UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number811- 02753
Guggenheim Variable Funds Trust
(Exact name of registrant as specified in charter)
702 King Farm Boulevard, Suite 200
Rockville, Maryland 20850
(Address of principal executive offices) (Zip code)
Amy J. Lee
Guggenheim Variable Funds Trust
702 King Farm Boulevard, Suite 200
Rockville, Maryland 20850
(Name and address of agent for service)
Registrant's telephone number, including area code:1-301-296-5100
Date of fiscal year end:December 31
Date of reporting period:January 1, 2018 - December 31, 2018
Form N-CSR is to be used by management investment companies to file reports with the Commission not later than 10 days after the transmission to stockholders of any report that is required to be transmitted to stockholders under Rule 30e-1 under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may use the information provided on Form N-CSR in its regulatory, disclosure review, inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR, and the Commission will make this information public. A registrant is not required to respond to the collection of information contained in Form N-CSR unless the Form displays a currently valid Office of Management and Budget (“OMB”) control number. Please direct comments concerning the accuracy of the information collection burden estimate and any suggestions for reducing the burden to Secretary, Securities and Exchange Commission, 450 Fifth Street, NW, Washington, DC 20549-0609. The OMB has reviewed this collection of information under the clearance requirements of 44 U.S.C. §3507.
| Item 1. | Reports to Stockholders. |
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12.31.2018
Guggenheim Variable Funds Trust Annual Report
Series | |||
Series A | (StylePlus—Large Core Series) | ||
Series B | (Large Cap Value 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 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) | ||
Beginning on January 1, 2021, paper copies of the Funds’ annual and semi-annual shareholder reports will no longer be sent by mail, unless you specifically request paper copies of the reports from a Fund or from your financial intermediary. Instead, the reports will be made available on a website, and you will be notified by mail each time a report is posted and provided with a website link to access the report.
If you already elected to receive shareholder reports electronically, you will not be affected by this change, and you need not take any action. At any time, you may elect to receive reports and other communications from a Fund electronically by calling 800.820.0888, going toGuggenheimInvestments.com/myaccount, or by contacting your financial intermediary.
You may elect to receive all future shareholder reports in paper free of charge. If you hold shares of a Fund directly, you can inform a Fund that you wish to receive paper copies of reports by calling 800.820.0888. If you hold shares of a Fund through a financial intermediary, please contact the financial intermediary to make this election. Your election to receive reports in paper will apply to all Guggenheim Funds in which you are invested and may apply to all funds held with your financial intermediary.
GuggenheimInvestments.com | GVFT-ANN-2-1218x1219 |
TABLE OF CONTENTS |
DEAR SHAREHOLDER | 2 |
ECONOMIC AND MARKET OVERVIEW | 4 |
ABOUT SHAREHOLDERS’ FUND EXPENSES | 6 |
SERIES A (STYLEPLUS—LARGE CORE SERIES) | 8 |
SERIES B (LARGE CAP VALUE SERIES) | 18 |
SERIES D (WORLD EQUITY INCOME SERIES) | 27 |
SERIES E (TOTAL RETURN BOND SERIES) | 36 |
SERIES F (FLOATING RATE STRATEGIES SERIES) | 51 |
SERIES J (STYLEPLUS—MID GROWTH SERIES) | 64 |
SERIES N (MANAGED ASSET ALLOCATION SERIES) | 75 |
SERIES O (ALL CAP VALUE SERIES) | 84 |
SERIES P (HIGH YIELD SERIES) | 94 |
SERIES Q (SMALL CAP VALUE SERIES) | 108 |
SERIES V (MID CAP VALUE SERIES) | 118 |
SERIES X (STYLEPLUS—SMALL GROWTH SERIES) | 128 |
SERIES Y (STYLEPLUS—LARGE GROWTH SERIES) | 139 |
SERIES Z (ALPHA OPPORTUNITY SERIES) | 149 |
NOTES TO FINANCIAL STATEMENTS | 167 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM | 190 |
OTHER INFORMATION | 191 |
INFORMATION ON BOARD OF TRUSTEES AND OFFICERS | 193 |
GUGGENHEIM INVESTMENTS PRIVACY NOTICE | 198 |
THE GUGGENHEIM FUNDS ANNUAL REPORT | 1 |
| December 31, 2018 |
Dear Shareholder:
Security Investors, LLC and Guggenheim Partners Investment Management, LLC (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, 2018.
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 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 Managers’ Commentary for each Fund.
We are committed to providing innovative investment solutions and appreciate the trust you place in us.
Sincerely,
Security Investors, LLC
Guggenheim Partners Investment Management, LLC
January 31, 2019
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.
This material is not intended as a recommendation or as investment advice of any kind, including in connection with rollovers, transfers, and distributions. Such material is not provided in a fiduciary capacity, may not be relied upon for or in connection with the making of investment decisions, and does not constitute a solicitation of an offer to buy or sell securities. All content has been provided for informational or educational purposes only and is not intended to be and should not be construed as legal or tax advice and/or a legal opinion. Always consult a financial, tax and/or legal professional regarding your specific situation.
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 they 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 Funds’ exposure to high yield securities may subject the Funds 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 D (World Equity Income Series) may not be suitable for all investors. ● Investments in securities in general are subject to market risks that may cause their prices to fluctuate over time. ●The Fund’s investments in foreign securities carry additional risks when compared to U.S. securities, due to the impact of diplomatic, political or economic developments in the country in question (investments in emerging markets are generally subject to an even greater level of risks). Additionally, the Fund’s exposure to foreign currencies subjects the Fund to the risk that those currencies will decline in value relative to the U.S. Dollar. ● The Fund’s investments in derivatives may pose risks in addition to those associated with investing directly in securities or other investments, including illiquidity of the derivatives, imperfect correlations with underlying investments or the Fund’s other portfolio holdings, lack of availability and counterparty risk. ●The Fund’s use of leverage, through instruments such as derivatives, may cause the Fund to be more volatile than if it had not been leveraged. ●The Fund’s investments in other investment vehicles subject the Fund to those risks and expenses affecting the investment vehicle. ●The Fund may have significant exposure to securities in a particular capitalization range e.g., large-, mid- or small-cap securities. As a result, the Fund may be subject to the risk that the pre-denominate capitalization range may underperform other segments of the equity market or the equity market as a whole. ● Please read the prospectus for more detailed information regarding these and other risks.
2 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
| December 31, 2018 |
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 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 risk). ● 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 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 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 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 risk). ● 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 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. ● 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.
THE GUGGENHEIM FUNDS ANNUAL REPORT | 3 |
ECONOMIC AND MARKET OVERVIEW(Unaudited) | December 31, 2018 |
U.S. economic data has been broadly strong, but there is already evidence that certain sectors are losing steam. Consumers are becoming less positive on purchases of homes, autos, and appliances, citing rising rates as a major reason. Growth in nonresidential fixed investment is also slowing, reflecting a combination of higher borrowing costs and tariff uncertainty.
With three major pillars of the economy showing signs of weakness, a broad-based slowdown in real U.S. gross domestic product (“GDP”) growth to below 2% year over year by the fourth quarter of 2019 is possible. Global growth momentum has weakened over the last 12 months, and the souring picture for the global economy collided with rising production from U.S. oil producers to drive a 38% decline in oil prices in the fourth quarter. Subsequently, inflation expectations collapsed, and rate hikes priced for 2019 in the fed funds futures market evaporated.
A key bright spot in late 2018 was the U.S. labor market. The unemployment rate remained below 4.0%, near 50-year lows. Non-farm payrolls increased nearly twice as fast as expected, while average hourly earnings increased at 3.3% year over year, the fastest growth in wages since 2009. With above-potential GDP growth likely to cause job gains to run above labor force growth, unemployment could fall further in 2019, leading to an acceleration of wage growth.
With an eye on the labor market, but cognizant of softening inflation, the U.S. Federal Reserve (the “Fed”) proceeded to raise the fed funds target to 2.25–2.50% in December 2018. The Fed added to its December statement that it would monitor global economic and financial developments, but in the press conference, Fed Chair Powell failed to convey flexibility on both interest rate and balance sheet policy should conditions deteriorate further. Markets sold off further in the days following the Fed decision.
Easing inflationary pressures against a very tight labor market present a conundrum to the Fed as policymakers walk a tightrope managing policy around the Fed’s dual mandate of price stability and full employment. Ultimately, the Fed may be forced to pause in early 2019 to monitor economic data in order to avoid inflicting further pain. With real GDP growth running above potential, unemployment below full employment and falling, and core inflation near the 2% target, the 2019 data should be solid enough for the Fed to deliver another hike in the second half of the year.
For the 12 months ended December 31, 2018, the Standard & Poor’s 500® (“S&P 500®”) Index* generated a total return of -4.38%. After two years of strong appreciation in 2016 and 2017, equities were choppy, including a nearly 20% drawdown from early October to December 24th, as markets contended with the ramifications of a trade uncertainty with China, a government shutdown, and the prospects of a new direction in monetary policy.
A pause in monetary policy tightening may grant a short-lived reprieve to debtors at risk of caving under pressure from rising borrowing costs. Credit conditions would appear benign if the Fed seemingly saves the day by staying on hold. We believe any pause would only allow excesses to become more pronounced and afford risk assets one more rally. This rally may be the last opportunity to sell into strength before the Fed resumes raising interest rates, which may push the U.S. into an economic recession in 2020.
For the 12 months ended December 31, 2018, the MSCI Europe-Australasia-Far East (“EAFE”) Index*returned -13.79%. The return of the MSCI Emerging Markets Index*was -14.58%.
In the bond market, the Bloomberg Barclays U.S. Aggregate Bond Index* posted a 0.01% return for the period, while the Bloomberg Barclays U.S. Corporate High Yield Index*returned -2.08%. The return of the ICE Bank of America (“BofA”) Merrill Lynch 3-Month U.S. Treasury Bill Index*was 1.87% 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.
*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.
Bloomberg Barclays U.S. Aggregate Bond Index is a broad-based flagship benchmark that measures the investment grade, U.S. dollar-denominated, fixed-rate taxable bond market, including U.S. Treasuries, government-related and corporate securities, mortgage-backed securities or “MBS” (agency fixed-rate and hybrid adjustable-rate mortgage, or “ARM”, pass-throughs), asset-backed securities (“ABS”), and commercial mortgage-backed securities (“CMBS”) (agency and non-agency).
4 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
ECONOMIC AND MARKET OVERVIEW(Unaudited)(concluded) | December 31, 2018 |
Bloomberg Barclays U.S. Corporate High Yield Index measures the U.S. dollar-denominated, high yield, fixed-rate corporate bond market. Securities are classified as high yield if the middle rating of Moody’s, Fitch, and S&P is Ba1/BB +/BB + or below.
Credit Suisse Leveraged Loan Index is designed to mirror the investable universe of the U.S. dollar-denominated leveraged loan market.
ICE 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.
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.
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.
Russell 3000®Index measures the performance of the largest 3,000 U.S. companies, representing approximately 98% of the investable U.S. equity 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: A measure of 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.
S&P 500® is a broad-based index, the performance of which is based on the performance of 500 widely held common stocks chosen for market size, liquidity, and industry group representation.
THE GUGGENHEIM FUNDS ANNUAL REPORT | 5 |
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, 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, 2018 and ending December 31, 2018.
The following tables illustrate the Funds’ 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 fifth 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 the Funds’ expenses, including annual expense ratios for periods up to five years (subject to the Fund’s inception date), 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.
6 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
ABOUT SHAREHOLDERS’ FUND EXPENSES(Unaudited)(concluded) |
|
| Expense | Fund | Beginning | Ending | Expenses |
Table 1. Based on actual Fund return3 | |||||
Series A (StylePlus—Large Core Series) | 0.98% | (8.06%) | $ 1,000.00 | $ 919.40 | $ 4.74 |
Series B (Large Cap Value Series) | 0.81% | (8.62%) | 1,000.00 | 913.80 | 3.91 |
Series D (World Equity Income Series) | 0.90% | (8.17%) | 1,000.00 | 918.30 | 4.35 |
Series E (Total Return Bond Series) | 0.79% | 0.59% | 1,000.00 | 1,005.90 | 3.99 |
Series F (Floating Rate Strategies Series) | 1.16% | (1.81%) | 1,000.00 | 981.90 | 5.79 |
Series J (StylePlus—Mid Growth Series) | 1.10% | (10.84%) | 1,000.00 | 891.60 | 5.24 |
Series N (Managed Asset Allocation Series) | 1.06% | (5.73%) | 1,000.00 | 942.70 | 5.19 |
Series O (All Cap Value Series) | 0.89% | (11.31%) | 1,000.00 | 886.90 | 4.23 |
Series P (High Yield Series) | 1.26% | (3.31%) | 1,000.00 | 966.90 | 6.25 |
Series Q (Small Cap Value Series) | 1.15% | (15.68%) | 1,000.00 | 843.20 | 5.34 |
Series V (Mid Cap Value Series) | 0.92% | (16.58%) | 1,000.00 | 834.20 | 4.25 |
Series X (StylePlus—Small Growth Series) | 1.19% | (17.55%) | 1,000.00 | 824.50 | 5.47 |
Series Y (StylePlus—Large Growth Series) | 1.01% | (9.23%) | 1,000.00 | 907.70 | 4.86 |
Series Z (Alpha Opportunity Series) | 2.02% | (2.63%) | 1,000.00 | 973.70 | 10.05 |
| |||||
Table 2. Based on hypothetical 5% return (before expenses) | |||||
Series A (StylePlus—Large Core Series) | 0.98% | 5.00% | $ 1,000.00 | $ 1,020.27 | $ 4.99 |
Series B (Large Cap Value Series) | 0.81% | 5.00% | 1,000.00 | 1,021.12 | 4.13 |
Series D (World Equity Income Series) | 0.90% | 5.00% | 1,000.00 | 1,020.67 | 4.58 |
Series E (Total Return Bond Series) | 0.79% | 5.00% | 1,000.00 | 1,021.22 | 4.02 |
Series F (Floating Rate Strategies Series) | 1.16% | 5.00% | 1,000.00 | 1,019.36 | 5.90 |
Series J (StylePlus—Mid Growth Series) | 1.10% | 5.00% | 1,000.00 | 1,019.66 | 5.60 |
Series N (Managed Asset Allocation Series) | 1.06% | 5.00% | 1,000.00 | 1,019.86 | 5.40 |
Series O (All Cap Value Series) | 0.89% | 5.00% | 1,000.00 | 1,020.72 | 4.53 |
Series P (High Yield Series) | 1.26% | 5.00% | 1,000.00 | 1,018.85 | 6.41 |
Series Q (Small Cap Value Series) | 1.15% | 5.00% | 1,000.00 | 1,019.41 | 5.85 |
Series V (Mid Cap Value Series) | 0.92% | 5.00% | 1,000.00 | 1,020.57 | 4.69 |
Series X (StylePlus—Small Growth Series) | 1.19% | 5.00% | 1,000.00 | 1,019.20 | 6.06 |
Series Y (StylePlus—Large Growth Series) | 1.01% | 5.00% | 1,000.00 | 1,020.11 | 5.14 |
Series Z (Alpha Opportunity Series) | 2.02% | 5.00% | 1,000.00 | 1,015.02 | 10.26 |
1 | Annualized and excludes expenses of the underlying funds in which the Funds invest, if any. This ratio represents net expenses, which may include expenses that are excluded from the expense limitation agreement and affiliated waivers. Excluding these expenses, the net expense ratios for the period would be: |
Fund | 12/31/18 |
Series A (StylePlus—Large Core Series) | 0.91% |
Series B (Large Cap Value Series) | 0.80% |
Series D (World Equity Income Series) | 0.90% |
Series E (Total Return Bond Series) | 0.78% |
Series F (Floating Rate Strategies Series) | 1.15% |
Series J (StylePlus—Mid Growth Series) | 0.94% |
Series O (All Cap Value Series) | 0.88% |
Series P (High Yield Series) | 1.07% |
Series Q (Small Cap Value Series) | 1.14% |
Series V (Mid Cap Value Series) | 0.91% |
Series X (StylePlus—Small Growth Series) | 1.06% |
Series Y (StylePlus—Large Growth Series) | 0.93% |
Series Z (Alpha Opportunity Series) | 2.00% |
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, 2018 to December 31, 2018. |
THE GUGGENHEIM FUNDS ANNUAL REPORT | 7 |
MANAGERS’ COMMENTARY(Unaudited) | December 31, 2018 |
To Our Shareholders:
The Series A (StylePlusTM—Large Core Series) (the “Fund”) is managed by a team of seasoned professionals, including Farhan Sharaff, Senior Managing Director and Assistant Chief Investment Officer, Equities; Jayson Flowers, Senior Managing Director and Portfolio Manager; Qi Yan, Managing Director and Portfolio Manager; and Adam Bloch, Director and Portfolio Manager. In the following paragraphs, the investment team discusses performance of the Fund for the fiscal year ended December 31, 2018.
For the year ended December 31, 2018, Series A (StylePlus—Large Core Series) returned -6.56%, compared with the -4.38% return of its benchmark, the S&P 500 Index.
Investment Approach
Through a combination of 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 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 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
Over the period, from 15-25% of the total equity position was allocated to actively managed equity and 75-85% to passive equity. Remaining Fund assets were invested in the Guggenheim Strategy Funds, short-term fixed-income investment companies advised by Guggenheim Investments, and the Guggenheim Ultra Short Duration Fund whose objectives are to seek a high level of income consistent with the preservation of capital.
The Fund underperformed the S&P 500 Index for the year ended December 31, 2018. The fixed income sleeve was the only contributor, as positions in the Guggenheim Ultra Short Duration Fund and the Guggenheim Strategy Funds, which held asset-backed securities, investment-grade corporates, and non-agency residential mortgage-backed securities, constituted the majority of the Fund's total return. The actively managed equity sleeve detracted from performance. The passive equity position, maintained through swap agreements and futures contracts, also detracted 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.
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.
8 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
PERFORMANCE REPORT AND FUND PROFILE(Unaudited) | December 31, 2018 |
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, investments in Guggenheim Strategy Funds Trust mutual funds, or investments in Guggenheim Ultra Short Duration Fund.
Inception Date:May 1, 1979 |
Ten Largest Holdings (% of Total Net Assets) | |
Guggenheim Variable Insurance Strategy Fund III | 35.3% |
Guggenheim Strategy Fund III | 31.6% |
Guggenheim Strategy Fund II | 3.9% |
Guggenheim Ultra Short Duration Fund | 1.9% |
Apple, Inc. | 0.7% |
Microsoft Corp. | 0.6% |
Exxon Mobil Corp. | 0.5% |
Alphabet, Inc. — Class C | 0.5% |
Amazon.com, Inc. | 0.5% |
Chevron Corp. | 0.4% |
Top Ten Total | 75.9% |
“Ten Largest Holdings” excludes any temporary cash or derivative investments. | |
THE GUGGENHEIM FUNDS ANNUAL REPORT | 9 |
PERFORMANCE REPORT AND FUND PROFILE(Unaudited)(concluded) | December 31, 2018 |
Cumulative Fund Performance*,†
Average Annual Returns*,†
Periods Ended December 31, 2018
| 1 Year | 5 Year | 10 Year |
Series A (StylePlus—Large Core Series) | (6.56%) | 8.69% | 12.36% |
S&P 500 Index | (4.38%) | 8.49% | 13.12% |
* | 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. |
10 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
SCHEDULE OF INVESTMENTS | December 31, 2018 |
SERIES A (STYLEPLUS—LARGE CORE SERIES) |
| Shares | Value | |||||||
COMMON STOCKS† - 20.9% | ||||||||
| Consumer, Non-cyclical - 5.8% | ||||||||
| Procter & Gamble Co. | 8,388 | $ | 771,025 | |||||
| PepsiCo, Inc. | 5,957 | 658,129 | ||||||
| Amgen, Inc. | 3,104 | 604,256 | ||||||
| Kimberly-Clark Corp. | 4,271 | 486,638 | ||||||
| Altria Group, Inc. | 9,768 | 482,442 | ||||||
| McKesson Corp. | 4,229 | 467,178 | ||||||
| Tyson Foods, Inc. — Class A | 8,164 | 435,958 | ||||||
| Humana, Inc. | 1,308 | 374,716 | ||||||
| Quest Diagnostics, Inc. | 4,472 | 372,383 | ||||||
| Archer-Daniels-Midland Co. | 8,986 | 368,156 | ||||||
| HCA Healthcare, Inc. | 2,798 | 348,211 | ||||||
| Western Union Co. | 19,942 | 340,211 | ||||||
| Molson Coors Brewing Co. — Class B | 6,046 | 339,543 | ||||||
| UnitedHealth Group, Inc. | 1,361 | 339,052 | ||||||
| Cardinal Health, Inc. | 7,425 | 331,155 | ||||||
| Philip Morris International, Inc. | 4,350 | 290,406 | ||||||
| Sysco Corp. | 4,207 | 263,611 | ||||||
| Gilead Sciences, Inc. | 4,138 | 258,832 | ||||||
| Johnson & Johnson | 1,990 | 256,809 | ||||||
| Allergan plc | 1,891 | 252,751 | ||||||
| Pfizer, Inc. | 5,179 | 226,063 | ||||||
| AbbVie, Inc. | 2,286 | 210,746 | ||||||
| Laboratory Corporation of America Holdings* | 1,625 | 205,335 | ||||||
| Merck & Company, Inc. | 2,662 | 203,403 | ||||||
| Kroger Co. | 5,633 | 154,907 | ||||||
| Regeneron Pharmaceuticals, Inc.* | 393 | 146,785 | ||||||
| CVS Health Corp. | 2,205 | 144,472 | ||||||
| WellCare Health Plans, Inc.* | 539 | 127,253 | ||||||
| Anthem, Inc. | 472 | 123,961 | ||||||
| Mondelez International, Inc. — Class A | 3,056 | 122,332 | ||||||
| Estee Lauder Companies, Inc. — Class A | 911 | 118,521 | ||||||
| DaVita, Inc.* | 2,245 | 115,528 | ||||||
| Abbott Laboratories | 1,581 | 114,354 | ||||||
| Baxter International, Inc. | 1,699 | 111,828 | ||||||
| Edwards Lifesciences Corp.* | 730 | 111,814 | ||||||
| Cigna Corp. | 580 | 110,154 | ||||||
| Medtronic plc | 1,206 | 109,698 | ||||||
| Constellation Brands, Inc. — Class A | 680 | 109,358 | ||||||
| Alexion Pharmaceuticals, Inc.* | 1,122 | 109,238 | ||||||
| Thermo Fisher Scientific, Inc. | 470 | 105,181 | ||||||
| Becton Dickinson and Co. | 466 | 104,999 | ||||||
| Mylan N.V.* | 3,827 | 104,860 | ||||||
| Total Consumer, Non-cyclical | 11,032,252 | |||||||
| Technology - 4.2% | ||||||||
| Apple, Inc. | 9,018 | 1,422,499 | ||||||
| Microsoft Corp. | 10,895 | 1,106,605 | ||||||
| Intel Corp. | 16,485 | 773,641 | ||||||
| Oracle Corp. | 14,152 | 638,963 | ||||||
| QUALCOMM, Inc. | 9,078 | 516,629 | ||||||
| HP, Inc. | 20,860 | 426,796 | ||||||
| DXC Technology Co. | 7,726 | 410,791 | ||||||
| NetApp, Inc. | 5,015 | 299,245 | ||||||
| Citrix Systems, Inc. | 2,681 | 274,695 | ||||||
| Western Digital Corp. | 7,015 | 259,345 | ||||||
| Seagate Technology plc | 5,877 | 226,794 | ||||||
| International Business Machines Corp. | 1,933 | 219,724 | ||||||
| Texas Instruments, Inc. | 1,998 | 188,811 | ||||||
| Applied Materials, Inc. | 5,543 | 181,478 | ||||||
| Broadcom, Inc. | 712 | 181,047 | ||||||
| Lam Research Corp. | 1,106 | 150,604 | ||||||
| KLA-Tencor Corp. | 1,514 | 135,488 | ||||||
| Qorvo, Inc.* | 2,194 | 133,241 | ||||||
| Skyworks Solutions, Inc. | 1,836 | 123,049 | ||||||
| Electronic Arts, Inc.* | 1,521 | 120,022 | ||||||
| Activision Blizzard, Inc. | 2,507 | 116,751 | ||||||
| Total Technology | 7,906,218 | |||||||
| Communications - 3.0% | ||||||||
| Alphabet, Inc. — Class C* | 896 | 927,907 | ||||||
| Amazon.com, Inc.* | 588 | 883,158 | ||||||
| Cisco Systems, Inc. | 18,503 | 801,735 | ||||||
| Verizon Communications, Inc. | 12,728 | 715,568 | ||||||
| Omnicom Group, Inc. | 5,404 | 395,789 | ||||||
| Juniper Networks, Inc. | 12,799 | 344,421 | ||||||
| Walt Disney Co. | 2,948 | 323,248 | ||||||
| Facebook, Inc. — Class A* | 2,376 | 311,470 | ||||||
| AT&T, Inc. | 10,014 | 285,800 | ||||||
| Comcast Corp. — Class A | 8,282 | 282,002 | ||||||
| Discovery, Inc. — Class A* | 10,227 | 253,016 | ||||||
| Twenty-First Century Fox, Inc. — Class B | 3,380 | 161,496 | ||||||
| Total Communications | 5,685,610 | |||||||
| Industrial - 2.8% | ||||||||
| Caterpillar, Inc. | 4,597 | 584,141 | ||||||
| Union Pacific Corp. | 3,768 | 520,851 | ||||||
| Eaton Corporation plc | 6,871 | 471,763 | ||||||
| Cummins, Inc. | 3,291 | 439,809 | ||||||
| FedEx Corp. | 2,427 | 391,548 | ||||||
| Parker-Hannifin Corp. | 2,610 | 389,255 | ||||||
| Norfolk Southern Corp. | 2,598 | 388,505 | ||||||
| Textron, Inc. | 8,310 | 382,177 | ||||||
| CSX Corp. | 6,119 | 380,173 | ||||||
| Johnson Controls International plc | 12,426 | 368,431 | ||||||
| Kansas City Southern | 3,762 | 359,083 | ||||||
| Corning, Inc. | 7,337 | 221,651 | ||||||
| Expeditors International of Washington, Inc. | 3,235 | 220,271 | ||||||
| Snap-on, Inc. | 823 | 119,574 | ||||||
| United Technologies Corp. | 1,035 | 110,207 | ||||||
| Total Industrial | 5,347,439 | |||||||
| Energy - 2.2% | ||||||||
| Exxon Mobil Corp. | 14,071 | 959,501 | ||||||
| Chevron Corp. | 7,516 | 817,666 | ||||||
| ConocoPhillips | 6,908 | 430,714 | ||||||
| Kinder Morgan, Inc. | 23,214 | 357,031 | ||||||
| Occidental Petroleum Corp. | 5,760 | 353,549 | ||||||
| Phillips 66 | 3,849 | 331,591 | ||||||
| Valero Energy Corp. | 4,353 | 326,344 | ||||||
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT|11 |
SCHEDULE OF INVESTMENTS(continued) | December 31, 2018 |
SERIES A (STYLEPLUS—LARGE CORE SERIES) |
| Shares | Value | |||||||
| HollyFrontier Corp. | 4,856 | $ | 248,239 | |||||
| Williams Companies, Inc. | 6,837 | 150,756 | ||||||
| Marathon Oil Corp. | 8,380 | 120,169 | ||||||
| Marathon Petroleum Corp. | 1,652 | 97,485 | ||||||
| Total Energy | 4,193,045 | |||||||
| Financial - 1.3% | ||||||||
| JPMorgan Chase & Co. | 4,439 | 433,335 | ||||||
| Berkshire Hathaway, Inc. — Class B* | 1,703 | 347,718 | ||||||
| Hartford Financial Services Group, Inc. | 7,330 | 325,818 | ||||||
| State Street Corp. | 3,961 | 249,820 | ||||||
| Prudential Financial, Inc. | 2,834 | 231,113 | ||||||
| Bank of America Corp. | 8,021 | 197,638 | ||||||
| Visa, Inc. — Class A | 1,253 | 165,321 | ||||||
| Bank of New York Mellon Corp. | 2,728 | 128,407 | ||||||
| Travelers Companies, Inc. | 1,069 | 128,013 | ||||||
| Allstate Corp. | 1,503 | 124,193 | ||||||
| MetLife, Inc. | 2,997 | 123,057 | ||||||
| Citigroup, Inc. | 1,385 | 72,103 | ||||||
| Total Financial | 2,526,536 | |||||||
| Consumer, Cyclical - 1.1% | ||||||||
| Delta Air Lines, Inc. | 6,785 | 338,572 | ||||||
| United Continental Holdings, Inc.* | 3,841 | 321,607 | ||||||
| Southwest Airlines Co. | 6,850 | 318,388 | ||||||
| American Airlines Group, Inc. | 9,039 | 290,242 | ||||||
| Alaska Air Group, Inc. | 3,531 | 214,861 | ||||||
| Best Buy Company, Inc. | 2,884 | 152,736 | ||||||
| NIKE, Inc. — Class B | 1,806 | 133,897 | ||||||
| Dollar General Corp. | 1,201 | 129,804 | ||||||
| General Motors Co. | 3,777 | 126,341 | ||||||
| TJX Companies, Inc. | 2,559 | 114,490 | ||||||
| Total Consumer, Cyclical | 2,140,938 | |||||||
| Basic Materials - 0.5% | ||||||||
| International Paper Co. | 10,561 | 426,242 | ||||||
| Linde plc | 869 | 135,599 | ||||||
| DowDuPont, Inc. | 2,286 | 122,255 | ||||||
| LyondellBasell Industries N.V. — Class A | 1,437 | 119,501 | ||||||
| Eastman Chemical Co. | 1,621 | 118,511 | ||||||
| Total Basic Materials | 922,108 | |||||||
| Total Common Stocks | ||||||||
| (Cost $43,743,459) | 39,754,146 | |||||||
| MUTUAL FUNDS† - 72.7% | ||||||||
Guggenheim Variable Insurance Strategy Fund III1 | 2,718,489 | 67,282,594 | ||||||
Guggenheim Strategy Fund III1 | 2,433,738 | 60,332,371 | ||||||
Guggenheim Strategy Fund II1 | 297,125 | 7,374,635 | ||||||
Guggenheim Ultra Short Duration Fund1,2 | 362,615 | 3,611,649 | ||||||
| Total Mutual Funds | ||||||||
| (Cost $139,687,791) | 138,601,249 | |||||||
| MONEY MARKET FUND† - 5.0% | ||||||||
Dreyfus Treasury Securities Cash Management Fund-Institutional Class 2.20%3 | 9,545,299 | 9,545,299 | ||||||
| Total Money Market Fund | ||||||||
| (Cost $9,545,299) | 9,545,299 | |||||||
| Total Investments - 98.6% | ||||||||
| (Cost $192,976,549) | $ | 187,900,694 | ||||||
| Other Assets & Liabilities, net - 1.4% | 2,743,789 | |||||||
| Total Net Assets - 100.0% | $ | 190,644,483 | ||||||
Futures Contracts | |||||||||||||
Description | Number of | Expiration | Notional | Value and | |||||||||
Equity Futures Contracts Purchased† | |||||||||||||
S&P 500 Index Mini Futures Contracts | 45 | Mar 2019 | $ | 5,646,375 | $ | 101,546 | |||||||
Total Return Swap Agreements | |||||||||||||||||||
Counterparty | Index | Financing | Payment | Maturity | Units | Notional | Value and | ||||||||||||
OTC Equity Index Swap Agreements†† | |||||||||||||||||||
Wells Fargo Bank, N.A | S&P 500 Index | 2.60 | % | At Maturity | 01/02/19 | 58,303 | $ | 146,156,876 | $ | (12,818,498 | ) | ||||||||
12|THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
SCHEDULE OF INVESTMENTS(continued) | December 31, 2018 |
SERIES A (STYLEPLUS—LARGE CORE SERIES) |
* | Non-income producing security. |
** | Includes cumulative appreciation (depreciation). Variation margin is reported within the Statement of Assets and Liabilities. |
† | Value determined based on Level 1 inputs — See Note 4. |
†† | Value determined based on Level 2 inputs — See Note 4. |
1 | Affiliated issuer. |
2 | Effective November 30, 2018, Guggenheim Strategy Fund I was reorganized with and into the Guggenheim Ultra Short Duration Fund. |
3 | Rate indicated is the 7-day yield as of December 31, 2018. |
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, 2018 (See Note 4 in the Notes to Financial Statements):
Investments in Securities (Assets) | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Common Stocks | $ | 39,754,146 | $ | — | $ | — | $ | 39,754,146 | ||||||||
Mutual Funds | 138,601,249 | — | — | 138,601,249 | ||||||||||||
Money Market Fund | 9,545,299 | — | — | 9,545,299 | ||||||||||||
Equity Futures Contracts** | 101,546 | — | — | 101,546 | ||||||||||||
Total Assets | $ | 188,002,240 | $ | — | $ | — | $ | 188,002,240 | ||||||||
| ||||||||||||||||
Investments in Securities (Liabilities) | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Equity Index Swap Agreements** | $ | — | $ | 12,818,498 | $ | — | $ | 12,818,498 | ||||||||
** | This derivative is reported as unrealized appreciation/depreciation at period end. |
Transfers between investment levels may occur as the markets fluctuate and/or the availability of data used in an investment’s valuation changes. Transfers between valuation levels, if any, are in comparison to the valuation levels at the end of the previous fiscal year, and are effective using the fair value as of the end of the current fiscal period.
For the year ended December 31, 2018, there were no transfers between levels.
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT|13 |
SCHEDULE OF INVESTMENTS(concluded) | December 31, 2018 |
SERIES A (STYLEPLUS—LARGE CORE SERIES) |
Affiliated Transactions
Investments representing 5% or more of the outstanding voting shares of a company, or control of or by, or common control under Guggenheim Investments (“GI”), result in that company being considered an affiliated issuer, as defined in the 1940 Act.
The Fund may invest in certain of the underlying series of Guggenheim Strategy Funds Trust, including Guggenheim Strategy Fund II, Guggenheim Strategy Fund III, and Guggenheim Variable Insurance Strategy Fund III, (collectively, the “Cash Management Funds”), each of which are 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, 2018, is available publicly or upon request. This information is available from the EDGAR database on the SEC’s website at https://www.sec.gov/Archives/edgar/data/1601445/000089180418000513/gug75569-ncsr.htm.
Transactions during the year ended December 31, 2018, in which the company is an “affiliated person”, were as follows:
Security Name | Value | Additions | Reductions | Realized | Change in | Value | Shares | Investment | Capital Gain | |||||||||||||||||||||||||||
Mutual Funds | ||||||||||||||||||||||||||||||||||||
Guggenheim Strategy Fund II | $ | 36,603,488 | $ | 3,754,274 | $ | (32,847,090 | ) | $ | 106,537 | $ | (242,574 | ) | $ | 7,374,635 | 297,125 | $ | 827,048 | $ | 8,173 | |||||||||||||||||
Guggenheim Strategy Fund III | 65,316,993 | 1,946,045 | (6,332,712 | ) | (1,959 | ) | (595,996 | ) | 60,332,371 | 2,433,738 | 1,938,554 | 2,431 | ||||||||||||||||||||||||
Guggenheim Ultra Short Duration Fund1 | 26,350,212 | 3,275,419 | (25,983,718 | ) | 136,564 | (166,828 | ) | 3,611,649 | 362,615 | 219,234 | 4,075 | |||||||||||||||||||||||||
Guggenheim Variable Insurance Strategy Fund III | 67,887,722 | 7,873,626 | (7,453,019 | ) | (21,673 | ) | (1,004,062 | ) | 67,282,594 | 2,718,489 | 2,517,192 | 33,290 | ||||||||||||||||||||||||
| $ | 196,158,415 | $ | 16,849,364 | $ | (72,616,539 | ) | $ | 219,469 | $ | (2,009,460 | ) | $ | 138,601,249 | $ | 5,502,028 | $ | 47,969 | |||||||||||||||||||
1 | Effective November 30, 2018, Guggenheim Strategy Fund I was reorganized with and into the Guggenheim Ultra Short Duration Fund. |
14|THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
SERIES A (STYLEPLUS—LARGE CORE SERIES) |
STATEMENT OF ASSETS AND LIABILITIES |
December 31, 2018 |
Assets: | ||||
Investments in unaffiliated issuers, at value (cost $53,288,758) | $ | 49,299,445 | ||
Investments in affiliated issuers, at value (cost $139,687,791) | 138,601,249 | |||
Segregated cash with broker | 16,120,800 | |||
Prepaid expenses | 16,198 | |||
Receivables: | ||||
Dividends | 350,547 | |||
Variation margin on futures contracts | 52,875 | |||
Interest | 14,388 | |||
Fund shares sold | 1,140 | |||
Total assets | 204,456,642 | |||
Liabilities: | ||||
Overdraft due to custodian bank | 172 | |||
Unrealized depreciation on swap agreements | 12,818,498 | |||
Payable for: | ||||
Swap settlement | 336,725 | |||
Securities purchased | 292,842 | |||
Fund shares redeemed | 167,747 | |||
Distribution and service fees | 39,319 | |||
Management fees | 20,362 | |||
Due to Investment Adviser | 15,789 | |||
Fund accounting/administration fees | 12,582 | |||
Transfer agent/maintenance fees | 2,426 | |||
Trustees’ fees* | 967 | |||
Miscellaneous (Note 11) | 104,730 | |||
Total liabilities | 13,812,159 | |||
Commitments and contingent liabilities (Note 15) | — | |||
Net assets | $ | 190,644,483 | ||
Net assets consist of: | ||||
Paid in capital | $ | 192,835,218 | ||
Total distributable earnings (loss) | (2,190,735 | ) | ||
Net assets | $ | 190,644,483 | ||
Capital shares outstanding | 5,180,336 | |||
Net asset value per share | $ | 36.80 | ||
STATEMENT OF OPERATIONS |
Year Ended December 31, 2018 |
Investment Income: | ||||
Dividends from securities of unaffiliated issuers (net of foreign withholding tax of $575) | $ | 1,020,362 | ||
Dividends from securities of affiliated issuers | 5,502,028 | |||
Interest | 132,159 | |||
Total investment income | 6,654,549 | |||
Expenses: | ||||
Management fees | 1,740,316 | |||
Distribution and service fees | 580,105 | |||
Transfer agent/maintenance fees | 25,588 | |||
Fund accounting/administration fees | 185,636 | |||
Interest Expense | 143,904 | |||
Custodian fees | 16,605 | |||
Trustees’ fees* | 11,587 | |||
Line of credit fees | 5,750 | |||
Miscellaneous | 170,248 | |||
Recoupment of previously waived fees | 42,094 | |||
Total expenses | 2,921,833 | |||
Less: | ||||
Expenses reimbursed by Adviser | (610 | ) | ||
Expenses waived by Adviser | (661,170 | ) | ||
Total expenses waived/reimbursed | (661,780 | ) | ||
Net expenses | 2,260,053 | |||
Net investment income | 4,394,496 | |||
Net Realized and Unrealized Gain (Loss): | ||||
Net realized gain (loss) on: | ||||
Investments in unaffiliated issuers | 3,403,393 | |||
Investments in affiliated issuers | 219,469 | |||
Distributions received from affiliated investment company shares | 47,969 | |||
Swap agreements | 13,945,030 | |||
Futures contracts | 159,327 | |||
Net realized gain | 17,775,188 | |||
Net change in unrealized appreciation (depreciation) on: | ||||
Investments in unaffiliated issuers | (8,490,887 | ) | ||
Investments in affiliated issuers | (2,009,460 | ) | ||
Swap agreements | (23,702,672 | ) | ||
Futures contracts | 88,974 | |||
Net change in unrealized appreciation (depreciation) | (34,114,045 | ) | ||
Net realized and unrealized loss | (16,338,857 | ) | ||
Net decrease in net assets resulting from operations | $ | (11,944,361 | ) | |
* | Relates to Trustees not deemed “interested persons” within the meaning of Section 2(a)(19) of the 1940 Act. |
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT|15 |
SERIES A (STYLEPLUS—LARGE CORE SERIES) |
STATEMENTS OF CHANGES IN NET ASSETS |
| Year Ended December 31, 2018 | Year Ended December 31, 2017 | |||||||
| Increase (Decrease) in Net Assets from Operations: | ||||||||
| Net investment income | $ | 4,394,496 | $ | 3,513,001 | ||||
| Net realized gain on investments | 17,775,188 | 36,947,690 | ||||||
| Net change in unrealized appreciation (depreciation) on investments | (34,114,045 | ) | 7,079,795 | |||||
| Net increase (decrease) in net assets resulting from operations | (11,944,361 | ) | 47,540,486 | |||||
| Distributions to shareholders | (30,223,315 | ) | (6,045,574 | )1 | ||||
| Capital share transactions: | ||||||||
| Proceeds from sale of shares | 5,163,296 | 7,868,127 | ||||||
| Distributions reinvested | 30,223,315 | 6,045,574 | ||||||
| Cost of shares redeemed | (54,369,310 | ) | (27,318,491 | ) | ||||
| Net decrease from capital share transactions | (18,982,699 | ) | (13,404,790 | ) | ||||
| Net increase (decrease) in net assets | (61,150,375 | ) | 28,090,122 | |||||
| Net assets: | ||||||||
| Beginning of year | 251,794,858 | 223,704,736 | ||||||
| End of year | $ | 190,644,483 | $ | 251,794,858 | ||||
| Capital share activity: | ||||||||
| Shares sold | 117,562 | 189,083 | ||||||
| Shares issued from reinvestment of distributions | 731,268 | 146,205 | ||||||
| Shares redeemed | (1,202,046 | ) | (657,420 | ) | ||||
| Net decrease in shares | (353,216 | ) | (322,132 | ) | ||||
1 | For the year ended December 31, 2017, the distributions from net investment income and net realized gains were as follows (See Note 13): |
| Net investment income | $ | (2,810,139 | ) | |
| Net realized gains | $ | (3,235,435 | ) |
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 | $ | 45.50 | $ | 38.20 | $ | 34.34 | $ | 37.53 | $ | 32.50 | ||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||
Net investment income (loss)a | .83 | .62 | .46 | .30 | .44 | |||||||||||||||
Net gain (loss) on investments (realized and unrealized) | (3.10 | ) | 7.76 | 4.09 | .36 | 4.59 | ||||||||||||||
Total from investment operations | (2.27 | ) | 8.38 | 4.55 | .66 | 5.03 | ||||||||||||||
Less distributions from: | ||||||||||||||||||||
Net investment income | (.75 | ) | (.50 | ) | (.32 | ) | (.52 | ) | — | |||||||||||
Net realized gains | (5.68 | ) | (.58 | ) | (.37 | ) | (3.33 | ) | — | |||||||||||
Total distributions | (6.43 | ) | (1.08 | ) | (.69 | ) | (3.85 | ) | — | |||||||||||
Net asset value, end of period | $ | 36.80 | $ | 45.50 | $ | 38.20 | $ | 34.34 | $ | 37.53 | ||||||||||
| ||||||||||||||||||||
Total Returnb | (6.56 | %) | 22.22 | % | 13.34 | % | 1.50 | % | 15.48 | % | ||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||
Net assets, end of period (in thousands) | $ | 190,644 | $ | 251,795 | $ | 223,705 | $ | 218,880 | $ | 239,075 | ||||||||||
Ratios to average net assets: | ||||||||||||||||||||
Net investment income (loss) | 1.89 | % | 1.48 | % | 1.31 | % | 0.83 | % | 1.28 | % | ||||||||||
Total expensesc | 1.26 | % | 1.12 | % | 0.93 | % | 0.96 | % | 0.97 | % | ||||||||||
Net expensesd,e,f | 0.97 | % | 0.91 | % | 0.93 | % | 0.96 | % | 0.95 | % | ||||||||||
Portfolio turnover rate | 45 | % | 44 | % | 43 | % | 66 | % | 88 | % | ||||||||||
a | Net investment income (loss) per share was computed using average shares outstanding throughout the period. |
b | Total return does not take into account any of the expenses associated with an investment in variable insurance products. If total return had taken into account these expenses, performance would have been lower. Shares of a series of Guggenheim Variable Funds Trust are available only through the purchase of such products. |
c | Does not include expenses of the underlying funds in which the Fund invests. |
d | Net expense information reflects the expense ratios after expense waivers and reimbursements, as applicable. |
e | Net expenses may include expenses that are excluded from the expense limitation agreement. Excluding these expenses, the net expense ratios for the years would be: |
12/31/18 | 12/31/17 | 12/31/16 | 12/31/15 | 12/31/14 |
0.91% | 0.90% | 0.93% | 0.96% | 0.95% |
f | The portion of the ratios of net expenses to average net assets attributable to recoupments of prior fee reductions of expense reimbursements for the years presented was as follows: |
12/31/18 | 12/31/17 | 12/31/16 |
0.02% | — | — |
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT|17 |
MANAGERS’ COMMENTARY(Unaudited) | December 31, 2018 |
To Our Shareholders:
The Series B (Large Cap Value Series) (the "Fund") is managed by a team of seasoned professionals led by David Toussaint, CFA, CPA, Managing Director and Portfolio Manager; James Schier, CFA, Senior Managing Director and Portfolio Manager; Farhan Sharaff, Senior Managing Director, Assistant Chief Investment Officer, Equities, and Portfolio Manager; Gregg Strohkorb, CFA, Director and Portfolio Manager; and Burak Hurmeydan, Ph.D., Director and Portfolio Manager. In the following paragraphs, the investment team discusses performance of the Fund for the fiscal year ended December 31, 2018.
For the year ended December 31, 2018, Series B (Large Cap Value Series) returned -9.53%, compared with the Russell 1000®Value Index, which returned -8.27%.
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 industries 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
Most of the year’s negative performance came in the fourth quarter, whose volatile and unfavorable results were driven predominantly by macro factors, as fears of a tighter U.S. Federal Reserve (the "Fed") and continuing caution being communicated by corporate America created an environment where traders and investors decided precipitously to position themselves defensively. As a result, the usual biases in the market manifested themselves, in that larger cap stocks, growth stocks and defensive sectors outperformed.
Stock selection was the most significant factor behind the Fund’s showing relative to the benchmark.
The largest positive impact was selection in the Utilities sector, which benefits from dividends and stable revenues in a volatile economic environment. Exelon Corp. and OGE Energy Corp. were among the strong performers. Health Care sector exposure provided a small boost. A skew to the better-performing large cap index names such as HCA Healthcare, Inc. and Merck & Company, Inc. proved to be the most significant positive items in that sector.
On the negative side, the largest impact was selection in Materials, Industrials, and Financials. The Materials sector was pulled down by poor performance from Westrock Co. and Huntsman Corp., while Industrials had Southwest Airlines Co. as a large detractor. Owens Corning Co., a construction industry supplier that reacted to a slowdown in housing. Exposure and significant weightings in money center banks and some of the larger regional banks were big detractors, such as Citigroup and Bank of America.
Portfolio Positioning
While this strategy is balanced relative to the benchmark, it does possess defensive characteristics, such as having an overweight in Utilities.
The largest relative sector exposures for the year were an underweight in Communications Services and an overweight in Materials.
Portfolio and Market Outlook
The market volatility late in the year caused sudden changes in the market. The perception of a friendlier environment from the Fed and continued hope that trade issues can be relatively quickly and favorably resolved has created an environment where the market is beginning to treat earnings disappointments and reduced outlooks less harshly since these are being viewed as temporary issues. The total return potential for stocks now seems more favorable than it was just a few months ago, and the market appears to have begun the early phase of a calculated rebound that may have some duration in time and level.
18 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
MANAGERS’ COMMENTARY(Unaudited)(concluded) | December 31, 2018 |
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, 2018 |
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. | 4.1% |
Chevron Corp. | 3.0% |
Bank of America Corp. | 2.9% |
Berkshire Hathaway, Inc. — Class B | 2.9% |
Exxon Mobil Corp. | 2.8% |
Pfizer, Inc. | 2.7% |
Cisco Systems, Inc. | 2.5% |
Merck & Company, Inc. | 2.4% |
Intel Corp. | 2.0% |
Citigroup, Inc. | 2.0% |
Top Ten Total | 27.3% |
“Ten Largest Holdings” excludes any temporary cash investments. | |
20 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
PERFORMANCE REPORT AND FUND PROFILE(Unaudited)(concluded) | December 31, 2018 |
Cumulative Fund Performance*,†
Average Annual Returns*,†
Periods Ended December 31, 2018
| 1 Year | 5 Year | 10 Year |
Series B (Large Cap Value Series) | (9.53%) | 5.74% | 11.03% |
Russell 1000 Value Index | (8.27%) | 5.95% | 11.18% |
* | 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, 2018 |
SERIES B (LARGE CAP VALUE SERIES) |
| Shares | Value | ||||||
COMMON STOCKS† - 97.1% | ||||||||
Financial - 26.3% | ||||||||
JPMorgan Chase & Co. | 87,108 | $ | 8,503,483 | |||||
Bank of America Corp. | 247,492 | 6,098,203 | ||||||
Berkshire Hathaway, Inc. — Class B* | 29,501 | 6,023,514 | ||||||
Citigroup, Inc. | 78,919 | 4,108,523 | ||||||
MetLife, Inc. | 61,756 | 2,535,701 | ||||||
BB&T Corp. | 58,145 | 2,518,841 | ||||||
Zions Bancorp North America | 55,143 | 2,246,526 | ||||||
Welltower, Inc. REIT | 30,420 | 2,111,452 | ||||||
SunTrust Banks, Inc. | 41,595 | 2,098,052 | ||||||
Wells Fargo & Co. | 43,839 | 2,020,101 | ||||||
Principal Financial Group, Inc. | 44,541 | 1,967,376 | ||||||
Allstate Corp. | 23,741 | 1,961,719 | ||||||
Loews Corp. | 36,285 | 1,651,693 | ||||||
Jefferies Financial Group, Inc. | 84,080 | 1,459,629 | ||||||
Morgan Stanley | 34,665 | 1,374,467 | ||||||
Equity Commonwealth REIT | 45,617 | 1,368,966 | ||||||
Omega Healthcare Investors, Inc. REIT | 36,437 | 1,280,761 | ||||||
Prudential Financial, Inc. | 12,350 | 1,007,143 | ||||||
Voya Financial, Inc. | 24,651 | 989,491 | ||||||
KeyCorp | 64,668 | 955,793 | ||||||
Regions Financial Corp. | 70,117 | 938,166 | ||||||
Realogy Holdings Corp. | 50,262 | 737,846 | ||||||
Jones Lang LaSalle, Inc. | 4,866 | 616,035 | ||||||
Total Financial | 54,573,481 | |||||||
Consumer, Non-cyclical - 21.9% | ||||||||
Pfizer, Inc. | 127,456 | 5,563,454 | ||||||
Merck & Company, Inc. | 64,942 | 4,962,218 | ||||||
Procter & Gamble Co. | 39,244 | 3,607,308 | ||||||
Johnson & Johnson | 25,979 | 3,352,590 | ||||||
HCA Healthcare, Inc. | 18,846 | 2,345,385 | ||||||
Amgen, Inc. | 10,900 | 2,121,903 | ||||||
UnitedHealth Group, Inc. | 8,286 | 2,064,208 | ||||||
Archer-Daniels-Midland Co. | 43,946 | 1,800,468 | ||||||
CVS Health Corp. | 26,943 | 1,765,305 | ||||||
Tyson Foods, Inc. — Class A | 30,226 | 1,614,068 | ||||||
United Therapeutics Corp.* | 14,302 | 1,557,488 | ||||||
Quest Diagnostics, Inc. | 17,512 | 1,458,224 | ||||||
Zimmer Biomet Holdings, Inc. | 13,693 | 1,420,238 | ||||||
Bunge Ltd. | 25,800 | 1,378,752 | ||||||
Medtronic plc | 13,608 | 1,237,784 | ||||||
AmerisourceBergen Corp. — Class A | 14,464 | 1,076,122 | ||||||
Hormel Foods Corp. | 24,547 | 1,047,666 | ||||||
Biogen, Inc.* | 3,468 | 1,043,590 | ||||||
DaVita, Inc.* | 20,183 | 1,038,617 | ||||||
Humana, Inc. | 3,622 | 1,037,631 | ||||||
Cigna Corp. | 5,448 | 1,034,596 | ||||||
Alexion Pharmaceuticals, Inc.* | 8,369 | 814,806 | ||||||
Dentsply Sirona, Inc. | 14,485 | 538,987 | ||||||
Mylan N.V.* | 19,130 | 524,162 | ||||||
Ingredion, Inc. | 5,434 | 496,668 | ||||||
Philip Morris International, Inc. | 6,382 | 426,062 | ||||||
Total Consumer, Non-cyclical | 45,328,300 | |||||||
Energy - 11.1% | ||||||||
Chevron Corp. | 57,407 | 6,245,307 | ||||||
Exxon Mobil Corp. | 84,242 | 5,744,462 | ||||||
Kinder Morgan, Inc. | 188,943 | 2,905,944 | ||||||
Marathon Oil Corp. | 158,094 | 2,267,068 | ||||||
Hess Corp. | 41,074 | 1,663,497 | ||||||
ConocoPhillips | 20,266 | 1,263,585 | ||||||
Whiting Petroleum Corp.* | 55,030 | 1,248,631 | ||||||
Range Resources Corp. | 107,163 | 1,025,550 | ||||||
Antero Resources Corp.* | 56,985 | 535,089 | ||||||
Total Energy | 22,899,133 | |||||||
Utilities - 8.5% | ||||||||
Exelon Corp. | 72,444 | 3,267,224 | ||||||
Public Service Enterprise Group, Inc. | 56,473 | 2,939,420 | ||||||
Ameren Corp. | 41,280 | 2,692,694 | ||||||
OGE Energy Corp. | 58,117 | 2,277,605 | ||||||
Duke Energy Corp. | 24,149 | 2,084,059 | ||||||
Edison International | 27,657 | 1,570,088 | ||||||
SCANA Corp. | 31,222 | 1,491,787 | ||||||
Pinnacle West Capital Corp. | 15,680 | 1,335,936 | ||||||
Total Utilities | 17,658,813 | |||||||
Industrial - 7.0% | ||||||||
Republic Services, Inc. — Class A | 34,123 | 2,459,927 | ||||||
Eaton Corporation plc | 18,940 | 1,300,420 | ||||||
FedEx Corp. | 7,764 | 1,252,566 | ||||||
WestRock Co. | 31,950 | 1,206,432 | ||||||
Owens Corning | 26,430 | 1,162,391 | ||||||
3M Co. | 5,924 | 1,128,759 | ||||||
Corning, Inc. | 36,223 | 1,094,297 | ||||||
Jabil, Inc. | 43,618 | 1,081,290 | ||||||
Ingersoll-Rand plc | 9,002 | 821,252 | ||||||
Carlisle Companies, Inc. | 7,959 | 800,039 | ||||||
Honeywell International, Inc. | 6,020 | 795,363 | ||||||
Timken Co. | 19,855 | 740,989 | ||||||
General Electric Co. | 97,873 | 740,899 | ||||||
Total Industrial | 14,584,624 | |||||||
Communications - 6.4% | ||||||||
Cisco Systems, Inc. | 118,524 | 5,135,645 | ||||||
Verizon Communications, Inc. | 62,050 | 3,488,451 | ||||||
Comcast Corp. — Class A | 69,129 | 2,353,843 | ||||||
Symantec Corp. | 77,582 | 1,465,912 | ||||||
AT&T, Inc. | 24,582 | 701,570 | ||||||
Total Communications | 13,145,421 | |||||||
Consumer, Cyclical - 6.2% | ||||||||
Walmart, Inc. | 31,959 | 2,976,981 | ||||||
Southwest Airlines Co. | 47,188 | 2,193,298 | ||||||
PVH Corp. | 14,248 | 1,324,352 | ||||||
JetBlue Airways Corp.* | 77,479 | 1,244,313 | ||||||
Lear Corp. | 10,067 | 1,236,832 | ||||||
PACCAR, Inc. | 20,253 | 1,157,256 | ||||||
Carnival Corp. | 23,157 | 1,141,640 | ||||||
DR Horton, Inc. | 32,193 | 1,115,809 | ||||||
22|THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
SCHEDULE OF INVESTMENTS(concluded) | December 31, 2018 |
SERIES B (LARGE CAP VALUE SERIES) |
| Shares | Value | ||||||
Macy’s, Inc. | 17,763 | $ | 528,982 | |||||
Total Consumer, Cyclical | 12,919,463 | |||||||
Basic Materials - 5.1% | ||||||||
Nucor Corp. | 38,756 | 2,007,949 | ||||||
Reliance Steel & Aluminum Co. | 25,241 | 1,796,402 | ||||||
DowDuPont, Inc. | 29,631 | 1,584,666 | ||||||
Huntsman Corp. | 78,933 | 1,522,617 | ||||||
Steel Dynamics, Inc. | 47,307 | 1,421,102 | ||||||
Alcoa Corp.* | 49,358 | 1,311,936 | ||||||
Freeport-McMoRan, Inc. | 82,050 | 845,935 | ||||||
Total Basic Materials | 10,490,607 | |||||||
Technology - 4.6% | ||||||||
Intel Corp. | 88,626 | 4,159,218 | ||||||
Apple, Inc. | 10,204 | 1,609,579 | ||||||
Micron Technology, Inc.* | 45,094 | 1,430,833 | ||||||
Oracle Corp. | 28,737 | 1,297,476 | ||||||
Skyworks Solutions, Inc. | 13,665 | 915,828 | ||||||
Total Technology | 9,412,934 | |||||||
Total Common Stocks | ||||||||
(Cost $179,649,401) | 201,012,776 | |||||||
MONEY MARKET FUND† - 3.0% | ||||||||
Dreyfus Treasury Securities Cash Management - Institutional Shares 2.20%1 | 6,267,458 | 6,267,458 | ||||||
Total Money Market Fund | ||||||||
(Cost $6,267,458) | 6,267,458 | |||||||
Total Investments - 100.1% | ||||||||
(Cost $185,916,859) | $ | 207,280,234 | ||||||
Other Assets & Liabilities, net - (0.1)% | (113,085 | ) | ||||||
Total Net Assets - 100.0% | $ | 207,167,149 | ||||||
* | 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, 2018. |
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, 2018 (See Note 4 in the Notes to Financial Statements):
Investments in Securities (Assets) | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Common Stocks | $ | 201,012,776 | $ | — | $ | — | $ | 201,012,776 | ||||||||
Money Market Fund | 6,267,458 | — | — | 6,267,458 | ||||||||||||
Total Assets | $ | 207,280,234 | $ | — | $ | — | $ | 207,280,234 | ||||||||
Transfers between investment levels may occur as the markets fluctuate and/or the availability of data used in an investment’s valuation changes. Transfers between valuation levels, if any, are in comparison to the valuation levels at the end of the previous fiscal year, and are effective using the fair value as of the end of the current fiscal period.
For the year ended December 31, 2018, 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, 2018 |
Assets: | ||||
Investments, at value (cost $185,916,859) | $ | 207,280,234 | ||
Prepaid expenses | 9,387 | |||
Receivables: | ||||
Dividends | 250,724 | |||
Interest | 19,511 | |||
Fund shares sold | 268 | |||
Total assets | 207,560,124 | |||
Liabilities: | ||||
Payable for: | ||||
Fund shares redeemed | 205,677 | |||
Distribution and service fees | 42,915 | |||
Printing fees | 40,682 | |||
Management fees | 37,866 | |||
Fund accounting/administration fees | 13,733 | |||
Transfer agent/maintenance fees | 2,603 | |||
Trustees’ fees* | 1,060 | |||
Miscellaneous | 48,439 | |||
Total liabilities | 392,975 | |||
Commitments and contingent liabilities (Note 15) | — | |||
Net assets | $ | 207,167,149 | ||
Net assets consist of: | ||||
Paid in capital | $ | 168,570,906 | ||
Total distributable earnings (loss) | 38,596,243 | |||
Net assets | $ | 207,167,149 | ||
Capital shares outstanding | 5,732,778 | |||
Net asset value per share | $ | 36.14 | ||
STATEMENT OF OPERATIONS |
Year Ended December 31, 2018 |
Investment Income: | ||||
Dividends (net of foreign withholding tax of $878) | $ | 5,784,849 | ||
Interest | 58,206 | |||
Total investment income | 5,843,055 | |||
Expenses: | ||||
Management fees | 1,620,084 | |||
Distribution and service fees | 623,108 | |||
Fund accounting/administration fees | 199,397 | |||
Transfer agent/maintenance fees | 25,530 | |||
Trustees’ fees* | 16,211 | |||
Line of credit fees | 8,417 | |||
Custodian fees | 7,709 | |||
Miscellaneous | 159,110 | |||
Total expenses | 2,659,566 | |||
Less: | ||||
Expenses waived by Adviser | (657,291 | ) | ||
Net expenses | 2,002,275 | |||
Net investment income | 3,840,780 | |||
Net Realized and Unrealized Gain (Loss): | ||||
Net realized gain (loss) on: | ||||
Investments | 16,968,144 | |||
Net realized gain | 16,968,144 | |||
Net change in unrealized appreciation (depreciation) on: | ||||
Investments | (42,619,610 | ) | ||
Net change in unrealized appreciation (depreciation) | (42,619,610 | ) | ||
Net realized and unrealized loss | (25,651,466 | ) | ||
Net decrease in net assets resulting from operations | $ | (21,810,686 | ) | |
* | Relates to Trustees not deemed “interested persons” 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 | $ | 3,840,780 | $ | 3,059,968 | ||||
Net realized gain on investments | 16,968,144 | 20,432,360 | ||||||
Net change in unrealized appreciation (depreciation) on investments | (42,619,610 | ) | 14,902,142 | |||||
Net increase (decrease) in net assets resulting from operations | (21,810,686 | ) | 38,394,470 | |||||
Distributions to shareholders | (19,382,371 | ) | (10,733,286 | )1 | ||||
Capital share transactions: | ||||||||
Proceeds from sale of shares | 5,515,601 | 4,647,149 | ||||||
Distributions reinvested | 19,382,371 | 10,733,286 | ||||||
Cost of shares redeemed | (45,795,901 | ) | (34,475,157 | ) | ||||
Net decrease from capital share transactions | (20,897,929 | ) | (19,094,722 | ) | ||||
Net increase (decrease) in net assets | (62,090,986 | ) | 8,566,462 | |||||
Net assets: | ||||||||
Beginning of year | 269,258,135 | 260,691,673 | ||||||
End of year | $ | 207,167,149 | $ | 269,258,135 | ||||
Capital share activity: | ||||||||
Shares sold | 132,720 | 115,794 | ||||||
Shares issued from reinvestment of distributions | 480,475 | 272,488 | ||||||
Shares redeemed | (1,090,519 | ) | (849,517 | ) | ||||
Net decrease in shares | (477,324 | ) | (461,235 | ) | ||||
1 | For the year ended December 31, 2017, the distributions from net investment income and net realized gains were as follows (see Note 13): |
| Net investment income | $ | (3,290,010 | ) | |
| Net realized gains | $ | (7,443,276 | ) |
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 | $ | 43.36 | $ | 39.08 | $ | 33.20 | $ | 41.40 | $ | 37.82 | ||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||
Net investment income (loss)a | .65 | .48 | .50 | .61 | .41 | |||||||||||||||
Net gain (loss) on investments (realized and unrealized) | (4.42 | ) | 5.52 | 6.48 | (2.29 | ) | 3.17 | |||||||||||||
Total from investment operations | (3.77 | ) | 6.00 | 6.98 | (1.68 | ) | 3.58 | |||||||||||||
Less distributions from: | ||||||||||||||||||||
Net investment income | (.58 | ) | (.53 | ) | (.61 | ) | (.47 | ) | — | |||||||||||
Net realized gains | (2.87 | ) | (1.19 | ) | (.49 | ) | (6.05 | ) | — | |||||||||||
Total distributions | (3.45 | ) | (1.72 | ) | (1.10 | ) | (6.52 | ) | — | |||||||||||
Net asset value, end of period | $ | 36.14 | $ | 43.36 | $ | 39.08 | $ | 33.20 | $ | 41.40 | ||||||||||
| ||||||||||||||||||||
Total Returnb | (9.53 | %) | 15.81 | % | 21.41 | % | (5.08 | %) | 9.47 | % | ||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||
Net assets, end of period (in thousands) | $ | 207,167 | $ | 269,258 | $ | 260,692 | $ | 233,098 | $ | 275,200 | ||||||||||
Ratios to average net assets: | ||||||||||||||||||||
Net investment income (loss) | 1.54 | % | 1.17 | % | 1.44 | % | 1.63 | % | 1.04 | % | ||||||||||
Total expensesc | 1.07 | % | 1.02 | % | 0.82 | % | 0.84 | % | 0.83 | % | ||||||||||
Net expensesd,e | 0.80 | % | 0.81 | % | 0.82 | % | 0.84 | % | 0.83 | % | ||||||||||
Portfolio turnover rate | 21 | % | 27 | % | 44 | % | 38 | % | 47 | % | ||||||||||
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 and reimbursements, as applicable. |
e | Net expenses may include expenses that are excluded from the expense limitation agreement. Excluding these expenses, the net expense ratios for the years would be: |
12/31/18 | 12/31/17 | 12/31/16 | 12/31/15 | 12/31/14 |
0.80% | 0.79% | 0.82% | 0.84% | 0.83% |
26|THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
MANAGERS’ COMMENTARY(Unaudited) | December 31, 2018 |
To Our Shareholders:
The Series D (World Equity Income Series) (the "Fund") 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 Portfolio Manager; and Evan Einstein, Director and Portfolio Manager. In the following paragraphs, the investment team discusses performance of the Fund for the fiscal year ended December 31, 2018.
For the year ended December 31, 2018, Series D (World Equity Income Series) returned -8.17%, compared with the -8.71% return of its benchmark, the MSCI World Index.
Performance Review
The Guggenheim World Equity Income Fund delivered on its mandate to provide current equity income while providing a stable long-term total return. During the year, the Fund outperformed the MSCI World Index by 54 basis points. Additionally, the Fund paid a distribution of 1.6% for the year, which reflected its successful navigation of the rising rate environment; being cognizant of companies with unsustainable dividends is one of the primary drivers for the Fund’s track record relative to peers.
The tactical currency hedge, which makes use of currency futures, was a boon to the portfolio, delivering positive return as the Fund benefited from movements in the Australian dollar and Canadian dollar. Global currencies were in flux with factors like the trade uncertainty and the fear of economic slowdowns in the news.
The primary contributor to the Fund’s relative excess return came from good sector allocation, such as overweights to Real Estate and Utilities. Duke Energy benefited from a flight to safety as the market declined in the fourth quarter. In conjunction with the flight to safety, dividend yield paid off, and Real Estate is a prime sector to find stable-yielding names, like the Japan Retail Fund Investment Corporation, a REIT which offers a 4.17% indicated yield and has a consistent history of dividend increases. Stock selection in Energy and Financials also contributed to performance for the period; the Fund’s Energy holdings benefited from the rise of oil prices over the period, despite a falloff in the fourth quarter.
Stock selection in Health Care and Information Technology was the largest detractor from performance, as companies like Johnson & Johnson and Western Digital turned in a lackluster year.
The portfolio’s largest underweight for the period on average was in Consumer Staples, although the sector went from underweight to overweight at the end of the year as the Fund looked for safety.
Although its average weight for the period was similar to the benchmark, Industrials names detracted for the period. But an underweight in General Electric, whose stock price declined by over 50% in 2018, added to performance. Similarly, the Fund’s underweight in Materials contributed to performance with underweights in names like Dow Dupont and BASF.
From a country prospective, allocation led to higher performance. Germany was the largest contributor to the portfolio. This was thanks to an overall underweight and positive stock selection, like underweights in Bayer and BASF, which both saw weak sales and tempered expectations of future demand. Our underweight to the U.S. provided a negative contribution overall since the country's equity market was a relative outperformer for the year; however, the U.S. lost some of its shine in the last quarter of the year, giving back some of its outperformance relative to other countries earlier in the year. Similarly, our underweight in Japan added relative performance for the full year.
Our modest overweight in France resulted in the largest country detractor. BNP Paribus led the decline, as it fell on news it would have slower growth than expected.
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, 2018 |
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, 2018, the investment diversification of the Fund by Country was as follows:
Country | % of Long Term |
United States | 57.0% |
Japan | 6.8% |
Canada | 6.4% |
United Kingdom | 5.9% |
Australia | 5.7% |
France | 4.0% |
Ireland | 2.2% |
Other | 12.0% |
Total Long Term Investments | 100% |
Inception Date:April 19, 1984 |
Ten Largest Holdings (% of Total Net Assets) | |
Johnson & Johnson | 1.8% |
Exxon Mobil Corp. | 1.6% |
Verizon Communications, Inc. | 1.5% |
Pfizer, Inc. | 1.5% |
Apple, Inc. | 1.5% |
UnitedHealth Group, Inc. | 1.4% |
Procter & Gamble Co. | 1.4% |
Home Depot, Inc. | 1.3% |
Microsoft Corp. | 1.3% |
AT&T, Inc. | 1.3% |
Top Ten Total | 14.6% |
“Ten Largest Holdings” excludes any temporary cash or derivative investments. | |
28 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
PERFORMANCE REPORT AND FUND PROFILE(Unaudited)(concluded) | December 31, 2018 |
Cumulative Fund Performance*,†
Average Annual Returns*,†
Periods Ended December 31, 2018
| 1 Year | 5 Year | 10 Year |
Series D (World Equity Income Series) | (8.17%) | 4.00% | 7.03% |
MSCI World Index | (8.71%) | 4.56% | 9.67% |
* | The performance data above represents past performance that is not predictive of future results. The investment return and principal value of an investment in the Fund will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Returns are historical and include changes in principal and reinvested dividends and capital gains and do not reflect the effect of taxes. The 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 | 29 |
SCHEDULE OF INVESTMENTS | December 31, 2018 |
SERIES D (WORLD EQUITY INCOME SERIES) |
| Shares | Value | ||||||
COMMON STOCKS† - 97.6% | ||||||||
Consumer, Non-cyclical - 24.1% | ||||||||
Johnson & Johnson | 17,000 | $ | 2,193,850 | |||||
Pfizer, Inc. | 44,000 | 1,920,600 | ||||||
UnitedHealth Group, Inc. | 7,100 | 1,768,752 | ||||||
Procter & Gamble Co. | 19,200 | 1,764,864 | ||||||
Roche Holding AG†† | 6,300 | 1,564,286 | ||||||
AbbVie, Inc. | 14,600 | 1,345,974 | ||||||
Altria Group, Inc. | 24,700 | 1,219,933 | ||||||
Kimberly-Clark Corp. | 10,600 | 1,207,764 | ||||||
Bristol-Myers Squibb Co. | 22,800 | 1,185,144 | ||||||
Philip Morris International, Inc. | 16,700 | 1,114,892 | ||||||
Hershey Co. | 9,400 | 1,007,492 | ||||||
General Mills, Inc. | 25,400 | 989,076 | ||||||
Kellogg Co. | 15,300 | 872,253 | ||||||
Coloplast A/S — Class B†† | 8,700 | 809,222 | ||||||
Colgate-Palmolive Co. | 13,400 | 797,568 | ||||||
Mowi ASA†† | 36,400 | 767,178 | ||||||
Allergan plc | 5,700 | 761,862 | ||||||
Japan Tobacco, Inc.†† | 27,500 | 653,401 | ||||||
Wesfarmers Ltd.†† | 28,400 | 645,323 | ||||||
Medtronic plc | 6,400 | 582,144 | ||||||
PepsiCo, Inc. | 5,100 | 563,448 | ||||||
Woolworths Group Ltd.†† | 26,200 | 543,588 | ||||||
Verisk Analytics, Inc. — Class A* | 4,400 | 479,776 | ||||||
Danone S.A.†† | 6,300 | 444,087 | ||||||
Takeda Pharmaceutical Company Ltd.†† | 13,000 | 440,608 | ||||||
Intuitive Surgical, Inc.* | 900 | 431,028 | ||||||
Clorox Co. | 2,600 | 400,764 | ||||||
IDEXX Laboratories, Inc.* | 2,100 | 390,642 | ||||||
Merck & Company, Inc. | 5,100 | 389,691 | ||||||
Stryker Corp. | 2,400 | 376,200 | ||||||
Rollins, Inc. | 10,200 | 368,220 | ||||||
McCormick & Company, Inc. | 2,600 | 362,024 | ||||||
Imperial Brands plc†† | 11,600 | 352,073 | ||||||
Cardinal Health, Inc. | 6,500 | 289,900 | ||||||
Campbell Soup Co. | 8,300 | 273,817 | ||||||
Amgen, Inc. | 1,400 | 272,538 | ||||||
Wm Morrison Supermarkets plc†† | 98,600 | 268,037 | ||||||
JM Smucker Co. | 2,600 | 243,074 | ||||||
Gilead Sciences, Inc. | 3,100 | 193,905 | ||||||
Total Consumer, Non-cyclical | 30,254,998 | |||||||
Financial - 21.1% | ||||||||
Mastercard, Inc. — Class A | 6,700 | 1,263,955 | ||||||
Aflac, Inc. | 27,000 | 1,230,120 | ||||||
Westpac Banking Corp.†† | 65,700 | 1,161,116 | ||||||
National Australia Bank Ltd. ADR†† | 64,100 | 1,087,925 | ||||||
Essex Property Trust, Inc. REIT | 4,400 | 1,078,924 | ||||||
BNP Paribas S.A.†† | 23,300 | 1,052,355 | ||||||
Public Storage REIT | 5,000 | 1,012,050 | ||||||
Australia & New Zealand Banking Group Ltd.†† | 58,500 | 1,010,980 | ||||||
Bank Leumi Le-Israel BM†† | 164,000 | 992,338 | ||||||
AGNC Investment Corp. REIT | 55,000 | 964,700 | ||||||
Canadian Imperial Bank of Commerce | 12,560 | 935,893 | ||||||
Bank of Montreal | 14,000 | 915,051 | ||||||
AXA S.A.†† | 41,400 | 893,584 | ||||||
Simon Property Group, Inc. REIT | 5,100 | 856,749 | ||||||
Ageas†† | 18,300 | 823,872 | ||||||
Bank Hapoalim BM†† | 126,600 | 801,409 | ||||||
SmartCentres Real Estate Investment Trust | 34,800 | 786,237 | ||||||
DNB ASA†† | 48,000 | 770,436 | ||||||
RioCan Real Estate Investment Trust | 39,400 | 687,186 | ||||||
First Capital Realty, Inc. | 47,500 | 656,154 | ||||||
H&R Real Estate Investment Trust | 42,500 | 643,147 | ||||||
Swiss Re AG†† | 6,900 | 634,906 | ||||||
Japan Retail Fund Investment Corp. REIT†† | 300 | 598,644 | ||||||
Annaly Capital Management, Inc. REIT | 60,100 | 590,182 | ||||||
Toronto-Dominion Bank | 11,600 | 576,863 | ||||||
Unibail-Rodamco-Westfield REIT†† | 3,109 | 481,151 | ||||||
United Urban Investment Corp. REIT†† | 300 | 464,596 | ||||||
Daiwa House REIT Investment Corp.†† | 200 | 448,004 | ||||||
Power Financial Corp. | 23,000 | 435,364 | ||||||
ICADE REIT†† | 5,000 | 381,103 | ||||||
VEREIT, Inc. | 50,000 | 357,500 | ||||||
IGM Financial, Inc. | 13,400 | 304,711 | ||||||
AvalonBay Communities, Inc. REIT | 1,700 | 295,885 | ||||||
Great-West Lifeco, Inc. | 14,300 | 295,310 | ||||||
JPMorgan Chase & Co. | 2,900 | 283,098 | ||||||
Invesco Ltd. | 16,600 | 277,884 | ||||||
Societe Generale S.A.†† | 6,600 | 209,272 | ||||||
CI Financial Corp. | 15,700 | 198,813 | ||||||
Total Financial | 26,457,467 | |||||||
Communications - 13.3% | ||||||||
Verizon Communications, Inc. | 34,500 | 1,939,590 | ||||||
AT&T, Inc. | 57,000 | 1,626,780 | ||||||
Amazon.com, Inc.* | 900 | 1,351,773 | ||||||
Alphabet, Inc. — Class C* | 1,281 | 1,326,617 | ||||||
Vodafone Group plc†† | 532,100 | 1,034,619 | ||||||
Omnicom Group, Inc. | 13,500 | 988,740 | ||||||
KDDI Corp.†† | 38,700 | 924,691 | ||||||
HKT Trust & HKT Ltd.†† | 586,700 | 845,196 | ||||||
BCE, Inc. | 19,200 | 758,809 | ||||||
Walt Disney Co. | 6,700 | 734,655 | ||||||
Interpublic Group of Companies, Inc. | 34,900 | 719,987 | ||||||
TELUS Corp. | 19,900 | 659,892 | ||||||
PCCW Ltd.†† | 1,144,700 | 659,171 | ||||||
Eutelsat Communications S.A.†† | 26,600 | 524,105 | ||||||
NTT DOCOMO, Inc.†† | 22,200 | 498,794 | ||||||
Comcast Corp. — Class A | 11,500 | 391,575 | ||||||
Facebook, Inc. — Class A* | 2,735 | 358,531 | ||||||
Nippon Telegraph & Telephone Corp.†† | 8,100 | 330,460 | ||||||
Telefonica Deutschland Holding AG†† | 83,300 | 327,896 | ||||||
WPP plc†† | 30,000 | 326,475 | ||||||
SES S.A.†† | 14,800 | 283,392 | ||||||
Total Communications | 16,611,748 | |||||||
Technology - 10.1% | ||||||||
Apple, Inc. | 11,700 | 1,845,558 | ||||||
Microsoft Corp. | 16,300 | 1,655,591 | ||||||
Accenture plc — Class A | 9,400 | 1,325,494 | ||||||
30|THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
SCHEDULE OF INVESTMENTS(continued) | December 31, 2018 |
SERIES D (WORLD EQUITY INCOME SERIES) |
| Shares | Value | ||||||
Paychex, Inc. | 18,700 | $ | 1,218,305 | |||||
International Business Machines Corp. | 10,400 | 1,182,168 | ||||||
Texas Instruments, Inc. | 11,300 | 1,067,850 | ||||||
Canon, Inc.†† | 37,500 | 1,031,792 | ||||||
Fiserv, Inc.* | 11,500 | 845,135 | ||||||
Intuit, Inc. | 3,501 | 689,172 | ||||||
Xilinx, Inc. | 6,700 | 570,639 | ||||||
Jack Henry & Associates, Inc. | 4,400 | 556,688 | ||||||
Oracle Corporation Japan†† | 8,200 | 520,494 | ||||||
Broadridge Financial Solutions, Inc. | 2,100 | 202,125 | ||||||
Total Technology | 12,711,011 | |||||||
Consumer, Cyclical - 7.9% | ||||||||
Home Depot, Inc. | 9,800 | 1,683,836 | ||||||
Brilliance China Automotive Holdings Ltd. ADR*,†† | 24,700 | 1,260,110 | ||||||
TJX Companies, Inc. | 25,336 | 1,133,532 | ||||||
Lawson, Inc.†† | 11,600 | 733,719 | ||||||
Target Corp. | 10,300 | 680,727 | ||||||
Harvey Norman Holdings Ltd.†† | 298,400 | 664,319 | ||||||
Crown Resorts Ltd.†† | 74,200 | 620,221 | ||||||
Ford Motor Co. | 80,000 | 612,000 | ||||||
Darden Restaurants, Inc. | 5,600 | 559,216 | ||||||
Iida Group Holdings Company Ltd.†† | 32,000 | 554,251 | ||||||
Las Vegas Sands Corp. | 8,200 | 426,810 | ||||||
L Brands, Inc. | 12,900 | 331,143 | ||||||
Walmart, Inc. | 3,500 | 326,025 | ||||||
Macy’s, Inc. | 10,600 | 315,668 | ||||||
Total Consumer, Cyclical | 9,901,577 | |||||||
Utilities - 7.6% | ||||||||
Duke Energy Corp. | 14,000 | 1,208,200 | ||||||
Dominion Energy, Inc. | 16,300 | 1,164,798 | ||||||
National Grid plc†† | 104,800 | 1,025,354 | ||||||
Centrica plc†† | 591,300 | 1,019,793 | ||||||
SSE plc†† | 70,600 | 974,692 | ||||||
PPL Corp. | 31,600 | 895,228 | ||||||
OGE Energy Corp. | 21,500 | 842,585 | ||||||
CLP Holdings Ltd.†† | 56,138 | 634,437 | ||||||
Power Assets Holdings Ltd.†† | 85,500 | 594,029 | ||||||
WEC Energy Group, Inc. | 6,500 | 450,190 | ||||||
Pinnacle West Capital Corp. | 4,900 | 417,480 | ||||||
Edison International | 4,900 | 278,173 | ||||||
Total Utilities | 9,504,959 | |||||||
Industrial - 6.4% | ||||||||
3M Co. | 7,100 | 1,352,834 | ||||||
United Parcel Service, Inc. — Class B | 11,200 | 1,092,336 | ||||||
Trinity Industries, Inc.†† | 698,600 | 1,080,850 | ||||||
Emerson Electric Co. | 15,600 | 932,100 | ||||||
Lockheed Martin Corp. | 3,428 | 897,588 | ||||||
Pentair plc | 19,900 | 751,822 | ||||||
Cummins, Inc. | 5,400 | 721,656 | ||||||
CH Robinson Worldwide, Inc. | 8,071 | 678,690 | ||||||
General Electric Co. | 41,600 | 314,912 | ||||||
ComfortDelGro Corporation Ltd.†† | 135,900 | 214,728 | ||||||
Total Industrial | 8,037,516 | |||||||
Energy - 5.9% | ||||||||
Exxon Mobil Corp. | 29,200 | 1,991,148 | ||||||
Total S.A.†† | 25,200 | 1,329,316 | ||||||
BP plc†† | 198,900 | 1,257,497 | ||||||
Eni SpA†† | 68,500 | 1,082,221 | ||||||
Targa Resources Corp. | 21,900 | 788,838 | ||||||
Royal Dutch Shell plc — Class A†† | 18,200 | 535,780 | ||||||
Koninklijke Vopak N.V.†† | 8,200 | 371,895 | ||||||
Total Energy | 7,356,695 | |||||||
Basic Materials - 0.6% | ||||||||
Israel Chemicals Ltd.†† | 98,100 | 558,342 | ||||||
EMS-Chemie Holding AG†† | 500 | 238,098 | ||||||
Total Basic Materials | 796,440 | |||||||
Diversified - 0.6% | ||||||||
Jardine Matheson Holdings Ltd.†† | 9,900 | 688,842 | ||||||
Total Common Stocks | ||||||||
(Cost $129,334,139) | 122,321,253 | |||||||
EXCHANGE-TRADED FUND† - 1.2% | ||||||||
iShares Edge MSCI Min Vol Global ETF | 18,000 | 1,462,680 | ||||||
Total Exchange-Traded Fund | ||||||||
(Cost $1,515,042) | 1,462,680 | |||||||
MONEY MARKET FUND† - 0.4% | ||||||||
Goldman Sachs Financial Square Treasury Instruments Fund—Institutional Class 2.22%1 | 563,394 | 563,394 | ||||||
Total Money Market Fund | ||||||||
(Cost $563,394) | 563,394 | |||||||
Total Investments - 99.2% | ||||||||
(Cost $131,412,575) | $ | 124,347,327 | ||||||
Other Assets & Liabilities, net - 0.8% | 964,596 | |||||||
Total Net Assets - 100.0% | $ | 125,311,923 | ||||||
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT|31 |
SCHEDULE OF INVESTMENTS(concluded) | December 31, 2018 |
SERIES D (WORLD EQUITY INCOME SERIES) |
Futures Contracts | |||||||||||||
Description | Number of | Expiration | Notional | Value and | |||||||||
Currency Futures Contracts Sold Short† | |||||||||||||
Canadian Dollar Futures Contracts | 111 | Mar 2019 | $ | 8,147,400 | $ | 198,405 | |||||||
British Pound Futures Contracts | 87 | Mar 2019 | 6,956,194 | (38,830 | ) | ||||||||
| $ | 15,103,594 | $ | 159,575 | ||||||||||
* | Non-income producing security. |
** | Includes cumulative appreciation (depreciation). Variation margin is reported within the Statement of Assets and Liabilities. |
† | Value determined based on Level 1 inputs, unless otherwise noted — See Note 4. |
†† | Value determined based on Level 2 inputs — See Note 4. |
1 | Rate indicated is the 7-day yield as of December 31, 2018. |
ADR — American Depositary Receipt | |
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, 2018 (See Note 4 in the Notes to Financial Statements):
Investments in Securities (Assets) | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Common Stocks | $ | 81,276,180 | $ | 41,045,073 | $ | — | $ | 122,321,253 | ||||||||
Exchange-Traded Fund | 1,462,680 | — | — | 1,462,680 | ||||||||||||
Money Market Fund | 563,394 | — | — | 563,394 | ||||||||||||
Currency Futures Contracts** | 198,405 | — | — | 198,405 | ||||||||||||
Total Assets | $ | 83,500,659 | $ | 41,045,073 | $ | — | $ | 124,545,732 | ||||||||
| ||||||||||||||||
Investments in Securities (Liabilities) | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Currency Futures Contracts** | $ | 38,830 | $ | — | $ | — | $ | 38,830 | ||||||||
** | This derivative is reported as unrealized appreciation/depreciation at period end. |
Transfers between investment levels may occur as the markets fluctuate and/or the availability of data used in an investment’s valuation changes. Transfers between valuation levels, if any, are in comparison to the valuation levels at the end of the previous fiscal year, and are effective using the fair value as of the end of the current fiscal period.
