UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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- 02753
Guggenheim Variable Funds Trust
(Exact name of registrant as specified in charter)
(Exact name of registrant as specified in charter)
805 King Farm Boulevard, Suite 600
Rockville, Maryland 20850
(Address of principal executive offices) (Zip code)
Rockville, Maryland 20850
(Address of principal executive offices) (Zip code)
Amy J. Lee
Guggenheim Variable Funds Trust
805 King Farm Boulevard, Suite 600
Rockville, Maryland 20850
(Name and address of agent for service)
805 King Farm Boulevard, Suite 600
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: December 31
Date of reporting period: December 31, 2014
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. §3507.
| Item 1. | Reports to Stockholders. |
12.31.2014
Guggenheim Variable Funds Trust Annual Report
| Series | |
| Series A | (StylePlus—Large Core Series) |
| Series B | (Large Cap Value Series) |
| Series C | (Money Market Series) |
| Series D | (World Equity Income Series) |
| Series E | (Total Return Bond Series) |
| Series F | (Floating Rate Strategies Series) |
| Series J | (StylePlus—Mid Growth Series) |
| Series M | (Macro Opportunities Series) |
| Series N | (Managed Asset Allocation Series) |
| Series O | (All Cap Value Series) |
| Series P | (High Yield Series) |
| Series Q | (Small Cap Value Series) |
| Series V | (Mid Cap Value Series) |
| Series X | (StylePlus—Small Growth Series) |
| Series Y | (StylePlus—Large Growth Series) |
| Series Z | (Alpha Opportunity Series) |
| GVFT-ANN-2-1214x1215 | guggenheiminvestments.com |
This report and the financial statements contained herein are submitted for the general information of our shareholders. The report is not authorized for distribution to prospective investors unless preceded or accompanied by an effective prospectus.
Distributed by Guggenheim Funds Distributors, LLC.
| TABLE OF CONTENTS |
| DEAR SHAREHOLDER | 2 |
| ECONOMIC AND MARKET OVERVIEW | 5 |
| ABOUT SHAREHOLDERS’ FUND EXPENSES | 7 |
| SERIES A (STYLEPLUS—LARGE CORE SERIES) | 9 |
| SERIES B (LARGE CAP VALUE SERIES) | 18 |
| SERIES C (MONEY MARKET SERIES) | 26 |
| SERIES D (WORLD EQUITY INCOME SERIES) | 32 |
| SERIES E (TOTAL RETURN BOND SERIES) | 41 |
| SERIES F (FLOATING RATE STRATEGIES SERIES) | 54 |
| SERIES J (STYLEPLUS—MID GROWTH SERIES) | 64 |
| SERIES M (MACRO OPPORTUNITIES SERIES) | 74 |
| SERIES N (MANAGED ASSET ALLOCATION SERIES) | 87 |
| SERIES O (ALL CAP VALUE SERIES) | 94 |
| SERIES P (HIGH YIELD SERIES) | 102 |
| SERIES Q (SMALL CAP VALUE SERIES) | 114 |
| SERIES V (MID CAP VALUE SERIES) | 122 |
| SERIES X (STYLEPLUS—SMALL GROWTH SERIES) | 130 |
| SERIES Y (STYLEPLUS—LARGE GROWTH SERIES) | 140 |
| SERIES Z (ALPHA OPPORTUNITY SERIES) | 149 |
| NOTES TO FINANCIAL STATEMENTS | 155 |
| REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM | 180 |
| OTHER INFORMATION | 181 |
| INFORMATION ON BOARD OF TRUSTEES AND OFFICERS | 182 |
| GUGGENHEIM INVESTMENTS PRIVACY POLICIES | 186 |
| THE GUGGENHEIM FUNDS ANNUAL REPORT | 1 |
| December 31, 2014 |
Dear Shareholder:
Security Investors, LLC and Guggenheim Partners Investment Management (the “Investment Advisers”) are pleased to present the annual shareholder report for 16 of our funds that are part of the Guggenheim Variable Funds Trust (the “Funds”). This report covers performance of the Funds for the annual period ended December 31, 2014.
The Investment Advisers are part of Guggenheim Investments, which represents the investment management businesses of Guggenheim Partners, LLC, a global, diversified financial services firm.
Guggenheim Funds Distributors, LLC is the distributor of the Funds. Guggenheim Funds Distributors, LLC is affiliated with Guggenheim Partners, LLC and the Investment Advisers.
We encourage you to read the Economic and Market Overview section of the report, which follows this letter, and then the Manager’s Commentary for each Fund.
We are committed to providing innovative investment solutions and appreciate the trust you place in us.
Sincerely,
Donald C. Cacciapaglia
President
January 31, 2015
Read a prospectus and summary prospectus (if available) carefully before investing. It contains the investment objectives, risks, charges, expenses and other information, which should be considered carefully before investing. Obtain a prospectus and summary prospectus (if available) at guggenheiminvestments.com or call 800.820.0888.
The Series StylePlus Funds may not be suitable for all investors. Investments in large capitalization stocks may underperform other segments of the equity market or the equity market as a whole. • Investments in small-sized company securities may present additional risks such as less predictable earnings, higher volatility and less liquidity than larger, more established companies. • Growth stocks may be more volatile than other stocks because they are more sensitive to investor perceptions regarding the growth potential of the issuing companies. • The Funds may invest in derivative instruments, which may be more volatile and less liquid, increasing the risk of loss when compared to traditional securities. Certain of the derivative instruments are also subject to the risks of counterparty default and adverse tax treatment. • The Funds’ use of leverage, through borrowings or instruments such as derivatives, may cause the Funds to be more volatile than if it had not been leveraged. • The Funds’ investments in other investment vehicles subject the Funds to those risks and expenses affecting the investment vehicle. • The Funds may invest in foreign securities which carry additional risks when compared to U.S. securities, due to the impact of diplomatic, political or economic developments in the country in question
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| December 31, 2014 |
(investments in emerging markets securities are generally subject to an even greater level of risks). • The Funds may invest in fixed income securities whose market value will change in response to interest rate changes and market conditions among other factors. In general, bond prices rise when interest rates fall and vice versa. • The Fund’s exposure to high yield securities may subject the Fund to greater volatility. • The Funds may invest in bank loans and asset-backed securities, including mortgage-backed, which involve special types of risks. • The Funds may invest in restricted securities which may involve financial and liquidity risk. • You may have a gain or loss when you sell your shares. • It is important to note that the Funds are not guaranteed by the U.S. government. • Please read the prospectus for more detailed information regarding these and other risks.
The Series Value Funds may not be suitable for all investors. • An investment in the Funds will fluctuate and is subject to investment risks, which means investors could lose money. The intrinsic value of the underlying stocks may never be realized or the stocks may decline in value. Investments in small- and/or mid-sized company securities may present additional risks such as less predictable earnings, higher volatility and less liquidity than larger, more established companies. • Please read the prospectus for more detailed information regarding these and other risks.
The Series C (Money Market Series) may not be suitable for all investors. • An investment in the Fund is not a deposit of a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other governmental agency. • It is possible to lose money by investing in the Fund. The principal risks of investing in the Fund are listed below. • The Fund could lose money if the issuer of a bond is unable to repay interest and principal on time or defaults. • The issuer of a bond could also suffer a decrease in quality rating, which would affect the volatility and liquidity of the bond. • Investments in fixed-income securities are subject to the possibility that interest rates could rise sharply, causing the value of the Fund’s securities and share price to decline. • Fixed income securities with longer durations are subject to more volatility than those with shorter durations. • Regulations of money market funds are evolving. • New regulations may affect negatively the Fund’s performance, yield and cost. • Please read the prospectus for more detailed information regarding these and other risks.
The Series D (World Equity Income Series) may not be suitable for all investors. • Investments in securities in general are subject to market risks that may cause their prices to fluctuate over time. •The Fund’s investments in foreign securities carry additional risks when compared to U.S. securities, due to the impact of diplomatic, political or economic developments in the country in question (investments in emerging markets are generally subject to an even greater level of risks). Additionally, the Fund’s exposure to foreign currencies subjects the fund to the risk that those currencies will decline in value relative to the U.S. Dollar. • The Fund’s investments in derivatives may pose risks in addition to those associated with investing directly in securities or other investments, including illiquidity of the derivatives, imperfect correlations with underlying investments or the Fund’s other portfolio holdings, lack of availability and counterparty risk. •The Fund’s use of leverage, through instruments such as derivatives, may cause the fund to be more volatile than if it had not been leveraged. •The Fund’s investments in other investment vehicles subject the Fund to those risks and expenses affecting the investment vehicle. •The Fund may have significant exposure to securities in a particular capitalization range e.g., large-, mid- or small-cap securities. As a result, the Fund may be subject to the risk that the pre-denominate capitalization range may underperform other segments of the equity market or the equity market as a whole. • Please read the prospectus for more detailed information regarding these and other risks.
The Series E (Total Return Bond Series) may not be suitable for all investors. • The Fund’s market value will change in response to interest rate changes and market conditions among other factors. In general, bond prices rise when interest rates fall and vice versa. • The Fund’s exposure to high yield securities may subject the Fund to greater volatility. • When market conditions are deemed appropriate, the Fund will leverage to the full extent permitted by its investment policies and restrictions and applicable law. Leveraging will exaggerate the effect on net asset value of any increase or decrease in the market value of the Fund’s portfolio. • The Fund may invest in derivative instruments, which may be more volatile and less liquid, increasing the risk of loss when compared to traditional securities. Certain of the derivative instruments are also subject to the risks of counterparty default and adverse tax treatment. • Instruments and strategies (such as borrowing transactions and reverse repurchase agreements) may provide leveraged exposure to a particular investment, which will magnify any gains or losses on those investments. • Investments in reverse repurchase agreements expose the Fund to the many of the same risks as investments in derivatives. • The Fund’s investments in other investment vehicles subject the Fund to those risks and expenses affecting the investment vehicle. • The Fund’s investments in foreign securities carry additional risks when compared to U.S. securities, due to the impact of diplomatic, political or economic developments in the country in question (investments in emerging markets securities are generally subject to an even greater level of risks). • Investments in syndicated bank loans generally offer a floating interest rate and involve special types of risks. • The Fund’s investments in municipal securities can be affected by events that affect the municipal bond market. • The Fund’s investments in real estate securities subject the Fund to the same risks as direct investments in real estate, which is particularly sensitive to economic downturns. • The Fund’s investments in restricted securities may involve financial and liquidity risk. • You may have a gain or loss when you sell your shares. • It is important to note that the Fund is not guaranteed by the U.S. government. • Please read the prospectus for more detailed information regarding these and other risks.
The Series F (Floating Rate Strategies Series) may not be suitable for all investors. • Investments in floating rate senior secured syndicated bank loans and other floating rate securities involve special types of risks, including credit rate risk, interest rate risk, liquidity risk and prepayment risk. • The Fund’s market value will change in response to interest rate changes and market conditions among other factors. In general, bond prices rise when interest rates fall and vice versa. • The Fund’s exposure to high yield securities may subject the Fund to greater volatility. • When market conditions are deemed appropriate, the Fund will leverage to the full extent permitted by its investment policies and restrictions and applicable law. Leveraging will exaggerate the effect on net asset value of any increase or decrease in the market value of the Fund’s portfolio. • The Fund may invest in derivative instruments, which may be more volatile and less liquid, increasing the risk of loss when compared to traditional securities. Certain of the derivative instruments are also subject to the risks of counterparty default and adverse tax treatment. • Instruments and strategies (such as borrowing transactions and reverse repurchase agreements) may provide leveraged exposure to a particular investment, which will magnify any gains or losses on those investments. • Investments in reverse repurchase agreements and synthetic instruments (such as synthetic collateralized debt obligations) expose the Fund to the many of the same risks as investments in derivatives. • The Fund’s investments in other investment vehicles subject the Fund to those risks and expenses affecting the investment vehicle. • The Fund’s investments in foreign securities carry additional risks when compared to U.S. securities, due to the impact of diplomatic, political or economic developments in the country in question (investments in emerging markets securities are generally subject to an even greater level of risks). • The Fund’s investments in real estate securities subject the Fund to the same risks as direct investments in real estate, which is particularly sensitive to economic downturns. • The Fund’s investments in restricted securities may involve financial and liquidity risk. • The Fund is subject to active trading risks that may increase volatility and impact its ability to achieve its investment objective. • You may have a gain or loss when you sell your shares. • It is important to note that the Fund is not guaranteed by the U.S. government. • Please read the prospectus for more detailed information regarding these and other risks.
| THE GUGGENHEIM FUNDS ANNUAL REPORT | 3 |
| December 31, 2014 |
The Series M (Macro Opportunities Series) may not be suitable for all investors. • The Fund’s market value will change in response to interest rate changes and market conditions among other factors. In general, bond prices rise when interest rates fall and vice versa. • The Fund’s exposure to high yield securities may subject the Fund to greater volatility. • The intrinsic value of the underlying stocks in which the Fund invests may never be realized or the stock may decline in value. • When market conditions are deemed appropriate, the Fund will leverage to the full extent permitted by its investment policies and restrictions and applicable law. Leveraging will exaggerate the effect on net asset value of any increase or decrease in the market value of the Fund’s portfolio. • The use of short selling involves increased risks and costs. You risk paying more for a security than you received from its sale. Theoretically, stocks sold short have the risk of unlimited losses. • The Fund may invest in derivative instruments, which may be more volatile and less liquid, increasing the risk of loss when compared to traditional securities. Certain of the derivative instruments are also subject to the risks of counterparty default and adverse tax treatment. • Instruments and strategies (such as borrowing transactions and reverse repurchase agreements) may provide leveraged exposure to a particular investment, which will magnify any gains or losses on those investments. • Investments in reverse repurchase agreements expose the Fund to the many of the same risks as investments in derivatives. • The Fund’s investments in other investment vehicles subject the Fund to those risks and expenses affecting the investment vehicle. • The Fund’s investments in foreign securities carry additional risks when compared to U.S. securities, due to the impact of diplomatic, political or economic developments in the country in question (investments in emerging markets securities are generally subject to an even greater level of risks). • Investments in syndicated bank loans generally offer a floating interest rate and involve special types of risks. • A highly liquid secondary market may not exist for the commodity-linked structured notes the Fund invests in, and there can be no assurance that a highly liquid secondary market will develop. • The Fund’s exposure to the commodity markets may subject the Fund to greater volatility as commodity-linked investments may be affected by changes in overall market movements, commodity index volatility, changes in interest rates or factors affecting a particular industry or commodity such as droughts, floods, weather, embargos, tariffs and international economic, political and regulatory developments. • The Fund’s investments in municipal securities can be affected by events that affect the municipal bond market. • The Fund’s investments in real estate securities subject the Fund to the same risks as direct investments in real estate, which is particularly sensitive to economic downturns. • The Fund’s investments in restricted securities may involve financial and liquidity risk. • You may have a gain or loss when you sell your shares. • It is important to note that the Fund is not guaranteed by the U.S. government. • This Fund is considered nondiversified and can invest a greater portion of its assets in securities of individual issuers than a diversified fund. As a result, changes in the market value of a single security could cause greater fluctuations in the value of fund shares than would occur in a more diversified fund. • Please read the prospectus for more detailed information regarding these and other risks.
The Series N (Managed Asset Allocation Series) may not be suitable for all investors. • The value of an investment in the Fund will fluctuate and is subject to investment risks, which means investors could lose money. The Fund could lose money if the issuer of a bond or a counterparty to a derivatives transaction or other transaction is unable to repay interest and principal on time or defaults. The issuer of a bond could also suffer a decrease in quality rating, which would affect the volatility and liquidity of the bond. Derivatives may pose risks in addition to those associated with investing directly in securities or other investments, including the risk that the Fund will be unable to sell, unwind or value the derivative because of an illiquid market, the risk that the derivative is not well correlated with underlying investments or the Fund’s other portfolio holdings, and the risk that the counterparty is unwilling or unable to meet its obligation. The use of derivatives by the Fund to hedge risk may reduce the opportunity for gain by offsetting the positive effect of favorable price movements. Furthermore, if the Investment Manager is incorrect about its expectations of market conditions, the use of derivatives could result in a loss, which in some cases may be unlimited. Foreign securities carry additional risks when compared to U.S. securities, including currency fluctuations, adverse political and economic developments, unreliable or untimely information, less liquidity, limited legal recourse and higher transactional costs. The Investment Manager may not be able to cause certain of the underlying funds’ performance to match or correlate to that of the underlying funds’ respective underlying index or benchmark, either on a daily or aggregate basis. Factors such as underlying fund expenses, imperfect correlation between an underlying fund’s investments and those of its underlying index or underlying benchmark, rounding of share prices, changes to the composition of the underlying index or underlying benchmark, regulatory policies, high portfolio turnover rate, and the use of leverage all contribute to tracking error. Tracking error may cause an underlying fund’s and, thus the Fund’s, performance to be less than you expect. • Please read the prospectus for more detailed information regarding these and other risks.
The Series P (High Yield Series) may not be suitable for all investors. • The Fund’s market value will change in response to interest rate changes and market conditions among other factors. In general, bond prices rise when interest rates fall and vice versa. • The Fund’s exposure to high yield securities may subject the Fund to greater volatility. • The Fund may invest in derivative instruments, which may be more volatile and less liquid, increasing the risk of loss when compared to traditional securities. Certain of the derivative instruments are also subject to the risks of counterparty default and adverse tax treatment. •The Fund’s use of leverage, through borrowings or instruments such as derivatives, may cause the Fund to be more volatile than if it had not been leveraged. • Instruments and strategies (such as borrowing transactions and reverse repurchase agreements) may provide leveraged exposure to a particular investment, which will magnify any gains or losses on those investments. • The Fund may invest in foreign securities which carry additional risks when compared to U.S. securities, due to the impact of diplomatic, political or economic developments in the country in question (investments in emerging markets securities are generally subject to an even greater level of risks). • Investments in syndicated bank loans generally offer a floating interest rate and involve special types of risks. • The Fund’s investments in other investment vehicles subject the Fund to those risks and expenses affecting the investment vehicle. • The Fund’s investments in restricted securities may involve financial and liquidity risk. • You may have a gain or loss when you sell your shares. • It is important to note that the Fund is not guaranteed by the U.S. government. • Please read the prospectus for more detailed information regarding these and other risks.
The Series Z (Alpha Opportunity Series) may not be suitable for all investors. • The Alpha Opportunity Fund is subject to a number of risks and is not suitable for all investors. • Investments in securities and derivatives, in general, are subject to market risks that may cause their prices to fluctuate over time. An investment in the Fund may lose money. There can be no guarantee the Fund will achieve it investment objective. •The Fund’s use of derivatives such as futures, options and swap agreements may expose the Fund to additional risks that it would not be subject to if it invested directly in the securities underlying those derivatives. • Certain of the derivative instruments, such as swaps and structured notes, are also subject to the risks of counterparty default and adverse tax treatment. •The more the fund invests in leveraged instruments, the more the leverage will magnify any gains or losses on those investments. • The Fund’s use of short selling involves increased risk and costs, including paying more for a security than it received from its sale and the risk of unlimited losses. •In certain circumstances the Fund may be subject to liquidity risk and it may be difficult for the Fund to purchase and sell particular investments within a reasonable time at a fair price. •In certain circumstances, it may be difficult for the Fund to purchase and sell particular investments within a reasonable time at a fair price. •The Fund’s fixed income investments will change in value in response to interest rate changes and other factors. •See the prospectus for more information on these and additional risks.
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ECONOMIC AND MARKET OVERVIEW (Unaudited) | December 31, 2014 |
The U.S. economy continued to grow throughout the 12 months ended December 31, 2014, despite some seasonal volatility in September and October that caused spreads in leveraged credit to widen and upward momentum in U.S. stocks to deteriorate. By the end of October, the spread widening had reversed and equities regained their footing, with some key indices shooting to new highs. Markets similarly overcame a weather-related winter soft patch in the first quarter of 2014. The benchmark U.S. 10-year Treasury rate declined from 3.03% to 2.17% over the period, a positive stimulant to continued economic expansion.
U.S. growth appears to have decoupled from the rest of the world. The third quarter’s 5% U.S. gross domestic product (GDP) growth—the fastest pace in 11 years—signals that the U.S. economy is doing very well. Deeming growth sustainable, the U.S. Federal Reserve (the “Fed”) formally ended its quantitative easing (QE) program in October, and all eyes are now on economic data—primarily inflation and employment figures—that would prompt the Fed to raise rates in 2015. Slowing global growth has translated into expectations of weaker demand for oil in an already oversupplied market, which contributed to oil’s 49% decline in the second half of the year, with West Texas Intermediate ending the year at a five-year low of $53 a barrel.
The bright side to declining energy prices is that it leaves more money for consumers to spend on other goods. Data are already confirming this, as American consumer confidence reached new post-recession highs, and fourth quarter retail spending posted solid gains. Overall, this should be positive for consumer-related companies with primarily domestic operations.
The U.S. added 246,000 jobs per month on average in 2014. Employment levels are transitioning from the recovery phase to the expansion phase, which typically coincides with accelerating economic activity. The downward trend in labor force participation has begun to flatten and, as fewer people leave the workforce, the rapid decline in the nation’s unemployment rate could begin to slow. Until unemployment falls below the natural rate of unemployment, it’s unlikely that the U.S. economy will experience the kind of meaningful wage pressure that would spur action by the Fed. An improving labor market, subdued mortgage rates, and tight housing inventory all point to a rebound in the housing market.
The battle against deflation in Europe forced the European Central Bank (ECB) to announce its own form of QE via purchases of asset-backed securities (ABS) and covered bonds. The consensus appears to be that in its current form, the program is insufficient to avert a slowdown. The next step for the ECB may be to buy sovereign bonds, which the ECB will decide on in the coming months. The only notable positive for Europe over the past year has been the devaluation of the euro, which fell by 13% against the U.S. dollar between May and December. A weaker euro makes exports more competitive, but still will not be enough to boost inflation in the region.
While markets were already anxious over Europe’s struggles and the potential impact of a stronger dollar on U.S. company earnings, Japan relapsed into recession. This drove the Bank of Japan to announce it would expand its asset purchase program in 2015. China also faces slowing growth as financing costs remain high for smaller companies, forcing the People’s Bank of China (PBOC) to cut benchmark interest rates for the first time since July 2012.
From an investment standpoint, U.S. assets continue to look attractive. With global central banks easing or engaging in their form of QE, global yields remain anchored and are driving investors into U.S. markets. But we are wary of the potential for a setback in U.S. equities as certain factors, such as oil prices and currency fluctuations, drive markets to aggressively discount valuations for some sectors more than others.
For the year ended December 31, 2014, the Standard & Poor’s 500® (“S&P 500”) Index* returned 13.69%. The Morgan Stanley Capital International (“MSCI”) Europe-Australasia-Far East (“EAFE”) Index* returned -4.90%. The return of the MSCI Emerging Markets Index* was -2.19%.
In the bond market, the Barclays U.S. Aggregate Bond Index* posted a 5.97% return for the period, while the Barclays U.S. Corporate High Yield Index* returned 2.45%. The return of the Bank of America Merrill Lynch 3-Month U.S. Treasury Bill Index* was 0.04% for the 12-month period.
The opinions and forecasts expressed may not actually come to pass. This information is subject to change at any time, based on market and other conditions, and should not be construed as a recommendation of any specific security or strategy.
| THE GUGGENHEIM FUNDS ANNUAL REPORT | 5 |
ECONOMIC AND MARKET OVERVIEW (Unaudited)(concluded) | December 31, 2014 |
*Index Definitions:
The following indices are referenced throughout this report. Indices are unmanaged and not available for direct investment. Index performance does not reflect transaction costs, fees, or expenses.
Barclays U.S. Aggregate Bond Index is a broad-based benchmark that measures the investment grade, U.S. dollar denominated, fixed-rate taxable bond market, including U.S. Treasuries, government-related and corporate securities, MBS (agency fixed-rate and hybrid ARM pass-throughs), ABS, and CMBS.
Barclays U.S. Corporate High Yield Index measures the market of U.S. dollar denominated, non-investment grade, fixed-rate, taxable corporate bonds. Securities are classified as high yield if the middle rating of Moody’s, Fitch, and S&P is Ba1/BB +/BB + or below.
Barclays U.S. Intermediate Government/Credit Bond Index measures the performance of U.S. dollar denominated U.S. Treasuries, government-related and investment grade U.S. corporate securities that have a remaining maturity of greater than one year and less than ten years.
Bank of America (“BofA”) Merrill Lynch 3-Month U.S. Treasury Bill Index is an unmanaged market index of U.S. Treasury securities maturing in 90 days that assumes reinvestment of all income.
Credit Suisse Leveraged Loan Index is designed to mirror the investable universe of the U.S. dollar-denominated leveraged loan market.
MSCI EAFE Index is a free float-adjusted market capitalization index that is designed to measure the equity market performance of developed markets, excluding the U.S. & Canada.
MSCI Emerging Markets Index is a free float-adjusted market capitalization weighted index that is designed to measure equity market performance in the global emerging markets.
MSCI World Index is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed markets.
S&P 500® Index is a capitalization-weighted index of 500 stocks designed to measure the performance of the broad economy, representing all major industries and is considered a representation of the U.S. stock market.
Russell 3000® Value Index measures the performance of the broad value segment of the U.S. equity value universe. It includes those Russell 3000 companies with lower price-to-book ratios and lower forecasted growth values.
Russell 2500® Value Index measures the performance of the small- to mid-cap value segment of the U.S. equity universe. It includes those Russell 2500 companies with lower price-to-book ratios and lower forecasted growth values.
Russell 2000® Growth Index measures the performance of the small-cap growth segment of the U.S. equity universe. It includes those Russell 2000 companies with higher price-to-book ratios and higher forecasted growth values.
Russell 2000® Value Index measures the performance of the small-cap value segment of the U.S. equity universe. It includes those Russell 2000 companies with lower price-to-book ratios and lower forecasted growth values.
Russell 1000® Growth Index measures the performance of the large-cap growth segment of the U.S. equity universe. It includes those Russell 1000 companies with higher price-to-book ratios and higher forecasted growth value.
Russell 1000® Value Index measures the performance for the large-cap value segment of the U.S. equity universe. It includes those Russell 1000 companies with lower price-to-book ratios and lower expected growth values.
Russell Midcap® Growth Index measures the performance of the mid-cap growth segment of the U.S. equity universe. It includes those Russell Midcap Index companies with higher price-to-book ratios and higher forecasted growth values.
| 6 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
ABOUT SHAREHOLDERS’ FUND EXPENSES (Unaudited) |
All mutual funds have operating expenses and it is important for our shareholders to understand the impact of costs on their investments. Shareholders of a Fund incur two types of costs: (i) transaction costs, including sales charges (loads) on purchase payments, reinvested dividends, or other distributions; and exchange fees; and (ii) ongoing costs, including management fees, administrative services, and shareholder reports, among others. These ongoing costs, or operating expenses, are deducted from a fund’s gross income and reduce the investment return of the fund.
A fund’s expenses are expressed as a percentage of its average net assets, which is known as the expense ratio. The following examples are intended to help investors understand the 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 examples are based on an investment of $1,000 made at the beginning of the period and held for the entire six-month period beginning June 30, 2014 and ending December 31, 2014.
The following tables illustrate a Fund’s costs in two ways:
Table 1. Based on actual Fund return. This section helps investors estimate the actual expenses paid over the period. The “Ending Account Value” shown is derived from the Fund’s actual return, and the fourth column shows the dollar amount that would have been paid by an investor who started with $1,000 in the Fund. Investors may use the information here, together with the amount invested, to estimate the expenses paid over the period. Simply divide the Fund’s 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 provided under the heading “Expenses Paid During Period.”
Table 2. Based on hypothetical 5% return. This section is intended to help investors compare a Fund’s cost with those of other mutual funds. The table provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses paid during the period. The example is useful in making comparisons because the U.S. Securities and Exchange Commission (the “SEC”) requires all mutual funds to calculate expenses based on the 5% return. Investors can assess a Fund’s costs by comparing this hypothetical example with the hypothetical examples that appear in shareholder reports of other funds.
The calculations illustrated above assume no shares were bought or sold during the period. Actual costs may have been higher or lower, depending on the amount of investment and the timing of any purchases or redemptions.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads) on purchase payments, and contingent deferred sales charges (“CDSC”) on redemptions, if any. 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 transactional costs were included, your costs would have been higher.
More information about a Fund’s expenses, including annual expense ratios for the past five years, can be found in the Financial Highlights section of this report. For additional information on operating expenses and other shareholder costs, please refer to the appropriate Fund prospectus.
| THE GUGGENHEIM FUNDS ANNUAL REPORT | 7 |
ABOUT SHAREHOLDERS’ FUND EXPENSES (Unaudited)(concluded) |
Expense Ratio1 | Fund Return | Beginning Account Value June 30, 2014 | Ending Account Value December 31, 2014 | Expenses Paid During Period2 | |
Table 1. Based on actual Fund return3 | |||||
| Series A (StylePlus—Large Core Series) | 0.96% | 6.29% | $1,000.00 | $1,062.90 | $4.99 |
| Series B (Large Cap Value Series) | 0.84% | 1.22% | 1,000.00 | 1,012.20 | 4.26 |
| Series C (Money Market Series) | 0.50% | (0.15%) | 1,000.00 | 998.50 | 2.52 |
| Series D (World Equity Income Series) | 0.98% | (5.12%) | 1,000.00 | 948.80 | 4.81 |
| Series E (Total Return Bond Series) | 0.81% | 2.19% | 1,000.00 | 1,021.90 | 4.13 |
| Series F (Floating Rate Strategies Series) | 1.16% | 0.04% | 1,000.00 | 1,000.40 | 5.85 |
| Series J (StylePlus—Mid Growth Series) | 0.98% | 5.02% | 1,000.00 | 1,050.20 | 5.06 |
| Series M (Macro Opportunities Series) | 1.42% | 1.10% | 1,000.00 | 1,011.00 | 7.20 |
| Series N (Managed Asset Allocation Series) | 0.93% | 1.36% | 1,000.00 | 1,013.60 | 4.72 |
| Series O (All Cap Value Series) | 0.90% | (0.11%) | 1,000.00 | 998.90 | 4.53 |
| Series P (High Yield Series) | 1.13% | (3.23%) | 1,000.00 | 967.70 | 5.60 |
| Series Q (Small Cap Value Series) | 1.17% | (4.95%) | 1,000.00 | 950.50 | 5.75 |
| Series V (Mid Cap Value Series) | 0.95% | (5.61%) | 1,000.00 | 943.90 | 4.65 |
| Series X (StylePlus—Small Growth Series) | 1.29% | 4.03% | 1,000.00 | 1,040.30 | 6.63 |
| Series Y (StylePlus—Large Growth Series) | 1.20% | 6.79% | 1,000.00 | 1,067.90 | 6.25 |
| Series Z (Alpha Opportunity Series) | 2.56% | 3.37% | 1,000.00 | 1,033.70 | 13.12 |
| Table 2. Based on hypothetical 5% return (before expenses) | |||||
| Series A (StylePlus—Large Core Series) | 0.96% | 5.00% | $1,000.00 | $1,020.37 | $4.89 |
| Series B (Large Cap Value Series) | 0.84% | 5.00% | 1,000.00 | 1,020.97 | 4.28 |
| Series C (Money Market Series) | 0.50% | 5.00% | 1,000.00 | 1,022.68 | 2.55 |
| Series D (World Equity Income Series) | 0.98% | 5.00% | 1,000.00 | 1,020.27 | 4.99 |
| Series E (Total Return Bond Series) | 0.81% | 5.00% | 1,000.00 | 1,021.12 | 4.13 |
| Series F (Floating Rate Strategies Series) | 1.16% | 5.00% | 1,000.00 | 1,019.36 | 5.90 |
| Series J (StylePlus—Mid Growth Series) | 0.98% | 5.00% | 1,000.00 | 1,020.27 | 4.99 |
| Series M (Macro Opportunities Series) | 1.42% | 5.00% | 1,000.00 | 1,018.05 | 7.22 |
| Series N (Managed Asset Allocation Series) | 0.93% | 5.00% | 1,000.00 | 1,020.52 | 4.74 |
| Series O (All Cap Value Series) | 0.90% | 5.00% | 1,000.00 | 1,020.67 | 4.58 |
| Series P (High Yield Series) | 1.13% | 5.00% | 1,000.00 | 1,019.51 | 5.75 |
| Series Q (Small Cap Value Series) | 1.17% | 5.00% | 1,000.00 | 1,019.31 | 5.96 |
| Series V (Mid Cap Value Series) | 0.95% | 5.00% | 1,000.00 | 1,020.42 | 4.84 |
| Series X (StylePlus—Small Growth Series) | 1.29% | 5.00% | 1,000.00 | 1,018.70 | 6.56 |
| Series Y (StylePlus—Large Growth Series) | 1.20% | 5.00% | 1,000.00 | 1,019.16 | 6.11 |
| Series Z (Alpha Opportunity Series) | 2.56% | 5.00% | 1,000.00 | 1,012.30 | 12.98 |
1 | Annualized and excludes expenses of the underlying funds in which the Funds invest. |
2 | Expenses are equal to the Fund’s annualized expense ratio, net of any applicable fee waivers, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). Expenses shown do not include fees charged by insurance companies. |
3 | Actual cumulative return at net asset value for the period June 30, 2014 to December 31, 2014. |
| 8 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
MANAGER'S COMMENTARY (Unaudited) | December 31, 2014 |
To Our Shareholders:
The Series A (StylePlus—Large Core Series) is managed by a team of seasoned professionals, including B. Scott Minerd, Global Chairman of Investments and Chief Investment Officer; Farhan Sharaff, Senior Managing Director and Assistant Chief Investment Officer, Equities; Jayson Flowers, Senior Managing Director and Head of Equity and Derivative Strategies; and Scott Hammond, Managing Director and Portfolio Manager. In the following paragraphs, the investment team discusses performance for the fiscal year ended December 31, 2014.
For the year ended December 31, 2014, the Series A (StylePlus—Large Core Series) returned 15.48%, compared with the 13.69% return of its benchmark, the S&P 500 Index.
The Fund seeks to outperform the S&P 500 Index by combining actively managed and passive equity exposure, along with an actively managed fixed income portfolio. The passive equity position is maintained with swap agreements and futures contracts. The Fund’s fixed income component invests in a variety of fixed income sectors, including asset-backed securities (ABS), mortgage-backed securities (MBS), high yield corporate bonds and bank loans.
The allocation between active and passive equity is tactically managed based on the environment for stock-picking opportunities. When stock selection opportunities are less attractive, the Fund invests in derivatives based on the target index, backed by a diversified portfolio of fixed income instruments. In this way, the Fund believes it will deliver the target index return plus an alpha component commensurate with the yield achieved on the active fixed income portfolio.
For the period, the Fund maintained an average allocation of a little more than 20% to the actively managed equity allocation and slightly less than 80% to the passive equity position. The actively managed equity sleeve was scaled down from 25% to 20% mid-year, as U.S. equity and credit markets became more volatile beginning in the third quarter. While the sell-off was initially sparked by market unease over the Fed winding down its purchases of U.S. Treasuries and mortgage-backed securities, it continued through the fourth quarter as markets grew anxious over the weakening global outlook. The actively managed sleeve was maintained at about 20% for the rest of the period.
The Fund’s active equity and active fixed income exposures both contributed to performance for the period. The passive equity position was neutral to performance, and the swap agreements contributed to performance.
The actively managed equity portfolio was underweight the more expensive smaller and momentum names (based on various measures, such as price-to-earnings), and overweight the less expensive and larger holdings. Sectors that contributed most to performance for the year were Consumer Staples and Industrials. Sectors that detracted most from performance for the year were Financials and Utilities.
Uncorrelated with the Fund’s active equity component, the fixed-income component was largely invested in ABS and MBS. These positions constituted the majority of the fixed income sleeve’s total return.
Performance displayed represents past performance, which is no guarantee of future results.
The opinions and forecast expressed may not actually come to pass. This information is subject to change at any time, based on market and other conditions, and should not be construed as a recommendation of any specific security or strategy.
| THE GUGGENHEIM FUNDS ANNUAL REPORT | 9 |
PERFORMANCE REPORT AND FUND PROFILE (Unaudited) | December 31, 2014 |
SERIES A (STYLEPLUS—LARGE CORE SERIES)
OBJECTIVE: Seeks long-term growth of capital.
Holdings Diversification
(Market Exposure as % of Net Assets)
“Holdings Diversification (Market Exposure as % of Net Assets)” excludes any temporary cash investments or investments in Guggenheim Strategy Funds Trust mutual funds.
| Portfolio Composition by Quality Rating** | |
| Rating | |
| Fixed Income Instruments | |
| AAA | 6.3% |
| AA | 3.0% |
| A | 4.7% |
| BBB | 5.3% |
| BB | 0.5% |
| B | 2.3% |
| CCC | 0.4% |
| Other Instruments | |
| Mutual Funds | 53.5% |
| Common Stocks | 21.0% |
| Short Term Investments | 3.0% |
| Total Investments | 100.0% |
| The chart above reflects percentages of the value of total investments. | |
Inception Date: May 1, 1979 |
| Ten Largest Holdings (% of Total Net Assets) | |
| Guggenheim Variable Insurance Strategy Fund III | 23.2% |
| Guggenheim Strategy Fund I | 17.4% |
| Guggenheim Strategy Fund II | 7.5% |
| Guggenheim Strategy Fund III | 5.0% |
| HSI Asset Securitization Corporation Trust — Class 2A3 | 1.0% |
| Duane Street CLO IV Ltd. — Class A1T | 0.9% |
| Apple, Inc. | 0.8% |
| Resource Capital Corporation CRE Notes 2013 Ltd. — Class B | 0.8% |
| Boca Hotel Portfolio Trust — Class D | 0.8% |
| Argent Securities Incorporated Asset-Backed Pass-Through Certificates Series — Class A2D | 0.8% |
| Top Ten Total | 58.2% |
| “Ten Largest Holdings” exclude any temporary cash or derivative instruments. | |
| 10 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
PERFORMANCE REPORT AND FUND PROFILE (Unaudited)(concluded) | December 31, 2014 |
Cumulative Fund Performance*,†
Average Annual Returns*
Periods Ended December 31, 2014†
| 1 Year | 5 Year | 10 Year | |
| Series A (StylePlus— Large Core Series) | 15.48% | 13.45% | 5.52% |
| S&P 500 Index | 13.69% | 15.45% | 7.67% |
| * | The performance data above represents past performance that is not predictive of future results. The investment return and principal value of an investment in the Fund will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Returns are historical and include changes in principal and reinvested dividends and capital gains and do not reflect the effect of taxes. The S&P 500 Index is an unmanaged index and, unlike the Fund, has no management fees or operating expenses to reduce its reported return. |
| ** | Source: Factset. Credit quality ratings are measured on a scale that generally ranges from AAA (highest) to D (lowest). All rated securities have been rated by Moody’s, Standard & Poor’s (“S&P”), or Fitch, which are all a Nationally Recognized Statistical Rating Organization (“NRSRO”). For purposes of this presentation, when ratings are available from more than one agency, the highest rating is used. Guggenheim Investments has converted Moody’s and Fitch ratings to the equivalent S&P rating. Unrated securities do not necessarily indicate low credit quality. Security ratings are determined at the time of purchase and may change thereafter. |
† | Performance figures do not reflect fees and expenses associated with an investment in variable insurance products. If returns had taken into account these fees and expenses, performance would have been lower. Shares of a series of Guggenheim Variable Funds Trust are available only through the purchase of such products. |
| SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 11 |
| SCHEDULE OF INVESTMENTS | December 31, 2014 |
| SERIES A (STYLEPLUS—LARGE CORE SERIES) |
| Shares | Value | |||||||
COMMON STOCKS† - 20.9% | ||||||||
| CONSUMER, NON-CYCLICAL - 7.3% | ||||||||
| Johnson & Johnson | 12,643 | $ | 1,322,078 | |||||
| Pfizer, Inc. | 34,965 | 1,089,160 | ||||||
| Merck & Company, Inc. | 16,891 | 959,240 | ||||||
| Gilead Sciences, Inc.* | 9,100 | 857,766 | ||||||
| Philip Morris International, Inc. | 10,385 | 845,858 | ||||||
| UnitedHealth Group, Inc. | 7,822 | 790,727 | ||||||
| Coca-Cola Co. | 17,673 | 746,154 | ||||||
| Express Scripts Holding Co.* | 8,625 | 730,279 | ||||||
| Medtronic, Inc. | 9,607 | 693,625 | ||||||
| Archer-Daniels-Midland Co. | 12,949 | 673,348 | ||||||
| PepsiCo, Inc. | 7,109 | 672,227 | ||||||
| Mondelez International, Inc. — Class A | 18,008 | 654,140 | ||||||
| Procter & Gamble Co. | 6,900 | 628,521 | ||||||
| Kimberly-Clark Corp. | 5,406 | 624,609 | ||||||
| Baxter International, Inc. | 8,445 | 618,934 | ||||||
| Cardinal Health, Inc. | 7,534 | 608,220 | ||||||
| Aetna, Inc. | 6,715 | 596,493 | ||||||
| Kroger Co. | 9,249 | 593,878 | ||||||
| Cigna Corp. | 5,641 | 580,515 | ||||||
| Kellogg Co. | 8,198 | 536,477 | ||||||
| Kraft Foods Group, Inc. | 7,307 | 457,857 | ||||||
| General Mills, Inc. | 8,126 | 433,360 | ||||||
| Eli Lilly & Co. | 4,517 | 311,628 | ||||||
| Anthem, Inc. | 2,299 | 288,915 | ||||||
| Altria Group, Inc. | 4,496 | 221,518 | ||||||
| Stryker Corp. | 2,152 | 202,998 | ||||||
| Amgen, Inc. | 1,238 | 197,201 | ||||||
| Abbott Laboratories | 4,126 | 185,753 | ||||||
| Actavis plc* | 626 | 161,139 | ||||||
| Becton Dickinson and Co. | 1,092 | 151,963 | ||||||
| Total Consumer, Non-cyclical | 17,434,581 | |||||||
| INDUSTRIAL - 4.1% | ||||||||
| General Electric Co. | 31,079 | 785,366 | ||||||
| United Technologies Corp. | 6,731 | 774,065 | ||||||
| Boeing Co. | 5,817 | 756,095 | ||||||
| Lockheed Martin Corp. | 3,534 | 680,542 | ||||||
| Caterpillar, Inc. | 7,241 | 662,769 | ||||||
| Emerson Electric Co. | 10,229 | 631,436 | ||||||
| FedEx Corp. | 3,623 | 629,170 | ||||||
| Norfolk Southern Corp. | 5,655 | 619,844 | ||||||
| General Dynamics Corp. | 4,481 | 616,675 | ||||||
| Corning, Inc. | 26,172 | 600,124 | ||||||
| Waste Management, Inc. | 11,615 | 596,082 | ||||||
| Raytheon Co. | 5,491 | 593,961 | ||||||
| Northrop Grumman Corp. | 3,990 | 588,086 | ||||||
| Cummins, Inc. | 4,018 | 579,275 | ||||||
| Honeywell International, Inc. | 4,254 | 425,060 | ||||||
| CSX Corp. | 6,856 | 248,393 | ||||||
| Total Industrial | 9,786,943 | |||||||
| TECHNOLOGY - 3.6% | ||||||||
| Apple, Inc. | 17,419 | 1,922,709 | ||||||
| Microsoft Corp. | 25,863 | 1,201,336 | ||||||
| International Business Machines Corp. | 5,828 | 935,044 | ||||||
| Intel Corp. | 25,469 | 924,269 | ||||||
| Hewlett-Packard Co. | 18,758 | 752,759 | ||||||
| EMC Corp. | 21,823 | 649,016 | ||||||
| Western Digital Corp. | 5,307 | 587,485 | ||||||
| Micron Technology, Inc.* | 16,355 | 572,589 | ||||||
| Oracle Corp. | 11,082 | 498,358 | ||||||
| QUALCOMM, Inc. | 4,097 | 304,530 | ||||||
| Texas Instruments, Inc. | 3,034 | 162,213 | ||||||
| Total Technology | 8,510,308 | |||||||
| FINANCIAL - 1.8% | ||||||||
| MetLife, Inc. | 12,246 | 662,387 | ||||||
| Prudential Financial, Inc. | 6,979 | 631,320 | ||||||
| American International Group, Inc. | 10,548 | 590,794 | ||||||
| Allstate Corp. | 6,793 | 477,208 | ||||||
| Wells Fargo & Co. | 7,664 | 420,140 | ||||||
| JPMorgan Chase & Co. | 6,280 | 393,002 | ||||||
| Aflac, Inc. | 5,331 | 325,671 | ||||||
| Berkshire Hathaway, Inc. — Class B* | 1,568 | 235,435 | ||||||
| Bank of America Corp. | 11,675 | 208,866 | ||||||
| Charles Schwab Corp. | 5,206 | 157,169 | ||||||
| Travelers Companies, Inc. | 1,472 | 155,811 | ||||||
| State Street Corp. | 1,955 | 153,468 | ||||||
| Total Financial | 4,411,271 | |||||||
| ENERGY - 1.8% | ||||||||
| Exxon Mobil Corp. | 9,858 | 911,372 | ||||||
| Chevron Corp. | 8,019 | 899,571 | ||||||
| ConocoPhillips | 11,188 | 772,643 | ||||||
| Valero Energy Corp. | 11,901 | 589,100 | ||||||
| Occidental Petroleum Corp. | 5,244 | 422,719 | ||||||
| Anadarko Petroleum Corp. | 5,014 | 413,655 | ||||||
| Kinder Morgan, Inc. | 4,069 | 172,159 | ||||||
| Halliburton Co. | 3,841 | 151,067 | ||||||
| Total Energy | 4,332,286 | |||||||
| COMMUNICATIONS - 1.2% | ||||||||
| Cisco Systems, Inc. | 33,729 | 938,172 | ||||||
| Verizon Communications, Inc. | 9,965 | 466,163 | ||||||
| Viacom, Inc. — Class B | 5,909 | 444,653 | ||||||
| Comcast Corp. — Class A | 6,142 | 356,297 | ||||||
| Google, Inc. — Class C* | 657 | 345,845 | ||||||
| Time Warner, Inc. | 2,639 | 225,423 | ||||||
| Total Communications | 2,776,553 | |||||||
| CONSUMER, CYCLICAL - 1.1% | ||||||||
| Wal-Mart Stores, Inc. | 9,636 | 827,540 | ||||||
| Walgreens Boots Alliance, Inc. | 8,292 | 631,850 | ||||||
| CVS Health Corp. | 6,501 | 626,111 | ||||||
| Southwest Airlines Co. | 6,832 | 289,130 | ||||||
| 12 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
SCHEDULE OF INVESTMENTS (continued) | December 31, 2014 |
| SERIES A (STYLEPLUS—LARGE CORE SERIES) |
| Shares | Value | |||||||
| Delta Air Lines, Inc. | 5,629 | $ | 276,891 | |||||
| Total Consumer, Cyclical | 2,651,522 | |||||||
| Total Common Stocks | ||||||||
| (Cost $44,541,253) | 49,903,464 | |||||||
MUTUAL FUNDS†,1 - 53.2% | ||||||||
| Guggenheim Variable Insurance Strategy Fund III | 2,234,897 | 55,514,847 | ||||||
| Guggenheim Strategy Fund I | 1,672,774 | 41,551,695 | ||||||
| Guggenheim Strategy Fund II | 726,187 | 18,045,743 | ||||||
| Guggenheim Strategy Fund III | 483,567 | 12,011,805 | ||||||
| Total Mutual Funds | ||||||||
| (Cost $127,673,685) | 127,124,090 | |||||||
SHORT TERM INVESTMENTS† - 2.9% | ||||||||
| Dreyfus Treasury Prime Cash Management Fund | 7,065,861 | 7,065,861 | ||||||
| Total Short Term Investments | ||||||||
| (Cost $7,065,861) | 7,065,861 | |||||||
| Face Amount | ||||||||
ASSET-BACKED SECURITIES†† - 17.4% | ||||||||
| Duane Street CLO IV Ltd. | ||||||||
2007-4A, 0.46% due 11/14/212,3 | $ | 2,199,736 | 2,181,037 | |||||
| Argent Securities Incorporated Asset-Backed Pass-Through Certificates Series | ||||||||
2005-W3, 0.51% due 11/25/352 | 1,893,179 | 1,818,696 | ||||||
| Goldman Sachs Asset Management CLO plc | ||||||||
2007-1A, 2.98% due 08/01/222,3 | 1,800,000 | 1,787,760 | ||||||
| Brentwood CLO Corp. | ||||||||
2006-1A, 0.50% due 02/01/222,3 | 1,241,197 | 1,222,455 | ||||||
2006-1A, 1.05% due 02/01/222,3 | 600,000 | 541,620 | ||||||
| Garrison Funding 2013-2 Ltd. | ||||||||
2013-2A, 2.03% due 09/25/232,3 | 1,770,000 | 1,763,805 | ||||||
| Salus CLO 2012-1 Ltd. | ||||||||
2013-1AN, 2.48% due 03/05/212,3 | 1,700,000 | 1,695,240 | ||||||
| ALM VII R-2 Ltd. | ||||||||
2013-7R2A, 2.83% due 04/24/242,3 | 1,700,000 | 1,636,930 | ||||||
| JP Morgan Mortgage Acquisition Trust | ||||||||
2007-CH3, 0.32% due 03/25/372 | 1,602,083 | 1,579,681 | ||||||
| Cerberus Onshore II CLO LLC | ||||||||
2014-1A, 2.93% due 10/15/232,3 | 1,350,000 | 1,329,885 | ||||||
2014-1A, 2.23% due 10/15/232,3 | 250,000 | 249,450 | ||||||
| Central Park CLO Ltd. | ||||||||
2011-1A, 3.43% due 07/23/222,3 | 1,580,000 | 1,560,092 | ||||||
| Cornerstone CLO Ltd. | ||||||||
2007-1A, 0.45% due 07/15/212,3 | 1,557,913 | 1,544,204 | ||||||
| KKR Financial CLO 2007-1 Ltd. | ||||||||
2007-1A, 2.48% due 05/15/212,3 | 1,400,000 | 1,387,680 | ||||||
| Black Diamond CLO 2005-1 Delaware Corp. | ||||||||
2005-1A, 2.15% due 06/20/172,3 | 1,350,000 | 1,310,715 | ||||||
| GreenPoint Mortgage Funding Trust | ||||||||
2005-HE4, 0.87% due 07/25/302 | 1,344,649 | 1,268,462 | ||||||
| Symphony CLO VII Ltd. | ||||||||
2011-7A, 3.43% due 07/28/212,3 | 1,250,000 | 1,248,250 | ||||||
| GSC Group CDO Fund VIII Ltd. | ||||||||
2007-8A, 0.61% due 04/17/212,3 | 1,250,000 | 1,226,750 | ||||||
| Aegis Asset Backed Securities Trust | ||||||||
2005-3, 0.64% due 08/25/352 | 1,205,222 | 1,188,264 | ||||||
| Wells Fargo Home Equity Asset-Backed Securities 2006-2 Trust | ||||||||
2006-3, 0.32% due 01/25/372 | 1,234,227 | 1,181,730 | ||||||
| N-Star REL CDO VIII Ltd. | ||||||||
2006-8A, 0.46% due 02/01/412,3 | 1,171,724 | 1,128,371 | ||||||
| Race Point V CLO Ltd. | ||||||||
2014-5AR, 3.09% due 12/15/222,3 | 1,050,000 | 1,045,695 | ||||||
| Foothill CLO Ltd. | ||||||||
2007-1A, 0.48% due 02/22/212,3 | 1,005,499 | 997,556 | ||||||
| Popular ABS Mortgage Pass-Through Trust | ||||||||
2005-A, 0.60% due 06/25/352 | 1,005,922 | 968,852 | ||||||
| OFSI Fund V Ltd. | ||||||||
2013-5A, 3.43% due 04/17/252,3 | 1,000,000 | 965,200 | ||||||
| Northwoods Capital VII Ltd. | ||||||||
2006-7A, 1.78% due 10/22/212,3 | 960,000 | 949,632 | ||||||
| Black Diamond CLO 2006-1 Luxembourg S.A. | ||||||||
2007-1A, 0.62% due 04/29/192,3 | 1,000,000 | 940,700 | ||||||
| Golub Capital Partners CLO 18 Ltd. | ||||||||
2014-18A, 2.73% due 04/25/262,3 | 880,000 | 877,800 | ||||||
| H2 Asset Funding Ltd. | ||||||||
| 2.06% due 03/19/37 | 850,000 | 851,785 | ||||||
| Symphony CLO IX, LP | ||||||||
2012-9A, 2.73% due 04/16/222,3 | 800,000 | 799,040 | ||||||
| Hewett’s Island CDO Ltd. | ||||||||
2007-6A, 2.49% due 06/09/192,3 | 750,000 | 744,900 | ||||||
| Soundview Home Loan Trust | ||||||||
2003-1, 2.42% due 08/25/312 | 545,296 | 540,661 | ||||||
| Tricadia CDO 2006-6 Ltd. | ||||||||
2006-6A, 0.78% due 11/05/412,3 | 522,320 | 518,977 | ||||||
| Race Point IV CLO Ltd. | ||||||||
2007-4A, 0.98% due 08/01/212,3 | 500,000 | 485,700 | ||||||
| Halcyon Loan Advisors Funding 2012-1 Ltd. | ||||||||
2012-1A, 3.23% due 08/15/232,3 | 500,000 | 485,550 | ||||||
| NewStar Commercial Loan Trust | ||||||||
2007-1A, 1.53% due 09/30/222,3 | 500,000 | 474,500 | ||||||
| DIVCORE CLO Ltd. | ||||||||
| 2013-1A B, 4.06% due 11/15/32 | 400,000 | 400,120 | ||||||
| West Coast Funding Ltd. | ||||||||
2006-1A, 0.39% due 11/02/412,3 | 308,544 | 304,255 | ||||||
| Global Leveraged Capital Credit Opportunity Fund | ||||||||
2006-1A, 0.53% due 12/20/182,3 | 279,136 | 278,773 |
| SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 13 |
SCHEDULE OF INVESTMENTS (concluded) | December 31, 2014 |
| SERIES A (STYLEPLUS—LARGE CORE SERIES) |
| Face Amount | Value | |||||||
| Golub Capital Partners Fundings Ltd. | ||||||||
2007-1A, 0.49% due 03/15/222,3 | $ | 160,758 | $ | 159,826 | ||||
| Total Asset-Backed Securities | ||||||||
| (Cost $41,130,999) | 41,640,599 | |||||||
MORTGAGE-BACKED SECURITIES†† - 5.0% | ||||||||
| HSI Asset Securitization Corporation Trust | ||||||||
2007-WF1, 0.34% due 05/25/372 | 2,539,781 | 2,456,360 | ||||||
| Resource Capital Corporation CRE Notes 2013 Ltd. | ||||||||
2013-CRE1, 3.01% due 12/15/282,3 | 1,900,000 | 1,908,568 | ||||||
| Boca Hotel Portfolio Trust | ||||||||
2013-BOCA, 3.21% due 08/15/262,3 | 1,900,000 | 1,898,848 | ||||||
| Hilton USA Trust | ||||||||
2013-HLF, 2.92% due 11/05/302,3 | 1,675,291 | 1,675,378 | ||||||
| SRERS Funding Ltd. | ||||||||
2011-RS, 0.41% due 05/09/462,3 | 1,377,704 | 1,312,263 | ||||||
| Bank of America Merrill Lynch Commercial Mortgage, Inc. | ||||||||
2005-6, 6.13% due 09/10/472,3 | 1,053,600 | 1,069,402 | ||||||
| HarborView Mortgage Loan Trust | ||||||||
2006-12, 0.35% due 01/19/382 | 1,231,062 | 1,043,008 | ||||||
| Wachovia Bank Commercial Mortgage Trust Series | ||||||||
2007-WHL8, 0.24% due 06/15/202,3 | 534,289 | 533,050 | ||||||
| Total Mortgage-Backed Securities | ||||||||
| (Cost $11,695,432) | 11,896,877 | |||||||
| Total Investments - 99.4% | ||||||||
| (Cost $232,107,230) | $ | 237,630,891 | ||||||
| Other Assets & Liabilities, net - 0.6% | 1,444,541 | |||||||
| Total Net Assets - 100.0% | $ | 239,075,432 | ||||||
| Contracts | Unrealized Gain (Loss) | |||||||
EQUITY FUTURES CONTRACTS PURCHASED† | ||||||||
| March 2015 S&P 500 Index Equity Mini Futures Contracts (Aggregate Value of Contracts $1,026,000) | 10 | $ | (8,532 | ) | ||||
| Units | ||||||||
OTC EQUITY INDEX SWAP AGREEMENTS†† | ||||||||
Bank of America January 2015 S&P 500 Index Swap, Terminating 01/02/154 (Notional Value $185,488,360) | 90,091 | $ | 654,255 | |||||
| * | Non-income producing security. |
| † | Value determined based on Level 1 inputs — See Note 4. |
| †† | Value determined based on Level 2 inputs — See Note 4. |
| 1 | Affiliated issuer — See Note 10. |
| 2 | Variable rate security. Rate indicated is rate effective at December 31, 2014. |
| 3 | Security is a 144A or Section 4(a)(2) security. The total market value of 144A or Section 4(a)(2) securities is $40,239,857 (cost $39,916,768), or 16.8% of total net assets. These securities have been determined to be liquid under guidelines established by the Board of Trustees. |
| 4 | Total Return based on S&P 500 Index +/- financing at a variable rate. |
| plc — Public Limited Company |
| 14 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
| SERIES A (STYLEPLUS—LARGE CORE SERIES) |
| STATEMENT OF ASSETS AND LIABILITIES |
| December 31, 2014 | ||||
| Assets: | ||||
| Investments in unaffiliated issuers, at value (cost $104,433,545) | $ | 110,506,801 | ||
| Investments in affiliated issuers, at value (cost $127,673,685) | 127,124,090 | |||
| Total investments (cost $232,107,230) | 237,630,891 | |||
| Unrealized appreciation on swap agreements | 654,255 | |||
| Segregated cash with broker | 46,000 | |||
| Prepaid expenses | 10,180 | |||
| Receivables: | ||||
| Securities sold | 734,748 | |||
| Dividends | 263,130 | |||
| Fund shares sold | 237,028 | |||
| Interest | 116,054 | |||
| Foreign taxes reclaim | 575 | |||
| Total assets | 239,692,861 | |||
| Liabilities: | ||||
| Overdraft due to custodian bank | 12,331 | |||
| Payable for: | ||||
| Securities purchased | 201,938 | |||
| Fund shares redeemed | 173,211 | |||
| Management fees | 152,220 | |||
| Fund accounting/administration fees | 19,288 | |||
| Variation margin | 12,350 | |||
| Transfer agent/maintenance fees | 3,453 | |||
| Trustees’ fees* | 717 | |||
| Miscellaneous | 41,921 | |||
| Total liabilities | 617,429 | |||
| Net assets | $ | 239,075,432 | ||
| Net assets consist of: | ||||
| Paid in capital | $ | 236,181,406 | ||
| Undistributed net investment income | 3,137,523 | |||
| Accumulated net realized loss on investments | (6,412,881 | ) | ||
| Net unrealized appreciation on investments | 6,169,384 | |||
| Net assets | $ | 239,075,432 | ||
| Capital shares outstanding | 6,370,923 | |||
| Net asset value per share | $ | 37.53 | ||
| STATEMENT OF OPERATIONS |
| Year Ended December 31, 2014 | ||||
| Investment Income: | ||||
| Interest | $ | 2,445,520 | ||
| Dividends from securities of affiliated issuers | 1,503,227 | |||
| Dividends from securities of unaffiliated issuers | 1,238,985 | |||
| Total investment income | 5,187,732 | |||
| Expenses: | ||||
| Management fees | 1,746,485 | |||
| Transfer agent/maintenance fees | 25,005 | |||
| Fund accounting/administration fees | 221,225 | |||
| Trustees’ fees* | 22,810 | |||
| Line of credit fees | 21,200 | |||
| Custodian fees | 10,156 | |||
| Tax expense | 7 | |||
| Miscellaneous | 205,611 | |||
| Total expenses | 2,252,499 | |||
| Less: | ||||
| Expenses waived by Adviser | (46,924 | ) | ||
| Net expenses | 2,205,575 | |||
| Net investment income | 2,982,157 | |||
| Net Realized and Unrealized Gain (Loss): | ||||
| Net realized gain (loss) on: | ||||
| Investments in unaffiliated issuers | 7,750,273 | |||
| Investments in affiliated issuers | (149,822 | ) | ||
| Swap agreements | 21,219,870 | |||
| Futures contracts | 236,171 | |||
| Net realized gain | 29,056,492 | |||
| Net change in unrealized appreciation (depreciation) on: | ||||
| Investments in unaffiliated issuers | 1,205,517 | |||
| Investments in affiliated issuers | (353,199 | ) | ||
| Swap agreements | 654,255 | |||
| Futures contracts | (8,532 | ) | ||
| Net change in unrealized appreciation (depreciation) | 1,498,041 | |||
| Net realized and unrealized gain | 30,554,533 | |||
| Net increase in net assets resulting from operations | $ | 33,536,690 | ||
| * | Relates to Trustees not deemed “interested persons” within the meaning of Section 2(a)(19) of the 1940 Act. |
| SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 15 |
| SERIES A (STYLEPLUS—LARGE CORE SERIES) |
| STATEMENTS OF CHANGES IN NET ASSETS |
| Year Ended December 31, 2014 | Year Ended December 31, 2013 | |||||||
| Increase (Decrease) in Net Assets from Operations: | ||||||||
| Net investment income | $ | 2,982,157 | $ | 1,223,101 | ||||
| Net realized gain on investments | 29,056,492 | 69,445,264 | ||||||
| Net change in unrealized appreciation (depreciation) on investments | 1,498,041 | (15,861,052 | ) | |||||
| Net increase in net assets resulting from operations | 33,536,690 | 54,807,313 | ||||||
| Capital share transactions: | ||||||||
| Proceeds from sale of shares | 15,968,926 | 13,501,310 | ||||||
| Cost of shares redeemed | (41,624,282 | ) | (35,729,632 | ) | ||||
| Net decrease from capital share transactions | (25,655,356 | ) | (22,228,322 | ) | ||||
| Net increase in net assets | 7,881,334 | 32,578,991 | ||||||
| Net assets: | ||||||||
| Beginning of year | 231,194,098 | 198,615,107 | ||||||
| End of year | $ | 239,075,432 | $ | 231,194,098 | ||||
| Undistributed net investment income at end of year | $ | 3,137,523 | $ | 1,196,673 | ||||
| Capital share activity: | ||||||||
| Shares sold | 467,403 | 476,713 | ||||||
| Shares redeemed | (1,210,200 | ) | (1,236,898 | ) | ||||
| Net decrease in shares | (742,797 | ) | (760,185 | ) | ||||
| 16 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
| SERIES A (STYLEPLUS—LARGE CORE SERIES) |
| FINANCIAL HIGHLIGHTS |
This table is presented to show selected data for a share outstanding throughout each period and to assist shareholders in evaluating a Fund’s performance for the periods presented.
| Year Ended December 31, 2014 | Year Ended December 31, 2013 | Year Ended December 31, 2012 | Year Ended December 31, 2011 | Year Ended December 31, 2010 | ||||||||||||||||
| Per Share Data | ||||||||||||||||||||
| Net asset value, beginning of period | $ | 32.50 | $ | 25.22 | $ | 22.31 | $ | 23.24 | $ | 19.97 | ||||||||||
| Income (loss) from investment operations: | ||||||||||||||||||||
Net investment income (loss)a | .44 | .16 | .23 | .13 | .18 | |||||||||||||||
| Net gain (loss) on investments (realized and unrealized) | 4.59 | 7.12 | 2.68 | (1.06 | ) | 3.09 | ||||||||||||||
| Total from investment operations | 5.03 | 7.28 | 2.91 | (.93 | ) | 3.27 | ||||||||||||||
| Net asset value, end of period | $ | 37.53 | $ | 32.50 | $ | 25.22 | $ | 22.31 | $ | 23.24 | ||||||||||
Total Returnb | 15.48 | % | 28.87 | % | 13.04 | % | (4.00 | %) | 16.37 | % | ||||||||||
| Ratios/Supplemental Data | ||||||||||||||||||||
| Net assets, end of period (in thousands) | $ | 239,075 | $ | 231,194 | $ | 198,615 | $ | 206,995 | $ | 243,820 | ||||||||||
| Ratios to average net assets: | ||||||||||||||||||||
| Net investment income (loss) | 1.28 | % | 0.56 | % | 0.92 | % | 0.57 | % | 0.89 | % | ||||||||||
Total expensesd | 0.97 | % | 0.96 | % | 0.94 | % | 0.90 | % | 0.92 | % | ||||||||||
Net expensesc,d | 0.95 | % | 0.96 | % | 0.94 | % | 0.90 | % | 0.92 | % | ||||||||||
| Portfolio turnover rate | 88 | % | 267 | % | 103 | % | 87 | % | 111 | % | ||||||||||
a | Net investment income (loss) per share was computed using average shares outstanding throughout the period. |
b | Total return does not take into account any of the expenses associated with an investment in variable insurance products. If total return had taken into account these expenses, performance would have been lower. Shares of a series of Guggenheim Variable Funds Trust are available only through the purchase of such products. |
c | Net expense information reflects the expense ratios after expense waivers. |
d | Does not include expenses of the underlying funds in which the Fund invests. |
| SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 17 |
MANAGER'S COMMENTARY (Unaudited) | December 31, 2014 |
To Our Shareholders:
The Series B (Large Cap Value Series) is managed by a team of seasoned professionals led by Mark A. Mitchell, CFA, Portfolio Manager. In the following paragraphs, he discusses performance of the Fund for the fiscal year ended December 31, 2014.
For the fiscal year ended December 31, 2014, the Series B (Large Cap Value Series) returned 9.47%, compared with the Russell 1000® Value Index, which returned 13.45%.
Strategy and Market Overview
Our investment approach focuses on understanding how companies make money and how easily companies can either improve returns, or maintain existing high levels of profitability or benefit from change that occurs in the industries in which they operate.
In today’s rapid-fire environment marked by very sharp, quick but constrained volatility, our long term orientation and discipline are a competitive advantage. This should become especially critical when the environment of indiscriminant valuation expansion subsides and when fundamentals once again become a more dominant factor in the market.
Performance Review
The largest contributors to the Fund’s performance for the period were stock selection within the Health Care, Industrials and Utilities sectors.
Health Care proved somewhat defensive in the period as global growth concerns impacted industries with higher non-U.S. exposure. We believe many health care names are fairly valued and thus maintain the Fund’s underweight position—which offset the benefit from stock selection for the period. Teva Pharmaceuticals was a big contributor to the sector’s performance, based on success of its drugs for multiple sclerosis.
CVS Health, which is part of the Consumer Staples sector, was one of the top individual contributors for the year and a large position in the portfolio—the company has been reporting solid earnings and continues to benefit from its acquisition of pharmacy benefit manager PBM. In addition, store chains like CVS saw less drop-off in traffic compared with more traditional retailers in the discretionary space.
While the Fund’s stock selection within the Industrials sector helped performance, it was offset by an overweight in the sector. This is a large and eclectic sector in which we have diverse holdings. We believe the portfolio is well positioned to benefit from the growing cap-ex and construction environment tied to infrastructure renewal and reindustrialization in the U.S.
Utilities benefited from stock selection from the Fund’s main holding in the sector, Edison International, which was the largest individual contributor to performance for the year. The sector is one the largest underweights relative to the index, as we do not view Utilities as attractive from either a fundamental or valuation standpoint. Edison was up partly due to a settlement in which it will recoup some expenses related to a nuclear plant shutdown, but we like the holding due to its diversity of business.
The Energy sector provided the only negative return in the benchmark and the Fund amid a general commodities selloff and falling crude oil prices. Both its performance and the Fund’s overweight to the sector detracted from performance for the year. Our belief is that longer-term energy prices will be higher than current levels as the cost to pull oil out of the ground isn’t declining and the demand trends ultimately are positive.
Poor stock selection in Information Technology was another detractor from return for the Fund. Our overall sector position weight is in-line with the benchmark, but we own more stable, services-related companies and non-personal computer related hardware providers. The Fund also does not own large benchmark companies that were up significantly for the year, Apple and Intel. Both are good companies, but we view their future prospects as already fully valued in the current share price.
| 18 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
MANAGER'S COMMENTARY (Unaudited)(concluded) | December 31, 2014 |
Financials was a modest detractor for the year, but included one of the leading individual detractors, Ocwen Financial Corp. The company has been under pressure due to inquiries about its mortgage servicing practices in California and New York.
Fund performance was also impacted slightly by poor stock selection in Materials. Underperformance in this sector was driven mostly by Coeur Mining, Inc., which is not in the index and fell as part of a wider commodities selloff over the past year. Coeur was the largest single stock detractor for the year.
Portfolio Positioning
The largest relative sector exposures for the year were an underweight in Health Care and overweights in Energy and Consumer Staples. Only the Consumer Staples positioning benefited Fund performance for the year.
The Health Care sector underweight was predominantly driven by our view that the large pharmaceutical companies look fairly valued, thus are less attractive than companies in other sectors.
The overweights in both Energy and Consumer Staples were driven by our bottom-up fundamental research having identified several companies with favorable risk-return profiles.
Portfolio and Market Outlook
Despite a firming economy, investors were very cautious over the period, as safe-haven areas such as Utilities, REITs, Health Care and Consumer Staples continued to lead. As the world continues to look towards the U.S. economy to be the engine for growth, and as foreign investors continue to fear the safety of their own currencies and economies, interest in U.S. assets should continue to be robust. The continued decline in U.S. government bond yields should continue to make equities an attractive alternative for incremental investment dollars.
Our portfolios tend to reflect a bias toward companies with balance sheet quality. We continue to find niche companies with what we believe to be attractive growth opportunities and, as such, are constructive on the outlook.
Performance displayed represents past performance, which is no guarantee of future results.
The opinions and forecast expressed may not actually come to pass. This information is subject to change at any time, based on market and other conditions, and should not be construed as a recommendation of any specific security or strategy.
| THE GUGGENHEIM FUNDS ANNUAL REPORT | 19 |
PERFORMANCE REPORT AND FUND PROFILE (Unaudited) | December 31, 2014 |
SERIES B (LARGE CAP VALUE SERIES)
OBJECTIVE: Seeks long-term growth of capital.
Holdings Diversification
(Market Exposure as % of Net Assets)
“Holdings Diversification (Market Exposure as % of Net Assets)” excludes any temporary cash investments or investments in Guggenheim Strategy Funds Trust mutual funds.
Cumulative Fund Performance*,†
Inception Date: May 1, 1979 |
| Ten Largest Holdings (% of Total Net Assets) | |
| Wells Fargo & Co. | 4.0% |
| American International Group, Inc. | 3.4% |
| Citigroup, Inc. | 2.9% |
| JPMorgan Chase & Co. | 2.9% |
| Wal-Mart Stores, Inc. | 2.6% |
| Teva Pharmaceutical Industries Ltd. ADR | 2.5% |
| Chevron Corp. | 2.5% |
| Cisco Systems, Inc. | 2.4% |
| Dow Chemical Co. | 2.3% |
| Republic Services, Inc. — Class A | 2.2% |
| Top Ten Total | 27.7% |
| “Ten Largest Holdings” exclude any temporary cash or derivative investments. | |
Average Annual Returns*
Periods Ended December 31, 2014†
| 1 Year | 5 Year | 10 Year | |
| Series B (Large Cap Value Series) | 9.47% | 13.27% | 7.78% |
| Russell 1000 Value Index | 13.45% | 15.42% | 7.30% |
| * | The performance data above represents past performance that is not predictive of future results. The investment return and principal value of an investment in the Fund will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Returns are historical and include changes in principal and reinvested dividends and capital gains and do not reflect the effect of taxes. The Russell 1000 Value Index is an unmanaged index and, unlike the Fund, has no management fees or operating expenses to reduce its reported return. |
† | Performance figures do not reflect fees and expenses associated with an investment in variable insurance products. If returns had taken into account these fees and expenses, performance would have been lower. Shares of a series of Guggenheim Variable Funds Trust are available only through the purchase of such products. |
| 20 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
| SCHEDULE OF INVESTMENTS | December 31, 2014 |
| SERIES B (LARGE CAP VALUE SERIES) |
| Shares | Value | |||||||
COMMON STOCKS† - 97.6% | ||||||||
| FINANCIAL – 28.9% | ||||||||
| Wells Fargo & Co. | 202,295 | $ | 11,089,812 | |||||
| American International Group, Inc. | 166,669 | 9,335,131 | ||||||
| Citigroup, Inc. | 149,070 | 8,066,178 | ||||||
| JPMorgan Chase & Co. | 127,030 | 7,949,537 | ||||||
| Bank of New York Mellon Corp. | 151,090 | 6,129,721 | ||||||
| Reinsurance Group of America, Inc. — Class A | 55,640 | 4,875,177 | ||||||
| Allstate Corp. | 59,020 | 4,146,155 | ||||||
| Zions Bancorporation | 132,691 | 3,783,020 | ||||||
| CME Group, Inc. — Class A | 34,190 | 3,030,944 | ||||||
| Bank of America Corp. | 156,590 | 2,801,395 | ||||||
| BB&T Corp. | 71,800 | 2,792,302 | ||||||
| NASDAQ OMX Group, Inc. | 57,515 | 2,758,419 | ||||||
| Unum Group | 78,872 | 2,751,055 | ||||||
| Legg Mason, Inc. | 51,540 | 2,750,690 | ||||||
| Navient Corp. | 85,340 | 1,844,197 | ||||||
| Capital One Financial Corp. | 16,750 | 1,382,713 | ||||||
| Synchrony Financial* | 46,410 | 1,380,698 | ||||||
| Simon Property Group, Inc. | 7,430 | 1,353,077 | ||||||
| Equity Residential | 18,710 | 1,344,126 | ||||||
| Total Financial | 79,564,347 | |||||||
| CONSUMER, NON-CYCLICAL - 19.9% | ||||||||
| Teva Pharmaceutical Industries Ltd. ADR | 119,400 | 6,866,694 | ||||||
| Johnson & Johnson | 58,430 | 6,110,025 | ||||||
| Mondelez International, Inc. — Class A | 119,120 | 4,327,034 | ||||||
| DeVry Education Group, Inc. | 86,350 | 4,099,035 | ||||||
| UnitedHealth Group, Inc. | 36,710 | 3,711,014 | ||||||
| Pfizer, Inc. | 109,640 | 3,415,286 | ||||||
| Kellogg Co. | 52,000 | 3,402,880 | ||||||
| Quanta Services, Inc.* | 108,170 | 3,070,946 | ||||||
| MasterCard, Inc. — Class A | 32,070 | 2,763,151 | ||||||
| Archer-Daniels-Midland Co. | 52,560 | 2,733,120 | ||||||
| Zimmer Holdings, Inc. | 24,050 | 2,727,751 | ||||||
| Philip Morris International, Inc. | 33,460 | 2,725,317 | ||||||
| Medtronic, Inc. | 36,750 | 2,653,350 | ||||||
| Kraft Foods Group, Inc. | 34,863 | 2,184,516 | ||||||
| Tenet Healthcare Corp.* | 40,070 | 2,030,347 | ||||||
| ADT Corp. | 37,608 | 1,362,538 | ||||||
| Patterson Companies, Inc. | 9,774 | 470,129 | ||||||
| Total Consumer, Non-cyclical | 54,653,133 | |||||||
| INDUSTRIAL - 12.0% | ||||||||
| Republic Services, Inc. — Class A | 153,560 | 6,180,790 | ||||||
| Parker-Hannifin Corp. | 42,810 | 5,520,349 | ||||||
| United Technologies Corp. | 45,940 | 5,283,100 | ||||||
| FLIR Systems, Inc. | 124,690 | 4,028,734 | ||||||
| Covanta Holding Corp. | 165,770 | 3,648,598 | ||||||
| TE Connectivity Ltd. | 45,381 | 2,870,348 | ||||||
| Rock-Tenn Co. — Class A | 44,822 | 2,733,246 | ||||||
| Huntington Ingalls Industries, Inc. | 13,000 | 1,461,980 | ||||||
| General Electric Co. | 55,170 | 1,394,146 | ||||||
| Total Industrial | 33,121,291 | |||||||
| CONSUMER, CYCLICAL - 10.2% | ||||||||
| Wal-Mart Stores, Inc. | 84,300 | 7,239,683 | ||||||
| CVS Health Corp. | 57,160 | 5,505,079 | ||||||
| PulteGroup, Inc. | 164,810 | 3,536,823 | ||||||
| WESCO International, Inc.* | 44,450 | 3,387,535 | ||||||
| Oshkosh Corp. | 58,660 | 2,853,809 | ||||||
| Lear Corp. | 28,670 | 2,811,954 | ||||||
| Kohl’s Corp. | 45,470 | 2,775,489 | ||||||
| Total Consumer, Cyclical | 28,110,372 | |||||||
| ENERGY - 6.8% | ||||||||
| Chevron Corp. | 61,000 | 6,842,979 | ||||||
| Exxon Mobil Corp. | 36,780 | 3,400,311 | ||||||
| Whiting Petroleum Corp.* | 58,270 | 1,922,910 | ||||||
| Patterson-UTI Energy, Inc. | 107,040 | 1,775,794 | ||||||
| Superior Energy Services, Inc. | 71,970 | 1,450,196 | ||||||
| Marathon Oil Corp. | 49,110 | 1,389,322 | ||||||
| Apache Corp. | 21,954 | 1,375,857 | ||||||
| Oasis Petroleum, Inc.* | 32,580 | 538,873 | ||||||
| Total Energy | 18,696,242 | |||||||
| COMMUNICATIONS - 5.8% | ||||||||
| Cisco Systems, Inc. | 233,880 | 6,505,373 | ||||||
| Time Warner, Inc. | 48,553 | 4,147,397 | ||||||
| AT&T, Inc. | 91,570 | 3,075,836 | ||||||
| DigitalGlobe, Inc.* | 70,975 | 2,198,096 | ||||||
| Total Communications | 15,926,702 | |||||||
| TECHNOLOGY - 5.5% | ||||||||
| Computer Sciences Corp. | 86,230 | 5,436,801 | ||||||
| QUALCOMM, Inc. | 56,320 | 4,186,266 | ||||||
| Microsoft Corp. | 57,860 | 2,687,597 | ||||||
| NetApp, Inc. | 64,760 | 2,684,302 | ||||||
| Total Technology | 14,994,966 | |||||||
| UTILITIES - 4.4% | ||||||||
| Edison International | 85,420 | 5,593,302 | ||||||
| UGI Corp. | 99,510 | 3,779,389 | ||||||
| AGL Resources, Inc. | 50,580 | 2,757,116 | ||||||
| Total Utilities | 12,129,807 | |||||||
| BASIC MATERIALS - 4.1% | ||||||||
| Dow Chemical Co. | 136,770 | 6,238,080 | ||||||
| Cameco Corp. | 315,790 | 5,182,114 | ||||||
| Total Basic Materials | 11,420,194 | |||||||
| Total Common Stocks | ||||||||
| (Cost $213,424,262) | 268,617,054 | |||||||
| SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 21 |
SCHEDULE OF INVESTMENTS (concluded) | December 31, 2014 |
| SERIES B (LARGE CAP VALUE SERIES) |
| Shares | Value | |||||||
WARRANTS† - 0.3% | ||||||||
| American International Group, Inc. | ||||||||
| $45.00, 01/19/21 | 36,910 | $ | 908,724 | |||||
| Total Warrants | ||||||||
| (Cost $694,721) | 908,724 | |||||||
SHORT TERM INVESTMENTS† - 1.6% | ||||||||
| Dreyfus Treasury Prime Cash Management Fund | 4,327,308 | 4,327,308 | ||||||
| Total Short Term Investments | ||||||||
| (Cost $4,327,308) | 4,327,308 | |||||||
| Total Investments - 99.5% | ||||||||
| (Cost $218,446,291) | $ | 273,853,086 | ||||||
| Other Assets & Liabilities, net - 0.5% | 1,347,010 | |||||||
| Total Net Assets - 100.0% | $ | 275,200,096 | ||||||
| * | Non-income producing security. |
| † | Value determined based on Level 1 inputs — See Note 4. |
| ADR — American Depositary Receipt |
| 22 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
| SERIES B (LARGE CAP VALUE SERIES) |
| STATEMENT OF ASSETS AND LIABILITIES |
| December 31, 2014 | ||||
| Assets: | ||||
| Investments, at value (cost $218,446,291) | $ | 273,853,086 | ||
| Prepaid expenses | 9,422 | |||
| Cash | 3,559 | |||
| Receivables: | ||||
| Securities sold | 4,177,778 | |||
| Dividends | 463,032 | |||
| Foreign taxes reclaim | 11,657 | |||
| Fund shares sold | 7,334 | |||
| Total assets | 278,525,868 | |||
| Liabilities: | ||||
| Payable for: | ||||
| Securities purchased | 2,967,010 | |||
| Fund shares redeemed | 155,629 | |||
| Management fees | 151,803 | |||
| Fund accounting/administration fees | 22,186 | |||
| Trustees’ fees* | 4,903 | |||
| Transfer agent/maintenance fees | 3,910 | |||
| Miscellaneous | 20,331 | |||
| Total liabilities | 3,325,772 | |||
| Net assets | $ | 275,200,096 | ||
| Net assets consist of: | ||||
| Paid in capital | $ | 203,467,960 | ||
| Undistributed net investment income | 2,928,952 | |||
| Accumulated net realized gain on investments | 13,396,389 | |||
| Net unrealized appreciation on investments | 55,406,795 | |||
| Net assets | $ | 275,200,096 | ||
| Capital shares outstanding | 6,646,827 | |||
| Net asset value per share | $ | 41.40 | ||
| STATEMENT OF OPERATIONS |
| Year Ended December 31, 2014 | ||||
| Investment Income: | ||||
| Dividends (net of foreign withholding tax of $18,563) | $ | 5,239,124 | ||
| Interest | 11 | |||
| Total investment income | 5,239,135 | |||
| Expenses: | ||||
| Management fees | 1,820,432 | |||
| Transfer agent/maintenance fees | 25,005 | |||
| Fund accounting/administration fees | 266,059 | |||
| Trustees’ fees* | 33,241 | |||
| Line of credit fees | 4,461 | |||
| Custodian fees | 3,606 | |||
| Tax expense | 709 | |||
| Miscellaneous | 162,095 | |||
| Total expenses | 2,315,608 | |||
| Net investment income | 2,923,527 | |||
| Net Realized and Unrealized Gain (Loss): | ||||
| Net realized gain (loss) on: | ||||
| Investments | 49,560,301 | |||
| Net realized gain | 49,560,301 | |||
| Net change in unrealized appreciation (depreciation) on: | ||||
| Investments | (27,214,240 | ) | ||
| Net change in unrealized appreciation (depreciation) | (27,214,240 | ) | ||
| Net realized and unrealized gain | 22,346,061 | |||
| Net increase in net assets resulting from operations | $ | 25,269,588 | ||
| * | Relates to Trustees not deemed “interested persons” within the meaning of Section 2(a)(19) of the 1940 Act. |
| SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 23 |
| SERIES B (LARGE CAP VALUE SERIES) |
| STATEMENTS OF CHANGES IN NET ASSETS |
| Year Ended December 31, 2014 | Year Ended December 31, 2013 | |||||||
| Increase (Decrease) in Net Assets from Operations: | ||||||||
| Net investment income | $ | 2,923,527 | $ | 2,829,968 | ||||
| Net realized gain on investments | 49,560,301 | 31,731,371 | ||||||
| Net change in unrealized appreciation (depreciation) on investments | (27,214,240 | ) | 39,490,698 | |||||
| Net increase in net assets resulting from operations | 25,269,588 | 74,052,037 | ||||||
| Capital share transactions: | ||||||||
| Proceeds from sale of shares | 11,339,234 | 21,372,678 | ||||||
| Cost of shares redeemed | (44,935,737 | ) | (58,004,399 | ) | ||||
| Net decrease from capital share transactions | (33,596,503 | ) | (36,631,721 | ) | ||||
| Net increase (decrease) in net assets | (8,326,915 | ) | 37,420,316 | |||||
| Net assets: | ||||||||
| Beginning of year | 283,527,011 | 246,106,695 | ||||||
| End of year | $ | 275,200,096 | $ | 283,527,011 | ||||
| Undistributed net investment income at end of year | $ | 2,928,952 | $ | 2,829,968 | ||||
| Capital share activity: | ||||||||
| Shares sold | 285,616 | 651,050 | ||||||
| Shares redeemed | (1,135,601 | ) | (1,740,993 | ) | ||||
| Net decrease in shares | (849,985 | ) | (1,089,943 | ) | ||||
| 24 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
| SERIES B (LARGE CAP VALUE SERIES) |
| FINANCIAL HIGHLIGHTS |
This table is presented to show selected data for a share outstanding throughout each period and to assist shareholders in evaluating a Fund’s performance for the periods presented.
| Year Ended December 31, 2014 | Year Ended December 31, 2013 | Year Ended December 31, 2012 | Year Ended December 31, 2011 | Year Ended December 31, 2010 | ||||||||||||||||
| Per Share Data | ||||||||||||||||||||
| Net asset value, beginning of period | $ | 37.82 | $ | 28.66 | $ | 24.79 | $ | 25.79 | $ | 22.20 | ||||||||||
| Income (loss) from investment operations: | ||||||||||||||||||||
Net investment income (loss)a | .41 | .35 | .35 | .26 | .19 | |||||||||||||||
| Net gain (loss) on investments (realized and unrealized) | 3.17 | 8.81 | 3.52 | (1.26 | ) | 3.40 | ||||||||||||||
| Total from investment operations | 3.58 | 9.16 | 3.87 | (1.00 | ) | 3.59 | ||||||||||||||
| Net asset value, end of period | $ | 41.40 | $ | 37.82 | $ | 28.66 | $ | 24.79 | $ | 25.79 | ||||||||||
Total Returnb | 9.47 | % | 31.96 | % | 15.61 | % | (3.88 | %) | 16.17 | % | ||||||||||
| Ratios/Supplemental Data | ||||||||||||||||||||
| Net assets, end of period (in thousands) | $ | 275,200 | $ | 283,527 | $ | 246,107 | $ | 249,451 | $ | 298,181 | ||||||||||
| Ratios to average net assets: | ||||||||||||||||||||
| Net investment income (loss) | 1.04 | % | 1.05 | % | 1.28 | % | 1.00 | % | 0.81 | % | ||||||||||
| Total expenses | 0.83 | % | 0.83 | % | 0.83 | % | 0.80 | % | 0.80 | % | ||||||||||
| Portfolio turnover rate | 47 | % | 26 | % | 17 | % | 19 | % | 17 | % | ||||||||||
a | Net investment income (loss) per share was computed using average shares outstanding throughout the period. |
b | Total return does not take into account any of the expenses associated with an investment in variable insurance products. If total return had taken into account these expenses, performance would have been lower. Shares of a series of Guggenheim Variable Funds Trust are available only through the purchase of such products. |
| SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 25 |
MANAGER'S COMMENTARY (Unaudited) | December 31, 2014 |
To Our Shareholders:
The Series C (Money Market Series) is managed by a team of seasoned professionals at Guggenheim Investments. In the following paragraphs, the team discusses performance of the Series C for the fiscal year ended December 31, 2014.
