Borrowings, if any, under this arrangement bear interest equal to the Prime Rate, minus 2%, which shall be paid monthly. The maximum loan amount outstanding per Fund should be the lesser of: an amount which, when added to the total of other outstanding loan amounts under this agreement, exceeds the total line of credit, 33 1/3% of a Fund’s net assets, 33 1/3% of a Fund’s assets held by the Custodian or 33 1/3% of the sum of a Fund’s securities on any given day. This line of credit expires on June 15, 2010. As of and for the year ended March 31, 2010, the Funds did not have any outstanding borrowings under this agreement.
14. Fund Merger
On July 10, 2009, the U.S. Government Money Market Fund acquired all of the net assets of Security Cash Fund, in exchange for shares of the U.S. Government Money Market Fund Investor2 Class, pursuant to an agreement and plan of reorganization approved by the Board of Trustees and approved by the shareholders of the Security Cash Fund. The primary reason for the transaction was to combine a smaller fund into a larger fund with a similar investment objective. The acquisition was accomplished through a combination of a tax-free exchange of Security Cash Fund shares (62,269,356) valued at $62,269,356 for respective shares of the U.S. Government Money Market Fund Investor2 Class (62,269,356). For financial reporting purposes, the net assets received and shares issued by U.S. Government Money Market Fund Investor2 Class were recorded at fair value.
Security Cash Fund’s net assets on July 10, 2009 were $62,217,692. Security Cash Fund’s net assets were primarily comprised of investments with a fair value of $61,601,061 and other assets and liabilities of $616,631. The aggregate net assets of U.S. Government Money Market Fund immediately before and after the acquisition were $1,788,523,047 and $1,850,740,738, respectively.
The financial statements reflect the operations of the U.S. Government Money Market Fund for the period prior to the acquisition and the combined fund for the period subsequent to the fund merger. Because the combined investment portfolios have been managed as a single integrated portfolio since the acquisition was completed, it is not practicable to separate the amounts of revenue and earnings of the Security Cash Fund that have been included in the combined fund’s Statement of Operations since the acquisition was completed. Assuming the acquisition had been completed on April 1, 2009, U.S. Government Money Market Fund proforma net investment income (loss), net gain (loss) on investments and net increase (decrease) in net assets from operations for the year ended March 31, 2010 would have been $83,364, $35,221 and $118,585, respectively. Rydex Investments and its affiliates bore all of the expenses related to the reorganization.
15. New Accounting Pronouncements
In January 2010, the Financial Accounting Standards Board issued an Accounting Standards Update, Improving Disclosures about Fair Value Measurements, which introduces new disclosure requirements and clarifies certain existing disclosure requirements around fair value measurements currently presented in Note 8. The new disclosures and clarifications of existing disclosures are generally effective for the Funds’ year ending March 31, 2011 and interim periods therein. Management is evaluating the impact of this update on its current disclosures.
16. Pending Litigation
In March, 2010, an action was filed against PADCO Advisors, Inc. (hereinafter, the “Manager”), Rydex Distributors, Inc. (hereinafter, the “Distributor”), and Rydex Series Funds (hereinafter, the “Trust”) and certain trustees and officers of the Trust in federal district court in San Francisco, California. The action seeks class action status on behalf of purchasers of shares in a series of the Trust, the Rydex Inverse Government Long Bond Strategy Fund (the “Fund”) during a particular time period. The action asserts claims under provisions of the federal securities laws, alleging that certain registration statements of the Trust contained negligent misrepresentations and omissions with