For the year ended December 31, 2018, the Fund had securities with a total value of $15,247,758 transfer out of Level 1 into Level 2 due to utilizing fair value pricing for certain foreign equity securities at period end.
32|THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
SERIES D (WORLD EQUITY INCOME SERIES) |
STATEMENT OF ASSETS AND LIABILITIES |
December 31, 2018 |
Assets: | ||||
Investments, at value (cost $131,412,575) | $ | 124,347,327 | ||
Foreign currency, at value (cost $7,474) | 7,475 | |||
Segregated cash with broker | 469,850 | |||
Prepaid expenses | 7,448 | |||
Receivables: | ||||
Foreign tax reclaims | 440,202 | |||
Dividends | 292,858 | |||
Fund shares sold | 8,471 | |||
Interest | 1,342 | |||
Total assets | 125,574,973 | |||
Liabilities: | ||||
Overdraft due to custodian bank | 7,974 | |||
Payable for: | ||||
Fund shares redeemed | 73,792 | |||
Printing fees | 30,893 | |||
Variation margin on futures contracts | 26,282 | |||
Distribution and service fees | 25,608 | |||
Professional fees | 25,537 | |||
Management fees | 22,633 | |||
Custodian fees | 22,031 | |||
Fund accounting/administration fees | 8,195 | |||
Transfer agent/maintenance fees | 2,728 | |||
Trustees’ fees* | 932 | |||
Miscellaneous | 16,445 | |||
Total liabilities | 263,050 | |||
Commitments and contingent liabilities (Note 15) | — | |||
Net assets | $ | 125,311,923 | ||
Net assets consist of: | ||||
Paid in capital | $ | 122,114,619 | ||
Total distributable earnings (loss) | 3,197,304 | |||
Net assets | $ | 125,311,923 | ||
Capital shares outstanding | 9,668,155 | |||
Net asset value per share | $ | 12.96 | ||
STATEMENT OF OPERATIONS |
Year Ended December 31, 2018 |
Investment Income: | ||||
Dividends (net of foreign withholding tax of $343,126) | $ | 4,763,210 | ||
Interest | 15,155 | |||
Total investment income | 4,778,365 | |||
Expenses: | ||||
Management fees | 1,049,110 | |||
Distribution and service fees | 374,681 | |||
Transfer agent/maintenance fees | 25,584 | |||
Fund accounting/administration fees | 119,899 | |||
Custodian fees | 19,681 | |||
Trustees’ fees* | 16,030 | |||
Line of credit fees | 3,454 | |||
Miscellaneous | 143,287 | |||
Total expenses | 1,751,726 | |||
Less: | ||||
Expenses reimbursed by Adviser | (121 | ) | ||
Expenses waived by Adviser | (403,507 | ) | ||
Total expenses waived/reimbursed | (403,628 | ) | ||
Net expenses | 1,348,098 | |||
Net investment income | 3,430,267 | |||
Net Realized and Unrealized Gain (Loss): | ||||
Net realized gain (loss) on: | ||||
Investments | 7,962,483 | |||
Futures contracts | 594,730 | |||
Foreign currency transactions | (9,690 | ) | ||
Net realized gain | 8,547,523 | |||
Net change in unrealized appreciation (depreciation) on: | ||||
Investments | (23,006,242 | ) | ||
Futures contracts | 159,575 | |||
Foreign currency translations | (8,496 | ) | ||
Net change in unrealized appreciation (depreciation) | (22,855,163 | ) | ||
Net realized and unrealized loss | (14,307,640 | ) | ||
Net decrease in net assets resulting from operations | $ | (10,877,373 | ) | |
* | 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|33 |
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 | $ | 3,430,267 | $ | 3,809,763 | ||||
Net realized gain on investments | 8,547,523 | 11,398,423 | ||||||
Net change in unrealized appreciation (depreciation) on investments | (22,855,163 | ) | 7,230,039 | |||||
Net increase (decrease) in net assets resulting from operations | (10,877,373 | ) | 22,438,225 | |||||
Distributions to shareholders | (4,156,958 | ) | (4,436,814 | )1 | ||||
Capital share transactions: | ||||||||
Proceeds from sale of shares | 3,054,237 | 3,125,858 | ||||||
Distributions reinvested | 4,156,958 | 4,436,814 | ||||||
Cost of shares redeemed | (27,976,438 | ) | (24,431,034 | ) | ||||
Net decrease from capital share transactions | (20,765,243 | ) | (16,868,362 | ) | ||||
Net increase (decrease) in net assets | (35,799,574 | ) | 1,133,049 | |||||
Net assets: | ||||||||
Beginning of year | 161,111,497 | 159,978,448 | ||||||
End of year | $ | 125,311,923 | $ | 161,111,497 | ||||
Capital share activity: | ||||||||
Shares sold | 208,853 | 228,681 | ||||||
Shares issued from reinvestment of distributions | 288,077 | 328,167 | ||||||
Shares redeemed | (1,924,607 | ) | (1,783,834 | ) | ||||
Net decrease in shares | (1,427,677 | ) | (1,226,986 | ) | ||||
1 | For the year ended December 31, 2017, the total distributions to shareholders were all from net investment income (see Note 13). |
34|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 | $ | 14.52 | $ | 12.98 | $ | 12.12 | $ | 12.60 | $ | 12.00 | ||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||
Net investment income (loss)a | .33 | .33 | .37 | .36 | .37 | |||||||||||||||
Net gain (loss) on investments (realized and unrealized) | (1.47 | ) | 1.60 | .88 | (.43 | ) | .23 | |||||||||||||
Total from investment operations | (1.14 | ) | 1.93 | 1.25 | (.07 | ) | .60 | |||||||||||||
Less distributions from: | ||||||||||||||||||||
Net investment income | (.42 | ) | (.39 | ) | (.39 | ) | (.41 | ) | (— | )b | ||||||||||
Total distributions | (.42 | ) | (.39 | ) | (.39 | ) | (.41 | ) | (— | )b | ||||||||||
Net asset value, end of period | $ | 12.96 | $ | 14.52 | $ | 12.98 | $ | 12.12 | $ | 12.60 | ||||||||||
| ||||||||||||||||||||
Total Returnc | (8.17 | %) | 15.06 | % | 10.37 | % | (0.67 | %) | 5.00 | % | ||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||
Net assets, end of period (in thousands) | $ | 125,312 | $ | 161,111 | $ | 159,978 | $ | 158,063 | $ | 178,548 | ||||||||||
Ratios to average net assets: | ||||||||||||||||||||
Net investment income (loss) | 2.29 | % | 2.38 | % | 2.92 | % | 2.88 | % | 2.95 | % | ||||||||||
Total expensesd | 1.17 | % | 1.12 | % | 0.91 | % | 0.96 | % | 1.01 | % | ||||||||||
Net expensese,f | 0.90 | % | 0.90 | % | 0.91 | % | 0.96 | % | 1.01 | % | ||||||||||
Portfolio turnover rate | 134 | % | 112 | % | 43 | % | 110 | % | 132 | % | ||||||||||
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. |
e | Net expense information reflects the expense ratios after expense waivers and reimbursements, as applicable. |
f | Net expenses may include expenses that are excluded from the expense limitation agreement. Excluding these expenses, the net expense ratios for the years would be: |
12/31/18 | 12/31/17 |
0.90% | 0.88% |
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT|35 |
MANAGERS’ COMMENTARY(Unaudited) | December 31, 2018 |
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 Chief Investment Officer, Fixed Income; Steven H. Brown, CFA, Managing Director and Portfolio Manager; and Adam Bloch, 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, 2018.
For the year ended December 31, 2018, Series E (Total Return Bond Series) returned 1.14%, compared with the 0.01% return of its benchmark, the Bloomberg Barclays U.S. Aggregate Bond Index.
The Fund seeks to provide total return, comprised of current income and capital appreciation. The Fund pursues its investment objective by investing primarily in high-quality, investment-grade fixed-income securities across multiple sectors. The Fund employs a tactical sector allocation strategy, offering the opportunity to capitalize on total return potential created by changing market conditions.
The U.S. Federal Reserve delivered four interest rate increases in 2018, in line with our expectations. Interest rates rose and the curve bear-flattened over the period. The portfolio was underweight duration relative to its benchmark; and employed a duration “barbell” by obtaining key rate exposure on the very long-end of the curve, while remaining overweight floating rate exposure on the short-end. Approximately 78 percent of the portfolio was adjustable rate at period’s end. Our positioning led to significant relative performance.
The portfolio reduced credit exposure over the year. We pared credit sectors including collateralized loan obligations (“CLO”s), corporate credit, and non-Agency residential mortgage-backed securities (“NA RMBS”) and other asset-backed securities (“ABS”) with proceeds going toward government guaranteed sectors and cash and cash equivalents.
CLOs were positive given the carry (carry refers to the income received net of borrowing costs from portfolio investments over a defined period), despite modest spread widening over the period. CLO spreads have been widening since the second quarter of 2018 and are 20 to 200 basis points wider across the capital stack than the start of the year amid record new issuance at $130 billion. Highly rated tranches, which the Fund typically holds, have been more insulated than lower rated tranches.
NA RMBS holdings were a positive contributor over the year. Limited home inventory and improving labor market conditions should support home prices and mortgage credit performance. Pre-crisis RMBS investment has benefited from a supply shortfall caused by ongoing paydowns and limited new issuance.
ABS, including aircraft securitization and other commercial ABS, performed well over the period with positive total returns.
Investment grade corporate bond spreads widened materially to 153 basis points at 12/31/2018 from 93 basis points at 12/29/2017. The market became concerned with elevated leverage levels and the increase in the BBB component of the investment-grade universe. BBBs now account for 50 percent of the market, up from 36 percent 10 years ago. The Fund’s underweight positioning to investment grade corporates benefited on a relative basis.
The Fund uses derivatives to obtain a targeted interest rate duration, to hedge non-U.S. dollar foreign exchange exposure, and to occasionally obtain or replicate market exposure. For the period, returns from derivatives were positive.
The Fund also purchased a credit hedge via credit default swaps in November to reduce portfolio spread duration. As spreads widened, the credit hedge added to performance over the period.
The Fund invested excess cash into the Guggenheim Strategy Funds which, in turn, 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. For the one-year period ended December 31, 2018, investment in the Guggenheim Strategy Funds has benefited Fund performance relative to investing in other short-term investments.
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.
36 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
PERFORMANCE REPORT AND FUND PROFILE(Unaudited) | December 31, 2018 |
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) | |
U.S. Treasury Bonds, 11/15/46 | 8.2% |
Guggenheim Total Return Bond Fund - Institutional Class | 4.7% |
Guggenheim Limited Duration Fund - Institutional Class | 2.4% |
U.S. Treasury Bonds, 3.38% | 2.1% |
Guggenheim Ultra Short Duration Fund | 2.0% |
Federative Republic of Brazil | 2.0% |
State of Israel, 2.25% | 1.5% |
Kingdom of Spain | 1.3% |
Republic of Portugal | 1.3% |
Kingdom of Spain | 1.2% |
Top Ten Total | 26.7% |
“Ten Largest Holdings” excludes any temporary cash or derivative investments. | |
THE GUGGENHEIM FUNDS ANNUAL REPORT | 37 |
PERFORMANCE REPORT AND FUND PROFILE(Unaudited)(concluded) | December 31, 2018 |
Cumulative Fund Performance*,†
Average Annual Returns*,†
Periods Ended December 31, 2018
| 1 Year | 5 Year | 10 Year |
Series E (Total Return Bond Series) | 1.14% | 4.74% | 5.08% |
Bloomberg Barclays U.S. Aggregate Bond Index | 0.01% | 2.52% | 3.48% |
Portfolio Composition by Quality Rating1 | |
Rating | % of Total |
Fixed Income Instruments | |
AAA | 40.8% |
AA | 8.6% |
A | 13.0% |
BBB | 13.1% |
BB | 2.2% |
B | 2.7% |
CCC | 2.4% |
CC | 1.1% |
C | 0.3% |
NR2 | 2.0% |
Other Instruments | 13.8% |
Total Investments | 100.0% |
* | 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 Bloomberg 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. |
† | 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 | 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 converts ratings to the equivalent S&P rating. Security ratings are determined at the time of purchase and may change thereafter. |
2 | NR securities do not necessarily indicate low credit quality. |
38 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
SCHEDULE OF INVESTMENTS | December 31, 2018 |
SERIES E (TOTAL RETURN BOND SERIES) |
| Shares | Value | ||||||
PREFERRED STOCKS†† - 0.1% | ||||||||
Industrial - 0.1% | ||||||||
Seaspan Corp. 6.38% due 04/30/19 | 5,435 | $ | 137,560 | |||||
Total Preferred Stocks | ||||||||
(Cost $135,875) | 137,560 | |||||||
MUTUAL FUNDS† - 9.3% | ||||||||
Guggenheim Total Return Bond Fund - R6 Class1 | 217,372 | 5,784,281 | ||||||
Guggenheim Limited Duration Fund - Institutional Class1 | 120,358 | 2,962,018 | ||||||
Guggenheim Ultra Short Duration Fund1,2 | 249,908 | 2,489,086 | ||||||
Guggenheim Floating Rate Strategies Fund - Institutional Class1 | 8,167 | 202,786 | ||||||
Total Mutual Funds | ||||||||
(Cost $11,407,854) | 11,438,171 | |||||||
MONEY MARKET FUND† - 3.1% | ||||||||
Dreyfus Treasury Securities Cash Management - Institutional Shares 2.20%3 | 3,799,705 | 3,799,705 | ||||||
Total Money Market Fund | ||||||||
(Cost $3,799,705) | 3,799,705 | |||||||
Face | ||||||||
COLLATERALIZED MORTGAGE OBLIGATIONS†† - 23.9% | ||||||||
Government Agency - 11.9% | ||||||||
Fannie Mae12 | ||||||||
3.16% due 01/01/30 | 1,300,000 | 1,262,492 | ||||||
3.00% due 12/01/29 | 1,250,000 | 1,190,892 | ||||||
2.94% due 10/01/32 | 1,175,621 | 1,112,623 | ||||||
3.33% due 04/01/30 | 988,149 | 980,123 | ||||||
3.01% due 12/01/27 | 1,000,000 | 974,000 | ||||||
3.11% due 10/01/29 | 500,000 | 481,223 | ||||||
2.99% due 09/01/29 | 500,000 | 476,161 | ||||||
2.96% due 11/01/29 | 500,000 | 475,046 | ||||||
2.86% due 09/01/29 | 500,000 | 473,197 | ||||||
2.90% due 11/01/29 | 500,000 | 472,040 | ||||||
3.08% due 10/01/32 | 500,000 | 469,203 | ||||||
Freddie Mac Multifamily Structured Pass Through Certificates12 | ||||||||
2017-KGX1, 3.00% due 10/25/27 | 1,200,000 | 1,175,542 | ||||||
2017-KW03, 3.02% due 06/25/27 | 1,050,000 | 1,029,950 | ||||||
2018-K074, 3.60% due 02/25/28 | 1,000,000 | 1,015,966 | ||||||
Freddie Mac Seasoned Credit Risk Transfer Trust12 | ||||||||
2017-4, 2.75% due 06/25/574 | 1,143,069 | 1,112,862 | ||||||
2017-3, 3.00% due 07/25/56 | 1,107,060 | 1,070,904 | ||||||
Fannie Mae-Aces12 | ||||||||
2017-M11, 2.98% due 08/25/29 | 900,000 | 865,273 | ||||||
Total Government Agency | 14,637,497 | |||||||
Residential Mortgage Backed Securities - 9.3% | ||||||||
Soundview Home Loan Trust | ||||||||
2006-OPT5, 2.65% (1 Month USD LIBOR + 0.14%, Rate Floor: 0.14%) due 07/25/365 | 1,068,540 | 1,028,837 | ||||||
Home Equity Loan Trust | ||||||||
2007-FRE1, 2.70% (1 Month USD LIBOR + 0.19%, Rate Floor: 0.19%) due 04/25/375 | 1,067,897 | 990,675 | ||||||
CSMC Trust | ||||||||
2018-RPL9, 3.85% (WAC) due 09/25/575,6 | 969,787 | 980,940 | ||||||
JP Morgan Mortgage Acquisition Trust | ||||||||
2006-WMC4, 2.63% (1 Month USD LIBOR + 0.12%, Rate Floor: 0.12%) due 12/25/365 | 1,637,957 | 980,888 | ||||||
GSAA Trust | ||||||||
2005-10, 3.16% (1 Month USD LIBOR + 0.65%, Rate Floor: 0.65%) due 06/25/355 | 983,820 | 976,076 | ||||||
NovaStar Mortgage Funding Trust Series | ||||||||
2007-2, 2.71% (1 Month USD LIBOR + 0.20%, Rate Cap/Floor: 11.00%/0.20%) due 09/25/375 | 919,786 | 884,945 | ||||||
Luminent Mortgage Trust | ||||||||
2006-2, 2.71% (1 Month USD LIBOR + 0.20%, Rate Floor: 0.20%) due 02/25/465 | 858,521 | 783,477 | ||||||
CIM Trust | ||||||||
2018-R2, 3.69% (WAC) due 08/25/575,6 | 747,152 | 734,905 | ||||||
CIT Mortgage Loan Trust | ||||||||
2007-1, 3.96% (1 Month USD LIBOR + 1.45%, Rate Floor: 1.45%) due 10/25/375,6 | 494,959 | 497,858 | ||||||
2007-1, 3.86% (1 Month USD LIBOR + 1.35%, Rate Floor: 1.35%) due 10/25/375,6 | 202,888 | 205,029 | ||||||
Wachovia Asset Securitization Issuance II LLC Trust | ||||||||
2007-HE2A, 2.64% (1 Month USD LIBOR + 0.13%, Rate Floor: 0.13%) due 07/25/375,6 | 739,698 | 699,110 | ||||||
CSMC Series | ||||||||
2015-12R, 2.82% (WAC) due 11/30/375,6 | 680,280 | 677,349 | ||||||
HarborView Mortgage Loan Trust | ||||||||
2006-14, 2.62% (1 Month USD LIBOR + 0.15%, Rate Floor: 0.15%) due 01/25/475 | 648,773 | 619,768 | ||||||
American Home Mortgage Investment Trust | ||||||||
2007-1, 2.08% due 05/25/477 | 2,715,549 | 427,096 | ||||||
Washington Mutual Mortgage Pass-Through Certificates WMALT Series Trust | ||||||||
2006-AR9, 3.00% (1 Year CMT Rate + 0.84%, Rate Floor: 0.84%) due 11/25/465 | 396,528 | 347,271 | ||||||
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT|39 |
SCHEDULE OF INVESTMENTS(continued) | December 31, 2018 |
SERIES E (TOTAL RETURN BOND SERIES) |
| Face | Value | ||||||
Towd Point Mortgage Trust | ||||||||
2018-1, 3.00% (WAC) due 01/25/585,6 | 317,267 | $ | 311,472 | |||||
UCFC Manufactured Housing Contract | ||||||||
1997-2, 7.38% due 10/15/28 | 142,430 | 149,345 | ||||||
Morgan Stanley Re-REMIC Trust | ||||||||
2010-R5, 3.72% due 06/26/366 | 93,525 | 85,175 | ||||||
Total Residential Mortgage Backed Securities | 11,380,216 | |||||||
Military Housing - 1.6% | ||||||||
Freddie Mac Military Housing Bonds Resecuritization Trust Certificates | ||||||||
2015-R1, 5.24% (WAC) due 11/25/555,6 | 966,701 | 1,002,468 | ||||||
GMAC Commercial Mortgage Asset Corp. | ||||||||
2007-HCKM, 6.11% due 08/10/528 | 961,766 | 987,022 | ||||||
Total Military Housing | 1,989,490 | |||||||
Commercial Mortgage Backed Securities - 1.1% | ||||||||
Citigroup Commercial Mortgage Trust | ||||||||
2016-GC37, 1.79% (WAC) due 04/10/495,7 | 3,782,209 | 368,592 | ||||||
CFCRE Commercial Mortgage Trust | ||||||||
2016-C3, 1.05% (WAC) due 01/10/485,7 | 5,845,465 | 344,374 | ||||||
Wells Fargo Commercial Mortgage Trust | ||||||||
2016-NXS5, 1.53% (WAC) due 01/15/595,7 | 4,863,132 | 343,198 | ||||||
COMM Mortgage Trust | ||||||||
2015-CR26, 0.96% (WAC) due 10/10/485,7 | 6,595,680 | 327,746 | ||||||
Total Commercial Mortgage Backed Securities | 1,383,910 | |||||||
Total Collateralized Mortgage Obligations | ||||||||
(Cost $29,876,034) | 29,391,113 | |||||||
FOREIGN GOVERNMENT DEBT†† - 19.4% | ||||||||
Government of Japan | ||||||||
due 02/25/199 | JPY | 157,900,000 | 1,440,896 | |||||
due 01/10/199 | JPY | 156,100,000 | 1,424,170 | |||||
due 02/04/199 | JPY | 79,000,000 | 720,838 | |||||
due 01/28/199 | JPY | 56,200,000 | 512,781 | |||||
due 02/12/199 | JPY | 55,100,000 | 502,779 | |||||
due 03/11/199 | JPY | 54,000,000 | 492,801 | |||||
State of Israel | ||||||||
2.25% due 05/31/19 | ILS | 6,880,000 | 1,880,231 | |||||
6.00% due 02/28/19 | ILS | 4,340,000 | 1,231,038 | |||||
5.00% due 01/31/20 | ILS | 2,000,000 | 585,395 | |||||
Kingdom of Spain | ||||||||
due 01/18/199 | EUR | 1,380,000 | 1,581,666 | |||||
due 02/15/199 | EUR | 1,318,000 | 1,516,297 | |||||
Republic of Portugal | ||||||||
due 01/18/199 | EUR | 1,380,000 | 1,581,628 | |||||
due 03/22/199 | EUR | 930,000 | 1,066,812 | |||||
Federative Republic of Brazil | ||||||||
due 04/01/199 | BRL | 9,535,000 | 2,428,336 | |||||
United Mexican States | ||||||||
due 03/28/199 | MXN | 16,250,000 | 810,780 | |||||
due 03/14/199 | MXN | 10,700,000 | 535,572 | |||||
due 01/17/199 | MXN | 8,100,000 | 410,635 | |||||
due 01/24/199 | MXN | 3,900,000 | 197,541 | |||||
due 05/23/199 | MXN | 2,070,000 | 101,932 | |||||
Republic of France | ||||||||
due 01/04/199 | EUR | 690,000 | 790,650 | |||||
due 01/16/199 | EUR | 520,000 | 595,992 | |||||
due 01/30/199 | EUR | 175,000 | 200,630 | |||||
Kingdom of Denmark | ||||||||
due 03/01/199 | DKK | 7,810,000 | 1,199,733 | |||||
Republic of Hungary | ||||||||
due 02/27/199 | HUF | 307,100,000 | 1,096,515 | |||||
Government of United Kingdom | ||||||||
due 01/28/199 | GBP | 380,000 | 484,199 | |||||
Kingdom of Sweden | ||||||||
4.25% due 03/12/19 | SEK | 4,100,000 | 466,971 | |||||
Total Foreign Government Debt | ||||||||
(Cost $23,628,254) | 23,856,818 | |||||||
ASSET-BACKED SECURITIES†† - 17.4% | ||||||||
Collateralized Loan Obligations - 8.3% | ||||||||
Fortress Credit Opportunities IX CLO Ltd. | ||||||||
2017-9A, 4.17% (3 Month USD LIBOR + 1.55%, Rate Floor: 0.00%) due 11/15/295,6 | 1,200,000 | 1,184,820 | ||||||
Golub Capital Partners CLO Ltd. | ||||||||
2018-36A, 3.88% (3 Month USD LIBOR + 1.30%, Rate Floor: 0.00%) due 02/05/315,6 | 1,200,000 | 1,159,218 | ||||||
Ladder Capital Commercial Mortgage Trust | ||||||||
2017-FL1, 3.34% (1 Month USD LIBOR + 0.88%, Rate Floor: 0.88%) due 09/15/345,6 | 1,124,796 | 1,117,794 | ||||||
FDF II Ltd. | ||||||||
2016-2A, 4.29% due 05/12/316 | 1,000,000 | 1,002,279 | ||||||
Marathon CLO VII Ltd. | ||||||||
2017-7A, 4.16% (3 Month USD LIBOR + 1.65%, Rate Floor: 0.00%) due 10/28/255,6 | 1,000,000 | 991,236 | ||||||
MP CLO VIII Ltd. | ||||||||
2018-2A, 3.42% (3 Month USD LIBOR + 0.91%, Rate Floor: 0.00%) due 10/28/275,6 | 1,000,000 | 989,950 | ||||||
NXT Capital CLO LLC | ||||||||
2017-1A, 4.17% (3 Month USD LIBOR + 1.70%, Rate Floor: 0.00%) due 04/20/295,6 | 1,000,000 | 989,544 | ||||||
Dryden 37 Senior Loan Fund | ||||||||
2015-37A, due 01/15/316,10 | 1,000,000 | 902,490 | ||||||
Fortress Credit Opportunities XI CLO Ltd. | ||||||||
2018-11A, 3.74% (3 Month USD LIBOR + 1.30%, Rate Floor: 0.00%) due 04/15/315,6 | 750,000 | 724,820 | ||||||
Treman Park CLO Ltd. | ||||||||
2015-1A, due 10/20/286,10 | 500,000 | 424,650 | ||||||
40|THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
SCHEDULE OF INVESTMENTS(continued) | December 31, 2018 |
SERIES E (TOTAL RETURN BOND SERIES) |
| Face | Value | ||||||
BSPRT Issuer Ltd. | ||||||||
2017-FL2, 3.28% (1 Month USD LIBOR + 0.82%, Rate Floor: 0.82%) due 10/15/345,6 | 322,669 | $ | 322,266 | |||||
Resource Capital Corporation Ltd. | ||||||||
2017-CRE5, 3.26% (1 Month USD LIBOR + 0.80%) due 07/15/345,6 | 313,160 | 313,259 | ||||||
Copper River CLO Ltd. | ||||||||
2007-1A, due 01/20/218,10 | 600,000 | 50,005 | ||||||
Babson CLO Ltd. | ||||||||
2012-2A, due 05/15/236,10 | 750,000 | 39,717 | ||||||
Total Collateralized Loan Obligations | 10,212,048 | |||||||
Transport-Aircraft - 4.6% | ||||||||
Willis Engine Securitization Trust II | ||||||||
2012-A, 5.50% due 09/15/374,6 | 1,372,195 | 1,360,597 | ||||||
Castlelake Aircraft Securitization Trust | ||||||||
2017-1, 3.97% due 07/15/42 | 827,137 | 825,400 | ||||||
2015-1A, 4.70% due 12/15/404,6 | 424,939 | 429,869 | ||||||
Raspro Trust | ||||||||
2005-1A, 3.39% (3 Month USD LIBOR + 0.93%, Rate Floor: 0.93%) due 03/23/245,6 | 678,204 | 647,685 | ||||||
AIM Aviation Finance Ltd. | ||||||||
2015-1A, 4.21% due 02/15/406 | 601,047 | 604,997 | ||||||
Rise Ltd. | ||||||||
2014-1A, 4.75% due 02/12/39 | 589,291 | 577,505 | ||||||
Apollo Aviation Securitization Equity Trust | ||||||||
2016-1A, 4.88% due 03/17/364,6 | 455,534 | 464,692 | ||||||
Turbine Engines Securitization Ltd. | ||||||||
2013-1A, 5.13% due 12/13/488 | 460,819 | 445,261 | ||||||
Falcon Aerospace Ltd. | ||||||||
2017-1, 4.58% due 02/15/426 | 339,301 | 340,305 | ||||||
Total Transport-Aircraft | 5,696,311 | |||||||
Collateralized Debt Obligations - 1.2% | ||||||||
Anchorage Credit Funding Ltd. | ||||||||
2016-4A, 3.50% due 02/15/356 | 1,000,000 | 967,599 | ||||||
Putnam Structured Product Funding Ltd. | ||||||||
2003-1A, 3.46% (1 Month USD LIBOR + 1.00%, Rate Floor: 0.00%) due 10/15/385,6 | 410,078 | 406,224 | ||||||
N-Star REL CDO VIII Ltd. | ||||||||
2006-8A, 2.71% (1 Month USD LIBOR + 0.36%, Rate Floor: 0.36%) due 02/01/415,6 | 111,476 | 110,858 | ||||||
Total Collateralized Debt Obligations | 1,484,681 | |||||||
Whole Business - 1.0% | ||||||||
Taco Bell Funding LLC | ||||||||
2016-1A, 4.97% due 05/25/466 | 756,726 | 777,831 | ||||||
Domino’s Pizza Master Issuer LLC | ||||||||
2017-1A, 3.74% (3 Month USD LIBOR + 1.25%, Rate Floor: 0.00%) due 07/25/475,6 | 493,750 | 493,286 | ||||||
Total Whole Business | 1,271,117 | |||||||
Net Lease - 1.0% | ||||||||
Store Master Funding I-VII | ||||||||
2016-1A, 3.96% due 10/20/466 | 1,201,169 | 1,187,174 | ||||||
Transport-Container - 0.8% | ||||||||
Textainer Marine Containers Ltd. | ||||||||
2017-2A, 3.52% due 06/20/426 | 967,813 | 960,319 | ||||||
Insurance - 0.4% | ||||||||
Chesterfield Financial Holdings LLC | ||||||||
2014-1A, 4.50% due 12/15/346 | 464,250 | 464,103 | ||||||
Diversified Payment Rights - 0.1% | ||||||||
CIC Receivables Master Trust | ||||||||
REGD, 4.89% due 10/07/21 | 115,682 | 116,839 | ||||||
Total Asset-Backed Securities | ||||||||
(Cost $21,554,226) | 21,392,592 | |||||||
U.S. GOVERNMENT SECURITIES†† - 12.7% | ||||||||
U.S. Treasury Bonds | ||||||||
due 11/15/469,11 | 23,562,000 | 10,063,476 | ||||||
3.38% due 05/15/44 | 2,413,000 | 2,570,034 | ||||||
due 08/15/489,11 | 3,687,000 | 1,492,465 | ||||||
U.S. Treasury Bills | ||||||||
2.27% due 01/08/1914 | 1,500,000 | 1,499,438 | ||||||
Total U.S. Government Securities | ||||||||
(Cost $15,670,226) | 15,625,413 | |||||||
FEDERAL AGENCY BONDS†† - 4.9% | ||||||||
Fannie Mae Principal Strips12 | ||||||||
due 05/15/309,11 | 1,350,000 | 934,450 | ||||||
due 05/15/299,11 | 1,250,000 | 896,428 | ||||||
due 01/15/309,11 | 600,000 | 420,230 | ||||||
Freddie Mac Principal Strips12 | ||||||||
due 03/15/319,11 | 1,500,000 | 1,001,811 | ||||||
due 07/15/329,11 | 950,000 | 605,842 | ||||||
Freddie Mac12 | ||||||||
due 12/14/299 | 1,600,000 | 1,118,519 | ||||||
Tennessee Valley Authority | ||||||||
5.38% due 04/01/56 | 750,000 | 1,023,263 | ||||||
Total Federal Agency Bonds | ||||||||
(Cost $6,009,785) | 6,000,543 | |||||||
CORPORATE BONDS†† - 3.2% | ||||||||
Financial - 2.3% | ||||||||
Station Place Securitization Trust | ||||||||
3.32% (1 Month USD LIBOR + 1.00%, Rate Floor: 0.00%) due 03/24/195,6 | 1,000,000 | 1,000,000 | ||||||
3.02% (1 Month USD LIBOR + 0.70%, Rate Floor: 0.70%) due 09/24/195 | 1,000,000 | 1,000,000 | ||||||
Assurant, Inc. | ||||||||
4.07% (3 Month USD LIBOR + 1.25%) due 03/26/215 | 370,000 | 369,868 | ||||||
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT|41 |
SCHEDULE OF INVESTMENTS(continued) | December 31, 2018 |
SERIES E (TOTAL RETURN BOND SERIES) |
| Face | Value | ||||||
American Equity Investment Life Holding Co. | ||||||||
5.00% due 06/15/27 | 354,000 | $ | 345,134 | |||||
Hospitality Properties Trust | ||||||||
5.25% due 02/15/26 | 148,000 | 149,538 | ||||||
Total Financial | 2,864,540 | |||||||
Consumer, Cyclical - 0.5% | ||||||||
Northern Group Housing LLC | ||||||||
6.80% due 08/15/536 | 444,000 | 542,998 | ||||||
Basic Materials - 0.4% | ||||||||
Yamana Gold, Inc. | ||||||||
4.95% due 07/15/24 | 483,000 | 472,495 | ||||||
Industrial - 0.0% | ||||||||
Reynolds Group Issuer Incorporated / Reynolds Group Issuer LLC / Reynolds Group Issuer Luxembourg | ||||||||
5.94% (3 Month USD LIBOR + 3.50%) due 07/15/215,6 | 10,000 | 9,962 | ||||||
Total Corporate Bonds | ||||||||
(Cost $3,817,533) | 3,889,995 | |||||||
FEDERAL AGENCY DISCOUNT NOTES†† - 1.6% | ||||||||
Federal Home Loan Bank13 | ||||||||
2.39% due 01/23/1914 | 1,500,000 | 1,497,809 | ||||||
1.69% due 01/10/1914 | 500,000 | 499,725 | ||||||
Total Federal Agency Discount Notes | ||||||||
(Cost $1,997,534) | 1,997,534 | |||||||
MUNICIPAL BONDS†† - 0.8% | ||||||||
California - 0.4% | ||||||||
Cypress School District General Obligation Unlimited | ||||||||
due 08/01/489 | 1,000,000 | 267,410 | ||||||
Newport Mesa Unified School District General Obligation Unlimited | ||||||||
due 08/01/469 | 700,000 | 236,726 | ||||||
Total California | 504,136 | |||||||
Illinois - 0.4% | ||||||||
State of Illinois General Obligation Unlimited | ||||||||
5.65% due 12/01/38 | 400,000 | 434,100 | ||||||
Total Municipal Bonds | ||||||||
(Cost $930,441) | 938,236 | |||||||
SENIOR FLOATING RATE INTERESTS††,5 - 0.7% | ||||||||
Technology - 0.4% | ||||||||
Misys Ltd. | ||||||||
6.30% (3 Month USD LIBOR + 3.50%, Rate Floor: 4.50%) due 06/13/24 | 289,751 | 269,263 | ||||||
Epicor Software | ||||||||
5.78% (1 Month USD LIBOR + 3.25%, Rate Floor: 4.25%) due 06/01/22 | 175,669 | 167,544 | ||||||
Total Technology | 436,807 | |||||||
Industrial - 0.2% | ||||||||
Capstone Logistics | ||||||||
7.02% (1 Month USD LIBOR + 4.50%, Rate Floor: 5.50%) due 10/07/21 | 289,650 | 284,763 | ||||||
Consumer, Non-cyclical - 0.1% | ||||||||
DJO Finance LLC | ||||||||
5.71% ((3 Month USD LIBOR + 3.25%) and (1 Month USD LIBOR + 3.25%), Rate Floor: 4.25%) due 06/08/20 | 97,722 | 96,305 | ||||||
Total Senior Floating Rate Interests | ||||||||
(Cost $850,614) | 817,875 | |||||||
COMMERCIAL PAPER†† - 2.5% | ||||||||
Fidelity National Information Services, Inc. | ||||||||
3.00% due 01/28/196,14 | 1,081,000 | 1,078,568 | ||||||
Walgreens Boots Alliance, Inc. | ||||||||
2.90% due 01/09/1914 | 1,000,000 | 999,356 | ||||||
Clorox Co. | ||||||||
2.85% due 01/07/1914 | 700,000 | 699,667 | ||||||
American Water Capital Corp. | ||||||||
2.77% due 01/11/196,14 | 300,000 | 299,769 | ||||||
Total Commercial Paper | ||||||||
(Cost $3,077,360) | 3,077,360 | |||||||
42|THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
SCHEDULE OF INVESTMENTS(continued) | December 31, 2018 |
SERIES E (TOTAL RETURN BOND SERIES) |
|
| Value | ||||||
OTC OPTIONS PURCHASED†† - 0.0% | ||||||||
Call options on: | ||||||||
BofA Merrill Lynch iShares MSCI Emerging Markets ETF Expiring January 2019 with strike price of $55.00 (Notional Value $2,980,278) | 763 | $ | 382 | |||||
BofA Merrill Lynch S&P 500 Index Expiring January 2019 with strike price of $3,000.00 (Notional Value $4,261,645) | 17 | 85 | ||||||
Total OTC Options Purchased | ||||||||
(Cost $214,107) | 467 | |||||||
Total Investments - 99.6% | ||||||||
(Cost $122,969,548) | $ | 122,363,382 | ||||||
Other Assets & Liabilities, net - 0.4% | 486,792 | |||||||
Total Net Assets - 100.0% | $ | 122,850,174 | ||||||
Futures Contracts | |||||||||||||
Description | Number of | Expiration | Notional | Value and | |||||||||
Interest Rate Futures Contracts Sold Short† | |||||||||||||
U.S. Treasury Ultra Long Bond Futures Contracts | 16 | Mar 2019 | $ | 2,577,500 | $ | (39,035 | ) | ||||||
CENTRALLY CLEARED CREDIT DEFAULT SWAP AGREEMENTS PROTECTION PURCHASED†† | |||||||||||||||||||||
Counterparty | Exchange | Index | Protection | Payment | Maturity | Notional | Market | Upfront | Unrealized | ||||||||||||
BofA Merrill Lynch, N.A. | ICE | CDX.NA.IG.31 | 1.00 | % | Quarterly | 12/20/23 | $ | 20,220,000 | $ | (113,675 | ) | $ | (234,475 | ) | $ | 120,800 | |||||
OTC CREDIT DEFAULT SWAP AGREEMENTS PROTECTION PURCHASED†† | |||||||||||||||||||
Counterparty | Index | Protection | Payment | Maturity | Notional | Market | Upfront | Unrealized | |||||||||||
Goldman Sachs International | CDX.NA.IG.31 7-15% | 1.00 | % | Quarterly | 12/20/23 | $ | 2,630,000 | $ | 28,726 | $ | (4,496 | ) | $ | 33,222 | |||||
Morgan Stanley Capital Services LLC | CDX.NA.IG.31 7-15% | 1.00 | % | Quarterly | 12/20/23 | 1,180,000 | 12,887 | (221 | ) | 13,108 | |||||||||
| $ | 41,613 | $ | (4,717 | ) | $ | 46,330 | |||||||||||||
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT|43 |
SCHEDULE OF INVESTMENTS(continued) | December 31, 2018 |
SERIES E (TOTAL RETURN BOND SERIES) |
CENTRALLY CLEARED INTEREST RATE SWAPS AGREEMENTS†† | ||||||||||||||||||||||
Counterparty | Exchange | Floating | Floating | Fixed | Payment | Maturity | Notional | Market | Upfront | Unrealized | ||||||||||||
BofA Merrill Lynch | CME | Receive | 3-Month USD LIBOR | 2.83% | Quarterly | 01/31/20 | $ | 202,000 | $ | (208 | ) | $ | 285 | $ | (493 | ) | ||||||
BofA Merrill Lynch | CME | Receive | 3-Month USD LIBOR | 2.84% | Quarterly | 01/31/20 | 377,000 | (432 | ) | 283 | (715 | ) | ||||||||||
BofA Merrill Lynch | CME | Receive | 3-Month USD LIBOR | 3.18% | Quarterly | 11/07/23 | 2,190,000 | (59,683 | ) | (242 | ) | (59,441 | ) | |||||||||
BofA Merrill Lynch | CME | Receive | 3-Month USD LIBOR | 3.14% | Quarterly | 11/06/21 | 7,540,000 | (114,248 | ) | 2,047 | (116,295 | ) | ||||||||||
BofA Merrill Lynch | CME | Receive | 3-Month USD LIBOR | 3.21% | Quarterly | 11/07/25 | 4,350,000 | (159,286 | ) | 1,109 | (160,395 | ) | ||||||||||
BofA Merrill Lynch | CME | Receive | 3-Month USD LIBOR | 3.28% | Quarterly | 11/07/28 | 11,330,000 | (544,381 | ) | 659 | (545,040 | ) | ||||||||||
| $ | (878,238 | ) | $ | 4,141 | $ | (882,379 | ) | |||||||||||||||
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS†† | |||||||||||||||||||
Counterparty | Contracts to Sell | Currency | Settlement | Settlement | Value at | Unrealized | |||||||||||||
JPMorgan Chase & Co. | 1,802,000 | ILS | 02/28/19 | $ | 500,764 | $ | 484,598 | $ | 16,166 | ||||||||||
Goldman Sachs | 1,900,000 | BRL | 01/02/19 | 507,005 | 491,299 | 15,706 | |||||||||||||
Barclays | 1,833,800 | ILS | 02/28/19 | 502,370 | 493,151 | 9,219 | |||||||||||||
Citigroup | 6,835,000 | BRL | 04/01/19 | 1,765,991 | 1,756,998 | 8,993 | |||||||||||||
Morgan Stanley | 964,600 | ILS | 02/28/19 | 266,634 | 259,403 | 7,231 | |||||||||||||
Citigroup | 350,000 | BRL | 01/02/19 | 93,209 | 90,502 | 2,707 | |||||||||||||
JPMorgan Chase & Co. | 380,000 | GBP | 01/28/19 | 487,456 | 485,087 | 2,369 | |||||||||||||
Goldman Sachs | 2,100,000 | ILS | 01/31/20 | 579,173 | 578,038 | 1,135 | |||||||||||||
BofA Merrill Lynch | 175,000 | EUR | 01/30/19 | 201,052 | 201,012 | 40 | |||||||||||||
Goldman Sachs | 100,000 | ILS | 01/31/19 | 26,841 | 26,836 | 5 | |||||||||||||
Barclays | 354,000 | EUR | 02/15/19 | 406,865 | 407,144 | (279 | ) | ||||||||||||
JPMorgan Chase & Co. | 430,000 | EUR | 01/18/19 | 493,004 | 493,385 | (381 | ) | ||||||||||||
BofA Merrill Lynch | 44,100,000 | JPY | 02/12/19 | 403,252 | 403,644 | (392 | ) | ||||||||||||
BofA Merrill Lynch | 174,000 | EUR | 02/15/19 | 199,625 | 200,121 | (496 | ) | ||||||||||||
Goldman Sachs | 7,034,800 | ILS | 05/31/19 | 1,904,787 | 1,905,623 | (836 | ) | ||||||||||||
JPMorgan Chase & Co. | 5,200,000 | DKK | 03/01/19 | 800,843 | 802,082 | (1,239 | ) | ||||||||||||
Barclays | 2,610,000 | DKK | 03/01/19 | 400,578 | 402,583 | (2,005 | ) | ||||||||||||
JPMorgan Chase & Co. | 2,070,000 | MXN | 05/23/19 | 100,944 | 103,030 | (2,086 | ) | ||||||||||||
BofA Merrill Lynch | 168,470,000 | HUF | 02/27/19 | 602,066 | 604,411 | (2,345 | ) | ||||||||||||
Barclays | 3,900,000 | MXN | 01/24/19 | 195,378 | 197,822 | (2,444 | ) | ||||||||||||
Goldman Sachs | 11,000,000 | JPY | 02/12/19 | 97,992 | 100,681 | (2,689 | ) | ||||||||||||
JP Morgan Chase & Co. | 520,000 | EUR | 01/16/19 | 593,484 | 596,546 | (3,062 | ) | ||||||||||||
Goldman Sachs | 1,730,000 | EUR | 01/18/19 | 1,981,870 | 1,985,016 | (3,146 | ) | ||||||||||||
BofA Merrill Lynch | 690,000 | EUR | 01/04/19 | 787,183 | 790,720 | (3,537 | ) | ||||||||||||
Goldman Sachs | 55,600,000 | JPY | 01/10/19 | 503,924 | 507,551 | (3,627 | ) | ||||||||||||
Goldman Sachs | 930,000 | EUR | 03/22/19 | 1,069,075 | 1,072,785 | (3,710 | ) | ||||||||||||
Citigroup | 600,000 | EUR | 01/18/19 | 684,158 | 688,445 | (4,287 | ) | ||||||||||||
Goldman Sachs | 54,000,000 | JPY | 03/11/19 | 489,305 | 495,313 | (6,008 | ) | ||||||||||||
JPMorgan Chase & Co. | 138,630,000 | HUF | 02/27/19 | 491,294 | 497,355 | (6,061 | ) | ||||||||||||
JPMorgan Chase & Co. | 4,274,250 | SEK | 03/12/19 | 477,645 | 485,027 | (7,382 | ) | ||||||||||||
JPMorgan Chase & Co. | 790,000 | EUR | 02/15/19 | 900,891 | 908,596 | (7,705 | ) | ||||||||||||
Goldman Sachs | 2,700,000 | BRL | 04/01/19 | 685,958 | 694,059 | (8,101 | ) | ||||||||||||
Citigroup | 33,900,000 | JPY | 02/25/19 | 301,683 | 310,578 | (8,895 | ) | ||||||||||||
Morgan Stanley | 56,200,000 | JPY | 01/28/19 | 503,404 | 513,803 | (10,399 | ) | ||||||||||||
JPMorgan Chase & Co. | 10,700,000 | MXN | 03/14/19 | 525,760 | 538,837 | (13,077 | ) | ||||||||||||
JPMorgan Chase & Co. | 8,100,000 | MXN | 01/17/19 | 396,960 | 411,319 | (14,359 | ) | ||||||||||||
Citigroup | 100,500,000 | JPY | 01/10/19 | 902,329 | 917,426 | (15,097 | ) | ||||||||||||
Goldman Sachs | 79,000,000 | JPY | 02/04/19 | 703,747 | 722,657 | (18,910 | ) | ||||||||||||
Barclays | 16,250,000 | MXN | 03/28/19 | 788,889 | 816,426 | (27,537 | ) | ||||||||||||
44|THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
SCHEDULE OF INVESTMENTS(continued) | December 31, 2018 |
SERIES E (TOTAL RETURN BOND SERIES) |
| Counterparty | Contracts to Sell | Currency | Settlement Date | Settlement Value | Value at December 31, 2018 | Unrealized Depreciation | ||||||||||||||||
| Morgan Stanley | 124,000,000 | JPY | 02/25/19 | $ | 1,108,256 | $ | 1,136,038 | $ | (27,782 | ) | ||||||||||||
| $ | (144,303 | ) | ||||||||||||||||||||
| Counterparty | Contracts to Buy | Currency | Settlement Date | Settlement Value | Value at December 31, 2018 | Unrealized Appreciation | ||||||||||||||||
| Goldman Sachs | 2,250,000 | BRL | 01/02/19 | $ | 576,207 | $ | 581,802 | $ | 5,595 | |||||||||||||
~ | The face amount is denominated in U.S. dollars unless otherwise indicated. |
** | Includes cumulative appreciation (depreciation). Variation margin is reported within the Statement of Assets and Liabilities. |
† | Value determined based on Level 1 inputs — See Note 4. |
†† | Value determined based on Level 2 inputs — See Note 4. |
1 | Affiliated issuer. |
2 | Effective November 30, 2018, Guggenheim Strategy Fund I was reorganized with and into the Guggenheim Ultra Short Duration Fund. |
3 | Rate indicated is the 7-day yield as of December 31, 2018. |
4 | Security is a step up/down bond. The coupon increases or decreases at regular intervals until the bond reaches full maturity. Rate indicated is the rate at December 31, 2018. See table below for additional step information for each security. |
5 | Variable rate security. Rate indicated is the rate effective at December 31, 2018. In some instances, the effective rate is limited by a minimum rate floor or a maximum rate cap established by the issuer. The settlement status of a position may also impact the effective rate indicated. In some cases, a position may be unsettled at period end and may not have a stated effective rate. In instances where multiple underlying reference rates and spread amounts are shown, the effective rate is based on a weighted average. |
6 | Security is a 144A or Section 4(a)(2) security. These securities have been determined to be liquid under guidelines established by the Board of Trustees. The total market value of 144A or Section 4(a)(2) securities is $27,503,185 (cost $27,418,412), or 22.4% of total net assets. |
7 | Security is an interest-only strip. |
8 | Security is a 144A or Section 4(a)(2) security. These securities have been determined to be illiquid and restricted under guidelines established by the Board of Trustees. The total market value of 144A or Section 4(a)(2) illiquid and restricted securities is $1,482,288 (cost $1,693,195), or 1.2% of total net assets — See Note 9. |
9 | Zero coupon rate security. |
10 | Security has no stated coupon. However, it is expected to receive residual cash flow payments on defined deal dates. |
11 | Security is a principal-only strip. |
12 | 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. |
13 | The issuer operates under a Congressional charter; its securities are neither issued nor guaranteed by the U.S. Government. |
14 | Rate indicated is the effective yield at the time of purchase. |
BofA — Bank of America | |
BRL — Brazilian Real | |
CDX.NA.IG.31 Index — Credit Default Swap North American Investment Grade Series 31 Index | |
CME — Chicago Mercantile Exchange | |
CMT — Constant Maturity Treasury | |
DKK — Danish Krone | |
EUR — Euro | |
GBP — British Pound | |
HUF — Hungarian Forint | |
ICE — Intercontinental Exchange | |
ILS — Israeli New Shekel | |
JPY — Japanese Yen | |
LIBOR — London Interbank Offered Rate | |
MXN — Mexican Peso | |
SEK — Swedish Krona | |
USD — United States Dollar | |
WAC — Weighted Average Coupon | |
See Sector Classification in Other Information section. |
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT|45 |
SCHEDULE OF INVESTMENTS(continued) | December 31, 2018 |
SERIES E (TOTAL RETURN BOND SERIES) |
The following table summarizes the inputs used to value the Fund’s investments at December 31, 2018 (See Note 4 in the Notes to Financial Statements):
Investments in Securities (Assets) | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Preferred Stocks | $ | — | $ | 137,560 | $ | — | $ | 137,560 | ||||||||
Mutual Funds | 11,438,171 | — | — | 11,438,171 | ||||||||||||
Money Market Fund | 3,799,705 | — | — | 3,799,705 | ||||||||||||
Collateralized Mortgage Obligations | — | 29,391,113 | — | 29,391,113 | ||||||||||||
Foreign Government Debt | — | 23,856,818 | — | 23,856,818 | ||||||||||||
Asset-Backed Securities | — | 21,392,592 | — | 21,392,592 | ||||||||||||
U.S. Government Securities | — | 15,625,413 | — | 15,625,413 | ||||||||||||
Federal Agency Bonds | — | 6,000,543 | — | 6,000,543 | ||||||||||||
Corporate Bonds | — | 3,889,995 | — | 3,889,995 | ||||||||||||
Federal Agency Discount Notes | — | 1,997,534 | — | 1,997,534 | ||||||||||||
Municipal Bonds | — | 938,236 | — | 938,236 | ||||||||||||
Senior Floating Rate Interests | — | 817,875 | — | 817,875 | ||||||||||||
Commercial Paper | — | 3,077,360 | — | 3,077,360 | ||||||||||||
Options Purchased | — | 467 | — | 467 | ||||||||||||
Centrally Cleared Credit Default Swap Agreements** | — | 120,800 | — | 120,800 | ||||||||||||
OTC Credit Default Swap Agreements** | — | 46,330 | — | 46,330 | ||||||||||||
Forward Foreign Currency Exchange Contracts** | — | 69,166 | — | 69,166 | ||||||||||||
Total Assets | $ | 15,237,876 | $ | 107,361,802 | $ | — | $ | 122,599,678 | ||||||||
| ||||||||||||||||
Investments in Securities (Liabilities) | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Interest Rate Futures Contracts** | $ | 39,035 | $ | — | $ | — | $ | 39,035 | ||||||||
Forward Foreign Currency Exchange Contracts** | — | 207,874 | — | 207,874 | ||||||||||||
Interest Rate Swaps Agreements** | — | 882,379 | — | 882,379 | ||||||||||||
Total Liabilities | $ | 39,035 | $ | 1,090,253 | $ | — | $ | 1,129,288 | ||||||||
** | This derivative is reported as unrealized appreciation/depreciation at period end. |
Transfers between investment levels may occur as the markets fluctuate and/or the availability of data used in an investment’s valuation changes. Transfers between valuation levels, if any, are in comparison to the valuation levels at the end of the previous fiscal year, and are effective using the fair value as of the end of the current fiscal period.
For the year ended December 31, 2018, the Fund had assets with a total value of $116,839 transfer out of Level 3 into Level 2 due to changes in the securities valuation methods based on availability of observable market inputs. There were no other securities that transferred between levels.
46|THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
SCHEDULE OF INVESTMENTS(concluded) | December 31, 2018 |
SERIES E (TOTAL RETURN BOND SERIES) |
Step Coupon Bonds
The following table discloses additional information related to step coupon bonds held by the Fund. Certain securities are subject to multiple rate changes prior to maturity. Rates for all step coupon bonds held by the Fund are scheduled to increase, none are scheduled to decrease.
Name | Coupon rate at next | Date of next | Final | Final |
Apollo Aviation Securitization Equity Trust 2016-1A, 4.88% due 03/17/36 | 6.88% | 03/15/23 | 6.88% | 03/15/23 |
Castlelake Aircraft Securitization Trust 2015-1A, 4.70% due 12/15/40 | 6.70% | 11/30/22 | 6.70% | 11/30/22 |
Freddie Mac Seasoned Credit Risk Transfer Trust 2017-4, 2.75% due 06/25/57 | 3.00% | 06/25/19 | 3.25% | 12/25/19 |
Willis Engine Securitization Trust II 2012-A, 5.50% due 09/15/37 | 8.50% | 09/15/20 | 8.50% | 09/15/20 |
Affiliated Transactions
Investments representing 5% or more of the outstanding voting shares of a company, or control of or by, or common control under Guggenheim Investments (“GI”), result in that company being considered an affiliated issuer, as defined in the 1940 Act.
The Fund may invest in certain of the underlying series of Guggenheim Strategy Funds Trust, including Guggenheim Strategy Fund II, Guggenheim Strategy Fund III, and Guggenheim Variable Insurance Strategy Fund III, (collectively, the “Cash Management Funds”), each of which are 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, 2018, is available publicly or upon request. This information is available from the EDGAR database on the SEC’s website at https://www.sec.gov/Archives/edgar/data/1601445/000089180418000513/gug75569-ncsr.htm.
Transactions during the year ended December 31, 2018, in which the company is an “affiliated person”, were as follows:
Security Name | Value | Additions | Reductions | Realized | Change in | Value | Shares/ | Investment | Capital Gain | |||||||||||||||||||||||||||
Mutual Funds | ||||||||||||||||||||||||||||||||||||
Guggenheim Floating Rate Strategies Fund - Institutional Class | $ | 202,861 | $ | 9,475 | $ | — | $ | — | $ | (9,550 | ) | $ | 202,786 | 8,167 | $ | 9,468 | $ | 1 | ||||||||||||||||||
Guggenheim Ultra Short Duration Fund1 | 2,433,392 | 70,000 | — | — | (14,306 | ) | 2,489,086 | 249,908 | 68,045 | 1,807 | ||||||||||||||||||||||||||
Guggenheim Limited Duration Fund - Institutional Class | 2,911,685 | 70,559 | — | — | (20,226 | ) | 2,962,018 | 120,358 | 70,512 | 57 | ||||||||||||||||||||||||||
Guggenheim Total Return Bond Fund - R6 Class | 6,193,398 | 192,266 | (460,000 | ) | 8,417 | (149,800 | ) | 5,784,281 | 217,372 | 169,617 | 22,869 | |||||||||||||||||||||||||
| $ | 11,741,336 | $ | 342,300 | $ | (460,000 | ) | $ | 8,417 | $ | (193,882 | ) | $ | 11,438,171 | $ | 317,642 | $ | 24,734 | |||||||||||||||||||
1 | Effective November 30, 2018, Guggenheim Strategy Fund I was reorganized with and into the Guggenheim Ultra Short Duration Fund. |
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT|47 |
SERIES E (TOTAL RETURN BOND SERIES) |
STATEMENT OF ASSETS AND LIABILITIES |
December 31, 2018 |
Assets: | ||||
Investments in unaffiliated issuers, at value (cost $111,561,694) | $ | 110,925,211 | ||
Investments in affiliated issuers, at value (cost $11,407,854) | 11,438,171 | |||
Cash | 27,943 | |||
Segregated cash with broker | 988,691 | |||
Unamortized upfront premiums paid on interest rate swap agreements | 4,141 | |||
Unrealized appreciation on credit default swap agreements | 46,330 | |||
Unrealized appreciation on forward foreign currency exchange contracts | 69,166 | |||
Prepaid expenses | 9,010 | |||
Receivables: | ||||
Fund shares sold | 281,804 | |||
Interest | 243,801 | |||
Dividends | 16,342 | |||
Securities sold | 5,308 | |||
Total assets | 124,055,918 | |||
Liabilities: | ||||
Segregated cash due to broker | 10,000 | |||
Unamortized upfront premiums received on credit default swap agreements | 239,192 | |||
Unrealized depreciation on forward foreign currency exchange contracts | 207,874 | |||
Payable for: | ||||
Securities purchased | 479,181 | |||
Fund shares redeemed | 77,065 | |||
Distribution and service fees | 23,916 | |||
Variation margin on futures contracts | 16,500 | |||
Variation margin on interest rate swap agreements | 8,894 | |||
Variation margin on credit default swap agreements | 8,202 | |||
Management fees | 7,655 | |||
Fund accounting/administration fees | 7,653 | |||
Transfer agent/maintenance fees | 2,651 | |||
Trustees’ fees* | 917 | |||
Due to investment adviser | 51 | |||
Miscellaneous | 115,993 | |||
Total liabilities | 1,205,744 | |||
Commitments and contingent liabilities (Note 15) | — | |||
Net assets | $ | 122,850,174 | ||
Net assets consist of: | ||||
Paid in capital | $ | 122,108,943 | ||
Total distributable earnings (loss) | 741,231 | |||
Net assets | $ | 122,850,174 | ||
Capital shares outstanding | 7,748,409 | |||
Net asset value per share | $ | 15.85 | ||
STATEMENT OF OPERATIONS |
Year Ended December 31, 2018 |
Investment Income: | ||||
Dividends from securities of unaffiliated issuers | $ | 74,664 | ||
Dividends from securities of affiliated issuers | 317,642 | |||
Interest from securities of unaffiliated issuers | 3,998,303 | |||
Total investment income | 4,390,609 | |||
Expenses: | ||||
Management fees | 471,494 | |||
Distribution and service fees | 302,240 | |||
Transfer agent/maintenance fees | 25,692 | |||
Fund accounting/administration fees | 96,718 | |||
Printing expenses | 84,923 | |||
Trustees’ fees* | 18,853 | |||
Custodian fees | 18,116 | |||
Line of credit fees | 5,827 | |||
Interest expense | 911 | |||
Miscellaneous | 92,123 | |||
Recoupment of previously waived fees | 65 | |||
Total expenses | 1,116,962 | |||
Less: | ||||
Expenses reimbursed by Adviser | (177 | ) | ||
Expenses waived by Adviser | (173,785 | ) | ||
Total expenses waived/reimbursed | (173,962 | ) | ||
Net expenses | 943,000 | |||
Net investment income | 3,447,609 | |||
Net Realized and Unrealized Gain (Loss): | ||||
Net realized gain (loss) on: | ||||
Investments in unaffiliated issuers | (1,282,257 | ) | ||
Investments in affiliated issuers | 8,417 | |||
Distributions received from affiliated investment company shares | 24,734 | |||
Swap agreements | 1,854,329 | |||
Foreign currency transactions | 13,954 | |||
Forward foreign currency exchange contracts | 75,263 | |||
Net realized gain | 694,440 | |||
Net change in unrealized appreciation (depreciation) on: | ||||
Investments in unaffiliated issuers | (1,287,747 | ) | ||
Investments in affiliated issuers | (193,882 | ) | ||
Swap agreements | (1,071,233 | ) | ||
Futures contracts | (39,035 | ) | ||
Options purchased | (213,640 | ) | ||
Foreign currency translations | 315 | |||
Forward foreign currency exchange contracts | (155,632 | ) | ||
Net change in unrealized appreciation (depreciation) | (2,960,854 | ) | ||
Net realized and unrealized loss | (2,266,414 | ) | ||
Net increase in net assets resulting from operations | $ | 1,181,195 | ||
* | Relates to Trustees not deemed “interested persons” within the meaning of Section 2(a)(19) of the 1940 Act. |
48|THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
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 | $ | 3,447,609 | $ | 4,649,080 | ||||
Net realized gain on investments | 694,440 | 761,054 | ||||||
Net change in unrealized appreciation (depreciation) on investments | (2,960,854 | ) | 2,571,247 | |||||
Net increase in net assets resulting from operations | 1,181,195 | 7,981,381 | ||||||
Distributions to shareholders | (5,237,160 | ) | (5,311,377 | )1 | ||||
Capital share transactions: | ||||||||
Proceeds from sale of shares | 33,386,285 | 39,888,049 | ||||||
Distributions reinvested | 5,237,160 | 5,311,377 | ||||||
Cost of shares redeemed | (42,216,553 | ) | (31,412,776 | ) | ||||
Net increase (decrease) from capital share transactions | (3,593,108 | ) | 13,786,650 | |||||
Net increase (decrease) in net assets | (7,649,073 | ) | 16,456,654 | |||||
Net assets: | ||||||||
Beginning of year | 130,499,247 | 114,042,593 | ||||||
End of year | $ | 122,850,174 | $ | 130,499,247 | ||||
Capital share activity: | ||||||||
Shares sold | 2,086,086 | 2,439,034 | ||||||
Shares issued from reinvestment of distributions | 331,466 | 331,547 | ||||||
Shares redeemed | (2,625,181 | ) | (1,919,717 | ) | ||||
Net increase (decrease) in shares | (207,629 | ) | 850,864 | |||||
1 | For the year ended December 31, 2017, the total distributions to shareholders were all from net investment income (See Note 13). |
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT|49 |
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 | $ | 16.40 | $ | 16.05 | $ | 15.68 | $ | 15.89 | $ | 14.70 | ||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||
Net investment income (loss)a | .46 | .61 | .66 | .67 | .58 | |||||||||||||||
Net gain (loss) on investments (realized and unrealized) | (.29 | ) | .45 | .41 | (.50 | ) | .61 | |||||||||||||
Total from investment operations | .17 | 1.06 | 1.07 | .17 | 1.19 | |||||||||||||||
Less distributions from: | ||||||||||||||||||||
Net investment income | (.72 | ) | (.71 | ) | (.70 | ) | (.38 | ) | — | |||||||||||
Total distributions | (.72 | ) | (.71 | ) | (.70 | ) | (.38 | ) | — | |||||||||||
Net asset value, end of period | $ | 15.85 | $ | 16.40 | $ | 16.05 | $ | 15.68 | $ | 15.89 | ||||||||||
| ||||||||||||||||||||
Total Returnb | 1.14 | % | 6.72 | % | 6.83 | % | 1.15 | % | 8.10 | % | ||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||
Net assets, end of period (in thousands) | $ | 122,850 | $ | 130,499 | $ | 114,043 | $ | 111,974 | $ | 127,650 | ||||||||||
Ratios to average net assets: | ||||||||||||||||||||
Net investment income (loss) | 2.85 | % | 3.76 | % | 4.13 | % | 4.19 | % | 3.72 | % | ||||||||||
Total expensesc | 0.92 | % | 0.99 | % | 1.02 | % | 1.05 | % | 1.05 | % | ||||||||||
Net expensesd,e,f | 0.78 | % | 0.81 | % | 0.83 | % | 0.83 | % | 0.85 | % | ||||||||||
Portfolio turnover rate | 30 | % | 76 | % | 88 | % | 85 | % | 62 | % | ||||||||||
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 and reimbursements, as applicable. |
e | Net expenses may include expenses that are excluded from net expense limitation agreement and affiliated fee waivers. Excluding these expenses, the net expense ratios for the years would be: |
12/31/18 | 12/31/17 | 12/31/16 | 12/31/15 | 12/31/14 |
0.77% | 0.77% | 0.78% | 0.78% | 0.79% |
f | The portion of the ratios of net expenses to average net assets attributable to recoupments of prior fee reductions or expense reimbursements for the years was as follows: |
12/31/18 | 12/31/17 | 12/31/16 |
0.00%* | — | — |
* | Less than 0.01%. |
50|THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
MANAGERS’ COMMENTARY(Unaudited) | December 31, 2018 |
To Our Shareholders:
The Series F (Floating Rate Strategies Series) is managed by a team of seasoned professionals, including B. Scott Minerd, Chairman of Investments and Global Chief Investment Officer; Anne B. Walsh, Senior Managing Director and Chief Investment Officer, Fixed Income; Kevin H. Gundersen, Senior Managing Director and Portfolio Manager; Thomas J. Hauser, 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, 2018.
For the year ended December 31, 2018, Series F (Floating Rate Strategies Series) returned -0.84%, compared with 1.14% for its benchmark, the Credit Suisse Leveraged Loan Index.
Through the first three quarters of 2018, the leveraged loan market benefitted from strong fundamentals and a favorable technical environment. We saw strong earnings growth and interest coverage that had been steadily improving, thereby pushing leveraged credit risk premiums to near cycle tights. Despite the supply/demand imbalance favoring borrowers and allowing spreads to tighten, rising rates flowing through to floating rate coupons supported loan returns this year relative to other fixed income sectors, particularly during the first three quarters. One-month and three-month LIBOR rose significantly, and the outlook for numerous rate hikes in 2019 attracted inflows to loan mutual funds and ETFs for most of 2018. This, combined with record CLO issuance, provided a strong technical backdrop for leveraged loans.
This dynamic shifted as we entered the fourth quarter. Initially, the bank loan market appeared immune to the credit selloff. Discount margins held inside a tight range of 380–390 basis points for three weeks after high-yield corporate bond spreads started widening, and the loan market had relatively flat returns in the month of October. This immunity was broken beginning in November. Spread widening was initially driven by trade and tariff concerns, impacting vulnerable sectors like technology, autos, and capital goods. It was then exacerbated by a bear market in oil, with West Texas Intermediate oil prices falling from an October 2018 peak of $76 per barrel to end the year around $45 per barrel. Like the 2014 experience, the decline in oil prices caused a sharp repricing of credit risk in the energy sector.
When these economic and geopolitical concerns combined with falling inflation expectations, we saw a drop in the number of market-implied rate hikes for 2019. This resulted in reduced demand for floating-rate assets from retail investors, driving record outflows from bank loan mutual funds and ETFs totaling over $15 billion in the final quarter. These outflows resulted in a technically-driven sell-off of the bank loan market beyond the weaknesses observed above.
Adding fuel to the fire, the second half of 2018 saw no shortage of warnings about excesses in the bank loan market. Concerns about loan growth, valuations, and their lack of covenants were voiced by numerous global financial authorities—not to mention countless newspaper articles and sell-side research commentary reiterating those messages. The avalanche of warnings, which were intended to identify possible problem sectors that could threaten the stability of the financial system, may have itself been a catalyst for the instability.
Through the first three quarters of the year, the lower-quality end of the market performed strongly, with CCC-rated loans returning 8.8%, as low-rated credits were bid up as investors searched for yield with spreads tightening and prices for most credits hovering around par. In the fourth quarter, amidst market volatility and outflows from the leveraged loan asset class, all ratings categories had negative returns, with lower-quality names underperforming. For the year in its entirety, CCC-rated investments still outperformed, returning 4.4%, versus the broader Credit Suisse Leveraged Loan Index returning 1.1%. From an industry perspective, Shipping, Retail, and Land Transportation outperformed, returning 8.5%, 4.0% and 3.6% respectively, while Consumer Durables and Communications underperformed most significantly.
The Fund’s returns were mixed across sectors and cumulatively lagged the benchmark. With only 3.3% of the Fund invested in CCC-rated assets, during the period, relative to the 7.2% in the benchmark, the Fund failed to capitalize on the price rally of many weaker credits in the market that traded up largely on technical tailwinds. Additionally, many of the CCC-rated names in the Fund were downgraded credits that had performance issues that often led to a sell off. While we look to take advantage of pullbacks and identify names with attractive relative value, we still do not believe this is the appropriate time in the cycle to move down in credit quality in search of incremental yield. Benefiting the Fund’s performance was credit selection in the Consumer Cyclical and Technology sectors, as well as an underweight to BB-rated loans which underperformed the broader benchmark.
THE GUGGENHEIM FUNDS ANNUAL REPORT | 51 |
MANAGERS’ COMMENTARY(Unaudited)(concluded) | December 31, 2018 |
U.S. economic data has been broadly strong, but there is already evidence that certain sectors are losing steam. Consumers are becoming less positive on purchases of homes, autos, and appliances, citing rising rates as a major reason. Homebuilder sentiment has declined to the lowest reading since 2015, according to the National Association of Home Builders. Growth in nonresidential fixed investment is also slowing, reflecting a combination of higher borrowing costs and tariff uncertainty. With three major pillars of the economy showing signs of weakness, a broad-based slowdown in real U.S. gross domestic product (“GDP”) growth to below 2% year over year by the fourth quarter of 2019 is possible.
Retracing financial conditions back to where they were in early 2018 seems difficult. Several crosscurrents lie ahead, not the least of which include slowing global growth, a fading boost from the U.S. tax cut, ongoing trade dispute between the U.S. and China, a resolution (or lack thereof) to Brexit, a divided Congress that kicked off 2019 with a government shutdown, and an acceleration in global quantitative tightening as the European Central Bank has ended its net purchases of assets. The U.S. Federal Reserve (the “Fed”) pause may support tighter credit spreads early in the year, but with investor confidence having been badly damaged, 2019 may eventually turn unfriendly to borrowers once the Fed resumes hiking interest rates.
The Fund continues to be primarily invested in leveraged loans, which comprise about 90% of gross assets. While we have reduced our Fed rate hike projection in 2019 to two, we continue to prefer loans due to their floating rate coupons and senior secured position in the capital structure. We continue to increase the credit quality of the Fund, investing in companies we feel are best suited to survive a recessionary environment, whenever it may come. We also look to take advantage of any volatility in the markets, investing in higher quality names that have traded down based on technical market factors.
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.
52 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
PERFORMANCE REPORT AND FUND PROFILE(Unaudited) | December 31, 2018 |
SERIES F (FLOATING RATE STRATEGIES SERIES)
OBJECTIVE:Seeks to provide a high level of current income while maximizing total return.
Holdings Diversification (Market Exposure as % of Net Assets)
“Holdings Diversification (Market Exposure as % of Net Assets)” excludes any temporary cash investments.