For the fiscal year ended December 31, 2014, the Series C (Money Market Series) returned -0.38%.
Interest rates defied expectations and continued to decline throughout the year. Short-term government agency and repurchase agreement rates were range-bound through the third quarter 2014. Short-term rates rose only slightly during the fourth quarter. Short-term rates were “anchored” by the Federal Reserve’s (the Fed) monetary policy. The Fed’s chair, Janet Yellen, maintained that the central bank would keep short-term rates low, until unemployment fell below 6.5%. The Federal Reserve controls the fed funds rate. This rate, which guides other short-term rates, has been set close to zero since 2008.
A government money market fund, subject to stricter money market regulations, presents lower yields, yet may afford greater safety and liquidity.
The Series primarily holds commercial paper, which affords, in the current environment, slightly higher yields (10 to 15 basis points) above short-term Treasuries and Agencies. Since some commercial paper issuers were able to finance their needs elsewhere, many companies were out of that market resulting in less availability. The increase in demand prompted lower than usual commercial paper interest rates throughout the year.
Performance displayed represents past performance, which is no guarantee of future results.
The opinions and forecast expressed may not actually come to pass. This information is subject to change at any time, based on market and other conditions, and should not be construed as a recommendation of any specific security or strategy.
| 26 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
PERFORMANCE REPORT AND FUND PROFILE (Unaudited) | December 31, 2014 |
SERIES C (MONEY MARKET SERIES)
OBJECTIVE: Seeks as high a level of current income as is consistent with preservation of capital by investing in money market securities with varying maturities.
Holdings Diversification
(Market Exposure as % of Net Assets)
Inception Date: May 1, 1979 |
The Fund invests principally in money market instruments such as commercial paper.
Average Annual Returns*
Periods Ended December 31, 2014†
| 1 Year | 5 Year | 10 Year | |
| Series C (Money Market Series) | -0.38% | -0.48% | 1.10% |
| * | The performance data above represents past performance that is not predictive of future results. The investment return and principal value of an investment in the Fund will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Returns are historical and include changes in principal and reinvested dividends and capital gains and do not reflect the effect of taxes. |
† | Performance figures do not reflect fees and expenses associated with an investment in variable insurance products. If returns had taken into account these fees and expenses, performance would have been lower. Shares of a series of Guggenheim Variable Funds Trust are available only through the purchase of such products. |
| THE GUGGENHEIM FUNDS ANNUAL REPORT | 27 |
| SCHEDULE OF INVESTMENTS | December 31, 2014 |
| SERIES C (MONEY MARKET SERIES) |
| Shares | Value | |||||||
SHORT TERM INVESTMENTS† - 39.7% | ||||||||
| Dreyfus Treasury Prime Cash Management Fund | 27,956,605 | $ | 27,956,605 | |||||
| Total Short Term Investments | ||||||||
| (Cost $27,956,605) | 27,956,605 | |||||||
| Face Amount | ||||||||
ASSET-BACKED SECURITIES†† - 0.1% | ||||||||
| Small Business Administration Pools | ||||||||
#503295, 0.75% due 04/25/211 | $ | 38,469 | 38,449 | |||||
#502353, 1.00% due 09/25/181 | 13,640 | 13,656 | ||||||
#503303, 0.75% due 04/25/211 | 13,607 | 13,597 | ||||||
| Total Asset-Backed Securities | ||||||||
| (Cost $65,724) | 65,702 | |||||||
COMMERCIAL PAPER†† - 61.0% | ||||||||
| Toyota Motor Credit Corp. | ||||||||
| 0.18% due 01/28/15 | 4,000,000 | 3,999,758 | ||||||
| General Electric Capital Corp. | ||||||||
| 0.16% due 01/28/15 | 2,000,000 | 1,999,892 | ||||||
| 0.14% due 03/02/15 | 1,400,000 | 1,399,760 | ||||||
| 0.17% due 02/05/15 | 500,000 | 499,965 | ||||||
| Total General Electric Capital Corp. | 3,899,617 | |||||||
| Sheffield Receivables Corp. | ||||||||
0.17% due 01/23/152 | 1,900,000 | 1,899,817 | ||||||
0.24% due 01/23/152 | 1,100,000 | 1,099,895 | ||||||
0.25% due 03/05/152 | 800,000 | 799,740 | ||||||
| Total Sheffield Receivables Corp. | 3,799,452 | |||||||
| Prudential PLC | ||||||||
0.19% due 02/17/152 | 2,500,000 | 2,499,420 | ||||||
0.18% due 02/17/152 | 1,000,000 | 999,768 | ||||||
| Total Prudential PLC | 3,499,188 | |||||||
| Societe Generale North America, Inc. | ||||||||
| 0.32% due 03/06/15 | 3,000,000 | 2,998,954 | ||||||
| 0.18% due 01/05/15 | 350,000 | 349,994 | ||||||
| Total Societe Generale North America, Inc. | 3,348,948 | |||||||
| Abbott Laboratories | ||||||||
0.09% due 01/15/152 | 3,300,000 | 3,299,885 | ||||||
| AstraZeneca plc | ||||||||
0.08% due 01/06/152 | 3,000,000 | 2,999,949 | ||||||
| Jupiter Securitization Co. LLC | ||||||||
0.23% due 06/05/152 | 3,000,000 | 2,996,646 | ||||||
| General RE Corp. | ||||||||
| 0.14% due 03/09/15 | 2,000,000 | 1,999,377 | ||||||
| 0.13% due 03/09/15 | 500,000 | 499,844 | ||||||
| Total General RE Corp. | 2,499,221 | |||||||
| ING U.S. Funding LLC | ||||||||
| 0.30% due 02/02/15 | 2,450,000 | 2,449,654 | ||||||
| 0.18% due 02/20/15 | 600,000 | 599,849 | ||||||
| Total ING U.S. Funding LLC | 3,049,503 | |||||||
| John Deere Capital Corp. | ||||||||
0.11% due 02/04/152 | 2,000,000 | 1,999,792 | ||||||
| Nestle Capital Corp. | ||||||||
0.14% due 02/23/153 | 2,000,000 | 1,999,682 | ||||||
| Caterpillar Financial Services Corp. | ||||||||
| 0.17% due 03/18/15 | 2,000,000 | 1,999,247 | ||||||
| American Honda Finance Corp. | ||||||||
| 0.12% due 02/18/15 | 1,800,000 | 1,799,620 | ||||||
| Coca-Cola Co. | ||||||||
0.18% due 05/07/152 | 1,000,000 | 999,411 | ||||||
0.18% due 05/13/152 | 800,000 | 799,489 | ||||||
| Total Coca-Cola Co. | 1,798,900 | |||||||
| Total Commercial Paper | ||||||||
| (Cost $42,988,201) | 42,989,408 | |||||||
| Total Investments - 100.8% | ||||||||
| (Cost $71,010,530) | $ | 71,011,715 | ||||||
| Other Assets & Liabilities, net - (0.8)% | (590,252 | ) | ||||||
| Total Net Assets - 100.0% | $ | 70,421,463 |
| † | Value determined based on Level 1 inputs — See Note 4. |
| †† | Value determined based on Level 2 inputs — See Note 4. |
| 1 | Variable rate security. Rate indicated is rate effective at December 31, 2014. |
| 2 | Security is a 144A or Section 4(a)(2) security. The total market value of 144A or Section 4(a)(2) securities is $22,393,494 (cost $22,393,555), or 31.8% of total net assets. These securities have been determined to be liquid under guidelines established by the Board of Trustees. |
| plc — Public Limited Company |
| 28 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
| SERIES C (MONEY MARKET SERIES) |
| STATEMENT OF ASSETS AND LIABILITIES |
| December 31, 2014 | ||||
| Assets: | ||||
| Investments, at value (cost $71,010,530) | $ | 71,011,715 | ||
| Prepaid expenses | 826 | |||
| Receivables: | ||||
| Fund shares sold | 104,820 | |||
| Securities sold | 805 | |||
| Interest | 89 | |||
| Total assets | 71,118,255 | |||
| Liabilities: | ||||
| Payable for: | ||||
| Fund shares redeemed | 639,922 | |||
| Management fees | 9,741 | |||
| Fund accounting/administration fees | 5,346 | |||
| Transfer agent/maintenance fees | 2,693 | |||
| Trustees’ fees* | 2,528 | |||
| Miscellaneous | 36,562 | |||
| Total liabilities | 696,792 | |||
| Net assets | $ | 70,421,463 | ||
| Net assets consist of: | ||||
| Paid in capital | $ | 70,420,429 | ||
| Undistributed net investment income | — | |||
| Accumulated net realized loss on investments | (151 | ) | ||
| Net unrealized appreciation on investments | 1,185 | |||
| Net assets | $ | 70,421,463 | ||
| Capital shares outstanding | 5,320,081 | |||
| Net asset value per share | $ | 13.24 | ||
| STATEMENT OF OPERATIONS |
| Year Ended December 31, 2014 | ||||
| Investment Income: | ||||
| Interest | $ | 81,641 | ||
| Total investment income | 81,641 | |||
| Expenses: | ||||
| Management fees | 372,427 | |||
| Transfer agent/maintenance fees | 24,748 | |||
| Fund accounting/administration fees | 70,760 | |||
| Trustees’ fees* | 10,220 | |||
| Custodian fees | 1,290 | |||
| Tax expense | 2 | |||
| Miscellaneous | 80,098 | |||
| Total expenses | 559,545 | |||
| Less: | ||||
| Expenses waived by Adviser | (179,834 | ) | ||
| Net expenses | 379,711 | |||
| Net investment loss | (298,070 | ) | ||
| Net Realized and Unrealized Gain (Loss): | ||||
| Net realized gain (loss) on: | ||||
| Investments | (14 | ) | ||
| Net realized loss | (14 | ) | ||
| Net change in unrealized appreciation (depreciation) on: | ||||
| Investments | (486 | ) | ||
| Net change in unrealized appreciation (depreciation) | (486 | ) | ||
| Net realized and unrealized loss | (500 | ) | ||
| Net decrease in net assets resulting from operations | $ | (298,570 | ) | |
| * | Relates to Trustees not deemed “interested persons” within the meaning of Section 2(a)(19) of the 1940 Act. |
| SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 29 |
| SERIES C (MONEY MARKET SERIES) |
| STATEMENTS OF CHANGES IN NET ASSETS |
| Year Ended December 31, 2014 | Year Ended December 31, 2013 | |||||||
| Increase (Decrease) in Net Assets from Operations: | ||||||||
| Net investment loss | $ | (298,070 | ) | $ | (395,179 | ) | ||
| Net realized gain (loss) on investments | (14 | ) | 1,246 | |||||
| Net change in unrealized appreciation (depreciation) on investments | (486 | ) | (1,813 | ) | ||||
| Net decrease in net assets resulting from operations | (298,570 | ) | (395,746 | ) | ||||
| Capital share transactions: | ||||||||
| Proceeds from sale of shares | 86,068,579 | 99,294,222 | ||||||
| Cost of shares redeemed | (91,652,757 | ) | (95,965,272 | ) | ||||
| Net increase (decrease) from capital share transactions | (5,584,178 | ) | 3,328,950 | |||||
| Net increase (decrease) in net assets | (5,882,748 | ) | 2,933,204 | |||||
| Net assets: | ||||||||
| Beginning of year | 76,304,211 | 73,371,007 | ||||||
| End of year | $ | 70,421,463 | $ | 76,304,211 | ||||
| Undistributed net investment income at end of year | $ | — | $ | — | ||||
| Capital share activity: | ||||||||
| Shares sold | 6,490,360 | 7,454,058 | ||||||
| Shares redeemed | (6,911,723 | ) | (7,205,162 | ) | ||||
| Net increase (decrease) in shares | (421,363 | ) | 248,896 | |||||
| 30 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
| SERIES C (MONEY MARKET SERIES) |
| FINANCIAL HIGHLIGHTS |
This table is presented to show selected data for a share outstanding throughout each period and to assist shareholders in evaluating a Fund’s performance for the periods presented.
| Year Ended December 31, 2014 | Year Ended December 31, 2013 | Year Ended December 31, 2012 | Year Ended December 31, 2011 | Year Ended December 31, 2010 | ||||||||||||||||
| Per Share Data | ||||||||||||||||||||
| Net asset value, beginning of period | $ | 13.29 | $ | 13.36 | $ | 13.43 | $ | 13.50 | $ | 13.56 | ||||||||||
| Income (loss) from investment operations: | ||||||||||||||||||||
Net investment income (loss)a | (.05 | ) | (.07 | ) | (.07 | ) | (.08 | ) | (.06 | ) | ||||||||||
| Net gain (loss) on investments (realized and unrealized) | (— | )d | (— | )d | (— | )d | .01 | (— | )d | |||||||||||
| Total from investment operations | (.05 | ) | (.07 | ) | (.07 | ) | (.07 | ) | (.06 | ) | ||||||||||
| Net asset value, end of period | $ | 13.24 | $ | 13.29 | $ | 13.36 | $ | 13.43 | $ | 13.50 | ||||||||||
Total Returnb | (0.38 | %) | (0.52 | %) | (0.52 | %) | (0.52 | %) | (0.44 | %) | ||||||||||
| Ratios/Supplemental Data | ||||||||||||||||||||
| Net assets, end of period (in thousands) | $ | 70,421 | $ | 76,304 | $ | 73,371 | $ | 108,617 | $ | 106,191 | ||||||||||
| Ratios to average net assets: | ||||||||||||||||||||
| Net investment income (loss) | (0.40 | %) | (0.50 | %) | (0.53 | %) | (0.57 | %) | (0.46 | %) | ||||||||||
| Total expenses | 0.75 | % | 0.71 | % | 0.71 | % | 0.70 | % | 0.70 | % | ||||||||||
Net expensesc,e | 0.51 | % | 0.64 | % | 0.71 | % | 0.70 | % | 0.70 | % | ||||||||||
| Portfolio turnover rate | — | — | — | — | — | |||||||||||||||
a | Net investment income (loss) per share was computed using average shares outstanding throughout the period. |
b | Total return does not take into account any of the expenses associated with an investment in variable insurance products. If total return had taken into account these expenses, performance would have been lower. Shares of a series of Guggenheim Variable Funds Trust are available only through the purchase of such products. |
c | Net expense information reflects the expense ratios after expense waivers. |
d | Less than $0.01 per share. |
e | Net expenses may include expenses that are excluded from the expense limitation agreement. Excluding these expenses, the operating expense ratios for the period would be: |
| 12/31/14 | 12/31/13 |
| 0.50% | 0.63% |
| SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 31 |
MANAGER'S COMMENTARY (Unaudited) | December 31, 2014 |
To Our Shareholders:
The Series D (World Equity Income Series) is managed by a team of seasoned professionals, including Farhan Sharaff, Senior Managing Director and Assistant Chief Investment Officer, Equities; Nardin Baker, CFA, Managing Director and Portfolio Manager; Ole Jakob Wold, Managing Director and Portfolio Manager; and Scott Hammond, Managing Director and Portfolio Manager. In the following paragraphs, the investment team discusses performance for the fiscal year ended December 31, 2014.
For the one-year period ended December 31, 2014, the Series D (World Equity Income Series) returned 5.00%, compared with the 4.94% return of its benchmark, the MSCI World Index.
The Fund seeks to deliver superior risk-adjusted returns by taking advantage of market inefficiencies that, at times, misprice stable companies. To identify the degree to which the market could potentially reward stability and other factors, the Fund’s investment team distills the global equity market down to 60 discrete fundamental stock characteristics which it uses to rank stocks it considers for the portfolio.
The Fund delivered a return that was slightly higher than the benchmark, but with 10% less risk (approximately 10% for the benchmark compared with 9% for the Series). For the year, the continued strength of the U.S. market (as represented by the S&P 500 Index) versus global markets (as represented by the MSCI World Index) was a headwind. So was a fourth quarter rally in lower quality companies. The Fund seeks to invest sensibly in a world with a rising number of risks; its focus on stable companies (those with factor characteristics like strong balance sheets, attractive earnings, healthy margins and lower market volatility) is designed to offer protection when the market sells off, but presents a challenge when companies lacking in these characteristics outperform.
Contributing to performance for the year was good stock selection and an underweight to Financials, which was a relative underperforming sector in the benchmark. An overweight to Telecommunications Services (the largest in the Series) and good stock selection also helped performance.
Detracting from performance was stock selection in the Energy sector, which was the worst-performing sector in the benchmark and the Fund. An underweight in Information Technology also hurt performance. The tech sector had the best return in the benchmark for the year, but it was the sector the Fund was most underweight.
From a country perspective, the Fund was most underweight the U.S. and most overweight Australia.
The Australian position was a result of the Fund focus on positions with ties to tangible goods, which hedge against the currency debasement that is occurring in many countries around the world as way to promote growth. The Fund’s investment team believes mining offers this and Australia has extensive mining interests. But to avoid being overly exposed to a slowing in China’s growth, which could dampen demand for minerals and metals, the Australian allocation is skewed to banking and insurance holdings.
The largest country underweight remains the U.S., despite the dollar’s recent strength. In the short-term this effect has been negative, as an increasing dollar has been the tide to lift all U.S. boats, thus hurting the U.S. underweight. Earnings of U.S. companies, however, are facing more pressure due to substantial foreign earnings being translated into fewer U.S. dollars.
We also believe the macro picture will ultimately reward a U.S. underweight strategy. As central banks of the world compete to implement ever more aggressive stimulus plans, we continue to look for attractive equity opportunities. The greatest driver of returns within the U.S. equity markets since 2009 has been size of Fed’s balance sheet. We believe this will be the case in Europe and Japan, as they continue with their quantitative easing. Thus, the Fund is overweight Japan, and underweight the U.S. and the UK, countries late in the monetary cycle. Europe remains an underweight for now, due to economic and monetary challenges the continent faces, but the longer term thesis remains in play.
Positioning relative to sectors shows that the cyclically defensive sectors of Telecommunications Services and Utilities were the largest overweights for the year, whereas Information Technology and Consumer Discretionary were the largest underweights.
| 32 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
MANAGER'S COMMENTARY (Unaudited)(concluded) | December 31, 2014 |
The team believes the Telecom sector continues to benefit from consolidation within the sector and the wider merger and acquisition trend driven by high cash balances and low financing costs.
Energy was a large underweight for much of the year, but the gap was reduced in the fourth quarter, when models used by the Fund began to favor Energy, mostly attributable to the rapid industry growth tied to shale oil technology. For much of the year, these companies were growing far faster than the broad market, and the late-year reversal in their fortunes could be temporary.
As noted, this allocation suffered in tandem with the decline in the price of oil for the last half of 2014. We believe the falling price was largely a function of the strengthening U.S. dollar, as opposed to a change in demand fundamentals, so we view the selloff in upstream oil names as providing an attractive entry point.
Performance displayed represents past performance, which is no guarantee of future results.
The opinions and forecast expressed may not actually come to pass. This information is subject to change at any time, based on market and other conditions, and should not be construed as a recommendation of any specific security or strategy.
| THE GUGGENHEIM FUNDS ANNUAL REPORT | 33 |
PERFORMANCE REPORT AND FUND PROFILE (Unaudited) | December 31, 2014 |
SERIES D (WORLD EQUITY INCOME SERIES)
OBJECTIVE: Seeks to provide total return, comprised of capital appreciation and income.
Holdings Diversification
(Market Exposure as % of Net Assets)
“Holdings Diversification (Market Exposure as % of Net Assets)” excludes any temporary cash investments or investments in Guggenheim Strategy Funds Trust mutual funds.
COUNTRY DIVERSIFICATION
At December 31, 2014, the investment diversification of the Fund by country was as follows:
| Country | % of Common Stocks | Value |
| United States | 54.3% | $95,752,889 |
| Japan | 7.5% | 13,143,946 |
| Australia | 7.4% | 12,954,324 |
| United Kingdom | 6.9% | 12,229,749 |
| Switzerland | 6.6% | 11,695,425 |
| Hong Kong | 5.6% | 9,917,571 |
| Netherlands | 1.7% | 2,954,666 |
| Other | 10.0% | 17,566,323 |
| Total Investments | 100.0% | $176,214,893 |
Inception Date: April 19, 1984 |
| Ten Largest Holdings (% of Total Net Assets) | |
| Pfizer, Inc. | 2.2% |
| Novartis AG | 2.2% |
| AT&T, Inc. | 2.0% |
| Roche Holding AG | 1.9% |
| Merck & Company, Inc. | 1.9% |
| Wal-Mart Stores, Inc. | 1.9% |
| International Business Machines Corp. | 1.8% |
| Eli Lilly & Co. | 1.8% |
| Lockheed Martin Corp. | 1.8% |
| Duke Energy Corp. | 1.8% |
| Top Ten Total | 19.3% |
| “Ten Largest Holdings” exclude any temporary cash or derivative investments. | |
| 34 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
PERFORMANCE REPORT AND FUND PROFILE (Unaudited)(concluded) | December 31, 2014 |
Cumulative Fund Performance*,†
Average Annual Returns*
Periods Ended December 31, 2014†
| 1 Year | 5 Year | 10 Year | |
| Series D (World Equity Income Series) | 5.00% | 7.30% | 4.29% |
| MSCI World Index | 4.94% | 10.20% | 6.03% |
| * | The performance data above represents past performance that is not predictive of future results. The investment return and principal value of an investment in the Fund will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Returns are historical and include changes in principal and reinvested dividends and capital gains and do not reflect the effect of taxes. The MSCI World Index is an unmanaged index and, unlike the Fund, has no management fees or operating expenses to reduce its reported return. |
† | Performance figures do not reflect fees and expenses associated with an investment in variable insurance products. If returns had taken into account these fees and expenses, performance would have been lower. Shares of a series of Guggenheim Variable Funds Trust are available only through the purchase of such products. |
| THE GUGGENHEIM FUNDS ANNUAL REPORT | 35 |
| SCHEDULE OF INVESTMENTS | December 31, 2014 |
| SERIES D (WORLD EQUITY INCOME SERIES) |
| Shares | Value | |||||||
COMMON STOCKS† - 98.7% | ||||||||
| CONSUMER, NON-CYCLICAL - 24.4% | ||||||||
| Pfizer, Inc. | 128,300 | $ | 3,996,545 | |||||
Novartis AG†† | 41,400 | 3,839,966 | ||||||
Roche Holding AG†† | 12,600 | 3,414,215 | ||||||
| Merck & Company, Inc. | 59,900 | 3,401,721 | ||||||
| Eli Lilly & Co. | 46,500 | 3,208,035 | ||||||
| Cardinal Health, Inc. | 37,600 | 3,035,448 | ||||||
| Baxter International, Inc. | 41,400 | 3,034,206 | ||||||
Koninklijke Ahold N.V.†† | 166,200 | 2,954,073 | ||||||
| Anthem, Inc. | 22,900 | 2,877,843 | ||||||
| Dr Pepper Snapple Group, Inc. | 32,200 | 2,308,096 | ||||||
Nestle S.A.†† | 30,900 | 2,252,868 | ||||||
| Johnson & Johnson | 18,100 | 1,892,717 | ||||||
| Kimberly-Clark Corp. | 14,500 | 1,675,330 | ||||||
| Altria Group, Inc. | 25,600 | 1,261,312 | ||||||
| Philip Morris International, Inc. | 15,200 | 1,238,040 | ||||||
| Procter & Gamble Co. | 11,600 | 1,056,644 | ||||||
GlaxoSmithKline plc†† | 25,200 | 540,477 | ||||||
| Reynolds American, Inc. | 8,400 | 539,868 | ||||||
| Automatic Data Processing, Inc. | 6,200 | 516,894 | ||||||
| AmerisourceBergen Corp. — Class A | 4,900 | 441,784 | ||||||
| Total Consumer, Non-cyclical | 43,486,082 | |||||||
| FINANCIAL - 15.9% | ||||||||
| People’s United Financial, Inc. | 151,600 | 2,301,289 | ||||||
National Australia Bank Ltd.†† | 78,968 | 2,153,725 | ||||||
Insurance Australia Group Ltd.†† | 406,151 | 2,062,474 | ||||||
Friends Life Group Ltd.†† | 360,600 | 2,048,094 | ||||||
| New York Community Bancorp, Inc. | 128,000 | 2,048,000 | ||||||
Stockland†† | 552,878 | 1,847,865 | ||||||
| American Capital Agency Corp. | 82,700 | 1,805,341 | ||||||
Government Properties Trust, Inc.†† | 508,000 | 1,798,042 | ||||||
ASX Ltd.†† | 59,100 | 1,763,423 | ||||||
Novion Property Group†† | 998,717 | 1,716,812 | ||||||
Bendigo & Adelaide Bank Ltd.†† | 164,800 | 1,713,777 | ||||||
| Annaly Capital Management, Inc. | 157,800 | 1,705,818 | ||||||
| Boston Properties, Inc. | 9,900 | 1,274,031 | ||||||
| Simon Property Group, Inc. | 6,500 | 1,183,715 | ||||||
Admiral Group plc†† | 43,500 | 891,803 | ||||||
| Wells Fargo & Co. | 16,100 | 882,602 | ||||||
| U.S. Bancorp | 15,500 | 696,725 | ||||||
Gjensidige Forsikring ASA†† | 23,100 | 376,579 | ||||||
Hannover Rueck SE†† | 1,600 | 144,349 | ||||||
| Total Financial | 28,414,464 | |||||||
| COMMUNICATIONS - 15.5% | ||||||||
| AT&T, Inc. | 104,000 | 3,493,360 | ||||||
| Verizon Communications, Inc. | 52,600 | 2,460,628 | ||||||
NTT DOCOMO, Inc.†† | 159,100 | 2,317,273 | ||||||
Swisscom AG†† | 4,170 | 2,188,376 | ||||||
| Time Warner Cable, Inc. | 14,100 | 2,144,046 | ||||||
PCCW Ltd.†† | 3,025,400 | 2,059,981 | ||||||
Elisa Oyj†† | 72,500 | 1,979,038 | ||||||
Belgacom S.A.†† | 53,700 | 1,948,571 | ||||||
Spark New Zealand Ltd.†† | 801,000 | 1,941,783 | ||||||
Singapore Press Holdings Ltd.†† | 568,400 | 1,804,259 | ||||||
Bezeq The Israeli Telecommunication Corporation Ltd.†† | 879,100 | 1,559,562 | ||||||
| Motorola Solutions, Inc. | 21,700 | 1,455,636 | ||||||
| Windstream Holdings, Inc. | 148,300 | 1,221,992 | ||||||
| CenturyLink, Inc. | 28,600 | 1,131,988 | ||||||
| Total Communications | 27,706,493 | |||||||
| UTILITIES - 12.0% | ||||||||
| Duke Energy Corp. | 37,700 | 3,149,458 | ||||||
| Southern Co. | 62,900 | 3,089,019 | ||||||
CLP Holdings Ltd.†† | 264,600 | 2,291,294 | ||||||
Power Assets Holdings Ltd.†† | 223,800 | 2,163,715 | ||||||
| PPL Corp. | 51,500 | 1,870,995 | ||||||
Enagas S.A.†† | 57,800 | 1,823,210 | ||||||
Snam SpA†† | 357,800 | 1,770,964 | ||||||
AGL Energy Ltd.†† | 155,500 | 1,696,248 | ||||||
TransAlta Corp.†† | 162,300 | 1,469,613 | ||||||
SSE plc†† | 48,000 | 1,212,170 | ||||||
| Entergy Corp. | 10,700 | 936,036 | ||||||
| Total Utilities | 21,472,722 | |||||||
| CONSUMER, CYCLICAL - 11.2% | ||||||||
| Wal-Mart Stores, Inc. | 38,700 | 3,323,556 | ||||||
Mitsui & Company Ltd.†† | 175,800 | 2,354,807 | ||||||
| McDonald’s Corp. | 25,100 | 2,351,870 | ||||||
ITOCHU Corp.†† | 207,600 | 2,216,428 | ||||||
InterContinental Hotels Group plc†† | 52,600 | 2,115,786 | ||||||
Sumitomo Corp.†† | 195,800 | 2,011,253 | ||||||
Compass Group plc†† | 116,300 | 1,986,256 | ||||||
Marubeni Corp.†† | 278,400 | 1,665,981 | ||||||
Mitsubishi Corp.†† | 67,400 | 1,233,583 | ||||||
| Costco Wholesale Corp. | 5,200 | 737,100 | ||||||
| Total Consumer, Cyclical | 19,996,620 | |||||||
| INDUSTRIAL - 9.1% | ||||||||
| Lockheed Martin Corp. | 16,600 | 3,196,663 | ||||||
AP Moeller - Maersk A/S — Class A†† | 1,300 | 2,487,746 | ||||||
| TransDigm Group, Inc. | 9,800 | 1,924,230 | ||||||
IMI plc†† | 94,700 | 1,851,387 | ||||||
| Northrop Grumman Corp. | 11,500 | 1,694,985 | ||||||
Rexam plc†† | 225,000 | 1,583,776 | ||||||
Cheung Kong Infrastructure Holdings Ltd.†† | 199,000 | 1,463,409 | ||||||
| United Parcel Service, Inc. — Class B | 6,500 | 722,605 | ||||||
| Waste Management, Inc. | 13,400 | 687,688 | ||||||
| Caterpillar, Inc. | 6,900 | 631,557 | ||||||
TNT Express N.V.†† | 89 | 593 | ||||||
| Total Industrial | 16,244,639 | |||||||
| 36 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
SCHEDULE OF INVESTMENTS (concluded) | December 31, 2014 |
| SERIES D (WORLD EQUITY INCOME SERIES) |
| Shares | Value | |||||||
| TECHNOLOGY - 4.4% | ||||||||
| International Business Machines Corp. | 20,000 | $ | 3,208,800 | |||||
| Apple, Inc. | 14,400 | 1,589,472 | ||||||
Canon, Inc.†† | 42,300 | 1,344,621 | ||||||
| Intel Corp. | 25,400 | 921,766 | ||||||
| Microsoft Corp. | 15,600 | 724,620 | ||||||
| Total Technology | 7,789,279 | |||||||
| ENERGY - 3.5% | ||||||||
| ConocoPhillips | 42,400 | 2,928,144 | ||||||
| Exxon Mobil Corp. | 10,700 | 989,215 | ||||||
Pembina Pipeline Corp.†† | 22,300 | 812,689 | ||||||
Repsol S.A.†† | 35,700 | 668,384 | ||||||
Vermilion Energy, Inc.†† | 11,900 | 583,835 | ||||||
| Chevron Corp. | 2,300 | 258,014 | ||||||
| Total Energy | 6,240,281 | |||||||
| BASIC MATERIALS - 1.6% | ||||||||
| Dow Chemical Co. | 47,100 | 2,148,231 | ||||||
| International Paper Co. | 14,500 | 776,910 | ||||||
| Total Basic Materials | 2,925,141 | |||||||
| DIVERSIFIED - 1.1% | ||||||||
Hutchison Whampoa Ltd.†† | 169,632 | 1,939,172 | ||||||
| Total Common Stocks | ||||||||
| (Cost $174,201,481) | 176,214,893 | |||||||
SHORT TERM INVESTMENTS† - 1.0% | ||||||||
| Goldman Sachs Financial Square Funds - Treasury Instruments Fund | 1,806,884 | 1,806,884 | ||||||
| Total Short Term Investments | ||||||||
| (Cost $1,806,884) | 1,806,884 | |||||||
| Total Investments - 99.7% | ||||||||
| (Cost $176,008,365) | $ | 178,021,777 | ||||||
| Other Assets & Liabilities, net - 0.3% | 526,610 | |||||||
| Total Net Assets - 100.0% | $ | 178,548,387 | ||||||
| † | Value determined based on Level 1 inputs, unless otherwise noted — See Note 4. |
| †† | Value determined based on Level 2 inputs — See Note 4. |
| plc — Public Limited Company |
| SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 37 |
| SERIES D (WORLD EQUITY INCOME SERIES) |
| STATEMENT OF ASSETS AND LIABILITIES |
| December 31, 2014 | ||||
| Assets: | ||||
| Investments, at value (cost $176,008,365) | $ | 178,021,777 | ||
| Prepaid expenses | 6,604 | |||
| Receivables: | ||||
| Dividends | 528,864 | |||
| Foreign taxes reclaim | 254,550 | |||
| Fund shares sold | 6,594 | |||
| Total assets | 178,818,389 | |||
| Liabilities: | ||||
| Overdraft due to custodian bank | 12 | |||
| Payable for: | ||||
| Management fees | 107,192 | |||
| Fund shares redeemed | 79,643 | |||
| Custodian fees | 28,857 | |||
| Fund accounting/administration fees | 22,970 | |||
| Transfer agent/maintenance fees | 3,907 | |||
| Trustees’ fees* | 1,955 | |||
| Miscellaneous | 25,466 | |||
| Total liabilities | 270,002 | |||
| Net assets | $ | 178,548,387 | ||
| Net assets consist of: | ||||
| Paid in capital | $ | 224,204,195 | ||
| Undistributed net investment income | 5,477,207 | |||
| Accumulated net realized loss on investments | (53,120,371 | ) | ||
| Net unrealized appreciation on investments | 1,987,356 | |||
| Net assets | $ | 178,548,387 | ||
| Capital shares outstanding | 14,173,347 | |||
| Net asset value per share | $ | 12.60 | ||
| STATEMENT OF OPERATIONS |
| Year Ended December 31, 2014 | ||||
| Investment Income: | ||||
| Dividends (net of foreign withholding tax of $819,913) | $ | 7,543,607 | ||
| Other income | 1,691 | |||
| Total investment income | 7,545,298 | |||
| Expenses: | ||||
| Management fees | 1,333,171 | |||
| Transfer agent/maintenance fees | 25,005 | |||
| Fund accounting/administration fees | 285,680 | |||
| Custodian fees | 38,892 | |||
| Trustees’ fees* | 19,487 | |||
| Tax expense | 3,334 | |||
| Line of credit fees | 3,026 | |||
| Miscellaneous | 209,834 | |||
| Total expenses | 1,918,429 | |||
| Net investment income | 5,626,869 | |||
| Net Realized and Unrealized Gain (Loss): | ||||
| Net realized gain (loss) on: | ||||
| Investments | 9,997,680 | |||
| Foreign currency | (153,411 | ) | ||
| Net realized gain | 9,844,269 | |||
| Net change in unrealized appreciation (depreciation) on: | ||||
| Investments | (5,842,946 | ) | ||
| Foreign currency | (30,787 | ) | ||
| Net change in unrealized appreciation (depreciation) | (5,873,733 | ) | ||
| Net realized and unrealized gain | 3,970,536 | |||
| Net increase in net assets resulting from operations | $ | 9,597,405 | ||
| * | Relates to Trustees not deemed “interested persons” within the meaning of Section 2(a)(19) of the 1940 Act. |
| 38 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
| SERIES D (WORLD EQUITY INCOME SERIES) |
| STATEMENTS OF CHANGES IN NET ASSETS |
| Year Ended December 31, 2014 | Year Ended December 31, 2013 | |||||||
| Increase (Decrease) in Net Assets from Operations: | ||||||||
| Net investment income | $ | 5,626,869 | $ | 4,738,479 | ||||
| Net realized gain on investments | 9,844,269 | 20,668,997 | ||||||
| Net change in unrealized appreciation (depreciation) on investments | (5,873,733 | ) | 7,871,299 | |||||
| Net increase in net assets resulting from operations | 9,597,405 | 33,278,775 | ||||||
| Distributions to shareholders from: | ||||||||
| Net investment income | (7,072 | ) | — | |||||
| Total distributions to shareholders | (7,072 | ) | — | |||||
| Capital share transactions: | ||||||||
| Proceeds from sale of shares | 6,713,201 | 10,130,604 | ||||||
| Distributions reinvested | 7,072 | — | ||||||
| Cost of shares redeemed | (31,356,416 | ) | (35,047,932 | ) | ||||
| Net decrease from capital share transactions | (24,636,143 | ) | (24,917,328 | ) | ||||
| Net increase (decrease) in net assets | (15,045,810 | ) | 8,361,447 | |||||
| Net assets: | ||||||||
| Beginning of year | 193,594,197 | 185,232,750 | ||||||
| End of year | $ | 178,548,387 | $ | 193,594,197 | ||||
| Undistributed net investment income at end of year | $ | 5,477,207 | $ | 5,045,200 | ||||
| Capital share activity: | ||||||||
| Shares sold | 524,779 | 918,433 | ||||||
| Shares issued from reinvestment of distributions | 561 | — | ||||||
| Shares redeemed | (2,489,949 | ) | (3,199,531 | ) | ||||
| Net decrease in shares | (1,964,609 | ) | (2,281,098 | ) | ||||
| SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 39 |
| SERIES D (WORLD EQUITY INCOME SERIES) |
| FINANCIAL HIGHLIGHTS |
This table is presented to show selected data for a share outstanding throughout each period and to assist shareholders in evaluating a Fund’s performance for the periods presented.
| Year Ended December 31, 2014 | Year Ended December 31, 2013 | Year Ended December 31, 2012 | Year Ended December 31, 2011 | Year Ended December 31, 2010 | ||||||||||||||||
| Per Share Data | ||||||||||||||||||||
| Net asset value, beginning of period | $ | 12.00 | $ | 10.06 | $ | 8.63 | $ | 10.25 | $ | 8.86 | ||||||||||
| Income (loss) from investment operations: | ||||||||||||||||||||
Net investment income (loss)a | .37 | .28 | .19 | .12 | .04 | |||||||||||||||
| Net gain (loss) on investments (realized and unrealized) | .23 | 1.66 | 1.24 | (1.74 | ) | 1.35 | ||||||||||||||
| Total from investment operations | .60 | 1.94 | 1.43 | (1.62 | ) | 1.39 | ||||||||||||||
| Less distributions from: | ||||||||||||||||||||
| Net investment income | (— | )b | — | — | — | — | ||||||||||||||
| Total distributions | (— | )b | — | — | — | — | ||||||||||||||
| Net asset value, end of period | $ | 12.60 | $ | 12.00 | $ | 10.06 | $ | 8.63 | $ | 10.25 | ||||||||||
Total Returnc | 5.00 | % | 19.28 | % | 16.57 | % | (15.80 | %) | 15.69 | % | ||||||||||
| Ratios/Supplemental Data | ||||||||||||||||||||
| Net assets, end of period (in thousands) | $ | 178,548 | $ | 193,594 | $ | 185,233 | $ | 185,747 | $ | 269,645 | ||||||||||
| Ratios to average net assets: | ||||||||||||||||||||
| Net investment income (loss) | 2.95 | % | 2.50 | % | 2.03 | % | 1.23 | % | 0.49 | % | ||||||||||
| Total expenses | 1.01 | % | 1.14 | % | 1.17 | % | 1.21 | % | 1.26 | % | ||||||||||
| Portfolio turnover rate | 132 | % | 150 | % | 36 | % | 171 | % | 283 | % | ||||||||||
a | Net investment income (loss) per share was computed using average shares outstanding throughout the period. |
b | Distributions from net investment income are less than $0.01 per share. |
c | Total return does not take into account any of the expenses associated with an investment in variable insurance products. If total return had taken into account these expenses, performance would have been lower. Shares of a series of Guggenheim Variable Funds Trust are available only through the purchase of such products. |
| 40 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
MANAGER'S COMMENTARY (Unaudited) | December 31, 2014 |
To Our Shareholders
The Series E (Total Return Bond Series) is managed by a team of seasoned professionals, including B. Scott Minerd, Chairman of Investments and Global Chief Investment Officer; Anne B. Walsh, Senior Managing Director and Assistant Chief Investment Officer; Jeffrey B. Abrams, Senior Managing Director and Portfolio Manager; and James W. Michal, Managing Director and Portfolio Manager. In the following paragraphs, the investment team discusses the market environment and Series performance for the fiscal year ended December 31, 2014.
For the one-year period ended December 31, 2014 (the “period”), the Series E (Total Return Bond Series) returned 8.10%, compared with the 5.97% return of its benchmark, the Barclays U.S. Aggregate Bond Index.
The Fund seeks to provide total return, comprised of current income and capital appreciation. The Fund pursues its investment objective by investing at least 80% of its assets in debt securities. The Fund may hold fixed income securities of any quality, rated or unrated, including those that are rated below investment grade, or if unrated, determined to be of comparable quality (also known as “high yield securities” or “junk bonds”). However, the Fund may not invest more than 33 1/3% of its assets in fixed-income securities that are below investment grade. The Fund may hold securities of any duration or maturity.
Credit-spread and risk assets continued to find investor favor through 2014, even though severe winter weather in the first quarter produced volatility and mixed economic data. Additional liquidity from central banks outside the U.S. supported foreign capital flows into U.S. assets, which, along with the search for yield among U.S. investors, was positive for fixed income. The yield on the U.S. government 10-year bond declined from 3.03% to 2.17%, and we expect longer-term rates to remain range-bound in the near-term, with the potential for downward pressure.
But just as the market appeared to be growing complacent in the third quarter of 2014, leveraged credit had its first correction in a year, as mutual fund investors withdrew from the sector amid concerns about frothy valuations and talk of credit bubble. U.S. equity and credit markets were not safe from the risk aversion that drove volatility during the second half of the year. While the sell-off was initially sparked by market unease over the Fed winding down its purchases of U.S. Treasuries and mortgage-backed securities, it continued through the fourth quarter as markets grew anxious over the weakening global outlook.
Investment grade corporate bonds saw spreads widen slightly over 2014, as markets grew anxious over economic troubles in Europe, Japan, China, and Russia. With oil prices continuing to collapse through the end of the year, most of the pressure was experienced in energy investment-grade bonds where spreads widened by 64 basis points in the fourth quarter. Total new issuance for the year was $857 billion, with 73% of issuance concentrated in BBB and single-A rated bonds.
High yield corporate bonds and bank loans continued their strong performance through the first half of 2014, but then faltered in the second half. High-yield bond funds and bank loan funds recorded net outflows of $6.3 billion and $17.3 billion for the year, respectively. Leveraged credit new issue activity remained robust despite weaker demand, reaching $833 billion–the second highest volume on record. Mergers, acquisitions and leveraged buyout activity represented 40% of new issue volume, the highest share since 2008. The decline in oil prices during the second half had a material impact on high-yield bond spreads generally, as energy-related companies represented 16% of the high-yield corporate bond market.
ABS performance was positive for the fourth quarter, as rates markets sold off primarily in the front end of the curve, and for the year. New ABS issuance for the year was $222.4 billion, 21% above 2013. New ABS issuance was diversified across all classes, with auto and credit card new issues remaining strong. Credit performance across the commercial ABS and CLO sectors remain favorable given the benign credit conditions and collateral valuations across the U.S. economy.
The non-Agency RMBS market showed positive performance, even though mortgage credit fundamentals dimmed a bit at the end of the year. The inventory of homes listed for sale remained historically low (at 5.1 months) despite increasing over early 2014. Existing home sales remained in the 4.9 to 5.2 million range (seasonally-adjusted annualized) but remain below the post-crisis peak seen in mid 2013. New home sales and housing starts remain near post-crisis highs, but at year end were mixed relative to consensus expectations.
| THE GUGGENHEIM FUNDS ANNUAL REPORT | 41 |
MANAGER'S COMMENTARY (Unaudited)(concluded) | December 31, 2014 |
During the period, the Fund continued to see further price appreciation attributable to tightening of credit spreads outside of high yield. Positive returns have largely been driven by the Fund’s investments in asset-backed securities (ABS) as spreads continued to normalize across various subsectors including collateralized loan obligations (CLOs), commercial real estate collateralized debt obligations (CDOs), and aircraft lease securitizations. The Fund continues to maintain low interest rate duration, particularly at the front end of the yield curve, and thus has largely avoided losses due to a flattening curve. The concentration of the Fund’s credit investments in relatively short maturity high yield bonds and leveraged loans has muted the impact of the recent turmoil in risk assets and the Fund continues to use these periods of weakness to add to attractive assets.
Performance displayed represents past performance, which is no guarantee of future results.
The opinions and forecast expressed may not actually come to pass. This information is subject to change at any time, based on market and other conditions, and should not be construed as a recommendation of any specific security or strategy.
| 42 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
PERFORMANCE REPORT AND FUND PROFILE (Unaudited) | December 31, 2014 |
SERIES E (TOTAL RETURN BOND SERIES)
OBJECTIVE: Seeks to provide total return, comprised of current income and capital appreciation.
Holdings Diversification
(Market Exposure as % of Net Assets)
“Holdings Diversification (Market Exposure as % of Net Assets)” excludes any temporary cash investments or investments in Guggenheim Strategy Funds Trust mutual funds.
| Portfolio Composition by Quality Rating** | |
| Rating | |
| Fixed Income Instruments | |
| AAA | 3.4% |
| AA | 15.1% |
| A | 17.0% |
| BBB | 31.2% |
| BB | 6.6% |
| B | 6.7% |
| CCC | 4.8% |
| CC | 0.3% |
| NR | 1.4% |
| Other Instruments | |
| Mutual Funds | 9.1% |
| Preferred Stocks | 2.9% |
| Unit Investment Trusts | 0.1% |
| Short Term Investments | 1.4% |
| Total Investments | 100.0% |
| The chart above reflects percentages of the value of total investments. | |
Inception Date: April 26, 1985 |
| Ten Largest Holdings (% of Total Net Assets) | |
| Total Return Bond Fund | 9.5% |
| GCAT 2014-2 LLC — Class A1 | 1.8% |
| Willis Engine Securitization Trust II — Class A | 1.6% |
| LSTAR Securities Investment Trust 2014-1 | 1.5% |
| SunTrust Banks, Inc. | 1.5% |
| Northwoods Capital VIII Ltd. — Class D | 1.4% |
| T2 Income Fund CLO Ltd. — Class C | 1.1% |
| New Jersey Transportation Trust Fund Authority Revenue Bonds | 1.1% |
| County of Miami-Dade Florida Revenue Bonds | 1.0% |
| AASET — Class A | 1.0% |
| Top Ten Total | 21.5% |
| “Ten Largest Holdings” exclude any temporary cash or derivative investments. | |
| THE GUGGENHEIM FUNDS ANNUAL REPORT | 43 |
PERFORMANCE REPORT AND FUND PROFILE (Unaudited)(concluded) | December 31, 2014 |
Cumulative Fund Performance*,†
Average Annual Returns*
Periods Ended December 31, 2014†
| 1 Year | 5 Year | 10 Year | |
| Series E (Total Return Bond Series) | 8.10% | 5.36% | 3.41% |
| Barclays U.S. Intermediate Government/Credit Bond Index | 3.14% | 3.54% | 4.10% |
| Barclays U.S. Aggregate Bond Index | 5.97% | 4.45% | 4.71% |
| * | The performance data above represents past performance that is not predictive of future results. The investment return and principal value of an investment in the Fund will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Returns are historical and include changes in principal and reinvested dividends and capital gains and do not reflect the effect of taxes. The Barclays U.S. Aggregate Bond Index and Barclays U.S. Intermediate Government/Credit Bond Index are unmanaged indices and, unlike the Fund, have no management fees or operating expenses to reduce their reported returns. |
| ** | Source: Factset. Credit quality ratings are measured on a scale that generally ranges from AAA (highest) to D (lowest). All rated securities have been rated by Moody’s, Standard & Poor’s (“S&P”), or Fitch, which are all a Nationally Recognized Statistical Rating Organization (“NRSRO”). For purposes of this presentation, when ratings are available from more than one agency, the highest rating is used. Guggenheim Investments has converted Moody’s and Fitch ratings to the equivalent S&P rating. Unrated securities do not necessarily indicate low credit quality. Security ratings are determined at the time of purchase and may change thereafter. |
† | Performance figures do not reflect fees and expenses associated with an investment in variable insurance products. If returns had taken into account these fees and expenses, performance would have been lower. Shares of a series of Guggenheim Variable Funds Trust are available only through the purchase of such products. |
| 44 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
| SCHEDULE OF INVESTMENTS | December 31, 2014 |
| SERIES E (TOTAL RETURN BOND SERIES) |
| Shares | Value | |||||||
PREFERRED STOCKS† - 3.0% | ||||||||
| Aspen Insurance Holdings Ltd. | ||||||||
5.95%1,2 | 40,000 | $ | 1,010,400 | |||||
| Goldman Sachs Group, Inc. | ||||||||
5.50%1,2 | 21,450 | 523,380 | ||||||
| Seaspan Corp. | ||||||||
| 6.38% due 04/30/19 | 18,000 | 446,400 | ||||||
| Wells Fargo & Co. | ||||||||
5.85%1,2 | 15,000 | 384,750 | ||||||
| Morgan Stanley | ||||||||
7.13%1,2 | 10,000 | 275,300 | ||||||
| CoBank ACB | ||||||||
6.20%2 | 2,500 | 250,000 | ||||||
| Woodbourne Capital Trust II | ||||||||
0.03%†††,1,2,3 | 300,000 | 166,500 | ||||||
| Woodbourne Capital Trust III | ||||||||
0.03%†††,1,2,3 | 300,000 | 166,500 | ||||||
| Woodbourne Capital Trust I | ||||||||
0.03%†††,1,2,3 | 300,000 | 166,500 | ||||||
| Woodbourne Capital Trust IV | ||||||||
0.03%†††,1,2,3 | 300,000 | 166,500 | ||||||
| AgriBank FCB | ||||||||
6.88%1,2 | 1,500 | 157,641 | ||||||
| City National Corp. | ||||||||
6.75%1,2 | 4,000 | 111,280 | ||||||
| Total Preferred Stocks | ||||||||
| (Cost $4,297,241) | 3,825,151 | |||||||
UNIT INVESTMENT TRUSTS† - 0.1% | ||||||||
| Rescap Liquidating Trust | 9,655 | 151,584 | ||||||
| Total Unit Investment Trusts | ||||||||
| (Cost $487,486) | 151,584 | |||||||
MUTUAL FUNDS†,4 - 9.5% | ||||||||
Guggenheim Total Return Bond Fund – Institutional Class | 449,456 | 12,126,325 | ||||||
| Total Mutual Funds | ||||||||
| (Cost $12,180,481) | 12,126,325 | |||||||
SHORT TERM INVESTMENTS† - 1.4% | ||||||||
| Dreyfus Treasury Prime Cash Management Fund | 1,849,777 | 1,849,777 | ||||||
| Total Short Term Investments | ||||||||
| (Cost $1,849,777) | 1,849,777 | |||||||
| Face Amount | ||||||||
ASSET-BACKED SECURITIES†† - 42.4% | ||||||||
| GCAT 2014-2 LLC | ||||||||
2014-2, 3.72% due 10/25/193 | $ | 2,305,968 | 2,296,134 | |||||
| Willis Engine Securitization Trust II | ||||||||
2012-A, 5.50% due 09/15/373 | 2,030,187 | 2,050,285 | ||||||
| AASET | ||||||||
2014-1, 5.13% due 12/15/291 | 1,250,000 | 1,246,875 | ||||||
2014-1, 7.38% due 12/15/291 | 750,000 | 748,125 | ||||||
| Northwoods Capital VIII Ltd. | ||||||||
2007-8A, 2.23% due 07/28/221,3 | 1,750,000 | 1,741,600 | ||||||
| T2 Income Fund CLO Ltd. | ||||||||
2007-1A, 1.73% due 07/15/191,3 | 1,450,000 | 1,447,970 | ||||||
| Emerald Aviation Finance Ltd. | ||||||||
2013-1, 4.65% due 10/15/383 | 1,158,854 | 1,170,443 | ||||||
2013-1, 6.35% due 10/15/383 | 231,771 | 235,247 | ||||||
| Castlelake Aircraft Securitization Trust | ||||||||
| 2014-1, 5.25% due 02/15/29 | 865,604 | 862,315 | ||||||
| 2014-1, 7.50% due 02/15/29 | 432,802 | 426,353 | ||||||
| CIT Mortgage Loan Trust | ||||||||
2007-1, 1.62% due 10/25/371,3 | 1,300,000 | 1,221,398 | ||||||
| ALM VII R-2 Ltd. | ||||||||
2013-7R2A, 2.83% due 04/24/241,3 | 1,250,000 | 1,203,625 | ||||||
| Grayson CLO Ltd. | ||||||||
2006-1A, 0.64% due 11/01/211,3 | 1,250,000 | 1,161,625 | ||||||
| CKE Restaurant Holdings, Inc. | ||||||||
2013-1A, 4.47% due 03/20/433 | 1,119,813 | 1,135,557 | ||||||
| Copper River CLO Ltd. | ||||||||
2007-1A, 0.00% due 01/20/211,3,10 | 600,000 | 617,820 | ||||||
2007-1A, 0.63% due 01/20/211,3 | 500,000 | 483,000 | ||||||
| Rise Ltd. | ||||||||
| 4.74% due 02/12/39 | 1,090,104 | 1,095,555 | ||||||
| Telos CLO 2007-2 Ltd. | ||||||||
2007-2A, 2.43% due 04/15/221,3 | 1,100,000 | 1,059,190 | ||||||
| Nationstar HECM Loan Trust | ||||||||
2014-1A, 4.50% due 11/25/173 | 1,016,700 | 1,016,903 | ||||||
| Great Lakes CLO 2012-1 Ltd. | ||||||||
2012-1A, 4.33% due 01/15/231,3 | 1,000,000 | 1,004,300 | ||||||
| KKR Financial CLO 2007-1 Ltd. | ||||||||
2007-1A, 2.48% due 05/15/211,3 | 1,000,000 | 991,200 | ||||||
| Fortress Credit Opportunities V CLO Ltd. | ||||||||
2014-5A, 2.88% due 10/15/261,3 | 1,000,000 | 984,400 | ||||||
| Northwoods Capital XIV Ltd. | ||||||||
2014-14A, 2.69% due 11/12/25†††,1,3 | 1,000,000 | 978,900 | ||||||
| Telos CLO Ltd. | ||||||||
2013-3A, 3.23% due 01/17/241,3 | 1,000,000 | 962,600 | ||||||
| GSAA Trust | ||||||||
2005-10, 0.82% due 06/25/351 | 1,050,000 | 952,521 | ||||||
| RAIT CRE CDO I Ltd. | ||||||||
| 2006-1X, 0.49% due 11/20/46 | 1,006,104 | 915,253 | ||||||
| Turbine Engines Securitization Ltd. | ||||||||
2013-1A, 5.13% due 12/13/483 | 860,414 | 869,018 | ||||||
| SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 45 |
SCHEDULE OF INVESTMENTS (continued) | December 31, 2014 |
| SERIES E (TOTAL RETURN BOND SERIES) |
| Face Amount | Value | |||||||
| Garanti Diversified Payment Rights Finance Co. | ||||||||
2007-A, 0.42% due 07/09/171 | $ | 880,000 | $ | 852,016 | ||||
| Rockwall CDO II Ltd. | ||||||||
2007-1A, 0.78% due 08/01/241,3 | 900,000 | 819,270 | ||||||
| Gramercy Real Estate CDO 2007-1 Ltd. | ||||||||
2007-1A, 0.51% due 08/15/561,3 | 914,950 | 816,959 | ||||||
| Acis CLO 2013-2 Ltd. | ||||||||
2013-2A, 3.44% due 10/14/221,3 | 750,000 | 750,300 | ||||||
| ARES XII CLO Ltd. | ||||||||
2007-12A, 3.48% due 11/25/201,3 | 750,000 | 749,925 | ||||||
| Chesterfield Financial Holdings LLC | ||||||||
2014-1A, 4.50% due 12/15/343 | 750,000 | 749,925 | ||||||
| MCF CLO I LLC | ||||||||
2013-1A, 3.78% due 04/20/231,3 | 750,000 | 742,350 | ||||||
| N-Star Real Estate CDO IX Ltd. | ||||||||
0.47% due 02/01/415 | 781,150 | 741,077 | ||||||
| ICE EM CLO | ||||||||
2007-1A, 0.93% due 08/15/221,3 | 750,000 | 725,850 | ||||||
| KVK CLO 2013-1 Ltd. | ||||||||
2013-1A, 0.00% due 04/14/253,10 | 900,000 | 694,800 | ||||||
| Babson CLO Limited 2012-II | ||||||||
2012-2A, 0.00% due 05/15/233,10 | 750,000 | 617,400 | ||||||
| Ivy Hill Middle Market Credit Fund VII Ltd. | ||||||||
2013-7A, 3.68% due 10/20/251,3 | 600,000 | 595,260 | ||||||
| Structured Asset Securities Corporation Mortgage Loan Trust | ||||||||
2006-OPT1, 0.43% due 04/25/361 | 600,000 | 541,349 | ||||||
| Black Diamond CLO 2012-1 Ltd. | ||||||||
2013-1A, 3.48% due 02/01/231,3 | 550,000 | 537,790 | ||||||
| Apidos CDO IX | ||||||||
2012-9A, 3.98% due 07/15/231,3 | 500,000 | 507,950 | ||||||
| Babson CLO Limited 2014-I | ||||||||
2014-IA, 0.00% due 07/20/253,10 | 550,000 | 499,125 | ||||||
| Newstar Trust | ||||||||
2012-2A, 3.48% due 01/20/231,3 | 500,000 | 499,100 | ||||||
| Oxford Finance Funding Trust 2014-1 | ||||||||
2014-1A, 3.48% due 12/15/223 | 500,000 | 497,450 | ||||||
| Icon Brand Holdings LLC | ||||||||
2013-1A, 4.35% due 01/25/433 | 497,243 | 493,911 | ||||||
| Cent CLO 16, LP | ||||||||
2014-16AR, 2.68% due 08/01/241,3 | 500,000 | 492,850 | ||||||
| Fortress Credit Opportunities III CLO, LP | ||||||||
2014-3A, 2.73% due 04/28/261,3 | 300,000 | 295,380 | ||||||
2014-3A, 3.48% due 04/28/261,3 | 200,000 | 196,880 | ||||||
| KKR CLO Trust | ||||||||
2012-1A, 3.54% due 12/15/241,3 | 500,000 | 492,050 | ||||||
| Dryden XXIII Senior Loan Fund | ||||||||
2014-23RA, 3.18% due 07/17/231,3 | 500,000 | 492,000 | ||||||
| OCP CLO 2014-6 Ltd. | ||||||||
2014-6A, 2.31% due 07/17/261,3 | 500,000 | 485,200 | ||||||
| Golub Capital Partners Fundings Ltd. | ||||||||
2007-1A, 0.99% due 03/15/221,3 | 500,000 | 482,300 | ||||||
| MCF CLO III LLC | ||||||||
2014-3A, 3.21% due 01/20/241,3 | 500,000 | 478,050 | ||||||
| New Century Home Equity Loan Trust | ||||||||
2005-3, 0.68% due 07/25/351 | 550,000 | 475,836 | ||||||
| N-Star REL CDO VIII Ltd. | ||||||||
2006-8A, 0.53% due 02/01/411,3 | 500,000 | 450,650 | ||||||
| Wachovia Asset Securitization Issuance II LLC Trust | ||||||||
2007-HE1, 0.31% due 07/25/371,3 | 497,263 | 446,433 | ||||||
| AABS Ltd. | ||||||||
| 4.87% due 01/15/38 | 440,104 | 445,033 | ||||||
| Acis CLO 2013-1 Ltd. | ||||||||
2013-1A, 3.18% due 04/18/241,3 | 400,000 | 384,280 | ||||||
| Eastland CLO Ltd. | ||||||||
2007-1A, 0.63% due 05/01/221,3 | 400,000 | 372,160 | ||||||
| Northwoods Capital VII Ltd. | ||||||||
2006-7A, 1.78% due 10/22/211,3 | 350,000 | 346,220 | ||||||
| Halcyon Loan Advisors Funding 2012-2 Ltd. | ||||||||
2012-2A, 4.75% due 12/20/241,3 | 350,000 | 345,170 | ||||||
| Newstar Commercial Loan Funding 2013-1 LLC | ||||||||
2013-1A, 4.80% due 09/20/231,3 | 350,000 | 343,805 | ||||||
| UCFC Manufactured Housing Contract | ||||||||
| 1997-2, 7.38% due 10/15/28 | 307,080 | 333,913 | ||||||
| Cerberus Offshore Levered I, LP | ||||||||
2012-1A, 4.99% due 11/30/181,3 | 309,635 | 309,573 | ||||||
| Saxon Asset Securities Trust | ||||||||
2005-4, 0.61% due 11/25/371 | 350,000 | 303,855 | ||||||
| DIVCORE CLO Ltd. | ||||||||
| 2013-1A B, 4.06% due 11/15/32 | 300,000 | 300,090 | ||||||
| Salus CLO 2012-1 Ltd. | ||||||||
2013-1AN, 3.98% due 03/05/211,3 | 300,000 | 299,940 | ||||||
| Westwood CDO I Ltd. | ||||||||
2007-1A, 0.92% due 03/25/211,3 | 300,000 | 279,240 | ||||||
| GreenPoint Mortgage Funding Trust | ||||||||
2005-HE4, 0.87% due 07/25/301 | 288,139 | 271,813 | ||||||
| West Coast Funding Ltd. | ||||||||
2006-1A, 0.39% due 11/02/411,3 | 257,120 | 253,546 | ||||||
| TICC CLO 2012-1 LLC | ||||||||
2012-1A, 4.98% due 08/25/231,3 | 250,000 | 250,025 | ||||||
| Great Lakes CLO 2014-1 Ltd. | ||||||||
2014-1A, 3.93% due 04/15/251,3 | 250,000 | 249,375 | ||||||
| Golub Capital Partners CLO 17 Ltd. | ||||||||
2013-17A, 4.06% due 10/25/251,3 | 250,000 | 249,125 | ||||||
| Garrison Funding 2013-2 Ltd. | ||||||||
2013-2A, 3.63% due 09/25/231,3 | 250,000 | 247,650 | ||||||
| Gallatin CLO VII 2014-1 Ltd. | ||||||||
2014-1A, 3.13% due 07/15/231,3 | 250,000 | 247,525 | ||||||
| NewStar Arlington Senior Loan Program LLC | ||||||||
2014-1A, 3.53% due 07/25/251,3 | 250,000 | 243,725 | ||||||
| Anchorage Capital CLO 4 Ltd. | ||||||||
2014-4A, 2.44% due 07/28/261,3 | 250,000 | 241,250 | ||||||
| ALM XIV Ltd. | ||||||||
2014-14A, 3.18% due 07/28/261,3 | 250,000 | 241,025 | ||||||
| 46 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
SCHEDULE OF INVESTMENTS (continued) | December 31, 2014 |
| SERIES E (TOTAL RETURN BOND SERIES) |
| Face Amount | Value | |||||||
| Drug Royalty II Limited Partnership 2 | ||||||||
2014-1, 3.08% due 07/15/231,3 | $ | 237,672 | $ | 239,050 | ||||
| Venture XIV CLO Ltd. | ||||||||
2013-14A, 2.99% due 08/28/251,3 | 250,000 | 237,400 | ||||||
| Carlyle Global Market Strategies | ||||||||
2012-3A, 0.00% due 10/04/243,10 | 250,000 | 220,050 | ||||||
| Neuberger Berman CLO Ltd. | ||||||||
2012-12A, 0.00% due 07/25/233,10 | 300,000 | 216,570 | ||||||
| Keuka Park CLO Limited 2013-1 | ||||||||
2013-1A, due 10/21/243,10 | 250,000 | 205,825 | ||||||
| GSAA Home Equity Trust | ||||||||
2007-7, 0.44% due 07/25/371 | 202,143 | 170,659 | ||||||
| New Century Home Equity Loan Trust | ||||||||
2005-1, 0.89% due 03/25/351 | 137,831 | 120,283 | ||||||
| First Franklin Mortgage Loan Trust 2006-FF1 | ||||||||
2006-FF1, 0.51% due 01/25/361 | 50,000 | 44,037 | ||||||
| Credit-Based Asset Servicing and Securitization LLC | ||||||||
2005-CB5, 0.42% due 08/25/351 | 16,745 | 16,682 | ||||||
| Total Asset-Backed Securities | ||||||||
| (Cost $53,222,192) | 54,126,542 | |||||||
CORPORATE BONDS†† - 23.9% | ||||||||
| FINANCIAL - 14.6% | ||||||||
| Citigroup, Inc. | ||||||||
5.35%1,2 | 1,110,000 | 1,023,975 | ||||||
5.80%1,2 | 800,000 | 800,000 | ||||||
6.30%1,2 | 160,000 | 157,600 | ||||||
| SunTrust Banks, Inc. | ||||||||
5.63%1,2 | 1,850,000 | 1,859,250 | ||||||
| JPMorgan Chase & Co. | ||||||||
5.00%1,2 | 1,100,000 | 1,076,280 | ||||||
5.15%1,2 | 650,000 | 612,300 | ||||||
| EPR Properties | ||||||||
5.25% due 07/15/237 | 1,000,000 | 1,042,688 | ||||||
5.75% due 08/15/227 | 400,000 | 436,946 | ||||||
| Fifth Third Bancorp | ||||||||
5.10%1,2 | 870,000 | 805,838 | ||||||
4.90%1,2 | 500,000 | 483,750 | ||||||
| Susquehanna Bancshares, Inc. | ||||||||
5.38% due 08/15/227 | 1,100,000 | 1,211,675 | ||||||
| AmTrust Financial Services, Inc. | ||||||||
| 6.13% due 08/15/23 | 1,000,000 | 1,054,680 | ||||||
| Icahn Enterprises Limited Partnership / Icahn Enterprises Finance Corp. | ||||||||
6.00% due 08/01/207 | 1,000,000 | 1,030,200 | ||||||
| Bank of America Corp. | ||||||||
6.50%1,2 | 1,000,000 | 1,017,900 | ||||||
| HSBC Holdings plc | ||||||||
5.63%1,2 | 600,000 | 602,100 | ||||||
6.38%1,2 | 200,000 | 202,000 | ||||||
| Nippon Life Insurance Co. | ||||||||
5.10% due 10/16/441,3 | 750,000 | 783,750 | ||||||
| Lancashire Holdings Ltd. | ||||||||
5.70% due 10/01/223 | 700,000 | 753,186 | ||||||
| ACC Group Housing LLC | ||||||||
6.35% due 07/15/54†††,3 | 250,000 | 259,125 | ||||||
3.50% due 07/15/18†††,3 | 250,000 | 251,950 | ||||||
| Corporation Financiera de Desarrollo S.A. | ||||||||
5.25% due 07/15/291,3 | 450,000 | 456,840 | ||||||
| Pacific Northwest Communities LLC | ||||||||
5.91% due 06/15/503 | 400,000 | 437,412 | ||||||
| Customers Bank | ||||||||
6.13% due 06/26/291,3 | 400,000 | 407,000 | ||||||
| Wilton Re Finance LLC | ||||||||
5.88% due 03/30/331,3 | 375,000 | 394,466 | ||||||
| Atlantic Marine Corporations Communities LLC | ||||||||
5.43% due 12/01/503 | 339,286 | 344,046 | ||||||
| Royal Bank of Scotland Group plc | ||||||||
| 5.13% due 05/28/24 | 300,000 | 305,157 | ||||||
| Allstate Corp. | ||||||||
5.75% due 08/15/531,7 | 250,000 | 263,438 | ||||||
| Assured Guaranty US Holdings, Inc. | ||||||||
5.00% due 07/01/247 | 200,000 | 210,988 | ||||||
| CIC Receivables Master Trust | ||||||||
4.89% due 10/07/21††† | 200,000 | 202,920 | ||||||
| Cadence Bank North America | ||||||||
6.25% due 06/28/291,9 | 150,000 | 152,250 | ||||||
| Cadence Financial Corp. | ||||||||
4.88% due 06/28/199 | 100,000 | 100,500 | ||||||
| Total Financial | 18,740,210 | |||||||
| BASIC MATERIALS - 2.6% | ||||||||
| Newcrest Finance Pty Ltd. | ||||||||
4.20% due 10/01/223,7 | 1,100,000 | 992,480 | ||||||
4.45% due 11/15/213 | 500,000 | 475,139 | ||||||
| Yamana Gold, Inc. | ||||||||
| 4.95% due 07/15/24 | 950,000 | 927,178 | ||||||
| AngloGold Ashanti Holdings plc | ||||||||
| 5.13% due 08/01/22 | 1,015,000 | 926,201 | ||||||
| Total Basic Materials | 3,320,998 | |||||||
| CONSUMER, CYCLICAL - 2.4% | ||||||||
| Northern Group Housing LLC | ||||||||
6.80% due 08/15/533 | 600,000 | 711,882 | ||||||
| United Airlines 2014-2 Class B Pass Through Trust | ||||||||
| 4.63% due 09/03/22 | 700,000 | 686,001 | ||||||
| Sabre GLBL, Inc. | ||||||||
8.50% due 05/15/193,7 | 600,000 | 642,000 | ||||||
| Continental Airlines 2012-2 Class B Pass Through Trust | ||||||||
| 5.50% due 10/29/20 | 362,393 | 375,076 | ||||||
| GRD Holdings III Corp. | ||||||||
10.75% due 06/01/193 | 250,000 | 273,125 | ||||||
| QVC, Inc. | ||||||||
7.38% due 10/15/203 | 250,000 | 261,875 | ||||||
| SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 47 |
SCHEDULE OF INVESTMENTS (continued) | December 31, 2014 |
| SERIES E (TOTAL RETURN BOND SERIES) |
| Face Amount | Value | |||||||
| Continental Airlines 2012-1 Class B Pass Through Trust | ||||||||
| 6.25% due 04/11/20 | $ | 105,996 | $ | 111,296 | ||||
| Total Consumer, Cyclical | 3,061,255 | |||||||
| INDUSTRIAL - 1.6% | ||||||||
| Quality Distribution LLC / QD Capital Corp. | ||||||||
| 9.88% due 11/01/18 | 750,000 | 781,875 | ||||||
| Chicago Bridge & Iron Co. | ||||||||
5.15% due 12/27/22†††,5 | 750,000 | 777,975 | ||||||
| SBM Baleia Azul | ||||||||
5.50% due 09/15/27†††,5 | 453,600 | 401,617 | ||||||
| Prosight Global Inc. | ||||||||
7.50% due 11/26/20†††,5 | 100,000 | 102,330 | ||||||
| Total Industrial | 2,063,797 | |||||||
| CONSUMER, NON-CYCLICAL - 1.0% | ||||||||
| CDK Global, Inc. | ||||||||
4.50% due 10/15/247 | 1,000,000 | 1,014,394 | ||||||
| Central Garden and Pet Co. | ||||||||
| 8.25% due 03/01/18 | 250,000 | 251,875 | ||||||
| Total Consumer, Non-cyclical | 1,266,269 | |||||||
| ENERGY - 0.8% | ||||||||
| Regency Energy Partners Limited Partnership / Regency Energy Finance Corp. | ||||||||
| 8.38% due 06/01/19 | 415,000 | 434,713 | ||||||
| BreitBurn Energy Partners Limited Partnership / BreitBurn Finance Corp. | ||||||||
7.88% due 04/15/227 | 550,000 | 424,875 | ||||||
| Crestwood Midstream Partners Limited Partnership / Crestwood Midstream Finance Corp. | ||||||||
| 7.75% due 04/01/19 | 110,000 | 112,750 | ||||||
| Total Energy | 972,338 | |||||||
| COMMUNICATIONS - 0.5% | ||||||||
| Avaya, Inc. | ||||||||
7.00% due 04/01/193 | 650,000 | 633,750 | ||||||
| DIVERSIFIED - 0.4% | ||||||||
| Leucadia National Corp. | ||||||||
5.50% due 10/18/237 | 450,000 | 460,855 | ||||||
| Total Corporate Bonds | ||||||||
| (Cost $30,511,291) | 30,519,472 | |||||||
MORTGAGE-BACKED SECURITIES†† - 6.8% | ||||||||
| COMM 2014-KYO Mortgage Trust | ||||||||
2014-KYO, 2.51% due 06/11/271,3 | 1,000,000 | 994,126 | ||||||
2014-KYO, 2.16% due 06/11/271,3 | 500,000 | 497,056 | ||||||
| Hilton USA Trust 2013-HLT | ||||||||
2013-HLT, 4.41% due 11/05/303 | 950,000 | 971,649 | ||||||
2013-HLT, 5.22% due 11/05/181,3 | 300,000 | 307,369 | ||||||
| SRERS Funding Ltd. | ||||||||
2011-RS, 0.41% due 05/09/461,3 | 1,239,934 | 1,181,037 | ||||||
| Boca Hotel Portfolio Trust | ||||||||
2013-BOCA, 3.21% due 08/15/261,3 | 1,000,000 | 999,393 | ||||||
| CSMC Series 2014-ICE | ||||||||
2014-ICE, 2.31% due 04/15/271,3 | 1,000,000 | 993,950 | ||||||
| BBCMS Trust 2013-TYSN | ||||||||
2013-TYSN, 3.71% due 09/05/323 | 900,000 | 884,032 | ||||||
| HarborView Mortgage Loan Trust | ||||||||
2006-12, 0.35% due 01/19/381 | 996,574 | 844,340 | ||||||
| Motel 6 Trust | ||||||||
2012-MTL6, 3.78% due 10/05/253 | 450,000 | 444,970 | ||||||
| GMAC Commercial Mortgage Asset Corp. | ||||||||
2003-PRES, 6.24% due 10/10/41†††,3 | 240,893 | 255,997 | ||||||
| T2 Income Fund CLO Ltd. | ||||||||
| 2007-1X, 1.73% due 07/15/19 | 250,000 | 249,650 | ||||||
| Ginnie Mae | ||||||||
| 518436, 7.25% due 09/15/29 | 9,356 | 9,933 | ||||||
Fannie Mae8 | ||||||||
| 1990-68, 6.95% due 07/25/20 | 781 | 840 | ||||||
| 1990-103, 7.50% due 09/25/20 | 227 | 245 | ||||||
Freddie Mac8 | ||||||||
| 1990-188, 7.00% due 09/15/21 | 374 | 408 | ||||||
| Total Mortgage-Backed Securities | ||||||||
| (Cost $8,513,909) | 8,634,995 | |||||||
MUNICIPAL BONDS†† - 6.7% | ||||||||
| FLORIDA - 1.4% | ||||||||
| County of Miami-Dade Florida Revenue Bonds | ||||||||
0.00% due 10/01/456 | 5,600,000 | 1,311,072 | ||||||
0.00% due 10/01/426 | 1,500,000 | 410,175 | ||||||
| Total Florida | 1,721,247 | |||||||
| NEW JERSEY - 1.1% | ||||||||
| New Jersey Transportation Trust Fund Authority Revenue Bonds | ||||||||
0.00% due 12/15/326 | 3,000,000 | 1,347,749 | ||||||
| ALABAMA - 1.0% | ||||||||
| County of Jefferson Alabama Sewer Revenue Revenue Bonds | ||||||||
0.00% due 10/01/306 | 1,000,000 | 449,440 | ||||||
0.00% due 10/01/346 | 775,000 | 255,456 | ||||||
0.00% due 10/01/366 | 875,000 | 250,810 | ||||||
0.00% due 10/01/356 | 525,000 | 161,443 | ||||||
0.00% due 10/01/316 | 275,000 | 115,090 | ||||||
0.00% due 10/01/326 | 250,000 | 96,375 | ||||||
| Total Alabama | 1,328,614 | |||||||
| PUERTO RICO - 1.0% | ||||||||
| Puerto Rico Commonwealth Aqueduct & Sewer Authority Revenue Bonds | ||||||||
| 5.13% due 07/01/47 | 1,000,000 | 1,000,970 | ||||||
| 48 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
SCHEDULE OF INVESTMENTS (continued) | December 31, 2014 |
| SERIES E (TOTAL RETURN BOND SERIES) |
| Face Amount | Value | |||||||
| Puerto Rico Highways & Transportation Authority Revenue Bonds | ||||||||
| 5.50% due 07/01/28 | $ | 200,000 | $ | 210,326 | ||||
| Total Puerto Rico | 1,211,296 | |||||||
| ILLINOIS - 0.9% | ||||||||
| State of Illinois General Obligation Unlimited | ||||||||
| 6.90% due 03/01/35 | 500,000 | 576,235 | ||||||
| 5.65% due 12/01/38 | 400,000 | 421,324 | ||||||
| City of Chicago Illinois General Obligation Unlimited | ||||||||
| 5.00% due 01/01/27 | 150,000 | 161,349 | ||||||
0.00% due 01/01/306 | 100,000 | 49,848 | ||||||
| Total Illinois | 1,208,756 | |||||||
| MICHIGAN - 0.8% | ||||||||
| Detroit City School District General Obligation Unlimited | ||||||||
| 7.75% due 05/01/39 | 750,000 | 993,338 | ||||||
| CALIFORNIA - 0.5% | ||||||||
| Stockton Unified School District General Obligation Unlimited | ||||||||
0.00% due 08/01/366 | 755,000 | 294,042 | ||||||
0.00% due 08/01/356 | 490,000 | 200,978 | ||||||
| Inland Valley Development Agency Tax Allocation | ||||||||
| 5.50% due 03/01/33 | 170,000 | 181,353 | ||||||
| Total California | 676,373 | |||||||
| Total Municipal Bonds | ||||||||
| (Cost $8,089,961) | 8,487,373 | |||||||
COLLATERALIZED MORTGAGE OBLIGATIONS†† - 5.9% | ||||||||
| LSTAR Securities Investment Trust | ||||||||
2014-1, 3.26% due 09/01/211,9 | 1,950,039 | 1,950,039 | ||||||
| Luminent Mortgage Trust | ||||||||
2006-2, 0.37% due 02/25/461 | 1,350,618 | 1,017,629 | ||||||
| American Home Mortgage Investment Trust | ||||||||
2006-1, 0.37% due 03/25/461 | 1,195,709 | 1,003,005 | ||||||
| Alternative Loan Trust | ||||||||
| 2003-18CB, 5.25% due 09/25/33 | 956,236 | 993,404 | ||||||
| HarborView Mortgage Loan Trust | ||||||||
2006-14, 0.31% due 01/25/471 | 940,773 | 735,192 | ||||||
| Washington Mutual Mortgage Pass-Through Certificates WMALT Series Trust | ||||||||
2006-AR9, 0.95% due 11/25/461 | 605,826 | 422,060 | ||||||
| Chase Mortgage Finance Trust Series | ||||||||
| 2006-S3, 6.00% due 11/25/36 | 431,835 | 367,476 | ||||||
| Washington Mutual Mortgage Pass-Through Certificates WMALT Series Trust | ||||||||
| 2006-8, 5.76% due 10/25/36 | 336,798 | 270,284 | ||||||
| Nomura Resecuritization Trust | ||||||||
2012-1R, 0.61% due 08/27/471,3 | 271,876 | 251,485 | ||||||
| Structured Asset Mortgage Investments II Trust | ||||||||
2006-AR1, 0.40% due 02/25/361 | 212,970 | 181,177 | ||||||
| Morgan Stanley Re-REMIC Trust | ||||||||
2010-R5, 0.45% due 06/26/361,3 | 194,752 | 139,359 | ||||||
| American Home Mortgage Assets Trust | ||||||||
2007-1, 0.81% due 02/25/471 | 224,554 | 137,957 | ||||||
| JP Morgan Mortgage Trust | ||||||||
2006-A3, 2.62% due 04/25/361 | 68,259 | 58,832 | ||||||
| Total Collateralized Mortgage Obligations | ||||||||
| (Cost $7,538,565) | 7,527,899 | |||||||
SENIOR FLOATING RATE INTERESTS††,1 - 4.2% | ||||||||
| INDUSTRIAL - 0.4% | ||||||||
| Capstone Logistics | ||||||||
| 5.50% due 10/07/21 | 399,000 | 396,506 | ||||||
| CareCore National LLC | ||||||||
| 5.50% due 03/05/21 | 149,623 | 147,753 | ||||||
| Total Industrial | 544,259 | |||||||
| CONSUMER, CYCLICAL - 1.3% | ||||||||
| Landry’s, Inc. | ||||||||
| 4.00% due 04/24/18 | 620,655 | 615,691 | ||||||
| Ollies Bargain Outlet | ||||||||
| 4.75% due 09/28/19 | 435,301 | 426,595 | ||||||
| Neiman Marcus Group, Inc. | ||||||||
| 4.25% due 10/25/20 | 346,507 | 338,204 | ||||||
| 1-800 Contacts, Inc. | ||||||||
| 4.25% due 01/29/21 | 248,125 | 240,991 | ||||||
| Total Consumer, Cyclical | 1,621,481 | |||||||
| TECHNOLOGY - 0.9% | ||||||||
| Avago Technologies Ltd. | ||||||||
| 3.75% due 05/06/21 | 796,000 | 792,354 | ||||||
| Greenway Medical Technologies | ||||||||
6.00% due 11/04/205 | 346,500 | 343,035 | ||||||
| Total Technology | 1,135,389 | |||||||
| FINANCIAL - 0.6% | ||||||||
| Corporate Capital Trust | ||||||||
| 4.00% due 05/20/19 | 297,750 | 294,028 | ||||||
| Magic Newco, LLC | ||||||||
| 5.00% due 12/12/18 | 246,225 | 244,994 | ||||||
| National Financial Partners Corp. | ||||||||
| 4.50% due 07/01/20 | 197,506 | 195,037 | ||||||
| American Stock Transfer & Trust | ||||||||
| 5.75% due 06/26/20 | 96,401 | 95,678 | ||||||
| Total Financial | 829,737 | |||||||
| SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 49 |
SCHEDULE OF INVESTMENTS (concluded) | December 31, 2014 |
| SERIES E (TOTAL RETURN BOND SERIES) |
| Face Amount | Value | |||||||
| COMMUNICATIONS - 0.4% | ||||||||
| Asurion Corp. | ||||||||
| 5.00% due 05/24/19 | $ | 455,390 | $ | 448,805 | ||||
| MergerMarket Ltd. | ||||||||
| 4.50% due 02/04/21 | 99,250 | 93,791 | ||||||
| Total Communications | 542,596 | |||||||
| BASIC MATERIALS - 0.4% | ||||||||
| Fortescue Metals Group Ltd. | ||||||||
| 3.75% due 06/30/19 | 496,231 | 449,585 | ||||||
| CONSUMER, NON-CYCLICAL - 0.2% | ||||||||
| NES Global Talent | ||||||||
| 6.50% due 10/03/19 | 146,250 | 138,938 | ||||||
| Performance Food Group | ||||||||
| 6.25% due 11/14/19 | 98,995 | 96,891 | ||||||
| Total Consumer, Non-cyclical | 235,829 | |||||||
| Total Senior Floating Rate Interests | ||||||||
| (Cost $5,447,283) | 5,358,876 | |||||||
U.S. GOVERNMENT SECURITIES†† - 1.0% | ||||||||
| U.S. Treasury Bonds | ||||||||
0.00% due 05/15/446 | 2,855,000 | 1,234,985 | ||||||
| Total U.S. Government Securities | ||||||||
| (Cost $1,154,865) | 1,234,985 | |||||||
| Total Investments - 104.9% | ||||||||
| (Cost $133,293,051) | $ | 133,842,979 | ||||||
| Other Assets & Liabilities, net - (4.9)% | (6,192,789 | ) | ||||||
| Total Net Assets - 100.0% | $ | 127,650,190 | ||||||
| * | Non-income producing security. |
| † | Value determined based on Level 1 inputs, unless otherwise noted — See Note 4. |
| †† | Value determined based on Level 2 inputs, unless otherwise noted — See Note 4. |
| ††† | Value determined based on Level 3 inputs — See Note 4. |
| 1 | Variable rate security. Rate indicated is rate effective at December 31, 2014. |
| 2 | Perpetual maturity. |
| 3 | Security is a 144A or Section 4(a)(2) security. The total market value of 144A or Section 4(a)(2) securities is $61,376,458 (cost $60,862,177), or 48.1% of total net assets. These securities have been determined to be liquid under guidelines established by the Board of Trustees. |
| 4 | Affiliated issuer — See Note 10. |
| 5 | Illiquid security. |
| 6 | Zero coupon rate security. |
| 7 | Security or a portion thereof is held as collateral for reverse repurchase agreements — See Note 14. |
| 8 | On September 7, 2008, the issuer was placed in conservatorship by the Federal Housing Finance Agency (FHFA). As conservator, the FHFA has full powers to control the assets and operations of the firm. |
| 9 | Security is a 144A or Section 4(a)(2) security. These securities are considered illiquid and restricted under guidelines established by the Board of Trustees. The total market value of 144A or Section 4(a)(2) securities is $2,202,789 (cost $2,198,781) or 1.7% of total net assets — See Note 15. |
| 10 | Residual interest. |
| plc — Public Limited Company | |
| REIT — Real Estate Investment Trust |
| 50 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
| SERIES E (TOTAL RETURN BOND SERIES) |
| STATEMENT OF ASSETS AND LIABILITIES |
| December 31, 2014 | ||||
| Assets: | ||||
| Investments in unaffiliated issuers, at value (cost $121,112,570) | $ | 121,716,654 | ||
| Investments in affiliated issuers, at value (cost $12,180,481) | 12,126,325 | |||
| Total investments (cost $133,293,051) | 133,842,979 | |||
| Cash | 630,491 | |||
| Prepaid expenses | 4,410 | |||
| Receivables: | ||||
| Interest | 717,031 | |||
| Fund shares sold | 86,495 | |||
| Dividends | 66,943 | |||
| Securities sold | 784 | |||
| Total assets | 135,349,133 | |||
| Liabilities: | ||||
| Reverse Repurchase Agreements | 6,896,743 | |||
| Payable for: | ||||
| Management fees | 27,172 | |||
| Securities purchased | 659,716 | |||
| Fund shares redeemed | 31,481 | |||
| Distribution and service fees | 26,955 | |||
| Fund accounting/administration fees | 10,243 | |||
| Trustees’ fees* | 5,054 | |||
| Transfer agent/maintenance fees | 4,074 | |||
| Miscellaneous | 37,505 | |||
| Total liabilities | 7,698,943 | |||
| Net assets | $ | 127,650,190 | ||
| Net assets consist of: | ||||
| Paid in capital | $ | 132,386,174 | ||
| Undistributed net investment income | 2,294,184 | |||
| Accumulated net realized loss on investments | (7,580,096 | ) | ||
| Net unrealized appreciation on investments | 549,928 | |||
| Net assets | $ | 127,650,190 | ||
| Capital shares outstanding | 8,032,008 | |||
| Net asset value per share | $ | 15.89 | ||
| STATEMENT OF OPERATIONS |
| Year Ended December 31, 2014 | ||||
| Investment Income: | ||||
| Interest | $ | 4,307,791 | ||
| Dividends from securities of unaffiliated issuers | 204,748 | |||
| Dividends from securities of affiliated issuers | 202,591 | |||
| Total investment income | 4,715,130 | |||
| Expenses: | ||||
| Management fees | 712,359 | |||
| Transfer agent/maintenance fees | 25,005 | |||
| Distribution and service fees | 63,063 | |||
| Fund accounting/administration fees | 98,219 | |||
| Interest expense | 41,123 | |||
| Trustees’ fees* | 10,276 | |||
| Line of credit fees | 9,151 | |||
| Custodian fees | 6,093 | |||
| Tax expense | 3 | |||
| Miscellaneous | 119,857 | |||
| Total expenses | 1,085,149 | |||
| Less: | ||||
| Expenses waived by Adviser | (211,408 | ) | ||
| Net expenses | 873,741 | |||
| Net investment income | 3,841,389 | |||
| Net Realized and Unrealized Gain (Loss): | ||||
| Net realized gain (loss) on: | ||||
| Investments in unaffiliated issuers | 1,018,392 | |||
| Investments in affiliated issuers | (25,957 | ) | ||
| Swap agreements | 468,194 | |||
| Foreign currency | (1,135 | ) | ||
| Forward foreign currency exchange contracts | 25,757 | |||
| Options purchased | (115,258 | ) | ||
| Options written | 26,026 | |||
| Realized gain distributions received from investment company shares | 15,906 | |||
| Net realized gain | 1,411,925 | |||
| Net change in unrealized appreciation (depreciation) on: | ||||
| Investments in unaffiliated issuers | 2,457,233 | |||
| Investments in affiliated issuers | (54,156 | ) | ||
| Swap agreements | (83,700 | ) | ||
| Net change in unrealized appreciation (depreciation) | 2,319,377 | |||
| Net realized and unrealized gain | 3,731,302 | |||
| Net increase in net assets resulting from operations | $ | 7,572,691 | ||
| * | Relates to Trustees not deemed “interested persons” within the meaning of Section 2(a)(19) of the 1940 Act. |
| SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 51 |
| SERIES E (TOTAL RETURN BOND SERIES) |
| STATEMENTS OF CHANGES IN NET ASSETS |
| Year Ended December 31, 2014 | Year Ended December 31, 2013 | |||||||
| Increase (Decrease) in Net Assets from Operations: | ||||||||
| Net investment income | $ | 3,841,389 | $ | 3,908,285 | ||||
| Net realized gain on investments | 1,411,925 | 4,211,573 | ||||||
| Net change in unrealized appreciation (depreciation) on investments | 2,319,377 | (6,427,341 | ) | |||||
| Net increase in net assets resulting from operations | 7,572,691 | 1,692,517 | ||||||
| Capital share transactions: | ||||||||
| Proceeds from sale of shares | 66,326,336 | 31,425,503 | ||||||
| Cost of shares redeemed | (40,371,887 | ) | (51,786,447 | ) | ||||
| Net increase (decrease) from capital share transactions | 25,954,449 | (20,360,944 | ) | |||||
| Net increase (decrease) in net assets | 33,527,140 | (18,668,427 | ) | |||||
| Net assets: | ||||||||
| Beginning of year | 94,123,050 | 112,791,477 | ||||||
| End of year | $ | 127,650,190 | $ | 94,123,050 | ||||
| Undistributed net investment income at end of year | $ | 2,294,184 | $ | 3,078,802 | ||||
| Capital share activity: | ||||||||
| Shares sold | 4,264,463 | 2,168,510 | ||||||
| Shares redeemed | (2,634,663 | ) | (3,573,041 | ) | ||||
| Net increase (decrease) in shares | 1,629,800 | (1,404,531 | ) | |||||
| 52 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
| SERIES E (TOTAL RETURN BOND SERIES) |
| FINANCIAL HIGHLIGHTS |
This table is presented to show selected data for a share outstanding throughout each period and to assist shareholders in evaluating a Fund’s performance for the periods presented.
