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 number | 811- 01136 |
Guggenheim Funds Trust |
(Exact name of registrant as specified in charter) |
805 King Farm Boulevard, Suite 600 |
Rockville, Maryland 20850 |
(Address of principal executive offices) (Zip code) |
Amy J. Lee |
Guggenheim Funds Trust |
805 King Farm Boulevard, Suite 600 |
Rockville, Maryland 20850 |
(Name and address of agent for service) |
Registrant’s telephone number, including area code: | 1-301-296-5100 |
Date of fiscal year end: | September 30 |
Date of reporting period: | September 30, 2014 |
Form N-CSR is to be used by management investment companies to file reports with the Commission not later than 10 days after the transmission to stockholders of any report that is required to be transmitted to stockholders under Rule 30e-1 under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may use the information provided on Form N-CSR in its regulatory, disclosure review, inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR, and the Commission will make this information public. A registrant is not required to respond to the collection of information contained in Form N-CSR unless the Form displays a currently valid Office of Management and Budget (“OMB”) control number. Please direct comments concerning the accuracy of the information collection burden estimate and any suggestions for reducing the burden to Secretary, Securities and Exchange Commission, 450 Fifth Street, NW, Washington, DC 20549-0609. The OMB has reviewed this collection of information under the clearance requirements of 44 U.S.C. §3507.
Item 1. | Reports to Stockholders |
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9.30.2014
Guggenheim Funds Annual Report
Guggenheim Floating Rate Strategies Fund
Guggenheim High Yield Fund
Guggenheim Investment Grade Bond Fund
Guggenheim Limited Duration Fund
Guggenheim Macro Opportunities Fund
Guggenheim Municipal Income Fund
Guggenheim Total Return Bond Fund
SBINC-ANN-0914x0915 | guggenheiminvestments.com |
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This report and the financial statements contained herein are submitted for the general information of our shareholders. The report is not authorized for distribution to prospective investors unless preceded or accompanied by an effective prospectus.
Distributed by Guggenheim Funds Distributors, LLC. GI-GOGREEN-0414 x0415 #12604
TABLE OF CONTENTS | ||
DEAR SHAREHOLDER | 2 | |
ECONOMIC AND MARKET OVERVIEW | 5 | |
ABOUT SHAREHOLDERS’ FUND EXPENSES | 6 | |
FLOATING RATE STRATEGIES FUND | 10 | |
HIGH YIELD FUND | 26 | |
INVESTMENT GRADE BOND FUND | 40 | |
LIMITED DURATION FUND | 56 | |
MACRO OPPORTUNITIES FUND | 68 | |
MUNICIPAL INCOME FUND | 88 | |
TOTAL RETURN BOND FUND | 98 | |
NOTES TO FINANCIAL STATEMENTS | 114 | |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM | 132 | |
OTHER INFORMATION | 133 | |
INFORMATION ON BOARD OF TRUSTEES AND OFFICERS | 145 | |
GUGGENHEIM INVESTMENTS PRIVACY POLICIES | 147 |
THE GUGGENHEIM FUNDS ANNUAL REPORT 1 |
September 30, 2014 | ||
Dear Shareholder:
Security Investors, LLC and Guggenheim Partners Investment Management (the “Investment Advisers”) are pleased to present the annual shareholder report for one or more of our Funds (the “Funds”) for the year ended September 30, 2014. The Investment Advisers are part of Guggenheim Investments, which represents the investment management businesses of Guggenheim Partners, LLC, a global, diversified financial services firm.
Guggenheim Funds Distributors, LLC is the distributor of the Funds. Guggenheim Funds Distributors, LLC is affiliated with Guggenheim Partners, LLC and the Investment Advisers.
We encourage you to read the Economic and Market Overview section of the report, which follows this letter, and then the Manager’s Commentary for each Fund.
We are committed to providing innovative investment solutions and appreciate the trust you place in us.
Sincerely,
Donald C. Cacciapaglia
President
October 31, 2014
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.
Floating Rate Strategies Fund may not be suitable for all investors. • Investments in floating rate senior secured syndicated bank loans and other floating rate securities involve special types of risks, including credit rate risk, interest rate risk, liquidity risk and prepayment risk. • The Fund’s market value will change in response to interest rate changes and market conditions among other factors. In general, bond prices rise when interest rates fall and vice versa. • The Fund’s exposure to high yield securities may subject the Fund to greater volatility. • When market conditions are deemed appropriate, the Fund will leverage to the full extent permitted by its investment policies and restrictions and applicable law. Leveraging will exaggerate the effect on net asset value of any increase or decrease in the market value of the Fund’s portfolio. • The Fund may invest in derivative instruments, which may be more volatile and less liquid, increasing the risk of loss when compared to traditional securities. Certain of the derivative instruments are also subject to the risks of counterparty default and adverse tax treatment. • Instruments and strategies (such as borrowing transactions and reverse repurchase agreements) may provide leveraged exposure to a particular investment, which will magnify any gains or losses on those investments. • Investments in reverse repurchase agreements and synthetic instruments (such as synthetic collateralized debt obligations) expose the Fund to the many of the same risks as investments in derivatives. • The Fund’s investments in other investment vehicles subject the Fund to those risks and expenses affecting the investment vehicle. • The Fund’s investments in foreign securities carry additional risks when compared to U.S. securities, due to the impact of diplomatic, political or economic developments in the country in question (investments in emerging markets securities are generally subject to an even greater level of risks). • The Fund’s investments in real estate securities subject the Fund to the same risks as direct investments in real estate, which is particularly sensitive to economic downturns. • The Fund’s investments in restricted securities may involve financial and liquidity risk. • The Fund is subject to active trading risks that may increase volatility and impact its ability to achieve its investment objective. • You may have a gain or loss when you sell your shares. • It is important to note that the Fund is not guaranteed by the U.S. government. • Please read the prospectus for more detailed information regarding these and other risks.
2 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
September 30, 2014 | ||
High Yield Fund 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.
Investment Grade Bond Fund may not be suitable for all investors. • The Fund’s market value will change in response to interest rate changes and market conditions among other factors. In general, bond prices rise when interest rates fall and vice versa. • The Fund’s exposure to high yield securities may subject the Fund to greater volatility. • When market conditions are deemed appropriate, the Fund will leverage to the full extent permitted by its investment policies and restrictions and applicable law. Leveraging will exaggerate the effect on net asset value of any increase or decrease in the market value of the Fund’s portfolio. • The Fund may invest in derivative instruments, which may be more volatile and less liquid, increasing the risk of loss when compared to traditional securities. Certain of the derivative instruments are also subject to the risks of counterparty default and adverse tax treatment. • Instruments and strategies (such as borrowing transactions and reverse repurchase agreements) may provide leveraged exposure to a particular investment, which will magnify any gains or losses on those investments. • Investments in reverse repurchase agreements expose the Fund to the many of the same risks as investments in derivatives. • The Fund’s investments in other investment vehicles subject the Fund to those risks and expenses affecting the investment vehicle. • The Fund’s investments in foreign securities carry additional risks when compared to U.S. securities, due to the impact of diplomatic, political or economic developments in the country in question (investments in emerging markets securities are generally subject to an even greater level of risks). • Investments in syndicated bank loans generally offer a floating interest rate and involve special types of risks. • The Fund’s investments in municipal securities can be affected by events that affect the municipal bond market. • The Fund’s investments in real estate securities subject the Fund to the same risks as direct investments in real estate, which is particularly sensitive to economic downturns. • The Fund’s investments in restricted securities may involve financial and liquidity risk. • You may have a gain or loss when you sell your shares. • It is important to note that the Fund is not guaranteed by the U.S. government. • Please read the prospectus for more detailed information regarding these and other risks.
Limited Duration Fund may not be suitable for all investors. • The Fund’s market value will change in response to interest rate changes and market conditions among other factors. In general, bond prices rise when interest rates fall and vice versa. • The Fund’s exposure to high yield securities may subject the Fund to greater volatility. • When market conditions are deemed appropriate, the Fund will leverage to the full extent permitted by its investment policies and restrictions and applicable law. Leveraging will exaggerate the effect on net asset value of any increase or decrease in the market value of the Fund’s portfolio. • The Fund may invest in derivative instruments, which may be more volatile and less liquid, increasing the risk of loss when compared to traditional securities. Certain of the derivative instruments are also subject to the risks of counterparty default and adverse tax treatment. • Instruments and strategies (such as borrowing transactions and reverse repurchase agreements) may provide leveraged exposure to a particular investment, which will magnify any gains or losses on those investments. • Investments in reverse repurchase agreements expose the Fund to the many of the same risks as investments in derivatives. • The Fund’s investments in other investment vehicles subject the Fund to those risks and expenses affecting the investment vehicle. • The Fund’s investments in foreign securities carry additional risks when compared to U.S. securities, due to the impact of diplomatic, political or economic developments in the country in question (investments in emerging markets securities are generally subject to an even greater level of risks). • Investments in syndicated bank loans generally offer a floating interest rate and involve special types of risks. • The Fund’s investments in municipal securities can be affected by events that affect the municipal bond market. • The Fund’s investments in real estate securities subject the Fund to the same risks as direct investments in real estate, which is particularly sensitive to economic downturns. • The Fund’s investments in restricted securities may involve financial and liquidity risk. • You may have a gain or loss when you sell your shares. • It is important to note that the Fund is not guaranteed by the U.S. government. • Please read the prospectus for more detailed information regarding these and other risks.
Macro Opportunities Fund may not be suitable for all investors. • The Fund’s market value will change in response to interest rate changes and market conditions among other factors. In general, bond prices rise when interest rates fall and vice versa. • The Fund’s exposure to high yield securities may subject the Fund to greater volatility. • The intrinsic value of the underlying stocks in which the Fund invests may never be realized or the stock may decline in value. • When market conditions are deemed appropriate, the Fund will leverage to the full extent permitted by its investment policies and restrictions and applicable law. Leveraging will exaggerate the effect on net asset value of any increase or decrease in the market value of the Fund’s portfolio. • The use of short selling involves increased risks and costs. You risk paying more for a security than you received from its sale. Theoretically, stocks sold short have the risk of unlimited losses. • The Fund may invest in derivative instruments, which may be more volatile and less liquid, increasing the risk of loss when compared to traditional securities. Certain of the derivative instruments are also subject to the risks of counterparty default and adverse tax treatment. • Instruments and strategies (such as borrowing transactions and reverse repurchase agreements) may provide leveraged exposure to a particular investment, which will magnify any gains or losses on those investments. • Investments in reverse repurchase agreements expose the Fund to the many of the same risks as investments in derivatives. • The Fund’s investments in other investment vehicles subject the Fund to those risks and expenses affecting the investment vehicle. • The Fund’s investments in foreign securities carry additional risks when compared to U.S. securities, due to the impact of diplomatic, political or economic developments in the country in question (investments in emerging markets securities are generally subject to an even greater level of risks). • Investments in syndicated bank loans generally offer a floating interest rate and involve special types of risks. • A highly liquid secondary market may not exist for the commodity-linked structured notes the Fund invests in, and there can be no assurance that a highly liquid secondary market will develop. • The Fund’s exposure to the commodity markets may subject the Fund to greater volatility as commodity-linked investments may be affected by changes in overall market movements, commodity index volatility, changes in interest rates or factors affecting a particular industry or commodity such as droughts, floods, weather, embargos, tariffs and international economic, political and regulatory
THE GUGGENHEIM FUNDS ANNUAL REPORT | 3 |
September 30, 2014 | ||
developments. • The Fund’s investments in municipal securities can be affected by events that affect the municipal bond market. • The Fund’s investments in real estate securities subject the Fund to the same risks as direct investments in real estate, which is particularly sensitive to economic downturns. • The Fund’s investments in restricted securities may involve financial and liquidity risk. • You may have a gain or loss when you sell your shares. • It is important to note that the Fund is not guaranteed by the U.S. government. •This Fund is considered nondiversified and can invest a greater portion of its assets in securities of individual issuers than a diversified fund. As a result, changes in the market value of a single security could cause greater fluctuations in the value of fund shares than would occur in a more diversified fund. • Please read the prospectus for more detailed information regarding these and other risks.
Municipal Income Fund may not be suitable for all investors. • The Fund will be significantly affected by events that affect the municipal bond market, which could include unfavorable legislative or political developments and adverse changes in the financial conditions of state and municipal issuers or the federal government in case it provides financial support to the municipality. Income from municipal bonds held by the Fund could be declared taxable because of changes in tax laws. The Fund may invest in securities that generate taxable income. A portion of the Fund’s otherwise tax-exempt dividends may be taxable to those shareholders subject to the alternative minimum tax. • Certain sectors of the municipal bond market have special risks that can affect them more significantly than the market as a whole. Because many municipal instruments are issued to finance similar projects, conditions in these industries can significantly affect the Fund and the overall municipal market. • Municipalities currently experience budget shortfalls, which could cause them to default on their debt and thus subject the Fund to unforeseen losses. • Like other funds that hold bonds and other fixed-income investments, 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 reverse repurchase agreements, unfunded commitments, tender option bonds and borrowings) may expose the Fund to many of the same risks as investments in derivatives and may provide leveraged exposure to a particular investment, which will magnify any gains or losses on those investments. • The Fund’s investments in other investment vehicles subject the Fund to those risks and expenses affecting the investment vehicle. • The Fund’s investments in foreign securities carry additional risks when compared to U.S. securities, due to the impact of diplomatic, political or economic developments in the country in question (investments in emerging markets securities are generally subject to an even greater level of risks). • Investments in syndicated bank loans generally offer a floating interest rate and involve special types of risks. • The Fund 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.
Total Return Bond Fund may not be suitable for all investors. • The Fund’s market value will change in response to interest rate changes and market conditions among other factors. In general, bond prices rise when interest rates fall and vice versa. • The Fund’s exposure to high yield securities may subject the Fund to greater volatility. • When market conditions are deemed appropriate, the Fund will leverage to the full extent permitted by its investment policies and restrictions and applicable law. Leveraging will exaggerate the effect on net asset value of any increase or decrease in the market value of the Fund’s portfolio. • The Fund may invest in derivative instruments, which may be more volatile and less liquid, increasing the risk of loss when compared to traditional securities. Certain of the derivative instruments are also subject to the risks of counterparty default and adverse tax treatment. • Instruments and strategies (such as borrowing transactions and reverse repurchase agreements) may provide leveraged exposure to a particular investment, which will magnify any gains or losses on those investments. • Investments in reverse repurchase agreements expose the Fund to the many of the same risks as investments in derivatives. • The Fund’s investments in other investment vehicles subject the Fund to those risks and expenses affecting the investment vehicle. • The Fund’s investments in foreign securities carry additional risks when compared to U.S. securities, due to the impact of diplomatic, political or economic developments in the country in question (investments in emerging markets securities are generally subject to an even greater level of risks). • Investments in syndicated bank loans generally offer a floating interest rate and involve special types of risks. • The Fund’s investments in municipal securities can be affected by events that affect the municipal bond market. • The Fund’s investments in real estate securities subject the Fund to the same risks as direct investments in real estate, which is particularly sensitive to economic downturns. • The Fund’s investments in restricted securities may involve financial and liquidity risk. • You may have a gain or loss when you sell your shares. • It is important to note that the Fund is not guaranteed by the U.S. government. • Please read the prospectus for more detailed information regarding these and other risks.
4 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
ECONOMIC AND MARKET OVERVIEW (Unaudited) | September 30, 2014 | |
Despite market volatility rising in October, for the year ended September 30, data on everything from hiring to housing conveys that the U.S. economy is firing on all cylinders. Overcoming a first-quarter weather-related soft patch, second-quarter GDP was revised upward to 4.6%, led by business investment. Durable goods orders surged over the summer and consumer confidence was at multi-year highs, despite a lower reading for the last part of the period. With tailwinds for economic growth gathering, we could see a strong third quarter GDP reading.
September’s addition of 248,000 non-farm payroll jobs was, on the surface, at least a strong figure and certainly not something to be discounted. However, investor optimism about the report, which also showed the unemployment rate falling to 5.9%—its lowest level since 2008—masked the fact that average hourly earnings were unchanged. Economic data late in the period included disappointing factory orders, poor construction spending, and weaker-than-expected ISM manufacturing data. The most recent decline in the U.S. Conference Board Consumer Confidence Index was worrisome.
The U.S. economy is certainly doing well enough to suggest higher interest rates ahead. With quantitative easing ending in the U.S. in October 2014 and the Fed preparing investors for a higher federal funds rate, the stage is set for U.S. interest rates to move higher. However, our view is that, despite a strengthening U.S. economy, the greater risk is that interest rates head lower in the near term.
Following the “taper tantrum” last year, before rates were able to reach historical norms, the average rate on a 30-year mortgage spiked almost a full percentage point in two months—the sharpest rise since the late 1990s—resulting in an abrupt housing slowdown, which slowed the U.S. economy materially.
In addition, U.S. Treasury yields are still materially higher than those in any other developed market. The spread between 10-year U.S. Treasuries and comparable German bunds reached 157 basis points in September, its widest level since 1999, and the spread between 10-year Treasuries and 10-year Japanese government bonds was recently 189 basis points. With developments in the Middle East increasingly troubling and turbulence continuing elsewhere from Ukraine to Hong Kong, the relative price value of U.S. government bonds versus other safe haven investments should continue to be a factor keeping U.S. interest rates low.
International economic data remain weak. Euro zone economic confidence is falling as the entire region continues to battle below-target inflation. At the start of September, the European Central Bank cut interest rates and signaled their intent to launch a program to purchase asset-backed securities and covered bonds to stimulate the dismal economy. In Japan, retail sales fell month-over-month in August, while industrial production falters.
Economic data around the world confirms our view that central banks are likely to renew efforts to force liquidity into the global financial system, which in turn further supports our positive outlook for risk assets. However, positive returns are unlikely without volatility. While markets continue to rally, gains are becoming more grudging. The upward momentum in U.S. stocks has deteriorated meaningfully while credit spreads, specifically high-yield spreads, have widened significantly over the past number of weeks. While the bull market trend remains intact, as the appreciation in risk assets continues it becomes more likely that this ageing advance will, at some point, experience a correction.
For the year ended September 30, 2014, the return of the Standard & Poor’s 500® Index* (“S&P 500”) was 19.73%. The Barclays U.S. Aggregate Bond Index* returned 3.96% for the year, while the Barclays U.S. Corporate High Yield Index* returned 7.20%. The BofA Merrill Lynch 3-Month U.S. Treasury Bill Index* returned 0.05%. The MSCI World Index* returned 12.22%, while the MSCI Emerging Markets Index* returned 4.30%.
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.
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.
BofA/ML ABS Master AA-BBB Index is a subset of the BofA Merrill Lynch U.S. Fixed Rate Asset Backed Securities Index including all securities rated AA1 through BBB3, inclusive.
Barclays U.S. Aggregate Bond Index represents securities that are SEC-registered, taxable, and dollar denominated. The index covers the U.S. investment grade fixed rate bond market, with index components for government and corporate securities, mortgage pass-through securities, and asset-backed securities. These major sectors are subdivided into more specific indices that are calculated and reported on a regular basis.
Barclays U.S. Corporate High Yield Index covers the universe of dollar denominated, fixed rate, non-investment grade debt, taxable corporate debt.
Barclays U.S. Corporate Investment Grade Index is an unmanaged index consisting of publicly issued US Corporate and specified foreign debentures and secured notes that are rated investment grade (Baa3/BBB- or higher) by at least two ratings agencies, have at least one year to final maturity and have at least $250 million par amount outstanding. To qualify, bonds must be SEC-registered.
Barclays Capital U.S. 1-3 Year Corporate Bond Index is designed to measure the performance of the short term U.S. corporate bond market. The Index includes publicly issued U.S. dollar denominated corporate issues that have a remaining maturity of greater than or equal to 1 year and less than 3 years, are rated investment grade (must be Baa3/BBB- or higher using the middle rating of Moody’s Investor Service, Inc., Standard & Poor’s, and Fitch Rating), and have $250 million or more of outstanding face value.
Barclays Municipal Bond Index is a broad market performance benchmark for the tax-exempt bond market. The bonds included in this index must have a minimum credit rating of at least Baa.
Barclays Municipal Long Bond Index is a sub-index of the Barclays Municipal Bond Index that is representative of the performance of municipal bonds with 22+ years to maturity.
Barclays U.S. Aggregate Bond 1-3 Year Total Return Index measures the performance of publicly issued investment grade corporate, U.S. Treasury and government agency securities with remaining maturities of one to three years.
Credit Suisse Leveraged Loan Index is designed to mirror the investable universe of the dollar denominated leveraged loan market.
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 (Net) is calculated with net dividends reinvested. It is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed markets.
S&P 500® Index is a market-weighted stock market index comprised of the stocks of 500 U.S. corporations; the index is owned and maintained by Standard & Poor’s.
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, or other distributions; and exchange fees; and (ii) ongoing costs, including management fees, administrative services, and shareholder reports, among others. These ongoing costs, or operating expenses, are deducted from a fund’s gross income and reduce the investment return of the fund.
A fund’s expenses are expressed as a percentage of its average net assets, which is known as the expense ratio. The following examples are intended to help investors understand the ongoing costs (in dollars) of investing in a Fund and to compare these costs with the ongoing costs of investing in other mutual funds.
The examples are based on an investment of $1,000 made at the beginning of the period and held for the entire six-month period beginning March 31, 2014 and ending September 30, 2014.
The following tables illustrate a Fund’s costs in two ways:
Table 1. Based on actual Fund return. This section helps investors estimate the actual expenses paid over the period. The “Ending Account Value” shown is derived from the Fund’s actual return, and the fourth column shows the dollar amount that would have been paid by an investor who started with $1,000 in the Fund. Investors may use the information here, together with the amount invested, to estimate the expenses paid over the period. Simply divide the Fund’s account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number provided under the heading “Expenses Paid During Period.”
Table 2. Based on hypothetical 5% return. This section is intended to help investors compare a Fund’s cost with those of other mutual funds. The table provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses paid during the period. The example is useful in making comparisons because the U.S. Securities and Exchange Commission (the “SEC”) requires all mutual funds to calculate expenses based on the 5% return. Investors can assess a Fund’s costs by comparing this hypothetical example with the hypothetical examples that appear in shareholder reports of other funds.
The calculations illustrated above assume no shares were bought or sold during the period. Actual costs may have been higher or lower, depending on the amount of investment and the timing of any purchases or redemptions.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads) on purchase payments, and contingent deferred sales charges (“CDSC”) on redemptions, if any. Therefore, the second table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
More information about a Fund’s expenses, including annual expense ratios for the past five years, can be found in the Financial Highlights section of this report. For additional information on operating expenses and other shareholder costs, please refer to the appropriate Fund prospectus.
6 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
ABOUT SHAREHOLDERS’ FUND EXPENSES (Unaudited) (continued) | ||
Beginning | Ending | Expenses | ||||||||||||||||||
Expense | Fund | Account Value | Account Value | Paid During | ||||||||||||||||
Ratio1 | Return | March 31, 2014 | September 30, 2014 | Period2 | ||||||||||||||||
Table 1. Based on actual Fund return3 | ||||||||||||||||||||
Floating Rate Strategies Fund | ||||||||||||||||||||
A-Class | 1.03 | % | 1.09 | % | $1,000.00 | $1,010.90 | $5.19 | |||||||||||||
C-Class | 1.79 | % | 0.70 | % | 1,000.00 | 1,007.00 | 9.01 | |||||||||||||
Institutional Class | 0.79 | % | 1.25 | % | 1,000.00 | 1,012.50 | 3.99 | |||||||||||||
High Yield Fund | ||||||||||||||||||||
A-Class | 1.27 | % | 1.00 | % | 1,000.00 | 1,010.00 | 6.40 | |||||||||||||
B-Class | 1.04 | % | 1.10 | % | 1,000.00 | 1,011.00 | 5.24 | |||||||||||||
C-Class | 2.03 | % | 0.65 | % | 1,000.00 | 1,006.50 | 10.21 | |||||||||||||
Institutional Class | 1.03 | % | 1.13 | % | 1,000.00 | 1,011.30 | 5.19 | |||||||||||||
Investment Grade Bond Fund | ||||||||||||||||||||
A-Class | 1.03 | % | 3.55 | % | 1,000.00 | 1,035.50 | 5.26 | |||||||||||||
B-Class | 1.78 | % | 3.12 | % | 1,000.00 | 1,031.20 | 9.06 | |||||||||||||
C-Class | 1.78 | % | 3.17 | % | 1,000.00 | 1,031.70 | 9.07 | |||||||||||||
Institutional Class | 0.78 | % | 3.64 | % | 1,000.00 | 1,036.40 | 3.98 | |||||||||||||
Limited Duration Fund | ||||||||||||||||||||
A-Class | 0.83 | % | 1.22 | % | 1,000.00 | 1,012.20 | 4.19 | |||||||||||||
C-Class | 1.56 | % | 0.80 | % | 1,000.00 | 1,008.00 | 7.85 | |||||||||||||
Institutional Class | 0.57 | % | 1.35 | % | 1,000.00 | 1,013.50 | 2.88 | |||||||||||||
Macro Opportunities Fund | ||||||||||||||||||||
A-Class | 1.33 | % | 1.09 | % | 1,000.00 | 1,010.90 | 6.70 | |||||||||||||
C-Class | 2.07 | % | 0.72 | % | 1,000.00 | 1,007.20 | 10.42 | |||||||||||||
Institutional Class | 0.99 | % | 1.23 | % | 1,000.00 | 1,012.30 | 4.99 | |||||||||||||
Municipal Income Fund | ||||||||||||||||||||
A-Class | 0.83 | % | 6.28 | % | 1,000.00 | 1,062.80 | 4.29 | |||||||||||||
C-Class | 1.58 | % | 5.89 | % | 1,000.00 | 1,058.90 | 8.15 | |||||||||||||
Institutional Class | 0.58 | % | 6.41 | % | 1,000.00 | 1,064.10 | 3.00 | |||||||||||||
Total Return Bond Fund | ||||||||||||||||||||
A-Class | 0.81 | % | 3.21 | % | 1,000.00 | 1,032.10 | 4.13 | |||||||||||||
C-Class | 1.67 | % | 2.84 | % | 1,000.00 | 1,028.40 | 8.49 | |||||||||||||
Institutional Class | 0.57 | % | 3.43 | % | 1,000.00 | 1,034.30 | 2.91 | |||||||||||||
THE GUGGENHEIM FUNDS ANNUAL REPORT | 7 |
ABOUT SHAREHOLDERS’ FUND EXPENSES (Unaudited) (concluded) | ||
Beginning | Ending | Expenses | ||||||||||||||||||
Expense | Fund | Account Value | Account Value | Paid During | ||||||||||||||||
Ratio1 | Return | March 31, 2014 | September 30, 2014 | Period2 | ||||||||||||||||
Table 2. Based on hypothetical 5% return (before expenses) | ||||||||||||||||||||
Floating Rate Strategies Fund | ||||||||||||||||||||
A-Class | 1.03 | % | 5.00 | % | $1,000.00 | $1,019.90 | $5.22 | |||||||||||||
C-Class | 1.79 | % | 5.00 | % | 1,000.00 | 1,016.09 | 9.05 | |||||||||||||
Institutional Class | 0.79 | % | 5.00 | % | 1,000.00 | 1,021.11 | 4.00 | |||||||||||||
High Yield Fund | ||||||||||||||||||||
A-Class | 1.27 | % | 5.00 | % | 1,000.00 | 1,018.70 | 6.43 | |||||||||||||
B-Class | 1.04 | % | 5.00 | % | 1,000.00 | 1,019.85 | 5.27 | |||||||||||||
C-Class | 2.03 | % | 5.00 | % | 1,000.00 | 1,014.89 | 10.25 | |||||||||||||
Institutional Class | 1.03 | % | 5.00 | % | 1,000.00 | 1,019.90 | 5.22 | |||||||||||||
Investment Grade Bond Fund | ||||||||||||||||||||
A-Class | 1.03 | % | 5.00 | % | 1,000.00 | 1,019.90 | 5.22 | |||||||||||||
B-Class | 1.78 | % | 5.00 | % | 1,000.00 | 1,016.14 | 9.00 | |||||||||||||
C-Class | 1.78 | % | 5.00 | % | 1,000.00 | 1,016.14 | 9.00 | |||||||||||||
Institutional Class | 0.78 | % | 5.00 | % | 1,000.00 | 1,021.16 | 3.95 | |||||||||||||
Limited Duration Fund | ||||||||||||||||||||
A-Class | 0.83 | % | 5.00 | % | 1,000.00 | 1,020.91 | 4.20 | |||||||||||||
C-Class | 1.56 | % | 5.00 | % | 1,000.00 | 1,017.25 | 7.89 | |||||||||||||
Institutional Class | 0.57 | % | 5.00 | % | 1,000.00 | 1,022.21 | 2.89 | |||||||||||||
Macro Opportunities Fund | ||||||||||||||||||||
A-Class | 1.33 | % | 5.00 | % | 1,000.00 | 1,018.40 | 6.73 | |||||||||||||
C-Class | 2.07 | % | 5.00 | % | 1,000.00 | 1,014.69 | 10.45 | |||||||||||||
Institutional Class | 0.99 | % | 5.00 | % | 1,000.00 | 1,020.10 | 5.01 | |||||||||||||
Municipal Income Fund | ||||||||||||||||||||
A-Class | 0.83 | % | 5.00 | % | 1,000.00 | 1,020.91 | 4.20 | |||||||||||||
C-Class | 1.58 | % | 5.00 | % | 1,000.00 | 1,017.15 | 7.99 | |||||||||||||
Institutional Class | 0.58 | % | 5.00 | % | 1,000.00 | 1,022.16 | 2.94 | |||||||||||||
Total Return Bond Fund | ||||||||||||||||||||
A-Class | 0.81 | % | 5.00 | % | 1,000.00 | 1,021.01 | 4.10 | |||||||||||||
C-Class | 1.67 | % | 5.00 | % | 1,000.00 | 1,016.70 | 8.44 | |||||||||||||
Institutional Class | 0.57 | % | 5.00 | % | 1,000.00 | 1,022.21 | 2.89 |
1 | Annualized and excludes expenses of the underlying funds in which the Funds invest. | |
2 | Expenses are equal to the Fund’s annualized expense ratio, net of any applicable fee waivers, multiplied by the average account value over the period, multiplied by 183/365 (to reflect the one-half year period). | |
3 | Actual cumulative return at net asset value for the period March 31, 2014 to September 30, 2014. |
8 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
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THE GUGGENHEIM FUNDS ANNUAL REPORT | 9 |
MANAGERS’ COMMENTARY (Unaudited) | September 30, 2014 | |||||||||||||||||||
To Our Shareholders
Guggenheim Floating Rate Strategies Fund (the “Fund”) is managed by a team of seasoned professionals, including B. Scott Minerd, Chairman of Investments and Global Chief Investment Officer; Michael P. Damaso, Senior Managing Director and Portfolio Manager; Anne B. Walsh, Senior Managing Director; Kevin H. Gundersen, Senior Managing Director and Portfolio Manager; and James W. Michal, Managing Director and Portfolio Manager. In the following paragraphs, the investment team discusses the market environment and the Fund’s performance for the fiscal year ended September 30, 2014.
For the one-year period ended September 30, 2014 (the “Period”), the Guggenheim Floating Rate Strategies Fund returned 4.42%1, compared with the 4.31% return of its benchmark, the Credit Suisse Leveraged Loan Index.
The Fund seeks to provide a high level of current income while maximizing total return. The Fund pursues its objective by normally investing at least 80% of its assets in floating rate securities, including senior secured syndicated bank loans and asset-backed securities (ABS).
The leveraged credit market performed well for the 12 months ended September 30, 2014, even as it contended with Treasury rate volatility and frothy valuations, as investors searched for yield amid generally declining interest rates. The last three months in the Period were particularly bumpy, as markets tried to ascertain what the Fed might do about short-term interest rates. Quantitative easing was expected to end in October, and the Fed began signaling a higher federal funds rate as soon as late 2015.
It was the general decline in Treasury yields over the Period, and not fundamentals, that appeared to drive outflows from bank loan mutual funds in the last half of the Period. However, the bank loan market was not as affected as the high yield space by mutual fund outflows, due to strong demand from the collateralized loan obligation (CLO) market. On track to set a new annual record, CLO creation raised $93 billion through the first three quarters of 2014.
For most of the Period, bank loan discount margins tightened. The events that drove spread widening in the third quarter demonstrate that investors are becoming increasingly reactive to factors outside of the fundamentals that underscore our positive outlook on credit. Even though U.S. economic data was mixed in September, it has been strong year to date, and the improving health of the U.S. economy and low interest rates continue to underscore our expectation that spreads can compress further. Volatility is likely to continue, but as the economy improves, brief periods of spread widening should be viewed as buying opportunities.
Positive performance in the quarter was primarily a result of credit selection, as Guggenheim’s bottom-up, downside protection led approach limited downside risk versus the benchmark. The Fund was consistently positioned through the Period, with approximately 80% of assets invested in leveraged loans and the remainder invested in high yield bonds, asset-backed securities and non-agency mortgage-backed securities. The Fund has been constructed flexibly, so that it can add selected fixed rate high yield exposure where it is attractive, while maintaining the majority of its focus on bank debt. The Fund benefited from reducing exposure to assets that had less upside with respect to spread compression, while selectively adding to holdings that can be expected to benefit from sustained period of economic expansion.
Most bank loans traded wide of ex-recession averages for the Period, indicating that there may be room for further spread compression. The Fund favored BB-rated and B-rated bank loans, which we believe offered better relative value than loans in the lower-quality CCC space. The Fund has maintained an average portfolio quality of B+ and has the ability to invest across the ratings spectrum.
We continue to identify relative value in bank loans, which we expect will outperform fixed-rated investments in a rising rate environment. Some of the best opportunities exist in the upper middle market segments, which offer a yield pickup over larger tranches that are often overlooked and underfollowed.
Outperformance was also a result of a lower risk profile of the Fund compared with the market. The Fund’s exposure to floating rate assets (primarily bank loans), and shorter-maturity bonds acted as a buffer to market volatility. The Fund has used market sell-offs to capture opportunities to buy issues we view as being cheap compared to inherent value.
10 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
MANAGERS’ COMMENTARY (Unaudited) (concluded) | September 30, 2014 | |
Our research suggests that macroeconomic indicators in the U.S. are pointing higher, which by itself would suggest a relaxation in accommodative monetary policy ahead—and therefore transmission of high real interest rates. Despite a strengthening U.S. economy, there is the potential that interest rates head lower in the near future.
Historically, credit spreads begin to widen approximately 80 months following the end of a recession, and September 2014 marks the 63rd month following the end of the last recession, indicating the potential for further spread tightening over the next 17 months. Credit cycles typically only end after corporate defaults start to spike, which typically starts to happen 12-24 months after the Federal Reserve begins raising short-term interest rates.
Performance displayed represents past performance which is no guarantee of future results.
1 Performance figures are based on A-Class shares and do not reflect deduction of the sales charges or taxes that a shareholder would pay on distributions or the redemption of shares. Fee waivers and/or reimbursements reduce Fund expenses, and, in the absence of such waivers, the performance quoted would be reduced.
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 | 11 |
PERFORMANCE REPORT AND FUND PROFILE (Unaudited) | September 30, 2014 | |
FLOATING RATE STRATEGIES FUND
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.
Portfolio Composition by Quality Rating* | ||||
% of | ||||
Rating | Total Investments | |||
Fixed Income Instruments | ||||
AAA | 0.5 | % | ||
AA | 1.1 | % | ||
A | 1.8 | % | ||
BBB | 10.2 | % | ||
BB | 20.6 | % | ||
B | 53.9 | % | ||
CCC | 5.5 | % | ||
Other | 4.0 | % | ||
Other Instruments | ||||
Short Term Investments | 2.1 | % | ||
Common Stocks | 0.3 | % | ||
Total Investments | 100.0 | % | ||
The chart above reflects percentages of the value of total investments.
Inception Dates: | ||
A-Class | November 30, 2011 | |
C-Class | November 30, 2011 | |
Institutional Class | November 30, 2011 |
Ten Largest Holdings (% of Total Net Assets) | |||
Cartrawler- Mustang Bidco Ltd. | 1.8 | % | |
Alliance Boots Ltd. | 1.4 | % | |
Infor (US), Inc. | 1.2 | % | |
Scout24 AG | 1.2 | % | |
Flakt Woods | 1.2 | % | |
HUB International Ltd. | 1.0 | % | |
National Financial Partners Corp. | 1.0 | % | |
Crosby Worldwide | 1.0 | % | |
Active Network, Inc., The | 1.0 | % | |
Go Daddy Operating Company, LLC | 0.9 | % | |
Top Ten Total | 11.7 | % | |
“Ten Largest Holdings" exclude any temporary cash or derivative investments.
* Source: Factset. Credit quality ratings are measured on a scale that generally ranges from AAA (highest) to D (lowest). All rated securities have been rated by Moody’s, Standard & Poor’s (“S&P”), or Fitch, which are all a Nationally Recognized Statistical Rating Organization (“NRSRO”). For purposes of this presentation, when ratings are available from more than one agency, the highest rating is used. Guggenheim Investments has converted Moody’s and Fitch ratings to the equivalent S&P rating. Unrated securities do not necessarily indicate low credit quality. Security ratings are determined at the time of purchase and may change thereafter.
12 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
PERFORMANCE REPORT AND FUND PROFILE (Unaudited) (concluded) | September 30, 2014 | |
Cumulative Fund Performance*
Average Annual Returns*
Periods Ended September 30, 2014
Since Inception | |||||
1 Year | (11/30/11) | ||||
A-Class Shares | 4.42% | 7.19% | |||
A-Class Shares with sales charge† | -0.55% | 5.36% | |||
C-Class Shares | 3.64% | 6.39% | |||
C-Class Shares with CDSC‡ | 2.64% | 6.39% | |||
Institutional Class Shares | 4.67% | 7.45% | |||
Credit Suisse Leveraged Loan Index | 4.31% | 6.52% | |||
* | 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 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. |
† | Fund returns are calculated using the maximum sales charge of 4.75%. |
‡ | Fund returns include a CDSC of 1% if redeemed within 12 months of purchase. |
THE GUGGENHEIM FUNDS ANNUAL REPORT | 13 |
SCHEDULE OF INVESTMENTS | September 30, 2014 | |
FLOATING RATE STRATEGIES FUND |
SHARES | VALUE | ||||||
COMMON STOCKS†- 0.3% | |||||||
CONSUMER DISCRETIONARY - 0.3% | |||||||
Travelport LLC* | 189,931 | $ | 3,126,264 | ||||
�� | |||||||
BASIC MATERIALS - 0.0% | |||||||
Mirabela Nickel Ltd.* | 4,755,634 | 274,784 | |||||
Total Common Stocks | |||||||
(Cost $5,290,286) | 3,401,048 | ||||||
SHORT TERM INVESTMENTS†- 2.2% | |||||||
Federated U.S. Treasury Cash Reserve Fund | 27,996,441 | 27,996,441 | |||||
Total Short Term Investments | |||||||
(Cost $27,996,441) | 27,996,441 | ||||||
FACE | |||||||
AMOUNT | |||||||
SENIOR FLOATING RATE INTERESTS††,2,6 - 76.3% | |||||||
INDUSTRIAL -16.9% | |||||||
Amber Bidco Foster + Partners | |||||||
6.28% due 07/18/21††† | $ | 10,480,000 | 10,270,400 | ||||
5.01% due 07/18/21††† | GBP | 3,500,000 | 5,560,509 | ||||
Flakt Woods | |||||||
2.63% due 03/20/175 | EUR | 12,115,820 | 14,690,479 | ||||
Crosby Worldwide | |||||||
3.75% due 11/23/20 | 12,902,500 | 12,321,887 | |||||
Sabre, Inc. | |||||||
4.00% due 02/19/19 | 11,256,561 | 11,097,883 | |||||
Brickman Group Holdings, Inc. | |||||||
4.00% due 12/18/20 | 11,221,305 | 10,964,112 | |||||
Mitchell International, Inc. | |||||||
4.50% due 10/13/20 | 6,352,000 | 6,281,874 | |||||
8.50% due 10/11/21 | 3,050,000 | 3,038,563 | |||||
Minimax Viking | |||||||
4.25% due 08/14/20 | 8,610,676 | 8,589,149 | |||||
Rexnord LLC/ RBS Global, Inc. | |||||||
4.00% due 08/21/20 | 8,316,000 | 8,171,967 | |||||
US Infrastructure Corp. | |||||||
4.00% due 07/10/20 | 6,813,750 | 6,660,441 | |||||
Thermasys Corp. | |||||||
5.25% due 05/03/19 | 6,611,719 | 6,573,172 | |||||
SIRVA Worldwide, Inc. | |||||||
7.50% due 03/27/19 | 5,910,000 | 5,998,650 | |||||
Ceridian Corp. | |||||||
4.50% due 05/09/17 | 2,846,109 | 2,810,533 | |||||
4.15% due 05/09/17 | 2,728,535 | 2,716,611 | |||||
Berlin Packaging LLC | |||||||
5.75% due 04/02/19 | 3,564,000 | 3,557,335 | |||||
9.75% due 04/02/20 | 1,900,000 | 1,885,750 | |||||
Doncasters Group Ltd. | |||||||
9.50% due 10/09/20 | 3,834,483 | 3,824,897 | |||||
4.50% due 04/09/20 | 1,469,852 | 1,457,917 | |||||
Connolly Corp. | |||||||
5.00% due 05/14/21 | 4,987,500 | 4,956,328 | |||||
Transdigm, Inc. | |||||||
3.75% due 06/04/21 | 4,788,000 | 4,698,225 | |||||
Gogo LLC | |||||||
11.25% due 03/21/185 | 4,286,367 | 4,500,685 | |||||
Power Borrower, LLC | |||||||
4.25% due 05/06/20 | 2,940,002 | 2,873,851 | |||||
8.25% due 11/06/20 | 1,670,000 | 1,619,900 | |||||
SRA International, Inc. | |||||||
6.50% due 07/20/18 | 4,402,702 | 4,391,696 | |||||
syncreon | |||||||
5.25% due 10/28/20 | 3,771,500 | 3,733,785 | |||||
Sutherland Global Services, Inc. | |||||||
7.25% due 03/06/19 | 3,700,000 | 3,690,750 | |||||
Ceva Logistics US Holdings | |||||||
6.50% due 03/19/21 | 3,764,335 | 3,637,289 | |||||
Knowledge Learning Corp. | |||||||
5.25% due 03/18/21 | 3,532,250 | 3,532,250 | |||||
NaNa Development Corp. | |||||||
8.00% due 03/15/185 | 3,570,000 | 3,498,600 | |||||
Univision Communications, Inc. | |||||||
4.00% due 03/01/20 | 3,152,007 | 3,088,967 | |||||
Camp Systems International | |||||||
4.75% due 05/31/19 | 1,885,639 | 1,880,925 | |||||
8.25% due 11/29/19 | 1,150,000 | 1,157,188 | |||||
GYP Holdings III Corp. | |||||||
4.75% due 04/01/21 | 2,793,000 | 2,751,105 | |||||
Ceva Logistics Holdings BV (Dutch) | |||||||
6.50% due 03/19/21 | 2,729,143 | 2,637,034 | |||||
Mast Global | |||||||
8.75% due 09/12/19†††,5 | 2,646,875 | 2,624,751 | |||||
Learning Care Group (US), Inc. | |||||||
5.50% due 05/05/21 | 2,543,625 | 2,539,377 | |||||
Ceva Group plc (United Kingdom) | |||||||
6.50% due 03/19/21 | 2,600,985 | 2,509,951 | |||||
Ranpak | |||||||
4.50% due 04/23/19 | 1,995,022 | 1,990,653 | |||||
8.50% due 04/23/20 | 500,000 | 504,165 | |||||
Realogy Corp. | |||||||
3.75% due 03/05/20 | 2,462,641 | 2,416,466 | |||||
Kronos, Inc. | |||||||
4.50% due 10/30/195 | 2,422,566 | 2,403,645 | |||||
MRC Global, Inc. | |||||||
5.52% due 11/08/19 | 2,346,275 | 2,342,850 | |||||
SI Organization | |||||||
5.75% due 11/23/19 | 2,290,521 | 2,298,400 | |||||
Nord Anglia Education Finance LLC | |||||||
4.50% due 03/31/21 | 1,645,875 | 1,633,531 | |||||
Braas Monier Buildings Group | |||||||
4.70% due 10/15/20 | EUR | 1,216,837 | 1,544,580 | ||||
Gogo LLC | |||||||
7.50% due 03/21/18 | 1,375,779 | 1,389,537 | |||||
Dematic S.A. | |||||||
4.25% due 12/28/19 | 1,354,856 | 1,333,693 | |||||
CareCore National LLC | |||||||
5.50% due 03/05/21 | 1,343,250 | 1,333,176 | |||||
IntraWest Holdings S.à r.l. | |||||||
5.50% due 12/09/20 | 1,182,050 | 1,182,050 | |||||
V.Group Ltd. | |||||||
5.00% due 06/25/21 | 1,047,375 | 1,039,520 |
14 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
SCHEDULE OF INVESTMENTS (continued) | September 30, 2014 | |
FLOATING RATE STRATEGIES FUND |
FACE | |||||||
AMOUNT | VALUE | ||||||
CPM Acquisition Corp. | |||||||
6.25% due 08/29/17 | $ | 377,192 | $ | 376,249 | |||
10.25% due 03/01/18 | 325,000 | 328,250 | |||||
Panolam Industries International, Inc. | |||||||
7.76% due 08/23/17 | 549,352 | 546,606 | |||||
Wireco Worldgroup, Inc. | |||||||
6.00% due 02/15/17 | 485,361 | 487,385 | |||||
Ceva Logistics Canada, ULC | |||||||
6.50% due 03/19/21 | 470,542 | 454,661 | |||||
Omnitracs, Inc. | |||||||
8.75% due 05/25/21 | 350,000 | 348,250 | |||||
Advanced Disposal Services, Inc. | |||||||
3.75% due 10/09/19 | 349,590 | 339,802 | |||||
Hunter Fan Co. | |||||||
6.50% due 12/20/17 | 221,823 | 221,269 | |||||
Total Safety U.S., Inc. | |||||||
9.25% due 09/13/20 | 99,750 | 96,758 | |||||
Total Industrial | 211,406,282 | ||||||
CONSUMER, CYCLICAL - 13.3% | |||||||
Alliance Boots Ltd. | |||||||
3.98% due 07/09/17 | GBP | 10,521,726 | 17,042,006 | ||||
BJ’s Wholesale Club, Inc. | |||||||
4.50% due 09/26/19 | 11,482,260 | 11,293,835 | |||||
Smart & Final Stores LLC | |||||||
4.75% due 11/15/19 | 10,410,926 | 10,378,443 | |||||
Burger King Corp. | |||||||
4.50% due 09/24/21 | 10,200,000 | 10,120,644 | |||||
Alexander Mann Solutions Ltd. | |||||||
5.75% due 12/20/19 | 7,940,000 | 7,860,600 | |||||
Neiman Marcus Group, Inc. | |||||||
4.25% due 10/25/20 | 7,967,152 | 7,819,998 | |||||
Lions Gate Entertainment Corp. | |||||||
5.00% due 07/19/20 | 7,400,000 | 7,418,500 | |||||
Sears Holdings Corp. | |||||||
5.50% due 06/30/18 | 7,102,653 | 6,898,452 | |||||
Hilton Worldwide Holdings, Inc. | |||||||
3.50% due 10/26/20 | 6,378,596 | 6,272,265 | |||||
Party City Holdings, Inc. | |||||||
4.00% due 07/27/19 | 5,968,790 | 5,859,024 | |||||
Compucom Systems, Inc. | |||||||
4.25% due 05/07/20 | 4,340,806 | 4,156,321 | |||||
Nassa Midco AS | |||||||
4.25% due 05/14/21 | EUR | 3,300,000 | 4,121,093 | ||||
Ollies Bargain Outlet | |||||||
4.75% due 09/28/19 | 4,139,994 | 4,106,377 | |||||
Advantage Sales & Marketing, Inc. | |||||||
4.25% due 07/21/21 | 4,112,903 | 4,038,007 | |||||
CPA Global | |||||||
4.50% due 12/03/20 | 3,930,250 | 3,920,424 | |||||
TI Automotive Ltd. | |||||||
4.25% due 07/02/21 | 3,920,175 | 3,863,842 | |||||
Digital Cinema | |||||||
3.25% due 05/17/21 | 3,756,176 | 3,704,529 | |||||
Acosta, Inc. | |||||||
5.00% due 09/26/21 | 3,700,000 | 3,690,750 | |||||
Aecom Techology Corp. | |||||||
3.75% due 09/17/21 | 3,600,000 | 3,590,352 | |||||
Warner Music Group | |||||||
3.75% due 07/01/20 | 3,712,500 | 3,578,516 | |||||
Fitness International LLC | |||||||
5.50% due 07/01/20 | 3,491,250 | 3,456,338 | |||||
Pinnacle Entertainment, Inc. | |||||||
3.75% due 08/13/20 | 3,242,652 | 3,196,704 | |||||
Men’s Wearhouse | |||||||
4.50% due 06/18/21 | 3,100,000 | 3,079,323 | |||||
ServiceMaster Co. | |||||||
4.25% due 07/01/21 | 3,050,000 | 3,000,926 | |||||
Tank & Rast | |||||||
3.58% due 12/10/19 | EUR | 2,340,000 | 2,955,478 | ||||
Capital Automotive LP | |||||||
6.00% due 04/30/20 | 2,830,000 | 2,858,300 | |||||
California Pizza Kitchen, Inc. | |||||||
5.25% due 03/29/18 | 2,949,450 | 2,819,498 | |||||
SNL Financial | |||||||
4.50% due 10/23/18 | 2,029,659 | 2,019,511 | |||||
GCA Services Group, Inc. | |||||||
4.29% due 11/01/19 | 1,760,536 | 1,743,670 | |||||
9.25% due 11/01/20 | 200,000 | 199,500 | |||||
Southern Graphics, Inc. | |||||||
4.25% due 10/17/19 | 1,836,278 | 1,819,072 | |||||
CHG Healthcare Services, Inc. | |||||||
4.25% due 11/19/19 | 1,830,587 | 1,818,011 | |||||
Fleetpride Corp. | |||||||
5.25% due 11/19/19 | 1,598,401 | 1,580,419 | |||||
AlixPartners, LLP | |||||||
4.00% due 07/10/20 | 1,422,755 | 1,399,037 | |||||
1-800 Contacts, Inc. | |||||||
4.25% due 01/29/21 | 1,293,500 | 1,274,098 | |||||
Container Store, Inc. | |||||||
4.25% due 04/06/19 | 890,430 | 872,621 | |||||
Equinox Fitness | |||||||
4.25% due 01/31/20 | 592,247 | 583,364 | |||||
Jacobs Entertainment, Inc. | |||||||
5.25% due 10/29/18 | 490,000 | 455,700 | |||||
Navistar, Inc. | |||||||
5.75% due 08/17/17 | 312,500 | 312,891 | |||||
CKX Entertainment, Inc. | |||||||
9.00% due 06/21/175 | 145,875 | 123,994 | |||||
Total Consumer, Cyclical | 165,302,433 | ||||||
TECHNOLOGY - 12.1% | |||||||
Infor (US), Inc. | |||||||
3.75% due 06/03/20 | 15,743,196 | 15,372,925 | |||||
Active Network, Inc., The | |||||||
5.50% due 11/13/20 | 12,202,053 | 12,095,285 | |||||
Go Daddy Operating Company, LLC | |||||||
4.75% due 05/13/21 | 12,070,679 | 11,882,135 | |||||
Greenway Medical Technologies | |||||||
6.00% due 11/04/205 | 9,925,000 | 9,875,375 | |||||
GlobalLogic Holdings, Inc. | |||||||
6.25% due 05/31/19 | 9,676,875 | 9,362,377 | |||||
Wall Street Systems | |||||||
4.50% due 04/30/21 | 8,778,000 | 8,690,220 | |||||
CallCredit Info Group Ltd. | |||||||
5.21% due 02/12/215 | GBP | 5,300,000 | 8,534,731 |
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 15 |
SCHEDULE OF INVESTMENTS (continued) | September 30, 2014 | |
FLOATING RATE STRATEGIES FUND |
FACE | |||||||
AMOUNT | VALUE | ||||||
LANDesk Group, Inc. | |||||||
5.00% due 02/25/20 | $ | 8,415,213 | $ | 8,376,671 | |||
Aspect Software, Inc. | |||||||
7.25% due 05/07/16 | 7,890,917 | 7,868,744 | |||||
Activision Blizzard | |||||||
3.25% due 10/12/20 | 6,356,250 | 6,335,274 | |||||
Evergreen Skill | |||||||
5.75% due 04/28/21 | 5,750,000 | 5,637,415 | |||||
Deltek, Inc. | |||||||
4.50% due 10/10/18 | 5,608,482 | 5,563,614 | |||||
EIG Investors Corp. | |||||||
5.00% due 11/09/19 | 5,382,137 | 5,361,954 | |||||
Applied Systems, Inc. | |||||||
4.25% due 01/25/21 | 5,304,900 | 5,238,589 | |||||
Avago Technologies Ltd. | |||||||
3.75% due 05/06/21 | 4,987,500 | 4,938,273 | |||||
CDW LLC | |||||||
3.25% due 04/29/20 | 4,925,019 | 4,800,515 | |||||
Sophos | |||||||
5.00% due 01/29/21 | 4,447,650 | 4,430,971 | |||||
Telx Group | |||||||
4.50% due 04/09/20 | 2,942,625 | 2,890,217 | |||||
7.50% due 04/09/21 | 600,000 | 595,002 | |||||
Renaissance Learning Corp. | |||||||
4.50% due 04/09/21 | 3,482,500 | 3,406,338 | |||||
Paradigm Ltd | |||||||
4.75% due 07/30/195 | 3,265,057 | 3,227,312 | |||||
Lantiq Deutschland GmbH | |||||||
11.00% due 11/16/155 | 1,881,406 | 1,862,592 | |||||
Sparta Holding Corp. | |||||||
6.25% due 07/28/20††† | 1,450,000 | 1,435,890 | |||||
Eze Castle Software, Inc. | |||||||
7.25% due 04/05/21 | 1,441,176 | 1,427,961 | |||||
Attachmate Group, Inc., The | |||||||
7.25% due 11/22/17 | 1,119,620 | 1,119,967 | |||||
American Builders & Contractors | |||||||
Supply Co., Inc. | |||||||
3.50% due 04/16/20 | 693,000 | 678,925 | |||||
P2 Energy Solutions | |||||||
9.00% due 04/30/21 | 390,000 | 390,975 | |||||
Sophia, LP | |||||||
4.00% due 07/19/18 | 366,703 | 361,202 | |||||
Total Technology | 151,761,449 | ||||||
FINANCIAL -11.1% | |||||||
HUB International Ltd. | |||||||
4.25% due 10/02/20 | 12,699,173 | 12,408,107 | |||||
Expert Global Solutions | |||||||
8.50% due 04/03/18 | 11,855,722 | 11,826,083 | |||||
7.46% due 04/02/175 | 583,333 | 554,167 | |||||
National Financial Partners Corp. | |||||||
4.50% due 07/01/20 | 12,499,154 | 12,374,162 | |||||
First Data Corp. | |||||||
3.65% due 03/23/18 | 9,300,000 | 9,111,117 | |||||
4.15% due 03/24/21 | 1,199,869 | 1,181,871 | |||||
3.65% due 09/24/18 | 400,000 | 391,252 | |||||
Magic Newco, LLC | |||||||
5.00% due 12/12/18 | 9,036,776 | 9,014,184 | |||||
12.00% due 06/12/19 | 500,000 | 564,165 | |||||
York Risk Services | |||||||
4.75% due 10/01/21††† | 6,452,439 | 6,416,176 | |||||
HSBC Holdings | |||||||
due 03/30/201 | 6,250,000 | 6,062,500 | |||||
Banca Civica (UK) - Chambertin | |||||||
5.07% due 08/12/20††† | GBP | 3,800,000 | 6,006,322 | ||||
Intertrust Group | |||||||
8.00% due 04/11/22 | 3,300,000 | 3,261,489 | |||||
7.50% due 04/16/21 | 2,616,000 | 2,598,342 | |||||
American Stock Transfer & Trust | |||||||
5.75% due 06/26/20 | 5,798,967 | 5,757,910 | |||||
WTG Holdings | |||||||
4.75% due 01/15/21 | 5,706,875 | 5,635,539 | |||||
AmWINS Group, LLC | |||||||
5.00% due 09/06/19 | 4,731,910 | 4,720,080 | |||||
International Lease Finance | |||||||
3.50% due 03/06/21 | 4,700,000 | 4,633,401 | |||||
Wastequip, Inc. | |||||||
5.50% due 08/09/19 | 4,406,719 | 4,397,553 | |||||
Nuveen Investments, Inc. | |||||||
4.16% due 05/13/17 | 4,000,000 | 3,987,840 | |||||
6.50% due 02/28/19 | 400,000 | 400,300 | |||||
RCS Capital | |||||||
6.50% due 04/29/19 | 4,295,625 | 4,311,734 | |||||
STG-Fairway Acquisitions, Inc. | |||||||
6.25% due 02/28/19 | 2,955,021 | 2,949,495 | |||||
10.50% due 08/28/19†††,5 | 1,300,000 | 1,290,142 | |||||
Lineage Logistics LLC | |||||||
4.50% due 04/07/21 | 4,069,550 | 4,018,681 | |||||
Genex Services, Inc. | |||||||
5.25% due 05/28/21 | 2,793,000 | 2,775,544 | |||||
Fly Leasing Ltd. | |||||||
4.50% due 08/09/19 | 2,592,734 | 2,586,901 | |||||
Transunion Holding Co. | |||||||
4.00% due 04/09/21 | 2,487,500 | 2,445,536 | |||||
USI Holdings Corp. | |||||||
4.25% due 12/27/19 | 2,353,190 | 2,309,068 | |||||
Cunningham Lindsey U.S., Inc. | |||||||
5.00% due 12/10/19 | 1,623,341 | 1,594,933 | |||||
9.25% due 06/10/20 | 194,886 | 194,643 | |||||
AssuredPartners | |||||||
4.50% due 04/02/21 | 1,600,000 | 1,577,008 | |||||
Alliant Holdings I, LLC | |||||||
4.25% due 12/20/19 | 865,759 | 852,773 | |||||
Hamilton Lane Advisors LLC | |||||||
4.00% due 02/28/18 | 177,542 | 175,766 | |||||
Total Financial | 138,384,784 | ||||||
COMMUNICATIONS - 8.9% | |||||||
Cartrawler- Mustang Bidco Ltd. | |||||||
4.26% due 04/29/21 | EUR | 17,700,000 | 22,327,598 | ||||
Scout24 AG | |||||||
4.26% due 02/12/21 | EUR | 12,000,000 | 15,137,354 | ||||
Zayo Group LLC | |||||||
4.00% due 07/02/19 | 8,772,742 | 8,634,571 | |||||
Asurion Corp. | |||||||
4.25% due 07/08/20 | 4,108,000 | 4,037,835 | |||||
5.00% due 05/24/19 | 3,871,132 | 3,848,408 | |||||
Avaya, Inc. | |||||||
6.50% due 03/31/18 | 4,904,716 | 4,858,759 | |||||
7.75% due 10/26/17 | 2,325,100 | 2,213,565 |
16 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
SCHEDULE OF INVESTMENTS (continued) | September 30, 2014 | |
FLOATING RATE STRATEGIES FUND |
FACE | |||||||
AMOUNT | VALUE | ||||||
Ziggo BV | |||||||
3.50% due 01/15/22 | EUR | 5,670,300 | $ | 7,052,299 | |||
Light Tower Fiber LLC | |||||||
4.00% due 04/13/20 | 6,426,193 | 6,307,052 | |||||
Cengage Learning Acquisitions, Inc. | |||||||
7.00% due 03/31/20 | 5,621,750 | 5,609,719 | |||||
Trader Media Corporation Ltd. | |||||||
5.01% due 12/08/17 | GBP | 3,376,319 | 5,470,912 | ||||
CBS Outdoor Americas Capital LLC | |||||||
3.00% due 01/31/21 | 4,600,000 | 4,526,216 | |||||
Interactive Data Corp. | |||||||
4.75% due 05/02/21 | 4,438,875 | 4,412,508 | |||||
Charter Communications Operating LLC | |||||||
4.25% due 09/10/21 | 4,100,000 | 4,085,076 | |||||
Univision Communications, Inc. | |||||||
4.00% due 03/01/20 | 2,991,879 | 2,933,926 | |||||
Live Nation Worldwide, Inc. | |||||||
3.50% due 08/14/20 | 2,970,000 | 2,930,083 | |||||
Cumulus Media, Inc. | |||||||
4.25% due 12/23/20 | 2,314,885 | 2,273,402 | |||||
Virgin Media Investment Holdings Ltd. | |||||||
3.50% due 06/07/20 | 2,000,000 | 1,945,460 | |||||
Anaren, Inc. | |||||||
5.50% due 02/18/21 | 1,588,000 | 1,576,090 | |||||
9.25% due 08/18/21 | 275,000 | 273,625 | |||||
Level 3 Communications, Inc. | |||||||
4.00% due 08/01/19 | 750,000 | 735,938 | |||||
Clientlogic Corp. | |||||||
7.48% due 01/30/17 | 250,000 | 250,418 | |||||
Total Communications | 111,440,814 | ||||||
CONSUMER, NON-CYCLICAL - 8.2% | |||||||
Albertson’s (Safeway) Holdings LLC | |||||||
5.50% due 08/25/21 | 11,700,000 | 11,636,587 | |||||
CTI Foods Holding Co. LLC | |||||||
8.25% due 06/28/21 | 8,650,000 | 8,682,438 | |||||
4.50% due 06/28/20 | 1,336,500 | 1,328,147 | |||||
Performance Food Group | |||||||
6.25% due 11/14/19 | 9,871,471 | 9,834,453 | |||||
ABG Intermediate Holdings 2 LLC | |||||||
5.50% due 05/27/21 | 8,457,500 | 8,415,213 | |||||
Dole Food Company, Inc. | |||||||
4.50% due 11/01/18 | 7,833,333 | 7,745,208 | |||||
Reddy Ice Holdings, Inc. | |||||||
6.75% due 04/01/195 | 4,841,225 | 4,574,958 | |||||
10.75% due 10/01/195 | 2,000,000 | 1,780,000 | |||||
Grocery Outlet, Inc. | |||||||
6.50% due 12/17/18 | 5,462,051 | 5,445,009 | |||||
Arctic Glacier Holdings, Inc. | |||||||
5.00% due 05/10/19 | 5,447,906 | 5,366,187 | |||||
Alliance Boots Ltd. | |||||||
3.48% due 07/09/15 | GBP | 2,986,900 | 4,832,352 | ||||
Hearthside Foods | |||||||
4.50% due 06/02/21 | 3,042,375 | 3,022,082 | |||||
Hostess Brands | |||||||
6.75% due 04/09/20 | 2,786,000 | 2,841,720 | |||||
Akorn, Inc. | |||||||
4.50% due 04/16/21 | 2,800,000 | 2,779,868 | |||||
Serta Simmons Holdings LLC | |||||||
4.25% due 10/01/19 | 2,736,956 | 2,707,889 | |||||
Continental Foods | |||||||
4.33% due 08/20/21 | EUR | 2,000,000 | 2,500,436 | ||||
DS Waters of America, Inc. | |||||||
5.25% due 08/30/20 | 2,475,000 | 2,499,750 | |||||
Ceramtec GMBH | |||||||
4.25% due 08/30/20 | 2,262,989 | 2,238,957 | |||||
Mitel Networks Corp. | |||||||
5.25% due 01/31/20 | 2,047,405 | 2,050,824 | |||||
NES Global Talent | |||||||
6.50% due 10/03/19 | 1,962,500 | 1,942,875 | |||||
AdvancePierre Foods, Inc. | |||||||
5.75% due 07/10/17 | 1,458,936 | 1,458,323 | |||||
9.50% due 10/10/17 | 491,000 | 483,635 | |||||
DJO Finance LLC | |||||||
4.25% due 09/15/17 | 1,905,419 | 1,889,146 | |||||
Fender Musical Instruments Corp. | |||||||
5.75% due 04/03/19 | 1,333,743 | 1,328,741 | |||||
Birds Eye Iglo Group Ltd. | |||||||
4.26% due 06/30/20 | EUR | 1,000,000 | 1,240,568 | ||||
Aramark Corp. | |||||||
3.25% due 02/24/21 | 1,213,900 | 1,188,869 | |||||
Catalent Pharma Solutions, Inc. | |||||||
4.50% due 05/20/21 | 1,175,516 | 1,167,922 | |||||
Healthport, Inc. | |||||||
5.25% due 10/04/19 | 744,375 | 738,792 | |||||
Rite Aid Corp. | |||||||
5.75% due 08/21/20 | 500,000 | 505,625 | |||||
Reynolds Group Holdings | |||||||
4.00% due 12/01/18 | 491,287 | 485,638 | |||||
Targus Group International, Inc. | |||||||
12.00% due 05/24/165 | 229,401 | 186,389 | |||||
Total Consumer, Non-cyclical | 102,898,601 | ||||||
BASIC MATERIALS - 3.0% | |||||||
Chromaflo Technologies | |||||||
4.50% due 12/02/19 | 11,661,875 | 11,516,102 | |||||
WR Grace & Co. | |||||||
3.00% due 02/03/21 | 6,760,488 | 6,697,953 | |||||
Royal Adhesives and Sealants | |||||||
5.50% due 07/31/18 | 4,947,867 | 4,966,421 | |||||
Minerals Technologies, Inc. | |||||||
4.00% due 05/07/21 | 4,206,558 | 4,167,142 | |||||
CPG International, Inc. | |||||||
4.75% due 09/30/20 | 3,691,700 | 3,670,177 | |||||
Ennis-Flint | |||||||
4.25% due 03/31/21 | 2,089,500 | 2,026,815 | |||||
7.75% due 09/30/21 | 550,000 | 529,375 | |||||
Berry Plastics Corp. | |||||||
3.50% due 02/08/20 | 1,088,945 | 1,059,609 | |||||
3.75% due 01/06/21 | 895,500 | 874,348 | |||||
Fortescue Metals Group Ltd. | |||||||
3.75% due 06/30/19 | 990,000 | 968,190 | |||||
Hoffmaster Group, Inc. | |||||||
6.28% due 05/09/195 | 500,000 | 445,930 | |||||
Atkore International, Inc. | |||||||
7.75% due 10/09/21 | 400,000 | 396,000 | |||||
Total Basic Materials | 37,318,062 | ||||||
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 17 |
SCHEDULE OF INVESTMENTS (continued) | September 30, 2014 | |
FLOATING RATE STRATEGIES FUND |
FACE | |||||||
AMOUNT | VALUE | ||||||
ENERGY - 1.8% | |||||||
Floatel International Ltd. | |||||||
6.00% due 06/27/20 | $ | 6,716,250 | $ | 6,581,925 | |||
PSS Companies | |||||||
5.50% due 01/28/20 | 5,726,942 | 5,698,307 | |||||
Pacific Drilling | |||||||
4.50% due 05/18/18 | 5,676,888 | 5,480,581 | |||||
Panda Temple II Power | |||||||
7.25% due 04/03/19 | 4,500,000 | 4,590,000 | |||||
EP Energy LLC | |||||||
4.50% due 04/30/19 | 281,250 | 279,579 | |||||
Total Energy | 22,630,392 | ||||||
UTILITIES - 1.0% | |||||||
Astoria Generating Company Acquisitions LLC | |||||||
9.25% due 10/26/17 | 6,319,091 | 6,429,675 | |||||
Expro Holdings UK 3 Ltd. | |||||||
5.75% due 08/12/21 | 5,950,000 | 5,917,751 | |||||
Total Utilities | 12,347,426 | ||||||
Total Senior Floating Rate Interests | |||||||
(Cost $966,574,785) | 953,490,243 | ||||||
ASSET BACKED SECURITIES†† - 10.3% | |||||||
Gramercy Real Estate CDO 2007-1 Ltd. | |||||||
0.51% due 08/15/562,3 | 11,257,820 | 9,921,517 | |||||
Castlelake Aircraft Securitization Trust 2014-1 | |||||||
5.25% due 02/15/29 | 4,237,998 | 4,254,102 | |||||
7.50% due 02/15/29 | 3,122,735 | 3,126,483 | |||||
Cedar Woods CRE CDO Ltd. 2006-1A | |||||||
0.42% due 07/25/51 | 8,099,793 | 6,935,043 | |||||
GreenPoint Mortgage Funding Trust 2005-HE4 | |||||||
0.86% due 07/25/302 | 7,300,000 | 6,833,975 | |||||
RAIT CRE CDO I Ltd. 2006-1X | |||||||
0.48% due 11/20/46 | 6,250,723 | 5,616,900 | |||||
N-Star REL CDO VIII Ltd. 2006-8A | |||||||
0.51% due 02/01/412,3 | 3,250,000 | 2,923,375 | |||||
0.44% due 02/01/412,3 | 1,664,835 | 1,596,743 | |||||
N-Star Real Estate CDO IX Ltd. | |||||||
0.47% due 02/01/415 | 4,495,054 | 4,312,106 | |||||
KKR Financial CLO 2007-1 Ltd. | |||||||
2.48% due 05/15/212,3 | 4,100,000 | 4,020,460 | |||||
Structured Asset Securities Corporation | |||||||
Mortgage Loan Trust 2006-OPT1 | |||||||
0.41% due 04/25/362 | 4,300,000 | 3,870,899 | |||||
CIT Mortgage Loan Trust 2007-1 | |||||||
1.60% due 10/25/372,3 | 3,400,000 | 3,158,760 | |||||
Newstar Commercial Loan Funding 2013-1 LLC | |||||||
4.78% due 09/20/232,3 | 2,750,000 | 2,700,225 | |||||
5.53% due 09/20/232,3 | 250,000 | 249,375 | |||||
Jasper CLO Ltd. 2005-1A | |||||||
1.14% due 08/01/172,3 | 3,000,000 | 2,868,300 | |||||
Halcyon Loan Advisors Funding 2012-1 Ltd. | |||||||
3.23% due 08/15/232,3 | 2,600,000 | 2,554,760 | |||||
ALM XIV Ltd. 2014-14A | |||||||
3.68% due 07/28/262,3 | 2,650,000 | 2,501,070 | |||||
Lehman XS Trust 2007-9 | |||||||
0.27% due 06/25/372 | 2,743,806 | 2,475,997 | |||||
Fortress Credit Opportunities V CLO Ltd. 2014-5A | |||||||
4.73% due 10/15/262,3 | 2,500,000 | 2,444,750 | |||||
Wachovia Asset Securitization Issuance II | |||||||
LLC 2007-HE1 Trust | |||||||
0.29% due 07/25/372,3 | 2,726,563 | 2,391,632 | |||||
Tricadia CDO 2006-6 Ltd. | |||||||
0.79% due 11/05/412,3 | 1,750,000 | 1,654,800 | |||||
0.99% due 11/05/412,3 | 550,000 | 505,340 | |||||
TCW Global Project Fund III Ltd. 2005-1A | |||||||
0.88% due 09/01/17†††,2,3 | 1,750,000 | 1,684,550 | |||||
1.08% due 09/01/17†††,2,3 | 500,000 | 428,900 | |||||
GSAMP Trust 2005-HE6 | |||||||
0.59% due 11/25/352 | 2,250,000 | 2,071,694 | |||||
Duane Street CLO IV Ltd. 2007-4A | |||||||
2.48% due 11/14/212,3 | 2,000,000 | 1,934,400 | |||||
Highland Park CDO I Ltd. 2006-1A | |||||||
0.56% due 11/25/512,3 | 1,932,775 | 1,843,094 | |||||
Copper River CLO Ltd. 2007-1A | |||||||
1.73% due 01/20/212,3 | 1,500,000 | 1,370,700 | |||||
1.03% due 01/20/212,3 | 500,000 | 468,350 | |||||
Acis CLO 2013-2 Ltd. | |||||||
4.08% due 10/14/222,3 | 1,800,000 | 1,738,620 | |||||
Rockwall CDO II Ltd. 2007-1A | |||||||
0.49% due 08/01/242,3 | 1,740,241 | 1,665,584 | |||||
DIVCORE CLO Ltd. 2013-1A B | |||||||
4.05% due 11/15/32 | 1,600,000 | 1,600,960 | |||||
MCF CLO I LLC 2013-1A | |||||||
3.78% due 04/20/232,3 | 1,500,000 | 1,483,950 | |||||
Drug Royalty II Limited Partnership 2 2014-1 | |||||||
3.48% due 07/15/233 | 1,471,304 | 1,471,120 | |||||
Global Leveraged Capital Credit | |||||||
Opportunity Fund 2006-1A | |||||||
1.23% due 12/20/182,3 | 1,288,000 | 1,244,852 | |||||
GSAA Home Equity Trust 2007-7 | |||||||
0.42% due 07/25/372 | 1,377,290 | 1,168,438 | |||||
Grayson CLO Ltd. 2006-1A | |||||||
0.65% due 11/01/212,3 | 1,200,000 | 1,112,040 | |||||
Halcyon Structured Asset Management Long | |||||||
Secured/Short Unsecured 2007-1 Ltd. | |||||||
2.54% due 08/07/212,3 | 1,100,000 | 1,085,370 | |||||
Cerberus Onshore II CLO LLC 2014-1A | |||||||
4.23% due 10/15/232,3 | 600,000 | 565,860 | |||||
3.73% due 10/15/232,3 | 500,000 | 486,250 | |||||
Telos CLO 2007-2 Ltd. | |||||||
2.43% due 04/15/222,3 | 1,100,000 | 1,049,290 | |||||
Telos CLO Ltd. 2013-3A | |||||||
4.48% due 01/17/242,3 | 1,050,000 | 1,025,010 | |||||
New Century Home Equity Loan Trust 2004-4 | |||||||
0.95% due 02/25/352 | 1,095,332 | 1,004,005 | |||||
Putnam Structured Product CDO 2002-1 Ltd. | |||||||
0.83% due 01/10/382,3 | 1,090,390 | 1,002,286 | |||||
Hewett’s Island CDO Ltd. 2007-6A | |||||||
2.48% due 06/09/192,3 | 1,000,000 | 996,200 | |||||
Gramercy Park CLO Ltd. 2014-1AR | |||||||
4.28% due 07/17/232,3 | 1,000,000 | 993,300 | |||||
Liberty CLO Ltd. 2005-1A | |||||||
0.74% due 11/01/172,3 | 1,000,000 | 990,200 | |||||
Salus CLO 2012-1 Ltd. 2013-1AN | |||||||
6.98% due 03/05/212,3 | 1,000,000 | 988,800 | |||||
Acis CLO 2013-1 Ltd. | |||||||
4.73% due 04/18/242,3 | 1,000,000 | 986,200 |
18 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
SCHEDULE OF INVESTMENTS (continued) | September 30, 2014 | |
FLOATING RATE STRATEGIES FUND |
FACE | |||||||
AMOUNT | VALUE | ||||||
COA Summit CLO Limited 2014-1 | |||||||
4.09% due 04/20/232,3 | $ | 1,000,000 | $ | 984,900 | |||
ARES XXVI CLO Ltd. 2013-1A | |||||||
due 04/15/253,8 | 1,250,000 | 943,375 | |||||
NewStar Commercial Loan Trust 2007-1 | |||||||
1.53% due 09/30/222,3 | 500,000 | 472,850 | |||||
2.53% due 09/30/222,3 | 500,000 | 470,450 | |||||
Churchill Financial Cayman Ltd. 2007-1A | |||||||
2.83% due 07/10/192,3 | 1,000,000 | 937,700 | |||||
West Coast Funding Ltd. 2006-1A | |||||||
0.38% due 11/02/412,3 | 865,660 | 849,645 | |||||
Aerco Ltd. 2000-2A | |||||||
0.61% due 07/15/252 | 1,546,568 | 835,147 | |||||
Structured Asset Securities Corporation | |||||||
Mortgage Loan Trust 2007-BC1 | |||||||
0.28% due 02/25/372 | 900,000 | 777,946 | |||||
Garrison Funding 2013-2 Ltd. | |||||||
4.88% due 09/25/232,3 | 750,000 | 742,575 | |||||
Shackleton II CLO Ltd. 2012-2A | |||||||
4.28% due 10/20/232,3 | 750,000 | 740,175 | |||||
Airplanes Pass Through Trust 2001-1A | |||||||
0.70% due 03/15/192 | 1,705,538 | 735,513 | |||||
Westchester CLO Ltd. 2007-1A | |||||||
0.58% due 08/01/222,3 | 750,000 | 714,450 | |||||
Northwoods Capital VII Ltd. 2006-7A | |||||||
1.78% due 10/22/212,3 | 700,000 | 689,360 | |||||
KKR Financial CLO Ltd. | |||||||
5.23% due 05/15/21 | 650,000 | 648,895 | |||||
NewStar Arlington Senior Loan | |||||||
Program LLC 2014-1A | |||||||
3.53% due 07/25/252,3 | 600,000 | 584,640 | |||||
ACA CLO 2007-1 Ltd. | |||||||
1.18% due 06/15/222,3 | 575,000 | 542,973 | |||||
CIFC Funding 2012-II Ltd. | |||||||
4.48% due 12/05/242,3 | 500,000 | 500,050 | |||||
Cerberus Offshore Levered I, LP 2012-1A | |||||||
6.23% due 11/30/182,3 | 250,000 | 250,050 | |||||
4.98% due 11/30/182,3 | 250,000 | 249,925 | |||||
Gleneagles CLO Ltd. 2005-1A | |||||||
1.14% due 11/01/172,3 | 500,000 | 479,700 | |||||
Kingsland III Ltd. 2006-3A | |||||||
1.83% due 08/24/212,3 | 500,000 | 475,800 | |||||
Pangaea CLO Ltd. 2007-1A | |||||||
0.73% due 10/21/212,3 | 500,000 | 475,550 | |||||
Westwood CDO I Ltd. 2007-1A | |||||||
0.90% due 03/25/212,3 | 500,000 | 464,050 | |||||
Kingsland IV Ltd. 2007-4A | |||||||
1.68% due 04/16/212,3 | 500,000 | 453,450 | |||||
MCF CLO III LLC 2014-3A | |||||||
3.46% due 01/20/242,3 | 500,000 | 452,050 | |||||
Drug Royalty Limited Partnership 1 2012-1 | |||||||
5.48% due 07/15/242,3 | 435,385 | 449,564 | |||||
Babcock & Brown Air Funding I Ltd. 2007-1A | |||||||
0.45% due 11/14/332,3 | 466,193 | 396,264 | |||||
Northwind Holdings LLC 2007-1A | |||||||
1.01% due 12/01/372,3 | 435,207 | 396,038 | |||||
ACS 2007-1 Pass Through Trust | |||||||
0.47% due 06/14/372,3 | 385,935 | 377,251 | |||||
OFSI Fund Ltd. 2006-1A | |||||||
1.08% due 09/20/192,3 | 370,000 | 357,198 | |||||
Eastland CLO Ltd. 2007-1A | |||||||
0.64% due 05/01/222,3 | 350,000 | 326,095 | |||||
Asset Backed Securities Corporation | |||||||
Home Equity Loan Trust Series 2004-HE8 | |||||||
1.20% due 12/25/342 | 331,772 | 310,169 | |||||
Raspro Trust 2005-1A | |||||||
0.63% due 03/23/242,3 | 266,550 | 261,885 | |||||
Ivy Hill Middle Market Credit Fund Ltd. 2011-3A | |||||||
6.73% due 01/15/222,3 | 250,000 | 250,000 | |||||
Newstar Commercial Loan Funding 2014-1 LLC | |||||||
5.07% due 04/20/252,3 | 250,000 | 246,500 | |||||
Credit Card Pass-Through Trust 2012-BIZ | |||||||
0.00% due 12/15/493,7 | 278,095 | 240,274 | |||||
Black Diamond CLO 2005-2 Delaware Corp. | |||||||
2.03% due 01/07/182,3 | 250,000 | 240,175 | |||||
Great Lakes CLO 2014-1 Ltd. | |||||||
4.43% due 04/15/252,3 | 250,000 | 238,975 | |||||
Diversified Asset Securitization | |||||||
Holdings II, LP 2000-1A | |||||||
0.72% due 09/15/352,3 | 207,760 | 203,418 | |||||
Structured Asset Receivables Trust Series 2005-1 | |||||||
0.73% due 01/21/152,3 | 110,517 | 106,517 | |||||
Atlas Air 1999-1 Class A-1 Pass Through Trust 991A | |||||||
7.20% due 01/02/195 | 77,989 | 81,693 | |||||
Vega Containervessel plc 2006-1A | |||||||
5.56% due 02/10/213 | 38,614 | 37,989 | |||||
Total Asset Backed Securities | |||||||
(Cost $124,687,551) | 129,367,859 | ||||||
CORPORATE BONDS††,6 - 7.2% | |||||||
ENERGY - 2.1% | |||||||
Crestwood Midstream Partners Limited | |||||||
Partnership / Crestwood Midstream | |||||||
Finance Corp. | |||||||
6.00% due 12/15/20 | 6,300,000 | 6,331,500 | |||||
Unit Corp. | |||||||
6.63% due 05/15/21 | 4,000,000 | 4,009,999 | |||||
Legacy Reserves Limited Partnership / | |||||||
Legacy Reserves Finance Corp. | |||||||
8.00% due 12/01/20 | 2,750,000 | 2,860,000 | |||||
Regency Energy Partners, LP / | |||||||
Regency Energy Finance Corp. | |||||||
8.38% due 06/01/19 | 2,600,000 | 2,756,000 | |||||
Rosetta Resources, Inc. | |||||||
5.88% due 06/01/22 | 2,700,000 | 2,689,875 | |||||
BreitBurn Energy Partners LP / | |||||||
BreitBurn Finance Corp. | |||||||
7.88% due 04/15/22 | 2,000,000 | 2,025,000 | |||||
Ultra Petroleum Corp. | |||||||
5.75% due 12/15/183 | 1,750,000 | 1,758,750 | |||||
Atlas Energy Holdings Operating Company | |||||||
LLC / Atlas Resource Finance Corp. | |||||||
9.25% due 08/15/21 | 1,500,000 | 1,530,000 | |||||
Penn Virginia Resource Partners Limited | |||||||
Partnership / Penn Virginia Resource | |||||||
Finance Corp. | |||||||
8.38% due 06/01/20 | 1,340,000 | 1,460,600 |
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 19 |
SCHEDULE OF INVESTMENTS (continued) | September 30, 2014 | |
FLOATING RATE STRATEGIES FUND |
FACE | |||||||
AMOUNT | VALUE | ||||||
Gibson Energy, Inc. | |||||||
6.75% due 07/15/213 | $ | 1,055,000 | $ | 1,118,300 | |||
Bill Barrett Corp. | |||||||
7.63% due 10/01/19 | 800,000 | 826,000 | |||||
Total Energy | 27,366,024 | ||||||
FINANCIAL - 1.8% | |||||||
Icahn Enterprises Limited Partnership / | |||||||
Icahn Enterprises Finance Corp. | |||||||
5.88% due 02/01/22 | 5,000,000 | 5,000,000 | |||||
4.88% due 03/15/19 | 1,750,000 | 1,723,750 | |||||
3.50% due 03/15/17 | 1,000,000 | 990,000 | |||||
Citigroup, Inc. | |||||||
5.35%2,4 | 4,000,000 | 3,740,000 | |||||
Credit Acceptance Corp. | |||||||
6.13% due 02/15/213 | 3,100,000 | 3,154,250 | |||||
Cabot Financial Luxembourg S.A. | |||||||
6.50% due 04/01/213 | GBP | 1,300,000 | 2,020,148 | ||||
Icahn Enterprises, LP / Icahn | |||||||
Enterprises Finance Corp. | |||||||
6.00% due 08/01/20 | 1,700,000 | 1,746,750 | |||||
Ally Financial, Inc. | |||||||
3.50% due 01/27/19 | 1,750,000 | 1,701,875 | |||||
Nationstar Mortgage LLC / | |||||||
Nationstar Capital Corp. | |||||||
6.50% due 07/01/21 | 1,050,000 | 1,000,125 | |||||
Oxford Finance LLC / Oxford Finance | |||||||
Company-Issuer, Inc. | |||||||
7.25% due 01/15/183 | 650,000 | 676,000 | |||||
Fidelity & Guaranty Life Holdings, Inc. | |||||||
6.38% due 04/01/213 | 450,000 | 471,375 | |||||
LCP Dakota Fund | |||||||
10.00% due 08/17/155 | 28,800 | 28,800 | |||||
Total Financial | 22,253,073 | ||||||
COMMUNICATIONS - 0.7% | |||||||
Alcatel-Lucent USA, Inc. | |||||||
6.75% due 11/15/203 | 3,000,000 | 3,045,000 | |||||
Virgin Media Secured Finance plc | |||||||
5.38% due 04/15/213 | 1,800,000 | 1,813,500 | |||||
MDC Partners, Inc. | |||||||
6.75% due 04/01/203 | 1,000,000 | 1,030,000 | |||||
SITEL LLC / Sitel Finance Corp. | |||||||
11.00% due 08/01/173 | 670,000 | 693,450 | |||||
CyrusOne Limited Partnership / | |||||||
CyrusOne Finance Corp. | |||||||
6.38% due 11/15/22 | 600,000 | 627,000 | |||||
Avaya, Inc. | |||||||
7.00% due 04/01/193 | 610,000 | 591,700 | |||||
UPCB Finance VI Ltd. | |||||||
6.88% due 01/15/223 | 530,000 | 565,775 | |||||
Total Communications | 8,366,425 | ||||||
CONSUMER, NON-CYCLICAL - 0.6% | |||||||
Premier Foods Finance plc | |||||||
5.56% due 03/16/202,3 | GBP | 2,750,000 | 4,102,821 | ||||
Central Garden and Pet Co. | |||||||
8.25% due 03/01/18 | 2,000,000 | 2,035,000 | |||||
Vector Group Ltd. | |||||||
7.75% due 02/15/21 | 1,000,000 | 1,052,500 | |||||
Total Consumer, Non-cyclical | 7,190,321 | ||||||
INDUSTRIAL - 0.5% | |||||||
BMBG Bond Finance SCA | |||||||
5.20% due 10/15/202,3 | EUR | 4,000,000 | 5,098,832 | ||||
Unifrax I LLC / Unifrax Holding Co. | |||||||
7.50% due 02/15/193 | 1,525,000 | 1,540,250 | |||||
Total Industrial | 6,639,082 | ||||||
CONSUMER, CYCLICAL - 0.5% | |||||||
GRD Holdings III Corp. | |||||||
10.75% due 06/01/193 | 3,680,000 | 4,057,200 | |||||
Checkers Drive-In Restaurants, Inc. | |||||||
11.00% due 12/01/173 | 1,000,000 | 1,095,000 | |||||
Men’s Wearhouse, Inc. | |||||||
7.00% due 07/01/22 | 525,000 | 530,250 | |||||
Total Consumer, Cyclical | 5,682,450 | ||||||
DIVERSIFIED - 0.3% | |||||||
Harbinger Group, Inc. | |||||||
7.75% due 01/15/22 | 1,975,000 | 1,960,187 | |||||
7.88% due 07/15/19 | 490,000 | 521,850 | |||||
Opal Acquisition, Inc. | |||||||
8.88% due 12/15/213 | 1,775,000 | 1,832,688 | |||||
Total Diversified | 4,314,725 | ||||||
TECHNOLOGY - 0.3% | |||||||
NCR Corp. | |||||||
6.38% due 12/15/23 | 1,800,000 | 1,885,500 | |||||
Eagle Midco, Inc. | |||||||
9.00% due 06/15/183 | 1,400,000 | 1,429,750 | |||||
Total Technology | 3,315,250 | ||||||
BASIC MATERIALS - 0.2% | |||||||
TPC Group, Inc. | |||||||
8.75% due 12/15/203 | 1,555,000 | 1,652,188 | |||||
Mirabela Nickel Ltd. | |||||||
9.50% due 05/20/19†††,5 | 1,063,000 | 1,063,000 | |||||
1.00% due 09/10/44†††,5 | 25,316 | — | |||||
Total Basic Materials | 2,715,188 | ||||||
OTHER - 0.1% | |||||||
Ultra Resources, Inc. | |||||||
4.66% due 10/12/22†††,5 | 1,800,000 | 1,666,080 | |||||
UTILITIES - 0.1% | |||||||
LBC Tank Terminals Holding Netherlands BV | |||||||
6.88% due 05/15/233 | 630,000 | 670,950 | |||||
Total Corporate Bonds | |||||||
(Cost $91,149,664) | 90,179,568 | ||||||
COLLATERALIZED MORTGAGE OBLIGATIONS†† - 2.8% | |||||||
LSTAR Securities Investment Trust 2014-1 | |||||||
3.25% due 09/01/212,9 | 6,500,000 | 6,500,000 | |||||
HarborView Mortgage Loan Trust 2006-12 | |||||||
0.34% due 01/19/382 | 4,455,696 | 3,803,307 | |||||
Washington Mutual Mortgage Pass-Through | |||||||
Certificates WMALT Series 2006-AR9 Trust | |||||||
0.96% due 11/25/462 | 4,896,104 | 3,472,625 | |||||
Nomura Resecuritization Trust 2012-1R | |||||||
0.59% due 08/27/472,3 | 3,588,284 | 3,319,163 | |||||
IndyMac INDX Mortgage Loan Trust 2006-AR4 | |||||||
0.37% due 05/25/462 | 3,763,939 | 3,230,721 |
20 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
SCHEDULE OF INVESTMENTS (concluded) | September 30, 2014 | |
FLOATING RATE STRATEGIES FUND |
FACE | |||||||
AMOUNT | VALUE | ||||||
Structured Asset Mortgage Investments II | |||||||
Trust 2006-AR1 | |||||||
0.38% due 02/25/362 | $ | 3,732,066 | $ | 3,194,171 | |||
Washington Mutual Mortgage Pass-Through | |||||||
Certificates WMALT Series 2007-OA4 Trust | |||||||
0.88% due 04/25/472 | 3,901,788 | 2,959,584 | |||||
Lehman XS Trust Series 2006-16N | |||||||
0.34% due 11/25/462 | 3,350,229 | 2,787,973 | |||||
GreenPoint Mortgage Funding Trust 2006-AR1 | |||||||
0.44% due 02/25/362 | 3,133,624 | 2,629,627 | |||||
Morgan Stanley Re-REMIC Trust 2010-R5 | |||||||
0.54% due 06/26/362,3 | 1,510,103 | 1,123,758 | |||||
Bear Stearns Mortgage Funding Trust 2007-AR5 | |||||||
0.32% due 06/25/472 | 964,763 | 790,805 | |||||
Alliance Bancorp Trust 2007-OA1 | |||||||
0.39% due 07/25/372 | 944,509 | 652,540 | |||||
Total Collateralized Mortgage Obligations | |||||||
(Cost $33,856,770) | 34,464,274 | ||||||
MORTGAGE BACKED SECURITIES†† - 0.2% | |||||||
SRERS Funding Ltd. 2011-RS | |||||||
0.40% due 05/09/462,3 | 1,578,636 | 1,503,651 | |||||
HSI Asset Securitization Corporation | |||||||
Trust 2007-WF1 | |||||||
0.32% due 05/25/372 | 1,531,171 | 1,428,139 | |||||
Total Mortgage Backed Securities | |||||||
(Cost $2,801,354) | 2,931,790 | ||||||
COMMERCIAL PAPER†† - 4.0% | |||||||
Bemis Co., Inc. | |||||||
0.23% due 10/01/14 | 10,000,000 | 10,000,000 | |||||
Diageo Capital PLC | |||||||
0.24% due 10/02/14 | 10,000,000 | 9,999,933 | |||||
Northeast Utilities | |||||||
0.22% due 10/03/14 | 10,000,000 | 9,999,878 | |||||
American Water Capital Corp. | |||||||
0.23% due 10/07/14 | 10,000,000 | 9,999,617 | |||||
Pentair Finance SA | |||||||
0.27% due 10/21/14 | 10,000,000 | 9,998,500 | |||||
Total Commercial Paper | |||||||
(Cost $49,997,928) | 49,997,928 | ||||||
Total Investments - 103.3% | |||||||
(Cost $1,302,354,779) | $ | 1,291,829,151 | |||||
Other Assets & Liabilities, net - (3.3)% | (40,776,391 | ) | |||||
Total Net Assets - 100.0% | $ | 1,251,052,760 | |||||
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS††
Settlement | Settlement | Value at | Net Unrealized | |||||||||||
Counterparty | Contracts to Sell | Currency | Date | Value | September 30, 2014 | Appreciation | ||||||||
BNY Mellon | 62,300,000 | EUR | 10/07/14 | $81,929,566 | $78,696,895 | $ | 3,232,671 | |||||||
BNY Mellon | 33,500,000 | GBP | 10/07/14 | 55,146,695 | 54,309,206 | 837,489 | ||||||||
BNY Mellon | 480,000 | AUD | 10/07/14 | 447,576 | 420,022 | 27,554 | ||||||||
$ | 4,097,714 | |||||||||||||
* | 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 with no rate was unsettled at September 30, 2014. | |
2 | Variable rate security. Rate indicated is rate effective at September 30, 2014. | |
3 | Security is a 144A or Section 4(a)(2) security. The total market value of 144A or Section 4(a)(2) securities is $130,358,641 (cost $127,963,763), or 10.4% of total net assets. These securities have been determined to be liquid under guidelines established by the Board of Trustees. | |
4 | Perpetual maturity. | |
5 | Illiquid security. | |
6 | The face amount is denominated in U.S. Dollars unless otherwise indicated. | |
7 | Zero coupon rate security. | |
8 | Residual interest. | |
9 | Security is a 144A or Section 4(a)(2) security. These securities are considered illiquid and restricted under guidelines established by the Board of Trustees. The total market value of 144A or Section 4(a)(2) securities is $6,500,000 (cost $6,500,000), or 0.5% of total net assets — See Note 16. | |
plc — Public Limited Company | ||
REIT — Real Estate Investment Trust |
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 21 |
FLOATING RATE STRATEGIES FUND |
STATEMENT OF ASSETS AND LIABILITIES | ||||
September 30, 2014 | ||||
ASSETS: | ||||
Investments, at value | ||||
(cost $1,302,354,779) | $ | 1,291,829,151 | ||
Foreign currency, at value | ||||
(cost $239,064) | 237,455 | |||
Cash | 4,944,685 | |||
Unrealized appreciation on forward foreign | ||||
currency exchange contracts | 4,097,714 | |||
Prepaid expenses | 98,241 | |||
Receivables: | ||||
Securities sold | 17,316,929 | |||
Interest | 4,812,793 | |||
Fund shares sold | 2,556,736 | |||
Foreign taxes reclaim | 32,436 | |||
Total assets | 1,325,926,140 | |||
LIABILITIES: | ||||
Unfunded loan commitments, at value | ||||
(commitment fees received $2,405,979) | 2,068,066 | |||
Payable for: | ||||
Securities purchased | 66,065,679 | |||
Fund shares redeemed | 4,335,409 | |||
Distributions to shareholders | 1,547,576 | |||
Management fees | 521,276 | |||
Distribution and service fees | 187,984 | |||
Fund accounting/administration fees | 101,163 | |||
Transfer agent/maintenance fees | 19,273 | |||
Trustees’ fees* | 7,694 | |||
Miscellaneous | 19,260 | |||
Total liabilities | 74,873,380 | |||
NET ASSETS | $ | 1,251,052,760 | ||
NET ASSETS CONSIST OF: | ||||
Paid in capital | $ | 1,254,561,312 | ||
Distributions in excess of net investment income | (510,475 | ) | ||
Accumulated net realized gain on investments | 3,252,762 | |||
Net unrealized depreciation on investments | (6,250,839 | ) | ||
Net assets | $ | 1,251,052,760 | ||
A-CLASS: | ||||
Net assets | $ | 365,207,068 | ||
Capital shares outstanding | 13,768,582 | |||
Net asset value per share | $26.52 | |||
Maximum offering price per share | ||||
(Net asset value divided by 95.25%) | $27.84 | |||
C-CLASS: | ||||
Net assets | $ | 132,370,158 | ||
Capital shares outstanding | 4,992,678 | |||
Net asset value per share | $26.51 | |||
INSTITUTIONAL CLASS: | ||||
Net assets | $ | 753,475,534 | ||
Capital shares outstanding | 28,386,449 | |||
Net asset value per share | $26.54 | |||
STATEMENT OF OPERATIONS | ||||
Year Ended September 30, 2014 | ||||
INVESTMENT INCOME: | ||||
Interest (net of foreign withholding tax of $110,161) | $ | 63,500,953 | ||
Dividends | 71,411 | |||
Total investment income | 63,572,364 | |||
EXPENSES: | ||||
Management fees | 8,054,181 | |||
Transfer agent/maintenance fees: | ||||
A-Class | 444,613 | |||
C-Class | 89,736 | |||
Institutional Class | 239,955 | |||
Distribution and service fees: | ||||
A-Class | 1,104,711 | |||
C-Class | 1,420,881 | |||
Fund accounting/administration fees | 1,177,133 | |||
Trustees’ fees* | 122,885 | |||
Line of credit expense | 99,205 | |||
Interest expense | 34,981 | |||
Custodian fees | 28,750 | |||
Tax expense | 26 | |||
Miscellaneous | 767,530 | |||
Total expenses | 13,584,587 | |||
Less: | ||||
Expenses waived by Adviser | (402,751 | ) | ||
Expenses waived by Transfer Agent | ||||
A-Class | (434,334 | ) | ||
C-Class | (81,140 | ) | ||
Institutional Class | (235,153 | ) | ||
Expenses waived by Distributor | ||||
A-Class | (39,780 | ) | ||
C-Class | (12,886 | ) | ||
Total expenses waived | (1,206,044 | ) | ||
Net expenses | 12,378,543 | |||
Net investment income | 51,193,821 | |||
NET REALIZED AND UNREALIZED GAIN (LOSS): | ||||
Net realized gain (loss) on: | ||||
Investments | 4,456,341 | |||
Foreign currency | 143,413 | |||
Forward foreign currency exchange contracts | 3,875,634 | |||
Net realized gain | 8,475,388 | |||
Net change in unrealized appreciation (depreciation) on: | ||||
Investments | (12,465,930 | ) | ||
Forward foreign currency exchange contracts | 4,097,714 | |||
Foreign currency | (56,544 | ) | ||
Net change in unrealized appreciation (depreciation) | (8,424,760 | ) | ||
Net realized and unrealized loss | 50,628 | |||
Net increase in net assets resulting | ||||
from operations | $ | 51,244,449 | ||
* Relates to Trustees not deemed “interested persons” within the meaning of Section 2(a)(19) of the 1940 Act.
22 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
FLOATING RATE STRATEGIES FUND | ||||||||
STATEMENTS OF CHANGES IN NET ASSETS | ||||||||
Year Ended | Year Ended | |||||||
September 30, | September 30, | |||||||
2014 | 2013 | |||||||
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS: | ||||||||
Net investment income | $ | 51,193,821 | $ | 22,811,058 | ||||
Net realized gain on investments | 8,475,388 | 1,357,739 | ||||||
Net change in unrealized appreciation (depreciation) on investments | (8,424,760 | ) | 47,569 | |||||
Net increase in net assets resulting from operations | 51,244,449 | 24,216,366 | ||||||
DISTRIBUTIONS TO SHAREHOLDERS FROM: | ||||||||
Net investment income | ||||||||
A-Class | (19,618,301 | ) | (8,633,219 | ) | ||||
C-Class | (5,268,652 | ) | (2,743,608 | ) | ||||
Institutional Class | (31,207,426 | ) | (11,457,765 | ) | ||||
Net realized gains | ||||||||
A-Class | (760,820 | ) | (132,969 | ) | ||||
C-Class | (250,718 | ) | (75,574 | ) | ||||
Institutional Class | (1,010,452 | ) | (201,041 | ) | ||||
Total distributions to shareholders | (58,116,369 | ) | (23,244,176 | ) | ||||
CAPITAL SHARE TRANSACTIONS: | ||||||||
Proceeds from sale of shares | ||||||||
A-Class | 346,835,950 | 402,666,976 | ||||||
C-Class | 58,742,934 | 104,350,559 | ||||||
Institutional Class | 664,581,990 | 475,637,894 | ||||||
Distributions reinvested | ||||||||
A-Class | 15,511,424 | 6,868,671 | ||||||
C-Class | 4,571,714 | 2,445,945 | ||||||
Institutional Class | 25,876,740 | 10,574,134 | ||||||
Cost of shares redeemed | ||||||||
A-Class | (374,228,993 | ) | (75,616,322 | ) | ||||
C-Class | (51,062,726 | ) | (10,919,310 | ) | ||||
Institutional Class | (389,646,851 | ) | (100,967,437 | ) | ||||
Net increase from capital share transactions | 301,182,182 | 815,041,110 | ||||||
Net increase in net assets | 294,310,262 | 816,013,300 | ||||||
NET ASSETS: | ||||||||
Beginning of year | 956,742,498 | 140,729,198 | ||||||
End of year | $ | 1,251,052,760 | $ | 956,742,498 | ||||
Distributions in excess of net investment income at end of year | $ | (510,475 | ) | $ | (1,455 | ) | ||
CAPITAL SHARE ACTIVITY: | ||||||||
Shares sold | ||||||||
A-Class | 12,939,395 | 15,101,427 | ||||||
C-Class | 2,194,462 | 3,917,569 | ||||||
Institutional Class | 24,773,852 | 17,831,851 | ||||||
Shares issued from reinvestment of distributions | ||||||||
A-Class | 579,106 | 257,605 | ||||||
C-Class | 170,795 | 91,877 | ||||||
Institutional Class | 965,789 | 396,547 | ||||||
Shares redeemed | ||||||||
A-Class | (13,963,500 | ) | (2,837,771 | ) | ||||
C-Class | (1,905,834 | ) | (409,799 | ) | ||||
Institutional Class | (14,540,760 | ) | (3,804,751 | ) | ||||
Net increase in shares | 11,213,305 | 30,544,555 | ||||||
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 23 |
FLOATING RATE STRATEGIES FUND |
FINANCIAL HIGHLIGHTS |
This table is presented to show selected data for a share outstanding throughout each period and to assist shareholders in evaluating a Fund’s performance for the periods presented. |
Year Ended | Year Ended | Period Ended | |||||||
September 30, | September 30, | September 30, | |||||||
A-Class | 2014 | 2013 | 2012a | ||||||
Per Share Data | |||||||||
Net asset value, beginning of period | $26.62 | $26.10 | $25.00 | ||||||
Income (loss) from investment operations: | |||||||||
Net investment income (loss)b | 1.10 | 1.30 | 1.09 | ||||||
Net gain (loss) on investments (realized and unrealized) | .05 | .65 | .97 | ||||||
Total from investment operations | 1.15 | 1.95 | 2.06 | ||||||
Less distributions from: | |||||||||
Net investment income | (1.20 | ) | (1.37 | ) | (.96 | ) | |||
Net realized gains | (.05 | ) | (.06 | ) | – | ||||
Total distributions | (1.25 | ) | (1.43 | ) | (.96 | ) | |||
Net asset value, end of period | $26.52 | $26.62 | $26.10 | ||||||
Total Returnd | 4.42% | 7.61% | 8.37% | ||||||
Ratios/Supplemental Data | |||||||||
Net assets, end of period (in thousands) | $365,207 | $378,324 | $44,175 | ||||||
Ratios to average net assets: | |||||||||
Net investment income (loss) | 4.10% | 4.90% | 5.13% | ||||||
Total expenses | 1.18% | 1.19% | 1.39% | ||||||
Net expensesc,e | 1.04% | 1.05% | 1.06% | ||||||
Portfolio turnover rate | 58% | 50% | 61% | ||||||
Year Ended | Year Ended | Period Ended | |||||||
September 30, | September 30, | September 30, | |||||||
C-Class | 2014 | 2013 | 2012a | ||||||
Per Share Data | |||||||||
Net asset value, beginning of period | $26.60 | $26.09 | $25.00 | ||||||
Income (loss) from investment operations: | |||||||||
Net investment income (loss)b | .90 | 1.11 | .93 | ||||||
Net gain (loss) on investments (realized and unrealized) | .06 | .63 | .98 | ||||||
Total from investment operations | .96 | 1.74 | 1.91 | ||||||
Less distributions from: | |||||||||
Net investment income | (1.00 | ) | (1.17 | ) | (.82 | ) | |||
Net realized gains | (.05 | ) | (.06 | ) | – | ||||
Total distributions | (1.05 | ) | (1.23 | ) | (.82 | ) | |||
Net asset value, end of period | $26.51 | $26.60 | $26.09 | ||||||
Total Returnd | 3.64% | 6.77% | 7.72% | ||||||
Ratios/Supplemental Data | |||||||||
Net assets, end of period (in thousands) | $132,370 | $120,606 | $24,358 | ||||||
Ratios to average net assets: | |||||||||
Net investment income (loss) | 3.35% | 4.19% | 4.36% | ||||||
Total expenses | 1.89% | 1.93% | 2.06% | ||||||
Net expensesc,e | 1.79% | 1.81% | 1.80% | ||||||
Portfolio turnover rate | 58% | 50% | 61% |
24 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
FLOATING RATE STRATEGIES FUND |
FINANCIAL HIGHLIGHTS (concluded) |
This table is presented to show selected data for a share outstanding throughout each period and to assist shareholders in evaluating a Fund’s performance for the periods presented. |
Year Ended | Year Ended | Period Ended | |||||||
September 30, | September 30, | September 30, | |||||||
Institutional Class | 2014 | 2013 | 2012a | ||||||
Per Share Data | |||||||||
Net asset value, beginning of period | $26.64 | $26.12 | $25.00 | ||||||
Income (loss) from investment operations: | |||||||||
Net investment income (loss)b | 1.16 | 1.36 | 1.10 | ||||||
Net gain (loss) on investments (realized and unrealized) | .06 | .65 | 1.02 | ||||||
Total from investment operations | 1.22 | 2.01 | 2.12 | ||||||
Less distributions from: | |||||||||
Net investment income | (1.27 | ) | (1.43 | ) | (1.00 | ) | |||
Net realized gains | (.05 | ) | (.06 | ) | – | ||||
Total distributions | (1.32 | ) | (1.49 | ) | (1.00 | ) | |||
Net asset value, end of period | $26.54 | $26.64 | $26.12 | ||||||
Total Returnd | 4.67% | 7.86 | % | 8.59% | |||||
Ratios/Supplemental Data | |||||||||
Net assets, end of period (in thousands) | $753,476 | $457,813 | $72,197 | ||||||
Ratios to average net assets: | |||||||||
Net investment income (loss) | 4.32% | 5.12 | % | 5.16% | |||||
Total expenses | 0.87% | 0.86 | % | 0.99% | |||||
Net expensesc,e | 0.80% | 0.81 | % | 0.80% | |||||
Portfolio turnover rate | 58% | 50 | % | 61% |
a | Since commencement of operations: November 30, 2011. Percentage amounts for the period, except total return and portfolio turnover rate, have been annualized. | |
b | Net investment income (loss) per share was computed using average shares outstanding throughout the period. | |
c | Net expense information reflects the expense ratios after expense waivers. | |
d | Total return does not reflect the impact of any applicable sales charges and has not been annualized. | |
e | Net expenses may include expenses that are excluded from the expense limitation agreement. Excluding these expenses, the operating expense ratios for the periods would be: |
09/30/14 | 09/30/13 | 09/30/12 | |||||
A-Class | 1.02% | 1.03% | 1.01% | ||||
C-Class | 1.77% | 1.78% | 1.76% | ||||
Institutional Class | 0.78% | 0.79% | 0.77% |
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 25 |
MANAGERS’ COMMENTARY (Unaudited) | September 30, 2014 |
To Our Shareholders
Guggenheim High Yield Fund (the "Fund") is managed by a team of seasoned professionals, including B. Scott Minerd, Chairman of Investments and Global Chief Investment Officer; Jeffrey B. Abrams, Senior Managing Director and Portfolio Manager; and Kevin H. Gundersen, Senior Managing Director and Portfolio Manager. In the following paragraphs, the investment team discusses the market environment and the Fund’s performance for the fiscal year ended September 30, 2014.
For the one-year period ended September 30, 2014 (the "Period"), the Guggenheim High Yield Fund returned 9.18%1, compared with the 7.20% return of its benchmark, the Barclays U.S. Corporate High Yield Index.
The investment objective of the Fund is to seek high current income, with capital appreciation as a secondary objective. The Fund pursues its objective by investing at least 80% of its assets under normal market conditions in a broad range of high yield, higher risk debt securities rated below the top four long-term rating categories by a nationally recognized statistical rating organization.
The Fund is composed primarily of high yield bonds and bank loans. The allocation mix varies according to the relative attractiveness of the two asset classes. High yield bonds for example averaged roughly 70%, but represented a higher proportion in the middle of the Period. The bank loan allocation averaged roughly 25% of the Fund over the Period.
The leveraged credit market performed well for the 12 months ended September 30, 2014, even as it contended with Treasury rate volatility and frothy valuations, as investors searched for yield amid generally declining interest rates.
Mid-way through the Period, the high yield sector began to appear overvalued relative to other asset classes. Bond spreads tightened to below their historical ex-recession average and approached all time lows. Fund inflows, which were strong early in the Period, began to slow and reverse in response to Treasury market volatility early in 2014. The last three months in the Period were particularly bumpy, with general spread widening, as markets tried to ascertain what the Fed might do about short-term interest rates, and risk appetite in the market waned.
September returns that slumped late in the month should be viewed in the context of one of the biggest new issuance months in history, with roughly $40 billion coming to market. Amidst the backdrop of increasing volatility and some risk aversion hangover from sell-offs earlier in the summer months, appetite in the market for the asset class began showing signs of fatigue.
The bank loan market has remained reasonably resilient due to strong demand from the collateralized loan obligation (CLO) market. On track to set a new annual record, CLO creation raised $93 billion through the first three quarters of 2014.
Even though U.S. economic data was mixed late in the Period, it had been strong since the beginning of 2014, and the improving health of the U.S. economy and low interest rates continue to underscore our expectation that spreads can compress further. Volatility is likely to continue, but as the economy improves, brief periods of spread widening should be viewed as buying opportunities. Skittish investor sentiment tends to affect high beta asset classes like high yield and equities to a larger degree than other asset classes. Our research, however, suggests there is no reason for credit concern in the near term.
The floating rate nature of bank loans and their position higher in the capital structure makes them a defensive asset class during periods of market/interest rate volatility. They function as an attractive asset as the credit cycle changes particularly as interest rates rise. When the interest rate environment in the U.S. is relatively stable, the Fund may incrementally add higher-yielding, longer-maturity assets to the portfolio as attractive new issues come to market. The Fund benefited from participation in new issues, many of which came at a concession to pricing of bonds trading in secondary market.
For the Period, the Fund outpaced the index through good credit selection, overweight or underweight stances relative to the index, some incremental exposure to investment grade assets that performed well, and due to timely moves between high yield and bank loan allocations. The Fund, for example, had lower exposure in the higher quality BB-rated segment and longer duration assets during late 2013 and the third quarter of 2014, when rates were rising or volatile, and a higher exposure when rates were falling during the early part of 2014.
The main detractor to Fund performance for the year was the impact of a large restricted equity position, which the Fund was unable to exit until the second quarter of 2014. The position was additive in the final months of 2013, but detracted in the first and early second quarters of 2014.
26 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
MANAGERS’ COMMENTARY (Unaudited) (concluded) | September 30, 2014 |
The Fund’s outperformance was a result of a lower risk profile of the Fund compared with the market. The Fund’s exposure to floating rate assets (primarily bank loans), and shorter-maturity bonds acts as a buffer to market volatility. The Fund used market sell-offs to capture opportunities to buy issues we view as being cheap compared to inherent value.
We continue to see opportunity for strong returns in the high yield market, though we are conscious of a larger number of issues coming to market that exhibit lower credit quality and weaker security structures. The average credit quality of the portfolio remains B rated (S&P). Average security pricing declined slightly over the course of the year, helping keep the Fund’s yield stable. With the slight decline in the portfolio’s average price, taking par value as a base, the worst declines in price are likely behind us in the short run. We continue to target strong yields with a focus on containing risk exposure.
Our research suggests that macroeconomic indicators in the U.S. are pointing higher, which by itself would suggest a relaxation in accommodative monetary policy ahead–and therefore transmission of high real interest rates. Despite a strengthening U.S. economy, there is the potential that interest rates head lower in the near future.
Historically, credit spreads begin to widen approximately 80 months following the end of a recession, and September 2014 marks the 63rd month following the end of the last recession, indicating the potential for further spread tightening over the next 17 months. Credit cycles typically only end after corporate defaults start to spike, which typically starts to happen 12-24 months after the Federal Reserve begins raising short-term interest rates.
Performance displayed represents past performance which is no guarantee of future results.
1Performance figures are based on A-Class shares and do not reflect deduction of the sales charges or taxes that a shareholder would pay on distributions or the redemption of shares. Fee waivers and/or reimbursements reduce Fund expenses, and, in the absence of such waivers, the performance quoted would be reduced.
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) | September 30, 2014 | |
HIGH YIELD FUND
OBJECTIVE: Seeks high current income. Capital appreciation is a secondary objective.
Holdings Diversification (Market Exposure as % of Net Assets)
“Holdings Diversification (Market Exposure as % of Net Assets)” excludes any temporary cash investments.
Portfolio Composition by Quality Rating* | ||
% of | ||
Rating | Total Investments | |
Fixed Income Instruments | ||
BBB | 5.7% | |
BB | 24.7% | |
B | 50.6% | |
CCC | 10.7% | |
NR | 1.3% | |
Other Instruments | ||
Preferred Stocks | 5.0% | |
Common Stocks | 2.0% | |
Total Investments | 100.0% | |
The chart above reflects percentages of the value of total investments.
Inception Date: | ||
A-Class | August 5, 1996 | |
B-Class | August 5, 1996 | |
C-Class | May 1, 2000 | |
Institutional Class | July 11, 2008 | |
Ten Largest Holdings (% of Total Net Assets) | ||
Opal Acquisition, Inc. | 1.9% | |
Central Garden and Pet Co. | 1.8% | |
GRD Holdings III Corp. | 1.8% | |
Vector Group Ltd. | 1.8% | |
BreitBurn Energy Partners LP/ | ||
BreitBurn Finance Corp. | 1.7% | |
Endeavor Energy Resources. LP/ | ||
EER Finance, Inc. | 1.6% | |
MDC Partners, Inc. | 1.5% | |
Seaspan Corp. | 1.5% | |
Flakt Woods | 1.4% | |
Credit Acceptance Corp. | 1.4% | |
Top Ten Total | 16.4% | |
"Ten Largest Holdings" exclude any temporary cash or derivative investments.
* | Source: Factset. Credit quality ratings are measured on a scale that generally ranges from AAA (highest) to D (lowest). All rated securities have been rated by Moody’s, Standard & Poor’s ("S&P"), or Fitch, which are all a Nationally Recognized Statistical Rating Organization ("NRSRO"). For purposes of this presentation, when ratings are available from more than one agency, the highest rating is used. Guggenheim Investments has converted Moody’s and Fitch ratings to the equivalent S&P rating. Unrated securities do not necessarily indicate low credit quality. Security ratings are determined at the time of purchase and may change thereafter. |
28 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
PERFORMANCE REPORT AND FUND PROFILE (Unaudited) (concluded) | September 30, 2014 | |
Average Annual Returns* | |||||||||
Periods Ended September 30, 2014 | |||||||||
1 Year | 5 Year | 10 Year | |||||||
A-Class Shares | 9.18% | 9.38% | 7.87% | ||||||
A-Class Shares with sales charge† | 3.97% | 8.32% | 7.35% | ||||||
B-Class Shares | 9.46% | 9.68% | 7.87% | ||||||
B-Class Shares with CDSC‡ | 4.46% | 9.40% | 7.87% | ||||||
C-Class Shares | 8.46% | 8.58% | 7.09% | ||||||
C-Class Shares with CDSC§ | 7.46% | 8.58% | 7.09% | ||||||
Barclays U.S. Corporate High Yield Index | 7.20% | 10.57% | 8.33% | ||||||
Since Inception | |||||||||
1 Year | 5 Year | (07/11/08) | |||||||
Institutional Class Shares | 9.50% | 9.71% | 10.26% | ||||||
Barclays U.S. Corporate High Yield Index | 7.20% | 10.57% | 10.61% | ||||||
* | The performance data above represents past performance that is not predictive of future results. The investment return and principal value of an investment in the Fund will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Returns are historical and include changes in principal and reinvested dividends and capital gains and do not reflect the effect of taxes. The Barclays U.S. Corporate High Yield Index is an unmanaged index and, unlike the Fund, has no management fees or operating expenses to reduce its reported return. |
† | Fund returns are calculated using the maximum sales charge of 4.75%. |
‡ | Fund returns include a CDSC of up to 5% if redeemed within 5 years of purchase |
§ | Fund returns include a CDSC of 1% if redeemed within 12 months of purchase. |
THE GUGGENHEIM FUNDS ANNUAL REPORT | 29 |
SCHEDULE OF INVESTMENTS | September 30, 2014 | |
HIGH YIELD FUND |
SHARES | VALUE | ||||||
COMMON STOCKS†- 2.2% | |||||||
CONSUMER DISCRETIONARY - 1.8% | |||||||
Travelport LLC* | 107,757 | $ | 1,773,681 | ||||
Metro-Goldwyn-Mayer, Inc.*†† | 7,040 | 547,782 | |||||
Total Consumer Discretionary | 2,321,463 | ||||||
ENERGY - 0.2% | |||||||
Stallion Oilfield Holdings Ltd.*†† | 8,257 | 275,206 | |||||
FINANCIAL - 0.2% | |||||||
CIT Group, Inc. | 4,569 | 209,991 | |||||
COMMUNICATIONS - 0.0% | |||||||
Cengage Learning Acquisitions, Inc.*†† | 2,107 | 67,635 | |||||
BASIC MATERIALS - 0.0% | |||||||
Mirabela Nickel Ltd.* | 1,044,540 | 60,354 | |||||
DIVERSIFIED - 0.0% | |||||||
Leucadia National Corp. | 81 | 1,931 | |||||
CONSUMER, NON-CYCLICAL - 0.0% | |||||||
Crimson Wine Group Ltd.*,6 | 8 | 73 | |||||
Total Common Stocks | |||||||
(Cost $2,916,907) | 2,936,653 | ||||||
PREFERRED STOCKS††- 5.2% | |||||||
Seaspan Corp. | |||||||
6.38% due 04/30/19† | 80,000 | 2,047,200 | |||||
Goldman Sachs Group, Inc. | |||||||
5.50% †,1,2 | 62,240 | 1,478,200 | |||||
Morgan Stanley | |||||||
6.38%* ,†,1,2 | 46,000 | 1,153,220 | |||||
Aspen Insurance Holdings Ltd. | |||||||
5.95% †,1,2 | 40,000 | 998,800 | |||||
Kemper Corp. | |||||||
7.38% due 02/27/54† | 39,000 | 996,450 | |||||
Medianews Group, Inc.* | 11,074 | 362,674 | |||||
U.S. Shipping Corp.*,6 | 14,718 | 17,367 | |||||
Total Preferred Stocks | |||||||
(Cost $7,170,957) | 7,053,911 | ||||||
FACE | |||||||
AMOUNT | |||||||
CORPORATE BONDS††,7 - 69.6% | |||||||
ENERGY - 19.3% | |||||||
Atlas Energy Holdings Operating Company LLC/ | |||||||
Atlas Resource Finance Corp. | |||||||
9.25% due 08/15/21 | $ | 1,300,000 | 1,326,000 | ||||
7.75% due 01/15/213 | 1,250,000 | 1,231,250 | |||||
Legacy Reserves Limited Partnership/ | |||||||
Legacy Reserves Finance Corp. | |||||||
6.63% due 12/01/21 | 1,340,000 | 1,313,200 | |||||
8.00% due 12/01/20 | 965,000 | 1,003,600 | |||||
BreitBurn Energy Partners LP/ | |||||||
BreitBurn Finance Corp. | |||||||
7.88% due 04/15/223 | 2,250,000 | 2,278,124 | |||||
SandRidge Energy, Inc. | |||||||
7.50% due 03/15/21 | 1,000,000 | 975,000 | |||||
8.13% due 10/15/22 | 900,000 | 898,875 | |||||
8.75% due 01/15/20 | 295,000 | 303,850 | |||||
Endeavor Energy Resources. | |||||||
LP/EER Finance, Inc. | |||||||
7.00% due 08/15/214 | 2,100,000 | 2,163,000 | |||||
Sabine Pass Liquefaction LLC | |||||||
6.25% due 03/15/223 | 1,250,000 | 1,315,625 | |||||
5.75% due 05/15/24 | 500,000 | 508,750 | |||||
Bill Barrett Corp. | |||||||
7.00% due 10/15/223 | 1,100,000 | 1,091,750 | |||||
7.63% due 10/01/193 | 700,000 | 722,750 | |||||
Atlas Pipeline Partners Limited Partnership/ | |||||||
Atlas Pipeline Finance Corp. | |||||||
6.63% due 10/01/20 | 1,000,000 | 1,022,500 | |||||
5.88% due 08/01/23 | 450,000 | 439,875 | |||||
ContourGlobal Power Holdings S.A. | |||||||
7.13% due 06/01/194 | 1,300,000 | 1,287,000 | |||||
Unit Corp. | |||||||
6.63% due 05/15/213 | 1,200,000 | 1,203,000 | |||||
Crestwood Midstream Partners Limited | |||||||
Partnership/Crestwood Midstream | |||||||
Finance Corp. | |||||||
6.13% due 03/01/22 | 700,000 | 701,750 | |||||
6.00% due 12/15/20 | 400,000 | 402,000 | |||||
Keane Group Holdings LLC | |||||||
8.50% due 08/08/19†††,1,6 | 750,000 | 735,225 | |||||
8.50% due 08/08/19†††,1,6 | 250,000 | 250,000 | |||||
FTS International, Inc. | |||||||
6.25% due 05/01/22 | 900,000 | 884,250 | |||||
Jones Energy Holdings LLC/ | |||||||
Jones Energy Finance Corp. | |||||||
6.75% due 04/01/224 | 850,000 | 850,000 | |||||
Denbury Resources, Inc. | |||||||
5.50% due 05/01/22 | 800,000 | 792,000 | |||||
California Resources Corp. | |||||||
6.00% due 11/15/24 | 600,000 | 616,500 | |||||
CONSOL Energy, Inc. | |||||||
5.88% due 04/15/22 | 600,000 | 591,000 | |||||
RSP Permian, Inc. | |||||||
6.63% due 10/01/22 | 550,000 | 553,438 | |||||
Pacific Drilling S.A. | |||||||
5.38% due 06/01/204 | 500,000 | 457,500 | |||||
Rosetta Resources, Inc. | |||||||
5.88% due 06/01/22 | 300,000 | 298,875 | |||||
IronGate Energy Services LLC | |||||||
11.00% due 07/01/184 | 120,000 | 120,450 | |||||
SemGroup, LP | |||||||
8.75% due 11/15/15†††,6,9 | 1,300,000 | — | |||||
Total Energy | 26,337,137 | ||||||
CONSUMER, NON-CYCLICAL - 10.3% | |||||||
Central Garden and Pet Co. | |||||||
8.25% due 03/01/18 | 2,450,000 | 2,492,874 | |||||
Vector Group Ltd. | |||||||
7.75% due 02/15/21 | 2,330,000 | 2,452,325 | |||||
R&R Ice Cream plc | |||||||
8.25% due 05/15/204 | AUD | 1,300,000 | 1,145,505 |
30 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
SCHEDULE OF INVESTMENTS (continued) | September 30, 2014 | |
HIGH YIELD FUND |
FACE | |||||||
AMOUNT | VALUE | ||||||
Bumble Bee Holdco SCA | |||||||
9.63% due 03/15/184 | $ | 1,100,000 | $ | 1,141,250 | |||
FTI Consulting, Inc. | |||||||
6.00% due 11/15/223 | 800,000 | 810,000 | |||||
KeHE Distributors LLC/KeHE Finance Corp. | |||||||
7.63% due 08/15/214 | 750,000 | 795,000 | |||||
ADT Corp. | |||||||
6.25% due 10/15/21 | 750,000 | 776,250 | |||||
Reynolds Group Issuer Incorporated/Reynolds | |||||||
Group Issuer LLC/Reynolds Group Issuer Lu | |||||||
6.88% due 02/15/21 | 700,000 | 738,500 | |||||
Premier Foods Finance plc | |||||||
6.50% due 03/15/214 | GBP | 500,000 | 716,138 | ||||
Symbion, Inc. | |||||||
8.00% due 06/15/16 | 475,000 | 492,813 | |||||
American Seafoods Group | |||||||
LLC/American Seafoods Finance, Inc. | |||||||
10.75% due 05/15/164 | 500,000 | 486,250 | |||||
JBS USA LLC / JBS USA Finance, Inc. | |||||||
5.88% due 07/15/244 | 450,000 | 432,000 | |||||
US Foods, Inc. | |||||||
8.50% due 06/30/19 | 395,000 | 418,799 | |||||
Bumble Bee Holdings, Inc. | |||||||
9.00% due 12/15/174 | 350,000 | 366,625 | |||||
Midas Intermediate Holdco II LLC/Midas | |||||||
Intermediate Holdco II Finance, Inc. | |||||||
7.88% due 10/01/224 | 300,000 | 299,250 | |||||
Spectrum Brands, Inc. | |||||||
6.63% due 11/15/22 | 225,000 | 236,250 | |||||
Ceridian LLC/Comdata, Inc. | |||||||
8.13% due 11/15/174 | 200,000 | 200,250 | |||||
Total Consumer, Non-cyclical | 14,000,079 | ||||||
FINANCIAL - 8.4% | |||||||
Credit Acceptance Corp. | |||||||
6.13% due 02/15/214 | 1,900,000 | 1,933,250 | |||||
Bank of America Corp. | |||||||
4.20% due 08/26/24 | 750,000 | 743,515 | |||||
6.25%1,2 | 650,000 | 645,734 | |||||
Pacific Premier Bancorp, Inc. | |||||||
5.75% due 09/03/248 | 1,250,000 | 1,256,250 | |||||
American Equity Investment Life | |||||||
Holding Co. | |||||||
6.63% due 07/15/21 | 1,000,000 | 1,050,000 | |||||
Citigroup, Inc. | |||||||
6.30%1,2 | 700,000 | 691,320 | |||||
Wilton Re Finance LLC | |||||||
5.88% due 03/30/331,4 | 650,000 | 676,000 | |||||
Ally Financial, Inc. | |||||||
5.13% due 09/30/24 | 650,000 | 637,000 | |||||
Jefferies Finance LLC/JFIN Company-Issuer Corp. | |||||||
7.38% due 04/01/204 | 600,000 | 613,500 | |||||
Kennedy-Wilson, Inc. | |||||||
5.88% due 04/01/24 | 550,000 | 552,750 | |||||
Lock AS | |||||||
7.00% due 08/15/21 | EUR | 400,000 | 519,103 | ||||
Lancashire Holdings Ltd. | |||||||
5.70% due 10/01/224 | 450,000 | 485,676 | |||||
General Motors Financial Company, Inc. | |||||||
4.38% due 09/25/21 | 400,000 | 409,000 | |||||
Majid AL Futtaim Holding | |||||||
7.12% due 12/31/49 | 300,000 | 326,415 | |||||
Cabot Financial Luxembourg S.A. | |||||||
6.50% due 04/01/214 | GBP | 200,000 | 310,792 | ||||
Icahn Enterprises Limited Partnership/Icahn | |||||||
Enterprises Finance Corp. | |||||||
5.88% due 02/01/22 | 300,000 | 300,000 | |||||
Fidelity & Guaranty Life Holdings, Inc. | |||||||
6.38% due 04/01/214 | 250,000 | 261,875 | |||||
Total Financial | 11,412,180 | ||||||
CONSUMER, CYCLICAL - 8.3% | |||||||
GRD Holdings III Corp. | |||||||
10.75% due 06/01/194 | 2,250,000 | 2,480,625 | |||||
WMG Acquisition Corp. | |||||||
6.75% due 04/15/224 | 1,450,000 | 1,388,375 | |||||
6.00% due 01/15/214 | 600,000 | 607,500 | |||||
5.63% due 04/15/224 | 150,000 | 150,000 | |||||
AmeriGas Finance LLC / AmeriGas Finance Corp. | |||||||
7.00% due 05/20/223 | 1,320,000 | 1,382,700 | |||||
6.75% due 05/20/20 | 650,000 | 676,000 | |||||
Checkers Drive-In Restaurants, Inc. | |||||||
11.00% due 12/01/174 | 1,400,000 | 1,533,000 | |||||
Guitar Center, Inc. | |||||||
6.50% due 04/15/194 | 1,040,000 | 936,000 | |||||
DreamWorks Animation SKG, Inc. | |||||||
6.88% due 08/15/204 | 800,000 | 836,000 | |||||
Suburban Propane Partners Limited | |||||||
Partnership/Suburban Energy Finance Corp. | |||||||
5.50% due 06/01/24 | 650,000 | 620,750 | |||||
7.38% due 08/01/21 | 149,000 | 157,940 | |||||
Seminole Hard Rock Entertainment Incorporated/ | |||||||
Seminole Hard Rock International LLC | |||||||
5.88% due 05/15/214 | 250,000 | 241,250 | |||||
Men’s Wearhouse, Inc. | |||||||
7.00% due 07/01/22 | 150,000 | 151,500 | |||||
Global Partners Limited Partnership/ | |||||||
GLP Finance Corp. | |||||||
6.25% due 07/15/22 | 90,000 | 89,550 | |||||
Total Consumer, Cyclical | 11,251,190 | ||||||
COMMUNICATIONS - 5.9% | |||||||
MDC Partners, Inc. | |||||||
6.75% due 04/01/204 | 2,000,000 | 2,060,000 | |||||
SITEL LLC / Sitel Finance Corp. | |||||||
11.00% due 08/01/174 | 1,357,000 | 1,404,495 | |||||
Virgin Media Finance plc | |||||||
6.38% due 10/15/244 | GBP | 550,000 | 887,285 | ||||
CyrusOne Limited Partnership/CyrusOne | |||||||
Finance Corp. | |||||||
6.38% due 11/15/22 | 650,000 | 679,250 | |||||
CSC Holdings LLC | |||||||
5.25% due 06/01/24 | 700,000 | 672,000 | |||||
Avaya, Inc. | |||||||
7.00% due 04/01/194 | 600,000 | 582,000 | |||||
McGraw-Hill Global Education Holdings | |||||||
LLC/McGraw-Hill Global Education Finance | |||||||
9.75% due 04/01/21 | 450,000 | 497,250 | |||||
Level 3 Financing, Inc. | |||||||
3.82% due 01/15/181,4 | 500,000 | 492,650 |
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 31 |
SCHEDULE OF INVESTMENTS (continued) | September 30, 2014 | |
HIGH YIELD FUND |
FACE | |||||||||
AMOUNT | VALUE | ||||||||
Alcatel-Lucent USA, Inc. | |||||||||
6.75% due 11/15/204 | $ | 350,000 | $ | 355,250 | |||||
Sirius XM Canada Holdings, Inc. | |||||||||
5.63% due 04/23/214 | CAD | 200,000 | 179,027 | ||||||
Expo Event Transco, Inc. | |||||||||
9.00% due 06/15/214 | 150,000 | 154,500 | |||||||
Total Communications | 7,963,707 | ||||||||
INDUSTRIAL - 5.0% | |||||||||
Amsted Industries, Inc. | |||||||||
5.38% due 09/15/244 | 1,150,000 | 1,115,500 | |||||||
Deutsche Raststatten | |||||||||
6.75% due 12/30/20 | EUR | 800,000 | 1,058,334 | ||||||
Marquette Transportation Company | |||||||||
LLC/Marquette Transportation Finance Corp. | |||||||||
10.88% due 01/15/17 | 755,000 | 790,863 | |||||||
Odebrecht Offshore Drilling Finance Ltd. | |||||||||
6.63% due 10/01/224 | 683,270 | 703,768 | |||||||
BMBG Bond Finance SCA | |||||||||
5.20% due 10/15/201,4 | EUR | 550,000 | 701,089 | ||||||
Anixter, Inc. | |||||||||
5.13% due 10/01/21 | 600,000 | 592,500 | |||||||
Ultra Resources, Inc. | |||||||||
4.51% due 10/12/20†††,6 | 600,000 | 570,900 | |||||||
CEVA Group plc | |||||||||
7.00% due 03/01/214 | 550,000 | 550,000 | |||||||
Unifrax I LLC / Unifrax Holding Co. | |||||||||
7.50% due 02/15/194 | 350,000 | 353,500 | |||||||
LMI Aerospace, Inc. | |||||||||
7.38% due 07/15/194 | 350,000 | 350,000 | |||||||
Total Industrial | 6,786,454 | ||||||||
TECHNOLOGY - 3.7% | |||||||||
Eagle Midco, Inc. | |||||||||
9.00% due 06/15/184 | 1,300,000 | 1,327,625 | |||||||
Aspect Software, Inc. | |||||||||
10.63% due 05/15/17 | 1,235,000 | 1,225,738 | |||||||
First Data Corp. | |||||||||
8.75% due 01/15/223,4 | 1,050,000 | 1,113,000 | |||||||
NCR Corp. | |||||||||
6.38% due 12/15/23 | 550,000 | 576,125 | |||||||
5.88% due 12/15/21 | 400,000 | 409,000 | |||||||
iGATE Corp. | |||||||||
4.75% due 04/15/19 | 350,000 | 339,500 | |||||||
Total Technology | 4,990,988 | ||||||||
DIVERSIFIED - 3.6% | |||||||||
Opal Acquisition, Inc. | |||||||||
8.88% due 12/15/214 | �� | 2,450,000 | 2,529,625 | ||||||
Harbinger Group, Inc. | |||||||||
7.75% due 01/15/22 | 1,936,000 | 1,921,480 | |||||||
7.88% due 07/15/19 | 385,000 | 410,025 | |||||||
Total Diversified | 4,861,130 | ||||||||
BASIC MATERIALS - 2.9% | |||||||||
TPC Group, Inc. | |||||||||
8.75% due 12/15/204 | 1,505,000 | 1,599,062 | |||||||
KGHM International Ltd. | |||||||||
7.75% due 06/15/194 | 1,150,000 | 1,213,250 |
Eldorado Gold Corp. | ||||||||
6.13% due 12/15/204 | 525,000 | 521,063 | ||||||
Cascades, Inc. | ||||||||
5.50% due 07/15/224 | 350,000 | 339,500 | ||||||
Mirabela Nickel Ltd. | ||||||||
9.50% due 05/20/19†††,6 | 231,000 | 231,000 | ||||||
1.00% due 09/10/44†††,6 | 5,506 | — | ||||||
Total Basic Materials | 3,903,875 | |||||||
UTILITIES - 2.2% | ||||||||
LBC Tank Terminals Holding Netherlands BV | ||||||||
6.88% due 05/15/234 | 1,250,000 | 1,331,250 | ||||||
AES Corp. | ||||||||
5.50% due 03/15/24 | 650,000 | 632,125 | ||||||
4.88% due 05/15/23 | 250,000 | 237,500 | ||||||
NGL Energy Partners, LP/NGL Energy | ||||||||
Finance Corp. | ||||||||
6.88% due 10/15/214 | 700,000 | 728,000 | ||||||
Total Utilities | 2,928,875 | |||||||
Total Corporate Bonds | ||||||||
(Cost $94,958,781) | 94,435,615 | |||||||
SENIOR FLOATING RATE INTERESTS††,1,7 - 25.1% | ||||||||
INDUSTRIAL - 6.1% | ||||||||
Flakt Woods | ||||||||
2.63% due 03/20/176 | EUR | 1,600,000 | 1,940,006 | |||||
Mitchell International, Inc. | ||||||||
8.50% due 10/11/21 | 1,250,000 | 1,245,313 | ||||||
SI Organization | ||||||||
5.75% due 11/23/19 | 704,776 | 707,200 | ||||||
IntraWest Holdings S.à r.l. | ||||||||
5.50% due 12/09/20 | 665,500 | 665,500 | ||||||
Service King | ||||||||
4.75% due 09/17/21††† | 449,367 | 447,965 | ||||||
CareCore National LLC | ||||||||
5.50% due 03/05/21 | 497,500 | 493,769 | ||||||
Hunter Defense Technologies | ||||||||
6.50% due 08/05/19 | 500,000 | 493,750 | ||||||
Gogo LLC | ||||||||
7.50% due 03/21/18 | 438,900 | 443,289 | ||||||
SIRVA Worldwide, Inc. | ||||||||
7.50% due 03/27/19 | 394,000 | 399,910 | ||||||
Berlin Packaging LLC | ||||||||
4.50% due 09/24/21 | 400,000 | 399,000 | ||||||
Knowledge Learning Corp. | ||||||||
5.25% due 03/18/21 | 298,500 | 298,500 | ||||||
Mast Global | ||||||||
8.75% due 09/12/19†††,6 | 240,625 | 238,614 | ||||||
Panolam Industries International, Inc. | ||||||||
7.76% due 08/23/17 | 196,197 | 195,216 | ||||||
Ceva Logistics US Holdings | ||||||||
6.50% due 03/19/21 | 98,030 | 94,721 | ||||||
NaNa Development Corp. | ||||||||
8.00% due 03/15/186 | 77,778 | 76,222 | ||||||
Ceva Logistics Holdings BV (Dutch) | ||||||||
6.50% due 03/19/21 | 71,071 | 68,673 | ||||||
Ceva Group plc (United Kingdom) | ||||||||
6.50% due 03/19/21 | 67,734 | 65,363 |
32 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
SCHEDULE OF INVESTMENTS (continued) | September 30, 2014 |
HIGH YIELD FUND |
FACE | |||||||
AMOUNT | VALUE | ||||||
Ceva Logistics Canada, ULC | |||||||
6.50% due 03/19/21 | $ | 12,254 | $ | 11,840 | |||
Total Industrial | 8,284,851 | ||||||
CONSUMER, CYCLICAL - 4.2% | |||||||
DLK Acquisitions BV | |||||||
8.50% due 08/28/19 | EUR | 700,000 | 865,886 | ||||
GCA Services Group, Inc. | |||||||
9.25% due 11/01/20 | 800,000 | 798,000 | |||||
Fitness International LLC | |||||||
5.50% due 07/01/20 | 748,125 | 740,644 | |||||
Lions Gate Entertainment Corp. | |||||||
5.00% due 07/19/20 | 600,000 | 601,500 | |||||
Talbots, Inc. | |||||||
4.75% due 03/19/20 | 530,000 | 512,775 | |||||
Burger King Corp. | |||||||
4.50% due 09/24/21 | 500,000 | 496,110 | |||||
Alexander Mann Solutions Ltd. | |||||||
5.75% due 12/20/19 | 496,250 | 491,288 | |||||
National Vision, Inc. | |||||||
6.75% due 03/11/22 | 450,000 | 438,750 | |||||
Ipreo Holdings | |||||||
4.25% due 08/06/21 | 450,000 | 438,377 | |||||
BJ’s Wholesale Club, Inc. | |||||||
4.50% due 09/26/19 | 300,000 | 295,077 | |||||
Total Consumer, Cyclical | 5,678,407 | ||||||
FINANCIAL - 4.4% | |||||||
Expert Global Solutions | |||||||
8.50% due 04/03/18 | 1,367,660 | 1,364,240 | |||||
York Risk Services | |||||||
4.75% due 10/01/21††† | 676,829 | 673,025 | |||||
Cunningham Lindsey U.S., Inc. | |||||||
9.25% due 06/10/20 | 623,636 | 622,857 | |||||
HSBC Holdings | |||||||
due 03/30/205 | 600,000 | 582,000 | |||||
Magic Newco, LLC | |||||||
12.00% due 06/12/19 | 500,000 | 564,165 | |||||
Intertrust Group | |||||||
8.00% due 04/11/22 | 500,000 | 494,165 | |||||
Safe-Guard | |||||||
6.25% due 08/19/21 | 450,000 | 447,750 | |||||
Lineage Logistics LLC | |||||||
4.50% due 04/07/21 | 447,750 | 442,153 | |||||
Trademonster | |||||||
7.25% due 08/29/19††† | 350,000 | 348,280 | |||||
STG-Fairway Acquisitions, Inc. | |||||||
6.25% due 02/28/19 | 246,252 | 245,791 | |||||
National Financial Partners Corp. | |||||||
4.50% due 07/01/20 | 247,501 | 245,026 | |||||
Total Financial | 6,029,452 | ||||||
CONSUMER, NON-CYCLICAL - 3.3% | |||||||
Birds Eye Iglo Group Ltd. | |||||||
4.26% due 06/30/20 | EUR | 550,000 | 682,312 | ||||
NES Global Talent | |||||||
6.50% due 10/03/19 | 588,750 | 582,863 | |||||
Reddy Ice Holdings, Inc. | |||||||
6.75% due 04/01/196 | 592,500 | 559,913 | |||||
ABG Intermediate Holdings 2 LLC | |||||||
5.50% due 05/27/21 | 547,250 | 544,514 | |||||
AdvancePierre Foods, Inc. | |||||||
9.50% due 10/10/17 | 491,000 | 483,635 | |||||
CTI Foods Holding Co. LLC | |||||||
8.25% due 06/28/21 | 340,000 | 341,275 | |||||
Pelican Products, Inc. | |||||||
9.25% due 04/09/21 | 300,000 | 299,250 | |||||
Nextech Systems LLC | |||||||
6.00% due 10/28/18†††,6 | 288,750 | 283,983 | |||||
Performance Food Group | |||||||
6.25% due 11/14/19 | 246,875 | 245,949 | |||||
Targus Group International, Inc. | |||||||
12.00% due 05/24/166 | 230,321 | 187,136 | |||||
Arctic Glacier Holdings, Inc. | |||||||
5.00% due 05/10/19 | 180,429 | 177,723 | |||||
Catalent Pharma Solutions, Inc. | |||||||
6.50% due 12/31/17 | 36,818 | 36,726 | |||||
Total Consumer, Non-cyclical | 4,425,279 | ||||||
TECHNOLOGY - 3.1% | |||||||
Sparta Holding Corp. | |||||||
6.25% due 07/28/20††† | 900,000 | 891,242 | |||||
Greenway Medical Technologies | |||||||
9.25% due 11/04/216 | 550,000 | 544,500 | |||||
6.00% due 11/04/206 | 347,375 | 345,638 | |||||
Evergreen Skill | |||||||
5.75% due 04/28/21 | 830,000 | 813,749 | |||||
EIG Investors Corp. | |||||||
5.00% due 11/09/19 | 396,000 | 394,515 | |||||
Quorum Business Solutions | |||||||
5.75% due 08/07/21 | 300,000 | 299,250 | |||||
Telx Group | |||||||
7.50% due 04/09/21 | 300,000 | 297,501 | |||||
Flexera Software LLC | |||||||
8.00% due 04/02/21 | 250,000 | 242,500 | |||||
GlobalLogic Holdings, Inc. | |||||||
6.25% due 05/31/19 | 198,500 | 192,049 | |||||
Active Network, Inc., The | |||||||
5.50% due 11/13/20 | 149,248 | 147,942 | |||||
Total Technology | 4,168,886 | ||||||
COMMUNICATIONS - 1.6% | |||||||
Cartrawler- Mustang Bidco Ltd. | |||||||
4.26% due 04/29/21 | EUR | 650,000 | 819,940 | ||||
Anaren, Inc. | |||||||
9.25% due 08/18/21 | 500,000 | 497,500 | |||||
Cengage Learning Acquisitions, Inc. | |||||||
7.00% due 03/31/20 | 298,500 | 297,861 | |||||
Avaya, Inc. | |||||||
6.50% due 03/31/18 | 293,943 | 291,189 | |||||
MergerMarket Ltd. | |||||||
4.50% due 02/04/21 | 298,500 | 289,545 | |||||
Total Communications | 2,196,035 | ||||||
ENERGY - 0.9% | |||||||
PSS Companies | |||||||
5.50% due 01/28/20 | 545,328 | 542,601 |
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 33 |
SCHEDULE OF INVESTMENTS (concluded) | September 30, 2014 |
HIGH YIELD FUND |
FACE | |||||||
AMOUNT | VALUE | ||||||
Cactus Wellhead | |||||||
7.00% due 07/31/20 | $ | 450,000 | $ | 441,000 | |||
FTS International | |||||||
5.75% due 04/16/21 | 261,818 | 261,771 | |||||
Total Energy | 1,245,372 | ||||||
UTILITIES - 0.9% | |||||||
Astoria Generating Company Acquisitions LLC | |||||||
9.25% due 10/26/17 | 1,173,545 | 1,194,083 | |||||
BASIC MATERIALS - 0.6% | |||||||
Atkore International, Inc. | |||||||
7.75% due 10/09/21 | 450,000 | 445,500 | |||||
Hoffmaster Group, Inc. | |||||||
5.25% due 05/09/20 | 399,000 | 397,005 | |||||
Total Basic Materials | 842,505 | ||||||
Total Senior Floating Rate Interests | |||||||
(Cost $34,322,638) | 34,064,870 | ||||||
ASSET BACKED SECURITIES††,7 - 1.6% | |||||||
Iron Mountain, Inc. | |||||||
6.12% due 09/15/22 | GBP | 850,000 | 1,386,099 | ||||
ALM XIV Ltd. 2014-14A | |||||||
3.68% due 07/28/261,4 | 800,000 | 755,040 | |||||
Total Asset Backed Securities | |||||||
(Cost $2,138,972) | 2,141,139 | ||||||
MORTGAGE BACKED SECURITIES†† - 0.4% | |||||||
SRERS Funding Ltd. 2011-RS | |||||||
0.40% due 05/09/461,4 | 526,212 | 501,217 | |||||
Total Mortgage Backed Securities | |||||||
(Cost $487,038) | 501,217 | ||||||
Total Investments - 104.1% | |||||||
(Cost $141,995,293) | $ | 141,133,405 | |||||
Other Assets & Liabilities, net - (4.1)% | (5,548,938) | ||||||
Total Net Assets - 100.0% | $ | 135,584,467 | |||||
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS††
Settlement | Settlement | Value at | Net Unrealized | |||||||||||||||
Counterparty | Contracts to Sell | Currency | Date | Value | September 30, 2014 | Appreciation | ||||||||||||
BNY Mellon | 7,100,000 | EUR | 10/07/14 | $ | 9,321,506 | $ | 8,968,667 | $ | 352,839 | |||||||||
BNY Mellon | 1,500,000 | AUD | 10/07/14 | 1,398,675 | 1,312,569 | 86,106 | ||||||||||||
BNY Mellon | 1,550,000 | GBP | 10/07/14 | 2,540,981 | 2,512,814 | 28,167 | ||||||||||||
BNY Mellon | 210,000 | CAD | 10/07/14 | 192,691 | 187,496 | 5,195 | ||||||||||||
$ | 472,307 | |||||||||||||||||
* | Non-income producing security. | |
† | Value determined based on Level 1 inputs, unless otherwise noted — See Note 4. | |
†† | Value determined based on Level 2 inputs, unless otherwise noted — See Note 4. | |
††† | Value determined based on Level 3 inputs — See Note 4. | |
1 | Variable rate security. Rate indicated is rate effective at September 30, 2014. | |
2 | Perpetual maturity. | |
3 | Security or a portion thereof is held as collateral for reverse repurchase agreements — See Note 13. | |
4 | Security is a 144A or Section 4(a)(2) security. The total market value of 144A or Section 4(a)(2) securities is $50,977,220 (cost $51,122,127), or 37.6% of total net assets. These securities have been determined to be liquid under guidelines established by the Board of Trustees. | |
5 | Security with no rate was unsettled at September 30, 2014. | |
6 | Illiquid security. | |
7 | The face amount is denominated in U.S. Dollars unless otherwise indicated. | |
8 | Security is a 144A or Section 4(a)(2) security. These securities are considered illiquid and restricted under guidelines established by the Board of Trustees. The total market value of 144A or Section 4(a)(2) securities is $1,256,250 (cost $1,250,000), or 0.9% of total net assets — See Note 16. | |
9 | Security is in default of interest and/or principal obligations. | |
plc–Public Limited Company | ||
REIT–Real Estate Investment Trust |
34 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
HIGH YIELD FUND |
STATEMENT OF ASSETS AND LIABILITIES |
September 30, 2014 |
ASSETS: | ||||
Investments, at value | ||||
(cost $141,995,293) | $ | 141,133,405 | ||
Foreign currency, at value | ||||
(cost $2,420,600) | 2,374,000 | |||
Cash | 648,379 | |||
Unrealized appreciation on forward foreign currency | ||||
exchange contracts | 472,307 | |||
Prepaid expenses | 40,891 | |||
Receivables: | ||||
Securities sold | 3,627,813 | |||
Interest | 2,048,664 | |||
Fund shares sold | 82,749 | |||
Dividends | 14,876 | |||
Foreign taxes reclaim | 7,124 | |||
Total assets | 150,450,208 | |||
LIABILITIES: | ||||
Reverse Repurchase Agreements | 7,642,161 | |||
Unfunded loan commitments, at value | ||||
(commitment fees received $233,435) | 224,795 | |||
Payable for: | ||||
Securities purchased | 6,339,544 | |||
Fund shares redeemed | 348,657 | |||
Distributions to shareholders | 135,987 | |||
Management fees | 45,413 | |||
Distribution and service fees | 28,692 | |||
Fund accounting/administration fees | 10,431 | |||
Transfer agent/maintenance fees | 10,339 | |||
Trustees’ fees* | 2,660 | |||
Miscellaneous | 77,062 | |||
Total liabilities | 14,865,741 | |||
NET ASSETS | $ | 135,584,467 | ||
NET ASSETS CONSIST OF: | ||||
Paid in capital | $ | 133,423,619 | ||
Distributions in excess of net investment income | (263,479 | ) | ||
Accumulated net realized gain on investments | 2,845,368 | |||
Net unrealized depreciation on investments | (421,041 | ) | ||
Net assets | $ | 135,584,467 | ||
A-CLASS: | ||||
Net assets | $ | 82,854,393 | ||
Capital shares outstanding | 6,891,509 | |||
Net asset value per share | $12.02 | |||
Maximum offering price per share | ||||
(Net asset value divided by 95.25%) | $12.62 | |||
B-CLASS: | ||||
Net assets | $ | 1,175,674 | ||
Capital shares outstanding | 98,449 | |||
Net asset value per share | $11.94 | |||
C-CLASS: | ||||
Net assets | $ | 14,674,011 | ||
Capital shares outstanding | 1,210,784 | |||
Net asset value per share | $12.12 | |||
INSTITUTIONAL CLASS: | ||||
Net assets | $ | 36,880,389 | ||
Capital shares outstanding | 3,737,814 | |||
Net asset value per share | $9.87 | |||
STATEMENT OF OPERATIONS |
Year Ended September 30, 2014 |
INVESTMENT INCOME: | ||||
Interest (net of foreign withholding tax of $120) | $ | 8,989,609 | ||
Dividends | 147,736 | |||
Total investment income | 9,137,345 | |||
EXPENSES: | ||||
Management fees | 765,969 | |||
Transfer agent/maintenance fees: | ||||
A-Class | 109,623 | |||
B-Class | 13,072 | |||
C-Class | 17,704 | |||
Institutional Class | 15,610 | |||
Distribution and service fees: | ||||
A-Class | 216,967 | |||
C-Class | 123,385 | |||
Fund accounting/administration fees | 121,276 | |||
Interest expense | 100,104 | |||
Trustees’ fees* | 14,867 | |||
Line of credit expense | 9,965 | |||
Custodian fees | 1,825 | |||
Tax expense | 2 | |||
Miscellaneous | 195,533 | |||
Total expenses | 1,705,902 | |||
Less: | ||||
Expenses waived by Adviser | (81,112 | ) | ||
Net expenses | 1,624,790 | |||
Net investment income | 7,512,555 | |||
NET REALIZED AND UNREALIZED GAIN (LOSS): | ||||
Net realized gain (loss) on: | ||||
Investments | 4,542,424 | |||
Foreign currency | (14,354 | ) | ||
Forward foreign currency exchange contracts | 308,186 | |||
Net realized gain | 4,836,256 | |||
Net change in unrealized appreciation (depreciation) on: | ||||
Investments | (3,417,707 | ) | ||
Forward foreign currency exchange contracts | 472,307 | |||
Foreign currency | (40,100 | ) | ||
Net change in unrealized appreciation (depreciation) | (2,985,500 | ) | ||
Net realized and unrealized gain | 1,850,756 | |||
Net increase in net assets resulting | ||||
from operations | $ | 9,363,311 | ||
* 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 | 35 |
HIGH YIELD FUND |
STATEMENTS OF CHANGES IN NET ASSETS | |
Year Ended | Year Ended | |||||||
September 30, | September 30, | |||||||
2014 | 2013 | |||||||
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS: | ||||||||
Net investment income | $ | 7,512,555 | $ | 6,288,703 | ||||
Net realized gain (loss) on investments | 4,836,256 | (84,912 | ) | |||||
Net change in unrealized appreciation (depreciation) on investments | (2,985,500 | ) | 2,346,050 | |||||
Net increase in net assets resulting from operations | 9,363,311 | 8,549,841 | ||||||
DISTRIBUTIONS TO SHAREHOLDERS FROM: | ||||||||
Net investment income | ||||||||
A-Class | (5,820,148 | ) | (4,965,936 | ) | ||||
B-Class | (99,790 | ) | (159,633 | ) | ||||
C-Class | (738,796 | ) | (643,147 | ) | ||||
Institutional Class | (1,911,261 | ) | (1,199,068 | ) | ||||
Net realized gains | ||||||||
A-Class | — | (1,585,188 | ) | |||||
B-Class | — | (52,625 | ) | |||||
C-Class | — | (230,586 | ) | |||||
Institutional Class | — | (428,291 | ) | |||||
Total distributions to shareholders | (8,569,995 | ) | (9,264,474 | ) | ||||
CAPITAL SHARE TRANSACTIONS: | ||||||||
Proceeds from sale of shares | ||||||||
A-Class | 62,904,723 | 38,631,261 | ||||||
B-Class | 142,328 | 372,026 | ||||||
C-Class | 7,344,432 | 3,038,894 | ||||||
Institutional Class | 28,060,805 | 12,079,625 | ||||||
Redemption fees collected | ||||||||
A-Class | 66,165 | 39,291 | ||||||
B-Class | 1,013 | 1,267 | ||||||
C-Class | 9,220 | 5,860 | ||||||
Institutional Class | 19,942 | 9,020 | ||||||
Distributions reinvested | ||||||||
A-Class | 5,125,824 | 5,926,872 | ||||||
B-Class | 93,097 | 202,480 | ||||||
C-Class | 552,770 | 709,020 | ||||||
Institutional Class | 1,189,371 | 934,337 | ||||||
Cost of shares redeemed | ||||||||
A-Class | (56,529,637 | ) | (37,955,365 | ) | ||||
B-Class | (782,961 | ) | (1,020,724 | ) | ||||
C-Class | (2,735,624 | ) | (3,278,088 | ) | ||||
Institutional Class | (11,032,316 | ) | (3,983,265 | ) | ||||
Net increase from capital share transactions | 34,429,152 | 15,712,511 | ||||||
Net increase in net assets | 35,222,468 | 14,997,878 | ||||||
NET ASSETS: | ||||||||
Beginning of year | 100,361,999 | 85,364,121 | ||||||
End of year | $ | 135,584,467 | $ | 100,361,999 | ||||
(Distributions in excess of net investment income)/Undistributed net investment income at end of year | $ | (263,479 | ) | $ | 283,975 | |||
CAPITAL SHARE ACTIVITY: | ||||||||
Shares sold | ||||||||
A-Class | 5,157,454 | 3,257,493 | ||||||
B-Class | 11,694 | 31,410 | ||||||
C-Class | 596,582 | 252,867 | ||||||
Institutional Class | 2,794,173 | 1,230,655 | ||||||
Shares issued from reinvestment of distributions | ||||||||
A-Class | 420,028 | 500,071 | ||||||
B-Class | 7,688 | 17,194 | ||||||
C-Class | 44,965 | 59,371 | ||||||
Institutional Class | 118,766 | 95,923 | ||||||
Shares redeemed | ||||||||
A-Class | (4,630,360 | ) | (3,182,863) | |||||
B-Class | (64,801 | ) | (86,562 | ) | ||||
C-Class | (222,849 | ) | (272,695 | ) | ||||
Institutional Class | (1,101,374 | ) | (407,628 | ) | ||||
Net increase in shares | 3,131,966 | 1,495,236 | ||||||
36 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
HIGH YIELD FUND |
FINANCIAL HIGHLIGHTS |
This table is presented to show selected data for a share outstanding throughout each period and to assist shareholders in evaluating a Fund’s performance for the periods presented.
Year Ended | Year Ended | Period Ended | Year Ended | Year Ended | Year Ended | ||||||||||||||
September 30, | September 30, | September 30, | December 31, | December 31, | December 31, | ||||||||||||||
A-Class | 2014 | 2013 | 2012b | 2011 | 2010 | 2009 | |||||||||||||
Per Share Data | |||||||||||||||||||
Net asset value, beginning of period | $11.85 | $11.95 | $11.12 | $12.89 | $12.07 | $7.70 | |||||||||||||
Income (loss) from investment operations: | |||||||||||||||||||
Net investment income (loss)c | .72 | .81 | .58 | .87 | .96 | .90 | |||||||||||||
Net gain (loss) on investments (realized and unrealized) | .27 | .27 | .84 | (1.30 | ) | .78 | 4.30 | ||||||||||||
Total from investment operations | .99 | 1.08 | 1.42 | (.43 | ) | 1.74 | 5.20 | ||||||||||||
Less distributions from: | |||||||||||||||||||
Net investment income | (.83 | ) | (.90 | ) | (.59 | ) | (1.07 | ) | (.92 | ) | (.83 | ) | |||||||
Net realized gains | — | (.29 | ) | — | (.27 | ) | — | — | |||||||||||
Return of capital | — | — | — | — | — | (—) | d | ||||||||||||
Total distributions | (.83 | ) | (1.19 | ) | (.59 | ) | (1.34 | ) | (.92 | ) | (.83 | ) | |||||||
Redemption fees collected | .01 | .01 | —e | — | — | — | |||||||||||||
Net asset value, end of period | $12.02 | $11.85 | $11.95 | $11.12 | $12.89 | $12.07 | |||||||||||||
Total Returng | 9.18% | 9.54% | 12.93% | (3.50% | ) | 14.92% | 70.53% | ||||||||||||
Ratios/Supplemental Data | |||||||||||||||||||
Net assets, end of period (in thousands) | $82,854 | $70,451 | $64,174 | $86,041 | $172,443 | $155,899 | |||||||||||||
Ratios to average net assets: | |||||||||||||||||||
Net investment income (loss) | 5.91% | 6.84% | 7.19% | 6.92% | 7.69% | 8.49% | |||||||||||||
Total expenses | 1.32% | 1.41% | 1.44% | 1.34% | 1.28% | 1.41% | |||||||||||||
Net expensesf,h | 1.26% | 1.18% | 1.17% | % | 1.18% | 1.14% | 1.10% | ||||||||||||
Portfolio turnover rate | 97% | 101% | 55% | 102% | 77% | 53% | |||||||||||||
Year Ended | Year Ended | Period Ended | Year Ended | Year Ended | Year Ended | ||||||||||||||
September 30, | September 30, | September 30, | December 31, | December 31, | December 31, | ||||||||||||||
B-Class | 2014a | 2013a | 2012a,b | 2011a | 2010a | 2009a | |||||||||||||
Per Share Data | |||||||||||||||||||
Net asset value, beginning of period | $11.77 | $11.89 | $11.07 | $12.84 | $12.05 | $7.67 | |||||||||||||
Income (loss) from investment operations: | |||||||||||||||||||
Net investment income (loss)c | .75 | .84 | .62 | .92 | 1.00 | .92 | |||||||||||||
Net gain (loss) on investments (realized and unrealized) | .26 | .26 | .81 | (1.32 | ) | .78 | 4.30 | ||||||||||||
Total from investment operations | 1.01 | 1.10 | 1.43 | (.40 | ) | 1.78 | 5.22 | ||||||||||||
Less distributions from: | |||||||||||||||||||
Net investment income | (.85 | ) | (.94 | ) | (.61 | ) | (1.10 | ) | (.99 | ) | (.84 | ) | |||||||
Net realized gains | — | (.29 | ) | — | (.27 | ) | — | — | |||||||||||
Return of capital | — | — | — | — | — | (—) | d | ||||||||||||
Total distributions | (.85 | ) | (1.23 | ) | (.61 | ) | (1.37 | ) | (.99 | ) | (.84 | ) | |||||||
Redemption fees collected | .01 | .01 | —e | — | — | — | |||||||||||||
Net asset value, end of period | $11.94 | $11.77 | $11.89 | $11.07 | $12.84 | $12.05 | |||||||||||||
Total Returng | 9.46% | 9.79% | 13.20% | (3.32% | ) | 15.28% | 71.07% | ||||||||||||
Ratios/Supplemental Data | |||||||||||||||||||
Net assets, end of period (in thousands) | $1,176 | $1,693 | $2,162 | $2,777 | $4,872 | $6,996 | |||||||||||||
Ratios to average net assets: | |||||||||||||||||||
Net investment income (loss) | 6.17% | 7.10% | 7.43% | 7.38% | 8.01% | 9.08% | |||||||||||||
Total expenses | 1.87% | 1.89% | 1.62% | 1.10% | 1.04% | 1.19% | |||||||||||||
Net expensesf,h | 1.00% | 0.93% | 0.92% | 0.94% | 0.89% | 0.85% | |||||||||||||
Portfolio turnover rate | 97% | 101% | 55% | 102% | 77% | 53% |
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 37 |
HIGH YIELD FUND |
FINANCIAL HIGHLIGHTS (continued) |
This table is presented to show selected data for a share outstanding throughout each period and to assist shareholders in evaluating a Fund’s performance for the periods presented.
Year Ended | Year Ended | Period Ended | Year Ended | Year Ended | Year Ended | ||||||||||||||
September 30, | September 30, | September 30, | December 31, | December 31, | December 31, | ||||||||||||||
C-Class | 2014 | 2013 | 2012b | 2011 | 2010 | 2009 | |||||||||||||
Per Share Data | |||||||||||||||||||
Net asset value, beginning of period | $11.95 | $12.03 | $11.20 | $12.97 | $12.14 | $7.73 | |||||||||||||
Income (loss) from investment operations: | |||||||||||||||||||
Net investment income (loss)c | .63 | .73 | .56 | .79 | .87 | .83 | |||||||||||||
Net gain (loss) on investments (realized and unrealized) | .27 | .27 | .80 | (1.32 | ) | .79 | 4.33 | ||||||||||||
Total from investment operations | .90 | 1.00 | 1.36 | (.53 | ) | 1.66 | 5.16 | ||||||||||||
Less distributions from: | |||||||||||||||||||
Net investment income | (.74 | ) | (.80 | ) | (.53 | ) | (.97 | ) | (.83 | ) | (.75 | ) | |||||||
Net realized gains | — | (.29 | ) | — | (.27 | ) | — | — | |||||||||||
Return of capital | — | — | — | — | — | (—) | d | ||||||||||||
Total distributions | (.74 | ) | (1.09 | ) | (.53 | ) | (1.24 | ) | (.83 | ) | (.75 | ) | |||||||
Redemption fees collected | .01 | .01 | —e | — | — | — | |||||||||||||
Net asset value, end of period | $12.12 | $11.95 | $12.03 | $11.20 | $12.97 | $12.14 | |||||||||||||
Total Returng | 8.46% | 8.69% | 12.33% | (4.30% | ) | 14.07% | 69.42% | ||||||||||||
Ratios/Supplemental Data | |||||||||||||||||||
Net assets, end of period (in thousands) | $14,674 | $9,463 | $9,054 | $7,991 | $10,264 | $8,048 | |||||||||||||
Ratios to average net assets: | |||||||||||||||||||
Net investment income (loss) | 5.14% | 6.10% | 6.37% | 6.32% | 6.92% | 8.11% | |||||||||||||
Total expenses | 2.09% | 2.17% | 2.19% | 2.08% | 2.04% | 2.19% | |||||||||||||
Net expensesf,h | 2.01% | 1.93% | 1.92% | 1.94% | 1.89% | 1.85% | |||||||||||||
Portfolio turnover rate | 97% | 101% | 55% | 102% | 77% | 53% |
38 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
HIGH YIELD FUND |
FINANCIAL HIGHLIGHTS (concluded) | ||
This table is presented to show selected data for a share outstanding throughout each period and to assist shareholders in evaluating a Fund’s performance for the periods presented.
Year Ended | Year Ended | Period Ended | Year Ended | Year Ended | Year Ended | |||||||||||||
September 30, | September 30, | September 30, | December 31, | December 31, | December 31, | |||||||||||||
Institutional Class | 2014 | 2013 | 2012b | 2011 | 2010 | 2009 | ||||||||||||
Per Share Data | ||||||||||||||||||
Net asset value, beginning of period | $9.74 | $9.90 | $9.26 | $10.96 | $10.47 | $6.74 | ||||||||||||
Income (loss) from investment operations: | ||||||||||||||||||
Net investment income (loss)c | .61 | .70 | .55 | .79 | .86 | .81 | ||||||||||||
Net gain (loss) on investments (realized and unrealized) | .23 | .22 | .64 | (1.12 | ) | .68 | 3.76 | |||||||||||
Total from investment operations | .84 | .92 | 1.19 | (.33 | ) | 1.54 | 4.57 | |||||||||||
Less distributions from: | ||||||||||||||||||
Net investment income | (.72 | ) | (.80 | ) | (.55 | ) | (1.10 | ) | (1.05 | ) | (.84 | ) | ||||||
Net realized gains | — | (.29 | ) | — | (.27 | ) | — | — | ||||||||||
Return of capital | — | — | — | — | — | (— | )d | |||||||||||
Total distributions | (.72 | ) | (1.09 | ) | (.55 | ) | (1.37 | ) | (1.05 | ) | (.84 | ) | ||||||
Redemption fees collected | .01 | .01 | — | e | — | — | — | |||||||||||
Net asset value, end of period | $9.87 | $9.74 | $9.90 | $9.26 | $10.96 | $10.47 | ||||||||||||
Total Returng | 9.50% | 9.97% | 13.17% | (3.30% | ) | 15.33% | 71.18% | |||||||||||
Ratios/Supplemental Data | ||||||||||||||||||
Net assets, end of period (in thousands) | $36,880 | $18,755 | $9,974 | $7,900 | $2,785 | $2,649 | ||||||||||||
Ratios to average net assets: | ||||||||||||||||||
Net investment income (loss) | 6.12% | 7.12% | 7.42% | 7.61% | 7.99% | 8.79% | ||||||||||||
Total expenses | 1.01% | 1.01% | 1.11% | 1.08% | 1.02% | 1.16% | ||||||||||||
Net expensesf,h | 1.01% | 0.93% | 0.92% | 0.95% | 0.89% | 0.85% | ||||||||||||
Portfolio turnover rate | 97% | 101% | 55% | 102% | 77% | 53% |
a | Effective December 31, 2006, B-Class shares ceased charging 12b-1 fees in accordance with FINRA (formerly NASD) sales cap regulations. Per share information reflects this change. This fee will be reinstated when sales reach above the sales cap limit. | |
b | The Fund changed its fiscal year end from December 31 to September 30. | |
c | Net investment income (loss) per share was computed using average shares outstanding throughout the period. | |
d | Distributions from return of capital are less than $0.01 per share. | |
e | Redemption fees collected are less than $0.01 per share. | |
f | Net expense information reflects the expense ratios after expense waivers. | |
g | Total return does not reflect the impact of any applicable sales charges and has not been annualized. | |
h | Net expenses may include expenses that are excluded from the expense limitation agreement. Excluding these expenses, the operating expense ratio for the year would be: |
09/30/14 | ||||
A-Class | 1.16 | % | ||
B-Class | 0.91 | % | ||
C-Class | 1.91 | % | ||
Institutional Class | 0.91 | % |
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 39 |
MANAGERS’ COMMENTARY (Unaudited) | September 30, 2014 |
To Our Shareholders
Guggenheim Investment Grade Bond Fund (the “Fund”) 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; Jeffrey B. Abrams, Senior Managing Director and Portfolio Manager; and James W. Michal, Managing Director and Portfolio Manager. In the following paragraphs, the investment team discusses the market environment and the Fund’s performance for the fiscal year ended September 30, 2014.
For the one-year period ended September 30, 2014 (the “Period”), the Guggenheim Investment Grade Bond Fund returned 8.47%1, compared with the 3.96% return of its benchmark, the Barclays U.S. Aggregate Bond Index.
The investment objective of the Fund is to seek to provide current income. In pursuit of its objective, the Fund will invest, under normal market conditions, at least 80% of its net assets in investment grade U.S. fixed-income securities. The Fund has the ability to adjust portfolio duration synthetically using interest rate hedges.
As the Period began, monetary accommodation by the Fed was propelling asset prices higher, while positive economic momentum was pushing interest rates higher. By the end of December 2013, the 10-year U.S. Treasury yield reached its highest point over the prior 2½ years at 3%, a level that was not revisited for the remainder of the Period.
Credit-spread and risk assets continued to find investor favor through 2014, even though severe winter weather produced volatility and mixed economic data. Additional liquidity from central banks outside the U.S. supported foreign capital flows into U.S. assets, which, along with the search for yield among U.S. investors, was positive for fixed income. But just as the market appeared to be growing complacent in the third quarter of 2014, leveraged credit had its first correction in a year, as mutual fund investors withdrew from the sector amid concerns about frothy valuations and talk of credit bubble. Volatility spread across risk assets, including equities.
