SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Exact name of registrant as specified in charter)
Rockville, Maryland 20850
(Address of principal executive offices) (Zip code)
805 King Farm Boulevard, Suite 600
Rockville, Maryland 20850
(Name and address of agent for service)
| Item 1. | Reports to Stockholders. |
12.31.2015
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-2-1215x1216 | guggenheiminvestments.com |
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) | 27 |
SERIES D (WORLD EQUITY INCOME SERIES) | 34 |
SERIES E (TOTAL RETURN BOND SERIES) | 44 |
SERIES F (FLOATING RATE STRATEGIES SERIES) | 56 |
SERIES J (STYLEPLUS—MID GROWTH SERIES) | 67 |
SERIES M (MACRO OPPORTUNITIES SERIES) | 76 |
SERIES N (MANAGED ASSET ALLOCATION SERIES) | 89 |
SERIES O (ALL CAP VALUE SERIES) | 97 |
SERIES P (HIGH YIELD SERIES) | 107 |
SERIES Q (SMALL CAP VALUE SERIES) | 121 |
SERIES V (MID CAP VALUE SERIES) | 130 |
SERIES X (STYLEPLUS—SMALL GROWTH SERIES) | 139 |
SERIES Y (STYLEPLUS—LARGE GROWTH SERIES) | 149 |
SERIES Z (ALPHA OPPORTUNITY SERIES) | 157 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS | 171 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM | 199 |
OTHER INFORMATION | 200 |
INFORMATION ON BOARD OF TRUSTEES AND OFFICERS | 202 |
GUGGENHEIM INVESTMENTS PRIVACY POLICIES | 206 |
THE GUGGENHEIM FUNDS ANNUAL REPORT | 1 |
December 31, 2015 |
Dear Shareholder:
Security Investors, LLC, and Guggenheim Partners Investment Management (the “Investment Advisers”) are pleased to present the annual shareholder report for 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, 2015.
The Investment Advisers are part of Guggenheim Investments, which represents the investment management businesses of Guggenheim Partners, LLC (“Guggenheim”), 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, 2016
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 (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.
2 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
December 31, 2015 |
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 Funds 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 Funds exposure to foreign currencies subjects the fund to the risk that those currencies will decline in value relative to the U.S. Dollar. ● The Funds 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 Funds use of leverage, through instruments such as derivatives, may cause the fund to be more volatile than if it had not been leveraged. ●The Funds 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 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 may use 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
THE GUGGENHEIM FUNDS ANNUAL REPORT | 3 |
December 31, 2015 |
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.
4 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
ECONOMIC AND MARKET OVERVIEW (Unaudited) | December 31, 2015 |
As of December 16, 2015, the meeting of the Federal Open Market Committee of the U.S. Federal Reserve (the “Fed”) resulted in the Fed raising its target Federal Funds Rate by 25 basis points, its first hike in seven years. This decision to tighten monetary policy was in recognition that growth in the U.S. economy is sufficient to meet expectations in the current recovery. Historically, the period when the Fed begins to tighten leads to an initial sell-off in the bond market, as investors brace themselves for the ill-effects of restrictive monetary policy on the economy. Then, as investors realize the Fed is raising rates because the economy is strong, the fear of defaults diminishes and credit spreads tighten again.
The good news is that, while the U.S. economy may not be fast moving, it certainly has a lot of torque. This is creating strong tailwinds as we move into 2016. MasterCard Advisors’ data on holiday spending indicates that sales were up nearly 8% year over year. All told, the risk to fourth-quarter gross domestic product (GDP) is probably to the upside, even as most tracking estimates have been trimmed to around 1%. In addition, the El Niño weather pattern is moving into its most impactful period. Our research indicates that a strong El Niño can add 1% or more to GDP in the first quarter of the year.
A factor after the end of the period was market volatility, spurred by concerns over the price of oil and increasing anxiety over global growth. It was marked by turmoil across asset classes, with heavy drawdowns in a variety of indexes and geographies in the first half of January. The sell-off was brutal and unexpected, but initially there was not a corresponding spike in the key measure of equity market volatility, the VIX. However, the sell-off occurred in what is historically a seasonally strong time for equities, and the VIX did start to rise in January.
In China, the likely catalyst for the volatile start to the equity market in 2016 was the pending expiration of an insider selling ban. The ban was extended in response to the sell-off, but as expiring restrictions enable market participants to finally escape unwanted positions, a sell-off is inevitable. China’s problems extend beyond political interference in the markets and, despite attempts by policy-makers to quiet the turmoil, we expect to see more volatility. Chinese policymakers have also been struggling to protect the renminbi. Allowing it to depreciate in the short run could be negative for markets--particularly Chinese risk assets, and by extension, U.S. risk assets, as well as falling dollar prices for commodities, given China is a main consumer of commodities. In the long run, a depreciation would be positive for the Chinese manufacturing sector and European producers, who have significant exports to China.
Meanwhile, the persistent weakness in oil continues to exert its negative influence on all markets, especially corporate credit. Oil prices likely have further to fall: not until it reaches approximately $25 per barrel will we begin to see oil production shuttered, which should then set the stage to stabilize the energy sector.
The next few months are likely to be extremely volatile as markets continue to digest the sell-off that began 2016. However, monetary conditions remain highly supportive for global economic growth, despite the Federal Reserve’s recent actions. The index of leading economic indicators, comprised of 10 components whose changes typically precede changes in the U.S. economy, remains in positive territory and shows no warning signs of recession.
Additionally, if market turmoil continues, and lower oil prices dampen headline inflation, the Fed may delay further rate increases. Given strong employment growth and continued wage growth, along with a stimulative fiscal policy now in place, the U.S. economy is likely to thrive in 2016.
For the year ended December 31, 2015, the Standard & Poor’s 500® (“S&P 500”) Index* returned 1.38%. The Morgan Stanley Capital International (“MSCI”) Europe-Australasia-Far East (“EAFE”) Index* returned -0.81%. The return of the MSCI Emerging Markets Index* was -14.92%.
In the bond market, the Barclays U.S. Aggregate Bond Index* posted a 0.55% return for the period, while the Barclays U.S. Corporate High Yield Index* returned -4.47%. The return of the Bank of America (“BofA”) Merrill Lynch 3-Month U.S. Treasury Bill Index* was 0.05% 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, 2015 |
*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.
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.
Morningstar Long/Short Equity Category Average is an average return of the funds in the Morningstar Long/Short Equity Category. The categories assist investors and investment professionals in making meaningful comparisons between funds, making it easier to build well-diversified portfolios, assess potential risk, and identify top-performing funds.
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, 2015 and ending December 31, 2015.
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 | Fund | Beginning | Ending | Expenses | |
Table 1. Based on actual Fund return3 | |||||
Series A (StylePlus—Large Core Series) | 0.97% | (0.25%) | $1,000.00 | $ 997.50 | $ 4.88 |
Series B (Large Cap Value Series) | 0.84% | (4.81%) | 1,000.00 | 951.90 | 4.13 |
Series C (Money Market Series) | 0.50% | (0.15%) | 1,000.00 | 998.50 | 2.52 |
Series D (World Equity Income Series) | 0.95% | (0.98%) | 1,000.00 | 990.20 | 4.77 |
Series E (Total Return Bond Series) | 0.79% | (0.11%) | 1,000.00 | 998.90 | 3.98 |
Series F (Floating Rate Strategies Series) | 1.18% | (2.00%) | 1,000.00 | 980.00 | 5.89 |
Series J (StylePlus—Mid Growth Series) | 0.96% | (4.23%) | 1,000.00 | 957.70 | 4.74 |
Series M (Macro Opportunities Series) | 1.32% | (2.00%) | 1,000.00 | 980.00 | 6.59 |
Series N (Managed Asset Allocation Series) | 0.97% | (1.74%) | 1,000.00 | 982.60 | 4.85 |
Series O (All Cap Value Series) | 0.93% | (4.84%) | 1,000.00 | 951.60 | 4.57 |
Series P (High Yield Series) | 1.14% | (7.40%) | 1,000.00 | 926.00 | 5.53 |
Series Q (Small Cap Value Series) | 1.21% | (6.92%) | 1,000.00 | 930.80 | 5.89 |
Series V (Mid Cap Value Series) | 0.96% | (6.58%) | 1,000.00 | 934.20 | 4.68 |
Series X (StylePlus—Small Growth Series) | 1.23% | (9.50%) | 1,000.00 | 905.00 | 5.91 |
Series Y (StylePlus—Large Growth Series) | 1.19% | 1.33% | 1,000.00 | 1,013.30 | 6.04 |
Series Z (Alpha Opportunity Series) | 3.24% | (1.30%) | 1,000.00 | 987.00 | 16.23 |
Table 2. Based on hypothetical 5% return (before expenses) | |||||
Series A (StylePlus—Large Core Series) | 0.97% | 5.00% | $1,000.00 | $ 1,020.32 | $ 4.94 |
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) | 0.95% | 5.00% | 1,000.00 | 1,020.42 | 4.84 |
Series E (Total Return Bond Series) | 0.79% | 5.00% | 1,000.00 | 1,021.22 | 4.02 |
Series F (Floating Rate Strategies Series) | 1.18% | 5.00% | 1,000.00 | 1,019.26 | 6.01 |
Series J (StylePlus—Mid Growth Series) | 0.96% | 5.00% | 1,000.00 | 1,020.37 | 4.89 |
Series M (Macro Opportunities Series) | 1.32% | 5.00% | 1,000.00 | 1,018.55 | 6.72 |
Series N (Managed Asset Allocation Series) | 0.97% | 5.00% | 1,000.00 | 1,020.32 | 4.94 |
Series O (All Cap Value Series) | 0.93% | 5.00% | 1,000.00 | 1,020.52 | 4.74 |
Series P (High Yield Series) | 1.14% | 5.00% | 1,000.00 | 1,019.46 | 5.80 |
Series Q (Small Cap Value Series) | 1.21% | 5.00% | 1,000.00 | 1,019.11 | 6.16 |
Series V (Mid Cap Value Series) | 0.96% | 5.00% | 1,000.00 | 1,020.37 | 4.89 |
Series X (StylePlus—Small Growth Series) | 1.23% | 5.00% | 1,000.00 | 1,019.00 | 6.26 |
Series Y (StylePlus—Large Growth Series) | 1.19% | 5.00% | 1,000.00 | 1,019.21 | 6.06 |
Series Z (Alpha Opportunity Series) | 3.24% | 5.00% | 1,000.00 | 1,008.87 | 16.41 |
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, 2015 to December 31, 2015. |
8 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
MANAGER’S COMMENTARY (Unaudited) | December 31, 2015 |
To Our Shareholders:
The Series A (StylePlusTM—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, 2015.
For the year ended December 31, 2015, the Series A (StylePlus—Large Core Series) returned 1.50%, compared with the 1.38% return of its benchmark, the S&P 500 Index.
Through a combination of an allocation to actively managed individual equity, passive equity, and actively managed fixed income, the Fund seeks to exceed the total return of the S&P 500 Index. The allocation to actively managed individual equity via stocks, and passive equity via derivatives such as swap agreements, is designed to provide exposure to large core equity.
Remaining Fund assets are invested in the Guggenheim Strategy Funds, short-term fixed-income investment companies advised by Guggenheim Investments. The Guggenheim Strategy Funds invest in a diversified portfolio of debt securities and financial instruments providing exposure to fixed income markets. The investment objective of the Guggenheim Strategy Funds is to seek a high level of income consistent with the preservation of capital.
The actively managed equity and fixed-income components seek to provide multiple sources of outperformance and take advantage of Guggenheim’s competencies in both fixed income and systematic stock selection. The fixed-income component invests in a variety of credit sectors, including asset-backed securities (ABS), mortgage-backed securities (MBS), high yield corporate bonds, and bank loans.
The active and passive decisions seek to add value by tactically allocating to actively managed equity through quantitative selection models when stock picking opportunities are high. During periods when Guggenheim views these opportunities to be less attractive, the Fund seeks to increase its passive exposure to equities and the allocation to fixed-income securities. The prospective return during such periods is the equity index plus an “alpha” component coming from the yield of the fixed-income overlay.
Performance Review
The Fund outperformed the benchmark for the period. The fixed-income sleeve, represented by investment in the Guggenheim Strategy Funds, was the largest positive contributor to performance. Uncorrelated with the Fund’s active equity component, the Guggenheim Strategy Funds were invested in short duration asset-backed securities, collateralized mortgage obligations, corporate bonds, and cash equivalents. Positive returns were driven largely by carry in ABS, MBS, and corporate bonds.
The actively managed equity sleeve contributed slightly to performance. The passive equity position, maintained through swap agreements, was a detractor from performance for the period.
When compared with the index, the total equity position (actively managed individual equity plus passive-equity derivatives) was most overweight the Industrials and Consumer Staples sectors and most underweight the Financials and Consumer Discretionary sectors.
For the Fund’s total equity position over the period, 15-20% was allocated to actively managed equity and 80-85% to passive equity. The actively managed equity sleeve decreased toward 15% over the period as the outlook for active stock selection grew less favorable, with a corresponding higher allocation of almost 85% to the passive equity position.
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, 2015 |
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. Investments in those Funds do not provide “market exposure” to meet the Fund’s investment objective, but will significantly increase the portfolio’s exposure to certain other asset categories (and their associated risks), which may cause the Fund to deviate from its principal investment strategy, including: (i) high yield, high risk debt securities rated below the top four long-term rating categories by a nationally recognized statistical rating organization (also known as “junk bonds”); (ii) securities issued by the U.S. Government or its agencies and instrumentalities; (iii) CLOs and similar investments; and (iv) other short-term fixed income securities.
Inception Date: May 1, 1979 |
Ten Largest Holdings (% of Total Net Assets) | |
Guggenheim Variable Insurance Strategy Fund III | 25.9% |
Guggenheim Strategy Fund II | 24.5% |
Guggenheim Strategy Fund I | 15.2% |
Guggenheim Strategy Fund III | 14.3% |
Apple, Inc. | 0.7% |
General Electric Co. | 0.4% |
Johnson & Johnson | 0.4% |
JPMorgan Chase & Co. | 0.4% |
Procter & Gamble Co. | 0.4% |
Gilead Sciences, Inc. | 0.3% |
Top Ten Total | 82.5% |
“Ten Largest Holdings” excludes any temporary cash or derivative investments. | |
10 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
PERFORMANCE REPORT AND FUND PROFILE (Unaudited)(concluded) | December 31, 2015 |
Cumulative Fund Performance*,†
Average Annual Returns*
Periods Ended December 31, 2015†
1 Year | 5 Year | 10 Year | |
Series A (StylePlus—Large Core Series) | 1.50% | 10.39% | 5.23% |
S&P 500 Index | 1.38% | 12.57% | 7.31% |
* | 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. |
THE GUGGENHEIM FUNDS ANNUAL REPORT | 11 |
SCHEDULE OF INVESTMENTS | December 31, 2015 |
SERIES A (STYLEPLUS—LARGE CORE SERIES) |
| Value | |||||||
COMMON STOCKS† - 16.5% | ||||||||
Consumer, Non-cyclical - 5.4% | ||||||||
Johnson & Johnson | 9,023 | $ | 926,842 | |||||
Procter & Gamble Co. | 10,023 | 795,927 | ||||||
Gilead Sciences, Inc. | 6,470 | 654,700 | ||||||
PepsiCo, Inc. | 6,489 | 648,381 | ||||||
Amgen, Inc. | 3,849 | 624,808 | ||||||
UnitedHealth Group, Inc. | 5,015 | 589,964 | ||||||
AbbVie, Inc. | 9,698 | 574,509 | ||||||
Medtronic plc | 7,406 | 569,669 | ||||||
Biogen, Inc.* | 1,749 | 535,806 | ||||||
Express Scripts Holding Co.* | 5,575 | 487,311 | ||||||
Kimberly-Clark Corp. | 3,745 | 476,739 | ||||||
McKesson Corp. | 2,332 | 459,940 | ||||||
Kroger Co. | 10,774 | 450,676 | ||||||
General Mills, Inc. | 7,426 | 428,184 | ||||||
Cardinal Health, Inc. | 4,791 | 427,693 | ||||||
Boston Scientific Corp.* | 22,508 | 415,048 | ||||||
Estee Lauder Companies, Inc. — Class A | 4,708 | 414,586 | ||||||
Kellogg Co. | 5,720 | 413,384 | ||||||
Pfizer, Inc. | 12,783 | 412,635 | ||||||
Sysco Corp. | 9,869 | 404,629 | ||||||
HCA Holdings, Inc.* | 5,958 | 402,940 | ||||||
Allergan plc* | 450 | 140,625 | ||||||
Kraft Heinz Co. | 1,435 | 104,411 | ||||||
Aetna, Inc. | 891 | 96,335 | ||||||
Cigna Corp. | 641 | 93,798 | ||||||
Anthem, Inc. | 662 | 92,309 | ||||||
Total Consumer, Non-cyclical | 11,641,849 | |||||||
Industrial - 2.7% | ||||||||
General Electric Co. | 30,278 | 943,160 | ||||||
Boeing Co. | 3,716 | 537,297 | ||||||
United Technologies Corp. | 5,404 | 519,162 | ||||||
Union Pacific Corp. | 6,272 | 490,471 | ||||||
Lockheed Martin Corp. | 2,190 | 475,559 | ||||||
Northrop Grumman Corp. | 2,325 | 438,983 | ||||||
Raytheon Co. | 3,510 | 437,100 | ||||||
FedEx Corp. | 2,855 | 425,366 | ||||||
Emerson Electric Co. | 8,656 | 414,016 | ||||||
CSX Corp. | 15,151 | 393,169 | ||||||
Eaton Corporation plc | 7,369 | 383,483 | ||||||
Caterpillar, Inc. | 4,796 | 325,936 | ||||||
Total Industrial | 5,783,702 | |||||||
Consumer, Cyclical - 2.0% | ||||||||
CVS Health Corp. | 6,067 | 593,170 | ||||||
Walgreens Boots Alliance, Inc. | 6,100 | 519,446 | ||||||
Costco Wholesale Corp. | 3,030 | 489,344 | ||||||
Wal-Mart Stores, Inc. | 7,892 | 483,780 | ||||||
Ford Motor Co. | 33,351 | 469,916 | ||||||
General Motors Co. | 12,920 | 439,409 | ||||||
American Airlines Group, Inc. | 9,513 | 402,876 | ||||||
Target Corp. | 5,116 | 371,473 | ||||||
Delta Air Lines, Inc. | 6,749 | 342,107 | ||||||
Southwest Airlines Co. | 6,588 | 283,679 | ||||||
Total Consumer, Cyclical | 4,395,200 | |||||||
Technology - 1.8% | ||||||||
Apple, Inc. | 13,722 | 1,444,377 | ||||||
Oracle Corp. | 15,960 | 583,019 | ||||||
Intel Corp. | 15,137 | 521,470 | ||||||
Microsoft Corp. | 9,305 | 516,241 | ||||||
International Business Machines Corp. | 2,669 | 367,308 | ||||||
Hewlett Packard Enterprise Co. | 20,735 | 315,172 | ||||||
QUALCOMM, Inc. | 3,135 | 156,703 | ||||||
Total Technology | 3,904,290 | |||||||
Financial - 1.6% | ||||||||
JPMorgan Chase & Co. | 12,751 | 841,949 | ||||||
Citigroup, Inc. | 12,631 | 653,654 | ||||||
MetLife, Inc. | 9,361 | 451,294 | ||||||
Bank of New York Mellon Corp. | 10,510 | 433,222 | ||||||
Prudential Financial, Inc. | 5,130 | 417,633 | ||||||
Aflac, Inc. | 6,530 | 391,147 | ||||||
Wells Fargo & Co. | 2,662 | 144,706 | ||||||
Berkshire Hathaway, Inc. — Class B* | 1,032 | 136,265 | ||||||
Bank of America Corp. | 6,202 | 104,380 | ||||||
Total Financial | 3,574,250 | |||||||
Communications - 1.3% | ||||||||
Cisco Systems, Inc. | 23,384 | 634,992 | ||||||
Alphabet, Inc. — Class C* | 789 | 598,756 | ||||||
Comcast Corp. — Class A | 10,189 | 574,965 | ||||||
Time Warner, Inc. | 6,785 | 438,786 | ||||||
Amazon.com, Inc.* | 330 | 223,044 | ||||||
Facebook, Inc. — Class A* | 1,741 | 182,213 | ||||||
AT&T, Inc. | 3,241 | 111,523 | ||||||
Walt Disney Co. | 959 | 100,772 | ||||||
Total Communications | 2,865,051 | |||||||
Energy - 0.9% | ||||||||
Exxon Mobil Corp. | 5,977 | 465,907 | ||||||
Valero Energy Corp. | 6,105 | 431,684 | ||||||
Marathon Petroleum Corp. | 7,686 | 398,442 | ||||||
EOG Resources, Inc. | 4,978 | 352,393 | ||||||
Chevron Corp. | 2,013 | 181,089 | ||||||
Apache Corp. | 2,604 | 115,800 | ||||||
Schlumberger Ltd. | 1,434 | 100,022 | ||||||
Total Energy | 2,045,337 | |||||||
Utilities - 0.6% | ||||||||
NextEra Energy, Inc. | 4,623 | 480,284 | ||||||
American Electric Power Company, Inc. | 7,509 | 437,549 | ||||||
PG&E Corp. | 7,867 | 418,446 | ||||||
Total Utilities | 1,336,279 | |||||||
12 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
SCHEDULE OF INVESTMENTS (continued) | December 31, 2015 |
SERIES A (STYLEPLUS—LARGE CORE SERIES) |
| Value | |||||||
Basic Materials - 0.2% | ||||||||
LyondellBasell Industries N.V. — Class A | 4,485 | $ | 389,746 | |||||
Dow Chemical Co. | 2,624 | 135,084 | ||||||
Total Basic Materials | 524,830 | |||||||
Total Common Stocks | ||||||||
(Cost $35,495,637) | 36,070,788 | |||||||
MUTUAL FUNDS†,1 - 79.9% | ||||||||
Guggenheim Variable Insurance Strategy Fund III | 2,280,395 | 56,599,406 | ||||||
Guggenheim Strategy Fund II | 2,166,371 | 53,725,999 | ||||||
Guggenheim Strategy Fund I | 1,338,563 | 33,290,070 | ||||||
Guggenheim Strategy Fund III | 1,262,059 | 31,299,067 | ||||||
Total Mutual Funds | ||||||||
(Cost $175,589,083) | 174,914,542 | |||||||
SHORT TERM INVESTMENTS† - 3.3% | ||||||||
Dreyfus Treasury Prime Cash Management Institutional Shares 0.00%3 | 7,204,724 | 7,204,724 | ||||||
Total Short Term Investments | ||||||||
(Cost $7,204,724) | 7,204,724 | |||||||
Total Investments - 99.7% | ||||||||
(Cost $218,289,444) | $ | 218,190,054 | ||||||
Other Assets & Liabilities, net - 0.3% | 690,067 | |||||||
Total Net Assets - 100.0% | $ | 218,880,121 | ||||||
Contracts | Unrealized | |||||||
EQUITY FUTURES CONTRACTS PURCHASED† | ||||||||
March 2016 S&P 500 Index | 22 | $ | (4,381 | ) | ||||
Units | ||||||||
OTC EQUITY INDEX SWAP AGREEMENTS†† | ||||||||
Bank of America | 88,294 | $ | (2,983,652 | ) | ||||
* | 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 8. |
2 | Total Return based on S&P 500 Index +/- financing at a variable rate. |
3 | Rate indicated is the 7 day yield as of December 31, 2015. |
plc — Public Limited Company | |
See Sector Classification in Other Information section. |
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 13 |
SCHEDULE OF INVESTMENTS (concluded) | December 31, 2015 |
SERIES A (STYLEPLUS—LARGE CORE SERIES) |
The following table summarizes the inputs used to value the Fund’s investments at December 31, 2015 (See Note 4 in the Notes to Financial Statements):
Investments in Securities (Assets) | Level 1 | Level 1 - | Level 2 | Level 2 - | Level 3 | Total | ||||||||||||||||||
Common Stocks | $ | 36,070,788 | $ | — | $ | — | $ | — | $ | — | $ | 36,070,788 | ||||||||||||
Mutual Funds | 174,914,542 | — | — | — | — | 174,914,542 | ||||||||||||||||||
Short Term Investments | 7,204,724 | — | — | — | — | 7,204,724 | ||||||||||||||||||
Total | $ | 218,190,054 | $ | — | $ | — | $ | — | $ | — | $ | 218,190,054 | ||||||||||||
Investments in Securities (Liabilities) | Level 1 | Level 1 - | Level 2 | Level 2 - | Level 3 | Total | ||||||||||||||||||
Equity Index Swap Agreements | $ | — | $ | — | $ | — | $ | 2,983,652 | $ | — | $ | 2,983,652 | ||||||||||||
Futures Contracts | — | 4,381 | — | — | — | 4,381 | ||||||||||||||||||
Total | $ | — | $ | 4,381 | $ | — | $ | 2,983,652 | $ | — | $ | 2,988,033 | ||||||||||||
* | Other financial instruments include futures contracts or swaps, which are reported as unrealized gain/loss at period end. |
For the year ended December 31, 2015, there were no transfers between levels.
14 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
SERIES A (STYLEPLUS—LARGE CORE SERIES) |
STATEMENT OF ASSETS AND LIABILITIES |
December 31, 2015 | ||||
Assets: | ||||
Investments in unaffiliated issuers, at value (cost $42,700,361) | $ | 43,275,512 | ||
Investments in affiliated issuers, at value (cost $175,589,083) | 174,914,542 | |||
Total investments (cost $218,289,444) | 218,190,054 | |||
Segregated cash with broker | 2,571,308 | |||
Cash | 1,709,830 | |||
Prepaid expenses | 4,985 | |||
Receivables: | ||||
Dividends | 313,050 | |||
Foreign taxes reclaim | 575 | |||
Fund shares sold | 129 | |||
Total assets | 222,789,931 | |||
Liabilities: | ||||
Unrealized depreciation on swap agreements | 2,983,652 | |||
Payable for: | ||||
Fund shares redeemed | 329,152 | |||
Securities purchased | 304,369 | |||
Management fees | 140,866 | |||
Variation margin | 22,110 | |||
Fund accounting/administration fees | 17,843 | |||
Trustees’ fees* | 11,530 | |||
Transfer agent/maintenance fees | 3,397 | |||
Miscellaneous | 96,891 | |||
Total liabilities | 3,909,810 | |||
Commitments and contingent liabilities (Note 16) | — | |||
Net assets | $ | 218,880,121 | ||
Net assets consist of: | ||||
Paid in capital | $ | 235,532,832 | ||
Undistributed net investment income | 1,900,343 | |||
Accumulated net realized loss on investments | (15,465,631 | ) | ||
Net unrealized depreciation on investments | (3,087,423 | ) | ||
Net assets | $ | 218,880,121 | ||
Capital shares outstanding | 6,373,621 | |||
Net asset value per share | $ | 34.34 | ||
STATEMENT OF OPERATIONS |
Year Ended December 31, 2015 | ||||
Investment Income: | ||||
Dividends from securities of affiliated issuers | $ | 2,684,690 | ||
Dividends from securities of unaffiliated issuers | 812,364 | |||
Interest | 625,630 | |||
Total investment income | 4,122,684 | |||
Expenses: | ||||
Management fees | 1,731,857 | |||
Transfer agent/maintenance fees | 25,178 | |||
Fund accounting/administration fees | 219,366 | |||
Line of credit fees | 44,429 | |||
Trustees’ fees* | 27,431 | |||
Custodian fees | 16,049 | |||
Tax expense | 11 | |||
Miscellaneous | 149,742 | |||
Total expenses | 2,214,063 | |||
Net investment income | 1,908,621 | |||
Net Realized and Unrealized Gain (Loss): | ||||
Net realized gain (loss) on: | ||||
Investments in unaffiliated issuers | 5,205,640 | |||
Investments in affiliated issuers | (88,049 | ) | ||
Swap agreements | 5,883,820 | |||
Futures contracts | 16,027 | |||
Options purchased | 4,606 | |||
Net realized gain | 11,022,044 | |||
Net change in unrealized appreciation (depreciation) on: | ||||
Investments in unaffiliated issuers | (5,498,105 | ) | ||
Investments in affiliated issuers | (124,946 | ) | ||
Swap agreements | (3,637,907 | ) | ||
Futures contracts | 4,151 | |||
Net change in unrealized appreciation (depreciation) | (9,256,807 | ) | ||
Net realized and unrealized gain | 1,765,237 | |||
Net increase in net assets resulting from operations | $ | 3,673,858 | ||
* | 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 | Year Ended | |||||||
Increase (Decrease) in Net Assets from Operations: | ||||||||
Net investment income | $ | 1,908,621 | $ | 2,982,157 | ||||
Net realized gain on investments | 11,022,044 | 29,056,492 | ||||||
Net change in unrealized appreciation (depreciation) on investments | (9,256,807 | ) | 1,498,041 | |||||
Net increase in net assets resulting from operations | 3,673,858 | 33,536,690 | ||||||
Distributions to shareholders from: | ||||||||
Net investment income | (3,137,523 | ) | — | |||||
Net realized gains | (20,083,072 | ) | — | |||||
Total distributions to shareholders | (23,220,595 | ) | — | |||||
Capital share transactions: | ||||||||
Proceeds from sale of shares | 12,564,041 | 15,968,926 | ||||||
Distributions reinvested | 23,220,595 | — | ||||||
Cost of shares redeemed | (36,433,210 | ) | (41,624,282 | ) | ||||
Net decrease from capital share transactions | (648,574 | ) | (25,655,356 | ) | ||||
Net increase (decrease) in net assets | (20,195,311 | ) | 7,881,334 | |||||
Net assets: | ||||||||
Beginning of year | 239,075,432 | 231,194,098 | ||||||
End of year | $ | 218,880,121 | $ | 239,075,432 | ||||
Undistributed net investment income at end of year | $ | 1,900,343 | $ | 3,137,523 | ||||
Capital share activity: | ||||||||
Shares sold | 343,003 | 467,403 | ||||||
Shares issued from reinvestment of distributions | 660,051 | — | ||||||
Shares redeemed | (1,000,356 | ) | (1,210,200 | ) | ||||
Net increase (decrease) in shares | 2,698 | (742,797 | ) | |||||
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 | Year Ended | Year Ended | Year Ended | Year Ended | ||||||||||||||||
Per Share Data | ||||||||||||||||||||
Net asset value, beginning of period | $ | 37.53 | $ | 32.50 | $ | 25.22 | $ | 22.31 | $ | 23.24 | ||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||
Net investment income (loss)a | .30 | .44 | .16 | .23 | .13 | |||||||||||||||
Net gain (loss) on investments (realized and unrealized) | .36 | 4.59 | 7.12 | 2.68 | (1.06 | ) | ||||||||||||||
Total from investment operations | .66 | 5.03 | 7.28 | 2.91 | (.93 | ) | ||||||||||||||
Less distributions from: | ||||||||||||||||||||
Net investment income | (.52 | ) | — | — | — | — | ||||||||||||||
Net realized gains | (3.33 | ) | — | — | — | — | ||||||||||||||
Total distributions | (3.85 | ) | — | — | — | — | ||||||||||||||
Net asset value, end of period | $ | 34.34 | $ | 37.53 | $ | 32.50 | $ | 25.22 | $ | 22.31 | ||||||||||
Total Returnb | 1.50 | % | 15.48 | % | 28.87 | % | 13.04 | % | (4.00 | %) | ||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||
Net assets, end of period (in thousands) | $ | 218,880 | $ | 239,075 | $ | 231,194 | $ | 198,615 | $ | 206,995 | ||||||||||
Ratios to average net assets: | ||||||||||||||||||||
Net investment income (loss) | 0.83 | % | 1.28 | % | 0.56 | % | 0.92 | % | 0.57 | % | ||||||||||
Total expensesc | 0.96 | % | 0.97 | % | 0.96 | % | 0.94 | % | 0.90 | % | ||||||||||
Net expensesc | 0.96 | % | 0.95 | %d | 0.96 | %d | 0.94 | %d | 0.90 | %d | ||||||||||
Portfolio turnover rate | 66 | % | 88 | % | 267 | % | 103 | % | 87 | % | ||||||||||
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 | 17 |
MANAGER’S COMMENTARY (Unaudited) | December 31, 2015 |
To Our Shareholders:
The Series B (Large Cap Value Series) is managed by a team of seasoned professionals led by James Schier, CFA, Portfolio Manager. The former Portfolio Manaaer, Mark Mitchell, CFA, left the firm during the period, and the following individuals were added as Portfolio Managers to the Fund: Scott Hammond, Managing Director and Portfolio Manager; Farhan Sharaff, Assistant Chief Investment Officer, Equities; and Gregg Strohkorb, CFA. In the following paragraphs, the team discusses performance of the Fund for the fiscal year ended December 31, 2015.
For the fiscal year ended December 31, 2015, the Series B (Large Cap Value Series) returned -5.08%, compared with the Russell 1000® Value Index, which returned -3.83%.
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 in which they operate. In today’s rapidly changing environment marked by very sharp and 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 fundamentals once again become a more dominant factor in the market.
Performance Review
An underweight to Energy and stock selection in the Financials sector were the leading contributors to performance. Commodity-oriented companies, especially Energy, were weak over the period. The lack of holdings in refining or other sub-industries most impacted by crude’s weakness helped the Fund’s performance. Companies that are essentially 100% dependent on crude pricing—as they operate in the Bakken, where all production is crude oil—were some of the worst-performance stocks for the year. For example, Fund holding Whiting Petroleum was among the leading individual detractors for the year.
The Financials allocation grew over the period as a result of a larger allocation to REITs (real estate investment trusts), and at the end of the period was equal weight with the index. American International Group was one of the Fund’s leading individual contributors for the year. The stock rose after activist investor Carl Icahn took a stake in the company and then advocated for its breakup.
Another leading individual contributor to performance for the period was in the Utilities sector: AGL Resources, Inc., a distributor of natural gas whose shares rose when it agreed to be acquired by Southern Company during the period.
The leading detractors from return at the sector level were stock selection in Industrials and Consumer Discretionary. The portfolio’s Industrials holdings include a number of companies that have an engineering and construction orientation, or are tied into fairly large, visible infrastructure projects. The market has favored businesses that experience an immediate pick-up in business as the economy improves, rather than companies reliant on long project rollouts. The Industrials sector had one of the Fund’s top individual detractors, DigitalGlobe, which late in the period issued a restrained growth outlook as commercial adoption of the company’s satellite imaging products was proving to be below expectations.
Discretionary holding DeVry Education was another leading detractor from return. Following a strong year in 2014 for many education stocks, the combination of mixed earnings, soft enrollment trends, and disappointing guidance have called into question the stabilization that these companies had been experiencing. These positions have been reduced in the portfolio, but their strong cash flow and niche opportunities suggest a favorable risk profile going forward.
Portfolio Positioning
The largest relative sector exposures for the year were an underweight in Energy and an overweight in Consumer Staples. Both these two stances contributed to performance for the year.
18 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
MANAGER’S COMMENTARY (Unaudited)(concluded) | December 31, 2015 |
Portfolio and Market Outlook
Investors grew increasingly concerned about the impact that plunging commodity prices on the domestic economy. Energy did provide the economy a disproportionate amount of growth over the last several years. Additionally, the troubles overseas have created a stronger dollar, and the prospect of additional interest rate hikes from a less accommodative Fed add to the uncertainty of the outlook. While this strategy is very balanced relative to the benchmark, it does possess defensive characteristics such as its overweight in Consumer Staples.
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, 2015 |
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.
Inception Date: May 1, 1979 |
Ten Largest Holdings (% of Total Net Assets) | |
JPMorgan Chase & Co. | 3.8% |
American International Group, Inc. | 3.6% |
Wells Fargo & Co. | 3.5% |
Citigroup, Inc. | 3.3% |
Republic Services, Inc. — Class A | 2.9% |
Johnson & Johnson | 2.6% |
Cisco Systems, Inc. | 2.4% |
Chevron Corp. | 2.4% |
Dow Chemical Co. | 2.3% |
Exxon Mobil Corp. | 2.2% |
Top Ten Total | 29.0% |
“Ten Largest Holdings” excludes any temporary cash or derivative investments. | |
20 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
PERFORMANCE REPORT AND FUND PROFILE (Unaudited)(concluded) | December 31, 2015 |
Cumulative Fund Performance*,†
Average Annual Returns*
Periods Ended December 31, 2015†
1 Year | 5 Year | 10 Year | |
Series B (Large Cap Value Series) | -5.08% | 8.79% | 6.15% |
Russell 1000 Value Index | -3.83% | 11.27% | 6.16% |
* | 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. |
THE GUGGENHEIM FUNDS ANNUAL REPORT | 21 |
SCHEDULE OF INVESTMENTS | December 31, 2015 |
SERIES B (LARGE CAP VALUE SERIES) |
| Value | |||||||
COMMON STOCKS† - 99.0% | ||||||||
Financial - 27.8% | ||||||||
JPMorgan Chase & Co. | 134,530 | $ | 8,883,015 | |||||
American International Group, Inc. | 136,829 | 8,479,293 | ||||||
Wells Fargo & Co. | 148,985 | 8,098,824 | ||||||
Citigroup, Inc. | 149,070 | 7,714,372 | ||||||
Reinsurance Group of America, Inc. — Class A | 44,300 | 3,789,865 | ||||||
Allstate Corp. | 59,020 | 3,664,552 | ||||||
Zions Bancorporation | 126,430 | 3,451,539 | ||||||
BB&T Corp. | 71,800 | 2,714,758 | ||||||
Assured Guaranty Ltd. | 98,390 | 2,600,448 | ||||||
PNC Financial Services Group, Inc. | 25,570 | 2,437,077 | ||||||
Bank of America Corp. | 142,500 | 2,398,275 | ||||||
Sun Communities, Inc. | 34,330 | 2,352,635 | ||||||
Legg Mason, Inc. | 48,433 | 1,900,027 | ||||||
Charles Schwab Corp. | 54,050 | 1,779,867 | ||||||
Synchrony Financial* | 51,798 | 1,575,177 | ||||||
Equity Residential | 18,710 | 1,526,549 | ||||||
Simon Property Group, Inc. | 7,430 | 1,444,689 | ||||||
Total Financial | 64,810,962 | |||||||
Consumer, Non-cyclical - 22.9% | ||||||||
Johnson & Johnson | 58,430 | 6,001,929 | ||||||
Mondelez International, Inc. — Class A | 106,810 | 4,789,360 | ||||||
UnitedHealth Group, Inc. | 36,710 | 4,318,564 | ||||||
Philip Morris International, Inc. | 44,450 | 3,907,600 | ||||||
Bunge Ltd. | 49,990 | 3,413,317 | ||||||
Pfizer, Inc. | 104,900 | 3,386,172 | ||||||
MasterCard, Inc. — Class A | 30,640 | 2,983,110 | ||||||
Medtronic plc | 36,750 | 2,826,810 | ||||||
Sanderson Farms, Inc. | 33,630 | 2,606,998 | ||||||
ADT Corp. | 77,820 | 2,566,504 | ||||||
Campbell Soup Co. | 48,400 | 2,543,420 | ||||||
Hershey Co. | 28,040 | 2,503,131 | ||||||
Quest Diagnostics, Inc. | 35,050 | 2,493,457 | ||||||
Zimmer Biomet Holdings, Inc. | 24,050 | 2,467,290 | ||||||
Kraft Heinz Co. | 29,293 | 2,131,359 | ||||||
HCA Holdings, Inc.* | 27,900 | 1,886,877 | ||||||
Henry Schein, Inc.* | 8,370 | 1,324,050 | ||||||
Express Scripts Holding Co.* | 14,000 | 1,223,740 | ||||||
Total Consumer, Non-cyclical | 53,373,688 | |||||||
Industrial - 10.5% | ||||||||
Republic Services, Inc. — Class A | 153,560 | 6,755,104 | ||||||
FLIR Systems, Inc. | 124,690 | 3,500,048 | ||||||
General Electric Co. | 108,292 | 3,373,296 | ||||||
Huntington Ingalls Industries, Inc. | 17,350 | 2,200,848 | ||||||
CH Robinson Worldwide, Inc. | 34,400 | 2,133,488 | ||||||
WestRock Co. | 44,822 | 2,044,780 | ||||||
TE Connectivity Ltd. | 29,651 | 1,915,751 | ||||||
Harris Corp. | 15,370 | 1,335,653 | ||||||
Oshkosh Corp. | 29,730 | 1,160,659 | ||||||
Total Industrial | 24,419,627 | |||||||
Technology - 7.8% | ||||||||
Microsoft Corp. | 85,490 | 4,742,985 | ||||||
Intel Corp. | 125,620 | 4,327,609 | ||||||
CSRA, Inc. | 96,170 | 2,885,100 | ||||||
QUALCOMM, Inc. | 53,750 | 2,686,694 | ||||||
Lam Research Corp. | 29,590 | 2,350,038 | ||||||
Computer Sciences Corp. | 37,590 | 1,228,441 | ||||||
Total Technology | 18,220,867 | |||||||
Energy - 7.7% | ||||||||
Chevron Corp. | 61,000 | 5,487,559 | ||||||
Exxon Mobil Corp. | 66,910 | 5,215,635 | ||||||
Whiting Petroleum Corp.* | 148,280 | 1,399,764 | ||||||
Patterson-UTI Energy, Inc. | 82,090 | 1,237,917 | ||||||
Hess Corp. | 22,630 | 1,097,102 | ||||||
Rowan Companies plc — Class A | 60,260 | 1,021,407 | ||||||
Marathon Oil Corp. | 72,540 | 913,279 | ||||||
Oasis Petroleum, Inc.* | 110,990 | 817,996 | ||||||
Superior Energy Services, Inc. | 51,030 | 687,374 | ||||||
Total Energy | 17,878,033 | |||||||
Utilities - 6.4% | ||||||||
Edison International | 85,420 | 5,057,718 | ||||||
Public Service Enterprise Group, Inc. | 90,550 | 3,503,380 | ||||||
Ameren Corp. | 55,510 | 2,399,697 | ||||||
OGE Energy Corp. | 88,860 | 2,336,129 | ||||||
Exelon Corp. | 39,930 | 1,108,856 | ||||||
Duke Energy Corp. | 8,550 | 610,385 | ||||||
Total Utilities | 15,016,165 | |||||||
Consumer, Cyclical - 6.3% | ||||||||
CVS Health Corp. | 46,340 | 4,530,662 | ||||||
Lear Corp. | 32,770 | 4,025,138 | ||||||
Wal-Mart Stores, Inc. | 36,300 | 2,225,190 | ||||||
Target Corp. | 15,970 | 1,159,582 | ||||||
PVH Corp. | 13,030 | 959,660 | ||||||
BorgWarner, Inc. | 21,350 | 922,961 | ||||||
JC Penney Company, Inc.* | 126,100 | 839,826 | ||||||
Total Consumer, Cyclical | 14,663,019 | |||||||
Communications - 5.1% | ||||||||
Cisco Systems, Inc. | 202,470 | 5,498,073 | ||||||
AT&T, Inc. | 84,870 | 2,920,377 | ||||||
DigitalGlobe, Inc.* | 120,665 | 1,889,614 | ||||||
Scripps Networks Interactive, Inc. — Class A | 29,510 | 1,629,247 | ||||||
Total Communications | 11,937,311 | |||||||
Basic Materials - 4.5% | ||||||||
Dow Chemical Co. | 103,137 | 5,309,492 | ||||||
Reliance Steel & Aluminum Co. | 41,950 | 2,429,325 | ||||||
Olin Corp. | 70,335 | 1,213,982 | ||||||
22 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
SCHEDULE OF INVESTMENTS (concluded) | December 31, 2015 |
SERIES B (LARGE CAP VALUE SERIES) |
| Value | |||||||
Royal Gold, Inc. | 23,838 | $ | 869,372 | |||||
Freeport-McMoRan, Inc. | 99,180 | 671,449 | ||||||
Total Basic Materials | 10,493,620 | |||||||
Total Common Stocks | ||||||||
(Cost $206,881,174) | 230,813,292 | |||||||
SHORT TERM INVESTMENTS† - 1.1% | ||||||||
Dreyfus Treasury Prime Cash Management Institutional Shares 0.00%1 | 2,545,755 | 2,545,755 | ||||||
Total Short Term Investments | ||||||||
(Cost $2,545,755) | 2,545,755 | |||||||
Total Investments - 100.1% | ||||||||
(Cost $209,426,929) | $ | 233,359,047 | ||||||
Other Assets & Liabilities, net - (0.1)% | (261,430 | ) | ||||||
Total Net Assets - 100.0% | $ | 233,097,617 | ||||||
* | Non-income producing security. |
† | Value determined based on Level 1 inputs — See Note 4. |
1 | Rate indicated is the 7 day yield as of December 31, 2015. |
plc — Public Limited Company | |
See Sector Classification in Other Information section. |
The following table summarizes the inputs used to value the Fund’s investments at December 31, 2015 (See Note 4 in the Notes to Financial Statements):
Investments in Securities (Assets) | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Common Stocks | $ | 230,813,292 | $ | — | $ | — | $ | 230,813,292 | ||||||||
Short Term Investments | 2,545,755 | — | — | 2,545,755 | ||||||||||||
Total | $ | 233,359,047 | $ | — | $ | — | $ | 233,359,047 | ||||||||
For the year ended December 31, 2015, there were no transfers between levels.
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 23 |
SERIES B (LARGE CAP VALUE SERIES) |
STATEMENT OF ASSETS AND LIABILITIES |
December 31, 2015 | ||||
Assets: | ||||
Investments, at value (cost $209,426,929) | $ | 233,359,047 | ||
Prepaid expenses | 12,400 | |||
Cash | 3,514 | |||
Receivables: | ||||
Dividends | 375,083 | |||
Securities sold | 45,400 | |||
Foreign taxes reclaim | 13,901 | |||
Total assets | 233,809,345 | |||
Liabilities: | ||||
Payable for: | ||||
Securities purchased | 318,575 | |||
Fund shares redeemed | 177,630 | |||
Management fees | 130,336 | |||
Fund accounting/administration fees | 19,049 | |||
Trustees’ fees* | 12,083 | |||
Transfer agent/maintenance fees | 3,844 | |||
Miscellaneous | 50,211 | |||
Total liabilities | 711,728 | |||
Commitments and contingent liabilities (Note 16) | — | |||
Net assets | $ | 233,097,617 | ||
Net assets consist of: | ||||
Paid in capital | $ | 215,290,809 | ||
Undistributed net investment income | 4,169,230 | |||
Accumulated net realized loss on investments | (10,294,540 | ) | ||
Net unrealized appreciation on investments | 23,932,118 | |||
Net assets | $ | 233,097,617 | ||
Capital shares outstanding | 7,021,999 | |||
Net asset value per share | $ | 33.20 | ||
STATEMENT OF OPERATIONS |
Year Ended December 31, 2015 | ||||
Investment Income: | ||||
Dividends (net of foreign withholding tax of $(5,071)) | $ | 6,335,412 | ||
Interest | 7 | |||
Total investment income | 6,335,419 | |||
Expenses: | ||||
Management fees | 1,670,210 | |||
Transfer agent/maintenance fees | 25,228 | |||
Fund accounting/administration fees | 244,104 | |||
Custodian fees | 34,892 | |||
Trustees’ fees* | 30,998 | |||
Line of credit fees | 19,908 | |||
Tax expense | 122 | |||
Miscellaneous | 120,553 | |||
Total expenses | 2,146,015 | |||
Net investment income | 4,189,404 | |||
Net Realized and Unrealized Gain (Loss): | ||||
Net realized gain (loss) on: | ||||
Investments | 14,222,606 | |||
Net realized gain | 14,222,606 | |||
Net change in unrealized appreciation (depreciation) on: | ||||
Investments | (31,474,677 | ) | ||
Net change in unrealized appreciation (depreciation) | (31,474,677 | ) | ||
Net realized and unrealized loss | (17,252,071 | ) | ||
Net decrease in net assets resulting from operations | $ | (13,062,667 | ) | |
* | Relates to Trustees not deemed “interested personsT” within the meaning of Section 2(a)(19) of the 1940 Act. |
24 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
SERIES B (LARGE CAP VALUE SERIES) |
STATEMENTS OF CHANGES IN NET ASSETS |
Year Ended | Year Ended | |||||||
Increase (Decrease) in Net Assets from Operations: | ||||||||
Net investment income | $ | 4,189,404 | $ | 2,923,527 | ||||
Net realized gain on investments | 14,222,606 | 49,560,301 | ||||||
Net change in unrealized appreciation (depreciation) on investments | (31,474,677 | ) | (27,214,240 | ) | ||||
Net increase (decrease) in net assets resulting from operations | (13,062,667 | ) | 25,269,588 | |||||
Distributions to shareholders from: | ||||||||
Net investment income | (2,928,952 | ) | — | |||||
Net realized gains | (37,933,710 | ) | — | |||||
Total distributions to shareholders | (40,862,662 | ) | — | |||||
Capital share transactions: | ||||||||
Proceeds from sale of shares | 7,860,711 | 11,339,234 | ||||||
Distributions reinvested | 40,862,662 | — | ||||||
Cost of shares redeemed | (36,900,523 | ) | (44,935,737 | ) | ||||
Net increase (decrease) from capital share transactions | 11,822,850 | (33,596,503 | ) | |||||
Net decrease in net assets | (42,102,479 | ) | (8,326,915 | ) | ||||
Net assets: | ||||||||
Beginning of year | 275,200,096 | 283,527,011 | ||||||
End of year | $ | 233,097,617 | $ | 275,200,096 | ||||
Undistributed net investment income at end of year | $ | 4,169,230 | $ | 2,928,952 | ||||
Capital share activity: | ||||||||
Shares sold | 208,647 | 285,616 | ||||||
Shares issued from reinvestment of distributions | 1,153,010 | — | ||||||
Shares redeemed | (986,485 | ) | (1,135,601 | ) | ||||
Net increase (decrease) in shares | 375,172 | (849,985 | ) | |||||
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 25 |
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 | Year Ended | Year Ended | Year Ended | Year Ended | ||||||||||||||||
Per Share Data | ||||||||||||||||||||
Net asset value, beginning of period | $ | 41.40 | $ | 37.82 | $ | 28.66 | $ | 24.79 | $ | 25.79 | ||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||
Net investment income (loss)a | .61 | .41 | .35 | .35 | .26 | |||||||||||||||
Net gain (loss) on investments (realized and unrealized) | (2.29 | ) | 3.17 | 8.81 | 3.52 | (1.26 | ) | |||||||||||||
Total from investment operations | (1.68 | ) | 3.58 | 9.16 | 3.87 | (1.00 | ) | |||||||||||||
Less distributions from: | ||||||||||||||||||||
Net investment income | (.47 | ) | — | — | — | — | ||||||||||||||
Net realized gains | (6.05 | ) | — | — | — | — | ||||||||||||||
Total distributions | (6.52 | ) | — | — | — | — | ||||||||||||||
Net asset value, end of period | $ | 33.20 | $ | 41.40 | $ | 37.82 | $ | 28.66 | $ | 24.79 | ||||||||||
Total Returnb | (5.08 | %) | 9.47 | % | 31.96 | % | 15.61 | % | (3.88 | %) | ||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||
Net assets, end of period (in thousands) | $ | 233,098 | $ | 275,200 | $ | 283,527 | $ | 246,107 | $ | 249,451 | ||||||||||
Ratios to average net assets: | ||||||||||||||||||||
Net investment income (loss) | 1.63 | % | 1.04 | % | 1.05 | % | 1.28 | % | 1.00 | % | ||||||||||
Total expenses | 0.84 | % | 0.83 | % | 0.83 | % | 0.83 | % | 0.80 | % | ||||||||||
Portfolio turnover rate | 38 | % | 47 | % | 26 | % | 17 | % | 19 | % | ||||||||||
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. |
26 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
MANAGER’S COMMENTARY (Unaudited) | December 31, 2015 |
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, 2015.
For the fiscal year ended December 31, 2015, the Series C (Money Market Series) returned -0.38%.
Interest rates remained low throughout the year, constraining performance of the government-issued or guaranteed money market instruments held by the Fund. The U.S. Federal Reserve (the “Fed”) hiked its Federal Funds target rate by 25 basis points at its December meeting, its first hike in the post-financial crisis era.
The Fed expects four rate hikes in 2016, based on committee members’ December “dot plot.” However, the market is only pricing in one to two rates hikes for 2016.
The Series primarily holds commercial paper, which provides higher yields (10 to 15 basis points) above comparable Treasury bills and Agency discount notes.
A government money market fund, subject to stricter money market regulations, presents lower yields, yet may afford greater safety and liquidity.
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 | 27 |
PERFORMANCE REPORT AND FUND PROFILE (Unaudited) | December 31, 2015 |
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)
FADN — Federal Agency Discount Note
Inception Date: May 1, 1979 |
The Fund invests principally in money market instruments such as commercial paper.
Average Annual Returns*
Periods Ended December 31, 2015†
1 Year | 5 Year | 10 Year | |
Series C (Money Market Series) | -0.38% | -0.46% | 0.79% |
* | 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. |
28 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
SCHEDULE OF INVESTMENTS | December 31, 2015 |
SERIES C (MONEY MARKET SERIES) |
| Value | |||||||
SHORT TERM INVESTMENTS† - 1.3% | ||||||||
Dreyfus Treasury Prime Cash Management Institutional Shares 0.00%3 | 868,934 | $ | 868,934 | |||||
Total Short Term Investments | ||||||||
(Cost $868,934) | 868,934 | |||||||
Face | ||||||||
FEDERAL AGENCY DISCOUNT NOTES†† - 32.2% | ||||||||
Federal Home Loan Bank1 | ||||||||
0.03% due 01/04/16 | $ | 7,000,000 | 6,999,983 | |||||
0.31% due 02/29/16 | 3,000,000 | 2,998,832 | ||||||
0.14% due 01/11/16 | 1,800,000 | 1,799,948 | ||||||
Total Federal Home Loan Bank | 11,798,763 | |||||||
Farmer Mac1 | ||||||||
0.04% due 01/04/16 | 10,000,000 | 9,999,967 | ||||||
Total Federal Agency Discount Notes | ||||||||
(Cost $21,798,380) | 21,798,730 | |||||||
ASSET-BACKED SECURITIES†† - 0.1% | ||||||||
Mortgage Securities - 0.1% | ||||||||
Small Business Administration Pools | ||||||||
#503295, 0.75% due 04/25/212 | 32,435 | 32,375 | ||||||
#503303, 0.75% due 04/25/212 | 11,325 | 11,305 | ||||||
#502353, 1.00% due 09/25/182 | 9,970 | 9,965 | ||||||
Total Mortgage Securities | 53,645 | |||||||
Total Asset-Backed Securities | ||||||||
(Cost $53,735) | 53,645 | |||||||
COMMERCIAL PAPER†† - 66.5% | ||||||||
Banco Santander Chile S.A. | ||||||||
0.22% due 01/04/16 | 3,000,000 | 2,999,945 | ||||||
Air Products & Chemicals, Inc. | ||||||||
0.25% due 01/05/16 | 3,000,000 | 2,999,917 | ||||||
Bank of Tokyo-Mitsubishi UFJ Ltd. | ||||||||
0.38% due 01/04/16 |
| 3,000,000 |
| 2,999,905 | ||||
Koch Resources LLC | ||||||||
0.33% due 01/06/16 | 3,000,000 | 2,999,863 | ||||||
Exxon Mobil Corp. | ||||||||
0.38% due 01/13/16 | 3,000,000 | 2,999,620 | ||||||
AllianceBernstein Holding, LP | ||||||||
0.45% due 01/19/16 | 3,000,000 | 2,999,325 | ||||||
Coca-Cola Co. | ||||||||
0.35% due 01/26/16 | 3,000,000 | 2,999,271 | ||||||
Total Capital Canada Ltd. | ||||||||
0.45% due 01/21/16 | 3,000,000 | 2,999,250 | ||||||
Toyota Motor Credit Corp. | ||||||||
0.26% due 02/17/16 | 3,000,000 | 2,998,368 | ||||||
Skandinaviska Enskilda Banken AB | ||||||||
0.43% due 03/10/16 | 3,000,000 | 2,997,650 | ||||||
Siemens Capital Co. LLC | ||||||||
0.52% due 03/29/16 | 3,000,000 | 2,996,892 | ||||||
CPPIB Capital Inc. | ||||||||
0.63% due 04/01/16 | 2,000,000 | 1,997,833 | ||||||
0.55% due 04/01/16 | 1,000,000 | 998,916 | ||||||
Total CPPIB Capital Inc. | 2,996,749 | |||||||
ABN Amro Funding USA LLC | ||||||||
0.46% due 04/18/16 | 3,000,000 | 2,995,567 | ||||||
BASF SE | ||||||||
0.41% due 01/07/16 | 2,000,000 | 1,999,883 | ||||||
Standard Chartered Bank | ||||||||
0.40% due 01/07/16 | 2,000,000 | 1,999,872 | ||||||
Rabobank Nederland NV NY | ||||||||
0.43% due 04/01/16 | 2,000,000 | 1,997,204 | ||||||
Total Commercial Paper | ||||||||
(Cost $44,978,631) | 44,979,281 | |||||||
Total Investments - 100.1% | ||||||||
(Cost $67,699,680) | $ | 67,700,590 | ||||||
Other Assets & Liabilities, net - (0.1)% | (97,376 | ) | ||||||
Total Net Assets - 100.0% | $ | 67,603,214 | ||||||
† | Value determined based on Level 1 inputs — See Note 4. |
†† | Value determined based on Level 2 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 | Variable rate security. Rate indicated is rate effective at December 31, 2015 and date shown is the final maturity date. |
3 | Rate indicated is the 7 day yield as of December 31, 2015. |
See Sector Classification in Other Information section. |
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 29 |
SCHEDULE OF INVESTMENTS (concluded) | December 31, 2015 |
SERIES C (MONEY MARKET SERIES) |
The following table summarizes the inputs used to value the Fund’s investments at December 31, 2015 (See Note 4 in the Notes to Financial Statements):
Investments in Securities (Assets) | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Asset-Backed Securities | $ | — | $ | 53,645 | $ | — | $ | 53,645 | ||||||||
Commercial Paper | — | 44,979,281 | — | 44,979,281 | ||||||||||||
Federal Agency Discount Notes | — | 21,798,730 | — | 21,798,730 | ||||||||||||
Short Term Investments | 868,934 | — | — | 868,934 | ||||||||||||
Total | $ | 868,934 | $ | 66,831,656 | $ | — | $ | 67,700,590 | ||||||||
For the year ended December 31, 2015, there were no transfers between levels.
30 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
SERIES C (MONEY MARKET SERIES) |
STATEMENT OF ASSETS AND LIABILITIES |
December 31, 2015 | ||||
Assets: | ||||
Investments, at value (cost $67,699,680) | $ | 67,700,590 | ||
Prepaid expenses | 234 | |||
Receivables: | ||||
Securities sold | 988 | |||
Fund shares sold | 117 | |||
Interest | 73 | |||
Total assets | 67,702,002 | |||
Liabilities: | ||||
Overdraft due to custodian bank | 505 | |||
Payable for: | ||||
Fund shares redeemed | 29,998 | |||
Printing fees | 17,700 | |||
Management fees | 14,769 | |||
Professional fees | 12,198 | |||
Trustees’ fees* | 7,893 | |||
Fund accounting/administration fees | 5,440 | |||
Transfer agent/maintenance fees | 2,693 | |||
Miscellaneous | 7,592 | |||
Total liabilities | 98,788 | |||
Commitments and contingent liabilities (Note 16) | — | |||
Net assets | $ | 67,603,214 | ||
Net assets consist of: | ||||
Paid in capital | $ | 67,602,379 | ||
Accumulated net investment loss | — | |||
Accumulated net realized loss on investments | (75 | ) | ||
Net unrealized appreciation on investments | 910 | |||
Net assets | $ | 67,603,214 | ||
Capital shares outstanding | 5,124,287 | |||
Net asset value per share | $ | 13.19 | ||
STATEMENT OF OPERATIONS |
Year Ended December 31, 2015 | ||||
Investment Income: | ||||
Interest | $ | 110,217 | ||
Total investment income | 110,217 | |||
Expenses: | ||||
Management fees | 329,109 | |||
Transfer agent/maintenance fees | 25,000 | |||
Fund accounting/administration fees | 62,530 | |||
Trustees’ fees* | 9,913 | |||
Custodian fees | 1,880 | |||
Tax expense | 3 | |||
Miscellaneous | 52,115 | |||
Total expenses | 480,550 | |||
Less: | ||||
Expenses waived by Adviser | (151,437 | ) | ||
Net expenses | 329,113 | |||
Net investment loss | (218,896 | ) | ||
Net Realized and Unrealized Gain (Loss): | ||||
Net realized gain (loss) on: | ||||
Investments | 81 | |||
Net realized gain | 81 | |||
Net change in unrealized appreciation (depreciation) on: | ||||
Investments | (275 | ) | ||
Net change in unrealized appreciation (depreciation) | (275 | ) | ||
Net realized and unrealized loss | (194 | ) | ||
Net decrease in net assets resulting from operations | $ | (219,090 | ) | |
* | 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 | 31 |
SERIES C (MONEY MARKET SERIES) |
STATEMENTS OF CHANGES IN NET ASSETS |
Year Ended | Year Ended | |||||||
Increase (Decrease) in Net Assets from Operations: | ||||||||
Net investment loss | $ | (218,896 | ) | $ | (298,070 | ) | ||
Net realized gain (loss) on investments | 81 | (14 | ) | |||||
Net change in unrealized appreciation (depreciation) on investments | (275 | ) | (486 | ) | ||||
Net decrease in net assets resulting from operations | (219,090 | ) | (298,570 | ) | ||||
Capital share transactions: | ||||||||
Proceeds from sale of shares | 78,385,948 | 86,068,579 | ||||||
Cost of shares redeemed | (80,985,107 | ) | (91,652,757 | ) | ||||
Net decrease from capital share transactions | (2,599,159 | ) | (5,584,178 | ) | ||||
Net decrease in net assets | (2,818,249 | ) | (5,882,748 | ) | ||||
Net assets: | ||||||||
Beginning of year | 70,421,463 | 76,304,211 | ||||||
End of year | $ | 67,603,214 | $ | 70,421,463 | ||||
Accumulated net investment loss at end of year | $ | — | $ | — | ||||
Capital share activity: | ||||||||
Shares sold | 5,933,005 | 6,490,360 | ||||||
Shares redeemed | (6,128,799 | ) | (6,911,723 | ) | ||||
Net decrease in shares | (195,794 | ) | (421,363 | ) | ||||
32 | 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 | Year Ended | Year Ended | Year Ended | Year Ended | ||||||||||||||||
Per Share Data | ||||||||||||||||||||
Net asset value, beginning of period | $ | 13.24 | $ | 13.29 | $ | 13.36 | $ | 13.43 | $ | 13.50 | ||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||
Net investment income (loss)a | (.04 | ) | (.05 | ) | (.07 | ) | (.07 | ) | (.08 | ) | ||||||||||
Net gain (loss) on investments (realized and unrealized) | (.01 | ) | (— | )d | (— | )d | (— | )d | .01 | |||||||||||
Total from investment operations | (.05 | ) | (.05 | ) | (.07 | ) | (.07 | ) | (.07 | ) | ||||||||||
Net asset value, end of period | $ | 13.19 | $ | 13.24 | $ | 13.29 | $ | 13.36 | $ | 13.43 | ||||||||||
Total Returnb | (0.38 | %) | (0.38 | %) | (0.52 | %) | (0.52 | %) | (0.52 | %) | ||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||
Net assets, end of period (in thousands) | $ | 67,603 | $ | 70,421 | $ | 76,304 | $ | 73,371 | $ | 108,617 | ||||||||||
Ratios to average net assets: | ||||||||||||||||||||
Net investment income (loss) | (0.33 | %) | (0.40 | %) | (0.50 | %) | (0.53 | %) | (0.57 | %) | ||||||||||
Total expenses | 0.73 | % | 0.75 | % | 0.71 | % | 0.71 | % | 0.70 | % | ||||||||||
Net expensesc,e | 0.50 | % | 0.51 | % | 0.64 | % | 0.71 | % | 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: |
12/31/15 | 12/31/14 | 12/31/13 |
0.50% | 0.50% | 0.63% |
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 33 |
MANAGER’S COMMENTARY (Unaudited) | December 31, 2015 |
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; 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, 2015.
For the one year period ended December 31, 2015, the Series D (World Equity Income Series) returned -0.67%, compared with the -0.88% 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 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.
Performance Review
For the period, the outperformance of the U.S. market (as represented by the S&P 500 Index, which returned 1.38% for the fiscal year) versus global markets (as represented by the MSCI World Index) was a headwind.
The Fund navigated the directionless 2015 with the bulk of its outperformance being derived from a year-long underweight position to the Energy sector. With no bottom in sight for crude oil prices, portfolio holdings have been limited to natural gas pipeline companies, and large integrated oil names, whose balance sheets should help them better weather the difficult environment for energy. In addition to being more defensive, many of these names remain attractive on a valuation basis, as they have gained less during the six-year bull market than their higher-growth brethren.
Plummeting oil should not have been a surprise, given the significant amount of supply that has been met with only lackluster demand. Supply will continue to be a problem going forward for several reasons, including higher production in the U.S. despite a fall in rig count and difficulty in finding storage capacity. Also, in early 2016, Iranian crude oil will begin to hit the global market thanks to a lift of international sanctions. It is very likely oil prices will continue to struggle in 2016.
The Fund is also underweight the Materials sector, which has other businesses exposed to the volatile commodities market. This stance was beneficial to Fund performance, as commodities continued to slide. Glencore, for example, a large commodities trading firm in the benchmark, was not held in the Fund. The company has a heavy debt load amid increasing borrowing rates, and a declining revenue stream. Some bounces in commodities and related equities are certainly possible, but risks appear to be considerable in this sector.
The leading detractor from performance for the period was stock selection in Telecommunications Services, followed by an overweight to the Utilities sector. The Fund traditionally has a large overweight to the Utilities sector, given its characteristics of low volatility and higher yields relative to the broad market. The overweight worked against the Fund at times, when the sector could not keep up with the strong performance of the broad market.
The Fund has also long had an overweight in the Telecom sector, given attractive equity yields for select names and a global consolidation trend that has been supportive of price. Even though the Telecom allocation was a benefit to performance, the holdings in the sector detracted from return for the year as a whole.
Slicing the portfolio by equity yield explains a significant amount of the portfolio’s underperforming positions. Specifically, the highest-yielding names in the portfolio experienced the largest price declines. We believe this is consistent with a market re-pricing the Fed rate increase.
34 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
MANAGER’S COMMENTARY (Unaudited)(concluded) | December 31, 2015 |
We seek attractive equity yield, not securities with an extremely high yield that could be cut if the business deteriorates. Similarly, we want to hold less of an asset group that we can reasonably expect to underperform in the face of Fed rate increases. Expecting that the Fed’s move in December would adversely impact ultra-high yielding equities, we reduced exposure to these names in August and September, lessening the potential damage.
Portfolio Positioning
Positioning relative to benchmark sectors shows that the cyclically defensive sectors of Utilities and Telecommunications Services were the largest overweights for the period, while Information Technology and Energy were the largest underweights. Of these stances, only the Energy underweight and Telecommunications Services overweight helped performance.
From a geographic perspective, the Fund’s largest overweight is Australia. The Fund has been favoring positions in Australian companies with ties to tangible goods to help hedge against currency debasement occurring in many countries around the world as way to promote growth. The Fund also has a slight overweight to Japan, whose central bank continues to ease, add assets to its balance sheets, and inflate local risk assets, creating a robust Japanese equity market.
The largest underweights include Europe, the U.S., and the UK—all which continue to face economic and monetary challenges. The U.S. has started raising rates, the UK is considering raising rates, and Europe seems cautious about increasing easing, but all are still dealing with a mixture of low or no inflation and lackluster earnings growth. Divergence recently among Japan and the Western economies affirms our long-held belief that the single greatest factor driving equity markets has been central bank stimulus, and as this driver is removed, volatility in equities will likely increase.
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 | 35 |
PERFORMANCE REPORT AND FUND PROFILE (Unaudited) | December 31, 2015 |
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.