| Year Ended December 31, 2014 | Year Ended December 31, 2013 | Year Ended December 31, 2012 | Year Ended December 31, 2011 | Year Ended December 31, 2010 | ||||||||||||||||
| Per Share Data | ||||||||||||||||||||
| Net asset value, beginning of period | $ | 14.70 | $ | 14.45 | $ | 13.65 | $ | 12.98 | $ | 12.24 | ||||||||||
| Income (loss) from investment operations: | ||||||||||||||||||||
Net investment income (loss)a | .58 | .54 | .38 | .34 | .35 | |||||||||||||||
| Net gain (loss) on investments (realized and unrealized) | .61 | (.29 | ) | .42 | .33 | .39 | ||||||||||||||
| Total from investment operations | 1.19 | .25 | .80 | .67 | .74 | |||||||||||||||
| Net asset value, end of period | $ | 15.89 | $ | 14.70 | $ | 14.45 | $ | 13.65 | $ | 12.98 | ||||||||||
Total Returnb | 8.10 | % | 1.73 | % | 5.86 | % | 5.16 | % | 6.05 | % | ||||||||||
| Ratios/Supplemental Data | ||||||||||||||||||||
| Net assets, end of period (in thousands) | $ | 127,650 | $ | 94,123 | $ | 112,791 | $ | 123,575 | $ | 127,091 | ||||||||||
| Ratios to average net assets: | ||||||||||||||||||||
| Net investment income (loss) | 3.72 | % | 3.69 | % | 2.75 | % | 2.57 | % | 2.72 | % | ||||||||||
Total expensesc | 1.05 | % | 1.07 | % | 0.94 | % | 0.92 | % | 0.92 | % | ||||||||||
Net expensesd,e | 0.85 | % | 0.87 | % | 0.81 | % | 0.81 | % | 0.79 | % | ||||||||||
| Portfolio turnover rate | 62 | % | 109 | % | 79 | % | 49 | % | 38 | % | ||||||||||
a | Net investment income (loss) per share was computed using average shares outstanding throughout the period. |
b | Total return does not take into account any of the expenses associated with an investment in variable insurance products. If total return had taken into account these expenses, performance would have been lower. Shares of a series of Guggenheim Variable Funds Trust are available only through the purchase of such products. |
c | Does not include expenses of the underlying funds in which the Fund invests. |
d | Net expense information reflects the expense ratios after expense waivers. |
e | Net expenses may include expenses that are excluded from the expense limitation agreement. Excluding these expenses, the operating ratios for the periods would be: |
| 12/31/14 | 12/31/13 |
| 0.79% | 0.81% |
| SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 53 |
MANAGER'S COMMENTARY (Unaudited) | December 31, 2014 |
To Our Shareholders
The Series F (Floating Rate Strategies Series) is managed by a team of seasoned professionals, including B. Scott Minerd, Chairman of Investments and Global Chief Investment Officer; Anne B. Walsh, Senior Managing Director and Assistant Chief Investment Officer; Kevin H. Gundersen CFA, Senior Managing Director and Portfolio Manager; James W. Michal, Managing Director and Portfolio Manager; and Thomas J. Hauser, Managing Director and Portfolio Manager, who was added as a portfolio manager for the Series during the period. Michael P. Damaso no longer serves as a portfolio manager for the Series. In the following paragraphs, the investment team discusses the market environment and Series performance for the fiscal year ended December 31, 2014.
For the one-year period ended December 31, 2014, the Series F (Floating Rate Strategies Series) returned 2.38%, compared with the 2.04% return of its benchmark, the Credit Suisse Leveraged Loan Index.
After a strong start for leveraged credit in the first half of 2014, significant volatility in the second half ultimately culminated in the weakest performance since 2008 for high yield bonds and since 2011 for leveraged loans.
While the sell-off was initially sparked by market unease over the Fed winding down its purchases of U.S. Treasuries and mortgage-backed securities, it continued through the fourth quarter as markets grew anxious over the weakening global outlook and the potentially adverse effects of a continued plunge in oil prices on the leveraged credit market. With energy credit issuers making up more than 20% of the high yield bond market, the sudden decline in oil prices affected the prices of issuers in that sector, and the Fund moved quickly to reduce exposure to energy credits.
Sector fund flows remained volatile throughout the year. High-yield bond funds and bank loan funds recorded net outflows of $6.3 billion and $17.3 billion for the year, respectively.
Positive performance in the year was primarily a result of credit selection and timely moves between high yield and bank loan allocations. The Fund ended the period with approximately 70% of assets invested in leveraged loans, down slightly from the beginning of the period. The next-largest allocation, high yield bonds, doubled to about 11% at year end. Despite weaker performance in the broader bank loan market relative to high yield during the year, the Fund’s allocation to bank loans had a positive impact on portfolio performance as its loan positions handily outperformed the Credit Suisse Leveraged Loan Index by over the period.
Most bank loans traded wide of ex-recession averages for the period, indicating that there may be room for further spread compression. The Fund favored BB-rated and B-rated bank loans, which we believe offered better relative value than loans in the lower-quality CCC space. The Fund has maintained an average portfolio quality of B+ and has the ability to invest across the ratings spectrum.
The Fund’s overweight in floating rate securities is in line with our view that interest rates will remain low but volatile for an extended time, and meets investors’ need to protect against the inevitable volatility associated with an eventual change in policy from the Fed. Market volatility has begun to rise in part as a result of geo-political and macroeconomic uncertainty, and the Fed’s indicated intention to begin raising interest rates in 2015 looming. Our view is that it is prudent to protect against volatility and rising interest rates in advance of these factors becoming more pronounced. We believe bank loans will outperform fixed-rated investments in a rising rate environment.
While retail demand for bank loans weakened during the latter half of the year, institutional investor demand remained strong. Bank loans offer good investor protection at the high end of the capital structure, as evidenced by the record $124 billion of collateralized loan obligation (CLO) issuances in 2014. Combined with yields having increased in the high yield market and Treasury rates’ continuing declines, this should provide a tailwind to the asset category in the near term.
We remain positive on credit and do not expect to see widespread defaults over the next year, but with the potential for more volatility ahead, we continue to focus on upgrading credit quality. We believe current spreads present attractive entry points to certain sectors and credits. The sell-off over the past six months presents an opportunity to carefully analyze loans and bonds that may have been oversold and are currently trading below fair value.
Performance displayed represents past performance, which is no guarantee of future results.
The opinions and forecast expressed may not actually come to pass. This information is subject to change at any time, based on market and other conditions, and should not be construed as a recommendation of any specific security or strategy.
| 54 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
PERFORMANCE REPORT AND FUND PROFILE (Unaudited) | December 31, 2014 |
SERIES F (FLOATING RATE STRATEGIES SERIES)
OBJECTIVE: Seeks to provide a high level of current income while maximizing total return.
Holdings Diversification
(Market Exposure as % of Net Assets)
“Holdings Diversification (Market Exposure as % of Net Assets)” excludes any temporary cash investments or investments in Guggenheim Strategy Funds Trust mutual funds.
| Portfolio Composition by Quality Rating** | |
| Rating | |
| Fixed Income Instruments | |
| AA | 0.6% |
| A | 5.0% |
| BBB | 5.8% |
| BB | 18.7% |
| B | 62.1% |
| CCC | 5.5% |
| NR | 0.2% |
| Other Instruments | |
| Short Term Investments | 2.1% |
| Total Investments | 100.0% |
| The chart above reflects percentages of the value of total investments. | |
Inception Date: April 24, 2013 |
| Ten Largest Holdings (% of Total Net Assets) | |
| Cengage Learning Acquisitions, Inc. | 1.8% |
| Active Network, Inc., The | 1.6% |
| Phillips-Medsize Corp. | 1.3% |
| BJ’s Wholesale Club, Inc. | 1.3% |
| Compucom Systems, Inc. | 1.2% |
| Fitness International LLC | 1.2% |
| Albertson’s (Safeway) Holdings LLC | 1.2% |
| Element Materials Technology | 1.2% |
| Evergreen Skill | 1.1% |
| Grocery Outlet, Inc. | 1.1% |
| Top Ten Total | 13.0% |
| “Ten Largest Holdings” exclude any temporary cash or derivative investments. | |
| THE GUGGENHEIM FUNDS ANNUAL REPORT | 55 |
PERFORMANCE REPORT AND FUND PROFILE (Unaudited)(concluded) | December 31, 2014 |
Cumulative Fund Performance*,†
Average Annual Returns*
Periods Ended December 31, 2014†
| 1 Year | Since Inception (04/24/13) | ||
| Series F (Floating Rate Strategies Series) | 2.38% | 2.89% | |
| Credit Suisse Leveraged Loan Index | 2.04% | 3.06% |
| * | The performance data above represents past performance that is not predictive of future results. The investment return and principal value of an investment in the Fund will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Returns are historical and include changes in principal and reinvested dividends and capital gains and do not reflect the effect of taxes. The Credit Suisse Leveraged Loan Index is an unmanaged index and, unlike the Fund, has no management fees or operating expenses to reduce its reported return. |
| ** | Source: Factset. Credit quality ratings are measured on a scale that generally ranges from AAA (highest) to D (lowest). All rated securities have been rated by Moody’s, Standard & Poor’s (“S&P”), or Fitch, which are all a Nationally Recognized Statistical Rating Organization (“NRSRO”). For purposes of this presentation, when ratings are available from more than one agency, the highest rating is used. Guggenheim Investments has converted Moody’s and Fitch ratings to the equivalent S&P rating. Unrated securities do not necessarily indicate low credit quality. Security ratings are determined at the time of purchase and may change thereafter. |
† | Performance figures do not reflect fees and expenses associated with an investment in variable insurance products. If returns had taken into account these fees and expenses, performance would have been lower. Shares of a series of Guggenheim Variable Funds Trust are available only through the purchase of such products. |
| 56 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
| SCHEDULE OF INVESTMENTS | December 31, 2014 |
| SERIES F (FLOATING RATE STRATEGIES SERIES) |
| Shares | Value | |||||||
SHORT TERM INVESTMENTS† - 2.0% | ||||||||
| Federated U.S. Treasury Cash Reserve Fund | 928,575 | $ | 928,575 | |||||
| Total Short Term Investments | ||||||||
| (Cost $928,575) | 928,575 | |||||||
| Face Amount | ||||||||
SENIOR FLOATING RATE INTERESTS††,2 - 82.4% | ||||||||
| INDUSTRIAL - 18.1% | ||||||||
| Element Materials Technology | ||||||||
| 5.25% due 08/06/21 | $ | 548,625 | 540,395 | |||||
| B/E Aerospace | ||||||||
| 4.00% due 11/19/21 | 500,000 | 496,999 | ||||||
| CareCore National LLC | ||||||||
| 5.50% due 03/05/21 | 497,622 | 491,401 | ||||||
| GYP Holdings III Corp. | ||||||||
| 4.75% due 04/01/21 | 497,500 | 481,953 | ||||||
| Brickman Group Holdings, Inc. | ||||||||
| 4.00% due 12/18/20 | 495,504 | 480,173 | ||||||
| Landmark Aviation (US) | ||||||||
| 4.75% due 10/25/19 | 463,169 | 458,538 | ||||||
| AlliedBarton Security Services LLC | ||||||||
| 4.25% due 02/12/21 | 440,470 | 432,211 | ||||||
| Power Borrower, LLC | ||||||||
| 4.25% due 05/06/20 | 430,096 | 417,912 | ||||||
| Knowledge Learning Corp. | ||||||||
| 5.25% due 03/18/21 | 397,000 | 396,008 | ||||||
| US Infrastructure Corp. | ||||||||
| 4.00% due 07/10/20 | 394,000 | 382,180 | ||||||
| Thermasys Corp. | ||||||||
| 5.25% due 05/03/19 | 385,000 | 377,300 | ||||||
| Nord Anglia Education Finance LLC | ||||||||
| 4.50% due 03/31/21 | 348,250 | 343,897 | ||||||
| Amber Bidco Foster + Partners | ||||||||
4.62% due 07/18/21††† | 350,000 | 343,372 | ||||||
| Mitchell International, Inc. | ||||||||
| 8.50% due 10/11/21 | 300,000 | 298,050 | ||||||
| Connolly Corp. | ||||||||
| 5.00% due 05/14/21 | 298,500 | 295,142 | ||||||
| Mast Global | ||||||||
8.75% due 09/12/19†††,1 | 259,098 | 257,033 | ||||||
| VAT Holding AG | ||||||||
| 4.75% due 02/11/21 | 248,125 | 245,748 | ||||||
| Doncasters Group Ltd. | ||||||||
| 9.50% due 10/09/20 | 220,690 | 217,103 | ||||||
| syncreon | ||||||||
| 5.25% due 10/28/20 | 198,000 | 192,060 | ||||||
| SI Organization | ||||||||
| 5.75% due 11/23/19 | 187,435 | 186,029 | ||||||
| Crosby Worldwide | ||||||||
| 3.75% due 11/23/20 | 168,050 | 156,287 | ||||||
| NaNa Development Corp. | ||||||||
8.00% due 03/15/181 | 162,500 | 153,563 | ||||||
| Learning Care Group (US), Inc. | ||||||||
| 5.50% due 05/05/21 | 149,250 | 147,571 | ||||||
| Ceva Logistics US Holdings | ||||||||
| 6.50% due 03/19/21 | 156,453 | 145,501 | ||||||
| Ceva Logistics Holdings BV (Dutch) | ||||||||
| 6.50% due 03/19/21 | 113,429 | 105,489 | ||||||
| Ceva Group plc (United Kingdom) | ||||||||
| 6.50% due 03/19/21 | 108,374 | 100,788 | ||||||
| Pregis Holding I Corp. | ||||||||
| 5.00% due 05/20/21 | 99,500 | 98,256 | ||||||
| Landmark Aviation (Canada) | ||||||||
| 4.75% due 10/25/19 | 18,383 | 18,200 | ||||||
| Ceva Logistics Canada, ULC | ||||||||
| 6.50% due 03/19/21 | 19,557 | 18,188 | ||||||
| Total Industrial | 8,277,347 | |||||||
| TECHNOLOGY - 15.8% | ||||||||
| Active Network, Inc., The | ||||||||
| 5.50% due 11/13/20 | 729,352 | 712,336 | ||||||
| Evergreen Skill | ||||||||
| 5.75% due 04/28/21 | 532,250 | 520,109 | ||||||
| MSC Software Corp. | ||||||||
| 5.00% due 05/29/20 | 497,500 | 495,013 | ||||||
| Go Daddy Operating Company, LLC | ||||||||
| 4.75% due 05/13/21 | 494,471 | 490,041 | ||||||
| TIBCO Software, Inc. | ||||||||
| 6.50% due 11/25/20 | 500,000 | 483,335 | ||||||
| Deltek, Inc. | ||||||||
| 4.50% due 10/10/18 | 433,666 | 428,028 | ||||||
| Flexera Software LLC | ||||||||
| 4.50% due 04/02/20 | 338,105 | 331,343 | ||||||
| 8.00% due 04/02/21 | 100,000 | 95,000 | ||||||
| Greenway Medical Technologies | ||||||||
6.00% due 11/04/201 | 396,000 | 392,040 | ||||||
| EIG Investors Corp. | ||||||||
| 5.00% due 11/09/19 | 393,020 | 390,072 | ||||||
| Sabre, Inc. | ||||||||
| 4.50% due 02/19/19 | 395,000 | 387,594 | ||||||
| LANDesk Group, Inc. | ||||||||
| 5.00% due 02/25/20 | 395,015 | 387,443 | ||||||
| American Builders & Contractors Supply Co., Inc. | ||||||||
| 3.50% due 04/16/20 | 398,990 | 385,899 | ||||||
| Aspect Software, Inc. | ||||||||
| 7.25% due 05/07/16 | 370,000 | 358,900 | ||||||
| Wall Street Systems | ||||||||
| 4.50% due 04/30/21 | 327,174 | 321,448 | ||||||
| Telx Group | ||||||||
| 4.50% due 04/09/20 | 149,250 | 144,773 | ||||||
| 7.50% due 04/09/21 | 100,000 | 97,167 | ||||||
| CCC Information Services, Inc. | ||||||||
| 4.00% due 12/20/19 | 245,614 | 241,930 | ||||||
| SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 57 |
SCHEDULE OF INVESTMENTS (continued) | December 31, 2014 |
| SERIES F (FLOATING RATE STRATEGIES SERIES) |
| Face Amount | Value | |||||||
| Renaissance Learning Corp. | ||||||||
| 4.50% due 04/09/21 | $ | 248,125 | $ | 241,716 | ||||
| Sparta Holding Corp. | ||||||||
6.25% due 07/28/20††† | 200,000 | 198,130 | ||||||
| Infor (US), Inc. | ||||||||
| 3.75% due 06/03/20 | 167,404 | 161,985 | ||||||
| Total Technology | 7,264,302 | |||||||
| CONSUMER, CYCLICAL - 13.8% | ||||||||
| BJ’s Wholesale Club, Inc. | ||||||||
| 4.50% due 09/26/19 | 596,985 | 584,830 | ||||||
| Compucom Systems, Inc. | ||||||||
| 4.25% due 05/07/20 | 600,000 | 571,878 | ||||||
| Fitness International LLC | ||||||||
| 5.50% due 07/01/20 | 597,000 | 570,135 | ||||||
| Eyemart Express | ||||||||
| 5.00% due 12/16/21 | 500,000 | 497,500 | ||||||
| Ceridian Corp. | ||||||||
| 4.50% due 09/15/20 | 506,327 | 497,153 | ||||||
| Dunkin’ Brands, Inc. | ||||||||
| 3.25% due 02/07/21 | 498,187 | 483,555 | ||||||
| Smart & Final Stores LLC | ||||||||
| 4.75% due 11/15/19 | 414,105 | 407,893 | ||||||
| Burger King Corp. | ||||||||
| 4.50% due 12/12/21 | 400,000 | 398,284 | ||||||
| Lions Gate Entertainment Corp. | ||||||||
| 5.00% due 07/19/20 | 400,000 | 395,500 | ||||||
| Information Resources, Inc. | ||||||||
| 4.75% due 09/26/20 | 395,000 | 393,025 | ||||||
| American Tire Distributors, Inc. | ||||||||
| 5.75% due 06/01/18 | 347,874 | 347,004 | ||||||
| Fleetpride Corp. | ||||||||
| 5.25% due 11/19/19 | 303,287 | 296,715 | ||||||
| Dave & Busters, Inc. | ||||||||
| 4.25% due 07/25/20 | 202,830 | 201,563 | ||||||
| Acosta, Inc. | ||||||||
| 5.00% due 09/26/21 | 200,000 | 199,714 | ||||||
| Ollies Bargain Outlet | ||||||||
| 4.75% due 09/28/19 | 185,012 | 181,312 | ||||||
| Mattress Firm | ||||||||
| 5.25% due 10/20/21 | 150,000 | 148,875 | ||||||
| Aecom Techology Corp. | ||||||||
| 3.75% due 10/15/21 | 127,961 | 127,847 | ||||||
| Total Consumer, Cyclical | 6,302,783 | |||||||
| FINANCIAL - 11.3% | ||||||||
| Magic Newco, LLC | ||||||||
| 12.00% due 06/12/19 | 250,000 | 270,157 | ||||||
| 5.00% due 12/12/18 | 246,474 | 245,242 | ||||||
| AssuredPartners | ||||||||
| 4.50% due 04/02/21 | 498,750 | 492,515 | ||||||
| Transunion Holding Co. | ||||||||
| 4.00% due 04/09/21 | 496,250 | 488,185 | ||||||
| Lineage Logistics LLC | ||||||||
| 4.50% due 04/07/21 | 496,250 | 480,951 | ||||||
| HUB International Ltd. | ||||||||
| 4.25% due 10/02/20 | 493,769 | 477,104 | ||||||
| STG-Fairway Acquisitions, Inc. | ||||||||
| 6.25% due 02/28/19 | 393,003 | 386,617 | ||||||
| Cunningham Lindsey U.S., Inc. | ||||||||
| 5.00% due 12/10/19 | 392,982 | 382,175 | ||||||
| HDV Holdings | ||||||||
5.75% due 12/18/181 | 338,760 | 336,928 | ||||||
| DTZ US Borrower, LLC | ||||||||
| 5.50% due 11/04/21 | 300,000 | 298,500 | ||||||
| American Stock Transfer & Trust | ||||||||
| 5.75% due 06/26/20 | 289,203 | 287,034 | ||||||
| Fly Leasing Ltd. | ||||||||
| 4.50% due 08/09/19 | 285,000 | 282,595 | ||||||
| Intertrust Group | ||||||||
| 8.00% due 04/11/22 | 200,000 | 197,000 | ||||||
| Corporate Capital Trust | ||||||||
| 4.00% due 05/20/19 | 198,500 | 196,019 | ||||||
| Harbourvest | ||||||||
| 3.25% due 02/04/21 | 171,712 | 165,487 | ||||||
| Expert Global Solutions | ||||||||
| 8.52% due 04/03/18 | 161,981 | 160,767 | ||||||
| RCS Capital | ||||||||
| 6.50% due 04/29/19 | 28,829 | 26,715 | ||||||
| Total Financial | 5,173,991 | |||||||
| CONSUMER, NON-CYCLICAL - 9.5% | ||||||||
| Phillips-Medsize Corp. | ||||||||
| 4.75% due 06/16/21 | 597,000 | 586,553 | ||||||
| Albertson’s (Safeway) Holdings LLC | ||||||||
| 4.50% due 08/25/21 | 550,000 | 549,428 | ||||||
| Grocery Outlet, Inc. | ||||||||
| 5.75% due 10/21/21 | 500,000 | 498,750 | ||||||
| Performance Food Group | ||||||||
| 6.25% due 11/14/19 | 495,617 | 485,085 | ||||||
| NES Global Talent | ||||||||
| 6.50% due 10/03/19 | 487,500 | 463,125 | ||||||
| Reddy Ice Holdings, Inc. | ||||||||
6.75% due 04/01/191 | 393,985 | 346,707 | ||||||
| Diamond Foods, Inc. | ||||||||
| 4.25% due 08/20/18 | 338,296 | 334,913 | ||||||
| Arctic Glacier Holdings, Inc. | ||||||||
| 5.00% due 05/10/19 | 320,616 | 310,998 | ||||||
| Authentic Brands | ||||||||
| 5.50% due 05/27/21 | 297,750 | 296,261 | ||||||
| Mitel Networks Corp. | ||||||||
| 5.25% due 01/31/20 | 214,164 | 214,097 | ||||||
| Hearthside Foods | ||||||||
| 4.50% due 06/02/21 | 149,250 | 147,571 | ||||||
| 58 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
SCHEDULE OF INVESTMENTS (continued) | December 31, 2014 |
| SERIES F (FLOATING RATE STRATEGIES SERIES) |
| Face Amount | Value | |||||||
| CTI Foods Holding Co. LLC | ||||||||
| 8.25% due 06/28/21 | $ | 100,000 | $ | 97,750 | ||||
| Total Consumer, Non-cyclical | 4,331,238 | |||||||
| COMMUNICATIONS - 7.7% | ||||||||
| Cengage Learning Acquisitions, Inc. | ||||||||
| 7.00% due 03/31/20 | 845,117 | 835,609 | ||||||
| Ziggo BV | ||||||||
| 3.50% due 01/15/22 | 500,000 | 485,400 | ||||||
| Internet Brands | ||||||||
| 5.00% due 07/08/21 | 465,155 | 457,401 | ||||||
| Avaya, Inc. | ||||||||
| 6.50% due 03/31/18 | 244,938 | 240,855 | ||||||
| 4.67% due 10/26/17 | 199,411 | 190,936 | ||||||
| Live Nation Worldwide, Inc. | ||||||||
| 3.50% due 08/14/20 | 395,000 | 390,063 | ||||||
| Asurion Corp. | ||||||||
| 5.00% due 05/24/19 | 384,447 | 378,888 | ||||||
| MergerMarket Ltd. | ||||||||
| 4.50% due 02/04/21 | 347,375 | 328,269 | ||||||
| Anaren, Inc. | ||||||||
| 5.50% due 02/18/21 | 148,500 | 145,530 | ||||||
| 9.25% due 08/18/21 | 100,000 | 98,625 | ||||||
| Total Communications | 3,551,576 | |||||||
| BASIC MATERIALS - 4.6% | ||||||||
| CPG International, Inc. | ||||||||
| 4.75% due 09/30/20 | 395,000 | 388,336 | ||||||
| Royal Adhesives and Sealants | ||||||||
| 5.50% due 07/31/18 | 387,068 | 388,036 | ||||||
| Ennis-Flint | ||||||||
| 4.25% due 03/31/21 | 297,750 | 283,607 | ||||||
| 7.75% due 09/30/21 | 100,000 | 90,000 | ||||||
| Styrolution US Holding, LLC | ||||||||
| 6.50% due 11/07/19 | 300,000 | 290,250 | ||||||
| Entegris, Inc. | ||||||||
| 3.50% due 04/30/21 | 246,503 | 240,649 | ||||||
| Atkore International, Inc. | ||||||||
| 7.75% due 10/09/21 | 200,000 | 195,000 | ||||||
| Minerals Technologies, Inc. | ||||||||
| 4.00% due 05/07/21 | 188,231 | 185,878 | ||||||
| WR Grace & Co. | ||||||||
| 3.00% due 02/03/21 | 57,735 | 57,194 | ||||||
| Total Basic Materials | 2,118,950 | |||||||
| ENERGY - 1.2% | ||||||||
| Cactus Wellhead | ||||||||
| 7.00% due 07/31/20 | 548,625 | 433,413 | ||||||
| Floatel International Ltd. | ||||||||
| 6.00% due 06/27/20 | 118,251 | 94,601 | ||||||
| Total Energy | 528,014 | |||||||
| UTILITIES - 0.4% | ||||||||
| Expro Holdings UK 3 Ltd. | ||||||||
| 5.75% due 09/02/21 | 249,375 | 203,241 | ||||||
| Total Senior Floating Rate Interests | ||||||||
| (Cost $38,489,718) | 37,751,442 | |||||||
ASSET-BACKED SECURITIES†† - 12.5% | ||||||||
| Castlelake Aircraft Securitization Trust | ||||||||
| 2014-1, 5.25% due 02/15/29 | 432,802 | 431,158 | ||||||
| Gramercy Real Estate CDO 2007-1 Ltd. | ||||||||
2007-1A, 0.51% due 08/15/562,3 | 467,208 | 417,170 | ||||||
| Cedar Woods CRE CDO Ltd. | ||||||||
| 2006-1A, 0.43% due 07/25/51 | 390,552 | 350,364 | ||||||
| N-Star Real Estate CDO IX Ltd. | ||||||||
0.47% due 02/01/411 | 355,068 | 336,853 | ||||||
| GreenPoint Mortgage Funding Trust | ||||||||
2005-HE4, 0.87% due 07/25/302 | 336,162 | 317,116 | ||||||
| RAIT CRE CDO I Ltd. | ||||||||
| 2006-1X, 0.49% due 11/20/46 | 309,570 | 281,616 | ||||||
| Salus CLO 2012-1 Ltd. | ||||||||
2013-1AN, 4.98% due 03/05/212,3 | 250,000 | 250,475 | ||||||
| DIVCORE CLO Ltd. | ||||||||
| 2013-1A B, 4.06% due 11/15/32 | 250,000 | 250,075 | ||||||
| Garrison Funding 2013-2 Ltd. | ||||||||
2013-2A, 4.88% due 09/25/232,3 | 250,000 | 247,575 | ||||||
| COA Summit CLO Limited | ||||||||
2014-1A, 4.08% due 04/20/232,3 | 250,000 | 246,300 | ||||||
| OZLM Funding Ltd. | ||||||||
2012-2A, 3.48% due 10/30/232,3 | 250,000 | 245,975 | ||||||
| Newstar Commercial Loan Funding 2013-1 LLC | ||||||||
2013-1A, 4.80% due 09/20/232,3 | 250,000 | 245,575 | ||||||
| Jasper CLO Ltd. | ||||||||
2005-1A, 1.13% due 08/01/172,3 | 250,000 | 244,475 | ||||||
| NewStar Arlington Senior Loan Program LLC | ||||||||
2014-1A, 3.53% due 07/25/252,3 | 250,000 | 243,725 | ||||||
| Acis CLO 2013-2 Ltd. | ||||||||
2013-2A, 4.08% due 10/14/222,3 | 250,000 | 241,825 | ||||||
| Duane Street CLO IV Ltd. | ||||||||
2007-4A, 2.48% due 11/14/212,3 | 250,000 | 240,775 | ||||||
| Kingsland III Ltd. | ||||||||
2006-3A, 1.83% due 08/24/212,3 | 250,000 | 238,500 | ||||||
| Cerberus Onshore II CLO LLC | ||||||||
2014-1A, 4.23% due 10/15/232,3 | 250,000 | 236,400 | ||||||
| ALM XIV Ltd. | ||||||||
2014-14A, 3.68% due 07/28/262,3 | 250,000 | 232,625 | ||||||
| Kingsland IV Ltd. | ||||||||
2007-4A, 1.68% due 04/16/212,3 | 250,000 | 230,300 | ||||||
| Wachovia Asset Securitization Issuance II LLC Trust | ||||||||
2007-HE1, 0.31% due 07/25/372,3 | 139,234 | 125,001 | ||||||
| New Century Home Equity Loan Trust | ||||||||
2004-4, 0.96% due 02/25/352 | 58,210 | 52,856 | ||||||
| SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 59 |
SCHEDULE OF INVESTMENTS (concluded) | December 31, 2014 |
| SERIES F (FLOATING RATE STRATEGIES SERIES) |
| Face Amount | Value | |||||||
| West Coast Funding Ltd. | ||||||||
2006-1A, 0.39% due 11/02/412,3 | $ | 21,756 | $ | 21,454 | ||||
| Total Asset-Backed Securities | ||||||||
| (Cost $5,589,584) | 5,728,188 | |||||||
COLLATERALIZED MORTGAGE OBLIGATIONS†† - 1.2% | ||||||||
| GreenPoint Mortgage Funding Trust | ||||||||
2006-AR1, 0.46% due 02/25/362 | 240,011 | 201,032 | ||||||
| Nomura Resecuritization Trust | ||||||||
2012-1R, 0.61% due 08/27/472,3 | 151,042 | 139,714 | ||||||
| Bear Stearns Mortgage Funding Trust | ||||||||
2007-AR5, 0.34% due 06/25/472 | 151,737 | 122,261 | ||||||
| Morgan Stanley Re-REMIC Trust | ||||||||
2010-R5, 0.45% due 06/26/362,3 | 129,835 | 92,906 | ||||||
| Total Collateralized Mortgage Obligations | ||||||||
| (Cost $564,616) | 555,913 | |||||||
MORTGAGE-BACKED SECURITIES†† - 0.3% | ||||||||
| HarborView Mortgage Loan Trust | ||||||||
2006-12, 0.35% due 01/19/382 | 156,325 | 132,445 | ||||||
| Total Mortgage-Backed Securities | ||||||||
| (Cost $132,453) | 132,445 | |||||||
| Total Investments - 98.4% | ||||||||
| (Cost $45,704,946) | $ | 45,096,563 | ||||||
| Other Assets & Liabilities, net - 1.6% | 740,231 | |||||||
| Total Net Assets - 100.0% | $ | 45,836,794 | ||||||
| † | Value determined based on Level 1 inputs — See Note 4. |
| †† | Value determined based on Level 2 inputs, unless otherwise noted — See Note 4. |
| ††† | Value determined based on Level 3 inputs — See Note 4. |
| 1 | Illiquid security. |
| 2 | Variable rate security. Rate indicated is rate effective at December 31, 2014. |
| 3 | Security is a 144A or Section 4(a)(2) security. The total market value of 144A or Section 4(a)(2) securities is $3,940,770 (cost $3,906,286), or 8.6% of total net assets. These securities have been determined to be liquid under guidelines established by the Board of Trustees. |
| plc — Public Limited Company |
| 60 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
| SERIES F (FLOATING RATE STRATEGIES SERIES) |
| STATEMENT OF ASSETS AND LIABILITIES |
| December 31, 2014 | ||||
| Assets: | ||||
| Investments, at value (cost $45,704,946) | $ | 45,096,563 | ||
| Cash | 154,259 | |||
| Prepaid expenses | 2,397 | |||
| Receivables: | ||||
| Securities sold | 2,114,479 | |||
| Interest | 166,150 | |||
| Fund shares sold | 146,955 | |||
| Total assets | 47,680,803 | |||
| Liabilities: | ||||
| Unfunded loan commitment, at value (commitment fees received $52) | 45 | |||
| Payable for: | ||||
| Securities purchased | 1,792,724 | |||
| Management fees | 21,652 | |||
| Distribution and service fees | 10,231 | |||
| Fund accounting/administration fees | 3,888 | |||
| Fund shares redeemed | 2,184 | |||
| Transfer agent/maintenance fees | 2,123 | |||
| Trustees’ fees* | 460 | |||
| Miscellaneous | 10,702 | |||
| Total liabilities | 1,844,009 | |||
| Net assets | $ | 45,836,794 | ||
| Net assets consist of: | ||||
| Paid in capital | $ | 44,590,258 | ||
| Undistributed net investment income | 1,752,081 | |||
| Accumulated net realized gain on investments | 102,831 | |||
| Net unrealized depreciation on investments | (608,376 | ) | ||
| Net assets | $ | 45,836,794 | ||
| Capital shares outstanding | 1,747,052 | |||
| Net asset value per share | $ | 26.24 | ||
| STATEMENT OF OPERATIONS |
| Year Ended December 31, 2014 | ||||
| Investment Income: | ||||
| Interest | $ | 2,440,529 | ||
| Dividends | 3,719 | |||
| Total investment income | 2,444,248 | |||
| Expenses: | ||||
| Management fees | 329,893 | |||
| Transfer agent/maintenance fees | 25,040 | |||
| Distribution and service fees | 126,882 | |||
| Fund accounting/administration fees | 48,215 | |||
| Custodian fees | 12,015 | |||
| Trustees’ fees* | 5,515 | |||
| Line of credit fees | 4,389 | |||
| Tax expense | 2 | |||
| Miscellaneous | 74,997 | |||
| Total expenses | 626,948 | |||
| Less: | ||||
| Expenses waived by Adviser | (36,089 | ) | ||
| Net expenses | 590,859 | |||
| Net investment income | 1,853,389 | |||
| Net Realized and Unrealized Gain (Loss): | ||||
| Net realized gain (loss) on: | ||||
| Investments | 145,895 | |||
| Net realized gain | 145,895 | |||
| Net change in unrealized appreciation (depreciation) on: | ||||
| Investments | (826,040 | ) | ||
| Net change in unrealized appreciation (depreciation) | (826,040 | ) | ||
| Net realized and unrealized loss | (680,145 | ) | ||
| Net increase in net assets resulting from operations | $ | 1,173,244 | ||
| * | Relates to Trustees not deemed “interested persons” within the meaning of Section 2(a)(19) of the 1940 Act. |
| SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 61 |
| SERIES F (FLOATING RATE STRATEGIES SERIES) |
| STATEMENTS OF CHANGES IN NET ASSETS |
| Year Ended December 31, 2014 | Period Ended December 31, 2013a | |||||||
| Increase (Decrease) in Net Assets from Operations: | ||||||||
| Net investment income | $ | 1,853,389 | $ | 763,204 | ||||
| Net realized gain on investments | 145,895 | 85,624 | ||||||
| Net change in unrealized appreciation (depreciation) on investments | (826,040 | ) | 217,664 | |||||
| Net increase in net assets resulting from operations | 1,173,244 | 1,066,492 | ||||||
| Capital share transactions: | ||||||||
| Proceeds from sale of shares | 50,117,000 | 62,571,845 | ||||||
| Cost of shares redeemed | (51,795,965 | ) | (17,295,822 | ) | ||||
| Net increase (decrease) from capital share transactions | (1,678,965 | ) | 45,276,023 | |||||
| Net increase (decrease) in net assets | (505,721 | ) | 46,342,515 | |||||
| Net assets: | ||||||||
| Beginning of period | 46,342,515 | — | ||||||
| End of period | $ | 45,836,794 | $ | 46,342,515 | ||||
| Undistributed net investment income at end of period | $ | 1,752,081 | $ | 794,675 | ||||
| Capital share activity: | ||||||||
| Shares sold | 1,921,033 | 2,495,635 | ||||||
| Shares redeemed | (1,983,273 | ) | (686,343 | ) | ||||
| Net increase (decrease) in shares | (62,240 | ) | 1,809,292 | |||||
a | Since commencement of operations: April 24, 2013. |
| 62 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
| SERIES F (FLOATING RATE STRATEGIES SERIES) |
| FINANCIAL HIGHLIGHTS |
This table is presented to show selected data for a share outstanding throughout each period and to assist shareholders in evaluating a Fund’s performance for the periods presented.
| Year Ended December 31, 2014 | Period Ended December 31, 2013a | |||||||
| Per Share Data | ||||||||
| Net asset value, beginning of period | $ | 25.61 | $ | 25.00 | ||||
| Income (loss) from investment operations: | ||||||||
Net investment income (loss)b | .95 | .49 | ||||||
| Net gain (loss) on investments (realized and unrealized) | (.32 | ) | .12 | |||||
| Total from investment operations | .63 | .61 | ||||||
| Net asset value, end of period | $ | 26.24 | $ | 25.61 | ||||
Total Returnc | 2.38 | % | 2.48 | % | ||||
| Ratios/Supplemental Data | ||||||||
| Net assets, end of period (in thousands) | $ | 45,837 | $ | 46,343 | ||||
| Ratios to average net assets: | ||||||||
| Net investment income (loss) | 3.65 | % | 2.81 | % | ||||
| Total expenses | 1.24 | % | 1.35 | %d | ||||
Net expensese | 1.16 | % | 1.17 | % | ||||
| Portfolio turnover rate | 90 | % | 53 | % | ||||
a | Since commencement of operations: April 24, 2013. Percentage amounts for the period, except total return and portfolio turnover rate, have been annualized. |
b | Net investment income (loss) per share was computed using average shares outstanding throughout the period. |
c | Total return does not take into account any of the expenses associated with an investment in variable insurance products. If total return had taken into account these expenses, performance would have been lower. Shares of a series of Guggenheim Variable Funds Trust are available only through the purchase of such products. |
d | Due to limited length of Fund operations, ratios for this period may not be indicative of future performance. |
e | Net expenses may include expenses that are excluded from the expense limitation agreement. Excluding these expenses, the operating expense ratios for the periods would be: |
| 12/31/14 | 12/31/13 |
| 1.15% | 1.15% |
| SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 63 |
MANAGER'S COMMENTARY (Unaudited) | December 31, 2014 |
To Our Shareholders:
The Series J (StylePlus—Mid Growth Series) is managed by a team of seasoned professionals, including B. Scott Minerd, Global Chairman of Investments and Chief Investment Officer; Farhan Sharaff, Senior Managing Director and Assistant Chief Investment Officer, Equities; Jayson Flowers, Senior Managing Director and Head of Equity and Derivative Strategies; and Scott Hammond, Managing Director and Portfolio Manager. In the following paragraphs, the investment team discusses performance for the fiscal year ended December 31, 2014.
For the year ended December 31, 2014, the Series J (StylePlus—Mid Growth Series) returned 13.05%, compared with the 11.90% return of its benchmark, the Russell Midcap® Growth Index.
The Fund seeks to outperform the Russell Midcap Growth Index by combining actively managed and passive equity exposure, along with an actively managed fixed income portfolio. The passive equity position is maintained with swap agreements and futures contracts. The Fund’s fixed income component invests in a variety of fixed income sectors, including asset-backed securities (ABS), mortgage-backed securities (MBS), high yield corporate bonds and bank loans.
The allocation between active and passive equity is tactically managed based on the environment for stock-picking opportunities. When stock selection opportunities are less attractive, the Fund invests in derivatives based on the target index, backed by a diversified portfolio of fixed income instruments. In this way, the Fund believes it will deliver the target index return plus an alpha component commensurate with the yield achieved on the active fixed income portfolio.
For the period, the Fund maintained an average allocation of a little more than 20% to the actively managed equity allocation and slightly less than 80% to the passive equity position. The actively managed equity sleeve was scaled down from 25% to 20% mid-year, as U.S. equity and credit markets became more volatile beginning in the third quarter. While the sell-off was initially sparked by market unease over the Fed winding down its purchases of U.S. Treasuries and mortgage-backed securities, it continued through the fourth quarter as markets grew anxious over the weakening global outlook. The actively managed sleeve was maintained at about 20% for the rest of the period.
The Fund’s active equity and active fixed income exposures both contributed to performance for the period. The passive equity position was neutral to performance, and the swap agreements contributed to performance.
The actively managed equity portfolio was underweight the more expensive smaller and momentum names (based on various measures, such as price-to-earnings), and overweight the less expensive and larger holdings. Sectors that contributed most to performance for the year were Industrials and Health Care. Sectors that detracted most from performance for the year were Consumer Discretionary and Telecommunication Services.
Uncorrelated with the Fund’s active equity component, the fixed-income component was largely invested in ABS and MBS. These positions constituted the majority of the fixed income sleeve’s total return.
Performance displayed represents past performance, which is no guarantee of future results.
The opinions and forecast expressed may not actually come to pass. This information is subject to change at any time, based on market and other conditions, and should not be construed as a recommendation of any specific security or strategy.
| 64 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
PERFORMANCE REPORT AND FUND PROFILE (Unaudited) | December 31, 2014 |
SERIES J (STYLEPLUS—MID GROWTH SERIES)
OBJECTIVE: Seeks long-term growth of capital
Holdings Diversification
(Market Exposure as % of Net Assets)
“Holdings Diversification (Market Exposure as % of Net Assets)” excludes any temporary cash investments or investments in Guggenheim Strategy Funds Trust mutual funds.
| Portfolio Composition by Quality Rating** | |
| Rating | |
| Fixed Income Instruments | |
| AAA | 6.1% |
| AA | 2.6% |
| A | 5.0% |
| BBB | 5.1% |
| BB | 0.5% |
| B | 2.3% |
| CCC | 0.4% |
| Other Instruments | |
| Mutual Funds | 53.1% |
| Common Stocks | 20.6% |
| Short Term Investments | 4.3% |
| Total Investments | 100.0% |
| The chart above reflects percentages of the value of total investments. | |
Inception Date: October 1, 1992 |
| Ten Largest Holdings (% of Total Net Assets) | |
| Guggenheim Variable Insurance Strategy Fund III | 23.1% |
| Guggenheim Strategy Fund I | 16.5% |
| Guggenheim Strategy Fund II | 8.0% |
| Guggenheim Strategy Fund III | 5.7% |
| HSI Asset Securitization Corporation Trust — Class 2A3 | 1.0% |
| Duane Street CLO IV Ltd. — Class A1T | 0.9% |
| Resource Capital Corporation CRE Notes 2013 Ltd. — Class B | 0.8% |
| Boca Hotel Portfolio Trust — Class D | 0.8% |
| Goldman Sachs Asset Management CLO plc — Class D | 0.7% |
| Argent Securities Incorporated Asset-Backed Pass-Through Certificates Series — Class A2D | 0.7% |
| Top Ten Total | 58.2% |
| “Ten Largest Holdings” exclude any temporary cash or derivative investments. | |
| THE GUGGENHEIM FUNDS ANNUAL REPORT | 65 |
PERFORMANCE REPORT AND FUND PROFILE (Unaudited)(concluded) | December 31, 2014 |
Cumulative Fund Performance*,†
Average Annual Returns*
Periods Ended December 31, 2014†
| 1 Year | 5 Year | 10 Year | |
| Series J (StylePlus—Mid Growth Series) | 13.05% | 15.21% | 5.92% |
| Russell Midcap Growth Index | 11.90% | 16.94% | 9.43% |
| * | The performance data above represents past performance that is not predictive of future results. The investment return and principal value of an investment in the Fund will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Returns are historical and include changes in principal and reinvested dividends and capital gains and do not reflect the effect of taxes. The Russell Midcap Growth Index is an unmanaged index and, unlike the Fund, has no management fees or operating expenses to reduce its reported return. |
| ** | Source: Factset. Credit quality ratings are measured on a scale that generally ranges from AAA (highest) to D (lowest). All rated securities have been rated by Moody’s, Standard & Poor’s (“S&P”), or Fitch, which are all a Nationally Recognized Statistical Rating Organization (“NRSRO”). For purposes of this presentation, when ratings are available from more than one agency, the highest rating is used. Guggenheim Investments has converted Moody’s and Fitch ratings to the equivalent S&P rating. Unrated securities do not necessarily indicate low credit quality. Security ratings are determined at the time of purchase and may change thereafter. |
† | Performance figures do not reflect fees and expenses associated with an investment in variable insurance products. If returns had taken into account these fees and expenses, performance would have been lower. Shares of a series of Guggenheim Variable Funds Trust are available only through the purchase of such products. |
| 66 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
| SCHEDULE OF INVESTMENTS | December 31, 2014 |
| SERIES J (STYLEPLUS—MID GROWTH SERIES) |
| Shares | Value | |||||||
COMMON STOCKS† - 20.7% | ||||||||
| CONSUMER, NON-CYCLICAL - 6.5% | ||||||||
| Mylan, Inc.* | 7,967 | $ | 449,100 | |||||
| Mead Johnson Nutrition Co. — Class A | 4,041 | 406,282 | ||||||
| Constellation Brands, Inc. — Class A* | 4,013 | 393,956 | ||||||
| Keurig Green Mountain, Inc. | 2,930 | 387,917 | ||||||
| Kroger Co. | 5,865 | 376,592 | ||||||
| Western Union Co. | 21,005 | 376,200 | ||||||
| Dr Pepper Snapple Group, Inc. | 5,073 | 363,632 | ||||||
| Brown-Forman Corp. — Class B | 3,990 | 350,482 | ||||||
| Cigna Corp. | 3,382 | 348,042 | ||||||
| Campbell Soup Co. | 7,735 | 340,340 | ||||||
| Coca-Cola Enterprises, Inc. | 7,002 | 309,628 | ||||||
| Vertex Pharmaceuticals, Inc.* | 2,525 | 299,970 | ||||||
| Monster Beverage Corp.* | 2,738 | 296,662 | ||||||
| Cardinal Health, Inc. | 3,653 | 294,907 | ||||||
| Kellogg Co. | 4,346 | 284,402 | ||||||
| Hormel Foods Corp. | 5,337 | 278,058 | ||||||
| United Rentals, Inc.* | 2,612 | 266,450 | ||||||
| Clorox Co. | 2,546 | 265,319 | ||||||
| St. Jude Medical, Inc. | 3,892 | 253,096 | ||||||
| DaVita HealthCare Partners, Inc.* | 3,288 | 249,033 | ||||||
| Booz Allen Hamilton Holding Corp. | 8,566 | 227,256 | ||||||
| Illumina, Inc.* | 1,170 | 215,959 | ||||||
| Boston Scientific Corp.* | 16,238 | 215,154 | ||||||
| Ingredion, Inc. | 2,460 | 208,706 | ||||||
| Estee Lauder Companies, Inc. — Class A | 2,624 | 199,949 | ||||||
| Whole Foods Market, Inc. | 3,726 | 187,865 | ||||||
| Hologic, Inc.* | 6,788 | 181,511 | ||||||
| RR Donnelley & Sons Co. | 10,521 | 176,805 | ||||||
| AmerisourceBergen Corp. — Class A | 1,787 | 161,116 | ||||||
| Total System Services, Inc. | 4,601 | 156,250 | ||||||
| Varian Medical Systems, Inc.* | 1,656 | 143,261 | ||||||
| Avis Budget Group, Inc.* | 2,091 | 138,696 | ||||||
| CR Bard, Inc. | 806 | 134,296 | ||||||
| H&R Block, Inc. | 3,537 | 119,126 | ||||||
| Henry Schein, Inc.* | 829 | 112,868 | ||||||
| Hertz Global Holdings, Inc.* | 4,515 | 112,604 | ||||||
| Zoetis, Inc. | 2,564 | 110,329 | ||||||
| KAR Auction Services, Inc. | 3,152 | 109,217 | ||||||
| Avon Products, Inc. | 11,565 | 108,595 | ||||||
| DENTSPLY International, Inc. | 2,014 | 107,286 | ||||||
| Quanta Services, Inc.* | 3,677 | 104,390 | ||||||
| McCormick & Company, Inc. | 1,401 | 104,094 | ||||||
| Mallinckrodt plc* | 1,031 | 102,100 | ||||||
| Jazz Pharmaceuticals plc* | 618 | 101,185 | ||||||
| Hershey Co. | 958 | 99,565 | ||||||
| Intuitive Surgical, Inc.* | 186 | 98,383 | ||||||
| PAREXEL International Corp.* | 1,766 | 98,119 | ||||||
| HealthSouth Corp. | 2,540 | 97,688 | ||||||
| HCA Holdings, Inc.* | 1,295 | 95,040 | ||||||
| Total Consumer, Non-cyclical | 10,617,481 | |||||||
| INDUSTRIAL - 4.3% | ||||||||
| Parker-Hannifin Corp. | 3,401 | 438,559 | ||||||
| Dover Corp. | 5,830 | 418,128 | ||||||
| Rockwell Automation, Inc. | 3,746 | 416,555 | ||||||
| Corning, Inc. | 16,099 | 369,150 | ||||||
| Fluor Corp. | 6,073 | 368,206 | ||||||
| Pentair plc | 5,338 | 354,550 | ||||||
| Cummins, Inc. | 2,292 | 330,438 | ||||||
| Agilent Technologies, Inc. | 8,020 | 328,339 | ||||||
| AMETEK, Inc. | 5,472 | 287,991 | ||||||
| Flowserve Corp. | 4,774 | 285,628 | ||||||
| Stanley Black & Decker, Inc. | 2,919 | 280,458 | ||||||
| Roper Industries, Inc. | 1,740 | 272,049 | ||||||
| Ingersoll-Rand plc | 3,860 | 244,685 | ||||||
| Huntington Ingalls Industries, Inc. | 2,132 | 239,765 | ||||||
| Tyco International plc | 4,959 | 217,502 | ||||||
| Lincoln Electric Holdings, Inc. | 2,838 | 196,077 | ||||||
| Masco Corp. | 6,341 | 159,793 | ||||||
| Waste Management, Inc. | 2,194 | 112,596 | ||||||
| Timken Co. | 2,622 | 111,907 | ||||||
| Moog, Inc. — Class A* | 1,438 | 106,455 | ||||||
| Waters Corp.* | 934 | 105,280 | ||||||
| Covanta Holding Corp. | 4,755 | 104,658 | ||||||
| Waste Connections, Inc. | 2,378 | 104,608 | ||||||
| Xylem, Inc. | 2,681 | 102,066 | ||||||
| Colfax Corp.* | 1,967 | 101,438 | ||||||
| Clean Harbors, Inc.* | 2,106 | 101,193 | ||||||
| IDEX Corp. | 1,275 | 99,246 | ||||||
| Donaldson Company, Inc. | 2,558 | 98,816 | ||||||
| Nordson Corp. | 1,258 | 98,074 | ||||||
| Allegion plc | 1,757 | 97,443 | ||||||
| Martin Marietta Materials, Inc. | 880 | 97,082 | ||||||
| Keysight Technologies, Inc.* | 2,854 | 96,380 | ||||||
| FLIR Systems, Inc. | 2,979 | 96,251 | ||||||
| Trimble Navigation Ltd.* | 3,541 | 93,978 | ||||||
| Kirby Corp.* | 1,101 | 88,895 | ||||||
| Total Industrial | 7,024,239 | |||||||
| TECHNOLOGY - 3.2% | ||||||||
| Cerner Corp.* | 5,313 | 343,539 | ||||||
| Teradata Corp.* | 7,203 | 314,627 | ||||||
| SanDisk Corp. | 2,930 | 287,082 | ||||||
| NetApp, Inc. | 6,718 | 278,461 | ||||||
| Citrix Systems, Inc.* | 3,864 | 246,523 | ||||||
| DST Systems, Inc. | 2,492 | 234,621 | ||||||
| Computer Sciences Corp. | 3,665 | 231,078 | ||||||
| Activision Blizzard, Inc. | 11,196 | 225,599 | ||||||
| Applied Materials, Inc. | 8,836 | 220,193 | ||||||
| Fiserv, Inc.* | 2,942 | 208,794 | ||||||
| IHS, Inc. — Class A* | 1,616 | 184,030 | ||||||
| Intuit, Inc. | 1,983 | 182,813 | ||||||
| Dun & Bradstreet Corp. | 1,378 | 166,683 | ||||||
| Solera Holdings, Inc. | 2,911 | 148,985 | ||||||
| Aspen Technology, Inc.* | 3,862 | 135,247 | ||||||
| SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 67 |
SCHEDULE OF INVESTMENTS (continued) | December 31, 2014 |
| SERIES J (STYLEPLUS—MID GROWTH SERIES) |
| Shares | Value | |||||||
| Pitney Bowes, Inc. | 5,428 | $ | 132,280 | |||||
| VeriFone Systems, Inc.* | 3,453 | 128,452 | ||||||
| Xilinx, Inc. | 2,681 | 116,060 | ||||||
| Red Hat, Inc.* | 1,612 | 111,454 | ||||||
| NCR Corp.* | 3,790 | 110,441 | ||||||
| Paychex, Inc. | 2,390 | 110,346 | ||||||
| Cadence Design Systems, Inc.* | 5,579 | 105,834 | ||||||
| Riverbed Technology, Inc.* | 5,167 | 105,458 | ||||||
| Teradyne, Inc. | 5,064 | 100,217 | ||||||
| Broadridge Financial Solutions, Inc. | 2,149 | 99,241 | ||||||
| KLA-Tencor Corp. | 1,407 | 98,940 | ||||||
| Genpact Ltd.* | 5,212 | 98,663 | ||||||
| Akamai Technologies, Inc.* | 1,566 | 98,595 | ||||||
| Workday, Inc. — Class A* | 1,190 | 97,116 | ||||||
| Electronic Arts, Inc.* | 2,065 | 97,086 | ||||||
| Avago Technologies Ltd. | 964 | 96,969 | ||||||
| Diebold, Inc. | 2,793 | 96,750 | ||||||
| PTC, Inc.* | 2,563 | 93,934 | ||||||
| Total Technology | 5,306,111 | |||||||
| CONSUMER, CYCLICAL - 3.0% | ||||||||
| Southwest Airlines Co. | 6,422 | 271,780 | ||||||
| Macy’s, Inc. | 4,120 | 270,890 | ||||||
| Chipotle Mexican Grill, Inc. — Class A* | 353 | 241,632 | ||||||
| Harley-Davidson, Inc. | 3,654 | 240,835 | ||||||
| United Continental Holdings, Inc.* | 3,533 | 236,323 | ||||||
| PACCAR, Inc. | 3,427 | 233,070 | ||||||
| The Gap, Inc. | 5,103 | 214,887 | ||||||
| Best Buy Company, Inc. | 4,654 | 181,413 | ||||||
| VF Corp. | 2,388 | 178,861 | ||||||
| Allison Transmission Holdings, Inc. | 4,988 | 169,094 | ||||||
| WW Grainger, Inc. | 645 | 164,404 | ||||||
| Dollar General Corp.* | 2,321 | 164,094 | ||||||
| Wynn Resorts Ltd. | 1,034 | 153,818 | ||||||
| Lear Corp. | 1,567 | 153,691 | ||||||
| Nordstrom, Inc. | 1,919 | 152,349 | ||||||
| Dollar Tree, Inc.* | 2,157 | 151,810 | ||||||
| Hilton Worldwide Holdings, Inc.* | 5,770 | 150,539 | ||||||
| Starwood Hotels & Resorts Worldwide, Inc. | 1,773 | 143,737 | ||||||
| Kohl’s Corp. | 2,287 | 139,598 | ||||||
| Wyndham Worldwide Corp. | 1,585 | 135,930 | ||||||
| O’Reilly Automotive, Inc.* | 671 | 129,248 | ||||||
| Genuine Parts Co. | 1,173 | 125,007 | ||||||
| BorgWarner, Inc. | 2,066 | 113,527 | ||||||
| Johnson Controls, Inc. | 2,204 | 106,541 | ||||||
| MGM Resorts International* | 4,980 | 106,472 | ||||||
| HD Supply Holdings, Inc.* | 3,463 | 102,124 | ||||||
| Coach, Inc. | 2,684 | 100,811 | ||||||
| Alaska Air Group, Inc. | 1,686 | 100,755 | ||||||
| Polaris Industries, Inc. | 662 | 100,121 | ||||||
| Ralph Lauren Corp. — Class A | 531 | 98,320 | ||||||
| Total Consumer, Cyclical | 4,831,681 | |||||||
| COMMUNICATIONS - 2.6% | ||||||||
| VeriSign, Inc.* | 6,813 | 388,341 | ||||||
| Juniper Networks, Inc. | 14,902 | 332,614 | ||||||
| Liberty Interactive Corp. — Class A* | 11,180 | 328,916 | ||||||
| Netflix, Inc.* | 848 | 289,685 | ||||||
| ARRIS Group, Inc.* | 8,596 | 259,513 | ||||||
| Omnicom Group, Inc. | 3,331 | 258,053 | ||||||
| Discovery Communications, Inc. — Class A* | 6,473 | 222,994 | ||||||
| LinkedIn Corp. — Class A* | 917 | 210,644 | ||||||
| Harris Corp. | 2,481 | 178,185 | ||||||
| Motorola Solutions, Inc. | 2,338 | 156,833 | ||||||
| Twitter, Inc.* | 4,319 | 154,922 | ||||||
| Anixter International, Inc.* | 1,672 | 147,905 | ||||||
| Viacom, Inc. — Class B | 1,845 | 138,836 | ||||||
| Level 3 Communications, Inc.* | 2,511 | 123,993 | ||||||
| EchoStar Corp. — Class A* | 2,189 | 114,923 | ||||||
| Scripps Networks Interactive, Inc. — Class A | 1,369 | 103,045 | ||||||
| CBS Corp. — Class B | 1,801 | 99,667 | ||||||
| Pandora Media, Inc.* | 5,555 | 99,046 | ||||||
| Alliance Data Systems Corp.* | 346 | 98,973 | ||||||
| CommScope Holding Company, Inc.* | 4,306 | 98,306 | ||||||
| Sirius XM Holdings, Inc.* | 27,513 | 96,296 | ||||||
| F5 Networks, Inc.* | 731 | 95,370 | ||||||
| Discovery Communications, Inc. — Class C* | 2,763 | 93,168 | ||||||
| IAC/InterActiveCorp | 1,512 | 91,914 | ||||||
| Total Communications | 4,182,142 | |||||||
| ENERGY - 1.1% | ||||||||
| National Oilwell Varco, Inc. | 3,584 | 234,860 | ||||||
| Valero Energy Corp. | 4,086 | 202,256 | ||||||
| Marathon Petroleum Corp. | 1,950 | 176,007 | ||||||
| Cameron International Corp.* | 2,530 | 126,374 | ||||||
| Chesapeake Energy Corp. | 5,518 | 107,987 | ||||||
| Kosmos Energy Ltd.* | 12,860 | 107,895 | ||||||
| ONEOK, Inc. | 2,119 | 105,505 | ||||||
| Helmerich & Payne, Inc. | 1,552 | 104,636 | ||||||
| Superior Energy Services, Inc. | 5,152 | 103,813 | ||||||
| Pioneer Natural Resources Co. | 696 | 103,600 | ||||||
| Noble Energy, Inc. | 2,155 | 102,212 | ||||||
| FMC Technologies, Inc.* | 2,172 | 101,736 | ||||||
| HollyFrontier Corp. | 2,570 | 96,324 | ||||||
| Southwestern Energy Co.* | 3,245 | 88,556 | ||||||
| Total Energy | 1,761,761 | |||||||
| Total Common Stocks | ||||||||
| (Cost $31,674,432) | 33,723,415 | |||||||
MUTUAL FUNDS†,1 - 53.3% | ||||||||
| Guggenheim Variable Insurance Strategy Fund III | 1,517,495 | 37,694,577 | ||||||
| Guggenheim Strategy Fund I | 1,083,259 | 26,908,165 | ||||||
| Guggenheim Strategy Fund II | 524,574 | 13,035,663 | ||||||
| 68 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
SCHEDULE OF INVESTMENTS (continued) | December 31, 2014 |
| SERIES J (STYLEPLUS—MID GROWTH SERIES) |
| Shares | Value | |||||||
| Guggenheim Strategy Fund III | 372,778 | $ | 9,259,798 | |||||
| Total Mutual Funds | ||||||||
| (Cost $87,253,851) | 86,898,203 | |||||||
SHORT TERM INVESTMENTS† - 4.3% | ||||||||
| Dreyfus Treasury Prime Cash Management Fund | 7,022,709 | 7,022,709 | ||||||
| Total Short Term Investments | ||||||||
| (Cost $7,022,709) | 7,022,709 | |||||||
| Face Amount | ||||||||
ASSET-BACKED SECURITIES†† - 17.2% | ||||||||
| Duane Street CLO IV Ltd. | ||||||||
2007-4A, 0.46% due 11/14/212,3 | $ | 1,443,576 | 1,431,305 | |||||
| Goldman Sachs Asset Management CLO plc | ||||||||
2007-1A, 2.98% due 08/01/222,3 | 1,200,000 | 1,191,840 | ||||||
| Brentwood CLO Corp. | ||||||||
2006-1A, 0.50% due 02/01/222,3 | 833,640 | 821,052 | ||||||
2006-1A, 1.05% due 02/01/222,3 | 400,000 | 361,080 | ||||||
| Argent Securities Incorporated Asset-Backed Pass-Through Certificates Series | ||||||||
2005-W3, 0.51% due 11/25/352 | 1,217,043 | 1,169,162 | ||||||
| Garrison Funding 2013-2 Ltd. | ||||||||
2013-2A, 2.03% due 09/25/232,3 | 1,170,000 | 1,165,905 | ||||||
| Salus CLO 2012-1 Ltd. | ||||||||
2013-1AN, 2.48% due 03/05/212,3 | 1,100,000 | 1,096,920 | ||||||
| Cerberus Onshore II CLO LLC | ||||||||
2014-1A, 2.93% due 10/15/232,3 | 850,000 | 837,335 | ||||||
2014-1A, 2.23% due 10/15/232,3 | 250,000 | 249,450 | ||||||
| ALM VII R-2 Ltd. | ||||||||
2013-7R2A, 2.83% due 04/24/242,3 | 1,100,000 | 1,059,190 | ||||||
| JP Morgan Mortgage Acquisition Trust | ||||||||
2007-CH3, 0.32% due 03/25/372 | 1,068,055 | 1,053,121 | ||||||
| Central Park CLO Ltd. | ||||||||
2011-1A, 3.43% due 07/23/222,3 | 1,040,000 | 1,026,896 | ||||||
| Cornerstone CLO Ltd. | ||||||||
2007-1A, 0.45% due 07/15/212,3 | 1,010,538 | 1,001,646 | ||||||
| Symphony CLO IX, LP | ||||||||
2012-9A, 2.73% due 04/16/222,3 | 500,000 | 499,400 | ||||||
2012-9A, 3.48% due 04/16/222,3 | 500,000 | 495,400 | ||||||
| KKR Financial CLO 2007-1 Ltd. | ||||||||
2007-1A, 2.48% due 05/15/212,3 | 950,000 | 941,640 | ||||||
| N-Star REL CDO VIII Ltd. | �� | |||||||
2006-8A, 0.46% due 02/01/412,3 | 923,177 | 889,019 | ||||||
| Black Diamond CLO 2005-1 Delaware Corp. | ||||||||
2005-1A, 2.15% due 06/20/172,3 | 900,000 | 873,810 | ||||||
| GSC Group CDO Fund VIII Ltd. | ||||||||
2007-8A, 0.61% due 04/17/212,3 | 850,000 | 834,190 | ||||||
| Aegis Asset Backed Securities Trust | ||||||||
2005-3, 0.64% due 08/25/352 | 828,590 | 816,931 | ||||||
| GreenPoint Mortgage Funding Trust | ||||||||
2005-HE4, 0.87% due 07/25/302 | 864,417 | 815,440 | ||||||
| Wells Fargo Home Equity Asset-Backed Securities 2006-2 Trust | ||||||||
2006-3, 0.32% due 01/25/372 | 809,962 | 775,510 | ||||||
| Symphony CLO VII Ltd. | ||||||||
2011-7A, 3.43% due 07/28/212,3 | 750,000 | 748,950 | ||||||
| Race Point V CLO Ltd. | ||||||||
2014-5AR, 3.09% due 12/15/222,3 | 700,000 | 697,130 | ||||||
| Black Diamond CLO 2006-1 Luxembourg S.A. | ||||||||
2007-1A, 0.62% due 04/29/192,3 | 700,000 | 658,490 | ||||||
| Foothill CLO Ltd. | ||||||||
2007-1A, 0.48% due 02/22/212,3 | 661,513 | 656,287 | ||||||
| Northwoods Capital VII Ltd. | ||||||||
2006-7A, 1.78% due 10/22/212,3 | 650,000 | 642,980 | ||||||
| Popular ABS Mortgage Pass-Through Trust | ||||||||
2005-A, 0.60% due 06/25/352 | 665,684 | 641,152 | ||||||
| H2 Asset Funding Ltd. | ||||||||
| 2.06% due 03/19/37 | 600,000 | 601,260 | ||||||
| Golub Capital Partners CLO 18 Ltd. | ||||||||
2014-18A, 2.73% due 04/25/262,3 | 590,000 | 588,525 | ||||||
| OFSI Fund V Ltd. | ||||||||
2013-5A, 3.43% due 04/17/252,3 | 600,000 | 579,120 | ||||||
| Halcyon Loan Advisors Funding 2012-1 Ltd. | ||||||||
2012-1A, 3.23% due 08/15/232,3 | 500,000 | 485,550 | ||||||
| NewStar Commercial Loan Trust | ||||||||
2007-1A, 1.53% due 09/30/222,3 | 500,000 | 474,500 | ||||||
| DIVCORE CLO Ltd. | ||||||||
| 2013-1A B, 4.06% due 11/15/32 | 400,000 | 400,120 | ||||||
| Soundview Home Loan Trust | ||||||||
2003-1, 2.42% due 08/25/312 | 358,747 | 355,698 | ||||||
| Tricadia CDO 2006-6 Ltd. | ||||||||
2006-6A, 0.78% due 11/05/412,3 | 326,450 | 324,361 | ||||||
| Race Point IV CLO Ltd. | ||||||||
2007-4A, 0.98% due 08/01/212,3 | 300,000 | 291,420 | ||||||
| West Coast Funding Ltd. | ||||||||
2006-1A, 0.39% due 11/02/412,3 | 203,718 | 200,886 | ||||||
| Global Leveraged Capital Credit Opportunity Fund | ||||||||
2006-1A, 0.53% due 12/20/182,3 | 186,091 | 185,849 | ||||||
| Golub Capital Partners Fundings Ltd. | ||||||||
2007-1A, 0.49% due 03/15/222,3 | 104,493 | 103,887 | ||||||
| Total Asset-Backed Securities | ||||||||
| (Cost $27,714,233) | 28,042,407 | |||||||
MORTGAGE-BACKED SECURITIES†† - 4.8% | ||||||||
| HSI Asset Securitization Corporation Trust | ||||||||
2007-WF1, 0.34% due 05/25/372 | 1,670,909 | 1,616,026 | ||||||
| Resource Capital Corporation CRE Notes 2013 Ltd. | ||||||||
2013-CRE1, 3.01% due 12/15/282,3 | 1,250,000 | 1,255,637 | ||||||
| Boca Hotel Portfolio Trust | ||||||||
2013-BOCA, 3.21% due 08/15/262,3 | 1,250,000 | 1,249,242 | ||||||
| Hilton USA Trust | ||||||||
2013-HLF, 2.92% due 11/05/302,3 | 1,084,012 | 1,084,068 | ||||||
| SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 69 |
SCHEDULE OF INVESTMENTS (concluded) | December 31, 2014 |
| SERIES J (STYLEPLUS—MID GROWTH SERIES) |
| Face Amount | Value | |||||||
| SRERS Funding Ltd. | ||||||||
2011-RS, 0.41% due 05/09/462,3 | $ | 964,393 | $ | 918,585 | ||||
| Bank of America Merrill Lynch Commercial Mortgage, Inc. | ||||||||
2005-6, 6.13% due 09/10/472,3 | 702,400 | 712,935 | ||||||
| HarborView Mortgage Loan Trust | ||||||||
2006-12, 0.35% due 01/19/382 | 781,627 | 662,227 | ||||||
| Wachovia Bank Commercial Mortgage Trust Series | ||||||||
2007-WHL8, 0.24% due 06/15/202,3 | 352,768 | 351,949 | ||||||
| Total Mortgage-Backed Securities | ||||||||
| (Cost $7,714,116) | 7,850,669 | |||||||
| Total Investments - 100.3% | ||||||||
| (Cost $161,379,341) | $ | 163,537,403 | ||||||
| Other Assets & Liabilities, net - (0.3)% | (470,976 | ) | ||||||
| Total Net Assets - 100.0% | $ | 163,066,427 | ||||||
| Units | Unrealized Gain | |||||||
OTC EQUITY INDEX SWAP AGREEMENTS†† | ||||||||
Morgan Stanley Capital Services, Inc. January 2015 Russell MidCap Growth Index Swap, Terminating 01/02/154 (Notional Value $127,205,619) | 170,086 | $ | 1,307,479 | |||||
| * | Non-income producing security. |
| † | Value determined based on Level 1 inputs — See Note 4. |
| †† | Value determined based on Level 2 inputs — See Note 4. |
| 1 | Affiliated issuer — See Note 10. |
| 2 | Variable rate security. Rate indicated is rate effective at December 31, 2014. |
| 3 | Security is a 144A or Section 4(a)(2) security. The total market value of 144A or Section 4(a)(2) securities is $26,986,429 (cost $26,775,589), or 16.5% of total net assets. These securities have been determined to be liquid under guidelines established by Board of Trustees. |
| 4 | Total Return based on Russell MidCap Growth Index +/- financing at a variable rate. |
| plc — Public Limited Company |
| 70 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
| SERIES J (STYLEPLUS—MID GROWTH SERIES) |
| STATEMENT OF ASSETS AND LIABILITIES |
| December 31, 2014 | ||||
| Assets: | ||||
| Investments in unaffiliated issuers, at value (cost $74,125,490) | $ | 76,639,200 | ||
| Investments in affiliated issuers, at value (cost $87,253,851) | 86,898,203 | |||
| Total investments (cost $161,379,341) | 163,537,403 | |||
| Unrealized appreciation on swap agreements | 1,307,479 | |||
| Cash | 34,895 | |||
| Prepaid expenses | 7,166 | |||
| Receivables: | ||||
| Securities sold | 515,278 | |||
| Dividends | 157,772 | |||
| Interest | 88,439 | |||
| Fund shares sold | 5,593 | |||
| Total assets | 165,654,025 | |||
| Liabilities: | ||||
| Segregated cash from broker | 2,197,000 | |||
| Payable for: | ||||
| Securities purchased | 138,908 | |||
| Fund shares redeemed | 112,929 | |||
| Management fees | 103,350 | |||
| Fund accounting/administration fees | 13,091 | |||
| Transfer agent/maintenance fees | 3,299 | |||
| Trustees’ fees* | 2,108 | |||
| Miscellaneous | 16,913 | |||
| Total liabilities | 2,587,598 | |||
| Net assets | $ | 163,066,427 | ||
| Net assets consist of: | ||||
| Paid in capital | $ | 166,602,724 | ||
| Undistributed net investment income | 1,766,590 | |||
| Accumulated net realized loss on investments | (8,768,428 | ) | ||
| Net unrealized appreciation on investments | 3,465,541 | |||
| Net assets | $ | 163,066,427 | ||
| Capital shares outstanding | 3,319,893 | |||
| Net asset value per share | $ | 49.12 | ||
| STATEMENT OF OPERATIONS |
| Year Ended December 31, 2014 | ||||
| Investment Income: | ||||
| Interest | $ | 1,647,396 | ||
| Dividends from securities of affiliated issuers | 1,036,101 | |||
| Dividends from securities of unaffiliated issuers (net of foreign withholding tax of $641) | 509,334 | |||
| Total investment income | 3,192,831 | |||
| Expenses: | ||||
| Management fees | 1,180,564 | |||
| Transfer agent/maintenance fees | 25,005 | |||
| Fund accounting/administration fees | 149,536 | |||
| Trustees’ fees* | 16,925 | |||
| Line of credit fees | 14,534 | |||
| Custodian fees | 12,056 | |||
| Tax expense | 4 | |||
| Miscellaneous | 150,743 | |||
| Total expenses | 1,549,367 | |||
| Less: | ||||
| Expenses waived by Adviser | (31,393 | ) | ||
| Net expenses | 1,517,974 | |||
| Net investment income | 1,674,857 | |||
| Net Realized and Unrealized Gain (Loss): | ||||
| Net realized gain (loss) on: | ||||
| Investments in unaffiliated issuers | 5,511,744 | |||
| Investments in affiliated issuers | (131,677 | ) | ||
| Swap agreements | 11,783,213 | |||
| Futures contracts | 117,377 | |||
| Net realized gain | 17,280,657 | |||
| Net change in unrealized appreciation (depreciation) on: | ||||
| Investments in unaffiliated issuers | (657,205 | ) | ||
| Investments in affiliated issuers | (222,646 | ) | ||
| Swap agreements | 1,307,479 | |||
| Futures contracts | (29,603 | ) | ||
| Net change in unrealized appreciation (depreciation) | 398,025 | |||
| Net realized and unrealized gain | 17,678,682 | |||
| Net increase in net assets resulting from operations | $ | 19,353,539 | ||
| * | Relates to Trustees not deemed “interested persons” within the meaning of Section 2(a)(19) of the 1940 Act. |
| SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 71 |
| SERIES J (STYLEPLUS—MID GROWTH SERIES) |
| STATEMENTS OF CHANGES IN NET ASSETS |
| Year Ended December 31, 2014 | Year Ended December 31, 2013 | |||||||
| Increase (Decrease) in Net Assets from Operations: | ||||||||
| Net investment income | $ | 1,674,857 | $ | 249,176 | ||||
| Net realized gain on investments | 17,280,657 | 42,585,332 | ||||||
| Net change in unrealized appreciation (depreciation) on investments | 398,025 | (3,723,086 | ) | |||||
| Net increase in net assets resulting from operations | 19,353,539 | 39,111,422 | ||||||
| Capital share transactions: | ||||||||
| Proceeds from sale of shares | 8,383,416 | 5,825,753 | ||||||
| Cost of shares redeemed | (21,801,449 | ) | (26,061,600 | ) | ||||
| Net decrease from capital share transactions | (13,418,033 | ) | (20,235,847 | ) | ||||
| Net increase in net assets | 5,935,506 | 18,875,575 | ||||||
| Net assets: | ||||||||
| Beginning of year | 157,130,921 | 138,255,346 | ||||||
| End of year | $ | 163,066,427 | $ | 157,130,921 | ||||
| Undistributed net investment income at end of year | $ | 1,766,590 | $ | 249,176 | ||||
| Capital share activity: | ||||||||
| Shares sold | 180,942 | 151,861 | ||||||
| Shares redeemed | (477,751 | ) | (688,120 | ) | ||||
| Net decrease in shares | (296,809 | ) | (536,259 | ) | ||||
| 72 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
| SERIES J (STYLEPLUS—MID GROWTH SERIES) |
| FINANCIAL HIGHLIGHTS |
This table is presented to show selected data for a share outstanding throughout each period and to assist shareholders in evaluating a Fund’s performance for the periods presented.
| Year Ended December 31, 2014 | Year Ended December 31, 2013 | Year Ended December 31, 2012 | Year Ended December 31, 2011 | Year Ended December 31, 2010 | ||||||||||||||||
| Per Share Data | ||||||||||||||||||||
| Net asset value, beginning of period | $ | 43.45 | $ | 33.29 | $ | 28.75 | $ | 30.05 | $ | 24.20 | ||||||||||
| Income (loss) from investment operations: | ||||||||||||||||||||
Net investment income (loss)a | .49 | .06 | .05 | (.03 | ) | (.02 | ) | |||||||||||||
| Net gain (loss) on investments (realized and unrealized) | 5.18 | 10.10 | 4.49 | (1.27 | ) | 5.87 | ||||||||||||||
| Total from investment operations | 5.67 | 10.16 | 4.54 | (1.30 | ) | 5.85 | ||||||||||||||
| Net asset value, end of period | $ | 49.12 | $ | 43.45 | $ | 33.29 | $ | 28.75 | $ | 30.05 | ||||||||||
Total Returnb | 13.05 | % | 30.52 | % | 15.79 | % | (4.33 | %) | 24.17 | % | ||||||||||
| Ratios/Supplemental Data | ||||||||||||||||||||
| Net assets, end of period (in thousands) | $ | 163,066 | $ | 157,131 | $ | 138,255 | $ | 136,469 | $ | 169,388 | ||||||||||
| Ratios to average net assets: | ||||||||||||||||||||
| Net investment income (loss) | 1.06 | % | 0.17 | % | 0.14 | % | (0.10 | %) | (0.10 | %) | ||||||||||
Total expensesd | 0.98 | % | 0.98 | % | 0.95 | % | 0.91 | % | 0.91 | % | ||||||||||
Net expensesc,d | 0.96 | % | 0.98 | % | 0.95 | % | 0.91 | % | 0.91 | % | ||||||||||
| Portfolio turnover rate | 100 | % | 245 | % | 150 | % | 155 | % | 130 | % | ||||||||||
a | Net investment income (loss) per share was computed using average shares outstanding throughout the period. |
b | Total return does not take into account any of the expenses associated with an investment in variable insurance products. If total return had taken into account these expenses, performance would have been lower. Shares of a series of Guggenheim Variable Funds Trust are available only through the purchase of such products. |
c | Net expense information reflects the expense ratios after expense waivers. |
d | Does not include expenses of the underlying funds in which the Fund invests. |
| SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 73 |
MANAGER'S COMMENTARY (Unaudited) | December 31, 2014 |
To Our Shareholders
The Series M (Macro Opportunities Series) is managed by a team of seasoned professionals, including B. Scott Minerd, Chairman of Investments and Global Chief Investment Officer; Anne B. Walsh, Senior Managing Director and Assistant Chief Investment Officer; Kevin H. Gundersen, Senior Managing Director and Portfolio Manager; and James W. Michal, Managing Director and Portfolio Manager. In the following paragraphs, the investment team discusses the market environment and Series performance for the fiscal year ended December 31, 2014.