The events that drove spread widening in the third quarter showed that investors are becoming increasingly reactive to factors outside of the fundamentals that underscore a generally positive outlook on credit. Even though U.S. economic data was mixed in September, it was strong year to date, and the improving health of the U.S. economy and low interest rates underscored our expectation that spreads can compress further. Volatility is likely to continue, but as the economy improves, brief periods of spread widening could present buying opportunities.
The Fund mainly invests in asset-backed securities (ABS), investment grade corporate bonds and non-agency residential mortgage-backed securities (RMBS). It has positions in high yield corporate bonds, municipal bonds, bank loans, preferred securities, among other holdings.
Investment grade corporate bonds weathered interest rate volatility in the fourth quarter of 2013, but low dealer inventory and heavy demand for most of the 12-month Period supported continued spread compression. The Barclays U.S. Corporate Investment Grade Index rose by 6.77% for the Period. The credit spread on investment grade corporate bonds tightened by 29 basis points, and yields declined to 3.10% at the end of September 2014. Volatility in the third quarter also impacted issuance, but it still reached $647 billion through the three quarters of 2014.
High yield corporate bonds and bank loans posted their fifth consecutive year of positive returns in 2013 and strong performance continued through the first half of 2014. As upside potential declined in the leveraged credit space, the Fund rotated into higher quality credits. With the onset of a leveraged credit sell-off in the third quarter, the Fund was able to add exposure back to many of the names it had sold several months before.
The ABS and non-agency RMBS sectors contributed positively for the Period. The BofA/ML ABS Master BBB-AA Index gained 3.36% for the 12-month Period as its spread tightened 48 basis points to 133 basis points. Credit performance across the commercial ABS and collateralized loan obligation (CLO) sectors remained strong given benign credit conditions and improving collateral valuations across the U.S. economy. 2014 issuance is well ahead of 2013’s pace and
40 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
MANAGERS’ COMMENTARY (Unaudited) (concluded) | September 30, 2014 |
likely to break 2012’s post-crisis peak. New ABS issuance was diversified across all classes, with auto and credit card new issues remaining strong. Consumer ABS performance has been solid despite concern surrounding student loans and subprime auto lending. JPMorgan Research indicates the gradual improvement in the household balance sheet will continue to support credit performance of Consumer ABS. Year-to-date ABS issuance has now surpassed $94 billion, the all time annual record set in 2007. Housing activity has been uneven, as price appreciation has been slowing and sales remain below the post-crisis peak in 2013. With the economic outlook mostly positive and central banks maintaining accommodation, the backdrop for ABS and RMBS remains constructive. Amidst these positive fundamentals, the CLO market raised $93 billion through three quarters of 2014, already exceeding 2013’s full-year volume.
Much of the Fund’s outperformance stemmed from credit spread compression and the gradual decline in the benchmark 10-year U.S. Treasury yield. Positive returns have largely been driven by the Fund’s investments in asset backed securities as spreads continued to normalize across various subsectors including collateralized loan obligations, commercial real estate CDOs, and aircraft lease securitizations. Detractors from Fund performance included a few higher-duration assets such as fixed-rate corporate bonds and preferred debt in late 2013 when rates were rising.
The Fund maintains low interest rate duration, particularly at the front end of the yield curve, and thus has largely avoided losses due to a flattening curve. Concentration of the Fund’s credit investments in relatively short-maturity high yield bonds and loans has muted the impact of recent turmoil of risk assets, and the Fund continues to use periods of weakness in those sectors to add attractive assets.
Performance displayed represents past performance which is no guarantee of future results.
1 Performance figures are based on A-Class shares and do not reflect deduction of the sales charges or taxes that a shareholder would pay on distributions or the redemption of shares. Fee waivers and/or reimbursements reduce Fund expenses, and, in the absence of such waivers, the performance quoted would be reduced.
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 | 41 |
PERFORMANCE REPORT AND FUND PROFILE (Unaudited) | September 30, 2014 |
INVESTMENT GRADE BOND FUND
OBJECTIVE: Seeks to provide current income.
Holdings Diversification (Market Exposure as % of Net Assets)
“Holdings Diversification (Market Exposure as % of Net Assets)” excludes any temporary cash investments.
Portfolio Composition by Quality Rating* | |
% of | |
Rating | Total Investments |
Fixed Income Instruments | |
AAA | 2.6% |
AA | 15.4% |
A | 21.9% |
BBB | 36.4% |
BB | 5.2% |
B | 6.2% |
CCC | 5.7% |
Other | 2.9% |
Other Instruments | |
Preferred Stocks | 3.6% |
Common Stocks | 0.1% |
Total Investments | 100.0% |
The chart above reflects percentages of the value of total investments.
Inception Dates: | |
A-Class | August 15, 1985 |
B-Class | October 19, 1993 |
C-Class | May 1, 2000 |
Institutional Class | January 29, 2013 |
Ten Largest Holdings (% of Total Net Assets) | |
Willis Engine Securitization Trust II — Class A | 2.0% |
GATX Corp. | 1.6% |
Northwoods Capital VIII Ltd. — Class D | 1.5% |
Fifth Third Bancorp | 1.3% |
T2 Income Fund CLO Ltd. — Class C | 1.2% |
Cigna Corp. | 1.2% |
Cox Enterprises, Inc. | 1.2% |
Diageo Capital PLC | 1.2% |
LSTAR Securities Investment Trust 2014-1 | 1.1% |
Cypress School District General | |
Obligation Unlimited | 1.1% |
Top Ten Total | 13.4% |
“Ten Largest Holdings” exclude any temporary cash or derivative investments.
* | Source: Factset. Credit quality ratings are measured on a scale that generally ranges from AAA (highest) to D (lowest). All rated securities have been rated by Moody’s, Standard & Poor’s (“S&P”), or Fitch, which are all a Nationally Recognized Statistical Rating Organization (“NRSRO”). For purposes of this presentation, when ratings are available from more than one agency, the highest rating is used. Guggenheim Investments has converted Moody’s and Fitch ratings to the equivalent S&P rating. Unrated securities do not necessarily indicate low credit quality. Security ratings are determined at the time of purchase and may change thereafter. |
42 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
PERFORMANCE REPORT AND FUND PROFILE (Unaudited) (concluded) | September 30, 2014 |
Cumulative Fund Performance*
1 Year | 5 Year | 10 Year | |||||||
A-Class Shares | 8.47 | % | 6.02 | % | 3.55 | % | |||
A-Class Shares with sales charge† | 3.31 | % | 5.00 | % | 3.05 | % | |||
B-Class Shares | 7.68 | % | 5.27 | % | 2.93 | % | |||
B-Class Shares with CDSC‡ | 2.68 | % | 4.94 | % | 2.93 | % | |||
C-Class Shares | 7.69 | % | 5.25 | % | 2.80 | % | |||
C-Class Shares with CDSC§ | 6.69 | % | 5.25 | % | 2.80 | % | |||
Barclays U.S. Aggregate Bond Index | 3.96 | % | 4.12 | % | 4.62 | % | |||
Since Inception | |||||||||
1 Year | (01/29/13) | ||||||||
Institutional Class Shares | 8.64 | % | 5.94 | % | |||||
Barclays U.S. Aggregate Bond Index | 3.96 | % | 1.63 | % | |||||
* | The performance data above represents past performance that is not predictive of future results. The investment return and principal value of an investment in the Fund will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Returns are historical and include changes in principal and reinvested dividends and capital gains and do not reflect the effect of taxes. The Barclays U.S. Aggregate Bond Index is an unmanaged index and, unlike the Fund, has no management fees or operating expenses to reduce its reported return. |
† | Fund returns are calculated using the maximum sales charge of 4.75%. |
‡ | Fund returns include a CDSC of up to 5% if redeemed within 5 years of purchase. |
§ | Fund returns include a CDSC of 1% if redeemed within 12 months of purchase. |
THE GUGGENHEIM FUNDS ANNUAL REPORT | 43 |
SCHEDULE OF INVESTMENTS | September 30, 2014 | |
INVESTMENT GRADE BOND FUND |
SHARES | VALUE | ||||||
COMMON STOCKS† - 0.1% | |||||||
FINANCIAL - 0.1% | |||||||
Rescap Liquidating Trust | 5,199 | $ | 83,184 | ||||
CONSUMER, CYCLICAL - 0.0% | |||||||
Harry & David Holdings, Inc.* | 7 | 994 | |||||
MATERIALS - 0.0% | |||||||
Constar International Holdings LLC*,†††,8 | 68 | — | |||||
Total Common Stocks | |||||||
(Cost $263,071) | 84,178 | ||||||
PREFERRED STOCKS††- 3.8% | |||||||
Aspen Insurance Holdings Ltd. | |||||||
5.95%†,1,2 | 48,000 | 1,198,560 | |||||
Seaspan Corp. | |||||||
6.38% due 04/30/19† | 22,000 | 562,980 | |||||
Woodbourne Capital Trust IV | |||||||
0.02%†††,1,2,3,9 | 950,000 | 535,515 | |||||
Woodbourne Capital Trust III | |||||||
0.02%†††,1,2,3,9 | 950,000 | 535,515 | |||||
Woodbourne Capital Trust II | |||||||
0.02%†††,1,2,3,9 | 950,000 | 535,515 | |||||
Woodbourne Capital Trust I | |||||||
0.02%†††,1,2,3,9 | 950,000 | 535,515 | |||||
Wells Fargo & Co. | �� | ||||||
5.85%†,1,2 | 15,000 | 384,450 | |||||
Morgan Stanley | |||||||
7.13%†,1,2 | 10,000 | 269,100 | |||||
AgriBank FCB | |||||||
6.88%†,1,2 | 1,500 | 160,219 | |||||
City National Corp. | |||||||
6.75%†,1,2 | 4,000 | 111,400 | |||||
Constar International Holdings LLC*,†††,8 | 7 | — | |||||
Total Preferred Stocks | |||||||
(Cost $6,445,328) | 4,828,769 | ||||||
FACE | |||||||
AMOUNT | |||||||
ASSET BACKED SECURITIES†† - 41.1% | |||||||
Willis Engine Securitization Trust II 2012-A | |||||||
5.50% due 09/15/373 | $ | 2,516,284 | 2,522,575 | ||||
Northwoods Capital VIII Ltd. 2007-8A | |||||||
2.24% due 07/28/221,3 | 1,950,000 | 1,887,015 | |||||
Castlelake Aircraft Securitization Trust 2014-1 | |||||||
5.25% due 02/15/29 | 1,115,263 | 1,119,501 | |||||
7.50% due 02/15/29 | 446,105 | 446,640 | |||||
T2 Income Fund CLO Ltd. 2007-1A | |||||||
1.73% due 07/15/191,3 | 1,600,000 | 1,561,600 | |||||
Emerald Aviation Finance Ltd. 2013-1 | |||||||
4.65% due 10/15/383 | 1,178,385 | 1,193,115 | |||||
6.35% due 10/15/383,4 | 235,677 | 239,330 | |||||
Grayson CLO Ltd. 2006-1A | |||||||
0.65% due 11/01/211,3 | 1,400,000 | 1,297,380 | |||||
Copper River CLO Ltd. 2007-1A | |||||||
due 01/20/211,3,10 | 700,000 | 767,900 | |||||
0.63% due 01/20/211,3 | 500,000 | 480,150 | |||||
Telos CLO Ltd. 2013-3A | |||||||
3.23% due 01/17/241,3 | 1,250,000 | 1,230,000 | |||||
Gramercy Real Estate CDO 2007-1 Ltd. | |||||||
0.51% due 08/15/561,3 | 1,382,539 | 1,218,432 | |||||
Flagship CLO VI 2007-1A | |||||||
2.63% due 06/10/211,3 | 1,250,000 | 1,211,125 | |||||
Garanti Diversified Payment Rights | |||||||
Finance Co. 2007-A | |||||||
0.42% due 07/09/17 | 1,248,000 | 1,209,062 | |||||
CKE Restaurant Holdings, Inc. 2013-1A | |||||||
4.47% due 03/20/433 | 1,124,125 | 1,134,546 | |||||
Telos CLO 2007-2 Ltd. | |||||||
2.43% due 04/15/221,3 | 1,100,000 | 1,049,290 | |||||
Great Lakes CLO 2012-1 Ltd. | |||||||
4.33% due 01/15/231,3 | 1,000,000 | 1,008,600 | |||||
Fortress Credit Opportunities V CLO Ltd. 2014-5A | |||||||
2.88% due 10/15/261,3 | 1,000,000 | 989,500 | |||||
Figueroa CLO 2013-1 Ltd. | |||||||
2.98% due 03/21/241,3 | 1,000,000 | 981,300 | |||||
Rockwall CDO II Ltd. 2007-1A | |||||||
0.79% due 08/01/241,3 | 1,100,000 | 980,650 | |||||
KKR Financial CLO 2007-1 Ltd. | |||||||
2.48% due 05/15/211,3 | 1,000,000 | 980,600 | |||||
ALM VII R Ltd. 2013-7RA | |||||||
2.83% due 04/24/241,3 | 1,000,000 | 979,200 | |||||
Venture XIV CLO Ltd. 2013-14A | |||||||
2.99% due 08/28/251,3 | 1,000,000 | 967,100 | |||||
RAIT CRE CDO I Ltd. 2006-1X | |||||||
0.48% due 11/20/46 | 1,015,743 | 912,746 | |||||
MCF CLO I LLC 2013-1A | |||||||
3.78% due 04/20/231,3 | 900,000 | 890,370 | |||||
CIT Mortgage Loan Trust 2007-1 | |||||||
1.60% due 10/25/371,3 | 950,000 | 882,595 | |||||
N-Star Real Estate CDO IX Ltd., | |||||||
0.47% due 02/01/418 | 915,659 | 878,392 | |||||
Turbine Engines Securitization Ltd. 2013-1A | |||||||
5.13% due 12/13/483 | 868,095 | 876,776 | |||||
ICE EM CLO 2007-1A | |||||||
0.93% due 08/15/221,3 | 850,000 | 809,115 | |||||
COA Summit CLO Limited 2014-1 | |||||||
3.04% due 04/20/231,3 | 800,000 | 793,680 | |||||
Newstar Trust 2012-2A | |||||||
3.48% due 01/20/231,3 | 750,000 | 751,650 | |||||
OZLM Funding Ltd. 2012-2A | |||||||
3.49% due 10/30/231,3 | 750,000 | 750,000 | |||||
ARES XII CLO Ltd. 2007-12A | |||||||
3.48% due 11/25/201,3 | 750,000 | 744,675 | |||||
Carlyle Global Market Strategies CLO 2014-2 Ltd. | |||||||
2.35% due 05/15/251,3 | 750,000 | 738,975 | |||||
Tricadia CDO 2006-6 Ltd. | |||||||
0.79% due 11/05/411,3 | 750,000 | 709,200 | |||||
Icon Brand Holdings LLC 2013-1A | |||||||
4.35% due 01/25/433 | 645,079 | 642,241 | |||||
Ivy Hill Middle Market Credit Fund VII Ltd. 2013-7A | |||||||
3.68% due 10/20/251,3 | 600,000 | 595,020 | |||||
Fortress Credit Opportunities III CLO, LP 2014-3A | |||||||
3.48% due 04/28/261,3 | 300,000 | 297,960 | |||||
2.73% due 04/28/261,3 | 300,000 | 294,570 | |||||
Babson CLO Limited 2014-I | |||||||
due 07/20/253,10 | 650,000 | 591,630 |
44 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
SCHEDULE OF INVESTMENTS (continued) | September 30, 2014 | |
INVESTMENT GRADE BOND FUND |
FACE | |||||||
AMOUNT | VALUE | ||||||
Black Diamond CLO 2012-1 Ltd. | |||||||
3.49% due 02/01/231,3 | $ | 550,000 | $ | 545,985 | |||
Structured Asset Securities Corporation | |||||||
Mortgage Loan Trust 2006-OPT1 | |||||||
0.41% due 04/25/361 | 600,000 | 540,125 | |||||
Apidos CDO IX 2012-9A | |||||||
3.98% due 07/15/231,3 | 500,000 | 500,000 | |||||
Cent CLO 16, LP 2014-16AR | |||||||
2.74% due 08/01/241,3 | 500,000 | 498,800 | |||||
Miramax LLC 2014-1A | |||||||
3.34% due 07/20/263 | 500,000 | 498,424 | |||||
KKR CLO Trust 2012-1A | |||||||
3.53% due 12/15/241,3 | 500,000 | 496,450 | |||||
Acis CLO 2013-1 Ltd. | |||||||
3.18% due 04/18/241,3 | 500,000 | 490,150 | |||||
Apidos CDO III Ltd. 2006-3A | |||||||
1.98% due 06/12/201,3 | 500,000 | 484,850 | |||||
Golub Capital Partners Fundings Ltd. 2007-1A | |||||||
0.98% due 03/15/221,3 | 500,000 | 478,600 | |||||
MCF CLO III LLC 2014-3A | |||||||
3.21% due 01/20/241,3 | 500,000 | 477,100 | |||||
Cerberus Offshore Levered I, LP 2012-1A | |||||||
4.98% due 11/30/181,3 | 450,000 | 449,865 | |||||
N-Star REL CDO VIII Ltd. 2006-8A | |||||||
0.51% due 02/01/411,3 | 500,000 | 449,750 | |||||
West Coast Funding Ltd. 2006-1A | |||||||
0.38% due 11/02/411,3 | 434,381 | 426,345 | |||||
Eastland CLO Ltd. 2007-1A | |||||||
0.64% due 05/01/221,3 | 450,000 | 419,265 | |||||
Lehman XS Trust 2007-9 | |||||||
0.27% due 06/25/371 | 415,345 | 374,805 | |||||
Westwood CDO I Ltd. 2007-1A | |||||||
0.90% due 03/25/211,3 | 400,000 | 371,240 | |||||
UCFC Manufactured Housing Contract 1997-2 | |||||||
7.38% due 10/15/28 | 333,409 | 363,316 | |||||
Halcyon Loan Advisors Funding 2012-2 Ltd. | |||||||
4.73% due 12/20/241,3 | 350,000 | 351,330 | |||||
Saxon Asset Securities Trust 2005-4 | |||||||
0.59% due 11/25/371 | 400,000 | 345,542 | |||||
Northwoods Capital VII Ltd. 2006-7A | |||||||
1.78% due 10/22/211,3 | 350,000 | 344,680 | |||||
Newstar Commercial Loan Funding 2013-1 LLC | |||||||
4.78% due 09/20/231,3 | 350,000 | 343,665 | |||||
Anchorage Capital CLO 4 Ltd. 2014-4A | |||||||
2.44% due 07/28/261,3 | 350,000 | 342,125 | |||||
DIVCORE CLO Ltd. 2013-1A B | |||||||
4.05% due 11/15/32 | 300,000 | 300,180 | |||||
CIFC Funding 2012-II Ltd. | |||||||
4.48% due 12/05/241,3 | 300,000 | 300,030 | |||||
Salus CLO 2012-1 Ltd. | |||||||
3.98% due 03/05/211,3 | 300,000 | 299,340 | |||||
ALM VII R-2 Ltd. 2013-7R2A | |||||||
2.83% due 04/24/241,3 | 300,000 | 294,540 | |||||
GreenPoint Mortgage Funding Trust 2005-HE4 | |||||||
0.86% due 07/25/301 | 300,000 | 280,848 | |||||
TICC CLO 2012-1 LLC | |||||||
4.98% due 08/25/231,3 | 250,000 | 251,125 | |||||
Ivy Hill Middle Market Credit Fund Ltd. 2011-3A | |||||||
6.23% due 01/15/221,3 | 250,000 | 251,050 | |||||
Acis CLO 2013-2 Ltd. | |||||||
3.44% due 10/14/221,3 | 250,000 | 250,125 | |||||
Golub Capital Partners CLO 17 Ltd. 2013-17A | |||||||
4.06% due 10/25/251,3 | 250,000 | 249,125 | |||||
Gallatin CLO VII 2014-1 Ltd. | |||||||
3.06% due 07/15/231,3 | 250,000 | 248,700 | |||||
Dryden XXIII Senior Loan Fund 2014-23RA | |||||||
3.18% due 07/17/231,3 | 250,000 | 248,700 | |||||
Great Lakes CLO 2014-1 Ltd. | |||||||
3.93% due 04/15/251,3 | 250,000 | 248,625 | |||||
Garrison Funding 2013-2 Ltd. | |||||||
3.63% due 09/25/231,3 | 250,000 | 247,600 | |||||
Drug Royalty II Limited Partnership 2014-1 | |||||||
3.08% due 07/15/231,2,3 | 245,217 | 246,794 | |||||
ALM XIV Ltd. 2014-14A | |||||||
3.18% due 07/28/261,3 | 250,000 | 246,075 | |||||
Cerberus Onshore II CLO LLC 2014-1A | |||||||
2.93% due 10/15/231,3 | 250,000 | 246,025 | |||||
NewStar Arlington Senior Loan | |||||||
Program LLC 2014-1A | |||||||
3.53% due 07/25/251,3 | 250,000 | 243,600 | |||||
Race Point IV CLO Ltd. 2007-4A | |||||||
2.24% due 08/01/211,3 | 250,000 | 242,925 | |||||
Carlyle Global Market Strategies CLO 2012-3 Ltd. | |||||||
due 10/04/243,10 | 250,000 | 233,225 | |||||
Keuka Park CLO Limited 2013-1 | |||||||
due 10/21/243,10 | 250,000 | 213,750 | |||||
GSAA Home Equity Trust 2007-7 | |||||||
0.42% due 07/25/371 | 206,594 | 175,266 | |||||
New Century Home Equity Loan Trust 2005-1 | |||||||
0.87% due 03/25/351 | 149,784 | 133,225 | |||||
Credit-Based Asset Servicing and | |||||||
Securitization LLC 2005-CB5 | |||||||
0.42% due 08/25/351 | 69,679 | 69,191 | |||||
First Franklin Mortgage Loan Trust 2006-FF1 | |||||||
0.49% due 01/25/361 | 50,000 | 43,961 | |||||
Total Asset Backed Securities | |||||||
(Cost $51,716,613) | 52,770,643 | ||||||
CORPORATE BONDS†† - 27.4% | |||||||
FINANCIAL - 16.9% | |||||||
Fifth Third Bancorp | |||||||
5.10%1,2 | 1,820,000 | 1,715,350 | |||||
JPMorgan Chase & Co. | |||||||
5.00%1,2 | 1,050,000 | 1,023,539 | |||||
5.15%1,2 | 700,000 | 666,750 | |||||
EPR Properties | |||||||
5.25% due 07/15/235 | 1,000,000 | 1,051,352 | |||||
5.75% due 08/15/225 | 500,000 | 547,420 | |||||
Teachers Insurance & Annuity | |||||||
Association of America | |||||||
4.90% due 09/15/443 | 1,000,000 | 1,019,123 | |||||
4.38% due 09/15/541,3 | 500,000 | 504,265 | |||||
Kaupthing Bank HF | |||||||
3.49% due 01/15/103,6 | 5,000,000 | 1,287,500 | |||||
Susquehanna Bancshares, Inc. | |||||||
5.38% due 08/15/22 | 1,200,000 | 1,246,463 | |||||
PNC Financial Services Group, Inc. | |||||||
4.85%1,2 | 1,100,000 | 1,042,250 | |||||
AmTrust Financial Services, Inc. | |||||||
6.13% due 08/15/23 | 1,000,000 | 1,040,630 |
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 45 |
SCHEDULE OF INVESTMENTS (continued) | September 30, 2014 | |
INVESTMENT GRADE BOND FUND |
FACE | |||||||
AMOUNT | VALUE | ||||||
General Motors Financial Company, Inc. | |||||||
2.63% due 07/10/17 | $ | 980,000 | $ | 984,446 | |||
Lancashire Holdings Ltd. | |||||||
5.70% due 10/01/223 | 900,000 | 971,352 | |||||
HSBC Holdings plc | |||||||
5.63%1,2 | 650,000 | 645,450 | |||||
6.38%1,2 | 200,000 | 199,750 | |||||
Icahn Enterprises, LP / Icahn Enterprises | |||||||
Finance Corp. | |||||||
6.00% due 08/01/205 | 800,000 | 822,000 | |||||
Bank of America Corp. | |||||||
5.13%1,2 | 750,000 | 725,625 | |||||
Assured Guaranty US Holdings, Inc. | |||||||
5.00% due 07/01/245 | 700,000 | 707,320 | |||||
Nordea Bank AB | |||||||
6.13%1,2,3 | 400,000 | 392,000 | |||||
5.50%1,2,3 | 300,000 | 294,750 | |||||
ACC Group Housing LLC | |||||||
6.35% due 07/15/543,††† | 300,000 | 309,810 | |||||
3.50% due 07/15/183,††† | 300,000 | 304,380 | |||||
Corporation Financiera de Desarrollo S.A. | |||||||
5.25% due 07/15/291,3 | 600,000 | 608,250 | |||||
Customers Bank | |||||||
6.13% due 06/26/291,3 | 500,000 | 504,375 | |||||
Wilton Re Finance LLC | |||||||
5.88% due 03/30/331,3 | 475,000 | 494,000 | |||||
Icahn Enterprises Limited Partnership / Icahn | |||||||
Enterprises Finance Corp. | |||||||
4.88% due 03/15/19 | 450,000 | 443,250 | |||||
Pacific Northwest Communities LLC | |||||||
5.91% due 06/15/503 | 400,000 | 415,036 | |||||
Atlantic Marine Corporations Communities LLC | |||||||
5.43% due 12/01/503 | 389,456 | 375,564 | |||||
Royal Bank of Scotland Group plc | |||||||
5.13% due 05/28/24 | 350,000 | 343,896 | |||||
CIC Receivables Master Trust | |||||||
4.89% due 10/07/21††† | 300,000 | 300,300 | |||||
Cadence Bank North America | |||||||
6.25% due 06/28/291,11 | 200,000 | 203,500 | |||||
Skyway Concession Company LLC | |||||||
0.61% due 06/30/261,3 | 250,000 | 200,000 | |||||
Cadence Financial Corp. | |||||||
4.88% due 06/28/1911 | 150,000 | 150,750 | |||||
Prosight Global Inc. | |||||||
7.50% due 11/26/20†††,8 | 100,000 | 102,520 | |||||
TIG Holdings, Inc. | |||||||
8.60% due 01/15/273 | 34,000 | 29,750 | |||||
Total Financial | 21,672,716 | ||||||
BASIC MATERIALS - 3.1% | |||||||
Newcrest Finance Pty Ltd. | |||||||
4.20% due 10/01/223 | 1,200,000 | 1,101,798 | |||||
4.45% due 11/15/213 | 500,000 | 480,556 | |||||
AngloGold Ashanti Holdings plc | |||||||
5.13% due 08/01/225 | 1,250,000 | 1,205,951 | |||||
Yamana Gold, Inc. | |||||||
4.95% due 07/15/24 | 1,150,000 | 1,144,787 | |||||
Mosaic Global Holdings, Inc. | |||||||
7.38% due 08/01/18 | 18,000 | 20,370 | |||||
Total Basic Materials | 3,953,462 | ||||||
CONSUMER, CYCLICAL - 2.4% | |||||||
United Airlines 2014-2 Class B | |||||||
Pass Through Trust | |||||||
4.63% due 09/03/22 | 745,000 | 731,963 | |||||
Sabre GLBL, Inc. | |||||||
8.50% due 05/15/193,5 | 680,000 | 727,600 | |||||
Northern Group Housing LLC | |||||||
6.80% due 08/15/533 | 600,000 | 672,090 | |||||
Continental Airlines 2012-2 Class B | |||||||
Pass Through Trust | |||||||
5.50% due 10/29/20 | 380,441 | 401,365 | |||||
GRD Holdings III Corp. | |||||||
10.75% due 06/01/193 | 250,000 | 275,625 | |||||
QVC, Inc. | |||||||
7.38% due 10/15/203 | 200,000 | 213,061 | |||||
Continental Airlines 2012-1 Class B | |||||||
Pass Through Trust | |||||||
6.25% due 04/11/20 | 112,331 | 119,632 | |||||
Total Consumer, Cyclical | 3,141,336 | ||||||
MORTGAGE SECURITIES - 1.6% | |||||||
CSMC Series 2014-ICE | |||||||
2.30% due 04/15/271,3 | 1,150,000 | 1,151,825 | |||||
BBCMS Trust 2013-TYSN | |||||||
3.71% due 09/05/323 | 900,000 | 858,542 | |||||
Total Mortgage Securities | 2,010,367 | ||||||
ENERGY - 1.1% | |||||||
BreitBurn Energy Partners LP / | |||||||
BreitBurn Finance Corp. | |||||||
7.88% due 04/15/225 | 600,000 | 607,500 | |||||
Regency Energy Partners, LP / Regency | |||||||
Energy Finance Corp. | |||||||
8.38% due 06/01/19 | 455,000 | 482,300 | |||||
Crestwood Midstream Partners, LP / Crestwood | |||||||
Midstream Finance Corp. | |||||||
7.75% due 04/01/19 | 350,000 | 366,625 | |||||
Williams Companies, Inc. | |||||||
8.75% due 03/15/32 | 12,000 | 15,228 | |||||
Total Energy | 1,471,653 | ||||||
INDUSTRIALS - 1.0% | |||||||
Chicago Bridge & Iron Co. | |||||||
5.15% due 12/27/22†††,8 | 750,000 | 771,900 | |||||
SBM Baleia Azul Sarl | |||||||
5.50% due 09/15/27†††,8 | 459,700 | 466,550 | |||||
Total Industrials | 1,238,450 | ||||||
COMMUNICATIONS - 0.5% | |||||||
Avaya, Inc. | |||||||
7.00% due 04/01/193 | 650,000 | 630,500 | |||||
Nortel Networks Ltd. | |||||||
6.88% due 09/01/236 | 31,000 | 12,710 | |||||
Total Communications | 643,210 | ||||||
DIVERSIFIED - 0.5% | |||||||
Leucadia National Corp. | |||||||
5.50% due 10/18/23 | 600,000 | 627,019 | |||||
GOVERNMENT - 0.2% | |||||||
U.S. Treasury Bonds | |||||||
0.00% due 05/15/449 | 750,000 | 279,061 | |||||
46 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
SCHEDULE OF INVESTMENTS (continued) | September 30, 2014 | |
INVESTMENT GRADE BOND FUND |
FACE | |||||||
AMOUNT | VALUE | ||||||
CONSUMER, NON-CYCLICAL - 0.1% | |||||||
ADT Corp. | |||||||
6.25% due 10/15/21 | $ | 150,000 | $ | 155,250 | |||
MATERIALS - 0.0% | |||||||
Constar International, Inc | |||||||
11.00% due 12/31/17†††,8 | 5,747 | — | |||||
Total Corporate Bonds | |||||||
(Cost $38,772,511) | 35,192,524 | ||||||
COLLATERALIZED MORTGAGE OBLIGATIONS†† - 7.5% | |||||||
LSTAR Securities Investment Trust 2014-1 | |||||||
3.25% due 09/01/211,11 | 1,400,000 | 1,400,000 | |||||
American Home Mortgage Investment Trust 2006-1 | |||||||
0.35% due 03/25/461 | 1,443,823 | 1,225,496 | |||||
Luminent Mortgage Trust 2006-2 | |||||||
0.35% due 02/25/461 | 1,636,774 | 1,213,470 | |||||
Alternative Loan Trust 2003-18CB | |||||||
5.25% due 09/25/33 | 1,014,650 | 1,054,456 | |||||
MASTR Adjustable Rate Mortgages Trust 2003-5 | |||||||
2.13% due 11/25/331 | 927,033 | 846,845 | |||||
American Home Mortgage Assets Trust 2007-1 | |||||||
0.82% due 02/25/471 | 1,251,991 | 789,644 | |||||
Washington Mutual Mortgage Pass-Through | |||||||
Certificates WMALT Series 2006-AR9 Trust | |||||||
0.96% due 11/25/461 | 759,086 | 538,391 | |||||
Chase Mortgage Finance Trust Series 2006-S3 | |||||||
6.00% due 11/25/36 | 545,719 | 468,093 | |||||
Sequoia Mortgage Trust 2013-5 | |||||||
2.50% due 05/25/431,3 | 427,908 | 399,308 | |||||
HarborView Mortgage Loan Trust 2006-12 | |||||||
0.34% due 01/19/381 | 449,566 | 383,742 | |||||
Residential Asset Securitization Trust 2006-A12 | |||||||
6.25% due 11/25/36 | 486,340 | 367,036 | |||||
Washington Mutual Mortgage Pass-Through | |||||||
Certificates WMALT Series 2006-8 Trust | |||||||
4.90% due 10/25/36 | 462,046 | 352,592 | |||||
Nomura Resecuritization Trust 2012-1R | |||||||
0.59% due 08/27/471,3 | 331,818 | 306,932 | |||||
GreenPoint Mortgage Funding Trust Series 2007-AR1 | |||||||
0.23% due 02/25/471 | 291,083 | 269,541 | |||||
JP Morgan Mortgage Trust 2006-A3 | |||||||
2.63% due 04/25/361 | 35,037 | 30,444 | |||||
Total Collateralized Mortgage Obligations | |||||||
(Cost $9,727,659) | 9,645,990 | ||||||
SENIOR FLOATING RATE INTERESTS††,1 - 7.0% | |||||||
CONSUMER, CYCLICAL - 1.8% | |||||||
Landry’s, Inc. | |||||||
4.00% due 04/24/18 | 723,475 | 716,631 | |||||
Compucom Systems, Inc. | |||||||
4.25% due 05/07/20 | 726,882 | 695,990 | |||||
Ollies Bargain Outlet | |||||||
4.75% due 09/28/19 | 387,932 | 384,782 | |||||
Arby’s | |||||||
4.75% due 11/15/20 | 347,375 | 346,507 | |||||
1-800 Contacts, Inc. | |||||||
4.25% due 01/29/21 | 199,000 | 196,015 | |||||
Total Consumer, Cyclical | 2,339,925 | ||||||
TECHNOLOGY - 1.3% | |||||||
Avago Technologies Ltd. | |||||||
3.75% due 05/06/21 | 997,500 | 987,655 | |||||
Greenway Medical Technologies | |||||||
6.00% due 11/04/208 | 347,375 | 345,638 | |||||
P2 Energy Solutions | |||||||
5.00% due 10/30/20 | 347,375 | 345,204 | |||||
Total Technology | 1,678,497 | ||||||
INDUSTRIAL - 1.1% | |||||||
Rise Ltd. | |||||||
4.74% due 02/12/39 | 722,656 | 732,628 | |||||
AABS Ltd. | |||||||
4.87% due 01/15/38 | 447,917 | 455,173 | |||||
VAT Holding AG | |||||||
4.75% due 02/11/21 | 248,750 | 246,263 | |||||
Total Industrial | 1,434,064 | ||||||
CONSUMER, NON-CYCLICAL - 1.0% | |||||||
Hanesbrands, Inc. | |||||||
3.50% due 07/29/21 | EUR | 400,000 | 507,422 | ||||
Albertson’s (Safeway) Holdings LLC | |||||||
5.50% due 08/25/21 | 400,000 | 397,832 | |||||
NES Global Talent | |||||||
6.50% due 10/03/19 | 147,188 | 145,716 | |||||
Akorn, Inc. | |||||||
4.50% due 04/16/21 | 100,000 | 99,281 | |||||
Performance Food Group | |||||||
6.25% due 11/14/19 | 99,246 | 98,874 | |||||
Total Consumer, Non-cyclical | 1,249,125 | ||||||
COMMUNICATIONS - 0.8% | |||||||
MergerMarket Ltd. | |||||||
4.50% due 02/04/21 | 597,000 | 579,090 | |||||
Asurion Corp. | |||||||
5.00% due 05/24/19 | 458,821 | 456,128 | |||||
Total Communications | 1,035,218 | ||||||
FINANCIAL - 0.5% | |||||||
Corporate Capital Trust | |||||||
4.00% due 05/20/19 | 348,250 | 348,250 | |||||
Magic Newco, LLC | |||||||
5.00% due 12/12/18 | 246,854 | 246,237 | |||||
American Stock Transfer & Trust | |||||||
5.75% due 06/26/20 | 96,649 | 95,965 | |||||
Total Financial | 690,452 | ||||||
BASIC MATERIALS - 0.5% | |||||||
Fortescue Metals Group Ltd. | |||||||
3.75% due 06/30/19 | 596,985 | 583,833 | |||||
Total Senior Floating Rate Interests | |||||||
(Cost $9,103,531) | 9,011,114 | ||||||
MORTGAGE BACKED SECURITIES†† - 5.2% | |||||||
COMM 2014-KYO Mortgage Trust | |||||||
2.50% due 06/11/271,3 | 1,150,000 | 1,150,380 | |||||
2.15% due 06/11/271,3 | 600,000 | 600,198 | |||||
Hilton USA Trust 2013-HLT | |||||||
4.41% due 11/05/303 | 1,100,000 | 1,121,468 | |||||
5.61% due 11/05/181,3 | 350,000 | 355,426 | |||||
Boca Hotel Portfolio Trust 2013-BOCA | |||||||
3.20% due 08/15/261,3 | 1,000,000 | 1,000,792 |
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 47 |
SCHEDULE OF INVESTMENTS (continued) | September 30, 2014 | |
INVESTMENT GRADE BOND FUND |
FACE | |||||||
AMOUNT | VALUE | ||||||
Motel 6 Trust 2012-MTL6 | |||||||
3.78% due 10/05/253 | $ | 500,000 | $ | 500,415 | |||
LSTAR Commercial Mortgage Trust 2014-2 | |||||||
5.30% due 01/20/411,3 | 500,000 | 499,588 | |||||
GMAC Commercial Mortgage | |||||||
Asset Corp. 2003-PRES | |||||||
6.24% due 10/10/41†††,3 | 483,369 | 473,556 | |||||
Capmark Military Housing Trust 2007-AETC | |||||||
5.75% due 02/10/523 | 341,931 | 345,111 | |||||
SRERS Funding Ltd. 2011-RS | |||||||
0.40% due 05/09/461,3 | 350,808 | 334,145 | |||||
T2 Income Fund CLO Ltd. 2007-1X | |||||||
1.73% due 07/15/19 | 250,000 | 244,000 | |||||
Ginnie Mae | |||||||
#518436, 7.25% due 09/15/29 | 9,450 | 9,995 | |||||
#1849, 8.50% due 08/20/24 | 1,041 | 1,089 | |||||
Fannie Mae7 | |||||||
1990-108, 7.00% due 09/25/20 | 7,815 | 8,597 | |||||
Total Mortgage Backed Securities | |||||||
(Cost $6,591,589) | 6,644,760 | ||||||
MUNICIPAL BONDS†† - 4.5% | |||||||
CALIFORNIA - 2.0% | |||||||
Cypress School District General | |||||||
Obligation Unlimited | |||||||
0.00% due 08/01/409 | 4,400,000 | 1,394,095 | |||||
Stockton Unified School District General | |||||||
Obligation Unlimited | |||||||
0.00% due 08/01/369 | 875,000 | 354,681 | |||||
0.00% due 08/01/359 | 565,000 | 240,656 | |||||
Inland Valley Development Agency Tax Allocation | |||||||
5.50% due 03/01/33 | 500,000 | 517,030 | |||||
County of Sacramento California Revenue Bonds | |||||||
7.25% due 08/01/25 | 100,000 | 112,827 | |||||
Total California | 2,619,289 | ||||||
ALABAMA - 0.7% | |||||||
County of Jefferson Alabama Sewer Revenue | |||||||
Revenue Bonds | |||||||
0.00% due 10/01/349 | 775,000 | 251,922 | |||||
0.00% due 10/01/369 | 800,000 | 226,272 | |||||
0.00% due 10/01/359 | 475,000 | 144,030 | |||||
0.00% due 10/01/329 | 300,000 | 113,301 | |||||
0.00% due 10/01/319 | 250,000 | 102,173 | |||||
Total Alabama | 837,698 | ||||||
PUERTO RICO - 0.6% | |||||||
Commonwealth of Puerto Rico General | |||||||
Obligation Unlimited | |||||||
5.00% due 07/01/31 | 500,000 | 499,960 | |||||
Puerto Rico Highways & Transportation | |||||||
Authority Revenue Bonds | |||||||
5.50% due 07/01/28 | 250,000 | 262,045 | |||||
Total Puerto Rico | 762,005 | ||||||
ILLINOIS - 0.6% | |||||||
State of Illinois General Obligation Unlimited | |||||||
5.65% due 12/01/38 | 500,000 | 520,090 | |||||
City of Chicago Illinois General Obligation | |||||||
Unlimited | |||||||
5.00% due 01/01/27 | 150,000 | 159,431 | |||||
0.00% due 01/01/309 | 150,000 | 72,356 | |||||
Total Illinois | 751,877 | ||||||
FLORIDA - 0.5% | |||||||
County of Miami-Dade Florida | |||||||
Revenue Bonds | |||||||
0.00% due 10/01/429 | 2,500,000 | 608,799 | |||||
MICHIGAN - 0.1% | |||||||
Detroit City School District General | |||||||
Obligation Unlimited | |||||||
7.75% due 05/01/39 | 100,000 | 125,031 | |||||
City of Detroit Michigan Water Supply | |||||||
System Revenue Revenue Bonds | |||||||
5.00% due 07/01/30 | 50,000 | 50,020 | |||||
Total Michigan | 175,051 | ||||||
Total Municipal Bonds | |||||||
(Cost $5,395,179) | 5,754,719 | ||||||
COMMERCIAL PAPER†† - 6.8% | |||||||
GATX Corp. | |||||||
0.25% due 10/06/14 | 2,000,000 | 1,999,931 | |||||
Cigna Corp. | |||||||
0.20% due 10/01/14 | 1,500,000 | 1,500,000 | |||||
Cox Enterprises, Inc. | |||||||
0.25% due 10/01/14 | 1,500,000 | 1,500,000 | |||||
Diageo Capital PLC | |||||||
0.25% due 10/07/14 | 1,500,000 | 1,499,938 | |||||
Kellogg Co. | |||||||
0.16% due 10/15/14 | 1,200,000 | 1,199,925 | |||||
Pentair Finance SA | |||||||
0.23% due 10/03/14 | 1,000,000 | 999,987 | |||||
Total Commercial Paper | |||||||
(Cost $8,699,781) | 8,699,781 | ||||||
Total Investments - 103.4% | |||||||
(Cost $136,715,262) | $ | 132,632,478 | |||||
Other Assets & Liabilities, net - (3.4)% | (4,372,574 | ) | |||||
Total Net Assets - 100.0% | $ | 128,259,904 | |||||
48 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
SCHEDULE OF INVESTMENTS(concluded) | September 30, 2014 | |
INVESTMENT GRADE BOND FUND |
CENTRALLY CLEARED INTEREST RATE SWAP AGREEMENTS†† |
Unrealized | ||||||||||||||||||||
Floating | Appreciation/ | |||||||||||||||||||
Counterparty | Rate | Floating Rate Index | Fixed Rate | Maturity Date | Notional Amount | Market Value | (Depreciation | ) | ||||||||||||
Merrill Lynch | Pay | 3-Month USD-LIBOR | 3.89 | % | 09/09/43 | $ | 1,850,000 | $ | 265,845 | $ | 265,845 | |||||||||
Merrill Lynch | Pay | 3-Month USD-LIBOR | 3.68 | % | 08/29/43 | 1,450,000 | 151,670 | 151,670 | ||||||||||||
Merrill Lynch | Pay | 3-Month USD-LIBOR | 1.97 | % | 09/09/18 | 5,850,000 | 77,220 | 77,220 | ||||||||||||
Merrill Lynch | Pay | 3-Month USD-LIBOR | 3.65 | % | 09/26/43 | 450,000 | 43,155 | 43,155 | ||||||||||||
Merrill Lynch | Pay | 3-Month USD-LIBOR | 1.70 | % | 08/29/18 | 5,950,000 | 21,420 | 21,420 | ||||||||||||
Merrill Lynch | Pay | 3-Month USD-LIBOR | 1.59 | % | 09/26/18 | 1,350,000 | (3,645 | ) | (3,645 | ) | ||||||||||
$ | 555,665 | |||||||||||||||||||
* | Non-income producing security. | |
† | Value determined based on Level 1 inputs, unless otherwise noted — See Note 4. | |
†† | Value determined based on Level 2 inputs, unless otherwise noted — See Note 4. | |
††† | Value determined based on Level 3 inputs — See Note 4. | |
1 | Variable rate security. Rate indicated is rate effective at September 30, 2014. | |
2 | Perpetual maturity. | |
3 | Security is a 144A or Section 4(a)(2) security. The total market value of 144A or Section 4(a)(2) securities is $70,256,060 (cost $74,580,230), or 54.8% of total net assets. These securities have been determined to be liquid under guidelines established by the Board of Trustees. | |
4 | Security is a step up/step down bond. The coupon increases or decreases at regular intervals until the bond reaches full maturity. | |
5 | Security or a portion thereof is held as collateral for reverse repurchase agreements — See Note 13. | |
6 | Security is in default of interest and/or principal obligations. | |
7 | 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. | |
8 | Illiquid security. | |
9 | Zero coupon rate security. | |
10 | Residual interest. | |
11 | Security is a 144A or Section 4(a)(2) security. These securities are considered illiquid and restricted under guidelines established by the Board of Trustees. The total market value of 144A or Section 4(a)(2) securities is $1,754,250 (cost $1,750,000), or 1.4% of total net assets — See Note 16. | |
plc — Public Limited Company | ||
REIT — Real Estate Investment Trust |
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 49 |
INVESTMENT GRADE BOND FUND |
STATEMENT OF ASSETS AND LIABILITIES |
September 30, 2014 |
ASSETS: | ||||
Investments, at value | ||||
(cost $136,715,262) | $ | 132,632,478 | ||
Foreign currency, at value | ||||
(cost $4,508) | 4,508 | |||
Unrealized appreciation on swap agreements | 559,310 | |||
Segregated cash with broker | 441,592 | |||
Cash | 57,599 | |||
Prepaid expenses | 28,662 | |||
Receivables: | ||||
Securities sold | 881,212 | |||
Interest | 722,786 | |||
Fund shares sold | 139,390 | |||
Dividends | 32,681 | |||
Total assets | 135,500,218 | |||
LIABILITIES: | ||||
Reverse Repurchase Agreements | 4,449,397 | |||
Segregated cash from broker | 781,494 | |||
Unrealized depreciation on swap agreements | 3,645 | |||
Payable for: | ||||
Securities purchased | 1,708,060 | |||
Fund shares redeemed | 93,273 | |||
Management fees | 32,691 | |||
Distribution and service fees | 38,170 | |||
Distributions to shareholders | 30,923 | |||
Transfer agent/maintenance fees | 15,439 | |||
Fund accounting/administration fees | 9,670 | |||
Trustees’ fees* | 2,781 | |||
Miscellaneous | 74,771 | |||
Total liabilities | 7,240,314 | |||
NET ASSETS | $ | 128,259,904 | ||
NET ASSETS CONSIST OF: | ||||
Paid in capital | $ | 159,509,224 | ||
Distributions in excess of net investment income | (620,132 | ) | ||
Accumulated net realized loss on investments | (27,133,232 | ) | ||
Net unrealized depreciation on investments | (3,495,956 | ) | ||
Net assets | $ | 128,259,904 | ||
A-CLASS: | ||||
Net assets | $ | 99,565,402 | ||
Capital shares outstanding | 5,383,021 | |||
Net asset value per share | $18.50 | |||
Maximum offering price per share | ||||
(Net asset value divided by 95.25%) | $19.42 | |||
B-CLASS: | ||||
Net assets | $ | 2,112,623 | ||
Capital shares outstanding | 114,701 | |||
Net asset value per share | $18.42 | |||
C-CLASS: | ||||
Net assets | $ | 20,672,518 | ||
Capital shares outstanding | 1,122,524 | |||
Net asset value per share | $18.42 | |||
INSTITUTIONAL CLASS: | ||||
Net assets | $ | 5,909,361 | ||
Capital shares outstanding | 319,985 | |||
Net asset value per share | $18.47 | |||
STATEMENT OF OPERATIONS |
Year Ended September 30, 2014 |
INVESTMENT INCOME: | ||||
Interest | $ | 4,925,640 | ||
Dividends from securities of unaffiliated issuers | 247,745 | |||
Dividends from securities of affiliated issuers | 7,305 | |||
Total investment income | 5,180,690 | |||
EXPENSES: | ||||
Management fees | 563,405 | |||
Transfer agent/maintenance fees: | ||||
A-Class | 109,440 | |||
B-Class | 17,539 | |||
C-Class | 31,542 | |||
Institutional Class | 631 | |||
Distribution and service fees: | ||||
A-Class | 226,505 | |||
B-Class | 24,700 | |||
C-Class | 185,243 | |||
Fund accounting/administration fees | 107,046 | |||
Interest expense | 33,696 | |||
Trustees’ fees* | 11,910 | |||
Line of credit expense | 9,948 | |||
Custodian fees | 6,304 | |||
Tax expense | 2 | |||
Miscellaneous | 193,684 | |||
Total expenses | 1,521,595 | |||
Less: | ||||
Expenses waived by Adviser | (184,543 | ) | ||
Net expenses | 1,337,052 | |||
Net investment income | 3,843,638 | |||
NET REALIZED AND UNREALIZED GAIN (LOSS): | ||||
Net realized gain (loss) on: | ||||
Investments in unaffiliated issuers | 851,625 | |||
Investments in affiliated issuers | (403 | ) | ||
Swap agreements | 460,552 | |||
Options purchased | (139,562 | ) | ||
Options written | 31,514 | |||
Net realized gain | 1,203,726 | |||
Net change in unrealized appreciation (depreciation) on: | ||||
Investments | 3,570,964 | |||
Swap agreements | 245,395 | |||
Net change in unrealized appreciation (depreciation) | 3,816,359 | |||
Net realized and unrealized gain | 5,020,085 | |||
Net increase in net assets resulting | ||||
from operations | $ | 8,863,723 | ||
* Relates to Trustees not deemed “interested persons” within the meaning of Section 2(a)(19) of the 1940 Act.
50 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
INVESTMENT GRADE BOND FUND |
STATEMENTS OF CHANGES IN NET ASSETS |
Year Ended | Year Ended | |||||||
September 30, | September 30, | |||||||
2014 | 2013 | |||||||
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS: | ||||||||
Net investment income | $ | 3,843,638 | $ | 3,757,320 | ||||
Net realized gain on investments | 1,203,726 | 4,952,858 | ||||||
Net change in unrealized appreciation (depreciation) on investments | 3,816,359 | (4,987,231 | ) | |||||
Net increase in net assets resulting from operations | 8,863,723 | 3,722,947 | ||||||
DISTRIBUTIONS TO SHAREHOLDERS FROM: | ||||||||
Net investment income | ||||||||
A-Class | (3,901,798 | ) | (3,408,190 | ) | ||||
B-Class | (90,367 | ) | (119,783 | ) | ||||
C-Class | (663,466 | ) | (654,081 | ) | ||||
Institutional Class | (43,335 | ) | (2,951 | ) | ||||
Total distributions to shareholders | (4,698,966 | ) | (4,185,005 | ) | ||||
CAPITAL SHARE TRANSACTIONS: | ||||||||
Proceeds from sale of shares | ||||||||
A-Class | 34,856,715 | 22,376,229 | ||||||
B-Class | 113,376 | 432,699 | ||||||
C-Class | 7,556,050 | 10,703,187 | ||||||
Institutional Class | 6,598,753 | 174,306 | ||||||
Distributions reinvested | ||||||||
A-Class | 3,669,266 | 3,261,071 | ||||||
B-Class | 90,089 | 119,401 | ||||||
C-Class | 598,003 | 609,091 | ||||||
Institutional Class | 43,339 | 2,451 | ||||||
Cost of shares redeemed | ||||||||
A-Class | (25,960,887 | ) | (39,676,207 | ) | ||||
B-Class | (1,240,203 | ) | (2,665,979 | ) | ||||
C-Class | (6,049,767 | ) | (14,287,993 | ) | ||||
Institutional Class | (925,391 | ) | — | |||||
Net increase (decrease) from capital share transactions | 19,349,343 | (18,951,744 | ) | |||||
Net increase (decrease) in net assets | 23,514,100 | (19,413,802 | ) | |||||
NET ASSETS: | ||||||||
Beginning of year | 104,745,804 | 124,159,606 | ||||||
End of year | $ | 128,259,904 | $ | 104,745,804 | ||||
Distributions in excess of net investment income at end of year | $ | (620,132 | ) | $ | (425,919 | ) | ||
CAPITAL SHARE ACTIVITY: | ||||||||
Shares sold | ||||||||
A-Class | 1,908,779 | 1,246,284 | ||||||
B-Class | 6,183 | 24,231 | ||||||
C-Class | 414,295 | 595,542 | ||||||
Institutional Class | 357,987 | 9,638 | ||||||
Shares issued from reinvestment of distributions | ||||||||
A-Class | 201,435 | 181,120 | ||||||
B-Class | 4,978 | 6,659 | ||||||
C-Class | 33,009 | 33,953 | ||||||
Institutional Class | 2,362 | 137 | ||||||
Shares redeemed | ||||||||
A-Class | (1,424,258 | ) | (2,203,124 | ) | ||||
B-Class | (68,669 | ) | (148,667 | ) | ||||
C-Class | (333,003 | ) | (795,823 | ) | ||||
Institutional Class | (50,139 | ) | — | |||||
Net increase (decrease) in shares | 1,052,959 | (1,050,050 | ) | |||||
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 51 |
INVESTMENT GRADE BOND FUND |
FINANCIAL HIGHLIGHTS |
This table is presented to show selected data for a share outstanding throughout each period and to assist shareholders in evaluating a Fund’s performance for the periods presented. |
Year Ended | Year Ended | Period Ended | Year Ended | Year Ended | Year Ended | |||||||||||||||||||
September 30, | September 30, | September 30, | December 31, | December 31, | December 31, | |||||||||||||||||||
A-Class | 2014 | 2013 | 2012d | 2011e | 2010e | 2009e | ||||||||||||||||||
Per Share Data | ||||||||||||||||||||||||
Net asset value, beginning of period | $17.81 | $17.92 | $17.41 | $16.71 | $16.20 | $15.12 | ||||||||||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||||||
Net investment income (loss)a | .65 | .61 | .27 | .42 | .40 | .48 | ||||||||||||||||||
Net gain (loss) on investments (realized and unrealized) | .83 | (.04 | ) | .51 | .74 | .59 | 1.12 | |||||||||||||||||
Total from investment operations | 1.48 | .57 | .78 | 1.16 | .99 | 1.60 | ||||||||||||||||||
Less distributions from: | ||||||||||||||||||||||||
Net investment income | (.79 | ) | (.68 | ) | (.27 | ) | (.46 | ) | (.48 | ) | (.52 | ) | ||||||||||||
Total distributions | (.79 | ) | (.68 | ) | (.27 | ) | (.46 | ) | (.48 | ) | (.52 | ) | ||||||||||||
Net asset value, end of period | $18.50 | $17.81 | $17.92 | $17.41 | $16.71 | $16.20 | ||||||||||||||||||
Total Returnf | 8.47% | 3.21% | 4.51% | 6.94% | 6.11% | 10.63% | ||||||||||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||||||
Net assets, end of period (in thousands) | $99,565 | $83,642 | $98,063 | $108,999 | $101,971 | $104,972 | ||||||||||||||||||
Ratios to average net assets: | ||||||||||||||||||||||||
Net investment income (loss) | 3.55% | 3.40% | 2.04% | 2.43% | 2.51% | 3.04% | ||||||||||||||||||
Total expenses | 1.19% | 1.21% | 1.15% | 1.15% | 1.21% | 1.31% | ||||||||||||||||||
Net expensesb,g | 1.05% | 1.04% | 1.00% | 1.00% | 0.98% | 0.95% | ||||||||||||||||||
Portfolio turnover rate | 61% | 119% | 52% | 43% | 39% | 89% |
Year Ended | Year Ended | Period Ended | Year Ended | Year Ended | Year Ended | |||||||||||||||||||
September 30, | September 30, | September 30, | December 31, | December 31, | December 31, | |||||||||||||||||||
B-Class | 2014 | 2013 | 2012d | 2011e | 2010e | 2009e | ||||||||||||||||||
Per Share Data | ||||||||||||||||||||||||
Net asset value, beginning of period | $17.73 | $17.82 | $17.32 | $16.62 | $16.12 | $15.04 | ||||||||||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||||||
Net investment income (loss)a | .51 | .47 | .16 | .29 | .28 | .36 | ||||||||||||||||||
Net gain (loss) on investments (realized and unrealized) | .83 | (.04 | ) | .51 | .74 | .54 | 1.12 | |||||||||||||||||
Total from investment operations | 1.34 | .43 | .67 | 1.03 | .82 | 1.48 | ||||||||||||||||||
Less distributions from: | ||||||||||||||||||||||||
Net investment income | (.65 | ) | (.52 | ) | (.17 | ) | (.33 | ) | (.32 | ) | (.40 | ) | ||||||||||||
Total distributions | (.65 | ) | (.52 | ) | (.17 | ) | (.33 | ) | (.32 | ) | (.40 | ) | ||||||||||||
Net asset value, end of period | $18.42 | $17.73 | $17.82 | $17.32 | $16.62 | $16.12 | ||||||||||||||||||
Total Returnf | 7.68% | 2.42% | 3.91% | 6.35% | 5.08% | 9.87% | ||||||||||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||||||
Net assets, end of period (in thousands) | $2,113 | $3,054 | $5,168 | $6,993 | $11,619 | $16,249 | ||||||||||||||||||
Ratios to average net assets: | ||||||||||||||||||||||||
Net investment income (loss) | 2.82% | 2.64% | 1.29% | 1.72% | 1.76% | 2.31% | ||||||||||||||||||
Total expenses | 2.53% | 2.67% | 2.12% | 1.92% | 1.95% | 2.06% | ||||||||||||||||||
Net expensesb,g | 1.80% | 1.79% | 1.75% | 1.75% | 1.73% | 1.70% | ||||||||||||||||||
Portfolio turnover rate | 61% | 119% | 52% | 43% | 39% | 89% |
52 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
INVESTMENT GRADE BOND FUND |
FINANCIAL HIGHLIGHTS (continued) |
This table is presented to show selected data for a share outstanding throughout each period and to assist shareholders in evaluating a Fund’s performance for the periods presented. |
Year Ended | Year Ended | Period Ended | Year Ended | Year Ended | Year Ended | |||||||||||||||||||
September 30, | September 30, | September 30, | December 31, | December 31, | December 31, | |||||||||||||||||||
C-Class | 2014 | 2013 | 2012d | 2011e | 2010e | 2009e | ||||||||||||||||||
Per Share Data | ||||||||||||||||||||||||
Net asset value, beginning of period | $17.73 | $17.82 | $17.31 | $16.62 | $16.12 | $15.04 | ||||||||||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||||||
Net investment income (loss)a | .51 | .48 | .17 | .29 | .28 | .36 | ||||||||||||||||||
Net gain (loss) on investments (realized and unrealized) | .83 | (.05 | ) | .51 | .73 | .54 | 1.12 | |||||||||||||||||
Total from investment operations | 1.34 | .43 | .68 | 1.02 | .82 | 1.48 | ||||||||||||||||||
Less distributions from: | ||||||||||||||||||||||||
Net investment income | (.65 | ) | (.52 | ) | (.17 | ) | (.33 | ) | (.32 | ) | (.40 | ) | ||||||||||||
Total distributions | (.65 | ) | (.52 | ) | (.17 | ) | (.33 | ) | (.32 | ) | (.40 | ) | ||||||||||||
Net asset value, end of period | $18.42 | $17.73 | $17.82 | $17.31 | $16.62 | $16.12 | ||||||||||||||||||
Total Returnf | 7.69% | 2.42% | 3.95% | 6.32% | 5.05% | 9.85% | ||||||||||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||||||
Net assets, end of period (in thousands) | $20,673 | $17,876 | $20,929 | $22,035 | $19,284 | $20,843 | ||||||||||||||||||
Ratios to average net assets: | ||||||||||||||||||||||||
Net investment income (loss) | 2.80% | 2.65% | 1.29% | 1.68% | 1.76% | 2.28% | ||||||||||||||||||
Total expenses | 1.99% | 2.03% | 1.92% | 1.90% | 1.96% | 2.05% | ||||||||||||||||||
Net expensesb,g | 1.80% | 1.79% | 1.75% | 1.75% | 1.73% | 1.70% | ||||||||||||||||||
Portfolio turnover rate | 61% | 119% | 52% | 43% | 39% | 89% |
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 53 |
INVESTMENT GRADE BOND FUND |
FINANCIAL HIGHLIGHTS (concluded) |
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 | Period Ended | |||||||
September 30, | September 30, | |||||||
Institutional Class | 2014 | 2013c | ||||||
Per Share Data | ||||||||
Net asset value, beginning of period | $17.80 | $18.00 | ||||||
Income (loss) from investment operations: | ||||||||
Net investment income (loss)a | .68 | .46 | ||||||
Net gain (loss) on investments (realized and unrealized) | .83 | (.21 | ) | |||||
Total from investment operations | 1.51 | .25 | ||||||
Less distributions from: | ||||||||
Net investment income | (.84 | ) | (.45 | ) | ||||
Total distributions | (.84 | ) | (.45 | ) | ||||
Net asset value, end of period | $18.47 | $17.80 | ||||||
Total Returnf | 8.64% | 1.35% | ||||||
Ratios/Supplemental Data | ||||||||
Net assets, end of period (in thousands) | $5,909 | $174 | ||||||
Ratios to average net assets: | ||||||||
Net investment income (loss) | 3.72% | 3.85% | ||||||
Total expenses | 0.88% | 1.17% | ||||||
Net expensesb,g | 0.78% | 0.82% | ||||||
Portfolio turnover rate | 61% | 119% |
a | Net investment income (loss) per share was computed using average shares outstanding throughout the period. | |
b | Net expense information reflects the expense ratios after expense waivers. | |
c | Since commencement of operations: January 29, 2013. Percentage amounts for the period, except total return and portfolio turnover rate, have been annualized. | |
d | The Fund changed its fiscal year end from December 31 to September 30 in 2012. | |
e | Per share amounts for the years ended December 31, 2009-December 31, 2010 and the period January 1, 2011 through April 8, 2011 have been restated to reflect a 1:4 reverse share split effective April 8, 2011. | |
f | Total return does not reflect the impact of any applicable sales charges and has not been annualized. | |
g | Net expenses may include expenses that are excluded from the expense limitation agreement. Excluding these expenses, the operating expense ratios for the periods would be: |
09/30/14 | 09/30/13 | ||||
A-Class | 1.00% | 1.02% | |||
B-Class | 1.75% | 1.77% | |||
C-Class | 1.75% | 1.77% | |||
Institutional Class | 0.75% | 0.77% |
54 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
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THE GUGGENHEIM FUNDS ANNUAL REPORT | 55 |
MANAGERS’ COMMENTARY (Unaudited) | September 30, 2014 | |
To Our Shareholders
Guggenheim Limited Duration Fund (the “Fund”) is managed by a team of seasoned professionals, including Anne B. Walsh, Senior Managing Director; James W. Michal, Managing Director and Portfolio Manager; and Steven H. Brown, Director and Portfolio Manager. In the following paragraphs, the investment team discusses the market environment and the Fund’s performance for the abbreviated fiscal year ended September 30, 2014.
For the abbreviated fiscal period ended September 30, 2014 (the “Period”), the Guggenheim Limited Duration Fund returned 1.75%1, compared with the 0.60% return of its benchmark, the Barclays U.S. Aggregate Bond 1-3 Year Total Return Index. The Fund’s inception date was December 16, 2013.
The Fund seeks to provide a high level of income consistent with preservation of capital. It invests at least 80% of its assets in a diversified portfolio of debt securities.
As the Period began, monetary accommodation by the Fed was propelling asset prices higher, while positive economic momentum was pushing interest rates higher. By the end of December 2013, the 10-year U.S. Treasury yield reached its highest point over the prior 2½ years at 3%, a level that was not revisited for the remainder of the Period.
Credit-spread and risk assets continued to find investor favor through 2014, even though severe winter weather produced volatility and mixed economic data. Additional liquidity from central banks outside the U.S. supported foreign capital flows into U.S. assets, which, along with the search for yield among U.S. investors, was positive for fixed income. But just as the market appeared to be growing complacent in the third quarter of 2014, leveraged credit had its first correction in a year, as mutual fund investors withdrew from the sector amid concerns about frothy valuations and talk of credit bubble. Volatility spread across risk assets, including equities.
The events that drove spread widening in the third quarter showed that investors are becoming increasingly reactive to factors outside of the fundamentals that underscore a generally positive outlook on credit. Even though U.S. economic data was mixed in September, it was strong year to date, and the improving health of the U.S. economy and low interest rates underscored our expectation that spreads can compress further. Volatility is likely to continue, but as the economy improves, brief periods of spread widening could present buying opportunities.
The Fund mainly invests in asset-backed securities (ABS), investment grade corporate bonds and non-agency residential mortgage-backed securities (RMBS). It has positions in high yield corporate bonds, bank loans, commercial mortgage-backed securities and preferred securities, among other holdings.
The ABS and non-agency RMBS sectors contributed positively for the Period. The BofA/ML ABS Master BBB-AA Index gained 3.36% in a 12-month Period as its spread tightened 48 basis points to 133 basis points. Credit performance across the commercial ABS and collateralized loan obligation (CLO) sectors remained strong given benign credit conditions and improving collateral valuations across the U.S. economy. 2014 issuance is well ahead of 2013’s pace and likely to break 2012’s post-crisis peak. New ABS issuance was diversified across all classes, with auto and credit card new issues remaining strong. Consumer ABS performance has been solid despite concern surrounding student loans and subprime auto lending. JPMorgan Research indicates the gradual improvement in the household balance sheet will continue to support credit performance of Consumer ABS. Year-to-date ABS issuance has now surpassed $94 billion, the all time annual record set in 2007. Housing activity has been uneven, as price appreciation has been slowing and sales remain below the post-crisis peak in 2013. With the economic outlook mostly positive and central banks maintaining accommodation, the backdrop for ABS and RMBS remains constructive. Amidst these positive fundamentals, the CLO market raised $93 billion through three quarters of 2014, already exceeding 2013’s full-year volume.
Investment grade corporate bonds weathered interest rate volatility in the fourth quarter of 2013, but low dealer inventory and heavy demand for most of the 12-month Period supported continued spread compression. The Barclays U.S. Corporate Investment Grade Index rose by 6.77% for the one-year Period. The credit spread on investment grade corporate bonds tightened by 29 basis points, and yields declined to 3.10% at the end of September 2014. The Barclays U.S. Investment Grade 1-3 Year Index rose by 1.65% and the credit spread on 1-3 year investment grade corporate bonds tightened by 16 basis points while yields
56 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
MANAGERS’ COMMENTARY (Unaudited) (concluded) | September 30, 2014 | |
rose to 1.31% for the one year Period. Volatility in the third quarter also impacted issuance, but total investment grade corporate issuance still reached $647 billion through the three quarters of 2014.
High yield corporate bonds and bank loans posted their fifth consecutive year of positive returns in 2013 and strong performance continued through the first half of 2014. As upside potential declined in the leveraged credit space, the Fund rotated into higher quality credits. With the onset of a leveraged credit sell-off in the third quarter, the Fund was able to add exposure back to many of the names it had sold several months before.
In the third quarter of 2014, the Fund continued to see further price appreciation attributable to tightening of credit spreads outside of corporate bonds. Positive returns have largely been driven by the Fund’s investments in asset backed securities as spreads continued to normalize across various subsectors including collateralized loan obligations, commercial real estate CDOs, and aircraft lease securitizations.
Concentration of the Fund’s credit investments in relatively short-maturity high yield bonds and loans has muted the impact of recent turmoil of risk assets, and the Fund continues to use periods of weakness in those sectors to add attractive assets.
Performance displayed represents past performance which is no guarantee of future results. |
1 Performance figures are based on A-Class shares and do not reflect deduction of the sales charges or taxes that a shareholder would pay on distributions or the redemption of shares. Fee waivers and/or reimbursements reduce Fund expenses, and, in the absence of such waivers, the performance quoted would be reduced. |
The opinions and forecast expressed may not actually come to pass. This information is subject to change at any time, based on market and other conditions, and should not be construed as a recommendation of any specific security or strategy. |
THE GUGGENHEIM FUNDS ANNUAL REPORT | 57 |
PERFORMANCE REPORT AND FUND PROFILE (Unaudited) | September 30, 2014 | |
LIMITED DURATION FUND
OBJECTIVE: Seeks to provide a high level of income consistent with preservation of capital.
Holdings Diversification (Market Exposure as % of Net Assets)
“Holdings Diversification (Market Exposure as % of Net Assets)” excludes any temporary cash investments.
Portfolio Composition by Quality Rating* | |||
% of | |||
Rating | Total Investments | ||
Fixed Income Instruments | |||
AAA | 1.3 | % | |
AA | 7.7 | % | |
A | 17.6 | % | |
BBB | 39.7 | % | |
BB | 10.4 | % | |
B | 7.8 | % | |
CCC | 3.8 | % | |
Other | 3.7 | % | |
Other Instruments | |||
Repurchase Agreements | 3.5 | % | |
Short Term Investments | 3.4 | % | |
Preferred Stocks | 1.1 | % | |
Total Investments | 100.0 | % | |
The chart above reflects percentages of the value of total investments.
Inception Date: | ||
A-Class | December 16, 2013 | |
C-Class | December 16, 2013 | |
Institutional Class | December 16, 2013 |
Ten Largest Holdings (% of Total Net Assets) | |||
LSTAR Securities Investment Trust 2014-1 | 2.3 | % | |
SRERS Funding Ltd. — Class A1B1 | 2.2 | % | |
COMM 2014-KYO Mortgage Trust — Class E | 1.7 | % | |
City of Detroit Michigan General Obligation Unlimited | 1.7 | % | |
Flagship CLO VI — Class D | 1.7 | % | |
JPMorgan Chase & Co. | 1.4 | % | |
EPR Properties | 1.3 | % | |
Hilton USA Trust 2013-HLT — Class EFX | 1.2 | % | |
H2 Asset Funding Ltd. | 1.2 | % | |
CSMC Series | 1.2 | % | |
Top Ten Total | 15.9 | % | |
“Ten Largest Holdings" exclude any temporary cash or derivative investments.
* | Source: Factset. Credit quality ratings are measured on a scale that generally ranges from AAA (highest) to D (lowest). All rated securities have been rated by Moody’s, Standard & Poor’s (“S&P”), or Fitch, which are all a Nationally Recognized Statistical Rating Organization (“NRSRO”). For purposes of this presentation, when ratings are available from more than one agency, the highest rating is used. Guggenheim Investments has converted Moody’s and Fitch ratings to the equivalent S&P rating. Unrated securities do not necessarily indicate low credit quality. Security ratings are determined at the time of purchase and may change thereafter. |
58 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
PERFORMANCE REPORT AND FUND PROFILE (Unaudited) (concluded) | September 30, 2014 | |
Cumulative Fund Performance*
Total Returns*
Period Ended September 30, 2014
Since Inception | |||
(12/16/13) | |||
A-Class Shares | 1.75% | ||
A-Class Shares with sales charge‡ | –0.55% | ||
C-Class Shares | 1.13% | ||
C-Class Shares with CDSC† | 0.13% | ||
Institutional Class Shares | 1.98% | ||
Barclays U.S. Aggregate Bond 1-3 Total Return Index | 0.60% | ||
* | The performance data above represents past performance that is not predictive of future results. The investment return and principal value of an investment in the Fund will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Returns are historical and include changes in principal and reinvested dividends and capital gains and do not reflect the effect of taxes. The Barclays U.S. Aggregate Bond 1-3 Total Return Index is an unmanaged index and, unlike the Fund, has no management fees or operating expenses to reduce its reported return. |
† | Fund returns include a CDSC of 1% if redeemed within 12 months of purchase. |
‡ | Fund returns are calculated using the maximum sales charge of 2.25%. |
THE GUGGENHEIM FUNDS ANNUAL REPORT | 59 |
SCHEDULE OF INVESTMENTS | September 30, 2014 | |
LIMITED DURATION FUND |
SHARES | VALUE | ||||||
PREFERRED STOCKS† - 1.2% | |||||||
Seaspan Corp. | |||||||
6.38% due 04/30/19 | 20,000 | $ | 511,800 | ||||
Goldman Sachs Group, Inc. | |||||||
5.50% due 05/10/231,2 | 13,540 | 321,575 | |||||
Morgan Stanley | |||||||
6.38%*,1,2 | 10,000 | 250,700 | |||||
Total Preferred Stocks | |||||||
(Cost $1,079,774) | 1,084,075 | ||||||
SHORT TERM INVESTMENTS† - 4.0% | |||||||
Dreyfus Treasury Prime Cash Management Fund | 3,422,705 | 3,422,705 | |||||
Total Short Term Investments | |||||||
(Cost $3,422,705) | 3,422,705 | ||||||
FACE | |||||||
AMOUNT | |||||||
ASSET BACKED SECURITIES†† - 61.7% | |||||||
Fortress Credit Opportunities | |||||||
V CLO Ltd. 2014-5A | |||||||
2.88% due 10/15/261,3 | $ | 1,000,000 | 989,500 | ||||
3.78% due 10/15/261,3 | 1,000,000 | 980,800 | |||||
Flagship CLO VI 2007-1A | |||||||
2.63% due 06/10/211,3 | 1,500,000 | 1,453,351 | |||||
H2 Asset Funding Ltd. 2014-1 | |||||||
2.05% due 03/19/37 | 1,000,000 | 1,008,500 | |||||
Copper River CLO Ltd. 2007-1A | |||||||
0.00% due 01/20/211,3,7 | 500,000 | 548,500 | |||||
1.73% due 01/20/211,3 | 500,000 | 456,900 | |||||
ACAs CLO Ltd. 2014-1AR | |||||||
2.55% due 09/20/231,3 | 1,000,000 | 1,000,801 | |||||
Ares XXIII CLO Ltd. 2014-1AR | |||||||
3.43% due 04/19/231,3 | 1,000,000 | 1,000,000 | |||||
Highbridge Loan Management 2012-1 Ltd. | |||||||
2.48% due 09/20/221,3 | 1,000,000 | 999,500 | |||||
Miramax LLC 2014-1A | |||||||
3.34% due 07/20/263 | 1,000,000 | 996,848 | |||||
Cent CLO 16, LP 2014-16AR | |||||||
2.74% due 08/01/241,3 | 500,000 | 498,800 | |||||
3.74% due 08/01/241,3 | 500,000 | 497,500 | |||||
Madison Park Funding VIII Ltd. 2014-8AR | |||||||
2.43% due 04/22/221,3 | 500,000 | 498,000 | |||||
3.03% due 04/22/221,3 | 500,000 | 497,300 | |||||
CIFC Funding 2012-III Ltd. | |||||||
3.23% due 01/29/251,3 | 600,000 | 596,700 | |||||
4.48% due 01/29/251,3 | 400,000 | 397,840 | |||||
Encore Credit Receivables Trust 2005-4 | |||||||
0.59% due 01/25/361 | 1,077,390 | 991,763 | |||||
Drug Royalty II Limited Partnership 2 2014-1 | |||||||
3.08% due 07/15/231,3 | 490,435 | 493,588 | |||||
3.48% due 07/15/233 | 490,435 | 490,373 | |||||
Fortress Credit Opportunities III CLO, LP 2014-3A | |||||||
2.73% due 04/28/261,3 | 1,000,000 | 981,900 | |||||
Duane Street CLO IV Ltd. 2007-4A | |||||||
2.48% due 11/14/211,3 | 1,000,000 | 967,200 | |||||
Black Diamond CLO 2005-2 Delaware Corp. | |||||||
2.03% due 01/07/181,3 | 1,000,000 | 960,700 | |||||
San Gabriel CLO Ltd. 2007-1A | |||||||
2.48% due 09/10/211,3 | 1,000,000 | 954,200 | |||||
CIFC Funding 2007-I Ltd. | |||||||
1.73% due 05/10/211,3 | 1,000,000 | 951,200 | |||||
Westbrook CLO Ltd. 2006-1A | |||||||
1.93% due 12/20/201,3 | 1,000,000 | 947,700 | |||||
West Coast Funding Ltd. 2006-1A | |||||||
0.38% due 11/02/411,3 | 961,844 | 944,050 | |||||
UCFC Manufactured Housing Contract 1997-2 | |||||||
7.38% due 10/15/28 | 853,526 | 930,090 | |||||
Structured Asset Investment Loan Trust 2005-2 | |||||||
0.89% due 03/25/351 | 1,000,000 | 922,501 | |||||
Connecticut Valley Structured Credit | |||||||
CDO III Ltd. 2006-3A | |||||||
0.88% due 03/23/231,3 | 500,000 | 476,000 | |||||
6.68% due 03/23/233 | 441,767 | 438,365 | |||||
Castlelake Aircraft Securitization Trust 2014-1 | |||||||
5.25% due 02/15/29 | 446,105 | 447,800 | |||||
7.50% due 02/15/29 | 446,105 | 446,640 | |||||
Rockwall CDO II Ltd. 2007-1A | |||||||
0.79% due 08/01/241,3 | 1,000,000 | 891,500 | |||||
CCR Incorporated MT100 Payment | |||||||
Rights Master Trust 2010-CX | |||||||
0.60% due 07/10/17†††,1 | 912,662 | 888,202 | |||||
Venture VI CDO Ltd. 2006-1A | |||||||
1.72% due 08/03/201,3 | 850,000 | 796,875 | |||||
Race Point V CLO Ltd. 2014-5AR | |||||||
3.98% due 12/15/221,3 | 750,000 | 748,275 | |||||
Golub Capital Partners CLO 10 Ltd. 2014-10AR | |||||||
3.18% due 10/20/211,3 | 700,000 | 696,500 | |||||
Gramercy Park CLO Ltd. 2014-1AR | |||||||
3.18% due 07/17/231,3 | 700,000 | 696,430 | |||||
Wrightwood Capital Real Estate CDO 2005-1 Ltd. | |||||||
0.66% due 11/21/401,3 | 700,000 | 643,370 | |||||
Structured Asset Investment Loan Trust 2005-1 | |||||||
0.87% due 02/25/351,3 | 550,000 | 519,336 | |||||
Structured Asset Securities Corporation | |||||||
Mortgage Loan Trust 2007-BC1 | |||||||
0.28% due 02/25/371 | 600,000 | 518,630 | |||||
Helios Series I Multi Asset CBO Ltd. 2001-1A | |||||||
1.17% due 12/13/361,3 | 540,766 | 513,998 | |||||
FREMF 2012-K501 Mortgage Trust | |||||||
3.60% due 11/25/461,3 | 500,000 | 510,329 | |||||
Marine Park CLO Ltd. 2012-1A | |||||||
4.73% due 05/18/231,3 | 500,000 | 501,300 | |||||
Symphony CLO IX, LP 2012-9A | |||||||
3.48% due 04/16/221,3 | 500,000 | 500,000 | |||||
OZLM Funding Ltd. 2012-2A | |||||||
3.49% due 10/30/231,3 | 500,000 | 500,000 | |||||
LCM X, LP 2014-10AR | |||||||
3.08% due 04/15/221,3 | 500,000 | 497,750 | |||||
Gallatin CLO VII 2014-1 Ltd. | |||||||
3.06% due 07/15/231,3 | 500,000 | 497,400 | |||||
CSMC Series 2014-2R | |||||||
0.36% due 02/27/461,3 | 529,134 | 495,843 | |||||
BlueMountain CLO 2012-2 Ltd. | |||||||
2.98% due 11/20/241,3 | 500,000 | 494,750 | |||||
Shackleton II CLO Ltd. 2012-2A | |||||||
4.28% due 10/20/231,3 | 500,000 | 493,450 | |||||
CKE Restaurant Holdings, Inc. 2013-1A | |||||||
4.47% due 03/20/433 | 488,750 | 493,281 |
60 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
SCHEDULE OF INVESTMENTS (continued) | September 30, 2014 |
LIMITED DURATION FUND |
FACE | |||||||
AMOUNT | VALUE | ||||||
CIFC Funding 2006-I B Ltd. | |||||||
4.23% due 12/22/201,3 | $ | 500,000 | $ | 492,750 | |||
COA Summit CLO Limited 2014-1 | |||||||
4.09% due 04/20/231,3 | 500,000 | 492,450 | |||||
Marathon CLO II Ltd. 2005-2A | |||||||
2.03% due 12/20/191,3 | 500,000 | 491,900 | |||||
Halcyon Loan Advisors Funding 2012-1 Ltd. | |||||||
3.23% due 08/15/231,3 | 500,000 | 491,300 | |||||
ALM VII R-2 Ltd. 2013-7R2A | |||||||
2.83% due 04/24/241,3 | 500,000 | 490,900 | |||||
Figueroa CLO 2013-1 Ltd. | |||||||
2.98% due 03/21/241,3 | 500,000 | 490,650 | |||||
T2 Income Fund CLO Ltd. 2007-1A | |||||||
2.98% due 07/15/191,3 | 250,000 | 246,550 | |||||
1.73% due 07/15/191,3 | 250,000 | 244,000 | |||||
Gale Force 4 CLO Ltd. 2007-4A | |||||||
3.73% due 08/20/211,3 | 500,000 | 489,600 | |||||
Golub Capital Partners CLO 18 Ltd. 2014-18A | |||||||
3.73% due 04/25/261,3 | 250,000 | 248,175 | |||||
4.23% due 04/25/261,3 | 250,000 | 240,950 | |||||
Anchorage Capital CLO 4 Ltd. 2014-4A | |||||||
2.44% due 07/28/261,3 | 500,000 | 488,750 | |||||
Katonah Ltd. 2007-10A | |||||||
2.24% due 04/17/201,3 | 500,000 | 487,250 | |||||
KVK CLO 2014-2 Ltd. | |||||||
3.25% due 04/15/261,3 | 500,000 | 486,700 | |||||
Race Point IV CLO Ltd. 2007-4A | |||||||
2.24% due 08/01/211,3 | 500,000 | 485,850 | |||||
Apidos CDO III Ltd. 2006-3A | |||||||
1.98% due 06/12/201,3 | 500,000 | 484,850 | |||||
Telos CLO 2013-4 Ltd. | |||||||
2.98% due 07/17/241,3 | 500,000 | 484,750 | |||||
NewStar Arlington Senior Loan Program LLC 2014-1A | |||||||
3.53% due 07/25/251,3 | 250,000 | 243,600 | |||||
4.48% due 07/25/251,3 | 250,000 | 239,425 | |||||
Babson Mid-Market CLO Incorporated 2007-II | |||||||
1.93% due 04/15/211,3 | 500,000 | 483,000 | |||||
ColumbusNova CLO Limited 2007-I | |||||||
1.58% due 05/16/191,3 | 500,000 | 480,700 | |||||
GSAA Home Equity Trust 2006-18 | |||||||
6.00% due 11/25/36 | 670,125 | 473,917 | |||||
Madison Park Funding III Ltd. 2006-3A | |||||||
1.65% due 10/25/201,3 | 500,000 | 473,450 | |||||
Tricadia CDO 2006-6 Ltd. | |||||||
0.79% due 11/05/411,3 | 500,000 | 472,800 | |||||
Shasta CLO Ltd. 2007-1A | |||||||
1.63% due 04/20/211,3 | 500,000 | 472,550 | |||||
ALM XIV Ltd. 2014-14A | |||||||
3.68% due 07/28/261,3 | 500,000 | 471,900 | |||||
WhiteHorse IV Ltd. 2007-4A | |||||||
1.68% due 01/17/201,3 | 500,000 | 469,600 | |||||
Katonah IX CLO Ltd. 2006-9A | |||||||
1.63% due 01/25/191,3 | 500,000 | 468,500 | |||||
CIT Mortgage Loan Trust 2007-1 | |||||||
1.60% due 10/25/371,3 | 500,000 | 464,524 | |||||
Accredited Mortgage Loan Trust 2007-1 | |||||||
0.28% due 02/25/371 | 488,353 | 462,720 | |||||
Icon Brand Holdings LLC 2013-1A | |||||||
4.35% due 01/25/433 | 460,771 | 458,743 | |||||
Keuka Park CLO Limited 2013-1 | |||||||
due 10/21/243,7 | 500,000 | 427,500 | |||||
Gramercy Real Estate CDO 2007-1 Ltd. | |||||||
0.51% due 08/15/561,3 | 474,013 | 417,748 | |||||
GSAMP Trust 2005-HE6 | |||||||
0.59% due 11/25/351 | 450,000 | 414,339 | |||||
Centerline REIT, Inc. 2004-RR3 | |||||||
4.76% due 09/21/451,3 | 374,039 | 379,066 | |||||
Soundview Home Loan Trust 2003-1 | |||||||
2.40% due 08/25/311 | 306,435 | 303,494 | |||||
ALM IV Ltd. 2011-4A | |||||||
2.98% due 07/18/221,3 | 250,000 | 250,000 | |||||
Hewett’s Island CDO Ltd. 2007-6A | |||||||
2.48% due 06/09/191,3 | 250,000 | 249,050 | |||||
Great Lakes CLO 2014-1 Ltd. 2014-1A | |||||||
3.93% due 04/15/251,3 | 250,000 | 248,625 | |||||
Cerberus Onshore II CLO LLC 2014-1A | |||||||
2.93% due 10/15/231,3 | 250,000 | 246,025 | |||||
Kingsland IV Ltd. 2007-4A | |||||||
1.68% due 04/16/211,3 | 250,000 | 226,725 | |||||
OFSI Fund V Ltd. 2013-5A | |||||||
3.43% due 04/17/251,3 | 200,000 | 199,440 | |||||
Total Asset Backed Securities | |||||||
(Cost $53,554,359) | 53,496,945 | ||||||
CORPORATE BONDS†† - 19.6% | |||||||
FINANCIAL - 11.0% | |||||||
JPMorgan Chase & Co. | |||||||
5.00%1,2,4 | 1,280,000 | 1,247,744 | |||||
EPR Properties | |||||||
5.75% due 08/15/22 | 1,000,000 | 1,094,839 | |||||
Bank of America Corp. | |||||||
5.13%1,2,4 | 900,000 | 870,750 | |||||
Citigroup, Inc. | |||||||
5.35%1,2,4 | 890,000 | 832,150 | |||||
6.30%1,2 | 30,000 | 29,628 | |||||
Corporation Financiera de Desarrollo S.A. | |||||||
3.25% due 07/15/193,4 | 500,000 | 498,750 | |||||
5.25% due 07/15/291,3,4 | 350,000 | 354,813 | |||||
ICICI Bank Ltd. | |||||||
4.75% due 11/25/163,4 | 750,000 | 789,979 | |||||
HSBC Holdings plc | |||||||
5.63%1,2 | 750,000 | 744,750 | |||||
General Motors Financial Company, Inc. | |||||||
2.63% due 07/10/174 | 535,000 | 537,427 | |||||
Cadence Financial Corp. | |||||||
4.88% due 06/28/198 | 500,000 | 502,500 | |||||
Icahn Enterprises. LP / Icahn Enterprises | |||||||
Finance Corp. | |||||||
6.00% due 08/01/204 | 400,000 | 411,000 | |||||
Schahin II Finance Company SPV Ltd. | |||||||
5.88% due 09/25/223,4 | 404,700 | 383,453 | |||||
Morgan Stanley | |||||||
5.45%1,2,4 | 350,000 | 347,375 | |||||
Icahn Enterprises Limited Partnership / Icahn | |||||||
Enterprises Finance Corp. | |||||||
3.50% due 03/15/174 | 350,000 | 346,500 |
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 61 |
SCHEDULE OF INVESTMENTS (continued) | September 30, 2014 |
LIMITED DURATION FUND |
FACE | |||||||
AMOUNT | VALUE | ||||||
Assured Guaranty US Holdings, Inc. | |||||||
5.00% due 07/01/244 | $ | 300,000 | $ | 303,137 | |||
Nordea Bank AB | |||||||
5.50%1,2,3 | 250,000 | 245,625 | |||||
Total Financial | 9,540,420 | ||||||
MORTGAGE SECURITIES - 2.3% | |||||||
CSMC Series | |||||||
2.41% due 02/15/291,3 | 1,000,000 | 1,003,114 | |||||
CSMC Series 2014-ICE | |||||||
2.30% due 04/15/271,3 | 1,000,000 | 1,001,587 | |||||
Total Mortgage Securities | 2,004,701 | ||||||
ENERGY - 1.5% | |||||||
Crestwood Midstream Partners, LP / Crestwood | |||||||
Midstream Finance Corp. | |||||||
7.75% due 04/01/194 | 500,000 | 523,750 | |||||
California Resources Corp. | |||||||
5.00% due 01/15/20 | 350,000 | 355,250 | |||||
Bill Barrett Corp. | |||||||
7.63% due 10/01/19 | 250,000 | 258,125 | |||||
Precision Drilling Corp. | |||||||
6.63% due 11/15/204 | 190,000 | 197,125 | |||||
Total Energy | 1,334,250 | ||||||
INDUSTRIAL - 1.5% | |||||||
Quality Distribution LLC / QD Capital Corp. | |||||||
9.88% due 11/01/184 | 750,000 | 787,500 | |||||
Dynagas LNG Partners Limited Partnership/ | |||||||
Dynagas Finance, Inc. | |||||||
6.25% due 10/30/19 | 500,000 | 500,000 | |||||
Total Industrial | 1,287,500 | ||||||
BASIC MATERIALS - 1.1% | |||||||
Yamana Gold, Inc. | |||||||
4.95% due 07/15/244 | 750,000 | 746,600 | |||||
KGHM International Ltd. | |||||||
7.75% due 06/15/193,4 | 200,000 | 211,000 | |||||
Total Basic Materials | 957,600 | ||||||
CONSUMER, CYCLICAL - 0.9% | |||||||
United Airlines 2014-2 Class B | |||||||
Pass Through Trust | |||||||
4.63% due 09/03/22 | 500,000 | 491,250 | |||||
AmeriGas Finance LLC / AmeriGas Finance Corp. | |||||||
6.75% due 05/20/204 | 250,000 | 260,000 | |||||
Total Consumer, Cyclical | 751,250 | ||||||
CONSUMER, NON-CYCLICAL - 0.7% | |||||||
Bumble Bee Holdings, Inc. | |||||||
9.00% due 12/15/173 | 600,000 | 628,500 | |||||
GOVERNMENT - 0.6% | |||||||
Magyar Export-Import Bank Zrt | |||||||
4.00% due 01/30/203 | 500,000 | 495,250 | |||||
Total Corporate Bonds | |||||||
(Cost $17,153,102) | 16,999,471 | ||||||
SENIOR FLOATING RATE INTERESTS††,1 - 7.8% | |||||||
INDUSTRIAL - 2.4% | |||||||
Rise Ltd. | |||||||
4.74% due 02/12/39 | 481,771 | 488,419 | |||||
AABS Ltd. | |||||||
4.87% due 01/15/38 | 447,917 | 455,173 | |||||
HD Supply, Inc. | |||||||
4.00% due 06/28/18 | 396,954 | 392,191 | |||||
Doncasters Group Ltd. | |||||||
4.50% due 04/09/20 | 249,368 | 247,343 | |||||
Dematic S.A. | |||||||
4.25% due 12/28/19 | 248,125 | 244,249 | |||||
Sabre, Inc. | |||||||
4.00% due 02/19/19 | 198,485 | 195,633 | |||||
Total Industrial | 2,023,008 | ||||||
CONSUMER, CYCLICAL - 1.7% | |||||||
American Tire Distributors, Inc. | |||||||
5.75% due 06/01/18 | 300,000 | 299,439 | |||||
BJ’s Wholesale Club, Inc. | |||||||
4.50% due 09/26/19 | 300,000 | 295,077 | |||||
Smart & Final Stores LLC | |||||||
4.75% due 11/15/19 | 270,796 | 269,951 | |||||
Fitness International LLC | |||||||
5.50% due 07/01/20 | 249,375 | 246,881 | |||||
Arby ’s | |||||||
4.75% due 11/15/20 | 198,500 | 198,004 | |||||
Michaels Stores, Inc. | |||||||
4.00% due 01/28/20 | 200,000 | 197,638 | |||||
Total Consumer, Cyclical | 1,506,990 | ||||||
TECHNOLOGY - 1.7% | |||||||
Avago Technologies Ltd. | |||||||
3.75% due 05/06/21 | 698,250 | 691,359 | |||||
MSC Software Corp. | |||||||
5.00% due 05/29/20 | 498,750 | 496,256 | |||||
Blue Coat Systems, Inc. | |||||||
4.00% due 05/31/19 | 198,995 | 194,850 | |||||
Epicor Software | |||||||
4.00% due 05/16/18 | 97,464 | 96,197 | |||||
Total Technology | 1,478,662 | ||||||
BASIC MATERIALS - 0.8% | |||||||
Fortescue Metals Group Ltd. | |||||||
3.75% due 06/30/19 | 744,984 | 728,572 | |||||
CONSUMER, NON-CYCLICAL - 0.6% | |||||||
Diamond Foods, Inc. | |||||||
4.25% due 08/20/18 | 498,123 | 492,211 | |||||
FINANCIAL - 0.4% | |||||||
USI Holdings Corp. | |||||||
4.25% due 12/27/19 | 375,000 | 367,969 | |||||
COMMUNICATIONS - 0.2% | |||||||
Asurion Corp. | |||||||
5.00% due 05/24/19 | 198,459 | 197,294 | |||||
Total Senior Floating Rate Interests | |||||||
(Cost $6,855,085) | 6,794,706 | ||||||
62 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
SCHEDULE OF INVESTMENTS (concluded) | September 30, 2014 |
LIMITED DURATION FUND |
FACE | |||||||
AMOUNT | VALUE | ||||||
COLLATERALIZED MORTGAGE OBLIGATIONS†† - 7.3% | |||||||
LSTAR Securities Investment Trust 2014-1 | |||||||
3.25% due 09/01/211,8 | $ | 2,000,000 | $ | 2,000,000 | |||
CSMC Series 2014-6R | |||||||
0.33% due 09/27/361,3 | 996,851 | 945,625 | |||||
Resource Capital Corp. | |||||||
2.65% due 04/15/32 | 500,000 | 500,000 | |||||
Structured Asset Mortgage Investments II | |||||||
Trust 2006-AR1 | |||||||
0.38% due 02/25/361 | 563,331 | 482,139 | |||||
HarborView Mortgage Loan Trust 2006-12 | |||||||
0.34% due 01/19/381 | 559,460 | 477,545 | |||||
Residential Asset Securitization Trust 2006-A12 | |||||||
6.25% due 11/25/36 | 604,638 | 456,315 | |||||
Nomura Resecuritization Trust 2012-1R | |||||||
0.59% due 08/27/471,3 | 484,903 | 448,536 | |||||
First Horizon Alternative Mortgage Securities | |||||||
Trust 2006-FA1 | |||||||
5.75% due 04/25/36 | 524,108 | 443,849 | |||||
GreenPoint Mortgage Funding Trust | |||||||
Series 2007-AR1 | |||||||
0.23% due 02/25/471 | 419,159 | 388,139 | |||||
Morgan Stanley Re-REMIC Trust 2010-R5 | |||||||
0.54% due 06/26/361,3 | 268,463 | 199,779 | |||||
Total Collateralized Mortgage Obligations | |||||||
(Cost $6,379,465) | 6,341,927 | ||||||
MORTGAGE BACKED SECURITIES†† - 6.5% | |||||||
SRERS Funding Ltd. 2011-RS | |||||||
0.40% due 05/09/461,3 | 1,999,606 | 1,904,625 | |||||
COMM 2014-KYO Mortgage Trust | |||||||
2.50% due 06/11/271,3 | 1,500,000 | 1,500,494 | |||||
Hilton USA Trust 2013-HLT | |||||||
5.61% due 11/05/181,3 | 1,000,000 | 1,015,504 | |||||
JP Morgan Chase Commercial Mortgage | |||||||
Securities Trust 2014-FL5 | |||||||
2.25% due 07/15/311,3 | 1,000,000 | 1,000,000 | |||||
Motel 6 Trust 2012-MTL6 | |||||||
3.78% due 10/05/253 | 250,000 | 250,208 | |||||
Total Mortgage Backed Securities | |||||||
(Cost $5,626,831) | 5,670,831 | ||||||
MUNICIPAL BONDS†† - 1.7% | |||||||
MICHIGAN - 1.7% | |||||||
City of Detroit Michigan General | |||||||
Obligation Unlimited | |||||||
3.50% due 10/07/161 | 1,500,000 | 1,500,000 | |||||
Total Municipal Bonds | |||||||
(Cost $1,500,000) | 1,500,000 | ||||||
REPURCHASE AGREEMENTS††,5,6 - 4.0% | |||||||
Jefferies & Company, Inc. | |||||||
issued 09/08/14 at | |||||||
2.55% due 10/08/14 | 1,331,000 | 1,331,000 | |||||
Jefferies & Company, Inc. | |||||||
issued 09/23/14 at | |||||||
2.15% due 10/17/14 | 988,000 | 988,000 | |||||
Jefferies & Company, Inc. | |||||||
issued 09/15/14 at | |||||||
2.65% due 10/15/14 | 724,000 | 724,000 | |||||
Jefferies & Company, Inc. | |||||||
issued 09/29/14 at | |||||||
2.65% due 10/30/14 | 445,000 | 445,000 | |||||
Total Repurchase Agreements | |||||||
(Cost $3,488,000) | 3,488,000 | ||||||
Total Investments - 113.8% | |||||||
(Cost $99,059,321) | $ | 98,798,660 | |||||
Other Assets & Liabilities, net - (13.8)% | (11,970,448) | ||||||
Total Net Assets - 100.0% | $ | 86,828,212 | |||||
* | 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 | Variable rate security. Rate indicated is rate effective at September 30, 2014. | |
2 | Perpetual maturity. | |
3 | Security is a 144A or Section 4(a)(2) security. The total market value of 144A or Section 4(a)(2) securities is $59,667,038 (cost $59,740,118), or 68.7% of total net assets. These securities have been determined to be liquid under guidelines established by the Board of Trustees. | |
4 | Security or a portion thereof is held as collateral for reverse repurchase agreements — See Note 13. | |
5 | Repurchase Agreements — See Note 12 | |
6 | Illiquid security. | |
7 | Residual interest. | |
8 | Security is a 144A or Section 4(a)(2) security. These securities are considered illiquid and restricted under guidelines established by the Board of Trustees. The total market value of 144A or Section 4(a)(2) securities is $2,502,500 (cost $2,500,000), or 2.9% of total net assets — See Note 16. | |
plc — Public Limited Company | ||
�� | REIT — Real Estate Investment Trust |
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 63 |
LIMITED DURATION FUND |
STATEMENT OF ASSETS AND LIABILITIES |
September 30, 2014 |
ASSETS: | ||||
Investments, at value | ||||
(cost $95,571,321) | $ | 95,310,660 | ||
Repurchase agreements, at value | ||||
(cost $3,488,000) | 3,488,000 | |||
Total investments | ||||
(cost $99,059,321) | 98,798,660 | |||
Cash | 502,823 | |||
Prepaid expenses | 24,056 | |||
Receivables: | ||||
Securities sold | 1,002,581 | |||
Fund shares sold | 894,715 | |||
Interest | 437,776 | |||
Total assets | 101,660,611 | |||
LIABILITIES: | ||||
Reverse Repurchase Agreements | 7,534,716 | |||
Payable for: | ||||
Securities purchased | 7,141,972 | |||
Fund shares redeemed | 96,391 | |||
Management fees | 11,886 | |||
Distributions to shareholders | 10,292 | |||
Fund accounting/administration fees | 6,236 | |||
Distribution and service fees | 3,442 | |||
Transfer agent/maintenance fees | 312 | |||
Trustees’ fees* | 238 | |||
Miscellaneous | 26,914 | |||
Total liabilities | 14,832,399 | |||
NET ASSETS | $ | 86,828,212 | ||
NET ASSETS CONSIST OF: | ||||
Paid in capital | $ | 86,967,802 | ||
Undistributed net investment income | 121,071 | |||
Accumulated net realized gain on investments | — | |||
Net unrealized depreciation on investments | (260,661 | ) | ||
Net assets | $ | 86,828,212 | ||
A-CLASS: | ||||
Net assets | $ | 17,034,832 | ||
Capital shares outstanding | 682,178 | |||
Net asset value per share | $24.97 | |||
Maximum offering price per share | ||||
(Net asset value divided by 97.75%) | $25.54 | |||
C-CLASS: | ||||
Net assets | $ | 643,349 | ||
Capital shares outstanding | 25,779 | |||
Net asset value per share | $24.96 | |||
INSTITUTIONAL CLASS: | ||||
Net assets | $ | 69,150,031 | ||
Capital shares outstanding | 2,769,884 | |||
Net asset value per share | $24.96 | |||
STATEMENT OF OPERATIONS |
Period Ended September 30, 2014** |
INVESTMENT INCOME: | ||||
Interest | $ | 1,247,529 | ||
Dividends from securities of unaffiliated issuers | 15,014 | |||
Dividends from securities of affiliated issuers | 62,823 | |||
Total investment income | 1,325,366 | |||
EXPENSES: | ||||
Management fees | 171,493 | |||
Transfer agent/maintenance fees: | ||||
A-Class | 1,656 | |||
C-Class | 708 | |||
Institutional Class | 231 | |||
Distribution and service fees: | ||||
A-Class | 8,562 | |||
C-Class | 2,845 | |||
Fund accounting/administration fees | 36,204 | |||
Registration fees | 42,237 | |||
Legal fees | 41,453 | |||
Printing expenses | 26,962 | |||
Interest expense | 11,949 | |||
Custodian fees | 3,456 | |||
Trustees’ fees* | 2,778 | |||
Line of credit expense | 434 | |||
Miscellaneous | 24,657 | |||
Total expenses | 375,625 | |||
Less: | ||||
Expenses waived by Adviser | (147,314 | ) | ||
Net expenses | 228,311 | |||
Net investment income | 1,097,055 | |||
NET REALIZED AND UNREALIZED GAIN (LOSS): | ||||
Net realized gain (loss) on: | ||||
Investments in unaffiliated issuers | 110,642 | |||
Investments in affiliated issuers | (1,611 | ) | ||
Realized gain distributions received from | ||||
investment company shares | 3,443 | |||
Net realized gain | 112,474 | |||
Net change in unrealized appreciation (depreciation) on: | ||||
Investments | (260,661 | ) | ||
Net change in unrealized appreciation (depreciation) | (260,661 | ) | ||
Net realized and unrealized loss | (148,187 | ) | ||
Net increase in net assets resulting | ||||
from operations | $ | 948,868 | ||
* Relates to Trustees not deemed “interested persons” within the meaning of Section 2(a)(19) of the 1940 Act. |
** Since commencement of operations: December 16, 2013. |
64 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
LIMITED DURATION FUND |
STATEMENT OF CHANGES IN NET ASSETS |
Period Ended | ||||
September 30, | ||||
2014a | ||||
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS: | ||||
Net investment income | $ | 1,097,055 | ||
Net realized gain on investments | 112,474 | |||
Net change in unrealized appreciation (depreciation) on investments | (260,661 | ) | ||
Net increase in net assets resulting from operations | 948,868 | |||
DISTRIBUTIONS TO SHAREHOLDERS FROM: | ||||
Net investment income | ||||
A-Class | (89,880 | ) | ||
C-Class | (5,453 | ) | ||
Institutional Class | (993,125 | ) | ||
Total distributions to shareholders | (1,088,458 | ) | ||
CAPITAL SHARE TRANSACTIONS: | ||||
Proceeds from sale of shares | ||||
A-Class | 25,872,935 | |||
C-Class | 1,176,069 | |||
Institutional Class | 85,617,617 | |||
Distributions reinvested | ||||
A-Class | 71,252 | |||
C-Class | 4,971 | |||
Institutional Class | 802,150 | |||
Cost of shares redeemed | ||||
A-Class | (8,887,662 | ) | ||
C-Class | (537,027 | ) | ||
Institutional Class | (17,152,503 | ) | ||
Net increase from capital share transactions | 86,967,802 | |||
Net increase in net assets | 86,828,212 | |||
NET ASSETS: | ||||
Beginning of period | — | |||
End of period | $ | 86,828,212 | ||
Undistributed net investment income at end of period | $ | 121,071 | ||
CAPITAL SHARE ACTIVITY: | ||||
Shares sold | ||||
A-Class | 1,034,665 | |||
C-Class | 47,044 | |||
Institutional Class | 3,423,937 | |||
Shares issued from reinvestment of distributions | ||||
A-Class | 2,851 | |||
C-Class | 200 | |||
Institutional Class | 32,093 | |||
Shares redeemed | ||||
A-Class | (355,338 | ) | ||
C-Class | (21,465 | ) | ||
Institutional Class | (686,146 | ) | ||
Net increase in shares | 3,477,841 | |||
a Since commencement of operations: December 16, 2013. |
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 65 |
LIMITED DURATION FUND |
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. |
Period Ended | Period Ended | Period Ended | ||||||||||
September 30, | September 30, | September 30, | ||||||||||
2014a | 2014a | 2014a | ||||||||||
A-Class | C-Class | Institutional Class | ||||||||||
Per Share Data | ||||||||||||
Net asset value, beginning of period | $25.00 | $25.00 | $25.00 | |||||||||
Income (loss) from investment operations: | ||||||||||||
Net investment income (loss)b | .52 | .38 | .57 | |||||||||
Net gain (loss) on investments (realized and unrealized) | (.08 | ) | (.09 | ) | (.08 | ) | ||||||
Total from investment operations | .44 | .29 | .49 | |||||||||
Less distributions from: | ||||||||||||
Net investment income | (.47 | ) | (.33 | ) | (.53 | ) | ||||||
Total distributions | (.47 | ) | (.33 | ) | (.53 | ) | ||||||
Net asset value, end of period | $24.97 | $24.96 | $24.96 | |||||||||
Total Returnd | 1.75% | 1.13% | 1.98% | |||||||||
Ratios/Supplemental Data | ||||||||||||
Net assets, end of period (in thousands) | $17,035 | $643 | $69,150 | |||||||||
Ratios to average net assets: | ||||||||||||
Net investment income (loss) | 2.67% | 1.93% | 2.90% | |||||||||
Total expenses | 1.14% | 2.14% | 0.96% | |||||||||
Net expensesc,e | 0.83% | 1.56% | 0.57% | |||||||||
Portfolio turnover rate | 40% | 40% | 40% |
a | Since commencement of operations: December 16, 2013. Percentage amounts for the period, except total return and portfolio turnover rate, have been annualized. | |
b | Net investment income (loss) per share was computed using average shares outstanding throughout the period. | |
c | Net expense information reflects the expense ratios after expense waivers. | |
d | Total return does not reflect the impact of any applicable sales charges and has not been annualized. | |
e | Net expenses may include expenses that are excluded from the expense limitation agreement. Excluding these expenses, the operating expense ratio for the period would be: |
09/30/14 | ||||
A-Class | 0.79 | % | ||
C-Class | 1.52 | % | ||
Institutional Class | 0.54 | % |
66 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
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THE GUGGENHEIM FUNDS ANNUAL REPORT | 67 |
MANAGERS’ COMMENTARY (Unaudited) | September 30, 2014 |
To Our Shareholders
Guggenheim Macro Opportunities Fund (the “Fund”) 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; Kevin H. Gundersen, Senior Managing Director and Portfolio Manager; and James W. Michal, Managing Director and Portfolio Manager. In the following paragraphs, the investment team discusses the market environment and the Fund’s performance for the fiscal year ended September 30, 2014.
For the one-year period ended September 30, 2014 (the “Period”), the Guggenheim Macro Opportunities Fund returned 6.88%1, compared with the 0.05% return of its benchmark, the Bank of America Merrill Lynch 3-Month U.S. Treasury Bill Index.
The Fund seeks to provide total return, comprised of current income and capital appreciation. The Fund pursues its investment objective by investing in a wide range of fixed income and other debt and equity securities selected from a variety of sectors and credit qualities.
As the Period began, monetary accommodation by the Fed was propelling asset prices higher, while positive economic momentum was pushing interest rates higher. By the end of December 2013, the 10-year U.S. Treasury yield reached its highest point over the prior 2½ years at 3%, a level that was not revisited for the remainder of the Period.
Credit-spread and risk assets continued to find investor favor through 2014, even though severe winter weather produced volatility and mixed economic data. Additional liquidity from central banks outside the U.S. supported foreign capital flows into U.S. assets, which, along with the search for yield among U.S. investors, was positive for fixed income. But just as the market appeared to be growing complacent in the third quarter of 2014, leveraged credit had its first correction in a year, as mutual fund investors withdrew from the sector amid concerns about frothy valuations and talk of credit bubble. Volatility spread across risk assets, including equities.
The events that drove spread widening in the third quarter showed that investors are becoming increasingly reactive to factors outside of the fundamentals that underscore a generally positive outlook on credit. Even though U.S. economic data was mixed in September, it had been strong year to date, and the improving health of the U.S. economy and low interest rates underscored our expectation that spreads can compress further. Volatility is likely to continue, but as the economy improves, brief periods of spread widening could present buying opportunities.
The Fund mainly invests high yield corporate bonds, bank loans, asset-backed securities (ABS) and non-agency residential mortgage-backed securities (RMBS). It has positions in preferred securities, investment grade corporate bonds and equity ETFs.
High yield corporate bonds and bank loans posted their fifth consecutive year of positive returns in 2013 and strong performance continued through the first half of 2014. As upside potential declined in the leveraged credit space, the Fund rotated into higher quality credits. With the onset of a leveraged credit sell-off in the third quarter, the Fund was able to add exposure back to many of the names it had sold several months before.
The ABS and non-agency RMBS sectors contributed positively for the Period. The BofA/ML ABS Master BBB-AA Index gained 3.36% in the 12-month Period as its spread tightened 48 basis points to 133 basis points. Credit performance across the commercial ABS and collateralized loan obligation (CLO) sectors remained strong given benign credit conditions and improving collateral valuations across the U.S. economy. 2014 issuance is well ahead of 2013’s pace and likely to break 2012’s post-crisis peak. New ABS issuance was diversified across all classes, with auto and credit card new issues remaining strong. Consumer ABS performance has been solid despite concern surrounding student loans and subprime auto lending. JPMorgan Research indicates the gradual improvement in the household balance sheet will continue to support credit performance of Consumer ABS. Year-to-date ABS issuance has now surpassed $94 billion, the all time annual record set in 2007. Housing activity has been uneven, as price appreciation has been slowing and sales remain below the post-crisis peak in 2013. With the economic outlook mostly positive and central banks maintaining accommodation, the backdrop for ABS and RMBS remains constructive. Amidst these positive fundamentals, the CLO market raised $93 billion through three quarters of 2014, already exceeding 2013’s full-year volume.
68 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
MANAGERS’ COMMENTARY (Unaudited) (concluded) | September 30, 2014 |
Much of the Fund’s outperformance stemmed from credit spread compression and the gradual decline in the benchmark 10-year U.S. Treasury yield. The Fund maintains very little interest rate duration, particularly at the front end of the yield curve, and thus has largely avoided losses due to a flattening curve. Concentration of the Fund’s credit investments in relatively short-maturity high yield bonds and loans has muted the impact of recent turmoil of risk assets, and the Fund continues to use periods of weakness in those sectors to add attractive assets. While the Fund remains largely invested in floating rate assets, it will continue to take advantage of periods of rate volatility to invest in attractive fixed rate debt.
The Fund may engage in derivative transactions for speculative purposes to enhance total return, seek to hedge against fluctuations in securities prices, interest rates or currency rates, change the effective duration of its portfolio, manage certain investment risks and/or as a substitute for the purchase or sale of securities or currencies. Throughout the fiscal year, the Fund utilized a number of macroeconomic themed trades to take positions based on the Chief Investment Officer’s views on certain segments of financial markets or to hedge against changes in interest rates, equity prices and to improve the Fund’s Diversification. Among the macro themed trades that helped performance were exposure to European equities and a basket of U.S. equities in the for-profit education industry. Over the course of the year, long dollar and short euro positions also added to performance.
Detractors from Fund performance included a few higher-duration assets such as fixed-rate corporate bonds and preferred debt in late 2013 when rates were
rising, and macro-themed trades intended to hedge against a decline in U.S. equity markets when stocks were strong. Over the course of the year, a long gold position was a minor detractor.
Performance displayed represents past performance which is no guarantee of future results.
1 Performance figures are based on A-Class shares and do not reflect deduction of the sales charges or taxes that a shareholder would pay on distributions or the redemption of shares. Fee waivers and/or reimbursements reduce Fund expenses, and, in the absence of such waivers, the performance quoted would be reduced.
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 | 69 |
PERFORMANCE REPORT AND FUND PROFILE (Unaudited) | September 30, 2014 |
MACRO OPPORTUNITIES FUND
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.
Portfolio Composition by Quality Rating* | ||
% of | ||
Rating | Total Investments | |
Fixed Income Instruments | ||
AAA | 0.9 | % |
AA | 3.0 | % |
A | 10.9 | % |
BBB | 18.6 | % |
BB | 12.8 | % |
B | 26.1 | % |
CCC | 12.9 | % |
Other | 3.1 | % |
Other Instruments | ||
Mutual Funds | 3.6 | % |
Exchange-Traded Funds | 2.8 | % |
Short Term Investments | 2.7 | % |
Preferred Stocks | 2.3 | % |
Common Stocks | 0.3 | % |
Options Purchased | 0.0 | % |
Options Written | 0.0 | % |
Total Investments | 100.0 | % |
The chart above reflects percentages of the value of total investments.
Inception Dates: | |
A-Class | November 30, 2011 |
C-Class | November 30, 2011 |
Institutional Class | November 30, 2011 |
Ten Largest Holdings (% of Total Net Assets) | |||
Guggenheim Limited Duration | |||
Fund — Institutional Class | 3.0 | % | |
LSTAR Securities Investment Trust 2014-1 | 1.1 | % | |
JPMorgan Chase & Co. | 1.0 | % | |
iShares MSCI Italy Capped ETF | 1.0 | % | |
SPDR EURO STOXX 50 ETF | 1.0 | % | |
iShares MSCI Spain Capped ETF | 1.0 | % | |
Bank of America Corp. | 1.0 | % | |
Gramercy Real Estate | |||
CDO 2007-1 Ltd. — Class A1 | 0.9 | % | |
City of Detroit Michigan General | |||
Obligation Unlimited | 0.9 | % | |
Nomura Resecuritization Trust | |||
2012-1R — Class A | 0.9 | % | |
Top Ten Total | 11.8 | % | |
“Ten Largest Holdings” exclude any temporary cash or derivative investments.
* | Source: Factset. Credit quality ratings are measured on a scale that generally ranges from AAA (highest) to D (lowest). All rated securities have been rated by Moody’s, Standard & Poor’s (“S&P”), or Fitch, which are all a Nationally Recognized Statistical Rating Organization (“NRSRO”). For purposes of this presentation, when ratings are available from more than one agency, the highest rating is used. Guggenheim Investments has converted Moody’s and Fitch ratings to the equivalent S&P rating. Unrated securities do not necessarily indicate low credit quality. Security ratings are determined at the time of purchase and may change thereafter. |
70 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
PERFORMANCE REPORT AND FUND PROFILE (Unaudited) (concluded) | September 30, 2014 |
Cumulative Fund Performance*
Average Annual Returns*
Periods Ended September 30, 2014
Since Inception | ||||||
1 Year | (11/30/11) | |||||
A-Class Shares | 6.88 | % | 7.78 | % | ||
A-Class Shares with sales charge† | 1.81 | % | 5.94 | % | ||
C-Class Shares | 6.10 | % | 7.01 | % | ||
C-Class Shares with CDSC‡ | 5.10 | % | 7.01 | % | ||
Institutional Class Shares | 7.23 | % | 8.15 | % | ||
BofA Merrill Lynch 3-Month U.S. Treasury Bill Index | 0.05 | % | 0.07 | % | ||
* | The performance data above represents past performance that is not predictive of future results. The investment return and principal value of an investment in the Fund will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Returns are historical and include changes in principal and reinvested dividends and capital gains and do not reflect the effect of taxes. The BofA Merrill Lynch 3-Month U.S. Treasury Bill Index is an unmanaged index and, unlike the Fund, has no management fees or operating expenses to reduce its reported return. | |
† | Fund returns are calculated using the maximum sales charge of 4.75%. | |
‡ | Fund returns include a CDSC of 1% if redeemed within 12 months of purchase. |
THE GUGGENHEIM FUNDS ANNUAL REPORT | 71 |
SCHEDULE OF INVESTMENTS | September 30, 2014 | |
MACRO OPPORTUNITIES FUND |
SHARES | VALUE | ||||||
COMMON STOCKS† - 0.2% | |||||||
CONSUMER DISCRETIONARY - 0.2% | |||||||
Travelport LLC* | 204,224 | $ | 3,361,528 | ||||
COMMUNICATIONS - 0.0% | |||||||
Cengage Learning Acquisitions, Inc.*,†† | 21,660 | 695,286 | |||||
BASIC MATERIALS - 0.0% | |||||||
Mirabela Nickel Ltd.* | 7,057,522 | 407,789 | |||||
Total Common Stocks | |||||||
(Cost $6,455,604) | 4,464,603 | ||||||
PREFERRED STOCKS†† - 2.4% | |||||||
Seaspan Corp. | |||||||
6.38% due 04/30/19† | 490,000 | 12,539,100 | |||||
Aspen Insurance Holdings Ltd. | |||||||
5.95%†,1,2 | 440,000 | 10,986,800 | |||||
Goldman Sachs Group, Inc. | |||||||
5.50%†,1,2 | 260,000 | 6,175,000 | |||||
Morgan Stanley | |||||||
6.38%*,†,1,2 | 200,000 | 5,014,000 | |||||
Alm Loan Funding | |||||||
due 06/20/23*,1,15 | 1,373 | 1,222,148 | |||||
GSC Partners CDO Fund Limited / GSC | |||||||
Partners CDO Fund Corp. | |||||||
due 11/20/16*,1,3,15 | 5,200 | 30,368 | |||||
WhiteHorse II Ltd. | |||||||
due 06/15/17*,1,3,15 | 2,100,000 | 21,000 | |||||
Total Preferred Stocks | |||||||
(Cost $36,012,599) | 35,988,416 | ||||||
EXCHANGE-TRADED FUNDS† - 3.0% | |||||||
iShares MSCI Italy Capped ETF | 966,700 | 15,167,523 | |||||
SPDR EURO STOXX 50 ETF | 372,291 | 14,779,953 | |||||
iShares MSCI Spain Capped ETF | 376,577 | 14,648,845 | |||||
Total Exchange-Traded Funds | |||||||
(Cost $43,778,334) | 44,596,321 | ||||||
MUTUAL FUNDS† - 3.7% | |||||||
Guggenheim Limited Duration Fund - | |||||||
Institutional Class4 | 1,822,842 | 45,498,128 | |||||
Guggenheim Risk Managed Real Estate Fund - | |||||||
Institutional Class4 | 401,612 | 10,843,512 | |||||
Total Mutual Funds | |||||||
(Cost $55,632,515) | 56,341,640 | ||||||
SHORT TERM INVESTMENTS† - 2.8% | |||||||
Federated U.S. Treasury Cash Reserve Fund | 42,783,907 | 42,783,907 | |||||
Total Short Term Investments | |||||||
(Cost $42,783,907) | 42,783,907 | ||||||
FACE | |||||||
AMOUNT | |||||||
ASSET BACKED SECURITIES†† - 35.2% | |||||||
Copper River CLO Ltd. 2007-1A | |||||||
due 01/20/211,3,15 | $ | 8,150,000 | 8,940,550 | ||||
0.63% due 01/20/211,3 | 5,050,000 | 4,849,515 | |||||
1.73% due 01/20/211,3 | 2,500,000 | 2,284,500 | |||||
1.03% due 01/20/211,3 | 1,000,000 | 936,700 | |||||
Gramercy Real Estate CDO 2007-1 Ltd. | |||||||
0.51% due 08/15/561,3 | 15,484,440 | 13,646,438 | |||||
Castlelake Aircraft Securitization Trust 2014-1 | |||||||
5.25% due 02/15/29 | 7,673,007 | 7,702,164 | |||||
7.50% due 02/15/29 | 5,710,145 | 5,716,997 | |||||
Cedar Woods CRE CDO Ltd. 2006-1A | |||||||
0.42% due 07/25/51 | 15,202,688 | 13,016,542 | |||||
N-Star Real Estate CDO IX Ltd. | |||||||
0.47% due 02/01/4112 | 13,318,680 | 12,776,609 | |||||
RAIT CRE CDO I Ltd. 2006-1X | |||||||
0.48% due 11/20/46 | 12,501,447 | 11,233,800 | |||||
KKR Financial CLO 2007-1 Ltd. | |||||||
2.48% due 05/15/211,3 | 10,850,000 | 10,639,510 | |||||
Highbridge Loan Management 2012-1 Ltd. | |||||||
3.48% due 09/20/221,3 | 6,500,000 | 6,507,150 | |||||
4.48% due 09/20/221,3 | 3,500,000 | 3,504,900 | |||||
Gramercy Park CLO Ltd. 2014-AR | |||||||
3.18% due 07/17/231,3 | 7,500,000 | 7,461,750 | |||||
4.28% due 07/17/231,3 | 1,750,000 | 1,738,275 | |||||
Centerline REIT, Inc. 2004-RR3 | |||||||
4.76% due 09/21/451,3 | 8,369,125 | 8,481,606 | |||||
GreenPoint Mortgage Funding Trust 2005-HE4 | |||||||
0.86% due 07/25/301 | 8,650,000 | 8,097,793 | |||||
CCR Incorporated MT100 Payment | |||||||
Rights Master Trust 2010-CX | |||||||
0.60% due 07/10/17†††,1 | 8,302,277 | 8,079,776 | |||||
MWAM CBO 2001-1 Ltd. | |||||||
3.08% due 01/30/311,3 | 4,445,663 | 4,136,245 | |||||
14.09% due 01/30/313 | 3,261,457 | 3,546,182 | |||||
N-Star REL CDO VIII Ltd. 2006-8A | |||||||
0.51% due 02/01/411,3 | 5,350,000 | 4,812,325 | |||||
0.44% due 02/01/411,3 | 2,538,873 | 2,435,033 | |||||
Cent CLO 16, LP 2014-16AR | |||||||
3.74% due 08/01/241,3 | 7,250,000 | 7,213,750 | |||||
West Coast Funding Ltd. 2006-1A | |||||||
0.38% due 11/02/411,3 | 7,240,204 | 7,106,260 | |||||
ARES XXVI CLO Ltd. 2013-1A | |||||||
due 04/15/253,15 | 6,450,000 | 4,867,815 | |||||
2.98% due 04/15/251,3 | 2,000,000 | 1,951,200 | |||||
Emerald Aviation Finance Ltd. 2013-1 | |||||||
6.35% due 10/15/383,5 | 6,598,958 | 6,701,242 | |||||
Jasper CLO Ltd. 2005-1A | |||||||
1.14% due 08/01/171,3 | 7,000,000 | 6,692,700 | |||||
Fortress Credit Opportunities V CLO Ltd. 2014-5A | |||||||
4.73% due 10/15/261,3 | 3,500,000 | 3,422,650 | |||||
3.78% due 10/15/261,3 | 3,000,000 | 2,942,400 | |||||
Dryden XXIII Senior Loan Fund 2014-23RA | |||||||
3.18% due 07/17/231,3 | 6,000,000 | 5,968,800 | |||||
Structured Asset Securities Corporation | |||||||
Mortgage Loan Trust 2006-OPT1 | |||||||
0.41% due 04/25/361 | 6,613,922 | 5,953,912 | |||||
Babson CLO Limited 2014-I | |||||||
due 07/20/253,15 | 6,400,000 | 5,825,280 | |||||
Willis Engine Securitization Trust II 2012-A | |||||||
5.50% due 09/15/373,6 | 5,490,075 | 5,503,800 | |||||
Fortress Credit Opportunities III CLO, LP 2014-3A | |||||||
3.48% due 04/28/261,3 | 5,500,000 | 5,462,600 | |||||
ALM XIV Ltd. 2014-14A | |||||||
3.18% due 07/28/261,3 | 3,100,000 | 3,051,330 | |||||
3.68% due 07/28/261,3 | 2,500,000 | 2,359,500 | |||||
Neuberger Berman CLO XII Ltd. 2014-12AR | |||||||
3.33% due 07/25/231,3 | 5,300,000 | 5,280,920 |
72 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
SCHEDULE OF INVESTMENTS (continued) | September 30, 2014 | |
MACRO OPPORTUNITIES FUND |
FACE | |||||||
AMOUNT | VALUE | ||||||
Highland Park CDO I Ltd. 2006-1A | |||||||
0.56% due 11/25/511,3 | $ | 5,499,204 | $ | 5,244,041 | |||
Telos CLO Ltd. 2013-3A | |||||||
3.23% due 01/17/241,3 | 2,750,000 | 2,706,000 | |||||
4.48% due 01/17/241,3 | 2,550,000 | 2,489,310 | |||||
Lehman XS Trust 2007-9 | |||||||
0.27% due 06/25/371 | 5,372,400 | 4,848,027 | |||||
NewStar Arlington Senior Loan | |||||||
Program LLC 2014-1A | |||||||
4.48% due 07/25/251,3 | 2,750,000 | 2,633,675 | |||||
3.53% due 07/25/251,3 | 2,000,000 | 1,948,800 | |||||
Great Lakes CLO 2014-1 Ltd. | |||||||
3.93% due 04/15/251,3 | 3,000,000 | 2,983,500 | |||||
4.43% due 04/15/251,3 | 1,500,000 | 1,433,850 | |||||
GSAA Home Equity Trust 2007-7 | |||||||
0.42% due 07/25/371 | 5,199,271 | 4,410,853 | |||||
AMMC CDO 2012-11A | |||||||
due 10/30/233,15 | 5,650,000 | 4,265,185 | |||||
Turbine Engines Securitization Ltd. 2013-1A | |||||||
5.13% due 12/13/483 | 4,051,108 | 4,091,619 | |||||
Flagship CLO VI 2007-1A | |||||||
2.63% due 06/10/211,3 | 4,200,000 | 4,069,380 | |||||
Putnam Structured Product CDO 2002-1 Ltd. | |||||||
0.83% due 01/10/381,3 | 4,361,558 | 4,009,144 | |||||
Golub Capital Partners CLO 10 Ltd. 2014-10AR | |||||||
3.18% due 10/20/211,3 | 4,000,000 | 3,980,000 | |||||
Newstar Commercial Loan Funding 2013-1 LLC | |||||||
4.78% due 09/20/231,3 | 3,250,000 | 3,191,175 | |||||
5.53% due 09/20/231,3 | 750,000 | 748,125 | |||||
Saxon Asset Securities Trust 2005-4 | |||||||
0.59% due 11/25/371 | 4,550,000 | 3,930,540 | |||||
Rockwall CDO II Ltd. 2007-1A | |||||||
0.49% due 08/01/241,3 | 2,592,421 | 2,481,206 | |||||
0.79% due 08/01/241,3 | 1,500,000 | 1,337,250 | |||||
Atlas Senior Loan Fund IV Ltd. 2014-2A | |||||||
2.93% due 02/17/261,3 | 3,900,000 | 3,739,320 | |||||
Northwoods Capital VII Ltd. 2006-7A | |||||||
3.73% due 10/22/211,3 | 2,000,000 | 1,993,600 | |||||
1.78% due 10/22/211,3 | 1,600,000 | 1,575,680 | |||||
CIT Mortgage Loan Trust 2007-1 | |||||||
1.60% due 10/25/371,3 | 3,750,000 | 3,483,926 | |||||
Atlas Senior Loan Fund II Ltd. 2012-2A | |||||||
due 01/30/243,15 | 3,650,000 | 3,429,175 | |||||
Grayson CLO Ltd. 2006-1A | |||||||
0.65% due 11/01/211,3 | 3,700,000 | 3,428,790 | |||||
GSAA Home Equity Trust 2006-14 | |||||||
0.40% due 09/25/361 | 5,430,724 | 3,415,719 | |||||
GSAA Home Equity Trust 2006-18 | |||||||
6.00% due 11/25/365 | 4,812,240 | 3,403,250 | |||||
ACA CLO 2007-1 Ltd. | |||||||
1.18% due 06/15/221,3 | 3,550,000 | 3,352,265 | |||||
First Franklin Mortgage Loan Trust 2006-FF1 | |||||||
0.49% due 01/25/361 | 2,750,000 | 2,417,869 | |||||
0.59% due 01/25/361 | 1,225,000 | 932,575 | |||||
Golub Capital Partners CLO 18 Ltd. 2014-18A | |||||||
3.73% due 04/25/261,3 | 2,200,000 | 2,183,940 | |||||
4.23% due 04/25/261,3 | 1,200,000 | 1,156,560 | |||||
DIVCORE CLO Ltd. 2013-1A B | |||||||
4.05% due 11/15/32 | 3,250,000 | 3,251,950 | |||||
CIFC Funding 2012-I Ltd. 2014-1AR | |||||||
3.31% due 08/14/241,3 | 3,250,000 | 3,233,425 | |||||
Primus Clo II Ltd. 2007-2A | |||||||
1.18% due 07/15/211,3 | 3,500,000 | 3,212,300 | |||||
Marathon CLO II Ltd. 2005-2A | |||||||
2.03% due 12/20/191,3 | 2,050,000 | 2,016,790 | |||||
due 12/20/193,15 | 2,250,000 | 1,177,200 | |||||
ALM VII R-2 Ltd. 2013-7R2A | |||||||
2.83% due 04/24/241,3 | 3,250,000 | 3,190,850 | |||||
Drug Royalty II Limited Partnership 2 2014-1 | |||||||
3.48% due 07/15/233 | 3,187,826 | 3,187,428 | |||||
Duane Street CLO II Ltd. 2006-2A | |||||||
3.98% due 08/20/181,3 | 3,250,000 | 3,153,800 | |||||
ALM VII R Ltd. 2013-7RA | |||||||
3.68% due 04/24/241,3 | 3,250,000 | 3,107,975 | |||||
Helios Series I Multi Asset CBO Ltd. 2001-1A | |||||||
1.17% due 12/13/361,3 | 3,244,594 | 3,083,987 | |||||
Carlyle Global Market Strategies | |||||||
CLO 2012-2 Ltd. | |||||||
4.13% due 07/20/231,3 | 3,000,000 | 2,976,600 | |||||
Battalion Clo 2007-I Ltd. | |||||||
2.38% due 07/14/221,3 | 3,100,000 | 2,967,320 | |||||
Home Equity Asset Trust 2005-7 | |||||||
0.60% due 01/25/361 | 3,250,000 | 2,936,593 | |||||
KVK CLO 2014-2 Ltd. | |||||||
3.25% due 04/15/261,3 | 3,000,000 | 2,920,200 | |||||
Vibrant CLO II Ltd. 2013-2A | |||||||
2.98% due 07/24/241,3 | 3,000,000 | 2,908,200 | |||||
KVK CLO 2014-1 Ltd. | |||||||
3.13% due 05/15/261,3 | 3,000,000 | 2,898,600 | |||||
Race Point V CLO Ltd. 2014-5AR | |||||||
3.98% due 12/15/221,3 | 2,900,000 | 2,893,330 | |||||
Franklin CLO Ltd. 2007-6A | |||||||
2.48% due 08/09/191,3 | 3,000,000 | 2,849,100 | |||||
Wachovia Asset Securitization Issuance II | |||||||
LLC 2007-HE1 Trust | |||||||
0.29% due 07/25/371,3 | 3,239,075 | 2,841,187 | |||||
Citigroup Mortgage Loan Trust 2007-WFHE2 | |||||||
0.50% due 03/25/371 | 3,200,000 | 2,835,216 | |||||
Park Place Securities Incorporated | |||||||
Series 2005-WHQ2 | |||||||
0.61% due 05/25/351 | 3,000,000 | 2,795,271 | |||||
Great Lakes CLO 2012-1 Ltd. | |||||||
due 01/15/233,15 | 3,250,000 | 2,790,125 | |||||
Finn Square CLO Ltd. 2012-1A | |||||||
due 12/24/233,15 | 3,250,000 | 2,736,500 | |||||
Turbine Engines Securitization Ltd. | |||||||
6.38% due 12/13/483 | 2,675,275 | 2,715,404 | |||||
Octagon Loan Funding Ltd. | |||||||
due 11/18/26†††,3,15 | 3,000,000 | 2,614,800 | |||||
Icon Brand Holdings LLC 2013-1A | |||||||
4.35% due 01/25/433 | 2,580,317 | 2,568,963 | |||||
Keuka Park CLO Limited 2013-1 | |||||||
due 10/21/243,15 | 3,000,000 | 2,565,000 | |||||
New Century Home Equity Loan Trust 2004-4 | |||||||
0.95% due 02/25/351 | 2,760,236 | 2,530,093 | |||||
Callidus Debt Partners Clo Fund VI Ltd. 2007-6A | |||||||
3.23% due 10/23/211,3 | 2,100,000 | 2,015,790 | |||||
1.48% due 10/23/211,3 | 500,000 | 475,250 | |||||
Wells Fargo Home Equity Asset-Backed | |||||||
Securities 2005-4 Trust | |||||||
0.41% due 05/25/361 | 2,800,000 | 2,466,895 |
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 73 |
SCHEDULE OF INVESTMENTS (continued) | September 30, 2014 | |
MACRO OPPORTUNITIES FUND |
FACE | |||||||
AMOUNT | VALUE | ||||||
San Gabriel CLO Ltd. 2007-1A | |||||||
2.48% due 09/10/211,3 | $ | 2,450,000 | $ | 2,337,790 | |||
Global Leveraged Capital Credit | |||||||
Opportunity Fund 2006-1A | |||||||
1.23% due 12/20/181,3 | 2,376,000 | 2,296,404 | |||||
GSAA Trust 2005-10 | |||||||
0.80% due 06/25/351 | 2,462,000 | 2,276,249 | |||||
Halcyon Structured Asset Management Long | |||||||
Secured/Short Unsecured 2007-1 Ltd. | |||||||
2.54% due 08/07/211,3 | 2,100,000 | 2,072,070 | |||||
Acis CLO 2013-1 Ltd. | |||||||
4.73% due 04/18/241,3 | 2,100,000 | 2,071,020 | |||||
Bear Stearns Asset Backed Securities | |||||||
Trust 2005-3 | |||||||
0.90% due 09/25/351 | 2,162,727 | 2,063,069 | |||||
Sound Point CLO Ltd. 2012-1A | |||||||
4.81% due 10/20/231,3 | 2,000,000 | 2,007,600 | |||||
Ableco Capital LLC 2013-1 | |||||||
4.92% due 05/31/191,12 | 2,000,000 | 2,000,000 | |||||
OCP CLO 2014-6 Ltd. | |||||||
3.36% due 07/17/261,3 | 2,000,000 | 1,982,000 | |||||
CIFC Funding 2006-I B Ltd. | |||||||
4.23% due 12/22/201,3 | 2,000,000 | 1,971,000 | |||||
TCW Global Project Fund III Ltd. 2005-1A | |||||||
0.88% due 09/01/17†††,1,3 | 1,500,000 | 1,443,900 | |||||
1.08% due 09/01/17†††,1,3 | 600,000 | 514,680 | |||||
Gale Force 4 CLO Ltd. 2007-4A | |||||||
3.73% due 08/20/211,3 | 2,000,000 | 1,958,400 | |||||
Salus CLO 2012-1 Ltd. | |||||||
6.98% due 03/05/211,3 | 1,200,000 | 1,186,560 | |||||
4.98% due 03/05/211,3 | 750,000 | 751,650 | |||||
AMMC CLO XIV Ltd. 2014-14A | |||||||
3.15% due 07/27/261,3 | 2,000,000 | 1,922,000 | |||||
Cerberus Onshore II CLO LLC 2014-1A | |||||||
3.73% due 10/15/231,3 | 1,000,000 | 972,500 | |||||
4.23% due 10/15/231,3 | 1,000,000 | 943,100 | |||||
Lime Street CLO Corp. 2007-1A | |||||||
2.73% due 06/20/211,3 | 2,000,000 | 1,891,200 | |||||
NewStar Commercial Loan Trust 2007-1 | |||||||
1.53% due 09/30/221,3 | 1,000,000 | 945,700 | |||||
2.53% due 09/30/221,3 | 1,000,000 | 940,900 | |||||
Churchill Financial Cayman Ltd. 2007-1A | |||||||
1.48% due 07/10/191,3 | 1,000,000 | 946,600 | |||||
2.83% due 07/10/191,3 | 1,000,000 | 937,700 | |||||
New Century Home Equity Loan Trust 2005-1 | |||||||
0.87% due 03/25/351 | 2,059,536 | 1,831,842 | |||||
Kingsland III Ltd. 2006-3A | |||||||
1.83% due 08/24/211,3 | 1,890,000 | 1,798,524 | |||||
Acis CLO 2013-2 Ltd. | |||||||
4.08% due 10/14/221,3 | 1,800,000 | 1,738,620 | |||||
Liberty CLO Ltd. 2005-1A | |||||||
0.74% due 11/01/171,3 | 1,750,000 | 1,732,850 | |||||
Shackleton II CLO Ltd. 2012-2A | |||||||
4.28% due 10/20/231,3 | 1,750,000 | 1,727,075 | |||||
Airplanes Pass Through Trust 2001-1A | |||||||
0.70% due 03/15/191 | 3,990,370 | 1,720,847 | |||||
CIFC Funding 2014 Ltd. | |||||||
3.03% due 04/18/251,3 | 1,750,000 | 1,702,925 | |||||
Carlyle Global Market Strategies | |||||||
CLO 2012-3 Ltd. | |||||||
due 10/04/243,15 | 1,800,000 | 1,679,220 | |||||
OHA Park Avenue CLO I Ltd. 2007-1A | |||||||
3.48% due 03/14/221,3 | 1,667,510 | 1,609,981 | |||||
Telos CLO 2007-2 Ltd. | |||||||
2.43% due 04/15/221,3 | 1,650,000 | 1,573,935 | |||||
Landmark VIII CLO Ltd. 2006-8A | |||||||
1.68% due 10/19/201,3 | 1,650,000 | 1,538,295 | |||||
Ares XXV CLO Ltd. 2013-3A | |||||||
due 01/17/243,15 | 2,000,000 | 1,530,000 | |||||
Avalon IV Capital Ltd. 2014-1AR | |||||||
4.08% due 04/17/231,3 | 1,500,000 | 1,497,900 | |||||
LCM X, LP 2014-10AR | |||||||
3.98% due 04/15/221,3 | 1,500,000 | 1,492,500 | |||||
MCF CLO I LLC 2013-1A | |||||||
3.78% due 04/20/231,3 | 1,500,000 | 1,483,950 | |||||
Asset Backed Securities Corporation Home | |||||||
Equity Loan Trust Series OOMC 2006-HE5 | |||||||
0.30% due 07/25/361 | 1,596,290 | 1,483,699 | |||||
OZLM Funding V Ltd. 2013-5A | |||||||
3.23% due 01/17/261,3 | 1,500,000 | 1,482,750 | |||||
Steele Creek CLO 2014-1 Ltd. | |||||||
3.43% due 08/21/261,3 | 1,500,000 | 1,465,950 | |||||
Greywolf CLO III Ltd. 2014-1A | |||||||
3.08% due 04/22/261,3 | 1,500,000 | 1,465,650 | |||||
Bacchus 2006-1 Ltd. | |||||||
1.78% due 01/20/191,3 | 1,500,000 | 1,462,800 | |||||
Covenant Credit Partners CLO I Ltd. | |||||||
3.15% due 07/20/261,3 | 1,500,000 | 1,458,750 | |||||
Black Diamond CLO 2005-2 Delaware Corp. | |||||||
2.03% due 01/07/181,3 | 1,500,000 | 1,441,050 | |||||
Sands Point Funding Ltd. 2006-1A | |||||||
1.98% due 07/18/201,3 | 1,500,000 | 1,435,050 | |||||
Westwood CDO II Ltd. 2007-2X | |||||||
2.03% due 04/25/22 | 1,550,000 | 1,432,355 | |||||
ALM VI Ltd. 2012-6A | |||||||
due 06/14/233,15 | 1,600,000 | 1,424,160 | |||||
TCW Global Project Fund II Ltd. 2004-1A | |||||||
1.58% due 06/24/161,3 | 1,403,262 | 1,392,737 | |||||
Connecticut Valley Structured | |||||||
Credit CDO III Ltd. 2006-3A | |||||||
0.88% due 03/23/231,3 | 1,000,000 | 952,000 | |||||
6.68% due 03/23/233 | 441,767 | 438,365 | |||||
Structured Asset Investment Loan | |||||||
Trust 2005-2 | |||||||
0.89% due 03/25/351 | 1,500,000 | 1,383,752 | |||||
Kingsland IV Ltd. 2007-4A | |||||||
1.68% due 04/16/211,3 | 1,500,000 | 1,360,350 | |||||
Duane Street CLO IV Ltd. 2007-4A | |||||||
2.48% due 11/14/211,3 | 1,400,000 | 1,354,080 | |||||
Cerberus Offshore Levered I, LP 2012-1A | |||||||
6.23% due 11/30/181,3 | 1,350,000 | 1,350,270 | |||||
TICP CLO II Ltd. 2014-2A | |||||||
3.23% due 07/20/261,3 | 1,300,000 | 1,272,440 | |||||
Ivy Hill Middle Market Credit Fund Ltd. 2011-3A | |||||||
6.73% due 01/15/221,3 | 1,250,000 | 1,250,000 | |||||
Newstar Commercial Loan Funding 2014-1 LLC | |||||||
5.07% due 04/20/251,3 | 1,250,000 | 1,232,500 | |||||
COA Summit CLO Limited 2014-1 | |||||||
4.09% due 04/20/231,3 | 1,250,000 | 1,231,125 | |||||
Halcyon Loan Advisors Funding 2012-2 Ltd. | |||||||
3.08% due 12/20/241,3 | 1,250,000 | 1,220,250 |
74 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
SCHEDULE OF INVESTMENTS (continued) | September 30, 2014 | |
MACRO OPPORTUNITIES FUND |
FACE | |||||||
AMOUNT | VALUE | ||||||
ING IM CLO 2011-1 Ltd. | |||||||
3.53% due 06/22/211,3 | $ | 1,250,000 | $ | 1,212,375 | |||
Gallatin CLO VII 2014-1 Ltd. | |||||||
3.92% due 07/15/231,3 | 1,250,000 | 1,210,500 | |||||
ColumbusNova CLO Limited 2007-I | |||||||
1.58% due 05/16/191,3 | 1,250,000 | 1,201,750 | |||||
ICE EM CLO 2007-1A | |||||||
1.18% due 08/15/221,3 | 1,250,000 | 1,150,000 | |||||
T2 Income Fund CLO Ltd. 2007-1A | |||||||
2.98% due 07/15/191,3 | 700,000 | 690,340 | |||||
1.73% due 07/15/191,3 | 400,000 | 390,400 | |||||
Tricadia CDO 2006-6 Ltd. | |||||||
0.99% due 11/05/411,3 | 1,150,000 | 1,056,620 | |||||
Blade Engine Securitization Ltd. 2006-1A | |||||||
1.15% due 09/15/411 | 825,522 | 619,142 | |||||
3.15% due 09/15/411,3 | 1,035,829 | 414,332 | |||||
Black Diamond CLO 2006-1 Luxembourg S.A. | |||||||
0.92% due 04/29/191,3 | 1,100,000 | 1,013,430 | |||||
OHA Credit Partners VII Ltd. 2012-7A | |||||||
4.23% due 11/20/231,3 | 1,000,000 | 994,600 | |||||
CIFC Funding 2012-II Ltd. 2012-2A | |||||||
3.23% due 12/05/241,3 | 1,000,000 | 990,200 | |||||
Halcyon Loan Advisors Funding 2012-1 Ltd. | |||||||
3.23% due 08/15/231,3 | 1,000,000 | 982,600 | |||||
Fortress Credit Opportunities 2005-1A | |||||||
0.57% due 07/15/19 | 1,100,000 | 980,100 | |||||
Palmer Square CLO 2014-1 Ltd. | |||||||
2.82% due 10/17/221,3 | 1,000,000 | 976,700 | |||||
Katonah Ltd. 2007-10A | |||||||
2.24% due 04/17/201,3 | 1,000,000 | 974,500 | |||||
Aames Mortgage Investment Trust 2006-1 | |||||||
0.47% due 04/25/361 | 1,033,697 | 970,094 | |||||
Cavalry CLO II 2013-2A | |||||||
4.23% due 01/17/241,3 | 1,000,000 | 966,250 | |||||
WhiteHorse VIII Ltd. 2014-1A | |||||||
2.99% due 05/01/261,3 | 1,000,000 | 962,700 | |||||
Gleneagles CLO Ltd. 2005-1A | |||||||
1.14% due 11/01/171,3 | 1,000,000 | 959,400 | |||||
Pangaea CLO Ltd. 2007-1A | |||||||
0.73% due 10/21/211,3 | 1,000,000 | 951,100 | |||||
Halcyon Loan Investors CLO II, Inc. 2007-2A | |||||||
1.63% due 04/24/211,3 | 1,000,000 | 934,000 | |||||
Eastland CLO Ltd. 2007-1A | |||||||
0.64% due 05/01/221,3 | 1,000,000 | 931,700 | |||||
Wrightwood Capital Real Estate | |||||||
CDO 2005-1 Ltd. | |||||||
0.66% due 11/21/401,3 | 1,000,000 | 919,100 | |||||
MCF CLO III LLC 2014-3A | |||||||
3.46% due 01/20/241,3 | 1,000,000 | 904,100 | |||||
Babcock & Brown Air Funding I Ltd. 2007-1A | |||||||
0.45% due 11/14/331,3 | 981,286 | 834,093 | |||||
KKR Financial CLO Ltd. | |||||||
5.23% due 05/15/21 | 800,000 | 798,640 | |||||
Aerco Ltd. 2000-2A | |||||||
0.61% due 07/15/251 | 1,472,561 | 795,183 | |||||
Garrison Funding 2013-2 Ltd. | |||||||
4.88% due 09/25/231,3 | 750,000 | 742,575 | |||||
Central Park CLO Ltd. 2011-1A | |||||||
3.43% due 07/23/221,3 | 750,000 | 739,650 | |||||
Venture XV CLO Ltd. 2013-15A | |||||||
3.33% due 07/15/251,3 | 750,000 | 739,650 | |||||
Octagon Investment Partners XV Ltd. 2013-1A | |||||||
3.08% due 01/19/251,3 | 750,000 | 735,750 | |||||
Venture XIV CLO Ltd. 2013-14A | |||||||
2.99% due 08/28/251,3 | 750,000 | 725,325 | |||||
Asset Backed Securities Corporation | |||||||
Home Equity Loan Trust Series 2004-HE8 | |||||||
1.20% due 12/25/341 | 710,939 | 664,648 | |||||
Westwood CDO I Ltd. 2007-1A | |||||||
0.90% due 03/25/211,3 | 700,000 | 649,670 | |||||
Northwind Holdings LLC 2007-1A | |||||||
1.01% due 12/01/371,3 | 673,052 | 612,478 | |||||
ACS 2007-1 Pass Through Trust | |||||||
0.47% due 06/14/371,3 | 617,496 | 603,602 | |||||
Credit Card Pass-Through Trust 2012-BIZ | |||||||
0.00% due 12/15/493,14 | 617,989 | 533,943 | |||||
MC Funding Limited / MC Funding 2006-1 LLC | |||||||
1.18% due 12/20/201,3 | 500,000 | 482,250 | |||||
OFSI Fund Ltd. 2006-1A | |||||||
1.08% due 09/20/191,3 | 370,000 | 357,198 | |||||
Diversified Asset Securitization | |||||||
Holdings II, LP 2000-1A | |||||||
0.72% due 09/15/351,3 | 313,600 | 307,046 | |||||
Garanti Diversified Payment Rights | |||||||
Finance Co. 2007-A | |||||||
0.42% due 07/09/17 | 312,000 | 302,266 | |||||
Structured Asset Receivables Trust | |||||||
Series 2005-1 | |||||||
0.73% due 01/21/151,3 | 291,489 | 280,937 | |||||
Raspro Trust 2005-1A | |||||||
0.63% due 03/23/241,3 | 248,780 | 244,426 | |||||
Drug Royalty Limited Partnership 1 2012-1 | |||||||
5.48% due 07/15/241,3 | 232,205 | 239,767 | |||||
Vega Containervessel plc 2006-1A | |||||||
5.56% due 02/10/213 | 143,926 | 141,594 | |||||
Atlas Air 1999-1 Class A-1 Pass Through Trust | |||||||
7.20% due 01/02/1912 | 77,989 | 81,693 | |||||
SBI Home Equity Loan Trust 2006-1 | |||||||
0.30% due 04/25/351,3 | 48,394 | 47,535 | |||||
BlackRock Senior Income Series Corp. | |||||||
due 09/15/1615 | 2,400,000 | 240 | |||||
Total Asset Backed Securities | |||||||
(Cost $529,340,206) | 535,175,841 | ||||||
SENIOR FLOATING RATE INTERESTS††,1,13 - 21.8% | |||||||
INDUSTRIAL - 6.0% | |||||||
Rise Ltd. | |||||||
4.74% due 02/12/39 | 6,744,792 | 6,837,869 | |||||
Berlin Packaging LLC | |||||||
5.75% due 04/02/19 | 1,980,000 | 1,976,297 | |||||
4.50% due 09/24/21 | 1,500,000 | 1,496,250 | |||||
9.75% due 04/02/20 | 600,000 | 595,500 | |||||
SIRVA Worldwide, Inc. | |||||||
7.50% due 03/27/19 | 3,841,500 | 3,899,123 | |||||
AABS Ltd. | |||||||
4.87% due 01/15/38 | 3,538,542 | 3,595,866 | |||||
Multiplan, Inc. | |||||||
4.00% due 03/31/21 | 3,683,432 | 3,593,667 | |||||
Connolly Corp. | |||||||
5.00% due 05/14/21 | 3,591,000 | 3,568,556 |
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 75 |
SCHEDULE OF INVESTMENTS (continued) | September 30, 2014 | |
MACRO OPPORTUNITIES FUND |
FACE | |||||||
AMOUNT | VALUE | ||||||
Nord Anglia Education Finance LLC | |||||||
4.50% due 03/31/21 | $ | 3,292,250 | $ | 3,267,558 | |||
Flakt Woods | |||||||
2.63% due 03/20/1712 | EUR | 2,650,000 | 3,213,135 | ||||
Brickman Group Holdings, Inc. | |||||||
4.00% due 12/18/20 | 3,042,356 | 2,972,625 | |||||
Univision Communications, Inc. | |||||||
4.00% due 03/01/20 | 2,911,046 | 2,852,825 | |||||
syncreon | |||||||
5.25% due 10/28/20 | 2,828,625 | 2,800,339 | |||||
Sabre, Inc. | |||||||
4.00% due 02/19/19 | 2,798,595 | 2,758,380 | |||||
Gates Global, Inc. | |||||||
4.25% due 07/05/21 | 2,750,000 | 2,697,860 | |||||
AlliedBarton Security Services LLC | |||||||
4.25% due 02/12/21 | 2,524,447 | 2,485,798 | |||||
GYP Holdings III Corp. | |||||||
4.75% due 04/01/21 | 2,493,750 | 2,456,344 | |||||
Knowledge Learning Corp. | |||||||
5.25% due 03/18/21 | 2,388,000 | 2,388,000 | |||||
Thermasys Corp. | |||||||
5.25% due 05/03/19 | 2,334,688 | 2,321,076 | |||||
MRC Global, Inc. | |||||||
5.52% due 11/08/19 | 2,227,500 | 2,224,248 | |||||
Ceva Logistics US Holdings | |||||||
6.50% due 03/19/21 | 1,999,803 | 1,932,310 | |||||
NVA Holdings, Inc. | |||||||
4.75% due 08/14/21 | 1,150,000 | 1,144,975 | |||||
8.00% due 08/14/22 | 750,000 | 745,313 | |||||
Goodpack Ltd. | |||||||
4.75% due 09/09/21 | 1,700,000 | 1,691,500 | |||||
Mast Global | |||||||
8.75% due 09/12/19†††,12 | 1,636,250 | 1,622,573 | |||||
Ceridian Corp. | |||||||
4.50% due 05/09/17 | 818,642 | 808,409 | |||||
4.15% due 05/09/17 | 784,823 | 781,393 | |||||
Dematic S.A. | |||||||
4.25% due 12/28/19 | 1,425,226 | 1,402,964 | |||||
Ceva Logistics Holdings BV (Dutch) | |||||||
6.50% due 03/19/21 | 1,449,857 | 1,400,924 | |||||
Sutherland Global Services, Inc. | |||||||
7.25% due 03/06/19 | 1,387,500 | 1,384,032 | |||||
Ceva Group plc (United Kingdom) | |||||||
6.50% due 03/19/21 | 1,381,773 | 1,333,411 | |||||
Power Borrower, LLC | |||||||
4.25% due 05/06/20 | 1,086,321 | 1,061,880 | |||||
8.25% due 11/06/20 | 275,000 | 266,750 | |||||
Phillips-Medsize Corp. | |||||||
4.75% due 06/16/21 | 1,296,750 | 1,289,462 | |||||
CPM Acquisition Corp. | |||||||
6.25% due 08/29/17 | 810,962 | 808,934 | |||||
10.25% due 03/01/18 | 450,000 | 454,500 | |||||
IntraWest Holdings S.à r.l. | |||||||
5.50% due 12/09/20 | 1,221,750 | 1,221,750 | |||||
Gogo LLC | |||||||
11.25% due 03/21/1812 | 1,027,875 | 1,079,269 | |||||
SI Organization | |||||||
5.75% due 11/23/19 | 1,057,164 | 1,060,800 | |||||
CareCore National LLC | |||||||
5.50% due 03/05/21 | 1,044,750 | 1,036,914 | |||||
Element Materials Technology | |||||||
5.25% due 08/06/21 | 1,000,000 | 997,500 | |||||
Exopack Holdings SA | |||||||
5.25% due 05/08/19 | 992,500 | 995,289 | |||||
Mitchell International, Inc. | |||||||
8.50% due 10/11/21 | 900,000 | 896,625 | |||||
NaNa Development Corp. | |||||||
8.00% due 03/15/1812 | 910,000 | 891,800 | |||||
Hillman Group, Inc. | |||||||
4.50% due 06/30/21 | 798,000 | 794,010 | |||||
V.Group Ltd. | |||||||
5.00% due 06/25/21 | 798,000 | 792,015 | |||||
Hunter Defense Technologies | |||||||
6.50% due 08/05/19 | 800,000 | 790,000 | |||||
Doncasters Group Ltd. | |||||||
9.50% due 10/09/20 | 744,828 | 742,966 | |||||
Ranpak | |||||||
8.50% due 04/23/20 | 650,000 | 655,415 | |||||
Hunter Fan Co. | |||||||
6.50% due 12/20/17 | 576,741 | 575,299 | |||||
SRA International, Inc. | |||||||
6.50% due 07/20/18 | 573,077 | 571,644 | |||||
VAT Holding AG | |||||||
4.75% due 02/11/21 | 497,500 | 492,525 | |||||
Gogo LLC | |||||||
7.50% due 03/21/18 | 479,538 | 484,333 | |||||
Panolam Industries International, Inc. | |||||||
7.76% due 08/23/17 | 415,938 | 413,859 | |||||
Ceva Logistics Canada, ULC | |||||||
6.50% due 03/19/21 | 249,975 | 241,539 | |||||
Max Broadcast Group LLC | |||||||
6.25% due 03/31/15†††,12 | 163,562 | 156,379 | |||||
Camp Systems International | |||||||
8.25% due 11/29/19 | 120,000 | 120,750 | |||||
Total Industrial | 91,141,327 | ||||||
CONSUMER, CYCLICAL - 4.6% | |||||||
Lions Gate Entertainment Corp. | |||||||
5.00% due 07/19/20 | 7,650,000 | 7,669,124 | |||||
Burger King Corp. | |||||||
4.50% due 09/24/21 | 5,000,000 | 4,961,099 | |||||
Neiman Marcus Group, Inc. | |||||||
4.25% due 10/25/20 | 4,768,292 | 4,680,222 | |||||
Landry’s, Inc. | |||||||
4.00% due 04/24/18 | 4,250,415 | 4,210,206 | |||||
Advantage Sales & Marketing, Inc. | |||||||
4.25% due 07/21/21 | 4,258,065 | 4,180,525 | |||||
National Vision, Inc. | |||||||
4.00% due 03/12/21 | 3,134,250 | 3,045,457 | |||||
ServiceMaster Co. | |||||||
4.25% due 07/01/21 | 3,050,000 | 3,000,926 | |||||
CHG Healthcare Services, Inc. | |||||||
4.25% due 11/19/19 | 2,300,218 | 2,284,415 | |||||
La Quinta Intermediate Holdings | |||||||
4.00% due 04/14/21 | 2,309,688 | 2,281,786 | |||||
J. Crew Group, Inc. | |||||||
4.00% due 03/05/21 | 2,295,250 | 2,177,205 |
76 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
SCHEDULE OF INVESTMENTS (continued) | September 30, 2014 | |
MACRO OPPORTUNITIES FUND |
FACE | |||||||
AMOUNT | VALUE | ||||||
Sears Holdings Corp. | |||||||
5.50% due 06/30/18 | $ | 2,183,500 | $ | 2,120,724 | |||
Fitness International LLC | |||||||
5.50% due 07/01/20 | 2,095,500 | 2,074,545 | |||||
Nassa Midco AS | |||||||
4.25% due 05/14/21 | EUR | 1,650,000 | 2,060,546 | ||||
Men’s Wearhouse | |||||||
4.50% due 06/18/21 | 1,900,000 | 1,887,327 | |||||
Compucom Systems, Inc. | |||||||
4.25% due 05/07/20 | 1,930,000 | 1,847,975 | |||||
Burlington Coat Factory Warehouse Corp. | |||||||
4.25% due 08/13/21 | 1,850,000 | 1,828,799 | |||||
Capital Automotive LP | |||||||
6.00% due 04/30/20 | 1,770,000 | 1,787,700 | |||||
Stuart Weitzman Acquisition Co. | |||||||
4.50% due 04/08/2012 | 1,795,500 | 1,759,590 | |||||
Fleetpride Corp. | |||||||
5.25% due 11/19/19 | 1,713,760 | 1,694,480 | |||||
Southern Graphics, Inc. | |||||||
4.25% due 10/17/19 | 1,514,929 | 1,500,734 | |||||
Ollies Bargain Outlet | |||||||
4.75% due 09/28/19 | 1,510,473 | 1,498,208 | |||||
American Tire Distributors, Inc. | |||||||
5.75% due 06/01/18 | 1,469,385 | 1,466,638 | |||||
Alexander Mann Solutions Ltd. | |||||||
5.75% due 12/20/19 | 1,290,250 | 1,277,348 | |||||
TI Automotive Ltd. | |||||||
4.25% due 07/02/21 | 1,286,775 | 1,268,284 | |||||
Ipreo Holdings | |||||||
4.25% due 08/06/21 | 1,250,000 | 1,217,713 | |||||
Jacobs Entertainment, Inc. | |||||||
5.25% due 10/29/18 | 1,225,000 | 1,139,250 | |||||
1-800 Contacts, Inc. | |||||||
4.25% due 01/29/21 | 1,094,500 | 1,078,083 | |||||
California Pizza Kitchen, Inc. | |||||||
5.25% due 03/29/18 | 943,824 | 902,239 | |||||
GCA Services Group, Inc. | |||||||
9.25% due 11/01/20 | 440,000 | 438,900 | |||||
4.29% due 11/01/19 | 322,358 | 319,270 | |||||
Dave & Busters, Inc. | |||||||
4.50% due 07/25/20 | 725,000 | 718,055 | |||||
Armored AutoGroup, Inc. | |||||||
6.00% due 11/05/16 | 615,848 | 608,920 | |||||
Navistar, Inc. | |||||||
5.75% due 08/17/17 | 298,611 | 298,984 | |||||
Arby’s | |||||||
4.75% due 11/15/20 | 198,500 | 198,004 | |||||
Container Store, Inc. | |||||||
4.25% due 04/06/19 | 80,340 | 78,733 | |||||
CKX Entertainment, Inc. | |||||||
9.00% due 06/21/1712 | 43,475 | 36,954 | |||||
Total Consumer, Cyclical | 69,598,968 | ||||||
TECHNOLOGY - 3.0% | |||||||
Greenway Medical Technologies | |||||||
6.00% due 11/04/2012 | 3,622,625 | 3,604,511 | |||||
9.25% due 11/04/2112 | 550,000 | 544,500 | |||||
P2 Energy Solutions | |||||||
5.00% due 10/30/20 | 2,977,500 | 2,958,891 | |||||
9.00% due 04/30/21 | 600,000 | 601,500 | |||||
Telx Group | |||||||
4.50% due 04/09/20 | 2,395,000 | 2,352,345 | |||||
7.50% due 04/09/21 | 875,000 | 867,711 | |||||
Evergreen Skill | |||||||
5.75% due 04/28/21 | 3,190,000 | 3,127,540 | |||||
Wall Street Systems | |||||||
4.50% due 04/30/21 | 2,862,391 | 2,833,767 | |||||
EIG Investors Corp. | |||||||
5.00% due 11/09/19 | 2,741,737 | 2,731,456 | |||||
Blue Coat Systems, Inc. | |||||||
4.00% due 05/31/19 | 2,655,437 | 2,600,124 | |||||
Renaissance Learning Corp. | |||||||
4.50% due 04/09/21 | 2,517,599 | 2,462,539 | |||||
Deltek, Inc. | |||||||
4.50% due 10/10/18 | 2,382,110 | 2,363,053 | |||||
LANDesk Group, Inc. | |||||||
5.00% due 02/25/20 | 2,227,556 | 2,217,354 | |||||
Active Network, Inc., The | |||||||
5.50% due 11/13/20 | 2,072,812 | 2,054,675 | |||||
Sparta Holding Corp. | |||||||
6.25% due 07/28/20††† | 1,900,000 | 1,881,511 | |||||
Paradigm Ltd | |||||||
4.75% due 07/30/1912 | 1,698,877 | 1,679,239 | |||||
Data Device Corp. | |||||||
5.75% due 07/15/20 | 1,291,875 | 1,290,260 | |||||
ION Trading Technologies Ltd. | |||||||
4.50% due 06/10/21 | EUR | 997,500 | 1,253,959 | ||||
Flexera Software LLC | |||||||
4.50% due 04/02/20 | 871,663 | 863,670 | |||||
8.00% due 04/02/21 | 350,000 | 339,500 | |||||
Sophos | |||||||
5.00% due 01/29/21 | 1,194,000 | 1,189,523 | |||||
GlobalLogic Holdings, Inc. | |||||||
6.25% due 05/31/19 | 1,191,000 | 1,152,293 | |||||
Aspect Software, Inc. | |||||||
7.25% due 05/07/16 | 1,151,281 | 1,148,046 | |||||
Quorum Business Solutions | |||||||
5.75% due 08/07/21 | 900,000 | 897,750 | |||||
Hyland Software, Inc. | |||||||
4.75% due 02/19/21 | 636,800 | 634,609 | |||||
Attachmate Group, Inc., The | |||||||
7.25% due 11/22/17 | 610,702 | 610,891 | |||||
Eze Castle Software, Inc. | |||||||
7.25% due 04/05/21 | 400,000 | 396,332 | |||||
Go Daddy Operating Company, LLC | |||||||
4.75% due 05/13/21 | 335,587 | 330,345 | |||||
Total Technology | 44,987,894 | ||||||
FINANCIAL - 3.1% | |||||||
Intertrust Group | |||||||
7.50% due 04/16/21 | 4,760,000 | 4,727,869 | |||||
8.00% due 04/11/22 | 1,900,000 | 1,877,827 | |||||
Magic Newco, LLC | |||||||
5.00% due 12/12/18 | 3,406,590 | 3,398,073 | |||||
12.00% due 06/12/19 | 1,075,000 | 1,212,955 | |||||
STG-Fairway Acquisitions, Inc. | |||||||
6.25% due 02/28/19 | 2,807,270 | 2,802,020 | |||||
10.50% due 08/28/19†††,12 | 1,400,000 | 1,389,383 | |||||
Expert Global Solutions | |||||||
8.50% due 04/03/18 | 3,872,407 | 3,862,726 |
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 77 |
SCHEDULE OF INVESTMENTS (continued) | September 30, 2014 | |
MACRO OPPORTUNITIES FUND |
FACE | |||||||
AMOUNT | VALUE | ||||||
Lineage Logistics LLC | |||||||
4.50% due 04/07/21 | $ | 3,621,800 | $ | 3,576,528 | |||
HBSC Holdings | |||||||
due 03/30/207 | 3,500,000 | 3,395,000 | |||||
First Data Corp. | |||||||
3.65% due 03/23/18 | 3,110,000 | 3,046,836 | |||||
4.15% due 03/24/21 | 178,213 | 175,540 | |||||
National Financial Partners Corp. | |||||||
4.50% due 07/01/20 | 2,930,507 | 2,901,202 | |||||
Transunion Holding Co. | |||||||
4.00% due 04/09/21 | 2,587,000 | 2,543,357 | |||||
USI Holdings Corp. | |||||||
4.25% due 12/27/19 | 2,294,112 | 2,251,097 | |||||
RCS Capital | |||||||
6.50% due 04/29/19 | 1,975,000 | 1,982,406 | |||||
York Risk Services | |||||||
4.75% due 10/01/21††† | 1,579,268 | 1,570,393 | |||||
AssuredPartners | |||||||
4.50% due 04/02/21 | 1,500,000 | 1,478,445 | |||||
7.75% due 04/02/22 | 200,000 | 197,000 | |||||
American Stock Transfer & Trust | |||||||
5.75% due 06/26/20 | 1,594,716 | 1,583,425 | |||||
Nuveen Investments, Inc. | |||||||
4.16% due 05/13/17 | 800,000 | 797,568 | |||||
Cunningham Lindsey U.S., Inc. | |||||||
5.00% due 12/10/19 | 687,750 | 675,714 | |||||
9.25% due 06/10/20 | 116,932 | 116,786 | |||||
Genex Services, Inc. | |||||||
5.25% due 05/28/21 | 698,250 | 693,886 | |||||
HDV Holdings | |||||||
5.75% due 12/18/1812 | 571,658 | 567,371 | |||||
Total Financial | 46,823,407 | ||||||
CONSUMER, NON-CYCLICAL - 2.4% | |||||||
Albertson’s (Safeway) Holdings LLC | |||||||
5.50% due 08/25/21 | 4,250,000 | 4,226,964 | |||||
Nextech Systems LLC | |||||||
6.00% due 10/28/18†††,12 | 3,561,250 | 3,502,459 | |||||
Grocery Outlet, Inc. | |||||||
6.50% due 12/17/18 | 2,512,379 | 2,504,540 | |||||
Continental Foods | |||||||
4.33% due 08/20/21 | EUR | 2,000,000 | 2,500,436 | ||||
Performance Food Group | |||||||
6.25% due 11/14/19 | 2,345,560 | 2,336,764 | |||||
Reddy Ice Holdings, Inc. | |||||||
6.75% due 04/01/1912 | 1,086,745 | 1,026,974 | |||||
10.75% due 10/01/1912 | 1,125,000 | 1,001,250 | |||||
Diamond Foods, Inc. | |||||||
4.25% due 08/20/18 | 1,840,750 | 1,818,900 | |||||
AdvancePierre Foods, Inc. | |||||||
9.50% due 10/10/17 | 1,076,000 | 1,059,860 | |||||
5.75% due 07/10/17 | 734,417 | 734,109 | |||||
Harvard Drug | |||||||
5.00% due 08/16/20 | 1,733,899 | 1,733,899 | |||||
Arctic Glacier Holdings, Inc. | |||||||
5.00% due 05/10/19 | 1,545,845 | 1,522,657 | |||||
Hearthside Foods | |||||||
4.50% due 06/02/21 | 1,396,500 | 1,387,185 | |||||
ABG Intermediate Holdings 2 LLC | |||||||
5.50% due 05/27/21 | 1,393,000 | 1,386,035 | |||||
NES Global Talent | |||||||
6.50% due 10/03/19 | 1,275,625 | 1,262,869 | |||||
DJO Finance LLC | |||||||
4.25% due 09/15/17 | 1,228,203 | 1,217,714 | |||||
CTI Foods Holding Co. LLC | |||||||
8.25% due 06/28/21 | 1,205,000 | 1,209,519 | |||||
Winebow, Inc. | |||||||
4.75% due 07/01/21 | 997,500 | 991,266 | |||||
Jacobs Douwe Egberts | |||||||
4.25% due 07/02/21 | 1,000,000 | 976,250 | |||||
Akorn, Inc. | |||||||
4.50% due 04/16/21 | 850,000 | 843,889 | |||||
Fender Musical Instruments Corp. | |||||||
5.75% due 04/03/19 | 798,750 | 795,755 | |||||
Hostess Brands | |||||||
6.75% due 04/09/20 | 562,175 | 573,419 | |||||
Bauer Performance Sports | |||||||
4.00% due 04/15/21 | 514,045 | 507,943 | |||||
Catalent Pharma Solutions, Inc. | |||||||
4.50% due 05/20/21 | 346,008 | 343,773 | |||||
6.50% due 12/31/17 | 44,182 | 44,071 | |||||
Mitel Networks Corp. | |||||||
5.25% due 01/31/20 | 376,928 | 377,558 | |||||
DS Waters of America, Inc. | |||||||
5.25% due 08/30/20 | 198,000 | 199,980 | |||||
VWR Funding, Inc. | |||||||
3.40% due 04/03/17 | 196,477 | 192,978 | |||||
Targus Group International, Inc. | |||||||
12.00% due 05/24/1612 | 229,401 | 186,389 | |||||
Rite Aid Corp. | |||||||
5.75% due 08/21/20 | 100,000 | 101,125 | |||||
Total Consumer, Non-cyclical | 36,566,530 | ||||||
COMMUNICATIONS - 1.6% | |||||||
Avaya, Inc. | |||||||
7.75% due 10/26/17 | 3,820,231 | 3,636,975 | |||||
6.50% due 03/31/18 | 2,893,698 | 2,866,583 | |||||
Anaren, Inc. | |||||||
5.50% due 02/18/21 | 1,985,000 | 1,970,113 | |||||
9.25% due 08/18/21 | 1,500,000 | 1,492,500 | |||||
Cengage Learning Acquisitions, Inc. | |||||||
7.00% due 03/31/20 | 2,736,250 | 2,730,394 | |||||
Interactive Data Corp. | |||||||
4.75% due 05/02/21 | 2,294,250 | 2,280,622 | |||||
Cumulus Media, Inc. | |||||||
4.25% due 12/23/20 | 2,284,808 | 2,243,865 | |||||
Proquest LLC | |||||||
5.25% due 09/24/21 | 2,000,000 | 1,994,160 | |||||
Bureau van Dijk Electronic Publishing BV | |||||||
7.75% due 09/17/21 | GBP | 1,000,000 | 1,623,928 | ||||
Trader Media Corporation Ltd. | |||||||
5.01% due 12/08/17 | GBP | 1,000,000 | 1,620,378 | ||||
MergerMarket Ltd. | |||||||
4.50% due 02/04/21 | 995,000 | 965,150 | |||||
Liberty Cablevision of Puerto Rico LLC | |||||||
4.50% due 01/07/22 | 600,000 | 595,002 | |||||
Univision Communications, Inc. | |||||||
4.00% due 03/01/20 | 298,496 | 292,714 | |||||
Total Communications | 24,312,384 | ||||||
78 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
SCHEDULE OF INVESTMENTS (continued) | September 30, 2014 | |
MACRO OPPORTUNITIES FUND |
FACE | |||||||
AMOUNT | VALUE | ||||||
BASIC MATERIALS - 0.5% | |||||||
Ennis-Flint | |||||||
4.25% due 03/31/21 | $ | 1,990,000 | $ | 1,930,300 | |||
7.75% due 09/30/21 | 1,150,000 | 1,106,875 | |||||
Atkore International, Inc. | |||||||
4.50% due 04/09/21 | 1,995,000 | 1,975,049 | |||||
7.75% due 10/09/21 | 850,000 | 841,500 | |||||
Noranda Aluminum Acquisition Corp. | |||||||
5.75% due 02/28/19 | 1,094,898 | 1,063,880 | |||||
Royal Adhesives and Sealants | |||||||
5.50% due 07/31/18 | 824,644 | 827,737 | |||||
Hoffmaster Group, Inc. | |||||||
6.28% due 05/09/1912 | 142,857 | 127,409 | |||||
Total Basic Materials | 7,872,750 | ||||||
UTILITIES - 0.3% | |||||||
Expro Holdings UK 3 Ltd. | |||||||
5.75% due 08/12/21 | 1,800,000 | 1,790,243 | |||||
Astoria Generating Company Acquisitions LLC | |||||||
9.25% due 10/26/17 | 1,354,091 | 1,377,788 | |||||
Terraform Power, Inc | |||||||
4.75% due 07/23/19 | 798,000 | 799,995 | |||||
Texas Competitive Electric Holdings Company LLC | |||||||
3.75% due 05/05/16 | 733,663 | 736,877 | |||||
Total Utilities | 4,704,903 | ||||||
ENERGY - 0.3% | |||||||
Cactus Wellhead | |||||||
7.00% due 07/31/20 | 1,500,000 | 1,470,000 | |||||
Panda Temple II Power | |||||||
7.25% due 04/03/19 | 1,000,000 | 1,020,000 | |||||
FTS International | |||||||
5.75% due 04/16/21 | 872,727 | 872,570 | |||||
PSS Companies | |||||||
5.50% due 01/28/20 | 872,724 | 868,361 | |||||
Atlas Energy LP | |||||||
6.50% due 07/31/19 | 445,500 | 448,284 | |||||
Total Energy | 4,679,215 | ||||||
Total Senior Floating Rate Interests | |||||||
(Cost $332,497,991) | 330,687,378 | ||||||
BONDS††,13 - 20.5% | |||||||
FINANCIAL - 9.4% | |||||||
JPMorgan Chase & Co. | |||||||
5.00%1,2 | 15,740,000 | 15,343,351 | |||||
5.15%1,2,6 | 8,875,000 | 8,453,438 | |||||
Bank of America Corp. | |||||||
5.13%1,2 | 15,100,000 | 14,609,249 | |||||
6.25%1,2 | 8,350,000 | 8,295,199 | |||||
Fifth Third Bancorp | |||||||
5.10%1,2 | 11,720,000 | 11,046,099 | |||||
4.90%1,2 | 3,000,000 | 2,935,800 | |||||
HSBC Holdings plc | |||||||
5.63%1,2 | 8,850,000 | 8,788,049 | |||||
6.38%1,2 | 2,850,000 | 2,846,438 | |||||
Citigroup, Inc. | |||||||
5.35%1,2 | 6,725,000 | 6,287,875 | |||||
5.95%1,2 | 3,800,000 | 3,798,814 | |||||
Nordea Bank AB | |||||||
6.13%1,2,3 | 5,050,000 | 4,949,000 | |||||
5.50%1,2,3 | 3,900,000 | 3,831,750 | |||||
Kennedy-Wilson, Inc. | |||||||
8.75% due 04/01/196 | 7,425,000 | 7,889,063 | |||||
CIC Receivables Master Trust | |||||||
4.89% due 10/07/21††† | 6,500,000 | 6,506,500 | |||||
Customers Bank | |||||||
6.13% due 06/26/291,3 | 6,000,000 | 6,052,500 | |||||
Wilton Re Finance LLC | |||||||
5.88% due 03/30/331,3 | 5,750,000 | 5,980,000 | |||||
Cadence Financial Corp. | |||||||
4.88% due 06/28/193,16 | 4,000,000 | 4,020,000 | |||||
Oxford Finance LLC / Oxford | |||||||
Finance Company-Issuer, Inc. | |||||||
7.25% due 01/15/183 | 3,801,000 | 3,953,040 | |||||
Barclays plc | |||||||
8.25%1,2,6 | 3,150,000 | 3,232,688 | |||||
Schahin II Finance Company SPV Ltd. | |||||||
5.88% due 09/25/223,6 | 2,338,267 | 2,215,508 | |||||
Skyway Concession Company LLC | |||||||
0.61% due 06/30/261,3 | 2,500,000 | 2,000,000 | |||||
QBE Capital Funding III Ltd. | |||||||
7.25% due 05/24/411,3,6 | 1,650,000 | 1,798,500 | |||||
Credit Suisse Group AG | |||||||
6.25%1,2,3 | 1,845,000 | 1,785,038 | |||||
Jefferies LoanCore LLC / JLC Finance Corp. | |||||||
6.88% due 06/01/203 | 1,700,000 | 1,644,750 | |||||
Jefferies Finance LLC / JFIN Company-Issuer Corp. | |||||||
7.38% due 04/01/203 | 1,075,000 | 1,099,188 | |||||
Prosight Global Inc. | |||||||
7.50% due 11/26/20†††,12 | 850,000 | 871,420 | |||||
Nationstar Mortgage LLC / Nationstar | |||||||
Capital Corp. | |||||||
6.50% due 07/01/21 | 730,000 | 695,325 | |||||
Ironshore Holdings US, Inc. | |||||||
8.50% due 05/15/203 | 315,000 | 378,781 | |||||
Scottrade Financial Services, Inc. | |||||||
6.13% due 07/11/213 | 125,000 | 130,015 | |||||
LCP Dakota Fund | |||||||
10.00% due 08/17/1512 | 69,000 | 69,000 | |||||
Total Financial | 141,506,378 | ||||||
ENERGY - 2.5% | |||||||
Regency Energy Partners, LP / | |||||||
Regency Energy Finance Corp. | |||||||
8.38% due 06/01/19 | 8,251,000 | 8,746,059 | |||||
Crestwood Midstream Partners, LP / | |||||||
Crestwood Midstream Finance Corp. | |||||||
7.75% due 04/01/196 | 4,700,000 | 4,923,250 | |||||
Penn Virginia Resource Partners Limited | |||||||
Partnership / Penn Virginia Resource | |||||||
Finance Corp. | |||||||
8.38% due 06/01/206 | 3,999,000 | 4,358,910 | |||||
Exterran Holdings, Inc. | |||||||
7.25% due 12/01/18 | 4,060,000 | 4,222,400 | |||||
BreitBurn Energy Partners LP / BreitBurn | |||||||
Finance Corp. | |||||||
7.88% due 04/15/226 | 4,075,000 | 4,125,937 |
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 79 |
SCHEDULE OF INVESTMENTS (continued) | September 30, 2014 |
MACRO OPPORTUNITIES FUND |
FACE | |||||||
AMOUNT | VALUE | ||||||
Atlas Energy Holdings Operating Company LLC / | |||||||
Atlas Resource Finance Corp. | |||||||
9.25% due 08/15/216 | $ | 1,610,000 | $ | 1,642,200 | |||
7.75% due 01/15/21 | 1,100,000 | 1,083,500 | |||||
ContourGlobal Power Holdings S.A. | |||||||
7.13% due 06/01/193 | 2,250,000 | 2,227,500 | |||||
SandRidge Energy, Inc. | |||||||
7.50% due 03/15/216 | 1,525,000 | 1,486,875 | |||||
7.50% due 02/15/23 | 250,000 | 242,813 | |||||
Pacific Drilling S.A. | |||||||
5.38% due 06/01/203 | 1,400,000 | 1,281,000 | |||||
Bill Barrett Corp. | |||||||
7.00% due 10/15/22 | 550,000 | 545,875 | |||||
7.63% due 10/01/19 | 327,000 | 337,628 | |||||
IronGate Energy Services LLC | |||||||
11.00% due 07/01/183 | 600,000 | 602,250 | |||||
Ultra Petroleum Corp. | |||||||
5.75% due 12/15/183 | 200,000 | 201,000 | |||||
Total Energy | 36,027,197 | ||||||
INDUSTRIAL - 2.0% | |||||||
Quality Distribution LLC / QD Capital Corp. | |||||||
9.88% due 11/01/18 | 10,127,000 | 10,633,349 | |||||
Xefin Lux SCA | |||||||
3.91% due 06/01/191,3 | EUR | 5,000,000 | 6,267,761 | ||||
Dynagas LNG Partners Limited Partnership / | |||||||
Dynagas Finance, Inc. | |||||||
6.25% due 10/30/19 | 3,750,000 | 3,750,000 | |||||
Princess Juliana International Airport | |||||||
Operating Company N.V. | |||||||
5.50% due 12/20/273 | 1,980,058 | 1,980,058 | |||||
Chicago Bridge & Iron Co. | |||||||
5.15% due 12/27/22†††,12 | 1,650,000 | 1,698,180 | |||||
Ultra Resources, Inc. | |||||||
4.51% due 10/12/20†††,12 | 1,500,000 | 1,427,250 | |||||
Marquette Transportation Company LLC/ | |||||||
Marquette Transportation Finance Corp. | |||||||
10.88% due 01/15/17 | 1,340,000 | 1,403,650 | |||||
Odebrecht Offshore Drilling Finance Ltd. | |||||||
6.63% due 10/01/223,6 | 1,220,125 | 1,256,729 | |||||
SBM Baleia Azul Sarl | |||||||
5.50% due 09/15/27†††,12 | 1,011,340 | 1,026,409 | |||||
CEVA Group plc | |||||||
7.00% due 03/01/213 | 525,000 | 525,000 | |||||
Unifrax I LLC / Unifrax Holding Co. | |||||||
7.50% due 02/15/193 | 500,000 | 505,000 | |||||
LMI Aerospace, Inc. | |||||||
7.38% due 07/15/193 | 500,000 | 500,000 | |||||
Total Industrial | 30,973,386 | ||||||
CONSUMER, NON-CYCLICAL - 1.8% | |||||||
Vector Group Ltd. | |||||||
7.75% due 02/15/21 | |||||||
Bumble Bee Holdings, Inc. | 7,410,000 | 7,799,025 | |||||
9.00% due 12/15/173 | |||||||
Central Garden and Pet Co. | 6,076,000 | 6,364,610 | |||||
8.25% due 03/01/186 | |||||||
Reynolds Group Issuer Incorporated / | 3,875,000 | 3,942,813 | |||||
Reynolds Group Issuer LLC / Reynolds | |||||||
Group Issuer Lu | |||||||
7.88% due 08/15/19 | 3,500,000 | 3,718,750 | |||||
Premier Foods Finance plc | |||||||
5.56% due 03/16/201,3 | GBP | 1,250,000 | 1,864,918 | ||||
6.50% due 03/15/213 | GBP | 1,000,000 | 1,432,277 | ||||
R&R Ice Cream plc | |||||||
8.25% due 05/15/203 | AUD | 1,300,000 | 1,145,505 | ||||
Symbion, Inc. | |||||||
8.00% due 06/15/16 | 600,000 | 622,500 | |||||
KeHE Distributors LLC / KeHE Finance Corp. | |||||||
7.63% due 08/15/213 | 500,000 | 530,000 | |||||
Physio-Control International, Inc. | |||||||
9.88% due 01/15/193 | 303,000 | 324,210 | |||||
FTI Consulting, Inc. | |||||||
6.75% due 10/01/20 | 300,000 | 311,625 | |||||
Total Consumer, Non-cyclical | 28,056,233 | ||||||
COMMUNICATIONS - 1.2% | |||||||
MDC Partners, Inc. | |||||||
6.75% due 04/01/203 | 8,700,000 | 8,961,000 | |||||
Avaya, Inc. | |||||||
7.00% due 04/01/193 | 6,605,000 | 6,406,850 | |||||
SITEL LLC / Sitel Finance Corp. | |||||||
11.00% due 08/01/173 | 2,245,000 | 2,323,575 | |||||
Expo Event Transco, Inc. | |||||||
9.00% due 06/15/213 | 725,000 | 746,750 | |||||
Total Communications | 18,438,175 | ||||||
CONSUMER, CYCLICAL - 0.8% | |||||||
GRD Holdings III Corp. | |||||||
10.75% due 06/01/193,6 | 4,555,000 | 5,021,887 | |||||
Guitar Center, Inc. | |||||||
6.50% due 04/15/193 | 3,455,000 | 3,109,500 | |||||
Men’s Wearhouse, Inc. | |||||||
7.00% due 07/01/22 | 1,900,000 | 1,919,000 | |||||
Sabre GLBL, Inc. | |||||||
8.50% due 05/15/193 | 1,188,000 | 1,271,160 | |||||
Checkers Drive-In Restaurants, Inc. | |||||||
11.00% due 12/01/173 | 450,000 | 492,750 | |||||
PF Chang’s China Bistro, Inc. | |||||||
10.25% due 06/30/203 | 465,000 | 461,513 | |||||
Seminole Hard Rock Entertainment Incorporated / | |||||||
Seminole Hard Rock International LLC | |||||||
5.88% due 05/15/213 | 400,000 | 386,000 | |||||
Global Partners Limited Partnership/GLP | |||||||
Finance Corp. | |||||||
6.25% due 07/15/22 | 100,000 | 99,500 | |||||
Total Consumer, Cyclical | 12,761,310 | ||||||
TECHNOLOGY - 0.7% | |||||||
Infor US, Inc. | |||||||
9.38% due 04/01/19 | 7,250,000 | 7,830,000 | |||||
Eagle Midco, Inc. | |||||||
9.00% due 06/15/183 | 3,050,000 | 3,114,813 | |||||
Total Technology | 10,944,813 | ||||||
80 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
SCHEDULE OF INVESTMENTS (continued) | September 30, 2014 |
MACRO OPPORTUNITIES FUND |
FACE | |||||||
AMOUNT | VALUE | ||||||
BASIC MATERIALS - 0.6% | |||||||
TPC Group, Inc. | |||||||
8.75% due 12/15/203 | $ | 5,550,000 | $ | 5,896,875 | |||
Mirabela Nickel Ltd. | |||||||
9.50% due 05/20/19†††,12 | 1,566,000 | 1,566,000 | |||||
1.00% due 09/10/44†††,12 | 37,316 | — | |||||
KGHM International Ltd. | |||||||
7.75% due 06/15/193,6 | 1,435,000 | 1,513,925 | |||||
Kaiser Aluminum Corp. | |||||||
8.25% due 06/01/20 | 250,000 | 275,625 | |||||
Total Basic Materials | 9,252,425 | ||||||
DIVERSIFIED - 0.6% | |||||||
Opal Acquisition, Inc. | |||||||
8.88% due 12/15/213 | 7,675,000 | 7,924,438 | |||||
Harbinger Group, Inc. | |||||||
7.88% due 07/15/19 | 511,000 | 544,215 | |||||
Total Diversified | 8,468,653 | ||||||
UTILITIES - 0.4% | |||||||
AES Corp. | |||||||
3.23% due 06/01/191 | 3,900,000 | 3,841,500 | |||||
NGL Energy Partners, LP / NGL Energy | |||||||
Finance Corp. | |||||||
6.88% due 10/15/213 | 2,390,000 | 2,485,600 | |||||
FPL Energy National Wind LLC | |||||||
5.61% due 03/10/243 | 51,255 | 50,217 | |||||
Total Utilities | 6,377,317 | ||||||
MATERIALS - 0.3% | |||||||
Reynolds Group Issuer Incorporated / | |||||||
Reynolds Group Issuer LLC / Reynolds | |||||||
Group Issuer Lu | |||||||
7.13% due 04/15/19 | 4,950,000 | 5,129,438 | |||||
GOVERNMENT - 0.2% | |||||||
El Salvador Government International Bond | |||||||
6.38% due 01/18/273,6 | 3,100,000 | 3,100,000 | |||||
Total Bonds | |||||||
(Cost $314,078,915) | 311,035,325 | ||||||
COLLATERALIZED MORTGAGE OBLIGATIONS†† - 10.2% | |||||||
LSTAR Securities Investment Trust 2014-1 | |||||||
3.25% due 09/01/211,16 | 17,400,000 | 17,400,000 | |||||
Nomura Resecuritization Trust 2012-1R | |||||||
0.59% due 08/27/471,3 | 14,482,444 | 13,396,261 | |||||
IndyMac INDX Mortgage Loan Trust 2006-AR4 | |||||||
0.37% due 05/25/461 | 12,794,417 | 10,981,897 | |||||
Luminent Mortgage Trust 2006-2 | |||||||
0.35% due 02/25/461 | 14,190,555 | 10,520,579 | |||||
American Home Mortgage Assets Trust 2007-1 | |||||||
0.82% due 02/25/471 | 16,477,740 | 10,392,675 | |||||
Lehman XS Trust Series 2006-16N | |||||||
0.34% due 11/25/461 | 12,184,463 | 10,139,593 | |||||
HarborView Mortgage Loan Trust 2006-12 | |||||||
0.34% due 01/19/381 | 10,525,833 | 8,984,672 | |||||
Washington Mutual Mortgage Pass-Through | |||||||
Certificates WMALT Series 2006-AR9 Trust | |||||||
0.96% due 11/25/461 | 11,917,647 | 8,452,746 | |||||
CSMC Trust 2014-SURF | |||||||
3.26% due 02/15/291,3 | 7,300,000 | 7,318,206 | |||||
GreenPoint Mortgage Funding Trust 2006-AR1 | |||||||
0.44% due 02/25/361 | 8,348,170 | 7,005,492 | |||||
GreenPoint Mortgage Funding Trust | |||||||
Series 2007-AR1 | |||||||
0.23% due 02/25/471 | 7,034,884 | 6,514,268 | |||||
Wells Fargo Alternative Loan 2007-PA3 Trust | |||||||
6.25% due 07/25/37 | 6,475,890 | 5,902,650 | |||||
American Home Mortgage Assets | |||||||
Trust 2006-6 | |||||||
0.34% due 12/25/461 | 7,133,812 | 4,999,832 | |||||
American Home Mortgage Investment | |||||||
Trust 2006-1 | |||||||
0.35% due 03/25/461 | 5,688,664 | 4,828,458 | |||||
Structured Asset Mortgage Investments II | |||||||
Trust 2006-AR1 | |||||||
0.38% due 02/25/361 | 5,492,474 | 4,700,855 | |||||
Alliance Bancorp Trust 2007-OA1 | |||||||
0.39% due 07/25/37 | 5,194,799 | 3,588,972 | |||||
Chase Mortgage Finance Trust Series 2006-S3 | |||||||
6.00% due 11/25/36 | 3,607,809 | 3,094,612 | |||||
Washington Mutual Mortgage Pass-Through | |||||||
Certificates WMALT Series 2006-8 Trust | |||||||
5.76% due 10/25/36 | 4,328,312 | 3,076,715 | |||||
Residential Asset Securitization | |||||||
Trust 2006-A12 | |||||||
6.25% due 11/25/36 | 3,943,294 | 2,975,968 | |||||
First Horizon Alternative Mortgage | |||||||
Securities Trust 2006-FA1 | |||||||
5.75% due 04/25/36 | 2,849,838 | 2,413,431 | |||||
Washington Mutual Mortgage Pass-Through | |||||||
Certificates WMALT Series 2007-OA4 Trust | |||||||
0.88% due 04/25/471 | 3,034,724 | 2,301,899 | |||||
Morgan Stanley Re-REMIC Trust 2010-R5 | |||||||
0.54% due 06/26/361,3 | 2,919,532 | 2,172,599 | |||||
American Home Mortgage Assets Trust 2006-4 | |||||||
0.34% due 10/25/461 | 2,509,312 | 1,705,077 | |||||
Bear Stearns Mortgage Funding Trust 2007-AR5 | |||||||
0.32% due 06/25/471 | 1,833,049 | 1,502,530 | |||||
Resource Capital Corporation CRE | |||||||
Notes 2013 Ltd. | |||||||
3.65% due 12/15/28 1,3 | 1,000,000 | 1,009,590 | |||||
Total Collateralized Mortgage Obligations | |||||||
(Cost $154,343,817) | 155,379,577 | ||||||
MORTGAGE BACKED SECURITIES†† - 2.4% | |||||||
COMM 2014-KYO Mortgage Trust | |||||||
2.50% due 06/11/271,3 | 10,500,000 | 10,503,466 | |||||
SRERS Funding Ltd. 2011-RS | |||||||
0.40% due 05/09/461,3 | 8,419,393 | 8,019,472 | |||||
GE Business Loan Trust 2007-1 | |||||||
0.60% due 04/16/351,3 | 6,178,386 | 5,575,623 | |||||
Hilton USA Trust 2013-HLT | |||||||
5.61% due 11/05/181,3 | 4,300,000 | 4,366,667 | |||||
BAMLL Commercial Mortgage Securities | |||||||
Trust 2014-ICTS | |||||||
3.10% due 06/15/28 | 3,000,000 | 2,996,235 | |||||
HSI Asset Securitization Corporation | |||||||
Trust 2007-WF1 | |||||||
0.32% due 05/25/371 | 2,296,757 | 2,142,208 |
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 81 |
SCHEDULE OF INVESTMENTS (continued) | September 30, 2014 |
MACRO OPPORTUNITIES FUND |
FACE | |||||||
AMOUNT | VALUE | ||||||
Wachovia Bank Commercial Mortgage | |||||||
Trust Series 2007-WHALE 8 | |||||||
0.85% due 06/15/201,3 | $ | 2,190,914 | $ | 2,106,213 | |||
BAMLL-DB Trust 2012-OSI | |||||||
6.79% due 04/13/293 | 550,000 | 582,806 | |||||
Total Mortgage Backed Securities | |||||||
(Cost $32,949,042) | 36,292,690 | ||||||
MUNICIPAL BONDS†† - 1.1% | |||||||
MICHIGAN - 0.9% | |||||||
City of Detroit Michigan General Obligation | |||||||
Unlimited | |||||||
3.50% due 10/07/161 | 13,600,000 | 13,600,000 | |||||
PUERTO RICO - 0.2% | |||||||
Puerto Rico Highways & Transportation | |||||||
Authority Revenue Bonds | |||||||
5.50% due 07/01/28 | 3,200,000 | 3,354,176 | |||||
Total Municipal Bonds | |||||||
(Cost $16,704,763) | 16,954,176 | ||||||
CONTRACTS | |||||||
OPTIONS PURCHASED† - 0.0% | |||||||
Call options on: | |||||||
SPDR Gold Trust Expiring January 2015 | |||||||
with strike price of $140.00 | 4,355 | 69,680 | |||||
Total Options Purchased | |||||||
(Cost $6,367,174) | 69,680 | ||||||
Total Investments - 103.3% | |||||||
(Cost $1,570,944,867) | $ | 1,569,769,554 | |||||
OPTIONS WRITTEN† - 0.0% | |||||||
Call options on: | |||||||
SPDR Gold Trust Expiring January 2015 | |||||||
with strike price of $155.00 | 354 | $ | (1,416 | ) | |||
Total Options Written | |||||||
(Premiums received $225,834) | (1,416 | ) | |||||
Other Assets & Liabilities, net - (3.3)% | (49,279,102 | ) | |||||
Total Net Assets - 100.0% | $ | 1,520,489,036 | |||||
UNREALIZED | |||||||
UNITS | GAIN (LOSS) | ||||||
OTC CURRENCY SWAP AGREEMENTS†† | |||||||
Bank of America | |||||||
December 2014 U.S. Dollar | |||||||
Index Future Swap, Terminating | |||||||
12/15/148 (Notional Value $32,609,160) | 379 | $ | 605,756 | ||||
OTC INTEREST RATE SWAP AGREEMENTS SOLD SHORT †† | |||||||
Bank of America | |||||||
December 2014 Japan Government Bond 10 Year | |||||||
Future Index Swap, Terminating | |||||||
12/09/149 (Notional Value $143,638,917) | 108 | $ | (220,401 | ) | |||
OTC EQUITY INDEX SWAP AGREEMENTS†† | |||||||
Bank of America S&P 500 Home | |||||||
Building Index | |||||||
December 2014 Swap, | |||||||
Terminating 12/23/1410 | |||||||
(Notional Value $9,399,442) | 17,377 | $ | (602,181 | ) | |||
Bank of America S&P | |||||||
1500 Education Services Sub- | |||||||
Industry Index | |||||||
October 2014 Swap, | |||||||
Terminating 10/13/1411 | |||||||
(Notional Value $39,166,398) | 766,016 | (2,098,425 | ) | ||||
Bank of America S&P 500 Home | |||||||
Building Index | |||||||
October 2014 Swap, | |||||||
Terminating 10/13/1410 | |||||||
(Notional Value $27,210,618) | 50,305 | (3,309,132 | ) | ||||
(Total Notional Value $81,783,783) | $ | (6,009,738 | ) | ||||
CENTRALLY CLEARED INTEREST RATE SWAP AGREEMENTS††
Counterparty | Floating Rate | Floating Rate Index | Fixed Rate | Maturity Date | Notional Amount | Market Value | Unrealized Appreciation/ Depreciation | ||||||||||||
Merrill Lynch | Pay | 3-Month USD-LIBOR | 3.13 | % | 06/08/25 | $45,300,000 | $1,010,190 | $ 1,010,190 | |||||||||||
Merrill Lynch | Pay | 3-Month USD-LIBOR | 2.93 | % | 08/24/25 | 52,200,000 | (109,621 | ) | (109,621 | ) | |||||||||
Merrill Lynch | Receive | 3-Month USD-LIBOR | 1.59 | % | 07/02/18 | (34,550,000 | ) | (110,560 | ) | (110,560 | ) | ||||||||
Merrill Lynch | Receive | 6-Month EUR-EURIBOR | 1.42 | % | 08/24/25 | (36,653,000 | ) | (314,796 | ) | (314,796 | ) | ||||||||
Merrill Lynch | Receive | 3-Month USD-LIBOR | 2.73 | % | 07/02/23 | (23,800,000 | ) | (564,060 | ) | (564,060 | ) | ||||||||
Merrill Lynch | Receive | 6-Month EUR-EURIBOR | 1.89 | % | 06/08/25 | (31,500,000 | ) | (2,263,782 | ) | (2,263,782 | ) | ||||||||
$(2,352,629 | ) | ||||||||||||||||||
82 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
SCHEDULE OF INVESTMENTS (concluded) | September 30, 2014 |
MACRO OPPORTUNITIES FUND |
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS††
Value at | Net Unrealized | |||||||||||||||||
Counterparty | Contracts to Sell | Currency | Settlement Date | Settlement Value | September 30, 2014 | Appreciation | ||||||||||||
Bank of America | 30,372,557 | EUR | 12/01/14 | $39,512,935 | $38,388,611 | $1,124,324 | ||||||||||||
BNY Mellon | 15,800,000 | EUR | 10/07/14 | 20,778,633 | 19,958,442 | 820,191 | ||||||||||||
BNY Mellon | 2,100,000 | AUD | 10/07/14 | 1,957,956 | 1,837,596 | 120,360 | ||||||||||||
BNY Mellon | 3,300,000 | GBP | 10/07/14 | 5,427,002 | 5,349,862 | 77,140 | ||||||||||||
$2,142,015 | ||||||||||||||||||
* | Non-income producing security. | |
† | Value determined based on Level 1 inputs, unless otherwise noted — See Note 4. | |
†† | Value determined based on Level 2 inputs, unless otherwise noted — See Note 4. | |
††† | Value determined based on Level 3 inputs — See Note 4. | |
1 | Variable rate security. Rate indicated is rate effective at September 30, 2014. | |
2 | Perpetual maturity. | |
3 | Security is a 144A or Section 4(a)(2) security. The total market value of 144A or Section 4(a)(2) securities is $587,975,382 (cost $587,359,632), or 38.7% of total net assets. These securities have been determined to be liquid under guidelines established by the Board of Trustees. | |
4 | Affiliated issuer. | |
5 | Security is a step up/step down bond. The coupon increases or decreases at regular intervals until the bond reaches full maturity. | |
6 | Security or a portion thereof is held as collateral for reverse repurchase agreements — See Note 13. | |
7 | Security with no rate was unsettled at September 30, 2014. | |
8 | Total return based on U.S. Dollar Index +/- financing at a variable rate. | |
9 | Total return based on Japan Government Bond 10 Year Future Index +/- financing at a variable rate. | |
10 | Total return based on S&P 500 Home Building Index +/- financing at a variable rate. | |
11 | Total return based on S&P 1500 Education Services Sub-Industry Index +/- financing at a variable rate. | |
12 | Illiquid security. | |
13 | The face amount is denominated in U.S. Dollars unless otherwise indicated. | |
14 | Zero coupon rate security. | |
15 | Residual interest. | |
16 | Security is a 144A or Section 4(a)(2) security. These securities are considered illiquid and restricted under guidelines established by the Board of Trustees. The total market value of 144A or Section 4(a)(2) securities is $21,420,000 (cost $21,400,000), or 1.4% of total net assets — See Note 16. | |
plc — Public Limited Company | ||
REIT — Real Estate Investment Trust |
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 83 |
MACRO OPPORTUNITIES FUND |
STATEMENT OF ASSETS AND LIABILITIES | ||||
September 30, 2014 | ||||
ASSETS: | ||||
Investments in unaffiliated issuers, at value | ||||
(cost $1,515,312,352) | $ | 1,513,427,914 | ||
Investments in affiliated issuers, at value | ||||
(cost $55,632,515) | 56,341,640 | |||
Total investments | ||||
(cost $1,570,944,867) | 1,569,769,554 | |||
Foreign currency, at value | ||||
(cost $101,566) | 101,026 | |||
Segregated cash with broker | 8,077,928 | |||
Cash | 2,191,733 | |||
Unrealized appreciation on forward foreign currency | ||||
exchange contracts | 2,142,015 | |||
Unrealized appreciation on swap agreements | 1,615,946 | |||
Prepaid expenses | 100,970 | |||
Receivables: | ||||
Fund shares sold | 11,494,789 | |||
Interest | 8,958,349 | |||
Securities sold | 6,357,694 | |||
Dividends | 295,622 | |||
Foreign taxes reclaim | 7,948 | |||
Total assets | 1,611,113,574 | |||
LIABILITIES: | ||||
Reverse Repurchase Agreements | 42,234,309 | |||
Unrealized depreciation on swap agreements | 9,592,958 | |||
Unfunded loan commitments, at value | ||||
(commitment fees received $651,645) | 593,215 | |||
Options written, at value | ||||
(premiums received $225,834) | 1,416 | |||
Payable for: | ||||
Securities purchased | 32,813,336 | |||
Fund shares redeemed | 3,104,010 | |||
Management fees | 891,029 | |||
Distributions to shareholders | 834,101 | |||
Distribution and service fees | 271,977 | |||
Fund accounting/administration fees | 115,996 | |||
Transfer agent/maintenance fees | 47,853 | |||
Trustees’ fees* | 4,560 | |||
Miscellaneous | 119,778 | |||
Total liabilities | 90,624,538 | |||
NET ASSETS | $ | 1,520,489,036 | ||
NET ASSETS CONSIST OF: | ||||
Paid in capital | $ | 1,547,942,694 | ||
Distributions in excess of net investment income | (7,364,111 | ) | ||
Accumulated net realized loss on investments | (13,218,702 | ) | ||
Net unrealized depreciation on investments | (6,870,845 | ) | ||
Net assets | $ | 1,520,489,036 | ||
A-CLASS: | ||||
Net assets | $ | 357,764,821 | ||
Capital shares outstanding | 13,343,826 | |||
Net asset value per share | $26.81 | |||
Maximum offering price per share | ||||
(Net asset value divided by 95.25%) | $28.15 | |||
C-CLASS: | ||||
Net assets | $ | 248,358,592 | ||
Capital shares outstanding | 9,270,392 | |||
Net asset value per share | $26.79 | |||
INSTITUTIONAL CLASS: | ||||
Net assets | $ | 914,365,623 | ||
Capital shares outstanding | 34,064,477 | |||
Net asset value per share | $26.84 | |||
STATEMENT OF OPERATIONS | ||||
Year Ended September 30, 2014 | ||||
INVESTMENT INCOME: | ||||
Interest (net of foreign withholding tax of $8,991) | $ | 56,343,833 | ||
Dividends from securities of unaffiliated issuers | 4,773,730 | |||
Dividends from securities of affiliated issuers | 615,129 | |||
Total investment income | 61,732,692 | |||
EXPENSES: | ||||
Management fees | 10,146,509 | |||
Transfer agent/maintenance fees: | ||||
A-Class | 402,441 | |||
C-Class | 147,242 | |||
Institutional Class | 205,426 | |||
Distribution and service fees: | ||||
A-Class | 918,839 | |||
C-Class | 1,964,672 | |||
Fund accounting/administration fees: | 1,083,036 | |||
Interest expense | 751,757 | |||
Trustees’ fees* | 100,229 | |||
Line of credit expense | 95,241 | |||
Custodian fees | 30,396 | |||
Tax expense | 20 | |||
Miscellaneous | 862,481 | |||
Total expenses | 16,708,289 | |||
Less: | ||||
Expenses waived by Adviser | (1,378,478 | ) | ||
Expenses waived by Transfer Agent | ||||
A-Class | (99,091 | ) | ||
C-Class | (9,019 | ) | ||
Institutional Class | (205,443 | ) | ||
Total expenses waived | (1,692,031 | ) | ||
Net expenses | 15,016,258 | |||
Net investment income | 46,716,434 | |||
NET REALIZED AND UNREALIZED GAIN (LOSS): | ||||
Net realized gain (loss) on: | ||||
Investments | 3,256,793 | |||
Swap agreements | 2,708,845 | |||
Foreign currency | (412,320 | ) | ||
Forward foreign currency exchange contracts | 3,489,884 | |||
Options purchased | (5,646,796 | ) | ||
Options written | 937,231 | |||
Net realized gain | 4,333,637 | |||
Net change in unrealized appreciation (depreciation) on: | ||||
Investments in unaffiliated issuers | 20,820,521 | |||
Investments in affiliated issuers | 709,125 | |||
Swap agreements | (6,499,398 | ) | ||
Options purchased | (2,331,031 | ) | ||
Options written | (23,812 | ) | ||
Foreign currency | (347,118 | ) | ||
Forward foreign currency exchange contracts | 2,142,015 | |||
Net change in unrealized appreciation (depreciation) | 14,470,302 | |||
Net realized and unrealized gain | 18,803,939 | |||
Net increase in net assets resulting | ||||
from operations | $ | 65,520,373 | ||
* | Relates to Trustees not deemed “interested persons” within the meaning of Section 2(a)(19) of the 1940 Act. |
84 | | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
MACRO OPPORTUNITIES FUND |
STATEMENTS OF CHANGES IN NET ASSETS | ||||||||
Year Ended | Year Ended | |||||||
September 30, | September 30, | |||||||
2014 | 2013 | |||||||
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS: | ||||||||
Net investment income | $ | 46,716,434 | $ | 34,053,445 | ||||
Net realized gain (loss) on investments | 4,333,637 | (4,447,248 | ) | |||||
Net change in unrealized appreciation (depreciation) on investments | 14,470,302 | (26,368,248 | ) | |||||
Net increase in net assets resulting from operations | 65,520,373 | 3,237,949 | ||||||
DISTRIBUTIONS TO SHAREHOLDERS FROM: | ||||||||
Net investment income | ||||||||
A-Class | (17,086,055 | ) | (12,522,539 | ) | ||||
C-Class | (7,695,611 | ) | (4,768,075 | ) | ||||
Institutional Class | (28,337,889 | ) | (17,291,805 | ) | ||||
Net realized gains | ||||||||
A-Class | — | (501,652 | ) | |||||
C-Class | — | (204,259 | ) | |||||
Institutional Class | — | (603,940 | ) | |||||
Return of capital | ||||||||
A-Class | (289,690 | ) | — | |||||
C-Class | (132,073 | ) | — | |||||
Institutional Class | (511,136 | ) | — | |||||
Total distributions to shareholders | (54,052,454 | ) | (35,892,270 | ) | ||||
CAPITAL SHARE TRANSACTIONS: | ||||||||
Proceeds from sale of shares | ||||||||
A-Class | 293,031,487 | 444,592,091 | ||||||
C-Class | 122,101,340 | 180,978,622 | ||||||
Institutional Class | 693,090,752 | 608,202,900 | ||||||
Value of proceeds of merger | ||||||||
A-Class | — | 12,881,126 | ||||||
C-Class | — | 6,546,846 | ||||||
Institutional Class | — | 2,252,116 | ||||||
Distributions reinvested | ||||||||
A-Class | 13,577,467 | 10,739,892 | ||||||
C-Class | 6,480,901 | 4,399,264 | ||||||
Institutional Class | 23,567,363 | 14,904,818 | ||||||
Cost of shares redeemed | ||||||||
A-Class | (289,559,280 | ) | (204,778,201 | ) | ||||
C-Class | (45,738,386 | ) | (56,074,395 | ) | ||||
Institutional Class | (222,136,368 | ) | (299,893,193 | ) | ||||
Net increase from capital share transactions | 594,415,276 | 724,751,886 | ||||||
Net increase in net assets | 605,883,195 | 692,097,565 | ||||||
NET ASSETS: | ||||||||
Beginning of year | 914,605,841 | 222,508,276 | ||||||
End of year | $ | 1,520,489,036 | $ | 914,605,841 | ||||
Distributions in excess of net investment income at end of year | $ | (7,364,111 | ) | $ | (416,937 | ) | ||
CAPITAL SHARE ACTIVITY: | ||||||||
Shares sold | ||||||||
A-Class | 10,851,399 | 13,508,658 † | ||||||
C-Class | 4,522,005 | 5,550,606 † | ||||||
Institutional Class | 25,608,053 | 18,519,609 † | ||||||
Shares issued from reinvestment of distributions | ||||||||
A-Class | 503,489 | 391,935 | ||||||
C-Class | 240,545 | 160,703 | ||||||
Institutional Class | 872,812 | 544,723 | ||||||
Shares redeemed | ||||||||
A-Class | (10,733,837 | ) | (4,309,477 | ) | ||||
C-Class | (1,696,813 | ) | (740,595 | ) | ||||
Institutional Class | (8,236,308 | ) | (7,262,144 | ) | ||||
Net increase in shares | 21,931,345 | 26,364,018 | ||||||
† | Includes 470,457 A-Class, 239,285 C-Class, and 82,164 Institutional Class shares issued in connection with Fund merger. |
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | | 85 |
MACRO OPPORTUNITIES FUND |
FINANCIAL HIGHLIGHTS |
This table is presented to show selected data for a share outstanding throughout each period and to assist shareholders in evaluating a Fund’s performance for the periods presented.