Inception Date:April 24, 2013 |
Ten Largest Holdings (% of Total Net Assets) | |
Safe Fleet Holdings LLC, 5.38% | 1.4% |
ABC Supply Co., Inc., 4.52% | 1.2% |
Messer Industries USA, Inc. | 1.2% |
PQ Corp., 5.03% | 1.2% |
Northstar Financial Services LLC, 6.10% | 1.1% |
Agiliti | 1.1% |
BRP, Inc., 4.52% | 1.1% |
PAREXEL International Corp., 5.27% | 1.1% |
WMG Acquisition Corp., 4.65% | 1.1% |
Reece Ltd., 4.81% | 1.1% |
Top Ten Total | 11.6% |
“Ten Largest Holdings” excludes any temporary cash investments. | |
THE GUGGENHEIM FUNDS ANNUAL REPORT | 53 |
PERFORMANCE REPORT AND FUND PROFILE(Unaudited)(concluded) | December 31, 2018 |
Cumulative Fund Performance*,†
Average Annual Returns*,†
Periods Ended December 31, 2018
| 1 Year | 5 Year | Since |
Series F (Floating Rate Strategies Series) | (0.84%) | 2.82% | 2.91% |
Credit Suisse Leveraged Loan Index | 1.14% | 3.32% | 3.47% |
Portfolio Composition by Quality Rating1 | |
Rating | % of Total |
Fixed Income Instruments | |
BBB | 2.9% |
BB | 38.9% |
B | 48.4% |
CCC | 0.6% |
C | 0.0%3 |
D | 0.7% |
NR2 | 0.2% |
Other Instruments | 8.3% |
Total Investments | 100.0% |
* | 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. |
† | 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 | 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 & Poors (“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 ratings to the equivalent S&P rating. Security ratings are determined at the time of purchase and may change thereafter. |
2 | NR securities do not necessarily indicate low credit quality. |
3 | Value of securities is less than 0.1% of total investments. |
54 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
SCHEDULE OF INVESTMENTS | December 31, 2018 |
SERIES F (FLOATING RATE STRATEGIES SERIES) |
| Shares | Value | ||||||
COMMON STOCKS††† - 0.0% | ||||||||
Technology – 0.0% | ||||||||
Aspect Software, Inc.*,1,2 | 36 | $ | — | |||||
Total Common Stocks | ||||||||
(Cost $—) | — | |||||||
WARRANTS†††- 0.0% | ||||||||
Aspect Software, Inc.*,1,2 | 28,744 | — | ||||||
Total Warrants | ||||||||
(Cost $—) | — | |||||||
MONEY MARKET FUND† - 8.3% | ||||||||
Federated U.S. Treasury Cash Reserve Fund — Institutional Shares 2.19%3 | 4,877,871 | 4,877,871 | ||||||
Total Money Market Fund | ||||||||
(Cost $4,877,871) | 4,877,871 | |||||||
Face | ||||||||
SENIOR FLOATING RATE INTERESTS††,4 - 90.1% | ||||||||
Industrial - 18.5% | ||||||||
ABC Supply Co., Inc. | ||||||||
4.52% (1 Month USD LIBOR + 2.00%, Rate Floor: 2.75%) due 10/31/23 | $ | 748,096 | 710,160 | |||||
Reece Ltd. | ||||||||
4.81% (3 Month USD LIBOR + 2.00%, Rate Floor: 2.00%) due 07/02/25 | 696,500 | 665,157 | ||||||
Altra Industrial Motion Corp. | ||||||||
4.52% (1 Month USD LIBOR + 2.00%, Rate Floor: 2.00%) due 10/01/25 | 640,299 | 606,683 | ||||||
DG Investment Intermediate Holdings 2, Inc. | ||||||||
5.52% (1 Month USD LIBOR + 3.00%, Rate Floor: 3.75%) due 02/03/25 | 635,931 | 600,955 | ||||||
TransDigm Group, Inc. | ||||||||
5.02% (1 Month USD LIBOR + 2.50%, Rate Floor: 2.50%) due 05/30/25 | 620,968 | 584,585 | ||||||
Hillman Group, Inc. | ||||||||
6.80% (3 Month USD LIBOR + 4.00%, Rate Floor: 4.00%) due 05/30/25 | 597,000 | 565,657 | ||||||
Engineered Machinery Holdings, Inc. | ||||||||
6.05% (3 Month USD LIBOR + 3.25%, Rate Floor: 4.25%) due 07/19/24 | 556,958 | 536,768 | ||||||
Lineage Logistics LLC | ||||||||
5.52% (1 Month USD LIBOR + 3.00%, Rate Floor: 4.00%) due 02/27/25 | 546,623 | 515,876 | ||||||
ProAmpac PG Borrower LLC | ||||||||
6.05% ((3 Month USD LIBOR + 3.50%) and (1 Month USD LIBOR + 3.50%), Rate Floor: 4.50%) due 11/20/23 | 524,952 | 500,017 | ||||||
Charter Nex US, Inc. | ||||||||
5.27% (1 Month USD LIBOR + 2.75%, Rate Floor: 3.75%) due 05/16/24 | 519,358 | 490,362 | ||||||
GYP Holdings III Corp. | ||||||||
5.27% (1 Month USD LIBOR + 2.75%, Rate Floor: 2.75%) due 06/01/25 | 507,282 | 476,845 | ||||||
USIC Holding, Inc. | ||||||||
5.77% (1 Month USD LIBOR + 3.25%, Rate Floor: 4.25%) due 12/08/23 | 495,097 | 469,105 | ||||||
Flex Acquisition Company, Inc. | ||||||||
5.35% (1 Month USD LIBOR + 3.00%, Rate Floor: 4.00%) due 12/29/23 | 492,500 | 463,359 | ||||||
WP CPP Holdings LLC | ||||||||
6.28% (3 Month USD LIBOR + 3.75%, Rate Floor: 4.75%) due 04/30/25 | 478,800 | 461,444 | ||||||
CHI Overhead Doors, Inc. | ||||||||
5.77% (1 Month USD LIBOR + 3.25%, Rate Floor: 4.25%) due 07/29/22 | 436,985 | 421,691 | ||||||
BWAY Holding Co. | ||||||||
5.66% (3 Month USD LIBOR + 3.25%, Rate Floor: 3.25%) due 04/03/24 | 443,250 | 415,915 | ||||||
Engility Corp. | ||||||||
5.27% (1 Month USD LIBOR + 2.75%, Rate Floor: 3.75%) due 08/14/23 | 372,585 | 369,675 | ||||||
CPG International LLC | ||||||||
6.63% (3 Month USD LIBOR + 3.75%, Rate Floor: 4.75%) due 05/05/24 | 348,232 | 333,432 | ||||||
Thermasys Corp. | ||||||||
8.50% (3 Month USD LIBOR + 4.00%, Rate Floor: 1.25%) due 05/03/19 | 350,000 | 252,000 | ||||||
12.40% (3 Month USD LIBOR + 10.00%, Rate Floor: 10.00%) due 11/11/18†††,1 | 28,447 | 28,021 | ||||||
American Bath Group LLC | ||||||||
7.05% (3 Month USD LIBOR + 4.25%, Rate Floor: 5.25%) due 09/30/23 | 267,509 | 256,808 | ||||||
VC GB Holdings, Inc. | ||||||||
5.52% (1 Month USD LIBOR + 3.00%, Rate Floor: 4.00%) due 02/28/24 | 270,350 | 254,129 | ||||||
Hayward Industries, Inc. | ||||||||
6.02% (1 Month USD LIBOR + 3.50%, Rate Floor: 3.50%) due 08/05/24 | 261,559 | 250,987 | ||||||
Titan Acquisition Ltd. (Husky) | ||||||||
5.52% (1 Month USD LIBOR + 3.00%, Rate Floor: 3.00%) due 03/28/25 | 198,500 | 181,048 | ||||||
KUEHG Corp. (KinderCare) | ||||||||
6.55% (3 Month USD LIBOR + 3.75%, Rate Floor: 4.75%) due 02/21/25 | 182,043 | 174,420 | ||||||
Arctic Long Carriers | ||||||||
7.02% (1 Month USD LIBOR + 4.50%, Rate Floor: 5.50%) due 05/18/23 | 172,375 | 166,342 | ||||||
Bioplan USA, Inc. | ||||||||
7.27% (1 Month USD LIBOR + 4.75%, Rate Floor: 5.75%) due 09/23/21 | 174,530 | 162,894 | ||||||
Total Industrial | 10,914,335 | |||||||
Consumer, Non-cyclical - 18.2% | ||||||||
Agiliti | ||||||||
due 10/18/25 | 700,000 | 675,500 | ||||||
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT|55 |
SCHEDULE OF INVESTMENTS(continued) | December 31, 2018 |
SERIES F (FLOATING RATE STRATEGIES SERIES) |
| Face | Value | ||||||
BRP, Inc. | ||||||||
4.52% (1 Month USD LIBOR + 2.00%, Rate Floor: 2.75%) due 05/23/25 | $ | 698,250 | $ | 674,391 | ||||
PAREXEL International Corp. | ||||||||
5.27% (1 Month USD LIBOR + 2.75%, Rate Floor: 2.75%) due 09/27/24 | 748,106 | 674,231 | ||||||
Hostess Brands LLC | ||||||||
4.77% ((3 Month USD LIBOR + 2.25%) and (1 Month USD LIBOR + 2.25%), Rate Floor: 3.00%) due 08/03/22 | 698,237 | 663,325 | ||||||
Nomad Foods Lux S.A.R.L | ||||||||
4.71% (1 Month USD LIBOR + 2.25%, Rate Floor: 2.25%) due 05/15/24 | 700,000 | 661,325 | ||||||
Aspen Dental | ||||||||
5.52% (1 Month USD LIBOR + 3.00%, Rate Floor: 3.00%) due 04/30/25 | 646,999 | 613,569 | ||||||
JBS USA Lux SA | ||||||||
5.26% ((3 Month USD LIBOR + 2.50%) and (1 Month USD LIBOR + 2.50%), Rate Floor: 3.25%) due 10/30/22 | 595,455 | 571,636 | ||||||
Syneos Health, Inc. | ||||||||
4.52% (1 Month USD LIBOR + 2.00%, Rate Floor: 2.00%) due 08/01/24 | 583,413 | 561,902 | ||||||
Sterigenics-Norion Holdings | ||||||||
5.52% (1 Month USD LIBOR + 3.00%, Rate Floor: 4.00%) due 05/15/22 | 552,965 | 528,540 | ||||||
Hearthside Group Holdings LLC | ||||||||
6.21% (1 Month USD LIBOR + 3.69%, Rate Floor: 3.69%) due 05/23/25 | 547,250 | 523,718 | ||||||
Endo Luxembourg Finance Co. | ||||||||
6.81% (1 Month USD LIBOR + 4.25%, Rate Floor: 5.00%) due 04/29/24 | 544,601 | 514,648 | ||||||
Albertson’s LLC | ||||||||
5.82% (3 Month USD LIBOR + 3.00%, Rate Floor: 3.75%) due 12/21/22 | 491,269 | 470,729 | ||||||
CPI Holdco LLC | ||||||||
6.02% (1 Month USD LIBOR + 3.50%, Rate Floor: 4.50%) due 03/21/24 | 472,596 | 459,009 | ||||||
PPDI LLC | ||||||||
5.02% (1 Month USD LIBOR + 2.50%, Rate Floor: 3.50%) due 08/18/22 | 439,747 | 416,660 | ||||||
Valeant Pharmaceuticals International, Inc. | ||||||||
5.13% (1 Month USD LIBOR + 2.75%, Rate Floor: 2.75%) due 11/27/25 | 370,313 | 350,641 | ||||||
5.38% (1 Month USD LIBOR + 3.00%, Rate Floor: 3.00%) due 06/01/25 | 46,019 | 43,859 | ||||||
Dole Food Company, Inc. | ||||||||
5.25% ((1 Month USD LIBOR + 2.75%) and (3 Month USD LIBOR + 2.75%) and Commercial Prime Lending Rate + 1.75%), Rate Floor: 3.75%) due 04/06/24 | 345,513 | 334,716 | ||||||
Post Holdings, Inc. | ||||||||
4.51% (1 Month USD LIBOR + 2.00%, Rate Floor: 2.00%) due 05/24/24 | 297,614 | 286,206 | ||||||
Springs Window Fashions | ||||||||
6.72% (1 Month USD LIBOR + 4.25%, Rate Floor: 4.25%) due 06/15/25 | 199,000 | 192,907 | ||||||
10.97% (1 Month USD LIBOR + 8.50%, Rate Floor: 8.50%) due 06/15/26 | 100,000 | 92,000 | ||||||
Diamond (BC) B.V. | ||||||||
5.53% (3 Month USD LIBOR + 3.00%, Rate Floor: 3.00%) due 09/06/24 | 297,000 | 273,240 | ||||||
Sigma Holding BV (Flora Food) | ||||||||
5.40% (3 Month USD LIBOR + 3.00%, Rate Floor: 3.00%) due 07/02/25 | 248,750 | 234,862 | ||||||
Chobani LLC | ||||||||
6.02% (1 Month USD LIBOR + 3.50%, Rate Floor: 4.50%) due 10/10/23 | 242,115 | 225,017 | ||||||
BCPE Eagle Buyer LLC | ||||||||
6.77% (1 Month USD LIBOR + 4.25%, Rate Floor: 5.25%) due 03/18/24 | 197,487 | 183,663 | ||||||
Immucor, Inc. | ||||||||
7.80% (3 Month USD LIBOR + 5.00%, Rate Floor: 6.00%) due 06/15/21 | 147,750 | 144,980 | ||||||
Smart & Final Stores LLC | ||||||||
6.02% (1 Month USD LIBOR + 3.50%, Rate Floor: 4.25%) due 11/15/22 | 157,900 | 144,973 | ||||||
Resideo Funding, Inc. | ||||||||
4.49% (3 Month USD LIBOR + 2.00%, Rate Floor: 2.00%) due 10/24/25 | 100,000 | 96,500 | ||||||
Acadia Healthcare Co., Inc. | ||||||||
5.02% (1 Month USD LIBOR + 2.50%, Rate Floor: 2.50%) due 02/16/23 | 94,690 | 91,169 | ||||||
CTI Foods Holding Co. LLC | ||||||||
9.85% (3 Month USD LIBOR + 7.25%, Rate Floor: 8.25%) due 06/28/21 | 80,000 | 5,866 | ||||||
Total Consumer, Non-cyclical | 10,709,782 | |||||||
Technology - 15.4% | ||||||||
Blackhawk Network | ||||||||
5.52% (1 Month USD LIBOR + 3.00%, Rate Floor: 3.00%) due 06/15/25 | 698,250 | 662,904 | ||||||
MACOM Technology Solutions Holdings, Inc. | ||||||||
4.77% (1 Month USD LIBOR + 2.25%, Rate Floor: 3.00%) due 05/17/24 | 696,465 | 654,677 | ||||||
Micron Technology, Inc. | ||||||||
4.28% (1 Month USD LIBOR + 1.75%, Rate Floor: 1.75%) due 04/26/22 | 390,977 | 383,158 | ||||||
4.53% (1 Month USD LIBOR + 2.00%, Rate Floor: 2.00%) due 05/29/25 | 271,300 | 256,604 | ||||||
Neustar, Inc. | ||||||||
6.02% (1 Month USD LIBOR + 3.50%, Rate Floor: 4.50%) due 08/08/24 | 545,854 | 523,338 | ||||||
TIBCO Software, Inc. | ||||||||
6.01% (1 Month USD LIBOR + 3.50%, Rate Floor: 4.50%) due 12/04/20 | 491,228 | 483,039 | ||||||
Informatica LLC | ||||||||
5.77% (1 Month USD LIBOR + 3.25%, Rate Floor: 3.25%) due 08/05/22 | 494,986 | 479,518 | ||||||
56|THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
SCHEDULE OF INVESTMENTS(continued) | December 31, 2018 |
SERIES F (FLOATING RATE STRATEGIES SERIES) |
| Face | Value | ||||||
Sabre GLBL, Inc. | ||||||||
4.52% (1 Month USD LIBOR + 2.00%, Rate Floor: 2.00%) due 02/22/24 | $ | 495,000 | $ | 478,086 | ||||
Solera LLC | ||||||||
5.27% (1 Month USD LIBOR + 2.75%, Rate Floor: 2.75%) due 03/03/23 | 477,186 | 448,856 | ||||||
Peak 10 Holding Corp. | ||||||||
6.31% (3 Month USD LIBOR + 3.50%, Rate Floor: 3.50%) due 08/01/24 | 493,750 | 447,668 | ||||||
Misys Ltd. | ||||||||
6.30% (3 Month USD LIBOR + 3.50%, Rate Floor: 4.50%) due 06/13/24 | 469,273 | 436,091 | ||||||
Equian LLC | ||||||||
5.76% (1 Month USD LIBOR + 3.25%, Rate Floor: 4.25%) due 05/20/24 | 443,992 | 428,231 | ||||||
Advanced Computer Software | ||||||||
7.14% (1 Month USD LIBOR + 4.75%, Rate Floor: 4.75%) due 05/31/24 | 408,032 | 402,932 | ||||||
LANDesk Group, Inc. | ||||||||
6.60% (1 Month USD LIBOR + 4.25%, Rate Floor: 5.25%) due 01/20/24 | 402,961 | 390,369 | ||||||
Optiv, Inc. | ||||||||
5.77% (1 Month USD LIBOR + 3.25%, Rate Floor: 4.25%) due 02/01/24 | 413,289 | 381,776 | ||||||
Go Daddy Operating Company LLC | ||||||||
4.77% (1 Month USD LIBOR + 2.25%, Rate Floor: 2.25%) due 02/15/24 | 295,178 | 281,304 | ||||||
Aspect Software, Inc. | ||||||||
13.52% (3 Month USD LIBOR + 11.00%, Rate Floor: 12.00%) due 05/25/202 | 317,188 | 263,266 | ||||||
Seattle Spnco | ||||||||
5.02% (1 Month USD LIBOR + 2.50%, Rate Floor: 2.50%) due 06/21/24 | 259,347 | 240,977 | ||||||
Lumentum Holdings, Inc. | ||||||||
5.02% (1 Month USD LIBOR + 2.50%, Rate Floor: 2.50%) due 12/10/25 | 250,000 | 240,625 | ||||||
Greenway Health LLC | ||||||||
6.56% (3 Month USD LIBOR + 3.75%, Rate Floor: 4.75%) due 02/16/24 | 198,489 | 192,534 | ||||||
Cvent, Inc. | ||||||||
6.27% (1 Month USD LIBOR + 3.75%, Rate Floor: 4.75%) due 11/29/24 | 198,999 | 190,044 | ||||||
EIG Investors Corp. | ||||||||
6.44% ((3 Month USD LIBOR + 3.75%) and (1 Month USD LIBOR + 3.75%), Rate Floor: 4.75%) due 02/09/23 | 166,692 | 160,996 | ||||||
Ascend Learning LLC | ||||||||
5.52% (1 Month USD LIBOR + 3.00%, Rate Floor: 4.00%) due 07/12/24 | 148,125 | 139,608 | ||||||
Refinitiv (Financial & Risk Us Holdings, Inc.) | ||||||||
6.27% (1 Month USD LIBOR + 3.75%, Rate Floor: 3.75%) due 10/01/25 | 130,000 | 123,500 | ||||||
Project Accelerate Parent, LLC | ||||||||
6.64% (1 Month USD LIBOR + 4.25%, Rate Floor: 5.25%) due 01/02/25 | 124,063 | 121,581 | ||||||
Brave Parent Holdings, Inc. | ||||||||
6.52% (1 Month USD LIBOR + 4.00%, Rate Floor: 4.00%) due 04/18/25 | 99,749 | 96,009 | ||||||
MA Financeco LLC | ||||||||
4.77% (1 Month USD LIBOR + 2.25%, Rate Floor: 2.25%) due 11/19/21 | 99,250 | 94,287 | ||||||
Miami Escrow Borrower LLC | ||||||||
5.02% (1 Month USD LIBOR + 2.50%, Rate Floor: 2.50%) due 06/21/24 | 38,403 | 35,683 | ||||||
Total Technology | 9,037,661 | |||||||
Consumer, Cyclical - 15.1% | ||||||||
Safe Fleet Holdings LLC | ||||||||
5.38% (1 Month USD LIBOR + 3.00%, Rate Floor: 4.00%) due 02/03/25 | 895,500 | 851,844 | ||||||
Samsonite IP Holdings S.A.R.L. | ||||||||
4.27% (1 Month USD LIBOR + 1.75%, Rate Floor: 1.75%) due 04/25/25 | 697,747 | 665,127 | ||||||
Realogy Group LLC | ||||||||
4.71% (1 Month USD LIBOR + 2.25%, Rate Floor: 2.25%) due 02/08/25 | 694,737 | 656,526 | ||||||
Crown Finance US, Inc. | ||||||||
5.02% (1 Month USD LIBOR + 2.50%, Rate Floor: 2.50%) due 02/28/25 | 695,747 | 656,319 | ||||||
Geo Group, Inc. | ||||||||
4.53% (1 Month USD LIBOR + 2.00%, Rate Floor: 2.75%) due 03/22/24 | 690,237 | 641,921 | ||||||
Packers Sanitation Services, Inc. | ||||||||
5.43% (1 Month USD LIBOR + 3.00%, Rate Floor: 3.00%) due 12/04/24 | 594,248 | 573,449 | ||||||
AVSC Holding Corp. | ||||||||
5.89% (3 Month USD LIBOR + 3.25%, Rate Floor: 4.25%) due 03/03/25 | 546,074 | 516,040 | ||||||
American Tire Distributors, Inc. | ||||||||
10.02% (3 Month USD LIBOR + 7.50%, Rate Floor: 8.50%) due 09/01/24 | 522,977 | 424,484 | ||||||
8.48% (1 Month USD LIBOR + 6.00%, Rate Floor: 7.00%) due 09/01/23 | 57,427 | 53,694 | ||||||
NVA Holdings, Inc | ||||||||
5.27% (1 Month USD LIBOR + 2.75%, Rate Floor: 3.75%) due 02/03/25 | 496,505 | 466,715 | ||||||
Navistar Inc. | ||||||||
5.89% (1 Month USD LIBOR + 3.50%, Rate Floor: 3.50%) due 11/06/24 | 446,625 | 429,877 | ||||||
IBC Capital Ltd. | ||||||||
6.55% (3 Month USD LIBOR + 3.75%, Rate Floor: 3.75%) due 09/11/23 | 398,995 | 383,534 | ||||||
Mavis Tire Express Services Corp. | ||||||||
5.75% (1 Month USD LIBOR + 3.25%, Rate Floor: 3.25%) due 03/20/25 | 395,195 | 380,375 | ||||||
Stars Group (Amaya) | ||||||||
6.30% (3 Month USD LIBOR + 3.50%, Rate Floor: 3.50%) due 07/10/25 | 298,500 | 287,805 | ||||||
EG Finco Ltd. | ||||||||
6.81% (3 Month USD LIBOR + 4.00%, Rate Floor: 4.00%) due 02/07/25 | 297,750 | 286,213 | ||||||
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT|57 |
SCHEDULE OF INVESTMENTS(continued) | December 31, 2018 |
SERIES F (FLOATING RATE STRATEGIES SERIES) |
| Face | Value | ||||||
Petco Animal Supplies, Inc. | ||||||||
5.78% (3 Month USD LIBOR + 3.25%, Rate Floor: 4.25%) due 01/26/23 | $ | 352,654 | $ | 256,848 | ||||
IRB Holding Corp. | ||||||||
5.68% (1 Month USD LIBOR + 3.25%, Rate Floor: 4.25%) due 02/05/25 | 250,000 | 237,875 | ||||||
Truck Hero, Inc. | ||||||||
6.26% (1 Month USD LIBOR + 3.75%, Rate Floor: 3.75%) due 04/22/24 | 198,489 | 191,625 | ||||||
1-800 Contacts | ||||||||
5.78% (1 Month USD LIBOR + 3.25%, Rate Floor: 4.25%) due 01/22/23 | 194,530 | 186,652 | ||||||
GVC Holdings plc | ||||||||
5.02% (1 Month USD LIBOR + 2.50%, Rate Floor: 3.50%) due 03/29/24 | 148,875 | 144,346 | ||||||
Wyndham Hotels & Resorts, Inc. | ||||||||
4.27% (1 Month USD LIBOR + 1.75%, Rate Floor: 1.75%) due 05/30/25 | 149,625 | 143,640 | ||||||
Life Time Fitness, Inc. | ||||||||
5.46% (3 Month USD LIBOR + 2.75%, Rate Floor: 3.75%) due 06/10/22 | 138,945 | 133,426 | ||||||
Argo Merchants | ||||||||
6.55% (3 Month USD LIBOR + 3.75%, Rate Floor: 4.75%) due 12/06/24 | 123,785 | 118,524 | ||||||
Leslie’s Poolmart, Inc. | ||||||||
6.02% (1 Month USD LIBOR + 3.50%, Rate Floor: 3.50%) due 08/16/23 | 118,725 | 113,012 | ||||||
Belk, Inc. | ||||||||
7.36% (3 Month USD LIBOR + 4.75%, Rate Floor: 5.75%) due 12/12/22 | 98,056 | 78,853 | ||||||
CPI Acquisition, Inc. | ||||||||
7.02% (3 Month USD LIBOR + 4.50%, Rate Floor: 6.50%) due 08/17/22 | 41,839 | 26,275 | ||||||
Total Consumer, Cyclical | 8,904,999 | |||||||
Communications - 9.4% | ||||||||
WMG Acquisition Corp. | ||||||||
4.65% (1 Month USD LIBOR + 2.13%, Rate Floor: 2.13%) due 11/01/23 | 700,000 | 672,525 | ||||||
GTT Communications, Inc. | ||||||||
5.27% (1 Month USD LIBOR + 2.75%, Rate Floor: 2.75%) due 05/31/25 | 646,750 | 607,408 | ||||||
CSC Holdings, LLC | ||||||||
4.71% (1 Month USD LIBOR + 2.25%, Rate Floor: 2.25%) due 07/17/25 | 520,203 | 492,372 | ||||||
SFR Group S.A. | ||||||||
6.14% (1 Month USD LIBOR + 3.69%, Rate Floor: 3.69%) due 01/31/26 | 491,287 | 454,932 | ||||||
Cengage Learning Acquisitions, Inc. | ||||||||
6.75% (1 Month USD LIBOR + 4.25%, Rate Floor: 5.25%) due 06/07/23 | 525,182 | 448,374 | ||||||
McGraw-Hill Global Education Holdings LLC | ||||||||
6.52% (1 Month USD LIBOR + 4.00%, Rate Floor: 5.00%) due 05/04/22 | 489,672 | 440,857 | ||||||
Ziggo Secured Finance BV | ||||||||
4.96% (1 Month USD LIBOR + 2.50%, Rate Floor: 2.50%) due 04/15/25 | 450,000 | 423,000 | ||||||
Telenet Financing USD LLC | ||||||||
4.71% (1 Month USD LIBOR + 2.25%, Rate Floor: 2.25%) due 08/15/26 | 300,000 | 284,796 | ||||||
Sprint Communications, Inc. | ||||||||
5.06% (1 Month USD LIBOR + 2.50%, Rate Floor: 3.25%) due 02/02/24 | 294,750 | 279,768 | ||||||
Internet Brands, Inc. | ||||||||
6.25% (1 Month USD LIBOR + 3.75%, Rate Floor: 3.75%) due 09/13/24 | 252,444 | 238,875 | ||||||
Virgin Media Bristol LLC | ||||||||
4.96% (1 Month USD LIBOR + 2.50%, Rate Floor: 2.50%) due 01/15/26 | 250,000 | 236,220 | ||||||
Radiate HoldCo LLC | ||||||||
5.52% (1 Month USD LIBOR + 3.00%, Rate Floor: 3.75%) due 02/01/24 | 223,840 | 210,654 | ||||||
Charter Communications Operating, LLC | ||||||||
4.53% (1 Month USD LIBOR + 2.00%, Rate Floor: 2.00%) due 04/30/25 | 198,000 | 189,363 | ||||||
Altice US Finance I Corp. | ||||||||
4.75% (3 Month USD LIBOR + 2.25%, Rate Floor: 2.25%) due 01/15/26 | 200,000 | 189,000 | ||||||
Market Track LLC | ||||||||
6.87% (2 Month USD LIBOR + 4.25%, Rate Floor: 5.25%) due 06/05/24 | 197,500 | 187,625 | ||||||
Authentic Brands | ||||||||
6.02% (1 Month USD LIBOR + 3.50%, Rate Floor: 4.50%) due 09/27/24 | 172,813 | 164,172 | ||||||
Total Communications | 5,519,941 | |||||||
Basic Materials - 7.7% | ||||||||
Messer Industries USA, Inc. | ||||||||
due 09/27/25 | 750,000 | 710,003 | ||||||
PQ Corp. | ||||||||
5.03% (3 Month USD LIBOR + 2.50%, Rate Floor: 2.50%) due 02/08/25 | 741,110 | 700,349 | ||||||
LTI Holdings, Inc. | ||||||||
6.02% (1 Month USD LIBOR + 3.50%, Rate Floor: 3.50%) due 09/06/25 | 698,250 | 655,775 | ||||||
HB Fuller Co. | ||||||||
4.47% (1 Month USD LIBOR + 2.00%, Rate Floor: 2.00%) due 10/20/24 | 641,738 | 602,271 | ||||||
GrafTech Finance, Inc. | ||||||||
6.02% (1 Month USD LIBOR + 3.50%, Rate Floor: 4.50%) due 02/12/25 | 565,500 | 534,398 | ||||||
Pregis Holding I Corp. | ||||||||
6.31% (3 Month USD LIBOR + 3.50%, Rate Floor: 4.50%) due 05/20/21 | 484,954 | 455,856 | ||||||
Vectra Co. | ||||||||
5.77% (1 Month USD LIBOR + 3.25%, Rate Floor: 3.25%) due 03/08/25 | 447,750 | 423,406 | ||||||
58|THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
SCHEDULE OF INVESTMENTS(continued) | December 31, 2018 |
SERIES F (FLOATING RATE STRATEGIES SERIES) |
| Face | Value | ||||||
Element Solutions, Inc. | ||||||||
due 11/15/25 | $ | 250,000 | $ | 242,188 | ||||
PMHC II, Inc. (Prince) | ||||||||
6.16% ((6 Month USD LIBOR + 3.50%) and (1 Month USD LIBOR + 3.50%) and (12 Month USD LIBOR + 3.50%), Rate Floor: 4.50%) due 03/29/25 | 198,500 | 180,635 | ||||||
Total Basic Materials | 4,504,881 | |||||||
Financial - 4.6% | ||||||||
Northstar Financial Services LLC | ||||||||
6.10% ((2 Month USD LIBOR + 3.50%) and (1 Month USD LIBOR + 3.50%), Rate Floor: 4.25%) due 05/25/25 | 696,500 | 676,183 | ||||||
National Financial Partners Corp. | ||||||||
5.52% (1 Month USD LIBOR + 3.00%, Rate Floor: 3.00%) due 01/08/24 | 598,342 | 564,685 | ||||||
LPL Holdings, Inc. | ||||||||
4.73% (1 Month USD LIBOR + 2.25%, Rate Floor: 2.25%) due 09/23/24 | 493,762 | 474,323 | ||||||
USI, Inc. | ||||||||
5.80% (3 Month USD LIBOR + 3.00%, Rate Floor: 3.00%) due 05/16/24 | 355,996 | 335,081 | ||||||
Aretec Group, Inc. | ||||||||
6.77% (1 Month USD LIBOR + 4.25%, Rate Floor: 4.25%) due 10/01/25 | 250,000 | 242,708 | ||||||
Travelport Finance | ||||||||
5.12% (3 Month USD LIBOR + 2.50%, Rate Floor: 2.50%) due 03/17/25 | 247,321 | 242,654 | ||||||
Advisor Group, Inc. | ||||||||
6.27% (1 Month USD LIBOR + 3.75%, Rate Floor: 3.75%) due 08/15/25 | 149,625 | 146,633 | ||||||
Total Financial | 2,682,267 | |||||||
Energy - 1.2% | ||||||||
Houston Fuel Oil Terminal Company | ||||||||
5.28% (1 Month USD LIBOR + 2.75%, Rate Floor: 2.75%) due 06/26/25 | 447,750 | 437,676 | ||||||
Ultra Petroleum, Inc. | ||||||||
6.47% (3 Month USD LIBOR + 4.00%, Rate Floor: 5.00%) due 04/12/24 | 328,000 | 291,510 | ||||||
Total Energy | 729,186 | |||||||
Total Senior Floating Rate Interests | ||||||||
(Cost $56,141,427) | 53,003,052 | |||||||
CORPORATE BONDS†† - 2.6% | ||||||||
Consumer, Non-cyclical - 1.7% | ||||||||
ADT Security Corp. | ||||||||
6.25% due 10/15/21 | 500,000 | 506,875 | ||||||
Tenet Healthcare Corp. | ||||||||
6.00% due 10/01/20 | 500,000 | 506,250 | ||||||
Total Consumer, Non-cyclical | 1,013,125 | |||||||
Communications - 0.9% | ||||||||
Sprint Communications, Inc. | ||||||||
7.00% due 03/01/205 | 500,000 | 512,500 | ||||||
Total Corporate Bonds | ||||||||
(Cost $1,546,690) | 1,525,625 | |||||||
Total Investments - 101.0% | ||||||||
(Cost $62,565,988) | $ | 59,406,548 | ||||||
Other Assets & Liabilities, net - (1.0)% | (608,686 | ) | ||||||
Total Net Assets - 100.0% | $ | 58,797,862 | ||||||
* | Non-income producing security. |
† | 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 | Security was fair valued by the Valuation Committee at December 31, 2018. The total market value of fair valued securities amounts to $28,021, (cost $28,021) or less than 0.1% of total net assets. |
2 | Affiliated issuer. |
3 | Rate indicated is the 7-day yield as of December 31, 2018. |
4 | Variable rate security. Rate indicated is the rate effective at December 31, 2018. In some instances, the effective rate is limited by a minimum rate floor or a maximum rate cap established by the issuer. The settlement status of a position may also impact the effective rate indicated. In some cases, a position may be unsettled at period end and may not have a stated effective rate. In instances where multiple underlying reference rates and spread amounts are shown, the effective rate is based on a weighted average. |
5 | Security is a 144A or Section 4(a)(2) security. These securities have been determined to be liquid under guidelines established by the Board of Trustees. The total market value of 144A or Section 4(a)(2) securities is $512,500 (cost $516,104), or 0.9% of total net assets. |
LIBOR — London Interbank Offered Rate | |
plc — Public Limited Company | |
USD — United States Dollar | |
See Sector Classification in Other Information section. |
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT|59 |
SCHEDULE OF INVESTMENTS(concluded) | December 31, 2018 |
SERIES F (FLOATING RATE STRATEGIES SERIES) |
The following table summarizes the inputs used to value the Fund’s investments at December 31, 2018 (See Note 4 in the Notes to Financial Statements):
Investments in Securities (Assets) | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Common Stocks | $ | — | $ | — | $ | — | * | $ | — | |||||||
Warrants | — | — | — | * | — | |||||||||||
Money Market Fund | 4,877,871 | — | — | 4,877,871 | ||||||||||||
Senior Floating Rate Interests | — | 52,975,031 | 28,021 | 53,003,052 | ||||||||||||
Corporate Bonds | — | 1,525,625 | — | 1,525,625 | ||||||||||||
Total Assets | $ | 4,877,871 | $ | 54,500,656 | $ | 28,021 | $ | 59,406,548 | ||||||||
| ||||||||||||||||
Investments in Securities (Liabilities) | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Unfunded Loan Commitments (Note 8) | $ | — | $ | 1,982 | $ | — | $ | 1,982 | ||||||||
* | Includes securities with a market value of $0. |
Transfers between investment levels may occur as the markets fluctuate and/or the availability of data used in an investment’s valuation changes. Transfers between valuation levels, if any, are in comparison to the valuation levels at the end of the previous fiscal year, and are effective using the fair value as of the end of the current fiscal period.
For the year ended December 31, 2018, there were no transfers between levels.
Affiliated Transactions
Investments representing 5% or more of the outstanding voting shares of a company, or control of or by, or common control under Guggenheim Investments (“GI”), result in that company being considered an affiliated issuer, as defined in the 1940 Act.
Transactions during the year ended December 31, 2018, in which the company is an “affiliated person”, were as follows:
Security Name | Value | Additions | Reductions | Realized | Change in | Value | Shares/ | Investment | ||||||||||||||||||||||||
Common Stocks | ||||||||||||||||||||||||||||||||
Aspect Software, Inc.*,1 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ** | 36 | $ | — | ||||||||||||||||
Warrants | ||||||||||||||||||||||||||||||||
Aspect Software, Inc.*,1 | — | — | — | — | — | — | ** | 28,744 | — | |||||||||||||||||||||||
Senior Floating Rate Interests | ||||||||||||||||||||||||||||||||
Aspect Software, Inc. 13.52% (3 Month USD LIBOR + 11.00%, Rate Floor: 12.00%) due 05/25/202 | 314,391 | 6,301 | (8,292 | ) | — | (49,134 | ) | 263,266 | 317,188 | 43,203 | ||||||||||||||||||||||
| $ | 314,391 | $ | 6,301 | $ | (8,292 | ) | $ | — | $ | (49,134 | ) | $ | 263,266 | $ | 43,203 | |||||||||||||||||
* | Non-income producing security. |
** | Market value is less than $1. |
1 | Security was fair valued by the Valuation Committee at December 31, 2018. The total market value of fair valued and affiliated securities amounts to $0, (cost $0) or 0.0% of total net assets. |
2 | Variable rate security. Rate indicated is the rate effective at December 31, 2018. In some instances, the effective rate is limited by a minimum rate floor or a maximum rate cap established by the issuer. The settlement status of a position may also impact the effective rate indicated. In some cases, a position may be unsettled at period end and may not have a stated effective rate. In instances where multiple underlying reference rates and spread amounts are shown, the effective rate is based on a weighted average. |
60|THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
SERIES F (FLOATING RATE STRATEGIES SERIES) |
STATEMENT OF ASSETS AND LIABILITIES |
December 31, 2018 |
Assets: | ||||
Investments in unaffiliated issuers, at value (cost $62,248,800) | $ | 59,143,282 | ||
Investments in affiliated issuers, at value (cost $317,188) | 263,266 | |||
Cash | 228,007 | |||
Prepaid expenses | 6,731 | |||
Receivables: | ||||
Securities sold | 968,553 | |||
Interest | 169,308 | |||
Fund shares sold | 438 | |||
Total assets | 60,779,585 | |||
Liabilities: | ||||
Unfunded loan commitments, at value (Note 8) (proceeds $264) | 1,982 | |||
Payable for: | ||||
Securities purchased | 1,852,220 | |||
Management fees | 22,717 | |||
Fund shares redeemed | 16,627 | |||
Distribution and service fees | 12,641 | |||
Fund accounting/administration fees | 4,045 | |||
Transfer agent/maintenance fees | 2,218 | |||
Trustees’ fees* | 905 | |||
Due to Investment Adviser | 77 | |||
Miscellaneous | 68,291 | |||
Total liabilities | 1,981,723 | |||
Commitments and contingent liabilities (Note 15) | — | |||
Net assets | $ | 58,797,862 | ||
Net assets consist of: | ||||
Paid in capital | $ | 60,135,650 | ||
Total distributable earnings (loss) | (1,337,788 | ) | ||
Net assets | $ | 58,797,862 | ||
Capital shares outstanding | 2,323,624 | |||
Net asset value per share | $ | 25.30 | ||
STATEMENT OF OPERATIONS |
Year Ended December 31, 2018 |
Investment Income: | ||||
Interest from securities of affiliated issuers | $ | 43,203 | ||
Interest from securities of unaffiliated issuers | 3,289,365 | |||
Total investment income | 3,332,568 | |||
Expenses: | ||||
Management fees | 431,982 | |||
Distribution and service fees | 166,147 | |||
Transfer agent/maintenance fees | 25,430 | |||
Fund accounting/administration fees | 53,167 | |||
Professional fees | 42,765 | |||
Custodian fees | 18,843 | |||
Trustees’ fees* | 14,586 | |||
Line of credit fees | 3,108 | |||
Miscellaneous | 77,215 | |||
Recoupment of previously waived fees | 2,125 | |||
Total expenses | 835,368 | |||
Less: | ||||
Expenses waived by Adviser | (64,413 | ) | ||
Net expenses | 770,955 | |||
Net investment income | 2,561,613 | |||
Net Realized and Unrealized Gain (Loss): | ||||
Net realized gain (loss) on: | ||||
Investments in unaffiliated issuers | (461,830 | ) | ||
Net realized loss | (461,830 | ) | ||
Net change in unrealized appreciation (depreciation) on: | ||||
Investments in unaffiliated issuers | (2,794,709 | ) | ||
Investments in affiliated issuers | (49,134 | ) | ||
Net change in unrealized appreciation (depreciation) | (2,843,843 | ) | ||
Net realized and unrealized loss | (3,305,673 | ) | ||
Net decrease in net assets resulting from operations | $ | (744,060 | ) | |
* | Relates to Trustees not deemed “interested persons” within the meaning of Section 2(a)(19) of the 1940 Act. |
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT|61 |
SERIES F (FLOATING RATE STRATEGIES SERIES) |
STATEMENTS OF CHANGES IN NET ASSETS |
| Year Ended | Year Ended | ||||||
Increase (Decrease) in Net Assets from Operations: | ||||||||
Net investment income | $ | 2,561,613 | $ | 1,816,616 | ||||
Net realized gain (loss) on investments | (461,830 | ) | 70,347 | |||||
Net change in unrealized appreciation (depreciation) on investments | (2,843,843 | ) | (110,372 | ) | ||||
Net increase (decrease) in net assets resulting from operations | (744,060 | ) | 1,776,591 | |||||
Distributions to shareholders | (1,907,470 | ) | (1,683,851 | )1 | ||||
Capital share transactions: | ||||||||
Proceeds from sale of shares | 56,864,387 | 31,537,727 | ||||||
Distributions reinvested | 1,907,470 | 1,683,851 | ||||||
Cost of shares redeemed | (48,360,750 | ) | (35,521,219 | ) | ||||
Net increase (decrease) from capital share transactions | 10,411,107 | (2,299,641 | ) | |||||
Net increase (decrease) in net assets | 7,759,577 | (2,206,901 | ) | |||||
Net assets: | ||||||||
Beginning of year | 51,038,285 | 53,245,186 | ||||||
End of year | $ | 58,797,862 | $ | 51,038,285 | ||||
Capital share activity: | ||||||||
Shares sold | 2,158,223 | 1,198,589 | ||||||
Shares issued from reinvestment of distributions | 73,648 | 65,190 | ||||||
Shares redeemed | (1,851,912 | ) | (1,350,894 | ) | ||||
Net increase (decrease) in shares | 379,959 | (87,115 | ) | |||||
1 | For the year ended December 31, 2017, the total distributions to shareholders were all from net investment income (See Note 13). |
62|THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
SERIES F (FLOATING RATE STRATEGIES SERIES) |
FINANCIAL HIGHLIGHTS |
This table is presented to show selected data for a share outstanding throughout each period and to assist shareholders in evaluating a Fund’s performance for the periods presented.
| Year Ended | Year Ended | Year Ended | Year Ended | Year Ended | |||||||||||||||
Per Share Data | ||||||||||||||||||||
Net asset value, beginning of period | $ | 26.26 | $ | 26.22 | $ | 25.72 | $ | 26.24 | $ | 25.61 | ||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||
Net investment income (loss)a | 1.01 | .91 | 1.05 | .97 | .95 | |||||||||||||||
Net gain (loss) on investments (realized and unrealized) | (1.21 | ) | (.02 | ) | 1.09 | (.77 | ) | (.32 | ) | |||||||||||
Total from investment operations | (.20 | ) | .89 | 2.14 | .20 | .63 | ||||||||||||||
Less distributions from: | ||||||||||||||||||||
Net investment income | (.76 | ) | (.85 | ) | (1.56 | ) | (.67 | ) | — | |||||||||||
Net realized gains | — | — | (.08 | ) | (.05 | ) | — | |||||||||||||
Total distributions | (.76 | ) | (.85 | ) | (1.64 | ) | (.72 | ) | — | |||||||||||
Net asset value, end of period | $ | 25.30 | $ | 26.26 | $ | 26.22 | $ | 25.72 | $ | 26.24 | ||||||||||
| ||||||||||||||||||||
Total Returnb | (0.84 | %) | 3.46 | % | 8.56 | % | 0.73 | % | 2.38 | % | ||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||
Net assets, end of period (in thousands) | $ | 58,798 | $ | 51,038 | $ | 53,245 | $ | 48,598 | $ | 45,837 | ||||||||||
Ratios to average net assets: | ||||||||||||||||||||
Net investment income (loss) | 3.85 | % | 3.44 | % | 4.06 | % | 3.66 | % | 3.65 | % | ||||||||||
Total expenses | 1.26 | % | 1.28 | % | 1.22 | % | 1.27 | % | 1.24 | % | ||||||||||
Net expensesc,d,e | 1.16 | % | 1.18 | % | 1.18 | % | 1.17 | % | 1.16 | % | ||||||||||
Portfolio turnover rate | 80 | % | 57 | % | 71 | % | 73 | % | 90 | % | ||||||||||
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 and reimbursements, as applicable. |
d | Net expenses may include expenses that are excluded from the expense limitation agreement. Excluding these expenses, the net expense ratios for the years would be: |
12/31/18 | 12/31/17 | 12/31/16 | 12/31/15 | 12/31/14 |
1.15% | 1.15% | 1.15% | 1.15% | 1.15% |
e | The portion of the ratios of net expenses to average net assets attributable to recoupments of prior fee reductions or expense reimbursements for the years was as follows: |
12/31/18 | 12/31/17 | 12/31/16 |
0.00%* | 0.01% | — |
* | Less than 0.01%. |
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT|63 |
MANAGERS’ COMMENTARY(Unaudited) | December 31, 2018 |
To Our Shareholders:
The Series J (StylePlusTM—Mid Growth Series) (the “Fund”) is managed by a team of seasoned professionals, including Farhan Sharaff, Senior Managing Director and Assistant Chief Investment Officer, Equities; Jayson Flowers, Senior Managing Director and Portfolio Manager; Qi Yan, Managing Director and Portfolio Manager; and Adam Bloch, Director and Portfolio Manager. In the following paragraphs, the investment team discusses performance for the fiscal year ended December 31, 2018.
For the year ended December 31, 2018, Series J (StylePlus—Mid Growth Series) returned -7.10%, compared with the -4.75% return of its benchmark, the Russell Midcap® Growth Index.
Investment Approach
Through a combination of 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 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 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
Over the period, from 15-25% of the total equity position was allocated to actively managed equity and 75-85% to passive equity. Remaining Fund assets were invested in the Guggenheim Strategy Funds, short-term fixed income investment companies advised by Guggenheim Investments, and the Guggenheim Ultra Short Duration Fund, whose objective is to seek a high level of income consistent with the preservation of capital.
The Fund underperformed the Russell Midcap Growth Index for the year ended December 31, 2018. The fixed income sleeve was the only contributor, as positions in the Guggenheim Ultra Short Duration Fund and the Guggenheim Strategy Funds, which held asset-backed securities, investment-grade corporates, and Non-Agency residential mortgage-backed securities, constituted the majority of the Fund’s total return. The actively managed equity sleeve detracted from performance. The passive equity position, maintained through swap agreements and futures contracts, also detracted 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 Consumer Staples and Industrials sectors and most underweight the Financials and Consumer Discretionary sectors.
Performance displayed represents past performance which is no guarantee of future results.
The opinions and forecast expressed may not actually come to pass. This information is subject to change at any time, based on market and other conditions, and should not be construed as a recommendation of any specific security or strategy.
64 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
PERFORMANCE REPORT AND FUND PROFILE(Unaudited) | December 31, 2018 |
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, investments in Guggenheim Strategy Funds Trust mutual funds, or investments in Guggenheim Ultra Short Duration Fund.
Inception Date:October 1, 1992 |
Ten Largest Holdings (% of Total Net Assets) | |
Guggenheim Variable Insurance Strategy Fund III | 35.7% |
Guggenheim Strategy Fund III | 29.0% |
Guggenheim Strategy Fund II | 4.8% |
Guggenheim Ultra Short Duration Fund | 2.3% |
Citrix Systems, Inc. | 0.3% |
Centene Corp. | 0.3% |
Paychex, Inc. | 0.3% |
NetApp, Inc. | 0.3% |
Omnicom Group, Inc. | 0.3% |
Cheniere Energy, Inc. | 0.3% |
Top Ten Total | 73.6% |
“Ten Largest Holdings” excludes any temporary cash or derivative investments. | |
THE GUGGENHEIM FUNDS ANNUAL REPORT | 65 |
PERFORMANCE REPORT AND FUND PROFILE(Unaudited)(concluded) | December 31, 2018 |
Cumulative Fund Performance*,†
Average Annual Returns*,†
Periods Ended December 31, 2018
| 1 Year | 5 Year | 10 Year |
Series J (StylePlus—Mid Growth Series) | (7.10%) | 7.29% | 13.90% |
Russell Midcap Growth Index | (4.75%) | 7.42% | 15.12% |
* | 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. |
66 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
SCHEDULE OF INVESTMENTS | December 31, 2018 |
SERIES J (STYLEPLUS—MID GROWTH SERIES) |
| Shares | Value | ||||||
COMMON STOCKS† - 21.7% | ||||||||
Consumer, Non-cyclical - 5.5% | ||||||||
Centene Corp.* | 3,699 | $ | 426,495 | |||||
McKesson Corp. | 2,885 | 318,706 | ||||||
Edwards Lifesciences Corp.* | 2,029 | 310,782 | ||||||
Kimberly-Clark Corp. | 2,655 | 302,511 | ||||||
Post Holdings, Inc.* | 3,231 | 287,979 | ||||||
Total System Services, Inc. | 3,521 | 286,222 | ||||||
McCormick & Company, Inc. | 1,925 | 268,037 | ||||||
Western Union Co. | 15,336 | 261,632 | ||||||
Laboratory Corporation of America Holdings* | 2,059 | 260,175 | ||||||
Sysco Corp. | 3,839 | 240,552 | ||||||
FleetCor Technologies, Inc.* | 1,286 | 238,836 | ||||||
CoreLogic, Inc.* | 6,362 | 212,618 | ||||||
Kellogg Co. | 3,728 | 212,533 | ||||||
AmerisourceBergen Corp. — Class A | 2,672 | 198,797 | ||||||
Encompass Health Corp. | 2,777 | 171,341 | ||||||
Herbalife Nutrition Ltd.* | 2,897 | 170,778 | ||||||
Gartner, Inc.* | 1,296 | 165,681 | ||||||
Baxter International, Inc. | 2,512 | 165,340 | ||||||
Square, Inc. — Class A* | 2,849 | 159,800 | ||||||
Align Technology, Inc.* | 742 | 155,397 | ||||||
Sabre Corp. | 7,049 | 152,540 | ||||||
Premier, Inc. — Class A* | 3,987 | 148,915 | ||||||
Cardinal Health, Inc. | 3,070 | 136,922 | ||||||
Performance Food Group Co.* | 4,240 | 136,825 | ||||||
WellCare Health Plans, Inc.* | 566 | 133,627 | ||||||
DaVita, Inc.* | 2,589 | 133,230 | ||||||
US Foods Holding Corp.* | 4,076 | 128,964 | ||||||
Henry Schein, Inc.* | 1,522 | 119,507 | ||||||
Booz Allen Hamilton Holding Corp. | 2,459 | 110,827 | ||||||
Church & Dwight Company, Inc. | 1,634 | 107,452 | ||||||
ResMed, Inc. | 940 | 107,038 | ||||||
Molina Healthcare, Inc.* | 892 | 103,668 | ||||||
Keurig Dr Pepper, Inc. | 4,024 | 103,175 | ||||||
ABIOMED, Inc.* | 305 | 99,137 | ||||||
Brown-Forman Corp. — Class B | 2,041 | 97,111 | ||||||
Hershey Co. | 904 | 96,891 | ||||||
IDEXX Laboratories, Inc.* | 488 | 90,778 | ||||||
PRA Health Sciences, Inc.* | 966 | 88,833 | ||||||
Verisk Analytics, Inc. — Class A* | 791 | 86,251 | ||||||
WEX, Inc.* | 607 | 85,016 | ||||||
Alexion Pharmaceuticals, Inc.* | 819 | 79,738 | ||||||
Avery Dennison Corp. | 886 | 79,589 | ||||||
Bright Horizons Family Solutions, Inc.* | 693 | 77,235 | ||||||
CoStar Group, Inc.* | 228 | 76,914 | ||||||
Cintas Corp. | 448 | 75,260 | ||||||
Total Consumer, Non-cyclical | 7,469,655 | |||||||
Technology - 5.0% | ||||||||
Citrix Systems, Inc. | 4,240 | 434,430 | ||||||
Paychex, Inc. | 6,153 | 400,868 | ||||||
NetApp, Inc. | 6,436 | 384,036 | ||||||
Fiserv, Inc.* | 4,580 | 336,584 | ||||||
ServiceNow, Inc.* | 1,735 | 308,917 | ||||||
Lam Research Corp. | 2,267 | 308,697 | ||||||
Fidelity National Information Services, Inc. | 2,764 | 283,448 | ||||||
Analog Devices, Inc. | 2,854 | 244,959 | ||||||
Autodesk, Inc.* | 1,826 | 234,842 | ||||||
Xilinx, Inc. | 2,754 | 234,558 | ||||||
Cognizant Technology Solutions Corp. — Class A | 3,684 | 233,860 | ||||||
Skyworks Solutions, Inc. | 3,378 | 226,394 | ||||||
Cerner Corp.* | 4,193 | 219,881 | ||||||
KLA-Tencor Corp. | 2,354 | 210,660 | ||||||
Zebra Technologies Corp. — Class A* | 1,286 | 204,770 | ||||||
Maxim Integrated Products, Inc. | 3,632 | 184,687 | ||||||
Broadridge Financial Solutions, Inc. | 1,708 | 164,395 | ||||||
CDK Global, Inc. | 3,279 | 156,998 | ||||||
MAXIMUS, Inc. | 2,194 | 142,808 | ||||||
Akamai Technologies, Inc.* | 2,336 | 142,683 | ||||||
Black Knight, Inc.* | 3,160 | 142,390 | ||||||
Workday, Inc. — Class A* | 867 | 138,442 | ||||||
Cadence Design Systems, Inc.* | 3,104 | 134,962 | ||||||
j2 Global, Inc. | 1,936 | 134,320 | ||||||
Splunk, Inc.* | 1,108 | 116,174 | ||||||
ON Semiconductor Corp.* | 7,015 | 115,818 | ||||||
Advanced Micro Devices, Inc.* | 5,898 | 108,877 | ||||||
Microchip Technology, Inc. | 1,463 | 105,219 | ||||||
NCR Corp.* | 4,513 | 104,160 | ||||||
Cypress Semiconductor Corp. | 7,638 | 97,155 | ||||||
Veeva Systems, Inc. — Class A* | 1,060 | 94,679 | ||||||
Take-Two Interactive Software, Inc.* | 867 | 89,249 | ||||||
MKS Instruments, Inc. | 1,328 | 85,802 | ||||||
Teradyne, Inc. | 2,628 | 82,467 | ||||||
First Data Corp. — Class A* | 4,858 | 82,149 | ||||||
NXP Semiconductor N.V. | 1,073 | 78,629 | ||||||
Cirrus Logic, Inc.* | 2,362 | 78,371 | ||||||
Applied Materials, Inc. | 1,880 | 61,551 | ||||||
Total Technology | 6,908,889 | |||||||
Industrial - 4.7% | ||||||||
Cummins, Inc. | 2,608 | 348,533 | ||||||
Expeditors International of Washington, Inc. | 5,038 | 343,038 | ||||||
CH Robinson Worldwide, Inc. | 4,058 | 341,237 | ||||||
Ingersoll-Rand plc | 3,294 | 300,512 | ||||||
Old Dominion Freight Line, Inc. | 2,429 | 299,957 | ||||||
Parker-Hannifin Corp. | 2,000 | 298,280 | ||||||
Rockwell Automation, Inc. | 1,949 | 293,285 | ||||||
J.B. Hunt Transport Services, Inc. | 3,148 | 292,890 | ||||||
Amphenol Corp. — Class A | 3,524 | 285,514 | ||||||
Textron, Inc. | 6,190 | 284,678 | ||||||
Masco Corp. | 9,710 | 283,920 | ||||||
XPO Logistics, Inc.* | 4,381 | 249,892 | ||||||
Landstar System, Inc. | 2,605 | 249,220 | ||||||
Genesee & Wyoming, Inc. — Class A* | 2,984 | 220,876 | ||||||
Harris Corp. | 1,441 | 194,030 | ||||||
Huntington Ingalls Industries, Inc. | 971 | 184,791 | ||||||
Xylem, Inc. | 2,591 | 172,872 | ||||||
Waters Corp.* | 877 | 165,446 | ||||||
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT|67 |
SCHEDULE OF INVESTMENTS(continued) | December 31, 2018 |
SERIES J (STYLEPLUS—MID GROWTH SERIES) |
| Shares | Value | ||||||
Spirit AeroSystems Holdings, Inc. — Class A | 2,268 | $ | 163,500 | |||||
Roper Technologies, Inc. | 526 | 140,190 | ||||||
FLIR Systems, Inc. | 3,100 | 134,974 | ||||||
Barnes Group, Inc. | 2,493 | 133,675 | ||||||
Schneider National, Inc. — Class B | 5,889 | 109,948 | ||||||
Sensata Technologies Holding plc* | 2,343 | 105,060 | ||||||
Rexnord Corp.* | 4,550 | 104,422 | ||||||
Fortive Corp. | 1,486 | 100,543 | ||||||
EnerSys | 1,195 | 92,744 | ||||||
Martin Marietta Materials, Inc. | 516 | 88,685 | ||||||
Packaging Corporation of America | 1,020 | 85,129 | ||||||
EMCOR Group, Inc. | 1,421 | 84,819 | ||||||
Crown Holdings, Inc.* | 1,971 | 81,935 | ||||||
Coherent, Inc.* | 724 | 76,534 | ||||||
Vulcan Materials Co. | 762 | 75,286 | ||||||
Gentex Corp. | 3,581 | 72,372 | ||||||
Total Industrial | 6,458,787 | |||||||
Consumer, Cyclical - 2.6% | ||||||||
Allison Transmission Holdings, Inc. | 6,625 | 290,904 | ||||||
AutoZone, Inc.* | 346 | 290,066 | ||||||
HD Supply Holdings, Inc.* | 7,029 | 263,728 | ||||||
Delta Air Lines, Inc. | 4,078 | 203,492 | ||||||
Southwest Airlines Co. | 4,298 | 199,771 | ||||||
Dollar General Corp. | 1,783 | 192,707 | ||||||
WW Grainger, Inc. | 598 | 168,851 | ||||||
Aptiv plc | 2,307 | 142,042 | ||||||
PulteGroup, Inc. | 5,132 | 133,381 | ||||||
Toll Brothers, Inc. | 3,487 | 114,827 | ||||||
Wyndham Destinations, Inc. | 3,127 | 112,072 | ||||||
Best Buy Company, Inc. | 2,093 | 110,845 | ||||||
Ross Stores, Inc. | 1,266 | 105,331 | ||||||
DR Horton, Inc. | 2,919 | 101,172 | ||||||
Lear Corp. | 788 | 96,814 | ||||||
O’Reilly Automotive, Inc.* | 278 | 95,724 | ||||||
Burlington Stores, Inc.* | 586 | 95,324 | ||||||
Copart, Inc.* | 1,930 | 92,215 | ||||||
Wynn Resorts Ltd. | 921 | 91,096 | ||||||
Chipotle Mexican Grill, Inc. — Class A* | 207 | 89,380 | ||||||
Live Nation Entertainment, Inc.* | 1,799 | 88,601 | ||||||
VF Corp. | 1,166 | 83,183 | ||||||
KAR Auction Services, Inc. | 1,705 | 81,363 | ||||||
Nordstrom, Inc. | 1,662 | 77,466 | ||||||
Lions Gate Entertainment Corp. — Class A | 4,755 | 76,555 | ||||||
Visteon Corp.* | 1,236 | 74,506 | ||||||
Dunkin’ Brands Group, Inc. | 1,142 | 73,225 | ||||||
Darden Restaurants, Inc. | 730 | 72,898 | ||||||
Total Consumer, Cyclical | 3,617,539 | |||||||
Communications - 2.5% | ||||||||
Omnicom Group, Inc. | 5,194 | 380,409 | ||||||
CDW Corp. | 3,572 | 289,511 | ||||||
F5 Networks, Inc.* | 1,700 | 275,451 | ||||||
InterDigital, Inc. | 3,377 | 224,334 | ||||||
Palo Alto Networks, Inc.* | 1,169 | 220,181 | ||||||
Motorola Solutions, Inc. | 1,885 | 216,850 | ||||||
GoDaddy, Inc. — Class A* | 3,197 | 209,787 | ||||||
Twitter, Inc.* | 7,010 | 201,467 | ||||||
AMC Networks, Inc. — Class A* | 3,462 | 189,994 | ||||||
VeriSign, Inc.* | 1,253 | 185,807 | ||||||
Expedia Group, Inc. | 1,384 | 155,908 | ||||||
eBay, Inc.* | 4,198 | 117,838 | ||||||
IAC/InterActiveCorp* | 528 | 96,645 | ||||||
Arista Networks, Inc.* | 457 | 96,290 | ||||||
LogMeIn, Inc. | 1,106 | 90,217 | ||||||
Sirius XM Holdings, Inc. | 15,513 | 88,579 | ||||||
Interpublic Group of Companies, Inc. | 4,100 | 84,583 | ||||||
Sinclair Broadcast Group, Inc. — Class A | 3,196 | 84,183 | ||||||
TripAdvisor, Inc.* | 1,551 | 83,661 | ||||||
New York Times Co. — Class A | 3,699 | 82,451 | ||||||
GrubHub, Inc.* | 899 | 69,052 | ||||||
Total Communications | 3,443,198 | |||||||
Energy - 0.9% | ||||||||
Cheniere Energy, Inc.* | 6,179 | 365,735 | ||||||
ONEOK, Inc. | 6,245 | 336,918 | ||||||
Delek US Holdings, Inc. | 5,603 | 182,153 | ||||||
Anadarko Petroleum Corp. | 3,644 | 159,753 | ||||||
CVR Energy, Inc. | 4,288 | 147,850 | ||||||
Total Energy | 1,192,409 | |||||||
Basic Materials - 0.4% | ||||||||
International Paper Co. | 2,900 | 117,044 | ||||||
Westlake Chemical Corp. | 1,367 | 90,455 | ||||||
Chemours Co. | 3,151 | 88,921 | ||||||
FMC Corp. | 1,185 | 87,643 | ||||||
Celanese Corp. — Class A | 957 | 86,101 | ||||||
Total Basic Materials | 470,164 | |||||||
Financial - 0.1% | ||||||||
Alliance Data Systems Corp. | 1,139 | 170,941 | ||||||
Total Common Stocks | ||||||||
(Cost $33,337,388) | 29,731,582 | |||||||
MUTUAL FUNDS† - 71.8% | ||||||||
Guggenheim Variable Insurance Strategy Fund III1 | 1,977,342 | 48,939,224 | ||||||
Guggenheim Strategy Fund III1 | 1,605,186 | 39,792,573 | ||||||
Guggenheim Strategy Fund II1 | 265,465 | 6,588,834 | ||||||
Guggenheim Ultra Short Duration Fund1,2 | 317,974 | 3,167,024 | ||||||
Total Mutual Funds | ||||||||
(Cost $99,243,824) | 98,487,655 | |||||||
68|THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
SCHEDULE OF INVESTMENTS(continued) | December 31, 2018 |
SERIES J (STYLEPLUS—MID GROWTH SERIES) |
| Shares | Value | ||||||
MONEY MARKET FUND† - 5.4% | ||||||||
Dreyfus Treasury Securities Cash Management – Institutional Shares 2.20%3 | 7,463,198 | $ | 7,463,198 | |||||
Total Money Market Fund | ||||||||
(Cost $7,463,198) | 7,463,198 | |||||||
Total Investments – 98.9% | ||||||||
(Cost $140,044,410) | $ | 135,682,435 | ||||||
Other Assets & Liabilities, net - 1.1% | 1,433,747 | |||||||
Total Net Assets - 100.0% | $ | 137,116,182 | ||||||
Futures Contracts | |||||||||||||
Description | Number of | Expiration | Notional | Value and | |||||||||
Equity Futures Contracts Purchased† | |||||||||||||
S&P 500 Index Mini Futures Contracts | 1 | Mar 2019 | $ | 125,475 | $ | (1,406 | ) | ||||||
NASDAQ-100 Index Mini Futures Contracts | 1 | Mar 2019 | 126,905 | (2,750 | ) | ||||||||
S&P MidCap 400 Index Mini Futures Contracts | 3 | Mar 2019 | 499,080 | (10,001 | ) | ||||||||
| $ | 751,460 | $ | (14,157 | ) | |||||||||
Total Return Swap Agreements | |||||||||||||||||||
Counterparty | Index | Financing | Payment | Maturity | Units | Notional | Value and | ||||||||||||
OTC Equity Index Swap Agreements†† | |||||||||||||||||||
Wells Fargo Bank, N.A | Russell MidCap Growth Index | 2.54 | % | At Maturity | 01/02/19 | 117,693 | $ | 107,710,739 | $ | (12,553,500 | ) | ||||||||
* | Non-income producing security. |
** | Includes cumulative appreciation (depreciation). Variation margin is reported within the Statement of Assets and Liabilities. |
† | Value determined based on Level 1 inputs — See Note 4. |
†† | Value determined based on Level 2 inputs — See Note 4. |
1 | Affiliated issuer. |
2 | Effective November 30, 2018, Guggenheim Strategy Fund I was reorganized with and into the Guggenheim Ultra Short Duration Fund. |
3 | Rate indicated is the 7-day yield as of December 31, 2018. |
plc — Public Limited Company | |
See Sector Classification in Other Information section. |
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT|69 |
SCHEDULE OF INVESTMENTS(continued) | December 31, 2018 |
SERIES J (STYLEPLUS—MID GROWTH SERIES) |
The following table summarizes the inputs used to value the Fund’s investments at December 31, 2018 (See Note 4 in the Notes to Financial Statements):
Investments in Securities (Assets) | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Common Stocks | $ | 29,731,582 | $ | — | $ | — | $ | 29,731,582 | ||||||||
Mutual Funds | 98,487,655 | — | — | 98,487,655 | ||||||||||||
Money Market Fund | 7,463,198 | — | — | 7,463,198 | ||||||||||||
Total Assets | $ | 135,682,435 | $ | — | $ | — | $ | 135,682,435 | ||||||||
| ||||||||||||||||
Investments in Securities (Liabilities) | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Equity Futures Contracts** | $ | 14,157 | $ | — | $ | — | $ | 14,157 | ||||||||
Equity Index Swap Agreements** | — | 12,553,500 | — | 12,553,500 | ||||||||||||
Total Liabilities | $ | 14,157 | $ | 12,553,500 | $ | — | $ | 12,567,657 | ||||||||
** | This derivative is reported as unrealized appreciation/depreciation at period end. |
Transfers between investment levels may occur as the markets fluctuate and/or the availability of data used in an investment’s valuation changes. Transfers between valuation levels, if any, are in comparison to the valuation levels at the end of the previous fiscal year, and are effective using the fair value as of the end of the current fiscal period.
For the year ended December 31, 2018, there were no transfers between levels.
Affiliated Transactions
Investments representing 5% or more of the outstanding voting shares of a company, or control of or by, or common control under Guggenheim Investments (“GI”), result in that company being considered an affiliated issuer, as defined in the 1940 Act.
The Fund may invest in certain of the underlying series of Guggenheim Strategy Funds Trust, including Guggenheim Strategy Fund II, Guggenheim Strategy Fund III, and Guggenheim Variable Insurance Strategy Fund III, (collectively, the “Cash Management Funds”), each of which are 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, 2018, is available publicly or upon request. This information is available from the EDGAR database on the SEC’s website at https://www.sec.gov/Archives/edgar/data/1601445/000089180418000513/gug75569-ncsr.htm.
70|THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
SCHEDULE OF INVESTMENTS(concluded) | December 31, 2018 |
SERIES J (STYLEPLUS—MID GROWTH SERIES) |
Transactions during the year ended December 31, 2018, in which the company is an “affiliated person”, were as follows:
Security Name | Value | Additions | Reductions | Realized | Change in | Value | Shares | Investment | Capital Gain | |||||||||||||||||||||||||||
Mutual Funds | ||||||||||||||||||||||||||||||||||||
Guggenheim Strategy Fund II | $ | 26,707,218 | $ | 6,645,551 | $ | (26,669,562 | ) | $ | 77,255 | $ | (171,628 | ) | $ | 6,588,834 | 265,465 | $ | 610,370 | $ | 5,758 | |||||||||||||||||
Guggenheim Strategy Fund III | 48,500,456 | 1,422,812 | (9,717,596 | ) | 14,073 | (427,172 | ) | 39,792,573 | 1,605,186 | 1,418,073 | 1,666 | |||||||||||||||||||||||||
Guggenheim Ultra Short Duration Fund1 | 17,247,482 | 26,532,506 | (40,577,715 | ) | 13,262 | (48,511 | ) | 3,167,024 | 317,974 | 229,215 | 4,840 | |||||||||||||||||||||||||
Guggenheim Variable Insurance Strategy Fund III | 50,752,162 | 6,784,874 | (7,879,951 | ) | 25,306 | (743,167 | ) | 48,939,224 | 1,977,342 | 1,842,800 | 23,509 | |||||||||||||||||||||||||
| $ | 143,207,318 | $ | 41,385,743 | $ | (84,844,824 | ) | $ | 129,896 | $ | (1,390,478 | ) | $ | 98,487,655 | $ | 4,100,458 | $ | 35,773 | |||||||||||||||||||
1 | Effective November 30, 2018, Guggenheim Strategy Fund I was reorganized with and into the Guggenheim Ultra Short Duration Fund. |
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT|71 |
SERIES J (STYLEPLUS—MID GROWTH SERIES) |
STATEMENT OF ASSETS AND LIABILITIES |
December 31, 2018 |
Assets: | ||||
Investments in unaffiliated issuers, at value (cost $40,800,586) | $ | 37,194,780 | ||
Investments in affiliated issuers, at value (cost $99,243,824) | 98,487,655 | |||
Cash | 51,746 | |||
Segregated cash with broker | 14,968,200 | |||
Prepaid expenses | 8,304 | |||
Receivables: | ||||
Dividends | 217,395 | |||
Fund shares sold | 10,092 | |||
Interest | 9,382 | |||
Variation margin on futures contracts | 7,525 | |||
Total assets | 150,955,079 | |||
Liabilities: | ||||
Unrealized depreciation on swap agreements | 12,553,500 | |||
Payable for: | ||||
Swap settlement | 884,739 | |||
Securities purchased | 206,281 | |||
Fund shares redeemed | 56,884 | |||
Distribution and service fees | 28,131 | |||
Management fees | 19,600 | |||
Fund accounting/administration fees | 9,002 | |||
Transfer agent/maintenance fees | 2,518 | |||
Trustees’ fees* | 985 | |||
Miscellaneous | 77,257 | |||
Total liabilities | 13,838,897 | |||
Commitments and contingent liabilities (Note 15) | — | |||
Net assets | $ | 137,116,182 | ||
Net assets consist of: | ||||
Paid in capital | $ | 138,935,040 | ||
Total distributable earnings (loss) | (1,818,858 | ) | ||
Net assets | $ | 137,116,182 | ||
Capital shares outstanding | 2,812,399 | |||
Net asset value per share | $ | 48.75 | ||
STATEMENT OF OPERATIONS |
Year Ended December 31, 2018 |
Investment Income: | ||||
Dividends from securities of unaffiliated issuers (net of foreign withholding tax of $430) | $ | 441,009 | ||
Dividends from securities of affiliated issuers | 4,100,458 | |||
Interest | 96,926 | |||
Total investment income | 4,638,393 | |||
Expenses: | ||||
Management fees | 1,311,732 | |||
Distribution and service fees | 437,244 | |||
Transfer agent/maintenance fees | 25,790 | |||
Fund accounting/administration fees | 139,920 | |||
Interest expense | 118,637 | |||
Trustees’ fees* | 20,662 | |||
Custodian fees | 19,672 | |||
Line of credit fees | 6,752 | |||
Miscellaneous | 155,321 | |||
Total expenses | 2,235,730 | |||
Less: | ||||
Expenses reimbursed by Adviser | (1,640 | ) | ||
Expenses waived by Adviser | (470,889 | ) | ||
Total expenses waived/reimbursed | (472,529 | ) | ||
Net expenses | 1,763,201 | |||
Net investment income | 2,875,192 | |||
Net Realized and Unrealized Gain (Loss): | ||||
Net realized gain (loss) on: | ||||
Investments in unaffiliated issuers | 2,877,110 | |||
Investments in affiliated issuers | 129,896 | |||
Distributions received from affiliated investment company shares | 35,773 | |||
Swap agreements | 15,075,837 | |||
Futures contracts | (267,848 | ) | ||
Net realized gain | 17,850,768 | |||
Net change in unrealized appreciation (depreciation) on: | ||||
Investments in unaffiliated issuers | (6,282,705 | ) | ||
Investments in affiliated issuers | (1,390,478 | ) | ||
Swap agreements | (20,884,762 | ) | ||
Futures contracts | (21,530 | ) | ||
Net change in unrealized appreciation (depreciation) | (28,579,475 | ) | ||
Net realized and unrealized loss | (10,728,707 | ) | ||
Net decrease in net assets resulting from operations | $ | (7,853,515 | ) | |
* | Relates to Trustees not deemed “interested persons” within the meaning of Section 2(a)(19) of the 1940 Act. |
72|THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
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 | $ | 2,875,192 | $ | 2,211,533 | ||||
Net realized gain on investments | 17,850,768 | 25,960,711 | ||||||
Net change in unrealized appreciation (depreciation) on investments | (28,579,475 | ) | 10,897,324 | |||||
Net increase (decrease) in net assets resulting from operations | (7,853,515 | ) | 39,069,568 | |||||
Distributions to shareholders | (21,135,811 | ) | (1,631,486 | )1 | ||||
Capital share transactions: | ||||||||
Proceeds from sale of shares | 5,267,526 | 7,756,999 | ||||||
Distributions reinvested | 21,135,811 | 1,631,486 | ||||||
Cost of shares redeemed | (48,194,906 | ) | (25,743,335 | ) | ||||
Net decrease from capital share transactions | (21,791,569 | ) | (16,354,850 | ) | ||||
Net increase (decrease) in net assets | (50,780,895 | ) | 21,083,232 | |||||
Net assets: | ||||||||
Beginning of year | 187,897,077 | 166,813,845 | ||||||
End of year | $ | 137,116,182 | $ | 187,897,077 | ||||
Capital share activity: | ||||||||
Shares sold | 87,944 | 144,774 | ||||||
Shares issued from reinvestment of distributions | 371,390 | 30,146 | ||||||
Shares redeemed | (787,947 | ) | (478,624 | ) | ||||
Net decrease in shares | (328,613 | ) | (303,704 | ) | ||||
1 | For the year ended December 31, 2017, the distributions to shareholders were all from net investment income (see Note 13). |
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT|73 |
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 | $ | 59.82 | $ | 48.43 | $ | 45.15 | $ | 49.12 | $ | 43.45 | ||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||
Net investment income (loss)a | .97 | .67 | .52 | .31 | .49 | |||||||||||||||
Net gain (loss) on investments (realized and unrealized) | (4.08 | ) | 11.22 | 3.37 | (.10 | ) | 5.18 | |||||||||||||
Total from investment operations | (3.11 | ) | 11.89 | 3.89 | .21 | 5.67 | ||||||||||||||
Less distributions from: | ||||||||||||||||||||
Net investment income | (.83 | ) | (.50 | ) | (.33 | ) | (.56 | ) | — | |||||||||||
Net realized gains | (7.13 | ) | — | (.28 | ) | (3.62 | ) | — | ||||||||||||
Total distributions | (7.96 | ) | (.50 | ) | (.61 | ) | (4.18 | ) | — | |||||||||||
Net asset value, end of period | $ | 48.75 | $ | 59.82 | $ | 48.43 | $ | 45.15 | $ | 49.12 | ||||||||||
| ||||||||||||||||||||
Total Returnb | (7.10 | %) | 24.67 | % | 8.65 | % | (0.08 | %) | 13.05 | % | ||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||
Net assets, end of period (in thousands) | $ | 137,116 | $ | 187,897 | $ | 166,814 | $ | 148,009 | $ | 163,066 | ||||||||||
Ratios to average net assets: | ||||||||||||||||||||
Net investment income (loss) | 1.64 | % | 1.25 | % | 1.14 | % | 0.63 | % | 1.06 | % | ||||||||||
Total expensesc | 1.28 | % | 1.14 | % | 0.95 | % | 0.97 | % | 0.98 | % | ||||||||||
Net expensesd,e | 1.01 | % | 0.94 | % | 0.95 | % | 0.97 | % | 0.96 | % | ||||||||||
Portfolio turnover rate | 66 | % | 49 | % | 57 | % | 70 | % | 100 | % | ||||||||||
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 and reimbursements, as applicable. |
e | Net expenses may include expenses that are excluded from the expense limitation agreement. Excluding these expenses, the expense ratios for the years would be: |
12/31/18 | 12/31/17 | 12/31/16 | 12/31/15 | 12/31/14 |
0.94% | 0.92% | 0.95% | 0.97% | 0.96% |
74|THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
MANAGERS’ COMMENTARY(Unaudited) | December 31, 2018 |
To Our Shareholders:
The Series N (Managed Asset Allocation Series) (the "Fund") 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 investment team discusses performance of the Fund for the fiscal year ended December 31, 2018.
For the year ended December 31, 2018, Series N (Managed Asset Allocation Series) returned -5.73%, underperforming its weighted benchmark that is 60% S&P 500® Index and 40% Barclays U.S. Aggregate Bond Index, which returned -2.36%. The S&P 500 Index returned -4.38% over the year and the Bloomberg Barclays U.S. Aggregate Bond Index returned 0.01%.