COUNTRY DIVERSIFICATION
At December 31, 2015, the investment diversification of the Fund by country was as follows:
Country | % of Common Stocks | Value |
United States | 55.5% | $ 86,733,427 |
Japan | 11.6% | 18,108,768 |
Canada | 5.8% | 9,084,630 |
Australia | 5.0% | 7,820,876 |
United Kingdom | 3.9% | 6,128,464 |
Switzerland | 3.1% | 4,805,578 |
Sweden | 2.8% | 4,390,307 |
Other | 12.3% | 19,254,608 |
Total Investments | 100.0% | $156,326,658 |
Inception Date: April 19, 1984 |
Ten Largest Holdings (% of Total Net Assets) | |
Johnson & Johnson | 1.6% |
AT&T, Inc. | 1.5% |
Wells Fargo & Co. | 1.5% |
Roche Holding AG | 1.4% |
Pfizer, Inc. | 1.3% |
Toyota Motor Corp. | 1.3% |
Verizon Communications, Inc. | 1.3% |
Home Depot, Inc. | 1.3% |
Altria Group, Inc. | 1.3% |
Apple, Inc. | 1.3% |
Top Ten Total | 13.8% |
“Ten Largest Holdings” excludes any temporary cash or derivative investments. | |
36 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
PERFORMANCE REPORT AND FUND PROFILE (Unaudited)(concluded) | December 31, 2015 |
Cumulative Fund Performance*,†
Average Annual Returns*
Periods Ended December 31, 2015†
1 Year | 5 Year | 10 Year | |
Series D (World Equity Income Series) | -0.67% | 4.07% | 2.90% |
MSCI World Index | -0.88% | 7.59% | 4.98% |
* | 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 | 37 |
SCHEDULE OF INVESTMENTS | December 31, 2015 |
SERIES D (WORLD EQUITY INCOME SERIES) |
|
| Value | ||||||
COMMON STOCKS† - 98.3% | ||||||||
Consumer, Non-cyclical - 28.7% | ||||||||
Johnson & Johnson | 24,600 | $ | 2,526,912 | |||||
Roche Holding AG | 8,000 | 2,207,513 | ||||||
Pfizer, Inc. | 65,400 | 2,111,112 | ||||||
Altria Group, Inc. | 34,700 | 2,019,887 | ||||||
Merck & Company, Inc. | 37,700 | 1,991,314 | ||||||
Procter & Gamble Co. | 25,000 | 1,985,250 | ||||||
Novartis AG | 22,700 | 1,967,075 | ||||||
UnitedHealth Group, Inc. | 14,500 | 1,705,780 | ||||||
GlaxoSmithKline plc | 82,100 | 1,661,728 | ||||||
Kimberly-Clark Corp. | 12,500 | 1,591,250 | ||||||
Baxter International, Inc. | 39,200 | 1,495,480 | ||||||
Reynolds American, Inc. | 32,300 | 1,490,645 | ||||||
Eli Lilly & Co. | 17,600 | 1,482,976 | ||||||
Dr Pepper Snapple Group, Inc. | 15,000 | 1,398,000 | ||||||
Automatic Data Processing, Inc. | 16,500 | 1,397,880 | ||||||
PepsiCo, Inc. | 13,900 | 1,388,888 | ||||||
Anthem, Inc. | 9,600 | 1,338,624 | ||||||
Cardinal Health, Inc. | 14,800 | 1,321,196 | ||||||
Clorox Co. | 10,300 | 1,306,349 | ||||||
Aetna, Inc. | 11,400 | 1,232,568 | ||||||
Woolworths Ltd. | 68,200 | 1,217,635 | ||||||
Sysco Corp. | 27,800 | 1,139,800 | ||||||
Otsuka Holdings Company Ltd. | 31,100 | 1,116,961 | ||||||
Nissin Foods Holdings Company Ltd. | 17,000 | 909,401 | ||||||
Philip Morris International, Inc. | 9,400 | 826,354 | ||||||
Patterson Companies, Inc. | 17,500 | 791,175 | ||||||
WM Morrison Supermarkets plc | 335,900 | 733,350 | ||||||
Hutchison Port Holdings Trust — Class U | 1,173,400 | 621,902 | ||||||
Transurban Group | 75,700 | 577,576 | ||||||
Asahi Group Holdings Ltd. | 18,000 | 568,902 | ||||||
Wesfarmers Ltd. | 18,300 | 554,901 | ||||||
Quest Diagnostics, Inc. | 7,000 | 497,980 | ||||||
Abbott Laboratories | 10,000 | 449,100 | ||||||
Seven & i Holdings Company Ltd. | 8,800 | 406,323 | ||||||
General Mills, Inc. | 7,000 | 403,620 | ||||||
Henry Schein, Inc.* | 2,000 | 316,380 | ||||||
Colgate-Palmolive Co. | 3,300 | 219,846 | ||||||
Unilever plc | 3,900 | 168,252 | ||||||
Gartner, Inc.* | 1,800 | 163,260 | ||||||
Total Consumer, Non-cyclical | 45,303,145 | |||||||
Financial - 24.1% | ||||||||
Wells Fargo & Co. | 44,600 | 2,424,456 | ||||||
U.S. Bancorp | 36,200 | 1,544,654 | ||||||
Swedbank AB — Class A | 64,000 | 1,418,327 | ||||||
Marsh & McLennan Companies, Inc. | 24,700 | 1,369,615 | ||||||
Daito Trust Construction Company Ltd. | 11,400 | 1,328,736 | ||||||
Nordea Bank AB | 118,200 | 1,306,237 | ||||||
CME Group, Inc. — Class A | 14,400 | 1,304,640 | ||||||
HSBC Holdings plc | 162,100 | 1,281,076 | ||||||
Allianz AG | 6,900 | 1,226,292 | ||||||
Hannover Rueck SE | 10,500 | 1,205,460 | ||||||
Everest Re Group Ltd. | 6,400 | 1,171,776 | ||||||
T. Rowe Price Group, Inc. | 16,300 | 1,165,287 | ||||||
Svenska Handelsbanken AB — Class A | 82,000 | 1,096,555 | ||||||
M&T Bank Corp. | 9,000 | 1,090,620 | ||||||
New York Community Bancorp, Inc. | 65,300 | 1,065,696 | ||||||
Vicinity Centres | 500,301 | 1,020,837 | ||||||
Cincinnati Financial Corp. | 16,600 | 982,222 | ||||||
American Capital Agency Corp. REIT | 54,600 | 946,764 | ||||||
People’s United Financial, Inc. | 57,300 | 925,395 | ||||||
Government Properties Trust, Inc. | 262,800 | 915,419 | ||||||
Simon Property Group, Inc. | 4,700 | 913,868 | ||||||
RenaissanceRe Holdings Ltd. | 7,900 | 894,201 | ||||||
Singapore Exchange Ltd. | 160,600 | 872,124 | ||||||
Intact Financial Corp. | 12,800 | 820,108 | ||||||
Tryg A/S | 38,400 | 768,226 | ||||||
H&R Real Estate Investment Trust | 50,400 | 730,097 | ||||||
CapitaLand Mall Trust | 522,500 | 711,190 | ||||||
First Capital Realty, Inc. | 53,300 | 706,641 | ||||||
CI Financial Corp. | 29,700 | 656,619 | ||||||
ACE Ltd. | 5,400 | 630,990 | ||||||
Axis Capital Holdings Ltd. | 11,100 | 624,042 | ||||||
Japan Retail Fund Investment Corp. | 300 | 579,534 | ||||||
ASX Ltd. | 16,900 | 522,918 | ||||||
Bendigo & Adelaide Bank Ltd. | 59,900 | 521,629 | ||||||
Hang Seng Bank Ltd. | 26,900 | 511,963 | ||||||
Admiral Group plc | 20,600 | 503,498 | ||||||
Suncorp Group Ltd. | 56,700 | 501,613 | ||||||
Bank of Montreal | 7,000 | 394,888 | ||||||
WR Berkley Corp. | 7,000 | 383,250 | ||||||
PNC Financial Services Group, Inc. | 4,000 | 381,240 | ||||||
JPMorgan Chase & Co. | 5,700 | 376,371 | ||||||
Insurance Australia Group Ltd. | 75,851 | 307,329 | ||||||
Total Financial | 38,102,403 | |||||||
Consumer, Cyclical - 11.6% | ||||||||
Toyota Motor Corp. | 33,200 | 2,068,233 | ||||||
Home Depot, Inc. | 15,400 | 2,036,650 | ||||||
McDonald’s Corp. | 14,600 | 1,724,844 | ||||||
Wal-Mart Stores, Inc. | 25,100 | 1,538,630 | ||||||
Costco Wholesale Corp. | 9,000 | 1,453,500 | ||||||
Mitsui & Company Ltd. | 107,700 | 1,295,179 | ||||||
Sumitomo Corp. | 124,500 | 1,284,877 | ||||||
Marubeni Corp. | 243,100 | 1,264,241 | ||||||
ITOCHU Corp. | 103,700 | 1,244,055 | ||||||
Lawson, Inc. | 12,700 | 1,040,724 | ||||||
Sankyo Company Ltd. | 24,200 | 911,023 | ||||||
Persimmon plc* | 29,900 | 893,452 | ||||||
LVMH Moet Hennessy Louis Vuitton SE | 4,600 | 724,303 | ||||||
FamilyMart Company Ltd. | 9,000 | 422,296 | ||||||
Mitsubishi Corp. | 23,600 | 398,176 | ||||||
Total Consumer, Cyclical | 18,300,183 | |||||||
38 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
SCHEDULE OF INVESTMENTS (continued) | December 31, 2015 |
SERIES D (WORLD EQUITY INCOME SERIES) |
| Value | |||||||
Communications - 10.7% | ||||||||
AT&T, Inc. | 71,000 | $ | 2,443,111 | |||||
Verizon Communications, Inc. | 44,600 | 2,061,412 | ||||||
Comcast Corp. — Class A | 27,600 | 1,557,468 | ||||||
Telstra Corp., Ltd. | 307,800 | 1,258,341 | ||||||
Vivendi S.A. | 54,000 | 1,165,379 | ||||||
Elisa Oyj | 28,600 | 1,081,221 | ||||||
Singapore Telecommunications Ltd. | 402,300 | 1,041,258 | ||||||
Shaw Communications, Inc. — Class B | 57,700 | 992,175 | ||||||
Alphabet, Inc. — Class C* | 1,300 | 986,544 | ||||||
StarHub Ltd. | 322,700 | 842,060 | ||||||
TELUS Corp. | 29,200 | 807,167 | ||||||
BCE, Inc. | 20,600 | 795,668 | ||||||
Singapore Press Holdings Ltd. | 251,200 | 698,004 | ||||||
TeliaSonera AB | 113,900 | 569,188 | ||||||
TDC A/S | 63,300 | 316,962 | ||||||
Rogers Communications, Inc. — Class B | 8,800 | 303,402 | ||||||
Total Communications | 16,919,360 | |||||||
Technology - 9.7% | ||||||||
Apple, Inc. | 19,100 | 2,010,466 | ||||||
International Business Machines Corp. | 13,300 | 1,830,345 | ||||||
Accenture plc — Class A | 14,200 | 1,483,900 | ||||||
Canon, Inc. | 48,400 | 1,479,784 | ||||||
Paychex, Inc. | 27,600 | 1,459,764 | ||||||
CA, Inc. | 42,800 | 1,222,368 | ||||||
Fidelity National Information Services, Inc. | 18,700 | 1,133,220 | ||||||
Thomson Reuters Corp. | 29,900 | 1,132,194 | ||||||
Microsoft Corp. | 18,800 | 1,043,024 | ||||||
SAP AG | 10,900 | 869,158 | ||||||
Oracle Corporation Japan | 18,100 | 850,790 | ||||||
Fiserv, Inc.* | 7,000 | 640,220 | ||||||
Intuit, Inc. | 2,600 | 250,900 | ||||||
Total Technology | 15,406,133 | |||||||
Utilities - 7.3% | ||||||||
PPL Corp. | 43,700 | 1,491,481 | ||||||
Southern Co. | 31,000 | 1,450,490 | ||||||
CLP Holdings Ltd. | 162,338 | 1,379,337 | ||||||
Duke Energy Corp. | 17,300 | 1,235,047 | ||||||
Dominion Resources, Inc. | 17,500 | 1,183,700 | ||||||
CenterPoint Energy, Inc. | 59,400 | 1,090,584 | ||||||
Osaka Gas Company Ltd. | 257,600 | 939,533 | ||||||
AGL Energy Ltd. | 61,200 | 806,337 | ||||||
DTE Energy Co. | 8,300 | 665,577 | ||||||
SCANA Corp. | 8,500 | 514,165 | ||||||
Sempra Energy | 4,000 | 376,040 | ||||||
Fortis, Inc. | 9,100 | 245,960 | ||||||
Consolidated Edison, Inc. | 1,500 | 96,405 | ||||||
Talen Energy Corp.* | 1 | 6 | ||||||
Total Utilities | 11,474,662 | |||||||
Energy - 2.5% | ||||||||
TransCanada Corp. | 37,000 | 1,208,036 | ||||||
Exxon Mobil Corp. | 14,700 | 1,145,865 | ||||||
Royal Dutch Shell plc — Class B | 39,000 | 887,108 | ||||||
Eni SpA | 49,000 | 734,800 | ||||||
Total Energy | 3,975,809 | |||||||
Industrial - 2.4% | ||||||||
Lockheed Martin Corp. | 6,900 | 1,498,336 | ||||||
Waste Management, Inc. | 21,000 | 1,120,770 | ||||||
Aurizon Holdings Ltd. | 166,600 | 531,760 | ||||||
Amphenol Corp. — Class A | 5,900 | 308,157 | ||||||
CAE, Inc. | 26,300 | 291,675 | ||||||
TNT Express N.V. | 89 | 753 | ||||||
Total Industrial | 3,751,451 | |||||||
CONSUMER, CYCLICAL - 0.7% | ||||||||
MTR Corporation Ltd. | 203,500 | 1,008,301 | ||||||
Basic Materials - 0.6% | ||||||||
Airgas, Inc. | 3,700 | 511,784 | ||||||
Sherwin-Williams Co. | 1,800 | 467,280 | ||||||
Total Basic Materials | 979,064 | |||||||
Total Common Stocks | ||||||||
(Cost $156,846,781) | 155,220,511 | |||||||
EXCHANGE-TRADED FUNDS† - 0.7% | ||||||||
NYSE Arca Tech 100 ETF | 10,300 | 1,106,147 | ||||||
Total Exchange-Traded Funds | ||||||||
(Cost $1,181,849) | 1,106,147 | |||||||
SHORT TERM INVESTMENTS† - 0.7% | ||||||||
Goldman Sachs Financial Square Treasury Instruments Fund 0.00%1 | 1,183,566 | 1,183,566 | ||||||
Total Short Term Investments | ||||||||
(Cost $1,183,566) | 1,183,566 | |||||||
Total Investments - 99.7% | ||||||||
(Cost $159,212,196) | $ | 157,510,224 | ||||||
Other Assets & Liabilities, net - 0.3% | 553,130 | |||||||
Total Net Assets - 100.0% | $ | 158,063,354 | ||||||
* | Non-income producing security. |
† | Value determined based on Level 1 inputs — See Note 4. |
1 | Rate indicated is the 7 day yield as of December 31, 2015. |
plc — Public Limited Company | |
REIT — Real Estate Investment Trust | |
See Sector Classification in Other Information section. |
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 39 |
SCHEDULE OF INVESTMENTS (concluded) | December 31, 2015 |
SERIES D (WORLD EQUITY INCOME SERIES) |
The following table summarizes the inputs used to value the Fund’s investments at December 31, 2015 (See Note 4 in the Notes to Financial Statements):
Investments in Securities (Assets) | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Common Stocks | $ | 155,220,511 | $ | — | $ | — | $ | 155,220,511 | ||||||||
Exchange-Traded Funds | 1,106,147 | — | — | 1,106,147 | ||||||||||||
Short Term Investments | 1,183,566 | — | — | 1,183,566 | ||||||||||||
Total | $ | 157,510,224 | $ | — | $ | — | $ | 157,510,224 | ||||||||
Transfers between investment levels may occur as the markets fluctuate and/or the availability of data used in the investment’s valuation changes. The Fund recognizes transfers between the levels as of the beginning of the period. As of December 31, 2015, Series D (World Equity Income Series) had transfers between Level 2 and Level 1 due to utilizing international fair value pricing during the period. There were no other securities that transferred between levels.
40 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
SERIES D (WORLD EQUITY INCOME SERIES) |
STATEMENT OF ASSETS AND LIABILITIES |
December 31, 2015 | ||||
Assets: | ||||
Investments, at value (cost $159,212,196) | $ | 157,510,224 | ||
Foreign currency, at value (cost $16,002) | 16,004 | |||
Prepaid expenses | 7,932 | |||
Receivables: | ||||
Foreign taxes reclaim | 429,736 | |||
Dividends | 401,891 | |||
Fund shares sold | 1,763 | |||
Total assets | 158,367,550 | |||
Liabilities: | ||||
Overdraft due to custodian bank | 3,497 | |||
Payable for: | ||||
Fund shares redeemed | 118,872 | |||
Management fees | 94,194 | |||
Fund accounting/administration fees | 20,184 | |||
Trustees’ fees* | 8,672 | |||
Transfer agent/maintenance fees | 3,855 | |||
Miscellaneous | 54,922 | |||
Total liabilities | 304,196 | |||
Commitments and contingent liabilities (Note 16) | — | |||
Net assets | $ | 158,063,354 | ||
Net assets consist of: | ||||
Paid in capital | $ | 210,051,807 | ||
Undistributed net investment income | 4,898,476 | |||
Accumulated net realized loss on investments | (55,145,153 | ) | ||
Net unrealized depreciation on investments | (1,741,776 | ) | ||
Net assets | $ | 158,063,354 | ||
Capital shares outstanding | 13,037,771 | |||
Net asset value per share | $ | 12.12 | ||
STATEMENT OF OPERATIONS |
Year Ended December 31, 2015 | ||||
Investment Income: | ||||
Dividends (net of foreign withholding tax of $417,081) | $ | 6,550,982 | ||
Interest | 7 | |||
Total investment income | 6,550,989 | |||
Expenses: | ||||
Management fees | 1,193,303 | |||
Transfer agent/maintenance fees | 25,229 | |||
Fund accounting/administration fees | 255,708 | |||
Trustees’ fees* | 19,081 | |||
Line of credit fees | 13,383 | |||
Custodian fees | 9,277 | |||
Tax expense | 2,855 | |||
Miscellaneous | 114,459 | |||
Total expenses | 1,633,295 | |||
Net investment income | 4,917,694 | |||
Net Realized and Unrealized Gain (Loss): | ||||
Net realized gain (loss) on: | ||||
Investments | (2,009,685 | ) | ||
Foreign currency | (37,493 | ) | ||
Net realized loss | (2,047,178 | ) | ||
Net change in unrealized appreciation (depreciation) on: | ||||
Investments | (3,715,384 | ) | ||
Foreign currency | (13,748 | ) | ||
Net change in unrealized appreciation (depreciation) | (3,729,132 | ) | ||
Net realized and unrealized loss | (5,776,310 | ) | ||
Net decrease in net assets resulting from operations | $ | (858,616 | ) | |
* | 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 | 41 |
SERIES D (WORLD EQUITY INCOME SERIES) |
STATEMENTS OF CHANGES IN NET ASSETS |
| Year Ended | Year Ended | ||||||
Increase (Decrease) in Net Assets from Operations: | ||||||||
Net investment income | $ | 4,917,694 | $ | 5,626,869 | ||||
Net realized gain (loss) on investments and foreign currency | (2,047,178 | ) | 9,844,269 | |||||
Net change in unrealized appreciation (depreciation) on investments and foreign currency | (3,729,132 | ) | (5,873,733 | ) | ||||
Net increase (decrease) in net assets resulting from operations | (858,616 | ) | 9,597,405 | |||||
Distributions to shareholders from: | ||||||||
Net investment income | (5,474,029 | ) | (7,072 | ) | ||||
Total distributions to shareholders | (5,474,029 | ) | (7,072 | ) | ||||
Capital share transactions: | ||||||||
Proceeds from sale of shares | 5,158,083 | 6,713,201 | ||||||
Distributions reinvested | 5,474,029 | 7,072 | ||||||
Cost of shares redeemed | (24,784,500 | ) | (31,356,416 | ) | ||||
Net decrease from capital share transactions | (14,152,388 | ) | (24,636,143 | ) | ||||
Net decrease in net assets | (20,485,033 | ) | (15,045,810 | ) | ||||
Net assets: | ||||||||
Beginning of year | 178,548,387 | 193,594,197 | ||||||
End of year | $ | 158,063,354 | $ | 178,548,387 | ||||
Undistributed net investment income at end of year | $ | 4,898,476 | $ | 5,477,207 | ||||
Capital share activity: | ||||||||
Shares sold | 409,045 | 524,779 | ||||||
Shares issued from reinvestment of distributions | 437,922 | 561 | ||||||
Shares redeemed | (1,982,543 | ) | (2,489,949 | ) | ||||
Net decrease in shares | (1,135,576 | ) | (1,964,609 | ) | ||||
42 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
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 | Year Ended | Year Ended | Year Ended | Year Ended | ||||||||||||||||
Per Share Data | ||||||||||||||||||||
Net asset value, beginning of period | $ | 12.60 | $ | 12.00 | $ | 10.06 | $ | 8.63 | $ | 10.25 | ||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||
Net investment income (loss)a | .36 | .37 | .28 | .19 | .12 | |||||||||||||||
Net gain (loss) on investments (realized and unrealized) | (.43 | ) | .23 | 1.66 | 1.24 | (1.74 | ) | |||||||||||||
Total from investment operations | (.07 | ) | .60 | 1.94 | 1.43 | (1.62 | ) | |||||||||||||
Less distributions from: | ||||||||||||||||||||
Net investment income | (.41 | ) | (— | )b | — | — | — | |||||||||||||
Total distributions | (.41 | ) | (— | )b | — | — | — | |||||||||||||
Net asset value, end of period | $ | 12.12 | $ | 12.60 | $ | 12.00 | $ | 10.06 | $ | 8.63 | ||||||||||
Total Returnc | (0.67 | %) | 5.00 | % | 19.28 | % | 16.57 | % | (15.80 | %) | ||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||
Net assets, end of period (in thousands) | $ | 158,063 | $ | 178,548 | $ | 193,594 | $ | 185,233 | $ | 185,747 | ||||||||||
Ratios to average net assets: | ||||||||||||||||||||
Net investment income (loss) | 2.88 | % | 2.95 | % | 2.50 | % | 2.03 | % | 1.23 | % | ||||||||||
Total expensesd | 0.96 | % | 1.01 | % | 1.14 | % | 1.17 | % | 1.21 | % | ||||||||||
Portfolio turnover rate | 110 | % | 132 | % | 150 | % | 36 | % | 171 | % | ||||||||||
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 | Does not include expenses of the underlying funds in which the Fund invests. |
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 43 |
MANAGER’S COMMENTARY (Unaudited) | December 31, 2015 |
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, 2015.
For the one-year period ended December 31, 2015, the Series E (Total Return Bond Series) returned 1.15%, compared with the 0.55% return of its benchmark, the Barclays U.S. Aggregate Bond Index.
In 2015, risk assets posted their worst annual performance since the 2008 financial crisis, as market participants’ expectations for the start of rate hikes collided with concerns about plunging commodity prices, and slowing economic growth in China and other emerging-market economies. While the direct impact of a 25-basis-point increase in the Federal Funds target rate in December was fairly insignificant, the decision to commence the “normalization” of interest rates after seven years of unprecedented liquidity provision was not. High-yield bonds and bank loans posted their first annual loss since 2009, and spreads went to their widest levels since Standard & Poor’s downgraded the United States’ credit rating in 2011. The S&P 500 experienced its first 10 percent correction in four years and saw the weakest annual total return performance (+1.4 percent) since 2008.
Carry helped offset negative returns attributable to widening of credit spreads for the period. Spreads widened over the year particularly in the second half of the year. For the year, net positive returns were largely attributable to carry from asset-backed securities (“ABS,” including collateralized loan obligations, and aircraft securitizations), mortgage-backed securities (including commercial mortgage-backed securities and non-agency residential mortgage-backed securities), bank loans and preferred securities. The Fund continues to maintain less interest rate duration than the benchmark, particularly at the front end of the yield curve, and thus has mitigated losses due to rising rates over the year versus the benchmark.
Derivatives, which consisted of listed options used to hedge duration, detracted slightly from performance for the year.
A majority of the Fund’s structured credit holdings feature floating rates, yields higher than traditional securitized assets like auto or credit-card receivables, and, often, investment-grade ratings. The Fund believes that commercial ABS and CLOs offer some downside protection, and amortizing structures to keep credit exposure lower over time. The majority of NA-RMBS securities were purchased at discounts and also typically have floating coupons that help keep duration short. Floating rate instruments accounted for about half the portfolio at the end of the period.
The Fund continued to be anchored by high-quality ABS that have passed our rigorous credit analysis. The Fund also continued to find attractive relative value by tactically rotating among sectors, with a focus on securities that are overlooked by the broader market participants.
While the macroeconomic backdrop is still supportive for credit markets, the risk of contagion from distressed sectors, such as energy, warrants close monitoring. However, a genuine turning point in credit will not be reached until a U.S. recession looms and underlying corporate fundamentals no longer support a low default environment—neither of which is true heading into 2016. Convictions are often tested in such turbulent markets, but these are also times when we must remember that we are long-term investors, not traders.
As high-yield bonds and leveraged-loans experience spread widening, the Fund continues to use periods of weakness to add to attractive assets. We will continue to steer the Fund away from the weakest structures, issuers, and industries that may be most exposed to a downturn in economic fundamentals and increases in global volatility.
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.
44 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
PERFORMANCE REPORT AND FUND PROFILE (Unaudited) | December 31, 2015 |
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.
Inception Date: April 26, 1985 |
Ten Largest Holdings (% of Total Net Assets) | |
Total Return Bond Fund - Institutional Class | 8.9% |
U.S. Treasury Notes | 4.9% |
Limited Duration Fund - Institutional Class | 4.5% |
Floating Rate Strategies Fund - Institutional Class | 2.9% |
GCAT LLC | 1.8% |
Guggenheim BulletShares 2019 High Yield Corporate Bond ETF | 1.7% |
LSTAR Securities Investment Trust 2014-1 | 1.6% |
Willis Engine Securitization Trust II | 1.5% |
County of Miami-Dade Florida Revenue Bonds | 1.3% |
ALM VII R-2 Ltd. | 1.1% |
Top Ten Total | 30.2% |
“Ten Largest Holdings” excludes any temporary cash or derivative investments. | |
THE GUGGENHEIM FUNDS ANNUAL REPORT | 45 |
PERFORMANCE REPORT AND FUND PROFILE (Unaudited)(concluded) | December 31, 2015 |
Cumulative Fund Performance*,†
Average Annual Returns*
Periods Ended December 31, 2015†
1 Year | 5 Year | 10 Year | |
Series E (Total Return Bond Series) | 1.15% | 4.37% | 3.34% |
Barclays U.S. Aggregate Bond Index | 0.55% | 3.25% | 4.51% |
Portfolio Composition by Quality Rating** | |
Rating | |
Fixed Income Instruments | |
AAA | 9.1% |
AA | 10.0% |
A | 18.8% |
BBB | 13.5% |
BB | 5.5% |
B | 5.4% |
CCC | 2.9% |
CC | 0.3% |
A+ | 0.3% |
NR1 | 14.3% |
Other Instruments | 19.9% |
Total Investments | 100.0% |
The chart above reflects percentages of the value of total investments. | |
* | 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 is an unmanaged index and, unlike the Fund, has no management fees or operating expenses to reduce its reported return. |
** | Source: BlackRock Solutions. Credit quality ratings are measured on a scale that generally ranges from AAA (highest) to D (lowest). All securities except for those labeled “NR” 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. 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. |
1 | NR securities do not necessarily indicate low credit quality. |
46 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
SCHEDULE OF INVESTMENTS | December 31, 2015 |
SERIES E (TOTAL RETURN BOND SERIES) |
| Value | |||||||
PREFERRED STOCKS†† - 1.3% | ||||||||
Financial - 0.9% | ||||||||
Aspen Insurance Holdings Ltd. 5.95%1,2,9 | 7,199 | $ | 185,662 | |||||
Woodbourne Capital Trust IV | 300,000 | 160,821 | ||||||
Woodbourne Capital Trust III | 300,000 | 160,821 | ||||||
Woodbourne Capital Trust I | 300,000 | 160,821 | ||||||
Woodbourne Capital Trust II | 300,000 | 160,821 | ||||||
AgriBank FCB 6.88%1,2 | 1,500 | 158,578 | ||||||
Total Financial | 987,524 | |||||||
Industrial - 0.4% | ||||||||
Seaspan Corp. 6.38% due 04/30/199,11 | 18,000 | 437,400 | ||||||
Total Preferred Stocks | ||||||||
(Cost $1,985,771) | 1,424,924 | |||||||
EXCHANGE-TRADED FUNDS†,4 - 1.7% | ||||||||
Guggenheim BulletShares 2019 High Yield Corporate Bond ETF | 84,603 | 1,923,026 | ||||||
Total Exchange-Traded Funds | ||||||||
(Cost $2,000,836) | 1,923,026 | |||||||
UNIT INVESTMENT TRUSTS† - 0.1% | ||||||||
Rescap Liquidating Trust* | 9,655 | 79,171 | ||||||
Total Unit Investment Trusts | ||||||||
(Cost $487,486) | 79,171 | |||||||
MUTUAL FUNDS†,4 - 16.2% | ||||||||
Total Return Bond Fund - Institutional Class | 382,426 | 9,977,489 | ||||||
Limited Duration Fund - Institutional Class | 204,404 | 4,993,596 | ||||||
Floating Rate Strategies Fund - Institutional Class | 127,128 | 3,209,978 | ||||||
Total Mutual Funds | ||||||||
(Cost $18,466,088) | 18,181,063 | |||||||
Face | ||||||||
ASSET-BACKED SECURITIES†† - 35.3% | ||||||||
Collateralized Loan Obligations - 21.6% | ||||||||
KKR Financial CLO Ltd. | ||||||||
2007-1A, 2.61% due 05/15/211,3 | $ | 1,000,000 | 987,106 | |||||
2012-1A, 3.81% due 12/15/241,3 | 500,000 | 493,393 | ||||||
Great Lakes CLO Ltd. | ||||||||
2012-1A, 4.42% due 01/15/231,3 | 1,000,000 | 999,917 | ||||||
2014-1A, 4.02% due 04/15/251,3 | 250,000 | 248,218 | ||||||
ALM VII R-2 Ltd. | ||||||||
2013-7R2A, 2.91% due 04/24/241,3 | 1,250,000 | 1,234,141 | ||||||
Grayson CLO Ltd. | ||||||||
2006-1A, 0.74% due 11/01/211,3 | 1,250,000 | 1,124,652 | ||||||
Acis CLO Ltd. | ||||||||
2013-2A, 3.53% due 10/14/221,3 | 750,000 | 737,382 | ||||||
2013-1A, 3.27% due 04/18/241,3 | 400,000 | 372,656 | ||||||
Oaktree EIF II Series A1 Ltd. | ||||||||
2016-A1, 3.25% due 10/18/271,3 | 1,000,000 | 992,980 | ||||||
Fortress Credit Opportunities V CLO Ltd. | ||||||||
2014-5A, 2.97% due 10/15/261,3 | 1,000,000 | 981,450 | ||||||
Northwoods Capital XIV Ltd. | ||||||||
2014-14A, 2.82% due 11/12/251,3 | 1,000,000 | 978,643 | ||||||
Atrium XI | ||||||||
2014-11A, 3.52% due 10/23/251,3 | 1,000,000 | 978,212 | ||||||
Telos CLO Ltd. | ||||||||
2013-3A, 3.32% due 01/17/241,3 | 1,000,000 | 948,104 | ||||||
Dryden 37 Senior Loan Fund | ||||||||
2015-37A, due 04/15/273,5 | 1,000,000 | 935,897 | ||||||
Rockwall CDO Ltd. | ||||||||
2007-1A, 0.88% due 08/01/241,3 | 900,000 | 828,371 | ||||||
ARES XII CLO Ltd. | ||||||||
2007-12A, 3.64% due 11/25/201,3 | 750,000 | 749,762 | ||||||
MCF CLO I LLC | ||||||||
2013-1A, 3.87% due 04/20/231,3 | 750,000 | 739,215 | ||||||
Babson CLO Ltd. | ||||||||
2012-2A, due 05/15/233,5 | 750,000 | 414,798 | ||||||
2014-IA, due 07/20/253,5 | 550,000 | 261,782 | ||||||
Ivy Hill Middle Market Credit Fund VII Ltd. | ||||||||
2013-7A, 3.77% due 10/20/251,3 | 600,000 | 584,961 | ||||||
Black Diamond CLO Ltd. | ||||||||
2013-1A, 3.58% due 02/01/231,3 | 550,000 | 540,056 | ||||||
Newstar Trust | ||||||||
2012-2A, 3.56% due 01/20/231,3 | 500,000 | 499,938 | ||||||
Cent CLO | ||||||||
2014-16A, 2.58% due 08/01/241,3 | 500,000 | 496,686 | ||||||
Dryden XXIII Senior Loan Fund | ||||||||
2014-23A, 3.27% due 07/17/231,3 | 500,000 | 496,380 | ||||||
Oxford Finance Funding Trust | ||||||||
2014-1A, 3.48% due 12/15/223 | 500,000 | 495,100 | ||||||
Fortress Credit Opportunities III CLO, LP | ||||||||
2014-3A, 3.12% due 04/28/261,3 | 300,000 | 294,173 | ||||||
2014-3A, 3.87% due 04/28/261,3 | 200,000 | 193,893 | ||||||
MCF CLO III LLC | ||||||||
2014-3A, 3.21% due 01/20/241,3 | 500,000 | 480,008 | ||||||
Treman Park CLO Ltd. | ||||||||
2015-1A, due 04/20/273,5 | 500,000 | 454,450 | ||||||
Eastland CLO Ltd. | ||||||||
2007-1A, 0.73% due 05/01/221,3 | 400,000 | 378,787 | ||||||
KVK CLO Ltd. | ||||||||
2013-1A, due 04/14/253,5 | 900,000 | 376,229 | ||||||
ICE EM CLO | ||||||||
2007-1A, 1.12% due 08/15/221,3 | 365,776 | 360,691 | ||||||
Halcyon Loan Advisors Funding Ltd. | ||||||||
2012-2A, 5.07% due 12/20/241,3 | 350,000 | 349,604 | ||||||
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 47 |
SCHEDULE OF INVESTMENTS (continued) | December 31, 2015 |
SERIES E (TOTAL RETURN BOND SERIES) |
Face | Value | |||||||
Newstar Commercial Loan Funding LLC | ||||||||
2013-1A, 5.12% due 09/20/231,3 | $ | 350,000 | $ | 329,627 | ||||
Westwood CDO I Ltd. | ||||||||
2007-1A, 1.27% due 03/25/211,3 | 300,000 | 281,937 | ||||||
CIFC Funding Ltd. | ||||||||
2014-3X, due 07/22/265 | 500,000 | 277,179 | ||||||
TICC CLO LLC | ||||||||
2012-1A, 5.14% due 08/25/231,3 | 250,000 | 249,956 | ||||||
Garrison Funding Ltd. | ||||||||
2013-2A, 3.77% due 09/25/231,3 | 250,000 | 248,842 | ||||||
Golub Capital Partners CLO Ltd. | ||||||||
2013-17A, 4.15% due 10/25/251,3 | 250,000 | 248,112 | ||||||
Gallatin CLO VII Ltd. | ||||||||
2014-1A, 3.22% due 07/15/231,3 | 250,000 | 245,777 | ||||||
ALM XIV Ltd. | ||||||||
2014-14A, 3.27% due 07/28/261,3 | 250,000 | 244,431 | ||||||
NewStar Arlington Senior Loan Program LLC | ||||||||
2014-1A, 3.62% due 07/25/251,3 | 250,000 | 241,651 | ||||||
Venture CLO Ltd. | ||||||||
2013-14A, 3.16% due 08/28/251,3 | 250,000 | 237,667 | ||||||
Carlyle Global Market Strategies CLO Ltd. | ||||||||
2012-3A, due 10/04/243,5 | 250,000 | 161,100 | ||||||
Keuka Park CLO Ltd. | ||||||||
2013-1A, due 10/21/243,5 | 250,000 | 142,876 | ||||||
Neuberger Berman CLO Ltd. | ||||||||
2012-12A, due 07/25/233,5 | 300,000 | 125,836 | ||||||
Copper River CLO Ltd. | ||||||||
2007-1A, due 01/20/211,3,5 | 600,000 | 100,334 | ||||||
Total Collateralized Loan Obligations | 24,142,960 | |||||||
Transport-Aircraft - 8.9% | ||||||||
AASET | ||||||||
2014-1, 5.12% due 12/15/291 | 1,153,846 | 1,114,154 | ||||||
2014-1, 7.38% due 12/15/291 | 692,308 | 684,554 | ||||||
Willis Engine Securitization Trust II | ||||||||
2012-A, 5.50% due 09/15/373 | 1,733,461 | 1,694,632 | ||||||
Emerald Aviation Finance Ltd. | ||||||||
2013-1, 4.65% due 10/15/383 | 1,080,729 | 1,087,822 | ||||||
2013-1, 6.35% due 10/15/383 | 216,146 | 219,878 | ||||||
Castlelake Aircraft Securitization Trust | ||||||||
2014-1, 5.25% due 02/15/293 | 710,382 | 693,333 | ||||||
2014-1, 7.50% due 02/15/293 | 355,191 | 348,975 | ||||||
Rise Ltd. | ||||||||
2014-1, 4.74% due 02/12/39 | 1,018,229 | 1,017,007 | ||||||
Castle Aircraft SecuritizationTrust | ||||||||
2015-1A, 4.70% due 12/15/403 | 1,000,000 | 995,500 | ||||||
AIM Aviation Finance Ltd. | ||||||||
2015-1A, 4.21% due 02/15/403 | 940,476 | 917,303 | ||||||
Turbine Engines Securitization Ltd. | ||||||||
2013-1A, 5.13% due 12/13/483 | 823,926 | 804,316 | ||||||
AABS Ltd. | ||||||||
2013-1, 4.87% due 01/15/38 | 410,327 | 405,198 | ||||||
Total Transport-Aircraft | 9,982,672 | |||||||
Collateralized Debt Obligations - 3.7% | ||||||||
Triaxx Prime CDO Ltd. | ||||||||
2006-2A, 0.69% due 10/02/391,3 | 946,444 | 896,426 | ||||||
Gramercy Real Estate CDO Ltd. | ||||||||
2007-1A, 0.64% due 08/15/561,3 | 891,190 | 835,934 | ||||||
RAIT CRE CDO I Ltd. | ||||||||
2006-1X, 0.53% due 11/20/46 | 779,897 | 736,984 | ||||||
SRERS Funding Ltd. | ||||||||
2011-RS, 0.54% due 05/09/461,3 | 641,631 | 625,426 | ||||||
N-Star Real Estate CDO IX Ltd. | ||||||||
2006-8A, 0.56% due 02/01/419 | 603,306 | 583,728 | ||||||
N-Star REL CDO VIII Ltd. | ||||||||
2006-8A, 0.79% due 02/01/411,3 | 500,000 | 467,746 | ||||||
Total Collateralized Debt Obligations | 4,146,244 | |||||||
Insurance - 0.6% | ||||||||
Chesterfield Financial Holdings LLC | ||||||||
2014-1A, 4.50% due 12/15/343 | 705,750 | 704,480 | ||||||
Financial - 0.5% | ||||||||
Garanti Diversified Payment Rights Finance Co. | ||||||||
2007-A, 0.81% due 07/09/171 | 560,000 | 548,408 | ||||||
Total Asset-Backed Securities | ||||||||
(Cost $40,954,161) | 39,524,764 | |||||||
COLLATERALIZED MORTGAGE OBLIGATIONS†† - 16.9% | ||||||||
Residential Mortgage Backed Securities - 13.8% | ||||||||
LSTAR Securities Investment Trust | ||||||||
2014-1, 3.53% due 09/01/211,3 | 1,783,264 | 1,773,099 | ||||||
2015-4, 2.24% due 04/01/201,3 | 1,097,748 | 1,081,968 | ||||||
2015-1, 2.43% due 01/01/201,3 | 920,354 | 899,001 | ||||||
2015-2, 2.24% due 01/01/201,3 | 684,512 | 673,833 | ||||||
GCAT LLC | ||||||||
2014-2, 3.72% due 10/25/193 | 2,061,819 | 2,044,900 | ||||||
CIT Mortgage Loan Trust | ||||||||
2007-1, 1.87% due 10/25/371,3 | 1,192,055 | 1,110,336 | ||||||
VOLT XL LLC | ||||||||
2015-NP14, 4.38% due 11/27/453 | 1,000,000 | 998,809 | ||||||
GSAA Trust | ||||||||
2005-10, 1.07% due 06/25/351 | 1,050,000 | 959,102 | ||||||
Banc of America Funding Ltd. | ||||||||
2013-R1, 0.41% due 11/03/411,3 | 1,010,707 | 939,048 | ||||||
American Home Mortgage Investment Trust | ||||||||
2006-1, 0.82% due 03/25/461 | 1,089,582 | 882,419 | ||||||
Luminent Mortgage Trust | ||||||||
2006-2, 0.62% due 02/25/461 | 1,239,620 | 847,099 | ||||||
NRPL Trust | ||||||||
2015-1A, 3.88% due 11/01/543 | 667,155 | 663,596 | ||||||
HarborView Mortgage Loan Trust | ||||||||
2006-14, 0.55% due 01/25/471 | 877,117 | 659,307 | ||||||
Nationstar HECM Loan Trust | ||||||||
2014-1A, 4.50% due 11/25/173 | 654,408 | 659,270 | ||||||
48 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
SCHEDULE OF INVESTMENTS (continued) | December 31, 2015 |
SERIES E (TOTAL RETURN BOND SERIES) |
Face | Value | |||||||
Washington Mutual Mortgage Pass-Through Certificates WMALT Series Trust | ||||||||
2006-AR9, 1.10% due 11/25/461 | $ | 555,337 | $ | 380,855 | ||||
UCFC Manufactured Housing Contract | ||||||||
1997-2, 7.38% due 10/15/28 | 253,764 | 269,531 | ||||||
Nomura Resecuritization Trust | ||||||||
2012-1R, 0.86% due 08/27/471,3 | 189,789 | 179,142 | ||||||
GSAA Home Equity Trust | ||||||||
2007-7, 0.69% due 07/25/371 | 165,396 | 142,753 | ||||||
Morgan Stanley Re-REMIC Trust | ||||||||
2010-R5, 0.58% due 06/26/361,3 | 169,154 | 122,310 | ||||||
American Home Mortgage Assets Trust | ||||||||
2007-1, 0.96% due 02/25/471 | 203,706 | 121,372 | ||||||
JP Morgan Mortgage Trust | ||||||||
2006-A3, 2.66% due 04/25/361 | 57,198 | 48,179 | ||||||
First Franklin Mortgage Loan Trust | ||||||||
2006-FF1, 0.76% due 01/25/361 | 50,000 | 44,527 | ||||||
Fannie Mae | ||||||||
1990-68, 6.95% due 07/25/208,9 | 513 | 543 | ||||||
1990-103, 7.50% due 09/25/208,9 | 175 | 189 | ||||||
Freddie Mac | ||||||||
1990-188, 7.00% due 09/15/218,9 | 296 | 318 | ||||||
Total Residential Mortgage Backed Securities | 15,501,506 | |||||||
Commercial Mortgage Backed Securities - 2.9% | ||||||||
Hilton USA Trust | ||||||||
2013-HLT, 4.41% due 11/05/303 | 950,000 | 950,703 | ||||||
2013-HLT, 4.45% due 11/05/301,3 | 300,000 | 299,882 | ||||||
Boca Hotel Portfolio Trust | ||||||||
2013-BOCA, 3.38% due 08/15/261,3 | 1,000,000 | 998,245 | ||||||
Motel 6 Trust | ||||||||
2015-MTL6, 4.53% due 02/05/303 | 1,000,000 | 981,884 | ||||||
Total Commercial Mortgage Backed Securities | 3,230,714 | |||||||
Military Housing - 0.2% | ||||||||
GMAC Commercial Mortgage Asset Corp. | ||||||||
2003-PRES, 6.24% due 10/10/41†††,3 | 237,590 | 237,977 | ||||||
Government Agency - 0.0% | ||||||||
Ginnie Mae | ||||||||
#518436, 7.25% due 09/15/299 | 8,801 | 9,252 | ||||||
Total Collateralized Mortgage Obligations | ||||||||
(Cost $18,511,889) | 18,979,449 | |||||||
CORPORATE BONDS†† - 16.0% | ||||||||
Financial - 8.9% | ||||||||
Citigroup, Inc. | ||||||||
5.95%1,2 | 870,000 | 850,094 | ||||||
5.80%1,2 | 430,000 | 426,345 | ||||||
Fifth Third Bancorp | ||||||||
5.10%1,2 | 709,000 | 633,669 | ||||||
4.90%1,2 | 500,000 | 452,125 | ||||||
JPMorgan Chase & Co. | ||||||||
5.00%1,2 | 1,100,000 | 1,045,000 | ||||||
AmTrust Financial Services, Inc. | ||||||||
6.12% due 08/15/239,11 | 960,000 | 1,001,994 | ||||||
SunTrust Banks, Inc. | ||||||||
5.63%1,2 | 850,000 | 855,312 | ||||||
Icahn Enterprises Limited Partnership / Icahn Enterprises Finance Corp. | ||||||||
5.88% due 02/01/22 | 600,000 | 586,500 | ||||||
Teachers Insurance & Annuity Association of America | ||||||||
4.90% due 09/15/443 | 500,000 | 505,043 | ||||||
Morgan Stanley | ||||||||
5.55%1,2 | 500,000 | 500,000 | ||||||
GMH Military Housing-Navy Northeast LLC | ||||||||
6.30% due 10/15/49††† | 485,000 | 497,295 | ||||||
Corporation Financiera de Desarrollo S.A. | ||||||||
5.25% due 07/15/291,3,11 | 450,000 | 442,125 | ||||||
Pacific Northwest Communities LLC | ||||||||
5.91% due 06/15/503,11 | 400,000 | 422,244 | ||||||
Customers Bank | ||||||||
6.12% due 06/26/291,10,11 | 400,000 | 405,000 | ||||||
Wilton Re Finance LLC | ||||||||
5.87% due 03/30/331,3,11 | 375,000 | 393,446 | ||||||
Atlantic Marine Corporations Communities LLC | ||||||||
5.43% due 12/01/503 | 336,161 | 331,280 | ||||||
ACC Group Housing LLC | ||||||||
6.35% due 07/15/54†††,3 | 250,000 | 257,388 | ||||||
CIC Receivables Master Trust | ||||||||
4.89% due 10/07/21†††,9,11 | 200,000 | 198,482 | ||||||
Cadence Bank North America | ||||||||
6.25% due 06/28/291,10 | 150,000 | 150,375 | ||||||
Total Financial | 9,953,717 | |||||||
Industrial - 1.5% | ||||||||
Molex Electronic Technologies LLC | ||||||||
3.90% due 04/15/253,6 | 900,000 | 842,151 | ||||||
Ball Corp. | ||||||||
4.38% due 12/15/20 | 500,000 | 507,813 | ||||||
SBM Baleia Azul | ||||||||
5.50% due 09/15/27†††,9 | 256,710 | 185,868 | ||||||
Prosight Global Inc. | ||||||||
7.50% due 11/26/20†††,9 | 100,000 | 103,154 | ||||||
Total Industrial | 1,638,986 | |||||||
Basic Materials - 1.1% | ||||||||
Yamana Gold, Inc. | ||||||||
4.95% due 07/15/24 | 865,000 | 733,505 | ||||||
Newcrest Finance Pty Ltd. | ||||||||
4.20% due 10/01/223 | 560,000 | 469,275 | ||||||
Total Basic Materials | 1,202,780 | |||||||
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 49 |
SCHEDULE OF INVESTMENTS (continued) | December 31, 2015 |
SERIES E (TOTAL RETURN BOND SERIES) |
Face | Value | |||||||
Communications - 1.0% | ||||||||
Neptune Finco Corp. | ||||||||
6.63% due 10/15/253 | $ | 500,000 | $ | 520,000 | ||||
Avaya, Inc. | ||||||||
7.00% due 04/01/193,6 | 537,000 | 397,380 | ||||||
Sprint Communications, Inc. | ||||||||
9.00% due 11/15/183 | 200,000 | 210,500 | ||||||
Total Communications | 1,127,880 | |||||||
Consumer, Non-cyclical - 0.9% | ||||||||
Zoetis, Inc. | ||||||||
4.50% due 11/13/25 | 550,000 | 557,399 | ||||||
HCA, Inc. | ||||||||
5.88% due 02/15/26 | 250,000 | 250,938 | ||||||
Vector Group Ltd. | ||||||||
7.75% due 02/15/21 | 200,000 | 211,000 | ||||||
Total Consumer, Non-cyclical | 1,019,337 | |||||||
Energy - 0.8% | ||||||||
Sunoco Logistics Partners Operations, LP | ||||||||
5.95% due 12/01/25 | 750,000 | 714,500 | ||||||
4.25% due 04/01/24 | 150,000 | 129,732 | ||||||
Total Energy | 844,232 | |||||||
Technology - 0.7% | ||||||||
First Data Corp. | ||||||||
5.00% due 01/15/243 | 500,000 | 497,500 | ||||||
CDK Global, Inc. | ||||||||
4.50% due 10/15/24 | 305,000 | 303,493 | ||||||
Total Technology | 800,993 | |||||||
Consumer, Cyclical - 0.6% | ||||||||
Northern Group Housing LLC | ||||||||
6.80% due 08/15/53†††,3 | 600,000 | 727,056 | ||||||
Diversified - 0.5% | ||||||||
HRG Group, Inc. | ||||||||
7.88% due 07/15/19 | 550,000 | 574,750 | ||||||
Total Corporate Bonds | ||||||||
(Cost $18,383,662) | 17,889,731 | |||||||
U.S. GOVERNMENT SECURITIES†† - 6.8% | ||||||||
U.S. Treasury Notes | ||||||||
2.25% due 11/15/256 | 5,448,000 | 5,435,867 | ||||||
Tennessee Valley Authority | ||||||||
5.38% due 04/01/56 | 750,000 | 893,687 | ||||||
Freddie Mac Strips | ||||||||
0.00% due 03/15/317,8 | 800,000 | 469,432 | ||||||
0.00% due 07/15/327,8 | 500,000 | 277,378 | ||||||
Total Freddie Mac Strips | 746,810 | |||||||
U.S. Treasury Bonds | ||||||||
0.00% due 11/15/447 | 1,216,000 | 489,656 | ||||||
0.00% due 05/15/447 | 145,000 | 59,698 | ||||||
Total U.S. Treasury Bonds | 549,354 | |||||||
Total U.S. Government Securities | ||||||||
(Cost $7,677,078) | 7,625,718 | |||||||
MUNICIPAL BONDS†† - 5.7% | ||||||||
Florida - 1.7% | ||||||||
County of Miami-Dade Florida Revenue Bonds | ||||||||
0.00% due 10/01/457 | 5,600,000 | 1,501,975 | ||||||
0.00% due 10/01/427 | 1,500,000 | 462,585 | ||||||
Total Florida | 1,964,560 | |||||||
New Jersey - 1.1% | ||||||||
New Jersey Transportation Trust Fund Authority Revenue Bonds | ||||||||
0.00% due 12/15/327 | 2,650,000 | 1,191,572 | ||||||
Illinois - 1.0% | ||||||||
State of Illinois General Obligation Unlimited | ||||||||
6.90% due 03/01/35 | 500,000 | 532,040 | ||||||
5.65% due 12/01/38 | 400,000 | 383,852 | ||||||
City of Chicago Illinois General Obligation Unlimited | ||||||||
5.43% due 01/01/42 | 300,000 | 255,723 | ||||||
Total Illinois | 1,171,615 | |||||||
Alabama - 0.9% | ||||||||
County of Jefferson Alabama Sewer Revenue Revenue Bonds | ||||||||
0.00% due 10/01/347 | 775,000 | 281,217 | ||||||
0.00% due 10/01/367 | 875,000 | 276,579 | ||||||
0.00% due 10/01/357 | 525,000 | 177,791 | ||||||
0.00% due 10/01/317 | 275,000 | 125,307 | ||||||
0.00% due 10/01/327 | 250,000 | 105,425 | ||||||
Total Alabama | 966,319 | |||||||
Michigan - 0.8% | ||||||||
Detroit City School District General Obligation Unlimited | ||||||||
7.75% due 05/01/3911 | 750,000 | 914,468 | ||||||
California - 0.2% | ||||||||
Inland Valley Development Agency Tax Allocation | ||||||||
5.50% due 03/01/33 | 170,000 | 180,957 | ||||||
Total Municipal Bonds | ||||||||
(Cost $6,086,665) | 6,389,491 | |||||||
SENIOR FLOATING RATE INTERESTS†† - 3.9% | ||||||||
Communications - 1.2% | ||||||||
Univision Communications, Inc. | ||||||||
4.00% due 03/01/20 | 997,339 | 974,191 | ||||||
Asurion Corp. | ||||||||
5.00% due 08/04/22 | 228,850 | 208,711 | ||||||
5.00% due 05/24/19 | 79,694 | 74,489 | ||||||
50 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
SCHEDULE OF INVESTMENTS (continued) | December 31, 2015 |
SERIES E (TOTAL RETURN BOND SERIES) |
Face | Value | |||||||
MergerMarket Ltd. | ||||||||
4.50% due 02/04/21 | $ | 98,250 | $ | 94,811 | ||||
Total Communications | 1,352,202 | |||||||
Technology - 1.0% | ||||||||
Avago Technologies Ltd. | ||||||||
4.25% due 11/11/22 | 850,000 | 839,911 | ||||||
Greenway Medical Technologies | ||||||||
6.00% due 11/04/209 | 343,000 | 320,705 | ||||||
Total Technology | 1,160,616 | |||||||
Industrial - 0.7% | ||||||||
Capstone Logistics | ||||||||
5.50% due 10/07/21 | 712,588 | 704,571 | ||||||
CareCore National LLC | ||||||||
5.50% due 03/05/21 | 94,389 | 81,175 | ||||||
Total Industrial | 785,746 | |||||||
Consumer, Cyclical - 0.5% | ||||||||
Neiman Marcus Group, Inc. | ||||||||
4.25% due 10/25/20 | 343,015 | 302,711 | ||||||
Ollies Bargain Outlet | ||||||||
4.75% due 09/28/19 | 286,684 | 282,622 | ||||||
Total Consumer, Cyclical | 585,333 | |||||||
Financial - 0.3% | ||||||||
Magic Newco, LLC | ||||||||
5.00% due 12/12/18 | 243,710 | 243,203 | ||||||
American Stock Transfer & Trust | ||||||||
5.75% due 06/26/20 | 95,406 | 92,623 | ||||||
Total Financial | 335,826 | |||||||
Consumer, Non-cyclical - 0.2% | ||||||||
NES Global Talent | ||||||||
6.50% due 10/03/19 | 127,347 | 113,339 | ||||||
Performance Food Group | ||||||||
6.25% due 11/14/19 | 68,107 | 67,823 | ||||||
Total Consumer, Non-cyclical | 181,162 | |||||||
Total Senior Floating Rate Interests | ||||||||
(Cost $4,526,369) | 4,400,885 | |||||||
FOREIGN GOVERNMENT BONDS†† - 1.1% | ||||||||
Kenya Government International Bond | ||||||||
6.87% due 06/24/243 | 700,000 | 612,500 | ||||||
Dominican Republic International Bond | ||||||||
6.85% due 01/27/453 | 600,000 | 565,500 | ||||||
Total Foreign Government Bonds | ||||||||
(Cost $1,348,445) | 1,178,000 | |||||||
Total Investments - 105.0% | ||||||||
(Cost $120,428,450) | $ | 117,596,222 | ||||||
Other Assets & Liabilities, net - (5.0)% | (5,621,830 | ) | ||||||
Total Net Assets - 100.0% | $ | 111,974,392 | ||||||
* | 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, 2015. |
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 $55,964,944 (cost $57,789,108), or 50.0% 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 8. |
5 | Residual interest. |
6 | Security or a portion thereof is held as collateral for reverse repurchase agreements — See Note 12. |
7 | Zero coupon rate security. |
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 | Illiquid security. |
10 | 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 $1,198,659 (cost $1,755,796) or 1.1% of total net assets — See Note 13. |
11 | Security or a portion thereof is held as collateral for line of credit agreement — See Note 10. |
See Sector Classification in Other Information section. |
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 51 |
SCHEDULE OF INVESTMENTS (concluded) | December 31, 2015 |
SERIES E (TOTAL RETURN BOND SERIES) |
The following table summarizes the inputs used to value the Fund’s investments at December 31, 2015 (See Note 4 in the Notes to Financial Statements):
Investments in Securities (Assets) | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Asset-Backed Securities | $ | — | $ | 39,524,764 | $ | — | $ | 39,524,764 | ||||||||
Collateralized Mortgage Obligations | — | 18,741,472 | 237,977 | 18,979,449 | ||||||||||||
Corporate Bonds | — | 15,920,488 | 1,969,243 | 17,889,731 | ||||||||||||
Exchange-Traded Funds | 1,923,026 | — | — | 1,923,026 | ||||||||||||
Foreign Government Bonds | — | 1,178,000 | — | 1,178,000 | ||||||||||||
Municipal Bonds | — | 6,389,491 | — | 6,389,491 | ||||||||||||
Mutual Funds | 18,181,063 | — | — | 18,181,063 | ||||||||||||
Preferred Stocks | — | 781,640 | 643,284 | 1,424,924 | ||||||||||||
Senior Floating Rate Interests | — | 4,400,885 | — | 4,400,885 | ||||||||||||
U.S. Government Securities | — | 7,625,718 | — | 7,625,718 | ||||||||||||
Unit Investment Trusts | 79,171 | — | — | 79,171 | ||||||||||||
Total | $ | 20,183,260 | $ | 94,562,458 | $ | 2,850,504 | $ | 117,596,222 | ||||||||
Transfers between investment levels may occur as the markets fluctuate and/or the availability of data used in the investment’s valuation changes. The Fund recognizes transfers between the levels as of the beginning of the period. As of December 31, 2015, Series E (Total Return Bond Series) had securities with a total value of $978,900 transfer out of Level 3 into Level 2 and a total value of $711,882 transfer into Level 3 from Level 2 due to changes in the securities valuation method. There were no other securities that transferred between levels.
52 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
SERIES E (TOTAL RETURN BOND SERIES) |
STATEMENT OF ASSETS AND LIABILITIES |
December 31, 2015 | ||||
Assets: | ||||
Investments in unaffiliated issuers, at value (cost $99,961,526) | $ | 97,492,133 | ||
Investments in affiliated issuers, at value (cost $20,466,924) | 20,104,089 | |||
Total investments (cost $120,428,450) | 117,596,222 | |||
Cash | 1,080,879 | |||
Prepaid expenses | 5,136 | |||
Receivables: | ||||
Securities sold | 1,030,760 | |||
Fund shares sold | 528,371 | |||
Interest | 497,977 | |||
Dividends | 73,179 | |||
Total assets | 120,812,524 | |||
Liabilities: | ||||
Reverse Repurchase Agreements | 5,921,955 | |||
Payable for: | ||||
Securities purchased | 2,680,382 | |||
Fund shares redeemed | 130,463 | |||
Distribution and service fees | 23,666 | |||
Fund accounting/administration fees | 8,993 | |||
Trustees’ fees* | 5,735 | |||
Management fees | 5,646 | |||
Transfer agent/maintenance fees | 4,008 | |||
Miscellaneous | 57,284 | |||
Total liabilities | 8,838,132 | |||
Commitments and contingent liabilities (Note 16) | — | |||
Net assets | $ | 111,974,392 | ||
Net assets consist of: | ||||
Paid in capital | $ | 117,871,604 | ||
Undistributed net investment income | 4,527,625 | |||
Accumulated net realized loss on investments | (7,592,609 | ) | ||
Net unrealized depreciation on investments | (2,832,228 | ) | ||
Net assets | $ | 111,974,392 | ||
Capital shares outstanding | 7,138,956 | |||
Net asset value per share | $ | 15.68 | ||
STATEMENT OF OPERATIONS |
Year Ended December 31, 2015 | ||||
Investment Income: | ||||
Interest | $ | 5,234,139 | ||
Dividends from securities of affiliated issuers | 297,462 | |||
Dividends from securities of unaffiliated issuers | 144,892 | |||
Total investment income | 5,676,493 | |||
Expenses: | ||||
Management fees | 566,167 | |||
Transfer agent/maintenance fees | 25,188 | |||
Distribution and service fees | 283,084 | |||
Fund accounting/administration fees | 107,570 | |||
Interest expense | 36,055 | |||
Custodian fees | 25,516 | |||
Line of credit fees | 14,753 | |||
Trustees’ fees* | 9,066 | |||
Tax expense | 6 | |||
Miscellaneous | 120,969 | |||
Total expenses | 1,188,374 | |||
Less: | ||||
Expenses waived by Adviser | (253,423 | ) | ||
Net expenses | 934,951 | |||
Net investment income | 4,741,542 | |||
Net Realized and Unrealized Gain (Loss): | ||||
Net realized gain (loss) on: | ||||
Investments in unaffiliated issuers | 284,517 | |||
Investments in affiliated issuers | (2,284 | ) | ||
Foreign currency | 2 | |||
Options purchased | (457,050 | ) | ||
Options written | 196,572 | |||
Net realized gain | 21,757 | |||
Net change in unrealized appreciation (depreciation) on: | ||||
Investments in unaffiliated issuers | (3,065,052 | ) | ||
Investments in affiliated issuers | (308,679 | ) | ||
Net change in unrealized appreciation (depreciation) | (3,373,731 | ) | ||
Net realized and unrealized loss | (3,351,974 | ) | ||
Net increase in net assets resulting from operations | $ | 1,389,568 | ||
* | 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 | 53 |
SERIES E (TOTAL RETURN BOND SERIES) |
STATEMENTS OF CHANGES IN NET ASSETS |
Year Ended | Year Ended | |||||||
Increase (Decrease) in Net Assets from Operations: | ||||||||
Net investment income | $ | 4,741,542 | $ | 3,841,389 | ||||
Net realized gain on investments | 21,757 | 1,411,925 | ||||||
Net change in unrealized appreciation (depreciation) on investments | (3,373,731 | ) | 2,319,377 | |||||
Net increase in net assets resulting from operations | 1,389,568 | 7,572,691 | ||||||
Distributions to shareholders from: | ||||||||
Net investment income | (2,550,797 | ) | — | |||||
Total distributions to shareholders | (2,550,797 | ) | — | |||||
Capital share transactions: | ||||||||
Proceeds from sale of shares | 45,993,430 | 66,326,336 | ||||||
Distributions reinvested | 2,550,797 | — | ||||||
Cost of shares redeemed | (63,058,796 | ) | (40,371,887 | ) | ||||
Net increase (decrease) from capital share transactions | (14,514,569 | ) | 25,954,449 | |||||
Net increase (decrease) in net assets | (15,675,798 | ) | 33,527,140 | |||||
Net assets: | ||||||||
Beginning of year | 127,650,190 | 94,123,050 | ||||||
End of year | $ | 111,974,392 | $ | 127,650,190 | ||||
Undistributed net investment income at end of year | $ | 4,527,625 | $ | 2,294,184 | ||||
Capital share activity: | ||||||||
Shares sold | 2,901,918 | 4,264,463 | ||||||
Shares issued from reinvestment of distributions | 162,782 | — | ||||||
Shares redeemed | (3,957,752 | ) | (2,634,663 | ) | ||||
Net increase (decrease) in shares | (893,052 | ) | 1,629,800 | |||||
54 | 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 | Year Ended | Year Ended | Year Ended | Year Ended | ||||||||||||||||
Per Share Data | ||||||||||||||||||||
Net asset value, beginning of period | $ | 15.89 | $ | 14.70 | $ | 14.45 | $ | 13.65 | $ | 12.98 | ||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||
Net investment income (loss)a | .67 | .58 | .54 | .38 | .34 | |||||||||||||||
Net gain (loss) on investments (realized and unrealized) | (.50 | ) | .61 | (.29 | ) | .42 | .33 | |||||||||||||
Total from investment operations | .17 | 1.19 | .25 | .80 | .67 | |||||||||||||||
Less distributions from: | ||||||||||||||||||||
Net investment income | (.38 | ) | — | — | — | — | ||||||||||||||
Total distributions | (.38 | ) | — | — | — | — | ||||||||||||||
Net asset value, end of period | $ | 15.68 | $ | 15.89 | $ | 14.70 | $ | 14.45 | $ | 13.65 | ||||||||||
Total Returnb | 1.15 | % | 8.10 | % | 1.73 | % | 5.86 | % | 5.16 | % | ||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||
Net assets, end of period (in thousands) | $ | 111,974 | $ | 127,650 | $ | 94,123 | $ | 112,791 | $ | 123,575 | ||||||||||
Ratios to average net assets: | ||||||||||||||||||||
Net investment income (loss) | 4.19 | % | 3.72 | % | 3.69 | % | 2.75 | % | 2.57 | % | ||||||||||
Total expensesc | 1.05 | % | 1.05 | % | 1.07 | % | 0.94 | % | 0.92 | % | ||||||||||
Net expensesd,e | 0.83 | % | 0.85 | % | 0.87 | % | 0.81 | % | 0.81 | % | ||||||||||
Portfolio turnover rate | 85 | % | 62 | % | 109 | % | 79 | % | 49 | % | ||||||||||
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: |
12/31/15 | 12/31/14 | 12/31/13 |
0.78% | 0.79% | 0.81% |
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 55 |
MANAGER’S COMMENTARY (Unaudited) | December 31, 2015 |
To Our Shareholders:
The Series F (Floating Rate 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. In the following paragraphs, the investment team discusses the market environment and Series performance for the fiscal year ended December 31, 2015.
For the one-year period ended December 31, 2015, the Series F (Floating Rate Series) returned 0.73%, compared with -0.38% for its benchmark, the Credit Suisse Leveraged Loan Index.
In 2015, risk assets posted their worst annual performance since the 2008 financial crisis, as market participants’ expectations for the start of rate hikes collided with concerns about plunging commodity prices, and slowing economic growth in China and other emerging-market economies. While the direct impact of a 25-basis-point increase in the Federal Funds target rate in December was fairly insignificant, the decision to commence the “normalization” of interest rates after seven years of unprecedented liquidity provision was not. High-yield bonds posted their first annual loss since 2009, and spreads went to their widest levels since Standard & Poor’s downgraded the United States’ credit rating in 2011. The S&P 500 experienced its first 10 percent correction in four years and saw the weakest annual total return performance (+1.4 percent) since 2008.
The relative stability of the bank-loan market stood out against the volatility of the high-yield bond market earlier in the year, but loans eventually joined high-yield bonds in posting their first annual loss since 2008. In reviewing the loan market’s 2015 performance, it is difficult to attribute market weakness to a single cause. In June, a weak global environment combined with the Fed’s decision to postpone raising interest rates weighed on the loan market as uncertainty grew over the timing of the first rate hike and future path for short-term rates. Loans rebounded in July, but heightened volatility across all risk assets in August led to the second negative monthly return for loans in 2015, which continued through the end of the year. Loans recorded five consecutive months of negative returns between August and December 2015, the first such string since 2008.
Fund performance for the period was primarily a result of credit selection, as Guggenheim’s bottom-up, fundamental approach results in the construction of portfolios that have the potential to provide downside protection and outperform when the broader market underperforms. The Fund’s underweight exposure to the energy and utility sectors relative to the broader market contributed to outperformance relative to the benchmark.
Predictably, the energy and the metals industries were the worst-performing industries in both the high yield and bank loan markets in 2015. Food/drug, food/tobacco, and housing delivered positive returns for the year, and were more closely tied to the consumer.
In both high-yield bond and bank loan markets, higher quality outperformed lower quality in 2015. BB-rated loans managed to deliver a positive 2.6% return in 2015, versus losses of 0.2% and 6.1% for B-rated loans and CCC-rated loans, respectively. The relative outperformance of loans is consistent with our view that higher-quality high-yield offers better relative value as the market matures.
The theme of staying up in quality was also prevalent in the new issue market. In the loan market, CCC-rated volume fell to only 3% of total primary market activity in 2015, down from 7% in 2014, while the share of BB-rated volume rose significantly to 39% in 2015, up from 27% in 2014.
New issue volumes in the loan market in 2015 were 31% lower than 2014 volume as investors grew wary of risk. In addition to lower issuance of deals rated CCC or lower compared to the prior year, only 19% of loans were originated with greater than 6x leverage—well below the 27% share of such deals in 2014. This trend reversal suggests that recent regulatory efforts to curb highly levered transactions have been successful.
56 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
MANAGER’S COMMENTARY (Unaudited)(concluded) | December 31, 2015 |
While the macroeconomic backdrop is still supportive for credit markets, the risk of contagion from distressed sectors, such as energy, bears watching. However, a genuine turning point in credit will not be reached until a U.S. recession looms and underlying corporate fundamentals no longer support a low default environment—neither of which was true at the end of 2015.
The general trends that affected the leveraged credit markets in 2015—namely poor liquidity conditions and an aversion to the lowest quality credits—may continue to sporadically impact market performance through the Fed tightening cycle. Against a weakening technical backdrop, we’ve been managing liquidity carefully but continue to see opportunities based on the underlying fundamentals.