Year Ended | Year Ended | Period Ended | ||||||||
September 30, | September 30, | September 30, | ||||||||
A-Class | 2014 | 2013 | 2012a | |||||||
Per Share Data | ||||||||||
Net asset value, beginning of period | $26.31 | $26.53 | $25.00 | |||||||
Income (loss) from investment operations: | ||||||||||
Net investment income (loss)b | 1.10 | 1.37 | .99 | |||||||
Net gain (loss) on investments (realized and unrealized) | .69 | (.04 | ) | 1.52 | ||||||
Total from investment operations | 1.79 | 1.33 | 2.51 | |||||||
Less distributions from: | ||||||||||
Net investment income | (1.27 | ) | (1.43 | ) | (.98 | ) | ||||
Net realized gains | — | (.12 | ) | — | ||||||
Return of capital | (.02 | ) | — | — | ||||||
Total distributions | (1.29 | ) | (1.55 | ) | (.98 | ) | ||||
Net asset value, end of period | $26.81 | $26.31 | $26.53 | |||||||
Total Returne | 6.88% | 5.01% | 10.19% | |||||||
Ratios/Supplemental Data | ||||||||||
Net assets, end of period (in thousands) | $357,765 | $334,751 | $83,081 | |||||||
Ratios to average net assets: | ||||||||||
Net investment income (loss) | 4.08% | 5.11% | 4.61% | |||||||
Total expensesc | 1.51% | 1.56% | 1.61% | |||||||
Net expensesd,f | 1.36% | 1.41% | 1.37% | |||||||
Portfolio turnover rate | 54% | 84% | 46% | |||||||
Year Ended | Year Ended | Period Ended | ||||||||
September 30, | September 30, | September 30, | ||||||||
C-Class | 2014 | 2013 | 2012a | |||||||
Per Share Data | ||||||||||
Net asset value, beginning of period | $26.29 | $26.51 | $25.00 | |||||||
Income (loss) from investment operations: | ||||||||||
Net investment income (loss)b | .90 | 1.17 | .82 | |||||||
Net gain (loss) on investments (realized and unrealized) | .69 | (.03 | ) | 1.53 | ||||||
Total from investment operations | 1.59 | 1.14 | 2.35 | |||||||
Less distributions from: | ||||||||||
Net investment income | (1.07 | ) | (1.24 | ) | (.84 | ) | ||||
Net realized gains | — | (.12 | ) | — | ||||||
Return of capital | (.02 | ) | — | — | ||||||
Total distributions | (1.09 | ) | (1.36 | ) | (.84 | ) | ||||
Net asset value, end of period | $26.79 | $26.29 | $26.51 | |||||||
Total Returne | 6.10% | 4.26% | 9.54% | |||||||
Ratios/Supplemental Data | ||||||||||
Net assets, end of period (in thousands) | $248,359 | $163,129 | $32,711 | |||||||
Ratios to average net assets: | ||||||||||
Net investment income (loss) | 3.34% | 4.36% | 3.83% | |||||||
Total expensesc | 2.22% | 2.29% | 2.31% | |||||||
Net expensesd,f | 2.10% | 2.15% | 2.11% | |||||||
Portfolio turnover rate | 54% | 84% | 46% |
86 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
MACRO OPPORTUNITIES FUND |
FINANCIAL HIGHLIGHTS (concluded) |
This table is presented to show selected data for a share outstanding throughout each period and to assist shareholders in evaluating a Fund’s performance for the periods presented.
Year Ended | Year Ended | Period Ended | ||||||||
September 30, | September 30, | September 30, | ||||||||
Institutional Class | 2014 | 2013 | 2012a | |||||||
Per Share Data | ||||||||||
Net asset value, beginning of period | $26.34 | $26.56 | $25.00 | |||||||
Income (loss) from investment operations: | ||||||||||
Net investment income (loss)b | 1.18 | 1.46 | 1.12 | |||||||
Net gain (loss) on investments (realized and unrealized) | .70 | (.04 | ) | 1.47 | ||||||
Total from investment operations | 1.88 | 1.42 | 2.59 | |||||||
Less distributions from: | ||||||||||
Net investment income | (1.36 | ) | (1.52 | ) | (1.03 | ) | ||||
Net realized gains | — | (.12 | ) | — | ||||||
Return of capital | (.02 | ) | — | — | ||||||
Total distributions | (1.38 | ) | (1.64 | ) | (1.03 | ) | ||||
Net asset value, end of period | $26.84 | $26.34 | $26.56 | |||||||
Total Returne | 7.23% | 5.35% | 10.55% | |||||||
Ratios/Supplemental Data | ||||||||||
Net assets, end of period (in thousands) | $914,366 | $416,727 | $106,716 | |||||||
Ratios to average net assets: | ||||||||||
Net investment income (loss) | 4.37% | 5.43% | 5.22% | |||||||
Total expensesc | 1.18% | 1.23% | 1.31% | |||||||
Net expensesd,f | 1.02% | 1.09% | 1.06% | |||||||
Portfolio turnover rate | 54% | 84% | 46% |
a | Since commencement of operations: November 30, 2011. Percentage amounts for the period, except total return and portfolio turnover rate, have been annualized. |
b | Net investment income (loss) per share was computed using average shares outstanding throughout the period. |
c | Does not include expenses of the underlying funds in which the Fund invests. |
d | Net expense information reflects the expense ratios after expense waivers. |
e | Total return does not reflect the impact of any applicable sales charge and has not been annualized. |
f | Net expenses may include expenses that are excluded from the expense limitation agreement. Excluding these expenses, the operating expense ratios for the periods would be: |
09/30/14 | 09/30/13 | 09/30/12 | |||||||
A-Class | 1.27% | 1.29% | 1.27% | ||||||
C-Class | 2.01% | 2.02% | 2.01% | ||||||
Institutional Class | 0.94% | 0.96% | 0.95% |
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 87 |
MANAGERS’ COMMENTARY (Unaudited) | September 30, 2014 | |
To Our Shareholders
Guggenheim Investments Municipal Income Fund (the “Fund”) 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 James E. Pass, Senior Managing Director and Portfolio Manager. In the following paragraphs, the investment team discusses the market environment and the Fund’s performance for the annual fiscal year ended September 30, 2014.
For the one-year period ended September 30, 2014 (the “Period”), the Guggenheim Municipal Income Fund (the “Fund”) returned 11.20%1, compared with the 7.93% return of the Barclays Municipal Bond Index, the Fund’s Benchmark. The return for the Barclays Municipal Long Bond Index, the previous benchmark, was 12.88%.
At the beginning of the Period, the municipal market had just emerged from a rough few months, as fears about rising interest rates, the end of quantitative easing and headlines about some troubled issuers contributed to tens of billions of dollars in mutual fund outflows and significant underperformance of the municipal market. That trend began to reverse in the fourth quarter of 2013, and carried through for the next 12 months, when the municipal sector was one of the best returning sectors in the fixed income market.
Despite some pockets of volatility, municipal bonds have generally benefited from the benign interest rate environment over the past 12 months and the slowly improving U.S. economy. Outperformance of the municipal market compared with other sectors of the fixed income market has led to some relatively richer valuations and strong mutual fund flows.
Municipals have rallied over the Period in response to the continuing positive credit picture of state and local governments, when viewed on the basis of tax receipts, unemployment and debt burdens. The pace of municipal bond redemptions also slowed to more historic levels, and municipal bonds’ attractive relative value helped renew demand.
The rise in municipal bond prices was helped by depressed supply of new bonds and increased redemptions of maturing bonds. New issuance through the third quarter of 2014 was about 10% below the same period last year, and the entire year’s supply could amount to only about $300 million—among the lowest totals of past few years. The trend in issuance is unlikely to reverse any time soon, given that many state and local governments have already taken advantage of the extended low interest rate environment to refinance existing debt, and the in the meantime have imposed austerity in new projects.
Demand is reflected by continued strong flows into tax-exempt mutual funds and ETFs, which exceeded $13 billion in 2014 through September. The high-yield sector and intermediate sector have been the main catalysts, as investors seek incremental yield or better relative value.
Negative headlines related to Puerto Rico, Detroit and some other issuers remain a concern, but the market seems to view these situations as isolated. The improving economy has been beneficial to the finances of most issuers. Default risk remains in the background for now, having declined steadily since peaking in 2009.
Helping Fund performance for the Period was renewed investor interest in credits believed to have been unfairly devalued in the mid-2013 bond market selloff. The Fund took advantage of opportunities during the last 12 months to add to its bonds in the A-rated category and bonds in the 10-15 year range, where the municipal/Treasury ratio periodically indicated attractive relative value. The overriding goal is to generate current income without increasing the risk profile of the Fund.
The Fund holds mostly revenue bonds, typically issued by utilities, transportation agencies, and health care providers, with the rest general obligation issues, which are issued by state and local governments. From a sector perspective, utility bonds are the Fund’s largest allocation, including power, water and sewer services, and transportation. School districts compose the second-largest sector. Michigan and California are the most heavily represented states in the Fund, accounting for about half of holdings.
The Fund benefited from rising prices of bonds backed by essential services, such as utilities, which represent secured claims backed by dedicated revenue streams, and certain story bonds, where the Fund has familiarity with the issuer and the situation behind the bonds in the search for value among distressed credits. The Fund opportunistically added some City of Detroit essential service bonds during the Period, which are secured by dedicated revenue streams and wrapped by an investment grade rated mono-line insurer.
88 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
MANAGERS’ COMMENTARY (Unaudited) (concluded) | September 30, 2014 | |
The Commonwealth of Puerto Rico introduced the Puerto Rico Public Corporation Debt Enforcement and Recovery Act earlier in 2014, which was perceived as negative for certain Puerto Rico revenue bond issuers. The intent of the legislation was to provide certain revenue bond issuers the ability to restructure their debt. The island’s general obligation bonds and sales-tax backed issues were excluded from the Act. The passage of this Act led the rating agencies to downgrade many Puerto Rican issuers, resulting in significant decreases in market value and a widening of their credits spreads. However, it also presented an opportunity to purchase Puerto Rico bonds that met the Fund’s relative value investment criteria at attractive prices, which we did on a selective basis.
Despite the outperformance for the Period, the team believes that current relative value opportunities continue to be limited, as technical conditions, such as modest supply and strong demand, have been enhanced by the improving national economy. This has supported the Fund’s focus on issues with coupons of 5% or greater.
The team’s outlook remains positive, although it looks to take profits when appropriate to be ready for a time when short term rates move up more sharply than long-term rates, a bear flattener scenario which could negatively affect sector performance.
Performance displayed represents past performance which is no guarantee of future results.
1 Performance figures are based on A-Class shares and do not reflect deduction of the sales charges or taxes that a shareholder would pay on distributions or the redemption of shares. Fee waivers and/or reimbursements reduce Fund expenses, and, in the absence of such waivers, the performance quoted would be reduced.
The opinions and forecast expressed may not actually come to pass. This information is subject to change at any time, based on market and other conditions, and should not be construed as a recommendation of any specific security or strategy.
THE GUGGENHEIM FUNDS ANNUAL REPORT | 89 |
PERFORMANCE REPORT AND FUND PROFILE (Unaudited) | September 30, 2014 | |
MUNICIPAL INCOME FUND
OBJECTIVE: Seeks to provide current income with an emphasis on income exempt from federal income tax, while also considering capital appreciation.
Holdings Diversification (Market Exposure as % of Net Assets)
“Holdings Diversification (Market Exposure as % of Net Assets)” excludes any temporary cash investments.
Portfolio Composition by Quality Rating* | ||
% of | ||
Rating | Total Investments | |
Fixed Income Instruments | ||
AA | 60.4% | |
A | 21.1% | |
BBB | 11.7% | |
BB | 2.0% | |
Other Instruments | ||
Short Term Investments | 4.8% | |
Total Investments | 100.0% | |
The chart above reflects percentages of the value of total investments.
Inception Dates: | |||
A-Class | April 28, 2004 | ||
C-Class | January 13, 2012 | ||
Institutional Class | January 13, 2012 | ||
Ten Largest Holdings (% of Total Net Assets) | |||
North Texas Tollway Authority Revenue Bonds | 5.5% | ||
City of Detroit Michigan Water | |||
Supply System Revenue Revenue Bonds | 5.1% | ||
City of New York New York General | |||
Obligation Unlimited | 3.9% | ||
City of Detroit Michigan General | |||
Obligation Unlimited | 3.9% | ||
Michigan Finance Authority Revenue Bonds | 3.8% | ||
Tustin Unified School District General | |||
Obligation Unlimited | 3.7% | ||
Arizona Health Facilities Authority | |||
Revenue Bonds | 3.4% | ||
Hudson County Improvement | |||
Authority Revenue Bonds | 3.3% | ||
Regents of the University of | |||
California Medical Center Pooled | |||
Revenue Revenue Bonds | 3.2% | ||
Guam Government Waterworks Authority | |||
Revenue Bonds | 2.6% | ||
Top Ten Total | 38.4% | ||
“Ten Largest Holdings" exclude any temporary cash or derivative investments.
* | Source: Factset. Credit quality ratings are measured on a scale that generally ranges from AAA (highest) to D (lowest). All rated securities have been rated by Moody’s, Standard & Poor’s (“S&P”), or Fitch, which are all a Nationally Recognized Statistical Rating Organization (“NRSRO”). For purposes of this presentation, when ratings are available from more than one agency, the highest rating is used. Guggenheim Investments has converted Moody’s and Fitch ratings to the equivalent S&P rating. Unrated securities do not necessarily indicate low credit quality. Security ratings are determined at the time of purchase and may change thereafter. |
90 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
PERFORMANCE REPORT AND FUND PROFILE (Unaudited) (concluded) | September 30, 2014 | |
Cumulative Fund Performance*,**
Average Annual Returns*,** | |||||||||
Periods Ended September 30, 2014 | |||||||||
1 Year | 5 Year | 10 Year | |||||||
A-Class Shares§ | 11.20 | % | 7.65 | % | 4.62 | % | |||
A-Class Shares with sales charge† | 5.90 | % | 6.60 | % | 4.11 | % | |||
Barclays Municipal Long Bond Index | 12.88 | % | 5.98 | % | 5.43 | % | |||
Barclays Municipal Bond Index | 7.93 | % | 4.67 | % | 4.72 | % | |||
1 Year | Since Inception (01/13/12) | |||||
C-Class Shares | 10.28 | % | 4.03% | |||
C-Class Shares with CDSC‡ | 9.28 | % | 4.03% | |||
Institutional Class Shares | 11.38 | % | 5.05% | |||
Barclays Municipal Long Bond Index | 12.88 | % | 5.17% | |||
Barclays Municipal Bond Index | 7.93 | % | 3.62% | |||
* | 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 Barclays Municipal Long Bond Index and the Barclays Municipal Bond Index are unmanaged indices and, unlike the Fund, have no management fees or operating expenses to reduce their reported returns. | |
** | Effective May 19, 2014, the Fund’s benchmark index changed to the Barclays Municipal Bond Index from the Barclays Municipal Long Bond Index. The benchmark index was changed in order to better represent the Fund’s investment strategies for comparison purposes. It also allows for greater investment flexibility, including the ability to shorten or extend the Fund’s average maturity and duration should conditions warrant, without greatly deviating from its benchmark. | |
† | Fund returns are calculated using the maximum sales charge of 4.75%. | |
‡ | Fund returns include a CDSC of 1% if redeemed within 12 months of purchase. | |
§ | Effective January 13, 2012, the Fund acquired all of the assets and liabilities of the TS&W/Claymore Tax-Advantage Balanced Fund (“TYW”), a registered closed-end management investment company. The A-Class performance prior to that date reflects performance of TYW. |
THE GUGGENHEIM FUNDS ANNUAL REPORT | 91 |
SCHEDULE OF INVESTMENTS | September 30, 2014 | |
MUNICIPAL INCOME FUND |
SHARES | VALUE | ||||||
SHORT TERM INVESTMENTS†- 4.7% | |||||||
Fidelity Institutional Tax-Exempt Portfolio | 2,443,260 | $ | 2,443,260 | ||||
Total Short Term Investments | |||||||
(Cost $2,443,260) | 2,443,260 | ||||||
FACE | |||||||
AMOUNT | |||||||
MUNICIPAL BONDS†† - 93.5% | |||||||
MICHIGAN - 27.5% | |||||||
Michigan Finance Authority Revenue Bonds | |||||||
5.00% due 07/01/31 | $ | 1,800,000 | 1,973,016 | ||||
5.00% due 07/01/32 | 1,200,000 | 1,310,232 | |||||
5.00% due 07/01/44 | 1,200,000 | 1,252,768 | |||||
5.00% due 07/01/33 | 400,000 | 435,048 | |||||
5.00% due 07/01/34 | 300,000 | 320,760 | |||||
City of Detroit Michigan Water Supply | |||||||
System Revenue Revenue Bonds | |||||||
5.00% due 07/01/33 | 2,530,000 | 2,617,654 | |||||
5.00% due 07/01/30 | 300,000 | 300,240 | |||||
4.75% due 07/01/29 | 230,000 | 242,836 | |||||
5.00% due 07/01/41 | 200,000 | 208,712 | |||||
5.00% due 07/01/34 | 155,000 | 156,843 | |||||
4.25% due 07/01/16 | 125,000 | 132,085 | |||||
City of Detroit Michigan General | |||||||
Obligation Unlimited | |||||||
3.50% due 10/07/161 | 2,000,000 | 1,997,580 | |||||
Detroit City School District General | |||||||
Obligation Unlimited | |||||||
5.00% due 05/01/32 | 1,000,000 | 1,072,960 | |||||
5.00% due 05/01/30 | 300,000 | 325,377 | |||||
Detroit Wayne County Stadium | |||||||
Authority Revenue Bonds | |||||||
5.00% due 10/01/26 | 1,100,000 | 1,191,729 | |||||
City of Detroit Michigan Sewage Disposal | |||||||
System Revenue Revenue Bonds | |||||||
5.00% due 07/01/15 | 500,000 | 516,805 | |||||
5.00% due 07/01/24 | 155,000 | 155,124 | |||||
Total Michigan | 14,209,769 | ||||||
CALIFORNIA - 18.8% | |||||||
Tustin Unified School District General | |||||||
Obligation Unlimited | |||||||
6.00% due 08/01/36 | 1,600,000 | 1,913,168 | |||||
Oakland Unified School District/Alameda | |||||||
County General Obligation Unlimited | |||||||
5.50% due 08/01/322 | 1,200,000 | 1,338,792 | |||||
5.00% due 08/01/222 | 300,000 | 335,703 | |||||
Regents of the University of California Medical | |||||||
Center Pooled Revenue Revenue Bonds | |||||||
0.90% due 05/15/431 | 2,000,000 | 1,636,160 | |||||
Stockton Public Financing Authority | |||||||
Revenue Bonds | |||||||
6.25% due 10/01/38 | 1,000,000 | 1,175,320 | |||||
6.25% due 10/01/40 | 250,000 | 293,415 | |||||
Stockton Unified School District | |||||||
General Obligation Unlimited | |||||||
5.00% due 07/01/282 | 500,000 | 570,550 | |||||
5.00% due 01/01/292 | 200,000 | 227,180 | |||||
Southwestern Community College District | |||||||
General Obligation Unlimited | |||||||
0.00% due 08/01/413 | 2,380,000 | 623,060 | |||||
Los Angeles County Regional Financing | |||||||
Authority Revenue Bonds | |||||||
5.00% due 11/15/44 | 500,000 | 544,135 | |||||
Inland Valley Development Agency | |||||||
Tax Allocation | |||||||
5.00% due 09/01/44 | 500,000 | 541,355 | |||||
Santa Barbara Secondary High School | |||||||
District General Obligation Unlimited | |||||||
0.00% due 08/01/403 | 1,060,000 | 332,999 | |||||
Culver Redevelopment Agency | |||||||
Tax Allocation | |||||||
0.00% due 11/01/233 | 195,000 | 135,681 | |||||
Total California | 9,667,518 | ||||||
TEXAS - 8.0% | |||||||
North Texas Tollway Authority | |||||||
Revenue Bonds | |||||||
5.75% due 01/01/40 | 2,500,000 | 2,824,949 | |||||
0.83% due 01/01/501 | 1,000,000 | 999,980 | |||||
New Hope Cultural Education | |||||||
Facilities Corp. Revenue Bonds | |||||||
5.00% due 04/01/46 | 250,000 | 269,590 | |||||
Total Texas | 4,094,519 | ||||||
ILLINOIS - 7.4% | |||||||
Will County Township High School | |||||||
District No. 204 Joliet General | |||||||
Obligation Limited | |||||||
6.25% due 01/01/31 | 1,000,000 | 1,184,790 | |||||
Southern Illinois University | |||||||
Revenue Bonds | |||||||
5.00% due 04/01/32 | 1,000,000 | 1,097,320 | |||||
Chicago Park District General | |||||||
Obligation Limited | |||||||
5.00% due 01/01/36 | 1,000,000 | 1,083,960 | |||||
University of Illinois Revenue Bonds | |||||||
6.00% due 10/01/29 | 200,000 | 235,452 | |||||
City of Chicago Illinois General | |||||||
Obligation Unlimited | |||||||
5.00% due 01/01/24 | 100,000 | 100,730 | |||||
5.00% due 01/01/23 | 70,000 | 74,619 | |||||
5.00% due 01/01/22 | 55,000 | 56,960 | |||||
Total Illinois | 3,833,831 | ||||||
NEW JERSEY - 5.2% | |||||||
Hudson County Improvement Authority | |||||||
Revenue Bonds | |||||||
6.00% due 01/01/40 | 1,500,000 | 1,720,245 | |||||
New Jersey State Turnpike Authority | |||||||
Revenue Bonds | |||||||
0.67% due 01/01/241 | 1,000,000 | 1,001,010 | |||||
Total New Jersey | 2,721,255 | ||||||
NEW YORK - 4.9% | |||||||
City of New York New York General | |||||||
Obligation Unlimited | |||||||
0.02% due 08/01/201 | 2,000,000 | 2,000,000 |
92 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
SCHEDULE OF INVESTMENTS (concluded) | September 30, 2014 | |
MUNICIPAL INCOME FUND |
FACE | |||||||
AMOUNT | VALUE | ||||||
Metropolitan Transportation Authority | |||||||
Revenue Bonds | |||||||
0.71% due 11/01/321 | $ | 500,000 | $ | 501,365 | |||
Total New York | 2,501,365 | ||||||
ARIZONA - 3.4% | |||||||
Arizona Health Facilities Authority | |||||||
Revenue Bonds | |||||||
0.97% due 01/01/371 | 2,000,000 | 1,773,640 | |||||
GUAM - 2.6% | |||||||
Guam Government Waterworks | |||||||
Authority Revenue Bonds | |||||||
5.00% due 07/01/35 | 1,250,000 | 1,357,413 | |||||
MASSACHUSETTS - 2.3% | |||||||
Massachusetts Development Finance | |||||||
Agency Revenue Bonds | |||||||
6.88% due 01/01/41 | 1,000,000 | 1,182,450 | |||||
WEST VIRGINIA - 2.2% | |||||||
West Virginia Higher Education Policy | |||||||
Commission Revenue Bonds | |||||||
5.00% due 04/01/29 | 1,000,000 | 1,144,310 | |||||
WASHINGTON - 2.0% | |||||||
Greater Wenatchee Regional Events | |||||||
Center Public Facilities Dist | |||||||
Revenue Bonds | |||||||
5.00% due 09/01/272 | 500,000 | 527,385 | |||||
5.25% due 09/01/322 | 500,000 | 518,660 | |||||
Total Washington | 1,046,045 | ||||||
PENNSYLVANIA - 2.0% | |||||||
Pennsylvania Turnpike Commission | |||||||
Revenue Bonds | |||||||
1.30% due 12/01/201 | 500,000 | 512,320 | |||||
1.01% due 12/01/211 | 500,000 | 501,650 | |||||
Total Pennsylvania | 1,013,970 | ||||||
IOWA - 1.9% | |||||||
Iowa Finance Authority Revenue Bonds | |||||||
0.02% due 02/15/351 | 1,000,000 | 1,000,000 | |||||
PUERTO RICO - 1.9% | |||||||
Puerto Rico Electric Power Authority | |||||||
Revenue Bonds | |||||||
5.00% due 07/01/23 | 200,000 | 202,032 | |||||
5.00% due 07/01/24 | 190,000 | 191,199 | |||||
Puerto Rico Municipal Finance Agency | |||||||
General Obligation Unlimited | |||||||
5.00% due 08/01/27 | 350,000 | 335,878 | |||||
Commonwealth of Puerto Rico General | |||||||
Obligation Unlimited | |||||||
5.13% due 07/01/30 | 200,000 | 199,982 | |||||
Total Puerto Rico | 929,091 | ||||||
MISSISSIPPI - 1.6% | |||||||
Mississippi Development Bank Revenue Bonds | |||||||
6.50% due 10/01/31 | 500,000 | 572,735 | |||||
6.25% due 10/01/26 | 230,000 | 265,356 | |||||
Total Mississippi | 838,091 | ||||||
INDIANA - 1.0% | |||||||
County of Knox Indiana Revenue Bonds | |||||||
5.00% due 04/01/27 | 470,000 | 508,592 | |||||
FLORIDA - 0.4% | |||||||
Miami-Dade County Health Facilities | |||||||
Authority Revenue Bonds | |||||||
5.00% due 08/01/24 | 200,000 | 230,488 | |||||
KENTUCKY - 0.4% | |||||||
City of Owensboro Kentucky Electric | |||||||
Light & Power System Revenue | |||||||
Revenue Bonds | |||||||
5.00% due 01/01/26 | 200,000 | 217,876 | |||||
Total Municipal Bonds | |||||||
(Cost $46,053,071) | 48,270,223 | ||||||
Total Investments - 98.2% | |||||||
(Cost $48,496,331) | $ | 50,713,483 | |||||
Other Assets & Liabilities, net - 1.8% | 908,881 | ||||||
Total Net Assets - 100.0% | $ | 51,622,364 | |||||
† | Value determined based on Level 1 inputs — See Note 4. | |
†† | Value determined based on Level 2 inputs — See Note 4. | |
1 | Variable rate security. Rate indicated is rate effective at September 30, 2014. | |
2 | Illiquid security. | |
3 | Zero coupon rate security. |
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 93 |
MUNICIPAL INCOME FUND |
STATEMENT OF ASSETS AND LIABILITIES | ||||
September 30, 2014 | ||||
ASSETS: | ||||
Investments, at value | ||||
(cost $48,496,331) | $ | 50,713,483 | ||
Prepaid expenses | 18,751 | |||
Cash | 12 | |||
Receivables: | ||||
Fund shares sold | 592,000 | |||
Interest | 461,489 | |||
Investment adviser | 5,803 | |||
Total assets | 51,791,538 | |||
LIABILITIES | ||||
Payable for: | ||||
Distributions to shareholders | 52,277 | |||
Fund shares redeemed | 41,657 | |||
Direct shareholders expense | 28,037 | |||
Distribution and service fees | 9,841 | |||
Fund accounting/administration fees | 4,043 | |||
Trustees’ fees* | 4,015 | |||
Transfer agent/maintenance fees | 2,435 | |||
Miscellaneous | 26,869 | |||
Total liabilities | 169,174 | |||
NET ASSETS | $ | 51,622,364 | ||
NET ASSETS CONSIST OF: | ||||
Paid in capital | $ | 77,814,238 | ||
Undistributed net investment income | — | |||
Accumulated net realized loss on investments | (28,409,026 | ) | ||
Net unrealized appreciation on investments | 2,217,152 | |||
Net assets | $ | 51,622,364 | ||
A-CLASS: | ||||
Net assets | $ | 44,090,048 | ||
Capital shares outstanding | 3,525,454 | |||
Net asset value per share | $12.51 | |||
Maximum offering price per share | ||||
(Net asset value divided by 95.25%) | $13.13 | |||
C-CLASS: | ||||
Net assets | $ | 1,081,594 | ||
Capital shares outstanding | 86,523 | |||
Net asset value per share | $12.50 | |||
INSTITUTIONAL CLASS: | ||||
Net assets | $ | 6,450,722 | ||
Capital shares outstanding | 515,569 | |||
Net asset value per share | $12.51 | |||
STATEMENT OF OPERATIONS | ||||
Year Ended September 30, 2014 | ||||
INVESTMENT INCOME: | ||||
Interest | $ | 2,068,421 | ||
Total investment income | 2,068,421 | |||
EXPENSES: | ||||
Management fees | 270,177 | |||
Transfer agent/maintenance fees: | ||||
A-Class | 61,200 | |||
C-Class | 1,643 | |||
Institutional Class | 4,456 | |||
Distribution and service fees: | ||||
A-Class | 115,805 | |||
C-Class | 9,240 | |||
Fund accounting/administration fees | 51,333 | |||
Registration fees | 50,665 | |||
Trustees’ fees* | 8,432 | |||
Line of credit expense | 5,569 | |||
Custodian fees | 4,211 | |||
Tax expense | 1 | |||
Miscellaneous | 97,808 | |||
Total expenses | 680,540 | |||
Less: | ||||
Expenses waived by Adviser | (242,274 | ) | ||
Net expenses | 438,266 | |||
Net investment income | 1,630,155 | |||
NET REALIZED AND UNREALIZED GAIN (LOSS): | ||||
Net realized gain (loss) on: | ||||
Investments | 597,388 | |||
Net realized gain | 597,388 | |||
Net change in unrealized appreciation (depreciation) on: | ||||
Investments | 3,446,106 | |||
Net change in unrealized appreciation (depreciation) | 3,446,106 | |||
Net realized and unrealized gain | 4,043,494 | |||
Net increase in net assets resulting | ||||
from operations | $ | 5,673,649 | ||
* Relates to Trustees not deemed “interested persons” within the meaning of Section 2(a)(19) of the 1940 Act.
94 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
.
MUNICIPAL INCOME FUND |
STATEMENTS OF CHANGES IN NET ASSETS | ||||||||
Year Ended | Year Ended | |||||||
September 30, | September 30, | |||||||
2014 | 2013 | |||||||
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS: | ||||||||
Net investment income | $ | 1,630,155 | $ | 2,227,579 | ||||
Net realized gain on investments | 597,388 | 745,503 | ||||||
Net change in unrealized appreciation (depreciation) on investments | 3,446,106 | (6,505,597 | ) | |||||
Net increase (decrease) in net assets resulting from operations | 5,673,649 | (3,532,515 | ) | |||||
DISTRIBUTIONS TO SHAREHOLDERS FROM: | ||||||||
Net investment income | ||||||||
A-Class | (1,390,241 | ) | (2,041,962 | ) | ||||
C-Class | (20,717 | ) | (48,584 | ) | ||||
Institutional Class | (219,197 | ) | (137,034 | ) | ||||
Total distributions to shareholders | (1,630,155 | ) | (2,227,580 | ) | ||||
CAPITAL SHARE TRANSACTIONS: | ||||||||
Proceeds from sale of shares | ||||||||
A-Class | 7,402,924 | 4,925,340 | ||||||
C-Class | 333,716 | 1,778,562 | ||||||
Institutional Class | 5,038,833 | 7,258,077 | ||||||
Distributions reinvested | ||||||||
A-Class | 803,386 | 1,250,808 | ||||||
C-Class | 13,179 | 38,482 | ||||||
Institutional Class | 101,486 | 50,050 | ||||||
Cost of shares redeemed | ||||||||
A-Class | (18,029,547 | ) | (28,310,051 | ) | ||||
C-Class | (826,566 | ) | (1,263,296 | ) | ||||
Institutional Class | (5,559,429 | ) | (1,502,777 | ) | ||||
Net decrease from capital share transactions | (10,722,018 | ) | (15,774,805 | ) | ||||
Net decrease in net assets | (6,678,524 | ) | (21,534,900 | ) | ||||
NET ASSETS: | ||||||||
Beginning of year | 58,300,888 | 79,835,788 | ||||||
End of year | $ | 51,622,364 | $ | 58,300,888 | ||||
Undistributed net investment income at end of year | $ | — | $ | — | ||||
CAPITAL SHARE ACTIVITY: | ||||||||
Shares sold | ||||||||
A-Class | 621,507 | 388,242 | ||||||
C-Class | 27,623 | 139,985 | ||||||
Institutional Class | 423,863 | 582,166 | ||||||
Shares issued from reinvestment of distributions | ||||||||
A-Class | 67,225 | 101,493 | ||||||
C-Class | 1,099 | 3,135 | ||||||
Institutional Class | 8,465 | 4,176 | ||||||
Shares redeemed | ||||||||
A-Class | (1,515,958 | ) | (2,302,372 | ) | ||||
C-Class | (71,141 | ) | (107,647 | ) | ||||
Institutional Class | (463,637 | ) | (122,904 | ) | ||||
Net decrease in shares | (900,954 | ) | (1,313,726 | ) | ||||
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 95 |
MUNICIPAL INCOME FUND |
FINANCIAL HIGHLIGHTS | ||||||||||||||||||||||||
This table is presented to show selected data for a share outstanding throughout each period and to assist shareholders in evaluating a Fund’s performance for the periods presented. | ||||||||||||||||||||||||
Year Ended | Year Ended | Period Ended | Year Ended | Year Ended | Year Ended | |||||||||||||||||||
September 30, | September 30, | September 30, | December 31, | December 31, | December 31, | |||||||||||||||||||
A-Class† | 2014 | 2013 | 2012* | 2011 | 2010 | 2009 | ||||||||||||||||||
Per Share Data | ||||||||||||||||||||||||
Net asset value, beginning of period | $11.59 | $12.59 | $ | $11.82 | $11.54 | $11.01 | $8.47 | |||||||||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||||||
Net investment income (loss)a | .36 | .38 | .26 | .64 | .71 | .75 | ||||||||||||||||||
Distributions to preferred shareholders from: | ||||||||||||||||||||||||
Net investment income | — | — | (.01 | ) | (.10 | ) | (.10 | ) | (.11 | ) | ||||||||||||||
Net gain (loss) on investments (realized and unrealized) | .92 | (1.00 | ) | .78 | .54 | .68 | 2.69 | |||||||||||||||||
Total from investment operations | 1.28 | (.62 | ) | 1.03 | 1.08 | 1.29 | 3.33 | |||||||||||||||||
Less distributions from: | ||||||||||||||||||||||||
Net investment income | (.36 | ) | (.38 | ) | (.26 | ) | (.80 | ) | (.76 | ) | (.79 | ) | ||||||||||||
Total distributions | (.36 | ) | (.38 | ) | (.26 | ) | (.80 | ) | (.76 | ) | (.79 | ) | ||||||||||||
Net asset value, end of period | $12.51 | $11.59 | $12.59 | $11.82 | $11.54 | $11.01 | ||||||||||||||||||
Total Returnd | 11.20 | % | (5.09 | %) | 8.91 | % | 9.64 | % | 12.03 | % | 41.34 | % | ||||||||||||
Ratios/Supplemental Data | �� | |||||||||||||||||||||||
Net assets, end of period (in thousands) | $44,090 | $50,463 | $77,609 | $182,150 | $177,868 | $169,674 | ||||||||||||||||||
Ratios to average net assets: | ||||||||||||||||||||||||
Net investment income (loss) | 3.00 | % | 3.04 | % | 2.78 | % | 4.60 | % | 5.37 | % | 6.73 | % | ||||||||||||
Total expenses | 1.29 | % | 1.14 | % | 1.15 | % | 2.09 | % | 1.80 | % | 1.94 | % | ||||||||||||
Net expensesb,e | 0.83 | % | 0.82 | % | 0.87 | % | 2.09 | % | 1.80 | % | 1.94 | % | ||||||||||||
Portfolio turnover rate | 173 | % | 91 | % | 121 | % | 104 | % | 156 | % | 151 | % |
Year Ended | Year Ended | Period Ended | ||||||||||
September 30, | September 30, | September 30, | ||||||||||
C-Class | 2014 | 2013 | 2012c | |||||||||
Per Share Data | ||||||||||||
Net asset value, beginning of period | $11.59 | $12.58 | $11.98 | |||||||||
Income (loss) from investment operations: | ||||||||||||
Net investment income (loss)a | .27 | .28 | .20 | |||||||||
Net gain (loss) on investments (realized and unrealized) | .91 | (.98 | ) | .62 | ||||||||
Total from investment operations | 1.18 | (.70 | ) | .82 | ||||||||
Less distributions from: | ||||||||||||
Net investment income | (.27 | ) | (.29 | ) | (.22 | ) | ||||||
Total distributions | (.27 | ) | (.29 | ) | (.22 | ) | ||||||
Net asset value, end of period | $12.50 | $11.59 | $12.58 | |||||||||
Total Returnd | 10.28 | % | (5.70 | %) | 7.04 | % | ||||||
Ratios/Supplemental Data | ||||||||||||
Net assets, end of period (in thousands) | $1,082 | $1,495 | $1,176 | |||||||||
Ratios to average net assets: | ||||||||||||
Net investment income (loss) | 2.24 | % | 2.30 | % | 2.36 | % | ||||||
Total expenses | 2.08 | % | 1.93 | % | 1.94 | % | ||||||
Net expensesb,e | 1.58 | % | 1.57 | % | 1.55 | % | ||||||
Portfolio turnover rate | 173 | % | 91 | % | 121 | % |
96 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
MUNICIPAL INCOME FUND |
FINANCIAL HIGHLIGHTS (concluded) |
This table is presented to show selected data for a share outstanding throughout each period and to assist shareholders in evaluating a Fund’s performance for the periods presented. |
Year Ended | Year Ended | Period Ended | ||||||||||
September 30, | September 30, | September 30, | ||||||||||
Institutional Class | 2014 | 2013 | 2012 c | |||||||||
Per Share Data | ||||||||||||
Net asset value, beginning of period | $11.60 | $12.59 | $11.98 | |||||||||
Income (loss) from investment operations: | ||||||||||||
Net investment income (loss)a | .39 | .40 | .29 | |||||||||
Net gain (loss) on investments (realized and unrealized) | .91 | (.98 | ) | 62 | ||||||||
Total from investment operations | 1.30 | (.58 | ) | 91 | ||||||||
Less distributions from: | ||||||||||||
Net investment income | (.39 | ) | (.41 | ) | (.30 | ) | ||||||
Total distributions | (.39 | ) | (.41 | ) | (.30 | ) | ||||||
Net asset value, end of period | $12.51 | $11.60 | $12.59 | |||||||||
Total Return4 | 11.38 | % | (4.76 | %) | 7.76 | % | ||||||
Ratios/Supplemental Data | ||||||||||||
Net assets, end of period (in thousands) | $6,451 | $6,343 | $1,051 | |||||||||
Ratios to average net assets: | ||||||||||||
Net investment income (loss) | 3.23 | % | 3.35 | % | 3.37 | % | ||||||
Total expenses | 0.97 | % | 0.93 | % | 0.86 | % | ||||||
Net expensesb,e | 0.97 | % | 0.93 | % | 0.86 | % | ||||||
Portfolio turnover rate | 173 | % | 91 | % | 121 | % |
† | Effective January 13, 2012, the Fund acquired all of the assets and liabilities of the TS&W/Claymore Tax-Advantage Balanced Fund (“TYW”), a registered closed-end management investment company. The A-Class financial highlights for the periods prior to that date reflect performance of TYW. | |
* | Prior to January 13, 2012, the Fund’s fiscal year end was December 31. Percentage amounts for the period, except total return and portfolio turnover rate, have been annualized. | |
a | Net investment income (loss) per share was computed using average shares outstanding throughout the period. | |
b | Net expense information reflects the expense ratios after expense waivers. | |
c | Since commencement of operations: January 13, 2012. Percentage amounts for the period, except total return and portfolio turnover rate, have been annualized. | |
d | Total return does not reflect the impact of any applicable sales charges and has not been annualized. | |
e | Net expenses may include expenses that are excluded from the expense limitation agreement. Excluding these expenses, the operating expense ratio for the year would be: |
09/30/14 | |||
A-Class | 0.80 | % | |
C-Class | 1.54 | % | |
Institutional Class | 0.55 | % |
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 97 |
MANAGERS’ COMMENTARY (Unaudited) | September 30, 2014 | |
To Our Shareholders
Guggenheim Total Return Bond Fund (the “Fund”) 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; Jeffrey B. Abrams, Senior Managing Director and Portfolio Manager; and James W. Michal, Managing Director and Portfolio Manager. In the following paragraphs, the investment team discusses the market environment and the Fund’s performance for the fiscal year ended September 30, 2014.
For the one-year period ended September 30, 2014 (the “Period”), the Guggenheim Total Return Bond Fund returned 8.34%1, compared with the 3.96% return of its benchmark, the Barclays U.S. Aggregate Bond Index.
The Fund seeks to provide total return, comprised of current income and capital appreciation. The Fund pursues its investment objective by investing at least 80% of its assets in debt securities. The Fund may hold fixed income securities of any quality, rated or unrated, including those that are rated below investment grade, or if unrated, determined to be of comparable quality (also known as “high yield securities” or “junk bonds”). However, the Fund may not invest more than 33 1/3% of its assets in fixed-income securities that are below investment grade. The Fund may hold securities of any duration or maturity.
As the Period began, monetary accommodation by the Fed was propelling asset prices higher, while positive economic momentum was pushing interest rates higher. By the end of December 2013, the 10-year U.S. Treasury yield reached its highest point over the prior 2½ years at 3%, a level that was not revisited for the remainder of the Period.
Credit-spread and risk assets continued to find investor favor through 2014, even though severe winter weather produced volatility and mixed economic data. Additional liquidity from central banks outside the U.S. supported foreign capital flows into U.S. assets, which, along with the search for yield among U.S. investors, was positive for fixed income. But just as the market appeared to be growing complacent in the third quarter of 2014, leveraged credit had its first correction in a year, as mutual fund investors withdrew from the sector amid concerns about frothy valuations and talk of credit bubble. Volatility spread across risk assets, including equities.
The events that drove spread widening in the third quarter showed that investors are becoming increasingly reactive to factors outside of the fundamentals that underscore a generally positive outlook on credit. Even though U.S. economic data was mixed in September, it was strong year to date, and the improving health of the U.S. economy and low interest rates underscored our expectation that spreads can compress further. Volatility is likely to continue, but as the economy improves, brief periods of spread widening could present buying opportunities.
The Fund mainly invests asset-backed securities (ABS), investment grade corporate bonds and non-agency residential mortgage-backed securities (RMBS). It has positions in high yield corporate bonds, municipal bonds, bank loans, preferred securities, among other holdings.
Investment grade corporate bonds weathered interest rate volatility in the fourth quarter of 2013, but low dealer inventory and heavy demand for most of the Period supported continued spread compression. The Barclays U.S. Corporate Investment Grade Index rose by 6.77% for the Period. The credit spread on investment grade corporate bonds tightened by 29 basis points, and yields declined to 3.10% at the end of September 2014. Volatility in the third quarter also impacted issuance, but it still reached $647 billion through the three quarters of 2014.
High yield corporate bonds and bank loans posted their fifth consecutive year of positive returns in 2013 and strong performance continued through the first half of 2014. As upside potential declined in the leveraged credit space, the Fund rotated into higher quality credits. With the onset of a leveraged credit sell-off in the third quarter, the Fund was able to add exposure back to many of the names it had sold several months before.
98 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
MANAGERS’ COMMENTARY (Unaudited) (concluded) | September 30, 2014 | |
The ABS and non-agency RMBS sectors contributed positively for the Period. The BofA/ML ABS Master BBB-AA Index gained 3.36% for the 12-month period as its spread tightened 48 basis points to 133 basis points. Credit performance across the commercial ABS and collateralized loan obligation (CLO) sectors remained strong given benign credit conditions and improving collateral valuations across the U.S. economy. 2014 issuance is well ahead of 2013’s pace and likely to break 2012’s post-crisis peak. New ABS issuance was diversified across all classes, with auto and credit card new issues remaining strong. Consumer ABS performance has been solid despite concern surrounding student loans and subprime auto lending. JPMorgan Research indicates the gradual improvement in the household balance sheet will continue to support credit performance of Consumer ABS. Year-to-date ABS issuance has now surpassed $94 billion, the all time annual record set in 2007. Housing activity has been uneven, as price appreciation has been slowing and sales remain below the post-crisis peak in 2013. With the economic outlook mostly positive and central banks maintaining accommodation, the backdrop for ABS and RMBS remains constructive. Amidst these positive fundamentals, the CLO market raised $93 billion through three quarters of 2014, already exceeding 2013’s full-year volume.
Much of the Fund’s outperformance stemmed from credit spread compression and the gradual decline in the benchmark 10-year U.S. Treasury yield. Positive returns have largely been driven by the Fund’s investments in asset backed securities as spreads continued to normalize across various subsectors including collateralized loan obligations, commercial real estate collateralized debt obligations (CDOs), and aircraft lease securitizations. Detractors from Fund performance included a few higher-duration assets such as fixed-rate corporate bonds and preferred debt in late 2013 when rates were rising.
The Fund maintains low interest rate duration, particularly at the front end of the yield curve, and thus has largely avoided losses due to a flattening curve. Concentration of the Fund’s credit investments in relatively short-maturity high yield bonds and loans has muted the impact of recent turmoil of risk assets, and the Fund continues to use periods of weakness in those sectors to add attractive assets.
Performance displayed represents past performance which is no guarantee of future results.
1 Performance figures are based on A-Class shares and do not reflect deduction of the sales charges or taxes that a shareholder would pay on distributions or the redemption of shares. Fee waivers and/or reimbursements reduce Fund expenses, and, in the absence of such waivers, the performance quoted would be reduced.
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 | 99 |
PERFORMANCE REPORT AND FUND PROFILE (Unaudited) | September 30, 2014 | |
TOTAL RETURN BOND FUND
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.
Portfolio Composition by Quality Rating* | |||
% of | |||
Rating | Total Investments | ||
Fixed Income Instruments | |||
AAA | 3.2% | ||
AA | 16.9% | ||
A | 18.3% | ||
BBB | 30.1% | ||
BB | 8.2% | ||
B | 6.9% | ||
CCC | 9.4% | ||
Other | 2.4% | ||
Other Instruments | |||
Short Term Investments | 2.2% | ||
Preferred Stocks | 1.9% | ||
Mutual Funds | 0.5% | ||
Total Investments | 100.0% | ||
The chart above reflects percentages of the value of total investments.
Inception Dates: | ||
A-Class | November 30, 2011 | |
C-Class | November 30, 2011 | |
Institutional Class | November 30, 2011 |
Ten Largest Holdings (% of Total Net Assets) | |||
State of Illinois General Obligation Unlimited | 1.4% | ||
Luminent Mortgage Trust 2006-2 — Class A1A | 1.3% | ||
LSTAR Securities Investment Trust 2014-1 | 1.1% | ||
ACAs CLO Ltd. — Class BR | 1.0% | ||
City of Detroit Michigan General Obligation Unlimited | 1.0% | ||
American Home Mortgage Investment Trust 2006-1 — Class 12A1 | 1.0% | ||
Yamana Gold, Inc. | 1.0% | ||
CKE Restaurant Holdings, Inc. — Class A2 | 1.0% | ||
Bank of America Corp. | 0.9% | ||
Teachers Insurance & Annuity Association of America | 0.9% | ||
Top Ten Total | 10.6% | ||
“Ten Largest Holdings" exclude any temporary cash or derivative investments.
* Source: Factset. Credit quality ratings are measured on a scale that generally ranges from AAA (highest) to D (lowest). All rated securities have been rated by Moody’s, Standard & Poor’s (“S&P”), or Fitch, which are all a Nationally Recognized Statistical Rating Organization (“NRSRO”). For purposes of this presentation, when ratings are available from more than one agency, the highest rating is used. Guggenheim Investments has converted Moody’s and Fitch ratings to the equivalent S&P rating. Unrated securities do not necessarily indicate low credit quality. Security ratings are determined at the time of purchase and may change thereafter.
100 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
PERFORMANCE REPORT AND FUND PROFILE (Unaudited) (concluded) | September 30, 2014 | |
Cumulative Fund Performance*
Average Annual Returns*
Periods Ended September 30, 2014
Since Inception | ||||||
1 Year | (11/30/11) | |||||
A-Class Shares | 8.34 | % | 7.61 | % | ||
A-Class Shares with sales charge† | 3.21 | % | 5.78 | % | ||
C-Class Shares | 7.58 | % | 6.83 | % | ||
C-Class Shares with CDSC‡ | 6.58 | % | 6.83 | % | ||
Institutional Class Shares | 8.74 | % | 7.99 | % | ||
Barclays U.S. Aggregate Bond Index | 3.96 | % | 2.57 | % | ||
* The performance data above represents past performance that is not predictive of future results. The investment return and principal value of an investment in the Fund will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Returns are historical and include changes in principal and reinvested dividends and capital gains and do not reflect the effect of taxes. The 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.
† Fund returns are calculated using the maximum sales charge of 4.75%.
‡ Fund returns include a CDSC of 1% if redeemed within 12 months of purchase.
THE GUGGENHEIM FUNDS ANNUAL REPORT | 101 |
SCHEDULE OF INVESTMENTS | September 30, 2014 | |
TOTAL RETURN BOND FUND |
SHARES | VALUE | ||||||
PREFERRED STOCKS†† - 2.0% | |||||||
Aspen Insurance Holdings Ltd. | |||||||
5.95%†,1,2 | 94,000 | $ | 2,347,180 | ||||
Morgan Stanley | |||||||
6.38%*,†,1,2 | 48,000 | 1,203,360 | |||||
7.13%†,1,2 | 16,000 | 430,560 | |||||
Goldman Sachs Group, Inc. | |||||||
5.50%†,1,2 | 52,100 | 1,237,375 | |||||
Seaspan Corp. | |||||||
6.38% due 04/30/19† | 44,000 | 1,125,960 | |||||
Wells Fargo & Co. | |||||||
5.85%†,1,2 | 30,000 | 768,900 | |||||
AgriBank FCB | |||||||
6.88%†,1,2 | 2,500 | 267,031 | |||||
City National Corp. | |||||||
6.75%†,1,2 | 8,000 | 222,800 | |||||
GSC Partners CDO Fund Limited / | |||||||
GSC Partners CDO Fund Corp. | |||||||
due 11/20/16*,1,3,10 | 1,325 | 7,738 | |||||
WhiteHorse II Ltd. | |||||||
due 06/15/17*,1,3,10 | 450,000 | 4,500 | |||||
Total Preferred Stocks | |||||||
(Cost $7,500,570) | 7,615,404 | ||||||
MUTUAL FUNDS† - 0.5% | |||||||
Guggenheim Limited Duration Fund - | |||||||
Institutional Class4 | 82,519 | 2,059,674 | |||||
Total Mutual Funds | |||||||
(Cost $2,065,364) | 2,059,674 | ||||||
SHORT TERM INVESTMENTS† - 2.3% | |||||||
Federated U.S. Treasury Cash Reserve Fund | 8,786,526 | 8,786,526 | |||||
Total Short Term Investments | |||||||
(Cost $8,786,526) | 8,786,526 | ||||||
FACE | |||||||
AMOUNT | |||||||
ASSET BACKED SECURITIES†† - 41.5% | |||||||
ACAs CLO Ltd. 2014-1AR | |||||||
2.55% due 09/20/231,3 | $ | 4,000,000 | 4,003,201 | ||||
MWAM CBO 2001-1 Ltd. | |||||||
3.08% due 01/30/311,3 | 2,116,982 | 1,969,640 | |||||
14.09% due 01/30/313 | 1,630,728 | 1,773,091 | |||||
CKE Restaurant Holdings, Inc.2013-1A | |||||||
4.47% due 03/20/433 | 3,660,738 | 3,694,673 | |||||
Rockwall CDO II Ltd. 2007-1A | |||||||
0.79% due 08/01/241,3 | 2,100,000 | 1,872,150 | |||||
0.49% due 08/01/241,3 | 1,740,241 | 1,665,584 | |||||
Cent CLO 16, LP 2014-16AR | |||||||
2.74% due 08/01/241,3 | 1,750,000 | 1,745,800 | |||||
3.74% due 08/01/241,3 | 1,750,000 | 1,741,250 | |||||
Madison Park Funding VIII Ltd. 2014-8AR | |||||||
3.03% due 04/22/221,3 | 2,000,000 | 1,989,200 | |||||
2.43% due 04/22/221,3 | 1,500,000 | 1,494,000 | |||||
Fortress Credit Opportunities V CLO Ltd.2014-5A | |||||||
3.78% due 10/15/261,3 | 1,750,000 | 1,716,400 | |||||
2.88% due 10/15/261,3 | 1,500,000 | 1,484,250 | |||||
CIFC Funding 2007-I Ltd. | |||||||
1.73% due 05/10/211,3 | 3,250,000 | 3,091,400 | |||||
Copper River CLO Ltd. 2007-1A | |||||||
due 01/20/211,3,10 | 1,500,000 | 1,645,500 | |||||
0.63% due 01/20/211,3 | 1,000,000 | 960,300 | |||||
1.03% due 01/20/211,3 | 500,000 | 468,350 | |||||
GSAA Trust 2005-10 | |||||||
0.80% due 06/25/351 | 3,312,000 | 3,062,119 | |||||
Rockwall CDO Ltd. 2006-1A | |||||||
0.74% due 08/01/211,3 | 2,900,000 | 2,761,960 | |||||
0.89% due 08/01/211,3 | 200,000 | 184,100 | |||||
KKR Financial CLO 2007-1 Ltd. | |||||||
2.48% due 05/15/211,3 | 2,900,000 | 2,843,740 | |||||
RAIT CRE CDO I Ltd. 2006-1X | |||||||
0.48% due 11/20/46 | 3,125,362 | 2,808,450 | |||||
Castlelake Aircraft Securitization Trust 2014-1 | |||||||
5.25% due 02/15/29 | 2,230,525 | 2,239,001 | |||||
7.50% due 02/15/29 | 446,105 | 446,640 | |||||
N-Star Real Estate CDO IX Ltd. | |||||||
0.47% due 02/01/417 | 2,663,736 | 2,555,322 | |||||
Emerald Aviation Finance Ltd. 2013-1 | |||||||
4.65% due 10/15/383 | 1,979,687 | 2,004,434 | |||||
6.35% due 10/15/383,5 | 424,219 | 430,794 | |||||
CIT Mortgage Loan Trust 2007-1 | |||||||
1.60% due 10/25/371,3 | 2,600,000 | 2,415,522 | |||||
CCR Incorporated MT100 Payment | |||||||
Rights Master Trust 2010-CX | |||||||
0.60% due 07/10/17†††,1 | 1,383,713 | 1,346,629 | |||||
4.75% due 07/10/223 | 950,000 | 934,453 | |||||
St. James River CLO Ltd. 2007-1A | |||||||
2.53% due 06/11/211,3 | 2,250,000 | 2,175,075 | |||||
Great Lakes CLO 2012-1 Ltd. | |||||||
4.33% due 01/15/231,3 | 1,250,000 | 1,260,750 | |||||
due 01/15/233,10 | 1,000,000 | 858,500 | |||||
Telos CLO Ltd. 2013-3A | |||||||
3.23% due 01/17/241,3 | 2,000,000 | 1,968,000 | |||||
ALM VII R Ltd. 2013-7RA | |||||||
2.83% due 04/24/241,3 | 2,000,000 | 1,958,400 | |||||
TICP CLO I Ltd. 2014-1A | |||||||
3.23% due 04/26/261,3 | 2,000,000 | 1,954,600 | |||||
Greywolf CLO III Ltd. 2014-1A | |||||||
3.08% due 04/22/261,3 | 2,000,000 | 1,954,200 | |||||
Duane Street CLO IV Ltd. 2007-4A | |||||||
2.48% due 11/14/211,3 | 2,000,000 | 1,934,400 | |||||
Newstar Trust 2012-2A | |||||||
4.48% due 01/20/231,3 | 1,000,000 | 1,000,000 | |||||
3.48% due 01/20/231,3 | 750,000 | 751,650 | |||||
Westchester CLO Ltd. 2007-1A | |||||||
0.68% due 08/01/221,3 | 1,850,000 | 1,697,560 | |||||
Race Point V CLO Ltd. 2014-5AR | |||||||
3.08% due 12/15/221,3 | 1,100,000 | 1,095,160 | |||||
3.98% due 12/15/221,3 | 500,000 | 498,850 | |||||
Gramercy Park CLO Ltd. 2014-1AR | |||||||
3.18% due 07/17/231,3 | 1,600,000 | 1,591,840 | |||||
NewStar Arlington Senior Loan Program LLC 2014-1A | |||||||
4.76% due 07/25/253 | 700,000 | 695,520 | |||||
2.83% due 07/25/251,3 | 500,000 | 495,800 | |||||
3.53% due 07/25/251,3 | 400,000 | 389,760 | |||||
Halcyon Loan Advisors Funding 2012-2 Ltd. | |||||||
3.08% due 12/20/241,3 | 1,000,000 | 976,200 | |||||
4.73% due 12/20/241,3 | 600,000 | 602,280 |
102 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
SCHEDULE OF INVESTMENTS (continued) | September 30, 2014 | |
TOTAL RETURN BOND FUND |
FACE | |||||||
AMOUNT | VALUE | ||||||
UCFC Manufactured Housing Contract 1997-2 | |||||||
7.38% due 10/15/28 | $ | 1,440,325 | $ | 1,569,527 | |||
Gramercy Real Estate CDO 2007-1 Ltd. | |||||||
0.51% due 08/15/561,3 | 1,738,049 | 1,531,743 | |||||
Steele Creek CLO 2014-1 Ltd. | |||||||
2.48% due 08/21/261,3 | 1,300,000 | 1,273,220 | |||||
3.43% due 08/21/261,3 | 250,000 | 244,325 | |||||
ALM XIV Ltd. 2014-14A | |||||||
3.18% due 07/28/261,3 | 750,000 | 738,225 | |||||
2.33% due 07/28/261,3 | 500,000 | 490,900 | |||||
3.68% due 07/28/261,3 | 300,000 | 283,140 | |||||
Miramax LLC 2014-1A | |||||||
3.34% due 07/20/263 | 1,500,000 | 1,495,272 | |||||
ACA CLO 2007-1 Ltd. | |||||||
1.18% due 06/15/221,3 | 1,575,000 | 1,487,273 | |||||
MCF CLO I LLC 2013-1A | |||||||
3.78% due 04/20/231,3 | 1,500,000 | 1,483,950 | |||||
Octagon Investment Partners XIX Ltd. 2014-1A | |||||||
3.08% due 04/15/261,3 | 1,500,000 | 1,466,400 | |||||
Turbine Engines Securitization Ltd. 2013-1A | |||||||
5.13% due 12/13/483 | 1,446,824 | 1,461,293 | |||||
OCP CLO 2014-6 Ltd. | |||||||
2.31% due 07/17/261,3 | 1,500,000 | 1,460,400 | |||||
ING Investment Management CLO IV Ltd. 2007-4A | |||||||
2.43% due 06/14/221,3 | 1,500,000 | 1,428,000 | |||||
NYLIM Flatiron CLO 2006-1 Ltd. | |||||||
1.70% due 08/08/201,3 | 1,500,000 | 1,424,550 | |||||
ARES XXVI CLO Ltd. 2013-1A | |||||||
due 04/15/253,10 | 1,850,000 | 1,396,195 | |||||
Willis Engine Securitization Trust II 2012-A | |||||||
5.50% due 09/15/373,6 | 1,372,519 | 1,375,950 | |||||
Structured Asset Investment Loan Trust 2005-2 | |||||||
0.89% due 03/25/351 | 1,373,500 | 1,267,055 | |||||
Structured Asset Securities Corporation | |||||||
Mortgage Loan Trust 2006-OPT1 | |||||||
0.41% due 04/25/361 | 1,400,000 | 1,260,293 | |||||
N-Star REL CDO VIII Ltd. 2006-8A | |||||||
0.51% due 02/01/411,3 | 1,400,000 | 1,259,300 | |||||
Dryden XXIII Senior Loan Fund 2014-23RA | |||||||
3.18% due 07/17/231,3 | 1,250,000 | 1,243,500 | |||||
COA Summit CLO Limited 2014-1 | |||||||
3.04% due 04/20/231,3 | 1,250,000 | 1,240,125 | |||||
GSAA Home Equity Trust 2006-18 | |||||||
6.00% due 11/25/365 | 1,749,770 | 1,237,450 | |||||
T2 Income Fund CLO Ltd. 2007-1A | |||||||
1.73% due 07/15/191,3 | 1,250,000 | 1,220,000 | |||||
Garanti Diversified Payment Rights | |||||||
Finance Co. 2007-A | |||||||
0.42% due 07/09/171 | 1,248,000 | 1,209,062 | |||||
Venture XIV CLO Ltd. 2013-14A | |||||||
2.99% due 08/28/251,3 | 1,250,000 | 1,208,875 | |||||
Babson CLO Limited 2014-I | |||||||
due 07/20/253,10 | 1,300,000 | 1,183,260 | |||||
Marathon CLO II Ltd. 2005-2A | |||||||
2.03% due 12/20/191,3 | 1,000,000 | 983,800 | |||||
due 12/20/193,10 | 250,000 | 130,800 | |||||
Drug Royalty II Limited Partnership 2 2014-1 | |||||||
3.08% due 07/15/231,3 | 1,078,957 | 1,085,894 | |||||
Salus CLO 2012-1 Ltd. | |||||||
5.73% due 03/05/211,3 | 750,000 | 776,475 | |||||
3.98% due 03/05/211,3 | 300,000 | 299,340 | |||||
Apidos CDO III Ltd. 2006-3A | |||||||
1.98% due 06/12/201,3 | 1,100,000 | 1,066,670 | |||||
Telos CLO 2007-2 Ltd. | |||||||
2.43% due 04/15/221,3 | 1,100,000 | 1,049,290 | |||||
Centerline REIT, Inc. 2004-RR3 | |||||||
4.76% due 09/21/451,3 | 1,028,608 | 1,042,432 | |||||
Fortress Credit Opportunities III CLO, LP 2014-3A | |||||||
2.73% due 04/28/261,3 | 650,000 | 638,235 | |||||
3.48% due 04/28/261,3 | 400,000 | 397,280 | |||||
Highland Park CDO I Ltd. 2006-1A | |||||||
0.56% due 11/25/511,3 | 1,058,424 | 1,009,313 | |||||
Global Leveraged Capital Credit Opportunity | |||||||
Fund 2006-1A | |||||||
1.23% due 12/20/181,3 | 1,036,000 | 1,001,294 | |||||
Ares XXIII CLO Ltd. 2014-1AR | |||||||
3.43% due 04/19/231,3 | 1,000,000 | 1,000,000 | |||||
Gallatin CLO VII 2014-1 Ltd. | |||||||
3.06% due 07/15/231,3 | 1,000,000 | 994,800 | |||||
Ivy Hill Middle Market Credit Fund VII Ltd.2013-7A | |||||||
3.68% due 10/20/251,3 | 1,000,000 | 991,700 | |||||
Flagship CLO VI 2007-1A | |||||||
2.63% due 06/10/211,3 | 1,000,000 | 968,900 | |||||
San Gabriel CLO Ltd. 2007-1A | |||||||
2.48% due 09/10/211,3 | 1,000,000 | 954,200 | |||||
Lime Street CLO Corp. 2007-1A | |||||||
2.73% due 06/20/211,3 | 1,000,000 | 945,600 | |||||
WhiteHorse IV Ltd. 2007-4A | |||||||
1.68% due 01/17/201,3 | 1,000,000 | 939,200 | |||||
Churchill Financial Cayman Ltd. 2007-1A | |||||||
2.83% due 07/10/191,3 | 1,000,000 | 937,700 | |||||
Icon Brand Holdings LLC 2013-1A | |||||||
4.35% due 01/25/433 | 921,542 | 917,487 | |||||
Keuka Park CLO Limited 2013-1 | |||||||
due 10/21/243,10 | 1,000,000 | 855,000 | |||||
Finn Square CLO Ltd. 2012-1A | |||||||
due 12/24/233,10 | 1,000,000 | 842,000 | |||||
Acis CLO 2013-1 Ltd. | |||||||
3.18% due 04/18/241,3 | 800,000 | 784,240 | |||||
Golub Capital Partners CLO 10 Ltd. 2014-10AR | |||||||
3.18% due 10/20/211,3 | 750,000 | 746,250 | |||||
CIFC Funding 2012-I Ltd. | |||||||
3.31% due 08/14/241,3 | 750,000 | 746,175 | |||||
ARES XII CLO Ltd. 2007-12A | |||||||
3.48% due 11/25/201,3 | 750,000 | 744,675 | |||||
Carlyle Global Market Strategies CLO 2012-2 Ltd. | |||||||
4.13% due 07/20/231,3 | 750,000 | 744,150 | |||||
Central Park CLO Ltd. 2011-1A | |||||||
3.43% due 07/23/221,3 | 750,000 | 739,650 | |||||
GSAMP Trust 2005-HE6 | |||||||
0.59% due 11/25/351 | 800,000 | 736,602 | |||||
Venture X CLO Ltd. 2013-12A | |||||||
3.09% due 02/28/241,3 | 750,000 | 735,225 | |||||
Grayson CLO Ltd. 2006-1A | |||||||
0.65% due 11/01/211,3 | 750,000 | 695,025 | |||||
Newstar Commercial Loan Funding 2013-1 LLC | |||||||
4.78% due 09/20/231,3 | 700,000 | 687,330 | |||||
GreenPoint Mortgage Funding Trust 2005-HE4 | |||||||
0.86% due 07/25/301 | 700,000 | 655,313 | |||||
Saxon Asset Securities Trust 2005-4 | |||||||
0.59% due 11/25/371 | 750,000 | 647,891 |
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 103 |
SCHEDULE OF INVESTMENTS (continued) | September 30, 2014 | |
TOTAL RETURN BOND FUND |
FACE | |||||||
AMOUNT | VALUE | ||||||
Black Diamond CLO 2012-1 Ltd. | |||||||
3.49% due 02/01/231,3 | $ | 650,000 | $ | 645,255 | |||
West Coast Funding Ltd. 2006-1A | |||||||
0.38% due 11/02/411,3 | 648,469 | 636,472 | |||||
Lehman XS Trust 2007-9 | |||||||
0.27% due 06/25/371 | 704,281 | 635,540 | |||||
Blade Engine Securitization Ltd. 2006-1A | |||||||
1.15% due 09/15/411 | 825,522 | 619,142 | |||||
Anchorage Capital CLO 4 Ltd. 2014-4A | |||||||
2.44% due 07/28/261,3 | 600,000 | 586,500 | |||||
Babcock & Brown Air Funding I Ltd. 2007-1A | |||||||
0.45% due 11/14/331,3 | 687,878 | 584,697 | |||||
GSAA Home Equity Trust 2007-7 | |||||||
0.42% due 07/25/371 | 688,645 | 584,219 | |||||
Ares XXV CLO Ltd. 2013-3A | |||||||
due 01/17/243,10 | 750,000 | 573,750 | |||||
New Century Home Equity Loan Trust 2005-1 | |||||||
0.87% due 03/25/351 | 599,138 | 532,900 | |||||
GoldenTree Credit Opportunities 2012-1 | |||||||
Financing Ltd. | |||||||
4.23% due 09/15/241,3 | 500,000 | 501,150 | |||||
Ivy Hill Middle Market Credit Fund Ltd. 2011-3A | |||||||
6.23% due 01/15/221,3 | 250,000 | 251,050 | |||||
6.73% due 01/15/221,3 | 250,000 | 250,000 | |||||
DIVCORE CLO Ltd. 2013-1A B | |||||||
4.05% due 11/15/32 | 500,000 | 500,300 | |||||
Apidos CDO IX 2012-9A | |||||||
3.98% due 07/15/231,3 | 500,000 | 500,000 | |||||
Cerberus Offshore Levered I, LP 2012-1A | |||||||
6.23% due 11/30/181,3 | 250,000 | 250,050 | |||||
4.98% due 11/30/181,3 | 250,000 | 249,925 | |||||
Newstar Commercial Loan Funding 2014-1 LLC | |||||||
3.92% due 04/20/251,3 | 500,000 | 497,250 | |||||
KKR CLO Trust 2012-1A | |||||||
3.53% due 12/15/241,3 | 500,000 | 496,450 | |||||
Golub Capital Partners CLO 18 Ltd. 2014-18A | |||||||
3.73% due 04/25/261,3 | 500,000 | 496,350 | |||||
Garrison Funding 2013-2 Ltd. | |||||||
3.63% due 09/25/231,3 | 500,000 | 495,200 | |||||
OZLM Funding V Ltd. 2013-5A | |||||||
3.23% due 01/17/261,3 | 500,000 | 494,250 | |||||
CIFC Funding 2014 Ltd. | |||||||
3.03% due 04/18/251,3 | 500,000 | 486,550 | |||||
MC Funding Limited / MC Funding 2006-1 LLC | |||||||
1.18% due 12/20/201,3 | 500,000 | 482,250 | |||||
TCW Global Project Fund III Ltd. 2005-1A | |||||||
0.88% due 09/01/17†††,1,3 | 500,000 | 481,300 | |||||
ColumbusNova CLO Limited 2007-1A | |||||||
1.58% due 05/16/191,3 | 500,000 | 480,700 | |||||
AMMC CLO XIV Ltd. 2014-14A | |||||||
3.15% due 07/27/261,3 | 500,000 | 480,500 | |||||
Gleneagles CLO Ltd. 2005-1A | |||||||
1.14% due 11/01/171,3 | 500,000 | 479,700 | |||||
Golub Capital Partners Fundings Ltd. 2007-1A | |||||||
0.98% due 03/15/221,3 | 500,000 | 478,600 | |||||
ICE EM CLO 2007-1A | |||||||
0.93% due 08/15/221,3 | 500,000 | 475,950 | |||||
NewStar Commercial Loan Trust 2007-1 | |||||||
1.53% due 09/30/221,3 | 500,000 | 472,850 | |||||
Westwood CDO I Ltd. 2007-1A | |||||||
0.90% due 03/25/211,3 | 500,000 | 464,050 | |||||
Golub Capital Partners CLO 17 Ltd. 2013-17A | |||||||
4.06% due 10/25/251,3 | 400,000 | 398,600 | |||||
Northwind Holdings LLC 2007-1A | |||||||
1.01% due 12/01/371,3 | 435,207 | 396,038 | |||||
ALM VII R-2 Ltd. 2013-7R2A | |||||||
2.83% due 04/24/241,3 | 400,000 | 392,720 | |||||
Acis CLO 2013-2 Ltd. | |||||||
3.44% due 10/14/221,3 | 375,000 | 375,188 | |||||
OFSI Fund Ltd. 2006-1A | |||||||
1.08% due 09/20/191,3 | 370,000 | 357,198 | |||||
TICC CLO 2012-1 LLC | |||||||
4.98% due 08/25/231,3 | 350,000 | 351,575 | |||||
Covenant Credit Partners CLO I Ltd. | |||||||
3.15% due 07/20/261,3 | 350,000 | 340,375 | |||||
Airplanes Pass Through Trust 2001-1A | |||||||
0.70% due 03/15/191 | 779,254 | 336,053 | |||||
Aerco Ltd. 2000-2A | |||||||
0.61% due 07/15/251 | 619,576 | 334,571 | |||||
Great Lakes CLO 2014-1 Ltd. | |||||||
3.93% due 04/15/251,3 | 250,000 | 248,625 | |||||
TICP CLO II Ltd. 2014-2A | |||||||
3.23% due 07/20/261,3 | 250,000 | 244,700 | |||||
Carlyle Global Market Strategies CLO 2012-3 Ltd. | |||||||
due 10/04/243,10 | 250,000 | 233,225 | |||||
Eastland CLO Ltd. 2007-1A | |||||||
0.64% due 05/01/221,3 | 250,000 | 232,925 | |||||
Drug Royalty Limited Partnership 1 2012-1 | |||||||
5.48% due 07/15/241,3 | 145,128 | 149,855 | |||||
First Franklin Mortgage Loan Trust 2006-FF1 | |||||||
0.49% due 01/25/361 | 150,000 | 131,884 | |||||
Atlas Air 1999-1 Class A-1 Pass Through Trust | |||||||
7.20% due 01/02/197 | 77,989 | 81,693 | |||||
Vega Containervessel plc 2006-1A | |||||||
5.56% due 02/10/213 | 82,494 | 81,157 | |||||
Raspro Trust 2005-1A | |||||||
0.63% due 03/23/241,3 | 71,080 | 69,836 | |||||
Structured Asset Receivables Trust Series 2005-1 | |||||||
0.73% due 01/21/151,3 | 64,468 | 62,135 | |||||
BlackRock Senior Income Series Corp. | |||||||
due 09/15/1610 | 500,000 | 50 | |||||
Total Asset Backed Securities | |||||||
(Cost $159,231,177) | 160,617,020 | ||||||
BONDS†† - 28.3% | |||||||
FINANCIAL - 17.0% | |||||||
EPR Properties | |||||||
5.75% due 08/15/22 | 2,680,000 | 2,934,169 | |||||
5.25% due 07/15/236 | 2,250,000 | 2,365,542 | |||||
JPMorgan Chase & Co. | |||||||
5.00%1,2 | 3,350,000 | 3,265,579 | |||||
5.15%1,2 | 2,125,000 | 2,024,063 | |||||
Teachers Insurance & Annuity | |||||||
Association of America | |||||||
4.90% due 09/15/443 | 3,400,000 | 3,465,018 | |||||
4.38% due 09/15/541,3 | 1,300,000 | 1,311,089 | |||||
Bank of America Corp. | |||||||
5.13%1,2 | 3,650,000 | 3,531,374 | |||||
6.25%1,2 | 600,000 | 596,062 |
104 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
SCHEDULE OF INVESTMENTS (continued) | September 30, 2014 | |
TOTAL RETURN BOND FUND |
FACE | |||||||
AMOUNT | VALUE | ||||||
Fifth Third Bancorp | |||||||
4.90%1,2 | $ | 2,000,000 | $ | 1,957,200 | |||
5.10%1,2 | 1,840,000 | 1,734,200 | |||||
General Motors Financial Company, Inc. | |||||||
2.63% due 07/10/176 | 3,375,000 | 3,390,312 | |||||
Icahn Enterprises, LP / Icahn | |||||||
Enterprises Finance Corp. | |||||||
6.00% due 08/01/20 | 3,100,000 | 3,185,250 | |||||
HSBC Holdings plc | |||||||
5.63%1,2 | 2,200,000 | 2,184,600 | |||||
6.38%1,2 | 800,000 | 799,000 | |||||
Wintrust Financial Corp. | |||||||
5.00% due 06/13/24 | 2,700,000 | 2,803,310 | |||||
Assured Guaranty US Holdings, Inc. | |||||||
5.00% due 07/01/246 | 2,600,000 | 2,627,188 | |||||
Itau Unibanco Holding S.A./Cayman Island | |||||||
5.13% due 05/13/233,6 | 2,650,000 | 2,590,375 | |||||
Susquehanna Bancshares, Inc. | |||||||
5.38% due 08/15/22 | 2,300,000 | 2,389,054 | |||||
Nordea Bank AB | |||||||
6.13%1,2,3 | 1,300,000 | 1,274,000 | |||||
5.50%1,2,3 | 1,000,000 | 982,500 | |||||
AmTrust Financial Services, Inc. | |||||||
6.13% due 08/15/23 | 2,000,000 | 2,081,260 | |||||
Customers Bank | |||||||
6.13% due 06/26/291,3 | 2,000,000 | 2,017,500 | |||||
Kennedy-Wilson, Inc. | |||||||
8.75% due 04/01/19 | 1,850,000 | 1,965,625 | |||||
Corporation Financiera de Desarrollo S.A. | |||||||
5.25% due 07/15/291,3 | 1,650,000 | 1,672,688 | |||||
ACC Group Housing LLC | |||||||
6.35% due 07/15/54†††,3 | 625,000 | 645,438 | |||||
3.50% due 07/15/18†††,3 | 625,000 | 634,125 | |||||
Cadence Bank North America | |||||||
6.25% due 06/28/291,11 | 1,200,000 | 1,221,000 | |||||
Citigroup, Inc. | |||||||
5.35%1,2 | 750,000 | 701,250 | |||||
6.30%1,2 | 375,000 | 370,350 | |||||
Pacific Northwest Communities LLC | |||||||
5.91% due 06/15/503 | 1,000,000 | 1,037,590 | |||||
Atlantic Marine Corporations Communities LLC | |||||||
5.43% due 12/01/503 | 1,071,003 | 1,032,801 | |||||
Wilton Re Finance LLC | |||||||
5.88% due 03/30/331,3 | 925,000 | 962,000 | |||||
Ironshore Holdings US, Inc. | |||||||
8.50% due 05/15/203 | 720,000 | 865,784 | |||||
Schahin II Finance Company SPV Ltd. | |||||||
5.88% due 09/25/223,6 | 809,400 | 766,906 | |||||
Royal Bank of Scotland Group plc | |||||||
5.13% due 05/28/24 | 700,000 | 687,793 | |||||
Skyway Concession Company LLC | |||||||
0.61% due 06/30/261,3 | 750,000 | 600,000 | |||||
Tri-Command Military Housing LLC | |||||||
5.38% due 02/15/483 | 565,714 | 504,159 | |||||
CIC Receivables Master Trust | |||||||
4.89% due 10/07/21††† | 500,000 | 500,500 | |||||
QBE Capital Funding III Ltd. | |||||||
7.25% due 05/24/411,3 | 368,000 | 401,120 | |||||
Credit Suisse Group AG | |||||||
6.25%1,2,3 | 300,000 | 290,250 | |||||
Allstate Corp. | |||||||
5.75% due 08/15/531 | 250,000 | 266,250 | |||||
Cadence Financial Corp. | |||||||
4.88% due 06/28/1911 | 250,000 | 251,250 | |||||
Icahn Enterprises Limited Partnership / | |||||||
Icahn Enterprises Finance Corp. | |||||||
3.50% due 03/15/17 | 200,000 | 198,000 | |||||
Jackson National Life Insurance Co. | |||||||
8.15% due 03/15/273 | 125,000 | 161,328 | |||||
National Life Insurance Co. | |||||||
10.50% due 09/15/393 | 100,000 | 151,953 | |||||
MetLife Capital Trust IV | |||||||
7.88% due 12/15/373 | 115,000 | 147,200 | |||||
Scottrade Financial Services, Inc. | |||||||
6.13% due 07/11/213 | 125,000 | 130,015 | |||||
Prosight Global Inc. | |||||||
7.50% due 11/26/20†††,7 | 100,000 | 102,520 | |||||
LCP Dakota Fund | |||||||
10.00% due 08/17/157 | 28,800 | 28,800 | |||||
Total Financial | 65,805,340 | ||||||
CONSUMER, CYCLICAL - 2.8% | |||||||
United Airlines 2014-2 Class B Pass | |||||||
Through Trust | |||||||
4.63% due 09/03/22 | 2,875,000 | 2,824,687 | |||||
HP Communities LLC | |||||||
5.12% due 03/15/223 | 1,590,866 | 1,668,038 | |||||
5.62% due 09/15/323 | 1,000,000 | 1,000,840 | |||||
Suburban Propane Partners Limited | |||||||
Partnership/Suburban Energy Finance Corp. | |||||||
7.38% due 08/01/21 | 1,618,000 | 1,715,080 | |||||
Northern Group Housing LLC | |||||||
6.80% due 08/15/533 | 1,200,000 | 1,344,180 | |||||
GRD Holdings III Corp. | |||||||
10.75% due 06/01/193 | 825,000 | 909,563 | |||||
QVC, Inc. | |||||||
7.38% due 10/15/203 | 650,000 | 692,449 | |||||
Continental Airlines 2012-2 Class B Pass | |||||||
Through Trust | |||||||
5.50% due 10/29/20 | 285,330 | 301,024 | |||||
Continental Airlines 2012-1 Class B Pass | |||||||
Through Trust | |||||||
6.25% due 04/11/20 | 269,594 | 287,118 | |||||
Total Consumer, Cyclical | 10,742,979 | ||||||
INDUSTRIAL - 2.2% | |||||||
Princess Juliana International Airport | |||||||
Operating Company N.V. | |||||||
5.50% due 12/20/273 | 2,993,111 | 2,993,110 | |||||
Quality Distribution LLC / QD Capital Corp. | |||||||
9.88% due 11/01/18 | 2,500,000 | 2,625,000 | |||||
Dynagas LNG Partners Limited Partnership / | |||||||
Dynagas Finance, Inc. | |||||||
6.25% due 10/30/19 | 1,000,000 | 1,000,000 | |||||
Chicago Bridge & Iron Co. | |||||||
5.15% due 12/27/22†††,7 | 750,000 | 771,900 | |||||
Xefin Lux SCA | |||||||
3.91% due 06/01/191,3 | EUR | 450,000 | 564,099 | ||||
SBM Baleia Azul Sarl | |||||||
5.50% due 09/15/27†††,7 | 459,700 | 466,550 |
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 105 |
SCHEDULE OF INVESTMENTS (continued) | September 30, 2014 | |
TOTAL RETURN BOND FUND |
FACE | |||||||
AMOUNT | VALUE | ||||||
Marquette Transportation Company LLC / | |||||||
Marquette Transportation Finance Corp. | |||||||
10.88% due 01/15/17 | $ | 120,000 | $ | 125,700 | |||
Total Industrial | 8,546,359 | ||||||
BASIC MATERIALS - 2.1% | |||||||
Yamana Gold, Inc. | |||||||
4.95% due 07/15/24 | 3,750,000 | 3,733,001 | |||||
AngloGold Ashanti Holdings plc | |||||||
5.13% due 08/01/22 | 2,225,000 | 2,146,593 | |||||
Newcrest Finance Pty Ltd. | |||||||
4.20% due 10/01/223 | 850,000 | 780,440 | |||||
4.45% due 11/15/213,6 | 625,000 | 600,695 | |||||
TPC Group, Inc. | |||||||
8.75% due 12/15/203 | 745,000 | 791,563 | |||||
Total Basic Materials | 8,052,292 | ||||||
ENERGY - 1.6% | |||||||
Regency Energy Partners, LP / | |||||||
Regency Energy Finance Corp. | |||||||
8.38% due 06/01/19 | 2,610,000 | 2,766,599 | |||||
California Resources Corp. | |||||||
5.00% due 01/15/20 | 2,000,000 | 2,030,000 | |||||
Crestwood Midstream Partners, LP / | |||||||
Crestwood Midstream Finance Corp. | |||||||
7.75% due 04/01/19 | 925,000 | 968,938 | |||||
Odebrecht Drilling Norbe VIII/IX Ltd. | |||||||
6.35% due 06/30/213 | 196,875 | 202,584 | |||||
Bill Barrett Corp. | |||||||
7.63% due 10/01/19 | 125,000 | 129,063 | |||||
Total Energy | 6,097,184 | ||||||
DIVERSIFIED - 1.0% | |||||||
Opal Acquisition, Inc. | |||||||
8.88% due 12/15/213 | 2,000,000 | 2,065,000 | |||||
Leucadia National Corp. | |||||||
5.50% due 10/18/23 | 1,500,000 | 1,567,547 | |||||
Harbinger Group, Inc. | |||||||
7.88% due 07/15/19 | 200,000 | 213,000 | |||||
Total Diversified | 3,845,547 | ||||||
GOVERNMENT - 0.6% | |||||||
U.S. Treasury Bonds | |||||||
0.00% due 05/15/449 | 5,225,000 | 1,944,123 | |||||
El Salvador Government International Bond | |||||||
6.38% due 01/18/273,6 | 300,000 | 300,000 | |||||
Government of the Cayman Islands | |||||||
5.95% due 11/24/193 | 125,000 | 143,750 | |||||
Commonwealth of the Bahamas | |||||||
6.95% due 11/20/293 | 110,000 | 123,750 | |||||
Total Government | 2,511,623 | ||||||
OTHER - 0.4% | |||||||
Northwoods Capital Ltd. | |||||||
1.78% due 10/22/21 | 1,500,000 | 1,477,200 | |||||
CONSUMER, NON-CYCLICAL - 0.3% | |||||||
Bumble Bee Holdings, Inc. | |||||||
9.00% due 12/15/173 | 924,000 | 967,890 | |||||
MATERIALS - 0.2% | |||||||
Reynolds Group Issuer Incorporated / | |||||||
Reynolds Group Issuer LLC / | |||||||
Reynolds Group Issuer Lu | |||||||
7.13% due 04/15/19 | 800,000 | 829,000 | |||||
COMMUNICATIONS - 0.1% | |||||||
Avaya, Inc. | |||||||
7.00% due 04/01/193 | 550,000 | 533,500 | |||||
Total Bonds | |||||||
(Cost $109,216,732) | 109,408,914 | ||||||
COLLATERALIZED MORTGAGE OBLIGATIONS - 10.0% | |||||||
Luminent Mortgage Trust 2006-2 | |||||||
0.35% due 02/25/461 | 6,646,916 | 4,927,885 | |||||
LSTAR Securities Investment Trust 2014-1 | |||||||
3.25% due 09/01/211,11 | 4,400,000 | 4,400,000 | |||||
American Home Mortgage Investment | |||||||
Trust 2006-1 | |||||||
0.35% due 03/25/461 | 4,663,549 | 3,958,355 | |||||
American Home Mortgage Assets Trust 2007-1 | |||||||
0.82% due 02/25/471 | 4,967,084 | 3,132,790 | |||||
Hana Small Business Lending Loan Trust 2014-2014 | |||||||
3.06% due 01/25/401,3 | 2,647,547 | 2,589,301 | |||||
CSMC Series 2014-ICE | |||||||
2.30% due 04/15/271,3 | 2,500,000 | 2,503,968 | |||||
Alternative Loan Trust 2003-18CB | |||||||
5.25% due 09/25/33 | 2,029,300 | 2,108,912 | |||||
WaMu Mortgage Pass-Through Certificates | |||||||
Series 2006-AR11 Trust | |||||||
1.04% due 09/25/461 | 2,725,170 | 2,086,118 | |||||
CSMC Series 2014-6R | |||||||
0.33% due 09/27/361,3 | 1,519,011 | 1,440,952 | |||||
BBCMS Trust 2013-TYSN | |||||||
3.71% due 09/05/323 | 1,500,000 | 1,430,904 | |||||
HarborView Mortgage Loan Trust 2006-12 | |||||||
0.34% due 01/19/381 | 1,558,495 | 1,330,304 | |||||
Washington Mutual Mortgage Pass-Through | |||||||
Certificates WMALT Series 2006-8 Trust | |||||||
4.90% due 10/25/36 | 885,589 | 675,801 | |||||
5.76% due 10/25/36 | 649,247 | 461,507 | |||||
Washington Mutual Mortgage Pass-Through | |||||||
Certificates WMALT Series 2006-AR9 Trust | |||||||
0.96% due 11/25/461 | 1,480,217 | 1,049,863 | |||||
Resource Capital Corp. | |||||||
2.65% due 04/15/32 | 1,000,000 | 1,000,000 | |||||
Chase Mortgage Finance Trust Series 2006-S3 | |||||||
6.00% due 11/25/36 | 1,121,756 | 962,190 | |||||
Wells Fargo Alternative Loan 2007-PA3 Trust | |||||||
6.25% due 07/25/37 | 986,443 | 899,124 | |||||
Sequoia Mortgage Trust 2013-5 | |||||||
2.50% due 05/25/431,3 | 883,723 | 824,658 | |||||
GreenPoint Mortgage Funding Trust | |||||||
Series 2007-AR1 | |||||||
0.23% due 02/25/471 | 628,738 | 582,209 | |||||
Residential Asset Securitization Trust 2006-A12 | |||||||
6.25% due 11/25/36 | 736,081 | 555,514 | |||||
Morgan Stanley Re-REMIC Trust 2010-R5 | |||||||
0.54% due 06/26/361,3 | 671,157 | 499,448 |
106 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
SCHEDULE OF INVESTMENTS (continued) | September 30 , 2014 | |
TOTAL RETURN BOND FUND |
FACE | |||||||
AMOUNT | VALUE | ||||||
Structured Asset Mortgage Investments II | |||||||
Trust 2006-AR1 | |||||||
0.38% due 02/25/361 | $ | 563,331 | $ | 482,139 | |||
Nomura Resecuritization Trust 2012-1R | |||||||
0.59% due 08/27/471,3 | 517,230 | 478,438 | |||||
Alliance Bancorp Trust 2007-OA1 | |||||||
0.39% due 07/25/371 | 425,029 | 293,643 | |||||
Total Collateralized Mortgage Obligations | |||||||
(cost $38,667,194) | 38,674,023 | ||||||
MUNICIPAL BONDS†† - 7.7% | |||||||
ILLINOIS - 2.3% | |||||||
State of Illinois General Obligation Unlimited | |||||||
5.65% due 12/01/38 | 5,350,000 | 5,564,962 | |||||
6.63% due 02/01/35 | 500,000 | 546,880 | |||||
County of Cook Illinois | |||||||
General Obligation Unlimited | |||||||
6.23% due 11/15/34 | 1,900,000 | 2,143,979 | |||||
City of Chicago Illinois | |||||||
General Obligation Unlimited | |||||||
6.31% due 01/01/44 | 300,000 | 306,093 | |||||
5.00% due 01/01/27 | 200,000 | 212,574 | |||||
0.00% due 01/01/309 | 310,000 | 149,535 | |||||
Total Illinois | 8,924,023 | ||||||
PUERTO RICO - 1.7% | |||||||
Puerto Rico Highways & Transportation | |||||||
Authority Revenue Bonds | |||||||
5.25% due 07/01/35 | 1,250,000 | 1,242,200 | |||||
4.95% due 07/01/26 | 850,000 | 847,136 | |||||
5.50% due 07/01/28 | 800,000 | 838,544 | |||||
5.00% due 07/01/29 | 765,000 | 761,925 | |||||
Commonwealth of Puerto Rico | |||||||
General Obligation Unlimited | |||||||
5.00% due 07/01/31 | 1,500,000 | 1,499,880 | |||||
5.13% due 07/01/30 | 1,035,000 | 1,035,021 | |||||
Puerto Rico Municipal Finance | |||||||
Agency General Obligation Unlimited | |||||||
5.00% due 08/01/27 | 550,000 | 536,740 | |||||
Total Puerto Rico | 6,761,446 | ||||||
CALIFORNIA - 1.2% | |||||||
Cypress School District | |||||||
General Obligation Unlimited | |||||||
0.00% due 08/01/409 | 9,145,000 | 2,897,501 | |||||
Stockton Unified School District | |||||||
General Obligation Unlimited | |||||||
0.00% due 08/01/369 | 1,950,000 | 790,433 | |||||
0.00% due 08/01/359 | 1,265,000 | 538,814 | |||||
Inland Valley Development | |||||||
Agency Tax Allocation | |||||||
5.50% due 03/01/33 | 400,000 | 413,624 | |||||
County of Sacramento | |||||||
California Revenue Bonds | |||||||
7.25% due 08/01/25 | 180,000 | 203,089 | |||||
Total California | 4,843,461 | ||||||
MICHIGAN - 1.2% | |||||||
City of Detroit Michigan | |||||||
General Obligation Unlimited | |||||||
3.50% due 10/07/161 | 4,000,000 | 4,000,000 | |||||
Detroit City School District | |||||||
General Obligation Unlimited | |||||||
7.75% due 05/01/39 | 500,000 | 625,155 | |||||
City of Detroit Michigan Water Supply | |||||||
System Revenue Revenue Bonds | |||||||
5.00% due 07/01/30 | 50,000 | 50,020 | |||||
Total Michigan | 4,675,175 | ||||||
FLORIDA - 0.6% | |||||||
County of Miami-Dade Florida Revenue Bonds | |||||||
0.00% due 10/01/42 | 10,000,000 | 2,435,199 | |||||
ALABAMA - 0.7% | |||||||
County of Jefferson Alabama | |||||||
Sewer Revenue Revenue Bonds | |||||||
0.00% due 10/01/369 | 2,350,000 | 664,674 | |||||
0.00% due 10/01/349 | 1,800,000 | 585,108 | |||||
0.00% due 10/01/359 | 1,375,000 | 416,928 | |||||
0.00% due 10/01/319 | 725,000 | 296,300 | |||||
0.00% due 10/01/329 | 720,000 | 271,922 | |||||
Total Alabama | 2,234,932 | ||||||
Total Municipal Bonds | |||||||
(Cost $28,862,846) | 29,874,236 | ||||||
MORTGAGE BACKED SECURITIES†† - 5.4% | |||||||
Hilton USA Trust 2013-HLT | |||||||
5.61% due 11/05/181,3 | 3,000,000 | 3,046,512 | |||||
4.41% due 11/05/303 | 1,750,000 | 1,784,153 | |||||
COMM 2014-KYO Mortgage Trust | |||||||
2.50% due 06/11/271,3 | 3,000,000 | 3,000,990 | |||||
JP Morgan Chase Commercial Mortgage | |||||||
Securities Trust 2014-FL5 | |||||||
2.25% due 07/15/311,3 | 3,000,000 | 3,000,000 | |||||
Boca Hotel Portfolio Trust 2013-BOCA | |||||||
3.20% due 08/15/261,3 | 1,700,000 | 1,701,346 | |||||
BB-UBS Trust 2012-SHOW | |||||||
4.16% due 11/05/361,3 | 1,500,000 | 1,412,583 | |||||
SRERS Funding Ltd. 2011-RS | |||||||
0.40% due 05/09/461,3 | 1,403,232 | 1,336,578 | |||||
Capmark Military Housing Trust 2007-AETC | |||||||
5.75% due 02/10/523 | 1,123,488 | 1,133,937 | |||||
Structured Asset Securities Corporation | |||||||
Mortgage Loan Trust 2006-BC6 | |||||||
0.32% due 01/25/371 | 1,250,000 | 1,040,799 | |||||
GMAC Commercial Mortgage Asset | |||||||
Corp. 2003-PRES | |||||||
6.24% due 10/10/41†††,3 | 966,737 | 947,112 | |||||
T2 Income Fund CLO Ltd. 2007-1X | |||||||
1.73% due 07/15/19 | 925,000 | 902,800 | |||||
Motel 6 Trust 2012-MTL6 | |||||||
3.78% due 10/05/253 | 750,000 | 750,623 |
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 107 |
SCHEDULE OF INVESTMENTS (continued) | September 30, 2014 | |
TOTAL RETURN BOND FUND |
FACE | |||||||
AMOUNT | VALUE | ||||||
LSTAR Commercial Mortgage Trust 2014-2 | |||||||
5.30% due 01/20/411,3 | $ | 500,000 | $ | 499,588 | |||
BAMLL-DB Trust 2012-OSI | |||||||
5.81% due 04/13/293 | 200,000 | 212,091 | |||||
Total Mortgage Backed Securities | |||||||
(Cost $20,082,023) | 20,769,112 | ||||||
SENIOR FLOATING RATE INTERESTS††,1,8 - 5.3% | |||||||
CONSUMER, CYCLICAL - 1.0% | |||||||
Burger King Corp. | |||||||
4.50% due 09/24/21 | 1,500,000 | 1,488,329 | |||||
ServiceMaster Co. | |||||||
4.25% due 07/01/21 | 700,000 | 688,737 | |||||
Neiman Marcus Group, Inc. | |||||||
4.25% due 10/25/20 | 597,000 | 585,973 | |||||
Fleetpride Corp. | |||||||
5.25% due 11/19/19 | 440,629 | 435,672 | |||||
1-800 Contacts, Inc. | |||||||
4.25% due 01/29/21 | 298,500 | 294,023 | |||||
Compucom Systems, Inc. | |||||||
4.25% due 05/07/20 | 300,000 | 287,250 | |||||
Capital Automotive LP | |||||||
6.00% due 04/30/20 | 140,000 | 141,400 | |||||
Navistar, Inc. | |||||||
5.75% due 08/17/17 | 62,500 | 62,578 | |||||
Container Store, Inc. | |||||||
4.25% due 04/06/19 | 35,706 | 34,992 | |||||
Total Consumer, Cyclical | 4,018,954 | ||||||
TECHNOLOGY - 0.9% | |||||||
Avago Technologies Ltd. | |||||||
3.75% due 05/06/21 | 2,144,625 | 2,123,458 | |||||
EIG Investors Corp. | |||||||
5.00% due 11/09/19 | 638,674 | 636,279 | |||||
Evergreen Skill | |||||||
5.75% due 04/28/21 | 350,000 | 343,147 | |||||
Deltek, Inc. | |||||||
4.50% due 10/10/18 | 216,891 | 215,156 | |||||
Aspect Software, Inc. | |||||||
7.25% due 05/07/16 | 16,320 | 16,274 | |||||
Total Technology | 3,334,314 | ||||||
CONSUMER, NON-CYCLICAL - 0.8% | |||||||
Hanesbrands, Inc. | |||||||
3.50% due 07/29/21 | EUR | 1,300,000 | 1,649,124 | ||||
Albertson’s (Safeway) Holdings LLC | |||||||
5.50% due 08/25/21 | 900,000 | 895,122 | |||||
Grocery Outlet, Inc. | |||||||
6.50% due 12/17/18 | 295,091 | 294,171 | |||||
Arctic Glacier Holdings, Inc. | |||||||
5.00% due 05/10/19 | 121,472 | 119,650 | |||||
Performance Food Group | |||||||
6.25% due 11/14/19 | 99,246 | 98,874 | |||||
Total Consumer, Non-cyclical | 3,056,941 | ||||||
INDUSTRIAL - 0.7% | |||||||
Rise Ltd. | |||||||
4.74% due 02/12/39 | 1,156,250 | 1,172,206 | |||||
Brickman Group Holdings, Inc. | |||||||
4.00% due 12/18/20 | 498,747 | 487,316 | |||||
AABS Ltd. | |||||||
4.87% due 01/15/38 | 447,917 | 455,173 | |||||
Sabre, Inc. | |||||||
4.00% due 02/19/19 | 371,707 | 366,366 | |||||
CPM Acquisition Corp. | |||||||
6.25% due 08/29/17 | 169,736 | 169,312 | |||||
10.25% due 03/01/18 | 70,000 | 70,700 | |||||
Thermasys Corp. | |||||||
5.25% due 05/03/19 | 96,875 | 96,310 | |||||
Total Industrial | 2,817,383 | ||||||
COMMUNICATIONS - 0.7% | |||||||
Proquest LLC | |||||||
5.25% due 09/24/21 | 1,000,000 | 997,080 | |||||
Avaya, Inc. | |||||||
7.75% due 10/26/17 | 976,429 | 929,590 | |||||
Interactive Data Corp. | |||||||
4.75% due 05/02/21 | 400,000 | 397,624 | |||||
Light Tower Fiber LLC | |||||||
4.00% due 04/13/20 | 395,000 | 387,677 | |||||
Total Communications | 2,711,971 | ||||||
FINANCIAL - 0.8% | |||||||
Corporate Capital Trust | |||||||
4.00% due 05/20/19 | 995,000 | 995,000 | |||||
HSBC Holdings | |||||||
due 03/30/2012 | 850,000 | 824,500 | |||||
Nuveen Investments, Inc. | |||||||
4.16% due 05/13/17 | 750,000 | 747,720 | |||||
National Financial Partners Corp. | |||||||
4.50% due 07/01/20 | 396,001 | 392,041 | |||||
American Stock Transfer & Trust | |||||||
5.75% due 06/26/20 | 241,624 | 239,913 | |||||
First Data Corp. | |||||||
3.65% due 03/23/18 | 20,000 | 19,594 | |||||
Total Financial | 3,218,768 | ||||||
BASIC MATERIALS - 0.4% | |||||||
Fortescue Metals Group Ltd. | |||||||
3.75% due 06/30/19 | 1,392,965 | 1,362,278 | |||||
Total Senior Floating Rate Interests | |||||||
(Cost $20,687,631) | 20,520,609 | ||||||
Total Investments - 103.0% | |||||||
(Cost $395,100,063) | $ | 398,325,518 | |||||
Other Assets & Liabilities, net - (3.0)% | (11,744,842 | ) | |||||
Total Net Assets - 100.0% | $ | 386,580,676 | |||||
108 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
SCHEDULE OF INVESTMENTS (concluded) | September 30 , 2014 | |
TOTAL RETURN BOND FUND |
CENTRALLY CLEARED INTEREST RATE SWAP††
Counterparty | Floating Rate | Floating Rate Index | Fixed Rate | Maturity Date | Notional Amount | Market Value | Unrealized Appreciation/ Depreciation | ||||||||||
Merrill Lynch | Pay | 3-Month USD-LIBOR | 3.89 | % | 09/09/43 | $ | 2,750,000 | $ | 395,175 | $ | 395,175 | ||||||
Merrill Lynch | Pay | 3-Month USD-LIBOR | 3.68 | % | 08/29/43 | 2,000,000 | 209,200 | 209,200 | |||||||||
Merrill Lynch | Pay | 3-Month USD-LIBOR | 3.65 | % | 09/26/43 | 900,000 | 86,310 | 86,310 | |||||||||
Merrill Lynch | Pay | 3-Month USD-LIBOR | 1.70 | % | 08/29/18 | 8,200,000 | 29,520 | 29,520 | |||||||||
Merrill Lynch | Pay | 3-Month USD-LIBOR | 1.59 | % | 09/26/18 | 12,650,000 | (34,155 | ) | (34,155 | ) | |||||||
$ | 686,050 | ||||||||||||||||
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS ††
Value at | Net Unrealized | |||||||||||||
Counterparty | Contracts to Sell | Currency | Settlement Date | Settlement Value | September 30, 2014 | Appreciation | ||||||||
BNY Mellon | 460,000 | EUR | 10/07/14 | $ 604,878 | $ 581,069 | $ 23,809 | ||||||||
$ 23,809 | ||||||||||||||
* | 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 | Variable rate security. Rate indicated is rate effective at September 30, 2014. | |
2 | Perpetual maturity. | |
3 | Security is a 144A or Section 4(a)(2) security. The total market value of 144A or Section 4(a)(2) securities is $210,279,623 (cost $209,285,287), or 54.4% of total net assets. These securities have been determined to be liquid under guidelines established by the Board of Trustees. | |
4 | Affiliated issuer. | |
5 | Security is a step up/step down bond. The coupon increases or decreases at regular intervals until the bond reaches full maturity. Rate indicated is rate effective at September 30, 2014. | |
6 | Security or a portion thereof is held as collateral for reverse repurchase agreements — See Note 13. | |
7 | Illiquid security. | |
8 | The face amount is denominated in U.S. Dollars unless otherwise noted. | |
9 | Zero coupon rate security. | |
10 | Residual interest. | |
11 | Security is a 144A or Section 4(a)(2) security. These securities are considered illiquid and restricted under guidelines established by the Board of Trustees. The total market value of 144A or section 4(a)(2) securities is $5,872,250 (cost $5,850,000), or 1.5% of total net assets — See Note 16. | |
12 | Security with no rate was unsettled at September 30, 2014. | |
plc—Public Limited Company REIT—Real Estate Investment Trust |
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 109 |
TOTAL RETURN BOND FUND |
STATEMENT OF ASSETS AND LIABILITIES |
September 30, 2014 |
ASSETS: | ||||
Investments in unaffiliated issuers, at value | ||||
(cost $393,034,699) | $ | 396,265,844 | ||
Investments in affiliated issuers, at value | ||||
(cost $2,065,364) | 2,059,674 | |||
Total investments | ||||
(cost $395,100,063) | 398,325,518 | |||
Cash | 7,755,775 | |||
Unrealized appreciation on swap agreements | 720,205 | |||
Segregated cash with broker | 680,047 | |||
Prepaid expenses | 35,523 | |||
Unrealized appreciation on forward foreign currency exchange contracts | 23,809 | |||
Receivables: | ||||
Fund shares sold | 10,046,179 | |||
Interest | 2,408,561 | |||
Securities sold | 919,720 | |||
Dividends | 50,941 | |||
Total assets | 420,966,278 | |||
LIABILITIES: | ||||
Reverse Repurchase Agreements | 13,936,733 | |||
Segregated cash from broker | 649,811 | |||
Unrealized depreciation on swap agreements | 34,155 | |||
Payable for: | ||||
Securities purchased | 18,733,837 | |||
Fund shares redeemed | 645,153 | |||
Distributions to shareholders | 170,185 | |||
Management fees | 76,397 | |||
Distribution and service fees | 38,000 | |||
Fund accounting/administration fees | 27,637 | |||
Transfer agent/maintenance fees | 9,942 | |||
Trustees’ fees* | 650 | |||
Miscellaneous | 63,102 | |||
Total liabilities | 34,385,602 | |||
NET ASSETS | $ | 386,580,676 | ||
NET ASSETS CONSIST OF: | ||||
Paid in capital | $ | 384,416,001 | ||
Distributions in excess of net investment income | (2,009,658 | ) | ||
Accumulated net realized gain on investments | 204,426 | |||
Net unrealized appreciation on investments | 3,969,907 | |||
Net assets | $ | 386,580,676 | ||
A-CLASS: | ||||
Net assets | $ | 90,805,309 | ||
Capital shares outstanding | 3,370,748 | |||
Net asset value per share | $26.94 | |||
Maximum offering price per share | ||||
(Net asset value divided by 95.25%) | $28.28 | |||
C-CLASS: | ||||
Net assets | $ | 25,107,478 | ||
Capital shares outstanding | 932,101 | |||
Net asset value per share | $26.94 | |||
INSTITUTIONAL CLASS: | ||||
Net assets | $ | 270,667,889 | ||
Capital shares outstanding | 10,037,187 | |||
Net asset value per share | $26.97 | |||
STATEMENT OF OPERATIONS |
September 30, 2014 |
INVESTMENT INCOME: | ||||
Interest | $ | 10,105,810 | ||
Dividends from securities of unaffiliated issuers | 554,991 | |||
Dividends from securities of affiliated issuers | 71,160 | |||
Total investment income | 10,731,961 | |||
EXPENSES: | ||||
Management fees | 1,142,031 | |||
Transfer agent/maintenance fees: | ||||
A-Class | 127,738 | |||
C-Class | 19,372 | |||
Institutional Class | 46,892 | |||
Distribution and service fees: | ||||
A-Class | 201,823 | |||
C-Class | 175,171 | |||
Fund accounting/administration fees | 216,983 | |||
Interest expense | 139,414 | |||
Trustees’ fees* | 19,368 | |||
Line of credit expense | 19,233 | |||
Custodian fees | 8,693 | |||
Tax expense | 4 | |||
Miscellaneous | 235,722 | |||
Total expenses | 2,352,444 | |||
Less: | ||||
Expenses waived by Adviser | (475,341 | ) | ||
Expenses waived by Transfer Agent | ||||
A-Class | (35,045 | ) | ||
C-Class | (3,921 | ) | ||
Institutional Class | (46,895 | ) | ||
Total expenses waived | (561,202 | ) | ||
Net expenses | 1,791,242 | |||
Net investment income | 8,940,719 | |||
NET REALIZED AND UNREALIZED GAIN (LOSS): | ||||
Net realized gain (loss) on: | ||||
Investments in unaffiliated issuers | 1,306,874 | |||
Investments in affiliated issuers | (5,804 | ) | ||
Swap agreements | 571,419 | |||
Foreign currency | 2,256 | |||
Forward foreign currency exchange contracts | 22,111 | |||
Options purchased | (309,380 | ) | ||
Options written | 69,860 | |||
Net realized gain | 1,657,336 | |||
Net change in unrealized appreciation (depreciation) on: | ||||
Investments in unaffiliated issuers | 5,875,280 | |||
Investments in affiliated issuers | (5,690 | ) | ||
Swap agreements | 417,439 | |||
Foreign currency | 101,237 | |||
Forward foreign currency exchange contracts | 23,809 | |||
Net change in unrealized appreciation (depreciation) | 6,412,075 | |||
Net realized and unrealized gain | 8,069,411 | |||
Net increase in net assets resulting from operations | $ | 17,010,130 | ||
* Relates to Trustees not deemed “interested persons” within the meaning of Section 2(a)(19) of the 1940 Act.
110 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
TOTAL RETURN BOND FUND |
STATEMENTS OF CHANGES IN NET ASSETS |
Year Ended | Year Ended | |||||||||||
September 30, | September 30, | |||||||||||
2014 | 2013 | |||||||||||
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS: | ||||||||||||
Net investment income | $ | 8,940,719 | $ | 7,630,397 | ||||||||
Net realized gain on investments | 1,657,336 | (827,535 | ) | |||||||||
Net change in unrealized appreciation (depreciation) on investments | 6,412,075 | (4,499,916 | ) | |||||||||
Net increase in net assets resulting from operations | 17,010,130 | 2,302,946 | ||||||||||
DISTRIBUTIONS TO SHAREHOLDERS FROM: | ||||||||||||
Net investment income | ||||||||||||
A-Class | (4,018,032 | ) | (4,198,859 | ) | ||||||||
C-Class | (745,825 | ) | (480,541 | ) | ||||||||
Institutional Class | (6,681,315 | ) | (3,074,263 | ) | ||||||||
Net realized gains | ||||||||||||
A-Class | — | (123,764 | ) | |||||||||
C-Class | — | (14,771 | ) | |||||||||
Institutional Class | — | (95,407 | ) | |||||||||
Total distributions to shareholders | (11,445,172 | ) | (7,987,605 | ) | ||||||||
CAPITAL SHARE TRANSACTIONS: | ||||||||||||
Proceeds from sale of shares | ||||||||||||
A-Class | 73,424,986 | 137,427,154 | ||||||||||
C-Class | 12,451,028 | 16,018,870 | ||||||||||
Institutional Class | 248,033,503 | 85,915,365 | ||||||||||
Distributions reinvested | ||||||||||||
A-Class | 3,570,349 | 3,973,854 | ||||||||||
C-Class | 648,333 | 466,640 | ||||||||||
Institutional Class | 5,534,525 | 2,862,381 | ||||||||||
Cost of shares redeemed | ||||||||||||
A-Class | (62,746,577 | ) | (93,839,214 | ) | ||||||||
C-Class | (4,094,381 | ) | (6,970,535 | ) | ||||||||
Institutional Class | (64,105,887 | ) | (53,732,302 | |||||||||
Net increase from capital share transactions | 212,715,879 | 92,122,213 | ||||||||||
Net increase in net assets | 218,280,837 | 86,437,554 | ||||||||||
NET ASSETS: | ||||||||||||
Beginning of year | 168,299,839 | 81,862,285 | ||||||||||
End of year | $ | 386,580,676 | $ | 168,299,839 | ||||||||
Distributions in excess of net investment income at end of year | $ | (2,009,658 | ) | $ | (130,502 | ) | ||||||
CAPITAL SHARE ACTIVITY: | ||||||||||||
Shares sold | ||||||||||||
A-Class | 2,741,493 | 5,090,896 | ||||||||||
C-Class | 463,711 | 592,730 | ||||||||||
Institutional Class | 9,217,148 | 3,206,663 | ||||||||||
Shares issued from reinvestment of distributions | ||||||||||||
A-Class | 133,810 | 148,154 | ||||||||||
C-Class | 24,313 | 17,425 | ||||||||||
Institutional Class | 206,692 | 106,608 | ||||||||||
Shares redeemed | ||||||||||||
A-Class | (2,345,333 | ) | (3,555,975 | ) | ||||||||
C-Class | (154,292 | ) | (261,112 | ) | ||||||||
Institutional Class | (2,377,106 | ) | (2,002,250 | ) | ||||||||
Net increase in shares | 7,910,436 | 3,343,139 | ||||||||||
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS SEMI-ANNUAL REPORT | 111 |
TOTAL RETURN BOND FUND |
FINANCIAL HIGHLIGHTS |
This table is presented to show selected data for a share outstanding throughout each period and to assist shareholders in evaluating a Fund’s performance for the periods presented. |
Year Ended | Year Ended | Period Ended | |||||||||||||
September 30, | September 30, | September 30, | |||||||||||||
A-Class | 2014 | 2013 | 2012 | a | |||||||||||
Per Share Data | |||||||||||||||
Net asset value, beginning of period | $26.16 | $26.51 | $25.00 | ||||||||||||
Income (loss) from investment operations: | |||||||||||||||
Net investment income (loss)b | 1.01 | 1.20 | 1.08 | ||||||||||||
Net gain (loss) on investments (realized and unrealized) | 1.13 | (.28 | ) | 1.35 | |||||||||||
Total from investment operations | 2.14 | .92 | 2.43 | ||||||||||||
Less distributions from: | |||||||||||||||
Net investment income | (1.36 | ) | (1.23 | ) | (.92 | ) | |||||||||
Net realized gains | — | (.04 | ) | — | |||||||||||
Total distributions | (1.36 | ) | (1.27 | ) | (.92 | ) | |||||||||
Net asset value, end of period | $26.94 | $26.16 | $26.51 | ||||||||||||
Total Returne | 8.34% | 3.53% | 9.78% | ||||||||||||
Ratios/Supplemental Data | |||||||||||||||
Net assets, end of period (in thousands) | $90,805 | $74,328 | $30,689 | ||||||||||||
Ratios to average net assets: | |||||||||||||||
Net investment income (loss) | 3.80% | 4.47% | 5.10% | ||||||||||||
Total expensesc | 1.19% | 1.27% | 1.51% | ||||||||||||
Net expensesd,f | 0.94% | 0.98% | 0.85% | ||||||||||||
Portfolio turnover rate | 52% | 94% | 69% | ||||||||||||
Year Ended | Year Ended | Period Ended | |||||||||||||
September 30, | September 30, | September 30, | |||||||||||||
C-Class | 2014 | 2013 | 2012 | a | |||||||||||
Per Share Data | |||||||||||||||
Net asset value, beginning of period | $26.16 | $26.50 | $25.00 | ||||||||||||
Income (loss) from investment operations: | |||||||||||||||
Net investment income (loss)b | .82 | .99 | .94 | ||||||||||||
Net gain (loss) on investments (realized and unrealized) | 1.12 | (.27 | ) | 1.32 | |||||||||||
Total from investment operations | 1.94 | .72 | 2.26 | ||||||||||||
Less distributions from: | |||||||||||||||
Net investment income | (1.16 | ) | (1.02 | ) | (.76 | ) | |||||||||
Net realized gains | — | (.04 | ) | — | |||||||||||
Total distributions | (1.16 | ) | (1.06 | ) | (.76 | ) | |||||||||
Net asset value, end of period | $26.94 | $26.16 | $26.50 | ||||||||||||
Total Returne | 7.58% | 2.77% | 9.09% | ||||||||||||
Ratios/Supplemental Data | |||||||||||||||
Net assets, end of period (in thousands) | $25,107 | $15,654 | $6,607 | ||||||||||||
Ratios to average net assets: | |||||||||||||||
Net investment income (loss) | 3.10% | 3.70% | 4.38% | ||||||||||||
Total expensesc | 1.90% | 2.07% | 2.26% | ||||||||||||
Net expensesd,f | 1.66% | 1.77% | 1.63% | ||||||||||||
Portfolio turnover rate | 52% | 94% | 69% |
112 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
TOTAL RETURN BOND FUND |
FINANCIAL HIGHLIGHTS (concluded) |
This table is presented to show selected data for a share outstanding throughout each period and to assist shareholders in evaluating a Fund’s performance for the periods presented. |
Year Ended | Year Ended | Period Ended | |||||||||||||
September 30, | September 30, | September 30, | |||||||||||||
Institutional Class | 2014 | 2013 | 2012 | a | |||||||||||
Per Share Data | |||||||||||||||
Net asset value, beginning of period | $26.19 | $26.54 | $25.00 | ||||||||||||
Income (loss) from investment operations: | |||||||||||||||
Net investment income (loss)b | 1.09 | 1.28 | 1.06 | ||||||||||||
Net gain (loss) on investments (realized and unrealized) | 1.14 | (.27 | ) | 1.44 | |||||||||||
Total from investment operations | 2.23 | 1.01 | 2.50 | ||||||||||||
Less distributions from: | |||||||||||||||
Net investment income | (1.45 | ) | (1.32 | ) | (.96 | ) | |||||||||
Net realized gains | — | (.04 | ) | — | |||||||||||
Total distributions | (1.45 | ) | (1.36 | ) | (.96 | ) | |||||||||
Net asset value, end of period | $26.97 | $26.19 | $26.54 | ||||||||||||
Total Returne | 8.74% | 3.88% | 10.09% | ||||||||||||
Ratios/Supplemental Data | |||||||||||||||
Net assets, end of period (in thousands) | $270,668 | $78,318 | $44,566 | ||||||||||||
Ratios to average net assets: | |||||||||||||||
Net investment income (loss) | 4.09% | 4.78% | 4.91% | ||||||||||||
Total expensesc | 0.81% | 0.89% | 0.99% | ||||||||||||
Net expensesd,f | 0.57% | 0.64% | 0.52% | ||||||||||||
Portfolio turnover rate | 52% | 94% | 69% |
a | Since commencement of operations: November 30, 2011. Percentage amounts for the period, except total return and portfolio turnover rate, have been annualized. |
b | Net investment income (loss) per share was computed using average shares outstanding throughout the period. |
c | Does not include expenses of the underlying funds in which the Fund invests. |
d | Net expense information reflects the expense ratios after expense waivers. |
e | Total return does not reflect the impact of any applicable sales charges and has not been annualized. |
f | Net expenses may include expenses that are excluded from the expense limitation agreement. Excluding these expenses, the operating expense ratios for the periods would be: |
09/30/14 | 09/30/13 | 09/30/12 | ||||||||
A-Class | 0.86 | % | 0.86 | % | 0.82 | % | ||||
C-Class | 1.58 | % | 1.64 | % | 1.59 | % | ||||
Institutional Class | 0.50 | % | 0.52 | % | 0.50 | % |
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 113 |
NOTES TO FINANCIAL STATEMENTS |
1. Organization and Significant Accounting Policies
Organization
Guggenheim Funds Trust (the “Trust”), a Delaware statutory trust, is registered with the SEC under the Investment Company Act of 1940 (“1940 Act”), as a non-diversified, open-ended investment company of the series type. Each series, in effect, is representing a separate Fund. The Trust is authorized to issue an unlimited number of shares. The Trust accounts for the assets of each Fund separately.
The Trust offers a combination of four separate classes of shares, A-Class shares, B-Class shares, C-Class shares and Institutional Class shares. Sales of shares of each Class are made without a front-end sales charge at the net asset value per share (“NAV”), with the exception of A-Class shares. A-Class shares are sold at the NAV, plus the applicable front-end sales charge. The sales charge varies depending on the amount purchased, but will not exceed 4.75%, except for Limited Duration Fund which will not exceed 2.25%. A-Class share purchases of $1 million or more are exempt from the front-end sales charge but have a 1% contingent deferred sales charge (“CDSC”), if shares are redeemed within 12 months of purchase. B-Class shares were offered without a front-end sales charge, but were subject to a CDSC of up to 5% for five years and convert to A-Class shares after eight years. Effective January 4, 2010, subscriptions for B-Class shares are no longer accepted. C-Class shares have a 1% CDSC if shares are redeemed within 12 months of purchase. Institutional Class shares are offered primarily for direct investment by institutions such as pension and profit sharing plans, endowments, foundations and corporations. Institutional Class shares have a minimum initial investment of $2 million and a minimum account balance of $1 million. Institutional Class shares are offered without a front-end sales charge or a CDSC.
As of January 1, 2012, A-Class, C-Class and Institutional Class shares of High Yield Fund are subject to a 2% redemption fee when shares are redeemed or exchanged within 90 days of purchase.
At September 30, 2014, the Trust consisted of eighteen Funds. This report covers the Floating Rate Strategies Fund, High Yield Fund, Investment Grade Bond Fund, Limited Duration Fund, Macro Opportunities Fund, Municipal Income Fund and Total Return Bond Fund (the “Funds”).
The Funds were previously series (the “Predecessor Funds”) of Security Income Fund, a different registered open-end investment company, which was organized as a Kansas corporation. In January 2014, at a special meeting of shareholders, the shareholders of the Predecessor Funds approved the reorganization of the Predecessor Funds with and into the Funds, corresponding “shell” series of the Trust. The Funds succeeded to the accounting and performance history of the Predecessor Funds. Any such historical information provided for the Funds that relate to periods prior to January 28, 2014, therefore, is that of the Predecessor Funds.
Guggenheim Investments (“GI”) provides advisory services, and Rydex Fund Services, LLC (“RFS”) provides transfer agent, administrative and accounting services to the Trust. Guggenheim Funds Distributors, LLC (“GFD”) acts as principal underwriter for the Trust. GI, RFS and GFD are affiliated entities.
Guggenheim Partners Investment Management (“GPIM”), an affiliate of GI, serves as investment sub-adviser (the “Sub-Adviser”) to the Municipal Income Fund and is responsible for the day-to-day management of the Fund’s portfolio.
Significant Accounting Policies
The following significant accounting policies are in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”) and are consistently followed by the Trust. This requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. All time references are based on Eastern Time.
The NAV of a fund is calculated by dividing the market value of the fund’s securities and other assets, less all liabilities, by the number of outstanding shares of the fund.
A. The Board of Trustees of the Funds (the “Board”) has adopted policies and procedures for the valuation of the Funds’ investments (the “Valuation Procedures”). Pursuant to the Valuation Procedures, the Board has delegated to a valuation committee, consisting of representatives from Guggenheim’s investment management, fund administration, legal and compliance departments (the “Valuation Committee”), the day-to-day responsibility for implementing the Valuation Procedures, including, under most circumstances, the responsibility for determining the fair value of the Fund’s securities or other assets.
Valuations of the Funds’ securities are supplied primarily by pricing services appointed pursuant to the processes set forth in the Valuation Procedures. The Valuation Committee convenes monthly, or more frequently as needed and will review the valuation of all assets which have been fair valued for reasonableness. The Funds’ officers, through the Valuation Committee and consistent with the monitoring and review responsibilities set forth in the Valuation Procedures, regularly review procedures used by, and valuations provided by, the pricing services.
If the pricing service cannot or does not provide a valuation for a particular investment or such valuation is deemed unreliable, such investment is fair valued by the Valuation Committee.
Equity securities listed on an exchange (New York Stock Exchange (“NYSE”) or American Stock Exchange) are valued at the last quoted sales
114 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
NOTES TO FINANCIAL STATEMENTS (continued) |
price as of the close of business on the NYSE, usually 4:00 p.m. on the valuation date. Equity securities listed on the NASDAQ market system are valued at the NASDAQ Official Closing Price on the valuation date, which may not necessarily represent the last sale price. If there has been no sale on such exchange or NASDAQ on a given day, the security is valued at the closing bid price on that day.
Open-end investment companies (“Mutual Funds”) are valued at their NAV as of the close of business, on the valuation date. Exchange-traded funds (“ETFs”) and closed-end investment companies (“CEFs”) are valued at the last quoted sales price.
Debt securities with a maturity of greater than 60 days at acquisition are valued at prices that reflect broker/dealer supplied valuations or are obtained from independent pricing services, which may consider the trade activity, treasury spreads, yields or price of bonds of comparable quality, coupon, maturity, and type, as well as prices quoted by dealers who make markets in such securities. Short-term debt securities with a maturity of 60 days or less at acquisition and repurchase agreements are valued at amortized cost, which approximates market value.
Typically loans are valued using information provided by an independent third party pricing service which uses broker quotes in a non-active market.
Listed options are valued at the Official Settlement Price listed by the exchange, usually as of 4:00 p.m. Long options are valued using the bid price and short options are valued using the ask price. In the event that a settlement price is not available, fair valuation is enacted. Over-the-counter options are valued using the average bid price (for long options), or average ask price (for short options) obtained from one or more security dealers.
Premiums received from options written are entered in a 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 an option written expires, or if a 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).
The value of OTC swap agreements entered into by a Fund is accounted for using the unrealized gain or loss on the agreements that is determined by marking the agreements to the last quoted value of the index that the swap pertains to at the close of the NYSE. The swap’s value is then adjusted to include dividends accrued, and financing charges and/or interest associated with the swap agreements.
The value of interest rate swap agreements entered into by a Fund are accounted for using the unrealized gain or loss on the agreements that is determined using the spread priced off the previous day’s CME price.
Generally, trading in foreign securities markets is substantially completed each day at various times prior to the close of the NYSE. The values of foreign securities are determined as of the close of such foreign markets or the close of the NYSE, if earlier. All investments quoted in foreign currency are valued in U.S. dollars on the basis of the foreign currency exchange rates prevailing at the close of business. Investments in foreign securities may involve risks not present in domestic investments. The Valuation Committee will determine the current value of such foreign securities by taking into consideration certain factors which may include those discussed above, as well as the following factors, among others: the value of the securities traded on other foreign markets, ADR trading, closed-end fund trading, foreign currency exchange activity, and the trading prices of financial products that are tied to foreign securities such as World Equity Benchmark Securities. In addition, the Board of Trustees has authorized the Valuation Committee and GI to use prices and other information supplied by a third party pricing vendor in valuing foreign securities.
Investments for which market quotations are not readily available (including restricted securities) are fair valued as determined in good faith by GI under the direction of the Board of Trustees using methods established or ratified by the Board of Trustees. Valuations in accordance with these methods are intended to reflect each security’s (or asset’s) “fair value.” Each such determination is based on a consideration of all relevant factors, which are likely to vary from one pricing context to another. Examples of such factors may include, but are not limited to: (i) the type of security, (ii) the initial cost of the security, (iii) the existence of any contractual restrictions on the security’s disposition, (iv) the price and extent of public trading in similar securities of the issuer or of comparable companies, (v) quotations or evaluated prices from broker-dealers and/or pricing services, (vi) information obtained from the issuer, analysts, and/or the appropriate stock exchange (for exchange-traded securities), (vii) an analysis of the company’s financial statements, and (viii) an evaluation of the forces that influence the issuer and the market(s) in which the security is purchased and sold (e.g. the existence of pending merger activity, public offerings or tender offers that might affect the value of the security).
B. Senior loans in which the Funds invest generally pay interest rates which are periodically adjusted by reference to a base short-term, floating rate plus a premium. These base lending rates are generally (i) the lending rate offered by one or more major European banks, such as the London Inter-Bank Offered Rate (LIBOR), (ii) the prime rate offered by one or more major United States banks, or (iii) the bank’s certificate of deposit rate. Senior floating rate interests often require prepayments from excess cash flows or permit the borrower to repay at its election. The rate at which the borrower repays cannot be predicted with accuracy. As a result, the actual remaining maturity may be substantially less than the stated maturities shown. The interest rate indicated is the rate in effect at September 30, 2014.
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NOTES TO FINANCIAL STATEMENTS (continued) |
C. The Funds may purchase and sell interests in securities on a when-issued and delayed delivery basis, with payment and delivery scheduled for a future date. No income accrues to the Fund on such interests or securities in connection with such transactions prior to the date the Funds actually take delivery of such interests or securities. These transactions are subject to market fluctuations and are subject to the risk that the value at delivery may be more or less than the trade date purchase price. Although the Funds will generally purchase these securities with the intention of acquiring such securities, they may sell such securities before the settlement date.
D. The accounting records of the Fund are maintained in U.S. dollars. All assets and liabilities initially expressed in foreign currencies are converted into U.S. dollars at prevailing exchange rates. Purchases and sales of investment securities, dividend and interest income, and certain expenses are translated at the rates of exchange prevailing on the respective dates of such transactions. Changes in the relationship of these foreign currencies to the U.S. dollar can significantly affect the value of the investments and earnings of the Funds. Foreign investments may also subject the Funds to foreign government exchange restrictions, expropriation, taxation or other political, social or economic developments, all of which could affect the market and/or credit risk of the investments.
The Funds do not isolate that portion of the results of operations resulting from changes in the foreign exchange rates on investments from the fluctuations arising from changes in the market prices of securities held. Such fluctuations are included with the net realized and unrealized gain or loss on investments.
Reported net realized foreign exchange gains and losses arise from sales of foreign currencies and currency gains or losses realized between the trade and settlement dates on investment transactions. Net unrealized exchange gains and losses arise from changes in the fair values of assets and liabilities other than investments in securities at the fiscal period end, resulting from changes in exchange rates.
E. 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. Upon entering into a futures contract, a Fund deposits and maintains as collateral such initial margin as required by the exchange on which the transaction is affected. Pursuant to the contract, the Fund agrees to receive from or pay to the broker an amount of cash equal to the daily fluctuation in value of the contract. Such receipts or payments are known as variation margin and are recorded by the Fund as unrealized gains or losses. When the contract is closed, the Fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed.
G. Swap agreements are marked-to-market daily and the change, if any, is recorded as unrealized gain or loss. Payments received or made as a result of an agreement or termination of the agreement are recognized as realized gains or losses.
H. Forward foreign currency exchange contracts are valued daily based on the applicable exchange rate of the underlying currency. The change in value of the contract is recorded as unrealized appreciation or depreciation until the forward foreign currency contract is closed. When the forward foreign currency contract is closed, the Fund records a realized gain or loss equal to the difference between the value at the time the contract was opened and the value at the time it was closed.
I. Security transactions are recorded on the trade date for financial reporting purposes. Realized gains and losses from securities transactions are recorded using the identified cost basis. Proceeds from lawsuits related to investment holdings are recorded as realized gains in the respective Fund. Dividend income is recorded on the ex-dividend date, net of applicable taxes withheld by foreign countries. Taxable non-cash dividends are recorded as dividend income. Interest income, including amortization of premiums and accretion of discounts, is accrued on a daily basis.
J. The Funds declare dividends from investment income daily. Each Fund pays its shareholders from its net investment income monthly and distributes any net capital gains that it has realized, at least annually.
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NOTES TO FINANCIAL STATEMENTS (continued) |
Distributions to shareholders are recorded on the ex-dividend date. Dividends are reinvested in additional shares unless shareholders request payment in cash. The character of distributions made during the year from net investment income or net realized gains may differ from their ultimate characterization for federal income tax purposes.
K. Interest and dividend income, most expenses, all realized gains and losses, and all unrealized gains and losses are allocated to the classes based upon the value of the outstanding shares in each class. Certain costs, such as distribution and service fees are charged directly to specific classes. In addition, certain expenses have been allocated to the individual Funds in the Trust on a pro rata basis upon the respective aggregate net assets of each Fund included in the Trust.
L. 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.
M. Under the fee arrangement with the custodian, the Funds may earn credits based on overnight custody balances. These credits are utilized to reduce related custodial expenses. The custodian fees disclosed in the Statements of Operations are before the reduction in expense from the related earnings credits, if any. For the year ended September 30, 2014, there were no earnings credits received.