2018 was the ninth year of the recent boom. While worrying how long the market run would continue, investors became concerned about three major global themes: a slowing global economy, tightening Fed policy, and a trade uncertainty between the U.S. and China. The negative sentiment led analysts to trim their profit estimates and drove the market to a sharp fall as year-end approached.
Few asset classes ended with positive returns in 2018. The short-term U.S. Treasury bill was the leading performer, a rare occurrence.
In the period, all holdings in the Fund delivered losses, with EAFE futures, S&P Mid Cap Index futures, and Russell 2000 Index futures having the biggest losses. Our active strategies made some gains, but they were not enough to cover the expenses.
Performance displayed represents past performance which is no guarantee of future results.
The opinions and forecast expressed may not actually come to pass. This information is subject to change at any time, based on market and other conditions, and should not be construed as a recommendation of any specific security or strategy.
THE GUGGENHEIM FUNDS ANNUAL REPORT | 75 |
PERFORMANCE REPORT AND FUND PROFILE(Unaudited) | December 31, 2018 |
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, investments in Guggenheim Strategy Funds Trust mutual funds, or investments in Guggenheim Ultra Short Duration Fund.
Inception Date:June 1, 1995 |
Ten Largest Holdings (% of Total Net Assets) | |
iShares Core U.S. Aggregate Bond ETF | 15.8% |
Vanguard S&P 500 ETF | 15.7% |
SPDR S&P 500 ETF Trust | 15.3% |
Guggenheim Variable Insurance Strategy Fund III | 14.2% |
Guggenheim Strategy Fund III | 12.2% |
iShares iBoxx $ Investment Grade Corporate Bond ETF | 7.9% |
iShares Core S&P Mid-Capital ETF | 4.7% |
Guggenheim Strategy Fund II | 4.2% |
iShares MSCI EAFE ETF | 3.4% |
Guggenheim Ultra Short Duration Fund | 2.3% |
Top Ten Total | 95.7% |
“Ten Largest Holdings” excludes any temporary cash or derivative investments. | |
76 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
PERFORMANCE REPORT AND FUND PROFILE(Unaudited)(concluded) | December 31, 2018 |
Cumulative Fund Performance*,†
Average Annual Returns*,†
Periods Ended December 31, 2018
| 1 Year | 5 Year | 10 Year |
Series N (Managed Asset Allocation Series) | (5.73%) | 4.47% | 8.46% |
Blended Index** | (2.36%) | 6.23% | 9.42% |
Bloomberg Barclays U.S. Aggregate Bond Index | 0.01% | 2.52% | 3.48% |
S&P 500 Index | (4.38%) | 8.49% | 13.12% |
* | 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 Bloomberg 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% Bloomberg 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 | 77 |
SCHEDULE OF INVESTMENTS | December 31, 2018 |
SERIES N (MANAGED ASSET ALLOCATION SERIES) |
| Shares | Value | ||||||
EXCHANGE-TRADED FUNDS† - 62.8% | ||||||||
iShares Core U.S. Aggregate Bond ETF | 63,161 | $ | 6,726,015 | |||||
Vanguard S&P 500 ETF | 29,195 | 6,709,303 | ||||||
SPDR S&P 500 ETF Trust | 26,129 | 6,530,159 | ||||||
iShares iBoxx $ Investment Grade Corporate Bond ETF | 29,849 | 3,367,564 | ||||||
iShares Core S&P Mid-Capital ETF | 11,910 | 1,977,775 | ||||||
iShares MSCI EAFE ETF | 24,928 | 1,465,268 | ||||||
iShares Core S&P 500 ETF | 2 | 503 | ||||||
Total Exchange-Traded Funds | ||||||||
(Cost $20,452,339) | 26,776,587 | |||||||
MUTUAL FUNDS† - 32.9% | ||||||||
Guggenheim Variable Insurance Strategy Fund III1 | 245,315 | 6,071,540 | ||||||
Guggenheim Strategy Fund III1 | 209,113 | 5,183,918 | ||||||
Guggenheim Strategy Fund II1 | 71,446 | 1,773,302 | ||||||
Guggenheim Ultra Short Duration Fund1,5 | 100,208 | 998,067 | ||||||
Total Mutual Funds | ||||||||
(Cost $14,118,479) | 14,026,827 | |||||||
MONEY MARKET FUND† - 0.9% | ||||||||
Dreyfus Treasury Securities Cash Management — Institutional Shares 2.20%2 | 401,817 | 401,817 | ||||||
Total Money Market Fund | ||||||||
(Cost $401,817) | 401,817 | |||||||
Face | ||||||||
U.S. TREASURY BILLS†† - 1.4% | ||||||||
U.S. Treasury Bills | ||||||||
2.21% due 01/08/193,4 | $ | 581,000 | 580,783 | |||||
Total U.S. Treasury Bills | ||||||||
(Cost $580,742) | 580,783 | |||||||
Total Investments - 98.0% | ||||||||
(Cost $35,553,377) | $ | 41,786,014 | ||||||
Other Assets & Liabilities, net - 2.0% | 849,685 | |||||||
Total Net Assets - 100.0% | $ | 42,635,699 | ||||||
Futures Contracts | |||||||||||||
Description | Number of | Expiration | Notional | Value and | |||||||||
Interest Rate Futures Contracts Purchased† | |||||||||||||
U.S. Treasury 10 Year Note Futures Contracts | 52 | Mar 2019 | $ | 6,346,438 | $ | 147,545 | |||||||
U.S. Treasury 2 Year Note Futures Contracts | 18 | Mar 2019 | 3,820,781 | 25,097 | |||||||||
| $ | 10,167,219 | $ | 172,642 | ||||||||||
Equity Futures Contracts Purchased† | |||||||||||||
SPI 200 Index Futures Contracts†† | 2 | Mar 2019 | $ | 196,173 | $ | 1,069 | |||||||
FTSE 100 Index Futures Contracts†† | 2 | Mar 2019 | 170,363 | (574 | ) | ||||||||
S&P/TSX 60 IX Index Futures Contracts†† | 1 | Mar 2019 | 125,357 | (1,351 | ) | ||||||||
CAC 40 10 Euro Index Futures Contracts†† | 3 | Jan 2019 | 162,820 | (1,514 | ) | ||||||||
S&P MidCap 400 Index Mini Futures Contracts | 2 | Mar 2019 | 332,720 | (8,058 | ) | ||||||||
S&P 500 Index Mini Futures Contracts | 17 | Mar 2019 | 2,133,075 | (69,707 | ) | ||||||||
MSCI EAFE Index Mini Futures Contracts | 60 | Mar 2019 | 5,152,800 | (77,027 | ) | ||||||||
Russell 2000 Index Mini Futures Contracts | 26 | Mar 2019 | 1,754,480 | (113,051 | ) | ||||||||
| $ | 10,027,788 | $ | (270,213 | ) | |||||||||
Equity Futures Contracts Sold Short† | |||||||||||||
DAX Index Futures Contracts†† | 1 | Mar 2019 | $ | 305,203 | $ | 4,002 | |||||||
Hang Seng Index Futures Contracts†† | 2 | Jan 2019 | 325,823 | 2,931 | |||||||||
Nikkei 225 (CME) Index Futures Contracts | 1 | Mar 2019 | 99,275 | (203 | ) | ||||||||
| $ | 730,301 | $ | 6,730 | ||||||||||
Currency Futures Contracts Sold Short† | |||||||||||||
Japanese Yen Futures Contracts | 1 | Mar 2019 | $ | 114,713 | $ | 4 | |||||||
78|THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
SCHEDULE OF INVESTMENTS(continued) | December 31, 2018 |
SERIES N (MANAGED ASSET ALLOCATION SERIES) |
* | Includes cumulative appreciation (depreciation). Variation margin is reported within the Statement of Assets and Liabilities. |
† | 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. |
2 | Rate indicated is the 7-day yield as of December 31, 2018. |
3 | All or a portion of this security is pledged as futures collateral at December 31, 2018. |
4 | Rate indicated is the effective yield at the time of purchase. |
5 | Effective November 30, 2018, Guggenheim Strategy Fund I was reorganized with and into the Guggenheim Ultra Short Duration Fund. |
CME — Chicago Mercantile Exchange | |
See Sector Classification in Other Information section. |
The following table summarizes the inputs used to value the Fund’s investments at December 31, 2018 (See Note 4 in the Notes to Financial Statements):
Investments in Securities (Assets) | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Exchange-Traded Funds | $ | 26,776,587 | $ | — | $ | — | $ | 26,776,587 | ||||||||
Mutual Funds | 14,026,827 | — | — | 14,026,827 | ||||||||||||
Money Market Fund | 401,817 | — | — | 401,817 | ||||||||||||
U.S. Treasury Bills | — | 580,783 | — | 580,783 | ||||||||||||
Interest Rate Futures Contracts* | 172,642 | — | — | 172,642 | ||||||||||||
Equity Futures Contracts* | — | 8,002 | — | 8,002 | ||||||||||||
Currency Futures Contracts* | 4 | — | — | 4 | ||||||||||||
Total Assets | $ | 41,377,877 | $ | 588,785 | $ | — | $ | 41,966,662 | ||||||||
| ||||||||||||||||
Investments in Securities (Liabilities) | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Equity Futures Contracts* | $ | 268,046 | $ | 3,439 | $ | — | $ | 271,485 | ||||||||
* | This derivative is reported as unrealized appreciation/depreciation at period end. |
Transfers between investment levels may occur as the markets fluctuate and/or the availability of data used in an investment’s valuation changes. Transfers between valuation levels, if any, are in comparison to the valuation levels at the end of the previous fiscal year, and are effective using the fair value as of the end of the current fiscal period.
For the year ended December 31, 2018, there were no transfers between levels.
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT|79 |
SCHEDULE OF INVESTMENTS(concluded) | December 31, 2018 |
SERIES N (MANAGED ASSET ALLOCATION SERIES) |
Affiliated Transactions
Investments representing 5% or more of the outstanding voting shares of a company, or control of or by, or common control under Guggenheim Investments (“GI”), result in that company being considered an affiliated issuer, as defined in the 1940 Act.
The Fund may invest in certain of the underlying series of Guggenheim Strategy Funds Trust, including Guggenheim Strategy Fund II, Guggenheim Strategy Fund III, and Guggenheim Variable Insurance Strategy Fund III, (collectively, the “Cash Management Funds”), each of which are 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, 2018, is available publicly or upon request. This information is available from the EDGAR database on the SEC’s website at https://www.sec.gov/Archives/edgar/data/1601445/000089180418000513/gug75569-ncsr.htm.
Transactions during the year ended December 31, 2018, in which the company is an “affiliated person”, were as follows:
Security Name | Value | Additions | Reductions | Realized | Change in | Value | Shares | Investment | Capital Gain | |||||||||||||||||||||||||||
Mutual Funds | ||||||||||||||||||||||||||||||||||||
Guggenheim Strategy Fund II | $ | 1,734,496 | $ | 52,305 | $ | — | $ | — | $ | (13,499 | ) | $ | 1,773,302 | 71,446 | $ | 51,224 | $ | 949 | ||||||||||||||||||
Guggenheim Strategy Fund III | 3,884,546 | 1,347,711 | — | — | (48,339 | ) | 5,183,918 | 209,113 | 146,999 | 194 | ||||||||||||||||||||||||||
Guggenheim Ultra Short Duration Fund1 | 975,735 | 28,068 | — | — | (5,736 | ) | 998,067 | 100,208 | 27,285 | 725 | ||||||||||||||||||||||||||
Guggenheim Variable Insurance Strategy Fund III | 8,705,430 | 260,226 | (2,800,000 | ) | 7,850 | (101,966 | ) | 6,071,540 | 245,315 | 257,468 | 3,066 | |||||||||||||||||||||||||
| $ | 15,300,207 | $ | 1,688,310 | $ | (2,800,000 | ) | $ | 7,850 | $ | (169,540 | ) | $ | 14,026,827 | $ | 482,976 | $ | 4,934 | |||||||||||||||||||
1 | Effective November 30, 2018, Guggenheim Strategy Fund I was reorganized with and into the Guggenheim Ultra Short Duration Fund. |
80|THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
SERIES N (MANAGED ASSET ALLOCATION SERIES) |
STATEMENT OF ASSETS AND LIABILITIES |
December 31, 2018 |
Assets: | ||||
Investments in unaffiliated issuers, at value (cost $21,434,898) | $ | 27,759,187 | ||
Investments in affiliated issuers, at value (cost $14,118,479) | 14,026,827 | |||
Foreign currency, at value (cost $8,085) | 8,088 | |||
Cash | 35,078 | |||
Prepaid expenses | 5,164 | |||
Receivables: | ||||
Securities sold | 850,499 | |||
Dividends | 63,620 | |||
Variation margin on futures contracts | 62,491 | |||
Interest | 729 | |||
Fund shares sold | 198 | |||
Total assets | 42,811,881 | |||
Liabilities: | ||||
Payable for: | ||||
Fund shares redeemed | 70,566 | |||
Securities purchased | 27,309 | |||
Professional fees | 24,289 | |||
Management fees | 13,613 | |||
Printing fees | 13,585 | |||
Distribution and service fees | 8,628 | |||
Fund accounting/administration fees | 2,760 | |||
Transfer agent/maintenance fees | 2,485 | |||
Trustees’ fees* | 1,037 | |||
Miscellaneous | 11,910 | |||
Total liabilities | 176,182 | |||
Commitments and contingent liabilities (Note 15) | — | |||
Net assets | $ | 42,635,699 | ||
Net assets consist of: | ||||
Paid in capital | $ | 35,329,677 | ||
Total distributable earnings (loss) | 7,306,022 | |||
Net assets | $ | 42,635,699 | ||
Capital shares outstanding | 1,559,352 | |||
Net asset value per share | $ | 27.34 | ||
STATEMENT OF OPERATIONS |
Year Ended December 31, 2018 |
Investment Income: | ||||
Dividends from securities of unaffiliated issuers | $ | 731,451 | ||
Dividends from securities of affiliated issuers | 482,976 | |||
Interest | 17,843 | |||
Total investment income | 1,232,270 | |||
Expenses: | ||||
Management fees | 195,547 | |||
Distribution and service fees | 122,217 | |||
Fund accounting/administration fees | 39,110 | |||
Transfer agent/maintenance fees | 25,470 | |||
Printing expenses | 37,721 | |||
Professional fees | 30,039 | |||
Trustees’ fees* | 14,208 | |||
Custodian fees | 2,583 | |||
Line of credit fees | 1,401 | |||
Miscellaneous | 17,188 | |||
Total expenses | 485,484 | |||
Less: | ||||
Expenses waived by Adviser | (191 | ) | ||
Net expenses | 485,293 | |||
Net investment income | 746,977 | |||
Net Realized and Unrealized Gain (Loss): | ||||
Net realized gain (loss) on: | ||||
Investments in unaffiliated issuers | 2,204,009 | |||
Investments in affiliated issuers | 7,850 | |||
Distributions received from affiliated investment company shares | 4,934 | |||
Futures contracts | (1,098,987 | ) | ||
Foreign currency transactions | (816 | ) | ||
Net realized gain | 1,116,990 | |||
Net change in unrealized appreciation (depreciation) on: | ||||
Investments in unaffiliated issuers | (4,093,992 | ) | ||
Investments in affiliated issuers | (169,540 | ) | ||
Futures contracts | (200,038 | ) | ||
Foreign currency translations | 25 | |||
Net change in unrealized appreciation (depreciation) | (4,463,545 | ) | ||
Net realized and unrealized loss | (3,346,555 | ) | ||
Net decrease in net assets resulting from operations | $ | (2,599,578 | ) | |
* | 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|81 |
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 | $ | 746,977 | $ | 671,191 | ||||
Net realized gain on investments | 1,116,990 | 3,715,662 | ||||||
Net change in unrealized appreciation (depreciation) on investments | (4,463,545 | ) | 2,587,455 | |||||
Net increase (decrease) in net assets resulting from operations | (2,599,578 | ) | 6,974,308 | |||||
Distributions to shareholders | (4,136,596 | ) | (1,863,835 | )1 | ||||
Capital share transactions: | ||||||||
Proceeds from sale of shares | 3,247,235 | 2,133,618 | ||||||
Distributions reinvested | 4,136,596 | 1,863,835 | ||||||
Cost of shares redeemed | (9,092,113 | ) | (10,867,437 | ) | ||||
Net decrease from capital share transactions | (1,708,282 | ) | (6,869,984 | ) | ||||
Net decrease in net assets | (8,444,456 | ) | (1,759,511 | ) | ||||
Net assets: | ||||||||
Beginning of year | 51,080,155 | 52,839,666 | ||||||
End of year | $ | 42,635,699 | $ | 51,080,155 | ||||
Capital share activity: | ||||||||
Shares sold | 103,799 | 69,813 | ||||||
Shares issued from reinvestment of distributions | 140,034 | 62,107 | ||||||
Shares redeemed | (297,082 | ) | (357,732 | ) | ||||
Net decrease in shares | (53,249 | ) | (225,812 | ) | ||||
1 | For the year ended December 31, 2017, the distributions from net investment income and net realized gains were as follows (See Note 13): |
| Net investment income | $ | (765,756 | ) | |
| Net realized gains | $ | (1,098,079 | ) |
82|THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
SERIES N (MANAGED ASSET ALLOCATION SERIES) |
FINANCIAL HIGHLIGHTS |
This table is presented to show selected data for a share outstanding throughout each period and to assist shareholders in evaluating a Fund’s performance for the periods presented.
| Year Ended | Year Ended | Year Ended | Year Ended | Year Ended | |||||||||||||||
Per Share Data | ||||||||||||||||||||
Net asset value, beginning of period | $ | 31.68 | $ | 28.74 | $ | 27.43 | $ | 27.67 | $ | 25.93 | ||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||
Net investment income (loss)a | .47 | .39 | .40 | .32 | .23 | |||||||||||||||
Net gain (loss) on investments (realized and unrealized) | (2.08 | ) | 3.68 | 1.78 | (.28 | ) | 1.51 | |||||||||||||
Total from investment operations | (1.61 | ) | 4.07 | 2.18 | .04 | 1.74 | ||||||||||||||
Less distributions from: | ||||||||||||||||||||
Net investment income | (.44 | ) | (.46 | ) | (.33 | ) | (.28 | ) | — | |||||||||||
Net realized gains | (2.29 | ) | (.67 | ) | (.54 | ) | — | — | ||||||||||||
Total distributions | (2.73 | ) | (1.13 | ) | (.87 | ) | (.28 | ) | — | |||||||||||
Net asset value, end of period | $ | 27.34 | $ | 31.68 | $ | 28.74 | $ | 27.43 | $ | 27.67 | ||||||||||
| ||||||||||||||||||||
Total Returnb | (5.73 | %) | 14.39 | % | 8.01 | % | 0.11 | % | 6.71 | % | ||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||
Net assets, end of period (in thousands) | $ | 42,636 | $ | 51,080 | $ | 52,840 | $ | 52,629 | $ | 60,319 | ||||||||||
Ratios to average net assets: | ||||||||||||||||||||
Net investment income (loss) | 1.53 | % | 1.29 | % | 1.42 | % | 1.14 | % | 0.87 | % | ||||||||||
Total expensesc | 0.99 | % | 0.98 | % | 0.92 | % | 0.94 | % | 0.93 | % | ||||||||||
Net expensesd | 0.99 | % | 0.98 | % | 0.92 | % | 0.94 | % | 0.93 | % | ||||||||||
Portfolio turnover rate | 4 | % | 1 | % | 6 | % | 3 | % | 14 | % | ||||||||||
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 and reimbursements, as applicable. |
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT|83 |
MANAGERS’ COMMENTARY(Unaudited) | December 31, 2018 |
To Our Shareholders:
The Series O (All Cap Value Series) (the "Fund") is managed by a team of seasoned professionals led by James Schier, CFA, Senior Managing Director and Portfolio Manager; David Toussaint, CFA, CPA, Managing Director and Portfolio Manager; Farhan Sharaff, Senior Managing Director, Assistant Chief Investment Officer, Equities, and Portfolio Manager; Gregg Strohkorb, CFA, Director Portfolio Manager; and Burak Hurmeydan, Ph.D., Director and Portfolio Manager. In the following paragraphs, the investment team discusses performance of the Fund for the fiscal year ended December 31, 2018.
For the year ended December 31, 2018, Series O (All Cap Value Series) returned -10.62%, compared with the Russell 3000®Value Index, which returned -8.58%.
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 industries 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
Most of the year’s negative performance came in the fourth quarter, whose volatile and unfavorable results were driven predominantly by macro factors, as fears of a tighter Federal Reserve and continuing caution being communicated by corporate America created an environment where traders and investors decided precipitously to position themselves defensively. As a result, the usual biases in the market manifested themselves, in that larger cap stocks, growth stocks and defensive sectors outperformed.
Stock selection was the most significant factor behind the Fund’s showing relative to the benchmark.
The largest positive impact was selection in the Utilities sector, which benefits from dividends and stable revenues in a volatile economic environment. Exelon Corp. and OGE Energy were among the strong performers. Although exposure and selection in the Health Care sector detracted from return, a skew to the better-performing large cap index names such as HCA Healthcare, Inc. and Merck & Company, Inc. proved to be the most significant positive items in that sector.
Selection in the Information Technology sector also contributed, where one of the best-performing holdings, CSRA, was acquired by General Dynamics. Another top-performing individual holding for the year was optical component company Ciena Corp.
On the negative side, the largest impact was selection in Materials and Industrials. The Materials sector was pulled down by poor performance from Westrock Co. and Huntsman Corp., while Industrials had Southwest Airlines Co. as a large detractor. Owens Corning Co., a construction industry supplier that reacted to a slowdown in housing. Among Financials sector holdings, exposure and significant weightings in money center banks and some of the larger regional banks were big detractors, such as Citigroup and Bank of America.
Portfolio Positioning
While this strategy is balanced relative to the benchmark, it does possess defensive characteristics, such as having an overweight in Utilities.
The largest relative sector exposures for the year were an underweight in Communications Services and an overweight in Materials.
84 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
MANAGERS’ COMMENTARY(Unaudited)(concluded) | December 31, 2018 |
Portfolio and Market Outlook
The market volatility late in the year caused sudden changes in the market. The perception of a friendlier environment from the U.S. Federal Reserve and continued hope that trade issues can be relatively quickly and favorably resolved has created an environment where the market is beginning to treat earnings disappointments and reduced outlooks less harshly since these are being viewed as temporary issues. The total return potential for stocks now seems more favorable than it was just a few months ago, and the market appears to have begun the early phase of a calculated rebound that may have some duration in time and level.
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 | 85 |
PERFORMANCE REPORT AND FUND PROFILE(Unaudited) | December 31, 2018 |
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. | 3.2% |
Chevron Corp. | 2.7% |
Berkshire Hathaway, Inc. — Class B | 2.3% |
Exxon Mobil Corp. | 2.1% |
Bank of America Corp. | 2.0% |
Merck & Company, Inc. | 1.9% |
Cisco Systems, Inc. | 1.9% |
Pfizer, Inc. | 1.8% |
Intel Corp. | 1.5% |
Citigroup, Inc. | 1.4% |
Top Ten Total | 20.8% |
“Ten Largest Holdings” excludes any temporary cash investments. | |
86 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
PERFORMANCE REPORT AND FUND PROFILE(Unaudited)(concluded) | December 31, 2018 |
Cumulative Fund Performance*,†
Average Annual Returns*,†
Periods Ended December 31, 2018
| 1 Year | 5 Year | 10 Year |
Series O (All Cap Value Series) | (10.62%) | 5.24% | 11.41% |
Russell 3000 Value Index | (8.58%) | 5.77% | 11.12% |
* | 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. |
THE GUGGENHEIM FUNDS ANNUAL REPORT | 87 |
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SCHEDULE OF INVESTMENTS | December 31, 2018 |
SERIES O (ALL CAP VALUE SERIES) |
| Shares | Value | ||||||
COMMON STOCKS† - 97.8% | ||||||||
Financial - 28.4% | ||||||||
JPMorgan Chase & Co. | 33,517 | $ | 3,271,930 | |||||
Berkshire Hathaway, Inc. — Class B* | 11,247 | 2,296,412 | ||||||
Bank of America Corp. | 83,325 | 2,053,128 | ||||||
Citigroup, Inc. | 27,506 | 1,431,962 | ||||||
Zions Bancorp North America | 33,481 | 1,364,016 | ||||||
Voya Financial, Inc. | 23,717 | 952,000 | ||||||
MetLife, Inc. | 21,897 | 899,091 | ||||||
BB&T Corp. | 20,242 | 876,883 | ||||||
Equity Commonwealth REIT | 28,192 | 846,042 | ||||||
SunTrust Banks, Inc. | 15,951 | 804,568 | ||||||
Welltower, Inc. REIT | 11,465 | 795,786 | ||||||
KeyCorp | 52,349 | 773,718 | ||||||
Allstate Corp. | 8,262 | 682,689 | ||||||
Principal Financial Group, Inc. | 15,154 | 669,352 | ||||||
Alleghany Corp. | 966 | 602,127 | ||||||
Wells Fargo & Co. | 13,044 | 601,068 | ||||||
Huntington Bancshares, Inc. | 48,966 | 583,675 | ||||||
Jefferies Financial Group, Inc. | 30,643 | 531,963 | ||||||
Morgan Stanley | 13,028 | 516,560 | ||||||
Physicians Realty Trust REIT | 29,711 | 476,267 | ||||||
Loews Corp. | 10,075 | 458,614 | ||||||
Willis Towers Watson plc | 2,877 | 436,901 | ||||||
Unum Group | 14,170 | 416,315 | ||||||
Omega Healthcare Investors, Inc. REIT | 11,793 | 414,524 | ||||||
Alexandria Real Estate Equities, Inc. REIT | 3,552 | 409,332 | ||||||
Radian Group, Inc. | 24,321 | 397,892 | ||||||
Wintrust Financial Corp. | 5,756 | 382,716 | ||||||
Sun Communities, Inc. REIT | 3,748 | 381,209 | ||||||
Regions Financial Corp. | 25,276 | 338,193 | ||||||
Umpqua Holdings Corp. | 21,084 | 335,236 | ||||||
Prudential Financial, Inc. | 3,601 | 293,662 | ||||||
Cousins Properties, Inc. REIT | 36,967 | 292,039 | ||||||
Federal Agricultural Mortgage Corp. — Class C | 4,553 | 275,183 | ||||||
National Storage Affiliates Trust REIT | 9,797 | 259,229 | ||||||
IBERIABANK Corp. | 3,916 | 251,721 | ||||||
Pinnacle Financial Partners, Inc. | 5,460 | 251,706 | ||||||
Realogy Holdings Corp. | 17,081 | 250,749 | ||||||
Camden Property Trust REIT | 2,443 | 215,106 | ||||||
Redwood Trust, Inc. REIT | 14,098 | 212,457 | ||||||
Jones Lang LaSalle, Inc. | 1,575 | 199,395 | ||||||
Old Republic International Corp. | 9,448 | 194,345 | ||||||
Hilltop Holdings, Inc. | 10,087 | 179,851 | ||||||
E*TRADE Financial Corp. | 4,097 | 179,776 | ||||||
Prosperity Bancshares, Inc. | 2,858 | 178,053 | ||||||
Old National Bancorp | 10,589 | 163,071 | ||||||
Howard Hughes Corp.* | 1,567 | 152,971 | ||||||
First Horizon National Corp. | 11,474 | 150,998 | ||||||
Total Financial | 28,700,481 | |||||||
Consumer, Non-cyclical - 19.7% | ||||||||
Merck & Company, Inc. | 24,902 | 1,902,762 | ||||||
Pfizer, Inc. | 41,289 | 1,802,265 | ||||||
Procter & Gamble Co. | 13,024 | 1,197,166 | ||||||
Johnson & Johnson | 8,984 | 1,159,385 | ||||||
Bunge Ltd. | 18,787 | 1,003,977 | ||||||
Amgen, Inc. | 4,252 | 827,737 | ||||||
HCA Healthcare, Inc. | 6,649 | 827,468 | ||||||
UnitedHealth Group, Inc. | 2,638 | 657,178 | ||||||
CVS Health Corp. | 9,374 | 614,184 | ||||||
Archer-Daniels-Midland Co. | 14,304 | 586,035 | ||||||
Quest Diagnostics, Inc. | 6,758 | 562,739 | ||||||
Tyson Foods, Inc. — Class A | 9,842 | 525,563 | ||||||
United Therapeutics Corp.* | 4,738 | 515,968 | ||||||
Zimmer Biomet Holdings, Inc. | 4,740 | 491,633 | ||||||
Medtronic plc | 4,628 | 420,963 | ||||||
Hormel Foods Corp. | 9,574 | 408,618 | ||||||
Cigna Corp. | 2,035 | 386,454 | ||||||
AmerisourceBergen Corp. — Class A | 4,951 | 368,354 | ||||||
DaVita, Inc.* | 6,941 | 357,184 | ||||||
Biogen, Inc.* | 1,184 | 356,289 | ||||||
Humana, Inc. | 1,232 | 352,943 | ||||||
Euronet Worldwide, Inc.* | 3,409 | 349,013 | ||||||
Premier, Inc. — Class A* | 9,167 | 342,387 | ||||||
Ingredion, Inc. | 3,653 | 333,884 | ||||||
Encompass Health Corp. | 5,387 | 332,378 | ||||||
Emergent BioSolutions, Inc.* | 5,533 | 327,996 | ||||||
Central Garden & Pet Co. — Class A* | 10,110 | 315,938 | ||||||
Alexion Pharmaceuticals, Inc.* | 2,550 | 248,268 | ||||||
Eagle Pharmaceuticals, Inc.* | 5,616 | 226,269 | ||||||
Mylan N.V.* | 7,695 | 210,843 | ||||||
Dentsply Sirona, Inc. | 5,633 | 209,604 | ||||||
Philip Morris International, Inc. | 3,118 | 208,158 | ||||||
Sanderson Farms, Inc. | 2,054 | 203,942 | ||||||
US Foods Holding Corp.* | 5,992 | 189,587 | ||||||
Cambrex Corp.* | 4,910 | 185,402 | ||||||
Hostess Brands, Inc.* | 16,594 | 181,538 | ||||||
SP Plus Corp.* | 5,599 | 165,395 | ||||||
Perrigo Company plc | 4,022 | 155,853 | ||||||
TherapeuticsMD, Inc.* | 33,395 | 127,235 | ||||||
Myriad Genetics, Inc.* | 4,308 | 125,234 | ||||||
Inovio Pharmaceuticals, Inc.* | 25,751 | 103,004 | ||||||
ACCO Brands Corp. | 1,948 | 13,207 | ||||||
Total Consumer, Non-cyclical | 19,880,000 | |||||||
Energy - 9.6% | ||||||||
Chevron Corp. | 24,806 | 2,698,645 | ||||||
Exxon Mobil Corp. | 30,780 | 2,098,888 | ||||||
Kinder Morgan, Inc. | 85,148 | 1,309,576 | ||||||
Marathon Oil Corp. | 51,739 | 741,937 | ||||||
Whiting Petroleum Corp.* | 29,982 | 680,292 | ||||||
Range Resources Corp. | 70,480 | 674,494 | ||||||
Hess Corp. | 13,092 | 530,226 | ||||||
ConocoPhillips | 6,698 | 417,620 | ||||||
Antero Resources Corp.* | 30,775 | 288,977 | ||||||
Oasis Petroleum, Inc.* | 46,749 | 258,522 | ||||||
Total Energy | 9,699,177 | |||||||
Industrial - 9.1% | ||||||||
Republic Services, Inc. — Class A | 12,145 | 875,533 | ||||||
Carlisle Companies, Inc. | 6,371 | 640,413 | ||||||
88|THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
SCHEDULE OF INVESTMENTS(continued) | December 31, 2018 |
SERIES O (ALL CAP VALUE SERIES) |
| Shares | Value | ||||||
Owens Corning | 12,274 | $ | 539,810 | |||||
FedEx Corp. | 3,079 | 496,735 | ||||||
3M Co. | 2,312 | 440,528 | ||||||
Eaton Corporation plc | 6,391 | 438,806 | ||||||
WestRock Co. | 10,875 | 410,640 | ||||||
Jabil, Inc. | 14,430 | 357,720 | ||||||
Corning, Inc. | 11,398 | 344,333 | ||||||
Jacobs Engineering Group, Inc. | 5,660 | 330,884 | ||||||
Scorpio Tankers, Inc. | 177,453 | 312,317 | ||||||
General Electric Co. | 39,208 | 296,805 | ||||||
Berry Global Group, Inc.* | 6,092 | 289,553 | ||||||
FLIR Systems, Inc. | 6,303 | 274,433 | ||||||
US Concrete, Inc.* | 7,774 | 274,267 | ||||||
Timken Co. | 7,048 | 263,031 | ||||||
Ingersoll-Rand plc | 2,841 | 259,184 | ||||||
Honeywell International, Inc. | 1,687 | 222,886 | ||||||
Graphic Packaging Holding Co. | 20,768 | 220,971 | ||||||
Snap-on, Inc. | 1,340 | 194,689 | ||||||
Huntington Ingalls Industries, Inc. | 964 | 183,459 | ||||||
Hub Group, Inc. — Class A* | 4,876 | 180,754 | ||||||
Plexus Corp.* | 3,470 | 177,248 | ||||||
ITT, Inc. | 3,599 | 173,724 | ||||||
Park Electrochemical Corp. | 9,552 | 172,605 | ||||||
Rexnord Corp.* | 7,211 | 165,493 | ||||||
Knight-Swift Transportation Holdings, Inc. | 6,487 | 162,629 | ||||||
Crane Co. | 2,206 | 159,229 | ||||||
Astec Industries, Inc. | 5,033 | 151,946 | ||||||
Kirby Corp.* | 1,659 | 111,750 | ||||||
Celadon Group, Inc.* | 53,605 | 44,492 | ||||||
Total Industrial | 9,166,867 | |||||||
Utilities - 8.4% | ||||||||
Ameren Corp. | 21,601 | 1,409,033 | ||||||
OGE Energy Corp. | 35,149 | 1,377,489 | ||||||
Exelon Corp. | 23,741 | 1,070,719 | ||||||
Public Service Enterprise Group, Inc. | 18,280 | 951,474 | ||||||
Pinnacle West Capital Corp. | 10,008 | 852,682 | ||||||
Edison International | 14,749 | 837,301 | ||||||
Duke Energy Corp. | 8,207 | 708,264 | ||||||
Portland General Electric Co. | 9,436 | 432,641 | ||||||
Southwest Gas Holdings, Inc. | 3,787 | 289,705 | ||||||
AES Corp. | 19,012 | 274,913 | ||||||
American Electric Power Company, Inc. | 3,063 | 228,929 | ||||||
Total Utilities | 8,433,150 | |||||||
Consumer, Cyclical - 7.6% | ||||||||
Walmart, Inc. | 10,632 | 990,371 | ||||||
Southwest Airlines Co. | 15,677 | 728,667 | ||||||
PVH Corp. | 7,301 | 678,628 | ||||||
DR Horton, Inc. | 14,856 | 514,909 | ||||||
JetBlue Airways Corp.* | 31,602 | 507,528 | ||||||
LKQ Corp.* | 20,944 | 497,001 | ||||||
Lear Corp. | 3,747 | 460,357 | ||||||
UniFirst Corp. | 2,502 | 357,961 | ||||||
PACCAR, Inc. | 5,968 | 341,012 | ||||||
Carnival Corp. | 6,416 | 316,309 | ||||||
Alaska Air Group, Inc. | 4,939 | 300,538 | ||||||
Acushnet Holdings Corp. | 13,323 | 280,715 | ||||||
WABCO Holdings, Inc.* | 2,595 | 278,547 | ||||||
BorgWarner, Inc. | 7,777 | 270,173 | ||||||
Wyndham Hotels & Resorts, Inc. | 5,710 | 259,063 | ||||||
Caleres, Inc. | 8,849 | 246,268 | ||||||
Macy’s, Inc. | 7,047 | 209,860 | ||||||
Foot Locker, Inc. | 3,922 | 208,650 | ||||||
Dana, Inc. | 10,530 | 143,524 | ||||||
Unifi, Inc.* | 3,960 | 90,446 | ||||||
Total Consumer, Cyclical | 7,680,527 | |||||||
Communications - 5.5% | ||||||||
Cisco Systems, Inc. | 43,196 | 1,871,682 | ||||||
Verizon Communications, Inc. | 23,544 | 1,323,644 | ||||||
Symantec Corp. | 40,637 | 767,836 | ||||||
Comcast Corp. — Class A | 19,982 | 680,387 | ||||||
Ciena Corp.* | 9,679 | 328,215 | ||||||
Viavi Solutions, Inc.* | 29,156 | 293,018 | ||||||
Finisar Corp.* | 11,983 | 258,833 | ||||||
Total Communications | 5,523,615 | |||||||
Basic Materials - 5.0% | ||||||||
Reliance Steel & Aluminum Co. | 13,408 | 954,247 | ||||||
Huntsman Corp. | 45,783 | 883,154 | ||||||
Nucor Corp. | 15,903 | 823,935 | ||||||
Alcoa Corp.* | 28,629 | 760,959 | ||||||
DowDuPont, Inc. | 9,817 | 525,013 | ||||||
Steel Dynamics, Inc. | 14,339 | 430,744 | ||||||
Ashland Global Holdings, Inc. | 4,903 | 347,917 | ||||||
Freeport-McMoRan, Inc. | 20,221 | 208,478 | ||||||
Tahoe Resources, Inc.* | 40,146 | 146,533 | ||||||
Total Basic Materials | 5,080,980 | |||||||
Technology - 4.5% | ||||||||
Intel Corp. | 32,311 | 1,516,355 | ||||||
Apple, Inc. | 3,512 | 553,983 | ||||||
Micron Technology, Inc.* | 14,762 | 468,399 | ||||||
Cray, Inc.* | 18,853 | 407,036 | ||||||
Skyworks Solutions, Inc. | 5,203 | 348,705 | ||||||
Evolent Health, Inc. — Class A* | 14,610 | 291,469 | ||||||
Super Micro Computer, Inc.* | 19,484 | 268,879 | ||||||
Oracle Corp. | 4,202 | 189,720 | ||||||
Amdocs Ltd. | 3,229 | 189,155 | ||||||
CSG Systems International, Inc. | 5,171 | 164,283 | ||||||
Maxwell Technologies, Inc.* | 45,380 | 93,937 | ||||||
Total Technology | 4,491,921 | |||||||
Total Common Stocks | ||||||||
(Cost $92,972,060) | 98,656,718 | |||||||
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT|89 |
SCHEDULE OF INVESTMENTS(concluded) | December 31, 2018 |
SERIES O (ALL CAP VALUE SERIES) |
| Shares | Value | ||||||
MONEY MARKET FUND† - 2.2% | ||||||||
Dreyfus Treasury Securities Cash Management — Institutional Shares 2.20%1 | 2,235,825 | $ | 2,235,825 | |||||
Total Money Market Fund | ||||||||
(Cost $2,235,825) | 2,235,825 | |||||||
Total Investments - 100.0% | ||||||||
(Cost $95,207,885) | $ | 100,892,543 | ||||||
Other Assets & Liabilities, net - 0.0% | 23,316 | |||||||
Total Net Assets - 100.0% | $ | 100,915,859 | ||||||
* | 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, 2018. |
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, 2018 (See Note 4 in the Notes to Financial Statements):
Investments in Securities (Assets) | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Common Stocks | $ | 98,656,718 | $ | — | $ | — | $ | 98,656,718 | ||||||||
Money Market Fund | 2,235,825 | — | — | 2,235,825 | ||||||||||||
Total Assets | $ | 100,892,543 | $ | — | $ | — | $ | 100,892,543 | ||||||||
Transfers between investment levels may occur as the markets fluctuate and/or the availability of data used in an investment’s valuation changes. Transfers between valuation levels, if any, are in comparison to the valuation levels at the end of the previous fiscal year, and are effective using the fair value as of the end of the current fiscal period.
For the year ended December 31, 2018, there were no transfers between levels.
90|THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
SERIES O (ALL CAP VALUE SERIES) |
STATEMENT OF ASSETS AND LIABILITIES |
December 31, 2018 |
Assets: | ||||
Investments, at value (cost $95,207,885) | $ | 100,892,543 | ||
Prepaid expenses | 7,037 | |||
Receivables: | ||||
Dividends | 124,205 | |||
Securities sold | 73,868 | |||
Interest | 10,133 | |||
Fund shares sold | 5,610 | |||
Total assets | 101,113,396 | |||
Liabilities: | ||||
Payable for: | ||||
Fund shares redeemed | 69,336 | |||
Printing fees | 35,221 | |||
Management fees | 24,662 | |||
Distribution and service fees | 20,871 | |||
Professional fees | 20,240 | |||
Custodian fees | 11,328 | |||
Fund accounting/administration fees | 6,679 | |||
Transfer agent/maintenance fees | 2,468 | |||
Trustees’ fees* | 906 | |||
Miscellaneous | 5,826 | |||
Total liabilities | 197,537 | |||
Commitments and contingent liabilities (Note 15) | — | |||
Net assets | $ | 100,915,859 | ||
Net assets consist of: | ||||
Paid in capital | $ | 85,614,036 | ||
Total distributable earnings (loss) | 15,301,823 | |||
Net assets | $ | 100,915,859 | ||
Capital shares outstanding | 3,443,473 | |||
Net asset value per share | $ | 29.31 | ||
STATEMENT OF OPERATIONS |
Year Ended December 31, 2018 |
Investment Income: | ||||
Dividends | $ | 2,547,067 | ||
Interest | 43,101 | |||
Total investment income | 2,590,168 | |||
Expenses: | ||||
Management fees | 856,692 | |||
Distribution and service fees | 305,961 | |||
Fund accounting/administration fees | 97,909 | |||
Transfer agent/maintenance fees | 25,427 | |||
Trustees’ fees* | 14,859 | |||
Custodian fees | 6,563 | |||
Line of credit fees | 5,135 | |||
Miscellaneous | 118,841 | |||
Total expenses | 1,431,387 | |||
Less: | ||||
Expenses waived by Adviser | (349,269 | ) | ||
Net expenses | 1,082,118 | |||
Net investment income | 1,508,050 | |||
Net Realized and Unrealized Gain (Loss): | ||||
Net realized gain (loss) on: | ||||
Investments | 10,765,658 | |||
Net realized gain | 10,765,658 | |||
Net change in unrealized appreciation (depreciation) on: | ||||
Investments | (24,181,176 | ) | ||
Net change in unrealized appreciation (depreciation) | (24,181,176 | ) | ||
Net realized and unrealized loss | (13,415,518 | ) | ||
Net decrease in net assets resulting from operations | $ | (11,907,468 | ) | |
* | Relates to Trustees not deemed “interested persons” within the meaning of Section 2(a)(19) of the 1940 Act. |
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT|91 |
SERIES 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 | $ | 1,508,050 | $ | 881,214 | ||||
Net realized gain on investments | 10,765,658 | 11,334,170 | ||||||
Net change in unrealized appreciation (depreciation) on investments | (24,181,176 | ) | 5,628,145 | |||||
Net increase (decrease) in net assets resulting from operations | (11,907,468 | ) | 17,843,529 | |||||
Distributions to shareholders | (10,707,235 | ) | (10,247,003 | )1 | ||||
Capital share transactions: | ||||||||
Proceeds from sale of shares | 7,428,149 | 9,056,833 | ||||||
Distributions reinvested | 10,707,235 | 10,247,003 | ||||||
Cost of shares redeemed | (27,375,695 | ) | (22,496,351 | ) | ||||
Net decrease from capital share transactions | (9,240,311 | ) | (3,192,515 | ) | ||||
Net increase (decrease) in net assets | (31,855,014 | ) | 4,404,011 | |||||
Net assets: | ||||||||
Beginning of year | 132,770,873 | 128,366,862 | ||||||
End of year | $ | 100,915,859 | $ | 132,770,873 | ||||
Capital share activity: | ||||||||
Shares sold | 215,525 | 261,539 | ||||||
Shares issued from reinvestment of distributions | 318,383 | 312,504 | ||||||
Shares redeemed | (781,562 | ) | (653,261 | ) | ||||
Net decrease in shares | (247,654 | ) | (79,218 | ) | ||||
1 | For the year ended December 31, 2017, the distributions from net investment income and net realized gains were as follows (see Note 13): |
| Net investment income | $ | (1,377,356 | ) | |
| Net realized gains | $ | (8,869,647 | ) |
92|THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
SERIES O (ALL CAP VALUE SERIES) |
FINANCIAL HIGHLIGHTS |
This table is presented to show selected data for a share outstanding throughout each period and to assist shareholders in evaluating a Fund’s performance for the periods presented.
| Year Ended | Year Ended | Year Ended | Year Ended | Year Ended | |||||||||||||||
Per Share Data | ||||||||||||||||||||
Net asset value, beginning of period | $ | 35.97 | $ | 34.05 | $ | 29.30 | $ | 35.35 | $ | 32.85 | ||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||
Net investment income (loss)a | .43 | .24 | .45 | .43 | .31 | |||||||||||||||
Net gain (loss) on investments (realized and unrealized) | (3.83 | ) | 4.51 | 6.01 | (1.80 | ) | 2.19 | |||||||||||||
Total from investment operations | (3.40 | ) | 4.75 | 6.46 | (1.37 | ) | 2.50 | |||||||||||||
Less distributions from: | ||||||||||||||||||||
Net investment income | (.40 | ) | (.38 | ) | (.48 | ) | (.33 | ) | (— | )b | ||||||||||
Net realized gains | (2.86 | ) | (2.45 | ) | (1.23 | ) | (4.35 | ) | — | |||||||||||
Total distributions | (3.26 | ) | (2.83 | ) | (1.71 | ) | (4.68 | ) | (— | )b | ||||||||||
Net asset value, end of period | $ | 29.31 | $ | 35.97 | $ | 34.05 | $ | 29.30 | $ | 35.35 | ||||||||||
| ||||||||||||||||||||
Total Returnc | (10.62 | %) | 14.77 | % | 22.71 | % | (4.70 | %) | 7.61 | % | ||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||
Net assets, end of period (in thousands) | $ | 100,916 | $ | 132,771 | $ | 128,367 | $ | 120,113 | $ | 147,317 | ||||||||||
Ratios to average net assets: | ||||||||||||||||||||
Net investment income (loss) | 1.23 | % | 0.69 | % | 1.48 | % | 1.33 | % | 0.92 | % | ||||||||||
Total expenses | 1.17 | % | 1.11 | % | 0.90 | % | 0.92 | % | 0.89 | % | ||||||||||
Net expensesd,e,f | 0.88 | % | 0.89 | % | 0.90 | % | 0.92 | % | 0.89 | % | ||||||||||
Portfolio turnover rate | 36 | % | 33 | % | 47 | % | 39 | % | 49 | % | ||||||||||
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 and reimbursements, as applicable. |
e | Net expenses may include expenses that are excluded from the expense limitation agreement. Excluding these expenses, the net expense ratios for the years would be: |
12/31/18 | 12/31/17 | 12/31/16 | 12/31/15 | 12/31/14 |
0.88% | 0.88% | 0.90% | 0.92% | 0.89% |
f | The portion of the ratios of net expenses to average net assets attributable to recoupments of prior fee reductions or expense reimbursements for the years was as follows: |
12/31/18 | 12/31/17 | 12/31/16 |
— | 0.00%* | — |
* | Less than 0.01%. |
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT|93 |
MANAGERS’ COMMENTARY(Unaudited) | December 31, 2018 |
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; Kevin H. Gundersen, Senior Managing Director and Portfolio Manager; Thomas J. Hauser, Senior Managing Director and Portfolio Manager; and Richard de Wet, 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, 2018.
For the year ended December 31, 2018, Series P (High Yield Series) returned -4.16%, compared with -2.08% for its benchmark, the Bloomberg Barclays U.S. Corporate High Yield Index.
The start of the year saw positive performance primarily attributable to the tightening of credit spreads, particularly among the portfolio’s investments in high yield corporate bonds and senior bank loans, which together comprise most of the Fund. However, the start of the fourth quarter saw an increase in volatility. This was driven in part by concerns around US-China trade relations, slowing global growth, falling oil prices, a sharp decline in equity markets, and a more hawkish U.S. Federal Reserve (the “Fed”). Overall, annual performance of the high yield market was negative for just the second time since 2008. For the year, top performing sectors were Utilities (+1.3%) and Consumer Non-Cyclical (+0.6%). In terms of quality, B bonds (-1.3%) outperformed BB bonds (-2.4%) and CCC bonds (-3.8%).
Fundamental factors underlying the corporate sector are supportive of high-yield bonds with continued earnings growth expected in 2019. In addition, the trailing 12-month default rate (ICE BofA Merrill Lynch U.S. High Yield Master II Index) continues to trend lower and reached 0.9% at the end of the year. The Fund is positioned conservatively in terms of duration, with higher exposure to short-dated bonds and overweight to floating rate securities (bank loans), which decreases volatility as well as diversifies sources of return.
The Fund invests in non-US dollar denominated assets when the risk-return profile is favorable. Non-US dollar denominated assets comprise less than 2% of the Fund. The Fund entered into currency forward contracts to hedge exchange rate risk. Over the course of the year, the US dollar appreciated versus foreign currencies which resulted in a positive impact on the forward contracts and added to performance. This was offset by depreciation of the foreign currency assets in US dollar terms.
Fund relative underperformance over the period was driven in part by the fund’s investments in the communications sector. The communications sector is one of the largest sectors in the Bloomberg Barclays U.S. Corporate High Yield Index and was pressured due to soft operating results coupled with weak subscriber trends, particularly for publishing and cable issuers. In addition, an overweight to energy credits and a few individual energy issuers contributed to underperformance. The Energy sector weakened towards the end of the period as oil prices as measured by WTI fell from $75/barrel in early October to $51/barrel by the end of November. This was partially offset by strong credit selection in the technology and capital goods sectors and the allocation to bank loans.
GPIM expects factors that have contributed to strong earnings growth and fiscal stimulus from tax cuts in 2019 will turn into headwinds in 2020. With growth set to slow, the prospects for further rate increases have become more uncertain, particularly in light of recent market volatility. As the Fed enters a more data-dependent phase, Guggenheim has changed its view for increases in the fed funds rate in 2019 from four to two. A key element of the change in our forecast is that tighter financial conditions take some pressure off the Fed to raise the fed funds rate. Our expectation for two rate hikes in 2019 is also based on the Fed continuing along its pre-set course for balance sheet runoff. Our work shows that balance sheet runoff equates to at least an extra 25 basis point hike in both 2018 and 2019. Overall, we remain focused on credit selection which we believe will become increasingly important to returns going forward.
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.
94 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
PERFORMANCE REPORT AND FUND PROFILE(Unaudited) | December 31, 2018 |
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.
Inception Date:August 5, 1996 |
Ten Largest Holdings (% of Total Net Assets) | |
LBC Tank Terminals Holding Netherlands BV, 6.88% | 2.0% |
Vector Group Ltd., 6.13% | 1.9% |
Eldorado Gold Corp., 6.13% | 1.7% |
EIG Investors Corp., 10.88% | 1.6% |
Great Lakes Dredge & Dock Corp., 8.00% | 1.6% |
American Midstream Partners Limited Partnership / American Midstream Finance Corp., 9.50% | 1.6% |
Unit Corp., 6.63% | 1.6% |
MDC Partners, Inc., 6.50% | 1.5% |
Bausch Health Companies, Inc., 7.00% | 1.4% |
Fidelity & Guaranty Life Holdings, Inc., 5.50% | 1.4% |
Top Ten Total | 16.3% |
“Ten Largest Holdings” excludes any temporary cash or derivative investments. | |
THE GUGGENHEIM FUNDS ANNUAL REPORT | 95 |
PERFORMANCE REPORT AND FUND PROFILE(Unaudited)(concluded) | December 31, 2018 |
Cumulative Fund Performance*,†
Average Annual Returns*,†
Periods Ended December 31, 2018
| 1 Year | 5 Year | 10 Year |
Series P (High Yield Series) | (4.16%) | 3.34% | 11.23% |
Bloomberg Barclays U.S. Corporate High Yield Index | (2.08%) | 3.83% | 11.12% |
Portfolio Composition by Quality Rating1 | |
Rating | % of Total |
Fixed Income Instruments | |
A | 0.8% |
BBB | 6.0% |
BB | 43.0% |
B | 35.7% |
CCC | 9.6% |
C | 0.1% |
D | 0.0%3 |
NR2 | 2.4% |
Other Instruments | 2.4% |
Total Investments | 100.0% |
* | 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 Bloomberg 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. |
1 | 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 & Poors (“S&P”), or Fitch, each of which is 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 ratings to the equivalent S&P rating. Security ratings are determined at the time of purchase and may change thereafter. |
2 | NR securities do not necessarily indicate low credit quality. |
3 | Value of securities is less than 0.1% of total investments. |
96 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
SCHEDULE OF INVESTMENTS | December 31, 2018 |
SERIES P (HIGH YIELD SERIES) |
| Shares | Value | ||||||
COMMON STOCKS† - 0.9% | ||||||||
Utilities - 0.6% | ||||||||
TexGen Power LLC*,†† | 7,929 | $ | 305,266 | |||||
Energy - 0.2% | ||||||||
SandRidge Energy, Inc.* | 14,330 | 109,051 | ||||||
Approach Resources, Inc.* | 6,367 | 5,552 | ||||||
Titan Energy LLC* | 10,783 | 3,235 | ||||||
Total Energy | 117,838 | |||||||
Communications - 0.0% | ||||||||
Cengage Learning Acquisitions, Inc.*,†† | 2,107 | 9,482 | ||||||
Aimia, Inc.* | 5 | 14 | ||||||
Total Communications | 9,496 | |||||||
Financial - 0.0% | ||||||||
Jefferies Financial Group, Inc. | 247 | 4,288 | ||||||
Adelphia Recovery Trust*,†††,1 | 5,270 | — | ||||||
Total Financial | 4,288 | |||||||
Consumer, Non-cyclical - 0.0% | ||||||||
Crimson Wine Group Ltd.* | 24 | 188 | ||||||
MEDIQ, Inc.*,†††,1 | 92 | — | ||||||
Total Consumer, Non-cyclical | 188 | |||||||
Consumer, Cyclical - 0.1% | ||||||||
ATD New Holdings, Inc.*,†††,1 | 3,166 | 53,822 | ||||||
Delta Air Lines, Inc. | 1 | 50 | ||||||
Chorus Aviation, Inc. | 3 | 12 | ||||||
Total Consumer, Cyclical | 53,884 | |||||||
Technology - 0.0% | ||||||||
Aspect Software, Inc.*,†††,1,2 | 37 | — | ||||||
Total Common Stocks | ||||||||
(Cost $2,437,850) | 490,960 | |||||||
PREFERRED STOCKS††† – 0.0% | ||||||||
Industrial - 0.0% | ||||||||
U.S. Shipping Corp.*,1 | 24,529 | — | ||||||
Total Preferred Stocks | ||||||||
(Cost $625,000) | — | |||||||
WARRANTS†††- 0.0% | ||||||||
Aspect Software, Inc.1,2 | 1,294 | — | ||||||
Total Warrants | ||||||||
(Cost $—) | — | |||||||
MONEY MARKET FUND† - 1.4% | ||||||||
Dreyfus Treasury Securities Cash Management - Institutional Shares 2.20%3 | 752,803 | 752,803 | ||||||
Total Money Market Fund | ||||||||
(Cost $752,803) | 752,803 | |||||||
| Face |
| ||||||
CORPORATE BONDS†† - 83.4% | ||||||||
Financial - 18.5% | ||||||||
Jefferies Finance LLC / JFIN Company-Issuer Corp. | ||||||||
7.38% due 04/01/204 | 455,000 | 453,862 | ||||||
6.88% due 04/15/224 | 400,000 | 389,000 | ||||||
7.25% due 08/15/244 | 400,000 | 370,000 | ||||||
7.50% due 04/15/214 | 250,000 | 249,375 | ||||||
Fidelity & Guaranty Life Holdings, Inc. | ||||||||
5.50% due 05/01/254 | 750,000 | 716,475 | ||||||
Icahn Enterprises, LP / Icahn Enterprises Finance Corp. | ||||||||
5.88% due 02/01/22 | 700,000 | 686,000 | ||||||
Quicken Loans, Inc. | ||||||||
5.25% due 01/15/284 | 650,000 | 575,250 | ||||||
Lincoln Finance Ltd. | ||||||||
7.38% due 04/15/214 | 550,000 | 556,875 | ||||||
Hunt Companies, Inc. | ||||||||
6.25% due 02/15/264 | 625,000 | 534,000 | ||||||
LoanCore Capital Markets LLC / JLC Finance Corp. | ||||||||
6.88% due 06/01/204 | 450,000 | 450,000 | ||||||
Wilton Re Finance LLC | ||||||||
5.88% due 03/30/334,5 | 400,000 | 416,423 | ||||||
Newmark Group, Inc. | ||||||||
6.13% due 11/15/234 | 400,000 | 393,873 | ||||||
Greystar Real Estate Partners LLC | ||||||||
5.75% due 12/01/254 | 375,000 | 366,562 | ||||||
GEO Group, Inc. | ||||||||
5.88% due 10/15/24 | 200,000 | 176,500 | ||||||
6.00% due 04/15/26 | 200,000 | 175,500 | ||||||
American Equity Investment Life Holding Co. | ||||||||
5.00% due 06/15/27 | 350,000 | 341,234 | ||||||
CoreCivic, Inc. | ||||||||
4.75% due 10/15/27 | 400,000 | 331,000 | ||||||
EPR Properties | ||||||||
5.75% due 08/15/22 | 300,000 | 314,531 | ||||||
Oxford Finance LLC / Oxford Finance Company-Issuer II, Inc. | ||||||||
6.38% due 12/15/224 | 300,000 | 295,500 | ||||||
AmWINS Group, Inc. | ||||||||
7.75% due 07/01/264 | 300,000 | 283,500 | ||||||
Kennedy-Wilson, Inc. | ||||||||
5.88% due 04/01/24 | 302,000 | 282,370 | ||||||
HUB International Ltd. | ||||||||
7.00% due 05/01/264 | 275,000 | 248,188 | ||||||
Goldman Sachs Group, Inc. | ||||||||
5.30%5,6 | 250,000 | 223,750 | ||||||
USIS Merger Sub, Inc. | ||||||||
6.88% due 05/01/254 | 225,000 | 206,572 | ||||||
Assurant, Inc. | ||||||||
7.00% due 03/27/485 | 200,000 | 190,000 | ||||||
NFP Corp. | ||||||||
6.88% due 07/15/254 | 200,000 | 179,000 | ||||||
Springleaf Finance Corp. | ||||||||
7.13% due 03/15/26 | 200,000 | 178,500 | ||||||
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT|97 |
SCHEDULE OF INVESTMENTS(continued) | December 31, 2018 |
SERIES P (HIGH YIELD SERIES) |
| Face | Value | ||||||
CIT Group, Inc. | ||||||||
4.13% due 03/09/21 | 150,000 | $ | 147,750 | |||||
Total Financial | 9,731,590 | |||||||
Communications - 16.3% | ||||||||
Altice France S.A. | ||||||||
7.38% due 05/01/264 | 750,000 | 688,125 | ||||||
8.13% due 02/01/274 | 250,000 | 235,625 | ||||||
EIG Investors Corp. | ||||||||
10.88% due 02/01/24 | 800,000 | 856,000 | ||||||
MDC Partners, Inc. | ||||||||
6.50% due 05/01/244 | 875,000 | 796,250 | ||||||
Virgin Media Secured Finance plc | ||||||||
5.00% due 04/15/27 | GBP | 450,000 | 542,006 | |||||
5.25% due 01/15/264 | 150,000 | 137,438 | ||||||
McGraw-Hill Global Education Holdings LLC / McGraw-Hill Global Education Finance | ||||||||
7.88% due 05/15/244 | 865,000 | 674,700 | ||||||
Level 3 Financing, Inc. | ||||||||
5.25% due 03/15/26 | 250,000 | 228,750 | ||||||
5.38% due 01/15/24 | 200,000 | 190,500 | ||||||
5.38% due 08/15/22 | 150,000 | 147,072 | ||||||
5.38% due 05/01/25 | 100,000 | 93,750 | ||||||
Cengage Learning, Inc. | ||||||||
9.50% due 06/15/244 | 925,000 | 629,000 | ||||||
CCO Holdings LLC / CCO Holdings Capital Corp. | ||||||||
5.13% due 05/01/274 | 350,000 | 325,990 | ||||||
5.00% due 02/01/284 | 275,000 | 253,000 | ||||||
Sprint Communications, Inc. | ||||||||
7.00% due 03/01/204 | 550,000 | 563,750 | ||||||
CSC Holdings LLC | ||||||||
5.25% due 06/01/24 | 450,000 | 412,312 | ||||||
5.50% due 04/15/274 | 150,000 | 139,500 | ||||||
Inmarsat Finance plc | ||||||||
4.88% due 05/15/224 | 375,000 | 353,587 | ||||||
6.50% due 10/01/244 | 170,000 | 158,950 | ||||||
DISH DBS Corp. | ||||||||
5.88% due 11/15/24 | 600,000 | 483,000 | ||||||
Ziggo BV | ||||||||
5.50% due 01/15/274 | 300,000 | 268,500 | ||||||
Anixter, Inc. | ||||||||
6.00% due 12/01/254 | 200,000 | 198,500 | ||||||
Ziggo Bond Company BV | ||||||||
5.88% due 01/15/254 | 200,000 | 180,500 | ||||||
Total Communications | 8,556,805 | |||||||
Energy - 11.8% | ||||||||
American Midstream Partners Limited Partnership / American Midstream Finance Corp. | ||||||||
9.50% due 12/15/214 | 880,000 | 827,200 | ||||||
Unit Corp. | ||||||||
6.63% due 05/15/21 | 900,000 | 819,000 | ||||||
Exterran Energy Solutions Limited Partnership / EES Finance Corp. | ||||||||
8.13% due 05/01/25 | 675,000 | 648,000 | ||||||
Indigo Natural Resources LLC | ||||||||
6.88% due 02/15/264 | 750,000 | 645,000 | ||||||
Moss Creek Resources Holdings, Inc. | ||||||||
7.50% due 01/15/264 | 600,000 | 519,000 | ||||||
PDC Energy, Inc. | ||||||||
5.75% due 05/15/26 | 200,000 | 178,000 | ||||||
6.13% due 09/15/24 | 150,000 | 138,750 | ||||||
Covey Park Energy LLC / Covey Park Finance Corp. | ||||||||
7.50% due 05/15/254 | 350,000 | 301,000 | ||||||
CNX Resources Corp. | ||||||||
5.88% due 04/15/22 | 300,000 | 288,000 | ||||||
Parkland Fuel Corp. | ||||||||
6.00% due 04/01/264 | 300,000 | 281,250 | ||||||
Summit Midstream Holdings LLC / Summit Midstream Finance Corp. | ||||||||
5.75% due 04/15/25 | 275,000 | 253,000 | ||||||
Legacy Reserves Limited Partnership / Legacy Reserves Finance Corp. | ||||||||
8.00% due 09/20/23 | 580,000 | 229,100 | ||||||
Pattern Energy Group, Inc. | ||||||||
5.88% due 02/01/244 | 175,000 | 168,875 | ||||||
SRC Energy, Inc. | ||||||||
6.25% due 12/01/25 | 200,000 | 166,000 | ||||||
Bruin E&P Partners LLC | ||||||||
8.88% due 08/01/234 | 175,000 | 155,750 | ||||||
Trinidad Drilling Ltd. | ||||||||
6.63% due 02/15/254 | 150,000 | 151,275 | ||||||
Basic Energy Services, Inc. | ||||||||
10.75% due 10/15/234 | 175,000 | 149,625 | ||||||
NuStar Logistics, LP | ||||||||
5.63% due 04/28/27 | 150,000 | 139,875 | ||||||
Range Resources Corp. | ||||||||
5.00% due 03/15/23 | 150,000 | 132,000 | ||||||
Total Energy | 6,190,700 | |||||||
Consumer, Cyclical - 10.4% | ||||||||
Suburban Propane Partners Limited Partnership/Suburban Energy Finance Corp. | ||||||||
5.88% due 03/01/27 | 400,000 | 354,000 | ||||||
5.50% due 06/01/24 | 250,000 | 232,500 | ||||||
Seminole Hard Rock Entertainment Inc. / Seminole Hard Rock International LLC | ||||||||
5.88% due 05/15/214 | 550,000 | 548,625 | ||||||
Williams Scotsman International, Inc. | ||||||||
6.88% due 08/15/234 | 300,000 | 288,000 | ||||||
7.88% due 12/15/224 | 210,000 | 205,275 | ||||||
AMC Entertainment Holdings, Inc. | ||||||||
6.13% due 05/15/27 | 375,000 | 320,625 | ||||||
5.88% due 11/15/26 | 150,000 | 128,625 | ||||||
Ferrellgas Limited Partnership / Ferrellgas Finance Corp. | ||||||||
6.75% due 01/15/22 | 500,000 | 407,500 | ||||||
98|THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
SCHEDULE OF INVESTMENTS(continued) | December 31, 2018 |
SERIES P (HIGH YIELD SERIES) |
| Face | Value | ||||||
Wynn Las Vegas LLC / Wynn Las Vegas Capital Corp. | ||||||||
5.50% due 03/01/254 | 350,000 | $ | 326,375 | |||||
Carrols Restaurant Group, Inc. | ||||||||
8.00% due 05/01/22 | 300,000 | 300,750 | ||||||
HD Supply, Inc. | ||||||||
5.38% due 10/15/264 | 300,000 | 291,000 | ||||||
Delphi Technologies plc | ||||||||
5.00% due 10/01/254 | 340,000 | 285,600 | ||||||
Titan International, Inc. | ||||||||
6.50% due 11/30/23 | 300,000 | 268,500 | ||||||
JB Poindexter & Company, Inc. | ||||||||
7.13% due 04/15/264 | 275,000 | 257,125 | ||||||
MGM Resorts International | ||||||||
5.25% due 03/31/20 | 250,000 | 250,625 | ||||||
VOC Escrow Ltd. | ||||||||
5.00% due 02/15/284 | 250,000 | 230,625 | ||||||
Sabre GLBL, Inc. | ||||||||
5.38% due 04/15/234 | 200,000 | 199,000 | ||||||
Party City Holdings, Inc. | ||||||||
6.63% due 08/01/264 | 176,000 | 160,160 | ||||||
Wyndham Hotels & Resorts, Inc. | ||||||||
5.38% due 04/15/264 | 125,000 | 120,000 | ||||||
Wabash National Corp. | ||||||||
5.50% due 10/01/254 | 140,000 | 119,875 | ||||||
Eldorado Resorts, Inc. | ||||||||
6.00% due 09/15/264 | 100,000 | 94,500 | ||||||
Allison Transmission, Inc. | ||||||||
4.75% due 10/01/274 | 100,000 | 89,000 | ||||||
Total Consumer, Cyclical | 5,478,285 | |||||||
Consumer, Non-cyclical - 9.3% | ||||||||
Vector Group Ltd. | ||||||||
6.13% due 02/01/254 | 1,150,000 | 977,500 | ||||||
Bausch Health Companies, Inc. | ||||||||
7.00% due 03/15/244 | 750,000 | 757,500 | ||||||
6.50% due 03/15/224 | 150,000 | 150,750 | ||||||
Midas Intermediate Holdco II LLC / Midas Intermediate Holdco II Finance, Inc. | ||||||||
7.88% due 10/01/224 | 675,000 | 614,250 | ||||||
FAGE International S.A. / FAGE USA Dairy Industry, Inc. | ||||||||
5.63% due 08/15/264 | 660,000 | 564,300 | ||||||
Nathan’s Famous, Inc. | ||||||||
6.63% due 11/01/254 | 450,000 | 437,625 | ||||||
KeHE Distributors LLC / KeHE Finance Corp. | ||||||||
7.63% due 08/15/218 | 300,000 | 285,000 | ||||||
Endo Finance LLC / Endo Finco, Inc. | ||||||||
5.38% due 01/15/234 | 325,000 | 247,000 | ||||||
Beverages & More, Inc. | ||||||||
11.50% due 06/15/224 | 300,000 | 231,000 | ||||||
Flexi-Van Leasing, Inc. | ||||||||
10.00% due 02/15/234 | 225,000 | 182,250 | ||||||
Avanos Medical, Inc. | ||||||||
6.25% due 10/15/22 | 150,000 | 148,875 | ||||||
Endo Dac / Endo Finance LLC / Endo Finco, Inc. | ||||||||
5.88% due 10/15/244 | 150,000 | 141,750 | ||||||
Tenet Healthcare Corp. | ||||||||
6.00% due 10/01/20 | 125,000 | 126,563 | ||||||
Total Consumer, Non-cyclical | 4,864,363 | |||||||
Industrial - 7.0% | ||||||||
Great Lakes Dredge & Dock Corp. | ||||||||
8.00% due 05/15/22 | 841,000 | 854,666 | ||||||
Grinding Media Inc. / MC Grinding Media Canada Inc. | ||||||||
7.38% due 12/15/234 | 700,000 | 677,250 | ||||||
Cleaver-Brooks, Inc. | ||||||||
7.88% due 03/01/234 | 400,000 | 386,000 | ||||||
Standard Industries, Inc. | ||||||||
4.75% due 01/15/284 | 400,000 | 336,000 | ||||||
Summit Materials LLC / Summit Materials Finance Corp. | ||||||||
8.50% due 04/15/22 | 300,000 | 313,500 | ||||||
Intertape Polymer Group, Inc. | ||||||||
7.00% due 10/15/264 | 250,000 | 246,875 | ||||||
Masonite International Corp. | ||||||||
5.75% due 09/15/264 | 250,000 | 235,625 | ||||||
JELD-WEN, Inc. | ||||||||
4.88% due 12/15/274 | 250,000 | 211,250 | ||||||
New Enterprise Stone & Lime Company, Inc. | ||||||||
6.25% due 03/15/264 | 175,000 | 159,250 | ||||||
Resideo Funding, Inc. | ||||||||
6.13% due 11/01/264 | 150,000 | 147,750 | ||||||
Ardagh Packaging Finance plc / Ardagh Holdings USA, Inc. | ||||||||
7.25% due 05/15/244 | 125,000 | 124,688 | ||||||
Total Industrial | 3,692,854 | |||||||
Utilities - 5.3% | ||||||||
LBC Tank Terminals Holding Netherlands BV | ||||||||
6.88% due 05/15/238 | 1,175,000 | 1,045,748 | ||||||
Terraform Global Operating LLC | ||||||||
6.13% due 03/01/264 | 625,000 | 581,250 | ||||||
AmeriGas Partners, LP / AmeriGas Finance Corp. | ||||||||
5.75% due 05/20/27 | 350,000 | 309,750 | ||||||
Clearway Energy Operating LLC | ||||||||
5.75% due 10/15/254 | 250,000 | 238,750 | ||||||
AmeriGas Partners Limited Partnership / AmeriGas Finance Corp. | ||||||||
5.50% due 05/20/25 | 250,000 | 228,750 | ||||||
Superior Plus Limited Partnership / Superior General Partner, Inc. | ||||||||
7.00% due 07/15/264 | 200,000 | 193,000 | ||||||
DPL, Inc. | ||||||||
7.25% due 10/15/21 | 150,000 | 156,732 | ||||||
Total Utilities | 2,753,980 | |||||||
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT|99 |
SCHEDULE OF INVESTMENTS(continued) | December 31, 2018 |
SERIES P (HIGH YIELD SERIES) |
| Face | Value | ||||||
Basic Materials - 3.1% | ||||||||
Eldorado Gold Corp. | ||||||||
6.13% due 12/15/204 | 990,000 | $ | 900,900 | |||||
Yamana Gold, Inc. | ||||||||
4.95% due 07/15/24 | 300,000 | 293,475 | ||||||
Alcoa Nederland Holding BV | ||||||||
6.13% due 05/15/284 | 150,000 | 143,625 | ||||||
Mirabela Nickel Ltd. | ||||||||
9.50% due 06/24/197,8 | 390,085 | 119,951 | ||||||
Valvoline, Inc. | ||||||||
5.50% due 07/15/24 | 100,000 | 97,750 | ||||||
Clearwater Paper Corp. | ||||||||
4.50% due 02/01/23 | 55,000 | 49,500 | ||||||
Total Basic Materials | 1,605,201 | |||||||
Technology - 1.7% | ||||||||
Infor US, Inc. | ||||||||
5.75% due 08/15/204 | 350,000 | 351,050 | ||||||
TIBCO Software, Inc. | ||||||||
11.38% due 12/01/214 | 250,000 | 261,875 | ||||||
First Data Corp. | ||||||||
5.00% due 01/15/244 | 100,000 | 96,250 | ||||||
Ascend Learning LLC | ||||||||
6.88% due 08/01/254 | 100,000 | 95,750 | ||||||
Qorvo, Inc. | ||||||||
5.50% due 07/15/264 | 100,000 | 95,500 | ||||||
Total Technology | 900,425 | |||||||
Total Corporate Bonds | ||||||||
(Cost $47,968,594) | 43,774,203 | |||||||
SENIOR FLOATING RATE INTERESTS††,9 - 14.2% | ||||||||
Communications - 3.1% | ||||||||
Cengage Learning Acquisitions, Inc. | ||||||||
6.75% (1 Month USD LIBOR + 4.25%, Rate Floor: 5.25%) due 06/07/23 | 488,708 | 417,234 | ||||||
Houghton Mifflin Co. | ||||||||
5.52% (1 Month USD LIBOR + 3.00%, Rate Floor: 4.00%) due 05/28/21 | 373,453 | 337,508 | ||||||
Resource Label Group LLC | ||||||||
10.90% (3 Month USD LIBOR + 8.50%, Rate Floor: 9.50%) due 11/26/23 | 250,000 | 247,500 | ||||||
McGraw-Hill Global Education Holdings LLC | ||||||||
6.52% (1 Month USD LIBOR + 4.00%, Rate Floor: 5.00%) due 05/04/22 | 246,192 | 221,649 | ||||||
Imagine Print Solutions LLC | ||||||||
7.28% (1 Month USD LIBOR + 4.75%, Rate Floor: 5.75%) due 06/21/22 | 196,500 | 188,640 | ||||||
GTT Communications, Inc. | ||||||||
5.27% (1 Month USD LIBOR + 2.75%, Rate Floor: 2.75%) due 05/31/25 | 199,000 | 186,895 | ||||||
Total Communications | 1,599,426 | |||||||
Consumer, Non-cyclical - 2.9% | ||||||||
IHC Holding Corp. | ||||||||
9.55% (3 Month USD LIBOR + 6.75%, Rate Floor: 7.75%) due 04/30/21†††,1 | 508,464 | 505,501 | ||||||
Springs Window Fashions | ||||||||
6.72% (1 Month USD LIBOR + 4.25%, Rate Floor: 4.25%) due 06/15/25 | 273,625 | 265,247 | ||||||
10.97% (1 Month USD LIBOR + 8.50%, Rate Floor: 8.50%) due 06/15/26 | 150,000 | 138,000 | ||||||
ScribeAmerica Intermediate Holdco LLC (Healthchannels) | ||||||||
6.88% (1 Month USD LIBOR + 4.50%, Rate Floor: 4.50%) due 04/03/25 | 198,749 | 194,526 | ||||||
Hearthside Group Holdings LLC | ||||||||
6.21% (1 Month USD LIBOR + 3.69%, Rate Floor: 3.69%) due 05/23/25 | 149,250 | 142,832 | ||||||
Albertson’s LLC | ||||||||
5.52% (1 Month USD LIBOR + 3.00%, Rate Floor: 3.75%) due 11/17/25 | 150,000 | 141,938 | ||||||
Give and Go Prepared Foods Corp. | ||||||||
7.05% (3 Month USD LIBOR + 4.25%, Rate Floor: 5.25%) due 07/29/23 | 128,375 | 112,328 | ||||||
CTI Foods Holding Co. LLC | ||||||||
9.85% (3 Month USD LIBOR + 7.25%, Rate Floor: 8.25%) due 06/28/21 | 300,000 | 21,999 | ||||||
Total Consumer, Non-cyclical | 1,522,371 | |||||||
Consumer, Cyclical - 2.3% | ||||||||
Acosta, Inc. | ||||||||
5.99% ((Commercial Prime Lending Rate + 2.25%, Rate Floor: 3.25%) and (1 Month USD LIBOR + 2.25%, Rate Floor: 4.25%)) due 09/26/19 | 377,778 | 227,524 | ||||||
5.71% (1 Month USD LIBOR + 3.25%, Rate Floor: 3.25%) due 09/26/19 | 222,222 | 133,838 | ||||||
Blue Nile, Inc. | ||||||||
9.02% (1 Month USD LIBOR + 6.50%, Rate Floor: 7.50%) due 02/17/23 | 208,125 | 206,044 | ||||||
BBB Industries, LLC | ||||||||
6.88% (1 Month USD LIBOR + 4.50%, Rate Floor: 4.50%) due 08/01/25 | 159,625 | 156,033 | ||||||
Prime Security Services Borrower LLC | ||||||||
5.27% (1 Month USD LIBOR + 2.75%, Rate Floor: 3.75%) due 05/02/22 | 149,585 | 142,255 | ||||||
AVSC Holding Corp. | ||||||||
6.00% (3 Month USD LIBOR + 3.25%, Rate Floor: 4.25%) due 03/03/25 | 149,248 | 141,040 | ||||||
Belk, Inc. | ||||||||
7.36% (3 Month USD LIBOR + 4.75%, Rate Floor: 5.75%) due 12/12/22 | 144,901 | 116,525 | ||||||
Mavis Tire Express Services Corp. | ||||||||
5.75% (1 Month USD LIBOR + 3.25%, Rate Floor: 3.25%) due 03/20/25 | 48,476 | 46,658 | ||||||
American Tire Distributors, Inc. | ||||||||
8.48%(1 Month USD LIBOR + 6.00%, Rate Floor: 7.00%) due 09/01/23 | 29,221 | 27,321 | ||||||
10.02%(3 Month USD LIBOR + 7.50%, Rate Floor: 8.50%) due 09/01/21 | 19,481 | 15,812 | ||||||
Total Consumer, Cyclical | 1,213,050 | |||||||
100|THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
SCHEDULE OF INVESTMENTS(continued) | December 31, 2018 |
SERIES P (HIGH YIELD SERIES) |
| Face | Value | ||||||
Industrial - 2.1% | ||||||||
CPG International LLC | ||||||||
6.63% (3 Month USD LIBOR + 3.75%, Rate Floor: 4.75%) due 05/05/24 | 484,660 | $ | 464,062 | |||||
Diversitech Holdings, Inc. | ||||||||
10.30% (3 Month USD LIBOR + 7.50%, Rate Floor: 8.50%) due 06/02/25 | 200,000 | 191,000 | ||||||
Arctic Long Carriers | ||||||||
7.02% (1 Month USD LIBOR + 4.50%, Rate Floor: 5.50%) due 05/18/23 | 197,000 | 190,105 | ||||||
STS Operating, Inc. (SunSource) | ||||||||
6.77% (1 Month USD LIBOR + 4.25%, Rate Floor: 5.25%) due 12/11/24 | 124,372 | 120,641 | ||||||
YAK MAT (YAK ACCESS LLC) | ||||||||
12.43% (1 Month USD LIBOR + 10.00%, Rate Floor: 10.00%) due 07/10/26 | 125,000 | 98,750 | ||||||
Advanced Integration Technology LP | ||||||||
7.46% (3 Month USD LIBOR + 4.75%, Rate Floor: 5.75%) due 04/03/23 | 59,128 | 58,242 | ||||||
Total Industrial | 1,122,800 | |||||||
Basic Materials - 1.6% | ||||||||
Pregis Holding I Corp. | ||||||||
6.31% (3 Month USD LIBOR + 3.50%, Rate Floor: 4.50%) due 05/20/21 | 732,403 | 688,459 | ||||||
Element Solutions, Inc. | ||||||||
due 11/15/25 | 150,000 | 145,313 | ||||||
Total Basic Materials | 833,772 | |||||||
Technology - 1.5% | ||||||||
Planview, Inc. | ||||||||
7.77% (1 Month USD LIBOR + 5.25%, Rate Floor: 6.25%) due 01/27/23†††,1 | 344,750 | 344,750 | ||||||
VT Topco, Inc. | ||||||||
6.55% (3 Month USD LIBOR + 3.75%, Rate Floor: 3.75%) due 08/01/25 | 202,143 | 198,986 | ||||||
Refinitiv (Financial & Risk Us Holdings, Inc.) | ||||||||
6.27% (1 Month USD LIBOR + 3.75%, Rate Floor: 3.75%) due 10/01/25 | 150,000 | 142,500 | ||||||
Cvent, Inc. | ||||||||
6.27% (1 Month USD LIBOR + 3.75%, Rate Floor: 4.75%) due 11/29/24 | 99,749 | 95,260 | ||||||
Aspect Software, Inc. | ||||||||
13.71% (3 Month USD LIBOR + 11.00%, Rate Floor: 12.00%) due 05/25/202 | 14,374 | 11,930 | ||||||
Total Technology | 793,426 | |||||||
Energy - 0.4% | ||||||||
Permian Production Partners | ||||||||
8.51% (1 Month USD LIBOR + 6.00%, Rate Floor: 7.00%) due 05/20/24 | 195,000 | 189,150 | ||||||
Financial - 0.3% | ||||||||
iStar, Inc. | ||||||||
5.17% (1 Month USD LIBOR + 2.75%, Rate Floor: 2.75%) due 06/28/23 | 149,625 | 143,266 | ||||||
Total Senior Floating Rate Interests | ||||||||
(Cost $8,199,471) | 7,417,261 | |||||||
Total Investments - 99.9% | ||||||||
(Cost $59,983,718) | $ | 52,435,227 | ||||||
Other Assets & Liabilities, net - 0.1% | 68,828 | |||||||
Total Net Assets - 100.0% | $ | 52,504,055 | ||||||
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS†† |
| Counterparty | Contracts to Sell | Currency | Settlement Date | Settlement Value | Value at December 31, 2018 | Unrealized Depreciation | |||||||||||||||||
Barclays | 423,000 | GBP | 01/14/19 | $ | 532,377 | $ | 539,575 | $ | (7,198 | ) | |||||||||||||
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT|101 |
SCHEDULE OF INVESTMENTS(continued) | December 31, 2018 |
SERIES P (HIGH YIELD SERIES) |
~ | The face amount is denominated in U.S. dollars unless otherwise indicated. |
* | 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 was fair valued by the Valuation Committee at December 31, 2018. The total market value of fair valued securities amounts to $904,073, (cost $2,628,720) or 1.7% of total net assets. |
2 | Affiliated issuer. |
3 | Rate indicated is the 7-day yield as of December 31, 2018. |
4 | Security is a 144A or Section 4(a)(2) security. These securities have been determined to be liquid under guidelines established by the Board of Trustees. The total market value of 144A or Section 4(a)(2) securities is $28,488,568 (cost $30,965,262), or 54.3% of total net assets. |
5 | Security has a fixed rate coupon which will convert to a floating or variable rate coupon on a future date. |
6 | Perpetual maturity. |
7 | Security is in default of interest and/or principal obligations. |
8 | Security is a 144A or Section 4(a)(2) security. These securities have been determined to be illiquid and restricted under guidelines established by the Board of Trustees. The total market value of 144A or Section 4(a)(2) illiquid and restricted securities is $1,450,699 (cost $1,853,880), or 2.8% of total net assets — See Note 9. |
9 | Variable rate security. Rate indicated is the rate effective at December 31, 2018. In some instances, the effective rate is limited by a minimum rate floor or a maximum rate cap established by the issuer. The settlement status of a position may also impact the effective rate indicated. In some cases, a position may be unsettled at period end and may not have a stated effective rate. In instances where multiple underlying reference rates and spread amounts are shown, the effective rate is based on a weighted average. |
GBP — British Pound | |
LIBOR — London Interbank Offered Rate | |
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, 2018 (See Note 4 in the Notes to Financial Statements):
Investments in Securities (Assets) | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Common Stocks | $ | 122,390 | $ | 314,748 | $ | 53,822 | $ | 490,960 | ||||||||
Preferred Stocks | — | — | — | * | — | |||||||||||
Warrants | — | — | — | * | — | |||||||||||
Money Market Fund | 752,803 | — | — | 752,803 | ||||||||||||
Corporate Bonds | — | 43,774,203 | — | 43,774,203 | ||||||||||||
Senior Floating Rate Interests | — | 6,567,010 | 850,251 | 7,417,261 | ||||||||||||
Total Assets | $ | 875,193 | $ | 50,655,961 | $ | 904,073 | $ | 52,435,227 | ||||||||
| ||||||||||||||||
Investments in Securities (Liabilities) | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Forward Foreign Currency Exchange Contracts** | $ | — | $ | 7,198 | $ | — | $ | 7,198 | ||||||||
Unfunded Loan Commitments (Note 8) | — | 265,434 | 20,951 | 286,385 | ||||||||||||
Total Liabilities | $ | — | $ | 272,632 | $ | 20,951 | $ | 293,583 | ||||||||
* | Includes securities with a market value of $0. |
** | This derivative is reported as unrealized appreciation/depreciation at period end. |
102|THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
SCHEDULE OF INVESTMENTS(continued) | December 31, 2018 |
SERIES P (HIGH YIELD SERIES) |
The following is a summary of significant unobservable inputs used in the fair valuations of assets and liabilities categorized within Level 3 of the fair value hierarchy:
Category | Ending Balance at | Valuation | Unobservable | Input | Weighted | |||||||||||||||
Assets: | ||||||||||||||||||||
Common Stocks | $ | 53,822 | Broker Quote | Indicative Bid | — | — | ||||||||||||||
Senior Floating Rate Interests | 850,251 | Yield Analysis | Yield | 7.8%-9.8 | % | 9.0 | % | |||||||||||||
Total Assets | $ | 904,073 | ||||||||||||||||||
Liabilities: | ||||||||||||||||||||
Unfunded Loan Commitments | $ | 20,951 | Model Price | Purchase Price | — | — | ||||||||||||||
Significant changes in a yield would generally result in significant changes in the fair value of the security.
