Morgan, Lewis & Bockius LLP
1111 Pennsylvania Avenue, NW
Washington, DC 20004
Tel: 202.739.3000
Fax: 202.739.3001
www.morganlewis.com
LAURA E. FLORES
202.739.5684
lflores@morganlewis.com
December 28, 2010
VIA EDGAR CORRESPONDENCE
Ms. Kimberly Browning
U.S. Securities and Exchange Commission
100 F Street, NE
Washington, DC 20549
Re: RYDEX ETF TRUST (THE "TRUST") - POST EFFECTIVE AMENDMENT NO. 14
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(FILE NOS. 333-101625 AND 811-21261)
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Dear Ms. Browning:
This letter responds to your comments conveyed to us during a telephone
conference on November 5, 2010 relating to the Trust's Post-Effective Amendment
No. 14 ("PEA No. 14"), filed on September 13, 2010 for the purpose of
registering nineteen new series (the "Funds") of the Trust. The following
summarizes your comments, and our responses to those comments. Unless otherwise
noted, capitalized terms have the same meaning as contained in the Funds'
Prospectuses and/or Statement of Additional Information ("SAI").
PROSPECTUS COMMENTS:
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1. COMMENT. Please confirm that the Funds' investment objectives and
strategies are consistent with the Trust's exemptive relief.
RESPONSE. We confirm that the Funds' investment objectives and
strategies are consistent with the exemptive relief granted to the
Trust.
2. COMMENT. Given that the Funds have adopted a distribution plan pursuant
to Rule 12b-1, please revise the "Distribution (12b-1) Fees" line item
in the "Annual Fund Operating Expenses" table to replace "None" with
"0." In addition, add a footnote to the table stating that while the
Funds have adopted a distribution plan pursuant to Rule 12b-1, no fees
are currently charged pursuant to the plan.
RESPONSE. We have revised the "Distribution (12b-1) Fees" line item
accordingly. We have not added the suggested explanatory footnote
because we do not believe that Form N-1A provides for the flexibility
to add such a footnote. However, the description of the Distribution
Plan included in the Prospectus under "Buying and Selling Fund Shares"
does explain that "[n]o distribution
fees are currently charged to the Funds; there are no plans to impose
these fees, and no such fees will be charged prior to March 1, 2012."
3. COMMENT. Please confirm that the Funds will not incur acquired fund
fees and expenses of greater than 0.01%. If the Funds will incur
acquired fund fees and expenses in an amount greater than 0.01%, please
add a separate line item to the "Annual Fund Operating Expenses" table
reflecting such amount.
RESPONSE. For those Funds that are expected to incur acquired fund fees
and expenses in excess of 0.01%, we have added an "Acquired Fund Fees
and Expenses" line item to the fee table reflecting the amount to be
incurred. For the remaining Funds, acquired fund fees and expenses, if
any, are expected to be de minimis and therefore included in "Other
Expenses" consistent with Form N-1A.
4. COMMENT. Please delete the explanatory disclosure included in the
footnote to "Other Expenses" in the Funds' "Annual Fund Operating
Expenses" tables as it is not permitted by Form N-1A.
RESPONSE. We have revised the "Other Expenses" footnotes accordingly.
5. COMMENT. Please disclose each Fund's non-fundamental 80% investment
policy adopted pursuant to Rule 35d-1 in its Item 4 "Principal
Investment Strategies" section.
RESPONSE. We have revised each Fund's "Principal Investment Strategies"
section accordingly.
6. COMMENT. Under "Principal Risks" in each Fund's Summary section, please
disclose the anticipated concentration of each Fund's investments as a
result of the composition of the Fund's Underlying Index, if
applicable.
RESPONSE. Where applicable, we have included disclosure regarding the
Funds' possible geographic investment concentration and the risks
associated therewith.
7. COMMENT. Please add disclosure explaining what it means to be "equal
weighted," including the disadvantages and advantages of an "equal
weighted" investment strategy.
RESPONSE. We have added an explanation of what "equal weighted" means
to Item 9 of the Prospectus.
8. COMMENT. Please indicate in the Item 9 disclosure where additional
information about the Underlying Indices is located in the SAI.
RESPONSE. We have revised the Funds' Item 9 disclosure accordingly.
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9. COMMENT. In each Fund's "Principal Investment Strategy" section, please
refrain from using equivocal terms in the descriptions of the types of
financial instruments and securities each Fund may invest in as part of
its principal investment strategy.
RESPONSE. We have revised each Fund's "Principal Investment Strategy"
disclosure accordingly.
10. COMMENT. For each Fund that invests in American Depositary Receipts
("ADRs"), please disclose whether the ADRs are sponsored or
unsponsored.
RESPONSE. This information is disclosed in the Funds' "Depositary
Receipt Risk" disclosure in Item 9, which states as follows: "The Fund
will primarily invest in sponsored ADRs, which are issued with the
support of the issuer of the foreign stock underlying the ADRs and
carry all of the rights of common shares, including voting rights."
11. COMMENT. In the Funds' Item 9 disclosure, please add the word
"Principal" to the headings "Investment Strategies" and "Investment
Risks."