N. Under the Funds’ organizational documents, their Trustees and Officers are indemnified against certain liabilities arising out of the performance of their duties to the Trust. In addition, throughout the normal course of business, the Funds enter into contracts that contain a variety of representations and warranties which provide general indemnifications. The Funds’ maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Funds and/or their affiliates that have not yet occurred. However, based on experience, the Funds expect the risk of loss to be remote.
2. Financial Instruments
As part of their investment strategy, the Funds utilize a variety of derivative instruments. These investments involve, to varying degrees, elements of market risk and risks in excess of the amounts recognized in the Statements of Assets and Liabilities.
An option on a security gives the purchaser of the option the right to sell, and the writer of the option the obligation to buy, the underlying security (put option) or the purchaser of the option the right to buy, and the writer of the option the obligation to sell, the underlying security (call option) at any time during the option period. The risk associated with purchasing options is limited to the premium originally paid. The risk in writing a call option is that a Fund may incur a loss if the market price of the underlying security increases and the option is exercised. The risk in writing a put option is that a Fund may incur a loss if the market price of the underlying security decreases and the option is exercised. In addition, there may be an imperfect correlation between the movement in prices of options and the underlying securities and a Fund may not be able to enter into a closing transaction because of an illiquid secondary market or, for over-the-counter options, because of the counterparty’s inability to perform.
A 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. For Funds utilizing interest rate swaps, the exchange bears the risk of loss. Additionally, there is no guarantee that a Fund or an underlying fund could eliminate its exposure under an outstanding swap agreement by entering into an offsetting swap agreement with the same or another party.
A forward foreign currency exchange contract is an agreement between two parties to exchange two designated currencies at a specific time in the future. The contracts can be used to hedge or manage exposure to foreign currency risks with portfolio investments or to gain exposure to foreign currencies.
In conjunction with the use of derivative instruments, the Funds are required to maintain collateral in various forms. The Funds use, where appropriate, depending on the financial instrument utilized and the broker involved, margin deposits at the broker, cash and/or securities segregated at the custodian bank, discount notes or the repurchase agreements allocated to each Fund.
The Trust has established counterparty credit guidelines and enters into transactions only with financial institutions of investment grade or better. The Trust monitors the counterparty credit risk.
3. Fees and Other Transactions with Affiliates
Under the terms of an investment advisory contract, the Funds pay GI investment advisory fees calculated at the annualized rates below, based on the average daily net assets of the Funds:
Management Fees | |||
Fund | (as a % of Net Assets) | ||
Floating Rate Strategies Fund | 0.65 | % | |
High Yield Fund | 0.60 | % | |
Investment Grade Bond Fund | 0.50 | % | |
Limited Duration Fund | 0.45 | % | |
Macro Opportunities Fund | 0.89 | % | |
Municipal Income Fund | 0.50 | % | |
Total Return Bond Fund | 0.50 | % |
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NOTES TO FINANCIAL STATEMENTS (continued) |
RFS provides transfer agent services to the Fund for fees calculated at the rates below, which are assessed to the applicable class of the Fund. For these services, RFS receives the following:
Annual charge per account | $5.00–$8.00 | |
Transaction fee | $0.60–$1.10 | |
Minimum annual charge per Fund† | $25,000 | |
Certain out-of-pocket charges | Varies |
† Not subject to Funds during first twelve months of operations.
RFS also acts as the administrative agent for the Funds, and as such performs administrative functions and the bookkeeping, accounting and pricing functions for each Fund. For these services, RFS receives the following:
Fund Accounting/ | |||
Administrative Fees | |||
Fund | (as a % of Net Assets) | ||
Floating Rate Strategies Fund | 0.095 | % | |
High Yield Fund | 0.095 | % | |
Investment Grade Bond Fund | 0.095 | % | |
Limited Duration Fund | 0.095 | % | |
Macro Opportunities Fund | 0.095 | % | |
Municipal Income Fund | 0.095 | % | |
Total Return Bond Fund | 0.095 | % | |
Minimum annual charge per Fund | $25,000 | ||
Certain out-of-pocket charges | Varies |
RFS engages external service providers to perform other necessary services for the Trust, such as audit and accounting related services, legal services, custody, printing and mailing, etc., on a pass-through basis. Such expenses are allocated to various Funds within the complex based on relative net assets.
The investment advisory contracts for the following Funds provide that the total expenses be limited to a percentage of average net assets for each class of shares, 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:
Effective | Contract | |||||||||||
Limit | Date | End Date | ||||||||||
Floating Rate Strategies Fund — A-Class | 1.02 | % | 11/30/12 | 02/01/15 | ||||||||
Floating Rate Strategies Fund — C-Class | 1.77 | % | 11/30/12 | 02/01/15 | ||||||||
Floating Rate Strategies Fund — Institutional Class | 0.78 | % | 11/30/12 | 02/01/15 | ||||||||
High Yield Fund — A-Class | 1.16 | % | 11/30/12 | 02/01/15 | ||||||||
High Yield Fund — B-Class | 1.91 | % | 11/30/12 | 02/01/15 | ||||||||
High Yield Fund — C-Class | 1.91 | % | 11/30/12 | 02/01/15 | ||||||||
High Yield Fund — Institutional Class | 0.91 | % | 11/30/12 | 02/01/15 | ||||||||
Investment Grade Bond Fund — A-Class | 1.00 | % | 11/30/12 | 02/01/15 | ||||||||
Investment Grade Bond Fund — B-Class | 1.75 | % | 11/30/12 | 02/01/15 | ||||||||
Investment Grade Bond Fund — C-Class | 1.75 | % | 11/30/12 | 02/01/15 | ||||||||
Investment Grade Bond Fund — Institutional Class* | 0.75 | % | 11/30/12 | 02/01/15 | ||||||||
Limited Duration Fund —A-Class** | 0.80 | % | 12/01/13 | 02/01/15 | ||||||||
Limited Duration Fund — C-Class** | 1.55 | % | 12/01/13 | 02/01/15 | ||||||||
Limited Duration Fund — Institutional Class** | 0.55 | % | 12/01/13 | 02/01/15 | ||||||||
Macro Opportunities Fund — A-Class | 1.36 | % | 11/30/12 | 02/01/15 | ||||||||
Macro Opportunities Fund — C-Class | 2.11 | % | 11/30/12 | 02/01/15 | ||||||||
Macro Opportunities Fund — Institutional Class | 0.95 | % | 11/30/12 | 02/01/15 | ||||||||
Municipal Income Fund — A-Class | 0.80 | % | 11/30/12 | 02/01/15 | ||||||||
Municipal Income Fund — C-Class | 1.55 | % | 11/30/12 | 02/01/15 | ||||||||
Municipal Income Fund — Institutional Class | 0.55 | % | 11/30/12 | 02/01/15 | ||||||||
Total Return Bond Fund — A-Class | 0.90 | % | 11/30/12 | 02/01/15 | ||||||||
Total Return Bond Fund — C-Class | 1.65 | % | 11/30/12 | 02/01/15 | ||||||||
Total Return Bond Fund — Institutional Class | 0.50 | % | 11/30/12 | 02/01/15 |
* | Since the commencement of operations: January 29, 2013 |
** | Since the commencement of operations: December 16, 2013 |
118 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
NOTES TO FINANCIAL STATEMENTS (continued) |
GI is entitled to reimbursement by the Funds for fees waived or expenses reimbursed during any of the previous 36 months, beginning on the date of the expense limitation agreement, if on any day the estimated operating expenses are less than the indicated percentages. At September 30, 2014, the amount of fees waived or expenses reimbursed that are subject to recoupment are presented in the following table:
Fund | Expires 2015 | Expires 2016 | Expires 2017 | Fund Total | ||||
Floating Rate Strategies Fund | $127,768 | $430,026 | $1,206,044 | $1,763,838 | ||||
High Yield Fund | 205,368 | 207,619 | 81,112 | 494,099 | ||||
Investment Grade Bond Fund | 165,867 | 234,110 | 183,531 | 583,508 | ||||
Limited Duration Fund | — | — | 142,224 | 142,224 | ||||
Macro Opportunities Fund | 161,466 | 961,870 | 1,567,567 | 2,690,903 | ||||
Municipal Income Fund | 192,257 | 236,488 | 242,274 | 671,019 | ||||
Total Return Bond Fund | 154,714 | 462,339 | 550,932 | 1,167,985 |
For the year ended September 30, 2014, no amounts were recouped by GI.
If a Fund invests in an affiliated fund, the investing Fund’s Adviser will determine whether to waive fees at the investing fund level. Fee waivers will be calculated at the investing Fund level without regard to any expense cap in effect for the investing Fund. Fees waived under this arrangement are not subject to reimbursement to GI.
The Funds have adopted Distribution Plans related to the offering of A-Class, B-Class and C-Class shares pursuant to Rule 12b-1 under the 1940 Act. The plans provide for payments at an annual rate of 0.25% of the average daily net assets of each Fund’s A-Class shares and 1.00% of the average daily net assets of each Fund’s B-Class and C-Class shares. Effective December 1, 2006, B-Class shares of the High Yield Fund ceased charging 12b-1 fees in accordance with the FINRA sales cap regulations. These fees may be reinstated at any time.
For the year ended September 30, 2014, GFD retained sales charges of $344,207 relating to sales of A-Class shares of the Trust.
Certain trustees and officers of the Trust are also officers of GI, RFS and GFD.
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.
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NOTES TO FINANCIAL STATEMENTS (continued) |
The following table summarizes the inputs used to value the Funds’ net assets at September 30, 2014:
Level 1 | Level 1 | Level 2 | Level 2 | Level 3 | |||||||||||||||||||||||
Investments | Other Financial | Investments | Other Financial | Investments | |||||||||||||||||||||||
In Securities | Instruments* | In Securities | Instruments* | In Securities | Total | ||||||||||||||||||||||
Assets | |||||||||||||||||||||||||||
Floating Rate Strategies Fund | $ | 31,397,489 | $ | — | $ | 1,228,401,119 | $ | 4,097,714 | $ | 32,030,543 | $ | 1,295,926,865 | |||||||||||||||
High Yield Fund | 8,719,900 | — | 128,864,261 | 472,307 | 3,549,244 | 141,605,712 | |||||||||||||||||||||
Investment Grade Bond Fund | 2,770,887 | — | 124,990,515 | 559,310 | 4,871,076 | 133,191,788 | |||||||||||||||||||||
Limited Duration Fund | 4,506,780 | — | 93,403,678 | — | 888,202 | 98,798,660 | |||||||||||||||||||||
Macro Opportunities Fund | 182,275,764 | — | 1,353,192,568 | 3,757,961 | 34,301,222 | 1,573,527,515 | |||||||||||||||||||||
Municipal Income Fund | 2,443,260 | — | 48,270,223 | — | — | 50,713,483 | |||||||||||||||||||||
Total Return Bond Fund | 18,449,366 | — | 373,980,078 | 744,014 | 5,896,074 | 399,069,532 | |||||||||||||||||||||
Liabilities | |||||||||||||||||||||||||||
Floating Rate Strategies Fund | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | |||||||||||||||
High Yield Fund | — | — | — | — | — | — | |||||||||||||||||||||
Investment Grade Bond Fund | — | — | — | 3,645 | — | 3,645 | |||||||||||||||||||||
Macro Opportunities Fund | 1,416 | — | — | 9,592,958 | — | 9,594,374 | |||||||||||||||||||||
Total Return Bond Fund | — | — | — | 34,155 | — | 34,155 |
* Other financial instruments may include forward foreign currency contracts and/or swaps, which are reported as unrealized gain/loss at period end.
Independent pricing services are used to value a majority of the Funds’ investments. When values are not available from a pricing service, they may be computed by the Funds’ investment adviser or an affiliate. In any event, values may be determined using a variety of sources and techniques, including: market prices; broker quotes; and models which derive prices based on inputs such as prices of securities with comparable maturities and characteristics or based on inputs such as anticipated cash flows or collateral, spread over Treasuries, and other information and analysis. A significant portion of the Funds’ assets and liabilities are categorized as Level 2 or Level 3, as indicated in this report.
Indicative quotes from broker-dealers, adjusted for fluctuations in criteria such as credit spreads and interest rates, may be also used to value the Funds’ assets and liabilities, i.e. prices provided by a broker-dealer or other market participant who has not committed to trade at that price. Although indicative quotes are typically received from established market participants, the Funds may not have the transparency to view the underlying inputs which support the market quotations. Significant changes in an indicative quote would generally result in significant changes in the fair value of the security.
Certain fixed income securities are valued by obtaining a monthly indicative quote from a broker-dealer, adjusted for fluctuations in criteria such as credit spreads and interest rates. The Funds’ fair valuation guidelines were recently revised to transition such monthly indicative quoted securities from Level 2 to Level 3.
The inputs or methodologies used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. The suitability of the techniques and sources employed to determine fair valuation are regularly monitored and subject to change.
120 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
NOTES TO FINANCIAL STATEMENTS (continued) |
The following is a summary of significant unobservable inputs used in the fair valuation of assets and liabilities categorized within Level 3 of the fair value hierarchy:
Ending Balance at | ||||||||||||
Fund | Category and Subcategory | 09/30/14 | Valuation Technique | Unobservable Inputs | ||||||||
Investments, at value | ||||||||||||
Floating Rate Strategies Fund | Senior Floating Rate Interests | $27,188,014 | Monthly Model Priced | Purchase Price | ||||||||
Asset-Backed Securities | 2,113,450 | Option Adjusted Spread off the | Indicative Quote | |||||||||
month end broker mark over the | ||||||||||||
3 month LIBOR | ||||||||||||
Corporate Bonds | 1,666,080 | Option Adjusted Spread off the | Indicative Quote | |||||||||
month end broker mark over the | ||||||||||||
3 month LIBOR | ||||||||||||
1,063,000 | Monthly Model Priced | Purchase Price | ||||||||||
Total Corporate Bonds | 2,729,080 | |||||||||||
High Yield Fund | Senior Floating Rate Interests | 1,762,119 | Monthly Model Priced | Purchase Price | ||||||||
Corporate Bonds | 1,216,225 | Monthly Model Priced | Purchase Price | |||||||||
570,900 | Option Adjusted Spread off the | Indicative Quote | ||||||||||
month end broker mark over the | ||||||||||||
3 month LIBOR | ||||||||||||
Total Corporate Bonds | 1,787,125 | |||||||||||
Investment Grade Bond Fund | Corporate Bonds | 2,255,460 | Option Adjusted Spread off the | Indicative Quote | ||||||||
month end broker mark over the | ||||||||||||
3 month LIBOR | ||||||||||||
Preferred Stock | 2,142,060 | Option Adjusted Spread off the | Indicative Quote | |||||||||
month end broker mark over the | ||||||||||||
3 month LIBOR | ||||||||||||
Mortgage-Backed Securities | 473,556 | Option Adjusted Spread off the | Indicative Quote | |||||||||
month end broker mark over the | ||||||||||||
3 month LIBOR | ||||||||||||
Limited Duration Fund | Asset-Backed Securities | 888,202 | Option Adjusted Spread off the | Indicative Quote | ||||||||
month end broker mark over the | ||||||||||||
3 month LIBOR | ||||||||||||
Macro Opportunities Fund | Bonds | 14,144,559 | Option Adjusted Spread off the | Indicative Quote | ||||||||
month end broker mark over the | ||||||||||||
3 month LIBOR | ||||||||||||
1,566,000 | Monthly Model Priced | Purchase Price | ||||||||||
Total Bonds | 15,710,559 | |||||||||||
Asset-Backed Securities | 10,038,356 | Option Adjusted Spread off the | Indicative Quote | |||||||||
month end broker mark over the | ||||||||||||
3 month LIBOR | ||||||||||||
Senior Floating Rate Interests | 8,552,307 | Monthly Model Priced | Purchase Price | |||||||||
Total Return Bond Fund | Bonds | 3,121,033 | Option Adjusted Spread off the | Indicative Quote | ||||||||
month end broker mark over the | ||||||||||||
3 month LIBOR | ||||||||||||
Asset-Backed Securities | 1,827,929 | Option Adjusted Spread off the | Indicative Quote | |||||||||
month end broker mark over the | ||||||||||||
3 month LIBOR | ||||||||||||
Mortgage-Backed Securities | 947,112 | Option Adjusted Spread off the | Indicative Quote | |||||||||
month end broker mark over the | ||||||||||||
3 month LIBOR |
Any remaining Level 3 securities held by the Funds and excluded from the tables above, were not considered material to the Funds.
Transfers between investment levels may occur as the markets fluctuate and/or the availability of data used in an investment’s valuation changes. The Funds recognized transfers between the levels as of the beginning of the period. As of September 30, 2014, the Funds had transfers in/out of Level 3 due to changes in securities valuation method. See the tables below for changes to and from Level 2 and Level 3. There were no other securities that transferred between levels.
THE GUGGENHEIM FUNDS ANNUAL REPORT | 121 |
NOTES TO FINANCIAL STATEMENTS (continued) |
Summary of Fair Value Level 3 Activity
Following is a reconciliation of Level 3 assets and liabilities for which significant unobservable inputs were used to determine fair value for the year ended September 30, 2014:
LEVEL 3 – Fair value measurement using significant unobservable inputs
Senior Floating | Asset-Backed | Corporate | |||||||||||||
Rate Interests | Securities | Bonds | Total | ||||||||||||
Floating Rate Strategies Fund | |||||||||||||||
Assets: | |||||||||||||||
Beginning Balance | $ | — | $ | 10,532,530 | $ | — | $ | 10,532,530 | |||||||
Purchases | 26,510,283 | — | 2,559,379 | 29,069,662 | |||||||||||
Sales, maturities and paydowns | (103,125 | ) | — | — | (103,125 | ) | |||||||||
Total realized gains or losses included in earnings | — | — | — | — | |||||||||||
Total change in unrealized gains or losses included in earnings | (506,144 | ) | 22,918 | 169,700 | (313,526 | ) | |||||||||
Transfers in Level 3 | 1,287,000 | 2,090,532 | — | 3,377,532 | |||||||||||
Transfers out of Level 3 | — | (10,532,530 | ) | — | (10,532,530 | ) | |||||||||
Ending Balance | $ | 27,188,014 | $ | 2,113,450 | $ | 2,729,079 | $ | 32,030,543 | |||||||
Senior Floating | Corporate | ||||||||||||||
Rate Interests | Bonds | Warrants | Total | ||||||||||||
High Yield Fund | |||||||||||||||
Assets: | |||||||||||||||
Beginning Balance | $ | — | $ | — | $ | 3 | $ | 3 | |||||||
Purchases | 1,780,750 | 1,750,603 | — | 3,531,353 | |||||||||||
Sales, maturities and paydowns | (20,625 | ) | — | — | (20,625 | ) | |||||||||
Total realized gains or losses included in earnings | — | — | — | — | |||||||||||
Total change in unrealized gains or losses included in earnings | 1,994 | 36,522 | — | 38,516 | |||||||||||
Transfers in Level 3 | — | — | — | — | |||||||||||
Transfers out of Level 3 | — | — | (3 | ) | (3 | ) | |||||||||
Ending Balance | $ | 1,762,119 | $ | 1,787,125 | $ | — | $ | 3,549,244 | |||||||
Asset-Backed | Mortgaged-Backed | Corporate | Preferred | ||||||||||||||||
Securities | Securities | Bonds | Stocks | Total | |||||||||||||||
Investment Grade Bond Fund | |||||||||||||||||||
Assets: | |||||||||||||||||||
Beginning Balance | $ | 382,749 | $ | — | $ | — | $ | — | $ | 382,749 | |||||||||
Purchases | — | 463,398 | 1,000,000 | — | 1,463,398 | ||||||||||||||
Sales, maturities and paydowns | — | (3,088 | ) | (23,650 | ) | — | (26,738 | ) | |||||||||||
Total realized gains or losses included in earnings | — | — | — | — | — | ||||||||||||||
Total change in unrealized gains or losses included in earnings | — | 13,246 | 151,009 | 68,314 | 232,569 | ||||||||||||||
Transfers in Level 3 | — | — | 1,128,101 | 2,073,746 | 3,201,847 | ||||||||||||||
Transfers out of Level 3 | (382,749 | ) | — | — | — | (382,749 | ) | ||||||||||||
Ending Balance | $ | — | $ | 473,556 | $ | 2,255,460 | $ | 2,142,060 | $ | 4,871,076 | |||||||||
Asset-Backed | ||||||||
Securities | Total | |||||||
Limited Duration Fund | ||||||||
Assets: | ||||||||
Beginning Balance | $ | — | $ | — | ||||
Purchases | 990,212 | 990,212 | ||||||
Sales, maturities and paydowns | (110,285 | ) | (110,285 | ) | ||||
Total realized gains or losses included in earnings | — | — | ||||||
Total change in unrealized gains or losses included in earnings | 8,275 | 8,275 | ||||||
Transfers in Level 3 | — | — | ||||||
Transfers out of Level 3 | — | — | ||||||
Ending Balance | $ | 888,202 | $ | 888,202 | ||||
122 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
NOTES TO FINANCIAL STATEMENTS (continued) |
Senior Floating | Asset-Backed | ||||||||||||||||
Rate Interests | Securities | Bonds | Total | ||||||||||||||
Macro Opportunities Fund | |||||||||||||||||
Assets: | |||||||||||||||||
Beginning Balance | $ | — | $ | 24,277,702 | $ | — | $ | 24,277,702 | |||||||||
Purchases | 8,510,000 | 11,625,236 | 10,129,042 | 30,264,278 | |||||||||||||
Sales, maturities and paydowns | (1,538,938 | ) | (1,003,236 | ) | (52,030 | ) | (2,594,203 | ) | |||||||||
Total realized gains or losses included in earnings | — | — | — | — | |||||||||||||
Total change in unrealized gains or losses included in earnings | 195,245 | 88,323 | 536,925 | 820,493 | |||||||||||||
Transfers in Level 3 | 1,386,000 | 1,942,833 | 2,481,822 | 5,810,655 | |||||||||||||
Transfers out of Level 3 | — | (24,277,702 | ) | — | (24,277,702 | ) | |||||||||||
Ending Balance | $ | 8,552,307 | $ | 12,653,156 | $ | 13,095,759 | $ | 34,301,222 | |||||||||
Mortgage-Backed | Asset-Backed | |||||||||||||||||||
Securities | Securities | Bonds | Total | |||||||||||||||||
Total Return Bond | ||||||||||||||||||||
Assets: | ||||||||||||||||||||
Beginning Balance | $ | — | $ | 2,590,363 | $ | — | $ | 2,590,363 | ||||||||||||
Purchases | 926,796 | 1,501,289 | 1,850,000 | 4,278,086 | ||||||||||||||||
Sales, maturities and paydowns | (6,175 | ) | (167,206 | ) | (23,650 | ) | (197,031 | ) | ||||||||||||
Total realized gains or losses included in earnings | — | — | — | — | ||||||||||||||||
Total change in unrealized gains or losses included in earnings | 26,491 | 22,341 | 166,581 | 215,413 | ||||||||||||||||
Transfers in Level 3 | — | 471,505 | 1,128,101 | 1,599,606 | ||||||||||||||||
Transfers out of Level 3 | — | (2,590,363 | ) | — | (2,590,363 | ) | ||||||||||||||
Ending Balance | $ | 947,112 | $ | 1,827,929 | $ | 3,121,032 | $ | 5,896,074 | ||||||||||||
5. Derivative Investment Holdings Categorized by Risk Exposure
U.S. GAAP requires disclosures to enable investors to better understand how and why the Funds use derivative instruments, how these derivative instruments are accounted for and their effects on the Fund’s financial position and results of operations.
The Funds utilized derivatives for the following purposes:
Fund | Index Exposure | Hedge | Duration | ||||
Floating Rate Strategies Fund | — | x | — | ||||
High Yield Fund | — | x | — | ||||
Investment Grade Bond Fund | — | x | x | ||||
Macro Opportunities Fund | x | x | x | ||||
Total Return Bond Fund | — | x | x |
The following table represents the notional amount of derivative instruments outstanding as an approximate percentage of the Funds’ net assets on a quarterly basis.
Approximate percentage of Fund’s net assets on a quarterly basis | |||||
Fund | Long | Short | |||
Floating Rate Strategies Fund | 5% | — | |||
High Yield Fund | 5% | — | |||
Investment Grade Bond Fund | 20% | — | |||
Macro Opportunities Fund | 10% | 15% | |||
Total Return Bond Fund | 15% | — |
The following is a summary of the location of derivative investments on the Funds’ Statements of Assets and Liabilities as of September 30, 2014:
Derivative Investment Type | Asset Derivatives | Liability Derivatives | ||
Equity/Currency/Interest Rate/Commodity contracts | Unrealized appreciation on swap agreements | Unrealized depreciation on swap agreements | ||
Unrealized appreciation on forward foreign | Options written, at value | |||
currency exchange contracts | ||||
Investments in unaffiliated issuers, at value |
THE GUGGENHEIM FUNDS ANNUAL REPORT | 123 |
NOTES TO FINANCIAL STATEMENTS (continued) |
The following table sets forth the fair value of the Funds’ derivative investments categorized by primary risk exposure at September 30, 2014:
Asset Derivative Investments Value | |||||||||||||||||||||||||
Forward | Options | Options | Options | Options | |||||||||||||||||||||
Foreign | Purchased/ | Purchased/ | Purchased/ | Purchased/ | |||||||||||||||||||||
Swaps | Swaps | Swaps | Currency | Written | Written | Written | Written | ||||||||||||||||||
Equity | Currency | Interest Rate | Exchange | Currency | Commodity | Equity | Interest Rate | ||||||||||||||||||
Fund | Contracts | Contracts | Contracts | Contracts | Contracts | Contracts | Contracts | Contracts | Total | ||||||||||||||||
Floating Rate Strategies Fund | $ | — | $ | — | $ | — | $ | 4,097,714 | $ | — | $ | — | $ | — | $ | — | $ | 4,097,714 | |||||||
High Yield Fund | — | — | — | 472,307 | — | — | — | — | 472,307 | ||||||||||||||||
Investment Grade Bond Fund | — | — | 559,310 | — | — | — | — | — | 559,310 | ||||||||||||||||
Macro Opportunities Fund | — | 605,756 | 1,010,190 | 2,142,015 | — | 69,680 | — | — | 3,827,641 | ||||||||||||||||
Total Return Bond Fund | — | — | 720,205 | 23,809 | — | — | — | — | 744,014 | ||||||||||||||||
Liability Derivative Investments Value | |||||||||||||||||||||||||||
Forward | Options | Options | Options | Options | |||||||||||||||||||||||
Foreign | Purchased/ | Purchased/ | Purchased/ | Purchased/ | |||||||||||||||||||||||
Swaps | Swaps | Swaps | Currency | Written | Written | Written | Written | ||||||||||||||||||||
Equity | Currency | Interest Rate | Exchange | Currency | Commodity | Equity | Interest Rate | ||||||||||||||||||||
Fund | Contracts | Contracts | Contracts | Contracts | Contracts | Contracts | Contracts | Contracts | Total | ||||||||||||||||||
Investment Grade Bond Fund | $ | — | $ | — | $ | 3,645 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 3,645 | |||||||||
Macro Opportunities Fund | 6,009,738 | — | 3,583,220 | — | — | 1,416 | — | — | 9,594,374 | ||||||||||||||||||
Total Return Bond Fund | — | — | 34,155 | — | — | — | — | — | 34,155 | ||||||||||||||||||
The following is a summary of the location of derivative investments on the Funds’ Statements of Operations for the year ended September 30, 2014:
Derivative Investment Type | Location of Gain (Loss) on Derivatives | |
Equity/Currency/Interest Rate/Commodity contracts | Net realized gain (loss) on forward foreign currency exchange contracts | |
Net change in unrealized appreciation (depreciation) on forward foreign currency exchange contracts | ||
Net realized gain (loss) on options purchased | ||
Net change in unrealized appreciation (depreciation) on options purchased | ||
Net realized gain (loss) on options written | ||
Net change in unrealized appreciation (depreciation) on options written | ||
Net realized gain (loss) on swap agreements | ||
Net change in unrealized appreciation (depreciation) on swap agreements |
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 September 30, 2014:
Realized Gain (Loss) on Derivative Investments Recognized on the Statements of Operations | |||||||||||||||||||||||
Forward | Options | Options | Options | Options | |||||||||||||||||||
Foreign | Purchased/ | Purchased/ | Purchased/ | Purchased/ | |||||||||||||||||||
Swaps | Swaps | Swaps | Currency | Written | Written | Written | Written | ||||||||||||||||
Equity | Currency | Interest Rate | Exchange | Currency | Commodity | Equity | Interest Rate | ||||||||||||||||
Fund | Contracts | Contracts | Contracts | Contracts | Contracts | Contracts | Contracts | Contracts | Total | ||||||||||||||
Floating Rate Strategies Fund | $ | — | $ | — | $ | — | $ | 3,875,634 | $ | — | $ | — | $ | — | $ | — | $3,875,634 | ||||||
High Yield Fund | — | — | — | 308,186 | — | — | — | — | 308,186 | ||||||||||||||
Investment Grade Bond Fund | — | — | 460,552 | — | — | — | — | (108,048) | 352,504 | ||||||||||||||
Macro Opportunities Fund | 3,669,502 | 1,428,400 | (2,389,057) | 3,489,884 | (1,740,000) | — | (805,569) | (2,163,996) | 1,489,164 | ||||||||||||||
Total Return Bond Fund | — | — | 571,419 | 22,111 | — | — | — | (239,520) | 354,010 | ||||||||||||||
Change in Unrealized Appreciation (Depreciation) on Derivative Investments Recognized on the Statements of Operations | |||||||||||||||||||||||||||
Forward | Options | Options | Options | Options | |||||||||||||||||||||||
Foreign | Purchased/ | Purchased/ | Purchased/ | Purchased/ | |||||||||||||||||||||||
Swaps | Swaps | Swaps | Currency | Written | Written | Written | Written | ||||||||||||||||||||
Equity | Currency | Interest Rate | Exchange | Currency | Commodity | Equity | Interest Rate | ||||||||||||||||||||
Fund | Contracts | Contracts | Contracts | Contracts | Contracts | Contracts | Contracts | Contracts | Total | ||||||||||||||||||
Floating Rate Strategies Fund | $ | — | $ | — | $ | — | $ | 4,097,714 | $ | — | $ | — | $ | — | $ | — | $ | 4,097,714 | |||||||||
High Yield Fund | — | — | — | 472,307 | — | — | — | — | 472,307 | ||||||||||||||||||
Investment Grade Bond Fund | — | — | 245,395 | — | — | — | — | — | 245,395 | ||||||||||||||||||
Macro Opportunities Fund | (6,010,888) | 605,756 | (1,094,266) | 2,142,015 | — | (2,354,843) | — | — | (6,712,226) | ||||||||||||||||||
Total Return Bond Fund | — | — | 417,439 | 23,809 | — | — | — | — | 441,248 | ||||||||||||||||||
124 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
NOTES TO FINANCIAL STATEMENTS (continued) |
6. Offsetting
In the normal course of business, the Funds enter into transactions subject to enforceable master netting arrangements or other similar arrangements. Generally, the right to offset in those agreements allows the Funds to counteract the exposure to a specific counterparty with collateral received or delivered to that counterparty based on the terms of the arrangements. These arrangements provide for the right to liquidate upon the occurrence of an event of default, credit event upon merger or additional termination event.
In order to better define their contractual rights and to secure rights that will help the Funds mitigate their counterparty risk, the Funds may enter into an International Swaps and Derivatives Association, Inc. Master Agreement (“ISDA Master Agreement”) or similar agreement with their derivative contract counterparties. An ISDA Master Agreement is a bilateral agreement between a Fund and a counterparty that governs OTC derivatives, including foreign exchange contracts, and typically contains, among other things, collateral posting terms and netting provisions in the event of a default and/or termination event. The provisions of the ISDA Master Agreement typically permit a single net payment in the event of a default (close-out netting) or similar event, including the bankruptcy or insolvency of the counterparty.
For derivatives traded under an ISDA Master Agreement, the collateral requirements are typically calculated by netting the mark to market amount for each transaction under such agreement and comparing that amount to the value of any collateral currently pledged by the Funds and the counterparty. For financial reporting purposes, cash collateral that has been pledged to cover obligations of the Funds and cash collateral received from the counterparty, if any, is reported separately on the Statement of Assets and Liabilities as segregated cash with broker/receivable for variation margin, or payable for swap settlement/variation margin. Generally, the amount of collateral due from or to a counterparty must exceed a minimum transfer amount threshold (e.g., $300,000) before a transfer is required to be made. To the extent amounts due to the Funds from their counterparties are not fully collateralized, contractually or otherwise, the Funds bear the risk of loss from counterparty nonperformance. The Funds attempt to mitigate counterparty risk by only entering into agreements with counterparties that they believe to be of good standing and by monitoring the financial stability of those counterparties.
For financial reporting purposes, the Funds do not offset derivative assets and derivative liabilities that are subject to netting arrangements in the Statements of Assets and Liabilities.
The following tables present derivative financial instruments and secured financing transactions that are subject to enforceable netting arrangements and offset in the Statements of Assets and Liabilities in conformity with U.S. GAAP.
Gross Amounts Not Offset | ||||||||||||||
In the Statements of | ||||||||||||||
Asset and Liabilities | ||||||||||||||
Net Amount of | ||||||||||||||
Gross Amounts Offset | Assets Presented | Cash | ||||||||||||
Gross Amounts of | in the Statements of | on the Statements of | Financial | Collateral | Net | |||||||||
Fund | Instrument | Recognized Assets1 | Assets and Liabilities | Assets and Liabilities | Instruments | Pledged2 | Amount | |||||||
Macro Opportunities Fund | Swap agreements | $ 605,756 | $ — | $ 605,756 | $ 605,756 | $ — | $ — |
Gross Amounts Not Offset | ||||||||||||||
In the Statements of | ||||||||||||||
Asset and Liabilities | ||||||||||||||
Net Amount of | ||||||||||||||
Gross Amounts Offset | Assets Presented | Cash | ||||||||||||
Gross Amounts of | in the Statements of | on the Statements of | Financial | Collateral | Net | |||||||||
Fund | Instrument | Recognized Liabilities1 | Assets and Liabilities | Assets and Liabilities | Instruments | Pledged2 | Amount | |||||||
Macro Opportunities Fund | Swap agreements | $ 6,230,139 | $ — | $ 6,230,139 | $ 605,756 | $ — | $5,624,383 |
1 | Exchange-traded futures and centrally cleared swap agreements are excluded from these reported amounts. | |
2 | Excludes maintenance margin deposits held at the broker related to derivatives. These amounts are reflected as segregated cash with broker on the Statements of Assets and Liabilities. |
7. Federal Income Tax Information
The Funds intend to comply with the provisions of Subchapter M of the Internal Revenue Code applicable to regulated investment companies and will distribute substantially all taxable net investment income and capital gains sufficient to relieve the Funds from all, or substantially all, federal income, excise and state income taxes. Therefore, no provision for federal or state income tax is required.
THE GUGGENHEIM FUNDS ANNUAL REPORT | 125 |
NOTES TO FINANCIAL STATEMENTS (continued) |
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 RIC Modernization Act of 2010 was signed into law on December 22, 2010, and simplified some of the tax provisions applicable to regulated investment companies, the tax reporting to their shareholders and improved the tax efficiency of certain fund structures. The greatest impact to the disclosure in the financial reports for the Funds was on the treatment of net capital losses, effective for tax years beginning after December 22, 2010.
One of the more prominent changes addresses capital loss carryforwards. The Funds are permitted to carry forward capital losses incurred in taxable years beginning after December 22, 2010, for an unlimited period. However, any losses incurred during those future taxable years will be required to be utilized prior to the losses incurred in pre-enactment taxable years. Under pre-enactment law, capital losses could be carried forward for eight years, and carried forward as short-term capital, irrespective of the character of the original loss. As a result of this ordering rule, pre-enactment capital loss carryforwards may potentially expire unused. Additionally, post-enactment capital losses that are carried forward will retain their character as either short-term or long-term capital losses rather than being considered all short-term as under previous law.
The tax character of distributions paid during the year ended September 30, 2014 was as follows:
Tax-Exempt | Ordinary | Long-Term | Return of | Total | ||||||||||||
Fund | Income | Income | Capital Gain | Capital | Distributions | |||||||||||
Floating Rate Strategies Fund | $ | – | $ | 57,106,379 | $ | 1,009,990 | $ | – | $ | 58,116,369 | ||||||
High Yield Fund | – | 8,569,995 | – | – | 8,569,995 | |||||||||||
Investment Grade Bond Fund | – | 4,698,966 | – | – | 4,698,966 | |||||||||||
Limited Duration Fund | – | 1,087,449 | 1,009 | – | 1,088,458 | |||||||||||
Macro Opportunities Fund | – | 53,119,555 | – | 932,899 | 54,052,454 | |||||||||||
Municipal Income Fund | 1,597,669 | 32,486 | – | – | 1,630,155 | |||||||||||
Total Return Bond Fund | – | 11,445,172 | – | – | 11,445,172 |
The tax character of distributions paid during the year ended September 30, 2013 was as follows:
Tax-Exempt | Ordinary | Long-Term | Total | ||||||||||
Fund | Income | Income | Capital Gain | Distributions | |||||||||
Floating Rate Strategies Fund | $ | – | $ | 23,244,176 | $ | – | $ | 23,244,176 | |||||
High Yield Fund | – | 8,137,614 | 1,126,860 | 9,264,474 | |||||||||
Investment Grade Bond Fund | – | 4,185,005 | – | 4,185,005 | |||||||||
Limited Duration Fund* | – | – | – | – | |||||||||
Macro Opportunities Fund | – | 35,803,375 | 88,895 | 35,892,270 | |||||||||
Municipal Income Fund | 2,227,580 | 14,970 | – | 2,242,550 | |||||||||
Total Return Bond Fund | – | 7,753,663 | 233,942 | 7,987,605 |
* The Fund commenced operations on December 16, 2013
Note: For federal income tax purposes, short-term capital gain distributions are treated as ordinary income distributions.
The tax character of distributable earnings/(accumulated losses) at September 30, 2014 was as follows:
Undistributed | Undistributed | Undistributed | Accumulated | Net Unrealized | Other | Total | |||||||||||||||||||||||
Tax-Exempt | Ordinary | Long-Term | Capital and | Appreciation/ | Temporary | Accumulated | |||||||||||||||||||||||
Fund | Income | Income | Capital Gain | Other Losses* | (Depreciation)** | Differences | Earnings/(Deficit) | ||||||||||||||||||||||
Floating Rate Strategies Fund | $ | – | $ | 7,976,757 | $ | 774,857 | $ | – | $ | (10,712,590 | ) | $ | (1,547,576 | ) | $ | (3,508,552 | ) | ||||||||||||
High Yield Fund | – | 1,007,829 | 2,170,457 | – | (881,451 | ) | (135,987 | ) | 2,160,848 | ||||||||||||||||||||
Investment Grade Bond Fund | – | 116,136 | – | (27,133,232 | ) | (4,201,301 | ) | (30,923 | ) | (31,249,320 | ) | ||||||||||||||||||
Limited Duration Fund | – | 131,363 | – | – | (260,661 | ) | (10,292 | ) | (139,590 | ) | |||||||||||||||||||
Macro Opportunities Fund | – | – | – | (20,431,181 | ) | (6,188,376 | ) | (834,101 | ) | (27,453,658 | ) | ||||||||||||||||||
Municipal Income Fund | 52,277 | – | – | (28,409,026 | ) | 2,217,152 | (52,277 | ) | (26,191,874 | ) | |||||||||||||||||||
Total Return Bond Fund | – | 129,267 | 25,393 | – | 2,180,200 | (170,185 | ) | 2,164,675 |
* | The Fund had net capital loss carryovers as identified elsewhere in the Notes to the Financial Statements. |
** | Any differences between book-basis and tax-basis unrealized appreciation (depreciation) are attributable primarily to the tax deferral of wash sale losses, the marking-to-market of certain investments for tax purposes and bond premium/discount accretion. |
126 | THE GUGGENHEIM ANNUAL REPORT |
NOTES TO FINANCIAL STATEMENTS (continued) |
For the year ended September 30, 2014 the capital loss carryovers utilized or expired and the accumulated net realized loss on sales of investments for federal income tax purposes which are available to offset future taxable gains are shown in the table below:
Capital Loss | ||||||||||||||||||||||||||||||||||
Carryovers | Expires in | Expires in | Expires in | Expires in | Expires in | Unlimited | Capital Loss | |||||||||||||||||||||||||||
Fund | Utilized | 2014 | 2015 | 2016 | 2017 | 2018 | Short-Term | Long-Term | Carryforward | |||||||||||||||||||||||||
Floating Rate Strategies Fund | $ | – | $ | – | $ | – | $ | – | $ | – | $ | – | $ | – | $ | – | $ | – | ||||||||||||||||
High Yield Fund | – | – | – | – | – | – | – | – | – | |||||||||||||||||||||||||
Investment Grade Bond Fund* | (519,236 | ) | – | – | (7,675,128 | ) | (17,929,397 | ) | (1,528,707 | ) | – | – | (27,133,232 | ) | ||||||||||||||||||||
Limited Duration Fund | – | – | – | – | – | – | – | – | – | |||||||||||||||||||||||||
Macro Opportunities Fund* | – | – | – | – | – | – | (12,330,278 | ) | (8,100,903 | ) | (20,431,181 | ) | ||||||||||||||||||||||
Municipal Income Fund | (291,160 | ) | – | – | – | (28,409,026 | ) | – | – | (28,409,026 | ) | |||||||||||||||||||||||
Total Return Bond Fund | – | – | – | – | – | – | – | – | – |
* Subject to limitations pursuant to Section 382 of the Internal Revenue Code.
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 losses deferred due to wash sales, paydown reclasses, utilization of earnings and profits on shareholder redemptions, foreign currency gains and losses, and the “mark-to-market” of certain passive foreign investment companies (PFICs) or Section 1256 contracts for tax purposes. To the extent these differences are permanent, reclassifications are made to the appropriate equity accounts in the period that the differences arise.
On the Statements of Assets and Liabilities, the following adjustments were made for permanent book/tax differences:
Undistributed | Accumulated Net | ||||||||||
Net Investment | Realized | ||||||||||
Fund | Paid-In Capital | Income | Gain/(Loss) | ||||||||
Floating Rate Strategies Fund | $ | – | $ | 4,391,538 | $ | (4,391,538 | ) | ||||
High Yield Fund | 671,434 | 509,986 | (1,181,420 | ) | |||||||
Investment Grade Bond Fund | – | 661,115 | (661,115 | ) | |||||||
Limited Duration Fund | – | 112,474 | (112,474 | ) | |||||||
Macro Opportunities Fund | 1 | (544,053 | ) | 544,052 | |||||||
Municipal Income Fund | – | – | – | ||||||||
Total Return Bond Fund | – | 625,297 | (625,297 | ) |
At September 30, 2014, the cost of securities for Federal income tax purposes, the aggregate gross unrealized gain for all securities for which there was an excess of value over tax cost and the aggregate gross unrealized loss for all securities for which there was an excess of tax cost over value, were as follows:
Tax | Tax | Net | ||||||||||||
Tax | Unrealized | Unrealized | Unrealized | |||||||||||
Fund | Cost | Gain | Loss | Gain/(Loss) | ||||||||||
Floating Rate Strategies Fund | $ | 1,302,718,816 | $ | 10,159,253 | $ | (21,048,918 | ) | $ | (10,889,665 | ) | ||||
High Yield Fund | 141,983,396 | 2,265,123 | (3,115,114 | ) | (849,991 | ) | ||||||||
Investment Grade Bond Fund | 136,864,942 | 2,293,127 | (6,525,591 | ) | (4,232,464 | ) | ||||||||
Limited Duration Fund | 99,059,321 | 270,503 | (531,164 | ) | (260,661 | ) | ||||||||
Macro Opportunities Fund | 1,576,547,239 | 27,812,964 | (34,590,649 | ) | (6,777,685 | ) | ||||||||
Municipal Income Fund | 48,496,331 | 2,280,706 | (63,554 | ) | 2,217,152 | |||||||||
Total Return Bond Fund | 396,179,911 | 6,794,422 | (4,648,815 | ) | 2,145,607 |
8. Securities Transactions
For the year ended September 30, 2014, the cost of purchases and proceeds from sales of investment securities, excluding government securities, short-term investments and derivatives, were as follows:
Fund | Purchases | Sales | |||||
Floating Rate Strategies Fund | $ | 953,413,530 | $ | 680,865,728 | |||
High Yield Fund | �� | 178,397,502 | 129,882,136 | ||||
Investment Grade Bond Fund | 84,645,018 | 65,974,000 | |||||
Limited Duration Fund | 103,891,456 | 18,389,082 | |||||
Macro Opportunities Fund | 1,161,923,663 | 614,504,100 | |||||
Municipal Income Fund | 85,598,108 | 94,668,240 | |||||
Total Return Bond Fund | 319,795,192 | 117,645,101 |
THE GUGGENHEIM ANNUAL REPORT | 127 |
NOTES TO FINANCIAL STATEMENTS (continued) |
9. Options Written
Information as to options written by the Funds during the year ended September 30, 2014, and options outstanding at period end is provided below:
Written Call Options
Investment Grade Bond Fund | Macro Opportunities Fund | Total Return Bond Fund | ||||||||||||||||||||
Number of | Premium | Number of | Premium | Number of | Premium | |||||||||||||||||
contracts | amount | contracts | amount | contracts | amount | |||||||||||||||||
Balance at September 30, 2013 | – | $ | – | 354 | $ | 225,834 | – | $ | – | |||||||||||||
Options Written | 2,251 | 31,514 | 43,842 | 1,015,824 | 4,990 | 69,860 | ||||||||||||||||
Options terminated in closing purchase transactions | – | – | – | – | – | – | ||||||||||||||||
Options expired | (2,251 | ) | (31,514 | ) | (39,720 | ) | (652,854 | ) | (4,990 | ) | (69,860 | ) | ||||||||||
Options exercised | – | – | (4,122 | ) | (362,970 | ) | – | – | ||||||||||||||
Balance at September 30, 2014 | – | $ | – | 354 | $ | 225,834 | – | $ | – | |||||||||||||
Written Put Options
Macro Opportunities Fund | |||||||
Number of | Premium | ||||||
contracts | amount | ||||||
Balance at September 30, 2013 | 1,922 | $ | 284,376 | ||||
Options Written | – | – | |||||
Options terminated in closing purchase transactions | – | – | |||||
Options expired | (1,922 | ) | (284,376 | ) | |||
Options exercised | – | – | |||||
Balance at September 30, 2014 | – | $ | – | ||||
10. Line of Credit
The Funds secured a committed, $275,000,000 line of credit from Citibank, N.A., good through October 10, 2014, at which time the line of credit may be renewed. This line of credit is reserved for emergency or temporary purposes. Fees related to borrowings, if any, vary under this arrangement between the greater of Citibank’s “base rate”, LIBOR plus 1.0%, and the Fed Funds rate, plus 0.50%. The Funds did not have any borrowings under this agreement as of and for the year ended September 30, 2014. The Funds also pay a commitment fee at an annualized rate of 0.08% of the average daily amount of the Funds’ unused commitment amount.
11. Loan Commitments
Pursuant to the terms of certain loan agreements, certain Funds held unfunded loan commitments as of September 30, 2014. The Funds are obligated to fund these loan commitments at the borrower’s discretion.
The unfunded loan commitments as of September 30, 2014 were as follows:
Borrowers by Fund | Expiration Date | Amount | |||||
Floating Rate Strategies Fund | |||||||
Signode Industrial Group US, Inc. | 5/1/19 | $ | 11,400,000 | ||||
Advantage Sales & Marketing, Inc. | 7/23/21 | 8,137,097 | |||||
IntraWest Holdings S.à r.l. | 12/10/18 | 6,900,000 | |||||
Ziggo BV | 1/15/22 | 6,629,700 | |||||
CareCore National LLC | 6/10/15 | 5,150,000 | |||||
Banca Civica (UK) - Chambertin | 8/12/20 | 3,800,000 | |||||
McGraw-Hill Global Education Holdings LLC | 3/22/18 | 3,500,000 | |||||
National Financial Partners | 7/1/18 | 3,000,000 | |||||
Ceva Logistics Holdings BV (Dutch) | 3/19/19 | 3,000,000 | |||||
Wencor Group | 6/19/19 | 2,850,000 | |||||
WR Grace & Co. | 2/3/21 | 2,426,593 | |||||
Blue Coat Systems, Inc. | 2/15/17 | 1,500,000 | |||||
Intertrust Group | 2/15/19 | 1,475,000 | |||||
Hoffmaster Group, Inc. | 5/9/19 | 1,250,000 | |||||
American Stock Transfer & Trust | 6/11/18 | 800,000 | |||||
York Risk Services | 10/1/21 | 697,561 | |||||
Kronos, Inc. | 10/26/17 | 500,000 | |||||
Expert Global Solutions | 4/2/17 | 335,488 | |||||
SI Organization | 11/23/19 | 303,738 | |||||
$ | 63,655,177 |
128 | THE GUGGENHEIM ANNUAL REPORT |
NOTES TO FINANCIAL STATEMENTS (continued) |
Borrowers by Fund | Expiration Date | Amount | |||||
High Yield Fund | |||||||
Signode Industrial Group US, Inc. | 5/1/19 | $ | 1,800,000 | ||||
Phillips-Medsize Corp. | 6/13/19 | 1,100,000 | |||||
Advantage Sales & Marketing, Inc. | 7/21/19 | 1,100,000 | |||||
McGraw-Hill Global Education Holdings LLC | 3/22/18 | 1,000,000 | |||||
Hillman Group, Inc. | 6/13/19 | 1,000,000 | |||||
Wencor Group | 6/19/19 | 950,000 | |||||
CareCore National LLC | 6/10/15 | 700,000 | |||||
Learning Care Group (US), Inc. | 5/5/21 | 500,000 | |||||
SI Organization | 11/23/19 | 93,458 | |||||
York Risk Services | 10/1/21 | 73,171 | |||||
Service King | 9/17/21 | 50,633 | |||||
$ | 8,367,262 | ||||||
Investment Grade Bond Fund | |||||||
CareCore National LLC | 6/10/15 | $ | 200,000 | ||||
Macro Opportunities Fund | |||||||
CareCore National LLC | 6/10/15 | $ | 4,750,000 | ||||
Signode Industrial Group US, Inc. | 5/1/19 | 3,400,000 | |||||
McGraw-Hill Global Education Holdings LLC | 3/22/18 | 2,000,000 | |||||
Advantage Sales & Marketing, Inc. | 7/23/21 | 1,641,935 | |||||
Phillips-Medsize Corp. | 6/13/19 | 1,100,000 | |||||
National Financial Partners | 7/1/18 | 1,000,000 | |||||
Ceva Logistics Holdings BV (Dutch) | 3/19/19 | 1,000,000 | |||||
Hillman Group, Inc. | 6/13/19 | 1,000,000 | |||||
IntraWest Holdings S.à r.l. | 12/10/18 | 750,000 | |||||
Wencor Group | 6/19/19 | 500,000 | |||||
Learning Care Group (US), Inc. | 5/5/21 | 500,000 | |||||
American Stock Transfer & Trust | 6/11/18 | 400,000 | |||||
Hoffmaster Group, Inc. | 5/9/19 | 357,143 | |||||
York Risk Services | 10/1/21 | 170,732 | |||||
SI Organization | 11/23/19 | 140,187 | |||||
$ | 18,709,997 | ||||||
Total Return Bond Fund | |||||||
CareCore National LLC | 6/10/15 | $ | 600,000 |
12. Repurchase Agreements
In connection with transactions in repurchase agreements, it is the Funds’ policy that their custodian takes possession of the underlying collateral. The collateral is in the possession of the Funds’ custodian and is evaluated to ensure that its market value exceeds, at a minimum, 102% of the original face amount of the repurchase agreements.
Counterparty and | ||||||||||||
Fund | Terms of Agreement | Face Value | Repurchase Price | Collateral | Par Value | Fair Value | ||||||
Limited Duration | ||||||||||||
Bond Fund | Jefferies & Company, Inc. | OFSI Fund Ltd | ||||||||||
2.15%-2.65% | 5.71% | |||||||||||
Due 10/08/14 -10/30/14 | $3,488,000 | $3,494,858 | 03/20/25 | $2,460,000 | $2,089,635 | |||||||
California Statewide Communities | ||||||||||||
Development Authority | ||||||||||||
7.25% | ||||||||||||
10/01/38 | 2,980,000 | 1,791,725 | ||||||||||
Puerto Rico Commonwealth | ||||||||||||
Government Development Bank | ||||||||||||
5.50% | ||||||||||||
08/01/20 | 1,398,000 | 1,020,540 | ||||||||||
Puerto Rico Commonwealth | ||||||||||||
5.50% | ||||||||||||
07/01/18 | 450,000 | 422,649 | ||||||||||
Suntrust Adjustable Rate | ||||||||||||
Mortgage Loan Trust | ||||||||||||
2.67% | ||||||||||||
02/25/37 | 1,110,657 | 282,867 |
THE GUGGENHEIM FUNDS ANNUAL REPORT | 129 |
NOTES TO FINANCIAL STATEMENTS (continued) |
In the event of counterparty default, the Funds have the right to collect the collateral to offset losses incurred. There is potential loss to the Funds in the event the Funds are delayed or prevented from exercising their rights to dispose of the collateral securities, including the risk of a possible decline in the value of the underlying securities during the period while the Funds seek to assert their rights. The Funds’ investment adviser, acting under the supervision of the Board of Trustees, reviews the value of the collateral and the creditworthiness of those banks and dealers with which the Funds enter into repurchase agreements to evaluate potential risks.
13. 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 September 30, 2014, the following Funds entered into reverse repurchase agreements:
Number of Days | Balance at | Average balance | Average interest | ||||||||
Fund | outstanding | September 30, 2014 | outstanding | rate | |||||||
Floating Rate Strategies Fund | 304 | $ | – | $ | 2,008,521 | 2.09 | % | ||||
High Yield Fund | 319 | 7,642,161 | 12,676,514 | 0.90 | % | ||||||
Investment Grade Bond Fund | 365 | 4,449,397 | 6,074,134 | 0.55 | % | ||||||
Limited Duration Fund | 140 | 7,534,716 | 4,407,165 | 0.71 | % | ||||||
Macro Opportunities Fund | 365 | 42,234,309 | 79,509,291 | 0.95 | % | ||||||
Total Return Bond Fund | 365 | 13,936,733 | 14,108,250 | 0.99 | % |
14. Affiliated Transactions
Investments representing 5% or more of the outstanding voting shares of a portfolio company of a fund, or control of or by, or common control under GI, result in that portfolio company being considered an affiliated company of such fund, as defined in the 1940 Act. Transactions during the year ended September 30, 2014 in which the portfolio company is an “affiliated person” are as follows:
Value | Value | Shares | Investment | Realized Gain | Capital Gain | |||||||||||||||||||||
Affiliated issuers by Fund | 09/30/2013 | Additions | Reductions | 09/30/2014 | 09/30/2014 | Income | (Loss) | Distributions | ||||||||||||||||||
Investment Grade Bond Fund | ||||||||||||||||||||||||||
Guggenheim Limited Duration Fund - | ||||||||||||||||||||||||||
Institutional Class | $ | – | $ | 3,007,306 | $ | (3,006,903) | $ | – | – | $ | 7,305 | $ | (403) | $ | – | |||||||||||
Limited Duration Fund | ||||||||||||||||||||||||||
Guggenheim BulletShares 2017 High | ||||||||||||||||||||||||||
Yield Corporate Bond ETF | $ | – | $ | 1,425,873 | $ | (1,431,221) | $ | – | – | $ | 23,007 | $ | 5,348 | $ | – | |||||||||||
Guggenheim BulletShares 2016 High | – | |||||||||||||||||||||||||
Yield Corporate Bond ETF | – | 1,220,663 | (1,223,783) | – | 20,215 | 3,120 | 374 | |||||||||||||||||||
Guggenheim BulletShares 2015 High | ||||||||||||||||||||||||||
Yield Corporate Bond ETF | – | 1,218,471 | (1,211,333) | – | – | 18,783 | (7,138) | 1,906 | ||||||||||||||||||
Guggenheim BulletShares 2014 High | ||||||||||||||||||||||||||
Yield Corporate Bond ETF | – | 294,910 | (291,969) | – | – | 818 | (2,941) | 1,163 | ||||||||||||||||||
$ | – | $ | 4,159,917 | $ | (4,158,306) | $ | – | – | $ | 62,823 | $ | (1,611) | $ | 3,443 | ||||||||||||
Macro Opportunities Fund | ||||||||||||||||||||||||||
Guggenheim Limited Duration Fund – | ||||||||||||||||||||||||||
Institutional Class | $ | – | $ | 45,588,876 | $ | – | $ | 45,498,128 | 1,822,842 | $ | 588,704 | $ | – | $ | – | |||||||||||
Guggenheim Risk Managed Real | ||||||||||||||||||||||||||
Estate Fund – Institutional Class | – | 10,043,639 | – | 10,843,512 | 401,612 | 26,426 | – | – | ||||||||||||||||||
$ | – | $ | 55,632,515 | $ | – | $ | 56,341,640 | 2,224,454 | $ | 615,130 | $ | – | $ | – | ||||||||||||
Total Return Bond Fund | ||||||||||||||||||||||||||
Guggenheim Limited Duration Fund – | ||||||||||||||||||||||||||
Institutional Class | $ | – | $ | 5,071,168 | $ | 3,000,000 | $ | 2,059,674 | 82,519 | $ | 71,160 | $ | (5,804) | $ | – |
15. Fund Merger
On January 18, 2013, the Macro Opportunities Fund acquired all of the net assets of Flexible Strategies Fund, a separate series of the Rydex Series Funds, in exchange for shares of the Macro Opportunities Fund, pursuant to an agreement and plan of reorganization approved by the Board of Trustees and approved by the shareholders of the Flexible Strategies Fund. The primary reason for the transaction was to combine a smaller fund into a larger fund with a similar
130 | THE GUGGENHEIM ANNUAL REPORT |
NOTES TO FINANCIAL STATEMENTS (concluded) |
investment objective. The acquisition was accomplished through a combination of a tax-free exchange of the outstanding shares of the Flexible Strategies Fund (360,213 A-Class, 185,597 H-Class, 282,801 C-Class and 94,826 Institutional Class) valued at $21,680,088 ($8,501,033 A-Class, $4,380,093 H-Class, $6,546,846 C-Class, and $2,252,116 Institutional Class) for respective shares of the Macro Opportunities Fund (470,457 A-Class*, 239,285 C-Class, and 82,164 Institutional Class). For financial reporting purposes, the net assets received and shares issued by Macro Opportunities Fund were recorded at fair value; however, the Flexible Strategies Fund’s cost of the investments were carried forward to align ongoing reporting of Macro Opportunities Fund realized and unrealized gains and losses with amounts distributable to shareholders for tax purposes.
Flexible Strategies Fund’s net assets on January 18, 2013 were $21,680,088 including $414,395 of unrealized appreciation. Flexible Strategies Fund’s net assets were primarily comprised of investments with a fair value of $21,674,911. The aggregate net assets of Macro Opportunities Fund immediately before and after the acquisition were $407,464,601 and $429,144,689, respectively.
The financial statements reflect the operations of the Macro Opportunities Fund for the period prior to the acquisition and the combined fund for the period subsequent to the fund merger. Because the combined investment portfolios have been managed as a single integrated portfolio since the acquisition was completed, it is not practicable to separate the amounts of revenue and earnings of the Flexible Strategies Fund that have been included in the combined fund’s Statement of Operations since the acquisition was completed. Assuming the acquisition had been completed on October 1, 2012, Macro Opportunities Fund pro-forma net investment income, net realized and unrealized loss on investments and net increase in net assets from operations for the period October 1, 2012 to September 30, 2013 would have been $34,155,336, $(30,390,985) and $3,764,351, respectively. Guggenheim Investments and its affiliates bore all of the expenses related to the reorganization.
*Includes 159,974 A-Class shares received in exchange for H-Class shares of Flexible Strategies Fund.
16. Restricted Securities
The securities below are considered illiquid and restricted under guidelines established by the Board of Trustees:
Fund | Restricted Securities | Acquisition Date | Cost | Value | |||||
Floating Rate Strategies Fund | LSTAR Securities Investment Trust 2014-1 | ||||||||
3.25% due 09/01/21 | 9/25/14 | $6,500,000 | $6,500,000 | ||||||
High Yield Fund | Pacific Premier Bancorp, Inc. | ||||||||
5.75% due 09/03/24 | 8/25/14 | 1,250,000 | 1,256,250 | ||||||
Investment Grade Bond Fund | LSTAR Securities Investment Trust 2014-1 | ||||||||
3.25% due 09/01/21 | 9/25/14 | 1,400,000 | 1,400,000 | ||||||
Cadence Bank North America | |||||||||
6.25% due 06/28/29 | 6/6/14 | 200,000 | 203,500 | ||||||
Cadence Financial Corp. | |||||||||
4.88% due 06/28/19 | 6/6/14 | 150,000 | 150,750 | ||||||
1,750,000 | 1,754,250 | ||||||||
Limited Duration Fund | LSTAR Securities Investment Trust 2014-1 | ||||||||
3.25% due 09/01/21 | 9/25/14 | 2,000,000 | 2,000,000 | ||||||
Cadence Financial Corp. | |||||||||
4.88% due 06/28/19 | 6/6/14 | 500,000 | 502,500 | ||||||
2,500,000 | 2,502,500 | ||||||||
Macro Opportunities Fund | LSTAR Securities Investment Trust 2014-1 | ||||||||
3.25% due 09/01/21 | 9/25/14 | 17,400,000 | 17,400,000 | ||||||
Cadence Financial Corp. | |||||||||
4.88% due 06/28/19 | 6/6/14 | 4,000,000 | 4,020,000 | ||||||
21,400,000 | 21,420,000 | ||||||||
Total Return Bond Fund | LSTAR Securities Investment Trust 2014-1 | ||||||||
3.25% due 09/01/21 | 9/25/14 | 4,400,000 | 4,400,000 | ||||||
Cadence Bank North America | |||||||||
6.25% due 06/28/29 | 6/6/14 | 1,200,000 | 1,221,000 | ||||||
Cadence Financial Corp. | |||||||||
4.88% due 06/28/19 | 6/6/14 | 250,000 | 251,250 | ||||||
5,850,000 | 5,872,250 |
THE GUGGENHEIM FUNDS ANNUAL REPORT | 131 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM |
The Board of Trustees and Shareholders
of Guggenheim Funds Trust
We have audited the accompanying statements of assets and liabilities, including the schedules of investments, of Guggenheim Floating Rate Strategies Fund, Guggenheim High Yield Fund, Guggenheim Investment Grade Bond Fund, Guggenheim Limited Duration Fund, Guggenheim Macro Opportunities Fund, Guggenheim Municipal Income Fund and Guggenheim Total Return Bond Fund (seven of the series constituting the Guggenheim Funds Trust) (the “Funds”) as of September 30, 2014, and the related statements of operations, statements of changes in net assets, and the financial highlights for each of the years or periods indicated therein. These financial statements and financial highlights are the responsibility of the Funds’ management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. We were not engaged to perform an audit of the Funds’ internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Funds’ internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of September 30, 2014, by correspondence with the custodian, agent banks, transfer agents and brokers or by other appropriate auditing procedures where replies from agent banks or brokers were not received. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the above listed Funds (seven of the series constituting the Guggenheim Funds Trust) at September 30, 2014, and the results of their operations, the changes in their net assets, and their financial highlights for each of the years or periods indicated therein, in conformity with U.S. generally accepted accounting principles.
McLean, Virginia
November 25, 2014
132 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
OTHER INFORMATION (Unaudited) |
Tax Information
This information is being provided as required by the Internal Revenue Code. Amounts shown may differ from those elsewhere in the report because of differences in tax and financial reporting practice.
Of the taxable ordinary income distributions paid during the fiscal year ending September 30, 2014, the following funds had the corresponding percentages qualify for the dividends received deduction for corporations:
Fund | % Qualifying | ||
Floating Rate Strategies Fund | 0.11 | % | |
High Yield Fund | 1.57 | % | |
Investment Grade Bond Fund | 2.88 | % | |
Limited Duration Fund | 6.71 | % | |
Macro Opportunities Fund | 4.16 | % | |
Municipal Income Fund | 0.00 | % | |
Total Return Bond Fund | 2.53 | % |
Additionally, the following amounts of taxable ordinary income dividends paid during the fiscal year qualified for the lower income tax rate available to individuals under the Jobs and Growth Tax Relief Reconciliation Act of 2003:
Fund | % Qualifying | ||
Floating Rate Strategies Fund | 0.11 | % | |
High Yield Fund | 1.57 | % | |
Investment Grade Bond Fund | 2.88 | % | |
Limited Duration Fund | 6.71 | % | |
Macro Opportunities Fund | 4.16 | % | |
Municipal Income Fund | 0.00 | % | |
Total Return Bond Fund | 2.53 | % |
Additionally, of the taxable ordinary income distributions paid during the fiscal year ending September 30, 2014, the following funds had the corresponding percentages qualify as interest related dividends and qualified short-term capital gains as permitted by IRC Section 871(k)(1) and IRC Section 871(k)(2), respectively:
Fund | % Qualifying | % STCG Qualifying | ||||
Floating Rate Strategies Fund | 69.18 | % | 100.00 | % | ||
High Yield Fund | 70.61 | % | 0.00 | % | ||
Investment Grade Bond Fund | 45.65 | % | 0.00 | % | ||
Limited Duration Fund | 29.88 | % | 100.00 | % | ||
Macro Opportunities Fund | 52.98 | % | 0.00 | % | ||
Municipal Income Fund | 0.00 | % | 0.00 | % | ||
Total Return Bond Fund | 39.82 | % | 0.00 | % |
Municipal Income Fund designates $1,597,669 as tax-exempt interest income according to IRC Section 852(b)(5)(A).
With respect to the taxable year ended September 30, 2014, the Funds hereby designates as capital gain dividends the amounts listed below, or, if subsequently determined to be different, the net capital gain of such year.
LT Capital Gain | ||||||||
LT Capital Gain | Using Proceeds from | |||||||
Fund | Dividends | Shareholder Redemptions | ||||||
Floating Rate Strategies Fund | $1,009,990 | $ — | ||||||
High Yield Fund | — | 671,435 | ||||||
Limited Duration Fund | 1,099 | — |
In January 2015, you will be advised on IRS Form 1099 DIV or substitute 1099 DIV as to the federal tax status of the distributions received by you in the calendar year 2014.
Proxy Voting Information
A description of the policies and procedures that the Trust uses to determine how to vote proxies relating to securities held in the Funds’ portfolios is available, without charge and upon request, by calling 800.820.0888. This information is also available from the EDGAR database on the SEC’s website at http://www.sec.gov.
THE GUGGENHEIM FUNDS ANNUAL REPORT | 133 |
OTHER INFORMATION (Unaudited) (continued) |
Information regarding how the Funds voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available without charge, upon request, by calling 800.820.0888. This information is also available from the EDGAR database on the SEC’s website at http://www.sec.gov.
Quarterly Portfolio Schedules Information
The Trust files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q; which are available on the SEC’s website at http://www.sec.gov. The Funds’ Forms N-Q may be reviewed and copied at the SEC’s Public Reference Room in Washington, DC, and that information on the operation of the Public Reference Room may be obtained by calling 800- SEC-0330. Copies of the portfolio holdings are also available to shareholders, without charge and upon request, by calling 800.820.0888.
Office Locations |
The offices of Guggenheim Investments can be found in the following locations: |
330 Madison Avenue |
10th Floor |
New York, NY 10017 |
(Headquarters) |
Four Irvington Centre |
805 King Farm Boulevard |
Suite 600 |
Rockville, MD 20850 |
9401 Indian Creek Parkway |
40 Corporate Woods |
Suite 850 |
Overland Park, KS 66210 |
Distributor change
Effective March 3, 2014, Guggenheim Distributors, LLC (“GD”), the distributor for shares of the Funds was consolidated into and with Guggenheim Funds Distributors, LLC (“GFD”). Following the consolidation, GFD serves as the Funds’ distributor.
GD and GFD are both indirect, wholly-owned subsidiaries of Guggenheim Capital, LLC and, therefore, the consolidation will not result in a change of actual control of the Funds’ distributor. The primary goal of the consolidation is to achieve greater operational efficiencies and allow all of the Guggenheim funds, including funds that are not series of the Trusts, to be distributed by a single distributor.
The consolidation is not expected to affect the day-to-day management of the Funds or result in any material changes to the distribution of the Funds, including any changes to the distribution fees paid by the Funds.
Guggenheim Funds Trust
Guggenheim Funds Trust (the “Trust”), which was organized as a Delaware statutory trust on November 8, 2013, is registered with the Securities and Exchange Commission (“SEC”) as an investment company. The Trust is an open-end management investment company that, upon the demand of the investor, must redeem its shares and pay the investor the next calculated NAV. The Guggenheim Enhanced World Equity Fund (“Enhanced World Equity Fund”), Guggenheim Large Cap Value Fund (“Large Cap Value Fund”), Guggenheim Mid Cap Value Fund (“Mid Cap Value Fund”), Guggenheim Mid Cap Value Institutional Fund (“Mid Cap Value Institutional Fund”), Guggenheim Small Cap Value Fund (“Small Cap Value Fund”), Guggenheim StylePlus—Large Core Fund (“StylePlus—Large Core Fund”), Guggenheim StylePlus—Mid Growth Fund (“StylePlus—Mid Growth Fund”) and Guggenheim World Equity Income Fund (“World Equity Income Fund”) (collectively, the “Funds”) were previously series (the “Predecessor Funds”) of Security Equity Fund, Security Large Cap Value Fund and Security Mid Cap Growth Fund (the “Predecessor Corporations”), different registered open-end investment companies, which were organized as Kansas corporations. In January 2014, at special meetings of shareholders, the shareholders of each Predecessor Fund approved the reorganization of each Predecessor Fund with and into a corresponding “shell” series of the Trust. The shell series of the Trust succeeded to the accounting and performance histories of the Predecessor Funds. Any such historical information provided for a series of the Trust that relates to periods prior to January 28, 2014, therefore, is that of the corresponding Predecessor Fund.
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Effective January 28, 2014, the Guggenheim Floating Rate Strategies Fund (“Floating Rate Strategies Fund”), Guggenheim High Yield Fund (“High Yield Fund”), Guggenheim Investment Grade Bond Fund (“Investment Grade Bond Fund”), Guggenheim Limited Duration Fund (“Limited Duration Fund”), Guggenheim Macro Opportunities Fund (“Macro Opportunities Fund”), Guggenheim Municipal Income Fund (“Municipal Income Fund”), and Guggenheim Total Return Bond Fund (“Total Return Bond Fund”), which were series of Security Income Fund, a Kansas corporation, reorganized with and into corresponding series of Guggenheim Funds Trust, a Delaware Statutory Trust (each, a “Reorganization”). Upon completion of each Reorganization, the respective share classes of each Fund assumed the performance, financial and other historical information of those of the corresponding predecessor fund.
At a meeting of shareholders held on January 8, 2014, shareholders of the Guggenheim Alpha Opportunity Fund (“Alpha Opportunity Fund”) approved the reorganization of the Fund from a Kansas corporation to a Delaware statutory trust. After the close of business on September 23, 2014, the Fund, which is a series of Security Equity Fund, a Kansas corporation, will reorganize with and into a corresponding “shell” fund (the “New Fund”), which is a series of Guggenheim Funds Trust, a Delaware statutory trust. Upon completion of the Reorganization, shareholders of the Fund will own shares of the New Fund that are equal in number and in value to the shares of the Fund that were held by those shareholders immediately prior to the closing of the Reorganization. In addition, the New Fund will assume the performance, financial and other historical information of that of the Fund. Once the Reorganization is completed, the Fund will no longer be offered as a series of Security Equity Fund.
Report of the Guggenheim Funds Trust Contracts Review Committee
Guggenheim Funds Trust (the “Trust”) was organized as a Delaware statutory trust on November 8, 2013, and is registered as an open-end management investment company under the Investment Company Act of 1940, as amended (the “1940 Act”). Effective January 28, 2014, the Trust is the successor of all of the existing and active series of Security Equity Fund (except for Guggenheim Alpha Opportunity Fund),1 Security Large Cap Value Fund, Security Mid Cap Growth Fund and Security Income Fund, each, a Kansas corporation (collectively, the “Corporations”), following the reorganization of each series of the Corporations with and into a corresponding “shell” series of the Trust (the “Reorganizations”). The Reorganizations, which were approved by the Boards of Directors of the Corporations (collectively, the “Board of Directors” or the “Predecessor Board” and the members of the Board of Directors individually, “Directors”), including the Directors who are not “interested persons,” as defined by the 1940 Act, of the Corporations (the “Independent Directors”), and by shareholders, were intended to, among other things, take advantage of various benefits available to registered investment companies organized as Delaware statutory trusts, including, but not limited to, Delaware’s comprehensive body of law related to investment companies which may reduce legal uncertainty and risk.
The Trust includes the following series (the “New Series”), each of which assumed the accounting and performance histories of the corresponding predecessor fund (a “Predecessor Fund” and collectively, the “Predecessor Funds”):
• | Guggenheim Alpha Opportunity Fund (“Alpha Opportunity Fund”)2 | • | Guggenheim Enhanced World Equity Fund (“Enhanced World Equity Fund”) | ||||
• | Guggenheim Floating Rate Strategies Fund (“Floating Rate Strategies Fund”) | • | Guggenheim High Yield Fund (“High Yield Fund”) | ||||
• | Guggenheim Investment Grade Bond Fund (“Investment Grade Bond Fund”) | • | Guggenheim Large Cap Value Fund (“Large Cap Value Fund”) | ||||
• | Guggenheim Limited Duration Fund (“Limited Duration Fund”) | • | Guggenheim Macro Opportunities Fund (“Macro Opportunities Fund”) | ||||
• | Guggenheim Mid Cap Value Institutional Fund (“Mid Cap Value Institutional”) | • | Guggenheim Mid Cap Value Fund (“Mid Cap Value Fund”) | ||||
• | Guggenheim Municipal Income Fund (“Municipal Income Fund”) | • | Guggenheim Small Cap Value Fund (“Small Cap Value Fund”) | ||||
• | Guggenheim StylePlus—Mid Growth Fund (“StylePlus—Mid Growth”) | • | Guggenheim StylePlus—Large Core Fund (“StylePlus—Large Core”) | ||||
• | Guggenheim Total Return Bond Fund (“Total Return Bond Fund”) | • | Guggenheim World Equity Income Fund (“World Equity Income Fund”) |
With the exception of Enhanced World Equity Fund, Floating Rate Strategies Fund, Limited Duration Fund, Macro Opportunities Fund and Total Return Bond Fund, Security Investors, LLC, also known as Guggenheim Investments (“Security Investors”) and an indirect subsidiary of Guggenheim Partners, LLC, a global diversified financial services firm (“Guggenheim Partners”), serves as investment manager to each series of the Trust. (Guggenheim Partners, Security Investors, Guggenheim Partners Investment Management, LLC (“GPIM”) and their affiliates may be referred to herein collectively as “Guggenheim.”) In this connection, the Trust and Security Investors have entered into four separate investment management agreements which group the New Series of the Trust to
1 | At a meeting of shareholders held on January 8, 2014, shareholders of Guggenheim Alpha Opportunity Fund (“Alpha Opportunity Fund”), a series of Security Equity Fund, approved the reorganization of Alpha Opportunity Fund to a corresponding new series of the Trust (the “Alpha Opportunity Fund Reorganization”). Due to certain outstanding transactions with Lehman Brothers International Europe (“LBIE”) and its administrator, the Alpha Opportunity Fund Reorganization was delayed pending the resolution of the LBIE matter. Alpha Opportunity Fund was reorganized into the Trust on September 24, 2014. |
2 | Because the Alpha Opportunity Fund was not reorganized into the Trust until September 2014, at the time of the Board’s review of the investment advisory agreements Alpha Opportunity Fund was a series of the Security Equity Fund. |
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correspond with the Predecessor Funds that were series of a common Corporation: (i) Mid Cap Value Fund, Mid Cap Value Institutional, Small Cap Value Fund, StylePlus—Large Core Fund, World Equity Income Fund and Alpha Opportunity Fund3, the corresponding Predecessor Funds of which were series of a common Corporation, Security Equity Fund; (ii) Large Cap Value Fund, the corresponding Predecessor Fund of which was the sole series of a Corporation, Security Large Cap Value Fund; (iii) StylePlus—Mid Growth, the corresponding Predecessor Fund of which was the sole series of a Corporation, Security Mid Cap Growth Fund; and (iv) Investment Grade Bond Fund, High Yield Fund and Municipal Income Fund, the corresponding Predecessor Funds of which were series of a common Corporation, Security Income Fund. (The New Series identified in (i) through (iv) above are collectively referred to herein as the “SI-Advised Funds.”) Under the terms of the applicable investment management agreement between the Trust and Security Investors, Security Investors also is responsible for overseeing the activities of GPIM, an indirect subsidiary of Guggenheim Partners, with respect to its service as investment sub-adviser to Municipal Income Fund, pursuant to an investment sub-advisory agreement between Security Investors and GPIM (the “Sub-Advisory Agreement”).
GPIM serves as investment adviser with respect to each of Enhanced World Equity Fund, Floating Rate Strategies Fund, Limited Duration Fund, Macro Opportunities Fund and Total Return Bond Fund (collectively, the “GPIM-Advised Funds” and together with the SI-Advised Funds, the “Funds” and individually, a “Fund”). In this connection, the Trust and GPIM have entered into three separate investment advisory agreements which group the GPIM-Advised Funds as follows: (i) Enhanced World Equity Fund, the corresponding Predecessor Fund of which was a series of Security Equity Fund; (ii) Floating Rate Strategies Fund, Macro Opportunities Fund and Total Return Bond Fund, the corresponding Predecessor Funds of which were series of a common Corporation, Security Income Fund; and (iii) Limited Duration Fund, the corresponding Predecessor Fund of which was a series of Security Income Fund. (The investment management agreements pertaining to the SI-Advised Funds and the investment advisory agreements pertaining to the GPIM-Advised Funds are referred to herein together as the “Advisory Agreements” and, together with the Sub-Advisory Agreement, as the “Agreements.” In addition, unless the context indicates otherwise, GPIM, with respect to its service as investment adviser to the GPIM-Advised Funds, and Security Investors as to the SI-Advised Funds, are each referred to herein as the “Adviser” and together, the “Advisers.”) Under the supervision of the Board of Trustees of the Trust (the “Board” and the members of the Board individually, the “Trustees”), the Advisers regularly provide (or, as applicable, oversee the provision of) investment research, advice and supervision, a continuous investment program and direct the purchase and sale of securities and other investments for each Fund’s portfolio.
At a meeting held on November 11, 2013, in connection with other actions taken to pursue the Reorganizations, the Predecessor Board, including the Independent Directors, appointed each of the then-current investment manager/adviser for the Predecessor Funds to serve in such capacity to the corresponding New Series of the Trust (i.e., Security Investors and GPIM with respect to the SI-Advised Funds and the GPIM-Advised Funds, respectively). The Predecessor Board, including the Independent Directors, also approved for the Trust, on behalf of the New Series, the investment advisory and investment management agreements then in effect with respect to the Predecessor Funds (i.e., the Advisory Agreements and the Sub-Advisory Agreement). The sole initial shareholder of the New Series subsequently approved the Advisory Agreements and the Sub-Advisory Agreement, which are identical to the agreements then in place with respect to each of the Predecessor Funds in all material respects, except for the name of the signatory and the applicable state law, and became effective January 27, 2014.
At meetings held in person on April 17, 2014 (the “April Meeting”) and on May 12, 2014, (the “May Meeting”), the members of the Contracts Review Committee of the Board (the “Committee”), consisting solely of the Trustees who are not “interested persons,” as defined by the 1940 Act, of the Trust (the “Independent Trustees”), met separately from Guggenheim to consider the renewal of the Advisory Agreements and the Sub-Advisory Agreement in connection with the Committee’s annual contract review schedule.4 As part of its review process, the Committee was represented by independent legal counsel to the Independent Trustees (“Independent Legal Counsel”). Independent Legal Counsel reviewed and discussed with the Committee various key aspects of the Trustees’ legal responsibilities relating to the proposed renewal of the Agreements and other principal contracts. In this connection, Independent Legal Counsel advised the Committee of: (i) the responsibilities of board members under applicable law; (ii) the standards for determining what constitutes an excessive fee as delineated by the courts and the factors the Trustees should consider in determining whether to approve the fee arrangements; and (iii) the disclosure requirements
3 | At the time of the Board’s review of the investment advisory agreements, Security Investors served as investment manager to Alpha Opportunity Fund pursuant to an investment management agreement with Security Equity Fund. The investment management agreement with Security Investors transferred to the Trust upon the Alpha Opportunity Fund Reorganization. |
4 | Since the corresponding Predecessor Fund of Enhanced World Equity Fund was subject to an investment management agreement approved by the Board of Directors of Security Equity Fund for an initial term of two years at an in-person meeting of the Board held on February 13, 2013, and because the Fund has a limited operating history, it was not included in the contract renewal process conducted in April and May 2014 (the “2014 Contract Renewal Process”). Similarly, Limited Duration Fund was not included in the 2014 Contract Renewal Process because the corresponding Predecessor Fund of Limited Duration Fund was subject to an investment management agreement approved by the Board of Directors of Security Income Fund for an initial term of two years at an in-person meeting of the Board held on November 11, 2013. Another recently launched series of the Trust, the Guggenheim Risk Managed Real Estate Fund (the “Risk Managed Real Estate Fund”) also was excluded from the 2014 Contract Renewal Process because the investment advisory agreement between GPIM and the Trust, on behalf of the Risk Managed Real Estate Fund, was approved by the Board of Trustees of the Trust for an initial term of two years at an in-person meeting of the Board held on February 12, 2014. Accordingly, references herein to the “Funds” should be understood as referring to all series of the Trust, except Enhanced World Equity Fund, Limited Duration Fund and Risk Managed Real Estate Fund. In addition, references to the “Funds” should be understood as including Alpha Opportunity Fund. Since the Alpha Opportunity Fund Reorganization was not effected as of the April Meeting or May Meeting, the individuals who serve as the Independent Trustees, in their capacity as the Independent Directors of Security Equity Fund, considered the renewal of the Investment Management Agreement between Security Investors and Security Equity Fund, with respect to Alpha Opportunity Fund. Accordingly, all references hereafter to the steps taken by the “Independent Trustees” and the “Committee,” including the materials reviewed and factors considered, also refer to such parties in their corresponding capacities with respect to Alpha Opportunity Fund. Likewise, all action taken with respect to the Trust’s Advisory Agreements includes the Investment Management Agreement regarding Alpha Opportunity Fund. |
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pertaining to these approvals, as required by the Securities and Exchange Commission. The Committee took into account various materials received from Guggenheim and Independent Legal Counsel. Recognizing that the evaluation process with respect to the services provided by each of the Advisers is an ongoing one, the Committee also considered the variety of written materials, reports and oral presentations it received (and received by the full Board) throughout the year regarding performance and operating results of the Funds (which, as noted, reflects the accounting and performance histories of the Predecessor Funds).
In connection with the contract review process, FUSE Research Network LLC (“FUSE”), an independent, third party research provider, was engaged to prepare advisory contract renewal reports designed specifically to help boards of directors/trustees fulfill their advisory contract renewal responsibilities. The objective of the reports is to present the subject funds’ relative position regarding fees, expenses and total return performance, with peer group and universe comparisons. Guggenheim prepared a comprehensive presentation in response to a formal request for information sent by Independent Legal Counsel on behalf of the Committee. In addition, Guggenheim made a detailed presentation at the April Meeting, which addressed areas identified for discussion by the Committee Chair and Vice Chair and Independent Legal Counsel. Throughout the process, the Committee asked questions of management and requested certain additional information which Guggenheim provided following the April Meeting (collectively with the foregoing reports and materials, the “Contract Materials”).
Among other things, Guggenheim provided: (i) organizational charts and presentations, staffing reports and biographies of those key personnel of each Adviser providing services to the Funds; (ii) descriptions of various functions performed by Guggenheim for the Funds, such as portfolio trading practices, brokerage matters, trade allocation and best execution; (iii) information regarding each Adviser’s compliance and regulatory history, including its Form ADV; and (iv) information concerning the parent company and overall Guggenheim organization and strategic plans and goals, all to assist the Committee in assessing the nature, extent and quality of services provided by each of Security Investors and GPIM, respectively. In addition, Guggenheim’s response included information comparing the investment performance, advisory fees and total expenses of the Funds to other funds (including such information presented in the FUSE reports as well as supplemental information prepared by Guggenheim), charts showing revenues for Guggenheim by product line and each Fund, including a break-out of various expenses, a description of the expense allocation methodology and information about the profitability of the Funds to Guggenheim Investments (the investment management business of Guggenheim Partners), financial information for Guggenheim Investments (unaudited), and information about Guggenheim’s compliance and risk management programs.
Following an analysis and discussion of the factors identified below and in the exercise of its business judgment, the Committee concluded that it was in the best interests of the Funds to recommend that the Board approve the renewal of each Advisory Agreement and the Sub-Advisory Agreement for an additional 12-month term.
Advisory Agreements
Nature, Extent and Quality of Services Provided by each Adviser: With respect to the nature, extent and quality of services currently provided by each Adviser, the Committee considered the information provided by Guggenheim concerning the education, experience, professional affiliations, area of responsibility and duties of all key personnel performing services for the Funds, including those personnel providing compliance oversight. In this connection, the Committee considered Guggenheim’s resources and related efforts to retain, attract and motivate capable personnel to serve the Funds and noted Guggenheim’s report on recent additions and departures in personnel who work on matters relating to the Funds or are significant to the operations of each Adviser. The Committee noted that on a regular basis the Board receives and reviews information from the Trust’s Chief Compliance Officer regarding compliance policies and procedures established pursuant to Rule 38a-1 under the 1940 Act. In addition, the Committee took into account the various compliance and risk management initiatives undertaken by Guggenheim, including, among other things, the hiring of a new Chief Risk Officer, Portfolio Management, responsible for implementing various initiatives related to the risks associated with the investment process, the organization’s risk management infrastructure and critical activities. The Committee also considered Guggenheim’s other initiatives intended to achieve greater enhancements and efficiencies in the organization’s ability to provide services to all of the registered investment companies for which Security Investors, GPIM or another Guggenheim affiliate serves as investment adviser/manager (including the Funds), such as efforts to streamline and simplify the organizational structure of Guggenheim’s advisory business, as reflected by the internal restructuring that consolidated the investment advisers, broker/dealers and other entities that comprise “Guggenheim Investments” under a new, single holding company, Guggenheim Partners Investment Management Holdings, LLC (“GPIMH”). In this regard, the Committee considered that although the restructuring neither impacted the services rendered on a day-to-day basis to the Funds nor changed the ultimate ownership of the various Guggenheim entities involved, which, through GPIMH, continue to be indirect subsidiaries of Guggenheim Capital, LLC, Guggenheim stated that the restructuring will allow the financial statements of the various entities to be consolidated and audited, thus providing a clearer view of Guggenheim Investments’ business within the broader Guggenheim organization. Moreover, in connection with the Committee’s evaluation of the overall package of services provided by each Adviser, the Committee considered each Adviser’s administrative capabilities, including its role in monitoring and coordinating compliance responsibilities with the fund administrator, transfer agent, distributor, custodian and other service providers to the Funds.
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With respect to Guggenheim’s resources and the ability of each Adviser to carry out its responsibilities under the applicable Advisory Agreement, the Chief Financial Officer of Guggenheim Investments reviewed with the Committee certain unaudited financial information concerning GPIMH. (The Committee received the audited financial statements of GPIMH once available following the May Meeting.)
The Committee also considered the acceptability of the terms of each Advisory Agreement (including the scope of services required to be performed by each Adviser). Based on the foregoing, and based on other information received (both oral and written) at the April Meeting and at the May Meeting, as well as other considerations, including the Committee’s knowledge of each Adviser’s quality of performance of its duties through Board meetings, discussions, and reports throughout the year, the Committee concluded that each Adviser and its personnel were qualified to serve the Funds in such capacity and may reasonably be expected to continue to provide a high quality of services under each Advisory Agreement with respect to the Funds.
Investment Performance: The Committee received for each Fund investment returns for the five-year, three-year, one-year and three-month periods ended December 31, 2013, as applicable. In addition, the Committee received a comparison of each Fund’s performance to the performance of a benchmark, a peer group of similar funds and a broader universe of funds identified by FUSE, in each case for the same periods and, with respect to performance universe rankings for each Fund as to the returns of Class A shares, also for the ten-year period ended December 31, 2013, as applicable. The Committee received from FUSE representatives and considered a description of the methodology employed by FUSE for identifying each Fund’s peer group and universe for performance and expense comparisons.
In seeking to evaluate Fund performance over a full market cycle, the Committee generally focused its attention first on five- and three-year performance rankings as compared to the relevant universe of funds, but also considered more recent performance periods, including the one-year period and, as deemed appropriate, the three-month period, for certain Funds such as for those Funds that were recently launched or had undergone recent changes in the composition of the portfolio management team and/or the investment strategies employed. In this connection, the Committee made the following observations:
• | Alpha Opportunity Fund: The Fund’s Class A shares outperformed the performance universe median for the five- and three-year periods, ranking in the 1st percentile for both periods. In light of the resignation of Mainstream Investment Advisors, LLC, effective, September 30, 2013, as the Fund’s sub-adviser for the domestic long/short sub-portfolio of the Fund, the Committee also considered more recent performance periods, including the one-year period and the three-month period.5 In this connection, the Committee noted that Security Investors assumed investment management responsibility for the domestic long/short sub-portfolio as of September 30, 2013. The Committee observed that the Fund’s Class A shares outperformed the performance universe median for the one-year and three-month periods ended December 31, 2013, ranking in the 5th and 13th percentile, respectively. The Committee also noted information provided by Guggenheim that the Fund’s performance for the periods ended December 31, 2013 was comparable to the Fund’s benchmark, the S&P 500 Index, for the one- and three-year periods and better than the Fund’s benchmark for the five-year period, and lagged the benchmark for the three-month period. The Committee also considered the circumstances affecting the management of the Fund as a result of the Fund’s prime broker, Lehman Brothers International Europe (“LBIE”), being placed into administration on September 15, 2008. The Fund’s exposure to LBIE consists of short sale proceeds held by LBIE, and restricted long positions held at the Fund’s custodian, as collateral for such short sales. Until such time as the liability for short sales was settled and all restrictions were removed by LBIE and Lehman Brothers, Inc. (“LBI”), the Fund could not sell such restricted long positions and/or utilize the restricted cash balances to achieve the Fund’s investment objectives and/or meet Fund redemptions or other Fund obligations. In evaluating the services provided by the Adviser and the performance of the Fund, the Committee also considered Guggenheim’s efforts to resolve the issues with LBIE and LBI and to seek the release of the collateral by LBIE and LBI in conjunction with the potential settlement of LBIE’s claim. In addition, the Committee took into account information received from Guggenheim regarding the minimum assets required to manage the Fund’s assets consistent with the Fund’s investment objectives and the undertaking made by Guggenheim to assure adequate liquidity to meet Fund redemptions. | ||
• | Floating Rate Strategies Fund: The returns of the Class A shares exceeded the median of its performance universe in both the one-year and three-month periods, ranking in the 19th and 32nd percentile, respectively. The Fund, which commenced operations on November 30, 2011, also outperformed its benchmark, the Credit Suisse Leveraged Loan Index for the one-year and three-month periods, according to information provided by Guggenheim. |
5 | Prior to September 30, 2013, Mainstream Investment Advisers, LLC (“Mainstream”) acted as sub-adviser to Alpha Opportunity Fund. Pursuant to an investment sub-advisory agreement, Mainstream furnished investment advisory services, supervised and arranged for the purchase and sale of securities on behalf of a portion of the assets of Alpha Opportunity Fund and provided for the compilation and maintenance of records pertaining to such investment advisory services, subject to the supervision of Security Investors and the Board of Directors of Security Equity Fund. Effective September 30, 2013, Mainstream resigned as sub-adviser to Alpha Opportunity Fund and Security Investors assumed all advisory obligations and responsibilities. |
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• | High Yield Fund: While the returns of the Class A shares underperformed the median of its performance universe for the three-year period and ranked in the third quartile (72nd percentile), returns for the five-year period exceeded the performance universe median and ranked in the first quartile (4th percentile) and recent performance for the one-year period also ranked in the first quartile (3rd percentile). The Committee also noted information provided by Guggenheim that the Fund outperformed its benchmark, the Barclays Capital U.S. Corporate High Yield Index, for the five-year and one-year periods, but lagged the benchmark for the three-year period and that the current portfolio management team for the Fund began management in August 2012 and, since that time period, performance has ranked in the first quartile and has outperformed its benchmark. In light of the foregoing, the Committee focused, in particular, on the Fund’s recent performance, including the one-year and three-month periods ended December 31, 2013, and, with respect to the latter, noted that the FUSE report ranked the Fund in the first quartile (1st percentile). | ||
• | Investment Grade Bond Fund: The Fund’s Class A shares outperformed the performance universe median for the five- and three-year periods, ranking in the 46th and 8th percentile, respectively. The Committee also noted information provided by Guggenheim that the Fund outperformed its benchmark, the Barclays Capital U.S. Aggregate Index, for the five-year and three-year periods and that the current portfolio manager began management in August 2012 and, since that time, performance has been in the 1st quartile. The Committee considered that the FUSE report listed the Fund’s performance for the one-year and three-month periods in the 1st percentile and 4th percentile, respectively. | ||
• | Large Cap Value Fund: The returns of the Class A shares exceeded the median of the performance universe for the five-year period, but underperformed the median for the three-year and one-year periods and ranked in the 49th percentile, 79th percentile and 55th percentile for the five-, three- and one-year periods, respectively. The Committee concluded that longer-term performance and other factors relevant to performance were sufficient to warrant continuation of the Advisory Agreement with respect to the Fund. In this regard, the Committee considered that the Adviser had taken steps designed to mitigate risks associated with the portfolio by enhancing the risk management and portfolio analytics processes. The Committee also noted the presentation provided by the Fund’s portfolio manager at the April Meeting, as requested by the Committee. The Committee took into account the portfolio management team’s view that market conditions over the past several years have posed challenges for disciplined, long-term value investors, the long-term investment process employed for the Fund remains effective and, importantly, Guggenheim’s senior personnel responsible for overseeing performance supported this view and expressed confidence in the team’s capabilities, noting that, according to Morningstar peer group rankings based on total returns as of March 31, 2014, the Fund ranked in the 1st quartile (18th percentile) for the year-to-date. In light of all of the foregoing, the Committee determined to consider a longer term performance track record as part of its assessment of Fund performance and took into account the additional performance metrics provided by Guggenheim, including information that, as of December 31, 2013, the Fund ranked in the 25th percentile of its peer group since inception (July 1, 2005) based on gross returns. | ||
• | Macro Opportunities Fund: The returns of the Fund’s Class A shares ranked in the 13th and 1st percentile of its performance universe for the one-year and three-month periods, respectively, and outperformed the performance universe median for each of these periods. The Committee considered information provided by Guggenheim indicating that the Fund, which commenced operations on November 30, 2011, outperformed its benchmark, the Bank of America Merrill Lynch 3-Month U.S. Treasury Bill Index, for the one-year and three-month periods ended December 31, 2013. | ||
• | Mid Cap Value Fund: The returns of the Class A shares underperformed the performance universe median for the five-year, three-year and one-year periods and ranked in the 83rd, 67th and 79th percentile for the five-year, three-year and one-year periods, respectively. The Committee concluded that longer-term performance and other factors relevant to performance were sufficient to warrant continuation of the Advisory Agreement with respect to the Fund. In this regard, the Committee considered that the Adviser had taken steps designed to mitigate risks associated with the portfolio by enhancing the risk management and portfolio analytics processes. The Committee also noted the presentation provided by the Fund’s portfolio manager at the April Meeting, as requested by the Committee. The Committee took into account the portfolio management team’s view that market conditions over the past several years have posed challenges for disciplined, long-term value investors, the long-term investment process employed for the Fund remains effective and, importantly, Guggenheim’s senior personnel responsible for overseeing performance supported this view and expressed confidence in the team’s capabilities, noting that, according to Morningstar peer group rankings based on total returns as of March 31, 2014, the Fund ranked in the 1st quartile (13th percentile) for the year-to-date. The Committee also noted Guggenheim’s statement that the underperformance is heavily influenced by the lagging performance in calendar year 2011 where growth and large cap stocks were rewarded over value and small cap. In light of all of the foregoing, the Committee determined to consider a longer term performance track record as a part of its assessment of Fund performance and, in this regard, noted that the FUSE report listed the Fund’s performance for the ten-year period ended December 31, 2013 in the 1st quartile (11th percentile) and that, according to Guggenheim, the Fund outperformed its benchmark over the same period and since inception. |
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• | Mid Cap Value Institutional: The Fund’s returns underperformed the performance universe median for the five-year, three-year and one-year periods and ranked in the 69th, 80th and 83rd percentile for the five-year, three-year and one-year periods, respectively. However, the Committee concluded that other factors relevant to performance were sufficient to warrant continuation of the Advisory Agreement with respect to the Fund. In this connection, the Committee considered the presentation provided by the Fund’s portfolio management team at the April Meeting, as requested by the Committee. The Committee also took into account the portfolio management team’s view that market conditions over the past several years have posed challenges for disciplined, long-term value investors, the long-term investment process employed for the Fund remains effective and, importantly, Guggenheim’s senior personnel responsible for overseeing performance supported this view and expressed confidence in the team’s capabilities, noting that, according to Morningstar peer group rankings based on total returns as of March 31, 2014, the Fund ranked in the 1st quartile (14th percentile) for the year-to-date. The Committee also noted Guggenheim’s statement that the underperformance is heavily influenced by the lagging performance in calendar year 2011 where growth and large cap stocks were rewarded over value and small cap stocks. | ||
• | Municipal Income Fund: The Committee considered that Security Investors does not directly manage the investment portfolio but has delegated such duties to GPIM. Based on the information provided and the review of the Fund’s investment performance, the Committee concluded that Security Investors had appropriately reviewed and monitored GPIM’s investment performance as Sub-Adviser to the Fund. | ||
• | Small Cap Value Fund: The returns of the Fund’s Class A shares exceeded the median of its performance universe for the five-year and three-year periods, ranking in the 6th and 45th percentile, respectively. The Committee also considered information provided by Guggenheim stating that the Fund’s performance exceeded its benchmark, the Russell 2000 Value Index, for the five-year and three-year periods ended December 31, 2013. The Committee also noted supplemental information provided by the Fund’s portfolio management team indicating that since inception (August 1, 2008), the Fund has ranked in the 1st percentile of its peer group based on gross returns. | ||
• | StylePlus —Large Core: The Fund’s Class A shares underperformed the performance universe median for the five-year and three-year periods, ranking in the 78th and 93rd percentile, respectively. However, the Committee concluded that other factors relevant to performance were sufficient to warrant continuation of the Advisory Agreement with respect to the Fund, including that the Adviser had taken steps designed to help improve the Fund’s investment performance by implementing a strategy change along with a new portfolio management team. In this regard, the Committee considered that the Fund’s current portfolio management team assumed responsibility for management of the Fund on May 1, 2013. In light of the foregoing, the Committee took into account Guggenheim’s statement that the Fund’s performance has improved since the changes were implemented and that the Fund’s annualized net return for the period from May 1, 2013 through December 31, 2013 was 16.86%, as compared to the 17.43% return of the Fund’s benchmark, the S&P 500 Index, and outperformed the benchmark for the three-month period ended December 31, 2013. The Committee also considered that the FUSE report listed the Fund’s performance for the three-month period ended December 31, 2013 in the 1st quartile (25th percentile). Finally, the Committee noted that according to Morningstar peer group rankings based on total returns as of March 31, 2014, as provided by Guggenheim, the Fund ranked in the 1st quartile (14th percentile) for the year-to-date. | ||
• | StylePlus —Mid Growth: The Fund’s Class A shares underperformed the performance universe median for the five-year and three-year periods, ranking in the 70th and 78th percentile, respectively. However, the Committee concluded that other factors relevant to performance were sufficient to warrant continuation of the Advisory Agreement with respect to the Fund, including that the Adviser had taken steps designed to help improve the Fund’s investment performance by implementing a strategy change along with a new portfolio management team. In this regard, the Committee considered that the Fund’s current portfolio management team assumed responsibility for management of the Fund on May 1, 2013. In light of the foregoing, the Committee took into account Guggenheim’s statement that the Fund’s performance has improved since the changes were implemented and that the Fund’s annualized net return for period from May 1, 2013 through December 31, 2013 was 19.88%, as compared to the 19.97% return of the Fund’s benchmark, the Russell Mid Cap Growth Index, and outperformed the benchmark for the three-month period ended December 31, 2013. The Committee also considered that the FUSE report listed the Fund’s performance for the three-month period ended December 31, 2013 in the 40th percentile. Finally, the Committee noted that according to Morningstar peer group rankings based on total returns as of March 31, 2014, as provided by Guggenheim, the Fund ranked in the 1st quartile (22nd percentile) for the year-to-date. | ||
• | Total Return Bond Fund: The returns of the Fund’s Class A shares ranked in the 1st quartile (the 3rd and 4th percentile, respectively) of its performance universe for the one-year and three-month periods, respectively. The Committee considered information provided by Guggenheim indicating that the Fund, which commenced operations on November 30, 2011, outperformed its benchmark, the Barclays Capital U.S. Aggregate Index, as well as the Fund’s peer group average, for the one-year and three-month periods ended December 31, 2013. |
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OTHER INFORMATION (Unaudited) (continued) |
• | World Equity Income Fund: The Fund’s Class A shares underperformed the performance universe median for the five-year and three-year periods, ranking in the 96th and 95th percentile, respectively. However, the Committee concluded that other factors relevant to performance were sufficient to warrant continuation of the Advisory Agreement with respect to the Fund, including that the Adviser had taken steps designed to help improve the Fund’s investment performance by implementing a strategy change along with a new portfolio management team in August 2013. Thus, the Committee took into account that according to Morningstar peer group rankings based on total returns as of March 31, 2014, as provided by Guggenheim, the Fund ranked in the 1st quartile (12th percentile) for the year-to-date and outperformed its benchmark, the MSCI World Index, over the same period. |
After reviewing the foregoing and related factors, the Committee concluded, within the context of its overall conclusions regarding the Advisory Agreements, that: (i) each Fund’s performance was acceptable; or (ii) it was satisfied with Guggenheim’s responses and efforts relating to investment performance.
Comparative Fees, Costs of Services Provided and the Profits Realized by the Investment Manager from its Relationship with the Funds: The Committee compared each Fund’s contractual advisory fee and total net expense ratio to the applicable peer group and compared each Fund’s total net expense ratio to its universe of funds for the various classes. The Committee also reviewed the median advisory fees and expense ratios, including expense ratio components (e.g., transfer agency fees, administration fees, other operating expenses, distribution fees and fee waivers/reimbursements) of the peer group of funds. In addition, the Committee considered each Fund’s advisory fee as compared to the advisory fee charged by the applicable Adviser to another fund with a similar investment objective and strategies, as applicable, noting that, in certain instances, the Adviser charges a lower advisory fee to other clients for which it provides comparable services. In this regard, the Committee considered Guggenheim’s explanation that lower fees are charged in certain instances due to numerous factors, including the scope of contract, types of investors, applicable regulation and legal structures, tax status, and for historical pricing reasons.
In further considering the comparative fee and expense data presented in the Contract Materials and addressed by Guggenheim, the Committee made the following observations:
• | Alpha Opportunity Fund: The average contractual advisory fee percentile rank across all share classes of the Fund is below the median of its peer group (39th percentile) and the asset weighted total net expense ratio is in the third quartile (72nd percentile). In addition, the Adviser has entered into an expense limitation agreement with respect to the Fund. | ||
• | Floating Rate Strategies Fund: The average contractual advisory fee percentile rank across all share classes of the Fund is in the third quartile (64th percentile) of its peer group and the asset weighted total net expense ratio is below the peer group median (36th percentile). In addition, the Adviser has entered into an expense limitation agreement with respect to the Fund. | ||
• | High Yield Fund: The average contractual advisory fee percentile rank across all share classes of the Fund is below the median of its peer group (41st percentile) and the asset weighted total net expense ratio is in the third quartile (63rd percentile). In addition, the Adviser has entered into an expense limitation agreement with respect to the Fund. | ||
• | Investment Grade Bond Fund: The average contractual advisory fee percentile rank across all share classes of the Fund is at the 51st percentile of its peer group and the asset weighted total net expense ratio is in the fourth quartile (88th percentile). In addition, the Adviser has entered into an expense limitation agreement with respect to the Fund. | ||
• | Large Cap Value Fund: The average contractual advisory fee percentile rank across all share classes of the Fund and the asset weighted total net expense ratio are each below the peer group median (at the 30th and 19th percentile, respectively). In addition, the Adviser has entered into an expense limitation agreement with respect to the Fund. | ||
• | Macro Opportunities Fund: The average contractual advisory fee percentile rank across all share classes of the Fund is in the fourth quartile (89th percentile) of its peer group and the asset weighted total net expense ratio is in the third quartile (65th percentile). The Committee considered Guggenheim’s statement that the Fund is unique to its peer group in that it has a broader investment mandate with greater opportunistic flexibility. In this connection, the Committee noted that the Fund’s performance has been relatively strong. In addition, the Adviser has entered into an expense limitation agreement with respect to the Fund. | ||
• | Mid Cap Value Fund: The average contractual advisory fee percentile rank across all share classes of the Fund is in the fourth quartile (85th percentile) of its peer group and the asset weighted total net expense ratio is in the third quartile (72nd percentile). Although higher than median, the contractual advisory fee and the total net expense ratio for each class of shares was within a competitive range of the median of the peer group. For example, |
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OTHER INFORMATION (Unaudited) (continued) |
the Class A contractual advisory fee of 0.79% is 2 basis points above the peer group median and the total net expense ratio of 1.39% is 9 basis points above the peer group median. | |||
• | Mid Cap Value Institutional Fund: The contractual advisory fee percentile rank is in the first quartile (17th percentile) of its peer group and the total net expense ratio is in the third quartile (67th percentile) of its peer group. | ||
• | Municipal Income Fund: The average contractual advisory fee percentile rank across all share classes of the Fund is in the first quartile (8th percentile) of its peer group and the asset weighted total net expense ratio is in the 55th percentile. In addition, the Adviser has entered into an expense limitation agreement with respect to the Fund. | ||
• | Small Cap Value Fund: The average contractual advisory fee percentile rank across all share classes of the Fund is in the fourth quartile (77th percentile) of its peer group and the asset weighted total net expense ratio is below the peer group median (43rd percentile). The Committee also considered that the Fund’s long-term performance has been strong. In addition, the Adviser has entered into an expense limitation agreement with respect to the Fund. | ||
• | StylePlus—Large Core: The average contractual advisory fee percentile rank across all share classes of the Fund is in the third quartile (67th percentile) of its peer group and the asset weighted total net expense ratio is in the fourth quartile (92nd percentile). Although the total net expense ratio for each class is higher than its peer group median, the contractual advisory fee (0.75%), at four to five basis above the peer group median for each class, was deemed to be within a reasonable range. | ||
• | StylePlus—Mid Growth: The average contractual advisory fee percentile rank across all share classes of the Fund is in the first quartile (23rd percentile) and the asset weighted total net expense ratio is in the fourth quartile (93rd percentile) of its peer group. The Committee noted Guggenheim’s statement that the fund’s total net expense ratio is slightly higher but comparable to its peer group average. | ||
• | Total Return Bond Fund: The average contractual advisory fee percentile rank across all share classes of the Fund is in the third quartile (63rd percentile) of its peer group and the asset weighted total net expense ratio is below the peer group median (28th percentile). In addition, the Adviser has entered into an expense limitation agreement with respect to the Fund. | ||
• | World Equity Income Fund: The average contractual advisory fee percentile rank across all share classes of the Fund is below the peer group median (45th percentile) and the Fund’s asset weighted total net expense ratio is in the fourth quartile (88th percentile) of its peer group. |
With respect to the costs of services provided and profits realized by Guggenheim from its relationship with the Funds, the Committee reviewed a profit and loss statement for each Fund setting forth the revenues received from gross advisory fees, the expenses incurred in providing services to the Funds, the pre-tax operating margin and profitability rate and each Fund’s average assets for the twelve months ended December 31, 2012 and December 31, 2013, and information with respect to Guggenheim’s allocation methodologies used in preparing the profitability data.
The Committee considered other benefits available to each Adviser because of its relationship with the Funds and noted that Security Investors and GPIM may be deemed to benefit from arrangements whereby an affiliate, Rydex Fund Services, LLC, receives fees for: (i) performing certain administrative functions and bookkeeping, accounting and pricing functions for the Funds pursuant to a Fund Accounting and Administration Agreement; and (ii) acting as transfer agent for the Funds and performing all shareholder servicing functions, including transferring record ownership, processing purchase and redemption transactions, answering inquiries, mailing shareholder communications, and acting as the dividend disbursing agent pursuant to a Transfer Agency Agreement. The Committee reviewed the compensation arrangements for the provision of the foregoing services. The Committee also noted Guggenheim’s statement that it may benefit from marketing synergies arising from offering a broad spectrum of products, including the Funds. Based on all of the information provided and its review, the Committee determined that Guggenheim’s profitability from its relationship with the Funds was not unreasonable.
Economies of Scale to be Realized: The Committee received and considered information regarding whether there have been economies of scale with respect to the management of the Funds as Fund assets grow, whether the Funds has appropriately benefited from any economies of scale, and whether there is potential for realization of any further economies of scale. The Committee considered whether economies of scale in the provision of services to the Funds were being passed along to the shareholders. In this connection, the Committee considered management’s view that Guggenheim continues to add system resources as required to develop its infrastructure in response to the growth in the firm’s assets and there is an opportunity to optimize economies of scale across the firm’s array of products and product lines. Therefore, although Guggenheim may be realizing economies of scale and efficiencies due to its growth, it is concurrently realizing new costs and expenses associated with investment in its infrastructure.
142 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
OTHER INFORMATION (Unaudited) (continued) |
In addition, the Committee considered the size of the Funds and the competitiveness of and/or other determinations made regarding the current advisory fee for each Fund. The Committee also took into account Guggenheim’s statement that generally the Funds’ assets are not sufficiently large to warrant breakpoints, with only four Funds—Floating Rate Strategies Fund, Macro Opportunities Fund, Mid Cap Value Fund and Mid Cap Value Institutional Fund—having assets in excess of $500 million as of March 13, 2014. With respect to the four Funds noted, the Committee noted that none of the Funds had levels of profitability that were outliers and made the following observations:
• | Floating Rate Strategies Fund: The Adviser has entered into an expense limitation agreement with respect to the Fund. In addition, the Fund’s asset weighted total net expense ratio is below the peer group median (36th percentile). | ||
• | Macro Opportunities Fund: The Fund is relatively new and the Adviser has entered into an expense limitation agreement with respect to the Fund. Although the contractual advisory fee is in the fourth quartile of its peer group, the total net expense ratio is competitive with the peer group median. In addition, as noted, the Committee considered Guggenheim’s statement that the Fund is unique to its peer group in that it has a broader investment mandate with greater opportunistic flexibility. | ||
• | Mid Cap Value Fund: The Fund’s contractual advisory fee is in line with the peer group median and the total net expense ratio is competitive with the peer group median. | ||
• | Mid Cap Value Institutional Fund: The Fund’s contractual advisory fee ranks in the first quartile (17th percentile) of its peer group and the total net expense ratio is competitive with the peer group median. |
The Committee determined that the advisory fee structure for the Funds was reasonable.
Sub-Advisory Agreement
Nature, Extent and Quality of Services Provided by the Sub-Adviser: With respect to the nature, extent and quality of services provided by GPIM (referred to in this discussion as the “Sub-Adviser”), the Committee considered the qualifications, experience and skills of the Sub-Adviser’s portfolio management and other key personnel and information from the Sub-Adviser describing the scope of its services to Municipal Income Fund. The Committee also considered the information provided by the Sub-Adviser concerning the Sub-Adviser’s investment practices and techniques, risk management processes, compliance policies and procedures, brokerage allocation, best execution and trade allocation, among other things. With respect to Guggenheim’s resources and the Sub-Adviser’s ability to carry out its responsibilities under the Sub-Advisory Agreement, the Committee recalled the review of certain unaudited financial information concerning GPIMH by the Chief Financial Officer of Guggenheim Investments.
The Committee also considered the acceptability of the terms of the Sub-Advisory Agreement. Based on the foregoing, and based on other information received (both oral and written) at the April Meeting and at the May Meeting, as well as other considerations, including the Committee’s knowledge of the Sub-Adviser’s quality of performance of its duties through Board meetings, discussions and reports throughout the year, the Committee concluded that the Sub-Adviser and its personnel were qualified to serve Municipal Income Fund in such capacity and may reasonably be expected to continue to provide a high quality of services under the Sub-Advisory Agreement.
Investment Performance: The Committee considered that the returns of the Fund’s Class A shares exceeded the median of its performance universe for the five-year period and underperformed the median for the three-year period and ranked in the 1st percentile and 82nd percentile, respectively. The Committee took into account information provided by Guggenheim stating that the Fund’s performance for the periods ended December 31, 2013 outperformed the Fund’s benchmark, the Barclays Capital U.S. Municipal Long Bond Index, for the one-year and three-month periods, lagged the benchmark for the three-year period and outperformed the benchmark for the five-year period. In light of the foregoing, the Committee also noted that the FUSE report listed the Fund’s performance for the three-month period ended December 31, 2013 in the 1st quartile (9th percentile). In addition, the Committee considered Guggenheim’s statement that the Fund was converted from a closed-end fund in January 2012 and since the conversion has outperformed its benchmark.
Comparative Fees, Costs of Services Provided and the Profits Realized by the Sub-Adviser from its Relationship with the Fund: The Committee reviewed the level of sub-advisory fees payable to GPIM, noting that the fees would be paid by Security Investors and do not impact the fees paid by the Fund. The Committee also compared the sub-advisory fee paid by the Adviser to the Sub-Adviser to the fees charged by the Sub-Adviser to other clients including other registered investment companies.
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OTHER INFORMATION (Unaudited) (concluded) |
Economies of Scale to be Realized: The Committee recognized that, because the Sub-Adviser’s fees would be paid by the Adviser and not the Fund, the analysis of economies of scale was more appropriate in the context of the Committee’s consideration of the applicable Advisory Agreement, which was separately considered. (See “Advisory Agreements - Economies of Scale to be Realized” above.)
Overall Conclusions
Based on the foregoing, the Committee determined that the investment advisory fees are fair and reasonable in light of the extent and quality of the services provided and other benefits received and that the continuation of the Agreements is in the best interests of each Fund. In reaching this conclusion, no single factor was determinative and each Committee member, in the exercise of his business judgment, may attribute different weights to different factors. At the May Meeting, the Committee, constituting all of the Independent Trustees, recommended the renewal of each Advisory Agreement and the Sub-Advisory Agreement for an additional 12-month term.
144 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
INFORMATION ON BOARD OF TRUSTEES AND OFFICERS (Unaudited) | |||
Term of Office | Number of Portfolios in | |||||||||
Name, Address* and Year of Birth | Position(s) Held with the Trust | and Length of Time Served** | Principal Occupation(s) During Past Five Years | Fund Complex Overseen | Other Directorships Held by Trustees | |||||
INDEPENDENT TRUSTEES | ||||||||||
Randall C. Barnes (1951) | Trustee | Since 2014 | Current: Private Investor (2001-present). Former: Senior Vice President and Treasurer, PepsiCo, Inc. (1993-1997); President, Pizza Hut International (1991-1993); Senior Vice President, Strategic Planning and New Business Development, PepsiCo, Inc. (1987-1990). | 92 | Current: Trustee, Purpose, Inc. (2014-present). | |||||
Donald A. Chubb, Jr. (1946) | Trustee and Vice Chairman of the Board | Since 1994 | Current: Business broker and manager of commercial real estate, Griffith & Blair, Inc.(1997-present). | 88 | None. | |||||
Jerry B. Farley (1946) | Trustee and Vice Chairman of the Audit Committee | Since 2005 | Current: President, Washburn University(1997-present). | 88 | Current: Westar Energy, Inc. (2004-present); CoreFirst Bank & Trust(2000-present). | |||||
Roman Friedrich III (1946) | Trustee and Chairman of the Contracts Review Committee | Since 2014 | Current: Founder and President, Roman Friedrich & Company (1998-present). | 88 | Current: Zincore Metals, Inc. (2009-present). | |||||
Former: Senior Managing Director, MLV & Co. LLC (2010-2011). | Former: Mercator Minerals Ltd. (2013-2014); First. Americas Gold Corp.(2012-2014); Blue Sky Uranium Corp. (2011-2012);Axiom Gold and Silver Corp. (2011-2012);Stratagold Corp.(2003-2009); GFM Resources Ltd. (2005-2010). | |||||||||
Robert B. Karn III (1942) | Trustee and Chairman of the Audit Committee | Since 2014 | Current: Consultant (1998-present). Former: Arthur Andersen (1965-1997) and Managing Partner, Financial and Economic Consulting, St. Louis office (1987-1997). | 88 | Current: Peabody Energy Company (2003-present);GP Natural Resource Partners, LLC (2002-present). | |||||
Ronald A. Nyberg (1953) | Trustee and Chairman of the Nominating and Governance Committee | Since 2014 | Current: Partner, Nyberg & Cassioppi, LLC(2000-present). Former: Executive Vice President, General Counsel, and Corporate Secretary, Van Kampen Investments (1982-1999). | 94 | Current: Edward-Elmhurst Healthcare System(2012-present). | |||||
Maynard F. Oliverius (1943) | Trustee and Vice Chairman of the Contracts Review Committee | Since 1998 | Retired. Former: President and CEO, Stormont-Vail HealthCare (1996-2012). | 88 | None. | |||||
Ronald E. Toupin, Jr. (1958) | Trustee and Chairman of the Board | Since 2014 | Current: Portfolio Consultant (2010-present). | 91 | Former: Bennett Group of Funds (2011-2013). | |||||
Former: Vice President, Manager and Portfolio Manager, Nuveen Asset Management(1998-1999); Vice President, Nuveen Investment Advisory Corp. (1992-1999);Vice President and Manager, Nuveen Unit Investment Trusts (1991-1999); and Assistant Vice President and Portfolio Manager, Nuveen Unit Investment Trusts (1988-1999), each of John Nuveen & Co., Inc. (1982-1999). | ||||||||||
INTERESTED TRUSTEE | ||||||||||
Donald C. Cacciapaglia*** (1951) | President, Chief Executive Officer and Trustee | Since 2012 | Current: President and CEO, certain other funds in the Fund Complex (2012-present); Vice Chairman, Guggenheim Investments(2010-present). Former: Chairman and CEO, Channel Capital Group, Inc. (2002-2010). | 220 | Current: Delaware Life(2013-present); Guggenheim Life and Annuity Company(2011-present); Paragon Life Insurance Company of Indiana(2011-present). | |||||
* | The business address of each Trustee is c/o Guggenheim Investments, 805 King Farm Boulevard, Suite 600, Rockville, Maryland 20850 | |
** | Each Trustee serves an indefinite term, until his successor is elected and qualified. Time served includes time served in the respective position for the Predecessor Corporation. | |
*** | This Trustee is deemed to be an “interested person” of the Funds under the 1940 Act by reason of his position with the Funds’ Investment Manager and/or the parent of the Investment Manager. |
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INFORMATION ON BOARD OF TRUSTEES AND OFFICERS (Unaudited) (concluded) | |||
Name, Address* and Year of Birth | Position(s) Held with the Trust | Term of Office and Length of Time Served** | Principal Occupation(s) During Past Five Years | ||||
OFFICERS | |||||||
Joseph M. Arruda (1966) | Assistant Treasurer | Since 2010 | Current: Assistant Treasurer, certain other funds in the Fund Complex (2006-present); Vice President, Security Investors, LLC (2010-present); CFO and Manager, Guggenheim Specialized Products, LLC (2009-present). Former: Vice President, Security Global Investors, LLC (2010-2011); Vice President, Rydex Advisors, LLC (2010); Vice President, Rydex Advisors II, LLC (2010). | ||||
William H. Belden, III (1965) | Vice President | Since 2014 | Current: Vice President, certain other funds in the Fund Complex (2006-present); Managing Director, Guggenheim Funds Investment Advisors, LLC (2005-present). Former: Vice President of Management, Northern Trust Global Investments (1999-2005). | ||||
Mark J. Furjanic (1959) | Assistant Treasurer | Since 2014 | Current: Vice President, Guggenheim Investments (2005-present); Assistant Treasurer, certain other funds in the Fund Complex (2008-present). Former: Senior Manager, Ernst & Young LLP (1999-2005). | ||||
James Howley (1972) | Assistant Treasurer | Since 2014 | Current: Director, Guggenheim Investments (2004-present) ; Assistant Treasurer, certain other funds in the Fund Complex (2006-present). Former: Manager, Mutual Fund Administration of Van Kampen Investments, Inc. (1996-2004). | ||||
Amy J. Lee (1961) | Vice President and Chief Legal Officer | Since 1987 (Secretary) Since 2007 (Vice President) | Current: Chief Legal Officer, certain other funds in the Fund Complex (2012-present); Senior Managing Director, Guggenheim Investments (2012-present). Former: Vice President, Associate General Counsel and Assistant Secretary, Security Benefit Life Insurance Company and Security Benefit Corporation (2004-2012). | ||||
Mark E. Mathiasen (1978) | Secretary | Since 2014 | Current: Secretary, certain other funds in the Fund Complex (2007-present); Managing Director, Guggenheim Investments (2007-present). | ||||
Michael P. Megaris (1984) | Assistant Secretary | Since 2014 | Current: Assistant Secretary, certain other funds in the Fund Complex (April 2014-present); Associate, Guggenheim Investments (2012-present). Former: J.D., University of Kansas School of Law (2009-2012). | ||||
Elisabeth Miller (1968) | Chief Compliance Officer | Since 2012 | Current: CCO, certain other funds in the Fund Complex (2012-present); CCO, Security Investors, LLC (2012-present); CCO, Guggenheim Funds Investment Advisors, LLC (2012-present); Vice President, Guggenheim Funds Distributors, LLC (March 2014-present). Former: CCO, Guggenheim Distributors, LLC (2009-March 2014); Senior Manager, Security Investors, LLC(2004-2009); Senior Manager, Guggenheim Distributors, LLC (2004-2009). | ||||
Alison Santay (1974) | AML Officer | Since 2013 | Current: AML Officer, certain other funds in the Fund Complex (2010-present); Director and AML Officer, Rydex Fund Services, LLC (2010-present); AML Officer, Security Investors, LLC (2010-present); Director, Shareholder Risk and Compliance, Rydex Fund Services, LLC (2004-present). Former: AML Officer, Guggenheim Distributors, LLC (2013-March 2014). | ||||
Kimberly Scott (1974) | Assistant Treasurer | Since 2014 | Current: Vice President, Guggenheim Investments (2012-present) ; Assistant Treasurer, certain other funds in the Fund Complex (2012-present). Former: Financial Reporting Manager, Invesco, Ltd. (2010-2011); Vice President/Assistant Treasurer, Mutual Fund Administration for Van Kampen Investments, Inc./Morgan Stanley Investment Management (2009-2010); Manager of Mutual Fund Administration, Van Kampen Investments, Inc./Morgan Stanley Investment Management (2005-2009). | ||||
Bryan Stone (1979) | Vice President | Since 2014 | Current: Vice President, certain other funds in the Fund Complex (April 2014-present); Director, Guggenheim Investments (2013-present). Former: Senior Vice President, Neuberger Berman Group LLC (2009-2013); Vice President, Morgan Stanley (2002-2009). | ||||
John L. Sullivan (1955) | Chief Financial Officer and Treasurer | Since 2014 | Current: CFO, Chief Accounting Officer and Treasurer, certain other funds in the Fund Complex(2010-present); Senior Managing Director, Guggenheim Investments (2010-present). Former: Managing Director and CCO, each of the funds in the Van Kampen Investments fund complex(2004-2010); Managing Director and Head of Fund Accounting and Administration, Morgan Stanley Investment Management (2002-2004); CFO and Treasurer, Van Kampen Funds (1996-2004). | ||||
* | The business address of each officer is c/o Guggenheim Investments, 805 King Farm Boulevard, Suite 600, Rockville, Maryland 20850. |
** | Each officer serves an indefinite term, until his or her successor is duly elected and qualified. Time served includes time served in the respective position for the Predecessor Corporation |
146 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
GUGGENHEIM INVESTMENTS PRIVACY POLICIES (Unaudited) |
Rydex Funds, Guggenheim Funds, Rydex Investments, Guggenheim Funds Distributors, LLC, Security Investors, LLC, Security Distributors, Inc., Guggenheim Partners Investment Managers, LLC, and Rydex Advisory Services (Collectively “Guggenheim Investments”).
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How We Safeguard Your Personal Information
We restrict access to nonpublic personal information about shareholders to our employees and in some cases to third parties (for example, the service providers described above) as permitted by law. We maintain strict physical, electronic and procedural safeguards that comply with federal standards to guard your nonpublic personal information.
THE GUGGENHEIM FUNDS ANNUAL REPORT | 147 |
GUGGENHEIM INVESTMENTS PRIVACY POLICIES (Unaudited) (concluded) |
We’ll Keep You Informed
As required by federal law, we will notify shareholders of our privacy policy annually. We reserve the right to modify this policy at any time, but rest assured that if we do change it, we will tell you promptly. You will also be able to access our privacy policy from our web site at guggenheiminvestments.com. Should you have any questions regarding our privacy policy, contact us at 800.820.0888 or 301.296.5100.
148 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
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9.30.2014
Guggenheim Funds Annual Report
Guggenheim Funds Trust - Equity |
Guggenheim Alpha Opportunity Fund |
Guggenheim Enhanced World Equity Fund |
Guggenheim Large Cap Value Fund |
Guggenheim Risk Managed Real Estate Fund |
Guggenheim Small Cap Value Fund |
Guggenheim StylePlus—Large Core Fund |
Guggenheim StylePlus—Mid Growth Fund |
Guggenheim World Equity Income Fund |
SBE-ANN-0914x0915 | guggenheiminvestments.com |
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This report and the financial statements contained herein are submitted for the general information of our shareholders. The report is not authorized for distribution to prospective investors unless preceded or accompanied by an effective prospectus.
Distributed by Guggenheim Funds Distributors, LLC. GI-GOGREEN-0414 x0415 #12604
TABLE OF CONTENTS | ||
DEAR SHAREHOLDER | 2 | |
ECONOMIC AND MARKET OVERVIEW | 4 | |
ABOUT SHAREHOLDERS’ FUND EXPENSES | 6 | |
ALPHA OPPORTUNITY FUND | 10 | |
ENHANCED WORLD EQUITY FUND | 18 | |
LARGE CAP VALUE FUND | 26 | |
RISK MANAGED REAL ESTATE FUND | 36 | |
SMALL CAP VALUE FUND | 46 | |
STYLEPLUS—LARGE CORE FUND | 56 | |
STYLEPLUS—MID GROWTH FUND | 68 | |
WORLD EQUITY INCOME FUND | 80 | |
NOTES TO FINANCIAL STATEMENTS | 90 | |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM | 105 | |
OTHER INFORMATION | 106 | |
INFORMATION ON BOARD OF TRUSTEES AND OFFICERS | 118 | |
GUGGENHEIM INVESTMENTS PRIVACY POLICIES | 120 |
THE GUGGENHEIM FUNDS ANNUAL REPORT | 1 |
September 30, 2014 |
Dear Shareholder:
Security Investors, LLC and Guggenheim Partners Investment Management (the “Investment Advisers”) are pleased to present the annual shareholder report for one or more of our Funds (the “Funds”) for the year ended September 30, 2014. The Investment Advisers are part of Guggenheim Investments, which represents the investment management businesses of Guggenheim Partners, LLC, a global, diversified financial services firm.
Guggenheim Funds Distributors, LLC is the distributor of the Funds. Guggenheim Funds Distributors, LLC is affiliated with Guggenheim Partners, LLC and Security Investors, LLC.
We encourage you to read the Economic and Market Overview section of the report, which follows this letter, and then the Manager’s Commentary for each Fund.
We are committed to providing innovative investment solutions and appreciate the trust you place in us.
Sincerely,
Donald C. Cacciapaglia
President
October 31, 2014
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.
Alpha Opportunity Fund may not be suitable for all investors. • Value stocks are subject to the risk that the intrinsic value of the stock may never be realized by the market, or that the stock’s price will decline in value. • Growth stocks may be more volatile than other stocks because they are more sensitive to investor perceptions regarding the growth potential of the issuing company.
Enhanced World Equity Fund 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 securities 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 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 investments in other investment vehicles subject the fund to those risks and expenses affecting the investment vehicle. • The Fund’s investment in fixed income securities will change in value in response to interest rate changes and 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 bank loans and asset-backed securities, including mortgage backed, which involve special types of risks. • The Fund may invest in restricted securities which may involve financial and liquidity risk. • 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 it had not been leveraged. • You may have a gain or loss when you sell your shares. • See the prospectus for more information on these and other risks.
Large Cap Value Fund may not be suitable for all investors. • An investment in the Fund will fluctuate and is subject to investment risks, which means an investor could lose money. • The intrinsic value of the underlying stocks may never be realized, or the stock may decline in value. The Fund is subject to risk that large-capitalization stocks may under perform other segments of the equity market or the equity markets as a whole.
Risk Managed Real Estate Fund 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 • Investing involves risk, including the possible loss of principal. • There are no assurances that any fund will achieve its objective and/or strategy. • 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 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. • 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 more the Fund invests in leveraged instruments, the more the leverage will
2 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
September 30, 2014 |
magnify any gains or losses on those investments. • The Fund’s use of short selling involves increased risk and costs. The Fund risks paying more for a security than it received from its sale. • The Fund’s investments in other investment vehicles subject the Fund to those risks and expenses affecting the investment vehicle. • The Fund’s investments in foreign securities carry additional risks when compared to U.S. securities, due to the impact of diplomatic, political or economic developments in the country in question (investments in emerging markets securities are generally subject to an even greater level of risks). • The Fund 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. • Investing in sector funds is more volatile than investing in broadly diversified funds, as there is a greater risk due to the concentration of the funds’ holdings in issuers of the same or similar offerings. • This Fund is considered non-diversified and can invest a greater portion of its assets in securities of individual issuers than a diversified fund. As a result, changes in the market value of a single security could cause greater fluctuations in the value of fund shares than would occur in a more diversified fund. • Short selling involves increased risks and costs. You risk paying more for a security than you received from its sale. This strategy may not be suitable for all investors. • 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 you shares. • It is important to note that the Fund is no guaranteed by the U.S. government. • Please read the prospectus for more detailed information regarding these and other risks.
Small Cap Value Fund may not be suitable for all investors. • An investment in the Fund 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 stock may decline in value. • 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.
StylePlus—Large Core Fund 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. • 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. Value stocks are subject to the risk that the intrinsic value of the stock may never be realized by the market or that the price goes down. • 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. • The Fund’s investments in other investment vehicles subject the Fund to those risks and expenses affecting the investment vehicle. • 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). • The Fund 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. A The Fund’s exposure to high yield securities may subject the Fund to greater volatility. • The Fund may invest in bank loans and asset-backed securities, including mortgage backed, which involve special types of risks. • The Fund 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 Fund is not guaranteed by the U.S. government. A Please read the prospectus for more detailed information regarding these and other risks.
StylePlus—Mid Growth Fund may not be suitable for all investors. • Investments in mid-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 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. • The Fund’s investments in other investment vehicles subject the Fund to those risks and expenses affecting the investment vehicle. • 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). • The Fund may invest in fixed income securities whose market value will change in response to interest rate changes and market conditions, among other factors. In general, bond prices rise when interest rates fall and vice versa. • The Fund’s exposure to high yield securities may subject the Fund to greater volatility. • The Fund may invest in bank loans and asset-backed securities, including mortgage backed, which involve special types of risks. • The Fund 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 Fund is not guaranteed by the U.S. government. Please read the prospectus for more detailed information regarding these and other risks.
World Equity Income Fund 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. A Please read the prospectus for more detailed information regarding these and other risks.
THE GUGGENHEIM FUNDS ANNUAL REPORT | 3 |
ECONOMIC AND MARKET OVERVIEW (Unaudited) | September 30, 2014 |
Despite market volatility rising in October, for the year ended September 30, data on everything from hiring to housing conveys that the U.S. economy is firing on all cylinders. Overcoming a first-quarter weather-related soft patch, second-quarter GDP was revised upward to 4.6%, led by business investment. Durable goods orders surged over the summer and consumer confidence was at multi-year highs, despite a lower reading for the last part of the period. With tailwinds for economic growth gathering, we could see a strong third quarter GDP reading.
September’s addition of 248,000 non-farm payroll jobs was, on the surface, at least a strong figure and certainly not something to be discounted. However, investor optimism about the report, which also showed the unemployment rate falling to 5.9%—its lowest level since 2008—masked the fact that average hourly earnings were unchanged. Economic data late in the period included disappointing factory orders, poor construction spending, and weaker-than-expected ISM manufacturing data. The most recent decline in the U.S. Conference Board Consumer Confidence Index was worrisome.
The U.S. economy is certainly doing well enough to suggest higher interest rates ahead. With quantitative easing ending in the U.S. in October 2014 and the Fed preparing investors for a higher federal funds rate, the stage is set for U.S. interest rates to move higher. However, our view is that, despite a strengthening U.S. economy, the greater risk is that interest rates head lower in the near term.
Following the “taper tantrum” last year, before rates were able to reach historical norms, the average rate on a 30-year mortgage spiked almost a full percentage point in two months—the sharpest rise since the late 1990s—resulting in an abrupt housing slowdown, which slowed the U.S. economy materially.
In addition, U.S. Treasury yields are still materially higher than those in any other developed market. The spread between 10-year U.S. Treasuries and comparable German bunds reached 157 basis points in September, its widest level since 1999, and the spread between 10-year Treasuries and 10-year Japanese government bonds was recently 189 basis points. With developments in the Middle East increasingly troubling and turbulence continuing elsewhere from Ukraine to Hong Kong, the relative price value of U.S. government bonds versus other safe haven investments should continue to be a factor keeping U.S. interest rates low.
International economic data remain weak. Euro zone economic confidence is falling as the entire region continues to battle below-target inflation. At the start of September, the European Central Bank cut interest rates and signaled their intent to launch a program to purchase asset-backed securities and covered bonds to stimulate the dismal economy. In Japan, retail sales fell month-over-month in August, while industrial production falters.
Economic data around the world confirms our view that central banks are likely to renew efforts to force liquidity into the global financial system, which in turn further supports our positive outlook for risk assets. However, positive returns are unlikely without volatility. While markets continue to rally, gains are becoming more grudging. The upward momentum in U.S. stocks has deteriorated meaningfully while credit spreads, specifically high-yield spreads, have widened significantly over the past number of weeks. While the bull market trend remains intact, as the appreciation in risk assets continues it becomes more likely that this ageing advance will, at some point, experience a correction.
For the year ended September 30, 2014, the return of the Standard & Poor’s 500® Index* (“S&P 500”) was 19.73%. The Barclays U.S. Aggregate Bond Index* returned 3.96% for the year, while the Barclays U.S. Corporate High Yield Index* returned 7.20%. The BofA Merrill Lynch 3-Month U.S. Treasury Bill Index* returned 0.05%. The MSCI World Index* returned 12.22%, while the Morgan Stanley Capital International (“MSCI”) Emerging Markets Index* returned 4.30%.
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.
4 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
ECONOMIC AND MARKET OVERVIEW (Unaudited) (concluded) | September 30, 2014 |
*Index Definitions:
The following indices are referenced throughout this report. Indices are unmanaged and not available for direct investment. Index performance does not reflect transaction costs, fees, or expenses.
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.
Barclays U.S. Aggregate Bond Index represents securities that are SEC-registered, taxable, and dollar denominated. The index covers the U.S. investment grade fixed rate bond market, with index components for government and corporate securities, mortgage pass-through securities, and asset-backed securities. These major sectors are subdivided into more specific indices that are calculated and reported on a regular basis.
Barclays U.S. Corporate High Yield Index covers the universe of dollar denominated, fixed rate, non-investment grade debt, taxable corporate debt.
FTSE NAREIT Equity REITs Index is one of the FTSE NAREIT US Real Estate Index Series that contains all Equity REITs not designated as Timber REITs or Infrastructure REITs. FTSE NAREIT US Real Estate Index Series is designed to present investors with a comprehensive family of REIT performance indexes that spans the commercial real estate space across the US economy. The index series provides investors with exposure to all investment and property sectors. In addition, the more narrowly focused property sector and sub-sector indexes provide the facility to concentrate commercial real estate exposure in more selected markets. The National Association of Real Estate Investment Trusts (NAREIT) is the trade association for REITs and publicly traded real estate companies with an interest in the US property and investment markets.
MSCI ACWI (All Country World Index) is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed and emerging markets. The MSCI ACWI consists of 45 country indices comprising 24 developed and 21 emerging market country indices.
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 calculated with net dividends reinvested. It is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed markets.
Russell 1000® Value Index is 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 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 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® Index is a market-weighted stock market index comprised of the stocks of 500 U.S. corporations; the index is owned and maintained by Standard & Poor’s.
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, or other distributions; and exchange fees; and (ii) ongoing costs, including management fees, administrative services, and shareholder reports, among others. These ongoing costs, or operating expenses, are deducted from a fund’s gross income and reduce the investment return of the fund.
A fund’s expenses are expressed as a percentage of its average net assets, which is known as the expense ratio. The following examples are intended to help investors understand the ongoing costs (in dollars) of investing in a Fund and to compare these costs with the ongoing costs of investing in other mutual funds.
The examples are based on an investment of $1,000 made at the beginning of the period and held for the entire six-month period beginning March 31, 2014 and ending September 30, 2014.
The following tables illustrate a Fund’s costs in two ways:
Table 1. Based on actual Fund return. This section helps investors estimate the actual expenses paid over the period. The “Ending Account Value” shown is derived from the Fund’s actual return, and the fourth column shows the dollar amount that would have been paid by an investor who started with $1,000 in the Fund. Investors may use the information here, together with the amount invested, to estimate the expenses paid over the period. Simply divide the Fund’s account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number provided under the heading “Expenses Paid During Period.”
Table 2. Based on hypothetical 5% return. This section is intended to help investors compare a Fund’s cost with those of other mutual funds. The table provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses paid during the period. The example is useful in making comparisons because the U.S. Securities and Exchange Commission (the “SEC”) requires all mutual funds to calculate expenses based on the 5% return. Investors can assess a Fund’s costs by comparing this hypothetical example with the hypothetical examples that appear in shareholder reports of other funds.
The calculations illustrated above assume no shares were bought or sold during the period. Actual costs may have been higher or lower, depending on the amount of investment and the timing of any purchases or redemptions.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads) on purchase payments, and contingent deferred sales charges (“CDSC”) on redemptions, if any. Therefore, the second table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
More information about a Fund’s expenses, including annual expense ratios for the past five years, can be found in the Financial Highlights section of this report. For additional information on operating expenses and other shareholder costs, please refer to the appropriate Fund prospectus.
6 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
ABOUT SHAREHOLDERS’ FUND EXPENSES (Unaudited) (continued) | |
Expense Ratio1 | Fund Return | Beginning Account Value March 31, 2014 | Ending Account Value September 30, 2014 | Expenses Paid During Period2 | ||||||||||||||||
Table 1. Based on actual Fund return3 | ||||||||||||||||||||
Alpha Opportunity Fund | ||||||||||||||||||||
A-Class | 1.79 | % | 2.39 | % | $1,000.00 | $1,023.90 | $9.08 | |||||||||||||
C-Class | 2.52 | % | 2.01 | % | 1,000.00 | 1,020.10 | 12.76 | |||||||||||||
Institutional Class | 1.54 | % | 2.49 | % | 1,000.00 | 1,024.90 | 7.82 | |||||||||||||
Enhanced World Equity Fund | ||||||||||||||||||||
A-Class | 1.26 | % | 0.90 | % | 1,000.00 | 1,009.00 | 6.35 | |||||||||||||
C-Class | 2.01 | % | 0.64 | % | 1,000.00 | 1,006.40 | 10.11 | |||||||||||||
Institutional Class | 1.01 | % | 1.02 | % | 1,000.00 | 1,010.20 | 5.09 | |||||||||||||
Large Cap Value Fund | ||||||||||||||||||||
A-Class | 1.16 | % | 3.47 | % | 1,000.00 | 1,034.70 | 5.92 | |||||||||||||
B-Class4 | 0.91 | % | 3.62 | % | 1,000.00 | 1,036.20 | 4.65 | |||||||||||||
C-Class | 1.91 | % | 3.10 | % | 1,000.00 | 1,031.00 | 9.72 | |||||||||||||
Institutional Class | 0.91 | % | 3.61 | % | 1,000.00 | 1,036.10 | 4.64 | |||||||||||||
Risk Managed Real Estate Fund | ||||||||||||||||||||
A-Class | 1.53 | % | 7.49 | % | 1,000.00 | 1,074.90 | 7.96 | |||||||||||||
C-Class | 2.23 | % | 7.00 | % | 1,000.00 | 1,070.00 | 11.57 | |||||||||||||
Institutional Class | 1.31 | % | 7.57 | % | 1,000.00 | 1,075.70 | 6.82 | |||||||||||||
Small Cap Value Fund | ||||||||||||||||||||
A-Class | 1.33 | % | (8.59 | %) | 1,000.00 | 914.10 | 6.38 | |||||||||||||
C-Class | 2.08 | % | (8.96 | %) | 1,000.00 | 910.40 | 9.96 | |||||||||||||
Institutional Class | 1.08 | % | (8.53 | %) | 1,000.00 | 914.70 | 5.18 | |||||||||||||
StylePlus—Large Core Fund | ||||||||||||||||||||
A-Class | 1.35 | % | 6.74 | % | 1,000.00 | 1,067.40 | 7.00 | |||||||||||||
B-Class | 2.57 | % | 6.12 | % | 1,000.00 | 1,061.20 | 13.28 | |||||||||||||
C-Class | 2.28 | % | 6.26 | % | 1,000.00 | 1,062.60 | 11.79 | |||||||||||||
Institutional Class | 1.24 | % | 6.78 | % | 1,000.00 | 1,067.80 | 6.43 | |||||||||||||
StylePlus—Mid Growth Fund | ||||||||||||||||||||
A-Class | 1.53 | % | 3.67 | % | 1,000.00 | 1,036.70 | 7.81 | |||||||||||||
B-Class | 2.88 | % | 2.96 | % | 1,000.00 | 1,029.60 | 14.65 | |||||||||||||
C-Class | 2.40 | % | 3.22 | % | 1,000.00 | 1,032.20 | 12.23 | |||||||||||||
Institutional Class | 1.58 | % | 3.63 | % | 1,000.00 | 1,036.30 | 8.07 | |||||||||||||
World Equity Income Fund | ||||||||||||||||||||
A-Class | 1.48 | % | 2.77 | % | 1,000.00 | 1,027.70 | 7.52 | |||||||||||||
B-Class4 | 1.23 | % | 2.93 | % | 1,000.00 | 1,029.30 | 6.26 | |||||||||||||
C-Class | 2.23 | % | 2.36 | % | 1,000.00 | 1,023.60 | 11.31 | |||||||||||||
Institutional Class | 1.23 | % | 2.89 | % | 1,000.00 | 1,028.90 | 6.26 |
THE GUGGENHEIM FUNDS ANNUAL REPORT | 7 |
ABOUT SHAREHOLDERS’ FUND EXPENSES (Unaudited) (concluded) | |
Expense Ratio1 | Fund Return | Beginning Account Value March 31, 2014 | Ending Account Value September 30, 2014 | Expenses Paid During Period2 | ||||||||||||||||
Table 2. Based on hypothetical 5% return (before expenses) | ||||||||||||||||||||
Alpha Opportunity Fund | ||||||||||||||||||||
A-Class | 1.79 | % | 5.00 | % | $1,000.00 | $1,016.09 | $9.05 | |||||||||||||
C-Class | 2.52 | % | 5.00 | % | 1,000.00 | 1,012.43 | 12.71 | |||||||||||||
Institutional Class | 1.54 | % | 5.00 | % | 1,000.00 | 1,017.35 | 7.79 | |||||||||||||
Enhanced World Equity Fund | ||||||||||||||||||||
A-Class | 1.26 | % | 5.00 | % | 1,000.00 | 1,018.75 | 6.38 | |||||||||||||
C-Class | 2.01 | % | 5.00 | % | 1,000.00 | 1,014.99 | 10.15 | |||||||||||||
Institutional Class | 1.01 | % | 5.00 | % | 1,000.00 | 1,020.00 | 5.11 | |||||||||||||
Large Cap Value Fund | ||||||||||||||||||||
A-Class | 1.16 | % | 5.00 | % | 1,000.00 | 1,019.25 | 5.87 | |||||||||||||
B-Class4 | 0.91 | % | 5.00 | % | 1,000.00 | 1,020.51 | 4.61 | |||||||||||||
C-Class | 1.91 | % | 5.00 | % | 1,000.00 | 1,015.49 | 9.65 | |||||||||||||
Institutional Class | 0.91 | % | 5.00 | % | 1,000.00 | 1,020.51 | 4.61 | |||||||||||||
Risk Managed Real Estate Fund | ||||||||||||||||||||
A-Class | 1.53 | % | 5.00 | % | 1,000.00 | 1,017.40 | 7.74 | |||||||||||||
C-Class | 2.23 | % | 5.00 | % | 1,000.00 | 1,013.89 | 11.26 | |||||||||||||
Institutional Class | 1.31 | % | 5.00 | % | 1,000.00 | 1,018.50 | 6.63 | |||||||||||||
Small Cap Value Fund | ||||||||||||||||||||
A-Class | 1.33 | % | 5.00 | % | 1,000.00 | 1,018.40 | 6.73 | |||||||||||||
C-Class | 2.08 | % | 5.00 | % | 1,000.00 | 1,014.64 | 10.50 | |||||||||||||
Institutional Class | 1.08 | % | 5.00 | % | 1,000.00 | 1,019.65 | 5.47 | |||||||||||||
StylePlus—Large Core Fund | ||||||||||||||||||||
A-Class | 1.35 | % | 5.00 | % | 1,000.00 | 1,018.30 | 6.83 | |||||||||||||
B-Class | 2.57 | % | 5.00 | % | 1,000.00 | 1,012.18 | 12.96 | |||||||||||||
C-Class | 2.28 | % | 5.00 | % | 1,000.00 | 1,013.64 | 11.51 | |||||||||||||
Institutional Class | 1.24 | % | 5.00 | % | 1,000.00 | 1,018.85 | 6.28 | |||||||||||||
StylePlus—Mid Growth Fund | ||||||||||||||||||||
A-Class | 1.53 | % | 5.00 | % | 1,000.00 | 1,017.40 | 7.74 | |||||||||||||
B-Class | 2.88 | % | 5.00 | % | 1,000.00 | 1,010.63 | 14.52 | |||||||||||||
C-Class | 2.40 | % | 5.00 | % | 1,000.00 | 1,013.04 | 12.11 | |||||||||||||
Institutional Class | 1.58 | % | 5.00 | % | 1,000.00 | 1,017.15 | 7.99 | |||||||||||||
World Equity Income Fund | ||||||||||||||||||||
A-Class | 1.48 | % | 5.00 | % | 1,000.00 | 1,017.65 | 7.49 | |||||||||||||
B-Class4 | 1.23 | % | 5.00 | % | 1,000.00 | 1,018.90 | 6.23 | |||||||||||||
C-Class | 2.23 | % | 5.00 | % | 1,000.00 | 1,013.89 | 11.26 | |||||||||||||
Institutional Class | 1.23 | % | 5.00 | % | 1,000.00 | 1,018.90 | 6.23 |
1 | This ratio represents annualized net expenses, which may include short dividend and interest expenses. Excluding these expenses, the operating expense ratio of the Risk Managed Real Estate Fund would be 1.30%, 2.05% and 1.10% for the A-Class, C-Class and Institutional Class, respectively. |
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 183/365 (to reflect the one-half year period). |
3 | Actual cumulative return at net asset value for the period March 31, 2014 to September 30, 2014. |
4 | B-Class shares did not charge 12b-1 fees during the period. |
8 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
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THE GUGGENHEIM FUNDS ANNUAL REPORT | 9 |
MANAGERS’ COMMENTARY (Unaudited) | September 30, 2014 |
Dear Shareholder:
Guggenheim Alpha Opportunity Fund (the “Fund”) is managed by a team of seasoned professionals, including Michael P. Byrum, CFA, Portfolio Manager; Michael Dellapa, CFA, CAIA, Portfolio Manager; and Ryan Harder, CFA, Portfolio Manager. In the following paragraphs, the team discusses changes to the Fund and performance for the fiscal year ended September 30, 2014.
For the one year period ended September 30, 2014, the Guggenheim Alpha Opportunity Fund returned 11.04%1, compared with the 19.73% return of its benchmark, the S&P 500 Index.
Over the past 12 months, the Fund experienced two major changes. First was the implementation of a new principal investment strategy effective October 1, 2013, by which 75% of the Fund is managed according to a Domestic Long/Short strategy and 25% to an Indexed strategy. A Global Long/Short strategy, which had been part of the Fund prior to October 1, 2013, was discontinued and not implemented during the period. The second major change was resolution of the issues related with the bankruptcy of Lehman Brothers, Inc.
As noted in the Fund’s prior shareholder reports, the Fund had been subject to proceedings associated with the bankruptcy filing of Lehman Brothers, Inc., in 2008, which prevented the Fund from pursuing its intended investment program. Specifically, the Fund was trying to resolve certain outstanding short sale transactions with Lehman Brothers International Europe (LBIE) and its administrator. The matter was resolved in June 2014 and collateral was released.
Performance Review
From the beginning of the period through June, the Fund was managed to an equity beta consistent with the 75/25 allocation. Beginning in June, the Fund began implementing fully its investment strategy.
The 75/25 allocation had a net beta of 70% (result of blending the 60% equity beta of the long/short strategy and the 100% equity beta of the long-only strategy). Thus, the Fund would not have been expected to match the benchmark.
Indeed, in the nine months between September 30, 2013 and June 30, 2014, the S&P 500 had a strong return of 18.4%. The deleveraging associated with running a long/short portfolio resulted in a drag of 5.5% relative to a long-only benchmark—the expected return of a portfolio with a net 70% equity beta would have been 12.9%, and the Fund actually performed slightly better than that for the nine months due to outperformance of the value-oriented stock basket in the frozen Lehman account.
During June, the domestic long/short model was implemented. The model struggled in the third calendar quarter, as several strong trends reversed, the most damaging of which were in the Technology, Materials, and Energy sectors. This was the main contributor to Fund underperformance against the Index for the last three months of the period and the period as a whole.
Until further notice, the Fund is not accepting subscriptions for shares from either new or existing shareholders (except subscriptions through automatic dividend reinvestments). However, shareholders may sell (or “redeem”) shares at any time (please see “Purchase and Redemption of Shares” in the Fund’s prospectus for more information).
Redomiciliation
At a meeting of shareholders held on January 8, 2014, shareholders of the Fund approved the reorganization of the Fund from a series of a Kansas corporation to a series of a Delaware statutory trust (the “Reorganization”). The Reorganization was delayed pending the resolution of the LBIE matter discussed above. In light of the resolution of that matter, the Series reorganized with and into a corresponding “shell” series (“New Fund”) of Guggenheim Funds Trust in September 2014.
Upon completion of the Reorganization, shareholders of the Fund own shares of the corresponding class of the New Fund that are equal in number and in value to the shares of the Fund that were held by those shareholders immediately prior to the closing of the Reorganization. In addition, the respective share classes of the New Fund assumed the performance, financial and other historical information of those of the Fund. The procedure for redeeming shares remains unchanged.
Performance displayed represents past performance which is no guarantee of future results.
1 Performance figures are based on A-Class shares and do not reflect deduction of the sales charges or taxes that a shareholder would pay on distributions or the redemption of shares. Fee waivers and/or reimbursements reduce Fund expenses, and, in the absence of such waivers, the performance quoted would be reduced.
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.
10 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
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THE GUGGENHEIM FUNDS ANNUAL REPORT | 11 |
PERFORMANCE REPORT AND FUND PROFILE (Unaudited) | September 30, 2014 |
ALPHA OPPORTUNITY FUND
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.
Cumulative Fund Performance*
Inception Dates: | ||
A-Class | July 7, 2003 | |
C-Class | July 7, 2003 | |
Institutional Class | November 7, 2008 |
This Fund invests principally in derivative instruments such as swap agreements and futures contracts.
1 Year | 5 Year | 10 Year | ||||||||||
A-Class Shares | 11.04 | % | 15.98 | % | 9.37 | % | ||||||
A-Class Shares with sales charge† | 5.77 | % | 14.62 | % | 8.72 | % | ||||||
C-Class Shares | 10.24 | % | 15.10 | % | 8.52 | % | ||||||
C-Class Shares with CDSC§ | 9.24 | % | 15.10 | % | 8.52 | % | ||||||
S&P 500 Index | 19.73 | % | 15.70 | % | 8.11 | % | ||||||
Since Inception | ||||||||||||
1 Year | 5 Year | (11/07/08) | ||||||||||
Institutional Class Shares | 11.29 | % | 16.40 | % | 16.86 | % | ||||||
S&P 500 Index | 19.73 | % | 15.70 | % | 16.09 | % | ||||||
* | 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. | |
† | Effective February 22, 2011, the maximum sales charge decreased from 5.75% to 4.75%. A 5.75% maximum sales charge is used in the calculation of the 5 Year and 10 Year average annual returns (based on subscriptions made prior to February 22, 2011), and a 4.75% maximum sales charge will be used to calculate performance for periods based on subscriptions made on or after February 22, 2011. | |
§ | Fund returns include a CDSC of 1% if redeemed within 12 months of purchase. | |
12 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
SCHEDULE OF INVESTMENTS | September 30, 2014 | |
ALPHA OPPORTUNITY FUND |
FACE | |||||||
AMOUNT | VALUE | ||||||
REPURCHASE AGREEMENT††,1 -99.9% | |||||||
State Street | |||||||
issued 09/30/14 at 0.00% | |||||||
due 10/01/14 | $ | 10,736,308 | $ | 10,736,308 | |||
Total Repurchase Agreement | |||||||
(Cost $10,736,308) | 10,736,308 | ||||||
Total Investments -99.9% | |||||||
(Cost $10,736,308) | $ | 10,736,308 | |||||
Other Assets & Liabilities, net - 0.1% | 14,943 | ||||||
Total Net Assets - 100.0% | $ | 10,751,251 | |||||
UNREALIZED | |||||||
CONTRACTS | LOSS | ||||||
EQUITY FUTURES CONTRACTS PURCHASED† | |||||||
December 2014 S&P 500 Index | |||||||
Mini Futures Contracts | |||||||
(Aggregate Value of | |||||||
Contracts $2,652,413) | 27 | $ | (32,652 | ) | |||
UNREALIZED | |||||||
UNITS | GAIN (LOSS) | ||||||
OTC EQUITY INDEX SWAP AGREEMENTS†† | |||||||
Goldman Sachs International | |||||||
October 2014 Goldman Sachs Multi-Hedge | |||||||
Strategies Short Index Swap, | |||||||
Terminating 10/15/142 | |||||||
(Notional Value $2,551,824) | 20,845 | $ | 94,008 | ||||
Goldman Sachs International | |||||||
October 2014 Goldman Sachs Multi-Hedge | |||||||
Strategies Long Index Swap, | |||||||
Terminating 10/15/143 | |||||||
(Notional Value $6,749,515) | 54,959 | $ | (224,208 | ) | |||
Sector Diversification | |||
Goldman Sachs Multi-Hedge Strategies Short Index Swap | |||
Sector | % of Index | ||
Financials | 25.8 | % | |
Industrials | 19.8 | % | |
Consumer Discretionary | 15.0 | % | |
Materials | 10.0 | % | |
Energy | 9.2 | % | |
Consumer Staples | 7.9 | % | |
Information Technology | 5.8 | % | |
Telecommunication Services | 3.1 | % | |
Health Care | 1.9 | % | |
Utilities | 1.5 | % | |
Total | 100.0 | % | |
Goldman Sachs Multi-Hedge Strategies Long Index Swap | |||
Sector | % of Index | ||
Information Technology | 20.0 | % | |
Health Care | 17.4 | % | |
Industrials | 15.4 | % | |
Consumer Discretionary | 11.8 | % | |
Financials | 10.6 | % | |
Consumer Staples | 10.3 | % | |
Materials | 7.0 | % | |
Utilities | 3.0 | % | |
Telecommunication Services | 2.4 | % | |
Energy | 2.1 | % | |
Total | 100.0 | % | |
† | Value determined based on Level 1 inputs — See Note 4. |
†† | Value determined based on Level 2 inputs — See Note 4. |
1 | Repurchase Agreement — See Note 5. |
2 | Customized basket of 138 exchange-traded equity securities. |
3 | Customized basket of 191 exchange-traded equity securities. |
THE GUGGENHEIM FUNDS ANNUAL REPORT | 13 |
ALPHA OPPORTUNITY FUND |
STATEMENT OF ASSETS AND LIABILITIES | ||||
September 30, 2014 | ||||
ASSETS: | ||||
Repurchase agreements, at value | ||||
(cost $10,736,308) | $ | 10,736,308 | ||
Segregated cash with broker | 124,200 | |||
Unrealized appreciation on swap agreements | 94,008 | |||
Prepaid expenses | 8,031 | |||
Receivables: | ||||
Investment adviser | 17,325 | |||
Other assets | 31,046 | |||
Total assets | 11,010,918 | |||
LIABILITIES: | ||||
Unrealized depreciation on swap agreements | 224,208 | |||
Payable for: | ||||
Management fees | 11,241 | |||
Variation margin | 6,413 | |||
Transfer agent/maintenance fees | 3,475 | |||
Distribution and service fees | 2,605 | |||
Fund accounting/administration fees | 2,055 | |||
Fund shares redeemed | 1,333 | |||
Swap settlement | 255 | |||
Trustees’ fees* | 202 | |||
Miscellaneous | 7,880 | |||
Total liabilities | 259,667 | |||
NET ASSETS | $ | 10,751,251 | ||
NET ASSETS CONSIST OF: | ||||
Paid in capital | $ | 16,528,227 | ||
Undistributed net investment income | — | |||
Accumulated net realized loss on investments | (5,614,124 | ) | ||
Net unrealized depreciation on investments | (162,852 | ) | ||
Net assets | $ | 10,751,251 | ||
A-CLASS: | ||||
Net assets | $ | 7,989,498 | ||
Capital shares outstanding | 443,642 | |||
Net asset value per share | $18.01 | |||
Maximum offering price per share | ||||
(Net asset value divided by 95.25%) | $18.91 | |||
C-CLASS: | ||||
Net assets | $ | 1,116,801 | ||
Capital shares outstanding | 68,729 | |||
Net asset value per share | $16.25 | |||
INSTITUTIONAL CLASS: | ||||
Net assets | $ | 1,644,952 | ||
Capital shares outstanding | 65,451 | |||
Net asset value per share | $25.13 | |||
STATEMENT OF OPERATIONS | ||||
Year Ended September 30, 2014 | ||||
INVESTMENT INCOME: | ||||
Dividends (net of foreign withholding | ||||
tax of $113) | $ | 156,414 | ||
Interest | 1,204 | |||
Total investment income | 157,618 | |||
EXPENSES: | ||||
Management fees | 140,253 | |||
Transfer agent/maintenance fees: | ||||
A-Class | 19,903 | |||
B-Class | 2,066 | |||
C-Class | 4,502 | |||
Institutional Class | 2,663 | |||
Distribution and service fees: | ||||
A-Class | 19,980 | |||
B-Class | 3,872 | |||
C-Class | 11,859 | |||
Fund accounting/administration fees | 24,999 | |||
Legal fees | 51,629 | |||
Interest expense | 137 | |||
Professional fees | 25,888 | |||
Registration fees | 25,507 | |||
Custodian fees | 12,942 | |||
Trustees’ fees* | 1,135 | |||
Miscellaneous | 24,669 | |||
Total expenses | 372,004 | |||
Less: | ||||
Expenses waived by Adviser | (126,237 | ) | ||
Net expenses | 245,767 | |||
Net investment loss | (88,149 | ) | ||
NET REALIZED AND UNREALIZED GAIN (LOSS): | ||||
Net realized gain (loss) on: | ||||
Investments | 4,962,009 | |||
Swap agreements | (29,380 | ) | ||
Futures contracts | (14,138 | ) | ||
Foreign currency | 101,721 | |||
Securities sold short | (477,883 | ) | ||
Net realized gain | 4,542,329 | |||
Net change in unrealized appreciation (depreciation) on: | ||||
Investments | (3,457,155 | ) | ||
Securities sold short | 451,612 | |||
Swap agreements | (130,200 | ) | ||
Futures contracts | (59,673 | ) | ||
Foreign currency | (101,720 | ) | ||
Net change in unrealized appreciation (depreciation) | (3,297,136 | ) | ||
Net realized and unrealized gain | 1,245,193 | |||
Net increase in net assets resulting | ||||
from operations | $ | 1,157,044 | ||
* Relates to Trustees not deemed “interested persons” within the meaning of Section 2(a)(19) of the 1940 Act.
14 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
ALPHA OPPORTUNITY FUND |
STATEMENTS OF CHANGES IN NET ASSETS | ||||||||
Year Ended | Year Ended | |||||||
September 30, | September 30, | |||||||
2014 | 2013 | |||||||
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS: | ||||||||
Net investment income (loss) | $ | (88,149 | ) | $ | 10,001 | |||
Net realized gain on investments and foreign currency transactions | 4,542,329 | 451,374 | ||||||
Net change in unrealized appreciation (depreciation) on investments and translation of assets and liabilities in foreign currencies | (3,297,136 | ) | 1,670,515 | |||||
Net increase in net assets resulting from operations | 1,157,044 | 2,131,890 | ||||||
CAPITAL SHARE TRANSACTIONS: | ||||||||
Proceeds from sale of shares | ||||||||
A-Class* | 2,752,898 | 135,514 | ||||||
Cost of shares redeemed | ||||||||
A-Class | (3,326,323 | ) | (1,083,609 | ) | ||||
B-Class | (628,571 | ) | (267,677 | ) | ||||
C-Class | (203,390 | ) | (541,551 | ) | ||||
Institutional Class | (270,604 | ) | (101,940 | ) | ||||
Net decrease from capital share transactions | (1,675,990 | ) | (1,859,263 | ) | ||||
Net increase (decrease) in net assets | (518,946 | ) | 272,627 | |||||
NET ASSETS: | ||||||||
Beginning of year | 11,270,197 | 10,997,570 | ||||||
End of year | $ | 10,751,251 | $ | 11,270,197 | ||||
Undistributed net investment income at end of year | $ | — | $ | 34,046 | ||||
CAPITAL SHARE ACTIVITY: | ||||||||
Shares sold | ||||||||
A-Class* | 151,642 | 9,453 | ||||||
Shares redeemed | ||||||||
A-Class | (185,854 | ) | (75,328 | ) | ||||
B-Class | (39,060 | ) | (20,963 | ) | ||||
C-Class | (13,056 | ) | (40,755 | ) | ||||
Institutional Class | (11,612 | ) | (4,934 | ) | ||||
Net decrease in shares | (97,940 | ) | (132,527 | ) | ||||
* Represents conversion of B-Class to A-Class shares and purchase of 119,923 shares by the Adviser for $2,185,000.
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 15 |
ALPHA OPPORTUNITY FUND |
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 | ||||||||||||||||
September 30, | September 30, | September 30, | September 30, | September 30, | ||||||||||||||||
A-Class | 2014 | 2013 | 2012 | 2011 | 2010 | |||||||||||||||
Per Share Data | ||||||||||||||||||||
Net asset value, beginning of period | $16.22 | $13.33 | $9.82 | $9.70 | $8.56 | |||||||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||
Net investment income (loss)a | (.13 | ) | .03 | (— | )d | (.04 | ) | (.06 | ) | |||||||||||
Net gain (loss) on investments (realized and unrealized) | 1.92 | 2.86 | 3.48 | .16 | 1.20 | |||||||||||||||
Net increase from payments by affiliates | — | — | .03 | e | — | — | ||||||||||||||
Total from investment operations | 1.79 | 2.89 | 3.51 | .12 | 1.14 | |||||||||||||||
Net asset value, end of period | $18.01 | $16.22 | $13.33 | $9.82 | $9.70 | |||||||||||||||
Total Returnb | 11.04% | 21.38% | 35.74% | e | 1.13 | % | 13.43 | % | ||||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||
Net assets, end of period (in thousands) | $7,989 | $7,749 | $7,250 | $6,708 | $8,138 | |||||||||||||||
Ratios to average net assets: | ||||||||||||||||||||
Net investment income (loss) | (0.73% | ) | 0.19% | (0.01% | ) | (0.33% | ) | (0.71% | ) | |||||||||||
Total expenses | 3.25% | 3.99% | 2.99% | 3.39% | 3.51% | |||||||||||||||
Net expensesc,f | 2.12% | 2.14% | 2.21% | 2.15% | 2.21% | |||||||||||||||
Portfolio turnover rate | — | 488% | 707% | 868% | 954% | |||||||||||||||
Year Ended | Year Ended | Year Ended | Year Ended | Year Ended | ||||||||||||||||
September 30, | September 30, | September 30, | September 30, | September 30, | ||||||||||||||||
C-Class | 2014 | 2013 | 2012 | 2011 | 2010 | |||||||||||||||
Per Share Data | ||||||||||||||||||||
Net asset value, beginning of period | $14.74 | $12.21 | $9.07 | $9.03 | $8.02 | |||||||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||
Net investment income (loss)a | (.23 | ) | (.07 | ) | (.09 | (.11 | ) | (.12 | ) | |||||||||||
Net gain (loss) on investments (realized and unrealized) | 1.74 | 2.60 | 3.21 | .15 | 1.13 | |||||||||||||||
Net increase from payments by affiliates | — | — | .02 | e | — | — | ||||||||||||||
Total from investment operations | 1.51 | 2.53 | 3.14 | .04 | 1.01 | |||||||||||||||
Net asset value, end of period | $16.25 | $14.74 | $12.21 | $9.07 | $9.03 | |||||||||||||||
Total Returnb | 10.24% | 20.48% | 34.62% | e | 0.44% | 12.59% | ||||||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||
Net assets, end of period (in thousands) | $1,117 | $1,206 | $1,497 | $1,292 | $1,490 | |||||||||||||||
Ratios to average net assets: | ||||||||||||||||||||
Net investment income (loss) | (1.46% | ) | (0.56% | ) | (0.76% | ) | (1.08% | ) | (1.46% | ) | ||||||||||
Total expenses | 4.11% | 4.84% | 3.80% | 4.14% | 4.28% | |||||||||||||||
Net expensesc,f | 2.87% | 2.89% | 2.96% | 2.90% | 2.95% | |||||||||||||||
Portfolio turnover rate | — | 488% | 707% | 868% | 954% |
16 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
ALPHA OPPORTUNITY FUND |
FINANCIAL HIGHLIGHTS (concluded) |
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 | ||||||||||||||||
September 30, | September 30, | September 30, | September 30, | September 30, | ||||||||||||||||
Institutional Class | 2014 | 2013 | 2012 | 2011 | 2010 | |||||||||||||||
Per Share Data | ||||||||||||||||||||
Net asset value, beginning of period | $22.58 | $18.52 | $13.53 | $13.33 | $11.73 | |||||||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||
Net investment income (loss)a | (.12 | ) | .09 | .04 | (.01 | ) | (.06 | ) | ||||||||||||
Net gain (loss) on investments (realized and unrealized) | 2.67 | 3.97 | 4.82 | .21 | 1.66 | |||||||||||||||
Net increase from payments by affiliates | — | — | .13 | e | — | — | ||||||||||||||
Total from investment operations | 2.55 | 4.06 | 4.99 | .20 | 1.60 | |||||||||||||||
Net asset value, end of period | $25.13 | $22.58 | $18.52 | $13.53 | $13.33 | |||||||||||||||
Total Returnb | 11.29% | $21.60 | 36.88% | e | 1.50% | 13.64% | ||||||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||
Net assets, end of period (in thousands) | $1,645 | $1,740 | $1,518 | $1,326 | $1,444 | |||||||||||||||
Ratios to average net assets: | ||||||||||||||||||||
Net investment income (loss) | (0.48% | ) | 0.43% | 0.24% | (0.08% | ) | (0.48% | ) | ||||||||||||
Total expenses | 2.90% | 3.67% | 2.68% | 3.12% | 3.28% | |||||||||||||||
Net expensesc,f | 1.87% | 1.90% | 1.96% | 1.90% | 1.96% | |||||||||||||||
Portfolio turnover rate | — | 488% | 707% | 868% | 954% |
a | Net investment income (loss) per share was computed using average shares outstanding throughout the period. |
b | Total return does not reflect the impact of any applicable sales charges and has not been annualized. |
c | Net expense information reflects the expense ratios after expense waivers and reimbursements, as applicable. |
d | Net investment income (loss) is less than $0.01 per share. |
e | For the year ended September 30, 2012, 0.30%, 0.22% and 0.96% of the Fund’s A-Class, C-Class and Institutional Class, respectively, total return consisted of a voluntary reimbursement by the Adviser for losses incurred during fund trading. Excluding this item, total return would have been 35.44%, 34.40% and 35.92% for the Fund’s A-Class, C-Class and Institutional Class, respectively. |
f | Net expenses may include expenses that are excluded from the expense limitation agreement. Excluding those amounts, the operating expense ratios for the years presented would be: |
09/30/14 | 09/30/13 | 09/30/12 | 09/30/11 | 09/30/10 | ||||||||||
A-Class | 2.11% | 2.11% | 2.11% | 2.11% | 2.05% | |||||||||
C-Class | 2.86% | 2.86% | 2.86% | 2.86% | 2.80% | |||||||||
Institutional Class | 1.86% | 1.86% | 1.86% | 1.86% | 1.80% |
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS SEMI-ANNUAL REPORT | 17 |
MANAGERS’ COMMENTARY (Unaudited) | September 30, 2014 | |
To Our Shareholders:
Guggenheim Enhanced World Equity Fund (the “Fund”) is managed by a team of seasoned professionals, including Jayson Flowers, Senior Managing Director and Head of Equity and Derivative Strategies; Daniel Cheeseman, Portfolio Manager; Perry Hollowell, Portfolio Manager; and Jamal Pesaran, Portfolio Manager. Mr. Pesaran resigned from the firm effective after the period end. In the following paragraphs, the investment team discusses positioning of the Fund and performance for the one-year period ended September 30, 2014.