Any remaining Level 3 securities held by the Fund and excluded from the table above, were not considered material to the Fund.
Transfers between investment levels may occur as the markets fluctuate and/or the availability of data used in an investment’s valuation changes. Transfers between valuation levels, if any, are in comparison to the valuation levels at the end of the previous fiscal year, and are effective using the fair value as of the end of the current fiscal period.
For the year ended December 31, 2018, the Fund had securities with a total value of $361,362 transfer out Level 3 into Level 2 due to the availability of current and reliable market-based data provided by a third-party pricing service which utilizes significant observable inputs. For the year December 31, 2018, the Fund had liabilities with a total value of $264,842 transfer out of Level 3 into Level 2 due to availability of market price information.
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, 2018:
Assets | Liabilities | |||||||||||||||||||
Senior Floating | Common Stocks | Preferred Stocks | Total Assets | Unfunded Loan | ||||||||||||||||
Beginning Balance | $ | 2,239,189 | $ | 228,015 | $ | — | $ | 2,467,204 | $ | (186,495 | ) | |||||||||
Purchases/(Receipts) | 412,389 | — | — | 412,389 | (158,718 | ) | ||||||||||||||
(Sales, maturities and paydowns)/Fundings | (1,269,275 | ) | (299 | ) | — | (1,269,574 | ) | 163,539 | ||||||||||||
Amortization of discount/premiums | 37,021 | — | — | 37,021 | — | |||||||||||||||
Corporate actions | — | 188,956 | — | 188,956 | — | |||||||||||||||
Total realized gains or losses included in earnings | 14,725 | — | — | 14,725 | 290,999 | |||||||||||||||
Total change in unrealized appreciation (depreciation) included in earnings | (222,436 | ) | (362,850 | ) | — | (585,286 | ) | (395,118 | ) | |||||||||||
Transfers into Level 3 | — | — | — | — | — | |||||||||||||||
Transfers out of Level 3 | (361,362 | ) | — | — | (361,362 | ) | 264,842 | |||||||||||||
Ending Balance | $ | 850,251 | $ | 53,822 | $ | — | $ | 904,073 | $ | (20,951 | ) | |||||||||
Net change in unrealized appreciation (depreciation) for investments in Level 3 securities still held at December 31, 2018 | $ | 2,576 | $ | (362,850 | ) | $ | (25,755 | ) | $ | (386,029 | ) | $ | 15,084 | |||||||
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT|103 |
SCHEDULE OF INVESTMENTS(concluded) | December 31, 2018 |
SERIES P (HIGH YIELD SERIES) |
Affiliated Transactions
Investments representing 5% or more of the outstanding voting shares of a company, or control of or by, or common control under Guggenheim Investments (“GI”), result in that company being considered an affiliated issuer, as defined in the 1940 Act.
Transactions during the year ended December 31, 2018, in which the company is an “affiliated person”, were as follows:
Security Name | Value | Additions | Reductions | Realized | Change in | Value | Shares/ | Investment | ||||||||||||||||||||||||
Common Stock | ||||||||||||||||||||||||||||||||
Aspect Software, Inc.*,1 | $ | 228,015 | $ | — | $ | (299) | $ | — | $ | (227,716 | ) | $ | — | ** | 37 | $ | — | |||||||||||||||
Senior Floating Rate Interests | ||||||||||||||||||||||||||||||||
Aspect Software, Inc. 13.71% (3 Month USD LIBOR + 11.00%, Rate Floor: 12.00%) due 05/25/202 | 14,155 | 284 | (422 | ) | 142 | (2,229 | ) | 11,930 | 14,374 | 1,945 | ||||||||||||||||||||||
Warrants | ||||||||||||||||||||||||||||||||
Aspect Software, Inc.1 | — | — | — | — | — | — | ** | 1,294 | — | |||||||||||||||||||||||
| $ | 242,170 | $ | 284 | $ | (721) | $ | 142 | $ | (229,945 | ) | $ | 11,930 | $ | 1,945 | ||||||||||||||||||
* | Non-income producing security. |
** | Security has a market value of $0. |
1 | Security was fair valued by the Valuation Committee at December 31, 2018. The total market value of fair valued and affiliated securities amounts to $0, (cost $922,259) or less than 0.1% of total net assets. |
2 | Variable rate security. Rate indicated is the rate effective at December 31, 2018. In some instances, the effective rate is limited by a minimum rate floor or a maximum rate cap established by the issuer. The settlement status of a position may also impact the effective rate indicated. In some cases, a position may be unsettled at period end and may not have stated effective rate. In instances where multiple underlying reference rates and spread amounts are shown, the effective rate is based on a weighted average. |
104|THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
SERIES P (HIGH YIELD SERIES) |
STATEMENT OF ASSETS AND LIABILITIES |
December 31, 2018 |
Assets: | ||||
Investments in unaffiliated issuers, at value (cost $59,047,085) | $ | 52,423,297 | ||
Investments in affiliated issuers, at value (cost $936,633) | 11,930 | |||
Cash | 21,782 | |||
Prepaid expenses | 6,622 | |||
Receivables: | ||||
Interest | 810,388 | |||
Securities sold | 151,853 | |||
Investment Adviser | 2,231 | |||
Foreign tax reclaims | 1,229 | |||
Total assets | 53,429,332 | |||
Liabilities: | ||||
Unfunded loan commitments, at value (Note 8) (proceeds $244,090) | 286,385 | |||
Unrealized depreciation on forward foreign currency exchange contracts | 7,198 | |||
Payable for: | ||||
Securities purchased | 498,737 | |||
Fund shares redeemed | 30,624 | |||
Distribution and service fees | 10,827 | |||
Fund accounting/administration fees | 3,465 | |||
Management fees | 3,301 | |||
Transfer agent/maintenance fees | 2,427 | |||
Trustees’ fees* | 1,079 | |||
Miscellaneous | 81,234 | |||
Total liabilities | 925,277 | |||
Commitments and contingent liabilities (Note 15) | — | |||
Net assets | $ | 52,504,055 | ||
Net assets consist of: | ||||
Paid in capital | $ | 59,249,038 | ||
Total distributable earnings (loss) | (6,744,983 | ) | ||
Net assets | $ | 52,504,055 | ||
Capital shares outstanding | 1,908,203 | |||
Net asset value per share | $ | 27.51 | ||
STATEMENT OF OPERATIONS |
Year Ended December 31, 2018 |
Investment Income: | ||||
Dividends from securities of unaffiliated issuers | $ | 88,387 | ||
Interest from securities of unaffiliated issuers (net of foreign withholding tax of $2,799) | 4,774,481 | |||
Interest from securities of affiliated issuers | 1,945 | |||
Total investment income | 4,864,813 | |||
Expenses: | ||||
Management fees | 402,909 | |||
Distribution and service fees | 167,878 | |||
Transfer agent/maintenance fees | 25,582 | |||
Interest expense | 125,373 | |||
Printing expenses | 59,491 | |||
Fund accounting/administration fees | 53,721 | |||
Custodian fees | 24,861 | |||
Trustees’ fees* | 15,254 | |||
Line of credit fees | 2,697 | |||
Miscellaneous | 73,348 | |||
Recoupment of previously waived fees | 92 | |||
Total expenses | 951,206 | |||
Less: | ||||
Expenses reimbursed by Adviser | (3,858 | ) | ||
Expenses waived by Adviser | (101,455 | ) | ||
Total expenses waived/reimbursed | (105,313 | ) | ||
Net expenses | 845,893 | |||
Net investment income | 4,018,920 | |||
Net Realized and Unrealized Gain (Loss): | ||||
Net realized gain (loss) on: | ||||
Investments in unaffiliated issuers | (1,512,592 | ) | ||
Investments in affiliated issuers | 142 | |||
Foreign currency transactions | 22,291 | |||
Forward foreign currency exchange contracts | 89,806 | |||
Net realized loss | (1,400,353 | ) | ||
Net change in unrealized appreciation (depreciation) on: | ||||
Investments in unaffiliated issuers | (4,923,376 | ) | ||
Investments in affiliated issuers | (229,945 | ) | ||
Foreign currency translations | 616 | |||
Forward foreign currency exchange contracts | 26,131 | |||
Net change in unrealized appreciation (depreciation) | (5,126,574 | ) | ||
Net realized and unrealized loss | (6,526,927 | ) | ||
Net decrease in net assets resulting from operations | $ | (2,508,007 | ) | |
* | 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|105 |
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 | $ | 4,018,920 | $ | 5,134,441 | ||||
Net realized gain (loss) on investments | (1,400,353 | ) | 1,378,907 | |||||
Net change in unrealized appreciation (depreciation) on investments | (5,126,574 | ) | (1,192,572 | ) | ||||
Net increase (decrease) in net assets resulting from operations | (2,508,007 | ) | 5,320,776 | |||||
Distributions to shareholders | (5,180,373 | ) | (4,444,487 | )1 | ||||
Capital share transactions: | ||||||||
Proceeds from sale of shares | 20,015,580 | 48,625,417 | ||||||
Distributions reinvested | 5,180,373 | 4,444,487 | ||||||
Cost of shares redeemed | (44,275,141 | ) | (70,434,661 | ) | ||||
Net decrease from capital share transactions | (19,079,188 | ) | (17,364,757 | ) | ||||
Net decrease in net assets | (26,767,568 | ) | (16,488,468 | ) | ||||
Net assets: | ||||||||
Beginning of year | 79,271,623 | 95,760,091 | ||||||
End of year | $ | 52,504,055 | $ | 79,271,623 | ||||
Capital share activity: | ||||||||
Shares sold | 657,221 | 1,555,665 | ||||||
Shares issued from reinvestment of distributions | 181,005 | 145,769 | ||||||
Shares redeemed | (1,476,612 | ) | (2,261,824 | ) | ||||
Net decrease in shares | (638,386 | ) | (560,390 | ) | ||||
1 | For the year ended December 31, 2017, the distributions to shareholders were all from net investment income (See Note 13). |
106|THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
SERIES P (HIGH YIELD SERIES) |
FINANCIAL HIGHLIGHTS |
This table is presented to show selected data for a share outstanding throughout each period and to assist shareholders in evaluating a Fund’s performance for the periods presented.
| Year Ended | Year Ended | Year Ended | Year Ended | Year Ended | |||||||||||||||
Per Share Data | ||||||||||||||||||||
Net asset value, beginning of period | $ | 31.13 | $ | 30.82 | $ | 28.63 | $ | 33.87 | $ | 33.02 | ||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||
Net investment income (loss)a | 1.79 | 1.81 | 1.91 | 2.17 | 2.23 | |||||||||||||||
Net gain (loss) on investments (realized and unrealized) | (2.99 | ) | .09 | 2.93 | (3.23 | ) | (1.38 | ) | ||||||||||||
Total from investment operations | (1.20 | ) | 1.90 | 4.84 | (1.06 | ) | .85 | |||||||||||||
Less distributions from: | ||||||||||||||||||||
Net investment income | (2.42 | ) | (1.59 | ) | (2.65 | ) | (3.49 | ) | — | |||||||||||
Net realized gains | — | — | — | (.69 | ) | — | ||||||||||||||
Total distributions | (2.42 | ) | (1.59 | ) | (2.65 | ) | (4.18 | ) | — | |||||||||||
Net asset value, end of period | $ | 27.51 | $ | 31.13 | $ | 30.82 | $ | 28.63 | $ | 33.87 | ||||||||||
| ||||||||||||||||||||
Total Returnb | (4.16 | %) | 6.23 | % | 17.52 | % | (3.95 | %) | 2.51 | % | ||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||
Net assets, end of period (in thousands) | $ | 52,504 | $ | 79,272 | $ | 95,760 | $ | 66,908 | $ | 79,192 | ||||||||||
Ratios to average net assets: | ||||||||||||||||||||
Net investment income (loss) | 5.98 | % | 5.79 | % | 6.46 | % | 6.69 | % | 6.50 | % | ||||||||||
Total expensesc | 1.42 | % | 1.40 | % | 1.17 | % | 1.19 | % | 1.09 | % | ||||||||||
Net expensesd,e,f | 1.26 | % | 1.33 | % | 1.13 | % | 1.15 | % | 1.08 | % | ||||||||||
Portfolio turnover rate | 51 | % | 76 | % | 84 | % | 101 | % | 90 | % | ||||||||||
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 and reimbursements, as applicable. |
e | Net expenses may include expenses that are excluded from the expense limitation agreement and affiliated fee waivers. Excluding these expenses, the net expense ratios for the years would be: |
12/31/18 | 12/31/17 | 12/31/16 | 12/31/15 | 12/31/14 |
1.07% | 1.07% | 1.07% | 1.07% | 0.97% |
f | The portion of the ratios of net expenses to average net assets attributable to recoupments of prior fee reductions or expense reimbursements for the years was as follows: |
12/31/18 | 12/31/17 | 12/31/16 |
—* | 0.02% | — |
* | Less than 0.01%. |
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT|107 |
MANAGERS’ COMMENTARY(Unaudited) | December 31, 2018 |
To Our Shareholders:
The Series Q (Small Cap Value Series) is managed by a team of seasoned professionals led by David Toussaint, CFA, CPA, Managing Director and Portfolio Manager; James Schier, CFA, Senior Managing Director and Portfolio Manager; Farhan Sharaff, Senior Managing Director, Assistant Chief Investment Officer, Equities, and Portfolio Manager; Gregg Strohkorb, CFA, Director and Portfolio Manager; and Burak Hurmeydan, Ph.D., Director and Portfolio Manager. In the following paragraphs, the team discusses performance of the Fund for the fiscal year ended December 31, 2018.
For the year ended December 31, 2018, Series Q (Small Cap Value Series) returned -12.66%, compared with the Russell 2000®Value Index, which returned -12.86%.
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 industries 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
The Fund outperformed the index by 20 basis points. Most of the year’s negative performance came in the fourth quarter, whose volatile and unfavorable results were driven predominantly by macro factors, as fears of a tighter U.S. Federal Reserve (the “Fed”) and continuing caution being communicated by corporate America created an environment where traders and investors decided precipitously to position themselves defensively. As a result, the usual biases in the market manifested themselves, in that larger cap stocks, growth stocks and defensive sectors outperformed.
For the 12-month period, stock selection outweighed allocation decisions in the Fund’s relative performance.
On the positive side, stock selection was beneficial in the Information Technology, Real Estate, and Industrials sectors. The Fund’s Information Technology holdings benefited from a strong gain in Ciena Corp., Infinera Corp. and the overall performance of optical component companies. The Real Estate holdings in the Fund were also strong performers, and it benefited from being underweight REITs relative to the benchmark, a strong gain in Hersha Hospitality Trust, and a lack of exposure to poorly performing office REITS such as Franklin Street Properties Corp. and Government Properties Income Trust.
Stock selection in the Energy sector was another contributor to performance, although the sector’s fortunes were closely tied to the volatility in the price of a barrel of oil over the period, which rose to $75 in October before falling to $45 in December. Delek US Holdings, Inc., a downstream refiner, was a leading individual contributor for the period, based on good earnings. Among large detractors for the period were oil and gas exploration companies Laredo Petroleum and Range Resources Corp.
Also on the negative side, stock selection detracted in the Consumer Discretionary, Financials, and Health Care sectors. The Fund’s holdings in the Discretionary sector were weak compared with the benchmark’s holdings. In that sector, Tenneco, Inc. a manufacturer of original vehicle equipment, was a leading individual detractor for the period. It declined significantly over the period, due partly to concerns about cyclical peak profitability.
Health Care produced another large individual detractor—Lannett Company, Inc., a generic pharmaceutical maker that fell partly in response to an impairment to earnings from aggressive generic pricing competition and the loss of a distribution agreement.
108 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
MANAGERS’ COMMENTARY(Unaudited)(concluded) | December 31, 2018 |
Portfolio Positioning
The largest relative sector exposures for the year were an underweight in Real Estate and an overweight in Utilities. While this strategy is balanced relative to the benchmark, it does possess defensive characteristics by virtue of emphasizing relatively larger companies found in the benchmark.
Portfolio and Market Outlook
The market volatility late in the year caused sudden changes in the market. The perception of a friendlier environment from the Fed and continued hope that trade issues can be relatively quickly and favorably resolved has created an environment where the market is beginning to treat earnings disappointments and reduced outlooks less harshly since these are being viewed as temporary issues. The total return potential for stocks now seems more favorable than it was just a few months ago, and the market appears to have begun the early phase of a calculated rebound that may have some duration in time and level.
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 | 109 |
PERFORMANCE REPORT AND FUND PROFILE(Unaudited) | December 31, 2018 |
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) | |
Equity Commonwealth | 1.7% |
Black Hills Corp. | 1.6% |
Cathay General Bancorp | 1.6% |
Wintrust Financial Corp. | 1.6% |
Portland General Electric Co. | 1.5% |
Physicians Realty Trust | 1.5% |
BancorpSouth Bank | 1.4% |
Umpqua Holdings Corp. | 1.4% |
Radian Group, Inc. | 1.3% |
Trustmark Corp. | 1.3% |
Top Ten Total | 14.9% |
“Ten Largest Holdings” excludes any temporary cash investments. | |
110 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
PERFORMANCE REPORT AND FUND PROFILE(Unaudited)(concluded) | December 31, 2018 |
Cumulative Fund Performance*,†
Average Annual Returns*,†
Periods Ended December 31, 2018
| 1 Year | 5 Year | 10 Year |
Series Q (Small Cap Value Series) | (12.66%) | 1.09% | 12.09% |
Russell 2000 Value Index | (12.86%) | 3.61% | 10.40% |
* | 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. |
THE GUGGENHEIM FUNDS ANNUAL REPORT | 111 |
SCHEDULE OF INVESTMENTS | December 31, 2018 |
SERIES Q (SMALL CAP VALUE SERIES) |
| Shares | Value | ||||||
COMMON STOCKS† - 97.8% | ||||||||
Financial - 37.9% | ||||||||
Equity Commonwealth REIT | 39,218 | $ | 1,176,932 | |||||
Cathay General Bancorp | 32,715 | 1,096,934 | ||||||
Wintrust Financial Corp. | 16,226 | 1,078,867 | ||||||
Physicians Realty Trust REIT | 62,421 | 1,000,609 | ||||||
BancorpSouth Bank | 37,033 | 968,043 | ||||||
Umpqua Holdings Corp. | 59,098 | 939,658 | ||||||
Radian Group, Inc. | 55,810 | 913,052 | ||||||
Trustmark Corp. | 31,400 | 892,702 | ||||||
Redwood Trust, Inc. REIT | 58,416 | 880,329 | ||||||
TriCo Bancshares | 25,632 | 866,105 | ||||||
Beneficial Bancorp, Inc. | 60,591 | 865,845 | ||||||
Invesco Mortgage Capital, Inc. REIT | 56,325 | 815,586 | ||||||
Federal Agricultural Mortgage Corp. — Class C | 12,962 | 783,423 | ||||||
Tier REIT, Inc. | 36,937 | 762,010 | ||||||
Investors Bancorp, Inc. | 71,084 | 739,274 | ||||||
Hanmi Financial Corp. | 35,569 | 700,709 | ||||||
National Storage Affiliates Trust REIT | 23,887 | 632,050 | ||||||
Cousins Properties, Inc. REIT | 79,230 | 625,917 | ||||||
Prosperity Bancshares, Inc. | 9,450 | 588,735 | ||||||
Berkshire Hills Bancorp, Inc. | 21,325 | 575,135 | ||||||
Argo Group International Holdings Ltd. | 8,469 | 569,540 | ||||||
RLJ Lodging Trust REIT | 33,967 | 557,059 | ||||||
Old National Bancorp | 34,150 | 525,910 | ||||||
Pinnacle Financial Partners, Inc. | 11,399 | 525,494 | ||||||
IBERIABANK Corp. | 7,556 | 485,700 | ||||||
MB Financial, Inc. | 12,038 | 477,066 | ||||||
Sunstone Hotel Investors, Inc. REIT | 35,434 | 460,996 | ||||||
Hancock Whitney Corp. | 13,170 | 456,340 | ||||||
Lexington Realty Trust REIT | 53,590 | 439,974 | ||||||
Cohen & Steers, Inc. | 11,554 | 396,533 | ||||||
Fulton Financial Corp. | 25,266 | 391,118 | ||||||
Piedmont Office Realty Trust, Inc. — Class A REIT | 22,755 | 387,745 | ||||||
Hilltop Holdings, Inc. | 20,057 | 357,616 | ||||||
Howard Hughes Corp.* | 3,584 | 349,870 | ||||||
CNO Financial Group, Inc. | 22,542 | 335,425 | ||||||
Flagstar Bancorp, Inc.* | 12,439 | 328,390 | ||||||
First Horizon National Corp. | 24,099 | 317,143 | ||||||
Washington Federal, Inc. | 11,777 | 314,564 | ||||||
Stifel Financial Corp. | 7,323 | 303,319 | ||||||
Pebblebrook Hotel Trust REIT | 10,099 | 285,903 | ||||||
MBIA, Inc.* | 29,010 | 258,769 | ||||||
RE/MAX Holdings, Inc. — Class A | 8,402 | 258,362 | ||||||
American National Insurance Co. | 1,923 | 244,682 | ||||||
Total Financial | 25,929,433 | |||||||
Industrial - 14.6% | ||||||||
Louisiana-Pacific Corp. | 35,517 | 789,188 | ||||||
Esterline Technologies Corp.* | 6,081 | 738,537 | ||||||
GATX Corp. | 9,649 | 683,246 | ||||||
Scorpio Tankers, Inc. | 367,991 | 647,664 | ||||||
US Concrete, Inc.* | 16,242 | 573,018 | ||||||
ITT, Inc. | 11,612 | 560,511 | ||||||
Trinseo S.A. | 12,217 | 559,294 | ||||||
Valmont Industries, Inc. | 4,900 | 543,655 | ||||||
Graphic Packaging Holding Co. | 49,979 | 531,777 | ||||||
Matson, Inc. | 16,525 | 529,131 | ||||||
Worthington Industries, Inc. | 13,316 | 463,929 | ||||||
Plexus Corp.* | 8,116 | 414,565 | ||||||
Sanmina Corp.* | 16,812 | 404,497 | ||||||
Owens Corning | 8,337 | 366,661 | ||||||
Park Electrochemical Corp. | 19,738 | 356,666 | ||||||
Kirby Corp.* | 5,289 | 356,267 | ||||||
Gibraltar Industries, Inc.* | 9,897 | 352,234 | ||||||
Crane Co. | 4,455 | 321,562 | ||||||
Astec Industries, Inc. | 10,008 | 302,142 | ||||||
KEMET Corp. | 15,569 | 273,080 | ||||||
Oshkosh Corp. | 3,965 | 243,094 | ||||||
Total Industrial | 10,010,718 | |||||||
Consumer, Cyclical - 12.0% | ||||||||
Hawaiian Holdings, Inc. | 31,086 | 820,981 | ||||||
UniFirst Corp. | 5,230 | 748,256 | ||||||
Caleres, Inc. | 19,913 | 554,179 | ||||||
Acushnet Holdings Corp. | 25,572 | 538,802 | ||||||
Wyndham Hotels & Resorts, Inc. | 11,777 | 534,323 | ||||||
Tenneco, Inc. — Class A | 17,087 | 468,013 | ||||||
International Speedway Corp. — Class A | 10,155 | 445,398 | ||||||
WABCO Holdings, Inc.* | 4,100 | 440,094 | ||||||
Foot Locker, Inc. | 7,649 | 406,927 | ||||||
La-Z-Boy, Inc. | 14,519 | 402,322 | ||||||
Unifi, Inc.* | 16,681 | 380,994 | ||||||
MDC Holdings, Inc. | 12,604 | 354,299 | ||||||
Methode Electronics, Inc. | 14,324 | 333,606 | ||||||
Wabash National Corp. | 25,239 | 330,126 | ||||||
Century Communities, Inc.* | 18,859 | 325,506 | ||||||
PC Connection, Inc. | 10,745 | 319,449 | ||||||
Dana, Inc. | 22,907 | 312,222 | ||||||
Asbury Automotive Group, Inc.* | 4,199 | 279,905 | ||||||
Cato Corp. — Class A | 16,509 | 235,583 | ||||||
Total Consumer, Cyclical | 8,230,985 | |||||||
Consumer, Non-cyclical - 10.3% | ||||||||
Encompass Health Corp. | 14,281 | 881,138 | ||||||
Central Garden & Pet Co. — Class A* | 23,987 | 749,594 | ||||||
Euronet Worldwide, Inc.* | 7,228 | 740,003 | ||||||
Navigant Consulting, Inc. | 28,245 | 679,292 | ||||||
Emergent BioSolutions, Inc.* | 8,347 | 494,810 | ||||||
SP Plus Corp.* | 16,223 | 479,227 | ||||||
Fresh Del Monte Produce, Inc. | 16,491 | 466,201 | ||||||
Sanderson Farms, Inc. | 4,557 | 452,464 | ||||||
AMAG Pharmaceuticals, Inc.* | 25,754 | 391,203 | ||||||
Cambrex Corp.* | 10,320 | 389,683 | ||||||
Eagle Pharmaceuticals, Inc.* | 9,416 | 379,371 | ||||||
Carriage Services, Inc. — Class A | 21,174 | 328,197 | ||||||
Hostess Brands, Inc.* | 27,952 | 305,795 | ||||||
Inovio Pharmaceuticals, Inc.* | 60,656 | 242,624 | ||||||
ACCO Brands Corp. | 4,005 | 27,154 | ||||||
Total Consumer, Non-cyclical | 7,006,756 | |||||||
112|THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
SCHEDULE OF INVESTMENTS(continued) | December 31, 2018 |
SERIES Q (SMALL CAP VALUE SERIES) |
| Shares | Value | ||||||
Utilities - 6.9% | ||||||||
Black Hills Corp. | 17,554 | $ | 1,102,040 | |||||
Portland General Electric Co. | 22,549 | 1,033,872 | ||||||
Southwest Gas Holdings, Inc. | 8,470 | 647,955 | ||||||
ALLETE, Inc. | 6,868 | 523,479 | ||||||
PNM Resources, Inc. | 12,412 | 510,009 | ||||||
Ormat Technologies, Inc. | 8,423 | 440,523 | ||||||
Spire, Inc. | 5,720 | 423,737 | ||||||
Total Utilities | 4,681,615 | |||||||
Communications - 5.3% | ||||||||
Ciena Corp.* | 22,464 | 761,755 | ||||||
Viavi Solutions, Inc.* | 73,819 | 741,881 | ||||||
Finisar Corp.* | 24,462 | 528,379 | ||||||
Scholastic Corp. | 12,148 | 489,078 | ||||||
InterDigital, Inc. | 5,712 | 379,448 | ||||||
Liberty Latin America Ltd. — Class C* | 17,010 | 247,836 | ||||||
Gray Television, Inc.* | 16,796 | 247,573 | ||||||
Tribune Publishing Co.* | 18,952 | 214,916 | ||||||
Total Communications | 3,610,866 | |||||||
Energy - 4.7% | ||||||||
Range Resources Corp. | 72,698 | 695,720 | ||||||
Whiting Petroleum Corp.* | 24,650 | 559,308 | ||||||
Oasis Petroleum, Inc.* | 96,673 | 534,602 | ||||||
NOW, Inc.* | 31,310 | 364,449 | ||||||
MRC Global, Inc.* | 25,687 | 314,152 | ||||||
Gulfport Energy Corp.* | 45,132 | 295,615 | ||||||
Antero Resources Corp.* | 25,278 | 237,360 | ||||||
Oceaneering International, Inc.* | 19,049 | 230,493 | ||||||
Total Energy | 3,231,699 | |||||||
Technology - 4.1% | ||||||||
Evolent Health, Inc. — Class A* | 29,408 | 586,689 | ||||||
Cray, Inc.* | 25,686 | 554,561 | ||||||
ManTech International Corp. — Class A | 10,148 | 530,690 | ||||||
CSG Systems International, Inc. | 11,286 | 358,556 | ||||||
Lattice Semiconductor Corp.* | 36,245 | 250,815 | ||||||
Nanometrics, Inc.* | 8,929 | 244,030 | ||||||
TiVo Corp. | 25,580 | 240,708 | ||||||
Total Technology | 2,766,049 | |||||||
Basic Materials - 2.0% | ||||||||
Ashland Global Holdings, Inc. | 10,472 | 743,093 | ||||||
Huntsman Corp. | 17,515 | 337,864 | ||||||
Tahoe Resources, Inc.* | 81,258 | 296,592 | ||||||
Total Basic Materials | 1,377,549 | |||||||
Total Common Stocks | ||||||||
(Cost $70,874,523) | 66,845,670 | |||||||
CONVERTIBLE PREFERRED STOCKS††† - 0.0% | ||||||||
Thermoenergy Corp.*,1,2 | 116,667 | 34 | ||||||
Total Convertible Preferred Stocks | ||||||||
(Cost $111,410) | 34 | |||||||
MONEY MARKET FUND† - 1.7% | ||||||||
Dreyfus Treasury Securities Cash Management - Institutional Shares 2.20%3 | 1,194,660 | 1,194,660 | ||||||
Total Money Market Fund | ||||||||
(Cost $1,194,660) | 1,194,660 | |||||||
Total Investments - 99.5% | ||||||||
(Cost $72,180,593) | $ | 68,040,364 | ||||||
Other Assets & Liabilities, net - 0.5% | 308,862 | |||||||
Total Net Assets - 100.0% | $ | 68,349,226 | ||||||
* | 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 | Security was fair valued by the Valuation Committee at December 31, 2018. The total market value of fair valued securities amounts to $34, (cost $111,410) or less than 0.1% of total net assets. |
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 | Rate indicated is the 7-day yield as of December 31, 2018. |
REIT — Real Estate Investment Trust | |
See Sector Classification in Other Information section. |
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT|113 |
SCHEDULE OF INVESTMENTS(concluded) | December 31, 2018 |
SERIES Q (SMALL CAP VALUE SERIES) |
The following table summarizes the inputs used to value the Fund’s investments at December 31, 2018 (See Note 4 in the Notes to Financial Statements):
Investments in Securities (Assets) | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Common Stocks | $ | 66,845,670 | $ | — | $ | — | $ | 66,845,670 | ||||||||
Convertible Preferred Stocks | — | — | 34 | 34 | ||||||||||||
Money Market Fund | 1,194,660 | — | — | 1,194,660 | ||||||||||||
Total Assets | $ | 68,040,330 | $ | — | $ | 34 | $ | 68,040,364 | ||||||||
Transfers between investment levels may occur as the markets fluctuate and/or the availability of data used in an investment’s valuation changes. Transfers between valuation levels, if any, are in comparison to the valuation levels at the end of the previous fiscal year, and are effective using the fair value as of the end of the current fiscal period.
For the year ended December 31, 2018, there were no transfers between levels.
114|THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
SERIES Q (SMALL CAP VALUE SERIES) |
STATEMENT OF ASSETS AND LIABILITIES |
December 31, 2018 |
Assets: | ||||
Investments, at value (cost $72,180,593) | $ | 68,040,364 | ||
Cash | 241,649 | |||
Prepaid expenses | 5,785 | |||
Receivables: | ||||
Securities sold | 326,184 | |||
Dividends | 129,627 | |||
Fund shares sold | 4,570 | |||
Interest | 4,048 | |||
Total assets | 68,752,227 | |||
Liabilities: | ||||
Payable for: | ||||
Securities purchased | 241,649 | |||
Fund shares redeemed | 58,958 | |||
Management fees | 24,545 | |||
Professional fees | 21,357 | |||
Printing fees | 16,572 | |||
Distribution and service fees | 14,218 | |||
Custodian fees | 8,354 | |||
Fund accounting/administration fees | 4,550 | |||
Trustees’ fees* | 2,555 | |||
Transfer agent/maintenance fees | 2,295 | |||
Miscellaneous | 7,948 | |||
Total liabilities | 403,001 | |||
Commitments and contingent liabilities (Note 15) | — | |||
Net assets | $ | 68,349,226 | ||
Net assets consist of: | ||||
Paid in capital | $ | 67,838,190 | ||
Total distributable earnings (loss) | 511,036 | |||
Net assets | $ | 68,349,226 | ||
Capital shares outstanding | 1,888,978 | |||
Net asset value per share | $ | 36.18 | ||
STATEMENT OF OPERATIONS |
Year Ended December 31, 2018 |
Investment Income: | ||||
Dividends | $ | 1,605,854 | ||
Interest | 30,962 | |||
Total investment income | 1,636,816 | |||
Expenses: | ||||
Management fees | 672,819 | |||
Distribution and service fees | 224,273 | |||
Transfer agent/maintenance fees | 25,475 | |||
Fund accounting/administration fees | 71,768 | |||
Printing expenses | 57,080 | |||
Trustees’ fees* | 18,421 | |||
Custodian fees | 3,983 | |||
Line of credit fees | 2,941 | |||
Miscellaneous | 51,545 | |||
Total expenses | 1,128,305 | |||
Less: | ||||
Expenses waived by Adviser | (102,746 | ) | ||
Net expenses | 1,025,559 | |||
Net investment income | 611,257 | |||
Net Realized and Unrealized Gain (Loss): | ||||
Net realized gain (loss) on: | ||||
Investments | 6,571,751 | |||
Net realized gain | 6,571,751 | |||
Net change in unrealized appreciation (depreciation) on: | ||||
Investments | (16,678,682 | ) | ||
Net change in unrealized appreciation (depreciation) | (16,678,682 | ) | ||
Net realized and unrealized loss | (10,106,931 | ) | ||
Net decrease in net assets resulting from operations | $ | (9,495,674 | ) | |
* | 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|115 |
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 | $ | 611,257 | $ | 108,409 | ||||
Net realized gain on investments | 6,571,751 | 9,859,160 | ||||||
Net change in unrealized appreciation (depreciation) on investments | (16,678,682 | ) | (6,613,838 | ) | ||||
Net increase (decrease) in net assets resulting from operations | (9,495,674 | ) | 3,353,731 | |||||
Distributions to shareholders | (8,781,206 | ) | (3,767,897 | )1 | ||||
Capital share transactions: | ||||||||
Proceeds from sale of shares | 5,199,979 | 12,755,388 | ||||||
Distributions reinvested | 8,781,206 | 3,767,897 | ||||||
Cost of shares redeemed | (26,081,131 | ) | (23,686,702 | ) | ||||
Net decrease from capital share transactions | (12,099,946 | ) | (7,163,417 | ) | ||||
Net decrease in net assets | (30,376,826 | ) | (7,577,583 | ) | ||||
Net assets: | ||||||||
Beginning of year | 98,726,052 | 106,303,635 | ||||||
End of year | $ | 68,349,226 | $ | 98,726,052 | ||||
Capital share activity: | ||||||||
Shares sold | 113,450 | 277,428 | ||||||
Shares issued from reinvestment of distributions | 199,936 | 85,035 | ||||||
Shares redeemed | (575,543 | ) | (521,418 | ) | ||||
Net decrease in shares | (262,157 | ) | (158,955 | ) | ||||
1 | For the year ended December 31, 2017, the distributions from net investment income and net realized gains were as follows (See Note 13): |
| Net investment income | $ | (370,808 | ) | |
| Net realized gains | $ | (3,397,089 | ) |
116|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 | $ | 45.89 | $ | 46.02 | $ | 39.71 | $ | 51.73 | $ | 52.46 | ||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||
Net investment income (loss)a | .30 | .05 | .21 | .12 | .08 | |||||||||||||||
Net gain (loss) on investments (realized and unrealized) | (5.28 | ) | 1.58 | 9.76 | (2.87 | ) | (.80 | ) | ||||||||||||
Total from investment operations | (4.98 | ) | 1.63 | 9.97 | (2.75 | ) | (.72 | ) | ||||||||||||
Less distributions from: | ||||||||||||||||||||
Net investment income | (.16 | ) | (.17 | ) | (.05 | ) | — | (.01 | ) | |||||||||||
Net realized gains | (4.57 | ) | (1.59 | ) | (3.61 | ) | (9.27 | ) | — | |||||||||||
Total distributions | (4.73 | ) | (1.76 | ) | (3.66 | ) | (9.27 | ) | (.01 | ) | ||||||||||
Net asset value, end of period | $ | 36.18 | $ | 45.89 | $ | 46.02 | $ | 39.71 | $ | 51.73 | ||||||||||
| ||||||||||||||||||||
Total Returnb | (12.66 | %) | 3.70 | % | 26.60 | % | (6.62 | %) | (1.38 | %) | ||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||
Net assets, end of period (in thousands) | $ | 68,349 | $ | 98,726 | $ | 106,304 | $ | 89,757 | $ | 115,933 | ||||||||||
Ratios to average net assets: | ||||||||||||||||||||
Net investment income (loss) | 0.68 | % | 0.11 | % | 0.52 | % | 0.26 | % | 0.15 | % | ||||||||||
Total expensesc | 1.26 | % | 1.23 | % | 1.16 | % | 1.19 | % | 1.16 | % | ||||||||||
Net expensesd,e,f | 1.14 | % | 1.14 | % | 1.16 | % | 1.19 | % | 1.16 | % | ||||||||||
Portfolio turnover rate | 37 | % | 32 | % | 68 | % | 57 | % | 50 | % | ||||||||||
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, if any. |
d | Net expense information reflects the expense ratios after expense waivers and reimbursements, as applicable. |
e | Net expenses may include expenses that are excluded from the expense limitation agreement. Excluding these expenses, the net expense ratios for the years would be: |
12/31/18 | 12/31/17 | 12/31/16 | 12/31/15 | 12/31/14 |
1.14% | 1.12% | 1.16% | 1.19% | 1.16% |
f | The portion of the ratios of net expenses to average net assets attributable to recoupments of prior fee reductions or expense reimbursements for the years was as follows: |
12/31/18 | 12/31/17 | 12/31/16 |
— | 0.00%* | — |
* | Less than 0.01%. |
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT|117 |
MANAGERS’ COMMENTARY(Unaudited) | December 31, 2018 |
To Our Shareholders:
The Series V (Mid Cap Value Series) (the "Fund") is managed by a team of seasoned professionals led by James Schier, CFA, Senior Managing Director and Portfolio Manager; Farhan Sharaff, Senior Managing Director, Assistant Chief Investment Officer, Equities, and Portfolio Manager; Gregg Strohkorb, CFA, Director Portfolio Manager; David Toussaint, CFA, CPA, Managing Director and Portfolio Manager; and Burak Hurmeydan, Ph.D., Director and Portfolio Manager. In the following paragraphs, the investment team discusses performance of the Fund for the fiscal year ended December 31, 2018.
For the year ended December 31, 2018, Series V (Mid Cap Value Series) returned -12.97%, compared with the Russell 2500®Value Index, which returned -12.36%.
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 industries 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
The Fund underperformed the index by 61 basis points. Most of the year’s negative performance came in the fourth quarter, whose volatile and unfavorable results were driven predominantly by macro factors, as fears of a tighter U.S. Federal Reserve (the “Fed”) and continuing caution being communicated by corporate America created an environment where traders and investors decided precipitously to position themselves defensively. As a result, the usual biases in the market manifested themselves, in that larger cap stocks, growth stocks and defensive sectors outperformed.
For the 12-month period, allocation decisions outweighed stock selection in the Fund’s relative performance.
On the positive side, the weighting of the Utility holdings was a major positive influence in the portfolio, along with selection in the Information Technology sector, where one of the best-performing holdings, Finisar Corp., received a buyout. Two other top performing individual holdings for the year were optical component companies Ciena Corp. and Infinera Corp. Stock selection in Real Estate was another contributor, as the relative defensiveness of the positioning in the sector drove performance.
Stock selection in the Energy sector was another contributor to performance, although the sector’s fortunes were closely tied to the volatility in the price of a barrel of oil over the period, which rose to $75 in October before falling to $45 in December. A leading individual contributor, Andeavor, was acquired by Marathon Petroleum in the period.
The Fund was underweight in Real Estate, a sector which outperformed the index overall. But the Fund’s holdings strongly outperformed those in the benchmark.
Stock selection detracted in the Industrials sector, where Celadon Group, Inc., was a leading individual detractor for the Fund for the period. It announced in early 2018 that its financial statements would need to be reviewed for prior periods, and the stock was delisted from the NYSE.
Stock selection also was detrimental in Health Care. This sector, somewhat surprisingly, did not prove to be defensive and significantly underperformed health care stocks in the benchmark. Among large detractors was Dermira, a specialty pharmaceutical that focuses on dermatology therapies (not held at period end). One of the company’s three promising pipeline products failed in Phase 3 clinical trials during the period and caused the stock to fall significantly, and it did not recover. Another detractor was Perrigo Co. Plc, which in late December was given a surprise tax bill in excess of $1 billion for its Irish subsidiary related to the Brexit event. The company plans to defend itself but the uncertainty hurt the stock.
118 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
MANAGERS’ COMMENTARY(Unaudited)(concluded) | December 31, 2018 |
Portfolio Positioning
While this strategy is balanced relative to the benchmark, it does possess defensive characteristics in virtue of emphasizing relatively larger companies found in the benchmark as well as an overweight in Utilities.
At the end of the period, the Fund’s largest overweights relative to the benchmark were in Utilities and Information Technology. The Fund’s largest underweights were in Financials and Real Estate.
Portfolio and Market Outlook
The market volatility late in the year caused sudden changes in the market. The perception of a friendlier environment from the Fed and continued hope that trade issues can be relatively quickly and favorably resolved has created an environment where the market is beginning to treat earnings disappointments and reduced outlooks less harshly since these are being viewed as temporary issues. The total return potential for stocks now seems more favorable than it was just a few months ago, and the market appears to have begun the early phase of a calculated rebound that may have some duration in time and level.
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 | 119 |
PERFORMANCE REPORT AND FUND PROFILE(Unaudited) | December 31, 2018 |
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) | |
OGE Energy Corp. | 2.4% |
Zions Bancorp North America | 1.9% |
KeyCorp | 1.9% |
Ameren Corp. | 1.8% |
Alleghany Corp. | 1.8% |
Voya Financial, Inc. | 1.8% |
Huntington Bancshares, Inc. | 1.8% |
Bunge Ltd. | 1.8% |
Equity Commonwealth | 1.7% |
Physicians Realty Trust | 1.5% |
Top Ten Total | 18.4% |
“Ten Largest Holdings” excludes any temporary cash investments. | |
120 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
PERFORMANCE REPORT AND FUND PROFILE(Unaudited)(concluded) | December 31, 2018 |
Cumulative Fund Performance*,†
Average Annual Returns*,†
Periods Ended December 31, 2018
| 1 Year | 5 Year | 10 Year |
Series V (Mid Cap Value Series) | (12.97%) | 3.36% | 11.19% |
Russell 2500 Value Index | (12.36%) | 4.16% | 11.62% |
* | 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 | 121 |
SCHEDULE OF INVESTMENTS | December 31, 2018 |
SERIES V (MID CAP VALUE SERIES) |
| Shares | Value | ||||||
COMMON STOCKS† - 98.1% | ||||||||
Financial - 29.8% | ||||||||
Zions Bancorp North America | 82,192 | $ | 3,348,502 | |||||
KeyCorp | 222,823 | 3,293,324 | ||||||
Alleghany Corp. | 5,160 | 3,216,331 | ||||||
Voya Financial, Inc. | 78,495 | 3,150,789 | ||||||
Huntington Bancshares, Inc. | 263,866 | 3,145,283 | ||||||
Equity Commonwealth REIT | 100,532 | 3,016,965 | ||||||
Physicians Realty Trust REIT | 164,891 | 2,643,203 | ||||||
Alexandria Real Estate Equities, Inc. REIT | 20,037 | 2,309,064 | ||||||
Sun Communities, Inc. REIT | 22,661 | 2,304,850 | ||||||
Willis Towers Watson plc | 14,979 | 2,274,711 | ||||||
Radian Group, Inc. | 130,391 | 2,133,197 | ||||||
Wintrust Financial Corp. | 31,465 | 2,092,108 | ||||||
Umpqua Holdings Corp. | 121,778 | 1,936,270 | ||||||
Cousins Properties, Inc. REIT | 208,011 | 1,643,287 | ||||||
National Storage Affiliates Trust REIT | 59,234 | 1,567,332 | ||||||
Federal Agricultural Mortgage Corp. — Class C | 23,845 | 1,441,192 | ||||||
IBERIABANK Corp. | 22,009 | 1,414,738 | ||||||
Pinnacle Financial Partners, Inc. | 28,949 | 1,334,549 | ||||||
Redwood Trust, Inc. REIT | 84,906 | 1,279,533 | ||||||
Camden Property Trust REIT | 13,652 | 1,202,059 | ||||||
Old Republic International Corp. | 49,344 | 1,015,006 | ||||||
Prosperity Bancshares, Inc. | 15,213 | 947,770 | ||||||
E*TRADE Financial Corp. | 20,700 | 908,316 | ||||||
Hilltop Holdings, Inc. | 50,937 | 908,207 | ||||||
Unum Group | 30,343 | 891,478 | ||||||
First Horizon National Corp. | 63,003 | 829,119 | ||||||
Old National Bancorp | 53,475 | 823,515 | ||||||
Howard Hughes Corp.* | 8,070 | 787,793 | ||||||
American National Insurance Co. | 5,001 | 636,327 | ||||||
Total Financial | 52,494,818 | |||||||
Industrial - 13.6% | ||||||||
Carlisle Companies, Inc. | 19,756 | 1,985,873 | ||||||
Jacobs Engineering Group, Inc. | 29,972 | 1,752,163 | ||||||
Scorpio Tankers, Inc. | 937,534 | 1,650,060 | ||||||
Berry Global Group, Inc.* | 33,443 | 1,589,546 | ||||||
FLIR Systems, Inc. | 35,617 | 1,550,764 | ||||||
US Concrete, Inc.* | 41,135 | 1,451,243 | ||||||
Valmont Industries, Inc. | 12,039 | 1,335,727 | ||||||
Graphic Packaging Holding Co. | 113,998 | 1,212,939 | ||||||
Snap-on, Inc. | 7,217 | 1,048,558 | ||||||
Park Electrochemical Corp. | 53,500 | 966,745 | ||||||
Huntington Ingalls Industries, Inc. | 5,020 | 955,356 | ||||||
Plexus Corp.* | 18,488 | 944,367 | ||||||
Owens Corning | 21,466 | 944,074 | ||||||
Hub Group, Inc. — Class A* | 25,383 | 940,948 | ||||||
ITT, Inc. | 18,814 | 908,152 | ||||||
Rexnord Corp.* | 38,972 | 894,407 | ||||||
Knight-Swift Transportation Holdings, Inc. | 34,485 | 864,539 | ||||||
Crane Co. | 11,532 | 832,380 | ||||||
Astec Industries, Inc. | 25,417 | 767,339 | ||||||
Kirby Corp.* | 9,262 | 623,888 | ||||||
Oshkosh Corp. | 8,195 | 502,436 | ||||||
Celadon Group, Inc.* | 281,079 | 233,296 | ||||||
Total Industrial | 23,954,800 | |||||||
Consumer, Non-cyclical - 13.5% | ||||||||
Bunge Ltd. | 58,388 | 3,120,255 | ||||||
Euronet Worldwide, Inc.* | 21,486 | 2,199,736 | ||||||
Premier, Inc. — Class A* | 57,590 | 2,150,986 | ||||||
Encompass Health Corp. | 29,619 | 1,827,492 | ||||||
Emergent BioSolutions, Inc.* | 30,577 | 1,812,605 | ||||||
Central Garden & Pet Co. — Class A* | 56,966 | 1,780,188 | ||||||
Ingredion, Inc. | 14,325 | 1,309,305 | ||||||
Eagle Pharmaceuticals, Inc.* | 29,682 | 1,195,888 | ||||||
Sanderson Farms, Inc. | 10,938 | 1,086,034 | ||||||
US Foods Holding Corp.* | 33,943 | 1,073,957 | ||||||
Cambrex Corp.* | 26,999 | 1,019,482 | ||||||
SP Plus Corp.* | 30,957 | 914,470 | ||||||
Hostess Brands, Inc.* | 82,243 | 899,738 | ||||||
Perrigo Company plc | 22,530 | 873,038 | ||||||
Myriad Genetics, Inc.* | 22,922 | 666,342 | ||||||
TherapeuticsMD, Inc.* | 172,236 | 656,219 | ||||||
Inovio Pharmaceuticals, Inc.* | 141,243 | 564,972 | ||||||
Quest Diagnostics, Inc. | 6,261 | 521,354 | ||||||
ACCO Brands Corp. | 10,726 | 72,722 | ||||||
Total Consumer, Non-cyclical | 23,744,783 | |||||||
Utilities - 12.6% | ||||||||
OGE Energy Corp. | 109,636 | 4,296,635 | ||||||
Ameren Corp. | 49,436 | 3,224,710 | ||||||
Portland General Electric Co. | 56,919 | 2,609,736 | ||||||
Pinnacle West Capital Corp. | 27,650 | 2,355,780 | ||||||
Black Hills Corp. | 33,776 | 2,120,457 | ||||||
Edison International | 32,852 | 1,865,008 | ||||||
Southwest Gas Holdings, Inc. | 21,506 | 1,645,209 | ||||||
UGI Corp. | 27,368 | 1,460,083 | ||||||
AES Corp. | 100,643 | 1,455,298 | ||||||
American Electric Power Company, Inc. | 15,915 | 1,189,487 | ||||||
Total Utilities | 22,222,403 | |||||||
Consumer, Cyclical - 10.7% | ||||||||
LKQ Corp.* | 109,889 | 2,607,666 | ||||||
UniFirst Corp. | 13,352 | 1,910,271 | ||||||
Alaska Air Group, Inc. | 26,204 | 1,594,514 | ||||||
PVH Corp. | 16,516 | 1,535,162 | ||||||
Acushnet Holdings Corp. | 71,588 | 1,508,359 | ||||||
WABCO Holdings, Inc.* | 13,861 | 1,487,840 | ||||||
BorgWarner, Inc. | 40,802 | 1,417,461 | ||||||
Caleres, Inc. | 50,867 | 1,415,629 | ||||||
Wyndham Hotels & Resorts, Inc. | 30,003 | 1,361,236 | ||||||
Foot Locker, Inc. | 19,690 | 1,047,508 | ||||||
JetBlue Airways Corp.* | 57,988 | 931,287 | ||||||
DR Horton, Inc. | 25,981 | 900,501 | ||||||
Dana, Inc. | 55,630 | 758,237 | ||||||
Unifi, Inc.* | 20,531 | 468,928 | ||||||
Total Consumer, Cyclical | 18,944,599 | |||||||
122|THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
SCHEDULE OF INVESTMENTS(continued) | December 31, 2018 |
SERIES V (MID CAP VALUE SERIES) |
| Shares | Value | ||||||
Basic Materials - 5.7% | ||||||||
Reliance Steel & Aluminum Co. | 32,148 | $ | 2,287,973 | |||||
Huntsman Corp. | 114,356 | 2,205,927 | ||||||
Ashland Global Holdings, Inc. | 27,062 | 1,920,320 | ||||||
Alcoa Corp.* | 71,509 | 1,900,709 | ||||||
Nucor Corp. | 16,779 | 869,320 | ||||||
Tahoe Resources, Inc.* | 220,317 | 804,157 | ||||||
Total Basic Materials | 9,988,406 | |||||||
Technology - 4.4% | ||||||||
Cray, Inc.* | 106,385 | 2,296,852 | ||||||
Evolent Health, Inc. — Class A* | 75,709 | 1,510,395 | ||||||
Super Micro Computer, Inc.* | 108,850 | 1,502,130 | ||||||
Amdocs Ltd. | 16,909 | 990,529 | ||||||
CSG Systems International, Inc. | 27,033 | 858,838 | ||||||
Maxwell Technologies, Inc.* | 285,110 | 590,178 | ||||||
Total Technology | 7,748,922 | |||||||
Energy - 4.2% | ||||||||
Kinder Morgan, Inc. | 118,488 | 1,822,345 | ||||||
Range Resources Corp. | 184,618 | 1,766,794 | ||||||
Whiting Petroleum Corp.* | 63,043 | 1,430,446 | ||||||
Oasis Petroleum, Inc.* | 247,239 | 1,367,232 | ||||||
Antero Resources Corp.* | 64,195 | 602,791 | ||||||
Hess Corp. | 8,517 | 344,938 | ||||||
HydroGen Corp.*,†††,1,2 | 672,346 | 1 | ||||||
Total Energy | 7,334,547 | |||||||
Communications - 3.6% | ||||||||
Ciena Corp.* | 53,126 | 1,801,503 | ||||||
Viavi Solutions, Inc.* | 163,328 | 1,641,446 | ||||||
Symantec Corp. | 83,125 | 1,570,647 | ||||||
Finisar Corp.* | 62,751 | 1,355,422 | ||||||
Total Communications | 6,369,018 | |||||||
Total Common Stocks | ||||||||
(Cost $185,704,395) | 172,802,296 | |||||||
CONVERTIBLE PREFERRED STOCKS††† - 0.0% | ||||||||
Thermoenergy Corp.*,1,3 | 308,333 | 90 | ||||||
Total Convertible Preferred Stocks | ||||||||
(Cost $294,438) | 90 | |||||||
MONEY MARKET FUND† - 1.8% | ||||||||
Dreyfus Treasury Securities Cash Management - Institutional Shares 2.20%4 | 3,208,594 | 3,208,594 | ||||||
Total Money Market Fund | ||||||||
(Cost $3,208,594) | 3,208,594 | |||||||
Total Investments - 99.9% | ||||||||
(Cost $189,207,427) | $ | 176,010,980 | ||||||
Other Assets & Liabilities, net - 0.1% | 101,658 | |||||||
Total Net Assets - 100.0% | $ | 176,112,638 | ||||||
* | Non-income producing security. |
† | Value determined based on Level 1 inputs, unless otherwise noted — See Note 4. |
††† | Value determined based on Level 3 inputs — See Note 4. |
1 | Security was fair valued by the Valuation Committee at December 31, 2018. The total market value of fair valued securities amounts to $91, (cost $2,866,013) or less than 0.1% of total net assets. |
2 | Affiliated issuer. |
3 | 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. |
4 | Rate indicated is the 7-day yield as of December 31, 2018. |
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|123 |
SCHEDULE OF INVESTMENTS(concluded) | December 31, 2018 |
SERIES V (MID CAP VALUE SERIES) |
The following table summarizes the inputs used to value the Fund’s investments at December 31, 2018 (See Note 4 in the Notes to Financial Statements):
Investments in Securities (Assets) | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Common Stocks | $ | 172,802,295 | $ | — | $ | 1 | $ | 172,802,296 | ||||||||
Convertible Preferred Stocks | — | — | 90 | 90 | ||||||||||||
Money Market Fund | 3,208,594 | — | — | 3,208,594 | ||||||||||||
Total Assets | $ | 176,010,889 | $ | — | $ | 91 | $ | 176,010,980 | ||||||||
Transfers between investment levels may occur as the markets fluctuate and/or the availability of data used in an investment’s valuation changes. Transfers between valuation levels, if any, are in comparison to the valuation levels at the end of the previous fiscal year, and are effective using the fair value as of the end of the current fiscal period.
For the year ended December 31, 2018, there were no transfers between levels.
Affiliated Transactions
Investments representing 5% or more of the outstanding voting shares of a company, or control of or by, or common control under Guggenheim Investments (“GI”), result in that company being considered an affiliated issuer, as defined in the 1940 Act.
Transactions during the year ended December 31, 2018, in which the company is an “affiliated person”, were as follows:
Security Name | Value | Additions | Reductions | Realized | Change in | Value | Shares | Investment | ||||||||||||||||||||||||
Common Stock | ||||||||||||||||||||||||||||||||
HydroGen Corp.*,1 | $ | 1 | $ | — | $ | — | $ | — | $ | — | $ | 1 | 672,346 | $ | — | |||||||||||||||||
* | Non-income producing security. |
1 | Security was fair valued by the Valuation Committee at December 31, 2018. The total market value of fair valued and affiliated securities amounts to $1 (cost $2,571,575) or less than 0.01% of total net assets. |
124|THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
SERIES V (MID CAP VALUE SERIES) |
STATEMENT OF ASSETS AND LIABILITIES |
December 31, 2018 |
Assets: | ||||
Investments in unaffiliated issuers, at value (cost $186,635,852) | $ | 176,010,979 | ||
Investments in affiliated issuers, at value (cost $2,571,575) | 1 | |||
Prepaid expenses | 9,216 | |||
Receivables: | ||||
Securities sold | 277,273 | |||
Dividends | 240,231 | |||
Fund shares sold | 14,986 | |||
Interest | 9,635 | |||
Total assets | 176,562,321 | |||
Liabilities: | ||||
Payable for: | ||||
Fund shares redeemed | 68,602 | |||
Management fees | 41,260 | |||
Distribution and service fees | 36,561 | |||
Printing fees | 28,949 | |||
Fund accounting/administration fees | 11,700 | |||
Transfer agent/maintenance fees | 3,468 | |||
Trustees’ fees* | 895 | |||
Miscellaneous (Note 11) | 258,248 | |||
Total liabilities | 449,683 | |||
Commitments and contingent liabilities (Note 15) | — | |||
Net assets | $ | 176,112,638 | ||
Net assets consist of: | ||||
Paid in capital | $ | 167,873,645 | ||
Total distributable earnings (loss) | 8,238,993 | |||
Net assets | $ | 176,112,638 | ||
Capital shares outstanding | 2,854,450 | |||
Net asset value per share | $ | 61.70 | ||
STATEMENT OF OPERATIONS |
Year Ended December 31, 2018 |
Investment Income: | ||||
Dividends from securities of unaffiliated issuers | $ | 3,488,905 | ||
Interest | 92,985 | |||
Total investment income | 3,581,890 | |||
Expenses: | ||||
Management fees | 1,682,869 | |||
Distribution and service fees | 560,956 | |||
Transfer agent/maintenance fees | 25,504 | |||
Fund accounting/administration fees | 179,508 | |||
Trustees’ fees* | 14,082 | |||
Custodian fees | 11,169 | |||
Line of credit fees | 7,771 | |||
Miscellaneous | 179,939 | |||
Total expenses | 2,661,798 | |||
Less: | ||||
Expenses waived by Adviser | (612,269 | ) | ||
Net expenses | 2,049,529 | |||
Net investment income | 1,532,361 | |||
Net Realized and Unrealized Gain (Loss): | ||||
Net realized gain (loss) on: | ||||
Investments in unaffiliated issuers | 26,927,246 | |||
Net realized gain | 26,927,246 | |||
Net change in unrealized appreciation (depreciation) on: | ||||
Investments in unaffiliated issuers | (53,819,261 | ) | ||
Net change in unrealized appreciation (depreciation) | (53,819,261 | ) | ||
Net realized and unrealized loss | (26,892,015 | ) | ||
Net decrease in net assets resulting from operations | $ | (25,359,654 | ) | |
* | 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|125 |
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 (loss) | $ | 1,532,361 | $ | (507,633 | ) | |||
Net realized gain on investments | 26,927,246 | 35,109,314 | ||||||
Net change in unrealized appreciation (depreciation) on investments | (53,819,261 | ) | (3,908,779 | ) | ||||
Net increase (decrease) in net assets resulting from operations | (25,359,654 | ) | 30,692,902 | |||||
Distributions to shareholders | (31,674,903 | ) | (6,081,540 | )1 | ||||
Capital share transactions: | ||||||||
Proceeds from sale of shares | 3,603,028 | 4,406,300 | ||||||
Distributions reinvested | 31,674,903 | 6,081,540 | ||||||
Cost of shares redeemed | (44,347,994 | ) | (40,943,633 | ) | ||||
Net decrease from capital share transactions | (9,070,063 | ) | (30,455,793 | ) | ||||
Net decrease in net assets | (66,104,620 | ) | (5,844,431 | ) | ||||
Net assets: | ||||||||
Beginning of year | 242,217,258 | 248,061,689 | ||||||
End of year | $ | 176,112,638 | $ | 242,217,258 | ||||
Capital share activity: | ||||||||
Shares sold | 46,175 | 57,350 | ||||||
Shares issued from reinvestment of distributions | 422,445 | 80,401 | ||||||
Shares redeemed | (555,135 | ) | (533,345 | ) | ||||
Net decrease in shares | (86,515 | ) | (395,594 | ) | ||||
1 | For the year ended December 31, 2017, the distributions from net investment income and net realized gains were as follows (see Note 13): |
| Net investment income | $ | (1,588,785 | ) | |
| Net realized gains | $ | (4,492,755 | ) |
126|THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
SERIES V (MID CAP VALUE SERIES) |
FINANCIAL HIGHLIGHTS |
This table is presented to show selected data for a share outstanding throughout each period and to assist shareholders in evaluating a Fund’s performance for the periods presented.
| Year Ended | Year Ended | Year Ended | Year Ended | Year Ended | |||||||||||||||
Per Share Data | ||||||||||||||||||||
Net asset value, beginning of period | $ | 82.36 | $ | 74.35 | $ | 65.74 | $ | 84.22 | $ | 83.46 | ||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||
Net investment income (loss)a | .53 | (.16 | ) | .99 | .71 | .53 | ||||||||||||||
Net gain (loss) on investments (realized and unrealized) | (9.07 | ) | 10.16 | 15.50 | (5.42 | ) | .23 | |||||||||||||
Total from investment operations | (8.54 | ) | 10.00 | 16.49 | (4.71 | ) | .76 | |||||||||||||
Less distributions from: | ||||||||||||||||||||
Net investment income | (.49 | ) | (.52 | ) | (.68 | ) | (.51 | ) | (— | )b | ||||||||||
Net realized gains | (11.63 | ) | (1.47 | ) | (7.20 | ) | (13.26 | ) | — | |||||||||||
Total distributions | (12.12 | ) | (1.99 | ) | (7.88 | ) | (13.77 | ) | (— | )b | ||||||||||
Net asset value, end of period | $ | 61.70 | $ | 82.36 | $ | 74.35 | $ | 65.74 | $ | 84.22 | ||||||||||
| ||||||||||||||||||||
Total Returnc | (12.97 | %) | 13.71 | % | 26.75 | % | (6.79 | %) | 0.91 | % | ||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||
Net assets, end of period (in thousands) | $ | 176,113 | $ | 242,217 | $ | 248,062 | $ | 207,393 | $ | 264,495 | ||||||||||
Ratios to average net assets: | ||||||||||||||||||||
Net investment income (loss) | 0.68 | % | (0.21 | %) | 1.46 | % | 0.94 | % | 0.62 | % | ||||||||||
Total expenses | 1.19 | % | 1.10 | % | 0.93 | % | 0.95 | % | 0.93 | % | ||||||||||
Net expensesd,e | 0.91 | % | 0.91 | % | 0.93 | % | 0.95 | % | 0.93 | % | ||||||||||
Portfolio turnover rate | 65 | % | 54 | % | 60 | % | 50 | % | 53 | % | ||||||||||
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 and reimbursements, as applicable. |
e | Net expenses may include expenses that are excluded from the expense limitation agreement and affiliated fee waivers. Excluding these expenses, the net expense ratios for the years would be: |
12/31/18 | 12/31/17 | 12/31/16 | 12/31/15 | 12/13/14 |
0.91% | 0.89% | 0.93% | 0.95% | 0.93% |
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT|127 |
MANAGERS’ COMMENTARY(Unaudited) | December 31, 2018 |
To Our Shareholders:
The Series X (StylePlusTM—Small Growth Series) is managed by a team of seasoned professionals, including Farhan Sharaff, Senior Managing Director and Assistant Chief Investment Officer, Equities; Jayson Flowers, Senior Managing Director and Portfolio Manager; Qi Yan, Managing Director and Portfolio Manager; and Adam Bloch, Director and Portfolio Manager. In the following paragraphs, the investment team discusses performance for the fiscal year ended December 31, 2018.
For the year ended December 31, 2018, Series X (StylePlus—Small Growth Series) returned -10.30%, compared with the -9.31% return of its benchmark, the Russell 2000® Growth Index.
Investment Approach
Through a combination of 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 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 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
Over the period, from 15-25% of the total equity position was allocated to actively managed equity and 75-85% to passive equity. Remaining Fund assets were invested in the Guggenheim Strategy Funds, short-term fixed income investment companies advised by Guggenheim Investments, and the Guggenheim Ultra Short Duration Fund, whose objective is to seek a high level of income consistent with the preservation of capital.
The Fund underperformed the Russell 2000 Growth Index for the year ended December 31, 2018. The fixed income sleeve was the largest contributor, as positions in the Guggenheim Ultra Short Duration Fund and the Guggenheim Strategy Funds, which held asset-backed securities, investment-grade corporates, and Non-Agency residential mortgage-backed securities, constituted the majority of the Fund's total return. The actively managed equity sleeve contributed to performance. The passive equity position, maintained through swap agreements and futures contracts, detracted 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.
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.
128 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
PERFORMANCE REPORT AND FUND PROFILE(Unaudited) | December 31, 2018 |
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, investments in Guggenheim Strategy Funds Trust mutual funds, or investments in Guggenheim Ultra Short Duration Fund.