RESPONSE. We have revised the Item 9 headings accordingly.
12. COMMENT. Please augment the "Geographic Concentration Risk" in each
Fund's Item 4 disclosure, as applicable, to disclose any
country-specific risks.
RESPONSE. For each Fund that is subject to geographic concentration, we
have revised its "Geographic Concentration Risk" disclosure
accordingly.
13. COMMENT. Under "Investment Strategies" in the Item 9 disclosure, please
disclose when the International Equal Weight ETFs will invest in
derivatives and what types of derivatives. Please include comparable
disclosure in Item 4, if appropriate.
RESPONSE. We have confirmed with our client, that the International
Equal Weight ETFs do not intend to invest in derivatives to a
significant extent, if at all, and, therefore, have deleted the
referenced disclosure from the Funds' Prospectus.
14. COMMENT. In the Funds' Item 9 disclosure, please disclose whether the
Funds reserve the right to engage in temporary defensive investing and,
if not, the risks associated with not engaging in temporary defensive
investing.
RESPONSE. We have revised the Funds' Item 9 disclosure accordingly.
15. COMMENT. Under the heading "Shareholder Information - Calculating NAV,"
please disclose that the fair valuation of the Funds' securities is
conducted under the supervision of the Board of Trustees. In addition,
please confirm that the Funds will not fair value their securities more
frequently than other mutual funds and, therefore, do not need
additional disclosure regarding fair valuation.
RESPONSE. We have revised the disclosure accordingly. We also confirm
that the Advisor does not anticipate that the Funds will be required to
fair value their securities other than in the circumstances disclosed
and, thus, have not added additional disclosure.
16. COMMENT. Please confirm that the Funds are not actively managed.
RESPONSE. We confirm that each Fund is an index fund that seeks to
achieve its investment objective through the replication or
representative sampling of its Underlying Index. The Funds are not
actively managed.
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SAI COMMENTS:
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1. COMMENT. If applicable, please disclose in the SAI that the Funds pay a
licensing fee associated with their use of the Underlying Indices. In
addition, please confirm that the index providers are not affiliated
with the Funds.
RESPONSE. The SAI currently discloses that each Fund is entitled to use
its Underlying Index pursuant to a sub-licensing agreement with the
Advisor, which in turn has a licensing agreement with the index
provider, and that the Advisor provides the sub-license to the Fund at
no charge. We also confirm that the index providers of the Underlying
Indices are not affiliated with the Funds, the Advisor or its
affiliates.
2. COMMENT. Please confirm that each Fund's principal investment
strategies and risks disclosed in the Prospectus are also disclosed as
principal in the SAI and, vice versa, that each Fund's principal
investment strategies and risks disclosed in the SAI are also disclosed
in the Prospectus.
RESPONSE. We confirm that each Fund's principal investment strategies
and risks are disclosed in the Prospectus and SAI.
3. COMMENT. Please confirm whether the Funds expect to invest in reverse
repurchase agreements to a significant extent. In addition, please
disclose any limitations on the Funds' ability to invest in reverse
repurchase agreements.
RESPONSE. We have confirmed with our client that the Funds are not
expected to invest in reverse repurchase agreements to a significant
extent, and have included the "Reverse Repurchase Agreements"
disclosure under the heading "Non-Principal Investment Policies,
Techniques and Risk Factors" accordingly. The "Reverse Repurchase
Agreements" disclosure currently states that "[w]hile there is no limit
on the percentage of Fund assets that may be used in connection with
reverse repurchase agreements, each Fund does not expect to engage,
under normal circumstances, in reverse repurchase agreements with
respect to more than 33 1/3% of its assets.
4. COMMENT. Under the heading "Hybrid Instruments" in the "Principal
Investment Policies, Techniques and Risk Factors" section, please
confirm that investment in hybrid instruments is a non-principal
investment of the Funds.
RESPONSE. We have confirmed with our client that no Fund will invest in
hybrid instruments to a principal extent.
5. COMMENT. Please confirm that the Trust's exemptive relief permits the
International Equal Weight ETFs to invest 20% of their assets in
instruments and securities not included in their Underlying Indices.
RESPONSE. We confirm that the Trust has been granted exemptive relief
that permits a future fund based on an international index to invest up
to 20% of its assets in certain futures, options and swap contracts,
cash and cash equivalents, and securities not included in the
Underlying Index, but which the Advisor believes will help the fund
track its Underlying Index.
6. COMMENT. Please confirm whether the Funds have a policy to not purchase
securities while its borrowing exceeds 5% of its total net assets.
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RESPONSE. The Funds' fundamental policy regarding borrowing provides
that the Funds' may only borrow to the extent permitted by the 1940
Act, as interpreted or modified by a regulatory authority having
jurisdiction from time to time. The Funds do not have a specific policy
that prohibits the Funds from purchasing securities while its borrowing
exceeds 5% of its total net assets.
* * *
I hereby acknowledge on behalf of Rydex ETF Trust (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 me at 202.739.5684 or John McGuire at 202.739.5654.
Sincerely,
/s/ Laura E. Flores
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Laura E. Flores
cc: Amy Lee, Esq.
Joanna Haigney
W. John McGuire, Esq.
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