For the one-year period ended September 30, 2014, the Guggenheim Enhanced World Equity Fund returned 8.12%1, compared with the 11.89% return of its benchmark, the MSCI All-Country World Index (ACWI).
The investment objective of the Fund is to achieve total return, comprised of capital appreciation and current income. The Fund invests in a broadly diversified portfolio of equity securities, typically exchange traded funds, selected to gain exposure to the global equity markets. The Fund tries to deliver outperformance primarily through its region selection and its writing (selling) of calls. The Fund dynamically adjusts regional exposures based on the opportunities available expressed in underlying valuations and volatility premiums, in addition to qualitative views from Guggenheim Investments. Once the investment team decides on the regions and allocation ranges it favors, it uses a proprietary, rules-based quantitative framework with qualitative management for portfolio construction.
When the risk premiums paid for call options is attractive, the Fund writes calls more aggressively, in which case the premiums help protect the portfolio’s underlying holdings on the downside; where the risk premiums paid are less attractive, the Fund takes in a smaller total premium, but captures more of the upside movement in the underlying holdings. By implementing this consistently well, the collection of the call premiums becomes a potential source of alpha.
Performance Review
Over the period, the Fund underperformed the benchmark. The Fund has a harder time outperforming when it has to write covered calls during strong upside market moves or when implied volatility is low and option premiums are low, both of which circumstances prevailed during much of the period. The derivatives used during the period benefited performance.
Contributing most to the Fund’s performance was exposure to the U.S. equity market and non-U.S. developed markets. Emerging markets as a whole was also a contributor. The largest detractors from Fund performance were exposure to the Brazilian and the Russian markets.
For most of the period, the Fund was overweight both U.S. and emerging markets and underweight Europe, stances that benefited the Fund. The U.S. allocation was due to its relative attractiveness as a market over the period. The U.S. benefited from continued strong corporate earnings, which helped support global markets, including emerging markets. The Fund’s allocation to Europe was larger early in the period, based on Guggenheim’s view that the outlook there was improving. But in mid-2014, the allocation was reduced when European growth began to stall. Pockets of volatility and less-than-favorable economic data from other non-U.S. markets seem likely to continue for the near term.
The Fund helps manage risk by dynamically adjusting the overall level of calls written on the portfolio’s equity holdings—the hedge ratio. It is typically closer to 100% when underlying equity valuations are deemed expensive with less upside potential, and implied volatility is rich with attractive option premiums. It is typically closer to 0% when underlying equities are seen as cheap, with more upside potential and implied volatility is deemed too low to compensate for the market upside, which is capped by the selling of options.
The Fund’s hedge ratio moved from about 25% at the beginning of the period to more than 60% halfway through the period and remained between 40% and 60% for the last few months of the period.
Performance displayed represents past performance which is no guarantee of future results. |
1 Performance figures are based on A-Class shares and do not reflect deduction of the sales charges or taxes that a shareholder would pay on distributions or the redemption of shares. Fee waivers and/or reimbursements reduce Fund expenses, and, in the absence of such waivers, the performance quoted would be reduced. |
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. |
18 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
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THE GUGGENHEIM FUNDS ANNUAL REPORT | 19 |
PERFORMANCE REPORT AND FUND PROFILE (Unaudited) | September 30, 2014 | |
ENHANCED WORLD EQUITY FUND
OBJECTIVE: Seeks to achieve total return, comprised of capital appreciation and current income.
Holdings Diversification (Market Exposure as % of Net Assets)
“Holdings Diversification (Market Exposure as % of Net Assets)” excludes any temporary cash investments.
Cumulative Fund Performance*
Inception Dates: | ||
A-Class | June 18, 2013 | |
C-Class | June 18, 2013 | |
Institutional Class | June 18, 2013 |
Largest Holdings (% of Total Net Assets) | |||
SPDR S&P 500 ETF Trust | 43.6 | % | |
iShares MSCI EAFE ETF | 34.2 | % | |
iShares MSCI South Korea Capped ETF | 5.9 | % | |
SPDR S&P MidCap 400 ETF Trust | 5.5 | % | |
Industrial Select Sector SPDR Fund | 5.0 | % | |
iShares MSCI Mexico Capped ETF | 3.3 | % | |
iShares MSCI Japan ETF | 1.4 | % | |
Total | 98.9 | % | |
“Largest Holdings” exclude any temporary cash or derivative investments.
Since Inception | ||||||||
1 Year | (06/18/13) | |||||||
A-Class Shares | 8.12 | % | 9.66 | % | ||||
A-Class Shares with sales charge† | 2.98 | % | 5.57 | % | ||||
C-Class Shares | 8.00 | % | 9.33 | % | ||||
C-Class Shares with CDSC‡ | 7.00 | % | 9.33 | % | ||||
Institutional Class Shares | 8.42 | % | 9.96 | % | ||||
MSCI All Country World Index | 11.89 | % | 13.14 | % | ||||
* | 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 All Country World Index is an unmanaged index and, unlike the Fund, has no management fees or operating expenses to reduce its reported return. | |
† | Fund returns are calculated using the maximum sales charge of 4.75%. | |
†† | Fund returns include a CDSC of 1% if redeemed within 12 months of purchase |
20 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
SCHEDULE OF INVESTMENTS | September 30, 2014 | |
ENHANCED WORLD EQUITY FUND |
SHARES | VALUE | ||||||
EXCHANGE-TRADED FUNDS† - 98.9% | |||||||
SPDR S&P 500 ETF Trust1 | 13,000 | $ | 2,561,260 | ||||
iShares MSCI EAFE ETF1 | 31,400 | 2,013,368 | |||||
iShares MSCI South Korea Capped ETF1 | 5,700 | 344,907 | |||||
SPDR S&P MidCap 400 ETF Trust1 | 1,300 | 324,116 | |||||
Industrial Select Sector SPDR Fund1 | 5,500 | 292,325 | |||||
iShares MSCI Mexico Capped ETF1 | 2,800 | 192,444 | |||||
iShares MSCI Japan ETF1 | 7,200 | 84,744 | |||||
Total Exchange-Traded Funds | |||||||
(Cost $5,943,100) | 5,813,164 | ||||||
SHORT TERM INVESTMENTS† - 1.5% | |||||||
Dreyfus Treasury Prime Cash | |||||||
Management Fund | 87,177 | 87,177 | |||||
Total Short Term Investments | |||||||
(Cost $87,177) | 87,177 | ||||||
Total Investments - 100.4% | |||||||
(Cost $6,030,277) | $ | 5,900,341 | |||||
CONTRACTS | |||||||
OPTIONS WRITTEN† - (0.1)% | |||||||
Call options on: | |||||||
iShares MSCI Mexico Capped ETF | |||||||
Expiring October 2014 with strike | |||||||
price of $72.00 | 21 | $ | (168 | ) | |||
SPDR S&P MidCap 400 ETF Trust | |||||||
Expiring October 2014 with strike | |||||||
price of $260.00 | 10 | (180 | ) | ||||
iShares MSCI South Korea Capped | |||||||
ETF Expiring October 2014 with | |||||||
strike price of $65.00 | 43 | (215 | ) | ||||
iShares MSCI Japan ETF Expiring | |||||||
October 2014 with strike price | |||||||
of $12.00 | 54 | (216 | ) | ||||
Industrial Select Sector SPDR Fund | |||||||
Expiring October 2014 with | |||||||
strike price of $55.00 | 41 | (328 | ) | ||||
iShares MSCI EAFE ETF Expiring October 2014 | |||||||
with strike price of $67.00 | 236 | (708 | ) | ||||
SPDR S&P 500 ETF Trust Expiring | |||||||
October 2014 with strike price of $202.00 | 98 | (3,038 | ) | ||||
Total Options Written | |||||||
(Premiums received $25,930) | (4,853 | ) | |||||
Other Assets & Liabilities, net - (0.3)% | (16,326 | ) | |||||
Total Net Assets - 100.0% | $ | 5,879,162 |
† | Value determined based on Level 1 inputs — See Note 4. | |
1 | All or a portion of this security is pledged as collateral for open call options written contracts at September 30, 2014. |
THE GUGGENHEIM FUNDS ANNUAL REPORT | 21 |
ENHANCED WORLD EQUITY FUND |
STATEMENT OF ASSETS AND LIABILITIES | ||||
September 30, 2014 | ||||
ASSETS: | ||||
Investments, at value | ||||
(cost $6,030,277) | $ | 5,900,341 | ||
Prepaid expenses | 19,847 | |||
Receivables: | ||||
Investment adviser | 8,104 | |||
Dividends | 3,079 | |||
Total assets | 5,931,371 | |||
LIABILITIES: | ||||
Options written, at value | ||||
(premiums received $25,930) | 4,853 | |||
Overdraft due to custodian bank | 1 | |||
Payable for: | ||||
Professional fees | 18,745 | |||
Legal fees | 8,670 | |||
Direct shareholders expense | 6,066 | |||
Management fees | 3,472 | |||
Transfer agent/maintenance fees | 2,137 | |||
Fund accounting/administration fees | 2,055 | |||
Trustees’ fees* | 168 | |||
Distribution and service fees | 141 | |||
Miscellaneous | 5,901 | |||
Total liabilities | 52,209 | |||
NET ASSETS | $ | 5,879,162 | ||
NET ASSETS CONSIST OF: | ||||
Paid in capital | $ | 5,929,652 | ||
Undistributed net investment income | 20,574 | |||
Accumulated net realized gain on investments | 37,795 | |||
Net unrealized depreciation on investments | (108,859 | ) | ||
Net assets | $ | 5,879,162 | ||
A-CLASS: | ||||
Net assets | $ | 105,739 | ||
Capital shares outstanding | 3,935 | |||
Net asset value per share | $26.87 | |||
Maximum offering price per share | ||||
(Net asset value divided by 95.25%) | $28.21 | |||
C-CLASS: | ||||
Net assets | $ | 124,722 | ||
Capital shares outstanding | 4,661 | |||
Net asset value per share | $26.76 | |||
INSTITUTIONAL CLASS: | ||||
Net assets | $ | 5,648,701 | ||
Capital shares outstanding | 210,624 | |||
Net asset value per share | $26.82 | |||
STATEMENT OF OPERATIONS | ||||
Year Ended September 30, 2014 | ||||
INVESTMENT INCOME: | ||||
Dividends | $ | 83,218 | ||
Total investment income | 83,218 | |||
EXPENSES: | ||||
Management fees | 41,814 | |||
Transfer agent/maintenance fees: | ||||
A-Class | 450 | |||
C-Class | 826 | |||
Institutional Class | 6,780 | |||
Distribution and service fees: | ||||
A-Class | 313 | |||
C-Class | 2,553 | |||
Fund accounting/administration fees | 24,999 | |||
Registration fees | 64,398 | |||
Legal fees | 28,519 | |||
Professional fees | 28,191 | |||
Custodian fees | 6,760 | |||
Tax expense | 363 | |||
Trustees’ fees* | 248 | |||
Miscellaneous | 11,043 | |||
Total expenses | 217,257 | |||
Less: | ||||
Expenses waived by Adviser | (154,250 | ) | ||
Net expenses | 63,007 | |||
Net investment income | 20,211 | |||
NET REALIZED AND UNREALIZED GAIN (LOSS): | ||||
Net realized gain (loss) on: | ||||
Investments | 299,503 | |||
Options written | 183,195 | |||
Net realized gain | 482,698 | |||
Net change in unrealized appreciation (depreciation) on: | ||||
Investments | (50,065 | ) | ||
Options written | 3,476 | |||
Net change in unrealized appreciation (depreciation) | (46,589 | ) | ||
Net realized and unrealized gain | 436,109 | |||
Net increase in net assets resulting | ||||
from operations | $ | 456,320 | ||
* Relates to Trustees not deemed “interested persons” within the meaning of Section 2(a)(19) of the 1940 Act.
22 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
ENHANCED WORLD EQUITY FUND |
STATEMENTS OF CHANGES IN NET ASSETS | ||||||||
Year Ended | Period Ended | |||||||
September 30, | September 30, | |||||||
2014 | 2013a | |||||||
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS: | ||||||||
Net investment income | $ | 20,211 | $ | 28,029 | ||||
Net realized gain on investments | 482,698 | 241,426 | ||||||
Net change in unrealized appreciation (depreciation) on investments | (46,589 | ) | (62,270 | ) | ||||
Net increase in net assets resulting from operations | 456,320 | 207,185 | ||||||
DISTRIBUTIONS TO SHAREHOLDERS FROM: | ||||||||
Net investment income | ||||||||
Institutional Class | (28,029 | ) | — | |||||
Net realized gains | ||||||||
A-Class | (7,329 | ) | — | |||||
C-Class | (19,881 | ) | — | |||||
Institutional Class | (245,722 | ) | — | |||||
Total distributions to shareholders | (300,961 | ) | — | |||||
CAPITAL SHARE TRANSACTIONS: | ||||||||
Proceeds from sale of shares | ||||||||
A-Class | 181,525 | 102,365 | ||||||
C-Class | 1,289,731 | 410,855 | ||||||
Institutional Class | 5,799,760 | 5,006,074 | ||||||
Distributions reinvested | ||||||||
A-Class | 7,324 | — | ||||||
C-Class | 19,881 | — | ||||||
Institutional Class | 273,751 | — | ||||||
Cost of shares redeemed | ||||||||
A-Class | (184,029 | ) | — | |||||
C-Class | (1,556,501 | ) | (27,311 | ) | ||||
Institutional Class | (5,806,807 | ) | — | |||||
Net increase from capital share transactions | 24,635 | 5,491,983 | ||||||
Net increase in net assets | 179,994 | 5,699,168 | ||||||
NET ASSETS: | ||||||||
Beginning of period | 5,699,168 | — | ||||||
End of period | $ | 5,879,162 | $ | 5,699,168 | ||||
Undistributed net investment income at end of period | $ | 20,574 | $ | 28,029 | ||||
CAPITAL SHARE ACTIVITY: | ||||||||
Shares sold | ||||||||
A-Class | 6,829 | 4,016 | ||||||
C-Class | 48,882 | 15,611 | ||||||
Institutional Class | 210,833 | 200,246 | ||||||
Shares issued from reinvestment of distributions | ||||||||
A-Class | 283 | — | ||||||
C-Class | 773 | — | ||||||
Institutional Class | 10,631 | — | ||||||
Shares redeemed | ||||||||
A-Class | (7,193 | ) | — | |||||
C-Class | (59,526 | ) | (1,079 | ) | ||||
Institutional Class | (211,086 | ) | — | |||||
Net increase in shares | 426 | 218,794 | ||||||
a Since commencement of operations: June 18, 2013.
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 23 |
ENHANCED WORLD EQUITY FUND |
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 | Period Ended | ||||||||
September 30, | September 30, | ||||||||
A-Class | 2014 | 2013a | |||||||
Per Share Data | |||||||||
Net asset value, beginning of period | $26.03 | $25.00 | |||||||
Income (loss) from investment operations: | |||||||||
Net investment income (loss)b | .02 | (.03 | ) | ||||||
Net gain (loss) on investments (realized and unrealized) | 2.05 | 1.06 | |||||||
Total from investment operations | 2.07 | 1.03 | |||||||
Less distributions from: | |||||||||
Net realized gains | (1.23 | ) | - | ||||||
Total distributions | (1.23 | ) | - | ||||||
Net asset value, end of period | $26.87 | $26.03 | |||||||
Total Returnc | 8.12% | 4.32% | |||||||
Ratios/Supplemental Data | |||||||||
Net assets, end of period (in thousands) | $106 | $105 | |||||||
Ratios to average net assets: | |||||||||
Net investment income (loss) | 0.07% | (0.36% | ) | ||||||
Total expensesd | 4.04% | 7.21% | g | ||||||
Net expensese | 1.26% | f | 1.25% | ||||||
Portfolio turnover rate | 633% | 174% | |||||||
Year Ended | Period Ended | ||||||||
September 30, | September 30, | ||||||||
C-Class | 2014 | 2013a | |||||||
Per Share Data | |||||||||
Net asset value, beginning of period | $25.96 | $25.00 | |||||||
Income (loss) from investment operations: | |||||||||
Net investment income (loss)b | (.24 | ) | (.03 | ) | |||||
Net gain (loss) on investments (realized and unrealized) | 2.27 | .99 | |||||||
Total from investment operations | 2.03 | .96 | |||||||
Less distributions from: | |||||||||
Net realized gains | (1.23 | ) | - | ||||||
Total distributions | (1.23 | ) | - | ||||||
Net asset value, end of period | $26.76 | $25.96 | |||||||
Total Returnc | 8.00% | 4.00% | |||||||
Ratios/Supplemental Data | |||||||||
Net assets, end of period (in thousands) | $125 | $377 | |||||||
Ratios to average net assets: | |||||||||
Net investment income (loss) | (0.88% | ) | (0.43% | ) | |||||
Total expensesd | 4.57% | 9.26% | g | ||||||
Net expensese | 2.00% | f | 2.00% | ||||||
Portfolio turnover rate | 633% | 174% |
24 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
ENHANCED WORLD EQUITY FUND |
FINANCIAL HIGHLIGHTS (concluded) |
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 | Period Ended | ||||||||
September 30, | September 30, | ||||||||
Institutional Class | 2014 | 2013a | |||||||
Per Share Data | |||||||||
Net asset value, beginning of period | $26.05 | $25.00 | |||||||
Income (loss) from investment operations: | |||||||||
Net investment income (loss)b | .11 | .14 | |||||||
Net gain (loss) on investments (realized and unrealized) | 2.03 | .91 | |||||||
Total from investment operations | 2.14 | 1.05 | |||||||
Less distributions from: | |||||||||
Net investment income | (.14 | ) | - | ||||||
Net realized gains | (1.23 | ) | - | ||||||
Total distributions | (1.37 | ) | - | ||||||
Net asset value, end of period | $26.82 | $26.05 | |||||||
Total Returnc | 8.42% | 4.40% | |||||||
Ratios/Supplemental Data | |||||||||
Net assets, end of period (in thousands) | $5,649 | $5,217 | |||||||
Ratios to average net assets: | |||||||||
Net investment income (loss) | 0.40% | 1.96% | |||||||
Total expensesd | 3.59% | 5.11% | g | ||||||
Net expensese | 1.01% | f | 1.00% | ||||||
Portfolio turnover rate | 633% | 174% |
a | Since commencement of operations: June 18, 2013. Percentage amounts for the period, except total return and portfolio turnover rate, have been annualized. |
b | Net investment income (loss) per share was computed using average shares outstanding throughout the period. |
c | Total return does not reflect the impact of any applicable sales charges and has not been annualized. |
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 those amounts, the operating expense ratio would be 1.25%, 2.00% and 1.00% for the A-Class, C-Class and Institutional Class, respectively. |
g | Due to limited length of Fund operations, ratios for this period are not indicative of future performance. |
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 25 |
MANAGERS’ COMMENTARY (Unaudited) | September 30, 2014 |
To Our Shareholders:
Guggenheim Large Cap Value Fund (the “Fund”) is managed by a team of seasoned professionals led by Mark Mitchell, CFA, Portfolio Manager. In the following paragraphs, he discusses performance of the Fund for the fiscal year ended September 30, 2014.
For the one year period ended September 30, 2014, the Guggenheim Large Cap Value Fund returned 15.25%1, compared with the 18.89% return of its benchmark, the Russell 1000® Value Index.
Strategy and Market Overview
Our investment approach focuses on understanding how companies make money and how easily companies can either improve returns, or maintain existing high levels of profitability or benefit from change that occurs in the industries in which they operate.
In today’s rapid-fire environment marked by very sharp, quick but constrained volatility, our long-term orientation and discipline are a competitive advantage. This should become especially critical when the environment of indiscriminant valuation expansion subsides and when fundamentals once again become a more dominant factor in the market.
Performance Review
Overall, stock selection was positive in seven of ten sectors.
Energy was the most favorable sector for the year. Stock selection more than offset the effect of the Fund’s overweight versus the benchmark. Energy provided the least performance in the benchmark amid a general commodities selloff and falling crude oil prices. Our belief is that longer-term energy prices will be higher than current levels as the cost to pull oil out of the ground isn’t declining and the demand trends ultimately are positive.
Within the Energy sector, positive individual stock selection was broad based. Halliburton Co., an oil field services provider, was the largest individual contributor, followed by Whiting Petroleum Corp., which has exposure to two of the most productive shale fields in the U.S. and announced during the period that it would acquire Kodiak Oil and Gas Corporation. Both Halliburton and Whiting benefited from solid execution and favorable industry dynamics. The Fund also benefited from an underweight position major integrated oil companies, as the fund tends to favor small exploration and production plays.
Utilities was the second-largest contributor to return for the year, benefiting from stock selection from the Fund’s sole holding, Edison International. The sector is one of the largest underweights relative to the index, which also contributed to return, as we do not view Utilities as attractive from either a fundamental or valuation standpoint. Edison was up partly due to a settlement in which it will recoup some expenses related to a nuclear plant shutdown, but we like the holding due to its diversity of business.
Financials was a modest contributor for the year, but included one of the leading individual detractors, Ocwen Financial Corp., a mortgage servicing company. It was down as a result of a delay in a proposed purchase of a large servicing portfolio and an investigation of the company’s servicing practices and intercompany relationships by the New York Director of Financial Services.
Information Technology was the best-performing sector in the benchmark. However, poor stock selection was the leading detractor from return for the Fund. Our overall sector position weight is in-line with the benchmark, but we own more stable, services-related companies and non-personal computer related hardware providers. The Fund also does not own large benchmark companies that were up significantly for the year, Apple and Intel. Both are good companies, but we view their future prospects as already fully valued in the current share price.
Stock selection in Industrials was another detractor. The Fund had an overweight to United Technologies Corp., which was a weak performer for the period. The company is undergoing a portfolio transformation, and we like the stock as a margin improvement story, but it was unable to keep up with the broad market during the period.
We had a significant overweight to the Industrials sector, and it included two holdings that boosted performance: Quanta Services, Inc. and URS Corp., both in the engineering and construction sector. We like the prospects of these companies as the U.S. faces the need to upgrade infrastructure. During the period, URS agreed to be acquired by AECOM.
26 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
MANAGERS’ COMMENTARY (Unaudited) (concluded) | September 30, 2014 | |
Fund performance was also hurt by poor stock selection in Materials. Underperformance in this sector was driven mostly by Coeur Mining, Inc., which is not in index and fell as part of a wider commodities selloff over the past year.
Portfolio Positioning
The largest relative sector exposures for the year were an underweight in Health Care and overweights in Energy and Consumer Staples. All three allocations detracted from Fund performance for the year.
The Health Care sector underweight was predominantly driven by our view that the large pharmaceutical companies look fairly valued, thus are less attractive than companies in other sectors.
The overweights in both Energy and Consumer Staples were driven by our bottom-up fundamental research having identified several companies with favorable risk-return profiles. For example, a top individual holding in Staples for the year was CVS. The company has been reporting solid earnings and continues to benefit from its acquisition of pharmacy benefit manager PBM. In addition, store chains like CVS saw less drop-off in traffic compared with more traditional retailers in the discretionary space.
Portfolio and Market Outlook
For most of the period, the market has behaved in a fairly defensive manner. The best performing areas have been larger companies, REITs and utilities. Of late, the strengthening of the dollar primarily from concerns about global (non-U.S.) growth has only added to the hesitancy of the market. Even if the global economy were to prove disappointing, the low bar offered by insignificant fixed income investment opportunities (the 10-year U.S. government bond yields around 2.5%) should continue to make equities an attractive alternative for incremental investment dollars.
Our portfolios are very balanced with a bias to companies with balance sheet quality. We continue to find niche companies with superior growth opportunities and as such are constructive on the outlook for the year.
Performance displayed represents past performance which is no guarantee of future results. |
1 Performance figures are based on A-Class shares and do not reflect deduction of the sales charges or taxes that a shareholder would pay on distributions or the redemption of shares. Fee waivers and/or reimbursements reduce Fund expenses, and, in the absence of such waivers, the performance quoted would be reduced. |
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) | September 30, 2014 | |
LARGE CAP VALUE FUND
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.
Cumulative Fund Performance*
Inception Dates: | ||
A-Class | August 7, 1944 | |
B-Class | October 19, 1993 | |
C-Class | January 29, 1999 | |
Institutional Class | June 7, 2013 |
Ten Largest Holdings (% of Total Net Assets) | ||||
Wells Fargo & Co. | 4.5 | % | ||
American International Group, Inc. | 3.3 | % | ||
CVS Health Corp. | 3.3 | % | ||
JPMorgan Chase & Co. | 2.9 | % | ||
Time Warner, Inc. | 2.7 | % | ||
Chevron Corp. | 2.7 | % | ||
Edison International | 2.7 | % | ||
Citigroup, Inc. | 2.7 | % | ||
Republic Services, Inc. — Class A | 2.6 | % | ||
Parker-Hannifin Corp. | 2.4 | % | ||
Top Ten Total | 29.8 | % | ||
“Ten Largest Holdings” exclude any temporary cash or derivative investments.
1 Year | 5 Year | 10 Year | ||||||||||
A-Class Shares | 15.25 | % | 12.70 | % | 7.83 | % | ||||||
A-Class Shares with sales charge† | 9.77 | % | 11.38 | % | 7.19 | % | ||||||
B-Class Shares | 15.52 | % | 12.98 | % | 7.65 | % | ||||||
B-Class Shares with CDSC‡ | 10.52 | % | 12.73 | % | 7.65 | % | ||||||
C-Class Shares | 14.35 | % | 11.86 | % | 6.95 | % | ||||||
C-Class Shares with CDSC§ | 13.35 | % | 11.86 | % | 6.95 | % | ||||||
Russell 1000 Value Index | 18.89 | % | 15.26 | % | 7.84 | % | ||||||
Since Inception | ||||||||||||
1 Year | (06/07/13) | |||||||||||
Institutional Class Shares | 15.52 | % | 14.99 | % | ||||||||
Russell 1000 Value Index | 18.89 | % | 15.93 | % | ||||||||
* | 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. | |
† | Effective February 22, 2011, the maximum sales charge decreased from 5.75% to 4.75%. A 5.75% maximum sales charge is used in the calculation of the 5 Year and 10 Year average annual returns (based on subscriptions made prior to February 22, 2011), and a 4.75% maximum sales charge will be used to calculate performance for periods based on subscriptions made on or after February 22, 2011. | |
‡ | Fund returns include a CDSC of up to 5% if redeemed within 5 years of purchase | |
§ | Fund returns include a CDSC of 1% if redeemed within 12 months of purchase. |
28 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
SCHEDULE OF INVESTMENTS | September 30, 2014 | |
LARGE CAP VALUE FUND |
SHARES | VALUE | ||||||
COMMON STOCKS†- 94.8% | |||||||
FINANCIAL - 24.9% | |||||||
Wells Fargo & Co. | 59,530 | $ | 3,087,821 | ||||
American International Group, Inc. | 42,382 | 2,289,476 | |||||
JPMorgan Chase & Co. | 32,620 | 1,965,028 | |||||
Citigroup, Inc. | 35,610 | 1,845,310 | |||||
Allstate Corp. | 24,955 | 1,531,488 | |||||
Bank of New York Mellon Corp. | 39,370 | 1,524,800 | |||||
Reinsurance Group of America, Inc. — Class A | 12,485 | 1,000,423 | |||||
Bank of America Corp. | 51,820 | 883,531 | |||||
NASDAQ OMX Group, Inc. | 17,710 | 751,258 | |||||
Aon plc | 8,125 | 712,319 | |||||
CME Group, Inc. — Class A | 8,290 | 662,827 | |||||
Navient Corp. | 20,090 | 355,794 | |||||
Franklin Resources, Inc. | 4,920 | 268,681 | |||||
Ocwen Financial Corp.* | 9,460 | 247,663 | |||||
Total Financial | 17,126,419 | ||||||
ENERGY - 15.2% | |||||||
Chevron Corp. | 15,705 | 1,873,921 | |||||
Halliburton Co. | 19,795 | 1,276,975 | |||||
Phillips 66 | 14,865 | 1,208,673 | |||||
Apache Corp. | 11,121 | 1,043,928 | |||||
Whiting Petroleum Corp.* | 11,385 | 882,907 | |||||
Exxon Mobil Corp. | 9,100 | 855,855 | |||||
Marathon Oil Corp. | 21,720 | 816,455 | |||||
Patterson-UTI Energy, Inc. | 20,160 | 655,805 | |||||
Superior Energy Services, Inc. | 17,240 | 566,679 | |||||
Suncor Energy, Inc. | 15,020 | 542,973 | |||||
ConocoPhillips | 4,965 | 379,922 | |||||
Oasis Petroleum, Inc.* | 7,630 | 319,010 | |||||
Total Energy | 10,423,103 | ||||||
INDUSTRIAL - 14.4% | |||||||
Republic Services, Inc. — Class A | 45,960 | 1,793,359 | |||||
Parker-Hannifin Corp. | 14,605 | 1,667,160 | |||||
TE Connectivity Ltd. | 27,290 | 1,508,864 | |||||
United Technologies Corp. | 12,420 | 1,311,552 | |||||
Rock-Tenn Co. — Class A | 24,828 | 1,181,316 | |||||
Covanta Holding Corp. | 41,050 | 871,081 | |||||
URS Corp. | 11,880 | 684,407 | |||||
FLIR Systems, Inc. | 18,190 | 570,075 | |||||
General Electric Co. | 13,430 | 344,077 | |||||
Total Industrial | 9,931,891 | ||||||
CONSUMER, NON-CYCLICAL - 14.2% | |||||||
Bunge Ltd. | 16,720 | 1,408,326 | |||||
Aetna, Inc. | 15,870 | 1,285,469 | |||||
Teva Pharmaceutical Industries Ltd. ADR | 22,435 | 1,205,881 | |||||
Mondelez International, Inc. — Class A | 31,020 | 1,062,900 | |||||
Quanta Services, Inc.* | 27,850 | 1,010,677 | |||||
Pfizer, Inc. | 25,550 | 755,514 | |||||
UnitedHealth Group, Inc. | 8,635 | 744,769 | |||||
DeVry Education Group, Inc. | .16,790 | 718,780 | |||||
Kraft Foods Group, Inc. | 8,151 | 459,716 | |||||
Patterson Companies, Inc. | 10,723 | 444,254 | |||||
Johnson & Johnson | 3,300 | 351,747 | |||||
MasterCard, Inc. — Class A | 4,630 | 342,250 | |||||
Total Consumer, Non-cyclical | 9,790,283 | ||||||
CONSUMER, CYCLICAL - 8.3% | |||||||
CVS Health Corp. | 28,160 | 2,241,254 | |||||
Wal-Mart Stores, Inc. | 20,875 | 1,596,311 | |||||
Kohl’s Corp. | 9,550 | 582,837 | |||||
PulteGroup, Inc. | 28,120 | 496,599 | |||||
WESCO International, Inc.* | 6,150 | 481,299 | |||||
Lowe’s Companies, Inc. | 6,530 | 345,568 | |||||
Total Consumer, Cyclical | 5,743,868 | ||||||
COMMUNICATIONS - 7.2% | |||||||
Time Warner, Inc. | 24,945 | 1,876,113 | |||||
Cisco Systems, Inc. | 64,480 | 1,622,962 | |||||
AT&T, Inc. | 23,950 | 843,998 | |||||
DigitalGlobe, Inc.* | 17,655 | 503,168 | |||||
Time, Inc.* | 3,291 | 77,108 | |||||
Total Communications | 4,923,349 | ||||||
BASIC MATERIALS - 4.5% | |||||||
Dow Chemical Co. | 29,230 | 1,532,821 | |||||
Cameco Corp. | 72,230 | 1,275,582 | |||||
Coeur Mining, Inc.* | 59,990 | 297,550 | |||||
Total Basic Materials | 3,105,953 | ||||||
UTILITIES - 3.4% | |||||||
Edison International | 33,135 | 1,852,910 | |||||
UGI Corp. | 15,170 | 517,145 | |||||
Total Utilities | 2,370,055 | ||||||
TECHNOLOGY - 2.7% | |||||||
Computer Sciences Corp. | 24,945 | 1,525,387 | |||||
NetApp, Inc. | 8,355 | 358,931 | |||||
Total Technology | 1,884,318 | ||||||
Total Common Stocks | |||||||
(Cost $51,631,175) | 65,299,239 | ||||||
WARRANTS† - 0.3% | |||||||
American International Group, Inc. | |||||||
$45.00, 01/19/21 | 8,920 | 213,188 | |||||
Total Warrants | |||||||
(Cost $167,892) | 213,188 | ||||||
EXCHANGE-TRADED FUNDS† - 2.0% | |||||||
iShares Russell 1000 Value ETF | 13,750 | 1,376,238 | |||||
Total Exchange-Traded Funds | |||||||
(Cost $1,393,717) | 1,376,238 | ||||||
SHORT TERM INVESTMENTS† - 4.0% | |||||||
Dreyfus Treasury Prime | |||||||
Cash Management Fund | 2,761,536 | 2,761,536 | |||||
Total Short Term Investments | |||||||
(Cost $2,761,536) | 2,761,536 | ||||||
THE GUGGENHEIM FUNDS ANNUAL REPORT | 29 |
SCHEDULE OF INVESTMENTS (concluded) | September 30, 2014 | |
LARGE CAP VALUE FUND |
VALUE | ||||
Total Investments - 101.1% | ||||
(Cost $55,954,320) | $ | 69,650,201 | ||
Other Assets & Liabilities, net - (1.1)% | (778,329) | |||
Total Net Assets - 100.0% | $ | 68,871,872 |
* | Non-income producing security. | |
† | Value determined based on Level 1 inputs — See Note 4. | |
ADR – American Depositary Receipt | ||
plc – Public Limited Company |
30 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
LARGE CAP VALUE FUND |
STATEMENT OF ASSETS AND LIABILITIES | ||||
September 30, 2014 | ||||
ASSETS: | ||||
Investments, at value | ||||
(cost $55,954,320) | $ | 69,650,201 | ||
Prepaid expenses | 24,231 | |||
Cash | 729 | |||
Receivables: | ||||
Securities sold | 586,123 | |||
Dividends | 90,490 | |||
Fund shares sold | 49,045 | |||
Investment adviser | 13,830 | |||
Foreign taxes reclaim | 1,062 | |||
Total assets | 70,415,711 | |||
LIABILITIES: | ||||
Payable for: | ||||
Securities purchased | 1,308,407 | |||
Fund shares redeemed | 97,626 | |||
Management fees | 37,393 | |||
Distribution and service fees | 15,843 | |||
Transfer agent/maintenance fees | 13,514 | |||
Fund accounting/administration fees | 5,465 | |||
Trustees’ fees* | 199 | |||
Miscellaneous | 65,392 | |||
Total liabilities | 1,543,839 | |||
NET ASSETS | $ | 68,871,872 | ||
NET ASSETS CONSIST OF: | ||||
Paid in capital | $ | 56,393,068 | ||
Undistributed net investment income | 463,001 | |||
Accumulated net realized loss on investments | (1,680,078 | ) | ||
Net unrealized appreciation on investments | 13,695,881 | |||
Net assets | $ | 68,871,872 | ||
A-CLASS: | ||||
Net assets | $ | 60,280,981 | ||
Capital shares outstanding | 1,376,400 | |||
Net asset value per share | $43.80 | |||
Maximum offering price per share | ||||
(Net asset value divided by 95.25%) | $45.98 | |||
B-CLASS: | ||||
Net assets | $ | 1,289,471 | ||
Capital shares outstanding | 31,921 | |||
Net asset value per share | $40.40 | |||
C-CLASS: | ||||
Net assets | $ | 3,962,546 | ||
Capital shares outstanding | 96,858 | |||
Net asset value per share | $40.91 | |||
INSTITUTIONAL CLASS: | ||||
Net assets | $ | 3,338,874 | ||
Capital shares outstanding | 76,113 | |||
Net asset value per share | $43.87 | |||
STATEMENT OF OPERATIONS | ||||
Year Ended September 30, 2014 | ||||
INVESTMENT INCOME: | ||||
Dividends (net of foreign withholding tax of $6,789) | $ | 1,250,639 | ||
Interest | 21 | |||
Total investment income | 1,250,660 | |||
EXPENSES: | ||||
Management fees | 430,420 | |||
Transfer agent/maintenance fees: | ||||
A-Class | 83,673 | |||
B-Class | 11,528 | |||
C-Class | 8,991 | |||
Institutional Class | 137 | |||
Distribution and service fees: | ||||
A-Class | 144,441 | |||
C-Class | 36,198 | |||
Fund accounting/administration fees | 62,907 | |||
Registration fees | 65,620 | |||
Legal fees | 55,119 | |||
Trustees’ fees* | 5,797 | |||
Custodian fees | 237 | |||
Tax expense | 55 | |||
Miscellaneous | 95,923 | |||
Total expenses | 1,001,046 | |||
Less: | ||||
Expenses waived by Adviser | (213,340 | ) | ||
Net expenses | 787,706 | |||
Net investment income | 462,954 | |||
NET REALIZED AND UNREALIZED GAIN (LOSS): | ||||
Net realized gain (loss) on: | ||||
Investments | 6,780,018 | |||
Net realized gain | 6,780,018 | |||
Net change in unrealized appreciation (depreciation) on: | ||||
Investments | 1,707,332 | |||
Net change in unrealized appreciation (depreciation) | 1,707,332 | |||
Net realized and unrealized gain | 8,487,350 | |||
Net increase in net assets resulting | ||||
from operations | $ | 8,950,304 | ||
* Relates to Trustees not deemed “interested persons” within the meaning of Section 2(a)(19) of the 1940 Act.
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 31 |
LARGE CAP VALUE FUND |
STATEMENTS OF CHANGES IN NET ASSETS |
Year Ended | Year Ended | |||||||||||
September 30, | September 30, | |||||||||||
2014 | 2013 | |||||||||||
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS: | ||||||||||||
Net investment income | $ | 462,954 | $ | 414,311 | ||||||||
Net realized gain on investments | 6,780,018 | 5,855,722 | ||||||||||
Net change in unrealized appreciation (depreciation) on investments | 1,707,332 | 4,740,834 | ||||||||||
Net increase in net assets resulting from operations | 8,950,304 | 11,010,867 | ||||||||||
DISTRIBUTIONS TO SHAREHOLDERS FROM: | ||||||||||||
Net investment income | ||||||||||||
A-Class | (360,085 | ) | (378,277 | ) | ||||||||
B-Class | (19,432 | ) | (26,337 | ) | ||||||||
C-Class | (8,265 | ) | (6,353 | ) | ||||||||
Institutional Class | (26,519 | ) | —* | |||||||||
Total distributions to shareholders | (414,301 | ) | (410,967 | ) | ||||||||
CAPITAL SHARE TRANSACTIONS: | ||||||||||||
Proceeds from sale of shares | ||||||||||||
A-Class | 27,638,398 | 13,972,222 | ||||||||||
B-Class | 59,007 | 382,680 | ||||||||||
C-Class | 1,719,770 | 2,021,529 | ||||||||||
Institutional Class | 448,328 | 2,198,427* | ||||||||||
Distributions reinvested | ||||||||||||
A-Class | 345,368 | 364,307 | ||||||||||
B-Class | 19,404 | 26,251 | ||||||||||
C-Class | 8,202 | 6,329 | ||||||||||
Institutional Class | 26,518 | —* | ||||||||||
Cost of shares redeemed | ||||||||||||
A-Class | (22,442,543 | ) | (17,227,823 | ) | ||||||||
B-Class | (973,891 | ) | (1,086,876 | ) | ||||||||
C-Class | (1,715,189 | ) | (1,278,271 | ) | ||||||||
Institutional Class | (374,679 | ) | (56,720)* | |||||||||
Net increase (decrease) from capital share transactions | 4,758,693 | (677,945 | ) | |||||||||
Net increase in net assets | 13,294,696 | 9,921,955 | ||||||||||
NET ASSETS: | ||||||||||||
Beginning of year | 55,577,176 | 45,655,221 | ||||||||||
End of year | $ | 68,871,872 | $ | 55,577,176 | ||||||||
Undistributed net investment income at end of year | $ | 463,001 | $ | 414,301 | ||||||||
CAPITAL SHARE ACTIVITY: | ||||||||||||
Shares sold | ||||||||||||
A-Class | 660,974 | 395,711 | ||||||||||
B-Class | 1,550 | 11,387 | ||||||||||
C-Class | 42,907 | 59,294 | ||||||||||
Institutional Class | 10,680 | 75,389* | ||||||||||
Shares issued from reinvestment of distributions | ||||||||||||
A-Class | 8,728 | 11,707 | ||||||||||
B-Class | 533 | 916 | ||||||||||
C-Class | 220 | 216 | ||||||||||
Institutional Class | 670 | —* | ||||||||||
Shares redeemed | ||||||||||||
A-Class | (529,031 | ) | (489,224 | ) | ||||||||
B-Class | (25,223 | ) | (34,294 | ) | ||||||||
C-Class | (43,704 | ) | (39,102 | ) | ||||||||
Institutional Class | (9,126 | ) | (1,500)* | |||||||||
Net increase (decrease) in shares | 119,178 | (9,500 | ) | |||||||||
* Since commencement of operations: June 7, 2013.
32 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
LARGE CAP VALUE FUND |
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 | ||||||||||||||||
September 30, | September 30, | September 30, | September 30, | September 30, | ||||||||||||||||
A-Class | 2014 | 2013 | 2012 | 2011g | 2010g | |||||||||||||||
Per Share Data | ||||||||||||||||||||
Net asset value, beginning of period | $38.28 | $31.25 | $24.58 | $26.08 | $24.92 | |||||||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||
Net investment income (loss)a | .30 | .29 | .25 | .16 | .12 | |||||||||||||||
Net gain (loss) on investments (realized and unrealized) | 5.51 | 7.03 | 6.58 | (1.54 | ) | 1.24 | ||||||||||||||
Total from investment operations | 5.81 | 7.32 | 6.83 | (1.38 | ) | 1.36 | ||||||||||||||
Less distributions from: | ||||||||||||||||||||
Net investment income | (.29 | ) | (.29 | ) | (.16 | ) | (.12 | ) | (.20 | ) | ||||||||||
Total distributions | (.29 | ) | (.29 | ) | (.16 | ) | (.12 | ) | (.20 | ) | ||||||||||
Net asset value, end of period | $43.80 | $38.28 | $31.25 | $24.58 | $26.08 | |||||||||||||||
Total Returnb | 15.25% | 23.62% | 27.90% | (5.38% | ) | 5.46% | ||||||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||
Net assets, end of period (in thousands) | $60,281 | $47,307 | $41,173 | $41,036 | $47,718 | |||||||||||||||
Ratios to average net assets: | ||||||||||||||||||||
Net investment income (loss) | 0.72% | 0.82% | 0.86% | 0.56% | 0.46% | |||||||||||||||
Total expensesc | 1.48% | 1.48% | 1.65% | 1.52% | 1.59% | |||||||||||||||
Net expensesd | 1.17% | h | 1.15% | 1.18% | 1.15% | 1.18% | ||||||||||||||
Portfolio turnover rate | 40% | 43% | 16% | 26% | 29% | |||||||||||||||
Year Ended | Year Ended | Year Ended | Year Ended | Year Ended | ||||||||||||||||
September 30, | September 30, | September 30, | September 30, | September 30, | ||||||||||||||||
B-Class | 2014f | 2013f | 2012f | 2011f,g | 2010f,g | |||||||||||||||
Per Share Data | ||||||||||||||||||||
Net asset value, beginning of period | $35.34 | $28.89 | $22.75 | $24.16 | $23.12 | |||||||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||
Net investment income (loss)a | .36 | .34 | .29 | .21 | .16 | |||||||||||||||
Net gain (loss) on investments (realized and unrealized) | 5.08 | 6.49 | 6.09 | (1.46 | ) | 1.16 | ||||||||||||||
Total from investment operations | 5.44 | 6.83 | 6.38 | (1.25 | ) | 1.32 | ||||||||||||||
Less distributions from: | ||||||||||||||||||||
Net investment income | (.38 | ) | (.38 | ) | (.24 | ) | (.16 | ) | (.28 | ) | ||||||||||
Total distributions | (.38 | ) | (.38 | ) | (.24 | ) | (.16 | ) | (.28 | ) | ||||||||||
Net asset value, end of period | $40.40 | $35.34 | $28.89 | $22.75 | $24.16 | |||||||||||||||
Total Returnb | 15.52% | 23.94% | 28.23% | (5.22% | ) | 5.78% | ||||||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||
Net assets, end of period (in thousands) | $1,289 | $1,946 | $2,226 | $2,682 | $4,132 | |||||||||||||||
Ratios to average net assets: | ||||||||||||||||||||
Net investment income (loss) | 0.95% | 1.07% | 1.10% | 0.78% | 0.68% | |||||||||||||||
Total expensesc | 1.78% | 1.74% | 1.93% | 1.29% | 1.33% | |||||||||||||||
Net expensesd | 0.92% | h | 0.90% | 0.93% | 0.90% | 0.94% | ||||||||||||||
Portfolio turnover rate | 40% | 43% | 16% | 26% | 29% |
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 33 |
LARGE CAP VALUE FUND |
FINANCIAL HIGHLIGHTS (concluded) |
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 | |||||||||||||||
September 30, | September 30, | September 30, | September 30, | September 30, | |||||||||||||||
C-Class | 2014 | 2013 | 2012 | 2011g | 2010g | ||||||||||||||
Per Share Data | |||||||||||||||||||
Net asset value, beginning of period | $35.86 | $29.30 | $23.08 | $24.60 | $23.48 | ||||||||||||||
Income (loss) from investment operations: | |||||||||||||||||||
Net investment income (loss)a | (.02 | ) | .02 | .03 | (.05 | ) | (.08 | ) | |||||||||||
Net gain (loss) on investments (realized and unrealized) | 5.16 | 6.62 | 6.19 | (1.47 | ) | 1.20 | |||||||||||||
Total from investment operations | 5.14 | 6.64 | 6.22 | (1.52 | ) | 1.12 | |||||||||||||
Less distributions from: | |||||||||||||||||||
Net investment income | (.09 | ) | (.08 | ) | — | — | — | ||||||||||||
Total distributions | (.09 | ) | (.08 | ) | — | — | — | ||||||||||||
Net asset value, end of period | $40.91 | $35.86 | $29.30 | $23.08 | $24.60 | ||||||||||||||
Total Returnb | 14.35% | 22.73% | 26.95% | (6.18% | ) | 4.77% | |||||||||||||
Ratios/Supplemental Data | |||||||||||||||||||
Net assets, end of period (in thousands) | $3,963 | $3,494 | $2,257 | $2,013 | $2,493 | ||||||||||||||
Ratios to average net assets: | |||||||||||||||||||
Net investment income (loss) | (0.04% | ) | 0.08% | 0.12% | (0.20% | ) | (0.31% | ) | |||||||||||
Total expensesc | 2.33% | 2.47% | 2.45% | 2.27% | 2.33% | ||||||||||||||
Net expensesd | 1.92% | h | 1.90% | 1.93% | 1.90% | 1.94% | |||||||||||||
Portfolio turnover rate | 40% | 43% | 16% | 26% | 29% | ||||||||||||||
Year Ended | Period Ended | ||||||||||||||||||
September 30, | September 30, | ||||||||||||||||||
Institutional Class | 2014 | 2013e | |||||||||||||||||
Per Share Data | |||||||||||||||||||
Net asset value, beginning of period | $38.32 | $36.84 | |||||||||||||||||
Income (loss) from investment operations: | |||||||||||||||||||
Net investment income (loss)a | .40 | .13 | |||||||||||||||||
Net gain (loss) on investments (realized and unrealized) | 5.51 | 1.35 | |||||||||||||||||
Total from investment operations | 5.91 | 1.48 | |||||||||||||||||
Less distributions from: | |||||||||||||||||||
Net investment income | (.36 | ) | — | ||||||||||||||||
Total distributions | (.36 | ) | — | ||||||||||||||||
Net asset value, end of period | $43.87 | $38.32 | |||||||||||||||||
Total Returnb | 15.52% | 4.02% | |||||||||||||||||
Ratios/Supplemental Data | |||||||||||||||||||
Net assets, end of period (in thousands) | $3,339 | $2,831 | |||||||||||||||||
Ratios to average net assets: | |||||||||||||||||||
Net investment income (loss) | 0.96% | 1.12% | |||||||||||||||||
Total expensesc | 1.08% | 1.12% | |||||||||||||||||
Net expensesd | 0.92% | h | 0.89% | ||||||||||||||||
Portfolio turnover rate | 40% | 43% |
a | Net investment income (loss) per share was computed using average shares outstanding throughout the period. |
b | Total return does not reflect the impact of any applicable sales charges and has not been annualized. |
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 | Since commencement of operations: June 7, 2013. Percentage amounts for the period, except total return and portfolio turnover rate, have been annualized. |
f | Effective August 1, 2007 — B-Class shares ceased charging 12b-1 fees in accordance with FINRA sales cap regulations. Per share information reflects this change. This fee will be reinstated when sales exceed the sales cap limits. |
g | Reverse share split — Per share amounts for the periods presented through April 8, 2011 have been restated to reflect a 1:4 reverse share split effective April 8, 2011. |
h | Net expenses may include expenses that are excluded from the expense limitation agreement. Excluding those amounts, the operating expense ratio would be 1.15%, 0.90%, 1.90% and 0.90% for the A-Class, B-Class, C-Class and Institutional Class, respectively. |
34 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
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THE GUGGENHEIM FUNDS ANNUAL REPORT | 35 |
MANAGERS’ COMMENTARY (Unaudited) | September 30, 2014 | |
To Our Shareholders
Guggenheim Risk Managed Real Estate Fund (the “Fund”) is managed by a team of seasoned professionals, including Jayson Flowers, Senior Managing Director and Head of Equity and Derivative Strategies, and Thomas Youn, CFA, Director and Portfolio Manager. In the following paragraphs, the investment team discusses performance for the abbreviated fiscal year ended September 30, 2014.
For the abbreviated fiscal period ended September 30, 2014, the Guggenheim Risk Managed Real Estate Fund returned 8.35%1, compared with the 4.44% return of its benchmark, the FTSE NAREIT Equity REITs Index. The Fund’s inception date was March 28, 2014.
Market Review
Real estate investment trusts (REITs) traded lower as 2014 progressed, as higher interest rate volatility weighed on the sector. Although the FTSE NAREIT Equity REITs Index underperformed the S&P 500 Index for the 12-month period ended September 30, 2014, it outperformed for the nine months of 2014. REITs lagged the broad market by a wide margin in 2013 as interest rates rose sharply following the Federal Reserve’s “taper” announcement in May 2013. The trend reversed in 2014 as REITs have been supported by both declining interest rates and robust underlying fundamentals for commercial real estate (CRE).
CRE fundamentals remain strong across the U.S. and across nearly all property types. Despite the tepid pace of the broader economic recovery, sufficient tenant demand has led to positive net absorption of available space. Occupancy rates are approaching full levels, resulting in upward pressure on market rents, and property cash flows have recovered past prior peak levels. Likewise, CRE values have fully recovered and surpassed prior peak levels of 2007 by roughly 12%.
A unique and favorable characteristic of the current CRE cycle is the unusually low level of new property development and supply on the horizon. The current pipeline of CRE development amounts to roughly 1.0% of existing stock compared with the long-term average of 2.0%. In past downturns, this figure has reached as high as 4.0% and created a headwind for occupancy, rent growth, and property appreciation due to a glut of vacant space. Given the sizeable lead-time needed to start and deliver new development projects, new supply will likely remain muted over the near term. To be sure, new construction activity has picked up recently but still remains at historically low levels.
Performance Review
For the approximately six months since inception through September 30, 2014, the Fund returned 8.35%,1 compared with the 4.44% return of the index. After five strong, positive months, the Fund gave back some of its gains in September. Both the Fund and the index had negative returns for the third quarter, -0.34% versus -3.14%.
The Fund’s outperformance since inception was primarily driven by favorable stock selection in the Long-Only allocation, and the Long/Short allocation. The Fund’s average allocation to the Long-Only REIT and Market-Neutral Long/Short REIT strategies was 95% and 35%, respectively. Based on these allocations, the consolidated Fund had slightly less market exposure than the benchmark index (0.9 beta), which detracted slightly from performance given the benchmark’s better return since inception. Stock selection was particularly strong in the retail, lodging, and healthcare sectors. Two retail REITs owned by the Fund were leading contributors to outperformance: Glimcher Realty Trust and AMREIT Inc., both of which were targeted for acquisition during the third quarter.
Strategy
Our outlook for the REIT sector remains positive based on the favorable trends in underlying property fundamentals, robust capital market conditions and the backdrop of historically low new supply. Despite concerns over rising interest rates, private market property values may continue to appreciate due to underlying property cash flow growth. Said differently, while a rise in interest rates due to stronger economic growth may present a headwind to CRE valuation multiples, underlying property cash flow growth would likely accelerate along with the broader economy and serve as an offsetting tailwind to support further appreciation.
The Fund’s portfolio positioning remains relatively unchanged since inception. It remains positioned to benefit from a continuing economic recovery in the U.S. while also being defensive against a rising interest rate environment.
36 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
MANAGERS’ COMMENTARY (Unaudited) (concluded) | September 30, 2014 | |
Key sector overweights include manufactured housing, lodging, wireless tower, and office REITs. We believe the manufactured housing and wireless tower sectors present attractive growth prospects relative to current valuations. The lodging and office sectors are enjoying accelerating demand trends, and we believe these sectors should perform well in the latter half of the CRE cycle.
Key sector underweights include the healthcare and net lease REITs, due to their long lease durations and high sensitivity to interest rate changes. In addition, these sectors offer below average cash flow growth potential and trade at significant premium to Net Asset Value that is difficult to justify.
Outlook
We are in the sweet spot of the CRE cycle. Occupancies have reached or are approaching full levels across most property types causing rent growth to accelerate. A key bright spot for this CRE cycle is the low level of new supply on the horizon. Capital market conditions remains supportive of asset prices with strong equity capital flows into private and public real estate (REITs) and ample availability of attractively priced debt.
Performance displayed represents past performance which is no guarantee of future results.
1 Performance figures are based on A-Class shares and do not reflect deduction of the sales charges or taxes that a shareholder would pay on distributions or the redemption of shares. Fee waivers and/or reimbursements reduce Fund expenses, and, in the absence of such waivers, the performance quoted would be reduced.
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 | 37 |
PERFORMANCE REPORT AND FUND PROFILE (Unaudited) | September 30, 2014 | |
RISK MANAGED REAL ESTATE FUND
OBJECTIVE: Seeks to provide total return, comprised of capital appreciation and current income.
Holdings Diversification (Market Exposure as % of Net Assets)
"Holdings Diversification (Market Exposure as % of Net Assets)" excludes any temporary cash investments.
Inception Dates: | ||
A-Class | March 28, 2014 | |
C-Class | March 28, 2014 | |
Institutional Class | March 28, 2014 |
Ten Largest Long Holdings (% of Total Net Assets) | |||
Simon Property Group, Inc. | 6.6 | % | |
WP Carey, Inc. | 3.1 | % | |
Sabra Health Care REIT, Inc. | 2.9 | % | |
General Growth Properties, Inc. | 2.8 | % | |
Chatham Lodging Trust | 2.6 | % | |
Ventas, Inc. | 2.5 | % | |
American Tower Corp. — Class A | 2.5 | % | |
Camden Property Trust | 2.5 | % | |
Sun Communities, Inc. | 2.4 | % | |
Equity Residential | 2.4 | % | |
Top Ten Total | 30.3 | % | |
“Ten Largest Long Holdings” exclude any temporary cash or derivative investments.
Since Inception | ||||
(03/28/14) | ||||
A-Class Shares | 8.35 | % | ||
A-Class Shares with sales charge† | 3.19 | % | ||
C-Class Shares | 7.85 | % | ||
C-Class Shares with CDSC‡ | 6.85 | % | ||
Institutional Class Shares | 8.44 | % | ||
FTSE NAREIT EQUITY REITs Index | 4.44 | % | ||
* | 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 FTSE NAREIT EQUITY REITs Index is an unmanaged index and, unlike the Fund, has no management fees or operating expenses to reduce its reported return. | |
† | Fund returns are calculated using the maximum sales charge of 4.75%. | |
‡ | Fund returns include a CDSC of 1% if redeemed within 12 months of purchase. |
38 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
SCHEDULE OF INVESTMENTS | September 30, 2014 | |
RISK MANAGED REAL ESTATE FUND |
SHARES | VALUE | ||||||
COMMON STOCKS† - 93.9% | |||||||
REITs - 82.8% | |||||||
REITs-OFFICE PROPERTY - 15.9% | |||||||
Parkway Properties, Inc. | 124,412 | $ | 2,336,456 | ||||
Gramercy Property Trust, Inc. | 309,486 | 1,782,639 | |||||
BioMed Realty Trust, Inc. | 87,130 | 1,760,026 | |||||
Boston Properties, Inc. | 14,574 | 1,687,086 | |||||
Douglas Emmett, Inc. | 62,992 | 1,617,005 | |||||
Brandywine Realty Trust | 98,827 | 1,390,496 | |||||
Columbia Property Trust, Inc. | 57,714 | 1,377,633 | |||||
Hudson Pacific Properties, Inc. | 43,463 | 1,071,798 | |||||
Highwoods Properties, Inc. | 25,603 | 995,957 | |||||
SL Green Realty Corp. | 7,639 | 773,983 | |||||
Alexandria Real Estate Equities, Inc. | 8,275 | 610,281 | |||||
American Realty Capital Properties, Inc. | 48,465 | 584,488 | |||||
Kilroy Realty Corp. | 9,772 | 580,848 | |||||
Total REITs-Office Property | 16,568,696 | ||||||
REITs-REGIONAL MALLS - 12.0% | |||||||
Simon Property Group, Inc. | 41,902 | 6,889,526 | |||||
General Growth Properties, Inc. | 125,182 | 2,948,036 | |||||
Pennsylvania Real Estate Investment Trust | 113,425 | 2,261,695 | |||||
Macerich Co. | 5,477 | 349,597 | |||||
Total REITs-Regional Malls | 12,448,854 | ||||||
REITs-APARTMENTS - 11.1% | |||||||
Camden Property Trust | 37,210 | 2,550,001 | |||||
Equity Residential | 40,751 | 2,509,447 | |||||
Post Properties, Inc. | 39,183 | 2,011,655 | |||||
Apartment Investment & Management Co. — Class A | 60,270 | 1,917,791 | |||||
Essex Property Trust, Inc. | 10,241 | 1,830,579 | |||||
UDR, Inc. | 16,180 | 440,905 | |||||
AvalonBay Communities, Inc. | 1,992 | 280,812 | |||||
Total REITs-Apartments | 11,541,190 | ||||||
REITs-DIVERSIFIED - 10.5% | |||||||
American Tower Corp. — Class A | 27,355 | 2,561,249 | |||||
American Assets Trust, Inc. | 70,613 | 2,328,111 | |||||
Vornado Realty Trust | 19,215 | 1,920,731 | |||||
Crown Castle International Corp. | 22,937 | 1,847,117 | |||||
Liberty Property Trust | 50,010 | 1,663,333 | |||||
Digital Realty Trust, Inc. | 9,388 | 585,623 | |||||
Total REITs-Diversified | 10,906,164 | ||||||
REITs-HEALTH CARE - 7.5% | |||||||
Sabra Health Care REIT, Inc. | 125,674 | 3,056,392 | |||||
Ventas, Inc. | 41,952 | 2,598,926 | |||||
Health Care REIT, Inc. | 34,499 | 2,151,703 | |||||
Total REITs-Health Care | 7,807,021 | ||||||
REITs-HOTELS - 6.5% | |||||||
Chatham Lodging Trust | 119,025 | 2,747,096 | |||||
Host Hotels & Resorts, Inc. | 87,263 | 1,861,320 | |||||
Strategic Hotels & Resorts, Inc.* | 150,446 | 1,752,696 | |||||
LaSalle Hotel Properties | 12,053 | 412,695 | |||||
Total REITs-Hotels | 6,773,807 | ||||||
REITs-WAREHOUSE/INDUSTRIES - 6.3% | |||||||
Rexford Industrial Realty, Inc. | 162,010 | 2,242,219 | |||||
Prologis, Inc. | 48,786 | 1,839,232 | |||||
QTS Realty Trust, Inc. — Class A | 52,692 | 1,599,202 | |||||
DCT Industrial Trust, Inc. | 122,318 | 918,608 | |||||
Total REITs-Warehouse/Industries | 6,599,261 | ||||||
REITs-SHOPPING CENTERS - 5.5% | |||||||
Regency Centers Corp. | 43,114 | 2,320,827 | |||||
Federal Realty Investment Trust | 9,139 | 1,082,606 | |||||
Kimco Realty Corp. | 47,258 | 1,035,423 | |||||
Washington Prime Group, Inc. | 42,452 | 742,061 | |||||
DDR Corp. | 35,270 | 590,067 | |||||
Total REITs-Shopping Centers | 5,770,984 | ||||||
REITs-MANUFACTURED HOMES - 4.3% | |||||||
Sun Communities, Inc. | 50,194 | 2,534,797 | |||||
Equity Lifestyle Properties, Inc. | 44,744 | 1,895,356 | |||||
Total REITs-Manufactured Homes | 4,430,153 | ||||||
REITs-STORAGE - 3.2% | |||||||
CubeSmart | 101,202 | 1,819,612 | |||||
Public Storage | 5,209 | 863,861 | |||||
Extra Space Storage, Inc. | 12,423 | 640,654 | |||||
Total REITs-Storage | 3,324,127 | ||||||
Total REITs | 86,170,257 | ||||||
REAL ESTATE - 5.3% | |||||||
REAL ESTATE MANAGEMENT/SERVICES - 3.1% | |||||||
WP Carey, Inc. | 51,016 | 3,253,290 | |||||
REAL ESTATE OPERATIONS/DEVELOPMENT - 2.2% | |||||||
Forest City Enterprises, Inc. — Class A* | 118,819 | 2,324,100 | |||||
Total Real Estate | 5,577,390 | ||||||
LODGING - 3.6% | |||||||
HOTELS & MOTELS - 3.6% | |||||||
Starwood Hotels & Resorts Worldwide, Inc. | 26,800 | 2,230,028 | |||||
Hyatt Hotels Corp. — Class A* | 25,933 | 1,569,465 | |||||
Total Hotels & Motels | 3,799,493 | ||||||
Total Lodging | 3,799,493 | ||||||
HEALTHCARE-SERVICES - 2.2% | |||||||
MEDICAL-HOSPITALS - 2.2% | |||||||
HCA Holdings, Inc.* | 32,163 | 2,268,135 | |||||
Total Healthcare-Services | 2,268,135 | ||||||
Total Common Stocks | |||||||
(Cost $100,969,264) | 97,815,275 | ||||||
SHORT TERM INVESTMENTS† - 7.2% | |||||||
Dreyfus Treasury Prime Cash Management Fund | 7,534,793 | 7,534,793 | |||||
Total Short Term Investments | |||||||
(Cost $7,534,793) | 7,534,793 | ||||||
Total Investments - 101.1% | |||||||
(Cost $108,504,057) | $ | 105,350,068 | |||||
THE GUGGENHEIM FUNDS ANNUAL REPORT | 39 |
SCHEDULE OF INVESTMENTS (concluded) | September 30, 2014 | |
RISK MANAGED REAL ESTATE FUND |
SHARES | VALUE | ||||||
COMMON STOCKS SOLD SHORT† - (22.2)% | |||||||
REITs - (22.2)% | |||||||
REITs-MORTGAGE - (1.3)% | |||||||
Annaly Capital Management, Inc. | (131,175 | ) | $ | (1,400,949 | ) | ||
REITs-APARTMENTS - (1.6)% | |||||||
Home Properties, Inc. | (12,127 | ) | (706,276 | ) | |||
American Homes 4 Rent — Class A | (58,336 | ) | (985,295 | ) | |||
Total REITs-Apartments | (1,691,571 | ) | |||||
REITs-SHOPPING CENTERS - (2.1)% | |||||||
Brixmor Property Group, Inc. | (47,522 | ) | (1,057,840 | ) | |||
Weingarten Realty Investors | (36,036 | ) | (1,135,134 | ) | |||
Total REITs-Shopping Centers | (2,192,974 | ) | |||||
REITs-HOTELS - (2.2)% | |||||||
FelCor Lodging Trust, Inc. | (76,268 | ) | (713,868 | ) | |||
Summit Hotel Properties, Inc. | (67,632 | ) | (729,073 | ) | |||
Chesapeake Lodging Trust | (29,542 | ) | (861,149 | ) | |||
Total REITs-Hotels | (2,304,090 | ) | |||||
REITs-SINGLE TENANT - (2.8)% | |||||||
Realty Income Corp. | (35,658 | ) | (1,454,490 | ) | |||
National Retail Properties, Inc. | (42,084 | ) | (1,454,844 | ) | |||
Total REITs-Single Tenant | (2,909,334 | ) | |||||
REITs-HEALTH CARE - (2.9)% | |||||||
HCP, Inc. | (5,956 | ) | (236,513 | ) | |||
Omega Healthcare Investors, Inc. | (20,246 | ) | (692,211 | ) | |||
Healthcare Realty Trust, Inc. | (44,112 | ) | (1,044,572 | ) | |||
Aviv REIT, Inc. | (41,352 | ) | (1,089,625 | ) | |||
Total REITs-Health Care | (3,062,921 | ) | |||||
REITs-REGIONAL MALLS - (3.0)% | |||||||
Tanger Factory Outlet Centers, Inc. | (31,367 | ) | (1,026,328 | ) | |||
Rouse Properties, Inc. | (63,553 | ) | (1,027,652 | ) | |||
CBL & Associates Properties, Inc. | (57,653 | ) | (1,031,989 | ) | |||
Total REITs-Regional Malls | (3,085,969 | ) | |||||
REITs-DIVERSIFIED - (3.1)% | |||||||
STAG Industrial, Inc. | (39,097 | ) | (809,699 | ) | |||
Duke Realty Corp. | (60,079 | ) | (1,032,157 | ) | |||
Washington Real Estate Investment Trust | (52,941 | ) | (1,343,643 | ) | |||
Total REITs-Diversified | (3,185,499 | ) | |||||
REITs-OFFICE PROPERTY - (3.2)% | |||||||
First Potomac Realty Trust | (56,259 | ) | (661,043 | ) | |||
Piedmont Office Realty Trust, Inc. — Class A | (38,459 | ) | (678,417 | ) | |||
Government Properties Income Trust | (45,623 | ) | (999,600 | ) | |||
Equity Commonwealth | (38,907 | ) | (1,000,299 | ) | |||
Total REITs-Office Property | (3,339,359 | ) | |||||
Total REITs | (23,172,666 | ) | |||||
Total Common Stocks Sold Short | |||||||
(Proceeds $24,579,527) | (23,172,666 | ) | |||||
EXCHANGE-TRADED FUNDS SOLD SHORT† - (6.1)% | |||||||
iShares US Real Estate ETF | 91,854 | (6,356,297 | ) | ||||
Total Exchange-Traded Funds Sold Short | |||||||
(Proceeds $6,623,923) | (6,356,297 | ) | |||||
Total Securities Sold Short - (28.3)% | |||||||
(Proceeds $31,203,450) | $ | (29,528,963 | ) | ||||
Other Assets & Liabilities, net - 27.2% | 28,330,598 | ||||||
Total Net Assets - 100.0% | $ | 104,151,703 | |||||
UNREALIZED | |||||||
UNITS | GAIN (LOSS) | ||||||
OTC EQUITY INDEX SWAP AGREEMENTS†† | |||||||
Bank of America Merrill Lynch | |||||||
November 2014 Guggenheim Real Estate Investment | |||||||
Trust Basket Total Return Index | |||||||
Swap, Terminating 11/05/141 | |||||||
(Notional Value $31,415,945) | 327,779 | $ | — | ||||
Sector Diversification | ||||
Bank of America Merrill Lynch Real Estate Investment Trust Index Swap | ||||
Sector | % of Index | |||
Retail REITs | 19.9 | % | ||
Residential REITs | 17.8 | % | ||
Office REITs | 17.2 | % | ||
Health Care REITs | 10.3 | % | ||
Diversified REITs | 8.9 | % | ||
Specialized REITs | 7.9 | % | ||
Hotel & Resort REITs | 6.7 | % | ||
Industrial REITs | 5.4 | % | ||
Hotels, Resorts & Cruise Lines | 2.9 | % | ||
Real Estate Operating Companies | 1.5 | % | ||
Health Care Facilities | 1.5 | % | ||
Total | 100.0 | % | ||
* | Non-income producing security. | |
† | Value determined based on Level 1 inputs — See Note 4. | |
†† | Value determined based on Level 2 inputs — See Note 4. | |
1 | Customized basket of 56 exchange-traded equity securities. | |
REIT — Real Estate Investment Trust |
40 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
RISK MANAGED REAL ESTATE FUND |
STATEMENT OF ASSETS AND LIABILITIES | ||||
September 30, 2014 |
ASSETS: | |||||
Investments, at value (cost $108,504,057) | $ | 105,350,068 | |||
Segregated cash with broker | 29,635,304 | ||||
Prepaid expenses | 32,957 | ||||
Receivables: | |||||
Securities sold | 1,481,853 | ||||
Dividends | 290,263 | ||||
Fund shares sold | 14,072 | ||||
Investment adviser | 395 | ||||
Total assets | 136,804,912 | ||||
LIABILITIES: | |||||
Securities sold short, at value (proceeds $31,203,450) | 29,528,963 | ||||
Distributions payable | 31,134 | ||||
Payable for: | |||||
Swap settlement | 1,640,330 | ||||
Securities purchased | 1,335,286 | ||||
Management fees | 65,673 | ||||
Investment adviser | 9,803 | ||||
Fund accounting/administration fees | 4,472 | ||||
Trustees’ fees* | 548 | ||||
Transfer agent/maintenance fees | 374 | ||||
Distribution and service fees | 73 | ||||
Miscellaneous | 36,553 | ||||
Total liabilities | 32,653,209 | ||||
NET ASSETS | $ | 104,151,703 | |||
NET ASSETS CONSIST OF: | |||||
Paid in capital | $ | 105,585,001 | |||
Distributions in excess of net investment income | (31,134 | ) | |||
Accumulated net realized gain on investments | 77,338 | ||||
Net unrealized depreciation on investments | (1,479,502 | ) | |||
Net assets | $ | 104,151,703 | |||
A-CLASS: | |||||
Net assets | $ | 107,162 | |||
Capital shares outstanding | 3,970 | ||||
Net asset value per share | $26.99 | ||||
Maximum offering price per share (Net asset value divided by 95.25%) | $28.34 | ||||
C-CLASS: | |||||
Net assets | $ | 52,039 | |||
Capital shares outstanding | 1,931 | ||||
Net asset value per share | $26.95 | ||||
INSTITUTIONAL CLASS: | |||||
Net assets | $ | 103,992,502 | |||
Capital shares outstanding | 3,851,177 | ||||
Net asset value per share | $27.00 | ||||
STATEMENT OF OPERATIONS |
Period Ended September 30, 2014** |
INVESTMENT INCOME: | ||||
Dividends | $ | 582,779 | ||
Total investment income | 582,779 | |||
EXPENSES: | ||||
Management fees | 162,599 | |||
Transfer agent/maintenance fees: | ||||
A-Class | 85 | |||
C-Class | 2,000 | |||
Institutional Class | 82 | |||
Distribution and service fees: | ||||
A-Class | 40 | |||
C-Class | 314 | |||
Fund accounting/administration fees | 12,633 | |||
Prime broker interest expense | 45,277 | |||
Short sales dividend expense | 275,757 | |||
Registration fees | 25,065 | |||
Professional fees | 24,468 | |||
Custodian fees | 3,025 | |||
Trustees’ fees* | 903 | |||
Miscellaneous | 32,744 | |||
Total expenses | 584,992 | |||
Less: | ||||
Expenses waived by Adviser | (25,147 | ) | ||
Net expenses | 559,845 | |||
Net investment income | 22,934 | |||
NET REALIZED AND UNREALIZED GAIN (LOSS): | ||||
Net realized gain (loss) on: | ||||
Investments | 1,006,311 | |||
Swap agreements | (805,004 | ) | ||
Securities sold short | 13,664 | |||
Net realized gain | 214,971 | |||
Net change in unrealized appreciation (depreciation) on: | ||||
Investments | (3,153,989 | ) | ||
Securities sold short | 1,674,487 | |||
Net change in unrealized appreciation (depreciation) | (1,479,502 | ) | ||
Net realized and unrealized loss | (1,264,531 | ) | ||
Net decrease in net assets resulting from operations | $ | (1,241,597 | ) | |
* | Relates to Trustees not deemed "interested persons" within the meaning of Section 2(a)(19) of the 1940 Act. |
** | Since commencement of operations: March 28, 2014. |
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 41 |
RISK MANAGED REAL ESTATE FUND |
STATEMENT OF CHANGES IN NET ASSETS | |||||
Period Ended | |||||
September 30, | |||||
2014a | |||||
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS: | |||||
Net investment income | $ | 22,934 | |||
Net realized gain on investments | 214,971 | ||||
Net change in unrealized appreciation (depreciation) on investments | (1,479,502 | ) | |||
Net decrease in net assets resulting from operations | (1,241,597 | ) | |||
DISTRIBUTIONS TO SHAREHOLDERS FROM: | |||||
Net investment income | |||||
A-Class | (156 | ) | |||
C-Class | (6 | ) | |||
Institutional Class | (191,573 | ) | |||
Total distributions to shareholders | (191,735 | ) | |||
CAPITAL SHARE TRANSACTIONS: | |||||
Proceeds from sale of shares | |||||
A-Class | 110,130 | ||||
C-Class | 309,239 | ||||
Institutional Class | 105,276,555 | ||||
Distributions reinvested | |||||
A-Class | 73 | ||||
Institutional Class | 160,496 | ||||
Cost of shares redeemed | |||||
A-Class | (105 | ) | |||
C-Class | (260,047 | ) | |||
Institutional Class | (11,306 | ) | |||
Net increase from capital share transactions | 105,585,035 | ||||
Net increase in net assets | 104,151,703 | ||||
NET ASSETS: | |||||
Beginning of period | – | ||||
End of period | $ | 104,151,703 | |||
Distributions in excess of net investment income at end of period | $ | (31,134 | ) | ||
CAPITAL SHARE ACTIVITY: | |||||
Shares sold | |||||
A-Class | 3,971 | ||||
C-Class | 11,307 | ||||
Institutional Class | 3,845,861 | ||||
Shares issued from reinvestment of distributions | |||||
A-Class | 3 | ||||
Institutional Class | 5,733 | ||||
Shares redeemed | |||||
A-Class | (4 | ) | |||
C-Class | (9,376 | ) | |||
Institutional Class | (417 | ) | |||
Net increase in shares | 3,857,078 | ||||
a Since commencement of operations: March 28, 2014.
42 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
RISK MANAGED REAL ESTATE FUND |
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. |
Period Ended | |||||
September 30, | |||||
A-Class | 2014a | ||||
Per Share Data | |||||
Net asset value, beginning of period | $25.00 | ||||
Income (loss) from investment operations: | |||||
Net investment income (loss)b | 02 | ||||
Net gain (loss) on investments (realized and unrealized) | 2.06 | ||||
Total from investment operations | 2.08 | ||||
Less distributions from: | |||||
Net investment income | (.09 | ) | |||
Total distributions | (.09 | ) | |||
Net asset value, end of period | $26.99 | ||||
Total Returnc | 8.35% | ||||
Ratios/Supplemental Data | |||||
Net assets, end of period (in thousands) | $107 | ||||
Ratios to average net assets: | |||||
Net investment income (loss) | 0.16% | ||||
Total expensesd,e | 4.22% | ||||
Net expensesf,g | 3.32% | ||||
Portfolio turnover rate | 57% |
Period Ended | |||||
September 30, | |||||
C-Class | 2014a | ||||
Per Share Data | |||||
Net asset value, beginning of period | $25.00 | ||||
Income (loss) from investment operations: | |||||
Net investment income (loss)b | (.23 | ) | |||
Net gain (loss) on investments (realized and unrealized) | 2.19 | ||||
Total from investment operations | 1.96 | ||||
Less distributions from: | |||||
Net investment income | (.01 | ) | |||
Total distributions | (.01 | ) | |||
Net asset value, end of period | $26.95 | ||||
Total Returnc | 7.85% | ||||
Ratios/Supplemental Data | |||||
Net assets, end of period (in thousands) | $52 | ||||
Ratios to average net assets: | |||||
Net investment income (loss) | (1.60% | ) | |||
Total expensesd,e | 9.33% | ||||
Net expensesf,g | 2.67% | ||||
Portfolio turnover rate | 57% |
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 43 |
RISK MANAGED REAL ESTATE FUND |
FINANCIAL HIGHLIGHTS (concluded) |
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. |
Period Ended | ||||||
September 30, | ||||||
Institutional Class | 2014a | |||||
Per Share Data | ||||||
Net asset value, beginning of period | $25.00 | |||||
Income (loss) from investment operations: | ||||||
Net investment income (loss)b | .02 | |||||
Net gain (loss) on investments (realized and unrealized) | 2.09 | |||||
Total from investment operations | 2.11 | |||||
Less distributions from: | ||||||
Net investment income | (.11 | ) | ||||
Total distributions | (.11 | ) | ||||
Net asset value, end of period | $27.00 | |||||
Total Returnc | 8.44% | |||||
Ratios/Supplemental Data | ||||||
Net assets, end of period (in thousands) | $103,993 | |||||
Ratios to average net assets: | ||||||
Net investment income (loss) | 0.11% | |||||
Total expensesd,e | 2.69% | |||||
Net expensesf,g | 2.58% | |||||
Portfolio turnover rate | 57% |
a | Since commencement of operations: March 28, 2014. Percentage amounts for the period, except total return and portfolio turnover rate, have been annualized. | |
b | Net investment income (loss) per share was computed using average shares outstanding throughout the period. | |
c | Total return does not reflect the impact of any applicable sales charges and has not been annualized. | |
d | Does not include expenses of the underlying funds in which the Fund invests. | |
e | Due to limited length of Fund operations, ratios for this period are not indicative of future performance. | |
f | Net expense information reflects the expense ratios after expense waivers and reimbursements, as applicable. | |
g | Net expenses may include expenses that are excluded from the expense limitation agreement. Excluding those amounts, the operating expense ratio would be 1.30%, 2.05% and 1.10% for the A-Class, C-Class and Institutional Class, respectively. |
44 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
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THE GUGGENHEIM FUNDS ANNUAL REPORT | 45 |
MANAGERS’ COMMENTARY (Unaudited) | September 30,2014 |
To Our Shareholders:
Guggenheim Small Cap Value Fund (the “Fund”) is managed by a team of seasoned professionals led by James Schier, CFA, Portfolio Manager. In the following paragraphs, he discusses performance of the Fund for the fiscal year ended September 30, 2014.
For the year ended September 30, 2014, the Guggenheim Small Cap Value Fund returned 1.07%1, compared with the 4.13% return of its benchmark, the Russell 2000 Value Index.
Strategy and Market Overview
Our investment approach focuses on understanding how companies make money and how easily companies can improve returns, maintain existing high levels of profitability or benefit from change that occurs within the industry they operate. In today’s rapid fire environment marked by very sharp, quick but constrained volatility, our long-term orientation and discipline is a competitive advantage. This should become especially critical when the environment of indiscriminant valuation expansion subsides, and when fundamentals once again become a more dominant factor in the market.
Performance Review
On the positive side, stock selection within Energy was the strongest contributor. This sector also had the leading individual contributor to the Fund, Clayton Williams Energy, Inc., an independent exploration and production company with large acreage positions in the Permian basin. The company has had good earnings growth, in spite of the selloff in oil late in the period. Another top performer for year was Patterson-UTI Energy, Inc., which provides onshore drilling services. Over the past several quarters, the Fund has also been slowly shifting its energy focus from almost exclusively exploration and production (E&P) shale players to more of a balance between E&P companies and service companies. The land grab for shale properties has matured, and the subsequent development of those fields should increase business for services firms.
Next largest contributor the Fund performance for the year was stock selection in Utilities. UGI Corp. was the standout individual holding in this sector. It is a gas pipeline and propane distribution conglomerate that has had several good quarters and offers future growth given pipeline expansion opportunities in its Marcellus operating region and with propane acquisition opportunities in the U.S. and in Europe. Valuations in the utility sector have remained high, and it still looks pricey. We prefer companies that have meaningful exposure to non-regulated businesses, such as MDU Resources Group, Inc., and Black Hills Corp.
Hurting Fund performance for the year was stock selection and allocation in Industrials and Financials.
The Fund’s holdings in the Industrials sector declined, compared with a small gain in the benchmark. Two of the Fund’s leading individual detractors for the year were in the Industrials sector: PMFG, Inc., an energy delivery services company, and Energy Recovery, Inc, a maker of pumps used in various applications, including desalination. Both experienced poor earnings.
We have a significant overweight to the Industrials sector, as it should benefit from any infrastructure upgrading in the U.S. The market seems to favor businesses that experience an immediate pick-up in business when the economy improves, rather than companies reliant on long project rollouts. The portfolio’s holdings, by contrast, include a number of companies that have an engineering and construction orientation, or are tied into fairly large, visible infrastructure projects.
Covanta Holding Corp., an Industrials sector holding, was the one of the leading individual contributors to Fund performance for the year. Covanta advanced after announcing the award of owning and operating a new waste to energy facility in Ireland. This contract had been thought to be a dead opportunity by the market and following a contract win in New York in the prior year, Covanta offers investors a unique blend of utility-like stability and income with above average (non-regulated) growth opportunities.
Both stock selection and an underweight in the Financials sector detracted from Fund performance for the year. The underweight stems from the Fund’s orientation away from real estate investment trusts (REITs), a big part of the sector and which performed well earlier in the period, even though we believe they look fairly expensive, with high valuation relative to reinvestment opportunities. A leading individual detractor in Financials was Ocwen Financial Corp., a mortgage servicing company. It was down as a result of a delay in a proposed purchase of a large servicing portfolio and an investigation of the company’s servicing practices and intercompany relationships by the New York Director of Financial Services.
46 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
MANAGERS’ COMMENTARY (Unaudited) (concluded) | September 30, 2014 |
Portfolio Positioning
The largest relative sector exposures for the year were an underweight in Financials and an overweight in Industrials.
Within Financials, REITs continue to perform well, and the strategy’s underweighting in this industry has been a difficult bias to overcome. Over the period, the Fund also reduced its exposure to the reinsurance market, which has been under pressure as participants outside the industry have entered to provide capital in the search for yield.
The overweight to Industrials detracted from performance over the year. This is a large and eclectic sector in which we have diverse holdings. We believe the portfolio is well positioned to benefit from the growing cap-ex and construction environment tied to infrastructure renewal and reindustrialization in the U.S.
Portfolio and Market Outlook
For the most part, the market has behaved in a very defensive manner over the past year. The best performing areas have been larger companies, REITs and utilities. Of late, the strengthening of the dollar primarily from concerns about global (non-U.S.) growth has only added to the hesitancy of the market. Even if the global economy were to prove disappointing, the low bar offered by insignificant fixed income investment opportunities (the 10-year U.S. Government bond yields around 2.5%) should continue to make equities an attractive alternative for incremental investment dollars. Additionally, the tendency for small cap companies to have limited international business could make them a favored sector of the market despite the perception that they possess above-average risk.
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.
1 Performance figures are based on A-Class shares and do not reflect deduction of the sales charges or taxes that a shareholder would pay on distributions or the redemption of shares. Fee waivers and/or reimbursements reduce Fund expenses, and, in the absence of such waivers, the performance quoted would be reduced.
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 | 47 |
PERFORMANCE REPORT AND FUND PROFILE (Unaudited) | September 30, 2014 |
SMALL CAP VALUE FUND
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.
Cumulative Fund Performance*
Inception Dates: | ||
A-Class | July 11, 2008 | |
C-Class | July 11, 2008 | |
Institutional Class | July 11, 2008 |
Ten Largest Holdings (% of Total Net Assets) | |||
Hanover Insurance Group, Inc. | 4.0 | % | |
Covanta Holding Corp. | 2.5 | % | |
Maxwell Technologies, Inc. | 2.4 | % | |
UGI Corp. | 2.1 | % | |
Patterson-UTI Energy, Inc. | 1.9 | % | |
Emergent Biosolutions, Inc. | 1.8 | % | |
Laclede Group, Inc. | 1.8 | % | |
KEYW Holding Corp. | 1.8 | % | |
DigitalGlobe, Inc. | 1.7 | % | |
Reinsurance Group of America, Inc. — Class A | 1.7 | % | |
Top Ten Total | 21.7 | % | |
“Ten Largest Holdings” exclude any temporary cash or derivative investments.
Since Inception | |||||||||
1 Year | 5 Year | (07/11/08) | |||||||
A-Class Shares | 1.07 | % | 12.31 | % | 16.21 | % | |||
A-Class Shares with sales charge† | -3.74 | % | 10.98 | % | 15.11 | % | |||
C-Class Shares | 0.30 | % | 11.51 | % | 15.37 | % | |||
C-Class Shares with CDSC‡ | -0.64 | % | 11.51 | % | 15.37 | % | |||
Institutional Class Shares | 1.21 | % | 12.56 | % | 16.48 | % | |||
Russell 2000 Value Index | 4.13 | % | 13.02 | % | 9.18 | % | |||
* | 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 2000 Value Index is an unmanaged index and, unlike the Fund, has no management fees or operating expenses to reduce its reported return. |
† | Effective February 22, 2011, the maximum sales charge decreased from 5.75% to 4.75%. A 5.75% maximum sales charge is used in the calculation of the 5 Year and 10 Year average annual returns (based on subscriptions made prior to February 22, 2011), and a 4.75% maximum sales charge will be used to calculate performance for periods based on subscriptions made on or after February 22, 2011. |
‡ | Fund returns include a CDSC of 1% if redeemed within 12 months of purchase. |
48 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
SCHEDULE OF INVESTMENTS | September 30, 2014 | |
SMALL CAP VALUE FUND |
SHARES | VALUE | ||||||
COMMON STOCKS† - 96.3% | |||||||
FINANCIAL - 20.3% | |||||||
Hanover Insurance Group, Inc. | 17,440 | $ | 1,071,164 | ||||
Reinsurance Group of America, Inc. — Class A | 5,730 | 459,145 | |||||
Home Loan Servicing Solutions Ltd. | 20,470 | 433,759 | |||||
Horace Mann Educators Corp. | 14,370 | 409,689 | |||||
1st Source Corp. | 10,950 | 311,856 | |||||
Endurance Specialty Holdings Ltd. | 5,234 | 288,812 | |||||
BancFirst Corp. | 4,035 | 252,430 | |||||
Navigators Group, Inc.* | 3,990 | 245,385 | |||||
OFG Bancorp | 15,864 | 237,642 | |||||
Simmons First National Corp. — Class A | 5,780 | 222,646 | |||||
Berkshire Hills Bancorp, Inc. | 8,560 | 201,074 | |||||
AMERISAFE, Inc. | 4,905 | 191,835 | |||||
PrivateBancorp, Inc. — Class A | 5,836 | 174,555 | |||||
Employers Holdings, Inc. | 7,566 | 145,646 | |||||
Blackstone Mortgage Trust, Inc. — Class A | 5,230 | 141,733 | |||||
Hancock Holding Co. | 4,310 | 138,136 | |||||
Eaton Vance Corp. | 3,220 | 121,491 | |||||
Blackhawk Network Holdings, Inc.* | 3,730 | 120,852 | |||||
StanCorp Financial Group, Inc. | 1,052 | 66,465 | |||||
Radian Group, Inc. | 4,240 | 60,462 | |||||
Symetra Financial Corp. | 2,560 | 59,725 | |||||
Argo Group International Holdings Ltd. | 1,180 | 59,366 | |||||
Total Financial | 5,413,868 | ||||||
INDUSTRIAL - 18.5% | |||||||
Covanta Holding Corp. | 31,710 | 672,887 | |||||
Curtiss-Wright Corp. | 6,810 | 448,916 | |||||
Orbital Sciences Corp.* | 13,214 | 367,349 | |||||
PMFG, Inc.* | 73,073 | 365,365 | |||||
Celadon Group, Inc. | 18,422 | 358,308 | |||||
Aegion Corp. — Class A* | 12,383 | 275,522 | |||||
FLIR Systems, Inc. | 8,720 | 273,285 | |||||
Rand Logistics, Inc.* | 43,216 | 246,331 | |||||
Dynamic Materials Corp. | 12,482 | 237,782 | |||||
Energy Recovery, Inc.* | 61,937 | 219,257 | |||||
Newport Corp.* | 11,880 | 210,514 | |||||
Berry Plastics Group, Inc.* | 8,130 | 205,201 | |||||
Sterling Construction Company, Inc.* | 26,248 | 201,322 | |||||
Gentex Corp. | 7,200 | 192,744 | |||||
Powell Industries, Inc. | 4,607 | 188,242 | |||||
LMI Aerospace, Inc.* | 11,580 | 148,224 | |||||
Marten Transport Ltd. | 6,530 | 116,299 | |||||
ArcBest Corp. | 1,750 | 65,275 | |||||
Advanced Energy Industries, Inc.* | 1,970 | 37,016 | |||||
II-VI, Inc.* | 2,900 | 34,133 | |||||
Sanmina Corp.* | 1,550 | 32,333 | |||||
UTI Worldwide, Inc.* | 2,935 | 31,199 | |||||
Multi-Fineline Electronix, Inc.* | 107 | 1,000 | |||||
Total Industrial | 4,928,504 | ||||||
TECHNOLOGY - 14.5% | |||||||
Maxwell Technologies, Inc.* | 72,068 | 628,434 | |||||
KEYW Holding Corp.* | 42,318 | 468,460 | |||||
Silicon Graphics International Corp.* | 44,580 | 411,473 | |||||
Spansion, Inc. — Class A* | 14,460 | 329,543 | |||||
Digi International, Inc.* | 39,014 | 292,605 | |||||
Insight Enterprises, Inc.* | 11,349 | 256,828 | |||||
Allscripts Healthcare Solutions, Inc.* | 13,980 | 187,542 | |||||
Brooks Automation, Inc. | 14,600 | 153,446 | |||||
IXYS Corp. | 14,030 | 147,315 | |||||
Teradyne, Inc. | 7,430 | 144,068 | |||||
Diebold, Inc. | 3,920 | 138,454 | |||||
Diodes, Inc.* | 5,690 | 136,105 | |||||
Mercury Systems, Inc.* | 11,540 | 127,055 | |||||
ManTech International Corp. — Class A | 4,280 | 115,346 | |||||
Take-Two Interactive Software, Inc.* | 4,860 | 112,120 | |||||
Semtech Corp.* | 2,850 | 77,378 | |||||
iGATE Corp.* | 1,710 | 62,791 | |||||
IPG Photonics Corp.* | 830 | 57,087 | |||||
Total Technology | 3,846,050 | ||||||
CONSUMER, NON-CYCLICAL - 14.0% | |||||||
Emergent Biosolutions, Inc.* | 22,720 | 484,162 | |||||
ABM Industries, Inc. | 15,740 | 404,361 | |||||
Global Cash Access Holdings, Inc.* | 50,150 | 338,513 | |||||
Greatbatch, Inc.* | 7,248 | 308,836 | |||||
Tornier N.V.* | 12,630 | 301,857 | |||||
Kindred Healthcare, Inc. | 14,974 | 290,496 | |||||
DeVry Education Group, Inc. | 6,170 | 264,138 | |||||
Invacare Corp. | 21,670 | 255,923 | |||||
Navigant Consulting, Inc.* | 17,440 | 242,591 | |||||
ICU Medical, Inc.* | 3,635 | 233,294 | |||||
ICF International, Inc.* | 7,290 | 224,459 | |||||
Great Lakes Dredge & Dock Corp.* | 35,925 | 222,017 | |||||
Globus Medical, Inc. — Class A* | 3,200 | 62,944 | |||||
Grand Canyon Education, Inc.* | 1,330 | 54,224 | |||||
Alere, Inc.* | 1,030 | 39,943 | |||||
Total Consumer, Non-cyclical | 3,727,758 | ||||||
CONSUMER, CYCLICAL - 7.8% | |||||||
Brown Shoe Company, Inc. | 15,474 | 419,809 | |||||
Papa Murphy’s Holdings, Inc.* | 36,320 | 370,464 | |||||
International Speedway Corp. — Class A | 11,611 | 367,372 | |||||
Chico’s FAS, Inc. | 17,270 | 255,078 | |||||
Oshkosh Corp. | 5,340 | 235,761 | |||||
ScanSource, Inc.* | 3,400 | 117,606 | |||||
Wendy’s Co. | 13,680 | 112,997 | |||||
Ryland Group, Inc. | 3,250 | 108,030 | |||||
WESCO International, Inc.* | 1,002 | 78,417 | |||||
Total Consumer, Cyclical | 2,065,534 | ||||||
ENERGY - 6.3% | |||||||
Patterson-UTI Energy, Inc. | 15,220 | 495,107 | |||||
Oasis Petroleum, Inc.* | 7,250 | 303,123 | |||||
Resolute Energy Corp.* | 47,930 | 300,521 | |||||
Matrix Service Co.* | 9,849 | 237,558 | |||||
Sanchez Energy Corp.* | 7,248 | 190,332 | |||||
Clayton Williams Energy, Inc.* | 1,547 | 149,208 | |||||
Total Energy | 1,675,849 | ||||||
UTILITIES - 5.7% | |||||||
UGI Corp. | 16,379 | 558,361 | |||||
Laclede Group, Inc. | 10,186 | 472,630 | |||||
PICO Holdings, Inc.* | 11,932 | 238,043 | |||||
South Jersey Industries, Inc. | 3,680 | 196,365 | |||||
Avista Corp. | 1,760 | 53,733 | |||||
Total Utilities | 1,519,132 | ||||||
THE GUGGENHEIM FUNDS ANNUAL REPORT | 49 |
SCHEDULE OF INVESTMENTS (concluded) | ||
SMALL CAP VALUE FUND | September 30, 2014 |
SHARES | VALUE | ||||||
COMMUNICATIONS - 5.2% | |||||||
DigitalGlobe, Inc.* | 16,138 | $ | 459,932 | ||||
Safeguard Scientifics, Inc.* | 15,090 | 277,656 | |||||
Finisar Corp.* | 15,760 | 262,089 | |||||
Scholastic Corp. | 7,252 | 234,385 | |||||
Liquidity Services, Inc.* | 11,620 | 159,775 | |||||
Total Communications | 1,393,837 | ||||||
BASIC MATERIALS - 4.0% | |||||||
Luxfer Holdings plc ADR | 16,880 | 291,348 | |||||
Landec Corp.* | 21,546 | 263,939 | |||||
Olin Corp. | 8,902 | 224,776 | |||||
Royal Gold, Inc. | 3,372 | 218,977 | |||||
Allied Nevada Gold Corp.* | 19,300 | 63,883 | |||||
Total Basic Materials | 1,062,923 | ||||||
Total Common Stocks | |||||||
(Cost $23,467,776) | 25,633,455 | ||||||
CONVERTIBLE PREFERRED STOCKS††† - 0.0% | |||||||
Thermoenergy Corp.*,1 | 6,250 | 91 | |||||
Total Preferred Stocks | |||||||
(Cost $5,968) | 91 | ||||||
SHORT TERM INVESTMENTS† - 3.2% | |||||||
Dreyfus Treasury Prime Cash Management Fund | 843,505 | 843,505 | |||||
Total Short Term Investments | |||||||
(Cost $843,505) | 843,505 | ||||||
Total Investments - 99.5% | |||||||
(Cost $24,317,249) | $ | 26,477,051 | |||||
Other Assets & Liabilities, net - 0.5% | 145,288 | ||||||
Total Net Assets - 100.0% | $ | 26,622,339 |
* | Non-income producing security. | |
† | Value determined based on Level 1 inputs — See Note 4. | |
††† | Value determined based on Level 3 inputs — See Note 4. | |
1 | PIPE (Private Investment in Public Equity) - Stock issued by a company in the secondary market as a means of raising capital more quickly and less expensively than through registration of a secondary public offering. | |
ADR — American Depositary Receipt | ||
plc — Public Limited Company |
50 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
SMALL CAP VALUE FUND |
STATEMENT OF ASSETS AND LIABILITIES |
September 30, 2014
ASSETS: | ||||
Investments, at value | ||||
(cost $24,317,249) | $ | 26,477,051 | ||
Prepaid expenses | 24,583 | |||
Cash | 1,937 | |||
Receivables: | ||||
Securities sold | 293,500 | |||
Dividends | 45,359 | |||
Fund shares sold | 22,274 | |||
Investment adviser | 22,272 | |||
Total assets | 26,886,976 | |||
LIABILITIES: | ||||
Payable for: | ||||
Securities purchased | 185,394 | |||
Management fees | 33,144 | |||
Distribution and service fees | 11,016 | |||
Fund shares redeemed | 9,261 | |||
Fund accounting/administration fees | 3,149 | |||
Transfer agent/maintenance fees | 3,087 | |||
Trustees’ fees* | 71 | |||
Miscellaneous | 19,515 | |||
Total liabilities | 264,637 | |||
NET ASSETS | $ | 26,622,339 | ||
NET ASSETS CONSIST OF: | ||||
Paid in capital | $ | 19,760,143 | ||
Accumulated net investment loss | (146,970 | ) | ||
Accumulated net realized gain on investments | 4,849,364 | |||
Net unrealized appreciation on investments | 2,159,802 | |||
Net assets | $ | 26,622,339 | ||
A-CLASS: | ||||
Net assets | $ | 17,342,228 | ||
Capital shares outstanding | 1,031,176 | |||
Net asset value per share | $16.82 | |||
Maximum offering price per share | ||||
(Net asset value divided by 95.25%) | $17.66 | |||
C-CLASS: | ||||
Net assets | $ | 8,526,798 | ||
Capital shares outstanding | 534,219 | |||
Net asset value per share | $15.96 | |||
INSTITUTIONAL CLASS: | ||||
Net assets | $ | 753,313 | ||
Capital shares outstanding | 44,203 | |||
Net asset value per share | $17.04 | |||
STATEMENT OF OPERATIONS |
Year Ended September 30, 2014
INVESTMENT INCOME: | ||||
Dividends (net of foreign withholding tax of $448) | $ | 558,634 | ||
Interest | 28,510 | |||
Total investment income | 587,144 | |||
EXPENSES: | ||||
Management fees | 504,875 | |||
Transfer agent/maintenance fees: | ||||
A-Class | 50,190 | |||
C-Class | 13,242 | |||
Institutional Class | 796 | |||
Distribution and service fees: | ||||
A-Class | 49,246 | |||
C-Class | 86,459 | |||
Fund accounting/administration fees | 47,962 | |||
Registration fees | 44,888 | |||
Trustees’ fees* | 5,056 | |||
Custodian fees | 4,727 | |||
Tax expense | 1 | |||
Miscellaneous | 69,966 | |||
Total expenses | 877,408 | |||
Less: | ||||
Expenses waived by Adviser | (199,545 | ) | ||
Net expenses | 677,863 | |||
Net investment loss | (90,719 | ) | ||
NET REALIZED AND UNREALIZED GAIN (LOSS): | ||||
Net realized gain (loss) on: | ||||
Investments | 8,663,768 | |||
Options written | 87,489 | |||
Net realized gain | 8,751,257 | |||
Net change in unrealized appreciation (depreciation) on: | ||||
Investments | (7,303,931 | ) | ||
Options written | (5,573 | ) | ||
Net change in unrealized appreciation (depreciation) | (7,309,504 | ) | ||
Net realized and unrealized gain | 1,441,753 | |||
Net increase in net assets resulting | ||||
from operations | $ | 1,351,034 | ||
SEE NOTES TO FINANCIAL STATEMENTS | THE GUGGENHEIM FUNDS ANNUAL REPORT | 51 |
SMALL CAP VALUE FUND |
STATEMENTS OF CHANGES IN NET ASSETS |
Year Ended | Year Ended | |||||||
September 30, | September 30, | |||||||
2014 | 2013 | |||||||
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS: | ||||||||
Net investment income (loss) | $ | (90,719 | ) | $ | 11,190 | |||
Net realized gain on investments | 8,751,257 | 3,160,916 | ||||||
Net change in unrealized appreciation (depreciation) on investments | (7,309,504 | ) | 7,028,196 | |||||
Net increase in net assets resulting from operations | 1,351,034 | 10,200,302 | ||||||
DISTRIBUTIONS TO SHAREHOLDERS FROM: | ||||||||
Net investment income | ||||||||
A-Class | (33,808 | ) | (11,056 | ) | ||||
Institutional Class | (89,016 | ) | (53,908 | ) | ||||
Net realized gains | ||||||||
A-Class | (1,236,307 | ) | (1,047,645 | ) | ||||
C-Class | (508,183 | ) | (266,068 | ) | ||||
Institutional Class | (1,474,064 | ) | (1,552,279 | ) | ||||
Total distributions to shareholders | (3,341,378 | ) | (2,930,956 | ) | ||||
CAPITAL SHARE TRANSACTIONS: | ||||||||
Proceeds from sale of shares | ||||||||
A-Class | 9,171,920 | 10,521,756 | ||||||
C-Class | 4,179,080 | 2,264,197 | ||||||
Institutional Class | 559,915 | 331,808 | ||||||
Distributions reinvested | ||||||||
A-Class | 1,239,655 | 1,042,444 | ||||||
C-Class | 485,717 | 248,604 | ||||||
Institutional Class | 25,070 | 4,422 | ||||||
Cost of shares redeemed | ||||||||
A-Class | (8,482,138 | ) | (10,445,396 | ) | ||||
C-Class | (1,429,909 | ) | (372,708 | ) | ||||
Institutional Class | (21,823,574 | ) | (88,984 | ) | ||||
Net increase (decrease) from capital share transactions | (16,074,264 | ) | 3,506,143 | |||||
Net increase (decrease) in net assets | (18,064,608 | ) | 10,775,489 | |||||
NET ASSETS: | ||||||||
Beginning of year | 44,686,947 | 33,911,458 | ||||||
End of year | $ | 26,622,339 | $ | 44,686,947 | ||||
Accumulated net investment loss at end of year | $ | (146,970 | ) | $ | (87,199 | ) | ||
CAPITAL SHARE ACTIVITY: | ||||||||
Shares sold | ||||||||
A-Class | 506,970 | 653,325 | ||||||
C-Class | 242,648 | 142,887 | ||||||
Institutional Class | 30,658 | 20,199 | ||||||
Shares issued from reinvestment of distributions | ||||||||
A-Class | 71,163 | 75,267 | ||||||
C-Class | �� | 29,190 | 18,636 | |||||
Institutional Class | 1,422 | 316 | ||||||
Shares redeemed | ||||||||
A-Class | (472,674 | ) | (620,391 | ) | ||||
C-Class | (82,761 | ) | (24,580 | ) | ||||
Institutional Class | (1,224,766 | ) | (5,715 | ) | ||||
Net increase (decrease) in shares | (898,150 | ) | 259,944 | |||||
52 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
SMALL CAP VALUE FUND |
FINANCIAL HIGHLIGHTS |
Year Ended | Year Ended | Year Ended | Year Ended | Year Ended | |||||||||||||||||
September 30, | September 30, | September 30, | September 30, | September 30, | |||||||||||||||||
A-Class | 2014 | 2013 | 2012 | 2011 | 2010 | ||||||||||||||||
Per Share Data | |||||||||||||||||||||
Net asset value, beginning of period | $17.81 | $15.04 | $11.66 | $14.35 | $13.24 | ||||||||||||||||
Income (loss) from investment operations: | |||||||||||||||||||||
Net investment income (loss)a | (.03 | ) | (—) | b | (.03 | ) | (.07 | ) | (.05 | ) | |||||||||||
Net gain (loss) on investments (realized and unrealized) | .26 | 4.05 | 3.73 | (.63 | ) | 1.54 | |||||||||||||||
Total from investment operations | .23 | 4.05 | 3.70 | (.70 | ) | 1.49 | |||||||||||||||
Less distributions from: | |||||||||||||||||||||
Net investment income | (.03 | ) | (.01 | ) | — | — | — | ||||||||||||||
Net realized gains | (1.19 | ) | (1.27 | ) | (.32 | ) | (1.99 | ) | (.38 | ) | |||||||||||
Total distributions | (1.22 | ) | (1.28 | ) | (.32 | ) | (1.99 | ) | (.38 | ) | |||||||||||
Net asset value, end of period | $16.82 | $17.81 | 15.04 | $11.66 | $14.35 | ||||||||||||||||
Total Returnc | 1.07% | 29.39% | 32.19% | (7.31% | ) | 11.53% | |||||||||||||||
Ratios/Supplemental Data | |||||||||||||||||||||
Net assets, end of period (in thousands) | $17,342 | $16,487 | $12,294 | $7,592 | $6,209 | ||||||||||||||||
Ratios to average net assets: | |||||||||||||||||||||
Net investment income (loss) | (0.14% | ) | (0.02% | ) | (0.24% | ) | (0.52% | ) | (0.34% | ) | |||||||||||
Total expenses | 1.85% | 1.91% | 2.14% | 2.33% | 2.45% | ||||||||||||||||
Net expensesd | 1.32% | e | 1.30% | 1.30% | 1.30% | 1.30% | |||||||||||||||
Portfolio turnover rate | 45% | 34% | 62% | 70% | 140% | ||||||||||||||||
Year Ended | Year Ended | Year Ended | Year Ended | Year Ended | |||||||||||||||||
September 30, | September 30, | September 30, | September 30, | September 30, | |||||||||||||||||
C-Class | 2014 | 2013 | 2012 | 2011 | 2010 | ||||||||||||||||
Per Share Data | |||||||||||||||||||||
Net asset value, beginning of period | $17.05 | $14.54 | $11.36 | $14.13 | $13.11 | ||||||||||||||||
Income (loss) from investment operations: | |||||||||||||||||||||
Net investment income (loss)a | (.15 | ) | (.12 | ) | (.14 | ) | (.18 | ) | (.15 | ) | |||||||||||
Net gain (loss) on investments (realized and unrealized) | .25 | 3.90 | 3.64 | (.60 | ) | 1.55 | |||||||||||||||
Total from investment operations | .10 | 3.78 | 3.50 | (.78 | ) | 1.40 | |||||||||||||||
Less distributions from: | |||||||||||||||||||||
Net realized gains | (1.19 | ) | (1.27 | ) | (.32 | ) | (1.99 | ) | (.38 | ) | |||||||||||
Total distributions | (1.19 | ) | (1.27 | ) | (.32 | ) | (1.99 | ) | (.38 | ) | |||||||||||
Net asset value, end of period | $15.96 | $17.05 | $14.54 | $11.36 | $14.13 | ||||||||||||||||
Total Returnc | 0.30% | 28.34% | 31.35% | (8.07% | ) | 10.94% | |||||||||||||||
Ratios/Supplemental Data | |||||||||||||||||||||
Net assets, end of period (in thousands) | $8,527 | $5,885 | $3,026 | $2,305 | $1,353 | ||||||||||||||||
Ratios to average net assets: | |||||||||||||||||||||
Net investment income (loss) | (0.87% | ) | (0.75% | ) | (1.00% | ) | (1.26% | ) | (1.09% | ) | |||||||||||
Total expenses | 2.51% | 2.58% | 2.70% | 3.07% | 3.22% | ||||||||||||||||
Net expensesd | 2.07% | e | 2.05% | 2.05% | 2.05% | 2.05% | |||||||||||||||
Portfolio turnover rate | 45% | 34% | 62% | 70% | 140% |
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 53 |
SMALL CAP VALUE FUND |
FINANCIAL HIGHLIGHTS (concluded) |
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 | |||||||||||||||||
September 30, | September 30, | September 30, | September 30, | September 30, | |||||||||||||||||
Institutional Class | 2014 | 2013 | 2012 | 2011 | 2010 | ||||||||||||||||
Per Share Data | |||||||||||||||||||||
Net asset value, beginning of period | $18.04 | $15.21 | $11.76 | $14.43 | $13.28 | ||||||||||||||||
Income (loss) from investment operations: | |||||||||||||||||||||
Net investment income (loss)a | .01 | .04 | — | b | (.04 | ) | (.01 | ) | |||||||||||||
Net gain (loss) on investments (realized and unrealized) | .25 | 4.10 | 3.77 | (.64 | ) | 1.54 | |||||||||||||||
Total from investment operations | .26 | 4.14 | 3.77 | (.68 | ) | 1.53 | |||||||||||||||
Less distributions from: | |||||||||||||||||||||
Net investment income | (.07 | ) | (.04 | ) | — | — | — | ||||||||||||||
Net realized gains | (1.19 | ) | (1.27 | ) | (.32 | ) | (1.99 | ) | (.38 | ) | |||||||||||
Total distributions | (1.26 | ) | (1.31 | ) | (.32 | ) | (1.99 | ) | (.38 | ) | |||||||||||
Net asset value, end of period | $17.04 | $18.04 | $15.21 | $11.76 | $14.43 | ||||||||||||||||
Total Returnc | 1.21 | % | 29.74 | % | 32.51 | % | (7.11 | %) | 11.80 | % | |||||||||||
Ratios/Supplemental Data | |||||||||||||||||||||
Net assets, end of period (in thousands) | $753 | $22,315 | $18,591 | $638 | $734 | ||||||||||||||||
Ratios to average net assets: | |||||||||||||||||||||
Net investment income (loss) | 0.05 | % | 0.23 | % | 0.02 | % | (0.30 | %) | (0.08 | %) | |||||||||||
Total expenses | 1.33 | % | 1.34 | % | 1.44 | % | 2.09 | % | 2.21 | % | |||||||||||
Net expensesd | 1.07 | %e | 1.05 | % | 1.05 | % | 1.05 | % | 1.05 | % | |||||||||||
Portfolio turnover rate | 45 | %e | 34 | % | 62 | % | 70 | % | 140 | % |
a | Net investment income (loss) per share was computed using average shares outstanding throughout the period. |
b | Net investment income (loss) is less than $0.01 per share. |
c | Total return does not reflect the impact of any applicable sales charges and has not been annualized. |
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 those amounts, the operating expense ratio would be 1.30%, 2.05% and 1.05% for the A-Class, C-Class and Institutional Class, respectively. |
54 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
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THE GUGGENHEIM FUNDS ANNUAL REPORT | 55 |
MANAGERS’ COMMENTARY (Unaudited) | September 30, 2014 |
To Our Shareholders:
Guggenheim StylePlus—Large Core Fund (the “Fund”) is managed by a team of seasoned professionals, including B. Scott Minerd, Global Chairman of Investments and Chief Investment Officer; Farhan Sharaff, Senior Managing Director and Assistant Chief Investment Officer, Equities; Jayson Flowers, Senior Managing Director and Head of Equity and Derivative Strategies; and Scott Hammond, Managing Director and Portfolio Manager. In the following paragraphs, the investment team discusses performance for the fiscal year ended September 30, 2014.
For the year ended September 30, 2014, the Guggenheim StylePlus—Large Core Fund returned 21.59%1, compared with the 19.73% return of its benchmark, the S&P 500 Index.
The Fund’s investment objective is to deliver long-term growth of capital in excess of that produced by the total return of the S&P 500 Index. The Fund seeks to add alpha above the target index by leveraging Guggenheim’s competencies in fixed income and systematic stock selection. To accomplish this, the StylePlus strategy allocates to quantitative selection models when stock picking opportunities in the market are high.
When stock selection opportunities are less attractive, the Fund invests in derivatives based on the target index, backed by a diversified portfolio of fixed income instruments. In this way, the Fund believes it will deliver the target index return plus an alpha component commensurate with the yield achieved on the active fixed income portfolio.
Performance Review
The Fund outperformed over the period, with the active equity and active fixed income exposures both boosting performance. The passive equity position was neutral to performance, while the swap agreements contributed to performance.
The Fund maintained an approximate allocation of 20% to systematic equity selection and 80% allocated to the passive equity position, which was maintained with swap agreements and futures contracts. Beginning in December 2013, due to a more favorable outlook for active stock selection, the equity sleeve was increased to 25%, with 74% allocated to the passive equity position, then scaled back to 20% toward mid-2014.
Performance displayed represents past performance which is no guarantee of future results.
1Performance figures are based on A-Class shares and do not reflect deduction of the sales charges or taxes that a shareholder would pay on distributions or the redemption of shares.
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.
56 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
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THE GUGGENHEIM FUNDS ANNUAL REPORT | 57 |
PERFORMANCE REPORT AND FUND PROFILE (Unaudited) | September 30, 2014 |
STYLEPLUS—LARGE CORE FUND
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.
Portfolio Composition by Quality Rating** | ||
% of | ||
Rating | Total Investments | |
Fixed Income Instruments | ||
AAA | 6.9% | |
AA | 3.6% | |
A | 5.0% | |
BBB | 6.2% | |
BB | 1.1% | |
B | 4.4% | |
CCC | 1.1% | |
Other Instruments | ||
Mutual Funds | 48.6% | |
Common Stock | 20.6% | |
Short Term Investments | 2.5% | |
Total Investments | 100.0% | |
The chart above reflects percentages of the value of total investments.
Inception Dates: | |||
A-Class | September 10, 1962 | ||
B-Class | October 19, 1993 | ||
C-Class | January 29, 1999 | ||
Institutional Class | March 1, 2012 | ||
Ten Largest Holdings (% of Total Net Assets) | |||
Guggenheim Strategy Fund III | 21.8% | ||
Guggenheim Strategy Fund II | 15.2% | ||
HSI Asset Securitization Corporation | |||
Trust 2007-WF1 — Class 2A3 | 1.0% | ||
Garrison Funding 2013-2 Ltd. — Class A1T | 1.0% | ||
Duane Street CLO IV Ltd. — Class A1T | 1.0% | ||
Cornerstone CLO Ltd. — Class A1S | 0.8% | ||
Argent Securities Incorporated Asset-Backed | |||
Pass-Through | |||
Certificates Series 2005-W3 — Class A2D | 0.8% | ||
Boca Hotel Portfolio Trust | |||
2013-BOCA — Class D | 0.8% | ||
Resource Capital Corporation CRE | |||
Notes 2013 Ltd. — Class B | 0.8% | ||
Goldman Sachs Asset Management CLO plc | 0.7% | ||
Top Ten Total | 43.9% | ||
“Ten Largest Holdings” exclude any temporary cash or derivative investments. |
** | Source: Factset. Credit quality ratings are measured on a scale that generally ranges from AAA (highest) to D (lowest). All securities have been rated by Moody’s, Standard & Poor’s (“S&P”), or Fitch, which are all a Nationally Recognized Statistical Rating Organization (“NRSRO”). For purposes of this presentation, when ratings are available from more than one agency, the highest rating is used. Guggenheim Investments has converted Moody’s and Fitch ratings to the equivalent S&P rating. Unrated securities do not necessarily indicate low credit quality. Security ratings are determined at the time of purchase and may change thereafter. |
58 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
PERFORMANCE REPORT AND FUND PROFILE (Unaudited) (concluded) | September 30, 2014 |
Cumulative Fund Performance*
Average Annual Returns* | |||||||||
Periods Ended September 30, 2014 | |||||||||
1 Year | 5 Year | 10 Year | |||||||
A-Class Shares | 21.59% | 12.92% | 5.27% | ||||||
A-Class Shares with sales charge† | 15.82% | 11.58% | 4.65% | ||||||
B-Class Shares | 19.93% | 11.72% | 4.59% | ||||||
B-Class Shares with CDSC‡ | 15.19% | 11.46% | 4.59% | ||||||
C-Class Shares | 20.40% | 11.92% | 4.43% | ||||||
C-Class Shares with CDSC§ | 19.43% | 11.92% | 4.43% | ||||||
S&P 500 Index | 19.73% | 15.70% | 8.11% | ||||||
Since Inception | |||||||||
1 Year | (03/01/12) | ||||||||
Institutional Class Shares | 21.50% | 14.66% | |||||||
S&P 500 Index | 19.73% | 17.51% | |||||||
* | The performance data above represents past performance that is not predictive of future results. The investment return and principal value of an investment in the Fund will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Returns are historical and include changes in principal and reinvested dividends and capital gains and do not reflect the effect of taxes. The S&P 500 Index is an unmanaged index and, unlike the Fund, has no management fees or operating expenses to reduce its reported return. | |
† | Effective February 22, 2011, the maximum sales charge decreased from 5.75% to 4.75%. A 5.75% maximum sales charge is used in the calculation of the 5 Year and 10 Year average annual returns (based on subscriptions made prior to February 22, 2011), and a 4.75% maximum sales charge will be used to calculate performance for periods based on subscriptions made on or after February 22, 2011. | |
‡ | Fund returns include a CDSC of up to 5% if redeemed within 5 years of purchase | |
§ | Fund returns include a CDSC of 1% if redeemed within 12 months of purchase. |
THE GUGGENHEIM FUNDS ANNUAL REPORT | 59 |
SCHEDULE OF INVESTMENTS | September 30, 2014 | |
STYLEPLUS—LARGE CORE FUND |
SHARES | VALUE | ||||||
COMMON STOCKS† - 20.6% | |||||||
CONSUMER, NON-CYCLICAL - 6.2% | |||||||
Pfizer, Inc. | 29,990 | $ | 886,804 | ||||
Merck & Company, Inc. | 14,566 | 863,472 | |||||
Altria Group, Inc. | 13,704 | 629,562 | |||||
Procter & Gamble Co. | 7,248 | 606,948 | |||||
UnitedHealth Group, Inc. | 6,717 | 579,341 | |||||
Archer-Daniels-Midland Co. | 11,119 | 568,181 | |||||
Johnson & Johnson | 5,210 | 555,334 | |||||
Mondelez International, Inc. — Class A | 15,463 | 529,840 | |||||
Express Scripts Holding Co.* | 7,407 | 523,156 | |||||
Kroger Co. | 9,440 | 490,880 | |||||
Cardinal Health, Inc. | 6,469 | 484,657 | |||||
Kimberly-Clark Corp. | 4,385 | 471,694 | |||||
Kraft Foods Group, Inc. | 8,316 | 469,022 | |||||
Kellogg Co. | 7,040 | 433,664 | |||||
Medtronic, Inc. | 6,903 | 427,641 | |||||
Aetna, Inc. | 5,147 | 416,907 | |||||
WellPoint, Inc. | 3,425 | 409,699 | |||||
Eli Lilly & Co. | 6,161 | 399,541 | |||||
PepsiCo, Inc. | 4,277 | 398,146 | |||||
Philip Morris International, Inc. | 4,725 | 394,065 | |||||
General Mills, Inc. | 6,919 | 349,064 | |||||
Cigna Corp. | 3,826 | 346,980 | |||||
Becton Dickinson and Co. | 2,752 | 313,205 | |||||
Coca-Cola Co. | 5,648 | 240,944 | |||||
AbbVie, Inc. | 3,649 | 210,766 | |||||
Stryker Corp. | 1,990 | 160,693 | |||||
Amgen, Inc. | 1,063 | 149,309 | |||||
Automatic Data Processing, Inc. | 1,482 | 123,125 | |||||
Total Consumer, Non-cyclical | 12,432,640 | ||||||
INDUSTRIAL - 3.4% | |||||||
General Electric Co. | 40,710 | 1,042,990 | |||||
Boeing Co. | 4,887 | 622,507 | |||||
United Technologies Corp. | 5,780 | 610,368 | |||||
General Dynamics Corp. | 4,664 | 592,748 | |||||
Lockheed Martin Corp. | 3,035 | 554,737 | |||||
FedEx Corp. | 3,422 | 552,482 | |||||
Caterpillar, Inc. | 5,334 | 528,226 | |||||
Northrop Grumman Corp. | 3,913 | 515,577 | |||||
CSX Corp. | 15,934 | 510,844 | |||||
Raytheon Co. | 4,715 | 479,138 | |||||
Waste Management, Inc. | 9,974 | 474,064 | |||||
Deere & Co. | 1,443 | 118,312 | |||||
TE Connectivity Ltd. | 1,969 | 108,866 | |||||
Total Industrial | 6,710,859 | ||||||
TECHNOLOGY - 3.1% | |||||||
Apple, Inc. | 12,674 | 1,276,906 | |||||
Microsoft Corp. | 20,749 | 961,924 | |||||
International Business Machines Corp. | 3,129 | 593,978 | |||||
Hewlett-Packard Co. | 16,107 | 571,315 | |||||
EMC Corp. | 18,740 | 548,333 | |||||
QUALCOMM, Inc. | 5,459 | 408,169 | |||||
Oracle Corp. | 9,516 | 364,272 | |||||
Broadcom Corp. — Class A | 7,749 | 313,215 | |||||
Micron Technology, Inc.* | 8,360 | 286,414 | |||||
Intel Corp. | 8,121 | 282,773 | |||||
Texas Instruments, Inc. | 5,796 | 276,411 | |||||
Western Digital Corp. | 2,360 | 229,675 | |||||
Total Technology | 6,113,385 | ||||||
ENERGY - 2.4% | |||||||
Exxon Mobil Corp. | 12,329 | 1,159,543 | |||||
Anadarko Petroleum Corp. | 4,961 | 503,243 | |||||
Pioneer Natural Resources Co. | 2,343 | 461,500 | |||||
Marathon Oil Corp. | 12,077 | 453,975 | |||||
Apache Corp. | 4,833 | 453,674 | |||||
Hess Corp. | 4,476 | 422,176 | |||||
Marathon Petroleum Corp. | 4,492 | 380,338 | |||||
Valero Energy Corp. | 4,741 | 219,366 | |||||
Occidental Petroleum Corp. | 2,037 | 195,858 | |||||
Chevron Corp. | 1,285 | 153,326 | |||||
ConocoPhillips | 1,975 | 151,127 | |||||
Baker Hughes, Inc. | 1,814 | 118,019 | |||||
Phillips 66 | 1,437 | 116,842 | |||||
Total Energy | 4,788,987 | ||||||
FINANCIAL - 2.0% | |||||||
JPMorgan Chase & Co. | 16,805 | 1,012,333 | |||||
Bank of America Corp. | 32,231 | 549,539 | |||||
Prudential Financial, Inc. | 5,993 | 527,024 | |||||
Citigroup, Inc. | 9,756 | 505,556 | |||||
Capital One Financial Corp. | 6,042 | 493,148 | |||||
MetLife, Inc. | 8,486 | 455,868 | |||||
Wells Fargo & Co. | 4,274 | 221,692 | |||||
Berkshire Hathaway, Inc. — Class B* | 986 | 136,206 | |||||
Total Financial | 3,901,366 | ||||||
COMMUNICATIONS - 1.7% | |||||||
Cisco Systems, Inc. | 28,963 | 728,999 | |||||
eBay, Inc.* | 10,384 | 588,045 | |||||
Corning, Inc. | 22,473 | 434,628 | |||||
Google, Inc. — Class A* | 724 | 426,009 | |||||
CenturyLink, Inc. | 8,516 | 348,219 | |||||
Comcast Corp. — Class A | 6,085 | 327,251 | |||||
Verizon Communications, Inc. | 3,934 | 196,661 | |||||
Amazon.com, Inc.* | 470 | 151,547 | |||||
AT&T, Inc. | 3,588 | 126,441 | |||||
Yahoo!, Inc.* | 2,000 | 81,500 | |||||
Total Communications | 3,409,300 | ||||||
CONSUMER, CYCLICAL - 1.7% | |||||||
Wal-Mart Stores, Inc. | 9,338 | 714,077 | |||||
CVS Health Corp. | 8,174 | 650,569 | |||||
Walgreen Co. | 8,756 | 518,968 | |||||
General Motors Co. | 15,072 | 481,400 | |||||
Ford Motor Co. | 25,777 | 381,242 | |||||
Costco Wholesale Corp. | 1,935 | 242,494 | |||||
Target Corp. | 3,480 | 218,126 | |||||
Carnival Corp. | 3,272 | 131,436 | |||||
Total Consumer, Cyclical | 3,338,312 | ||||||
BASIC MATERIALS - 0.1% | |||||||
Freeport-McMoRan, Inc. | 4,462 | 145,684 | |||||
EI du Pont de Nemours & Co. | 1,000 | 71,760 | |||||
Total Basic Materials | 217,444 | ||||||
Total Common Stocks | |||||||
(Cost $37,569,392) | 40,912,293 | ||||||
60 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
SCHEDULE OF INVESTMENTS (continued) | September 30, 2014 | |
STYLEPLUS —LARGE CORE FUND |
SHARES | VALUE | ||||||
MUTUAL FUNDS† - 48.6% | |||||||
Guggenheim Strategy Fund III1 | 1,742,203 | $ | 43,398,278 | ||||
Guggenheim Strategy Fund II1 | 1,216,007 | 30,278,579 | |||||
Guggenheim Strategy Fund I1 | 925,171 | 23,036,746 | |||||
Total Mutual Funds | |||||||
(Cost $96,959,909) | 96,713,603 | ||||||
SHORT TERM INVESTMENTS†- 2.5% | |||||||
Dreyfus Treasury Prime Cash Management Fund | 4,952,822 | 4,952,822 | |||||
Total Short Term Investments | |||||||
(Cost $4,952,822) | 4,952,822 | ||||||
FACE | |||||||
AMOUNT | |||||||
ASSET BACKED SECURITIES†† - 20.4% | |||||||
Garrison Funding 2013-2 Ltd. | |||||||
2013-2A, 2.03% due 09/25/232,3 | $ | 1,980,000 | 1,967,921 | ||||
Duane Street CLO IV Ltd. | |||||||
2007-4A, 0.46% due 11/14/212,3 | 1,985,068 | 1,967,401 | |||||
Brentwood CLO Corp. | |||||||
2006-1A, 0.51% due 02/01/222,3 | 1,150,777 | 1,133,170 | |||||
2006-1A, 1.06% due 02/01/222,3 | 500,000 | 455,800 | |||||
Cornerstone CLO Ltd. | |||||||
2007-1A, 0.45% due 07/15/212,3 | 1,600,000 | 1,586,400 | |||||
Argent Securities Incorporated Asset-Backed | |||||||
Pass-Through Certificates | |||||||
2005-W3, 0.49% due 11/25/352 | 1,624,615 | 1,559,841 | |||||
Goldman Sachs Asset Management CLO plc | |||||||
2007-1A, 2.99% due 08/01/222,3 | 1,500,000 | 1,475,700 | |||||
JP Morgan Mortgage Acquisition Trust | |||||||
2007-CH3, 0.30% due 03/25/372 | 1,457,736 | 1,436,009 | |||||
ALM VII R-2 Ltd. 2013-7R2A, | |||||||
2.83% due 04/24/242,3 | 1,450,000 | 1,423,610 | |||||
Salus CLO 2012-1 Ltd. 2013-1AN, | |||||||
2.48% due 03/05/212,3 | 1,400,000 | 1,397,760 | |||||
Central Park CLO Ltd. 2011-1A, | |||||||
3.43% due 07/23/222,3 | 1,320,000 | 1,301,784 | |||||
Cerberus Onshore II CLO LLC | |||||||
2014-1A, 2.93% due 10/15/232,3 | 1,000,000 | 984,100 | |||||
2014-1A, 2.23% due 10/15/232,3 | 250,000 | 249,500 | |||||
Black Diamond CLO 2005-1 Delaware Corp. | |||||||
2005-1A, 2.13% due 06/20/172,3 | 1,250,000 | 1,225,750 | |||||
Symphony CLO IX, LP 2012-9A, | |||||||
2.73% due 04/16/222,3 | 700,000 | 700,630 | |||||
2012-9A, 3.48% due 04/16/222,3 | 500,000 | 500,000 | |||||
N-Star REL CDO VIII Ltd. | |||||||
2006-8A, 0.44% due 02/01/412,3 | 1,207,005 | 1,157,639 | |||||
Aegis Asset Backed Securities Trust | |||||||
2005-3, 0.62% due 08/25/352 | 1,173,060 | 1,156,393 | |||||
KKR Financial CLO 2007-1 Ltd. | |||||||
2007-1A, 2.48% due 05/15/212,3 | 1,150,000 | 1,127,690 | |||||
Lehman XS Trust | |||||||
2007-9, 0.27% due 06/25/372 | 1,227,977 | 1,108,120 | |||||
GreenPoint Mortgage Funding Trust | |||||||
2005-HE4, 0.86% due 07/25/302 | 1,100,000 | 1,029,777 | |||||
Symphony CLO VII Ltd. | |||||||
2011-7A, 3.44% due 07/28/212,3 | 1,000,000 | 998,500 | |||||
Wells Fargo Home Equity Asset-Backed | |||||||
Securities 2006-2 Trust | |||||||
2006-3, 0.30% due 01/25/372 | 1,070,506 | 981,620 | |||||
GSC Group CDO Fund VIII Ltd. | |||||||
2007-8A, 0.61% due 04/17/212,3 | 1,000,000 | 976,000 | |||||
Foothill CLO Ltd. | |||||||
2007-1A, 0.48% due 02/22/212,3 | 976,198 | 967,413 | |||||
Hewett’s Island CDO Ltd. | |||||||
2007-6A, 2.48% due 06/09/192,3 | 900,000 | 896,580 | |||||
Popular ABS Mortgage Pass-Through Trust | |||||||
2005-A, 0.58% due 06/25/352 | 893,510 | 859,551 | |||||
TICC CLO LLC | |||||||
2011-1A, 2.48% due 07/25/212,3 | 850,000 | 850,000 | |||||
Black Diamond CLO 2006-1 Luxembourg S.A. | |||||||
2007-1A, 0.62% due 04/29/192,3 | 900,000 | 846,270 | |||||
Race Point V CLO Ltd. | |||||||
2014-5AR, 3.08% due 12/15/222,3 | 850,000 | 846,260 | |||||
Northwoods Capital VII Ltd. | |||||||
2006-7A, 1.78% due 10/22/212,3 | 810,000 | 797,688 | |||||
H2 Asset Funding Ltd. | |||||||
2.05% due 03/19/37 | 750,000 | 756,375 | |||||
OFSI Fund V Ltd. | |||||||
2013-5A, 3.43% due 04/17/252,3 | 750,000 | 747,900 | |||||
Golub Capital Partners CLO 18 Ltd. | |||||||
2014-18A, 2.73% due 04/25/262,3 | 720,000 | 712,800 | |||||
Tricadia CDO 2006-6 Ltd. | |||||||
2006-6A, 0.79% due 11/05/412,3 | 600,000 | 567,360 | |||||
Halcyon Loan Advisors Funding 2012-1 Ltd. | |||||||
2012-1A, 3.23% due 08/15/232,3 | 500,000 | 491,300 | |||||
Soundview Home Loan Trust | |||||||
2003-1, 2.40% due 08/25/312 | 478,805 | 474,209 | |||||
NewStar Commercial Loan Trust | |||||||
2007-1A, 1.53% due 09/30/222,3 | 500,000 | 472,850 | |||||
Race Point IV CLO Ltd. | |||||||
2007-4A, 0.99% due 08/01/212,3 | 450,000 | 433,260 | |||||
DIVCORE CLO Ltd. | |||||||
2013-1A B, 4.05% due 11/15/32 | 400,000 | 400,240 | |||||
ACS 2007-1 Pass Through Trust | |||||||
2007-1A, 0.47% due 06/14/372,3 | 405,232 | 396,114 | |||||
West Coast Funding Ltd. | |||||||
2006-1A, 0.38% due 11/02/412,3 | 403,354 | 395,892 | |||||
Global Leveraged Capital Credit Opportunity Fund | |||||||
2006-1A, 0.53% due 12/20/182,3 | 383,825 | 383,173 | |||||
JP Morgan Mortgage Acquisition Trust | |||||||
2006-CH2, 0.26% due 10/25/362 | 240,904 | 240,654 | |||||
Golub Capital Partners Fundings Ltd. | |||||||
2007-1A, 0.48% due 03/15/222,3 | 224,024 | 221,604 | |||||
Total Asset Backed Securities | |||||||
(Cost $40,168,889) | 40,658,608 | ||||||
MORTGAGE BACKED SECURITIES†† - 4.6% | |||||||
HSI Asset Securitization Corporation Trust | |||||||
2007-WF1, 0.32% due 05/25/372 | 2,227,158 | 2,077,293 | |||||
Boca Hotel Portfolio Trust | |||||||
2013-BOCA, 3.20% due 08/15/262,3 | 1,550,000 | 1,551,227 | |||||
Resource Capital Corporation CRE Notes 2013 Ltd. | |||||||
2013-CRE1, 3.00% due 12/15/282,3 | 1,500,000 | 1,517,158 | |||||
Hilton USA Trust | |||||||
2013-HLF, 2.91% due 11/05/302,3 | 1,350,000 | 1,350,849 |
THE GUGGENHEIM FUNDS ANNUAL REPORT | 61 |
SCHEDULE OF INVESTMENTS (concluded) | September 30, 2014 | |
STYLEPLUS—LARGE CORE FUND |
FACE | |||||||
AMOUNT | VALUE | ||||||
SRERS Funding Ltd. | |||||||
2011-RS, 0.40% due 05/09/462,3 | $ | 1,192,747 | $ | 1,136,092 | |||
Banc of America Merrill Lynch | |||||||
Commercial Mortgage, Inc. | |||||||
2005-6, 6.33% due 09/10/472,3 | 882,500 | 899,514 | |||||
Wachovia Bank Commercial Mortgage Trust | |||||||
Series 2007-WHALE 8 | |||||||
2007-WHL8, 0.23% due 06/15/202,3 | 566,471 | 563,690 | |||||
Total Mortgage Backed Securities | |||||||
(Cost $9,006,607) | 9,095,823 | ||||||
SENIOR FLOATING RATE INTERESTS††,2 - 2.0% | |||||||
FINANCIAL - 0.8% | |||||||
National Financial Partners Corp. | |||||||
4.50% due 07/01/20 | 1,267,204 | 1,254,532 | |||||
First Data Corp. | |||||||
3.65% due 03/23/18 | 150,000 | 146,954 | |||||
Cunningham Lindsey U.S., Inc. | |||||||
5.00% due 12/10/19 | 108,346 | 106,450 | |||||
Total Financial | 1,507,936 | ||||||
TECHNOLOGY - 0.5% | |||||||
Blue Coat Systems, Inc. | |||||||
4.00% due 05/31/19 | 1,037,282 | 1,015,675 | |||||
ENERGY - 0.3% | |||||||
Pacific Drilling | |||||||
4.50% due 05/18/18 | 661,625 | 638,746 | |||||
INDUSTRIAL - 0.3% | |||||||
Thermasys Corp. | |||||||
5.25% due 05/03/19 | 629,688 | 626,016 | |||||
CONSUMER, CYCLICAL - 0.1% | |||||||
Sears Holdings Corp. | |||||||
5.50% due 06/30/18 | 198,500 | 192,793 | |||||
Total Senior Floating Rate Interests | |||||||
(Cost $4,033,935) | 3,981,166 | ||||||
CORPORATE BONDS†† -0.9% | |||||||
FINANCIAL - 0.5% | |||||||
Icahn Enterprises Limited Partnership / Icahn | |||||||
Enterprises Finance Corp. | |||||||
3.50% due 03/15/17 | 790,000 | 782,100 | |||||
International Lease Finance Corp. | |||||||
2.18% due 06/15/162 | 300,000 | 297,000 | |||||
Total Financial | 1,079,100 | ||||||
COMMUNICATIONS - 0.4% | |||||||
Level 3 Financing, Inc. | |||||||
3.82% due 01/15/182 | 750,000 | 738,975 | |||||
Total Corporate Bonds | |||||||
(Cost $1,846,140) | 1,818,075 | ||||||
COLLATERALIZED MORTGAGE OBLIGATION†† - 0.4% | |||||||
HarborView Mortgage Loan Trust | |||||||
2006-12, 0.34% due 01/19/382 | 1,038,996 | 886,870 | |||||
Total Collateralized Mortgage Obligation | |||||||
(Cost $851,755) | 886,870 | ||||||
Total Investments - 100.0% | |||||||
(Cost $195,389,449) | $ | 199,019,260 | |||||
Other Assets & Liabilities, net - 0.0% | (14,566 | ) | |||||
Total Net Assets - 100.0% | $ | 199,004,694 | |||||
UNREALIZED | |||||||
CONTRACTS | GAIN (LOSS) | ||||||
EQUITY FUTURES CONTRACTS PURCHASED† | |||||||
December 2014 S&P 500 Index | |||||||
Mini Futures Contracts | |||||||
(Aggregate Value of | |||||||
Contracts $1,473,563) | 15 | $ | (8,710 | ) | |||
UNITS | |||||||
OTC EQUITY INDEX SWAP AGREEMENTS†† | |||||||
Morgan Stanley Capital Services, Inc. | |||||||
June 2015 S&P 500 Total Return Index Swap, | |||||||
Terminating 06/03/154 | |||||||
(Notional Value $102,784,935) | 28,613 | $ | 5,278,214 | ||||
Bank of America | |||||||
August 2015 S&P 500 Total Return Index Swap, | |||||||
Terminating 08/05/154 | |||||||
(Notional Value $40,452,406) | 11,261 | 403,015 | |||||
Bank of America | |||||||
November 2014 S&P 500 Index Swap, | |||||||
Terminating 11/05/144 | |||||||
(Notional Value $13,099,950) | 6,642 | – | |||||
(Total Notional Value $156,337,291) | $ | 5,681,229 | |||||
* | Non-income producing security. | |
† | Value determined based on Level 1 inputs — See Note 4. | |
†† | Value determined based on Level 2 inputs — See Note 4. | |
1 | Affiliated issuer — See Note 12. | |
2 | Variable rate security. Rate indicated is rate effective at September 30, 2014. | |
3 | Security is a 144A or Section 4(a)(2) security. The total market value of 144A or Section 4(a)(2) securities is $38,413,324 (cost $38,066,494), or 19.3% of total net assets. These securities have been determined to be liquid under guidelines established by the Board of Trustees. | |
4 | Total Return based on S&P 500 Index +/- financing at a variable rate. | |
plc — Public Limited Company |
62 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
STYLEPLUS —LARGE CORE FUND |
STATEMENT OF ASSETS AND LIABILITIES |
September 30, 2014 | |||
ASSETS: | |||
Investments in unaffiliated issuers, at value | |||
(cost $98,429,540) | $ | 102,305,657 | |
Investments in affiliated issuers, at value | |||
(cost $96,959,909) | 96,713,603 | ||
Total investments | |||
(cost $195,389,449) | 199,019,260 | ||
Unrealized appreciation on swap agreements | 5,681,229 | ||
Segregated cash with broker | 69,000 | ||
Prepaid expenses | 26,198 | ||
Cash | 7,695 | ||
Receivables: | |||
Dividends | 169,782 | ||
Interest | 130,534 | ||
Fund shares sold | 112,703 | ||
Total assets | 205,216,401 | ||
LIABILITIES: | |||
Segregated cash from broker | 5,567,000 | ||
Payable for: | |||
Swap settlement | 227,833 | ||
Management fees | 125,060 | ||
Securities purchased | 101,387 | ||
Distribution and service fees | 45,440 | ||
Fund shares redeemed | 27,011 | ||
Transfer agent/maintenance fees | 16,593 | ||
Fund accounting/administration fees | 15,847 | ||
Variation margin | 3,563 | ||
Trustees’ fees* | 3,125 | ||
Miscellaneous | 78,848 | ||
Total liabilities | 6,211,707 | ||
NET ASSETS | $ | 199,004,694 | |
NET ASSETS CONSIST OF: | |||
Paid in capital | $ | 163,007,684 | |
Undistributed net investment income | 1,516,265 | ||
Accumulated net realized gain on investments | 25,178,415 | ||
Net unrealized appreciation on investments | 9,302,330 | ||
Net assets | $ | 199,004,694 | |
A-CLASS: | |||
Net assets | $ | 192,850,181 | |
Capital shares outstanding | 7,862,168 | ||
Net asset value per share | $24.53 | ||
Maximum offering price per share | |||
(Net asset value divided by 95.25%) | $25.75 | ||
B-CLASS: | |||
Net assets | $ | 3,033,206 | |
Capital shares outstanding | 164,938 | ||
Net asset value per share | $18.39 | ||
C-CLASS: | |||
Net assets | $ | 3,041,595 | |
Capital shares outstanding | 148,011 | ||
Net asset value per share | $20.55 | ||
INSTITUTIONAL CLASS: | |||
Net assets | $ | 79,712 | |
Capital shares outstanding | 3,264 | ||
Net asset value per share | $24.42 | ||
STATEMENT OF OPERATIONS |
Year Ended September 30, 2014 | ||||
INVESTMENT INCOME: | ||||
Interest | $ | 2,199,901 | ||
Dividends from securities of affiliated issuers | 1,103,251 | |||
Dividends from securities of unaffiliated issuers | 1,071,461 | |||
Total investment income | 4,374,613 | |||
EXPENSES: | ||||
Management fees | 1,459,478 | |||
Transfer agent/maintenance fees: | ||||
A-Class | 239,640 | |||
B-Class | 26,189 | |||
C-Class | 8,816 | |||
Institutional Class | 152 | |||
Distribution and service fees: | ||||
A-Class | 471,341 | |||
B-Class | 33,542 | |||
C-Class | 26,654 | |||
Fund accounting/administration fees | 184,865 | |||
Legal fees | 153,704 | |||
Trustees’ fees* | 21,002 | |||
Line of credit expense | 12,940 | |||
Custodian fees | 7,900 | |||
Tax expense | 5 | |||
Miscellaneous | 172,966 | |||
Total expenses | 2,819,194 | |||
Less: | ||||
Expenses waived by Adviser | (38,920 | ) | ||
Net expenses | 2,780,274 | |||
Net investment income | 1,594,339 | |||
NET REALIZED AND UNREALIZED GAIN (LOSS): | ||||
Net realized gain (loss) on: | ||||
Investments in unaffiliated issuers | 8,133,655 | |||
Investments in affiliated issuers | (115,684 | ) | ||
Swap agreements | 24,173,953 | |||
Futures contracts | 94,546 | |||
Realized gain distributions received from | ||||
investment company shares | 51,299 | |||
Net realized gain | 32,337,769 | |||
Net change in unrealized appreciation (depreciation) on: | ||||
Investments in unaffiliated issuers | 2,236,162 | |||
Investments in affiliated issuers | (18,404 | ) | ||
Swap agreements | 1,383,821 | |||
Futures contracts | 3,141 | |||
Net change in unrealized appreciation (depreciation) | 3,604,720 | |||
Net realized and unrealized gain | 35,942,489 | |||
Net increase in net assets resulting | ||||
from operations | $ | 37,536,828 | ||
* 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 | 63 |
STYLEPLUS—LARGE CORE FUND |
STATEMENTS OF CHANGES IN NET ASSETS |
Year Ended | Year Ended | |||||||
September 30, | September 30, | |||||||
2014 | 2013 | |||||||
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS: | ||||||||
Net investment income | $ | 1,594,339 | $ | 387,876 | ||||
Net realized gain on investments | 32,337,769 | 41,977,296 | ||||||
Net change in unrealized appreciation (depreciation) on investments | 3,604,720 | (18,317,757 | ) | |||||
Net increase in net assets resulting from operations | 37,536,828 | 24,047,415 | ||||||
DISTRIBUTIONS TO SHAREHOLDERS FROM: | ||||||||
Net investment income | ||||||||
A-Class | (394,204 | ) | (616,535 | ) | ||||
Institutional Class | (125 | ) | (73 | ) | ||||
Net realized gains | ||||||||
A-Class | (30,898,467 | ) | — | |||||
B-Class | (755,687 | ) | — | |||||
C-Class | (490,315 | ) | — | |||||
Institutional Class | (4,758 | ) | — | |||||
Total distributions to shareholders | (32,543,556 | ) | (616,608 | ) | ||||
CAPITAL SHARE TRANSACTIONS: | ||||||||
Proceeds from sale of shares | ||||||||
A-Class | 5,232,403 | 3,891,702 | ||||||
B-Class | 139,271 | 216,333 | ||||||
C-Class | 926,456 | 827,015 | ||||||
Institutional Class | 60,516 | 12,929 | ||||||
Distributions reinvested | ||||||||
A-Class | 29,159,068 | 571,200 | ||||||
B-Class | 750,686 | — | ||||||
C-Class | 483,096 | — | ||||||
Institutional Class | 4,883 | 73 | ||||||
Cost of shares redeemed | ||||||||
A-Class | (22,280,678 | ) | (23,445,161 | ) | ||||
B-Class | (1,341,102 | ) | (1,828,228 | ) | ||||
C-Class | (628,059 | ) | (459,100 | ) | ||||
Institutional Class | (13,481 | ) | — | |||||
Net increase (decrease) from capital share transactions | 12,493,059 | (20,213,237 | ) | |||||
Net increase in net assets | 17,486,331 | 3,217,570 | ||||||
NET ASSETS: | ||||||||
Beginning of year | 181,518,363 | 178,300,793 | ||||||
End of year | $ | 199,004,694 | $ | 181,518,363 | ||||
Undistributed net investment income at end of year | $ | 1,516,265 | $ | 94,876 | ||||
CAPITAL SHARE ACTIVITY: | ||||||||
Shares sold | ||||||||
A-Class | 221,145 | 171,925 | ||||||
B-Class | 7,794 | 12,018 | ||||||
C-Class | 45,606 | 41,241 | ||||||
Institutional Class | 2,509 | 592 | ||||||
Shares issued from reinvestment of distributions | ||||||||
A-Class | 1,349,957 | 27,448 | ||||||
B-Class | 45,857 | — | ||||||
C-Class | 26,486 | — | ||||||
Institutional Class | 227 | 4 | ||||||
Shares redeemed | ||||||||
A-Class | (944,947 | ) | (1,051,893 | ) | ||||
B-Class | (75,228 | ) | (100,705 | ) | ||||
C-Class | (31,801 | ) | (23,259 | ) | ||||
Institutional Class | (548 | ) | — | |||||
Net increase (decrease) in shares | 647,057 | (922,629 | ) | |||||
64 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
STYLEPLUS—LARGE CORE FUND |
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 | |||||||||||
September 30, | September 30, | September 30, | September 30, | September 30, | |||||||||||
A-Class | 2014 | 2013 | 2012 | 2011 f | 2010 f | ||||||||||
Per Share Data | |||||||||||||||
Net asset value, beginning of period | $24.27 | $21.25 | $16.79 | $17.56 | $16.20 | ||||||||||
Income (loss) from investment operations: | |||||||||||||||
Net investment income (loss)a | .20 | .06 | .06 | .01 | .04 | ||||||||||
Net gain (loss) on investments (realized and unrealized) | 4.45 | 3.04 | 4.42 | (.74 | ) | 1.32 | |||||||||
Total from investment operations | 4.65 | 3.10 | 4.48 | (.73 | ) | 1.36 | |||||||||
Less distributions from: | |||||||||||||||
Net investment income | (.06 | ) | (.08 | ) | (.02 | ) | (.04 | ) | — | ||||||
Net realized gains | (4.33 | ) | — | — | — | — | |||||||||
Total distributions | (4.39 | ) | (.08 | ) | (.02 | ) | (.04 | ) | — | ||||||
Net asset value, end of period | $24.53 | $24.27 | $21.25 | $16.79 | $17.56 | ||||||||||
Total Returnb | 21.59% | 14.64% | 26.71% | (4.11% | ) | 8.40% | |||||||||
Ratios/Supplemental Data | |||||||||||||||
Net assets, end of period (in thousands) | $192,850 | $175,601 | $171,907 | $156,232 | $174,371 | ||||||||||
Ratios to average net assets: | |||||||||||||||
Net investment income (loss) | 0.86% | 0.26% | 0.32% | 0.06% | 0.31% | ||||||||||
Total expensesc | 1.41% | 1.37% | 1.36% | 1.35% | 1.43% | ||||||||||
Net expensesd | 1.39% | 1.37% | 1.36% | 1.35% | 1.43% | ||||||||||
Portfolio turnover rate | 107% | 217% | 101% | 92% | 100% | ||||||||||
Year Ended | Year Ended | Year Ended | Year Ended | Year Ended | |||||||||||
September 30, | September 30, | September 30, | September 30, | September 30, | |||||||||||
B-Class | 2014 | 2013 | 2012 | 2011 f | 2010 f | ||||||||||
Per Share Data | |||||||||||||||
Net asset value, beginning of period | $19.39 | $17.13 | $13.69 | $14.40 | $13.36 | ||||||||||
Income (loss) from investment operations: | |||||||||||||||
Net investment income (loss)a | (.10 | ) | (.17 | ) | (.15 | ) | (.11 | ) | (.08 | ) | |||||
Net gain (loss) on investments (realized and unrealized) | 3.43 | 2.43 | 3.59 | (.60 | ) | 1.12 | |||||||||
Total from investment operations | 3.33 | 2.26 | 3.44 | (.71 | ) | 1.04 | |||||||||
Less distributions from: | |||||||||||||||
Net realized gains | (4.33 | ) | — | — | — | — | |||||||||
Total distributions | (4.33 | ) | — | — | — | — | |||||||||
Net asset value, end of period | $18.39 | $19.39 | $17.13 | $13.69 | $14.40 | ||||||||||
Total Returnb | 19.93% | 13.19% | 25.13% | (4.93% | ) | 7.78% | |||||||||
Ratios/Supplemental Data | |||||||||||||||
Net assets, end of period (in thousands) | $3,033 | $3,617 | $4,714 | $5,121 | $6,817 | ||||||||||
Ratios to average net assets: | |||||||||||||||
Net investment income (loss) | (0.56% | ) | (0.94% | ) | (0.92% | ) | (0.70% | ) | (0.48% | ) | |||||
Total expensesc | 2.81% | 2.59% | 2.59% | 2.10% | 2.17% | ||||||||||
Net expensesd | 2.80% | 2.59% | 2.59% | 2.10% | 2.17% | ||||||||||
Portfolio turnover rate | 107% | 217% | 101% | 92% | 100% |
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 65 |
STYLEPLUS—LARGE CORE FUND |
FINANCIAL HIGHLIGHTS (concluded) |
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 | ||||||||||||
September 30, | September 30, | September 30, | September 30, | September 30, | ||||||||||||
C-Class | 2014 | 2013 | 2012 | 2011 f | 2010 f | |||||||||||
Per Share Data | ||||||||||||||||
Net asset value, beginning of period | $21.12 | $18.60 | $14.81 | $15.56 | $14.48 | |||||||||||
Income (loss) from investment operations: | ||||||||||||||||
Net investment income (loss)a | (.02 | ) | (.15 | ) | (.10 | ) | (.12 | ) | (.08 | ) | ||||||
Net gain (loss) on investments (realized and unrealized) | 3.78 | 2.67 | 3.89 | (.63 | ) | 1.16 | ||||||||||
Total from investment operations | 3.76 | 2.52 | 3.79 | (.75 | ) | 1.08 | ||||||||||
Less distributions from: | ||||||||||||||||
Net realized gains | (4.33 | ) | — | — | — | — | ||||||||||
Total distributions | (4.33 | ) | — | — | — | — | ||||||||||
Net asset value, end of period | $20.55 | $21.12 | $18.60 | $14.81 | $15.56 | |||||||||||
Total Returnb | 20.40% | 13.55% | 25.59% | (4.82% | ) | 7.46% | ||||||||||
Ratios/Supplemental Data | ||||||||||||||||
Net assets, end of period (in thousands) | $3,042 | $2,275 | $1,669 | $1,600 | $2,158 | |||||||||||
Ratios to average net assets: | ||||||||||||||||
Net investment income (loss) | (0.08% | ) | (0.77% | ) | (0.55% | ) | (0.70% | ) | (0.44% | ) | ||||||
Total expensesc | 2.36% | 2.34% | 2.22% | 2.10% | 2.18% | |||||||||||
Net expensesd | 2.34% | 2.34% | 2.22% | 2.10% | 2.18% | |||||||||||
Portfolio turnover rate | 107% | 217% | 101% | 92% | 100% | |||||||||||
Year Ended | Year Ended | Period Ended | ||||||||||||||
September 30, | September 30, | September 30, | ||||||||||||||
Institutional Class | 2014 | 2013 | 2012 e | |||||||||||||
Per Share Data | ||||||||||||||||
Net asset value, beginning of period | $24.25 | $21.28 | $20.84 | |||||||||||||
Income (loss) from investment operations: | ||||||||||||||||
Net investment income (loss)a | .23 | .06 | .07 | |||||||||||||
Net gain (loss) on investments (realized and unrealized) | 4.38 | 3.06 | .37 | |||||||||||||
Total from investment operations | 4.61 | 3.12 | .44 | |||||||||||||
Less distributions from: | ||||||||||||||||
Net investment income | (.11 | ) | (.15 | ) | — | |||||||||||
Net realized gains | (4.33 | ) | — | — | ||||||||||||
Total distributions | (4.44 | ) | (.15 | ) | — | |||||||||||
Net asset value, end of period | $24.42 | $24.25 | $21.28 | |||||||||||||
Total Returnb | 21.50% | 14.79% | 2.11% | |||||||||||||
Ratios/Supplemental Data | ||||||||||||||||
Net assets, end of period (in thousands) | $80 | $26 | $10 | |||||||||||||
Ratios to average net assets: | ||||||||||||||||
Net investment income (loss) | 0.97% | 0.26% | 0.59% | |||||||||||||
Total expensesc | 1.39% | 1.25% | 1.12% | |||||||||||||
Net expensesd | 1.37% | 1.25% | 1.12% | |||||||||||||
Portfolio turnover rate | 107% | 217% | 101% |
a | Net investment income (loss) per share was computed using average shares outstanding throughout the period. |
b | Total return does not reflect the impact of any applicable sales charges and has not been annualized. |
c | Does not include expenses of the underlying funds in which the Fund invests. |
d | Net expense information reflects the expense ratios after expense waivers. |
e | Since commencement of operations: March 1, 2012. Percentage amounts for the period, except total return and portfolio turnover rate, have been annualized. |
f | Reverse share split — Per share amounts for the periods presented through April 8, 2011 have been restated to reflect a 1:4 reverse share split effective April 8, 2011. |
66 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
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THE GUGGENHEIM FUNDS ANNUAL REPORT | 67 |
MANAGERS’ COMMENTARY (Unaudited) | September 30, 2014 | |
To Our Shareholders:
Guggenheim StylePlus—Mid Growth Fund (the “Fund”) is managed by a team of seasoned professionals, including B. Scott Minerd, Chairman of Investments and Global Chief Investment Officer; Farhan Sharaff, Senior Managing Director and Assistant Chief Investment Officer, Equities; Jayson Flowers, Senior Managing Director and Head of Equity and Derivative Strategies; and Scott Hammond, Managing Director and Portfolio Manager. In the following paragraphs, the investment team discusses performance for the fiscal year ended September 30, 2014.
For the one year period ended September 30, 2014, the Guggenheim StylePlus—Mid Growth Fund returned 15.61%1, compared with the 14.43% return of its benchmark, the Russell Midcap Growth® Index.
The Fund’s investment objective is to deliver long-term growth of capital in excess of that produced by the total return of the Russell Midcap Growth Index. The Fund seeks to add alpha above the target index by leveraging Guggenheim’s competencies in fixed income and systematic stock selection. To accomplish this, the StylePlus strategy allocates to quantitative selection models when stock picking opportunities in the market are high.
When stock selection opportunities are less attractive, the Fund invests in derivatives based on the target index, backed by a diversified portfolio of fixed income instruments. In this way, the Fund believes it will deliver the target index return plus an alpha component commensurate with the yield achieved on the active fixed income portfolio.
Performance Review
The Fund outperformed over the period, with the active equity and active fixed income exposures both boosting performance. The passive equity position was neutral to performance, while the swap agreements contributed to performance.
The Fund maintained an approximate allocation of 20% to systematic equity selection, 80% allocated to the passive equity position, which was maintained with swap agreements and futures contracts. Beginning in December 2013, due to a more favorable outlook for active stock selection, the equity sleeve was increased to 25%, with 74% allocated to the passive equity position, then scaled back to 20% toward mid-2014.
Performance displayed represents past performance which is no guarantee of future results.
1Performance figures are based on A-Class shares and do not reflect deduction of the sales charges or taxes that a shareholder would pay on distributions or the redemption of shares.
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.
68 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
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THE GUGGENHEIM FUNDS ANNUAL REPORT | 69 |
PERFORMANCE REPORT AND FUND PROFILE (Unaudited) | September 30, 2014 | |
STYLEPLUS—MID GROWTH FUND
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.
Portfolio Composition by Quality Rating** | |||
% of | |||
Rating | Total Investments | ||
Fixed Income Instruments | |||
AAA | 7.1 | % | |
AA | 3.3 | % | |
A | 5.8 | % | |
BBB | 6.3 | % | |
BB | 1.1 | % | |
B | 4.4 | % | |
CCC | 1.1 | % | |
Other Instruments | |||
Mutual Funds | 47.3 | % | |
Common Stock | 20.3 | % | |
Short Term Investments | 3.3 | % | |
Total Investments | 100.0 | % | |
The chart above reflects percentages of the value of total investments.
Inception Dates: | |||
A-Class | September 17, 1969 | ||
B-Class | October 19, 1993 | ||
C-Class | January 29, 1999 | ||
Institutional Class | March 1, 2012 | ||
Ten Largest Holdings (% of Total Net Assets) | |||
Guggenheim Strategy Fund III | 21.4 | % | |
Guggenheim Strategy Fund II | 15.9 | % | |
HSI Asset Securitization Corporation | |||
Trust 2007-WF1 — Class 2A3 | 1.1 | % | |
Garrison Funding 2013-2 Ltd. — Class A1T | 1.0 | % | |
Duane Street CLO IV Ltd. — Class A1T | 1.0 | % | |
N-Star REL CDO VIII Ltd. — Class A1 | 1.0 | % | |
Argent Securities Incorporated | |||
Asset-Backed Pass-Through | |||
Certificates Series 2005-W3 — | |||
Class A2D | 0.8 | % | |
Boca Hotel Portfolio Trust 2013- | |||
BOCA — Class D | 0.8 | % | |
JP Morgan Mortgage Acquisition | |||
Trust 2007-CH3 — Class A3 | 0.8 | % | |
Resource Capital Corporation CRE | |||
Notes 2013 Ltd. | 0.7 | % | |
Top Ten Total | 44.5 | % | |
“Ten Largest Holdings” exclude any temporary cash or derivative investments.
