Morgan, Lewis & Bockius LLP
1111 Pennsylvania Ave., N.W.
Washington, DC 20004
CHRISTOPHER D. MENCONI
202.739.5896
cmenconi@morganlewis.com
May 21, 2009
VIA EDGAR CORRESPONDENCE
Mr. Richard Pfordte
U.S. Securities and Exchange Commission
100 F Street, NE
Washington, DC 20549
Re: RYDEX SERIES FUNDS (THE "TRUST") - POST EFFECTIVE AMENDMENT NO. 86
(FILE NOS. 033-59692 AND 811-07584)
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Dear Mr. Pfordte:
This letter responds to your comments conveyed to us during a telephone
conference on April 30, 2009 relating to the Trust's Post-Effective Amendment
No. 86 ("PEA No. 86"), filed on March 6, 2009 in connection with registering a
new class of shares, Investor2 Class Shares, for the Trust's U.S. Government
Money Market Fund (the "Fund"). The following summarizes your comments, and our
response to those comments. Unless otherwise noted, capitalized terms have the
same meaning as contained in the Fund's Prospectus and/or Statement of
Additional Information ("SAI").
PROSPECTUS
1. COMMENT. Explain why Investor2 Class Shares of the Fund are being created.
RESPONSE. Investor2 Class Shares of the Fund are being created in
connection with a reorganization in which, upon the affirmative vote of
shareholders of the Security Cash Fund (the "Acquired Fund"), the Fund will
acquire all of the assets and liabilities of the Acquired Fund (the
"Reorganization"). If approved by shareholders of the Acquired Fund, on the
effective date of the Reorganization, shareholders of the Acquired Fund
will be issued a pro rata portion of Investor2 Class Shares of the Fund.
Because the investment adviser of the Acquired Fund is affiliated with the
Fund's investment adviser, and furthermore, because each investment adviser
is controlled by the same parent company, Security Benefit Corporation,
Investor2 Class Shares have been designed to allow for shareholders of the
Acquired Fund to continue to buy, sell and exchange Fund
shares in the same manner and on the same platform (through the Security
Funds) as they did prior to the Reorganization. It is expected that some
time after the Reorganization, shareholders of the Acquired Fund will also
be able to exchange their shares for shares of other mutual funds
distributed by Rydex Distributors, Inc. (the "Rydex Family of Funds").
2. COMMENT. Delineate the differences between Investor2 Class Shares and the
Fund's existing Investor Class Shares.
RESPONSE. As described above in our response to Comment No. 1, Investor2
Class Shares have been designed to allow shareholders of the Acquired Fund
to continue to buy, sell and exchange Fund shares in the same manner and on
the same platform (through the Security Funds) as they did prior to the
Reorganization. Therefore, the manner in which shareholders of Investor2
Class Shares of the Fund will purchase, sell and exchange Fund shares
differs from the manner in which shareholders of the Fund's existing
Investor Class Shares, and any other of the Fund's share classes for that
matter, purchase, sell and exchange shares. In addition, Investor2 Class
Shares of the Fund are subject to different initial and subsequent minimum
investment amounts than the Fund's Investor Class Shares.
3. COMMENT. Please separate the disclosures required by Items 2 and 4 of Form
N-1A. Additionally, please confirm that all principal strategies and risks
are summarized as part of the Fund's Item 2 disclosure. Finally, please
disclose the Fund's non-fundamental investment policy adopted pursuant to
Rule 35d-1 in the Fund's Item 2 disclosure.
RESPONSE. We have revised the Fund's Item 2 disclosure as follows (new
language appears in bold for the purposes of this correspondence). Please
note that the following language regarding the Fund's revised principal
investment strategy does not appear in the prospectus filed as part of the
Trust's Post-Effective No. 90, which was filed with the Commission pursuant
to Rule 485(b) on May 7, 2009, but rather is included in the final form of
prospectus filed pursuant to Rule 497(c) on May 7, 2009. Because we view
this change to the Fund's principal investment strategy as "material," we
plan on including this language in an upcoming 485(a) filing for the Trust,
scheduled to be filed on or about May 29, 2009. We have included the
revised language in our printed prospectus in response to your comments.