For the one-year period ended December 31, 2014 (the “period”), the Series M (Macro Opportunities Series) returned 5.35%, compared with the 0.04% return of its benchmark, the Bank of America Merrill Lynch 3-Month U.S. Treasury Bill Index.
The Fund seeks to provide total return, comprised of current income and capital appreciation. The Fund pursues its investment objective by investing in a wide range of fixed income and other debt and equity securities selected from a variety of sectors and credit qualities. The Fund may engage in derivative transactions for speculative purposes to enhance total return, seek to hedge against fluctuations in securities prices, interest rates or currency rates, change the effective duration of its portfolio, manage certain investment risks and/or as a substitute for the purchase or sale of securities or currencies.
Credit-spread and risk assets continued to find investor favor through 2014, even though severe winter weather in the first quarter produced volatility and mixed economic data. Additional liquidity from central banks outside the U.S. supported foreign capital flows into U.S. assets, which, along with the search for yield among U.S. investors, was positive for fixed income. The yield on the U.S. government 10-year bond declined from 3.03% to 2.17%, and we expect longer-term rates to remain range-bound in the near-term, with the potential for downward pressure.
But just as the market appeared to be growing complacent in the third quarter of 2014, leveraged credit had its first correction in a year, as mutual fund investors withdrew from the sector amid concerns about frothy valuations and talk of credit bubble. U.S. equity and credit markets were not safe from the risk aversion that drove volatility during the second half of the year. While the sell-off was initially sparked by market unease over the Fed winding down its purchases of U.S. Treasuries and mortgage-backed securities, it continued through the fourth quarter as markets grew anxious over the weakening global outlook.
High yield corporate bonds and bank loans continued their strong performance through the first half of 2014, but then faltered in the second half. High-yield bond funds and bank loan funds recorded net outflows of $6.3 billion and $17.3 billion for the year, respectively. Leveraged credit new issue activity remained robust despite weaker demand, reaching $833 billion–the second highest volume on record. Mergers, acquisitions and leveraged buyout activity represented 40% of new issue volume, the highest share since 2008. The decline in oil prices during the second half had a material impact on high-yield bond spreads generally, as energy-related companies represented 16% of the high-yield corporate bond market.
ABS performance was positive for the fourth quarter, as rates markets sold off primarily in the front end of the curve, and for the year. New ABS issuance for the year was $222.4 billion, 21% above 2013. New ABS issuance was diversified across all classes, with auto and credit card new issues remaining strong. Credit performance across the commercial ABS and CLO sectors remain favorable given the benign credit conditions and collateral valuations across the U.S. economy.
The non-Agency RMBS market showed positive performance, even though mortgage credit fundamentals dimmed a bit at the end of the year. The inventory of homes listed for sale remained historically low (at 5.1 months) despite increasing over early 2014. Existing home sales remained in the 4.9 to 5.2 million range (seasonally-adjusted annualized) but remain below the post-crisis peak seen in mid 2013. New home sales and housing starts remain near post-crisis highs, but at year end were mixed relative to consensus expectations.
| 74 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
MANAGER'S COMMENTARY (Unaudited)(concluded) | December 31, 2014 |
During the period, the Fund continued to see further price appreciation attributable to tightening of credit spreads outside of high yield. Positive returns have largely been driven by the Fund’s investments in asset-backed securities (ABS) as spreads continued to normalize across various subsectors including collateralized loan obligations (CLOs), commercial real estate collateralized debt obligations (CDOs), and aircraft lease securitizations. For the year, macroeconomic themed investments including long dollar and short euro positions also added to the Fund’s performance, while investments in gold were a minor detractor.
The Fund continues to maintain very little interest rate duration, particularly at the front end of the yield curve, and thus has largely avoided losses due to a flattening curve. The concentration of the Fund’s credit investments in relatively short maturity high yield bonds and leveraged loans has muted the impact of the recent turmoil in risk assets and the Fund continues to use these periods of weakness to add to attractive assets.
Performance displayed represents past performance, which is no guarantee of future results.
The opinions and forecast expressed may not actually come to pass. This information is subject to change at any time, based on market and other conditions, and should not be construed as a recommendation of any specific security or strategy.
| THE GUGGENHEIM FUNDS ANNUAL REPORT | 75 |
PERFORMANCE REPORT AND FUND PROFILE (Unaudited) | December 31, 2014 |
SERIES M (MACRO OPPORTUNITIES SERIES)
OBJECTIVE: Seeks to provide total return, comprised of current income and capital appreciation.
Holdings Diversification
(Market Exposure as % of Net Assets)
“Holdings Diversification (Market Exposure as % of Net Assets)” excludes any temporary cash investments or investments in Guggenheim Strategy Funds Trust mutual funds.
| Portfolio Composition by Quality Rating** | |
| Rating | |
| Fixed Income Instruments | |
| AA | 1.5% |
| A | 8.8% |
| BBB | 20.5% |
| BB | 11.0% |
| B | 19.9% |
| CCC | 7.1% |
| CC | 1.3% |
| D | 0.3% |
| NR | 0.3% |
| Other Instruments | |
| Mutual Funds | 21.4% |
| Short Term Investments | 2.9% |
| Common Stocks | 2.9% |
| Preferred Stocks | 2.1% |
| Total Investments | 100.0% |
| The chart above reflects percentages of the value of total investments. | |
Inception Date: April 24, 2013 |
| Ten Largest Holdings (% of Total Net Assets) | |
| Guggenheim Limited Duration Fund - Institutional Class | 16.6% |
| Guggenheim Macro Opportunities Fund - Institutional Class | 4.5% |
| Gramercy Real Estate CDO 2007-1 Ltd. — Class A1 | 1.7% |
| LCM X, LP — Class DR | 1.5% |
| Rise Ltd. | 1.4% |
| SunTrust Banks, Inc. | 1.4% |
| AABS Ltd. | 1.3% |
| Castlelake Aircraft Securitization Trust 2014-1 — Class A1 | 1.3% |
| Ollies Bargain Outlet | 1.3% |
| Seaspan Corp. | 1.0% |
| Top Ten Total | 32.0% |
| “Ten Largest Holdings” exclude any temporary cash or derivative investments. | |
| 76 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
PERFORMANCE REPORT AND FUND PROFILE (Unaudited)(concluded) | December 31, 2014 |
Cumulative Fund Performance*,†
Average Annual Returns*
Periods Ended December 31, 2014†
| 1 Year | Since Inception (04/24/13) | ||
| Series M (Macro Opportunities Series) | 5.35% | 3.72% | |
| BofA Merrill Lynch 3-Month U.S. Treasury Bill Index | 0.04% | 0.05% |
| * | The performance data above represents past performance that is not predictive of future results. The investment return and principal value of an investment in the Fund will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Returns are historical and include changes in principal and reinvested dividends and capital gains and do not reflect the effect of taxes. The BofA Merrill Lynch 3-Month U.S. Treasury Bill Index is an unmanaged index and, unlike the Fund, has no management fees or operating expenses to reduce its reported return. |
| ** | Source: Factset. Credit quality ratings are measured on a scale that generally ranges from AAA (highest) to D (lowest). All rated securities have been rated by Moody’s, Standard & Poor’s (“S&P”), or Fitch, which are all a Nationally Recognized Statistical Rating Organization (“NRSRO”). For purposes of this presentation, when ratings are available from more than one agency, the highest rating is used. Guggenheim Investments has converted Moody’s and Fitch ratings to the equivalent S&P rating. Unrated securities do not necessarily indicate low credit quality. Security ratings are determined at the time of purchase and may change thereafter. |
† | Performance figures do not reflect fees and expenses associated with an investment in variable insurance products. If returns had taken into account these fees and expenses, performance would have been lower. Shares of a series of Guggenheim Variable Funds Trust are available only through the purchase of such products. |
| THE GUGGENHEIM FUNDS ANNUAL REPORT | 77 |
| SCHEDULE OF INVESTMENTS | December 31, 2014 |
| SERIES M (MACRO OPPORTUNITIES SERIES) |
| Shares | Value | |||||||
PREFERRED STOCKS† - 2.1% | ||||||||
| Seaspan Corp. | ||||||||
| 6.38% due 04/30/19 | 14,000 | $ | 347,200 | |||||
| Aspen Insurance Holdings Ltd. | ||||||||
5.95%1,2 | 10,000 | 252,600 | ||||||
| CoBank ACB | ||||||||
6.20%1,2 | 1,000 | 100,000 | ||||||
| Total Preferred Stocks | ||||||||
| (Cost $700,000) | 699,800 | |||||||
EXCHANGE-TRADED FUNDS† - 2.8% | ||||||||
| SPDR EURO STOXX 50 ETF | 7,300 | 269,078 | ||||||
| iShares MSCI Italy Capped ETF | 19,200 | 261,120 | ||||||
| iShares MSCI Spain Capped ETF | 7,500 | 259,725 | ||||||
| iShares iBoxx $ High Yield Corporate Bond ETF | 1,700 | 152,320 | ||||||
| Total Exchange-Traded Funds | ||||||||
| (Cost $1,043,075) | 942,243 | |||||||
MUTUAL FUNDS†,3 - 21.1% | ||||||||
| Guggenheim Limited Duration Fund - Institutional Class | 222,170 | 5,512,035 | ||||||
| Guggenheim Macro Opportunities Fund - Institutional Class | 56,269 | 1,511,390 | ||||||
| Total Mutual Funds | ||||||||
| (Cost $7,049,235) | 7,023,425 | |||||||
SHORT TERM INVESTMENTS† - 2.8% | ||||||||
| Federated U.S. Treasury Cash Reserve Fund | 945,111 | 945,111 | ||||||
| Total Short Term Investments | ||||||||
| (Cost $945,111) | 945,111 | |||||||
| Face Amount | ||||||||
ASSET-BACKED SECURITIES†† - 31.3% | ||||||||
| Gramercy Real Estate CDO 2007-1 Ltd. | ||||||||
2007-1A, 0.51% due 08/15/561,4 | $ | 622,944 | 556,228 | |||||
| LCM X, LP | ||||||||
2014-10AR, 3.98% due 04/15/221,4 | 500,000 | 495,300 | ||||||
| Rise Ltd. | ||||||||
| 4.74% due 02/12/39 | 473,958 | 476,328 | ||||||
| AABS Ltd. | ||||||||
| 4.87% due 01/15/38 | 440,104 | 445,033 | ||||||
| Castlelake Aircraft Securitization Trust | ||||||||
| 2014-1, 5.25% due 02/15/29 | 432,802 | 431,158 | ||||||
| Great Lakes CLO 2014-1 Ltd. | ||||||||
2014-1A, 4.43% due 04/15/251,4 | 350,000 | 338,555 | ||||||
| N-Star Real Estate CDO IX Ltd. | ||||||||
0.47% due 02/01/415 | 355,068 | 336,853 | ||||||
| Cedar Woods CRE CDO Ltd. | ||||||||
| 2006-1A, 0.43% due 07/25/51 | 360,509 | 323,413 | ||||||
| CIT Mortgage Loan Trust | ||||||||
2007-1, 1.62% due 10/25/371,4 | 325,000 | 305,350 | ||||||
| GreenPoint Mortgage Funding Trust | ||||||||
2005-HE4, 0.87% due 07/25/301 | 288,139 | 271,813 | ||||||
| Structured Asset Securities Corporation Mortgage Loan Trust 2006-OPT1 | ||||||||
2006-OPT1, 0.43% due 04/25/361 | 300,000 | 270,675 | ||||||
| DIVCORE CLO Ltd. | ||||||||
| 2013-1A B, 4.06% due 11/15/32 | 250,000 | 250,075 | ||||||
| Newstar Commercial Loan Funding 2014-1 LLC | ||||||||
2014-1A, 4.98% due 04/20/251,4 | 250,000 | 250,000 | ||||||
| Newstar Commercial Loan Funding 2013-1 LLC | ||||||||
2013-1A, 5.55% due 09/20/231,4 | 250,000 | 249,375 | ||||||
| Northwoods Capital VII Ltd. | ||||||||
2006-7A, 3.73% due 10/22/211,4 | 250,000 | 249,275 | ||||||
| Garrison Funding 2013-2 Ltd. | ||||||||
2013-2A, 4.88% due 09/25/231,4 | 250,000 | 247,575 | ||||||
| Salus CLO 2012-1 Ltd. | ||||||||
2012-1AN, 6.98% due 03/05/211,4 | 250,000 | 247,425 | ||||||
| RAIT CRE CDO I Ltd. | ||||||||
| 2006-1X, 0.49% due 11/20/46 | 270,874 | 246,414 | ||||||
| COA Summit CLO Limited | ||||||||
2014-1A, 4.08% due 04/20/231,4 | 250,000 | 246,300 | ||||||
| Battalion Clo 2007-I Ltd. | ||||||||
2007-1A, 2.38% due 07/14/221,4 | 250,000 | 243,925 | ||||||
| Telos CLO Ltd. | ||||||||
2013-3A, 4.48% due 01/17/241,4 | 250,000 | 243,225 | ||||||
| Acis CLO 2013-2 Ltd. | ||||||||
2013-2A, 4.08% due 10/14/221,4 | 250,000 | 241,825 | ||||||
| ColumbusNova CLO Limited | ||||||||
2007-1A, 1.58% due 05/16/191,4 | 250,000 | 240,950 | ||||||
| Black Diamond CLO 2005-2 Delaware Corp. | ||||||||
2005-2A, 2.05% due 01/07/181,4 | 250,000 | 240,750 | ||||||
| Kingsland III Ltd. | ||||||||
2006-3A, 1.83% due 08/24/211,4 | 250,000 | 238,500 | ||||||
| KVK CLO 2014-1 Ltd. | ||||||||
2014-1A, 3.13% due 05/15/261,4 | 250,000 | 237,925 | ||||||
| Cerberus Onshore II CLO LLC | ||||||||
2014-1A, 4.23% due 10/15/231,4 | 250,000 | 236,400 | ||||||
| Emerald Aviation Finance Ltd. | ||||||||
2013-1, 6.35% due 10/15/384 | 231,771 | 235,247 | ||||||
| ALM XIV Ltd. | ||||||||
2014-14A, 3.68% due 07/28/261,4 | 250,000 | 232,625 | ||||||
| Kingsland IV Ltd. | ||||||||
2007-4A, 1.68% due 04/16/211,4 | 250,000 | 230,300 | ||||||
| Turbine Engines Securitization Ltd. | ||||||||
2013-1A, 6.38% due 12/13/484 | 221,792 | 225,119 | ||||||
| First Franklin Mortgage Loan Trust | ||||||||
2006-FF1, 0.51% due 01/25/361 | 250,000 | 220,187 | ||||||
| AMMC CLO XI Ltd. | ||||||||
2012-11A, 0.00% due 10/30/234,7 | 250,000 | 164,900 | ||||||
| Fortress Credit Opportunities III CLO, LP | ||||||||
2014-3A, 3.48% due 04/28/261,4 | 150,000 | 147,660 |
| 78 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
SCHEDULE OF INVESTMENTS (continued) | December 31, 2014 |
| SERIES M (MACRO OPPORTUNITIES SERIES) |
| Face Amount | Value | |||||||
| GSAA Home Equity Trust | ||||||||
2007-7, 0.44% due 07/25/371 | $ | 168,452 | $ | 142,216 | ||||
| Park Place Securities Incorporated Series 2005-WHQ2 | ||||||||
2005-WHQ2, 0.63% due 05/25/351 | 140,000 | 130,474 | ||||||
| West Coast Funding Ltd. | ||||||||
2006-1A, 0.39% due 11/02/411,4 | 100,870 | 99,468 | ||||||
| Tricadia CDO 2006-6 Ltd. | ||||||||
2006-6A, 0.98% due 11/05/411,4 | 100,000 | 92,880 | ||||||
| Saxon Asset Securities Trust | ||||||||
2005-4, 0.61% due 11/25/371 | 100,000 | 86,816 | ||||||
| Wachovia Asset Securitization Issuance II LLC 2007-HE1 Trust | ||||||||
2007-HE1, 0.31% due 07/25/371,4 | 79,562 | 71,429 | ||||||
| New Century Home Equity Loan Trust | ||||||||
2005-1, 0.89% due 03/25/351 | 68,916 | 60,141 | ||||||
| New Century Home Equity Loan Trust | ||||||||
2004-4, 0.96% due 02/25/351 | 58,210 | 52,856 | ||||||
| Total Asset-Backed Securities | ||||||||
| (Cost $10,224,405) | 10,352,963 | |||||||
SENIOR FLOATING RATE INTERESTS†† - 16.3% | ||||||||
| INDUSTRIAL - 2.4% | ||||||||
| Power Borrower, LLC | ||||||||
| 8.25% due 11/06/20 | 125,000 | 120,625 | ||||||
| 4.25% due 05/06/20 | 115,288 | 112,022 | ||||||
| Thermasys Corp. | ||||||||
| 5.25% due 05/03/19 | 120,313 | 117,906 | ||||||
| Mitchell International, Inc. | ||||||||
| 8.50% due 10/11/21 | 100,000 | 99,350 | ||||||
| Nord Anglia Education Finance LLC | ||||||||
| 4.50% due 03/31/21 | 99,500 | 98,256 | ||||||
| syncreon | ||||||||
| 5.25% due 10/28/20 | 99,000 | 96,030 | ||||||
| MRC Global, Inc. | ||||||||
| 5.00% due 11/08/19 | 98,750 | 90,603 | ||||||
| NaNa Development Corp. | ||||||||
8.00% due 03/15/185 | 65,000 | 61,425 | ||||||
| Total Industrial | 796,217 | |||||||
| TECHNOLOGY - 3.9% | ||||||||
| EIG Investors Corp. | ||||||||
| 5.00% due 11/09/19 | 245,638 | 243,794 | ||||||
| Deltek, Inc. | ||||||||
| 4.50% due 10/10/18 | 216,339 | 213,527 | ||||||
| Wall Street Systems | ||||||||
| 4.50% due 04/30/21 | 186,957 | 183,685 | ||||||
| Active Network, Inc., The | ||||||||
| 5.50% due 11/13/20 | 117,857 | 115,108 | ||||||
| Greenway Medical Technologies | ||||||||
6.00% due 11/04/205 | 99,000 | 98,010 | ||||||
| Evergreen Skill | ||||||||
| 5.75% due 04/28/21 | 99,750 | 97,475 | ||||||
| Go Daddy Operating Company, LLC | ||||||||
| 4.75% due 05/13/21 | 97,990 | 97,112 | ||||||
| LANDesk Group, Inc. | ||||||||
| 5.00% due 02/25/20 | 98,754 | 96,861 | ||||||
| Aspect Software, Inc. | ||||||||
| 7.25% due 05/07/16 | 92,500 | 89,725 | ||||||
| P2 Energy Solutions | ||||||||
| 5.00% due 10/30/20 | 79,050 | 76,284 | ||||||
| Total Technology | 1,311,581 | |||||||
| FINANCIAL - 3.4% | ||||||||
| First Data Corp. | ||||||||
| 3.67% due 03/23/18 | 250,000 | 244,845 | ||||||
| Intertrust Group | ||||||||
| 8.00% due 04/11/22 | 100,000 | 98,500 | ||||||
| 4.51% due 04/16/21 | 100,000 | 98,425 | ||||||
| American Stock Transfer & Trust | ||||||||
| 5.75% due 06/26/20 | 192,802 | 191,356 | ||||||
| STG-Fairway Acquisitions, Inc. | ||||||||
| 6.25% due 02/28/19 | 147,376 | 144,981 | ||||||
| Magic Newco, LLC | ||||||||
| 12.00% due 06/12/19 | 125,000 | 135,079 | ||||||
| National Financial Partners Corp. | ||||||||
| 4.50% due 07/01/20 | 98,753 | 97,518 | ||||||
| HDV Holdings | ||||||||
5.75% due 12/18/185 | 84,690 | 84,232 | ||||||
| Expert Global Solutions | ||||||||
| 8.52% due 04/03/18 | 34,656 | 34,396 | ||||||
| RCS Capital | ||||||||
| 6.50% due 04/29/19 | 3,323 | 3,079 | ||||||
| Total Financial | 1,132,411 | |||||||
| CONSUMER, CYCLICAL - 3.3% | ||||||||
| Ollies Bargain Outlet | ||||||||
| 4.75% due 09/28/19 | 438,964 | 430,186 | ||||||
| Men’s Wearhouse | ||||||||
| 4.50% due 06/18/21 | 199,500 | 198,253 | ||||||
| Lions Gate Entertainment Corp. | ||||||||
| 5.00% due 07/19/20 | 200,000 | 197,750 | ||||||
| Advantage Sales & Marketing, Inc. | ||||||||
| 4.25% due 07/21/21 | 96,532 | 95,346 | ||||||
| 4.25% due 07/23/21 | 3,226 | 3,186 | ||||||
| Sears Holdings Corp. | ||||||||
| 5.50% due 06/30/18 | 99,000 | 95,040 | ||||||
| Fleetpride Corp. | ||||||||
| 5.25% due 11/19/19 | 87,996 | 86,089 | ||||||
| Total Consumer, Cyclical | 1,105,850 | |||||||
| SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 79 |
SCHEDULE OF INVESTMENTS (continued) | December 31, 2014 |
| SERIES M (MACRO OPPORTUNITIES SERIES) |
| Face Amount | Value | |||||||
| COMMUNICATIONS - 1.6% | ||||||||
| Avaya, Inc. | ||||||||
| 6.50% due 03/31/18 | $ | 244,938 | $ | 240,856 | ||||
| 4.67% due 10/26/17 | 99,122 | 94,909 | ||||||
| Interactive Data Corp. | ||||||||
| 4.75% due 05/02/21 | 99,500 | 98,629 | ||||||
| Cengage Learning Acquisitions, Inc. | ||||||||
| 7.00% due 03/31/20 | 99,250 | 98,133 | ||||||
| Total Communications | 532,527 | |||||||
| CONSUMER, NON-CYCLICAL - 1.4% | ||||||||
| Arctic Glacier Holdings, Inc. | ||||||||
| 5.00% due 05/10/19 | 160,308 | 155,498 | ||||||
| Performance Food Group | ||||||||
| 6.25% due 11/14/19 | 123,125 | 120,509 | ||||||
| NES Global Talent | ||||||||
| 6.50% due 10/03/19 | 97,500 | 92,625 | ||||||
| Reddy Ice Holdings, Inc. | ||||||||
6.75% due 04/01/195 | 98,496 | 86,677 | ||||||
| Total Consumer, Non-cyclical | 455,309 | |||||||
| BASIC MATERIALS - 0.3% | ||||||||
| Royal Adhesives and Sealants | ||||||||
| 5.50% due 07/31/18 | 96,767 | 97,009 | ||||||
| Total Senior Floating Rate Interests | ||||||||
| (Cost $5,522,732) | 5,430,904 | |||||||
CORPORATE BONDS†† - 12.7% | ||||||||
| FINANCIAL - 5.0% | ||||||||
| SunTrust Banks, Inc. | ||||||||
5.63%1,2 | 450,000 | 452,249 | ||||||
| Bank of America Corp. | ||||||||
5.13%1,2 | 250,000 | 241,093 | ||||||
| Fifth Third Bancorp | ||||||||
5.10%1,2 | 250,000 | 231,563 | ||||||
| Customers Bank | ||||||||
6.13% due 06/26/291,4 | 150,000 | 152,625 | ||||||
| Barclays plc | ||||||||
8.25%1,2 | 100,000 | 102,492 | ||||||
| CIC Receivables Master Trust | ||||||||
4.89% due 10/07/21††† | 100,000 | 101,460 | ||||||
| Cadence Financial Corp. | ||||||||
4.88% due 06/28/1912 | 100,000 | 100,500 | ||||||
| Citigroup, Inc. | ||||||||
5.80% due 11/29/491,2 | 100,000 | 100,000 | ||||||
| JPMorgan Chase & Co. | ||||||||
5.00%1,2 | 100,000 | 97,844 | ||||||
| Jefferies LoanCore LLC / JLC Finance Corp. | ||||||||
6.88% due 06/01/204 | 100,000 | 91,250 | ||||||
| Total Financial | 1,671,076 | |||||||
| CONSUMER, NON-CYCLICAL - 2.2% | ||||||||
| Vector Group Ltd. | ||||||||
| 7.75% due 02/15/21 | 300,000 | 315,750 | ||||||
| Central Garden and Pet Co. | ||||||||
8.25% due 03/01/186 | 200,000 | 201,500 | ||||||
| KeHE Distributors LLC / KeHE Finance Corp. | ||||||||
7.63% due 08/15/214 | 100,000 | 106,250 | ||||||
| FTI Consulting, Inc. | ||||||||
| 6.75% due 10/01/20 | 100,000 | 104,750 | ||||||
| Total Consumer, Non-cyclical | 728,250 | |||||||
| CONSUMER, CYCLICAL - 1.5% | ||||||||
| Seminole Hard Rock Entertainment Incorporated / Seminole Hard Rock International LLC | ||||||||
5.88% due 05/15/214 | 250,000 | 247,500 | ||||||
| Petco Animal Supplies, Inc. | ||||||||
9.25% due 12/01/184 | 125,000 | 130,938 | ||||||
| GRD Holdings III Corp. | ||||||||
10.75% due 06/01/194 | 100,000 | 109,250 | ||||||
| Total Consumer, Cyclical | 487,688 | |||||||
| BASIC MATERIALS - 1.3% | ||||||||
| KGHM International Ltd. | ||||||||
7.75% due 06/15/194 | 250,000 | 257,500 | ||||||
| TPC Group, Inc. | ||||||||
8.75% due 12/15/204 | 185,000 | 179,913 | ||||||
| Total Basic Materials | 437,413 | |||||||
| INDUSTRIAL - 0.8% | ||||||||
| Prosight Global Inc. | ||||||||
7.50% due 11/26/20†††,5 | 100,000 | 102,330 | ||||||
| Marquette Transportation Company LLC / Marquette Transportation Finance Corp. | ||||||||
| 10.88% due 01/15/17 | 95,000 | 97,850 | ||||||
| Quality Distribution LLC / QD Capital Corp. | ||||||||
| 9.88% due 11/01/18 | 78,000 | 81,315 | ||||||
| Total Industrial | 281,495 | |||||||
| DIVERSIFIED - 0.6% | ||||||||
| Opal Acquisition, Inc. | ||||||||
8.88% due 12/15/214 | 150,000 | 152,250 | ||||||
| Harbinger Group, Inc. | ||||||||
| 7.88% due 07/15/19 | 43,000 | 45,795 | ||||||
| Total Diversified | 198,045 | |||||||
| COMMUNICATIONS - 0.5% | ||||||||
| SITEL LLC / Sitel Finance Corp. | ||||||||
11.00% due 08/01/174 | 125,000 | 124,375 | ||||||
| MDC Partners, Inc. | ||||||||
6.75% due 04/01/204 | 40,000 | 41,200 | ||||||
| Expo Event Transco, Inc. | ||||||||
9.00% due 06/15/214 | 10,000 | 10,200 | ||||||
| Total Communications | 175,775 | |||||||
| 80 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
SCHEDULE OF INVESTMENTS (continued) | December 31, 2014 |
| SERIES M (MACRO OPPORTUNITIES SERIES) |
| Face Amount | Value | |||||||
| ENERGY - 0.5% | ||||||||
| Atlas Energy Holdings Operating Company LLC / Atlas Resource Finance Corp. | ||||||||
| 9.25% due 08/15/21 | $ | 100,000 | $ | 77,500 | ||||
| BreitBurn Energy Partners Limited Partnership / BreitBurn Finance Corp. | ||||||||
| 7.88% due 04/15/22 | 100,000 | 77,250 | ||||||
| Total Energy | 154,750 | |||||||
| TECHNOLOGY - 0.3% | ||||||||
| Eagle Midco, Inc. | ||||||||
9.00% due 06/15/184 | 100,000 | 102,250 | ||||||
| Total Corporate Bonds | ||||||||
| (Cost $4,334,675) | 4,236,742 | |||||||
COLLATERALIZED MORTGAGE OBLIGATIONS†† - 6.2% | ||||||||
| Nomura Resecuritization Trust | ||||||||
2012-1R, 0.61% due 08/27/471,4 | 362,501 | 335,314 | ||||||
| Washington Mutual Mortgage Pass-Through Certificates WMALT Series Trust | ||||||||
2006-AR9, 0.95% due 11/25/461 | 337,794 | 235,331 | ||||||
| IndyMac INDX Mortgage Loan Trust | ||||||||
2006-AR4, 0.37% due 05/25/461 | 262,574 | 222,789 | ||||||
| Lehman XS Trust Series | ||||||||
2006-16N, 0.36% due 11/25/461 | 275,896 | 222,140 | ||||||
| American Home Mortgage Assets Trust | ||||||||
2006-4, 0.36% due 10/25/461 | 304,799 | 204,242 | ||||||
| GreenPoint Mortgage Funding Trust | ||||||||
2006-AR1, 0.46% due 02/25/361 | 240,011 | 201,031 | ||||||
| Bear Stearns Mortgage Funding Trust | ||||||||
2007-AR5, 0.34% due 06/25/471 | 227,605 | 183,392 | ||||||
| Structured Asset Mortgage Investments II Trust | ||||||||
2006-AR1, 0.40% due 02/25/361 | 119,263 | 101,459 | ||||||
| Washington Mutual Mortgage Pass-Through Certificates WMALT Series Trust | ||||||||
2007-OA4, 0.87% due 04/25/471 | 127,580 | 95,138 | ||||||
| Morgan Stanley Re-REMIC Trust | ||||||||
2010-R5, 0.45% due 06/26/361,4 | 129,835 | 92,906 | ||||||
| Residential Asset Securitization Trust | ||||||||
| 2006-A12, 6.25% due 11/25/36 | 129,800 | 91,875 | ||||||
| First Horizon Alternative Mortgage Securities Trust | ||||||||
| 2006-FA1, 5.75% due 04/25/36 | 93,579 | 78,280 | ||||||
| Total Collateralized Mortgage Obligations | ||||||||
| (Cost $2,083,660) | 2,063,897 | |||||||
MORTGAGE-BACKED SECURITIES†† - 3.4% | ||||||||
| SRERS Funding Ltd. | ||||||||
2011-RS, 0.41% due 05/09/461,4 | 344,426 | 328,066 | ||||||
| CSMC Trust | ||||||||
2014-SURF, 3.26% due 02/15/291,4 | 250,000 | 250,584 | ||||||
| Washington Mutual Mortgage Pass-Through Certificates WMALT Series Trust | ||||||||
| 2006-7, 6.42% due 09/25/36 | 363,461 | 206,881 | ||||||
| Banc of America Merrill Lynch Commercial Mortgage, Inc. | ||||||||
2005-6, 6.13% due 09/10/471,4 | 158,040 | 160,410 | ||||||
| Hilton USA Trust | ||||||||
2013-HLT, 5.22% due 11/05/181,4 | 100,000 | 102,456 | ||||||
| Wachovia Bank Commercial Mortgage Trust Series | ||||||||
2007-WHL8, 0.86% due 06/15/201,4 | 97,374 | 94,470 | ||||||
| Total Mortgage-Backed Securities | ||||||||
| (Cost $1,132,661) | 1,142,867 | |||||||
| Total Investments - 98.7% | ||||||||
| (Cost $33,035,554) | $ | 32,837,952 | ||||||
| Other Assets & Liabilities, net - 1.3% | 416,814 | |||||||
| Total Net Assets - 100.0% | $ | 33,254,766 | ||||||
| Units | Unrealized Gain (Loss) | |||||||
OTC CURRENCY SWAP AGREEMENTS†† | ||||||||
Bank of America March 2015 U.S. Dollar Index Future Swap, Terminating 03/16/158 (Notional Value $634,375) | 7 | $ | 14,238 | |||||
OTC INTEREST RATE SWAP AGREEMENTS SOLD SHORT†† | ||||||||
Bank of America March 2015 Japan Government 10 Year Bond Future Index Swap, Terminating 03/09/159 (Notional Value $2,468,334) | 2 | $ | (13,404 | ) | ||||
| SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 81 |
SCHEDULE OF INVESTMENTS (continued) | December 31, 2014 |
| SERIES M (MACRO OPPORTUNITIES SERIES) |
| Units | Unrealized Gain (Loss) | |||||||
OTC EQUITY SWAP AGREEMENTS SOLD SHORT†† | ||||||||
| Bank of America Merrill Lynch Tesla Motors, Inc. March 2015 Swap, Terminating 03/02/15 (Notional Value ($630,088) | 2,833 | $ | (30,447 | ) | ||||
OTC EQUITY INDEX SWAP AGREEMENTS†† | ||||||||
Bank of America May 2014 S&P 1500 Education Services Sub-Industry Index January 2015 Swap, Terminating 01/08/1510 (Notional Value $1,012,244) | 15,966 | $ | 182,332 | |||||
Bank of America S&P 500 Homebuilding Index January 2015 Swap, Terminating 01/08/1511 (Notional Value $683,313) | 1,053 | 93,054 | ||||||
Bank of America S&P 500 HomeBuilding Index March 2015 Swap, Terminating 03/19/1511 (Notional Value $169,368) | 261 | 3,877 | ||||||
| (Total Notional Value $1,864,925) | $ | 279,263 | ||||||
| 82 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
SCHEDULE OF INVESTMENTS (concluded) | December 31, 2014 |
| SERIES M (MACRO OPPORTUNITIES SERIES) |
CENTRALLY CLEARED INTEREST RATE SWAP AGREEMENTS††,1 | |||||||||||||||||||
| Counterparty | Floating Rate | Floating Rate Index | Fixed Rate | Maturity Date | Notional Amount | Market Value | Unrealized Appreciation/ (Depreciation) | ||||||||||||
| Merrill Lynch | Pay | 3-Month USD-LIBOR | 3.13 | % | 06/08/25 | $ | 1,000,000 | $ | 65,600 | $ | 65,600 | ||||||||
| Merrill Lynch | Pay | 3-Month USD-LIBOR | 2.93 | % | 08/24/25 | 950,000 | 39,615 | 39,615 | |||||||||||
| Merrill Lynch | Receive | 3-Month USD-LIBOR | 2.70 | % | 07/05/23 | (50,000 | ) | (2,685 | ) | (2,685 | ) | ||||||||
| Merrill Lynch | Receive | 3-Month USD-LIBOR | 1.56 | % | 07/05/18 | (850,000 | ) | (9,520 | ) | (9,520 | ) | ||||||||
| Merrill Lynch | Receive | 6-Month EUR-EURIBOR | 1.42 | % | 08/24/25 | (667,000 | ) | (40,197 | ) | (40,197 | ) | ||||||||
| Merrill Lynch | Receive | 6-Month EUR-EURIBOR | 1.89 | % | 06/08/25 | (700,000 | ) | (84,117 | ) | (84,117 | ) | ||||||||
| $ | (31,304 | ) | |||||||||||||||||
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS†† | ||||||||||||||||||
| Counterparty | Contracts to Sell | Currency | Settlement Date | Settlement Value | Value at December 31, 2014 | Net Unrealized Appreciation/ (Depreciation) | ||||||||||||
| Bank of America | 30,033,000 | RUB | 05/18/15 | $ | 600,000 | $ | 471,807 | $ | 128,193 | |||||||||
| Bank of America | 600,000 | EUR | 03/02/15 | 750,462 | 726,750 | 23,712 | ||||||||||||
| Bank of America | 3,870,000,000 | IDR | 07/02/15 | 300,000 | 301,990 | (1,990 | ) | |||||||||||
| $ | 149,915 | |||||||||||||||||
| † | Value determined based on Level 1 inputs — See Note 4. |
| †† | Value determined based on Level 2 inputs, unless otherwise noted — See Note 4. |
| ††† | Value determined based on Level 3 inputs — See Note 4. |
| 1 | Variable rate security. Rate indicated is rate effective at December 31, 2014. |
| 2 | Perpetual maturity. |
| 3 | Affiliated issuer — See Note 10. |
| 4 | Security is a 144A or Section 4(a)(2) security. The total market value of 144A or Section 4(a)(2) securities is $9,678,218 (cost $9,668,437), or 29.1% of total net assets. These securities have been determined to be liquid under guidelines established by the Board of Trustees. |
| 5 | Illiquid security. |
| 6 | Security or a portion thereof is held as collateral for reverse repurchase agreements — See Note 14. |
| 7 | Residual interest. |
| 8 | Total return based on U.S. Dollar Index +/- financing at a variable rate. |
| 9 | Total return based on Japan Government Bond 10 Year Future Index +/- financing at a variable rate. |
| 10 | Total return based on S&P 1500 Education Services Sub-Industry Index +/- financing at a variable rate. |
| 11 | Total return based on S&P 500 Home Building Index +/- financing at a variable rate. |
| 12 | Security is a 144A or Section 4(a)(2) security. These securities are considered illiquid and restricted under guidelines established by the Board of Trustees. The total market value of 144A or Section 4(a)(2)securities is $100,500 (cost $100,000) or 0.3% of total net assets — See Note 15. |
| plc — Public Limited Company | |
| REIT — Real Estate Investment Trust |
| SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 83 |
| SERIES M (MACRO OPPORTUNITIES SERIES) |
| STATEMENT OF ASSETS AND LIABILITIES |
| December 31, 2014 | ||||
| Assets: | ||||
| Investments in unaffiliated issuers, at value (cost $25,986,319) | $ | 25,814,527 | ||
| Investments in affiliated issuers, at value (cost $7,049,235) | 7,023,425 | |||
| Total investments (cost $33,035,554) | 32,837,952 | |||
| Unrealized appreciation on swap agreements | 398,738 | |||
| Unrealized appreciation on forward foreign currency exchange contracts | 151,905 | |||
| Segregated cash with broker | 79,446 | |||
| Cash | 24,981 | |||
| Prepaid expenses | 1,708 | |||
| Receivables: | ||||
| Interest | 132,061 | |||
| Securities sold | 38,400 | |||
| Fund shares sold | 23,510 | |||
| Dividends | 21,402 | |||
| Total assets | 33,710,103 | |||
| Liabilities: | ||||
| Reverse Repurchase Agreements | 199,668 | |||
| Unrealized depreciation on swap agreements | 180,370 | |||
| Unrealized depreciation on forward foreign currency exchange contracts | 1,990 | |||
| Payable for: | ||||
| Management fees | 17,235 | |||
| Securities purchased | 16,032 | |||
| Distribution and service fees | 6,773 | |||
| Trustees’ fees* | 4,098 | |||
| Fund accounting/administration fees | 2,574 | |||
| Transfer agent/maintenance fees | 2,126 | |||
| Fund shares redeemed | 860 | |||
| Miscellaneous | 23,611 | |||
| Total liabilities | 455,337 | |||
| Net assets | $ | 33,254,766 | ||
| Net assets consist of: | ||||
| Paid in capital | $ | 32,091,085 | ||
| Undistributed net investment income | 954,559 | |||
| Accumulated net realized gain on investments | 38,356 | |||
| Net unrealized appreciation on investments | 170,766 | |||
| Net assets | $ | 33,254,766 | ||
| Capital shares outstanding | 1,250,223 | |||
| Net asset value per share | $ | 26.60 | ||
| STATEMENT OF OPERATIONS |
| Year Ended December 31, 2014 | ||||
| Investment Income: | ||||
| Interest | $ | 1,371,443 | ||
| Dividends from securities of unaffiliated issuers | 66,199 | |||
| Dividends from securities of affiliated issuers | 55,011 | |||
| Total investment income | 1,492,653 | |||
| Expenses: | ||||
| Management fees | 261,594 | |||
| Transfer agent/maintenance fees | 25,092 | |||
| Distribution and service fees | 73,481 | |||
| Fund accounting/administration fees | 27,923 | |||
| Professional fees | 25,013 | |||
| Interest expense | 12,634 | |||
| Custodian fees | 10,852 | |||
| Trustees’ fees* | 6,761 | |||
| Line of credit fees | 2,475 | |||
| Tax expense | 1 | |||
| Miscellaneous | 45,127 | |||
| Total expenses | 490,953 | |||
| Less: | ||||
| Expenses waived by Adviser | (55,633 | ) | ||
| Net expenses | 435,320 | |||
| Net investment income | 1,057,333 | |||
| Net Realized and Unrealized Gain (Loss): | ||||
| Net realized gain (loss) on: | ||||
| Investments in unaffiliated issuers | 150,556 | |||
| Investments in affiliated issuers | (1,437 | ) | ||
| Swap agreements | 87,827 | |||
| Foreign currency | (3,604 | ) | ||
| Forward foreign currency exchange contracts | 86,278 | |||
| Options purchased | (110,558 | ) | ||
| Options written | 12,142 | |||
| Realized gain distributions received from investment company shares | 854 | |||
| Net realized gain | 222,058 | |||
| Net change in unrealized appreciation (depreciation) on: | ||||
| Investments in unaffiliated issuers | (59,874 | ) | ||
| Investments in affiliated issuers | (25,810 | ) | ||
| Swap agreements | 127,261 | |||
| Options purchased | 24,860 | |||
| Options written | (2,825 | ) | ||
| Forward foreign currency exchange contracts | 149,915 | |||
| Foreign currency | 110 | |||
| Net change in unrealized appreciation (depreciation) | 213,637 | |||
| Net realized and unrealized gain | 435,695 | |||
| Net increase in net assets resulting from operations | $ | 1,493,028 | ||
| * | Relates to Trustees not deemed “interested persons” within the meaning of Section 2(a)(19) of the 1940 Act. |
| 84 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
| SERIES M (MACRO OPPORTUNITIES SERIES) |
| STATEMENTS OF CHANGES IN NET ASSETS |
| Year Ended December 31, 2014 | Period Ended December 31, 2013a | |||||||
| Increase (Decrease) in Net Assets from Operations: | ||||||||
| Net investment income | $ | 1,057,333 | $ | 436,687 | ||||
| Net realized gain (loss) on investments | 222,058 | (143,336 | ) | |||||
| Net change in unrealized appreciation (depreciation) on investments | 213,637 | (42,871 | ) | |||||
| Net increase in net assets resulting from operations | 1,493,028 | 250,480 | ||||||
| Capital share transactions: | ||||||||
| Proceeds from sale of shares | 14,655,534 | 27,126,005 | ||||||
| Cost of shares redeemed | (9,143,386 | ) | (1,126,895 | ) | ||||
| Net increase from capital share transactions | 5,512,148 | 25,999,110 | ||||||
| Net increase in net assets | 7,005,176 | 26,249,590 | ||||||
| Net assets: | ||||||||
| Beginning of period | 26,249,590 | — | ||||||
| End of period | $ | 33,254,766 | $ | 26,249,590 | ||||
| Undistributed net investment income at end of period | $ | 954,559 | $ | 453,620 | ||||
| Capital share activity: | ||||||||
| Shares sold | 562,557 | 1,085,488 | ||||||
| Shares redeemed | (352,240 | ) | (45,582 | ) | ||||
| Net increase in shares | 210,317 | 1,039,906 | ||||||
a | Since commencement of operations: April 24, 2013. |
| SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 85 |
| SERIES M (MACRO OPPORTUNITIES SERIES) |
| FINANCIAL HIGHLIGHTS |
This table is presented to show selected data for a share outstanding throughout each period and to assist shareholders in evaluating a Fund’s performance for the periods presented.
| Year Ended December 31, 2014 | Period Ended December 31, 2013a | |||||||
| Per Share Data | ||||||||
| Net asset value, beginning of period | $ | 25.24 | $ | 25.00 | ||||
| Income (loss) from investment operations: | ||||||||
Net investment income (loss)b | .94 | .42 | ||||||
| Net gain (loss) on investments (realized and unrealized) | .42 | (.18 | ) | |||||
| Total from investment operations | 1.36 | .24 | ||||||
| Net asset value, end of period | $ | 26.60 | $ | 25.24 | ||||
Total Returnc | 5.35 | % | 0.96 | % | ||||
| Ratios/Supplemental Data | ||||||||
| Net assets, end of period (in thousands) | $ | 33,255 | $ | 26,250 | ||||
| Ratios to average net assets: | ||||||||
| Net investment income (loss) | 3.59 | % | 2.48 | % | ||||
Total expensesd | 1.67 | % | 1.80 | %e | ||||
Net expensesf | 1.48 | % | 1.49 | % | ||||
| Portfolio turnover rate | 68 | % | 49 | % | ||||
a | Since commencement of operations: April 24, 2013. Percentage amounts for the period, except total return and portfolio turnover rate, have been annualized. |
b | Net investment income (loss) per share was computed using average shares outstanding throughout the period. |
c | Total return does not take into account any of the expenses associated with an investment in variable insurance products. If total return had taken into account these expenses, performance would have been lower. Shares of a series of Guggenheim Variable Funds Trust are available only through the purchase of such products. |
d | Does not include expenses of the underlying funds in which the Fund invests. |
e | Due to limited length of Fund operations, ratios for this period may not be indicative of future performance. |
f | Net expenses may include expenses that are excluded from the expense limitation agreement. Excluding these expenses, the operating expense ratios for the periods would be: |
| 12/31/14 | 12/31/13 |
| 1.42% | 1.44% |
| 86 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
MANAGER’S COMMENTARY (Unaudited) | December 31, 2014 |
To Our Shareholders:
The Series N (Managed Asset Allocation Series) is managed by a team of seasoned professionals, including Michael P. Byrum, CFA, Portfolio Manager; Ryan Harder, CFA, Portfolio Manager; and Matthew Wu, Ph.D., CFA, Portfolio Manager. In the following paragraphs, the team discusses performance of the Series for the fiscal year ended December 31, 2014.
For the fiscal year ended December 31, 2014, the Series N (Managed Asset Allocation Series) returned 6.71%, underperforming its weighted benchmark that is 60% S&P 500® Index and 40% Barclays U.S. Aggregate Bond Index, which returned 10.62%. The S&P 500 Index rose 13.69% over the year and the Barclays U.S. Aggregate Bond Index returned 5.97%.
The investment objective of the Fund is to seek to provide growth of capital and, secondarily, preservation of capital. The Fund seeks to achieve its investment objective by investing in a diversified portfolio of futures contracts and exchange-traded funds (ETFs) and other pooled investment vehicles that track major equity indexes and fixed income indexes (underlying funds) to obtain exposure to equity, fixed income and money market assets. The precise allocation to equity and fixed income assets will depend on the outlook of Guggenheim Investments for each asset class. The Fund may obtain exposure to these asset classes through investments in the underlying funds, which may track indices such as the S&P 500 Index and Barclays U.S. Aggregate Bond Index, or through investments in futures contracts and other derivatives.
Under normal market conditions, the Fund’s investments are expected to achieve a moderate allocation of equity, fixed income and money market assets in approximately the following amounts: (1) 60% of total assets in equity securities from all capitalizations and both U.S. companies and non-U.S. companies; and (2) 40% of total assets in fixed income securities, which may include short-and long-term corporate and government bonds and which may be of any quality, rated or unrated. However, the Investment Manager intends to utilize dynamic asset allocation techniques that will allow rapid shifts between asset classes to attempt to exploit current market trends, and the Fund may invest fully in any asset class at any time. Moreover, the Investment Manager may change the Fund’s asset class allocation, the underlying funds or weightings without shareholder notice. The Fund’s investments will, under normal market conditions, be rebalanced monthly toward the moderate allocation discussed above.
MARKET REVIEW
The equity market started the year of 2014 with concerns on emerging markets and U.S. equity valuation. As in years before, central bankers at the Fed used their forward guidance and policy speeches to comfort the market.
The U.S. economy continued to grow in 2014, while Europe and Japan showed more weakness. The Fed ended its quantitative easing program without bringing too much turbulence to the markets. On the other hand, the Bank of Japan expanded its massive stimulus and the European Central Bank felt more pressure to adopt a similar easing program. The divergence between U.S. economic performance and other major countries led to a stronger U.S. dollar, and continuing outperformance of U.S. equity over international markets.
Our dynamically managed tactical strategies captured a few opportunities in the year and enhanced the returns. Unfortunately, the gains from the models were not enough to cover expenses. As the result, the Fund trailed its composite benchmark for the year.
In the period, the best performing holdings were S&P 500 Index futures and ETFs, the S&P 400 Index ETF and 10-year U.S. Treasury futures. Russell 2000 Index futures and short-term Treasury futures did not perform as well, and the international equity EAFE ETF and futures detracted from return.
Performance displayed represents past performance, which is no guarantee of future results.
The opinions and forecast expressed may not actually come to pass. This information is subject to change at any time, based on market and other conditions, and should not be construed as a recommendation of any specific security or strategy.
| THE GUGGENHEIM FUNDS ANNUAL REPORT | 87 |
PERFORMANCE REPORT AND FUND PROFILE (Unaudited) | December 31, 2014 |
SERIES N (MANAGED ASSET ALLOCATION SERIES)
OBJECTIVE: Seeks to provide growth of capital and, secondarily, preservation of capital.
Holdings Diversification
(Market Exposure as % of Net Assets)
“Holdings Diversification (Market Exposure as % of Net Assets)” excludes any temporary cash investments or investments in Guggenheim Strategy Funds Trust mutual funds.
Cumulative Fund Performance*,†
Inception Date: June 1, 1995 |
| Ten Largest Holdings (% of Total Net Assets) | |
| Guggenheim Variable Insurance Strategy Fund III | 20.7% |
| SPDR S&P 500 ETF Trust | 16.4% |
| iShares Core U.S. Aggregate Bond ETF | 16.2% |
| Vanguard S&P 500 ETF | 15.8% |
| iShares iBoxx $ Investment Grade Corporate Bond ETF | 7.6% |
| iShares Core S&P Mid-Capital ETF | 6.0% |
| Guggenheim Strategy Fund II | 5.2% |
| iShares MSCI EAFE ETF | 4.4% |
| Guggenheim Strategy Fund I | 2.3% |
| Guggenheim Strategy Fund III | 1.9% |
| Top Ten Total | 96.5% |
| “Ten Largest Holdings” exclude any temporary cash or derivative investments. | |
Average Annual Returns*
Periods Ended December 31, 2014†
| 1 Year | 5 Year | 10 Year | |
| Series N (Managed Asset Allocation Series) | 6.71% | 8.99% | 5.72% |
| Blended Index** | 10.62% | 11.18% | 6.76% |
| S&P 500 Index | 13.69% | 15.45% | 7.67% |
| * | The performance data above represents past performance that is not predictive of future results. The investment return and principal value of an investment in the Fund will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Returns are historical and include changes in principal and reinvested dividends and capital gains and do not reflect the effect of taxes. The S&P 500 Index and the Barclays U.S. Aggregate Bond Index are unmanaged indices and, unlike the Fund, have no management fees or operating expenses to reduce their reported returns. |
| ** | The Blended Index is 60% S&P 500 Index and 40% Barclays U.S. Aggregate Bond Index. |
† | Performance figures do not reflect fees and expenses associated with an investment in variable insurance products. If returns had taken into account these fees and expenses, performance would have been lower. Shares of a series of Guggenheim Variable Funds Trust are available only through the purchase of such products. |
| 88 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
| SCHEDULE OF INVESTMENTS | December 31, 2014 |
| SERIES N (MANAGED ASSET ALLOCATION SERIES) |
| Shares | Value | |||||||
EXCHANGE-TRADED FUNDS† - 66.4% | ||||||||
| SPDR S&P 500 ETF Trust | 48,140 | $ | 9,892,770 | |||||
| iShares Core U.S. Aggregate Bond ETF | 88,884 | 9,787,906 | ||||||
| Vanguard S&P 500 ETF | 50,414 | 9,500,518 | ||||||
| iShares iBoxx $ Investment Grade Corporate Bond ETF | 38,217 | 4,563,492 | ||||||
| iShares Core S&P Mid-Capital ETF | 24,958 | 3,613,918 | ||||||
| iShares MSCI EAFE ETF | 43,440 | 2,642,890 | ||||||
| iShares Core S&P 500 ETF | 2 | 414 | ||||||
| Total Exchange-Traded Funds | ||||||||
| (Cost $32,124,804) | 40,001,908 | |||||||
MUTUAL FUNDS†,1 - 30.0% | ||||||||
| Guggenheim Variable Insurance Strategy Fund III | 502,454 | 12,480,958 | ||||||
| Guggenheim Strategy Fund II | 125,298 | 3,113,649 | ||||||
| Guggenheim Strategy Fund I | 56,643 | 1,407,023 | ||||||
| Guggenheim Strategy Fund III | 45,259 | 1,124,222 | ||||||
| Total Mutual Funds | ||||||||
| (Cost $18,224,059) | 18,125,852 | |||||||
SHORT TERM INVESTMENTS† - 2.7% | ||||||||
| Dreyfus Treasury Prime Cash Management Fund | 1,625,119 | 1,625,119 | ||||||
| Total Short Term Investments | ||||||||
| (Cost $1,625,119) | 1,625,119 | |||||||
| Total Investments - 99.1% | ||||||||
| (Cost $51,973,982) | $ | 59,752,879 | ||||||
| Other Assets & Liabilities, net - 0.9% | 565,821 | |||||||
| Total Net Assets - 100.0% | $ | 60,318,700 | ||||||
| Contracts | Unrealized Gain (Loss) | |||||||
EQUITY FUTURES CONTRACTS PURCHASED† | ||||||||
| March 2015 S&P 500 Index Mini Futures Contracts (Aggregate Value of Contracts $5,437,801) | 53 | $ | 73,994 | |||||
| March 2015 Russell 2000 Index Mini Futures Contracts (Aggregate Value of Contracts $1,681,820) | 14 | 53,863 | ||||||
March 2015 DAX Index Futures Contracts†† (Aggregate Value of Contracts $293,274) | 1 | 3,387 | ||||||
March 2015 SPI 200 Index Futures Contracts†† (Aggregate Value of Contracts $108,666) | 1 | 3,381 | ||||||
January 2015 CAC40 10 Euro Index Futures Contracts†† (Aggregate Value of Contracts $102,291) | 2 | 2,336 | ||||||
| March 2015 Dow Jones Industrial Average Index Mini Futures Contracts (Aggregate Value of Contracts $88,765) | 1 | 2,314 | ||||||
| March 2015 NASDAQ-100 Index Mini Futures Contracts (Aggregate Value of Contracts $84,665) | 1 | 1,472 | ||||||
| March 2015 MSCI EAFE Index Mini Futures Contracts (Aggregate Value of Contracts $6,413,781) | 73 | (83,709 | ) | |||||
| (Total Aggregate Value of Contracts $14,211,063) | $ | 57,038 | ||||||
INTEREST RATE FUTURES CONTRACTS PURCHASED† | ||||||||
| March 2015 U.S. Treasury 10 Year Note Futures Contracts (Aggregate Value of Contracts $6,587,750) | 52 | $ | 29,735 | |||||
| March 2015 U.S. Treasury 5 Year Note Futures Contracts (Aggregate Value of Contracts $1,783,008) | 15 | (1,115 | ) | |||||
| March 2015 U.S. Treasury 2 Year Note Futures Contracts (Aggregate Value of Contracts $3,934,406) | 18 | (5,355 | ) | |||||
| (Total Aggregate Value of Contracts $12,305,164) | $ | 23,265 | ||||||
CURRENCY FUTURES CONTRACTS SOLD SHORT† | ||||||||
| March 2015 Euro FX Futures Contracts (Aggregate Value of Contracts $302,700) | 2 | $ | 8,533 | |||||
| March 2015 Japanese Yen Futures Contracts (Aggregate Value of Contracts $208,850) | 2 | 3,083 | ||||||
| March 2015 Australian Dollar Futures Contracts (Aggregate Value of Contracts $81,220) | 1 | 1,137 | ||||||
| March 2015 Canadian Dollar Futures Contracts (Aggregate Value of Contracts $85,930) | 1 | 907 | ||||||
| SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 89 |
SCHEDULE OF INVESTMENTS (concluded) | December 31, 2014 |
| SERIES N (MANAGED ASSET ALLOCATION SERIES) |
| Contracts | Unrealized Gain (Loss) | |||||||
| March 2015 British Pound Futures Contracts (Aggregate Value of Contracts $97,344) | 1 | $ | 729 | |||||
| (Total Aggregate Value of Contracts $776,044) | $ | 14,389 | ||||||
EQUITY FUTURES CONTRACTS SOLD SHORT† | ||||||||
| March 2015 Nikkei 225 (CME) Index Futures Contracts (Aggregate Value of Contracts $86,850) | 1 | $ | (428 | ) | ||||
January 2015 Hang Seng Index Futures Contracts†† (Aggregate Value of Contracts $151,892) | 1 | (2,570 | ) | |||||
March 2015 FTSE 100 Index Futures Contracts†† (Aggregate Value of Contracts $100,504) | 1 | (3,541 | ) | |||||
March 2015 S&P/TSX 60 IX Index Futures Contracts†† (Aggregate Value of Contracts $146,635) | 1 | (7,237 | ) | |||||
| (Total Aggregate Value of Contracts $485,881) | $ | (13,776 | ) | |||||
| † | Value determined based on Level 1 inputs, unless otherwise noted — See Note 4. |
| †† | Value determined based on Level 2 inputs — See Note 4. |
| 1 | Affiliated issuer — See Note 10. |
| 90 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
| SERIES N (MANAGED ASSET ALLOCATION SERIES) |
| STATEMENT OF ASSETS AND LIABILITIES |
| December 31, 2014 | ||||
| Assets: | ||||
| Investments in unaffiliated issuers, at value (cost $33,749,923) | $ | 41,627,027 | ||
| Investments in affiliated issuers, at value (cost $18,224,059) | 18,125,852 | |||
| Total investments (cost $51,973,982) | 59,752,879 | |||
| Segregated cash with broker | 773,646 | |||
| Cash | 3,771 | |||
| Prepaid expenses | 2,466 | |||
| Receivables: | ||||
| Dividends | 82,699 | |||
| Foreign taxes reclaim | 3,465 | |||
| Fund shares sold | 94 | |||
| Total assets | 60,619,020 | |||
| Liabilities: | ||||
| Foreign currency, at value (cost $3,742) | 3,714 | |||
| Payable for: | ||||
| Variation margin | 117,736 | |||
| Fund shares redeemed | 58,123 | |||
| Management fees | 32,538 | |||
| Securities purchased | 31,100 | |||
| Fund accounting/administration fees | 7,509 | |||
| Trustees’ fees* | 2,817 | |||
| Transfer agent/maintenance fees | 2,349 | |||
| Miscellaneous | 44,434 | |||
| Total liabilities | 300,320 | |||
| Net assets | $ | 60,318,700 | ||
| Net assets consist of: | ||||
| Paid in capital | $ | 52,403,583 | ||
| Undistributed net investment income | 223,425 | |||
| Accumulated net realized loss on investments | (167,807 | ) | ||
| Net unrealized appreciation on investments | 7,859,499 | |||
| Net assets | $ | 60,318,700 | ||
| Capital shares outstanding | 2,179,629 | |||
| Net asset value per share | $ | 27.67 | ||
| STATEMENT OF OPERATIONS |
| Year Ended December 31, 2014 | ||||
| Investment Income: | ||||
| Dividends from securities of unaffiliated issuers (net of foreign withholding tax of $2,780) | $ | 894,517 | ||
| Dividends from securities of affiliated issuers | 202,692 | |||
| Total investment income | 1,097,209 | |||
| Expenses: | ||||
| Management fees | 396,870 | |||
| Transfer agent/maintenance fees | 21,772 | |||
| Fund accounting/administration fees | 91,586 | |||
| Trustees’ fees* | 8,103 | |||
| Custodian fees | 3,345 | |||
| Line of credit fees | 934 | |||
| Tax expense | 81 | |||
| Miscellaneous | 46,279 | |||
| Total expenses | 568,970 | |||
| Net investment income | 528,239 | |||
| Net Realized and Unrealized Gain (Loss): | ||||
| Net realized gain (loss) on: | ||||
| Investments in unaffiliated issuers | 671,257 | |||
| Investments in affiliated issuers | (9,477 | ) | ||
| Futures contracts | 1,380,234 | |||
| Foreign currency | 26 | |||
| Net realized gain | 2,042,040 | |||
| Net change in unrealized appreciation (depreciation) on: | ||||
| Investments in unaffiliated issuers | 1,932,095 | |||
| Investments in affiliated issuers | (98,207 | ) | ||
| Futures contracts | (463,341 | ) | ||
| Foreign currency | (532 | ) | ||
| Net change in unrealized appreciation (depreciation) | 1,370,015 | |||
| Net realized and unrealized gain | 3,412,055 | |||
| Net increase in net assets resulting from operations | $ | 3,940,294 | ||
| * | Relates to Trustees not deemed “interested persons” within the meaning of Section 2(a)(19) of the 1940 Act. |
| SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 91 |
| SERIES N (MANAGED ASSET ALLOCATION SERIES) |
| STATEMENTS OF CHANGES IN NET ASSETS |
| Year Ended December 31, 2014 | Year Ended December 31, 2013 | |||||||
| Increase (Decrease) in Net Assets from Operations: | ||||||||
| Net investment income | $ | 528,239 | $ | 201,169 | ||||
| Net realized gain on investments | 2,042,040 | 3,411,199 | ||||||
| Net change in unrealized appreciation (depreciation) on investments | 1,370,015 | 4,908,598 | ||||||
| Net increase in net assets resulting from operations | 3,940,294 | 8,520,966 | ||||||
| Capital share transactions: | ||||||||
| Proceeds from sale of shares | 6,103,222 | 5,341,219 | ||||||
| Cost of shares redeemed | (15,099,648 | ) | (10,668,816 | ) | ||||
| Net decrease from capital share transactions | (8,996,426 | ) | (5,327,597 | ) | ||||
| Net increase (decrease) in net assets | (5,056,132 | ) | 3,193,369 | |||||
| Net assets: | ||||||||
| Beginning of year | 65,374,832 | 62,181,463 | ||||||
| End of year | $ | 60,318,700 | $ | 65,374,832 | ||||
| Undistributed net investment income/Accumulated net investment loss at end of year | $ | 223,425 | $ | (194,717 | ) | |||
| Capital share activity: | ||||||||
| Shares sold | 224,121 | 221,536 | ||||||
| Shares redeemed | (565,958 | ) | (441,361 | ) | ||||
| Net decrease in shares | (341,837 | ) | (219,825 | ) | ||||
| 92 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
| SERIES N (MANAGED ASSET ALLOCATION SERIES) |
| FINANCIAL HIGHLIGHTS |
This table is presented to show selected data for a share outstanding throughout each period and to assist shareholders in evaluating a Fund’s performance for the periods presented.
| Year Ended December 31, 2014 | Year Ended December 31, 2013 | Year Ended December 31, 2012 | Year Ended December 31, 2011 | Year Ended December 31, 2010 | ||||||||||||||||
| Per Share Data | ||||||||||||||||||||
| Net asset value, beginning of period | $ | 25.93 | $ | 22.68 | $ | 20.02 | $ | 19.89 | $ | 17.99 | ||||||||||
| Income (loss) from investment operations: | ||||||||||||||||||||
Net investment income (loss)a | .23 | .08 | .15 | .28 | .26 | |||||||||||||||
| Net gain (loss) on investments (realized and unrealized) | 1.51 | 3.17 | 2.51 | (.15 | ) | 1.64 | ||||||||||||||
| Total from investment operations | 1.74 | 3.25 | 2.66 | .13 | 1.90 | |||||||||||||||
| Net asset value, end of period | $ | 27.67 | $ | 25.93 | $ | 22.68 | $ | 20.02 | $ | 19.89 | ||||||||||
Total Returnb | 6.71 | % | 14.33 | % | 13.29 | % | 0.65 | % | 10.56 | % | ||||||||||
| Ratios/Supplemental Data | ||||||||||||||||||||
| Net assets, end of period (in thousands) | $ | 60,319 | $ | 65,375 | $ | 62,181 | $ | 63,775 | $ | 78,734 | ||||||||||
| Ratios to average net assets: | ||||||||||||||||||||
| Net investment income (loss) | 0.87 | % | 0.32 | % | 0.71 | % | 1.40 | % | 1.40 | % | ||||||||||
Total expensesc | 0.93 | % | 1.07 | % | 1.31 | % | 1.56 | % | 1.50 | % | ||||||||||
| Portfolio turnover rate | 14 | % | 3 | % | 162 | % | 44 | % | 52 | % | ||||||||||
a | Net investment income (loss) per share was computed using average shares outstanding throughout the period. |
b | Total return does not take into account any of the expenses associated with an investment in variable insurance products. If total return had taken into account these expenses, performance would have been lower. Shares of a series of Guggenheim Variable Funds Trust are available only through the purchase of such products. |
c | Does not include expenses of the underlying funds in which the Fund invests. |
| SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 93 |
MANAGER’S COMMENTARY (Unaudited) | December 31, 2014 |
To Our Shareholders:
The Series O (All Cap Value Series) is managed by a team of seasoned professionals led by James Schier, CFA, Portfolio Manager, and Mark A. Mitchell, CFA, Portfolio Manager. In the following paragraphs, they discuss performance of the Fund for the fiscal year ended December 31, 2014.
For the fiscal year ended December 31, 2014, the Series O (All Cap Value Series) returned 7.61%, compared with the Russell 3000® Value Index, which returned 12.70%.
Strategy and Market Overview
Our investment approach focuses on understanding how companies make money and how easily companies can either improve returns, or maintain existing high levels of profitability or benefit from change that occurs in the industries in which they operate.
In today’s rapid-fire environment marked by very sharp, quick but constrained volatility, our long term orientation and discipline are a competitive advantage. This should become especially critical when the environment of indiscriminant valuation expansion subsides and when fundamentals once again become a more dominant factor in the market.
Performance Review
The largest contributors to the Fund’s performance for the period were stock selection within the Industrials and Utilities sectors.
While the Fund’s stock selection Industrials helped performance, it was offset by an overweight in the sector. The sector had good gains from several holdings, including URS, Covanta and DeVry Education Group. URS benefited from its merger with AECOM during the year, and Covanta was able to land a significant waste-to-energy project in Ireland.
Utilities benefited from stock selection from the Fund’s main holding in the sector, Edison International, which was the largest individual contributor to performance for the year. The sector is one the largest underweights relative to the index, as we do not view Utilities as attractive from either a fundamental or valuation standpoint. Edison was up partly due to a settlement in which it will recoup some expenses related to a nuclear plant shutdown, but we like the holding due to its diversity of business.
CVS Health, which is part of the Consumer Staples sector, was one of the top individual contributors for the year and a large position in the portfolio—the company has been reporting solid earnings and continues to benefit from its acquisition of pharmacy benefit manager PBM. In addition, store chains like CVS saw less drop-off in traffic compared with more traditional retailers in the discretionary space.
Stock selection in Energy was the largest detractor from performance for the year. The Energy sector had the worst return in the benchmark and the Fund amid a general commodities selloff and falling crude oil prices. CAMECO, a large uranium miner, was the second-largest individual detractor for the year. It faced continued delays in restarting nuclear plants in Japan and a persistently low commodity price.
Our belief is that longer-term energy prices will be higher than current levels as the cost to pull oil out of the ground isn’t declining and the demand trends ultimately are positive.
Poor stock selection in Information Technology was another detractor from return for the Fund. Our overall sector position weight is in-line with the benchmark, but we own more stable, services-related companies and non-personal computer related hardware providers. The Fund also does not own large benchmark companies that were up significantly for the year, Apple and Intel. Both are good companies, but we view their future prospects as already fully valued in the current share price.
Fund performance was also impacted slightly by poor stock selection in Materials. Underperformance in this sector was driven mostly by Coeur Mining, Inc., which is not in the index and fell as part of a wider commodities selloff over the past year. Coeur was the largest single stock detractor for the year.
| 94 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
MANAGER'S COMMENTARY (Unaudited)(concluded) | December 31, 2014 |
Portfolio Positioning
The largest relative sector exposures for the year were an underweight in Health Care and overweight in Industrials. Neither stance benefited Fund performance for the year.
The Health Care sector underweight was predominantly driven by our view that the large pharmaceutical companies look fairly valued, thus are less attractive than companies in other sectors.
Industrials is a large and eclectic sector in which we have diverse holdings. We believe the portfolio is well positioned to benefit from the growing cap-ex and construction environment tied to infrastructure renewal and reindustrialization in the U.S.
Portfolio and Market Outlook
Despite a firming economy, investors were very cautious over the period, as safe-haven areas such as utilities, REITs, health care and consumer staples continued to lead. As the world continues to look towards the U.S. economy to be the engine for growth, and as foreign investors continue to fear the safety of their own currencies and economies, interest in U.S. assets should continue to be robust. The continued decline in U.S. government bond yields should continue to make equities an attractive alternative for incremental investment dollars.
Our portfolios tend to reflect a bias toward companies with balance sheet quality. We continue to find niche companies with what we believe to be attractive growth opportunities and, as such, are constructive on the outlook.
Performance displayed represents past performance, which is no guarantee of future results.
The opinions and forecast expressed may not actually come to pass. This information is subject to change at any time, based on market and other conditions, and should not be construed as a recommendation of any specific security or strategy.
| THE GUGGENHEIM FUNDS ANNUAL REPORT | 95 |
PERFORMANCE REPORT AND FUND PROFILE (Unaudited) | December 31, 2014 |
SERIES O (ALL CAP VALUE SERIES)
OBJECTIVE: Seeks long-term growth of capital.
Holdings Diversification
(Market Exposure as % of Net Assets)
“Holdings Diversification (Market Exposure as % of Net Assets)” excludes any temporary cash investments or investments in Guggenheim Strategy Funds Trust mutual funds.