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 | 57 |
PERFORMANCE REPORT AND FUND PROFILE (Unaudited) | December 31, 2015 |
SERIES F (FLOATING RATE STRATEGIES SERIES)
OBJECTIVE: Seeks to provide a high level of 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.
Inception Date: April 24, 2013 |
Ten Largest Holdings (% of Total Net Assets) | |
HUB International Ltd. | 1.8% |
Cengage Learning Acquisitions, Inc. | 1.7% |
National Financial Partners Corp. | 1.5% |
The Active Network, Inc. | 1.4% |
Gates Global, Inc. | 1.3% |
Pharmaceutical Product Development | 1.2% |
Univar, Inc. | 1.2% |
Numericable US LLC | 1.2% |
Phillips-Medsize Corp. | 1.2% |
Acosta, Inc. | 1.2% |
Top Ten Total | 13.7% |
“Ten Largest Holdings” excludes any temporary cash or derivative investments. | |
58 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
PERFORMANCE REPORT AND FUND PROFILE (Unaudited)(concluded) | December 31, 2015 |
Cumulative Fund Performance*,†
Average Annual Returns*
Periods Ended December 31, 2015†
1 Year | Since Inception | |
Series F (Floating Rate Strategies Series) | 0.73% | 2.08% |
Credit Suisse Leveraged Loan Index | -0.38% | 1.77% |
Portfolio Composition by Quality Rating** | |
Rating | |
Fixed Income Instruments | |
AA | 1.0% |
A | 2.1% |
BBB | 4.3% |
BB | 23.9% |
B | 55.7% |
CCC | 3.1% |
NR1 | 1.1% |
Other Instruments | 8.8% |
Total Investments | 100.0% |
The chart above reflects percentages of the value of total investments. | |
* | 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: BlackRock Solutions. Credit quality ratings are measured on a scale that generally ranges from AAA (highest) to D (lowest). All securities except for those labeled “NR” 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. 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. |
1 | NR securities do not necessarily indicate low credit quality. |
THE GUGGENHEIM FUNDS ANNUAL REPORT | 59 |
SCHEDULE OF INVESTMENTS | December 31, 2015 |
SERIES F (FLOATING RATE STRATEGIES SERIES) |
| Value | |||||||
SHORT TERM INVESTMENTS† - 8.8% | ||||||||
Federated U.S. Treasury Cash Reserve Fund 0.00%5 | 4,283,249 | $ | 4,283,249 | |||||
Total Short Term Investments | ||||||||
(Cost $4,283,249) | 4,283,249 | |||||||
Face | ||||||||
SENIOR FLOATING RATE INTERESTS††,1 - 81.3% | ||||||||
Industrial - 18.5% | ||||||||
Gates Global, Inc. | ||||||||
4.25% due 07/03/21 | $ | 668,668 | 625,679 | |||||
Pregis Holding I Corp. | ||||||||
4.50% due 05/20/21 | 496,654 | 486,721 | ||||||
Berry Plastics Corp. | ||||||||
4.00% due 10/01/22 | 486,845 | 481,977 | ||||||
Transdigm, Inc. | ||||||||
3.50% due 05/14/22 | 496,430 | 479,765 | ||||||
Brickman Group Holdings, Inc. | ||||||||
4.00% due 12/18/20 | 490,511 | 474,069 | ||||||
GYP Holdings III Corp. | ||||||||
4.75% due 04/01/21 | 492,500 | 468,697 | ||||||
Landmark Aviation (US) | ||||||||
4.75% due 10/25/19 | 457,319 | 454,556 | ||||||
Power Borrower, LLC | ||||||||
4.25% due 05/06/20 | 425,951 | 413,526 | ||||||
Exopack Holdings SA | ||||||||
4.50% due 05/08/19 | 421,772 | 408,592 | ||||||
USIC Holding, Inc. | ||||||||
4.00% due 07/10/20 | 419,771 | 391,436 | ||||||
Amber Bidco Ltd. | ||||||||
4.32% due 06/30/21†††,4 | 350,000 | 344,464 | ||||||
Thermasys Corp. | ||||||||
5.25% due 05/03/19 | 375,000 | 325,313 | ||||||
Nord Anglia Education Finance LLC | ||||||||
5.00% due 03/31/21 | 312,831 | 304,619 | ||||||
Pro Mach Group, Inc. | ||||||||
4.75% due 10/22/21 | 298,243 | 294,017 | ||||||
Mitchell International, Inc. | ||||||||
8.50% due 10/11/21 | 300,000 | 285,501 | ||||||
CareCore National LLC | ||||||||
5.50% due 03/05/21 | 312,524 | 268,771 | ||||||
Beacon Roofing Supply, Inc. | ||||||||
4.00% due 10/03/22 | 250,000 | 247,813 | ||||||
Quanex Building Products Corp. | ||||||||
6.25% due 11/02/22 | 250,000 | 247,500 | ||||||
Learning Care Group (US), Inc. | ||||||||
5.00% due 05/05/21 | 246,994 | 244,833 | ||||||
Travelport Holdings LLC | ||||||||
5.75% due 09/02/21 | 199,496 | 194,820 | ||||||
Vat Holding AG | ||||||||
4.25% due 02/11/21 | 195,031 | 190,643 | ||||||
SI Organization | ||||||||
5.75% due 11/22/19 | 175,569 | 174,526 | ||||||
Bioplan USA, Inc. | ||||||||
5.75% due 09/23/21 | 198,500 | 170,214 | ||||||
Mast Global | ||||||||
7.75% due 09/12/19†††,4 | 135,000 | 134,159 | ||||||
8.75% due 09/12/19†††,4 | 29,921 | 29,735 | ||||||
Doncasters Group Ltd. | ||||||||
9.50% due 10/09/20 | 135,172 | 128,414 | ||||||
CEVA Logistics US Holdings | ||||||||
6.50% due 03/19/21 | 144,758 | 118,702 | ||||||
syncreon | ||||||||
5.25% due 10/28/20 | 136,000 | 109,650 | ||||||
NANA Development Corp. | ||||||||
8.00% due 03/15/184 | 112,500 | 106,875 | ||||||
SRS Distribution, Inc. | ||||||||
5.25% due 08/25/22 | 100,000 | 98,906 | ||||||
CEVA Logistics Holdings BV (Dutch) | ||||||||
6.50% due 03/19/21 | 105,218 | 86,279 | ||||||
CEVA Group Plc (United Kingdom) | ||||||||
6.50% due 03/19/21 | 101,812 | 83,486 | ||||||
Crosby Worldwide | ||||||||
4.00% due 11/23/20 | 96,834 | 75,530 | ||||||
Landmark Aviation (CAD) | ||||||||
4.75% due 10/25/19 | 16,979 | 16,877 | ||||||
CEVA Logistics Canada, ULC | ||||||||
6.50% due 03/19/21 | 18,141 | 14,876 | ||||||
Total Industrial | 8,981,541 | |||||||
Consumer, Cyclical - 15.7% | ||||||||
Acosta, Inc. | ||||||||
4.25% due 09/26/21 | 596,005 | 565,566 | ||||||
BJ’s Wholesale Club, Inc. | ||||||||
4.50% due 09/26/19 | 591,464 | 565,338 | ||||||
Life Time Fitness | ||||||||
4.25% due 06/10/22 | 572,873 | 557,480 | ||||||
Fitness International LLC | ||||||||
5.50% due 07/01/20 | 591,000 | 543,720 | ||||||
Warner Music Group | ||||||||
3.75% due 07/01/20 | 545,188 | 514,974 | ||||||
Ipreo Holdings | ||||||||
4.00% due 08/06/21 | 496,250 | 475,408 | ||||||
Sears Holdings Corp. | ||||||||
5.50% due 06/30/18 | 496,203 | 463,949 | ||||||
National Vision, Inc. | ||||||||
4.00% due 03/12/21 | 445,466 | 427,091 | ||||||
Ceridian Corp. | ||||||||
4.50% due 09/15/20 | 488,329 | 413,249 | ||||||
Smart & Final Stores LLC | ||||||||
4.00% due 11/15/19 | 414,105 | 407,893 | ||||||
Navistar, Inc. | ||||||||
6.50% due 08/07/20 | 450,000 | 394,502 | ||||||
Compucom Systems, Inc. | ||||||||
4.25% due 05/11/20 | 589,321 | 369,309 | ||||||
60 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
SCHEDULE OF INVESTMENTS (continued) | December 31, 2015 |
SERIES F (FLOATING RATE STRATEGIES SERIES) |
Face | Value | |||||||
Party City Holdings, Inc. | ||||||||
4.25% due 08/19/22 | $ | 349,125 | $ | 338,435 | ||||
Advantage Sales & Marketing, Inc. | ||||||||
4.25% due 07/23/21 | 349,116 | 335,054 | ||||||
Belk, Inc. | ||||||||
5.75% due 12/12/22 | 350,000 | 307,563 | ||||||
Talbots, Inc. | ||||||||
5.50% due 03/19/20 | 248,106 | 233,220 | ||||||
Mattress Firm | ||||||||
5.00% due 10/20/21 | 224,417 | 221,892 | ||||||
Sterling Intermidiate Corp. | ||||||||
4.50% due 06/20/22 | 174,125 | 172,210 | ||||||
Ollies Bargain Outlet | ||||||||
4.75% due 09/28/19 | 121,847 | 120,120 | ||||||
Equinox Fitness | ||||||||
5.00% due 01/31/20 | 99,495 | 98,293 | ||||||
NPC International, Inc. | ||||||||
4.75% due 12/28/18 | 99,485 | 98,075 | ||||||
Total Consumer, Cyclical | 7,623,341 | |||||||
Financial - 11.8% | ||||||||
HUB International Ltd. | ||||||||
4.00% due 10/02/20 | 935,385 | 880,430 | ||||||
National Financial Partners Corp. | ||||||||
4.50% due 07/01/20 | 743,232 | 712,261 | ||||||
Assured Partners, Inc. | ||||||||
5.75% due 10/21/22 | 500,000 | 495,835 | ||||||
York Risk Services | ||||||||
4.75% due 10/01/21 | 494,987 | 466,526 | ||||||
Lineage Logistics LLC | ||||||||
4.50% due 04/07/21 | 491,250 | 442,125 | ||||||
Hyperion Insurance | ||||||||
5.50% due 04/29/22 | 447,372 | 440,662 | ||||||
Acrisure LLC | ||||||||
6.50% due 05/19/22 | 448,875 | 429,237 | ||||||
Fly Leasing Ltd. | ||||||||
3.50% due 08/09/19 | 366,000 | 361,791 | ||||||
Transunion Holding Co. | ||||||||
3.50% due 04/09/21 | 350,000 | 339,353 | ||||||
American Stock Transfer & Trust | ||||||||
5.75% due 06/26/20 | 286,219 | 277,870 | ||||||
Cunningham Lindsey U.S., Inc. | ||||||||
5.00% due 12/10/194 | 381,114 | 245,818 | ||||||
Corporate Capital Trust | ||||||||
4.00% due 05/20/19 | 196,500 | 194,044 | ||||||
Expert Global Solutions | ||||||||
8.50% due 04/03/18 | 161,981 | 161,037 | ||||||
Harbourvest | ||||||||
3.25% due 02/04/21 | 158,614 | 156,234 | ||||||
LPL Financial Holdings, Inc. | ||||||||
4.75% due 11/21/22 | 125,000 | 124,688 | ||||||
Total Financial | 5,727,911 | |||||||
Consumer, Non-cyclical - 10.6% | ||||||||
Pharmaceutical Product Development | ||||||||
4.25% due 08/18/22 | 597,000 | 579,089 | ||||||
Phillips-Medsize Corp. | ||||||||
4.75% due 06/16/21 | 591,000 | 574,009 | ||||||
Hearthside Foods | ||||||||
4.50% due 06/02/21 | 496,864 | 486,097 | ||||||
DJO Finance LLC | ||||||||
4.25% due 06/07/20 | 498,750 | 483,942 | ||||||
Valeant Pharmaceuticals International, Inc. | ||||||||
4.00% due 04/01/22 | 496,250 | 476,276 | ||||||
Authentic Brands | ||||||||
5.50% due 05/27/21 | 474,181 | 465,489 | ||||||
9.50% due 05/27/21 | 19,242 | 18,981 | ||||||
NES Global Talent | ||||||||
6.50% due 10/03/19 | 426,125 | 379,251 | ||||||
Dole Food Company, Inc. | ||||||||
4.50% due 11/01/18 | 344,119 | 341,253 | ||||||
American Tire Distributors, Inc. | ||||||||
5.25% due 09/01/21 | 345,265 | 338,936 | ||||||
Reddy Ice Holdings, Inc. | ||||||||
6.75% due 05/01/194 | 389,975 | 318,317 | ||||||
Endo Luxembourg Finance Co. | ||||||||
3.75% due 09/25/22 | 300,000 | 295,626 | ||||||
Pinnacle Foods Corp. | ||||||||
3.00% due 04/29/20 | 200,000 | 196,472 | ||||||
Physio-Control International, Inc. | ||||||||
5.50% due 06/06/22 | 110,000 | 107,800 | ||||||
CTI Foods Holding Co. LLC | ||||||||
8.25% due 06/28/21 | 80,000 | 72,000 | ||||||
Total Consumer, Non-cyclical | 5,133,538 | |||||||
Communications - 10.4% | ||||||||
Cengage Learning Acquisitions, Inc. | ||||||||
7.00% due 03/31/20 | 842,989 | 819,807 | ||||||
Numericable US LLC | ||||||||
4.75% due 02/10/23 | 600,000 | 575,358 | ||||||
Neptune Finco Corp. | ||||||||
5.00% due 10/10/22 | 500,000 | 498,595 | ||||||
Univision Communications, Inc. | ||||||||
4.00% due 02/28/20 | 497,366 | 485,927 | ||||||
Ziggo BV | ||||||||
3.50% due 01/14/22 | EUR | 315,106 | 305,609 | |||||
3.50% due 01/15/22 | 184,894 | 179,321 | ||||||
Live Nation Worldwide, Inc. | ||||||||
3.50% due 08/14/20 | 391,000 | 389,166 | ||||||
Houghton Mifflin Co. | ||||||||
4.00% due 05/31/21 | 398,000 | 381,085 | ||||||
Springer Science + Business Media SA | ||||||||
4.75% due 08/14/20 | 351,186 | 335,734 | ||||||
MergerMarket Ltd. | ||||||||
4.50% due 02/04/21 | 343,875 | 331,839 | ||||||
Asurion Corp. | ||||||||
5.00% due 08/04/22 | 189,050 | 172,414 | ||||||
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 61 |
SCHEDULE OF INVESTMENTS (continued) | December 31, 2015 |
SERIES F (FLOATING RATE STRATEGIES SERIES) |
Face | Value | |||||||
5.00% due 05/24/19 | $ | 66,492 | $ | 62,149 | ||||
Anaren, Inc. | ||||||||
5.50% due 02/18/21 | 141,841 | 137,586 | ||||||
9.25% due 08/18/21 | 100,000 | 91,250 | ||||||
Virgin Media Bristol LLC | ||||||||
3.50% due 06/30/23 | 201,996 | 197,546 | ||||||
Light Tower Fiber LLC | ||||||||
4.00% due 04/13/20 | 99,490 | 96,654 | ||||||
Total Communications | 5,060,040 | |||||||
Technology - 9.0% | ||||||||
The Active Network, Inc. | ||||||||
5.50% due 11/13/20 | 721,987 | 696,119 | ||||||
Avago Technologies Ltd. | ||||||||
4.25% due 11/11/22 | 500,000 | 494,065 | ||||||
Informatica Corp. | ||||||||
4.50% due 08/05/22 | 498,750 | 478,980 | ||||||
CCC Information Services, Inc. | ||||||||
4.00% due 12/20/19 | 441,573 | 432,742 | ||||||
EIG Investors Corp. | ||||||||
5.00% due 11/09/194 | 389,040 | 378,342 | ||||||
Greenway Medical Technologies | ||||||||
6.00% due 11/04/204 | 392,000 | 366,520 | ||||||
Aspect Software, Inc. | ||||||||
3.75% due 05/09/16 | 365,342 | 334,898 | ||||||
Avaya, Inc. | ||||||||
6.25% due 05/29/20 | 197,056 | 136,187 | ||||||
6.50% due 03/30/18 | 161,443 | 121,127 | ||||||
Advanced Computer Software | ||||||||
6.50% due 03/18/22 | 248,125 | 241,922 | ||||||
IMS Health | ||||||||
3.50% due 03/17/21 | 248,106 | 241,903 | ||||||
Sparta Holding Corp. | ||||||||
6.50% due 07/28/20††† | 197,500 | 195,994 | ||||||
Flexera Software LLC | ||||||||
8.00% due 04/02/21 | 100,000 | 93,750 | ||||||
Infor, Inc. | ||||||||
3.75% due 06/03/20 | 96,219 | 90,205 | ||||||
CPI Acquisition, Inc. | ||||||||
5.50% due 08/17/22 | 71,839 | 70,897 | ||||||
Total Technology | 4,373,651 | |||||||
Basic Materials - 3.8% | ||||||||
Univar, Inc. | ||||||||
4.25% due 07/01/22 | 598,500 | 578,133 | ||||||
Ennis-Flint | ||||||||
4.25% due 03/31/214 | 294,750 | 284,926 | ||||||
7.75% due 09/30/214 | 100,000 | 92,000 | ||||||
Royal Adhesives And Sealants | ||||||||
4.50% due 06/19/22 | 348,250 | 341,504 | ||||||
INEOS US Finance LLC | ||||||||
4.25% due 03/31/22 | 198,499 | 191,056 | ||||||
Atkore International, Inc. | ||||||||
7.75% due 10/08/214 | 200,000 | 174,000 | ||||||
Noranda Aluminum Acquisition Corp. | ||||||||
5.75% due 02/28/19 | 178,608 | 90,644 | ||||||
WR Grace & Co. | ||||||||
2.75% due 02/03/21 | 77,431 | 76,479 | ||||||
Total Basic Materials | 1,828,742 | |||||||
Energy - 0.9% | ||||||||
Cactus Wellhead | ||||||||
7.00% due 07/31/20 | 544,500 | 386,595 | ||||||
Floatel International Ltd. | ||||||||
6.00% due 06/26/20 | 117,258 | 51,359 | ||||||
Total Energy | 437,954 | |||||||
Utilities - 0.6% | ||||||||
Stonewall (Green Energy) | ||||||||
6.50% due 11/12/21 | 300,000 | 276,000 | ||||||
Total Senior Floating Rate Interests | ||||||||
(Cost $41,746,946) | 39,442,718 | |||||||
ASSET-BACKED SECURITIES†† - 6.5% | ||||||||
Collateralized Loan Obligations - 3.9% | ||||||||
Garrison Funding Ltd. | ||||||||
2013-2A, 5.02% due 09/25/231,2 | 250,000 | 249,098 | ||||||
ACIS CLO Ltd. | ||||||||
2013-2A, 4.17% due 10/14/221,2 | 250,000 | 243,818 | ||||||
NewStar Arlington Senior Loan Program LLC | ||||||||
2014-1A, 3.62% due 07/25/251,2 | 250,000 | 241,651 | ||||||
Kingsland III Ltd. | ||||||||
2006-3A, 1.98% due 08/24/211,2 | 250,000 | 240,507 | ||||||
Cerberus Onshore II CLO LLC | ||||||||
2014-1A, 4.32% due 10/15/231,2 | 250,000 | 240,450 | ||||||
Newstar Commercial Loan Funding LLC | ||||||||
2013-1A, 5.12% due 09/20/231,2 | 250,000 | 235,448 | ||||||
ALM XIV Ltd. | ||||||||
2014-14A, 3.77% due 07/28/261,2 | 250,000 | 229,573 | ||||||
Kingsland IV Ltd. | ||||||||
2007-4A, 1.77% due 04/16/211,2 | 250,000 | 226,653 | ||||||
Total Collateralized Loan Obligations | 1,907,198 | |||||||
Collateralized Debt Obligations - 1.9% | ||||||||
Gramercy Real Estate CDO Ltd. | ||||||||
2007-1A, 0.64% due 08/15/561,2 | 455,076 | 426,860 | ||||||
N-Star Real Estate CDO IX Ltd. | ||||||||
2006-8A, 0.56% due 02/01/414 | 274,230 | 265,331 | ||||||
RAIT CRE CDO I Ltd. | ||||||||
2006-1X, 0.53% due 11/20/46 | 239,968 | 226,764 | ||||||
Total Collateralized Debt Obligations | 918,955 | |||||||
Transport-Aircraft - 0.7% | ||||||||
Castlelake Aircraft Securitization Trust | ||||||||
2014-1, 5.25% due 02/15/292 | 355,191 | 346,666 | ||||||
Total Asset-Backed Securities | ||||||||
(Cost $3,114,231) | 3,172,819 | |||||||
62 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
SCHEDULE OF INVESTMENTS (concluded) | December 31, 2015 |
SERIES F (FLOATING RATE STRATEGIES SERIES) |
Face | Value | |||||||
COLLATERALIZED MORTGAGE OBLIGATIONS†† - 1.0% | ||||||||
Residential Mortgage Backed Securities - 1.0% | ||||||||
GreenPoint Mortgage Funding Trust | ||||||||
2006-AR1, 0.71% due 02/25/361 | $ | 217,572 | $ | 170,248 | ||||
Bear Stearns Mortgage Funding Trust | ||||||||
2007-AR5, 0.59% due 06/25/471 | 140,493 | 108,197 | ||||||
Nomura Resecuritization Trust | ||||||||
2012-1R, 0.86% due 08/27/471,2 | 105,439 | 99,523 | ||||||
Morgan Stanley Re-REMIC Trust | ||||||||
2010-R5, 0.58% due 06/26/361,2 | 112,769 | 81,540 | ||||||
New Century Home Equity Loan Trust | ||||||||
2004-4, 1.22% due 02/25/351 | 28,397 | 22,914 | ||||||
Total Residential Mortgage Backed Securities | 482,422 | |||||||
Total Collateralized Mortgage Obligations | ||||||||
(Cost $512,671) | 482,422 | |||||||
CORPORATE BONDS†† - 0.7% | ||||||||
Consumer, Non-cyclical - 0.6% | ||||||||
Tenet Healthcare Corp. | ||||||||
4.01% due 06/15/201 | 300,000 | 292,500 | ||||||
Energy - 0.1% | ||||||||
FTS International, Inc. | ||||||||
8.01% due 06/15/201,2 | 100,000 | 68,024 | ||||||
Total Corporate Bonds | ||||||||
(Cost $398,934) | 360,524 | |||||||
SENIOR FIXED RATE INTERESTS†† - 0.5% | ||||||||
Financial - 0.5% | ||||||||
Magic Newco, LLC | ||||||||
12.00% due 06/12/19 | 250,000 | 266,563 | ||||||
Total Senior Fixed Rate Interests | ||||||||
(Cost $272,007) | 266,563 | |||||||
Total Investments - 98.8% | ||||||||
(Cost $50,328,038) | $ | 48,008,295 | ||||||
Other Assets & Liabilities, net - 1.2% | 589,381 | |||||||
Total Net Assets - 100.0% | $ | 48,597,676 | ||||||
† | 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, 2015. |
2 | Security is a 144A or Section 4(a)(2) security. The total market value of 144A or Section 4(a)(2) securities is $3,222,312 (cost $3,243,395), or 6.6% of total net assets. These securities have been determined to be liquid under guidelines established by the Board of Trustees. |
3 | The face amount is denominated in U.S. Dollars unless otherwise indicated. |
4 | Illiquid security. |
5 | Rate indicated is the 7 day yield as of December 31, 2015. |
See Sector Classification in Other Information section. |
The following table summarizes the inputs used to value the Fund’s investments at December 31, 2015 (See Note 4 in the Notes to Financial Statements):
Investments in Securities (Assets) | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Asset-Backed Securities | $ | — | $ | 3,172,819 | $ | — | $ | 3,172,819 | ||||||||
Collateralized Mortgage Obligations | — | 482,422 | — | 482,422 | ||||||||||||
Corporate Bonds | — | 360,524 | — | 360,524 | ||||||||||||
Senior Fixed Rate Interests | — | 266,563 | — | 266,563 | ||||||||||||
Senior Floating Rate Interests | — | 38,738,366 | 704,352 | 39,442,718 | ||||||||||||
Short Term Investments | 4,283,249 | — | — | 4,283,249 | ||||||||||||
Total | $ | 4,283,249 | $ | 43,020,694 | $ | 704,352 | $ | 48,008,295 | ||||||||
For the year ended December 31, 2015, there were no transfers between levels.
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 63 |
SERIES F (FLOATING RATE STRATEGIES SERIES) |
STATEMENT OF ASSETS AND LIABILITIES |
December 31, 2015 | ||||
Assets: | ||||
Investments, at value (cost $50,328,038) | $ | 48,008,295 | ||
Cash | 557,196 | |||
Prepaid expenses | 2,228 | |||
Receivables: | ||||
Securities sold | 1,056,607 | |||
Interest | 171,387 | |||
Fund shares sold | 61,711 | |||
Total assets | 49,857,424 | |||
Liabilities: | ||||
Payable for: | ||||
Securities purchased | 1,187,125 | |||
Distribution and service fees | 10,423 | |||
Management fees | 5,767 | |||
Fund shares redeemed | 4,304 | |||
Fund accounting/administration fees | 3,960 | |||
Trustees’ fees* | 2,437 | |||
Transfer agent/maintenance fees | 2,194 | |||
Miscellaneous | 43,538 | |||
Total liabilities | 1,259,748 | |||
Commitments and contingent liabilities (Note 16) | — | |||
Net assets | $ | 48,597,676 | ||
Net assets consist of: | ||||
Paid in capital | $ | 48,645,133 | ||
Undistributed net investment income | 2,172,408 | |||
Accumulated net realized gain on investments | 99,878 | |||
Net unrealized depreciation on investments | (2,319,743 | ) | ||
Net assets | $ | 48,597,676 | ||
Capital shares outstanding | 1,889,519 | |||
Net asset value per share | $ | 25.72 | ||
STATEMENT OF OPERATIONS |
Year Ended December 31, 2015 | ||||
Investment Income: | ||||
Interest (net of foreign withholding tax of $58) | $ | 2,591,816 | ||
Total investment income | 2,591,816 | |||
Expenses: | ||||
Management fees | 348,742 | |||
Transfer agent/maintenance fees | 25,157 | |||
Distribution and service fees | 134,131 | |||
Fund accounting/administration fees | 50,969 | |||
Professional fees | 61,973 | |||
Custodian fees | 11,081 | |||
Line of credit fees | 6,735 | |||
Trustees’ fees* | 5,565 | |||
Interest expense | 1,646 | |||
Tax expense | 3 | |||
Miscellaneous | 33,441 | |||
Total expenses | 679,443 | |||
Less: | ||||
Expenses waived by Adviser | (52,144 | ) | ||
Net expenses | 627,299 | |||
Net investment income | 1,964,517 | |||
Net Realized and Unrealized Gain (Loss): | ||||
Net realized gain (loss) on: | ||||
Investments | 121,044 | |||
Net realized gain | 121,044 | |||
Net change in unrealized appreciation (depreciation) on: | ||||
Investments | (1,711,367 | ) | ||
Net change in unrealized appreciation (depreciation) | (1,711,367 | ) | ||
Net realized and unrealized loss | (1,590,323 | ) | ||
Net increase in net assets resulting from operations | $ | 374,194 | ||
* | Relates to Trustees not deemed “interested persons” within the meaning of Section 2(a)(19) of the 1940 Act. |
64 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
SERIES F (FLOATING RATE STRATEGIES SERIES) |
STATEMENTS OF CHANGES IN NET ASSETS |
Year Ended | Year Ended | |||||||
Increase (Decrease) in Net Assets from Operations: | ||||||||
Net investment income | $ | 1,964,517 | $ | 1,853,389 | ||||
Net realized gain on investments | 121,044 | 145,895 | ||||||
Net change in unrealized appreciation (depreciation) on investments | (1,711,367 | ) | (826,040 | ) | ||||
Net increase in net assets resulting from operations | 374,194 | 1,173,244 | ||||||
Distributions to shareholders from: | ||||||||
Net investment income | (1,565,356 | ) | — | |||||
Net realized gains | (102,831 | ) | — | |||||
Total distributions to shareholders | (1,668,187 | ) | — | |||||
Capital share transactions: | ||||||||
Proceeds from sale of shares | 63,234,862 | 50,117,000 | ||||||
Distributions reinvested | 1,668,187 | — | ||||||
Cost of shares redeemed | (60,848,174 | ) | (51,795,965 | ) | ||||
Net increase (decrease) from capital share transactions | 4,054,875 | (1,678,965 | ) | |||||
Net increase (decrease) in net assets | 2,760,882 | (505,721 | ) | |||||
Net assets: | ||||||||
Beginning of year | 45,836,794 | 46,342,515 | ||||||
End of year | $ | 48,597,676 | $ | 45,836,794 | ||||
Undistributed net investment income at end of year | $ | 2,172,408 | $ | 1,752,081 | ||||
Capital share activity: | ||||||||
Shares sold | 2,378,527 | 1,921,033 | ||||||
Shares issued from reinvestment of distributions | 63,381 | — | ||||||
Shares redeemed | (2,299,441 | ) | (1,983,273 | ) | ||||
Net increase (decrease) in shares | 142,467 | (62,240 | ) | |||||
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 65 |
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 | Year Ended | Period Ended | ||||||||||
Per Share Data | ||||||||||||
Net asset value, beginning of period | $ | 26.24 | $ | 25.61 | $ | 25.00 | ||||||
Income (loss) from investment operations: | ||||||||||||
Net investment income (loss)b | .97 | .95 | .49 | |||||||||
Net gain (loss) on investments (realized and unrealized) | (.77 | ) | (.32 | ) | .12 | |||||||
Total from investment operations | .20 | .63 | .61 | |||||||||
Less distributions from: | ||||||||||||
Net investment income | (.67 | ) | — | — | ||||||||
Net realized gains | (.05 | ) | — | — | ||||||||
Total distributions | (.72 | ) | — | — | ||||||||
Net asset value, end of period | $ | 25.72 | $ | 26.24 | $ | 25.61 | ||||||
Total Returnc | 0.73 | % | 2.38 | % | 2.48 | % | ||||||
Ratios/Supplemental Data | ||||||||||||
Net assets, end of period (in thousands) | $ | 48,598 | $ | 45,837 | $ | 46,343 | ||||||
Ratios to average net assets: | ||||||||||||
Net investment income (loss) | 3.66 | % | 3.65 | % | 2.81 | % | ||||||
Total expenses | 1.27 | % | 1.24 | % | 1.35 | %d | ||||||
Net expensese | 1.17 | % | 1.16 | % | 1.17 | % | ||||||
Portfolio turnover rate | 73 | % | 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: |
12/31/15 | 12/31/14 | 12/31/13 |
1.15% | 1.15% | 1.15% |
66 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
MANAGER’S COMMENTARY (Unaudited) | December 31, 2015 |
To Our Shareholders:
The Series J (StylePlusTM—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, 2015.
For the year ended December 31, 2015, the Series J (StylePlus—Mid Growth Series) returned -0.08%, compared with the -0.20% return of its benchmark, the Russell Midcap® Growth Index.
Through a combination of an allocation to actively managed individual equity, passive equity, and actively managed fixed income, the Fund seeks to exceed the total return of the Russell Midcap Growth Index. The allocation to actively managed individual equity via stocks, and passive equity via derivatives such as swap agreements, is designed to provide exposure to midcap growth equity.
Remaining Fund assets are invested in the Guggenheim Strategy Funds, short-term fixed-income investment companies advised by Guggenheim Investments. The Guggenheim Strategy Funds invest in a diversified portfolio of debt securities and financial instruments providing exposure to fixed income markets. The investment objective of the Guggenheim Strategy Funds is to seek a high level of income consistent with the preservation of capital.
The actively managed equity and fixed-income components seek to provide multiple sources of outperformance and take advantage of Guggenheim’s competencies in both fixed income and systematic stock selection. The fixed-income component invests in a variety of credit sectors, including asset-backed securities (ABS), mortgage-backed securities (MBS), high yield corporate bonds, and bank loans.
The active and passive decisions seek to add value by tactically allocating to actively managed equity through quantitative selection models when stock picking opportunities are high. During periods when Guggenheim views these opportunities to be less attractive, the Fund seeks to increase its passive exposure to equities and the allocation to fixed-income securities. The prospective return during such periods is the equity index plus an “alpha” component coming from the yield of the fixed-income overlay.
Performance Review
The Fund outperformed the benchmark for the period. The fixed-income sleeve, represented by investment in the Guggenheim Strategy Funds, was the largest positive contributor to performance. Uncorrelated with the Fund’s active equity component, the Guggenheim Strategy Funds were invested in short duration asset-backed securities (ABS), collateralized mortgage obligations, corporate bonds, and cash equivalents. Positive returns were driven largely by carry in asset-backed securities, mortgage-backed securities, and corporate bonds.
The actively managed equity sleeve contributed slightly to performance. The passive equity position, maintained through swap agreements, was a detractor from performance for the period.
When compared with the index, the total equity position (actively managed individual equity plus passive equity derivatives) was most overweight the Industrials and Consumer Staples sectors and most underweight the Financials and Consumer Discretionary sectors.
For the Fund’s total equity position over the period, 15-20% was allocated to actively managed equity and 80-85% to passive equity. The actively managed equity sleeve decreased toward 15% over the period as the outlook for active stock selection grew less favorable, with a corresponding higher allocation of 85% to the passive equity position.
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 | 67 |
PERFORMANCE REPORT AND FUND PROFILE (Unaudited) | December 31, 2015 |
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. Investments in those Funds do not provide “market exposure” to meet the Fund’s investment objective, but will significantly increase the portfolio’s exposure to certain other asset categories (and their associated risks), which may cause the Fund to deviate from its principal investment strategy, including: (i) high yield, high risk debt securities rated below the top four long-term rating categories by a nationally recognized statistical rating organization (also known as “junk bonds”); (ii) securities issued by the U.S. Government or its agencies and instrumentalities; (iii) CLOs and similar investments; and (iv) other short-term fixed income securities.
Inception Date: October 1, 1992 |
Ten Largest Holdings (% of Total Net Assets) | |
Guggenheim Variable Insurance Strategy Fund III | 26.0% |
Guggenheim Strategy Fund II | 23.7% |
Guggenheim Strategy Fund I | 18.7% |
Guggenheim Strategy Fund III | 12.8% |
Kellogg Co. | 0.3% |
Southwest Airlines Co. | 0.3% |
BioMarin Pharmaceutical, Inc. | 0.3% |
AmerisourceBergen Corp. — Class A | 0.3% |
United Continental Holdings, Inc. | 0.2% |
Sysco Corp. | 0.2% |
Top Ten Total | 82.8% |
“Ten Largest Holdings” excludes any temporary cash or derivative investments. | |
68 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
PERFORMANCE REPORT AND FUND PROFILE (Unaudited)(concluded) | December 31, 2015 |
Cumulative Fund Performance*,†
Average Annual Returns*
Periods Ended December 31, 2015†
1 Year | 5 Year | 10 Year | |
Series J (StylePlus—Mid Growth Series) | -0.08% | 10.31% | 5.12% |
Russell Midcap Growth Index | -0.20% | 11.54% | 8.16% |
* | 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. |
† | 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 | 69 |
SCHEDULE OF INVESTMENTS | December 31, 2015 |
SERIES J (STYLEPLUS—MID GROWTH SERIES) |
| Value | |||||||
COMMON STOCKS† - 16.4% | ||||||||
Consumer, Non-cyclical - 6.9% | ||||||||
Kellogg Co. | 5,600 | $ | 404,712 | |||||
BioMarin Pharmaceutical, Inc.* | 3,630 | 380,278 | ||||||
AmerisourceBergen Corp. — Class A | 3,638 | 377,297 | ||||||
Sysco Corp. | 7,845 | 321,645 | ||||||
Incyte Corp.* | 2,825 | 306,371 | ||||||
CR Bard, Inc. | 1,612 | 305,377 | ||||||
Spectrum Brands Holdings, Inc. | 2,920 | 297,256 | ||||||
Laboratory Corporation of America Holdings* | 2,390 | 295,500 | ||||||
Avis Budget Group, Inc.* | 8,041 | 291,808 | ||||||
Constellation Brands, Inc. — Class A | 2,013 | 286,732 | ||||||
Monster Beverage Corp.* | 1,882 | 280,343 | ||||||
Tyson Foods, Inc. — Class A | 5,074 | 270,596 | ||||||
Cardinal Health, Inc. | 2,953 | 263,614 | ||||||
Hologic, Inc.* | 6,777 | 262,202 | ||||||
Becton Dickinson and Co. | 1,700 | 261,953 | ||||||
General Mills, Inc. | 4,450 | 256,587 | ||||||
HCA Holdings, Inc.* | 3,783 | 255,845 | ||||||
Hormel Foods Corp. | 3,121 | 246,809 | ||||||
Molina Healthcare, Inc.* | 3,942 | 237,033 | ||||||
ConAgra Foods, Inc. | 5,591 | 235,717 | ||||||
Estee Lauder Companies, Inc. — Class A | 2,671 | 235,208 | ||||||
St. Jude Medical, Inc. | 3,406 | 210,389 | ||||||
Baxter International, Inc. | 5,512 | 210,283 | ||||||
Quintiles Transnational Holdings, Inc.* | 2,997 | 205,774 | ||||||
Whole Foods Market, Inc. | 6,028 | 201,938 | ||||||
MEDNAX, Inc.* | 2,767 | 198,283 | ||||||
Dr Pepper Snapple Group, Inc. | 2,068 | 192,738 | ||||||
WhiteWave Foods Co. — Class A* | 4,911 | 191,087 | ||||||
Ingredion, Inc. | 1,910 | 183,054 | ||||||
Campbell Soup Co. | 3,405 | 178,933 | ||||||
Hershey Co. | 1,953 | 174,344 | ||||||
Boston Scientific Corp.* | 8,526 | 157,219 | ||||||
KAR Auction Services, Inc. | 4,185 | 154,971 | ||||||
Cal-Maine Foods, Inc. | 3,198 | 148,195 | ||||||
Western Union Co. | 8,192 | 146,719 | ||||||
HealthSouth Corp. | 4,028 | 140,215 | ||||||
RR Donnelley & Sons Co. | 8,655 | 127,402 | ||||||
Tenet Healthcare Corp.* | 4,088 | 123,866 | ||||||
Universal Health Services, Inc. — Class B | 1,005 | 120,087 | ||||||
DexCom, Inc.* | 1,461 | 119,656 | ||||||
Flowers Foods, Inc. | 5,403 | 116,110 | ||||||
Coca-Cola Enterprises, Inc. | 2,202 | 108,426 | ||||||
Hertz Global Holdings, Inc.* | 6,857 | 97,575 | ||||||
LifePoint Health, Inc.* | 1,303 | 95,640 | ||||||
Jarden Corp.* | 1,654 | 94,476 | ||||||
Alnylam Pharmaceuticals, Inc.* | 935 | 88,021 | ||||||
Centene Corp.* | 1,251 | 82,328 | ||||||
Hain Celestial Group, Inc.* | 1,932 | 78,033 | ||||||
Jazz Pharmaceuticals plc* | 555 | 78,011 | ||||||
Pilgrim’s Pride Corp. | 3,459 | 76,409 | ||||||
Mead Johnson Nutrition Co. — Class A | 964 | 76,108 | ||||||
Amsurg Corp. — Class A* | 967 | 73,492 | ||||||
Total Consumer, Non-cyclical | 10,322,665 | |||||||
Consumer, Cyclical - 2.8% | ||||||||
Southwest Airlines Co. | 9,151 | 394,043 | ||||||
United Continental Holdings, Inc.* | 6,389 | 366,090 | ||||||
PACCAR, Inc. | 6,778 | 321,277 | ||||||
WW Grainger, Inc. | 1,431 | 289,907 | ||||||
Whirlpool Corp. | 1,668 | 244,979 | ||||||
Macy’s, Inc. | 5,843 | 204,388 | ||||||
Dollar General Corp. | 2,791 | 200,589 | ||||||
Lear Corp. | 1,598 | 196,282 | ||||||
JetBlue Airways Corp.* | 7,199 | 163,057 | ||||||
Dollar Tree, Inc.* | 2,076 | 160,309 | ||||||
American Airlines Group, Inc. | 3,487 | 147,674 | ||||||
Lions Gate Entertainment Corp. | 4,474 | 144,913 | ||||||
Coach, Inc. | 4,300 | 140,739 | ||||||
Ingram Micro, Inc. — Class A | 4,311 | 130,968 | ||||||
Harley-Davidson, Inc. | 2,829 | 128,408 | ||||||
Chipotle Mexican Grill, Inc. — Class A* | 258 | 123,801 | ||||||
AutoZone, Inc.* | 161 | 119,448 | ||||||
Mohawk Industries, Inc.* | 603 | 114,202 | ||||||
Polaris Industries, Inc. | 1,188 | 102,109 | ||||||
Liberty Interactive Corporation QVC Group — Class A* | 3,722 | 101,685 | ||||||
Norwegian Cruise Line Holdings Ltd.* | 1,582 | 92,705 | ||||||
Dick’s Sporting Goods, Inc. | 2,523 | 89,188 | ||||||
Spirit Airlines, Inc.* | 2,223 | 88,587 | ||||||
Nordstrom, Inc. | 1,556 | 77,504 | ||||||
Marriott International, Inc. — Class A | 1,111 | 74,482 | ||||||
Hilton Worldwide Holdings, Inc. | 2,716 | 58,122 | ||||||
Total Consumer, Cyclical | 4,275,456 | |||||||
Industrial - 2.7% | ||||||||
Spirit AeroSystems Holdings, Inc. — Class A* | 5,698 | 285,298 | ||||||
AECOM* | 8,237 | 247,357 | ||||||
TransDigm Group, Inc.* | 1,030 | 235,304 | ||||||
Rockwell Automation, Inc. | 2,229 | 228,718 | ||||||
Textron, Inc. | 5,240 | 220,132 | ||||||
Flowserve Corp. | 5,210 | 219,237 | ||||||
Stericycle, Inc.* | 1,696 | 204,537 | ||||||
Jabil Circuit, Inc. | 8,777 | 204,416 | ||||||
Cummins, Inc. | 2,246 | 197,670 | ||||||
CH Robinson Worldwide, Inc. | 3,103 | 192,448 | ||||||
Huntington Ingalls Industries, Inc. | 1,510 | 191,544 | ||||||
Regal Beloit Corp. | 3,216 | 188,200 | ||||||
Carlisle Companies, Inc. | 2,095 | 185,806 | ||||||
Roper Technologies, Inc. | 756 | 143,481 | ||||||
Ingersoll-Rand plc | 2,561 | 141,598 | ||||||
CSX Corp. | 5,362 | 139,144 | ||||||
Tyco International plc | 4,184 | 133,428 | ||||||
Clean Harbors, Inc.* | 2,924 | 121,785 | ||||||
Zebra Technologies Corp. — Class A* | 1,675 | 116,664 | ||||||
Harris Corp. | 1,112 | 96,633 | ||||||
70 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
SCHEDULE OF INVESTMENTS (continued) | December 31, 2015 |
SERIES J (STYLEPLUS—MID GROWTH SERIES) |
| Value | |||||||
Moog, Inc. — Class A* | 1,358 | $ | 82,295 | |||||
Ball Corp. | 1,100 | 80,003 | ||||||
Parker-Hannifin Corp. | 754 | 73,123 | ||||||
Total Industrial | 3,928,821 | |||||||
Technology - 1.6% | ||||||||
Cerner Corp.* | 3,170 | 190,739 | ||||||
Microchip Technology, Inc. | 3,979 | 185,183 | ||||||
ServiceNow, Inc.* | 2,092 | 181,085 | ||||||
IHS, Inc. — Class A* | 1,459 | 172,790 | ||||||
Take-Two Interactive Software, Inc.* | 4,916 | 171,273 | ||||||
Teradata Corp.* | 5,655 | 149,405 | ||||||
Red Hat, Inc.* | 1,608 | 133,158 | ||||||
VMware, Inc. — Class A* | 2,043 | 115,573 | ||||||
NetApp, Inc. | 4,312 | 114,397 | ||||||
Fortinet, Inc.* | 3,433 | 107,007 | ||||||
Tableau Software, Inc. — Class A* | 1,129 | 106,374 | ||||||
Verint Systems, Inc.* | 2,575 | 104,442 | ||||||
NetSuite, Inc.* | 1,229 | 103,998 | ||||||
Autodesk, Inc.* | 1,693 | 103,154 | ||||||
Lam Research Corp. | 1,134 | 90,062 | ||||||
IMS Health Holdings, Inc.* | 3,064 | 78,040 | ||||||
Fidelity National Information Services, Inc. | 1,193 | 72,296 | ||||||
Analog Devices, Inc. | 1,294 | 71,584 | ||||||
SS&C Technologies Holdings, Inc. | 798 | 54,479 | ||||||
Total Technology | 2,305,039 | |||||||
Communications - 1.5% | ||||||||
LinkedIn Corp. — Class A* | 1,381 | 310,835 | ||||||
Omnicom Group, Inc. | 3,783 | 286,222 | ||||||
Palo Alto Networks, Inc.* | 1,210 | 213,129 | ||||||
Scripps Networks Interactive, Inc. — Class A | 3,857 | 212,946 | ||||||
Splunk, Inc.* | 2,758 | 162,198 | ||||||
Discovery Communications, Inc. — Class A* | 5,559 | 148,314 | ||||||
CDW Corp. | 3,429 | 144,155 | ||||||
Expedia, Inc. | 1,137 | 141,329 | ||||||
Twitter, Inc.* | 5,801 | 134,235 | ||||||
Charter Communications, Inc. — Class A* | 714 | 130,733 | ||||||
AMC Networks, Inc. — Class A* | 1,602 | 119,637 | ||||||
CommScope Holding Company, Inc.* | 4,175 | 108,091 | ||||||
Zayo Group Holdings, Inc.* | 3,152 | 83,812 | ||||||
Nielsen Holdings plc | 1,741 | 81,131 | ||||||
Total Communications | 2,276,767 | |||||||
Financial - 0.6% | ||||||||
Alliance Data Systems Corp.* | 1,120 | 309,758 | ||||||
Ameriprise Financial, Inc. | 2,909 | 309,576 | ||||||
CoreLogic, Inc.* | 2,986 | 101,106 | ||||||
Interactive Brokers Group, Inc. — Class A | 2,138 | 93,217 | ||||||
Equinix, Inc. | 261 | 78,926 | ||||||
Total Financial | 892,583 | |||||||
Basic Materials - 0.2% | ||||||||
International Paper Co. | 3,688 | 139,038 | ||||||
Huntsman Corp. | 7,693 | 87,469 | ||||||
Total Basic Materials | 226,507 | |||||||
Energy - 0.1% | ||||||||
FMC Technologies, Inc.* | 2,688 | 77,979 | ||||||
Total Common Stocks | ||||||||
(Cost $24,951,883) | 24,305,817 | |||||||
MUTUAL FUNDS†,1 - 81.1% | ||||||||
Guggenheim Variable Insurance Strategy Fund III | 1,548,388 | 38,430,993 | ||||||
Guggenheim Strategy Fund II | 1,411,758 | 35,011,598 | ||||||
Guggenheim Strategy Fund I | 1,112,316 | 27,663,301 | ||||||
Guggenheim Strategy Fund III | 765,523 | 18,984,975 | ||||||
Total Mutual Funds | ||||||||
(Cost $120,547,306) | 120,090,867 | |||||||
SHORT TERM INVESTMENTS† - 3.2% | ||||||||
Dreyfus Treasury Prime Cash Management Institutional Shares 0.00%3 | 4,668,639 | 4,668,639 | ||||||
Total Short Term Investments | ||||||||
(Cost $4,668,639) | 4,668,639 | |||||||
Total Investments - 100.7% | ||||||||
(Cost $150,167,828) | $ | 149,065,323 | ||||||
Other Assets & Liabilities, net - (0.7)% | (1,056,364 | ) | ||||||
Total Net Assets - 100.0% | $ | 148,008,959 | ||||||
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 71 |
SCHEDULE OF INVESTMENTS (concluded) | December 31, 2015 |
SERIES J (STYLEPLUS—MID GROWTH SERIES) |
Contracts | Unrealized | |||||||
EQUITY FUTURES CONTRACTS PURCHASED† | ||||||||
March 2016 S&P MidCap 400 Index | 9 | $ | (874 | ) | ||||
March 2016 S&P 500 Index | 5 | (2,581 | ) | |||||
March 2016 NASDAQ-100 Index | 5 | (4,891 | ) | |||||
(Total Aggregate Value of Contracts $2,220,320) | $ | (8,346 | ) | |||||
Units |
| |||||||
OTC EQUITY INDEX SWAP AGREEMENTS†† | ||||||||
Bank of America Merrill Lynch | 164,314 | $ | (2,767,326 | ) | ||||
* | 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 8. |
2 | Total Return based on Russell MidCap Growth Index +/- financing at a variable rate. |
3 | Rate indicated is the 7 day yield as of December 31, 2015. |
plc — Public Limited Company | |
| |
See Sector Classification in Other Information section. |
The following table summarizes the inputs used to value the Fund’s investments at December 31, 2015 (See Note 4 in the Notes to Financial Statements):
Investments in Securities (Assets) | Level 1 | Level 1 - | Level 2 | Level 2 - | Level 3 | Total | ||||||||||||||||||
Common Stocks | $ | 24,305,817 | $ | — | $ | — | $ | — | $ | — | $ | 24,305,817 | ||||||||||||
Mutual Funds | 120,090,867 | — | — | — | — | 120,090,867 | ||||||||||||||||||
Short Term Investments | 4,668,639 | — | — | — | — | 4,668,639 | ||||||||||||||||||
Total | $ | 149,065,323 | $ | — | $ | — | $ | — | $ | — | $ | 149,065,323 | ||||||||||||
Investments in Securities (Liabilities) | Level 1 | Level 1 - | Level 2 | Level 2 - | Level 3 | Total | ||||||||||||||||||
Equity Index Swap Agreements | $ | — | $ | — | $ | — | $ | 2,767,326 | $ | — | $ | 2,767,326 | ||||||||||||
Futures Contracts | — | 8,346 | — | — | — | 8,346 | ||||||||||||||||||
Total | $ | — | $ | 8,346 | $ | — | $ | 2,767,326 | $ | — | $ | 2,775,672 | ||||||||||||
* | Other financial instruments include futures contracts or swaps, which are reported as unrealized gain/loss at period end. |
For the year ended December 31, 2015, there were no transfers between levels.
72 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
SERIES J (STYLEPLUS—MID GROWTH SERIES) |
STATEMENT OF ASSETS AND LIABILITIES |
December 31, 2015 | ||||
Assets: | ||||
Investments in unaffiliated issuers, at value (cost $29,620,522) | $ | 28,974,456 | ||
Investments in affiliated issuers, at value (cost $120,547,306) | 120,090,867 | |||
Total investments (cost $150,167,828) | 149,065,323 | |||
Segregated cash with broker | 1,080,300 | |||
Cash | 860,003 | |||
Prepaid expenses | 7,599 | |||
Receivables: | ||||
Dividends | 211,236 | |||
Fund shares sold | 6,613 | |||
Total assets | 151,231,074 | |||
Liabilities: | ||||
Unrealized depreciation on swap agreements | 2,767,326 | |||
Payable for: | ||||
Securities purchased | 202,301 | |||
Management fees | 95,103 | |||
Fund shares redeemed | 55,039 | |||
Variation margin | 23,780 | |||
Fund accounting/administration fees | 12,046 | |||
Trustees’ fees* | 5,779 | |||
Transfer agent/maintenance fees | 3,234 | |||
Miscellaneous | 57,507 | |||
Total liabilities | 3,222,115 | |||
Commitments and contingent liabilities (Note 16) | — | |||
Net assets | $ | 148,008,959 | ||
Net assets consist of: | ||||
Paid in capital | $ | 164,328,590 | ||
Undistributed net investment income | 1,027,576 | |||
Accumulated net realized loss on investments | (13,469,030 | ) | ||
Net unrealized depreciation on investments | (3,878,177 | ) | ||
Net assets | $ | 148,008,959 | ||
Capital shares outstanding | 3,278,184 | |||
Net asset value per share | $ | 45.15 | ||
STATEMENT OF OPERATIONS |
Year Ended December 31, 2015 | ||||
Investment Income: | ||||
Dividends from securities of affiliated issuers | $ | 1,861,837 | ||
Dividends from securities of unaffiliated issuers (net of foreign withholding tax of $190) | 289,657 | |||
Interest | 419,219 | |||
Total investment income | 2,570,713 | |||
Expenses: | ||||
Management fees | 1,204,483 | |||
Transfer agent/maintenance fees | 25,222 | |||
Fund accounting/administration fees | 152,566 | |||
Line of credit fees | 23,665 | |||
Custodian fees | 17,868 | |||
Trustees’ fees* | 15,194 | |||
Tax expense | 8 | |||
Miscellaneous | 116,884 | |||
Total expenses | 1,555,890 | |||
Net investment income | 1,014,823 | |||
Net Realized and Unrealized Gain (Loss): | ||||
Net realized gain (loss) on: | ||||
Investments in unaffiliated issuers | 2,951,701 | |||
Investments in affiliated issuers | (30,406 | ) | ||
Swap agreements | 3,605,296 | |||
Futures contracts | 151,954 | |||
Net realized gain | 6,678,545 | |||
Net change in unrealized appreciation (depreciation) on: | ||||
Investments in unaffiliated issuers | (3,159,776 | ) | ||
Investments in affiliated issuers | (100,791 | ) | ||
Swap agreements | (4,074,805 | ) | ||
Futures contracts | (8,346 | ) | ||
Net change in unrealized appreciation (depreciation) | (7,343,718 | ) | ||
Net realized and unrealized loss | (665,173 | ) | ||
Net increase in net assets resulting from operations | $ | 349,650 | ||
* | 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 | 73 |
SERIES J (STYLEPLUS—MID GROWTH SERIES) |
STATEMENTS OF CHANGES IN NET ASSETS |
Year Ended | Year Ended | |||||||
Increase (Decrease) in Net Assets from Operations: | ||||||||
Net investment income | $ | 1,014,823 | $ | 1,674,857 | ||||
Net realized gain on investments | 6,678,545 | 17,280,657 | ||||||
Net change in unrealized appreciation (depreciation) on investments | (7,343,718 | ) | 398,025 | |||||
Net increase in net assets resulting from operations | 349,650 | 19,353,539 | ||||||
Distributions to shareholders from: | ||||||||
Net investment income | (1,760,565 | ) | — | |||||
Net realized gains | (11,372,419 | ) | — | |||||
Total distributions to shareholders | (13,132,984 | ) | — | |||||
Capital share transactions: | ||||||||
Proceeds from sale of shares | 18,548,423 | 8,383,416 | ||||||
Distributions reinvested | 13,132,984 | — | ||||||
Cost of shares redeemed | (33,955,541 | ) | (21,801,449 | ) | ||||
Net decrease from capital share transactions | (2,274,134 | ) | (13,418,033 | ) | ||||
Net increase (decrease) in net assets | (15,057,468 | ) | 5,935,506 | |||||
Net assets: | ||||||||
Beginning of year | 163,066,427 | 157,130,921 | ||||||
End of year | $ | 148,008,959 | $ | 163,066,427 | ||||
Undistributed net investment income at end of year | $ | 1,027,576 | $ | 1,766,590 | ||||
Capital share activity: | ||||||||
Shares sold | 368,685 | 180,942 | ||||||
Shares issued from reinvestment of distributions | 273,490 | — | ||||||
Shares redeemed | (683,884 | ) | (477,751 | ) | ||||
Net decrease in shares | (41,709 | ) | (296,809 | ) | ||||
74 | 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 | Year Ended | Year Ended | Year Ended | Year Ended | ||||||||||||||||
Per Share Data | ||||||||||||||||||||
Net asset value, beginning of period | $ | 49.12 | $ | 43.45 | $ | 33.29 | $ | 28.75 | $ | 30.05 | ||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||
Net investment income (loss)a | .31 | .49 | .06 | .05 | (.03 | ) | ||||||||||||||
Net gain (loss) on investments (realized and unrealized) | (.10 | ) | 5.18 | 10.10 | 4.49 | (1.27 | ) | |||||||||||||
Total from investment operations | .21 | 5.67 | 10.16 | 4.54 | (1.30 | ) | ||||||||||||||
Less distributions from: | ||||||||||||||||||||
Net investment income | (.56 | ) | — | — | — | — | ||||||||||||||
Net realized gains | (3.62 | ) | — | — | — | — | ||||||||||||||
Total distributions | (4.18 | ) | — | — | — | — | ||||||||||||||
Net asset value, end of period | $ | 45.15 | $ | 49.12 | $ | 43.45 | $ | 33.29 | $ | 28.75 | ||||||||||
Total Returnb | (0.08 | %) | 13.05 | % | 30.52 | % | 15.79 | % | (4.33 | %) | ||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||
Net assets, end of period (in thousands) | $ | 148,009 | $ | 163,066 | $ | 157,131 | $ | 138,255 | $ | 136,469 | ||||||||||
Ratios to average net assets: | ||||||||||||||||||||
Net investment income (loss) | 0.63 | % | 1.06 | % | 0.17 | % | 0.14 | % | (0.10 | %) | ||||||||||
Total expensesc | 0.97 | % | 0.98 | % | 0.98 | % | 0.95 | % | 0.91 | % | ||||||||||
Net expenses c | �� | 0.97 | % | 0.96 | %d | 0.98 | %d | 0.95 | %d | 0.91 | %d | |||||||||
Portfolio turnover rate | 70 | % | 100 | % | 245 | % | 150 | % | 155 | % | ||||||||||
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 | 75 |
MANAGER’S COMMENTARY (Unaudited) | December 31, 2015 |
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 the Fund’s performance for the fiscal year ended December 31, 2015.
For the one-year period ended December 31, 2015, the Series M (Macro Opportunities Series) returned -0.30%, compared with the 0.05% return of its benchmark, the BofA Merrill Lynch 3-Month U.S. Treasury Bill Index.
In 2015, risk assets posted their worst annual performance since the 2008 financial crisis, as market participants’ expectations for the start of rate hikes collided with concerns about plunging commodity prices, and slowing economic growth in China and other emerging-market economies. While the direct impact of a 25-basis-point increase in the Federal Funds target rate in December was fairly insignificant, the decision to commence the “normalization” of interest rates after seven years of unprecedented liquidity provision was not. High-yield bonds and bank loans posted their first annual loss since 2009, and spreads went to their widest levels since Standard & Poor’s downgraded the United States’ credit rating in 2011. The S&P 500 experienced its first 10 percent correction in four years and saw the weakest annual total return performance (+1.4 percent) since 2008.
Carry helped offset negative returns attributable to widening of credit spreads for the period. Spreads widened over the year particularly in the second half of the year. For the year, net positive fixed income returns were largely attributable to carry from asset-backed securities (“ABS,” including collateralized loan obligations, and aircraft securitizations), mortgage-backed securities (including commercial mortgage-backed securities and non-agency residential mortgage-backed securities), bank loans and preferred securities. High yield corporate bonds were the largest detractors as a sector. The Fund continues to maintain little interest rate duration, particularly at the front end of the yield curve, and thus has mitigated losses due to rising rates over the year.
The Fund makes macro-themed investments to take positions based on its views on certain segments of the financial markets, or to hedge against changes in interest rates, currency or equity prices, or improve diversification. Many of these positions are made with derivatives, such as a hedge on the U.S. market, or interest rate swaps to shorten duration. As a whole, the derivatives detracted from return for the period.
A majority of the Fund’s structured credit holdings feature floating rates, yields higher than traditional securitized assets like auto or credit-card receivables, and, often, investment-grade ratings. The Fund believes that commercial ABS and CLOs offer some downside protection, and amortizing structures to keep credit exposure lower over time. The majority of NA-RMBS securities were purchased at discounts and also typically have floating coupons that help keep duration short. Floating rate instruments accounted for about half the portfolio at the end of the period.
The Fund continued to be anchored by high-quality ABS that have passed our rigorous credit analysis. The Fund also continued to find attractive relative value by tactically rotating among sectors, with a focus on securities that are overlooked by the broader market participants.
While the macroeconomic backdrop is still supportive for credit markets, the risk of contagion from distressed sectors, such as energy, warrants close monitoring. However, a genuine turning point in credit will not be reached until a U.S. recession looms and underlying corporate fundamentals no longer support a low default environment—neither of which is true heading into 2016. Convictions are often tested in such turbulent markets, but these are also times when we must remember that we are long-term investors, not traders.
76 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
MANAGER’S COMMENTARY (Unaudited)(concluded) | December 31, 2015 |
As high-yield bonds and leveraged-loans experience spread widening, the Fund continues to use periods of weakness to add to attractive assets. We will continue to steer the Fund away from the weakest structures, issuers, and industries that may be most exposed to a downturn in economic fundamentals and increases in global volatility.
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 | 77 |
PERFORMANCE REPORT AND FUND PROFILE (Unaudited) | December 31, 2015 |
SERIES M (MACRO OPPORTUNITIES SERIES)
OBJECTIVE: Seeks to provide total return, comprised of current income and capital appreciation.
Consolidated Holdings Diversification (Market Exposure as % of Net Assets)
“Consolidated Holdings Diversification (Market Exposure as % of Net Assets)” excludes any temporary cash investments or investments in Guggenheim Strategy Funds Trust mutual funds. Investments in those Funds do not provide “market exposure” to meet the Fund’s investment objective, but will significantly increase the portfolio’s exposure to certain other asset categories (and their associated risks), which may cause the Fund to deviate from its principal investment strategy, including: (i) high yield, high risk debt securities rated below the top four long-term rating categories by a nationally recognized statistical rating organization (also known as “junk bonds”); (ii) securities issued by the U.S. Government or its agencies and instrumentalities; (iii) CLOs and similar investments; and (iv) other short-term fixed income securities.