PRINCIPAL INVESTMENT STRATEGY
The U.S. Government Money Market Fund invests primarily in money market
instruments issued or guaranteed as to principal and interest by the U.S.
government, its agencies or instrumentalities, and enters into repurchase
agreements fully collateralized by U.S. government securities. The Fund may
also invest in Eurodollar Time Deposits, SECURITIES ISSUED BY THE
INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT (THE WORLD BANK), AND
HIGH-QUALITY COMMERCIAL PAPER AND SHORT-TERM CORPORATE BONDS. The Fund
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operates under U.S. Securities and Exchange Commission rules, which impose
certain liquidity, maturity, and diversification requirements on all money
market funds. All securities purchased by the Fund must have remaining
maturities of 397 days or less, and must be found by the Advisor to
represent minimal credit risk and be of eligible quality.
UNDER NORMAL CIRCUMSTANCES, THE FUND WILL INVEST AT LEAST 80% OF ITS NET
ASSETS IN FIXED INCOME SECURITIES ISSUED BY THE U.S. GOVERNMENT. THIS IS A
NON-FUNDAMENTAL POLICY THAT CAN BE CHANGED BY THE FUND UPON 60 DAYS' PRIOR
NOTICE TO SHAREHOLDERS.
PRINCIPAL RISKS
The U.S. Government Money Market Fund is subject to a number of risks that
may affect the value of its shares, including:
o CREDIT RISK o Interest Rate Risk
o INCOME RISK o Stable Price Per Share Risk
Please see "Descriptions of Principal Risks" below for a discussion of each
of the principal risks that apply to the Fund.
DESCRIPTIONS OF PRINCIPAL RISKS
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CREDIT RISK - CREDIT RISK IS THE RISK THAT THE FUND COULD LOSE MONEY IF THE
ISSUER OR GUARANTOR OF A DEBT INSTRUMENT BECOMES UNWILLING OR UNABLE TO
MAKE TIMELY PRINCIPAL AND/OR INTEREST PAYMENTS, OR TO OTHERWISE MEET ITS
OBLIGATIONS. SECURITIES ARE SUBJECT TO VARYING DEGREES OF CREDIT RISK,
WHICH ARE SOMETIMES REFLECTED IN CREDIT RATINGS.
INCOME RISK - INCOME RISK INVOLVES THE POTENTIAL FOR DECLINE IN THE FUND'S
YIELD (THE RATE OF DIVIDENDS THE FUND PAYS) IN THE EVENT OF DECLINING
INTEREST RATES.
INTEREST RATE RISK- THE MARKET VALUE OF FIXED INCOME INVESTMENTS, AND
FINANCIAL INSTRUMENTS RELATED TO THOSE FIXED INCOME INVESTMENTS, WILL
CHANGE IN RESPONSE TO INTEREST RATE CHANGES. DURING PERIODS OF FALLING
INTEREST RATES, THE VALUES OF FIXED INCOME SECURITIES GENERALLY RISE.
CONVERSELY, DURING PERIODS OF RISING INTEREST RATES, THE VALUES OF SUCH
SECURITIES GENERALLY DECLINE. WHILE SECURITIES WITH LONGER MATURITIES TEND
TO PRODUCE HIGHER YIELDS, THE PRICES OF LONGER MATURITY SECURITIES ARE ALSO
SUBJECT TO GREATER MARKET FLUCTUATIONS AS A RESULT OF CHANGES IN INTEREST
RATES. HOWEVER, THE EXTREMELY SHORT MATURITY OF SECURITIES HELD IN THE
FUND-A MEANS OF ACHIEVING AN OVERALL FUND OBJECTIVE OF PRINCIPAL
SAFETY-REDUCES THE LIKELIHOOD OF PRICE FLUCTUATION.