Cumulative Fund Performance*,†
Inception Date: June 1, 1995 |
| Ten Largest Holdings (% of Total Net Assets) | |
| Wells Fargo & Co. | 2.6% |
| JPMorgan Chase & Co. | 2.5% |
| American International Group, Inc. | 2.5% |
| Citigroup, Inc. | 2.3% |
| Wal-Mart Stores, Inc. | 2.0% |
| Cisco Systems, Inc. | 2.0% |
| Computer Sciences Corp. | 2.0% |
| Chevron Corp. | 1.9% |
| Republic Services, Inc. — Class A | 1.9% |
| Cameco Corp. | 1.9% |
| Top Ten Total | 21.6% |
| “Ten Largest Holdings” exclude any temporary cash or derivative investments. | |
Average Annual Returns*
Periods Ended December 31, 2014†
| 1 Year | 5 Year | 10 Year | |
| Series O (All Cap Value Series) | 7.61% | 13.05% | 6.72% |
| Russell 3000 Value Index | 12.70% | 15.34% | 7.26% |
| * | The performance data above represents past performance that is not predictive of future results. The investment return and principal value of an investment in the Fund will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Returns are historical and include changes in principal and reinvested dividends and capital gains and do not reflect the effect of taxes. The Russell 3000 Value Index is an unmanaged index and, unlike the Fund, has no management fees or operating expenses to reduce its reported return. |
† | Performance figures do not reflect fees and expenses associated with an investment in variable insurance products. If returns had taken into account these fees and expenses, performance would have been lower. Shares of a series of Guggenheim Variable Funds Trust are available only through the purchase of such products. |
| 96 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
| SCHEDULE OF INVESTMENTS | December 31, 2014 |
| SERIES O (ALL CAP VALUE SERIES) |
| Shares | Value | |||||||
COMMON STOCKS† - 96.1% | ||||||||
| FINANCIAL - 28.8% | ||||||||
| Wells Fargo & Co. | 70,023 | $ | 3,838,661 | |||||
| JPMorgan Chase & Co. | 59,300 | 3,710,993 | ||||||
| American International Group, Inc. | 65,812 | 3,686,129 | ||||||
| Citigroup, Inc. | 61,700 | 3,338,587 | ||||||
| Bank of New York Mellon Corp. | 62,630 | 2,540,899 | ||||||
| Reinsurance Group of America, Inc. — Class A | 19,465 | 1,705,524 | ||||||
| Hanover Insurance Group, Inc. | 20,702 | 1,476,466 | ||||||
| Allstate Corp. | 20,950 | 1,471,738 | ||||||
| Zions Bancorporation | 50,434 | 1,437,873 | ||||||
| CME Group, Inc. — Class A | 13,600 | 1,205,640 | ||||||
| Bank of America Corp. | 54,200 | 969,638 | ||||||
| BB&T Corp. | 24,850 | 966,416 | ||||||
| NASDAQ OMX Group, Inc. | 20,005 | 959,440 | ||||||
| Unum Group | 27,303 | 952,329 | ||||||
| Legg Mason, Inc. | 17,840 | 952,121 | ||||||
| Alleghany Corp.* | 1,880 | 871,380 | ||||||
| FirstMerit Corp. | 44,387 | 838,470 | ||||||
| American Financial Group, Inc. | 13,220 | 802,718 | ||||||
| Navient Corp. | 34,090 | 736,685 | ||||||
| Popular, Inc.* | 18,870 | 642,524 | ||||||
| Endurance Specialty Holdings Ltd. | 9,330 | 558,307 | ||||||
| Apartment Investment & Management Co. — Class A | 13,120 | 487,407 | ||||||
| Sun Communities, Inc. | 7,930 | 479,448 | ||||||
| CubeSmart | 21,660 | 478,036 | ||||||
| Kilroy Realty Corp. | 6,870 | 474,511 | ||||||
| Capital One Financial Corp. | 5,710 | 471,361 | ||||||
| Synchrony Financial* | 15,820 | 470,645 | ||||||
| Camden Property Trust | 6,340 | 468,146 | ||||||
| Simon Property Group, Inc. | 2,530 | 460,738 | ||||||
| Equity Residential | 6,370 | 457,621 | ||||||
| SVB Financial Group* | 3,780 | 438,745 | ||||||
| Home Loan Servicing Solutions Ltd. | 20,577 | 401,663 | ||||||
| Wintrust Financial Corp. | 8,580 | 401,201 | ||||||
| Jones Lang LaSalle, Inc. | 2,480 | 371,826 | ||||||
| Symetra Financial Corp. | 15,697 | 361,816 | ||||||
| NorthStar Realty Finance Corp. | 20,510 | 360,566 | ||||||
| City National Corp. | 4,460 | 360,413 | ||||||
| Trustmark Corp. | 14,470 | 355,094 | ||||||
| StanCorp Financial Group, Inc. | 3,870 | 270,358 | ||||||
| Eaton Vance Corp. | 6,490 | 265,636 | ||||||
| Alexandria Real Estate Equities, Inc. | 2,950 | 261,783 | ||||||
| BioMed Realty Trust, Inc. | 11,230 | 241,894 | ||||||
| OFG Bancorp | 12,465 | 207,542 | ||||||
| Employers Holdings, Inc. | 5,366 | 126,155 | ||||||
| Chatham Lodging Trust | 3,910 | 113,273 | ||||||
| Total Financial | 42,448,416 | |||||||
| CONSUMER, NON-CYCLICAL - 19.4% | ||||||||
| Teva Pharmaceutical Industries Ltd. ADR | 40,690 | 2,340,082 | ||||||
| MEDNAX, Inc.* | 34,220 | 2,262,284 | ||||||
| Johnson & Johnson | 20,740 | 2,168,781 | ||||||
| Mondelez International, Inc. — Class A | 52,510 | 1,907,427 | ||||||
| Quanta Services, Inc.* | 55,870 | 1,586,149 | ||||||
| DeVry Education Group, Inc. | 30,650 | 1,454,955 | ||||||
| UnitedHealth Group, Inc. | 13,980 | 1,413,238 | ||||||
| Pfizer, Inc. | 40,650 | 1,266,248 | ||||||
| Kellogg Co. | 17,720 | 1,159,597 | ||||||
| Kraft Foods Group, Inc. | 17,500 | 1,096,550 | ||||||
| MasterCard, Inc. — Class A | 11,100 | 956,376 | ||||||
| Archer-Daniels-Midland Co. | 18,190 | 945,880 | ||||||
| Zimmer Holdings, Inc. | 8,320 | 943,655 | ||||||
| Philip Morris International, Inc. | 11,580 | 943,191 | ||||||
| Hormel Foods Corp. | 18,060 | 940,926 | ||||||
| Medtronic, Inc. | 12,720 | 918,384 | ||||||
| Tenet Healthcare Corp.* | 14,220 | 720,527 | ||||||
| Navigant Consulting, Inc.* | 44,230 | 679,815 | ||||||
| HealthSouth Corp. | 16,260 | 625,360 | ||||||
| Apollo Education Group, Inc. — Class A* | 17,760 | 605,794 | ||||||
| Kindred Healthcare, Inc. | 28,934 | 526,020 | ||||||
| ADT Corp. | 13,355 | 483,852 | ||||||
| ICF International, Inc.* | 10,850 | 444,633 | ||||||
| Hologic, Inc.* | 14,693 | 392,891 | ||||||
| Ingredion, Inc. | 3,810 | 323,240 | ||||||
| Globus Medical, Inc. — Class A* | 12,590 | 299,264 | ||||||
| Emergent Biosolutions, Inc.* | 10,730 | 292,178 | ||||||
| Bunge Ltd. | 2,440 | 221,820 | ||||||
| OraSure Technologies, Inc.* | 19,251 | 195,205 | ||||||
| Patterson Companies, Inc. | 3,332 | 160,269 | ||||||
| Darling Ingredients, Inc.* | 8,040 | 146,006 | ||||||
| Grand Canyon Education, Inc.* | 2,860 | 133,448 | ||||||
| Total Consumer, Non-cyclical | 28,554,045 | |||||||
| INDUSTRIAL - 11.9% | ||||||||
| Republic Services, Inc. — Class A | 69,780 | 2,808,645 | ||||||
| United Technologies Corp. | 23,230 | 2,671,450 | ||||||
| Parker-Hannifin Corp. | 14,820 | 1,911,039 | ||||||
| Covanta Holding Corp. | 79,510 | 1,750,015 | ||||||
| FLIR Systems, Inc. | 44,270 | 1,430,364 | ||||||
| Sonoco Products Co. | 29,240 | 1,277,788 | ||||||
| TE Connectivity Ltd. | 15,892 | 1,005,169 | ||||||
| Owens-Illinois, Inc.* | 34,260 | 924,677 | ||||||
| Orbital Sciences Corp.* | 31,661 | 851,364 | ||||||
| Rock-Tenn Co. — Class A | 11,936 | 727,857 | ||||||
| Gentex Corp. | 14,630 | 528,582 | ||||||
| General Electric Co. | 20,160 | 509,443 | ||||||
| Aegion Corp. — Class A* | 20,250 | 376,853 | ||||||
| Huntington Ingalls Industries, Inc. | 2,370 | 266,530 | ||||||
| Berry Plastics Group, Inc.* | 8,010 | 252,716 | ||||||
| UTI Worldwide, Inc.* | 11,530 | 139,167 | ||||||
| Advanced Energy Industries, Inc.* | 2,340 | 55,458 | ||||||
| Total Industrial | 17,487,117 | |||||||
| SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 97 |
SCHEDULE OF INVESTMENTS (concluded) | December 31, 2014 |
| SERIES O (ALL CAP VALUE SERIES) |
| Shares | Value | |||||||
| CONSUMER, CYCLICAL - 8.9% | ||||||||
| Wal-Mart Stores, Inc. | 34,000 | $ | 2,919,920 | |||||
| CVS Health Corp. | 19,780 | 1,905,012 | ||||||
| WESCO International, Inc.* | 16,130 | 1,229,267 | ||||||
| PulteGroup, Inc. | 56,170 | 1,205,408 | ||||||
| Kohl’s Corp. | 17,120 | 1,045,005 | ||||||
| Lear Corp. | 9,920 | 972,953 | ||||||
| Oshkosh Corp. | 18,690 | 909,269 | ||||||
| Chico’s FAS, Inc. | 31,860 | 516,451 | ||||||
| Brown Shoe Company, Inc. | 13,702 | 440,519 | ||||||
| Dolby Laboratories, Inc. — Class A | 8,310 | 358,327 | ||||||
| Ryland Group, Inc. | 9,290 | 358,222 | ||||||
| Wendy’s Co. | 31,680 | 286,070 | ||||||
| Foot Locker, Inc. | 4,860 | 273,035 | ||||||
| Ascena Retail Group, Inc.* | 15,100 | 189,656 | ||||||
| United Stationers, Inc. | 4,230 | 178,337 | ||||||
| Visteon Corp.* | 1,660 | 177,388 | ||||||
| Abercrombie & Fitch Co. — Class A | 5,020 | 143,773 | ||||||
| Total Consumer, Cyclical | 13,108,612 | |||||||
| TECHNOLOGY - 7.5% | ||||||||
| Computer Sciences Corp. | 45,920 | 2,895,256 | ||||||
| IXYS Corp. | 172,330 | 2,171,358 | ||||||
| QUALCOMM, Inc. | 19,990 | 1,485,857 | ||||||
| Microsoft Corp. | 20,030 | 930,394 | ||||||
| NetApp, Inc. | 22,420 | 929,309 | ||||||
| Diebold, Inc. | 20,450 | 708,388 | ||||||
| Maxwell Technologies, Inc.* | 67,170 | 612,590 | ||||||
| KEYW Holding Corp.* | 37,000 | 384,060 | ||||||
| Allscripts Healthcare Solutions, Inc.* | 25,180 | 321,549 | ||||||
| Teradyne, Inc. | 13,690 | 270,925 | ||||||
| IPG Photonics Corp.* | 1,860 | 139,351 | ||||||
| iGATE Corp.* | 3,280 | 129,494 | ||||||
| ManTech International Corp. — Class A | 4,110 | 124,245 | ||||||
| Total Technology | 11,102,776 | |||||||
| COMMUNICATIONS - 5.3% | ||||||||
| Cisco Systems, Inc. | 104,540 | 2,907,781 | ||||||
| Time Warner, Inc. | 17,236 | 1,472,299 | ||||||
| AT&T, Inc. | 41,170 | 1,382,900 | ||||||
| DigitalGlobe, Inc.* | 26,927 | 833,929 | ||||||
| Scholastic Corp. | 14,170 | 516,071 | ||||||
| Finisar Corp.* | 25,600 | 496,896 | ||||||
| Liquidity Services, Inc.* | 17,433 | 142,428 | ||||||
| Total Communications | 7,752,304 | |||||||
| UTILITIES - 5.2% | ||||||||
| Edison International | 29,570 | 1,936,243 | ||||||
| AGL Resources, Inc. | 24,410 | 1,330,590 | ||||||
| UGI Corp. | 33,930 | 1,288,661 | ||||||
| Pinnacle West Capital Corp. | 13,190 | 901,008 | ||||||
| Great Plains Energy, Inc. | 23,392 | 664,567 | ||||||
| Westar Energy, Inc. | 14,420 | 594,681 | ||||||
| Black Hills Corp. | 7,220 | 382,949 | ||||||
| Avista Corp. | 7,960 | 281,386 | ||||||
| Ameren Corp. | 4,590 | 211,737 | ||||||
| EnerNOC, Inc.* | 7,660 | 118,347 | ||||||
| Total Utilities | 7,710,169 | |||||||
| ENERGY - 5.0% | ||||||||
| Chevron Corp. | 25,300 | 2,838,154 | ||||||
| Exxon Mobil Corp. | 11,440 | 1,057,628 | ||||||
| Whiting Petroleum Corp.* | 27,450 | 905,850 | ||||||
| Patterson-UTI Energy, Inc. | 51,170 | 848,910 | ||||||
| Apache Corp. | 8,218 | 515,022 | ||||||
| Marathon Oil Corp. | 16,740 | 473,575 | ||||||
| Superior Energy Services, Inc. | 20,160 | 406,224 | ||||||
| Oasis Petroleum, Inc.* | 13,220 | 218,659 | ||||||
| Resolute Energy Corp.* | 56,540 | 74,633 | ||||||
| Total Energy | 7,338,655 | |||||||
| BASIC MATERIALS - 4.1% | ||||||||
| Cameco Corp. | 170,140 | 2,791,998 | ||||||
| Dow Chemical Co. | 47,270 | 2,155,984 | ||||||
| Olin Corp. | 20,236 | 460,774 | ||||||
| Landec Corp.* | 31,830 | 439,572 | ||||||
| Intrepid Potash, Inc.* | 15,220 | 211,254 | ||||||
| Total Basic Materials | 6,059,582 | |||||||
| Total Common Stocks | ||||||||
| (Cost $114,355,321) | 141,561,676 | |||||||
WARRANTS† - 0.2% | ||||||||
| American International Group, Inc. | ||||||||
| $45.00, 01/19/21 | 12,040 | 296,425 | ||||||
| Total Warrants | ||||||||
| (Cost $226,617) | 296,425 | |||||||
SHORT TERM INVESTMENTS† - 3.1% | ||||||||
| Dreyfus Treasury Prime Cash Management Fund | 4,588,987 | 4,588,987 | ||||||
| Total Short Term Investments | ||||||||
| (Cost $4,588,987) | 4,588,987 | |||||||
| Total Investments - 99.4% | ||||||||
| (Cost $119,170,925) | $ | 146,447,088 | ||||||
| Other Assets & Liabilities, net - 0.6% | 869,480 | |||||||
| Total Net Assets - 100.0% | $ | 147,316,568 | ||||||
| * | Non-income producing security. |
| † | Value determined based on Level 1 inputs — See Note 4. |
| ADR — American Depositary Receipt |
| 98 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
| SERIES O (ALL CAP VALUE SERIES) |
| STATEMENT OF ASSETS AND LIABILITIES |
| December 31, 2014 | ||||
| Assets: | ||||
| Investments, at value (cost $119,170,925) | $ | 146,447,088 | ||
| Prepaid expenses | 5,220 | |||
| Cash | 1,643 | |||
| Receivables: | ||||
| Securities sold | 1,641,534 | |||
| Dividends | 234,893 | |||
| Fund shares sold | 8,988 | |||
| Foreign taxes reclaim | 3,899 | |||
| Total assets | 148,343,265 | |||
| Liabilities: | ||||
| Payable for: | ||||
| Securities purchased | 845,404 | |||
| Management fees | 87,418 | |||
| Fund shares redeemed | 64,450 | |||
| Fund accounting/administration fees | 11,864 | |||
| Transfer agent/maintenance fees | 4,266 | |||
| Trustees’ fees* | 1,266 | |||
| Miscellaneous | 12,029 | |||
| Total liabilities | 1,026,697 | |||
| Net assets | $ | 147,316,568 | ||
| Net assets consist of: | ||||
| Paid in capital | $ | 105,587,378 | ||
| Undistributed net investment income | 1,287,652 | |||
| Accumulated net realized gain on investments | 13,165,375 | |||
| Net unrealized appreciation on investments | 27,276,163 | |||
| Net assets | $ | 147,316,568 | ||
| Capital shares outstanding | 4,167,759 | |||
| Net asset value per share | $ | 35.35 | ||
| STATEMENT OF OPERATIONS |
| Year Ended December 31, 2014 | ||||
| Investment Income: | ||||
| Dividends (net of foreign withholding tax of $10,624) | $ | 2,739,539 | ||
| Interest | 18 | |||
| Total investment income | 2,739,557 | |||
| Expenses: | ||||
| Management fees | 1,061,418 | |||
| Transfer agent/maintenance fees | 25,005 | |||
| Fund accounting/administration fees | 144,047 | |||
| Trustees’ fees* | 16,060 | |||
| Line of credit fees | 2,317 | |||
| Custodian fees | 2,149 | |||
| Tax expense | 364 | |||
| Miscellaneous | 103,416 | |||
| Total expenses | 1,354,776 | |||
| Less: | ||||
| Expenses waived by Adviser | (3,380 | ) | ||
| Net expenses | 1,351,396 | |||
| Net investment income | 1,388,161 | |||
| Net Realized and Unrealized Gain (Loss): | ||||
| Net realized gain (loss) on: | ||||
| Investments | 23,205,382 | |||
| Options written | 29,068 | |||
| Net realized gain | 23,234,450 | |||
| Net change in unrealized appreciation (depreciation) on: | ||||
| Investments | (13,273,295 | ) | ||
| Options written | (26,058 | ) | ||
| Net change in unrealized appreciation (depreciation) | (13,299,353 | ) | ||
| Net realized and unrealized gain | 9,935,097 | |||
| Net increase in net assets resulting from operations | $ | 11,323,258 | ||
| * | Relates to Trustees not deemed “interested persons” within the meaning of Section 2(a)(19) of the 1940 Act. |
| SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 99 |
| SERIES O (ALL CAP VALUE SERIES) |
| STATEMENTS OF CHANGES IN NET ASSETS |
| Year Ended December 31, 2014 | Year Ended December 31, 2013 | |||||||
| Increase (Decrease) in Net Assets from Operations: | ||||||||
| Net investment income | $ | 1,388,161 | $ | 1,169,227 | ||||
| Net realized gain on investments | 23,234,450 | 13,591,079 | ||||||
| Net change in unrealized appreciation (depreciation) on investments | (13,299,353 | ) | 25,926,243 | |||||
| Net increase in net assets resulting from operations | 11,323,258 | 40,686,549 | ||||||
| Distributions to shareholders from: | ||||||||
| Net investment income | (1,285 | ) | — | |||||
| Total distributions to shareholders | (1,285 | ) | — | |||||
| Capital share transactions: | ||||||||
| Proceeds from sale of shares | 15,918,519 | 11,634,385 | ||||||
| Distributions reinvested | 1,285 | — | ||||||
| Cost of shares redeemed | (33,626,804 | ) | (28,853,446 | ) | ||||
| Net decrease from capital share transactions | (17,707,000 | ) | (17,219,061 | ) | ||||
| Net increase (decrease) in net assets | (6,385,027 | ) | 23,467,488 | |||||
| Net assets: | ||||||||
| Beginning of year | 153,701,595 | 130,234,107 | ||||||
| End of year | $ | 147,316,568 | $ | 153,701,595 | ||||
| Undistributed net investment income at end of year | $ | 1,287,652 | $ | 1,168,649 | ||||
| Capital share activity: | ||||||||
| Shares sold | 466,579 | 399,098 | ||||||
| Shares issued from reinvestment of distributions | 36 | — | ||||||
| Shares redeemed | (977,527 | ) | (1,001,349 | ) | ||||
| Net decrease in shares | (510,912 | ) | (602,251 | ) | ||||
| 100 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
| SERIES O (ALL CAP VALUE SERIES) |
| FINANCIAL HIGHLIGHTS |
This table is presented to show selected data for a share outstanding throughout each period and to assist shareholders in evaluating a Fund’s performance for the periods presented.
| Year Ended December 31, 2014 | Year Ended December 31, 2013 | Year Ended December 31, 2012 | Year Ended December 31, 2011 | Year Ended December 31, 2010 | ||||||||||||||||
| Per Share Data | ||||||||||||||||||||
| Net asset value, beginning of period | $ | 32.85 | $ | 24.66 | $ | 21.35 | $ | 22.32 | $ | 19.14 | ||||||||||
| Income (loss) from investment operations: | ||||||||||||||||||||
Net investment income (loss)a | .31 | .24 | .21 | .15 | .14 | |||||||||||||||
| Net gain (loss) on investments (realized and unrealized) | 2.19 | 7.95 | 3.10 | (1.12 | ) | 3.04 | ||||||||||||||
| Total from investment operations | 2.50 | 8.19 | 3.31 | (.97 | ) | 3.18 | ||||||||||||||
| Less distributions from: | ||||||||||||||||||||
| Net investment income | (— | )b | — | — | — | — | ||||||||||||||
| Net asset value, end of period | $ | 35.35 | $ | 32.85 | $ | 24.66 | $ | 21.35 | $ | 22.32 | ||||||||||
Total Returnc | 7.61 | % | 33.21 | % | 15.50 | % | (4.35 | %) | 16.61 | % | ||||||||||
| Ratios/Supplemental Data | ||||||||||||||||||||
| Net assets, end of period (in thousands) | $ | 147,317 | $ | 153,702 | $ | 130,234 | $ | 137,794 | $ | 165,722 | ||||||||||
| Ratios to average net assets: | ||||||||||||||||||||
| Net investment income (loss) | 0.92 | % | 0.81 | % | 0.91 | % | 0.69 | % | 0.68 | % | ||||||||||
| Total expenses | 0.89 | % | 0.90 | % | 0.89 | % | 0.86 | % | 0.86 | % | ||||||||||
Net expensesd | 0.89 | % | 0.90 | % | 0.89 | % | 0.86 | % | 0.86 | % | ||||||||||
| Portfolio turnover rate | 49 | % | 22 | % | 14 | % | 19 | % | 11 | % | ||||||||||
a | Net investment income (loss) per share was computed using average shares outstanding throughout the period. |
b | Distributions from net investment income are less than $0.01 per share. |
c | Total return does not take into account any of the expenses associated with an investment in variable insurance products. If total return had taken into account these expenses, performance would have been lower. Shares of a series of Guggenheim Variable Funds Trust are available only through the purchase of such products. |
d | Net expense information reflects the expense ratios after expense waivers. |
| SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 101 |
MANAGER’S COMMENTARY (Unaudited) | December 31, 2014 |
To Our Shareholders
The Series P (High Yield Series) is managed by a team of seasoned professionals, including B. Scott Minerd, Chairman of Investments and Global Chief Investment Officer; Jeffrey B. Abrams, Senior Managing Director and Portfolio Manager; and Kevin H. Gundersen CFA, Senior Managing Director and Portfolio Manager. In the following paragraphs, the investment team discusses the market environment and Series performance for the fiscal year ended December 31, 2014.
For the one-year period ended December 31, 2014, the Series P (High Yield Series) returned 2.51%, compared with the 2.45% return of its benchmark, the Barclays U.S. Corporate High Yield Index.
After a strong start for High Yield/ Leveraged Credit in the first half of 2014, significant volatility in the second half ultimately culminated in the weakest performance since 2008 for high yield bonds and since 2011 for leveraged loans.
While the sell-off was initially sparked by market unease over the Fed winding down its purchases of U.S. Treasuries and mortgage-backed securities, it continued through the fourth quarter as markets grew anxious over the weakening global outlook and the potentially adverse effects of a continued plunge in oil prices on the high yield market. With energy credit issuers making up more than 20% of the high yield bond market, the sudden decline in oil prices affected the prices of issuers in that sector. The Fund moved quickly to reduce exposure to energy credits and rebalance among sub-sectors favoring exposure to issuers more involved with movement/transportation of oil rather than its production.
The Fund’s outperformance for the year stemmed from good credit selection, some incremental exposure to investment grade assets that performed well, and timely moves between high yield and bank loan allocations. Despite weaker performance in the broader bank loan market relative to high yield during the year, the Fund’s allocation to bank loans had a positive impact on portfolio performance as its loan positions handily outperformed the Credit Suisse Leveraged Loan Index by over the period, and pared declines in value of high yield bonds.
The Fund remains conservatively positioned in terms of its exposure to interest rates. It maintains a higher exposure to shorter-dated bonds than does the index as a whole, and is overweight floating rate securities (bank loans) which made up roughly 25% of the portfolio on average over the year. Market volatility has begun to rise in part as a result of geo-political and macroeconomic uncertainty, and the Fed’s indicated intention to begin raising interest rates in 2015 looming. Our view is that it is prudent to protect against volatility and rising interest rates in advance of these factors becoming more pronounced.
The average credit quality of the portfolio remains B rated (S&P). Given the potential for more volatility ahead, the Fund has increased ratings quality and diversification by adding more issuers of higher ratings quality. This move up in quality began in July 2014 which helped performance as risk aversion drove the market as a whole toward the end of the year. CCC bond spreads widened more than B and these more than BB rated securities. From a total return standpoint, CCC rated bonds underperformed by a sizable margin while higher rated bonds found support from increasing entry to the market of non-traditional high yield investors seeking yield. In December a general market sell-off detracted 1.45% from the Barclays High Yield Index. In context BB rated bonds declined 0.63%, B rated Bonds declined 1.63% and CCC rated issues declined in value by 3.0%.
While retail demand for bank loans weakened during the latter half of the year, institutional investor demand remained strong. Bank loans offer good investor protection at the high end of the capital structure, as evidenced by the record $124 billion of collateralized loan obligation (CLO) issuances in 2014. Combined with yields having increased in the High Yield market and Treasury rates’ continuing declines, this should provide a tailwind to the asset category in the near term.
We remain positive on credit and do not expect to see widespread defaults over the next year, but with the potential for more volatility ahead, we continue to focus on upgrading credit quality. We believe current spreads present attractive entry points to certain sectors and credits. The sell-off over the past six months presents an opportunity to carefully analyze loans and bonds that may have been oversold and are currently trading below fair value.
Performance displayed represents past performance, which is no guarantee of future results.
The opinions and forecast expressed may not actually come to pass. This information is subject to change at any time, based on market and other conditions, and should not be construed as a recommendation of any specific security or strategy.
| 102 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
PERFORMANCE REPORT AND FUND PROFILE (Unaudited) | December 31, 2014 |
SERIES P (HIGH YIELD SERIES)
OBJECTIVE: Seeks high current income. Capital appreciation is a secondary objective.
Holdings Diversification
(Market Exposure as % of Net Assets)
“Holdings Diversification (Market Exposure as % of Net Assets)” excludes any temporary cash investments or investments in Guggenheim Strategy Funds Trust mutual funds.
| Portfolio Composition by Quality Rating** | |
| Rating | |
| Fixed Income Instruments | |
| BBB | 7.1% |
| BB | 26.7% |
| B | 40.7% |
| CCC | 13.9% |
| NR | 0.7% |
| Other Instruments | |
| Short Term Investments | 4.7% |
| Preferred Stocks | 4.6% |
| Common Stocks | 1.6% |
| Total Investments | 100.0% |
| The chart above reflects percentages of the value of total investments. | |
Inception Date: August 5, 1996 |
| Ten Largest Holdings (% of Total Net Assets) | |
| Flakt Woods | 2.3% |
| GRD Holdings III Corp. | 2.2% |
| Opal Acquisition, Inc. | 1.9% |
| Credit Acceptance Corp. | 1.8% |
| Eagle Midco, Inc. | 1.7% |
| Goldman Sachs Group, Inc. | 1.7% |
| KGHM International Ltd. | 1.7% |
| Pacific Premier Bancorp, Inc. | 1.6% |
| Central Garden and Pet Co. | 1.6% |
| Aspect Software, Inc. | 1.5% |
| Top Ten Total | 18.0% |
| “Ten Largest Holdings” exclude any temporary cash or derivative investments. | |
| THE GUGGENHEIM FUNDS ANNUAL REPORT | 103 |
PERFORMANCE REPORT AND FUND PROFILE (Unaudited)(concluded) | December 31, 2014 |
Cumulative Fund Performance*,†
Average Annual Returns*
Periods Ended December 31, 2014†
| 1 Year | 5 Year | 10 Year | |
| Series P (High Yield Series) | 2.51% | 7.85% | 7.59% |
| Barclays U.S. Corporate High Yield Index | 2.45% | 9.03% | 7.74% |
| * | The performance data above represents past performance that is not predictive of future results. The investment return and principal value of an investment in the Fund will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Returns are historical and include changes in principal and reinvested dividends and capital gains and do not reflect the effect of taxes. The Barclays U.S. Corporate High Yield Index is an unmanaged index and, unlike the Fund, has no management fees or operating expenses to reduce its reported return. |
| ** | Source: Factset. Credit quality ratings are measured on a scale that generally ranges from AAA (highest) to D (lowest). All rated securities have been rated by Moody’s, Standard & Poor’s (“S&P”), or Fitch, which are all a Nationally Recognized Statistical Rating Organization (“NRSRO”). For purposes of this presentation, when ratings are available from more than one agency, the highest rating is used. Guggenheim Investments has converted Moody’s and Fitch ratings to the equivalent S&P rating. Unrated securities do not necessarily indicate low credit quality. Security ratings are determined at the time of purchase and may change thereafter. |
† | Performance figures do not reflect fees and expenses associated with an investment in variable insurance products. If returns had taken into account these fees and expenses, performance would have been lower. Shares of a series of Guggenheim Variable Funds Trust are available only through the purchase of such products. |
| 104 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
| SCHEDULE OF INVESTMENTS | December 31, 2014 |
| SERIES P (HIGH YIELD SERIES) |
| Shares | Value | |||||||
COMMON STOCKS† - 1.8% | ||||||||
| CONSUMER DISCRETIONARY - 1.5% | ||||||||
Travelport, LLC*,††,9 | 48,069 | $ | 849,859 | |||||
| Travelport, LLC* | 17,328 | 311,904 | ||||||
| Total Consumer Discretionary | 1,161,763 | |||||||
| ENERGY - 0.2% | ||||||||
Stallion Oilfield Holdings Ltd.*,†† | 19,265 | 185,522 | ||||||
| COMMUNICATIONS - 0.1% | ||||||||
Cengage Learning Acquisitions, Inc.*,†† | 2,107 | 50,737 | ||||||
| Aimia, Inc. | 5 | 63 | ||||||
| Total Communications | 50,800 | |||||||
| BASIC MATERIALS - 0.0% | ||||||||
| Mirabela Nickel Ltd.* | 1,470,315 | 34,815 | ||||||
| DIVERSIFIED - 0.0% | ||||||||
| Leucadia National Corp. | 247 | 5,538 | ||||||
| CONSUMER, NON-CYCLICAL - 0.0% | ||||||||
| Crimson Wine Group Ltd.* | 24 | 228 | ||||||
MEDIQ, Inc.*,††† | 92 | 1 | ||||||
| Total Consumer, Non-cyclical | 229 | |||||||
| CONSUMER, CYCLICAL - 0.0% | ||||||||
| Delta Air Lines, Inc. | 1 | 49 | ||||||
| Chorus Aviation, Inc. | 3 | 11 | ||||||
| Total Consumer, Cyclical | 60 | |||||||
| FINANCIAL - 0.0% | ||||||||
Adelphia Recovery Trust*,†††,1 | 5,270 | 53 | ||||||
| Total Common Stocks | ||||||||
| (Cost $2,246,286) | 1,438,780 | |||||||
PREFERRED STOCKS† - 5.2% | ||||||||
| Goldman Sachs Group, Inc. | ||||||||
5.50%2,3 | 55,000 | 1,342,000 | ||||||
| Kemper Corp. | ||||||||
| 7.38% due 02/27/54 | 39,000 | 1,003,860 | ||||||
| Aspen Insurance Holdings Ltd. | ||||||||
5.95%2,3 | 35,000 | 884,100 | ||||||
| Seaspan Corp. | ||||||||
| 6.38% due 04/30/19 | 34,000 | 843,200 | ||||||
U.S. Shipping Corp.*,††,1 | 24,529 | 27,472 | ||||||
| Total Preferred Stocks | ||||||||
| (Cost $4,654,811) | 4,100,632 | |||||||
SHORT TERM INVESTMENTS† - 5.3% | ||||||||
| Dreyfus Treasury Prime Cash Management Fund | 4,206,829 | 4,206,829 | ||||||
| Total Short Term Investments | ||||||||
| (Cost $4,206,829) | 4,206,829 | |||||||
| Face Amount | ||||||||
CORPORATE BONDS††,7 - 71.9% | ||||||||
| FINANCIAL - 13.0% | ||||||||
| Credit Acceptance Corp. | ||||||||
6.13% due 02/15/214 | $ | 1,400,000 | 1,400,000 | |||||
| Pacific Premier Bancorp, Inc. | ||||||||
5.75% due 09/03/246 | 1,250,000 | 1,275,000 | ||||||
| Jefferies Finance LLC / JFIN Company-Issuer Corp. | ||||||||
7.50% due 04/15/215 | 700,000 | 651,000 | ||||||
7.38% due 04/01/205 | 455,000 | 423,150 | ||||||
| Bank of America Corp. | ||||||||
4.20% due 08/26/244 | 550,000 | 560,299 | ||||||
6.25%2,3 | 500,000 | 494,219 | ||||||
| Citigroup, Inc. | ||||||||
6.30%2,3 | 650,000 | 640,250 | ||||||
| American Equity Investment Life Holding Co. | ||||||||
| 6.63% due 07/15/21 | 600,000 | 636,000 | ||||||
| Kennedy-Wilson, Inc. | ||||||||
| 5.88% due 04/01/24 | 620,000 | 621,550 | ||||||
| iStar Financial, Inc. | ||||||||
5.00% due 07/01/194 | 600,000 | 582,000 | ||||||
| Oxford Finance LLC / Oxford Finance Company-Issuer, Inc. | ||||||||
7.25% due 01/15/185 | 500,000 | 515,000 | ||||||
| Wilton Re Finance LLC | ||||||||
5.88% due 03/30/332,5 | 400,000 | 420,764 | ||||||
| Icahn Enterprises Limited Partnership / Icahn Enterprises Finance Corp. | ||||||||
| 5.88% due 02/01/22 | 350,000 | 351,531 | ||||||
| Majid AL Futtaim Holding | ||||||||
| 7.12% due 12/31/49 | 300,000 | 324,000 | ||||||
| Lock AS | ||||||||
| 7.00% due 08/15/21 | EUR | 250,000 | 313,880 | |||||
| Cabot Financial Luxembourg S.A. | ||||||||
6.50% due 04/01/215 | GBP | 200,000 | 292,105 | |||||
| Lancashire Holdings Ltd. | ||||||||
5.70% due 10/01/225 | 260,000 | 279,755 | ||||||
| Jefferies LoanCore LLC / JLC Finance Corp. | ||||||||
6.88% due 06/01/205 | 300,000 | 273,750 | ||||||
| Fidelity & Guaranty Life Holdings, Inc. | ||||||||
6.38% due 04/01/215 | 225,000 | 236,250 | ||||||
| Total Financial | 10,290,503 | |||||||
| ENERGY - 12.0% | ||||||||
| Atlas Energy Holdings Operating Company LLC / Atlas Resource Finance Corp. | ||||||||
| 9.25% due 08/15/21 | 775,000 | 600,625 | ||||||
| 7.75% due 01/15/21 | 825,000 | 598,125 | ||||||
| ContourGlobal Power Holdings S.A. | ||||||||
7.13% due 06/01/195 | 1,150,000 | 1,150,000 | ||||||
| Legacy Reserves Limited Partnership / Legacy Reserves Finance Corp. | ||||||||
| 6.63% due 12/01/21 | 825,000 | 672,375 | ||||||
8.00% due 12/01/204 | 505,000 | 419,150 | ||||||
| SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 105 |
SCHEDULE OF INVESTMENTS (continued) | December 31, 2014 |
| SERIES P (HIGH YIELD SERIES) |
| Face Amount | Value | |||||||
| BreitBurn Energy Partners Limited Partnership / BreitBurn Finance Corp. | ||||||||
| 7.88% due 04/15/22 | $ | 1,000,000 | $ | 772,500 | ||||
| 8.63% due 10/15/20 | 250,000 | 215,000 | ||||||
| Endeavor Energy Resources. LP / EER Finance, Inc. | ||||||||
7.00% due 08/15/215 | 1,100,000 | 973,500 | ||||||
| Sabine Pass Liquefaction LLC | ||||||||
6.25% due 03/15/224 | 900,000 | 913,500 | ||||||
| Keane Group Holdings LLC | ||||||||
8.50% due 08/08/19†††,1 | 650,000 | 637,845 | ||||||
| FTS International, Inc. | ||||||||
| 6.25% due 05/01/22 | 600,000 | 438,000 | ||||||
| CONSOL Energy, Inc. | ||||||||
| 5.88% due 04/15/22 | 450,000 | 418,500 | ||||||
| Unit Corp. | ||||||||
| 6.63% due 05/15/21 | 450,000 | 402,750 | ||||||
| Atlas Pipeline Partners Limited Partnership / Atlas Pipeline Finance Corp. | ||||||||
| 5.88% due 08/01/23 | 300,000 | 297,000 | ||||||
| Crestwood Midstream Partners Limited Partnership / Crestwood Midstream Finance Corp. | ||||||||
| 6.00% due 12/15/20 | 300,000 | 287,250 | ||||||
| Northern Oil and Gas, Inc. | ||||||||
| 8.00% due 06/01/20 | 350,000 | 265,125 | ||||||
| Denbury Resources, Inc. | ||||||||
| 5.50% due 05/01/22 | 250,000 | 228,750 | ||||||
| IronGate Energy Services LLC | ||||||||
11.00% due 07/01/186 | 155,000 | 103,850 | ||||||
| Ultra Petroleum Corp. | ||||||||
| 5.75% due 12/15/18 | 100,000 | 92,250 | ||||||
| SemGroup, LP | ||||||||
8.75% due 11/15/15†††,1,8 | 1,700,000 | — | ||||||
| Total Energy | 9,486,095 | |||||||
| CONSUMER, NON-CYCLICAL - 8.3% | ||||||||
| Central Garden and Pet Co. | ||||||||
| 8.25% due 03/01/18 | 1,250,000 | 1,259,375 | ||||||
| Vector Group Ltd. | ||||||||
| 7.75% due 02/15/21 | 1,150,000 | 1,210,375 | ||||||
| Bumble Bee Holdco SCA | ||||||||
9.63% due 03/15/184,5 | 800,000 | 836,000 | ||||||
| KeHE Distributors LLC / KeHE Finance Corp. | ||||||||
7.63% due 08/15/214,5 | 700,000 | 743,750 | ||||||
| ADT Corp. | ||||||||
6.25% due 10/15/214 | 700,000 | 719,250 | ||||||
| US Foods, Inc. | ||||||||
| 8.50% due 06/30/19 | 350,000 | 371,000 | ||||||
| JBS USA LLC / JBS USA Finance, Inc. | ||||||||
5.88% due 07/15/245 | 300,000 | 294,750 | ||||||
| WEX, Inc. | ||||||||
4.75% due 02/01/235 | 300,000 | 289,500 | ||||||
| American Seafoods Group LLC / American Seafoods Finance, Inc. | ||||||||
10.75% due 05/15/164,5 | 300,000 | 268,500 | ||||||
| Midas Intermediate Holdco II LLC / Midas Intermediate Holdco II Finance, Inc. | ||||||||
7.88% due 10/01/225 | 250,000 | 242,500 | ||||||
| Spectrum Brands, Inc. | ||||||||
| 6.13% due 12/15/24 | 200,000 | 203,000 | ||||||
| Bumble Bee Holdings, Inc. | ||||||||
9.00% due 12/15/175 | 136,000 | 142,664 | ||||||
| Total Consumer, Non-cyclical | 6,580,664 | |||||||
| CONSUMER, CYCLICAL - 8.0% | ||||||||
| GRD Holdings III Corp. | ||||||||
10.75% due 06/01/195 | 1,600,000 | 1,748,000 | ||||||
| WMG Acquisition Corp. | ||||||||
6.00% due 01/15/215 | 800,000 | 800,000 | ||||||
6.75% due 04/15/225 | 750,000 | 682,500 | ||||||
| Checkers Drive-In Restaurants, Inc. | ||||||||
11.00% due 12/01/175 | 900,000 | 972,000 | ||||||
| DreamWorks Animation SKG, Inc. | ||||||||
6.88% due 08/15/205 | 700,000 | 717,500 | ||||||
| Suburban Propane Partners Limited Partnership/Suburban Energy Finance Corp. | ||||||||
5.50% due 06/01/244 | 600,000 | 579,000 | ||||||
| Guitar Center, Inc. | ||||||||
6.50% due 04/15/195 | 380,000 | 326,800 | ||||||
| Petco Animal Supplies, Inc. | ||||||||
9.25% due 12/01/185 | 200,000 | 209,500 | ||||||
| Men’s Wearhouse, Inc. | ||||||||
7.00% due 07/01/224 | 100,000 | 102,750 | ||||||
| Seminole Hard Rock Entertainment Incorporated / Seminole Hard Rock International LLC | ||||||||
5.88% due 05/15/215 | 100,000 | 99,000 | ||||||
| Global Partners Limited Partnership / GLP Finance Corp. | ||||||||
| 6.25% due 07/15/22 | 80,000 | 77,600 | ||||||
| Total Consumer, Cyclical | 6,314,650 | |||||||
| COMMUNICATIONS - 6.7% | ||||||||
| MDC Partners, Inc. | ||||||||
6.75% due 04/01/205 | 1,100,000 | 1,133,000 | ||||||
| SITEL LLC / Sitel Finance Corp. | ||||||||
11.00% due 08/01/175 | 1,000,000 | 995,000 | ||||||
| CSC Holdings LLC | ||||||||
5.25% due 06/01/244 | 650,000 | 653,249 | ||||||
| Unitymedia Hessen GmbH & Company KG / Unitymedia NRW GmbH | ||||||||
5.00% due 01/15/255 | 650,000 | 651,625 | ||||||
| DISH DBS Corp. | ||||||||
| 5.88% due 11/15/24 | 400,000 | 402,000 | ||||||
| 5.88% due 07/15/22 | 200,000 | 205,000 | ||||||
| 106 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
SCHEDULE OF INVESTMENTS (continued) | December 31, 2014 |
| SERIES P (HIGH YIELD SERIES) |
| Face Amount | Value | |||||||
| Virgin Media Finance plc | ||||||||
6.38% due 10/15/245 | GBP | 300,000 | $ | 502,689 | ||||
| McGraw-Hill Global Education Holdings LLC / McGraw-Hill Global Education Finance | ||||||||
| 9.75% due 04/01/21 | $ | 400,000 | 442,000 | |||||
| Avaya, Inc. | ||||||||
7.00% due 04/01/195 | 150,000 | 146,250 | ||||||
| Sirius XM Canada Holdings, Inc. | ||||||||
5.63% due 04/23/215 | CAD | 150,000 | 126,851 | |||||
| Expo Event Transco, Inc. | ||||||||
9.00% due 06/15/215 | 85,000 | 86,700 | ||||||
| Total Communications | 5,344,364 | |||||||
| INDUSTRIAL - 6.6% | ||||||||
| Marquette Transportation Company LLC / Marquette Transportation Finance Corp. | ||||||||
10.88% due 01/15/174 | 860,000 | 885,800 | ||||||
| CEVA Group plc | ||||||||
7.00% due 03/01/215 | 900,000 | 868,500 | ||||||
| Amsted Industries, Inc. | ||||||||
5.38% due 09/15/245 | 850,000 | 826,625 | ||||||
| BMBG Bond Finance SCA | ||||||||
5.08% due 10/15/202,5 | EUR | 500,000 | 605,660 | |||||
| Odebrecht Offshore Drilling Finance Ltd. | ||||||||
6.63% due 10/01/224,6 | 625,560 | 559,876 | ||||||
| Ultra Resources, Inc. | ||||||||
4.51% due 10/12/20†††,1 | 600,000 | 533,280 | ||||||
| Sealed Air Corp. | ||||||||
4.88% due 12/01/225 | 500,000 | 496,250 | ||||||
| LMI Aerospace, Inc. | ||||||||
| 7.38% due 07/15/19 | 300,000 | 292,500 | ||||||
| Moog, Inc. | ||||||||
5.25% due 12/01/225 | 150,000 | 151,875 | ||||||
| Total Industrial | 5,220,366 | |||||||
| TECHNOLOGY - 4.9% | ||||||||
| Eagle Midco, Inc. | ||||||||
9.00% due 06/15/184,5 | 1,350,000 | 1,380,375 | ||||||
| Aspect Software, Inc. | ||||||||
10.63% due 05/15/171,4 | 1,290,000 | 1,219,050 | ||||||
| Audatex North America, Inc. | ||||||||
6.13% due 11/01/235 | 1,000,000 | 1,032,500 | ||||||
| NCR Corp. | ||||||||
| 5.88% due 12/15/21 | 250,000 | 256,875 | ||||||
| Total Technology | 3,888,800 | |||||||
| BASIC MATERIALS - 4.4% | ||||||||
| KGHM International Ltd. | ||||||||
7.75% due 06/15/195 | 1,275,000 | 1,313,250 | ||||||
| TPC Group, Inc. | ||||||||
8.75% due 12/15/205 | 1,030,000 | 1,001,675 | ||||||
| Eldorado Gold Corp. | ||||||||
6.13% due 12/15/205 | 515,000 | 499,550 | ||||||
| Mirabela Nickel Ltd. | ||||||||
9.50% due 06/24/19†††,1 | 339,390 | 339,390 | ||||||
1.00% due 07/31/44†††,1 | 7,722 | — | ||||||
| Cascades, Inc. | ||||||||
5.50% due 07/15/225 | 300,000 | 298,500 | ||||||
| Total Basic Materials | 3,452,365 | |||||||
| DIVERSIFIED - 4.2% | ||||||||
| Harbinger Group, Inc. | ||||||||
| 7.75% due 01/15/22 | 1,203,000 | 1,215,030 | ||||||
| 7.88% due 07/15/19 | 298,000 | 317,370 | ||||||
7.75% due 01/15/225 | 250,000 | 252,500 | ||||||
| Opal Acquisition, Inc. | ||||||||
8.88% due 12/15/214,5 | 1,500,000 | 1,522,500 | ||||||
| Total Diversified | 3,307,400 | |||||||
| UTILITIES - 3.8% | ||||||||
| Elwood Energy LLC | ||||||||
8.16% due 07/05/261,4 | 1,041,175 | 1,132,278 | ||||||
| LBC Tank Terminals Holding Netherlands BV | ||||||||
6.88% due 05/15/235 | 1,000,000 | 1,005,000 | ||||||
| AES Corp. | ||||||||
5.50% due 03/15/244 | 600,000 | 608,880 | ||||||
| 4.88% due 05/15/23 | 250,000 | 248,125 | ||||||
| Total Utilities | 2,994,283 | |||||||
| Total Corporate Bonds | ||||||||
| (Cost $58,697,271) | 56,879,490 | |||||||
SENIOR FLOATING RATE INTERESTS††,2,7 - 26.8% | ||||||||
| INDUSTRIAL - 7.8% | ||||||||
| Flakt Woods | ||||||||
2.64% due 03/20/17†††,1 | EUR | 1,558,622 | 1,820,137 | |||||
| CareCore National LLC | ||||||||
| 5.50% due 03/05/21 | 996,250 | 983,797 | ||||||
| Mitchell International, Inc. | ||||||||
| 8.50% due 10/11/21 | 600,000 | 596,100 | ||||||
| SIRVA Worldwide, Inc. | ||||||||
| 7.50% due 03/27/19 | 589,500 | 583,605 | ||||||
| Mast Global | ||||||||
8.75% due 09/12/19†††,1 | 518,196 | 514,065 | ||||||
| Knowledge Learning Corp. | ||||||||
| 5.25% due 03/18/21 | 397,000 | 396,008 | ||||||
| Nord Anglia Education Finance LLC | ||||||||
| 4.50% due 03/31/21 | 400,000 | 395,000 | ||||||
| Hardware Holdings LLC | ||||||||
6.75% due 03/30/20†††,1 | 349,125 | 338,651 | ||||||
| Panolam Industries International, Inc. | ||||||||
| 7.51% due 08/23/17 | 191,514 | 187,205 | ||||||
| NaNa Development Corp. | ||||||||
8.00% due 03/15/181 | 97,500 | 92,138 | ||||||
| Ceva Logistics US Holdings | ||||||||
| 6.50% due 03/19/21 | 97,783 | 90,938 | ||||||
| SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 107 |
SCHEDULE OF INVESTMENTS (continued) | December 31, 2014 |
| SERIES P (HIGH YIELD SERIES) |
| Face Amount | Value | |||||||
| Ceva Logistics Holdings BV (Dutch) | ||||||||
| 6.50% due 03/19/21 | $ | 70,893 | $ | 65,930 | ||||
| Ceva Group plc (United Kingdom) | ||||||||
| 6.50% due 03/19/21 | 67,734 | 62,993 | ||||||
| Ceva Logistics Canada, ULC | ||||||||
| 6.50% due 03/19/21 | 12,223 | 11,367 | ||||||
| Total Industrial | 6,137,934 | |||||||
| CONSUMER, CYCLICAL - 4.5% | ||||||||
| GCA Services Group, Inc. | ||||||||
| 9.25% due 11/01/20 | 1,200,000 | 1,179,001 | ||||||
| Lions Gate Entertainment Corp. | ||||||||
| 5.00% due 07/19/20 | 700,000 | 692,125 | ||||||
| IntraWest Holdings S.a r.l. | ||||||||
| 5.50% due 12/09/20 | 693,000 | 690,110 | ||||||
| DLK Acquisitions BV | ||||||||
4.41% due 02/28/19†††,1 | EUR | 400,000 | 447,703 | |||||
| Eyemart Express | ||||||||
| 5.00% due 12/16/21 | 400,000 | 398,000 | ||||||
| BJ’s Wholesale Club, Inc. | ||||||||
| 4.50% due 09/26/19 | 199,496 | 195,434 | ||||||
| Total Consumer, Cyclical | 3,602,373 | |||||||
| FINANCIAL - 3.7% | ||||||||
| Cunningham Lindsey U.S., Inc. | ||||||||
| 9.25% due 06/10/20 | 935,455 | 907,390 | ||||||
| Magic Newco, LLC | ||||||||
| 12.00% due 06/12/19 | 700,000 | 756,441 | ||||||
| Intertrust Group | ||||||||
| 8.00% due 04/11/22 | 400,000 | 394,000 | ||||||
| Safe-Guard | ||||||||
| 6.25% due 08/19/21 | 344,125 | 343,265 | ||||||
| STG-Fairway Acquisitions, Inc. | ||||||||
| 6.25% due 02/28/19 | 294,753 | 289,963 | ||||||
| Trademonster | ||||||||
7.25% due 08/29/19††† | 199,500 | 198,565 | ||||||
| Expert Global Solutions | ||||||||
| 8.52% due 04/03/18 | 51,984 | 51,594 | ||||||
| Total Financial | 2,941,218 | |||||||
| CONSUMER, NON-CYCLICAL - 3.7% | ||||||||
| AdvancePierre Foods, Inc. | ||||||||
| 9.50% due 10/10/17 | 709,000 | 694,821 | ||||||
| NES Global Talent | ||||||||
| 6.50% due 10/03/19 | 682,500 | 648,375 | ||||||
| Birds Eye Iglo Group Ltd. | ||||||||
| 4.27% due 06/30/20 | EUR | 450,000 | 530,497 | |||||
| Reddy Ice Holdings, Inc. | ||||||||
10.75% due 10/01/191 | 530,000 | 445,200 | ||||||
| CTI Foods Holding Co. LLC | ||||||||
| 8.25% due 06/28/21 | 350,000 | 342,125 | ||||||
| Performance Food Group | ||||||||
| 6.25% due 11/14/19 | 246,250 | 241,017 | ||||||
| Total Consumer, Non-cyclical | 2,902,035 | |||||||
| TECHNOLOGY - 3.2% | ||||||||
| Greenway Medical Technologies | ||||||||
9.25% due 11/04/211 | 500,000 | 482,500 | ||||||
6.00% due 11/04/201 | 396,000 | 392,040 | ||||||
| Sparta Holding Corp. | ||||||||
6.25% due 07/28/20††† | 698,250 | 691,723 | ||||||
| TIBCO Software, Inc. | ||||||||
| 6.50% due 11/25/20 | 500,000 | 483,335 | ||||||
| GlobalLogic Holdings, Inc. | ||||||||
| 6.25% due 05/31/19 | 247,500 | 243,788 | ||||||
| Flexera Software LLC | ||||||||
| 8.00% due 04/02/21 | 250,000 | 237,500 | ||||||
| Total Technology | 2,530,886 | |||||||
| COMMUNICATIONS - 3.0% | ||||||||
| Cartrawler | ||||||||
| 4.27% due 04/29/21 | EUR | 550,000 | 663,081 | |||||
| Avaya, Inc. | ||||||||
| 6.50% due 03/31/18 | 635,001 | 624,416 | ||||||
| Anaren, Inc. | ||||||||
| 9.25% due 08/18/21 | 500,000 | 493,125 | ||||||
| MergerMarket Ltd. | ||||||||
| 4.50% due 02/04/21 | 347,375 | 328,269 | ||||||
| Cengage Learning Acquisitions, Inc. | ||||||||
| 7.00% due 03/31/20 | 248,125 | 245,334 | ||||||
| Total Communications | 2,354,225 | |||||||
| BASIC MATERIALS - 0.7% | ||||||||
| Atkore International, Inc. | ||||||||
| 7.75% due 10/09/21 | 400,000 | 390,000 | ||||||
| Styrolution US Holding, LLC | ||||||||
| 6.50% due 11/07/19 | 210,000 | 203,175 | ||||||
| Total Basic Materials | 593,175 | |||||||
| ENERGY - 0.2% | ||||||||
| FTS International | ||||||||
| 5.75% due 04/16/21 | 218,182 | 171,273 | ||||||
| Total Senior Floating Rate Interests | ||||||||
| (Cost $22,009,406) | 21,233,119 | |||||||
ASSET-BACKED SECURITIES††,7 - 1.9% | ||||||||
| Iron Mountain, Inc. | ||||||||
| 6.13% due 09/15/22 | GBP | 600,000 | 954,407 | |||||
| ALM XIV Ltd. 2014-14A | ||||||||
3.68% due 07/28/262,5 | 600,000 | 558,300 | ||||||
| Total Asset-Backed Securities | ||||||||
| (Cost $1,544,039) | 1,512,707 | |||||||
| 108 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
SCHEDULE OF INVESTMENTS (concluded) | December 31, 2014 |
| SERIES P (HIGH YIELD SERIES) |
| Face Amount | Value | |||||||
MORTGAGE-BACKED SECURITIES†† - 0.6% | ||||||||
| SRERS Funding Ltd. 2011-RS | ||||||||
0.41% due 05/09/462,5 | $ | 516,639 | $ | 492,099 | ||||
| Total Mortgage-Backed Securities | ||||||||
| (Cost $478,452) | 492,099 | |||||||
| Total Investments - 113.5% | ||||||||
| (Cost $93,837,094) | $ | 89,863,656 | ||||||
| Other Assets & Liabilities, net - (13.5)% | (10,671,760 | ) | ||||||
| Total Net Assets - 100.0% | $ | 79,191,896 | ||||||
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS†† | ||||||||||||||||||
| Counterparty | Contracts to Sell | Currency | Settlement Date | Settlement Value | Value at December 31, 2014 | Net Unrealized Appreciation | ||||||||||||
| BNY Mellon | 4,700,000 | EUR | 01/09/15 | $ | 5,812,255 | $ | 5,688,799 | $ | 123,456 | |||||||||
| BNY Mellon | 1,200,000 | GBP | 01/09/15 | 1,878,276 | 1,870,601 | 7,675 | ||||||||||||
| BNY Mellon | 150,000 | CAD | 01/09/15 | 131,602 | 129,102 | 2,500 | ||||||||||||
| BNY Mellon | 52,000 | AUD | 01/09/15 | 43,426 | 42,431 | 995 | ||||||||||||
| $ | 134,626 | |||||||||||||||||
| * | Non-income producing security. |
| † | Value determined based on Level 1 inputs, unless otherwise noted — See Note 4. |
| †† | Value determined based on Level 2 inputs, unless otherwise noted — See Note 4. |
| ††† | Value determined based on Level 3 inputs — See Note 4. |
| 1 | Illiquid security. |
| 2 | Variable rate security. Rate indicated is rate effective at December 31, 2014. |
| 3 | Perpetual maturity. |
| 4 | Security or a portion thereof is held as collateral for reverse repurchase agreements — See Note 14. |
| 5 | Security is a 144A or Section 4(a)(2) security. The total market value of 144A or Section 4(a)(2) securities is $33,778,360 (cost $34,512,996), or 42.7% of total net assets. These securities have been determined to be liquid under guidelines established by the Board of Trustees. |
| 6 | Security is a 144A or Section 4(a)(2) security. These securities are considered illiquid and restricted under guidelines established by the Board of Trustees. The total market value of 144A or Section 4(a)(2) securities is $1,938,726 (cost $2,026,984), or 2.4% of total net assets — See Note 15. |
| 7 | The face amount is denominated in U.S. Dollars unless otherwise indicated. |
| 8 | Security is in default of interest and/or principal obligations. |
| 9 | Security or a portion thereof is restricted due to a corporate action. |
| plc — Public Limited Company | |
| REIT — Real Estate Investment Trust |
| SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 109 |
| SERIES P (HIGH YIELD SERIES) |
| STATEMENT OF ASSETS AND LIABILITIES |
| December 31, 2014 | ||||
| Assets: | ||||
| Investments, at value (cost $93,837,094) | $ | 89,863,656 | ||
| Segregated cash with broker | 150,000 | |||
| Unrealized appreciation on forward foreign currency exchange contracts | 134,626 | |||
| Cash | 116,264 | |||
| Prepaid expenses | 5,973 | |||
| Receivables: | ||||
| Securities sold | 2,405,566 | |||
| Interest | 1,176,305 | |||
| Dividends | 13,017 | |||
| Foreign taxes reclaim | 6,451 | |||
| Fund shares sold | 2,894 | |||
| Total assets | 93,874,752 | |||
| Liabilities: | ||||
| Reverse Repurchase Agreements | 12,540,862 | |||
| Unfunded loan commitments, at value (commitment fees received $440,265) | 398,561 | |||
| Payable for: | ||||
| Securities purchased | 1,422,329 | |||
| Fund shares redeemed | 206,312 | |||
| Management fees | 33,978 | |||
| Distribution and service fees | 17,843 | |||
| Fund accounting/administration fees | 6,781 | |||
| Transfer agent/maintenance fees | 3,184 | |||
| Trustees’ fees* | 1,698 | |||
| Miscellaneous | 51,308 | |||
| Total liabilities | 14,682,856 | |||
| Net assets | $ | 79,191,896 | ||
| Net assets consist of: | ||||
| Paid in capital | $ | 73,013,831 | ||
| Undistributed net investment income | 8,424,116 | |||
| Accumulated net realized gain on investments | 1,570,093 | |||
| Net unrealized depreciation on investments | (3,816,144 | ) | ||
| Net assets | $ | 79,191,896 | ||
| Capital shares outstanding | 2,338,365 | |||
| Net asset value per share | $ | 33.87 | ||
| STATEMENT OF OPERATIONS |
| Year Ended December 31, 2014 | ||||
| Investment Income: | ||||
| Interest (net of foreign withholding tax of $1,312) | $ | 8,305,764 | ||
| Dividends (net of foreign withholding tax of $1) | 246,669 | |||
| Total investment income | 8,552,433 | |||
| Expenses: | ||||
| Management fees | 820,198 | |||
| Transfer agent/maintenance fees | 25,005 | |||
| Distribution and service fees | 44,332 | |||
| Fund accounting/administration fees | 107,259 | |||
| Interest expense | 104,309 | |||
| Trustees’ fees* | 13,385 | |||
| Line of credit fees | 11,413 | |||
| Custodian fees | 5,145 | |||
| Tax expense | 4 | |||
| Miscellaneous | 101,516 | |||
| Total expenses | 1,232,566 | |||
| Less: | ||||
| Expenses waived by Adviser | (14,814 | ) | ||
| Net expenses | 1,217,752 | |||
| Net investment income | 7,334,681 | |||
| Net Realized and Unrealized Gain (Loss): | ||||
| Net realized gain (loss) on: | ||||
| Investments | 1,856,720 | |||
| Foreign currency | 2,130 | |||
| Forward foreign currency exchange contracts | 861,526 | |||
| Net realized gain | 2,720,376 | |||
| Net change in unrealized appreciation (depreciation) on: | ||||
| Investments | (6,150,352 | ) | ||
| Forward foreign currency exchange contracts | 142,588 | |||
| Foreign currency | (9,418 | ) | ||
| Net change in unrealized appreciation (depreciation) | (6,017,182 | ) | ||
| Net realized and unrealized loss | (3,296,806 | ) | ||
| Net increase in net assets resulting from operations | $ | 4,037,875 | ||
| * | Relates to Trustees not deemed “interested persons” within the meaning of Section 2(a)(19) of the 1940 Act. |
| 110 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
| SERIES P (HIGH YIELD SERIES) |
| STATEMENTS OF CHANGES IN NET ASSETS |
| Year Ended December 31, 2014 | Year Ended December 31, 2013 | |||||||
| Increase (Decrease) in Net Assets from Operations: | ||||||||
| Net investment income | $ | 7,334,681 | $ | 8,361,124 | ||||
| Net realized gain on investments | 2,720,376 | 533,682 | ||||||
| Net change in unrealized appreciation (depreciation) on investments | (6,017,182 | ) | 284,749 | |||||
| Net increase in net assets resulting from operations | 4,037,875 | 9,179,555 | ||||||
| Capital share transactions: | ||||||||
| Proceeds from sale of shares | 55,071,243 | 60,438,050 | ||||||
| Cost of shares redeemed | (103,900,378 | ) | (83,887,297 | ) | ||||
| Net decrease from capital share transactions | (48,829,135 | ) | (23,449,247 | ) | ||||
| Net decrease in net assets | (44,791,260 | ) | (14,269,692 | ) | ||||
| Net assets: | ||||||||
| Beginning of year | 123,983,156 | 138,252,848 | ||||||
| End of year | $ | 79,191,896 | $ | 123,983,156 | ||||
| Undistributed net investment income at end of year | $ | 8,424,116 | $ | 9,702,576 | ||||
| Capital share activity: | ||||||||
| Shares sold | 1,602,820 | 1,885,864 | ||||||
| Shares redeemed | (3,019,750 | ) | (2,627,041 | ) | ||||
| Net decrease in shares | (1,416,930 | ) | (741,177 | ) | ||||
| SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 111 |
| SERIES P (HIGH YIELD SERIES) |
| STATEMENT OF CASH FLOWS |
| Year ended December 31, 2014 | ||||
| Cash Flows from Operating Activities: | ||||
| Net increase in net assets resulting from operations | $ | 4,037,875 | ||
| Adjustments to Reconcile Net Increase in Net Assets Resulting from Operations to Net Cash Provided by Operating and Investing Activities: | ||||
| Net change in unrealized appreciation (depreciation) on investments | 6,150,352 | |||
| Net change in unrealized appreciation (depreciation) on forward foreign currency exchange contracts | (1,349,808 | ) | ||
| Net change in unrealized appreciation (depreciation) on foreign currency | 9,418 | |||
| Net realized gain on investments | (1,856,720 | ) | ||
| Purchase of long-term investments | (110,698,959 | ) | ||
| Proceeds from sale of long-term investments | 145,436,886 | |||
| Net proceeds from sale of short-term investments | 2,167,240 | |||
| Accretion of discounts and amortization of premiums | 658 | |||
| Decrease in prepaid expenses | 3,300 | |||
| Increase in for securities sold receivable | (1,146,408 | ) | ||
| Decrease in interest receivable | 874,789 | |||
| Increase in dividends receivable | (1,482 | ) | ||
| Increase in investment advisor receivable | (8,846 | ) | ||
| Increase in foreign tax reclaims receivable | (6,451 | ) | ||
| Increase in securities purchased payable | 676,874 | |||
| Decrease in management fees payable | (37,296 | ) | ||
| Increase in distribution and service fees payable | 17,843 | |||
| Decrease in fund accounting/administration fees payable | (3,367 | ) | ||
| Decrease in transfer agent/maintenance fees payable | (266 | ) | ||
| Increase in trustees' fees payable | 819 | |||
| Decrease in miscellaneous payable | (14,174 | ) | ||
| Net Cash Provided by Operating and Investing Activities | 44,252,277 | |||
| Cash Flows from Financing Activities: | ||||
| Proceeds from reverse repurchase agreements | 156,210,574 | |||
| Payments made on reverse repurchase agreements | (151,356,769 | ) | ||
| Proceeds from sale of shares | 55,076,671 | |||
| Cost of shares redeemed | (104,045,828 | ) | ||
| Net Cash Used in Financing Activities | (44,115,352 | ) | ||
| Net change in cash | 136,925 | |||
| Cash at Beginning of Year | $ | 129,339 | ||
| Cash at End of Year | $ | 266,264 | ||
| Supplemental Disclosure of Cash Flow Information: Cash paid during the year for interest | $ | 102,891 | ||
| 112 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
| SERIES P (HIGH YIELD SERIES) |
| FINANCIAL HIGHLIGHTS |
This table is presented to show selected data for a share outstanding throughout each period and to assist shareholders in evaluating a Fund’s performance for the periods presented.
| Year Ended December 31, 2014 | Year Ended December 31, 2013 | Year Ended December 31, 2012 | Year Ended December 31, 2011 | Year Ended December 31, 2010 | ||||||||||||||||
| Per Share Data | ||||||||||||||||||||
| Net asset value, beginning of period | $ | 33.02 | $ | 30.75 | $ | 26.77 | $ | 26.78 | $ | 23.20 | ||||||||||
| Income (loss) from investment operations: | ||||||||||||||||||||
Net investment income (loss)a | 2.23 | 2.20 | 2.01 | 2.00 | 2.02 | |||||||||||||||
| Net gain (loss) on investments (realized and unrealized) | (1.38 | ) | .07 | 1.97 | (2.01 | ) | 1.56 | |||||||||||||
| Total from investment operations | .85 | 2.27 | 3.98 | (.01 | ) | 3.58 | ||||||||||||||
| Net asset value, end of period | $ | 33.87 | $ | 33.02 | $ | 30.75 | $ | 26.77 | $ | 26.78 | ||||||||||
Total Returnb | 2.51 | % | 7.38 | % | 14.87 | % | (0.04 | %) | 15.43 | % | ||||||||||
| Ratios/Supplemental Data | ||||||||||||||||||||
| Net assets, end of period (in thousands) | $ | 79,192 | $ | 123,983 | $ | 138,253 | $ | 118,156 | $ | 138,449 | ||||||||||
| Ratios to average net assets: | ||||||||||||||||||||
| Net investment income (loss) | 6.50 | % | 6.86 | % | 6.95 | % | 7.34 | % | 8.16 | % | ||||||||||
| Total expenses | 1.09 | % | 1.07 | % | 0.95 | % | 0.93 | % | 0.94 | % | ||||||||||
Net expensesc | 1.08 | %d | 1.07 | % | 0.95 | % | 0.93 | % | 0.94 | % | ||||||||||
| Portfolio turnover rate | 90 | % | 100 | % | 95 | % | 64 | % | 56 | % | ||||||||||
a | Net investment income (loss) per share was computed using average shares outstanding throughout the period. |
b | Total return does not take into account any of the expenses associated with an investment in variable insurance products. If total return had taken into account these expenses, performance would have been lower. Shares of a series of Guggenheim Variable Funds Trust are available only through the purchase of such products. |
c | Net expense information reflects the expense ratios after expense waivers. |
d | Net expenses may include expenses that are excluded from the expense limitation agreement. Excluding these expenses, the operating expense ratio for the year would be 0.97%. |
| SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 113 |
MANAGER’S COMMENTARY (Unaudited) | December 31, 2014 |
To Our Shareholders:
The Series Q (Small Cap Value Series) is managed by a team of seasoned professionals led by James Schier, CFA, Portfolio Manager. In the following paragraphs, he discusses performance of the Fund for the fiscal year ended December 31, 2014.
For the fiscal year ended December 31, 2014, the Series Q (Small Cap Value Series) returned -1.38%, compared with the Russell 2000® Value Index, which returned 4.22%.
Strategy and Market Overview
Our investment approach focuses on understanding how companies make money and how easily companies can improve returns, maintain existing high levels of profitability or benefit from change that occurs within the industry they operate. In today’s rapid fire environment marked by very sharp, quick but constrained volatility, our long-term orientation and discipline is a competitive advantage. This should become especially critical when the environment of indiscriminant valuation expansion subsides, and when fundamentals once again become a more dominant factor in the market.
Performance Review
On the positive side, stock selection within Information Technology was the strongest contributor to return, as the sector gained 13%, almost twice that of the benchmark. Tech holding Spansion was the largest individual contributor to the Fund, after an announced merger with Cypress Semiconductor. Another contributor for the year, RF Micro Devices, Inc., remains responsive to the substantial operating leverage and synergy from its merger with TriQuint Semiconductor, Inc. in the period.
The Fund also benefited from sector allocations that favored the health care industry and stock selection in the Utilities and Materials sectors.
Hurting Fund performance for the year was stock selection and allocation in Financials and Industrials and stock selection in Energy.
We have a significant overweight to the Industrials sector, as it should benefit from any infrastructure upgrading in the U.S. The market seems to favor businesses that experience an immediate pick-up in business when the economy improves, rather than companies reliant on long project rollouts. The portfolio’s holdings, by contrast, include a number of companies that have an engineering and construction orientation, or are tied into fairly large, visible infrastructure projects. Portfolio holdings in the Industrials sector lost almost 7% compared with a 2% loss for the benchmark. A few names lagged due to unique concerns such as European exposure or energy end-market exposure. PMFG, Inc., an energy delivery-services company that experienced poor earnings was a leading individual detractor for the year.
Both stock selection and an underweight in the Financials sector detracted from Fund performance for the year. The underweight stems from the Fund’s orientation away from real estate investment trusts (REITs), a big part of the sector and which performed well earlier in the period, even though we believe they look fairly expensive, with high valuation relative to reinvestment opportunities. Notably, one of the Fund’s best-performing holdings was in Financials: Hanover Insurance Group, Inc., a property/casualty insurer. We have favored this group due to its positive pricing trends.
Energy stock selection also provided a meaningful setback. The Energy sector declined 37% in the benchmark. The Fund’s holdings focused on oil-centric production and service companies that tended to experience the brunt of the market’s selling in this sector. The strategy’s energy names as a whole declined 54% in value. Resolute Energy was the largest individual detractor from return for the year.
Portfolio Positioning
The largest relative sector exposures for the year were an underweight in Financials and an overweight in Industrials.
| 114 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
MANAGER'S COMMENTARY (Unaudited)(concluded) | December 31, 2014 |
The major additions to the portfolio in the period were in a variety of REITs (part of Financials), in order to initially bring the weighting up to 9% (about half of the benchmark weighting) from a negligible level of exposure. REITs continue to perform well, and the strategy’s underweighting in this industry has been a difficult bias to overcome. Over the period, the Fund also reduced its exposure to the reinsurance market, which has been under pressure as participants outside the industry have entered to provide capital in the search for yield.
The REIT purchases were primarily funded by reducing the weightings in a number of sectors, mostly Industrials and Consumer Discretionary. The Fund still has an overweight Industrials, which detracted from performance over the year. This is a large and eclectic sector in which we have diverse holdings. We believe the portfolio is well positioned to benefit from the growing cap-ex and construction environment tied to infrastructure renewal and reindustrialization in the U.S.
Portfolio and Market Outlook
Despite a firming economy, investors were very cautious over the period, as safe-haven areas such as utilities, REITs, health care and consumer staples continued to lead. As the world continues to look towards the U.S. economy to be the engine for growth, and as foreign investors continue to fear the safety of their own currencies and economies, interest in U.S. assets should continue to be robust. The continued decline in U.S. government bond yields should continue to make equities an attractive alternative for incremental investment dollars.
Our portfolios tend to reflect a bias toward companies with balance sheet quality. We continue to find niche companies with what we believe to be attractive growth opportunities and, as such, are constructive on the outlook.
Performance displayed represents past performance, which is no guarantee of future results.
The opinions and forecast expressed may not actually come to pass. This information is subject to change at any time, based on market and other conditions, and should not be construed as a recommendation of any specific security or strategy.
| THE GUGGENHEIM FUNDS ANNUAL REPORT | 115 |
PERFORMANCE REPORT AND FUND PROFILE (Unaudited) | December 31, 2014 |
SERIES Q (SMALL CAP VALUE SERIES)
OBJECTIVE: Seeks long-term capital appreciation.
Holdings Diversification
(Market Exposure as % of Net Assets)
“Holdings Diversification (Market Exposure as % of Net Assets)” excludes any temporary cash investments or investments in Guggenheim Strategy Funds Trust mutual funds.