Inception Date: April 24, 2013 |
Ten Largest Holdings (% of Total Net Assets) | |
Limited Duration Fund - Institutional Class | 23.1% |
Macro Opportunities Fund - Institutional Class | 5.0% |
Floating Rate Strategies Fund - Institutional Class | 4.3% |
Guggenheim Strategy Fund I | 2.9% |
Guggenheim BulletShares 2019 High Yield Corporate Bond ETF | 2.8% |
Banc of America Funding Ltd. 2013-R1 | 2.7% |
Gramercy Real Estate CDO Ltd. 2007-1A | 1.6% |
LCM X, LP 2014-10A | 1.4% |
Motel 6 Trust 2015-MTL6 | 1.4% |
SunTrust Banks, Inc. | 1.3% |
Top Ten Total | 46.5% |
“Ten Largest Holdings” excludes any temporary cash or derivative investments. | |
78 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
PERFORMANCE REPORT AND FUND PROFILE (Unaudited)(concluded) | December 31, 2015 |
Cumulative Fund Performance*,†
Average Annual Returns*
Periods Ended December 31, 2015†
1 Year | Since Inception | |
Series M (Macro Opportunities Series) | -0.30% | 2.21% |
BofA Merrill Lynch 3-Month U.S. Treasury Bill Index | 0.05% | 0.05% |
Portfolio Composition by Quality Rating** | |
Rating | |
Fixed Income Instruments | |
AA | 1.9% |
A | 4.1% |
BBB | 13.7% |
BB | 11.2% |
B | 11.0% |
CCC | 3.7% |
CC | 0.6% |
A+ | 1.2% |
NR1 | 9.9% |
Other Instruments | 42.7% |
Total Investments | 100.0% |
The chart above reflects percentages of the value of total investments. | |
* | 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: BlackRock Solutions. Credit quality ratings are measured on a scale that generally ranges from AAA (highest) to D (lowest). All securities except for those labeled “NR” 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. 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. |
1 | NR securities do not necessarily indicate low credit quality. |
THE GUGGENHEIM FUNDS ANNUAL REPORT | 79 |
CONSOLIDATED SCHEDULE OF INVESTMENTS | December 31, 2015 |
SERIES M (MACRO OPPORTUNITIES SERIES) |
| Value | |||||||
PREFERRED STOCKS†† - 0.9% | ||||||||
Industrial - 0.8% | ||||||||
Seaspan Corp. 6.38% due 04/30/1911 | 11,250 | $ | 273,375 | |||||
Financial - 0.1% | ||||||||
Aspen Insurance Holdings Ltd. 5.95%1,2,11 | 1,638 | 42,244 | ||||||
Total Preferred Stocks | ||||||||
(Cost $322,200) | 315,619 | |||||||
EXCHANGE-TRADED FUNDS†,3 - 2.8% | ||||||||
Guggenheim BulletShares 2019 High Yield Corporate Bond ETF | 42,301 | 961,502 | ||||||
Total Exchange-Traded Funds | ||||||||
(Cost $1,000,406) | 961,502 | |||||||
MUTUAL FUNDS†,3 - 35.2% | ||||||||
Limited Duration Fund - Institutional Class | 328,469 | 8,024,510 | ||||||
Macro Opportunities Fund - Institutional Class | 68,913 | 1,735,917 | ||||||
Floating Rate Strategies Fund - Institutional Class | 58,498 | 1,477,079 | ||||||
Guggenheim Strategy Fund I | 40,448 | 1,005,937 | ||||||
Total Mutual Funds | ||||||||
(Cost $12,530,524) | 12,243,443 | |||||||
SHORT TERM INVESTMENTS† - 3.2% | ||||||||
Federated U.S. Treasury Cash Reserve Fund 0.00%13 | 1,099,267 | 1,099,267 | ||||||
Total Short Term Investments | ||||||||
(Cost $1,099,267) | 1,099,267 | |||||||
Face | ||||||||
ASSET-BACKED SECURITIES†† - 20.3% | ||||||||
Collateralized Loan Obligations - 12.1% | ||||||||
LCM X, LP | ||||||||
2014-10A, 4.07% due 04/15/221,4 | $ | 500,000 | 490,702 | |||||
Newstar Commercial Loan Funding LLC | ||||||||
2013-1A, 5.87% due 09/20/231,4 | 250,000 | 242,683 | ||||||
2014-1A, 5.06% due 04/20/251,4 | 250,000 | 235,577 | ||||||
Great Lakes CLO Ltd. | ||||||||
2014-1A, 4.52% due 04/15/251,4 | 350,000 | 323,668 | ||||||
CIFC Funding Ltd. | ||||||||
2014-3X, due 07/22/265 | 500,000 | 277,179 | ||||||
Garrison Funding Ltd. | ||||||||
2013-2A, 5.02% due 09/25/231,4 | 250,000 | 249,099 | ||||||
COA Summit CLO Ltd. | ||||||||
2014-1A, 4.17% due 04/20/231,4 | 250,000 | 246,955 | ||||||
Black Diamond CLO Delaware Corp. | ||||||||
2005-2A, 2.42% due 01/07/181,4 | 250,000 | 245,993 | ||||||
ACIS CLO Ltd. | ||||||||
2013-2A, 4.17% due 10/14/221,4 | 250,000 | 243,818 | ||||||
Kingsland III Ltd. | ||||||||
2006-3A, 1.98% due 08/24/211,4 | 250,000 | 240,507 | ||||||
Cerberus Onshore II CLO LLC | ||||||||
2014-1A, 4.32% due 10/15/231,4 | 250,000 | 240,450 | ||||||
Telos CLO Ltd. | ||||||||
2013-3A, 4.57% due 01/17/241,4 | 250,000 | 235,120 | ||||||
ALM XIV Ltd. | ||||||||
2014-14A, 3.77% due 07/28/261,4 | 250,000 | 229,573 | ||||||
KVK CLO Ltd. | ||||||||
2014-1A, 3.26% due 05/15/261,4 | 250,000 | 227,598 | ||||||
Kingsland IV Ltd. | ||||||||
2007-4A, 1.77% due 04/16/211,4 | 250,000 | 226,653 | ||||||
Fortress Credit Opportunities III CLO, LP | ||||||||
2014-3A, 3.87% due 04/28/261,4 | 150,000 | 145,420 | ||||||
AMMC CLO XI Ltd. | ||||||||
2012-11A, due 10/30/234,5 | 250,000 | 107,304 | ||||||
Total Collateralized Loan Obligations | 4,208,299 | |||||||
Transport-Aircraft - 4.7% | ||||||||
Rise Ltd. | ||||||||
2014-1, 4.74% due 02/12/39 | 442,708 | 442,177 | ||||||
AABS Ltd. | ||||||||
2013-1, 4.87% due 01/15/38 | 410,327 | 405,198 | ||||||
Castlelake Aircraft Securitization Trust | ||||||||
2014-1, 5.25% due 02/15/294 | 355,191 | 346,666 | ||||||
Emerald Aviation Finance Ltd. | ||||||||
2013-1, 6.35% due 10/15/384 | 216,146 | 219,878 | ||||||
Turbine Engines Securitization Ltd. | ||||||||
2013-1A, 6.38% due 12/13/4811,12 | 219,194 | 215,511 | ||||||
Total Transport-Aircraft | 1,629,430 | |||||||
Collateralized Debt Obligations - 3.5% | ||||||||
Gramercy Real Estate CDO Ltd. | ||||||||
2007-1A, 0.64% due 08/15/561,4 | 606,768 | 569,146 | ||||||
N-Star Real Estate CDO IX Ltd. | ||||||||
2006-8A, 0.56% due 02/01/4111 | 274,230 | 265,331 | ||||||
RAIT CRE CDO I Ltd. | ||||||||
2006-1X, 0.53% due 11/20/46 | 209,972 | 198,419 | ||||||
SRERS Funding Ltd. | ||||||||
2011-RS, 0.54% due 05/09/461,4 | 178,231 | 173,729 | ||||||
Total Collateralized Debt Obligations | 1,206,625 | |||||||
Total Asset-Backed Securities | ||||||||
(Cost $7,108,026) | 7,044,354 | |||||||
COLLATERALIZED MORTGAGE OBLIGATIONS†† - 15.2% | ||||||||
Residential Mortgage Backed Securities - 13.5% | ||||||||
LSTAR Securities Investment Trust | ||||||||
2014-1, 3.53% due 09/01/211,4 | 445,816 | 443,275 | ||||||
2015-6, 2.24% due 05/01/201,4 | 451,011 | 443,119 | ||||||
2015-3, 2.43% due 03/01/201,4 | 231,733 | 225,778 | ||||||
80 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
CONSOLIDATED SCHEDULE OF INVESTMENTS (continued) | December 31, 2015 |
SERIES M (MACRO OPPORTUNITIES SERIES) |
Face | Value | |||||||
Banc of America Funding Ltd. | ||||||||
2013-R1, 0.41% due 11/03/411,4 | $ | 1,010,707 | $ | 939,047 | ||||
Nationstar HECM Loan Trust | ||||||||
2015-1A, 3.84% due 05/25/184 | 402,769 | 401,641 | ||||||
GreenPoint Mortgage Funding Trust | ||||||||
2005-HE4, 0.89% due 07/25/301 | 179,176 | 173,365 | ||||||
2006-AR1, 0.71% due 02/25/361 | 217,572 | 170,248 | ||||||
CIT Mortgage Loan Trust | ||||||||
2007-1, 1.87% due 10/25/371,4 | 298,014 | 277,584 | ||||||
Nomura Resecuritization Trust | ||||||||
2012-1R, 0.86% due 08/27/471,4 | 253,053 | 238,856 | ||||||
First Franklin Mortgage Loan Trust | ||||||||
2006-FF1, 0.76% due 01/25/361 | 250,000 | 222,636 | ||||||
Washington Mutual Mortgage Pass-Through Certificates WMALT Series Trust | ||||||||
2006-AR9, 1.10% due 11/25/461 | 309,643 | 212,355 | ||||||
IndyMac INDX Mortgage Loan Trust | ||||||||
2006-AR4, 0.63% due 05/25/461 | 240,770 | 197,242 | ||||||
Lehman XS Trust Series | ||||||||
2006-16N, 0.61% due 11/25/461 | 244,518 | 191,408 | ||||||
American Home Mortgage Assets Trust | ||||||||
2006-4, 0.61% due 10/25/461 | 270,068 | 171,991 | ||||||
Bear Stearns Mortgage Funding Trust | ||||||||
2007-AR5, 0.59% due 06/25/471 | 210,739 | 162,296 | ||||||
GSAA Home Equity Trust | ||||||||
2007-7, 0.69% due 07/25/371 | 137,830 | 118,961 | ||||||
Morgan Stanley Re-REMIC Trust | ||||||||
2010-R5, 0.58% due 06/26/361,4 | 112,769 | 81,540 | ||||||
New Century Home Equity Loan Trust | ||||||||
2004-4, 1.22% due 02/25/351 | 28,397 | 22,914 | ||||||
Total Residential Mortgage Backed Securities | 4,694,256 | |||||||
Commercial Mortgage Backed Securities - 1.7% | ||||||||
Motel 6 Trust | ||||||||
2015-MTL6, 5.27% due 02/05/304 | 500,000 | 482,546 | ||||||
Hilton USA Trust | ||||||||
2013-HLT, 4.45% due 11/05/301,4 | 100,000 | 99,961 | ||||||
Total Commercial Mortgage Backed Securities | 582,507 | |||||||
Total Collateralized Mortgage Obligations | ||||||||
(Cost $5,376,175) | 5,276,763 | |||||||
CORPORATE BONDS†† - 11.6% | ||||||||
Financial - 6.7% | ||||||||
SunTrust Banks, Inc. | ||||||||
5.63%1,2 | 450,000 | 452,813 | ||||||
Citigroup, Inc. | ||||||||
5.95%1,2 | 192,000 | 187,963 | ||||||
5.80%1,2 | 108,000 | 107,082 | ||||||
5.95%1,2 | 100,000 | 97,850 | ||||||
Bank of America Corp. | ||||||||
5.12%1,2 | 350,000 | 333,374 | ||||||
Icahn Enterprises Limited Partnership / Icahn Enterprises Finance Corp. | ||||||||
5.88% due 02/01/226 | 200,000 | 195,500 | ||||||
JPMorgan Chase & Co. | ||||||||
5.00%1,2 | 200,000 | 190,000 | ||||||
Fifth Third Bancorp | ||||||||
5.10% due 06/30/231,2 | 204,000 | 182,325 | ||||||
Customers Bank | ||||||||
6.12% due 06/26/291,11,12 | 150,000 | 151,875 | ||||||
Morgan Stanley | ||||||||
5.55%1,2 | 150,000 | 150,000 | ||||||
Prosight Global Inc. | ||||||||
7.50% due 11/26/20†††,11 | 100,000 | 103,154 | ||||||
CIC Receivables Master Trust | ||||||||
4.89% due 10/07/21†††,11 | 100,000 | 99,241 | ||||||
Jefferies LoanCore LLC / JLC Finance Corp. | ||||||||
6.87% due 06/01/204 | 100,000 | 95,000 | ||||||
Total Financial | 2,346,177 | |||||||
Consumer, Cyclical - 1.7% | ||||||||
Seminole Hard Rock Entertainment Inc. / Seminole Hard Rock International LLC | ||||||||
5.88% due 05/15/214 | 250,000 | 249,375 | ||||||
Aramark Services, Inc. | ||||||||
5.13% due 01/15/24 | 200,000 | 203,750 | ||||||
Petco Animal Supplies, Inc. | ||||||||
9.25% due 12/01/184 | 125,000 | 128,281 | ||||||
Total Consumer, Cyclical | 581,406 | |||||||
Consumer, Non-cyclical - 1.6% | ||||||||
Vector Group Ltd. | ||||||||
7.75% due 02/15/216 | 300,000 | 316,500 | ||||||
KeHE Distributors LLC / KeHE Finance Corp. | ||||||||
7.63% due 08/15/214 | 100,000 | 101,750 | ||||||
HCA, Inc. | ||||||||
5.88% due 02/15/26 | 100,000 | 100,375 | ||||||
Midas Intermediate Holdco II LLC / Midas Intermediate Holdco II Finance, Inc. | ||||||||
7.88% due 10/01/224 | 50,000 | 44,750 | ||||||
Total Consumer, Non-cyclical | 563,375 | |||||||
Diversified - 0.6% | ||||||||
HRG Group, Inc. | ||||||||
7.88% due 07/15/196 | 193,000 | 201,685 | ||||||
Communications - 0.4% | ||||||||
MDC Partners, Inc. | ||||||||
6.75% due 04/01/204 | 140,000 | 144,200 | ||||||
Basic Materials - 0.3% | ||||||||
TPC Group, Inc. | ||||||||
8.75% due 12/15/204 | 173,000 | 112,450 | ||||||
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 81 |
CONSOLIDATED SCHEDULE OF INVESTMENTS (continued) | December 31, 2015 |
SERIES M (MACRO OPPORTUNITIES SERIES) |
Face | Value | |||||||
Energy - 0.3% | ||||||||
CONSOL Energy, Inc. | ||||||||
8.00% due 04/01/23 | $ | 100,000 | $ | 66,500 | ||||
Atlas Energy Holdings Operating Company LLC / Atlas Resource Finance Corp. | ||||||||
9.25% due 08/15/2111 | 100,000 | 20,500 | ||||||
Total Energy | 87,000 | |||||||
Total Corporate Bonds | ||||||||
(Cost $4,279,716) | 4,036,293 | |||||||
SENIOR FLOATING RATE INTERESTS†† - 10.0% | ||||||||
Technology - 3.0% | ||||||||
EIG Investors Corp. | ||||||||
5.00% due 11/09/1911 | 243,150 | 236,464 | ||||||
Deltek, Inc. | ||||||||
5.00% due 06/25/22 | 213,613 | 210,943 | ||||||
Avaya, Inc. | ||||||||
6.50% due 03/30/18 | 161,443 | 121,127 | ||||||
6.25% due 05/29/20 | 97,951 | 67,695 | ||||||
Wall Street Systems | ||||||||
4.50% due 04/30/21 | 163,043 | 160,089 | ||||||
The Active Network, Inc. | ||||||||
5.50% due 11/13/20 | 116,667 | 112,487 | ||||||
Greenway Medical Technologies | ||||||||
6.00% due 11/04/2011 | 98,000 | 91,630 | ||||||
Aspect Software, Inc. | ||||||||
3.75% due 05/09/16 | 91,335 | 83,724 | ||||||
Total Technology | 1,084,159 | |||||||
Industrial - 2.5% | ||||||||
Power Borrower, LLC | ||||||||
4.25% due 05/06/20 | 153,984 | 149,492 | ||||||
8.25% due 11/06/20 | 125,000 | 118,438 | ||||||
USIC Holding, Inc. | ||||||||
4.00% due 07/10/20 | 217,817 | 203,114 | ||||||
Thermasys Corp. | ||||||||
5.25% due 05/03/19 | 117,188 | 101,660 | ||||||
Mitchell International, Inc. | ||||||||
8.50% due 10/11/21 | 100,000 | 95,167 | ||||||
Nord Anglia Education Finance LLC | ||||||||
5.00% due 03/31/21 | 89,523 | 87,173 | ||||||
syncreon | ||||||||
5.25% due 10/28/20 | 68,000 | 54,825 | ||||||
NANA Development Corp. | ||||||||
8.00% due 03/15/1811 | 45,000 | 42,750 | ||||||
Total Industrial | 852,619 | |||||||
Consumer, Cyclical - 1.7% | ||||||||
Ollies Bargain Outlet | ||||||||
4.75% due 09/28/19 | 289,097 | 285,000 | ||||||
Men’s Wearhouse | ||||||||
4.50% due 06/18/21 | 125,318 | 109,967 | ||||||
Advantage Sales & Marketing, Inc. | ||||||||
4.25% due 07/23/21 | 108,675 | 104,297 | ||||||
Sears Holdings Corp. | ||||||||
5.50% due 06/30/18 | 98,000 | 91,630 | ||||||
Total Consumer, Cyclical | 590,894 | |||||||
Consumer, Non-cyclical - 1.3% | ||||||||
Albertson’s (Safeway) Holdings LLC | ||||||||
5.50% due 08/25/21 | 200,000 | 198,077 | ||||||
Performance Food Group | ||||||||
6.25% due 11/14/19 | 84,708 | 84,355 | ||||||
Reddy Ice Holdings, Inc. | ||||||||
6.75% due 05/01/1911 | 97,494 | 79,579 | ||||||
NES Global Talent | ||||||||
6.50% due 10/03/19 | 85,225 | 75,850 | ||||||
Total Consumer, Non-cyclical | 437,861 | |||||||
Financial - 1.2% | ||||||||
National Financial Partners Corp. | ||||||||
4.50% due 07/01/20 | 197,010 | 188,800 | ||||||
American Stock Transfer & Trust | ||||||||
5.75% due 06/26/20 | 190,813 | 185,247 | ||||||
Expert Global Solutions | ||||||||
8.50% due 04/03/18 | 34,656 | 34,454 | ||||||
Total Financial | 408,501 | |||||||
Communications - 0.3% | ||||||||
Cengage Learning Acquisitions, Inc. | ||||||||
7.00% due 03/31/20 | 99,000 | 96,278 | ||||||
Total Senior Floating Rate Interests | ||||||||
(Cost $3,694,208) | 3,470,312 | |||||||
FOREIGN GOVERNMENT BONDS†† - 1.4% | ||||||||
Dominican Republic International Bond | ||||||||
6.85% due 01/27/454 | 300,000 | 282,750 | ||||||
Kenya Government International Bond | ||||||||
6.87% due 06/24/244 | 250,000 | 218,750 | ||||||
Total Foreign Government Bonds | ||||||||
(Cost $562,384) | 501,500 | |||||||
SENIOR FIXED RATE INTERESTS†† - 0.4% | ||||||||
Financial - 0.4% | ||||||||
Magic Newco, LLC | ||||||||
12.00% due 06/12/19 | 125,000 | 133,281 | ||||||
Total Senior Fixed Rate Interests | ||||||||
(Cost $136,004) | 133,281 | |||||||
82 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
CONSOLIDATED SCHEDULE OF INVESTMENTS (continued) | December 31, 2015 |
SERIES M (MACRO OPPORTUNITIES SERIES) |
| Value | |||||||
OPTIONS PURCHASED† - 0.3% | ||||||||
Call options on: | ||||||||
JPMorgan | $ | 800,000 | $ | 22,060 | ||||
Contracts | ||||||||
Bank of America Merrill Lynch | 93 | 12,927 | ||||||
Notional | ||||||||
Bank of America Merrill Lynch | $ | 350,000 | 10,551 | |||||
Bank of America Merrill Lynch | 800,000 | 8,881 | ||||||
Bank of America Merrill Lynch | 2,475,000 | 906 | ||||||
Bank of America Merrill Lynch | 825,000 | 282 | ||||||
Total Call options | 55,607 | |||||||
Contracts | ||||||||
Put options on: | ||||||||
BNP | 5 | 30,550 | ||||||
Notional | ||||||||
Bank of America Merrill Lynch | $ | 1,100,000 | 4,931 | |||||
Total Put options | 35,481 | |||||||
Total Options Purchased | ||||||||
(Cost $160,465) | 91,088 | |||||||
Total Investments - 101.3% | ||||||||
(Cost $36,269,375) | $ | 35,173,422 | ||||||
Contracts |
| |||||||
OPTIONS WRITTEN† - 0.0% | ||||||||
Call options on: | ||||||||
Bank of America Merrill Lynch | 93 | $ | (3,999 | ) | ||||
Total Options Written | ||||||||
(Premiums received $21,297) | (3,999 | ) | ||||||
Other Assets & Liabilities, net - (1.3)% | (462,373 | ) | ||||||
Total Net Assets - 100.0% | $ | 34,707,050 | ||||||
Units | Unrealized | |||||||
OTC CURRENCY SWAP AGREEMENT†† | ||||||||
Bank of America | 8 | $ | 10,243 | |||||
OTC INTEREST RATE TOTAL RETURN SWAP AGREEMENT SOLD SHORT†† | ||||||||
Bank of America | 3 | $ | (11,359 | ) | ||||
OTC EQUITY INDEX SWAP AGREEMENTS†† | ||||||||
Bank of America | 1,314 | $ | (508 | ) | ||||
Bank of America | 22,995 | (33,881 | ) | |||||
Bank of America | 20,272 | (236,330 | ) | |||||
(Total Notional Value $1,989,013) | $ | (270,719 | ) | |||||
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 83 |
CONSOLIDATED SCHEDULE OF INVESTMENTS (continued) | December 31, 2015 |
SERIES M (MACRO OPPORTUNITIES SERIES) |
CENTRALLY CLEARED INTEREST RATE SWAP AGREEMENTS†† | |||||||||||||||
Counterparty | Floating Rate | Floating Rate Index | Fixed Rate | Maturity | Notional | Unrealized | |||||||||
Merrill Lynch | Pay | 3-Month USD-LIBOR | 2.24 | % | 01/15/26 | $ | 2,840,000 | $ | 3,238 | ||||||
Merrill Lynch | Receive | 3-Month USD-LIBOR | 2.70 | % | 07/05/23 | (50,000 | ) | (2,415 | ) | ||||||
Merrill Lynch | Receive | 3-Month USD-LIBOR | 1.56 | % | 07/05/18 | (850,000 | ) | (5,593 | ) | ||||||
Merrill Lynch | Receive | 6-Month EUR-EURIBOR | 1.03 | % | 01/15/26 | (2,380,000 | ) | (5,897 | ) | ||||||
$ | (10,667 | ) | |||||||||||||
OTC FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS†† | ||||||||||||||||||
Counterparty | Contracts to Sell | Currency | Settlement Date | Settlement Value | Value at December 31, | Net Unrealized Appreciation | ||||||||||||
Bank of America | 313,265 | EUR | 01/26/16 | $ | 350,000 | $ | 340,723 | $ | 9,277 | |||||||||
$ | 9,277 | |||||||||||||||||
† | 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, 2015. |
2 | Perpetual maturity. |
3 | Affiliated issuer — See Note 8. |
4 | Security is a 144A or Section 4(a)(2) security. The total market value of 144A or Section 4(a)(2) securities is $10,521,443 (cost $10,810,001), or 30.3% of total net assets. These securities have been determined to be liquid under guidelines established by the Board of Trustees. |
5 | Residual interest. |
6 | Security or a portion thereof is held as collateral for reverse repurchase agreements — See Note 12. |
7 | Total return based on U.S. Dollar Index +/- financing at a variable rate. |
8 | Total return based on Japan Government Bond 10 Year Future +/- financing at a variable rate. |
9 | Total return based on S&P 1500 Education Services Sub-Industry Index +/- financing at a variable rate. |
10 | Total return based on S&P 500 Home Building Index +/- financing at a variable rate. |
11 | Illiquid security. |
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 $367,386 (cost $365,258) or 1.1% of total net assets — See Note 13. |
13 | Rate indicated is the 7 day yield as of December 31, 2015. |
14 | Total return based on IShares MSCI Italy Capped ETF Index +/- financing at a variable rate. |
See Sector Classification in Other Information section. |
84 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
CONSOLIDATED SCHEDULE OF INVESTMENTS (concluded) | December 31, 2015 |
SERIES M (MACRO OPPORTUNITIES SERIES) |
The following table summarizes the inputs used to value the Fund’s investments at December 31, 2015 (See Note 4 in the Notes to Financial Statements):
Investments in Securities (Assets) | Level 1 | Level 1 - | Level 2 | Level 2 - | Level 3 | Total | ||||||||||||||||||
Asset-Backed Securities | $ | — | $ | — | $ | 7,044,354 | $ | — | $ | — | $ | 7,044,354 | ||||||||||||
Collateralized Mortgage Obligations | — | — | 5,276,763 | — | — | 5,276,763 | ||||||||||||||||||
Corporate Bonds | — | — | 3,833,898 | — | 202,395 | 4,036,293 | ||||||||||||||||||
Forward Foreign Currency Exchange Contracts | — | — | — | 9,277 | — | 9,277 | ||||||||||||||||||
Currency Swap Agreements | — | — | — | 10,243 | — | 10,243 | ||||||||||||||||||
Exchange-Traded Funds | 961,502 | — | — | — | — | 961,502 | ||||||||||||||||||
Foreign Government Bonds | — | — | 501,500 | — | — | 501,500 | ||||||||||||||||||
Interest Rate Swap Agreements | — | — | — | 3,238 | — | 3,238 | ||||||||||||||||||
Mutual Funds | 12,243,443 | — | — | — | — | 12,243,443 | ||||||||||||||||||
Options Purchased | 43,477 | — | — | — | 47,611 | 91,088 | ||||||||||||||||||
Preferred Stocks | — | — | 315,619 | — | — | 315,619 | ||||||||||||||||||
Senior Fixed Rate Interests | — | — | 133,281 | — | — | 133,281 | ||||||||||||||||||
Senior Floating Rate Interests | — | — | 3,470,312 | — | — | 3,470,312 | ||||||||||||||||||
Short Term Investments | 1,099,267 | — | — | — | — | 1,099,267 | ||||||||||||||||||
Total | $ | 14,347,689 | $ | — | $ | 20,575,727 | $ | 22,758 | $ | 250,006 | $ | 35,196,180 | ||||||||||||
Investments in Securities (Liabilities) | Level 1 | Level 1 - | Level 2 | Level 2 - | Level 3 | Total | ||||||||||||||||||
Equity Index Swap Agreements | $ | — | $ | — | $ | — | $ | 270,719 | $ | — | $ | 270,719 | ||||||||||||
Interest Rate Swap Agreements | — | — | — | 25,264 | — | 25,264 | ||||||||||||||||||
Options Written | 3,999 | — | — | — | — | 3,999 | ||||||||||||||||||
Total | $ | 3,999 | $ | — | $ | — | $ | 295,983 | $ | — | $ | 299,982 | ||||||||||||
* | Other financial instruments include foreign currency contracts or swaps, which are reported as unrealized gain/loss at period end. |
For the year ended December 31, 2015, there were no transfers between levels.
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 85 |
SERIES M (MACRO OPPORTUNITIES SERIES) |
CONSOLIDATED STATEMENT OF ASSETS AND LIABILITIES |
December 31, 2015 | ||||
Assets: | ||||
Investments in unaffiliated issuers, at value (cost $22,738,445) | $ | 21,968,477 | ||
Investments in affiliated issuers, at value (cost $13,530,930) | 13,204,945 | |||
Total investments (cost $36,269,375) | 35,173,422 | |||
Segregated cash with broker | 352,901 | |||
Cash | 184,991 | |||
Unrealized appreciation on swap agreements | 13,481 | |||
Unrealized appreciation on forward foreign currency exchange contracts | 9,277 | |||
Prepaid expenses | 1,434 | |||
Receivables: | ||||
Interest | 125,251 | |||
Dividends | 36,747 | |||
Securities sold | 24,700 | |||
Investment adviser | 13,947 | |||
Total assets | 35,936,151 | |||
Liabilities: | ||||
Reverse Repurchase Agreements | 615,711 | |||
Unrealized depreciation on swap agreements | 295,983 | |||
Options written, at value (premiums received $21,297) | 3,999 | |||
Payable for: | ||||
Securities purchased | 232,846 | |||
Fund shares redeemed | 8,078 | |||
Distribution and service fees | 7,401 | |||
Swap settlement | 6,424 | |||
Fund accounting/administration fees | 2,812 | |||
Transfer agent/maintenance fees | 2,165 | |||
Trustees’ fees* | 882 | |||
Miscellaneous | 52,800 | |||
Total liabilities | 1,229,101 | |||
Commitments and contingent liabilities (Note 16) | — | |||
Net assets | $ | 34,707,050 | ||
Net assets consist of: | ||||
Paid in capital | $ | 34,731,396 | ||
Undistributed net investment income | 1,422,306 | |||
Accumulated net realized loss on investments | (94,665 | ) | ||
Net unrealized depreciation on investments | (1,351,987 | ) | ||
Net assets | $ | 34,707,050 | ||
Capital shares outstanding | 1,346,631 | |||
Net asset value per share | $ | 25.77 | ||
CONSOLIDATED STATEMENT OF OPERATIONS |
Year Ended December 31, 2015 | ||||
Investment Income: | ||||
Interest | $ | 1,248,747 | ||
Dividends from securities of affiliated issuers | 360,903 | |||
Dividends from securities of unaffiliated issuers | 54,873 | |||
Total investment income | 1,664,523 | |||
Expenses: | ||||
Management fees | 320,488 | |||
Transfer agent/maintenance fees | 25,156 | |||
Distribution and service fees | 89,859 | |||
Fund accounting/administration fees | 34,146 | |||
Professional fees | 66,181 | |||
Custodian fees | 10,332 | |||
Line of credit fees | 4,797 | |||
Interest expense | 4,166 | |||
Trustees’ fees* | 2,235 | |||
Tax expense | 2 | |||
Miscellaneous | 33,471 | |||
Total expenses | 590,833 | |||
Less: | ||||
Expenses waived by Adviser | (109,946 | ) | ||
Net expenses | 480,887 | |||
Net investment income | 1,183,636 | |||
Net Realized and Unrealized Gain (Loss): | ||||
Net realized gain (loss) on: | ||||
Investments in unaffiliated issuers | (34,079 | ) | ||
Investments in affiliated issuers | (26,074 | ) | ||
Swap agreements | 182,518 | |||
Foreign currency | (3,749 | ) | ||
Forward currency exchange contracts | 212,440 | |||
Options purchased | (235,380 | ) | ||
Options written | 81,774 | |||
Net realized gain | 177,450 | |||
Net change in unrealized appreciation (depreciation) on: | ||||
Investments in unaffiliated issuers | (528,799 | ) | ||
Investments in affiliated issuers | (300,175 | ) | ||
Swap agreements | (500,848 | ) | ||
Options purchased | (69,377 | ) | ||
Options written | 17,298 | |||
Foreign currency | (214 | ) | ||
Forward foreign currency exchange contracts | (140,638 | ) | ||
Net change in unrealized appreciation (depreciation) | (1,522,753 | ) | ||
Net realized and unrealized loss | (1,345,303 | ) | ||
Net decrease in net assets resulting from operations | $ | (161,667 | ) | |
* | Relates to Trustees not deemed “interested persons” within the meaning of Section 2(a)(19) of the 1940 Act. |
86 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
SERIES M (MACRO OPPORTUNITIES SERIES) |
STATEMENTS OF CHANGES IN NET ASSETS |
Year Ended | Year Ended | |||||||
Increase (Decrease) in Net Assets from Operations: | ||||||||
Net investment income | $ | 1,183,636 | $ | 1,057,333 | ||||
Net realized gain on investments and foreign currency | 177,450 | 222,058 | ||||||
Net change in unrealized appreciation (depreciation) on investments and foreign currency | (1,522,753 | ) | 213,637 | |||||
Net increase (decrease) in net assets resulting from operations | (161,667 | ) | 1,493,028 | |||||
Distributions to shareholders from: | ||||||||
Net investment income | (991,394 | ) | — | |||||
Net realized gains | (82,948 | ) | — | |||||
Total distributions to shareholders | (1,074,342 | ) | — | |||||
Capital share transactions: | ||||||||
Proceeds from sale of shares | 9,437,534 | 14,655,534 | ||||||
Distributions reinvested | 1,074,342 | — | ||||||
Cost of shares redeemed | (7,823,583 | ) | (9,143,386 | ) | ||||
Net increase from capital share transactions | 2,688,293 | 5,512,148 | ||||||
Net increase in net assets | 1,452,284 | 7,005,176 | ||||||
Net assets: | ||||||||
Beginning of year | 33,254,766 | 26,249,590 | ||||||
End of year | $ | 34,707,050 | $ | 33,254,766 | ||||
Undistributed net investment income at end of year | $ | 1,422,306 | $ | 954,559 | ||||
Capital share activity: | ||||||||
Shares sold | 350,995 | 562,557 | ||||||
Shares issued from reinvestment of distributions | 40,664 | — | ||||||
Shares redeemed | (295,251 | ) | (352,240 | ) | ||||
Net increase in shares | 96,408 | 210,317 | ||||||
* | Consolidated. |
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 87 |
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 | Year Ended | Period Ended | ||||||||||
Per Share Data | ||||||||||||
Net asset value, beginning of period | $ | 26.60 | $ | 25.24 | $ | 25.00 | ||||||
Income (loss) from investment operations: | ||||||||||||
Net investment income (loss)b | .89 | .94 | .42 | |||||||||
Net gain (loss) on investments (realized and unrealized) | (.97 | ) | .42 | (.18 | ) | |||||||
Total from investment operations | (.08 | ) | 1.36 | .24 | ||||||||
Less distributions from: | ||||||||||||
Net investment income | (.69 | ) | — | — | ||||||||
Net realized gains | (.06 | ) | — | — | ||||||||
Total distributions | (.75 | ) | — | — | ||||||||
Net asset value, end of period | $ | 25.77 | $ | 26.60 | $ | 25.24 | ||||||
Total Returnc | (0.30 | %) | 5.35 | % | 0.96 | % | ||||||
Ratios/Supplemental Data | ||||||||||||
Net assets, end of period (in thousands) | $ | 34,707 | $ | 33,255 | $ | 26,250 | ||||||
Ratios to average net assets: | ||||||||||||
Net investment income (loss) | 3.29 | % | 3.59 | % | 2.48 | % | ||||||
Total expensesd | 1.64 | % | 1.67 | % | 1.80 | %e | ||||||
Net expensesf | 1.34 | % | 1.48 | % | 1.49 | % | ||||||
Portfolio turnover rate | 52 | % | 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: |
12/31/15 | 12/31/14 | 12/31/13 |
1.31% | 1.42% | 1.44% |
g | Consolidated. |
88 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
MANAGER’S COMMENTARY (Unaudited) | December 31, 2015 |
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, 2015.
For the fiscal year ended December 31, 2015, the Series N (Managed Asset Allocation Series) returned 0.11%, underperforming its weighted benchmark that is 60% S&P 500® Index and 40% Barclays U.S. Aggregate Bond Index, which returned 1.28%. The S&P 500 Index returned 1.38% over the year and the Barclays U.S. Aggregate Bond Index returned 0.55%.
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
Higher volatility was a key feature of financial markets in 2015. Divergence in monetary policy between the U.S. Federal Reserve and its two major counterparts, the European Central Bank and the Bank of Japan, left equity and bond markets struggling to find direction for much of the year, as market participants increasingly questioned the effectiveness of central bank policies around the globe. Commodities markets, particularly the oil market, continued sliding. China surprised everybody by weakening its currency in August, adding more nervousness to markets concerned about a strong U.S. dollar and the potential in the U.S. for its first rate hike in many years. The Fed did raise its target Federal Funds rate by 25 basis points in December.
In this risk-aversion environment, bonds continued to perform well. U.S. equity continued to outperform its international counterparts, and large-cap led small-cap stocks within U.S. equity.
Our dynamically managed tactical strategies enhanced return. Unfortunately, the gains from the models were not enough to cover the expenses. As the result, the portfolio trailed its composite benchmark for the year.
In the period, the best-performing holdings were 10-year U.S. Treasury futures, and S&P 500 Index futures and ETFs. S&P 400 Index futures and Russell 2000 Index 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 | 89 |
PERFORMANCE REPORT AND FUND PROFILE (Unaudited) | December 31, 2015 |
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. Investments in those Funds do not provide “market exposure” to meet the Fund’s investment objective, but will significantly increase the portfolio’s exposure to certain other asset categories (and their associated risks), which may cause the Fund to deviate from its principal investment strategy, including: (i) high yield, high risk debt securities rated below the top four long-term rating categories by a nationally recognized statistical rating organization (also known as “junk bonds”); (ii) securities issued by the U.S. Government or its agencies and instrumentalities; (iii) CLOs and similar investments; and (iv) other short-term fixed income securities.
Inception Date: June 1, 1995 |
Ten Largest Holdings (% of Total Net Assets) | |
Guggenheim Variable Insurance Strategy Fund III | 23.2% |
SPDR S&P 500 ETF Trust | 16.7% |
Vanguard S&P 500 ETF | 16.1% |
iShares Core U.S. Aggregate Bond ETF | 15.9% |
iShares iBoxx $ Investment Grade Corporate Bond ETF | 7.7% |
iShares Core S&P Mid-Capital ETF | 5.5% |
iShares MSCI EAFE ETF | 4.3% |
Guggenheim Strategy Fund III | 3.2% |
Guggenheim Strategy Fund II | 3.1% |
Guggenheim Strategy Fund I | 2.7% |
Top Ten Total | 98.4% |
“Ten Largest Holdings” excludes any temporary cash or derivative investments. | |
90 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
PERFORMANCE REPORT AND FUND PROFILE (Unaudited)(concluded) | December 31, 2015 |
Cumulative Fund Performance*,†
Average Annual Returns*
Periods Ended December 31, 2015†
1 Year | 5 Year | 10 Year | |
Series N (Managed Asset Allocation Series) | 0.11% | 6.85% | 5.29% |
Blended Index** | 1.28% | 8.95% | 6.48% |
S&P 500 Index | 1.38% | 12.57% | 7.31% |
* | 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 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. |
THE GUGGENHEIM FUNDS ANNUAL REPORT | 91 |
SCHEDULE OF INVESTMENTS | December 31, 2015 |
SERIES N (MANAGED ASSET ALLOCATION SERIES) |
| Value | |||||||
EXCHANGE-TRADED FUNDS† - 66.1% | ||||||||
SPDR S&P 500 ETF Trust | 43,046 | $ | 8,776,649 | |||||
Vanguard S&P 500 ETF | 45,439 | 8,493,912 | ||||||
iShares Core U.S. Aggregate Bond ETF | 77,556 | 8,376,824 | ||||||
iShares iBoxx $ Investment Grade Corporate Bond ETF | 35,381 | 4,033,788 | ||||||
iShares Core S&P Mid-Capital ETF | 20,956 | 2,920,847 | ||||||
iShares MSCI EAFE ETF | 38,211 | 2,244,896 | ||||||
iShares Core S&P 500 ETF | 2 | 410 | ||||||
Total Exchange-Traded Funds | ||||||||
(Cost $28,559,607) | 34,847,326 | |||||||
MUTUAL FUNDS† - 32.2% | ||||||||
Guggenheim Variable Insurance Strategy Fund III1 | 492,483 | 12,223,431 | ||||||
Guggenheim Strategy Fund III1 | 66,376 | 1,646,124 | ||||||
Guggenheim Strategy Fund II1 | 66,176 | 1,641,155 | ||||||
Guggenheim Strategy Fund I1 | 57,260 | 1,424,053 | ||||||
Total Mutual Funds | ||||||||
(Cost $17,037,430) | 16,934,763 | |||||||
SHORT TERM INVESTMENTS† - 0.7% | ||||||||
Dreyfus Treasury Prime Cash Management Institutional Shares 0.00%2 | 345,074 | 345,074 | ||||||
Total Short Term Investments | ||||||||
(Cost $345,074) | 345,074 | |||||||
Total Investments - 99.0% | ||||||||
(Cost $45,942,111) | $ | 52,127,163 | ||||||
Other Assets & Liabilities, net - 1.0% | 501,393 | |||||||
Total Net Assets - 100.0% | $ | 52,628,556 | ||||||
Contracts | Unrealized |
INTEREST RATE FUTURES CONTRACTS PURCHASED† | ||||||||
March 2016 U.S. Treasury 2 Year Note | 19 | $ | (5,686 | ) | ||||
March 2016 U.S. Treasury 10 Year Note | 62 | (26,515 | ) | |||||
(Total Aggregate Value of Contracts $11,933,266) | $ | (32,201 | ) |
CURRENCY FUTURES CONTRACTS PURCHASED† | ||||||||
March 2016 British Pound | 3 | (4,770 | ) | |||||
March 2016 Canadian Dollar | 4 | (5,250 | ) | |||||
(Total Aggregate Value of Contracts $565,493) | $ | (10,020 | ) | |||||
EQUITY FUTURES CONTRACTS PURCHASED† | ||||||||
March 2016 SPI 200 Index | 3 | $ | 15,912 | |||||
March 2016 S&P 500 Index | 20 | 1,812 | ||||||
March 2016 MSCI EAFE Index | 71 | 245 | ||||||
March 2016 Dow Jones | 1 | (228 | ) | |||||
January 2016 CAC 40 10 Euro Index | 1 | (1,025 | ) | |||||
March 2016 S&P MidCap 400 Index | 3 | (1,594 | ) | |||||
March 2016 Nikkei 225 (CME) Index | 1 | (3,363 | ) | |||||
January 2016 Hang Seng Index | 2 | (3,659 | ) | |||||
March 2016 Russell 2000 Index | 16 | (9,248 | ) | |||||
(Total Aggregate Value of Contracts $11,089,667) | $ | (1,148 | ) | |||||
92 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
SCHEDULE OF INVESTMENTS (concluded) | December 31, 2015 |
SERIES N (MANAGED ASSET ALLOCATION SERIES) |
Contracts | Unrealized | |||||||
CURRENCY FUTURES CONTRACTS SOLD SHORT† | ||||||||
March 2016 Euro FX | 2 | $ | 733 | |||||
March 2016 Australian Dollar | 4 | (3,710 | ) | |||||
(Total Aggregate Value of Contracts $562,565) | $ | (2,977 | ) | |||||
EQUITY FUTURES CONTRACTS SOLD SHORT | ||||||||
March 2016 DAX Index | 1 | $ | (1,126 | ) | ||||
March 2016 S&P/TSX 60 IX Index | 1 | (1,853 | ) | |||||
March 2016 FTSE 100 Index | 2 | (3,924 | ) | |||||
(Total Aggregate Value of Contracts $579,617) | $ | (6,903 | ) | |||||
† | 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 8. |
2 | Rate indicated is the 7 day yield as of December 31, 2015. |
See Sector Classification in Other Information section. |
The following table summarizes the inputs used to value the Fund’s investments at December 31, 2015 (See Note 4 in the Notes to Financial Statements):
Investments in Securities (Assets) | Level 1 | Level 1 - | Level 2 | Level 2 - | Level 3 | Total | ||||||||||||||||||
Exchange-Traded Funds | $ | 34,847,326 | $ | — | $ | — | $ | — | $ | — | $ | 34,847,326 | ||||||||||||
Futures Contracts | — | 2,790 | — | 15,912 | — | 18,702 | ||||||||||||||||||
Mutual Funds | 16,934,763 | — | — | — | — | 16,934,763 | ||||||||||||||||||
Short Term Investments | 345,074 | — | — | — | — | 345,074 | ||||||||||||||||||
Total | $ | 52,127,163 | $ | 2,790 | $ | — | $ | 15,912 | $ | — | $ | 52,145,865 | ||||||||||||
Investments in Securities (Liabilities) | Level 1 | Level 1 - | Level 2 | Level 2 - | Level 3 | Total | ||||||||||||||||||
Futures Contracts | $ | — | $ | 60,364 | $ | — | $ | 11,587 | $ | — | $ | 71,951 | ||||||||||||
* | Other financial instruments include futures contracts which are reported as unrealized gain/loss at period end. |
For the year ended December 31, 2015, there were no transfers between levels.
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 93 |
SERIES N (MANAGED ASSET ALLOCATION SERIES) |
STATEMENT OF ASSETS AND LIABILITIES |
December 31, 2015 | ||||
Assets: | ||||
Investments in unaffiliated issuers, at value (cost $28,904,681) | $ | 35,192,400 | ||
Investments in affiliated issuers, at value (cost $17,037,430) | 16,934,763 | |||
Total investments (cost $45,942,111) | 52,127,163 | |||
Foreign currency, at value (cost $7,606) | 7,629 | |||
Segregated cash with broker | 648,843 | |||
Prepaid expenses | 2,184 | |||
Receivables: | ||||
Dividends | 82,396 | |||
Foreign taxes reclaim | 2,970 | |||
Fund shares sold | 499 | |||
Total assets | 52,871,684 | |||
Liabilities: | ||||
Overdraft due to custodian bank | 7,689 | |||
Payable for: | ||||
Variation margin | 104,915 | |||
Securities purchased | 31,930 | |||
Management fees | 29,381 | |||
Fund shares redeemed | 21,135 | |||
Fund accounting/administration fees | 6,780 | |||
Trustees’ fees* | 4,939 | |||
Transfer agent/maintenance fees | 2,349 | |||
Miscellaneous | 34,010 | |||
Total liabilities | 243,128 | |||
Commitments and contingent liabilities (Note 16) | — | |||
Net assets | $ | 52,628,556 | ||
Net assets consist of: | ||||
Paid in capital | $ | 44,802,001 | ||
Undistributed net investment income | 633,385 | |||
Accumulated net realized gain on investments | 1,061,894 | |||
Net unrealized appreciation on investments | 6,131,276 | |||
Net assets | $ | 52,628,556 | ||
Capital shares outstanding | 1,918,503 | |||
Net asset value per share | $ | 27.43 | ||
STATEMENT OF OPERATIONS |
Year Ended December 31, 2015 | ||||
Investment Income: | ||||
Dividends from securities of unaffiliated issuers (net of foreign withholding tax of $315) | $ | 838,412 | ||
Dividends from securities of affiliated issuers | 319,058 | |||
Total investment income | 1,157,470 | |||
Expenses: | ||||
Management fees | 360,428 | |||
Transfer agent/maintenance fees | 25,037 | |||
Fund accounting/administration fees | 83,176 | |||
Professional fees | 33,993 | |||
Trustees’ fees* | 6,175 | |||
Line of credit fees | 4,202 | |||
Custodian fees | 348 | |||
Tax expense | 3 | |||
Miscellaneous | 9,403 | |||
Total expenses | 522,765 | |||
Net investment income | 634,705 | |||
Net Realized and Unrealized Gain (Loss): | ||||
Net realized gain (loss) on: | ||||
Investments in unaffiliated issuers | 953,029 | |||
Investments in affiliated issuers | (7,439 | ) | ||
Futures contracts | 284,111 | |||
Foreign currency | (1,320 | ) | ||
Net realized gain | 1,228,381 | |||
Net change in unrealized appreciation (depreciation) on: | ||||
Investments in unaffiliated issuers | (1,589,385 | ) | ||
Investments in affiliated issuers | (4,460 | ) | ||
Futures contracts | (134,165 | ) | ||
Foreign currency | (213 | ) | ||
Net change in unrealized appreciation (depreciation) | (1,728,223 | ) | ||
Net realized and unrealized loss | (499,842 | ) | ||
Net increase in net assets resulting from operations | $ | 134,863 | ||
* | Relates to Trustees not deemed “interested persons” within the meaning of Section 2(a)(19) of the 1940 Act. |
94 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
SERIES N (MANAGED ASSET ALLOCATION SERIES) |
STATEMENTS OF CHANGES IN NET ASSETS |
Year Ended | Year Ended | |||||||
Increase (Decrease) in Net Assets from Operations: | ||||||||
Net investment income | $ | 634,705 | $ | 528,239 | ||||
Net realized gain on investments | 1,228,381 | 2,042,040 | ||||||
Net change in unrealized appreciation (depreciation) on investments | (1,728,223 | ) | 1,370,015 | |||||
Net increase in net assets resulting from operations | 134,863 | 3,940,294 | ||||||
Distributions to shareholders from: | ||||||||
Net investment income | (538,173 | ) | — | |||||
Total distributions to shareholders | (538,173 | ) | — | |||||
Capital share transactions: | ||||||||
Proceeds from sale of shares | 4,288,604 | 6,103,222 | ||||||
Distributions reinvested | 538,173 | — | ||||||
Cost of shares redeemed | (12,113,611 | ) | (15,099,648 | ) | ||||
Net decrease from capital share transactions | (7,286,834 | ) | (8,996,426 | ) | ||||
Net decrease in net assets | (7,690,144 | ) | (5,056,132 | ) | ||||
Net assets: | ||||||||
Beginning of year | 60,318,700 | 65,374,832 | ||||||
End of year | $ | 52,628,556 | $ | 60,318,700 | ||||
Undistributed net investment income at end of year | $ | 633,385 | $ | 223,425 | ||||
Capital share activity: | ||||||||
Shares sold | 154,613 | 224,121 | ||||||
Shares issued from reinvestment of distributions | 18,997 | — | ||||||
Shares redeemed | (434,736 | ) | (565,958 | ) | ||||
Net decrease in shares | (261,126 | ) | (341,837 | ) | ||||
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 95 |
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 | Year Ended | Year Ended | Year Ended | Year Ended | ||||||||||||||||
Per Share Data | ||||||||||||||||||||
Net asset value, beginning of period | $ | 27.67 | $ | 25.93 | $ | 22.68 | $ | 20.02 | $ | 19.89 | ||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||
Net investment income (loss)a | .32 | .23 | .08 | .15 | .28 | |||||||||||||||
Net gain (loss) on investments (realized and unrealized) | (.28 | ) | 1.51 | 3.17 | 2.51 | (.15 | ) | |||||||||||||
Total from investment operations | .04 | 1.74 | 3.25 | 2.66 | .13 | |||||||||||||||
Less distributions from: | ||||||||||||||||||||
Net investment income | (.28 | ) | — | — | — | — | ||||||||||||||
Total distributions | (.28 | ) | — | — | — | — | ||||||||||||||
Net asset value, end of period | $ | 27.43 | $ | 27.67 | $ | 25.93 | $ | 22.68 | $ | 20.02 | ||||||||||
Total Returnb | 0.11 | % | 6.71 | % | 14.33 | % | 13.29 | % | 0.65 | % | ||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||
Net assets, end of period (in thousands) | $ | 52,629 | $ | 60,319 | $ | 65,375 | $ | 62,181 | $ | 63,775 | ||||||||||
Ratios to average net assets: | ||||||||||||||||||||
Net investment income (loss) | 1.14 | % | 0.87 | % | 0.32 | % | 0.71 | % | 1.40 | % | ||||||||||
Total expensesc | 0.94 | % | 0.93 | % | 1.07 | % | 1.31 | % | 1.56 | % | ||||||||||
Portfolio turnover rate | 3 | % | 14 | % | 3 | % | 162 | % | 44 | % | ||||||||||
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. |
96 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
MANAGER’S COMMENTARY (Unaudited) | December 31, 2015 |
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. The former Co-Portfolio Manager, Mark Mitchell, CFA, left the firm during the period, and the following individuals were added as Portfolio Managers to the Fund: Scott Hammond, Managing Director and Portfolio Manager; Farhan Sharaff, Assistant Chief Investment Officer, Equities; and Gregg Strohkorb, CFA. In the following paragraphs, the team discusses performance of the Fund for the fiscal year ended December 31, 2015.
For the fiscal year ended December 31, 2015, the Series O (All Cap Value Series) returned -4.70%, compared with the Russell 3000® Value Index, which returned -4.13%.
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 in which they operate. In today’s rapidly changing environment marked by very sharp and 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 fundamentals once again become a more dominant factor in the market.
Performance Review
An underweight to Energy and stock selection in the Financials and the Consumer Staples sectors were the leading contributors to performance. Commodity-oriented companies, especially Energy, were weak over the period. The lack of holdings in refining or other sub-industries most impacted by crude’s weakness helped performance. Companies that are essentially 100% dependent on crude pricing—as they operate in the Bakken, where all production is crude oil—were some of the worst-performance stocks for the year. For example, Fund holding Whiting Petroleum was among the leading individual detractors for the year.
The Financials allocation grew over the period as a result of a larger allocation to REITs (real estate investment trusts), and at the end of the period was equal weight with the index. American International Group was one of the Fund’s leading individual contributors for the year. The stock rose after activist investor Carl Icahn took a stake in the company and then advocated for its breakup.
Staples holding Kraft Heinz was one of the Fund’s leading individual contributors for the year. The Fund has an overweight to Consumer Staples, driven by our bottom-up fundamental research having identified companies with favorable risk-return profiles.
The leading detractors from return at the sector level were stock selection in Industrials and Consumer Discretionary. The Industrials sector had one of the Fund’s top individual contributors, Republic Services, Inc., and one of the top individual detractors, DigitalGlobe. Republic, a non-hazardous solid waste collector and disposal company, had good growth over 2015. DigitalGlobe late in the period issued a restrained growth outlook as commercial adoption of the company’s satellite imaging products was proving to be below expectations. The portfolio’s Industrials holdings include a number of companies that have an engineering and construction orientation, or are tied into fairly large, visible infrastructure projects. The market has favored businesses that experience an immediate pick-up in business as the economy improves, rather than companies reliant on long project rollouts.
Discretionary holding DeVry Education was another leading detractor from return. Following a strong year in 2014 for many education stocks, the combination of mixed earnings, soft enrollment trends, and disappointing guidance have called into question the stabilization that these companies had been experiencing. These positions have been reduced in the portfolio, but their strong cash flow and niche opportunities suggest a favorable risk profile going forward.
Portfolio Positioning
The largest relative sector exposures for the year were an underweight in Energy and an overweight in Consumer Staples. Both these two stances contributed to performance for the year.
THE GUGGENHEIM FUNDS ANNUAL REPORT | 97 |
MANAGER’S COMMENTARY (Unaudited)(concluded) | December 31, 2015 |
Portfolio and Market Outlook
Investors grew increasingly concerned about the impact that plunging commodity prices on the domestic economy. Energy did provide the economy a disproportionate amount of growth over the last several years. Additionally, the troubles overseas have created a stronger dollar, and the prospect of additional interest rate hikes from a less accommodative Fed add to the uncertainty of the outlook. While this strategy is very balanced relative to the benchmark, it does possess defensive characteristics such as its overweight in Consumer Staples.
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.
98 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
PERFORMANCE REPORT AND FUND PROFILE (Unaudited) | December 31, 2015 |
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.
Inception Date: June 1, 1995 |
Ten Largest Holdings (% of Total Net Assets) | |
JPMorgan Chase & Co. | 3.3% |
Citigroup, Inc. | 2.7% |
Republic Services, Inc. — Class A | 2.6% |
American International Group, Inc. | 2.2% |
Wells Fargo & Co. | 2.1% |
Cisco Systems, Inc. | 2.0% |
Chevron Corp. | 1.9% |
Mondelez International, Inc. — Class A | 1.8% |
Johnson & Johnson | 1.8% |
IXYS Corp. | 1.6% |
Top Ten Total | 22.0% |
“Ten Largest Holdings” excludes any temporary cash or derivative investments. | |
THE GUGGENHEIM FUNDS ANNUAL REPORT | 99 |
PERFORMANCE REPORT AND FUND PROFILE (Unaudited)(concluded) | December 31, 2015 |
Cumulative Fund Performance*,†
Average Annual Returns*
Periods Ended December 31, 2015†
1 Year | 5 Year | 10 Year | |
Series O (All Cap Value Series) | -4.70% | 8.58% | 5.82% |
Russell 3000 Value Index | -4.13% | 10.98% | 6.11% |
* | 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. |
100 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
SCHEDULE OF INVESTMENTS | December 31, 2015 |
SERIES O (ALL CAP VALUE SERIES) |
| Value | |||||||
COMMON STOCKS† - 97.5% | ||||||||
Financial - 27.2% | ||||||||
JPMorgan Chase & Co. | 59,300 | $ | 3,915,579 | |||||
Citigroup, Inc. | 61,700 | 3,192,975 | ||||||
American International Group, Inc. | 42,202 | 2,615,257 | ||||||
Wells Fargo & Co. | 46,013 | 2,501,267 | ||||||
Allstate Corp. | 20,950 | 1,300,786 | ||||||
MasterCard, Inc. — Class A | 11,100 | 1,080,696 | ||||||
Alleghany Corp.* | 2,080 | 994,095 | ||||||
Assured Guaranty Ltd. | 36,540 | 965,752 | ||||||
BB&T Corp. | 24,850 | 939,579 | ||||||
FirstMerit Corp. | 44,387 | 827,818 | ||||||
Hanover Insurance Group, Inc. | 10,166 | 826,902 | ||||||
Bank of America Corp. | 48,810 | 821,472 | ||||||
PNC Financial Services Group, Inc. | 7,890 | 751,996 | ||||||
Legg Mason, Inc. | 17,600 | 690,448 | ||||||
CubeSmart | 21,660 | 663,229 | ||||||
BioMed Realty Trust, Inc. | 27,880 | 660,478 | ||||||
Zions Bancorporation | 22,180 | 605,514 | ||||||
Endurance Specialty Holdings Ltd. | 9,330 | 597,027 | ||||||
Camden Property Trust | 7,700 | 591,052 | ||||||
Synchrony Financial* | 19,128 | 581,682 | ||||||
Charles Schwab Corp. | 16,720 | 550,590 | ||||||
Popular, Inc. | 19,230 | 544,978 | ||||||
Sun Communities, Inc. | 7,930 | 543,443 | ||||||
Apartment Investment & Management Co. — Class A | 13,120 | 525,194 | ||||||
Equity Residential | 6,370 | 519,728 | ||||||
Wintrust Financial Corp. | 10,710 | 519,649 | ||||||
Simon Property Group, Inc. | 2,530 | 491,933 | ||||||
E*TRADE Financial Corp.* | 15,900 | 471,276 | ||||||
Fulton Financial Corp. | 32,670 | 425,037 | ||||||
Corrections Corporation of America | 15,530 | 411,390 | ||||||
Trustmark Corp. | 17,760 | 409,190 | ||||||
Jones Lang LaSalle, Inc. | 2,480 | 396,453 | ||||||
Parkway Properties, Inc. | 23,132 | 361,553 | ||||||
Alexandria Real Estate Equities, Inc. | 3,770 | 340,657 | ||||||
Prosperity Bancshares, Inc. | 6,280 | 300,561 | ||||||
Reinsurance Group of America, Inc. — Class A | 2,275 | 194,626 | ||||||
UDR, Inc. | 3,610 | 135,628 | ||||||
Umpqua Holdings Corp. | 6,720 | 106,848 | ||||||
Lexington Realty Trust | 12,570 | 100,560 | ||||||
Kearny Financial Corp. | 6,672 | 84,534 | ||||||
Total Financial | 32,557,432 | |||||||
Consumer, Non-cyclical - 20.9% | ||||||||
Mondelez International, Inc. — Class A | 49,060 | 2,199,850 | ||||||
Johnson & Johnson | 20,740 | 2,130,414 | ||||||
MEDNAX, Inc.* | 24,900 | 1,784,334 | ||||||
Bunge Ltd. | 25,850 | 1,765,038 | ||||||
UnitedHealth Group, Inc. | 13,980 | 1,644,607 | ||||||
Philip Morris International, Inc. | 16,600 | 1,459,306 | ||||||
Sanderson Farms, Inc. | 17,910 | 1,388,383 | ||||||
Hershey Co. | 14,460 | 1,290,844 | ||||||
Pfizer, Inc. | 39,750 | 1,283,130 | ||||||
Quest Diagnostics, Inc. | 18,020 | 1,281,943 | ||||||
Kraft Heinz Co. | 17,500 | 1,273,300 | ||||||
Medtronic plc | 12,720 | 978,422 | ||||||
Campbell Soup Co. | 16,940 | 890,197 | ||||||
Zimmer Biomet Holdings, Inc. | 8,320 | 853,548 | ||||||
HCA Holdings, Inc.* | 9,480 | 641,132 | ||||||
Henry Schein, Inc.* | 3,050 | 482,480 | ||||||
Emergent BioSolutions, Inc.* | 10,730 | 429,307 | ||||||
ICF International, Inc.* | 10,850 | 385,826 | ||||||
Navigant Consulting, Inc.* | 23,890 | 383,673 | ||||||
Express Scripts Holding Co.* | 4,330 | 378,485 | ||||||
Premier, Inc. — Class A* | 9,350 | 329,775 | ||||||
HealthSouth Corp. | 8,880 | 309,113 | ||||||
Darling Ingredients, Inc.* | 25,680 | 270,154 | ||||||
Patterson Companies, Inc. | 4,620 | 208,870 | ||||||
Kindred Healthcare, Inc. | 17,345 | 206,579 | ||||||
Brookdale Senior Living, Inc. — Class A* | 8,220 | 151,741 | ||||||
Ingredion, Inc. | 1,550 | 148,552 | ||||||
Universal Corp. | 2,560 | 143,565 | ||||||
Globus Medical, Inc. — Class A* | 4,750 | 132,145 | ||||||
Surgical Care Affiliates, Inc.* | 3,164 | 125,959 | ||||||
Everi Holdings, Inc.* | 15,530 | 68,177 | ||||||
Total Consumer, Non-cyclical | 25,018,849 | |||||||
Industrial - 10.2% | ||||||||
Republic Services, Inc. — Class A | 69,780 | 3,069,622 | ||||||
Huntington Ingalls Industries, Inc. | 10,737 | 1,361,988 | ||||||
General Electric Co. | 39,991 | 1,245,720 | ||||||
FLIR Systems, Inc. | 44,270 | 1,242,659 | ||||||
Sonoco Products Co. | 20,260 | 828,027 | ||||||
CH Robinson Worldwide, Inc. | 11,710 | 726,254 | ||||||
TE Connectivity Ltd. | 10,262 | 663,027 | ||||||
WestRock Co. | 11,936 | 544,520 | ||||||
Gentex Corp. | 30,467 | 487,777 | ||||||
Oshkosh Corp. | 10,327 | 403,166 | ||||||
Knight Transportation, Inc. | 15,970 | 386,953 | ||||||
Owens Corning | 8,080 | 380,002 | ||||||
Ryder System, Inc. | 5,960 | 338,707 | ||||||
Werner Enterprises, Inc. | 11,820 | 276,470 | ||||||
Harris Corp. | 2,700 | 234,630 | ||||||
Kirby Corp.* | 1,580 | 83,140 | ||||||
Total Industrial | 12,272,662 | |||||||
Technology - 9.1% | ||||||||
IXYS Corp. | 154,085 | 1,946,094 | ||||||
Microsoft Corp. | 29,840 | 1,655,523 | ||||||
CSRA, Inc. | 49,510 | 1,485,301 | ||||||
Intel Corp. | 42,340 | 1,458,613 | ||||||
QUALCOMM, Inc. | 19,990 | 999,200 | ||||||
Lam Research Corp. | 11,260 | 894,269 | ||||||
Computer Sciences Corp. | 20,290 | 663,077 | ||||||
Diebold, Inc. | 20,450 | 615,340 | ||||||
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 101 |
SCHEDULE OF INVESTMENTS (continued) | December 31, 2015 |
SERIES O (ALL CAP VALUE SERIES) |
| Value | |||||||
Maxwell Technologies, Inc.* | 67,170 | $ | 479,594 | |||||
Cree, Inc.* | 10,930 | 291,503 | ||||||
Super Micro Computer, Inc.* | 8,920 | 218,629 | ||||||
KEYW Holding Corp.* | 25,085 | 151,012 | ||||||
ManTech International Corp. — Class A | 4,110 | 124,286 | ||||||
Total Technology | 10,982,441 | |||||||
Utilities - 7.7% | ||||||||
Edison International | 29,570 | 1,750,839 | ||||||
Ameren Corp. | 28,700 | 1,240,700 | ||||||
OGE Energy Corp. | 45,730 | 1,202,242 | ||||||
Public Service Enterprise Group, Inc. | 28,040 | 1,084,868 | ||||||
Pinnacle West Capital Corp. | 13,190 | 850,491 | ||||||
Westar Energy, Inc. | 15,440 | 654,810 | ||||||
Great Plains Energy, Inc. | 23,392 | 638,836 | ||||||
Exelon Corp. | 14,670 | 407,386 | ||||||
Black Hills Corp. | 8,511 | 395,166 | ||||||
Avista Corp. | 10,450 | 369,617 | ||||||
Portland General Electric Co. | 10,130 | 368,428 | ||||||
Duke Energy Corp. | 4,420 | 315,544 | ||||||
Total Utilities | 9,278,927 | |||||||
Consumer, Cyclical - 7.2% | ||||||||
CVS Health Corp. | 16,820 | 1,644,491 | ||||||
Lear Corp. | 12,290 | 1,509,581 | ||||||
BorgWarner, Inc. | 17,870 | 772,520 | ||||||
Wal-Mart Stores, Inc. | 11,320 | 693,916 | ||||||
JC Penney Company, Inc.* | 102,830 | 684,848 | ||||||
Visteon Corp.* | 5,790 | 662,955 | ||||||
Caleres, Inc. | 13,702 | 367,488 | ||||||
Essendant, Inc. | 11,300 | 367,363 | ||||||
UniFirst Corp. | 3,490 | 363,658 | ||||||
Target Corp. | 4,920 | 357,241 | ||||||
iRobot Corp.* | 9,940 | 351,876 | ||||||
CalAtlantic Group, Inc. | 7,977 | 302,488 | ||||||
PVH Corp. | 4,020 | 296,073 | ||||||
Ascena Retail Group, Inc.* | 16,960 | 167,056 | ||||||
Sonic Automotive, Inc. — Class A | 6,550 | 149,078 | ||||||
Total Consumer, Cyclical | 8,690,632 | |||||||
Energy - 5.8% | ||||||||
Chevron Corp. | 25,300 | 2,275,987 | ||||||
Exxon Mobil Corp. | 22,960 | 1,789,732 | ||||||
Patterson-UTI Energy, Inc. | 47,570 | 717,356 | ||||||
Whiting Petroleum Corp.* | 58,110 | 548,558 | ||||||
Rowan Companies plc — Class A | 31,340 | 531,213 | ||||||
Hess Corp. | 7,080 | 343,238 | ||||||
Marathon Oil Corp. | 25,450 | 320,416 | ||||||
Oasis Petroleum, Inc.* | 33,680 | 248,222 | ||||||
Superior Energy Services, Inc. | 16,940 | 228,182 | ||||||
Total Energy | 7,002,904 | |||||||
Communications - 5.2% | ||||||||
Cisco Systems, Inc. | 89,330 | 2,425,755 | ||||||
AT&T, Inc. | 41,170 | 1,416,660 | ||||||
DigitalGlobe, Inc.* | 63,157 | 989,039 | ||||||
Scripps Networks Interactive, Inc. — Class A | 16,400 | 905,444 | ||||||
Finisar Corp.* | 25,600 | 372,224 | ||||||
Liquidity Services, Inc.* | 19,353 | 125,795 | ||||||
Total Communications | 6,234,917 | |||||||
Basic Materials - 4.2% | ||||||||
Dow Chemical Co. | 36,204 | 1,863,781 | ||||||
Reliance Steel & Aluminum Co. | 21,880 | 1,267,071 | ||||||
Olin Corp. | 35,774 | 617,459 | ||||||
Royal Gold, Inc. | 12,414 | 452,739 | ||||||
Landec Corp.* | 24,660 | 291,728 | ||||||
Axiall Corp. | 17,960 | 276,584 | ||||||
Freeport-McMoRan, Inc. | 30,940 | 209,464 | ||||||
Stillwater Mining Co.* | 9,600 | 82,272 | ||||||
Total Basic Materials | 5,061,098 | |||||||
Total Common Stocks | ||||||||
(Cost $106,052,516) | 117,099,862 | |||||||
SHORT TERM INVESTMENTS† - 2.6% | ||||||||
Dreyfus Treasury Prime Cash Management Institutional Shares 0.00%1 | 3,119,613 | 3,119,613 | ||||||
Total Short Term Investments | ||||||||
(Cost $3,119,613) | 3,119,613 | |||||||
Total Investments - 100.1% | ||||||||
(Cost $109,172,129) | $ | 120,219,475 | ||||||
Other Assets & Liabilities, net - (0.1)% | (106,636 | ) | ||||||
Total Net Assets - 100.0% | $ | 120,112,839 | ||||||
* | Non-income producing security. |
† | Value determined based on Level 1 inputs — See Note 4. |
1 | Rate indicated is the 7 day yield as of December 31, 2015. |
plc — Public Limited Company | |
See Sector Classification in Other Information section. |
102 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
SCHEDULE OF INVESTMENTS (concluded) | December 31, 2015 |
SERIES O (ALL CAP VALUE SERIES) |
The following table summarizes the inputs used to value the Fund’s investments at December 31, 2015 (See Note 4 in the Notes to Financial Statements):
Investments in Securities (Assets) | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Common Stocks | $ | 117,099,862 | $ | — | $ | — | $ | 117,099,862 | ||||||||
Short Term Investments | 3,119,613 | — | — | 3,119,613 | ||||||||||||
Total | $ | 120,219,475 | $ | — | $ | — | $ | 120,219,475 | ||||||||
For the year ended December 31, 2015, there were no transfers between levels.
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 103 |
SERIES O (ALL CAP VALUE SERIES) |
STATEMENT OF ASSETS AND LIABILITIES |
December 31, 2015 | ||||
Assets: | ||||
Investments, at value (cost $109,172,129) | $ | 120,219,475 | ||
Prepaid expenses | 6,146 | |||
Receivables: | ||||
Dividends | 194,138 | |||
Securities sold | 16,506 | |||
Foreign taxes reclaim | 5,200 | |||
Fund shares sold | 864 | |||
Total assets | 120,442,329 | |||
Liabilities: | ||||
Payable for: | ||||
Securities purchased | 163,657 | |||
Management fees | 72,155 | |||
Fund shares redeemed | 31,599 | |||
Fund accounting/administration fees | 9,792 | |||
Trustees’ fees* | 7,389 | |||
Transfer agent/maintenance fees | 4,211 | |||
Miscellaneous | 40,687 | |||
Total liabilities | 329,490 | |||
Commitments and contingent liabilities (Note 16) | — | |||
Net assets | $ | 120,112,839 | ||
Net assets consist of: | ||||
Paid in capital | $ | 102,705,791 | ||
Undistributed net investment income | 1,852,041 | |||
Accumulated net realized gain on investments | 4,507,661 | |||
Net unrealized appreciation on investments | 11,047,346 | |||
Net assets | $ | 120,112,839 | ||
Capital shares outstanding | 4,099,119 | |||
Net asset value per share | $ | 29.30 | ||
STATEMENT OF OPERATIONS |
Year Ended December 31, 2015 | ||||
Investment Income: | ||||
Dividends (net of foreign withholding tax of $38) | $ | 3,033,714 | ||
Interest | 250 | |||
Other income | 475 | |||
Total investment income | 3,034,439 | |||
Expenses: | ||||
Management fees | 943,870 | |||
Transfer agent/maintenance fees | 25,217 | |||
Fund accounting/administration fees | 128,094 | |||
Custodian fees | 29,841 | |||
Trustees’ fees* | 16,060 | |||
Line of credit fees | 10,400 | |||
Miscellaneous | 88,324 | |||
Total expenses | 1,241,806 | |||
Less: | ||||
Expenses waived by Adviser | (375 | ) | ||
Net expenses | 1,241,431 | |||
Net investment income | 1,793,008 | |||
Net Realized and Unrealized Gain (Loss): | ||||
Net realized gain (loss) on: | ||||
Investments | 8,219,838 | |||
Net realized gain | 8,219,838 | |||
Net change in unrealized appreciation (depreciation) on: | ||||
Investments | (16,228,817 | ) | ||
Net change in unrealized appreciation (depreciation) | (16,228,817 | ) | ||
Net realized and unrealized loss | (8,008,979 | ) | ||
Net decrease in net assets resulting from operations | $ | (6,215,971 | ) | |
* | Relates to Trustees not deemed “interested persons” within the meaning of Section 2(a)(19) of the 1940 Act. |
104 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
SERIES O (ALL CAP VALUE SERIES) |
STATEMENTS OF CHANGES IN NET ASSETS |
Year Ended | Year Ended | |||||||
Increase (Decrease) in Net Assets from Operations: | ||||||||
Net investment income | $ | 1,793,008 | $ | 1,388,161 | ||||
Net realized gain on investments | 8,219,838 | 23,234,450 | ||||||
Net change in unrealized appreciation (depreciation) on investments | (16,228,817 | ) | (13,299,353 | ) | ||||
Net increase (decrease) in net assets resulting from operations | (6,215,971 | ) | 11,323,258 | |||||
Distributions to shareholders from: | ||||||||
Net investment income | (1,281,376 | ) | (1,285 | ) | ||||
Net realized gains | (16,826,249 | ) | — | |||||
Total distributions to shareholders | (18,107,625 | ) | (1,285 | ) | ||||
Capital share transactions: | ||||||||
Proceeds from sale of shares | 4,474,326 | 15,918,519 | ||||||
Distributions reinvested | 18,107,625 | 1,285 | ||||||
Cost of shares redeemed | (25,462,084 | ) | (33,626,804 | ) | ||||
Net decrease from capital share transactions | (2,880,133 | ) | (17,707,000 | ) | ||||
Net decrease in net assets | (27,203,729 | ) | (6,385,027 | ) | ||||
Net assets: | ||||||||
Beginning of year | 147,316,568 | 153,701,595 | ||||||
End of year | $ | 120,112,839 | $ | 147,316,568 | ||||
Undistributed net investment income at end of year | $ | 1,852,041 | $ | 1,287,652 | ||||
Capital share activity: | ||||||||
Shares sold | 133,321 | 466,579 | �� | |||||
Shares issued from reinvestment of distributions | 579,444 | 36 | ||||||
Shares redeemed | (781,405 | ) | (977,527 | ) | ||||
Net decrease in shares | (68,640 | ) | (510,912 | ) | ||||
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 105 |
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 | Year Ended | Year Ended | Year Ended | Year Ended | ||||||||||||||||
Per Share Data | ||||||||||||||||||||
Net asset value, beginning of period | $ | 35.35 | $ | 32.85 | $ | 24.66 | $ | 21.35 | $ | 22.32 | ||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||
Net investment income (loss)a | .43 | .31 | .24 | .21 | .15 | |||||||||||||||
Net gain (loss) on investments (realized and unrealized) | (1.80 | ) | 2.19 | 7.95 | 3.10 | (1.12 | ) | |||||||||||||
Total from investment operations | (1.37 | ) | 2.50 | 8.19 | 3.31 | (.97 | ) | |||||||||||||
Less distributions from: | ||||||||||||||||||||
Net investment income | (.33 | ) | (— | )b | — | — | — | |||||||||||||
Net realized gains | (4.35 | ) | — | — | — | — | ||||||||||||||
Total distributions | (4.68 | ) | — | — | — | — | ||||||||||||||
Net asset value, end of period | $ | 29.30 | $ | 35.35 | $ | 32.85 | $ | 24.66 | $ | 21.35 | ||||||||||
Total Returnc | (4.70 | %) | 7.61 | % | 33.21 | % | 15.50 | % | (4.35 | %) | ||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||
Net assets, end of period (in thousands) | $ | 120,113 | $ | 147,317 | $ | 153,702 | $ | 130,234 | $ | 137,794 | ||||||||||
Ratios to average net assets: | ||||||||||||||||||||
Net investment income (loss) | 1.33 | % | 0.92 | % | 0.81 | % | 0.91 | % | 0.69 | % | ||||||||||
Total expenses | 0.92 | % | 0.89 | % | 0.90 | % | 0.89 | % | 0.86 | % | ||||||||||
Net expensesd | 0.92 | % | 0.89 | % | 0.90 | % | 0.89 | % | 0.86 | % | ||||||||||
Portfolio turnover rate | 39 | % | 49 | % | 22 | % | 14 | % | 19 | % | ||||||||||
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. |
106 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
MANAGER’S COMMENTARY (Unaudited) | December 31, 2015 |
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, 2015.