** | Source: factset. Credit quality ratings are measured on a scale that generally ranges from AAA (highest) to D (lowest). All securities have been rated by Moody’s, Standard & Poor’s (“S&P”), or Fitch, which are all a Nationally Recognized Statistical Rating Organization (“NRSRO”). For purposes of this presentation, when ratings are available from more than one agency, the highest rating is used. Guggenheim Investments has converted Moody’s and Fitch ratings to the equivalent S&P rating. Unrated securities do not necessarily indicate low credit quality. Security ratings are determined at the time of purchase and may change thereafter. |
70 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
PERFORMANCE REPORT AND FUND PROFILE (Unaudited) (concluded) | September 30, 2014 | |
Cumulative Fund Performance*
Average Annual Returns* | |||||||||||
Periods Ended September 30, 2014 | |||||||||||
1 Year | 5 Year | 10 Year | |||||||||
A-Class Shares | 15.61 | % | 13.99 | % | 6.38 | % | |||||
A-Class Shares with sales charge† | 10.12 | % | 12.64 | % | 5.75 | % | |||||
B-Class Shares | 13.95 | % | 12.68 | % | 5.69 | % | |||||
B-Class Shares with CDSC‡ | 8.96 | % | 12.43 | % | 5.69 | % | |||||
C-Class Shares | 14.56 | % | 13.02 | % | 5.53 | % | |||||
C-Class Shares with CDSC§ | 13.56 | % | 13.02 | % | 5.53 | % | |||||
Russell Midcap Growth Index | 14.43 | % | 17.12 | % | 10.24 | % | |||||
Since Inception | |||||||||||
1 Year | (03/01/12) | ||||||||||
Institutional Class Shares | 15.42 | % | 13.77% | ||||||||
Russell Midcap Growth Index | 14.43 | % | 16.10% | ||||||||
* | 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 Russell Midcap Growth Index is an unmanaged index and, unlike the Fund, has no management fees or operating expenses to reduce its reported return. |
† | Effective February 22, 2011, the maximum sales charge decreased from 5.75% to 4.75%. A 5.75% maximum sales charge is used in the calculation of the 5 Year and 10 Year average annual returns (based on subscriptions made prior to February 22, 2011), and a 4.75% maximum sales charge will be used to calculate performance for periods based on subscriptions made on or after February 22, 2011. |
‡ | Fund returns include a CDSC of up to 5% if redeemed within 5 years of purchase |
§ | Fund returns include a CDSC of 1% if redeemed within 12 months of purchase. |
THE GUGGENHEIM FUNDS ANNUAL REPORT | 71 |
SCHEDULE OF INVESTMENTS | September 30, 2014 | |
STYLEPLUS—MID GROWTH FUND |
SHARES | VALUE | ||||||
COMMON STOCKS† - 20.4% | |||||||
CONSUMER, NON-CYCLICAL - 7.2% | |||||||
Kroger Co. | 5,424 | $ | 282,048 | ||||
Dr Pepper Snapple Group, Inc. | 3,530 | 227,014 | |||||
DaVita HealthCare Partners, Inc.* | 2,972 | 217,372 | |||||
Vertex Pharmaceuticals, Inc.* | 1,849 | 207,661 | |||||
Mylan, Inc.* | 4,357 | 198,200 | |||||
Cigna Corp. | 2,065 | 187,275 | |||||
Coca-Cola Enterprises, Inc. | 3,886 | 172,383 | |||||
Cardinal Health, Inc. | 2,027 | 151,863 | |||||
Kellogg Co. | 2,412 | 148,579 | |||||
Western Union Co. | 9,036 | 144,937 | |||||
Constellation Brands, Inc. — Class A* | 1,616 | 140,851 | |||||
Avis Budget Group, Inc.* | 2,552 | 140,079 | |||||
HCA Holdings, Inc.* | 1,909 | 134,623 | |||||
Hershey Co. | 1,396 | 133,220 | |||||
Clorox Co. | 1,369 | 131,479 | |||||
St. Jude Medical, Inc. | 2,160 | 129,880 | |||||
Campbell Soup Co. | 3,003 | 128,318 | |||||
Mead Johnson Nutrition Co. — Class A | 1,304 | 125,470 | |||||
Keurig Green Mountain, Inc. | 961 | 125,055 | |||||
Intuitive Surgical, Inc.* | 253 | 116,840 | |||||
Avon Products, Inc. | 9,241 | 116,436 | |||||
Laboratory Corporation of America Holdings* | 1,141 | 116,097 | |||||
Hologic, Inc.* | 4,754 | 115,665 | |||||
Vantiv, Inc. — Class A* | 3,524 | 108,892 | |||||
Boston Scientific Corp.* | 9,012 | 106,432 | |||||
Pilgrim’s Pride Corp.* | 3,439 | 105,096 | |||||
Hertz Global Holdings, Inc.* | 4,084 | 103,693 | |||||
Perrigo Company plc | 683 | 102,580 | |||||
Alliance Data Systems Corp.* | 409 | 101,542 | |||||
Ingredion, Inc. | 1,332 | 100,952 | |||||
Universal Health Services, Inc. — Class B | 952 | 99,484 | |||||
RR Donnelley & Sons Co. | 5,697 | 93,773 | |||||
Becton Dickinson and Co. | 781 | 88,886 | |||||
Total System Services, Inc. | 2,491 | 77,121 | |||||
Hormel Foods Corp. | 1,383 | 71,072 | |||||
Herbalife Ltd. | 1,598 | 69,913 | |||||
United Rentals, Inc.* | 575 | 63,883 | |||||
Illumina, Inc.* | 389 | 63,765 | |||||
CR Bard, Inc. | 436 | 62,222 | |||||
Endo International plc* | 875 | 59,798 | |||||
McGraw Hill Financial, Inc. | 700 | 59,115 | |||||
Centene Corp.* | 711 | 58,807 | |||||
Coty, Inc. — Class A | 3,436 | 56,866 | |||||
Church & Dwight Company, Inc. | 794 | 55,707 | |||||
Spectrum Brands Holdings, Inc. | 615 | 55,676 | |||||
H&R Block, Inc. | 1,792 | 55,570 | |||||
Monster Beverage Corp.* | 602 | 55,185 | |||||
AmerisourceBergen Corp. — Class A | 697 | 53,878 | |||||
Henry Schein, Inc.* | 449 | 52,295 | |||||
Brown-Forman Corp. — Class B | 570 | 51,425 | |||||
Brookdale Senior Living, Inc. — Class A* | 1,576 | 50,779 | |||||
McCormick & Company, Inc. | 759 | 50,777 | |||||
Sanderson Farms, Inc. | 563 | 49,516 | |||||
Genpact Ltd.* | 3,020 | 49,286 | |||||
Jarden Corp.* | 818 | 49,170 | |||||
KAR Auction Services, Inc. | 1,706 | 48,843 | |||||
Salix Pharmaceuticals Ltd.* | 200 | 31,248 | |||||
Total Consumer, Non-cyclical | 5,954,592 | ||||||
COMMUNICATIONS - 3.0% | |||||||
Omnicom Group, Inc. | 3,085 | 212,433 | |||||
Juniper Networks, Inc. | 8,270 | 183,180 | |||||
Liberty Interactive Corp. — Class A* | 6,205 | 176,966 | |||||
Corning, Inc. | 8,934 | 172,784 | |||||
Twitter, Inc.* | 3,102 | 160,001 | |||||
Nielsen N.V. | 3,414 | 151,343 | |||||
ARRIS Group, Inc.* | 4,771 | 135,282 | |||||
LinkedIn Corp. — Class A* | 549 | 114,077 | |||||
Harris Corp. | 1,607 | 106,705 | |||||
Motorola Solutions, Inc. | 1,682 | 106,437 | |||||
Discovery Communications, Inc. — Class A* | 2,099 | 79,342 | |||||
DISH Network Corp. — Class A* | 1,210 | 78,141 | |||||
Charter Communications, Inc. — Class A* | 516 | 78,107 | |||||
Anixter International, Inc. | 905 | 76,780 | |||||
Splunk, Inc.* | 1,214 | 67,207 | |||||
Interpublic Group of Companies, Inc. | 3,531 | 64,688 | |||||
EchoStar Corp. — Class A* | 1,185 | 57,781 | |||||
Netflix, Inc.* | 127 | 57,300 | |||||
Lamar Advertising Co. — Class A | 1,160 | 57,130 | |||||
Discovery Communications, Inc. — Class C* | 1,496 | 55,771 | |||||
CenturyLink, Inc. | 1,307 | 53,443 | |||||
VeriSign, Inc.* | 959 | 52,860 | |||||
Cablevision Systems Corp. — Class A | 3,013 | 52,758 | |||||
Sirius XM Holdings, Inc.* | 14,898 | 51,994 | |||||
CDW Corp. | 1,625 | 50,456 | |||||
Liberty Ventures* | 925 | 35,113 | |||||
Total Communications | 2,488,079 | ||||||
TECHNOLOGY - 3.0% | |||||||
Computer Sciences Corp. | 2,730 | 166,939 | |||||
Electronic Arts, Inc.* | 3,909 | 139,200 | |||||
Intuit, Inc. | 1,467 | 128,582 | |||||
Fiserv, Inc.* | 1,949 | 125,974 | |||||
Maxim Integrated Products, Inc. | 3,833 | 115,910 | |||||
Pitney Bowes, Inc. | 4,316 | 107,857 | |||||
Applied Materials, Inc. | 4,904 | 105,976 | |||||
NetApp, Inc. | 2,418 | 103,877 | |||||
SanDisk Corp. | 1,047 | 102,554 | |||||
Fidelity National Information Services, Inc. | 1,804 | 101,565 | |||||
Activision Blizzard, Inc. | 4,694 | 97,588 | |||||
ON Semiconductor Corp.* | 10,588 | 94,657 | |||||
Xilinx, Inc. | 2,022 | 85,632 | |||||
IHS, Inc. — Class A* | 625 | 78,244 | |||||
DST Systems, Inc. | 913 | 76,619 | |||||
Citrix Systems, Inc.* | 929 | 66,275 | |||||
VeriFone Systems, Inc.* | 1,869 | 64,257 | |||||
Paychex, Inc. | 1,447 | 63,957 |
72 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
SCHEDULE OF INVESTMENTS (continued) | September 30, 2014 | |
STYLEPLUS—MID GROWTH FUND |
SHARES | VALUE | ||||||
Cerner Corp.* | 1,021 | $ | 60,821 | ||||
Teradata Corp.* | 1,369 | 57,388 | |||||
SS &C Technologies Holdings, Inc.* | 1,275 | 55,960 | |||||
Informatica Corp.* | 1,618 | 55,400 | |||||
Autodesk, Inc.* | 1,002 | 55,210 | |||||
Microsemi Corp.* | 2,142 | 54,428 | |||||
Microchip Technology, Inc. | 1,140 | 53,842 | |||||
Teradyne, Inc. | 2,742 | 53,167 | |||||
Jack Henry & Associates, Inc. | 930 | 51,764 | |||||
Freescale Semiconductor Ltd.* | 2,601 | 50,798 | |||||
Diebold, Inc. | 1,417 | 50,048 | |||||
Solera Holdings, Inc. | 820 | 46,215 | |||||
Total Technology | 2,470,704 | ||||||
CONSUMER, CYCLICAL - 2.9% | |||||||
Southwest Airlines Co. | 7,796 | 263,270 | |||||
Macy’s, Inc. | 2,747 | 159,821 | |||||
United Continental Holdings, Inc.* | 3,324 | 155,530 | |||||
Allison Transmission Holdings, Inc. | 4,285 | 122,079 | |||||
Rite Aid Corp.* | 23,725 | 114,829 | |||||
PACCAR, Inc. | 1,902 | 108,176 | |||||
PVH Corp. | 781 | 94,618 | |||||
Best Buy Company, Inc. | 2,763 | 92,809 | |||||
Wyndham Worldwide Corp. | 1,107 | 89,955 | |||||
WW Grainger, Inc. | 349 | 87,826 | |||||
VF Corp. | 1,293 | 85,377 | |||||
Harley-Davidson, Inc. | 1,367 | 79,559 | |||||
Starwood Hotels & Resorts Worldwide, Inc. | 935 | 77,801 | |||||
Kohl’s Corp. | 1,238 | 75,555 | |||||
Tesla Motors, Inc.* | 279 | 67,708 | |||||
MGM Resorts International* | 2,946 | 67,110 | |||||
Dollar Tree, Inc.* | 1,168 | 65,490 | |||||
Alaska Air Group, Inc. | 1,318 | 57,386 | |||||
Tiffany & Co. | 592 | 57,016 | |||||
Wynn Resorts Ltd. | 298 | 55,750 | |||||
Genuine Parts Co. | 635 | 55,696 | |||||
Nordstrom, Inc. | 803 | 54,901 | |||||
O’Reilly Automotive, Inc.* | 363 | 54,581 | |||||
American Airlines Group, Inc. | 1,535 | 54,462 | |||||
Hilton Worldwide Holdings, Inc.* | 2,100 | 51,723 | |||||
Dollar General Corp.* | 840 | 51,332 | |||||
Michael Kors Holdings Ltd.* | 700 | 49,973 | |||||
Goodyear Tire & Rubber Co. | 2,069 | 46,728 | |||||
BorgWarner, Inc. | 852 | 44,824 | |||||
Total Consumer, Cyclical | 2,441,885 | ||||||
INDUSTRIAL - 2.5% | |||||||
Fluor Corp. | 2,947 | 196,830 | |||||
Waste Management, Inc. | 4,108 | 195,253 | |||||
Stanley Black & Decker, Inc. | 2,178 | 193,385 | |||||
Ingersoll-Rand plc | 2,848 | 160,513 | |||||
Parker-Hannifin Corp. | 1,303 | 148,737 | |||||
Dover Corp. | 1,849 | 148,530 | |||||
Pentair plc | 1,969 | 128,950 | |||||
Huntington Ingalls Industries, Inc. | 905 | 94,310 | |||||
Allegion plc | 1,797 | 85,609 | |||||
Masco Corp. | 3,433 | 82,117 | |||||
Rockwell Automation, Inc. | 637 | 69,994 | |||||
Waste Connections, Inc. | 1,288 | 62,493 | |||||
Spirit AeroSystems Holdings, Inc. — Class A* | 1,637 | 62,304 | |||||
Roper Industries, Inc. | 422 | 61,734 | |||||
Covanta Holding Corp. | 2,575 | 54,642 | |||||
Rexnord Corp.* | 1,910 | 54,340 | |||||
Tyco International Ltd. | 1,207 | 53,796 | |||||
Moog, Inc. — Class A* | 778 | 53,215 | |||||
Agilent Technologies, Inc. | 915 | 52,137 | |||||
Pall Corp. | 617 | 51,643 | |||||
Belden, Inc. | 742 | 47,503 | |||||
Manitowoc Company, Inc. | 1,710 | 40,100 | |||||
Total Industrial | 2,098,135 | ||||||
ENERGY - 1.7% | |||||||
Noble Energy, Inc. | 2,105 | 143,898 | |||||
Nabors Industries Ltd. | 6,253 | 142,318 | |||||
Superior Energy Services, Inc. | 3,729 | 122,572 | |||||
Concho Resources, Inc.* | 800 | 100,312 | |||||
Cameron International Corp.* | 1,271 | 84,369 | |||||
Tesoro Corp. | 1,319 | 80,433 | |||||
Chesapeake Energy Corp. | 2,988 | 68,694 | |||||
Range Resources Corp. | 984 | 66,725 | |||||
Valero Energy Corp. | 1,388 | 64,223 | |||||
Cheniere Energy, Inc.* | 715 | 57,221 | |||||
Cabot Oil & Gas Corp. — Class A | 1,742 | 56,946 | |||||
FMC Technologies, Inc.* | 1,034 | 56,157 | |||||
Southwestern Energy Co.* | 1,554 | 54,312 | |||||
Patterson-UTI Energy, Inc. | 1,641 | 53,382 | |||||
Helmerich & Payne, Inc. | 540 | 52,850 | |||||
Equities Corp. | 565 | 51,720 | |||||
Kosmos Energy Ltd.* | 5,057 | 50,368 | |||||
PBF Energy, Inc. — Class A | 1,949 | 46,776 | |||||
Cobalt International Energy, Inc.* | 2,859 | 38,882 | |||||
Total Energy | 1,392,158 | ||||||
FINANCIAL - 0.1% | |||||||
T. Rowe Price Group, Inc. | 703 | 55,116 | |||||
American Financial Group, Inc. | 915 | 52,969 | |||||
Total Financial | 108,085 | ||||||
DIVERSIFIED - 0.0% | |||||||
Liberty TripAdvisor Holdings, Inc. — Class A* | 925 | 31,358 | |||||
BASIC MATERIALS - 0.0% | |||||||
Veritiv Corp.* | 35 | 1,752 | |||||
Total Common Stocks | |||||||
(Cost $16,451,468) | 16,986,748 | ||||||
MUTUAL FUNDS† - 47.5% | |||||||
Guggenheim Strategy Fund III1 | 715,078 | 17,812,592 | |||||
Guggenheim Strategy Fund II1 | 532,590 | 13,261,482 | |||||
Guggenheim Strategy Fund I1 | 342,075 | 8,517,668 | |||||
Total Mutual Funds | |||||||
(Cost $39,688,096) | 39,591,742 | ||||||
SHORT TERM INVESTMENTS† - 3.3% | |||||||
Dreyfus Treasury Prime Cash | |||||||
Management Fund | 2,744,522 | 2,744,522 | |||||
Total Short Term Investments | |||||||
(Cost $2,744,522) | 2,744,522 | ||||||
THE GUGGENHEIM FUNDS ANNUAL REPORT | 73 |
SCHEDULE OF INVESTMENTS (continued) | September 30, 2014 | |
STYLEPLUS—MID GROWTH FUND |
FACE | |||||||
AMOUNT | VALUE | ||||||
ASSET BACKED SECURITIES†† - 21.2% | |||||||
Garrison Funding 2013-2 Ltd. | |||||||
2013-2A, 2.03% due 09/25/232,3 | $ | 830,000 | $ | 824,936 | |||
Duane Street CLO IV Ltd. | |||||||
2007-4A, 0.46% due 11/14/212,3 | 823,990 | 816,657 | |||||
N-Star REL CDO VIII Ltd. | |||||||
2006-8A, 0.44% due 02/01/412,3 | 832,417 | 798,372 | |||||
Brentwood CLO Corp. | |||||||
2006-1A, 0.51% due 02/01/222,3 | 472,640 | 465,409 | |||||
2006-1A, 1.06% due 02/01/222,3 | 250,000 | 227,900 | |||||
Argent Securities Incorporated | |||||||
Asset-Backed Pass-Through | |||||||
Certificates Series | |||||||
2005-W3, 0.49% due 11/25/352 | 706,354 | 678,192 | |||||
JP Morgan Mortgage Acquisition Trust | |||||||
2007-CH3, 0.30% due 03/25/372 | 652,231 | 642,509 | |||||
2006-CH2, 0.26% due 10/25/362 | 97,837 | 97,735 | |||||
Salus CLO 2012-1 Ltd. | |||||||
2013-1AN, 2.48% due 03/05/212,3 | 600,000 | 599,040 | |||||
Cornerstone CLO Ltd. | |||||||
2007-1A, 0.45% due 07/15/212,3 | 600,000 | 594,900 | |||||
Cerberus Onshore II CLO LLC | |||||||
2014-1A, 2.93% due 10/15/232,3 | 350,000 | 344,435 | |||||
2014-1A, 2.23% due 10/15/232,3 | 250,000 | 249,500 | |||||
ALM VII R-2 Ltd. | |||||||
2013-7R2A, 2.83% due 04/24/242,3 | 600,000 | 589,080 | |||||
Central Park CLO Ltd. | |||||||
2011-1A, 3.43% due 07/23/222,3 | 550,000 | 542,410 | |||||
Symphony CLO IX, LP | |||||||
2012-9A, 3.48% due 04/16/222,3 | 500,000 | 500,000 | |||||
TICC CLO LLC | |||||||
2011-1A, 2.48% due 07/25/212,3 | 500,000 | 500,000 | |||||
Symphony CLO VII Ltd. | |||||||
2011-7A, 3.44% due 07/28/212,3 | 500,000 | 499,250 | |||||
Aegis Asset Backed Securities Trust | |||||||
2005-3, 0.62% due 08/25/352 | 502,740 | 495,597 | |||||
Goldman Sachs Asset Management CLO plc | |||||||
2007-1A, 2.99% due 08/01/222,3 | 500,000 | 491,900 | |||||
Black Diamond CLO 2005-1 Delaware Corp. | |||||||
2005-1A, 2.13% due 06/20/172,3 | 500,000 | 490,300 | |||||
KKR Financial CLO 2007-1 Ltd. | |||||||
2007-1A, 2.48% due 05/15/212,3 | 500,000 | 490,300 | |||||
NewStar Commercial Loan Trust 2007-1 | |||||||
2007-1A, 1.53% due 09/30/222,3 | 500,000 | 472,850 | |||||
Lehman XS Trust 2007-9 | |||||||
2007-9, 0.27% due 06/25/372 | 514,667 | 464,433 | |||||
Wells Fargo Home Equity Asset-Backed | |||||||
Securities 2006-2 Trust | |||||||
2006-3, 0.30% due 01/25/372 | 444,361 | 407,465 | |||||
Foothill CLO Ltd. | |||||||
2007-1A, 0.48% due 02/22/212,3 | 410,376 | 406,683 | |||||
Hewett’s Island CDO Ltd. | |||||||
2007-6A, 2.48% due 06/09/192,3 | 400,000 | 398,480 | |||||
Race Point V CLO Ltd. | |||||||
2014-5AR, 3.08% due 12/15/222,3 | 400,000 | 398,240 | |||||
GSC Group CDO Fund VIII Ltd. | |||||||
2007-8A, 0.61% due 04/17/212,3 | 400,000 | 390,400 | |||||
Black Diamond CLO 2006-1 Luxembourg S.A. | |||||||
2007-1A, 0.62% due 04/29/192,3 | 400,000 | 376,120 | |||||
GreenPoint Mortgage Funding Trust | |||||||
2005-HE4, 0.86% due 07/25/302 | 400,000 | 374,464 | |||||
Popular ABS Mortgage | |||||||
Pass-Through Trust | |||||||
2005-A, 0.58% due 06/25/352 | 365,174 | 351,295 | |||||
Northwoods Capital VII Ltd. | |||||||
2006-7A, 1.78% due 10/22/212,3 | 340,000 | 334,832 | |||||
Golub Capital Partners CLO 18 Ltd. | |||||||
2014-18A, 2.73% due 04/25/262,3 | 310,000 | 306,900 | |||||
H2 Asset Funding Ltd. | |||||||
2.05% due 03/19/37 | 300,000 | 302,550 | |||||
OFSI Fund V Ltd. | |||||||
2013-5A, 3.43% due 04/17/252,3 | 300,000 | 299,160 | |||||
DIVCORE CLO Ltd. | |||||||
2013-1A B, 4.05% due 11/15/32 | 250,000 | 250,150 | |||||
Race Point IV CLO Ltd. | |||||||
2007-4A, 0.99% due 08/01/212,3 | 250,000 | 240,700 | |||||
Tricadia CDO 2006-6 Ltd. | |||||||
2006-6A, 0.79% due 11/05/412,3 | 250,000 | 236,400 | |||||
Soundview Home Loan Trust | |||||||
2003-1, 2.40% due 08/25/312 | 199,183 | 197,271 | |||||
West Coast Funding Ltd. | |||||||
2006-1A, 0.38% due 11/02/412,3 | 170,650 | 167,493 | |||||
Global Leveraged Capital | |||||||
Credit Opportunity Fund | |||||||
2006-1A, 0.53% due 12/20/182,3 | 153,530 | 153,269 | |||||
ACS 2007-1 Pass Through Trust | |||||||
2007-1A, 0.47% due 06/14/372,3 | 154,374 | 150,901 | |||||
Golub Capital Partners Fundings Ltd. | |||||||
2007-1A, 0.48% due 03/15/222,3 | 98,010 | 96,952 | |||||
Total Asset Backed Securities | |||||||
(Cost $17,495,893) | 17,715,430 | ||||||
MORTGAGE BACKED SECURITIES†† - 4.6% | |||||||
HSI Asset Securitization Corporation Trust | |||||||
2007-WF1, 0.32% due 05/25/372 | 939,582 | 876,358 | |||||
Boca Hotel Portfolio Trust | |||||||
2013-BOCA, 3.20% due 08/15/262,3 | 650,000 | 650,516 | |||||
Resource Capital Corporation CRE | |||||||
Notes 2013 Ltd. | |||||||
2013-CRE1, 3.00% due 12/15/282,3 | 600,000 | 606,863 | |||||
Hilton USA Trust | |||||||
2013-HLF, 2.91% due 11/05/302,3 | 600,000 | 600,377 | |||||
SRERS Funding Ltd. | |||||||
2011-RS, 0.40% due 05/09/462,3 | 526,212 | 501,217 | |||||
Banc of America Merrill Lynch | |||||||
Commercial Mortgage, Inc. | |||||||
2005-6, 6.33% due 09/10/472,3 | 353,000 | 359,805 | |||||
Wachovia Bank Commercial Mortgage | |||||||
Trust Series 2007-WHALE 8 | |||||||
2007-WHL8, 0.23% due 06/15/202,3 | 238,972 | 237,798 | |||||
Total Mortgage Backed Securities | |||||||
(Cost $3,789,241) | 3,832,934 | ||||||
74 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
SCHEDULE OF INVESTMENTS (concluded) | September 30, 2014 | |
STYLEPLUS—MID GROWTH FUND |
FACE | |||||||
AMOUNT | VALUE | ||||||
SENIOR FLOATING RATE INTERESTS††,2 - 2.1% | |||||||
FINANCIAL - 0.9% | |||||||
National Financial Partners Corp. | |||||||
4.50% due 07/01/20 | $ | 524,702 | $ | 519,454 | |||
First Data Corp. | |||||||
3.65% due 03/23/18 | 100,000 | 97,968 | |||||
Cunningham Lindsey U.S., Inc. | |||||||
5.00% due 12/10/19 | 98,496 | 96,773 | |||||
Total Financial | 714,195 | ||||||
TECHNOLOGY - 0.5% | |||||||
Blue Coat Systems, Inc. | |||||||
4.00% due 05/31/19 | 456,147 | 446,645 | |||||
INDUSTRIAL - 0.3% | |||||||
Thermasys Corp. | |||||||
5.25% due 05/03/19 | 261,563 | 260,038 | |||||
ENERGY - 0.3% | |||||||
Pacific Drilling | |||||||
4.50% due 05/18/18 | 217,250 | 209,738 | |||||
CONSUMER, CYCLICAL - 0.1% | |||||||
Sears Holdings Corp. | |||||||
5.50% due 06/30/18 | 99,250 | 96,397 | |||||
Total Senior Floating Rate Interests | |||||||
(Cost $1,749,458) | 1,727,013 | ||||||
CORPORATE BONDS†† - 0.9% | |||||||
FINANCIAL - 0.5% | |||||||
Icahn Enterprises Limited Partnership / | |||||||
Icahn Enterprises Finance Corp. | |||||||
3.50% due 03/15/17 | 320,000 | 316,800 | |||||
International Lease Finance Corp. | |||||||
2.18% due 06/15/162 | 130,000 | 128,700 | |||||
Total Financial | 445,500 | ||||||
COMMUNICATIONS - 0.4% | |||||||
Level 3 Financing, Inc. | |||||||
3.82% due 01/15/182 | 320,000 | 315,296 | |||||
Total Corporate Bonds | |||||||
(Cost $772,620) | 760,796 | ||||||
COLLATERALIZED MORTGAGE OBLIGATION†† - 0.4% | |||||||
HarborView Mortgage Loan Trust | |||||||
2006-12, 0.34% due 01/19/382 | 399,614 | 341,104 | |||||
Total Collateralized Mortgage Obligation | |||||||
(Cost $327,598) | 341,104 | ||||||
Total Investments - 100.4% | |||||||
(Cost $83,018,896) | $ | 83,700,289 | |||||
Other Assets & Liabilities, net - (0.4)% | (316,167 | ) | |||||
Total Net Assets - 100.0% | $ | 83,384,122 | |||||
UNREALIZED | |||||||
CONTRACTS | GAIN (LOSS) | ||||||
EQUITY FUTURES CONTRACTS PURCHASED† | |||||||
December 2014 NASDAQ-100 | |||||||
Index Mini Futures Contracts | |||||||
(Aggregate Value of Contracts $161,760) | 2 | $ | 724 | ||||
December 2014 S&P 500 | |||||||
Index Mini Futures Contracts | |||||||
(Aggregate Value of Contracts $196,475) | 2 | (1,161 | ) | ||||
December 2014 S&P MidCap 400 | |||||||
Index Mini Futures Contracts | |||||||
(Aggregate Value of Contracts $545,560) | 4 | (19,353 | ) | ||||
(Total Aggregate Value of Contracts $903,795) | $ | (19,790 | ) | ||||
UNITS | |||||||
OTC EQUITY INDEX SWAP AGREEMENTS†† | |||||||
Morgan Stanley Capital Services, Inc. | |||||||
June 2015 Russell Midcap Growth Total Return | |||||||
Index Swap, Terminating 06/03/154 | |||||||
(Notional Value $43,638,829) | 21,873 | $ | 2,063,496 | ||||
Bank of America | |||||||
November 2014 Russell Midcap Growth | |||||||
Index Swap, Terminating 11/05/144 | |||||||
(Notional Value $2,299,684) | 3,246 | — | |||||
Bank of America | |||||||
August 2015 Russell Midcap Growth Total Return | |||||||
Index Swap, Terminating 08/05/154 | |||||||
(Notional Value $18,862,044) | 9,454 | (160,037 | ) | ||||
(Total Notional Value $64,800,557) | $ | 1,903,459 | |||||
* | Non-income producing security. |
† | Value determined based on Level 1 inputs — See Note 4. |
†† | Value determined based on Level 2 inputs — See Note 4. |
1 | Affiliated issuer — See Note 12. |
2 | Variable rate security. Rate indicated is rate effective at September 30, 2014. |
3 | Security is a 144A or Section 4(a)(2) security. The total market value of 144A or Section 4(a)(2) securities is $16,725,641 (cost $16,558,212), or 20.1% of total net assets. These securities have been determined to be liquid under guidelines established by the Board of Trustees. |
4 | Total Return based on Russell Midcap Growth Index +/- financing at a variable rate. |
plc — Public Limited Company |
THE GUGGENHEIM FUNDS ANNUAL REPORT | 75 |
STYLEPLUS—MID GROWTH FUND |
STATEMENT OF ASSETS AND LIABILITIES | ||||
September 30, 2014 | ||||
ASSETS: | ||||
Investments in unaffiliated issuers, at value | ||||
(cost $43,330,800) | $ | 44,108,547 | ||
Investments in affiliated issuers, at value | ||||
(cost $39,688,096) | 39,591,742 | |||
Total investments | ||||
(cost $83,018,896) | 83,700,289 | |||
Unrealized appreciation on swap agreements | 2,063,496 | |||
Segregated cash with broker | 342,600 | |||
Prepaid expenses | 23,515 | |||
Cash | 4,288 | |||
Receivables: | ||||
Dividends | 59,538 | |||
Interest | 55,716 | |||
Fund shares sold | 29,455 | |||
Foreign taxes reclaim | 18 | |||
Total assets | 86,278,915 | |||
LIABILITIES: | ||||
Segregated cash from broker | 2,376,010 | |||
Unrealized depreciation on swap agreements | 160,037 | |||
Payable for: | ||||
Swap settlement | 116,183 | |||
Management fees | 52,972 | |||
Securities purchased | 42,215 | |||
Fund shares redeemed | 39,188 | |||
Distribution and service fees | 21,455 | |||
Transfer agent/maintenance fees | 15,763 | |||
Fund accounting/administration fees | 6,712 | |||
Variation margin | 5,655 | |||
Trustees’ fees* | 1,949 | |||
Miscellaneous | 56,654 | |||
Total liabilities | 2,894,793 | |||
NET ASSETS | $ | 83,384,122 | ||
NET ASSETS CONSIST OF: | ||||
Paid in capital | $ | 71,642,834 | ||
Undistributed net investment income | — | |||
Accumulated net realized gain on investments | 9,176,226 | |||
Net unrealized appreciation on investments | 2,565,062 | |||
Net assets | $ | 83,384,122 | ||
A-CLASS: | ||||
Net assets | $ | 77,362,540 | ||
Capital shares outstanding | 1,688,295 | |||
Net asset value per share | $45.82 | |||
Maximum offering price per share | ||||
(Net asset value divided by 95.25%) | $48.10 | |||
B-CLASS: | ||||
Net assets | $ | 1,662,810 | ||
Capital shares outstanding | 53,034 | |||
Net asset value per share | $31.35 | |||
C-CLASS: | ||||
Net assets | $ | 4,328,828 | ||
Capital shares outstanding | 115,493 | |||
Net asset value per share | $37.48 | |||
INSTITUTIONAL CLASS: | ||||
Net assets | $ | 29,944 | ||
Capital shares outstanding | 652 | |||
Net asset value per share | $45.96 | |||
STATEMENT OF OPERATIONS | ||||
Year Ended September 30, 2014 | ||||
INVESTMENT INCOME: | ||||
Interest | $ | 924,530 | ||
Dividends from securities of affiliated issuers | 468,624 | |||
Dividends from securities of unaffiliated issuers | ||||
(net of foreign withholding tax of $39) | 269,978 | |||
Total investment income | 1,663,132 | |||
EXPENSES: | ||||
Management fees | 622,055 | |||
Transfer agent/maintenance fees: | ||||
A-Class | 131,342 | |||
B-Class | 17,203 | |||
C-Class | 13,992 | |||
Institutional Class | 141 | |||
Distribution and service fees: | ||||
A-Class | 191,496 | |||
B-Class | 19,673 | |||
C-Class | 43,504 | |||
Fund accounting/administration fees | 78,793 | |||
Legal fees | 111,603 | |||
Custodian fees | 8,826 | |||
Line of credit expense | 5,577 | |||
Trustees’ fees* | 3,294 | |||
Tax expense | 55 | |||
Miscellaneous | 201,872 | |||
Total expenses | 1,449,426 | |||
Less: | ||||
Expenses waived by Adviser | (16,469 | ) | ||
Net expenses | 1,432,957 | |||
Net investment income | 230,175 | |||
NET REALIZED AND UNREALIZED GAIN (LOSS): | ||||
Net realized gain (loss) on: | ||||
Investments in unaffiliated issuers | 3,579,147 | |||
Investments in affiliated issuers | (55,332 | ) | ||
Swap agreements | 8,936,682 | |||
Futures contracts | 223,904 | |||
Realized gain distributions received from | ||||
investment company shares | 21,529 | |||
Net realized gain | 12,705,930 | |||
Net change in unrealized appreciation (depreciation) on: | ||||
Investments in unaffiliated issuers | (188,897 | ) | ||
Investments in affiliated issuers | (2,109 | ) | ||
Swap agreements | (963,698 | ) | ||
Futures contracts | (25,861 | ) | ||
Net change in unrealized appreciation (depreciation) | (1,180,565 | ) | ||
Net realized and unrealized gain | 11,525,365 | |||
Net increase in net assets resulting | ||||
from operations | $ | 11,755,540 | ||
* | Relates to Trustees not deemed “interested persons” within the meaning of Section 2(a)(19) of the 1940 Act. |
76 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
STYLEPLUS—MID GROWTH FUND |
STATEMENTS OF CHANGES IN NET ASSETS | ||||||||||
Year Ended | Year Ended | |||||||||
September 30, | September 30, | |||||||||
2014 | 2013 | |||||||||
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS: | ||||||||||
Net investment income (loss) | $ | 230,175 | $ | (373,253 | ) | |||||
Net realized gain on investments | 12,705,930 | 14,868,014 | ||||||||
Net change in unrealized appreciation (depreciation) on investments | (1,180,565 | ) | (1,298,013 | ) | ||||||
Net increase in net assets resulting from operations | 11,755,540 | 13,196,748 | ||||||||
DISTRIBUTIONS TO SHAREHOLDERS FROM: | ||||||||||
Net realized gains | ||||||||||
A-Class | (6,590,240 | ) | — | |||||||
B-Class | (268,820 | ) | — | |||||||
C-Class | (456,906 | ) | — | |||||||
Institutional Class | (2,003 | ) | — | |||||||
Total distributions to shareholders | (7,317,969 | ) | — | |||||||
CAPITAL SHARE TRANSACTIONS: | ||||||||||
Proceeds from sale of shares | ||||||||||
A-Class | 4,986,267 | 4,893,749 | ||||||||
B-Class | 13,919 | 101,193 | ||||||||
C-Class | 321,841 | 502,866 | ||||||||
Institutional Class | 5,279 | 8,544 | ||||||||
Distributions reinvested | ||||||||||
A-Class | 6,337,566 | — | ||||||||
B-Class | 267,782 | — | ||||||||
C-Class | 436,749 | — | ||||||||
Institutional Class | 2,003 | — | ||||||||
Cost of shares redeemed | ||||||||||
A-Class | (9,031,518 | ) | (11,996,493 | ) | ||||||
B-Class | (801,755 | ) | (1,015,996 | ) | ||||||
C-Class | (663,153 | ) | (1,451,309 | ) | ||||||
Institutional Class | — | — | ||||||||
Net increase (decrease) from capital share transactions | 1,874,980 | (8,957,446 | ) | |||||||
Net increase in net assets | 6,312,551 | 4,239,302 | ||||||||
NET ASSETS: | ||||||||||
Beginning of year | 77,071,571 | 72,832,269 | ||||||||
End of year | $ | 83,384,122 | $ | 77,071,571 | ||||||
Undistributed net investment income/Accumulated net investment loss at end of year | $ | — | $ | (421,422 | ) | |||||
CAPITAL SHARE ACTIVITY: | ||||||||||
Shares sold | ||||||||||
A-Class | 112,690 | 124,546 | ||||||||
B-Class | 438 | 3,484 | ||||||||
C-Class | 8,737 | 15,252 | ||||||||
Institutional Class | 114 | 213 | ||||||||
Shares issued from reinvestment of distributions | ||||||||||
A-Class | 152,676 | — | ||||||||
B-Class | 9,321 | — | ||||||||
C-Class | 12,770 | — | ||||||||
Institutional Class | 48 | — | ||||||||
Shares redeemed | ||||||||||
A-Class | (202,301 | ) | (305,981 | ) | ||||||
B-Class | (26,103 | ) | (35,652 | ) | ||||||
C-Class | (18,028 | ) | (43,786 | ) | ||||||
Institutional Class | — | — | ||||||||
Net increase (decrease) in shares | 50,362 | (241,924 | ) | |||||||
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 77 |
STYLEPLUS—MID GROWTH FUND |
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 | ||||||||||||||||
September 30, | September 30, | September 30, | September 30, | September 30, | ||||||||||||||||
A-Class | 2014 | 2013 | 2012 | 2011f | 2010f | |||||||||||||||
Per Share Data | ||||||||||||||||||||
Net asset value, beginning of period | $ 43.54 | $ 36.40 | $ 28.67 | $ 29.44 | $ 26.16 | |||||||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||
Net investment income (loss)a | .16 | (.16 | ) | (.25 | ) | (.24 | ) | (.24 | ) | |||||||||||
Net gain (loss) on investments (realized and unrealized) | 6.21 | 7.30 | 7.98 | (.53 | ) | 3.52 | ||||||||||||||
Total from investment operations | 6.37 | 7.14 | 7.73 | (.77 | ) | 3.28 | ||||||||||||||
Less distributions from: | ||||||||||||||||||||
Net realized gains | (4.09 | ) | — | — | — | — | ||||||||||||||
Total distributions | (4.09 | ) | — | — | — | — | ||||||||||||||
Net asset value, end of period | $ 45.82 | $ 43.54 | $ 36.40 | $ 28.67 | $ 29.44 | |||||||||||||||
Total Returnb | 15.61% | 19.62% | 26.96% | (2.62% | ) | 12.54% | ||||||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||
Net assets, end of period (in thousands) | $77,363 | $70,767 | $65,767 | $62,575 | $71,858 | |||||||||||||||
Ratios to average net assets: | ||||||||||||||||||||
Net investment income (loss) | 0.36% | (0.40% | ) | (0.74% | ) | (0.72% | ) | (0.85% | ) | |||||||||||
Total expensesc | 1.67% | 1.57% | 1.62% | 1.49% | 1.67% | |||||||||||||||
Net expensesd | 1.65% | 1.57% | 1.62% | 1.49% | 1.67% | |||||||||||||||
Portfolio turnover rate | 112% | 214% | 149% | 157% | 133% |
Year Ended | Year Ended | Year Ended | Year Ended | Year Ended | ||||||||||||||||
September 30, | September 30, | September 30, | September 30, | September 30, | ||||||||||||||||
B-Class | 2014 | 2013 | 2012 | 2011f | 2010f | |||||||||||||||
Per Share Data | ||||||||||||||||||||
Net asset value, beginning of period | $31.43 | $26.68 | $21.30 | $22.04 | $19.72 | |||||||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||
Net investment income (loss)a | (.35 | ) | (.54 | ) | (.52 | ) | (.37 | ) | (.32 | ) | ||||||||||
Net gain (loss) on investments (realized and unrealized) | 4.36 | 5.29 | 5.90 | (.37 | ) | 2.64 | ||||||||||||||
Total from investment operations | 4.01 | 4.75 | 5.38 | (.74 | ) | 2.32 | ||||||||||||||
Less distributions from: | ||||||||||||||||||||
Net realized gains | (4.09 | ) | — | — | — | — | ||||||||||||||
Total distributions | (4.09 | ) | — | — | — | — | ||||||||||||||
Net asset value, end of period | $31.35 | $31.43 | $26.68 | $21.30 | $22.04 | |||||||||||||||
Total Returnb | 13.95% | 17.80% | 25.26% | (3.36% | ) | 11.76% | ||||||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||
Net assets, end of period (in thousands) | $1,663 | $2,181 | $2,710 | $3,197 | $4,537 | |||||||||||||||
Ratios to average net assets: | ||||||||||||||||||||
Net investment income (loss) | (1.13% | ) | (1.90% | ) | (2.08% | ) | (1.50% | ) | (1.60% | ) | ||||||||||
Total expensesc | 3.13% | 3.07% | 2.95% | 2.26% | 2.42% | |||||||||||||||
Net expensesd | 3.11% | 3.07% | 2.95% | 2.26% | 2.42% | |||||||||||||||
Portfolio turnover rate | 112% | 214% | 149% | 157% | 133% |
78 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
STYLEPLUS—MID GROWTH FUND |
FINANCIAL HIGHLIGHTS (concluded) |
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 | ||||||||||||||||
September 30, | September 30, | September 30, | September 30, | September 30, | ||||||||||||||||
C-Class | 2014 | 2013 | 2012 | 2011f | 2010f | |||||||||||||||
Per Share Data | ||||||||||||||||||||
Net asset value, beginning of period | $36.63 | $30.92 | $24.55 | $25.40 | $22.76 | |||||||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||
Net investment income (loss)a | (.20 | ) | (.45 | ) | (.46 | ) | (.42 | ) | (.40 | ) | ||||||||||
Net gain (loss) on investments (realized and unrealized) | 5.14 | 6.16 | 6.83 | (.43 | ) | 3.04 | ||||||||||||||
Total from investment operations | 4.94 | 5.71 | 6.37 | (.85 | ) | 2.64 | ||||||||||||||
Less distributions from: | ||||||||||||||||||||
Net realized gains | (4.09 | ) | — | — | — | — | ||||||||||||||
Total distributions | (4.09 | ) | — | — | — | — | ||||||||||||||
Net asset value, end of period | $37.48 | $36.63 | $30.92 | $24.55 | $25.40 | |||||||||||||||
Total Returnb | 14.56% | 18.47% | 25.95% | (3.35% | ) | 11.60% | ||||||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||
Net assets, end of period (in thousands) | $4,329 | $4,103 | $4,346 | $4,162 | $5,339 | |||||||||||||||
Ratios to average net assets: | ||||||||||||||||||||
Net investment income (loss) | (0.55% | ) | (1.36% | ) | (1.57% | ) | (1.48% | ) | (1.60% | ) | ||||||||||
Total expensesc | 2.57% | 2.53% | 2.45% | 2.25% | 2.43% | |||||||||||||||
Net expensesd | 2.55% | 2.53% | 2.45% | 2.25% | 2.43% | |||||||||||||||
Portfolio turnover rate | 112% | 214% | 149% | 157% | 133% | |||||||||||||||
Year Ended | Year Ended | Period Ended | ||||||||||||||||||
September 30, | September 30, | September 30, | ||||||||||||||||||
Institutional Class | 2014 | 2013 | 2012e | |||||||||||||||||
Per Share Data | ||||||||||||||||||||
Net asset value, beginning of period | $43.72 | $36.46 | $36.16 | |||||||||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||
Net investment income (loss)a | .11 | (.07 | ) | (.08 | ) | |||||||||||||||
Net gain (loss) on investments (realized and unrealized) | 6.22 | 7.33 | .38 | |||||||||||||||||
Total from investment operations | 6.33 | 7.26 | .30 | |||||||||||||||||
Less distributions from: | ||||||||||||||||||||
Net realized gains | (4.09 | ) | — | — | ||||||||||||||||
Total distributions | (4.09 | ) | — | — | ||||||||||||||||
Net asset value, end of period | $45.96 | $43.72 | $36.46 | |||||||||||||||||
Total Returnb | 15.42% | 19.91% | 0.83% | |||||||||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||
Net assets, end of period (in thousands) | $30 | $21 | $10 | |||||||||||||||||
Ratios to average net assets: | ||||||||||||||||||||
Net investment income (loss) | 0.24% | (0.17% | ) | (0.41% | ) | |||||||||||||||
Total expensesc | 1.81% | 1.33% | 1.37% | |||||||||||||||||
Net expensesd | 1.79% | 1.33% | 1.37% | |||||||||||||||||
Portfolio turnover rate | 112% | 214% | 149% |
a | Net investment income (loss) per share was computed using average shares outstanding throughout the period. |
b | Total return does not reflect the impact of any applicable sales charges and has not been annualized. |
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 | Since commencement of operations: March 1, 2012. Percentage amounts for the period, except total return and portfolio turnover rate, have been annualized. |
f | Reverse share split — Per share amounts for the periods presented through April 8, 2011 have been restated to reflect a 1:4 reverse share split effective April 8, 2011. |
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 79 |
MANAGERS’ COMMENTARY (Unaudited) | September 30, 2014 | |
To Our Shareholders
Guggenheim World Equity Income Fund (the “Fund”) is managed by a team of seasoned professionals, including Farhan Sharaff, Senior Managing Director and Assistant Chief Investment Officer, Equities; Nardin Baker, CFA, Managing Director and Portfolio Manager; Ole Jakob Wold, Managing Director and Portfolio Manager; and Scott Hammond, Managing Director and Portfolio Manager. In the following paragraphs, the investment team discusses performance for the fiscal year ended September 30, 2014.
For the one year period ended September 30, 2014, the Guggenheim World Equity Income Fund returned 10.62%1, compared with the 12.22% return of its benchmark, the MSCI World Index.
The Fund seeks to deliver superior risk-adjusted returns by taking advantage of market inefficiencies that, at times, misprice stable companies. To identify the degree to which the market could potentially reward stability and other factors, the Fund’s investment team distills the global equity market down to 60 discrete fundamental stock characteristics which it uses to rank stocks it considers for the portfolio.
Performance Review
For the period, the Health Care and Telecommunications Services sectors were the largest contributors to return. Energy and Information Technology were the largest detractors from return.
During the period, merger and acquisition activity drove a significant portion of Fund performance. In Health Care, the Fund benefited from the price rise in AstraZeneca, the target of a takeover bid by Pfizer that was ultimately withdrawn. Because the Fund focuses on stable appreciation, it sold its AstraZeneca holdings after the initial bid but before the deal fell through.
The Telecommunications Services sector continues to be the Fund’s largest overweight. The Fund’s investment team believes the sector is benefiting from consolidation within the sector and the wider merger and acquisition trend driven by high cash balances and low financing costs.
A significant underweight for the year was Financials—which included an underweight in the banking industry and overweight in the real estate industry. The overall Financials allocation was additive because of good stock selection and avoiding of some poorly performing securities within banking. The overweight to real estate was also a positive contributor given the industry’s strong returns early in 2014.
The Fund traditionally has a large overweight to the Utilities sector, given its characteristics of low volatility and higher yields relative to the broad market. The overweight worked against the Fund at times, such as the fourth quarter of 2013, when the sector could not keep up with the strong performance of the broad market.
The Fund favored positions with ties to tangible goods, which hedge against currency debasement that is occurring in many countries around the world as way to promote growth. The Fund’s investment team believes mining offers this and a country with extensive mining interests, Australia, is the Fund’s largest country overweight. But to avoid being overly exposed to the potential for a slowdown in China, which could dampen demand for minerals and metals, the Australian allocation is skewed to banking and insurance holdings.
The Fund was underweight the Energy sector for the period as a whole. But late in the period, the models used by the Fund began to favor the Energy sector, mostly attributable to the rapid industry growth tied to shale oil technology. Markets were rewarding a number of the sector’s favorable attributes: low earnings variability, high growth of return on assets and return on equity and strong stock price momentum. In addition, trailing and projected valuation metrics (earnings, cash flow, free cash flow, yield) were growing at a far faster rate than the broad market. Among the Energy sub-industries, the Fund’s models preferred Energy Exploration & Production (E&P).
This allocation suffered in tandem with the decline in the price of oil late in the period. We believe the falling price was more a function of the strengthening U.S. dollar, as opposed to a change in demand fundamentals, so we view the selloff in upstream oil names significantly overdone.
The strong dollar was also detrimental to the Fund’s underweight of the U.S. In the short-term this effect has been negative, as an increasing dollar has been the tide to lift all U.S. “boats,” thus hurting the U.S. underweight, the Fund’s largest. However, once 3Q 2014 earnings season kicks off, earnings of U.S. companies could come under pressure due to substantial foreign earnings being translated into fewer U.S. dollars.
80 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
MANAGERS’ COMMENTARY (Unaudited) (concluded) | September 30, 2014 | |
We also believe the macro picture will ultimately reward a U.S. underweight strategy. As central banks of the world compete to implement ever more aggressive stimulus plans, we continue to look for attractive equity opportunities. The greatest driver of returns within the U.S. equity markets since 2009 has been size of Fed’s balance sheet. We believe this will be the case in Europe and Japan, as they continue along their plans for quantitative easing. The Fund is overweight Japan, and underweight U.S. and UK, countries late in the monetary cycle. Europe remains an underweight, but the longer term thesis remains in play.
Performance displayed represents past performance which is no guarantee of future results.
1Performance figures are based on A-Class shares and do not reflect deduction of the sales charges or taxes that a shareholder would pay on distributions or the redemption of shares. Fee waivers and/or reimbursements reduce Fund expenses, and, in the absence of such waivers, the performance quoted would be reduced.
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 | 81 |
PERFORMANCE REPORT AND FUND PROFILE (Unaudited) | September 30, 2014 | |
WORLD EQUITY INCOME FUND
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.
% of | ||||||
Country | Common Stocks | Value | ||||
United States | 51.2 | % | $43,220,441 | |||
Japan | 10.0 | % | 8,472,214 | |||
Australia | 6.6 | % | 5,571,982 | |||
United Kingdom | 6.2 | % | 5,250,947 | |||
Hong Kong | 5.6 | % | 4,724,196 | |||
Canada | 5.2 | % | 4,395,840 | |||
Switzerland | 2.4 | % | 2,031,185 | |||
Other | 12.8 | % | 10,742,358 | |||
Total Investments | 100.0 | % | $84,409,163 | |||
Inception Dates: | ||
A-Class | October 1, 1993 | |
B-Class | October 19, 1993 | |
C-Class | January 29, 1999 | |
Institutional Class | May 2, 2011 |
Ten Largest Holdings (% of Total Net Assets) | |||
Eli Lilly & Co. | 2.3 | % | |
Lockheed Martin Corp. | 2.2 | % | |
NTT DOCOMO, Inc. | 2.0 | % | |
Dow Chemical Co. | 2.0 | % | |
AP Moeller - Maersk A/S — Class A | 1.9 | % | |
ConocoPhillips | 1.8 | % | |
ITOCHU Corp. | 1.7 | % | |
Mitsui & Company Ltd. | 1.5 | % | |
iShares MSCI All Country World Minimum | |||
Volatility ETF | 1.5 | % | |
Koninklijke Ahold N.V. | 1.4 | % | |
Top Ten Total | 18.3 | % | |
“Ten Largest Holdings” exclude any temporary cash or derivative investments. |
82 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
PERFORMANCE REPORT AND FUND PROFILE (Unaudited) (concluded) | September 30, 2014 | |
Cumulative Fund Performance*
Average Annual Returns*
Periods Ended September 30, 2014
1 Year | 5 Year | 10 Year | ||||||||||
A-Class Shares | 10.62 | % | 7.61 | % | 5.93 | % | ||||||
A-Class Shares with sales charge† | 5.35 | % | 6.34 | % | 5.31 | % | ||||||
B-Class Shares | 10.91 | % | 7.87 | % | 6.05 | % | ||||||
B-Class Shares with CDSC‡ | 5.91 | % | 7.58 | % | 6.05 | % | ||||||
C-Class Shares | 9.79 | % | 6.79 | % | 5.14 | % | ||||||
C-Class Shares with CDSC§ | 8.79 | % | 6.79 | % | 5.14 | % | ||||||
MSCI World Index | 12.22 | % | 10.86 | % | 7.12 | % | ||||||
Since Inception | ||||||||||||
1 Year | (05/02/11) | |||||||||||
Institutional Class Shares | 10.83 | % | 4.39% | |||||||||
MSCI World Index | 12.22 | % | 8.35% | |||||||||
* | 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. |
† | Effective February 22, 2011, the maximum sales charge decreased from 5.75% to 4.75%. A 5.75% maximum sales charge is used in the calculation of the 5 Year and 10 Year average annual returns (based on subscriptions made prior to February 22, 2011), and a 4.75% maximum sales charge will be used to calculate performance for periods based on subscriptions made on or after February 22, 2011. |
‡ | Fund returns include a CDSC of up to 5% if redeemed within 5 years of purchase |
§ | Fund returns include a CDSC of 1% if redeemed within 12 months of purchase. |
THE GUGGENHEIM FUNDS ANNUAL REPORT | 83 |
SCHEDULE OF INVESTMENTS | September 30, 2014 | |
WORLD EQUITY INCOME FUND |
SHARES | VALUE | ||||||
COMMON STOCKS† - 94.8% | |||||||
COMMUNICATIONS - 14.4% | |||||||
NTT DOCOMO, Inc. | 104,500 | $ | 1,750,269 | ||||
Deutsche Telekom AG | 76,400 | 1,156,409 | |||||
Swisscom AG | 1,900 | 1,076,960 | |||||
Belgacom S.A. | 28,612 | 996,141 | |||||
Windstream Holdings, Inc. | 90,400 | 974,512 | |||||
Spark New Zealand Ltd. | 380,500 | 881,833 | |||||
PCCW Ltd. | 1,395,600 | 877,097 | |||||
Time Warner Cable, Inc. | 6,100 | 875,289 | |||||
Frontier Communications Corp. | 133,700 | 870,387 | |||||
Elisa Oyj | 32,100 | 850,358 | |||||
Bezeq The Israeli Telecommunication | |||||||
Corporation Ltd. | 417,600 | 720,842 | |||||
Motorola Solutions, Inc. | 9,900 | 626,472 | |||||
CenturyLink, Inc. | 12,500 | 511,125 | |||||
Lagardere SCA | 14,900 | 398,717 | |||||
Total Communications | 12,566,411 | ||||||
FINANCIAL - 13.8% | |||||||
National Australia Bank Ltd. ADR | 37,000 | 1,052,311 | |||||
Insurance Australia Group Ltd. | 190,300 | 1,019,788 | |||||
Annaly Capital Management, Inc. | 91,100 | 972,948 | |||||
People’s United Financial, Inc. | 66,500 | 962,255 | |||||
Stockland | 263,100 | 908,873 | |||||
New York Community Bancorp, Inc. | 56,200 | 891,894 | |||||
Friends Life Group Ltd. | 169,200 | 842,613 | |||||
American Capital Agency Corp. | 39,600 | 841,500 | |||||
CFS Retail Property Trust Group | 472,800 | 825,350 | |||||
Government Properties Trust, Inc. | 241,300 | 817,097 | |||||
Bendigo and Adelaide Bank Ltd. | 77,000 | 803,036 | |||||
Hannover Rueck SE | 9,800 | 790,938 | |||||
Boston Properties, Inc. | 4,600 | 532,496 | |||||
Admiral Group plc | 20,700 | 428,953 | |||||
ASX Ltd. | 10,300 | 323,004 | |||||
Total Financial | 12,013,056 | ||||||
ENERGY - 12.8% | |||||||
ConocoPhillips | 20,900 | 1,599,268 | |||||
Devon Energy Corp. | 17,000 | 1,159,060 | |||||
Pembina Pipeline Corp. | 27,300 | 1,150,074 | |||||
Chesapeake Energy Corp. | 43,400 | 997,766 | |||||
Baytex Energy Corp. | 24,000 | 907,549 | |||||
HollyFrontier Corp. | 19,500 | 851,760 | |||||
Canadian Oil Sands Ltd. | 43,300 | 798,773 | |||||
Vermilion Energy, Inc. | 12,000 | 730,539 | |||||
TonenGeneral Sekiyu K.K. | 82,700 | 723,430 | |||||
Transocean Ltd. | 20,300 | 652,918 | |||||
Diamond Offshore Drilling, Inc. | 16,800 | 575,736 | |||||
Noble Corporation plc | 24,100 | 535,502 | |||||
Williams Companies, Inc. | 7,400 | 409,590 | |||||
Total Energy | 11,091,965 | ||||||
CONSUMER, NON-CYCLICAL - 12.7% | |||||||
Eli Lilly & Co. | 30,600 | 1,984,410 | |||||
Koninklijke Ahold N.V. | 76,600 | 1,239,031 | |||||
WellPoint, Inc. | 10,100 | 1,208,162 | |||||
Dr Pepper Snapple Group, Inc. | 17,900 | 1,151,149 | |||||
Cardinal Health, Inc. | �� | 12,200 | 914,024 | ||||
Singapore Press Holdings Ltd. | 270,000 | 888,588 | |||||
Avery Dennison Corp. | 17,800 | 794,770 | |||||
Pfizer, Inc. | 26,400 | 780,648 | |||||
Baxter International, Inc. | 9,900 | 710,523 | |||||
Altria Group, Inc. | 12,200 | 560,468 | |||||
Amgen, Inc. | 2,200 | 309,012 | |||||
Nestle S.A. | 4,100 | 301,307 | |||||
AmerisourceBergen Corp. — Class A | 2,200 | 170,060 | |||||
Total Consumer, Non-cyclical | 11,012,152 | ||||||
INDUSTRIAL - 12.5% | |||||||
Lockheed Martin Corp. | 10,400 | 1,900,912 | |||||
AP Moeller - Maersk A/S — Class A | 700 | 1,614,659 | |||||
Northrop Grumman Corp. | 9,000 | 1,185,840 | |||||
TransDigm Group, Inc. | 5,200 | 958,516 | |||||
Cheung Kong Infrastructure Holdings Ltd. | 127,500 | 893,530 | |||||
L-3 Communications Holdings, Inc. | 7,500 | 891,900 | |||||
Raytheon Co. | 8,400 | 853,608 | |||||
Rexam plc | 105,500 | 838,485 | |||||
IMI plc | 31,100 | 617,948 | |||||
Caterpillar, Inc. | 6,100 | 604,083 | |||||
Waste Management, Inc. | 6,000 | 285,180 | |||||
United Parcel Service, Inc. — Class B | 2,500 | 245,725 | |||||
Total Industrial | 10,890,386 | ||||||
UTILITIES - 10.5% | |||||||
SSE plc | 42,300 | 1,058,516 | |||||
Entergy Corp. | 13,400 | 1,036,222 | |||||
CLP Holdings Ltd. | 127,100 | 1,020,951 | |||||
Power Assets Holdings Ltd. | 106,000 | 936,904 | |||||
Snam SpA | 165,000 | 911,079 | |||||
TransAlta Corp. | 77,100 | 808,905 | |||||
PPL Corp. | 24,200 | 794,728 | |||||
Duke Energy Corp. | 10,300 | 770,131 | |||||
Southern Co. | 17,600 | 768,240 | |||||
AGL Energy Ltd. | 54,000 | 639,620 | |||||
Enagas S.A. | 11,300 | 363,390 | |||||
Total Utilities | 9,108,686 | ||||||
CONSUMER, CYCLICAL - 10.2% | |||||||
ITOCHU Corp. | 124,000 | 1,514,481 | |||||
Mitsui & Company Ltd. | 83,200 | 1,312,464 | |||||
Sumitomo Corp. | 90,400 | 997,801 | |||||
Ford Motor Co. | 63,400 | 937,686 | |||||
InterContinental Hotels Group plc | 24,100 | 928,930 | |||||
Marubeni Corp. | 130,800 | 895,091 | |||||
Wynn Resorts Ltd. | 4,700 | 879,276 | |||||
Delta Air Lines, Inc. | 22,600 | 816,990 | |||||
Mitsubishi Corp. | 30,500 | 624,676 | |||||
Total Consumer, Cyclical | 8,907,395 | ||||||
TECHNOLOGY - 4.1% | |||||||
NVIDIA Corp. | 50,000 | 922,500 | |||||
Seagate Technology plc | 14,300 | 818,961 | |||||
Intel Corp. | 20,400 | 710,328 | |||||
Canon, Inc. | 20,100 | 654,002 | |||||
Apple, Inc. | 4,700 | 473,525 | |||||
Total Technology | 3,579,316 | ||||||
BASIC MATERIALS - 2.7% | |||||||
Dow Chemical Co. | 33,300 | 1,746,252 | |||||
International Paper Co. | 12,500 | 596,750 | |||||
Total Basic Materials | 2,343,002 | ||||||
84 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
SCHEDULE OF INVESTMENTS (concluded) | September 30, 2014 | |
WORLD EQUITY INCOME FUND |
SHARES | VALUE | ||||||
DIVERSIFIED - 1.1% | |||||||
Hutchison Whampoa Ltd. | 82,368 | $ | 995,714 | ||||
Total Common Stocks | |||||||
(Cost $81,182,519) | 82,508,083 | ||||||
EXCHANGE-TRADED FUNDS† - 2.2% | |||||||
iShares MSCI All Country World Minimum Volatility ETF | 19,000 | 1,267,680 | |||||
PowerShares S&P International Developed | |||||||
Low Volatility Portfolio | 20,000 | 633,400 | |||||
Total Exchange-Traded Funds | |||||||
(Cost $1,942,195) | 1,901,080 | ||||||
SHORT TERM INVESTMENTS† - 2.5% | |||||||
Goldman Sachs Financial Square Funds - Treasury | |||||||
Instruments Fund | 2,148,947 | 2,148,947 | |||||
Total Short Term Investments | |||||||
(Cost $2,148,947) | 2,148,947 | ||||||
Total Investments - 99.5% | |||||||
(Cost $85,273,661) | $ | 86,558,110 | |||||
Other Assets & Liabilities, net - 0.5% | 405,983 | ||||||
Total Net Assets - 100.0% | $ | 86,964,093 |
† | Value determined based on Level 1 inputs — See Note 4. |
ADR — American Depositary Receipt | |
plc — Public Limited Company |
THE GUGGENHEIM FUNDS ANNUAL REPORT | 85 |
WORLD EQUITY INCOME FUND |
STATEMENT OF ASSETS AND LIABILITIES | ||||
September 30, 2014 | ||||
ASSETS: | ||||
Investments, at value | ||||
(cost $85,273,661) | $ | 86,558,110 | ||
Foreign currency, at value | ||||
(cost $122,686) | 122,483 | |||
Prepaid expenses | 17,923 | |||
Receivables: | ||||
Dividends | 328,678 | |||
Foreign taxes reclaim | 112,429 | |||
Fund shares sold | 33,316 | |||
Investment adviser | 1,448 | |||
Total assets | 87,174,387 | |||
LIABILITIES | ||||
Overdraft due to custodian bank | 11 | |||
Distributions payable | 7,979 | |||
Payable for: | ||||
Fund shares redeemed | 73,539 | |||
Management fees | 51,300 | |||
Distribution and service fees | 20,789 | |||
Fund accounting/administration fees | 10,993 | |||
Transfer agent/maintenance fees | 8,282 | |||
Investment adviser | 3,971 | |||
Trustees’ fees* | 682 | |||
Miscellaneous | 32,748 | |||
Total liabilities | 210,294 | |||
NET ASSETS | $ | 86,964,093 | ||
NET ASSETS CONSIST OF: | ||||
Paid in capital | $ | 104,348,602 | ||
Undistributed net investment income | 64,616 | |||
Accumulated net realized loss on investments | (18,720,882 | ) | ||
Net unrealized appreciation on investments | 1,271,757 | |||
Net assets | $ | 86,964,093 | ||
A-CLASS: | ||||
Net assets | $ | 78,783,384 | ||
Capital shares outstanding | 5,831,286 | |||
Net asset value per share | $13.51 | |||
Maximum offering price per share | ||||
(Net asset value divided by 95.25%) | $14.18 | |||
B-CLASS: | ||||
Net assets | $ | 1,933,014 | ||
Capital shares outstanding | 164,521 | |||
Net asset value per share | $11.75 | |||
C-CLASS: | ||||
Net assets | $ | 5,337,112 | ||
Capital shares outstanding | 459,652 | |||
Net asset value per share | $11.61 | |||
INSTITUTIONAL CLASS: | ||||
Net assets | $ | 910,583 | ||
Capital shares outstanding | 67,691 | |||
Net asset value per share | $13.45 | |||
STATEMENT OF OPERATIONS | ||||
Year Ended September 30, 2014 | ||||
INVESTMENT INCOME: | ||||
Dividends (net of foreign withholding tax of $374,197) | $ | 3,445,799 | ||
Interest | 1,294 | |||
Total investment income | 3,447,093 | |||
EXPENSES: | ||||
Management fees | 561,034 | |||
Transfer agent/maintenance fees: | ||||
A-Class | 99,976 | |||
B-Class | 20,374 | |||
C-Class | 13,825 | |||
Institutional Class | 528 | |||
Distribution and service fees: | ||||
A-Class | 183,930 | |||
C-Class | 39,622 | |||
Fund accounting/administration fees | 120,222 | |||
Legal fees | 94,711 | |||
Custodian fees | 41,043 | |||
Tax expense | 10,077 | |||
Trustees’ fees* | 7,751 | |||
Miscellaneous | 189,554 | |||
Total expenses | 1,382,647 | |||
Less: | ||||
Expenses waived by Adviser | (167,150 | ) | ||
Net expenses | 1,215,497 | |||
Net investment income | 2,231,596 | |||
NET REALIZED AND UNREALIZED GAIN (LOSS): | ||||
Net realized gain (loss) on: | ||||
Investments | 5,082,445 | |||
Foreign currency | (50,402 | ) | ||
Net realized gain | 5,032,043 | |||
Net change in unrealized appreciation (depreciation) on: | ||||
Investments | 129,558 | |||
Foreign currency | (17,018 | ) | ||
Net change in unrealized appreciation (depreciation) | 112,540 | |||
Net realized and unrealized gain | 5,144,583 | |||
Net increase in net assets resulting from operations | $ | 7,376,179 | ||
* Relates to Trustees not deemed “interested persons” within the meaning of Section 2(a)(19) of the 1940 Act.
86 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
WORLD EQUITY INCOME FUND |
STATEMENTS OF CHANGES IN NET ASSETS | ||||||||
Year Ended | Year Ended | |||||||
September 30, | September 30, | |||||||
2014 | 2013 | |||||||
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS: | ||||||||
Net investment income | $ | 2,231,596 | $ | 1,126,395 | ||||
Net realized gain on investments | 5,032,043 | 6,107,494 | ||||||
Net change in unrealized appreciation (depreciation) on investments | 112,540 | 7,243,481 | ||||||
Net increase in net assets resulting from operations | 7,376,179 | 14,477,370 | ||||||
DISTRIBUTIONS TO SHAREHOLDERS FROM: | ||||||||
Net investment income | ||||||||
A-Class | (2,342,975 | ) | (1,672,199 | ) | ||||
B-Class | (82,131 | ) | (73,946 | ) | ||||
C-Class | (87,065 | ) | (47,041 | ) | ||||
Institutional Class | (17,450 | ) | (4,606 | ) | ||||
Total distributions to shareholders | (2,529,621 | ) | (1,797,792 | ) | ||||
CAPITAL SHARE TRANSACTIONS: | ||||||||
Proceeds from sale of shares | ||||||||
A-Class | 19,667,007 | 15,420,639 | ||||||
B-Class | 316,980 | 425,854 | ||||||
C-Class | 2,381,875 | 688,147 | ||||||
Institutional Class | 729,944 | 378,957 | ||||||
Distributions reinvested | ||||||||
A-Class | 2,327,878 | 1,659,730 | ||||||
B-Class | 81,697 | 73,635 | ||||||
C-Class | 81,979 | 46,791 | ||||||
Institutional Class | 17,450 | 4,606 | ||||||
Cost of shares redeemed | ||||||||
A-Class | (13,679,896 | ) | (24,573,617 | |||||
B-Class | (985,303 | ) | (1,387,459 | ) | ||||
C-Class | (707,859 | ) | (952,484 | ) | ||||
Institutional Class | (87,320 | ) | (254,172 | ) | ||||
Net increase (decrease) from capital share transactions | 10,144,432 | (8,469,373 | ) | |||||
Net increase in net assets | 14,990,990 | 4,210,205 | ||||||
NET ASSETS: | ||||||||
Beginning of year | 71,973,103 | 67,762,898 | ||||||
End of year | $ | 86,964,093 | $ | 71,973,103 | ||||
Undistributed net investment income at end of year | $ | 64,616 | $ | 391,872 | ||||
CAPITAL SHARE ACTIVITY: | ||||||||
Shares sold | ||||||||
A-Class | 1,436,425 | 1,314,259 | ||||||
B-Class | 26,018 | 41,564 | ||||||
C-Class | 202,224 | 68,601 | ||||||
Institutional Class | 52,741 | 33,315 | ||||||
Shares issued from reinvestment of distributions | ||||||||
A-Class | 172,998 | 148,443 | ||||||
B-Class | 7,052 | 7,438 | ||||||
C-Class | 7,031 | 5,072 | ||||||
Institutional Class | 1,301 | 398 | ||||||
Shares redeemed | ||||||||
A-Class | (1,012,114 | ) | (2,089,282 | ) | ||||
B-Class | (84,436 | ) | (138,796 | ) | ||||
C-Class | (62,524 | ) | (95,590 | ) | ||||
Institutional Class | (6,471 | ) | (22,190 | ) | ||||
Net increase (decrease) in shares | 740,245 | (726,768 | ) | |||||
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 87 |
WORLD EQUITY INCOME FUND |
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 | |||||||||||||||||
September 30, | September 30, | September 30, | September 30, | September 30, | |||||||||||||||||
A-Class | 2014 | 2013 | 2012 | 2011 | 2010 | ||||||||||||||||
Per Share Data | |||||||||||||||||||||
Net asset value, beginning of period | $12.60 | $10.55 | $9.70 | $10.52 | $9.97 | ||||||||||||||||
Income (loss) from investment operations: | |||||||||||||||||||||
Net investment income (loss)a | .38 | .18 | .15 | .05 | .02 | ||||||||||||||||
Net gain (loss) on investments (realized and unrealized) | .95 | 2.16 | .70 | (.81 | ) | .53 | |||||||||||||||
Total from investment operations | 1.33 | 2.34 | .85 | (.76 | ) | .55 | |||||||||||||||
Less distributions from: | |||||||||||||||||||||
Net investment income | (.42 | ) | (.29 | ) | (— | )b | (.06 | ) | — | ||||||||||||
Total distributions | (.42 | ) | (.29 | ) | (— | )b | (.06 | ) | — | ||||||||||||
Net asset value, end of period | $13.51 | $12.60 | $10.55 | $9.70 | $10.52 | ||||||||||||||||
Total Returnc | 10.62% | 22.58% | 8.82% | (7.32 | %) | 5.52% | |||||||||||||||
Ratios/Supplemental Data | |||||||||||||||||||||
Net assets, end of period (in thousands) | $78,783 | $65,966 | $61,838 | $65,573 | $78,201 | ||||||||||||||||
Ratios to average net assets: | |||||||||||||||||||||
Net investment income (loss) | 2.81% | 1.59% | 1.45% | 0.40% | 0.24% | ||||||||||||||||
Total expensesd | 1.66% | 1.93% | 2.05% | 1.85% | 1.86% | Net expensese | 1.49% | h | 1.59% | 1.63% | 1.82% | 1.86% | |||||||||
Portfolio turnover rate | 131% | 154% | 41% | 206% | 288% | ||||||||||||||||
Year Ended | Year Ended | Year Ended | Year Ended | Year Ended | |||||||||||||||||
September 30, | September 30, | September 30, | September 30, | September 30, | |||||||||||||||||
B-Class | 2014g | 2013g | 2012g | 2011g | 2010g | ||||||||||||||||
Per Share Data | |||||||||||||||||||||
Net asset value, beginning of period | $11.01 | $9.22 | $8.46 | $9.19 | $8.69 | ||||||||||||||||
Income (loss) from investment operations: | |||||||||||||||||||||
Net investment income (loss)a | .35 | .18 | .14 | .05 | .04 | ||||||||||||||||
Net gain (loss) on investments (realized and unrealized) | .84 | 1.90 | .63 | (.69 | ) | .46 | |||||||||||||||
Total from investment operations | 1.19 | 2.08 | .77 | (.64 | ) | .50 | |||||||||||||||
Less distributions from: | |||||||||||||||||||||
Net investment income | (.45 | ) | (.29 | ) | (.01 | ) | (.09 | ) | — | ||||||||||||
Total distributions | (.45 | ) | (.29 | ) | (.01 | ) | (.09 | ) | — | ||||||||||||
Net asset value, end of period | $11.75 | $11.01 | $9.22 | $8.46 | $9.19 | ||||||||||||||||
Total Returnc | 10.91% | 22.95% | 9.07% | (7.13 | %) | 5.75% | |||||||||||||||
Ratios/Supplemental Data | |||||||||||||||||||||
Net assets, end of period (in thousands) | $1,933 | $2,378 | $2,820 | $4,148 | $6,769 | ||||||||||||||||
Ratios to average net assets: | |||||||||||||||||||||
Net investment income (loss) | 2.96% | 1.77% | 1.60% | 0.53% | 0.45% | ||||||||||||||||
Total expensesd | 2.24% | 2.43% | 2.34% | 1.61% | 1.61% | ||||||||||||||||
Net expensese | 1.24% | h | 1.31% | 1.38% | 1.59% | 1.61% | |||||||||||||||
Portfolio turnover rate | 131% | 154% | 41% | 206% | 288% |
88 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
WORLD EQUITY INCOME FUND |
FINANCIAL HIGHLIGHTS (concluded) | |||||||||||||||||||||
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 | ||||||||||||||||||||
September 30, | September 30, | September 30, | September 30, | September 30, | ||||||||||||||||||||
C-Class | 2014 | 2013 | 2012 | 2011 | 2010 | |||||||||||||||||||
Per Share Data | ||||||||||||||||||||||||
Net asset value, beginning of period | $10.79 | $9.01 | $8.33 | $9.06 | $8.66 | |||||||||||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||||||
Net investment income (loss)a | .25 | .08 | .06 | (.04 | ) | (.04 | ) | |||||||||||||||||
Net gain (loss) on investments (realized and unrealized) | .81 | 1.84 | .62 | (.69 | ) | .44 | ||||||||||||||||||
Total from investment operations | 1.06 | 1.92 | .68 | (.73 | ) | .40 | ||||||||||||||||||
Less distributions from: | ||||||||||||||||||||||||
Net investment income | (.24 | ) | (.14 | ) | — | — | — | |||||||||||||||||
Total distributions | (.24 | ) | (.14 | ) | — | — | — | |||||||||||||||||
Net asset value, end of period | $11.61 | $10.79 | $9.01 | $8.33 | $9.06 | |||||||||||||||||||
Total Returnc | 9.79% | 21.57% | 8.16% | (8.06% | ) | 4.62% | ||||||||||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||||||
Net assets, end of period (in thousands) | $5,337 | $3,377 | $3,015 | $3,426 | $4,295 | |||||||||||||||||||
Ratios to average net assets: | ||||||||||||||||||||||||
Net investment income (loss) | 2.13% | 0.80% | 0.68% | (0.37% | ) | (0.50% | ) | |||||||||||||||||
Total expensesd | 2.62% | 2.89% | 2.88% | 2.60% | 2.62% | |||||||||||||||||||
Net expensese | 2.24% | h | 2.35% | 2.38% | 2.58% | 2.62% | ||||||||||||||||||
Portfolio turnover rate | 131% | 154% | 41% | 206% | 288% | |||||||||||||||||||
Year Ended | Year Ended | Year Ended | Period Ended | |||||||||||||||||||||
September 30, | September 30, | September 30, | September 30, | |||||||||||||||||||||
Institutional Class | 2014 | 2013 | 2012 | 2011f | ||||||||||||||||||||
Per Share Data | ||||||||||||||||||||||||
Net asset value, beginning of period | $12.53 | $10.50 | $9.70 | $12.37 | ||||||||||||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||||||
Net investment income (loss)a | .44 | .28 | .28 | .13 | ||||||||||||||||||||
Net gain (loss) on investments (realized and unrealized) | .90 | 2.10 | .52 | (2.80 | ) | |||||||||||||||||||
Total from investment operations | 1.34 | 2.38 | .80 | (2.67 | ) | |||||||||||||||||||
Less distributions from: | ||||||||||||||||||||||||
Net investment income | (.42 | ) | (.35 | ) | (— | )b | — | |||||||||||||||||
Total distributions | (.42 | ) | (.35 | ) | (— | )b | — | |||||||||||||||||
Net asset value, end of period | $13.45 | $12.53 | $10.50 | $9.70 | ||||||||||||||||||||
Total Returnc | 10.83% | 23.17% | 8.17% | (21.58% | ) | |||||||||||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||||||
Net assets, end of period (in thousands) | $911 | $252 | $90 | $285 | ||||||||||||||||||||
Ratios to average net assets: | ||||||||||||||||||||||||
Net investment income (loss) | 3.27% | 2.42% | 2.70% | 2.99% | ||||||||||||||||||||
Total expensesd | 1.33% | 1.73% | 1.90% | 2.27% | ||||||||||||||||||||
Net expensese | 1.23% | h | 1.26% | 1.32% | 1.36% | |||||||||||||||||||
Portfolio turnover rate | 131% | 154% | 41% | 206% |
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 reflect the impact of any applicable sales charges and has not been annualized. | ||
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 | Since commencement of operations: May 2, 2011. Percentage amounts for the period, except total return and portfolio turnover rate, have been annualized. | ||
g | Effective August 1, 2007 — B-Class shares ceased charging 12b-1 fees in accordance with FINRA sales cap regulations. Per share information reflects this change. This fee will be reinstated when sales exceed the sales cap limits. | ||
h | Net expenses may include expenses that are excluded from the expense limitation agreement. Excluding those amounts, the operating expense ratio would be 1.46%, 1.21%, 2.21% and 1.21% for the A-Class, B-Class, C-Class and Institutional Class, respectively. | ||
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 89 |
NOTES TO FINANCIAL STATEMENTS | |
1. Organization and Significant Accounting Policies
Organization
Guggenheim Funds Trust (the “Trust”), a Delaware statutory trust, is registered with the SEC under the Investment Company Act of 1940 (“1940 Act”), as a non-diversified, open-ended investment company of the series type. Each series, in effect, is representing a separate Fund. The Trust is authorized to issue an unlimited number of shares. The Trust accounts for the assets of each Fund separately.
The Trust offers a combination of four separate classes of shares, A-Class shares, B-Class shares, C-Class shares and Institutional Class shares. Sales of shares of each Class are made without a front-end sales charge at the net asset value per share (“NAV”), with the exception of A-Class shares. A-Class shares are sold at the NAV, plus the applicable front-end sales charge. The sales charge varies depending on the amount purchased, but will not exceed 4.75%. Prior to February 22, 2011, the maximum sales charge was 5.75%. A-Class share purchases of $1 million or more are exempt from the front-end sales charge but have a 1% contingent deferred sales charge (“CDSC”), if shares are redeemed within 12 months of purchase. B-class shares were offered without a front-end sales charge, but were subject to a CDSC of up to 5% for five years and convert to A-Class shares after eight years. Effective January 4, 2010, subscriptions for B-Class shares are no longer accepted. Effective July 31, 2014, all outstanding B-Class shares of the Alpha Opportunity Fund were converted into A-class shares. C-Class shares have a 1% CDSC if shares are redeemed within 12 months of purchase. Institutional Class shares are offered primarily for direct investment by institutions such as pension and profit sharing plans, endowments, foundations and corporations. Institutional Class shares have a minimum initial investment of $2 million and a minimum account balance of $1 million. Institutional Class shares are offered without a front-end sales charge or a CDSC. At September 30, 2014, the Trust consisted of eighteen Funds.
This report covers the Alpha Opportunity Fund, Enhanced World Equity Fund, Large Cap Value Fund, Risk Managed Real Estate Fund, Small Cap Value Fund, StylePlus—Large Core Fund, StylePlus—Mid Growth Fund and World Equity Income Fund (the “Funds”).
The Guggenheim Alpha Opportunity Fund, Guggenheim Enhanced World Equity Fund, Guggenheim Large Cap Value Fund, Guggenheim Small Cap Value Fund, Guggenheim StylePlus—Large Core Fund, Guggenheim StylePlus—Mid Growth Fund, and Guggenheim World Equity Income Fund were previously series (the “Predecessor Funds”) of Security Equity Fund, Security Large Cap Value Fund and Security Mid Cap Growth Fund, different registered open-end investment companies, which were organized as Kansas corporations. In January 2014, at a special meeting of shareholders, the shareholders of the Predecessor Funds approved the reorganization of each Predecessor Fund with and into the Funds, a corresponding “shell” series of the Trust. The Funds succeeded to the accounting and performance history of the Predecessor Funds. Any such historical information provided for the Funds that relates to periods prior to January 28, 2014 (September 23, 2014 for the Guggenheim Alpha Opportunity Fund), therefore, is that of the Predecessor Fund.
Guggenheim Investments (“GI”) provides advisory services, and Rydex Fund Services, LLC (“RFS”) provides transfer agent, administrative and accounting services to the Trust. Guggenheim Funds Distributors, LLC (“GFD”) acts as principal underwriter for the Trust. GI, RFS and GFD are affiliated entities.
Significant Accounting PoliciesThe following significant accounting policies are in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”) and are consistently followed by the Trust. This requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. All time references are based on Eastern Time.
The NAV of a fund is calculated by dividing the market value of the fund’s securities and other assets, less all liabilities, by the number of outstanding shares of the fund.
A. The Board of Trustees of the Funds (the “Board”) has adopted policies and procedures for the valuation of the Funds’ investments (the “Valuation Procedures”). Pursuant to the Valuation Procedures, the Board has delegated to a valuation committee, consisting of representatives from Guggenheim’s investment management, fund administration, legal and compliance departments (the “Valuation Committee”), the day-to-day responsibility for implementing the Valuation Procedures, including, under most circumstances, the responsibility for determining the fair value of the Fund’s securities or other assets.
Valuations of the Funds’ securities are supplied primarily by pricing services appointed pursuant to the processes set forth in the Valuation Procedures. The Valuation Committee convenes monthly, or more frequently as needed and will review the valuation of all assets which have been fair valued for reasonableness. The Funds’ officers, through the Valuation Committee and consistent with the monitoring and review responsibilities set forth in the Valuation Procedures, regularly review procedures used by, and valuations provided by, the pricing services.
If the pricing service cannot or does not provide a valuation for a particular investment or such valuation is deemed unreliable, such investment is fair valued by the Valuation Committee.
Equity securities listed on an exchange (New York Stock Exchange (“NYSE”) or American Stock Exchange) are valued at the last quoted sales price as of the close of business on the NYSE, usually 4:00 p.m. on the valuation date. Equity securities listed on the NASDAQ market system are
90 | | | THE GUGGENHEIM FUNDS ANNUAL REPORT |
NOTES TO FINANCIAL STATEMENTS (continued) | |
valued at the NASDAQ Official Closing Price on the valuation date, which may not necessarily represent the last sale price. If there has been no sale on such exchange or NASDAQ on a given day, the security is valued at the closing bid price on that day.
Generally, trading in foreign securities markets is substantially completed each day at various times prior to the close of the NYSE. The values of foreign securities are determined as of the close of such foreign markets or the close of the NYSE, if earlier. All investments quoted in foreign currency are valued in U.S. dollars on the basis of the foreign currency exchange rates prevailing at the close of business. Investments in foreign securities may involve risks not present in domestic investments. The Valuation Committee will determine the current value of such foreign securities by taking into consideration certain factors which may include those discussed above, as well as the following factors, among others: the value of the securities traded on other foreign markets, ADR trading, closed-end fund trading, foreign currency exchange activity, and the trading prices of financial products that are tied to foreign securities such as World Equity Benchmark Shares. In addition, the Board of Trustees has authorized the Valuation Committee and GI to use prices and other information supplied by a third party pricing vendor in valuing foreign securities.
Open-end investment companies (“Mutual Funds”) are valued at their NAV as of the close of business, on the valuation date. Exchange-traded funds (“ETFs”) are valued at the last quoted sales price.
Debt securities with a maturity of greater than 60 days at acquisition are valued at prices that reflect broker/dealer supplied valuations or are obtained from independent pricing services, which may consider the trade activity, treasury spreads, yields or price of bonds of comparable quality, coupon, maturity, and type, as well as prices quoted by dealers who make markets in such securities. Short-term debt securities with a maturity of 60 days or less at acquisition are valued at amortized cost, which approximates market value.
Repurchase agreements are valued at amortized cost, which approximates market value.
Typically loans are valued using information provided by an independent third party pricing service which uses broker quotes in a non-active market.
Listed options are valued at the Official Settlement Price listed by the exchange, usually as of 4:00 p.m. Long options are valued using the bid price and short options are valued using the ask price. In the event that a settlement price is not available, fair valuation is enacted. Over-the-counter options are valued using the average bid price (for long options), or average ask price (for short options) obtained from one or more security dealers.
The value of futures contracts is accounted for using the unrealized gain or loss on the contracts that is determined by marking the contracts to their current realized settlement prices. Financial futures contracts are valued at the 4:00 p.m. price on the valuation date. In the event that the exchange for a specific futures contract closes earlier than 4:00 p.m., the futures contract is valued at the Official Settlement Price of the exchange. However, the underlying securities from which the futures contract value is derived are monitored until 4:00 p.m. to determine if fair valuation would provide a more accurate valuation.
The value of OTC swap agreements entered into by a Fund is accounted for using the unrealized gain or loss on the agreements that is determined by marking the agreements to the last quoted value of the index that the swap pertains to at the close of the NYSE. The swap’s value is then adjusted to include dividends accrued, and financing charges and/or interest associated with the swap agreements.
Investments for which market quotations are not readily available are fair valued as determined in good faith by GI under the direction of the Board of Trustees using methods established or ratified by the Board of Trustees. Valuations in accordance with these methods are intended to reflect each security’s (or asset’s) “fair value”. Each such determination is based on a consideration of all relevant factors, which are likely to vary from one pricing context to another. Examples of such factors may include, but are not limited to: (i) the type of security, (ii) the initial cost of the security, (iii) the existence of any contractual restrictions on the security’s disposition, (iv) the price and extent of public trading in similar securities of the issuer or of comparable companies, (v) quotations or evaluated prices from broker-dealers and/or pricing services, (vi) information obtained from the issuer, analysts, and/or the appropriate stock exchange (for exchange-traded securities), (vii) an analysis of the company’s financial statements, and (viii) an evaluation of the forces that influence the issuer and the market(s) in which the security is purchased and sold (e.g. the existence of pending merger activity, public offerings or tender offers that might affect the value of the security).
In connection with futures contracts and other derivative investments, 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. Senior loans in which the Funds invest generally pay interest rates which are periodically adjusted by reference to a base short-term, floating rate plus a premium. These base lending rates are generally (I) the lending rate offered by one or more major European banks, such as the London Inter-Bank Offered Rate (LIBOR), (ii) the prime rate offered by one or more major United States banks, or (iii) the bank’s certificate of deposit rate. Senior floating rate interests often require prepayments from excess cash flows or permit the borrower to repay at its election. The rate at which the borrower repays cannot be predicted with accuracy. As a result, the actual remaining maturity may be substantially less than the stated maturities shown. The interest rate indicated is the rate in effect at September 30, 2014.
THE GUGGENHEIM FUNDS ANNUAL REPORT | 91 |
NOTES TO FINANCIAL STATEMENTS (continued) | |
C. The Funds may purchase and sell interests in securities on a when-issued and delayed delivery basis, with payment and delivery scheduled for a future date. No income accrues to the Fund on such interests or securities in connection with such transactions prior to the date the Funds actually take delivery of such interests or securities. These transactions are subject to market fluctuations and are subject to the risk that the value at delivery may be more or less than the trade date purchase price. Although the Funds will generally purchase these securities with the intention of acquiring such securities, they may sell such securities before the settlement date.
D. When a Fund engages in a short sale of a security, an amount equal to the proceeds is reflected as an asset and an equivalent liability. The amount of the liability is subsequently marked-to-market to reflect the market value of the short sale. The Fund maintains a segregated account of cash and/or securities as collateral for short sales.
Fees, if any, paid to brokers to borrow securities in connection with short sales are recorded as interest expense. In addition, the Fund must pay out the dividend rate of the equity or coupon rate of the obligation to the lender and record this as an expense. Short dividend or interest expense is a cost associated with the investment objective of short sales transactions, rather than an operational cost associated with the day-to-day management of any mutual fund. The Funds may also receive rebate income from the broker resulting from the investment of the proceeds from securities sold short.
E. 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. Upon entering into a futures contract, a Fund deposits and maintains as collateral such initial margin as required by the exchange on which the transaction is affected. Pursuant to the contract, the Fund agrees to receive from or pay to the broker an amount of cash equal to the daily fluctuation in value of the contract. Such receipts or payments are known as variation margin and are recorded by the Fund as unrealized gains or losses. When the contract is closed, the Fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed.
G. OTC swap agreements are marked-to-market daily and the change, if any, is recorded as unrealized gain or loss. Payments received or made as a result of an agreement or termination of the agreement are recognized as realized gains or losses.
H. 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. Dividend income from REITs is recorded based on the income included in distributions received from the REIT investments using published REIT reclassifications, including some management estimates when actual amounts are not available. Distributions received in excess of this estimated amount are recorded as a reduction of the cost of investments or reclassified to capital gains. The actual amounts of income, return of capital, and capital gains are only determined by each REIT after its fiscal year-end, and may differ from the estimated amounts.
I. Dividends from net investment income are declared quarterly in the World Equity Income Fund and Risk Managed Real Estate Fund. Dividends are reinvested in additional shares unless shareholders request payment in cash. Distributions of net investment income in the remaining Funds and distributions of net realized gains, if any, in all Funds are declared at least annually and recorded on the ex-dividend date and are determined in accordance with income tax regulations which may differ from U.S. GAAP.
J. Interest and dividend income, most expenses, all realized gains and losses, and all unrealized gains and losses are allocated to the classes based upon the value of the outstanding shares in each class. Certain costs, such as distribution and service fees are charged directly to specific classes. In addition, certain expenses have been allocated to the individual Funds in the Trust on a pro rata basis upon the respective aggregate net assets of each Fund included in the Trust.
K. 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 Statements of Operations are before the reduction in expense from the related earnings credits, if any. For the year ended September 30, 2014, there were no earnings credits received.
92 | | | THE GUGGENHEIM FUNDS ANNUAL REPORT |
NOTES TO FINANCIAL STATEMENTS (continued) | |
The Funds may leave cash overnight in their cash account with the custodian. Periodically, a Fund may have cash due to the custodian bank as an overdraft balance. A fee is incurred on this overdraft, calculated by multiplying the overdraft by a rate based on the federal funds rate.
L. The accounting records of the 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 and unrealized gain or loss on investments.
Reported net realized foreign exchange gains and losses arise from sales of foreign currencies and currency gains or losses realized between the trade and settlement dates on investment transactions. Net unrealized exchange gains and losses arise from changes in the fair values of assets and liabilities other than investments in securities at the fiscal period end, resulting from changes in exchange rates.
M. Under the Funds’ organizational documents, its Trustees and Officers are indemnified against certain liabilities arising out of the performance of their duties to the Trust. In addition, throughout the normal course of business, the Funds enter into contracts that contain a variety of representations and warranties which provide general indemnifications. The Funds’ maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Funds and/or their affiliates that have not yet occurred. However, based on experience, the Funds expect the risk of loss to be remote.
2. Financial InstrumentsAs part of their investment strategy, the Funds utilize short sales and a variety of derivative instruments. These investments involve, to varying degrees, elements of market risk and risks in excess of the amounts recognized in the Statements of Assets and Liabilities.
A short sale is a transaction in which a Fund sells a security it does not own. If the security sold short decreases in price between the time the Fund sells the security and closes its short position, that Fund will realize a gain on the transaction. Conversely, if the security increases in price during the period, that Fund will realize a loss on the transaction. The risk of such price increases is the principal risk of engaging in short sales.
An option on a security gives the purchaser of the option the right to sell, and the writer of the option the obligation to buy, the underlying security (put option) or the purchaser of the option the right to buy, and the writer of the option the obligation to sell, the underlying security (call option) at any time during the option period. The risk associated with purchasing options is limited to the premium originally paid. The risk in writing a call option is that a Fund may incur a loss if the market price of the underlying security increases and the option is exercised. The risk in writing a put option is that a Fund may incur a loss if the market price of the underlying security decreases and the option is exercised. In addition, there may be an imperfect correlation between the movement in prices of options and the underlying securities and a Fund may not be able to enter into a closing transaction because of an illiquid secondary market or, for over-the-counter options, because of the counterparty’s inability to perform.
A futures contract is an agreement to purchase (long) or sell (short) an agreed amount of securities or other instruments at a set price for delivery at a future date. There are significant risks associated with a Fund’s use of futures contracts, including (i) there may be an imperfect or no correlation between the changes in market value of the underlying asset and the prices of futures contracts; (ii) there may not be a liquid secondary market for a futures contract; (iii) trading restrictions or limitations may be imposed by an exchange; and (iv) government regulations may restrict trading in futures contracts. When investing in futures, there is minimal counterparty credit risk to the Fund because futures are exchange-traded and the exchange’s clearinghouse, as counterparty to all exchange-traded futures, guarantees against default. Cash deposits are shown as restricted cash on the Statement of Assets and Liabilities; securities held as collateral are noted on the Schedule of Investments.
A swap is an agreement that obligates two parties to exchange a series of cash flows at specified intervals based upon or calculated by reference to changes in specified prices or rates for a specified amount of an underlying asset. A Fund utilizing OTC swaps bears the risk of loss of the amount expected to be received under a swap agreement in the event of the default or bankruptcy of a swap agreement counterparty. Additionally, there is no guarantee that a Fund or an underlying fund could eliminate its exposure under an outstanding swap agreement by entering into an offsetting swap agreement with the same or another party.
Certain Funds use derivative instruments to achieve leveraged exposure to their respective underlying indices. Since these Funds’ investment strategy involves consistently applied leverage, the value of the Fund’s shares will tend to increase or decrease more than the value of any increase or decrease in the underlying index. In addition, as investment in derivative instruments generally requires a small investment relative to the amount of investment
THE GUGGENHEIM FUNDS ANNUAL REPORT | 93 |
NOTES TO FINANCIAL STATEMENTS (continued) |
exposure assumed, this creates an opportunity for increased net income but, at the same time, additional leverage risk. The Funds’ use of leverage, through borrowings or instruments such as derivatives, may cause the Funds to be more volatile and riskier than if they had not been leveraged.
In conjunction with the use of short sales and derivative instruments, the Funds are required to maintain collateral in various forms. The Funds use, where appropriate, depending on the financial instrument utilized and the broker involved, margin deposits at the broker, cash and/or securities segregated at the custodian bank, discount notes or the repurchase agreements allocated to each Fund.
The Trust has established counterparty credit guidelines and enters into transactions only with financial institutions of investment grade or better. The Trust monitors the counterparty credit risk.
3. Fees and Other Transactions with Affiliates
Under the terms of an investment advisory contract, the Funds pay GI investment advisory fees calculated at the annualized rates below, based on the average daily net assets of the Funds:
Management Fees | |||
Fund | (as a % of Net Assets) | ||
Alpha Opportunity Fund | 1.25 | % | |
Enhanced World Equity Fund | 0.70 | % | |
Large Cap Value Fund | 0.65 | % | |
Risk Managed Real Estate Fund | 0.75 | % | |
Small Cap Value Fund | 1.00 | % | |
StylePlus —Large Core Fund | 0.75 | % | |
StylePlus —Mid Growth Fund | 0.75 | % | |
World Equity Income Fund | 0.70 | % |
RFS provides transfer agent services to the Fund for fees calculated at the rates below, which are assessed to the applicable class of the Fund. For these services, RFS receives the following:
Annual charge per account | $5.00 –$8.00 | |
Transaction fee | $0.60 –$1.10 | |
Minimum annual charge per Fund† | $25,000 | |
Certain out-of-pocket charges | Varies |
†Not subject to Funds during first twelve months of operations.
RFS also acts as the administrative agent for the Funds, and as such performs administrative functions and the bookkeeping, accounting and pricing functions for each Fund. For these services, RFS receives the following:
Fund Accounting/ | |||
Administrative Fees | |||
Fund | (as a % of Net Assets) | ||
Alpha Opportunity Fund | 0.150 | % | |
Enhanced World Equity Fund | 0.095 | % | |
Large Cap Value Fund | 0.095 | % | |
Risk Managed Real Estate Fund | 0.095 | % | |
Small Cap Value Fund | 0.095 | % | |
StylePlus —Large Core Fund | 0.095 | % | |
StylePlus —Mid Growth Fund | 0.095 | % | |
World Equity Income Fund | greater of 0.15% or $60,000 | ||
Minimum annual charge per Fund | $25,000 | ||
Certain out-of-pocket charges | Varies |
RFS engages external service providers to perform other necessary services for the Trust, such as audit and accounting related services, legal services, custody, printing and mailing, etc., on a pass-through basis. Such expenses are allocated to various Funds within the complex based on relative net assets.
94 | | | THE GUGGENHEIM FUNDS ANNUAL REPORT |
NOTES TO FINANCIAL STATEMENTS (continued) |
The investment advisory contracts for the following Funds provide that the total expenses be limited to a percentage of average net assets for each class of shares, 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:
Effective | Contract | |||||||
Limit | Date | End Date | ||||||
Alpha Opportunity Fund – A-Class | 2.11 | % | 11/30/12 | 02/01/15 | ||||
Alpha Opportunity Fund – C-Class | 2.86 | % | 11/30/12 | 02/01/15 | ||||
Alpha Opportunity Fund – Institutional Class | 1.86 | % | 11/30/12 | 02/01/15 | ||||
Enhanced World Equity Fund – A-Class | 1.25 | % | 06/05/13 | 02/01/15 | ||||
Enhanced World Equity Fund – C-Class | 2.00 | % | 06/05/13 | 02/01/15 | ||||
Enhanced World Equity Fund – Institutional Class | 1.00 | % | 06/05/13 | 02/01/15 | ||||
Large Cap Value Fund – A-Class | 1.15 | % | 11/30/12 | 02/01/15 | ||||
Large Cap Value Fund – B-Class | 1.90 | % | 11/30/12 | 02/01/15 | ||||
Large Cap Value Fund – C-Class | 1.90 | % | 11/30/12 | 02/01/15 | ||||
Large Cap Value Fund – Institutional Class | 0.90 | % | 06/05/13 | 02/01/15 | ||||
Risk Managed Real Estate Fund – A-Class* | 1.30 | % | 03/26/14 | 04/01/15 | ||||
Risk Managed Real Estate Fund – C-Class* | 2.05 | % | 03/26/14 | 04/01/15 | ||||
Risk Managed Real Estate Fund – Institutional Class* | 1.10 | % | 03/26/14 | 04/01/15 | ||||
Small Cap Value Fund – A-Class | 1.30 | % | 11/30/12 | 02/01/15 | ||||
Small Cap Value Fund – C-Class | 2.05 | % | 11/30/12 | 02/01/15 | ||||
Small Cap Value Fund – Institutional Class | 1.05 | % | 11/30/12 | 02/01/15 | ||||
World Equity Income Fund – A-Class | 1.46 | % | 08/15/13 | 02/01/15 | ||||
World Equity Income Fund – B-Class | 2.21 | % | 08/15/13 | 02/01/15 | ||||
World Equity Income Fund – C-Class | 2.21 | % | 08/15/13 | 02/01/15 | ||||
World Equity Income Fund – Institutional Class | 1.21 | % | 08/15/13 | 02/01/15 |
* Commencement of operations: March 28, 2014.
GI is entitled to reimbursement by the Funds for fees waived or expenses reimbursed during any of the previous 36 months, beginning on the date of the expense limitation agreement, if on any day the estimated operating expenses are less than the indicated percentages. At September 30, 2014, the amount of fees waived or expenses reimbursed that are subject to recoupment are presented in the following table:
Fund | Expires 2015 | Expires 2016 | Expires 2017 | Fund Total | |||||||||
Alpha Opportunity Fund | $ | 88,316 | $ | 204,142 | $ | 126,237 | $ | 418,695 | |||||
Enhanced World Equity Fund | — | 61,313 | 154,250 | 215,563 | |||||||||
Large Cap Value Fund | 243,289 | 189,178 | 213,340 | 645,807 | |||||||||
Risk Managed Real Estate Fund | — | — | 25,147 | 25,147 | |||||||||
Small Cap Value Fund | 175,113 | 175,376 | 199,545 | 550,034 | |||||||||
World Equity Income Fund | 314,425 | 269,453 | 167,150 | 751,028 |
For the year ended September 30, 2014, no amounts were recouped by GI.
If a Fund invests in an affiliated fund, the investing Fund’s Adviser will determine whether to waive fees at the investing fund level. Fee waivers will be calculated at the investing Fund level without regard to any expense cap in effect for the investing Fund. Fees waived under this arrangement are not subject to reimbursement to GI.
The Funds have adopted Distribution Plans related to the offering of A-Class, B-Class and C-Class shares pursuant to Rule 12b-1 under the 1940 Act. The plans provide for payments at an annual rate of 0.25% of the average daily net assets of each Fund’s A-Class shares and 1.00% of the average daily net assets of each Fund’s B-Class and C-Class shares. Effective August 1, 2007, the Large Cap Value Fund ceased charging 12b-1 fees on B-Class shares in accordance with the FINRA sales cap regulations. These fees may be reinstated at any time. Effective August 25, 2005, the World Equity Income Fund ceased charging 12b-1 fees on B-Class shares in accordance with the FINRA sales cap regulations. These fees may be reinstated at any time.
For the year ended September 30, 2014, GFD retained sales charges of $86,407 relating to sales of A-Class shares of the Trust.
Certain trustees and officers of the Trust are also officers of GI, RFS and GFD.
THE GUGGENHEIM FUNDS ANNUAL REPORT | 95 |
NOTES TO FINANCIAL STATEMENTS (continued) |
4. Fair Value Measurement
In accordance with U.S. GAAP, fair value is defined as the price that the Funds would receive to sell an investment or pay to transfer a liability in an orderly transaction with an independent buyer in the principal market, or in the absence of a principal market, the most advantageous market for the investment or liability. U.S. GAAP establishes a three-tier fair value hierarchy based on the types of inputs used to value assets and liabilities and requires corresponding disclosure. The hierarchy and the corresponding inputs are summarized below:
Level 1 — quoted prices in active markets for identical assets or liabilities. |
Level 2 — significant other observable inputs (for example quoted prices for securities that are similar based on characteristics such as interest rates, prepayment speeds, credit risk, etc.). |
Level 3 — significant unobservable inputs based on the best information available under the circumstances, to the extent observable inputs are not available, which may include assumptions. |
The types of inputs available depend on a variety of factors, such as the type of security and the characteristics of the markets in which it trades, if any. Fair valuation determinations that rely on fewer or no observable inputs require greater judgment. Accordingly, fair value determinations for Level 3 securities require the greatest amount of judgment.
The following table summarizes the inputs used to value the Funds’ net assets at September 30, 2014:
Level 1 | Level 1 | Level 2 | Level 2 | Level 3 | ||||||||||||||
Investments | Other Financial | Investments | Other Financial | Investments | ||||||||||||||
In Securities | Instruments* | In Securities | Instruments* | In Securities | Total | |||||||||||||
Assets | ||||||||||||||||||
Alpha Opportunity Fund | $ | — | $ | — | $ | 10,736,308 | $ | 94,008 | $ | — | $ | 10,830,316 | ||||||
Enhanced World Equity Fund | 5,900,341 | — | — | — | — | 5,900,341 | ||||||||||||
Large Cap Value Fund | 69,650,201 | — | — | — | — | 69,650,201 | ||||||||||||
Risk Managed Real Estate Fund | 105,350,068 | — | — | — | — | 105,350,068 | ||||||||||||
Small Cap Value Fund | 26,476,960 | — | — | — | 91 | 26,477,051 | ||||||||||||
StylePlus —Large Core Fund | 142,578,718 | — | 56,440,542 | 5,681,229 | — | 204,700,489 | ||||||||||||
StylePlus —Mid Growth Fund | 59,323,012 | 724 | 24,377,277 | 2,063,496 | — | 85,764,509 | ||||||||||||
World Equity Income Fund | 86,558,110 | — | — | — | — | 86,558,110 | ||||||||||||
Liabilities | ||||||||||||||||||
Alpha Opportunity Fund | $ | — | $ | 32,652 | $ | — | $ | 224,208 | $ | — | $ | 256,860 | ||||||
Enhanced World Equity Fund | 4,853 | — | — | — | — | 4,853 | ||||||||||||
Risk Managed Real Estate Fund | 29,528,963 | — | — | — | — | 29,528,963 | ||||||||||||
StylePlus —Large Core Fund | — | 8,710 | — | — | — | 8,710 | ||||||||||||
StylePlus —Mid Growth Fund | — | 20,514 | — | 160,037 | — | 180,551 |
* Other financial instruments may include futures contracts and/or swaps, which are reported as unrealized gain/loss at period end.
Independent pricing services are used to value a majority of the Funds’ investments. When values are not available from a pricing service, they may be computed by the Funds’ investment adviser or an affiliate. In any event, values may be determined using a variety of sources and techniques, including: market prices; broker quotes; and models which derive prices based on inputs such as prices of securities with comparable maturities and characteristics or based on inputs such as anticipated cash flows or collateral, spread over Treasuries, and other information and analysis. A significant portion of the Funds’ assets and liabilities are categorized as Level 2 or Level 3, as indicated in this report.
Indicative quotes from broker-dealers, adjusted for fluctuations in criteria such as credit spreads and interest rates, may be also used to value the Funds’ assets and liabilities, i.e. prices provided by a broker-dealer or other market participant who has not committed to trade at that price. Although indicative quotes are typically received from established market participants, the Funds may not have the transparency to view the underlying inputs which support the market quotations. Significant changes in an indicative quote would generally result in significant changes in the fair value of the security.
Certain fixed income securities are valued by obtaining a monthly indicative quote from a broker-dealer, adjusted for fluctuations in criteria such as credit spreads and interest rates. The Funds’ fair valuation guidelines were recently revised to transition such monthly indicative quoted securities from Level 2 to Level 3.
96 | | | THE GUGGENHEIM FUNDS ANNUAL REPORT |
NOTES TO FINANCIAL STATEMENTS (continued) |
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.
Transfers between investment levels may occur as the markets fluctuate and/or the availability of data used in an investment’s valuation changes. The Funds recognized transfers between the levels as of the beginning of the period. As of September 30, 2014, the Funds had transfers out of Level 3 due to changes in securities valuation method. See the tables below for changes to Level 2. There were no other securities that transferred between levels.
Summary of Fair Value Level 3 Activity
Following is a reconciliation of Level 3 assets and liabilities for which significant unobservable inputs were used to determine fair value for the year ended September 30, 2014:
LEVEL 3 - Fair value measurement using significant unobservable inputs
Total | ||||
Alpha Opportunity Fund | ||||
Liabilities: | ||||
Beginning Balance | $ | 7,341,377 | ||
Sales | (7,341,377 | ) | ||
Ending Balance | $ | — | ||
StylePlus —Large Core Fund | ||||
Assets: | ||||
Beginning Balance | $ | 847,036 | ||
Transfer out of Level 3 | (847,036 | ) | ||
Ending Balance | $ | — | ||
5. Repurchase Agreements
In connection with transactions in repurchase agreements, it is the Fund’s policy that their custodian takes possession of the underlying collateral. The collateral is in the possession of the Fund’s custodian and is evaluated to ensure that its market value exceeds, at a minimum, 102% of the original face amount of the repurchase agreements.
At September 30, 2014, the collateral for the repurchase agreements was as follows:
Counterparty and | Repurchase | |||||||||||
Fund | Terms of Agreement | Face Value | Price | Collateral | Par Value | Fair Value | ||||||
Alpha Opportunity Fund | State Street | Fannie Mae | ||||||||||
0.00% | 2.26% | |||||||||||
Due 10/01/14 | $10,7,36,308 | $10,736,308 | 10/17/22 | $11,390,000 | $10,951,861 |
In the event of counterparty default, the Fund has the right to collect the collateral to offset losses incurred. There is potential loss to the Fund in the event the Fund is delayed or prevented from exercising its rights to dispose of the collateral securities, including the risk of a possible decline in the value of the underlying securities during the period while the Fund seeks to assert its rights. GI, acting under the supervision of the Board of Trustees, reviews the value of the collateral and the creditworthiness of those banks and dealers with which the Fund enters into repurchase agreements to evaluate potential risks.
6. Derivative Investment Holdings Categorized by Risk Exposure
U.S. GAAP requires disclosures to enable investors to better understand how and why the Funds use derivative instruments, how these derivative instruments are accounted for and their effects on the Funds’ financial position and results of operations.
The Enhanced World Equity Fund and Small Cap Value Fund utilized options to minimally hedge the Fund’s portfolio to increase returns, to maintain exposure to equity markets and create liquidity.
THE GUGGENHEIM FUNDS ANNUAL REPORT | 97 |
NOTES TO FINANCIAL STATEMENTS (continued) |
The following Funds utilized futures and swaps for the following purposes:
Fund | Index Exposure | Hedge | Leverage | Income | Speculation | |||||
Alpha Opportunity Fund | x | x | x | x | x | |||||
Risk Managed Real Estate Fund | — | — | x | — | — | |||||
StylePlus —Large Core Fund | x | — | — | — | — | |||||
StylePlus —Mid Growth Fund | x | — | — | — | — |
The following table represents the notional amount of futures and swaps outstanding as an approximate percentage of the Funds’ net assets on a daily basis.
Approximate percentage of Fund’s | |||||||
Net Assets on a daily basis | |||||||
Fund | Long | Short | |||||
Alpha Opportunity Fund | 90 | % | 25 | % | |||
Risk Managed Real Estate Fund | 30 | % | — | ||||
StylePlus —Large Core Fund | 80 | % | — | ||||
StylePlus —Mid Growth Fund | 80 | % | — |
The following is a summary of the location of derivative investments on the Funds’ Statements of Assets and Liabilities as of September 30, 2014:
Derivative Investment Type | Asset Derivatives | Liability Derivatives | ||
Equity contracts | Variation margin | Variation margin | ||
Unrealized appreciation on swap agreements | Unrealized depreciation on swap agreements | |||
Options written, at value |
The following table sets forth the fair value of the Funds’ September 30, 2014:
Asset Derivative Investments Value | ||||||||||||
Futures | Swaps | Options | Total Value at | |||||||||
Equity | Equity | Written Equity | September 30, | |||||||||
Fund | Contracts* | Contracts | Contracts | 2014 | ||||||||
Alpha Opportunity Fund | $ | — | $ | 94,008 | $ | — | $ | 94,008 | ||||
StylePlus —Large Core Fund | — | 5,681,229 | — | 5,681,229 | ||||||||
StylePlus —Mid Growth Fund | 724 | 2,063,496 | — | 2,064,220 | ||||||||
Liability Derivative Investments Value | ||||||||||||
Futures | Swaps | Options | Total Value at | |||||||||
Equity | Equity | Written Equity | September 30, | |||||||||
Fund | Contracts* | Contracts | Contracts | 2014 | ||||||||
Alpha Opportunity Fund | $ | 32,652 | $ | 224,208 | $ | – | $ | 256,860 | ||||
Enhanced World Equity Fund | — | — | 4,853 | 4,853 | ||||||||
StylePlus —Large Core Fund | 8,710 | — | — | 8,710 | ||||||||
StylePlus —Mid Growth Fund | 20,514 | 160,037 | — | 180,551 | ||||||||
* Includes cumulative appreciation (depreciation) of futures contracts as reported on the Schedules of Investments. Only current day’s variation margin is reported within the Statements of Assets and Liabilities.
The following is a summary of the location of derivative investments on the Funds’ Statements of Operations for the year ended September 30, 2014:
Derivative Investment Type | Location of Gain (Loss) on Derivatives | |
Equity contracts | Net realized gain (loss) on futures contracts | |
Net realized gain (loss) on swap agreements | ||
Net realized gain (loss) on options written | ||
Net change in unrealized appreciation (depreciation) on futures contracts | ||
Net change in unrealized appreciation (depreciation) on swap agreements | ||
Net change in unrealized appreciation (depreciation) on options written |
98 | | | THE GUGGENHEIM FUNDS ANNUAL REPORT |
NOTES TO FINANCIAL STATEMENTS (continued) |
The following is a summary of the Funds’ realized gain (loss) and change in unrealized appreciation (depreciation) on derivative investments recognized on the Statements of Operations categorized by primary risk exposure for the year ended September 30, 2014:
Realized Gain (Loss) on Derivative Investments Recognized on the Statements of Operations | ||||||||||||||||
Futures | Swaps | Options | ||||||||||||||
Equity | Equity | Written Equity | ||||||||||||||
Fund | Contracts | Contracts | Contracts | Total | ||||||||||||
Alpha Opportunity Fund | $ | (14,138 | ) | $ | (29,380 | ) | $ | — | $ | (43,518 | ) | |||||
Enhanced World Equity Fund | — | — | 183,195 | 183,195 | ||||||||||||
Risk Managed Real Estate Fund | — | (805,004 | ) | — | (805,004 | ) | ||||||||||
Small Cap Value Fund | — | — | 87,489 | 87,489 | ||||||||||||
StylePlus —Large Core Fund | 94,546 | 24,173,953 | — | 24,268,499 | ||||||||||||
StylePlus —Mid Growth Fund | 223,904 | 8,936,682 | — | 9,160,586 | ||||||||||||
Change in Unrealized Appreciation (Depreciation) on Derivative Investments Recognized on the Statements of Operations | ||||||||||||||||
Futures | Swaps | Options | ||||||||||||||
Equity | Equity | Written Equity | ||||||||||||||
Fund | Contracts | Contracts | Contracts | Total | ||||||||||||
Alpha Opportunity Fund | $ | (59,673 | ) | $ | (130,200 | ) | $ | — | $ | (189,873 | ) | |||||
Enhanced World Equity Fund | — | — | 3,476 | 3,476 | ||||||||||||
Small Cap Value Fund | — | — | (5,573 | ) | (5,573 | ) | ||||||||||
StylePlus —Large Core Fund | 3,141 | 1,383,821 | — | 1,386,962 | ||||||||||||
StylePlus —Mid Growth Fund | (25,861 | ) | (963,698 | ) | — | (989,559 | ) |
7. Offsetting
In the normal course of business, the Funds enter into transactions subject to enforceable master netting arrangements or other similar arrangements. Generally, the right to offset in those agreements allows the Funds to counteract the exposure to a specific counterparty with collateral received or delivered to that counterparty based on the terms of the arrangements. These arrangements provide for the right to liquidate upon the occurrence of an event of default, credit event upon merger or additional termination event.
In order to better define their contractual rights and to secure rights that will help the Funds mitigate their counterparty risk, the Funds may enter into an International Swaps and Derivatives Association, Inc. Master Agreement (“ISDA Master Agreement”) or similar agreement with their derivative contract counterparties. An ISDA Master Agreement is a bilateral agreement between a Fund and a counterparty that governs OTC derivatives, including foreign exchange contracts, and typically contains, among other things, collateral posting terms and netting provisions in the event of a default and/or termination event. The provisions of the ISDA Master Agreement typically permit a single net payment in the event of a default (close-out netting) or similar event, including the bankruptcy or insolvency of the counterparty.
For derivatives traded under an ISDA Master Agreement, the collateral requirements are typically calculated by netting the mark to market amount for each transaction under such agreement and comparing that amount to the value of any collateral currently pledged by the Funds and the counterparty. For financial reporting purposes, cash collateral that has been pledged to cover obligations of the Funds and cash collateral received from the counterparty, if any, is reported separately on the Statement of Assets and Liabilities as segregated cash with broker/receivable for variation margin, or payable for swap settlement/variation margin. Generally, the amount of collateral due from or to a counterparty must exceed a minimum transfer amount threshold (e.g., $300,000) before a transfer is required to be made. To the extent amounts due to the Funds from their counterparties are not fully collateralized, contractually or otherwise, the Funds bear the risk of loss from counterparty nonperformance. The Funds attempt to mitigate counterparty risk by only entering into agreements with counterparties that they believe to be of good standing and by monitoring the financial stability of those counterparties.
For financial reporting purposes, the Funds do not offset derivative assets and derivative liabilities that are subject to netting arrangements in the Statements of Assets and Liabilities.
THE GUGGENHEIM FUNDS ANNUAL REPORT | 99 |
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 | |||||||||||||||||||||||||||
in the Statements of Assets | |||||||||||||||||||||||||||
and Liabilities | |||||||||||||||||||||||||||
Net Amount of | |||||||||||||||||||||||||||
Gross Amounts Offset | Assets Presented | Cash | |||||||||||||||||||||||||
Gross Amounts of | In the Statements of | on the Statements of | Financial | Collateral | Net | ||||||||||||||||||||||
Fund | Instrument | Recognized Assets1 | Assets and Liabilities | Assets and Liabilities | Instruments | Received2 | Amount | ||||||||||||||||||||
Alpha Opportunity Fund | |||||||||||||||||||||||||||
Swap equity | |||||||||||||||||||||||||||
| contracts | $ | 94,008 | $ | — | $ | 94,008 | $ | 94,008 | $ | — | $ | — | ||||||||||||||
StylePlus—Large Core Fund | |||||||||||||||||||||||||||
Swap equity | |||||||||||||||||||||||||||
| contracts | 5,681,229 | — | 5,681,229 | — | — | 5,681,229 | ||||||||||||||||||||
StylePlus—Mid Growth Fund | |||||||||||||||||||||||||||
Swap equity | |||||||||||||||||||||||||||
| contracts | 2,063,496 | — | 2,063,496 | — | — | 2,063,496 | ||||||||||||||||||||
Gross Amounts Not Offset | |||||||||||||||||||||||||||
in the Statements of Assets | |||||||||||||||||||||||||||
and Liabilities | |||||||||||||||||||||||||||
Net Amount of | |||||||||||||||||||||||||||
Gross Amounts Offset | Assets Presented | Cash | |||||||||||||||||||||||||
Gross Amounts of | In the Statements of | on the Statements of | Financial | Collateral | Net | ||||||||||||||||||||||
Fund | Instrument | Recognized Liabilities1 | Assets and Liabilities | Assets and Liabilities | Instruments | Pledged2 | Amount | ||||||||||||||||||||
Alpha Opportunity Fund | |||||||||||||||||||||||||||
Swap equity | |||||||||||||||||||||||||||
| contracts | $ | 224,208 | $ | — | $ | 224,208 | $ | 94,008 | $ | — | $ | 130,200 | ||||||||||||||
StylePlus—Mid Growth Fund | |||||||||||||||||||||||||||
Swap equity | |||||||||||||||||||||||||||
| contracts | 160,037 | — | 160,037 | — | — | 160,037 | ||||||||||||||||||||
1 | Exchange-traded futures are excluded from these reported amounts. | |
2 | Excludes maintenance margin deposits held at the broker related to derivatives. These amounts are reflected as segregated cash with broker on the Statements of Assets and Liabilities. |
8. Federal Income Tax Information
The Funds intend to comply with the provisions of Subchapter M of the Internal Revenue Code applicable to regulated investment companies and will distribute substantially all taxable net investment income and capital gains sufficient to relieve the Funds from all, or substantially all, federal income, excise and state income taxes. Therefore, no provision for federal or state income tax is required.
Tax positions taken or expected to be taken in the course of preparing the Funds’ tax returns are evaluated to determine whether the tax positions are “more-likely-than-not” of being sustained by the applicable tax authority. Tax positions not deemed to meet the more-likely-than-not threshold would be recorded as a tax benefit or expense in the current year. Management has analyzed the Funds’ tax positions taken, or to be taken, on Federal income tax returns for all open tax years, and has concluded that no provision for income tax is required in the Funds’ financial statements. The Funds’ federal tax returns are subject to examination by the Internal Revenue Service for a period of three years after they are filed.
The RIC Modernization Act of 2010 was signed into law on December 22, 2010, and simplified some of the tax provisions applicable to regulated investment companies, the tax reporting to their shareholders and improved the tax efficiency of certain fund structures. The greatest impact to the disclosure in the financial reports for the Funds was on the treatment of net capital losses, effective for tax years beginning after December 22, 2010.
One of the more prominent changes addresses capital loss carryforwards. The Funds are permitted to carry forward capital losses incurred in taxable years beginning after December 22, 2010, for an unlimited period. However, any losses incurred during those future taxable years will be required to be utilized prior to the losses incurred in pre-enactment taxable years. Under pre-enactment law, capital losses could be carried forward for eight years, and carried forward as short-term capital, irrespective of the character of the original loss. As a result of this ordering rule, pre-enactment capital loss carryforwards may potentially expire unused. Additionally, post-enactment capital losses that are carried forward will retain their character as either short-term or long-term capital losses rather than being considered all short-term as under previous law.
100 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
NOTES TO FINANCIAL STATEMENTS (continued) |
The tax character of distributions paid during the year ended September 30, 2014 was as follows:
Ordinary | Long-Term | Total | |||||||
Fund | Income | Capital Gain | Distribution | ||||||
Alpha Opportunity Fund | $ | — | $ | — | $ | — | |||
Enhanced World Equity Fund | 300,961 | — | 300,961 | ||||||
Large Cap Value Fund | 414,301 | — | 414,301 | ||||||
Risk Managed Real Estate | 191,735 | — | 191,735 | ||||||
Small Cap Value Fund | 717,032 | 2,624,346 | 3,341,378 | ||||||
StylePlus—Large Core Fund | 5,969,443 | 26,574,113 | 32,543,556 | ||||||
StylePlus—Mid Growth Fund | 3,936,969 | 3,381,000 | 7,317,969 | ||||||
World Equity Income Fund | 2,529,621 | — | 2,529,621 |
The tax character of distributions paid during the year ended September 30, 2013 was as follows:
Ordinary | Long-Term | Total | |||||||
Fund | Income | Capital Gain | Distributions | ||||||
Alpha Opportunity Fund | $ | — | $ | — | $ | — | |||
Enhanced World Equity Fund | — | — | — | ||||||
Large Cap Value Fund | 410,967 | — | 410,967 | ||||||
Risk Managed Real Estate | — | — | — | ||||||
Small Cap Value Fund | 2,056,835 | 874,121 | 2,930,956 | ||||||
StylePlus—Large Core Fund | 616,608 | — | 616,608 | ||||||
StylePlus—Mid Growth Fund | — | — | — | ||||||
World Equity Income Fund | 1,797,792 | — | 1,797,792 |
Note: For federal income tax purposes, short term capital gain distributions are treated as ordinary income distributions.
The tax character of distributable earnings/(accumulated losses) at September 30, 2014 was as follows:
Undistributed | Undistributed | Accumulated | Net Unrealized | Other | Total | ||||||||||||||||
Ordinary | Long-Term | Capital and | Appreciation/ | Temporary | Accumulated | ||||||||||||||||
Fund | Income | Capital Gain | Other Losses* | (Depreciation)* | Differences | Earnings/(Deficit) | |||||||||||||||
Alpha Opportunity Fund | $ | — | $ | — | $ | (5,646,776 | ) | $ | (130,200 | ) | $ | — | $(5,776,976 | ) | |||||||
Enhanced World Equity Fund | 76,353 | — | — | (126,843 | ) | — | (50,490 | ) | |||||||||||||
Large Cap Value Fund | 463,001 | — | (1,534,201 | ) | 13,550,004 | — | 12,478,804 | ) | |||||||||||||
Risk Managed Real Estate | 247,276 | 100,031 | — | ) | (1,749,471 | ) | (31,134 | ) | (1,433,298 | ) | |||||||||||
Small Cap Value Fund | — | 4,989,811 | (75,571 | ) | 1,947,956 | — | 6,862,196 | ) | |||||||||||||
StylePlus—Large Core Fund | 26,784,857 | — | — | 9,212,153 | — | 35,997,010 | ) | ||||||||||||||
StylePlus—Mid Growth Fund | 9,174,607 | — | — | 2,566,681 | — | 11,741,288 | ) | ||||||||||||||
World Equity Income Fund | 89,126 | — | (18,618,364 | ) | 1,152,709 | (7,980 | ) | (17,384,509 | ) |
*The Fund had net capital loss carryovers and deferred post-October losses as identified elsewhere in the Notes to the Financial Statements.
** Any differences between book-basis and tax-basis unrealized appreciation (depreciation) are attributable primarily to the tax deferral of wash sale losses, and the differences between book and tax basis passive foreign investment companies.
For the year ended September 30, 2014, the capital loss carryovers utilized or expired and the accumulated net realized loss on sales of investments for federal income tax purposes which are available to offset future taxable gains are shown in the table below:
Capital Loss | Capital Loss | Remaining | |||||||||||||||||||||||
Carryovers | Carryovers | Expires in | Expires in | Unlimited | Capital Loss | ||||||||||||||||||||
Fund | Utilized | Expired | 2017 | 2018 | Short Term | Long Term | Carryforward | ||||||||||||||||||
Alpha Opportunity Fund | $ (4,455,920 | ) | $ | — | $ (1,304,849 | ) | $ (4,341,927 | ) | $ | — | $ | — | $ (5,646,776 | ) | |||||||||||
Enhanced World Equity Fund | — | — | — | — | — | — | — | ||||||||||||||||||
Large Cap Value Fund | (6,723,361 | ) | — | — | (1,534,201 | ) | — | — | (1,534,201 | ) | |||||||||||||||
Risk Managed Real Estate | — | — | — | — | — | — | — | ||||||||||||||||||
Small Cap Value Fund | — | — | — | — | — | — | — | ||||||||||||||||||
StylePlus—Large Core Fund | — | — | — | — | — | — | — | ||||||||||||||||||
StylePlus—Mid Growth Fund | — | — | — | — | — | — | — | ||||||||||||||||||
World Equity Income Fund | (4,942,528 | ) | — | (13,260,860 | ) | (5,357,504 | ) | — | — | (18,618,364 | ) |
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 deferred ordinary and capital losses, losses due to wash sales, foreign currency gains and losses, the “mark-to-market” of certain
THE GUGGENHEIM FUNDS ANNUAL REPORT | 101 |
NOTES TO FINANCIAL STATEMENTS (continued) |
passive foreign investment companies (PFICs) for tax purposes, utilization of earnings and profits on shareholder redemptions, and net operating losses. To the extent these differences are permanent, reclassifications are made to the appropriate equity accounts in the period that the differences arise.
On the Statements of Assets and Liabilities, the following adjustments were made for permanent book/tax differences:
Undistributed | Accumulated Net | |||||||||||
Net Investment | Realized | |||||||||||
Paid-In Capital | Income | Gain/(Loss) | ||||||||||
Alpha Opportunity Fund | $(56,662 | ) | $ 54,103 | $ 2,559 | ||||||||
Enhanced World Equity Fund | 412,447 | 363 | (412,810 | ) | ||||||||
Large Cap Value Fund | — | 47 | (47 | ) | ||||||||
Risk Managed Real Estate | (34 | ) | 137,667 | (137,633 | ) | |||||||
Small Cap Value Fund | 2,684,748 | 153,772 | (2,838,520 | ) | ||||||||
StylePlus—Large Core Fund | 2,536,139 | 221,379 | (2,757,518 | ) | ||||||||
StylePlus—Mid Growth Fund | 870,051 | 191,247 | (1,061,298 | ) | ||||||||
World Equity Income Fund | (10,587 | ) | (29,231 | ) | 39,818 |
At September 30, 2014, the cost of securities for Federal income tax purposes, the aggregate gross unrealized gain for all securities for which there was an excess of value over tax cost and the aggregate gross unrealized loss for all securities for which there was an excess of tax cost over value, were as follows:
Tax | Tax | Net | ||||||||||||
Tax | Unrealized | Unrealized | Unrealized | |||||||||||
Fund | Cost | Gain | Loss | Gain/(Loss) | ||||||||||
Alpha Opportunity Fund | $ | 10,736,308 | $ | — | $ | — | $ | — | ||||||
Enhanced World Equity Fund | 6,048,261 | 1,473 | (149,393 | ) | (147,920 | ) | ||||||||
Large Cap Value Fund | 56,100,197 | 15,114,543 | (1,564,539 | ) | 13,550,004 | |||||||||
Risk Managed Real Estate | 108,774,026 | 870,939 | (4,294,897 | ) | (3,423,958 | ) | ||||||||
Small Cap Value Fund | 24,529,095 | 3,460,260 | (1,512,304 | ) | 1,947,956 | |||||||||
StylePlus—Large Core Fund | 195,488,336 | 4,428,020 | (897,096 | ) | 3,530,924 | |||||||||
StylePlus—Mid Growth Fund | 83,037,067 | 1,438,336 | (775,114 | ) | 663,222 | |||||||||
World Equity Income Fund | 85,392,709 | 4,869,197 | (3,703,796 | ) | 1,165,401 |
Pursuant to Federal income tax regulations applicable to investment companies, the Funds have elected to treat net capital losses and certain ordinary losses realized between November 1 and September 30 of each year as occurring on the first day of the following tax year. The Funds have also elected to treat certain ordinary losses realized between January 1 and September 30 of each year as occurring on the first day of the following tax year. For the year ended September 30, 2014, the following losses reflected in the accompanying financial statements were deferred for Federal income tax purposes until October 1, 2014:
Fund | Ordinary | Capital | |||||
Small Cap Value Fund | $ | (75,571 | ) | $ | — |
9. Securities Transactions
For the year ended September 30, 2014, the cost of purchases and proceeds from sales of investment securities, excluding government securities, short-term investments and derivatives, were as follows:
Fund | Purchases | Sales | |||||
Alpha Opportunity Fund | $ | — | $ | 4,723,777 | |||
Enhanced World Equity Fund | 37,735,488 | 37,723,395 | |||||
Large Cap Value Fund | 30,340,262 | 25,418,666 | |||||
Risk Managed Real Estate Fund | 87,839,467 | 18,858,851 | |||||
Small Cap Value Fund | 21,424,349 | 44,307,478 | |||||
StylePlus—Large Core Fund | 216,383,099 | 164,747,800 | |||||
StylePlus—Mid Growth Fund | 94,176,446 | 71,945,945 | |||||
World Equity Income Fund | 105,455,460 | 103,239,031 |
102 | | | THE GUGGENHEIM FUNDS ANNUAL REPORT |
NOTES TO FINANCIAL STATEMENTS (continued) |
10. Options Written
Information as to options written by the Funds during the year ended September 30, 2014, and options outstanding at period end is provided below:
Written Call Options
Enhanced World Equity | Small Cap Value | |||||||||||||
Number of | Premium | Number of | Premium | |||||||||||
contracts | amount | contracts | amount | |||||||||||
Balance at September 30, 2013 | 370 | $ | 34,151 | 107 | $ | 31,283 | ||||||||
Options Written | 8,963 | 625,059 | 210 | 35,346 | ||||||||||
Options terminated in closing purchase transactions | (8,395 | ) | (591,478 | ) | — | — | ||||||||
Options expired | (295 | ) | (32,075 | ) | (317 | ) | (66,629 | ) | ||||||
Options exercised | (140 | ) | (9,727 | ) | — | — | ||||||||
Balance at September 30, 2014 | 503 | $ | (25,930 | ) | — | $ | — | |||||||
Written Put Options
Small Cap Value Fund | |||||||
Number of | Premium | ||||||
contracts | amount | ||||||
Balance at September 30, 2013 | 200 | $ | 12,810 | ||||
Options Written | 60 | 8,050 | |||||
Options terminated in closing purchase transactions | — | — | |||||
Options expired | (260 | ) | (20,860 | ) | |||
Options exercised | — | — | |||||
Balance at September 30, 2014 | — | — | |||||
11. Line of Credit
The StylePlus—Large Core Fund and StylePlus—Mid Growth Fund secured a committed, $275,000,000 line of credit from Citibank, N.A., good through October 10, 2014, at which time the line of credit may be renewed. This line of credit is reserved for emergency or temporary purposes. Fees related to borrowings, if any, vary under s arrangement between the greater of Citibank’s “base rate”, LIBOR plus 1.0%, and the Fed Funds rate, plus 0.50%. The StylePlus—Large Core Fund and StylePlus—Mid Growth Fund did not have any borrowings under this agreement as of and for the year-ended September 30, 2014. The StylePlus—Large Core Fund and StylePlus—Mid Growth Fund also pay a commitment fee at an annualized rate of 0.08% of the average daily amount of their unused commitment amount.
12. Affiliated Transactions
Investments representing 5% or more of the outstanding voting shares of a portfolio company of a fund, or control of or by, or common control under GI, result in that portfolio company being considered an affiliated company of such fund, as defined in the 1940 Act.
The Funds may invest in the Guggenheim Strategy Funds Trust consisting of Guggenheim Strategy Fund I, Guggenheim Strategy Fund II, and Guggenheim Strategy Fund III (collectively, the “Cash Management Funds”), open-end management investment companies managed by GI. The Cash Management Funds, which launched on March 11, 2014, are offered as cash management options only to mutual funds, trusts, and other accounts managed by GI and/or its affiliates, and are not available to the public. The Cash Management Funds pay no investment management fees. The Cash Management Funds’ annual report on Form N-CSR dated September 30, 2014 will be available publicly or upon request.
THE GUGGENHEIM FUNDS ANNUAL REPORT | 103 |
NOTES TO FINANCIAL STATEMENTS (concluded) |
Transactions during the year ended September 30, 2014 in which the portfolio company is an “affiliated person” are as follows:
Value | Value | Shares | Investment | Realized | Capital Gain | |||||||||||||||||||||
Affiliated issuers by Fund | 09/30/201 | Additions | Reductions | 09/30/2014 | 09/30/2014 | Income | Gain (Loss) | Distributions | ||||||||||||||||||
StylePlus—Large Core Fund | ||||||||||||||||||||||||||
Guggenheim Strategy Fund III | $ | — | $ | 43,537,575 | $ | — | $ | 43,398,278 | 1,742,203 | $ | 298,420 | $ | — | $ | — | |||||||||||
Guggenheim Strategy Fund II | — | 30,324,641 | — | 30,278,579 | 1,216,007 | 76,622 | — | — | ||||||||||||||||||
Guggenheim Strategy Fund I | — | 27,112,144 | (4,014,452 | ) | 23,036,746 | 925,171 | 111,670 | (14,452 | ) | — | ||||||||||||||||
Guggenheim BulletShares 2017 High | ||||||||||||||||||||||||||
Yield Corporate Bond ETF | — | 3,238,907 | (3,238,907 | ) | — | — | 62,220 | 9,284 | — | |||||||||||||||||
Guggenheim BulletShares 2016 High | ||||||||||||||||||||||||||
Yield Corporate Bond ETF | 2,242,106 | 1,602,803 | (3,849,263 | ) | — | — | 111,112 | 49,232 | 4,886 | |||||||||||||||||
Guggenheim BulletShares 2015 High | ||||||||||||||||||||||||||
Yield Corporate Bond ETF | 2,243,640 | 1,603,391 | (3,851,139 | ) | — | — | 106,479 | (12,997 | ) | 24,903 | ||||||||||||||||
Guggenheim BulletShares 2014 High | ||||||||||||||||||||||||||
Yield Corporate Bond ETF | 2,244,797 | 1,596,131 | (3,844,273 | ) | — | — | 31,472 | (27,442 | ) | 15,200 | ||||||||||||||||
Guggenheim Enhanced Short | ||||||||||||||||||||||||||
Duration ETF | 3,961,310 | — | (3,959,467 | ) | — | — | 6,840 | 2,889 | — | |||||||||||||||||
Floating Rate Strategies Fund | ||||||||||||||||||||||||||
Institutional Class | 3,332,741 | 158,888 | (3,537,286 | ) | — | — | 141,195* | (30,339 | ) | 6,310 | ||||||||||||||||
Macro Opportunities Fund | ||||||||||||||||||||||||||
Institutional Class | 3,199,526 | 170,864 | (3,552,635 | ) | — | — | 157,221* | (91,859 | ) | — | ||||||||||||||||
$ | 17,224,120 | $ | 109,345,344 | $ | (29,847,422 | ) | $ | 96,713,603 | 3,883,381 | $ | 1,103,251 | $ | (115,684 | ) | $ | 51,299 | ||||||||||
StylePlus—Mid Growth Fund | ||||||||||||||||||||||||||
Guggenheim Strategy Fund III | $ | — | $ | 17,869,742 | $ | — | $ | 17,812,592 | 715,078 | $ | 124,193 | $ | — | $ | — | |||||||||||
Guggenheim Strategy Fund II | — | 13,280,649 | — | 13,261,482 | 532,590 | 31,516 | — | — | ||||||||||||||||||
Guggenheim Strategy Fund I | — | 12,552,158 | (4,014,452 | ) | 8,517,668 | 342,075 | 51,959 | (14,452 | ) | — | ||||||||||||||||
Guggenheim BulletShares 2017 High | ||||||||||||||||||||||||||
Yield Corporate Bond ETF | — | 1,536,370 | (1,536,370 | ) | — | — | 29,514 | 4,404 | — | |||||||||||||||||
Guggenheim BulletShares 2016 High | ||||||||||||||||||||||||||
Yield Corporate Bond ETF | 965,092 | 653,469 | (1,620,436 | ) | — | — | 46,910 | 20,893 | 2,057 | |||||||||||||||||
Guggenheim BulletShares 2015 High | ||||||||||||||||||||||||||
Yield Corporate Bond ETF | 964,231 | 652,605 | (1,618,597 | ) | — | — | 44,895 | (5,349 | ) | 10,467 | ||||||||||||||||
Guggenheim BulletShares 2014 High | ||||||||||||||||||||||||||
Yield Corporate Bond ETF | 963,581 | 652,332 | (1,617,350 | ) | — | — | 13,344 | (11,521 | ) | 6,395 | ||||||||||||||||
Guggenheim Enhanced Short | ||||||||||||||||||||||||||
Duration ETF | 1,669,991 | — | (1,669,214 | ) | — | — | 2,887 | 1,226 | — | |||||||||||||||||
Floating Rate Strategies Fund | ||||||||||||||||||||||||||
Institutional Class | 1,378,201 | 65,706 | (1,462,788 | ) | — | — | 58,389* | (12,546 | ) | 2,610 | ||||||||||||||||
Macro Opportunities Fund | �� | |||||||||||||||||||||||||
Institutional Class | 1,323,112 | 70,658 | (1,469,135 | ) | — | — | 65,017* | (37,987 | ) | — | ||||||||||||||||
$ | 7,264,208 | $ | 47,333,689 | (15,008,342 | ) | $ | 39,591,742 | 1,589,743 | $ | 468,624 | $ | (55,332 | ) | $ | 21,529 | |||||||||||
* Includes A-Class and C-Class. |
13. Other Liabilities
StylePlus—Large Core Fund wrote put option contracts through Lehman Brothers Inc., (“LBI”) that were exercised prior to the option contracts’ expiration and prior to the bankruptcy filing by LBI, during September, 2008. However, these transactions have not settled and the securities have not been delivered to the Fund as of September 30, 2014.
Although the ultimate resolution of these transactions is uncertain, the Fund has recorded a liability on its respective book equal to the difference between the strike price on the put options and the market price of the underlying security on the exercise date. The amount of the liability recorded by the Fund as of September 30, 2014, was $18,615.
14. Alpha Opportunity Fund
As noted in the Fund’s prior shareholder reports, the Fund has been working to resolve certain outstanding short sale transactions with Lehman Brothers International Europe (“LBIE”) and its administrator. The Fund contracted with LBIE to provide prime brokerage services related to the Fund’s short selling, and on September 15, 2008, LBIE was placed into administration and a third party administrator was named. The Fund’s exposure to LBIE consisted of short sale proceeds held by LBIE, and restricted long positions held at the Fund’s custodian, as collateral for said short sales. These matters have been resolved; in June 2014, the Fund made a settlement payment to discharge all remaining obligations to LBIE, and its former affiliate, Lehman Brothers, Inc., released the collateral held in connection with the Fund’s open short sale transactions.
As of the close of business on October 3, 2008, and until further notice, the Fund is not accepting subscriptions for shares from either new or existing shareholders.
104 | | | THE GUGGENHEIM FUNDS ANNUAL REPORT |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM |
The Board of Trustees and Shareholders
of Guggenheim Funds Trust
We have audited the accompanying statements of assets and liabilities, including the schedules of investments, of Guggenheim Alpha Opportunity Fund, Guggenheim Enhanced World Equity Fund, Guggenheim Large Cap Value Fund, Guggenheim Risk Managed Real Estate Fund, Guggenheim Small Cap Value Fund, Guggenheim StylePlus—Large Core Fund, Guggenheim StylePlus—Mid Growth Fund and Guggenheim World Equity Income Fund (eight of the series constituting the Guggenheim Funds Trust) (the “Funds”) as of September 30, 2014, and the related statements of operations, statements of changes in net assets, and the financial highlights for each of the years or periods indicated therein. These financial statements and financial highlights are the responsibility of the Funds’ management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. We were not engaged to perform an audit of the Funds’ internal control over financial reporting. Our audits included consideration of internal control financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Funds’ internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of September 30, 2014, by correspondence with the custodian, transfer agents, agent banks and brokers or by other appropriate auditing procedures where replies from agent banks or brokers were not received. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the above listed Funds (eight of the series constituting the Guggenheim Funds Trust) at September 30, 2014, and the results of their operations, the changes in their net assets, and their financial highlights for each of the years or periods indicated therein, in conformity with U.S. generally accepted accounting principles.
McLean, Virginia
November 25, 2014
THE GUGGENHEIM FUNDS ANNUAL REPORT | 105 |
OTHER INFORMATION (Unaudited) |
Tax Information
This information is being provided as required by the Internal Revenue Code. Amounts shown may differ from those elsewhere in the report because of differences in tax and financial reporting practice.
Of the taxable ordinary income distributions paid during the fiscal year ending September 30, 2014, the following funds had the corresponding percentages qualify for the dividends received deduction for corporations:
Fund | % Qualifying | ||
Enhanced World Equity Fund | 0.59 | % | |
Large Cap Value Fund | 100.00 | % | |
Risk Managed Real Estate Fund | 4.20 | % | |
Small Cap Value Fund | 39.12 | % | |
StylePlus—Large Core Fund | 24.65 | % | |
StylePlus—Mid Growth Fund | 1.86 | % | |
World Equity Income Fund | 41.11 | % |
Additionally, the following amounts of taxable ordinary income dividends paid during the fiscal year qualified for the lower income tax rate available to individuals under the Jobs and Growth Tax Relief Reconciliation Act of 2003:
Fund | % Qualifying | ||
Enhanced World Equity Fund | 0.55 | % | |
Large Cap Value Fund | 100.00 | % | |
Risk Managed Real Estate Fund | 4.20 | % | |
Small Cap Value Fund | 38.96 | % | |
StylePlus—Large Core Fund | 24.65 | % | |
StylePlus—Mid Growth Fund | 1.86 | % | |
World Equity Income Fund | 55.59 | % |
Additionally, of the taxable ordinary income distributions paid during the fiscal year ending September 30, 2014, the following funds had the corresponding percentages qualify as interest related dividends and qualified short-term capital gains as permitted by IRC Section 871(k)(1) and IRC Section 871(k)(2), respectively:
Fund | % Qualifying | % STCG Qualifying | ||||
StylePlus—Large Core Fund | 4.04 | % | 100.00 | % | ||
StylePlus—Mid Growth Fund | 3.97 | % | 100.00 | % |
With respect to the taxable year ended September 30, 2014, the Funds hereby designates as capital gain dividends the amounts listed below, or, if subsequently determined to be different, the net capital gain of such year:
LT Capital Gain | |||||
LT Capital Gains | Using Proceeds from | ||||
Fund | Dividends | Shareholder Redemptions | |||
Small Cap Value Fund | $2,624,346 | $2,687,822 | |||
StylePlus—Large Core Fund | 26,574,113 | 2,017,743 | |||
StylePlus—Mid Growth Fund | 3,381,000 | 517,382 |
In January 2015, you will be advised on IRS Form 1099 DIV or substitute 1099 DIV as to the federal tax status of the distributions received by you in the calendar year 2014.
Proxy Voting Information
A description of the policies and procedures that the Trust uses to determine how to vote proxies relating to securities held in the Funds’ portfolios is available, without charge and upon request, by calling 800.820.0888. This information is also available from the EDGAR database on the SEC’s website at http://www.sec.gov.
Information regarding how the Funds voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available without charge, upon request, by calling 800.820.0888. This information is also available from the EDGAR database on the SEC’s website at http://www.sec.gov.
106 | | | THE GUGGENHEIM FUNDS ANNUAL REPORT |
OTHER INFORMATION (Unaudited) (continued |
Quarterly Portfolio Schedules Information
The Trust files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q; which are available on the SEC’s website at http://www.sec.gov. The Funds’ Forms N-Q may be reviewed and copied at the SEC’s Public Reference Room in Washington, DC, and that information on the operation of the Public Reference Room may be obtained by calling 800-SEC-0330. Copies of the portfolio holdings are also available to shareholders, without charge and upon request, by calling 800.820.0888.
Office Locations
The offices of Guggenheim Investments can be found in the following locations:
330 Madison Avenue
10th Floor
New York, NY 10017
(Headquarters)
Four Irvington Centre
805 King Farm Boulevard
Suite 600
Rockville, MD 20850
9401 Indian Creek Parkway
40 Corporate Woods
Suite 850
Overland Park, KS 66210
Distributor change
Effective March 3, 2014, Guggenheim Distributors, LLC (“GD”), the distributor for shares of the Funds was consolidated into and with Guggenheim Funds Distributors, LLC (“GFD”). Following the consolidation, GFD serves as the Funds’ distributor.
GD and GFD are both indirect, wholly-owned subsidiaries of Guggenheim Capital, LLC and, therefore, the consolidation will not result in a change of actual control of the Funds’ distributor. The primary goal of the consolidation is to achieve greater operational efficiencies and allow all of the Guggenheim funds, including funds that are not series of the Trusts, to be distributed by a single distributor.
The consolidation is not expected to affect the day-to-day management of the Funds or result in any material changes to the distribution of the Funds, including any changes to the distribution fees paid by the Funds.
Guggenheim Funds Trust
Guggenheim Funds Trust (the “Trust”), which was organized as a Delaware statutory trust on November 8, 2013, is registered with the Securities and Exchange Commission (“SEC”) as an investment company. The Trust is an open-end management investment company that, upon the demand of the investor, must redeem its shares and pay the investor the next calculated NAV. The Guggenheim Enhanced World Equity Fund (“Enhanced World Equity Fund”), Guggenheim Large Cap Value Fund (“Large Cap Value Fund”), Guggenheim Mid Cap Value Fund (“Mid Cap Value Fund”), Guggenheim Mid Cap Value Institutional Fund (“Mid Cap Value Institutional Fund”), Guggenheim Small Cap Value Fund (“Small Cap Value Fund”), Guggenheim StylePlus—Large Core Fund (“StylePlus—Large Core Fund”), Guggenheim StylePlus Mid—Growth Fund (“StylePlus—Mid Growth Fund”) and Guggenheim World Equity Income Fund (“World Equity Income Fund”) (collectively, the “Funds”) were previously series (the “Predecessor Funds”) of Security Equity Fund, Security Large Cap Value Fund and Security Mid Cap Growth Fund (the “Predecessor Corporations”), different registered open-end investment companies, which were organized as Kansas corporations. In January 2014, at special meetings of shareholders, the shareholders of each Predecessor Fund approved the reorganization of each Predecessor Fund with and into a corresponding “shell” series of the Trust. The shell series of the Trust succeeded to the accounting and performance histories of the Predecessor Funds. Any such historical information provided for a series of the Trust that relates to periods prior to January 28, 2014, therefore, is that of the corresponding Predecessor Fund.
Effective January 28, 2014, the Guggenheim Floating Rate Strategies Fund (“Floating Rate Strategies Fund”), Guggenheim High Yield Fund (“High Yield Fund”), Guggenheim Investment Grade Bond Fund (“Investment Grade Bond Fund”), Guggenheim Limited Duration Fund (“Limited Duration Fund”), Guggenheim
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Macro Opportunities Fund (“Macro Opportunities Fund”), Guggenheim Municipal Income Fund (“Municipal Income Fund”), and Guggenheim Total Return Bond Fund (“Total Return Bond Fund”), which were series of Security Income Fund, a Kansas corporation, reorganized with and into corresponding series of Guggenheim Funds Trust, a Delaware Statutory Trust (each, a “Reorganization”). Upon completion of each Reorganization, the respective share classes of each Fund assumed the performance, financial and other historical information of those of the corresponding predecessor fund.
At a meeting of shareholders held on January 8, 2014, shareholders of the Guggenheim Alpha Opportunity Fund (“Alpha Opportunity Fund”) approved the reorganization of the Fund from a Kansas corporation to a Delaware statutory trust. After the close of business on September 23, 2014, the Fund, which is a series of Security Equity Fund, a Kansas corporation, will reorganize with and into a corresponding “shell” fund (the “New Fund”), which is a series of Guggenheim Funds Trust, a Delaware statutory trust. Upon completion of the Reorganization, shareholders of the Fund will own shares of the New Fund that are equal in number and in value to the shares of the Fund that were held by those shareholders immediately prior to the closing of the Reorganization. In addition, the New Fund will assume the performance, financial and other historical information of that of the Fund. Once the Reorganization is completed, the Fund will no longer be offered as a series of Security Equity Fund.
Report of the Guggenheim Funds Trust Contracts Review Committee
Guggenheim Funds Trust (the “Trust”) was organized as a Delaware statutory trust on November 8, 2013, and is registered as an open-end management investment company under the Investment Company Act of 1940, as amended (the “1940 Act”). Effective January 28, 2014, the Trust is the successor of all of the existing and active series of Security Equity Fund (except for Guggenheim Alpha Opportunity Fund),1 Security Large Cap Value Fund, Security Mid Cap Growth Fund and Security Income Fund, each, a Kansas corporation (collectively, the “Corporations”), following the reorganization of each series of the Corporations with and into a corresponding “shell” series of the Trust (the “Reorganizations”). The Reorganizations, which were approved by the Boards of Directors of the Corporations (collectively, the “Board of Directors” or the “Predecessor Board” and the members of the Board of Directors individually, “Directors”), including the Directors who are not “interested persons,” as defined by the 1940 Act, of the Corporations (the “Independent Directors”), and by shareholders, were intended to, among other things, take advantage of various benefits available to registered investment companies organized as Delaware statutory trusts, including, but not limited to, Delaware’s comprehensive body of law related to investment companies which may reduce legal uncertainty and risk.
The Trust includes the following series (the “New Series”), each of which assumed the accounting and performance histories of the corresponding predecessor fund (a “Predecessor Fund” and collectively, the “Predecessor Funds”):
• | Guggenheim Alpha Opportunity Fund (“Alpha Opportunity Fund”)2 | • | Guggenheim Enhanced World Equity Fund (“Enhanced World Equity Fund”) | ||||
• | Guggenheim Floating Rate Strategies Fund (“Floating Rate Strategies Fund”) | • | Guggenheim High Yield Fund (“High Yield Fund”) | ||||
• | Guggenheim Investment Grade Bond Fund (“Investment Grade Bond Fund”) | • | Guggenheim Large Cap Value Fund (“Large Cap Value Fund”) | ||||
• | Guggenheim Limited Duration Fund (“Limited Duration Fund”) | • | Guggenheim Macro Opportunities Fund (“Macro Opportunities Fund”) | ||||
• | Guggenheim Mid Cap Value Institutional Fund (“Mid Cap Value Institutional”) | • | Guggenheim Mid Cap Value Fund (“Mid Cap Value Fund”) | ||||
• | Guggenheim Municipal Income Fund (“Municipal Income Fund”) | • | Guggenheim Small Cap Value Fund (“Small Cap Value Fund”) | ||||
• | Guggenheim StylePlus—Mid Growth Fund (“StylePlus—Mid Growth”) | • | Guggenheim StylePlus—Large Core Fund (“StylePlus—Large Core”) | ||||
• | Guggenheim Total Return Bond Fund (“Total Return Bond Fund”) | • | Guggenheim World Equity Income Fund (“World Equity Income Fund”) |
With the exception of Enhanced World Equity Fund, Floating Rate Strategies Fund, Limited Duration Fund, Macro Opportunities Fund and Total Return Bond Fund, Security Investors, LLC, also known as Guggenheim Investments (“Security Investors”) and an indirect subsidiary of Guggenheim Partners, LLC, a global diversified financial services firm (“Guggenheim Partners”), serves as investment manager to each series of the Trust. (Guggenheim Partners, Security Investors, Guggenheim Partners Investment Management, LLC (“GPIM”) and their affiliates may be referred to herein collectively as “Guggenheim.”) In this connection, the Trust and Security Investors have entered into four separate investment management agreements which group the New Series of the Trust to correspond with the Predecessor Funds that were series of a common Corporation: (i) Mid Cap Value Fund, Mid Cap Value Institutional, Small Cap Value Fund, StylePlus—Large Core Fund, World Equity Income Fund and Alpha Opportunity Fund,3 the corresponding Predecessor Funds of which were series of a common Corporation, Security Equity Fund; (ii) Large Cap Value Fund, the corresponding Predecessor Fund of which was the sole series of a Corporation, Security Large
1 | At a meeting of shareholders held on January 8, 2014, shareholders of Guggenheim Alpha Opportunity Fund (“Alpha Opportunity Fund”), a series of Security Equity Fund, approved the reorganization of Alpha Opportunity Fund to a corresponding new series of the Trust (the “Alpha Opportunity Fund Reorganization”). Due to certain outstanding transactions with Lehman Brothers International Europe (“LBIE”) and its administrator, the Alpha Opportunity Fund Reorganization was delayed pending the resolution of the LBIE matter. Alpha Opportunity Fund was reorganized into the Trust on September 24, 2014. | |
2 | Because the Alpha Opportunity Fund was not reorganized into the Trust until September 2014, at the time of the Board’s review of the investment advisory agreements Alpha Opportunity Fund was a series of the Security Equity Fund. | |
3 | At the time of the Board’s review of the investment advisory agreements, Security Investors served as investment manager to Alpha Opportunity Fund pursuant to an investment management agreement with Security Equity Fund. The investment management agreement with Security Investors transferred to the Trust upon the Alpha Opportunity Fund Reorganization. |
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Cap Value Fund; (iii) StylePlus—Mid Growth, the corresponding Predecessor Fund of which was the sole series of a Corporation, Security Mid Cap Growth Fund; and (iv) Investment Grade Bond Fund, High Yield Fund and Municipal Income Fund, the corresponding Predecessor Funds of which were series of a common Corporation, Security Income Fund. (The New Series identified in (i) through (iv) above are collectively referred to herein as the “SI-Advised Funds.”) Under the terms of the applicable investment management agreement between the Trust and Security Investors, Security Investors also is responsible for overseeing the activities of GPIM, an indirect subsidiary of Guggenheim Partners, with respect to its service as investment sub-adviser to Municipal Income Fund, pursuant to an investment sub-advisory agreement between Security Investors and GPIM (the “Sub-Advisory Agreement”).
GPIM serves as investment adviser with respect to each of Enhanced World Equity Fund, Floating Rate Strategies Fund, Limited Duration Fund, Macro Opportunities Fund and Total Return Bond Fund (collectively, the “GPIM-Advised Funds” and together with the SI-Advised Funds, the “Funds” and individually, a “Fund”). In this connection, the Trust and GPIM have entered into three separate investment advisory agreements which group the GPIM-Advised Funds as follows: (i) Enhanced World Equity Fund, the corresponding Predecessor Fund of which was a series of Security Equity Fund; (ii) Floating Rate Strategies Fund, Macro Opportunities Fund and Total Return Bond Fund, the corresponding Predecessor Funds of which were series of a common Corporation, Security Income Fund; and (iii) Limited Duration Fund, the corresponding Predecessor Fund of which was a series of Security Income Fund. (The investment management agreements pertaining to the SI-Advised Funds and the investment advisory agreements pertaining to the GPIM-Advised Funds are referred to herein together as the “Advisory Agreements” and, together with the Sub-Advisory Agreement, as the “Agreements.” In addition, unless the context indicates otherwise, GPIM, with respect to its service as investment adviser to the GPIM-Advised Funds, and Security Investors as to the SI-Advised Funds, are each referred to herein as the “Adviser” and together, the “Advisers.”) Under the supervision of the Board of Trustees of the Trust (the “Board” and the members of the Board individually, the “Trustees”), the Advisers regularly provide (or, as applicable, oversee the provision of) investment research, advice and supervision, a continuous investment program and direct the purchase and sale of securities and other investments for each Fund’s portfolio.
At a meeting held on November 11, 2013, in connection with other actions taken to pursue the Reorganizations, the Predecessor Board, including the Independent Directors, appointed each of the then-current investment manager/adviser for the Predecessor Funds to serve in such capacity to the corresponding New Series of the Trust (i.e., Security Investors and GPIM with respect to the SI-Advised Funds and the GPIM-Advised Funds, respectively). The Predecessor Board, including Independent Directors, also approved for the Trust, on behalf of the New Series, the investment advisory and investment management agreements then in effect with respect to the Predecessor Funds (i.e., the Advisory Agreements and the Sub-Advisory Agreement). The sole initial shareholder of the New Series subsequently approved the Advisory Agreements and the Sub-Advisory Agreement, which are identical to the agreements then in place with respect to each of the Predecessor Funds in all material respects, except for the name of the signatory and the applicable state law, and became effective January 27, 2014.
At meetings held in person on April 17, 2014 (the “April Meeting”) and on May 12, 2014, (the “May Meeting”), the members of the Contracts Review Committee of the Board (the “Committee”), consisting solely of the Trustees who are not “interested persons,” as defined by the 1940 Act, of the Trust (the “Independent Trustees”), met separately from Guggenheim to consider the renewal of the Advisory Agreements and the Sub-Advisory Agreement in connection with the Committee’s annual contract review schedule.4 As part of its review process, the Committee was represented by independent legal counsel to the Independent Trustees (“Independent Legal Counsel”). Independent Legal Counsel reviewed and discussed with the Committee various key aspects of the Trustees’ legal responsibilities relating to the proposed renewal of the Agreements and other principal contracts. In this connection, Independent Legal Counsel advised the Committee of: (i) the responsibilities of board members under applicable law; (ii) the standards for determining what constitutes an excessive fee as delineated by the courts and the factors the Trustees should consider in determining whether to approve the fee arrangements; and (iii) the disclosure requirements pertaining to these approvals, as required by the Securities and Exchange Commission. The Committee took into account various materials received from Guggenheim and Independent Legal Counsel. Recognizing that the evaluation process with respect to the services provided by each of the Advisers is an ongoing
4 | Since the corresponding Predecessor Fund of Enhanced World Equity Fund was subject to an investment management agreement approved by the Board of Directors of Security Equity Fund for an initial term of two years at an in-person meeting of the Board held on February 13, 2013, and because the Fund has a limited operating history, it was not included in the contract renewal process conducted in April and May 2014 (the “2014 Contract Renewal Process”). Similarly, Limited Duration Fund was not included in the 2014 Contract Renewal Process because the corresponding Predecessor Fund of Limited Duration Fund was subject to an investment management agreement approved by the Board of Directors of Security Income Fund for an initial term of two years at an in-person meeting of the Board held on November 11, 2013. Another recently launched series of the Trust, the Guggenheim Risk Managed Real Estate Fund (the “Risk Managed Real Estate Fund”) also was excluded from the 2014 Contract Renewal Process because the investment advisory agreement between GPIM and the Trust, on behalf of the Risk Managed Real Estate Fund, was approved by the Board of Trustees of the Trust for an initial term of two years at an in-person meeting of the Board held on February 12, 2014. Accordingly, references herein to the “Funds” should be understood as referring to all series of the Trust, except Enhanced World Equity Fund, Limited Duration Fund and Risk Managed Real Estate Fund. In addition, references to the “Funds” should be understood as including Alpha Opportunity Fund. Since the Alpha Opportunity Fund Reorganization was not effected as of the April Meeting or May Meeting, the individuals who serve as the Independent Trustees, in their capacity as the Independent Directors of Security Equity Fund, considered the renewal of the Investment Management Agreement between Security Investors and Security Equity Fund, with respect to Alpha Opportunity Fund. Accordingly, all references hereafter to the steps taken by the “Independent Trustees” and the “Committee,” including the materials reviewed and factors considered, also refer to such parties in their corresponding capacities with respect to Alpha Opportunity Fund. Likewise, all action taken with respect to the Trust’s Advisory Agreements includes the Investment Management Agreement regarding Alpha Opportunity Fund. |
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one, the Committee also considered the variety of written materials, reports and oral presentations it received (and received by the full Board) throughout the year regarding performance and operating results of the Funds (which, as noted, reflects the accounting and performance histories of the Predecessor Funds).
In connection with the contract review process, FUSE Research Network LLC (“FUSE”), an independent, third party research provider, was engaged to prepare advisory contract renewal reports designed specifically to help boards of directors/trustees fulfill their advisory contract renewal responsibilities. The objective of the reports is to present the subject funds’ relative position regarding fees, expenses and total return performance, with peer group and universe comparisons. Guggenheim prepared a comprehensive presentation in response to a formal request for information sent by Independent Legal Counsel on behalf of the Committee. In addition, Guggenheim made a detailed presentation at the April Meeting, which addressed areas identified for discussion by the Committee Chair and Vice Chair and Independent Legal Counsel. Throughout the process, the Committee asked questions of management and requested certain additional information which Guggenheim provided following the April Meeting (collectively with the foregoing reports and materials, the “Contract Materials”).
Among other things, Guggenheim provided: (i) organizational charts and presentations, staffing reports and biographies of those key personnel of each Adviser providing services to the Funds; (ii) descriptions of various functions performed by Guggenheim for the Funds, such as portfolio trading practices, brokerage matters, trade allocation and best execution; (iii) information regarding each Adviser’s compliance and regulatory history, including its Form ADV; and (iv) information concerning the parent company and overall Guggenheim organization and strategic plans and goals, all to assist the Committee in assessing the nature, extent and quality of services provided by each of Security Investors and GPIM, respectively. In addition, Guggenheim’s response included information comparing the investment performance, advisory fees and total expenses of the Funds to other funds (including such information presented in the FUSE reports as well as supplemental information prepared by Guggenheim), charts showing revenues for Guggenheim by product line and each Fund, including a break-out of various expenses, a description of the expense allocation methodology and information about the profitability of the Funds to Guggenheim Investments (the investment management business of Guggenheim Partners), financial information for Guggenheim Investments (unaudited), and information about Guggenheim’s compliance and risk management programs.
Following an analysis and discussion of the factors identified below and in the exercise of its business judgment, the Committee concluded that it was in the best interests of the Funds to recommend that the Board approve the renewal of each Advisory Agreement and the Sub-Advisory Agreement for an additional 12-month term.
Advisory Agreements
Nature, Extent and Quality of Services Provided by each Adviser: With respect to the nature, extent and quality of services currently provided by each Adviser, the Committee considered the information provided by Guggenheim concerning the education, experience, professional affiliations, area of responsibility and duties of all key personnel performing services for the Funds, including those personnel providing compliance oversight. In this connection, the Committee considered Guggenheim’s resources and related efforts to retain, attract and motivate capable personnel to serve the Funds and noted Guggenheim’s report on recent additions and departures in personnel who work on matters relating to the Funds or are significant to the operations of each Adviser. The Committee noted that on a regular basis the Board receives and reviews information from the Trust’s Chief Compliance Officer regarding compliance policies and procedures established pursuant to Rule 38a-1 under the 1940 Act. In addition, the Committee took into account the various compliance and risk management initiatives undertaken by Guggenheim, including, among other things, the hiring of a new Chief Risk Officer, Portfolio Management, responsible for implementing various initiatives related to the risks associated with the investment process, the organization’s risk management infrastructure and critical activities. The Committee also considered Guggenheim’s other initiatives intended to achieve greater enhancements and efficiencies in the organization’s ability to provide services to all of the registered investment companies for which Security Investors, GPIM or another Guggenheim affiliate serves as investment adviser/manager (including the Funds), such as efforts to streamline and simplify the organizational structure of Guggenheim’s advisory business, as reflected by the internal restructuring that consolidated the investment advisers, broker/dealers and other entities that comprise “Guggenheim Investments” under a new, single holding company, Guggenheim Partners Investment Management Holdings, LLC (“GPIMH”). In this regard, the Committee considered that although the restructuring neither impacted the services rendered on a day-to-day basis to the Funds nor changed the ultimate ownership of the various Guggenheim entities involved, which, through GPIMH, continue to be indirect subsidiaries of Guggenheim Capital, LLC, Guggenheim stated that the restructuring will allow the financial statements of the various entities to be consolidated and audited, thus providing a clearer view of Guggenheim Investments’ business within the broader Guggenheim organization. Moreover, in connection with the Committee’s evaluation of the overall package of services provided by each Adviser, the Committee considered each Adviser’s administrative capabilities, including its role in monitoring and coordinating compliance responsibilities with the fund administrator, transfer agent, distributor, custodian and other service providers to the Funds.
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With respect to Guggenheim’s resources and the ability of each Adviser to carry out its responsibilities under the applicable Advisory Agreement, the Chief Financial Officer of Guggenheim Investments reviewed with the Committee certain unaudited financial information concerning GPIMH. (The Committee received the audited financial statements of GPIMH once available following the May Meeting.)
The Committee also considered the acceptability of the terms of each Advisory Agreement (including the scope of services required to be performed by each Adviser). Based on the foregoing, and based on other information received (both oral and written) at the April Meeting and at the May Meeting, as well as other considerations, including the Committee’s knowledge of each Adviser’s quality of performance of its duties through Board meetings, discussions, and reports throughout the year, the Committee concluded that each Adviser and its personnel were qualified to serve the Funds in such capacity and may reasonably be expected to continue to provide a high quality of services under each Advisory Agreement with respect to the Funds.
Investment Performance: The Committee received for each Fund investment returns for the five-year, three-year, one-year and three-month periods ended December 31, 2013, as applicable. In addition, the Committee received a comparison of each Fund’s performance to the performance of a benchmark, a peer group of similar funds and a broader universe of funds identified by FUSE, in each case for the same periods and, with respect to performance universe rankings for each Fund as to the returns of Class A shares, also for the ten-year period ended December 31, 2013, as applicable. The Committee received from FUSE representatives and considered a description of the methodology employed by FUSE for identifying each Fund’s peer group and universe for performance and expense comparisons.
In seeking to evaluate Fund performance over a full market cycle, the Committee generally focused its attention first on five- and three-year performance rankings as compared to the relevant universe of funds, but also considered more recent performance periods, including the one-year period and, as deemed appropriate, the three-month period, for certain Funds such as for those Funds that were recently launched or had undergone recent changes in the composition of the portfolio management team and/or the investment strategies employed. In this connection, the Committee made the following observations:
• | Alpha Opportunity Fund: The Fund’s Class A shares outperformed the performance universe median for the five- and three-year periods, ranking in the 1st percentile for both periods. In light of the resignation of Mainstream Investment Advisors, LLC, effective, September 30, 2013, as the Fund’s sub-adviser for the domestic long/short sub-portfolio of the Fund, the Committee also considered more recent performance periods, including the one-year period and the three-month period. 5 In this connection, the Committee noted that Security Investors assumed investment management responsibility for the domestic long/short sub-portfolio as of September 30, 2013. The Committee observed that the Fund’s Class A shares outperformed the performance universe median for the one-year and three-month periods ended December 31, 2013, ranking in the 5th and 13th percentile, respectively. The Committee also noted information provided by Guggenheim that the Fund’s performance for the periods ended December 31, 2013 was comparable to the Fund’s benchmark, the S&P 500 Index, for the one- and three-year periods and better than the Fund’s benchmark for the five-year period, and lagged the benchmark for the three-month period. The Committee also considered the circumstances affecting the management of the Fund as a result of the Fund’s prime broker, Lehman Brothers International Europe (“LBIE”), being placed into administration on September 15, 2008. The Fund’s exposure to LBIE consists of short sale proceeds held by LBIE, and restricted long positions held at the Fund’s custodian, as collateral for such short sales. Until such time as the liability for short sales was settled and all restrictions were removed by LBIE and Lehman Brothers, Inc. (“LBI”), the Fund could not sell such restricted long positions and/or utilize the restricted cash balances to achieve the Fund’s investment objectives and/or meet Fund redemptions or other Fund obligations. In evaluating the services provided by the Adviser and the performance of the Fund, the Committee also considered Guggenheim’s efforts to resolve the issues with LBIE and LBI and to seek the release of the collateral by LBIE and LBI in conjunction with the potential settlement of LBIE’s claim. In addition, the Committee took into account information received from Guggenheim regarding the minimum assets required to manage the Fund’s assets consistent with the Fund’s investment objectives and the undertaking made by Guggenheim to assure adequate liquidity to meet Fund redemptions. | ||
• | Floating Rate Strategies Fund: The returns of the Class A shares exceeded the median of its performance universe in both the one-year and three- month periods, ranking in the 19th and 32nd percentile, respectively. The Fund, which commenced operations on November 30, 2011, also outperformed its benchmark, the Credit Suisse Leveraged Loan Index for the one-year and three-month periods, according to information provided by Guggenheim. |
5 | Prior to September 30, 2013, Mainstream Investment Advisers, LLC (“Mainstream”) acted as sub-adviser to Alpha Opportunity Fund. Pursuant to an investment sub-advisory agreement, Mainstream furnished investment advisory services, supervised and arranged for the purchase and sale of securities on behalf of a portion of the assets of Alpha Opportunity Fund and provided for the compilation and maintenance of records pertaining to such investment advisory services, subject to the supervision of Security Investors and the Board of Directors of Security Equity Fund. Effective September 30, 2013, Mainstream resigned as sub-adviser to Alpha Opportunity Fund and Security Investors assumed all advisory obligations and responsibilities. |
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• | High Yield Fund: While the returns of the Class A shares underperformed the median of its performance universe for the three-year period and ranked in the third quartile (72nd percentile), returns for the five-year period exceeded the performance universe median and ranked in the first quartile (4th percentile) and recent performance for the one-year period also ranked in the first quartile (3rd percentile). The Committee also noted information provided by Guggenheim that the Fund outperformed its benchmark, the Barclays Capital U.S. Corporate High Yield Index, for the five-year and one-year periods, but lagged the benchmark for the three-year period and that the current portfolio management team for the Fund began management in August 2012 and, since that time period, performance has ranked in the first quartile and has outperformed its benchmark. In light of the foregoing, the Committee focused, in particular, on the Fund’s recent performance, including the one-year and three-month periods ended December 31, 2013, and, with respect to the latter, noted that the FUSE report ranked the Fund in the first quartile (1st percentile). |
• | Investment Grade Bond Fund: The Fund’s Class A shares outperformed the performance universe median for the five- and three-year periods, ranking in the 46th and 8th percentile, respectively. The Committee also noted information provided by Guggenheim that the Fund outperformed its benchmark, the Barclays Capital U.S. Aggregate Index, for the five-year and three-year periods and that the current portfolio manager began management in August 2012 and, since that time, performance has been in the 1st quartile. The Committee considered that the FUSE report listed the Fund’s performance for the one-year and three-month periods in the 1st percentile and 4th percentile, respectively. |
• | Large Cap Value Fund: The returns of the Class A shares exceeded the median of the performance universe for the five-year period, but underperformed the median for the three-year and one-year periods and ranked in the 49th percentile, 79th percentile and 55th percentile for the five-, three- and one-year periods, respectively. The Committee concluded that longer-term performance and other factors relevant to performance were sufficient to warrant continuation of the Advisory Agreement with respect to the Fund. In this regard, the Committee considered that the Adviser had taken steps designed to mitigate risks associated with the portfolio by enhancing the risk management and portfolio analytics processes. The Committee also noted the presentation provided by the Fund’s portfolio manager at the April Meeting, as requested by the Committee. The Committee took into account the portfolio management team’s view that market conditions over the past several years have posed challenges for disciplined, long-term value investors, the long-term investment process employed for the Fund remains effective and, importantly, Guggenheim’s senior personnel responsible for overseeing performance supported this view and expressed confidence in the team’s capabilities, noting that, according to Morningstar peer group rankings based on total returns as of March 31, 2014, the Fund ranked in the 1st quartile (18th percentile) for the year-to-date. In light of all of the foregoing, the Committee determined to consider a longer term performance track record as part of its assessment of Fund performance and took into account the additional performance metrics provided by Guggenheim, including information that, as of December 31, 2013, the Fund ranked in the 25th percentile of its peer group since inception (July 1, 2005) based on gross returns. |
• | Macro Opportunities Fund: The returns of the Fund’s Class A shares ranked in the 13th and 1st percentile of its performance universe for the one-year and three-month periods, respectively, and outperformed the performance universe median for each of these periods. The Committee considered information provided by Guggenheim indicating that the Fund, which commenced operations on November 30, 2011, outperformed its benchmark, the Bank of America Merrill Lynch 3-Month U.S. Treasury Bill Index, for the one-year and three-month periods ended December 31, 2013 |
• | Mid Cap Value Fund: The returns of the Class A shares underperformed the performance universe median for the five-year, three-year and one-year periods and ranked in the 83rd, 67th and 79th percentile for the five-year, three-year and one-year periods, respectively. The Committee concluded that longer-term performance and other factors relevant to performance were sufficient to warrant continuation of the Advisory Agreement with respect to the Fund. In this regard, the Committee considered that the Adviser had taken steps designed to mitigate risks associated with the portfolio by enhancing the risk management and portfolio analytics processes. The Committee also noted the presentation provided by the Fund’s portfolio manager at the April Meeting, as requested by the Committee. The Committee took into account the portfolio management team’s view that market conditions over the past several years have posed challenges for disciplined, long-term value investors, the long-term investment process employed for the Fund remains effective and, importantly, Guggenheim’s senior personnel responsible for overseeing performance supported this view and expressed confidence in the team’s capabilities, noting that, according to Morningstar peer group rankings based on total returns as of March 31, 2014, the Fund ranked in the 1st quartile (13th percentile) for the year-to-date. The Committee also noted Guggenheim’s statement that the underperformance is heavily influenced by the lagging performance in calendar year 2011 where growth and large cap stocks were rewarded over value and small cap. In light of all of the foregoing, the Committee determined to consider a longer term performance track record as a part of its assessment of Fund performance and, in this regard, noted that the FUSE report listed the Fund’s performance for the ten-year period ended December 31, 2013 in the 1st quartile (11th percentile) and that, according to Guggenheim, the Fund outperformed its benchmark over the same period and since inception. |
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• | Mid Cap Value Institutional: The Fund’s returns underperformed the performance universe median for the five-year, three-year and one-year periods and ranked in the 69th, 80th and 83rd percentile for the five-year, three-year and one-year periods, respectively. However, the Committee concluded that other factors relevant to performance were sufficient to warrant continuation of the Advisory Agreement with respect to the Fund. In this connection, the Committee considered the presentation provided by the Fund’s portfolio management team at the April Meeting, as requested by the Committee. The Committee also took into account the portfolio management team’s view that market conditions over the past several years have posed challenges for disciplined, long-term value investors, the long-term investment process employed for the Fund remains effective and, importantly, Guggenheim’s senior personnel responsible for overseeing performance supported this view and expressed confidence in the team’s capabilities, noting that, according to Morningstar peer group rankings based on total returns as of March 31, 2014, the Fund ranked in the 1st quartile (14th percentile) for the year-to-date. The Committee also noted Guggenheim’s statement that the underperformance is heavily influenced by the lagging performance in calendar year 2011 where growth and large cap stocks were rewarded over value and small cap stocks. |
• | Municipal Income Fund: The Committee considered that Security Investors does not directly manage the investment portfolio but has delegated such duties to GPIM. Based on the information provided and the review of the Fund’s investment performance, the Committee concluded that Security Investors had appropriately reviewed and monitored GPIM’s investment performance as Sub-Adviser to the Fund. |
• | Small Cap Value Fund: The returns of the Fund’s Class A shares exceeded the median of its performance universe for the five-year and three-year periods, ranking in the 6th and 45th percentile, respectively. The Committee also considered information provided by Guggenheim stating that the Fund’s performance exceeded its benchmark, the Russell 2000 Value Index, for the five-year and three-year periods ended December 31, 2013. The Committee also noted supplemental information provided by the Fund’s portfolio management team indicating that since inception (August 1, 2008), the Fund has ranked in the 1st percentile of its peer group based on gross returns. |
• | StylePlus—Large Core: The Fund’s Class A shares underperformed the performance universe median for the five-year and three-year periods, ranking in the 78th and 93rd percentile, respectively. However, the Committee concluded that other factors relevant to performance were sufficient to warrant continuation of the Advisory Agreement with respect to the Fund, including that the Adviser had taken steps designed to help improve the Fund’s investment performance by implementing a strategy change along with a new portfolio management team. In this regard, the Committee considered that the Fund’s current portfolio management team assumed responsibility for management of the Fund on May 1, 2013. In light of the foregoing, the Committee took into account Guggenheim’s statement that the Fund’s performance has improved since the changes were implemented and that the Fund’s annualized net return for the period from May 1, 2013 through December 31, 2013 was 16.86%, as compared to the 17.43% return of the Fund’s benchmark, the S&P 500 Index, and outperformed the benchmark for the three-month period ended December 31, 2013. The Committee also considered that the FUSE report listed the Fund’s performance for the three-month period ended December 31, 2013 in the 1st quartile (25th percentile). Finally, the Committee noted that according to Morningstar peer group rankings based on total returns as of March 31, 2014, as provided by Guggenheim, the Fund ranked in the 1st quartile (14th percentile) for the year-to-date. |
• | StylePlus—Mid Growth: The Fund’s Class A shares underperformed the performance universe median for the five-year and three-year periods, ranking in the 70th and 78th percentile, respectively. However, the Committee concluded that other factors relevant to performance were sufficient to warrant continuation of the Advisory Agreement with respect to the Fund, including that the Adviser had taken steps designed to help improve the Fund’s investment performance by implementing a strategy change along with a new portfolio management team. In this regard, the Committee considered that the Fund’s current portfolio management team assumed responsibility for management of the Fund on May 1, 2013. In light of the foregoing, the Committee took into account Guggenheim’s statement that the Fund’s performance has improved since the changes were implemented and that the Fund’s annualized net return for period from May 1, 2013 through December 31, 2013 was 19.88%, as compared to the 19.97% return of the Fund’s benchmark, the Russell Mid Cap Growth Index, and outperformed the benchmark for the three-month period ended December 31, 2013. The Committee also considered that the FUSE report listed the Fund’s performance for the three-month period ended December 31, 2013 in the 40th percentile. Finally, the Committee noted that according to Morningstar peer group rankings based on total returns as of March 31, 2014, as provided by Guggenheim, the Fund ranked in the 1st quartile (22nd percentile) for the year-to-date. |
• | Total Return Bond Fund: The returns of the Fund’s Class A shares ranked in the 1st quartile (the 3rd and 4th percentile, respectively) of its performance universe for the one-year and three-month periods, respectively. The Committee considered information provided by Guggenheim indicating that the Fund, which commenced operations on November 30, 2011, outperformed its benchmark, the Barclays Capital U.S. Aggregate Index, as well as the Fund’s peer group average, for the one-year and three-month periods ended December 31, 2013. |
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OTHER INFORMATION (Unaudited) (continued) | ||
• | World Equity Income Fund: The Fund’s Class A shares underperformed the performance universe median for the five-year and three-year periods, ranking in the 96th and 95th percentile, respectively. However, the Committee concluded that other factors relevant to performance were sufficient to warrant continuation of the Advisory Agreement with respect to the Fund, including that the Adviser had taken steps designed to help improve the Fund’s investment performance by implementing a strategy change along with a new portfolio management team in August 2013. Thus, the Committee took into account that according to Morningstar peer group rankings based on total returns as of March 31, 2014, as provided by Guggenheim, the Fund ranked in the 1st quartile (12th percentile) for the year-to-date and outperformed its benchmark, the MSCI World Index, over the same period. |
After reviewing the foregoing and related factors, the Committee concluded, within the context of its overall conclusions regarding the Advisory Agreements, that: (i) each Fund’s performance was acceptable; or (ii) it was satisfied with Guggenheim’s responses and efforts relating to investment performance.