Cumulative Fund Performance*,†
Inception Date: May 1, 2000 |
| Ten Largest Holdings (% of Total Net Assets) | |
| Hanover Insurance Group, Inc. | 3.3% |
| Endurance Specialty Holdings Ltd. | 2.5% |
| Covanta Holding Corp. | 2.3% |
| Emergent Biosolutions, Inc. | 2.1% |
| Laclede Group, Inc. | 2.1% |
| Diebold, Inc. | 2.0% |
| Apartment Investment & Management Co. — Class A | 2.0% |
| PMFG, Inc. | 2.0% |
| Silicon Graphics International Corp. | 1.9% |
| Reinsurance Group of America, Inc. — Class A | 1.9% |
| Top Ten Total | 22.1% |
| “Ten Largest Holdings” exclude any temporary cash or derivative investments. | |
Average Annual Returns*
Periods Ended December 31, 2014†
| 1 Year | 5 Year | 10 Year | |
| Series Q (Small Cap Value Series) | -1.38% | 13.39% | 9.90% |
| Russell 2000 Value Index | 4.22% | 14.26% | 6.89% |
| * | The performance data above represents past performance that is not predictive of future results. The investment return and principal value of an investment in the Fund will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Returns are historical and include changes in principal and reinvested dividends and capital gains and do not reflect the effect of taxes. The Russell 2000 Value Index is an unmanaged index and, unlike the Fund, has no management fees or operating expenses to reduce its reported return. |
† | Performance figures do not reflect fees and expenses associated with an investment in variable insurance products. If returns had taken into account these fees and expenses, performance would have been lower. Shares of a series of Guggenheim Variable Funds Trust are available only through the purchase of such products. |
| 116 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
| SCHEDULE OF INVESTMENTS | December 31, 2014 |
| SERIES Q (SMALL CAP VALUE SERIES) |
| Shares | Value | |||||||
COMMON STOCKS† - 100.9% | ||||||||
| FINANCIAL - 31.1% | ||||||||
| Hanover Insurance Group, Inc. | 52,944 | $ | 3,775,965 | |||||
| Endurance Specialty Holdings Ltd. | 47,636 | 2,850,538 | ||||||
| Apartment Investment & Management Co. — Class A | 61,420 | 2,281,753 | ||||||
| Reinsurance Group of America, Inc. — Class A | 24,785 | 2,171,662 | ||||||
| Simmons First National Corp. — Class A | 52,735 | 2,143,678 | ||||||
| Berkshire Hills Bancorp, Inc. | 72,185 | 1,924,452 | ||||||
| CubeSmart | 86,073 | 1,899,631 | ||||||
| Navigators Group, Inc.* | 25,790 | 1,891,439 | ||||||
| NorthStar Realty Finance Corp. | 100,520 | 1,767,142 | ||||||
| Horace Mann Educators Corp. | 52,730 | 1,749,581 | ||||||
| Camden Property Trust | 19,028 | 1,405,028 | ||||||
| Sun Communities, Inc. | 22,866 | 1,382,478 | ||||||
| OFG Bancorp | 82,220 | 1,368,963 | ||||||
| BancFirst Corp. | 17,857 | 1,131,955 | ||||||
| Chatham Lodging Trust | 37,607 | 1,089,475 | ||||||
| Symetra Financial Corp. | 46,790 | 1,078,509 | ||||||
| 1st Source Corp. | 28,523 | 978,624 | ||||||
| Home Loan Servicing Solutions Ltd. | 43,650 | 852,048 | ||||||
| AMERISAFE, Inc. | 19,414 | 822,377 | ||||||
| PrivateBancorp, Inc. — Class A | 23,452 | 783,297 | ||||||
| Blackstone Mortgage Trust, Inc. — Class A | 23,000 | 670,220 | ||||||
| StanCorp Financial Group, Inc. | 9,110 | 636,425 | ||||||
| Eaton Vance Corp. | 15,280 | 625,410 | ||||||
| Radian Group, Inc. | 20,535 | 343,345 | ||||||
| Trustmark Corp. | 12,040 | 295,462 | ||||||
| Argo Group International Holdings Ltd. | 2,823 | 156,592 | ||||||
| Total Financial | 36,076,049 | |||||||
| INDUSTRIAL - 16.9% | ||||||||
| Covanta Holding Corp. | 122,140 | 2,688,301 | ||||||
| PMFG, Inc.* | 433,033 | 2,264,763 | ||||||
| Celadon Group, Inc. | 85,979 | 1,950,863 | ||||||
| Curtiss-Wright Corp. | 24,413 | 1,723,313 | ||||||
| Orbital Sciences Corp.* | 59,941 | 1,611,813 | ||||||
| FLIR Systems, Inc. | 37,190 | 1,201,609 | ||||||
| Berry Plastics Group, Inc.* | 34,680 | 1,094,154 | ||||||
| Aegion Corp. — Class A* | 52,928 | 984,990 | ||||||
| Newport Corp.* | 50,880 | 972,317 | ||||||
| Energy Recovery, Inc.* | 175,651 | 925,681 | ||||||
| Gentex Corp. | 24,210 | 874,707 | ||||||
| Sterling Construction Company, Inc.* | 131,448 | 839,953 | ||||||
| LMI Aerospace, Inc.* | 44,700 | 630,270 | ||||||
| Marten Transport Ltd. | 28,758 | 628,650 | ||||||
| Rand Logistics, Inc.* | 119,809 | 473,246 | ||||||
| Dynamic Materials Corp. | 23,487 | 376,262 | ||||||
| UTI Worldwide, Inc.* | 27,140 | 327,580 | ||||||
| Sanmina Corp.* | 1,532 | 36,048 | ||||||
| Total Industrial | 19,604,520 | |||||||
| CONSUMER, NON-CYCLICAL - 15.3% | ||||||||
| Emergent Biosolutions, Inc.* | 90,440 | 2,462,681 | ||||||
| ABM Industries, Inc. | 67,990 | 1,947,914 | ||||||
| Greatbatch, Inc.* | 32,471 | 1,600,819 | ||||||
| Global Cash Access Holdings, Inc.* | 216,100 | 1,545,115 | ||||||
| Invacare Corp. | 89,160 | 1,494,322 | ||||||
| Great Lakes Dredge & Dock Corp.* | 151,466 | 1,296,549 | ||||||
| DeVry Education Group, Inc. | 27,220 | 1,292,133 | ||||||
| Navigant Consulting, Inc.* | 75,090 | 1,154,134 | ||||||
| Kindred Healthcare, Inc. | 63,038 | 1,146,031 | ||||||
| ICU Medical, Inc.* | 10,093 | 826,617 | ||||||
| Globus Medical, Inc. — Class A* | 27,960 | 664,609 | ||||||
| ICF International, Inc.* | 15,832 | 648,795 | ||||||
| HealthSouth Corp. | 14,970 | 575,746 | ||||||
| Tornier N.V.* | 14,718 | 375,309 | ||||||
| Grand Canyon Education, Inc.* | 6,610 | 308,423 | ||||||
| Darling Ingredients, Inc.* | 16,380 | 297,461 | ||||||
| OraSure Technologies, Inc.* | 13,979 | 141,747 | ||||||
| Total Consumer, Non-cyclical | 17,778,405 | |||||||
| TECHNOLOGY - 13.4% | ||||||||
| Diebold, Inc. | 66,972 | 2,319,910 | ||||||
| Silicon Graphics International Corp.* | 191,510 | 2,179,384 | ||||||
| Maxwell Technologies, Inc.* | 223,843 | 2,041,448 | ||||||
| KEYW Holding Corp.* | 153,362 | 1,591,898 | ||||||
| IXYS Corp. | 98,750 | 1,244,249 | ||||||
| Spansion, Inc. — Class A* | 28,214 | 965,483 | ||||||
| ManTech International Corp. — Class A | 29,979 | 906,265 | ||||||
| Allscripts Healthcare Solutions, Inc.* | 62,720 | 800,934 | ||||||
| Brooks Automation, Inc. | 62,710 | 799,553 | ||||||
| Diodes, Inc.* | 25,850 | 712,685 | ||||||
| Mercury Systems, Inc.* | 48,980 | 681,802 | ||||||
| Teradyne, Inc. | 33,290 | 658,809 | ||||||
| iGATE Corp.* | 8,440 | 333,211 | ||||||
| IPG Photonics Corp.* | 4,430 | 331,896 | ||||||
| Total Technology | 15,567,527 | |||||||
| CONSUMER, CYCLICAL - 7.3% | ||||||||
| International Speedway Corp. — Class A | 50,070 | 1,584,716 | ||||||
| Papa Murphy’s Holdings, Inc.* | 133,280 | 1,548,714 | ||||||
| Chico’s FAS, Inc. | 64,720 | 1,049,111 | ||||||
| Oshkosh Corp. | 17,820 | 866,943 | ||||||
| Wendy’s Co. | 73,140 | 660,454 | ||||||
| ScanSource, Inc.* | 16,260 | 653,001 | ||||||
| Ryland Group, Inc. | 16,140 | 622,358 | ||||||
| Iconix Brand Group, Inc.* | 14,850 | 501,781 | ||||||
| Crocs, Inc.* | 34,048 | 425,260 | ||||||
| WESCO International, Inc.* | 4,393 | 334,791 | ||||||
| Abercrombie & Fitch Co. — Class A | 7,990 | 228,834 | ||||||
| Total Consumer, Cyclical | 8,475,963 | |||||||
| SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 117 |
SCHEDULE OF INVESTMENTS (concluded) | December 31, 2014 |
| SERIES Q (SMALL CAP VALUE SERIES) |
| Shares | Value | |||||||
| UTILITIES - 6.6% | ||||||||
| Laclede Group, Inc. | 45,090 | $ | 2,398,788 | |||||
| UGI Corp. | 54,626 | 2,074,695 | ||||||
| PICO Holdings, Inc.* | 80,760 | 1,522,326 | ||||||
| South Jersey Industries, Inc. | 16,040 | 945,237 | ||||||
| Avista Corp. | 18,530 | 655,036 | ||||||
| Total Utilities | 7,596,082 | |||||||
| COMMUNICATIONS - 4.4% | ||||||||
| DigitalGlobe, Inc.* | 63,024 | 1,951,853 | ||||||
| Finisar Corp.* | 60,510 | 1,174,499 | ||||||
| Safeguard Scientifics, Inc.* | 52,711 | 1,044,732 | ||||||
| Scholastic Corp. | 15,954 | 581,045 | ||||||
| Liquidity Services, Inc.* | 39,103 | 319,472 | ||||||
| Total Communications | 5,071,601 | |||||||
| BASIC MATERIALS - 3.0% | ||||||||
| Olin Corp. | 47,201 | 1,074,767 | ||||||
| Luxfer Holdings plc ADR | 64,647 | 965,180 | ||||||
| Landec Corp.* | 62,505 | 863,194 | ||||||
| Royal Gold, Inc. | 9,332 | 585,116 | ||||||
| Total Basic Materials | 3,488,257 | |||||||
| ENERGY - 2.9% | ||||||||
| Patterson-UTI Energy, Inc. | 64,180 | 1,064,746 | ||||||
| Matrix Service Co.* | 31,278 | 698,125 | ||||||
| Oasis Petroleum, Inc.* | 32,850 | 543,339 | ||||||
| Clayton Williams Energy, Inc.* | 7,457 | 475,757 | ||||||
| Sanchez Energy Corp.* | 32,070 | 297,930 | ||||||
| Resolute Energy Corp.* | 222,610 | 293,845 | ||||||
| Total Energy | 3,373,742 | |||||||
| Total Common Stocks | ||||||||
| (Cost $100,933,407) | 117,032,146 | |||||||
CONVERTIBLE PREFERRED STOCKS††† - 0.0% | ||||||||
Thermoenergy Corp.*,1,2 | 116,667 | 1,022 | ||||||
| Total Convertible Preferred Stocks | ||||||||
| (Cost $111,410) | 1,022 | |||||||
SHORT TERM INVESTMENTS† - 0.9% | ||||||||
| Dreyfus Treasury Prime Cash Management Fund | 986,072 | 986,072 | ||||||
| Total Short Term Investments | ||||||||
| (Cost $986,072) | 986,072 | |||||||
| Total Investments - 101.8% | ||||||||
| (Cost $102,030,889) | $ | 118,019,240 | ||||||
| Other Assets & Liabilities, net - (1.8)% | (2,086,157 | ) | ||||||
| Total Net Assets - 100.0% | $ | 115,933,083 | ||||||
| * | Non-income producing security. |
| † | Value determined based on Level 1 inputs — See Note 4. |
| ††† | Value determined based on Level 3 inputs — See Note 4. |
| 1 | PIPE (Private Investment in Public Equity) — Stock issued by a company in the secondary market as a means of raising capital more quickly and less expensively than through registration of a secondary public offering. |
| 2 | Illiquid security. |
| ADR — American Depositary Receipt | |
| plc — Public Limited Company |
| 118 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
| SERIES Q (SMALL CAP VALUE SERIES) |
| STATEMENT OF ASSETS AND LIABILITIES |
| December 31, 2014 | ||||
| Assets: | ||||
| Investments, at value (cost $102,030,889) | $ | 118,019,240 | ||
| Prepaid expenses | 4,375 | |||
| Receivables: | ||||
| Securities sold | 13,896,554 | |||
| Dividends | 130,190 | |||
| Fund shares sold | 35,874 | |||
| Total assets | 132,086,233 | |||
| Liabilities: | ||||
| Payable for: | ||||
| Securities purchased | 15,926,192 | |||
| Fund shares redeemed | 109,852 | |||
| Management fees | 92,325 | |||
| Fund accounting/administration fees | 9,232 | |||
| Transfer agent/maintenance fees | 4,075 | |||
| Trustees’ fees* | 545 | |||
| Miscellaneous | 10,929 | |||
| Total liabilities | 16,153,150 | |||
| Net assets | $ | 115,933,083 | ||
| Net assets consist of: | ||||
| Paid in capital | $ | 81,684,934 | ||
| Accumulated net investment loss | (138,581 | ) | ||
| Accumulated net realized gain on investments | 18,398,379 | |||
| Net unrealized appreciation on investments | 15,988,351 | |||
| Net assets | $ | 115,933,083 | ||
| Capital shares outstanding | 2,241,021 | |||
| Net asset value per share | $ | 51.73 | ||
| STATEMENT OF OPERATIONS |
| Year Ended December 31, 2014 | ||||
| Investment Income: | ||||
| Dividends (net of foreign withholding tax of $1,760) | $ | 1,608,527 | ||
| Interest | 60,073 | |||
| Total investment income | 1,668,600 | |||
| Expenses: | ||||
| Management fees | 1,210,160 | |||
| Transfer agent/maintenance fees | 25,005 | |||
| Fund accounting/administration fees | 121,014 | |||
| Trustees’ fees* | 13,886 | |||
| Custodian fees | 2,654 | |||
| Line of credit fees | 1,885 | |||
| Tax expense | 4 | |||
| Miscellaneous | 97,955 | |||
| Total expenses | 1,472,563 | |||
| Net investment income | 196,037 | |||
| Net Realized and Unrealized Gain (Loss): | ||||
| Net realized gain (loss) on: | ||||
| Investments | 18,770,496 | |||
| Options written | 160,273 | |||
| Net realized gain | 18,930,769 | |||
| Net change in unrealized appreciation (depreciation) on: | ||||
| Investments | (21,095,639 | ) | ||
| Options written | (62,843 | ) | ||
| Net change in unrealized appreciation (depreciation) | (21,158,482 | ) | ||
| Net realized and unrealized loss | (2,227,713 | ) | ||
| Net decrease in net assets resulting from operations | $ | (2,031,676 | ) | |
| * | Relates to Trustees not deemed “interested persons” within the meaning of Section 2(a)(19) of the 1940 Act. |
| SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 119 |
| SERIES Q (SMALL CAP VALUE SERIES) |
| STATEMENTS OF CHANGES IN NET ASSETS |
| Year Ended December 31, 2014 | Year Ended December 31, 2013 | |||||||
| Increase (Decrease) in Net Assets from Operations: | ||||||||
| Net investment income | $ | 196,037 | $ | 29,715 | ||||
| Net realized gain on investments | 18,930,769 | 14,101,979 | ||||||
| Net change in unrealized appreciation (depreciation) on investments | (21,158,482 | ) | 24,971,725 | |||||
| Net increase (decrease) in net assets resulting from operations | (2,031,676 | ) | 39,103,419 | |||||
| Distributions to shareholders from: | ||||||||
| Net investment income | (12,486 | ) | — | |||||
| Total distributions to shareholders | (12,486 | ) | — | |||||
| Capital share transactions: | ||||||||
| Proceeds from sale of shares | 11,066,669 | 18,249,589 | ||||||
| Distributions reinvested | 12,486 | — | ||||||
| Cost of shares redeemed | (33,044,926 | ) | (28,811,632 | ) | ||||
| Net decrease from capital share transactions | (21,965,771 | ) | (10,562,043 | ) | ||||
| Net increase (decrease) in net assets | (24,009,933 | ) | 28,541,376 | |||||
| Net assets: | ||||||||
| Beginning of year | 139,943,016 | 111,401,640 | ||||||
| End of year | $ | 115,933,083 | $ | 139,943,016 | ||||
| Accumulated net investment loss at end of year | $ | (138,581 | ) | $ | (309,867 | ) | ||
| Capital share activity: | ||||||||
| Shares sold | 213,055 | 402,298 | ||||||
| Shares issued from reinvestment of distributions | 241 | — | ||||||
| Shares redeemed | (639,695 | ) | (639,709 | ) | ||||
| Net decrease in shares | (426,399 | ) | (237,411 | ) | ||||
| 120 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
| SERIES Q (SMALL CAP VALUE SERIES) |
| FINANCIAL HIGHLIGHTS |
This table is presented to show selected data for a share outstanding throughout each period and to assist shareholders in evaluating a Fund’s performance for the periods presented.
| Year Ended December 31, 2014 | Year Ended December 31, 2013 | Year Ended December 31, 2012 | Year Ended December 31, 2011 | Year Ended December 31, 2010 | ||||||||||||||||
| Per Share Data | ||||||||||||||||||||
| Net asset value, beginning of period | $ | 52.46 | $ | 38.35 | $ | 32.09 | $ | 33.64 | $ | 27.60 | ||||||||||
| Income (loss) from investment operations: | ||||||||||||||||||||
Net investment income (loss)a | .08 | .01 | (— | )b | (.10 | ) | (.06 | ) | ||||||||||||
| Net gain (loss) on investments (realized and unrealized) | (.80 | ) | 14.10 | 6.26 | (1.45 | ) | 6.10 | |||||||||||||
| Total from investment operations | (.72 | ) | 14.11 | 6.26 | (1.55 | ) | 6.04 | |||||||||||||
| Less distributions from: | ||||||||||||||||||||
| Net investment income | (.01 | ) | — | — | — | — | ||||||||||||||
| Total distributions | (.01 | ) | — | — | — | — | ||||||||||||||
| Net asset value, end of period | $ | 51.73 | $ | 52.46 | $ | 38.35 | $ | 32.09 | $ | 33.64 | ||||||||||
Total Returnc | (1.38 | %) | 36.79 | % | 19.51 | % | (4.61 | %) | 21.88 | % | ||||||||||
| Ratios/Supplemental Data | ||||||||||||||||||||
| Net assets, end of period (in thousands) | $ | 115,933 | $ | 139,943 | $ | 111,402 | $ | 107,587 | $ | 126,827 | ||||||||||
| Ratios to average net assets: | ||||||||||||||||||||
| Net investment income (loss) | 0.15 | % | 0.02 | % | (0.00 | %)d | (0.29 | %) | (0.22 | %) | ||||||||||
| Total expenses | 1.16 | % | 1.16 | % | 1.15 | % | 1.12 | % | 1.12 | % | ||||||||||
| Portfolio turnover rate | 50 | % | 30 | % | 44 | % | 51 | % | 38 | % | ||||||||||
a | Net investment income (loss) per share was computed using average shares outstanding throughout the period. |
b | Net investment income (loss) is less than $0.01 per share. |
c | Total return does not take into account any of the expenses associated with an investment in variable insurance products. If total return had taken into account these expenses, performance would have been lower. Shares of a series of Guggenheim Variable Funds Trust are available only through the purchase of such products. |
d | Net investment income (loss) ratio is less than 0.01%. |
| SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 121 |
MANAGER’S COMMENTARY (Unaudited) | December 31, 2014 |
To Our Shareholders:
The Series V (Mid Cap Value Series) is managed by a team of seasoned professionals led by James Schier, CFA, Portfolio Manager. In the following paragraphs, he discusses performance of the Fund for the fiscal year ended December 31, 2014.
For the fiscal year ended December 31, 2014, the Series V (Mid Cap Value Series) returned 0.91%, compared with the Russell 2500® Value Index, which returned 7.11%.
Strategy and Market Overview
Our investment approach focuses on understanding how companies make money and how easily they can improve returns, maintain existing high levels of profitability or benefit from change that occurs within the industries in which they operate. In today’s rapid-fire environment marked by very sharp and quick, but constrained volatility, our long-term orientation and discipline is a competitive advantage. This should become especially critical when the environment of indiscriminant valuation expansion subsides, and fundamentals once again become a more dominant factor in the market.
Performance Review
On the positive side, stock selection within Industrials and Information Technology was the strongest contributor to return. Tech holding RF Micro Devices, Inc. was one of the top individual contributors for the year. It remains responsive to the substantial operating leverage and synergy from its merger with TriQuint Semiconductor, Inc. in the period. The Utility sector also provided solid results in stock selection.
Hurting Fund performance for the year was stock selection in Financials and an overweight and stock selection in Energy.
Both stock selection and an underweight in the Financials sector detracted from Fund performance for the year. The underweight stems from the Fund’s orientation away from real estate investment trusts (REITs), a big part of the sector and which performed well earlier in the period, even though we believe they look fairly expensive, with high valuation relative to reinvestment opportunities. Notably, one of the Fund’s best-performing holdings was in Financials: Hanover Insurance Group, Inc., a property/casualty insurer. We have favored this group due to its positive pricing trends.
Energy stock selection also provided a meaningful setback. The Energy sector declined 32% in the benchmark. The Fund’s holdings focused on oil-centric production and service companies that tended to experience the brunt of the market’s selling in this sector. The strategy’s energy names as a whole declined 43% in value. Resolute Energy and Oasis Petroleum were the largest individual detractors from return for the year.
Portfolio Positioning
The largest relative sector exposures for the year were an underweight in Financials and an overweight in Industrials.
The major additions to the portfolio in the period were in a variety of REITs (part of Financials), in order to initially bring the weighting up to 9% (about half of the benchmark weighting) from a negligible level of exposure. REITs continue to perform well, and the strategy’s underweighting in this industry has been a difficult bias to overcome. Over the period, the Fund also reduced its exposure to the reinsurance market, which has been under pressure as participants outside the industry have entered to provide capital in the search for yield.
The REIT purchases were primarily funded by reducing the weightings in a number of sectors, mostly Industrials and Consumer Discretionary. The Fund still has an overweight Industrials (18% versus 14% for the benchmark), which detracted from performance over the year. This is a large and eclectic sector in which we have diverse holdings. We believe the portfolio is well positioned to benefit from the growing cap-ex and construction environment tied to infrastructure renewal and reindustrialization in the U.S.
| 122 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
MANAGER'S COMMENTARY (Unaudited)(concluded) | December 31, 2014 |
Portfolio and Market Outlook
Despite a firming economy, investors were very cautious over the period, as safe-haven areas such as utilities, REITs, health care and consumer staples continued to lead. As the world continues to look towards the U.S. economy to be the engine for growth, and as foreign investors continue to fear the safety of their own currencies and economies, interest in U.S. assets should continue to be robust. The continued decline in U.S. government bond yields should continue to make equities an attractive alternative for incremental investment dollars.
Our portfolios tend to reflect a bias toward companies with balance sheet quality. We continue to find niche companies with what we believe to be attractive growth opportunities and, as such, are constructive on the outlook.
Performance displayed represents past performance, which is no guarantee of future results.
The opinions and forecast expressed may not actually come to pass. This information is subject to change at any time, based on market and other conditions, and should not be construed as a recommendation of any specific security or strategy.
| THE GUGGENHEIM FUNDS ANNUAL REPORT | 123 |
PERFORMANCE REPORT AND FUND PROFILE (Unaudited) | December 31, 2014 |
SERIES V (MID CAP VALUE SERIES)
OBJECTIVE: Seeks long-term growth of capital.
Holdings Diversification
(Market Exposure as % of Net Assets)
“Holdings Diversification (Market Exposure as % of Net Assets)” excludes any temporary cash investments or investments in Guggenheim Strategy Funds Trust mutual funds.
Cumulative Fund Performance*,†
Inception Date: May 1, 1997 |
| Ten Largest Holdings (% of Total Net Assets) | |
| Hanover Insurance Group, Inc. | 3.0% |
| Computer Sciences Corp. | 2.8% |
| Covanta Holding Corp. | 2.4% |
| Reinsurance Group of America, Inc. — Class A | 2.2% |
| Zions Bancorporation | 2.1% |
| IXYS Corp. | 2.1% |
| Sonoco Products Co. | 2.0% |
| Pinnacle West Capital Corp. | 2.0% |
| Owens-Illinois, Inc. | 1.9% |
| DigitalGlobe, Inc. | 1.9% |
| Top Ten Total | 22.4% |
| “Ten Largest Holdings” exclude any temporary cash or derivative investments. | |
Average Annual Returns*
Periods Ended December 31, 2014†
| 1 Year | 5 Year | 10 Year | |
| Series V (Mid Cap Value Series) | 0.91% | 11.42% | 9.15% |
| Russell 2500 Value Index | 7.11% | 15.48% | 7.91% |
| * | The performance data above represents past performance that is not predictive of future results. The investment return and principal value of an investment in the Fund will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Returns are historical and include changes in principal and reinvested dividends and capital gains and do not reflect the effect of taxes. The Russell 2500 Value Index is an unmanaged index and, unlike the Fund, has no management fees or operating expenses to reduce its reported return. |
† | Performance figures do not reflect fees and expenses associated with an investment in variable insurance products. If returns had taken into account these fees and expenses, performance would have been lower. Shares of a series of Guggenheim Variable Funds Trust are available only through the purchase of such products. |
| 124 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
| SCHEDULE OF INVESTMENTS | December 31, 2014 |
| SERIES V (MID CAP VALUE SERIES) |
| Shares | Value | |||||||
COMMON STOCKS† - 98.0% | ||||||||
| FINANCIAL - 28.9% | ||||||||
| Hanover Insurance Group, Inc. | 111,897 | $ | 7,980,494 | |||||
| Reinsurance Group of America, Inc. — Class A | 67,417 | 5,907,077 | ||||||
| Zions Bancorporation | 197,920 | 5,642,698 | ||||||
| Alleghany Corp.* | 10,220 | 4,736,970 | ||||||
| FirstMerit Corp. | 238,389 | 4,503,169 | ||||||
| American Financial Group, Inc. | 65,050 | 3,949,836 | ||||||
| Popular, Inc.* | 101,150 | 3,444,157 | ||||||
| Endurance Specialty Holdings Ltd. | 51,196 | 3,063,568 | ||||||
| Apartment Investment & Management Co. — Class A | 71,620 | 2,660,683 | ||||||
| CubeSmart | 118,240 | 2,609,557 | ||||||
| Kilroy Realty Corp. | 37,540 | 2,592,887 | ||||||
| Camden Property Trust | 34,640 | 2,557,818 | ||||||
| Sun Communities, Inc. | 42,010 | 2,539,925 | ||||||
| Home Loan Servicing Solutions Ltd. | 112,527 | 2,196,527 | ||||||
| SVB Financial Group* | 17,770 | 2,062,564 | ||||||
| Wintrust Financial Corp. | 43,390 | 2,028,916 | ||||||
| Jones Lang LaSalle, Inc. | 13,400 | 2,009,062 | ||||||
| Symetra Financial Corp. | 86,638 | 1,997,006 | ||||||
| NorthStar Realty Finance Corp. | 110,810 | 1,948,040 | ||||||
| Trustmark Corp. | 76,020 | 1,865,531 | ||||||
| City National Corp. | 21,280 | 1,719,637 | ||||||
| StanCorp Financial Group, Inc. | 21,630 | 1,511,072 | ||||||
| Eaton Vance Corp. | 36,290 | 1,485,350 | ||||||
| Alexandria Real Estate Equities, Inc. | 15,870 | 1,408,304 | ||||||
| BioMed Realty Trust, Inc. | 60,470 | 1,302,524 | ||||||
| OFG Bancorp | 64,155 | 1,068,181 | ||||||
| Employers Holdings, Inc. | 30,219 | 710,449 | ||||||
| Chatham Lodging Trust | 22,000 | 637,340 | ||||||
| Total Financial | 76,139,342 | |||||||
| CONSUMER, NON-CYCLICAL - 15.9% | ||||||||
| MEDNAX, Inc.* | 67,220 | 4,443,914 | ||||||
| Hormel Foods Corp. | 79,990 | 4,167,479 | ||||||
| Navigant Consulting, Inc.* | 259,077 | 3,982,014 | ||||||
| DeVry Education Group, Inc. | 82,947 | 3,937,493 | ||||||
| HealthSouth Corp. | 88,550 | 3,405,633 | ||||||
| Apollo Education Group, Inc. — Class A* | 95,960 | 3,273,196 | ||||||
| Kindred Healthcare, Inc. | 159,787 | 2,904,928 | ||||||
| Quanta Services, Inc.* | 98,060 | 2,783,923 | ||||||
| ICF International, Inc.* | 62,545 | 2,563,094 | ||||||
| Hologic, Inc.* | 78,664 | 2,103,475 | ||||||
| Ingredion, Inc. | 20,320 | 1,723,949 | ||||||
| Globus Medical, Inc. — Class A* | 66,150 | 1,572,386 | ||||||
| Emergent Biosolutions, Inc.* | 56,471 | 1,537,705 | ||||||
| Bunge Ltd. | 14,300 | 1,300,013 | ||||||
| OraSure Technologies, Inc.* | 93,350 | 946,569 | ||||||
| Darling Ingredients, Inc.* | 43,450 | 789,052 | ||||||
| Grand Canyon Education, Inc.* | 13,880 | 647,641 | ||||||
| Total Consumer, Non-cyclical | 42,082,464 | |||||||
| INDUSTRIAL - 14.5% | ||||||||
| Covanta Holding Corp. | 289,410 | 6,369,914 | ||||||
| Sonoco Products Co. | 119,690 | 5,230,454 | ||||||
| Owens-Illinois, Inc.* | 184,600 | 4,982,354 | ||||||
| Orbital Sciences Corp.* | 181,714 | 4,886,289 | ||||||
| FLIR Systems, Inc. | 135,870 | 4,389,960 | ||||||
| Rock-Tenn Co. — Class A | 55,780 | 3,401,464 | ||||||
| Gentex Corp. | 82,470 | 2,979,641 | ||||||
| Aegion Corp. — Class A* | 118,405 | 2,203,517 | ||||||
| Huntington Ingalls Industries, Inc. | 13,320 | 1,497,967 | ||||||
| Berry Plastics Group, Inc.* | 42,460 | 1,339,613 | ||||||
| UTI Worldwide, Inc.* | 64,450 | 777,912 | ||||||
| Advanced Energy Industries, Inc.* | 15,140 | 358,818 | ||||||
| Total Industrial | 38,417,903 | |||||||
| TECHNOLOGY - 10.4% | ||||||||
| Computer Sciences Corp. | 116,500 | 7,345,326 | ||||||
| IXYS Corp. | 437,430 | 5,511,618 | ||||||
| Diebold, Inc. | 113,830 | 3,943,071 | ||||||
| Maxwell Technologies, Inc.* | 387,650 | 3,535,368 | ||||||
| Allscripts Healthcare Solutions, Inc.* | 148,020 | 1,890,215 | ||||||
| Teradyne, Inc. | 77,600 | 1,535,704 | ||||||
| KEYW Holding Corp.* | 133,680 | 1,387,598 | ||||||
| iGATE Corp.* | 20,030 | 790,784 | ||||||
| IPG Photonics Corp.* | 10,550 | 790,406 | ||||||
| ManTech International Corp. — Class A | 25,050 | 757,262 | ||||||
| Total Technology | 27,487,352 | |||||||
| UTILITIES - 9.6% | ||||||||
| Pinnacle West Capital Corp. | 76,010 | 5,192,242 | ||||||
| UGI Corp. | 110,643 | 4,202,221 | ||||||
| AGL Resources, Inc. | 77,060 | 4,200,541 | ||||||
| Westar Energy, Inc. | 81,590 | 3,364,772 | ||||||
| Great Plains Energy, Inc. | 93,095 | 2,644,829 | ||||||
| Black Hills Corp. | 39,460 | 2,092,958 | ||||||
| Avista Corp. | 44,280 | 1,565,298 | ||||||
| Ameren Corp. | 20,171 | 930,488 | ||||||
| EnerNOC, Inc.* | 43,110 | 666,050 | ||||||
| MDU Resources Group, Inc. | 22,301 | 524,074 | ||||||
| Total Utilities | 25,383,473 | |||||||
| CONSUMER, CYCLICAL - 8.3% | ||||||||
| Oshkosh Corp. | 56,450 | 2,746,293 | ||||||
| Chico’s FAS, Inc. | 168,380 | 2,729,439 | ||||||
| Brown Shoe Company, Inc. | 74,051 | 2,380,739 | ||||||
| WESCO International, Inc.* | 26,266 | 2,001,732 | ||||||
| Dolby Laboratories, Inc. — Class A | 44,930 | 1,937,382 | ||||||
| Ryland Group, Inc. | 48,810 | 1,882,114 | ||||||
| Foot Locker, Inc. | 28,000 | 1,573,040 | ||||||
| Wendy’s Co. | 173,990 | 1,571,130 | ||||||
| DR Horton, Inc. | 57,570 | 1,455,945 | ||||||
| Ascena Retail Group, Inc.* | 86,270 | 1,083,551 | ||||||
| United Stationers, Inc. | 25,170 | 1,061,167 | ||||||
| Visteon Corp.* | 9,700 | 1,036,542 | ||||||
| SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 125 |
SCHEDULE OF INVESTMENTS (concluded) | December 31, 2014 |
| SERIES V (MID CAP VALUE SERIES) |
| Shares | Value | |||||||
| Abercrombie & Fitch Co. — Class A | 18,990 | $ | 543,874 | |||||
| Total Consumer, Cyclical | 22,002,948 | |||||||
| COMMUNICATIONS - 4.2% | ||||||||
| DigitalGlobe, Inc.* | 160,708 | 4,977,127 | ||||||
| Finisar Corp.* | 143,280 | 2,781,065 | ||||||
| Scholastic Corp. | 74,674 | 2,719,627 | ||||||
| Liquidity Services, Inc.* | 82,296 | 672,358 | ||||||
| Total Communications | 11,150,177 | |||||||
| BASIC MATERIALS - 3.8% | ||||||||
| Cameco Corp. | 252,210 | 4,138,766 | ||||||
| Olin Corp. | 111,296 | 2,534,210 | ||||||
| Landec Corp.* | 170,200 | 2,350,462 | ||||||
| Intrepid Potash, Inc.* | 78,330 | 1,087,220 | ||||||
| Total Basic Materials | 10,110,658 | |||||||
| ENERGY - 2.4% | ||||||||
| Whiting Petroleum Corp.* | 55,390 | 1,827,869 | ||||||
| Sanchez Energy Corp.* | 158,391 | 1,471,452 | ||||||
| Superior Energy Services, Inc. | 69,192 | 1,394,219 | ||||||
| Patterson-UTI Energy, Inc. | 82,430 | 1,367,514 | ||||||
| Resolute Energy Corp.* | 251,840 | 332,429 | ||||||
HydroGen Corp.*,†††,1 | 672,346 | 1 | ||||||
| Total Energy | 6,393,484 | |||||||
| Total Common Stocks | ||||||||
| (Cost $220,157,112) | 259,167,801 | |||||||
CONVERTIBLE PREFERRED STOCKS††† - 0.0% | ||||||||
Thermoenergy Corp.*,2,3 | 308,333 | 2,701 | ||||||
| Total Convertible Preferred Stocks | ||||||||
| (Cost $294,438) | 2,701 | |||||||
SHORT TERM INVESTMENTS† - 2.0% | ||||||||
| Dreyfus Treasury Prime Cash Management Fund | 5,401,990 | 5,401,990 | ||||||
| Total Short Term Investments | ||||||||
| (Cost $5,401,990) | 5,401,990 | |||||||
| Total Investments - 100.0% | ||||||||
| (Cost $225,853,540) | $ | 264,572,492 | ||||||
| Other Assets & Liabilities, net - 0.0% | (77,591 | ) | ||||||
| Total Net Assets - 100.0% | $ | 264,494,901 | ||||||
| * | Non-income producing security. |
| † | Value determined based on Level 1 inputs, unless otherwise noted — See Note 4. |
| ††† | Value determined based on Level 3 inputs — See Note 4. |
| 1 | Affiliated issuer — See Note 10. |
| 2 | PIPE (Private Investment in Public Equity) — Stock issued by a company in the secondary market as a means of raising capital more quickly and less expensively than through registration of a secondary public offering. |
| 3 | Illiquid security. |
| 126 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
| SERIES V (MID CAP VALUE SERIES) |
| STATEMENT OF ASSETS AND LIABILITIES |
| December 31, 2014 | ||||
| Assets: | ||||
| Investments in unaffiliated issuers, at value (cost $223,281,965) | $ | 264,572,491 | ||
| Investments in affiliated issuers, at value (cost $2,571,575) | 1 | |||
| Total investments (cost $225,853,540) | 264,572,492 | |||
| Prepaid expenses | 9,498 | |||
| Cash | 2,736 | |||
| Receivables: | ||||
| Dividends | 395,891 | |||
| Fund shares sold | 83,162 | |||
| Foreign taxes reclaim | 5,224 | |||
| Total assets | 265,069,003 | |||
| Liabilities: | ||||
| Payable for: | ||||
| Management fees | 168,135 | |||
| Fund shares redeemed | 153,873 | |||
| Fund accounting/administration fees | 21,297 | |||
| Transfer agent/maintenance fees | 3,647 | |||
| Trustees’ fees* | 1,069 | |||
| Miscellaneous | 226,081 | |||
| Total liabilities | 574,102 | |||
| Net assets | $ | 264,494,901 | ||
| Net assets consist of: | ||||
| Paid in capital | $ | 186,239,080 | ||
| Undistributed net investment income | 1,444,820 | |||
| Accumulated net realized gain on investments | 38,092,049 | |||
| Net unrealized appreciation on investments | 38,718,952 | |||
| Net assets | $ | 264,494,901 | ||
| Capital shares outstanding | 3,140,536 | |||
| Net asset value per share | $ | 84.22 | ||
| STATEMENT OF OPERATIONS |
| Year Ended December 31, 2014 | ||||
| Investment Income: | ||||
| Dividends (net of foreign withholding tax of $14,267) | $ | 4,306,476 | ||
| Interest | 150,849 | |||
| Total investment income | 4,457,325 | |||
| Expenses: | ||||
| Management fees | 2,157,797 | |||
| Transfer agent/maintenance fees | 25,005 | |||
| Fund accounting/administration fees | 273,317 | |||
| Trustees’ fees* | 30,747 | |||
| Line of credit fees | 4,478 | |||
| Custodian fees | 2,895 | |||
| Tax expense | 562 | |||
| Miscellaneous | 176,765 | |||
| Total expenses | 2,671,566 | |||
| Net investment income | 1,785,759 | |||
| Net Realized and Unrealized Gain (Loss): | ||||
| Net realized gain (loss) on: | ||||
| Investments | 37,925,604 | |||
| Options written | 227,815 | |||
| Net realized gain | 38,153,419 | |||
| Net change in unrealized appreciation (depreciation) on: | ||||
| Investments in unaffiliated issuers | (37,117,240 | ) | ||
| Investments in affiliated issuers | 1 | |||
| Options written | (140,750 | ) | ||
| Net change in unrealized appreciation (depreciation) | (37,257,989 | ) | ||
| Net realized and unrealized gain | 895,430 | |||
| Net increase in net assets resulting from operations | $ | 2,681,189 | ||
| * | Relates to Trustees not deemed “interested persons” within the meaning of Section 2(a)(19) of the 1940 Act. |
| SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 127 |
| SERIES V (MID CAP VALUE SERIES) |
| STATEMENTS OF CHANGES IN NET ASSETS |
| Year Ended December 31, 2014 | Year Ended December 31, 2013 | |||||||
| Increase (Decrease) in Net Assets from Operations: | ||||||||
| Net investment income | $ | 1,785,759 | $ | 1,359,800 | ||||
| Net realized gain on investments | 38,153,419 | 29,706,919 | ||||||
| Net change in unrealized appreciation (depreciation) on investments | (37,257,989 | ) | 49,090,035 | |||||
| Net increase in net assets resulting from operations | 2,681,189 | 80,156,754 | ||||||
| Distributions to shareholders from: | ||||||||
| Net investment income | (7,631 | ) | — | |||||
| Total distributions to shareholders | (7,631 | ) | — | |||||
| Capital share transactions: | ||||||||
| Proceeds from sale of shares | 11,079,336 | 15,835,127 | ||||||
| Distributions reinvested | 7,631 | — | ||||||
| Cost of shares redeemed | (51,431,613 | ) | (43,631,962 | ) | ||||
| Net decrease from capital share transactions | (40,344,646 | ) | (27,796,835 | ) | ||||
| Net increase (decrease) in net assets | (37,671,088 | ) | 52,359,919 | |||||
| Net assets: | ||||||||
| Beginning of year | 302,165,989 | 249,806,070 | ||||||
| End of year | $ | 264,494,901 | $ | 302,165,989 | ||||
| Undistributed net investment income at end of year | $ | 1,444,820 | $ | 1,496,196 | ||||
| Capital share activity: | ||||||||
| Shares sold | 130,280 | 217,418 | ||||||
| Shares issued from reinvestment of distributions | 91 | — | ||||||
| Shares redeemed | (610,353 | ) | (587,402 | ) | ||||
| Net decrease in shares | (479,982 | ) | (369,984 | ) | ||||
| 128 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
| SERIES V (MID CAP VALUE SERIES) |
| FINANCIAL HIGHLIGHTS |
This table is presented to show selected data for a share outstanding throughout each period and to assist shareholders in evaluating a Fund’s performance for the periods presented.
| Year Ended December 31, 2014 | Year Ended December 31, 2013 | Year Ended December 31, 2012 | Year Ended December 31, 2011 | Year Ended December 31, 2010 | ||||||||||||||||
| Per Share Data | ||||||||||||||||||||
| Net asset value, beginning of period | $ | 83.46 | $ | 62.60 | $ | 53.45 | $ | 57.78 | $ | 49.05 | ||||||||||
| Income (loss) from investment operations: | ||||||||||||||||||||
Net investment income (loss)a | .53 | .36 | .25 | .15 | .39 | |||||||||||||||
| Net gain (loss) on investments (realized and unrealized) | .23 | 20.50 | 8.90 | (4.48 | ) | 8.34 | ||||||||||||||
| Total from investment operations | .76 | 20.86 | 9.15 | (4.33 | ) | 8.73 | ||||||||||||||
| Less distributions from: | ||||||||||||||||||||
| Net investment income | (— | )b | — | — | — | — | ||||||||||||||
| Net asset value, end of period | $ | 84.22 | $ | 83.46 | $ | 62.60 | $ | 53.45 | $ | 57.78 | ||||||||||
Total Returnc | 0.91 | % | 33.32 | % | 17.12 | % | (7.49 | %) | 17.80 | % | ||||||||||
| Ratios/Supplemental Data | ||||||||||||||||||||
| Net assets, end of period (in thousands) | $ | 264,495 | $ | 302,166 | $ | 249,806 | $ | 250,620 | $ | 316,418 | ||||||||||
| Ratios to average net assets: | ||||||||||||||||||||
| Net investment income (loss) | 0.62 | % | 0.48 | % | 0.43 | % | 0.26 | % | 0.75 | % | ||||||||||
| Total expenses | 0.93 | % | 0.93 | % | 0.93 | % | 0.90 | % | 0.90 | % | ||||||||||
| Portfolio turnover rate | 53 | % | 22 | % | 24 | % | 28 | % | 25 | % | ||||||||||
a | Net investment income (loss) per share was computed using average shares outstanding throughout the period. |
b | Distributions from net investment income are less than $0.01 per share. |
c | Total return does not take into account any of the expenses associated with an investment in variable insurance products. If total return had taken into account these expenses, performance would have been lower. Shares of a series of Guggenheim Variable Funds Trust are available only through the purchase of such products. |
| SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 129 |
MANAGER’S COMMENTARY (Unaudited) | December 31, 2014 |
To Our Shareholders:
The Series X (StylePlus—Small Growth Series) is managed by a team of seasoned professionals, including B. Scott Minerd, Global Chairman of Investments and Chief Investment Officer; Farhan Sharaff, Senior Managing Director and Assistant Chief Investment Officer, Equities; Jayson Flowers, Senior Managing Director and Head of Equity and Derivative Strategies; and Scott Hammond, Managing Director and Portfolio Manager. In the following paragraphs, the investment team discusses performance for the fiscal year ended December 31, 2014.
For the year ended December 31, 2014, the Series X (StylePlus—Small Growth Series) returned 8.80%, compared with the 5.60% return of its benchmark, the Russell 2000® Growth Index.
The Fund seeks to outperform the Russell 2000 Growth Index by combining actively managed and passive equity exposure, along with an actively managed fixed income portfolio. The passive equity position is maintained with swap agreements and futures contracts. The Fund’s fixed income component invests in a variety of fixed income sectors, including asset-backed securities (ABS), mortgage-backed securities (MBS), high yield corporate bonds and bank loans.
The allocation between active and passive equity is tactically managed based on the environment for stock-picking opportunities. When stock selection opportunities are less attractive, the Fund invests in derivatives based on the target index, backed by a diversified portfolio of fixed income instruments. In this way, the Fund believes it will deliver the target index return plus an alpha component commensurate with the yield achieved on the active fixed income portfolio.
For the period, the Fund maintained an average allocation of a little more than 20% to the actively managed equity allocation and slightly less than 80% to the passive equity position. The actively managed equity sleeve was scaled down from 25% to 20% mid-year, as U.S. equity and credit markets became more volatile beginning in the third quarter. While the sell-off was initially sparked by market unease over the Fed winding down its purchases of U.S. Treasuries and mortgage-backed securities, it continued through the fourth quarter as markets grew anxious over the weakening global outlook. The actively managed sleeve was maintained at about 20% for the rest of the period.
The Fund’s active equity and active fixed income exposures both contributed to performance for the period. The passive equity position was neutral to performance, and the swap agreements contributed to performance.
The actively managed equity portfolio was underweight the more expensive smaller and momentum names (based on various measures, such as price-to-earnings), and overweight the less expensive and larger holdings. Sectors that contributed most to performance for the year were Consumer Staples and Information Technology. Sectors that detracted most from performance for the year were Energy and Financials.
Uncorrelated with the Fund’s active equity component, the fixed-income component was largely invested in ABS and MBS. These positions constituted the majority of the fixed income sleeve’s total return.
Performance displayed represents past performance, which is no guarantee of future results.
The opinions and forecast expressed may not actually come to pass. This information is subject to change at any time, based on market and other conditions, and should not be construed as a recommendation of any specific security or strategy.
| 130 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
PERFORMANCE REPORT AND FUND PROFILE (Unaudited) | December 31, 2014 |
SERIES X (STYLEPLUS—SMALL GROWTH SERIES)
OBJECTIVE: Seeks long-term growth of capital.
Holdings Diversification
(Market Exposure as % of Net Assets)
“Holdings Diversification (Market Exposure as % of Net Assets)” excludes any temporary cash investments or investments in Guggenheim Strategy Funds Trust mutual funds.
| Portfolio Composition by Quality Rating** | |
| Rating | |
| Fixed Income Instruments | |
| AAA | 6.1% |
| AA | 4.1% |
| A | 5.5% |
| BBB | 6.9% |
| BB | 0.5% |
| B | 2.3% |
| CCC | 0.5% |
| Other Instruments | |
| Mutual Funds | 48.2% |
| Common Stocks | 21.7% |
| Short Term Investments | 4.2% |
| Total Investments | 100.0% |
| The chart above reflects percentages of the value of total investments. | |
Inception Date: October 15, 1997 |
| Ten Largest Holdings (% of Total Net Assets) | |
| Guggenheim Variable Insurance Strategy Fund III | 23.1% |
| Guggenheim Strategy Fund I | 15.8% |
| Guggenheim Strategy Fund II | 7.3% |
| Guggenheim Strategy Fund III | 1.9% |
| Goldman Sachs Asset Management CLO plc 2007-1A | 1.3% |
| KKR Financial CLO 2007-1 Ltd. 2007-1A | 1.3% |
| HSI Asset Securitization Corporation Trust 2007-WF1 | 1.1% |
| N-Star REL CDO VIII Ltd. 2006-8A | 0.9% |
| Duane Street CLO IV Ltd. 2007-4A | 0.9% |
| SRERS Funding Ltd. 2011-RS | 0.9% |
| Top Ten Total | 54.5% |
| “Ten Largest Holdings” exclude any temporary cash or derivative investments. | |
| THE GUGGENHEIM FUNDS ANNUAL REPORT | 131 |
PERFORMANCE REPORT AND FUND PROFILE (Unaudited)(concluded) | December 31, 2014 |
Cumulative Fund Performance*,†
Average Annual Returns*
Periods Ended December 31, 2014†
| 1 Year | 5 Year | 10 Year | |
| Series X (StylePlus— Small Growth Series) | 8.80% | 16.95% | 6.42% |
| Russell 2000 Growth Index | 5.60% | 16.80% | 8.54% |
| * | The performance data above represents past performance that is not predictive of future results. The investment return and principal value of an investment in the Fund will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Returns are historical and include changes in principal and reinvested dividends and capital gains and do not reflect the effect of taxes. The Russell 2000 Growth Index is an unmanaged index and, unlike the Fund, has no management fees or operating expenses to reduce its reported return. |
| ** | Source: Factset. Credit quality ratings are measured on a scale that generally ranges from AAA (highest) to D (lowest). All rated securities have been rated by Moody’s, Standard & Poor’s (“S&P”), or Fitch, which are all a Nationally Recognized Statistical Rating Organization (“NRSRO”). For purposes of this presentation, when ratings are available from more than one agency, the highest rating is used. Guggenheim Investments has converted Moody’s and Fitch ratings to the equivalent S&P rating. Unrated securities do not necessarily indicate low credit quality. Security ratings are determined at the time of purchase and may change thereafter. |
† | Performance figures do not reflect fees and expenses associated with an investment in variable insurance products. If returns had taken into account these fees and expenses, performance would have been lower. Shares of a series of Guggenheim Variable Funds Trust are available only through the purchase of such products. |
| 132 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
| SCHEDULE OF INVESTMENTS | December 31, 2014 |
| SERIES X (STYLEPLUS—SMALL GROWTH SERIES) |
| Shares | Value | |||||||
COMMON STOCKS† - 21.7% | ||||||||
| CONSUMER, NON-CYCLICAL - 8.0% | ||||||||
| PAREXEL International Corp.* | 1,969 | $ | 109,398 | |||||
| HealthSouth Corp. | 2,695 | 103,650 | ||||||
| Isis Pharmaceuticals, Inc.* | 1,542 | 95,204 | ||||||
| Sanderson Farms, Inc. | 1,040 | 87,386 | ||||||
| USANA Health Sciences, Inc.* | 816 | 83,713 | ||||||
| Cal-Maine Foods, Inc. | 1,922 | 75,015 | ||||||
| Darling Ingredients, Inc.* | 3,500 | 63,560 | ||||||
| HMS Holdings Corp.* | 2,945 | 62,257 | ||||||
| Vector Group Ltd. | 2,882 | 61,415 | ||||||
| Select Medical Holdings Corp. | 4,189 | 60,321 | ||||||
| TreeHouse Foods, Inc.* | 702 | 60,042 | ||||||
| United Natural Foods, Inc.* | 758 | 58,612 | ||||||
| PDL BioPharma, Inc. | 7,565 | 58,326 | ||||||
| EVERTEC, Inc. | 2,493 | 55,171 | ||||||
| Cepheid* | 1,004 | 54,357 | ||||||
| Haemonetics Corp.* | 1,419 | 53,099 | ||||||
| Chemed Corp. | 485 | 51,250 | ||||||
| Thoratec Corp.* | 1,553 | 50,410 | ||||||
| NuVasive, Inc.* | 1,061 | 50,037 | ||||||
| West Pharmaceutical Services, Inc. | 891 | 47,437 | ||||||
| Euronet Worldwide, Inc.* | 860 | 47,214 | ||||||
| Lancaster Colony Corp. | 488 | 45,696 | ||||||
| Fresh Market, Inc.* | 1,088 | 44,826 | ||||||
| Corporate Executive Board Co. | 585 | 42,430 | ||||||
| WEX, Inc.* | 421 | 41,645 | ||||||
| Andersons, Inc. | 767 | 40,758 | ||||||
| B&G Foods, Inc. | 1,274 | 38,093 | ||||||
| Insulet Corp.* | 817 | 37,631 | ||||||
| Deluxe Corp. | 590 | 36,728 | ||||||
| STERIS Corp. | 552 | 35,797 | ||||||
| Central Garden and Pet Co. — Class A* | 3,604 | 34,418 | ||||||
| RPX Corp.* | 2,447 | 33,720 | ||||||
| Molina Healthcare, Inc.* | 627 | 33,563 | ||||||
| Surgical Care Affiliates, Inc.* | 951 | 32,001 | ||||||
| Landauer, Inc. | 926 | 31,614 | ||||||
| Cardtronics, Inc.* | 806 | 31,095 | ||||||
| Coca-Cola Bottling Company Consolidated | 353 | 31,075 | ||||||
| Huron Consulting Group, Inc.* | 438 | 29,955 | ||||||
| Skilled Healthcare Group, Inc. — Class A* | 3,446 | 29,532 | ||||||
| Synageva BioPharma Corp.* | 310 | 28,765 | ||||||
| Great Lakes Dredge & Dock Corp.* | 3,351 | 28,685 | ||||||
| Acadia Healthcare Company, Inc.* | 460 | 28,157 | ||||||
| Array BioPharma, Inc.* | 5,938 | 28,088 | ||||||
| Affymetrix, Inc.* | 2,843 | 28,060 | ||||||
| Medifast, Inc.* | 832 | 27,914 | ||||||
| Diamond Foods, Inc.* | 979 | 27,637 | ||||||
| J&J Snack Foods Corp. | 254 | 27,628 | ||||||
| Puma Biotechnology, Inc.* | 141 | 26,687 | ||||||
| SP Plus Corp.* | 1,052 | 26,542 | ||||||
| NPS Pharmaceuticals, Inc.* | 740 | 26,470 | ||||||
| Ophthotech Corp.* | 589 | 26,428 | ||||||
| OPKO Health, Inc.* | 2,596 | 25,934 | ||||||
| Insperity, Inc. | 765 | 25,925 | ||||||
| Sarepta Therapeutics, Inc.* | 1,790 | 25,902 | ||||||
| Seaboard Corp.* | 6 | 25,188 | ||||||
| Anika Therapeutics, Inc.* | 615 | 25,055 | ||||||
| Theravance, Inc. | 1,748 | 24,734 | ||||||
| Masimo Corp.* | 929 | 24,470 | ||||||
| Sotheby’s | 562 | 24,267 | ||||||
| Revlon, Inc. — Class A* | 707 | 24,151 | ||||||
| Acorda Therapeutics, Inc.* | 589 | 24,072 | ||||||
| Inter Parfums, Inc. | 876 | 24,046 | ||||||
| Premier, Inc. — Class A* | 711 | 23,840 | ||||||
| Genomic Health, Inc.* | 743 | 23,754 | ||||||
| Prestige Brands Holdings, Inc.* | 674 | 23,401 | ||||||
| DexCom, Inc.* | 423 | 23,286 | ||||||
| Halozyme Therapeutics, Inc.* | 2,388 | 23,044 | ||||||
| Arena Pharmaceuticals, Inc.* | 6,581 | 22,836 | ||||||
| Globus Medical, Inc. — Class A* | 960 | 22,819 | ||||||
| Akorn, Inc.* | 617 | 22,335 | ||||||
| Korn/Ferry International* | 764 | 21,973 | ||||||
| Alliance HealthCare Services, Inc.* | 1,037 | 21,767 | ||||||
| Inovio Pharmaceuticals, Inc.* | 2,347 | 21,545 | ||||||
| Air Methods Corp.* | 473 | 20,826 | ||||||
| MannKind Corp.* | 3,816 | 19,900 | ||||||
| TrueBlue, Inc.* | 859 | 19,113 | ||||||
| HeartWare International, Inc.* | 253 | 18,578 | ||||||
| Total Consumer, Non-cyclical | 2,972,273 | |||||||
| INDUSTRIAL - 4.3% | ||||||||
| Generac Holdings, Inc.* | 1,634 | 76,406 | ||||||
| Rexnord Corp.* | 2,657 | 74,953 | ||||||
| Polypore International, Inc.* | 1,494 | 70,293 | ||||||
| Hillenbrand, Inc. | 1,768 | 60,996 | ||||||
| Teledyne Technologies, Inc.* | 552 | 56,713 | ||||||
| ArcBest Corp. | 1,147 | 53,187 | ||||||
| HEICO Corp. | 869 | 52,487 | ||||||
| Blount International, Inc.* | 2,910 | 51,128 | ||||||
| CLARCOR, Inc. | 720 | 47,981 | ||||||
| Belden, Inc. | 597 | 47,050 | ||||||
| Curtiss-Wright Corp. | 655 | 46,236 | ||||||
| Moog, Inc. — Class A* | 573 | 42,419 | ||||||
| Aegion Corp. — Class A* | 2,213 | 41,184 | ||||||
| FEI Co. | 427 | 38,579 | ||||||
| Swift Transportation Co. — Class A* | 1,343 | 38,450 | ||||||
| Woodward, Inc. | 777 | 38,252 | ||||||
| Cognex Corp.* | 913 | 37,734 | ||||||
| Watts Water Technologies, Inc. — Class A | 564 | 35,780 | ||||||
| Mueller Water Products, Inc. — Class A | 3,458 | 35,410 | ||||||
| TriMas Corp.* | 1,107 | 34,638 | ||||||
| Greenbrier Companies, Inc. | 639 | 34,334 | ||||||
| Hyster-Yale Materials Handling, Inc. | 454 | 33,233 | ||||||
| Tetra Tech, Inc. | 1,188 | 31,720 | ||||||
| Kaman Corp. | 776 | 31,110 | ||||||
| Harsco Corp. | 1,630 | 30,791 | ||||||
| SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 133 |
SCHEDULE OF INVESTMENTS (continued) | December 31, 2014 |
| SERIES X (STYLEPLUS—SMALL GROWTH SERIES) |
| Shares | Value | |||||||
| Albany International Corp. — Class A | 801 | $ | 30,431 | |||||
| Advanced Energy Industries, Inc.* | 1,249 | 29,601 | ||||||
| Chart Industries, Inc.* | 837 | 28,625 | ||||||
| MasTec, Inc.* | 1,223 | 27,652 | ||||||
| Cubic Corp. | 488 | 25,688 | ||||||
| DXP Enterprises, Inc.* | 504 | 25,467 | ||||||
| Raven Industries, Inc. | 1,005 | 25,125 | ||||||
| TAL International Group, Inc. | 564 | 24,573 | ||||||
| Universal Display Corp.* | 881 | 24,448 | ||||||
| RBC Bearings, Inc. | 367 | 23,683 | ||||||
| Plexus Corp.* | 574 | 23,655 | ||||||
| YRC Worldwide, Inc.* | 1,031 | 23,187 | ||||||
| Coherent, Inc.* | 381 | 23,134 | ||||||
| NCI Building Systems, Inc.* | 1,201 | 22,243 | ||||||
| EnPro Industries, Inc.* | 350 | 21,966 | ||||||
| Aerovironment, Inc.* | 757 | 20,628 | ||||||
| EnerSys | 334 | 20,614 | ||||||
| Global Brass & Copper Holdings, Inc. | 1,505 | 19,806 | ||||||
| Altra Industrial Motion Corp. | 696 | 19,759 | ||||||
| Total Industrial | 1,601,349 | |||||||
| TECHNOLOGY - 4.3% | ||||||||
| Aspen Technology, Inc.* | 3,206 | 112,274 | ||||||
| MAXIMUS, Inc. | 1,300 | 71,293 | ||||||
| Unisys Corp.* | 2,282 | 67,273 | ||||||
| SS&C Technologies Holdings, Inc. | 1,000 | 58,490 | ||||||
| Guidewire Software, Inc.* | 1,129 | 57,162 | ||||||
| Take-Two Interactive Software, Inc.* | 2,027 | 56,817 | ||||||
| Advent Software, Inc. | 1,729 | 52,977 | ||||||
| MedAssets, Inc.* | 2,624 | 51,850 | ||||||
| Quality Systems, Inc. | 3,155 | 49,186 | ||||||
| Verint Systems, Inc.* | 823 | 47,965 | ||||||
| Microsemi Corp.* | 1,554 | 44,103 | ||||||
| Rambus, Inc.* | 3,808 | 42,231 | ||||||
| Fair Isaac Corp. | 569 | 41,139 | ||||||
| Ultimate Software Group, Inc.* | 269 | 39,493 | ||||||
| Blackbaud, Inc. | 838 | 36,252 | ||||||
| Cypress Semiconductor Corp. | 2,413 | 34,458 | ||||||
| PMC-Sierra, Inc.* | 3,753 | 34,377 | ||||||
| Acxiom Corp.* | 1,676 | 33,973 | ||||||
| CSG Systems International, Inc. | 1,333 | 33,418 | ||||||
| AVG Technologies N.V.* | 1,607 | 31,722 | ||||||
| Syntel, Inc.* | 698 | 31,396 | ||||||
| ACI Worldwide, Inc.* | 1,554 | 31,344 | ||||||
| CommVault Systems, Inc.* | 606 | 31,324 | ||||||
| Tessera Technologies, Inc. | 820 | 29,323 | ||||||
| Science Applications International Corp. | 591 | 29,272 | ||||||
| Diodes, Inc.* | 1,040 | 28,673 | ||||||
| Silicon Image, Inc.* | 5,191 | 28,654 | ||||||
| iGATE Corp.* | 709 | 27,991 | ||||||
| LivePerson, Inc.* | 1,963 | 27,678 | ||||||
| Sykes Enterprises, Inc.* | 1,119 | 26,263 | ||||||
| Silicon Laboratories, Inc.* | 541 | 25,762 | ||||||
| TeleTech Holdings, Inc.* | 1,069 | 25,314 | ||||||
| Applied Micro Circuits Corp.* | 3,876 | 25,272 | ||||||
| Ambarella, Inc.* | 492 | 24,954 | ||||||
| Integrated Device Technology, Inc.* | 1,219 | 23,892 | ||||||
| Cabot Microelectronics Corp.* | 503 | 23,802 | ||||||
| NetScout Systems, Inc.* | 650 | 23,751 | ||||||
| EPAM Systems, Inc.* | 487 | 23,254 | ||||||
| ExlService Holdings, Inc.* | 809 | 23,226 | ||||||
| Lattice Semiconductor Corp.* | 3,219 | 22,179 | ||||||
| Tyler Technologies, Inc.* | 201 | 21,997 | ||||||
| Dealertrack Technologies, Inc.* | 468 | 20,737 | ||||||
| Total Technology | 1,572,511 | |||||||
| CONSUMER, CYCLICAL - 2.4% | ||||||||
| PriceSmart, Inc. | 1,039 | 94,778 | ||||||
| Casey’s General Stores, Inc. | 970 | 87,610 | ||||||
| DineEquity, Inc. | 702 | 72,756 | ||||||
| Meritor, Inc.* | 4,520 | 68,478 | ||||||
| Dana Holding Corp. | 2,658 | 57,786 | ||||||
| Tenneco, Inc.* | 963 | 54,515 | ||||||
| Steven Madden Ltd.* | 1,167 | 37,146 | ||||||
| Wolverine World Wide, Inc. | 1,222 | 36,012 | ||||||
| Steelcase, Inc. — Class A | 1,923 | 34,518 | ||||||
| HNI Corp. | 674 | 34,414 | ||||||
| Wabash National Corp.* | 2,448 | 30,257 | ||||||
| Vail Resorts, Inc. | 300 | 27,339 | ||||||
| Tower International, Inc.* | 995 | 25,422 | ||||||
| Herman Miller, Inc. | 853 | 25,104 | ||||||
| Watsco, Inc. | 234 | 25,038 | ||||||
| Cooper Tire & Rubber Co. | 722 | 25,017 | ||||||
| JetBlue Airways Corp.* | 1,562 | 24,773 | ||||||
| H&E Equipment Services, Inc. | 848 | 23,820 | ||||||
| Krispy Kreme Doughnuts, Inc.* | 1,166 | 23,017 | ||||||
| TiVo, Inc.* | 1,925 | 22,792 | ||||||
| Mobile Mini, Inc. | 554 | 22,443 | ||||||
| Men’s Wearhouse, Inc. | 435 | 19,205 | ||||||
| Iconix Brand Group, Inc.* | 547 | 18,483 | ||||||
| Total Consumer, Cyclical | 890,723 | |||||||
| COMMUNICATIONS - 1.9% | ||||||||
| Anixter International, Inc.* | 1,028 | 90,936 | ||||||
| Polycom, Inc.* | 4,831 | 65,218 | ||||||
| j2 Global, Inc. | 778 | 48,236 | ||||||
| WebMD Health Corp. — Class A* | 1,150 | 45,483 | ||||||
| RF Micro Devices, Inc.* | 2,723 | 45,174 | ||||||
| West Corp. | 1,202 | 39,666 | ||||||
| ViaSat, Inc.* | 597 | 37,629 | ||||||
| Aruba Networks, Inc.* | 2,009 | 36,524 | ||||||
| Sonus Networks, Inc.* | 8,714 | 34,595 | ||||||
| Bankrate, Inc.* | 2,514 | 31,249 | ||||||
| Plantronics, Inc. | 559 | 29,638 | ||||||
| Comverse, Inc.* | 1,407 | 26,423 | ||||||
| Harmonic, Inc.* | 3,764 | 26,386 | ||||||
| GrubHub, Inc.* | 681 | 24,734 | ||||||
| LogMeIn, Inc.* | 490 | 24,177 | ||||||
| 134 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
SCHEDULE OF INVESTMENTS (continued) | December 31, 2014 |
| SERIES X (STYLEPLUS—SMALL GROWTH SERIES) |
| Shares | Value | |||||||
| Extreme Networks, Inc.* | 6,807 | $ | 24,029 | |||||
| Travelzoo, Inc.* | 1,866 | 23,549 | ||||||
| NeuStar, Inc. — Class A* | 814 | 22,629 | ||||||
| Ixia* | 1,953 | 21,971 | ||||||
| Total Communications | 698,246 | |||||||
| ENERGY - 0.6% | ||||||||
| ION Geophysical Corp.* | 15,735 | 43,272 | ||||||
| Thermon Group Holdings, Inc.* | 1,306 | 31,592 | ||||||
| Clayton Williams Energy, Inc.* | 419 | 26,733 | ||||||
| Forum Energy Technologies, Inc.* | 1,254 | 25,995 | ||||||
| Pioneer Energy Services Corp.* | 3,597 | 19,927 | ||||||
| Geospace Technologies Corp.* | 748 | 19,822 | ||||||
| REX American Resources Corp.* | 319 | 19,768 | ||||||
| Western Refining, Inc. | 495 | 18,701 | ||||||
| EXCO Resources, Inc. | 7,835 | 17,002 | ||||||
| Total Energy | 222,812 | |||||||
| FINANCIAL - 0.1% | ||||||||
| PRA Group, Inc.* | 453 | 26,242 | ||||||
| Capital Senior Living Corp.* | 1,022 | 25,458 | ||||||
| Total Financial | 51,700 | |||||||
| UTILITIES - 0.1% | ||||||||
| EnerNOC, Inc.* | 1,515 | 23,407 | ||||||
| Total Common Stocks | ||||||||
| (Cost $7,629,731) | 8,033,021 | |||||||
MUTUAL FUNDS†,2 - 48.2% | ||||||||
| Guggenheim Variable Insurance Strategy Fund III | 343,705 | 8,537,623 | ||||||
| Guggenheim Strategy Fund I | 236,015 | 5,862,616 | ||||||
| Guggenheim Strategy Fund II | 108,851 | 2,704,956 | ||||||
| Guggenheim Strategy Fund III | 28,196 | 700,390 | ||||||
| Total Mutual Funds | ||||||||
| (Cost $17,872,304) | 17,805,585 | |||||||
SHORT TERM INVESTMENTS† - 4.2% | ||||||||
| Dreyfus Treasury Prime Cash Management Fund | 1,560,547 | 1,560,547 | ||||||
| Total Short Term Investments | ||||||||
| (Cost $1,560,547) | 1,560,547 | |||||||
| Face Amount | ||||||||
ASSET-BACKED SECURITIES†† - 20.3% | ||||||||
| Goldman Sachs Asset Management CLO plc | ||||||||
2007-1A, 2.98% due 08/01/223,4 | $ | 500,000 | 496,600 | |||||
| KKR Financial CLO 2007-1 Ltd. | ||||||||
2007-1A, 2.48% due 05/15/213,4 | 500,000 | 495,600 | ||||||
| Brentwood CLO Corp. | ||||||||
2006-1A, 1.05% due 02/01/223,4 | 250,000 | 225,675 | ||||||
2006-1A, 0.50% due 02/01/223,4 | 222,304 | 218,947 | ||||||
| N-Star REL CDO VIII Ltd. | ||||||||
2006-8A, 0.46% due 02/01/413,4 | 355,068 | 341,931 | ||||||
| Duane Street CLO IV Ltd. | ||||||||
2007-4A, 0.46% due 11/14/213,4 | 343,709 | 340,787 | ||||||
| Argent Securities Incorporated Asset-Backed Pass-Through Certificates Series | ||||||||
2005-W3, 0.51% due 11/25/353 | 304,261 | 292,291 | ||||||
| Salus CLO 2012-1 Ltd. | ||||||||
2013-1AN, 2.48% due 03/05/213,4 | 270,000 | 269,244 | ||||||
| Central Park CLO Ltd. | ||||||||
2011-1A, 3.43% due 07/23/223,4 | 260,000 | 256,724 | ||||||
| H2 Asset Funding Ltd. | ||||||||
| 2.06% due 03/19/37 | 250,000 | 250,525 | ||||||
| DIVCORE CLO Ltd. | ||||||||
| 2013-1A B, 4.06% due 11/15/32 | 250,000 | 250,075 | ||||||
| Symphony CLO VII Ltd. | ||||||||
2011-7A, 3.43% due 07/28/213,4 | 250,000 | 249,650 | ||||||
| Golub Capital Partners CLO 18 Ltd. | ||||||||
2014-18A, 2.73% due 04/25/263,4 | 250,000 | 249,375 | ||||||
| Race Point V CLO Ltd. | ||||||||
2014-5AR, 3.09% due 12/15/223,4 | 250,000 | 248,975 | ||||||
| Cerberus Onshore II CLO LLC | ||||||||
2014-1A, 2.93% due 10/15/233,4 | 250,000 | 246,275 | ||||||
| GSC Group CDO Fund VIII Ltd. | ||||||||
2007-8A, 0.61% due 04/17/213,4 | 250,000 | 245,350 | ||||||
| Race Point IV CLO Ltd. | ||||||||
2007-4A, 0.98% due 08/01/213,4 | 250,000 | 242,850 | ||||||
| Black Diamond CLO 2005-1 Delaware Corp. | ||||||||
2005-1A, 2.15% due 06/20/173,4 | 250,000 | 242,725 | ||||||
| ALM VII R-2 Ltd. | ||||||||
2013-7R2A, 2.83% due 04/24/243,4 | 250,000 | 240,725 | ||||||
| Black Diamond CLO 2006-1 Luxembourg S.A. | ||||||||
2007-1A, 0.62% due 04/29/193,4 | 250,000 | 235,175 | ||||||
| JP Morgan Mortgage Acquisition Trust | ||||||||
2007-CH3, 0.32% due 03/25/373 | 237,346 | 234,027 | ||||||
| Cornerstone CLO Ltd. | ||||||||
2007-1A, 0.45% due 07/15/213,4 | 210,529 | 208,676 | ||||||
| Aegis Asset Backed Securities Trust | ||||||||
2005-3, 0.64% due 08/25/353 | 188,316 | 185,666 | ||||||
| Wells Fargo Home Equity Asset-Backed Securities 2006-2 Trust | ||||||||
2006-3, 0.32% due 01/25/373 | 192,848 | 184,645 | ||||||
| GreenPoint Mortgage Funding Trust | ||||||||
2005-HE4, 0.87% due 07/25/303 | 192,093 | 181,209 | ||||||
| Northwoods Capital VII Ltd. | ||||||||
2006-7A, 1.78% due 10/22/213,4 | 180,000 | 178,056 | ||||||
| Foothill CLO Ltd. | ||||||||
2007-1A, 0.48% due 02/22/213,4 | 158,763 | 157,509 | ||||||
| Popular ABS Mortgage Pass-Through Trust | ||||||||
2005-A, 0.60% due 06/25/353 | 162,723 | 156,726 |
| SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 135 |
SCHEDULE OF INVESTMENTS (concluded) | December 31, 2014 |
| SERIES X (STYLEPLUS—SMALL GROWTH SERIES) |
| Face Amount | Value | |||||||
| OFSI Fund V Ltd. | ||||||||
2013-5A, 3.43% due 04/17/253,4 | $ | 150,000 | $ | 144,780 | ||||
| Soundview Home Loan Trust | ||||||||
2003-1, 2.42% due 08/25/313 | 98,297 | 97,461 | ||||||
| Tricadia CDO 2006-6 Ltd. | ||||||||
2006-6A, 0.78% due 11/05/413,4 | 65,290 | 64,872 | ||||||
| West Coast Funding Ltd. | ||||||||
2006-1A, 0.39% due 11/02/413,4 | 49,446 | 48,759 | ||||||
| Global Leveraged Capital Credit Opportunity Fund | ||||||||
2006-1A, 0.53% due 12/20/183,4 | 46,523 | 46,462 | ||||||
| Total Asset-Backed Securities | ||||||||
| (Cost $7,425,351) | 7,528,347 | |||||||
MORTGAGE-BACKED SECURITIES†† - 5.5% | ||||||||
| HSI Asset Securitization Corporation Trust | ||||||||
2007-WF1, 0.34% due 05/25/373 | 401,018 | 387,846 | ||||||
| SRERS Funding Ltd. | ||||||||
2011-RS, 0.41% due 05/09/463,4 | 344,426 | 328,065 | ||||||
| Resource Capital Corporation CRE Notes 2013 Ltd. | ||||||||
2013-CRE1, 3.01% due 12/15/283,4 | 300,000 | 301,353 | ||||||
| Boca Hotel Portfolio Trust | ||||||||
2013-BOCA, 3.21% due 08/15/263,4 | 300,000 | 299,818 | ||||||
| Hilton USA Trust | ||||||||
2013-HLF, 2.92% due 11/05/303,4 | 295,640 | 295,655 | ||||||
| Banc of America Merrill Lynch Commercial Mortgage, Inc. | ||||||||
2005-6, 6.13% due 09/10/473,4 | 175,600 | 178,234 | ||||||
| HarborView Mortgage Loan Trust | ||||||||
2006-12, 0.35% due 01/19/383 | 195,407 | 165,557 | ||||||
| Wachovia Bank Commercial Mortgage Trust Series | ||||||||
2007-WHL8, 0.24% due 06/15/203,4 | 85,623 | 85,425 | ||||||
| Total Mortgage-Backed Securities | ||||||||
| (Cost $1,999,568) | 2,041,953 | |||||||
| Total Investments - 99.9% | ||||||||
| (Cost $36,487,501) | $ | 36,969,453 | ||||||
| Other Assets & Liabilities, net - 0.1% | 35,865 | |||||||
| Total Net Assets - 100.0% | $ | 37,005,318 | ||||||
| Contracts | Unrealized Gain | |||||||
EQUITY FUTURES CONTRACTS PURCHASED† | ||||||||
| March 2015 Russell 2000 Index Mini Futures Contracts (Aggregate Value of Contracts $120,130) | 1 | $ | 777 | |||||
| Units | ||||||||
OTC EQUITY INDEX SWAP AGREEMENTS†† | ||||||||
Morgan Stanley Capital Services, Inc. January 2015 Russell 2000 Growth Index Swap, Terminating 01/02/151 (Notional Value $28,847,609) | 39,948 | $ | 1,372,565 | |||||
| * | Non-income producing security. |
| † | Value determined based on Level 1 inputs — See Note 4. |
| †† | Value determined based on Level 2 inputs — See Note 4. |
| 1 | Total Return based on Russell 2000 Growth Index +/- financing at a variable rate. |
| 2 | Affiliated issuer — See Note 10. |
| 3 | Variable rate security. Rate indicated is rate effective at December 31, 2014. |
| 4 | Security is a 144A or Section 4(a)(2) security. The total market value of 144A or Section 4(a)(2) securities is $7,184,272 (cost $7,098,990), or 19.4% of total net assets. These securities have been determined to be liquid under guidelines established by the Board of Trustees. |
| plc — Public Limited Company |
| 136 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
| SERIES X (STYLEPLUS—SMALL GROWTH SERIES) |
| STATEMENT OF ASSETS AND LIABILITIES |
| December 31, 2014 | ||||
| Assets: | ||||
| Investments in unaffiliated issuers, at value (cost $18,615,197) | $ | 19,163,868 | ||
| Investments in affiliated issuers, at value (cost $17,872,304) | 17,805,585 | |||
| Total investments (cost $36,487,501) | 36,969,453 | |||
| Unrealized appreciation on swap agreements | 1,372,565 | |||
| Cash | 108,164 | |||
| Segregated cash with broker | 5,100 | |||
| Prepaid expenses | 2,156 | |||
| Receivables: | ||||
| Securities sold | 133,590 | |||
| Dividends | 31,187 | |||
| Interest | 23,848 | |||
| Total assets | 38,646,063 | |||
| Liabilities: | ||||
| Segregated cash from broker | 1,521,000 | |||
| Payable for: | ||||
| Fund shares redeemed | 39,197 | |||
| Securities purchased | 27,319 | |||
| Management fees | 26,313 | |||
| Transfer agent/maintenance fees | 4,167 | |||
| Fund accounting/administration fees | 2,941 | |||
| Variation margin | 910 | |||
| Trustees’ fees* | 563 | |||
| Miscellaneous | 18,335 | |||
| Total liabilities | 1,640,745 | |||
| Net assets | $ | 37,005,318 | ||
| Net assets consist of: | ||||
| Paid in capital | $ | 39,112,722 | ||
| Undistributed net investment income | 308,390 | |||
| Accumulated net realized loss on investments | (4,271,088 | ) | ||
| Net unrealized appreciation on investments | 1,855,294 | |||
| Net assets | $ | 37,005,318 | ||
| Capital shares outstanding | 1,164,930 | |||
| Net asset value per share | $ | 31.77 | ||
| STATEMENT OF OPERATIONS |
| Year Ended December 31, 2014 | ||||
| Investment Income: | ||||
| Interest | $ | 428,385 | ||
| Dividends from securities of affiliated issuers | 218,844 | |||
| Dividends from securities of unaffiliated issuers | 82,091 | |||
| Total investment income | 729,320 | |||
| Expenses: | ||||
| Management fees | 313,528 | |||
| Transfer agent/maintenance fees | 25,005 | |||
| Fund accounting/administration fees | 35,041 | |||
| Custodian fees | 17,104 | |||
| Trustees’ fees* | 3,802 | |||
| Line of credit fees | 3,483 | |||
| Tax expense | 1 | |||
| Miscellaneous | 66,718 | |||
| Total expenses | 464,682 | |||
| Less: | ||||
| Expenses waived by Adviser | (8,095 | ) | ||
| Net expenses | 456,587 | |||
| Net investment income | 272,733 | |||
| Net Realized and Unrealized Gain (Loss): | ||||
| Net realized gain (loss) on: | ||||
| Investments in unaffiliated issuers | 1,501,223 | |||
| Investments in affiliated issuers | (34,702 | ) | ||
| Swap agreements | 140,645 | |||
| Futures contracts | 42,979 | |||
| Net realized gain | 1,650,145 | |||
| Net change in unrealized appreciation (depreciation) on: | ||||
| Investments in unaffiliated issuers | (270,602 | ) | ||
| Investments in affiliated issuers | (30,672 | ) | ||
| Swap agreements | 1,372,565 | |||
| Futures contracts | (14,984 | ) | ||
| Net change in unrealized appreciation (depreciation) | 1,056,307 | |||
| Net realized and unrealized gain | 2,706,452 | |||
| Net increase in net assets resulting from operations | $ | 2,979,185 | ||
| * | Relates to Trustees not deemed “interested persons” within the meaning of Section 2(a)(19) of the 1940 Act. |
| SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 137 |
| SERIES X (STYLEPLUS—SMALL GROWTH SERIES) |
| STATEMENTS OF CHANGES IN NET ASSETS |
| Year Ended December 31, 2014 | Year Ended December 31, 2013 | |||||||
| Increase (Decrease) in Net Assets from Operations: | ||||||||
| Net investment income (loss) | $ | 272,733 | $ | (76,478 | ) | |||
| Net realized gain on investments | 1,650,145 | 13,791,467 | ||||||
| Net change in unrealized appreciation (depreciation) on investments | 1,056,307 | (1,297,208 | ) | |||||
| Net increase in net assets resulting from operations | 2,979,185 | 12,417,781 | ||||||
| Capital share transactions: | ||||||||
| Proceeds from sale of shares | 2,980,902 | 9,379,728 | ||||||
| Cost of shares redeemed | (7,540,327 | ) | (15,249,191 | ) | ||||
| Net decrease from capital share transactions | (4,559,425 | ) | (5,869,463 | ) | ||||
| Net increase (decrease) in net assets | (1,580,240 | ) | 6,548,318 | |||||
| Net assets: | ||||||||
| Beginning of year | 38,585,558 | 32,037,240 | ||||||
| End of year | $ | 37,005,318 | $ | 38,585,558 | ||||
| Undistributed net investment income/Accumulated net investment loss at end of year | $ | 308,390 | $ | (3,781 | ) | |||
| Capital share activity: | ||||||||
| Shares sold | 99,829 | 398,406 | ||||||
| Shares redeemed | (256,156 | ) | (627,534 | ) | ||||
| Net decrease in shares | (156,327 | ) | (229,128 | ) | ||||
| 138 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
| SERIES X (STYLEPLUS—SMALL GROWTH SERIES) |
| FINANCIAL HIGHLIGHTS |
This table is presented to show selected data for a share outstanding throughout each period and to assist shareholders in evaluating a Fund’s performance for the periods presented.
| Year Ended December 31, 2014 | Year Ended December 31, 2013 | Year Ended December 31, 2012 | Year Ended December 31, 2011 | Year Ended December 31, 2010 | ||||||||||||||||
| Per Share Data | ||||||||||||||||||||
| Net asset value, beginning of period | $ | 29.20 | $ | 20.66 | $ | 18.52 | $ | 18.89 | $ | 14.52 | ||||||||||
| Income (loss) from investment operations: | ||||||||||||||||||||
Net investment income (loss)a | .22 | (.05 | ) | (.11 | ) | (.12 | ) | (.10 | ) | |||||||||||
| Net gain (loss) on investments (realized and unrealized) | 2.35 | 8.59 | 2.25 | (.25 | ) | 4.47 | ||||||||||||||
| Total from investment operations | 2.57 | 8.54 | 2.14 | (.37 | ) | 4.37 | ||||||||||||||
| Net asset value, end of period | $ | 31.77 | $ | 29.20 | $ | 20.66 | $ | 18.52 | $ | 18.89 | ||||||||||
Total Returnb | 8.80 | % | 41.34 | % | 11.56 | % | (1.96 | %) | 30.10 | % | ||||||||||
| Ratios/Supplemental Data | ||||||||||||||||||||
| Net assets, end of period (in thousands) | $ | 37,005 | $ | 38,586 | $ | 32,037 | $ | 35,711 | $ | 46,149 | ||||||||||
| Ratios to average net assets: | ||||||||||||||||||||
| Net investment income (loss) | 0.74 | % | (0.21 | %) | (0.56 | %) | (0.63 | %) | (0.65 | %) | ||||||||||
Total expensesc | 1.26 | % | 1.23 | % | 1.14 | % | 1.08 | % | 1.09 | % | ||||||||||
Net expensesd | 1.24 | % | 1.23 | % | 1.14 | % | 1.08 | % | 1.09 | % | ||||||||||
| Portfolio turnover rate | 102 | % | 255 | % | 72 | % | 91 | % | 88 | % | ||||||||||
a | Net investment income (loss) per share was computed using average shares outstanding throughout the period. |
b | Total return does not take into account any of the expenses associated with an investment in variable insurance products. If total return had taken into account these expenses, performance would have been lower. Shares of a series of Guggenheim Variable Funds Trust are available only through the purchase of such products. |
c | Does not include expenses of the underlying funds in which the Fund invests. |
d | Net expense information reflects the expense ratios after expense waivers. |
| SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 139 |
MANAGER’S COMMENTARY (Unaudited) | December 31, 2014 |
To Our Shareholders:
The Series Y (StylePlus—Large Growth Series) is managed by a team of seasoned professionals, including B. Scott Minerd, Global Chairman of Investments and Chief Investment Officer; Farhan Sharaff, Senior Managing Director and Assistant Chief Investment Officer, Equities; Jayson Flowers, Senior Managing Director and Head of Equity and Derivative Strategies; and Scott Hammond, Managing Director and Portfolio Manager. In the following paragraphs, the investment team discusses performance for the fiscal year ended December 31, 2014.
For the year ended December 31, 2014, the Series Y (StylePlus—Large Growth Series) returned 15.24%, compared with the 13.05% return of its benchmark, the Russell 1000® Growth Index.
The Fund seeks to outperform the Russell 1000 Growth Index by combining actively managed and passive equity exposure, along with an actively managed fixed income portfolio. The passive equity position is maintained with swap agreements and futures contracts. The Fund’s fixed income component invests in a variety of fixed income sectors, including asset-backed securities (ABS), mortgage-backed securities (MBS), high yield corporate bonds and bank loans.
The allocation between active and passive equity is tactically managed based on the environment for stock-picking opportunities. When stock selection opportunities are less attractive, the Fund invests in derivatives based on the target index, backed by a diversified portfolio of fixed income instruments. In this way, the Fund believes it will deliver the target index return plus an alpha component commensurate with the yield achieved on the active fixed income portfolio.
For the period, the Fund maintained an average allocation of a little more than 20% to the actively managed equity allocation and slightly less than 80% to the passive equity position. The actively managed equity sleeve was scaled down from 25% to 20% mid-year, as U.S. equity and credit markets became more volatile beginning in the third quarter. While the sell-off was initially sparked by market unease over the Fed winding down its purchases of U.S. Treasuries and mortgage-backed securities, it continued through the fourth quarter as markets grew anxious over the weakening global outlook. The actively managed sleeve was maintained at about 20% for the rest of the period.
The Fund’s active equity and active fixed income exposures both contributed to performance for the period. The passive equity position was neutral to performance, and the swap agreements contributed to performance.
The actively managed equity portfolio was underweight the more expensive smaller and momentum names (based on various measures, such as price-to-earnings), and overweight the less expensive and larger holdings. Sectors that contributed most to performance for the year were Consumer Staples and Consumer Discretionary. Sectors that detracted most from performance for the year were Health Care and Telecommunication Services.
Uncorrelated with the Fund’s active equity component, the fixed-income component was largely invested in ABS and MBS. These positions constituted the majority of the fixed income sleeve’s total return.
Performance displayed represents past performance, which is no guarantee of future results.
The opinions and forecast expressed may not actually come to pass. This information is subject to change at any time, based on market and other conditions, and should not be construed as a recommendation of any specific security or strategy.
| 140 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
PERFORMANCE REPORT AND FUND PROFILE (Unaudited) | December 31, 2014 |
SERIES Y (STYLEPLUS—LARGE GROWTH SERIES)
OBJECTIVE: Seeks long-term growth of capital.