Inception Date:October 15, 1997 |
Ten Largest Holdings (% of Total Net Assets) | |
Guggenheim Variable Insurance Strategy Fund III | 34.8% |
Guggenheim Strategy Fund III | 30.9% |
Guggenheim Strategy Fund II | 3.4% |
Guggenheim Ultra Short Duration Fund | 2.2% |
MAXIMUS, Inc. | 0.3% |
Kaman Corp. | 0.2% |
Hillenbrand, Inc. | 0.2% |
ACI Worldwide, Inc. | 0.2% |
Watts Water Technologies, Inc. — Class A | 0.2% |
InterDigital, Inc. | 0.2% |
Top Ten Total | 72.6% |
“Ten Largest Holdings” excludes any temporary cash or derivative investments. | |
THE GUGGENHEIM FUNDS ANNUAL REPORT | 129 |
PERFORMANCE REPORT AND FUND PROFILE(Unaudited)(concluded) | December 31, 2018 |
Cumulative Fund Performance*,†
Average Annual Returns*,†
Periods Ended December 31, 2018
| 1 Year | 5 Year | 10 Year |
Series X (StylePlus—Small Growth Series) | (10.30%) | 5.99% | 13.78% |
Russell 2000 Growth Index | (9.31%) | 5.13% | 13.52% |
* | 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. |
130 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
SCHEDULE OF INVESTMENTS | December 31, 2018 |
SERIES X (STYLEPLUS—SMALL GROWTH SERIES) |
| Shares | Value | ||||||
COMMON STOCKS† - 21.9% | ||||||||
Consumer, Non-cyclical - 7.0% | ||||||||
Performance Food Group Co.* | 1,729 | $ | 55,795 | |||||
Premier, Inc. — Class A* | 1,456 | 54,382 | ||||||
Innoviva, Inc.* | 2,929 | 51,111 | ||||||
Amedisys, Inc.* | 434 | 50,826 | ||||||
Orthofix Medical, Inc.* | 961 | 50,443 | ||||||
Emergent BioSolutions, Inc.* | 796 | 47,187 | ||||||
Integer Holdings Corp.* | 607 | 46,290 | ||||||
Globus Medical, Inc. — Class A* | 1,062 | 45,963 | ||||||
EVERTEC, Inc. | 1,589 | 45,604 | ||||||
Inter Parfums, Inc. | 694 | 45,506 | ||||||
Central Garden & Pet Co. — Class A* | 1,399 | 43,719 | ||||||
CONMED Corp. | 679 | 43,592 | ||||||
Merit Medical Systems, Inc.* | 778 | 43,420 | ||||||
Vector Group Ltd. | 4,275 | 41,595 | ||||||
CoreLogic, Inc.* | 1,178 | 39,369 | ||||||
Wright Medical Group N.V.* | 1,427 | 38,843 | ||||||
Loxo Oncology, Inc.* | 276 | 38,659 | ||||||
Ligand Pharmaceuticals, Inc. — Class B* | 283 | 38,403 | ||||||
Select Medical Holdings Corp.* | 2,486 | 38,160 | ||||||
Haemonetics Corp.* | 377 | 37,719 | ||||||
LHC Group, Inc.* | 390 | 36,613 | ||||||
John B Sanfilippo & Son, Inc. | 655 | 36,457 | ||||||
Neogen Corp.* | 618 | 35,226 | ||||||
HMS Holdings Corp.* | 1,230 | 34,600 | ||||||
US Physical Therapy, Inc. | 331 | 33,878 | ||||||
BioSpecifics Technologies Corp.* | 517 | 31,330 | ||||||
Teladoc Health, Inc.* | 628 | 31,130 | ||||||
Horizon Pharma plc* | 1,572 | 30,717 | ||||||
AMN Healthcare Services, Inc.* | 532 | 30,143 | ||||||
LivaNova plc* | 324 | 29,636 | ||||||
FibroGen, Inc.* | 631 | 29,203 | ||||||
Tootsie Roll Industries, Inc. | 869 | 29,025 | ||||||
Array BioPharma, Inc.* | 1,930 | 27,502 | ||||||
Calavo Growers, Inc. | 360 | 26,266 | ||||||
Primo Water Corp.* | 1,841 | 25,792 | ||||||
iRhythm Technologies, Inc.* | 368 | 25,569 | ||||||
HealthEquity, Inc.* | 421 | 25,113 | ||||||
Cardtronics plc — Class A* | 907 | 23,582 | ||||||
WD-40 Co. | 124 | 22,724 | ||||||
Natus Medical, Inc.* | 666 | 22,664 | ||||||
Corcept Therapeutics, Inc.* | 1,607 | 21,470 | ||||||
Medpace Holdings, Inc.* | 391 | 20,696 | ||||||
Amneal Pharmaceuticals, Inc.* | 1,529 | 20,687 | ||||||
BioTelemetry, Inc.* | 343 | 20,484 | ||||||
Cal-Maine Foods, Inc. | 484 | 20,473 | ||||||
NuVasive, Inc.* | 405 | 20,072 | ||||||
Brink’s Co. | 301 | 19,460 | ||||||
Medicines Co.* | 1,007 | 19,274 | ||||||
MoneyGram International, Inc.* | 9,507 | 19,014 | ||||||
Phibro Animal Health Corp. — Class A | 591 | 19,007 | ||||||
Strategic Education, Inc. | 167 | 18,941 | ||||||
Ironwood Pharmaceuticals, Inc. — Class A* | 1,795 | 18,596 | ||||||
RadNet, Inc.* | 1,717 | 17,462 | ||||||
Repligen Corp.* | 326 | 17,193 | ||||||
CryoLife, Inc.* | 600 | 17,028 | ||||||
Acorda Therapeutics, Inc.* | 1,088 | 16,951 | ||||||
Insperity, Inc. | 181 | 16,898 | ||||||
Boston Beer Company, Inc. — Class A* | 69 | 16,618 | ||||||
Turning Point Brands, Inc. | 599 | 16,305 | ||||||
Ensign Group, Inc. | 419 | 16,253 | ||||||
Supernus Pharmaceuticals, Inc.* | 485 | 16,112 | ||||||
Quidel Corp.* | 329 | 16,062 | ||||||
Pacira Pharmaceuticals, Inc.* | 368 | 15,831 | ||||||
Monro, Inc. | 224 | 15,400 | ||||||
Heska Corp.* | 175 | 15,067 | ||||||
Korn/Ferry International | 380 | 15,025 | ||||||
Tenet Healthcare Corp.* | 849 | 14,552 | ||||||
Tivity Health, Inc.* | 576 | 14,290 | ||||||
Surmodics, Inc.* | 294 | 13,894 | ||||||
LiveRamp Holdings, Inc.* | 319 | 12,323 | ||||||
Total Consumer, Non-cyclical | 2,005,194 | |||||||
Industrial - 5.3% | ||||||||
Kaman Corp. | 1,235 | 69,271 | ||||||
Hillenbrand, Inc. | 1,749 | 66,340 | ||||||
Watts Water Technologies, Inc. — Class A | 949 | 61,239 | ||||||
EMCOR Group, Inc. | 980 | 58,497 | ||||||
Forward Air Corp. | 976 | 53,534 | ||||||
EnerSys | 672 | 52,154 | ||||||
Rexnord Corp.* | 2,272 | 52,142 | ||||||
Genesee & Wyoming, Inc. — Class A* | 606 | 44,856 | ||||||
Barnes Group, Inc. | 831 | 44,558 | ||||||
Landstar System, Inc. | 459 | 43,912 | ||||||
Moog, Inc. — Class A | 541 | 41,917 | ||||||
Saia, Inc.* | 746 | 41,642 | ||||||
Itron, Inc.* | 859 | 40,622 | ||||||
Schneider National, Inc. — Class B | 2,165 | 40,420 | ||||||
Echo Global Logistics, Inc.* | 1,911 | 38,851 | ||||||
Heartland Express, Inc. | 1,900 | 34,770 | ||||||
Woodward, Inc. | 453 | 33,653 | ||||||
Aerojet Rocketdyne Holdings, Inc.* | 935 | 32,940 | ||||||
Kennametal, Inc. | 951 | 31,650 | ||||||
Columbus McKinnon Corp. | 1,046 | 31,526 | ||||||
Werner Enterprises, Inc. | 990 | 29,245 | ||||||
Generac Holdings, Inc.* | 579 | 28,776 | ||||||
Advanced Energy Industries, Inc.* | 659 | 28,291 | ||||||
Milacron Holdings Corp.* | 2,263 | 26,907 | ||||||
Tennant Co. | 489 | 25,482 | ||||||
MasTec, Inc.* | 620 | 25,147 | ||||||
Harsco Corp.* | 1,250 | 24,825 | ||||||
Curtiss-Wright Corp. | 238 | 24,305 | ||||||
OSI Systems, Inc.* | 330 | 24,189 | ||||||
Marten Transport Ltd. | 1,375 | 22,261 | ||||||
Builders FirstSource, Inc.* | 1,943 | 21,198 | ||||||
Masonite International Corp.* | 456 | 20,442 | ||||||
Actuant Corp. — Class A | 968 | 20,318 | ||||||
JELD-WEN Holding, Inc.* | 1,399 | 19,880 | ||||||
Simpson Manufacturing Company, Inc. | 365 | 19,757 | ||||||
Axon Enterprise, Inc.* | 421 | 18,419 | ||||||
MSA Safety, Inc. | 190 | 17,911 | ||||||
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT|131 |
SCHEDULE OF INVESTMENTS(continued) | December 31, 2018 |
SERIES X (STYLEPLUS—SMALL GROWTH SERIES) |
| Shares | Value | ||||||
Advanced Drainage Systems, Inc. | 736 | $ | 17,848 | |||||
Continental Building Products, Inc.* | 701 | 17,840 | ||||||
Matson, Inc. | 546 | 17,483 | ||||||
Louisiana-Pacific Corp. | 775 | 17,221 | ||||||
Armstrong Flooring, Inc.* | 1,442 | 17,073 | ||||||
Apogee Enterprises, Inc. | 563 | 16,806 | ||||||
Global Brass & Copper Holdings, Inc. | 646 | 16,247 | ||||||
ArcBest Corp. | 471 | 16,136 | ||||||
Boise Cascade Co. | 643 | 15,336 | ||||||
Covanta Holding Corp. | 1,096 | 14,708 | ||||||
USA Truck, Inc.* | 946 | 14,162 | ||||||
Universal Logistics Holdings, Inc. | 747 | 13,513 | ||||||
Total Industrial | 1,506,220 | |||||||
Technology - 4.1% | ||||||||
MAXIMUS, Inc. | 1,131 | 73,617 | ||||||
ACI Worldwide, Inc.* | 2,307 | 63,835 | ||||||
CSG Systems International, Inc. | 1,813 | 57,599 | ||||||
j2 Global, Inc. | 786 | 54,533 | ||||||
Cornerstone OnDemand, Inc.* | 904 | 45,589 | ||||||
HubSpot, Inc.* | 356 | 44,760 | ||||||
CommVault Systems, Inc.* | 746 | 44,081 | ||||||
Medidata Solutions, Inc.* | 648 | 43,688 | ||||||
Entegris, Inc. | 1,545 | 43,098 | ||||||
TTEC Holdings, Inc. | 1,443 | 41,226 | ||||||
Bottomline Technologies DE, Inc.* | 855 | 41,040 | ||||||
Silicon Laboratories, Inc.* | 416 | 32,785 | ||||||
Progress Software Corp. | 912 | 32,367 | ||||||
New Relic, Inc.* | 389 | 31,497 | ||||||
Computer Programs & Systems, Inc. | 1,232 | 30,923 | ||||||
Blackbaud, Inc. | 476 | 29,940 | ||||||
Coupa Software, Inc.* | 474 | 29,796 | ||||||
Lumentum Holdings, Inc.* | 691 | 29,029 | ||||||
Cision Ltd.* | 2,440 | 28,548 | ||||||
Diodes, Inc.* | 877 | 28,292 | ||||||
Insight Enterprises, Inc.* | 656 | 26,732 | ||||||
Xperi Corp. | 1,438 | 26,445 | ||||||
NCR Corp.* | 1,107 | 25,550 | ||||||
Power Integrations, Inc. | 417 | 25,429 | ||||||
Omnicell, Inc.* | 406 | 24,863 | ||||||
Envestnet, Inc.* | 441 | 21,693 | ||||||
Unisys Corp.* | 1,864 | 21,678 | ||||||
Science Applications International Corp. | 333 | 21,212 | ||||||
Box, Inc. — Class A* | 1,227 | 20,712 | ||||||
Cypress Semiconductor Corp. | 1,603 | 20,390 | ||||||
Semtech Corp.* | 425 | 19,495 | ||||||
MaxLinear, Inc. — Class A* | 1,074 | 18,902 | ||||||
Cabot Microelectronics Corp. | 191 | 18,212 | ||||||
Allscripts Healthcare Solutions, Inc.* | 1,872 | 18,046 | ||||||
Inphi Corp.* | 550 | 17,682 | ||||||
Teradata Corp.* | 447 | 17,147 | ||||||
Cirrus Logic, Inc.* | 493 | 16,358 | ||||||
Total Technology | 1,186,789 | |||||||
Communications - 2.4% | ||||||||
InterDigital, Inc. | 897 | 59,588 | ||||||
Perficient, Inc.* | 2,593 | 57,720 | ||||||
Etsy, Inc.* | 1,041 | 49,520 | ||||||
HealthStream, Inc. | 1,649 | 39,823 | ||||||
AMC Networks, Inc. — Class A* | 708 | 38,855 | ||||||
Shenandoah Telecommunications Co. | 877 | 38,807 | ||||||
Yelp, Inc. — Class A* | 1,104 | 38,629 | ||||||
New York Times Co. — Class A | 1,525 | 33,992 | ||||||
Viavi Solutions, Inc.* | 2,861 | 28,753 | ||||||
World Wrestling Entertainment, Inc. — Class A | 357 | 26,675 | ||||||
Cogent Communications Holdings, Inc. | 531 | 24,007 | ||||||
LogMeIn, Inc. | 279 | 22,758 | ||||||
Liberty Media Corporation-Liberty Braves — Class A* | 907 | 22,621 | ||||||
Trade Desk, Inc. — Class A* | 186 | 21,587 | ||||||
Endurance International Group Holdings, Inc.* | 3,201 | 21,287 | ||||||
8x8, Inc.* | 1,124 | 20,277 | ||||||
NIC, Inc. | 1,602 | 19,993 | ||||||
Entravision Communications Corp. — Class A | 6,319 | 18,388 | ||||||
ePlus, Inc.* | 258 | 18,362 | ||||||
Cargurus, Inc.* | 543 | 18,315 | ||||||
Sinclair Broadcast Group, Inc. — Class A | 675 | 17,780 | ||||||
Vonage Holdings Corp.* | 1,900 | 16,587 | ||||||
CalAmp Corp.* | 1,148 | 14,935 | ||||||
Shutterfly, Inc.* | 353 | 14,212 | ||||||
Total Communications | 683,471 | |||||||
Consumer, Cyclical - 2.0% | ||||||||
Planet Fitness, Inc. — Class A* | 996 | 53,405 | ||||||
Wyndham Destinations, Inc. | 1,040 | 37,273 | ||||||
Five Below, Inc.* | 323 | 33,049 | ||||||
Nu Skin Enterprises, Inc. — Class A | 512 | 31,401 | ||||||
IMAX Corp.* | 1,666 | 31,337 | ||||||
Brinker International, Inc. | 693 | 30,478 | ||||||
Eros International plc* | 3,407 | 28,244 | ||||||
RH* | 235 | 28,158 | ||||||
Altra Industrial Motion Corp. | 1,099 | 27,640 | ||||||
BMC Stock Holdings, Inc.* | 1,517 | 23,483 | ||||||
Deckers Outdoor Corp.* | 182 | 23,287 | ||||||
Meritor, Inc.* | 1,224 | 20,698 | ||||||
Marriott Vacations Worldwide Corp. | 290 | 20,448 | ||||||
Eldorado Resorts, Inc.* | 557 | 20,169 | ||||||
Lions Gate Entertainment Corp. — Class A | 1,205 | 19,401 | ||||||
Liberty TripAdvisor Holdings, Inc. — Class A* | 1,129 | 17,940 | ||||||
BJ’s Restaurants, Inc. | 349 | 17,649 | ||||||
Wingstop, Inc. | 263 | 16,882 | ||||||
American Eagle Outfitters, Inc. | 869 | 16,798 | ||||||
Allegiant Travel Co. — Class A | 163 | 16,336 | ||||||
Dave & Buster’s Entertainment, Inc. | 350 | 15,596 | ||||||
National Vision Holdings, Inc.* | 522 | 14,705 | ||||||
Tailored Brands, Inc. | 1,009 | 13,763 | ||||||
Mobile Mini, Inc. | 421 | 13,367 | ||||||
Dine Brands Global, Inc. | 190 | 12,794 | ||||||
Total Consumer, Cyclical | 584,301 | |||||||
132|THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
SCHEDULE OF INVESTMENTS(continued) | December 31, 2018 |
SERIES X (STYLEPLUS—SMALL GROWTH SERIES) |
| Shares | Value | ||||||
Energy - 0.8% | ||||||||
Delek US Holdings, Inc. | 1,771 | $ | 57,575 | |||||
CVR Energy, Inc. | 1,396 | 48,134 | ||||||
Renewable Energy Group, Inc.* | 1,690 | 43,433 | ||||||
Par Pacific Holdings, Inc.* | 2,954 | 41,888 | ||||||
Amyris, Inc.* | 7,740 | 25,852 | ||||||
Murphy USA, Inc.* | 245 | 18,777 | ||||||
Total Energy | 235,659 | |||||||
Basic Materials - 0.3% | ||||||||
HB Fuller Co. | 446 | 19,031 | ||||||
Quaker Chemical Corp. | 102 | 18,126 | ||||||
Platform Specialty Products Corp.* | 1,667 | 17,220 | ||||||
Ferro Corp.* | 1,070 | 16,778 | ||||||
Total Basic Materials | 71,155 | |||||||
Total Common Stocks | ||||||||
(Cost $7,245,515) | 6,272,789 | |||||||
MUTUAL FUNDS† - 71.2% | ||||||||
Guggenheim Variable Insurance Strategy Fund III1 | 402,399 | 9,959,384 | ||||||
Guggenheim Strategy Fund III1 | 356,843 | 8,846,136 | ||||||
Guggenheim Strategy Fund II1 | 38,702 | 960,582 | ||||||
Guggenheim Ultra Short Duration Fund1,2 | 64,439 | 641,809 | ||||||
Total Mutual Funds | ||||||||
(Cost $20,558,780) | 20,407,911 | |||||||
MONEY MARKET FUND† - 5.5% | ||||||||
Dreyfus Treasury Securities Cash Management Fund - Institutional Class 2.20%3 | 1,565,430 | 1,565,430 | ||||||
Total Money Market Fund | ||||||||
(Cost $1,565,430) | 1,565,430 | |||||||
Total Investments - 98.6% | ||||||||
(Cost $29,369,725) | $ | 28,246,130 | ||||||
Other Assets & Liabilities, net - 1.4% | 398,167 | |||||||
Total Net Assets - 100.0% | $ | 28,644,297 | ||||||
Futures Contracts | |||||||||||||
Description | Number of | Expiration | Notional | Value and | |||||||||
Equity Futures Contracts Purchased† | |||||||||||||
S&P MidCap 400 Index Mini Futures Contracts | 3 | Mar 2019 | $ | 499,080 | $ | 11,129 | |||||||
Russell 2000 Index Mini Futures Contracts | 5 | Mar 2019 | 337,400 | 10,096 | |||||||||
| $ | 836,480 | $ | 21,225 | ||||||||||
Total Return Swap Agreements | |||||||||||||
Counterparty | Index | Financing | Payment | Maturity | Units | Notional | Value and | ||||||
OTC Equity Index Swap Agreements†† | |||||||||||||
Morgan Stanley Capital Services LLC | Russell 2000 Growth Index | 2.11 | % | At Maturity | 01/02/19 | 25,352 | $ | 21,617,495 | $ | (4,875,235 | ) | ||
* | Non-income producing security. |
** | Includes cumulative appreciation (depreciation). Variation margin is reported within the Statement of Assets and Liabilities. |
† | Value determined based on Level 1 inputs — See Note 4. |
†† | Value determined based on Level 2 inputs — See Note 4. |
1 | Affiliated issuer. |
2 | Effective November 30, 2018, Guggenheim Strategy Fund I was reorganized with and into the Guggenheim Ultra Short Duration Fund. |
3 | Rate indicated is the 7-day yield as of December 31, 2018. |
plc — Public Limited Company | |
See Sector Classification in Other Information section. |
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT|133 |
SCHEDULE OF INVESTMENTS(continued) | December 31, 2018 |
SERIES X (STYLEPLUS—SMALL GROWTH SERIES) |
The following table summarizes the inputs used to value the Fund’s investments at December 31, 2018 (See Note 4 in the Notes to Financial Statements):
Investments in Securities (Assets) | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Common Stocks | $ | 6,272,789 | $ | — | $ | — | $ | 6,272,789 | ||||||||
Mutual Funds | 20,407,911 | — | — | 20,407,911 | ||||||||||||
Money Market Fund | 1,565,430 | — | — | 1,565,430 | ||||||||||||
Equity Futures Contracts** | 21,225 | — | — | 21,225 | ||||||||||||
Total Assets | $ | 28,267,355 | $ | — | $ | — | $ | 28,267,355 | ||||||||
| ||||||||||||||||
Investments in Securities (Liabilities) | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Equity Index Swap Agreements** | $ | — | $ | 4,875,235 | $ | — | $ | 4,875,235 | ||||||||
** | This derivative is reported as unrealized appreciation/depreciation at period end. |
Transfers between investment levels may occur as the markets fluctuate and/or the availability of data used in an investment’s valuation changes. Transfers between valuation levels, if any, are in comparison to the valuation levels at the end of the previous fiscal year, and are effective using the fair value as of the end of the current fiscal period.
For the year ended December 31, 2018, there were no transfers between levels.
134|THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
SCHEDULE OF INVESTMENTS(concluded) | December 31, 2018 |
SERIES X (STYLEPLUS—SMALL GROWTH SERIES) |
Affiliated Transactions
Investments representing 5% or more of the outstanding voting shares of a company, or control of or by, or common control under Guggenheim Investments (“GI”), result in that company being considered an affiliated issuer, as defined in the 1940 Act.
The Fund may invest in certain of the underlying series of Guggenheim Strategy Funds Trust, including Guggenheim Strategy Fund II, Guggenheim Strategy Fund III, and Guggenheim Variable Insurance Strategy Fund III, (collectively, the “Cash Management Funds”), each of which are 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, 2018, is available publicly or upon request. This information is available from the EDGAR database on the SEC’s website at https://www.sec.gov/Archives/edgar/data/1601445/000089180418000513/gug75569-ncsr.htm.
Transactions during the year ended December 31, 2018, in which the company is an “affiliated person”, were as follows:
Security Name | Value | Additions | Reductions | Realized | Change in | Value | Shares | Investment | Capital Gain | |||||||||||||||||||||||||||
Mutual Funds | ||||||||||||||||||||||||||||||||||||
Guggenheim Strategy Fund II | $ | 4,594,307 | $ | 1,880,373 | $ | (5,495,354 | ) | �� | $ | 9,830 | $ | (28,574 | ) | $ | 960,582 | 38,702 | $ | 105,863 | $ | 1,186 | ||||||||||||||||
Guggenheim Strategy Fund III | 10,803,816 | 315,950 | (2,182,968 | ) | 2,661 | (93,323 | ) | 8,846,136 | 356,843 | 314,904 | 364 | |||||||||||||||||||||||||
Guggenheim Ultra Short Duration Fund1 | 3,804,188 | 2,900,670 | (6,057,309 | ) | 4,828 | (10,568 | ) | 641,809 | 64,439 | 61,832 | 465 | |||||||||||||||||||||||||
Guggenheim Variable Insurance Strategy Fund III | 9,706,847 | 2,101,938 | (1,696,982 | ) | 193 | (152,612 | ) | 9,959,384 | 402,399 | 386,240 | 4,985 | |||||||||||||||||||||||||
| $ | 28,909,158 | $ | 7,198,931 | $ | (15,432,613 | ) | $ | 17,512 | $ | (285,077 | ) | $ | 20,407,911 | $ | 868,839 | $ | 7,000 | |||||||||||||||||||
1 | Effective November 30, 2018, Guggenheim Strategy Fund I was reorganized with and into the Guggenheim Ultra Short Duration Fund. |
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT|135 |
SERIES X (STYLEPLUS—SMALL GROWTH SERIES) |
STATEMENT OF ASSETS AND LIABILITIES |
December 31, 2018 |
Assets: | ||||
Investments in unaffiliated issuers, at value (cost $8,810,945) | $ | 7,838,219 | ||
Investments in affiliated issuers, at value (cost $20,558,780) | 20,407,911 | |||
Cash | 15,298 | |||
Segregated cash with broker | 5,473,369 | |||
Prepaid expenses | 4,662 | |||
Receivables: | ||||
Dividends | 43,820 | |||
Variation margin on futures contracts | 7,485 | |||
Investment Adviser | 7,373 | |||
Interest | 2,571 | |||
Fund shares sold | 522 | |||
Total assets | 33,801,230 | |||
Liabilities: | ||||
Unrealized depreciation on swap agreements | 4,875,235 | |||
Payable for: | ||||
Swap settlement | 174,146 | |||
Securities purchased | 43,510 | |||
Fund shares redeemed | 6,345 | |||
Distribution and service fees | 5,933 | |||
Transfer agent/maintenance fees | 2,398 | |||
Fund accounting/administration fees | 1,899 | |||
Trustees’ fees* | 1,098 | |||
Miscellaneous | 46,369 | |||
Total liabilities | 5,156,933 | |||
Commitments and contingent liabilities (Note 15) | — | |||
Net assets | $ | 28,644,297 | ||
Net assets consist of: | ||||
Paid in capital | $ | 31,085,146 | ||
Total distributable earnings (loss) | (2,440,849 | ) | ||
Net assets | $ | 28,644,297 | ||
Capital shares outstanding | 927,769 | |||
Net asset value per share | $ | 30.87 | ||
STATEMENT OF OPERATIONS |
Year Ended December 31, 2018 |
Investment Income: | ||||
Dividends from securities of unaffiliated issuers (net of foreign withholding tax of $115) | $ | 55,791 | ||
Dividends from securities of affiliated issuers | 868,839 | |||
Interest | 22,768 | |||
Total investment income | 947,398 | |||
Expenses: | ||||
Management fees | 280,263 | |||
Distribution and service fees | 93,421 | |||
Transfer agent/maintenance fees | 25,532 | |||
Printing expenses | 31,558 | |||
Fund accounting/administration fees | 29,895 | |||
Interest expense | 21,120 | |||
Trustees’ fees* | 15,815 | |||
Custodian fees | 9,501 | |||
Line of credit fees | 1,253 | |||
Miscellaneous | 41,244 | |||
Recoupment of previously waived fees | 62 | |||
Total expenses | 549,664 | |||
Less: | ||||
Expenses reimbursed by Adviser | (8,144 | ) | ||
Expenses waived by Adviser | (124,397 | ) | ||
Total expenses waived/reimbursed | (132,541 | ) | ||
Net expenses | 417,123 | |||
Net investment income | 530,275 | |||
Net Realized and Unrealized Gain (Loss): | ||||
Net realized gain (loss) on: | ||||
Investments in unaffiliated issuers | 1,166,513 | |||
Investments in affiliated issuers | 17,512 | |||
Distributions received from affiliated investment company shares | 7,000 | |||
Swap agreements | 3,270,600 | |||
Futures contracts | (60,495 | ) | ||
Net realized gain | 4,401,130 | |||
Net change in unrealized appreciation (depreciation) on: | ||||
Investments in unaffiliated issuers | (1,611,041 | ) | ||
Investments in affiliated issuers | (285,077 | ) | ||
Swap agreements | (5,748,899 | ) | ||
Futures contracts | 11,611 | |||
Net change in unrealized appreciation (depreciation) | (7,633,406 | ) | ||
Net realized and unrealized loss | (3,232,276 | ) | ||
Net decrease in net assets resulting from operations | $ | (2,702,001 | ) | |
* | 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 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 | $ | 530,275 | $ | 360,787 | ||||
Net realized gain on investments | 4,401,130 | 6,820,362 | ||||||
Net change in unrealized appreciation (depreciation) on investments | (7,633,406 | ) | 199,630 | |||||
Net increase (decrease) in net assets resulting from operations | (2,702,001 | ) | 7,380,779 | |||||
Distributions to shareholders | (5,483,772 | ) | (267,944 | )1 | ||||
Capital share transactions: | ||||||||
Proceeds from sale of shares | 1,853,913 | 3,220,199 | ||||||
Distributions reinvested | 5,483,772 | 267,944 | ||||||
Cost of shares redeemed | (10,067,145 | ) | (5,257,634 | ) | ||||
Net decrease from capital share transactions | (2,729,460 | ) | (1,769,491 | ) | ||||
Net increase (decrease) in net assets | (10,915,233 | ) | 5,343,344 | |||||
Net assets: | ||||||||
Beginning of year | 39,559,530 | 34,216,186 | ||||||
End of year | $ | 28,644,297 | $ | 39,559,530 | ||||
Capital share activity: | ||||||||
Shares sold | 46,425 | 89,564 | ||||||
Shares issued from reinvestment of distributions | 140,429 | 7,333 | ||||||
Shares redeemed | (243,287 | ) | (146,945 | ) | ||||
Net decrease in shares | (56,433 | ) | (50,048 | ) | ||||
1 | For the year ended December 31, 2017, the distributions to shareholders were all from net investment income (See Note 13). |
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT|137 |
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 | $ | 40.19 | $ | 33.08 | $ | 31.03 | $ | 31.77 | $ | 29.20 | ||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||
Net investment income (loss)a | .56 | .36 | .25 | .10 | .22 | |||||||||||||||
Net gain (loss) on investments (realized and unrealized) | (3.33 | ) | 7.02 | 3.74 | (.47 | ) | 2.35 | |||||||||||||
Total from investment operations | (2.77 | ) | 7.38 | 3.99 | (.37 | ) | 2.57 | |||||||||||||
Less distributions from: | ||||||||||||||||||||
Net investment income | (.43 | ) | (.27 | ) | (.13 | ) | (.27 | ) | — | |||||||||||
Net realized gains | (6.12 | ) | — | (1.81 | ) | (.10 | ) | — | ||||||||||||
Total distributions | (6.55 | ) | (.27 | ) | (1.94 | ) | (.37 | ) | — | |||||||||||
Net asset value, end of period | $ | 30.87 | $ | 40.19 | $ | 33.08 | $ | 31.03 | $ | 31.77 | ||||||||||
| ||||||||||||||||||||
Total Returnb | (10.30 | %) | 22.38 | % | 13.45 | % | (1.29 | %) | 8.80 | % | ||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||
Net assets, end of period (in thousands) | $ | 28,644 | $ | 39,560 | $ | 34,216 | $ | 38,601 | $ | 37,005 | ||||||||||
Ratios to average net assets: | ||||||||||||||||||||
Net investment income (loss) | 1.42 | % | 0.99 | % | 0.83 | % | 0.32 | % | 0.74 | % | ||||||||||
Total expensesc | 1.47 | % | 1.37 | % | 1.23 | % | 1.21 | % | 1.26 | % | ||||||||||
Net expensesd,e,f | 1.12 | % | 1.10 | % | 1.23 | % | 1.21 | % | 1.24 | % | ||||||||||
Portfolio turnover rate | 65 | % | 50 | % | 76 | % | 79 | % | 102 | % | ||||||||||
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 and reimbursements, as applicable. |
e | Net expenses may include expenses that are excluded from the expense limitation agreement and affiliated fee waivers. Excluding these expenses, the net expense ratios for the years would be: |
12/31/18 | 12/31/17 | 12/31/16 | 12/31/15 | 12/31/14 |
1.06% | 1.09% | 1.23% | 1.21% | 1.24% |
f | The portion of the ratios of net expenses to average net assets attributable to recoupments of prior fee reductions of expense reimbursements for the years presented was as follows: |
12/31/18 | 12/31/17 | 12/31/16 |
0.00%* | — | — |
* | Less than 0.01% |
138|THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
MANAGERS’ COMMENTARY(Unaudited) | December 31, 2018 |
To Our Shareholders:
The Series Y (StylePlusTM—Large Growth Series) is managed by a team of seasoned professionals, including Farhan Sharaff, Senior Managing Director and Assistant Chief Investment Officer, Equities; Jayson Flowers, Senior Managing Director and Portfolio Manager; Qi Yan, Managing Director and Portfolio Manager; and Adam Bloch, Director and Portfolio Manager. In the following paragraphs, the investment team discusses performance for the fiscal year ended December 31, 2018.
For the year ended December 31, 2018, Series Y (StylePlus—Large Growth Series) returned -3.68%, compared with the -1.51% return of its benchmark, the Russell 1000 Growth Index.
Investment Approach
Through a combination of 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 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 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
Over the period, from 15-25% of the total equity position was allocated to actively managed equity and 75-85% to passive equity. Remaining Fund assets were invested in the Guggenheim Strategy Funds, short-term fixed income investment companies advised by Guggenheim Investments, and the Guggenheim Ultra Short Duration Fund, whose objective is to seek a high level of income consistent with the preservation of capital.
The Fund underperformed the Russell 1000 Growth Index for the year ended December 31, 2018. The fixed income sleeve was the only contributor, as positions in the Guggenheim Ultra Short Duration Fund and the Guggenheim Strategy Funds, which held asset-backed securities, investment-grade corporates, and Non-Agency residential mortgage-backed securities, constituted the majority of the Fund’s total return. The actively managed equity sleeve detracted from performance. The passive equity position, maintained through swap agreements and futures contracts, had a negligible impact on 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.
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, 2018 |
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, investments in Guggenheim Strategy Funds Trust mutual funds, or investments in Guggenheim Ultra Short Duration Fund.
Inception Date:May 3, 1999 |
Ten Largest Holdings (% of Total Net Assets) | |
Guggenheim Variable Insurance Strategy Fund III | 35.1% |
Guggenheim Strategy Fund III | 28.6% |
Guggenheim Strategy Fund II | 4.8% |
Guggenheim Ultra Short Duration Fund | 3.2% |
Apple, Inc. | 1.5% |
Microsoft Corp. | 1.4% |
Alphabet, Inc. — Class C | 1.1% |
Amazon.com, Inc. | 1.0% |
PepsiCo, Inc. | 0.5% |
Facebook, Inc. — Class A | 0.5% |
Top Ten Total | 77.7% |
“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, 2018 |
Cumulative Fund Performance*,†
Average Annual Returns*,†
Periods Ended December 31, 2018
| 1 Year | 5 Year | 10 Year |
Series Y (StylePlus—Large Growth Series) | (3.68%) | 10.63% | 13.35% |
Russell 1000 Growth Index | (1.51%) | 10.40% | 15.29% |
* | 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 | 141 |
SCHEDULE OF INVESTMENTS | December 31, 2018 |
SERIES Y (STYLEPLUS—LARGE GROWTH SERIES) |
| Shares | Value | ||||||
COMMON STOCKS† - 21.6% | ||||||||
Technology - 6.3% | ||||||||
Apple, Inc. | 2,999 | $ | 473,062 | |||||
Microsoft Corp. | 4,472 | 454,221 | ||||||
Citrix Systems, Inc. | 820 | 84,017 | ||||||
Texas Instruments, Inc. | 849 | 80,230 | ||||||
Oracle Corp. | 1,712 | 77,297 | ||||||
Accenture plc — Class A | 548 | 77,274 | ||||||
Cognizant Technology Solutions Corp. — Class A | 1,199 | 76,113 | ||||||
NetApp, Inc. | 1,115 | 66,532 | ||||||
Fidelity National Information Services, Inc. | 538 | 55,172 | ||||||
International Business Machines Corp. | 441 | 50,128 | ||||||
Applied Materials, Inc. | 1,293 | 42,333 | ||||||
Activision Blizzard, Inc. | 890 | 41,447 | ||||||
Skyworks Solutions, Inc. | 599 | 40,145 | ||||||
NCR Corp.* | 1,468 | 33,881 | ||||||
Lam Research Corp. | 242 | 32,953 | ||||||
KLA-Tencor Corp. | 359 | 32,127 | ||||||
Zebra Technologies Corp. — Class A* | 194 | 30,891 | ||||||
Maxim Integrated Products, Inc. | 579 | 29,442 | ||||||
Broadcom, Inc. | 107 | 27,208 | ||||||
ON Semiconductor Corp.* | 1,541 | 25,442 | ||||||
Analog Devices, Inc. | 290 | 24,891 | ||||||
Cypress Semiconductor Corp. | 1,762 | 22,413 | ||||||
Teradyne, Inc. | 684 | 21,464 | ||||||
Electronic Arts, Inc.* | 270 | 21,306 | ||||||
DXC Technology Co. | 383 | 20,364 | ||||||
NXP Semiconductor N.V. | 255 | 18,686 | ||||||
NVIDIA Corp. | 137 | 18,290 | ||||||
Micron Technology, Inc.* | 536 | 17,007 | ||||||
Total Technology | 1,994,336 | |||||||
Consumer, Non-cyclical - 5.3% | ||||||||
PepsiCo, Inc. | 1,373 | 151,689 | ||||||
Amgen, Inc. | 708 | 137,826 | ||||||
Altria Group, Inc. | 2,387 | 117,894 | ||||||
UnitedHealth Group, Inc. | 467 | 116,339 | ||||||
Kimberly-Clark Corp. | 824 | 93,887 | ||||||
McKesson Corp. | 756 | 83,515 | ||||||
Humana, Inc. | 281 | 80,501 | ||||||
Sysco Corp. | 1,259 | 78,889 | ||||||
HCA Healthcare, Inc. | 527 | 65,585 | ||||||
Western Union Co. | 3,466 | 59,130 | ||||||
AbbVie, Inc. | 603 | 55,590 | ||||||
Sabre Corp. | 2,521 | 54,555 | ||||||
CoreLogic, Inc.* | 1,241 | 41,474 | ||||||
Gilead Sciences, Inc. | 627 | 39,219 | ||||||
US Foods Holding Corp.* | 1,149 | 36,354 | ||||||
Herbalife Nutrition Ltd.* | 573 | 33,778 | ||||||
Cardinal Health, Inc. | 708 | 31,577 | ||||||
Laboratory Corporation of America Holdings* | 233 | 29,442 | ||||||
Regeneron Pharmaceuticals, Inc.* | 69 | 25,771 | ||||||
Post Holdings, Inc.* | 262 | 23,352 | ||||||
Zoetis, Inc. | 266 | 22,754 | ||||||
Brown-Forman Corp. — Class B | 477 | 22,696 | ||||||
Coca-Cola Co. | 479 | 22,681 | ||||||
DaVita, Inc.* | 437 | 22,488 | ||||||
Centene Corp.* | 195 | 22,483 | ||||||
McCormick & Company, Inc. | 160 | 22,279 | ||||||
Biogen, Inc.* | 74 | 22,268 | ||||||
Estee Lauder Companies, Inc. — Class A | 170 | 22,117 | ||||||
Edwards Lifesciences Corp.* | 141 | 21,597 | ||||||
Stryker Corp. | 131 | 20,534 | ||||||
Intuitive Surgical, Inc.* | 42 | 20,115 | ||||||
AmerisourceBergen Corp. — Class A | 267 | 19,865 | ||||||
Alexion Pharmaceuticals, Inc.* | 199 | 19,375 | ||||||
Constellation Brands, Inc. — Class A | 120 | 19,298 | ||||||
Cigna Corp. | 77 | 14,624 | ||||||
Total Consumer, Non-cyclical | 1,671,541 | |||||||
Communications - 3.5% | ||||||||
Alphabet, Inc. — Class C* | 323 | 334,502 | ||||||
Amazon.com, Inc.* | 219 | 328,931 | ||||||
Facebook, Inc. — Class A* | 1,110 | 145,510 | ||||||
Walt Disney Co. | 668 | 73,246 | ||||||
Omnicom Group, Inc. | 999 | 73,167 | ||||||
AMC Networks, Inc. — Class A* | 1,016 | 55,758 | ||||||
Netflix, Inc.* | 129 | 34,528 | ||||||
Motorola Solutions, Inc. | 245 | 28,185 | ||||||
F5 Networks, Inc.* | 133 | 21,550 | ||||||
Total Communications | 1,095,377 | |||||||
Industrial - 3.3% | ||||||||
Union Pacific Corp. | 836 | 115,560 | ||||||
Caterpillar, Inc. | 882 | 112,076 | ||||||
FedEx Corp. | 465 | 75,019 | ||||||
CSX Corp. | 1,112 | 69,089 | ||||||
Parker-Hannifin Corp. | 444 | 66,218 | ||||||
Textron, Inc. | 1,418 | 65,214 | ||||||
Masco Corp. | 2,225 | 65,059 | ||||||
Cummins, Inc. | 464 | 62,009 | ||||||
Expeditors International of Washington, Inc. | 860 | 58,557 | ||||||
CH Robinson Worldwide, Inc. | 694 | 58,359 | ||||||
Boeing Co. | 176 | 56,760 | ||||||
Huntington Ingalls Industries, Inc. | 283 | 53,858 | ||||||
Genesee & Wyoming, Inc. — Class A* | 699 | 51,740 | ||||||
XPO Logistics, Inc.* | 786 | 44,833 | ||||||
Old Dominion Freight Line, Inc. | 288 | 35,565 | ||||||
Landstar System, Inc. | 272 | 26,022 | ||||||
FLIR Systems, Inc. | 501 | 21,813 | ||||||
J.B. Hunt Transport Services, Inc. | 230 | 21,399 | ||||||
Total Industrial | 1,059,150 | |||||||
Consumer, Cyclical - 1.5% | ||||||||
HD Supply Holdings, Inc.* | 2,010 | 75,415 | ||||||
Allison Transmission Holdings, Inc. | 1,578 | 69,290 | ||||||
Home Depot, Inc. | 397 | 68,213 | ||||||
Southwest Airlines Co. | 1,271 | 59,076 | ||||||
Delta Air Lines, Inc. | 1,090 | 54,391 | ||||||
Lions Gate Entertainment Corp. — Class A | 2,031 | 32,699 | ||||||
142|THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
SCHEDULE OF INVESTMENTS(continued) | December 31, 2018 |
SERIES Y (STYLEPLUS—LARGE GROWTH SERIES) |
| Shares | Value | ||||||
Dollar General Corp. | 220 | $ | 23,778 | |||||
NIKE, Inc. — Class B | 320 | 23,725 | ||||||
Lowe’s Companies, Inc. | 254 | 23,459 | ||||||
Costco Wholesale Corp. | 103 | 20,982 | ||||||
TJX Companies, Inc. | 430 | 19,238 | ||||||
Best Buy Company, Inc. | 355 | 18,801 | ||||||
Garrett Motion, Inc.* | 61 | 753 | ||||||
Total Consumer, Cyclical | 489,820 | |||||||
Energy - 0.8% | ||||||||
ONEOK, Inc. | 1,403 | 75,692 | ||||||
Cheniere Energy, Inc.* | 1,148 | 67,950 | ||||||
Anadarko Petroleum Corp. | 1,211 | 53,090 | ||||||
Continental Resources, Inc.* | 496 | 19,935 | ||||||
Halliburton Co. | 735 | 19,536 | ||||||
Total Energy | 236,203 | |||||||
Basic Materials - 0.5% | ||||||||
International Paper Co. | 1,404 | 56,665 | ||||||
Westlake Chemical Corp. | 776 | 51,348 | ||||||
Linde plc | 148 | 23,094 | ||||||
LyondellBasell Industries N.V. — Class A | 255 | 21,206 | ||||||
Chemours Co. | 613 | 17,299 | ||||||
Total Basic Materials | 169,612 | |||||||
Financial - 0.4% | ||||||||
Visa, Inc. — Class A | 709 | 93,545 | ||||||
Mastercard, Inc. — Class A | 186 | 35,089 | ||||||
Total Financial | 128,634 | |||||||
Total Common Stocks | ||||||||
(Cost $7,178,240) | 6,844,673 | |||||||
MUTUAL FUNDS† - 71.7% | ||||||||
Guggenheim Variable Insurance Strategy Fund III1 | 450,201 | 11,142,480 | ||||||
Guggenheim Strategy Fund III1 | 366,186 | 9,077,761 | ||||||
Guggenheim Strategy Fund II1 | 61,482 | 1,525,973 | ||||||
Guggenheim Ultra Short Duration Fund1,3 | 102,577 | 1,021,666 | ||||||
Total Mutual Funds | ||||||||
(Cost $22,961,288) | 22,767,880 | |||||||
MONEY MARKET FUND† - 5.1% | ||||||||
Dreyfus Treasury Securities Cash Management — Institutional Shares 2.20%2 | 1,618,648 | 1,618,648 | ||||||
Total Money Market Fund | ||||||||
(Cost $1,618,648) | 1,618,648 | |||||||
Total Investments - 98.4% | ||||||||
(Cost $31,758,176) | $ | 31,231,201 | ||||||
Other Assets & Liabilities, net - 1.6% | 505,844 | |||||||
Total Net Assets - 100.0% | $ | 31,737,045 | ||||||
Futures Contracts | |||||||||||||
Description | Number of | Expiration | Notional | Value and | |||||||||
Equity Futures Contracts Purchased† | |||||||||||||
S&P 500 Index Mini Futures Contracts | 1 | Mar 2019 | $ | 125,475 | $ | (1,406 | ) | ||||||
Total Return Swap Agreements | |||||||||||||||||||
Counterparty | Index | Financing | Payment | Maturity | Units | Notional | Value and | ||||||||||||
OTC Equity Index Swap Agreements†† | |||||||||||||||||||
Wells Fargo Bank, N.A | Russell 1000 Growth Index | 2.58 | % | At Maturity | 01/02/19 | 19,092 | $ | 25,098,725 | $ | (2,570,337 | ) | ||||||||
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT|143 |
SCHEDULE OF INVESTMENTS | December 31, 2018 |
SERIES Y (STYLEPLUS—LARGE GROWTH SERIES) |
* | Non-income producing security. |
** | Includes cumulative appreciation (depreciation). Variation margin is reported within the Statement of Assets and Liabilities. |
† | Value determined based on Level 1 inputs — See Note 4. |
†† | Value determined based on Level 2 inputs — See Note 4. |
1 | Affiliated issuer. |
2 | Rate indicated is the 7-day yield as of December 31, 2018. |
3 | Effective November 30, 2018, Guggenheim Strategy Fund I was reorganized with and into the Guggenheim Ultra Short Duration Fund. |
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, 2018 (See Note 4 in the Notes to Financial Statements):
Investments in Securities (Assets) | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Common Stocks | $ | 6,844,673 | $ | — | $ | — | $ | 6,844,673 | ||||||||
Mutual Funds | 22,767,880 | — | — | 22,767,880 | ||||||||||||
Money Market Fund | 1,618,648 | — | — | 1,618,648 | ||||||||||||
Total Assets | $ | 31,231,201 | $ | — | $ | — | $ | 31,231,201 | ||||||||
| ||||||||||||||||
Investments in Securities (Liabilities) | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Equity Futures Contracts** | $ | 1,406 | $ | — | $ | — | $ | 1,406 | ||||||||
Equity Index Swap Agreements** | — | 2,570,337 | — | 2,570,337 | ||||||||||||
Total Liabilities | $ | 1,406 | $ | 2,570,337 | $ | — | $ | 2,571,743 | ||||||||
** | This derivative is reported as unrealized appreciation/depreciation at period end. |
Transfers between investment levels may occur as the markets fluctuate and/or the availability of data used in an investment’s valuation changes. Transfers between valuation levels, if any, are in comparison to the valuation levels at the end of the previous fiscal year, and are effective using the fair value as of the end of the current fiscal period.
For the year ended December 31, 2018, there were no transfers between levels.
144|THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
SCHEDULE OF INVESTMENTS(concluded) | December 31, 2018 |
SERIES Y (STYLEPLUS—LARGE GROWTH SERIES) |
Affiliated Transactions
Investments representing 5% or more of the outstanding voting shares of a company, or control of or by, or common control under Guggenheim Investments (“GI”), result in that company being considered an affiliated issuer, as defined in the 1940 Act.
The Fund may invest in certain of the underlying series of Guggenheim Strategy Funds Trust, including Guggenheim Strategy Fund II, Guggenheim Strategy Fund III, and Guggenheim Variable Insurance Strategy Fund III, (collectively, the “Cash Management Funds”), each of which are 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, 2018, is available publicly or upon request. This information is available from the EDGAR database on the SEC’s website at https://www.sec.gov/Archives/edgar/data/1601445/000089180418000513/gug75569-ncsr.htm.
Transactions during the year ended December 31, 2018, in which the company is an “affiliated person”, were as follows:
Security Name | Value | Additions | Reductions | Realized | Change in | Value | Shares | Investment | Capital Gain | |||||||||||||||||||||||||||
Mutual Funds | ||||||||||||||||||||||||||||||||||||
Guggenheim Strategy Fund II | $ | 6,940,957 | $ | 1,686,585 | $ | (7,082,461 | ) | $ | 27,719 | $ | (46,827 | ) | $ | 1,525,973 | 61,482 | $ | 125,516 | $ | 1,258 | |||||||||||||||||
Guggenheim Strategy Fund III | 14,261,267 | 374,944 | (5,461,058 | ) | 12,770 | (110,162 | ) | 9,077,761 | 366,186 | 374,010 | 389 | |||||||||||||||||||||||||
Guggenheim Ultra Short Duration Fund1 | 4,517,430 | 4,523,809 | (8,009,748 | ) | 8,648 | (18,473 | ) | 1,021,666 | 102,577 | 60,844 | 1,105 | |||||||||||||||||||||||||
Guggenheim Variable Insurance Strategy Fund III | 12,792,600 | 2,789,989 | (4,269,967 | ) | 13,005 | (183,147 | ) | 11,142,480 | 450,201 | 449,913 | 5,489 | |||||||||||||||||||||||||
| $ | 38,512,254 | $ | 9,375,327 | $ | (24,823,234 | ) | $ | 62,142 | $ | (358,609 | ) | $ | 22,767,880 | $ | 1,010,283 | $ | 8,241 | |||||||||||||||||||
1 | Effective November 30, 2018, Guggenheim Strategy Fund I was reorganized with and into the Guggenheim Ultra Short Duration Fund. |
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT|145 |
SERIES Y (STYLEPLUS—LARGE GROWTH SERIES) |
STATEMENT OF ASSETS AND LIABILITIES |
December 31, 2018 |
Assets: | ||||
Investments in unaffiliated issuers, at value (cost $8,796,888) | $ | 8,463,321 | ||
Investments in affiliated issuers, at value (cost $22,961,288) | 22,767,880 | |||
Cash | 444 | |||
Segregated cash with broker | 3,310,000 | |||
Prepaid expenses | 4,704 | |||
Receivables: | ||||
Dividends | 53,515 | |||
Investment Adviser | 9,200 | |||
Securities sold | 6,000 | |||
Fund shares sold | 5,966 | |||
Interest | 2,324 | |||
Variation margin on futures contracts | 1,175 | |||
Total assets | 34,624,529 | |||
Liabilities: | ||||
Segregated cash due to broker | 44,800 | |||
Unrealized depreciation on swap agreements | 2,570,337 | |||
Payable for: | ||||
Swap settlement | 157,138 | |||
Securities purchased | 48,127 | |||
Fund shares redeemed | 8,630 | |||
Distribution and service fees | 6,551 | |||
Transfer agent/maintenance fees | 2,415 | |||
Fund accounting/administration fees | 2,096 | |||
Trustees’ fees* | 1,299 | |||
Due to Investment Adviser | 65 | |||
Miscellaneous | 46,026 | |||
Total liabilities | 2,887,484 | |||
Commitments and contingent liabilities (Note 15) | — | |||
Net assets | $ | 31,737,045 | ||
Net assets consist of: | ||||
Paid in capital | $ | 30,966,798 | ||
Total distributable earnings (loss) | 770,247 | |||
Net assets | $ | 31,737,045 | ||
Capital shares outstanding | 1,927,323 | |||
Net asset value per share | $ | 16.47 | ||
STATEMENT OF OPERATIONS |
Year Ended December 31, 2018 |
Investment Income: | ||||
Dividends from securities of unaffiliated issuers (net of foreign withholding tax of $101) | $ | 125,748 | ||
Dividends from securities of affiliated issuers | 1,010,283 | |||
Interest | 23,154 | |||
Total investment income | 1,159,185 | |||
Expenses: | ||||
Management fees | 277,528 | |||
Distribution and service fees | 106,742 | |||
Transfer agent/maintenance fees | 25,647 | |||
Printing expenses | 37,400 | |||
Interest expense | 35,021 | |||
Fund accounting/administration fees | 34,158 | |||
Trustees’ fees* | 14,538 | |||
Custodian fees | 8,336 | |||
Line of credit fees | 1,821 | |||
Miscellaneous | 46,449 | |||
Recoupment of previously waived fees | 65 | |||
Total expenses | 587,705 | |||
Less: | ||||
Expenses reimbursed by Adviser | (10,095 | ) | ||
Expenses waived by Adviser | (144,005 | ) | ||
Total waived/reimbursed expenses | (154,100 | ) | ||
Net expenses | 433,605 | |||
Net investment income | 725,580 | |||
Net Realized and Unrealized Gain (Loss): | ||||
Net realized gain (loss) on: | ||||
Investments in unaffiliated issuers | 782,379 | |||
Investments in affiliated issuers | 62,142 | |||
Distributions received from affiliated investment company shares | 8,241 | |||
Swap agreements | 5,469,146 | |||
Futures contracts | (48,360 | ) | ||
Net realized gain | 6,273,548 | |||
Net change in unrealized appreciation (depreciation) on: | ||||
Investments in unaffiliated issuers | (1,314,401 | ) | ||
Investments in affiliated issuers | (358,609 | ) | ||
Swap agreements | (5,255,815 | ) | ||
Futures contracts | (3,264 | ) | ||
Net change in unrealized appreciation (depreciation) | (6,932,089 | ) | ||
Net realized and unrealized loss | (658,541 | ) | ||
Net increase in net assets resulting from operations | $ | 67,039 | ||
* | Relates to Trustees not deemed “interested persons” within the meaning of Section 2(a)(19) of the 1940 Act. |
146|THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
SERIES Y (STYLEPLUS—LARGE GROWTH SERIES) |
STATEMENTS OF CHANGES IN NET ASSETS |
| Year Ended | Year Ended | ||||||
Increase (Decrease) in Net Assets from Operations: | ||||||||
Net investment income | $ | 725,580 | $ | 596,477 | ||||
Net realized gain on investments | 6,273,548 | 7,742,154 | ||||||
Net change in unrealized appreciation (depreciation) on investments | (6,932,089 | ) | 3,128,375 | |||||
Net increase in net assets resulting from operations | 67,039 | 11,467,006 | ||||||
Distributions to shareholders | (6,149,452 | ) | (436,012 | )1 | ||||
Capital share transactions: | ||||||||
Proceeds from sale of shares | 4,400,491 | 6,762,793 | ||||||
Distributions reinvested | 6,149,452 | 436,012 | ||||||
Cost of shares redeemed | (20,903,247 | ) | (8,622,204 | ) | ||||
Net decrease from capital share transactions | (10,353,304 | ) | (1,423,399 | ) | ||||
Net increase (decrease) in net assets | (16,435,717 | ) | 9,607,595 | |||||
Net assets: | ||||||||
Beginning of year | 48,172,762 | 38,565,167 | ||||||
End of year | $ | 31,737,045 | $ | 48,172,762 | ||||
Capital share activity: | ||||||||
Shares sold | 220,024 | 369,962 | ||||||
Shares issued from reinvestment of distributions | 325,368 | 23,957 | ||||||
Shares redeemed | (991,652 | ) | (468,889 | ) | ||||
Net decrease in shares | (446,260 | ) | (74,970 | ) | ||||
1 | For the year ended December 31, 2017, the distributions to shareholders were all from net investment income (See Note 13). |
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT|147 |
SERIES Y (STYLEPLUS—LARGE GROWTH SERIES) |
FINANCIAL HIGHLIGHTS |
This table is presented to show selected data for a share outstanding throughout each period and to assist shareholders in evaluating a Fund’s performance for the periods presented.
| Year Ended | Year Ended | Year Ended | Year Ended | Year Ended | |||||||||||||||
Per Share Data | ||||||||||||||||||||
Net asset value, beginning of period | $ | 20.30 | $ | 15.75 | $ | 15.11 | $ | 15.58 | $ | 13.52 | ||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||
Net investment income (loss)a | .34 | .25 | .17 | .08 | .15 | |||||||||||||||
Net gain (loss) on investments (realized and unrealized) | (.63 | ) | 4.48 | 1.13 | .79 | 1.91 | ||||||||||||||
Total from investment operations | (.29 | ) | 4.73 | 1.30 | .87 | 2.06 | ||||||||||||||
Less distributions from: | ||||||||||||||||||||
Net investment income | (.34 | ) | (.18 | ) | (.08 | ) | (.17 | ) | — | |||||||||||
Net realized gains | (3.20 | ) | — | (.58 | ) | (1.17 | ) | — | ||||||||||||
Total distributions | (3.54 | ) | (.18 | ) | (.66 | ) | (1.34 | ) | — | |||||||||||
Net asset value, end of period | $ | 16.47 | $ | 20.30 | $ | 15.75 | $ | 15.11 | $ | 15.58 | ||||||||||
| ||||||||||||||||||||
Total Returnb | (3.68 | %) | 30.11 | % | 8.72 | % | 5.49 | % | 15.24 | % | ||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||
Net assets, end of period (in thousands) | $ | 31,737 | $ | 48,173 | $ | 38,565 | $ | 40,178 | $ | 36,942 | ||||||||||
Ratios to average net assets: | ||||||||||||||||||||
Net investment income (loss) | 1.70 | % | 1.36 | % | 1.14 | % | 0.52 | % | 1.05 | % | ||||||||||
Total expensesc | 1.38 | % | 1.20 | % | 1.04 | % | 1.15 | % | 1.18 | % | ||||||||||
Net expensesd,e,f | 1.02 | % | 0.97 | % | 1.04 | % | 1.15 | % | 1.16 | % | ||||||||||
Portfolio turnover rate | 59 | % | 43 | % | 42 | % | 65 | % | 96 | % | ||||||||||
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 and reimbursements, as applicable. |
e | Net expenses may include expenses that are excluded from the expense limitation agreement and affiliated fee waivers. Excluding these expenses, the net expense ratios for the years would be: |
12/31/18 | 12/31/17 | 12/31/16 | 12/31/15 | 12/31/14 |
0.93% | 0.97% | 1.04% | 1.15% | 1.16% |
f | The portion of the ratios of net expenses to average net assets attributable to recoupments of prior fee reductions of expense reimbursements for the years was as follows: |
12/31/18 | 12/31/17 | 12/31/16 |
0.00%* | — | — |
* | Less than 0.01%. |
148|THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
MANAGERS’ COMMENTARY(Unaudited) | December 31, 2018 |
Dear Shareholder:
Guggenheim Series Z (Alpha Opportunity Fund) (the “Fund”) 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 Portfolio Manager; Samir Sanghani, CFA, Managing Director and Portfolio Manager; and Burak Hurmeydan, Ph.D., Director and Portfolio Manager. In the paragraphs below, the team discusses the performance of the Fund for the 12-month period ended December 31, 2018.
For the year ended December 31, 2018, Series Z (Alpha Opportunity Series) returned -11.57%, compared with the 1.87% return of its benchmark, the ICE BofA Merrill Lynch 3-Month U.S. Treasury Bill Index. The Fund’s secondary benchmark is the Morningstar Long/Short Equity Category Average, which returned -6.19% for the 12-month period.
Investment Approach
The Fund is managed as an 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 to 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.
Derivatives in the Fund are used to take short positions as well as long exposure above 100% of net asset value (that is, to take leverage).
Performance Review
The start of 2018 was characterized by a low-volatility bull market with strong economic signals and strong corporate earnings. As the year progressed, the global economy began to show weakness, with the Fed steadily raising rates, the implementation of new tariffs, uncertainty around Brexit, and even some disappointing fundamentals from high-flying technology leaders. The equity and credit markets significantly dropped in the fourth quarter, as Fed commentary seemed more hawkish than the market thought was warranted. After falling 13.5% in the fourth quarter, the S&P 500 Index returned of -4.38% for the year.
On average during the period, the Fund held about 135% of assets in long securities, and 108% short, for an average net-dollar exposure of 27%. The realized net beta (sensitivity of daily Fund returns to the S&P 500 Index) averaged around 0.29 during the year. The long positions (on a standalone unlevered basis) averaged a return of -9.3%, compared to the Russell 3000 index return of -5.3%. Short positions returned -1.7% on a stand-alone basis.
The year included poor performance across both longs and shorts—emanating from factor exposures as well as security selection. About -2.7% was the result of the net market exposure. Most of the Fund’s volatility emanates from being long and short fundamental style tilts and sector exposures.
Sector positioning was a bright spot. For the year we estimate about +5.72% of attributable return to proper sector positioning, with the largest positive contributors being net longs in Healthcare, IT, and Utilities, and net shorts in Real Estate, Financials, and Chemicals/Materials.
For the full year, the fundamental style tilts led to about -3.8% of attributable drag. Most of our style positioning led to small positive contributions—including positioning on higher free cash flow names, larger size names, better profitability names, and avoiding the highest growth names. However, a strong value style bias significantly detracted and led to the total negative contribution across all style factors.
THE GUGGENHEIM FUNDS ANNUAL REPORT | 149 |
MANAGERS’ COMMENTARY(Unaudited)(concluded) | December 31, 2018 |
Beyond the factor positioning, the Fund’s security-specific selection impact was a detractor for the year. Within a few industries, the Fund suffered from idiosyncratic trends that caused performance divergence that was less explained by broad fundamental characteristics. For example, within the industrials sector, the Fund held long positions within manufacturing and capital goods companies that had significant global exposure, while the short side held more U.S.-centric and service-oriented businesses. Those two groups diverged strongly in the midst of tariff escalation—causing losses from both longs and shorts. Additionally, shorts in a number of expensive IT Software and Consumer Discretionary names hurt the Fund, as those names generally met high sales growth expectations that were rewarded with very high multiples, while a number of long positions in hardware and semiconductor spaces were beaten down to multiples in the single digit range.
The valuation-focused approach of this Fund’s strategy has been a detractor for a couple of years now. For context, the Russell 3000 Value benchmark underperformed the Russell 3000 Growth benchmark by more than -6% in 2018 and -23% for a two-year period. Over the last roughly 25 years since these two Russell style indices were launched, they have averaged approximately the same overall return with interim shorter-term deviations. However, a two-year style index deviation where Value underperforms by more than -20% is fairly rare—occurring in only 11% of the rolling two-year periods. It happened briefly after the 2008 Financial Crisis, and for a longer duration during the 1998-2000 Technology Bubble. In all those cases, the forward two-years’ performance for the Value index showed a strong bounce back—averaging a +34% outperformance over the Growth index and no occurrences of continuing underperformance for another two years. Of course, this history may not be repeated, as markets and economies evolve and can differ cycle to cycle. But to some extent, investors favoring growth over value during uncertain times can be attributed to behavioral bias. The Fund’s proprietary implied risk premium measure (a forward-looking valuation metric) is showing a gap in valuation between cheaper and expensive names that has not been seen since the Technology Bubble. The situation looks a lot like past behavioral cycles that portend better years ahead for valuation-disciplined investors.
Positioning
At the start of the new fiscal period, the Fund’s estimated net beta remains close to 0.30. The Fund maintains its large factor bias towards cheaper valuation names, and also maintains a high free cash flow bias and profitability bias—both of which are styles that have historically helped protect against macro economic risk in the event of recession. Guggenheim’s proprietary recession probability indicator has risen this year—leading to somewhat elevated recession expectations for the next year or two—and thus a more cautious positioning with quality style characteristics. The Fund also remains biased against companies that have been experiencing strong asset growth—an area where valuation premiums looks stretched.
The largest sector net long exposures (greater than +10%) are in Healthcare Pharma/Equipment, Consumer Staples, IT, Transportation, and Energy Mid/Downstream. The largest net short exposures (less than -10%) exist in Commercial & Professional Services, Real Estate, Financials, and Chemical/Materials groups.
Our process aims to measure what the market is pricing in based on forward expectations—and the above tilts are dictated primarily by the disparities in those market-implied risk premiums—as well as risk balancing between the market and various sector/style tilts that tend to be correlated. The positions on the long side have a slightly more defensive nature than the short side, which is slightly offset by higher weight to longs versus shorts. Also, given the wide diversity of economically sensitive names on both sides, the Fund is not likely to have strong positive or negative exposure to a recession. The return sensitivity instead will come from any narrowing in the valuation gap between very high growth expensive names versus cheaper, slower growth, and quality names (as measured by cash flow and profitability).
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.
