Morgan, Lewis & Bockius LLP
1111 Pennsylvania Ave., N.W.
Washington, DC 20004
Laura E. Flores
202.739.5684
lflores@morganlewis.com
May 3, 2006
Mr. Christian T. Sandoe
U.S. Securities and Exchange Commission
100 F Street, NE
Washington, DC 20549
Re: Rydex Dynamic Funds (the "Trust") - Post Effective Amendment No. 11
(File Nos. 333-84797 and 811-09525)
Dear Mr. Sandoe:
This letter responds to your comments to the Trust's Post-Effective Amendment
No. 11, filed on February 16, 2006 for the purpose of introducing the Dynamic
Russell 2000 Fund, Dynamic Inverse Russell 2000 Fund, Dynamic Russell 2000
Feeder Fund, Dynamic Inverse Russell 2000 Feeder Fund, Dynamic Russell 2000
Master Fund, and Inverse Dynamic Russell 2000 Master Fund into the Trust. The
following summarizes your comments, and our response 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").
1. Comment. Please disclose the market capitalization range of the equity
securities that the Funds may invest in under "Principal Investment
Strategy."
Response. We have revised the disclosure under "Principal Investment
Strategy" as referenced below (new language appears in bold for the
purposes of this correspondence only). In addition, we have included
the capitalization range of the S&P 500 Index as of December 31, 2005
under "A Brief Guide to the Benchmarks - S&P 500 Index," which also
includes a description of the S&P 500 Index.
"The [Dynamic S&P 500 Master Fund] also may purchase equity securities
that are generally within the capitalization range of the S&P 500 Index
at the time of purchase, although the Dynamic S&P 500 Master Fund may
purchase equity securities of any capitalization range."
2. Comment. Please confirm whether the CDSC charged in connection with
C-Class Shares of the Funds will be based on a shareholder's initial
purchase price or market value, whichever is lower as disclosed under
"C-Class Shares," or the initial purchase price as disclosed in the
Funds' fee tables.
Response. We have confirmed that the CDSC will be based on a
shareholder's initial purchase price or market value, whichever is
lower, and have revised the disclosure in the Funds' fee tables
accordingly.
3. Comment. Please revise the second sentence under "Selling Fund Shares"
to clarify that requests for redemptions will receive the next
determined NAV after the Fund's receipt of the redemption order.
Response. We have revised the language as follows (new language appears
in bold for the purposes of this correspondence only):
"You may redeem all or any portion of your Fund shares at the Fund's
next determined NAV calculated after your redemption order is received
in good order by the transfer agent."
4. Comment. Please explain why the Board of Trustees has not adopted
policies and procedures designed to prevent market timing.
Response. The Board has not adopted policies and procedures designed to
prevent market timing because, as disclosed in the Prospectus under
"Frequent Purchases and Redemptions of Fund Shares" in compliance with
Item 6(e)(3), the Funds are designed and operated to accommodate
frequent trading by shareholders. As a result, the Funds recognize and
accept that high portfolio turnover or large movements of assets into
and out of the Funds may negatively impact Fund performance, and have
disclosed these potential risks in the prospectus in accordance with
Item 6(e)(1).
5. Comment. Under "Rights Reserved by the Funds," please clarify that the
Funds will only close an account as permitted or required by the U.S.
PATRIOT Act.
Response. We have revised the paragraph referenced as follows (new
language appears in bold for purposes of this correspondence only):
"The Funds reserve the right to close your account in cases of
suspected fraudulent or illegal activity in accordance with applicable
law."
6. Comment. Under "Repurchase Agreements" in the SAI, please revise the
second to last sentence to disclose that the Funds will not invest more
than 15% of a Fund's net assets in repurchase agreements that do not
mature within seven days together with any other illiquid assets held
by the Fund.
Response. We have revised the second to last sentence under "Repurchase
Agreements" accordingly.
7. Comment. Under "Investment Restrictions - Fundamental Policies," please
disclose the Funds' policy with respect to purchasing or selling
commodities.
Response. We have included the following fundamental policy for the
Funds:
"Each Fund shall not:
7. Purchase or sell real estate, physical commodities, or
commodities contracts, except that the Fund may purchase (i) marketable
securities issued by companies which own or invest in real estate
(including real estate investment trusts), commodities, or commodities
contracts; and (ii) commodities contracts relating to financial
instruments, such as financial futures contracts and options on such
contracts."
***
I hereby acknowledge on behalf of the Rydex Dynamic 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 202.739.5684.
Sincerely,
/s/ Laura E. Flores
Laura E. Flores
c: W. John McGuire, Esq.
Joanna Haigney