Holdings Diversification
(Market Exposure as % of Net Assets)
“Holdings Diversification (Market Exposure as % of Net Assets)” excludes any temporary cash investments or investments in Guggenheim Strategy Funds Trust mutual funds.
| Portfolio Composition by Quality Rating** | |
| Rating | |
| Fixed Income Instruments | |
| AAA | 5.7% |
| AA | 4.0% |
| A | 4.6% |
| BBB | 6.4% |
| BB | 0.5% |
| B | 2.2% |
| CCC | 0.4% |
| Other Instruments | |
| Mutual Funds | 51.0% |
| Common Stocks | 20.6% |
| Short Term Investments | 4.6% |
| Total Investments | 100.0% |
| The chart above reflects percentages of the value of total investments. | |
Inception Date: May 3, 1999 |
| Ten Largest Holdings (% of Total Net Assets) | |
| Guggenheim Variable Insurance Strategy Fund III | 21.8% |
| Guggenheim Strategy Fund I | 16.3% |
| Guggenheim Strategy Fund II | 8.1% |
| Guggenheim Strategy Fund III | 4.5% |
| Apple, Inc. | 1.4% |
| Goldman Sachs Asset Management CLO plc 2007-1A | 1.3% |
| KKR Financial CLO 2007-1 Ltd. 2007-1A | 1.3% |
| HSI Asset Securitization Corporation Trust 2007-WF1 | 1.0% |
| N-Star REL CDO VIII Ltd. 2006-8A | 0.9% |
| SRERS Funding Ltd. 2011-RS | 0.9% |
| Top Ten Total | 57.5% |
| “Ten Largest Holdings” exclude any temporary cash or derivative investments. | |
| THE GUGGENHEIM FUNDS ANNUAL REPORT | 141 |
PERFORMANCE REPORT AND FUND PROFILE (Unaudited)(concluded) | December 31, 2014 |
Cumulative Fund Performance*,†
Average Annual Returns*
Periods Ended December 31, 2014†
| 1 Year | 5 Year | 10 Year | |
| Series Y (StylePlus— Large Growth Series) | 15.24% | 12.80% | 5.62% |
| Russell 1000 Growth Index | 13.05% | 15.81% | 8.49% |
| * | The performance data above represents past performance that is not predictive of future results. The investment return and principal value of an investment in the Fund will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Returns are historical and include changes in principal and reinvested dividends and capital gains and do not reflect the effect of taxes. The Russell 1000 Growth Index is an unmanaged index and, unlike the Fund, has no management fees or operating expenses to reduce its reported return. |
| ** | Source: Factset. Credit quality ratings are measured on a scale that generally ranges from AAA (highest) to D (lowest). All rated securities have been rated by Moody’s, Standard & Poor’s (“S&P”), or Fitch, which are all a Nationally Recognized Statistical Rating Organization (“NRSRO”). For purposes of this presentation, when ratings are available from more than one agency, the highest rating is used. Guggenheim Investments has converted Moody’s and Fitch ratings to the equivalent S&P rating. Unrated securities do not necessarily indicate low credit quality. Security ratings are determined at the time of purchase and may change thereafter. |
† | Performance figures do not reflect fees and expenses associated with an investment in variable insurance products. If returns had taken into account these fees and expenses, performance would have been lower. Shares of a series of Guggenheim Variable Funds Trust are available only through the purchase of such products. |
| 142 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
| SCHEDULE OF INVESTMENTS | December 31, 2014 |
| SERIES Y (STYLEPLUS—LARGE GROWTH SERIES) |
| Shares | Value | |||||||
COMMON STOCKS† - 20.4% | ||||||||
| CONSUMER, NON-CYCLICAL - 6.3% | ||||||||
| Gilead Sciences, Inc.* | 1,908 | $ | 179,849 | |||||
| Coca-Cola Co. | 3,843 | 162,252 | ||||||
| PepsiCo, Inc. | 1,515 | 143,258 | ||||||
| Philip Morris International, Inc. | 1,629 | 132,682 | ||||||
| Express Scripts Holding Co.* | 1,508 | 127,682 | ||||||
| Johnson & Johnson | 1,075 | 112,413 | ||||||
| Merck & Company, Inc. | 1,583 | 89,899 | ||||||
| Aetna, Inc. | 972 | 86,343 | ||||||
| Cardinal Health, Inc. | 1,059 | 85,493 | ||||||
| Kroger Co. | 1,292 | 82,959 | ||||||
| Altria Group, Inc. | 1,675 | 82,527 | ||||||
| Kimberly-Clark Corp. | 710 | 82,033 | ||||||
| Archer-Daniels-Midland Co. | 1,566 | 81,432 | ||||||
| Kellogg Co. | 1,242 | 81,276 | ||||||
| Cigna Corp. | 780 | 80,270 | ||||||
| General Mills, Inc. | 1,424 | 75,942 | ||||||
| Automatic Data Processing, Inc. | 891 | 74,283 | ||||||
| Baxter International, Inc. | 998 | 73,144 | ||||||
| Amgen, Inc. | 443 | 70,565 | ||||||
| AbbVie, Inc. | 828 | 54,184 | ||||||
| Kraft Foods Group, Inc. | 844 | 52,885 | ||||||
| Procter & Gamble Co. | 506 | 46,091 | ||||||
| Actavis plc* | 179 | 46,076 | ||||||
| MasterCard, Inc. — Class A | 532 | 45,837 | ||||||
| Mylan, Inc.* | 746 | 42,052 | ||||||
| HCA Holdings, Inc.* | 572 | 41,979 | ||||||
| Colgate-Palmolive Co. | 503 | 34,803 | ||||||
| Estee Lauder Companies, Inc. — Class A | 416 | 31,699 | ||||||
| Becton Dickinson and Co. | 170 | 23,657 | ||||||
| Total Consumer, Non-cyclical | 2,323,565 | |||||||
| TECHNOLOGY - 4.8% | ||||||||
| Apple, Inc. | 4,511 | 497,925 | ||||||
| Microsoft Corp. | 4,341 | 201,639 | ||||||
| International Business Machines Corp. | 1,211 | 194,293 | ||||||
| Oracle Corp. | 3,773 | 169,672 | ||||||
| QUALCOMM, Inc. | 2,223 | 165,236 | ||||||
| Micron Technology, Inc.* | 3,024 | 105,870 | ||||||
| Texas Instruments, Inc. | 1,916 | 102,439 | ||||||
| EMC Corp. | 2,674 | 79,525 | ||||||
| Accenture plc — Class A | 885 | 79,039 | ||||||
| SanDisk Corp. | 776 | 76,032 | ||||||
| Intel Corp. | 2,059 | 74,721 | ||||||
| Akamai Technologies, Inc.* | 380 | 23,925 | ||||||
| Analog Devices, Inc. | 416 | 23,096 | ||||||
| Total Technology | 1,793,412 | |||||||
| INDUSTRIAL - 4.2% | ||||||||
| Boeing Co. | 1,108 | 144,019 | ||||||
| Honeywell International, Inc. | 1,313 | 131,195 | ||||||
| Union Pacific Corp. | 1,073 | 127,826 | ||||||
| Lockheed Martin Corp. | 639 | 123,052 | ||||||
| Emerson Electric Co. | 1,682 | 103,830 | ||||||
| 3M Co. | 615 | 101,056 | ||||||
| Cummins, Inc. | 689 | 99,333 | ||||||
| FedEx Corp. | 533 | 92,561 | ||||||
| Corning, Inc. | 3,936 | 90,252 | ||||||
| Caterpillar, Inc. | 954 | 87,320 | ||||||
| Norfolk Southern Corp. | 796 | 87,250 | ||||||
| United Technologies Corp. | 751 | 86,365 | ||||||
| Waste Management, Inc. | 1,632 | 83,754 | ||||||
| United Parcel Service, Inc. — Class B | 678 | 75,373 | ||||||
| Illinois Tool Works, Inc. | 658 | 62,313 | ||||||
| Deere & Co. | 370 | 32,734 | ||||||
| SBA Communications Corp. — Class A* | 208 | 23,038 | ||||||
| Total Industrial | 1,551,271 | |||||||
| CONSUMER, CYCLICAL - 2.3% | ||||||||
| Home Depot, Inc. | 1,056 | 110,849 | ||||||
| McDonald’s Corp. | 995 | 93,231 | ||||||
| Wal-Mart Stores, Inc. | 1,060 | 91,033 | ||||||
| Las Vegas Sands Corp. | 1,564 | 90,962 | ||||||
| Walgreens Boots Alliance, Inc. | 1,176 | 89,612 | ||||||
| American Airlines Group, Inc. | 838 | 44,941 | ||||||
| Southwest Airlines Co. | 1,056 | 44,690 | ||||||
| Macy’s, Inc. | 668 | 43,921 | ||||||
| United Continental Holdings, Inc.* | 649 | 43,412 | ||||||
| CVS Health Corp. | 424 | 40,835 | ||||||
| Delta Air Lines, Inc. | 640 | 31,482 | ||||||
| Johnson Controls, Inc. | 507 | 24,508 | ||||||
| Lowe’s Companies, Inc. | 354 | 24,355 | ||||||
| Yum! Brands, Inc. | 330 | 24,041 | ||||||
| Hilton Worldwide Holdings, Inc.* | 921 | 24,029 | ||||||
| PACCAR, Inc. | 336 | 22,851 | ||||||
| Total Consumer, Cyclical | 844,752 | |||||||
| COMMUNICATIONS - 1.7% | ||||||||
| Google, Inc. — Class C* | 293 | 154,236 | ||||||
| Comcast Corp. — Class A | 2,484 | 144,097 | ||||||
| Viacom, Inc. — Class B | 1,322 | 99,480 | ||||||
| Verizon Communications, Inc. | 1,414 | 66,147 | ||||||
| eBay, Inc.* | 756 | 42,426 | ||||||
| Facebook, Inc. — Class A* | 493 | 38,464 | ||||||
| Amazon.com, Inc.* | 102 | 31,656 | ||||||
| Walt Disney Co. | 246 | 23,171 | ||||||
| Alliance Data Systems Corp.* | 81 | 23,170 | ||||||
| Total Communications | 622,847 | |||||||
| ENERGY - 0.9% | ||||||||
| Valero Energy Corp. | 1,657 | 82,021 | ||||||
| Marathon Petroleum Corp. | 688 | 62,099 | ||||||
| National Oilwell Varco, Inc. | 936 | 61,336 | ||||||
| Phillips 66 | 715 | 51,266 | ||||||
| Schlumberger Ltd. | 401 | 34,249 | ||||||
| Anadarko Petroleum Corp. | 327 | 26,978 | ||||||
| SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 143 |
SCHEDULE OF INVESTMENTS (continued) | December 31, 2014 |
| SERIES Y (STYLEPLUS—LARGE GROWTH SERIES) |
| Shares | Value | |||||||
| Halliburton Co. | 624 | $ | 24,542 | |||||
| Total Energy | 342,491 | |||||||
| FINANCIAL - 0.2% | ||||||||
| Visa, Inc. — Class A | 221 | 57,946 | ||||||
| Total Common Stocks | ||||||||
| (Cost $6,834,062) | 7,536,284 | |||||||
MUTUAL FUNDS†,1 - 50.7% | ||||||||
| Guggenheim Variable Insurance Strategy Fund III | 323,449 | 8,034,473 | ||||||
| Guggenheim Strategy Fund I | 242,037 | 6,012,202 | ||||||
| Guggenheim Strategy Fund II | 120,965 | 3,005,980 | ||||||
| Guggenheim Strategy Fund III | 66,564 | 1,653,440 | ||||||
| Total Mutual Funds | ||||||||
| (Cost $18,782,496) | 18,706,095 | |||||||
SHORT TERM INVESTMENTS† - 4.5% | ||||||||
| Dreyfus Treasury Prime Cash Management Fund | 1,671,313 | 1,671,313 | ||||||
| Total Short Term Investments | ||||||||
| (Cost $1,671,313) | 1,671,313 | |||||||
| Face Amount | ||||||||
ASSET-BACKED SECURITIES†† - 18.8% | ||||||||
| Goldman Sachs Asset Management CLO plc | ||||||||
2007-1A, 2.98% due 08/01/222,3 | $ | 500,000 | 496,599 | |||||
| KKR Financial CLO 2007-1 Ltd. | ||||||||
2007-1A, 2.48% due 05/15/212,3 | 500,000 | 495,600 | ||||||
| Brentwood CLO Corp. | ||||||||
2006-1A, 1.05% due 02/01/222,3 | 250,000 | 225,675 | ||||||
2006-1A, 0.50% due 02/01/222,3 | 203,779 | 200,702 | ||||||
| N-Star REL CDO VIII Ltd. | ||||||||
2006-8A, 0.46% due 02/01/412,3 | 355,068 | 341,931 | ||||||
| Duane Street CLO IV Ltd. | ||||||||
2007-4A, 0.46% due 11/14/212,3 | 309,338 | 306,708 | ||||||
| Argent Securities Incorporated Asset-Backed Pass-Through Certificates Series | ||||||||
2005-W3, 0.51% due 11/25/352 | 270,454 | 259,814 | ||||||
| H2 Asset Funding Ltd. | ||||||||
| 2.06% due 03/19/37 | 250,000 | 250,525 | ||||||
| DIVCORE CLO Ltd. | ||||||||
| 2013-1A B, 4.06% due 11/15/32 | 250,000 | 250,075 | ||||||
| Symphony CLO VII Ltd. | ||||||||
2011-7A, 3.43% due 07/28/212,3 | 250,000 | 249,650 | ||||||
| Golub Capital Partners CLO 18 Ltd. | ||||||||
2014-18A, 2.73% due 04/25/262,3 | 250,000 | 249,375 | ||||||
| Race Point V CLO Ltd. | ||||||||
2014-5AR, 3.09% due 12/15/222,3 | 250,000 | 248,975 | ||||||
| Central Park CLO Ltd. | ||||||||
2011-1A, 3.43% due 07/23/222,3 | 250,000 | 246,850 | ||||||
| Cerberus Onshore II CLO LLC | ||||||||
2014-1A, 2.93% due 10/15/232,3 | 250,000 | 246,275 | ||||||
| GSC Group CDO Fund VIII Ltd. | ||||||||
2007-8A, 0.61% due 04/17/212,3 | 250,000 | 245,350 | ||||||
| Race Point IV CLO Ltd. | ||||||||
2007-4A, 0.98% due 08/01/212,3 | 250,000 | 242,850 | ||||||
| Black Diamond CLO 2005-1 Delaware Corp. | ||||||||
2005-1A, 2.15% due 06/20/172,3 | 250,000 | 242,725 | ||||||
| ALM VII R-2 Ltd. | ||||||||
2013-7R2A, 2.83% due 04/24/242,3 | 250,000 | 240,725 | ||||||
| Black Diamond CLO 2006-1 Luxembourg S.A. | ||||||||
2007-1A, 0.62% due 04/29/192,3 | 250,000 | 235,175 | ||||||
| JP Morgan Mortgage Acquisition Trust | ||||||||
2007-CH3, 0.32% due 03/25/372 | 237,346 | 234,027 | ||||||
| Salus CLO 2012-1 Ltd. | ||||||||
2013-1AN, 2.48% due 03/05/212,3 | 230,000 | 229,356 | ||||||
| Cornerstone CLO Ltd. | ||||||||
2007-1A, 0.45% due 07/15/212,3 | 210,529 | 208,676 | ||||||
| GreenPoint Mortgage Funding Trust | ||||||||
2005-HE4, 0.87% due 07/25/302 | 192,093 | 181,209 | ||||||
| Wells Fargo Home Equity Asset-Backed Securities 2006-2 Trust | ||||||||
2006-3, 0.32% due 01/25/372 | 173,563 | 166,181 | ||||||
| Northwoods Capital VII Ltd. | ||||||||
2006-7A, 1.78% due 10/22/212,3 | 160,000 | 158,272 | ||||||
| Aegis Asset Backed Securities Trust | ||||||||
2005-3, 0.64% due 08/25/352 | 150,653 | 148,533 | ||||||
| Popular ABS Mortgage Pass-Through Trust | ||||||||
2005-A, 0.60% due 06/25/352 | 147,930 | 142,478 | ||||||
| Foothill CLO Ltd. | ||||||||
2007-1A, 0.48% due 02/22/212,3 | 142,887 | 141,758 | ||||||
| West Coast Funding Ltd. | ||||||||
2006-1A, 0.39% due 11/02/412,3 | 44,501 | 43,883 | ||||||
| Global Leveraged Capital Credit Opportunity Fund | ||||||||
2006-1A, 0.53% due 12/20/182,3 | 34,892 | 34,847 | ||||||
| Total Asset-Backed Securities | ||||||||
| (Cost $6,863,248) | 6,964,799 | |||||||
MORTGAGE-BACKED SECURITIES†† - 4.8% | ||||||||
| HSI Asset Securitization Corporation Trust | ||||||||
2007-WF1, 0.34% due 05/25/372 | 367,600 | 355,526 | ||||||
| SRERS Funding Ltd. | ||||||||
2011-RS, 0.41% due 05/09/462,3 | 344,426 | 328,065 | ||||||
| Resource Capital Corporation CRE Notes 2013 Ltd. | ||||||||
2013-CRE1, 3.01% due 12/15/282,3 | 250,000 | 251,128 | ||||||
| Boca Hotel Portfolio Trust | ||||||||
2013-BOCA, 3.21% due 08/15/262,3 | 250,000 | 249,849 | ||||||
| Hilton USA Trust | ||||||||
2013-HLF, 2.92% due 11/05/302,3 | 197,093 | 197,103 | ||||||
| HarborView Mortgage Loan Trust | ||||||||
2006-12, 0.35% due 01/19/382 | 195,407 | 165,557 | ||||||
| 144 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
SCHEDULE OF INVESTMENTS (concluded) | December 31, 2014 |
| SERIES Y (STYLEPLUS—LARGE GROWTH SERIES) |
| Face Amount | Value | |||||||
| Banc of America Merrill Lynch Commercial Mortgage, Inc. | ||||||||
2005-6, 6.13% due 09/10/472,3 | $ | 158,040 | $ | 160,410 | ||||
| Wachovia Bank Commercial Mortgage Trust Series | ||||||||
2007-WHL8, 0.24% due 06/15/202,3 | 75,348 | 75,174 | ||||||
| Total Mortgage-Backed Securities | ||||||||
| (Cost $1,741,513) | 1,782,812 | |||||||
| Total Investments - 99.2% | ||||||||
| (Cost $35,892,632) | $ | 36,661,303 | ||||||
| Other Assets & Liabilities, net - 0.8% | 280,870 | |||||||
| Total Net Assets - 100.0% | $ | 36,942,173 | ||||||
| Contracts | Unrealized Loss | |||||||
EQUITY FUTURES CONTRACTS PURCHASED† | ||||||||
| March 2015 NASDAQ-100 Index Mini Futures Contracts (Aggregate Value of Contracts $338,660) | 4 | $ | (4,393 | ) | ||||
| March 2015 S&P 500 Index Mini Futures Contracts (Aggregate Value of Contracts $718,200) | 7 | (5,972 | ) | |||||
| (Total Aggregate Value of Contracts $1,056,860) | $ | (10,365 | ) | |||||
| Units | ||||||||
OTC EQUITY INDEX SWAP AGREEMENTS†† | ||||||||
Bank of America January 2015 Russell 1000 Growth Index Swap, Terminating 01/05/154 (Notional Value $27,472,322) | 28,577 | $ | (13,543 | ) | ||||
| * | Non-income producing security. |
| † | Value determined based on Level 1 inputs — See Note 4. |
| †† | Value determined based on Level 2 inputs — See Note 4. |
| 1 | Affiliated issuer — See Note 10. |
| 2 | Variable rate security. Rate indicated is rate effective at December 31, 2014. |
| 3 | Security is a 144A or Section 4(a)(2) security. The total market value of 144A or Section 4(a)(2) securities is $6,593,686 (cost $6,509,760), or 17.8% of total net assets. These securities have been determined to be liquid under guidelines established by the Board of Trustees. |
| 4 | Total Return based on Russell 1000 Growth Index +/- financing at a variable rate. |
| plc — Public Limited Company |
| SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 145 |
| SERIES Y (STYLEPLUS—LARGE GROWTH SERIES) |
| STATEMENT OF ASSETS AND LIABILITIES |
| December 31, 2014 | ||||
| Assets: | ||||
| Investments in unaffiliated issuers, at value (cost $17,110,136) | $ | 17,955,208 | ||
| Investments in affiliated issuers, at value (cost $18,782,496) | 18,706,095 | |||
| Total investments (cost $35,892,632) | 36,661,303 | |||
| Segregated cash with broker | 46,600 | |||
| Prepaid expenses | 2,122 | |||
| Receivables: | ||||
| Fund shares sold | 183,248 | |||
| Securities sold | 124,048 | |||
| Dividends | 39,499 | |||
| Interest | 21,723 | |||
| Total assets | 37,078,543 | |||
| Liabilities: | ||||
| Unrealized depreciation on swap agreements | 13,543 | |||
| Overdraft due to custodian bank | 2,881 | |||
| Payable for: | ||||
| Securities purchased | 29,190 | |||
| Fund shares redeemed | 25,672 | |||
| Management fees | 23,169 | |||
| Variation margin | 12,605 | |||
| Transfer agent/maintenance fees | 4,198 | |||
| Fund accounting/administration fees | 2,935 | |||
| Trustees’ fees* | 1,425 | |||
| Miscellaneous | 20,752 | |||
| Total liabilities | 136,370 | |||
| Net assets | $ | 36,942,173 | ||
| Net assets consist of: | ||||
| Paid in capital | $ | 37,941,858 | ||
| Undistributed net investment income | 392,674 | |||
| Accumulated net realized loss on investments | (2,137,122 | ) | ||
| Net unrealized appreciation on investments | 744,763 | |||
| Net assets | $ | 36,942,173 | ||
| Capital shares outstanding | 2,371,580 | |||
| Net asset value per share | $ | 15.58 | ||
| STATEMENT OF OPERATIONS |
| Year Ended December 31, 2014 | ||||
| Investment Income: | ||||
| Interest | $ | 390,039 | ||
| Dividends from securities of affiliated issuers | 211,342 | |||
| Dividends from securities of unaffiliated issuers | 159,200 | |||
| Total investment income | 760,581 | |||
| Expenses: | ||||
| Management fees | 257,770 | |||
| Transfer agent/maintenance fees | 25,005 | |||
| Fund accounting/administration fees | 32,650 | |||
| Professional fees | 24,455 | |||
| Custodian fees | 8,826 | |||
| Trustees’ fees* | 4,037 | |||
| Line of credit fees | 3,349 | |||
| Tax expense | 1 | |||
| Miscellaneous | 49,326 | |||
| Total expenses | 405,419 | |||
| Less: | ||||
| Expenses waived by Adviser | (7,343 | ) | ||
| Net expenses | 398,076 | |||
| Net investment income | 362,505 | |||
| Net Realized and Unrealized Gain (Loss): | ||||
| Net realized gain (loss) on: | ||||
| Investments in unaffiliated issuers | 1,252,665 | |||
| Investments in affiliated issuers | (26,229 | ) | ||
| Swap agreements | 3,016,593 | |||
| Futures contracts | 113,519 | |||
| Net realized gain | 4,356,548 | |||
| Net change in unrealized appreciation (depreciation) on: | ||||
| Investments in unaffiliated issuers | 190,250 | |||
| Investments in affiliated issuers | (42,840 | ) | ||
| Swap agreements | (13,543 | ) | ||
| Futures contracts | (30,260 | ) | ||
| Net change in unrealized appreciation (depreciation) | 103,607 | |||
| Net realized and unrealized gain | 4,460,155 | |||
| Net increase in net assets resulting from operations | $ | 4,822,660 | ||
| * | Relates to Trustees not deemed “interested persons” within the meaning of Section 2(a)(19) of the 1940 Act. |
| 146 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
| SERIES Y (STYLEPLUS—LARGE GROWTH SERIES) |
| STATEMENTS OF CHANGES IN NET ASSETS |
| Year Ended December 31, 2014 | Year Ended December 31, 2013 | |||||||
| Increase (Decrease) in Net Assets from Operations: | ||||||||
| Net investment income | $ | 362,505 | $ | 119,708 | ||||
| Net realized gain on investments | 4,356,548 | 10,105,603 | ||||||
| Net change in unrealized appreciation (depreciation) on investments | 103,607 | (1,211,062 | ) | |||||
| Net increase in net assets resulting from operations | 4,822,660 | 9,014,249 | ||||||
| Capital share transactions: | ||||||||
| Proceeds from sale of shares | 6,688,892 | 10,465,661 | ||||||
| Cost of shares redeemed | (14,986,659 | ) | (15,306,317 | ) | ||||
| Net decrease from capital share transactions | (8,297,767 | ) | (4,840,656 | ) | ||||
| Net increase (decrease) in net assets | (3,475,107 | ) | 4,173,593 | |||||
| Net assets: | ||||||||
| Beginning of year | 40,417,280 | 36,243,687 | ||||||
| End of year | $ | 36,942,173 | $ | 40,417,280 | ||||
| Undistributed net investment income at end of year | $ | 392,674 | $ | 137,646 | ||||
| Capital share activity: | ||||||||
| Shares sold | 458,903 | 864,085 | ||||||
| Shares redeemed | (1,077,863 | ) | (1,310,714 | ) | ||||
| Net decrease in shares | (618,960 | ) | (446,629 | ) | ||||
| SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 147 |
| SERIES Y (STYLEPLUS—LARGE GROWTH SERIES) |
| FINANCIAL HIGHLIGHTS |
This table is presented to show selected data for a share outstanding throughout each period and to assist shareholders in evaluating a Fund’s performance for the periods presented.
| Year Ended December 31, 2014 | Year Ended December 31, 2013 | Year Ended December 31, 2012 | Year Ended December 31, 2011 | Year Ended December 31, 2010 | ||||||||||||||||
| Per Share Data | ||||||||||||||||||||
| Net asset value, beginning of period | $ | 13.52 | $ | 10.54 | $ | 9.52 | $ | 9.95 | $ | 8.53 | ||||||||||
| Income (loss) from investment operations: | ||||||||||||||||||||
Net investment income (loss)a | .15 | .04 | .07 | .02 | .08 | |||||||||||||||
| Net gain (loss) on investments (realized and unrealized) | 1.91 | 2.94 | .95 | (.45 | ) | 1.34 | ||||||||||||||
| Total from investment operations | 2.06 | 2.98 | 1.02 | (.43 | ) | 1.42 | ||||||||||||||
| Net asset value, end of period | $ | 15.58 | $ | 13.52 | $ | 10.54 | $ | 9.52 | $ | 9.95 | ||||||||||
Total Returnb | 15.24 | % | 28.27 | % | 10.71 | % | (4.32 | %) | 16.65 | % | ||||||||||
| Ratios/Supplemental Data | ||||||||||||||||||||
| Net assets, end of period (in thousands) | $ | 36,942 | $ | 40,417 | $ | 36,244 | $ | 38,130 | $ | 43,571 | ||||||||||
| Ratios to average net assets: | ||||||||||||||||||||
| Net investment income (loss) | 1.05 | % | 0.33 | % | 0.63 | % | 0.20 | % | 0.96 | % | ||||||||||
Total expensesc | 1.18 | % | 1.10 | % | 1.01 | % | 0.98 | % | 0.96 | % | ||||||||||
Net expensesd | 1.16 | % | 1.10 | % | 1.01 | % | 0.98 | % | 0.96 | % | ||||||||||
| Portfolio turnover rate | 96 | % | 247 | % | 187 | % | 153 | % | 182 | % | ||||||||||
a | Net investment income (loss) per share was computed using average shares outstanding throughout the period. |
b | Total return does not take into account any of the expenses associated with an investment in variable insurance products. If total return had taken into account these expenses, performance would have been lower. Shares of a series of Guggenheim Variable Funds Trust are available only through the purchase of such products. |
c | Does not include expenses of the underlying funds in which the Fund invests. |
d | Net expense information reflects the expense ratios after expense waivers. |
| 148 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
MANAGER’S COMMENTARY (Unaudited) | December 31, 2014 |
To Our Shareholders:
The Series Z (Alpha Opportunity Series) is managed by a team of seasoned professionals, including Michael P. Byrum, CFA, Portfolio Manager and Ryan Harder, CFA, Portfolio Manager. In the following paragraphs, the team discusses performance of the Series for the fiscal year ended December 31, 2014.
For the fiscal year ended December 31, 2014, the Series Z (Alpha Opportunity Series) returned 9.36%, compared with its benchmark, the S&P 500® Index, which gained 13.69%.
The Series principal investment strategy, by which 75% of the Fund is managed according to a Domestic Long/Short strategy and 25% to an Indexed strategy, was in effect for the full year. A Global Long/Short strategy, which had been part of the Fund prior to October 1, 2013, was discontinued and not implemented subsequent to that date.
During the year, the Fund also saw a resolution of the issues related with the bankruptcy of Lehman Brothers, Inc. As noted in the prior shareholder reports, the Fund had been subject to proceedings associated with the bankruptcy filing of Lehman Brothers, Inc., in 2008, which prevented the Fund from pursuing its intended investment program. Specifically, the Fund was trying to resolve certain outstanding short sale transactions with Lehman Brothers International Europe (LBIE) and its administrator. The matter was resolved in June 2014 and collateral was released.
From the start of 2014 until June 2014, the Fund was managed to an equity beta consistent with the 75/25 allocation. Beginning in June, the Fund began implementing the intended investment strategy in its entirety. A 75/25 allocation between a domestic long/short equity strategy with a 60% equity beta and a long-only equity strategy with a 100% equity beta resulted in a net beta for the fund of 70%. Between December 31, 2013, and June 11, 2014, the Series returned 4.96% while the S&P 500 returned 6.15%, which produced 0.66% of risk-adjusted out-performance resulting from the value-oriented stock basket in the frozen Lehman account.
From June 12, 2014, through year-end 2014, the domestic long/short model was implemented with 75% of Series assets, while the remaining 25% of assets were managed with S&P futures to a beta of 1.0 (with the S&P 500 Index). The domestic long/short equity model realized a net return of 4.32% and a beta to the S&P 500 of 50% over this period; the S&P 500 returned 7.09% resulting in beta-adjusted out-performance of 0.78% for the domestic long/short equity model. Over this same period the Series Z Fund produced a net return of 4.19% and a realized beta of 63% which resulted in beta-adjusted under-performance of -0.25%.
REDOMICILATION
At a meeting of shareholders held on January 8, 2014, shareholders of the Series approved the reorganization from a series of a Kansas corporation to a series of a Delaware statutory trust (the “Reorganization”). The Reorganization was delayed pending the resolution of the LBIE matter discussed above. In light of the resolution of that matter, the Fund reorganized with and into a corresponding “shell” series (“New Fund”) of Guggenheim Variable Funds Trust in September 2014.
Upon completion of the Reorganization, shareholders of the Series owned shares of the corresponding class of the New Series that are equal in number and in value to the shares of the Series that were held by those shareholders immediately prior to the closing of the Reorganization. In addition, the respective share classes of the New Series will assume the performance, financial and other historical information of those of the Series. The procedure for redeeming shares will remain unchanged.
Performance displayed represents past performance, which is no guarantee of future results.
The opinions and forecast expressed may not actually come to pass. This information is subject to change at any time, based on market and other conditions, and should not be construed as a recommendation of any specific security or strategy.
| THE GUGGENHEIM FUNDS ANNUAL REPORT | 149 |
PERFORMANCE REPORT AND FUND PROFILE (Unaudited) | December 31, 2014 |
SERIES Z (ALPHA OPPORTUNITY SERIES)
OBJECTIVE: Seeks long-term growth of capital.
Holdings Diversification
(Market Exposure as % of Net Assets)
“Holdings Diversification (Market Exposure as % of Net Assets)” excludes any temporary cash investments or investments in Guggenheim Strategy Funds Trust mutual funds.
Inception Date: July 7, 2003 |
The Fund invests principally in derivative investments such as swap agreements and futures contracts.
Cumulative Fund Performance*,†
Average Annual Returns*
Periods Ended December 31, 2014†
| 1 Year | 5 Year | 10 Year | |
| Series Z (Alpha Opportunity Series) | 9.36% | 14.27% | 8.98% |
| S&P 500 Index | 13.69% | 15.45% | 7.67% |
| * | The performance data above represents past performance that is not predictive of future results. The investment return and principal value of an investment in the Fund will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Returns are historical and include changes in principal and reinvested dividends and capital gains and do not reflect the effect of taxes. The S&P 500 Index is an unmanaged index and, unlike the Fund, has no management fees or operating expenses to reduce its reported return. |
† | Performance figures do not reflect fees and expenses associated with an investment in variable insurance products. If returns had taken into account these fees and expenses, performance would have been lower. Shares of a series of Guggenheim Variable Funds Trust are available only through the purchase of such products. |
| 150 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
| SCHEDULE OF INVESTMENTS | December 31, 2014 |
| SERIES Z (ALPHA OPPORTUNITY SERIES) |
| Shares | Value | |||||||
COMMON STOCKS††† – 0.0% | ||||||||
| FINANCIAL - 0.0% | ||||||||
| Irish Bank Resolution Corporation Ltd. | 16,638 | $ | — | |||||
| Total Common Stocks | ||||||||
| (Cost $101,261) | — | |||||||
SHORT TERM INVESTMENTS† - 30.7% | ||||||||
| Goldman Sachs Financial Square Treasury Instruments Fund | 4,789,281 | 4,789,281 | ||||||
| Total Short Term Investments | ||||||||
| (Cost $4,789,281) | 4,789,281 | |||||||
| Face Amount | ||||||||
FEDERAL AGENCY DISCOUNT NOTES†† - 66.0% | ||||||||
Federal Home Loan Bank1 | ||||||||
| 0.03% due 01/08/15 | $ | 2,500,000 | 2,499,993 | |||||
Federal Farm Credit Bank1 | ||||||||
| 0.05% due 01/14/15 | 2,500,000 | 2,499,955 | ||||||
Farmer Mac1 | ||||||||
| 0.05% due 01/09/15 | 2,300,000 | 2,299,974 | ||||||
Fannie Mae2 | ||||||||
| 0.05% due 01/14/15 | 1,500,000 | 1,499,973 | ||||||
Freddie Mac2 | ||||||||
| 0.04% due 01/13/15 | 1,500,000 | 1,499,972 | ||||||
| Total Federal Agency Discount Notes | ||||||||
| (Cost $10,299,862) | 10,299,867 | |||||||
| Total Investments - 96.7% | ||||||||
| (Cost $15,190,404) | $ | 15,089,148 | ||||||
| Other Assets & Liabilities, net - 3.3% | 521,961 | |||||||
| Total Net Assets - 100.0% | $ | 15,611,109 | ||||||
| Contracts | Unrealized Gain | |||||||
EQUITY FUTURES CONTRACTS PURCHASED† | ||||||||
| March 2015 S&P 500 Index Mini Futures Contracts (Aggregate Value of Contracts $3,898,800) | 38 | $ | 117,204 | |||||
| Units | ||||||||
OTC EQUITY INDEX SWAP AGREEMENTS †† | ||||||||
Goldman Sachs International March 2015 Goldman Sachs Multi-Hedge Strategies Long Index Swap, Terminating 03/09/153 (Notional Value $10,023,247) | 76,511 | $ | 101,562 | |||||
Goldman Sachs International March 2015 Goldman Sachs Multi-Hedge Strategies Short Index Swap, Terminating 03/09/154 (Notional Value $3,123,310) | 26,415 | $ | 48,445 | |||||
| Sector Diversification | |
Goldman Sachs Multi-Hedge Strategies Long Index Swap3 | |
Sector | |
| Health Care | 24.4% |
| Consumer Discretionary | 16.9% |
| Consumer Staples | 13.6% |
| Technology | 11.7% |
| Financials | 11.2% |
| Utilities | 8.4% |
| Industrials | 6.9% |
| Communications | 3.4% |
| Materials | 2.9% |
| Energy | 0.6% |
| Total | 100.0% |
Goldman Sachs Multi-Hedge Strategies Short Index Swap4 | |
| Sector | |
| Energy | 37.4% |
| Financials | 17.9% |
| Industrials | 16.5% |
| Consumer Discretionary | 6.8% |
| Communications | 5.7% |
| Materials | 5.4% |
| Consumer Staples | 3.7% |
| Health Care | 3.0% |
| Technology | 1.8% |
| Utilities | 1.8% |
| Total | 100.0% |
| † | Value determined based on Level 1 inputs — See Note 4. |
| †† | Value determined based on Level 2 inputs — See Note 4. |
| ††† | Value determined based on Level 3 inputs — See Note 4. |
| 1 | The issuer operates under a Congressional charter; its securities are neither issued nor guaranteed by the U.S. Government. |
| 2 | On September 7, 2008, the issuer was placed in conservatorship by the Federal Housing Finance Agency (FHFA). As conservator, the FHFA has full powers to control the assets and operations of the firm. |
| 3 | Customized basket of 198 exchange-traded equity securities. Total Return based on Goldman Sachs Multi-Hedge Strategies Long Index +/- financing at a variable rate. |
| 4 | Customized basket of 124 exchange-traded equity securities. Total Return based on Goldman Sachs Multi-Hedge Strategies Short Index +/- financing at a variable rate. |
| SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 151 |
| SERIES Z (ALPHA OPPORTUNITY SERIES) |
| STATEMENT OF ASSETS AND LIABILITIES |
| December 31, 2014 | ||||
| Assets: | ||||
| Investments, at value (cost $15,190,404) | $ | 15,089,148 | ||
| Segregated cash with broker | 454,800 | |||
| Unrealized appreciation on swap agreements | 150,007 | |||
| Prepaid expenses | 900 | |||
| Total assets | 15,694,855 | |||
| Liabilities: | ||||
| Payable for: | ||||
| Variation margin | 46,930 | |||
| Management fees | 4,945 | |||
| Fund shares redeemed | 11,204 | |||
| Transfer agent/maintenance fees | 4,262 | |||
| Fund accounting/administration fees | 2,600 | |||
| Trustees’ fees* | 829 | |||
| Swap settlement | 467 | |||
| Miscellaneous | 12,509 | |||
| Total liabilities | 83,746 | |||
| Net assets | $ | 15,611,109 | ||
| Net assets consist of: | ||||
| Paid in capital | $ | 12,993,936 | ||
| Undistributed net investment income | �� | — | ||
| Accumulated net realized gain on investments | 2,451,218 | |||
| Net unrealized appreciation on investments | 165,955 | |||
| Net assets | $ | 15,611,109 | ||
| Capital shares outstanding | 571,254 | |||
| Net asset value per share | $ | 27.33 | ||
| STATEMENT OF OPERATIONS |
| Year Ended December 31, 2014 | ||||
| Investment Income: | ||||
| Dividends (net of foreign withholding tax of $1,020) | $ | 104,611 | ||
| Interest | 2,198 | |||
| Other income | 1,262 | |||
| Total investment income | 108,071 | |||
| Expenses: | ||||
| Management fees | 198,647 | |||
| Transfer agent/maintenance fees | 25,005 | |||
| Fund accounting/administration fees | 25,015 | |||
| Legal fees | 104,985 | |||
| Professional fees | 24,593 | |||
| Custodian fees | 20,293 | |||
| Trustees’ fees* | 1,435 | |||
| Miscellaneous | 30,142 | |||
| Total expenses | 430,115 | |||
| Less: | ||||
| Expenses waived by Adviser | (59,680 | ) | ||
| Net expenses | 370,435 | |||
| Net investment loss | (262,364 | ) | ||
| Net Realized and Unrealized Gain (Loss): | ||||
| Net realized gain (loss) on: | ||||
| Investments | 5,245,787 | |||
| Swap agreements | 399,583 | |||
| Futures contracts | 441,011 | |||
| Foreign currency | 130,535 | |||
| Securities sold short | (487,907 | ) | ||
| Net realized gain | 5,729,009 | |||
| Net change in unrealized appreciation (depreciation) on: | ||||
| Investments | (4,706,491 | ) | ||
| Securities sold short | 466,264 | |||
| Swap agreements | 150,007 | |||
| Futures contracts | 61,486 | |||
| Foreign currency | (35,434 | ) | ||
| Net change in unrealized appreciation (depreciation) | (4,064,168 | ) | ||
| Net realized and unrealized gain | 1,664,841 | |||
| Net increase in net assets resulting from operations | $ | 1,402,477 | ||
| * | Relates to Trustees not deemed “interested persons” within the meaning of Section 2(a)(19) of the 1940 Act. |
| 152 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
| SERIES Z (ALPHA OPPORTUNITY SERIES) |
| STATEMENTS OF CHANGES IN NET ASSETS |
| Year Ended December 31, 2014 | Year Ended December 31, 2013 | |||||||
| Increase (Decrease) in Net Assets from Operations: | ||||||||
| Net investment loss | $ | (262,364 | ) | $ | (112,589 | ) | ||
| Net realized gain on investments | 5,729,009 | 1,027,589 | ||||||
| Net change in unrealized appreciation (depreciation) on investments | (4,064,168 | ) | 3,079,185 | |||||
| Net increase in net assets resulting from operations | 1,402,477 | 3,994,185 | ||||||
| Capital share transactions: | ||||||||
| Proceeds from sale of shares | — | — | ||||||
| Cost of shares redeemed | (2,498,489 | ) | (2,858,472 | ) | ||||
| Net decrease from capital share transactions | (2,498,489 | ) | (2,858,472 | ) | ||||
| Net increase (decrease) in net assets | (1,096,012 | ) | 1,135,713 | |||||
| Net assets: | ||||||||
| Beginning of year | 16,707,121 | 15,571,408 | ||||||
| End of year | $ | 15,611,109 | $ | 16,707,121 | ||||
| Undistributed net investment income at end of year | $ | — | $ | 62 | ||||
| Capital share activity: | ||||||||
| Shares sold | — | — | ||||||
| Shares redeemed | (97,148 | ) | (127,960 | ) | ||||
| Net decrease in shares | (97,148 | ) | (127,960 | ) | ||||
| SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 153 |
| SERIES Z (ALPHA OPPORTUNITY SERIES) |
| FINANCIAL HIGHLIGHTS |
This table is presented to show selected data for a share outstanding throughout each period and to assist shareholders in evaluating a Fund’s performance for the periods presented.
| Year Ended December 31, 2014 | Year Ended December 31, 2013 | Year Ended December 31, 2012 | Year Ended December 31, 2011 | Year Ended December 31, 2010 | ||||||||||||||||
| Per Share Data | ||||||||||||||||||||
| Net asset value, beginning of period | $ | 25.00 | $ | 19.55 | $ | 17.24 | $ | 16.98 | $ | 14.03 | ||||||||||
| Income (loss) from investment operations: | ||||||||||||||||||||
Net investment income (loss)a | (.43 | ) | (.15 | ) | (.08 | ) | (.12 | ) | (.10 | ) | ||||||||||
| Net gain (loss) on investments (realized and unrealized) | 2.76 | 5.60 | 2.36 | .38 | 3.05 | |||||||||||||||
| Net increase from payments by affiliates | — | — | .03 | b | — | — | ||||||||||||||
| Total from investment operations | 2.33 | 5.45 | 2.31 | .26 | 2.95 | |||||||||||||||
| Net asset value, end of period | $ | 27.33 | $ | 25.00 | $ | 19.55 | $ | 17.24 | $ | 16.98 | ||||||||||
Total Returnc | 9.36 | % | 27.83 | % | 13.40 | %b | 1.77 | % | 20.74 | % | ||||||||||
| Ratios/Supplemental Data | ||||||||||||||||||||
| Net assets, end of period (in thousands) | $ | 15,611 | $ | 16,707 | $ | 15,571 | $ | 17,161 | $ | 21,149 | ||||||||||
| Ratios to average net assets: | ||||||||||||||||||||
| Net investment income (loss) | (1.65 | %) | (0.69 | %) | (0.41 | %) | (0.66 | %) | (0.89 | %) | ||||||||||
| Total expenses | 2.71 | % | 3.03 | % | 2.22 | % | 2.29 | % | 2.27 | % | ||||||||||
Net expensesd, e | 2.33 | % | 2.44 | % | 2.22 | % | 2.29 | % | 2.07 | % | ||||||||||
| Portfolio turnover rate | — | 548 | % | 720 | % | 730 | % | 768 | % | |||||||||||
a | Net investment income (loss) per share was computed using average shares outstanding throughout the period. |
b | For the year ended December 31, 2012, 0.17% of the Series total return consisted of a voluntary reimbursement by the Adviser for losses incurred during fund trading. Excluding this item, total return would have been 13.23% for the Series. |
c | Total return does not take into account any of the expenses associated with an investment in variable insurance products. If total return had taken into account these expenses, performance would have been lower. Shares of a series of Guggenheim Variable Funds Trust are available only through the purchase of such products. |
d | Net expense information reflects the expense ratios after expense waivers. |
e | Net expenses may include expenses that are excluded from the expense limitation agreement. Excluding those amounts, the operating expense ratios for the years presented would be: |
| 12/31/14 | 12/31/13 | 12/31/12 | 12/31/11 | 12/31/10 |
| 2.32% | 2.35% | 2.06% | 2.21% | 1.90% |
| 154 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
| NOTES TO FINANCIAL STATEMENTS |
1. Organization and Significant Accounting Policies
Organization
Guggenheim Variable Funds Trust (the “Trust”), a Delaware statutory trust, is registered with the SEC under the Investment Company Act of 1940 (“1940 Act”), as a non-diversified, open-ended investment company of the series type. Each series, in effect, is representing a separate Fund. The Trust is authorized to issue an unlimited number of shares. The Trust accounts for the assets of each Fund separately. At December 31, 2014, the Trust consisted of sixteen funds.
This report covers the Series Series A (StylePlus—Large Core Series), Series B (Large Cap Value Series), Series C (Money Market Series), Series D (World Equity Income Series), Series E (Total Return Bond Series), Series F (Floating Rate Strategies Series), Series J (StylePlus—Mid Growth Series), Series M (Macro Opportunities Series), Series N (Managed Asset Allocation Series), Series O (All Cap Value Series), Series P (High Yield Series), Series Q (Small Cap Value Series), Series V (Mid Cap Value Series), Series X (StylePlus—Small Growth Series), Series Y (StylePlus—Large Growth Series) and Series Z (Alpha Opportunity Series) (the “Funds”).
The Funds were previously series (the “Predecessor Funds”) of SBL Fund, a different registered open-end investment company, which was organized as a Kansas corporation. In April 2014, at a special meeting of shareholders, the shareholders of the Predecessor Funds approved the reorganization of the Predecessor Funds with and into the Funds’ corresponding “shell” series of the Trust. The Funds succeeded to the accounting and performance history of the Predecessor Funds. Any such historical information provided for the Funds that relate to periods prior to April 30, 2014 (September 24, 2014 for the Series Z (Alpha Opportunity Series)), therefore, is that of the Predecessor Funds.
Guggenheim Investments (“GI”) provides advisory services, and Rydex Fund Services, LLC (“RFS”) provides transfer agent, administrative and accounting services to the Trust. Guggenheim Funds Distributors, LLC (“GFD”) acts as principal underwriter for the Trust. GI, RFS and GFD are affiliated entities.
Significant Accounting Policies
The Funds operate as investment companies and accordingly follow the investment company accounting and reporting guidance of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification Topic 946 Financial Services – Investment Companies.
The following significant accounting policies are in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”) and are consistently followed by the Trust. This requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. All time references are based on Eastern Time.
The net asset value per share (“NAV”) of a fund is calculated by dividing the market value of the fund’s securities and other assets, less all liabilities, by the number of outstanding shares of the fund.
A. The Board of Trustees of the Funds (the “Board”) has adopted policies and procedures for the valuation of the Funds’ investments (the “Valuation Procedures”). Pursuant to the Valuation Procedures, the Board has delegated to a valuation committee, consisting of representatives from Guggenheim’s investment management, fund administration, legal and compliance departments (the “Valuation Committee”), the day-to-day responsibility for implementing the Valuation Procedures, including, under most circumstances, the responsibility for determining the fair value of the Funds’ securities or other assets.
Valuations of the Funds’ securities are supplied primarily by pricing services appointed pursuant to the processes set forth in the Valuation Procedures. The Valuation Committee convenes monthly, or more frequently as needed and will review the valuation of all assets which have been fair valued for reasonableness. The Funds’ officers, through the Valuation Committee and consistent with the monitoring and review responsibilities set forth in the Valuation Procedures, regularly review procedures used by, and valuations provided by, the pricing services.
If the pricing service cannot or does not provide a valuation for a particular investment or such valuation is deemed unreliable, such investment is fair valued by the Valuation Committee.
Equity securities listed on an exchange (New York Stock Exchange (“NYSE”) or American Stock Exchange) are valued at the last quoted sales price as of the close of business on the NYSE, usually 4:00 p.m. on the valuation date.
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Equity securities listed on the NASDAQ market system are valued at the NASDAQ Official Closing Price on the valuation date, which may not necessarily represent the last sale price. If there has been no sale on such exchange or NASDAQ on a given day, the security is valued at the closing bid price on that day.
Generally, trading in foreign securities markets is substantially completed each day at various times prior to the close of the NYSE. The values of foreign securities are determined as of the close of such foreign markets or the close of the NYSE, if earlier. All investments quoted in foreign currency are valued in U.S. dollars on the basis of the foreign currency exchange rates prevailing at the close of business. Investments in foreign securities may involve risks not present in domestic investments. The Valuation Committee will determine the current value of such foreign securities by taking into consideration certain factors which may include those discussed above, as well as the following factors, among others: the value of the securities traded on other foreign markets, ADR trading, closed-end fund trading, foreign currency exchange activity, and the trading prices of financial products that are tied to foreign securities such as World Equity Benchmark Shares. In addition, the Board of Trustees has authorized the Valuation Committee and GI to use prices and other information supplied by a third party pricing vendor in valuing foreign securities.
Open-end investment companies (“Mutual Funds”) are valued at their NAV as of the close of business, on the valuation date. Exchange-traded funds (“ETFs”) and closed-end investment companies (“CEFs”) are valued at the last quoted sales price.
Debt securities with a maturity of greater than 60 days at acquisition are valued at prices that reflect broker/dealer supplied valuations or are obtained from independent pricing services, which may consider the trade activity, treasury spreads, yields or price of bonds of comparable quality, coupon, maturity, and type, as well as prices quoted by dealers who make markets in such securities. Short-term debt securities with a maturity of 60 days or less at acquisition are valued at amortized cost, provided such amount approximates market value.
Typically loans are valued using information provided by an independent third party pricing service which uses broker quotes in a non-active market.
The value of futures contracts is accounted for using the unrealized gain or loss on the contracts that is determined by marking the contracts to their current realized settlement prices. Financial futures contracts are valued at the 4:00 p.m. price on the valuation date. In the event that the exchange for a specific futures contract closes earlier than 4:00 p.m., the futures contract is valued at the Official Settlement Price of the exchange. However, the underlying securities from which the futures contract value is derived are monitored until 4:00 p.m. to determine if fair valuation would provide a more accurate valuation.
The value of OTC swap agreements entered into by a Fund is accounted for using the unrealized gain or loss on the agreements that is determined by marking the agreements to the last quoted value of the index that the swap pertains to at the close of the NYSE. The swap’s value is then adjusted to include dividends accrued, and financing charges and/or interest associated with the swap agreements.
The value of interest rate swap agreements entered into by a Fund are accounted for using the unrealized gain or loss on the agreements that is determined using the spread priced off the previous day’s Chicago Mercantile Exchange (“CME”) price.
Forward foreign currency exchange contracts are valued daily based on the applicable exchange rate of the underlying currency. The change in value of the contract is recorded as unrealized appreciation or depreciation until the forward foreign currency contract is closed. When the forward foreign currency contract is closed, the Fund records a realized gain or loss equal to the difference between the value at the time the contract was opened and the value at the time it was closed.
Investments for which market quotations are not readily available are fair valued as determined in good faith by GI under the direction of the Board of Trustees using methods established or ratified by the Board of Trustees. Valuations in accordance with these methods are intended to reflect each security’s (or asset’s) “fair value.” Each such determination is based on a consideration of all relevant factors, which are likely to vary from one pricing context to another. Examples of such factors may include, but are not limited to: (i) the type of security, (ii) the initial cost of the security, (iii) the existence of any contractual restrictions on the security’s disposition, (iv) the price and extent of public trading in similar securities of the issuer or of comparable companies, (v) quotations or evaluated prices from broker-dealers and/or pricing services,
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(vi) information obtained from the issuer, analysts, and/or the appropriate stock exchange (for exchange-traded securities), (vii) an analysis of the company’s financial statements, and (viii) an evaluation of the forces that influence the issuer and the market(s) in which the security is purchased and sold (e.g. the existence of pending merger activity, public offerings or tender offers that might affect the value of the security). In connection with futures contracts and other derivative investments, such factors may include obtaining information as to how (a) these contracts and other derivative investments trade in the futures or other derivative markets, respectively, and (b) the securities underlying these contracts and other derivative investments trade in the cash market.
Certain U.S. Government and Agency Obligations are traded on a discount basis; the interest rates shown on the Schedules of Investments reflect the effective rates paid at the time of purchase by the Funds. Other securities bear interest at the rates shown, payable at fixed dates through maturity.
B. Senior loans in which the Funds invest generally pay interest rates which are periodically adjusted by reference to a base short-term, floating rate plus a premium. These base lending rates are generally (i) the lending rate offered by one or more major European banks, such as the London Inter-Bank Offered Rate (LIBOR), (ii) the prime rate offered by one or more major United States banks, or (iii) the bank’s certificate of deposit rate. Senior floating rate interests often require prepayments from excess cash flows or permit the borrower to repay at its election. The rate at which the borrower repays cannot be predicted with accuracy. As a result, the actual remaining maturity may be substantially less than the stated maturities shown. The interest rate indicated is the rate in effect at December 31, 2014.
C. The Funds may purchase and sell interests in securities on a when-issued and delayed delivery basis, with payment and delivery scheduled for a future date. No income accrues to the Fund on such interests or securities in connection with such transactions prior to the date the Funds actually take delivery of such interests or securities. These transactions are subject to market fluctuations and are subject to the risk that the value at delivery may be more or less than the trade date purchase price. Although the Funds will generally purchase these securities with the intention of acquiring such securities, they may sell such securities before the settlement date.
D. Upon the purchase of an option, the premium paid is recorded as an investment, the value of which is marked-to-market daily. If a purchased option expires, the Fund realizes a loss in the amount of the cost of the option. When the Fund enters into a closing sale transaction, it realizes a gain or loss depending on whether the proceeds from the closing sale transaction are greater or less than the cost of the option. If the Fund exercises a put option, it realizes a gain or loss from the sale of the underlying security and the proceeds from such sale will be decreased by the premium originally paid. When the Fund exercises a call option, the cost of the security purchased by the Fund upon exercise increases by the premium originally paid.
When the Fund writes (sells) an option, an amount equal to the premium received is entered in that Fund’s accounting records as an asset and equivalent liability. The amount of the liability is subsequently marked-to-market to reflect the current value of the option written. When a written option expires, or if the Fund enters into a closing purchase transaction, it realizes a gain (or loss if the cost of a closing purchase transaction exceeds the premium received when the option was sold).
E. Upon entering into a futures contract, a Fund deposits and maintains as collateral such initial margin as required by the exchange on which the transaction is affected. Pursuant to the contract, the Fund agrees to receive from or pay to the broker an amount of cash equal to the daily fluctuation in value of the contract. Such receipts or payments are known as variation margin and are recorded by the Fund as unrealized gains or losses. When the contract is closed, the Fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed.
F. Swap agreements are marked-to-market daily and the change, if any, is recorded as unrealized gain or loss. Payments received or made as a result of an agreement or termination of the agreement are recognized as realized gains or losses.
G. Security transactions are recorded on the trade date for financial reporting purposes. Realized gains and losses from securities transactions are recorded using the identified cost basis. Proceeds from lawsuits related to investment holdings are recorded as realized gains in the respective Fund. Dividend income is recorded on the ex-dividend date, net of applicable taxes withheld by foreign countries. Taxable non-cash dividends are recorded as dividend income. Interest income, including amortization of premiums and accretion of discounts, is
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accrued on a daily basis. Interest income also includes paydown gains and losses on mortgage-backed and asset-backed securities and senior and subordinated loans. Amendment fees are earned as compensation for evaluating and accepting changes to the original loan agreement and are recognized when received. Dividend income from REITs is recorded based on the income included in the distributions received from the REIT investments using published REIT classifications, including some management estimates when actual amounts are not available. Distributions received in excess of this estimated amount are recorded as a reduction of the cost of investments or reclassified to capital gains. The actual amounts of income, return of capital, and capital gains are only determined by each REIT after its fiscal year-end, and may differ from the estimated amounts.
H. The Funds are required by the Internal Revenue Code to distribute substantially all income and capital gains to shareholders. Each year, the Funds determine whether to declare and pay actual dividends or whether to secure consent of its shareholders to report and deduct a consent dividend. A consent dividend is treated for tax purposes as a distribution to shareholders occurring on the last day of the Fund’s taxable year and a shareholder contribution to capital occurring on the same day. It is the Trust’s current practice to utilize the consent dividend procedures. The character of any distributions made from net investment income and net realized gains may differ from their ultimate characterization for income tax purposes.
I. Expenses directly attributable to a Fund are charged directly to the Fund. Other expenses common to various funds within the fund complex are generally allocated amongst such funds on the basis of average net assets.
Expenses directly attributable to a Fund are charged directly to the Fund. Other expenses common to various funds within the fund complex are generally allocated amongst such funds on the basis of average net assets.
J. Under the fee arrangement with the custodian, the Funds may earn credits based on overnight custody cash balances. These credits are utilized to reduce related custodial expenses. The custodian fees disclosed in the Statement of Operations are before the reduction in expense from the related earnings credits, if any. For the year ended December 31, 2014, there were no earnings credits received.
K. The Funds may leave cash overnight in their cash account with the custodian. Periodically, a Fund may have cash due to the custodian bank as an overdraft balance. A fee is incurred on this overdraft, calculated by multiplying the overdraft by a rate based on the federal funds rate.
L. The accounting records of the Fund are maintained in U.S. dollars. All assets and liabilities initially expressed in foreign currencies are converted into U.S. dollars at prevailing exchange rates. Purchases and sales of investment securities, dividend and interest income, and certain expenses are translated at the rates of exchange prevailing on the respective dates of such transactions. Changes in the relationship of these foreign currencies to the U.S. dollar can significantly affect the value of the investments and earnings of the Funds. Foreign investments may also subject the Funds to foreign government exchange restrictions, expropriation, taxation or other political, social or economic developments, all of which could affect the market and/or credit risk of the investments.
The Funds do not isolate that portion of the results of operations resulting from changes in the foreign exchange rates on investments from the fluctuations arising from changes in the market prices of securities held. Such fluctuations are included with the net realized and unrealized gain or loss on investments.
Reported net realized foreign exchange gains and losses arise from sales of foreign currencies and currency gains or losses realized between the trade and settlement dates on investment transactions. Net unrealized exchange gains and losses arise from changes in the fair values of assets and liabilities other than investments in securities at the fiscal period end, resulting from changes in exchange rates.
M. Under the Funds’ organizational documents, its Trustees and Officers are indemnified against certain liabilities arising out of the performance of their duties to the Trust. In addition, throughout the normal course of business, the Funds enter into contracts that contain a variety of representations and warranties which provide general indemnifications. The Funds’ maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Funds and/or their affiliates that have not yet occurred. However, based on experience, the Funds expect the risk of loss to be remote.
2. Financial Instruments
As part of their investment strategy, the Funds utilize a variety of derivative instruments. These investments involve, to varying degrees, elements of market risk and risks in excess of the amounts recognized in the Statements of Assets and Liabilities.
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An option on a security gives the purchaser of the option the right to sell, and the writer of the option the obligation to buy, the underlying security (put option) or the purchaser of the option the right to buy, and the writer of the option the obligation to sell, the underlying security (call option) at any time during the option period. The risk associated with purchasing options is limited to the premium originally paid. The risk in writing a call option is that a Fund may incur a loss if the market price of the underlying security increases and the option is exercised. The risk in writing a put option is that a Fund may incur a loss if the market price of the underlying security decreases and the option is exercised. In addition, there may be an imperfect correlation between the movement in prices of options and the underlying securities and a Fund may not be able to enter into a closing transaction because of an illiquid secondary market or, for over-the-counter options, because of the counterparty’s inability to perform.
A futures contract is an agreement to purchase (long) or sell (short) an agreed amount of securities or other instruments at a set price for delivery at a future date. There are significant risks associated with a Fund’s use of futures contracts, including (i) there may be an imperfect or no correlation between the changes in market value of the underlying asset and the prices of futures contracts; (ii) there may not be a liquid secondary market for a futures contract; (iii) trading restrictions or limitations may be imposed by an exchange; and (iv) government regulations may restrict trading in futures contracts. When investing in futures, there is minimal counterparty credit risk to the Fund because futures are exchange-traded and the exchange’s clearinghouse, as counterparty to all exchange-traded futures, guarantees against default. Cash deposits are shown as restricted cash on the Statement of Assets and Liabilities; securities held as collateral are noted on the Schedule of Investments.
A swap is an agreement that obligates two parties to exchange a series of cash flows at specified intervals based upon or calculated by reference to changes in specified prices or rates for a specified amount of an underlying asset. A Fund utilizing OTC swaps bears the risk of loss of the amount expected to be received under a swap agreement in the event of the default or bankruptcy of a swap agreement counterparty. Additionally, there is no guarantee that a Fund or an underlying fund could eliminate its exposure under an outstanding swap agreement by entering into an offsetting swap agreement with the same or another party.
A forward foreign currency exchange contract is an agreement between two parties to exchange two designated currencies at a specific time in the future. The contracts can be used to hedge or manage exposure to foreign currency risks with portfolio investments or to gain exposure to foreign currencies.
Certain Funds utilized derivative instruments to achieve leveraged exposure to their respective underlying indices. Since these Funds’ investment strategy involves consistently applied leverage, the value of the Fund’s shares will tend to increase or decrease more than the value of any increase or decrease in the underlying index. In addition, as investment in derivative instruments generally requires a small investment relative to the amount of investment exposure assumed, this creates an opportunity for increased net income but, at the same time, additional leverage risk. The Funds’ use of leverage, through borrowings or instruments such as derivatives, may cause the Funds to be more volatile and riskier than if they had not been leveraged.
In conjunction with the use of derivative instruments, the Funds are required to maintain collateral in various forms. The Funds use, where appropriate, depending on the financial instrument utilized and the broker involved, margin deposits at the broker, cash and/or securities segregated at the custodian bank, discount notes or the repurchase agreements allocated to each Fund.
The Trust has established counterparty credit guidelines and enters into transactions only with financial institutions of investment grade or better. The Trust monitors the counterparty credit risk.
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3. Fees and Other Transactions with Affiliates
Under the terms of an investment advisory contract, the Funds pay GI investment advisory fees calculated at the annualized rates below, based on the average daily net assets of the Funds:
| Fund | Management Fees (as a % of Net Assets) |
| Series A (StylePlus—Large Core Series) | 0.75% |
| Series B (Large Cap Value Series) | 0.65% |
| Series C (Money Market Series) | 0.50% |
| Series D (World Equity Income Series) | 0.70% |
| Series E (Total Return Bond Series)* | 0.50% |
| Series F (Floating Rate Strategies Series) | 0.65% |
| Series J (StylePlus—Mid Growth Series) | 0.75% |
| Series M (Macro Opportunities Series) | 0.89% |
| Series N (Managed Asset Allocation Series) | 0.65% |
| Series O (All Cap Value Series) | 0.70% |
| Series P (High Yield Series)* | 0.60% |
| Series Q (Small Cap Value Series) | 0.95% |
| Series V (Mid Cap Value Series) | 0.75% |
| Series X (StylePlus—Small Growth Series) | 0.85% |
| Series Y (StylePlus—Large Growth Series) | 0.75% |
| Series Z (Alpha Opportunity Series) | 1.25% |
| * | Prior to October 20, 2014, the management fees for Series E (Total Return Bond Series) and Series P (High Yield Series) were 0.75%. |
RFS is paid the following for providing transfer agent services to the Funds:
| Annual charge per account | $5.00 – $8.00 |
| Transaction fee | $0.60 – $1.10 |
Minimum annual charge per Fund† | $25,000 |
| Certain out-of-pocket charges | Varies |
† | Not subject to Funds during first twelve months of operations. |
RFS also acts as the administrative agent for the Funds, and as such performs administrative functions and the bookkeeping, accounting and pricing functions for each Fund. For these services, RFS receives the following:
| Fund | Fund Accounting/ Administrative Fees (as a % of Net Assets) |
| Series A (StylePlus—Large Core Series) | 0.095% |
| Series B (Large Cap Value Series) | 0.095% |
| Series C (Money Market Series) | 0.095% |
| Series D (World Equity Income Series) | greater of 0.15% or $60,000 |
| Series E (Total Return Bond Series) | 0.095% |
| Series F (Floating Rate Strategies Series) | 0.095% |
| Series J (StylePlus—Mid Growth Series) | 0.095% |
| Series M (Macro Opportunities Series) | 0.095% |
| Series N (Managed Asset Allocation Series) | greater of 0.15% or $60,000 |
| Series O (All Cap Value Series) | 0.095% |
| Series P (High Yield Series) | 0.095% |
| Series Q (Small Cap Value Series) | 0.095% |
| Series V (Mid Cap Value Series) | 0.095% |
| Series X (StylePlus—Small Growth Series) | 0.095% |
| Series Y (StylePlus—Large Growth Series) | 0.095% |
| Series Z (Alpha Opportunity Series) | 0.150% |
| Minimum annual charge per Fund | $25,000 |
| Certain out-of-pocket charges | Varies |
RFS engages external service providers to perform other necessary services for the Trust, such as audit and accounting related services, legal services, custody, printing and mailing, etc., on a pass-through basis. Such expenses are allocated to various Funds within the complex based on relative net assets.
Series E (Total Return Bond Series), Series F (Floating Rate Strategies Series), Series M (Macro Opportunities Series) and Series P (High Yield Series) have adopted a Distribution and Shareholder Services Plan pursuant to Rule 12b-1 under the 1940 Act that allows those Funds to pay distribution and shareholder services fees to GFD. The Funds will pay distribution and shareholder services fees to GFD at an annual rate not to exceed 0.25% of average daily net assets. GFD may, in turn, pay all or a portion of the proceeds from the distribution and shareholder services fees to insurance companies or their affiliates and qualified plan administrators (“intermediaries”) for services they provide on behalf of the Funds to current and prospective variable contract owners and qualified plan participants that invest in the Funds through the intermediaries.
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The investment advisory contracts for the following Funds provide that the total expenses be limited to a percentage of average net assets for the Funds, exclusive of brokerage costs, dividends on securities sold short, expenses of other investment companies in which a Fund invests, interest, taxes, litigation, indemnification and extraordinary expenses. The limits are listed below:
| Limit | Effective Date | Contract End Date | |
| Series C (Money Market Series) | 0.50% | 08/22/12 | 05/01/16 |
| Series E (Total Return Bond Series) | 0.81% | 11/30/12 | 05/01/16 |
| Series F (Floating Rate Strategies Series) | 1.15% | 04/22/13 | 05/01/16 |
| Series M (Macro Opportunities Series) | 1.45% | 04/22/13 | 05/01/16 |
| Series O (All Cap Value Series) | 1.00% | 11/30/12 | 05/01/16 |
| Series P (High Yield Series) | 1.07% | 10/20/14 | 05/01/17 |
| Series Z (Alpha Opportunity Series) | 2.35% | 11/30/12 | 05/01/16 |
GI is entitled to reimbursement by the Funds for fees waived or expenses reimbursed during any of the previous 36 months, beginning on the date of the expense limitation agreement, if on any day the estimated operating expenses are less than the indicated percentages. At December 31, 2014, the amount of fees waived or expenses reimbursed that are subject to recoupment are presented in the following table:
| Fund | Expires 2015 | Expires 2016 | Expires 2017 | Total | ||||||||||||
| Series C (Money Market Series) | $ | — | $ | 54,066 | $ | 179,834 | $ | 233,900 | ||||||||
| Series E (Total Return Bond Series) | 154,822 | 208,040 | 189,173 | 552,035 | ||||||||||||
| Series F (Floating Rate Strategies Series) | — | 48,535 | 36,089 | 84,624 | ||||||||||||
| Series M (Macro Opportunities Series) | — | 55,226 | 46,763 | 101,989 | ||||||||||||
| Series O (All Cap Value Series) | — | — | 3,380 | 3,380 | ||||||||||||
| Series P (High Yield Series) | — | — | 14,814 | 14,814 | ||||||||||||
| Series Z (Alpha Opportunity Series) | — | 98,175 | 59,680 | 157,855 | ||||||||||||
For the year ended December 31, 2014, no amounts were recouped by GI.
If a Fund invests in an affiliated fund, the investing Fund’s Adviser has agreed to waive fees at the investing fund level. Fee waivers will be calculated at the investing Fund level without regard to any expense cap in effect, if any, for the investing Fund. Fees waived under this arrangement are not subject to reimbursement to GI.
During the year ended December 31, 2014, the following funds waived advisory fees related to investments in affiliated Funds.
| Fund | Amount | |||
| Series A (StylePlus—Large Core Series) | $ | 46,924 | ||
| Series E (Total Return Bond Series) | 22,236 | |||
| Series J (StylePlus—Mid Growth Series) | 31,393 | |||
| Series M (Macro Opportunities Series) | 8,869 | |||
| Series X (StylePlus—Small Growth Series) | 8,096 | |||
| Series Y (StylePlus—Large Growth Series) | 7,343 | |||
| $ | 124,861 | |||
Certain trustees and officers of the Trust are also officers of GI, RFS and GFD.
At December 31, 2014, GI and its subsidiaries owned over twenty percent of the outstanding shares of the Funds, as follows:
| Fund | Percent of outstanding shares owned |
| Series A (StylePlus—Large Core Series) | 100% |
| Series B (Large Cap Value Series) | 100% |
| Series C (Money Market Series) | 98% |
| Series D (World Equity Income Series) | 99% |
| Series E (Total Return Bond Series) | 87% |
| Series F (Floating Rate Strategies Series) | 61% |
| Series J (StylePlus—Mid Growth Series) | 99% |
| Series M (Macro Opportunities Series) | 91% |
| Series N (Managed Asset Allocation Series) | 99% |
| Series O (All Cap Value Series) | 98% |
| Series P (High Yield Series) | 98% |
| Series Q (Small Cap Value Series) | 95% |
| Series V (Mid Cap Value Series) | 98% |
| Series X (StylePlus—Small Growth Series) | 98% |
| Series Y (StylePlus—Large Growth Series) | 96% |
| Series Z (Alpha Opportunity Series) | 100% |
4. Fair Value Measurement
In accordance with U.S. GAAP, fair value is defined as the price that the Funds would receive to sell an investment or pay to transfer a liability in an orderly transaction with an independent buyer in the principal market, or in the absence of a principal market, the most advantageous market for the investment or liability. U.S. GAAP establishes a three-tier fair value hierarchy based on the types of inputs used to value assets and liabilities and requires corresponding disclosure. The hierarchy and the corresponding inputs are summarized below:
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| Level 1 — | quoted prices in active markets for identical assets or liabilities. |
| Level 2 — | significant other observable inputs (for example quoted prices for securities that are similar based on characteristics such as interest rates, prepayment speeds, credit risk, etc.). |
| Level 3 — | significant unobservable inputs based on the best information available under the circumstances, to the extent observable inputs are not available, which may include assumptions. |
The types of inputs available depend on a variety of factors, such as the type of security and the characteristics of the markets in which it trades, if any. Fair valuation determinations that rely on fewer or no observable inputs require greater judgment. Accordingly, fair value determinations for Level 3 securities require the greatest amount of judgment.
The following table summarizes the inputs used to value the Funds’ investments at December 31, 2014:
| Level 1 Investments In Securities | Level 1 Other Financial Instruments* | Level 2 Investments In Securities | Level 2 Other Financial Instruments* | Level 3 Investments In Securities | Total | ||||||||||||||
| Assets | |||||||||||||||||||
| Series A (StylePlus—Large Core Series) | $ | 184,093,415 | $ | — | $ | 53,537,476 | $ | 654,255 | $ | — | $ | 238,285,146 | |||||||
| Series B (Large Cap Value Series) | 273,853,086 | — | — | — | — | 273,853,086 | |||||||||||||
| Series C (Money Market Series) | 27,956,605 | — | 43,055,110 | — | — | 71,011,715 | |||||||||||||
| Series D (World Equity Income Series) | 93,957,472 | — | 84,064,305 | — | — | 178,021,777 | |||||||||||||
| Series E (Total Return Bond Series) | 17,286,837 | — | 112,659,328 | — | 3,896,814 | 133,842,979 | |||||||||||||
| Series F (Floating Rate Strategies Series) | 928,575 | — | 43,369,453 | — | 798,535 | 45,096,563 | |||||||||||||
| Series J (StylePlus—Mid Growth Series) | 127,644,327 | — | 35,893,076 | 1,307,479 | — | 164,844,882 | |||||||||||||
| Series M (Macro Opportunities Series) | 9,610,579 | — | 23,023,583 | 550,621 | 203,790 | 33,388,573 | |||||||||||||
| Series N (Managed Asset Allocation Series) | 59,752,879 | 175,767 | — | 9,104 | — | 59,937,750 | |||||||||||||
| Series O (All Cap Value Series) | 146,447,088 | — | — | — | — | 146,447,088 | |||||||||||||
| Series P (High Yield Series) | 8,632,597 | — | 75,709,646 | 134,626 | 5,521,413 | 89,998,282 | |||||||||||||
| Series Q (Small Cap Value Series) | 118,018,218 | — | — | — | 1,022 | 118,019,240 | |||||||||||||
| Series V (Mid Cap Value Series) | 264,569,790 | — | — | — | 2,702 | 264,572,492 | |||||||||||||
| Series X (StylePlus—Small Growth Series) | 27,399,153 | 777 | 9,570,300 | 1,372,565 | — | 38,342,795 | |||||||||||||
| Series Y (StylePlus—Large Growth Series) | 27,913,692 | — | 8,747,611 | — | — | 36,661,303 | |||||||||||||
| Series Z (Alpha Opportunity Series) | 4,789,281 | 117,204 | 10,299,867 | 150,007 | — | 15,356,359 | |||||||||||||
| Liabilities | |||||||||||||||||||
| Series A (StylePlus—Large Core Series) | $ | — | $ | 8,532 | $ | — | $ | — | $ | — | $ | 8,532 | |||||||
| Series M (Macro Opportunities Series) | — | — | — | 182,360 | — | 182,360 | |||||||||||||
| Series N (Managed Asset Allocation Series) | — | 90,607 | — | 13,348 | — | 103,955 | |||||||||||||
| Series Y (StylePlus—Large Growth Series) | — | 10,365 | — | 13,543 | — | 23,908 | |||||||||||||
| * | Other financial instruments may include futures contracts, forward foreign currency exchange contracts and/or swaps, which are reported as unrealized gain/loss at period end. |
Independent pricing services are used to value a majority of the Funds’ investments. When values are not available from a pricing service, they may be computed by the Funds’ investment adviser or an affiliate. In any event, values may be determined using a variety of sources and techniques, including: market prices; broker quotes; and models which derive prices based on inputs such as prices of securities with comparable maturities and characteristics or based on inputs such as anticipated cash flows or collateral, spread over Treasuries, and other information and analysis. A significant portion of certain Funds’ assets and liabilities are categorized as Level 2 or Level 3, as indicated in this report.
Indicative quotes from broker-dealers, adjusted for fluctuations in criteria such as credit spreads and interest rates, may be also used to value the Funds’ assets and liabilities, i.e. prices provided by a broker-dealer or other market participant who has not committed to trade at that price. Although indicative quotes are typically received from established market participants, the Funds may not have the transparency to view the underlying inputs which support the market quotations. Significant changes in an indicative quote would generally result in significant changes in the fair value of the security.
| 162 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
NOTES TO FINANCIAL STATEMENTS (continued) |
Certain fixed income securities are valued by obtaining a monthly indicative quote from a broker-dealer, adjusted for fluctuations in criteria such as credit spreads and interest rates. The Funds’ fair valuation guidelines were recently revised to transition such monthly indicative quoted securities from Level 2 to Level 3.
The inputs or methodologies used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. The suitability of the techniques and sources employed to determine fair valuation are regularly monitored and subject to change.
The following is a summary of significant unobservable inputs used in the fair valuation of assets and liabilities categorized within Level 3 of the fair value hierarchy:
| Fund | Category and Subcategory | Ending Balance at 12/31/14 | Valuation Technique | Unobservable Inputs |
| Investments, at value | ||||
| Series E (Total Return Bond Series) | Corporate Bonds | $1,995,917 | Option Adjusted Spread off the month end broker mark over the 3 month LIBOR | Indicative Quote |
| Asset-Backed Securities | 978,900 | Option Adjusted Spread off the month end broker mark over the 3 month LIBOR | Indicative Quote | |
| Preferred Stocks | 666,000 | Option Adjusted Spread off the month end broker mark over the 3 month LIBOR | Indicative Quote | |
| Mortgage-Backed Securities | 255,997 | Option Adjusted Spread off the month end broker mark over the 3 month LIBOR | Indicative Quote | |
| Total | 3,896,814 | |||
| Series F (Floating Rate Strategies Series) | Senior Floating Rate Interests | 798,535 | Monthly Model Priced | Purchase Price |
| Series P (High Yield Series) | Senior Floating Rate Interests | 4,010,844 | Monthly Model Priced | Purchase Price |
| Corporate Bonds | 977,289 | Monthly Model Priced | Purchase Price | |
| Corporate Bonds | 533,280 | Option Adjusted Spread off the month end broker mark over the 3 month LIBOR | Indicative Quote | |
| Total | 5,521,413 |
Any remaining Level 3 securities held by the Funds, and excluded from the tables above, were not considered material to the Funds.
Transfers between investment levels may occur as the markets fluctuate and/or the availability of data used in the investment’s valuation changes. The Funds recognize transfers between the levels as of the beginning of the period. As of December 31, 2014, Series D (World Equity Income Series) had transfers between Level 1 and Level 2 due to utilizing international fair value pricing during the period. Series E (Total Return Bond Series) had securities with a total value of $724,700 transfer from Level 2 to Level 3 due to changes in the securities valuation method. Series P (High Yield Series) had securities with a total value of $1,403,505 transfer out of Level 3. There were no other securities that transferred between levels.
| THE GUGGENHEIM FUNDS ANNUAL REPORT | 163 |
NOTES TO FINANCIAL STATEMENTS (continued) |
Summary of Fair Value Level 3 Activity
Following is a reconciliation of Level 3 assets and liabilities for which significant unobservable inputs were used to determine fair value for the year ended December 31, 2014:
| LEVEL 3 – Fair value measurement using significant unobservable inputs |
Preferred Stocks | Asset-Backed Securities | Corporate Bonds | Mortgage-Backed Securities | Total | ||||||||||||||||
| Series E (Total Return Bond Series) | ||||||||||||||||||||
| Assets: | ||||||||||||||||||||
| Beginning Balance | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||
| Purchases | — | 980,825 | 1,909,700 | 231,699 | 3,122,224 | |||||||||||||||
| Sales, maturities and paydowns | — | — | (6,100 | ) | (2,335 | ) | (8,435 | ) | ||||||||||||
| Total change in unrealized gains or losses included in earnings | 39,810 | (1,925 | ) | (6,193 | ) | 26,633 | 58,325 | |||||||||||||
| Transfers into Level 3 | 626,190 | — | 98,510 | — | 724,700 | |||||||||||||||
| Ending Balance | $ | 666,000 | $ | 978,900 | $ | 1,995,917 | $ | 255,997 | $ | 3,896,814 | ||||||||||
| Senior Floating Rate Interests | Total | |||||||
| Series F (Floating Rate Strategies Series) | ||||||||
| Assets: | ||||||||
| Beginning Balance | $ | 148,500 | $ | 148,500 | ||||
| Purchases | 655,766 | 655,766 | ||||||
| Sales, maturities and paydowns | (8,292 | ) | (8,292 | ) | ||||
| Total change in unrealized gains or losses included in earnings | 2,561 | 2,561 | ||||||
| Ending Balance | $ | 798,535 | $ | 798,535 | ||||
Senior Floating Rate Interests | Common Stocks | Corporate Bonds | Warrants | Total | ||||||||||||||||
| Series P (High Yield Series) | ||||||||||||||||||||
| Assets: | ||||||||||||||||||||
| Beginning Balance | $ | 1,700,499 | $ | 54 | $ | — | $ | 5 | $ | 1,700,558 | ||||||||||
| Purchases | 4,026,103 | — | 1,502,609 | — | 5,528,712 | |||||||||||||||
| Sales, maturities and paydowns | (20,896 | ) | — | — | — | (20,896 | ) | |||||||||||||
| Total change in unrealized gains or losses included in earnings | (291,362 | ) | — | 7,906 | — | (283,456 | ) | |||||||||||||
| Transfers out of Level 3 | (1,403,500 | ) | — | — | (5 | ) | (1,403,505 | ) | ||||||||||||
| Ending Balance | $ | 4,010,844 | $ | 54 | $ | 1,510,515 | $ | — | $ | 5,521,413 | ||||||||||
Common Stocks | Total | |||||||
| Series Z ( Alpha Opportunity Series) | ||||||||
| Liabilities: | ||||||||
| Beginning Balance | $ | (7,786,654 | ) | $ | (7,786,654 | ) | ||
| Settlements | 7,786,654 | 7,786,654 | ||||||
| Ending Balance | $ | — | $ | — | ||||
| 164 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
NOTES TO FINANCIAL STATEMENTS (continued) |
5. Derivative Investment Holdings Categorized by Risk Exposure
U.S. GAAP requires disclosures to enable investors to better understand how and why the Funds use derivative instruments, how these derivative instruments are accounted for and their effects on the Funds’ financial positions and results of operations.
The following Funds utilized derivatives for the following purposes:
| Fund | Index Exposure | Income | Hedge | Duration | Speculation | Leverage | Liquidity |
| Series A (StylePlus—Large Core Series) | x | — | — | — | — | — | — |
| Series E (Total Return Bond Series) | — | — | x | x | — | — | — |
| Series J (StylePlus—Mid Growth Series) | x | — | — | — | — | x | — |
| Series M (Macro Opportunities Series) | x | — | x | x | — | — | — |
| Series N (Managed Asset Allocation Series) | x | — | — | — | x | — | — |
| Series O (All Cap Value Series) | — | x | — | — | — | — | x |
| Series P (High Yield Series) | — | — | x | — | — | — | — |
| Series Q (Small Cap Value Series) | — | x | — | — | — | — | x |
| Series V (Mid Cap Value Series) | — | x | — | — | — | — | x |
| Series X (StylePlus—Small Growth Series) | x | — | — | — | — | x | — |
| Series Y (StylePlus—Large Growth Series) | x | — | — | — | — | x | — |
| Series Z (Alpha Opportunity Series) | x | — | x | — | x | x | — |
The following table represents the notional amount of derivative instruments outstanding as an approximate percentage of the Funds’ net assets on a quarterly basis.