For the one-year period ended December 31, 2015, the Series P (High Yield Series) returned -3.95%, compared with -4.47% for its benchmark, the Barclays U.S. Corporate High Yield Index.
In 2015, risk assets posted their worst annual performance since 2008, as market participants’ expectations for the start of rate hikes collided with concerns about plunging commodity prices, and slowing economic growth in China and other emerging-market economies. While the direct impact of a 25basis point (bps) increase in the Federal Funds target rate in December was fairly insignificant, the decision to commence the “normalization” of interest rates after seven years of unprecedented liquidity provision was not. High-yield bonds posted their first annual loss since 2009, and spreads went to their widest levels since Standard & Poor’s downgraded the United States’ credit rating in 2011. The S&P 500 experienced its first 10 percent correction in four years and saw the weakest annual total return performance (+1.4 percent) since 2008.
Many of the challenges seen in 2015 originated in commodity-sensitive sectors. Investors became concerned with steep declines in energy and metals prices, and a weakening global economic outlook, causing volatility to spill over into other sectors. Outside of energy and metals, we continue to believe that many sectors offer attractive valuations, and our analysis indicates that a positive story remains intact for a large number of issuers. Defaults are expected to remain largely contained to commodity-related sectors, despite the market’s dimming outlook for risk assets at period end.
Fund relative outperformance for the period was primarily a result of credit selection, as Guggenheim’s bottom-up, fundamental approach results in the construction of portfolios with strong downside protection that outperforms when the broader market underperforms.
Among contributors to performance during the period were an overweight to the consumer non-cyclical and technology sectors, as well as an underweight to the metals and mining sector.
Exposure to energy credits detracted from performance for the period as oil prices fell 30% and natural gas prices fell by 19% in 2015. The Fund expects further stress in the energy and metals and mining sectors and continues to focus on individual credits that can survive our stress tests.
The Fund’s incremental increase in exposure to BB rated credits since the beginning of the period contributed to performance, as higher-quality high-yield bonds outperformed for most of the period, particularly during the second half of the year. Our research indicates that this particular part of the market performs very well versus other fixed-income areas during Federal Reserve rate tightening. This has been consistently true over the last 20 years.
The Fund remains conservatively positioned in terms of its exposure to interest rates. It maintains exposure to shorter-dated bonds and is overweight floating rate securities (bank loans). The Fund’s allocations to bank loans and investment grade bonds helped to decrease volatility and diversify sources of return.
Given the variation of fundamental metrics within high yield, the Fund currently favors investments in companies with recurring revenue stream and high-quality margins, including technology, consumer retail (which should also benefit from declining gas prices), and healthcare. We focus on strong quality credits and analyze potentially oversold bonds for attractive entry points. Upper middle-market high-yield bonds and bank loans (tranches of $300 to $750 million) remain attractive, as they are often overlooked and underfollowed. Any selloff in risk assets we believe creates opportunities to pick up strong credits at attractive valuations.
THE GUGGENHEIM FUNDS ANNUAL REPORT | 107 |
MANAGER’S COMMENTARY (Unaudited)(concluded) | December 31, 2015 |
While the macroeconomic backdrop is still supportive for credit markets, the risk of contagion from distressed sectors, such as energy, bears watching. However, a genuine turning point in credit will not be reached until a U.S. recession looms and underlying corporate fundamentals no longer support a low default environment—neither of which was true at the end of 2015.
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.
108 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
PERFORMANCE REPORT AND FUND PROFILE (Unaudited) | December 31, 2015 |
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.
Portfolio Composition by Quality Rating** | |
Rating | |
Fixed Income Instruments | |
AAA | 0.3% |
A | 0.3% |
BBB | 5.9% |
BB | 36.2% |
B | 35.5% |
CCC | 16.8% |
NR1 | 2.5% |
Other Instruments | 2.5% |
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 | 2.5% |
Vector Group Ltd. | 1.9% |
GCA Services Group, Inc. | 1.8% |
MDC Partners, Inc. | 1.7% |
Epicor Software | 1.7% |
Checkers Drive-In Restaurants, Inc. | 1.7% |
ContourGlobal Power Holdings S.A. | 1.6% |
Elwood Energy LLC | 1.6% |
First Data Corp. | 1.6% |
Opal Acquisition, Inc. | 1.5% |
Top Ten Total | 17.6% |
“Ten Largest Holdings” excludes any temporary cash or derivative investments. | |
** | Source: BlackRock Solutions. Credit quality ratings are measured on a scale that generally ranges from AAA (highest) to D (lowest). All securities except for those labeled “NR” 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. Security ratings are determined at the time of purchase and may change thereafter. |
1 | NR securities do not necessarily indicate low credit quality. |
THE GUGGENHEIM FUNDS ANNUAL REPORT | 109 |
PERFORMANCE REPORT AND FUND PROFILE (Unaudited)(concluded) | December 31, 2015 |
Cumulative Fund Performance*,†
Average Annual Returns*
Periods Ended December 31, 2015†
1 Year | 5 Year | 10 Year | |
Series P (High Yield Series) | -3.95% | 3.96% | 6.76% |
Barclays U.S. Corporate High Yield Index | -4.47% | 5.04% | 6.96% |
* | 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. |
† | 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. |
110 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
SCHEDULE OF INVESTMENTS | December 31, 2015 |
SERIES P (HIGH YIELD SERIES) |
| Value | |||||||
COMMON STOCKS† - 0.1% | ||||||||
Communications - 0.0% | ||||||||
Cengage Learning Acquisitions, Inc.*,†† | 2,107 | $ | 47,760 | |||||
Aimia, Inc. | 5 | 35 | ||||||
Total Communications | 47,795 | |||||||
Energy - 0.1% | ||||||||
Stallion Oilfield Holdings Ltd.*,†† | 19,265 | 43,346 | ||||||
Diversified - 0.0% | ||||||||
Leucadia National Corp. | 247 | 4,295 | ||||||
Consumer, Non-cyclical - 0.0% | ||||||||
Crimson Wine Group Ltd.* | 24 | 211 | ||||||
MEDIQ, Inc.*,††† | 92 | — | ||||||
Total Consumer, Non-cyclical | 211 | |||||||
Basic Materials - 0.0% | ||||||||
Mirabela Nickel Ltd.*,†††,8 | 1,470,315 | 107 | ||||||
Consumer, Cyclical - 0.0% | ||||||||
Delta Air Lines, Inc. | 1 | 51 | ||||||
Chorus Aviation, Inc. | 3 | 12 | ||||||
Total Consumer, Cyclical | 63 | |||||||
Financial - 0.0% | ||||||||
Adelphia Recovery Trust*,††† | 5,270 | 1 | ||||||
Total Common Stocks | ||||||||
(Cost $1,008,375) | 95,818 | |||||||
PREFERRED STOCKS†† - 1.3% | ||||||||
Industrial - 1.3% | ||||||||
Seaspan Corp. 6.38% due 04/30/198 | 34,000 | 826,200 | ||||||
U.S. Shipping Corp.*,8 | 24,529 | 49,058 | ||||||
Total Industrial | 875,258 | |||||||
Total Preferred Stocks | ||||||||
(Cost $1,475,765) | 875,258 | |||||||
SHORT TERM INVESTMENTS† - 1.4% | ||||||||
Dreyfus Treasury Prime Cash Management Institutional Shares 0.00%6 | 933,838 | 933,838 | ||||||
Total Short Term Investments | ||||||||
(Cost $933,838) | 933,838 | |||||||
Face | ||||||||
CORPORATE BONDS†† - 79.5% | ||||||||
Communications - 13.1% | ||||||||
MDC Partners, Inc. | ||||||||
6.75% due 04/01/201 | $ | 1,100,000 | 1,133,000 | |||||
Sprint Communications, Inc. | ||||||||
9.00% due 11/15/181 | 500,000 | 526,250 | ||||||
7.00% due 03/01/201 | 350,000 | 350,875 | ||||||
Neptune Finco Corp. | ||||||||
6.63% due 10/15/251,2 | 750,000 | 780,000 | ||||||
McGraw-Hill Global Education Holdings LLC / McGraw-Hill Global Education Finance | ||||||||
9.75% due 04/01/21 | 700,000 | 742,000 | ||||||
T-Mobile USA, Inc. | ||||||||
6.50% due 01/15/26 | 650,000 | 656,169 | ||||||
TIBCO Software, Inc. | ||||||||
11.38% due 12/01/211,2 | 750,000 | 627,188 | ||||||
CSC Holdings LLC | ||||||||
5.25% due 06/01/24 | 650,000 | 570,375 | ||||||
DISH DBS Corp. | ||||||||
5.87% due 11/15/24 | 400,000 | 356,000 | ||||||
5.88% due 07/15/22 | 200,000 | 186,500 | ||||||
Interoute Finco plc | ||||||||
7.37% due 10/15/20 | EUR | 450,000 | 512,469 | |||||
Numericable-SFR SAS | ||||||||
6.00% due 05/15/221 | 350,000 | 339,500 | ||||||
6.25% due 05/15/241 | 150,000 | 144,750 | ||||||
Zayo Group LLC / Zayo Capital, Inc. | ||||||||
6.38% due 05/15/25 | 450,000 | 418,500 | ||||||
Cogent Communications Group, Inc. | ||||||||
5.38% due 03/01/221 | 300,000 | 291,750 | ||||||
UPCB Finance IV Ltd. | ||||||||
5.38% due 01/15/251 | 300,000 | 282,750 | ||||||
CenturyLink, Inc. | ||||||||
5.63% due 04/01/25 | 300,000 | 253,500 | ||||||
Avaya, Inc. | ||||||||
7.00% due 04/01/191 | 300,000 | 222,000 | ||||||
Midcontinent Communications & Midcontinent Finance Corp. | ||||||||
6.88% due 08/15/231 | 200,000 | 202,500 | ||||||
Sirius XM Canada Holdings, Inc. | ||||||||
5.63% due 04/23/211 | CAD | 150,000 | 106,207 | |||||
Sprint Corp. | ||||||||
7.63% due 02/15/25 | 50,000 | 36,500 | ||||||
Total Communications | 8,738,783 | |||||||
Energy - 10.8% | ||||||||
ContourGlobal Power Holdings S.A. | ||||||||
7.13% due 06/01/191 | 1,150,000 | 1,092,500 | ||||||
Sabine Pass Liquefaction LLC | ||||||||
6.25% due 03/15/22 | 550,000 | 508,750 | ||||||
5.63% due 04/15/23 | 400,000 | 351,000 | ||||||
5.63% due 02/01/21 | 150,000 | 138,000 | ||||||
CONSOL Energy, Inc. | ||||||||
8.00% due 04/01/231 | 650,000 | 432,250 | ||||||
5.88% due 04/15/22 | 450,000 | 279,000 | ||||||
Antero Resources Corp. | ||||||||
5.63% due 06/01/231 | 350,000 | 273,000 | ||||||
5.13% due 12/01/22 | 256,000 | 194,560 | ||||||
5.38% due 11/01/21 | 100,000 | 80,000 | ||||||
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 111 |
SCHEDULE OF INVESTMENTS (continued) | December 31, 2015 |
SERIES P (HIGH YIELD SERIES) |
Face | Value | |||||||
Unit Corp. | ||||||||
6.63% due 05/15/21 | $ | 700,000 | $ | 503,999 | ||||
Keane Group Holdings LLC | ||||||||
8.50% due 08/08/19†††,8 | 633,750 | 481,650 | ||||||
EP Energy LLC / Everest Acquisition Finance, Inc. | ||||||||
9.38% due 05/01/20 | 350,000 | 223,125 | ||||||
6.38% due 06/15/23 | 350,000 | 175,000 | ||||||
Ultra Resources, Inc. | ||||||||
4.51% due 10/12/20†††,8 | 600,000 | 393,594 | ||||||
Comstock Resources, Inc. | ||||||||
10.00% due 03/15/201,2 | 750,000 | 345,000 | ||||||
Atlas Energy Holdings Operating Company LLC / Atlas Resource Finance Corp. | ||||||||
7.75% due 01/15/218 | 825,000 | 164,484 | ||||||
9.25% due 08/15/218 | 775,000 | 158,875 | ||||||
Gibson Energy, Inc. | ||||||||
6.75% due 07/15/211 | 289,000 | 276,718 | ||||||
FTS International, Inc. | ||||||||
8.01% due 06/15/201,3 | 250,000 | 170,061 | ||||||
6.25% due 05/01/22 | 350,000 | 98,000 | ||||||
Legacy Reserves Limited Partnership / Legacy Reserves Finance Corp. | ||||||||
6.63% due 12/01/21 | 625,000 | 131,250 | ||||||
8.00% due 12/01/20 | 505,000 | 106,050 | ||||||
SandRidge Energy, Inc. | ||||||||
8.75% due 06/01/201 | 650,000 | 197,438 | ||||||
BreitBurn Energy Partners Limited Partnership / BreitBurn Finance Corp. | ||||||||
7.88% due 04/15/22 | 750,000 | 135,000 | ||||||
8.62% due 10/15/20 | 250,000 | 50,000 | ||||||
TerraForm Power Operating LLC | ||||||||
6.13% due 06/15/251 | 125,000 | 100,625 | ||||||
IronGate Energy Services LLC | ||||||||
11.00% due 07/01/189 | 155,000 | 85,250 | ||||||
Schahin II Finance Company SPV Ltd. | ||||||||
5.88% due 09/25/224,9 | 167,600 | 31,844 | ||||||
Ultra Petroleum Corp. | ||||||||
5.75% due 12/15/181 | 100,000 | 24,000 | ||||||
SemGroup, LP | ||||||||
8.75% due 11/15/15†††,4,8 | 1,700,000 | 2 | ||||||
Total Energy | 7,201,025 | |||||||
Financial - 10.7% | ||||||||
Jefferies Finance LLC / JFIN Company-Issuer Corp. | ||||||||
7.38% due 04/01/201 | 705,000 | 625,687 | ||||||
7.50% due 04/15/211 | 400,000 | 352,000 | ||||||
Citigroup, Inc. | ||||||||
6.30%3,5 | 650,000 | 633,750 | ||||||
5.95%3,5 | 150,000 | 144,375 | ||||||
Kennedy-Wilson, Inc. | ||||||||
5.87% due 04/01/242 | 770,000 | 743,050 | ||||||
National Financial Partners Corp. | ||||||||
9.00% due 07/15/211 | 600,000 | 549,000 | ||||||
Icahn Enterprises Limited Partnership / Icahn Enterprises Finance Corp. | ||||||||
5.88% due 02/01/22 | 550,000 | 537,625 | ||||||
GEO Group, Inc. | ||||||||
5.88% due 01/15/22 | 450,000 | 443,250 | ||||||
Wilton Re Finance LLC | ||||||||
5.87% due 03/30/331,3 | 400,000 | 419,676 | ||||||
NewStar Financial, Inc. | ||||||||
7.25% due 05/01/20 | 400,000 | 388,000 | ||||||
EPR Properties | ||||||||
5.75% due 08/15/22 | 300,000 | 314,959 | ||||||
Majid AL Futtaim Holding | ||||||||
7.12% due 12/31/49 | 300,000 | 303,312 | ||||||
Digital Delta Holdings LLC | ||||||||
4.75% due 10/01/251 | 300,000 | 302,657 | ||||||
Jefferies LoanCore LLC / JLC Finance Corp. | ||||||||
6.87% due 06/01/201 | 300,000 | 285,000 | ||||||
Lock AS | ||||||||
7.00% due 08/15/21 | EUR | 250,000 | 283,102 | |||||
Compass Bank | ||||||||
3.88% due 04/10/25 | 300,000 | 274,971 | ||||||
Hospitality Properties Trust | ||||||||
4.50% due 03/15/25 | 250,000 | 240,024 | ||||||
Greystar Real Estate Partners LLC | ||||||||
8.25% due 12/01/221 | 200,000 | 207,500 | ||||||
Quicken Loans, Inc. | ||||||||
5.75% due 05/01/251 | 150,000 | 142,875 | ||||||
Total Financial | 7,190,813 | |||||||
Technology - 10.2% | ||||||||
First Data Corp. | ||||||||
5.75% due 01/15/241 | 1,050,000 | 1,034,250 | ||||||
7.00% due 12/01/231 | 150,000 | 150,000 | ||||||
Epicor Software | ||||||||
9.24% due 06/21/23††† | 1,150,000 | 1,118,117 | ||||||
Open Text Corp. | ||||||||
5.63% due 01/15/231 | 950,000 | 940,500 | ||||||
NCR Corp. | ||||||||
6.38% due 12/15/23 | 550,000 | 541,750 | ||||||
5.88% due 12/15/21 | 400,000 | 394,000 | ||||||
Micron Technology, Inc. | ||||||||
5.25% due 08/01/231 | 750,000 | 673,125 | ||||||
Aspect Software, Inc. | ||||||||
10.63% due 05/15/178 | 675,000 | 526,500 | ||||||
Audatex North America, Inc. | ||||||||
6.13% due 11/01/231 | 400,000 | 402,500 | ||||||
Infor US, Inc. | ||||||||
6.50% due 05/15/221 | 450,000 | 380,250 | ||||||
Moto Finance plc | ||||||||
6.37% due 09/01/20 | GBP | 150,000 | 227,095 | |||||
Microsoft Corp. | ||||||||
4.20% due 11/03/35 | 200,000 | 204,232 | ||||||
112 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
SCHEDULE OF INVESTMENTS (continued) | December 31, 2015 |
SERIES P (HIGH YIELD SERIES) |
Face | Value | |||||||
Applied Materials, Inc. | ||||||||
3.90% due 10/01/25 | $ | 200,000 | $ | 201,077 | ||||
Total Technology | 6,793,396 | |||||||
Consumer, Cyclical - 10.1% | ||||||||
Checkers Drive-In Restaurants, Inc. | ||||||||
11.00% due 12/01/171 | 1,050,000 | 1,107,750 | ||||||
WMG Acquisition Corp. | ||||||||
6.75% due 04/15/221 | 1,150,000 | 994,750 | ||||||
Ferrellgas Limited Partnership / Ferrellgas Finance Corp. | ||||||||
6.75% due 06/15/231 | 600,000 | 489,000 | ||||||
6.75% due 01/15/22 | 300,000 | 252,750 | ||||||
Wynn Las Vegas LLC / Wynn Las Vegas Capital Corp. | ||||||||
5.50% due 03/01/251,2 | 800,000 | 713,000 | ||||||
AmeriGas Finance LLC / AmeriGas Finance Corp. | ||||||||
7.00% due 05/20/22 | 700,000 | 677,251 | ||||||
Nathan’s Famous, Inc. | ||||||||
10.00% due 03/15/201 | 400,000 | 415,000 | ||||||
VWR Funding, Inc. | ||||||||
4.62% due 04/15/22 | EUR | 350,000 | 371,013 | |||||
NPC International Incorporated / NPC Operating Company A Inc / NPC Operating Co B Inc | ||||||||
10.50% due 01/15/20 | 350,000 | 362,250 | ||||||
Wyndham Worldwide Corp. | ||||||||
5.10% due 10/01/25 | 300,000 | 303,014 | ||||||
Suburban Propane Partners Limited Partnership/Suburban Energy Finance Corp. | ||||||||
5.50% due 06/01/24 | 350,000 | 281,750 | ||||||
Petco Animal Supplies, Inc. | ||||||||
9.25% due 12/01/181 | 200,000 | 205,250 | ||||||
Seminole Hard Rock Entertainment Inc. / Seminole Hard Rock International LLC | ||||||||
5.88% due 05/15/211,2 | 200,000 | 199,500 | ||||||
Carrols Restaurant Group, Inc. | ||||||||
8.00% due 05/01/22 | 150,000 | 158,250 | ||||||
Ferrellgas LP / Ferrellgas Finance Corp. | ||||||||
6.50% due 05/01/21 | 150,000 | 127,500 | ||||||
L Brands, Inc. | ||||||||
6.88% due 11/01/351 | 100,000 | 102,750 | ||||||
Total Consumer, Cyclical | 6,760,778 | |||||||
Consumer, Non-cyclical - 9.8% | ||||||||
Vector Group Ltd. | ||||||||
7.75% due 02/15/212 | 1,200,000 | 1,266,000 | ||||||
ADT Corp. | ||||||||
6.25% due 10/15/212 | 800,000 | 835,640 | ||||||
3.50% due 07/15/22 | 115,000 | 102,925 | ||||||
HCA, Inc. | ||||||||
5.88% due 02/15/262 | 800,000 | 803,000 | ||||||
Bumble Bee Holdco SCA | ||||||||
9.62% due 03/15/181 | 784,000 | 784,000 | ||||||
Midas Intermediate Holdco II LLC / Midas Intermediate Holdco II Finance, Inc. | ||||||||
7.88% due 10/01/221 | 650,000 | 581,750 | ||||||
Tenet Healthcare Corp. | ||||||||
4.01% due 06/15/201,3 | 500,000 | 487,500 | ||||||
KeHE Distributors LLC / KeHE Finance Corp. | ||||||||
7.63% due 08/15/211 | 450,000 | 457,875 | ||||||
US Foods, Inc. | ||||||||
8.50% due 06/30/19 | 350,000 | 360,500 | ||||||
Bumble Bee Holdings, Inc. | ||||||||
9.00% due 12/15/171 | 350,000 | 354,375 | ||||||
Central Garden & Pet Co. | ||||||||
6.13% due 11/15/23 | 350,000 | 353,500 | ||||||
Jaguar Holding Company II / Pharmaceutical Product Development LLC | ||||||||
6.38% due 08/01/231 | 175,000 | 170,625 | ||||||
Total Consumer, Non-cyclical | 6,557,690 | |||||||
Industrial - 5.0% | ||||||||
Novelis, Inc. | ||||||||
8.75% due 12/15/20 | 600,000 | 550,500 | ||||||
8.38% due 12/15/17 | 100,000 | 97,250 | ||||||
Reynolds Group Issuer Inc. / Reynolds Group Issuer LLC / Reynolds Group Issuer | ||||||||
7.13% due 04/15/19 | 600,000 | 610,875 | ||||||
BMBG Bond Finance SCA | ||||||||
4.95% due 10/15/201,3 | EUR | 500,000 | 546,046 | |||||
CEVA Group plc | ||||||||
7.00% due 03/01/211 | 625,000 | 518,750 | ||||||
StandardAero Aviation Holdings, Inc. | ||||||||
10.00% due 07/15/231 | 400,000 | 397,000 | ||||||
LMI Aerospace, Inc. | ||||||||
7.38% due 07/15/19 | 350,000 | 346,500 | ||||||
Anixter, Inc. | ||||||||
5.50% due 03/01/231 | 300,000 | 301,500 | ||||||
Total Industrial | 3,368,421 | |||||||
Utilities - 4.7% | ||||||||
Elwood Energy LLC | ||||||||
8.16% due 07/05/262,8 | 994,425 | 1,083,923 | ||||||
LBC Tank Terminals Holding Netherlands BV | ||||||||
6.88% due 05/15/231 | 850,000 | 841,500 | ||||||
AES Corp. | ||||||||
5.50% due 03/15/242 | 600,000 | 535,500 | ||||||
4.88% due 05/15/23 | 250,000 | 218,750 | ||||||
Terraform Global Operating LLC | ||||||||
9.75% due 08/15/221 | 550,000 | 438,625 | ||||||
Total Utilities | 3,118,298 | |||||||
Diversified - 2.7% | ||||||||
Opal Acquisition, Inc. | ||||||||
8.88% due 12/15/211,2 | 1,250,000 | 1,037,500 | ||||||
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 113 |
SCHEDULE OF INVESTMENTS (continued) | December 31, 2015 |
SERIES P (HIGH YIELD SERIES) |
Face | Value | |||||||
HRG Group, Inc. | ||||||||
7.88% due 07/15/19 | $ | 748,000 | $ | 781,660 | ||||
Total Diversified | 1,819,160 | |||||||
Basic Materials - 2.4% | ||||||||
Eldorado Gold Corp. | ||||||||
6.13% due 12/15/201 | 665,000 | 581,875 | ||||||
TPC Group, Inc. | ||||||||
8.75% due 12/15/201 | 830,000 | 539,500 | ||||||
Yamana Gold, Inc. | ||||||||
4.95% due 07/15/24 | 300,000 | 254,395 | ||||||
Cascades, Inc. | ||||||||
5.75% due 07/15/231 | 150,000 | 144,000 | ||||||
Mirabela Nickel Ltd. | ||||||||
9.50% due 06/24/19†††,8,10 | 372,398 | 111,719 | ||||||
1.00% due 09/10/44†††,8,10 | 7,799 | — | ||||||
Total Basic Materials | 1,631,489 | |||||||
Total Corporate Bonds | ||||||||
(Cost $62,175,664) | 53,179,853 | |||||||
SENIOR FLOATING RATE INTERESTS††,3 - 27.9% | ||||||||
Consumer, Cyclical - 5.9% | ||||||||
GCA Services Group, Inc. | ||||||||
9.25% due 11/02/20 | 1,200,000 | 1,172,999 | ||||||
Sky Bet | ||||||||
6.50% due 02/25/22 | GBP | 600,000 | 884,358 | |||||
Mavis Tire | ||||||||
6.25% due 11/02/20†††,8 | 497,500 | 490,734 | ||||||
BBB Industries, LLC | ||||||||
4.42% due 11/04/198 | 525,893 | 469,670 | ||||||
Belk, Inc. | ||||||||
5.75% due 12/12/22 | 450,000 | 395,438 | ||||||
Navistar, Inc. | ||||||||
6.50% due 08/07/20 | 250,000 | 219,168 | ||||||
National Vision, Inc. | ||||||||
4.00% due 03/12/21 | 197,985 | 189,818 | ||||||
Sears Holdings Corp. | ||||||||
5.50% due 06/30/18 | 198,481 | 185,580 | ||||||
Total Consumer, Cyclical | 4,007,765 | |||||||
Industrial - 5.8% | ||||||||
Flakt Woods | ||||||||
2.63% due 03/20/17†††,8 | EUR | 1,566,523 | 1,681,971 | |||||
Mitchell International, Inc. | ||||||||
8.50% due 10/11/21 | 600,000 | 571,002 | ||||||
SIRVA Worldwide, Inc. | ||||||||
7.50% due 03/27/198 | 569,476 | 549,544 | ||||||
Hardware Holdings LLC | ||||||||
6.75% due 03/30/208 | 346,500 | 336,105 | ||||||
Mast Global | ||||||||
7.75% due 09/12/19†††,8 | 270,000 | 268,318 | ||||||
8.75% due 09/12/19†††,8 | 59,842 | 59,470 | ||||||
LSF9 Cypress Holdings LLC | ||||||||
7.25% due 10/09/22 | 150,000 | 142,001 | ||||||
CEVA Logistics US Holdings | ||||||||
6.50% due 03/19/21 | 90,474 | 74,189 | ||||||
NANA Development Corp. | ||||||||
8.00% due 03/15/188 | 67,500 | 64,125 | ||||||
CEVA Logistics Holdings BV (Dutch) | ||||||||
6.50% due 03/19/21 | 65,761 | 53,924 | ||||||
CEVA Group Plc (United Kingdom) | ||||||||
6.50% due 03/19/21 | 63,633 | 52,179 | ||||||
CEVA Logistics Canada, ULC | ||||||||
6.50% due 03/19/21 | 11,338 | 9,297 | ||||||
Total Industrial | 3,862,125 | |||||||
Consumer, Non-cyclical - 4.7% | ||||||||
AdvancePierre Foods, Inc. | ||||||||
9.50% due 10/10/17 | 709,000 | 693,934 | ||||||
IHC Holding Corp. | ||||||||
7.00% due 04/30/21†††,8 | 547,250 | 539,955 | ||||||
NES Global Talent | ||||||||
6.50% due 10/03/19 | 596,575 | 530,952 | ||||||
Reddy Ice Holdings, Inc. | ||||||||
10.75% due 10/01/198 | 530,000 | 345,825 | ||||||
CTI Foods Holding Co. LLC | ||||||||
8.25% due 06/28/21 | 300,000 | 270,000 | ||||||
Americold Realty Operating Partnership, LP | ||||||||
6.50% due 12/01/22 | 225,000 | 222,750 | ||||||
American Seafoods | ||||||||
6.00% due 08/19/218 | 199,500 | 196,174 | ||||||
Performance Food Group | ||||||||
6.25% due 11/14/19 | 169,417 | 168,710 | ||||||
Taxware Holdings | ||||||||
7.50% due 04/01/22†††,8 | 149,250 | 147,915 | ||||||
Total Consumer, Non-cyclical | 3,116,215 | |||||||
Technology - 4.3% | ||||||||
Greenway Medical Technologies | ||||||||
9.25% due 11/04/218 | 500,000 | 477,500 | ||||||
6.00% due 11/04/208 | 392,000 | 366,520 | ||||||
Sparta Holding Corp. | ||||||||
6.50% due 07/28/20††† | 691,250 | 685,979 | ||||||
Avago Technologies Ltd. | ||||||||
4.25% due 11/11/22 | 350,000 | 345,846 | ||||||
Avaya, Inc. | ||||||||
6.50% due 03/30/18 | 418,541 | 314,023 | ||||||
Verisure Cayman 2 | ||||||||
5.25% due 10/10/22 | EUR | 250,000 | 270,685 | |||||
Flexera Software LLC | ||||||||
8.00% due 04/02/21 | 250,000 | 234,375 | ||||||
Advanced Computer Software | ||||||||
10.50% due 01/31/23 | 200,000 | 190,000 | ||||||
Total Technology | 2,884,928 | |||||||
114 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
SCHEDULE OF INVESTMENTS (continued) | December 31, 2015 |
SERIES P (HIGH YIELD SERIES) |
Face | Value | |||||||
Communications - 3.0% | ||||||||
Cartrawler | ||||||||
4.25% due 04/29/21 | EUR | 550,000 | $ | 597,664 | ||||
Anaren, Inc. | ||||||||
9.25% due 08/18/21 | $ | 500,000 | 456,250 | |||||
MergerMarket Ltd. | ||||||||
4.50% due 02/04/21 | 343,875 | 331,839 | ||||||
Cengage Learning Acquisitions, Inc. | ||||||||
7.00% due 03/31/20 | 247,500 | 240,694 | ||||||
T-Mobile US, Inc. | ||||||||
3.50% due 11/09/22 | 200,000 | 199,782 | ||||||
Numericable US LLC | ||||||||
4.75% due 02/10/23 | 200,000 | 191,786 | ||||||
Total Communications | 2,018,015 | |||||||
Financial - 2.6% | ||||||||
Cunningham Lindsey U.S., Inc. | ||||||||
9.25% due 06/10/208 | 935,455 | 486,435 | ||||||
York Risk Services | ||||||||
4.75% due 10/01/21 | 376,190 | 354,560 | ||||||
Safe-Guard | ||||||||
6.25% due 08/19/21 | 297,292 | 294,319 | ||||||
Expert Global Solutions | ||||||||
8.50% due 04/03/18 | 271,984 | 270,398 | ||||||
Trademonster | ||||||||
7.25% due 08/29/19†††,8 | 197,500 | 196,779 | ||||||
LPL Financial Holdings, Inc. | ||||||||
4.75% due 11/21/22 | 125,000 | 124,688 | ||||||
Total Financial | 1,727,179 | |||||||
Basic Materials - 0.9% | ||||||||
Atkore International, Inc. | ||||||||
7.75% due 10/08/218 | 400,000 | 348,000 | ||||||
Platform Specialty Products | ||||||||
5.50% due 06/07/20 | 249,375 | 241,457 | ||||||
Total Basic Materials | 589,457 | |||||||
Utilities - 0.6% | ||||||||
Invenergy Thermal Operating I, LLC | ||||||||
6.50% due 10/19/22 | 400,000 | 386,000 | ||||||
Energy - 0.1% | ||||||||
FTS International | ||||||||
5.75% due 04/16/21 | 198,182 | 54,896 | ||||||
Total Senior Floating Rate Interests | ||||||||
(Cost $20,545,035) | 18,646,580 | |||||||
SENIOR FIXED RATE INTERESTS†† - 1.1% | ||||||||
Financial - 1.1% | ||||||||
Magic Newco, LLC | ||||||||
12.00% due 06/12/19 | 700,000 | 746,375 | ||||||
Total Senior Fixed Rate Interests | ||||||||
(Cost $758,550) | 746,375 | |||||||
ASSET-BACKED SECURITIES†† - 0.4% | ||||||||
Collateralized Debt Obligations - 0.4% | ||||||||
SRERS Funding Ltd. | ||||||||
2011-RS, 0.54% due 05/09/461,3 | 267,346 | 260,594 | ||||||
Total Asset-Backed Securities | ||||||||
(Cost $252,684) | 260,594 | |||||||
Total Investments - 111.7% | ||||||||
(Cost $87,149,911) | $ | 74,738,316 | ||||||
Other Assets & Liabilities, net - (11.7)% | (7,830,206 | ) | ||||||
Total Net Assets - 100.0% | $ | 66,908,110 | ||||||
OTC FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS†† | ||||||||||||||||||
Counterparty | Contracts to Buy (Sell) | Currency | Settlement Date | Settlement Value | Value at December 31, | Net Unrealized Appreciation/(Depreciation) | ||||||||||||
BNY Mellon | (754,000 | ) | GBP | 01/11/16 | $ | 1,138,363 | $ | 1,111,589 | $ | 26,773 | ||||||||
BNY Mellon | (149,000 | ) | CAD | 01/11/16 | 111,323 | 107,670 | 3,653 | |||||||||||
BNY Mellon | (4,190,000 | ) | EUR | 01/11/16 | 4,554,048 | 4,554,865 | (817 | ) | ||||||||||
BNY Mellon | 260,000 | EUR | 01/11/16 | (285,636 | ) | (282,641 | ) | (2,995 | ) | |||||||||
$ | 26,614 | |||||||||||||||||
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 115 |
SCHEDULE OF INVESTMENTS (concluded) | December 31, 2015 |
SERIES P (HIGH YIELD SERIES) |
* | 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 | Security is a 144A or Section 4(a)(2) security. The total market value of 144A or Section 4(a)(2) securities is $27,053,397 (cost $30,357,728), or 40.4% of total net assets. These securities have been determined to be liquid under guidelines established by the Board of Trustees. |
2 | Security or a portion thereof is held as collateral for reverse repurchase agreements — See Note 12. |
3 | Variable rate security. Rate indicated is rate effective at December 31, 2015. |
4 | Security is in default of interest and/or principal obligations. |
5 | Perpetual maturity. |
6 | Rate indicated is the 7 day yield as of December 31, 2015. |
7 | The face amount is denominated in U.S. Dollars unless otherwise noted. |
8 | Illiquid security. |
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 $117,094 (cost $256,028), or 0.2% of total net assets — See Note 13. |
10 | Payment-in-kind security for which the issuer has the option at each interest payment date of making interest payments in cash or additional debt securities. |
plc — Public Limited Company | |
REIT — Real Estate Investment Trust | |
See Sector Classification in Other Information section. |
The following table summarizes the inputs used to value the Fund’s investments at December 31, 2015 (See Note 4 in the Notes to Financial Statements):
Investments in Securities (Assets) | Level 1 | Level 1 - | Level 2 | Level 2 - | Level 3 | Total | ||||||||||||||||||
Asset-Backed Securities | $ | — | $ | — | $ | 260,594 | $ | — | $ | — | $ | 260,594 | ||||||||||||
Common Stocks | 4,604 | — | 91,106 | — | 108 | 95,818 | ||||||||||||||||||
Corporate Bonds | — | — | 51,074,771 | — | 2,105,082 | 53,179,853 | ||||||||||||||||||
Forward Foreign Currency Exchange Contracts | — | — | — | 30,426 | — | 30,426 | ||||||||||||||||||
Preferred Stocks | — | — | 875,258 | — | — | 875,258 | ||||||||||||||||||
Senior Fixed Rate Interests | — | — | 746,375 | — | — | 746,375 | ||||||||||||||||||
Senior Floating Rate Interests | — | — | 14,575,459 | — | 4,071,121 | 18,646,580 | ||||||||||||||||||
Short Term Investments | 933,838 | — | — | — | — | 933,838 | ||||||||||||||||||
Total | $ | 938,442 | $ | — | $ | 67,623,563 | $ | 30,426 | $ | 6,176,311 | $ | 74,768,742 | ||||||||||||
Investments in Securities (Liabilities) | Level 1 | Level 1 - | Level 2 | Level 2 - | Level 3 | Total | ||||||||||||||||||
Forward Foreign Currency Exchange Contracts | $ | — | $ | — | $ | — | $ | 3,812 | $ | — | $ | 3,812 | ||||||||||||
* | Other financial instruments include forward foreign currency exchange contracts, which are reported as unrealized gain/loss at period end. |
Transfers between investment levels may occur as the markets fluctuate and/or the availability of data used in the investment’s valuation changes. The Fund recognizes transfers between the levels as of the beginning of the period. As of December 31, 2015, Series P (High Yield Series) had securities with a total value of $338,651 transfer out of Level 3 to Level 2 and a total value of $34,815 transfer from Level 1 to Level 3 due to changes in the securities valuation method. There were no other securities that transferred between levels.
116 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
SERIES P (HIGH YIELD SERIES) |
STATEMENT OF ASSETS AND LIABILITIES |
December 31, 2015 | ||||
Assets: | ||||
Investments, at value (cost $87,149,911) | $ | 74,738,316 | ||
Foreign currency, at value (cost $26,517) | 26,461 | |||
Cash | 107,048 | |||
Unrealized appreciation on forward foreign currency exchange contracts | 30,426 | |||
Prepaid expenses | 3,188 | |||
Receivables: | ||||
Interest | 1,131,013 | |||
Fund shares sold | 7,978 | |||
Foreign taxes reclaim | 2,287 | |||
Total assets | 76,046,717 | |||
Liabilities: | ||||
Reverse Repurchase Agreements | 8,121,057 | |||
Unfunded loan commitments, at value (Note 9) (commitment fees received $756,225) | 556,816 | |||
Unrealized depreciation on forward foreign currency exchange contracts | 3,812 | |||
Payable for: | ||||
Securities purchased | 346,500 | |||
Management fees | 24,699 | |||
Distribution and service fees | 14,719 | |||
Fund shares redeemed | 11,508 | |||
Fund accounting/administration fees | 5,593 | |||
Trustees’ fees* | 3,229 | |||
Transfer agent/maintenance fees | 3,143 | |||
Miscellaneous | 47,531 | |||
Total liabilities | 9,138,607 | |||
Commitments and contingent liabilities (Note 16) | — | |||
Net assets | $ | 66,908,110 | ||
Net assets consist of: | ||||
Paid in capital | $ | 72,793,649 | ||
Undistributed net investment income | 6,597,990 | |||
Accumulated net realized loss on investments | (297,703 | ) | ||
Net unrealized depreciation on investments | (12,185,826 | ) | ||
Net assets | $ | 66,908,110 | ||
Capital shares outstanding | 2,336,800 | |||
Net asset value per share | $ | 28.63 | ||
STATEMENT OF OPERATIONS |
Year Ended December 31, 2015 | ||||
Investment Income: | ||||
Interest (net of foreign withholding tax of $1,344) | $ | 6,367,699 | ||
Dividends (net of foreign withholding tax of $1) | 212,366 | |||
Total investment income | 6,580,065 | |||
Expenses: | ||||
Management fees | 503,449 | |||
Transfer agent/maintenance fees | 25,186 | |||
Distribution and service fees | 209,770 | |||
Fund accounting/administration fees | 79,711 | |||
Interest expense | 49,316 | |||
Line of credit fees | 17,212 | |||
Custodian fees | 15,161 | |||
Trustees’ fees* | 11,621 | |||
Tax expense | 90 | |||
Miscellaneous | 85,231 | |||
Total expenses | 996,747 | |||
Less: | ||||
Expenses waived by Adviser | (30,918 | ) | ||
Net expenses | 965,829 | |||
Net investment income | 5,614,236 | |||
Net Realized and Unrealized Gain (Loss): | ||||
Net realized gain (loss) on: | ||||
Investments | (330,339 | ) | ||
Foreign currency | (170,623 | ) | ||
Forward currency exchange contracts | 845,672 | |||
Net realized gain | 344,710 | |||
Net change in unrealized appreciation (depreciation) on: | ||||
Investments | (8,270,822 | ) | ||
Foreign currency | 9,152 | |||
Forward foreign currency exchange contracts | (108,012 | ) | ||
Net change in unrealized appreciation (depreciation) | (8,369,682 | ) | ||
Net realized and unrealized loss | (8,024,972 | ) | ||
Net decrease in net assets resulting from operations | $ | (2,410,736 | ) | |
* | 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 | 117 |
SERIES P (HIGH YIELD SERIES) |
STATEMENTS OF CHANGES IN NET ASSETS |
Year Ended | Year Ended | |||||||
Increase (Decrease) in Net Assets from Operations: | ||||||||
Net investment income | $ | 5,614,236 | $ | 7,334,681 | ||||
Net realized gain on investments and foreign currency | 344,710 | 2,720,376 | ||||||
Net change in unrealized appreciation (depreciation) on investments and foreign currency | (8,369,682 | ) | (6,017,182 | ) | ||||
Net increase (decrease) in net assets resulting from operations | (2,410,736 | ) | 4,037,875 | |||||
Distributions to shareholders from: | ||||||||
Net investment income | (8,057,853 | ) | — | |||||
Net realized gains | (1,595,016 | ) | — | |||||
Total distributions to shareholders | (9,652,869 | ) | — | |||||
Capital share transactions: | ||||||||
Proceeds from sale of shares | 55,427,241 | 55,071,243 | ||||||
Distributions reinvested | 9,652,869 | — | ||||||
Cost of shares redeemed | (65,300,291 | ) | (103,900,378 | ) | ||||
Net decrease from capital share transactions | (220,181 | ) | (48,829,135 | ) | ||||
Net decrease in net assets | (12,283,786 | ) | (44,791,260 | ) | ||||
Net assets: | ||||||||
Beginning of year | 79,191,896 | 123,983,156 | ||||||
End of year | $ | 66,908,110 | $ | 79,191,896 | ||||
Undistributed net investment income at end of year | $ | 6,597,990 | $ | 8,424,116 | ||||
Capital share activity: | ||||||||
Shares sold | 1,702,233 | 1,602,820 | ||||||
Shares issued from reinvestment of distributions | 311,785 | — | ||||||
Shares redeemed | (2,015,583 | ) | (3,019,750 | ) | ||||
Net decrease in shares | (1,565 | ) | (1,416,930 | ) | ||||
118 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
SERIES P (HIGH YIELD SERIES) |
STATEMENT OF CASH FLOWS |
Year Ended December 31, 2015 | ||||
Cash Flows from Operating Activities: | ||||
Net decrease in net assets resulting from operations | $ | (2,410,736 | ) | |
Adjustments to Reconcile Net Increase in Net Assets Resulting from Operations to Net Cash Used In Operating and Investing Activities: | ||||
Net change in unrealized depreciation on investments | 8,270,822 | |||
Net change in unrealized depreciation on forward foreign currency exchange contracts | 108,012 | |||
Net realized loss on investments | 330,339 | |||
Net accretion of bond discount and amortization of bond premium | (33,585 | ) | ||
Paydowns received on mortgage and asset-backed securities | 2,984,783 | |||
Purchase of long-term investments | (94,384,114 | ) | ||
Proceeds from sale of long-term investments | 94,732,315 | |||
Net sales of short-term investments | 3,272,991 | |||
Increase in other payments | (48,211 | ) | ||
Decrease in securities sold receivable | 2,405,566 | |||
Decrease in interest receivable | 45,292 | |||
Decrease in dividends receivable | 13,017 | |||
Decrease in prepaid expenses | 2,785 | |||
Decrease in other assets | 4,164 | |||
Increase in fair value of unfunded loans | 158,255 | |||
Increase in trustees' fee payable | 1,531 | |||
Decrease in transfer agent fee payable | (41 | ) | ||
Decrease in administration fee payable | (1,188 | ) | ||
Decrease in distribution fee payable | (3,124 | ) | ||
Decrease in advisory fee payable | (9,279 | ) | ||
Decrease in payable for securities purchased | (1,075,829 | ) | ||
Decrease in accrued expenses and other liabilities | (3,777 | ) | ||
Net Cash Used in Operating and Investing Activities | $ | 14,359,988 | ||
Cash Flows From Financing Activities: | ||||
Proceeds from sales of shares | 55,422,157 | |||
Cost of shares redeemed | (65,495,095 | ) | ||
Proceeds from reverse repurchase agreements | 84,965,641 | |||
Payments made on reverse repurchase agreements | (89,385,446 | ) | ||
Net Cash Used in Financing Activities | (14,492,743 | ) | ||
Net decrease in cash | (132,755 | ) | ||
Cash at Beginning of Year (including foreign and restricted cash) | $ | 266,264 | ||
Cash at End of Year (including foreign restricted cash) | $ | 133,509 | ||
Supplemental Disclosure of Cash Flow Information: | ||||
Cash paid during the year for interest | $ | 54,606 | ||
Dividend reinvestment | $ | 9,652,869 | ||
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 119 |
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 | Year Ended | Year Ended | Year Ended | Year Ended | ||||||||||||||||
Per Share Data | ||||||||||||||||||||
Net asset value, beginning of period | $ | 33.87 | $ | 33.02 | $ | 30.75 | $ | 26.77 | $ | 26.78 | ||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||
Net investment income (loss)a | 2.17 | 2.23 | 2.20 | 2.01 | 2.00 | |||||||||||||||
Net gain (loss) on investments (realized and unrealized) | (3.23 | ) | (1.38 | ) | .07 | 1.97 | (2.01 | ) | ||||||||||||
Total from investment operations | (1.06 | ) | .85 | 2.27 | 3.98 | (.01 | ) | |||||||||||||
Less distributions from: | ||||||||||||||||||||
Net investment income | (3.49 | ) | — | — | — | — | ||||||||||||||
Net realized gains | (.69 | ) | — | — | — | — | ||||||||||||||
Total distributions | (4.18 | ) | — | — | — | — | ||||||||||||||
Net asset value, end of period | $ | 28.63 | $ | 33.87 | $ | 33.02 | $ | 30.75 | $ | 26.77 | ||||||||||
Total Returnb | (3.95 | %) | 2.51 | % | 7.38 | % | 14.87 | % | (0.04 | %) | ||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||
Net assets, end of period (in thousands) | $ | 66,908 | $ | 79,192 | $ | 123,983 | $ | 138,253 | $ | 118,156 | ||||||||||
Ratios to average net assets: | ||||||||||||||||||||
Net investment income (loss) | 6.69 | % | 6.50 | % | 6.86 | % | 6.95 | % | 7.34 | % | ||||||||||
Total expenses | 1.19 | % | 1.09 | % | 1.07 | % | 0.95 | % | 0.93 | % | ||||||||||
Net expensesc | 1.15 | %d | 1.08 | %d | 1.07 | % | 0.95 | % | 0.93 | % | ||||||||||
Portfolio turnover rate | 101 | % | 90 | % | 100 | % | 95 | % | 64 | % | ||||||||||
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 ratios for the period would be: |
12/31/15 | 12/31/14 |
1.07% | 0.97% |
120 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
MANAGER’S COMMENTARY (Unaudited) | December 31, 2015 |
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. During the period, the following individuals were added as Portfolio Managers: Scott Hammond, Managing Director; Farhan Sharaff, Assistant Chief Investment Officer, Equities; and Gregg Strohkorb, CFA. In the following paragraphs, the team discusses performance of the Fund for the fiscal year ended December 31, 2015.
For the fiscal year ended December 31, 2015, the Series Q (Small Cap Value Series) returned -6.62%, compared with the Russell 2000® Value Index, which returned -7.47%.
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 in which they operate. In today’s rapidly changing environment marked by very sharp and 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 fundamentals once again become a more dominant factor in the market.
Performance Review
On the positive side, stock selection in the Financials sector, and both an underweight and stock selection in Energy most helped performance. While still being underweight relative to the benchmark, the Financials allocation grew over the period as a result of a larger allocation to REITs (real estate investment trusts). Two of the Fund’s top individual contributors to performance were in the Financials sector: CubeSmart, a self-storage REIT which had solid performance for the year, and property and casualty insurer Hanover Insurance Group, Inc., one of the Fund’s long-time largest holdings. The property and casualty market was favored because of its positive pricing trends.
Commodity-oriented companies, especially Energy, were weak over the period. The lack of holdings in refining or other sub-industries most impacted by crude’s weakness helped performance. What was owned in Energy focused on oil-centric production and service companies, which the Fund believes have manageable leverage and liquidity to weather the storm in commodity prices.
The largest individual contributor for the year was Health Care holding Emergent BioSolutions, which has been posting solid earnings and announced in August that it would spin off its biosciences business.
Detracting most from Fund performance for the period was stock selection and an underweight in Industrials and stock selection in Information Technology. The portfolio’s Industrials holdings include a number of companies that have an engineering and construction orientation, or are tied into fairly large, visible infrastructure projects. The market has favored businesses that experience an immediate pick-up in business as the economy improves, rather than companies reliant on long project rollouts. Industrials holding Digital Globe, one of the Fund’s largest individual detractors from performance for the period, late in the period issued a restrained growth outlook as commercial adoption of the company’s satellite imaging products was proving to be below expectations.
The Information Technology sector had the leading individual detractor from return, Silicon Graphics International Corp. The company had a difficult year, but in the fourth quarter of 2015 made upbeat comments that government spending was about to pick up for supercomputers.
Portfolio Positioning
The largest relative sector exposures at the end of the year were an underweight in Financials and an overweight in Health Care. Of these two stances, the underweight detracted from performance over the year, while the overweight helped performance.
THE GUGGENHEIM FUNDS ANNUAL REPORT | 121 |
MANAGER’S COMMENTARY (Unaudited)(concluded) | December 31, 2015 |
Portfolio and Market Outlook
Investors grew increasingly concerned about the impact that plunging commodity prices on the domestic economy. Energy did provide the economy a disproportionate amount of growth over the last several years. Additionally, the troubles overseas have created a stronger dollar, and the prospect of additional interest rate hikes from a less accommodative Fed add to the uncertainty of the outlook. While this strategy is very balanced relative to the benchmark, it does possess defensive characteristics in virtue of emphasizing relatively larger companies found in the benchmark, as well as the modest overweight in Health Care.
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.
122 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
PERFORMANCE REPORT AND FUND PROFILE (Unaudited) | December 31, 2015 |
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.
Inception Date: May 1, 2000 |
Ten Largest Holdings (% of Total Net Assets) | |
Emergent BioSolutions, Inc. | 3.3% |
CubeSmart | 3.1% |
Laclede Group, Inc. | 2.9% |
Berkshire Hills Bancorp, Inc. | 2.7% |
Diebold, Inc. | 2.7% |
Apartment Investment & Management Co. — Class A | 2.6% |
Navigators Group, Inc. | 2.4% |
FLIR Systems, Inc. | 2.1% |
Endurance Specialty Holdings Ltd. | 2.1% |
ABM Industries, Inc. | 2.1% |
Top Ten Total | 26.0% |
“Ten Largest Holdings” excludes any temporary cash or derivative investments. | |
THE GUGGENHEIM FUNDS ANNUAL REPORT | 123 |
PERFORMANCE REPORT AND FUND PROFILE (Unaudited)(concluded) | December 31, 2015 |
Cumulative Fund Performance*,†
Average Annual Returns*
Periods Ended December 31, 2015†
1 Year | 5 Year | 10 Year | |
Series Q (Small Cap Value Series) | -6.62% | 7.51% | 7.68% |
Russell 2000 Value Index | -7.47% | 7.67% | 5.57% |
* | 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. |
124 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
SCHEDULE OF INVESTMENTS | December 31, 2015 |
SERIES Q (SMALL CAP VALUE SERIES) |
| Value | |||||||
COMMON STOCKS† - 99.0% | ||||||||
Financial - 32.2% | ||||||||
CubeSmart | 90,686 | $ | 2,776,805 | |||||
Berkshire Hills Bancorp, Inc. | 84,460 | 2,458,631 | ||||||
Apartment Investment & Management Co. — Class A | 59,190 | 2,369,375 | ||||||
Navigators Group, Inc.* | 24,860 | 2,132,740 | ||||||
Endurance Specialty Holdings Ltd. | 29,020 | 1,856,989 | ||||||
Hanover Insurance Group, Inc. | 22,319 | 1,815,427 | ||||||
Sun Communities, Inc. | 25,455 | 1,744,431 | ||||||
Camden Property Trust | 21,480 | 1,648,805 | ||||||
BioMed Realty Trust, Inc. | 64,130 | 1,519,240 | ||||||
Cathay General Bancorp | 46,690 | 1,462,798 | ||||||
Argo Group International Holdings Ltd. | 22,090 | 1,321,866 | ||||||
Wintrust Financial Corp. | 25,540 | 1,239,200 | ||||||
Fulton Financial Corp. | 73,670 | 958,447 | ||||||
Corrections Corporation of America | 35,200 | 932,448 | ||||||
Trustmark Corp. | 40,130 | 924,595 | ||||||
Horace Mann Educators Corp. | 27,610 | 916,100 | ||||||
1st Source Corp. | 29,393 | 907,362 | ||||||
Parkway Properties, Inc. | 43,310 | 676,935 | ||||||
Prosperity Bancshares, Inc. | 14,060 | 672,912 | ||||||
Umpqua Holdings Corp. | 14,860 | 236,274 | ||||||
Lexington Realty Trust | 27,470 | 219,760 | ||||||
Kearny Financial Corp. | 14,617 | 185,197 | ||||||
Total Financial | 28,976,337 | |||||||
Consumer, Non-cyclical - 17.2% | ||||||||
Emergent BioSolutions, Inc.* | 74,120 | 2,965,542 | ||||||
ABM Industries, Inc. | 64,760 | 1,843,717 | ||||||
Sanderson Farms, Inc. | 19,990 | 1,549,625 | ||||||
Invacare Corp. | 83,700 | 1,455,543 | ||||||
Navigant Consulting, Inc.* | 54,420 | 873,986 | ||||||
Everi Holdings, Inc.* | 184,618 | 810,473 | ||||||
Surgical Care Affiliates, Inc.* | 18,961 | 754,837 | ||||||
ICU Medical, Inc.* | 6,439 | 726,190 | ||||||
Premier, Inc. — Class A* | 19,870 | 700,815 | ||||||
Darling Ingredients, Inc.* | 58,850 | 619,102 | ||||||
Carriage Services, Inc. — Class A | 21,530 | 518,873 | ||||||
HealthSouth Corp. | 14,520 | 505,441 | ||||||
Patterson Companies, Inc. | 10,180 | 460,238 | ||||||
Kindred Healthcare, Inc. | 38,390 | 457,225 | ||||||
Brookdale Senior Living, Inc. — Class A* | 18,500 | 341,510 | ||||||
Universal Corp. | 5,760 | 323,021 | ||||||
Globus Medical, Inc. — Class A* | 10,520 | 292,666 | ||||||
ICF International, Inc.* | 7,408 | 263,428 | ||||||
Total Consumer, Non-cyclical | 15,462,232 | |||||||
Technology - 11.6% | ||||||||
Diebold, Inc. | 79,630 | 2,396,067 | ||||||
Maxwell Technologies, Inc.* | 236,983 | 1,692,059 | ||||||
ManTech International Corp. — Class A | 40,380 | 1,221,092 | ||||||
IXYS Corp. | 92,356 | 1,166,456 | ||||||
Silicon Graphics International Corp.* | 191,510 | 1,129,909 | ||||||
Mercury Systems, Inc.* | 43,730 | 802,883 | ||||||
Cree, Inc.* | 25,260 | 673,684 | ||||||
Brooks Automation, Inc. | 56,730 | 605,876 | ||||||
Super Micro Computer, Inc.* | 19,620 | 480,886 | ||||||
KEYW Holding Corp.* | 34,419 | 207,202 | ||||||
Total Technology | 10,376,114 | |||||||
Industrial - 11.1% | ||||||||
FLIR Systems, Inc. | 67,930 | 1,906,795 | ||||||
Rofin-Sinar Technologies, Inc.* | 44,930 | 1,203,225 | ||||||
Marten Transport Ltd. | 56,948 | 1,007,979 | ||||||
Knight Transportation, Inc. | 36,580 | 886,333 | ||||||
Oshkosh Corp. | 22,152 | 864,814 | ||||||
Ryder System, Inc. | 13,590 | 772,320 | ||||||
Celadon Group, Inc. | 69,399 | 686,356 | ||||||
Gentex Corp. | 42,659 | 682,971 | ||||||
Werner Enterprises, Inc. | 26,410 | 617,730 | ||||||
Benchmark Electronics, Inc.* | 21,930 | 453,293 | ||||||
LMI Aerospace, Inc.* | 43,370 | 436,736 | ||||||
Rand Logistics, Inc.* | 119,809 | 191,694 | ||||||
Kirby Corp.* | 3,480 | 183,118 | ||||||
Argan, Inc. | 2,914 | 94,414 | ||||||
Total Industrial | 9,987,778 | |||||||
Consumer, Cyclical - 8.5% | ||||||||
International Speedway Corp. — Class A | 45,260 | 1,526,167 | ||||||
Century Communities, Inc.* | 51,190 | 906,574 | ||||||
JC Penney Company, Inc.* | 128,320 | 854,611 | ||||||
Essendant, Inc. | 25,240 | 820,553 | ||||||
iRobot Corp.* | 22,440 | 794,376 | ||||||
CalAtlantic Group, Inc. | 17,915 | 679,337 | ||||||
UniFirst Corp. | 6,430 | 670,006 | ||||||
ScanSource, Inc.* | 13,620 | 438,836 | ||||||
Ascena Retail Group, Inc.* | 35,430 | 348,986 | ||||||
Sonic Automotive, Inc. — Class A | 15,180 | 345,497 | ||||||
Unifi, Inc.* | 7,911 | 222,695 | ||||||
Total Consumer, Cyclical | 7,607,638 | |||||||
Utilities - 8.1% | ||||||||
Laclede Group, Inc. | 43,740 | 2,598,593 | ||||||
Avista Corp. | 41,370 | 1,463,257 | ||||||
Portland General Electric Co. | 38,360 | 1,395,153 | ||||||
Black Hills Corp. | 29,970 | 1,391,507 | ||||||
ALLETE, Inc. | 9,160 | 465,603 | ||||||
Total Utilities | 7,314,113 | |||||||
Basic Materials - 4.2% | ||||||||
Calgon Carbon Corp. | 53,540 | 923,564 | ||||||
Reliance Steel & Aluminum Co. | 11,980 | 693,762 | ||||||
Landec Corp.* | 37,554 | 444,264 | ||||||
Olin Corp. | 24,301 | 419,435 | ||||||
Royal Gold, Inc. | 10,370 | 378,194 | ||||||
Axiall Corp. | 22,860 | 352,044 | ||||||
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 125 |
SCHEDULE OF INVESTMENTS (concluded) | December 31, 2015 |
SERIES Q (SMALL CAP VALUE SERIES) |
| Value | |||||||
Luxfer Holdings plc ADR | 35,340 | $ | 347,746 | |||||
Stillwater Mining Co.* | 21,550 | 184,684 | ||||||
Total Basic Materials | 3,743,693 | |||||||
Energy - 3.5% | ||||||||
Patterson-UTI Energy, Inc. | 62,260 | 938,881 | ||||||
Superior Energy Services, Inc. | 65,430 | 881,342 | ||||||
Rowan Companies plc — Class A | 37,020 | 627,489 | ||||||
Oasis Petroleum, Inc.* | 75,270 | 554,740 | ||||||
Sanchez Energy Corp.* | 28,480 | 122,749 | ||||||
Total Energy | 3,125,201 | |||||||
Communications - 2.6% | ||||||||
DigitalGlobe, Inc.* | 75,614 | 1,184,115 | ||||||
Finisar Corp.* | 58,700 | 853,498 | ||||||
Liquidity Services, Inc.* | 42,753 | 277,895 | ||||||
Total Communications | 2,315,508 | |||||||
Total Common Stocks | ||||||||
(Cost $87,492,270) | 88,908,614 | |||||||
CONVERTIBLE PREFERRED STOCKS†††- 0.0% | ||||||||
Thermoenergy Corp. due *1,2 | 116,667 | 170 | ||||||
Total Convertible Preferred Stocks | ||||||||
(Cost $111,410) | 170 | |||||||
SHORT TERM INVESTMENTS† - 1.1% | ||||||||
Dreyfus Treasury Prime Cash Management Institutional Shares 0.00%3 | 945,800 | 945,800 | ||||||
Total Short Term Investments | ||||||||
(Cost $945,800) | 945,800 | |||||||
Total Investments - 100.1% | ||||||||
(Cost $88,549,480) | $ | 89,854,584 | ||||||
Other Assets & Liabilities, net - (0.1)% | (97,125 | ) | ||||||
Total Net Assets - 100.0% | $ | 89,757,459 | ||||||
* | 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. |
3 | Rate indicated is the 7 day yield as of December 31, 2015. |
ADR — American Depositary Receipt | |
plc — Public Limited Company | |
See Sector Classification in Other Information section. |
The following table summarizes the inputs used to value the Fund’s investments at December 31, 2015 (See Note 4 in the Notes to Financial Statements):
Investments in Securities (Assets) | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Common Stocks | $ | 88,908,614 | $ | — | $ | — | $ | 88,908,614 | ||||||||
Preferred Stocks | — | — | 170 | 170 | ||||||||||||
Short Term Investments | 945,800 | — | — | 945,800 | ||||||||||||
Total | $ | 89,854,414 | $ | — | $ | 170 | $ | 89,854,584 | ||||||||
For the year ended December 31, 2015, there were no transfers between levels.
126 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
SERIES Q (SMALL CAP VALUE SERIES) |
STATEMENT OF ASSETS AND LIABILITIES |
December 31, 2015 | ||||
Assets: | ||||
Investments, at value (cost $88,549,480) | $ | 89,854,584 | ||
Prepaid expenses | 4,349 | |||
Receivables: | ||||
Dividends | 134,290 | |||
Fund shares sold | 52,308 | |||
Total assets | 90,045,531 | |||
Liabilities: | ||||
Payable for: | ||||
Securities purchased | 148,356 | |||
Management fees | 73,614 | |||
Fund shares redeemed | 8,721 | |||
Fund accounting/administration fees | 7,361 | |||
Trustees’ fees* | 4,281 | |||
Transfer agent/maintenance fees | 4,017 | |||
Miscellaneous | 41,722 | |||
Total liabilities | 288,072 | |||
Commitments and contingent liabilities (Note 16) | — | |||
Net assets | $ | 89,757,459 | ||
Net assets consist of: | ||||
Paid in capital | $ | 80,789,083 | ||
Undistributed net investment income | 206,735 | |||
Accumulated net realized gain on investments | 7,456,537 | |||
Net unrealized appreciation on investments | 1,305,104 | |||
Net assets | $ | 89,757,459 | ||
Capital shares outstanding | 2,260,343 | |||
Net asset value per share | $ | 39.71 | ||
STATEMENT OF OPERATIONS |
Year Ended December 31, 2015 | ||||
Investment Income: | ||||
Dividends (net of foreign withholding tax of $3,552) | $ | 1,481,134 | ||
Total investment income | 1,481,134 | |||
Expenses: | ||||
Management fees | 967,932 | |||
Transfer agent/maintenance fees | 25,227 | |||
Fund accounting/administration fees | 96,792 | |||
Custodian fees | 11,706 | |||
Trustees’ fees* | 11,312 | |||
Line of credit fees | 8,258 | |||
Tax expense | 5 | |||
Miscellaneous | 94,424 | |||
Total expenses | 1,215,656 | |||
Net investment income | 265,478 | |||
Net Realized and Unrealized Gain (Loss): | ||||
Net realized gain (loss) on: | ||||
Investments | 7,658,172 | |||
Net realized gain | 7,658,172 | |||
Net change in unrealized appreciation (depreciation) on: | ||||
Investments | (14,683,247 | ) | ||
Net change in unrealized appreciation (depreciation) | (14,683,247 | ) | ||
Net realized and unrealized loss | (7,025,075 | ) | ||
Net decrease in net assets resulting from operations | $ | (6,759,597 | ) | |
* | 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 Q (SMALL CAP VALUE SERIES) |
STATEMENTS OF CHANGES IN NET ASSETS |
Year Ended | Year Ended | |||||||
Increase (Decrease) in Net Assets from Operations: | ||||||||
Net investment income | $ | 265,478 | $ | 196,037 | ||||
Net realized gain on investments | 7,658,172 | 18,930,769 | ||||||
Net change in unrealized appreciation (depreciation) on investments | (14,683,247 | ) | (21,158,482 | ) | ||||
Net decrease in net assets resulting from operations | (6,759,597 | ) | (2,031,676 | ) | ||||
Distributions to shareholders from: | ||||||||
Net investment income | — | (12,486 | ) | |||||
Net realized gains | (18,520,174 | ) | — | |||||
Total distributions to shareholders | (18,520,174 | ) | (12,486 | ) | ||||
Capital share transactions: | ||||||||
Proceeds from sale of shares | 7,140,709 | 11,066,669 | ||||||
Distributions reinvested | 18,520,174 | 12,486 | ||||||
Cost of shares redeemed | (26,556,736 | ) | (33,044,926 | ) | ||||
Net decrease from capital share transactions | (895,853 | ) | (21,965,771 | ) | ||||
Net decrease in net assets | (26,175,624 | ) | (24,009,933 | ) | ||||
Net assets: | ||||||||
Beginning of year | 115,933,083 | 139,943,016 | ||||||
End of year | $ | 89,757,459 | $ | 115,933,083 | ||||
Undistributed net investment income/Accumulated net investment loss at end of year | $ | 206,735 | $ | (138,581 | ) | |||
Capital share activity: | ||||||||
Shares sold | 154,490 | 213,055 | ||||||
Shares issued from reinvestment of distributions | 432,310 | 241 | ||||||
Shares redeemed | (567,478 | ) | (639,695 | ) | ||||
Net increase (decrease) in shares | 19,322 | (426,399 | ) | |||||
128 | 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 | Year Ended | Year Ended | Year Ended | Year Ended | ||||||||||||||||
Per Share Data | ||||||||||||||||||||
Net asset value, beginning of period | $ | 51.73 | $ | 52.46 | $ | 38.35 | $ | 32.09 | $ | 33.64 | ||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||
Net investment income (loss)a | .12 | .08 | .01 | (— | )b | (.10 | ) | |||||||||||||
Net gain (loss) on investments (realized and unrealized) | (2.87 | ) | (.80 | ) | 14.10 | 6.26 | (1.45 | ) | ||||||||||||
Total from investment operations | (2.75 | ) | (.72 | ) | 14.11 | 6.26 | (1.55 | ) | ||||||||||||
Less distributions from: | ||||||||||||||||||||
Net investment income | — | (.01 | ) | — | — | — | ||||||||||||||
Net realized gains | (9.27 | ) | — | — | — | — | ||||||||||||||
Total distributions | (9.27 | ) | (.01 | ) | — | — | — | |||||||||||||
Net asset value, end of period | $ | 39.71 | $ | 51.73 | $ | 52.46 | $ | 38.35 | $ | 32.09 | ||||||||||
Total Returnc | (6.62 | %) | (1.38 | %) | 36.79 | % | 19.51 | % | (4.61 | %) | ||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||
Net assets, end of period (in thousands) | $ | 89,757 | $ | 115,933 | $ | 139,943 | $ | 111,402 | $ | 107,587 | ||||||||||
Ratios to average net assets: | ||||||||||||||||||||
Net investment income (loss) | 0.26 | % | 0.15 | % | 0.02 | % | (0.00 | %)d | (0.29 | %) | ||||||||||
Total expenses | 1.19 | % | 1.16 | % | 1.16 | % | 1.15 | % | 1.12 | % | ||||||||||
Portfolio turnover rate | 57 | % | 50 | % | 30 | % | 44 | % | 51 | % | ||||||||||
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 | 129 |
MANAGER’S COMMENTARY (Unaudited) | December 31, 2015 |
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. During the period, the following individuals were added as Portfolio Managers to the Fund: Scott Hammond, Managing Director and Portfolio Manager; Farhan Sharaff, Assistant Chief Investment Officer, Equities; and Gregg Strohkorb, CFA. In the following paragraphs, the team discusses performance of the Fund for the fiscal year ended December 31, 2015.