Comparative Fees, Costs of Services Provided and the Profits Realized by the Investment Manager from its Relationship with the Funds: The Committee compared each Fund’s contractual advisory fee and total net expense ratio to the applicable peer group and compared each Fund’s total net expense ratio to its universe of funds for the various classes. The Committee also reviewed the median advisory fees and expense ratios, including expense ratio components (e.g., transfer agency fees, administration fees, other operating expenses, distribution fees and fee waivers/reimbursements) of the peer group of funds. In addition, the Committee considered each Fund’s advisory fee as compared to the advisory fee charged by the applicable Adviser to another fund with a similar investment objective and strategies, as applicable, noting that, in certain instances, the Adviser charges a lower advisory fee to other clients for which it provides comparable services. In this regard, the Committee considered Guggenheim’s explanation that lower fees are charged in certain instances due to numerous factors, including the scope of contract, types of investors, applicable regulation and legal structures, tax status, and for historical pricing reasons.
In further considering the comparative fee and expense data presented in the Contract Materials and addressed by Guggenheim, the Committee made the following observations:
• | Alpha Opportunity Fund: The average contractual advisory fee percentile rank across all share classes of the Fund is below the median of its peer group (39th percentile) and the asset weighted total net expense ratio is in the third quartile (72nd percentile). In addition, the Adviser has entered into an expense limitation agreement with respect to the Fund. |
• | Floating Rate Strategies Fund: The average contractual advisory fee percentile rank across all share classes of the Fund is in the third quartile (64th percentile) of its peer group and the asset weighted total net expense ratio is below the peer group median (36th percentile). In addition, the Adviser has entered into an expense limitation agreement with respect to the Fund. |
• | High Yield Fund: The average contractual advisory fee percentile rank across all share classes of the Fund is below the median of its peer group (41st percentile) and the asset weighted total net expense ratio is in the third quartile (63rd percentile). In addition, the Adviser has entered into an expense limitation agreement with respect to the Fund. |
• | Investment Grade Bond Fund: The average contractual advisory fee percentile rank across all share classes of the Fund is at the 51st percentile of its peer group and the asset weighted total net expense ratio is in the fourth quartile (88th percentile). In addition, the Adviser has entered into an expense limitation agreement with respect to the Fund. |
• | Large Cap Value Fund: The average contractual advisory fee percentile rank across all share classes of the Fund and the asset weighted total net expense ratio are each below the peer group median (at the 30th and 19th percentile, respectively). In addition, the Adviser has entered into an expense limitation agreement with respect to the Fund. |
• | Macro Opportunities Fund: The average contractual advisory fee percentile rank across all share classes of the Fund is in the fourth quartile (89th percentile) of its peer group and the asset weighted total net expense ratio is in the third quartile (65th percentile). The Committee considered Guggenheim’s statement that the Fund is unique to its peer group in that it has a broader investment mandate with greater opportunistic flexibility. In this connection, the Committee noted that the Fund’s performance has been relatively strong. In addition, the Adviser has entered into an expense limitation agreement with respect to the Fund. |
• | Mid Cap Value Fund: The average contractual advisory fee percentile rank across all share classes of the Fund is in the fourth quartile (85th percentile) of its peer group and the asset weighted total net expense ratio is in the third quartile (72nd percentile). Although higher than median, the contractual advisory fee and the total net expense ratio for each class of shares was within a competitive range of the median of the peer group. For example, the Class A contractual advisory fee of 0.79% is 2 basis points above the peer group median and the total net expense ratio of 1.39% is 9 basis points above the peer group median. |
114 | | | THE GUGGENHEIM FUNDS ANNUAL REPORT |
OTHER INFORMATION (Unaudited) (continued) | ||
• | Mid Cap Value Institutional Fund: The contractual advisory fee percentile rank is in the first quartile (17th percentile) of its peer group and the total net expense ratio is in the third quartile (67th percentile) of its peer group. |
• | Municipal Income Fund: The average contractual advisory fee percentile rank across all share classes of the Fund is in the first quartile (8th percentile) of its peer group and the asset weighted total net expense ratio is in the 55th percentile. In addition, the Adviser has entered into an expense limitation agreement with respect to the Fund. |
• | Small Cap Value Fund: The average contractual advisory fee percentile rank across all share classes of the Fund is in the fourth quartile (77th percentile) of its peer group and the asset weighted total net expense ratio is below the peer group median (43rd percentile). The Committee also considered that the Fund’s long-term performance has been strong. In addition, the Adviser has entered into an expense limitation agreement with respect to the Fund. |
• | StylePlus—Large Core: The average contractual advisory fee percentile rank across all share classes of the Fund is in the third quartile (67th percentile) of its peer group and the asset weighted total net expense ratio is in the fourth quartile (92nd percentile). Although the total net expense ratio for each class is higher than its peer group median, the contractual advisory fee (0.75%), at four to five basis above the peer group median for each class, was deemed to be within a reasonable range |
• | StylePlus—Mid Growth: The average contractual advisory fee percentile rank across all share classes of the Fund is in the first quartile (23rd percentile) and the asset weighted total net expense ratio is in the fourth quartile (93rd percentile) of its peer group. The Committee noted Guggenheim’s statement that the Fund’s total net expense ratio is slightly higher but comparable to its peer group average. |
• | Total Return Bond Fund: The average contractual advisory fee percentile rank across all share classes of the Fund is in the third quartile (63rd percentile) of its peer group and the asset weighted total net expense ratio is below the peer group median (28th percentile). In addition, the Adviser has entered into an expense limitation agreement with respect to the Fund. |
• | World Equity Income Fund: The average contractual advisory fee percentile rank across all share classes of the Fund is below the peer group median (45th percentile) and the Fund’s asset weighted total net expense ratio is in the fourth quartile (88th percentile) of its peer group. |
With respect to the costs of services provided and profits realized by Guggenheim from its relationship with the Funds, the Committee reviewed a profit and loss statement for each Fund setting forth the revenues received from gross advisory fees, the expenses incurred in providing services to the Funds, the pre-tax operating margin and profitability rate and each Fund’s average assets for the twelve months ended December 31, 2012 and December 31, 2013, and information with respect to Guggenheim’s allocation methodologies used in preparing the profitability data.
The Committee considered other benefits available to each Adviser because of its relationship with the Funds and noted that Security Investors and GPIM may be deemed to benefit from arrangements whereby an affiliate, Rydex Fund Services, LLC, receives fees for: (i) performing certain administrative functions and bookkeeping, accounting and pricing functions for the Funds pursuant to a Fund Accounting and Administration Agreement; and (ii) acting as transfer agent for the Funds and performing all shareholder servicing functions, including transferring record ownership, processing purchase and redemption transactions, answering inquiries, mailing shareholder communications, and acting as the dividend disbursing agent pursuant to a Transfer Agency Agreement. The Committee reviewed the compensation arrangements for the provision of the foregoing services. The Committee also noted Guggenheim’s statement that it may benefit from marketing synergies arising from offering a broad spectrum of products, including the Funds. Based on all of the information provided and its review, the Committee determined that Guggenheim’s profitability from its relationship with the Funds was not unreasonable.
Economies of Scale to be Realized: The Committee received and considered information regarding whether there have been economies of scale with respect to the management of the Funds as Fund assets grow, whether the Funds has appropriately benefited from any economies of scale, and whether there is potential for realization of any further economies of scale. The Committee considered whether economies of scale in the provision of services to the Funds were being passed along to the shareholders. In this connection, the Committee considered management’s view that Guggenheim continues to add system resources as required to develop its infrastructure in response to the growth in the firm’s assets and there is an opportunity to optimize economies of scale across the firm’s array of products and product lines. Therefore, although Guggenheim may be realizing economies of scale and efficiencies due to its growth, it is concurrently realizing new costs and expenses associated with investment in its infrastructure.
In addition, the Committee considered the size of the Funds and the competitiveness of and/or other determinations made regarding the current advisory fee for each Fund. The Committee also took into account Guggenheim’s statement that generally the Funds’ assets are not sufficiently large to warrant breakpoints,
THE GUGGENHEIM FUNDS ANNUAL REPORT | 115 |
OTHER INFORMATION (Unaudited) (continued) | ||
with only four Funds—Floating Rate Strategies Fund, Macro Opportunities Fund, Mid Cap Value Fund and Mid Cap Value Institutional Fund—having assets in excess of $500 million as of March 13, 2014. With respect to the four Funds noted, the Committee noted that none of the Funds had levels of profitability that were outliers and made the following observations:
• | Floating Rate Strategies Fund: The Adviser has entered into an expense limitation agreement with respect to the Fund. In addition, the Fund’s asset weighted total net expense ratio is below the peer group median (36th percentile). |
• | Macro Opportunities Fund: The Fund is relatively new and the Adviser has entered into an expense limitation agreement with respect to the Fund. Although the contractual advisory fee is in the fourth quartile of its peer group, the total net expense ratio is competitive with the peer group median. In addition, as noted, the Committee considered Guggenheim’s statement that the Fund is unique to its peer group in that it has a broader investment mandate with greater opportunistic flexibility. |
• | Mid Cap Value Fund: The Fund’s contractual advisory fee is in line with the peer group median and the total net expense ratio is competitive with the peer group median. |
• | Mid Cap Value Institutional Fund: The Fund’s contractual advisory fee ranks in the first quartile (17th percentile) of its peer group and the total net expense ratio is competitive with the peer group median. |
The Committee determined that the advisory fee structure for the Funds was reasonable.
Sub-Advisory Agreement
Nature, Extent and Quality of Services Provided by the Sub-Adviser: With respect to the nature, extent and quality of services provided by GPIM (referred to in this discussion as the “Sub-Adviser”), the Committee considered the qualifications, experience and skills of the Sub-Adviser’s portfolio management and other key personnel and information from the Sub-Adviser describing the scope of its services to Municipal Income Fund. The Committee also considered the information provided by the Sub-Adviser concerning the Sub-Adviser’s investment practices and techniques, risk management processes, compliance policies and procedures, brokerage allocation, best execution and trade allocation, among other things. With respect to Guggenheim’s resources and the Sub-Adviser’s ability to carry out its responsibilities under the Sub-Advisory Agreement, the Committee recalled the review of certain unaudited financial information concerning GPIMH by the Chief Financial Officer of Guggenheim Investments.
The Committee also considered the acceptability of the terms of the Sub-Advisory Agreement. Based on the foregoing, and based on other information received (both oral and written) at the April Meeting and at the May Meeting, as well as other considerations, including the Committee’s knowledge of the Sub-Adviser’s quality of performance of its duties through Board meetings, discussions and reports throughout the year, the Committee concluded that the Sub-Adviser and its personnel were qualified to serve Municipal Income Fund in such capacity and may reasonably be expected to continue to provide a high quality of services under the Sub-Advisory Agreement.
Investment Performance: The Committee considered that the returns of the Fund’s Class A shares exceeded the median of its performance universe for the five-year period and underperformed the median for the three-year period and ranked in the 1st percentile and 82nd percentile, respectively. The Committee took into account information provided by Guggenheim stating that the Fund’s performance for the periods ended December 31, 2013 outperformed the Fund’s benchmark, the Barclays Capital U.S. Municipal Long Bond Index, for the one-year and three-month periods, lagged the benchmark for the three-year period and outperformed the benchmark for the five-year period. In light of the foregoing, the Committee also noted that the FUSE report listed the Fund’s performance for the three-month period ended December 31, 2013 in the 1st quartile (9th percentile). In addition, the Committee considered Guggenheim’s statement that the Fund was converted from a closed-end fund in January 2012 and since the conversion has outperformed its benchmark.
Comparative Fees, Costs of Services Provided and the Profits Realized by the Sub-Adviser from its Relationship with the Fund: The Committee reviewed the level of sub-advisory fees payable to GPIM, noting that the fees would be paid by Security Investors and do not impact the fees paid by the Fund. The Committee also compared the sub-advisory fee paid by the Adviser to the Sub-Adviser to the fees charged by the Sub-Adviser to other clients including other registered investment companies.
Economies of Scale to be Realized: The Committee recognized that, because the Sub-Adviser’s fees would be paid by the Adviser and not the Fund, the analysis of economies of scale was more appropriate in the context of the Committee’s consideration of the applicable Advisory Agreement, which was separately considered. (See “Advisory Agreements – Economies of Scale to be Realized” above.)
116 | | | THE GUGGENHEIM FUNDS ANNUAL REPORT |
OTHER INFORMATION (Unaudited) (concluded) | ||
Overall Conclusions
Based on the foregoing, the Committee determined that the investment advisory fees are fair and reasonable in light of the extent and quality of the services provided and other benefits received and that the continuation of the Agreements is in the best interests of each Fund. In reaching this conclusion, no single factor was determinative and each Committee member, in the exercise of his business judgment, may attribute different weights to different factors. At the May Meeting, the Committee, constituting all of the Independent Trustees, recommended the renewal of each Advisory Agreement and the Sub-Advisory Agreement for an additional 12-month term.
THE GUGGENHEIM FUNDS ANNUAL REPORT | 117 |
INFORMATION ON BOARD OF TRUSTEES AND OFFICERS (Unaudited) | ||
Name, Address* and Year of Birth | Position(s) Held with the Trust | Term of Office and Length of Time Served** | Principal Occupation(s) During Past Five Years | Number of Portfolios in Fund Complex Overseen | Other Directorships Held by Trustees | |||||
INDEPENDENT TRUSTEES Randall C. Barnes (1951) | Trustee | Since 2014 | Current: Private Investor (2001-present). Former: Senior Vice President and Treasurer, PepsiCo, Inc. (1993-1997); President, Pizza Hut International (1991-1993); Senior Vice President, Strategic Planning and New Business Development, PepsiCo, Inc. (1987-1990). | 92 | Current: Trustee, Purpose, Inc. (2014-present). | |||||
Donald A. Chubb, Jr. (1946) | Trustee and Vice Chairman of the Board | Since 1994 | Current: Business broker and manager of commercial real estate, Griffith & Blair, Inc.(1997-present). | 88 | None. | |||||
Jerry B. Farley (1946) | Trustee and Vice Chairman of the Audit Committee | Since 2005 | Current: President, Washburn University (1997-present). | 88 | Current: Westar Energy, Inc. (2004-present); Core First Bank & Trust (2000-present). | |||||
Roman Friedrich III (1946) | Trustee and Chairman of the Contracts Review Committee | Since 2014 | Current: Founder and President, Roman Friedrich & Company (1998-present). | 88 | Current: Zincore Metals, Inc. (2009-present). | |||||
Former: Senior Managing Director, MLV & Co. LLC (2010-2011). | Former: Mercator Minerals Ltd. (2013-2014); First. Americas Gold Corp.(2012-2014); Blue Sky Uranium Corp. (2011-2012); Axiom Gold and Silver Corp. (2011-2012); Stratagold Corp.(2003-2009); GFM Resources Ltd. (2005-2010). | |||||||||
Robert B. Karn III (1942) | Trustee and Chairman of the Audit Committee | Since 2014 | Current: Consultant (1998-present). Former: Arthur Andersen (1965-1997) and Managing Partner, Financial and Economic Consulting, St. Louis office (1987-1997). | 88 | Current: Peabody Energy Company (2003-present); GP Natural Resource Partners, LLC (2002- present). | |||||
Ronald A. Nyberg (1953) | Trustee and Chairman of the Nominating and Governance Committee | Since 2014 | Current: Partner, Nyberg & Cassioppi, LLC (2000-present). | 94 | Current: Edward-Elmhurst Healthcare System (2012-present). | |||||
Former: Executive Vice President, Committee General Counsel, and Corporate Secretary, Van Kampen Investments (1982-1999). | ||||||||||
Maynard F. Oliverius (1943) | Trustee and Vice Chairman of the Contracts Review Committee | Since 1998 | Retired. Former: President and CEO, Stormont-Vail HealthCare (1996-2012). | 88 | None. | |||||
Ronald E. Toupin, Jr. (1958) | Trustee and Chairman of the Board | Since 2014 | Current: Portfolio Consultant (2010-present). | 91 | Former: Bennett Group of Funds (2011-2013). | |||||
Former: Vice President, Manager and Portfolio Manager, Nuveen Asset Management (1998-1999); Vice President, Nuveen Investment Advisory Corp. (1992-1999);Vice President and Manager, Nuveen Unit Investment Trusts (1991-1999); and Assistant Vice President and Portfolio Manager, Nuveen Unit Investment Trusts (1988-1999), each of John Nuveen & Co., Inc. (1982-1999). | ||||||||||
INTERESTED TRUSTEE | ||||||||||
Donald C. Cacciapaglia*** (1951) | President, Chief Executive Officer and Trustee | Since 2012 | Current: President and CEO, certain other funds in the Fund Complex (2012-present); Vice Chairman, Guggenheim Investments (2010-present). Former: Chairman and CEO, Channel Capital Group, Inc. (2002-2010). | 220 | Current: Delaware Life (2013-present); Guggenheim Life and Annuity Company (2011-present); Paragon Life Insurance Company of Indiana (2011-present). | |||||
* | The business address of each Trustee is c/o Guggenheim Investments, 805 King Farm Boulevard, Suite 600, Rockville, Maryland 20850 | |
** | Each Trustee serves an indefinite term, until his successor is elected and qualified. Time served includes time served in the respective position for the Predecessor Corporation. | |
*** | This Trustee is deemed to be an “interested person” of the Funds under the 1940 Act by reason of his position with the Funds’ Investment Manager and/or the parent of the Investment Manager. |
118 | | | THE GUGGENHEIM FUNDS ANNUAL REPORT |
INFORMATION ON BOARD OF TRUSTEES AND OFFICERS (Unaudited) (concluded) | ||
Name, Address* and Year of Birth | Position(s) Held with the Trust | Term of Office and Length of Time Served** | Principal Occupation(s) During Past Five Years | ||||
OFFICERS Joseph M. Arruda (1966) | Assistant Treasurer | Since 2010 | Current: Assistant Treasurer, certain other funds in the Fund Complex (2006-present); Vice President, Security Investors, LLC (2010-present); CFO and Manager, Guggenheim Specialized Products, LLC (2009-present). Former: Vice President, Security Global Investors, LLC (2010-2011); Vice President, Rydex Advisors, LLC (2010); Vice President, Rydex Advisors II, LLC (2010). | ||||
William H. Belden, III (1965) | Vice President | Since 2014 | Current: Vice President, certain other funds in the Fund Complex (2006-present); Managing Director, Guggenheim Funds Investment Advisors, LLC (2005-present). Former: Vice President of Management, Northern Trust Global Investments (1999-2005). | ||||
Mark J. Furjanic (1959) | Assistant Treasurer | Since 2014 | Current: Vice President, Guggenheim Investments (2005-present); Assistant Treasurer, certain other funds in the Fund Complex (2008-present). Former: Senior Manager, Ernst & Young LLP (1999-2005). | ||||
James Howley (1972) | Assistant Treasurer | Since 2014 | Current: Director, Guggenheim Investments (2004-present) ; Assistant Treasurer, certain other funds in the Fund Complex (2006-present). Former: Manager, Mutual Fund Administration of Van Kampen Investments, Inc. (1996-2004). | ||||
Amy J. Lee (1961) | Vice President and Chief Legal Officer | Since 1987 (Secretary) Since 2007 (Vice President) | Current: Chief Legal Officer, certain other funds in the Fund Complex (2012-present); Senior Managing Director, Guggenheim Investments (2012-present). Former: Vice President, Associate General Counsel and Assistant Secretary, Security Benefit Life Insurance Company and Security Benefit Corporation (2004-2012). | ||||
Mark E. Mathiasen (1978) | Secretary | Since 2014 | Current: Secretary, certain other funds in the Fund Complex (2007-present); Managing Director, Guggenheim Investments (2007-present). | ||||
Michael P. Megaris (1984) | Assistant Secretary | Since 2014 | Current: Assistant Secretary, certain other funds in the Fund Complex (April 2014-present); Associate, Guggenheim Investments (2012-present). Former: J.D., University of Kansas School of Law (2009-2012). | ||||
Elisabeth Miller (1968) | Chief Compliance Officer | Since 2012 | Current: CCO, certain other funds in the Fund Complex (2012-present); CCO, Security Investors, LLC (2012-present); CCO, Guggenheim Funds Investment Advisors, LLC (2012-present); Vice President, Guggenheim Funds Distributors, LLC (March 2014-present). Former: CCO, Guggenheim Distributors, LLC (2009-March 2014); Senior Manager, Security Investors, LLC (2004-2009); Senior Manager, Guggenheim Distributors, LLC (2004-2009). | ||||
Alison Santay (1974) | AML Officer | Since 2013 | Current: AML Officer, certain other funds in the Fund Complex (2010-present); Director and AML Officer, Rydex Fund Services, LLC (2010-present); AML Officer, Security Investors, LLC (2010-present); Director, Shareholder Risk and Compliance, Rydex Fund Services, LLC (2004-present). Former: AML Officer, Guggenheim Distributors, LLC (2013-March 2014). | ||||
Kimberly Scott (1974) | Assistant Treasurer | Since 2014 | Current: Vice President, Guggenheim Investments (2012-present) ; Assistant Treasurer, certain other funds in the Fund Complex (2012-present). Former: Financial Reporting Manager, Invesco, Ltd. (2010-2011); Vice President/Assistant Treasurer, Mutual Fund Administration for Van Kampen Investments, Inc./Morgan Stanley Investment Management (2009-2010); Manager of Mutual Fund Administration, Van Kampen Investments, Inc./Morgan Stanley Investment Management (2005-2009). | ||||
Bryan Stone (1979) | Vice President | Since 2014 | Current: Vice President, certain other funds in the Fund Complex (April 2014-present); Director, Guggenheim Investments (2013-present). Former: Senior Vice President, Neuberger Berman Group LLC (2009-2013); Vice President, Morgan Stanley (2002-2009). | ||||
John L. Sullivan (1955) | Chief Financial Officer and Treasurer | Since 2014 | Current: CFO, Chief Accounting Officer and Treasurer, certain other funds in the Fund Complex (2010-present); Senior Managing Director, Guggenheim Investments (2010-present). Former: Managing Director and CCO, each of the funds in the Van Kampen Investments fund complex (2004-2010); Managing Director and Head of Fund Accounting and Administration, Morgan Stanley Investment Management (2002-2004); CFO and Treasurer, Van Kampen Funds (1996-2004). | ||||
* | The business address of each officer is c/o Guggenheim Investments, 805 King Farm Boulevard, Suite 600, Rockville, Maryland 20850. | |
** | Each officer serves an indefinite term, until his or her successor is duly elected and qualified. Time served includes time served in the respective position for the Predecessor Corporation |
THE GUGGENHEIM FUNDS ANNUAL REPORT | 119 |
GUGGENHEIM INVESTMENTS PRIVACY POLICIES (Unaudited) | ||
Rydex Funds, Guggenheim Funds, Rydex Investments, Guggenheim Funds Distributors, LLC, Security Investors, LLC, Security Distributors, Inc., Guggenheim Partners Investment Managers, LLC, and Rydex Advisory Services (Collectively “Guggenheim Investments”).
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Our concern for the privacy of our shareholders also extends to those who use our web site, guggenheiminvestments.com. Our web site uses some of the most secure forms of online communication available, including encryption technology, Secure Socket Layer (SSL) protocol, firewalls and user names and passwords. These technologies provide a high level of security and privacy when you access your account information or initiate online transactions. The Guggenheim Investments web site offers customized features that require our use of “http cookies”—tiny pieces of information that we ask your browser to store. However, we make very limited use of these cookies. We only use cookies for session management and security features on the Guggenheim Investments web site. We do not use them to pull data from your hard drive, to learn your email address, or to view data in cookies created by other web sites. We will not share the information in our cookies or give others access to it. See the legal information area on our web site for more details about web site security and privacy features.
How We Safeguard Your Personal Information
We restrict access to nonpublic personal information about shareholders to our employees and in some cases to third parties (for example, the service providers described above) as permitted by law. We maintain strict physical, electronic and procedural safeguards that comply with federal standards to guard your nonpublic personal information.
120 | | | THE GUGGENHEIM FUNDS ANNUAL REPORT |
GUGGENHEIM INVESTMENTS PRIVACY POLICIES (Unaudited) (concluded) | ||
We’ll Keep You Informed
As required by federal law, we will notify shareholders of our privacy policy annually. We reserve the right to modify this policy at any time, but rest assured that if we do change it, we will tell you promptly. You will also be able to access our privacy policy from our web site at guggenheiminvestments.com. Should you have any questions regarding our privacy policy, contact us at 800.820.0888 or 301.296.5100.
THE GUGGENHEIM FUNDS ANNUAL REPORT | 121 |
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9.30.2014
Guggenheim Funds Annual Report
Fundamental Alpha |
Guggenheim Mid Cap Value Fund |
SBMCV-ANN-0914x0915 | guggenheiminvestments.com |
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TABLE OF CONTENTS | ||
DEAR SHAREHOLDER | 2 | |
ECONOMIC AND MARKET OVERVIEW | 3 | |
ABOUT SHAREHOLDERS’ FUND EXPENSES | 4 | |
MID CAP VALUE FUND | 6 | |
NOTES TO FINANCIAL STATEMENTS | 15 | |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM | 21 | |
OTHER INFORMATION | 22 | |
INFORMATION ON BOARD OF TRUSTEES AND OFFICERS | 33 | |
GUGGENHEIM INVESTMENTS PRIVACY POLICIES | 35 |
THE GUGGENHEIM FUNDS ANNUAL REPORT | 1 |
September 30, 2014 |
Dear Shareholder:
Security Investors, LLC (the “Investment Adviser”) is pleased to present the annual shareholder report for the Mid Cap Value Fund (the “Fund”) for the year ended September 30, 2014.
The Investment Adviser is part of Guggenheim Investments, which represents the investment management businesses of Guggenheim Partners, LLC, a global, diversified financial services firm.
Guggenheim Funds Distributors, LLC is the distributor of the Funds. Guggenheim Funds Distributors, LLC is affiliated with Guggenheim Partners, LLC and Security Investors, LLC.
We encourage you to read the Economic and Market Overview section of the report, which follows this letter, and then the Manager’s Commentary for the Fund.
We are committed to providing innovative investment solutions and appreciate the trust you place in us.
Sincerely,
Donald C. Cacciapaglia
President
October 31, 2014
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.
Mid Cap Value Fund may not be suitable for all investors. • An investment in the Fund 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 stock may decline in value. • Investments in small to mid- sized company securities may present additional risks such as less predictable earnings, higher volatility and less liquidity than larger, more established companies.
2 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
ECONOMIC AND MARKET OVERVIEW (Unaudited) | September 30, 2014 |
Despite market volatility rising in October, for the year ended September 30, data on everything from hiring to housing conveys that the U.S. economy is firing on all cylinders. Overcoming a first-quarter weather-related soft patch, second-quarter GDP was revised upward to 4.6%, led by business investment. Durable goods orders surged over the summer and consumer confidence was at multi-year highs, despite a lower reading for the last part of the period. With tailwinds for economic growth gathering, we could see a strong third quarter GDP reading.
September’s addition of 248,000 non-farm payroll jobs was, on the surface, at least a strong figure and certainly not something to be discounted. However, investor optimism about the report, which also showed the unemployment rate falling to 5.9%—its lowest level since 2008—masked the fact that average hourly earnings were unchanged. Economic data late in the period included disappointing factory orders, poor construction spending, and weaker-than-expected ISM manufacturing data. The most recent decline in the U.S. Conference Board Consumer Confidence Index was worrisome.
The U.S. economy is certainly doing well enough to suggest higher interest rates ahead. With quantitative easing ending in the U.S. in October 2014 and the Fed preparing investors for a higher federal funds rate, the stage is set for U.S. interest rates to move higher. However, our view is that, despite a strengthening U.S. economy, the greater risk is that interest rates head lower in the near term.
Following the “taper tantrum” last year, before rates were able to reach historical norms, the average rate on a 30-year mortgage spiked almost a full percentage point in two months—the sharpest rise since the late 1990s—resulting in an abrupt housing slowdown, which slowed the U.S. economy materially.
In addition, U.S. Treasury yields are still materially higher than those in any other developed market. The spread between 10-year U.S. Treasuries and comparable German bunds reached 157 basis points in September, its widest level since 1999, and the spread between 10-year Treasuries and 10-year Japanese government bonds was recently 189 basis points. With developments in the Middle East increasingly troubling and turbulence continuing elsewhere from Ukraine to Hong Kong, the relative price value of U.S. government bonds versus other safe haven investments should continue to be a factor keeping U.S. interest rates low.
International economic data remain weak. Euro zone economic confidence is falling as the entire region continues to battle below-target inflation. At the start of September, the European Central Bank cut interest rates and signaled their intent to launch a program to purchase asset-backed securities and covered bonds to stimulate the dismal economy. In Japan, retail sales fell month-over-month in August, while industrial production falters.
Economic data around the world confirms our view that central banks are likely to renew efforts to force liquidity into the global financial system, which in turn further supports our positive outlook for risk assets. However, positive returns are unlikely without volatility. While markets continue to rally, gains are becoming more grudging. The upward momentum in U.S. stocks has deteriorated meaningfully while credit spreads, specifically high-yield spreads, have widened significantly over the past number of weeks. While the bull market trend remains intact, as the appreciation in risk assets continues it becomes more likely that this ageing advance will, at some point, experience a correction.
For the year ended September 30, 2014, the return of the Standard & Poor’s 500® Index* (“S&P 500”) was 19.73%. The Barclays U.S. Aggregate Bond Index* returned 3.96% for the year, while the Barclays U.S. Corporate High Yield Index* returned 7.20%. The BofA Merrill Lynch 3-Month U.S. Treasury Bill Index* returned 0.05%. The MSCI World Index* returned 12.22%, while the MSCI Emerging Markets Index* returned 4.30%.
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.
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.
Barclays U.S. Aggregate Bond Index represents securities that are SEC-registered, taxable, and dollar denominated. The index covers the U.S. investment grade fixed rate bond market, with index components for government and corporate securities, mortgage pass-through securities, and asset-backed securities. These major sectors are subdivided into more specific indices that are calculated and reported on a regular basis.
Barclays U.S. Corporate High Yield Index covers the universe of dollar denominated, fixed rate, non-investment grade debt, taxable corporate debt.
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 (Net) is calculated with net dividends reinvested. It is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed markets.
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.
S&P 500® Index is a market-weighted stock market index comprised of the stocks of 500 U.S. corporations; the index is owned and maintained by Standard & Poor’s.
THE GUGGENHEIM FUNDS ANNUAL REPORT | 3 |
ABOUT SHAREHOLDERS’ FUND EXPENSES (Unaudited) | |
All mutual funds have operating expenses and it is important for our shareholders to understand the impact of costs on their investments. Shareholders of a Fund incur two types of costs: (i) transaction costs, including sales charges (loads) on purchase payments, reinvested dividends, or other distributions; and exchange fees; and (ii) ongoing costs, including management fees, administrative services, and shareholder reports, among others. These ongoing costs, or operating expenses, are deducted from a fund’s gross income and reduce the investment return of the fund.
A fund’s expenses are expressed as a percentage of its average net assets, which is known as the expense ratio. The following examples are intended to help investors understand the ongoing costs (in dollars) of investing in a Fund and to compare these costs with the ongoing costs of investing in other mutual funds.
The examples are based on an investment of $1,000 made at the beginning of the period and held for the entire six-month period beginning March 31, 2014 and ending September 30, 2014.
The following tables illustrate a Fund’s costs in two ways:
Table 1. Based on actual Fund return. This section helps investors estimate the actual expenses paid over the period. The “Ending Account Value” shown is derived from the Fund’s actual return, and the fourth column shows the dollar amount that would have been paid by an investor who started with $1,000 in the Fund. Investors may use the information here, together with the amount invested, to estimate the expenses paid over the period. Simply divide the Fund’s account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number provided under the heading “Expenses Paid During Period.”
Table 2. Based on hypothetical 5% return. This section is intended to help investors compare a Fund’s cost with those of other mutual funds. The table provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses paid during the period. The example is useful in making comparisons because the U.S. Securities and Exchange Commission (the “SEC”) requires all mutual funds to calculate expenses based on the 5% return. Investors can assess a Fund’s costs by comparing this hypothetical example with the hypothetical examples that appear in shareholder reports of other funds.
The calculations illustrated above assume no shares were bought or sold during the period. Actual costs may have been higher or lower, depending on the amount of investment and the timing of any purchases or redemptions.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads) on purchase payments, and contingent deferred sales charges (“CDSC”) on redemptions, if any. Therefore, the second table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
More information about a Fund’s expenses, including annual expense ratios for the past five years, can be found in the Financial Highlights section of this report. For additional information on operating expenses and other shareholder costs, please refer to the appropriate Fund prospectus.
4 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
ABOUT SHAREHOLDERS’ FUND EXPENSES (Unaudited) (concluded) | |
Beginning | Ending | Expenses | ||||||||||||||||||
Expense | Fund | Account Value | Account Value | Paid During | ||||||||||||||||
Ratio1 | Return | March 31, 2014 | September 30, 2014 | Period2 | ||||||||||||||||
Table 1. Based on actual Fund return3 | ||||||||||||||||||||
Mid Cap Value Fund | ||||||||||||||||||||
A-Class | 1.39 | % | (4.53 | %) | $1,000.00 | $954.70 | $ 6.81 | |||||||||||||
B-Class | 2.25 | % | (4.93 | %) | 1,000.00 | 950.70 | 11.00 | |||||||||||||
C-Class | 2.13 | % | (4.89 | %) | 1,000.00 | 951.10 | 10.42 | |||||||||||||
Table 2. Based on hypothetical 5% return (before expenses) | ||||||||||||||||||||
Mid Cap Value Fund | ||||||||||||||||||||
A-Class | 1.39 | % | 5.00 | % | $1,000.00 | $1,018.10 | $ 7.03 | |||||||||||||
B-Class | 2.25 | % | 5.00 | % | 1,000.00 | 1,013.79 | 11.36 | |||||||||||||
C-Class | 2.13 | % | 5.00 | % | 1,000.00 | 1,014.39 | 10.76 |
1 | Annualized and excludes expenses of the underlying funds in which the Fund invests. |
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 183/365 (to reflect the one-half year period). |
3 | Actual cumulative return at net asset value for the period March 31, 2014 to September 30, 2014. |
THE GUGGENHEIM FUNDS ANNUAL REPORT | 5 |
MANAGER’S COMMENTARY (Unaudited) | |
To Our Shareholder:
Guggenheim Mid Cap Value Fund (the “Fund”) is managed by a team of seasoned professionals led by James Schier, CFA, Portfolio Manager. In the following paragraphs, he discusses performance of the Fund for the fiscal year ended September 30, 2014.
For the year ended September 30, 2014, the Guggenheim Mid Cap Value Fund returned 5.52%1, compared with the 9.98% return of its benchmark, the Russell 2500 Value Index.
Strategy and Market Overview
Our investment approach focuses on understanding how companies make money and how easily they can improve returns, maintain existing high levels of profitability or benefit from change that occurs within the industries in which they operate. In today’s rapid-fire environment marked by very sharp and quick, but constrained volatility, our long-term orientation and discipline is a competitive advantage. This should become especially critical when the environment of indiscriminant valuation expansion subsides, and fundamentals once again become a more dominant factor in the market.
Performance Review
Stock selection in Energy sector was the leading contributor to performance. Even though the Fund has an overweighting in the Energy sector, the overweight detracted from return, since the sector provided the least performance in the benchmark amid a general commodities selloff.
Within the Energy sector, Whiting Petroleum Corp. was a leading individual contributor for the year. The company has exposure to two of the most productive shale fields in the U.S. and announced during the period that it would acquire Kodiak Oil and Gas Corp. It benefited from solid execution and favorable industry dynamics. Over the past several quarters, the Fund has also been slowly shifting its energy focus from almost exclusively exploration and production (E&P) shale players to more of a balance between E&P companies and service companies. The land grab for shale properties has matured, and the subsequent development of those fields should increase business for services firms.
Stock selection in the Information Technology sector was the second most important contributor to Fund return. One tech holding, Computer Sciences Corp., was the leading individual contributing stock for the year. It’s in the technology services and outsourcing business and made solid progress in repositioning for growth and improved execution. Another contributor for the year, RF Micro Devices, Inc., remains responsive to the substantial operating leverage and synergy from its merger with TriQuint Semiconductor, Inc. in the period.
Hurting Fund performance for the year was stock selection in Financials, Materials and Industrials.
A leading individual detractor in the Financials sector was Ocwen Financial Corp., a mortgage servicing company. It was down as a result of a delay in a proposed purchase of a large servicing portfolio and an investigation of the company’s servicing practices and intercompany relationships by the New York Director of Financial Services.
Stock selection within the Materials sector was also unfavorable. The position hurting most was Coeur Mining, Inc., which has suffered due to the weak pricing environment for precious metals and the general selloff in commodities. We continue to hold on to this name because we see it as a good diversifier with attractive assets and potential buoyancy coming from slowing global growth and economic uncertainty.
Stock selection in Industrials was another detractor. We have a significant overweight to the Industrials sector, and one holding was a large booster to performance: Quanta Services, Inc., in the engineering and construction sector. We like the prospects of this company as the U.S. faces the need to upgrade infrastructure.
6 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
MANAGER’S COMMENTARY (Unaudited) (concluded) | |
Portfolio Positioning
The largest relative sector exposures for the year were an underweight in Financials and Utilities and an overweight in Industrials.
Within Financials, REITs (real estate investment trusts) continue to perform well, and the strategy’s underweighting in this industry has been a difficult bias to overcome. Over the period, the Fund also reduced its exposure to the reinsurance market, which has been under pressure as participants outside the industry have entered to provide capital in the search for yield.
The portfolio’s underweight to Utilities was a positive contributor during the period. We have been overweight this sector in the past, but currently view valuations as unattractive. Within the sector, we like companies that have meaningful exposure to non-regulated businesses, such as MDU Resources Group, Inc., and Black Hills Corp.
The overweight to Industrials detracted from performance over the year. This is a large and eclectic sector in which we have diverse holdings. We believe the portfolio is well positioned to benefit from the growing cap-ex and construction environment tied to infrastructure renewal and reindustrialization in the U.S.
Portfolio and Market Outlook
For the most part, the market behaved in a very defensive manner over the past year. The best performing areas have been larger companies, REITs and utilities. Of late, the strengthening of the dollar, primarily from concerns about global (non-U.S.) growth, has only added to the hesitancy of the market. Even if the global economy were to prove disappointing, the low returns offered by insignificant fixed income investment opportunities (the 10-year U.S. government bond yields around 2.5%) should continue to make equities an attractive alternative for incremental investment dollars.
Our portfolios tend to reflect a bias toward companies with balance sheet quality. We continue to find niche companies with what we believe to be attractive growth opportunities, and, as such, are constructive on the outlook.
Performance displayed represents past performance which is no guarantee of future results.
1 Performance figures are based on A-Class shares and do not reflect deduction of the sales charges or taxes that a shareholder would pay on distributions or the redemption of shares.
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 | 7 |
PERFORMANCE REPORT AND FUND PROFILE (Unaudited) | September 30, 2014 |
MID CAP VALUE FUND
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.
Cumulative Fund Performance*
Inception Dates: | |||
A-Class | May 1, 1997 | ||
B-Class | May 1, 1997 | ||
C-Class | January 29, 1999 |
Ten Largest Holdings (% of Total Net Assets) | |||
Hanover Insurance Group, Inc. | 4.2 | % | |
Computer Sciences Corp. | 2.7 | % | |
Covanta Holding Corp. | 2.6 | % | |
Bunge Ltd. | 2.1 | % | |
Cameco Corp. | 2.0 | % | |
Reinsurance Group of America, Inc. — Class A | 2.0 | % | |
Owens-Illinois, Inc. | 1.9 | % | |
Orbital Sciences Corp. | 1.9 | % | |
Superior Energy Services, Inc. | 1.8 | % | |
Northern Trust Corp. | 1.8 | % | |
Top Ten Total | 23.0 | % | |
"Ten Largest Holdings" exclude any temporary cash or derivative investments.
Average Annual Returns*
Periods Ended September 30, 2014
1 Year | 5 Year | 10 Year | |||||||
A-Class Shares | 5.52 | % | 11.59 | % | 10.04 | % | |||
A-Class Shares with sales charge† | 0.52 | % | 10.27 | % | 9.39 | % | |||
B-Class Shares | 4.62 | % | 10.69 | % | 9.37 | % | |||
B-Class Shares with CDSC‡ | –0.21 | % | 10.42 | % | 9.37 | % | |||
C-Class Shares | 4.74 | % | 10.76 | % | 9.23 | % | |||
C-Class Shares with CDSCƒ | 3.77 | % | 10.76 | % | 9.23 | % | |||
Russell 2500 Value Index | 9.88 | % | 15.16 | % | 8.65 | % | |||
* | 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. | |
† | Effective February 22, 2011, the maximum sales charge decreased from 5.75% to 4.75%. A 5.75% maximum sales charge is used in the calculation of the 5 Year and 10 Year average annual returns (based on subscriptions made prior to February 22, 2011), and a 4.75% maximum sales charge will be used to calculate performance for periods based on subscriptions made on or after February 22, 2011. | |
‡ | Fund returns include a CDSC of up to 5% if redeemed within 5 years of purchase. | |
ƒ | Fund returns include a CDSC of 1% if redeemed within 12 months of purchase. | |
8 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
SCHEDULE OF INVESTMENTS | September 30, 2014 | |
MID CAP VALUE FUND |
SHARES | VALUE | ||||||
COMMON STOCKS† - 97.6% | |||||||
FINANCIAL - 25.9% | |||||||
Hanover Insurance Group, Inc. | 844,640 | $ | 51,877,788 | ||||
Reinsurance Group of America, Inc. — Class A | 308,354 | 24,708,406 | |||||
Northern Trust Corp. | 316,120 | 21,505,644 | |||||
American Financial Group, Inc. | 334,910 | 19,387,940 | |||||
WR Berkley Corp. | 292,410 | 13,977,198 | |||||
Endurance Specialty Holdings Ltd. | 244,580 | 13,495,924 | |||||
Alexandria Real Estate Equities, Inc. | 160,060 | 11,804,425 | |||||
BioMed Realty Trust, Inc. | 574,910 | 11,613,182 | |||||
Starwood Property Trust, Inc. | 528,750 | 11,611,350 | |||||
SVB Financial Group* | 94,420 | 10,583,538 | |||||
Popular, Inc.* | 347,330 | 10,223,659 | |||||
Wintrust Financial Corp. | 211,420 | 9,444,132 | |||||
FirstMerit Corp. | 513,402 | 9,035,875 | |||||
Home Loan Servicing Solutions Ltd. | 423,227 | 8,968,180 | |||||
First Niagara Financial Group, Inc. | 1,064,300 | 8,865,619 | |||||
City National Corp. | 111,290 | 8,421,314 | |||||
Zions Bancorporation | 288,250 | 8,376,545 | |||||
Huntington Bancshares, Inc. | 709,170 | 6,900,224 | |||||
First Midwest Bancorp, Inc. | 412,938 | 6,644,172 | |||||
Employers Holdings, Inc. | 338,460 | 6,515,355 | |||||
Symetra Financial Corp. | 268,120 | 6,255,240 | |||||
Eaton Vance Corp. | 164,040 | 6,189,229 | |||||
Hancock Holding Co. | 191,520 | 6,138,216 | |||||
Redwood Trust, Inc. | 263,753 | 4,373,025 | |||||
Lexington Realty Trust | 400,285 | 3,918,790 | |||||
Ocwen Financial Corp.* | 140,593 | 3,680,725 | |||||
Blackhawk Network Holdings, Inc.* | 111,760 | 3,621,024 | |||||
Radian Group, Inc. | 216,360 | 3,085,294 | |||||
Argo Group International Holdings Ltd. | 60,480 | 3,042,749 | |||||
StanCorp Financial Group, Inc. | 47,712 | 3,014,444 | |||||
Total Financial | 317,279,206 | ||||||
INDUSTRIAL - 15.8% | |||||||
Covanta Holding Corp. | 1,509,980 | 32,041,776 | |||||
Owens-Illinois, Inc.* | 900,950 | 23,469,748 | |||||
Orbital Sciences Corp.* | 837,900 | 23,293,620 | |||||
Sonoco Products Co. | 538,350 | 21,151,772 | |||||
URS Corp. | 270,940 | 15,608,853 | |||||
Aegion Corp. — Class A* | 575,501 | 12,804,897 | |||||
FLIR Systems, Inc. | 390,380 | 12,234,509 | |||||
Rock-Tenn Co. — Class A | 250,980 | 11,941,628 | |||||
Gentex Corp. | 371,110 | 9,934,615 | |||||
Berry Plastics Group, Inc.* | 381,500 | 9,629,060 | |||||
Huntington Ingalls Industries, Inc. | 60,210 | 6,274,484 | |||||
General Cable Corp. | 350,026 | 5,278,392 | |||||
ArcBest Corp. | 89,310 | 3,331,263 | |||||
UTI Worldwide, Inc.* | 149,757 | 1,591,917 | |||||
Advanced Energy Industries, Inc.* | 68,150 | 1,280,539 | |||||
II-VI, Inc.* | 100,290 | 1,180,413 | |||||
Sanmina Corp.* | 53,890 | 1,124,145 | |||||
AZZ, Inc. | 18,604 | 777,089 | |||||
Thermoenergy Corp.* | 1,028,200 | 5,141 | |||||
Total Industrial | 192,953,861 | ||||||
CONSUMER, NON-CYCLICAL - 15.1% | |||||||
Bunge Ltd. | 298,650 | 25,155,289 | |||||
Quanta Services, Inc.* | 538,930 | 19,557,770 | |||||
Hormel Foods Corp. | 374,660 | 19,253,777 | |||||
Navigant Consulting, Inc.* | 1,247,302 | 17,349,970 | |||||
DeVry Education Group, Inc. | 394,150 | 16,873,562 | |||||
MEDNAX, Inc.* | 268,542 | 14,721,472 | |||||
Kindred Healthcare, Inc. | 728,516 | 14,133,210 | |||||
Hologic, Inc.* | 577,511 | 14,050,843 | |||||
ICF International, Inc.* | 358,960 | 11,052,378 | |||||
Ingredion, Inc. | 144,250 | 10,932,708 | |||||
Towers Watson & Co. — Class A | 59,231 | 5,893,485 | |||||
Emergent Biosolutions, Inc.* | 200,500 | 4,272,655 | |||||
Universal Health Services, Inc. — Class B | 39,990 | 4,178,955 | |||||
Globus Medical, Inc. — Class A* | 167,450 | 3,293,742 | |||||
Grand Canyon Education, Inc.* | 76,620 | 3,123,797 | |||||
Alere, Inc.* | 36,710 | 1,423,614 | |||||
Total Consumer, Non-cyclical | 185,267,227 | ||||||
TECHNOLOGY - 9.5% | |||||||
Computer Sciences Corp. | 542,900 | 33,198,334 | |||||
IXYS Corp.1 | 2,012,549 | 21,131,764 | |||||
Maxwell Technologies, Inc.*,1 | 1,704,971 | 14,867,347 | |||||
Allscripts Healthcare Solutions, Inc.* | 647,050 | 8,680,176 | |||||
Teradyne, Inc. | 343,010 | 6,650,964 | |||||
KEYW Holding Corp.* | 588,630 | 6,516,134 | |||||
Take-Two Interactive Software, Inc.* | 279,550 | 6,449,219 | |||||
Diebold, Inc. | 172,230 | 6,083,164 | |||||
Semtech Corp.* | 132,850 | 3,606,877 | |||||
IPG Photonics Corp.* | 47,660 | 3,278,055 | |||||
iGATE Corp.* | 87,590 | 3,216,305 | |||||
ManTech International Corp. — Class A | 109,510 | 2,951,295 | |||||
Total Technology | 116,629,634 | ||||||
UTILITIES - 7.5% | |||||||
Pinnacle West Capital Corp. | 343,330 | 18,759,551 | |||||
AGL Resources, Inc. | 364,800 | 18,728,832 | |||||
UGI Corp. | 506,757 | 17,275,346 | |||||
Westar Energy, Inc. | 358,570 | 12,234,408 | |||||
Great Plains Energy, Inc. | 406,127 | 9,816,090 | |||||
Black Hills Corp. | 189,080 | 9,053,150 | |||||
Avista Corp. | 101,490 | 3,098,490 | |||||
MDU Resources Group, Inc. | 99,028 | 2,753,969 | |||||
Total Utilities | 91,719,836 | ||||||
CONSUMER, CYCLICAL - 7.4% | |||||||
Brown Shoe Company, Inc. | 771,195 | 20,922,521 | |||||
Chico’s FAS, Inc. | 819,150 | 12,098,846 | |||||
Oshkosh Corp. | 248,060 | 10,951,849 | |||||
DR Horton, Inc. | 454,560 | 9,327,571 | |||||
Foot Locker, Inc. | 122,340 | 6,808,221 | |||||
Wendy’s Co. | 785,690 | 6,489,799 | |||||
Ryland Group, Inc. | 170,730 | 5,675,065 | |||||
United Stationers, Inc. | 150,582 | 5,657,366 | |||||
Ascena Retail Group, Inc.* | 375,270 | 4,991,091 | |||||
Visteon Corp.* | 43,680 | 4,247,880 | |||||
WESCO International, Inc.* | 43,447 | 3,400,162 | |||||
Total Consumer, Cyclical | 90,570,371 | ||||||
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 9 |
SCHEDULE OF INVESTMENTS (concluded) | September 30, 2014 | |
MID CAP VALUE FUND |
SHARES | VALUE | ||||||
ENERGY - 7.1% | |||||||
Superior Energy Services, Inc. | 681,730 | $ | 22,408,465 | ||||
Whiting Petroleum Corp.* | 220,792 | 17,122,420 | |||||
Oasis Petroleum, Inc.* | 318,610 | 13,321,084 | |||||
Patterson-UTI Energy, Inc. | 338,800 | 11,021,164 | |||||
Resolute Energy Corp.* | 1,507,360 | 9,451,147 | |||||
Sanchez Energy Corp.* | 334,524 | 8,784,600 | |||||
Denbury Resources, Inc. | 283,430 | 4,259,953 | |||||
Total Energy | 86,368,833 | ||||||
BASIC MATERIALS - 5.3% | |||||||
Cameco Corp. | 1,415,860 | 25,004,088 | |||||
Landec Corp.* | 946,613 | 11,596,009 | |||||
Royal Gold, Inc. | 163,668 | 10,628,600 | |||||
Olin Corp. | 341,109 | 8,613,002 | |||||
Coeur Mining, Inc.* | 1,084,798 | 5,380,598 | |||||
Allied Nevada Gold Corp.* | 899,730 | 2,978,106 | |||||
Total Basic Materials | 64,200,403 | ||||||
COMMUNICATIONS - 4.0% | |||||||
DigitalGlobe, Inc.* | 703,367 | 20,045,960 | |||||
Scholastic Corp. | 353,560 | 11,427,059 | |||||
Finisar Corp.* | 625,910 | 10,408,883 | |||||
Liquidity Services, Inc.* | 503,210 | 6,919,138 | |||||
Total Communications | 48,801,040 | ||||||
Total Common Stocks | |||||||
(Cost $1,004,003,926) | 1,193,790,411 | ||||||
CONVERTIBLE PREFERRED STOCKS††† - 0.0% | |||||||
Thermoenergy Corp. *,2,3 | 858,334 | 12,532 | |||||
Total Convertible Preferred Stocks | |||||||
(Cost $819,654) | 12,532 | ||||||
SHORT TERM INVESTMENTS† - 2.9% | |||||||
Dreyfus Treasury Prime | |||||||
Cash Management Fund | 35,546,192 | 35,546,192 | |||||
Total Short Term Investments | |||||||
(Cost $35,546,192) | 35,546,192 | ||||||
FACE | |||||||
AMOUNT | |||||||
CONVERTIBLE BONDS†† - 0.1% | |||||||
INDUSTRIAL - 0.1% | |||||||
DryShips, Inc. | |||||||
5.00% due 12/01/14 | $ | 1,275,000 | 1,260,656 | ||||
Total Convertible Bonds | |||||||
(Cost $1,247,778) | 1,260,656 | ||||||
Total Investments - 100.6% | |||||||
(Cost $1,041,617,550) | $ | 1,230,609,791 | |||||
Other Assets & Liabilities, net - (0.6)% | (7,605,061 | ) | |||||
Total Net Assets - 100.0% | $ | 1,223,004,730 |
* | Non-income producing security. | |
† | Value determined based on Level 1 inputs— See Note 4. | |
†† | Value determined based on Level 2 inputs — See Note 4. | |
††† | Value determined based on Level 3 inputs— See Note 4. | |
1 | Affiliated issuer— See Note 9. | |
2 | PIPE (Private Investment in Public Equity) - Stock issued by a company in the secondary market as a means of raising capital more quickly and less expensively than through registration of a secondary public offering. | |
3 | Illiquid security. |
10 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
MID CAP VALUE FUND |
STATEMENT OF ASSETS AND LIABILITIES | ||
September 30, 2014 |
ASSETS: | |||
Investments in unaffiliated issuers, at value | |||
(cost $1,005,028,701) | $ | 1,194,610,680 | |
Investments in affiliated issuers, at value | |||
(cost $36,588,849) | 35,999,111 | ||
Total investments | |||
(cost $1,041,617,550) | 1,230,609,791 | ||
Cash | 13,507 | ||
Prepaid expenses | 41,842 | ||
Receivables: | |||
Securities sold | 4,246,393 | ||
Dividends | 2,034,992 | ||
Fund shares sold | 736,575 | ||
Interest | 21,236 | ||
Foreign taxes reclaim | 13,049 | ||
Total assets | 1,237,717,385 | ||
LIABILITIES: | |||
Payable for: | |||
Securities purchased | 10,708,056 | ||
Fund shares redeemed | 2,054,674 | ||
Management fees | 823,071 | ||
Distribution and service fees | 393,792 | ||
Transfer agent/maintenance fees | 108,869 | ||
Fund accounting/administration fees | 99,049 | ||
Trustees’ fees* | 6,174 | ||
Miscellaneous | 518,970 | ||
Total liabilities | 14,712,655 | ||
NET ASSETS | $ | 1,223,004,730 | |
NET ASSETS CONSIST OF: | |||
Paid in capital | $ | 893,628,626 | |
Accumulated net investment loss | (926,867 | ) | |
Accumulated net realized gain on investments | 141,310,730 | ||
Net unrealized appreciation on investments | 188,992,241 | ||
Net assets | $ | 1,223,004,730 | |
A-CLASS: | |||
Net assets | $ | 1,017,208,014 | |
Capital shares outstanding | 26,960,100 | ||
Net asset value per share | $37.73 | ||
Maximum offering price per share | |||
(Net asset value divided by 95.25%) | $39.61 | ||
B-CLASS: | |||
Net assets | $ | 12,854,226 | |
Capital shares outstanding | 430,373 | ||
Net asset value per share | $29.87 | ||
C-CLASS: | |||
Net assets | $ | 192,942,490 | |
Capital shares outstanding | 6,196,072 | ||
Net asset value per share | $31.14 | ||
STATEMENT OF OPERATIONS | ||
Year Ended September 30, 2014 |
INVESTMENT INCOME: | ||||
Dividends from securities of unaffiliated issuers | ||||
(net of foreign withholding tax of $81,956) | $ | 17,845,835 | ||
Interest | 978,566 | |||
Dividends from securities of affiliated issuers | 255,282 | |||
Total investment income | 19,079,683 | �� | ||
EXPENSES: | ||||
Management fees | 10,232,505 | |||
Transfer agent/maintenance fees | ||||
A-Class | 1,776,839 | |||
B-Class | 44,724 | |||
C-Class | 312,354 | |||
Distribution and service fees: | ||||
A-Class | 2,661,929 | |||
B-Class | 171,523 | |||
C-Class | 2,157,437 | |||
Fund accounting/administration fees | 1,232,767 | |||
Trustees’ fees* | 121,062 | |||
Custodian fees | 19,845 | |||
Tax expense | 32 | |||
Miscellaneous | 1,023,659 | |||
Total expenses | 19,754,676 | |||
Net investment income | (674,993 | ) | ||
NET REALIZED AND UNREALIZED GAIN (LOSS): | ||||
Net realized gain (loss) on: | ||||
Investments in unaffiliated issuers | 181,395,564 | |||
Investments in affiliated issuers | 656,350 | |||
Options written | 997,471 | |||
Net realized gain | 183,049,385 | |||
Net change in unrealized appreciation (depreciation) on: | ||||
Investments in unaffiliated issuers | (113,588,750 | ) | ||
Investments in affiliated issuers | 1,015,934 | |||
Options written | (84,247 | ) | ||
Net change in unrealized appreciation (depreciation) | (112,657,063 | ) | ||
Net realized and unrealized gain | 70,392,322 | |||
Net increase in net assets | ||||
resulting from operations | $ | 69,717,329 | ||
* 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 | 11 |
MID CAP VALUE FUND |
STATEMENTS OF CHANGES IN NET ASSETS | |||||||
Year Ended | Year Ended | ||||||
September 30, | September 30, | ||||||
2014 | 2013 | ||||||
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS: | |||||||
Net investment income (loss) | $ | (674,993 | ) | $ | (331,094 | ) | |
Net realized gain on investments | 183,049,385 | 97,541,779 | |||||
Net change in unrealized appreciation (depreciation) on investments | (112,657,063 | ) | 197,430,576 | ||||
Net increase in net assets resulting from operations | 69,717,329 | 294,641,261 | |||||
DISTRIBUTIONS TO SHAREHOLDERS FROM: | |||||||
Net realized gains | |||||||
A-Class | (66,154,623 | ) | (92,674,750 | ) | |||
B-Class | (1,531,403 | ) | (2,844,203 | ) | |||
C-Class | (16,551,729 | ) | (22,741,115 | ) | |||
Total distributions to shareholders | (84,237,755 | ) | (118,260,068 | ) | |||
CAPITAL SHARE TRANSACTIONS: | |||||||
Proceeds from sale of shares | |||||||
A-Class | 212,574,766 | 196,756,789 | |||||
B-Class | 89,153 | 437,407 | |||||
C-Class | 26,075,051 | 29,825,646 | |||||
Distributions reinvested | |||||||
A-Class | 60,093,834 | 83,496,316 | |||||
B-Class | 1,462,878 | 2,720,726 | |||||
C-Class | 12,947,243 | 16,692,864 | |||||
Cost of shares redeemed | |||||||
A-Class | (285,246,325 | ) | (292,306,316 | ) | |||
B-Class | (8,904,634 | ) | (8,971,838 | ) | |||
C-Class | (60,608,402 | ) | (44,208,482 | ) | |||
Net decrease from capital share transactions | (41,516,436 | ) | (15,556,888 | ) | |||
Net increase (decrease) in net assets | (56,036,862 | ) | 160,824,305 | ||||
NET ASSETS: | |||||||
Beginning of year | 1,279,041,592 | 1,118,217,287 | |||||
End of year | $ | 1,223,004,730 | $ | 1,279,041,592 | |||
Accumulated net investment loss at end of year | $ | (926,867 | ) | $ | (752,180 | ) | |
CAPITAL SHARE ACTIVITY: | |||||||
Shares sold | |||||||
A-Class | 5,437,655 | 5,636,342 | |||||
B-Class | 2,867 | 15,688 | |||||
C-Class | 808,772 | 1,023,309 | |||||
Shares issued from reinvestment of distributions | |||||||
A-Class | 1,617,164 | 2,764,774 | |||||
B-Class | 49,371 | 110,419 | |||||
C-Class | 419,548 | 652,575 | |||||
Shares redeemed | |||||||
A-Class | (7,320,216 | ) | (8,501,344 | ) | |||
B-Class | (286,983 | ) | (319,547 | ) | |||
C-Class | (1,870,843 | ) | (1,532,165 | ) | |||
Net decrease in shares | (1,142,665 | ) | (149,949 | ) | |||
12 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
MID CAP VALUE FUND |
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 | |||||||||||
September 30, | September 30, | September 30, | September 30, | September 30, | |||||||||||
A-Class | 2014 | 2013 | 2012 | 2011 | 2010 | ||||||||||
Per Share Data | |||||||||||||||
Net asset value, beginning of period | $38.15 | $33.05 | $27.13 | $29.55 | $26.58 | ||||||||||
Income (loss) from investment operations: | |||||||||||||||
Net investment income (loss)a | .03 | .04 | (.07 | ) | (.03 | ) | .11 | ||||||||
Net gain (loss) on investments (realized and unrealized) | 2.04 | 8.59 | 6.54 | (2.31 | ) | 2.90 | |||||||||
Total from investment operations | 2.07 | 8.63 | 6.47 | (2.34 | ) | 3.01 | |||||||||
Less distributions from: | |||||||||||||||
Net investment income | — | — | — | (.08 | ) | (.04 | ) | ||||||||
Net realized gains | (2.49 | ) | (3.53 | ) | (.55 | ) | — | — | |||||||
Total distributions | (2.49 | ) | (3.53 | ) | (.55 | ) | (.08 | ) | (.04 | ) | |||||
Net asset value, end of period | $37.73 | $38.15 | $33.05 | $27.13 | $29.55 | ||||||||||
Total Returnb | 5.52 | % | 28.93 | % | 24.13 | % | (7.98 | %) | 11.32 | % | |||||
Ratios/Supplemental Data | |||||||||||||||
Net assets, end of period (in thousands) | $1,017,208 | $1,038,762 | $903,221 | $973,467 | $1,056,655 | ||||||||||
Ratios to average net assets: | |||||||||||||||
Net investment income (loss) | 0.08 | % | 0.11 | % | (0.22 | %) | (0.10 | %) | 0.38 | % | |||||
Total expensesc | 1.39 | % | 1.39 | % | 1.46 | % | 1.32 | % | 1.37 | % | |||||
Portfolio turnover rate | 35 | % | 23 | % | 19 | % | 28 | % | 23 | % | |||||
Year Ended | Year Ended | Year Ended | Year Ended | Year Ended | |||||||||||
September 30, | September 30, | September 30, | September 30, | September 30, | |||||||||||
B-Class | 2014 | 2013 | 2012 | 2011 | 2010 | ||||||||||
Per Share Data | |||||||||||||||
Net asset value, beginning of period | $30.95 | $27.66 | $22.99 | $25.17 | $22.78 | ||||||||||
Income (loss) from investment operations: | |||||||||||||||
Net investment income (loss)a | (.25 | ) | (.19 | ) | (.29 | ) | (.24 | ) | (.09 | ) | |||||
Net gain (loss) on investments (realized and unrealized) | 1.66 | 7.01 | 5.51 | (1.94 | ) | 2.48 | |||||||||
Total from investment operations | 1.41 | 6.82 | 5.22 | (2.18 | ) | 2.39 | |||||||||
Less distributions from: | |||||||||||||||
Net realized gains | (2.49 | ) | (3.53 | ) | (.55 | ) | — | — | |||||||
Total distributions | (2.49 | ) | (3.53 | ) | (.55 | ) | — | — | |||||||
Net asset value, end of period | $29.87 | $30.95 | $27.66 | $22.99 | $25.17 | ||||||||||
Total Returnb | 4.62 | % | 27.93 | % | 23.02 | % | (8.66 | %) | 10.49 | % | |||||
Ratios/Supplemental Data | |||||||||||||||
Net assets, end of period (in thousands) | $12,854 | $20,584 | $23,747 | $27,960 | $42,321 | ||||||||||
Ratios to average net assets: | |||||||||||||||
Net investment income (loss) | (0.80 | %) | (0.67 | %) | (1.09 | %) | (0.86 | %) | (0.40 | %) | |||||
Total expensesc | 2.23 | % | 2.16 | % | 2.33 | % | 2.07 | % | 2.12 | % | |||||
Portfolio turnover rate | 35 | % | 23 | % | 19 | % | 28 | % | 23 | % |
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 13 |
MID CAP VALUE FUND |
FINANCIAL HIGHLIGHTS (concluded) |
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 | ||||||||||||||||
September 30, | September 30, | September 30, | September 30, | September 30, | ||||||||||||||||
C-Class | 2014 | 2013 | 2012 | 2011 | 2010 | |||||||||||||||
Per Share Data | ||||||||||||||||||||
Net asset value, beginning of period | $32.13 | $28.57 | $23.68 | $25.93 | $23.47 | |||||||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||
Net investment income (loss)a | (.21 | ) | (.18 | ) | (.25 | ) | (.24 | ) | (.09 | ) | ||||||||||
Net gain (loss) on investments (realized and unrealized) | 1.71 | 7.27 | 5.69 | (2.01 | ) | 2.55 | ||||||||||||||
Total from investment operations | 1.50 | 7.09 | 5.44 | �� | (2.25 | ) | 2.46 | |||||||||||||
Less distributions from: | ||||||||||||||||||||
Net realized gains | (2.49 | ) | (3.53 | ) | (.55 | ) | — | — | ||||||||||||
Total distributions | (2.49 | ) | (3.53 | ) | (.55 | ) | — | — | ||||||||||||
Net asset value, end of period | $31.14 | $32.13 | $28.57 | $23.68 | $25.93 | |||||||||||||||
Total Returnb | 4.74 | % | 27.98 | % | 23.28 | % | (8.68 | %) | 10.48 | % | ||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||
Net assets, end of period (in thousands) | $192,942 | $219,695 | $191,249 | $188,745 | $193,986 | |||||||||||||||
Ratios to average net assets: | ||||||||||||||||||||
Net investment income (loss) | (0.65 | %) | (0.62 | %) | (0.92 | %) | (0.85 | %) | (0.37 | %) | ||||||||||
Total expensesc | 2.12 | % | 2.12 | % | 2.17 | % | 2.07 | % | 2.12 | % | ||||||||||
Portfolio turnover rate | 35 | % | 23 | % | 19 | % | 28 | % | 23 | % |
a | Net investment income (loss) per share was computed using average shares outstanding throughout the period. |
b | Total return does not reflect the impact of any applicable sales charges. |
c | Does not include expenses of the underlying funds in which the Fund invests. |
14 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
1. Organization, and Significant Accounting Policies Organization
Guggenheim Funds Trust (the “Trust”), a Delaware statutory trust, is registered with the SEC under the Investment Company Act of 1940 (“1940 Act”), as a non-diversified, open-ended investment company of the series type. Each series, in effect, is representing a separate Fund. The Trust is authorized to issue an unlimited number of shares. The Trust accounts for the assets of each Fund separately.
The Trust offers a combination of four separate classes of shares, A-Class shares, B-Class shares, C-Class shares and Institutional Class shares. Sales of shares of each Class are made without a front-end sales charge at the net asset value per share (“NAV”), with the exception of A-Class shares. A-Class shares are sold at the NAV, plus the applicable front-end sales charge. The sales charge varies depending on the amount purchased, but will not exceed 4.75%. Prior to February 22, 2011, the maximum sales charge was 5.75%. A-Class share purchases of $1 million or more are exempt from the front-end sales charge but have a 1% contingent deferred sales charge (“CDSC”), if shares are redeemed within 12 months of purchase. B-Class shares were offered without a front-end sales charge, but were subject to a CDSC of up to 5% for five years and convert to A-Class shares after eight years. Effective January 4, 2010, subscriptions for B-Class shares are no longer accepted. C-Class shares have a 1% CDSC if shares are redeemed within 12 months of purchase. Institutional Class shares are offered primarily for direct investment by institutions such as pension and profit sharing plans, endowments, foundations and corporations. Institutional Class shares have a minimum initial investment of $2 million and a minimum account balance of $1 million. Institutional Class shares are offered without a front-end sales charge or a CDSC. At September 30, 2014, the Trust consisted of eighteen Funds.
This report covers the Mid Cap Value Fund (the “Fund”) while the other funds are in separate reports. Only A-Class, B-Class and C-Class shares had been issued by the Fund.
The Fund was previously a series (the “Predecessor Fund”) of Security Equity Fund, a different registered open-end investment company, which was organized as a Kansas corporation. In January 2014, at a special meeting of shareholders, the shareholders of the Predecessor Fund approved the reorganization of the Predecessor Fund with and into the Fund, a corresponding “shell” series of the Trust. The Fund succeeded to the accounting and performance history of the Predecessor Fund. Any such historical information provided for the Fund that relates to periods prior to January 28, 2014, therefore, is that of the Predecessor Fund.
Guggenheim Investments (“GI”) provides advisory services, and Rydex Fund Services, LLC (“RFS”) provides transfer agent, administrative and accounting services to the Trust. Guggenheim Funds Distributors, LLC (“GFD”) acts as principal underwriter for the Trust. GI, RFS and GFD are affiliated entities.
Significant Accounting Policies
The following significant accounting policies are in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”) and are consistently followed by the Trust. This requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. All time references are based on Eastern Time.
The NAV of a fund is calculated by dividing the market value of the fund’s securities and other assets, less all liabilities, by the number of outstanding shares of the fund.
A. The Board of Trustees of the Funds (the “Board”) has adopted policies and procedures for the valuation of the Funds’ investments (the “Valuation Procedures”). Pursuant to the Valuation Procedures, the Board has delegated to a valuation committee, consisting of representatives from Guggenheim’s investment management, fund administration, legal and compliance departments (the “Valuation Committee”), the day-today responsibility for implementing the Valuation Procedures, including, under most circumstances, the responsibility for determining the fair value of the Fund’s securities or other assets.
Valuations of the Fund’s securities are supplied primarily by pricing services appointed pursuant to the processes set forth in the Valuation Procedures. The Valuation Committee convenes monthly, or more frequently as needed and will review the valuation of all assets which have been fair valued for reasonableness. The Fund’s officers, through the Valuation Committee and consistent with the monitoring and review responsibilities set forth in the Valuation Procedures, regularly review procedures used by, and valuations provided by, the pricing services.
If the pricing service cannot or does not provide a valuation for a particular investment or such valuation is deemed unreliable, such investment is fair valued by the Valuation Committee.
Equity securities listed on an exchange (New York Stock Exchange (“NYSE”) or American Stock Exchange) are valued at the last quoted sales price as of the close of business on the NYSE, usually 4:00 p.m. on the valuation date. Equity securities listed on the NASDAQ market system are valued at the NASDAQ Official Closing Price on the valuation date, which may not necessarily represent the last sale price. If there has been no sale on such exchange or NASDAQ on a given day, the security is valued at the closing bid price on that day.
THE GUGGENHEIM FUNDS ANNUAL REPORT | 15 |
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, which approximates market value.
Open-end investment companies (“Mutual Funds”) are valued at their NAV as of the close of business, on the valuation date.
Investments for which market quotations are not readily available are fair valued as determined in good faith by GI under the direction of the Board of Trustees using methods established or ratified by the Board of Trustees. Valuations in accordance with these methods are intended to reflect each security’s (or asset’s) “fair value.” Each such determination is based on a consideration of all relevant factors, which are likely to vary from one pricing context to another. Examples of such factors may include, but are not limited to: (i) the type of security, (ii) the initial cost of the security, (iii) the existence of any contractual restrictions on the security’s disposition, (iv) the price and extent of public trading in similar securities of the issuer or of comparable companies, (v) quotations or evaluated prices from broker-dealers and/or pricing services, (vi) information obtained from the issuer, analysts, and/or the appropriate stock exchange (for exchange-traded securities), (vii) an analysis of the company’s financial statements, and (viii) an evaluation of the forces that influence the issuer and the market(s) in which the security is purchased and sold (e.g. the existence of pending merger activity, public offerings or tender offers that might affect the value of the security).
B. The Fund 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 Fund 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 Fund will generally purchase these securities with the intention of acquiring such securities, they may sell such securities before the settlement date.
C. 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).
D. 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 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. Dividend income from REITs is recorded based on the income included in distributions received from the REIT investments using published REIT reclassifications, including some management estimates when actual amounts are not available. Distributions received in excess of this estimated amount are recorded as a reduction of the cost of investments or reclassified to capital gains. The actual amounts of income, return of capital, and capital gains are only determined by each REIT after its fiscal year-end, and may differ from the estimated amounts.
E. Distributions of net investment income and net realized gains, if any, are declared and paid at least annually. Dividends are reinvested in additional shares unless shareholders request payment in cash. Distributions are recorded on the ex-dividend date and are determined in accordance with income tax regulations which may differ from U.S. GAAP.
F. Interest and dividend income, most expenses, all realized gains and losses, and all unrealized gains and losses are allocated to the classes based upon the value of the outstanding shares in each class. Certain costs, such as distribution and service fees are charged directly to specific classes. In addition, certain expenses have been allocated to the individual Funds in the Trust on a pro rata basis upon the respective aggregate net assets of each Fund included in the Trust.
G. Under the fee arrangement with the custodian, the Fund 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 September 30, 2014, there were no earnings credits received.
16 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
The Fund may leave cash overnight in its cash account with the custodian. Periodically, the 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.
H. Under the Fund’s organizational documents, its Trustees and Officers are indemnified against certain liabilities arising out of the performance of their duties to the Trust. In addition, throughout the normal course of business, the Fund enters into contracts that contain a variety of representations and warranties which provide general indemnifications. The Fund’s maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Fund and/or its affiliates that have not yet occurred. However, based on experience, the Fund expects the risk of loss to be remote.
2. Financial Instruments
As part of its investment strategy, the Fund utilizes derivative instruments. These investments involve, to varying degrees, elements of market risk and risks in excess of the amounts recognized in the Statement of Assets and Liabilities.
An option on a security gives the purchaser of the option the right to sell, and the writer of the option the obligation to buy, the underlying security (put option) or the purchaser of the option the right to buy, and the writer of the option the obligation to sell, the underlying security (call option) at any time during the option period. The risk associated with purchasing options is limited to the premium originally paid. The risk in writing a call option is that a Fund may incur a loss if the market price of the underlying security increases and the option is exercised. The risk in writing a put option is that a Fund may incur a loss if the market price of the underlying security decreases and the option is exercised. In addition, there may be an imperfect correlation between the movement in prices of options and the underlying securities and a Fund may not be able to enter into a closing transaction because of an illiquid secondary market or, for over-the-counter options, because of the counterparty’s inability to perform.
In conjunction with the use of derivative instruments, the Fund is required to maintain collateral in various forms. The Fund uses, where appropriate, depending on the financial instrument utilized and the broker involved, margin deposits at the broker, cash and/or securities segregated at the custodian bank, discount notes or the repurchase agreements allocated to the Fund.
The Trust has established counterparty credit guidelines and enters into transactions only with financial institutions of investment grade or better. The Trust monitors the counterparty credit risk.
3. Fees and Other Transactions with Affiliates
Under the terms of an investment advisory contract, the Fund pays GI investment advisory fees calculated at 1.00% of the average daily net assets of $200 million or less and 0.75% of the average daily net assets of the Fund in excess of $200 million.
RFS provides transfer agent services to the Fund for fees calculated at the rates below, which are assessed to the applicable class of the Fund. For these services, RFS receives the following:
Annual charge per account | $5.00 – $8.00 | |
Transaction fee | $0.60 – $1.10 | |
Minimum annual charge per Fund† | $25,000 | |
Certain out-of-pocket charges | Varies |
RFS also acts as the administrative agent for the Fund, and as such performs administrative functions and the bookkeeping, accounting and pricing functions for the Fund. For these services, RFS receives 0.095% of the average daily net assets of the Fund. The minimum annual charge for fund accounting/administrative fees is $25,000.
RFS engages external service providers to perform other necessary services for the Trust, such as audit and accounting related services, legal services, custody, printing and mailing, etc., on a pass-through basis. Such expenses are allocated to various Funds within the complex based on relative net assets.
The Fund has adopted Distribution Plans related to the offering of A-Class, B-Class and C-Class shares pursuant to Rule 12b-1 under the 1940 Act. The plans provide for payments at an annual rate of 0.25% of the average daily net assets of the Fund’s A-Class shares and 1.00% of the average daily net assets of the Fund’s B-Class and C-Class shares.
For the year ended September 30, 2014, GFD retained sales charges of $121,109 relating to sales of A-Class shares of the Trust.
Certain trustees and officers of the Trust are also officers of GI, RFS and GFD.
THE GUGGENHEIM FUNDS ANNUAL REPORT | 17 |
4. Fair Value Measurement
In accordance with U.S. GAAP, fair value is defined as the price that the Fund would receive to sell an investment or pay to transfer a liability in an orderly transaction with an independent buyer in the principal market, or in the absence of a principal market, the most advantageous market for the investment or liability. U.S. GAAP establishes a three-tier fair value hierarchy based on the types of inputs used to value assets and liabilities and requires corresponding disclosure. The hierarchy and the corresponding inputs are summarized below:
Level 1 — quoted prices in active markets for identical assets or liabilities.
Level 2 — significant other observable inputs (for example quoted prices for securities that are similar based on characteristics such as interest rates, prepayment speeds, credit risk, etc.).
Level 3 — significant unobservable inputs based on the best information available under the circumstances, to the extent observable inputs are not available, which may include assumptions.
The types of inputs available depend on a variety of factors, such as the type of security and the characteristics of the markets in which it trades, if any. Fair valuation determinations that rely on fewer or no observable inputs require greater judgment. Accordingly, fair value determinations for Level 3 securities require the greatest amount of judgment.
The following table summarizes the inputs used to value the Fund’s net assets at September 30, 2014:
Level 1 | Level 2 | Level 3 | |||||||
Investments | Investments | Investments | |||||||
In Securities | In Securities | In Securities | Total | ||||||
Assets | |||||||||
Mid Cap Value Fund | $1,229,336,603 | $1,260,656 | $12,532 | $1,230,609,791 |
For the year ended September 30, 2014, there were no transfers between levels.
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.
5. Derivative Investment Holdings Categorized by Risk Exposure
U.S. GAAP requires disclosures to enable investors to better understand how and why the 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 Fund utilized options to minimally hedge the Fund’s portfolio, to maintain exposure to the equity markets, create liquidity and to achieve leveraged exposure. As of September 30, 2014, the Fund did not hold any derivatives.
The following is a summary of the location of derivative investments on the Fund’s Statement of Operations for the year ended September 30, 2014:
Derivative Investment Type | Location of Gain (Loss) on Derivatives | |
Equity contracts | Net realized gain (loss) on options written | |
Net change in unrealized appreciation (depreciation) on options written |
The following is a summary of the Fund’s realized gain (loss) and change in unrealized appreciation (depreciation) on derivative investments recognized on the Statement of Operations categorized by primary risk exposure for the year ended September 30, 2014:
Options | ||||
Written Equity | ||||
Fund | Contracts | Total | ||
Mid Cap Value Fund | $997,471 | $997,471 |
Options | |||||
Written Equity | |||||
Fund | Contracts | Total | |||
Mid Cap Value Fund | $(84,247) | $(84,247) |
18 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
6. Federal Income Tax Information
The Fund intends 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 Fund from all, or substantially all, federal income, excise and state income taxes. Therefore, no provision for federal or state income tax is required.
Tax positions taken or expected to be taken in the course of preparing the Fund’s 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 Fund’s 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 Fund’s financial statements. The Fund’s federal tax returns are subject to examination by the Internal Revenue Service for a period of three years after they are filed.
The RIC Modernization Act of 2010 was signed into law on December 22, 2010, and simplified some of the tax provisions applicable to regulated investment companies, the tax reporting to their shareholders and improved the tax efficiency of certain fund structures. The greatest impact to the disclosure in the financial reports for the Fund was on the treatment of net capital losses, effective for tax years beginning after December 22, 2010. However, the Fund did not incur or carryforward any capital loss for year ended September 30, 2014.
One of the more prominent changes addresses capital loss carryforwards. The Fund is permitted to carry forward capital losses incurred in taxable years beginning after December 22, 2010, for an unlimited period. However, any losses incurred during those future taxable years will be required to be utilized prior to the losses incurred in pre-enactment taxable years. Under pre-enactment law, capital losses could be carried forward for eight years, and carried forward as short-term capital, irrespective of the character of the original loss. As a result of this ordering rule, pre-enactment capital loss carryforwards may potentially expire unused. Additionally, post-enactment capital losses that are carried forward will retain their character as either short-term or long-term capital losses rather than being considered all short-term as under previous law.
The tax character of distributions paid during the year ended September 30, 2014 was as follows:
Ordinary | Long-Term | Total | ||||
Fund | Income | Capital Gain | Distribution | |||
Mid Cap Value Fund | $4,082,954 | $80,154,801 | $84,237,755 |
The tax character of distributions paid during the year ended September 30, 2013 was as follows:
Ordinary | Long-Term | Total | ||||
Fund | Income | Capital Gain | Distribution | |||
Mid Cap Value Fund | $ — | $118,260,068 | $118,260,068 |
Note: For federal income tax purposes, short term capital gain distributions are treated as ordinary income distributions.
The tax character of distributable earnings/(accumulated losses) at September 30, 2014 was as follows:
Undistributed | Undistributed | Accumulated | Net Unrealized | Total | |||||||||||
Ordinary | Long-Term | Capital and | Appreciation/ | Accumulated | |||||||||||
Fund | Income | Capital Gain | Other Losses | (Depreciation)* | Earnings/(Deficit) | ||||||||||
Mid Cap Value Fund | $2,905,838 | $138,943,044 | $ | — | $187,527,222 | $329,376,104 |
* Any differences between book-basis and tax-basis unrealized appreciation (depreciation) are attributable primarily to the tax deferral of wash sale losses, the differences between book and tax basis passive foreign investment companies.
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 losses due to wash sales, reclassifications due to real estate investment trusts (REITs), the “mark-to-market” of certain passive foreign investment companies (PFICs) for tax purposes, and utilization of earnings and profits on shareholder redemptions. To the extent these differences are permanent, reclassifications are made to the appropriate equity accounts in the period that the differences arise.
On the Statement of Assets and Liabilities the following adjustments were made for permanent book/tax differences:
Undistributed | Accumulated Net | |||||
Net Investment | Realized | |||||
Fund | Paid-In Capital | Income | Gain (Loss) | |||
Mid Cap Value Fund | $18,205,582 | $500,306 | $(18,705,888) |
THE GUGGENHEIM FUNDS ANNUAL REPORT | 19 |
At September 30, 2014, the cost of securities for Federal income tax purposes, the aggregate gross unrealized gain for all securities for which there was an excess of value over tax cost and the aggregate gross unrealized loss for all securities for which there was an excess of tax cost over value, were as follows:
Tax | Tax | Net | Net Unrealized | |||||||||||||
Tax | Unrealized | Unrealized | Unrealized | Gain (Loss) | ||||||||||||
Fund | Cost | Gain | Loss | Gain/(Loss) | Derivatives | |||||||||||
Mid Cap Value Fund | $1,043,082,569 | $265,465,021 | $(77,937,799) | $187,527,222 | $ | — |
7. Securities Transactions
For the year ended September 30, 2014, the cost of purchases and proceeds from sales of investment securities, excluding government securities, short-term investments and derivatives, were as follows:
Fund | Purchases | Sales | ||
Mid Cap Value Fund | $446,785,478 | $579,114,136 |
8. Options Written
Information as to options written by the Fund during the year ended September 30, 2014, and options outstanding at period end is provided below:
Written Call Options
Number of | Premium | ||||||
Mid Cap Value Fund | contracts | amount | |||||
Balance at September 30, 2013 | 1,154 | $ | 390,057 | ||||
Options Written | 1,597 | 391,534 | |||||
Options terminated in closing purchase transactions | — | — | |||||
Options expired | (2,751 | ) | (781,591 | ) | |||
Options exercised | — | — | |||||
Balance at September 30, 2014 | — | $ | — | ||||
Written Put Options | |||||||
Number of | Premium | ||||||
Mid Cap Value Fund | contracts | amount | |||||
Balance at September 30, 2013 | — | $ | — | ||||
Options Written | 1,609 | 215,880 | |||||
Options terminated in closing purchase transactions | — | — | |||||
Options expired | (1,609 | ) | (215,880 | ) | |||
Options exercised | — | — | |||||
Balance at September 30, 2014 | — | $ | — | ||||
9. Affiliated Transactions
Investments representing 5% or more of the outstanding voting shares of a portfolio company of a fund, or control of or by, or common control under GI, result in that portfolio company being considered an affiliated company of such fund, as defined in the 1940 Act.
Transactions during the year ended September 30, 2014 in which the portfolio company is an “affiliated person” are as follows:
Value | Value | Shares | Investment | Realized | |||||||||||
Affiliated issuers by Fund | 09/30/13 | Additions | Reductions | 09/30/14 | 09/30/14 | Income | Gain | ||||||||
Mid Cap Value Fund | |||||||||||||||
IXYS Corp. | $20,615,574 | $ | — | $1,113,533 | $21,131,764 | 2,012,549 | $255,282 | $656,350 | |||||||
Maxwell Technologies, Inc. | 15,481,137 | — | — | 14,867,347 | 1,704,971 | — | — | ||||||||
$36,096,711 | $ | — | $1,113,533 | $35,999,111 | 3,717,520 | $255,282 | $656,350 |
10. Other Liabilities
The Fund wrote put option contracts through Lehman Brothers Inc., (“LBI”) that were exercised prior to the option contracts’ expiration and prior to the bankruptcy filing by LBI, during September, 2008. However, these transactions have not settled and the securities have not been delivered to the Fund as of September 30, 2014.
Although the ultimate resolution of these transactions is uncertain, the Fund has recorded a liability on its books equal to the difference between the strike price on the put options and the market price of the underlying security on the exercise date. The amount of the liability recorded by the Fund as of September 30, 2014, was $473,594.
20 | | | THE GUGGENHEIM FUNDS ANNUAL REPORT |
The Board of Trustees and Shareholders
of Guggenheim Funds Trust
We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of Guggenheim Mid Cap Value Fund (one of the series constituting the Guggenheim Funds Trust) (the “Fund”) as of September 30, 2014, and the related statement 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, and the financial highlights for each of the five years in the period then ended. These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. We were not engaged to perform an audit of the Fund’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of September 30, 2014, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the Guggenheim Mid Cap Value Fund (one of the series constituting Guggenheim Funds Trust) at September 30, 2014, and the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and its financial highlights for each of the five years in the period then ended, in conformity with U.S. generally accepted accounting principles.
![](https://capedge.com/proxy/N-CSR/0001209286-14-000674/e101395ernst.jpg)
McLean, Virginia
November 25, 2014
THE GUGGENHEIM FUNDS ANNUAL REPORT | 21 |
Tax Information
This information is being provided as required by the Internal Revenue Code. Amounts shown may differ from those elsewhere in the report because of differences in tax and financial reporting practice.
Of the taxable ordinary income distributions paid during the fiscal year ending September 30, 2014, the following fund had the corresponding percentage qualify for the dividends received deduction for corporations:
Fund | % Qualifying | |
Mid Cap Value Fund | 100.00% |
Additionally, the following amounts of taxable ordinary income dividends paid during the fiscal year qualified for the lower income tax rate available to individuals under the Jobs and Growth Tax Relief Reconciliation Act of 2003:
Fund | % Qualifying | |
Mid Cap Value Fund | 100.00% |
Additionally, of the taxable ordinary income distributions paid during the fiscal year ending September 30, 2014, the following fund had the corresponding percentages qualify as interest related dividends and qualified short-term capital gains as permitted by IRC Section 871(k)(1) and IRC Section 871(k)(2), respectively:
Fund | % Qualifying | % STCG Qualifying | ||
Mid Cap Value Fund | 0.00% | 100.00% |
With respect to the taxable year ended September 30, 2014, the Fund hereby designates as capital gain dividends the amounts listed below, or, if subsequently determined to be different, the net capital gain of such year:
LT Capital Gain | ||||
LT Capital Gains | Using Proceeds from | |||
Fund | Dividends | Shareholder Redemptions | ||
Mid Cap Value Fund | $80,154,801 | $18,551,329 |
In January 2015, you will be advised on IRS Form 1099 DIV or substitute 1099 DIV as to the federal tax status of the distributions received by you in the calendar year 2014.
Proxy Voting Information
A description of the policies and procedures that the Trust uses to determine how to vote proxies relating to securities held in the Funds’ portfolios is available, without charge and upon request, by calling 800.820.0888. This information is also available from the EDGAR database on the SEC’s website at http://www.sec.gov.
Information regarding how the Funds voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available without charge, upon request, by calling 800.820.0888. This information is also available from the EDGAR database on the SEC’s website at http://www.sec.gov.
Quarterly Portfolio Schedules Information
The Trust files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q; which are available on the SEC’s website at http://www.sec.gov. The Funds’ Forms N-Q may be reviewed and copied at the SEC’s Public Reference Room in Washington, DC, and that information on the operation of the Public Reference Room may be obtained by calling 800-SEC-0330. Copies of the portfolio holdings are also available to shareholders, without charge and upon request, by calling 800.820.0888.
22 | | | THE GUGGENHEIM FUNDS ANNUAL REPORT |
Office Locations
The offices of Guggenheim Investments can be found in the following locations:
GD and GFD are both indirect, wholly-owned subsidiaries of Guggenheim Capital, LLC and, therefore, the consolidation will not result in a change of actual control of the Funds’ distributor. The primary goal of the consolidation is to achieve greater operational efficiencies and allow all of the Guggenheim funds, including funds that are not series of the Trusts, to be distributed by a single distributor.
The consolidation is not expected to affect the day-to-day management of the Funds or result in any material changes to the distribution of the Funds, including any changes to the distribution fees paid by the Funds.
Effective January 28, 2014, the Guggenheim Floating Rate Strategies Fund (“Floating Rate Strategies Fund”), Guggenheim High Yield Fund (“High Yield Fund”), Guggenheim Investment Grade Bond Fund (“Investment Grade Bond Fund”), Guggenheim Limited Duration Fund (“Limited Duration Fund”), Guggenheim Macro Opportunities Fund (“Macro Opportunities Fund”), Guggenheim Municipal Income Fund (“Municipal Income Fund”), and Guggenheim Total Return Bond Fund (“Total Return Bond Fund”), which were series of Security Income Fund, a Kansas corporation, reorganized with and into corresponding series of Guggenheim Funds Trust, a Delaware Statutory Trust (each, a “Reorganization”). Upon completion of each Reorganization, the respective share classes of each Fund assumed the performance, financial and other historical information of those of the corresponding predecessor fund.
THE GUGGENHEIM FUNDS ANNUAL REPORT | 23 |
At a meeting of shareholders held on January 8, 2014, shareholders of the Guggenheim Alpha Opportunity Fund (“Alpha Opportunity Fund”) approved the reorganization of the Fund from a Kansas corporation to a Delaware statutory trust. After the close of business on September 23, 2014, the Fund, which is a series Security Equity Fund, a Kansas corporation, will reorganize with and into a corresponding “shell” fund (the “New Fund”), which is a series of Guggenheim Funds Trust, a Delaware statutory trust. Upon completion of the Reorganization, shareholders of the Fund will own shares of the New Fund that are equal in number and in value to the shares of the Fund that were held by those shareholders immediately prior to the closing of the Reorganization. In addition, the New Fund will assume the performance, financial and other historical information of that of the Fund. Once the Reorganization is completed, the Fund will no longer be offered as a series of Security Equity Fund.
The Trust includes the following series (the “New Series”), each of which assumed the accounting and performance histories of the corresponding predecessor fund (a “Predecessor Fund” and collectively, the “Predecessor Funds”):
• | Guggenheim Alpha Opportunity Fund (“Alpha Opportunity Fund”)2 | • | Guggenheim Enhanced World Equity Fund (“Enhanced World Equity Fund”) | |
• | Guggenheim Floating Rate Strategies Fund (“Floating Rate Strategies Fund”) | • | Guggenheim High Yield Fund (“High Yield Fund”) | |
• | Guggenheim Investment Grade Bond Fund (“Investment Grade Bond Fund”) | • | Guggenheim Large Cap Value Fund (“Large Cap Value Fund”) | |
• | Guggenheim Limited Duration Fund (“Limited Duration Fund”) | • | Guggenheim Macro Opportunities Fund (“Macro Opportunities Fund”) | |
• | Guggenheim Mid Cap Value Institutional Fund (“Mid Cap Value Institutional”) | • | Guggenheim Mid Cap Value Fund (“Mid Cap Value Fund”) | |
• | Guggenheim Municipal Income Fund (“Municipal Income Fund”) | • | Guggenheim Small Cap Value Fund (“Small Cap Value Fund”) | |
• | Guggenheim StylePlus—Mid Growth Fund (“StylePlus—Mid Growth”) | • | Guggenheim StylePlus—Large Core Fund (“StylePlus—Large Core”) | |
• | Guggenheim Total Return Bond Fund (“Total Return Bond Fund”) | • | Guggenheim World Equity Income Fund (“World Equity Income Fund”) |
With the exception of Enhanced World Equity Fund, Floating Rate Strategies Fund, Limited Duration Fund, Macro Opportunities Fund and Total Return Bond Fund, Security Investors, LLC, also known as Guggenheim Investments (“Security Investors”) and an indirect subsidiary of Guggenheim Partners, LLC, a global diversified financial services firm (“Guggenheim Partners”), serves as investment manager to each series of the Trust. (Guggenheim Partners, Security Investors, Guggenheim Partners Investment Management, LLC (“GPIM”) and their affiliates may be referred to herein collectively as “Guggenheim.”) In this connection, the Trust and Security Investors have entered into four separate investment management agreements which group the New Series of the Trust to correspond with the Predecessor Funds that were series of a common Corporation: (i) Mid Cap Value Fund, Mid Cap Value Institutional, Small Cap Value Fund, StylePlus—Large Core Fund, World Equity Income Fund and Alpha Opportunity Fund,3 the corresponding Predecessor Funds of which were series of a common Corporation, Security Equity Fund; (ii) Large Cap Value Fund, the corresponding Predecessor Fund of which was the sole series of a Corporation, Security Large Cap Value Fund; (iii) StylePlus—Mid Growth, the corresponding Predecessor Fund of which was the sole series of a Corporation, Security Mid Cap Growth Fund; and (iv) Investment Grade Bond Fund, High Yield Fund and Municipal Income Fund, the corresponding Predecessor Funds of which were series of a common Corporation, Security Income Fund. (The New Series identified in (i) through (iv) above are collectively referred to herein as the “SI-Advised Funds.”)
1 | At a meeting of shareholders held on January 8, 2014, shareholders of Guggenheim Alpha Opportunity Fund (“Alpha Opportunity Fund”), a series of Security Equity Fund, approved the reorganization of Alpha Opportunity Fund to a corresponding new series of the Trust (the “Alpha Opportunity Fund Reorganization”). Due to certain outstanding transactions with Lehman Brothers International Europe (“LBIE”) and its administrator, the Alpha Opportunity Fund Reorganization was delayed pending the resolution of the LBIE matter. Alpha Opportunity Fund was reorganized into the Trust on September 24, 2014. | |
2 | Because the Alpha Opportunity Fund was not reorganized into the Trust until September 2014, at the time of the Board’s review of the investment advisory agreements Alpha Opportunity Fund was a series of the Security Equity Fund. | |
3 | At the time of the Board’s review of the investment advisory agreements, Security Investors served as investment manager to Alpha Opportunity Fund pursuant to an investment management agreement with Security Equity Fund. The investment management agreement with Security Investors transferred to the Trust upon the Alpha Opportunity Fund Reorganization. |
24 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
Under the terms of the applicable investment management agreement between the Trust and Security Investors, Security Investors also is responsible for overseeing the activities of GPIM, an indirect subsidiary of Guggenheim Partners, with respect to its service as investment sub-adviser to Municipal Income Fund, pursuant to an investment sub-advisory agreement between Security Investors and GPIM (the “Sub-Advisory Agreement”).
GPIM serves as investment adviser with respect to each of Enhanced World Equity Fund, Floating Rate Strategies Fund, Limited Duration Fund, Macro Opportunities Fund and Total Return Bond Fund (collectively, the “GPIM-Advised Funds” and together with the SI-Advised Funds, the “Funds” and individually, a “Fund”). In this connection, the Trust and GPIM have entered into three separate investment advisory agreements which group the GPIM-Advised Funds as follows: (i) Enhanced World Equity Fund, the corresponding Predecessor Fund of which was a series of Security Equity Fund; (ii) Floating Rate Strategies Fund, Macro Opportunities Fund and Total Return Bond Fund, the corresponding Predecessor Funds of which were series of a common Corporation, Security Income Fund; and (iii) Limited Duration Fund, the corresponding Predecessor Fund of which was a series of Security Income Fund. (The investment management agreements pertaining to the SI-Advised Funds and the investment advisory agreements pertaining to the GPIM-Advised Funds are referred to herein together as the “Advisory Agreements” and, together with the Sub-Advisory Agreement, as the “Agreements.” In addition, unless the context indicates otherwise, GPIM, with respect to its service as investment adviser to the GPIM-Advised Funds, and Security Investors as to the SI-Advised Funds, are each referred to herein as the “Adviser” and together, the “Advisers.”) Under the supervision of the Board of Trustees of the Trust (the “Board” and the members of the Board individually, the “Trustees”), the Advisers regularly provide (or, as applicable, oversee the provision of) investment research, advice and supervision, a continuous investment program and direct the purchase and sale of securities and other investments for each Fund’s portfolio.
At a meeting held on November 11, 2013, in connection with other actions taken to pursue the Reorganizations, the Predecessor Board, including the Independent Directors, appointed each of the then-current investment manager/adviser for the Predecessor Funds to serve in such capacity to the corresponding New Series of the Trust (i.e., Security Investors and GPIM with respect to the SI-Advised Funds and the GPIM-Advised Funds, respectively). The Predecessor Board, including the Independent Directors, also approved for the Trust, on behalf of the New Series, the investment advisory and investment management agreements then in effect with respect to the Predecessor Funds (i.e., the Advisory Agreements and the Sub-Advisory Agreement). The sole initial shareholder of the New Series subsequently approved the Advisory Agreements and the Sub-Advisory Agreement, which are identical to the agreements then in place with respect to each of the Predecessor Funds in all material respects, except for the name of the signatory and the applicable state law, and became effective January 27, 2014.
At meetings held in person on April 17, 2014 (the “April Meeting”) and on May 12, 2014, (the “May Meeting”), the members of the Contracts Review Committee of the Board (the “Committee”), consisting solely of the Trustees who are not “interested persons,” as defined by the 1940 Act, of the Trust (the “Independent Trustees”), met separately from Guggenheim to consider the renewal of the Advisory Agreements and the Sub-Advisory Agreement in connection with the Committee’s annual contract review schedule.4 As part of its review process, the Committee was represented by independent legal counsel to the Independent Trustees (“Independent Legal Counsel”). Independent Legal Counsel reviewed and discussed with the Committee various key aspects of the Trustees’ legal responsibilities relating to the proposed renewal of the Agreements and other principal contracts. In this connection, Independent Legal Counsel advised the Committee of: (i) the responsibilities of board members under applicable law; (ii) the standards for determining what constitutes an excessive fee as delineated by the courts and the factors the Trustees should consider in determining whether to approve the fee arrangements; and (iii) the disclosure requirements pertaining to these approvals, as required by the Securities and Exchange Commission. The Committee took into account various materials received from Guggenheim and Independent Legal Counsel. Recognizing that the evaluation process with respect to the services provided by each of the Advisers is an ongoing one, the Committee also considered the variety of written materials, reports and oral presentations it received (and received by the full Board) throughout the year regarding performance and operating results of the Funds (which, as noted, reflects the accounting and performance histories of the Predecessor Funds).
In connection with the contract review process, FUSE Research Network LLC (“FUSE”), an independent, third party research provider, was engaged to prepare advisory contract renewal reports designed specifically to help boards of directors/trustees fulfill their advisory contract renewal responsibilities. The objective of the reports is to present the subject funds’ relative position regarding fees, expenses and total return performance, with peer group and universe comparisons. Guggenheim prepared a comprehensive presentation in response to a formal request for information sent by Independent Legal Counsel on behalf of the Committee. In addition, Guggenheim made a detailed presentation at the April Meeting, which addressed areas identified for discussion by the Committee Chair
4 | Since the corresponding Predecessor Fund of Enhanced World Equity Fund was subject to an investment management agreement approved by the Board of Directors of Security Equity Fund for an initial term of two years at an in-person meeting of the Board held on February 13, 2013 and because the Fund has a limited operating history, it was not included in the contract renewal process conducted in April and May 2014. Accordingly, references herein to the “Funds” should be understood as referring to all series of the Trust, excluding Enhanced World Equity Fund. In addition, references to the “Funds” should be understood as including Alpha Opportunity Fund. Since the Alpha Opportunity Fund Reorganization was not effected as of the April Meeting or May Meeting, the individuals who serve as the Independent Trustees, in their capacity as the Independent Directors of Security Equity Fund, considered the renewal of the Investment Management Agreement between Security Investors and Security Equity Fund, with respect to Alpha Opportunity Fund. Accordingly, all references hereafter to the steps taken by the “Independent Trustees” and the “Committee,” including the materials reviewed and factors considered, also refer to such parties in their corresponding capacities with respect to Alpha Opportunity Fund. Likewise, all action taken with respect to the Trust’s Advisory Agreements includes the Investment Management Agreement regarding Alpha Opportunity Fund. |
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and Vice Chair and Independent Legal Counsel. Throughout the process, the Committee asked questions of management and requested certain additional information which Guggenheim provided following the April Meeting (collectively with the foregoing reports and materials, the “Contract Materials”).
Among other things, Guggenheim provided: (i) organizational charts and presentations, staffing reports and biographies of those key personnel of each Adviser providing services to the Funds; (ii) descriptions of various functions performed by Guggenheim for the Funds, such as portfolio trading practices, brokerage matters, trade allocation and best execution; (iii) information regarding each Adviser’s compliance and regulatory history, including its Form ADV; and (iv) information concerning the parent company and overall Guggenheim organization and strategic plans and goals, all to assist the Committee in assessing the nature, extent and quality of services provided by each of Security Investors and GPIM, respectively. In addition, Guggenheim’s response included information comparing the investment performance, advisory fees and total expenses of the Funds to other funds (including such information presented in the FUSE reports as well as supplemental information prepared by Guggenheim), charts showing revenues for Guggenheim by product line and each Fund, including a break-out of various expenses, a description of the expense allocation methodology and information about the profitability of the Funds to Guggenheim Investments (the investment management business of Guggenheim Partners), financial information for Guggenheim Investments (unaudited), and information about Guggenheim’s compliance and risk management programs.
Following an analysis and discussion of the factors identified below and in the exercise of its business judgment, the Committee concluded that it was in the best interests of the Funds to recommend that the Board approve the renewal of each Advisory Agreement and the Sub-Advisory Agreement for an additional 12-month term.
Advisory Agreements
Nature, Extent and Quality of Services Provided by each Adviser: With respect to the nature, extent and quality of services currently provided by each Adviser, the Committee considered the information provided by Guggenheim concerning the education, experience, professional affiliations, area of responsibility and duties of all key personnel performing services for the Funds, including those personnel providing compliance oversight. In this connection, the Committee considered Guggenheim’s resources and related efforts to retain, attract and motivate capable personnel to serve the Funds and noted Guggenheim’s report on recent additions and departures in personnel who work on matters relating to the Funds or are significant to the operations of each Adviser. The Committee noted that on a regular basis the Board receives and reviews information from the Trust’s Chief Compliance Officer regarding compliance policies and procedures established pursuant to Rule 38a-1 under the 1940 Act. In addition, the Committee took into account the various compliance and risk management initiatives undertaken by Guggenheim, including, among other things, the hiring of a new Chief Risk Officer, Portfolio Management, responsible for implementing various initiatives related to the risks associated with the investment process, the organization’s risk management infrastructure and critical activities. The Committee also considered Guggenheim’s other initiatives intended to achieve greater enhancements and efficiencies in the organization’s ability to provide services to all of the registered investment companies for which Security Investors, GPIM or another Guggenheim affiliate serves as investment adviser/manager (including the Funds), such as efforts to streamline and simplify the organizational structure of Guggenheim’s advisory business, as reflected by the internal restructuring that consolidated the investment advisers, broker/dealers and other entities that comprise “Guggenheim Investments” under a new, single holding company, Guggenheim Partners Investment Management Holdings, LLC (“GPIMH”). In this regard, the Committee considered that although the restructuring neither impacted the services rendered on a day-to-day basis to the Funds nor changed the ultimate ownership of the various Guggenheim entities involved, which, through GPIMH, continue to be indirect subsidiaries of Guggenheim Capital, LLC, Guggenheim stated that the restructuring will allow the financial statements of the various entities to be consolidated and audited, thus providing a clearer view of Guggenheim Investments’ business within the broader Guggenheim organization. Moreover, in connection with the Committee’s evaluation of the overall package of services provided by each Adviser, the Committee considered each Adviser’s administrative capabilities, including its role in monitoring and coordinating compliance responsibilities with the fund administrator, transfer agent, distributor, custodian and other service providers to the Funds.
With respect to Guggenheim’s resources and the ability of each Adviser to carry out its responsibilities under the applicable Advisory Agreement, the Chief Financial Officer of Guggenheim Investments reviewed with the Committee certain unaudited financial information concerning GPIMH. (The Committee received the audited financial statements of GPIMH once available following the May Meeting.)
The Committee also considered the acceptability of the terms of each Advisory Agreement (including the scope of services required to be performed by each Adviser). Based on the foregoing, and based on other information received (both oral and written) at the April Meeting and at the May Meeting, as well as other considerations, including the Committee’s knowledge of each Adviser’s quality of performance of its duties through Board meetings, discussions, and reports throughout the year, the Committee concluded that each Adviser and its personnel were qualified to serve the Funds in such capacity and may reasonably be expected to continue to provide a high quality of services under each Advisory Agreement with respect to the Funds.
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Investment Performance: The Committee received for each Fund investment returns for the five-year, three-year, one-year and three-month periods ended December 31, 2013, as applicable. In addition, the Committee received a comparison of each Fund’s performance to the performance of a benchmark, a peer group of similar funds and a broader universe of funds identified by FUSE, in each case for the same periods and, with respect to performance universe rankings for each Fund as to the returns of Class A shares, also for the ten-year period ended December 31, 2013, as applicable. The Committee received from FUSE representatives and considered a description of the methodology employed by FUSE for identifying each Fund’s peer group and universe for performance and expense comparisons.
In seeking to evaluate Fund performance over a full market cycle, the Committee generally focused its attention first on five- and three-year performance rankings as compared to the relevant universe of funds, but also considered more recent performance periods, including the one-year period and, as deemed appropriate, the three-month period, for certain Funds such as for those Funds that were recently launched or had undergone recent changes in the composition of the portfolio management team and/or the investment strategies employed. In this connection, the Committee made the following observations:
• | Alpha Opportunity Fund: The Fund’s Class A shares outperformed the performance universe median for the five- and three-year periods, ranking in the 1st percentile for both periods. In light of the resignation of Mainstream Investment Advisors, LLC, effective, September 30, 2013, as the Fund’s sub- adviser for the domestic long/short sub-portfolio of the Fund, the Committee also considered more recent performance periods, including the one-year period and the three-month period.5 In this connection, the Committee noted that Security Investors assumed investment management responsibility for the domestic long/short sub-portfolio as of September 30, 2013. The Committee observed that the Fund’s Class A shares outperformed the performance universe median for the one-year and three-month periods ended December 31, 2013, ranking in the 5th and 13th percentile, respectively. The Committee also noted information provided by Guggenheim that the Fund’s performance for the periods ended December 31, 2013 was comparable to the Fund’s benchmark, the S&P 500 Index, for the one- and three-year periods and better than the Fund’s benchmark for the five-year period, and lagged the benchmark for the three-month period. The Committee also considered the circumstances affecting the management of the Fund as a result of the Fund’s prime broker, Lehman Brothers International Europe (“LBIE”), being placed into administration on September 15, 2008. The Fund’s exposure to LBIE consists of short sale proceeds held by LBIE, and restricted long positions held at the Fund’s custodian, as collateral for such short sales. Until such time as the liability for short sales was settled and all restrictions were removed by LBIE and Lehman Brothers, Inc. (“LBI”), the Fund could not sell such restricted long positions and/or utilize the restricted cash balances to achieve the Fund’s investment objectives and/or meet Fund redemptions or other Fund obligations. In evaluating the services provided by the Adviser and the performance of the Fund, the Committee also considered Guggenheim’s efforts to resolve the issues with LBIE and LBI and to seek the release of the collateral by LBIE and LBI in conjunction with the potential settlement of LBIE’s claim. In addition, the Committee took into account information received from Guggenheim regarding the minimum assets required to manage the Fund’s assets consistent with the Fund’s investment objectives and the undertaking made by Guggenheim to assure adequate liquidity to meet Fund redemptions. | ||
• | Floating Rate Strategies Fund: The returns of the Class A shares exceeded the median of its performance universe in both the one-year and three- month periods, ranking in the 19th and 32nd percentile, respectively. The Fund, which commenced operations on November 30, 2011, also outperformed its benchmark, the Credit Suisse Leveraged Loan Index for the one-year and three-month periods, according to information provided by Guggenheim. | ||
• | High Yield Fund: While the returns of the Class A shares underperformed the median of its performance universe for the three-year period and ranked in the third quartile (72nd percentile), returns for the five-year period exceeded the performance universe median and ranked in the first quartile (4th percentile) and recent performance for the one-year period also ranked in the first quartile (3rd percentile). The Committee also noted information provided by Guggenheim that the Fund outperformed its benchmark, the Barclays Capital U.S. Corporate High Yield Index, for the five- year and one-year periods, but lagged the benchmark for the three-year period and that the current portfolio management team for the Fund began management in August 2012 and, since that time period, performance has ranked in the first quartile and has outperformed its benchmark. In light of the foregoing, the Committee focused, in particular, on the Fund’s recent performance, including the one-year and three-month periods ended December 31, 2013, and, with respect to the latter, noted that the FUSE report ranked the Fund in the first quartile (1st percentile). | ||
• | Investment Grade Bond Fund: The Fund’s Class A shares outperformed the performance universe median for the five- and three-year periods, ranking in the 46th and 8th percentile, respectively. The Committee also noted information provided by Guggenheim that the Fund outperformed its benchmark, the Barclays Capital U.S. Aggregate Index, for the five-year and three-year periods and that the current portfolio manager began | ||
5 | Prior to September 30, 2013, Mainstream Investment Advisers, LLC (“Mainstream”) acted as sub-adviser to Alpha Opportunity Fund. Pursuant to an investment sub-advisory agreement, Mainstream furnished investment advisory services, supervised and arranged for the purchase and sale of securities on behalf of a portion of the assets of Alpha Opportunity Fund and provided for the compilation and maintenance of records pertaining to such investment advisory services, subject to the supervision of Security Investors and the Board of Directors of Security Equity Fund. Effective September 30, 2013, Mainstream resigned as sub-adviser to Alpha Opportunity Fund and Security Investors assumed all advisory obligations and responsibilities. |
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management in August 2012 and, since that time, performance has been in the 1st quartile. The Committee considered that the FUSE report listed the Fund’s performance for the one-year and three-month periods in the 1st percentile and 4th percentile, respectively. | |||
• | Large Cap Value Fund: The returns of the Class A shares exceeded the median of the performance universe for the five-year period, but underperformed the median for the three-year and one-year periods and ranked in the 49th percentile, 79th percentile and 55th percentile for the five-, three- and one- year periods, respectively. The Committee concluded that longer-term performance and other factors relevant to performance were sufficient to warrant continuation of the Advisory Agreement with respect to the Fund. In this regard, the Committee considered that the Adviser had taken steps designed to mitigate risks associated with the portfolio by enhancing the risk management and portfolio analytics processes. The Committee also noted the presentation provided by the Fund’s portfolio manager at the April Meeting, as requested by the Committee. The Committee took into account the portfolio management team’s view that market conditions over the past several years have posed challenges for disciplined, long-term value investors, the long-term investment process employed for the Fund remains effective and, importantly, Guggenheim’s senior personnel responsible for overseeing performance supported this view and expressed confidence in the team’s capabilities, noting that, according to Morningstar peer group rankings based on total returns as of March 31, 2014, the Fund ranked in the 1st quartile (18th percentile) for the year-to-date. In light of all of the foregoing, the Committee determined to consider a longer term performance track record as part of its assessment of Fund performance and took into account the additional performance metrics provided by Guggenheim, including information that, as of December 31, 2013, the Fund ranked in the 25th percentile of its peer group since inception (July 1, 2005) based on gross returns. | ||
• | Macro Opportunities Fund: The returns of the Fund’s Class A shares ranked in the 13th and 1st percentile of its performance universe for the one-year and three-month periods, respectively, and outperformed the performance universe median for each of these periods. The Committee considered information provided by Guggenheim indicating that the Fund, which commenced operations on November 30, 2011, outperformed its benchmark, the Bank of America Merrill Lynch 3-Month U.S. Treasury Bill Index, for the one-year and three-month periods ended December 31, 2013. | ||
• | Mid Cap Value Fund: The returns of the Class A shares underperformed the performance universe median for the five-year, three-year and one-year periods and ranked in the 83rd, 67th and 79th percentile for the five-year, three-year and one-year periods, respectively. The Committee concluded that longer-term performance and other factors relevant to performance were sufficient to warrant continuation of the Advisory Agreement with respect to the Fund. In this regard, the Committee considered that the Adviser had taken steps designed to mitigate risks associated with the portfolio by enhancing the risk management and portfolio analytics processes. The Committee also noted the presentation provided by the Fund’s portfolio manager at the April Meeting, as requested by the Committee. The Committee took into account the portfolio management team’s view that market conditions over the past several years have posed challenges for disciplined, long-term value investors, the long-term investment process employed for the Fund remains effective and, importantly, Guggenheim’s senior personnel responsible for overseeing performance supported this view and expressed confidence in the team’s capabilities, noting that, according to Morningstar peer group rankings based on total returns as of March 31, 2014, the Fund ranked in the 1st quartile (13th percentile) for the year-to-date. The Committee also noted Guggenheim’s statement that the underperformance is heavily influenced by the lagging performance in calendar year 2011 where growth and large cap stocks were rewarded over value and small cap. In light of all of the foregoing, the Committee determined to consider a longer term performance track record as a part of its assessment of Fund performance and, in this regard, noted that the FUSE report listed the Fund’s performance for the ten-year period ended December 31, 2013 in the 1st quartile (11th percentile) and that, according to Guggenheim, the Fund outperformed its benchmark over the same period and since inception. | ||
• | Mid Cap Value Institutional: The Fund’s returns underperformed the performance universe median for the five-year, three-year and one-year periods and ranked in the 69th, 80th and 83rd percentile for the five-year, three-year and one-year periods, respectively. However, the Committee concluded that other factors relevant to performance were sufficient to warrant continuation of the Advisory Agreement with respect to the Fund. In this connection, the Committee considered the presentation provided by the Fund’s portfolio management team at the April Meeting, as requested by the Committee. The Committee also took into account the portfolio management team’s view that market conditions over the past several years have posed challenges for disciplined, long-term value investors, the long-term investment process employed for the Fund remains effective and, importantly, Guggenheim’s senior personnel responsible for overseeing performance supported this view and expressed confidence in the team’s capabilities, noting that, according to Morningstar peer group rankings based on total returns as of March 31, 2014, the Fund ranked in the 1st quartile (14th percentile) for the year-to-date. The Committee also noted Guggenheim’s statement that the underperformance is heavily influenced by the lagging performance in calendar year 2011 where growth and large cap stocks were rewarded over value and small cap stocks. |
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• | Municipal Income Fund: The Committee considered that Security Investors does not directly manage the investment portfolio but has delegated such duties to GPIM. Based on the information provided and the review of the Fund’s investment performance, the Committee concluded that Security Investors had appropriately reviewed and monitored GPIM’s investment performance as Sub-Adviser to the Fund. | ||
• | Small Cap Value Fund: The returns of the Fund’s Class A shares exceeded the median of its performance universe for the five-year and three-year periods, ranking in the 6th and 45th percentile, respectively. The Committee also considered information provided by Guggenheim stating that the Fund’s performance exceeded its benchmark, the Russell 2000 Value Index, for the five-year and three-year periods ended December 31, 2013. The Committee also noted supplemental information provided by the Fund’s portfolio management team indicating that since inception (August 1, 2008), the Fund has ranked in the 1st percentile of its peer group based on gross returns. | ||
• | StylePlus—Large Core: The Fund’s Class A shares underperformed the performance universe median for the five-year and three-year periods, ranking in the 78th and 93rd percentile, respectively. However, the Committee concluded that other factors relevant to performance were sufficient to warrant continuation of the Advisory Agreement with respect to the Fund, including that the Adviser had taken steps designed to help improve the Fund’s investment performance by implementing a strategy change along with a new portfolio management team. In this regard, the Committee considered that the Fund’s current portfolio management team assumed responsibility for management of the Fund on May 1, 2013. In light of the foregoing, the Committee took into account Guggenheim’s statement that the Fund’s performance has improved since the changes were implemented and that the Fund’s annualized net return for the period from May 1, 2013 through December 31, 2013 was 16.86%, as compared to the 17.43% return of the Fund’s benchmark, the S&P 500 Index, and outperformed the benchmark for the three-month period ended December 31, 2013. The Committee also considered that the FUSE report listed the Fund’s performance for the three-month period ended December 31, 2013 in the 1st quartile (25th percentile). Finally, the Committee noted that according to Morningstar peer group rankings based on total returns as of March 31, 2014, as provided by Guggenheim, the Fund ranked in the 1st quartile (14th percentile) for the year-to-date. | ||
• | StylePlus—Mid Growth: The Fund’s Class A shares underperformed the performance universe median for the five-year and three-year periods, ranking in the 70th and 78th percentile, respectively. However, the Committee concluded that other factors relevant to performance were sufficient to warrant continuation of the Advisory Agreement with respect to the Fund, including that the Adviser had taken steps designed to help improve the Fund’s investment performance by implementing a strategy change along with a new portfolio management team. In this regard, the Committee considered that the Fund’s current portfolio management team assumed responsibility for management of the Fund on May 1, 2013. In light of the foregoing, the Committee took into account Guggenheim’s statement that the Fund’s performance has improved since the changes were implemented and that the Fund’s annualized net return for period from May 1, 2013 through December 31, 2013 was 19.88%, as compared to the 19.97% return of the Fund’s benchmark, the Russell Mid Cap Growth Index, and outperformed the benchmark for the three-month period ended December 31, 2013. The Committee also considered that the FUSE report listed the Fund’s performance for the three-month period ended December 31, 2013 in the 40th percentile. Finally, the Committee noted that according to Morningstar peer group rankings based on total returns as of March 31, 2014, as provided by Guggenheim, the Fund ranked in the 1st quartile (22nd percentile) for the year-to-date. | ||
• | Total Return Bond Fund: The returns of the Fund’s Class A shares ranked in the 1st quartile (the 3rd and 4th percentile, respectively) of its performance universe for the one-year and three-month periods, respectively. The Committee considered information provided by Guggenheim indicating that the Fund, which commenced operations on November 30, 2011, outperformed its benchmark, the Barclays Capital U.S. Aggregate Index, as well as the Fund’s peer group average, for the one-year and three-month periods ended December 31, 2013. | ||
• | World Equity Income Fund: The Fund’s Class A shares underperformed the performance universe median for the five-year and three-year periods, ranking in the 96th and 95th percentile, respectively. However, the Committee concluded that other factors relevant to performance were sufficient to warrant continuation of the Advisory Agreement with respect to the Fund, including that the Adviser had taken steps designed to help improve the Fund’s investment performance by implementing a strategy change along with a new portfolio management team in August 2013. Thus, the Committee took into account that according to Morningstar peer group rankings based on total returns as of March 31, 2014, as provided by Guggenheim, the Fund ranked in the 1st quartile (12th percentile) for the year-to-date and outperformed its benchmark, the MSCI World Index, over the same period. |
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After reviewing the foregoing and related factors, the Committee concluded, within the context of its overall conclusions regarding the Advisory Agreements, that: (i) each Fund’s performance was acceptable; or (ii) it was satisfied with Guggenheim’s responses and efforts relating to investment performance.
Comparative Fees, Costs of Services Provided and the Profits Realized by the Investment Manager from its Relationship with the Funds: The Committee compared each Fund’s contractual advisory fee and total net expense ratio to the applicable peer group and compared each Fund’s total net expense ratio to its universe of funds for the various classes. The Committee also reviewed the median advisory fees and expense ratios, including expense ratio components (e.g., transfer agency fees, administration fees, other operating expenses, distribution fees and fee waivers/reimbursements) of the peer group of funds. In addition, the Committee considered each Fund’s advisory fee as compared to the advisory fee charged by the applicable Adviser to another fund with a similar investment objective and strategies, as applicable, noting that, in certain instances, the Adviser charges a lower advisory fee to other clients for which it provides comparable services. In this regard, the Committee considered Guggenheim’s explanation that lower fees are charged in certain instances due to numerous factors, including the scope of contract, types of investors, applicable regulation and legal structures, tax status, and for historical pricing reasons.
In further considering the comparative fee and expense data presented in the Contract Materials and addressed by Guggenheim, the Committee made the following observations:
• | Alpha Opportunity Fund: The average contractual advisory fee percentile rank across all share classes of the Fund is below the median of its peer group (39th percentile) and the asset weighted total net expense ratio is in the third quartile (72nd percentile). In addition, the Adviser has entered into an expense limitation agreement with respect to the Fund. | ||
• | Floating Rate Strategies Fund: The average contractual advisory fee percentile rank across all share classes of the Fund is in the third quartile (64th percentile) of its peer group and the asset weighted total net expense ratio is below the peer group median (36th percentile). In addition, the Adviser has entered into an expense limitation agreement with respect to the Fund. | ||
• | High Yield Fund: The average contractual advisory fee percentile rank across all share classes of the Fund is below the median of its peer group (41st percentile) and the asset weighted total net expense ratio is in the third quartile (63rd percentile). In addition, the Adviser has entered into an expense limitation agreement with respect to the Fund. | ||
• | Investment Grade Bond Fund: The average contractual advisory fee percentile rank across all share classes of the Fund is at the 51st percentile of its peer group and the asset weighted total net expense ratio is in the fourth quartile (88th percentile). In addition, the Adviser has entered into an expense limitation agreement with respect to the Fund. | ||
• | Large Cap Value Fund: The average contractual advisory fee percentile rank across all share classes of the Fund and the asset weighted total net expense ratio are each below the peer group median (at the 30th and 19th percentile, respectively). In addition, the Adviser has entered into an expense limitation agreement with respect to the Fund. | ||
• | Macro Opportunities Fund: The average contractual advisory fee percentile rank across all share classes of the Fund is in the fourth quartile (89th percentile) of its peer group and the asset weighted total net expense ratio is in the third quartile (65th percentile). The Committee considered Guggenheim’s statement that the Fund is unique to its peer group in that it has a broader investment mandate with greater opportunistic fiexibility. In this connection, the Committee noted that the Fund’s performance has been relatively strong. In addition, the Adviser has entered into an expense limitation agreement with respect to the Fund. | ||
• | Mid Cap Value Fund: The average contractual advisory fee percentile rank across all share classes of the Fund is in the fourth quartile (85th percentile) of its peer group and the asset weighted total net expense ratio is in the third quartile (72nd percentile). Although higher than median, the contractual advisory fee and the total net expense ratio for each class of shares was within a competitive range of the median of the peer group. For example, the Class A contractual advisory fee of 0.79% is 2 basis points above the peer group median and the total net expense ratio of 1.39% is 9 basis points above the peer group median. | ||
• | Mid Cap Value Institutional Fund: The contractual advisory fee percentile rank is in the first quartile (17th percentile) of its peer group and the total net expense ratio is in the third quartile (67th percentile) of its peer group. | ||
• | Municipal Income Fund: The average contractual advisory fee percentile rank across all share classes of the Fund is in the first quartile (8th percentile) of its peer group and the asset weighted total net expense ratio is in the 55th percentile. In addition, the Adviser has entered into an expense limitation agreement with respect to the Fund. |
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• | Small Cap Value Fund: The average contractual advisory fee percentile rank across all share classes of the Fund is in the fourth quartile (77th percentile) of its peer group and the asset weighted total net expense ratio is below the peer group median (43rd percentile). The Committee also considered that the Fund’s long-term performance has been strong. In addition, the Adviser has entered into an expense limitation agreement with respect to the Fund. | |||
• | StylePlus—Large Core: The average contractual advisory fee percentile rank across all share classes of the Fund is in the third quartile (67th percentile) of its peer group and the asset weighted total net expense ratio is in the fourth quartile (92nd percentile). Although the total net expense ratio for each class is higher than its peer group median, the contractual advisory fee (0.75%), at four to five basis above the peer group median for each class, was deemed to be within a reasonable range. | |||
• | StylePlus—Mid Growth: The average contractual advisory fee percentile rank across all share classes of the Fund is in the first quartile (23rd percentile) and the asset weighted total net expense ratio is in the fourth quartile (93rd percentile) of its peer group. The Committee noted Guggenheim’s statement that the Fund’s total net expense ratio is slightly higher but comparable to its peer group average. | |||
• | Total Return Bond Fund: The average contractual advisory fee percentile rank across all share classes of the Fund is in the third quartile (63rd percentile) of its peer group and the asset weighted total net expense ratio is below the peer group median (28th percentile). In addition, the Adviser has entered into an expense limitation agreement with respect to the Fund. | |||
• | World Equity Income Fund: The average contractual advisory fee percentile rank across all share classes of the Fund is below the peer group median (45th percentile) and the Fund’s asset weighted total net expense ratio is in the fourth quartile (88th percentile) of its peer group. | |||
With respect to the costs of services provided and profits realized by Guggenheim from its relationship with the Funds, the Committee reviewed a profit and loss statement for each Fund setting forth the revenues received from gross advisory fees, the expenses incurred in providing services to the Funds, the pre-tax operating margin and profitability rate and each Fund’s average assets for the twelve months ended December 31, 2012 and December 31, 2013, and information with respect to Guggenheim’s allocation methodologies used in preparing the profitability data.
The Committee considered other benefits available to each Adviser because of its relationship with the Funds and noted that Security Investors and GPIM may be deemed to benefit from arrangements whereby an affiliate, Rydex Fund Services, LLC, receives fees for: (i) performing certain administrative functions and bookkeeping, accounting and pricing functions for the Funds pursuant to a Fund Accounting and Administration Agreement; and (ii) acting as transfer agent for the Funds and performing all shareholder servicing functions, including transferring record ownership, processing purchase and redemption transactions, answering inquiries, mailing shareholder communications, and acting as the dividend disbursing agent pursuant to a Transfer Agency Agreement. The Committee reviewed the compensation arrangements for the provision of the foregoing services. The Committee also noted Guggenheim’s statement that it may benefit from marketing synergies arising from offering a broad spectrum of products, including the Funds. Based on all of the information provided and its review, the Committee determined that Guggenheim’s profitability from its relationship with the Funds was not unreasonable.
Economies of Scale to be Realized: The Committee received and considered information regarding whether there have been economies of scale with respect to the management of the Funds as Fund assets grow, whether the Funds has appropriately benefited from any economies of scale, and whether there is potential for realization of any further economies of scale. The Committee considered whether economies of scale in the provision of services to the Funds were being passed along to the shareholders. In this connection, the Committee considered management’s view that Guggenheim continues to add system resources as required to develop its infrastructure in response to the growth in the firm’s assets and there is an opportunity to optimize economies of scale across the firm’s array of products and product lines. Therefore, although Guggenheim may be realizing economies of scale and efficiencies due to its growth, it is concurrently realizing new costs and expenses associated with investment in its infrastructure.
In addition, the Committee considered the size of the Funds and the competitiveness of and/or other determinations made regarding the current advisory fee for each Fund. The Committee also took into account Guggenheim’s statement that generally the Funds’ assets are not sufficiently large to warrant breakpoints, with only four Funds—Floating Rate Strategies Fund, Macro Opportunities Fund, Mid Cap Value Fund and Mid Cap Value Institutional Fund—having assets in excess of $500 million as of March 13, 2014. With respect to the four Funds noted, the Committee noted that none of the Funds had levels of profitability that were outliers and made the following observations:
• | Floating Rate Strategies Fund: The Adviser has entered into an expense limitation agreement with respect to the Fund. In addition, the Fund’s asset weighted total net expense ratio is below the peer group median (36th percentile). |
THE GUGGENHEIM FUNDS ANNUAL REPORT | 31 |
• | Macro Opportunities Fund: The Fund is relatively new and the Adviser has entered into an expense limitation agreement with respect to the Fund. Although the contractual advisory fee is in the fourth quartile of its peer group, the total net expense ratio is competitive with the peer group median. In addition, as noted, the Committee considered Guggenheim’s statement that the Fund is unique to its peer group in that it has a broader investment mandate with greater opportunistic fiexibility. | ||
• | Mid Cap Value Fund: The Fund’s contractual advisory fee is in line with the peer group median and the total net expense ratio is competitive with the peer group median. | ||
• | Mid Cap Value Institutional Fund: The Fund’s contractual advisory fee ranks in the first quartile (17th percentile) of its peer group and the total net expense ratio is competitive with the peer group median. | ||
The Committee determined that the advisory fee structure for the Funds was reasonable. |
Sub-Advisory Agreement
Nature, Extent and Quality of Services Provided by the Sub-Adviser: With respect to the nature, extent and quality of services provided by GPIM (referred to in this discussion as the “Sub-Adviser”), the Committee considered the qualifications, experience and skills of the Sub-Adviser’s portfolio management and other key personnel and information from the Sub-Adviser describing the scope of its services to Municipal Income Fund. The Committee also considered the information provided by the Sub-Adviser concerning the Sub-Adviser’s investment practices and techniques, risk management processes, compliance policies and procedures, brokerage allocation, best execution and trade allocation, among other things. With respect to Guggenheim’s resources and the Sub-Adviser’s ability to carry out its responsibilities under the Sub-Advisory Agreement, the Committee recalled the review of certain unaudited financial information concerning GPIMH by the Chief Financial Officer of Guggenheim Investments.
The Committee also considered the acceptability of the terms of the Sub-Advisory Agreement. Based on the foregoing, and based on other information received (both oral and written) at the April Meeting and at the May Meeting, as well as other considerations, including the Committee’s knowledge of the Sub-Adviser’s quality of performance of its duties through Board meetings, discussions and reports throughout the year, the Committee concluded that the Sub-Adviser and its personnel were qualified to serve Municipal Income Fund in such capacity and may reasonably be expected to continue to provide a high quality of services under the Sub-Advisory Agreement.
Investment Performance: The Committee considered that the returns of the Fund’s Class A shares exceeded the median of its performance universe for the five-year period and underperformed the median for the three-year period and ranked in the 1st percentile and 82nd percentile, respectively. The Committee took into account information provided by Guggenheim stating that the Fund’s performance for the periods ended December 31, 2013 outperformed the Fund’s benchmark, the Barclays Capital U.S. Municipal Long Bond Index, for the one-year and three-month periods, lagged the benchmark for the three-year period and outperformed the benchmark for the five-year period. In light of the foregoing, the Committee also noted that the FUSE report listed the Fund’s performance for the three-month period ended December 31, 2013 in the 1st quartile (9th percentile). In addition, the Committee considered Guggenheim’s statement that the Fund was converted from a closed-end fund in January 2012 and since the conversion has outperformed its benchmark.
Comparative Fees, Costs of Services Provided and the Profits Realized by the Sub-Adviser from its Relationship with the Fund: The Committee reviewed the level of sub-advisory fees payable to GPIM, noting that the fees would be paid by Security Investors and do not impact the fees paid by the Fund. The Committee also compared the sub-advisory fee paid by the Adviser to the Sub-Adviser to the fees charged by the Sub-Adviser to other clients including other registered investment companies.
Economies of Scale to be Realized: The Committee recognized that, because the Sub-Adviser’s fees would be paid by the Adviser and not the Fund, the analysis of economies of scale was more appropriate in the context of the Committee’s consideration of the applicable Advisory Agreement, which was separately considered. (See “Advisory Agreements – Economies of Scale to be Realized” above.)
Overall Conclusions
Based on the foregoing, the Committee determined that the investment advisory fees are fair and reasonable in light of the extent and quality of the services provided and other benefits received and that the continuation of the Agreements is in the best interests of each Fund. In reaching this conclusion, no single factor was determinative and each Committee member, in the exercise of his business judgment, may attribute different weights to different factors. At the May Meeting, the Committee, constituting all of the Independent Trustees, recommended the renewal of each Advisory Agreement and the Sub-Advisory Agreement for an additional 12-month term.
32 | | | THE GUGGENHEIM FUNDS ANNUAL REPORT |
INFORMATION ON BOARD OF TRUSTEES AND OFFICERS (Unaudited) | |||
Term of Office | Number of Portfolios in | |||||||||
Name, Address* and Year of Birth | Position(s) Held with the Trust | and Length of Time Served** | Principal Occupation(s) During Past Five Years | Fund Complex Overseen | Other Directorships Held by Trustees | |||||
INDEPENDENT TRUSTEES | ||||||||||
Randall C. Barnes (1951) | Trustee | Since 2014 | Current: Private Investor (2001-present). Former: Senior Vice President and Treasurer, PepsiCo, Inc. (1993-1997); President, Pizza Hut International (1991-1993); Senior Vice President, Strategic Planning and New Business Development, PepsiCo, Inc. (1987-1990). | 92 | Current: Trustee, Purpose, Inc. (2014-present). | |||||
Donald A. Chubb, Jr. (1946) | Trustee and Vice Chairman of the Board | Since 1994 | Current: Business broker and manager of commercial real estate, Griffith & Blair, Inc.(1997-present). | 88 | None. | |||||
Jerry B. Farley (1946) | Trustee and Vice Chairman of the Audit Committee | Since 2005 | Current: President, Washburn University(1997-present). | 88 | Current: Westar Energy, Inc. (2004-present);Core First Bank & Trust(2000-present). | |||||
Roman Friedrich III (1946) | Trustee and Chairman of the Contracts Review Committee | Since 2014 | Current: Founder and President, Roman Friedrich & Company (1998-present). | 88 | Current: Zincore Metals, Inc. (2009-present). | |||||
Former: Senior Managing Director, MLV & Co. LLC (2010-2011). | Former: Mercator Minerals Ltd. (2013-2014); First. Americas Gold Corp.(2012-2014); Blue Sky Uranium Corp. (2011-2012);Axiom Gold and Silver Corp. (2011-2012);Stratagold Corp.(2003-2009); GFM Resources Ltd. (2005-2010). | |||||||||
Robert B. Karn III (1942) | Trustee and Chairman of the Audit Committee | Since 2014 | Current: Consultant (1998-present). Former: Arthur Andersen (1965-1997) and Managing Partner, Financial and Economic Consulting, St. Louis office (1987-1997). | 88 | Current: Peabody Energy Company (2003-present);GP Natural Resource Partners, LLC (2002- present). | |||||
Ronald A. Nyberg (1953) | Trustee and Chairman of the Nominating and Governance Committee | Since 2014 | Current: Partner, Nyberg & Cassioppi, LLC(2000-present). Former: Executive Vice President, General Counsel, and Corporate Secretary, Van Kampen Investments (1982-1999). | 94 | Current: Edward-Elmhurst Healthcare System(2012-present). | |||||
Maynard F. Oliverius (1943) | Trustee and Vice Chairman of the Contracts Review Committee | Since 1998 | Retired. Former: President and CEO, Stormont-Vail HealthCare (1996-2012). | 88 | None. | |||||
Ronald E. Toupin, Jr. (1958) | Trustee and Chairman of the Board | Since 2014 | Current: Portfolio Consultant (2010-present). | 91 | Former: Bennett Group of Funds (2011-2013). | |||||
Former: Vice President, Manager and Portfolio Manager, Nuveen Asset Management(1998-1999); Vice President, Nuveen Investment Advisory Corp. (1992-1999);Vice President and Manager, Nuveen Unit Investment Trusts (1991-1999); and Assistant Vice President and Portfolio Manager, Nuveen Unit Investment Trusts (1988-1999), each of John Nuveen & Co., Inc. (1982-1999). | ||||||||||
INTERESTED TRUSTEE | ||||||||||
Donald C. Cacciapaglia*** (1951) | President, Chief Executive Officer and Trustee | Since 2012 | Current: President and CEO, certain other funds in the Fund Complex (2012-present); Vice Chairman, Guggenheim Investments(2010-present). Former: Chairman and CEO, Channel Capital Group, Inc. (2002-2010). | 220 | Current: Delaware Life(2013-present); Guggenheim Life and Annuity Company(2011-present); Paragon Life Insurance Company of Indiana(2011-present). | |||||
* | The business address of each Trustee is c/o Guggenheim Investments, 805 King Farm Boulevard, Suite 600, Rockville, Maryland 20850 |
** | Each Trustee serves an indefinite term, until his successor is elected and qualified. Time served includes time served in the respective position for the Predecessor Corporation. |
*** | This Trustee is deemed to be an “interested person” of the Funds under the 1940 Act by reason of his position with the Funds’ Investment Manager and/or the parent of the Investment Manager. |
THE GUGGENHEIM FUNDS ANNUAL REPORT | 33 |
INFORMATION ON BOARD OF TRUSTEES AND OFFICERS (Unaudited) (concluded) | |||
Name, Address* and Year of Birth | Position(s) Held with the Trust | Term of Office and Length of Time Served** | Principal Occupation(s) During Past Five Years | ||||
OFFICERS | |||||||
Joseph M. Arruda (1966) | Assistant Treasurer | Since 2010 | Current: Assistant Treasurer, certain other funds in the Fund Complex (2006-present); Vice President, Security Investors, LLC (2010-present); CFO and Manager, Guggenheim Specialized Products, LLC (2009-present). Former: Vice President, Security Global Investors, LLC (2010-2011); Vice President, Rydex Advisors, LLC (2010); Vice President, Rydex Advisors II, LLC (2010). | ||||
William H. Belden, III (1965) | Vice President | Since 2014 | Current: Vice President, certain other funds in the Fund Complex (2006-present); Managing Director, Guggenheim Funds Investment Advisors, LLC (2005-present). Former: Vice President of Management, Northern Trust Global Investments (1999-2005). | ||||
Mark J. Furjanic (1959) | Assistant Treasurer | Since 2014 | Current: Vice President, Guggenheim Investments (2005-present); Assistant Treasurer, certain other funds in the Fund Complex (2008-present). Former: Senior Manager, Ernst & Young LLP (1999-2005). | ||||
James Howley (1972) | Assistant Treasurer | Since 2014 | Current: Director, Guggenheim Investments (2004-present) ; Assistant Treasurer, certain other funds in the Fund Complex (2006-present). Former: Manager, Mutual Fund Administration of Van Kampen Investments, Inc. (1996-2004). | ||||
Amy J. Lee (1961) | Vice President and Chief Legal Officer | Since 1987 (Secretary) Since 2007 (Vice President) | Current: Chief Legal Officer, certain other funds in the Fund Complex (2012-present); Senior Managing Director, Guggenheim Investments (2012-present). Former: Vice President, Associate General Counsel and Assistant Secretary, Security Benefit Life Insurance Company and Security Benefit Corporation (2004-2012). | ||||
Mark E. Mathiasen (1978) | Secretary | Since 2014 | Current: Secretary, certain other funds in the Fund Complex (2007-present); Managing Director, Guggenheim Investments (2007-present). | ||||
Michael P. Megaris (1984) | Assistant Secretary | Since 2014 | Current: Assistant Secretary, certain other funds in the Fund Complex (April 2014-present); Associate, Guggenheim Investments (2012-present). Former: J.D., University of Kansas School of Law (2009-2012). | ||||
Elisabeth Miller (1968) | Chief Compliance Officer | Since 2012 | Current: CCO, certain other funds in the Fund Complex (2012-present); CCO, Security Investors, LLC (2012-present); CCO, Guggenheim Funds Investment Advisors, LLC (2012-present); Vice President, Guggenheim Funds Distributors, LLC (March 2014-present). Former: CCO, Guggenheim Distributors, LLC (2009-March 2014); Senior Manager, Security Investors, LLC(2004-2009); Senior Manager, Guggenheim Distributors, LLC (2004-2009). | ||||
Alison Santay (1974) | AML Officer | Since 2013 | Current: AML Officer, certain other funds in the Fund Complex (2010-present); Director and AML Officer, Rydex Fund Services, LLC (2010-present); AML Officer, Security Investors, LLC (2010-present); Director, Shareholder Risk and Compliance, Rydex Fund Services, LLC (2004-present). Former: AML Officer, Guggenheim Distributors, LLC (2013-March 2014). | ||||
Kimberly Scott (1974) | Assistant Treasurer | Since 2014 | Current: Vice President, Guggenheim Investments (2012-present) ; Assistant Treasurer, certain other funds in the Fund Complex (2012-present). Former: Financial Reporting Manager, Invesco, Ltd. (2010-2011); Vice President/Assistant Treasurer, Mutual Fund Administration for Van Kampen Investments, Inc./Morgan Stanley Investment Management (2009-2010); Manager of Mutual Fund Administration, Van Kampen Investments, Inc./Morgan Stanley Investment Management (2005-2009). | ||||
Bryan Stone (1979) | Vice President | Since 2014 | Current: Vice President, certain other funds in the Fund Complex (April 2014-present); Director, Guggenheim Investments (2013-present). Former: Senior Vice President, Neuberger Berman Group LLC (2009-2013); Vice President, Morgan Stanley (2002-2009). | ||||
John L. Sullivan (1955) | Chief Financial Officer and Treasurer | Since 2014 | Current: CFO, Chief Accounting Officer and Treasurer, certain other funds in the Fund Complex(2010-present); Senior Managing Director, Guggenheim Investments (2010-present). Former: Managing Director and CCO, each of the funds in the Van Kampen Investments fund complex(2004-2010); Managing Director and Head of Fund Accounting and Administration, Morgan Stanley Investment Management (2002-2004); CFO and Treasurer, Van Kampen Funds (1996-2004). | ||||
* | The business address of each officer is c/o Guggenheim Investments, 805 King Farm Boulevard, Suite 600, Rockville, Maryland 20850. |
** | Each officer serves an indefinite term, until his or her successor is duly elected and qualified. Time served includes time served in the respective position for the Predecessor Corporation |
34 | | | THE GUGGENHEIM FUNDS ANNUAL REPORT |
Rydex Funds, Guggenheim Funds, Rydex Investments, Guggenheim Funds Distributors, LLC, Security Investors, LLC, Security Distributors, Inc., Guggenheim Partners Investment Managers, LLC, and Rydex Advisory Services (Collectively “Guggenheim Investments”).
Our Commitment to You
When you become a Guggenheim Investments investor, you entrust us with not only your hard-earned money but also with personal and financial information about you. We recognize that your relationship with us is based on trust and that you expect us to act responsibly and in your best interests. Because we have access to this private information about you, we hold ourselves to the highest standards in its safekeeping and use. This means, most importantly, that we do not sell client information to anyone—whether it is your personal information or if you are a current or former Guggenheim Investments client.
The Information We Collect About You
In the course of doing business with shareholders and investors, we collect nonpublic personal information about you. You typically provide personal information when you complete a Guggenheim Investments account application or when you request a transaction that involves Rydex and Guggenheim Investments funds or one of the Guggenheim Investments affiliated companies. “Nonpublic personal information” is personally identifiable private information about you. For example, it includes information regarding your name and address, Social Security or taxpayer identification number, assets, income, account balance, bank account information and investment activity (e.g., purchase and redemption history).
How We Handle Your Personal Information
As emphasized above, we do not sell information about current or former clients or their accounts to third parties. Nor do we share such information, except when necessary to complete transactions at your request or to make you aware of related investment products and services that we offer. Additional details about how we handle your personal information are provided below. To complete certain transactions or account changes that you direct, it may be necessary to provide identifying information to companies, individuals or groups that are not affiliated with Guggenheim Investments. For example, if you ask to transfer assets from another financial institution to Guggenheim Investments, we will need to provide certain information about you to that company to complete the transaction. To alert you to other Guggenheim Investments investment products and services, we may share your information within the Guggenheim Investments family of affiliated companies. This would include, for example, sharing your information within Guggenheim Investments so we can make you aware of new Rydex and Guggenheim Investments funds or the services offered through another Guggenheim Investments affiliated company. In certain instances, we may contract with nonaffiliated companies to perform services for us. Where necessary, we will disclose information we have about you to these third parties. In all such cases, we provide the third party with only the information necessary to carry out its assigned responsibilities and only for that purpose. And we require these third parties to treat your private information with the same high degree of confidentiality that we do. In certain instances, we may share information with other financial institutions regarding individuals and entities in response to the U.S.A. Patriot Act. Finally, we will release information about you if you direct us to do so, if we are compelled by law to do so or in other circumstances permitted by law.
Opt Out Provisions
We do not sell your personal information to anyone. The law allows you to “opt out” of only certain kinds of information sharing with third parties. The firm does not share personal information about you with any third parties that triggers this opt-out right. This means YOU ARE ALREADY OPTED OUT.
How We Protect Privacy Online
Our concern for the privacy of our shareholders also extends to those who use our web site, guggenheiminvestments.com. Our web site uses some of the most secure forms of online communication available, including encryption technology, Secure Socket Layer (SSL) protocol, firewalls and user names and passwords. These technologies provide a high level of security and privacy when you access your account information or initiate online transactions. The Guggenheim Investments web site offers customized features that require our use of “http cookies”—tiny pieces of information that we ask your browser to store. However, we make very limited use of these cookies. We only use cookies for session management and security features on the Guggenheim Investments web site. We do not use them to pull data from your hard drive, to learn your email address, or to view data in cookies created by other web sites. We will not share the information in our cookies or give others access to it. See the legal information area on our web site for more details about web site security and privacy features.
How We Safeguard Your Personal Information
We restrict access to nonpublic personal information about shareholders to our employees and in some cases to third parties (for example, the service providers described above) as permitted by law. We maintain strict physical, electronic and procedural safeguards that comply with federal standards to guard your nonpublic personal information.
THE GUGGENHEIM FUNDS ANNUAL REPORT | 35 |
We’ll Keep You Informed
As required by federal law, we will notify shareholders of our privacy policy annually. We reserve the right to modify this policy at any time, but rest assured that if we do change it, we will tell you promptly. You will also be able to access our privacy policy from our web site at guggenheiminvestments.com. Should you have any questions regarding our privacy policy, contact us at 800.820.0888 or 301.296.5100.
36 | | | THE GUGGENHEIM FUNDS ANNUAL REPORT |
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9.30.2014
Guggenheim Funds Annual Report
Fundamental Alpha |
SBMCVI-ANN-0914x0915 | guggenheiminvestments.com |
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This report and the financial statements contained herein are submitted for the general information of our shareholders. The report is not authorized for distribution to prospective investors unless preceded or accompanied by an effective prospectus.
Distributed by Guggenheim Funds Distributors, LLC. GI-GOGREEN-0414 x0415 #12604
TABLE OF CONTENTS
DEAR SHAREHOLDER | 2 | ||
ECONOMIC AND MARKET OVERVIEW | 3 | ||
ABOUT SHAREHOLDERS’ FUND EXPENSES | 4 | ||
MID CAP VALUE INSTITUTIONAL FUND | 6 | ||
NOTES TO FINANCIAL STATEMENTS | 14 | ||
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM | 20 | ||
OTHER INFORMATION | 21 | ||
INFORMATION ON BOARD OF TRUSTEES AND OFFICERS | 32 | ||
GUGGENHEIM INVESTMENTS PRIVACY POLICIES | 34 |
THE GUGGENHEIM FUNDS ANNUAL REPORT | 1 |
Dear Shareholder:
Security Investors, LLC (the “Investment Adviser”) is pleased to present the annual shareholder report for the Mid Cap Value Institutional Fund (the “Fund”) for the year ended September 30, 2014.
The Investment Adviser is part of Guggenheim Investments, which represents the investment management businesses of Guggenheim Partners, LLC, a global, diversified financial services firm.
Guggenheim Funds Distributors, LLC is the distributor of the Funds. Guggenheim Funds Distributors, LLC is affiliated with Guggenheim Partners, LLC and Security Investors, LLC.
We encourage you to read the Economic and Market Overview section of the report, which follows this letter, and then the Manager’s Commentary for the Fund.
We are committed to providing innovative investment solutions and appreciate the trust you place in us.
Sincerely,
Donald C. Cacciapaglia
President
October 31, 2014
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.
Mid Cap Value Institutional Fund may not be suitable for all investors. • An investment in the Fund 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 stock may decline in value. • Investments in small to mid- sized company securities may present additional risks such as less predictable earnings, higher volatility and less liquidity than larger, more established companies.
2 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
ECONOMIC AND MARKET OVERVIEW (Unaudited) | September 30, 2014 |
Despite market volatility rising in October, for the year ending September 30, data on everything from hiring to housing conveys that the U.S. economy is firing on all cylinders. Overcoming a first-quarter weather-related soft patch, second-quarter GDP was revised upward to 4.6%, led by business investment. Durable goods orders surged over the summer and consumer confidence was at multi-year highs, despite a lower reading for the last part of the period. With tailwinds for economic growth gathering, we could see a strong third quarter GDP reading.
September’s addition of 248,000 non-farm payroll jobs was, on the surface, at least a strong figure and certainly not something to be discounted. However, investor optimism about the report, which also showed the unemployment rate falling to 5.9%—its lowest level since 2008—masked the fact that average hourly earnings were unchanged. Economic data late in the period included disappointing factory orders, poor construction spending, and weaker-than-expected ISM manufacturing data. The most recent decline in the U.S. Conference Board Consumer Confidence Index was worrisome.
The U.S. economy is certainly doing well enough to suggest higher interest rates ahead. With quantitative easing ending in the U.S. in October 2014 and the Fed preparing investors for a higher federal funds rate, the stage is set for U.S. interest rates to move higher. However, our view is that, despite a strengthening U.S. economy, the greater risk is that interest rates head lower in the near term.
Following the “taper tantrum” last year, before rates were able to reach historical norms, the average rate on a 30-year mortgage spiked almost a full percentage point in two months—the sharpest rise since the late 1990s—resulting in an abrupt housing slowdown, which slowed the U.S. economy materially.
In addition, U.S. Treasury yields are still materially higher than those in any other developed market. The spread between 10-year U.S. Treasuries and comparable German bunds reached 157 basis points in September, its widest level since 1999, and the spread between 10-year Treasuries and 10-year Japanese government bonds was recently 189 basis points. With developments in the Middle East increasingly troubling and turbulence continuing elsewhere from Ukraine to Hong Kong, the relative price value of U.S. government bonds versus other safe haven investments should continue to be a factor keeping U.S. interest rates low.
International economic data remain weak. Euro zone economic confidence is falling as the entire region continues to battle below-target inflation. At the start of September, the European Central Bank cut interest rates and signaled their intent to launch a program to purchase asset-backed securities and covered bonds to stimulate the dismal economy. In Japan, retail sales fell month-over-month in August, while industrial production falters.
Economic data around the world confirms our view that central banks are likely to renew efforts to force liquidity into the global financial system, which in turn further supports our positive outlook for risk assets. However, positive returns are unlikely without volatility. While markets continue to rally, gains are becoming more grudging. The upward momentum in U.S. stocks has deteriorated meaningfully while credit spreads, specifically high-yield spreads, have widened significantly over the past number of weeks. While the bull market trend remains intact, as the appreciation in risk assets continues it becomes more likely that this ageing advance will, at some point, experience a correction.
For the year ended September 30, 2014, the return of the Standard & Poor’s 500® Index* (“S&P 500”) was 19.73%. The Barclays U.S. Aggregate Bond Index* returned 3.96% for the year, while the Barclays U.S. Corporate High Yield Index* returned 7.20%. The BofA Merrill Lynch 3-Month U.S. Treasury Bill Index* returned 0.05%. The MSCI World Index* returned 12.22%, while the MSCI Emerging Markets Index* returned 4.30%.
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.
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.
Barclays U.S. Aggregate Bond Index represents securities that are SEC-registered, taxable, and dollar denominated. The index covers the U.S. investment grade fixed rate bond market, with index components for government and corporate securities, mortgage pass-through securities, and asset-backed securities. These major sectors are subdivided into more specific indices that are calculated and reported on a regular basis.
Barclays U.S. Corporate High Yield Index covers the universe of dollar denominated, fixed rate, non-investment grade debt, taxable corporate debt.
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 (Net) is calculated with net dividends reinvested. It is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed markets.
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.
S&P 500® Index is a market-weighted stock market index comprised of the stocks of 500 U.S. corporations; the index is owned and maintained by Standard & Poor’s.
THE GUGGENHEIM FUNDS ANNUAL REPORT | 3 |
ABOUT SHAREHOLDERS’ FUND EXPENSES (Unaudited) | |
All mutual funds have operating expenses and it is important for our shareholders to understand the impact of costs on their investments. Shareholders of a Fund incur two types of costs: (i) transaction costs, including sales charges (loads) on purchase payments, reinvested dividends, or other distributions; and exchange fees; and (ii) ongoing costs, including management fees, administrative services, and shareholder reports, among others. These ongoing costs, or operating expenses, are deducted from a fund’s gross income and reduce the investment return of the fund.
A fund’s expenses are expressed as a percentage of its average net assets, which is known as the expense ratio. The following examples are intended to help investors understand the ongoing costs (in dollars) of investing in a Fund and to compare these costs with the ongoing costs of investing in other mutual funds.
The examples are based on an investment of $1,000 made at the beginning of the period and held for the entire six-month period beginning March 31, 2014 and ending September 30, 2014.
The following tables illustrate a Fund’s costs in two ways:
Table 1. Based on actual Fund return. This section helps investors estimate the actual expenses paid over the period. The “Ending Account Value” shown is derived from the Fund’s actual return, and the fourth column shows the dollar amount that would have been paid by an investor who started with $1,000 in the Fund. Investors may use the information here, together with the amount invested, to estimate the expenses paid over the period. Simply divide the Fund’s account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number provided under the heading “Expenses Paid During Period.”
Table 2. Based on hypothetical 5% return. This section is intended to help investors compare a Fund’s cost with those of other mutual funds. The table provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses paid during the period. The example is useful in making comparisons because the U.S. Securities and Exchange Commission (the “SEC”) requires all mutual funds to calculate expenses based on the 5% return. Investors can assess a Fund’s costs by comparing this hypothetical example with the hypothetical examples that appear in shareholder reports of other funds.
The calculations illustrated above assume no shares were bought or sold during the period. Actual costs may have been higher or lower, depending on the amount of investment and the timing of any purchases or redemptions.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads) on purchase payments, and contingent deferred sales charges (“CDSC”) on redemptions, if any. Therefore, the second table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
More information about a Fund’s expenses, including annual expense ratios for the past five years, can be found in the Financial Highlights section of this report. For additional information on operating expenses and other shareholder costs, please refer to the appropriate Fund prospectus.
4 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
ABOUT SHAREHOLDERS’ FUND EXPENSES (Unaudited) (concluded) | |
Beginning | Ending | Expenses | |||||||||||||||
Expense | Fund | Account Value | Account Value | Paid During | |||||||||||||
Ratio1 | Return | March 31, 2014 | September 30, 2014 | Period2 | |||||||||||||
Table 1. Based on actual Fund return3 | |||||||||||||||||
Mid Cap Value Institutional Fund | 1.05 | % | (4.37 | )% | $1,000.00 | $956.30 | $5.15 | ||||||||||
Table 2. Based on hypothetical 5% return (before expenses) | |||||||||||||||||
Mid Cap Value Institutional Fund | 1.05 | % | 5.00 | % | $1,000.00 | $1,019.80 | $5.32 |
1 | Annualized and excludes expenses of the underlying funds in which the Fund invests. | |
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 183/365 (to reflect the one-half year period). | |
3 | Actual cumulative return at net asset value for the period March 31, 2014 to September 30, 2014. |
THE GUGGENHEIM FUNDS ANNUAL REPORT | 5 |
MANAGER’S COMMENTARY (Unaudited) | September 30, 2014 |
To Our Shareholders:
Guggenheim Mid Cap Value Institutional Fund (the “Fund”) is managed by a team of seasoned professionals led by James Schier, CFA, Portfolio Manager. In the following paragraphs, he discusses performance of the Fund for the fiscal year ended September 30, 2014.
For the year ended September 30, 2014, the Guggenheim Mid Cap Value Institutional Fund returned 5.53%1, compared with the 9.88% return of its benchmark, the Russell 2500 Value Index.
Strategy and Market Overview
Our investment approach focuses on understanding how companies make money and how easily they can improve returns, maintain existing high levels of profitability or benefit from change that occurs within the industries in which they operate. In today’s rapid-fire environment marked by very sharp and quick, but constrained volatility, our long-term orientation and discipline is a competitive advantage. This should become especially critical when the environment of indiscriminant valuation expansion subsides, and fundamentals once again become a more dominant factor in the market.
Performance Review
Stock selection in Energy sector was the leading contributor to performance. Even though the Fund has an overweighting in the Energy sector, the overweight detracted from return, since the sector provided the least performance in the benchmark amid a general commodities selloff.
Within the Energy sector, Whiting Petroleum Corp. was a leading individual contributor for the year. The company has exposure to two of the most productive shale fields in the U.S. and announced during the period that it would acquire Kodiak Oil and Gas Corp. It benefited from solid execution and favorable industry dynamics. Over the past several quarters, the Fund has also been slowly shifting its energy focus from almost exclusively exploration and production (E&P) shale players to more of a balance between E&P companies and service companies. The land grab for shale properties has matured, and the subsequent development of those fields should increase business for services firms.
Stock selection in the Information Technology sector was the second most important contributor to Fund return. One tech holding, Computer Sciences Corp., was the leading individual contributing stock for the year. It’s in the technology services and outsourcing business and made solid progress in repositioning for growth and improved execution. Another contributor for the year, RF Micro Devices, Inc., remains responsive to the substantial operating leverage and synergy from its merger with TriQuint Semiconductor, Inc. in the period.
Hurting Fund performance for the year was stock selection in Financials, Materials and Industrials.
A leading individual detractor in the Financials sector was Ocwen Financial Corp., a mortgage servicing company. It was down as a result of a delay in a proposed purchase of a large servicing portfolio and an investigation of the company’s servicing practices and intercompany relationships by the New York Director of Financial Services.
Stock selection within the Materials sector was also unfavorable. The position hurting most was Coeur Mining, Inc., which has suffered due to the weak pricing environment for precious metals and the general selloff in commodities. We continue to hold on to this name because we see it as a good diversifier with attractive assets and potential buoyancy coming from slowing global growth and economic uncertainty.
Stock selection in Industrials was another detractor. We have a significant overweight to the Industrials sector, and one holding was a large booster to performance: Quanta Services, Inc., in the engineering and construction sector. We like the prospects of this company as the U.S. faces the need to upgrade infrastructure.
6 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
MANAGER’S COMMENTARY (Unaudited) (concluded) | September 30, 2014 |
Portfolio Positioning
The largest relative sector exposures for the year were an underweight in Financials and Utilities and an overweight in Industrials.
Within Financials, REITs (real estate investment trusts) continue to perform well, and the strategy’s underweighting in this industry has been a difficult bias to overcome. Over the period, the Fund also reduced its exposure to the reinsurance market, which has been under pressure as participants outside the industry have entered to provide capital in the search for yield.
The portfolio’s underweight to Utilities was a positive contributor during the period. We have been overweight this sector in the past, but currently view valuations as unattractive. Within the sector, we like companies that have meaningful exposure to non-regulated businesses, such as MDU Resources Group, Inc., and Black Hills Corp.
The overweight to Industrials detracted from performance over the year. This is a large and eclectic sector in which we have diverse holdings. We believe the portfolio is well positioned to benefit from the growing cap-ex and construction environment tied to infrastructure renewal and reindustrialization in the U.S.
Portfolio and Market Outlook
For the most part, the market behaved in a very defensive manner over the past year. The best performing areas have been larger companies, REITs and utilities. Of late, the strengthening of the dollar, primarily from concerns about global (non-U.S.) growth, has only added to the hesitancy of the market. Even if the global economy were to prove disappointing, the low returns offered by insignificant fixed income investment opportunities (the 10-year U.S. government bond yields around 2.5%) should continue to make equities an attractive alternative for incremental investment dollars.
Our portfolios tend to reflect a bias toward companies with balance sheet quality. We continue to find niche companies with what we believe to be attractive growth opportunities, and, as such, are constructive on the outlook.
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 | 7 |
PERFORMANCE REPORT AND FUND PROFILE (Unaudited) | September 30, 2014 |
MID CAP VALUE INSTITUTIONAL FUND
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.
Cumulative Fund Performance*
Inception Date: | |||
July 11, 2008 | |||
Ten Largest Holdings (% of Total Net Assets) | |||
Hanover Insurance Group, Inc. | 4.2 | % | |
Computer Sciences Corp. | 2.7 | % | |
Covanta Holding Corp. | 2.6 | % | |
Bunge Ltd. | 2.0 | % | |
Orbital Sciences Corp. | 2.0 | % | |
Reinsurance Group of America, Inc. — Class A | 2.0 | % | |
Superior Energy Services, Inc. | 2.0 | % | |
Cameco Corp. | 2.0 | % | |
Northern Trust Corp. | 1.9 | % | |
Owens-Illinois, Inc. | 1.9 | % | |
Top Ten Total | 23.3 | % | |
“Ten Largest Holdings” exclude any temporary cash or derivative investments.