Approximate percentage of Fund’s Net Assets on a quarterly basis | ||
| Fund | Long | Short |
| Series A (StylePlus—Large Core Series) | 80% | — |
| Series E (Total Return Bond Series) | 10% | — |
| Series J (StylePlus—Mid Growth Series) | 80% | — |
| Series M (Macro Opportunities Series) | 15% | 10% |
| Series N (Managed Asset Allocation Series) | 50% | —* |
| Series P (High Yield Series) | 10% | — |
| Series X (StylePlus—Small Growth Series) | 75% | — |
| Series Y (StylePlus—Large Growth Series) | 80% | — |
| Series Z (Alpha Opportunity Series) | 65% | 15% |
| * | Less than 5%. |
The following is a summary of the location of derivative investments on the Funds’ Statements of Assets and Liabilities as of December 31, 2014:
| Derivative Investment Type | Asset Derivatives | Liability Derivatives |
| Equity/Currency/Interest Rate contracts | Variation margin | Variation margin |
| Unrealized appreciation on swap agreements | Unrealized depreciation on swap agreements | |
| Currency contracts | Unrealized appreciation on forward foreign currency exchange contracts | Unrealized depreciation on forward foreign currency exchange contracts |
| THE GUGGENHEIM FUNDS ANNUAL REPORT | 165 |
NOTES TO FINANCIAL STATEMENTS (continued) |
The following table sets forth the fair value of the Funds’ derivative investments categorized by primary risk exposure at December 31, 2014:
| Asset Derivative Investments Value | ||||||||||||||||||||||||||||||||
| Fund | Futures Equity Contracts* | Swaps Equity Contracts | Futures Currency Contracts* | Swaps Currency Contracts | Futures Interest Rate Contracts* | Swaps Interest Rate Contracts | Forward Foreign Currency Exchange Contracts | Total Value at December 31, 2014 | ||||||||||||||||||||||||
| Series A (StylePlus— Large Core Series) | $ | — | $ | 654,255 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 654,255 | ||||||||||||||||
| Series J (StylePlus— Mid Growth Series) | — | 1,307,479 | — | — | — | — | — | 1,307,479 | ||||||||||||||||||||||||
| Series M (Macro Opportunities Series) | — | 279,263 | — | 14,238 | — | 105,215 | 151,905 | 550,621 | ||||||||||||||||||||||||
| Series N (Managed Asset Allocation Series) | 140,747 | — | 14,389 | — | 29,735 | — | — | 184,871 | ||||||||||||||||||||||||
| Series P (High Yield Series) | — | — | — | — | — | — | 134,626 | 134,626 | ||||||||||||||||||||||||
| Series X (StylePlus— Small Growth Series) | 777 | 1,372,565 | — | — | — | — | — | 1,373,342 | ||||||||||||||||||||||||
| Series Z (Alpha Opportunity Series) | 117,204 | 150,007 | — | — | — | — | — | 267,211 | ||||||||||||||||||||||||
| Liability Derivative Investments Value | ||||||||||||||||||||||||||||||||
| Fund | Futures Equity Contracts* | Swaps Equity Contracts | Futures Currency Contracts* | Swaps Currency Contracts | Futures Interest Rate Contracts* | Swaps Interest Rate Contracts | Forward Foreign Currency Exchange Contracts | Total Value at December 31, 2014 | ||||||||||||||||||||||||
| Series A (StylePlus— Large Core Series) | $ | 8,532 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 8,532 | ||||||||||||||||
| Series M (Macro Opportunities Series) | — | 30,447 | — | — | — | 149,923 | 1,990 | 182,360 | ||||||||||||||||||||||||
| Series N (Managed Asset Allocation Series) | 97,485 | — | — | — | 6,470 | — | — | 103,955 | ||||||||||||||||||||||||
| Series Y (StylePlus— Large Growth Series) | 10,365 | 13,543 | — | — | — | — | — | 23,908 | ||||||||||||||||||||||||
| * | Includes cumulative appreciation (depreciation) of futures contracts as reported on the Schedules of Investments. Only current day’s variation margin is reported within the Statements of Assets and Liabilities. |
The following is a summary of the location of derivative investments on the Funds’ Statements of Operations for the year ended December 31, 2014:
| Derivative Investment Type | Location of Gain (Loss) on Derivatives |
| Currency contracts | Net realized gain (loss) on forward foreign currency exchange contracts |
| Net change in unrealized appreciation (depreciation) on forward foreign currency exchange contracts | |
| Equity/Currency/Interest Rate contracts | Net realized gain (loss) on futures contracts |
| Net change in unrealized appreciation (depreciation) on futures contracts | |
| Equity contracts | Net realized gain (loss) on options purchased |
| Net change in unrealized appreciation (depreciation) on options purchased | |
| Net realized gain (loss) on options written | |
| Net change in unrealized appreciation (depreciation) on options written | |
| Equity/Currency/Interest Rate contracts | Net realized gain (loss) on swap agreements |
| Net change in unrealized appreciation (depreciation) on swap agreements |
| 166 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
NOTES TO FINANCIAL STATEMENTS (continued) |
The following is a summary of the Funds’ realized gain (loss) and change in unrealized appreciation (depreciation) on derivative investments recognized on the Statements of Operations categorized by primary risk exposure for the year ended December 31, 2014:
| Realized Gain (Loss) on Derivative Investments Recognized on the Statements of Operations | ||||||||||||||||||||||||||||||||||||||||
| Fund | Futures Equity Contracts | Swaps Equity Contracts | Futures Currency Contracts | Futures Interest Rate Contracts | Swaps Interest Rate Contracts | Swaps Currency Contracts | Forward Foreign Currency Exchange Contracts | Options Written Equity Contracts | Options Purchased Equity Contracts | Total | ||||||||||||||||||||||||||||||
| Series A (StylePlus— Large Core Series) | $ | 236,171 | $ | 21,219,870 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 21,456,041 | ||||||||||||||||||||
| Series E (Total Return Bond Series) | — | — | — | — | 468,194 | — | 25,757 | 26,026 | (115,258 | ) | 404,719 | |||||||||||||||||||||||||||||
| Series J (StylePlus— Mid Growth Series) | 117,377 | 11,783,213 | — | — | — | — | — | — | — | 11,900,590 | ||||||||||||||||||||||||||||||
| Series M (Macro Opportunities Series) | — | 89,542 | — | — | (68,905 | ) | 67,190 | 86,278 | 12,142 | (110,558 | ) | 75,689 | ||||||||||||||||||||||||||||
| Series N (Managed Asset Allocation Series) | 971,841 | — | 36,047 | 372,346 | — | — | — | — | — | 1,380,234 | ||||||||||||||||||||||||||||||
| Series O (All Cap Value Series) | — | — | — | — | — | — | — | 29,068 | — | 29,068 | ||||||||||||||||||||||||||||||
| Series P (High Yield Series) | — | — | — | — | — | — | 861,526 | — | — | 861,526 | ||||||||||||||||||||||||||||||
| Series Q (Small Cap Value Series) | — | — | — | — | — | — | — | 160,273 | — | 160,273 | ||||||||||||||||||||||||||||||
| Series V (Mid Cap Value Series) | — | — | — | — | — | — | — | 227,815 | — | 227,815 | ||||||||||||||||||||||||||||||
| Series X (StylePlus— Small Growth Series) | 42,979 | 140,645 | — | — | — | — | — | — | — | 183,624 | ||||||||||||||||||||||||||||||
| Series Y (StylePlus— Large Growth Series) | 113,519 | 3,016,593 | — | — | — | — | — | — | — | 3,130,112 | ||||||||||||||||||||||||||||||
| Series Z (Alpha Opportunity Series) | 441,011 | 399,583 | — | — | — | — | — | — | — | 840,594 | ||||||||||||||||||||||||||||||
| Change in Unrealized Appreciation (Depreciation) on Derivative Investments Recognized on the Statements of Operations | ||||||||||||||||||||||||||||||||||||||||
| Fund | Futures Equity Contracts | Swaps Equity Contracts | Futures Currency Contracts | Futures Interest Rate Contracts | Swaps Interest Rate Contracts | Swaps Currency Contracts | Forward Foreign Currency Exchange Contracts | Options Written Equity Contracts | Options Purchased Equity Contracts | Total | ||||||||||||||||||||||||||||||
| Series A (StylePlus— Large Core Series) | $ | (8,532 | ) | $ | 654,255 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 645,723 | |||||||||||||||||||
| Series E (Total Return Bond Series) | — | — | — | — | (83,700 | ) | — | — | — | — | (83,700 | ) | ||||||||||||||||||||||||||||
| Series J (StylePlus— Mid Growth Series) | (29,603 | ) | 1,307,479 | — | — | — | — | — | — | — | 1,277,876 | |||||||||||||||||||||||||||||
| Series M (Macro Opportunities Series) | — | (124,749 | ) | — | — | (39,913 | ) | 291,923 | 149,915 | (2,825 | ) | 24,860 | 299,211 | |||||||||||||||||||||||||||
| Series N (Managed Asset Allocation Series) | (667,896 | ) | — | 14,773 | 189,782 | — | — | — | — | — | (463,341 | ) | ||||||||||||||||||||||||||||
| Series O (All Cap Value Series) | — | — | — | — | — | — | — | (26,058 | ) | — | (26,058 | ) | ||||||||||||||||||||||||||||
| Series P (High Yield Series) | — | — | — | — | — | — | 142,588 | — | — | 142,588 | ||||||||||||||||||||||||||||||
| Series Q (Small Cap Value Series) | — | — | — | — | — | — | — | (62,843 | ) | — | (62,843 | ) | ||||||||||||||||||||||||||||
| Series V (Mid Cap Value Series) | — | — | — | — | — | — | — | (140,750 | ) | — | (140,750 | ) | ||||||||||||||||||||||||||||
| Series X (StylePlus— Small Growth Series) | (14,984 | ) | 1,372,565 | — | — | — | — | — | — | — | 1,357,581 | |||||||||||||||||||||||||||||
| Series Y (StylePlus— Large Growth Series) | (30,260 | ) | (13,543 | ) | — | — | — | — | — | — | — | (43,803 | ) | |||||||||||||||||||||||||||
| Series Z (Alpha Opportunity Series) | 61,486 | 150,007 | — | — | — | — | — | — | — | 211,493 | ||||||||||||||||||||||||||||||
6. Offsetting
In the normal course of business, the Funds enter into transactions subject to enforceable master netting arrangements or other similar arrangements. Generally, the right to offset in those agreements allows the Funds to counteract the exposure to a specific counterparty with collateral received or delivered to that counterparty based on the terms of the arrangements. These arrangements provide for the right to liquidate upon the occurrence of an event of default, credit event upon merger or additional termination event.
In order to better define their contractual rights and to secure rights that will help the Funds mitigate their counterparty risk, the Funds may enter into an International Swaps and Derivatives Association, Inc. Master Agreement (“ISDA Master Agreement”) or similar agreement with their derivative contract counterparties. An ISDA Master Agreement is a bilateral agreement between a Fund and a counterparty that governs OTC derivatives, including foreign exchange contracts, and typically contains, among other things, collateral posting terms and netting provisions in the event of a default and/or termination event. The provisions of the ISDA Master Agreement typically permit a single net payment in the event of a default (close-out netting) or similar event, including the bankruptcy or insolvency of the counterparty.
| THE GUGGENHEIM FUNDS ANNUAL REPORT | 167 |
NOTES TO FINANCIAL STATEMENTS (continued) |
For derivatives traded under an ISDA Master Agreement, the collateral requirements are typically calculated by netting the mark to market amount for each transaction under such agreement and comparing that amount to the value of any collateral currently pledged by the Funds and the counterparty. For financial reporting purposes, cash collateral that has been pledged to cover obligations of the Funds and cash collateral received from the counterparty, if any, is reported separately on the Statement of Assets and Liabilities as segregated cash with broker/receivable for variation margin, or payable for swap settlement/variation margin. Generally, the amount of collateral due from or to a counterparty must exceed a minimum transfer amount threshold (e.g., $300,000) before a transfer is required to be made. To the extent amounts due to the Funds from their counterparties are not fully collateralized, contractually or otherwise, the Funds bear the risk of loss from counterparty nonperformance. The Funds attempt to mitigate counterparty risk by only entering into agreements with counterparties that they believe to be of good standing and by monitoring the financial stability of those counterparties.
For financial reporting purposes, the Funds do not offset derivative assets and derivative liabilities that are subject to netting arrangements in the Statements of Assets and Liabilities.
The following tables present derivative financial instruments and secured financing transactions that are subject to enforceable netting arrangements and offset in the Statements of Assets and Liabilities in conformity with U.S. GAAP.
Gross Amounts Not Offset in the Statements of Assets and Liabilities | |||||||||||||||||||||||||
| Fund | Instrument | Gross Amounts of Recognized Assets1 | Gross Amounts Offset In the Statements of Assets and Liabilities | Net Amount of Assets Presented on the Statements of Assets and Liabilities | Financial Instruments | Cash Collateral Received | Net Amount | ||||||||||||||||||
| Series A (StylePlus—Large Core Series) | Swap equity contracts | $ | 654,255 | $ | — | $ | 654,255 | $ | — | $ | — | $ | 654,255 | ||||||||||||
| Series J (StylePlus—Mid Growth Series) | Swap equity contracts | 1,307,479 | — | 1,307,479 | — | 1,307,479 | — | ||||||||||||||||||
| Series M (Macro Opportunities Series) | Swap equity contracts | 293,501 | — | 293,501 | 43,851 | — | 249,650 | ||||||||||||||||||
| Forward foreign currency exchange contracts | 151,905 | — | 151,905 | 1,990 | — | 149,915 | |||||||||||||||||||
| Series P (High Yield Series) | Forward foreign currency exchange contracts | 134,626 | — | 134,626 | — | — | 134,626 | ||||||||||||||||||
| Series X (StylePlus—Small Growth Series) | Swap equity contracts | 1,372,565 | — | 1,372,565 | — | 1,372,565 | — | ||||||||||||||||||
| Series Z (Alpha Opportunity Series) | Swap equity contracts | 150,007 | — | 150,007 | — | — | 150,007 | ||||||||||||||||||
Gross Amounts Not Offset in the Statements of Assets and Liabilities | |||||||||||||||||||||||||
| Fund | Instrument | Gross Amounts of Recognized Liabilities1 | Gross Amounts Offset In the Statements of Assets and Liabilities | Net Amount of Liabilities Presented on the Statements of Assets and Liabilities | Financial Instruments | Cash Collateral Pledged | Net Amount | ||||||||||||||||||
| Series M (Macro Opportunities Series) | Swap equity contracts | $ | 43,851 | $ | — | $ | 43,851 | $ | 43,851 | $ | — | $ | — | ||||||||||||
| Forward foreign currency exchange contracts | 1,990 | — | 1,990 | 1,990 | — | — | |||||||||||||||||||
| Series Y (StylePlus—Large Growth Series) | Swap equity contracts | 13,543 | — | 13,543 | — | — | 13,543 | ||||||||||||||||||
1 | Exchange-traded futures and centrally cleared swap agreements are excluded from these reported amounts. |
| 168 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
NOTES TO FINANCIAL STATEMENTS (continued) |
7. Federal Income Tax Information
The Funds intend to comply with the provisions of Subchapter M of the Internal Revenue Code applicable to regulated investment companies and will distribute substantially all taxable net investment income and capital gains sufficient to relieve the Funds from all, or substantially all, federal income, excise and state income taxes. Therefore, no provision for federal or state income tax is required.
Tax positions taken or expected to be taken in the course of preparing the Funds’ tax returns are evaluated to determine whether the tax positions are “more-likely-than-not” of being sustained by the applicable tax authority. Tax positions not deemed to meet the more-likely-than-not threshold would be recorded as a tax benefit or expense in the current year. Management has analyzed the Funds’ tax positions taken, or to be taken, on Federal income tax returns for all open tax years, and has concluded that no provision for income tax is required in the Funds’ financial statements. The Funds’ federal tax returns are subject to examination by the Internal Revenue Service for a period of three years after they are filed.
Tax basis capital losses in excess of capital gains are carried forward to offset future net capital gains. For the year ended December 31, 2014, the following capital loss carryforward amounts expired, were used, or were permanently lost due to loss limitation rules in Section 382 of the Internal Revenue Code:
| Fund | Amount | |||
| Series A (StylePlus—Large Core Series) | $ | 8,855,698 | ||
| Series B (Large Cap Value Series) | 10,999,919 | |||
| Series D (World Equity Income Series) | 9,642,392 | |||
| Series E (Total Return Bond Series) | 943,176 | |||
| Series J (StylePlus—Mid Growth Series) | 5,795,514 | |||
| Series M (Macro Opportunities Series) | 166,272 | |||
| Series N (Managed Asset Allocation Series) | 1,559,581 | |||
| Series O (All Cap Value Series) | 6,099,793 | |||
| Series X (StylePlus—Small Growth Series) | 1,455,499 | |||
| Series Y (StylePlus—Large Growth Series) | 1,598,274 | |||
| Series Z (Alpha Opportunity Series) | 780,736 | |||
During the year ended December 31, 2014, the Funds declared ordinary and long-term capital gain consent dividends, attributable for the year ended December 31, 2013, as shown below:
| Fund | Ordinary Income Consent Dividends | Long-Term Capital Gain Consent Dividends | Total Consent Dividends | |||||||||
| Series A (StylePlus—Large Core Series) | $ | 32,049,304 | $ | 29,186,762 | $ | 61,236,066 | ||||||
| Series B (Large Cap Value Series) | 2,824,543 | 18,148,077 | 20,972,620 | |||||||||
| Series C (Money Market Series) | — | — | — | |||||||||
| Series D (World Equity Income Series) | 5,046,941 | — | 5,046,941 | |||||||||
| Series E (Total Return Bond Series) | 5,070,905 | — | 5,070,905 | |||||||||
| Series F (Floating Rate Strategies Series) | 1,011,946 | — | 1,011,946 | |||||||||
| Series J (StylePlus—Mid Growth Series) | 30,315,420 | 5,649,301 | 35,964,721 | |||||||||
| Series M (Macro Opportunities Series) | 594,281 | — | 594,281 | |||||||||
| Series N (Managed Asset Allocation Series) | 120,031 | 961,653 | 1,081,684 | |||||||||
| Series O (All Cap Value Series) | 1,318,999 | 3,850,174 | 5,169,173 | |||||||||
| Series P (High Yield Series) | 10,064,590 | 142,710 | 10,207,300 | |||||||||
| Series Q (Small Cap Value Series) | 1,670,306 | 12,786,034 | 14,456,340 | |||||||||
| Series V (Mid Cap Value Series) | 2,030,694 | 29,302,295 | 31,332,989 | |||||||||
| Series X (StylePlus—Small Growth Series) | 8,922,281 | 3,253,287 | 12,175,568 | |||||||||
| Series Y (StylePlus—Large Growth Series) | 6,938,503 | 1,705,356 | 8,643,859 | |||||||||
| Series Z (Alpha Opportunity Series) | — | 228,520 | 228,520 | |||||||||
Note: For federal income tax purposes, short-term capital gain distributions are treated as ordinary income distributions.
| THE GUGGENHEIM FUNDS ANNUAL REPORT | 169 |
NOTES TO FINANCIAL STATEMENTS (continued) |
During 2014, the following funds paid out ordinary income dividends:
| Fund | Ordinary Income Dividends | |||
| Series D (World Equity Income Series) | $ | 7,072 | ||
| Series O (All Cap Value Series) | 1,285 | |||
| Series Q (Small Cap Value Series) | 12,486 | |||
| Series V (Mid Cap Value Series) | 7,631 | |||
The tax character of distributable earnings/(accumulated losses) at December 31, 2014, was as follows:
| Fund | Undistributed Ordinary Income | Undistributed Long-Term Capital Gain | Net Unrealized Appreciation/ Depreciation | Capital Loss Carryforward | ||||||||||||
| Series A (StylePlus—Large Core Series) | $ | 20,903,046 | $ | 2,317,549 | $ | 6,033,751 | $ | (26,360,320 | ) | |||||||
| Series B (Large Cap Value Series) | 2,928,951 | 37,933,711 | 55,245,127 | (24,375,653 | ) | |||||||||||
| Series C (Money Market Series) | — | — | 1,185 | (151 | ) | |||||||||||
| Series D (World Equity Income Series) | 5,491,407 | — | 1,796,596 | (52,943,811 | ) | |||||||||||
| Series E (Total Return Bond Series) | 2,550,797 | — | 293,315 | (7,580,096 | ) | |||||||||||
| Series F (Floating Rate Strategies Series) | 1,637,353 | 30,834 | (421,651 | ) | — | |||||||||||
| Series J (StylePlus—Mid Growth Series) | 12,182,648 | 950,337 | 3,434,504 | (20,103,786 | ) | |||||||||||
| Series M (Macro Opportunities Series) | 1,074,342 | — | 89,339 | — | ||||||||||||
| Series N (Managed Asset Allocation Series) | 538,173 | — | 7,464,582 | (87,638 | ) | |||||||||||
| Series O (All Cap Value Series) | 1,281,376 | 16,826,249 | 27,265,224 | (3,643,659 | ) | |||||||||||
| Series P (High Yield Series) | 8,426,705 | 1,226,164 | (3,474,804 | ) | — | |||||||||||
| Series Q (Small Cap Value Series) | 206,481 | 18,313,694 | 15,727,974 | — | ||||||||||||
| Series V (Mid Cap Value Series) | 2,217,910 | 37,390,224 | 38,647,687 | — | ||||||||||||
| Series X (StylePlus—Small Growth Series) | 304,934 | 109,624 | 1,844,534 | (4,366,496 | ) | |||||||||||
| Series Y (StylePlus—Large Growth Series) | 2,811,784 | 257,395 | 725,959 | (4,794,823 | ) | |||||||||||
| Series Z (Alpha Opportunity Series) | — | 4,910,631 | 48,751 | (2,342,209 | ) | |||||||||||
| 170 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
NOTES TO FINANCIAL STATEMENTS (continued) |
For Federal income tax purposes, capital loss carryforwards represent realized losses of the Funds that may be carried forward and applied against future capital gains. For taxable years beginning on or before December 22, 2010, such capital losses may be carried forward for a maximum of eight years. Under the RIC Modernization Act of 2010, the Funds are permitted to carry forward capital losses incurred in taxable years beginning after December 22, 2010, for an unlimited period. However, any losses incurred during those taxable years must be utilized prior to the losses incurred in pre-enactment taxable years. As a result of this ordering rule, pre-enactment capital loss carryforwards may be more likely to expire unused. Additionally, post-enactment capital losses that are carried forward will retain their character as either short-term or long-term capital losses rather than being considered all short-term as under previous law. As of December 31, 2014, capital loss carryforwards for the Funds were as follows:
| Expires in | Expires in | Expires in | Unlimited | Total Capital Loss | ||||||||||||||||||||
| Fund | 2016 | 2017 | 2018 | Short-Term | Long-Term | Carryforward | ||||||||||||||||||
| Series A (StylePlus—Large Core Series) | $ | — | $ | (26,360,320 | ) | $ | — | $ | — | $ | — | $ | (26,360,320 | )* | ||||||||||
| Series B (Large Cap Value Series) | — | (24,375,653 | ) | — | — | — | (24,375,653 | )* | ||||||||||||||||
| Series C (Money Market Series) | — | — | — | (14 | ) | (137 | ) | (151 | ) | |||||||||||||||
| Series D (World Equity Income Series) | (37,093,060 | ) | (15,850,751 | ) | — | — | — | (52,943,811 | )* | |||||||||||||||
| Series E (Total Return Bond Series) | — | (7,219,940 | ) | (360,156 | ) | — | — | (7,580,096 | )* | |||||||||||||||
| Series F (Floating Rate Strategies Series) | — | — | — | — | — | — | ||||||||||||||||||
| Series J (StylePlus—Mid Growth Series) | (8,088,868 | ) | (12,014,918 | ) | — | — | — | (20,103,786 | )* | |||||||||||||||
| Series M (Macro Opportunities Series) | — | — | — | — | — | — | ||||||||||||||||||
| Series N (Managed Asset Allocation Series) | — | (87,638 | ) | — | — | — | (87,638 | )* | ||||||||||||||||
| Series O (All Cap Value Series) | — | (3,643,659 | ) | — | — | — | (3,643,659 | )* | ||||||||||||||||
| Series P (High Yield Series) | — | — | — | — | — | — | ||||||||||||||||||
| Series Q (Small Cap Value Series) | — | — | — | — | — | — | ||||||||||||||||||
| Series V (Mid Cap Value Series) | — | — | — | — | — | — | ||||||||||||||||||
| Series X (StylePlus—Small Growth Series) | (2,910,997 | ) | (1,455,499 | ) | — | — | — | (4,366,496 | )* | |||||||||||||||
| Series Y (StylePlus—Large Growth Series) | (3,196,549 | ) | (1,598,274 | ) | — | — | — | (4,794,823 | )* | |||||||||||||||
| Series Z (Alpha Opportunity Series) | (2,342,209 | ) | — | — | — | — | (2,342,209 | )* | ||||||||||||||||
| * | In accordance with section 382 of the Internal Revenue Code, a portion of certain fund losses are subject to an annual limitation. Note, this annual limitation is generally applicable to all of the capital loss carryforwards shown with respect to each Fund. |
Net investment income and net realized gains (losses) may differ for financial statement and tax purposes because of temporary or permanent book/tax differences. These differences are primarily due to consent dividends, wash sales, paydown reclasses, utilization of earnings and profits on shareholder redemptions, foreign currency gains and losses, and the “mark-to-market” of certain passive foreign investment companies (PFICs) or Section 1256 contracts for tax purposes. To the extent these differences are permanent, reclassifications are made to the appropriate equity accounts that the differences arise. These reclassifications have no effect on net assets or NAV.
| THE GUGGENHEIM FUNDS ANNUAL REPORT | 171 |
NOTES TO FINANCIAL STATEMENTS (continued) |
On the Statements of Assets and Liabilities, the following adjustments were made for permanent book/tax differences:
| Fund | Paid In Capital | Undistributed Net Investment Income | Accumulated Net Realized Gain (Loss) | |||||||||
| Series A (StylePlus—Large Core Series) | $ | 61,236,066 | $ | (1,041,307 | ) | $ | (60,194,759 | ) | ||||
| Series B (Large Cap Value Series) | 20,972,620 | (2,824,543 | ) | (18,148,077 | ) | |||||||
| Series C (Money Market Series) | (297,933 | ) | 298,070 | (137 | ) | |||||||
| Series D (World Equity Income Series) | 5,046,940 | (5,187,790 | ) | 140,850 | ||||||||
| Series E (Total Return Bond Series) | 5,070,906 | (4,626,007 | ) | (444,899 | ) | |||||||
| Series F (Floating Rate Strategies Series) | 1,011,945 | (895,983 | ) | (115,962 | ) | |||||||
| Series J (StylePlus—Mid Growth Series) | 35,980,692 | (157,443 | ) | (35,823,249 | ) | |||||||
| Series M (Macro Opportunities Series) | 594,281 | (556,394 | ) | (37,887 | ) | |||||||
| Series N (Managed Asset Allocation Series) | 1,081,684 | (110,097 | ) | (971,587 | ) | |||||||
| Series O (All Cap Value Series) | 5,169,173 | (1,267,873 | ) | (3,901,300 | ) | |||||||
| Series P (High Yield Series) | 10,207,301 | (8,613,141 | ) | (1,594,160 | ) | |||||||
| Series Q (Small Cap Value Series) | 14,443,855 | (12,265 | ) | (14,431,590 | ) | |||||||
| Series V (Mid Cap Value Series) | 31,565,080 | (1,829,504 | ) | (29,735,576 | ) | |||||||
| Series X (StylePlus—Small Growth Series) | 12,175,765 | 39,438 | (12,215,203 | ) | ||||||||
| Series Y (StylePlus—Large Growth Series) | 8,643,858 | (107,476 | ) | (8,536,382 | ) | |||||||
| Series Z (Alpha Opportunity Series) | 96,691 | 262,302 | (358,993 | ) | ||||||||
At December 31, 2014, the cost of securities for Federal income tax purposes, the aggregate gross unrealized gain for all securities for which there was an excess of value over tax cost and the aggregate gross unrealized loss for all securities for which there was an excess of tax cost over value, were as follows:
| Fund | Tax Cost | Tax Unrealized Gain | Tax Unrealized Loss | Net Unrealized Gain (Loss) | ||||||||||||
| Series A (StylePlus—Large Core Series) | $ | 232,251,395 | $ | 6,534,724 | $ | (1,155,228 | ) | $ | 5,379,496 | |||||||
| Series B (Large Cap Value Series) | 218,607,958 | 61,809,910 | (6,564,783 | ) | 55,245,127 | |||||||||||
| Series C (Money Market Series) | 71,010,530 | 1,889 | (704 | ) | 1,185 | |||||||||||
| Series D (World Equity Income Series) | 176,199,125 | 10,344,537 | (8,521,885 | ) | 1,822,652 | |||||||||||
| Series E (Total Return Bond Series) | 133,549,664 | 2,512,409 | (2,219,094 | ) | 293,315 | |||||||||||
| Series F (Floating Rate Strategies Series) | 45,518,221 | 257,504 | (679,162 | ) | (421,658 | ) | ||||||||||
| Series J (StylePlus—Mid Growth Series) | 161,410,376 | 3,380,849 | (1,253,822 | ) | 2,127,027 | |||||||||||
| Series M (Macro Opportunities Series) | 32,965,076 | 324,048 | (451,172 | ) | (127,124 | ) | ||||||||||
| Series N (Managed Asset Allocation Series) | 52,291,677 | 7,767,214 | (306,012 | ) | 7,461,202 | |||||||||||
| Series O (All Cap Value Series) | �� | 119,181,864 | 31,740,115 | (4,474,891 | ) | 27,265,224 | ||||||||||
| Series P (High Yield Series) | 93,361,128 | 1,001,090 | (4,498,562 | ) | (3,497,472 | ) | ||||||||||
| Series Q (Small Cap Value Series) | 102,291,266 | 23,382,818 | (7,654,844 | ) | 15,727,974 | |||||||||||
| Series V (Mid Cap Value Series) | 225,924,805 | 51,789,353 | (13,141,666 | ) | 38,647,687 | |||||||||||
| Series X (StylePlus—Small Growth Series) | 36,497,484 | 979,010 | (507,041 | ) | 471,969 | |||||||||||
| Series Y (StylePlus—Large Growth Series) | 35,921,801 | 911,664 | (172,162 | ) | 739,502 | |||||||||||
| Series Z (Alpha Opportunity Series) | 15,190,404 | 5 | (101,261 | ) | (101,256 | ) | ||||||||||
| 172 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
NOTES TO FINANCIAL STATEMENTS (continued) |
8. Securities Transactions
For the year ended December 31, 2014, the cost of purchases and proceeds from sales of investment securities, excluding government securities, short-term investments and derivatives, were as follows:
| Fund | Purchases | Sales | ||||||
| Series A (StylePlus—Large Core Series) | $ | 229,118,794 | $ | 184,662,281 | ||||
| Series B (Large Cap Value Series) | 127,535,618 | 155,188,300 | ||||||
| Series C (Money Market Series) | — | 68,166 | ||||||
| Series D (World Equity Income Series) | 248,734,802 | 265,425,742 | ||||||
| Series E (Total Return Bond Series) | 99,967,360 | 64,157,996 | ||||||
| Series F (Floating Rate Strategies Series) | 44,453,508 | 42,911,508 | ||||||
| Series J (StylePlus—Mid Growth Series) | 174,828,033 | 142,012,927 | ||||||
| Series M (Macro Opportunities Series) | 25,692,646 | 20,065,868 | ||||||
| Series N (Managed Asset Allocation Series) | 23,475,419 | 7,197,895 | ||||||
| Series O (All Cap Value Series) | 71,983,441 | 87,305,569 | ||||||
| Series P (High Yield Series) | 110,698,959 | 145,436,886 | ||||||
| Series Q (Small Cap Value Series) | 62,988,040 | 80,988,808 | ||||||
| Series V (Mid Cap Value Series) | 150,747,847 | 190,089,426 | ||||||
| Series X (StylePlus—Small Growth Series) | 38,100,333 | 33,961,381 | ||||||
| Series Y (StylePlus—Large Growth Series) | 33,657,953 | 29,960,439 | ||||||
| Series Z (Alpha Opportunity Series) | — | 5,353,778 | ||||||
9. Options Written
Information as to options written by the Funds during the year ended December 31, 2014, and options outstanding at year end is provided below:
| Call Options Written | ||||||||||||||||||||||||||||||||||||||||
Series E (Total Return Bond Series) | Series M (Macro Opportunities Series) | Series O (All Cap Value Series) | Series Q (Small Cap Value Series) | Series V (Mid Cap Value Series) | ||||||||||||||||||||||||||||||||||||
| Fund | Number of contracts | Premium amount | Number of contracts | Premium amount | Number of contracts | Premium amount | Number of contracts | Premium amount | Number of contracts | Premium amount | ||||||||||||||||||||||||||||||
| Balance at December 31, 2013 | — | $ | — | 565 | $ | 4,520 | 86 | $ | 29,068 | 278 | $ | 78,923 | 621 | $ | 176,294 | |||||||||||||||||||||||||
| Options Written | 1,859 | 26,026 | 675 | 19,102 | — | — | 427 | 58,810 | — | — | ||||||||||||||||||||||||||||||
| Options terminated in closing purchase transactions | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||
| Options expired | (1,859 | ) | (26,026 | ) | (1,111 | ) | (12,142 | ) | (86 | ) | (29,068 | ) | (705 | ) | (137,733 | ) | (621 | ) | (176,294 | ) | ||||||||||||||||||||
| Options exercised | — | — | (129 | ) | (11,480 | ) | — | — | — | — | — | — | ||||||||||||||||||||||||||||
| Balance at December 31, 2014 | — | $ | — | — | $ | — | — | $ | — | — | $ | — | — | $ | — | |||||||||||||||||||||||||
| Put Options Written | ||||||||||||||||||||||||||||||||||||||||
Series E (Total Return Bond Series) | Series M (Macro Opportunities Series) | Series O (All Cap Value Series) | Series Q (Small Cap Value Series) | Series V (Mid Cap Value Series) | ||||||||||||||||||||||||||||||||||||
| Fund | Number of contracts | Premium amount | Number of contracts | Premium amount | Number of contracts | Premium amount | Number of contracts | Premium amount | Number of contracts | Premium amount | ||||||||||||||||||||||||||||||
| Balance at December 31, 2013 | — | $ | — | — | $ | — | — | $ | — | 168 | $ | 22,540 | 384 | $ | 51,521 | |||||||||||||||||||||||||
| Options Written | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||
| Options terminated in closing purchase transactions | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||
| Options expired | — | — | — | — | — | — | (168 | ) | (22,540 | ) | (384 | ) | (51,521 | ) | ||||||||||||||||||||||||||
| Options exercised | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||
| Balance at December 31, 2014 | — | $ | — | — | $ | — | — | $ | — | — | $ | — | — | $ | — | |||||||||||||||||||||||||
| THE GUGGENHEIM FUNDS ANNUAL REPORT | 173 |
NOTES TO FINANCIAL STATEMENTS (continued) |
10. Affiliated and/or Related Transactions
Investments representing 5% or more of the outstanding voting shares of a portfolio company of a fund, or control of or by, or common control under GI, result in that portfolio company being considered an affiliated company of such fund, as defined in the 1940 Act.
The Funds may invest in the Guggenheim Strategy Funds Trust consisting of Guggenheim Strategy Fund I, Guggenheim Strategy Fund II, Guggenheim Strategy Fund III and Guggenheim Variable Insurance Strategy Fund III (collectively, the “Cash Management Funds”), open-end management investment companies managed by GI. The Cash Management Funds, which launched on March 11, 2014, are offered as cash management options only to mutual funds, trusts, and other accounts managed by GI and/or its affiliates, and are not available to the public. The Cash Management Funds pay no investment management fees. The Cash Management Funds’ annual report on Form N-CSR dated September 30, 2014 is available publicly or upon request. This information is also available from the EDGAR database on the SEC’s website at http://www.sec.gov.
Transactions during the year ended December 31, 2014 in which the portfolio company is an “affiliated person” are as follows:
| Affiliated issuers by Fund | Value 12/31/13 | Additions | Reductions | Value 12/31/14 | Shares 12/31/14 | Investment Income | Realized Gain (Loss) | Capital Gain Distributions | ||||||||||||||||||||||||
| Series A (StylePlus—Large Core Series) | ||||||||||||||||||||||||||||||||
| Macro Opportunities Fund - Institutional Class | $ | 3,910,920 | $ | 150,984 | $ | (4,111,297 | ) | $ | — | — | $ | 133,605 | $ | (109,126 | ) | $ | — | |||||||||||||||
| Floating Rate Strategies Fund - Institutional Class | 4,029,967 | 134,346 | (4,166,148 | ) | — | — | 120,843 | (36,041 | ) | — | ||||||||||||||||||||||
| Guggenheim Strategy Fund I | — | 50,062,135 | (8,300,000 | ) | 41,551,695 | 1,672,774 | 310,636 | (29,633 | ) | — | ||||||||||||||||||||||
| Guggenheim Strategy Fund II | — | 18,099,619 | — | 18,045,743 | 726,187 | 98,919 | — | — | ||||||||||||||||||||||||
| Guggenheim Strategy Fund III | — | 12,023,072 | — | 12,011,805 | 483,567 | 23,268 | — | — | ||||||||||||||||||||||||
| Guggenheim Variable Insurance Strategy Fund III | — | 55,818,493 | — | 55,514,847 | 2,234,897 | 565,753 | — | — | ||||||||||||||||||||||||
| Guggenheim BulletShares 2017 High Yield Corporate Bond ETF | — | 4,407,910 | (4,420,546 | ) | — | — | 84,677 | 12,635 | — | |||||||||||||||||||||||
| Guggenheim BulletShares 2016 High Yield Corporate Bond ETF | 4,566,380 | — | (4,584,869 | ) | — | — | 85,903 | 58,956 | — | |||||||||||||||||||||||
| Guggenheim BulletShares 2015 High Yield Corporate Bond ETF | 4,520,464 | — | (4,508,548 | ) | — | — | 79,623 | (14,541 | ) | — | ||||||||||||||||||||||
| Guggenheim BulletShares 2014 High Yield Corporate Bond ETF | 4,509,897 | — | (4,488,360 | ) | — | — | — | (32,072 | ) | — | ||||||||||||||||||||||
| $ | 21,537,628 | $ | 140,696,559 | $ | (34,579,768 | ) | $ | 127,124,090 | $ | 1,503,227 | $ | (149,822 | ) | $ | — | |||||||||||||||||
| Series E (Total Return Bond Series) | ||||||||||||||||||||||||||||||||
| Total Return Bond Fund - Institutional Class | $ | — | $ | 12,180,481 | $ | — | $ | 12,126,325 | 449,456 | $ | 163,614 | $ | — | $ | 15,906 | |||||||||||||||||
| Limited Duration Fund - Institutional Class | — | 5,032,476 | (5,015,246 | ) | — | — | 32,817 | (17,230 | ) | — | ||||||||||||||||||||||
| Guggenheim Strategy Fund III | — | 3,002,374 | (2,997,962 | ) | — | — | 2,374 | (4,412 | ) | — | ||||||||||||||||||||||
| Guggenheim Variable Insurance Strategy Fund III | — | 3,003,786 | (2,999,470 | ) | — | — | 3,786 | (4,315 | ) | — | ||||||||||||||||||||||
| $ | — | $ | 23,219,117 | $ | (11,012,678 | ) | $ | 12,126,325 | $ | 202,591 | $ | (25,957 | ) | $ | 15,906 | |||||||||||||||||
| 174 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
NOTES TO FINANCIAL STATEMENTS (continued) |
| Affiliated issuers by Fund | Value 12/31/13 | Additions | Reductions | Value 12/31/14 | Shares 12/31/14 | Investment Income | Realized Gain (Loss) | Capital Gain Distributions | ||||||||||||||||||||||||
| Series J (StylePlus—Mid Growth Series) | ||||||||||||||||||||||||||||||||
| Macro Opportunities Fund - Institutional Class | $ | 2,648,534 | $ | 102,249 | $ | (2,784,233 | ) | $ | — | — | $ | 90,479 | $ | (73,902 | ) | $ | — | |||||||||||||||
| Floating Rate Strategies Fund - Institutional Class | 2,729,155 | 90,981 | (2,821,379 | ) | — | — | 81,836 | (24,408 | ) | — | ||||||||||||||||||||||
| Guggenheim Strategy Fund I | — | 38,532,330 | (11,500,000 | ) | 26,908,165 | 1,083,259 | 181,359 | (33,109 | ) | — | ||||||||||||||||||||||
| Guggenheim Strategy Fund II | — | 13,080,681 | — | 13,035,663 | 524,574 | 80,176 | — | — | ||||||||||||||||||||||||
| Guggenheim Strategy Fund III | — | 9,269,354 | — | 9,259,798 | 372,778 | 19,290 | — | — | ||||||||||||||||||||||||
| Guggenheim Variable Insurance Strategy Fund III | — | 40,920,278 | (3,000,000 | ) | 37,694,577 | 1,517,495 | 418,418 | (15,681 | ) | — | ||||||||||||||||||||||
| Guggenheim BulletShares 2017 High Yield Corporate Bond ETF | — | 2,808,506 | (2,816,556 | ) | — | — | 53,952 | 8,050 | — | |||||||||||||||||||||||
| Guggenheim BulletShares 2016 High Yield Corporate Bond ETF | 3,047,856 | — | (3,060,196 | ) | — | — | 57,336 | 38,915 | — | |||||||||||||||||||||||
| Guggenheim BulletShares 2015 High Yield Corporate Bond ETF | 3,023,462 | — | (3,015,492 | ) | — | — | 53,255 | (10,012 | ) | — | ||||||||||||||||||||||
| Guggenheim BulletShares 2014 High Yield Corporate Bond ETF | 3,016,377 | — | (3,001,972 | ) | — | — | — | (21,530 | ) | — | ||||||||||||||||||||||
| $ | 14,465,384 | $ | 104,804,379 | $ | (31,999,828 | ) | $ | 86,898,203 | $ | 1,036,101 | $ | (131,677 | ) | $ | — | |||||||||||||||||
| Series M (Macro Opportunities Series) | ||||||||||||||||||||||||||||||||
| Macro Opportunities Fund - Institutional Class | $ | — | $ | 2,525,489 | $ | (1,001,312 | ) | $ | 1,511,390 | 56,269 | $ | 25,392 | $ | (1,837 | ) | $ | — | |||||||||||||||
| Limited Duration Fund - Institutional Class | — | 6,530,866 | (1,004,372 | ) | 5,512,035 | 222,170 | 29,619 | 400 | 854 | |||||||||||||||||||||||
| $ | — | $ | 9,056,355 | $ | (2,005,684 | ) | $ | 7,023,425 | $ | 55,011 | $ | (1,437 | ) | $ | 854 | |||||||||||||||||
| Series N (Managed Asset Allocation Series) | ||||||||||||||||||||||||||||||||
| Guggenheim Strategy Fund I | $ | — | $ | 2,499,037 | $ | (1,080,000 | ) | $ | 1,407,023 | 56,643 | $ | 18,986 | $ | (4,700 | ) | $ | — | |||||||||||||||
| Guggenheim Strategy Fund II | — | 3,129,853 | — | 3,113,649 | 125,298 | 29,732 | — | — | ||||||||||||||||||||||||
| Guggenheim Strategy Fund III | — | 1,128,970 | — | 1,124,222 | 45,259 | 8,914 | — | — | ||||||||||||||||||||||||
| Guggenheim Variable Insurance Strategy Fund III | — | 14,405,676 | (1,850,000 | ) | 12,480,958 | 502,454 | 145,060 | (4,777 | ) | — | ||||||||||||||||||||||
| $ | — | $ | 21,163,536 | $ | (2,930,000 | ) | $ | 18,125,852 | $ | 202,692 | $ | (9,477 | ) | $ | — | |||||||||||||||||
| Series X (StylePlus —Small Growth Series) | ||||||||||||||||||||||||||||||||
| Macro Opportunities Fund - Institutional Class | $ | 717,827 | $ | 27,712 | $ | (754,605 | ) | $ | — | — | $ | 24,522 | $ | (20,030 | ) | $ | — | |||||||||||||||
| Floating Rate Strategies Fund - Institutional Class | 739,678 | 24,659 | (764,673 | ) | — | — | 22,179 | (6,615 | ) | — | ||||||||||||||||||||||
| Guggenheim Strategy Fund I | — | 9,888,108 | (4,000,000 | ) | 5,862,616 | 236,015 | 37,897 | (11,058 | ) | — | ||||||||||||||||||||||
| Guggenheim Strategy Fund II | — | 2,710,424 | — | 2,704,956 | 108,851 | 10,319 | — | — | ||||||||||||||||||||||||
| Guggenheim Strategy Fund III | — | 700,953 | — | 700,390 | 28,196 | 988 | — | — | ||||||||||||||||||||||||
| Guggenheim Variable Insurance Strategy Fund III | — | 8,583,877 | — | 8,537,623 | 343,705 | 83,456 | — | — | ||||||||||||||||||||||||
| Guggenheim BulletShares 2017 High Yield Corporate Bond ETF | — | 710,980 | (713,018 | ) | — | — | 13,658 | 2,038 | — | |||||||||||||||||||||||
| Guggenheim BulletShares 2016 High Yield Corporate Bond ETF | 713,328 | — | (716,216 | ) | — | — | 13,419 | 8,661 | — | |||||||||||||||||||||||
| Guggenheim BulletShares 2015 High Yield Corporate Bond ETF | 704,314 | — | (702,457 | ) | — | — | 12,406 | (2,639 | ) | — | ||||||||||||||||||||||
| Guggenheim BulletShares 2014 High Yield Corporate Bond ETF | 701,421 | — | (698,071 | ) | — | — | — | (5,059 | ) | — | ||||||||||||||||||||||
| $ | 3,576,568 | $ | 22,646,713 | $ | (8,349,040 | ) | $ | 17,805,585 | $ | 218,844 | $ | (34,702 | ) | $ | — | |||||||||||||||||
| THE GUGGENHEIM FUNDS ANNUAL REPORT | 175 |
NOTES TO FINANCIAL STATEMENTS (continued) |
| Affiliated issuers by Fund | Value 12/31/13 | Additions | Reductions | Value 12/31/14 | Shares 12/31/14 | Investment Income | Realized Gain (Loss) | Capital Gain Distributions | ||||||||||||||||||||||||
| Series Y (StylePlus—Large Growth Series) | ||||||||||||||||||||||||||||||||
| Macro Opportunities Fund - Institutional Class | $ | 668,322 | $ | 25,801 | $ | (702,563 | ) | $ | ��� | — | $ | 22,831 | $ | (18,648 | ) | $ | — | |||||||||||||||
| Floating Rate Strategies Fund - Institutional Class | 688,665 | 22,958 | (711,937 | ) | — | — | 20,651 | (6,159 | ) | — | ||||||||||||||||||||||
| Guggenheim Strategy Fund I | — | 6,939,284 | (900,000 | ) | 6,012,202 | 242,037 | 39,067 | (2,046 | ) | — | ||||||||||||||||||||||
| Guggenheim Strategy Fund II | — | 3,011,610 | — | 3,005,980 | 120,965 | 11,493 | — | — | ||||||||||||||||||||||||
| Guggenheim Strategy Fund III | — | 1,657,243 | — | 1,653,440 | 66,564 | 7,260 | — | — | ||||||||||||||||||||||||
| Guggenheim Variable Insurance Strategy Fund III | — | 8,076,406 | — | 8,034,473 | 323,449 | 76,009 | — | — | ||||||||||||||||||||||||
| Guggenheim BulletShares 2017 High Yield Corporate Bond ETF | — | 299,647 | (300,506 | ) | — | — | 5,756 | 859 | — | |||||||||||||||||||||||
| Guggenheim BulletShares 2016 High Yield Corporate Bond ETF | 780,878 | — | (784,040 | ) | — | — | 14,690 | 8,828 | — | |||||||||||||||||||||||
| Guggenheim BulletShares 2015 High Yield Corporate Bond ETF | 771,264 | — | (769,231 | ) | — | — | 13,585 | (3,329 | ) | — | ||||||||||||||||||||||
| Guggenheim BulletShares 2014 High Yield Corporate Bond ETF | 776,097 | — | (772,391 | ) | — | — | — | (5,734 | ) | — | ||||||||||||||||||||||
| $ | 3,685,226 | $ | 20,032,949 | $ | (4,940,668 | ) | $ | 18,706,095 | $ | 211,342 | $ | (26,229 | ) | $ | — | |||||||||||||||||
11. Loan Commitments
Pursuant to the terms of certain loan agreements, certain Funds held unfunded loan commitments as of December 31, 2014. The Funds are obligated to fund these loan commitments at the borrower’s discretion.
The unfunded loan commitments as of December 31, 2014, were as follows:
| Borrowers by Fund | Maturity Date | Amount | |||
| Series F (Floating Rate Strategies Series) | |||||
| Eyemart Express | 02/15/15 | $ | 500,000 | ||
| Internet Brands | 07/08/21 | 32,549 | |||
| WR Grace & Co. | 02/03/21 | 20,776 | |||
| $ | 553,325 | ||||
| Series P (High Yield Series) | |||||
| Eyemart Express | 02/15/15 | $ | 1,200,000 | ||
| Signode Industrial Group | 05/01/19 | 1,200,000 | |||
| McGraw-Hill Global Education Holdings LLC | 03/22/18 | 1,000,000 | |||
| Acosta, Inc. | 09/26/19 | 1,000,000 | |||
| Advantage Sales & Marketing, Inc. | 07/21/19 | 900,000 | |||
| BBB Industries, LLC | 10/17/19 | 775,000 | |||
| Signode Industrial Group US, Inc. | 05/01/19 | 400,000 | |||
| Intertrust Group | 02/15/19 | 350,000 | |||
| $ | 6,825,000 | ||||
12. Line of Credit
The Trust secured a committed $275,000,000 line of credit from Citibank, N.A. with no set termination date for all the Funds excluding Series C (Money Market Series) and Series Z (Alpha Opportunity Series). This line of credit is reserved for emergency or temporary purposes. Fees related to borrowings, if any, vary under this arrangement between the greater of LIBOR and the Fed Funds rate, plus 1.25%. The Funds did not have any borrowings under this agreement as of or for the year ended December 31, 2014.
| 176 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
NOTES TO FINANCIAL STATEMENTS (continued) |
13. Other Liabilities
Series A (StylePlus—Large Core Series) and Series V (Mid Cap Value Series) each wrote put option contracts through Lehman Brothers, Inc. (“Lehman”) that were exercised prior to the option contracts expiration and prior to the bankruptcy filing by Lehman, during September 2008. However, these transactions have not settled and the securities have not been delivered to the Funds as of December 31, 2014.
Although the ultimate resolution of these transactions is uncertain, the Funds have recorded a liability on their respective books equal to the difference between the strike price on the put options and the market prices of the underlying security on the exercise date. The amount of liability recorded by the Funds as of December 31, 2014 was $18,615 for Series A (StylePlus—Large Core Series) and $205,716 for Series V (Mid Cap Value Series).
14. Reverse Repurchase Agreements
Each of the Funds may enter into reverse repurchase agreements. Under a reverse repurchase agreement, a Fund sells securities and agrees to repurchase them at a particular price at a future date. In the event the buyer of securities under a reverse repurchase agreement files for bankruptcy or becomes insolvent, such buyer or its trustee or receiver may receive an extension of time to determine whether to enforce the Fund’s obligation to repurchase the securities, and the Fund’s use of the proceeds of the reverse repurchase agreement may effectively be restricted pending such decision.
For the year ended December 31, 2014, the following Funds entered into reverse repurchase agreements:
Number of Days Outstanding | Balance at December 31, 2014 | Average Balance Outstanding | Average Interest Rate | |||||||||||||
| Series E (Total Return Bond Series) | 365 | $ | 6,896,743 | $ | 6,450,636 | 0.64 | % | |||||||||
| Series M (Macro Opportunities Series) | 365 | 199,668 | 1,697,020 | 0.74 | % | |||||||||||
| Series P (High Yield Series) | 365 | 12,540,862 | 14,501,875 | 0.72 | % | |||||||||||
15. Restricted Securities
The securities below are considered illiquid and restricted under guidelines established by the Board of Trustees:
| Fund | Restricted Securities | Acquisition Date | Cost | Value | |
| Series E (Total Return Bond Series) | LSTAR Securities Investment Trust 2014-1 | ||||
| 3.26% due 09/01/21 | 09/25/14 | $1,948,781 | $1,950,039 | ||
| Cadence Bank North America | |||||
| 6.25% due 06/28/29 | 06/06/14 | 150,000 | 152,250 | ||
| Cadence Financial Corp. | |||||
| 4.88% due 06/28/19 | 06/06/14 | 100,000 | 100,500 | ||
| 2,198,781 | 2,202,789 | ||||
| Series M (Macro Opportunities Series) | Cadence Financial Corp. | ||||
| 4.88% due 06/28/19 | 06/06/14 | 100,000 | 100,500 | ||
| Series P (High Yield Series) | Pacific Premier Bancorp, Inc. | ||||
| 5.75% due 09/03/24 | 08/25/14 | 1,250,000 | 1,275,000 | ||
| Travelport, LLC | 04/15/13 | 960,663 | 849,859 | ||
| Odebrecht Off shore Drilling Finance Ltd. | |||||
| 6.63% due 10/01/22 | 02/20/14 | 630,685 | 559,876 | ||
| IronGate Energy Services LLC | |||||
| 11.00% due 07/01/18 | 07/10/13 | 146,299 | 103,850 | ||
| 2,987,647 | 2,788,585 |
| THE GUGGENHEIM FUNDS ANNUAL REPORT | 177 |
NOTES TO FINANCIAL STATEMENTS (continued) |
16. Series Z
As noted in the Fund’s prior shareholder report, the Fund resolved certain outstanding short sale transactions with Lehman Brothers International Europe (“LBIE”) and its administrator in June 2014.
Effective January 28, 2015, the Fund, which had not accepted subscriptions since October 3, 2008, is once again accepting subscriptions for shares from new and existing shareholders.
17. Subsequent Event
Effective January 28, 2015, significant changes to Series Z’s (Alpha Opportunity Series) (the “Fund”) principal investment strategies and portfolio managers were made. In connection with these changes, the Fund also added a second benchmark, the Morningstar Long/Short Equity Category Average. Please note that the performance track record prior to January 28, 2015 related only to the Fund’s former investments, which were materially different from those currently pursued and thus is not indicative of future performance. In addition, the Fund’s Fund Accounting/Administrative Fees were reduced from 0.15% to 0.095% (as a % of Net Assets). For more information, please refer to the Fund’s prospectus, which can be obtained at guggenheiminvestments.com or by calling 800.820.0888.
18. Legal Proceedings
Tribune Company
SBL Fund has been named as a defendant in the case entitled Marc S. Kirscher, as Litigation Trustee for the Tribune Litigation Trust v. FitzSimons, No. 12-2652 (S.D.N.Y.) (formerly Official Committee of Unsecured Creditors of Tribune Co. v. FitzSimons, Adv. Pro. No. 10-54010 (Bankr. D. Del.)) (the “FitzSimons” action), as a result of the ownership of shares in the Tribune Company (“Tribune”) in 2007 by certain series of the SBL Fund when Tribune effected a leveraged buyout transaction (“LBO”) by which Tribune converted to a privately-held company. The plaintiff has alleged that, in connection with the LBO, insiders and shareholders were paid for their Tribune stock using financing that the insiders knew would, and ultimately did, leave the Tribune insolvent. The plaintiff has asserted claims against certain insiders, shareholders, professional advisers, and others involved in the LBO, and is attempting to obtain from these individuals and entities the proceeds paid out in connection with the LBO.
SBL Fund also has been named as a defendant in one or more of a group of lawsuits filed by a group of Tribune creditors that allege state law constructive fraudulent conveyance claims against former Tribune shareholders (the “SLCFC actions”).
The FitzSimons action and the SLCFC actions have been consolidated with the majority of the other Tribune LBO-related lawsuits in a multidistrict litigation proceeding captioned In re Tribune Company Fraudulent Conveyance Litig., No. 11-md-2696 (S.D.N.Y.) (the “MDL Proceeding”).
On September 23, 2013, the District Court granted the defendants’ omnibus motion to dismiss the SLCFC actions, on the basis that the creditors lacked standing. On September 30, 2013, the creditors filed a notice of appeal of the September 23 order. On October 28, 2013, the defendants filed a joint notice of cross-appeal of that same order. The SLCFC appeals have been fully briefed, and oral argument took place on November 5, 2014. The Court has not yet issued a decision on the appeals.
On May 23, 2014, the defendants filed motions to dismiss the FitzSimons action, including a global motion to dismiss Count I, which is the claim brought against former Tribune shareholders for intentional fraudulent conveyance under U.S. federal law. The Court has not yet issued a decision on any of these motions.
None of these lawsuits allege any wrongdoing on the part of Guggenheim Variable Funds Trust f/k/a SBL Fund. The following series of Guggenheim Variable Funds Trust held shares of Tribune and tendered these shares as part of Tribune’s LBO: Series A (StylePlus—Large Core Series) f/k/a Series H (Enhanced Index Series), Series N (Managed Asset Allocation Series) and Series O (All Cap Value Series) (the “Funds”). The value of the proceeds received by the foregoing Funds was $158,950, $51,000 and $3,774,000, respectively. At this stage of the proceedings, Guggenheim Variable Funds Trust is not able to make a reliable predication as to the outcome of these lawsuits or the effect, if any, on a Fund’s net asset value.
| 178 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
NOTES TO FINANCIAL STATEMENTS (concluded) |
Lyondell Chemical Company
SBL Fund may be a putative member of the proposed defendant class in Weisfelner, as Trustee of the LB Creditor Trust, v. Reichman (In re Lyondell Chemical Co.), Adversary Proceeding No. 12-1570 (Bankr. S.D.N.Y.) (the “Reichman action”).
Similar to the claims made in the Tribune matter, the Weisfelner complaint seeks to have set aside and recovered as fraudulent transfers from former Lyondell Chemical Company (“Lyondell”) shareholders the consideration paid to them pursuant to the cash out merger of Lyondell shareholders in connection with the combination of Lyondell and Basell AF in 2007. Lyondell filed for bankruptcy in 2008.
This lawsuit initially was filed in New York Supreme Court, Case No. 653522/2011, on December 19, 2011. On April 25, 2012, it was removed to the United States District Court for the Southern District of New York, Case No. 12-3273, and on April 26, 2012, it was referred to the United States Bankruptcy Court for the Southern District of New York.
On April 7, 2014, the plaintiff filed an Amended Complaint. In the related action entitled Weisfelner, as Trustee of the LB Litigation Trust v. A. Holmes & H. Holmes TTEE (In re Lyondell Co.), Adversary Proceeding No. 10-5525 (Bankr. S.D.N.Y.) (the “Litigation Trust action”), the plaintiff also filed a Second Amended Complaint that alleges a claim against the former Lyondell shareholders under federal law for intentional fraudulent transfer.
On May 8, 2014, the plaintiff in the Litigation Trust action filed a motion to certify a defendant class generally comprised of all former Lyondell shareholders that received proceeds in exchange for their shares in the 2007 merger transaction.
On July 30, 2014, the defendants filed a motion to dismiss all of the Lyondell lawsuits. The Court held an oral argument on the motions to dismiss and on the motion for class certification on January 14, and January 15, 2015. Discovery shall commence in the near future.
This lawsuit does not allege any wrongdoing on the part of Guggenheim Variable Funds Trust f/k/a SBL Fund. The following series of Guggenheim Variable Funds Trust received cash proceeds from the cash out merger in the following amounts: Series N (Managed Asset Allocation Series) - $28,800. At this stage of the proceedings, Guggenheim Variable Funds Trust is not able to make a reliable predication as to the outcome of this lawsuit or the effect, if any, on a Fund’s net asset value.
| THE GUGGENHEIM FUNDS ANNUAL REPORT | 179 |
| REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM |
The Board of Trustees and Shareholders of Guggenheim Variable Funds Trust:
We have audited the accompanying statements of assets and liabilities, including the schedules of investments, of Series A (StylePlus—Large Core Series), Series B (Large Cap Value Series), Series C (Money Market Series), Series D (World Equity Income Series), Series E (Total Return Bond Series), Series F (Floating Rate Strategies Series), Series J (StylePlus—Mid Growth Series), Series M (Macro Opportunities Series), Series N (Managed Asset Allocation Series), Series O (All Cap Value Series), Series P (High Yield Series), Series Q (Small Cap Value Series), Series V (Mid Cap Value Series), Series X (StylePlus—Small Growth Series), Series Y (StylePlus—Large Growth Series), and Series Z (Alpha Opportunity Series) (sixteen of the series constituting the Guggenheim Variable Funds Trust) (the “Funds”) as of December 31, 2014, and the related statements of operations and cash flows (as applicable) for the year then ended, and the statements of changes in net assets and the financial highlights for each of the years or periods indicated therein. These financial statements and financial highlights are the responsibility of the Funds’ management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits 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 and financial highlights are free of material misstatement. We were not engaged to perform an audit of the Funds’ internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Funds’ internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of December 31, 2014, by correspondence with the custodian, transfer agents, agent banks and brokers or by other appropriate auditing procedures where replies from agent banks or brokers were not received. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the above listed Funds (sixteen of the series constituting the Guggenheim Variable Funds Trust) at December 31, 2014, the results of their operations and their cash flows (as applicable) for the year then ended, and the changes in their net assets and their financial highlights for each of the years or periods indicated therein, in conformity with U.S. generally accepted accounting principles.
McLean, Virginia
February 26, 2015
| 180 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
OTHER INFORMATION (Unaudited) |
Tax Information
This information is being provided as required by the Internal Revenue Code. Amounts shown may differ from those elsewhere in the report because of differences in tax and financial reporting practice.
Of the ordinary income distributions paid during the year, the following funds had the corresponding percentages qualify for the dividends received deduction for corporations:
| Fund | % Qualifying |
| Series D (World Equity Income Series) | 19.79% |
| Series O (All Cap Value Series) | 100.00% |
| Series Q (Small Cap Value Series) | 56.23% |
| Series V (Mid Cap Value Series) | 100.00% |
Proxy Voting Information
A description of the policies and procedures that the Trust uses to determine how to vote proxies relating to securities held in the Funds’ portfolios is available, without charge and upon request, by calling 800.820.0888. This information is also available from the EDGAR database on the SEC’s website at http://www.sec.gov.
Information regarding how the Funds voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available without charge, upon request, by calling 800.820.0888. This information is also available from the EDGAR database on the SEC’s website at http://www.sec.gov.
Quarterly Portfolio Schedules Information
The Trust files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q; which are available on the SEC’s website at http://www.sec.gov. The Funds’ Forms N-Q may be reviewed and copied at the SEC’s Public Reference Room in Washington, DC, and that information on the operation of the Public Reference Room may be obtained by calling 800-SEC-0330. Copies of the portfolio holdings are also available to shareholders, without charge and upon request, by calling 800.820.0888.
Distributor Change
Effective March 3, 2014, Guggenheim Distributors, LLC (“GD”), the distributor for shares of the Funds was consolidated into and with Guggenheim Funds Distributors, LLC (“GFD”). Following the consolidation, GFD serves as the Funds’ distributor.
GD and GFD are both indirect, wholly-owned subsidiaries of Guggenheim Capital, LLC and, therefore, the consolidation will not result in a change of actual control of the Funds’ distributor. The primary goal of the consolidation is to achieve greater operational efficiencies and allow all of the Guggenheim funds, including funds that are not series of the Trusts, to be distributed by a single distributor.
The consolidation is not expected to affect the day-to-day management of the Funds or result in any material changes to the distribution of the Funds, including any changes to the distribution fees paid by the Funds.
Guggenheim Variable Funds Trust
Effective April 30, 2014, the Series, which were series of SBL Fund, reorganized with and into corresponding series of Guggenheim Variable Funds Trust (each, a “Reorganization”). Upon completion of each Reorganization, the respective share classes of each Series assumed the performance, financial and other historical information of those of the corresponding predecessor series.
| THE GUGGENHEIM FUNDS ANNUAL REPORT | 181 |
INFORMATION ON BOARD OF TRUSTEES AND OFFICERS (Unaudited) |
A Board of Trustees oversees the Trust, as well as other trusts of GI, 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.
Name, Address* and Year of Birth | Position(s) Held with the Trust | Term of Office and Length of Time Served** | Principal Occupation(s) During Past Five Years | Number of Portfolios in Fund Complex Overseen | Other Directorships Held by Trustee |
| INDEPENDENT TRUSTEES | |||||
Randall C. Barnes (1951) | Trustee | Since 2014 | Current: Private Investor (2001-present). Former: Senior Vice President and Treasurer, PepsiCo, Inc. (1993-1997); President, Pizza Hut International (1991-1993); Senior Vice President, Strategic Planning and New Business Development, PepsiCo, Inc. (1987-1990). | 92 | Current: Trustee, Purpose, Inc. (2014-present). |
Donald A. Chubb, Jr. (1946 ) | Trustee and Vice Chairman of the Board | Since 1994 | Current: Business broker and manager of commercial real estate, Griffith & Blair, Inc. (1997-present). | 88 | None. |
Jerry B. Farley (1946) | Trustee and Vice Chairman of the Audit Committee | Since 2005 | Current: President, Washburn University (1997-present). | 88 | Current: Westar Energy, Inc. (2004-present); CoreFirst Bank & Trust (2000-present). |
Roman Friedrich III (1946) | Trustee and Chairman of the Contracts Review Committee | Since 2014 | Current: Founder and President, Roman Friedrich & Company (1998-present). Former: Senior Managing Director, MLV & Co. LLC (2010-2011). | 88 | Current: Zincore Metals, Inc. (2009-present). Former: Mercator Minerals Ltd. (2013-2014); First Americas Gold Corp. (2012-2014); Blue Sky Uranium Corp. (2011-2012); Axiom Gold and Silver Corp. (2011-2012); Stratagold Corp. (2003-2009); GFM Resources Ltd. (2005-2010). |
Robert B. Karn III (1942) | Trustee and Chairman of the Audit Committee | Since 2014 | Current: Consultant (1998-present). Former: Arthur Andersen (1965-1997) and Managing Partner, Financial and Economic Consulting, St. Louis office (1987-1997). | 88 | Current: Peabody Energy Company (2003-present); GP Natural Resource Partners, LLC (2002- present). |
| 182 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
INFORMATION ON BOARD OF TRUSTEES AND OFFICERS (Unaudited)(continued) |
Name, Address* and Year of Birth | Position(s) Held with the Trust | Term of Office and Length of Time Served** | Principal Occupation(s) During Past Five Years | Number of Portfolios in Fund Complex Overseen | Other Directorships Held by Trustee |
| INDEPENDENT TRUSTEES - concluded | |||||
Ronald A. Nyberg (1953) | Trustee and Chairman of the Nominating and Governance Committee | Since 2014 | Current: Partner, Nyberg & Cassioppi, LLC (2000-present). Former: Executive Vice President, General Counsel, and Corporate Secretary, Van Kampen Investments (1982-1999). | 94 | Current: Edward-Elmhurst Healthcare System (2012-present). |
Maynard F. Oliverius (1943) | Trustee and Vice Chairman of the Contracts Review Committee | Since 1998 | Retired. Former: President and CEO, Stormont-Vail HealthCare (1996-2012). | 88 | None. |
Ronald E. Toupin, Jr. (1958) | Trustee and Chairman of the Board | Since 2014 | Current: Portfolio Consultant (2010-present). Former: Vice President, Manager and Portfolio Manager, Nuveen Asset Management (1998-1999); Vice President, Nuveen Investment Advisory Corp. (1992-1999); Vice President and Manager, Nuveen Unit Investment Trusts (1991-1999); and Assistant Vice President and Portfolio Manager, Nuveen Unit Investment Trusts (1988-1999), each of John Nuveen & Co., Inc. (1982-1999). | 91 | Former: Bennett Group of Funds (2011-2013). |
| INTERESTED TRUSTEE | |||||
Donald C. Cacciapaglia*** (1951) | President, Chief Executive Officer and Trustee | Since 2012 | Current: President and CEO, certain other funds in the Fund Complex (2012-present); Vice Chairman, Guggenheim Investments (2010-present). Former: Chairman and CEO, Channel Capital Group, Inc. (2002-2010). | 222 | Current: Delaware Life (2013-present); Guggenheim Life and Annuity Company (2011-present); Paragon Life Insurance Company of Indiana (2011-present). |
| * | The business address of each Trustee is c/o Guggenheim Investments, 805 King Farm Boulevard, Suite 600, Rockville, Maryland 20850. |
| ** | Each Trustee serves an indefinite term, until his successor is elected and qualified. Time served includes time served in the respective position for the Predecessor Corporation. |
| *** | This Trustee is deemed to be an "interested person" of the Funds under the 1940 Act by reason of his position with the Funds' Investment Manager and/or the parent of the Investment Manager. |
| THE GUGGENHEIM FUNDS ANNUAL REPORT | 183 |
INFORMATION ON BOARD OF TRUSTEES AND OFFICERS (Unaudited)(continued) |
Name, Address* and Year of Birth | Position(s) Held with the Trust | Term of Office and Length of Time Served** | Principal Occupations During Past Five Years |
| OFFICERS | |||
Joseph M. Arruda (1966) | Assistant Treasurer | Since 2010 | Current: Assistant Treasurer, certain other funds in the Fund Complex (2006-present); Vice President, Security Investors, LLC (2010-present); CFO and Manager, Guggenheim Specialized Products, LLC (2009-present). Former: Vice President, Security Global Investors, LLC (2010-2011); Vice President, Rydex Advisors, LLC (2010); Vice President, Rydex Advisors II, LLC (2010). |
William H. Belden, III (1965) | Vice President | Since 2014 | Current: Vice President, certain other funds in the Fund Complex (2006-present); Managing Director, Guggenheim Funds Investment Advisors, LLC (2005-present). Former: Vice President of Management, Northern Trust Global Investments (1999-2005). |
Mark J. Furjanic (1959) | Assistant Treasurer | Since 2014 | Current: Vice President, Guggenheim Investments (2005-present); Assistant Treasurer, certain other funds in the Fund Complex (2008-present). Former: Senior Manager, Ernst & Young LLP (1999-2005). |
James Howley (1972) | Assistant Treasurer | Since 2014 | Current: Director, Guggenheim Investments (2004-present) ; Assistant Treasurer, certain other funds in the Fund Complex (2006-present). Former: Manager, Mutual Fund Administration of Van Kampen Investments, Inc. (1996-2004). |
Amy J. Lee (1961) | Vice President and Chief Legal Officer | Since 1987 (Secretary) Since 2007 (Vice President) | Current: Chief Legal Officer, certain other funds in the Fund Complex (2012-present); Senior Managing Director, Guggenheim Investments (2012-present). Former: Vice President, Associate General Counsel and Assistant Secretary, Security Benefit Life Insurance Company and Security Benefit Corporation (2004-2012). |
Mark E. Mathiasen (1978) | Secretary | Since 2014 | Current: Secretary, certain other funds in the Fund Complex (2007-present); Managing Director, Guggenheim Investments (2007-present). |
Michael P. Megaris (1984) | Assistant Secretary | Since 2014 | Current: Assistant Secretary, certain other funds in the Fund Complex (2014-present); Associate, Guggenheim Investments (2012-present). Former: J.D., University of Kansas School of Law (2009-2012). |
| 184 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
INFORMATION ON BOARD OF TRUSTEES AND OFFICERS (Unaudited)(concluded) |
Name, Address* and Year of Birth | Position(s) Held with the Trust | Term of Office and Length of Time Served** | Principal Occupations During Past Five Years |
| OFFICERS - concluded | |||
Elisabeth Miller (1968) | Chief Compliance Officer | Since 2012 | Current: CCO, certain other funds in the Fund Complex (2012-present); CCO, Security Investors, LLC (2012-present); CCO, Guggenheim Funds Investment Advisors, LLC (2012-present); Managing Director, Guggenheim Investments (2012-present); Vice President, Guggenheim Funds Distributors, LLC (March 2014-present). Former: CCO, Guggenheim Distributors, LLC (2009-March 2014); Senior Manager, Security Investors, LLC (2004-2009); Senior Manager, Guggenheim Distributors, LLC (2004-2009). |
Alison Santay (1974) | AML Officer | Since 2013 | Current: AML Officer, certain other funds in the Fund Complex (2010-present); Director and AML Officer, Rydex Fund Services, LLC (2010-present); AML Officer, Security Investors, LLC (2010-present); Director, Shareholder Risk and Compliance, Rydex Fund Services, LLC (2004-present). Former: AML Officer, Guggenheim Distributors, LLC (2013-2014). |
Kimberly Scott (1974) | Assistant Treasurer | Since 2014 | Current: Vice President, Guggenheim Investments (2012-present); Assistant Treasurer, certain other funds in the Fund Complex (2012-present). Former: Financial Reporting Manager, Invesco, Ltd. (2010-2011); Vice President/Assistant Treasurer, Mutual Fund Administration for Van Kampen Investments, Inc./Morgan Stanley Investment Management (2009-2010); Manager of Mutual Fund Administration, Van Kampen Investments, Inc./Morgan Stanley Investment Management (2005-2009). |
Bryan Stone (1979) | Vice President | Since 2014 | Current: Vice President, certain other funds in the Fund Complex (2014-present); Director, Guggenheim Investments (2013-present). Former: Senior Vice President, Neuberger Berman Group LLC (2009-2013); Vice President, Morgan Stanley (2002-2009). |
John L. Sullivan (1955) | Chief Financial Officer and Treasurer | Since 2014 | Current: CFO, Chief Accounting Officer and Treasurer, certain other funds in the Fund Complex (2010-present); Senior Managing Director, Guggenheim Investments (2010-present). Former: Managing Director and CCO, each of the funds in the Van Kampen Investments fund complex (2004-2010); Managing Director and Head of Fund Accounting and Administration, Morgan Stanley Investment Management (2002-2004); CFO and Treasurer, Van Kampen Funds (1996-2004). |
| * | The business address of each officer is c/o Guggenheim Investments, 805 King Farm Boulevard, Suite 600, Rockville, Maryland 20850. |
| ** | Each officer serves an indefinite term, until his or her successor is duly elected and qualified. Time served includes time served in the respective position for the Predecessor Corporation. |
| THE GUGGENHEIM FUNDS ANNUAL REPORT | 185 |
GUGGENHEIM INVESTMENTS PRIVACY POLICIES (Unaudited) |
Rydex Funds, Guggenheim Funds, Rydex Investments, Guggenheim Funds Distributors, LLC, Security Investors, LLC, Security Distributors, Inc., Guggenheim Partners Investment Managers, LLC, and Rydex Advisory Services (Collectively “Guggenheim Investments”).
Our Commitment to You
When you become a Guggenheim Investments investor, you entrust us with not only your hard-earned money but also with personal and financial information about you. We recognize that your relationship with us is based on trust and that you expect us to act responsibly and in your best interests. Because we have access to this private information about you, we hold ourselves to the highest standards in its safekeeping and use. This means, most importantly, that we do not sell client information to anyone—whether it is your personal information or if you are a current or former Guggenheim Investments client.
The Information We Collect About You
In the course of doing business with shareholders and investors, we collect nonpublic personal information about you. You typically provide personal information when you complete a Guggenheim Investments account application or when you request a transaction that involves Rydex and Guggenheim Investments funds or one of the Guggenheim Investments affiliated companies. “Nonpublic personal information” is personally identifiable private information about you. For example, it includes information regarding your name and address, Social Security or taxpayer identification number, assets, income, account balance, bank account information and investment activity (e.g., purchase and redemption history).
How We Handle Your Personal Information
As emphasized above, we do not sell information about current or former clients or their accounts to third parties. Nor do we share such information, except when necessary to complete transactions at your request or to make you aware of related investment products and services that we offer. Additional details about how we handle your personal information are provided below. To complete certain transactions or account changes that you direct, it may be necessary to provide identifying information to companies, individuals or groups that are not affiliated with Guggenheim Investments. For example, if you ask to transfer assets from another financial institution to Guggenheim Investments, we will need to provide certain information about you to that company to complete the transaction. To alert you to other Guggenheim Investments investment products and services, we may share your information within the Guggenheim Investments family of affiliated companies. This would include, for example, sharing your information within Guggenheim Investments so we can make you aware of new Rydex and Guggenheim Investments funds or the services offered through another Guggenheim Investments affiliated company. In certain instances, we may contract with nonaffiliated companies to perform services for us. Where necessary, we will disclose information we have about you to these third parties. In all such cases, we provide the third party with only the information necessary to carry out its assigned responsibilities and only for that purpose. And we require these third parties to treat your private information with the same high degree of confidentiality that we do. In certain instances, we may share information with other financial institutions regarding individuals and entities in response to the U.S.A. Patriot Act. Finally, we will release information about you if you direct us to do so, if we are compelled by law to do so or in other circumstances permitted by law.
Opt Out Provisions
We do not sell your personal information to anyone. The law allows you to “opt out” of only certain kinds of information sharing with third parties. The firm does not share personal information about you with any third parties that triggers this opt-out right. This means YOU ARE ALREADY OPTED OUT.
| 186 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
GUGGENHEIM INVESTMENTS PRIVACY POLICIES (Unaudited)(concluded) |
How We Protect Privacy Online
Our concern for the privacy of our shareholders also extends to those who use our web site, guggenheiminvestments.com. Our web site uses some of the most secure forms of online communication available, including encryption technology, Secure Socket Layer (SSL) protocol, firewalls and user names and passwords. These technologies provide a high level of security and privacy when you access your account information or initiate online transactions. The Guggenheim Investments web site offers customized features that require our use of “http cookies”—tiny pieces of information that we ask your browser to store. However, we make very limited use of these cookies. We only use cookies for session management and security features on the Guggenheim Investments web site. We do not use them to pull data from your hard drive, to learn your email address, or to view data in cookies created by other web sites. We will not share the information in our cookies or give others access to it. See the legal information area on our web site for more details about web site security and privacy features.
How We Safeguard Your Personal Information
We restrict access to nonpublic personal information about shareholders to our employees and in some cases to third parties (for example, the service providers described above) as permitted by law. We maintain strict physical, electronic and procedural safeguards that comply with federal standards to guard your nonpublic personal information.
We’ll Keep You Informed
As required by federal law, we will notify shareholders of our privacy policy annually. We reserve the right to modify this policy at any time, but rest assured that if we do change it, we will tell you promptly. You will also be able to access our privacy policy from our web site at guggenheiminvestments.com. Should you have any questions regarding our privacy policy, contact us at 800.820.0888 or 301.296.5100.
| THE GUGGENHEIM FUNDS ANNUAL REPORT | 187 |
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| Item 2. | Code of Ethics. |
The registrant’s Board of Trustees has adopted a code of ethics that applies to the registrant’s principal executive officer and principal financial officer. 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. |
The registrant's Board of Trustees has determined that Robert B. Karn III, an "independent" Trustee serving on the registrant's audit committee, is an "audit committee financial expert," as defined in Item 3 of Form N-CSR. Under applicable securities laws, a person who is determined to be an audit committee financial expert will not be deemed an "expert" for any purpose, including without limitation for the purposes of Section 11 of the Securities Act of 1933, as a result of being designated or identified as an audit committee financial expert. The designation or identification of a person as an audit committee financial expert does not impose on such person any duties, obligations, or liabilities that are greater than the duties, obligations, and liabilities imposed on such person as a member of the audit committee and Board of Trustees in the absence of such designation or identification.
| Item 4. | Principal Accountant Fees and Services. |
(a) Audit Fees. The aggregate Audit Fees billed by the registrant’s principal accountant, for the audit of the annual financial statements in connection with statutory and regulatory filings for the fiscal years ended December 31, 2014 and December 31, 2013 were $323,430 and $$319,400, respectively.
(b) Audit-Related Fees. The aggregate Audit Related Fees billed by the registrant’s principal accountant for the fiscal years ended December 31, 2014 and December 31, 2013 were $0 and $0, respectively.
The aggregate fees billed in the Reporting Periods for assurance and related services by the Auditor to the registrant’s investment adviser (not including any sub‑investment adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser), and any entity controlling, controlled by or under common control with the investment adviser that provides ongoing services to the Registrant (“Service Affiliates”) which required pre‑approval by the Audit Committee which related to the review of the transfer agent function for the fiscal years ended December 31, 2013 and December 31, 2012 were $36,750 and $35,000, respectively.
(c) Tax Fees. The aggregate Tax Fees billed by the registrant’s principal accountant 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 December 31, 2014 and December 31, 2013 were $68,167 and $71,153, respectively.
(d) All Other Fees. The aggregate All Other Fees billed by the registrant’s principal accountant for products and services provided by the Auditor, other than the services reported in paragraphs (a) through (c) of this Item, for the fiscal years ended December 31, 2014 and December 31, 2013 were $0 and $0, respectively.
(e) Audit Committee Pre-Approval Policies and Procedures. 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 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) Non-Audit Fees. The aggregate non-audit fees billed by the registrant’s accountant for the most recent fiscal year and the preceding fiscal year for services rendered to the registrant, the investment advisor, and any entity controlling, controlled by, or under common control with the advisor that provides ongoing services to the registrant were $104,917 and $106,153, respectively. These aggregate fees were less than the aggregate fees billed for the same periods by the registrant’s principal accountant for audit services rendered to the registrant, the investment advisor, and any entity controlling, controlled by, or under common control with the advisor that provides ongoing services to the registrant.
(h) Auditor Independence. All non-audit services rendered in (g) above were pre-approved by the registrant’s audit committee. As such, the audit committee has considered these services in maintaining the principal accountant’s independence.
| Item 5. | Audit Committee of Listed Registrants. |
Not applicable.
| Item 6. | 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 Mangers 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. |
The registrant does not currently have in place procedures by which shareholders may recommend nominees to the registrant’s board.
There have been no changes to the procedures by which shareholders may recommend nominees to the registrant’s board.
| Item 11. | Controls and Procedures. |
(a) The registrant’s President (principal executive officer) and Treasurer (principal financial officer) have evaluated the registrant’s disclosure controls and procedures within 90 days of this filing and have concluded that the registrant’s disclosure controls and procedures were effective as of that date in ensuring that information required to be disclosed by the registrant in this Form N-CSR was recorded, processed, summarized, and reported timely.
(b) The registrant’s principal executive officer and principal financial officer are aware of no change in the registrant’s internal control over financial reporting that occurred during the registrant’s second fiscal quarter 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) | Guggenheim Variable Funds Trust | |
| By (Signature and Title)* | /s/ Donald C. Cacciapaglia | |
Donald C. Cacciapaglia, President and Chief Executive Officer | ||
| Date | March 10, 2015 |
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/ Donald C. Cacciapaglia | |
Donald C. Cacciapaglia, President and Chief Executive Officer | ||
| Date | March 10, 2015 | |
| By (Signature and Title)* | /s/ John L. Sullivan | |
John L. Sullivan, Chief Financial Officer and Treasurer | ||
| Date | March 10, 2015 |
| * | Print the name and title of each signing officer under his or her signature. |