For the fiscal year ended December 31, 2015, the Series V (Mid Cap Value Series) returned -6.79%, compared with the Russell 2500® Value Index, which returned -5.49%.
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 in which they operate. In today’s rapidly changing environment marked by very sharp and 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 fundamentals once again become a more dominant factor in the market.
Performance Review
An underweight to Energy and stock selection in the Financials sector and the Utilities sector were the leading contributors to performance. Commodity-oriented companies, especially Energy, were weak over the period. The lack of holdings in refining or other sub-industries most impacted by crude’s weakness helped performance. Companies that are essentially 100% dependent on crude pricing—as they operate in the Bakken, where all production is crude oil—were some of the worst-performance stocks for the year. For example, Fund holding Whiting Petroleum was among the leading individual detractors for the year.
While still being underweight relative to the benchmark, the Financials allocation grew over the period as a result of a larger allocation to REITs (real estate investment trusts). The leading individual contributor to performance was Financials holding Hanover Insurance Group, Inc., one of the Fund’s long-time largest holdings. The Fund favored the property and casualty market because of its positive pricing trends. Another large individual contributor was CubeSmart, a self-storage REIT which had solid performance for the year.
The leading detractors from return at the sector level were stock selection in Industrials and Consumer Discretionary. The Industrials sector had one of the Fund’s top individual contributors to performance for the year, Orbital ATK, and one of its top individual detractors, DigitalGlobe. Orbital ATK was formed in early 2015 with the merger of Orbital Sciences Corporation and the defense and aerospace divisions of Alliant Techsystems. DigitalGlobe late in the period issued a restrained growth outlook as commercial adoption of the company’s satellite imaging products was proving to be below expectations. The portfolio’s Industrials holdings include a number of companies that have an engineering and construction orientation, or are tied into fairly large, visible infrastructure projects. The market has favored businesses that experience an immediate pick-up in business as the economy improves, rather than companies reliant on long project rollouts.
Discretionary holding Apollo Education was another leading detractor from return. Following a strong year in 2014 for many education stocks, the combination of mixed earnings, soft enrollment trends, and disappointing guidance have called into question the stabilization that these companies had been experiencing. These positions have been reduced in the portfolio, but their strong cash flow and niche opportunities suggest a favorable risk profile going forward.
Portfolio Positioning
The largest relative sector exposures for the year were an underweight in Financials and an overweight in Health Care. Both these two stances detracted from performance for the year.
130 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
MANAGER’S COMMENTARY (Unaudited)(concluded) | December 31, 2015 |
Portfolio and Market Outlook
Investors grew increasingly concerned about the impact that plunging commodity prices on the domestic economy. Energy did provide the economy a disproportionate amount of growth over the last several years. Additionally, the troubles overseas have created a stronger dollar, and the prospect of additional interest rate hikes from a less accommodative Fed add to the uncertainty of the outlook. While this strategy is very balanced relative to the benchmark, it does possess defensive characteristics in virtue of emphasizing relatively larger companies found in the benchmark, as well as modest overweights in Consumer Staples, Health Care and Utilities.
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 | 131 |
PERFORMANCE REPORT AND FUND PROFILE (Unaudited) | December 31, 2015 |
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.
Inception Date: May 1, 1997 |
Ten Largest Holdings (% of Total Net Assets) | |
Alleghany Corp. | 2.4% |
Ameren Corp. | 2.4% |
FLIR Systems, Inc. | 2.3% |
Pinnacle West Capital Corp. | 2.1% |
Hanover Insurance Group, Inc. | 2.0% |
Sonoco Products Co. | 1.9% |
FirstMerit Corp. | 1.9% |
Sanderson Farms, Inc. | 1.7% |
IXYS Corp. | 1.7% |
CubeSmart | 1.7% |
Top Ten Total | 20.1% |
“Ten Largest Holdings” excludes any temporary cash or derivative investments. | |
132 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
PERFORMANCE REPORT AND FUND PROFILE (Unaudited)(concluded) | December 31, 2015 |
Cumulative Fund Performance*,†
Average Annual Returns*
Periods Ended December 31, 2015†
1 Year | 5 Year | 10 Year | |
Series V (Mid Cap Value Series) | -6.79% | 6.32% | 6.77% |
Russell 2500 Value Index | -5.49% | 9.23% | 6.51% |
* | 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. |
THE GUGGENHEIM FUNDS ANNUAL REPORT | 133 |
SCHEDULE OF INVESTMENTS | December 31, 2015 |
SERIES V (MID CAP VALUE SERIES) |
| Value | |||||||
COMMON STOCKS† - 96.4% | ||||||||
Financial - 29.8% | ||||||||
Alleghany Corp.* | 10,340 | $ | 4,941,796 | |||||
Hanover Insurance Group, Inc. | 51,537 | 4,192,020 | ||||||
FirstMerit Corp. | 206,789 | 3,856,614 | ||||||
CubeSmart | 112,030 | 3,430,359 | ||||||
BioMed Realty Trust, Inc. | 142,490 | 3,375,588 | ||||||
Zions Bancorporation | 117,930 | 3,219,489 | ||||||
Camden Property Trust | 41,740 | 3,203,962 | ||||||
Popular, Inc. | 106,130 | 3,007,724 | ||||||
Wintrust Financial Corp. | 58,550 | 2,840,846 | ||||||
Assured Guaranty Ltd. | 107,290 | 2,835,675 | ||||||
Endurance Specialty Holdings Ltd. | 43,966 | 2,813,385 | ||||||
Sun Communities, Inc. | 37,800 | 2,590,434 | ||||||
E*TRADE Financial Corp.* | 86,080 | 2,551,411 | ||||||
Apartment Investment & Management Co. — Class A | 59,150 | 2,367,775 | ||||||
Fulton Financial Corp. | 171,010 | 2,224,840 | ||||||
Trustmark Corp. | 96,140 | 2,215,066 | ||||||
Corrections Corporation of America | 80,930 | 2,143,836 | ||||||
Jones Lang LaSalle, Inc. | 11,620 | 1,857,573 | ||||||
Alexandria Real Estate Equities, Inc. | 19,970 | 1,804,489 | ||||||
Parkway Properties, Inc. | 103,916 | 1,624,207 | ||||||
Prosperity Bancshares, Inc. | 31,960 | 1,529,606 | ||||||
Reinsurance Group of America, Inc. — Class A | 11,757 | 1,005,811 | ||||||
UDR, Inc. | 19,060 | 716,084 | ||||||
Umpqua Holdings Corp. | 35,090 | 557,931 | ||||||
Lexington Realty Trust | 65,810 | 526,480 | ||||||
Kearny Financial Corp. | 35,056 | 444,160 | ||||||
Total Financial | 61,877,161 | |||||||
Consumer, Non-cyclical - 15.6% | ||||||||
Sanderson Farms, Inc. | 46,710 | 3,620,959 | ||||||
MEDNAX, Inc.* | 43,490 | 3,116,493 | ||||||
Bunge Ltd. | 45,540 | 3,109,471 | ||||||
Hershey Co. | 25,710 | 2,295,132 | ||||||
Quest Diagnostics, Inc. | 31,570 | 2,245,890 | ||||||
Navigant Consulting, Inc.* | 123,837 | 1,988,821 | ||||||
Emergent BioSolutions, Inc.* | 49,371 | 1,975,334 | ||||||
ICF International, Inc.* | 54,561 | 1,940,189 | ||||||
Surgical Care Affiliates, Inc.* | 45,211 | 1,799,850 | ||||||
HealthSouth Corp. | 46,770 | 1,628,064 | ||||||
Premier, Inc. — Class A* | 45,640 | 1,609,723 | ||||||
Darling Ingredients, Inc.* | 138,210 | 1,453,969 | ||||||
Kindred Healthcare, Inc. | 89,599 | 1,067,124 | ||||||
Patterson Companies, Inc. | 23,360 | 1,056,106 | ||||||
Ingredion, Inc. | 8,230 | 788,763 | ||||||
Brookdale Senior Living, Inc. — Class A* | 41,200 | 760,552 | ||||||
Universal Corp. | 13,560 | 760,445 | ||||||
Globus Medical, Inc. — Class A* | 24,940 | 693,831 | ||||||
Everi Holdings, Inc.* | 81,530 | 357,917 | ||||||
Total Consumer, Non-cyclical | 32,268,633 | |||||||
Industrial - 13.2% | ||||||||
FLIR Systems, Inc. | 171,230 | 4,806,426 | ||||||
Sonoco Products Co. | 97,880 | 4,000,356 | ||||||
Gentex Corp. | 159,905 | 2,560,079 | ||||||
Huntington Ingalls Industries, Inc. | 18,305 | 2,321,989 | ||||||
WestRock Co. | 47,265 | 2,156,229 | ||||||
Oshkosh Corp. | 53,340 | 2,082,394 | ||||||
Knight Transportation, Inc. | 85,040 | 2,060,519 | ||||||
Ryder System, Inc. | 31,710 | 1,802,079 | ||||||
Werner Enterprises, Inc. | 63,500 | 1,485,265 | ||||||
Owens-Illinois, Inc.* | 82,275 | 1,433,231 | ||||||
Harris Corp. | 14,000 | 1,216,600 | ||||||
Owens Corning | 23,660 | 1,112,730 | ||||||
Kirby Corp.* | 8,370 | 440,429 | ||||||
Total Industrial | 27,478,326 | |||||||
Utilities - 10.8% | ||||||||
Ameren Corp. | 113,101 | 4,889,356 | ||||||
Pinnacle West Capital Corp. | 68,390 | 4,409,787 | ||||||
Westar Energy, Inc. | 79,150 | 3,356,752 | ||||||
Great Plains Energy, Inc. | 93,095 | 2,542,424 | ||||||
Black Hills Corp. | 43,981 | 2,042,038 | ||||||
Avista Corp. | 55,740 | 1,971,524 | ||||||
Portland General Electric Co. | 54,120 | 1,968,344 | ||||||
OGE Energy Corp. | 42,540 | 1,118,377 | ||||||
Total Utilities | 22,298,602 | |||||||
Consumer, Cyclical - 9.2% | ||||||||
Visteon Corp.* | 28,580 | 3,272,410 | ||||||
JC Penney Company, Inc.* | 292,230 | 1,946,252 | ||||||
Essendant, Inc. | 59,390 | 1,930,769 | ||||||
iRobot Corp.* | 52,370 | 1,853,898 | ||||||
DR Horton, Inc. | 55,090 | 1,764,533 | ||||||
Caleres, Inc. | 62,041 | 1,663,939 | ||||||
CalAtlantic Group, Inc. | 42,066 | 1,595,143 | ||||||
UniFirst Corp. | 14,810 | 1,543,202 | ||||||
PulteGroup, Inc. | 56,800 | 1,012,176 | ||||||
PVH Corp. | 12,890 | 949,348 | ||||||
Sonic Automotive, Inc. — Class A | 35,400 | 805,704 | ||||||
Ascena Retail Group, Inc.* | 81,400 | 801,790 | ||||||
Total Consumer, Cyclical | 19,139,164 | |||||||
Technology - 8.3% | ||||||||
IXYS Corp. | 275,093 | 3,474,425 | ||||||
Diebold, Inc. | 112,190 | 3,375,797 | ||||||
Maxwell Technologies, Inc.* | 412,010 | 2,941,751 | ||||||
CSRA, Inc. | 87,030 | 2,610,900 | ||||||
Cree, Inc.* | 56,710 | 1,512,456 | ||||||
Computer Sciences Corp. | 35,600 | 1,163,408 | ||||||
Super Micro Computer, Inc.* | 45,120 | 1,105,891 | ||||||
ManTech International Corp. — Class A | 21,110 | 638,366 | ||||||
KEYW Holding Corp.* | 80,527 | 484,773 | ||||||
Total Technology | 17,307,767 | |||||||
134 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
SCHEDULE OF INVESTMENTS (concluded) | December 31, 2015 |
SERIES V (MID CAP VALUE SERIES) |
| Value | |||||||
Energy - 3.4% | ||||||||
Rowan Companies plc — Class A | 88,740 | $ | 1,504,143 | |||||
Whiting Petroleum Corp.* | 147,780 | 1,395,043 | ||||||
Oasis Petroleum, Inc.* | 181,940 | 1,340,898 | ||||||
Patterson-UTI Energy, Inc. | 82,430 | 1,243,044 | ||||||
Superior Energy Services, Inc. | 68,062 | 916,795 | ||||||
Sanchez Energy Corp.* | 149,381 | 643,832 | ||||||
HydroGen Corp.*,†††,1 | 672,346 | 1 | ||||||
Total Energy | 7,043,756 | |||||||
Communications - 3.3% | ||||||||
DigitalGlobe, Inc.* | 177,407 | 2,778,194 | ||||||
Finisar Corp.* | 124,360 | 1,808,194 | ||||||
Scripps Networks Interactive, Inc. — Class A | 27,720 | 1,530,421 | ||||||
Liquidity Services, Inc.* | 99,086 | 644,059 | ||||||
Total Communications | 6,760,868 | |||||||
Basic Materials - 2.8% | ||||||||
Reliance Steel & Aluminum Co. | 27,250 | 1,578,048 | ||||||
Landec Corp.* | 86,246 | 1,020,290 | ||||||
Olin Corp. | 58,671 | 1,012,661 | ||||||
Royal Gold, Inc. | 25,110 | 915,762 | ||||||
Axiall Corp. | 52,630 | 810,502 | ||||||
Stillwater Mining Co.* | 50,420 | 432,099 | ||||||
Total Basic Materials | 5,769,362 | |||||||
Total Common Stocks | ||||||||
(Cost $200,109,645) | 199,943,639 | |||||||
CONVERTIBLE PREFERRED STOCKS††† - 0.0% | ||||||||
Thermoenergy Corp.*,2,3 | 308,333 | 450 | ||||||
Total Convertible Preferred Stocks | ||||||||
(Cost $294,438) | 450 | |||||||
SHORT TERM INVESTMENTS† - 3.8% | ||||||||
Dreyfus Treasury Prime Cash Management Institutional Shares 0.00%4 | 7,908,655 | 7,908,655 | ||||||
Total Short Term Investments | ||||||||
(Cost $7,908,655) | 7,908,655 | |||||||
Total Investments - 100.2% | ||||||||
(Cost $208,312,738) | $ | 207,852,744 | ||||||
Other Assets & Liabilities, net - (0.2)% | (460,234 | ) | ||||||
Total Net Assets - 100.0% | $ | 207,392,510 | ||||||
* | Non-income producing security. |
† | Value determined based on Level 1 inputs, unless otherwise noted — See Note 4. |
†† | Value determined based on Level 2 inputs — See Note 4. |
††† | Value determined based on Level 3 inputs — See Note 4. |
1 | Affiliated issuer — See Note 8. |
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. |
4 | Rate indicated is the 7 day yield as of December 31, 2015. |
plc — Public Limited Company | |
See Sector Classification in Other Information section. |
The following table summarizes the inputs used to value the Fund’s investments at December 31, 2015 (See Note 4 in the Notes to Financial Statements):
Investments in Securities (Assets) | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Common Stocks | $ | 199,943,638 | $ | — | $ | 1 | $ | 199,943,639 | ||||||||
Convertible Preferred Stocks | — | — | 450 | 450 | ||||||||||||
Short Term Investments | 7,908,655 | — | — | 7,908,655 | ||||||||||||
Total | $ | 207,852,293 | $ | — | $ | 451 | $ | 207,852,744 | ||||||||
For the year ended December 31, 2015, there were no transfers between levels.
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 135 |
SERIES V (MID CAP VALUE SERIES) |
STATEMENT OF ASSETS AND LIABILITIES |
December 31, 2015 | ||||
Assets: | ||||
Investments in unaffiliated issuers, at value (cost $205,741,163) | $ | 207,852,743 | ||
Investments in affiliated issuers, at value (cost $2,571,575) | 1 | |||
Total investments (cost $208,312,738) | 207,852,744 | |||
Prepaid expenses | 11,397 | |||
Cash | 2 ,320 | |||
Receivables: | ||||
Dividends | 303,160 | |||
Securities sold | 21,775 | |||
Fund shares sold | 10,776 | |||
Foreign taxes reclaim | 5,224 | |||
Total assets | 208,207,396 | |||
Liabilities: | ||||
Payable for: | ||||
Securities purchased | 335,616 | |||
Management fees | 133,720 | |||
Fund shares redeemed | 40,785 | |||
Fund accounting/administration fees | 16,938 | |||
Trustees’ fees* | 8,770 | |||
Transfer agent/maintenance fees | 3,584 | |||
Miscellaneous | 275,473 | |||
Total liabilities | 814,886 | |||
Commitments and contingent liabilities (Note 16) | — | |||
Net assets | $ | 207,392,510 | ||
Net assets consist of: | ||||
Paid in capital | $ | 184,527,084 | ||
Undistributed net investment income | 2,290,202 | |||
Accumulated net realized gain on investments | 21,035,218 | |||
Net unrealized depreciation on investments | (459,994 | ) | ||
Net assets | $ | 207,392,510 | ||
Capital shares outstanding | 3,154,694 | |||
Net asset value per share | $ | 65.74 | ||
STATEMENT OF OPERATIONS |
Year Ended December 31, 2015 | ||||
Investment Income: | ||||
Dividends from unaffiliated issuers (net of foreign withholding tax of $1,377) | $ | 4,511,279 | ||
Interest | 2 | |||
Total investment income | 4,511,281 | |||
Expenses: | ||||
Management fees | 1,794,058 | |||
Transfer agent/maintenance fees | 25,225 | |||
Fund accounting/administration fees | 227,244 | |||
Trustees’ fees* | 25,472 | |||
Line of credit fees | 19,629 | |||
Custodian fees | 17,384 | |||
Tax expense | 98 | |||
Miscellaneous | 164,954 | |||
Total expenses | 2,274,064 | |||
Net investment income | 2,237,217 | |||
Net Realized and Unrealized Gain (Loss): | ||||
Net realized gain (loss) on: | ||||
Investments in unaffiliated issuers | 21,149,578 | |||
Net realized gain | 21,149,578 | |||
Net change in unrealized appreciation (depreciation) on: | ||||
Investments in unaffiliated issuers | (39,178,946 | ) | ||
Net change in unrealized appreciation (depreciation) | (39,178,946 | ) | ||
Net realized and unrealized loss | (18,029,368 | ) | ||
Net decrease in net assets resulting from operations | $ | (15,792,151 | ) | |
* | Relates to Trustees not deemed “interested persons” within the meaning of Section 2(a)(19) of the 1940 Act. |
136 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
SERIES V (MID CAP VALUE SERIES) |
STATEMENTS OF CHANGES IN NET ASSETS |
Year Ended | Year Ended | |||||||
Increase (Decrease) in Net Assets from Operations: | ||||||||
Net investment income | $ | 2,237,217 | $ | 1,785,759 | ||||
Net realized gain on investments | 21,149,578 | 38,153,419 | ||||||
Net change in unrealized appreciation (depreciation) on investments | (39,178,946 | ) | (37,257,989 | ) | ||||
Net increase (decrease) in net assets resulting from operations | (15,792,151 | ) | 2,681,189 | |||||
Distributions to shareholders from: | ||||||||
Net investment income | (1,461,676 | ) | (7,631 | ) | ||||
Net realized gains | (38,146,459 | ) | — | |||||
Total distributions to shareholders | (39,608,135 | ) | (7,631 | ) | ||||
Capital share transactions: | ||||||||
Proceeds from sale of shares | 6,517,513 | 11,079,336 | ||||||
Distributions reinvested | 39,608,135 | 7,631 | ||||||
Cost of shares redeemed | (47,827,753 | ) | (51,431,613 | ) | ||||
Net decrease from capital share transactions | (1,702,105 | ) | (40,344,646 | ) | ||||
Net decrease in net assets | (57,102,391 | ) | (37,671,088 | ) | ||||
Net assets: | ||||||||
Beginning of year | 264,494,901 | 302,165,989 | ||||||
End of year | $ | 207,392,510 | $ | 264,494,901 | ||||
Undistributed net investment income at end of year | $ | 2,290,202 | $ | 1,444,820 | ||||
Capital share activity: | ||||||||
Shares sold | 84,460 | 130,280 | ||||||
Shares issued from reinvestment of distributions | 558,963 | 91 | ||||||
Shares redeemed | (629,265 | ) | (610,353 | ) | ||||
Net increase (decrease) in shares | 14,158 | (479,982 | ) | |||||
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 137 |
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 | Year Ended | Year Ended | Year Ended | Year Ended | ||||||||||||||||
Per Share Data | ||||||||||||||||||||
Net asset value, beginning of period | $ | 84.22 | $ | 83.46 | $ | 62.60 | $ | 53.45 | $ | 57.78 | ||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||
Net investment income (loss)a | .71 | .53 | .36 | .25 | .15 | |||||||||||||||
Net gain (loss) on investments (realized and unrealized) | (5.42 | ) | .23 | 20.50 | 8.90 | (4.48 | ) | |||||||||||||
Total from investment operations | (4.71 | ) | .76 | 20.86 | 9.15 | (4.33 | ) | |||||||||||||
Less distributions from: | ||||||||||||||||||||
Net investment income | (.51 | ) | (— | )b | — | — | — | |||||||||||||
Net realized gains | (13.26 | ) | — | — | — | — | ||||||||||||||
Total distributions | (13.77 | ) | — | — | — | — | ||||||||||||||
Net asset value, end of period | $ | 65.74 | $ | 84.22 | $ | 83.46 | $ | 62.60 | $ | 53.45 | ||||||||||
Total Returnc | (6.79 | %) | 0.91 | % | 33.32 | % | 17.12 | % | (7.49 | %) | ||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||
Net assets, end of period (in thousands) | $ | 207,393 | $ | 264,495 | $ | 302,166 | $ | 249,806 | $ | 250,620 | ||||||||||
Ratios to average net assets: | ||||||||||||||||||||
Net investment income (loss) | 0.94 | % | 0.62 | % | 0.48 | % | 0.43 | % | 0.26 | % | ||||||||||
Total expenses | 0.95 | % | 0.93 | % | 0.93 | % | 0.93 | % | 0.90 | % | ||||||||||
Portfolio turnover rate | 50 | % | 53 | % | 22 | % | 24 | % | 28 | % | ||||||||||
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. |
138 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
MANAGER’S COMMENTARY (Unaudited) | December 31, 2015 |
To Our Shareholders:
The Series X (StylePlusTM—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, 2015.
For the year ended December 31, 2015, the Series X (StylePlus—Small Growth Series) returned -1.29%, compared with the -1.38% return of its benchmark, the Russell 2000® Growth Index.
Through a combination of an allocation to actively managed individual equity, passive equity, and actively managed fixed income, the Fund seeks to exceed the total return of the Russell 2000 Growth Index. The allocation to actively managed individual equity via stocks, and passive equity via derivatives such as swap agreements, is designed to provide exposure to small growth equity.
Remaining Fund assets are invested in the Guggenheim Strategy Funds, short-term fixed-income investment companies advised by Guggenheim Investments. The Guggenheim Strategy Funds invest in a diversified portfolio of debt securities and financial instruments providing exposure to fixed income markets. The investment objective of the Guggenheim Strategy Funds is to seek a high level of income consistent with the preservation of capital.
The actively managed equity and fixed-income components seek to provide multiple sources of outperformance and take advantage of Guggenheim’s competencies in both fixed income and systematic stock selection. The fixed-income component invests in a variety of credit sectors, including asset-backed securities (ABS), mortgage-backed securities (MBS), high yield corporate bonds, and bank loans.
The active and passive decisions seek to add value by tactically allocating to actively managed equity through quantitative selection models when stock picking opportunities are high. During periods when Guggenheim views these opportunities to be less attractive, the Fund seeks to increase its passive exposure to equities and the allocation to fixed-income securities. The prospective return during such periods is the equity index plus an “alpha” component coming from the yield of the fixed-income overlay.
Performance Review
The Fund outperformed the benchmark for the period. The fixed-income sleeve was the largest positive contributor to performance. Uncorrelated with the Fund’s active equity component, the Guggenheim Strategy Funds were invested in short duration asset-backed securities (ABS), collateralized mortgage obligations, corporate bonds, and cash equivalents. Positive returns were driven largely by carry in asset-backed securities, mortgage-backed securities, and corporate bonds.
The actively managed equity sleeve detracted from performance. The passive equity position, maintained through swap agreements, was neutral to performance for the period.
When compared with the index, the total equity position (actively managed individual equity plus passive equity derivatives) was most overweight the Industrials and Consumer Staples sectors and most underweight the Consumer Discretionary and Financials sectors.
For the Fund’s total equity position over the period, 15-20% was allocated to actively managed equity and 80-85% to passive equity. The actively managed equity sleeve decreased toward 15% over the period as the outlook for active stock selection grew less favorable, with a corresponding higher allocation of 85% to the passive equity position.
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 | 139 |
PERFORMANCE REPORT AND FUND PROFILE (Unaudited) | December 31, 2015 |
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. Investments in those Funds do not provide “market exposure” to meet the Fund’s investment objective, but will significantly increase the portfolio’s exposure to certain other asset categories (and their associated risks), which may cause the Fund to deviate from its principal investment strategy, including: (i) high yield, high risk debt securities rated below the top four long-term rating categories by a nationally recognized statistical rating organization (also known as “junk bonds”); (ii) securities issued by the U.S. Government or its agencies and instrumentalities; (iii) CLOs and similar investments; and (iv) other short-term fixed income securities.
Inception Date: October 15, 1997 |
Ten Largest Holdings (% of Total Net Assets) | |
Guggenheim Variable Insurance Strategy Fund III | 23.8% |
Guggenheim Strategy Fund III | 20.7% |
Guggenheim Strategy Fund I | 20.2% |
Guggenheim Strategy Fund II | 17.8% |
HealthSouth Corp. | 0.2% |
WellCare Health Plans, Inc. | 0.2% |
Molina Healthcare, Inc. | 0.2% |
Casey’s General Stores, Inc. | 0.2% |
United Natural Foods, Inc. | 0.2% |
Hawaiian Holdings, Inc. | 0.2% |
Top Ten Total | 83.7% |
“Ten Largest Holdings” excludes any temporary cash or derivative investments. | |
140 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
PERFORMANCE REPORT AND FUND PROFILE (Unaudited)(concluded) | December 31, 2015 |
Cumulative Fund Performance*,†
Average Annual Returns*
Periods Ended December 31, 2015†
1 Year | 5 Year | 10 Year | |
Series X (StylePlus—Small Growth Series) | -1.29% | 10.67% | 5.52% |
Russell 2000 Growth Index | -1.38% | 10.67% | 7.95% |
* | 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. |
† | 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 | 141 |
SCHEDULE OF INVESTMENTS | December 31, 2015 |
SERIES X (STYLEPLUS—SMALL GROWTH SERIES) |
| Value | |||||||
COMMON STOCKS† - 16.2% | ||||||||
Consumer, Non-cyclical - 7.7% | ||||||||
HealthSouth Corp. | 2,716 | $ | 94,544 | |||||
WellCare Health Plans, Inc.* | 1,199 | 93,774 | ||||||
Molina Healthcare, Inc.* | 1,462 | 87,910 | ||||||
United Natural Foods, Inc.* | 1,972 | 77,618 | ||||||
Select Medical Holdings Corp. | 6,466 | 77,010 | ||||||
Premier, Inc. — Class A* | 2,003 | 70,646 | ||||||
Dean Foods Co. | 4,063 | 69,680 | ||||||
Cal-Maine Foods, Inc. | 1,346 | 62,373 | ||||||
Prestige Brands Holdings, Inc.* | 1,135 | 58,430 | ||||||
Neurocrine Biosciences, Inc.* | 1,018 | 57,588 | ||||||
Ingles Markets, Inc. — Class A | 1,287 | 56,731 | ||||||
Deluxe Corp. | 1,021 | 55,686 | ||||||
Incorporated Research Holdings, Inc. — Class A* | 1,132 | 54,913 | ||||||
Anacor Pharmaceuticals, Inc.* | 451 | 50,949 | ||||||
Ultragenyx Pharmaceutical, Inc.* | 447 | 50,144 | ||||||
J&J Snack Foods Corp. | 425 | 49,585 | ||||||
Cardtronics, Inc.* | 1,406 | 47,312 | ||||||
Integra LifeSciences Holdings Corp.* | 675 | 45,752 | ||||||
Cimpress N.V.* | 553 | 44,870 | ||||||
Vector Group Ltd. | 1,845 | 43,524 | ||||||
Seaboard Corp.* | 15 | 43,421 | ||||||
Advisory Board Co.* | 835 | 41,424 | ||||||
Central Garden & Pet Co. — Class A* | 2,990 | 40,664 | ||||||
Amsurg Corp. — Class A* | 535 | 40,660 | ||||||
Impax Laboratories, Inc.* | 942 | 40,280 | ||||||
USANA Health Sciences, Inc.* | 304 | 38,836 | ||||||
Euronet Worldwide, Inc.* | 534 | 38,678 | ||||||
AMN Healthcare Services, Inc.* | 1,225 | 38,037 | ||||||
Medifast, Inc. | 1,136 | 34,512 | ||||||
Surgical Care Affiliates, Inc.* | 838 | 33,361 | ||||||
Enanta Pharmaceuticals, Inc.* | 994 | 32,822 | ||||||
Kite Pharma, Inc.* | 515 | 31,734 | ||||||
Portola Pharmaceuticals, Inc.* | 607 | 31,230 | ||||||
Novavax, Inc.* | 3,639 | 30,531 | ||||||
Lancaster Colony Corp. | 254 | 29,327 | ||||||
RPX Corp.* | 2,639 | 29,029 | ||||||
NewLink Genetics Corp.* | 796 | 28,966 | ||||||
Prothena Corporation plc* | 422 | 28,742 | ||||||
Boston Beer Company, Inc. — Class A* | 139 | 28,065 | ||||||
Coca-Cola Bottling Company Consolidated | 147 | 26,829 | ||||||
Diplomat Pharmacy, Inc.* | 782 | 26,760 | ||||||
Natural Health Trends Corp. | 779 | 26,120 | ||||||
ACADIA Pharmaceuticals, Inc.* | 722 | 25,739 | ||||||
Huron Consulting Group, Inc.* | 427 | 25,364 | ||||||
Genomic Health, Inc.* | 700 | 24,640 | ||||||
PTC Therapeutics, Inc.* | 760 | 24,624 | ||||||
Quidel Corp.* | 1,153 | 24,444 | ||||||
Achillion Pharmaceuticals, Inc.* | 2,218 | 23,932 | ||||||
Alliance HealthCare Services, Inc.* | 2,556 | 23,464 | ||||||
Insmed, Inc.* | 1,290 | 23,414 | ||||||
ExamWorks Group, Inc.* | 865 | 23,009 | ||||||
Affymetrix, Inc.* | 2,271 | 22,914 | ||||||
TriNet Group, Inc.* | 1,172 | 22,678 | ||||||
Celldex Therapeutics, Inc.* | 1,441 | 22,595 | ||||||
LDR Holding Corp.* | 896 | 22,499 | ||||||
Team Health Holdings, Inc.* | 507 | 22,252 | ||||||
Landauer, Inc. | 672 | 22,122 | ||||||
Halozyme Therapeutics, Inc.* | 1,216 | 21,073 | ||||||
Cempra, Inc.* | 674 | 20,982 | ||||||
On Assignment, Inc.* | 463 | 20,812 | ||||||
Great Lakes Dredge & Dock Corp.* | 5,235 | 20,731 | ||||||
Providence Service Corp.* | 437 | 20,504 | ||||||
Revlon, Inc. — Class A* | 730 | 20,324 | ||||||
SP Plus Corp.* | 846 | 20,219 | ||||||
Haemonetics Corp.* | 627 | 20,214 | ||||||
Multi-Color Corp. | 336 | 20,096 | ||||||
Amedisys, Inc.* | 510 | 20,053 | ||||||
Travelport Worldwide Ltd. | 1,548 | 19,969 | ||||||
Heron Therapeutics, Inc.* | 738 | 19,704 | ||||||
FTI Consulting, Inc.* | 563 | 19,514 | ||||||
Capital Senior Living Corp.* | 925 | 19,296 | ||||||
Catalent, Inc.* | 762 | 19,073 | ||||||
ARC Document Solutions, Inc.* | 4,239 | 18,736 | ||||||
Inter Parfums, Inc. | 776 | 18,484 | ||||||
Momenta Pharmaceuticals, Inc.* | 1,229 | 18,238 | ||||||
B&G Foods, Inc. | 490 | 17,160 | ||||||
ZIOPHARM Oncology, Inc.* | 1,964 | 16,321 | ||||||
Coherus Biosciences, Inc.* | 704 | 16,164 | ||||||
Infinity Pharmaceuticals, Inc.* | 2,054 | 16,124 | ||||||
Relypsa, Inc.* | 568 | 16,097 | ||||||
Phibro Animal Health Corp. — Class A | 530 | 15,969 | ||||||
Cara Therapeutics, Inc.* | 933 | 15,730 | ||||||
Array BioPharma, Inc.* | 3,715 | 15,677 | ||||||
Inovio Pharmaceuticals, Inc.* | 2,287 | 15,369 | ||||||
Intersect ENT, Inc.* | 680 | 15,300 | ||||||
Genesis Healthcare, Inc.* | 4,188 | 14,532 | ||||||
Avalanche Biotechnologies, Inc.* | 1,519 | 14,461 | ||||||
Zafgen, Inc.* | 2,285 | 14,373 | ||||||
Tetraphase Pharmaceuticals, Inc.* | 1,417 | 14,213 | ||||||
Pernix Therapeutics Holdings, Inc.* | 4,722 | 13,930 | ||||||
Catalyst Pharmaceuticals, Inc.* | 5,384 | 13,190 | ||||||
BioSpecifics Technologies Corp.* | 301 | 12,934 | ||||||
Concert Pharmaceuticals, Inc.* | 677 | 12,843 | ||||||
Pfenex, Inc.* | 1,026 | 12,702 | ||||||
Anthera Pharmaceuticals, Inc.* | 2,665 | 12,366 | ||||||
Orexigen Therapeutics, Inc.* | 7,102 | 12,215 | ||||||
Northwest Biotherapeutics, Inc.* | 3,020 | 9,664 | ||||||
Chimerix, Inc.* | 663 | 5,934 | ||||||
Total Consumer, Non-cyclical | 3,024,047 | |||||||
Consumer, Cyclical - 2.4% | ||||||||
Casey’s General Stores, Inc. | 646 | 77,811 | ||||||
Hawaiian Holdings, Inc.* | 2,191 | 77,408 | ||||||
Churchill Downs, Inc. | 437 | 61,831 | ||||||
142 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
SCHEDULE OF INVESTMENTS (continued) | December 31, 2015 |
SERIES X (STYLEPLUS—SMALL GROWTH SERIES) |
| Value | |||||||
Tenneco, Inc.* | 1,286 | $ | 59,040 | |||||
Virgin America, Inc.* | 1,414 | 50,918 | ||||||
Marriott Vacations Worldwide Corp. | 844 | 48,065 | ||||||
HNI Corp. | 1,194 | 43,056 | ||||||
Bloomin’ Brands, Inc. | 2,509 | 42,377 | ||||||
Vail Resorts, Inc. | 326 | 41,725 | ||||||
Wabash National Corp.* | 3,399 | 40,210 | ||||||
Steelcase, Inc. — Class A | 2,430 | 36,207 | ||||||
SeaWorld Entertainment, Inc. | 1,774 | 34,930 | ||||||
American Axle & Manufacturing Holdings, Inc.* | 1,779 | 33,694 | ||||||
Wolverine World Wide, Inc. | 1,932 | 32,284 | ||||||
La Quinta Holdings, Inc.* | 2,315 | 31,507 | ||||||
Boyd Gaming Corp.* | 1,266 | 25,155 | ||||||
Freshpet, Inc.* | 2,923 | 24,816 | ||||||
TiVo, Inc.* | 2,856 | 24,647 | ||||||
Allegiant Travel Co. — Class A | 133 | 22,321 | ||||||
ClubCorp Holdings, Inc. | 1,176 | 21,486 | ||||||
Men’s Wearhouse, Inc. | 1,423 | 20,890 | ||||||
H&E Equipment Services, Inc. | 1,181 | 20,644 | ||||||
Mobile Mini, Inc. | 601 | 18,709 | ||||||
Meritor, Inc.* | 2,142 | 17,886 | ||||||
Pinnacle Entertainment, Inc.* | 572 | 17,801 | ||||||
Total Consumer, Cyclical | 925,418 | |||||||
Industrial - 2.4% | ||||||||
Belden, Inc. | 1,410 | 67,229 | ||||||
Swift Transportation Co. — Class A* | 3,874 | 53,540 | ||||||
Hillenbrand, Inc. | 1,584 | 46,934 | ||||||
HEICO Corp. | 845 | 45,934 | ||||||
Hub Group, Inc. — Class A* | 1,310 | 43,165 | ||||||
Astronics Corp.* | 1,010 | 41,117 | ||||||
Mueller Industries, Inc. | 1,462 | 39,620 | ||||||
Moog, Inc. — Class A* | 584 | 35,390 | ||||||
Knight Transportation, Inc. | 1,432 | 34,698 | ||||||
Blount International, Inc.* | 3,531 | 34,639 | ||||||
ArcBest Corp. | 1,557 | 33,304 | ||||||
Applied Industrial Technologies, Inc. | 814 | 32,959 | ||||||
Werner Enterprises, Inc. | 1,364 | 31,904 | ||||||
Rexnord Corp.* | 1,496 | 27,108 | ||||||
Greenbrier Companies, Inc. | 803 | 26,194 | ||||||
Saia, Inc.* | 1,161 | 25,832 | ||||||
Advanced Energy Industries, Inc.* | 904 | 25,520 | ||||||
Kaman Corp. | 611 | 24,935 | ||||||
Generac Holdings, Inc.* | 830 | 24,709 | ||||||
NCI Building Systems, Inc.* | 1,931 | 23,964 | ||||||
Albany International Corp. — Class A | 626 | 22,880 | ||||||
Hyster-Yale Materials Handling, Inc. | 412 | 21,609 | ||||||
Roadrunner Transportation Systems, Inc.* | 2,208 | 20,821 | ||||||
Advanced Drainage Systems, Inc. | 836 | 20,089 | ||||||
Continental Building Products, Inc.* | 1,143 | 19,957 | ||||||
Berry Plastics Group, Inc.* | 547 | 19,790 | ||||||
Plexus Corp.* | 546 | 19,066 | ||||||
General Cable Corp. | 1,394 | 18,721 | ||||||
Matson, Inc. | 397 | 16,924 | ||||||
Celadon Group, Inc. | 1,529 | 15,122 | ||||||
Total Industrial | 913,674 | |||||||
Technology - 1.7% | ||||||||
Verint Systems, Inc.* | 1,575 | 63,882 | ||||||
Take-Two Interactive Software, Inc.* | 1,668 | 58,113 | ||||||
Qlik Technologies, Inc.* | 1,813 | 57,400 | ||||||
Proofpoint, Inc.* | 776 | 50,448 | ||||||
Cabot Microelectronics Corp. | 1,102 | 48,245 | ||||||
Rambus, Inc.* | 3,984 | 46,175 | ||||||
Paycom Software, Inc.* | 1,122 | 42,221 | ||||||
CSG Systems International, Inc. | 1,164 | 41,881 | ||||||
AVG Technologies N.V.* | 1,887 | 37,834 | ||||||
Cavium, Inc.* | 533 | 35,023 | ||||||
BroadSoft, Inc.* | 853 | 30,162 | ||||||
Science Applications International Corp. | 653 | 29,895 | ||||||
Tessera Technologies, Inc. | 791 | 23,738 | ||||||
Microsemi Corp.* | 727 | 23,693 | ||||||
Unisys Corp.* | 2,106 | 23,271 | ||||||
NetScout Systems, Inc.* | 476 | 14,613 | ||||||
Diebold, Inc. | 405 | 12,186 | ||||||
Total Technology | 638,780 | |||||||
Communications - 1.6% | ||||||||
ViaSat, Inc.* | 1,175 | 71,686 | ||||||
Sinclair Broadcast Group, Inc. — Class A | 1,827 | 59,451 | ||||||
InterDigital, Inc. | 1,163 | 57,033 | ||||||
Ciena Corp.* | 2,559 | 52,946 | ||||||
Zendesk, Inc.* | 1,610 | 42,568 | ||||||
Shutterstock, Inc.* | 1,300 | 42,042 | ||||||
Houghton Mifflin Harcourt Co.* | 1,919 | 41,796 | ||||||
LogMeIn, Inc.* | 503 | 33,752 | ||||||
Consolidated Communications Holdings, Inc. | 1,539 | 32,242 | ||||||
Infoblox, Inc.* | 1,477 | 27,162 | ||||||
Extreme Networks, Inc.* | 5,715 | 23,317 | ||||||
West Corp. | 1,056 | 22,778 | ||||||
ShoreTel, Inc.* | 2,572 | 22,762 | ||||||
Ixia* | 1,786 | 22,200 | ||||||
Gray Television, Inc.* | 1,280 | 20,864 | ||||||
RetailMeNot, Inc.* | 2,064 | 20,475 | ||||||
Harmonic, Inc.* | 3,770 | 15,344 | ||||||
Total Communications | 608,418 | |||||||
Financial - 0.3% | ||||||||
Blackhawk Network Holdings, Inc.* | 1,491 | 65,917 | ||||||
WageWorks, Inc.* | 853 | 38,701 | ||||||
Total Financial | 104,618 | |||||||
Basic Materials - 0.1% | ||||||||
Ferroglobe plc | 1,899 | 20,414 | ||||||
Clearwater Paper Corp.* | 435 | 19,806 | ||||||
Total Basic Materials | 40,220 | |||||||
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 143 |
SCHEDULE OF INVESTMENTS (continued) | December 31, 2015 |
SERIES X (STYLEPLUS—SMALL GROWTH SERIES) |
| Value | |||||||
Energy - 0.0% | ||||||||
Western Refining, Inc. | 475 | $ | 16,920 | |||||
Total Common Stocks | ||||||||
(Cost $6,671,728) | 6,272,095 | |||||||
MUTUAL FUNDS† - 82.7% | ||||||||
Guggenheim Variable Insurance Strategy Fund III1 | 370,914 | 9,206,097 | ||||||
Guggenheim Strategy Fund III1 | 322,596 | 8,000,373 | ||||||
Guggenheim Strategy Fund I1 | 313,917 | 7,807,121 | ||||||
Guggenheim Strategy Fund II1 | 277,451 | 6,880,775 | ||||||
Total Mutual Funds | ||||||||
(Cost $32,005,415) | 31,894,366 | |||||||
SHORT TERM INVESTMENTS† - 1.7% | ||||||||
Dreyfus Treasury Prime Cash Management Institutional Shares 0.00%3 | 662,610 | 662,610 | ||||||
Total Short Term Investments | ||||||||
(Cost $662,610) | 662,610 | |||||||
Total Investments - 100.6% | ||||||||
(Cost $39,339,753) | $ | 38,829,071 | ||||||
Other Assets & Liabilities, net - (0.6)% | (228,122 | ) | ||||||
Total Net Assets - 100.0% | $ | 38,600,949 | ||||||
Contracts | Unrealized | |||||||
EQUITY FUTURES CONTRACTS PURCHASED† | ||||||||
March 2016 Russell 2000 Index | 6 | $ | 13,247 | |||||
March 2016 S&P MidCap 400 Index | 5 | 9,559 | ||||||
(Total Aggregate Value of Contracts $1,373,970) | $ | 22,806 | ||||||
Units | ||||||||
OTC EQUITY INDEX SWAP AGREEMENTS†† | ||||||||
Deutsche Bank Swap | 43,678 | $ | (1,499,935 | ) | ||||
* | 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 8. |
2 | Total Return based on Russell 2000 Growth Index +/- financing at a variable rate. |
3 | Rate indicated is the 7 day yield as of December 31, 2015. |
plc — Public Limited Company | |
See Sector Classification in Other Information section. |
144 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
SCHEDULE OF INVESTMENTS (concluded) | December 31, 2015 |
SERIES X (STYLEPLUS—SMALL GROWTH SERIES) |
The following table summarizes the inputs used to value the Fund’s investments at December 31, 2015 (See Note 4 in the Notes to Financial Statements):
Investments in Securities (Assets) | Level 1 | Level 1 - | Level 2 | Level 2 - | Level 3 | Total | ||||||||||||||||||
Common Stocks | $ | 6,272,095 | $ | — | $ | — | $ | — | $ | — | $ | 6,272,095 | ||||||||||||
Futures Contracts | — | 22,806 | — | — | — | 22,806 | ||||||||||||||||||
Mutual Funds | 31,894,366 | — | — | — | — | 31,894,366 | ||||||||||||||||||
Short Term Investments | 662,610 | — | — | — | — | 662,610 | ||||||||||||||||||
Total | $ | 38,829,071 | $ | 22,806 | $ | — | $ | — | $ | — | $ | 38,851,877 | ||||||||||||
Investments in Securities (Liabilities) | Level 1 | Level 1 - | Level 2 | Level 2 - | Level 3 | Total | ||||||||||||||||||
Equity Index Swap Agreements | $ | — | $ | — | $ | — | $ | 1,499,935 | $ | — | $ | 1,499,935 | ||||||||||||
* | Other financial instruments may include futures contracts and/or swaps, which are reported as unrealized gain/loss at period end. |
For the year ended December 31, 2015, there were no transfers between levels.
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 145 |
SERIES X (STYLEPLUS—SMALL GROWTH SERIES) |
STATEMENT OF ASSETS AND LIABILITIES |
December 31, 2015 | ||||
Assets: | ||||
Investments in unaffiliated issuers, at value (cost $7,334,338) | $ | 6,934,705 | ||
Investments in affiliated issuers, at value (cost $32,005,415) | 31,894,366 | |||
Total investments (cost $39,339,753) | 38,829,071 | |||
Segregated cash with broker | 1,345,500 | |||
Prepaid expenses | 1,432 | |||
Cash | 4 | |||
Receivables: | ||||
Dividends | 53,226 | |||
Securities sold | 42,111 | |||
Total assets | 40,271,344 | |||
Liabilities: | ||||
Unrealized depreciation on swap agreements | 1,499,935 | |||
Payable for: | ||||
Securities purchased | 54,399 | |||
Fund shares redeemed | 30,541 | |||
Management fees | 28,501 | |||
Variation margin | 15,080 | |||
Transfer agent/maintenance fees | 4,124 | |||
Fund accounting/administration fees | 3,185 | |||
Trustees’ fees* | 1,683 | |||
Miscellaneous | 32,947 | |||
Total liabilities | 1,670,395 | |||
Commitments and contingent liabilities (Note 16) | — | |||
Net assets | $ | 38,600,949 | ||
Net assets consist of: | ||||
Paid in capital | $ | 41,587,919 | ||
Undistributed net investment income | 126,976 | |||
Accumulated net realized loss on investments | (1,126,135 | ) | ||
Net unrealized depreciation on investments | (1,987,811 | ) | ||
Net assets | $ | 38,600,949 | ||
Capital shares outstanding | 1,243,956 | |||
Net asset value per share | $ | 31.03 | ||
STATEMENT OF OPERATIONS |
Year Ended December 31, 2015 | ||||
Investment Income: | ||||
Dividends from securities of affiliated issuers | $ | 432,812 | ||
Interest | 116,907 | |||
Dividends from securities of unaffiliated issuers (net of foreign withholding tax of $46) | 33,614 | |||
Total investment income | 583,333 | |||
Expenses: | ||||
Management fees | 324,583 | |||
Transfer agent/maintenance fees | 25,169 | |||
Fund accounting/administration fees | 36,276 | |||
Professional fees | 33,202 | |||
Custodian fees | 5,480 | |||
Line of credit fees | 5,466 | |||
Trustees’ fees* | 3,760 | |||
Tax expense | 2 | |||
Miscellaneous | 27,655 | |||
Total expenses | 461,593 | |||
Net investment income | 121,740 | |||
Net Realized and Unrealized Gain (Loss): | ||||
Net realized gain (loss) on: | ||||
Investments in unaffiliated issuers | 634,175 | |||
Investments in affiliated issuers | (3,083 | ) | ||
Swap agreements | 2,745,220 | |||
Futures contracts | (119,956 | ) | ||
Net realized gain | 3,256,356 | |||
Net change in unrealized appreciation (depreciation) on: | ||||
Investments in unaffiliated issuers | (948,304 | ) | ||
Investments in affiliated issuers | (44,330 | ) | ||
Swap agreements | (2,872,500 | ) | ||
Futures contracts | 22,029 | |||
Net change in unrealized appreciation (depreciation) | (3,843,105 | ) | ||
Net realized and unrealized loss | (586,749 | ) | ||
Net decrease in net assets resulting from operations | $ | (465,009 | ) | |
* | 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 X (STYLEPLUS—SMALL GROWTH SERIES) |
STATEMENTS OF CHANGES IN NET ASSETS |
Year Ended | Year Ended | |||||||
Increase (Decrease) in Net Assets from Operations: | ||||||||
Net investment income | $ | 121,740 | $ | 272,733 | ||||
Net realized gain on investments | 3,256,356 | 1,650,145 | ||||||
Net change in unrealized appreciation (depreciation) on investments | (3,843,105 | ) | 1,056,307 | |||||
Net increase (decrease) in net assets resulting from operations | (465,009 | ) | 2,979,185 | |||||
Distributions to shareholders from: | ||||||||
Net investment income | (304,934 | ) | — | |||||
Net realized gains | (109,624 | ) | — | |||||
Total distributions to shareholders | (414,558 | ) | — | |||||
Capital share transactions: | ||||||||
Proceeds from sale of shares | 9,712,517 | 2,980,902 | ||||||
Distributions reinvested | 414,558 | — | ||||||
Cost of shares redeemed | (7,651,877 | ) | (7,540,327 | ) | ||||
Net increase (decrease) from capital share transactions | 2,475,198 | (4,559,425 | ) | |||||
Net increase (decrease) in net assets | 1,595,631 | (1,580,240 | ) | |||||
Net assets: | ||||||||
Beginning of year | 37,005,318 | 38,585,558 | ||||||
End of year | $ | 38,600,949 | $ | 37,005,318 | ||||
Undistributed net investment income at end of year | $ | 126,976 | $ | 308,390 | ||||
Capital share activity: | ||||||||
Shares sold | 301,844 | 99,829 | ||||||
Shares issued from reinvestment of distributions | 11,855 | — | ||||||
Shares redeemed | (234,673 | ) | (256,156 | ) | ||||
Net increase (decrease) in shares | 79,026 | (156,327 | ) | |||||
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 147 |
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 | Year Ended | Year Ended | Year Ended | Year Ended | ||||||||||||||||
Per Share Data | ||||||||||||||||||||
Net asset value, beginning of period | $ | 31.77 | $ | 29.20 | $ | 20.66 | $ | 18.52 | $ | 18.89 | ||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||
Net investment income (loss)a | .10 | .22 | (.05 | ) | (.11 | ) | (.12 | ) | ||||||||||||
Net gain (loss) on investments (realized and unrealized) | (.47 | ) | 2.35 | 8.59 | 2.25 | (.25 | ) | |||||||||||||
Total from investment operations | (.37 | ) | 2.57 | 8.54 | 2.14 | (.37 | ) | |||||||||||||
Less distributions from: | ||||||||||||||||||||
Net investment income | (.27 | ) | — | — | — | — | ||||||||||||||
Net realized gains | (.10 | ) | — | — | — | — | ||||||||||||||
Total distributions | (.37 | ) | — | — | — | — | ||||||||||||||
Net asset value, end of period | $ | 31.03 | $ | 31.77 | $ | 29.20 | $ | 20.66 | $ | 18.52 | ||||||||||
Total Returnb | (1.29 | %) | 8.80 | % | 41.34 | % | 11.56 | % | (1.96 | %) | ||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||
Net assets, end of period (in thousands) | $ | 38,601 | $ | 37,005 | $ | 38,586 | $ | 32,037 | $ | 35,711 | ||||||||||
Ratios to average net assets: | ||||||||||||||||||||
Net investment income (loss) | 0.32 | % | 0.74 | % | (0.21 | %) | (0.56 | %) | (0.63 | %) | ||||||||||
Total expensesc | 1.21 | % | 1.26 | % | 1.23 | % | 1.14 | % | 1.08 | % | ||||||||||
Net expensesd | 1.21 | % | 1.24 | % | 1.23 | % | 1.14 | % | 1.08 | % | ||||||||||
Portfolio turnover rate | 79 | % | 102 | % | 255 | % | 72 | % | 91 | % | ||||||||||
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, 2015 |
To Our Shareholders:
The Series Y (StylePlusTM—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, 2015.
For the year ended December 31, 2015, the Series Y (StylePlus—Large Growth Series) returned 5.49%, compared with the 5.67% return of its benchmark, the Russell 1000 Growth Index.
Through a combination of an allocation to actively managed individual equity, passive equity, and actively managed fixed income, the Fund seeks to exceed the total return of the Russell 1000 Growth Index. The allocation to actively managed individual equity via stocks, and passive equity via derivatives such as swap agreements, is designed to provide exposure to large growth equity.
Remaining Fund assets are invested in the Guggenheim Strategy Funds, short-term fixed-income investment companies advised by Guggenheim Investments. The Guggenheim Strategy Funds invest in a diversified portfolio of debt securities and financial instruments providing exposure to fixed income markets. The investment objective of the Guggenheim Strategy Funds is to seek a high level of income consistent with the preservation of capital.
The actively managed equity and fixed-income components seek to provide multiple sources of outperformance and take advantage of Guggenheim’s competencies in both fixed income and systematic stock selection. The fixed-income component invests in a variety of credit sectors, including asset-backed securities (ABS), mortgage-backed securities (MBS), high yield corporate bonds, and bank loans.
The active and passive decisions seek to add value by tactically allocating to actively managed equity through quantitative selection models when stock picking opportunities are high. During periods when Guggenheim views these opportunities to be less attractive, the Fund seeks to increase its passive exposure to equities and the allocation to fixed-income securities. The prospective return during such periods is the equity index plus an “alpha” component coming from the yield of the fixed-income overlay.
Performance Review
The Fund slightly underperformed the benchmark for the period. The fixed-income sleeve was the largest positive contributor to performance. Uncorrelated with the Fund’s active equity component, the Guggenheim Strategy Funds were invested in short duration asset-backed securities (ABS), collateralized mortgage obligations, corporate bonds, and cash equivalents. Positive returns were driven largely by carry in asset-backed securities, mortgage-backed securities, and corporate bonds.
The actively managed equity sleeve detracted slightly from performance. The passive equity position, maintained through swap agreements, was a slight contributor to performance for the period.
When compared with the index, the total equity position (actively managed individual equity plus passive-equity derivatives) was most overweight the Industrials and Consumer Staples sectors and most underweight the Consumer Discretionary and Financials sectors.
For the Fund’s total equity position over the period, 15-20% was allocated to actively managed equity and 80-85% to passive equity. The actively managed equity sleeve decreased toward 15% over the period as the outlook for active stock selection grew less favorable, with a corresponding higher allocation of almost 85% to the passive equity position.
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, 2015 |
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. Investments in those Funds do not provide “market exposure” to meet the Fund’s investment objective, but will significantly increase the portfolio’s exposure to certain other asset categories (and their associated risks), which may cause the Fund to deviate from its principal investment strategy, including: (i) high yield, high risk debt securities rated below the top four long-term rating categories by a nationally recognized statistical rating organization (also known as “junk bonds”); (ii) securities issued by the U.S. Government or its agencies and instrumentalities; (iii) CLOs and similar investments; and (iv) other short-term fixed income securities.
Inception Date: May 3, 1999 |
Ten Largest Holdings (% of Total Net Assets) | |
Guggenheim Strategy Fund I | 21.9% |
Guggenheim Strategy Fund III | 20.9% |
Guggenheim Variable Insurance Strategy Fund III | 20.4% |
Guggenheim Strategy Fund II | 18.9% |
Apple, Inc. | 0.9% |
Alphabet, Inc. — Class C | 0.5% |
Gilead Sciences, Inc. | 0.4% |
PepsiCo, Inc. | 0.4% |
Amgen, Inc. | 0.3% |
Amazon.com, Inc. | 0.3% |
Top Ten Total | 84.9% |
“Ten Largest Holdings” excludes any temporary cash or derivative investments. | |
150 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
PERFORMANCE REPORT AND FUND PROFILE (Unaudited)(concluded) | December 31, 2015 |
Cumulative Fund Performance*,†
Average Annual Returns*
Periods Ended December 31, 2015†
1 Year | 5 Year | 10 Year | |
Series Y (StylePlus—Large Growth Series) | 5.49% | 10.56% | 5.01% |
Russell 1000 Growth Index | 5.67% | 13.53% | 8.53% |
* | 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. |
† | 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 | 151 |
SCHEDULE OF INVESTMENTS | December 31, 2015 |
SERIES Y (STYLEPLUS—LARGE GROWTH SERIES) |
| Value | |||||||
COMMON STOCKS† - 14.2% | ||||||||
Consumer, Non-cyclical - 5.3% | ||||||||
Gilead Sciences, Inc. | 1,424 | $ | 144,094 | |||||
PepsiCo, Inc. | 1,420 | 141,885 | ||||||
Amgen, Inc. | 821 | 133,273 | ||||||
UnitedHealth Group, Inc. | 1,029 | 121,051 | ||||||
AbbVie, Inc. | 2,001 | 118,538 | ||||||
Biogen, Inc.* | 346 | 105,997 | ||||||
Express Scripts Holding Co.* | 1,024 | 89,508 | ||||||
McKesson Corp. | 440 | 86,782 | ||||||
Kimberly-Clark Corp. | 665 | 84,655 | ||||||
Kroger Co. | 2,020 | 84,497 | ||||||
Johnson & Johnson | 790 | 81,149 | ||||||
Becton Dickinson and Co. | 514 | 79,202 | ||||||
General Mills, Inc. | 1,371 | 79,052 | ||||||
Cardinal Health, Inc. | 857 | 76,504 | ||||||
Constellation Brands, Inc. — Class A | 515 | 73,357 | ||||||
Estee Lauder Companies, Inc. — Class A | 826 | 72,738 | ||||||
Kellogg Co. | 993 | 71,764 | ||||||
Sysco Corp. | 1,573 | 64,493 | ||||||
Danaher Corp. | 694 | 64,459 | ||||||
Boston Scientific Corp.* | 3,359 | 61,940 | ||||||
HCA Holdings, Inc.* | 897 | 60,664 | ||||||
Altria Group, Inc. | 911 | 53,029 | ||||||
Coca-Cola Co. | 910 | 39,094 | ||||||
Kraft Heinz Co. | 376 | 27,358 | ||||||
Reynolds American, Inc. | 532 | 24,552 | ||||||
Cigna Corp. | 160 | 23,413 | ||||||
Allergan plc* | 61 | 19,063 | ||||||
Bristol-Myers Squibb Co. | 256 | 17,610 | ||||||
Mylan N.V.* | 259 | 14,004 | ||||||
Total Consumer, Non-cyclical | 2,113,725 | |||||||
Industrial - 2.3% | ||||||||
Boeing Co. | 794 | 114,805 | ||||||
Honeywell International, Inc. | 1,016 | 105,227 | ||||||
Union Pacific Corp. | 1,253 | 97,985 | ||||||
Lockheed Martin Corp. | 388 | 84,255 | ||||||
Northrop Grumman Corp. | 358 | 67,594 | ||||||
FedEx Corp. | 445 | 66,300 | ||||||
United Technologies Corp. | 672 | 64,559 | ||||||
Caterpillar, Inc. | 914 | 62,115 | ||||||
Waste Management, Inc. | 1,162 | 62,016 | ||||||
CSX Corp. | 2,340 | 60,723 | ||||||
United Parcel Service, Inc. — Class B | 595 | 57,257 | ||||||
Emerson Electric Co. | 957 | 45,773 | ||||||
Deere & Co. | 322 | 24,559 | ||||||
General Dynamics Corp. | 151 | 20,741 | ||||||
Total Industrial | 933,909 | |||||||
Communications - 2.3% | ||||||||
Alphabet, Inc. — Class C* | 266 | 201,862 | ||||||
Amazon.com, Inc.* | 182 | 123,012 | ||||||
Comcast Corp. — Class A | 2,073 | 116,979 | ||||||
Facebook, Inc. — Class A* | 759 | 79,437 | ||||||
AT&T, Inc. | 2,300 | 79,143 | ||||||
Time Warner, Inc. | 1,098 | 71,008 | ||||||
Twenty-First Century Fox, Inc. — Class B | 2,086 | 56,802 | ||||||
Walt Disney Co. | 530 | 55,692 | ||||||
eBay, Inc.* | 1,687 | 46,359 | ||||||
DISH Network Corp. — Class A* | 671 | 38,368 | ||||||
Verizon Communications, Inc. | 773 | 35,728 | ||||||
Total Communications | 904,390 | |||||||
Technology - 2.2% | ||||||||
Apple, Inc. | 3,473 | 365,568 | ||||||
International Business Machines Corp. | 708 | 97,435 | ||||||
Oracle Corp. | 2,650 | 96,805 | ||||||
Microsoft Corp. | 1,484 | 82,332 | ||||||
Intel Corp. | 1,936 | 66,696 | ||||||
QUALCOMM, Inc. | 1,280 | 63,981 | ||||||
VMware, Inc. — Class A* | 1,055 | 59,681 | ||||||
Texas Instruments, Inc. | 916 | 50,206 | ||||||
Avago Technologies Ltd. | 123 | 17,853 | ||||||
Total Technology | 900,557 | |||||||
Consumer, Cyclical - 1.5% | ||||||||
CVS Health Corp. | 1,241 | 121,332 | ||||||
Costco Wholesale Corp. | 603 | 97,384 | ||||||
American Airlines Group, Inc. | 1,763 | 74,664 | ||||||
Delta Air Lines, Inc. | 1,439 | 72,943 | ||||||
Walgreens Boots Alliance, Inc. | 799 | 68,039 | ||||||
Southwest Airlines Co. | 1,378 | 59,337 | ||||||
Target Corp. | 598 | 43,421 | ||||||
Home Depot, Inc. | 285 | 37,691 | ||||||
Hilton Worldwide Holdings, Inc. | 1,341 | 28,697 | ||||||
McDonald’s Corp. | 153 | 18,075 | ||||||
Total Consumer, Cyclical | 621,583 | |||||||
Basic Materials - 0.2% | ||||||||
LyondellBasell Industries N.V. — Class A | 838 | 72,822 | ||||||
Monsanto Co. | 184 | 18,128 | ||||||
Total Basic Materials | 90,950 | |||||||
Financial - 0.2% | ||||||||
Bank of New York Mellon Corp. | 1,452 | 59,851 | ||||||
Visa, Inc. — Class A | 332 | 25,747 | ||||||
Total Financial | 85,598 | |||||||
Energy - 0.2% | ||||||||
Marathon Petroleum Corp. | 927 | 48,055 | ||||||
EOG Resources, Inc. | 359 | 25,414 | ||||||
Total Energy | 73,469 | |||||||
Total Common Stocks | ||||||||
(Cost $5,545,146) | 5,724,181 | |||||||
152 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
SCHEDULE OF INVESTMENTS (concluded) | December 31, 2015 |
SERIES Y (STYLEPLUS—LARGE GROWTH SERIES) |
| Value | |||||||
MUTUAL FUNDS† - 82.1% | ||||||||
Guggenheim Strategy Fund I1 | 353,208 | $ | 8,784,283 | |||||
Guggenheim Strategy Fund III1 | 338,738 | 8,400,709 | ||||||
Guggenheim Variable Insurance Strategy Fund III1 | 330,034 | 8,191,438 | ||||||
Guggenheim Strategy Fund II1 | 306,140 | 7,592,273 | ||||||
Total Mutual Funds | ||||||||
(Cost $33,079,629) | 32,968,703 | |||||||
SHORT TERM INVESTMENTS† - 4.3% | ||||||||
Dreyfus Treasury Prime Cash Management Institutional Shares 0.00%3 | 1,731,883 | 1,731,883 | ||||||
Total Short Term Investments | ||||||||
(Cost $1,731,883) | 1,731,883 | |||||||
Total Investments - 100.6% | ||||||||
(Cost $40,356,658) | $ | 40,424,767 | ||||||
Other Assets & Liabilities, net - (0.6)% | (246,284 | ) | ||||||
Total Net Assets - 100.0% | $ | 40,178,483 | ||||||
Contracts | Unrealized | |||||||
EQUITY FUTURES CONTRACTS PURCHASED† | ||||||||
March 2016 S&P 500 Index | 17 | $ | 15,047 | |||||
March 2016 NASDAQ-100 Index | 9 | (435 | ) | |||||
(Total Aggregate Value of Contracts $2,554,850) | $ | 14,612 | ||||||
Units | ||||||||
OTC EQUITY INDEX SWAP AGREEMENTS†† | ||||||||
Bank of America | 31,777 | $ | (553,175 | ) | ||||
* | 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 8. |
2 | Total Return based on Russell 1000 Growth Index +/- financing at a variable rate. |
3 | Rate indicated is the 7 day yield as of December 31, 2015. |
plc — Public Limited Company | |
See Sector Classification in Other Information section. |
The following table summarizes the inputs used to value the Fund’s investments at December 31, 2015 (See Note 4 in the Notes to Financial Statements):
Investments in Securities (Assets) | Level 1 | Level 1 - | Level 2 | Level 2 - | Level 3 | Total | ||||||||||||||||||
Common Stocks | $ | 5,724,181 | $ | — | $ | — | $ | — | $ | — | $ | 5,724,181 | ||||||||||||
Futures Contracts | — | 15,047 | — | — | — | 15,047 | ||||||||||||||||||
Mutual Funds | 32,968,703 | — | — | — | — | 32,968,703 | ||||||||||||||||||
Short Term Investments | 1,731,883 | — | — | — | — | 1,731,883 | ||||||||||||||||||
Total | $ | 40,424,767 | $ | 15,047 | $ | — | $ | — | $ | — | $ | 40,439,814 | ||||||||||||
Investments in Securities (Liabilities) | Level 1 | Level 1 - | Level 2 | Level 2 - | Level 3 | Total | ||||||||||||||||||
Equity Index Swap Agreements | $ | — | $ | — | $ | — | $ | 553,175 | $ | — | $ | 553,175 | ||||||||||||
Futures Contracts | — | 435 | — | — | — | 435 | ||||||||||||||||||
Total | $ | — | $ | 435 | $ | — | $ | 553,175 | $ | — | $ | 553,610 | ||||||||||||
* | Other financial instruments may include futures contracts and/or swaps, which are reported as unrealized gain/loss at period end. |
For the year ended December 31, 2015, there were no transfers between levels.