STABLE PRICE PER SHARE RISK - The Fund's assets are valued using the
amortized cost method, which enables the Fund to maintain a stable price of
$1.00 per share. ALTHOUGH THE FUND IS MANAGED TO MAINTAIN A STABLE PRICE
PER SHARE OF $1.00, THERE IS NO
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GUARANTEE THAT THE PRICE WILL BE CONSTANTLY MAINTAINED, AND IT IS POSSIBLE
TO LOSE MONEY. THE FUND IS NOT A BANK DEPOSIT AND IS NOT FEDERALLY INSURED
OR GUARANTEED BY ANY GOVERNMENT AGENCY OR GUARANTEED TO ACHIEVE ITS
OBJECTIVE.
4. COMMENT. The SEC questions whether it is permissible under Rule 22c-1 under
the Investment Company Act of 1940 for the Fund to reserve the right to
accept orders to purchase or redeem shares on any day that is not a
Business Day. The SEC staff believes the Prospectus should state the days
on which the Fund is open and closed for business.
RESPONSE. After reviewing Rule 22c-1 and conferring with our client, we
have decided not to make any change to the current disclosure as our client
needs the flexibility to remain open on days when the NYSE is closed but a
liquid market exists for conducting business. Because such days are not
pre-established, it is not possible to identify them in the Fund's
Prospectus. However, as disclosed in the Fund's Prospectus, and to the
extent possible, advance notice of such days will be posted on the web at
WWW.RYDEXINVESTMENTS.COM. Such days may include, and have included, days on
which the markets are closed for the observance of a Presidents' death
(such as the recent closing of the markets for President Ford's death)
and/or certain days after a national emergency (as occurred in the days
following September 11th). Additionally, we have reviewed the disclosure
included in the prospectuses of other money market funds and have found
similar language.
5. COMMENT. Under the heading "Receiving Your Redemption Proceeds," please
revise the last sentence of the first paragraph to state that the Fund will
send redemption proceeds upon clearance of a shareholder purchase order
(i.e., when the shareholder's check has cleared).
RESPONSE. We have revised the last sentence of the first paragraph as
follows (new language appears in bold and deleted language appears in bold
and brackets for the purposes of this correspondence):
"For investments made by check or [ACH] AUTOMATIC BANK DRAFT (not wire
purchases), payment of redemption proceeds may be delayed until [THE
TRANSFER AGENT IS REASONABLY SATISFIED THAT] your purchase has cleared. It
[MAY] WILL take [UP TO] 15 days for your purchase to clear."
6. COMMENT. Under the heading "Dividends and Distributions" and the
sub-heading "Timing of Payments," please clarify the Fund's dividend policy
by stating when investors start and stop earning dividends.
RESPONSE. We have revised the disclosure as follows (new language appears
in bold for the purposes of this correspondence):
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"YOUR PURCHASE ORDER BEGINS TO ACCRUE DIVIDENDS ON THE BUSINESS DAY AFTER
THE FUND RECEIVES YOUR PURCHASE ORDER AND CONTINUES TO ACCRUE DIVIDENDS
THROUGH THE BUSINESS DAY THE FUND RECEIVES A REQUEST TO REDEEM YOUR SHARES.
The Fund will declare dividends daily and pay them monthly upon redemption.
If you own Fund shares on the Fund's record date, you will be entitled to
receive the dividend. The Fund may declare and pay dividends on the same
date. The Fund makes distributions of capital gains, if any, at least
annually. The Fund, however, may declare a special capital gains
distribution if the Board of Trustees believes that such a distribution
would be in the best interests of the shareholders of the Fund."
***
I hereby acknowledge on behalf of the Rydex Series Funds (the "Trust") that: (i)
the Trust is responsible for the adequacy and accuracy of the disclosure in its
registration statement; (ii) SEC staff comments or changes to disclosure in
response to staff comments in the registration statement reviewed by the staff
do not foreclose the SEC from taking any action with respect to the registration
statement; and (iii) the Trust may not assert SEC staff comments as a defense in
any proceeding initiated by the SEC or any person under the federal securities
laws of the United States.
If you have any additional questions or comments, please do not hesitate to
contact either John McGuire at 202.739.5654 or me at 202.739.5896.
Sincerely,
/s/ Christopher D. Menconi
c: W. John McGuire
Joanna Haigney
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