Since | |||||||||
Inception | |||||||||
1 Year | 5 Year | (07/11/08) | |||||||
Mid Cap Value Institutional Fund | 5.53% | 11.80% | 11.46% | ||||||
Russell 2500 Value Index | 9.88% | 15.16% | 10.89% | ||||||
* | The performance data above represents past performance that is not predictive of future results. The investment return and principal value of an investment in the Fund will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Returns are historical and include changes in principal and reinvested dividends and capital gains and do not reflect the effect of taxes. The Russell 2500 Value Index is an unmanaged index and, unlike the Fund, has no management fees or operating expenses to reduce its reported return. |
8 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
SCHEDULE OF INVESTMENTS | September 30, 2014 | |
MID CAP VALUE INSTITUTIONAL FUND |
SHARES | VALUE | ||||||
COMMON STOCKS† - 95.8% | |||||||
FINANCIAL - 25.5% | |||||||
Hanover Insurance Group, Inc. | 407,223 | $ | 25,011,637 | ||||
Reinsurance Group of America, Inc. — Class A | 148,733 | 11,917,975 | |||||
Northern Trust Corp. | 167,370 | 11,386,181 | |||||
American Financial Group, Inc. | 161,230 | 9,333,605 | |||||
WR Berkley Corp. | 139,770 | 6,681,006 | |||||
Endurance Specialty Holdings Ltd. | 117,780 | 6,499,100 | |||||
Alexandria Real Estate Equities, Inc. | 77,170 | 5,691,288 | |||||
BioMed Realty Trust, Inc. | 277,180 | 5,599,036 | |||||
Starwood Property Trust, Inc. | 247,770 | 5,441,030 | |||||
Popular, Inc.* | 175,920 | 5,178,205 | |||||
Wintrust Financial Corp. | 102,750 | 4,589,843 | |||||
SVB Financial Group* | 40,730 | 4,565,425 | |||||
Home Loan Servicing Solutions Ltd. | 201,820 | 4,276,566 | |||||
FirstMerit Corp. | 241,765 | 4,255,064 | |||||
First Niagara Financial Group, Inc. | 499,510 | 4,160,918 | |||||
City National Corp. | 51,810 | 3,920,463 | |||||
Zions Bancorporation | 124,370 | 3,614,192 | |||||
Huntington Bancshares, Inc. | 347,910 | 3,385,164 | |||||
First Midwest Bancorp, Inc. | 198,559 | 3,194,814 | |||||
Employers Holdings, Inc. | 165,394 | 3,183,835 | |||||
Symetra Financial Corp. | 130,670 | 3,048,531 | |||||
Eaton Vance Corp. | 79,510 | 2,999,912 | |||||
Hancock Holding Co. | 89,580 | 2,871,039 | |||||
Lexington Realty Trust | 193,090 | 1,890,351 | |||||
Blackhawk Network Holdings, Inc.* | 54,870 | 1,777,788 | |||||
Ocwen Financial Corp.* | 67,785 | 1,774,611 | |||||
Redwood Trust, Inc. | 101,306 | 1,679,653 | |||||
Radian Group, Inc. | 104,750 | 1,493,735 | |||||
Argo Group International Holdings Ltd. | 29,660 | 1,492,195 | |||||
StanCorp Financial Group, Inc. | 23,093 | 1,459,016 | |||||
Total Financial | 152,372,178 | ||||||
INDUSTRIAL - 15.4% | |||||||
Covanta Holding Corp. | 728,020 | 15,448,584 | |||||
Orbital Sciences Corp.* | 432,098 | 12,012,324 | |||||
Owens-Illinois, Inc.* | 434,370 | 11,315,339 | |||||
Sonoco Products Co. | 265,606 | 10,435,659 | |||||
Aegion Corp. — Class A* | 271,015 | 6,030,084 | |||||
FLIR Systems, Inc. | 187,020 | 5,861,207 | |||||
Rock-Tenn Co. — Class A | 121,000 | 5,757,180 | |||||
URS Corp. | 98,427 | 5,670,379 | |||||
Gentex Corp. | 178,920 | 4,789,688 | |||||
Berry Plastics Group, Inc.* | 184,210 | 4,649,460 | |||||
Huntington Ingalls Industries, Inc. | 29,150 | 3,037,722 | |||||
General Cable Corp. | 165,988 | 2,503,099 | |||||
ArcBest Corp. | 43,710 | 1,630,383 | |||||
UTI Worldwide, Inc.* | 72,501 | 770,686 | |||||
Advanced Energy Industries, Inc.* | 32,850 | 617,252 | |||||
II-VI, Inc.* | 48,350 | 569,080 | |||||
Sanmina Corp.* | 25,980 | 541,943 | |||||
AZZ, Inc. | 8,272 | 345,521 | |||||
Total Industrial | 91,985,590 | ||||||
CONSUMER, NON-CYCLICAL - 14.7% | |||||||
Bunge Ltd. | 144,050 | 12,133,332 | |||||
Quanta Services, Inc.* | 263,260 | 9,553,705 | |||||
Hormel Foods Corp. | 174,510 | 8,968,069 | |||||
Navigant Consulting, Inc.* | 598,610 | 8,326,665 | |||||
DeVry Education Group, Inc. | 192,833 | 8,255,180 | |||||
MEDNAX, Inc.* | 127,606 | 6,995,361 | |||||
Kindred Healthcare, Inc. | 336,752 | 6,532,989 | |||||
Hologic, Inc.* | 254,072 | 6,181,572 | |||||
ICF International, Inc.* | 171,165 | 5,270,170 | |||||
Ingredion, Inc. | 66,610 | 5,048,372 | |||||
Towers Watson & Co. — Class A | 27,361 | 2,722,420 | |||||
Emergent Biosolutions, Inc.* | 96,810 | 2,063,021 | |||||
Universal Health Services, Inc. — Class B | 17,910 | 1,871,595 | |||||
Globus Medical, Inc. — Class A* | 81,960 | 1,612,153 | |||||
Grand Canyon Education, Inc.* | 36,950 | 1,506,452 | |||||
Alere, Inc.* | 17,313 | 671,398 | |||||
Total Consumer, Non-cyclical | 87,712,454 | ||||||
TECHNOLOGY - 9.3% | |||||||
Computer Sciences Corp. | 261,880 | 16,013,961 | |||||
IXYS Corp. | 919,109 | 9,650,645 | |||||
Maxwell Technologies, Inc.* | 815,951 | 7,115,093 | |||||
Allscripts Healthcare Solutions, Inc.* | 318,200 | 4,268,653 | |||||
Teradyne, Inc. | 161,420 | 3,129,934 | |||||
Take-Two Interactive Software, Inc.* | 134,840 | 3,110,759 | |||||
KEYW Holding Corp.* | 275,670 | 3,051,667 | |||||
Diebold, Inc. | 80,750 | 2,852,090 | |||||
Semtech Corp.* | 63,440 | 1,722,396 | |||||
IPG Photonics Corp.* | 22,990 | 1,581,252 | |||||
iGATE Corp.* | 42,870 | 1,574,186 | |||||
ManTech International Corp. — Class A | 53,700 | 1,447,215 | |||||
Total Technology | 55,517,851 | ||||||
CONSUMER, CYCLICAL - 7.6% | |||||||
Brown Shoe Company, Inc. | 382,938 | 10,389,107 | |||||
Chico’s FAS, Inc. | 391,700 | 5,785,409 | |||||
Oshkosh Corp. | 118,640 | 5,237,956 | |||||
DR Horton, Inc. | 222,930 | 4,574,524 | |||||
Foot Locker, Inc. | 60,070 | 3,342,896 | |||||
Wendy’s Co. | 378,990 | 3,130,457 | |||||
Ryland Group, Inc. | 83,560 | 2,777,534 | |||||
United Stationers, Inc. | 67,006 | 2,517,416 | |||||
Ascena Retail Group, Inc.* | 186,530 | 2,480,849 | |||||
Visteon Corp.* | 21,060 | 2,048,085 | |||||
WESCO International, Inc.* | 20,894 | 1,635,164 | |||||
Cabela’s, Inc.* | 26,194 | 1,542,827 | |||||
Total Consumer, Cyclical | 45,462,224 | ||||||
UTILITIES - 7.3% | |||||||
AGL Resources, Inc. | 176,610 | 9,067,157 | |||||
Pinnacle West Capital Corp. | 165,610 | 9,048,931 | |||||
UGI Corp. | 237,853 | 8,108,409 | |||||
Westar Energy, Inc. | 171,390 | 5,847,827 | |||||
Great Plains Energy, Inc. | 188,955 | 4,567,042 | |||||
Black Hills Corp. | 91,159 | 4,364,693 | |||||
Avista Corp. | 48,960 | 1,494,749 | |||||
MDU Resources Group, Inc. | 46,677 | 1,298,087 | |||||
Total Utilities | 43,796,895 | ||||||
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 9 |
SCHEDULE OF INVESTMENTS (concluded) | September 30, 2014 | |
MID CAP VALUE INSTITUTIONAL FUND |
SHARES | VALUE | ||||||
ENERGY - 7.1% | |||||||
Superior Energy Services, Inc. | 358,800 | $ | 11,793,756 | ||||
Whiting Petroleum Corp.* | 105,561 | 8,186,255 | |||||
Oasis Petroleum, Inc.* | 149,510 | 6,251,013 | |||||
Patterson-UTI Energy, Inc. | 175,690 | 5,715,196 | |||||
Resolute Energy Corp.* | 741,910 | 4,651,776 | |||||
Sanchez Energy Corp.* | 158,557 | 4,163,707 | |||||
Denbury Resources, Inc. | 136,640 | 2,053,699 | |||||
HydroGen Corp.*,†††,2 | 1,265,700 | 1 | |||||
Total Energy | 42,815,403 | ||||||
BASIC MATERIALS - 5.1% | |||||||
Cameco Corp. | 667,520 | 11,788,402 | |||||
Landec Corp.* | 462,290 | 5,663,053 | |||||
Royal Gold, Inc. | 78,908 | 5,124,286 | |||||
Olin Corp. | 155,694 | 3,931,274 | |||||
Coeur Mining, Inc.* | 489,941 | 2,430,107 | |||||
Allied Nevada Gold Corp.* | 422,810 | 1,399,501 | |||||
Total Basic Materials | 30,336,623 | ||||||
COMMUNICATIONS - 3.9% | |||||||
DigitalGlobe, Inc.* | 343,031 | 9,776,383 | |||||
Scholastic Corp. | 166,890 | 5,393,885 | |||||
Finisar Corp.* | 307,790 | 5,118,548 | |||||
Liquidity Services, Inc.* | 238,470 | 3,278,963 | |||||
Total Communications | 23,567,779 | ||||||
Total Common Stocks | |||||||
(Cost $492,170,854) | 573,566,997 | ||||||
CONVERTIBLE PREFERRED STOCKS††† - 0.0% | |||||||
Thermoenergy Corp.*,1,3 | 793,750 | 11,589 | |||||
Total Convertible Preferred Stocks | |||||||
(Cost $757,980) | 11,589 | ||||||
SHORT TERM INVESTMENTS† - 4.2% | |||||||
Dreyfus Treasury Prime | |||||||
Cash Management Fund | 24,983,810 | 24,983,810 | |||||
Total Short Term Investments | |||||||
(Cost $24,983,810) | 24,983,810 | ||||||
FACE AMOUNT | |||||||
CONVERTIBLE BONDS†† - 0.4% | |||||||
INDUSTRIAL - 0.4% | |||||||
DryShips, Inc. | |||||||
5.00% due 12/01/14 | $ | 2,725,000 | 2,694,344 | ||||
Total Convertible Bonds | |||||||
(Cost $2,670,528) | 2,694,344 | ||||||
Total Investments - 100.5% | |||||||
(Cost $520,583,172) | $ | 601,256,740 | |||||
Other Assets & Liabilities, net - (0.5)% | (3,156,103 | ) | |||||
Total Net Assets - 100.0% | $ | 598,100,637 |
* | 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 | PIPE (Private Investment in Public Equity) — Stock issued by a company in the secondary market as a means of raising capital more quickly and less expensively than through registration of a secondary public offering. | |
2 | Affiliated issuers — See Note 9. | |
3 | Illiquid security. |
10 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
MID CAP VALUE INSTITUTIONAL FUND |
STATEMENT OF ASSETS AND LIABILITIES | ||||
September 30, 2014 | ||||
ASSETS: | ||||
Investments in unaffiliated issuers, at value | ||||
(cost $520,580,641) | $ | 601,256,739 | ||
Investments in affiliated issuers, at value | ||||
(cost $2,531) | 1 | |||
Total investments | ||||
(cost $520,583,172) | 601,256,740 | |||
Prepaid expenses | 23,607 | |||
Cash | 6,084 | |||
Receivables: | ||||
Securities sold | 1,969,639 | |||
Dividends | 967,878 | |||
Fund shares sold | 470,139 | |||
Interest | 45,417 | |||
Foreign taxes reclaim | 5,835 | |||
Total assets | 604,745,339 | |||
LIABILITIES: | ||||
Payable for: | ||||
Securities purchased | 5,184,036 | |||
Fund shares redeemed | 954,892 | |||
Management fees | 381,132 | |||
Fund accounting/administration fees | 48,276 | |||
Transfer agent/maintenance fees | 22,227 | |||
Trustees’ fees* | 2,300 | |||
Miscellaneous | 51,839 | |||
Total liabilities | 6,644,702 | |||
NET ASSETS | $ | 598,100,637 | ||
NET ASSETS CONSIST OF: | ||||
Paid in capital | $ | 457,585,054 | ||
Undistributed net investment income | 2,150,653 | |||
Accumulated net realized gain on investments | 57,691,362 | |||
Net unrealized appreciation on investments | 80,673,568 | |||
Net assets | $ | 598,100,637 | ||
Capital shares outstanding | 46,284,330 | |||
Net asset value per share | $12.92 | |||
STATEMENT OF OPERATIONS | |||||
Year Ended September 30, 2014 | |||||
INVESTMENT INCOME: | |||||
Dividends (net of foreign withholding tax of $38,430) from unaffiliated issuers | $ | 8,448,294 | |||
Interest | 550,923 | ||||
Total investment income | 8,999,217 | ||||
EXPENSES: | |||||
Management fees | 4,596,679 | ||||
Transfer agent/maintenance fees | 659,284 | ||||
Fund accounting/administration fees | 582,239 | ||||
Trustees’ fees* | 62,012 | ||||
Tax expense | 16,368 | ||||
Custodian fees | 8,787 | ||||
Miscellaneous | 522,630 | ||||
Total expenses | 6,447,999 | ||||
Net investment income | 2,551,218 | ||||
NET REALIZED AND UNREALIZED GAIN (LOSS): | |||||
Net realized gain (loss) on: | |||||
Investments in unaffiliated issuers | 73,185,836 | ||||
Options written | 449,896 | ||||
Net realized gain | 73,635,732 | ||||
Net change in unrealized appreciation (depreciation) on: | |||||
Investments in unaffiliated issuers | (43,785,893 | ) | |||
Investments in affiliated issuers | (8,859 | ) | |||
Options written | (37,743 | ) | |||
Net change in unrealized appreciation (depreciation) | (43,832,495 | ) | |||
Net realized and unrealized gain | 29,803,237 | ||||
Net increase in net assets resulting from operations | $ | 32,354,455 | |||
* 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 | 11 |
MID CAP VALUE INSTITUTIONAL FUND |
STATEMENTS OF CHANGES IN NET ASSETS | ||||||||
Year Ended | Year Ended | |||||||
September 30, | September 30, | |||||||
2014 | 2013 | |||||||
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS: | ||||||||
Net investment income | $ | 2,551,218 | $ | 2,693,163 | ||||
Net realized gain on investments | 73,635,732 | 41,121,749 | ||||||
Net change in unrealized appreciation (depreciation) on investments | (43,832,495 | ) | 88,465,578 | |||||
Net increase in net assets resulting from operations | 32,354,455 | 132,280,490 | ||||||
DISTRIBUTIONS TO SHAREHOLDERS FROM: | ||||||||
Net investment income | (3,106,999 | ) | (1,542,680 | ) | ||||
Net realized gains | (35,348,105 | ) | (46,688,296 | ) | ||||
Total distributions to shareholders | (38,455,104 | ) | (48,230,976 | ) | ||||
CAPITAL SHARE TRANSACTIONS: | ||||||||
Proceeds from sale of shares | 164,229,754 | 136,201,875 | ||||||
Distributions reinvested | 23,335,832 | 27,245,300 | ||||||
Cost of shares redeemed | (154,829,343 | ) | (166,772,360 | ) | ||||
Net increase (decrease) from capital share transactions | 32,736,243 | (3,325,185 | ) | |||||
Net increase in net assets | 26,635,594 | 80,724,329 | ||||||
NET ASSETS: | ||||||||
Beginning of year | 571,465,043 | 490,740,714 | ||||||
End of year | $ | 598,100,637 | $ | 571,465,043 | ||||
Undistributed net investment income at end of year | $ | 2,150,653 | $ | 3,072,708 | ||||
CAPITAL SHARE ACTIVITY: | ||||||||
Shares sold | 12,370,911 | 11,673,620 | ||||||
Shares issued from reinvestment of distributions | 1,834,578 | 2,629,855 | ||||||
Shares redeemed | (11,576,179 | ) | (14,131,954 | ) | ||||
Net increase in shares | 2,629,310 | 171,521 | ||||||
12 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
MID CAP VALUE INSTITUTIONAL FUND |
FINANCIAL HIGHLIGHTS |
Year Ended | Year Ended | Year Ended | Year Ended | Year Ended | |||||||||||||||||||||||||
September 30, | September 30, | September 30, | September 30, | September 30, | |||||||||||||||||||||||||
Institutional Class | 2014 | 2013 | 2012 | 2011 | 2010 | ||||||||||||||||||||||||
Per Share Data | |||||||||||||||||||||||||||||
Net asset value, beginning of period | $13.09 | $11.29 | $9.97 | $11.34 | $10.49 | ||||||||||||||||||||||||
Income (loss) from investment operations: | |||||||||||||||||||||||||||||
Net investment income (loss)a | .06 | .06 | .03 | .04 | .08 | ||||||||||||||||||||||||
Net gain (loss) on investments (realized and unrealized) | .65 | 2.90 | 2.30 | (.87 | ) | 1.13 | |||||||||||||||||||||||
Total from investment operations | .71 | 2.96 | 2.33 | (.83 | ) | 1.21 | |||||||||||||||||||||||
Less distributions from: | |||||||||||||||||||||||||||||
Net investment income | (.07 | ) | (.04 | ) | (.04 | ) | (.06 | ) | (.01 | ) | |||||||||||||||||||
Net realized gains | (.81 | ) | (1.12 | ) | (.97 | ) | (.48 | ) | (.35 | ) | |||||||||||||||||||
Total distributions | (.88 | ) | (1.16 | ) | (1.01 | ) | (.54 | ) | (.36 | ) | |||||||||||||||||||
Net asset value, end of period | $12.92 | $13.09 | $11.29 | $9.97 | $11.34 | ||||||||||||||||||||||||
Total Returnc | 5.53 | % | 28.89 | % | 24.96 | % | (8.05 | %) | 11.76 | % | |||||||||||||||||||
Ratios/Supplemental Data | |||||||||||||||||||||||||||||
Net assets, end of period (in thousands) | $ | 598,101 | $ | 571,465 | $ | 490,741 | $ | 472,266 | $ | 514,447 | |||||||||||||||||||
Ratios to average net assets: | |||||||||||||||||||||||||||||
Net investment income (loss) | 0.42 | % | 0.51 | % | 0.30 | % | 0.34 | % | 0.78 | % | |||||||||||||||||||
Total expensesd | 1.05 | % | 1.01 | % | 1.01 | % | 0.98 | % | 0.95 | % | |||||||||||||||||||
Net expenses | 1.05 | % | 1.01 | % | 0.98 | %b | 0.90 | %b | 0.90 | %b | |||||||||||||||||||
Portfolio turnover rate | 41 | % | 24 | % | 33 | % | 38 | % | 20 | % |
a | Net investment income (loss) per share was computed using average shares outstanding throughout the period. | |
b | Net expense information reflects the expense ratios after expense waives and reimbursements, as applicable. | |
c | Total return does not reflect the impact of any applicable sales charges and has not been annualized. | |
d | Does not include expenses of the underlying funds in which the fund invests. |
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 13 |
1. Organization and Significant Accounting Policies
Organization
Guggenheim Funds Trust (the “Trust”), a Delaware statutory trust, is registered with the SEC under the Investment Company Act of 1940 (“1940 Act”), as a non-diversified, open-ended investment company of the series type. Each series, in effect, is representing a separate Fund. The Trust is authorized to issue an unlimited number of shares. The Trust accounts for the assets of each Fund separately.
The Trust offers a combination of four separate classes of shares, A-Class shares, B-Class shares, C-Class shares and Institutional Class shares. Sales of shares of each Class are made without a front-end sales charge at the net asset value per share (“NAV”), with the exception of A-Class shares. A-Class shares are sold at the NAV, plus the applicable front-end sales charge. The sales charge varies depending on the amount purchased, but will not exceed 4.75%. Prior to February 22, 2011, the maximum sales charge was 5.75%. A-Class share purchases of $1 million or more are exempt from the front-end sales charge but have a 1% contingent deferred sales charge (“CDSC”), if shares are redeemed within 12 months of purchase. B-Class shares were offered without a front-end sales charge, but were subject to a CDSC of up to 5% for five years and convert to A-Class shares after eight years. Effective January 4, 2010, subscriptions for B-Class shares are no longer accepted. C-Class shares have a 1% CDSC if shares are redeemed within 12 months of purchase. Institutional Class shares are offered primarily for direct investment by institutions such as pension and profit sharing plans, endowments, foundations and corporations. Institutional Class shares have a minimum initial investment of $2 million and a minimum account balance of $1 million. Institutional Class shares are offered without a front-end sales charge or a CDSC. At September 30, 2014, the Trust consisted of eighteen Funds.
This report covers the Mid Cap Value Institutional Fund (the “Fund”) while the other funds are contained in separate reports. The Fund was previously a series (“Predecessor Fund”) of Security Equity Fund, a different registered open-end investment company, which was organized as a Kansas corporation. In January 2014, at a special meeting of shareholders, the shareholders of the Predecessor Fund approved the reorganization of the Predecessor Fund with and into the Fund, a corresponding “shell” series of the Trust. The Fund succeeded to the accounting and performance history of the Predecessor Fund. Any such historical information provided for the Fund that relates to periods prior to January 28, 2014, therefore, is that of the Predecessor Fund.
Guggenheim Investments (“GI”) provides advisory services, and Rydex Fund Services, LLC (“RFS”) provides transfer agent, administrative and accounting services to the Trust. Guggenheim Funds Distributors, LLC (“GFD”) acts as principal underwriter for the Trust. GI, RFS and GFD are affiliated entities.
Significant Accounting Policies
The following significant accounting policies are in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”) and are consistently followed by the Trust. This requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. All time references are based on Eastern Time.
The NAV of a fund is calculated by dividing the market value of the fund’s securities and other assets, less all liabilities, by the number of outstanding shares of the fund.
A. The Board of Trustees of the Fund (the “Board”) has adopted policies and procedures for the valuation of the Fund’s 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 Fund’s securities or other assets.
Valuations of the Fund’s securities are supplied primarily by pricing services appointed pursuant to the processes set forth in the Valuation Procedures. The Valuation Committee convenes monthly, or more frequently as needed and will review the valuation of all assets which have been fair valued for reasonableness. The Fund’s officers, through the Valuation Committee and consistent with the monitoring and review responsibilities set forth in the Valuation Procedures, regularly review procedures used by, and valuations provided by, the pricing services.
If the pricing service cannot or does not provide a valuation for a particular investment or such valuation is deemed unreliable, such investment is fair valued by the Valuation Committee.
Equity securities listed on an exchange (New York Stock Exchange (“NYSE”) or American Stock Exchange) are valued at the last quoted sales price as of the close of business on the NYSE, usually 4:00 p.m. on the valuation date. Equity securities listed on the NASDAQ market system are valued at the NASDAQ Official Closing Price on the valuation date, which may not necessarily represent the last sale price. If there has been no sale on such exchange or NASDAQ on a given day, the security is valued at the closing bid price on that day.
Open-end investment companies (“Mutual Funds”) are valued at their NAV as of the close of business, on the valuation date.
14 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
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, which approximates market value.
Investments for which market quotations are not readily available are fair valued as determined in good faith by GI under the direction of the Board of Trustees using methods established or ratified by the Board of Trustees. These methods include, but are not limited to: (i) obtaining general information as to how these securities and assets trade; and (ii) obtaining other information and considerations, including current values in related markets.
B. The Fund 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 Fund 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 Fund will generally purchase these securities with the intention of acquiring such securities, they may sell such securities before the settlement date.
C. 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).
D. 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 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. Dividend income from REITs is recorded based on the income included in distributions received from the REIT investments using published REIT reclassifications, including some management estimates when actual amounts are not available. Distributions received in excess of this estimated amount are recorded as a reduction of the cost of investments or reclassified to capital gains. The actual amounts of income, return of capital, and capital gains are only determined by each REIT after its fiscal year-end, and may differ from the estimated amounts.
E. Distributions of net investment income and net realized gains, if any, are declared and paid at least annually. Dividends are reinvested in additional shares unless shareholders request payment in cash. Distributions are recorded on the ex-dividend date and are determined in accordance with income tax regulations which may differ from U.S. GAAP.
F. Under the fee arrangement with the custodian, the Fund 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 September 30, 2014, there were no earnings credits received.
The Fund may leave cash overnight in its cash account with the custodian. Periodically, the 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.
G. Under the Fund’s organizational documents, its Trustees and Officers are indemnified against certain liabilities arising out of the performance of their duties to the Trust. In addition, throughout the normal course of business, the Fund enters into contracts that contain a variety of representations and warranties which provide general indemnifications. The Fund’s maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Fund and/or its affiliates that have not yet occurred. However, based on experience, the Fund expects the risk of loss to be remote.
2. Financial Instruments
As part of its investment strategy, the Fund utilizes derivative instruments. These investments involve, to varying degrees, elements of market risk and risks in excess of the amounts recognized in the Statement of Assets and Liabilities.
THE GUGGENHEIM FUNDS ANNUAL REPORT | 15 |
An option on a security gives the purchaser of the option the right to sell, and the writer of the option the obligation to buy, the underlying security (put option) or the purchaser of the option the right to buy, and the writer of the option the obligation to sell, the underlying security (call option) at any time during the option period. The risk associated with purchasing options is limited to the premium originally paid. The risk in writing a call option is that a Fund may incur a loss if the market price of the underlying security increases and the option is exercised. The risk in writing a put option is that a Fund may incur a loss if the market price of the underlying security decreases and the option is exercised. In addition, there may be an imperfect correlation between the movement in prices of options and the underlying securities and a Fund may not be able to enter into a closing transaction because of an illiquid secondary market or, for over-the-counter options, because of the counterparty’s inability to perform.
In conjunction with the use of derivative instruments, the Fund is required to maintain collateral in various forms. The Fund uses, where appropriate, depending on the financial instrument utilized and the broker involved, margin deposits at the broker, cash and/or securities segregated at the custodian bank, discount notes or the repurchase agreements allocated to the Fund.
The Trust has established counterparty credit guidelines and enters into transactions only with financial institutions of investment grade or better. The Trust monitors the counterparty credit risk.
3. Fees and Other Transactions with Affiliates
Under the terms of an investment advisory contract, the Fund pays GI investment advisory fees calculated at an annualized rate of 0.75% of the average daily net assets of the Fund.
RFS provides transfer agent services to the Fund for fees calculated at the rates below, which are assessed to the applicable class of the Fund. For these services, RFS receives the following:
Annual charge per account | $5.00 – $8.00 | |
Transaction fee | $0.60 – $1.10 | |
Minimum annual charge per Fund† | $25,000 | |
Certain out-of-pocket charges | Varies |
† Not subject to Fund during first twelve months of operations.
RFS also acts as the administrative agent for the Fund, and as such performs administrative functions and the bookkeeping, accounting and pricing functions for the Fund. For these services, RFS receives 0.095% of the average daily net assets of the Fund. The minimum annual charge for fund accounting/administrative fees is $25,000.
RFS engages external service providers to perform other necessary services for the Trust, such as audit and accounting related services, legal services, custody, printing and mailing, etc., on a pass-through basis. Such expenses are allocated to various Funds within the complex based on relative net assets.
Certain trustees and officers of the Trust are also officers of GI, RFS and GFD.
4. Fair Value Measurement
In accordance with U.S. GAAP, fair value is defined as the price that the Fund 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.
16 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
The following table summarizes the inputs used to value the Fund’s net assets at September 30, 2014:
Level 1 | Level 2 | Level 3 | |||||||||||||||||
Investments | Investments | Investments | |||||||||||||||||
In Securities | In Securities | In Securities | Total | ||||||||||||||||
Assets | |||||||||||||||||||
Mid Cap Value Institutional Fund | $598,550,806 | $2,694,344 | $11,590 | $601,256,740 |
Financial assets and liabilities categorized as Level 2 consist of fixed income investments. Independent pricing services are used to value a majority of the Fund’s investments. When values are not available from a pricing service, they may be computed by the Fund’s investment adviser or an affiliate. In any event, values may be determined using a variety of sources and techniques, including: market prices; broker quotes; and models which derive prices based on inputs such as prices of securities with comparable maturities and characteristics or based on inputs such as anticipated cash flows or collateral, spread over Treasuries, and other information and analysis.
Transfers between investment levels may occur as the markets fluctuate and/or the availability of data used in the investment’s valuation changes. The Fund recognizes transfers between the levels as of the beginning of the period.
For the year ended September 30, 2014, there were no transfers between levels.
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.
5. Derivative Investment Holdings Categorized by Risk Exposure
U.S. GAAP requires disclosures to enable investors to better understand how and why the 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 Fund utilized options to minimally hedge the Fund’s portfolio to maintain exposure to the equity markets, create liquidity and to achieve leveraged exposure. As of September 30, 2014, the Fund did not hold any derivatives.
The following is a summary of the location of derivative investments on the Fund’s Statement of Operations for the year ended September 30, 2014:
Derivative Investment Type | Location of Gain (Loss) on Derivatives | |
Equity contracts | Net realized gain (loss) on options written | |
Net change in unrealized appreciation (depreciation) on options written |
The following is a summary of the Fund’s realized gain (loss) and change in unrealized appreciation (depreciation) on derivative investments recognized on the Statement of Operations categorized by primary risk exposure for the year ended September 30, 2014:
Realized Gain (Loss) on Derivative Investments Recognized on the Statement of Operations | ||||||||||
Options | ||||||||||
Written Equity | ||||||||||
Fund | Contracts | Total | ||||||||
Mid Cap Value Institutional Fund | $449,896 | $449,896 | ||||||||
Change in Unrealized Appreciation (Depreciation) on Derivative Investments Recognized on the Statement of Operations | ||||||||||
Options | ||||||||||
Written Equity | ||||||||||
Fund | Contracts | Total | ||||||||
Mid Cap Value Institutional Fund | $(37,743 | ) | $(37,743 | ) |
6. Federal Income Tax Information
The Fund intends 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 Fund from all, or substantially all, federal income, excise and state income taxes. Therefore, no provision for federal or state income tax is required.
Tax positions taken or expected to be taken in the course of preparing the Fund’s 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 Fund’s tax positions taken, or to be taken, on Federal income tax returns for all open
THE GUGGENHEIM FUNDS ANNUAL REPORT | 17 |
tax years, and has concluded that no provision for income tax is required in the Fund’s financial statements. The Fund’s federal tax returns are subject to examination by the Internal Revenue Service for a period of three years after they are filed.
The RIC Modernization Act of 2010 was signed into law on December 22, 2010, and simplified some of the tax provisions applicable to regulated investment companies, the tax reporting to their shareholders and improved the tax efficiency of certain fund structures. The greatest impact to the disclosure in the financial reports for the Fund was on the treatment of net capital losses, effective for tax years beginning after December 22, 2010. However, the Fund did not incur or carryforward any capital losses for the year ended September 30, 2014.
One of the more prominent changes addresses capital loss carryforwards. The Fund is permitted to carry forward capital losses incurred in taxable years beginning after December 22, 2010, for an unlimited period. However, any losses incurred during those future taxable years will be required to be utilized prior to the losses incurred in pre-enactment taxable years. Under pre-enactment law, capital losses could be carried forward for eight years, and carried forward as short-term capital, irrespective of the character of the original loss. As a result of this ordering rule, pre-enactment capital loss carryforwards may potentially expire unused. Additionally, post-enactment capital losses that are carried forward will retain their character as either short-term or long-term capital losses rather than being considered all short-term as under previous law.
The tax character of distributions paid during the year ended September 30, 2014 was as follows:
Ordinary | Long-Term | Total | ||||||||||
Fund | Income | Capital Gain | Distributions | |||||||||
Mid Cap Value Institutional Fund | $6,118,621 | $32,336,483 | $38,455,104 |
The tax character of distributions paid during the year ended September 30, 2013 was as follows:
Ordinary | Long-Term | Total | ||||||||||
Fund | Income | Capital Gain | Distributions | |||||||||
Mid Cap Value Institutional Fund | $2,656,847 | $45,574,129 | $48,230,976 |
Note: For federal income tax purposes, short term capital gain distributions are treated as ordinary income distributions.
The tax character of distributable earnings/(accumulated losses) at September 30, 2014 was as follows:
Undistributed | Undistributed | Accumulated | Net Unrealized | Total | |||||||||||||||
Ordinary | Long-Term | Capital and | Appreciation/ | Accumulated | |||||||||||||||
Fund | Income | Capital Gain | Other Losses | (Depreciation)* | Earnings | ||||||||||||||
Mid Cap Value Institutional Fund | $5,649,717 | $54,797,145 | $ — | $80,068,721 | $140,515,583 |
* Any differences between book-basis and tax-basis unrealized appreciation (depreciation) are attributable primarily to the tax deferral of wash sale losses, the differences between book and tax basis passive foreign investment companies
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 losses due to wash sales, reclassifications due to real estate investment trusts (REIT), the “mark-to -market” of certain passive foreign investment companies (PFICs) for tax purposes, and utilization of earnings and profits on shareholder redemptions. To the extent these differences are permanent, reclassifications are made to the appropriate equity accounts in the period that the differences arise.
On the Statement of Assets and Liabilities the following adjustments were made for permanent book/tax differences:
Undistributed | Accumulated Net | |||||||||||||
Net Investment | Realized | |||||||||||||
Paid-In Capital | Income | (Loss) | ||||||||||||
Mid Cap Value Institutional Fund | $7,660,840 | $(366,274 | ) | $(7,294,566 | ) |
At September 30, 2014, the cost of securities for Federal income tax purposes, the aggregate gross unrealized gain for all securities for which there was an excess of value over tax cost and the aggregate gross unrealized loss for all securities for which there was an excess of tax cost over value, were as follows:
Tax | Tax | Net | |||||||||||||||
Tax | Unrealized | Unrealized | Unrealized | ||||||||||||||
Fund | Cost | Gain | Loss | Gain/(Loss) | |||||||||||||
Mid Cap Value Institutional Fund | $521,188,019 | $116,681,240 | $(36,612,519 | ) | $80,068,721 |
18 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
7. Securities Transactions
For the year ended September 30, 2014, the cost of purchases and proceeds from sales of investment securities, excluding government securities, short-term investments and derivatives, were as follows:
Fund | Purchases | Sales | ||||||
Mid Cap Value Institutional Fund | $240,596,720 | $254,616,857 |
8. Options Written
Information as to options written by the Fund during the year ended September 30, 2014, and options outstanding at period end is provided below:
Written Call Options | ||||||||
Number of | Premium | |||||||
Mid Cap Value Institutional Fund | contracts | amount | ||||||
Balance at September 30, 2013 | 517 | $ | 174,748 | |||||
Options Written | 731 | 179,216 | ||||||
Options terminated in closing purchase transactions | — | — | ||||||
Options expired | (1,248 | ) | (353,964 | ) | ||||
Options exercised | — | — | ||||||
Balance at September 30, 2014 | — | $ | — | |||||
Written Put Options | ||||||||
Number of | Premium | |||||||
Mid Cap Value Institutional Fund | contracts | amount | ||||||
Balance at September 30, 2013 | — | $ | — | |||||
Options Written | 715 | 95,933 | ||||||
Options terminated in closing purchase transactions | — | — | ||||||
Options expired | (715 | ) | (95,933 | ) | ||||
Options exercised | — | — | ||||||
Balance at September 30, 2014 | — | $ | — |
9. Affiliated Transactions
Investments representing 5% or more of the outstanding voting shares of a portfolio company of a fund, or control of or by, or common control under GI, result in that portfolio company being considered an affiliated company of such fund, as defined in the 1940 Act.
Transactions during the year ended September 30, 2014 in which the portfolio company is an “affiliated person” are as follows:
Value | Value | Shares | Investment | |||||||||||||||||||||||
Fund | Security | 09/30/13 | Additions | Reductions | 09/30/14 | 09/30/14 | Income | |||||||||||||||||||
Mid Cap Value Institutional Fund | Common Stock: | |||||||||||||||||||||||||
HydroGen Corp. | $ | 8,860 | $ | — | $ | — | $ | 1 | 1,265,700 | $ | — | |||||||||||||||
Total | $ | 8,860 | $ | — | $ | — | $ | 1 | 1,265,700 | $ | — |
10. Other Liabilities
The Fund wrote put option contracts through Lehman Brothers Inc., (“LBI”) that were exercised prior to the option contracts’ expiration and prior to the bankruptcy filing by LBI, during September, 2008. However, these transactions have not settled and the securities have not been delivered to the Fund as of September 30, 2014.
Although the ultimate resolution of these transactions is uncertain, the Fund has recorded a liability on its books equal to the difference between the strike price on the put options and the market price of the underlying security on the exercise date. The amount of the liability recorded by the Fund as of September 30, 2014 was $15,940.
THE GUGGENHEIM FUNDS ANNUAL REPORT | 19 |
The Board of Trustees and Shareholders
of Guggenheim Funds Trust
We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of Guggenheim Mid Cap Value Institutional Fund (one of the series constituting the Guggenheim Funds Trust) (the “Fund”) as of September 30, 2014, and the related statement 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, and the financial highlights for each of the five years in the period then ended. These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. We were not engaged to perform an audit of the Fund’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of September 30, 2014, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the Guggenheim Mid Cap Value Institutional Fund (one of the series constituting the Guggenheim Funds Trust) at September 30, 2014, and the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and its financial highlights for each of the five years in the period then ended, in conformity with U.S. generally accepted accounting principles.
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20 | | | THE GUGGENHEIM FUNDS ANNUAL REPORT |
Tax Information
This information is being provided as required by the Internal Revenue Code. Amounts shown may differ from those elsewhere in the report because of differences in tax and financial reporting practice.
Of the taxable ordinary income distributions paid during the fiscal year ending September 30, 2014, the following fund had the corresponding percentages qualify for the dividends received deduction for corporations:
Fund | % Qualifying | ||
Mid Cap Value Institutional Fund | 100.00 | % |
Additionally, the following amounts of taxable ordinary income dividends paid during the fiscal year qualified for the lower income tax rate available to individuals under the Jobs and Growth Tax Relief Reconciliation Act of 2003:
Fund | % Qualifying | ||
Mid Cap Value Institutional Fund | 100.00 | % |
Additionally, of the taxable ordinary income distributions paid during the fiscal year ending September 30, 2014, the following fund had the corresponding percentages qualify as interest related dividends and qualified short-term capital gains as permitted by IRC Section 871(k)(1) and IRC Section 871(k)(2), respectively:
Fund | % Qualifying | % STCG Qualifying | ||||
Mid Cap Value Institutional Fund | 0.00 | % | 100.00 | % |
With respect to the taxable year ended September 30, 2014, the Fund hereby designates as capital gain dividends the amounts listed below, or, if subsequently determined to be different, the net capital gain of such year.
LT Capital Gain | |||||||
LT Capital Gains | Using Proceeds from | ||||||
Fund | Dividends | Shareholder Redemptions | |||||
Mid Cap Value Institutional Fund | $32,336,483 | $7,660,840 |
In January 2015, you will be advised on IRS Form 1099 DIV or substitute 1099 DIV as to the federal tax status of the distributions received by you in the calendar year 2014.
Proxy Voting Information
A description of the policies and procedures that the Trust uses to determine how to vote proxies relating to securities held in the Funds’ portfolios is available, without charge and upon request, by calling 800.820.0888. This information is also available from the EDGAR database on the SEC’s website at http://www.sec.gov.
Information regarding how the Funds voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available without charge, upon request, by calling 800.820.0888. This information is also available from the EDGAR database on the SEC’s website at http://www.sec.gov.
Quarterly Portfolio Schedules Information
The Trust files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q; which are available on the SEC’s website at http://www.sec.gov. The Funds’ Forms N-Q may be reviewed and copied at the SEC’s Public Reference Room in Washington, DC, and that information on the operation of the Public Reference Room may be obtained by calling 800-SEC-0330. Copies of the portfolio holdings are also available to shareholders, without charge and upon request, by calling 800.820.0888.
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Office Locations
The offices of Guggenheim Investments can be found in the following locations:
Distributor change
Effective March 3, 2014, Guggenheim Distributors, LLC (“GD”), the distributor for shares of the Funds was consolidated into and with Guggenheim Funds Distributors, LLC (“GFD”). Following the consolidation, GFD serves as the Funds’ distributor.
GD and GFD are both indirect, wholly-owned subsidiaries of Guggenheim Capital, LLC and, therefore, the consolidation will not result in a change of actual control of the Funds’ distributor. The primary goal of the consolidation is to achieve greater operational efficiencies and allow all of the Guggenheim funds, including funds that are not series of the Trusts, to be distributed by a single distributor.
The consolidation is not expected to affect the day-to-day management of the Funds or result in any material changes to the distribution of the Funds, including any changes to the distribution fees paid by the Funds.
Guggenheim Funds Trust
Guggenheim Funds Trust (the “Trust”), which was organized as a Delaware statutory trust on November 8, 2013, is registered with the Securities and Exchange Commission (“SEC”) as an investment company. The Trust is an open-end management investment company that, upon the demand of the investor, must redeem its shares and pay the investor the next calculated NAV. The Guggenheim Enhanced World Equity Fund (“Enhanced World Equity Fund”), Guggenheim Large Cap Value Fund (“Large Cap Value Fund”), Guggenheim Mid Cap Value Fund (“Mid Cap Value Fund”), Guggenheim Mid Cap Value Institutional Fund (“Mid Cap Value Institutional Fund”), Guggenheim Small Cap Value Fund (“Small Cap Value Fund”), Guggenheim StylePlus—Large Core Fund (“StylePlus—Large Core Fund”), Guggenheim StylePlus—Mid Growth Fund (“StylePlus—Mid Growth Fund”) and Guggenheim World Equity Income Fund (“World Equity Income Fund”) (collectively, the “Funds”) were previously series (the “Predecessor Funds”) of Security Equity Fund, Security Large Cap Value Fund and Security Mid Cap Growth Fund (the “Predecessor Corporations”), different registered open-end investment companies, which were organized as Kansas corporations. In January 2014, at special meetings of shareholders, the shareholders of each Predecessor Fund approved the reorganization of each Predecessor Fund with and into a corresponding “shell” series of the Trust. The shell series of the Trust succeeded to the accounting and performance histories of the Predecessor Funds. Any such historical information provided for a series of the Trust that relates to periods prior to January 28, 2014, therefore, is that of the corresponding Predecessor Fund.
Effective January 28, 2014, the Guggenheim Floating Rate Strategies Fund (“Floating Rate Strategies Fund”), Guggenheim High Yield Fund (“High Yield Fund”), Guggenheim Investment Grade Bond Fund (“Investment Grade Bond Fund”), Guggenheim Limited Duration Fund (“Limited Duration Fund”), Guggenheim Macro Opportunities Fund (“Macro Opportunities Fund”), Guggenheim Municipal Income Fund (“Municipal Income Fund”), and Guggenheim Total Return Bond Fund (“Total Return Bond Fund”), which were series of Security Income Fund, a Kansas corporation, reorganized with and into corresponding series of Guggenheim Funds Trust, a Delaware Statutory Trust (each, a “Reorganization”). Upon completion of each Reorganization, the respective share classes of each Fund assumed the performance, financial and other historical information of those of the corresponding predecessor fund.
22 | | | THE GUGGENHEIM FUNDS ANNUAL REPORT |
At a meeting of shareholders held on January 8, 2014, shareholders of the Guggenheim Alpha Opportunity Fund (“Alpha Opportunity Fund”) approved the reorganization of the Fund from a Kansas corporation to a Delaware statutory trust. After the close of business on September 23, 2014, the Fund, which is a series of Security Equity Fund, a Kansas corporation, will reorganize with and into a corresponding “shell” fund (the “New Fund”), which is a series of Guggenheim Funds Trust, a Delaware statutory trust. Upon completion of the Reorganization, shareholders of the Fund will own shares of the New Fund that are equal in number and in value to the shares of the Fund that were held by those shareholders immediately prior to the closing of the Reorganization. In addition, the New Fund will assume the performance, financial and other historical information of that of the Fund. Once the Reorganization is completed, the Fund will no longer be offered as a series of Security Equity Fund.
Report of the Guggenheim Funds Trust Contracts Review Committee
Guggenheim Funds Trust (the “Trust”) was organized as a Delaware statutory trust on November 8, 2013, and is registered as an open-end management investment company under the Investment Company Act of 1940, as amended (the “1940 Act”). Effective January 28, 2014, the Trust is the successor of all of the existing and active series of Security Equity Fund (except for Guggenheim Alpha Opportunity Fund),1 Security Large Cap Value Fund, Security Mid Cap Growth Fund and Security Income Fund, each, a Kansas corporation (collectively, the “Corporations”), following the reorganization of each series of the Corporations with and into a corresponding “shell” series of the Trust (the “Reorganizations”). The Reorganizations, which were approved by the Boards of Directors of the Corporations (collectively, the “Board of Directors” or the “Predecessor Board” and the members of the Board of Directors individually, “Directors”), including the Directors who are not “interested persons,” as defined by the 1940 Act, of the Corporations (the “Independent Directors”), and by shareholders, were intended to, among other things, take advantage of various benefits available to registered investment companies organized as Delaware statutory trusts, including, but not limited to, Delaware’s comprehensive body of law related to investment companies which may reduce legal uncertainty and risk.
The Trust includes the following series (the “New Series”), each of which assumed the accounting and performance histories of the corresponding predecessor fund (a “Predecessor Fund” and collectively, the “Predecessor Funds”):
• | Guggenheim Alpha Opportunity Fund (“Alpha Opportunity Fund”)2 | • | Guggenheim Enhanced World Equity Fund (“Enhanced World Equity Fund”) | ||||
• | Guggenheim Floating Rate Strategies Fund (“Floating Rate Strategies Fund”) | • | Guggenheim High Yield Fund (“High Yield Fund”) | ||||
• | Guggenheim Investment Grade Bond Fund (“Investment Grade Bond Fund”) | • | Guggenheim Large Cap Value Fund (“Large Cap Value Fund”) | ||||
• | Guggenheim Limited Duration Fund (“Limited Duration Fund”) | • | Guggenheim Macro Opportunities Fund (“Macro Opportunities Fund”) | ||||
• | Guggenheim Mid Cap Value Institutional Fund (“Mid Cap Value Institutional”) | • | Guggenheim Mid Cap Value Fund (“Mid Cap Value Fund”) | ||||
• | Guggenheim Municipal Income Fund (“Municipal Income Fund”) | • | Guggenheim Small Cap Value Fund (“Small Cap Value Fund”) | ||||
• | Guggenheim StylePlus—Mid Growth Fund (“StylePlus—Mid Growth”) | • | Guggenheim StylePlus—Large Core Fund (“StylePlus—Large Core”) | ||||
• | Guggenheim Total Return Bond Fund (“Total Return Bond Fund”) | • | Guggenheim World Equity Income Fund (“World Equity Income Fund”) |
With the exception of Enhanced World Equity Fund, Floating Rate Strategies Fund, Limited Duration Fund, Macro Opportunities Fund and Total Return Bond Fund, Security Investors, LLC, also known as Guggenheim Investments (“Security Investors”) and an indirect subsidiary of Guggenheim Partners, LLC, a global diversified financial services firm (“Guggenheim Partners”), serves as investment manager to each series of the Trust. (Guggenheim Partners, Security Investors, Guggenheim Partners Investment Management, LLC (“GPIM”) and their affiliates may be referred to herein collectively as “Guggenheim.”) In this connection, the Trust and Security Investors have entered into four separate investment management agreements which group the New Series of the Trust to correspond with the Predecessor Funds that were series of a common Corporation: (i) Mid Cap Value Fund, Mid Cap Value Institutional, Small Cap Value Fund, StylePlus —Large Core Fund, World Equity Income Fund and Alpha Opportunity Fund,3 the corresponding Predecessor Funds of which were series of a common Corporation, Security Equity Fund; (ii) Large Cap Value Fund, the corresponding Predecessor Fund of which was the sole series of a Corporation, Security Large Cap Value Fund; (iii) StylePlus —Mid Growth, the corresponding Predecessor Fund of which was the sole series of a Corporation, Security Mid Cap Growth Fund; and (iv) Investment Grade Bond Fund, High Yield Fund and Municipal Income Fund, the corresponding Predecessor Funds of which were series of a common Corporation, Security Income Fund. (The New Series identified in (i) through (iv) above are collectively referred to herein as the “SI-Advised Funds.”)
1 | At a meeting of shareholders held on January 8, 2014, shareholders of Guggenheim Alpha Opportunity Fund (“Alpha Opportunity Fund”), a series of Security Equity Fund, approved the reorganization of Alpha Opportunity Fund to a corresponding new series of the Trust (the “Alpha Opportunity Fund Reorganization”). Due to certain outstanding transactions with Lehman Brothers International Europe (“LBIE”) and its administrator, the Alpha Opportunity Fund Reorganization was delayed pending the resolution of the LBIE matter. Alpha Opportunity Fund was reorganized into the Trust on September 24, 2014. | ||
2 | Because the Alpha Opportunity Fund was not reorganized into the Trust until September 2014, at the time of the Board’s review of the investment advisory agreements Alpha Opportunity Fund was a series of the Security Equity Fund. | ||
3 | At the time of the Board’s review of the investment advisory agreements, Security Investors served as investment manager to Alpha Opportunity Fund pursuant to an investment management agreement with Security Equity Fund. The investment management agreement with Security Investors transferred to the Trust upon the Alpha Opportunity Fund Reorganization. |
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Under the terms of the applicable investment management agreement between the Trust and Security Investors, Security Investors also is responsible for overseeing the activities of GPIM, an indirect subsidiary of Guggenheim Partners, with respect to its service as investment sub-adviser to Municipal Income Fund, pursuant to an investment sub-advisory agreement between Security Investors and GPIM (the “Sub-Advisory Agreement”).
GPIM serves as investment adviser with respect to each of Enhanced World Equity Fund, Floating Rate Strategies Fund, Limited Duration Fund, Macro Opportunities Fund and Total Return Bond Fund (collectively, the “GPIM-Advised Funds” and together with the SI-Advised Funds, the “Funds” and individually, a “Fund”). In this connection, the Trust and GPIM have entered into three separate investment advisory agreements which group the GPIM-Advised Funds as follows: (i) Enhanced World Equity Fund, the corresponding Predecessor Fund of which was a series of Security Equity Fund; (ii) Floating Rate Strategies Fund, Macro Opportunities Fund and Total Return Bond Fund, the corresponding Predecessor Funds of which were series of a common Corporation, Security Income Fund; and (iii) Limited Duration Fund, the corresponding Predecessor Fund of which was a series of Security Income Fund. (The investment management agreements pertaining to the SI-Advised Funds and the investment advisory agreements pertaining to the GPIM-Advised Funds are referred to herein together as the “Advisory Agreements” and, together with the Sub-Advisory Agreement, as the “Agreements.” In addition, unless the context indicates otherwise, GPIM, with respect to its service as investment adviser to the GPIM-Advised Funds, and Security Investors as to the SI-Advised Funds, are each referred to herein as the “Adviser” and together, the “Advisers.”) Under the supervision of the Board of Trustees of the Trust (the “Board” and the members of the Board individually, the “Trustees”), the Advisers regularly provide (or, as applicable, oversee the provision of) investment research, advice and supervision, a continuous investment program and direct the purchase and sale of securities and other investments for each Fund’s portfolio.
At a meeting held on November 11, 2013, in connection with other actions taken to pursue the Reorganizations, the Predecessor Board, including the Independent Directors, appointed each of the then-current investment manager/adviser for the Predecessor Funds to serve in such capacity to the corresponding New Series of the Trust (i.e., Security Investors and GPIM with respect to the SI-Advised Funds and the GPIM-Advised Funds, respectively). The Predecessor Board, including the Independent Directors, also approved for the Trust, on behalf of the New Series, the investment advisory and investment management agreements then in effect with respect to the Predecessor Funds (i.e., the Advisory Agreements and the Sub-Advisory Agreement). The sole initial shareholder of the New Series subsequently approved the Advisory Agreements and the Sub-Advisory Agreement, which are identical to the agreements then in place with respect to each of the Predecessor Funds in all material respects, except for the name of the signatory and the applicable state law, and became effective January 27, 2014.
At meetings held in person on April 17, 2014 (the “April Meeting”) and on May 12, 2014, (the “May Meeting”), the members of the Contracts Review Committee of the Board (the “Committee”), consisting solely of the Trustees who are not “interested persons,” as defined by the 1940 Act, of the Trust (the “Independent Trustees”), met separately from Guggenheim to consider the renewal of the Advisory Agreements and the Sub-Advisory Agreement in connection with the Committee’s annual contract review schedule.4 As part of its review process, the Committee was represented by independent legal counsel to the Independent Trustees (“Independent Legal Counsel”). Independent Legal Counsel reviewed and discussed with the Committee various key aspects of the Trustees’ legal responsibilities relating to the proposed renewal of the Agreements and other principal contracts. In this connection, Independent Legal Counsel advised the Committee of: (i) the responsibilities of board members under applicable law; (ii) the standards for determining what constitutes an excessive fee as delineated by the courts and the factors the Trustees should consider in determining whether to approve the fee arrangements; and (iii) the disclosure requirements pertaining to these approvals, as required by the Securities and Exchange Commission. The Committee took into account various materials received from Guggenheim and Independent Legal Counsel. Recognizing that the evaluation process with respect to the services provided by each of the Advisers is an ongoing one, the Committee also considered the variety of written materials, reports and oral presentations it received (and received by the full Board) throughout the year regarding performance and operating results of the Funds (which, as noted, reflects the accounting and performance histories of the Predecessor Funds).
4 | Since the corresponding Predecessor Fund of Enhanced World Equity Fund was subject to an investment management agreement approved by the Board of Directors of Security Equity Fund for an initial term of two years at an in-person meeting of the Board held on February 13, 2013, and because the Fund has a limited operating history, it was not included in the contract renewal process conducted in April and May 2014 (the “2014 Contract Renewal Process”). Similarly, Limited Duration Fund was not included in the 2014 Contract Renewal Process because the corresponding Predecessor Fund of Limited Duration Fund was subject to an investment management agreement approved by the Board of Directors of Security Income Fund for an initial term of two years at an in-person meeting of the Board held on November 11, 2013. Another recently launched series of the Trust, the Guggenheim Risk Managed Real Estate Fund (the “Risk Managed Real Estate Fund”) also was excluded from the 2014 Contract Renewal Process because the investment advisory agreement between GPIM and the Trust, on behalf of the Risk Managed Real Estate Fund, was approved by the Board of Trustees of the Trust for an initial term of two years at an in-person meeting of the Board held on February 12, 2014. Accordingly, references herein to the “Funds” should be understood as referring to all series of the Trust, except Enhanced World Equity Fund, Limited Duration Fund and Risk Managed Real Estate Fund. In addition, references to the “Funds” should be understood as including Alpha Opportunity Fund. Since the Alpha Opportunity Fund Reorganization was not effected as of the April Meeting or May Meeting, the individuals who serve as the Independent Trustees, in their capacity as the Independent Directors of Security Equity Fund, considered the renewal of the Investment Management Agreement between Security Investors and Security Equity Fund, with respect to Alpha Opportunity Fund. Accordingly, all references hereafter to the steps taken by the “Independent Trustees” and the “Committee,” including the materials reviewed and factors considered, also refer to such parties in their corresponding capacities with respect to Alpha Opportunity Fund. Likewise, all action taken with respect to the Trust’s Advisory Agreements includes the Investment Management Agreement regarding Alpha Opportunity Fund. |
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In connection with the contract review process, FUSE Research Network LLC (“FUSE”), an independent, third party research provider, was engaged to prepare advisory contract renewal reports designed specifically to help boards of directors/trustees fulfill their advisory contract renewal responsibilities. The objective of the reports is to present the subject funds’ relative position regarding fees, expenses and total return performance, with peer group and universe comparisons. Guggenheim prepared a comprehensive presentation in response to a formal request for information sent by Independent Legal Counsel on behalf of the Committee. In addition, Guggenheim made a detailed presentation at the April Meeting, which addressed areas identified for discussion by the Committee Chair and Vice Chair and Independent Legal Counsel. Throughout the process, the Committee asked questions of management and requested certain additional information which Guggenheim provided following the April Meeting (collectively with the foregoing reports and materials, the “Contract Materials”).
Among other things, Guggenheim provided: (i) organizational charts and presentations, staffing reports and biographies of those key personnel of each Adviser providing services to the Funds; (ii) descriptions of various functions performed by Guggenheim for the Funds, such as portfolio trading practices, brokerage matters, trade allocation and best execution; (iii) information regarding each Adviser’s compliance and regulatory history, including its Form ADV; and (iv) information concerning the parent company and overall Guggenheim organization and strategic plans and goals, all to assist the Committee in assessing the nature, extent and quality of services provided by each of Security Investors and GPIM, respectively. In addition, Guggenheim’s response included information comparing the investment performance, advisory fees and total expenses of the Funds to other funds (including such information presented in the FUSE reports as well as supplemental information prepared by Guggenheim), charts showing revenues for Guggenheim by product line and each Fund, including a break-out of various expenses, a description of the expense allocation methodology and information about the profitability of the Funds to Guggenheim Investments (the investment management business of Guggenheim Partners), financial information for Guggenheim Investments (unaudited), and information about Guggenheim’s compliance and risk management programs.
Following an analysis and discussion of the factors identified below and in the exercise of its business judgment, the Committee concluded that it was in the best interests of the Funds to recommend that the Board approve the renewal of each Advisory Agreement and the Sub-Advisory Agreement for an additional 12-month term.
Advisory Agreements
Nature, Extent and Quality of Services Provided by each Adviser: With respect to the nature, extent and quality of services currently provided by each Adviser, the Committee considered the information provided by Guggenheim concerning the education, experience, professional affiliations, area of responsibility and duties of all key personnel performing services for the Funds, including those personnel providing compliance oversight. In this connection, the Committee considered Guggenheim’s resources and related efforts to retain, attract and motivate capable personnel to serve the Funds and noted Guggenheim’s report on recent additions and departures in personnel who work on matters relating to the Funds or are significant to the operations of each Adviser. The Committee noted that on a regular basis the Board receives and reviews information from the Trust’s Chief Compliance Officer regarding compliance policies and procedures established pursuant to Rule 38a-1 under the 1940 Act. In addition, the Committee took into account the various compliance and risk management initiatives undertaken by Guggenheim, including, among other things, the hiring of a new Chief Risk Officer, Portfolio Management, responsible for implementing various initiatives related to the risks associated with the investment process, the organization’s risk management infrastructure and critical activities. The Committee also considered Guggenheim’s other initiatives intended to achieve greater enhancements and efficiencies in the organization’s ability to provide services to all of the registered investment companies for which Security Investors, GPIM or another Guggenheim affiliate serves as investment adviser/manager (including the Funds), such as efforts to streamline and simplify the organizational structure of Guggenheim’s advisory business, as reflected by the internal restructuring that consolidated the investment advisers, broker/dealers and other entities that comprise “Guggenheim Investments” under a new, single holding company, Guggenheim Partners Investment Management Holdings, LLC (“GPIMH”). In this regard, the Committee considered that although the restructuring neither impacted the services rendered on a day-to-day basis to the Funds nor changed the ultimate ownership of the various Guggenheim entities involved, which, through GPIMH, continue to be indirect subsidiaries of Guggenheim Capital, LLC, Guggenheim stated that the restructuring will allow the financial statements of the various entities to be consolidated and audited, thus providing a clearer view of Guggenheim Investments’ business within the broader Guggenheim organization. Moreover, in connection with the Committee’s evaluation of the overall package of services provided by each Adviser, the Committee considered each Adviser’s administrative capabilities, including its role in monitoring and coordinating compliance responsibilities with the fund administrator, transfer agent, distributor, custodian and other service providers to the Funds.
With respect to Guggenheim’s resources and the ability of each Adviser to carry out its responsibilities under the applicable Advisory Agreement, the Chief Financial Officer of Guggenheim Investments reviewed with the Committee certain unaudited financial information concerning GPIMH. (The Committee received the audited financial statements of GPIMH once available following the May Meeting.)
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The Committee also considered the acceptability of the terms of each Advisory Agreement (including the scope of services required to be performed by each Adviser). Based on the foregoing, and based on other information received (both oral and written) at the April Meeting and at the May Meeting, as well as other considerations, including the Committee’s knowledge of each Adviser’s quality of performance of its duties through Board meetings, discussions, and reports throughout the year, the Committee concluded that each Adviser and its personnel were qualified to serve the Funds in such capacity and may reasonably be expected to continue to provide a high quality of services under each Advisory Agreement with respect to the Funds.
Investment Performance: The Committee received for each Fund investment returns for the five-year, three-year, one-year and three-month periods ended December 31, 2013, as applicable. In addition, the Committee received a comparison of each Fund’s performance to the performance of a benchmark, a peer group of similar funds and a broader universe of funds identified by FUSE, in each case for the same periods and, with respect to performance universe rankings for each Fund as to the returns of Class A shares, also for the ten-year period ended December 31, 2013, as applicable. The Committee received from FUSE representatives and considered a description of the methodology employed by FUSE for identifying each Fund’s peer group and universe for performance and expense comparisons.
In seeking to evaluate Fund performance over a full market cycle, the Committee generally focused its attention first on five- and three-year performance rankings as compared to the relevant universe of funds, but also considered more recent performance periods, including the one-year period and, as deemed appropriate, the three-month period, for certain Funds such as for those Funds that were recently launched or had undergone recent changes in the composition of the portfolio management team and/or the investment strategies employed. In this connection, the Committee made the following observations:
• | Alpha Opportunity Fund: The Fund’s Class A shares outperformed the performance universe median for the five- and three-year periods, ranking in the 1st percentile for both periods. In light of the resignation of Mainstream Investment Advisors, LLC, effective, September 30, 2013, as the Fund’s sub-adviser for the domestic long/short sub-portfolio of the Fund, the Committee also considered more recent performance periods, including the one-year period and the three-month period.5 In this connection, the Committee noted that Security Investors assumed investment management responsibility for the domestic long/short sub-portfolio as of September 30, 2013. The Committee observed that the Fund’s Class A shares outperformed the performance universe median for the one-year and three-month periods ended December 31, 2013, ranking in the 5th and 13th percentile, respectively. The Committee also noted information provided by Guggenheim that the Fund’s performance for the periods ended December 31, 2013 was comparable to the Fund’s benchmark, the S&P 500 Index, for the one- and three-year periods and better than the Fund’s benchmark for the five-year period, and lagged the benchmark for the three-month period. The Committee also considered the circumstances affecting the management of the Fund as a result of the Fund’s prime broker, Lehman Brothers International Europe (“LBIE”), being placed into administration on September 15, 2008. The Fund’s exposure to LBIE consists of short sale proceeds held by LBIE, and restricted long positions held at the Fund’s custodian, as collateral for such short sales. Until such time as the liability for short sales was settled and all restrictions were removed by LBIE and Lehman Brothers, Inc. (“LBI”), the Fund could not sell such restricted long positions and/or utilize the restricted cash balances to achieve the Fund’s investment objectives and/or meet Fund redemptions or other Fund obligations. In evaluating the services provided by the Adviser and the performance of the Fund, the Committee also considered Guggenheim’s efforts to resolve the issues with LBIE and LBI and to seek the release of the collateral by LBIE and LBI in conjunction with the potential settlement of LBIE’s claim. In addition, the Committee took into account information received from Guggenheim regarding the minimum assets required to manage the Fund’s assets consistent with the Fund’s investment objectives and the undertaking made by Guggenheim to assure adequate liquidity to meet Fund redemptions. | ||
• | Floating Rate Strategies Fund: The returns of the Class A shares exceeded the median of its performance universe in both the one-year and three-month periods, ranking in the 19th and 32nd percentile, respectively. The Fund, which commenced operations on November 30, 2011, also outperformed its benchmark, the Credit Suisse Leveraged Loan Index for the one-year and three-month periods, according to information provided by Guggenheim. | ||
• | High Yield Fund: While the returns of the Class A shares underperformed the median of its performance universe for the three-year period and ranked in the third quartile (72nd percentile), returns for the five-year period exceeded the performance universe median and ranked in the first quartile (4th percentile) and recent performance for the one-year period also ranked in the first quartile (3rd percentile). The Committee also noted information provided by Guggenheim that the Fund outperformed its benchmark, the Barclays Capital U.S. Corporate High Yield Index, for the five-year and one-year periods, but lagged the benchmark for the three-year period and that the current portfolio management team for the Fund began management in August 2012 and, since that time period, performance has ranked in the first quartile and has outperformed its benchmark. In light of the foregoing, the |
5 | Prior to September 30, 2013, Mainstream Investment Advisers, LLC (“Mainstream”) acted as sub-adviser to Alpha Opportunity Fund. Pursuant to an investment sub-advisory agreement, Mainstream furnished investment advisory services, supervised and arranged for the purchase and sale of securities on behalf of a portion of the assets of Alpha Opportunity Fund and provided for the compilation and maintenance of records pertaining to such investment advisory services, subject to the supervision of Security Investors and the Board of Directors of Security Equity Fund. Effective September 30, 2013, Mainstream resigned as sub-adviser to Alpha Opportunity Fund and Security Investors assumed all advisory obligations and responsibilities. |
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Committee focused, in particular, on the Fund’s recent performance, including the one-year and three-month periods ended December 31, 2013, and, with respect to the latter, noted that the FUSE report ranked the Fund in the first quartile (1st percentile). | |||
• | Investment Grade Bond Fund: The Fund’s Class A shares outperformed the performance universe median for the five- and three-year periods, ranking in the 46th and 8th percentile, respectively. The Committee also noted information provided by Guggenheim that the Fund outperformed its benchmark, the Barclays Capital U.S. Aggregate Index, for the five-year and three-year periods and that the current portfolio manager began management in August 2012 and, since that time, performance has been in the 1st quartile. The Committee considered that the FUSE report listed the Fund’s performance for the one-year and three-month periods in the 1st percentile and 4th percentile, respectively. | ||
• | Large Cap Value Fund: The returns of the Class A shares exceeded the median of the performance universe for the five-year period, but underperformed the median for the three-year and one-year periods and ranked in the 49th percentile, 79th percentile and 55th percentile for the five-, three- and one-year periods, respectively. The Committee concluded that longer-term performance and other factors relevant to performance were sufficient to warrant continuation of the Advisory Agreement with respect to the Fund. In this regard, the Committee considered that the Adviser had taken steps designed to mitigate risks associated with the portfolio by enhancing the risk management and portfolio analytics processes. The Committee also noted the presentation provided by the Fund’s portfolio manager at the April Meeting, as requested by the Committee. The Committee took into account the portfolio management team’s view that market conditions over the past several years have posed challenges for disciplined, long-term value investors, the long-term investment process employed for the Fund remains effective and, importantly, Guggenheim’s senior personnel responsible for overseeing performance supported this view and expressed confidence in the team’s capabilities, noting that, according to Morningstar peer group rankings based on total returns as of March 31, 2014, the Fund ranked in the 1st quartile (18th percentile) for the year-to-date. In light of all of the foregoing, the Committee determined to consider a longer term performance track record as part of its assessment of Fund performance and took into account the additional performance metrics provided by Guggenheim, including information that, as of December 31, 2013, the Fund ranked in the 25th percentile of its peer group since inception (July 1, 2005) based on gross returns. | ||
• | Macro Opportunities Fund: The returns of the Fund’s Class A shares ranked in the 13th and 1st percentile of its performance universe for the one-year and three-month periods, respectively, and outperformed the performance universe median for each of these periods. The Committee considered information provided by Guggenheim indicating that the Fund, which commenced operations on November 30, 2011, outperformed its benchmark, the Bank of America Merrill Lynch 3-Month U.S. Treasury Bill Index, for the one-year and three-month periods ended December 31, 2013. | ||
• | Mid Cap Value Fund: The returns of the Class A shares underperformed the performance universe median for the five-year, three-year and one-year periods and ranked in the 83rd, 67th and 79th percentile for the five-year, three-year and one-year periods, respectively. The Committee concluded that longer-term performance and other factors relevant to performance were sufficient to warrant continuation of the Advisory Agreement with respect to the Fund. In this regard, the Committee considered that the Adviser had taken steps designed to mitigate risks associated with the portfolio by enhancing the risk management and portfolio analytics processes. The Committee also noted the presentation provided by the Fund’s portfolio manager at the April Meeting, as requested by the Committee. The Committee took into account the portfolio management team’s view that market conditions over the past several years have posed challenges for disciplined, long-term value investors, the long-term investment process employed for the Fund remains effective and, importantly, Guggenheim’s senior personnel responsible for overseeing performance supported this view and expressed confidence in the team’s capabilities, noting that, according to Morningstar peer group rankings based on total returns as of March 31, 2014, the Fund ranked in the 1st quartile (13th percentile) for the year-to-date. The Committee also noted Guggenheim’s statement that the underperformance is heavily influenced by the lagging performance in calendar year 2011 where growth and large cap stocks were rewarded over value and small cap. In light of all of the foregoing, the Committee determined to consider a longer term performance track record as a part of its assessment of Fund performance and, in this regard, noted that the FUSE report listed the Fund’s performance for the ten-year period ended December 31, 2013 in the 1st quartile (11th percentile) and that, according to Guggenheim, the Fund outperformed its benchmark over the same period and since inception. | ||
• | Mid Cap Value Institutional: The Fund’s returns underperformed the performance universe median for the five-year, three-year and one-year periods and ranked in the 69th, 80th and 83rd percentile for the five-year, three-year and one-year periods, respectively. However, the Committee concluded that other factors relevant to performance were sufficient to warrant continuation of the Advisory Agreement with respect to the Fund. In this connection, the Committee considered the presentation provided by the Fund’s portfolio management team at the April Meeting, as requested by the Committee. The Committee also took into account the portfolio management team’s view that market conditions over the past several years have posed challenges for disciplined, long-term value investors, the long-term investment process employed for the Fund remains effective and, importantly, Guggenheim’s senior personnel responsible for overseeing performance supported this view and expressed confidence in the team’s capabilities, noting that, according to Morningstar peer group rankings based on total returns as of March 31, 2014, the Fund ranked in the 1st quartile (14th percentile) for the year-to-date. |
THE GUGGENHEIM FUNDS ANNUAL REPORT | 27 |
The Committee also noted Guggenheim’s statement that the underperformance is heavily influenced by the lagging performance in calendar year 2011 where growth and large cap stocks were rewarded over value and small cap stocks. | |||
• | Municipal Income Fund: The Committee considered that Security Investors does not directly manage the investment portfolio but has delegated such duties to GPIM. Based on the information provided and the review of the Fund’s investment performance, the Committee concluded that Security Investors had appropriately reviewed and monitored GPIM’s investment performance as Sub-Adviser to the Fund. | ||
• | Small Cap Value Fund: The returns of the Fund’s Class A shares exceeded the median of its performance universe for the five-year and three-year periods, ranking in the 6th and 45th percentile, respectively. The Committee also considered information provided by Guggenheim stating that the Fund’s performance exceeded its benchmark, the Russell 2000 Value Index, for the five-year and three-year periods ended December 31, 2013. The Committee also noted supplemental information provided by the Fund’s portfolio management team indicating that since inception (August 1, 2008), the Fund has ranked in the 1st percentile of its peer group based on gross returns. | ||
• | StylePlus —Large Core: The Fund’s Class A shares underperformed the performance universe median for the five-year and three-year periods, ranking in the 78th and 93rd percentile, respectively. However, the Committee concluded that other factors relevant to performance were sufficient to warrant continuation of the Advisory Agreement with respect to the Fund, including that the Adviser had taken steps designed to help improve the Fund’s investment performance by implementing a strategy change along with a new portfolio management team. In this regard, the Committee considered that the Fund’s current portfolio management team assumed responsibility for management of the Fund on May 1, 2013. In light of the foregoing, the Committee took into account Guggenheim’s statement that the Fund’s performance has improved since the changes were implemented and that the Fund’s annualized net return for the period from May 1, 2013 through December 31, 2013 was 16.86%, as compared to the 17.43% return of the Fund’s benchmark, the S&P 500 Index, and outperformed the benchmark for the three-month period ended December 31, 2013. The Committee also considered that the FUSE report listed the Fund’s performance for the three-month period ended December 31, 2013 in the 1st quartile (25th percentile). Finally, the Committee noted that according to Morningstar peer group rankings based on total returns as of March 31, 2014, as provided by Guggenheim, the Fund ranked in the 1st quartile (14th percentile) for the year-to-date. | ||
• | StylePlus —Mid Growth: The Fund’s Class A shares underperformed the performance universe median for the five-year and three-year periods, ranking in the 70th and 78th percentile, respectively. However, the Committee concluded that other factors relevant to performance were sufficient to warrant continuation of the Advisory Agreement with respect to the Fund, including that the Adviser had taken steps designed to help improve the Fund’s investment performance by implementing a strategy change along with a new portfolio management team. In this regard, the Committee considered that the Fund’s current portfolio management team assumed responsibility for management of the Fund on May 1, 2013. In light of the foregoing, the Committee took into account Guggenheim’s statement that the Fund’s performance has improved since the changes were implemented and that the Fund’s annualized net return for period from May 1, 2013 through December 31, 2013 was 19.88%, as compared to the 19.97% return of the Fund’s benchmark, the Russell Mid Cap Growth Index, and outperformed the benchmark for the three-month period ended December 31, 2013. The Committee also considered that the FUSE report listed the Fund’s performance for the three-month period ended December 31, 2013 in the 40th percentile. Finally, the Committee noted that according to Morningstar peer group rankings based on total returns as of March 31, 2014, as provided by Guggenheim, the Fund ranked in the 1st quartile (22nd percentile) for the year-to-date. | ||
• | Total Return Bond Fund: The returns of the Fund’s Class A shares ranked in the 1st quartile (the 3rd and 4th percentile, respectively) of its performance universe for the one-year and three-month periods, respectively. The Committee considered information provided by Guggenheim indicating that the Fund, which commenced operations on November 30, 2011, outperformed its benchmark, the Barclays Capital U.S. Aggregate Index, as well as the Fund’s peer group average, for the one-year and three-month periods ended December 31, 2013. | ||
• | World Equity Income Fund: The Fund’s Class A shares underperformed the performance universe median for the five-year and three-year periods, ranking in the 96th and 95th percentile, respectively. However, the Committee concluded that other factors relevant to performance were sufficient to warrant continuation of the Advisory Agreement with respect to the Fund, including that the Adviser had taken steps designed to help improve the Fund’s investment performance by implementing a strategy change along with a new portfolio management team in August 2013. Thus, the Committee took into account that according to Morningstar peer group rankings based on total returns as of March 31, 2014, as provided by Guggenheim, the Fund ranked in the 1st quartile (12th percentile) for the year-to-date and outperformed its benchmark, the MSCI World Index, over the same period. |
After reviewing the foregoing and related factors, the Committee concluded, within the context of its overall conclusions regarding the Advisory Agreements, that: (i) each Fund’s performance was acceptable; or (ii) it was satisfied with Guggenheim’s responses and efforts relating to investment performance.
28 | | | THE GUGGENHEIM FUNDS ANNUAL REPORT |
Comparative Fees, Costs of Services Provided and the Profits Realized by the Investment Manager from its Relationship with the Funds: The Committee compared each Fund’s contractual advisory fee and total net expense ratio to the applicable peer group and compared each Fund’s total net expense ratio to its universe of funds for the various classes. The Committee also reviewed the median advisory fees and expense ratios, including expense ratio components (e.g., transfer agency fees, administration fees, other operating expenses, distribution fees and fee waivers/reimbursements) of the peer group of funds. In addition, the Committee considered each Fund’s advisory fee as compared to the advisory fee charged by the applicable Adviser to another fund with a similar investment objective and strategies, as applicable, noting that, in certain instances, the Adviser charges a lower advisory fee to other clients for which it provides comparable services. In this regard, the Committee considered Guggenheim’s explanation that lower fees are charged in certain instances due to numerous factors, including the scope of contract, types of investors, applicable regulation and legal structures, tax status, and for historical pricing reasons.
In further considering the comparative fee and expense data presented in the Contract Materials and addressed by Guggenheim, the Committee made the following observations:
• | Alpha Opportunity Fund: The average contractual advisory fee percentile rank across all share classes of the Fund is below the median of its peer group (39th percentile) and the asset weighted total net expense ratio is in the third quartile (72nd percentile). In addition, the Adviser has entered into an expense limitation agreement with respect to the Fund. | ||
• | Floating Rate Strategies Fund: The average contractual advisory fee percentile rank across all share classes of the Fund is in the third quartile (64th percentile) of its peer group and the asset weighted total net expense ratio is below the peer group median (36th percentile). In addition, the Adviser has entered into an expense limitation agreement with respect to the Fund. | ||
• | High Yield Fund: The average contractual advisory fee percentile rank across all share classes of the Fund is below the median of its peer group (41st percentile) and the asset weighted total net expense ratio is in the third quartile (63rd percentile). In addition, the Adviser has entered into an expense limitation agreement with respect to the Fund. | ||
• | Investment Grade Bond Fund: The average contractual advisory fee percentile rank across all share classes of the Fund is at the 51st percentile of its peer group and the asset weighted total net expense ratio is in the fourth quartile (88th percentile). In addition, the Adviser has entered into an expense limitation agreement with respect to the Fund. | ||
• | Large Cap Value Fund: The average contractual advisory fee percentile rank across all share classes of the Fund and the asset weighted total net expense ratio are each below the peer group median (at the 30th and 19th percentile, respectively). In addition, the Adviser has entered into an expense limitation agreement with respect to the Fund. | ||
• | Macro Opportunities Fund: The average contractual advisory fee percentile rank across all share classes of the Fund is in the fourth quartile (89th percentile) of its peer group and the asset weighted total net expense ratio is in the third quartile (65th percentile). The Committee considered Guggenheim’s statement that the Fund is unique to its peer group in that it has a broader investment mandate with greater opportunistic flexibility. In this connection, the Committee noted that the Fund’s performance has been relatively strong. In addition, the Adviser has entered into an expense limitation agreement with respect to the Fund. | ||
• | Mid Cap Value Fund: The average contractual advisory fee percentile rank across all share classes of the Fund is in the fourth quartile (85th percentile) of its peer group and the asset weighted total net expense ratio is in the third quartile (72nd percentile). Although higher than median, the contractual advisory fee and the total net expense ratio for each class of shares was within a competitive range of the median of the peer group. For example, the Class A contractual advisory fee of 0.79% is 2 basis points above the peer group median and the total net expense ratio of 1.39% is 9 basis points above the peer group median. | ||
• | Mid Cap Value Institutional Fund: The contractual advisory fee percentile rank is in the first quartile (17th percentile) of its peer group and the total net expense ratio is in the third quartile (67th percentile) of its peer group. | ||
• | Municipal Income Fund: The average contractual advisory fee percentile rank across all share classes of the Fund is in the first quartile (8th percentile) of its peer group and the asset weighted total net expense ratio is in the 55th percentile. In addition, the Adviser has entered into an expense limitation agreement with respect to the Fund. |
THE GUGGENHEIM FUNDS ANNUAL REPORT | 29 |
• | Small Cap Value Fund: The average contractual advisory fee percentile rank across all share classes of the Fund is in the fourth quartile (77th percentile) of its peer group and the asset weighted total net expense ratio is below the peer group median (43rd percentile). The Committee also considered that the Fund’s long-term performance has been strong. In addition, the Adviser has entered into an expense limitation agreement with respect to the Fund. | ||
• | StylePlus —Large Core: The average contractual advisory fee percentile rank across all share classes of the Fund is in the third quartile (67th percentile) of its peer group and the asset weighted total net expense ratio is in the fourth quartile (92nd percentile). Although the total net expense ratio for each class is higher than its peer group median, the contractual advisory fee (0.75%), at four to five basis above the peer group median for each class, was deemed to be within a reasonable range. | ||
• | StylePlus —Mid Growth: The average contractual advisory fee percentile rank across all share classes of the Fund is in the first quartile (23rd percentile) and the asset weighted total net expense ratio is in the fourth quartile (93rd percentile) of its peer group. The Committee noted Guggenheim’s statement that the Fund’s total net expense ratio is slightly higher but comparable to its peer group average. | ||
• | Total Return Bond Fund: The average contractual advisory fee percentile rank across all share classes of the Fund is in the third quartile (63rd percentile) of its peer group and the asset weighted total net expense ratio is below the peer group median (28th percentile). In addition, the Adviser has entered into an expense limitation agreement with respect to the Fund. | ||
• | World Equity Income Fund: The average contractual advisory fee percentile rank across all share classes of the Fund is below the peer group median (45th percentile) and the Fund’s asset weighted total net expense ratio is in the fourth quartile (88th percentile) of its peer group. |
With respect to the costs of services provided and profits realized by Guggenheim from its relationship with the Funds, the Committee reviewed a profit and loss statement for each Fund setting forth the revenues received from gross advisory fees, the expenses incurred in providing services to the Funds, the pre-tax operating margin and profitability rate and each Fund’s average assets for the twelve months ended December 31, 2012 and December 31, 2013, and information with respect to Guggenheim’s allocation methodologies used in preparing the profitability data.
The Committee considered other benefits available to each Adviser because of its relationship with the Funds and noted that Security Investors and GPIM may be deemed to benefit from arrangements whereby an affiliate, Rydex Fund Services, LLC, receives fees for: (i) performing certain administrative functions and bookkeeping, accounting and pricing functions for the Funds pursuant to a Fund Accounting and Administration Agreement; and (ii) acting as transfer agent for the Funds and performing all shareholder servicing functions, including transferring record ownership, processing purchase and redemption transactions, answering inquiries, mailing shareholder communications, and acting as the dividend disbursing agent pursuant to a Transfer Agency Agreement. The Committee reviewed the compensation arrangements for the provision of the foregoing services. The Committee also noted Guggenheim’s statement that it may benefit from marketing synergies arising from offering a broad spectrum of products, including the Funds. Based on all of the information provided and its review, the Committee determined that Guggenheim’s profitability from its relationship with the Funds was not unreasonable.
Economies of Scale to be Realized: The Committee received and considered information regarding whether there have been economies of scale with respect to the management of the Funds as Fund assets grow, whether the Funds has appropriately benefited from any economies of scale, and whether there is potential for realization of any further economies of scale. The Committee considered whether economies of scale in the provision of services to the Funds were being passed along to the shareholders. In this connection, the Committee considered management’s view that Guggenheim continues to add system resources as required to develop its infrastructure in response to the growth in the firm’s assets and there is an opportunity to optimize economies of scale across the firm’s array of products and product lines. Therefore, although Guggenheim may be realizing economies of scale and efficiencies due to its growth, it is concurrently realizing new costs and expenses associated with investment in its infrastructure.
In addition, the Committee considered the size of the Funds and the competitiveness of and/or other determinations made regarding the current advisory fee for each Fund. The Committee also took into account Guggenheim’s statement that generally the Funds’ assets are not sufficiently large to warrant breakpoints, with only four Funds—Floating Rate Strategies Fund, Macro Opportunities Fund, Mid Cap Value Fund and Mid Cap Value Institutional Fund —having assets in excess of $500 million as of March 13, 2014. With respect to the four Funds noted, the Committee noted that none of the Funds had levels of profitability that were outliers and made the following observations:
• | Floating Rate Strategies Fund: The Adviser has entered into an expense limitation agreement with respect to the Fund. In addition, the Fund’s asset weighted total net expense ratio is below the peer group median (36th percentile). |
30 | | | THE GUGGENHEIM FUNDS ANNUAL REPORT |
• | Macro Opportunities Fund: The Fund is relatively new and the Adviser has entered into an expense limitation agreement with respect to the Fund. Although the contractual advisory fee is in the fourth quartile of its peer group, the total net expense ratio is competitive with the peer group median. In addition, as noted, the Committee considered Guggenheim’s statement that the Fund is unique to its peer group in that it has a broader investment mandate with greater opportunistic flexibility. | ||
• | Mid Cap Value Fund: The Fund’s contractual advisory fee is in line with the peer group median and the total net expense ratio is competitive with the peer group median. | ||
• | Mid Cap Value Institutional Fund: The Fund’s contractual advisory fee ranks in the first quartile (17th percentile) of its peer group and the total net expense ratio is competitive with the peer group median. |
The Committee determined that the advisory fee structure for the Funds was reasonable.
Sub-Advisory Agreement
Nature, Extent and Quality of Services Provided by the Sub-Adviser: With respect to the nature, extent and quality of services provided by GPIM (referred to in this discussion as the “Sub-Adviser”), the Committee considered the qualifications, experience and skills of the Sub-Adviser’s portfolio management and other key personnel and information from the Sub-Adviser describing the scope of its services to Municipal Income Fund. The Committee also considered the information provided by the Sub-Adviser concerning the Sub-Adviser’s investment practices and techniques, risk management processes, compliance policies and procedures, brokerage allocation, best execution and trade allocation, among other things. With respect to Guggenheim’s resources and the Sub-Adviser’s ability to carry out its responsibilities under the Sub-Advisory Agreement, the Committee recalled the review of certain unaudited financial information concerning GPIMH by the Chief Financial Officer of Guggenheim Investments.
The Committee also considered the acceptability of the terms of the Sub-Advisory Agreement. Based on the foregoing, and based on other information received (both oral and written) at the April Meeting and at the May Meeting, as well as other considerations, including the Committee’s knowledge of the Sub-Adviser’s quality of performance of its duties through Board meetings, discussions and reports throughout the year, the Committee concluded that the Sub-Adviser and its personnel were qualified to serve Municipal Income Fund in such capacity and may reasonably be expected to continue to provide a high quality of services under the Sub-Advisory Agreement.
Investment Performance: The Committee considered that the returns of the Fund’s Class A shares exceeded the median of its performance universe for the five-year period and underperformed the median for the three-year period and ranked in the 1st percentile and 82nd percentile, respectively. The Committee took into account information provided by Guggenheim stating that the Fund’s performance for the periods ended December 31, 2013 outperformed the Fund’s benchmark, the Barclays Capital U.S. Municipal Long Bond Index, for the one-year and three-month periods, lagged the benchmark for the three-year period and outperformed the benchmark for the five-year period. In light of the foregoing, the Committee also noted that the FUSE report listed the Fund’s performance for the three-month period ended December 31, 2013 in the 1st quartile (9th percentile). In addition, the Committee considered Guggenheim’s statement that the Fund was converted from a closed-end fund in January 2012 and since the conversion has outperformed its benchmark.
Comparative Fees, Costs of Services Provided and the Profits Realized by the Sub-Adviser from its Relationship with the Fund: The Committee reviewed the level of sub-advisory fees payable to GPIM, noting that the fees would be paid by Security Investors and do not impact the fees paid by the Fund. The Committee also compared the sub-advisory fee paid by the Adviser to the Sub-Adviser to the fees charged by the Sub-Adviser to other clients including other registered investment companies.
Economies of Scale to be Realized: The Committee recognized that, because the Sub-Adviser’s fees would be paid by the Adviser and not the Fund, the analysis of economies of scale was more appropriate in the context of the Committee’s consideration of the applicable Advisory Agreement, which was separately considered. (See “Advisory Agreements – Economies of Scale to be Realized” above.)
Overall Conclusions
Based on the foregoing, the Committee determined that the investment advisory fees are fair and reasonable in light of the extent and quality of the services provided and other benefits received and that the continuation of the Agreements is in the best interests of each Fund. In reaching this conclusion, no single factor was determinative and each Committee member, in the exercise of his business judgment, may attribute different weights to different factors. At the May Meeting, the Committee, constituting all of the Independent Trustees, recommended the renewal of each Advisory Agreement and the Sub-Advisory Agreement for an additional 12-month term.
THE GUGGENHEIM FUNDS ANNUAL REPORT | 31 |
INFORMATION ON BOARD OF TRUSTEES AND OFFICERS (Unaudited) | |||
Term of Office | Number of Portfolios in | |||||||||
Name, Address* and Year of Birth | Position(s) Held with the Trust | and Length of Time Served** | Principal Occupation(s) During Past Five Years | Fund Complex Overseen | Other Directorships Held by Trustees | |||||
INDEPENDENT TRUSTEES | ||||||||||
Randall C. Barnes (1951) | Trustee | Since 2014 | Current: Private Investor (2001-present). Former: Senior Vice President and Treasurer, PepsiCo, Inc. (1993-1997); President, Pizza Hut International (1991-1993); Senior Vice President, Strategic Planning and New Business Development, PepsiCo, Inc. (1987-1990). | 92 | Current: Trustee, Purpose, Inc. (2014-present). | |||||
Donald A. Chubb, Jr. (1946) | Trustee and Vice Chairman of the Board | Since 1994 | Current: Business broker and manager of commercial real estate, Griffith & Blair, Inc.(1997-present). | 88 | None. | |||||
Jerry B. Farley (1946) | Trustee and Vice Chairman of the Audit Committee | Since 2005 | Current: President, Washburn University(1997-present). | 88 | Current: Westar Energy, Inc. (2004-present);Core First Bank & Trust(2000-present). | |||||
Roman Friedrich III (1946) | Trustee and Chairman of the Contracts Review Committee | Since 2014 | Current: Founder and President, Roman Friedrich & Company (1998-present). | 88 | Current: Zincore Metals, Inc. (2009-present). | |||||
Former: Senior Managing Director, MLV & Co. LLC (2010-2011). | Former: Mercator Minerals Ltd. (2013-2014); First. Americas Gold Corp.(2012-2014); Blue Sky Uranium Corp. (2011-2012);Axiom Gold and Silver Corp. (2011-2012);Stratagold Corp.(2003-2009); GFM Resources Ltd. (2005-2010). | |||||||||
Robert B. Karn III (1942) | Trustee and Chairman of the Audit Committee | Since 2014 | Current: Consultant (1998-present). Former: Arthur Andersen (1965-1997) and Managing Partner, Financial and Economic Consulting, St. Louis office (1987-1997). | 88 | Current: Peabody Energy Company (2003-present);GP Natural Resource Partners, LLC (2002- present). | |||||
Ronald A. Nyberg (1953) | Trustee and Chairman of the Nominating and Governance Committee | Since 2014 | Current: Partner, Nyberg & Cassioppi, LLC(2000-present). Former: Executive Vice President, General Counsel, and Corporate Secretary, Van Kampen Investments (1982-1999). | 94 | Current: Edward-Elmhurst Healthcare System(2012-present). | |||||
Maynard F. Oliverius (1943) | Trustee and Vice Chairman of the Contracts Review Committee | Since 1998 | Retired. Former: President and CEO, Stormont-Vail HealthCare (1996-2012). | 88 | None. | |||||
Ronald E. Toupin, Jr. (1958) | Trustee and Chairman of the Board | Since 2014 | Current: Portfolio Consultant (2010-present). | 91 | Former: Bennett Group of Funds (2011-2013). | |||||
Former: Vice President, Manager and Portfolio Manager, Nuveen Asset Management(1998-1999); Vice President, Nuveen Investment Advisory Corp. (1992-1999);Vice President and Manager, Nuveen Unit Investment Trusts (1991-1999); and Assistant Vice President and Portfolio Manager, Nuveen Unit Investment Trusts (1988-1999), each of John Nuveen & Co., Inc. (1982-1999). | ||||||||||
INTERESTED TRUSTEE | ||||||||||
Donald C. Cacciapaglia*** (1951) | President, Chief Executive Officer and Trustee | Since 2012 | Current: President and CEO, certain other funds in the Fund Complex (2012-present); Vice Chairman, Guggenheim Investments(2010-present). Former: Chairman and CEO, Channel Capital Group, Inc. (2002-2010). | 220 | Current: Delaware Life(2013-present); Guggenheim Life and Annuity Company(2011-present); Paragon Life Insurance Company of Indiana(2011-present). | |||||
* | The business address of each Trustee is c/o Guggenheim Investments, 805 King Farm Boulevard, Suite 600, Rockville, Maryland 20850 |
** | Each Trustee serves an indefinite term, until his successor is elected and qualified. Time served includes time served in the respective position for the Predecessor Corporation. |
*** | This Trustee is deemed to be an “interested person” of the Funds under the 1940 Act by reason of his position with the Funds’ Investment Manager and/or the parent of the Investment Manager. |
32 | | | THE GUGGENHEIM FUNDS ANNUAL REPORT |
INFORMATION ON BOARD OF TRUSTEES AND OFFICERS (Unaudited) (concluded) | |||
Name, Address* and Year of Birth | Position(s) Held with the Trust | Term of Office and Length of Time Served** | Principal Occupation(s) During Past Five Years | ||||
OFFICERS | |||||||
Joseph M. Arruda (1966) | Assistant Treasurer | Since 2010 | Current: Assistant Treasurer, certain other funds in the Fund Complex (2006-present); Vice President, Security Investors, LLC (2010-present); CFO and Manager, Guggenheim Specialized Products, LLC (2009-present). Former: Vice President, Security Global Investors, LLC (2010-2011); Vice President, Rydex Advisors, LLC (2010); Vice President, Rydex Advisors II, LLC (2010). | ||||
William H. Belden, III (1965) | Vice President | Since 2014 | Current: Vice President, certain other funds in the Fund Complex (2006-present); Managing Director, Guggenheim Funds Investment Advisors, LLC (2005-present). Former: Vice President of Management, Northern Trust Global Investments (1999-2005). | ||||
Mark J. Furjanic (1959) | Assistant Treasurer | Since 2014 | Current: Vice President, Guggenheim Investments (2005-present); Assistant Treasurer, certain other funds in the Fund Complex (2008-present). Former: Senior Manager, Ernst & Young LLP (1999-2005). | ||||
James Howley (1972) | Assistant Treasurer | Since 2014 | Current: Director, Guggenheim Investments (2004-present) ; Assistant Treasurer, certain other funds in the Fund Complex (2006-present). Former: Manager, Mutual Fund Administration of Van Kampen Investments, Inc. (1996-2004). | ||||
Amy J. Lee (1961) | Vice President and Chief Legal Officer | Since 1987 (Secretary) Since 2007 (Vice President) | Current: Chief Legal Officer, certain other funds in the Fund Complex (2012-present); Senior Managing Director, Guggenheim Investments (2012-present). Former: Vice President, Associate General Counsel and Assistant Secretary, Security Benefit Life Insurance Company and Security Benefit Corporation (2004-2012). | ||||
Mark E. Mathiasen (1978) | Secretary | Since 2014 | Current: Secretary, certain other funds in the Fund Complex (2007-present); Managing Director, Guggenheim Investments (2007-present). | ||||
Michael P. Megaris (1984) | Assistant Secretary | Since 2014 | Current: Assistant Secretary, certain other funds in the Fund Complex (April 2014-present); Associate, Guggenheim Investments (2012-present). Former: J.D., University of Kansas School of Law (2009-2012). | ||||
Elisabeth Miller (1968) | Chief Compliance Officer | Since 2012 | Current: CCO, certain other funds in the Fund Complex (2012-present); CCO, Security Investors, LLC (2012-present); CCO, Guggenheim Funds Investment Advisors, LLC (2012-present); Vice President, Guggenheim Funds Distributors, LLC (March 2014-present). Former: CCO, Guggenheim Distributors, LLC (2009-March 2014); Senior Manager, Security Investors, LLC(2004-2009); Senior Manager, Guggenheim Distributors, LLC (2004-2009). | ||||
Alison Santay (1974) | AML Officer | Since 2013 | Current: AML Officer, certain other funds in the Fund Complex (2010-present); Director and AML Officer, Rydex Fund Services, LLC (2010-present); AML Officer, Security Investors, LLC (2010-present); Director, Shareholder Risk and Compliance, Rydex Fund Services, LLC (2004-present). Former: AML Officer, Guggenheim Distributors, LLC (2013-March 2014). | ||||
Kimberly Scott (1974) | Assistant Treasurer | Since 2014 | Current: Vice President, Guggenheim Investments (2012-present) ; Assistant Treasurer, certain other funds in the Fund Complex (2012-present). Former: Financial Reporting Manager, Invesco, Ltd. (2010-2011); Vice President/Assistant Treasurer, Mutual Fund Administration for Van Kampen Investments, Inc./Morgan Stanley Investment Management (2009-2010); Manager of Mutual Fund Administration, Van Kampen Investments, Inc./Morgan Stanley Investment Management (2005-2009). | ||||
Bryan Stone (1979) | Vice President | Since 2014 | Current: Vice President, certain other funds in the Fund Complex (April 2014-present); Director, Guggenheim Investments (2013-present). Former: Senior Vice President, Neuberger Berman Group LLC (2009-2013); Vice President, Morgan Stanley (2002-2009). | ||||
John L. Sullivan (1955) | Chief Financial Officer and Treasurer | Since 2014 | Current: CFO, Chief Accounting Officer and Treasurer, certain other funds in the Fund Complex(2010-present); Senior Managing Director, Guggenheim Investments (2010-present). Former: Managing Director and CCO, each of the funds in the Van Kampen Investments fund complex(2004-2010); Managing Director and Head of Fund Accounting and Administration, Morgan Stanley Investment Management (2002-2004); CFO and Treasurer, Van Kampen Funds (1996-2004). | ||||
* | The business address of each officer is c/o Guggenheim Investments, 805 King Farm Boulevard, Suite 600, Rockville, Maryland 20850. |
** | Each officer serves an indefinite term, until his or her successor is duly elected and qualified. Time served includes time served in the respective position for the Predecessor Corporation. |
THE GUGGENHEIM FUNDS ANNUAL REPORT | 33 |
Rydex Funds, Guggenheim Funds, Rydex Investments, Guggenheim Funds Distributors, LLC, Security Investors, LLC, Security Distributors, Inc., Guggenheim Partners Investment Managers, LLC, and Rydex Advisory Services (Collectively “Guggenheim Investments”).
Our Commitment to You
When you become a Guggenheim Investments investor, you entrust us with not only your hard-earned money but also with personal and financial information about you. We recognize that your relationship with us is based on trust and that you expect us to act responsibly and in your best interests. Because we have access to this private information about you, we hold ourselves to the highest standards in its safekeeping and use. This means, most importantly, that we do not sell client information to anyone—whether it is your personal information or if you are a current or former Guggenheim Investments client.
The Information We Collect About You
In the course of doing business with shareholders and investors, we collect nonpublic personal information about you. You typically provide personal information when you complete a Guggenheim Investments account application or when you request a transaction that involves Rydex and Guggenheim Investments funds or one of the Guggenheim Investments affiliated companies. “Nonpublic personal information” is personally identifiable private information about you. For example, it includes information regarding your name and address, Social Security or taxpayer identification number, assets, income, account balance, bank account information and investment activity (e.g., purchase and redemption history).
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As emphasized above, we do not sell information about current or former clients or their accounts to third parties. Nor do we share such information, except when necessary to complete transactions at your request or to make you aware of related investment products and services that we offer. Additional details about how we handle your personal information are provided below. To complete certain transactions or account changes that you direct, it may be necessary to provide identifying information to companies, individuals or groups that are not affiliated with Guggenheim Investments. For example, if you ask to transfer assets from another financial institution to Guggenheim Investments, we will need to provide certain information about you to that company to complete the transaction. To alert you to other Guggenheim Investments investment products and services, we may share your information within the Guggenheim Investments family of affiliated companies. This would include, for example, sharing your information within Guggenheim Investments so we can make you aware of new Rydex and Guggenheim Investments funds or the services offered through another Guggenheim Investments affiliated company. In certain instances, we may contract with nonaffiliated companies to perform services for us. Where necessary, we will disclose information we have about you to these third parties. In all such cases, we provide the third party with only the information necessary to carry out its assigned responsibilities and only for that purpose. And we require these third parties to treat your private information with the same high degree of confidentiality that we do. In certain instances, we may share information with other financial institutions regarding individuals and entities in response to the U.S.A. Patriot Act. Finally, we will release information about you if you direct us to do so, if we are compelled by law to do so or in other circumstances permitted by law.
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We do not sell your personal information to anyone. The law allows you to “opt out” of only certain kinds of information sharing with third parties. The firm does not share personal information about you with any third parties that triggers this opt-out right. This means YOU ARE ALREADY OPTED OUT.
How We Protect Privacy Online
Our concern for the privacy of our shareholders also extends to those who use our web site, guggenheiminvestments.com. Our web site uses some of the most secure forms of online communication available, including encryption technology, Secure Socket Layer (SSL) protocol, firewalls and user names and passwords. These technologies provide a high level of security and privacy when you access your account information or initiate online transactions. The Guggenheim Investments web site offers customized features that require our use of “http cookies”—tiny pieces of information that we ask your browser to store. However, we make very limited use of these cookies. We only use cookies for session management and security features on the Guggenheim Investments web site. We do not use them to pull data from your hard drive, to learn your email address, or to view data in cookies created by other web sites. We will not share the information in our cookies or give others access to it. See the legal information area on our web site for more details about web site security and privacy features.
How We Safeguard Your Personal Information
We restrict access to nonpublic personal information about shareholders to our employees and in some cases to third parties (for example, the service providers described above) as permitted by law. We maintain strict physical, electronic and procedural safeguards that comply with federal standards to guard your nonpublic personal information.
34 | | | THE GUGGENHEIM FUNDS ANNUAL REPORT |
We’ll Keep You Informed
As required by federal law, we will notify shareholders of our privacy policy annually. We reserve the right to modify this policy at any time, but rest assured that if we do change it, we will tell you promptly. You will also be able to access our privacy policy from our web site at guggenheiminvestments.com. Should you have any questions regarding our privacy policy, contact us at 800.820.0888 or 301.296.5100.
THE GUGGENHEIM FUNDS ANNUAL REPORT | 35 |
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9.30.2014
Guggenheim Funds Annual Report
Guggenheim Capital Stewardship Fund
SBCAP-ANN-0914x0915 | guggenheiminvestments.com |
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This report and the financial statements contained herein are submitted for the general information of our shareholders. The report is not authorized for distribution to prospective investors unless preceded or accompanied by an effective prospectus.
Distributed by Guggenheim Funds Distributors, LLC. GI-GOGREEN-0414 x0415 #12604
TABLE OF CONTENTS | ||
DEAR SHAREHOLDER | 2 | |
ECONOMIC AND MARKET OVERVIEW | 3 | |
ABOUT SHAREHOLDERS’ FUND EXPENSES | 4 | |
CAPITAL STEWARDSHIP FUND | 6 | |
NOTES TO FINANCIAL STATEMENTS | 13 | |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM | 17 | |
OTHER INFORMATION | 18 | |
INFORMATION ON BOARD OF TRUSTEES AND OFFICERS | 23 | |
GUGGENHEIM INVESTMENTS PRIVACY POLICIES | 25 |
THE GUGGENHEIM FUNDS ANNUAL REPORT | 1 |
September 30, 2014 | ||
Dear Shareholder:
Guggenheim Partners Investment Management (the “Investment Adviser”) is pleased to present the annual shareholder report for the Guggenheim Capital Stewardship Fund (the “Fund”) for the abbreviated annual period ended September 30, 2014.
The Investment Adviser is 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 Adviser.
We encourage you to read the Economic and Market Overview section of the report, which follows this letter, and then the Manager’s Commentary for the Fund.
We are committed to providing innovative investment solutions and appreciate the trust you place in us.
Sincerely,
Donald C. Cacciapaglia
President
October 31, 2014
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.
There can be no assurance that any investment product will achieve its investment objective(s). There are risks associated with investing, including the entire loss of principal invested. Investing involves market risks. The investment return and principal value of any investment product will fluctuate with changes in market conditions.
2 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
ECONOMIC AND MARKET OVERVIEW (Unaudited) | September 30, 2014 | |
Despite market volatility rising in October, for the year ended September 30, data on everything from hiring to housing conveys that the U.S. economy is firing on all cylinders. Overcoming a first-quarter weather-related soft patch, second-quarter GDP was revised upward to 4.6%, led by business investment. Durable goods orders surged over the summer and consumer confidence was at multi-year highs, despite a lower reading for the last part of the period. With tailwinds for economic growth gathering, we could see a strong third quarter GDP reading.
September’s addition of 248,000 non-farm payroll jobs was, on the surface, at least a strong figure and certainly not something to be discounted. However, investor optimism about the report, which also showed the unemployment rate falling to 5.9%—its lowest level since 2008—masked the fact that average hourly earnings were unchanged. Economic data late in the period included disappointing factory orders, poor construction spending, and weaker-than-expected ISM manufacturing data. The most recent decline in the U.S. Conference Board Consumer Confidence Index was worrisome.
The U.S. economy is certainly doing well enough to suggest higher interest rates ahead. With quantitative easing ending in the U.S. in October 2014 and the Fed preparing investors for a higher federal funds rate, the stage is set for U.S. interest rates to move higher. However, our view is that, despite a strengthening U.S. economy, the greater risk is that interest rates head lower in the near term.
Following the “taper tantrum” last year, before rates were able to reach historical norms, the average rate on a 30-year mortgage spiked almost a full percentage point in two months—the sharpest rise since the late 1990s—resulting in an abrupt housing slowdown, which slowed the U.S. economy materially.
In addition, U.S. Treasury yields are still materially higher than those in any other developed market. The spread between 10-year U.S. Treasuries and comparable German bunds reached 157 basis points in September, its widest level since 1999, and the spread between 10-year Treasuries and 10-year Japanese government bonds was recently 189 basis points. With developments in the Middle East increasingly troubling and turbulence continuing elsewhere from Ukraine to Hong Kong, the relative price value of U.S. government bonds versus other safe haven investments should continue to be a factor keeping U.S. interest rates low.
International economic data remain weak. Euro zone economic confidence is falling as the entire region continues to battle below-target inflation. At the start of September, the European Central Bank cut interest rates and signaled their intent to launch a program to purchase asset-backed securities and covered bonds to stimulate the dismal economy. In Japan, retail sales fell month-over-month in August, while industrial production falters.
Economic data around the world confirms our view that central banks are likely to renew efforts to force liquidity into the global financial system, which in turn further supports our positive outlook for risk assets. However, positive returns are unlikely without volatility. While markets continue to rally, gains are becoming more grudging. The upward momentum in U.S. stocks has deteriorated meaningfully while credit spreads, specifically high-yield spreads, have widened significantly over the past number of weeks. While the bull market trend remains intact, as the appreciation in risk assets continues it becomes more likely that this ageing advance will, at some point, experience a correction.
For the year ended September 30, 2014, the return of the Standard & Poor’s 500® Index* (“S&P 500”) was 19.73%. The Barclays U.S. Aggregate Bond Index* returned 3.96% for the year, while the Barclays U.S. Corporate High Yield Index* returned 7.20%. The BofA Merrill Lynch 3-Month U.S. Treasury Bill Index* returned 0.05%. The MSCI World Index* returned 12.22%, while the MSCI Emerging Markets Index* returned 4.30%.
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.
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.
Barclays U.S. Aggregate Bond Index represents securities that are SEC-registered, taxable, and dollar denominated. The index covers the U.S. investment grade fixed rate bond market, with index components for government and corporate securities, mortgage pass-through securities, and asset-backed securities. These major sectors are subdivided into more specific indices that are calculated and reported on a regular basis.
Barclays U.S. Corporate High Yield Index covers the universe of dollar denominated, fixed rate, non-investment grade debt, taxable corporate debt.
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 (Net) is calculated with net dividends reinvested. It is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed markets.
S&P 500® Index is a market-weighted stock market index comprised of the stocks of 500 U.S. corporations; the index is owned and maintained by Standard & Poor’s.
ABOUT SHAREHOLDERS’ FUND EXPENSES (Unaudited) |
All mutual funds have operating expenses and it is important for our shareholders to understand the impact of costs on their investments. Shareholders of a Fund incur two types of costs: (i) transaction costs, including sales charges (loads) on purchase payments, reinvested dividends, or other distributions; and exchange fees; and (ii) ongoing costs, including management fees, administrative services, and shareholder reports, among others. These ongoing costs, or operating expenses, are deducted from a fund’s gross income and reduce the investment return of the fund.
A fund’s expenses are expressed as a percentage of its average net assets, which is known as the expense ratio. The following examples are intended to help investors understand the ongoing costs (in dollars) of investing in a Fund and to compare these costs with the ongoing costs of investing in other mutual funds.
The examples are based on an investment of $1,000 made at the beginning of the period and held for the entire six-month period beginning March 31, 2014 and ending September 30, 2014.
The following tables illustrate a Fund’s costs in two ways:
Table 1. Based on actual Fund return. This section helps investors estimate the actual expenses paid over the period. The “Ending Account Value” shown is derived from the Fund’s actual return, and the fourth column shows the dollar amount that would have been paid by an investor who started with $1,000 in the Fund. Investors may use the information here, together with the amount invested, to estimate the expenses paid over the period. Simply divide the Fund’s account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number provided under the heading “Expenses Paid During Period.”
Table 2. Based on hypothetical 5% return. This section is intended to help investors compare a Fund’s cost with those of other mutual funds. The table provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses paid during the period. The example is useful in making comparisons because the U.S. Securities and Exchange Commission (the “SEC”) requires all mutual funds to calculate expenses based on the 5% return. Investors can assess a Fund’s costs by comparing this hypothetical example with the hypothetical examples that appear in shareholder reports of other funds.
The calculations illustrated above assume no shares were bought or sold during the period. Actual costs may have been higher or lower, depending on the amount of investment and the timing of any purchases or redemptions.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads) on purchase payments, and contingent deferred sales charges (“CDSC”) on redemptions, if any. Therefore, the second table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
More information about a Fund’s expenses, including annual expense ratios for the past five years, can be found in the Financial Highlights section of this report. For additional information on operating expenses and other shareholder costs, please refer to the appropriate Fund prospectus.
4 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
ABOUT SHAREHOLDERS’ FUND EXPENSES (Unaudited) (concluded) |
Beginning | Ending | Expenses | ||||||||||||||||||
Expense | Fund | Account Value | Account value | Paid During | ||||||||||||||||
Ratio1 | Return | March 31, 2014 | September 30, 2014 | Period2 | ||||||||||||||||
Table 1. Based on actual Fund return3 | ||||||||||||||||||||
Capital Stewardship Fund4 | ||||||||||||||||||||
Institutional Class | 1.24 | % | -0.84 | % | $1,000.00 | $ 991.60 | $0.07 | |||||||||||||
Table 2. Based on hypothetical 5% return (before expenses) | ||||||||||||||||||||
Capital Stewardship Fund4 | ||||||||||||||||||||
Institutional Class | 1.24 | % | 5.00 | % | $1,000.00 | $1,018.85 | $6.28 |
1 | Annualized. | |
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 183/365 (to reflect the one-half year period). | |
3 | Actual cumulative return at net asset value for the period September 26, 2014 to September 30, 2014. | |
4 | Since the commencement of operations: September 26, 2014. Due to the limited length of Class operations, current expense ratios may not be indicative of future expense ratios. Expenses paid based on actual fund return are calculated using 2 days from the commencement of operations. Expenses paid based on the hypothetical 5% return are calculated using 183 days. |
THE GUGGENHEIM FUNDS ANNUAL REPORT | 5 |
MANAGERS’ COMMENTARY (Unaudited) | September 30, 2014 | |
To Our Shareholders
Guggenheim Capital Stewardship Fund (the “Fund”) is managed by a team of seasoned professionals led by B. Scott Minerd, Chairman of Investments and Global Chief Investment Officer and Portfolio Manager; Farhan Sharaff, Assistant Chief Investment Officer, Equities, and Portfolio Manager; Jayson Flowers, Senior Managing Director and Head of Equity and Derivative Strategies, and Portfolio Manager; and Peter Derby, Portfolio Manager at Concinnity Partners, LP, an unaffiliated Sub-adviser (the “Sub-adviser”) to the Fund. In the following paragraphs, they discuss the Fund for the fiscal year ended September 30, 2014.
For the abbreviated fiscal Period ended September 30, 2014 (the “Period”), the Guggenheim Capital Stewardship Fund Institutional Shares returned -0.84%, compared with the -0.52% return of its benchmark, the S&P 500 Index. The Fund’s inception date was September 26, 2014.
The Fund’s investment objective is to seek long-term capital appreciation. It pursues its investment objective by investing in equity securities that the Fund believes will provide attractive long-term returns relative to the S&P 500 Index.
Guggenheim Partners Investment Management, LLC, the Fund’s adviser (the “Investment Adviser or Manager”), and Concinnity Advisors, LP, the Fund’s sub-adviser (the “Sub-Adviser”), believe that companies that successfully implement multi-stakeholder management systems are generally better positioned to create sustained long-term value for their shareholders than competing companies that do not implement such systems. The Investment Adviser and Sub-Adviser believe that companies implementing such systems do so by aligning the interests of all of a company’s core stakeholders, including investors, customers, employees, business partners and communities in which a company does business.
To identify an initial universe of companies that it believes have exemplary multi-stakeholder management systems, the Sub-Adviser uses its proprietary research methodology system, which seeks to identify the components of those management systems, including, but not limited to: (1) customer loyalty; (2) employee engagement, as demonstrated by high levels of loyalty; (3) efficient use of “intangible” assets; and (4) high supplier loyalty, as demonstrated by the maturity of supply chain activities and community engagement.
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.
6 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
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THE GUGGENHEIM FUNDS ANNUAL REPORT | 7 |
PERFORMANCE REPORT AND FUND PROFILE (Unaudited) | September 30, 2014 | |
CAPITAL STEWARDSHIP FUND
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.
Total Returns*
Period Ended September 30, 2014
Since Inception | |||
(09/26/14) | |||
Institutional Class Shares | -0.84% | ||
S&P 500 Index | -0.52% | ||
Inception Date: | ||
Institutional Class | September 26, 2014 |
Ten Largest Holdings (% of Total Net Assets) | |||
Apple, Inc. | 4.6 | % | |
International Business Machines Corp. | 3.1 | % | |
Clorox Co. | 2.4 | % | |
Wells Fargo & Co. | 2.4 | % | |
PNC Financial Services Group, Inc. | 2.4 | % | |
Medtronic, Inc. | 2.3 | % | |
Agilent Technologies, Inc. | 2.3 | % | |
United Parcel Service, Inc. — Class B | 2.3 | % | |
Simon Property Group, Inc. | 2.3 | % | |
Ford Motor Co. | 2.3 | % | |
Top Ten Total | 26.4 | % | |
“Ten Largest Holdings” exclude any temporary cash or derivative investments.
* | The performance data above represents past performance that is not predictive of future results. The investment return and principal value of an investment in the Fund will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Returns are historical and include changes in principal and reinvested dividends and capital gains and do not reflect the effect of taxes. The S&P 500 Index is an unmanaged index and, unlike the Fund, has no management fees or operating expenses to reduce its reported return. |
8 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
SCHEDULE OF INVESTMENTS | September 30, 2014 | |
CAPITAL STEWARDSHIP FUND |
SHARES | VALUE | ||||||
COMMON STOCKS† - 99.6% | |||||||
CONSUMER, NON-CYCLICAL - 19.0% | |||||||
Clorox Co. | 53,289 | $ | 5,117,876 | ||||
Medtronic, Inc. | 78,972 | 4,892,315 | |||||
Baxter International, Inc. | 64,169 | 4,605,409 | |||||
Pfizer, Inc. | 140,043 | 4,141,071 | |||||
Constellation Brands, Inc. — Class A* | 40,969 | 3,570,858 | |||||
Merck & Company, Inc. | 55,271 | 3,276,465 | |||||
Johnson & Johnson | 28,951 | 3,085,887 | |||||
Coca-Cola Enterprises, Inc. | 58,964 | 2,615,643 | |||||
Becton Dickinson and Co. | 19,990 | 2,275,062 | |||||
Procter & Gamble Co. | 15,836 | 1,326,107 | |||||
PepsiCo, Inc. | 13,854 | 1,289,669 | |||||
Colgate-Palmolive Co. | 19,373 | 1,263,507 | |||||
Laboratory Corporation of America Holdings* | 11,826 | 1,203,296 | |||||
Automatic Data Processing, Inc. | 13,297 | 1,104,715 | |||||
Total Consumer, Non-cyclical | 39,767,880 | ||||||
TECHNOLOGY - 19.0% | |||||||
Apple, Inc. | 96,372 | 9,709,479 | |||||
International Business Machines Corp. | 33,820 | 6,420,051 | |||||
SanDisk Corp. | 45,148 | 4,422,246 | |||||
Texas Instruments, Inc. | 84,807 | 4,044,446 | |||||
Intel Corp. | 109,287 | 3,805,373 | |||||
KLA-Tencor Corp. | 31,598 | 2,489,291 | |||||
Seagate Technology plc | 37,725 | 2,160,511 | |||||
salesforce.com, Inc.* | 23,554 | 1,355,062 | |||||
Applied Materials, Inc. | 59,235 | 1,280,068 | |||||
Xilinx, Inc. | 29,752 | 1,259,997 | |||||
NVIDIA Corp. | 61,354 | 1,131,981 | |||||
QUALCOMM, Inc. | 11,464 | 857,163 | |||||
Intuit, Inc. | 9,440 | 827,416 | |||||
Total Technology | 39,763,084 | ||||||
FINANCIAL - 13.5% | |||||||
Wells Fargo & Co. | 98,538 | 5,111,166 | |||||
PNC Financial Services Group, Inc. | 58,241 | 4,984,266 | |||||
Simon Property Group, Inc. | 29,491 | 4,848,910 | |||||
American Express Co. | 41,045 | 3,593,079 | |||||
Aflac, Inc. | 61,576 | 3,586,802 | |||||
Prudential Financial, Inc. | 29,368 | 2,582,622 | |||||
M&T Bank Corp. | 17,504 | 2,158,068 | |||||
U.S. Bancorp | 29,993 | 1,254,607 | |||||
Total Financial | 28,119,520 | ||||||
INDUSTRIAL - 12.5% | |||||||
Agilent Technologies, Inc. | 85,701 | 4,883,242 | |||||
United Parcel Service, Inc. — Class B | 49,620 | 4,877,149 | |||||
Deere & Co. | 57,645 | 4,726,314 | |||||
General Electric Co. | 126,909 | 3,251,409 | |||||
Union Pacific Corp. | 29,952 | 3,247,396 | |||||
FedEx Corp. | 11,922 | 1,924,807 | |||||
Littelfuse, Inc. | 16,695 | 1,422,080 | |||||
Waters Corp.* | 11,721 | 1,161,786 | |||||
Ball Corp. | 11,129 | 704,132 | |||||
Total Industrial | 26,198,315 | ||||||
CONSUMER, CYCLICAL - 11.8% | |||||||
Ford Motor Co. | 322,423 | 4,768,636 | |||||
Marriott International, Inc. — Class A | 67,435 | 4,713,707 | |||||
Delphi Automotive plc | 52,813 | 3,239,549 | |||||
Costco Wholesale Corp. | 22,969 | 2,878,475 | |||||
Southwest Airlines Co. | 79,796 | 2,694,711 | |||||
AutoZone, Inc.* | 3,852 | 1,963,210 | |||||
TRW Automotive Holdings Corp.* | 12,749 | 1,290,836 | |||||
Wyndham Worldwide Corp. | 14,561 | 1,183,227 | |||||
WABCO Holdings, Inc.* | 11,142 | 1,013,365 | |||||
Lear Corp. | 10,458 | 903,676 | |||||
Total Consumer, Cyclical | 24,649,392 | ||||||
ENERGY - 11.8% | |||||||
Marathon Petroleum Corp. | 49,929 | 4,227,488 | |||||
Devon Energy Corp. | 50,406 | 3,436,681 | |||||
Hess Corp. | 36,019 | 3,397,312 | |||||
Valero Energy Corp. | 67,511 | 3,123,734 | |||||
EOG Resources, Inc. | 30,638 | 3,033,775 | |||||
Anadarko Petroleum Corp. | 29,332 | 2,975,438 | |||||
Chevron Corp. | 18,677 | 2,228,540 | |||||
Nabors Industries Ltd. | 96,103 | 2,187,304 | |||||
Total Energy | 24,610,272 | ||||||
UTILITIES - 5.8% | |||||||
NextEra Energy, Inc. | 39,738 | 3,730,603 | |||||
Northeast Utilities | 81,095 | 3,592,509 | |||||
PG&E Corp. | 41,061 | 1,849,387 | |||||
Sempra Energy | 15,044 | 1,585,337 | |||||
Consolidated Edison, Inc. | 25,321 | 1,434,688 | |||||
Total Utilities | 12,192,524 | ||||||
COMMUNICATIONS - 3.8% | |||||||
AT&T, Inc. | 90,864 | 3,202,047 | |||||
Verizon Communications, Inc. | 51,638 | 2,581,384 | |||||
Cisco Systems, Inc. | 83,194 | 2,093,993 | |||||
Total Communications | 7,877,424 | ||||||
BASIC MATERIALS - 2.4% | |||||||
Praxair, Inc. | 31,246 | 4,030,734 | |||||
Nucor Corp. | 19,054 | 1,034,251 | |||||
Total Basic Materials | 5,064,985 | ||||||
Total Common Stocks | |||||||
(Cost $210,026,813) | 208,243,396 | ||||||
SHORT TERM INVESTMENTS†- 0.9% | |||||||
Dreyfus Treasury Prime | |||||||
Cash Management Fund | 1,877,082 | 1,877,082 | |||||
Total Short Term Investments | |||||||
(Cost $1,877,082) | 1,877,082 | ||||||
Total Investments - 100.5% | |||||||
(Cost $211,903,895) | $ | 210,120,478 | |||||
Other Assets & Liabilities, net - (0.5)% | (1,105,974 | ) | |||||
Total Net Assets - 100.0% | $ | 209,014,504 |
* | Non-income producing security. | |
† | Value determined based on Level 1 inputs — See Note 3. | |
plc — Public Limited Company |
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 9 |
CAPITAL STEWARDSHIP FUND |
STATEMENT OF ASSETS AND LIABILITIES | ||||
September 30, 2014 | ||||
ASSETS: | ||||
Investments, at value | ||||
(cost $211,903,895) | $ | 210,120,478 | ||
Receivables: | ||||
Dividends | 15,807 | |||
Total assets | 210,136,285 | |||
LIABILITIES: | ||||
Payable for: | ||||
Fund shares redeemed | 1,107,439 | |||
Management fees | 10,432 | |||
Fund accounting/administration fees | 1,101 | |||
Transfer agent/maintenance fees | 67 | |||
Trustees’ fees* | 38 | |||
Miscellaneous | 2,704 | |||
Total liabilities | 1,121,781 | |||
NET ASSETS | $ | 209,014,504 | ||
NET ASSETS CONSIST OF: | ||||
Paid in capital | $ | 210,796,457 | ||
Undistributed net investment income | 1,464 | |||
Accumulated net realized gain on investments | — | |||
Net unrealized depreciation on investments | (1,783,417 | ) | ||
Net assets | $ | 209,014,504 | ||
INSTITUTIONAL CLASS: | ||||
Net assets | $ | 209,014,504 | ||
Capital shares outstanding | 8,431,483 | |||
Net asset value per share | $24.79 | |||
STATEMENT OF OPERATIONS | ||||
Period Ended September 30, 2014** | ||||
INVESTMENT INCOME: | ||||
Dividends | $ | 15,807 | ||
Total investment income | 15,807 | |||
EXPENSES: | ||||
Management fees | 10,432 | |||
Transfer agent/maintenance fees | 67 | |||
Fund accounting/administration fees | 1,101 | |||
Professional fees | 1,740 | |||
Trustees’ fees* | 38 | |||
Custodian fees | 33 | |||
Miscellaneous | 932 | |||
Total expenses | 14,343 | |||
Net investment income | 1,464 | |||
NET REALIZED AND UNREALIZED GAIN (LOSS): | ||||
Net realized gain (loss) on: | ||||
Investments | — | |||
Net realized gain | — | |||
Net change in unrealized appreciation | ||||
(depreciation) on: | ||||
Investments | (1,783,417 | ) | ||
Net change in unrealized appreciation | ||||
(depreciation) | (1,783,417 | ) | ||
Net realized and unrealized loss | (1,783,417 | ) | ||
Net decrease in net assets resulting | ||||
from operations | $ | (1,781,953 | ) | |
* | Relates to Trustees not deemed “interested persons” within the meaning of Section 2(a)(19) of the 1940 Act. | |
** | Since commencement of operations: September 26, 2014. |
10 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
CAPITAL STEWARDSHIP FUND |
STATEMENT OF CHANGES IN NET ASSETS | |||||
Period Ended | |||||
September 30, | |||||
2014a | |||||
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS: | |||||
Net investment income | $ | 1,464 | |||
Net realized gain on investments | — | ||||
Net change in unrealized appreciation (depreciation) on investments | (1,783,417 | ) | |||
Net decrease in net assets resulting from operations | (1,781,953 | ) | |||
CAPITAL SHARE TRANSACTIONS: | |||||
Proceeds from sale of shares | 297,903,896 | ||||
Cost of shares redeemed | (87,107,439 | ) | |||
Net increase from capital share transactions | 210,796,457 | ||||
Net increase in net assets | 209,014,504 | ||||
NET ASSETS: | |||||
Beginning of period | — | ||||
End of period | $ | 209,014,504 | |||
Undistributed net investment income at end of period | $ | 1,464 | |||
CAPITAL SHARE ACTIVITY: | |||||
Shares sold | 11,928,585 | ||||
Shares redeemed | (3,497,102 | ) | |||
Net increase in shares | 8,431,483 | ||||
a Since commencement of operations: September 26, 2014.
SEE NOTES TO FINANCIAL STATEMENTS. | THE GUGGENHEIM FUNDS ANNUAL REPORT | 11 |
CAPITAL STEWARDSHIP FUND |
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. |
Period Ended | |||||
September 30, | |||||
Institutional Class | 2014 a | ||||
Per Share Data | |||||
Net asset value, beginning of period | $ | 25.00 | |||
Income (loss) from investment operations: | |||||
Net investment income (loss)b | — c | ||||
Net gain (loss) on investments (realized and unrealized) | (.21 | ) | |||
Total from investment operations | (.21 | ) | |||
Net asset value, end of period | $ | 24.79 | |||
Total Returnd | (0.84% | ) | |||
Ratios/Supplemental Data | |||||
Net assets, end of period (in thousands) | $ | 209,015 | |||
Ratios to average net assets: | |||||
Net investment income (loss) | 0.13% | ||||
Total expenses | 1.24% | ||||
Portfolio turnover rate | — |
a | Since commencement of operations: September 26, 2014. Percentage amounts for the period, except total return and portfolio turnover rate, have been annualized. | |
b | Net investment income (loss) per share was computed using average shares outstanding throughout the period. | |
c | Net investment income is less than $0.01 per share. | |
d | Total return does not reflect the impact of any applicable sales charge and has not been annualized. |
12 | THE GUGGENHEIM FUNDS ANNUAL REPORT | SEE NOTES TO FINANCIAL STATEMENTS. |
NOTES TO FINANCIAL STATEMENTS |
1. Organization and Significant Accounting Policies
Organization
Guggenheim Funds Trust (the “Trust”), a Delaware statutory trust, is registered with the SEC under the Investment Company Act of 1940 (“1940 Act”), as a non-diversified, open-ended investment company of the series type. Each series, in effect, is representing a separate Fund. The Trust is authorized to issue an unlimited number of shares. The Trust accounts for the assets of each Fund separately.
The Trust offers a combination of four separate classes of shares, A-Class shares, B-Class shares, C-Class shares and Institutional Class shares. Sales of shares of each Class are made without a front-end sales charge at the net asset value per share (“NAV”), with the exception of A-Class shares. A-Class shares are sold at the NAV, plus the applicable front-end sales charge. The sales charge varies depending on the amount purchased, but will not exceed 4.75%. Prior to February 22, 2011, the maximum sales charge was 5.75%. A-Class share purchases of $1 million or more are exempt from the front-end sales charge but have a 1% contingent deferred sales charge (“CDSC”), if shares are redeemed within 12 months of purchase. B-Class shares were offered without a front-end sales charge, but were subject to a CDSC of up to 5% for five years and convert to A-Class shares after eight years. Effective January 4, 2010, subscriptions for B-Class shares are no longer accepted. C-Class shares have a 1% CDSC if shares are redeemed within 12 months of purchase. Institutional Class shares are offered primarily for direct investment by institutions such as pension and profit sharing plans, endowments, foundations and corporations. Institutional Class shares have a minimum initial investment of $2 million and a minimum account balance of $1 million. Institutional Class shares are offered without a front-end sales charge or a CDSC. At September 30, 2014, the Trust consisted of eighteen Funds.
This report covers the Capital Stewardship Fund (the “Fund”). As of September 30, 2014, only Institutional Class shares of the Fund were offered for subscription.
Guggenheim Investments (“GI”) provides advisory services, and Rydex Fund Services, LLC (“RFS”) provides transfer agent, administrative and accounting services to the Trust. Guggenheim Funds Distributors, LLC (“GFD”) acts as principal underwriter for the Trust. GI, RFS and GFD are affiliated entities.
Concinnity Advisors, LP (the “Sub-Adviser”) serves as the sub-adviser to the Fund and is responsible for the day-to-day management of the Fund’s portfolio.
Significant Accounting Policies
The following significant accounting policies are in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”) and are consistently followed by the Trust. This requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. All time references are based on Eastern Time.
The NAV of a fund is calculated by dividing the market value of the fund’s securities and other assets, less all liabilities, by the number of outstanding shares of the fund.
A. The Board of Trustees of the Funds (the “Board”) has adopted policies and procedures for the valuation of the Funds’ investments (the “Valuation Procedures”). Pursuant to the Valuation Procedures, the Board has delegated to a valuation committee, consisting of representatives from Guggenheim’s investment management, fund administration, legal and compliance departments (the “Valuation Committee”), the day-to-day responsibility for implementing the Valuation Procedures, including, under most circumstances, the responsibility for determining the fair value of the Fund’s securities or other assets.
Valuations of the Funds’ securities are supplied primarily by pricing services appointed pursuant to the processes set forth in the Valuation Procedures. The Valuation Committee convenes monthly, or more frequently as needed and will review the valuation of all assets which have been fair valued for reasonableness. The Funds’ officers, through the Valuation Committee and consistent with the monitoring and review responsibilities set forth in the Valuation Procedures, regularly review procedures used by, and valuations provided by, the pricing services.
If the pricing service cannot or does not provide a valuation for a particular investment or such valuation is deemed unreliable, such investment is fair valued by the Valuation Committee.
Equity securities listed on an exchange (New York Stock Exchange (“NYSE”) or American Stock Exchange) are valued at the last quoted sales price as of the close of business on the NYSE, usually 4:00 p.m. on the valuation date. 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.
Investments for which market quotations are not readily available are fair valued as determined in good faith by GI under the direction of the Board of Trustees using methods established or ratified by the Board of Trustees. These methods include, but are not limited to: (i) obtaining general information as to how these securities and assets trade; and (ii) obtaining other information and considerations, including current values in related markets.
THE GUGGENHEIM FUNDS ANNUAL REPORT | 13 |
NOTES TO FINANCIAL STATEMENTS (continued) |
B. 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 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. Dividend income from REITs is recorded based on the income included in distributions received from the REIT investments using published REIT reclassifications, including some management estimates when actual amounts are not available. Distributions received in excess of this estimated amount are recorded as a reduction of the cost of investments or reclassified to capital gains. The actual amounts of income, return of capital, and capital gains are only determined by each REIT after its fiscal year-end, and may differ from the estimated amounts.
C. Distributions of net investment income and net realized gains, if any, are declared and paid at least annually. Dividends are reinvested in additional shares unless shareholders request payment in cash. Distributions are recorded on the ex-dividend date and are determined in accordance with income tax regulations which may differ from U.S. GAAP.
D. Interest and dividend income, most expenses, all realized gains and losses, and all unrealized gains and losses are allocated to the classes based upon the value of the outstanding shares in each class. Certain costs, such as distribution and service fees are charged directly to specific classes. In addition, certain expenses have been allocated to the individual Funds in the Trust on a pro rata basis upon the respective aggregate net assets of each Fund included in the Trust.
E. Under the fee arrangement with the custodian, the Fund 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 period ended September 30, 2014, there were no earnings credits received.
The Fund may leave cash overnight in its cash account with the custodian. Periodically, the 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.
F. Under the Fund’s organizational documents, its Trustees and Officers are indemnified against certain liabilities arising out of the performance of their duties to the Trust. In addition, throughout the normal course of business, the Fund enters into contracts that contain a variety of representations and warranties which provide general indemnifications. The Fund’s maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Fund and/or its affiliates that have not yet occurred. However, based on experience, the Fund expects the risk of loss to be remote.
2. Fees and Other Transactions with Affiliates
Under the terms of an investment advisory contract, the Fund pays GI investment advisory fees calculated at an annualized rate of 0.90% of the average daily net assets of the Fund.
RFS provides transfer agent services to the Fund for fees calculated at the rates below, which are assessed to the applicable class of the Fund. For these services, RFS receives the following:
Annual charge per account | $5.00 – $8.00 | |
Transaction fee | $0.60 – $1.10 | |
Minimum annual charge per Fund† | $25,000 | |
Certain out-of-pocket charges | Varies |
† | Not subject to Fund during first twelve months of operations. |
RFS also acts as the administrative agent for the Fund, and as such performs administrative functions and the bookkeeping, accounting and pricing functions for the Fund. For these services, RFS receives 0.095% of the average daily net assets of the Fund. The minimum annual charge for fund accounting/administrative fees is $25,000.
RFS engages external service providers to perform other necessary services for the Trust, such as audit and accounting related services, legal services, custody, printing and mailing, etc., on a pass-through basis. Such expenses are allocated to various Funds within the complex based on relative net assets.
The Fund has adopted Distribution Plans related to the offering of A-Class, B-Class and C-Class shares pursuant to Rule 12b-1 under the 1940 Act. The plans provide for payments at an annual rate of 0.25% of the average daily net assets of the Fund’s A-Class shares and 1.00% of the average daily net assets of the Fund’s B-Class and C-Class shares. At September 30, 2014, only the Institutional Class shares of the Fund were offered for subscription.
Certain trustees and officers of the Trust are also officers of GI, RFS and GFD.
14 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
NOTES TO FINANCIAL STATEMENTS (continued) |
3. Fair Value Measurement
In accordance with U.S. GAAP, fair value is defined as the price that the Fund would receive to sell an investment or pay to transfer a liability in an orderly transaction with an independent buyer in the principal market, or in the absence of a principal market, the most advantageous market for the investment or liability. U.S. GAAP establishes a three-tier fair value hierarchy based on the types of inputs used to value assets and liabilities and requires corresponding disclosure. The hierarchy and the corresponding inputs are summarized below:
Level 1 — quoted prices in active markets for identical assets or liabilities.
Level 2 — significant other observable inputs (for example quoted prices for securities that are similar based on characteristics such as interest rates, prepayment speeds, credit risk, etc.).
Level 3 — significant unobservable inputs based on the best information available under the circumstances, to the extent observable inputs are not available, which may include assumptions.
The types of inputs available depend on a variety of factors, such as the type of security and the characteristics of the markets in which it trades, if any. Fair valuation determinations that rely on fewer or no observable inputs require greater judgment. Accordingly, fair value determinations for Level 3 securities require the greatest amount of judgment.
The following table summarizes the inputs used to value the Fund’s net assets at September 30, 2014:
Level 1 | Level 2 | Level 3 | ||||||
Investments | Investments | Investments | ||||||
In Securities | In Securities | In Securities | Total | |||||
Assets | ||||||||
Capital Stewardship Fund | $210,120,478 | $ — | $ — | $210,120,478 |
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.
4. Federal Income Tax Information
The Fund intends 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 Fund from all, or substantially all, federal income, excise and state income taxes. Therefore, no provision for federal or state income tax is required.
Tax positions taken or expected to be taken in the course of preparing the Fund’s 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 Fund’s 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 Fund’s financial statements. The Fund’s federal tax returns are subject to examination by the Internal Revenue Service for a period of three years after they are filed.
The RIC Modernization Act of 2010 was signed into law on December 22, 2010, and simplified some of the tax provisions applicable to regulated investment companies, the tax reporting to their shareholders and improved the tax efficiency of certain fund structures. The greatest impact to the disclosure in the financial reports for the Fund was on the treatment of net capital losses, effective for tax years beginning after December 22, 2010. However, the Fund did not incur or carry forward any capital losses for the year ended September 30, 2014.
The Fund did not make any distributions during its initial year ended September 30, 2014.
The tax character of distributable earnings/(accumulated losses) at September 30, 2014, was as follows:
Undistributed | Undistributed | Accumulated | Net Unrealized | Total | ||||||
Ordinary | Long-Term | Capital and | Appreciation/ | Accumulated | ||||||
Fund | Income | Capital Gain | Other Losses | (Depreciation) | Earnings/(Deficit) | |||||
Capital Stewardship Fund | $1,464 | $ — | $ — | $(1,783,417) | $(1,781,953) |
The Fund had no permanent book/tax differences which impact net investment income or net realized gain/(loss) for the year ended September 30, 2014.
THE GUGGENHEIM FUNDS ANNUAL REPORT | 15 |
NOTES TO FINANCIAL STATEMENTS (concluded) |
At September 30, 2014, the cost of securities for Federal income tax purposes, the aggregate gross unrealized gain for all securities for which there was an excess of value over tax cost and the aggregate gross unrealized loss for all securities for which there was an excess of tax cost over value, were as follows:
Tax | Tax | Net | Net Unrealized | |||||||
Tax | Unrealized | Unrealized | Unrealized | Gain/(Loss) | ||||||
Fund | Cost | Gain | Loss | Gain/(Loss) | Derivatives | |||||
Capital Stewardship Fund | $211,903,895 | $383,828 | $(2,167,245) | $(1,783,417) | $ — |
5. Securities Transactions
For the period ended September 30, 2014, the cost of purchases and proceeds from sales of investment securities, excluding government securities, short-term investments and derivatives, were as follows:
Fund | Purchases | Sales | ||
Capital Stewardship Fund | $210,026,813 | $ — |
16 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM | ||
The Board of Trustees and Shareholders
of Guggenheim Funds Trust
We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of Guggenheim Capital Stewardship Fund (one of the series constituting the Guggenheim Funds Trust) (the “Fund”) as of September 30, 2014, and the related statement of operations, statement of changes in net assets, and the financial highlights for the period September 26, 2014 (commencement of operations) through September 30, 2014. These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. We were not engaged to perform an audit of the Fund’s internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of September 30, 2014, by correspondence with the custodian. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the Guggenheim Capital Stewardship Fund (one of the Series constituting the Guggenheim Funds Trust) at September 30, 2014, and the results of its operations, the changes in its net assets, and its financial highlights for the period September 26, 2014 (commencement of operations) through September 30, 2014 in conformity with U.S. generally accepted accounting principles.
McLean, Virginia
November 25, 2014
THE GUGGENHEIM FUNDS ANNUAL REPORT | 17 |
OTHER INFORMATION (Unaudited) | ||
Proxy Voting Information
A description of the policies and procedures that the Trust uses to determine how to vote proxies relating to securities held in the Funds’ portfolios is available, without charge and upon request, by calling 800.820.0888. This information is also available from the EDGAR database on the SEC’s website at http://www.sec.gov.
Information regarding how the Funds voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available without charge, upon request, by calling 800.820.0888. This information is also available from the EDGAR database on the SEC’s website at http://www.sec.gov.
Quarterly Portfolio Schedules Information
The Trust files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q; which are available on the SEC’s website at http://www.sec.gov. The Funds’ Forms N-Q may be reviewed and copied at the SEC’s Public Reference Room in Washington, DC, and that information on the operation of the Public Reference Room may be obtained by calling 800-SEC-0330. Copies of the portfolio holdings are also available to shareholders, without charge and upon request, by calling 800.820.0888.
Office Locations
The offices of Guggenheim Investments can be found in the following locations:
330 Madison Avenue
10th Floor
New York, NY 10017
(Headquarters)
Four Irvington Centre
805 King Farm Boulevard
Suite 600
Rockville, MD 20850
9401 Indian Creek Parkway
40 Corporate Woods
Suite 850
Overland Park, KS 66210
18 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
OTHER INFORMATION (Unaudited) (continued) | ||
Distributor change
Effective March 3, 2014, Guggenheim Distributors, LLC (“GD”), the distributor for shares of the Funds was consolidated into and with Guggenheim Funds Distributors, LLC (“GFD”). Following the consolidation, GFD serves as the Funds’ distributor.
GD and GFD are both indirect, wholly-owned subsidiaries of Guggenheim Capital, LLC and, therefore, the consolidation will not result in a change of actual control of the Funds’ distributor. The primary goal of the consolidation is to achieve greater operational efficiencies and allow all of the Guggenheim funds, including funds that are not series of the Trusts, to be distributed by a single distributor.
The consolidation is not expected to affect the day-to-day management of the Funds or result in any material changes to the distribution of the Funds, including any changes to the distribution fees paid by the Funds.
Guggenheim Funds Trust
Guggenheim Funds Trust (the “Trust”), which was organized as a Delaware statutory trust on November 8, 2013, is registered with the Securities and Exchange Commission (“SEC”) as an investment company. The Trust is an open-end management investment company that, upon the demand of the investor, must redeem its shares and pay the investor the next calculated NAV. The Guggenheim Enhanced World Equity Fund (“Enhanced World Equity Fund”), Guggenheim Large Cap Value Fund (“Large Cap Value Fund”), Guggenheim Mid Cap Value Fund (“Mid Cap Value Fund”), Guggenheim Mid Cap Value Institutional Fund (“Mid Cap Value Institutional Fund”), Guggenheim Small Cap Value Fund (“Small Cap Value Fund”), Guggenheim StylePlus—Large Core Fund (“StylePlus—Large Core Fund”), Guggenheim StylePlus—Mid Growth Fund (“StylePlus—Mid Growth Fund”) and Guggenheim World Equity Income Fund (“World Equity Income Fund”) (collectively, the “Funds”) were previously series (the “Predecessor Funds”) of Security Equity Fund, Security Large Cap Value Fund and Security Mid Cap Growth Fund (the “Predecessor Corporations”), different registered open-end investment companies, which were organized as Kansas corporations. In January 2014, at special meetings of shareholders, the shareholders of each Predecessor Fund approved the reorganization of each Predecessor Fund with and into a corresponding “shell” series of the Trust. The shell series of the Trust succeeded to the accounting and performance histories of the Predecessor Funds. Any such historical information provided for a series of the Trust that relates to periods prior to January 28, 2014, therefore, is that of the corresponding Predecessor Fund.
Effective January 28, 2014, the Guggenheim Floating Rate Strategies Fund (“Floating Rate Strategies Fund”), Guggenheim High Yield Fund (“High Yield Fund”), Guggenheim Investment Grade Bond Fund (“Investment Grade Bond Fund”), Guggenheim Limited Duration Fund (“Limited Duration Fund”), Guggenheim Macro Opportunities Fund (“Macro Opportunities Fund”), Guggenheim Municipal Income Fund (“Municipal Income Fund”), and Guggenheim Total Return Bond Fund (“Total Return Bond Fund”), which were series of Security Income Fund, a Kansas corporation, reorganized with and into corresponding series of Guggenheim Funds Trust, a Delaware Statutory Trust (each, a “Reorganization”). Upon completion of each Reorganization, the respective share classes of each Fund assumed the performance, financial and other historical information of those of the corresponding predecessor fund.
At a meeting of shareholders held on January 8, 2014, shareholders of the Guggenheim Alpha Opportunity Fund (“Alpha Opportunity Fund”) approved the reorganization of the Fund from a Kansas corporation to a Delaware statutory trust. After the close of business on September 23, 2014, the Fund, which is a series of Security Equity Fund, a Kansas corporation, will reorganize with and into a corresponding “shell” fund (the “New Fund”), which is a series of Guggenheim Funds Trust, a Delaware statutory trust. Upon completion of the Reorganization, shareholders of the Fund will own shares of the New Fund that are equal in number and in value to the shares of the Fund that were held by those shareholders immediately prior to the closing of the Reorganization. In addition, the New Fund will assume the performance, financial and other historical information of that of the Fund. Once the Reorganization is completed, the Fund will no longer be offered as a series of Security Equity Fund.
Board Considerations Regarding Approval of Investment Advisory Agreement — Guggenheim Capital Stewardship Fund
Guggenheim Funds Trust (the “Trust”) was organized as a Delaware statutory trust on November 8, 2013, and is registered as an open-end management investment company under the Investment Company Act of 1940, as amended (the “1940 Act”). The Trust is authorized to issue an unlimited number of shares of beneficial interest in separate series, with each such series representing interests in a separate portfolio of securities and other assets (each, a “Fund” and collectively, the “Funds”). On August 20, 2014, Guggenheim Partners Investment Management, LLC (“GPIM” or the “Adviser”), an indirect subsidiary of Guggenheim Partners, LLC, a global diversified financial services firm (“Guggenheim Partners”), was approved to serve as the investment adviser to Guggenheim Capital Stewardship Fund (the “New Fund”), a new series of the Trust, pursuant to an investment advisory agreement between the Trust and GPIM, with respect to the New Fund (the “Investment Advisory Agreement”). (Guggenheim Partners, GPIM and its affiliates may be referred to herein together as “Guggenheim.”) Under the supervision of the Board of Trustees of the Trust (the “Board” and the members individually, “Trustees”), GPIM regularly provides (or oversees the provision of) investment research, advice and supervision, a continuous investment program and the purchase and sale of securities and other
THE GUGGENHEIM FUNDS ANNUAL REPORT | 19 |
OTHER INFORMATION (Unaudited) (continued) | ||
investments for various Funds’ portfolios. GPIM will provide those same services to the New Fund. Under the terms of the Investment Advisory Agreement, GPIM also is responsible for overseeing the activities of Concinnity Advisors, LP (“Concinnity” or the “Sub-Adviser”) with respect to Concinnity’s service as investment sub-adviser to the New Fund, pursuant to an investment sub-advisory agreement between GPIM and Concinnity (the “Sub-Advisory Agreement” and together with the Investment Advisory Agreement, the “Advisory Agreements”).
The 1940 Act, provides, in substance, that an investment advisory agreement between a fund and its investment adviser may be entered into only if it is approved, and may continue in effect from year to year after an initial two-year period only if its continuance is approved at least annually, by the fund’s board of trustees, including by a vote of a majority of the trustees who are not “interested persons,” as defined by the 1940 Act, of the fund, cast in person at a meeting called for the purpose of considering such approval. At a meeting held in person on August 20, 2014 (the “August Meeting”), the Trustees who are not “interested persons” of the Trust (collectively, the “Independent Trustees”) met separately from Guggenheim to consider the approval of the Advisory Agreements. As part of its review process, the Independent Trustees were represented by independent legal counsel (“Independent Legal Counsel”). Independent Legal Counsel reviewed and discussed with the Independent Trustees various factors relevant to the consideration of the Advisory Agreements and the legal responsibilities of the Trustees related to such consideration and assisted the Independent Trustees in their deliberations.
The Trustees, including the Independent Trustees, discussed the Advisory Agreements in light of the regulatory requirements and criteria and assessed information concerning the New Fund’s proposed fees and expenses, investment objective and policies, investment strategies and models, portfolio construction process, strategy performance and portfolio management team, among other things. For this purpose, management updated and supplemented materials previously provided to the Board in connection with the consideration of the investment advisory agreements between GPIM and the Trust, with respect to those series of the Trust for which GPIM serves as investment adviser and which were included in the contract renewal proposals considered by the Board in April and May 2014 (“Contract Renewal”). Among other things, GPIM provided a schedule showing the New Fund’s advisory fees compared to advisory fees charged by GPIM to other funds and to other non-fund clients with similar investment objectives to the New Fund, a statement as to whether GPIM charges a lower advisory fee to any other client for which it provides comparable services, and if so, an explanation as to why, and peer group comparisons of the proposed contractual advisory fee and total net expense ratio, as set forth in a report prepared by an independent, third party research provider, FUSE Research Networks LLC (“FUSE”).
The Board also considered the variety of written materials, reports and oral presentations it received throughout the year, including information regarding performance and operating results of other registered investment companies or series thereof for which GPIM serves as investment adviser or sub-adviser. In addition, Guggenheim made a presentation at the August Meeting which addressed areas identified for discussion by Independent Legal Counsel and, among other things, provided information about Guggenheim’s short-term and long-term business plans with respect to the New Fund.
The Board considered management’s proposal that the assets of Guggenheim Concinnity Master Strategy Fund, SPC, a Cayman Islands exempted segregated portfolio company which relies on the exclusion from the definition of an “investment company” provided by Section 3(c)(7) of the 1940 Act (the “Predecessor Fund”) and for which GPIM serves as investment adviser and Concinnity is the sub-adviser, be reorganized with and into the New Fund (the “Reorganization”). In this connection, the Board noted that the Predecessor Fund is a master fund in a set of unregistered offshore and domestic master-feeder funds (collectively, the “Private Funds”), which have bank investors. The Board also noted that the investors issue notes that provide coupon payments based on the after-tax return of the Private Funds and that the notes, in turn, are held by a single holder affiliated with Guggenheim. In this respect, the Board took into account that the Reorganization would enable the bank investors and noteholder to continue to benefit from the strategies currently offered by the Private Funds by converting the Predecessor Fund into a registered investment company structure that pursues the same investment strategies, since the New Fund’s investment objective and strategies are, in all materials respects, the same as those of the Predecessor Fund. The Board also took into account that the New Fund would not be offered to other investors unless and until such time as the Board determined to permit additional sales.
Following an analysis and discussion of the factors identified below and in the exercise of its business judgment, the Board concluded that it was in the best interests of the New Fund to approve each of the Advisory Agreements for an initial term of two years.
Investment Advisory Agreement
Nature, Extent and Quality of Services to be Provided by the Adviser: With respect to the nature, extent and quality of services to be provided by the Adviser, the Independent Trustees considered the functions to be performed by the Adviser for the New Fund and the background and experience of the individuals to be responsible for the day-to-day management of the New Fund’s portfolio. The Independent Trustees also considered the nature and quality of services provided by GPIM in the past and the firm’s management capabilities demonstrated with respect to other registered investment companies for which GPIM or an affiliate serves as investment adviser/manager (collectively, “Guggenheim Funds”). With respect to the New Fund, the Board considered the Adviser’s
20 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
OTHER INFORMATION (Unaudited) (continued) | ||
responsibility to oversee the Sub-Adviser and that the Adviser has similar oversight responsibilities for other Guggenheim Funds. The Board also took into account information provided by Guggenheim in connection with Contract Renewal describing and illustrating the Adviser’s processes and activities for providing oversight of each investment sub-adviser’s investment strategies and compliance with investment restrictions, as well as information regarding the Adviser’s Sub-Advisory Oversight Committee. Moreover, in connection with the Board’s evaluation of the overall package of services to be provided by the Adviser, the Board considered the Adviser’s administrative capabilities, including its role in monitoring and coordinating compliance responsibilities with the fund administrator, transfer agent, distributor, custodian and other service providers to the New Fund.
With respect to Guggenheim’s resources and the ability of the Adviser to carry out its responsibilities under the Investment Advisory Agreement, the Chief Financial Officer of Guggenheim Investments (the investment management business of Guggenheim Partners) reviewed with the Board the audited financial statements of Guggenheim Partners Investment Management Holdings, LLC (“GPIMH”), the holding company of the investment advisers (including GPIM), broker/dealers and other entities that comprise Guggenheim Investments.
The Board also considered the acceptability of the terms of the Investment Advisory Agreement (including the scope of services required to be performed by the Adviser), noting that the terms were consistent with the terms of the investment advisory/management agreements of other Guggenheim Funds. Based on the foregoing, and based on other information received (both oral and written) at the August Meeting and in connection with Contract Renewal, as well as other considerations, including the Board’s knowledge of the Adviser’s quality of performance of its duties for other Guggenheim Funds through Board meetings, discussions and reports throughout the year, the Board concluded that the Adviser and its personnel were qualified to serve the New Fund in such capacity.
Investment Performance: The Board noted that the New Fund seeks long-term capital appreciation and to generate returns in excess of the S&P 500 Total Return Index by investing in companies that use a Multi-stakeholder Management System (“MsMs”) approach to achieve sustainable corporate performance. Since management proposed the reorganization of the Predecessor Fund with and into the New Fund, the Board took into account performance data provided by Guggenheim regarding the performance of the Predecessor Fund as of March 31, 2014. In this respect, the Board noted that although the Predecessor Fund’s 1-year gross return of 19.49% ranked in the 78th percentile of the Morningstar Large Blend Category, the Predecessor Fund’s gross return since inception (September 1, 2011) of 19.59% ranked in the 43rd percentile of the same Morningstar Category. The Board also noted that the Predecessor Fund’s gross returns for each period underperformed the S&P 500 Index, but that the same strategy managed by Concinnity between January 1, 2009 and August 31, 2011, performed in the 5th, 9th and 54th percentile for the since-strategy inception, 5-year and 3-year periods, respectively. In light of all of the foregoing, the Board determined that performance was expected to be acceptable.
Comparative Fees, Costs of Services to be Provided and the Profits to be Realized by GPIM from its Relationship with the New Fund: The Board compared the New Fund’s proposed contractual advisory fee and total net expense ratio to its applicable peer group, as set forth in the FUSE report. The Board also reviewed the median and average advisory fees and expense ratios, including certain expense ratio components (e.g., distribution fees and fee waivers/reimbursements) of the peer group of funds. In this connection, the Board noted that the New Fund’s proposed contractual advisory fee and total expense ratio was above the median of the Fund’s peer group. The Board considered, however, that at this time investors in the New Fund would consist solely of the current investors in the Predecessor Fund, and that the New Fund has a lower contractual advisory fee and total expense ratio than the Predecessor Fund. In addition, GPIM does not charge a lower advisory fee for other funds or separate accounts with investment strategies comparable to those of the New Fund.
With respect to the costs of advisory services to be provided and estimated level of profitability, on the basis of the Trustees’ review of the fees to be charged by GPIM for investment advisory and related services, the Board concluded that it was too early to predict profitability from the New Fund, but the Trustees also noted that they would have the opportunity in the future to periodically re-examine this matter.
The Board considered other benefits to be available to GPIM because of its relationship with the New Fund and noted that GPIM may be deemed to benefit from arrangements whereby an affiliate, Rydex Fund Services, LLC, will receive fees for: (i) performing certain administrative functions and bookkeeping, accounting and pricing functions for the New Fund pursuant to a Fund Accounting and Administration Agreement; and (ii) acting as transfer agent for the New Fund and performing all shareholder servicing functions, including transferring record ownership, processing purchase and redemption transactions, answering inquiries, mailing shareholder communications, and acting as the dividend disbursing agent pursuant to a Transfer Agency Agreement. In this connection, the Trustees considered its prior review of the compensation arrangements for the provision of the foregoing services.
Economies of Scale to be Realized: With respect to economies of scale, the Board considered that the New Fund would not at this time be available to retail investors. The Board concluded that the advisory fee schedule reflected an appropriate level of sharing of any economies of scale. The Trustees also noted that they would have the opportunity in the future to periodically re-examine whether the New Fund had achieved economies of scale and the appropriateness of the advisory fees payable by the New Fund to GPIM.
THE GUGGENHEIM FUNDS ANNUAL REPORT | 21 |
OTHER INFORMATION (Unaudited) (concluded) | ||
Sub-Advisory Agreement
Nature, Extent and Quality of Services to be Provided by the Sub-Adviser: With respect to the nature, extent and quality of services to be provided by Concinnity to the New Fund, the Board reviewed the New Fund’s investment goal and Concinnity’s proposed investment strategy and method for implementing such investment strategy, including, but not limited to, the trading practices and investment decision processes to be employed for the Fund. In this connection, the Trustees also noted that the Sub-Adviser is experienced in identifying companies with elements of the MsMs management system. The Board also inquired about, discussed and considered information provided by Guggenheim management (both in writing and orally) regarding Concinnity’s personnel, including the capabilities and background of the Sub-Adviser’s investment personnel, operations, compliance processes, experience and performance as a hedge fund manager, experience working with GPIM, the scalability of the Sub-Adviser’s processes and procedures over time, and the firm’s financial condition. In this respect, the Board noted that it had been provided with Concinnity’s U.S. Return of Partnership Income on I.R.S. Form 1065. The Board also took into account Independent Legal Counsel’s discussion with the Board regarding Concinnity’s Form ADV and Brochure. With respect to Concinnity’s Compliance Manual and related Supplement, its Code of Ethics and compliance procedures, the Board also considered the assessment of the Chief Compliance Officer of the Trust as to the sufficiency of the Sub-Adviser’s Code of Ethics and compliance processes and procedures.
The Board also considered the acceptability of the terms of the proposed Sub-Advisory Agreement. Based on the foregoing, and based on other information received (both oral and written) at the August Meeting, as well as other considerations, including the GPIM’s knowledge of the Sub-Adviser’s quality of performance of its duties for the Predecessor Fund, the Trustees determined that the Sub-Adviser was qualified to serve the Capital Stewardship Fund in such capacity.
Investment Performance: The Board took into account performance data provided by Guggenheim regarding the performance of the Predecessor Fund as of March 31, 2014, since its inception on September 1, 2011, as well as the performance of the same strategy as managed by Concinnity between January 1, 2009 and August 31, 2011 (as set forth under “Investment Advisory Agreement—Investment Performance” above). In light of all of the foregoing, the Board determined that Concinnity’s performance was expected to be acceptable.
Comparative Fees, Costs of Services to be Provided and the Profits to be Realized by the Sub-Adviser from its Relationship with the New Fund: The Board reviewed the proposed level of sub-advisory fees payable to Concinnity, noting that the fees would be paid by GPIM and would not be additional fees to be borne by the New Fund. The Board also noted that the sub-advisory fees to be paid by GPIM to Concinnity were the product of arms-length negotiations between GPIM and Concinnity and the Board considered the allocation of the advisory fee charged to the New Fund between GPIM and Concinnity in light of the nature, extent and quality of the investment advisory services expected to be provided by GPIM and Concinnity.
The Board considered the extent to which Concinnity may derive ancillary benefits from the Fund’s operations and, in this regard, noted Concinnity’s statement that it will not receive any benefits other than compensation received under the Sub-Advisory Agreement.
The Board concluded that the level of investment sub-advisory fees was appropriate in light of the services to be provided.
Economies of Scale to be Realized: The Board recognized that, because the Sub-Adviser’s fees would be paid by GPIM and not the Fund, the analysis of economies of scale was more appropriate in the context of the Board’s consideration of the applicable Investment Advisory Agreement, which was separately considered. (See “Investment Advisory Agreement — Economies of Scale to be Realized” above.)
Overall Conclusions
Based on the foregoing, the Trustees determined that the proposed investment advisory fee for the New Fund is fair and reasonable in light of the extent and quality of the services to be provided and other benefits to be received and that the approval of each of the Advisory Agreements is in the best interests of the New Fund and its shareholders. In reaching this conclusion, no single factor was determinative. The Board, including all of the Independent Trustees, approved each of the Advisory Agreements for an initial term of two years.
22 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
INFORMATION ON BOARD OF TRUSTEES AND OFFICERS (Unaudited) | ||
Term of Office | Number of Portfolios in | |||||||||
Name, Address* and Year of Birth | Position(s) Held with the Trust | and Length of Time Served** | Principal Occupation(s) During Past Five Years | Fund Complex Overseen | Other Directorships Held by Trustees | |||||
INDEPENDENT TRUSTEES | ||||||||||
Randall C. Barnes (1951) | Trustee | Since 2014 | Current: Private Investor (2001-present). Former: Senior Vice President and Treasurer, PepsiCo, Inc. (1993-1997); President, Pizza Hut International (1991-1993); Senior Vice President, Strategic Planning and New Business Development, PepsiCo, Inc. (1987-1990). | 92 | Current: Trustee, Purpose, Inc. (2014-present). | |||||
Donald A. Chubb, Jr. (1946) | Trustee and Vice Chairman of the Board | Since 1994 | Current: Business broker and manager of commercial real estate, Griffith & Blair, Inc.(1997-present). | 88 | None. | |||||
Jerry B. Farley (1946) | Trustee and Vice Chairman of the Audit Committee | Since 2005 | Current: President, Washburn University(1997-present). | 88 | Current: Westar Energy, Inc. (2004-present); CoreFirst Bank & Trust(2000-present). | |||||
Roman Friedrich III (1946) | Trustee and Chairman of the Contracts Review Committee | Since 2014 | Current: Founder and President, Roman Friedrich & Company (1998-present). | 88 | Current: Zincore Metals, Inc. (2009-present). | |||||
Former: Senior Managing Director, MLV & Co. LLC (2010-2011). | Former: Mercator Minerals Ltd. (2013-2014); First. Americas Gold Corp.(2012-2014); Blue Sky Uranium Corp. (2011-2012);Axiom Gold and Silver Corp. (2011-2012);Stratagold Corp.(2003-2009); GFM Resources Ltd. (2005-2010). | |||||||||
Robert B. Karn III (1942) | Trustee and Chairman of the Audit Committee | Since 2014 | Current: Consultant (1998-present). Former: Arthur Andersen (1965-1997) and Managing Partner, Financial and Economic Consulting, St. Louis office (1987-1997). | 88 | Current: Peabody Energy Company (2003-present); GP Natural Resource Partners, LLC (2002- present). | |||||
Ronald A. Nyberg (1953) | Trustee and Chairman of the Nominating and Governance Committee | Since 2014 | Current: Partner, Nyberg & Cassioppi, LLC(2000-present). Former: Executive Vice President, General Counsel, and Corporate Secretary, Van Kampen Investments (1982-1999). | 94 | Current: Edward-Elmhurst Healthcare System(2012-present). | |||||
Maynard F. Oliverius (1943) | Trustee and Vice Chairman of the Contracts Review Committee | Since 1998 | Retired. Former: President and CEO, Stormont-Vail HealthCare (1996-2012). | 88 | None. | |||||
Ronald E. Toupin, Jr. (1958) | Trustee and Chairman of the Board | Since 2014 | Current: Portfolio Consultant (2010-present). | 91 | Former: Bennett Group of Funds (2011-2013). | |||||
Former: Vice President, Manager and Portfolio Manager, Nuveen Asset Management(1998-1999); Vice President, Nuveen Investment Advisory Corp. (1992-1999);Vice President and Manager, Nuveen Unit Investment Trusts (1991-1999); and Assistant Vice President and Portfolio Manager, Nuveen Unit Investment Trusts (1988-1999), each of John Nuveen & Co., Inc. (1982-1999). | ||||||||||
INTERESTED TRUSTEE | ||||||||||
Donald C. Cacciapaglia*** (1951) | President, Chief Executive Officer and Trustee | Since 2012 | Current: President and CEO, certain other funds in the Fund Complex (2012-present); Vice Chairman, Guggenheim Investments (2010-present). Former: Chairman and CEO, Channel Capital Group, Inc. (2002-2010). | 220 | Current: Delaware Life(2013-present); Guggenheim Life and Annuity Company(2011-present); Paragon Life Insurance Company of Indiana(2011-present). | |||||
* | The business address of each Trustee is c/o Guggenheim Investments, 805 King Farm Boulevard, Suite 600, Rockville, Maryland 20850. | |
** | Each Trustee serves an indefinite term, until his successor is elected and qualified. Time served includes time served in the respective position for the Predecessor Corporation. | |
*** | This Trustee is deemed to be an "interested person" of the Funds under the 1940 Act by reason of his position with the Funds’ Investment Manager and/or the parent of the Investment Manager. |
THE GUGGENHEIM FUNDS ANNUAL REPORT | 23 |
INFORMATION ON BOARD OF TRUSTEES AND OFFICERS (Unaudited) (concluded) | ||
Name, Address* and Year of Birth | Position(s) Held with the Trust | Term of Office and Length of Time Served** | Principal Occupations During Past Five Years | ||||
OFFICERS Joseph M. Arruda (1966) | Assistant Treasurer | Since 2010 | Current: Assistant Treasurer, certain other funds in the Fund Complex (2006-present); Vice President, Security Investors, LLC (2010-present); CFO and Manager, Guggenheim Specialized Products, LLC (2009-present). Former: Vice President, Security Global Investors, LLC (2010-2011); Vice President, Rydex Advisors, LLC (2010); Vice President, Rydex Advisors II, LLC (2010). | ||||
William H. Belden, III (1965) | Vice President | Since 2014 | Current: Vice President, certain other funds in the Fund Complex (2006-present); Managing Director, Guggenheim Funds Investment Advisors, LLC (2005-present). Former: Vice President of Management, Northern Trust Global Investments (1999-2005). | ||||
Mark J. Furjanic (1959) | Assistant Treasurer | Since 2014 | Current: Vice President, Guggenheim Investments (2005-present); Assistant Treasurer, certain other funds in the Fund Complex (2008-present). Former: Senior Manager, Ernst & Young LLP (1999-2005). | ||||
James Howley (1972) | Assistant Treasurer | Since 2014 | Current: Director, Guggenheim Investments (2004-present) ; Assistant Treasurer, certain other funds in the Fund Complex (2006-present). Former: Manager, Mutual Fund Administration of Van Kampen Investments, Inc. (1996-2004). | ||||
Amy J. Lee (1961) | Vice President and Chief Legal Officer | Since 1987 (Secretary) Since 2007 (Vice President) | Current: Chief Legal Officer, certain other funds in the Fund Complex (2012-present); Senior Managing Director, Guggenheim Investments (2012-present). Former: Vice President, Associate General Counsel and Assistant Secretary, Security Benefit Life Insurance Company and Security Benefit Corporation (2004-2012). | ||||
Mark E. Mathiasen (1978) | Secretary | Since 2014 | Current: Secretary, certain other funds in the Fund Complex (2007-present); Managing Director, Guggenheim Investments (2007-present). | ||||
Michael P. Megaris (1984) | Assistant Secretary | Since 2014 | Current: Assistant Secretary, certain other funds in the Fund Complex (April 2014-present); Associate, Guggenheim Investments (2012-present). Former: J.D., University of Kansas School of Law (2009-2012). | ||||
Elisabeth Miller (1968) | Chief Compliance Officer | Since 2012 | Current: CCO, certain other funds in the Fund Complex (2012-present); CCO, Security Investors, LLC (2012-present); CCO, Guggenheim Funds Investment Advisors, LLC (2012-present); Vice President, Guggenheim Funds Distributors, LLC (March 2014-present). Former: CCO, Guggenheim Distributors, LLC (2009-March 2014); Senior Manager, Security Investors, LLC(2004-2009); Senior Manager, Guggenheim Distributors, LLC (2004-2009). | ||||
Alison Santay (1974) | AML Officer | Since 2013 | Current: AML Officer, certain other funds in the Fund Complex (2010-present); Director and AML Officer, Rydex Fund Services, LLC (2010-present); AML Officer, Security Investors, LLC (2010-present); Director, Shareholder Risk and Compliance, Rydex Fund Services, LLC (2004-present). Former: AML Officer, Guggenheim Distributors, LLC (2013-March 2014). | ||||
Kimberly Scott (1974) | Assistant Treasurer | Since 2014 | Current: Vice President, Guggenheim Investments (2012-present) ; Assistant Treasurer, certain other funds in the Fund Complex (2012-present). Former: Financial Reporting Manager, Invesco, Ltd. (2010-2011); Vice President/Assistant Treasurer, Mutual Fund Administration for Van Kampen Investments, Inc./Morgan Stanley Investment Management (2009-2010); Manager of Mutual Fund Administration, Van Kampen Investments, Inc./Morgan Stanley Investment Management (2005-2009). | ||||
Bryan Stone (1979) | Vice President | Since 2014 | Current: Vice President, certain other funds in the Fund Complex (April 2014-present); Director, Guggenheim Investments (2013-present). Former: Senior Vice President, Neuberger Berman Group LLC (2009-2013); Vice President, Morgan Stanley (2002-2009). | ||||
John L. Sullivan (1955) | Chief Financial Officer and Treasurer | Since 2014 | Current: CFO, Chief Accounting Officer and Treasurer, certain other funds in the Fund Complex(2010-present); Senior Managing Director, Guggenheim Investments (2010-present). Former: Managing Director and CCO, each of the funds in the Van Kampen Investments fund complex(2004-2010); Managing Director and Head of Fund Accounting and Administration, Morgan Stanley Investment Management (2002-2004); CFO and Treasurer, Van Kampen Funds (1996-2004). | ||||
* | The business address of each officer is c/o Guggenheim Investments, 805 King Farm Boulevard, Suite 600, Rockville, Maryland 20850. | |
** | Each officer serves an indefinite term, until his or her successor is duly elected and qualified. Time served includes time served in the respective position for the Predecessor Corporation. |
24 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
GUGGENHEIM INVESTMENTS PRIVACY POLICIES (Unaudited) | ||
Rydex Funds, Guggenheim Funds, Rydex Investments, Guggenheim Funds Distributors, LLC, Security Investors, LLC, Security Distributors, Inc., Guggenheim Partners Investment Managers, LLC, and Rydex Advisory Services (Collectively “Guggenheim Investments”).
Our Commitment to You
When you become a Guggenheim Investments investor, you entrust us with not only your hard-earned money but also with personal and financial information about you. We recognize that your relationship with us is based on trust and that you expect us to act responsibly and in your best interests. Because we have access to this private information about you, we hold ourselves to the highest standards in its safekeeping and use. This means, most importantly, that we do not sell client information to anyone—whether it is your personal information or if you are a current or former Guggenheim Investments client.
The Information We Collect About You
In the course of doing business with shareholders and investors, we collect nonpublic personal information about you. You typically provide personal information when you complete a Guggenheim Investments account application or when you request a transaction that involves Rydex and Guggenheim Investments funds or one of the Guggenheim Investments affiliated companies. “Nonpublic personal information” is personally identifiable private information about you. For example, it includes information regarding your name and address, Social Security or taxpayer identification number, assets, income, account balance, bank account information and investment activity (e.g., purchase and redemption history).
How We Handle Your Personal Information
As emphasized above, we do not sell information about current or former clients or their accounts to third parties. Nor do we share such information, except when necessary to complete transactions at your request or to make you aware of related investment products and services that we offer. Additional details about how we handle your personal information are provided below. To complete certain transactions or account changes that you direct, it may be necessary to provide identifying information to companies, individuals or groups that are not affiliated with Guggenheim Investments. For example, if you ask to transfer assets from another financial institution to Guggenheim Investments, we will need to provide certain information about you to that company to complete the transaction. To alert you to other Guggenheim Investments investment products and services, we may share your information within the Guggenheim Investments family of affiliated companies. This would include, for example, sharing your information within Guggenheim Investments so we can make you aware of new Rydex and Guggenheim Investments funds or the services offered through another Guggenheim Investments affiliated company. In certain instances, we may contract with nonaffiliated companies to perform services for us. Where necessary, we will disclose information we have about you to these third parties. In all such cases, we provide the third party with only the information necessary to carry out its assigned responsibilities and only for that purpose. And we require these third parties to treat your private information with the same high degree of confidentiality that we do. In certain instances, we may share information with other financial institutions regarding individuals and entities in response to the U.S.A. Patriot Act. Finally, we will release information about you if you direct us to do so, if we are compelled by law to do so or in other circumstances permitted by law.
Opt Out Provisions
We do not sell your personal information to anyone. The law allows you to “opt out” of only certain kinds of information sharing with third parties. The firm does not share personal information about you with any third parties that triggers this opt-out right. This means YOU ARE ALREADY OPTED OUT.
How We Protect Privacy Online
Our concern for the privacy of our shareholders also extends to those who use our web site, guggenheiminvestments.com. Our web site uses some of the most secure forms of online communication available, including encryption technology, Secure Socket Layer (SSL) protocol, firewalls and user names and passwords. These technologies provide a high level of security and privacy when you access your account information or initiate online transactions. The Guggenheim Investments web site offers customized features that require our use of “http cookies”—tiny pieces of information that we ask your browser to store. However, we make very limited use of these cookies. We only use cookies for session management and security features on the Guggenheim Investments web site. We do not use them to pull data from your hard drive, to learn your email address, or to view data in cookies created by other web sites. We will not share the information in our cookies or give others access to it. See the legal information area on our web site for more details about web site security and privacy features.
How We Safeguard Your Personal Information
We restrict access to nonpublic personal information about shareholders to our employees and in some cases to third parties (for example, the service providers described above) as permitted by law. We maintain strict physical, electronic and procedural safeguards that comply with federal standards to guard your nonpublic personal information.
THE GUGGENHEIM FUNDS ANNUAL REPORT | 25 |
GUGGENHEIM INVESTMENTS PRIVACY POLICIES (Unaudited) (concluded) | ||
We’ll Keep You Informed
As required by federal law, we will notify shareholders of our privacy policy annually. We reserve the right to modify this policy at any time, but rest assured that if we do change it, we will tell you promptly. You will also be able to access our privacy policy from our web site at guggenheiminvestments.com. Should you have any questions regarding our privacy policy, contact us at 800.820.0888 or 301.296.5100.
26 | THE GUGGENHEIM FUNDS ANNUAL REPORT |
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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 Maynard Oliverius, a member of the Audit Committee of the Board, is an audit committee financial expert. Mr. Oliverius is “independent” for purposes of this item.
Item 4. | Principal Accountant Fees and Services. |
(a) | Audit Fees. The aggregate fees billed for each of the last two fiscal years (the “Reporting Periods”) for professional services rendered by the registrant’s principal accountant (the “Auditor”) for the audit of the registrant’s annual financial statements, or services that are normally provided by the Auditor in connection with the statutory and regulatory filings or engagements for the Reporting Periods, were $336,500 in 2013 and $439,950 in 2014. Prior year balances have been adjusted to reflect fees of the Predecessor Funds. | |
(b) | Audit-Related Fees. The aggregate fees billed in the Reporting Periods for assurance and related services by the Auditor 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 4 were $0 in 2013 and $0 in 2014. These services consisted of financial reporting advisory services. | |
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 were $35,000 in 2013 and $35,000 in 2014, which related to the review of the transfer agent function. | ||
__________ | ||
(c) | Tax Fees. The aggregate fees billed to the registrant in the Reporting Periods for professional services rendered by the Auditor for tax compliance, tax advice and tax planning (“Tax Services”) were $105,300 in 2013 and $129,360 in 2014. These services consisted of (i) preparation of U.S. federal, state and excise tax returns; |
(ii) U.S. federal and state tax planning, advice and assistance regarding statutory, regulatory or administrative developments, (iii) tax advice regarding tax qualification matters and/or treatment of various financial instruments held or proposed to be acquired and (iv) review of U.S. federal excise distribution calculations. | ||
The aggregate fees billed in the Reporting Periods for Tax Services by the Auditor to Service Affiliates which required pre-approval by the Audit Committee were $0 in 2013 and $0 in 2014. | ||
__________ | ||
(d) | All Other Fees. The aggregate fees billed to the registrant in the Reporting Periods for products and services provided by the Auditor, other than the services reported in paragraphs (a) through (c) of this Item, were $0 in 2013 and $0 in 2014. | |
The aggregate fees billed in the Reporting Periods for Non-Audit Services by the Auditor to Service Affiliates, other than the services reported in paragraphs (b) through (d) of this Item, which required pre-approval by the Audit Committee were $0 in 2013 and $0 in 2014. | ||
__________ |
(e) | (1) | Audit Committee Pre-Approval Policies and Procedures. The registrant’s Audit Committee has established policies and procedures for pre-approval of the auditor’s engagements for audit and non-audit services to the registrant. Pre-approval considerations include whether the proposed services are compatible with maintaining the auditor’s independence as specified in applicable rules. | ||
(e) | (2) | Percentage of Non-Audit Services Approved under (c)(7)(i)(C). The percentage of the services described in each of (b) through (d) of this Item 4 (only those that relate to the registrant) that were approved by the Audit Committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X was 0%, 0% and 0%, respectively. | ||
(f) | Not applicable. | |||
(g) | Non-Audit Fees. The aggregate non-audit fees were for audit-related and tax services rendered to the registrant, and rendered to Service Affiliates, for the Reporting Periods were $140,300 in 2013 and $164,360 in 2014. | |||
(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 subadviser 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. | |
The Schedule of Investments is included under Item 1 of this form. | ||
Item 7. | Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies. | |
Not applicable. | ||
Item 8. | Portfolio Mangers of Closed-end Management Investment Companies | |
Not applicable | ||
Item 9. | Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers. | |
Not applicable. | ||
Item 10. | Submission of Matters to a Vote of Security Holders. |
The registrant does not currently have in place procedures by which shareholders may recommend nominees to the registrant’s board.
There have been no changes to the procedures by which shareholders may recommend nominees to the registrant’s board.
Item 11. | Controls and Procedures. |
(a) | The registrant’s President (principal executive officer) and Treasurer (principal financial officer) have evaluated the registrant’s disclosure controls and procedures within 90 days of this filing and have concluded that the registrant’s disclosure controls and procedures were effective as of that date in ensuring that information required to be disclosed by the registrant in this Form N-CSR was recorded, processed, summarized, and reported timely. |
(b) | The registrant’s principal executive officer and principal financial officer are aware of no change in the registrant’s internal control over financial reporting that occurred during the registrant’s second fiscal quarter covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting. | ||
Item 12. | Exhibits. |
(a)(1) | Not applicable. | ||
(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
(Registrant) | Guggenheim Funds Trust | ||
By (Signature and Title)* | /s/ Donald C. Cacciapaglia | ||
Donald C. Cacciapaglia, President and Chief Executive Officer |
Date__December 9, 2014________________________________________________________________
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
By (Signature and Title)* | /s/ Donald C. Cacciapaglia | ||
Donald C. Cacciapaglia, President and Chief Executive Officer |
Date__December 9, 2014__________________________________________________________________
By (Signature and Title)* | /s/ John L. Sullivan | ||
John L. Sullivan, Chief Financial Officer, Chief |
Date__December 9, 2014____________________________________________