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 153 |
SERIES Y (STYLEPLUS—LARGE GROWTH SERIES) |
STATEMENT OF ASSETS AND LIABILITIES |
December 31, 2015 | ||||
Assets: | ||||
Investments in unaffiliated issuers, at value (cost $7,277,029) | $ | 7,456,064 | ||
Investments in affiliated issuers, at value (cost $33,079,629) | 32,968,703 | |||
Total investments (cost $40,356,658) | 40,424,767 | |||
Cash | 310,003 | |||
Segregated cash with broker | 142,800 | |||
Prepaid expenses | 1,419 | |||
Receivables: | ||||
Dividends | 54,918 | |||
Total assets | 40,933,907 | |||
Liabilities: | ||||
Unrealized depreciation on swap agreements | 553,175 | |||
Payable for: | ||||
Securities purchased | 55,051 | |||
Fund shares redeemed | 31,053 | |||
Variation margin | 27,840 | |||
Management fees | 25,541 | |||
Transfer agent/maintenance fees | 4,251 | |||
Fund accounting/administration fees | 3,235 | |||
Trustees’ fees* | 2,794 | |||
Miscellaneous | 52,484 | |||
Total liabilities | 755,424 | |||
Commitments and contingent liabilities (Note 16) | — | |||
Net assets | $ | 40,178,483 | ||
Net assets consist of: | ||||
Paid in capital | $ | 42,287,833 | ||
Undistributed net investment income | 201,372 | |||
Accumulated net realized loss on investments | (1,840,268 | ) | ||
Net unrealized depreciation on investments | (470,454 | ) | ||
Net assets | $ | 40,178,483 | ||
Capital shares outstanding | 2,658,841 | |||
Net asset value per share | $ | 15.11 | ||
STATEMENT OF OPERATIONS |
Year Ended December 31, 2015 | ||||
Investment Income: | ||||
Dividends from securities of affiliated issuers | $ | 426,367 | ||
Interest | 107,259 | |||
Dividends from securities of unaffiliated issuers | 100,027 | |||
Total investment income | 633,653 | |||
Expenses: | ||||
Management fees | 284,432 | |||
Transfer agent/maintenance fees | 25,096 | |||
Fund accounting/administration fees | 36,028 | |||
Printing expenses | 29,065 | |||
Professional fees | 26,203 | |||
Custodian fees | 11,606 | |||
Line of credit fees | 5,352 | |||
Trustees’ fees* | 4,000 | |||
Tax expense | 2 | |||
Miscellaneous | 12,946 | |||
Total expenses | 434,730 | |||
Net investment income | 198,923 | |||
Net Realized and Unrealized Gain (Loss): | ||||
Net realized gain (loss) on: | ||||
Investments in unaffiliated issuers | 866,870 | |||
Investments in affiliated issuers | (7,631 | ) | ||
Swap agreements | 2,098,760 | |||
Futures contracts | 17,809 | |||
Net realized gain | 2,975,808 | |||
Net change in unrealized appreciation (depreciation) on: | ||||
Investments in unaffiliated issuers | (666,037 | ) | ||
Investments in affiliated issuers | (34,525 | ) | ||
Swap agreements | (539,632 | ) | ||
Futures contracts | 24,977 | |||
Net change in unrealized appreciation (depreciation) | (1,215,217 | ) | ||
Net realized and unrealized gain | 1,760,591 | |||
Net increase in net assets resulting from operations | $ | 1,959,514 | ||
* | Relates to Trustees not deemed “interested persons” within the meaning of Section 2(a)(19) of the 1940 Act. |
154 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
SERIES Y (STYLEPLUS—LARGE GROWTH SERIES) |
STATEMENTS OF CHANGES IN NET ASSETS |
Year Ended | Year Ended | |||||||
Increase (Decrease) in Net Assets from Operations: | ||||||||
Net investment income | $ | 198,923 | $ | 362,505 | ||||
Net realized gain on investments | 2,975,808 | 4,356,548 | ||||||
Net change in unrealized appreciation (depreciation) on investments | (1,215,217 | ) | 103,607 | |||||
Net increase in net assets resulting from operations | 1,959,514 | 4,822,660 | ||||||
Distributions to shareholders from: | ||||||||
Net investment income | (392,674 | ) | — | |||||
Net realized gains | (2,676,505 | ) | — | |||||
Total distributions to shareholders | (3,069,179 | ) | — | |||||
Capital share transactions: | ||||||||
Proceeds from sale of shares | 9,360,101 | 6,688,892 | ||||||
Distributions reinvested | 3,069,179 | — | ||||||
Cost of shares redeemed | (8,083,305 | ) | (14,986,659 | ) | ||||
Net increase (decrease) from capital share transactions | 4,345,975 | (8,297,767 | ) | |||||
Net increase (decrease) in net assets | 3,236,310 | (3,475,107 | ) | |||||
Net assets: | ||||||||
Beginning of year | 36,942,173 | 40,417,280 | ||||||
End of year | $ | 40,178,483 | $ | 36,942,173 | ||||
Undistributed net investment income at end of year | $ | 201,372 | $ | 392,674 | ||||
Capital share activity: | ||||||||
Shares sold | 604,897 | 458,903 | ||||||
Shares issued from reinvestment of distributions | 200,338 | — | ||||||
Shares redeemed | (517,974 | ) | (1,077,863 | ) | ||||
Net increase (decrease) in shares | 287,261 | (618,960 | ) | |||||
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 155 |
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 | Year Ended | Year Ended | Year Ended | Year Ended | ||||||||||||||||
Per Share Data | ||||||||||||||||||||
Net asset value, beginning of period | $ | 15.58 | $ | 13.52 | $ | 10.54 | $ | 9.52 | $ | 9.95 | ||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||
Net investment income (loss)a | .08 | .15 | .04 | .07 | .02 | |||||||||||||||
Net gain (loss) on investments (realized and unrealized) | .79 | 1.91 | 2.94 | .95 | (.45 | ) | ||||||||||||||
Total from investment operations | .87 | 2.06 | 2.98 | 1.02 | (.43 | ) | ||||||||||||||
Less distributions from: | ||||||||||||||||||||
Net investment income | (.17 | ) | — | — | — | — | ||||||||||||||
Net realized gains | (1.17 | ) | — | — | — | — | ||||||||||||||
Total distributions | (1.34 | ) | — | — | — | — | ||||||||||||||
Net asset value, end of period | $ | 15.11 | $ | 15.58 | $ | 13.52 | $ | 10.54 | $ | 9.52 | ||||||||||
Total Returnb | 5.49 | % | 15.24 | % | 28.27 | % | 10.71 | % | (4.32 | %) | ||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||
Net assets, end of period (in thousands) | $ | 40,178 | $ | 36,942 | $ | 40,417 | $ | 36,244 | $ | 38,130 | ||||||||||
Ratios to average net assets: | ||||||||||||||||||||
Net investment income (loss) | 0.52 | % | 1.05 | % | 0.33 | % | 0.63 | % | 0.20 | % | ||||||||||
Total expensesc | 1.15 | % | 1.18 | % | 1.10 | % | 1.01 | % | 0.98 | % | ||||||||||
Net expensesd | 1.15 | % | 1.16 | % | 1.10 | % | 1.01 | % | 0.98 | % | ||||||||||
Portfolio turnover rate | 65 | % | 96 | % | 247 | % | 187 | % | 153 | % | ||||||||||
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. |
156 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
MANAGER’S COMMENTARY (Unaudited) | December 31, 2015 |
To Our Shareholders:
The Series Z (Alpha Opportunity Series) is managed by a team of seasoned professionals, including Farhan Sharaff, Senior Managing Director and Assistant Chief Investment Officer, Equities, and Portfolio Manager; Jayson Flowers, Senior Managing Director and Head of Equity and Derivative Strategies, and Portfolio Manager; Samir Sanghani, CFA, Managing Director and Portfolio Manager; and Burak Hurmeydan, Ph.D., Vice President and Portfolio Manager. This team assumed management of the Fund on January 28, 2015, in conjunction with the Fund’s re-opening after being closed to new investors, and a change in its principal investment strategies. In the paragraphs below, the team discusses the performance of the Fund for the period beginning with the change in strategy, through the fiscal year ended December 31, 2015.
The Fund was launched in July 2003 and employed a multi-manager approach to long/short equity investing. In 2008, the Fund was closed to new investors due to collateral positions held at Lehman Brothers that were frozen in response to the firm’s bankruptcy. Despite being closed, the Fund continued to be managed for current investors. Over the years, the underlying investment strategies have evolved and portfolio management teams have changed, but in general, the Fund maintained a high beta to U.S. large-cap equities while using both long and short positions. Before the investment strategy transition in January 2015, the Funds were most recently managed by Mike Byrum, CFA, and Ryan Harder, CFA, and invested in the team’s momentum-based long/short equity strategy and S&P 500 futures.
For the fiscal year ended December 31, 2015, the Series Z (Alpha Opportunity Series) returned -4.69%, compared with the 1.38% return of its benchmark, the S&P 500 Index. The Fund’s secondary benchmark, which was added during the period, is the Morningstar Long/Short Equity Category Average. Its return for the 12 months was -2.00%.
Previous Strategy Performance Review
For the four-week period of January 1, 2015, through January 27, 2015, the Fund returned 0.88%, compared with -1.34% for the S&P 500 Index. The Morningstar Long/Short Equity Category Average returned -0.34% for the same period.
For the four-week period, the principal investment strategy allocated 75% of the Fund’s assets to a Domestic Long/Short strategy and 25% to an Indexed strategy.
Current Strategy Performance Review
For the 11-month period of January 28, 2015, through December 31, 2015, the Fund returned -5.52%, compared with 2.76% for the S&P 500 Index. The Morningstar Long/Short Equity Category Average returned -1.41% for the same period.
For the 11-month period, the Fund was managed as a single opportunistic long/short strategy, which employs forward-looking, fundamental analysis to measure the market’s expected return for each stock in the universe. Quantitative techniques are then applied to evaluate market- and company-specific risk factors embedded in each stock and to assess which specific risk factors (such as size, growth, or sectors) are being overvalued or undervalued by the market. Finally, a portfolio is constructed within guidelines that is long the stocks that give the portfolio both the broad risk characteristics and company-specific risks that are perceived to be undervalued and is short stocks for which those characteristics are perceived to be overpriced.
The Fund will ordinarily hold simultaneous long and short positions in equity securities or securities markets that provide exposure up to a level equal to 150% of the Fund’s net assets for both the long and short positions. The Fund intends to maintain a low overall net exposure (the difference between the notional value of long positions and the notional value of short positions), typically varying between 50% net long and 30% net short, in order to maintain low correlation to traditional equity markets and lower-than-market volatility, and seek to provide consistent absolute return. The overall net exposure will change as market opportunities change, and may, based on the Fund’s view of current market conditions, be outside this range.
On average during the period, the Fund held about 121% of assets in long securities, and 90% short–for an average net-dollar exposure of 31%. Because the longs were more defensive in nature than the shorts, the net beta (sensitivity to broad market moves) averaged closer to the 0.23 range. The broad market experienced substantial ups and downs over the year–including a dramatic drop in August followed by an equally dramatic reversal rally in October. The fund returns were
THE GUGGENHEIM FUNDS ANNUAL REPORT | 157 |
MANAGER’S COMMENTARY (Unaudited)(concluded) | December 31, 2015 |
less dramatic–with very little movement positive or negative during those large moves. While we are not market neutral because of the slight long bias–the groups of stocks we held long & short exhibited very little net beta during those crucial months.
The long positions averaged a return of -3.4%, compared to the Russell 3000 Index return of +3.7%. Short positions returned -4.3% on a stand-alone basis. While the shorts thus gave the Fund a positive contribution and hedged market risk, the stock selection on the long side fell far short of the Fund’s target to add “alpha,” as the names declined in value while the broader market had positive returns.
The Fund has been favoring large caps as its valuation models show that the traditional small cap risk premium has eroded in the last couple of years, as small caps have outperformed for well over a decade and in excess to their underlying fundamentals. Small caps are definitively riskier than large caps and therefore should trade at a higher risk premium—and the Fund’s estimate that the risk premium has flipped towards large caps is a fairly rare occurrence. The Fund’s large-cap-size bias contributed positively to return.
The Fund’s financial fundamental tilts did not perform well. It had been biased towards companies trading at lower valuations, and avoiding or short high-momentum names trading at very high valuations (or with little to no earnings—as is common in some emerging growth sectors). The Fund has also shorted companies that are aggressively growing their assets through capex spend and acquisitions. Over the long haul, expensive and heavy spending companies tend to disappoint investors, and the Fund’s current estimate of negative risk premiums in those groups indicates that investors are perhaps too enthusiastic there.
The Fund’s sector exposures helped the Fund over the period that the Fund was managed according to the new strategy. The long portfolio has been decidedly defensive (Staples and Health Care), while short sectors have been more cyclical (especially the materials sector which declined on global demand slowdown). We decided to mostly avoid the volatile Energy sector as the decline in oil prices would overwhelm any other company fundamentals–posing severe risks to both fundamental long or short positions. Very little of our returns this year were attributable to this sector.
Derivatives in the Fund are used only to take an equity long or short position above 100% of NAV (that is, to increase leverage). Long-side average exposure was 121% for the period. Since the Fund’s return was negative, the derivative (swap) detracted from performance.
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.
158 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
PERFORMANCE REPORT AND FUND PROFILE (Unaudited) | December 31, 2015 |
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.
Inception Date: July 7, 2003 |
Ten Largest Holdings (% of Total Net Assets) | |
Wal-Mart Stores, Inc. | 1.3% |
Tyson Foods, Inc. — Class A | 1.2% |
Verizon Communications, Inc. | 1.2% |
CVS Health Corp. | 1.0% |
Cal-Maine Foods, Inc. | 1.0% |
Micron Technology, Inc. | 0.9% |
NextEra Energy, Inc. | 0.9% |
Ingredion, Inc. | 0.9% |
MEDNAX, Inc. | 0.9% |
Kohl’s Corp. | 0.9% |
Top Ten Total | 10.2% |
“Ten Largest Holdings” excludes any temporary cash or derivative investments. | |
THE GUGGENHEIM FUNDS ANNUAL REPORT | 159 |
PERFORMANCE REPORT AND FUND PROFILE (Unaudited)(concluded) | December 31, 2015 |
Cumulative Fund Performance*,†
Average Annual Returns*
Periods Ended December 31, 2015†
1 Year | 5 Year | 10 Year | |
Series Z (Alpha Opportunity Series) | -4.69% | 8.99% | 7.76% |
S&P 500 Index | 1.38% | 12.57% | 7.31% |
Morningstar Long/Short Category Average | -2.00% | 4.38% | 4.88% |
* | 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 Morningstar Long/Short Equity Category Average are unmanaged indices and, unlike the Fund, have no management fees or operating expenses to reduce their reported returns. |
† | 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. |
160 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
SCHEDULE OF INVESTMENTS | December 31, 2015 |
SERIES Z (ALPHA OPPORTUNITY SERIES) |
|
| Value | ||||||
COMMON STOCKS† - 88.0% | ||||||||
Consumer, Non-cyclical - 25.4% | ||||||||
Tyson Foods, Inc. — Class A | 2,932 | $ | 156,364 | |||||
Cal-Maine Foods, Inc. | 2,694 | 124,841 | ||||||
Ingredion, Inc.1 | 1,190 | 114,050 | ||||||
MEDNAX, Inc.* | 1,572 | 112,650 | ||||||
Quest Diagnostics, Inc.1 | 1,567 | 111,477 | ||||||
Whole Foods Market, Inc. | 3,294 | 110,349 | ||||||
Darling Ingredients, Inc.*,1 | 9,514 | 100,087 | ||||||
HCA Holdings, Inc.*,1 | 1,464 | 99,010 | ||||||
Express Scripts Holding Co.* | 1,126 | 98,424 | ||||||
St. Jude Medical, Inc. | 1,554 | 95,990 | ||||||
United Therapeutics Corp.*,1 | 590 | 92,399 | ||||||
Laboratory Corporation of America Holdings*,1 | 657 | 81,231 | ||||||
AbbVie, Inc.1 | 1,365 | 80,863 | ||||||
Johnson & Johnson1 | 697 | 71,596 | ||||||
Dean Foods Co.1 | 4,080 | 69,972 | ||||||
LifePoint Health, Inc.* | 940 | 68,996 | ||||||
Charles River Laboratories International, Inc.* | 821 | 66,000 | ||||||
Aaron’s, Inc.1 | 2,868 | 64,215 | ||||||
JM Smucker Co.1 | 501 | 61,793 | ||||||
Varian Medical Systems, Inc.* | 756 | 61,085 | ||||||
Estee Lauder Companies, Inc. — Class A | 671 | 59,088 | ||||||
Medtronic plc | 668 | 51,383 | ||||||
Philip Morris International, Inc.1 | 583 | 51,252 | ||||||
Sysco Corp. | 1,198 | 49,118 | ||||||
Baxter International, Inc.1 | 1,272 | 48,527 | ||||||
Magellan Health, Inc.* | 787 | 48,526 | ||||||
Dr Pepper Snapple Group, Inc.1 | 520 | 48,464 | ||||||
Sanderson Farms, Inc.1 | 618 | 47,907 | ||||||
Air Methods Corp.*,1 | 1,136 | 47,632 | ||||||
United Natural Foods, Inc.* | 1,163 | 45,776 | ||||||
VCA, Inc.* | 802 | 44,110 | ||||||
Community Health Systems, Inc.* | 1,640 | 43,509 | ||||||
Universal Corp. | 739 | 41,443 | ||||||
Select Medical Holdings Corp. | 3,403 | 40,530 | ||||||
Hershey Co.1 | 450 | 40,172 | ||||||
Colgate-Palmolive Co.1 | 601 | 40,039 | ||||||
Campbell Soup Co. | 759 | 39,885 | ||||||
Owens & Minor, Inc. | 1,081 | 38,894 | ||||||
SUPERVALU, Inc.* | 5,722 | 38,795 | ||||||
AmerisourceBergen Corp. — Class A1 | 374 | 38,788 | ||||||
Cardtronics, Inc.* | 1,142 | 38,428 | ||||||
Chemed Corp.1 | 253 | 37,899 | ||||||
ResMed, Inc. | 696 | 37,368 | ||||||
Deluxe Corp.1 | 685 | 37,360 | ||||||
SpartanNash Co. | 1,711 | 37,026 | ||||||
Clorox Co.1 | 290 | 36,781 | ||||||
Enanta Pharmaceuticals, Inc.* | 1,109 | 36,619 | ||||||
DaVita HealthCare Partners, Inc.*,1 | 519 | 36,179 | ||||||
KAR Auction Services, Inc. | 970 | 35,919 | ||||||
Flowers Foods, Inc. | 1,662 | 35,716 | ||||||
ManpowerGroup, Inc.1 | 413 | 34,812 | ||||||
RR Donnelley & Sons Co. | 2,332 | 34,327 | ||||||
Total Consumer, Non-cyclical | 3,183,664 | |||||||
Industrial - 16.1% | ||||||||
Boeing Co.1 | 611 | 88,344 | ||||||
Huntington Ingalls Industries, Inc.1 | 652 | 82,706 | ||||||
Arrow Electronics, Inc.*,1 | 1,494 | 80,944 | ||||||
Jabil Circuit, Inc. | 3,427 | 79,815 | ||||||
Tech Data Corp.* | 1,141 | 75,740 | ||||||
Knight Transportation, Inc. | 3,031 | 73,440 | ||||||
Fluor Corp. | 1,520 | 71,774 | ||||||
ITT Corp. | 1,866 | 67,774 | ||||||
Parker-Hannifin Corp.1 | 675 | 65,462 | ||||||
Avnet, Inc.1 | 1,453 | 62,247 | ||||||
Triumph Group, Inc.1 | 1,491 | 59,267 | ||||||
Dover Corp.1 | 965 | 59,164 | ||||||
Vishay Intertechnology, Inc. | 4,858 | 58,539 | ||||||
Carlisle Companies, Inc. | 660 | 58,535 | ||||||
Union Pacific Corp. | 685 | 53,567 | ||||||
Rockwell Automation, Inc.1 | 517 | 53,049 | ||||||
Werner Enterprises, Inc. | 2,266 | 53,002 | ||||||
Barnes Group, Inc.1 | 1,465 | 51,846 | ||||||
Crane Co.1 | 1,021 | 48,845 | ||||||
Sanmina Corp.* | 2,287 | 47,066 | ||||||
Timken Co.1 | 1,576 | 45,058 | ||||||
Jacobs Engineering Group, Inc.*,1 | 1,066 | 44,719 | ||||||
Old Dominion Freight Line, Inc.* | 743 | 43,889 | ||||||
Federal Signal Corp. | 2,720 | 43,112 | ||||||
Clean Harbors, Inc.*,1 | 998 | 41,567 | ||||||
Keysight Technologies, Inc.* | 1,432 | 40,569 | ||||||
Caterpillar, Inc.1 | 591 | 40,164 | ||||||
Briggs & Stratton Corp. | 2,200 | 38,060 | ||||||
Applied Industrial Technologies, Inc. | 932 | 37,737 | ||||||
Mueller Industries, Inc. | 1,363 | 36,937 | ||||||
Emerson Electric Co.1 | 764 | 36,542 | ||||||
Saia, Inc.* | 1,642 | 36,535 | ||||||
TE Connectivity Ltd.1 | 559 | 36,117 | ||||||
Methode Electronics, Inc. | 1,124 | 35,777 | ||||||
ArcBest Corp.1 | 1,669 | 35,700 | ||||||
Trinity Industries, Inc. | 1,461 | 35,093 | ||||||
Flowserve Corp. | 829 | 34,884 | ||||||
Ryder System, Inc.1 | 608 | 34,553 | ||||||
Kirby Corp.* | 643 | 33,835 | ||||||
Total Industrial | 2,021,974 | |||||||
Consumer, Cyclical - 12.3% | ||||||||
Wal-Mart Stores, Inc.1 | 2,710 | 166,123 | ||||||
CVS Health Corp.1 | 1,310 | 128,078 | ||||||
Kohl’s Corp.1 | 2,347 | 111,787 | ||||||
UniFirst Corp.1 | 828 | 86,278 | ||||||
Ingram Micro, Inc. — Class A | 2,433 | 73,915 | ||||||
The Gap, Inc. | 2,974 | 73,457 | ||||||
Walgreens Boots Alliance, Inc.1 | 856 | 72,893 | ||||||
JetBlue Airways Corp.* | 3,059 | 69,286 | ||||||
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 161 |
SCHEDULE OF INVESTMENTS (continued) | December 31, 2015 |
SERIES Z (ALPHA OPPORTUNITY SERIES) |
| Value | |||||||
Macy’s, Inc. | 1,959 | $ | 68,526 | |||||
PACCAR, Inc. | 1,388 | 65,791 | ||||||
Hawaiian Holdings, Inc.* | 1,718 | 60,697 | ||||||
Foot Locker, Inc. | 830 | 54,025 | ||||||
American Eagle Outfitters, Inc.1 | 3,406 | 52,793 | ||||||
Guess?, Inc. | 2,699 | 50,957 | ||||||
Fossil Group, Inc.* | 1,374 | 50,233 | ||||||
Casey’s General Stores, Inc.1 | 411 | 49,505 | ||||||
Thor Industries, Inc. | 791 | 44,415 | ||||||
Dana Holding Corp.1 | 3,068 | 42,338 | ||||||
Children’s Place, Inc. | 744 | 41,069 | ||||||
Select Comfort Corp.* | 1,849 | 39,587 | ||||||
Spirit Airlines, Inc.* | 981 | 39,093 | ||||||
DR Horton, Inc. | 1,154 | 36,963 | ||||||
Michael Kors Holdings Ltd.* | 892 | 35,734 | ||||||
Outerwall, Inc. | 659 | 24,080 | ||||||
Total Consumer, Cyclical | 1,537,623 | |||||||
Technology - 10.6% | ||||||||
Micron Technology, Inc.* | 8,425 | 119,298 | ||||||
Apple, Inc.1 | 999 | 105,154 | ||||||
Intel Corp. | 2,789 | 96,081 | ||||||
CA, Inc.1 | 3,296 | 94,134 | ||||||
International Business Machines Corp. | 645 | 88,766 | ||||||
Tessera Technologies, Inc. | 2,580 | 77,426 | ||||||
Convergys Corp.1 | 2,930 | 72,928 | ||||||
Cirrus Logic, Inc.*,1 | 2,323 | 68,598 | ||||||
Oracle Corp.1 | 1,844 | 67,361 | ||||||
MKS Instruments, Inc. | 1,694 | 60,984 | ||||||
NetApp, Inc. | 2,270 | 60,223 | ||||||
Texas Instruments, Inc. | 1,096 | 60,072 | ||||||
CACI International, Inc. — Class A*,1 | 508 | 47,132 | ||||||
Sykes Enterprises, Inc.* | 1,518 | 46,724 | ||||||
HP, Inc.1 | 3,703 | 43,844 | ||||||
Hewlett Packard Enterprise Co.1 | 2,882 | 43,806 | ||||||
Mentor Graphics Corp. | 2,119 | 39,032 | ||||||
Cabot Microelectronics Corp.1 | 887 | 38,833 | ||||||
NVIDIA Corp. | 1,121 | 36,948 | ||||||
Icad, Inc.*,1 | 6,727 | 34,779 | ||||||
Skyworks Solutions, Inc.1 | 440 | 33,805 | ||||||
Total Technology | 1,335,928 | |||||||
Financial - 8.2% | ||||||||
MetLife, Inc. | 2,204 | 106,254 | ||||||
Aflac, Inc.1 | 1,638 | 98,117 | ||||||
Prudential Financial, Inc. | 1,027 | 83,608 | ||||||
Bank of New York Mellon Corp.1 | 1,554 | 64,056 | ||||||
Regions Financial Corp.1 | 6,436 | 61,785 | ||||||
Interactive Brokers Group, Inc. — Class A | 1,274 | 55,546 | ||||||
American Financial Group, Inc. | 758 | 54,637 | ||||||
East West Bancorp, Inc.1 | 1,296 | 53,862 | ||||||
Franklin Resources, Inc. | 1,384 | 50,959 | ||||||
Hanover Insurance Group, Inc.1 | 623 | 50,675 | ||||||
American Equity Investment Life Holding Co.1 | 2,014 | 48,396 | ||||||
Aspen Insurance Holdings Ltd.1 | 987 | 47,672 | ||||||
Discover Financial Services | 880 | 47,185 | ||||||
Comerica, Inc.1 | 1,122 | 46,933 | ||||||
Selective Insurance Group, Inc. | 1,338 | 44,930 | ||||||
American Express Co. | 636 | 44,234 | ||||||
WP GLIMCHER, Inc. | 3,643 | 38,652 | ||||||
Waddell & Reed Financial, Inc. — Class A | 1,109 | 31,784 | ||||||
Irish Bank Resolution Corporation Ltd.††† | 16,638 | — | ||||||
Total Financial | 1,029,285 | |||||||
Utilities - 6.5% | ||||||||
NextEra Energy, Inc.1 | 1,136 | 118,018 | ||||||
Edison International | 1,850 | 109,539 | ||||||
DTE Energy Co.1 | 1,199 | 96,148 | ||||||
American Electric Power Company, Inc.1 | 1,495 | 87,114 | ||||||
Pinnacle West Capital Corp. | 1,293 | 83,373 | ||||||
Southwest Gas Corp. | 1,358 | 74,907 | ||||||
Questar Corp. | 3,236 | 63,037 | ||||||
Vectren Corp. | 1,430 | 60,661 | ||||||
OGE Energy Corp. | 1,932 | 50,792 | ||||||
UGI Corp. | 1,117 | 37,710 | ||||||
Ameren Corp. | 869 | 37,567 | ||||||
Total Utilities | 818,866 | |||||||
Communications - 4.8% | ||||||||
Verizon Communications, Inc. | 3,140 | 145,131 | ||||||
AT&T, Inc.1 | 2,935 | 100,993 | ||||||
Time Warner, Inc.1 | 1,178 | 76,182 | ||||||
Viacom, Inc. — Class B1 | 1,440 | 59,270 | ||||||
F5 Networks, Inc.*,1 | 594 | 57,594 | ||||||
Polycom, Inc.* | 3,525 | 44,380 | ||||||
AMC Networks, Inc. — Class A*,1 | 562 | 41,970 | ||||||
Discovery Communications, Inc. — Class A* | 1,419 | 37,859 | ||||||
General Communication, Inc. — Class A* | 1,764 | 34,892 | ||||||
Total Communications | 598,271 | |||||||
Energy - 2.6% | ||||||||
Marathon Petroleum Corp. | 1,302 | 67,496 | ||||||
Exxon Mobil Corp. | 843 | 65,713 | ||||||
FMC Technologies, Inc.* | 2,118 | 61,443 | ||||||
Chevron Corp.1 | 590 | 53,076 | ||||||
Tesoro Corp.1 | 463 | 48,786 | ||||||
Noble Corporation plc | 3,002 | 31,671 | ||||||
Total Energy | 328,185 | |||||||
Basic Materials - 1.5% | ||||||||
Huntsman Corp. | 3,975 | 45,196 | ||||||
Newmont Mining Corp. | 2,224 | 40,010 | ||||||
Mosaic Co. | 1,429 | 39,426 | ||||||
Domtar Corp.1 | 922 | 34,068 | ||||||
162 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
SCHEDULE OF INVESTMENTS (continued) | December 31, 2015 |
SERIES Z (ALPHA OPPORTUNITY SERIES) |
| Value | |||||||
Rayonier Advanced Materials, Inc. | 2,914 | $ | 28,528 | |||||
Total Basic Materials | 187,228 | |||||||
Total Common Stocks | ||||||||
(Cost $11,595,009) | 11,041,024 | |||||||
SHORT TERM INVESTMENTS† - 2.8% | ||||||||
Goldman Sachs Financial Square Treasury Instruments Fund 0.00%4 | 351,118 | 351,118 | ||||||
Total Short Term Investments | ||||||||
(Cost $351,118) | 351,118 | |||||||
Total Investments - 90.8% | ||||||||
(Cost $11,946,127) | $ | 11,392,142 | ||||||
COMMON STOCKS SOLD SHORT† - (36.5)% | ||||||||
Communications - (1.4)% | ||||||||
Ruckus Wireless, Inc.* | 3,360 | (35,986 | ) | |||||
Facebook, Inc. — Class A* | 461 | (48,248 | ) | |||||
Amazon.com, Inc.* | 140 | (94,625 | ) | |||||
Total Communications | (178,859 | ) | ||||||
Industrial - (2.9)% | ||||||||
TimkenSteel Corp. | 3,982 | (33,369 | ) | |||||
EnPro Industries, Inc. | 785 | (34,414 | ) | |||||
KapStone Paper and Packaging Corp. | 1,902 | (42,966 | ) | |||||
Fortune Brands Home & Security, Inc. | 1,010 | (56,055 | ) | |||||
Waste Connections, Inc. | 1,167 | (65,725 | ) | |||||
Louisiana-Pacific Corp.* | 7,385 | (133,004 | ) | |||||
Total Industrial | (365,533 | ) | ||||||
Technology - (3.2)% | ||||||||
Red Hat, Inc.* | 537 | (44,469 | ) | |||||
Medidata Solutions, Inc.* | 931 | (45,889 | ) | |||||
Ultimate Software Group, Inc.* | 253 | (49,464 | ) | |||||
CommVault Systems, Inc.* | 1,376 | (54,146 | ) | |||||
Silicon Laboratories, Inc.* | 1,119 | (54,316 | ) | |||||
Electronics for Imaging, Inc.* | 1,344 | (62,819 | ) | |||||
Cypress Semiconductor Corp.* | 8,659 | (84,945 | ) | |||||
Total Technology | (396,048 | ) | ||||||
Consumer, Non-cyclical - (4.7)% | ||||||||
Celldex Therapeutics, Inc.* | 1,519 | (23,818 | ) | |||||
Ophthotech Corp.* | 401 | (31,491 | ) | |||||
Natus Medical, Inc.* | 745 | (35,797 | ) | |||||
ImmunoGen, Inc.* | 2,862 | (38,837 | ) | |||||
Acorda Therapeutics, Inc.* | 908 | (38,844 | ) | |||||
Cantel Medical Corp. | 657 | (40,826 | ) | |||||
Monro Muffler Brake, Inc. | 763 | (50,526 | ) | |||||
Alexion Pharmaceuticals, Inc.* | 284 | (54,173 | ) | |||||
Live Nation Entertainment, Inc.* | 2,220 | (54,545 | ) | |||||
Medicines Co.* | 1,492 | (55,711 | ) | |||||
Vertex Pharmaceuticals, Inc.* | 624 | (78,518 | ) | |||||
Jarden Corp.* | 1,566 | (89,450 | ) | |||||
Total Consumer, Non-cyclical | (592,536 | ) | ||||||
Basic Materials - (6.0)% | ||||||||
Allegheny Technologies, Inc. | 2,964 | (33,345 | ) | |||||
Compass Minerals International, Inc. | 482 | (36,280 | ) | |||||
NewMarket Corp. | 105 | (39,977 | ) | |||||
Olin Corp. | 2,611 | (45,066 | ) | |||||
Worthington Industries, Inc. | 1,527 | (46,024 | ) | |||||
PolyOne Corp. | 1,473 | (46,782 | ) | |||||
RPM International, Inc. | 1,147 | (50,537 | ) | |||||
Valspar Corp. | 660 | (54,747 | ) | |||||
HB Fuller Co. | 1,766 | (64,406 | ) | |||||
Royal Gold, Inc. | 2,093 | (76,332 | ) | |||||
Praxair, Inc. | 774 | (79,258 | ) | |||||
Sensient Technologies Corp. | 1,266 | (79,530 | ) | |||||
Ecolab, Inc. | 900 | (102,942 | ) | |||||
Total Basic Materials | (755,226 | ) | ||||||
Consumer, Cyclical - (6.4)% | ||||||||
Arctic Cat, Inc. | 1,878 | (30,762 | ) | |||||
Regis Corp.* | 2,375 | (33,606 | ) | |||||
Mobile Mini, Inc. | 1,143 | (35,582 | ) | |||||
Papa John’s International, Inc. | 637 | (35,589 | ) | |||||
Starbucks Corp. | 615 | (36,918 | ) | |||||
Sonic Automotive, Inc. — Class A | 1,637 | (37,258 | ) | |||||
Crocs, Inc.* | 3,664 | (37,519 | ) | |||||
NIKE, Inc. — Class B | 604 | (37,750 | ) | |||||
Scotts Miracle-Gro Co. — Class A | 596 | (38,448 | ) | |||||
Popeyes Louisiana Kitchen, Inc.* | 663 | (38,786 | ) | |||||
Motorcar Parts of America, Inc.* | 1,157 | (39,118 | ) | |||||
Callaway Golf Co. | 4,505 | (42,437 | ) | |||||
LKQ Corp.* | 1,536 | (45,512 | ) | |||||
Lithia Motors, Inc. — Class A | 453 | (48,322 | ) | |||||
O’Reilly Automotive, Inc.* | 191 | (48,403 | ) | |||||
Pool Corp. | 603 | (48,710 | ) | |||||
Fred’s, Inc. — Class A | 3,090 | (50,583 | ) | |||||
Wendy’s Co. | 4,907 | (52,849 | ) | |||||
Signet Jewelers Ltd. | 506 | (62,587 | ) | |||||
Total Consumer, Cyclical | (800,739 | ) | ||||||
Financial - (11.8)% | ||||||||
Liberty Property Trust | 1,114 | (34,590 | ) | |||||
Washington Federal, Inc. | 1,569 | (37,389 | ) | |||||
BancorpSouth, Inc. | 1,560 | (37,424 | ) | |||||
Community Bank System, Inc. | 959 | (38,302 | ) | |||||
Assurant, Inc. | 476 | (38,337 | ) | |||||
Alexandria Real Estate Equities, Inc. | 432 | (39,036 | ) | |||||
UMB Financial Corp. | 846 | (39,381 | ) | |||||
Safety Insurance Group, Inc. | 709 | (39,973 | ) | |||||
American Assets Trust, Inc. | 1,076 | (41,265 | ) | |||||
Northfield Bancorp, Inc. | 2,605 | (41,472 | ) | |||||
Pennsylvania Real Estate Investment Trust | 1,907 | (41,706 | ) | |||||
FNB Corp. | 3,185 | (42,488 | ) | |||||
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 163 |
SCHEDULE OF INVESTMENTS (continued) | December 31, 2015 |
SERIES Z (ALPHA OPPORTUNITY SERIES) |
| Value | |||||||
Camden Property Trust | 584 | $ | (44,828 | ) | ||||
Sovran Self Storage, Inc. | 435 | (46,680 | ) | |||||
Glacier Bancorp, Inc. | 1,821 | (48,311 | ) | |||||
EastGroup Properties, Inc. | 932 | (51,829 | ) | |||||
Webster Financial Corp. | 1,474 | (54,818 | ) | |||||
Associated Banc-Corp. | 3,256 | (61,050 | ) | |||||
Highwoods Properties, Inc. | 1,464 | (63,830 | ) | |||||
Boston Properties, Inc. | 526 | (67,086 | ) | |||||
Public Storage | 314 | (77,778 | ) | |||||
Retail Opportunity Investments Corp. | 4,752 | (85,061 | ) | |||||
Federal Realty Investment Trust | 617 | (90,143 | ) | |||||
Valley National Bancorp | 9,514 | (93,713 | ) | |||||
Cousins Properties, Inc. | 9,944 | (93,771 | ) | |||||
Morgan Stanley | 4,253 | (135,288 | ) | |||||
Total Financial | (1,485,549 | ) | ||||||
Total Common Stocks Sold Short | ||||||||
(Proceeds $4,509,945) | (4,574,490 | ) | ||||||
Total Securities Sold Short- (36.5)% | ||||||||
(Proceeds $4,509,945) | $ | (4,574,490 | ) | |||||
Other Assets & Liabilities, net - 45.7% | 5,730,507 | |||||||
Total Net Assets - 100.0% | $ | 12,548,159 | ||||||
Units | Unrealized | |||||||
OTC EQUITY INDEX SWAP AGREEMENTS SOLD SHORT†† | ||||||||
Morgan Stanley | 215,262 | $ | 34,711 | |||||
OTC EQUITY INDEX SWAP AGREEMENTS†† | ||||||||
Morgan Stanley | 163,457 | $ | (275,115 | ) | ||||
|
| |||||||
CUSTOM BASKET OF LONG SECURITIES3 | ||||||||
First Solar, Inc.* | 863 | $ | 14,629 | |||||
Kroger Co. | 2,664 | 13,952 | ||||||
Atlantic Tele-Network, Inc. | 1,351 | 13,926 | ||||||
Travelers Companies, Inc. | 881 | 9,604 | ||||||
IPG Photonics Corp.* | 704 | 6,044 | ||||||
McKesson Corp. | 410 | 5,986 | ||||||
Biogen, Inc.* | 416 | 5,955 | ||||||
American Airlines Group, Inc. | 1,768 | 5,795 | ||||||
Procter & Gamble Co. | 1,119 | 5,647 | ||||||
Goodyear Tire & Rubber Co. | 3,018 | 5,150 | ||||||
JPMorgan Chase & Co. | 1,835 | 4,707 | ||||||
Everest Re Group Ltd. | 741 | 4,423 | ||||||
Altria Group, Inc. | 738 | 3,843 | ||||||
Cardinal Health, Inc. | 967 | 3,361 | ||||||
Valero Energy Corp. | 890 | 2,697 | ||||||
Alaska Air Group, Inc. | 665 | 2,278 | ||||||
Amgen, Inc. | 542 | 1,933 | ||||||
CMS Energy Corp. | 1,566 | 1,931 | ||||||
ConAgra Foods, Inc. | 1,642 | 1,622 | ||||||
Progressive Corp. | 2,015 | 1,620 | ||||||
EMCOR Group, Inc. | 993 | 1,554 | ||||||
WW Grainger, Inc. | 329 | 1,333 | ||||||
General Mills, Inc. | 1,470 | 1,131 | ||||||
Mallinckrodt plc* | 887 | 1,015 | ||||||
SYNNEX Corp. | 906 | 864 | ||||||
Consolidated Edison, Inc. | 1,768 | 600 | ||||||
PG&E Corp. | 704 | 315 | ||||||
Energizer Holdings, Inc. | 1,570 | (62 | ) | |||||
CR Bard, Inc. | 328 | (76 | ) | |||||
United Technologies Corp. | 600 | (181 | ) | |||||
Delta Air Lines, Inc. | 1,994 | (344 | ) | |||||
Merck & Company, Inc. | 1,078 | (391 | ) | |||||
PepsiCo, Inc. | 571 | (732 | ) | |||||
Telephone & Data Systems, Inc. | 2,361 | (777 | ) | |||||
Hologic, Inc.* | 1,481 | (1,210 | ) | |||||
Amsurg Corp. — Class A* | 466 | (1,321 | ) | |||||
WR Berkley Corp. | 1,375 | (1,535 | ) | |||||
Cisco Systems, Inc. | 3,878 | (1,675 | ) | |||||
UnitedHealth Group, Inc. | 1,183 | (1,745 | ) | |||||
Allstate Corp. | 1,702 | (1,747 | ) | |||||
CSX Corp. | 1,677 | (1,946 | ) | |||||
Xerox Corp. | 9,738 | (2,667 | ) | |||||
Scripps Networks Interactive, Inc. — Class A | 1,486 | (2,840 | ) | |||||
Target Corp. | 900 | (3,011 | ) | |||||
QUALCOMM, Inc. | 1,913 | (3,267 | ) | |||||
Schlumberger Ltd. | 723 | (3,317 | ) | |||||
Citigroup, Inc. | 1,273 | (3,367 | ) | |||||
Textron, Inc. | 1,569 | (4,370 | ) | |||||
First American Financial Corp. | 1,686 | (4,534 | ) | |||||
Teradata Corp.* | 1,896 | (4,608 | ) | |||||
Corning, Inc. | 7,924 | (4,618 | ) | |||||
Universal Health Services, Inc. — Class B | 940 | (4,763 | ) | |||||
164 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
SCHEDULE OF INVESTMENTS (continued) | December 31, 2015 |
SERIES Z (ALPHA OPPORTUNITY SERIES) |
| Unrealized | |||||||
Capital One Financial Corp. | 760 | $ | (5,111 | ) | ||||
Dick’s Sporting Goods, Inc. | 1,768 | (5,152 | ) | |||||
InterDigital, Inc. | 1,595 | (5,764 | ) | |||||
DST Systems, Inc. | 593 | (6,068 | ) | |||||
Southwest Airlines Co. | 1,683 | (6,405 | ) | |||||
AGCO Corp. | 1,603 | (6,696 | ) | |||||
National Oilwell Varco, Inc. | 1,898 | (6,846 | ) | |||||
United Continental Holdings, Inc.* | 1,904 | (6,866 | ) | |||||
ADT Corp. | 1,875 | (7,150 | ) | |||||
Frontier Communications Corp. | 17,553 | (7,232 | ) | |||||
Western Union Co. | 5,830 | (7,684 | ) | |||||
Lincoln National Corp. | 1,605 | (8,430 | ) | |||||
Best Buy Company, Inc. | 1,816 | (8,535 | ) | |||||
Gilead Sciences, Inc. | 1,619 | (8,894 | ) | |||||
Molina Healthcare, Inc.* | 1,954 | (9,084 | ) | |||||
Eaton Corporation plc | 665 | (9,218 | ) | |||||
Entergy Corp. | 2,202 | (9,850 | ) | |||||
Principal Financial Group, Inc. | 1,837 | (10,742 | ) | |||||
Hartford Financial Services Group, Inc. | 3,475 | (10,905 | ) | |||||
GameStop Corp. — Class A | 2,595 | (12,000 | ) | |||||
CenterPoint Energy, Inc. | 4,690 | (13,603 | ) | |||||
Buckle, Inc. | 1,280 | (14,337 | ) | |||||
CenturyLink, Inc. | 5,112 | (14,918 | ) | |||||
Bed Bath & Beyond, Inc.* | 1,362 | (15,039 | ) | |||||
WellCare Health Plans, Inc.* | 1,357 | (16,760 | ) | |||||
Public Service Enterprise Group, Inc. | 4,666 | (18,607 | ) | |||||
Cummins, Inc. | 905 | (21,645 | ) | |||||
Seagate Technology plc | 2,914 | (27,079 | ) | |||||
Archer-Daniels-Midland Co. | 4,177 | (45,618 | ) | |||||
Total Custom Basket of Long Securities | (279,427 | ) | ||||||
CUSTOM BASKET OF SHORT SECURITIES2 | ||||||||
Freeport-McMoRan, Inc. | (13,698 | ) | 65,869 | |||||
JC Penney Company, Inc.* | (8,555 | ) | 23,614 | |||||
Eagle Materials, Inc. | (708 | ) | 14,065 | |||||
Devon Energy Corp. | (1,549 | ) | 13,038 | |||||
WisdomTree Investments, Inc. | (3,217 | ) | 12,620 | |||||
Cimarex Energy Co. | (492 | ) | 12,070 | |||||
Harman International Industries, Inc. | (660 | ) | 10,940 | |||||
Kansas City Southern | (1,398 | ) | 10,014 | |||||
Anadarko Petroleum Corp. | (991 | ) | 8,662 | |||||
FMC Corp. | (4,126 | ) | 8,334 | |||||
Group 1 Automotive, Inc. | (739 | ) | 8,263 | |||||
Navient Corp. | (4,311 | ) | 7,964 | |||||
KBR, Inc. | (5,189 | ) | 7,742 | |||||
Kate Spade & Co.* | (4,133 | ) | 7,496 | |||||
Headwaters, Inc.* | (2,349 | ) | 7,455 | |||||
Toll Brothers, Inc.* | (1,882 | ) | 7,411 | |||||
CarMax, Inc.* | (1,294 | ) | 6,950 | |||||
Ashland, Inc. | (1,324 | ) | 6,569 | |||||
Yahoo!, Inc.* | (3,376 | ) | 6,540 | |||||
Johnson Controls, Inc. | (1,507 | ) | 6,336 | |||||
Newfield Exploration Co.* | (1,749 | ) | 6,054 | |||||
B/E Aerospace, Inc. | (1,207 | ) | 5,947 | |||||
Mercury General Corp. | (1,411 | ) | 5,895 | |||||
Murphy Oil Corp. | (2,021 | ) | 5,458 | |||||
PPG Industries, Inc. | (845 | ) | 5,129 | |||||
Goldman Sachs Group, Inc. | (656 | ) | 4,942 | |||||
Twenty-First Century Fox, Inc. — Class A | (1,273 | ) | 4,773 | |||||
PulteGroup, Inc. | (3,274 | ) | 4,189 | |||||
Air Products & Chemicals, Inc. | (408 | ) | 4,182 | |||||
Carrizo Oil & Gas, Inc.* | (778 | ) | 4,164 | |||||
South Jersey Industries, Inc. | (2,047 | ) | 3,926 | |||||
Martin Marietta Materials, Inc. | (563 | ) | 3,867 | |||||
CME Group, Inc. — Class A | (455 | ) | 3,801 | |||||
Team, Inc.* | (656 | ) | 3,717 | |||||
Corporate Office Properties Trust | (2,494 | ) | 3,225 | |||||
Intersil Corp. — Class A | (3,338 | ) | 2,963 | |||||
Sherwin-Williams Co. | (375 | ) | 2,876 | |||||
Walt Disney Co. | (337 | ) | 2,875 | |||||
Sealed Air Corp. | (1,040 | ) | 2,813 | |||||
Wynn Resorts Ltd. | (1,054 | ) | 2,801 | |||||
Occidental Petroleum Corp. | (1,024 | ) | 2,791 | |||||
Alnylam Pharmaceuticals, Inc.* | (234 | ) | 2,728 | |||||
Sempra Energy | (631 | ) | 2,541 | |||||
Rayonier, Inc. | (3,050 | ) | 2,531 | |||||
Kilroy Realty Corp. | (877 | ) | 2,238 | |||||
Under Armour, Inc. — Class A* | (577 | ) | 2,176 | |||||
Deere & Co. | (682 | ) | 1,855 | |||||
Fifth Third Bancorp | (2,670 | ) | 1,842 | |||||
BlackRock, Inc. — Class A | (104 | ) | 1,767 | |||||
Tempur Sealy International, Inc.* | (498 | ) | 1,647 | |||||
Lennar Corp. — Class A | (833 | ) | 1,518 | |||||
VF Corp. | (691 | ) | 1,233 | |||||
L Brands, Inc. | (441 | ) | 1,210 | |||||
SEI Investments Co. | (689 | ) | 1,125 | |||||
Yum! Brands, Inc. | (525 | ) | 1,084 | |||||
Tractor Supply Co. | (591 | ) | 955 | |||||
Alexander & Baldwin, Inc. | (2,431 | ) | 952 | |||||
Intercontinental Exchange, Inc. | (219 | ) | 647 | |||||
Woodward, Inc. | (742 | ) | 584 | |||||
CBS Corp. — Class B | (768 | ) | 447 | |||||
Tanger Factory Outlet Centers, Inc. | (1,411 | ) | 393 | |||||
Taubman Centers, Inc. | (511 | ) | 390 | |||||
Home Depot, Inc. | (324 | ) | 325 | |||||
Edwards Lifesciences Corp.* | (474 | ) | 242 | |||||
American Tower Corp. — Class A | (521 | ) | 218 | |||||
Priceline Group, Inc.* | (29 | ) | 184 | |||||
Newell Rubbermaid, Inc. | (1,390 | ) | 172 | |||||
Netflix, Inc.* | (712 | ) | 37 | |||||
HCP, Inc. | (1,959 | ) | 1 | |||||
Huntington Bancshares, Inc. | (5,952 | ) | (42 | ) | ||||
Ross Stores, Inc. | (699 | ) | (330 | ) | ||||
Mack-Cali Realty Corp. | (1,604 | ) | (330 | ) | ||||
Duke Realty Corp. | (3,229 | ) | (428 | ) | ||||
Insulet Corp.* | (503 | ) | (464 | ) | ||||
MSCI, Inc. — Class A | (526 | ) | (486 | ) | ||||
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 165 |
SCHEDULE OF INVESTMENTS (continued) | December 31, 2015 |
SERIES Z (ALPHA OPPORTUNITY SERIES) |
| Unrealized | |||||||
Loews Corp. | (1,616 | ) | $ | (531 | ) | |||
AutoNation, Inc.* | (873 | ) | (549 | ) | ||||
McGraw Hill Financial, Inc. | (422 | ) | (565 | ) | ||||
Abaxis, Inc. | (457 | ) | (711 | ) | ||||
U.S. Bancorp | (1,109 | ) | (720 | ) | ||||
Balchem Corp. | (972 | ) | (826 | ) | ||||
Dominion Resources, Inc. | (646 | ) | (988 | ) | ||||
Simon Property Group, Inc. | (201 | ) | (1,079 | ) | ||||
Core-Mark Holding Company, Inc. | (664 | ) | (1,105 | ) | ||||
Tangoe, Inc.* | (5,589 | ) | (1,137 | ) | ||||
Dunkin’ Brands Group, Inc. | (900 | ) | (1,252 | ) | ||||
American Campus Communities, Inc. | (1,890 | ) | (1,352 | ) | ||||
General Electric Co. | (1,498 | ) | (1,419 | ) | ||||
Hanesbrands, Inc. | (3,008 | ) | (1,429 | ) | ||||
E*TRADE Financial Corp.* | (1,683 | ) | (1,486 | ) | ||||
Veeva Systems, Inc. — Class A* | (909 | ) | (1,604 | ) | ||||
Akorn, Inc.* | (708 | ) | (1,608 | ) | ||||
UDR, Inc. | (1,819 | ) | (1,778 | ) | ||||
AvalonBay Communities, Inc. | (337 | ) | (1,799 | ) | ||||
Equity Residential | (763 | ) | (2,102 | ) | ||||
BB&T Corp. | (2,084 | ) | (2,226 | ) | ||||
Crown Castle International Corp. | (807 | ) | (2,272 | ) | ||||
Varonis Systems, Inc.* | (1,112 | ) | (2,333 | ) | ||||
General Growth Properties, Inc. | (2,047 | ) | (2,427 | ) | ||||
SunTrust Banks, Inc. | (1,354 | ) | (2,503 | ) | ||||
SL Green Realty Corp. | (1,220 | ) | (2,574 | ) | ||||
Douglas Emmett, Inc. | (2,036 | ) | (2,900 | ) | ||||
Acceleron Pharma, Inc.* | (438 | ) | (3,038 | ) | ||||
Kite Realty Group Trust | (3,157 | ) | (3,192 | ) | ||||
McDonald’s Corp. | (474 | ) | (3,193 | ) | ||||
Semtech Corp.* | (2,665 | ) | (3,199 | ) | ||||
People’s United Financial, Inc. | (3,881 | ) | (3,235 | ) | ||||
Education Realty Trust, Inc. | (1,399 | ) | (3,303 | ) | ||||
Welltower, Inc. | (910 | ) | (3,329 | ) | ||||
Intuit, Inc. | (683 | ) | (3,642 | ) | ||||
Vornado Realty Trust | (586 | ) | (3,725 | ) | ||||
EI du Pont de Nemours & Co. | (1,612 | ) | (3,818 | ) | ||||
Vulcan Materials Co. | (1,373 | ) | (3,900 | ) | ||||
Mattel, Inc. | (1,636 | ) | (4,076 | ) | ||||
Essex Property Trust, Inc. | (366 | ) | (4,265 | ) | ||||
Regency Centers Corp. | (574 | ) | (4,662 | ) | ||||
PTC Therapeutics, Inc.* | (902 | ) | (4,959 | ) | ||||
Pacira Pharmaceuticals, Inc.* | (391 | ) | (5,019 | ) | ||||
Genomic Health, Inc.* | (856 | ) | (5,059 | ) | ||||
Prologis, Inc. | (1,201 | ) | (5,626 | ) | ||||
Illumina, Inc.* | (350 | ) | (5,882 | ) | ||||
National Retail Properties, Inc. | (1,398 | ) | (6,181 | ) | ||||
Equity One, Inc. | (2,649 | ) | (6,344 | ) | ||||
Relypsa, Inc.* | (1,115 | ) | (6,650 | ) | ||||
Realty Income Corp. | (1,262 | ) | (6,715 | ) | ||||
Bristol-Myers Squibb Co. | (807 | ) | (6,977 | ) | ||||
Itron, Inc.* | (1,058 | ) | (7,046 | ) | ||||
Healthcare Realty Trust, Inc. | (2,083 | ) | (7,223 | ) | ||||
International Flavors & Fragrances, Inc. | (715 | ) | (7,292 | ) | ||||
Royal Caribbean Cruises Ltd. | (763 | ) | (8,888 | ) | ||||
Extra Space Storage, Inc. | (827 | ) | (9,066 | ) | ||||
Carnival Corp. | (1,848 | ) | (9,588 | ) | ||||
Signature Bank* | (504 | ) | (9,743 | ) | ||||
Bank of the Ozarks, Inc. | (910 | ) | (11,906 | ) | ||||
TripAdvisor, Inc.* | (870 | ) | (13,588 | ) | ||||
Aerovironment, Inc.* | (2,156 | ) | (13,923 | ) | ||||
Albemarle Corp. | (2,203 | ) | (16,610 | ) | ||||
Autodesk, Inc.* | (1,235 | ) | (19,656 | ) | ||||
DreamWorks Animation SKG, Inc. — Class A* | (7,081 | ) | (32,410 | ) | ||||
Total Custom Basket of Short Securities | 49,099 |
* | Non-income producing security. |
† | Value determined based on Level 1 inputs, unless otherwise noted — See Note 4. |
†† | Value determined based on Level 2 inputs — See Note 4. |
††† | Value determined based on Level 3 inputs — See Note 4. |
1 | All or portion of this security is pledged as short security collateral at December 31, 2015 |
2 | Total Return is based on the return of short basket of securities +/- financing at a variable rate. |
3 | Total Return is based on the return of long basket of securities +/- financing at a variable rate. |
4 | Rate indicated is the 7 day yield as of December 31, 2015. |
plc — Public Limited Company | |
See Sector Classification in Other Information section. |
166 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
SCHEDULE OF INVESTMENTS (concluded) | December 31, 2015 |
SERIES Z (ALPHA OPPORTUNITY SERIES) |
The following table summarizes the inputs used to value the Fund’s investments at December 31, 2015 (See Note 4 in the Notes to Financial Statements):
Investments in Securities (Assets) | Level 1 | Level 2 | Level 2 - | Level 3 | Total | |||||||||||||||
Common Stocks | $ | 11,041,024 | $ | — | $ | — | $ | — | $ | 11,041,024 | ||||||||||
Equity Index Swap Agreements | — | — | 34,711 | — | 34,711 | |||||||||||||||
Short Term Investments | 351,118 | — | — | — | 351,118 | |||||||||||||||
Total | $ | 11,392,142 | $ | — | $ | 34,711 | $ | — | $ | 11,426,853 | ||||||||||
Investments in Securities (Liabilities) | Level 1 | Level 2 | Level 2 - | Level 3 | Total | |||||||||||||||
Common Stocks | $ | 4,574,490 | $ | — | $ | — | $ | — | $ | 4,574,490 | ||||||||||
Equity Index Swap Agreements | — | — | 275,115 | — | 275,115 | |||||||||||||||
Total | $ | 4,574,490 | $ | — | $ | 275,115 | $ | — | $ | 4,849,605 | ||||||||||
* | Other financial instruments include swaps, which are reported as unrealized gain/loss at period end. |
For the year ended December 31, 2015, there were no transfers between levels.
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 167 |
SERIES Z (ALPHA OPPORTUNITY SERIES) |
STATEMENT OF ASSETS AND LIABILITIES |
December 31, 2015 | ||||
Assets: | ||||
Investments, at value (cost $11,946,127) | $ | 11,392,142 | ||
Segregated cash with broker | 5,978,048 | |||
Unrealized appreciation on swap agreements | 34,711 | |||
Receivables: | ||||
Securities sold | 16,643 | |||
Dividends | 12,370 | |||
Investment Adviser | 8,919 | |||
Swap settlement | 4,479 | |||
Total assets | 17,447,312 | |||
Liabilities: | ||||
Securities sold short, at value (proceeds $4,509,945) | 4,574,490 | |||
Unrealized depreciation on swap agreements | 275,115 | |||
Overdraft due to custodian bank | 2 | |||
Payable for: | ||||
Transfer agent/maintenance fees | 4,239 | |||
Fund shares redeemed | 1,369 | |||
Trustees’ fees* | 1,187 | |||
Fund accounting/administration fees | 1,028 | |||
Miscellaneous | 41,723 | |||
Total liabilities | 4,899,153 | |||
Commitments and contingent liabilities (Note 16) | — | |||
Net assets | $ | 12,548,159 | ||
Net assets consist of: | ||||
Paid in capital | $ | 14,928,181 | ||
Undistributed net investment income | 240,404 | |||
Accumulated net realized loss on investments | (1,761,492 | ) | ||
Net unrealized depreciation on investments | (858,934 | ) | ||
Net assets | $ | 12,548,159 | ||
Capital shares outstanding | 756,591 | |||
Net asset value per share | $ | 16.59 | ||
STATEMENT OF OPERATIONS |
Year Ended December 31, 2015 | ||||
Investment Income: | ||||
Dividends (net of foreign withholding tax of $32) | $ | 199,820 | ||
Interest | 26 | |||
Total investment income | 199,846 | |||
Expenses: | ||||
Management fees | 174,340 | |||
Transfer agent/maintenance fees | 25,111 | |||
Fund accounting/administration fees | 13,882 | |||
Short sales dividend expense | 115,938 | |||
Legal fees | 56,082 | |||
Professional fees | 39,379 | |||
Prime broker interest expense | 38,729 | |||
Custodian fees | 6,392 | |||
Trustees’ fees* | 1,398 | |||
Tax expense | 1 | |||
Miscellaneous | 23,049 | |||
Total expenses | 494,301 | |||
Less: | ||||
Expenses waived by Adviser | (11,875 | ) | ||
Net expenses | 482,426 | |||
Net investment loss | (282,580 | ) | ||
Net Realized and Unrealized Gain (Loss): | ||||
Net realized gain (loss) on: | ||||
Investments | 432,617 | |||
Swap agreements | (162,194 | ) | ||
Futures contracts | 62,412 | |||
Securities sold short | 318,212 | |||
Net realized gain | 651,047 | |||
Net change in unrealized appreciation (depreciation) on: | ||||
Investments | (452,729 | ) | ||
Securities sold short | (64,545 | ) | ||
Swap agreements | (390,411 | ) | ||
Futures contracts | (117,204 | ) | ||
Net change in unrealized appreciation (depreciation) | (1,024,889 | ) | ||
Net realized and unrealized loss | (373,842 | ) | ||
Net decrease in net assets resulting from operations | $ | (656,422 | ) | |
* | Relates to Trustees not deemed “interested persons” within the meaning of Section 2(a)(19) of the 1940 Act. |
168 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
SERIES Z (ALPHA OPPORTUNITY SERIES) |
STATEMENTS OF CHANGES IN NET ASSETS |
Year Ended | Year Ended | |||||||
Increase (Decrease) in Net Assets from Operations: | ||||||||
Net investment loss | $ | (282,580 | ) | $ | (262,364 | ) | ||
Net realized gain on investments | 651,047 | 5,729,009 | ||||||
Net change in unrealized appreciation (depreciation) on investments | (1,024,889 | ) | (4,064,168 | ) | ||||
Net increase (decrease) in net assets resulting from operations | (656,422 | ) | 1,402,477 | |||||
Distributions to shareholders from: | ||||||||
Net realized gains | (4,910,631 | ) | — | |||||
Total distributions to shareholders | (4,910,631 | ) | — | |||||
Capital share transactions: | ||||||||
Proceeds from sale of shares | 1,135,619 | — | ||||||
Distributions reinvested | 4,910,631 | — | ||||||
Cost of shares redeemed | (3,542,147 | ) | (2,498,489 | ) | ||||
Net increase (decrease) from capital share transactions | 2,504,103 | (2,498,489 | ) | |||||
Net decrease in net assets | (3,062,950 | ) | (1,096,012 | ) | ||||
Net assets: | ||||||||
Beginning of year | 15,611,109 | 16,707,121 | ||||||
End of year | $ | 12,548,159 | $ | 15,611,109 | ||||
Undistributed net investment income at end of year | $ | 240,404 | $ | — | ||||
Capital share activity: | ||||||||
Shares sold | 57,194 | — | ||||||
Shares issued from reinvestment of distributions | 291,605 | — | ||||||
Shares redeemed | (163,462 | ) | (97,148 | ) | ||||
Net increase (decrease) in shares | 185,337 | (97,148 | ) | |||||
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 169 |
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 | Year Ended | Year Ended | Year Ended | Year Ended | ||||||||||||||||
Per Share Data | ||||||||||||||||||||
Net asset value, beginning of period | $ | 27.33 | $ | 25.00 | $ | 19.55 | $ | 17.24 | $ | 16.98 | ||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||
Net investment income (loss)a | (.43 | ) | (.43 | ) | (.15 | ) | (.08 | ) | (.12 | ) | ||||||||||
Net gain (loss) on investments (realized and unrealized) | (.69 | ) | 2.76 | 5.60 | 2.36 | .38 | ||||||||||||||
Payments by affiliates | — | — | — | .03 | b | — | ||||||||||||||
Total from investment operations | (1.12 | ) | 2.33 | 5.45 | 2.31 | .26 | ||||||||||||||
Less distributions from: | ||||||||||||||||||||
Net realized gains | (9.62 | ) | — | — | — | — | ||||||||||||||
Total distributions | (9.62 | ) | — | — | — | — | ||||||||||||||
Net asset value, end of period | $ | 16.59 | $ | 27.33 | $ | 25.00 | $ | 19.55 | $ | 17.24 | ||||||||||
Total Returnc | (4.69 | %) | 9.36 | % | 27.83 | % | 13.40 | %b | 1.77 | % | ||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||
Net assets, end of period (in thousands) | $ | 12,548 | $ | 15,611 | $ | 16,707 | $ | 15,571 | $ | 17,161 | ||||||||||
Ratios to average net assets: | ||||||||||||||||||||
Net investment income (loss) | (2.03 | %) | (1.65 | %) | (0.69 | %) | (0.41 | %) | (0.66 | %) | ||||||||||
Total expenses | 3.54 | % | 2.71 | % | 3.03 | % | 2.22 | % | 2.29 | % | ||||||||||
Net expensesd,e | 3.46 | % | 2.33 | % | 2.44 | % | 2.22 | % | 2.29 | % | ||||||||||
Portfolio turnover rate | 446 | % | — | 548 | % | 720 | % | 730 | % | |||||||||||
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 periods presented would be: |
12/31/15 | 12/3/14 | 12/31/13 | 12/31/12 | 12/31/11 |
2.35% | 2.32% | 2.35% | 2.06% | 2.21% |
170 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
1. Organization, Consolidation of Subsidiary 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 an 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, 2015, the Trust consisted of sixteen funds.
This report covers the 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”), each a non-diversified investment company.
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.
Consolidation of Subsidiary
The consolidated financial statements of Series M (Macro Opportunities Series) includes the accounts of a wholly-owned and controlled Cayman Islands subsidiary (the “Subsidiary”). Significant inter-company accounts and transactions have been eliminated in consolidation for this Fund.
The Fund may invest up to 25% of its total assets in its Subsidiary which acts as an investment vehicle in order to effect certain investments consistent with the Fund’s investment objective and policies.
A summary of the Fund’s investment in its Subsidiary is as follows:
Fund | Commencement Date of Subsidiary | Subsidiary Net Assets at December 31, | % of Net Assets of the Fund at December 31, | ||||||
Series M (Macro Opportunities Series) | 01/08/15 | $ | 61,945 | 0.2 | % | ||||
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
THE GUGGENHEIM FUNDS ANNUAL REPORT | 171 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) |
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. 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.
U.S. government securities are valued by either independent pricing services, the last traded fill price, or at the reported bid price at the close of business.
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.
Listed options are valued at the Official Settlement Price listed by the exchange, usually as of 4:00 p.m. Long options are valued using the bid price and short options are valued using the ask price. In the event that a settlement price is not available, fair valuation is enacted. Over-the-counter options are valued using the average bid price (for long options), or average ask price (for short options) obtained from one or more security dealers.
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.
172 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) |
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 Funds record 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, (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.
B. 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.
C. 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 one-month or three-month 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, 2015.
D. 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 Funds 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.
E. When a Fund engages in a short sale of a security, an amount equal to the proceeds is reflected as an asset and an equivalent liability. The amount of the liability is subsequently marked-to-market to reflect the market value of the short sale. The Fund maintains a segregated account of cash and/or securities as collateral for short sales.
Fees, if any, paid to brokers to borrow securities in connection with short sales are recorded as interest expense. In addition, the Fund must pay out the dividend rate of the equity or coupon rate of the obligation to the lender and record this as an expense. Short dividend or interest expense is a cost associated with the investment objective of short sales transactions, rather than an operational cost associated with the day-to-day management of any mutual fund. The Fund may also receive rebate income from the broker resulting from the investment of the proceeds from securities sold short.
THE GUGGENHEIM FUNDS ANNUAL REPORT | 173 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) |
F. 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).
G. 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.
H. 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.
I. 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 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.
J. Distributions of net investment income and net realized gains, if any, are declared and paid at least annually. Normally, all such distributions of a fund will automatically be reinvested without charge in additional shares of the same fund. Distributions are recorded on the ex-dividend date and are determined in accordance with income tax regulations which may differ from U.S. GAAP.
K. 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.
L. 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, 2015, there were no earnings credits received.
M. 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.
N. 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
174 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) |
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.
O. Under the Funds’ organizational documents, their 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 and Derivatives
As part of their investment strategy, the Funds utilize short sales and 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. Valuation and accounting treatment of these instruments can be found under Significant Accounting Policies in Note 1 of these Notes to Financial Statements.
Short Sales
A short sale is a transaction in which a Fund sells a security it does not own. If the security sold short decreases in price between the time the Fund sells the security and closes its short position, that Fund will realize a gain on the transaction. Conversely, if the security increases in price during the period, that Fund will realize a loss on the transaction. The risk of such price increases is the principal risk of engaging in short sales.
Derivatives
Derivatives are instruments whose values depend on, or are derived from, in whole or in part, the value of one or more other assets, such as securities, currencies, commodities or indices. Derivative instruments may be used to increase investment flexibility (including to maintain cash reserves while maintaining exposure to certain other assets), for risk management (hedging) purposes, to facilitate trading, to reduce transaction costs and to pursue higher investment returns. Derivative instruments may also be used to mitigate certain investment risks, such as foreign currency exchange rate risk, interest rate risk and credit risk. U.S. GAAP requires disclosures to enable investors to better understand how and why a Fund uses derivative instruments, how these derivative instruments are accounted for and their effects on the Fund’s financial position and results of operations. The Funds may utilize derivatives for the following purposes:
Duration: the use of an instrument to manage the interest rate risk of a portfolio.
Hedge: an investment made in order to reduce the risk of adverse price movements in a security, by taking an offsetting position to protect against broad market moves.
Index Exposure: the use of an instrument to obtain exposure to a listed or other type of index.
Leverage: gaining total exposure to equities or other assets on the long and short sides at greater than 100% of invested capital.
Speculation: the use of an instrument to express macro-economic and other investment views.
For any Fund whose investment strategy consistently involves applying 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 or other asset. In addition, because an investment in derivative instruments generally requires a small investment relative to the amount of investment exposure assumed, an opportunity for increased net income is created; but, at the same time, leverage risk will increase. The Fund’s use of leverage, through borrowings or instruments such as derivatives, may cause the Fund to be more volatile and riskier than if they had not been leveraged.
THE GUGGENHEIM FUNDS ANNUAL REPORT | 175 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) |
Options Purchased and Written
A call option on a security gives the purchaser of the option the right to buy, and the writer of a call option the obligation to sell, the underlying security. The purchaser of a put option has the right to sell, and the writer of the put option the obligation to buy, the underlying security at any time during the option period. The risk associated with purchasing options is limited to the premium originally paid.
The following table represents the Funds’ use and volume of call/put options purchased on a quarterly basis:
Fund | Use | Average Number of Contracts |
Series E (Total Return Bond Series) | Duration, Hedge | 1,006 |
Series M (Macro Opportunities Series) | Duration, Hedge, Index Exposure | 368 |
Fund | Use | Average Notional* |
Series M (Macro Opportunities Series) | Hedge | 6,269,118 |
* | Average Notional relates to currency options. |
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 where a Fund may not be able to enter into a closing transaction because of an illiquid secondary market; or, for OTC options, a Fund may be at risk because of the counterparty’s inability to perform.