150 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
PERFORMANCE REPORT AND FUND PROFILE(Unaudited) | December 31, 2018 |
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) | |
Verizon Communications, Inc. | 1.1% |
Archer-Daniels-Midland Co. | 1.0% |
Chevron Corp. | 0.8% |
Genesee & Wyoming, Inc. — Class A | 0.8% |
Exelon Corp. | 0.8% |
McKesson Corp. | 0.8% |
Exxon Mobil Corp. | 0.8% |
National Fuel Gas Co. | 0.8% |
Medtronic plc | 0.8% |
Portland General Electric Co. | 0.8% |
Top Ten Total | 8.5% |
“Ten Largest Holdings” excludes any temporary cash or derivative investments. | |
THE GUGGENHEIM FUNDS ANNUAL REPORT | 151 |
PERFORMANCE REPORT AND FUND PROFILE(Unaudited)(concluded) | December 31, 2018 |
Cumulative Fund Performance*,†
Average Annual Returns*,†
Periods Ended December 31, 2018
| 1 Year | 5 Year | 10 Year |
Series Z (Alpha Opportunity Series) | (11.57%) | 2.19% | 9.94% |
ICE BofA Merrill Lynch 3-Month U.S. Treasury Bill Index | 1.87% | 0.63% | 0.37% |
Morningstar Long/Short Equity Category Average | (6.19%) | 1.25% | 5.10% |
* | The performance data above represents past performance that is not predictive of future results. The investment return and principal value of an investment in the Fund will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Returns are historical and include changes in principal and reinvested dividends and capital gains and do not reflect the effect of taxes. The ICE BofA Merrill Lynch 3-Month U.S. Treasury Bill 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. |
152 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
SCHEDULE OF INVESTMENTS | December 31, 2018 |
SERIES Z (ALPHA OPPORTUNITY SERIES) |
| Shares | Value | ||||||
COMMON STOCKS† - 93.7% | ||||||||
Consumer, Non-cyclical - 28.4% | ||||||||
Archer-Daniels-Midland Co. | 1,863 | $ | 76,327 | |||||
McKesson Corp. | 590 | 65,177 | ||||||
Medtronic plc1 | 683 | 62,126 | ||||||
Molson Coors Brewing Co. — Class B | 1,075 | 60,372 | ||||||
Tyson Foods, Inc. — Class A | 1,102 | 58,847 | ||||||
Cardinal Health, Inc. | 1,314 | 58,604 | ||||||
Pfizer, Inc. | 1,286 | 56,134 | ||||||
Amgen, Inc. | 286 | 55,676 | ||||||
Anthem, Inc.1 | 196 | 51,475 | ||||||
Post Holdings, Inc.* | 560 | 49,913 | ||||||
Kimberly-Clark Corp.1 | 437 | 49,792 | ||||||
Baxter International, Inc.1 | 717 | 47,193 | ||||||
Humana, Inc.1 | 162 | 46,410 | ||||||
Performance Food Group Co.* | 1,312 | 42,338 | ||||||
CVS Health Corp.1 | 590 | 38,657 | ||||||
Western Union Co. | 2,265 | 38,641 | ||||||
Central Garden & Pet Co. — Class A* | 1,236 | 38,625 | ||||||
Mondelez International, Inc. — Class A1 | 939 | 37,588 | ||||||
Abbott Laboratories1 | 515 | 37,250 | ||||||
Sysco Corp.1 | 585 | 36,656 | ||||||
Premier, Inc. — Class A* | 954 | 35,632 | ||||||
IQVIA Holdings, Inc.* | 299 | 34,735 | ||||||
Thermo Fisher Scientific, Inc.1 | 152 | 34,016 | ||||||
UnitedHealth Group, Inc. | 132 | 32,884 | ||||||
Kellogg Co.1 | 563 | 32,097 | ||||||
Procter & Gamble Co.1 | 342 | 31,437 | ||||||
Bio-Rad Laboratories, Inc. — Class A* | 133 | 30,885 | ||||||
Molina Healthcare, Inc.* | 264 | 30,682 | ||||||
Hill-Rom Holdings, Inc. | 336 | 29,753 | ||||||
MEDNAX, Inc.* | 900 | 29,700 | ||||||
Quest Diagnostics, Inc. | 349 | 29,061 | ||||||
Ingredion, Inc. | 306 | 27,968 | ||||||
Flowers Foods, Inc. | 1,504 | 27,779 | ||||||
Bruker Corp. | 815 | 24,262 | ||||||
McCormick & Company, Inc. | 174 | 24,228 | ||||||
Laboratory Corporation of America Holdings* | 184 | 23,250 | ||||||
Danaher Corp.1 | 224 | 23,099 | ||||||
CoreLogic, Inc.* | 670 | 22,391 | ||||||
HCA Healthcare, Inc.1 | 177 | 22,028 | ||||||
US Foods Holding Corp.* | 691 | 21,863 | ||||||
Innoviva, Inc.* | 1,249 | 21,795 | ||||||
Sabre Corp. | 902 | 19,519 | ||||||
Herbalife Nutrition Ltd.* | 330 | 19,454 | ||||||
Kroger Co.1 | 697 | 19,167 | ||||||
Kraft Heinz Co.1 | 445 | 19,153 | ||||||
PepsiCo, Inc.1 | 172 | 19,003 | ||||||
AMERCO | 57 | 18,702 | ||||||
AbbVie, Inc. | 202 | 18,622 | ||||||
Merck & Company, Inc.1 | 241 | 18,415 | ||||||
Edwards Lifesciences Corp.* | 120 | 18,380 | ||||||
ICU Medical, Inc.* | 80 | 18,370 | ||||||
Amedisys, Inc.* | 153 | 17,918 | ||||||
Brown-Forman Corp. — Class B1 | 375 | 17,842 | ||||||
Teleflex, Inc. | 69 | 17,835 | ||||||
Universal Health Services, Inc. — Class B | 153 | 17,834 | ||||||
Bristol-Myers Squibb Co.1 | 340 | 17,673 | ||||||
Cardtronics plc — Class A* | 677 | 17,602 | ||||||
Hershey Co.1 | 163 | 17,470 | ||||||
Simply Good Foods Co.* | 912 | 17,237 | ||||||
Colgate-Palmolive Co.1 | 289 | 17,201 | ||||||
Altria Group, Inc.1 | 346 | 17,089 | ||||||
Quanta Services, Inc. | 565 | 17,007 | ||||||
CONMED Corp. | 263 | 16,885 | ||||||
Biogen, Inc.*,1 | 56 | 16,852 | ||||||
IDEXX Laboratories, Inc.* | 90 | 16,742 | ||||||
Mylan N.V.*,1 | 610 | 16,714 | ||||||
WellCare Health Plans, Inc.*,1 | 69 | 16,290 | ||||||
Ligand Pharmaceuticals, Inc. — Class B* | 120 | 16,284 | ||||||
Zoetis, Inc.1 | 190 | 16,253 | ||||||
Darling Ingredients, Inc.* | 842 | 16,200 | ||||||
Estee Lauder Companies, Inc. — Class A | 124 | 16,132 | ||||||
PRA Health Sciences, Inc.* | 175 | 16,093 | ||||||
Gilead Sciences, Inc.1 | 255 | 15,950 | ||||||
Vector Group Ltd. | 1,594 | 15,510 | ||||||
Centene Corp.* | 130 | 14,989 | ||||||
Pilgrim’s Pride Corp.* | 950 | 14,735 | ||||||
Allergan plc1 | 110 | 14,703 | ||||||
Alexion Pharmaceuticals, Inc.*,1 | 151 | 14,701 | ||||||
Jazz Pharmaceuticals plc* | 118 | 14,627 | ||||||
Catalent, Inc.* | 468 | 14,592 | ||||||
Constellation Brands, Inc. — Class A1 | 89 | 14,313 | ||||||
Philip Morris International, Inc. | 207 | 13,819 | ||||||
Total Consumer, Non-cyclical | 2,291,223 | |||||||
Industrial - 17.9% | ||||||||
Genesee & Wyoming, Inc. — Class A* | 895 | 66,248 | ||||||
Kansas City Southern1 | 606 | 57,843 | ||||||
Union Pacific Corp. | 395 | 54,601 | ||||||
FedEx Corp.1 | 321 | 51,787 | ||||||
Regal Beloit Corp. | 682 | 47,774 | ||||||
Eaton Corporation plc1 | 678 | 46,552 | ||||||
Cummins, Inc.1 | 323 | 43,166 | ||||||
Norfolk Southern Corp.1 | 279 | 41,722 | ||||||
TE Connectivity Ltd.1 | 527 | 39,857 | ||||||
Parker-Hannifin Corp.1 | 241 | 35,943 | ||||||
Caterpillar, Inc.1 | 281 | 35,707 | ||||||
Boise Cascade Co. | 1,436 | 34,249 | ||||||
Arrow Electronics, Inc.* | 444 | 30,614 | ||||||
EMCOR Group, Inc. | 500 | 29,845 | ||||||
CSX Corp. | 476 | 29,574 | ||||||
Avnet, Inc. | 810 | 29,241 | ||||||
AECOM* | 1,102 | 29,203 | ||||||
AGCO Corp. | 500 | 27,835 | ||||||
Landstar System, Inc. | 290 | 27,744 | ||||||
Masco Corp.1 | 914 | 26,725 | ||||||
J.B. Hunt Transport Services, Inc. | 286 | 26,609 | ||||||
Gibraltar Industries, Inc.* | 721 | 25,660 | ||||||
Jabil, Inc. | 981 | 24,319 | ||||||
Corning, Inc.1 | 782 | 23,624 | ||||||
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT|153 |
SCHEDULE OF INVESTMENTS(continued) | December 31, 2018 |
SERIES Z (ALPHA OPPORTUNITY SERIES) |
| Shares | Value | ||||||
Expeditors International of Washington, Inc. | 339 | $ | 23,082 | |||||
Louisiana-Pacific Corp. | 1,018 | 22,620 | ||||||
Trinseo S.A. | 485 | 22,203 | ||||||
Snap-on, Inc. | 145 | 21,067 | ||||||
Tech Data Corp.* | 256 | 20,944 | ||||||
Greenbrier Companies, Inc. | 491 | 19,414 | ||||||
Stericycle, Inc.* | 526 | 19,299 | ||||||
Ryder System, Inc. | 389 | 18,730 | ||||||
CH Robinson Worldwide, Inc. | 217 | 18,248 | ||||||
Heartland Express, Inc. | 989 | 18,099 | ||||||
Oshkosh Corp. | 292 | 17,902 | ||||||
Trinity Industries, Inc. | 851 | 17,522 | ||||||
Vishay Intertechnology, Inc. | 968 | 17,434 | ||||||
Spirit AeroSystems Holdings, Inc. — Class A1 | 240 | 17,302 | ||||||
Sonoco Products Co. | 325 | 17,267 | ||||||
Waters Corp.*,1 | 91 | 17,167 | ||||||
Old Dominion Freight Line, Inc. | 137 | 16,918 | ||||||
Saia, Inc.* | 300 | 16,746 | ||||||
Knight-Swift Transportation Holdings, Inc. | 663 | 16,621 | ||||||
Werner Enterprises, Inc. | 557 | 16,454 | ||||||
Gentex Corp. | 811 | 16,390 | ||||||
EnerSys | 211 | 16,376 | ||||||
Pentair plc | 428 | 16,170 | ||||||
United Parcel Service, Inc. — Class B | 165 | 16,092 | ||||||
Packaging Corporation of America | 187 | 15,607 | ||||||
Schneider National, Inc. — Class B | 834 | 15,571 | ||||||
Johnson Controls International plc | 514 | 15,240 | ||||||
Belden, Inc. | 359 | 14,995 | ||||||
Rexnord Corp.* | 651 | 14,940 | ||||||
Textron, Inc. | 322 | 14,809 | ||||||
Crane Co. | 197 | 14,219 | ||||||
XPO Logistics, Inc.* | 240 | 13,690 | ||||||
Total Industrial | 1,445,580 | |||||||
Financial - 8.5% | ||||||||
Senior Housing Properties Trust REIT | 4,412 | 51,709 | ||||||
Ventas, Inc. REIT | 755 | 44,235 | ||||||
Medical Properties Trust, Inc. REIT | 2,561 | 41,181 | ||||||
Apartment Investment & Management Co. — Class A REIT | 919 | 40,326 | ||||||
Equity Commonwealth REIT | 1,134 | 34,031 | ||||||
Park Hotels & Resorts, Inc. REIT | 1,176 | 30,553 | ||||||
Allstate Corp.1 | 363 | 29,995 | ||||||
Hospitality Properties Trust REIT | 1,239 | 29,587 | ||||||
Hartford Financial Services Group, Inc.1 | 632 | 28,092 | ||||||
Aflac, Inc.1 | 610 | 27,791 | ||||||
Host Hotels & Resorts, Inc. REIT1 | 1,636 | 27,272 | ||||||
Piedmont Office Realty Trust, Inc. — Class A REIT | 1,444 | 24,606 | ||||||
Omega Healthcare Investors, Inc. REIT | 674 | 23,691 | ||||||
Weingarten Realty Investors REIT | 949 | 23,545 | ||||||
EPR Properties REIT | 345 | 22,090 | ||||||
Franklin Resources, Inc.1 | 709 | 21,029 | ||||||
Prudential Financial, Inc.1 | 253 | 20,632 | ||||||
Brixmor Property Group, Inc. REIT | 1,377 | 20,228 | ||||||
Lazard Ltd. — Class A | 534 | 19,710 | ||||||
Visa, Inc. — Class A1 | 137 | 18,076 | ||||||
Travelers Companies, Inc.1 | 145 | 17,364 | ||||||
Northern Trust Corp. | 202 | 16,885 | ||||||
Summit Hotel Properties, Inc. REIT | 1,689 | 16,434 | ||||||
Principal Financial Group, Inc.1 | 365 | 16,122 | ||||||
JPMorgan Chase & Co.1 | 163 | 15,912 | ||||||
State Street Corp.1 | 252 | 15,894 | ||||||
Bank of New York Mellon Corp.1 | 173 | 8,143 | ||||||
Irish Bank Resolution Corporation Ltd.*,†††,2 | 16,638 | — | ||||||
Total Financial | 685,133 | |||||||
Technology - 8.5% | ||||||||
Citrix Systems, Inc.1 | 400 | 40,984 | ||||||
HP, Inc.1 | 1,978 | 40,470 | ||||||
Amdocs Ltd. | 638 | 37,374 | ||||||
DXC Technology Co.1 | 678 | 36,049 | ||||||
Intel Corp.1 | 665 | 31,208 | ||||||
Fidelity National Information Services, Inc.1 | 301 | 30,868 | ||||||
Cirrus Logic, Inc.* | 928 | 30,791 | ||||||
Cognizant Technology Solutions Corp. — Class A1 | 482 | 30,598 | ||||||
Skyworks Solutions, Inc.1 | 424 | 28,417 | ||||||
QUALCOMM, Inc. | 451 | 25,666 | ||||||
Leidos Holdings, Inc. | 454 | 23,935 | ||||||
Oracle Corp.1 | 505 | 22,801 | ||||||
Paychex, Inc.1 | 346 | 22,542 | ||||||
MAXIMUS, Inc. | 324 | 21,089 | ||||||
j2 Global, Inc. | 302 | 20,953 | ||||||
Maxim Integrated Products, Inc. | 371 | 18,865 | ||||||
ON Semiconductor Corp.*,1 | 1,135 | 18,739 | ||||||
Seagate Technology plc1 | 470 | 18,137 | ||||||
Accenture plc — Class A1 | 126 | 17,767 | ||||||
NetApp, Inc.1 | 297 | 17,722 | ||||||
Analog Devices, Inc. | 206 | 17,681 | ||||||
Take-Two Interactive Software, Inc.* | 167 | 17,191 | ||||||
Hewlett Packard Enterprise Co. | 1,289 | 17,028 | ||||||
CDK Global, Inc. | 354 | 16,949 | ||||||
Texas Instruments, Inc. | 177 | 16,727 | ||||||
Broadridge Financial Solutions, Inc.1 | 166 | 15,977 | ||||||
Activision Blizzard, Inc. | 340 | 15,834 | ||||||
Western Digital Corp.1 | 400 | 14,788 | ||||||
Icad, Inc.* | 3,893 | 14,404 | ||||||
Total Technology | 681,554 | |||||||
Consumer, Cyclical - 8.4% | ||||||||
Delta Air Lines, Inc.1 | 1,115 | 55,639 | ||||||
Southwest Airlines Co.1 | 761 | 35,371 | ||||||
BorgWarner, Inc. | 992 | 34,462 | ||||||
United Continental Holdings, Inc.* | 394 | 32,990 | ||||||
PACCAR, Inc.1 | 536 | 30,627 | ||||||
Allison Transmission Holdings, Inc. | 679 | 29,815 | ||||||
JetBlue Airways Corp.* | 1,712 | 27,495 | ||||||
Nu Skin Enterprises, Inc. — Class A | 398 | 24,409 | ||||||
Alaska Air Group, Inc.1 | 399 | 24,279 | ||||||
154|THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
SCHEDULE OF INVESTMENTS(continued) | December 31, 2018 |
SERIES Z (ALPHA OPPORTUNITY SERIES) |
| Shares | Value | ||||||
Lions Gate Entertainment Corp. — Class A | 1,490 | $ | 23,989 | |||||
PulteGroup, Inc. | 921 | 23,937 | ||||||
Copa Holdings S.A. — Class A | 302 | 23,770 | ||||||
La-Z-Boy, Inc. | 817 | 22,639 | ||||||
American Airlines Group, Inc. | 652 | 20,936 | ||||||
Spirit Airlines, Inc.* | 335 | 19,403 | ||||||
Meritor, Inc.* | 1,094 | 18,499 | ||||||
Toll Brothers, Inc. | 553 | 18,210 | ||||||
DR Horton, Inc. | 515 | 17,850 | ||||||
Hyatt Hotels Corp. — Class A | 261 | 17,644 | ||||||
NIKE, Inc. — Class B | 237 | 17,571 | ||||||
Lowe’s Companies, Inc. | 187 | 17,271 | ||||||
Lennar Corp. — Class A | 433 | 16,952 | ||||||
General Motors Co.1 | 498 | 16,658 | ||||||
KB Home | 853 | 16,292 | ||||||
TRI Pointe Group, Inc.* | 1,469 | 16,056 | ||||||
Darden Restaurants, Inc. | 159 | 15,878 | ||||||
Lear Corp.1 | 129 | 15,849 | ||||||
Delphi Technologies plc | 1,040 | 14,893 | ||||||
Best Buy Company, Inc. | 266 | 14,088 | ||||||
PVH Corp. | 148 | 13,757 | ||||||
Total Consumer, Cyclical | 677,229 | |||||||
Utilities - 7.5% | ||||||||
Exelon Corp. | 1,464 | 66,026 | ||||||
National Fuel Gas Co. | 1,221 | 62,491 | ||||||
Portland General Electric Co. | 1,343 | 61,577 | ||||||
El Paso Electric Co. | 1,126 | 56,446 | ||||||
UGI Corp. | 946 | 50,469 | ||||||
PNM Resources, Inc. | 1,222 | 50,212 | ||||||
OGE Energy Corp. | 1,071 | 41,973 | ||||||
FirstEnergy Corp.1 | 993 | 37,287 | ||||||
AES Corp. | 2,528 | 36,555 | ||||||
Entergy Corp.1 | 361 | 31,071 | ||||||
Consolidated Edison, Inc.1 | 340 | 25,996 | ||||||
Ameren Corp.1 | 383 | 24,983 | ||||||
NRG Energy, Inc. | 574 | 22,731 | ||||||
Edison International | 340 | 19,302 | ||||||
Pinnacle West Capital Corp. | 200 | 17,040 | ||||||
Total Utilities | 604,159 | |||||||
Communications - 6.1% | ||||||||
Verizon Communications, Inc. | 1,525 | 85,735 | ||||||
Cisco Systems, Inc.1 | 1,217 | 52,733 | ||||||
Omnicom Group, Inc.1 | 636 | 46,580 | ||||||
Juniper Networks, Inc.1 | 1,116 | 30,032 | ||||||
InterDigital, Inc. | 443 | 29,428 | ||||||
AMC Networks, Inc. — Class A* | 510 | 27,989 | ||||||
Interpublic Group of Companies, Inc. | 1,352 | 27,892 | ||||||
F5 Networks, Inc.*,1 | 159 | 25,763 | ||||||
Telephone & Data Systems, Inc. | 741 | 24,112 | ||||||
Zayo Group Holdings, Inc.* | 896 | 20,465 | ||||||
Shenandoah Telecommunications Co. | 439 | 19,426 | ||||||
Scholastic Corp. | 479 | 19,285 | ||||||
Alphabet, Inc. — Class C* | 17 | 17,605 | ||||||
Sirius XM Holdings, Inc. | 2,910 | 16,616 | ||||||
Facebook, Inc. — Class A* | 125 | 16,386 | ||||||
TEGNA, Inc. | 1,386 | 15,066 | ||||||
News Corp. — Class A | 1,310 | 14,868 | ||||||
Total Communications | 489,981 | |||||||
Energy - 5.3% | ||||||||
Chevron Corp. | 620 | 67,450 | ||||||
Exxon Mobil Corp. | 917 | 62,530 | ||||||
Phillips 661 | 692 | 59,616 | ||||||
Valero Energy Corp.1 | 605 | 45,357 | ||||||
Occidental Petroleum Corp.1 | 695 | 42,659 | ||||||
ConocoPhillips1 | 445 | 27,746 | ||||||
ONEOK, Inc. | 385 | 20,770 | ||||||
Murphy USA, Inc.* | 224 | 17,167 | ||||||
Kinder Morgan, Inc.1 | 1,116 | 17,164 | ||||||
Williams Companies, Inc.1 | 735 | 16,207 | ||||||
Delek US Holdings, Inc. | 485 | 15,767 | ||||||
HollyFrontier Corp.1 | 308 | 15,745 | ||||||
PBF Energy, Inc. — Class A | 468 | 15,290 | ||||||
Total Energy | 423,468 | |||||||
Basic Materials - 3.1% | ||||||||
Westlake Chemical Corp.1 | 668 | 44,201 | ||||||
Cabot Corp. | 855 | 36,714 | ||||||
Eastman Chemical Co.1 | 455 | 33,265 | ||||||
Olin Corp. | 1,425 | 28,657 | ||||||
LyondellBasell Industries N.V. — Class A1 | 304 | 25,281 | ||||||
International Paper Co.1 | 557 | 22,481 | ||||||
Huntsman Corp. | 850 | 16,396 | ||||||
Chemours Co. | 575 | 16,226 | ||||||
Celanese Corp. — Class A | 178 | 16,015 | ||||||
Domtar Corp. | 386 | 13,560 | ||||||
Total Basic Materials | 252,796 | |||||||
Total Common Stocks | ||||||||
(Cost $8,548,820) | 7,551,123 | |||||||
MONEY MARKET FUND† - 2.0% | ||||||||
Goldman Sachs Financial Square Treasury Instruments Fund — Institutional Class 2.22%3 | 158,038 | 158,038 | ||||||
Total Money Market Fund | ||||||||
(Cost $158,038) | 158,038 | |||||||
Total Investments - 95.7% | ||||||||
(Cost $8,706,858) | $ | 7,709,161 | ||||||
Other Assets & Liabilities, net - 4.3% | 347,180 | |||||||
Total Net Assets - 100.0% | $ | 8,056,341 | ||||||
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT|155 |
SCHEDULE OF INVESTMENTS(continued) | December 31, 2018 |
SERIES Z (ALPHA OPPORTUNITY SERIES) |
Custom Basket Swap Agreements | ||||||||||||
Counterparty | Index | Financing | Payment | Maturity | Notional | Value and | ||||||
OTC Custom Basket Swap Agreements†† | ||||||||||||
Morgan Stanley | Alpha Opportunity Portfolio Long Custom Basket Swap4 | 2.80 | % | At Maturity | 02/01/19 | $ | 2,980,829 | $ | (351,576 | ) | ||
OTC Custom Basket Swap Agreements Sold Short†† | ||||||||||||
Morgan Stanley | Alpha Opportunity Portfolio Short Custom Basket Swap5 | (2.04 | %) | At Maturity | 02/01/19 | $ | 8,775,282 | $ | 730,498 | |||
| Shares | Percent | Value and | |||||||||
CUSTOM BASKET OF LONG SECURITIES4 | ||||||||||||
Verizon Communications, Inc. | 598 | 1.14 | % | $ | 3,904 | |||||||
Pfizer, Inc. | 504 | 0.75 | % | 3,312 | ||||||||
UGI Corp. | 407 | 0.74 | % | 3,102 | ||||||||
Exelon Corp. | 510 | 0.78 | % | 3,003 | ||||||||
Portland General Electric Co. | 495 | 0.76 | % | 2,758 | ||||||||
Procter & Gamble Co. | 134 | 0.41 | % | 2,744 | ||||||||
Amgen, Inc. | 112 | 0.73 | % | 2,614 | ||||||||
PNM Resources, Inc. | 479 | 0.66 | % | 2,535 | ||||||||
Telephone & Data Systems, Inc. | 290 | 0.32 | % | 2,305 | ||||||||
Medtronic plc | 268 | 0.82 | % | 2,083 | ||||||||
Merck & Company, Inc. | 94 | 0.24 | % | 2,039 | ||||||||
Cisco Systems, Inc. | 477 | 0.69 | % | 1,800 | ||||||||
AES Corp. | 991 | 0.48 | % | 1,750 | ||||||||
Ameren Corp. | 150 | 0.33 | % | 1,552 | ||||||||
OGE Energy Corp. | 420 | 0.55 | % | 1,466 | ||||||||
Kimberly-Clark Corp. | 171 | 0.65 | % | 1,465 | ||||||||
Allison Transmission Holdings, Inc. | 266 | 0.39 | % | 1,208 | ||||||||
Shenandoah Telecommunications Co. | 172 | 0.26 | % | 1,101 | ||||||||
Innoviva, Inc.* | 490 | 0.29 | % | 1,095 | ||||||||
Entergy Corp. | 141 | 0.41 | % | 1,033 | ||||||||
Edison International | 133 | 0.25 | % | 971 | ||||||||
Ventas, Inc. | 296 | 0.58 | % | 959 | ||||||||
Kroger Co. | 273 | 0.25 | % | 927 | ||||||||
Pinnacle West Capital Corp. | 78 | 0.22 | % | 789 | ||||||||
McCormick & Company, Inc. | 68 | 0.32 | % | 767 | ||||||||
Hershey Co. | 64 | 0.23 | % | 746 | ||||||||
Apartment Investment & Management Co. — Class A | 360 | 0.53 | % | 692 | ||||||||
Spirit Airlines, Inc.* | 131 | 0.25 | % | 680 | ||||||||
WellCare Health Plans, Inc.* | 27 | 0.21 | % | 646 | ||||||||
FirstEnergy Corp. | 389 | 0.49 | % | 610 | ||||||||
|
|
| Value and | |||||||||
EnerSys | 82 | 0.21 | % | 535 | ||||||||
Herbalife Nutrition Ltd.* | 129 | 0.26 | % | 488 | ||||||||
National Fuel Gas Co. | 479 | 0.82 | % | 405 | ||||||||
QUALCOMM, Inc. | 176 | 0.34 | % | 395 | ||||||||
PepsiCo, Inc. | 67 | 0.25 | % | 372 | ||||||||
Icad, Inc.* | 1,576 | 0.20 | % | 307 | ||||||||
Edwards Lifesciences Corp.* | 47 | 0.24 | % | 282 | ||||||||
Cardtronics plc — Class A* | 265 | 0.23 | % | 266 | ||||||||
AbbVie, Inc. | 79 | 0.24 | % | 256 | ||||||||
Fidelity National Information Services, Inc. | 118 | 0.41 | % | 236 | ||||||||
Juniper Networks, Inc. | 437 | 0.39 | % | 236 | ||||||||
Simply Good Foods Co.* | 358 | 0.23 | % | 211 | ||||||||
Omega Healthcare Investors, Inc. | 264 | 0.31 | % | 201 | ||||||||
Central Garden & Pet Co. — Class A* | 484 | 0.51 | % | 200 | ||||||||
TEGNA, Inc. | 544 | 0.20 | % | 139 | ||||||||
Danaher Corp. | 88 | 0.30 | % | 125 | ||||||||
NRG Energy, Inc. | 225 | 0.30 | % | 109 | ||||||||
Darling Ingredients, Inc.* | 330 | 0.21 | % | 106 | ||||||||
Consolidated Edison, Inc. | 133 | 0.34 | % | 94 | ||||||||
Abbott Laboratories | 202 | 0.49 | % | 91 | ||||||||
F5 Networks, Inc.* | 62 | 0.34 | % | 60 | ||||||||
Genesee & Wyoming, Inc. — Class A* | 351 | 0.87 | % | 32 | ||||||||
Lennar Corp. — Class A | 170 | 0.22 | % | 29 | ||||||||
Bristol-Myers Squibb Co. | 133 | 0.23 | % | 24 | ||||||||
NIKE, Inc. — Class B | 93 | 0.23 | % | 9 | ||||||||
Teleflex, Inc. | 27 | 0.23 | % | 6 | ||||||||
Corning, Inc. | 307 | 0.31 | % | (62 | ) | |||||||
Lowe's Companies, Inc. | 73 | 0.23 | % | (81 | ) | |||||||
Alphabet, Inc. — Class C* | 6 | 0.21 | % | (103 | ) | |||||||
Aflac, Inc. | 239 | 0.37 | % | (105 | ) | |||||||
Thermo Fisher Scientific, Inc. | 59 | 0.44 | % | (138 | ) | |||||||
Visa, Inc. — Class A | 54 | 0.24 | % | (167 | ) | |||||||
MAXIMUS, Inc. | 127 | 0.28 | % | (192 | ) | |||||||
156|THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
SCHEDULE OF INVESTMENTS(continued) | December 31, 2018 |
SERIES Z (ALPHA OPPORTUNITY SERIES) |
| Shares | Percent | Value and | |||||||||
Medical Properties Trust, Inc. | 1,004 | 0.54 | % | $ | (194 | ) | ||||||
Zoetis, Inc. | 74 | 0.21 | % | (198 | ) | |||||||
Amedisys, Inc.* | 60 | 0.24 | % | (199 | ) | |||||||
Jabil, Inc. | 385 | 0.32 | % | (236 | ) | |||||||
United Continental Holdings, Inc.* | 154 | 0.43 | % | (255 | ) | |||||||
AMC Networks, Inc. — Class A* | 200 | 0.37 | % | (269 | ) | |||||||
Waters Corp.* | 35 | 0.22 | % | (269 | ) | |||||||
AMERCO | 22 | 0.24 | % | (270 | ) | |||||||
Omnicom Group, Inc. | 249 | 0.61 | % | (271 | ) | |||||||
Maxim Integrated Products, Inc. | 145 | 0.25 | % | (280 | ) | |||||||
CDK Global, Inc. | 139 | 0.22 | % | (282 | ) | |||||||
US Foods Holding Corp.* | 271 | 0.29 | % | (317 | ) | |||||||
Snap-on, Inc. | 57 | 0.28 | % | (320 | ) | |||||||
ICU Medical, Inc.* | 31 | 0.24 | % | (356 | ) | |||||||
j2 Global, Inc. | 118 | 0.27 | % | (362 | ) | |||||||
Bank of New York Mellon Corp. | 67 | 0.11 | % | (364 | ) | |||||||
Brixmor Property Group, Inc. | 540 | 0.27 | % | (366 | ) | |||||||
Brown-Forman Corp. — Class B | 147 | 0.23 | % | (370 | ) | |||||||
Landstar System, Inc. | 114 | 0.37 | % | (376 | ) | |||||||
Ingredion, Inc. | 120 | 0.37 | % | (383 | ) | |||||||
Vishay Intertechnology, Inc. | 380 | 0.23 | % | (386 | ) | |||||||
Sonoco Products Co. | 127 | 0.23 | % | (402 | ) | |||||||
Biogen, Inc.* | 22 | 0.22 | % | (411 | ) | |||||||
Take-Two Interactive Software, Inc.* | 65 | 0.22 | % | (419 | ) | |||||||
Colgate-Palmolive Co. | 113 | 0.23 | % | (425 | ) | |||||||
Flowers Foods, Inc. | 590 | 0.37 | % | (436 | ) | |||||||
CONMED Corp. | 103 | 0.22 | % | (466 | ) | |||||||
Oracle Corp. | 198 | 0.30 | % | (474 | ) | |||||||
Equity Commonwealth | 445 | 0.45 | % | (484 | ) | |||||||
Toll Brothers, Inc. | 217 | 0.24 | % | (485 | ) | |||||||
Analog Devices, Inc. | 80 | 0.23 | % | (486 | ) | |||||||
Northern Trust Corp. | 79 | 0.22 | % | (488 | ) | |||||||
El Paso Electric Co. | 441 | 0.74 | % | (511 | ) | |||||||
HCA Healthcare, Inc. | 69 | 0.29 | % | (525 | ) | |||||||
Travelers Companies, Inc. | 57 | 0.23 | % | (526 | ) | |||||||
Hill-Rom Holdings, Inc. | 132 | 0.39 | % | (526 | ) | |||||||
CVS Health Corp. | 231 | 0.51 | % | (562 | ) | |||||||
Facebook, Inc. — Class A* | 49 | 0.22 | % | (571 | ) | |||||||
CH Robinson Worldwide, Inc. | 85 | 0.24 | % | (580 | ) | |||||||
Estee Lauder Companies, Inc. — Class A | 48 | 0.21 | % | (588 | ) | |||||||
PRA Health Sciences, Inc.* | 68 | 0.21 | % | (616 | ) | |||||||
Gibraltar Industries, Inc.* | 283 | 0.34 | % | (624 | ) | |||||||
Paychex, Inc. | 135 | 0.30 | % | (638 | ) | |||||||
Sirius XM Holdings, Inc. | 1,141 | 0.22 | % | (641 | ) | |||||||
Old Dominion Freight Line, Inc. | 54 | 0.22 | % | (663 | ) | |||||||
EPR Properties | 135 | 0.29 | % | (665 | ) | |||||||
Expeditors International of Washington, Inc. | 133 | 0.30 | % | (671 | ) | |||||||
JPMorgan Chase & Co. | 64 | 0.21 | % | (674 | ) | |||||||
Heartland Express, Inc. | 388 | 0.24 | % | (677 | ) | |||||||
Performance Food Group Co.* | 514 | 0.56 | % | (693 | ) | |||||||
UnitedHealth Group, Inc. | 51 | 0.43 | % | (694 | ) | |||||||
Universal Health Services, Inc. — Class B | 60 | 0.23 | % | (698 | ) | |||||||
Alaska Air Group, Inc. | 156 | 0.32 | % | (728 | ) | |||||||
Scholastic Corp. | 188 | 0.25 | % | (740 | ) | |||||||
United Parcel Service, Inc. — Class B | 64 | 0.21 | % | (747 | ) | |||||||
PulteGroup, Inc. | 361 | 0.31 | % | (756 | ) | |||||||
ConocoPhillips | 174 | 0.36 | % | (761 | ) | |||||||
IQVIA Holdings, Inc.* | 117 | 0.46 | % | (775 | ) | |||||||
Johnson Controls International plc | 201 | 0.20 | % | (789 | ) | |||||||
Activision Blizzard, Inc. | 133 | 0.21 | % | (791 | ) | |||||||
Murphy USA, Inc.* | 88 | 0.23 | % | (812 | ) | |||||||
NetApp, Inc. | 116 | 0.23 | % | (822 | ) | |||||||
Eaton Corporation plc | 266 | 0.61 | % | (826 | ) | |||||||
Sabre Corp. | 354 | 0.26 | % | (853 | ) | |||||||
Anthem, Inc. | 76 | 0.67 | % | (859 | ) | |||||||
Darden Restaurants, Inc. | 62 | 0.21 | % | (862 | ) | |||||||
Franklin Resources, Inc. | 278 | 0.28 | % | (869 | ) | |||||||
Hyatt Hotels Corp. — Class A | 102 | 0.23 | % | (887 | ) | |||||||
Texas Instruments, Inc. | 69 | 0.22 | % | (894 | ) | |||||||
Premier, Inc. — Class A* | 374 | 0.47 | % | (941 | ) | |||||||
Gilead Sciences, Inc. | 100 | 0.21 | % | (952 | ) | |||||||
Pentair plc | 167 | 0.21 | % | (956 | ) | |||||||
Saia, Inc.* | 118 | 0.22 | % | (959 | ) | |||||||
Altria Group, Inc. | 136 | 0.23 | % | (960 | ) | |||||||
Gentex Corp. | 318 | 0.22 | % | (973 | ) | |||||||
Centene Corp.* | 51 | 0.20 | % | (982 | ) | |||||||
Interpublic Group of Companies, Inc. | 530 | 0.37 | % | (993 | ) | |||||||
Kinder Morgan, Inc. | 438 | 0.23 | % | (995 | ) | |||||||
Bruker Corp. | 319 | 0.32 | % | (1,002 | ) | |||||||
Allergan plc | 43 | 0.19 | % | (1,005 | ) | |||||||
Accenture plc — Class A | 49 | 0.23 | % | (1,023 | ) | |||||||
La-Z-Boy, Inc. | 320 | 0.30 | % | (1,028 | ) | |||||||
ONEOK, Inc. | 151 | 0.27 | % | (1,033 | ) | |||||||
Pilgrim's Pride Corp.* | 372 | 0.19 | % | (1,053 | ) | |||||||
Quanta Services, Inc. | 222 | 0.22 | % | (1,054 | ) | |||||||
Piedmont Office Realty Trust, Inc. — Class A | 566 | 0.32 | % | (1,066 | ) | |||||||
Citrix Systems, Inc. | 157 | 0.54 | % | (1,084 | ) | |||||||
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT|157 |
SCHEDULE OF INVESTMENTS(continued) | December 31, 2018 |
SERIES Z (ALPHA OPPORTUNITY SERIES) |
| Shares | Percent | Value and | |||||||||
Delek US Holdings, Inc. | 190 | 0.21 | % | $ | (1,100 | ) | ||||||
Norfolk Southern Corp. | 109 | 0.55 | % | (1,109 | ) | |||||||
DR Horton, Inc. | 202 | 0.23 | % | (1,146 | ) | |||||||
Park Hotels & Resorts, Inc. | 461 | 0.40 | % | (1,161 | ) | |||||||
Tech Data Corp.* | 100 | 0.27 | % | (1,171 | ) | |||||||
Post Holdings, Inc.* | 219 | 0.65 | % | (1,199 | ) | |||||||
Intel Corp. | 260 | 0.41 | % | (1,218 | ) | |||||||
Baxter International, Inc. | 281 | 0.62 | % | (1,221 | ) | |||||||
Ryder System, Inc. | 152 | 0.25 | % | (1,231 | ) | |||||||
Mondelez International, Inc. — Class A | 368 | 0.49 | % | (1,244 | ) | |||||||
Schneider National, Inc. — Class B | 327 | 0.20 | % | (1,246 | ) | |||||||
Crane Co. | 77 | 0.19 | % | (1,279 | ) | |||||||
Broadridge Financial Solutions, Inc. | 65 | 0.21 | % | (1,282 | ) | |||||||
Trinity Industries, Inc. | 334 | 0.23 | % | (1,284 | ) | |||||||
Oshkosh Corp. | 114 | 0.23 | % | (1,307 | ) | |||||||
TRI Pointe Group, Inc.* | 576 | 0.21 | % | (1,310 | ) | |||||||
American Airlines Group, Inc. | 256 | 0.28 | % | (1,323 | ) | |||||||
Humana, Inc. | 63 | 0.61 | % | (1,362 | ) | |||||||
Sysco Corp. | 229 | 0.48 | % | (1,364 | ) | |||||||
Textron, Inc. | 126 | 0.19 | % | (1,375 | ) | |||||||
Catalent, Inc.* | 183 | 0.19 | % | (1,410 | ) | |||||||
General Motors Co. | 195 | 0.22 | % | (1,411 | ) | |||||||
J.B. Hunt Transport Services, Inc. | 112 | 0.35 | % | (1,501 | ) | |||||||
Philip Morris International, Inc. | 81 | 0.18 | % | (1,507 | ) | |||||||
Allstate Corp. | 142 | 0.39 | % | (1,532 | ) | |||||||
Domtar Corp. | 151 | 0.18 | % | (1,553 | ) | |||||||
Regal Beloit Corp. | 267 | 0.63 | % | (1,555 | ) | |||||||
Kansas City Southern | 237 | 0.76 | % | (1,571 | ) | |||||||
Caterpillar, Inc. | 110 | 0.47 | % | (1,574 | ) | |||||||
Arrow Electronics, Inc.* | 174 | 0.40 | % | (1,584 | ) | |||||||
KB Home | 335 | 0.21 | % | (1,611 | ) | |||||||
Rexnord Corp.* | 255 | 0.20 | % | (1,624 | ) | |||||||
Quest Diagnostics, Inc. | 137 | 0.38 | % | (1,628 | ) | |||||||
Werner Enterprises, Inc. | 218 | 0.22 | % | (1,643 | ) | |||||||
Hewlett Packard Enterprise Co. | 506 | 0.22 | % | (1,677 | ) | |||||||
Archer-Daniels-Midland Co. | 731 | 1.00 | % | (1,679 | ) | |||||||
Celanese Corp. — Class A | 70 | 0.21 | % | (1,702 | ) | |||||||
Chevron Corp. | 243 | 0.89 | % | (1,703 | ) | |||||||
Weingarten Realty Investors | 372 | 0.31 | % | (1,705 | ) | |||||||
Hartford Financial Services Group, Inc. | 248 | 0.37 | % | (1,742 | ) | |||||||
Delta Air Lines, Inc. | 437 | 0.73 | % | (1,747 | ) | |||||||
CSX Corp. | 187 | 0.39 | % | (1,779 | ) | |||||||
Constellation Brands, Inc. — Class A | 35 | 0.19 | % | (1,820 | ) | |||||||
Williams Companies, Inc. | 288 | 0.21 | % | (1,832 | ) | |||||||
Alexion Pharmaceuticals, Inc.* | 59 | 0.19 | % | (1,839 | ) | |||||||
Jazz Pharmaceuticals plc* | 46 | 0.19 | % | (1,854 | ) | |||||||
Spirit AeroSystems Holdings, Inc. — Class A | 94 | 0.23 | % | (1,866 | ) | |||||||
Stericycle, Inc.* | 206 | 0.25 | % | (1,869 | ) | |||||||
Union Pacific Corp. | 155 | 0.72 | % | (1,874 | ) | |||||||
Avnet, Inc. | 318 | 0.39 | % | (1,888 | ) | |||||||
Molina Healthcare, Inc.* | 103 | 0.40 | % | (1,897 | ) | |||||||
Meritor, Inc.* | 429 | 0.24 | % | (1,907 | ) | |||||||
Parker-Hannifin Corp. | 94 | 0.47 | % | (1,960 | ) | |||||||
EMCOR Group, Inc. | 196 | 0.39 | % | (1,964 | ) | |||||||
Knight-Swift Transportation Holdings, Inc. | 260 | 0.22 | % | (1,979 | ) | |||||||
XPO Logistics, Inc.* | 94 | 0.18 | % | (1,996 | ) | |||||||
IDEXX Laboratories, Inc.* | 35 | 0.22 | % | (1,999 | ) | |||||||
AGCO Corp. | 196 | 0.37 | % | (2,037 | ) | |||||||
Packaging Corporation of America | 73 | 0.20 | % | (2,039 | ) | |||||||
Amdocs Ltd. | 250 | 0.49 | % | (2,047 | ) | |||||||
Leidos Holdings, Inc. | 178 | 0.31 | % | (2,072 | ) | |||||||
InterDigital, Inc. | 173 | 0.39 | % | (2,092 | ) | |||||||
Prudential Financial, Inc. | 99 | 0.27 | % | (2,118 | ) | |||||||
Hospitality Properties Trust | 486 | 0.39 | % | (2,175 | ) | |||||||
JetBlue Airways Corp.* | 671 | 0.36 | % | (2,224 | ) | |||||||
Western Union Co. | 888 | 0.51 | % | (2,232 | ) | |||||||
Louisiana-Pacific Corp. | 399 | 0.30 | % | (2,241 | ) | |||||||
Principal Financial Group, Inc. | 143 | 0.21 | % | (2,246 | ) | |||||||
Lazard Ltd. — Class A | 209 | 0.26 | % | (2,293 | ) | |||||||
Nu Skin Enterprises, Inc. — Class A | 156 | 0.32 | % | (2,311 | ) | |||||||
Summit Hotel Properties, Inc. | 662 | 0.22 | % | (2,331 | ) | |||||||
State Street Corp. | 98 | 0.21 | % | (2,333 | ) | |||||||
HollyFrontier Corp. | 120 | 0.21 | % | (2,374 | ) | |||||||
Best Buy Company, Inc. | 104 | 0.18 | % | (2,399 | ) | |||||||
Greenbrier Companies, Inc. | 192 | 0.25 | % | (2,412 | ) | |||||||
News Corp. — Class A | 514 | 0.20 | % | (2,475 | ) | |||||||
PBF Energy, Inc. — Class A | 183 | 0.20 | % | (2,483 | ) | |||||||
PVH Corp. | 58 | 0.18 | % | (2,520 | ) | |||||||
Kraft Heinz Co. | 174 | 0.25 | % | (2,548 | ) | |||||||
HP, Inc. | 776 | 0.53 | % | (2,561 | ) | |||||||
International Paper Co. | 218 | 0.30 | % | (2,584 | ) | |||||||
Laboratory Corporation of America Holdings* | 72 | 0.31 | % | (2,611 | ) | |||||||
Mylan N.V.* | 239 | 0.22 | % | (2,732 | ) | |||||||
Kellogg Co. | 220 | 0.42 | % | (2,793 | ) | |||||||
Vector Group Ltd. | 625 | 0.20 | % | (2,804 | ) | |||||||
Lear Corp. | 50 | 0.21 | % | (2,810 | ) | |||||||
158|THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
SCHEDULE OF INVESTMENTS(continued) | December 31, 2018 |
SERIES Z (ALPHA OPPORTUNITY SERIES) |
| Shares | Percent | Value and | |||||||||
Cognizant Technology Solutions Corp. — Class A | 189 | 0.40 | % | $ | (2,818 | ) | ||||||
Seagate Technology plc | 184 | 0.24 | % | (2,853 | ) | |||||||
PACCAR, Inc. | 210 | 0.40 | % | (2,865 | ) | |||||||
Bio-Rad Laboratories, Inc. — Class A* | 52 | 0.41 | % | (3,007 | ) | |||||||
Masco Corp. | 358 | 0.35 | % | (3,008 | ) | |||||||
Host Hotels & Resorts, Inc. | 642 | 0.36 | % | (3,010 | ) | |||||||
BorgWarner, Inc. | 389 | 0.45 | % | (3,024 | ) | |||||||
ON Semiconductor Corp.* | 445 | 0.25 | % | (3,028 | ) | |||||||
Cummins, Inc. | 126 | 0.56 | % | (3,266 | ) | |||||||
Exxon Mobil Corp. | 360 | 0.82 | % | (3,292 | ) | |||||||
Cirrus Logic, Inc.* | 364 | 0.41 | % | (3,295 | ) | |||||||
LyondellBasell Industries N.V. — Class A | 119 | 0.33 | % | (3,322 | ) | |||||||
Southwest Airlines Co. | 298 | 0.46 | % | (3,362 | ) | |||||||
AECOM* | 432 | 0.38 | % | (3,454 | ) | |||||||
CoreLogic, Inc.* | 262 | 0.29 | % | (3,493 | ) | |||||||
TE Connectivity Ltd. | 206 | 0.52 | % | (3,528 | ) | |||||||
MEDNAX, Inc.* | 353 | 0.39 | % | (3,538 | ) | |||||||
Huntsman Corp. | 333 | 0.22 | % | (3,586 | ) | |||||||
Skyworks Solutions, Inc. | 166 | 0.37 | % | (3,632 | ) | |||||||
Copa Holdings S.A. — Class A | 118 | 0.31 | % | (3,664 | ) | |||||||
Ligand Pharmaceuticals, Inc. — Class B* | 47 | 0.21 | % | (3,716 | ) | |||||||
Occidental Petroleum Corp. | 272 | 0.56 | % | (4,031 | ) | |||||||
Molson Coors Brewing Co. — Class B | 421 | 0.79 | % | (4,063 | ) | |||||||
Chemours Co. | 225 | 0.21 | % | (4,134 | ) | |||||||
Belden, Inc. | 141 | 0.20 | % | (4,179 | ) | |||||||
Zayo Group Holdings, Inc.* | 351 | 0.27 | % | (4,193 | ) | |||||||
Lions Gate Entertainment Corp. — Class A | 584 | 0.32 | % | (4,407 | ) | |||||||
Trinseo S.A. | 190 | 0.29 | % | (4,773 | ) | |||||||
Eastman Chemical Co. | 178 | 0.44 | % | (4,933 | ) | |||||||
Westlake Chemical Corp. | 262 | 0.58 | % | (5,080 | ) | |||||||
Olin Corp. | 559 | 0.38 | % | (5,153 | ) | |||||||
Valero Energy Corp. | 237 | 0.60 | % | (5,254 | ) | |||||||
Cabot Corp. | 335 | 0.48 | % | (5,283 | ) | |||||||
Western Digital Corp. | 157 | 0.19 | % | (5,285 | ) | |||||||
McKesson Corp. | 378 | 1.40 | % | (5,989 | ) | |||||||
Phillips 66 | 271 | 0.78 | % | (6,400 | ) | |||||||
Delphi Technologies plc | 408 | 0.20 | % | (6,403 | ) | |||||||
Boise Cascade Co. | 563 | 0.45 | % | (6,527 | ) | |||||||
DXC Technology Co. | 266 | 0.47 | % | (6,563 | ) | |||||||
Tyson Foods, Inc. — Class A | 432 | 0.77 | % | (6,903 | ) | |||||||
|
|
| Value and | |||||||||
Cardinal Health, Inc. | 756 | 1.13 | % | (7,731 | ) | |||||||
Senior Housing Properties Trust | 1,731 | 0.68 | % | (8,067 | ) | |||||||
FedEx Corp. | 126 | 0.68 | % | (9,203 | ) | |||||||
Total Custom Basket of Long Securities | (351,576 | ) | ||||||||||
CUSTOM BASKET OF SHORT SECURITIES5 | ||||||||||||
Sensient Technologies Corp. | (1,427 | ) | (0.92 | %) | 27,850 | |||||||
Southern Copper Corp. | (1,981 | ) | (0.70 | %) | 24,700 | |||||||
Compass Minerals International, Inc. | (907 | ) | (0.44 | %) | 24,180 | |||||||
Equifax, Inc. | (575 | ) | (0.62 | %) | 22,015 | |||||||
Texas Capital Bancshares, Inc.* | (409 | ) | (0.25 | %) | 17,439 | |||||||
Goldman Sachs Group, Inc. | (203 | ) | (0.39 | %) | 15,572 | |||||||
National Oilwell Varco, Inc. | (930 | ) | (0.27 | %) | 14,875 | |||||||
First Horizon National Corp. | (2,932 | ) | (0.44 | %) | 14,825 | |||||||
ASGN, Inc.* | (971 | ) | (0.60 | %) | 14,735 | |||||||
WPX Energy, Inc.* | (1,893 | ) | (0.24 | %) | 14,590 | |||||||
Leggett & Platt, Inc. | (1,770 | ) | (0.72 | %) | 13,763 | |||||||
Sterling Bancorp | (1,564 | ) | (0.29 | %) | 12,555 | |||||||
Howard Hughes Corp.* | (459 | ) | (0.51 | %) | 12,275 | |||||||
Healthcare Services Group, Inc. | (1,254 | ) | (0.57 | %) | 12,247 | |||||||
Multi-Color Corp. | (419 | ) | (0.17 | %) | 12,199 | |||||||
PolyOne Corp. | (1,006 | ) | (0.33 | %) | 11,875 | |||||||
Wabtec Corp. | (301 | ) | (0.24 | %) | 11,619 | |||||||
Core Laboratories N.V. | (480 | ) | (0.33 | %) | 11,551 | |||||||
Scotts Miracle-Gro Co. — Class A | (690 | ) | (0.48 | %) | 11,180 | |||||||
Balchem Corp. | (1,123 | ) | (1.00 | %) | 11,126 | |||||||
Polaris Industries, Inc. | (452 | ) | (0.39 | %) | 10,505 | |||||||
Valley National Bancorp | (2,745 | ) | (0.28 | %) | 10,250 | |||||||
Royal Caribbean Cruises Ltd. | (552 | ) | (0.62 | %) | 10,148 | |||||||
Marriott International, Inc. — Class A | (380 | ) | (0.47 | %) | 10,068 | |||||||
Steven Madden Ltd. | (2,084 | ) | (0.72 | %) | 9,816 | |||||||
Corporate Office Properties Trust | (1,227 | ) | (0.29 | %) | 9,689 | |||||||
Pinnacle Financial Partners, Inc. | (534 | ) | (0.28 | %) | 9,562 | |||||||
Charles Schwab Corp. | (856 | ) | (0.41 | %) | 9,405 | |||||||
Invitation Homes, Inc. | (3,507 | ) | (0.80 | %) | 9,315 | |||||||
Associated Banc-Corp. | (1,129 | ) | (0.25 | %) | 9,173 | |||||||
General Dynamics Corp. | (264 | ) | (0.47 | %) | 8,942 | |||||||
Douglas Emmett, Inc. | (1,963 | ) | (0.76 | %) | 8,813 | |||||||
Paramount Group, Inc. | (3,346 | ) | (0.48 | %) | 8,742 | |||||||
KeyCorp | (1,353 | ) | (0.23 | %) | 8,631 | |||||||
Guidewire Software, Inc.* | (487 | ) | (0.45 | %) | 8,548 | |||||||
Hanesbrands, Inc. | (1,580 | ) | (0.23 | %) | 8,262 | |||||||
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT|159 |
SCHEDULE OF INVESTMENTS(continued) | December 31, 2018 |
SERIES Z (ALPHA OPPORTUNITY SERIES) |
| Shares | Percent | Value and | |||||||||
NewMarket Corp. | (309 | ) | (1.45 | %) | $ | 8,019 | ||||||
WR Grace & Co. | (1,359 | ) | (1.01 | %) | 7,789 | |||||||
Eaton Vance Corp. | (709 | ) | (0.28 | %) | 7,771 | |||||||
Robert Half International, Inc. | (400 | ) | (0.26 | %) | 7,756 | |||||||
Mobile Mini, Inc. | (668 | ) | (0.24 | %) | 7,644 | |||||||
Commercial Metals Co. | (1,525 | ) | (0.28 | %) | 7,368 | |||||||
Ulta Beauty, Inc.* | (159 | ) | (0.44 | %) | 7,268 | |||||||
Graphic Packaging Holding Co. | (2,920 | ) | (0.35 | %) | 7,248 | |||||||
HB Fuller Co. | (962 | ) | (0.47 | %) | 7,147 | |||||||
Equinix, Inc. | (109 | ) | (0.44 | %) | 7,043 | |||||||
Vulcan Materials Co. | (238 | ) | (0.27 | %) | 7,026 | |||||||
Allegheny Technologies, Inc.* | (1,968 | ) | (0.49 | %) | 6,952 | |||||||
People's United Financial, Inc. | (1,570 | ) | (0.26 | %) | 6,780 | |||||||
Martin Marietta Materials, Inc. | (136 | ) | (0.27 | %) | 6,763 | |||||||
Pioneer Natural Resources Co. | (304 | ) | (0.46 | %) | 6,741 | |||||||
First Republic Bank | (602 | ) | (0.60 | %) | 6,740 | |||||||
Tetra Tech, Inc. | (1,459 | ) | (0.86 | %) | 6,738 | |||||||
Xylem, Inc. | (833 | ) | (0.63 | %) | 6,717 | |||||||
Vornado Realty Trust | (659 | ) | (0.47 | %) | 6,477 | |||||||
LKQ Corp.* | (1,606 | ) | (0.43 | %) | 6,468 | |||||||
Albemarle Corp. | (252 | ) | (0.22 | %) | 6,385 | |||||||
Northrop Grumman Corp. | (96 | ) | (0.27 | %) | 6,295 | |||||||
Old National Bancorp | (1,356 | ) | (0.24 | %) | 5,870 | |||||||
Jacobs Engineering Group, Inc. | (357 | ) | (0.24 | %) | 5,803 | |||||||
Netflix, Inc.* | (85 | ) | (0.26 | %) | 5,755 | |||||||
BB&T Corp. | (634 | ) | (0.31 | %) | 5,743 | |||||||
Whirlpool Corp. | (214 | ) | (0.26 | %) | 5,679 | |||||||
Huntington Bancshares, Inc. | (1,656 | ) | (0.22 | %) | 5,667 | |||||||
Choice Hotels International, Inc. | (625 | ) | (0.51 | %) | 5,506 | |||||||
Grand Canyon Education, Inc.* | (198 | ) | (0.22 | %) | 5,490 | |||||||
Covanta Holding Corp. | (1,609 | ) | (0.25 | %) | 5,438 | |||||||
Washington Federal, Inc. | (901 | ) | (0.27 | %) | 5,337 | |||||||
Fifth Third Bancorp | (900 | ) | (0.24 | %) | 5,334 | |||||||
Signature Bank | (240 | ) | (0.28 | %) | 5,309 | |||||||
AMETEK, Inc. | (616 | ) | (0.48 | %) | 5,098 | |||||||
New York Community Bancorp, Inc. | (2,599 | ) | (0.28 | %) | 5,093 | |||||||
U.S. Bancorp | (590 | ) | (0.31 | %) | 5,087 | |||||||
Wolverine World Wide, Inc. | (791 | ) | (0.29 | %) | 5,077 | |||||||
Roper Technologies, Inc. | (174 | ) | (0.53 | %) | 4,992 | |||||||
Ross Stores, Inc. | (385 | ) | (0.37 | %) | 4,892 | |||||||
Boston Properties, Inc. | (475 | ) | (0.61 | %) | 4,826 | |||||||
Sotheby's* | (633 | ) | (0.29 | %) | 4,728 | |||||||
Terreno Realty Corp. | (2,251 | ) | (0.90 | %) | 4,638 | |||||||
CarMax, Inc.* | (381 | ) | (0.27 | %) | 4,578 | |||||||
US Ecology, Inc. | (357 | ) | (0.26 | %) | 4,573 | |||||||
Markel Corp.* | (62 | ) | (0.73 | %) | 4,572 | |||||||
Silgan Holdings, Inc. | (1,332 | ) | (0.36 | %) | 4,509 | |||||||
Ally Financial, Inc. | (1,082 | ) | (0.28 | %) | 4,508 | |||||||
Crown Holdings, Inc.* | (610 | ) | (0.29 | %) | 4,455 | |||||||
Capitol Federal Financial, Inc. | (5,219 | ) | (0.76 | %) | 4,415 | |||||||
Adtalem Global Education, Inc.* | (432 | ) | (0.23 | %) | 4,368 | |||||||
Allegion plc | (492 | ) | (0.45 | %) | 4,364 | |||||||
IBERIABANK Corp. | (378 | ) | (0.28 | %) | 4,326 | |||||||
American Homes 4 Rent — Class A | (1,742 | ) | (0.39 | %) | 4,314 | |||||||
Harley-Davidson, Inc. | (600 | ) | (0.23 | %) | 4,260 | |||||||
Sealed Air Corp. | (702 | ) | (0.28 | %) | 3,922 | |||||||
Alexandria Real Estate Equities, Inc. | (421 | ) | (0.55 | %) | 3,917 | |||||||
IHS Markit Ltd.* | (1,492 | ) | (0.82 | %) | 3,891 | |||||||
Viad Corp. | (492 | ) | (0.28 | %) | 3,836 | |||||||
Prologis, Inc. | (470 | ) | (0.31 | %) | 3,727 | |||||||
Floor & Decor Holdings, Inc. — Class A* | (523 | ) | (0.15 | %) | 3,673 | |||||||
Camden Property Trust | (583 | ) | (0.58 | %) | 3,621 | |||||||
Retail Opportunity Investments Corp. | (3,160 | ) | (0.57 | %) | 3,476 | |||||||
General Mills, Inc. | (548 | ) | (0.24 | %) | 3,379 | |||||||
Empire State Realty Trust, Inc. — Class A | (2,641 | ) | (0.43 | %) | 3,326 | |||||||
Omnicell, Inc.* | (380 | ) | (0.27 | %) | 3,304 | |||||||
Cheesecake Factory, Inc. | (488 | ) | (0.24 | %) | 3,143 | |||||||
PPG Industries, Inc. | (336 | ) | (0.39 | %) | 3,093 | |||||||
Intuit, Inc. | (200 | ) | (0.45 | %) | 3,075 | |||||||
Palo Alto Networks, Inc.* | (143 | ) | (0.31 | %) | 3,067 | |||||||
Honeywell International, Inc. | (210 | ) | (0.32 | %) | 3,014 | |||||||
Haemonetics Corp.* | (235 | ) | (0.27 | %) | 2,980 | |||||||
Texas Roadhouse, Inc. — Class A | (806 | ) | (0.55 | %) | 2,961 | |||||||
Bio-Techne Corp. | (154 | ) | (0.25 | %) | 2,879 | |||||||
Costco Wholesale Corp. | (230 | ) | (0.53 | %) | 2,868 | |||||||
Service Corporation International | (774 | ) | (0.36 | %) | 2,726 | |||||||
RPM International, Inc. | (1,142 | ) | (0.76 | %) | 2,660 | |||||||
Marsh & McLennan Companies, Inc. | (348 | ) | (0.32 | %) | 2,592 | |||||||
Dunkin' Brands Group, Inc. | (345 | ) | (0.25 | %) | 2,506 | |||||||
Regency Centers Corp. | (437 | ) | (0.29 | %) | 2,475 | |||||||
West Pharmaceutical Services, Inc. | (234 | ) | (0.26 | %) | 2,407 | |||||||
Team, Inc.* | (2,089 | ) | (0.35 | %) | 2,348 | |||||||
Becton Dickinson and Co. | (186 | ) | (0.48 | %) | 2,266 | |||||||
Tesla, Inc.* | (123 | ) | (0.47 | %) | 2,226 | |||||||
160|THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
SCHEDULE OF INVESTMENTS(continued) | December 31, 2018 |
SERIES Z (ALPHA OPPORTUNITY SERIES) |
| Shares | Percent | Value and | |||||||||
Chemed Corp. | (82 | ) | (0.26 | %) | $ | 2,078 | ||||||
Amazon.com, Inc.* | (23 | ) | (0.39 | %) | 2,067 | |||||||
Kilroy Realty Corp. | (749 | ) | (0.54 | %) | 2,041 | |||||||
Tractor Supply Co. | (283 | ) | (0.27 | %) | 2,013 | |||||||
Liberty Property Trust | (1,059 | ) | (0.51 | %) | 1,966 | |||||||
Gentherm, Inc.* | (564 | ) | (0.26 | %) | 1,948 | |||||||
Fastenal Co. | (456 | ) | (0.27 | %) | 1,925 | |||||||
Atmos Energy Corp. | (668 | ) | (0.71 | %) | 1,858 | |||||||
GCP Applied Technologies, Inc.* | (938 | ) | (0.26 | %) | 1,843 | |||||||
Arthur J Gallagher & Co. | (533 | ) | (0.45 | %) | 1,834 | |||||||
MGM Resorts International | (969 | ) | (0.27 | %) | 1,782 | |||||||
Boeing Co. | (101 | ) | (0.37 | %) | 1,722 | |||||||
Sherwin-Williams Co. | (77 | ) | (0.35 | %) | 1,714 | |||||||
iRobot Corp.* | (273 | ) | (0.26 | %) | 1,695 | |||||||
South Jersey Industries, Inc. | (1,119 | ) | (0.35 | %) | 1,661 | |||||||
Booking Holdings, Inc.* | (14 | ) | (0.27 | %) | 1,653 | |||||||
Sempra Energy | (375 | ) | (0.46 | %) | 1,632 | |||||||
ABM Industries, Inc. | (829 | ) | (0.30 | %) | 1,558 | |||||||
Axalta Coating Systems Ltd.* | (1,000 | ) | (0.27 | %) | 1,545 | |||||||
Genuine Parts Co. | (562 | ) | (0.61 | %) | 1,462 | |||||||
Six Flags Entertainment Corp. | (439 | ) | (0.28 | %) | 1,435 | |||||||
Healthcare Trust of America, Inc. — Class A | (2,630 | ) | (0.76 | %) | 1,390 | |||||||
Hawaiian Electric Industries, Inc. | (1,764 | ) | (0.74 | %) | 1,372 | |||||||
AutoNation, Inc.* | (635 | ) | (0.26 | %) | 1,315 | |||||||
Air Products & Chemicals, Inc. | (307 | ) | (0.56 | %) | 1,261 | |||||||
Asbury Automotive Group, Inc.* | (358 | ) | (0.27 | %) | 1,197 | |||||||
TopBuild Corp.* | (498 | ) | (0.26 | %) | 1,185 | |||||||
McDonald's Corp. | (227 | ) | (0.46 | %) | 1,149 | |||||||
Everest Re Group Ltd. | (126 | ) | (0.31 | %) | 1,128 | |||||||
3M Co. | (128 | ) | (0.28 | %) | 1,117 | |||||||
Linde plc | (159 | ) | (0.28 | %) | 1,074 | |||||||
Domino's Pizza, Inc. | (95 | ) | (0.27 | %) | 1,073 | |||||||
Starbucks Corp. | (435 | ) | (0.32 | %) | 1,026 | |||||||
Royal Gold, Inc. | (623 | ) | (0.61 | %) | 974 | |||||||
Meredith Corp. | (883 | ) | (0.52 | %) | 931 | |||||||
Vail Resorts, Inc. | (96 | ) | (0.23 | %) | 903 | |||||||
Pool Corp. | (304 | ) | (0.51 | %) | 897 | |||||||
Physicians Realty Trust | (2,017 | ) | (0.37 | %) | 876 | |||||||
Clorox Co. | (156 | ) | (0.27 | %) | 864 | |||||||
Mettler-Toledo International, Inc.* | (43 | ) | (0.28 | %) | 697 | |||||||
STORE Capital Corp. | (1,238 | ) | (0.40 | %) | 690 | |||||||
Cannae Holdings, Inc.* | (1,954 | ) | (0.38 | %) | 686 | |||||||
Berry Global Group, Inc.* | (538 | ) | (0.29 | %) | 660 | |||||||
Insulet Corp.* | (309 | ) | (0.28 | %) | 647 | |||||||
|
|
| Value and | |||||||||
Cable One, Inc. | (29 | ) | (0.27 | %) | 598 | |||||||
Public Storage | (162 | ) | (0.37 | %) | 563 | |||||||
Tyler Technologies, Inc.* | (195 | ) | (0.41 | %) | 535 | |||||||
Hilton Worldwide Holdings, Inc. | (704 | ) | (0.58 | %) | 315 | |||||||
MSA Safety, Inc. | (357 | ) | (0.38 | %) | 312 | |||||||
Monolithic Power Systems, Inc. | (354 | ) | (0.47 | %) | 299 | |||||||
O'Reilly Automotive, Inc.* | (70 | ) | (0.27 | %) | 123 | |||||||
FireEye, Inc.* | (1,731 | ) | (0.32 | %) | 64 | |||||||
Pegasystems, Inc. | (702 | ) | (0.38 | %) | 31 | |||||||
Republic Services, Inc. — Class A | (782 | ) | (0.64 | %) | 12 | |||||||
Waste Management, Inc. | (436 | ) | (0.44 | %) | 8 | |||||||
NiSource, Inc. | (1,572 | ) | (0.45 | %) | (25 | ) | ||||||
Rexford Industrial Realty, Inc. | (1,717 | ) | (0.58 | %) | (29 | ) | ||||||
Crown Castle International Corp. | (435 | ) | (0.54 | %) | (77 | ) | ||||||
National Retail Properties, Inc. | (612 | ) | (0.34 | %) | (234 | ) | ||||||
salesforce.com, Inc.* | (535 | ) | (0.84 | %) | (253 | ) | ||||||
Equity Residential | (619 | ) | (0.47 | %) | (274 | ) | ||||||
Aon plc | (159 | ) | (0.26 | %) | (315 | ) | ||||||
Coca-Cola Co. | (500 | ) | (0.27 | %) | (341 | ) | ||||||
AptarGroup, Inc. | (244 | ) | (0.26 | %) | (342 | ) | ||||||
Intercontinental Exchange, Inc. | (419 | ) | (0.36 | %) | (369 | ) | ||||||
Axis Capital Holdings Ltd. | (831 | ) | (0.49 | %) | (568 | ) | ||||||
Federal Realty Investment Trust | (219 | ) | (0.29 | %) | (608 | ) | ||||||
Incyte Corp.* | (392 | ) | (0.28 | %) | (640 | ) | ||||||
Wayfair, Inc. — Class A* | (269 | ) | (0.28 | %) | (648 | ) | ||||||
CoStar Group, Inc.* | (128 | ) | (0.49 | %) | (790 | ) | ||||||
Digital Realty Trust, Inc. | (424 | ) | (0.51 | %) | (816 | ) | ||||||
TransUnion | (389 | ) | (0.25 | %) | (910 | ) | ||||||
MarketAxess Holdings, Inc. | (144 | ) | (0.35 | %) | (930 | ) | ||||||
Essex Property Trust, Inc. | (211 | ) | (0.59 | %) | (982 | ) | ||||||
AvalonBay Communities, Inc. | (269 | ) | (0.53 | %) | (999 | ) | ||||||
Hormel Foods Corp. | (1,222 | ) | (0.59 | %) | (1,154 | ) | ||||||
ServiceNow, Inc.* | (170 | ) | (0.34 | %) | (1,215 | ) | ||||||
Deere & Co. | (282 | ) | (0.48 | %) | (1,221 | ) | ||||||
SBA Communications Corp.* | (254 | ) | (0.47 | %) | (1,400 | ) | ||||||
TransDigm Group, Inc.* | (155 | ) | (0.60 | %) | (1,505 | ) | ||||||
White Mountains Insurance Group Ltd. | (73 | ) | (0.71 | %) | (1,513 | ) | ||||||
Dominion Energy, Inc. | (506 | ) | (0.41 | %) | (1,581 | ) | ||||||
Alliant Energy Corp. | (872 | ) | (0.42 | %) | (1,744 | ) | ||||||
American Campus Communities, Inc. | (1,336 | ) | (0.63 | %) | (1,954 | ) | ||||||
Alleghany Corp. | (45 | ) | (0.32 | %) | (1,981 | ) | ||||||
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT|161 |
SCHEDULE OF INVESTMENTS(continued) | December 31, 2018 |
SERIES Z (ALPHA OPPORTUNITY SERIES) |
| Shares | Percent | Value and | |||||||||
Glacier Bancorp, Inc. | (756 | ) | (0.34 | %) | $ | (3,136 | ) | |||||
Church & Dwight Company, Inc. | (381 | ) | (0.29 | %) | (3,259 | ) | ||||||
MSCI, Inc. — Class A | (202 | ) | (0.34 | %) | (3,784 | ) | ||||||
Cintas Corp. | (221 | ) | (0.42 | %) | (3,879 | ) | ||||||
Welltower, Inc. | (746 | ) | (0.59 | %) | (4,644 | ) | ||||||
Ultimate Software Group, Inc.* | (130 | ) | (0.36 | %) | (5,005 | ) | ||||||
HCP, Inc. | (1,448 | ) | (0.46 | %) | (5,351 | ) | ||||||
Eversource Energy | (826 | ) | (0.61 | %) | (5,695 | ) | ||||||
Copart, Inc.* | (511 | ) | (0.28 | %) | (5,720 | ) | ||||||
EastGroup Properties, Inc. | (697 | ) | (0.73 | %) | (5,930 | ) | ||||||
Workday, Inc. — Class A* | (222 | ) | (0.40 | %) | (6,158 | ) | ||||||
Sun Communities, Inc. | (1,002 | ) | (1.16 | %) | (6,172 | ) | ||||||
Cornerstone OnDemand, Inc.* | (521 | ) | (0.30 | %) | (6,273 | ) | ||||||
|
|
| Value and | |||||||||
American Tower Corp. — Class A | (339 | ) | (0.61 | %) | (6,433 | ) | ||||||
Equity LifeStyle Properties, Inc. | (939 | ) | (1.04 | %) | (6,700 | ) | ||||||
UDR, Inc. | (1,178 | ) | (0.53 | %) | (7,376 | ) | ||||||
SPS Commerce, Inc.* | (342 | ) | (0.32 | %) | (7,775 | ) | ||||||
American Water Works Company, Inc. | (786 | ) | (0.81 | %) | (8,324 | ) | ||||||
Ecolab, Inc. | (362 | ) | (0.61 | %) | (8,374 | ) | ||||||
Realty Income Corp. | (1,161 | ) | (0.83 | %) | (10,219 | ) | ||||||
RLI Corp. | (1,060 | ) | (0.83 | %) | (10,344 | ) | ||||||
Verisk Analytics, Inc. — Class A* | (643 | ) | (0.80 | %) | (11,697 | ) | ||||||
Rollins, Inc. | (3,117 | ) | (1.28 | %) | (16,462 | ) | ||||||
Exponent, Inc. | (2,068 | ) | (1.20 | %) | (18,915 | ) | ||||||
Total Custom Basket of Short Securities | 730,498 | |||||||||||
* | 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 a portion of this security is pledged as custom basket swap collateral at December 31, 2018. |
2 | Security was fair valued by the Valuation Committee at December 31, 2018. The total market value of fair valued securities amounts to $0, (cost $101,261) or 0.0% of total net assets. |
3 | Rate indicated is the 7-day yield as of December 31, 2018. |
4 | Total Return based on the return of the custom long basket of securities +/- financing at a variable rate. Rate indicated is rate effective at December 31, 2018. |
5 | Total Return based on the return of the custom short basket of securities +/- financing at a variable rate. Rate indicated is rate effective at December 31, 2018. |
plc — Public Limited Company | |
REIT — Real Estate Investment Trust | |
See Sector Classification in Other Information section. |
162|THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
SCHEDULE OF INVESTMENTS(concluded) | December 31, 2018 |
SERIES Z (ALPHA OPPORTUNITY SERIES) |
The following table summarizes the inputs used to value the Fund’s investments at December 31, 2018 (See Note 4 in the Notes to Financial Statements):
Investments in Securities (Assets) | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Common Stocks | $ | 7,551,123 | $ | — | $ | — | * | $ | 7,551,123 | |||||||
Money Market Fund | 158,038 | — | — | 158,038 | ||||||||||||
Custom Basket Swap Agreements** | — | 730,498 | — | 730,498 | ||||||||||||
Total Assets | $ | 7,709,161 | $ | 730,498 | $ | — | $ | 8,439,659 | ||||||||
| ||||||||||||||||
Investments in Securities (Liabilities) | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Custom Basket Swap Agreements** | $ | — | $ | 351,576 | $ | — | $ | 351,576 | ||||||||
* | Security has a market value of $0. |
** | This derivative is reported as unrealized appreciation/depreciation at period end. |
Transfers between investment levels may occur as the markets fluctuate and/or the availability of data used in an investment’s valuation changes. Transfers between valuation levels, if any, are in comparison to the valuation levels at the end of the previous fiscal year, and are effective using the fair value as of the end of the current fiscal period.
For the year ended December 31, 2018, there were no transfers between levels.
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT|163 |
SERIES Z (ALPHA OPPORTUNITY SERIES) |
STATEMENT OF ASSETS AND LIABILITIES |
December 31, 2018 |
Assets: | ||||
Investments, at value (cost $8,706,858) | $ | 7,709,161 | ||
Unrealized appreciation on swap agreements | 730,498 | |||
Prepaid expenses | 4,314 | |||
Receivables: | ||||
Dividends | 14,097 | |||
Investment Adviser | 6.890 | |||
Swap settlement | 937 | |||
Interest | 293 | |||
Fund shares sold | 57 | |||
Total assets | 8,466,247 | |||
Liabilities: | ||||
Overdraft due to custodian bank | 954 | |||
Unrealized depreciation on swap agreements | 351,576 | |||
Payable for: | ||||
Professional fees | 27,111 | |||
Transfer agent/maintenance fees | 4,174 | |||
Distribution and service fees | 1,622 | |||
Trustees’ fees* | 845 | |||
Fund shares redeemed | 801 | |||
Miscellaneous | 22,823 | |||
Total liabilities | 409,906 | |||
Commitments and contingent liabilities (Note 15) | — | |||
Net assets | $ | 8,056,341 | ||
Net assets consist of: | ||||
Paid in capital | $ | 9,281,064 | ||
Total distributable earnings (loss) | (1,224,723 | ) | ||
Net assets | $ | 8,056,341 | ||
Capital shares outstanding | 527,522 | |||
Net asset value per share | $ | 15.27 | ||
STATEMENT OF OPERATIONS |
Year Ended December 31, 2018 |
Investment Income: | ||||
Dividends (net of foreign withholding tax of $88) | $ | 215,807 | ||
Interest | 6,087 | |||
Total investment income | 221,894 | |||
Expenses: | ||||
Management fees | 90,373 | |||
Distribution and service fees | 25,104 | |||
Transfer agent/maintenance fees | 25,213 | |||
Professional fees | 31,861 | |||
Fund accounting/administration fees | 24,999 | |||
Trustees’ fees* | 15,894 | |||
Custodian fees | 11,001 | |||
Line of credit fees | 710 | |||
Miscellaneous | 22,867 | |||
Total expenses | 248,022 | |||
Less: | ||||
Expenses reimbursed by Adviser | (9,281 | ) | ||
Expenses waived by Adviser | (38,608 | ) | ||
Total waived/reimbursed expenses | (47,889 | ) | ||
Net expenses | 200,133 | |||
Net investment income | 21,761 | |||
Net Realized and Unrealized Gain (Loss): | ||||
Net realized gain (loss) on: | ||||
Investments | 956,643 | |||
Swap agreements | (1,560,948 | ) | ||
Net realized loss | (604,305 | ) | ||
Net change in unrealized appreciation (depreciation) on: | ||||
Investments | (1,803,968 | ) | ||
Swap agreements | 1,099,195 | |||
Net change in unrealized appreciation (depreciation) | (704,773 | ) | ||
Net realized and unrealized loss | (1,309,078 | ) | ||
Net decrease in net assets resulting from operations | $ | (1,287,317 | ) | |
* | Relates to Trustees not deemed “interested persons” within the meaning of Section 2(a)(19) of the 1940 Act. |
164|THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
SERIES Z (ALPHA OPPORTUNITY SERIES) |
STATEMENTS OF CHANGES IN NET ASSETS |
| Year Ended December 31, 2018 | Year Ended December 31, 2017 | |||||||
| Increase (Decrease) in Net Assets from Operations: | ||||||||
| Net investment income (loss) | $ | 21,761 | $ | (28,603 | ) | |||
| Net realized gain (loss) on investments | (604,305 | ) | 1,207,189 | |||||
| Net change in unrealized appreciation (depreciation) on investments | (704,773 | ) | (306,349 | ) | ||||
| Net increase (decrease) in net assets resulting from operations | (1,287,317 | ) | 872,237 | |||||
| Distributions to shareholders | (1,239,887 | ) | — | |||||
| Capital share transactions: | ||||||||
| Proceeds from sale of shares | 242,866 | 233,931 | ||||||
| Distributions reinvested | 1,239,887 | — | ||||||
| Cost of shares redeemed | (3,215,853 | ) | (1,981,860 | ) | ||||
| Net decrease from capital share transactions | (1,733,100 | ) | (1,747,929 | ) | ||||
| Net decrease in net assets | (4,260,304 | ) | (875,692 | ) | ||||
| Net assets: | ||||||||
| Beginning of year | 12,316,645 | 13,192,337 | ||||||
| End of year | $ | 8,056,341 | $ | 12,316,645 | ||||
| Capital share activity: | ||||||||
| Shares sold | 14,248 | 12,271 | ||||||
| Shares issued from reinvestment of distributions | 78,723 | — | ||||||
| Shares redeemed | (179,652 | ) | (103,565 | ) | ||||
| Net decrease in shares | (86,681 | ) | (91,294 | ) | ||||
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT|165 |
SERIES Z (ALPHA OPPORTUNITY SERIES) |
FINANCIAL HIGHLIGHTS |
This table is presented to show selected data for a share outstanding throughout each period and to assist shareholders in evaluating a Fund’s performance for the periods presented.
| Year Ended December 31, 2018 | Year Ended December 31, 2017 | Year Ended December 31, 2016 | Year Ended December 31, 2015 | Year Ended December 31, 2014 | ||||||||||||||||
| Per Share Data | ||||||||||||||||||||
| Net asset value, beginning of period | $ | 20.05 | $ | 18.70 | $ | 16.59 | $ | 27.33 | $ | 25.00 | ||||||||||
| Income (loss) from investment operations: | ||||||||||||||||||||
Net investment income (loss)a | .04 | (.04 | ) | (.21 | ) | (.43 | ) | (.43 | ) | |||||||||||
| Net gain (loss) on investments (realized and unrealized) | (2.28 | ) | 1.39 | 2.32 | (.69 | ) | 2.76 | |||||||||||||
| Total from investment operations | (2.24 | ) | 1.35 | 2.11 | (1.12 | ) | 2.33 | |||||||||||||
| Less distributions from: | ||||||||||||||||||||
| Net realized gains | (2.54 | ) | — | — | (9.62 | ) | — | |||||||||||||
| Total distributions | (2.54 | ) | — | — | (9.62 | ) | — | |||||||||||||
| Net asset value, end of period | $ | 15.27 | $ | 20.05 | $ | 18.70 | $ | 16.59 | $ | 27.33 | ||||||||||
Total Returnb | (11.57 | %) | 7.22 | % | 12.79 | % | (4.69 | %) | 9.36 | % | ||||||||||
| Ratios/Supplemental Data | ||||||||||||||||||||
| Net assets, end of period (in thousands) | $ | 8,056 | $ | 12,317 | $ | 13,192 | $ | 12,548 | $ | 15,611 | ||||||||||
| Ratios to average net assets: | ||||||||||||||||||||
| Net investment income (loss) | 0.22 | % | (0.23 | %) | (1.18 | %) | (2.03 | %) | (1.65 | %) | ||||||||||
| Total expenses | 2.47 | % | 2.48 | % | 2.92 | % | 3.54 | % | 2.71 | % | ||||||||||
Net expensesc,d,e | 1.99 | % | 2.22 | % | 2.92 | % | 3.46 | % | 2.33 | % | ||||||||||
| Portfolio turnover rate | 219 | % | 182 | % | 198 | % | 446 | % | — | |||||||||||
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 and reimbursements, as applicable. |
d | Net expenses may include expenses that are excluded from the expense limitation agreement. Excluding these expenses, the net expense ratios for the years would be: |
12/31/18 | 12/31/17 | 12/31/16 | 12/31/15 | 12/31/14 |
1.99% | 2.13% | 2.35% | 2.35% | 2.32% |
e | The portion of the ratios of net expenses to average net assets attributable to recoupments of prior fee reductions or expense reimbursements for the years was as follows: |
12/31/18 | 12/31/17 | 12/31/16 |
— | 0.15% | — |
166|THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
NOTES TO FINANCIAL STATEMENTS |
Note 1 – Organization and Significant Accounting Policies
Organization
Guggenheim Variable Funds Trust (the “Trust”), a Delaware statutory trust, is registered with the SEC under the Investment Company Act of 1940 (“1940 Act”), as 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, 2018, the Trust consisted of fourteen funds.
This report covers the Series A (StylePlus—Large Core Series), Series B (Large Cap Value 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 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 diversified investment company.
Security Investors, LLC and Guggenheim Partners Investment Management, LLC (“GPIM”), which operate under the name Guggenheim Investments (“GI”), provide advisory services. GPIM provides advisory services to Series F (Floating Rate Strategies Series) and Security Investors, LLC provides advisory services to the remaining Funds covered in this report. Guggenheim Funds Distributors, LLC (“GFD”) acts as principal underwriter for the Trust. GI and GFD are affiliated entities.
Significant Accounting Policies
The Funds operate as investment companies and, accordingly, follow the investment company accounting and reporting guidance of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification Topic 946 Financial Services – Investment Companies.
The following significant accounting policies are in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”) and are consistently followed by the Trust. This requires management to make estimates and assumptions that affect the reported amount of assets and liabilities, 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 a fund’s securities and other assets, less all liabilities, by the number of outstanding shares of that fund.
(a) Valuation of Investments
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 and/or other assets.
Valuations of the Funds’ securities are supplied primarily by pricing services appointed pursuant to the processes set forth in the Valuation Procedures. The Valuation Committee convenes monthly, or more frequently as needed, to 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 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 sale price as of the close of business on the NYSE, usually at 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 currencies are valued in U.S. dollars on the basis of the foreign currency exchange rates prevailing at the close of U.S. business at 4:00 p.m. 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
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NOTES TO FINANCIAL STATEMENTS(continued) |
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. In addition, under the Valuation Procedures, the Valuation Committee and GI are authorized to use prices and other information supplied by a third party pricing vendor in valuing foreign securities.
Open-end investment companies are valued at their NAV as of the close of business, on the valuation date.
Exchange-traded funds and closed-end investment companies are valued at their last quoted sale 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. Money market funds are valued at their NAV.
Typically, loans are valued using information provided by an independent third party pricing service which uses broker quotes. 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.
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 (“OTC”) 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 appreciation or depreciation 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 interest rate swap agreements entered into by a fund is accounted for using the unrealized appreciation or depreciation on the agreements that is determined using the spread priced off the previous day’s Chicago Mercantile Exchange price.
The values of OTC swap agreements and credit default swap agreements entered into by a fund are accounted for using the unrealized appreciation or depreciation on the agreements that are determined by marking the agreements to the last quoted value of the index that the swaps pertain to at the close of the NYSE.
The value of equity swaps with custom portfolio baskets are computed by using the last exchange sale price for each underlying equity security within the swap agreement.
Forward foreign currency exchange contracts are valued daily based on the applicable exchange rate of the underlying currency.
Investments for which market quotations are not readily available are fair-valued as determined in good faith by GI, subject to review and approval by the Valuation Committee, pursuant to methods established or ratified by the Board. Valuations in accordance with these methods are intended to reflect each security’s (or asset’s or liability’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 market prices; sale prices; broker quotes; and models which derive prices based on inputs such as prices of securities with comparable maturities and characteristics, or based on inputs such as anticipated cash flows or collateral, spread over U.S. Treasury securities, and other information analysis.
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) U.S. Government and Agency Obligations
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.
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NOTES TO FINANCIAL STATEMENTS(continued) |
(c) Senior Loans
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 disclosed in the Funds’ Schedules of Investments. The interest rate indicated is the rate in effect at December 31, 2018.
(d) Interests in When-Issued Securities
The Funds may purchase and sell interests in securities on a when-issued and delayed delivery basis, with payment and delivery scheduled for a future date. No income accrues to the Fund on such interests or securities in connection with such transactions prior to the date the Funds actually take delivery of such interests or securities. These transactions are subject to market fluctuations and are subject to the risk that the value at delivery may be more or less than the trade date purchase price. Although the Funds will generally purchase these securities with the intention of acquiring such securities, they may sell such securities before the settlement date.
(e) Options
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).
(f) Futures Contracts
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 appreciation or depreciation. 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.
(g) Swap Agreements
Swap agreements are marked-to-market daily and the change, if any, is recorded as unrealized appreciation or depreciation. Payments received or made as a result of an agreement or termination of an agreement are recognized as realized gains or losses.
Credit default swap agreements are marked-to-market daily and the change, if any, is recorded as unrealized gain or loss. Upfront payments received or made by a Fund on credit default swap agreements are amortized over the expected life of the agreement. Periodic payments received or paid by a Fund are recorded as realized gains or losses. Payments received or made as a result of a credit event or termination of the contract are recognized, net of a proportional amount of the upfront payment, as realized gains or losses.
(h) Currency Translations
The accounting records of the Funds are maintained in U.S. dollars. All assets and liabilities initially expressed in foreign currencies are converted into U.S. dollars at prevailing exchange rates. Purchases and sales of investment securities, dividend and interest income, and certain expenses are translated at the rates of exchange prevailing on the respective dates of such transactions. Changes in the relationship of these foreign currencies to the U.S. dollar can significantly affect the value of the investments and earnings of the Funds. Foreign investments may also subject the Funds to foreign government exchange restrictions, expropriation, taxation or other political, social or economic developments, all of which could affect the market and/or credit risk of the investments.
The Funds do not isolate that portion of the results of operations resulting from changes in the foreign exchange rates on investments from the fluctuations arising from changes in the market prices of securities held. Such fluctuations are included with the net realized gain or loss and unrealized appreciation or depreciation on investments.
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NOTES TO FINANCIAL STATEMENTS(continued) |
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 appreciation or depreciation 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.
(i) Forward Foreign Currency Exchange Contracts
The change in value of the contract is recorded as unrealized appreciation or depreciation until the contract is closed. When the 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.
(j) Foreign Taxes
The Funds may be subject to foreign taxes (a portion of which may be reclaimable) on income, stock dividends, capital gains on investments or certain foreign currency transactions. All foreign taxes are recorded in accordance with the applicable foreign tax regulations and rates that exist in the foreign jurisdictions in which the Funds invest. These foreign taxes, if any, are paid by the Funds and reflected in their Statement of Operations as follows: foreign taxes withheld at source are presented as a reduction of income and foreign taxes on capital gains from sales of investments are included with the net realized gain (loss) on investments. Foreign taxes payable or deferred as of December 31, 2018, if any, are disclosed in the Funds’ Statements of Assets and Liabilities.
(k) Security Transactions
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 Real Estate Investment Trusts (“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 realized gains. The actual amounts of income, return of capital, and realized gains are only determined by each REIT after its fiscal year-end, and may differ from the estimated amounts.
Income from residual collateralized loan obligations is recognized using the effective interest method. At the time of purchase, management estimates the future expected cash flows and determines the effective yield and estimated maturity date based on the estimated cash flows. Subsequent to the purchase, the estimated cash flows are updated periodically and a revised yield is calculated prospectively. Cash flows received in excess of the effective yield are reflected as a return of capital.
(l) Distributions
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.
(m) Expenses
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.
(n) Earnings Credits
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, 2018, there were no earnings credits received.
(o) Cash
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, which was 2.40% at December 31, 2018.
(p) Indemnifications
Under the Funds’ organizational documents, the 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
170 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
NOTES TO FINANCIAL STATEMENTS(continued) |
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.
Note 2 – Derivatives
As part of their investment strategy, the Funds utilize a variety of derivative instruments. These investments involve, to varying degrees, elements of market risk and risks in excess of 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.
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.
Income:the use of any instrument that distributes cash flows typically based upon some rate of interest.
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.
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 Fund’s use and volume of call/put options purchased on a quarterly basis:
Fund | Use | Average Notional | |||
Series E (Total Return Bond Series) | Duration, Hedge | $ | 7,892,759 | ||
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NOTES TO FINANCIAL STATEMENTS(continued) |
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.
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 Fund’s use of futures contracts, including (i) there may be an imperfect or no correlation between the changes in market value of the underlying asset and the prices of futures contracts; (ii) there may not be a liquid secondary market for a futures contract; (iii) trading restrictions or limitations may be imposed by an exchange; and (iv) government regulations may restrict trading in futures contracts. When investing in futures, there is minimal counterparty credit risk to a Fund because futures are exchange-traded and the exchange’s clearinghouse, as counterparty to all exchange-traded futures, guarantees against default. Cash deposits are shown as 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 on a quarterly basis:
Average Notional Amount | |||||||||
Fund | Use | Long | Short | ||||||
Series A (StylePlus—Large Core Series) | Index exposure | $ | 5,299,403 | $ | — | ||||
Series D (World Equity Income Series) | Hedge | — | 19,786,797 | ||||||
Series E (Total Return Bond Series) | Hedge, Income | — | 644,375 | ||||||
Series J (StylePlus—Mid Growth Series) | Index exposure | 3,828,349 | — | ||||||
Series N (Managed Asset Allocation Series) | Index exposure, Speculation | 21,827,777 | 846,941 | ||||||
Series X (StylePlus—Small Growth Series) | Index exposure | 1,238,503 | — | ||||||
Series Y (StylePlus—Large Growth Series) | Index exposure | 722,606 | — | ||||||
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 and are executed on a multi-lateral or other trade facility platform, such as a registered exchange. There is limited counterparty credit risk with respect to centrally-cleared swaps as the transaction is facilitated through a central clearinghouse, much like exchange-traded futures contracts. Upon entering into certain centrally-cleared swap transactions, the Fund is required to deposit with its clearing broker an amount of cash or securities as an initial margin. Subsequent variation margin payments or receipts are made or received by the Fund, depending on fluctuations in the fair value of the reference entity. For a fund utilizing interest rate swaps, the exchange bears the risk of loss. 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 and custom basket swaps involve commitments where single or multiple cash flows are exchanged based on the price of an underlying reference asset (such as an index or a custom basket of securities) for a fixed or variable interest rate. Total return and custom basket swaps will usually be computed based on the current value of the reference asset as of the close of regular trading on the NYSE or other exchange. A fund utilizing total return or custom basket 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 reference asset declines in value.
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NOTES TO FINANCIAL STATEMENTS(continued) |
The following table represents the Funds’ use and volume of total return and custom basket swaps on a quarterly basis:
Average Notional Amount | |||||||||
Fund | Use | Long | Short | ||||||
Series A (StylePlus—Large Core Series) | Index exposure | $ | 170,998,139 | $ | — | ||||
Series J (StylePlus—Mid Growth Series) | Index exposure | 129,068,869 | — | ||||||
Series X (StylePlus—Small Growth Series) | Index exposure | 26,909,924 | — | ||||||
Series Y (StylePlus—Large Growth Series) | Index exposure | 30,700,018 | — | ||||||
Series Z (Alpha Opportunity Series) | Hedge, Leverage | 2,897,381 | 9,949,723 | ||||||
Interest rate swaps involve the exchange by the Funds with another party for their respective commitment to pay or receive a fixed or variable interest rate on a notional amount of principal. Interest rate swaps are generally centrally-cleared, 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 Amount | |||||||||
Fund | Use | Pay | Receive | ||||||
Series E (Total Return Bond Series) | Duration, Hedge | $ | — | $ | 32,322,250 | ||||
Credit default swaps are instruments which allow for the full or partial transfer of third party credit risk, with respect to a particular entity or entities, from one counterparty to the other. In accordance with its principal investment strategy, the Funds enter into credit default swaps as a seller of protection primarily to gain exposure similar to the high yield bond market. A seller of credit default swaps is selling credit protection or assuming credit risk with respect to the underlying entity or entities. If a credit event occurs, as defined under the terms of the swap agreement, the Fund will either (i) pay to the buyer of protection an amount equal to the notional amount of the swap and take delivery of the referenced obligation or underlying securities comprising the referenced index or (ii) pay a net settlement amount in the form of cash or securities equal to the notional amount of the swap less the recovery value of the referenced obligation or underlying securities comprising the referenced index. The Notional Principal reflects the maximum potential amount the Fund could be required to pay as a seller of credit protection if a credit event occurs. As the seller of protection, the Fund receives periodic premium payments from the counterparty and may also receive or pay an upfront premium adjustment to the stated periodic premium. In the event a credit event occurs, an adjustment will be made to any upfront premiums that were received by a reduction of 1.00% per credit event.
The quoted market prices and resulting market values for credit default swap agreements on securities and credit indices serve as an indicator of the current status of the payment/performance risk and represent the likelihood of an expected liability (or profit) for the credit derivative had the notional amount of the swap agreement been closed/sold as of the period end. Increasing market values, in absolute terms when compared to the notional amount of the swap, represent a deterioration of the referenced entity’s credit soundness and a greater likelihood or risk of default or other credit event occurring as defined under the terms of the agreement.
The following table represents the Fund’s use and volume of credit default swaps on a quarterly basis:
Average Notional Amount | |||||||||
Fund | Use | Protection Sold | Protection Purchased | ||||||
Series E (Total Return Bond Series) | Hedge | $ | — | $ | 6,007,500 | ||||
A credit default swap enables a fund to buy or sell protection against a defined credit event of an issuer or a basket of securities. Generally, the seller of credit protection against an issuer or basket of securities receives a periodic payment from the buyer to compensate against potential default events. If a default event occurs, the seller must pay the buyer the full notional value of the reference obligation in exchange for the reference obligation. If no default occurs, the counterparty will pay the stream of payments and have no further obligations to the fund selling the credit protection. A fund 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 in the case of a credit default swap in which a fund is selling credit protection, the default of a third party issuer.