The following tables represent the Funds’ use and activity of options written for the year ended December 31, 2015:
Fund | Use |
Series E (Total Return Bond Series) | Duration, Hedge |
Series M (Macro Opportunities Series) | Duration, Hedge, Index Exposure |
Written Call Options | Series E (Total Return Bond Series) | Series M (Macro Opportunities Series) | ||||||||||||||
Number of | Premium | Number of | Premium | |||||||||||||
Balance at December 31, 2014 | — | $ | — | — | $ | — | ||||||||||
Options Written | 2,810 | 196,572 | 982 | 82,305 | ||||||||||||
Options terminated in closing purchase transactions | — | — | — | — | ||||||||||||
Options expired | (2,810 | ) | (196,572 | ) | (889 | ) | (61,008 | ) | ||||||||
Options exercised | — | — | — | — | ||||||||||||
Balance at December 31, 2015 | — | $ | — | 93 | $ | 21,297 | ||||||||||
Written Put Options | Series M (Macro Opportunities Series) | |||||||
Number of | Premium | |||||||
Balance at December 31, 2014 | — | $ | — | |||||
Options Written | 46 | 65,976 | ||||||
Options terminated in closing purchase transactions | (32 | ) | (55,694 | ) | ||||
Options expired | (14 | ) | (10,282 | ) | ||||
Options exercised | — | — | ||||||
Balance at December 31, 2015 | — | $ | — | |||||
176 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) |
Futures
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 Funds 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 Funds 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 segregated cash with broker on the Statements of Assets and Liabilities; securities held as collateral are noted on the Schedules of Investments.
The following table represents the Funds’ use and volume of futures for the year ended December 31, 2015:
Average Notional | |||||||||
Fund | Use | Long | Short | ||||||
Series A (StylePlus—Large Core Series) | Index Exposure | $ | 1,016,656 | $ | — | ||||
Series J (StylePlus—Mid Growth Series) | Index Exposure | 1,374,903 | — | ||||||
Series N (Managed Asset Allocation Series) | Index Exposure, Speculation | 23,878,694 | 703,714 | ||||||
Series X (StylePlus—Small Growth Series) | Index Exposure | 857,753 | — | ||||||
Series Y (StylePlus—Large Growth Series) | Index Exposure | 1,136,793 | — | ||||||
Swaps
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 or if the underlying asset declines in value. Certain standardized swaps are subject to mandatory central clearing. Central clearing generally reduces counterparty credit risk and increases liquidity, but central clearing does not make swap transactions risk-free. 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.
Total return swaps involve commitments where single or multiple cash flows are exchanged based on the price of an underlying reference asset (such as index or basket) or a fixed or variable interest rate. Index swaps will usually be computed based on the current index value as of the close of regular trading on the NYSE or other exchange, with the swap value being adjusted to include dividends accrued, financing charges and/or interest associated with the swap agreement. A fund utilizing a total return index swap 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 or if the underlying index declines in value.
The following table represents the Funds’ use and volume of total return swaps on a quarterly basis:
Average Notional | |||||||||
Fund | Use | Long | Short | ||||||
Series A (StylePlus—Large Core Series) | Index Exposure | $ | 187,434,558 | $ | — | ||||
Series J (StylePlus—Mid Growth Series) | Index Exposure | 131,575,960 | — | ||||||
Series M (Macro Opportunities Series) | Index Exposure, Speculation | 1,848,786 | 93,488 | ||||||
Series X (StylePlus—Small Growth Series) | Index Exposure | 30,682,402 | — | ||||||
Series Y (StylePlus—Large Growth Series) | Index Exposure | 30,621,847 | — | ||||||
Series Z (Alpha Opportunity Series) | Hedge, Leverage | 7,057,660 | 6,755,318 | ||||||
THE GUGGENHEIM FUNDS ANNUAL REPORT | 177 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) |
Interest rate swaps involve the exchange by the Funds with another party for its respective commitment to pay or receive interest on a notional amount of principal. Interest rate swaps are generally valued using the closing price from the prior day, subject to an adjustment for the current day’s spreads. Interest rate swaps are generally subject to mandatory central clearing, but central clearing does not make interest rate swap transactions risk free.
The following table represents the Fund’s use and volume of interest rate swaps on a quarterly basis:
Average Notional | |||||||||
Fund | Use | Long | Short | ||||||
Series M (Macro Opportunities Series) | Duration, Hedge | $ | 2,833,750 | $ | 6,879,166 | ||||
Currency swaps enable the Fund to gain exposure to currencies in a market without actually possessing a given currency, or to hedge a position. Currency swaps involve the exchange of the principal and interest in one currency for the principal and interest in another currency. As in other types of OTC swaps, the Fund may be at risk due to the counterparty’s inability to perform.
The following table represents the Fund’s use and volume of currency swaps on a quarterly basis:
Average Notional | |||||||||
Fund | Use | Long | Short | ||||||
Series M (Macro Opportunities Series) | Hedge | $ | 754,250 | $ | — | ||||
Forward Foreign Currency Exchange Contracts
A forward foreign currency exchange contract is an agreement between two parties to exchange two designated currencies at a specific time in the future. Certain types of forward foreign currency exchange contracts may be cash settled, in an amount equal to the change in exchange rates during the term of the contract. The contracts can be used to hedge or manage exposure to foreign currency risks with portfolio investments or to gain exposure to foreign currencies.
The market value of a forward foreign currency exchange contract changes with fluctuations in foreign currency exchange rates. Furthermore, the Funds may be exposed to risk if the counterparties cannot meet the contract terms or if the currency value changes unfavorably as compared to the U.S. dollar.
The following table represents the Funds’ use and volume of forward currency exchange contracts on a quarterly basis:
Average Settlement | |||||||||
Fund | Use | Purchased | Sold | ||||||
Series M (Macro Opportunities Series) | Hedge, Speculation | $ | 747,919 | $ | 72,554 | ||||
Series P (High Yield Series) | Hedge | 6,349,080 | 92,059 | ||||||
Derivative Investment Holdings Categorized by Risk Exposure
The following is a summary of the location of derivative investments on the Funds’ Statements of Assets and Liabilities as of December 31, 2015:
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 |
Equity/Currency/Commodity contracts | Investments, at value | Options written, at value |
178 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) |
The following table sets forth the fair value of the Funds’ derivative investments categorized by primary risk exposure at December 31, 2015:
Asset Derivative Investments Value | ||||||||||||||||||||||||||||||||||||||||
Fund | Futures Equity Contracts* | Swaps Equity Contracts | Futures Currency Contracts* | Swaps Currency Contracts | Swaps Interest Rate Contracts | Currency Options Purchased | Equity Options Purchased | Commodity Options Purchased | Forward Foreign Currency Exchange Contracts | Total Value at December 31, 2015 | ||||||||||||||||||||||||||||||
Series M (Macro Opportunities Series) | $ | — | $ | — | $ | — | $ | 10,243 | $ | 3,238 | $ | 47,611 | $ | 30,550 | $ | 12,927 | $ | 9,277 | $ | 113,846 | ||||||||||||||||||||
Series N (Managed Asset Allocation Series) | 17,969 | — | 733 | — | — | — | — | — | — | 18,702 | ||||||||||||||||||||||||||||||
Series P (High Yield Series) | — | — | — | — | — | — | — | — | 30,426 | 30,426 | ||||||||||||||||||||||||||||||
Series X (StylePlus—Small Growth Series) | 22,806 | — | — | — | — | — | — | — | — | 22,806 | ||||||||||||||||||||||||||||||
Series Y (StylePlus—Large Growth Series) | 15,047 | — | — | — | — | — | — | — | — | 15,047 | ||||||||||||||||||||||||||||||
Series Z (Alpha Opportunity Series) | — | 34,711 | — | — | — | — | — | — | — | 34,711 | ||||||||||||||||||||||||||||||
Liability Derivative Investments Value | ||||||||||||||||||||||||||||||||
Fund | Futures Equity Contracts* | Swaps Equity Contracts | Futures Currency Contracts* | Futures Interest Rate Contracts* | Swaps Interest Rate Contracts | Commodity Options Written | Forward Foreign Currency Exchange Contracts | Total Value at December 31, 2015 | ||||||||||||||||||||||||
Series A (StylePlus—Large Core Series) | $ | 4,381 | $ | 2,983,652 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 2,988,033 | ||||||||||||||||
Series J (StylePlus—Mid Growth Series) | 8,346 | 2,767,326 | — | — | — | — | — | 2,775,672 | ||||||||||||||||||||||||
Series M (Macro Opportunities Series) | — | 270,719 | — | — | 25,264 | 3,999 | — | 299,982 | ||||||||||||||||||||||||
Series N (Managed Asset Allocation Series) | 26,020 | — | 13,730 | 32,201 | — | — | — | 71,951 | ||||||||||||||||||||||||
Series P (High Yield Series) | — | — | — | — | — | — | 3,812 | 3,812 | ||||||||||||||||||||||||
Series X (StylePlus—Small Growth Series) | — | 1,499,935 | — | — | — | — | — | 1,499,935 | ||||||||||||||||||||||||
Series Y (StylePlus—Large Growth Series) | 435 | 553,175 | — | — | — | — | — | 553,610 | ||||||||||||||||||||||||
Series Z (Alpha Opportunity Series) | — | 275,115 | — | — | — | — | — | 275,115 | ||||||||||||||||||||||||
* | 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, 2015:
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/Currency/Commodity 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 |
THE GUGGENHEIM FUNDS ANNUAL REPORT | 179 |
NOTES TO CONSOLIDATED 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, 2015:
Realized Gain (Loss) on Derivative Investments Recognized on the Statements of Operations | ||||||||||||||||||||||||||||||||||||||||||||
Fund | Futures | Swaps | Futures | Swaps Currency Contracts | Futures | Swaps | Currency Options Purchased | Equity Options Purchased | Equity Options Written | Forward Foreign Currency Exchange Contracts | Total | |||||||||||||||||||||||||||||||||
Series A (StylePlus—Large Core Series) | $ | 16,027 | $ | 5,883,820 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 4,606 | $ | — | $ | — | $ | 5,904,453 | ||||||||||||||||||||||
Series E (Total Return Bond Series) | — | — | — | — | — | — | — | (457,050 | ) | 196,572 | — | (260,478 | ) | |||||||||||||||||||||||||||||||
Series J (StylePlus—Mid Growth Series) | 151,954 | 3,605,296 | — | — | — | — | — | — | — | — | 3,757,250 | |||||||||||||||||||||||||||||||||
Series M (Macro Opportunities Series) | — | 124,412 | — | 55,503 | — | 2,603 | (34,418 | ) | (200,962 | ) | 81,774 | 212,440 | 241,352 | |||||||||||||||||||||||||||||||
Series N (Managed Asset Allocation Series) | 87,149 | — | 4,905 | — | 192,057 | — | — | — | — | — | 284,111 | |||||||||||||||||||||||||||||||||
Series P (High Yield Series) | — | — | — | — | — | — | — | — | — | 845,672 | 845,672 | |||||||||||||||||||||||||||||||||
Series X (StylePlus—Small Growth Series) | (119,956 | ) | 2,745,220 | — | — | — | — | — | — | — | — | 2,625,264 | ||||||||||||||||||||||||||||||||
Series Y (StylePlus—Large Growth Series) | 17,809 | 2,098,760 | — | — | — | — | — | — | — | — | 2,116,569 | |||||||||||||||||||||||||||||||||
Series Z (Alpha Opportunity Series) | 62,412 | (162,194 | ) | — | — | — | — | — | — | — | — | (99,782 | ) | |||||||||||||||||||||||||||||||
Change in Unrealized Appreciation (Depreciation) on Derivative Investments Recognized on the Statements of Operations | ||||||||||||||||||||||||||||||||||||||||||||||||
Fund | Futures | Swaps | Futures | Swaps Currency Contracts | Futures | Swaps | Currency Options Purchased | Equity Options Purchased | Commodity Options Purchased | Commodity Options Written | Forward Foreign Currency Exchange Contracts | Total | ||||||||||||||||||||||||||||||||||||
Series A (StylePlus—Large Core Series) | $ | 4,151 | $ | (3,637,907 | ) | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | (3,633,756 | ) | ||||||||||||||||||||||
Series J (StylePlus—Mid Growth Series) | (8,346 | ) | (4,074,805 | ) | — | — | — | — | — | — | — | — | — | (4,083,151 | ) | |||||||||||||||||||||||||||||||||
Series M (Macro Opportunities Series) | — | (519,535 | ) | — | (3,995 | ) | — | 22,682 | (17,448 | ) | (9,986 | ) | (41,943 | ) | 17,298 | (140,638 | ) | (693,565 | ) | |||||||||||||||||||||||||||||
Series N (Managed Asset Allocation Series) | (51,313 | ) | — | (27,386 | ) | — | (55,466 | ) | — | — | — | — | — | — | (134,165 | ) | ||||||||||||||||||||||||||||||||
Series P (High Yield Series) | — | — | — | — | — | — | — | — | — | — | (108,012 | ) | (108,012 | ) | ||||||||||||||||||||||||||||||||||
Series X (StylePlus—Small Growth Series) | 22,029 | (2,872,500 | ) | — | — | — | — | — | — | — | — | — | (2,850,471 | ) | ||||||||||||||||||||||||||||||||||
Series Y (StylePlus—Large Growth Series) | 24,977 | (539,632 | ) | — | — | — | — | — | — | — | — | — | (514,655 | ) | ||||||||||||||||||||||||||||||||||
Series Z (Alpha Opportunity Series) | (117,204 | ) | (390,411 | ) | — | — | — | — | — | — | — | — | — | (507,615 | ) | |||||||||||||||||||||||||||||||||
In conjunction with the use of short sales and 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.
There are several risks associated with exposure to foreign currencies, foreign issuers and emerging markets. A Fund’s indirect and direct exposure to foreign currencies subjects the Fund to the risk that those currencies will decline in value relative to the U.S. dollar, or, in the case of short positions, that the U.S. dollar will decline in value relative to the currency being hedged. Currency rates in foreign countries may fluctuate significantly over short periods of time for a number of reasons, including changes in interest rates and the imposition of currency controls or other political developments in the
180 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) |
U.S. or abroad. In addition, the Fund may incur transaction costs in connection with conversions between various currencies. The Fund may, but is not obligated to, engage in currency hedging transactions, which generally involve buying currency forward, options or futures contracts. However, not all currency risk may be effectively hedged, and in some cases the costs of hedging techniques may outweigh expected benefits. In such instances, the value of securities denominated in foreign currencies can change significantly when foreign currencies strengthen or weaken relative to the U.S. dollar.
Certain Funds may invest in securities of foreign companies directly, or in financial instruments, such as ADRs and exchange-traded funds, which are indirectly linked to the performance of foreign issuers. Foreign markets can be more volatile than the U.S. market due to increased risks of adverse issuer, political, regulatory, market, or economic developments and can perform differently from the U.S. market. Investing in securities of foreign companies directly, or in financial instruments that are indirectly linked to the performance of foreign issuers, may involve risks not typically associated with investing in U.S. issuers. The value of securities denominated in foreign currencies, and of dividends from such securities, can change significantly when foreign currencies strengthen or weaken relative to the U.S. dollar. Foreign securities markets generally have less trading volume and less liquidity than U.S. markets, and prices in some foreign markets may fluctuate more than those of securities traded on U.S. markets. Many foreign countries lack accounting and disclosure standards comparable to those that apply to U.S. companies, and it may be more difficult to obtain reliable information regarding a foreign issuer’s financial condition and operations. Transaction costs and costs associated with custody services are generally higher for foreign securities than they are for U.S. securities. Some foreign governments levy withholding taxes against dividend and interest income. Although in some countries portions of these taxes are recoverable, the non-recovered portion will reduce the income received by the 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.
3. Fees and Other Transactions with Affiliates
Under the terms of an investment advisory contract, the Funds pay GI investment advisory fees calculated at their annualized rates below, based on the average daily net assets of the Funds:
Fund | Management Fees |
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% |
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. |
THE GUGGENHEIM FUNDS ANNUAL REPORT | 181 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) |
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/ |
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 0.150% 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 0.150% 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) | 0.095%* |
Minimum annual charge per Fund | $25,000 |
Certain out-of-pocket charges | Varies |
* | Fee was reduced from 0.150% to 0.095% effective 01/26/15. |
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.
182 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) |
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:
Fund | Limit | Effective | Contract |
Series C (Money Market Series) | 0.50% | 08/22/12 | 05/01/17 |
Series E (Total Return Bond Series) | 0.81% | 11/30/12 | 05/01/17 |
Series F (Floating Rate Strategies Series) | 1.15% | 04/22/13 | 05/01/17 |
Series M (Macro Opportunities Series) | 1.45% | 04/22/13 | 05/01/17 |
Series O (All Cap Value Series) | 1.00% | 11/30/12 | 05/01/17 |
Series P (High Yield Series) | 1.07% | 10/20/14 | 05/01/17 |
Series Z (Alpha Opportunity Series) | 2.35% | 11/30/12 | 05/01/17 |
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, 2015, the amount of fees waived or expenses reimbursed that are subject to recoupment are presented in the following table:
Fund | Expires | Expires | Expires | Total | ||||||||||||
Series C (Money Market Series) | $ | 54,066 | $ | 179,834 | $ | 151,437 | $ | 385,337 | ||||||||
Series E (Total Return Bond Series) | 208,040 | 189,173 | 220,171 | 617,384 | ||||||||||||
Series F (Floating Rate Strategies Series) | 48,535 | 36,089 | 52,144 | 136,768 | ||||||||||||
Series M (Macro Opportunities Series) | 55,226 | 46,763 | 59,856 | 161,845 | ||||||||||||
Series O (All Cap Value Series) | — | 3,380 | 375 | 3,755 | ||||||||||||
Series P (High Yield Series) | — | 14,814 | 30,918 | 45,732 | ||||||||||||
Series Z (Alpha Opportunity Series) | 98,175 | 59,680 | 11,875 | 169,730 | ||||||||||||
For the year ended December 31, 2015, 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, if any, in effect for the investing Fund. Fees waived under this arrangement are not subject to reimbursement to GI. For the year ended December 31, 2015, the following Funds waived advisory fees related to investments in affiliated funds.
Fund | Amount | |||
Series E (Total Return Bond Series) | $ | 33,252 | ||
Series M (Macro Opportunities Series) | 50,090 | |||
Certain trustees and officers of the Trust are also officers of GI, RFS and GFD.
THE GUGGENHEIM FUNDS ANNUAL REPORT | 183 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) |
At December 31, 2015, GI and its affiliates owned over twenty percent of the outstanding owned 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) | 100% |
Series D (World Equity Income Series) | 99% |
Series E (Total Return Bond Series) | 75% |
Series F (Floating Rate Strategies Series) | 38% |
Series J (StylePlus—Mid Growth Series) | 99% |
Series M (Macro Opportunities Series) | 86% |
Series N (Managed Asset Allocation Series) | 99% |
Series O (All Cap Value Series) | 99% |
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:
| 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 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.
184 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) |
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 | Ending Balance at 12/31/15 | Valuation | Unobservable Inputs |
Series E (Total Return Bond Series) | Corporate Bonds | $1,242,187 | Option Adjusted Spread off the prior month end broker mark over the 3 month LIBOR | Indicative Quote |
| 727,056 | Monthly Model Priced | Purchase Price | |
Total Corporate Bonds | 1,969,243 | |||
Preferred Stock | 643,284 | Option Adjusted Spread off the prior month end broker mark over the 3 month LIBOR | Indicative Quote | |
Collateralized Mortgage Obligations | 237,977 | Option Adjusted Spread off the prior month end broker mark over the 3 month LIBOR | Indicative Quote | |
|
|
|
|
|
Series F (Floating Rate Strategies Series) | Senior Floating Rate Interests | 704,352 | Monthly Model Priced | Purchase Price |
|
|
|
|
|
Series M (Macro Opportunities Series) | Corporate Bonds | 202,395 | Option Adjusted Spread off the prior month end broker mark over the 3 month LIBOR | Indicative Quote |
Options Purchased | 47,611 | Monthly Model Priced | Purchase Price | |
|
|
|
|
|
Series P (High Yield Series) | Senior Floating Rate Interests | 4,071,121 | Monthly Model Priced | Purchase Price |
Corporate Bonds | 1,118,119 | Monthly Model Priced | Purchase Price | |
593,369 | Monthly Model Priced | Average Comparative Yield* | ||
| 393,594 | Option Adjusted Spread off the prior month end broker mark over the 3 month LIBOR | Indicative Quote | |
Total Corporate Bonds | 2,105,082 | |||
Common Stocks | 108 | Monthly Model Priced | Purchase Price |
* | Average comparative yields used ranged from 19.98%–33.97%. |
Significant changes in an indicative quote or valuation multiple would generally result in significant changes in the fair value of the security.
Any remaining Level 3 securities held by the Funds and excluded from the tables above, were not considered material to the Funds.
THE GUGGENHEIM FUNDS ANNUAL REPORT | 185 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) |
Summary of Fair Value Level 3 Activity
Following is a reconciliation of Level 3 assets for which significant unobservable inputs were used to determine fair value for the year ended December 31, 2015:
LEVEL 3 – Fair value measurement using significant unobservable inputs
Collateralized | Preferred | Corporate | Total | |||||||||||||
Series E (Total Return Bond Series) | ||||||||||||||||
Assets: | ||||||||||||||||
Beginning Balance | $ | 1,234,897 | $ | 666,000 | $ | 1,995,917 | $ | 3,896,814 | ||||||||
Purchases | — | — | 507,844 | 507,844 | ||||||||||||
Sales, maturities and paydowns | (3,303 | ) | — | (1,201,570 | ) | (1,204,873 | ) | |||||||||
Total realized gains or losses included in earnings | — | — | (4,680 | ) | (4,680 | ) | ||||||||||
Total change in unrealized gains or losses and amortization included in earnings | (14,717 | ) | (22,716 | ) | (49,510 | ) | (86,943 | ) | ||||||||
Transfers into Level 3 | — | — | 711,882 | 711,882 | ||||||||||||
Transfers out of Level 3 | (978,900 | ) | — | — | (978,900 | ) | ||||||||||
Ending Balance | $ | 237,977 | $ | 643,284 | $ | 1,969,243 | $ | 2,850,504 | ||||||||
Net Change in unrealized appreciation (depreciation) for investments in securities still held at December 31, 2015 | $ | (15,028 | ) | $ | (22,716 | ) | $ | (19,450 | ) | $ | (57,195 | ) | ||||
Senior Floating Rate Interests | Total | |||||||
Series F (Floating Rate Strategies Series) | ||||||||
Assets: | ||||||||
Beginning Balance | $ | 798,535 | $ | 798,535 | ||||
Purchases | 533 | 533 | ||||||
Sales, maturities and paydowns | (97,210 | ) | (97,210 | ) | ||||
Total realized gains or losses included in earnings | — | — | ||||||
Total change in unrealized gains or losses included in earnings | 2,494 | 2,494 | ||||||
Transfers into Level 3 | — | — | ||||||
Transfers out of Level 3 | — | — | ||||||
Ending Balance | $ | 704,352 | $ | 704,352 | ||||
Net Change in unrealized appreciation (depreciation) for investments in securities still held at December 31, 2015 | $ | (1,600 | ) | $ | (1,600 | ) | ||
Options | Corporate | Total | ||||||||||
Series M (Macro Opportunities Series) | ||||||||||||
Assets: | ||||||||||||
Beginning Balance | $ | — | $ | 203,790 | $ | 203,790 | ||||||
Purchases | 65,059 | — | 65,059 | |||||||||
Sales, maturities and paydowns | — | — | — | |||||||||
Total realized gains or losses included in earnings | — | — | — | |||||||||
Total change in unrealized gains or losses included in earnings | (17,448 | ) | (1,395 | ) | (18,843 | ) | ||||||
Transfers into Level 3 | — | — | — | |||||||||
Transfers out of Level 3 | — | — | — | |||||||||
Ending Balance | $ | 47,611 | $ | 202,395 | $ | 250,006 | ||||||
Net Change in unrealized appreciation (depreciation) for investments in securities still held at December 31, 2015 | $ | (17,448 | ) | $ | (1,395 | ) | $ | (18,843 | ) | |||
186 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) |
Senior Floating Rate Interests | Common | Corporate | Total | |||||||||||||
Series P (High Yield Series) | ||||||||||||||||
Assets: | ||||||||||||||||
Beginning Balance | $ | 4,010,844 | $ | 54 | $ | 1,510,515 | $ | 5,521,413 | ||||||||
Purchases | 1,192,216 | — | 1,148,508 | 2,340,724 | ||||||||||||
Sales, maturities and paydowns | (640,551 | ) | — | (16,250 | ) | (656,801 | ) | |||||||||
Total realized gains or losses included in earnings | (64,816 | ) | — | — | (64,816 | ) | ||||||||||
Total change in unrealized gains or losses and amortization included in earnings | (87,921 | ) | (34,761 | ) | (537,691 | ) | (660,373 | ) | ||||||||
Transfers into Level 3 | — | 34,815 | — | 34,815 | ||||||||||||
Transfers out of Level 3 | (338,651 | ) | — | — | (338,651 | ) | ||||||||||
Ending Balance | $ | 4,071,121 | $ | 108 | $ | 2,105,082 | $ | 6,176,311 | ||||||||
Net Change in unrealized appreciation (depreciation) for investments in securities still held at December 31, 2015 | $ | (169,394 | ) | $ | (34,761 | ) | $ | (552,384 | ) | $ | (756,539 | ) | ||||
5. 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.
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 Statements 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 GUGGENHEIM FUNDS ANNUAL REPORT | 187 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) |
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 | |||||||||||||||||||||||||
Fund | Instrument | Gross Amounts of Recognized Assets1 | Gross Amounts Offset In the Statements of | Net Amount of Liabilities Statements of Assets and Liabilities | Financial Instruments | Cash Collateral Pledged | Net Amount | ||||||||||||||||||
Series M (Macro Opportunities Series) | Forward foreign currency exchange contracts | $ | 9,277 | $ | — | $ | 9,277 | $ | 9,277 | $ | — | $ | — | ||||||||||||
Option contracts | 91,088 | — | 91,088 | 38,478 | — | 52,610 | |||||||||||||||||||
Swap agreements | 10,243 | — | 10,243 | 10,243 | — | — | |||||||||||||||||||
Series P (High Yield Series) | Forward foreign currency exchange contracts | 30,426 | — | 30,426 | 3,812 | — | 26,614 | ||||||||||||||||||
Series Z (Alpha Opportunity Series) | Swap equity contracts | 34,711 | — | 34,711 | 34,711 | — | — | ||||||||||||||||||
Gross Amounts Not Offset | |||||||||||||||||||||||||
Fund | Instrument | Gross Amounts of Recognized Liabilities1 | Gross Amounts Offset In the Statements of | Net Amount of Liabilities Statements of Assets and Liabilities | Financial Instruments | Cash Collateral Pledged | Net Amount | ||||||||||||||||||
Series A (StylePlus—Large Core Series) | Swap equity contracts | $ | 2,983,652 | $ | — | $ | 2,983,652 | $ | — | $ | 2,456,308 | $ | 527,344 | ||||||||||||
Series J (StylePlus—Mid Growth Series) | Swap equity contracts | 2,767,326 | — | 2,767,326 | — | 975,000 | 1,792,326 | ||||||||||||||||||
Series M (Macro Opportunities Series) | Option contracts | 3,999 | — | 3,999 | 3,999 | — | — | ||||||||||||||||||
Swap agreements | 282,078 | — | 282,078 | 44,722 | 237,356 | — | |||||||||||||||||||
Series P (High Yield Series) | Forward foreign currency exchange contracts | 3,812 | — | 3,812 | 3,812 | — | — | ||||||||||||||||||
Series X (StylePlus—Small Growth Series) | Swap equity contracts | 1,499,935 | — | 1,499,935 | — | 1,250,000 | 249,935 | ||||||||||||||||||
Series Y (StylePlus—Large Growth Series) | Swap equity contracts | 553,175 | — | 553,175 | — | 25,000 | 528,175 | ||||||||||||||||||
Series Z (Alpha Opportunity Series) | Swap equity contracts | 275,115 | — | 275,115 | 34,711 | 240,404 | — | ||||||||||||||||||
1 | Exchange-traded futures and centrally cleared swap agreements are excluded from these reported amounts. |
6. 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.
188 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) |
Tax basis capital losses in excess of capital gains are carried forward to offset future net capital gains. For the year ended December 31, 2015, 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 C (Money Market Series) | 76 | |||
Series E (Total Return Bond Series) | 3,884 | |||
Series J (StylePlus—Mid Growth Series) | 5,795,514 | |||
Series N (Managed Asset Allocation Series) | 87,638 | |||
Series O (All Cap Value Series) | 3,643,659 | |||
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 | |||
The tax character of distributions paid during the year ended December 31, 2015 are as follows:
Fund | Ordinary | Long-Term | Total | |||||||||
Series A (StylePlus—Large Core Series) | $ | 20,903,046 | $ | 2,317,549 | $ | 23,220,595 | ||||||
Series B (Large Cap Value Series) | 2,928,952 | 37,933,710 | 40,862,662 | |||||||||
Series C (Money Market Series) | — | — | — | |||||||||
Series D (World Equity Income Series) | 5,474,029 | — | 5,474,029 | |||||||||
Series E (Total Return Bond Series) | 2,550,797 | — | 2,550,797 | |||||||||
Series F (Floating Rate Strategies Series) | 1,637,353 | 30,834 | 1,668,187 | |||||||||
Series J (StylePlus—Mid Growth Series) | 12,182,643 | 950,341 | 13,132,984 | |||||||||
Series M (Macro Opportunities Series) | 1,074,342 | — | 1,074,342 | |||||||||
Series N (Managed Asset Allocation Series) | 538,173 | — | 538,173 | |||||||||
Series O (All Cap Value Series) | 1,281,376 | 16,826,249 | 18,107,625 | |||||||||
Series P (High Yield Series) | 8,426,705 | 1,226,164 | 9,652,869 | |||||||||
Series Q (Small Cap Value Series) | 176,778 | 18,343,396 | 18,520,174 | |||||||||
Series V (Mid Cap Value Series) | 2,218,484 | 37,389,651 | 39,608,135 | |||||||||
Series X (StylePlus—Small Growth Series) | 304,934 | 109,624 | 414,558 | |||||||||
Series Y (StylePlus—Large Growth Series) | 2,811,784 | 257,395 | 3,069,179 | |||||||||
Series Z (Alpha Opportunity Series) | — | 4,910,631 | 4,910,631 | |||||||||
The tax character of distributions paid during the year ended December 31, 2014 are as follows:
Fund | Ordinary | Total | ||||||
Series D (World Equity Income Series) | $ | 7,072 | $ | 7,072 | ||||
Series O (All Cap Value Series) | 1,285 | 1,285 | ||||||
Series Q (Small Cap Value Series) | 12,486 | 12,486 | ||||||
Series V (Mid Cap Value Series) | 7,631 | 7,631 | ||||||
Note: For federal income tax purposes, short-term capital gain distributions are treated as ordinary income distributions.
THE GUGGENHEIM FUNDS ANNUAL REPORT | 189 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) |
The tax character of distributable earnings/(accumulated losses) at December 31, 2015 are as follows:
Fund | Undistributed | Undistributed | Net Unrealized | Capital Loss Carryforward | Other | |||||||||||||||
Series A (StylePlus—Large Core Series)* | $ | 1,895,539 | $ | 2,234,605 | $ | (3,278,233 | ) | $ | (17,504,622 | ) | $ | — | ||||||||
Series B (Large Cap Value Series)* | 4,162,931 | 3,230,690 | 23,788,921 | (13,375,734 | ) | — | ||||||||||||||
Series C (Money Market Series) | — | — | 910 | (75 | ) | — | ||||||||||||||
Series D (World Equity Income Series)* | 4,923,555 | — | (2,321,718 | ) | (54,590,290 | ) | — | |||||||||||||
Series E (Total Return Bond Series)* | 5,293,814 | — | (3,614,814 | ) | (7,576,212 | ) | — | |||||||||||||
Series F (Floating Rate Strategies Series) | 2,003,594 | 66,528 | (2,117,579 | ) | — | — | ||||||||||||||
Series J (StylePlus—Mid Growth Series)* | 1,027,576 | 862,235 | (3,901,170 | ) | (14,308,272 | ) | — | |||||||||||||
Series M (Macro Opportunities Series) | 1,079,420 | — | (1,032,128 | ) | (102,323 | ) | 30,685 | |||||||||||||
Series N (Managed Asset Allocation Series) | 633,385 | 1,011,391 | 6,181,779 | — | — | |||||||||||||||
Series O (All Cap Value Series) | 1,852,041 | 4,603,637 | 10,951,370 | — | — | |||||||||||||||
Series P (High Yield Series) | 6,102,500 | — | (11,709,868 | ) | (278,171 | ) | — | |||||||||||||
Series Q (Small Cap Value Series) | 206,735 | 7,760,874 | 1,000,767 | — | — | |||||||||||||||
Series V (Mid Cap Value Series) | 2,290,202 | 21,474,097 | (898,873 | ) | — | — | ||||||||||||||
Series X (StylePlus—Small Growth Series)* | 1,664,035 | 309,582 | (2,049,590 | ) | (2,910,997 | ) | — | |||||||||||||
Series Y (StylePlus—Large Growth Series)* | 1,069,061 | 528,876 | (510,738 | ) | (3,196,549 | ) | — | |||||||||||||
Series Z (Alpha Opportunity Series) | — | — | (818,549 | ) | (1,561,473 | ) | — | |||||||||||||
For Federal income tax purposes capital loss carryforwards represent realized losses 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. Pursuant to the RIC Modernization Act of 2010, the Fund is permitted to carryforward capital losses incurred in taxable years beginning after December 22, 2010 without expiration and retain their short and/or long-term character. However, post-enactment losses must be utilized prior to pre-enactment capital loss carryforwards. As a result of this ordering rule pre-enactment carryforwards are more likely to expire unused. As of December 31, 2015 capital loss carryforwards for the Funds were as follows:
Unlimited | ||||||||||||||||||||||||
Fund | Expires in | Expires in | Expires in | Short-Term | Long-Term | Total | ||||||||||||||||||
Series A (StylePlus—Large Core Series) | $ | — | $ | (17,504,622 | ) | $ | — | $ | — | $ | — | $ | (17,504,622 | )* | ||||||||||
Series B (Large Cap Value Series) | — | (13,375,734 | ) | — | — | — | (13,375,734 | )* | ||||||||||||||||
Series C (Money Market Series) | — | — | — | — | (75 | ) | (75 | ) | ||||||||||||||||
Series D (World Equity Income Series) | (37,118,185 | ) | (15,850,751 | ) | — | (1,621,354 | ) | — | (54,590,290 | )* | ||||||||||||||
Series E (Total Return Bond Series) | — | (7,216,056 | ) | (360,156 | ) | — | — | (7,576,212 | )* | |||||||||||||||
Series J (StylePlus—Mid Growth Series) | (2,293,354 | ) | (12,014,918 | ) | — | — | — | (14,308,272 | )* | |||||||||||||||
Series M (Macro Opportunities Series) | — | — | — | — | (102,323 | ) | (102,323 | ) | ||||||||||||||||
Series P (High Yield Series) | — | — | — | — | (278,171 | ) | (278,171 | ) | ||||||||||||||||
Series X (StylePlus—Small Growth Series) | (1,455,498 | ) | (1,455,499 | ) | — | — | — | (2,910,997 | )* | |||||||||||||||
Series Y (StylePlus—Large Growth Series) | (1,598,275 | ) | (1,598,274 | ) | — | — | — | (3,196,549 | )* | |||||||||||||||
Series Z (Alpha Opportunity Series) | (1,561,473 | ) | — | — | — | — | (1,561,473 | )* | ||||||||||||||||
* | 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 wash sales, mark-to-market of passive foreign investment companies, foreign currency gains and losses, paydown gains and losses, Real Estate Investment Trusts, return of capital distributions, swaps and net operating losses. Additional differences may result from the tax treatment of net investment losses and expired capital loss carryforwards. To the extent these differences are permanent, reclassifications are made to the appropriate equity accounts in the period that the differences arise. These reclassifications have no effect on net assets or NAV.
190 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) |
On the Statements of Assets and Liabilities the following adjustments were made for permanent book/tax differences:
Fund | Paid In | Undistributed | Accumulated | |||||||||
Series A (StylePlus—Large Core Series) | $ | — | $ | (8,278 | ) | $ | 8,278 | |||||
Series B (Large Cap Value Series) | (1 | ) | (20,174 | ) | 20,175 | |||||||
Series C (Money Market Series) | (218,891 | ) | 218,896 | (5 | ) | |||||||
Series D (World Equity Income Series) | — | (22,396 | ) | 22,396 | ||||||||
Series E (Total Return Bond Series) | (1 | ) | 34,271 | (34,270 | ) | |||||||
Series F (Floating Rate Strategies Series) | — | 21,166 | (21,166 | ) | ||||||||
Series J (StylePlus—Mid Growth Series) | — | 6,728 | (6,728 | ) | ||||||||
Series M (Macro Opportunities Series) | (47,982 | ) | 275,505 | (227,523 | ) | |||||||
Series N (Managed Asset Allocation Series) | (314,748 | ) | 313,428 | 1,320 | ||||||||
Series O (All Cap Value Series) | (1,454 | ) | 52,757 | (51,303 | ) | |||||||
Series P (High Yield Series) | (1 | ) | 617,491 | (617,490 | ) | |||||||
Series Q (Small Cap Value Series) | 2 | 79,838 | (79,840 | ) | ||||||||
Series V (Mid Cap Value Series) | (9,891 | ) | 69,841 | (59,950 | ) | |||||||
Series X (StylePlus—Small Growth Series) | (1 | ) | 1,780 | (1,779 | ) | |||||||
Series Y (StylePlus—Large Growth Series) | — | 2,449 | (2,449 | ) | ||||||||
Series Z (Alpha Opportunity Series) | (569,858 | ) | 522,984 | 46,874 | ||||||||
At December 31, 2015, 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 | Tax | Tax | Net Tax | ||||||||||||
Series A (StylePlus—Large Core Series) | $ | 218,484,636 | $ | 1,716,072 | $ | (2,010,654 | ) | $ | (294,582 | ) | ||||||
Series B (Large Cap Value Series) | 209,570,126 | 41,214,728 | (17,425,807 | ) | 23,788,921 | |||||||||||
Series C (Money Market Series) | 67,699,680 | 2,529 | (1,619 | ) | 910 | |||||||||||
Series D (World Equity Income Series) | 159,792,138 | 7,829,414 | (10,111,328 | ) | (2,281,914 | ) | ||||||||||
Series E (Total Return Bond Series) | 121,211,036 | 1,838,230 | (5,453,044 | ) | (3,614,814 | ) | ||||||||||
Series F (Floating Rate Strategies Series) | 50,125,874 | 127,813 | (2,245,392 | ) | (2,117,579 | ) | ||||||||||
Series J (StylePlus—Mid Growth Series) | 150,199,167 | 839,849 | (1,973,693 | ) | (1,133,844 | ) | ||||||||||
Series M (Macro Opportunities Series) | 36,239,255 | 216,203 | (1,233,480 | ) | (1,017,277 | ) | ||||||||||
Series N (Managed Asset Allocation Series) | 45,955,256 | 6,741,343 | (569,436 | ) | 6,171,907 | |||||||||||
Series O (All Cap Value Series) | 109,268,105 | 19,862,714 | (8,911,344 | ) | 10,951,370 | |||||||||||
Series P (High Yield Series) | 86,647,339 | 848,223 | (12,757,246 | ) | (11,909,023 | ) | ||||||||||
Series Q (Small Cap Value Series) | 88,853,817 | 11,518,558 | (10,517,791 | ) | 1,000,767 | |||||||||||
Series V (Mid Cap Value Series) | 208,751,617 | 23,098,352 | (23,997,225 | ) | (898,873 | ) | ||||||||||
Series X (StylePlus—Small Growth Series) | 39,378,726 | 293,537 | (843,192 | ) | (549,655 | ) | ||||||||||
Series Y (StylePlus—Large Growth Series) | 40,382,330 | 328,570 | (286,133 | ) | 42,437 | |||||||||||
Series Z (Alpha Opportunity Series) | 12,146,146 | 224,833 | (978,837 | ) | (754,004 | ) | ||||||||||
THE GUGGENHEIM FUNDS ANNUAL REPORT | 191 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) |
7. Securities Transactions
For the year ended December 31, 2015, 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) | $ | 143,994,961 | $ | 163,282,820 | ||||
Series B (Large Cap Value Series) | 95,521,497 | 116,963,072 | ||||||
Series D (World Equity Income Series) | 184,799,023 | 198,897,045 | ||||||
Series E (Total Return Bond Series) | 62,665,838 | 78,746,653 | ||||||
Series F (Floating Rate Strategies Series) | 36,534,553 | 35,613,464 | ||||||
Series J (StylePlus—Mid Growth Series) | 106,290,852 | 118,242,361 | ||||||
Series M (Macro Opportunities Series) | 20,269,347 | 17,916,874 | ||||||
Series N (Managed Asset Allocation Series) | 1,470,900 | 7,159,419 | ||||||
Series O (All Cap Value Series) | 50,611,776 | 67,237,141 | ||||||
Series P (High Yield Series) | 91,363,008 | 96,923,185 | ||||||
Series Q (Small Cap Value Series) | 56,596,423 | 77,488,275 | ||||||
Series V (Mid Cap Value Series) | 115,305,934 | 156,202,056 | ||||||
Series X (StylePlus—Small Growth Series) | 31,442,969 | 28,370,946 | ||||||
Series Y (StylePlus—Large Growth Series) | 26,889,542 | 23,374,790 | ||||||
Series Z (Alpha Opportunity Series) | 91,289,261 | 85,023,171 | ||||||
For the year ended December 31, 2015, the cost of purchases and proceeds from the sales of government securities were as follows:
Fund | Purchases | Sales | ||||||
Series E (Total Return Bond Series) | $ | 33,201,139 | $ | 28,378,693 | ||||
8. Affiliated 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, 2015 is available publicly or upon request. This information is available from the EDGAR database on the SEC’s website at http://www.sec.gov/Archives/edgar/data/1601445/000089180415000857/gug63224-ncsr.htm.
Transactions during the year ended December 31, 2015 in which the portfolio company is an “affiliated person” are as follows:
Affiliated issuers by Fund | Value | Additions | Reductions | Value | Shares | Investment | Realized | |||||||||||||||||||||
Series A (StylePlus—Large Core Series) | ||||||||||||||||||||||||||||
Guggenheim Strategy Fund I | $ | 41,551,695 | $ | 17,126,264 | $ | (25,400,000 | ) | $ | 33,290,070 | 1,338,563 | $ | 467,702 | $ | (88,049 | ) | |||||||||||||
Guggenheim Strategy Fund II | 18,045,743 | 35,862,335 | — | 53,725,999 | 2,166,371 | 728,035 | — | |||||||||||||||||||||
Guggenheim Strategy Fund III | 12,011,805 | 19,386,167 | — | 31,299,067 | 1,262,059 | 362,487 | — | |||||||||||||||||||||
Guggenheim Variable Insurance Strategy Fund III | 55,514,847 | 1,230,618 | — | 56,599,406 | 2,280,395 | 1,126,466 | — | |||||||||||||||||||||
$ | 127,124,090 | $ | 73,605,384 | $ | (25,400,000 | ) | $ | 174,914,542 | $ | 2,684,690 | $ | (88,049 | ) | |||||||||||||||
192 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) |
Affiliated issuers by Fund | Value | Additions | Reductions | Value | Shares | Investment | Realized | |||||||||||||||||||||
Series E (Total Return Bond Series) | ||||||||||||||||||||||||||||
Guggenheim Strategy Fund I | $ | — | $ | 2,765,216 | $ | (2,764,001 | ) | $ | — | — | $ | 15,216 | $ | (1,214 | ) | |||||||||||||
Floating Rate Strategies Fund - Institutional Class | — | 3,278,203 | — | 3,209,978 | 127,128 | 27,282 | — | |||||||||||||||||||||
Guggenheim BulletShares 2019 High Yield Corporate Bond ETF | — | 2,000,836 | — | 1,923,026 | 84,603 | 8,384 | — | |||||||||||||||||||||
Limited Duration Fund - Institutional Class | — | 5,060,590 | — | 4,993,596 | 204,404 | 59,249 | — | |||||||||||||||||||||
Total Return Bond Fund - Institutional Class | 12,126,325 | 10,234,819 | (12,241,282 | ) | 9,977,489 | 382,426 | 187,331 | (1,070 | ) | |||||||||||||||||||
$ | 12,126,325 | $ | 23,339,664 | $ | (15,005,283 | ) | $ | 20,104,089 | $ | 297,462 | $ | (2,284 | ) | |||||||||||||||
Series J (StylePlus—Mid Growth Series) | ||||||||||||||||||||||||||||
Guggenheim Strategy Fund I | $ | 26,908,165 | $ | 17,797,937 | $ | (17,100,000 | ) | $ | 27,663,301 | 1,112,316 | $ | 348,456 | $ | (30,406 | ) | |||||||||||||
Guggenheim Strategy Fund II | 13,035,663 | 22,077,303 | — | 35,011,598 | 1,411,758 | 472,532 | — | |||||||||||||||||||||
Guggenheim Strategy Fund III | 9,259,798 | 9,779,206 | — | 18,984,975 | 765,523 | 275,979 | — | |||||||||||||||||||||
Guggenheim Variable Insurance Strategy Fund III | 37,694,577 | 769,414 | — | 38,430,993 | 1,548,388 | 764,870 | — | |||||||||||||||||||||
$ | 86,898,203 | $ | 50,423,860 | $ | (17,100,000 | ) | $ | 120,090,867 | $ | 1,861,837 | $ | (30,406 | ) | |||||||||||||||
Series M (Macro Opportunities Series) | ||||||||||||||||||||||||||||
Floating Rate Strategies Fund - Institutional Class | $ | — | $ | 1,523,449 | $ | — | $ | 1,477,079 | 58,498 | $ | 23,025 | $ | — | |||||||||||||||
Guggenheim BulletShares 2019 High Yield Corporate Bond ETF | — | 1,000,406 | — | 961,502 | 42,301 | 4,192 | — | |||||||||||||||||||||
Limited Duration Fund - Institutional Class | 5,512,035 | 4,947,512 | (2,300,000 | ) | 8,024,510 | 328,469 | 236,459 | (23,662 | ) | |||||||||||||||||||
Guggenheim Strategy Fund I | — | 2,009,556 | (1,000,000 | ) | 1,005,937 | 40,448 | 9,539 | (2,010 | ) | |||||||||||||||||||
Guggenheim Strategy Fund II | — | 2,501,658 | (2,501,256 | ) | — | — | 1,829 | (402 | ) | |||||||||||||||||||
Macro Opportunities Fund - Institutional Class | 1,511,390 | 342,469 | — | 1,735,917 | 68,913 | 85,859 | — | |||||||||||||||||||||
$ | 7,023,425 | $ | 12,325,050 | $ | (5,801,256 | ) | $ | 13,204,945 | $ | 360,903 | $ | (26,074 | ) | |||||||||||||||
Series N (Managed Asset Allocation Series) | ||||||||||||||||||||||||||||
Guggenheim Strategy Fund I | $ | 1,407,023 | $ | 16,501 | $ | — | $ | 1,424,053 | 57,260 | $ | 15,365 | $ | — | |||||||||||||||
Guggenheim Strategy Fund II | 3,113,649 | 31,460 | (1,500,000 | ) | 1,641,155 | 66,176 | 29,509 | (6,637 | ) | |||||||||||||||||||
Guggenheim Strategy Fund III | 1,124,222 | 523,486 | — | 1,646,124 | 66,376 | 24,618 | — | |||||||||||||||||||||
Guggenheim Variable Insurance Strategy Fund III | 12,480,958 | 248,533 | (500,000 | ) | 12,223,431 | 492,483 | 249,566 | (802 | ) | |||||||||||||||||||
$ | 18,125,852 | $ | 819,980 | $ | (2,000,000 | ) | $ | 16,934,763 | $ | 319,058 | $ | (7,439 | ) | |||||||||||||||
Series V (Mid Cap Value Series) | ||||||||||||||||||||||||||||
HydroGen Corp. | $ | 1 | $ | — | $ | — | $ | 1 | 672,346 | $ | — | $ | — | |||||||||||||||
Series X (StylePlus—Small Growth Series) | ||||||||||||||||||||||||||||
Guggenheim Strategy Fund I | $ | 5,862,616 | $ | 6,734,380 | $ | (4,800,000 | ) | $ | 7,807,121 | 313,917 | $ | 84,465 | $ | (3,083 | ) | |||||||||||||
Guggenheim Strategy Fund II | 2,704,956 | 4,195,104 | — | 6,880,775 | 277,451 | 94,172 | — | |||||||||||||||||||||
Guggenheim Strategy Fund III | 700,390 | 7,328,149 | — | 8,000,373 | 322,596 | 76,727 | — | |||||||||||||||||||||
Guggenheim Variable Insurance Strategy Fund III | 8,537,623 | 678,561 | — | 9,206,097 | 370,914 | 177,448 | — | |||||||||||||||||||||
$ | 17,805,585 | $ | 18,936,194 | $ | (4,800,000 | ) | $ | 31,894,366 | $ | 432,812 | $ | (3,083 | ) | |||||||||||||||
Series Y (StylePlus—Large Growth Series) | ||||||||||||||||||||||||||||
Guggenheim Strategy Fund I | $ | 6,012,202 | $ | 4,662,514 | $ | (1,900,000 | ) | $ | 8,784,283 | 353,208 | $ | 87,587 | $ | (7,631 | ) | |||||||||||||
Guggenheim Strategy Fund II | 3,005,980 | 4,606,503 | — | 7,592,273 | 306,140 | 105,475 | — | |||||||||||||||||||||
Guggenheim Strategy Fund III | 1,653,440 | 6,771,750 | — | 8,400,709 | 338,738 | 70,276 | — | |||||||||||||||||||||
Guggenheim Variable Insurance Strategy Fund III | 8,034,473 | 163,998 | — | 8,191,438 | 330,034 | 163,029 | — | |||||||||||||||||||||
$ | 18,706,095 | $ | 16,204,765 | $ | (1,900,000 | ) | $ | 32,968,703 | $ | 426,367 | $ | (7,631 | ) | |||||||||||||||
THE GUGGENHEIM FUNDS ANNUAL REPORT | 193 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) |
9. Loan Commitments
Pursuant to the terms of certain loan agreements, certain Funds held unfunded loan commitments as of December 31, 2015. The Funds are obligated to fund these loan commitments at the borrower’s discretion.
The unfunded loan commitments as of December 31, 2015, were as follows:
Borrower | Maturity Date | Face Amount | Value | ||||||
Series P (High Yield Series) | |||||||||
Acosta, Inc. | 9/26/2019 | $ | 1,000,000 | $ | 99,468 | ||||
Advantage Sales & Marketing, Inc. | 7/25/2019 | 900,000 | 82,716 | ||||||
BBB Industries, LLC | 11/4/2019 | 249,107 | 26,632 | ||||||
Deltek, Inc. | 6/25/2020 | 450,000 | 50,246 | ||||||
Epicor Software | 6/1/2020 | 600,000 | 65,999 | ||||||
Eyemart Express | 12/18/2019 | 400,000 | 38,486 | ||||||
Lincoln Finance Ltd. | 1/11/2016 | 900,000 | — | ||||||
McGraw-Hill Global Education Holdings LLC | 3/22/2018 | 1,000,000 | 60,355 | ||||||
Signode Industrial Group US, Inc. | 5/1/2019 | 1,600,000 | 132,914 | ||||||
$ | 7,099,107 | $ | 556,816 | ||||||
10. Line of Credit
The Trust secured a committed $800,000,000 line of credit from Citibank, N.A. with no set termination date for all the Funds, except Series C (Money Market Series) and Series Z (Alpha Opportunity Series) Funds. 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 Citibank’s “base rate”, LIBOR plus 1% or the Fed Funds Rate, plus ½ of 1%. The Funds also pay a commitment fee at an annualized rate of 0.15% of the average daily amount of their unused commitment amount. The Funds did not have any borrowings outstanding under this agreement at or during the year ended December 31, 2015.
In addition, Series E (Total Return Bond Series), Series F (Floating Rate Strategies Series) and Series M (Macro Opportunities Series) (the “Funds”) entered into an additional unlimited credit facility agreement with BNP Paribas Prime Brokerage, Inc. (the “counterparty”) whereby the counterparty has agreed to provide secured financing to the Funds and the Funds will provide pledged collateral to the counterparty. Fees related to borrowings, if any, equate to LIBOR plus 1%. The maximum amount outstanding during the year ended December 31, 2015 was $500,000 for Series E (Total Return Bond Series), and $0 for both Series F (Floating Rate Strategies Series) and Series M (Macro Opportunities Series). The Funds did not have any borrowings under this agreement at December 31, 2015.
11. 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, 2015.
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, 2015 was $18,615 for Series A (StylePlus—Large Core Series) and $205,716 for Series V (Mid Cap Value Series) and included in payable for miscellaneous in the Statements of Assets and Liabilities.
194 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) |
12. 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, 2015, the following Funds entered into reverse repurchase agreements:
Fund | Number of Days Outstanding | Balance at | Average Balance Outstanding | Average | ||||||||||||
Series E (Total Return Bond Series) | 365 | $ | 5,921,955 | $ | 6,931,089 | 0.52 | % | |||||||||
Series M (Macro Opportunities Series) | 345 | 615,711 | 565,208 | 0.74 | % | |||||||||||
Series P (High Yield Series) | 365 | 8,121,057 | 9,555,108 | 0.52 | % | |||||||||||
The following table presents reverse repurchase agreements that are subject to netting arrangements and offset in the Statements of Assets of Liabilities in conformity with U.S. GAAP.
Gross Amounts Not Offset | |||||||||||||||||||||||||
Fund | Instrument | Gross Amounts of Recognized Liabilities | Gross Amounts Offset In the Statements of Assets and Liabilities | Net Amount of Liabilities Statements of Assets and Liabilities | Financial Instruments | Cash Collateral Pledged | Net Amount | ||||||||||||||||||
Series E (Total Return Bond Series) | Reverse repurchase agreements | $ | 5,921,955 | $ | — | $ | 5,921,955 | $ | 5,921,955 | $ | — | $ | — | ||||||||||||
Series M (Macro Opportunities Series) | Reverse repurchase agreements | 615,711 | — | 615,711 | 615,711 | — | — | ||||||||||||||||||
Series P ( High Yield Series) | Reverse repurchase agreements | 8,121,057 | — | 8,121,057 | 8,121,057 | — | — | ||||||||||||||||||
The following is a summary of the remaining contractual maturities of the reverse repurchase agreements outstanding as of year-end, aggregated by asset class of the related collateral pledged by the Funds:
Fund | Overnight and Continuous | Up to | 31-90 | Great than 90 days | Total | |||||||||||||||
Series E (Total Return Bond Series) | ||||||||||||||||||||
U.S. Government Securities | $ | — | $ | 5,102,955 | $ | — | $ | — | $ | 5,102,955 | ||||||||||
Corporate Bonds | — | 819,000 | — | — | 819,000 | |||||||||||||||
Gross amount of recognized liabilities for reverse repurchase agreements | $ | — | $ | 5,921,955 | $ | — | $ | — | $ | 5,921,955 | ||||||||||
Series M (Macro Opportunity Series) | ||||||||||||||||||||
Corporate Bonds | $ | — | $ | — | $ | 615,711 | $ | — | $ | 615,711 | ||||||||||
Gross amount of recognized liabilities for reverse repurchase agreements | $ | — | $ | — | $ | 615,711 | $ | — | $ | 615,711 | ||||||||||
Series P (High Yield Series) | ||||||||||||||||||||
Corporate Bonds | $ | 1,916,188 | $ | 2,960,000 | $ | 1,043,000 | $ | 2,201,870 | $ | 8,121,058 | ||||||||||
Gross amount of recognized liabilities for reverse repurchase agreements | $ | 1,916,188 | $ | 2,960,000 | $ | 1,043,000 | $ | 2,201,870 | $ | 8,121,058 | ||||||||||
THE GUGGENHEIM FUNDS ANNUAL REPORT | 195 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) |
13. 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) | Customers Bank | |||||||||||
6.12% due 06/26/29 | 06/24/14 | $ | 400,000 | $ | 405,000 | |||||||
Cadence Bank North America | ||||||||||||
6.25% due 06/28/29 | 06/06/14 | 150,000 | 150,375 | |||||||||
Woodbourne Capital Trust IV | ||||||||||||
0.03% |
| 01/20/06 | 301,449 | 160,821 | ||||||||
Woodbourne Capital Trust III | ||||||||||||
0.03% |
| 01/20/06 | 301,449 | 160,821 | ||||||||
Woodbourne Capital Trust I | ||||||||||||
0.03% |
| 01/20/06 | 301,449 | 160,821 | ||||||||
Woodbourne Capital Trust II | ||||||||||||
0.03% |
| 01/20/06 | 301,449 | 160,821 | ||||||||
1,755,796 | 1,198,659 | |||||||||||
Series M (Macro Opportunities Series) | Customers Bank | |||||||||||
6.12% due 06/26/29 | 06/24/14 | 150,000 | 151,875 | |||||||||
Turbine Engines Securitization Ltd. | ||||||||||||
6.38% due 12/13/48 | 11/27/13 | 215,258 | 215,511 | |||||||||
365,258 | 367,386 | |||||||||||
Series P (High Yield Series) | Schahin II Finance Company SPV Ltd. | |||||||||||
5.88% due 09/25/22 | 03/12/15 | 107,634 | 31,844 | |||||||||
IronGate Energy Services LLC | ||||||||||||
11.00% due 07/01/18 | 07/10/13 | 148,394 | 85,250 | |||||||||
256,028 | 117,094 | |||||||||||
14. Subsequent Event
At a meeting held on February 23-24, 2016, the Board of Trustees (the “Board”) of the Trust considered and approved a proposal affecting Series C and its variable annuity contract and variable life insurance policy owners (“contract owners”). In particular, the Board approved the liquidation of Series C, pursuant to a Plan of Liquidation, subject to the approval by contract owners, who will receive a proxy statement that provides information regarding the proposed liquidation and related voting instructions. Information regarding the proposed liquidation is also available on the Series’ webpage at guggenheiminvestments.com.
15. Security Transactions with Affiliated Funds
The Funds are permitted to purchase or sell securities from or to certain affiliated funds under specified conditions outlined in procedures adopted by the Board of Trustees of the Trust. The procedures have been designed to ensure that any purchase or sale of securities by a Fund from or to another fund or portfolio that is or could be considered an affiliate by virtue of having a common investment adviser (or affiliated investment advisers), common Trustees and/or common officers complies with Rule 17a-7 of the 1940 Act. For the year ended December 31, 2015, the Funds engaged in purchases and sales of securities, pursuant to Rule 17a-7 of the 1940 Act as follows:
Fund | Purchases | Sales | ||||||
Series M (Macro Opportunity Series) | $ | — | $ | 139,300 | ||||
Series P (High Yield Series) | 2,774,188 | 13,776,206 | ||||||
196 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) |
16. Legal Proceedings
Tribune Company
SBL Fund has been named as a defendant and a putative member of the proposed defendant class of shareholders in the case entitled Kirschner 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 ownership by certain series of the SBL Fund of shares in the Tribune Company (“Tribune”) in 2007, when Tribune effected a leveraged buyout transaction (“LBO”) by which Tribune converted to a privately-held company. In his complaint, the plaintiff has alleged that, in connection with the LBO, Tribune insiders and shareholders were overpaid for their Tribune stock using financing that the insiders knew would, and ultimately did, leave the Tribune Company insolvent. The plaintiff has asserted claims against certain insiders, major shareholders, professional advisers, and others involved in the LBO. The plaintiff is also attempting to obtain from former Tribune shareholders, including the SBL Fund, the proceeds they received in connection with the LBO.
In June 2011, a group of Tribune creditors filed multiple actions against former Tribune shareholders involving state law constructive fraudulent conveyance claims arising out of the 2007 LBO (the “SLCFC actions”). SBL Fund has been named as a defendant in two of the SLCFC actions: Deutsche Bank Trust Co. Americas v. Ohlson Enter., No. 12-0064 (S.D.N.Y.) and Deutsche Bank Trust Co. Americas v. Cantor Fitzgerald & Co., No. 11-4900 (S.D.N.Y.). In those actions, the creditors seek to recover from Tribune’s former shareholders the proceeds received in connection with the 2007 LBO.
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 in front of the U.S. Court of Appeals for the Second Circuit occurred 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 alleges 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.
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.), Adv. Pro. 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.
On April 7, 2014, the plaintiff filed a Third 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.), Adv. Pro. 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
THE GUGGENHEIM FUNDS ANNUAL REPORT | 197 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (concluded) |
Lyondell shareholders under federal law for intentional fraudulent transfer. A third related action against the former Lyondell shareholders, Weisfelner, as Trustee of the LB Creditor Trust v. Fund 1 (In re Lyondell Chemical Co.), Adv. Pro. No. 10-4609 (Bankr. S.D.N.Y.) (the “Creditor Trust action”), is pending as well.
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 these lawsuits. The Bankruptcy Court held oral argument on the motion to dismiss and on the motion for class certification on January 14 and January 15, 2015. On September 15, 2015, the Bankruptcy Court denied the motion for class certification without prejudice to the plaintiff’s right to file a renewed motion. On November 18, 2015, the Bankruptcy Court granted the defendants’ motion to dismiss the Litigation Trust action and denied their motion to dismiss the Creditor Trust and Reichman actions. The Litigation Trust action is now over, but the plaintiff has appealed the dismissal to the U.S. District Court for the Southern District of New York. Discovery has commenced, and will continue, in the Creditor Trust and Reichman actions.
These lawsuits do 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 these lawsuits or the effect, if any, on a Fund’s net asset value.
198 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
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 Guggenheim Variable Funds Trust (comprised 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)) (the “Funds”) as of December 31, 2015, and the related statements of operations and cash flows (as applicable) for the year then ended, the statements of changes in net assets for each of the two years in the period then ended 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, 2015, by correspondence with the custodians, transfer agent, brokers and paying agents or by other appropriate auditing procedures where replies from custodians, brokers, or paying agents 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 each of the respective Funds constituting the Guggenheim Variable Funds Trust at December 31, 2015, the results of their operations and their cash flows (as applicable) for the year then ended, the changes in their net assets for each of the two years in the period then ended 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, 2016
THE GUGGENHEIM FUNDS ANNUAL REPORT | 199 |
OTHER INFORMATION (Unaudited) |
Tax Information
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 A (StylePlus—Large Core Series) | 5.59% |
Series B (Large Cap Value Series) | 100.00% |
Series D (World Equity Income Series) | 54.81% |
Series E (Total Return Bond Series) | 3.81% |
Series J (StylePlus—Mid Growth Series) | 3.81% |
Series M (Macro Opportunities Series) | 0.68% |
Series N (Managed Asset Allocation Series) | 41.83% |
Series O (All Cap Value Series) | 100.00% |
Series P (High Yield Series) | 0.95% |
Series Q (Small Cap Value Series) | 100.00% |
Series V (Mid Cap Value Series) | 100.00% |
Series X (StylePlus—Small Growth Series) | 25.41% |
Series Y (StylePlus—Large Growth Series) | 5.26% |
With respect to the taxable year ended December 31, 2015, the Funds hereby designate as capital gain dividends the amounts listed below, or, if subsequently determined to be different, the net capital gain of such year:
Fund | Long-term | |||
Series A (StylePlus—Large Core Series) | $ | 2,317,549 | ||
Series B (Large Cap Value Series) | 37,933,710 | |||
Series F (Floating Rate Strategies Series) | 30,834 | |||
Series J (StylePlus—Mid Growth Series) | 950,341 | |||
Series O (All Cap Value Series) | 16,826,249 | |||
Series P (High Yield Series) | 1,226,164 | |||
Series Q (Small Cap Value Series) | 18,343,396 | |||
Series V (Mid Cap Value Series) | 37,389,651 | |||
Series X (StylePlus—Small Growth Series) | 109,624 | |||
Series Y (StylePlus—Large Growth Series) | 257,395 | |||
Series Z (Alpha Opportunity Series) | 4,910,631 | |||
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.
200 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
OTHER INFORMATION (Unaudited)(concluded) |
Sector Classification
Information in the “Schedule of Investments” is categorized by sectors using sector-level Classifications defined by the Bloomberg Industry Classification System, a widely recognized industry classification system provider. Each Fund’s registration statement has investment policies relating to concentration in specific sectors/industries. For purposes of these investment policies, the Funds usually classify sectors/industries based on industry-level Classifications used by widely recognized industry classification system providers such as Bloomberg Industry Classification System, Global Industry Classification Standards and Barclays Global Classification Scheme.
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.
THE GUGGENHEIM FUNDS ANNUAL REPORT | 201 |
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) | Term of Office and Length of Time Served** | Principal Occupation(s) During Past Five Years | Number of Portfolios in Fund Complex Overseen | Other |
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). | 105 | Current: Trustee, Purpose Investments Inc. (2014-Present). |
Donald A. Chubb, Jr. (1946) | Trustee | Since 1994 | Current: Business broker and manager of commercial real estate, Griffith & Blair, Inc. (1997-present). | 101 | Current: Midland Care, Inc. (2011-present). |
Jerry B. Farley (1946) | Trustee | Since 2005 | Current: President, Washburn University (1997-present). | 101 | 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 Managing Partner, Roman Friedrich & Company (1998-present).
Former: Senior Managing Director, MLV & Co. LLC (2010-2011). | 101 | Current: Zincore Metals, Inc. (2009-present).
Former: Axiom Gold and Silver Corp. (2011-2012). |
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). | 101 | Current: Peabody Energy Company (2003-present); GP Natural Resource Partners, LLC (2002- present). |
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). | 107 | Current: Edward-Elmhurst Healthcare System (2012-present). |
202 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
INFORMATION ON BOARD OF TRUSTEES AND OFFICERS (Unaudited)(continued) |
Name, Address* and Year of Birth | Position(s) | Term of Office and Length of Time Served** | Principal Occupation(s) During Past Five Years | Number of Portfolios in Fund Complex Overseen | Other |
INDEPENDENT TRUSTEES - continued | |||||
Maynard F. Oliverius (1943) | Trustee | Since 1998 | Current: Retired.
Former: President and CEO, Stormont-Vail HealthCare (1996-2012). | 101 | Current: Fort Hays State University Foundation (1999-present); Stormont-Vail Foundation (2013-present); University of Minnesota HealthCare Alumni Association Foundation (2009-present). |
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). | 104 | 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). | 236 | Current: Clear Spring Life Insurance Company (2015-present); Guggenheim Partners Japan, Ltd. (2014-present); 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 | 203 |
INFORMATION ON BOARD OF TRUSTEES AND OFFICERS (Unaudited)(continued) |
Name, Address* and Year of Birth | Position(s) | Term of Office and Length of Time Served** | Principal Occupations |
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). |
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 2007 (Vice President) Since 2014 (Chief Legal Officer) | Current: Chief Legal Officer, certain other funds in the Fund Complex (2013-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); Senior Associate, Guggenheim Investments (2012-present).
Former: J.D., University of Kansas School of Law (2009-2012). |
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). |
204 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
INFORMATION ON BOARD OF TRUSTEES AND OFFICERS (Unaudited)(concluded) |
Name, Address* and Year of Birth | Position(s) | Term of Office and Length of Time Served** | Principal Occupations |
OFFICERS - continued | |||
Adam Nelson (1979) | Assistant Treasurer | Since 2015 | Current: Vice President, Guggenheim Investments (2015-present); Assistant Treasurer, certain other funds in the Fund Complex (2015-present).
Former: Assistant Vice President and Fund Administration Director, State Street Corporation (2013-2015); Fund Administration Assistant Director, State Street (2011-2013); Fund Administration Manager, State Street (2009-2011). |
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 | 205 |
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.
206 | 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 | 207 |
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| Item 2. | Code of Ethics. |
| Item 3. | Audit Committee Financial Expert. |
| Item 4. | Principal Accountant Fees and Services. |
| Item 5. | Audit Committee of Listed Registrants. |
| Item 6. | Investments. |
| Item 7. | Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies. |
| Item 9. | Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers. |
| Item 10. | Submission of Matters to a Vote of Security Holders. |
| Item 11. | Controls and Procedures. |
| Item 12. | Exhibits. |
| (Registrant) | Guggenheim Variable Funds Trust | |
| By (Signature and Title)* | /s/ Donald C. Cacciapaglia | |
| Donald C. Cacciapaglia, President and Chief Executive Officer | ||
| Date | March 9, 2016 | |
| 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 9, 2016 | |
| By (Signature and Title)* | /s/ John L. Sullivan | |
| John L. Sullivan, Chief Financial Officer and Treasurer | ||
| Date | March 9, 2016 | |