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NOTES TO FINANCIAL STATEMENTS(continued) |
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 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 foreign currency exchange contracts on a quarterly basis:
Average Value | |||||||||
Fund | Use | Purchased | Sold | ||||||
Series E (Total Return Bond Series) | Hedge, Income | $ | 710,183 | $ | 8,312,719 | ||||
Series P (High Yield Series) | Hedge | — | 1,756,327 | ||||||
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, 2018:
Derivative Investment Type | Asset Derivatives | Liability Derivatives |
Equity/Interest Rate contracts | Unrealized appreciation on swap agreements | Variation margin on interest rate swap agreements |
| Unamortized upfront premiums paid on interest rate swap agreements | Unrealized depreciation on swap agreements |
Investments in unaffiliated issuers, at value | ||
Variation margin on futures contracts | Variation margin on futures contracts | |
Currency contracts | Unrealized appreciation on forward foreign currency exchange contracts | Unrealized depreciation on forward foreign currency exchange contracts |
Variation margin on futures contracts | Variation margin on futures contracts | |
Credit contracts | Unrealized appreciation on credit default swap agreements | Unamortized upfront premiums received on credit default swap agreements |
Variation margin on credit default swap agreements |
The following table sets forth the fair value of the Funds’ derivative investments categorized by primary risk exposure at December 31, 2018:
Asset Derivative Investments Value | ||||||||||||||||||||||||||||||||||||
Fund | Futures | Swaps | Options | Futures | Forward | Futures | Swaps | Swaps | Total | |||||||||||||||||||||||||||
Series A (StylePlus—Large Core Series) | $ | 101,546 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 101,546 | ||||||||||||||||||
Series D (World Equity Income Series) | — | — | — | 198,405 | — | — | — | — | 198,405 | |||||||||||||||||||||||||||
Series E (Total Return Bond Series) | — | — | 467 | — | 69,166 | — | — | 167,130 | 236,763 | |||||||||||||||||||||||||||
Series N (Managed Asset Allocation Series) | 8,002 | — | — | 4 | — | 172,642 | — | — | 180,648 | |||||||||||||||||||||||||||
Series X (StylePlus—Small Growth Series) | 21,225 | — | — | — | — | — | — | — | 21,225 | |||||||||||||||||||||||||||
Series Z (Alpha Opportunity Series) | — | 730,498 | — | — | — | — | — | — | 730,498 | |||||||||||||||||||||||||||
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NOTES TO FINANCIAL STATEMENTS(continued) |
Liability Derivative Investments Value | ||||||||||||||||||||||||||||||||||||
Fund | Futures | Swaps | Options | Futures | Forward | Futures | Swaps | Swaps | Total | |||||||||||||||||||||||||||
Series A (StylePlus—Large Core Series) | $ | — | $ | 12,818,498 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 12,818,498 | ||||||||||||||||||
Series D (World Equity Income Series) | — | — | — | 38,830 | — | — | — | — | 38,830 | |||||||||||||||||||||||||||
Series E (Total Return Bond Series) | — | — | — | — | 207,874 | 39,035 | 882,379 | — | 1,129,288 | |||||||||||||||||||||||||||
Series J (StylePlus—Mid Growth Series) | 14,157 | 12,553,500 | — | — | — | — | — | — | 12,567,657 | |||||||||||||||||||||||||||
Series N (Managed Asset Allocation Series) | 271,485 | — | — | — | — | — | — | — | 271,485 | |||||||||||||||||||||||||||
Series P (High Yield Series) | — | — | — | — | 7,198 | — | — | — | 7,198 | |||||||||||||||||||||||||||
Series X (StylePlus—Small Growth Series) | — | 4,875,235 | — | — | — | — | — | — | 4,875,235 | |||||||||||||||||||||||||||
Series Y (StylePlus—Large Growth Series) | 1,406 | 2,570,337 | — | — | — | — | — | — | 2,571,743 | |||||||||||||||||||||||||||
Series Z (Alpha Opportunity Series) | — | 351,576 | — | — | — | — | — | — | 351,576 | |||||||||||||||||||||||||||
* | Includes cumulative appreciation (depreciation) of futures contracts or centrally cleared swap agreements as reported on the Schedules of Investments. 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, 2018:
Derivative Investment Type | Location of Gain (Loss) on Derivatives |
Equity/Interest Rate contracts | Net realized gain (loss) on futures contracts |
| Net change in unrealized appreciation (depreciation) on futures contracts |
| Net realized gain (loss) on swap agreements |
| Net change in unrealized appreciation (depreciation) on swap agreements |
Net realized gain (loss) on options purchased | |
Net change in unrealized appreciation (depreciation) on options purchased | |
Currency contracts | Net realized gain (loss) on futures contracts |
Net change in unrealized appreciation (depreciation) on futures contracts | |
Net realized gain (loss) on forward foreign currency exchange contracts | |
Net change in unrealized appreciation (depreciation) on forward foreign currency exchange contracts | |
Credit contracts | Net realized gain (loss) on swap agreements |
Net change in unrealized appreciation (depreciation) on swap agreements |
THE GUGGENHEIM FUNDS ANNUAL REPORT | 175 |
NOTES TO FINANCIAL STATEMENTS(continued) |
The following is a summary of the Funds’ realized gain (loss) and change in unrealized appreciation (depreciation) on derivative investments recognized on the Statements of Operations categorized by primary risk exposure for the year ended December 31, 2018:
Realized Gain (Loss) on Derivative Investments Recognized on the Statements of Operations | ||||||||||||||||||||||||||||||||||||
Fund | Futures | Swaps | Options | Futures | Forward | Futures | Swaps | Swaps | Total | |||||||||||||||||||||||||||
Series A (StylePlus—Large Core Series) | $ | 159,327 | $ | 13,945,030 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 14,104,357 | ||||||||||||||||||
Series D (World Equity Income Series) | — | — | — | 594,730 | — | — | — | — | 594,730 | |||||||||||||||||||||||||||
Series E (Total Return Bond Series) | — | — | — | — | 75,263 | — | 1,851,419 | 2,910 | 1,929,592 | |||||||||||||||||||||||||||
Series J (StylePlus—Mid Growth Series) | (267,848 | ) | 15,075,837 | — | — | — | — | — | — | 14,807,989 | ||||||||||||||||||||||||||
Series N (Managed Asset Allocation Series) | (808,280 | ) | — | — | 11,699 | — | (302,406 | ) | — | — | (1,098,987 | ) | ||||||||||||||||||||||||
Series P (High Yield Series) | — | — | — | — | 89,806 | — | — | — | 89,806 | |||||||||||||||||||||||||||
Series X (StylePlus—Small Growth Series) | (60,495 | ) | 3,270,600 | — | — | — | — | — | — | 3,210,105 | ||||||||||||||||||||||||||
Series Y (StylePlus—Large Growth Series) | (48,360 | ) | 5,469,146 | — | — | — | — | — | — | 5,420,786 | ||||||||||||||||||||||||||
Series Z (Alpha Opportunity Series) | — | (1,560,948 | ) | — | — | — | — | — | — | (1,560,948 | ) | |||||||||||||||||||||||||
Change in Unrealized Appreciation (Depreciation) on Derivative Investments Recognized on the Statements of Operations | ||||||||||||||||||||||||||||||||||||
Fund | Futures | Swaps | Options | Futures | Forward | Futures | Swaps | Swaps | Total | |||||||||||||||||||||||||||
Series A (StylePlus—Large Core Series) | $ | 88,974 | $ | (23,702,672 | ) | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | (23,613,698 | ) | ||||||||||||||||
Series D (World Equity Income Series) | — | — | — | 159,575 | — | — | — | — | 159,575 | |||||||||||||||||||||||||||
Series E (Total Return Bond Series) | — | — | (213,640 | ) | — | (155,632 | ) | (39,035 | ) | (1,238,363 | ) | 167,130 | (1,479,540 | ) | ||||||||||||||||||||||
Series J (StylePlus—Mid Growth Series) | (21,530 | ) | (20,884,762 | ) | — | — | — | — | — | — | (20,906,292 | ) | ||||||||||||||||||||||||
Series N (Managed Asset Allocation Series) | (425,062 | ) | — | — | 375 | — | 224,649 | — | — | (200,038 | ) | |||||||||||||||||||||||||
Series P (High Yield Series) | — | — | — | — | 26,131 | — | — | — | 26,131 | |||||||||||||||||||||||||||
Series X (StylePlus—Small Growth Series) | 11,611 | (5,748,899 | ) | — | — | — | — | — | — | (5,737,288 | ) | |||||||||||||||||||||||||
Series Y (StylePlus—Large Growth Series) | (3,264 | ) | (5,255,815 | ) | — | — | — | — | — | — | (5,259,079 | ) | ||||||||||||||||||||||||
Series Z (Alpha Opportunity Series) | — | 1,099,195 | — | — | — | — | — | — | 1,099,195 | |||||||||||||||||||||||||||
In conjunction with the use of derivative instruments, the Funds are required to maintain collateral in various forms. Depending on the financial instrument utilized and the broker involved, the Funds use margin deposits at the broker, cash and/or securities segregated at the custodian bank, discount notes or repurchase agreements allocated to the Funds.
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
176 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
NOTES TO FINANCIAL STATEMENTS(continued) |
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 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 risks 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.
The Fund 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.
Note 3 – 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 from 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, are 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. Cash and/or securities pledged or received as collateral by the Funds in connection with an OTC derivative subject to an ISDA Master Agreement generally may not be invested, sold or rehypothecated by the counterparty or the Funds, as applicable, absent an event of default under such agreement, in which case such collateral generally may be applied towards obligations due to and payable by such counterparty or the Funds, as applicable. 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 | 177 |
NOTES TO 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 | Gross | Net Amount | Financial | Cash | Net | ||||||||||||||||||
Series E (Total Return Bond Series) | Credit default swap agreements | $ | 46,330 | $ | — | $ | 46,330 | $ | (46,330 | ) | $ | — | $ | — | |||||||||||
Forward foreign currency exchange contracts | 69,166 | — | 69,166 | (60,530 | ) | (8,636 | ) | — | |||||||||||||||||
Options purchased contracts | 467 | — | 467 | (467 | ) | — | — | ||||||||||||||||||
Series Z (Alpha Opportunity Series) | Custom basket swap agreements | 730,498 | — | 730,498 | (351,576 | ) | — | 378,922 | |||||||||||||||||
Gross Amounts Not Offset | |||||||||||||||||||||||||
Fund | Instrument | Gross | Gross | Net Amount | Financial | Cash | Net | ||||||||||||||||||
Series A (StylePlus—Large Core Series) | Swap equity contracts | $ | 12,818,498 | $ | — | $ | 12,818,498 | $ | — | $ | (12,818,498 | ) | $ | — | |||||||||||
Series E (Total Return Bond Series) | Forward foreign currency exchange contracts | 207,874 | — | 207,874 | (107,327 | ) | — | 100,547 | |||||||||||||||||
Series J (StylePlus—Mid Growth Series) | Swap equity contracts | 12,553,500 | — | 12,553,500 | — | (12,553,500 | ) | — | |||||||||||||||||
Series P (High Yield Series) | Forward foreign currency exchange contracts | 7,198 | — | 7,198 | — | — | 7,198 | ||||||||||||||||||
Series X (StylePlus—Small Growth Series) | Swap equity contracts | 4,875,235 | — | 4,875,235 | — | (4,875,235 | ) | — | |||||||||||||||||
Series Y (StylePlus—Large Growth Series) | Swap equity contracts | 2,570,337 | — | 2,570,337 | — | (2,570,337 | ) | — | |||||||||||||||||
Series Z (Alpha Opportunity Series) | Custom basket swap agreements | 351,576 | — | 351,576 | (351,576 | ) | — | — | |||||||||||||||||
1 | Exchange-traded or centrally-cleared derivatives are excluded from these reported amounts. |
178 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
NOTES TO FINANCIAL STATEMENTS(continued) |
The Funds have the right to offset deposits against any related derivative liabilities outstanding with each counterparty with the exception of exchange traded or centrally cleared derivatives. The following table presents deposits held by others in connection with derivative investments as of December 31, 2018.
Fund | Counterparty/Clearing Agent | Asset Type | Cash Pledged | Cash Received | ||||||
Series A (StylePlus—Large Core Series) | Morgan Stanley | Futures contracts | $ | 320,800 | $ | — | ||||
| Wells Fargo | Total Return Swap agreements | 15,800,000 | — | ||||||
Series A (StylePlus—Large Core Series) Total |
|
| 16,120,800 | — | ||||||
Series D (World Equity Income Series) | Bank of America Merrill Lynch | Futures contracts | 469,850 | — | ||||||
Series D (World Equity Income Series) Total |
|
| 469,850 | — | ||||||
Series E (Total Return Bond Series) | Bank of America Merrill Lynch | Credit Default Swaps agreements | 118,977 | — | ||||||
Futures contracts | 19,000 | — | ||||||||
Interest Rate Swaps agreements | 850,714 | — | ||||||||
| Goldman Sachs | Forward Currency Contracts, Credit Default Swaps agreements | — | 10,000 | ||||||
Series E (Total Return Bond Series) Total |
|
| 988,691 | 10,000 | ||||||
Series J (StylePlus—Mid Growth Series) | Morgan Stanley | Futures contracts | 38,200 | — | ||||||
| Wells Fargo | Total Return Swap agreements | 14,930,000 | — | ||||||
Series J (StylePlus—Mid Growth Series) Total |
|
| 14,968,200 | — | ||||||
Series X (StylePlus—Small Growth Series) | Morgan Stanley | Futures contracts | 42,350 | — | ||||||
|
| Total Return Swap agreements | 5,431,019 | — | ||||||
Series X (StylePlus—Small Growth Series) Total |
|
| 5,473,369 | — | ||||||
Series Y (StylePlus—Large Growth Series) | Morgan Stanley | Futures contracts | — | 44,800 | ||||||
| Wells Fargo | Total Return Swap agreements | 3,310,000 | — | ||||||
Series Y (StylePlus—Large Growth Series) Total |
|
| 3,310,000 | 44,800 | ||||||
Note 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.
Independent pricing services are used to value a majority of the Funds’ investments. When values are not available from a pricing service, they will be determined using a variety of sources and techniques, including: market prices; broker quotes; and models which derive prices based on inputs such as prices of securities with comparable maturities and characteristics or based on inputs such as anticipated cash flows or collateral, spread over U.S. Treasury securities, and other information and analysis. A significant portion of the Funds’ assets and liabilities are categorized as Level 2, as indicated in this report.
THE GUGGENHEIM FUNDS ANNUAL REPORT | 179 |
NOTES TO FINANCIAL STATEMENTS(continued) |
Indicative quotes from broker-dealers, adjusted for fluctuations in criteria such as credit spreads and interest rates, may be also used to value the Funds’ assets and liabilities, i.e. prices provided by a broker-dealer or other market participant who has not committed to trade at that price. Although indicative quotes are typically received from established market participants, the Funds may not have the transparency to view the underlying inputs which support the market quotations. Significant changes in an indicative quote would generally result in significant changes in the fair value of the security.
Certain fixed income securities are valued by obtaining a monthly indicative quote from a broker-dealer, adjusted for fluctuations in criteria such as credit spreads and interest rates.
The 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.
Note 5 – Investment Advisory Agreement and Other Agreements
Under the terms of an investment advisory contract, the Funds pay GI investment advisory fees calculated at the annualized rates below, based on the average daily net assets of the Funds:
Fund | Management Fees | |
Series A (StylePlus—Large Core Series) | 0.75% | |
Series B (Large Cap Value Series) | 0.65% | |
Series D (World Equity Income Series) | 0.70% | |
Series E (Total Return Bond Series) | 0.39% | |
Series F (Floating Rate Strategies Series) | 0.65%1 | |
Series J (StylePlus—Mid Growth Series) | 0.75% | |
Series N (Managed Asset Allocation Series) | 0.40% | |
Series O (All Cap Value Series) | 0.70% | |
Series P (High Yield Series) | 0.60% | |
Series Q (Small Cap Value Series) | 0.75% | |
Series V (Mid Cap Value Series) | 0.75% | |
Series X (StylePlus—Small Growth Series) | 0.75% | |
Series Y (StylePlus—Large Growth Series) | 0.65% | |
Series Z (Alpha Opportunity Series) | 0.90% | |
1 | The Series’ management fee is subject to a 0.05% reduction on assets over $5 billion. |
GI 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.
The Board has 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.
180 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
NOTES TO FINANCIAL STATEMENTS(continued) |
Contractual expense limitation agreements 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 A (StylePlus—Large Core Series) | 0.91% | 05/01/17 | 05/01/22 | ||||||||
Series B (Large Cap Vaule Series) | 0.80% | 05/01/17 | 05/01/22 | ||||||||
Series D (World Equity Income Series) | 0.90% | 05/01/17 | 05/01/22 | ||||||||
Series E (Total Return Bond Series) | 0.81% | 11/30/12 | 05/01/20 | ||||||||
Series F (Floating Rate Strategies Series) | 1.15% | 04/22/13 | 05/01/20 | ||||||||
Series J (StylePlus—Mid Growth Series) | 0.94% | 05/01/17 | 05/01/22 | ||||||||
Series O (All Cap Value Series) | 0.88% | 05/01/17 | 05/01/22 | ||||||||
Series P (High Yield Series) | 1.07% | 10/20/14 | 05/01/20 | ||||||||
Series Q (Small Cap Value Series) | 1.14% | 05/01/17 | 05/01/22 | ||||||||
Series V (Mid Cap Value Series) | 0.91% | 05/01/17 | 05/01/22 | ||||||||
Series X (StylePlus—Small Growth Series) | 1.06% | 05/01/17 | 05/01/22 | ||||||||
Series Y (StylePlus—Large Growth Series) | 0.93% | 05/01/17 | 05/01/22 | ||||||||
Series Z (Alpha Opportunity Series) | 2.00% | 05/31/17 | 05/01/22 | ||||||||
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. For purposes of this arrangement, GI is entitled to recoupment of previously waived fees or reimbursed expenses for 36 months from the date of the waiver or reimbursement by GI. At December 31, 2018, the amount of fees waived or expenses reimbursed that are subject to recoupment and will expire during the years ended December 31, are presented in the following table:
Fund | 2019 | 2020 | 2021 | Total | ||||||||||||
Series A (StylePlus—Large Core Series) | $ | — | $ | 452,150 | $ | 660,760 | $ | 1,112,910 | ||||||||
Series B (Large Cap Value Series) | — | 555,470 | 657,291 | 1,212,761 | ||||||||||||
Series D (World Equity Income Series) | — | 359,114 | 403,628 | 762,742 | ||||||||||||
Series E (Total Return Bond Series) | 182,326 | 188,079 | 130,822 | 501,227 | ||||||||||||
Series F (Floating Rate Strategies Series) | 18,770 | 52,478 | 64,413 | 135,661 | ||||||||||||
Series J (StylePlus—Mid Growth Series) | — | 342,729 | 471,165 | 813,894 | ||||||||||||
Series O (All Cap Value Series) | — | 272,422 | 349,269 | 621,691 | ||||||||||||
Series P (High Yield Series) | 30,120 | 59,723 | 105,313 | 195,156 | ||||||||||||
Series Q (Small Cap Value Series) | — | 88,099 | 102,746 | 190,845 | ||||||||||||
Series V (Mid Cap Value Series) | — | 448,055 | 612,269 | 1,060,324 | ||||||||||||
Series X (StylePlus—Small Growth Series) | — | 95,707 | 132,343 | 228,050 | ||||||||||||
Series Y (StylePlus—Large Growth Series) | — | 98,297 | 153,784 | 252,081 | ||||||||||||
Series Z (Alpha Opportunity Series) | — | 33,178 | 47,889 | 81,067 | ||||||||||||
For the year ended December 31, 2018, GI recouped amounts from the Funds as follows:
Fund | Amount | |||
Series A (StylePlus—Large Core Series) | $ | 42,094 | ||
Series E (Total Return Bond Series) | 65 | |||
Series F (Floating Rate Strategies Series) | 2,125 | |||
Series P (High Yield Series) | 92 | |||
Series X (StylePlus—Small Growth Series) | 62 | |||
Series Y (StylePlus—Large Growth Series) | 65 | |||
If a Fund invests in a fund that is advised by the same adviser or an affiliated adviser, the investing Fund’s adviser has agreed to waive fees at the investing fund level to the extent necessary to offset the proportionate share of any management fee paid by each Fund with respect to its investment in such affiliated fund. 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, 2018,
THE GUGGENHEIM FUNDS ANNUAL REPORT | 181 |
NOTES TO FINANCIAL STATEMENTS(continued) |
Series A (StylePlus—Large Core Series), Series E (Total Return Bond Series), Series J (StylePlus—Mid Growth Series), Series N (Managed Asset Allocation Series), Series X (StylePlus—Small Growth Series) and Series Y (StylePlus—Large Growth Series) waived $1,020, $43,140, $1,364, $191, $198 and $316, respectively, related to investments in affiliated funds.
Certain officers of the Trust are also officers of GI and/or GFD. The Trust does not compensate its officers or trustees who are officers, directors and/or employees of GI or GFD.
MUFG Investor Services (US), LLC (“MUIS”) acts as the Funds’ administrator, transfer agent and accounting agent. As administrator, transfer agent and accounting agent, MUIS is responsible for maintaining the books and records of the Funds’ securities and cash. The Bank of New York Mellon Corp. (“BNY”) acts as the Funds’ custodian. As custodian, BNY is responsible for the custody of the Funds’ assets. For providing the aforementioned administrative and accounting services, MUIS is entitled to receive a monthly fee equal to a percentage of the Funds’ average daily net assets and out of pocket expenses. For providing the aforementioned transfer agent and custodian services, MUIS and BNY are entitled to receive a monthly fee based on the number of transactions during the month and the number of accounts under management, subject to certain minimum monthly fees, and out of pocket expenses.
Note 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 or federal excise 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.
The tax character of distributions paid during the year ended December 31, 2018 was as follows:
Fund | Ordinary | Long-Term | Total | |||||||||
Series A (StylePlus—Large Core Series) | $ | 28,367,479 | $ | 1,855,836 | $ | 30,223,315 | ||||||
Series B (Large Cap Value Series) | 6,944,998 | 12,437,373 | 19,382,371 | |||||||||
Series D (World Equity Income Series) | 4,156,958 | — | 4,156,958 | |||||||||
Series E (Total Return Bond Series) | 5,237,160 | — | 5,237,160 | |||||||||
Series F (Floating Rate Strategies Series) | 1,907,470 | — | 1,907,470 | |||||||||
Series J (StylePlus—Mid Growth Series) | 20,452,256 | 683,555 | 21,135,811 | |||||||||
Series N (Managed Asset Allocation Series) | 1,468,502 | 2,668,094 | 4,136,596 | |||||||||
Series O (All Cap Value Series) | 4,068,546 | 6,638,689 | 10,707,235 | |||||||||
Series P (High Yield Series) | 5,180,373 | — | 5,180,373 | |||||||||
Series Q (Small Cap Value Series) | 2,626,687 | 6,154,519 | 8,781,206 | |||||||||
Series V (Mid Cap Value Series) | 8,708,618 | 22,966,285 | 31,674,903 | |||||||||
Series X (StylePlus—Small Growth Series) | 5,355,327 | 128,445 | 5,483,772 | |||||||||
Series Y (StylePlus—Large Growth Series) | 6,134,993 | 14,459 | 6,149,452 | |||||||||
Series Z (Alpha Opportunity Series) | 438,900 | 800,987 | 1,239,887 | |||||||||
182 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
NOTES TO FINANCIAL STATEMENTS(continued) |
The tax character of distributions paid during the year ended December 31, 2017 was as follows:
Fund | Ordinary | Long-Term | Total | |||||||||
Series A (StylePlus—Large Core Series) | $ | 5,240,581 | $ | 804,993 | $ | 6,045,574 | ||||||
Series B (Large Cap Value Series) | 3,290,010 | 7,443,276 | 10,733,286 | |||||||||
Series D (World Equity Income Series) | 4,436,814 | — | 4,436,814 | |||||||||
Series E (Total Return Bond Series) | 5,311,377 | — | 5,311,377 | |||||||||
Series F (Floating Rate Strategies Series) | 1,683,851 | — | 1,683,851 | |||||||||
Series J (StylePlus—Mid Growth Series) | 1,631,486 | — | 1,631,486 | |||||||||
Series N (Managed Asset Allocation Series) | 1,203,136 | 660,699 | 1,863,835 | |||||||||
Series O (All Cap Value Series) | 2,632,756 | 7,614,247 | 10,247,003 | |||||||||
Series P (High Yield Series) | 4,444,487 | — | 4,444,487 | |||||||||
Series Q (Small Cap Value Series) | 1,858,716 | 1,909,181 | 3,767,897 | |||||||||
Series V (Mid Cap Value Series) | 2,107,460 | 3,974,080 | 6,081,540 | |||||||||
Series X (StylePlus—Small Growth Series) | 267,944 | — | 267,944 | |||||||||
Series Y (StylePlus—Large Growth Series) | 436,012 | — | 436,012 | |||||||||
Note: For federal income tax purposes, short-term capital gain distributions are treated as ordinary income distributions.
The tax components of accumulated earnings/(deficit) as of December 31, 2018 were as follows:
Fund | Undistributed | Undistributed | Net Unrealized | Accumulated | Total | |||||||||||||||
Series A (StylePlus—Large Core Series) | $ | 15,823,056 | $ | — | $ | (18,013,791 | ) | $ | — | $ | (2,190,735 | ) | ||||||||
Series B (Large Cap Value Series) | 4,974,639 | 12,296,461 | 21,325,143 | — | 38,596,243 | |||||||||||||||
Series D (World Equity Income Series) | 5,293,042 | 5,523,341 | (7,619,079 | ) | — | 3,197,304 | ||||||||||||||
Series E (Total Return Bond Series) | 3,605,919 | — | (2,864,688 | ) | — | 741,231 | ||||||||||||||
Series F (Floating Rate Strategies Series) | 2,678,921 | — | (2,998,091 | ) | (1,018,618 | ) | (1,337,788 | ) | ||||||||||||
Series J (StylePlus—Mid Growth Series) | 15,157,609 | — | (16,976,467 | ) | — | (1,818,858 | ) | |||||||||||||
Series N (Managed Asset Allocation Series) | 745,348 | 359,788 | 6,200,886 | — | 7,306,022 | |||||||||||||||
Series O (All Cap Value Series) | 2,057,701 | 7,584,907 | 5,659,215 | — | 15,301,823 | |||||||||||||||
Series P (High Yield Series) | 4,081,160 | — | (6,957,185 | ) | (3,868,958 | ) | (6,744,983 | ) | ||||||||||||
Series Q (Small Cap Value Series) | 957,582 | 3,824,159 | (4,270,705 | ) | — | 511,036 | ||||||||||||||
Series V (Mid Cap Value Series) | 3,419,853 | 18,243,658 | (13,424,518 | ) | — | 8,238,993 | ||||||||||||||
Series X (StylePlus—Small Growth Series) | 3,561,316 | — | (6,002,165 | ) | — | (2,440,849 | ) | |||||||||||||
Series Y (StylePlus—Large Growth Series) | 3,884,326 | — | (3,114,079 | ) | — | 770,247 | ||||||||||||||
Series Z (Alpha Opportunity Series) | 21,988 | — | (680,707 | ) | (566,004 | ) | (1,224,723 | ) | ||||||||||||
For Federal income tax purposes, capital loss carryforwards represent realized losses of the Funds that may be carried forward and applied against future capital gains. Under the RIC Modernization Act of 2010, the Funds are permitted to carry forward capital losses incurred in taxable years beginning after December 22, 2010 for an unlimited period and such capital loss carryforwards will retain their character as either short-term or long-term capital losses. As of December 31, 2018, capital loss carryforwards for the Funds were as follows:
Unlimited | ||||||||||||
Fund | Short-Term | Long-Term | Total | |||||||||
Series F (Floating Rate Strategies Series) | $ | (277,238 | ) | $ | (741,380 | ) | $ | (1,018,618 | ) | |||
Series P (High Yield Series) | — | (3,868,958 | ) | (3,868,958 | ) | |||||||
Series Z (Alpha Opportunity Series) | (566,004 | ) | — | (566,004 | ) | |||||||
THE GUGGENHEIM FUNDS ANNUAL REPORT | 183 |
NOTES TO FINANCIAL STATEMENTS(continued) |
For the year ended December 31, 2018, the following capital loss carryforward amounts expired or were utilized:
Fund | Expired | Utilized | Total | |||||||||
Series E (Total Return Bond Series) | $ | 262,234 | $ | 97,922 | $ | 360,156 | ||||||
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 investments in real estate investment trusts, foreign currency gains and losses, dividend reclasses, losses deferred due to wash sales, distributions in connection with redemption of fund shares, return of capital distributions received, income accruals on certain investments, income recharacterization from certain investments, paydown reclasses, investments in swaps, and the "mark-to-market," recharacterization, or disposition of certain Passive Foreign Investment Companies (PFICs). Additional differences may result from the tax treatment of net investment losses, bond premium/discount amortization, the "mark-to-market" of certain derivatives, and the expiration of capital loss carryforward amounts. To the extent these differences are permanent and would require a reclassification between Paid in Capital and Total Distributable Earnings (Loss), such reclassifications are made in the period that the differences arise. These reclassifications have no effect on net assets or NAV per share.
The following adjustments were made on the Statements of Assets and Liabilities as of December 31, 2018 for permanent book/tax differences:
Fund | Paid In | Total | ||||||
Series A (StylePlus—Large Core Series) | $ | 6,361,250 | $ | (6,361,250 | ) | |||
Series B (Large Cap Value Series) | 3,414,887 | (3,414,887 | ) | |||||
Series D (World Equity Income Series) | 1,695,477 | (1,695,477 | ) | |||||
Series E (Total Return Bond Series) | (262,234 | ) | 262,234 | |||||
Series J (StylePlus—Mid Growth Series) | 5,510,656 | (5,510,656 | ) | |||||
Series N (Managed Asset Allocation Series) | 560,102 | (560,102 | ) | |||||
Series O (All Cap Value Series) | 2,452,011 | (2,452,011 | ) | |||||
Series Q (Small Cap Value Series) | 2,413,693 | (2,413,693 | ) | |||||
Series V (Mid Cap Value Series) | 6,335,317 | (6,335,317 | ) | |||||
Series X (StylePlus—Small Growth Series) | 1,371,565 | (1,371,565 | ) | |||||
Series Y (StylePlus—Large Growth Series) | 3,089,878 | (3,089,878 | ) | |||||
At December 31, 2018, the cost of securities for Federal income tax purposes, the aggregate gross unrealized appreciation for all securities for which there was an excess of value over tax cost and the aggregate gross unrealized depreciation for all securities for which there was an excess of tax cost over value, were as follows:
Fund | Tax | Tax | Tax | Net | ||||||||||||
Series A (StylePlus—Large Core Series) | $ | 193,095,987 | $ | 1,296,330 | $ | (19,310,121 | ) | $ | (18,013,791 | ) | ||||||
Series B (Large Cap Value Series) | 185,955,091 | 37,603,424 | (16,278,281 | ) | 21,325,143 | |||||||||||
Series D (World Equity Income Series) | 131,969,149 | 5,037,340 | (12,659,162 | ) | (7,621,822 | ) | ||||||||||
Series E (Total Return Bond Series) | 124,342,761 | 1,066,197 | (3,931,199 | ) | (2,865,002 | ) | ||||||||||
Series F (Floating Rate Strategies Series) | 62,402,921 | — | (2,996,373 | ) | (2,996,373 | ) | ||||||||||
Series J (StylePlus—Mid Growth Series) | 140,105,402 | 728,263 | (17,704,730 | ) | (16,976,467 | ) | ||||||||||
Series N (Managed Asset Allocation Series) | 35,586,295 | 6,959,850 | (758,996 | ) | 6,200,854 | |||||||||||
Series O (All Cap Value Series) | 95,233,328 | 16,487,601 | (10,828,386 | ) | 5,659,215 | |||||||||||
Series P (High Yield Series) | 59,350,088 | 265,232 | (7,180,093 | ) | (6,914,861 | ) | ||||||||||
Series Q (Small Cap Value Series) | 72,311,069 | 6,401,189 | (10,671,894 | ) | (4,270,705 | ) | ||||||||||
Series V (Mid Cap Value Series) | 189,435,498 | 15,830,795 | (29,255,313 | ) | (13,424,518 | ) | ||||||||||
Series X (StylePlus—Small Growth Series) | 29,373,060 | 186,119 | (6,188,284 | ) | (6,002,165 | ) | ||||||||||
Series Y (StylePlus—Large Growth Series) | 31,774,944 | 363,167 | (3,477,246 | ) | (3,114,079 | ) | ||||||||||
Series Z (Alpha Opportunity Series) | 8,768,790 | 883,594 | (1,564,301 | ) | (680,707 | ) | ||||||||||
184 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
NOTES TO FINANCIAL STATEMENTS(continued) |
Note 7 – Securities Transactions
For the year ended December 31, 2018, 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) | $ | 99,535,327 | $ | 159,532,502 | ||||
Series B (Large Cap Value Series) | 50,993,030 | 92,398,686 | ||||||
Series D (World Equity Income Series) | 198,216,178 | 218,535,705 | ||||||
Series E (Total Return Bond Series) | 23,725,751 | 60,091,006 | ||||||
Series F (Floating Rate Strategies Series) | 59,227,518 | 48,605,836 | ||||||
Series J (StylePlus—Mid Growth Series) | 109,724,645 | 158,146,390 | ||||||
Series N (Managed Asset Allocation Series) | 1,688,311 | 8,697,853 | ||||||
Series O (All Cap Value Series) | 43,344,063 | 62,093,882 | ||||||
Series P (High Yield Series) | 35,367,081 | 62,527,413 | ||||||
Series Q (Small Cap Value Series) | 32,659,400 | 52,269,445 | ||||||
Series V (Mid Cap Value Series) | 141,138,698 | 179,127,432 | ||||||
Series X (StylePlus—Small Growth Series) | 23,131,115 | 33,183,434 | ||||||
Series Y (StylePlus—Large Growth Series) | 24,242,609 | 40,370,118 | ||||||
Series Z (Alpha Opportunity Series) | 22,619,707 | 27,031,611 | ||||||
For the year ended December 31, 2018, the cost of purchases and proceeds from the sales of government securities were as follows:
Fund | Purchases | Sales | ||||||
Series E (Total Return Bond Series) | $ | 8,991,186 | $ | 5,363,918 | ||||
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. 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. Further, as defined under these procedures, each transaction is effected at the current market price to save costs, where permissible. For the year ended December 31, 2018, the Funds engaged in purchases and sales of securities, pursuant to Rule 17a-7 of the 1940 Act, as follows:
Fund | Purchases | Sales | Realized Gain | |||||||||
Series E (Total Return Bond Series) | $ | 103,750 | $ | 439,446 | $ | 10,830 | ||||||
Series F (Floating Rate Strategies Series) | 97,823 | — | — | |||||||||
Series P (High Yield Series) | 2,767,434 | 8,388,280 | 21,431 | |||||||||
Note 8 – Unfunded Loan Commitments
Pursuant to the terms of certain loan agreements, certain Funds held unfunded loan commitments as of December 31, 2018. The Funds are obligated to fund these loan commitments at the borrower’s discretion.
THE GUGGENHEIM FUNDS ANNUAL REPORT | 185 |
NOTES TO FINANCIAL STATEMENTS(continued) |
The unfunded loan commitments as of December 31, 2018, were as follows:
Fund | Borrower | Maturity Date | Face Amount | Value | ||||||
Series F (Floating Rate Strategies Series) | ||||||||||
Mavis Tire Express Services Corp. | 03/20/25 | $ | 52,848 | $ | 1,982 | |||||
Series P (High Yield Series) | ||||||||||
Acosta, Inc. | 09/26/19 | $ | 400,000 | $ | 159,092 | |||||
Advantage Sales & Marketing LLC | 07/25/19 | 900,000 | 105,750 | |||||||
Epicor Software | 06/01/20 | 600,000 | 20,951 | |||||||
Mavis Tire Express Services Corp. | 03/20/25 | 6,483 | 243 | |||||||
VT Topco, Inc. | 08/17/25 | 22,352 | 349 | |||||||
| $ | 1,928,835 | $ | 286,385 | |||||||
Note 9 – Restricted Securities
The securities below are considered illiquid and restricted under guidelines established by the Board:
Fund | Restricted Securities | Acquisition Date | Cost | Value | ||||||
Series E (Total Return Bond Series) | Copper River CLO Ltd. | |||||||||
2007-1A, due 01/20/211 | 05/09/14 | $ | 129,457 | $ | 50,005 | |||||
GMAC Commercial Mortgage Asset Corp. | ||||||||||
2007-HCKM, 6.11% due 08/10/52 | 10/07/16 | 1,106,337 | 987,022 | |||||||
Turbine Engines Securitization Ltd. | ||||||||||
2013-1A, 5.13% due 12/13/48 | 11/27/13 | 457,401 | 445,261 | |||||||
| $ | 1,693,195 | $ | 1,482,288 | |||||||
Series P (High Yield Series) | KeHE Distributors LLC/KeHE Finance Corp. | |||||||||
7.63% due 08/15/21 | 08/07/13 | $ | 302,271 | $ | 285,000 | |||||
LBC Tank Terminals Holding Netherlands BV | ||||||||||
6.88% due 05/15/23 | 07/19/13 | 1,197,700 | 1,045,748 | |||||||
Mirabela Nickel Ltd. | ||||||||||
9.50% due 06/24/192 | 12/31/13 | 353,909 | 119,951 | |||||||
| $ | 1,853,880 | $ | 1,450,699 | |||||||
1 | Security has no stated coupon. However, it is expected to receive residual cash flow payments on defined deal dates. |
2 | Security is in default of interest and/or principal obligations. |
Note 10 – Line of Credit
The Trust, along with other affiliated trusts, secured a 364-day committed,$1,065,000,000 line of credit from Citibank, N.A., which was in place through October 5, 2018 at which time the line of credit was renewed, with an increased commitment amount to $1,205,000,000. A Fund may draw (borrow) from the line of credit as a temporary measure for emergency purposes, to facilitate redemption requests, or for other short-term liquidity purposes consistent with the Fund’s investment objective and program. For example, it may be advantageous for the Fund to borrow money rather than sell existing portfolio positions to meet redemption requests. Fees related to borrowings, if any, vary under this arrangement between the greater of Citibank’s “base rate”, LIBOR plus 1%, or the federal funds rate plus 1/2 of 1%.
The commitment fee that may be paid by the Funds is at an annualized rate of 0.15% of the average daily amount of their unused commitment amount. The allocated commitment fee amount for each Fund is referenced in the Statement of Operations under “Line of credit fees”. The Funds did not have any borrowings under this agreement as of and for the year ended December 31, 2018.
186 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
NOTES TO FINANCIAL STATEMENTS(continued) |
In addition, Series E (Total Return Bond Series) and Series F (Floating Rate Strategies 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 1 month LIBOR plus 0.90%. The Funds did not have any borrowings under this agreement at or during the year ended December 31, 2018.
Note 11 – Other Liabilities
Series A (StylePlus—Large Core Series) and Series V (Mid Cap Value Series) (the “Funds”) 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, 2018.
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, 2018 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.
Note 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, 2018, the following Funds entered into reverse repurchase agreements:
Fund | Number | Balance at | Average Balance | Average | ||||||||||||
Series E (Total Return Bond Series) | 13 | $ | — | * | $ | 1,382,212 | 1.85 | % | ||||||||
Series P (High Yield Series) | 337 | — | * | 6,264,111 | 2.17 | % | ||||||||||
* | As of December 31, 2018, Series E (Total Return Bond Series) and Series P (High Yield Series) did not have any open reverse repurchase agreements. |
Note 13 – Recent Regulatory Reporting Updates
In August 2018, the U.S. Securities and Exchange Commission adopted amendments to certain disclosure requirements under Regulation S-X to conform to U.S. GAAP, including: (i) an amendment to require presentation of the total, rather than the components, of distributable earnings on the Statements of Assets and Liabilities; and (ii) an amendment to require presentation of the total, rather than the components, of distributions to shareholders, except for tax return of capital distributions, on the Statements of Changes in Net Assets.
As of December 31, 2018, management has implemented the amendments to Regulation S-X, which did not have a material impact on the Funds’ financial statements and related disclosures nor did it impact the Funds’ net assets or results of operations.
Note 14 – Recent Accounting Pronouncements
In March 2017, the Financial Accounting Standards Board issued an Accounting Standards Update, ASU 2017-08, Receivables – Nonrefundable Fees and Other Costs (Subtopic 310-20), Premium Amortization on Purchased Callable Debt Securities (the “2017 ASU”) which amends the amortization period for certain purchased callable debt securities held at a premium, shortening such period to the earliest call date. The 2017 ASU does not require any accounting change for debt securities held at a discount; the discount continues to be amortized to maturity. The 2017 ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. At this time, management is evaluating the implications of these changes on the financial statements.
THE GUGGENHEIM FUNDS ANNUAL REPORT | 187 |
NOTES TO FINANCIAL STATEMENTS(continued) |
In August 2018, the Financial Accounting Standards Board issued an Accounting Standards Update, ASU 2018-13, Fair Value Measurement (Topic 820), Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement (the “2018 ASU”) which adds, modifies and removes disclosure requirements related to certain aspects of fair value measurement. The 2018 ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. At this time, management is evaluating the implications of these changes on the financial Statements.
Note 15 – Legal Proceedings
Tribune Company
SBL Fund (predecessor to Guggenheim Variable Funds Trust) has been named as a defendant and a putative member of the proposed defendant class of shareholders in the case entitledKirschner v. FitzSimons, No. 12-2652 (S.D.N.Y.) (formerlyOfficial 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 Tribune 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.) andDeutsche 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.
TheFitzSimons action and the SLCFC actions have been consolidated with the majority of the other Tribune LBO-related lawsuits in a multidistrict litigation proceeding captionedIn 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. On March 29, 2016, the U.S. Court of Appeals for the Second Circuit issued its opinion on the appeal of the SLCFC actions. The appeals court affirmed the district court’s dismissal of those lawsuits, but on different grounds than the district court. The appeals court held that while the plaintiffs have standing under the U.S. Bankruptcy Code, their claims were preempted by Section 546(e) of the Bankruptcy Code—the statutory safe harbor for settlement payments. On April 12, 2016, the Plaintiffs in the SLCFC actions filed a petition seeking rehearingen banc before the appeals court. On July 22, 2016, the appeals court denied the petition. On September 9, 2016, the plaintiffs filed a petition for writ of certiorari in the U.S. Supreme Court challenging the Second Circuit’s decision that the safe harbor of Section 546(e) applied to their claims. The shareholder defendants, including the Funds, filed a joint brief in opposition to the petition for certiorari on October 24, 2016. On April 3, 2018, Justice Kennedy and Justice Thomas issued a “Statement” related to the petition for certiorari suggesting that the Second Circuit and/or District Court may want to take steps to reexamine the application of the Section 546(e) safe harbor to the previously dismissed state law constructive fraudulent transfer claims based on the Supreme Court’s decision inMerit Management Group LP v. FTI Consulting, Inc.On April 10, 2018, plaintiffs filed in the Second Circuit a motion for that court to recall its mandate, vacate its prior decision, and remand to the district court for further proceedings consistent withMerit Management. On April 20, 2018, the shareholder defendants filed a response to plaintiffs’ motion to recall the mandate. On May 15, 2018, the Second Circuit issued an order recalling the mandate “in anticipation of further panel review.”
On May 23, 2014, the defendants filed motions to dismiss theFitzSimons 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. On January 6, 2017, the United States District Court for the Southern District of New York granted the shareholder defendants’ motion to dismiss the intentional fraudulent conveyance claim in theFitzSimons action. The Court concluded that the plaintiff had failed to allege that Tribune entered the LBO with actual intent to hinder, delay, or defraud its creditors, and therefore the complaint failed to state a claim. In dismissing the intentional fraudulent conveyance claim, the Court denied the plaintiff’s request to amend the complaint. The plaintiff requested that the Court direct entry of a final
188 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
NOTES TO FINANCIAL STATEMENTS(concluded) |
judgment in order to make the order immediately appealable. On February 23, 2017, the Court issued an order stating that it intends to permit an interlocutory appeal of the dismissal order, but will wait to do so until it has resolved outstanding motions to dismiss filed by other defendants. Accordingly, the timing of the appeal is uncertain.
On July 18, 2017, the plaintiff submitted a letter to the District Court seeking leave to amend its complaint to add a constructive fraudulent transfer claim. The shareholder defendants opposed that request. On August 24, 2017, the Court denied the plaintiff’s request without prejudice to renewal of the request in the event of an intervening change in the law. On March 8, 2018, the plaintiff renewed his request for leave to file a motion to amend the complaint to assert a constructive fraudulent transfer claim based on the Supreme Court’s ruling inMerit Management Group LP v. FTI Consulting, Inc. The shareholder defendants opposed that request. On June 18, 2018 the District Court ordered that the request would be stayed pending further action by the Second Circuit in the SLCFC actions.
On December 18, 2018, plaintiff filed a letter with the District Court requesting that the stay be dissolved in order to permit briefing on the motion to amend the complaint and indicating plaintiff’s intention to file another motion to amend the complaint to reinstate claims for intentional fraudulent transfer. The shareholder defendants opposed that request. On January 14, 2019, the court held a case management conference, during which the court stated that it would not lift the stay prior to further action from the Second Circuit in the SLCFC actions. The court further stated that it would allow the plaintiff to file a motion to amend to try to reinstate its intentional fraudulent transfer claim. The plaintiff has not yet filed any such motion. On January 23, 2019, the court ordered the parties still facing pending claims to participate in a mediation, to commence on January 28, 2019.
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.
Note 16 – Subsequent Events
The Funds evaluated subsequent events through the date the financial statements were available for issue and determined there were no additional material events that would require adjustment to or disclosure in the Funds’ financial statements.
THE GUGGENHEIM FUNDS ANNUAL REPORT | 189 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM |
To the Shareholders and the Board of Trustees of Guggenheim Variable Funds Trust
Opinion on the Financial Statements
We have audited the accompanying statements of assets and liabilities of Guggenheim Variable Funds Trust (the “Trust”) (comprising Series A (StylePlus—Large Core Series), Series B (Large Cap Value 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 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) (collectively referred to as the “Funds”)), including the schedules of investments, as of December 31, 2018, and the related statements of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, the financial highlights for each of the five years in the period then ended and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of each of the Funds comprising Guggenheim Variable Funds Trust at December 31, 2018, the results of their operations 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 five years in the period then ended, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These financial statements are the responsibility of the Trust’s management. Our responsibility is to express an opinion on each of the Funds’ financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Trust in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Trust is not required to have, nor were we engaged to perform, an audit of the Trust’s internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Trust’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2018, by correspondence with the custodian, transfer agent, paying agents, and brokers or by other appropriate auditing procedures where replies from paying agents or brokers were not received. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
We have served as the auditor of one or more Guggenheim investment companies since 1979.
Tysons, Virginia
February 26, 2019
190 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
OTHER INFORMATION(Unaudited) |
Federal Income Tax Information
This information is being provided as required by the Internal Revenue Code. Amounts shown may differ from those elsewhere in the report because of differences in tax and financial reporting practice.
In January 2019, shareholders will be advised on IRS Form 1099 DIV or substitute 1099 DIV as to the federal tax status of the distributions received by shareholders in the calendar year 2018.
The Funds' investment income (dividend income plus short-term gains, if any) qualifies as follows:
Of the taxable ordinary income distributions paid during the fiscal year ending December 31, 2018, the following Funds had the corresponding percentages qualify for the dividends received deduction for corporations.
Fund | Dividend | ||
Series A (StylePlus—Large Core Series) | 3.81% | ||
Series B (Large Cap Value Series) | 73.56% | ||
Series D (World Equity Income Series) | 53.91% | ||
Series E (Total Return Bond Series) | 1.44% | ||
Series J (StylePlus—Mid Growth Series) | 2.24% | ||
Series N (Managed Asset Allocation Series) | 52.01% | ||
Series O (All Cap Value Series) | 54.59% | ||
Series P (High Yield Series) | 0.79% | ||
Series Q (Small Cap Value Series) | 42.38% | ||
Series V (Mid Cap Value Series) | 30.11% | ||
Series X (StylePlus—Small Growth Series) | 1.33% | ||
Series Y (StylePlus—Large Growth Series) | 2.38% | ||
Series Z (Alpha Opportunity Series) | 49.26% | ||
With respect to the taxable year ended December 31, 2018, 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 | From long-term | From long-term capital | ||||||
Series A (StylePlus—Large Core Series) | $ | 1,855,836 | $ | 1,927,628 | ||||
Series B (Large Cap Value Series) | 12,437,373 | 3,414,887 | ||||||
Series D (World Equity Income Series) | — | 1,673,010 | ||||||
Series J (StylePlus—Mid Growth Series) | 683,555 | 944,788 | ||||||
Series N (Managed Asset Allocation Series) | 2,668,094 | 560,102 | ||||||
Series O (All Cap Value Series) | 6,638,689 | 2,452,011 | ||||||
Series Q (Small Cap Value Series) | 6,154,519 | 2,413,693 | ||||||
Series V (Mid Cap Value Series) | 22,966,285 | 6,335,317 | ||||||
Series X (StylePlus—Small Growth Series) | 128,445 | 316,455 | ||||||
Series Y (StylePlus—Large Growth Series) | 14,459 | 385,017 | ||||||
Series Z (Alpha Opportunity Series) | 800,987 | — | ||||||
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 https://www.sec.gov.
THE GUGGENHEIM FUNDS ANNUAL REPORT | 191 |
OTHER INFORMATION(Unaudited)(concluded) |
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 https://www.sec.gov.
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 https://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.
192 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
INFORMATION ON BOARD OF TRUSTEES AND OFFICERS(Unaudited) |
Name, Address* | Position(s) | Term of Office | Principal Occupation(s) | Number of | 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). | 49 | Current: Trustee, Purpose Investments Funds (2013-present).
Former: Managed Duration Investment Grade Municipal Fund (2003-2016). |
Donald A. Chubb, Jr. (1946) | Trustee and Chairman of the Valuation Oversight Committee | Since 1994 | Current: Retired.
Former: Business broker and manager of commercial real estate, Griffith & Blair, Inc. (1997-2017). | 48 | Former: Midland Care, Inc. (2011-2016). |
Jerry B. Farley (1946) | Trustee and Chairman of the Audit Committee | Since 2005 | Current: President, Washburn University (1997-present). | 48 | Current: CoreFirst Bank & Trust (2000-present).
Former: Westar Energy, Inc. (2004-2018). |
Roman Friedrich III (1946) | Trustee and Chairman of the Contracts Review Committee | Since 2014 | Current: Founder and Managing Partner, Roman Friedrich & Company (1998-present). | 48 | Current: Zincore Metals, Inc. (2009-present). |
Ronald A. Nyberg (1953) | Trustee and Chairman of the Nominating and Governance Committee | Since 2014 | Current: Partner, Momkus LLC (2016-present).
Former: Partner, Nyberg & Cassioppi, LLC (2000-2016); Executive Vice President, General Counsel, and Corporate Secretary, Van Kampen Investments (1982-1999). | 49 | Current: PPM Funds (2018-present); Edward-Elmhurst Healthcare System (2012-present); Western Asset Inflation-Linked Opportunities & Income Fund (2004-present); Western Asset Inflation-Linked Income Fund (2003-present).
Former: Managed Duration Investment Grade Municipal Fund (2003-2016). |
THE GUGGENHEIM FUNDS ANNUAL REPORT | 193 |
INFORMATION ON BOARD OF TRUSTEES AND OFFICERS(Unaudited)(continued) |
Name, Address* | Position(s) | Term of Office | Principal Occupation(s) | Number of | Other |
INDEPENDENT TRUSTEES - concluded | |||||
Maynard F. Oliverius (1943) | Trustee | Since 1998 | Current: Retired.
Former: President and Chief Executive Officer, Stormont-Vail HealthCare (1996-2012). | 48 | Current: Defense Orientation Conference Association (January 2019-present); Robert J. Dole Institute of Politics (2016-present); University of Minnesota MHA Alumni Philanthropy Committee (2009-present); Fort Hays State University Foundation (1999-present).
Former: Stormont-Vail Foundation (2013-2018); Topeka Community Foundation (2009-2014). |
Ronald E. Toupin, Jr. (1958) | Trustee and Chairman of the Board | Since 2014 | Current: Portfolio Consultant (2010-present); Member, Governing Council, Independent Directors Council (2013-present); Governor, Board of Governors, Investment Company Institute (2018-present).
Former: Member, Executive Committee, Independent Directors Council (2016-2018); 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). | 48 | Current: Western Asset Inflation-Linked Opportunities & Income Fund (2004-present); Western Asset Inflation-Linked Income Fund (2003-present).
Former: Managed Duration Investment Grade Municipal Fund (2003-2016); Bennett Group of Funds (2011-2013). |
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INFORMATION ON BOARD OF TRUSTEES AND OFFICERS(Unaudited)(continued) |
Name, Address* | Position(s) | Term of Office | Principal Occupation(s) | Number of | Other |
INTERESTED TRUSTEE | |||||
Amy J. Lee*** (1961) | Trustee, Vice President and Chief Legal Officer | Since 2018 (Trustee)
Since 2014 (Chief Legal Officer)
Since 2007 (Vice President) | Current: Interested Trustee, certain other funds in the Fund Complex (2018-present); President, certain other funds in the Fund Complex (2017-present); Chief Legal Officer, certain other funds in the Fund Complex (2014-present); Vice President, certain other funds in the Fund Complex (2007-present); Senior Managing Director, Guggenheim Investments (2012-present).
Former: President and Chief Executive Officer (2017-2018); Vice President, Associate General Counsel and Assistant Secretary, Security Benefit Life Insurance Company and Security Benefit Corporation (2004-2012). | 157 | None. |
* | The business address of each Trustee is c/o Guggenheim Investments, 227 West Monroe Street, Chicago, Illinois 60606. |
** | Each Trustee serves an indefinite term, until his or her 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 her position with the Funds' Investment Manager and/or the parent of the Investment Manager. |
THE GUGGENHEIM FUNDS ANNUAL REPORT | 195 |
INFORMATION ON BOARD OF TRUSTEES AND OFFICERS(Unaudited)(continued) |
Name, Address* | Position(s) | Term of Office | Principal Occupations |
OFFICERS | |||
Brian E. Binder (1972) | President and Chief Executive Officer | Since 2018 | Current: President and Chief Executive Officer, certain other funds in the Fund Complex (2018-present); President and Chief Executive Officer, Guggenheim Funds Investment Advisors, LLC and Security Investors, LLC (2018-present); Senior Managing Director and Chief Administrative Officer, Guggenheim Investments (2018-present).
Former: Managing Director and President, Deutsche Funds, and Head of US Product, Trading and Fund Administration, Deutsche Asset Management (2013-2018); Managing Director, Head of Business Management and Consulting, Invesco Ltd. (2010-2012). |
James M. Howley (1972) | Assistant Treasurer | Since 2014 | Current: Managing 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). |
Keith D. Kemp (1960) | Assistant Treasurer | Since 2016 | Current: Treasurer and Assistant Treasurer, certain other funds in the Fund Complex (2010-present); Managing Director, Guggenheim Investments (2015-present).
Former: Chief Financial Officer, Guggenheim Specialized Products, LLC (2016-2018); Managing Director and Director, Transparent Value, LLC (2010-2016); Director, Guggenheim Partners Investment Management, LLC (2010-2015); Chief Operating Officer, Macquarie Capital Investment Management (2007-2009). |
Mark E. Mathiasen (1978) | Secretary | Since 2014 | Current: Secretary, certain other funds in the Fund Complex (2007-present); Managing Director, Guggenheim Investments (2007-present). |
Glenn McWhinnie (1969) | Assistant Treasurer | Since 2016 | Current: Vice President, Guggenheim Investments (2009-present); Assistant Treasurer, certain other funds in the Fund complex (2016-present). |
Michael P. Megaris (1984) | Assistant Secretary | Since 2014 | Current: Assistant Secretary, certain other funds in the Fund Complex (2014-present); Director, Guggenheim Investments (2012-present). |
Elisabeth Miller (1968) | Chief Compliance Officer | Since 2012 | Current: Chief Compliance Officer, certain other funds in the Fund Complex (2012-present); Managing Director, Guggenheim Investments (2012-present); Vice President, Guggenheim Funds Distributors, LLC (2014-present).
Former: Chief Compliance Officer, Security Investors, LLC (2012-2018); Chief Compliance Officer, Guggenheim Funds Investment Advisors, LLC (2012-2018); Chief Compliance Officer, Guggenheim Distributors, LLC (2009-2014); Senior Manager, Security Investors, LLC (2004-2009); Senior Manager, Guggenheim Distributors, LLC (2004-2009). |
Margaux Misantone (1978) | AML Officer | Since 2017 | Current: Chief Compliance Officer, Security Investors, LLC and Guggenheim Funds Investment Advisors, LLC (2018-present); AML Officer, Security Investors, LLC and certain other funds in the Fund Complex (2017-present); Managing Director, Guggenheim Investments (2015-present).
Former: Assistant Chief Compliance Officer, Security Investors, LLC and Guggenheim Funds Investments Advisors, LLC (2015-2018). |
196 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
INFORMATION ON BOARD OF TRUSTEES AND OFFICERS(Unaudited)(concluded) |
Name, Address* | Position(s) | Term of Office | Principal Occupations |
OFFICERS - concluded | |||
Adam J. 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). |
Kimberly J. Scott (1974) | Assistant Treasurer | Since 2014 | Current: Director, 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); Managing 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, Chief Accounting Officer and Treasurer | Since 2014 | Current: Chief Financial Officer, 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 Chief Compliance Officer, 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); Chief Financial Officer and Treasurer, Van Kampen Funds (1996-2004). |
Jon Szafran (1989) | Assistant Treasurer | Since 2017 | Current: Vice President, Guggenheim Investments (2017-present); Assistant Treasurer, certain other funds in the Fund Complex (2017-present).
Former: Assistant Treasurer of Henderson Global Funds and Manager of US Fund Administration, Henderson Global Investors (North America) Inc. ("HGINA"), (2017); Senior Analyst of US Fund Administration, HGINA (2014-2017); Senior Associate of Fund Administration, Cortland Capital Market Services, LLC (2013-2014); Experienced Associate, PricewaterhouseCoopers LLP (2012-2013). |
* | The business address of each officer is c/o Guggenheim Investments, 227 West Monroe Street, Chicago, Illinois 60606. |
** | Each officer serves an indefinite term, until his or her successor is duly elected and qualified. |
THE GUGGENHEIM FUNDS ANNUAL REPORT | 197 |
GUGGENHEIM INVESTMENTS PRIVACY NOTICE(Unaudited) |
Who We Are
This Privacy Notice describes the data protection practices of Guggenheim Investments. Guggenheim Investments as used herein refers to the affiliated investment management businesses of Guggenheim Partners, LLC: Guggenheim Funds Investment Advisors, LLC, Guggenheim Partners Investment Management, LLC, Guggenheim Funds Distributors, LLC, Security Investors, LLC, Guggenheim Investment Advisors (Europe) Limited, Guggenheim Real Estate, LLC, GS Gamma Advisors, LLC, Guggenheim Partners India Management, LLC, Guggenheim Partners Europe Limited, as well as the funds in the Guggenheim Funds complex (the “Funds”) (“Guggenheim Investments,” “we,” “us,” or “our”).
Guggenheim Partners Investment Management Holdings, LLC, located at 330 Madison Avenue, New York, New York 10017 is the data controller for your information. The Affiliates who are also controllers of certain of your information are: Guggenheim Investment Advisors (Europe) Limited, Guggenheim Partners Europe Limited, Guggenheim Partners, LLC, Guggenheim Funds Investment Advisors, LLC, Guggenheim Partners Investment Management, LLC, Guggenheim Funds Distributors, LLC and Security Investors, LLC, as well as the Funds.
Our Commitment to You
Guggenheim Investments considers your privacy our utmost concern. When you become our client or investor, you entrust us with not only your hard-earned money but also with your personal and financial information. Because we have access to your private information, we hold ourselves to the highest standards in its safekeeping and use. We strictly limit how we share your information with others, whether you are a current or former Guggenheim Investments client or investor.
The Information We Collect About You
We collect certain nonpublic personal information about you from information you provide on applications, other forms, our website, and/or from third parties including investment advisors. This information includes Social Security or other tax identification number, assets, income, tax information, retirement and estate plan information, transaction history, account balance, payment history, bank account information, marital status, family relationships, information that we collect on our website through the use of “cookies,” and other personal information that you or others provide to us. We may also collect such information through your inquiries by mail, e-mail or telephone. We may also collect customer due diligence information, as required by applicable law and regulation, through third party service providers.
How We Handle Your Personal Information
The legal basis for using your information as set out in this Privacy Notice is as follows: (a) use of your personal data is necessary to perform our obligations under any contract with you (such as a contract for us to provide financial services to you); or (b) where use of your personal data is not necessary for performance of a contract, use of your personal data is necessary for our legitimate interests or the legitimate interests of others (for example, to enforce the legal terms governing our services, operate and market our website and other services we offer, ensure safe environments for our personnel and others, make and receive payments, prevent fraud and to know the customer to whom we are providing the services). Some processing is done to comply with applicable law.
In addition to the specific uses described above, we also use your information in the following manner:
● | We use your information in connection with servicing your accounts. |
● | We use information to respond to your requests or questions. For example, we might use your information to respond to your customer feedback. |
● | We use information to improve our products and services. We may use your information to make our website and products better. We may use your information to customize your experience with us. |
● | We use information for security purposes. We may use your information to protect our company and our customers. |
● | We use information to communicate with you. For example, we will communicate with you about your account or our relationship. We may contact you about your feedback. We might also contact you about this Privacy Notice. We may also enroll you in our email newsletter. |
198 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
GUGGENHEIM INVESTMENTS PRIVACY NOTICE(Unaudited)(continued) |
● | We use information as otherwise permitted by law, as we may notify you. |
● | Aggregate/Anonymous Data. We may aggregate and/or anonymize any information collected through the website so that such information can no longer be linked to you or your device (“Aggregate/Anonymous Information”). We may use Aggregate/Anonymous Information for any purpose, including without limitation for research and marketing purposes, and may also share such data with any third parties, including advertisers, promotional partners, and sponsors. |
We do not sell information about current or former clients or their accounts to third parties. Nor do we share this information, except when necessary to complete transactions at your request, to make you aware of investment products and services that we or our affiliates offer, or as permitted or required by law.
We provide information about you to companies and individuals not affiliated with Guggenheim Investments to complete certain transactions or account changes, or to perform services for us related to your account. For example, if you ask to transfer assets from another financial institution to Guggenheim Investments, we must provide certain information about you to that company to complete the transaction. We provide the third party with only the information necessary to carry out its 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. To alert you to other Guggenheim Investments products and services, we share your information within our family of affiliated companies. You may limit our sharing with affiliated companies as set out below. We may also share information with any successor to all or part of our business, or in connection with steps leading up to a merger or acquisition. For example, if part of our business was sold we may give customer information as part of that transaction. We may also share information about you with your consent.
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 as permitted by law (for example, to protect your account from fraud).
If you close your account(s) or become an inactive client or investor, we will continue to adhere to the privacy policies and practices described in this notice.
Opt-Out Provisions and Your Data Choices
The law allows you to “opt out” of certain kinds of information sharing with third parties. We do not share personal information about you with any third parties that triggers this opt-out right. This means YOU ARE ALREADY OPTED OUT.
When you are no longer our client or investor, we continue to share your information as described in this notice, and you may contact us at any time to limit our sharing by sending an email to CorporateDataPrivacy@GuggenheimPartners.com.
European Union Data Subjects and certain others: In addition to the choices set forth above, residents of the European Union and certain other jurisdictions have certain rights to (1) request access to or rectification or deletion of information we collect about them, (2) request a restriction on the processing of their information, (3) object to the processing of their information, or (4) request the portability of certain information. To exercise these or other rights, please contact us using the contact information below. We will consider all requests and provide our response within the time period stated by applicable law. Please note, however, that certain information may be exempt from such requests in some circumstances, which may include if we need to keep processing your information for our legitimate interests or to comply with a legal obligation. We may request you provide us with information necessary to confirm your identity before responding to your request.
Residents of France and certain other jurisdictions may also provide us with instructions regarding the manner in which we may continue to store, erase and share your information after your death, and where applicable, the person you have designated to exercise these rights after your death.
THE GUGGENHEIM FUNDS ANNUAL REPORT | 199 |
GUGGENHEIM INVESTMENTS PRIVACY NOTICE(Unaudited)(concluded) |
How We Protect Privacy Online
We take steps to protect your privacy when you use our web site – www.guggenheiminvestments.com – by using secure forms of online communication, including encryption technology, Secure Socket Layer (SSL) protocol, firewalls and user names and passwords. These safeguards vary based on the sensitivity of the information that we collect and store. However, we cannot and do not guarantee that these measures will prevent every unauthorized attempt to access, use, or disclose your information since despite our efforts, no Internet and/or other electronic transmissions can be completely secure. Our web site uses “http cookies”—tiny pieces of information that we ask your browser to store. We 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 e-mail 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 and Data Retention
We restrict access to nonpublic personal information about you 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 keep your information for no longer than necessary for the purposes for which it is processed. The length of time for which we retain information depends on the purposes for which we collected and use it and/or as required to comply with applicable laws. Information may persist in copies made for backup and business continuity purposes for additional time.
International Visitors
If you are not a resident of the United States, please be aware that your information may be transferred to, stored and processed in the United States where our servers are located and our databases are operated. The data protection and other laws of the United States and other countries might not be as comprehensive as those in your country.
In such cases, we ensure that a legal basis for such a transfer exists and that adequate protection is provided as required by applicable law, for example, by using standard contractual clauses or by transferring your data to a jurisdiction that has obtained an adequacy finding. Individuals whose data may be transferred on the basis of standard contractual clauses may contact us as described below.
We’ll Keep You Informed
If you have any questions or concerns about how we treat your personal data, we encourage you to consult with us first. You may also contact the relevant supervisory authority.
We reserve the right to modify this policy at any time and will inform you promptly of material changes. You may access our privacy policy from our web site at www.guggenheiminvestments.com. Should you have any questions regarding our privacy policy, contact us by email at CorporateDataPrivacy@GuggenheimPartners.com.
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| Item 2. | Code of Ethics. |
The registrant’s Board of Trustees has adopted a code of ethics that applies to the registrant’s principal executive officer and principal financial officer. No substantive amendments were approved or waivers were granted to the Code during the period covered by this report. The Code is filed as an exhibit to this Form N-CSR.
| Item 3. | Audit Committee Financial Expert. |
The registrant's Board of Trustees has determined that it has at least one audit committee financial expert serving on its audit committee (the “Audit Committee”), Dr. Jerry B. Farley. Dr. Farley is “independent,” meaning that he is not an “interested person” of the Registrant (as that term is defined in Section 2(a)(19) of the Investment Company Act of 1940, as amended) and he does not accept any consulting, advisory, or other compensatory fee from the Registrant (except in his capacity as a Board or committee member). Dr. Farley qualifies as an audit committee financial expert by virtue of his experience at educational institutions, where his business responsibilities have included all aspects of financial management and reporting.
Under applicable securities laws, a person who is determined to be an audit committee financial expert will not be deemed an "expert" for any purpose, including without limitation for the purposes of Section 11 of the Securities Act of 1933, as a result of being designated or identified as an audit committee financial expert. The designation or identification of a person as an audit committee financial expert does not impose on such person any duties, obligations, or liabilities that are greater than the duties, obligations, and liabilities imposed on such person as a member of the audit committee and Board of Trustees in the absence of such designation or identification.
| Item 4. | Principal Accountant Fees and Services. |
(a)Audit Fees. The aggregate Audit Fees billed by the registrant’s principal accountant for professional services rendered for the audit of the annual financial statements or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for the fiscal years ended December 31, 2018 and December 31, 2017 were $329,730 and $325,827, respectively.
(b)Audit-Related Fees. The aggregate Audit-Related Fees billed by the registrant’s principal accountant for assurance and related services that are reasonably related to the performance of the audit of the registrant’s financial statements and are not reported under paragraph (a) of this Item for the fiscal years ended December 31, 2018 and December 31, 2017 were $0 and $0, respectively.
The aggregate fees billed in the Reporting Periods for assurance and related services by the Auditor to the registrant’s investment adviser (not including any sub-investment adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser), and any entity controlling, controlled by or under common control with the investment adviser that provides ongoing services to the Registrant (“Service Affiliates”) which required pre-approval by the Audit Committee which related to the review of the transfer agent function for the fiscal years ended December 31, 2018 and December 31, 2017 were $0 and $0, respectively.
(c)Tax Fees. The aggregate Tax Fees billed by the registrant’s principal accountant for professional services rendered for tax compliance, tax advice, and tax planning, including preparation of tax returns and distribution assistance, for the fiscal years ended December 31, 2018 and December 31, 2017 were $83,621 and $87,760, respectively.
(d)All Other Fees. The aggregate All Other Fees billed by the registrant’s principal accountant for products and services provided by the principal accountant, other than the services reported in paragraphs (a) through (c) of this Item, for the fiscal years ended December 31, 2018 and December 31, 2017 were $0 and $0, respectively.
(e)Audit Committee Pre-Approval Policies and Procedures.
(1) The registrant’s audit committee reviews, and in its sole discretion, pre-approves, pursuant to written pre-approval procedures (A) all engagements for audit and non-audit services to be provided by the principal accountant to the registrant and (B) all engagements for non-audit services to be provided by the principal accountant (1) to the registrant’s investment adviser (not including a sub-adviser whose role is primarily portfolio management and is subcontracted or overseen by another investment adviser) and (2) to any entity controlling, controlled by or under common control with the registrant’s investment adviser that provides ongoing services to the registrant; but in the case of the services described in subsection (B)(1) or (2), only if the engagement relates directly to the operations and financial reporting of the registrant; provided that such pre-approval need not be obtained in circumstances in which the preapproval requirement is waived under rules promulgated by the Securities and Exchange Commission or New York Stock Exchange listing standards. Sections V.B.2 and V.B.3 of the registrant’s audit committee’s Audit Committee Charter contain the Audit Committee’s Pre-Approval Policies and Procedures and such sections are included below.
V.B.2.Pre-approve any engagement of the independent auditors to provide any services, other than “prohibited non-audit services,” to the Fund, including the fees and other compensation to be paid to the independent auditors (unless an exception is available under Rule 2-01 of Regulation S-X).
(a) The categories of services to be reviewed and considered for pre-approval include the following (collectively, “Identified Services”):
Audit Services
• Annual financial statement audits
• Seed audits (related to new product filings, as required)
• SEC and regulatory filings and consents
Audit-Related Services
• Accounting consultations
• Fund merger/reorganization support services
• Other accounting related matters
• Agreed upon procedures reports
• Attestation reports
• Other internal control reports
Tax Services
• Recurring tax services:
o Preparation of Federal and state income tax returns, including extensions
o Preparation of calculations of taxable income, including fiscal year tax designations
o Preparation of annual Federal excise tax returns (if applicable)
o Preparation of calendar year excise distribution calculations
o Calculation of tax equalization on an as-needed basis
o Preparation of monthly/quarterly estimates of tax undistributed position for closed-end funds
o Preparation of the estimated excise distribution calculations on an as-needed basis
o Preparation of calendar year shareholder reporting designations on Form 1099
o Preparation of quarterly Federal, state and local and franchise tax estimated tax payments on an as-needed basis
o Preparation of state apportionment calculations to properly allocate Fund taxable income among the states for state tax filing
purposes
o Assistance with management’s identification of passive foreign investment companies (PFICs) for tax purposes
• Permissible non-recurring tax services upon request:
o Assistance with determining ownership changes which impact a Fund’s utilization of loss carryforwards
o Assistance with corporate actions and tax treatment of complex securities and structured products
o Assistance with IRS ruling requests and calculation of deficiency dividends
o Conduct training sessions for the Adviser’s internal tax resources
o Assistance with Federal, state, local and international tax planning and advice regarding the tax consequences of proposed or actual transactions
o Tax services related to amendments to Federal, state and local returns and sales and use tax compliance
o RIC qualification reviews
o Tax distribution analysis and planning
o Tax authority examination services
o Tax appeals support services
o Tax accounting methods studies
o Fund merger, reorganization and liquidation support services
o Tax compliance, planning and advice services and related projects
o Assistance with out of state residency status
o Provision of tax compliance services in India for Funds with direct investments in India
(b) The Committee has pre-approved Identified Services for which the estimated fees are less than $25,000.
(c) For Identified Services with estimated fees of $25,000 or more, but less than $50,000, the Chair or any member of the Committee designated by the Chair is hereby authorized to pre-approve such services on behalf of the Committee.
(d) For Identified Services with estimated fees of $50,000 or more, such services require pre-approval by the Committee.
(e) All requests for Identified Services to be provided by the independent auditor that were pre-approved by the Committee shall be submitted to the Chief Accounting Officer (“CAO”) of the Trust by the independent auditor using the pre-approval request form attached as Appendix C to the Audit Committee Charter. The Trust’s CAO will determine whether such services are included within the list of services that have received the general preapproval of the Committee.
(f) The independent auditors or the CAO of the Trust (or an officer of the Trust who reports to the CAO) shall report to the Committee at each of its regular quarterly meetings all audit, audit-related and permissible non-audit services initiated since the last such report (unless the services were contained in the initial audit plan, as previously presented to, and approved by, the Committee). The report shall include a general description of the services and projected fees, and the means by which such services were approved by the Committee (including the particular category of Identified Services under which pre-approval was obtained).
V.B.3. Pre-approve any engagement of the independent auditors, including the fees and other compensation to be paid to the independent auditors, to provide any non-audit services to the Adviser (or any “control affiliate” of the Adviser providing ongoing services to the Trust), if the engagement relates directly to the operations and financial reporting of the Trust (unless an exception is available under Rule 2-01 of Regulation S-X).
(a) The Chair or any member of the Committee designated by the Chair may grant the pre-approval for non-audit services to the Adviser (or any “control affiliate” of the Adviser providing ongoing services to the Trust) relating directly to the operations and financial reporting of the Trust for which the estimated fees are less than $25,000. All such delegated pre-approvals shall be presented to the Committee no later than the next Committee meeting.
(b) For non-audit services to the Adviser (or any “control affiliate” of the Adviser providing ongoing services to the Trust) relating directly to the operations and financial reporting of the Trust for which the estimated fees are $25,000 or more, such services require pre-approval by the Committee.
(2) None of the services described in each of Items 4(b) through (d) were approved by the Audit Committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X.
(f) Not applicable.
(g)Non-Audit Fees. The aggregate non-audit fees billed by the registrant’s accountant for the most recent fiscal year and the preceding fiscal year for services rendered to the registrant, the investment advisor, and any entity controlling, controlled by, or under common control with the advisor that provides ongoing services to the registrant were $83,621 and $87,760, respectively. These aggregate fees were less than the aggregate fees billed for the same periods by the registrant’s principal accountant for audit services rendered to the registrant, the investment advisor, and any entity controlling, controlled by, or under common control with the advisor that provides ongoing services to the registrant.
(h)Auditor Independence. The registrant’s Audit Committee was provided with information relating to the provision of non-audit services by Ernst & Young, LLP to the registrant’s investment adviser (not including any sub adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser), and any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the registrant that were not pre-approved by the Audit Committee so that a determination could be made whether the provision of such services is compatible with maintaining Ernst & Young, LLP’s independence.
| Item 5. | Audit Committee of Listed Registrants. |
Not applicable.
| Item 6. | Investments. |
Schedule of Investments is included as part of the report to shareholders filed under Item 1 of this form.
| Item 7. | Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies. |
Not applicable.
| Item 8. | Portfolio Mangers of Closed-end Management Investment Companies |
Not applicable
| Item 9. | Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers. |
Not applicable.
| Item 10. | Submission of Matters to a Vote of Security Holders. |
The registrant does not currently have in place procedures by which shareholders may recommend nominees to the registrant’s board.
There have been no changes to the procedures by which shareholders may recommend nominees to the registrant’s board.
| Item 11. | Controls and Procedures. |
(a) The registrant’s President (principal executive officer) and Treasurer (principal financial officer) have evaluated the registrant’s disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act) as of a date within 90 days of this filing and have concluded that based on such evaluation as required by Rule 30a-3(b) under the Investment Company Act, that the registrant’s disclosure controls and procedures were effective as of that date in ensuring that information required to be disclosed by the registrant in this Form N-CSR was recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.
(b) The registrant’s principal executive officer and principal financial officer are aware of no change in the registrant’s internal control over financial reporting that occurred during the registrant’s last fiscal quarter covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.
| Item 12. | Disclosure of Securities Lending Activities for Closed End Management Investment Companies. |
Not Applicable
| Item 13. | Exhibits. |
(a)(1) The registrant’s code of ethics pursuant to Item 2 of Form N-CSR is attached.
(a)(2) Separate certifications by the President (principal executive officer) and Treasurer (principal financial officer) of the registrant as required by Rule 30a-2(a) under the Act (17 CFR 270.30a-2(a)) are attached.
(b) A certification by the registrant’s President (principal executive officer) and Treasurer (principal financial officer) as required by Rule 30a-2(b) under the Act (17 CFR 270.30a-2(b)) is attached.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| (Registrant) | Guggenheim Variable Funds Trust | |
| By (Signature and Title)* | /s/ Brian Binder | |
| Brian Binder, President and Chief Executive Officer | ||
| Date | 3/8/2019 |
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/ Brian Binder | |
| Brian Binder, President and Chief Executive Officer | ||
| Date | 3/8/2019 | |
| By (Signature and Title)* | /s/ John L. Sullivan | |
| John L. Sullivan, Chief Financial Officer, Chief Accounting Officer and Treasurer | ||
| Date | 3/8/2019 | |
| * | Print the name and title of each signing officer under his or her signature. |